Interpretation of payment cap
BlackLion Law v Amira (High Court) [2022]
One would hope that a firm of solicitors should be able to craft a clear retainer. However, as this case demonstrates, even lawyers need to be careful with their drafting particularly with regard to critical payment provisions .
Facts:
The claimant, a law firm, agreed an engagement with its client in relation to a bond issue. The clause dealing with payment provided “We have agreed that the Firm will charge the Company a fixed fee of £300,000 ("Fixed Fee") for the Services in connection with this Matter, subject to [our emphasis] the completion of the Matter by 31 May 2017". According to the defendants, this meant that if the matter did not complete by 31 May 2017, no fee would be payable. The claimant argued the qualifying words impacted only whether the fee was entirely fixed or whether additional charges would apply for work after 31 May 2017, not whether any fee would be payable at all.
Decision:
Citing the Supreme Court decision in Rainy Sky v Kookmin in 2011 (http://www.trglaw.com/news112.html) , the judge explained that if drafting is unambiguous, it must be applied as written but where two interpretations of a clause are possible, the court can prefer the interpretation more consistent with business common sense. When deciding matters of contract interpretation, the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood the words used in the contract to mean. The factual matrix (context) in which the contract was made is relevant. On the other hand, the contractual negotiations preceding the execution of the agreed version are inadmissible on the question of contract interpretation as per the House of Lords judgment in Chartbrook v Persimmon dating from 2009 (http://www.trglaw.com/news47.html) .
The judge concluded that the wording was not clear and unambiguous. The key words were ‘subject to’. The claimant's construction was more consistent with commercial common sense, considering the background context. It was not market practice for lawyers to be paid solely a success fee on a project of this nature. No reasonable business would agree to a contingent fee arrangement when, at the time the contract was signed, most of the work had been done and the project's prospects of completing were not good. A small business like the claimant would not tie up its workforce on a project only to be paid if successful.
The judge went on to consider whether he would have rectified the contract in the claimant's favour if he had decided that the defendant's interpretation was correct. The judge noted the test for rectification approved in Chartbrook v Persimmon Homes but also cited FSHC Group Holdings v GLAS Trust Corporation [2020] (http://www.trglaw.com/news291.html) as requiring the parties to have the same actual intention and to have outwardly confirmed their shared understanding. By analysing the pre-contract negotiations and post-contract conduct, the judge found evidence of a shared understanding that the fee was not contingent on the deal completing.
Points to Note:
- Great care needs to be taken with the drafting of payment provisions and particularly with any conditions attached to payment.
- Be extremely careful with legal shorthand such as ‘subject to’. Is the language used open to multiple meanings? If so, it may be worth using a few more words to clarify any possible ambiguity.
- Evidence of negotiations leading to the contract as signed and the subjective intentions of the parties is admissible but only for deciding a rectification claim. Introducing evidence of the negotiations can be important since this could potentially influence any decision on the interpretation and claims for rectification are often included precisely for that reason.