Introduction

The case of CRIMOND ESTATES LIMITED (CEL) versus MILE END DEVELOPMENTS LIMITED (MEDL) adjudicated in the Scottish Court of Session, Outer House, in March 2021, delves into complex issues surrounding contract termination, cost overruns, and the implications of implied contractual variations through conduct. This dispute arose from an agreement between two specialized entities engaged in the development of Mile End School in Aberdeen into residential flats. Central to the litigation were CEL's claims of wrongful termination based on an alleged unlawful breach of contract by MEDL.

Summary of the Judgment

CEL entered into a "Project Management Agreement" with MEDL in 2013, under which CEL was to provide extensive management services in exchange for a share of the net sale proceeds. MEDL terminated the agreement in November 2016, citing a breach related to cost overruns exceeding the budget by more than 5% without prior written approval—a clause stipulated in the contract. CEL contended that the termination was unlawful, either due to the absence of unapproved cost overruns or because MEDL had implicitly varied the contractual terms through consistent conduct, thereby waiving the right to terminate on the specified grounds.

The Court found in favor of CEL, determining that MEDL had effectively varied the contract terms by regularly approving cost overruns through conduct that conflicted with the explicit contractual requirement for written approval. Consequently, MEDL was not entitled to terminate the contract based on the cited clause. Furthermore, CEL was awarded reasonable remuneration for services rendered up to the termination date and recompense for limited work conducted post-termination.

Analysis

Precedents Cited

The judgment referenced several pivotal cases that informed the Court's interpretation of contractual variations and termination rights:

• Minevco Ltd v Barratt Southern Ltd (2000): Highlighted the principle that conduct of the parties can imply variations to a written contract.
• Baillie v Fraser (1853): Emphasized that parties may consent to alterations in contract terms through their actions.
• Hadley v Baxendale (1854): Established the foundational principles for assessing damages in breach of contract.
• The Golden Victory (2007) and The Hut Group Ltd v Nobahar-Cookson (2014): Addressed the assessment of damages at the breach date.
• Armia Ltd v Daejan Developments Ltd (1979): Discussed the nuances of waiver and abandonment of contractual rights.

Legal Reasoning

The Court's reasoning pivoted on determining whether MEDL had the contractual right to terminate based on cost overruns and whether such terminations were valid given the parties' conduct.

• Implied Variation of Contract: The Court concluded that MEDL's consistent actions—approving cost overruns through meetings and email correspondences without adhering to the written requirement for prior written approvals—constituted an implied variation of the contract terms. This conduct indicated that the parties had mutually departed from the strict contractual formalities regarding cost control.
• Wrongful Termination: Since the implied variation negated the enforceability of the specific termination clause invoked by MEDL, the termination was ruled unlawful. Consequently, CEL was entitled to remedies under the breach of contract.
• Damages Assessment: The Court adopted the "Bwllfa principle," assessing damages based on the actual outcome rather than speculative projections. Since the property market downturn nullified the potential profits initially projected, CEL's claim for damages was dismissed. However, CEL was awarded reasonable remuneration as stipulated in the contract.
• Remuneration Clause Interpretation: The Court interpreted clause 3.12 of the agreement narrowly, focusing on the open market rate for project management services without factoring in the quality of services rendered. Thus, CEL was awarded £211,831.63 for services up to termination.
• Recompense for Post-Termination Work: CEL sought recompense for work performed post-termination. The Court found minimal benefit to MEDL from this work and awarded a nominal sum of £1,269.93 based on negligible enrichment.

Impact

This judgment underscores the significance of consistent conduct by contracting parties in interpreting and potentially varying contract terms. It serves as a precedent that:

• Implied Contractual Variations: Parties' actions can imply mutations to contractual terms, especially when such actions systematically deviate from written agreements.
• Strict Compliance with Termination Clauses: Termination rights embedded within contracts must be exercised in accordance with their explicit terms unless evidenced otherwise through conduct.
• Assessment of Damages: Courts may prioritize actual outcomes over projected benefits when assessing damages, particularly in contexts where external factors influence project viability.
• Remuneration Clauses: Objective measures, such as open market rates, will be favored over subjective assessments of service quality unless explicitly stated in contracts.

Complex Concepts Simplified

Implied Variation of Contract

Definition: Implied variation occurs when the parties to a contract, through their consistent actions and conduct, effectively modify the terms of the contract without executing a formal written amendment.

Application in Case: MEDL's continuous approval of cost overruns without adhering to the contractual requirement for prior written consent suggested an implicit agreement to alter the original terms concerning cost management.

Wrongful Termination

Definition: Wrongful termination refers to the unjustified ending of a contractual agreement by one party, breaching the terms stipulated within the contract.

Application in Case: Since MEDL had implicitly varied the contract terms through its actions, invoking the termination clause based on unapproved cost overruns was deemed unlawful.

"Bwllfa Principle"

Definition: The "Bwllfa principle" pertains to the valuation of damages based on actual occurrences rather than hypothetical or projected outcomes at the time of breach.

Application in Case: The Court applied this principle by assessing CEL's damages based on the real-world impact of the market downturn, which negated the projected profits, thereby reducing the claim to zero.

Conclusion

The judgment in CRIMOND ESTATES LTD v MILE END DEVELOPMENTS LTD serves as a critical reminder of the interplay between written contractual terms and the realities of contractual conduct. It highlights that consistent behavior by contracting parties can effectively alter the terms of an agreement, even in the absence of formal written amendments. Additionally, the Court's approach to damage assessment emphasizes the importance of grounding claims in actual outcomes rather than speculative projections. For legal practitioners and parties entering into contracts, this case underscores the necessity of aligning conduct with contractual provisions and the potential legal ramifications of deviating from stipulated processes without formal consent.