CRIMOND ESTATES LTD AGAINST MILE END DEVELOPMENTS LTD

Factual and Procedural Background

The parties to this action are two single purpose companies formed for the purpose of developing a former school site in The City. The Plaintiff ("Company A") and the Defendant ("Company B") entered into a project management agreement in 2013, whereby Company A agreed to provide specified management services to Company B in exchange for a share of the net sale proceeds from the development. In November 2016, Company B terminated the agreement. Company A contended that this termination was unlawful and sought damages for breach of contract or, alternatively, remuneration for services supplied. Company B contended the termination was lawful and denied any sums were due. The matter proceeded to proof before answer.

The development project experienced significant unforeseen difficulties, including extensive asbestos removal, theft, and other issues causing delays and cost overruns. Despite the termination notice served by Company B in November 2016, Company A continued to perform work related to snagging and sales until instructed to stop in April 2017. The court heard extensive factual and expert evidence from representatives and experts of both parties regarding the management, costs, and quality of services provided.

Legal Issues Presented

1. Whether Company B was entitled to terminate the project management agreement under clause 6.2.7, based on cost overruns exceeding 5% of the budget without prior written approval.
2. Whether any excess costs had been approved by Company B, either formally or by conduct, thereby precluding termination.
3. Whether Company B waived its right to terminate by allowing Company A to continue providing services after knowledge of cost overruns.
4. Company A's entitlement to damages for breach of contract and the correct method for quantifying such damages.
5. Company A's alternative entitlement to reasonable remuneration for services supplied up to termination.
6. Entitlement to recompense for work done by Company A after termination and its quantification.

Arguments of the Parties

Plaintiff's Arguments

• Company B was not entitled to terminate under clause 6.2.7 because the budget had been increased by agreement and any excess costs had been approved in writing.
• Even if some costs were not formally approved, the parties' conduct indicated that formal written approval was not required.
• Company B waived its right to terminate by allowing Company A to continue providing services for 17 months after cost overruns were identified.
• Damages should be assessed as at the date of breach, using projected profits at termination rather than actual sales figures after termination.
• Reasonable remuneration for services supplied should be based on an open market rate for project management services, reflecting the scope of work performed.
• Company A is entitled to recompense for work performed after termination under the law of unjustified enrichment.

Defendant's Arguments

• The termination under clause 6.2.7 was lawful as cost overruns exceeded the budget by more than 5% without prior written approval.
• No written approval was given for excess costs except for penthouse enhancements; knowledge of overruns did not amount to approval.
• Company B did not waive its right to terminate; allowing continued services did not amount to abandonment of termination rights.
• Damages should be assessed on actual sales and costs after termination, reflecting real-world outcomes and "but for" causation.
• Reasonable remuneration should reflect the standard and quality of project management services actually provided, which was low.
• There is insufficient evidence that Company B was enriched by work performed post-termination, limiting any recompense claim.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the contractual provisions, evidence of conduct, and the nature of the cost overruns. It found that the budget was formally varied only in respect of penthouse enhancements, which were approved in writing. Other cost overruns were acknowledged but not formally approved in writing. However, the parties’ consistent conduct, especially the involvement and control exercised by Company B’s principal, evidenced an implied variation removing the written approval requirement. This prevented Company B from relying on cost overruns it had agreed to as grounds for termination.

The court rejected Company B’s claim that it had waived the right to terminate, finding no clear abandonment of the right despite the delay in exercising it.

Regarding damages, the court applied the Bwllfa principle, preferring actual sales outcomes over speculative projections at the breach date, as the profit share was contingent on crystallized profits. It concluded that no profit share was due to Company A because the project’s final profit was absorbed by Company B’s priority sums, especially due to a property market downturn.

On the alternative claim for reasonable remuneration under the contract, the court held that the contract entitled Company A to remuneration based on the open market rate for project management services, without regard to the quality of performance. It rejected the higher fee proposed by Company A’s expert as unsupported and accepted the lower, more objective percentage advanced by Company B’s expert, resulting in a fee of approximately £211,831.63.

For work done post-termination, the court treated the claim as one for unjustified enrichment and required proof of benefit to Company B. It found insufficient evidence of enrichment except for a modest amount attributable to project management activities, awarding £1,269.93 accordingly.

Holding and Implications

The court held that Company B's termination of the agreement was unlawful because it relied on cost overruns that had been effectively approved by conduct, notwithstanding the absence of formal written approval. Company A is not entitled to damages for loss of profit share as the project ultimately yielded no distributable profit share due to market conditions and priority payments. However, Company A is entitled to reasonable remuneration for services provided up to termination, fixed at £211,831.63, and a modest sum of £1,269.93 for post-termination project management services.

DISPOSED OF as follows: decrees for payment in favor of Company A for the sums stated, with other claims dismissed.

The decision clarifies that contractual formalities may be varied by the parties' conduct, and that damages for wrongful termination involving profit sharing should consider actual outcomes rather than speculative projections. No new precedent was established beyond the application of existing principles to the facts.