Claiming against an original Company when the amount was Novated

[Jamie Wilson]

Hi,
I worked for a well known personality, designing their bar and Restaraunt.

We finished the Job and they wouldn't pay the final invoice (around £18k), they did not contest it, just refused to pay. The whole situation was very stressful for us as it was a big chunk out of our cashflow.
Another company came along and told us they were buying a stake in the bar and the only way we would get paid is to sign a Deed of Novation over to them.
We were quite desperate and did it as we knew one of the directors.
They did not pay either so we were awarded a CCJ against them. Fat lot of good that was as all the directors resigned and the company had no assets and never traded.

My options it seemed were to either suck it up and take a loss or try a winding up order to eventually try and get to the directors as they might be seen as trading fraudulently. Expensive and probably impossible.

My next thought was to go back to the original company and claim we signed under duress. Which I feel we did as our cashflow was poor and we were given the choice of sign or lose the money.
I sent a letter before action and their Solicitors got back saying exactly what I thought, that it has nothing to do with them as I signed a deed of novation and not to contact them again.
At this point i would like to point out that I never recieved a copy of the deed signed by all parties and the same solicitors won't provide me with one. ( I don't believe it ever was signed)

Shall I / can I just start a new County Court Claim and let them deal with it in Court?

Thanks for any help in advance

[R0b]

I'm a bit lost, what's the Deed of Novation for? the £18k claim?

[Jamie Wilson]

Hi Rob,
it was to novate all of the original clients obligations with me to the other company. Yes it was the obligation to pay me the amount due.
Does that make sense?
Thanks
Jamie

[R0b]

The long and short of it is that your question is not an easy one to answer and you would be wise to seek some independent legal advice before you embark on any route of issuing legal proceedings. As the sum of money is over £10k it would fall outside of the small claims limit and therefore legal costs are at play, meaning if you lose your claim you could end up paying just as much in legal costs if not more.

The starting point is that you made a bad business decision and that's tough luck. As a general rule of thumb, you should never agree to a novation unless you have done your due diligence and are confident the company who will be taking on the obligations is good for it. In hindsight, you ought to have done your research through Companies House, carried out a credit check and/or inquired what assets they actually hold.

Secondly, fraudulent trading is a criminal offence and is a matter for the criminal courts whereas wrongful trading is a civil wrong, actionable in the civil courts - best not to get these two mixed up. If I recall, wrongful trading falls under the Insolvency Act 1986 and can only be brought by the company's liquidator and is not a sword to be used by the ordinary creditor. However, your initial post appears to suggest the company is currently trading, so I don't think you can rely on this. Well you can wind up the company but then that may not be feasible or beneficial to you.

Without looking into it more, you are unlikely to be able to pursue all of the directors as joint defendants however, it is at least arguable that assuming one director put his or her name to the Deed of Novation, you might be able to bring a claim against that director as an action in the tort of deceit if you can prove that the director intended the company to commit the deceit and procured that it did so. The reference to this is the Court of Appeal case, Contex v Drouzhba Ltd v Wiseman.

The summary of that case is that a director who signed an agreement to make payment within the agreed time and knowing that the company is in weak position, shall be personally liable. By signing the document, the director is giving an implied representation as to the company's creditworthiness and is able to meet its obligations. In the Contex case, Wiseman knew the company had no way of being able to meet the repayments on time and so the CoA upheld the initial decision of the High Court that the representation was fraudulent.

Although your situation is slightly different with regards to the Deed of Novation, there are similarities and the general principle laid down in that case can apply to yours but you will need to see a copy of the Deed of Novation to determine who signed it. If you can prove that the novation was a fraudulent attempt to obscure your right to payment by novating the obligations to a company who had no assets, that might just work.

The courts take fraud allegations seriously and they need to be clearly spelled out in the particulars of claim and care has to be taken when drafting the pleadings, otherwise you run the risk of having your claim struck out. This is another reason why you should ideally seek some initial legal advice on the matter.

It may also be possible to look at other tortious claims such as conspiracy (the collusion of two or more people with the intention of causing injury or loss to another) but I make no comment on that. It may also be an argument to claim economic duress as another cause of action but all of these options would need to be properly reviewed against the facts and evidence you have; something I think is probably out of reach for this forum.