Daniel Stewart & Company Plc v Environmental Waste Controls Plc

An abort-fee clause is construed objectively and in its commercial context. A party’s contractual power to decide whether a transaction should proceed is ordinarily subject to good faith, rationality and the prohibition of arbitrary or capricious conduct. The court will not imply a broader obligation to act reasonably where the proposed standard is uncertain and unnecessary to give the contract effect. “Performance” refers to the contractual services undertaken, including non-material as well as material breach, rather than to unexpressed commercial objectives. A contractual cap on lawyers’ fees may include associated disbursements and excludes additional VAT unless the agreement provides otherwise.

The claimant investment bank sought an abort fee and related sums under an engagement letter appointing it as nominated adviser and broker for the defendant’s proposed AIM listing. The defendant abandoned the listing after investor feedback indicated that the proposed valuation and fundraising objectives were unlikely to be achieved.

The principal issues were whether the defendant could avoid the abort fee because the listing should not proceed, whether the claimant’s performance caused the decision to abort, and the extent of liability for legal fees, expenses, directors’ searches, VAT and interest.

1. Abort fee. The defendant was liable for the £150,000 abort fee. The third sentence of the abort-fee clause did not impose an implied obligation on the claimant to act reasonably in agreeing that the listing should not proceed. The proposed term was uncertain and was not necessary to make the agreement workable. The clause was effective subject to good faith, rationality and the absence of arbitrary or capricious conduct.
2. The defendant’s primary case also failed because the marketing and book-building process had not been completed and the defendant had not asked the claimant to agree that the listing should not proceed. The defendant therefore could not complain that such agreement had been unreasonably withheld.
3. The first sentence of the clause applied both before and after completion of the marketing and book-building process. The words “prior to completion” qualified the reference to performance, not the time at which the defendant could abort. “Performance” meant the contractual services which the claimant had undertaken to provide. The defendant accepted that the claimant had not breached the engagement letter and its unexpressed objectives of raising sufficient funds or enabling a substantial sale of shares were too vague to define contractual performance.
4. The claimant could recover £36,000 for its solicitors’ legal services. The agreed £30,000 cap was an overall cap covering fees and disbursements, subject to ordinary VAT on that amount. Printing costs and additional VAT were not recoverable.
5. The claimant could recover £1,000 for expenses and £1,150 for intelligence searches concerning directors who were new to the defendant. The clause did not cover searches concerning existing directors merely because they were new to AIM. VAT of £430 was added, but no additional VAT.
6. Interest was limited to the contractual rate of 3 per cent above the Bank of Scotland base rate. The claimant had chosen that rate and had produced no evidence that it was not a substantial remedy under section 8(2) of the Late Payment of Commercial Debts (Interest) Act 1998.

First-instance decision. The judgment does not state any subsequent appellate history.