Langston Group Corporation v Cardiff City Football Club LTD (2008)
The substitution of one obligor for another in relation to a particular contractual obligation could take place only by novation, but it did not necessarily follow that where a particular obligation was novated by substitution of one obligor for another, the conclusion had to be that a large and complex contract containing other obligations which were not so novated had to be treated as having itself been terminated by novation and replaced by a wholly new contract.
The applicant company (L) applied for summary judgment as the holder of nominal £24 million fixed rate redeemable loan notes issued by the respondent football club (C) pursuant to the terms of a 2004 instrument. C and the local planning authority had entered into a conditional development agreement (CDA) concerning the development of a new football stadium. In connection with that development, L had made a £24 million loan to C in exchange for loan stock certificates, the terms of which were regulated by the instrument. Those terms included the future repayment date of the stock, the rate at which it was to be repaid and the level of interest. The conditions of issue provided for events of default upon which the stock was to become immediately repayable. Following the authority's concerns that under its current business plan C would not be able to satisfy the conditions by relevant target dates, it required C to vary or postpone its obligations to L under the loan notes. L was therefore left with the alternatives of accepting, subject to negotiation, a large capital write-down and postponement in the loan, or facing the probability of a large default by C in the event that the development project did not proceed. L agreed to the variations conditional upon the project proceeding. That agreement between L and C took the form of two linked documents made in 2006, a deed which achieved the write-down, and a variation of the 2004 instrument which achieved the postponement of payment of both principal and interest. C subsequently delegated responsibility for construction of the stadium and other obligations in connection with the project to a newly formed company (D) jointly owned by C and its development partner. The authority and C then entered into a variation of the CDA by deed, the main purpose of which was to substitute D for C as the obligor in relation to most of C's obligations under the CDA. L sought immediate repayment of the loan on the basis that the CDA variation had given rise to a termination of the CDA within the meaning of the 2006 deed and variation. L contended that it was entitled to summary judgment on its claim on the grounds that (1) the CDA variation was in substance, albeit not in form, a novation and necessarily constituted a new agreement replacing the CDA itself so that the CDA "terminated" within the uniform meaning of that word in the 2006 agreement; (2) even if the CDA was not thereby terminated, its conditions were neither waived nor satisfied for the purposes of complying with the condition to the deed or the variation. L submitted that those two contentions were purely issues of law and construction inherently suitable for summary determination without a trial.
Whilst, in relation to a particular contractual obligation, the substitution of one obligor for another could take place only by novation, it did not necessarily follow that where a particular obligation was novated by substitution of one obligor for another, the conclusion had to be that a large and complex contract containing other obligations which were not so novated had to be treated as having itself been terminated by novation and replaced by a wholly new contract. In the instant case, C had a real prospect of establishing at trial that the effect upon the CDA brought about by the CDA variation was not a "termination" within the meaning of that word in the 2006 agreement. L's first contention was therefore vulnerable to a real prospect of a successful defence. On the assumed facts, the CDA had not been terminated by the CDA variation, but L had to be at liberty to establish at trial that the relevant factual background to the making of the 2006 agreement was otherwise than it appeared. (2) There was a real prospect that C would establish that there was a waiver of all the conditions to the deed and the variation, thus giving it a defence to the claim under the instrument. In those circumstances, the instant case was plainly not a suitable one for summary judgment.
View all cases
19 Mar 2008