The Court of Appeal in Openwork Limited v Alessandro Forte upheld the High Court’s approach to contract interpretation, reiterating that finding a clause to be too uncertain to be enforceable should only ever be a last resort.
Summary of Facts
Mr Forte was a financial advisor. He entered into an agreement with Openwork Limited (“Openwork”) becoming one of Openwork’s franchisees (the “Agreement”). The selling of investment products to his customers would entitle Mr Forte to commission payments from Openwork.
Included within the Agreement was a clawback provision which sought to impose an obligation on Mr Forte to repay a proportion of his commission if the investor withdrew their investment within three years.
The relevant clause stated that the amount Mr Forte was obliged to pay back was a “percentage” of the initial commission which “relates to the amount invested, length of time invested and amount withdrawn”. The clause did not provide any express formula by which the calculation is to be made.
Mr Forte, appealing the decision of the High Court, argued that the clawback provision did not provide for how it was to operate and as such it was not open to the courts to invent and apply a formula.
The question that faced the Court of Appeal was whether this provision was sufficiently certain to be enforceable, in particular, whether it was sufficiently clear in specifying how it was to operate.
In dismissing the appeal, the Court of Appeal held that the High Court was right in its findings in respect to both the intention of the clause and the financial effect
The Court of Appeal held that in cases of uncertain terms, the courts should strive to give some meaning to contractual clauses agreed by the parties if at all possible to do so (without going so far as making a contract between the parties). In this instance the Court of Appeal held that the parties had plainly intended for the clawback provision to have some effect and that to treat it as being so vague as to give Openwork no rights would go against the clear intention of the parties.
In this instance, the Court of Appeal held that the amount of the clawback is intended to be a percentage of the amount of commission paid. Such a percentage would reduce over time with 100% being payable should the investor withdraw their funds the day after making their investment and 0% if withdrawn on the day three years after the investment was made. Therefore, if investment was removed at any other time during that three year period, the clawback can be calculated to be an amount which reflects the time that has passed between those two dates.
The courts have once again demonstrated a reluctance to find contractual clauses unenforceable and instead this is another example of the clear desire of the courts to give effect to contractual terms even where their meaning and effect is difficult to interpret with clarity.
This case puts further emphasis on the need to ensure contractual clauses are clear in both their language and effect, as in cases of uncertainty, the parties risk being at the mercy of the Court’s discretion when interpreting unclear provisions.