enforceability of unilateral clause to increase fees
AMBERLEY v WEST SUSSEX COUNTY COUNCIL (CA) [2011]
This case illustrated that where a party is seeking to rely on a unilateral right to increase its fees, very clear and precise drafting will be required to achieve that. A right to ‘review’ does not amount to a right to unilaterally increase!
facts:
- A had contracts with W for the provision of residential care home services and sought to increase its fees unilaterally relying on a provision within the agreements which stated that “The level of fees is subject to review as costs increase”.
decision:
- The Court of Appeal (“CA”) considered the construction of this clause and whether objectively the parties had intended to grant A the right unilaterally to increase the fees which W would then be obliged to pay.
- Considering existing decisions, the CA made clear that contracting parties are free to agree such a one-sided clause which allows one party to vary a contract to the detriment of the other subject always to the implied term that such a right would not be exercised dishonestly, for an improper purpose, capriciously or arbitrarily. However, such a one-sided provision would be unusual and clear words would be needed to achieve this and show that this was the intention of the parties.
- The CA decided that the wording in this case was not sufficiently clear to confer this unilateral right. “Review” meant literally review, entitling A to review the fees but requiring W’s agreement to actually increase the fees and so vary the contract.
points to note:
- Where you intend to be able to unilaterally increase any element of your fees if costs increase, unequivocal words will be needed to that effect.
- The clause did not on the face of it act to imply that the parties would necessarily agree that fees would be increased in proportion to demonstrable increases in costs or that increases would be limited to corresponding increases in costs. Effectively the parties seem to have been entirely free to agree or disagree. The question of course then falls as to what would be the situation if the parties failed to reach agreement and what rights to exit the arrangements the supplier might have in the absence of agreement. The right to terminate would need to be clearly set out as part of the contract terms.