| Date | 3 September 2003 |
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| Judgment | Hadley Design Associates Ltd v The Lord Mayor and Citizens of the City of Westminster, TCC 9 July 2003 |
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| The Issue | The operation of "termination at will" clauses. |
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| Implication |
Termination at will clauses will generally be upheld by the courts with the effect that a contract may be brought to an end by one party without default on the part of the other party, providing that the requirements of the clause are strictly followed, such as the giving of appropriate notice. |
printIt is commonplace in construction contracts to find a clause which permits either party to bring the contract to an end without there having been any default by the other party. Such clauses are commonly called 'termination at will' clauses. Upon termination, the contract will remain in force to govern the rights and obligations of the parties, such that for example, a contractor will be entitled to be paid in accordance with the contract for any services it renders up to the date of termination. More importantly however, the clause will operate with the effect that there will be no entitlement to claim damages flowing from the termination, such as for example, loss of profits on the remainder of the works. These issues were examined in the recent case of Hadley Design Associates v The Lord Mayor and Citizens of the City of Westminster. In July 1987, Westminster had engaged Hadley as surveyors for a rolling programme of works at the Churchill Gardens Estate in the district of Pimlico in London. The estate comprised 37 blocks of flats built in the late 1950's and early 1960's which required extensive refurbishment. Hadley were engaged to survey the properties, specify the necessary remedial works, recommended appropriate contractors and supervise the construction activity which would extend over a number of years. The contract was based upon the RICS conditions for engagement of building surveying services and included a provision that entitled either party to terminate the contract by giving one month's notice. The works proceeded over a number of years and it was not until 1996 that Westminster exercised its right to terminate its contract with Hadley. There were three primary reasons for bringing the contract to an end. Firstly, Westminster was now required to follow a policy of compulsory competitive tendering, which meant that the surveying services being provided by Hadley were to be market tested to confirm that value for money was being obtained. Secondly, a separate professional practice had been appointed to provide maintenance services on the estate and the council wished to have one single firm dealing with both the maintenance and repair works. Finally, Westminster was concerned with the degree of dissatisfaction expressed by residents of the estate with the services being provided by Hadley. Hadley were deeply unhappy with the termination notice and eventually commenced proceedings in the High Court claiming that the termination was wrongful and that it was entitled to damages representing the profit which it would have made had it completed all the work. Hadley put forward a number of reasons why it considered the termination to be wrongful. Firstly, it relied upon certain assurances said to have been made by Westminster prior to entering into the contract, that the termination provisions of the contract would not be operated unless either Hadley was in default or the Council ran out of money. These assurances were said to have amounted to a collateral contract or were representations which had induced Hadley to enter into the contract. His Honour Judge Richard Seymour QC carefully considered the background to the placing of the contract. He concluded that there was no proof of the collateral contract or of the representations asserted by Hadley. Having failed in that approach, Hadley then argued that, as a matter of law or in order to give business efficacy to the contract, there should be an implied term of the contract that Westminster could not terminate without fault on the part of Hadley. Judge Seymour noted the general proposition that a term could not be implied where it would contradict an express term in the contract. As a result, it was plain in his judgment that no such term could be implied into the contract between the parties. Hadley then turned its attention to the Unfair Contract Terms Act 1977. This Act applies to contracts where one of the parties is either a consumer or is dealing on the other's written standard terms of business. Where that applies, the Act states that a party cannot rely upon a term which would entitle it "to render a contractual performance substantially different from that which was reasonably expected" unless the term is reasonable. Again Judge Seymour rejected the case being made by Hadley. The contract, which had been based upon the RICS Standard Form, was not Westminster's "written standard terms of business". In his opinion, the idea of written standard terms of business was that there should exist a stock of written, usually printed, contract conditions which were simply drawn from as a matter of routine and applied without negotiation. Accordingly, in his view, the Unfair Contract Terms Act did not apply. However, even if that was wrong, Judge Seymour was satisfied that a clause which provided for the giving of one month's notice of termination did not offend the requirement of reasonableness as set out in the Unfair Contract Terms Act. In conclusion, the various attempts by Hadley to overcome the termination at will clause in its contract failed. Westminster was entitled to terminate the contract without giving reasons, and Hadley's claim for damages failed.
CJ-0334
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