Circumstances where novation is allowed:

1. To substitute a new contract

2. Change in parties
Toeh Kee Keong v Tambun Mining Co Ltd [1968] 1 MLJ 39 FC
Held:
Novation is in effect a form of assignment in which by the consent of all
parties, a new contract is substituted for an existing contract. Usually, a
new person becomes party to the new contract, and some person who was
party to the old contract is discharged from further liability.
Lee Yin Chuan v Johan Properties Sdn Bhd [2016] 2 MLJ 140 Court of
Appeal
Facts:
The Defendants are the owners of the land Lot 289. The Plaintiff was the owner
of the land Lot 288.
Principal Agreement 23 June 1983: Defendants agreed to sell Lot 289 to
Johan Holdings for RM9.6 Million. Johan Holdings paid a deposit of RM1.7m to the
Defendants.
Supplemental agreement (undated): payment of the balance purchase price
was varied where defendants agreed to take up office space of equivalent value
in the office to be developed by Johan Holdings.
New agreement (30 Dec 1991): the defendants and Johan Holdings entered
into an agreement where the defendants agreed to accept office space to be
constructed by Johan Holdings and the new agreement is conditional upon Johan
Holding providing a performance bond of RM9.5m. the Defendants were required
to deliver the transfer of documents to Johan Holdings solicitors.
Deed of Novation (30 December 1991): Johan Holdings novated the
performance of the new agreement to the Plaintiff. Consequently, the plaintiff
would perform the new agreement in place of Johan Holdings.
Defendants delivered the performance bond to the defendants
Defendants failed to deliver the transfer documents to the Plaintiffs
solicitors.
Issue: Whether the new agreement supersedes the earlier agreements
between the parties.
Held:

The novation agreement which was made at the same time as the new
agreement, was predicated upon the understanding the defendants
agreed to the novation of Johan Holdings rights, interests, benefits,
liabilities and obligations under the previous agreements to the plaintiff.

The court does not accept the defendants argument that the new
agreement supersedes the previous agreements so as to preclude the
plaintiff from recovering the wasted expenditure.