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When can a developer terminate a contract?

Robert Read

A new judgement has put the spotlight on exactly when and why a developer can terminate a consultant’s deal.

The recent judgement in Redbourn Group Ltd v Fairgate Developments Ltd [2018] EWHC 658 (TCC) highlights the importance of clear appointment terms when developers appoint consultants to carry out services on a project.

It draws particular attention to when the circumstances entitle the developer to terminate a consultant’s employment and payment terms on such termination.

Lawful termination?

Fairgate Developments had appointed Redbourn Group as the development and project manager on a proposed development in Wembley, London. Under the terms of the appointment, Redbourn’s fee entitlements were split out in accordance with the various stages of the project.

During stage 3/4, Fairgate decided to terminate Redbourn’s appointment. Redbourn sued for wrongful repudiation, claiming £1.5m in damages. The claim was heard in the Technology and Construction Court.

Redbourn argued that it was entitled to all the fees which would have been payable to it, had it been allowed to carry out all the services under the appointment, in relation to all stages of the project (less any costs not yet incurred, but which it would have incurred had it been required to provide the remaining services).

The TCC held that Redbourn could only claim those fees which would have been payable up to the point that the appointment could have been lawfully terminated by Fairgate.

In assessing at what point such lawful termination could have occurred, the TCC interpreted a clause in the appointment which only allowed for termination in narrow circumstances, was not an exclusive ground for termination, and did not imply that Fairgate would have to employ Redbourn for every stage of the project.

The TCC took account of the commercial reality that, in any case, planning permission for the project would not have been granted, and so the project would have stalled. Redbourn was therefore only awarded the remaining fees as damages, which would have been payable for the stage prior to planning consent being granted.

Contractual wiggle-room

Although Fairgate did not have to pay Redbourn the entire fee, this demonstrates the importance (for developers) of ensuring that consultancy appointments contain sufficiently broad termination provisions.

“The lessons from this case are particularly acute given the significant implications that Brexit may have for the construction industry”

This will allow the developer to walk away in circumstances where, for example, a project is no longer commercially viable.

A right to terminate the consultant’s engagement under the appointment for convenience should always be allowed for. However, the courts would look behind the reasons for a purported termination under such a provision, so it cannot be used as a basis for a client to dispose of a consultant purely due to personality clashes, for example.

The appointment should also make clear what fees a developer is liable for in the event of termination – for example, a fair and reasonable fee for the services provided up to the point of termination, and the consultant’s reasonable costs incurred in bringing the services to an end.

The lessons from this case are particularly acute given the significant implications that Brexit may have for the construction industry – not only in terms of access to overseas labour, but also in relation to the availability of finance for projects and the cost of materials.

With this in mind, projects which were financially viable at conception may no longer stack up.

Developers would do well to review the termination clauses in their standard appointment contracts to ensure that they provide sufficient flexibility.

Robert Read is an associate in the construction law team at Kingsley Napley

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