TC Development (South East) Ltd & Anor v (Investin Quay House Ltd & Anor

Where a contract provides a termination payment, the client cannot avoid that payment by making termination inevitable through selling the relevant property without serving the contractually specified notice. The court may imply a term requiring formal termination where that is necessary to give effect to the clear commercial basis of the agreement. A contractual notice requirement may also be waived by the party for whose benefit it exists. Professional fees are ordinarily treated as exclusive of VAT where the contractual context supports that interpretation.

Two service providers claimed fees from a property company in connection with planning work for Quay House. The property was sold before a planning application was submitted. One claimant’s contract expressly provided for a fee if the property was sold more than 12 months after the contract. The other claimant’s contract provided a termination fee if the agreement was terminated before the planning application was submitted.

The defendant’s defence and counterclaim had been struck out following failures to comply with orders for security for costs and disclosure. The defendant did not appear at trial. The issues were whether the contractual fees were payable, whether VAT was additional, and whether the second claimant was entitled to its termination fee despite the absence of formal written notice.

1. The first claimant was entitled to £150,000 under the express contractual provision triggered by the sale of the property more than 12 months after the contract. The fee was exclusive of VAT. The contractual and commercial context showed that VAT was payable in addition.
2. The second claimant’s contract provided for a termination fee of £295,000 where termination occurred after 1 January 2018 but before submission of a full planning application.
3. An implied term required the defendant to serve the contractual termination notice where circumstances made termination inevitable because the property had been sold. The term was necessary to give effect to the clear commercial basis of the contract and went beyond a term that would merely be reasonable or desirable.
4. Alternatively, the written notice requirement existed at least for the benefit of the second claimant. By invoicing the contractual termination fee as though notice had been given, the claimant waived the notice requirement. The fee was therefore recoverable as a debt. On the implied-term analysis it was recoverable as damages.
5. Judgment was entered for £150,000 plus VAT for the first claimant and £295,000 plus VAT for the second claimant. The claimants were entitled in principle to their costs against the company defendant. The application for a non-party costs order against the sole shareholder was adjourned for evidence and listed for a later hearing.

This was a first-instance trial. The defendant’s defence and counterclaim had previously been struck out following failures to comply with orders for security for costs and disclosure.