Commercial Contracts – Devil is in the detail

Commercial contracts – The devil is in the detail

Having the right terms and conditions in place is an important part of protecting a successful business. Sponsors of the Outstanding Achievement Award, Lodders Solicitors, provide specialist advice when it comes to business terms. In this blog, the Lodders’ team highlights the importance of getting the details right.

Kim Klahn, a commercial law specialist and partner at Midlands law firm Lodders Solicitors, says the golden rule when drafting commercial contracts is ‘The devil is in the detail’, something reinforced by a recent case in the Technology and Construction Court. Here, she explains the case and the implications for all professional consultancy firms.

Andrew Bartlett QC, sitting as a Deputy High Court Judge in the Technology and Construction Court (TCC), held that a professional consultancy firm was not entitled to claim fees for services that it had agreed to perform when its appointment was renounced before those services were in fact carried out.

The case serves to reinforce the importance of precisely written professional appointment contracts, which specifically, should include comprehensive termination clauses.

The devil is in the detail

As a commercial lawyer, I know well that the golden rule when drafting commercial contracts is ‘The devil is in the detail’ and this case certainly proves this point. Whilst the QC’s decision is unsurprising, the fact that these issues reached court underlines the importance of clear provisions in a professional appointment, and specifically in relation to termination by the client and its associated liability for fees.

The case of Redbourn Group Ltd v Fairgate Developments Ltd

Fairgate Developments Ltd (the client) had engaged Redbourn Group Ltd (the consultant) as a development and project manager for a proposed development in London.

The client wrongfully terminated the consultant’s appointment before a planning application was submitted and the consultant obtained summary judgment in its claim for the breach.

The client agreed to pay damages for services already performed and for planning and initial design for the tender period, despite the project never reaching that stage.

However, the consultant also claimed £200,000 that would have been payable upon grant of full planning consent, calculated as 2% of the estimated build cost that it would have earned managing construction, and an additional £250,000 performance fee, payable if the project was completed on time and on budget.

Rejected

But the court rejected the consultant’s claim on two main grounds:

  • The envisaged project was unrealistic. The client was unable to purchase the necessary land, obtain suitable planning permission or devise a commercially viable scheme. This became apparent before an application for planning consent might have been submitted.
  • The client would have lawfully terminated when the project’s non-viability became apparent, so the consultant would never in fact have performed the services for which it was claiming. In reaching this conclusion the court drew an analogy with cases for wrongful dismissal in employment law, where damages are usually limited to the benefits that the employee would have gained during the period their employment would have continued if they had been dismissed under lawful notice terms.

Stark reminder

This case is a stark reminder that contracts must include provisions to terminate when the other party defaults. The contract should have clearly identified the types of breach which would allow and justify termination and specify the consequences of the termination.

Parties will always have to negotiate the provisions, and the details of the types of default will need to be given consideration, but it would be sage to include a clause requesting a reasonable period of time to rectify a breach and make suggestions of how long that period should be.

For Redbourn Group, the inclusion of these provisions could well have delivered a different outcome for the professional consultancy firm in its claim, and illustrates just how important and relevant these termination clauses are to all professional appointment contracts.

About the author:

Kim Klahn is a corporate and commercial law specialist and a Partner in the Business Group team at Lodders. She advises on a range of company and commercial matters and is a specialist in non-contentious employment law.

T: 01789 206154 (Direct Dial)

E: kim.klahn@lodders.co.uk

Lodders is a premier law firm in Stratford upon Avon, Cheltenham, Birmingham and Henley in Arden. The firm has 25 partners and over 130 fee earners and support staff across its office network. With its portfolio of sector and market specific top-ranking legal teams, the firm has recorded year-on-year growth in recent years. For more information about Lodders: www.lodders.co.uk

Note: The opinions and views in this article are for information only and do not constitute legal advice.