The Technology and Construction Court has considered issues of causation and loss in a decision arising out of the wrongful repudiation of a consultant’s contract.
The decision highlights the need for consultancy appointments to contain clear termination provisions and reveals the consequences for a consultant in circumstances in which its consultancy agreement contains a discretion, on the part of a developer, to (or not to) proceed.
The consultant, Redbourn Group Limited (RGL), was appointed development and project manager in relation to the development of land in Wembley. RGL’s appointment included a staged payment-plan. The developer, Fairgate Developments Limited (FDL), terminated the appointment by serving a breach of notice midway through stage 3 of 5. RGL sought damages for breach of contract. Having first found that RGL’s contract had been wrongfully repudiated, the Court had to determine the amount of any damages to award.
RGL claimed that it was entitled to all the fees that would have been payable to it had it carried out all the services under its appointment for all stages of the project, save for a discretionary performance fee. In the alternative, RGL claimed damages for the alleged loss of a chance to earn those fees. Credit was given for costs that it would have incurred in any event.
Part of RGL’s role was to obtain planning permission for the development. The planning application was subject to approval by FDL. Planning permission had not been obtained by RGL at the time of its dismissal and the Court considered that, even if RGL had not been dismissed, consent would likely not have been given for the proposed scheme.
The Court considered whether, pursuant to the terms of RGL’s appointment, FDL was legally entitled to pull out of the contract or whether it owed a contractual obligation to proceed and, therefore, pay RGL. The Court concluded that the fact that FDL retained discretion (relating to whether to approve an application for planning permission) – albeit not unfettered - indicated that FDL was not contractually obliged to proceed with the scheme. There was, therefore, no guarantee that RGL would be employed, and paid, for every stage.
Further, the Court concluded that the project was unrealistic and commercially unviable on the facts. RGL’s alternative case also failed, with the Judge likening the claim to awarding damages to a wrongfully dismissed employee based on the chance that their employer might have continued their employment longer than obliged to do so.
Ultimately, the TCC found that RGL could only claim the fees payable up to the point that the appointment could have been lawfully terminated. As all fees up to that point had been paid (save for an outstanding sum that FDL had admitted), even though FDL was found to have repudiated the contract, RGL was not entitled to damages.
FDL’s small contractual discretion, not contained within the contractual termination clauses, as to whether to proceed with the development ultimately limited its liability to RGL and saved it from a substantial order to pay damages. Consultants should be aware of the limiting effect these types of clauses can have on their ability to recover lost fees following termination and the need to ensure that their consultancy appointments contain clear termination provisions setting out what fees a developer will be liable for in the event of termination.