Chelsfield Advisers LLP v Qatari Diar Real Estate Investment Company & Anor

A commercial contract is not ordinarily subject to an implied right to terminate merely because one party honestly loses trust and confidence in the other. Such a term requires a proper contractual basis and objective criteria. The employment cases concerning mutual trust and confidence do not establish a general rule applicable to commercial contracts.

On a summary judgment application, the court must assess whether the defence has a realistic prospect of success without conducting a mini-trial. Questions concerning states of mind may nevertheless require trial. A mandatory order requiring an expert determination will be inappropriate where the expert’s jurisdiction is genuinely arguable and the order may compel determination of matters outside that jurisdiction. An order requiring signature of a services agreement will likewise be refused where damages are adequate and no useful purpose would be served.

Chelsfield entered into a Development Fees Agreement with Qatari Diar Real Estate Investment Company and Qatari Diar Development Company (UK) Ltd concerning the redevelopment of the former United States embassy site at Grosvenor Square. The agreement contemplated a later Development Management Agreement and provided for expert determination of terms not agreed between the parties.

After disputes arose concerning the proposed management agreement, QDDC purported to terminate the Development Fees Agreement on the ground that trust and confidence had broken down. Chelsfield sought summary judgment for declarations and mandatory orders requiring completion of the expert determination and execution of the later agreement.

The central issues were whether the Development Fees Agreement contained an implied term permitting termination upon loss of trust and confidence, whether such a breakdown had occurred, and whether the requested mandatory orders should be made.

1. Implied term. QDDC had no real prospect of establishing that the Development Fees Agreement contained a term making its continuation conditional on mutual trust and confidence or permitting termination on the basis of one party’s genuine but unreasonable loss of confidence. Malik v Bank of Credit and Commerce International SA [1998] AC 20 concerned an implied obligation recognised as an incident of contracts of employment. It did not support a general termination right in a commercial contract.
2. The alleged term was inconsistent with the structure and purpose of the agreement. The agreement expressly addressed termination, insolvency, financial security, good faith, negotiation and expert determination. It was a precursor to, and not merely an extension of, the proposed Development Management Agreement. The alleged term was also subjective, whereas the trust and confidence obligation in the employment authorities depended on objectively assessed conduct.
3. Accordingly, Chelsfield was entitled to a declaration that the Development Fees Agreement remained in existence and had not been determined.
4. Alleged breakdown. The issue did not arise. If it had arisen, QDDC’s evidence of its state of mind would have given it a real prospect of success. Resolving the conflict between that evidence and the contemporary documents would have required a mini-trial.
5. Expert determination. Summary judgment was refused on the order requiring QDDC to instruct the expert to complete his determination. It was realistically arguable that three important issues were outside the expert’s remit because they had already been agreed under the Development Fees Agreement. It would be inappropriate to compel determination of matters arguably outside that remit. The proposed order was also unlikely to assist and risked generating further disputes.
6. Execution of the Development Management Agreement. Summary judgment was refused on the order requiring QDDC to sign the agreement. Damages would be an adequate remedy; specific performance of the services agreement was unlikely; and signature of an agreement which QDDC would not perform would serve no useful or justifiable purpose. The claim for the declaration therefore succeeded, but the claims for the two mandatory orders failed.