The Court of Appeal has found that a party was not entitled to payment of a success fee, or any lesser payment, where the specific event that would trigger payment under the express terms of the contract had not occurred: Contra Holdings Ltd v Bamford [2023] EWCA Civ 374.
As a matter of contractual interpretation, the express terms of the contract made clear the circumstances in which the relevant success fee would be paid, and the factual matrix surrounding the contract did not justify departing from the clear wording. Further, it was commercially absurd to suggest that the success fee provision was in fact a deferred payment clause guaranteeing payment of the fee, given the significant value of the fee. The scale of the fee was more consistent with the position that it would only be paid if the specific event provided for in the contract occurred.
There was also no basis on which to imply terms into the agreement that the success fee would be paid in a wider range of circumstances, or that the claimant would be paid an appropriate rate for services actually performed. Applying Barton v Morris [2023] UKSC 3 (considered here), the court found that such implied terms would be inconsistent with the express terms chosen by the parties.
Like Barton, the Court of Appeal's judgment suggests that where parties have agreed the circumstances in which a payment will be made, it may be difficult to persuade the court that payment is due in other circumstances – though of course each case will turn on its facts. Both decisions highlight the importance of drafting contracts so that they set out in full the circumstances in which a payment will or will not be made, so as to avoid disputes arising.
Background
The claimant ("Contra") entered into a written agreement with the defendant which provided that: (i) Contra would be paid a success fee of £2.6m for services carried out by Richard Bamford ("RB", the chief executive officer of Contra) up to and including a settlement reached on 17 June 2011; (ii) the defendant would brief RB on progress toward implementation of the settlement "and in addition the steps being taken to prepare the JCB Group for sale in 2012 ('Project Crakemarsh')"; (iii) the defendant expected to appoint RB to be his commercial advisor for Project Crakemarsh, on which Contra would ensure RB was available to advise the defendant on an exclusive basis; and (iv) in consideration of those services, Contra would be paid a further success fee on the completion of Project Crakemarsh.
The £2.6m success fee was paid to Contra, but the JCB group was not sold and the further success fee was not paid. Contra claimed that payment of the further success fee was due and that the defendant had therefore breached the agreement, on the alternative bases that: (i) under the express terms of the agreement, the further success fee was due not only on the sale of the JCB group but also if there was some other form of restructuring in relation to the group; (ii) the agreement contained an implied term to the same effect (the "First Implied Term"); or (iii) the agreement contained an implied term that if the JCB group was not sold, Contra would in any event be "made whole" by being paid an appropriate rate for the services actually performed by RB after 17 June 2011 (the "Second Implied Term").
In its first instance judgment, the High Court (Jacobs J) dismissed Contra's claim on a summary basis. Under the express terms of the agreement, "Project Crakemarsh" referred only to the proposed sale of the JCB group, meaning that the further success fee would only be due upon that sale. There was nothing in the factual matrix surrounding the agreement that would justify a different interpretation. The judgment also rejected the First Implied Term on the basis that it was neither necessary for the operation of the contract nor so obvious that it went without saying, and rejected the Second Implied Term on the basis that, if the trigger for the further success fee (the sale of the JCB group) did not happen, there was simply no basis for implying an entitlement to payment for services performed.
Contra appealed the first instance judgment to the Court of Appeal, broadly on the basis that the first instance judge's approach to the interpretation of the agreement and implied terms had been incorrect.
Decision
The Court of Appeal dismissed Contra's appeal, finding that Jacobs J was correct to dismiss the claim on a summary basis. Lady Justice Carr gave the leading judgment, with which Sir Geoffrey Vos MR and Lord Justice Newey agreed.
Express terms
The court found (and Contra did not dispute) that, based on the text of the agreement only, "Project Crakemarsh" could only mean the sale of the JCB group and Contra would only be entitled to the further success fee in the event of that sale. Therefore, Contra's position on the agreement's express terms (ie that the further success fee was due not only on the sale of the JCB group but also on some other form of restructuring) required that the factual matrix and/or commercial context surrounding the agreement led to a different interpretation.
Having noted that the factual matrix of a contract cannot be used to give it "a meaning that the words of the contract will not legitimately bear", the court found that the factual matrix did not justify departing from the clear contractual language that the parties had chosen regarding the further success fee. Contra's argument that "Project Crakemarsh" had in practice been used by the parties to refer to a broader set of circumstances than the sale of the JCB group, and its reference to pre-contractual negotiations, did not change the position. Even if such discussions or pre-contractual negotiations were admissible as evidence, neither would supersede the clear meaning of the words of the agreement.
In addition, Contra had contended that the further success fee was part payment for services that had already been provided at the time of the agreement, as well as payment for future services regarding any separation of interests/restructuring, so that it was simply a deferred payment clause. The court rejected this argument, on the basis that it was incompatible with the words of the contract. It would also be commercially absurd for Contra to have an absolute, albeit deferred, entitlement to the further success fee, in circumstances where that fee was significantly higher than the value of the services provided. Conversely, it was not commercially absurd for such a significant fee to be paid upon an uncertain event, namely the sale of the JCB group.
Implied terms
The court agreed with the first instance judge that neither the First Implied Term nor the Second Implied Term was: (i) necessary to give the agreement business efficacy; or (ii) so obvious that it went without saying.
Applying Barton as further support for this position, the court concluded that both implied terms were inconsistent with the express and complete terms of the agreement. As Lady Justice Carr noted, in Barton the Supreme Court held that where "parties stipulate in their contract the circumstances that must occur in order to impose a legal obligation on one party to pay, they necessarily exclude any obligation to pay in the absence of those circumstances".
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