Summary

An agreement to enter into a management agreement for a property development did not contain an implied term that it would only continue in existence for so long as a relationship of mutual trust and confidence subsisted between the parties. There was no authority supporting the implication of such a term in that class of contract.

Facts

The claimant (C) applied for summary judgment on its claim against the defendant companies (D1 and D2) for declarations in relation to an agreement for a property development.

C, D1 and D2 had entered into a fees agreement which provided that C and D2 would enter into a management agreement in relation to the property. In the event that C and D2, acting reasonably and with all due expediency and in good faith, had not agreed the management agreement terms within five months they were to be determined by an expert. Some terms were agreed, but D2 referred the contested terms to an expert. Before the expert issued his determination, D2 said that it had lost trust and confidence in C's ability to deliver under the agreements because the terms of the management agreement had not been agreed and because of concerns about its financial position, and that it was treating the fees agreement as at an end. C did not accept the termination and began proceedings. The issues were whether (i) D2 had any real prospect of succeeding on its claim for an implied term that the fees agreement was conditional on the continued existence of a relationship of trust and confidence and that it had been intended to be terminable on breach of that implied term; (ii) there had been a breakdown of trust and confidence; (iii) C was entitled to a mandatory order requiring D2 to instruct the expert to complete his determination; (iv) C was entitled to a mandatory order requiring D2 to sign the management agreement when finalised.

Held

(1) The implied term contended for by D2 did not relate to a class of contract in respect of which any such implication had previously been recognised in the authorities, did not depend on one party conducting itself in breach of an implied promissory obligation, and would give rise to a right to terminate not on the basis of any objective criteria, but on the subjective basis that the other party genuinely considered that trust and confidence had broken down. It was not an employment case, nor did it concern the relationship between solicitor and client, Malik v Bank of Credit and Commerce International SA (In Liquidation) [1998] A.C. 20 and Milner (JH) & Son v Bilton (Percy) Ltd [1966] 1 W.L.R. 1582 considered. Applying an objective test, the reasons given by D2 for the breakdown of trust and confidence were unpromising. The consequences of a failure to agree the terms, and any issues concerning C's finances, had been expressly covered in the agreement. Any concerns about C's ability to deliver under the agreement could have been resolved by agreement or by the expert. There was a strong case for saying that if the parties had wished to produce the result that each had the right to terminate in the event that it had lost trust and confidence in the other, even when the other party was not in breach of contract and even if it might be unreasonable, then they should have done so expressly. D2 had no real prospect of establishing that the fees agreement was subject to the implied term. C was entitled to a declaration that the fees agreement remained in existence and had not been determined (see paras 62, 64-67, 75, 80, 82 of judgment). (2) If there had been an implied term, it would have involved conducting a mini-trial to determine the factual issue of whether it had been breached. Therefore, summary judgment would not have been granted on that issue (paras 88, 90). (3) As there were arguable disputes about what matters had been referred to the expert or were within his remit, it would be surprising for it to be a proper exercise of the court's discretion to make a mandatory order at the behest of one party which required the other party to instruct the expert to determine those very matters (para.103). (4) A declaration would not have been made for the finalised management agreement to be signed. D2 had arguments that had a real prospect of success that the finalised management agreement might contain terms to which it had legitimate objections. C's suggested answer to that problem, namely that the order sought should be made subject to granting D2 liberty to apply, was not in keeping with the principles underpinning summary judgment applications. In any event, D2 had a real prospect of successfully resisting at trial an order that it sign the management agreement, and no purpose would be served by making such an order (para.121).