Where a contract does not expressly provide for what is to happen when some event occurs, the most usual inference is that nothing is to happen. If the parties had intended something to happen, they would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. However, the court can imply a term if it is necessary to give business efficacy to the parties’ contract.
In Chelsfield Advisers LLP v Qatari Diar Real Estate Investment Company [2015] EWHC 1322 (Ch) one of the preliminary points that the court had to decide was whether a contract was subject to an implied term or condition that it would continue in existence only for so long as a relationship of mutual trust and confidence subsisted between the parties.
The case concerned the planned redevelopment of the site of the US embassy in London, which is expected to become vacant in 2018. Instead of purchasing and developing the property together, the parties had entered into an agreement that Chelsfield would withdraw from the acquisition in return for a sizeable fee and provide development management services to Qatari Diar instead, in return for further substantial fees.
The agreement between the parties included a provision that enabled Qatari Diar to end the agreement, should certain insolvency related events affect Chelsfield. Qatari Diar argued that the contract did not state that these were the only grounds on which it could terminate and, given the personal nature of the relationship, that it was reasonable, obvious and necessary that the parties should have a mutual right to terminate on the breakdown of trust and confidence between them. There would not be any inconsistency with the termination provisions in the agreement and it could hardly be supposed that the parties had intended that they should be forced to continue to work together in such circumstances.
The court rejected Qatari Diar’s arguments. The agreement in question did not fall into the category of contracts in which such terms had previously been implied. The judge noted that the agreement contained several express obligations of good faith which covered ground that would be covered by the implied term, which undermined the case for implying such a term. Furthermore, Qatari Diar was arguing for an implied term that would introduce a subjective test, based not on breach of contract but solely on the fact that one of the parties genuinely considered that their relationship had broken down.
It is difficult to for draftsmen to cover every eventuality in a contract without access to a crystal ball. However, this case reminds us of the importance of including express rights to terminate agreements based on personal relationships, especially if an agreement is expected to continue in the medium or long term, if the relationship breaks down. Draftsmen will need to ensure that such rights are available even though the other party is not in default and would be well-advised to state whether, in the event of dispute, the reasons for termination are to be tested subjectively or objectively (for example, by reference to conduct that is unreasonable or inimical to the continuation of the contractual relationship).
Allyson Colby is a property law consultant
