Implied novation not prevented by termination clause | Allen & Overy LLP

In Gama Aviation the High Court held that a clause which prevented the unilateral termination of an agreement, except by written notice, did not also prevent the termination of the agreement by informal novation.

International Jet Club entered into an agreement to provide services for the defendant’s aircraft. Following a reorganisation, the Club and GAMA argued that the agreement had been transferred, by implied novation, to GAMA and that, as of the relevant date, GAMA provided the air services.

When the defendant stopped paying, GAMA sued and won a default judgment. The defendant sought the annulment of this judgment, arguing that the express terms of the agreement excluded tacit novation.

A provision of the agreement stated: “This agreement shall commence on the date of this agreement and shall continue until either party gives the other at least three months’ written notice of termination. of this agreement.” The question was whether this excluded implied novation.

Despite some initial doubts, the court ultimately concluded that, in accordance with commercial common sense, the provision only identified the start date of the agreement and a unilateral termination mechanism. The clause had no bearing on the possibility of mutual termination. As the contract was silent as to a termination by agreement clause, the court concluded that there was no bar in the contract to termination by implied novation.

Additionally (and in the alternative), the court applied estoppel reasoning in rock advertisement to conclude that the defendant was estopped from availing himself of the provision and that the novation was therefore effective.

Judgement: Gama Aviation (UK) Limited, International Jet Club Limited v Mwwmmwm Limited (Westlaw)

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