The defendant operated a paper mill and entered into plant hire agreements for five trucks with the claimant for between three and five years, and undertook to pay liquidated damages on early termination. The defendant then sold the mill to a third party who was to have exclusive use of the hired machinery. The third party was invoiced for and paid the charges arising under the hire agreement. The defendant wanted to novate the agreement to the third party so it could discharge its liabilities under the agreement.

The third party did not agree a full novation as it did not want to be responsible for the early termination charges. The mill subsequently closed, the trucks were repossessed and a claim for early termination damages was made.

The Court of Appeal found there had been no novation. A novation was a contract between the original parties and a third party, under which the contractual obligations of one of the original parties was extinguished and replaced by obligations of the third party. Here, the third party had only agreed to take on certain financial responsibilities of the defendant’s, but had not been prepared to fully novate the original agreement. The defendant remained liable in full for the damages on early termination.

Finning UK ltd v Inveresk Plc