Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR ANDREW BARTLETT QC
Sitting as a Deputy High Court Judge
Between :
REDBOURN GROUP LIMITED | Claimant |
- and - | |
FAIRGATE DEVELOPMENTS LIMITED | Defendant |
Mr Benjamin Fowler (instructed by Taylor Walton) for the Claimant
Mr Andrew Miller QC and Mr Austin Mahler (instructed by Debenhams Ottaway) for the Defendant
Hearing dates: 5, 6, 7, 8 March 2018
JUDGMENT APPROVED
ANDREW BARTLETT QC:
INTRODUCTION
The Claimant (“RGL”) claims damages for the wrongful termination of a contract to act as development manager and project manager in respect of a proposed development in Wembley, London. There is also a small claim for a balance of remuneration due.
RGL began work in 2013 without a firm agreement on fees with its client, the Defendant (“FDL” or “Fairgate”). The proposed development comprised three parcels of land: (a) FDL’s own building, Fairgate House; (b) the neighbouring building which FDL acquired in May 2014 but which initially remained tenanted – Pitman House; and (c) a car park to the rear of the site which was owned by Network Rail (“NWR”) but leased to FDL on a long lease expiring in 60 years.
FDL formally appointed RGL by a written contract which was signed on 26 February 2015.
RGL’s contract was terminated as a result of a notice of default dated 24 February 2016, served by FDL. This made allegations of breach of contract by RGL and required that the alleged breaches be remedied in 14 days. RGL considered the allegations to be unjustified. RGL accepted this action as a wrongful repudiation of its contract, and later commenced proceedings.
The Defendant failed to serve a defence at the proper time. On 9 March 2017 RGL obtained judgment in default of defence. FDL made an application to set aside the judgment, but this was dismissed by Coulson J (as he then was) in a judgment handed down on 26 May 2017: [2017] EWHC 1223 (TCC).
In addition to the allegations in the notice of default, three other matters were also relied on by RGL as repudiating the contract: see [2017] EWHC 1223 (TCC), [36]-[40]. Coulson J regarded the justification, or otherwise, of the allegations in the notice of default as the crucial issue: [41].
He summarised his conclusion at [66]:
. . . . I consider that FDL has no realistic prospect of defending this claim in principle or making any counterclaim on its own behalf. The most I am prepared to do is to accept that there may be arguments about quantum, both in relation to RGL’s fee claim, and their claim for damages for wrongful repudiation. Those can be dealt with at a quantum hearing. . . . .
By an Order made on 29 August 2017 Coulson J gave judgment for various specified amounts of remuneration due for work done under the contract and gave directions for trial of remaining issues. These were provisionally defined in the Order and were to be further defined by a Schedule of Loss and Counter Schedule.
The issues which remain to be decided are essentially concerned with causation of loss and quantum.
THE CONTRACT
Relevant features of the signed contract include the following.
By clause 1.1, ‘Development’ is defined as the development at 390-406 Wembley High Road, details of which are set out in Schedule 1, with a site plan in Schedule 2. On the plan the land to be the subject of the development is outlined in red.
The definition of Development in Schedule 1 gives RGL eight key objectives. These include, as objective 3, the negotiation of a new 150 year lease on the Network Rail leasehold car park property to the rear of Fairgate House. Schedule 1 further states under ‘Stage 2 – Site Assembly’:
Whilst Fairgate House is the main property within the development site, to implement the scheme in full will require the purchase of additional property and leasehold interest, namely:-
The freehold purchase of 402-406 Wembley High Road.
The purchase of three leases within the above property.
To negotiate a new 150 year lease with Network Rail on the rear car park land, currently held under a lease by FDL for a term unexpired of approximately 67 years.
At the time of writing, 1 above has been completed and progress is now being made on items 2 and 3.
Schedule 1 also refers to ‘Stage 3 & 4 – Development Management & Design for Tender & Build’ and ‘Stage 5 – Detailed Design for Tender & Build’.
The services required of RGL by the agreement are the services of a development manager and project manager as set out in Schedule 3 to the agreement. This schedule lists 56 duties to be performed. These include negotiating a new 150 year lease with Network Rail, co-ordinating meetings to secure the necessary planning consent, and co-ordinating the design team in the preparation of the detailed design for tender.
Clause 4 ‘Remuneration’ provides:
The fee set out in Schedule 4 plus applicable VAT will become due to RGL as set out in Schedule 4.
Schedule 4 sets out fee entitlements for Stage 1 (Feasibility), Stage 2 (Site Assembly), Stages 3/4 (Development Management and Design for Tender and Build) and Stage 5 (Project Management Fee). The wording from Stages 3/4 onwards is:
Stages 3/4 Development Management and Design for Tender and Build
This is a fixed fee element of £400,000 payable in two tranches as:
A fixed fee of £200,000 to be paid monthly over the planning and initial design for tender period. The approximate time line for this is anticipated to be August 2014-April 2016.
A fee of £200,000 payable upon the granting of full planning consent, the planning application having first been approved by FDL.
Stage 5 Project Management Fee
A fee equal to 2% of the estimated build cost for the project.
The build cost to be determined at the point the build contract is awarded following a full tender process. . . .
Additional performance fee
If the construction of the development completes on time and on budget (as those dates and amounts are set out in the awarded build contract) then RGL to receive a fixed fee of £250,000 on settlement of the final account with the design & build contractor.
At the sole discretion of FDL, an additional performance fee may be paid to RGL on completion of the project.
It may be noted that Stages 3 and 4 overlap. The obtaining of planning consent would come after the preparation of the planning application but before the preparation of a design which could be put out to tender.
Clause 7 ‘Termination and suspension’ provides:
If a . . . liquidator . . . is appointed over any part of RGL’s or FDL’s assets and undertaking, or if RGL or FDL fails to remedy a material breach of the terms of this agreement within 14 days of the other party’s notice specifying the breach, the other party may terminate RGL’s appointment by giving notice in writing.
Any termination of RGL’s appointment, howsoever arising, will be without prejudice to the rights and remedies of either party in relation to any omission or default of the other prior to such termination.
RGL’S CLAIM AND FDL’S RESPONSE
RGL claims first the remaining unpaid balance of the fixed fee of £200,000 to be paid monthly over the planning and initial design for tender period. The sum unpaid is £21,615. At the hearing Mr Miller QC stated that this element of claim was admitted by the Defendant.
RGL further claims the fee of £200,000 payable upon the grant of planning consent. RGL states that, if its engagement had been continued, the grant of planning consent was inevitable, so that RGL has been deprived of this full sum.
RGL’s claim in respect of Stage 5 is 2% of build cost. In the Schedule of Loss this is put at £1,032,414.
RGL also claims an amount for the additional performance fee for completion on time and on budget in the sum of £250,000.
At the hearing Mr Fowler for RGL stated that no claim was pursued in relation to the discretionary element of the additional performance fee.
With the exception of the first item (£21,615), the sums claimed are all claims for damages for breach of contract, assessed at the full amount of what could have been earned. An alternative claim is advanced for the lost chances of earning the various fees.
RGL gives credit against the damages for £230,000 that it says it would have spent in earning the further fees. (Footnote: 1) This represents the costs of employing a senior project manager for two years. Further information about RGL’s case is contained in its solicitors’ letter of 19 October 2017.
FDL’s case in defence of the claims is in its updated Counter Schedule dated 6 November 2017. This sets out reasons why planning permission could not and would not be obtained, and why, so it is said, no building contract would ever have been awarded.
In particular, it states:
The Claimant would have had no contractual right under the Appointment to any further fees in the event that the Defendant had decided not to proceed to planning, as it would have. Nor would the Defendant have owed the Claimant any obligation with respect to how it made that decision, or as to the matters which it deemed relevant. Under the terms of the Appointment, the question of whether the Defendant wished to proceed would have been in the Defendant’s sole discretion, and was at the Claimant’s risk.
FDL also takes issue with the size of the credit allowed in reduction of the damages and with whether RGL acted reasonably in mitigating its losses.
ISSUES
The Defendant’s note of opening appended a List of Issues which was agreed by the Claimant. The parts of this which remain relevant state:
Has FDL’s breach of contract caused RGL to sustain loss for which it is entitled to be compensated pursuant to the Remuneration clauses within Schedule 4, Stages, 3/4, 5 and Additional Performance Fee?
If FDL’s breach has caused RGL to lose a chance to which it was entitled what is the value of RGL’s lost chance:
to earn a fee of £200,000 payable upon the granting of full planning consent, the planning application having first been approved by FDL (Stage 3/4)?
to earn a fee equal to 2% of the estimated build cost for the project, the build costs to (have been) determined at the point the build contract (would have been) awarded. (Stage 5)?
to earn an Additional Performance Fee of £250,000 if the construction of the development (were to have been) complete(d) on time and on budget. (Additional Performance Fee)?
The effect of issues of mitigation, loss of profit and saved expenses on any award of loss of a chance damages for breach of contract.
EVIDENCE
I heard oral evidence from Bartley McGovern, managing director of RGL.
On the Defendant’s side I heard evidence from the following:
Jonathan Best of Montagu Evans. Mr Best was involved in giving advice on planning matters from an early stage, initially at his previous firm and subsequently at Montagu Evans.
Mark Whitfield of Montagu Evans. Mr Whitfield dealt with negotiations with Network Rail after RGL’s departure.
John Hall of Hamilton Partners Real Estate Finance LLP. Mr Hall became involved in late 2015 and more actively from late February 2016, when RGL and FDL parted company. He acted as a point of contact between FDL and its other consultants.
Christopher Waite of Lifschutz Davidson Sandilands (“LDS”). Mr Waite was the associate architect responsible for the project at LDS, under the supervision of Mr Alex Lifschutz.
Simon Long, general manager of Fairgate Group Ltd, the Defendant’s parent company. Mr Long only commenced his employment in September 2017.
The differences between the witnesses were chiefly over matters concerned with the future prospects for development, or over what might have happened if things had been done differently. With two exceptions, the witnesses gave largely dispassionate evidence. On the Claimant’s side, Mr McGovern’s evidence was highly charged with his enthusiasm for developing the site and with his disappointment at Fairgate’s repudiation of the Claimant’s appointment. On the Defendant’s side Mr Long was conscious, as might be expected, that he was in Court to defend his company’s interests. Nevertheless, in my view all of the witnesses did their best to assist me with truthful evidence of facts, where the facts were within their own knowledge.
I received in evidence a statement from the chairman and ultimate owner of Fairgate, Chief Labode Oladimaji Akindele. The hearsay notice stated that he could not be called because of being an elderly gentleman in his mid-80s. Why that meant he could not be called was not explained or evidenced. His brief statement did not add anything material to the picture obtained from the other witnesses.
OUTLINE FACTS
Three gateways had to be opened and aligned, in order for the project to proceed. These were (1) assembling the site, (2) obtaining a suitable planning consent, and (3) ensuring the commercial viability of the proposed development. These three elements were necessarily interlinked. Unless otherwise agreed, to progress through the stages of the appointment, the defined site would need to be obtainable, the consent would need to be for that site, and the consent would need to be for a commercially viable scheme.
A blow by blow account of events, as revealed in the documentary and witness evidence, would be very long. What follows is an outline only.
On 11 September 2013 Mr McGovern provided detailed advice to FDL on the proposed project. Key elements of this advice were:
Brent Council had produced the Wembley Link Supplemental Planning Document, which was a design brief for the redevelopment of properties along Wembley High Road, of which Fairgate House was one.
The proposed scheme was for retail at ground floor, a basement car park, and approximately 150 residential apartments in 8-12 storeys.
FDL should prioritise the assembly of the necessary land. This would involve purchasing Pitman House and obtaining vacant possession of it, and negotiating with Network Rail for a new 150 year lease, or a freehold, of the car park area at the rear. Network Rail had informally indicated a willingness to grant such a new lease.
Some of the Council’s planning requirements, such as the inclusion of an element of commercial office space, the provision of a rear service road, the proportion of affordable housing, and the community infrastructure levy, should be resisted or reduced. To provide negotiating leverage on these points with the planners at the Council a less attractive alternative scheme involving refurbishment of Fairgate House would be prepared.
The obtaining of Pitman House proceeded more or less according to plan. But obstacles were encountered in two areas which impacted on all three gateways. These areas were (1) satisfying the requirements of the Council as local planning authority and (2) dealing with Network Rail.
While the Council was very keen to see redevelopment substantially for residential use, a long drawn out process of pre-application meetings and negotiations threw up numerous difficulties which drove amendments to the proposals. To try to satisfy comments from the Council and from consultees, after numerous iterations the preferred scheme ended up being situated not only on the land originally envisaged but also partly on additional Network Rail land to the rear of the leased car park. The desirability of obtaining this additional land only became apparent in November 2016.
As regards Network Rail:
On 4 June 2014 Mr McGovern wrote: “Our Problem has been NWR!! Despite trying for over a year to secure a new long lease of 150 years, NWR have not come forward to offer this. . . . We strongly suspect the reason NWR have not come back is they are carrying out a strategic exercise of all the rear land along this stretch of WHR . . . to try to promote some major new initutive [initiative] unlocking the NWR land to the rear of these properties and creating greater value for NWR. This concerns me greatly . . . we have no wish to be part of some larger scheme . . . I am mindful that the Wembley Link Supplemental Planning Document . . . would be desirous in seeing a more major comprehensive solution as NWR might promote, but we will have to argue it is not deliverable, and our fallback would be the threat of the less exciting conversion of Fairgate House, if the Council cannot support our redevelopment proposals.”
In due course Mr McGovern’s fears were realised. On 6 August 2015, nearly six months after the formal contract of appointment had been signed, Network Rail advised him that it was carrying out a strategic review of its land holdings along the railway line. Mr McGovern protested vigorously, but to no avail. In October 2015 he met with Peter Roberts of Rapleys, who by then was representing Network Rail, and stressed to him FDL’s huge frustration at the lack of progress. On 20 November 2015 he complained to Mr Roberts: “we have now been in discussion with NWR for over 18 months on this matter and achieved nothing.”
Negotiations continued by way of a proposal from NWR (20 November 2015), a counter-proposal from RGL on behalf of Fairgate (30 November 2015), and a rejection from NWR (8 December 2015). Mr McGovern had to persuade FDL to be willing to grant an overage. This was put to NWR on 19 January 2016, and was met with a counter-offer on 29 January 2016. NWR’s counter-offer stated, among other things, that it was fundamental that there be a 50:50 split of the marriage value of Fairgate’s land with NWR’s land.
It was at this time that things were getting difficult between RGL and Fairgate. On 26 January 2016 RGL had complained of substantial unpaid invoices dating back to the previous July. It does not appear that RGL forwarded to Fairgate NWR’s counter-offer of 29 January 2016.
After RGL’s dismissal, Fairgate obtained advice from Mr Whitfield on how to negotiate with Network Rail, but he was unaware of the 29 January 2016 counter-offer. While in the ensuing months some progress was made on the planning side, there was no meaningful contact with Network Rail until a meeting held on 3 November 2016. The note of the meeting records Mr Rapley as stating:
Because previous discussions with Fairgate had not progressed, NWR had signed a letter of intent with Hub (developer of a nearby site) indicating a willingness to work with them to also promote land in NWR’s ownership, including the car park and additional land behind the car park.
The previous discussions had “floundered” due to the unrealistically low level of marriage value share (20%) that had been previously offered.
NWR was still interested in a transaction with Fairgate, which could involve selling the car park land to Fairgate (based on an agreed percentage of the value of the site plus overage), or a joint sale once planning permission was granted.
While Fairgate was considering how to move forward, it became clear that the Council’s vision for the Fairgate land and adjoining properties was materially different from the design proposals being brought forward by Fairgate. Details are set out in an email from the Council dated 3 January 2017. The Council did not view Fairgate’s proposals as fitting in to the overall masterplan which it wished to see. The Council therefore wished to purchase Fairgate’s land in order to control the manner of development. On 4 January 2017 Mr Whitfield advised that, given the Council’s position, there was a clear need to move quickly with Network Rail. On 12 January 2017 Mr Roberts himself stressed the urgency for receipt of an offer from Fairgate. At this time Fairgate had a new CEO, Mr Ian Woodward. He concentrated on getting up to speed with the Wembley project and drawing together a strategy to protect Fairgate’s position, which he submitted to the Chief on 27 January 2017. As a result, Mr Whitfield submitted a proposal to Mr Roberts on 31 January 2017. This involved both the car park and the additional land, and proposed a 75:25 split of marriage value.
After a meeting on 20 February, Mr Roberts eventually responded to Mr Whitfield on 17 March 2017. Network Rail had decided to progress negotiations only with Hub: “I am now instructed to progress discussions with HUB on the basis that they take the entirety of NR’s land including the car park . . .”.
At this point it appears that someone, possibly the Chief himself, had a discussion which elicited from Network Rail a sale price of £2 million for the additional land behind the car park. After internal discussions Mr Whitfield on Fairgate’s behalf was instructed to offer £1.7 million for the additional land and the freehold of the car park, which he did on 30 March 2017. Network Rail had the opportunity at that stage, if it had wished to take it, to negotiate upwards from Fairgate’s offer. It did not do so. Its response came from Mr Roberts on 17 May 2017, rejecting the offer, with the following explanation:
NR have decided to dispose of the entirety of their interest in the land from the rear of Chesterfield House through to the Wembley Triangle to HUB. The primary reason for this is that this will enable a comprehensive development to be promoted that does not leave NR with surplus land. However, this approach also releases a higher return to NR that [than] would be achievable in breaking up their land and disposing of it in separate parcels. . . . this decision has been made having regard to the entirety of their land not just the land behind Fairgate House.
I have mentioned that the preferred scheme, from a planning point of view, ended up being situated not only on the land originally envisaged but also partly on the additional Network Rail land to the rear of the leased car park. Fairgate was never in a position to prepare a planning application on the basis of including this additional land. Such preparation would have required site surveys (topographical, trees and ecology), and permission for such surveys, although sought, was never given by Network Rail.
Fairgate’s discussions with the Council and other consultees continued through 2017.
In about September 2017 Stanhope (the well-known developer) began discussions with Fairgate and also contacted Network Rail. Emails of 5 and 6 September 2017 to Stanhope from Network Rail provide confirmation of the latter’s perspective:
[5 September] We have had extensive discussions with Fairgate, but they did not make the most attractive proposal by some distance and we have therefore decided to go with the other interest. This other proposal gives us a more comprehensive solution, better value and more housing and so was preferred.
[6 September] . . . the first agent was Bartley McGovern and then following the failure to reach agreement, Mark Whitfield and Jonathan Best of Montagu Evans were subsequently appointed. Our targets are to maximise the value of our land to support railway operations and delivery of the maximum housing number we can. The other proposal better delivered on both objectives.
In January 2018 NWR’s sale to Hub was finalised.
Thus, as regards the first two gateways, for a variety of reasons the site defined in the contract of appointment was not successfully assembled, and Fairgate has not made a planning application for consent for development on the defined site. Nor, so far, has it made any planning application involving any part of the land.
Problems arose also in relation to the third gateway (ensuring the commercial viability of the proposed development).
In May 2016 quantity surveyors Christopher Smith Associates (“CSA”) produced revision 3 of a “Feasibility Study/ Order of costs”. This advised an estimate of £48 million, representing £246 psf for a scheme consisting of 156 units.
In July 2017 quantity surveyors Gardiner & Theobald (“G&T”) produced a draft “Stage 2 Cost Estimate” of the scheme by then in view. This advised an estimated construction cost of £83.3 million, representing £372 psf. This figure excluded “fees (including pre-construction services agreements), VAT, S106/S278, CIL payments, land acquisition, all developer direct costs, employer risk allowances and contributions etc.” It was for a scheme which included 186 apartments. G&T’s report was more detailed than CSA’s.
The evidence did not reveal the full reasons for the increase in G&T’s estimate as compared with that of CSA. On 27 July 2017 Mr Lifschutz wrote:
The main issue with this scheme is its construction cost of £75m (plus contingency) for 186 apartments . . . (including all residential space and the shops at ground and mezzanine level). The QS has confirmed previous advice that this is partly due to the density of construction on such a small site, the large amount of basement required for parking/bikes and servicing and the narrow depth/cost of the front building. There are ways of modifying the costs by reducing the number of structural piles under the towers or optimising the basement layout and so on, however these will have a relatively modest rather than a large effect.
. . . .
Our recommendation is that you immediately appoint a valuation agent to develop a viability appraisal for the existing scheme and for the modified schemes . . . to help you decide how to proceed
There was some evidence, both documentary and oral, about measures that could be taken to reduce the costs, but in my judgment it was sufficiently clear that the potential savings were unlikely to be large enough to remove all concerns about viability. Further detailed work would be required, including obtaining fresh advice on sales values. Mr McGovern suspected that G&T’s estimate might have been inflated for forensic purposes, but there was nothing in the evidence to support this suspicion.
In January 2018 G&T prepared an estimate for a different, L-shaped scheme. This came out at £60 million, representing £368 psf. In February 2018 G&T prepared an estimate for a much smaller “permitted development plus” scheme. This came out at £12.8 million, representing £344 psf.
Fairgate subsequently appointed Quod to advise on viability. At the date of trial Quod’s report was still awaited.
Fairgate has spent very substantial sums on the fees of RGL and numerous other consultants.
From the above outline and the fuller history shown in the documents, and further informed by the witness evidence, I draw the following conclusions of fact:
At the time when RGL was still involved, Network Rail was already in touch with Hub and was already considering more widely how its own interests and objectives would best be served.
There was a hiatus in the negotiations between Network Rail and Fairgate from 29 January 2016 to 3 November 2016. This was partly due to Fairgate’s dismissal of RGL and partly due to RGL not forwarding to Fairgate Network Rail’s 29 January counter-offer.
The evidence does not show that, if this hiatus had not occurred, and if RGL had remained in post, the outcome would have been any different. Whilst RGL would have worked with vigour, passion and commitment, it is very unlikely that this would or could have altered where Network Rail’s best interests lay. Network Rail, properly advised as it was, would have reached the same conclusions regarding how best to advance its own interests and objectives. And there is nothing to show that Fairgate would ever have been willing to pay a sufficiently large sum to Network Rail to alter the outcome; nor does the evidence establish that it would have made commercial sense for Fairgate to do so.
Although unknown to both parties in the period ending with RGL’s wrongful dismissal, the development envisaged in RGL’s appointment was not a realistic prospect. In evidence Mr McGovern expressed his strong conviction that development of the site was inevitable. If this was intended to refer to a development as envisaged in the agreement between RGL and Fairgate, I do not accept that part of Mr McGovern’s evidence. He accepted that he was not a specialist in residential development. Because of the constraints arising from Network Rail’s wider interests, the confined nature of the site, and the planning requirements, any viable development probably either had to be on a larger plot, encompassing some of the Network Rail additional land, with Network Rail’s agreement (which realistically was not going to become available) or had to be a much more modest development which would not involve building on the Network Rail car park.
Despite the encouraging signs which existed as at September 2013 and from time to time thereafter, the reality was that, because of Network Rail’s wider interests and the factors identified above, the car park land was never going to be conveyed to Fairgate on a 150 year lease (or as a freehold).
It is highly likely that the land owned by Fairgate will be developed in the next few years, whether by Fairgate or by someone else. Such development may be confined to Fairgate’s own land, or may be part of a much larger scheme which will have to be agreed with Hub or perhaps successors of Hub, or it may occur in some other way. But any such development will not be the project envisaged in RGL’s appointment.
Mr Fowler sought to improve the Claimant’s position by relying on the principle in Armory v Delamirie (1721) 1 Strange 504, as discussed more recently in Double G Communications Ltd v News Group International Ltd [2011] EWHC 961 (QB), at [4]-[5]. That is a very salutary principle, but in my view it does not materially assist the Claimant in the present case. There are indeed some unknowns, for which the Defendant’s conduct can be blamed, but in my judgment the general picture is sufficiently clear from the evidence, so that it is not altered by the ‘fair wind’ which blows in favour of a Claimant where information is lacking as a result of the Defendant’s actions.
THE NATURE OF FAIRGATE’S OBLIGATIONS UNDER THE AGREEMENT
RGL’s right to damages depends not only upon the facts but also upon the nature of its legal rights under the contract of appointment. The question arises whether Fairgate was contractually obliged to carry on employing RGL for all the stages of services contemplated in the appointment or whether Fairgate would have been lawfully entitled to pull out – for example, by deciding that it did not wish to submit a planning application or proceed further.
The express words of Schedule 4 refer to a “fee of £200,000 payable upon the granting of full planning consent, the planning application having first been approved by FDL.” [emphasis supplied]. Was Fairgate under any obligation to approve a planning application?
In opening Mr Fowler accepted that there could not be an absolute obligation on Fairgate to grant its approval [Day 1, p27]. Mr Miller’s position was that there was no obligation at all to approve an application [Day 1, p34-35] and moreover that Fairgate was free to abandon the project, without breaching the contract with RGL, at any time, subject only to payment of fees that were already due [Day 1, p36-37]. This submission partly mirrored the updated Counter Schedule, which stated that under the terms of the appointment the question whether the Defendant wished to proceed would have been in the Defendant’s sole discretion.
Lying behind these arguments is the principle that a defendant in an action for breach of contract is not liable for not doing that which he is not bound to do: Abrahams v Herbert Reiach Ltd [1922] 1 KB 477; Lavarack v Woods of Colchester [1967] 1 QB 278; Horkulak v Cantor Fitzgerald International [2004] EWCA Civ 1287, [2004] IRLR 942. The application of this principle necessitates a close consideration of what exactly the defendant was bound to do under the terms of the particular contract being considered.
This kind of problem was further considered at some length in Durham Tees Valley Airport Ltd v BMI Baby Ltd [2010] EWCA Civ 731, [2011] All ER (Comm) 732. In that case Patten LJ, after discussion of numerous earlier cases, summarized his view at [79]. At [147] Toulson LJ explicitly agreed with that summary, albeit he offered his own analysis of the cases. As part of that analysis, he offered at [96] a taxonomy of four different kinds of cases. Mummery LJ agreed with both judgments.
Any such taxonomy runs up against the practical problem that contracts may vary in their terms and need not fit into pre-determined categories. As Toulson LJ himself said: “not every case falls neatly into one of them”. In the present case there was debate about the taxonomical category into which the present contract fell.
Patten LJ’s summary is in the following terms:
The court, in my view, has to conduct a factual inquiry as to how the contract would have been performed had it not been repudiated. Its performance is the only counter-factual assumption in the exercise. On the basis of that premise, the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted. The judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind.
The application of this principle to a case of wrongful dismissal of an employee provides an instructive comparison to the present case. In a case of wrongful dismissal, the damages are usually limited to the benefits that the employee would have gained during the period during which his employment would have continued if he had been dismissed by lawful notice: Addis v Gramophone Co Ltd [1909] AC 488, recently discussed in Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2011] UKSC 58. In other words, the assumed performance in such a case is a lawful termination instead of an unlawful one.
Lavarack was a case of wrongful dismissal. The first item in the calculation of damages was what Mr Lavarack would have earned if the employment had continued until the first date on which it could lawfully have been terminated. (There was a difference of opinion in the Court of Appeal over inclusion of damages which would have represented the value of a future discretionary bonus. The majority excluded that element.)
In the present case Fairgate decided in about January/February 2016 that it did not wish to continue employing RGL. Applying the principle in Durham Tees, and by comparison with Lavarack, the first step in calculating damages is to consider what benefits RGL would have received if the contract had continued until the first date when Fairgate could lawfully have terminated it.
On behalf of RGL Mr Fowler submitted that RGL had the right not to have the contract terminated otherwise than in accordance with the termination provisions [Day 4, p521]. He said that, apart from repudiation or under the doctrine of frustration, the only way that RGL’s appointment could be terminated was by a notice under clause 7.1 [Day 4, pp513-515].
I have cited the express termination provision at paragraph [18] above. When this is read in the context of the whole contract, in my view it is clear that, while clause 7.2 is intended to be exhaustive, clause 7.1 is not. Clause 7.1 provides an express right to terminate by notice in certain narrowly defined circumstances. By contrast, clause 7.2 applies however the appointment is terminated. In my view the terms of clause 7.1 do not imply that Fairgate will necessarily employ RGL for every stage. Among other reasons, such an implication would be inconsistent with the possibility of Fairgate deciding not to approve the submission of a planning application.
The matter can be tested in this way. Suppose that at an early stage during the preparation of the planning application it became apparent that the financial viability of the project was either negative or insufficiently attractive, would Fairgate nonetheless be under obligation to RGL to plough on regardless, so that RGL would have the opportunity of earning its full fees? That would be a strangely uncommercial arrangement, which would involve Fairgate employing other consultants and expending large sums of money to no useful purpose. There is nothing in the express terms which requires that the contract be read as having that effect. The common sense interpretation is that Fairgate, if it justifiably lost its appetite for the project, would be entitled to call it a day. Clause 7.1 is an additional provision; it is not stated to be the only means of termination.
Once it is established that, even if RGL was fully complying with its own duties, Fairgate was not under an unqualified obligation to complete the project, the question arises: what is the legitimate scope of the reasons which Fairgate could rely on if it wished to stop employing RGL? And in particular, having regard to the actual facts, were there ways in which Fairgate could lawfully dispense with RGL’s services and then carry on towards development with the assistance of other consultants?
Given the events which have happened, these questions can be put into a narrower form. Fairgate has paid or accepted liability for the whole of the fees from Stage 1 to Stage 4 inclusive, except for the fee of £200,000 payable upon the grant of full planning consent after approval of the planning application by Fairgate. Future stages would be dependent on the grant of consent. So the critical question is the nature of Fairgate’s obligation, if any, to approve a planning application for the development contemplated in the contract between Fairgate and RGL.
In answer to Mr Miller’s submission that such approval was a matter for Fairgate’s sole discretion, Mr Fowler cited Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116; [2008] Bus LR 1304. In that case Rix LJ stated, in reference to a situation which gave one contractual party the right to make a decision:
a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. [66]
In response, Mr Miller submitted that this line of authority was not applicable, because the contract contained no specific requirement for Fairgate to make a decision (Day 4, p582).
Assuming in RGL’s favour that the contract obligated Fairgate to make such a decision, and that such a decision was required to be taken in good faith etc in accordance with the dictum of Rix LJ, where would that lead? When, if at all, was Fairgate entitled lawfully to decide not to make a planning application for the development contemplated in the contract between Fairgate and RGL?
On one view, Fairgate was entitled to make such a decision in November 2016, when it became apparent that obtaining planning consent for a major development would require the additional Network Rail land. If RGL had still been engaged at that time, and if Fairgate had wished to continue with RGL, the parties could have had a discussion about continuing RGL’s engagement on the basis of trying to obtain that additional land also, but this would not have been in pursuit of the development contemplated in the contract. Mr Fowler observed that the contract contemplated a proposed development, which implies the possibility that it would be subject to change and yet still be subject to the agreement (Day 4, p 564). I agree that it might well be reasonable to read the agreement as remaining applicable in the event of immaterial, incidental or minor adjustments (for example, converting the remaining lease of the car park into a freehold rather than into a 150 year lease), but I do not consider that (for example) a requirement for an entirely different plot of land would fall within any contractual latitude.
In May 2017 Network Rail stated definitively that it was not willing to proceed with Fairgate. The car park land was not going to be obtainable. (On my findings, this was not caused by the wrongful dismissal of RGL.) In my judgment Fairgate would have been entitled to pull the plug at that time. If RGL had still been engaged at that time, and if Fairgate had wished to continue with RGL, the parties could have had a discussion about continuing RGL’s engagement on some new basis, but that would not have been a matter of obligation.
If Fairgate was not entitled to decide against proceeding in November 2016 or in May 2017, nevertheless in July 2017 Fairgate received G&T’s very large cost estimate. Given the evidence that this called into question the commercial viability of any substantial scheme, Fairgate would have been entitled to say at that stage that enough was enough, and either that no project would proceed, because it was unwilling to lay out further sums on professional fees, or that some other, revised, project was to be pursued, which was not the project contemplated by RGL’s appointment. Fairgate was under no obligation to engage RGL for any different project.
The critical point is that it became apparent over time that the project as originally envisaged in RGL’s appointment was not a realistic project to pursue. To get good value out of the planning potential of Fairgate’s land, it was going to be necessary to pursue some differently constituted project. If RGL had continued to be engaged after February 2016, this might have been discovered a little earlier than it was. But the dates make no difference, since, whether the decision were made in November 2016, in May 2017, or in July 2017, or at any earlier or later date, no additional remuneration would have become due to RGL under the contract.
CONCLUSIONS
For the reasons set out above, I conclude that RGL is not entitled to damages for the wrongful termination of its appointment. Fairgate would have been entitled to terminate RGL’s appointment lawfully before RGL would have earned any further remuneration beyond that which it has received pursuant to the judgment of Coulson J and will receive as a result of Fairgate’s admission of liability for the outstanding amount of £21,615.
RGL’s alternative case for loss of a chance fares no better. This is cut off both by the facts (because it has become apparent that the contractually envisaged project is not realistic) and by the law (because awarding damages for loss of a chance would be analogous to awarding damages to a wrongfully dismissed employee based on the chance that their employer might have decided to continue their employment longer than it was obliged to; this would be contrary to both principle and authority.)
Accordingly my answers to the issues identified in paragraph 29 above are (1) No; (2) Not applicable; (3) Does not arise.
RGL is entitled to judgment in the sum of £21,615. If VAT is payable, this should be added, if not already included. RGL’s remaining claims are otherwise dismissed.
I add the observation that, despite Mr McGovern’s keen sense of disappointment, RGL has not done so badly out of this contract. RGL will have received the full fixed fee of £200,000 for the ‘planning and initial design for tender period’, notwithstanding that during its involvement the project did not reach, or even substantially commence, the stage where a design for tender was prepared.
I am grateful to counsel for their assistance throughout.
I invite counsel to agree a formal order. If not everything can be agreed, I will decide any point of contention on the basis of written submissions, for which counsel should agree a timetable. This is subject to further order, if it transpires that an oral hearing is required for any point of contention.