Withholding approval
Redbourn v Fairgate [2018]
This case illustrates that express contractual rights of termination will rarely be exhaustive and sheds some light as to the basis upon which a contracting party can legitimately withhold approval in circumstances where the contract counterparty is specifically obliged to obtain approval.
Facts:
Redbourn was appointed as a project manager for a property development in Wembley, not far from the famous stadium. It claimed damages for the wrongful termination of its appointment. Fairgate had purported to terminate due to alleged breaches of contract by Redbourn. Redbourn accepted what it believed to be this wrongful termination (otherwise known as ‘repudiation’) by Fairgate and claimed damages. Ultimately, the claim for wrongful termination was upheld and the case just came down to a matter of the quantum of damages.
Redbourn claimed for the full amount of what it would have earned under the contract. Redbourn did give credit for the costs it would necessarily have incurred in earning those additional fees i.e. the wages of the individual project manager that it would have employed.
Redbourn’s right to damages depended upon the nature of its legal rights under the contract of appointment. The question was whether Fairgate was contractually obliged to carry on employing Redourn 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 words of Schedule 4 of the appointment refer to a "fee of £200,000 payable upon the granting of full planning consent, the planning application having first been approved by Fairgate." Was Fairgate under any obligation to approve a planning application?
A question also arose in relation to the express contractual provision which entitled either party to terminate. It explicitly allowed either party to terminate upon the appointment of a liquidator or in the event of an unremedied material breach.
Decision:
The Court held that the first step in calculating damages is to consider what benefits Redbourn would have received if the contract had continued until the first date when Fairgate could lawfully have terminated it.
In relation to the express termination provision, the Court clearly stated that the provision was not an exclusive statement of the rights of the parties to terminate the Agreement. This is an important lesson to bear in mind.
As for Fairgate’s obligation to approve the planning application, the Court said “Fairgate was not under an unqualified obligation to complete the project”. The question the Court felt it had to answer was ‘what is the legitimate scope of the reasons which Fairgate could rely on if it wished to stop employing Redbourn?’. Unfortunately the Court did not provide a clear answer to that question although it was seemingly prepared to assume that any decision had to be taken honestly and in good faith and with an absence of arbitrariness, capriciousness, perversity and irrationality.
The Court decided that it was legitimate for Fairgate to withhold approval [to the planning application] at the point in time when it became apparent that the project as originally envisaged in RGL's appointment was not a realistic project to pursue. Ultimately, the precise date when this right arose did not matter because the Court found that this was certainly before the point at which additional remuneration would have been due to Redbourn.
Points to Note:
This case highlights the importance of clearly specifying the rights that each party has to terminate a contract / appointment and suggests that where approval or consent is contractually required, such approval cannot be withheld in a party’s absolute discretion.