Harcap Ltd v FK Generators & Equipment Ltd

A contractual abort fee may become payable upon unilateral cancellation of a transaction without any breach, where the contract identifies cancellation as an independent triggering event. A carve-out must be given its natural and defined scope; it should not be extended from one undertaking to separate provisions dealing with different subject matter. A fixed advance payment for costs may be due before the underlying costs have been finally incurred, subject to later accounting. An abort fee is not an exclusive remedy unless the contract uses clear language to exclude other remedies. On a summary judgment application, the court should decide a clear point of construction where the necessary evidence is available and the defence has no real prospect of success.

HarCap Limited entered into Heads of Terms with the defendants concerning bridge finance for the completion of a power plant in Peru. The agreement contained an eight-week exclusivity period, a US$500,000 abort fee, a US$150,000 cost-cover payment, and exclusivity and confidentiality undertakings.

The defendants entered into a convertible loan arrangement with V-Power and cancelled the transaction with HarCap. HarCap sought summary judgment or strike out concerning the abort fee, costs and expenses, breach of undertaking (c), and whether the abort fee was an exclusive remedy. The central issues were the proper construction of those provisions and whether the defendants had any real prospect of defending the claims.

1. Summary judgment principles. The court applied the approach in Three Rivers District Council v The Bank of England, [2001] UKHL/16. The question was whether the defences had a real, rather than fanciful, prospect of success and whether there was any other compelling reason for trial. A clear point of construction should be decided where the court has the necessary evidence and the parties have had a proper opportunity to address it.
2. Abort fee. The word “either” and the four separately stated triggering events showed that unilateral cancellation was an independent basis for payment. The fee was payable as a debt without proof of breach. The only relevant qualification was the express carve-out for failure, acting reasonably, to agree final legally binding terms. That carve-out did not apply because the transaction was cancelled during due diligence and not because final terms had failed to be agreed. Summary judgment was granted for US$500,000, with contractual interest at 12 per cent per annum.
3. Costs and expenses. The US$150,000 payment was a fixed first cost-cover payment on account. Its due date and obligation to pay did not depend on the costs already having been paid to third parties. The contract was not terminated by cancellation of the transaction. Any later surplus was to be accounted for and credited as provided by the agreement. Summary judgment was granted for the net amount, subject to the stated set-off against the abort fee.
4. Exclusivity undertaking (c). The carve-out in undertaking (a) was not incorporated into undertaking (c). Undertaking (c) was freestanding and prohibited entering into any agreement or arrangement with any other party relating to, substituting for, or competing with the transaction. The V-Power convertible loan competed with or substituted for HarCap’s proposed bridge facility. The defendants therefore breached undertaking (c), and summary judgment was granted on liability in damages.
5. Exclusive remedy. The abort fee was not the exclusive remedy. The agreement expressly preserved all rights and remedies, including damages and equitable relief, for any breach. The defendants’ contrary case had no real prospect of success. Summary judgment was granted on all four issues.

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