Contract – Construction – Implied term – Claimant and defendants entering into development fees agreement (DFA) to redevelop site – DFA providing for development management agreement (DMA) – Parties disagreeing as to form of DMA – Expert being appointed – Second defendant purporting to determine DFA for loss of trust and confidence in claimant – Claimant seeking declaration that DFA still existing and requiring defendant to instruct expert to determine DMA terms – Claimant applying for summary judgment – Whether defendant having real prospect of successfully contending DFA subject to implied term of trust and confidence – Whether defendant being required to continue instructing expert – Application granted in part
The claimant and the defendants entered into a development fee agreement (DFA) relating to the relocation of the US embassy in Grosvenor Square, London, as part of a major development of the south side of the River Thames in vicinity of Battersea Power Station. The claimant and a third party had been accepted by the US government as preferred bidders for the purchase and development of the property. The first defendant later bought out the third party’s interest and agreed with the claimant that the first defendant would buy out the claimant’s interest. Then, once the property had been purchased by a company in the first defendant’s group, the second defendant (which had been established to manage the group’s projects in the UK) would provide development management services to that company in relation to the subsequent development. The claimant, or a member of its group, would provide such services to the second defendant.
The DFA provided for the claimant and the second defendant to enter into a development management agreement (DMA) for the provision of development management services in relation to the development of the property. The parties failed to reach agreement as to the form of the DMA. The second defendant then applied to RICS for the appointment of an expert. It subsequently informed the claimant that it had lost trust and confidence in the claimant’s ability to deliver under the DFA and DMA and that the DFA was at an end. It also refused to agree that the expert could proceed with his determination.
The claimant did not accept that the DFA had been determined and applied to the court seeking: (i) a declaration that the DFA had not been determined; (ii) an order requiring the second defendant to instruct the expert to complete his determination of the terms of the DMA; (iii) an order requiring the second defendant to execute the DMA once the expert had made his determination; and (iv) damages.
The claimant applied for summary judgment on all but item (iv). The question arose whether, and in what circumstances, a contract might be subject to an implied term or condition that it would only continue in existence for so long as a relationship of mutual trust and confidence subsisted between the parties.
Held: The application was granted in part.
(1) In the context of a summary judgment application by the claimant, a real prospect of success meant a prospect which was more than fanciful or imaginary and which was better than merely arguable, but which did not need to equate to a probability of success at trial. To resist such an application successfully, the defendant only had to show that his defence carried some degree of conviction, even if it appeared on the available evidence that the defence would probably fail at trial. Moreover, in that context, the court deprecated the conduct of mini-trials on the facts: Three Rivers District Council v Bank of England ((No 3) [2001] 2 All ER 513, ED & F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch), AC Ward & Son v Catlin (Five) Ltd [2009] EWCA Civ 1098, Calland v Financial Conduct Authority [2015] EWCA Civ 192 and Hughmans (a firm) v Dunhill [2015] EWHC 716 (Ch) considered.
(2) The question of whether conduct constituted a breach of an implied obligation was to be judged objectively, looking at all the circumstances. In the present case, the second defendant had no real prospect of establishing that the DFA was subject to the implied term for which it contended and the claimant was entitled to a declaration that the DFA remained in existence and had not been determined. The judgment in Malik v Bank of Credit and Commerce International SA [1998] AC 20 was authority for the proposition that there might by law, as an incident of all contracts of a certain description (in that case, contracts of employment), mutual obligations that each party would not conduct itself in such a way as, assessed objectively, was likely to destroy or seriously damage the trust and confidence that was required if their relationship was to continue in the manner that the contract implicitly envisaged. However, that was a far cry from the present case where the implied term for which the second defendant contended: (a) did not relate to a class of contract in respect of which any such implication had previously been recognised in any decided case referred to; (b) did not depend upon one party conducting itself in breach of an implied promissory obligation; and (c) would give rise to a right to terminate the contract not on the basis of any objective criteria but on the subjective basis that the other party genuinely considered that trust and confidence had broken down. Applying an objective test as opposed to a subjective test, the stated grounds provided an unpromising basis for asserting that there had been such a breakdown of trust and confidence as would justify the defendants treating the relationship between the parties or the DFA as being at an end, or refusing to enter into the DMA. Accordingly, the claimant’s application for summary judgment, in respect of its claim for a declaration that the DFA remained in existence and had not been determined, would be allowed: Milner (JH) & Son v Percy Bilton Ltd [1966] 2 All ER 894 and Brogden v Investec Bank Plc [2014] IRLR 924 considered.
(3) If, on the true construction of the DFA, the parties had expressly agreed that certain matters should not be referred to the expert, it would not be a proper exercise of the court’s discretion to make a mandatory order at the behest of one party which required the other party to instruct the expert to determine those matters. In all the circumstances, the claimant’s application for summary judgment in respect of its claims for orders requiring the second defendant to instruct the expert to complete his determination of the terms of the DMA and to execute the DMA once the expert had determined its terms, would be dismissed: CH Giles & Co Ltd v Morris [1972] 1 WLR 307 considered.
John McGhee QC (instructed by Mishcon de Reya LLP) appeared for the claimant; Alain Choo-Choy QC (instructed by Hogan Lovells International LLP) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read transcript: Chelsfield Advisers LLP v Qatari Diar Real Estate Investment Company and another
