In a recent interesting decision (Fitzroy Robinson Ltd v Mentmore Towers Ltd), the High Court was asked to address this issue. Although the case turned largely on its facts, it provides guidance on the potential consequences of deliberately not informing a client that a key person has left or will be leaving.
Background
Fitzroy Robinson Ltd, the claimant, are architects. They were engaged by Mentmore Towers Ltd, the defendant, and others in an ambitious project to develop the former “In & Out Club” on the Piccadilly and Mentmore Towers, the Rothschilds’ family home in Buckinghamshire.
A key member of the claimant’s team was its director Jeremy Blake who had co-ordinated the successful bid for the project. Blake was involved in all pre-contractual meetings with the defendant who had been told that Blake would be the project team leader.
The claimant was due to start work on the project in March 2006. At that time, although terms were mostly agreed, some were still being negotiated and contracts had not yet been signed. When they were signed, the contracts defined “Team Leader” as being Blake “or such other individual of comparable standing and ability and experience as [the defendant] may at its discretion approve.”
Unfortunately for the claimant, just before it started work on the project and before the contracts had been signed, Blake tendered his resignation. Following brief negotiations, Blake and the claimant agreed that he would work a year’s notice before leaving. This meant that, prior to the contracts being signed, the claimant knew Blake would not be able lead the project until its conclusion.
Critically, the claimant chose not to inform the defendant of Blake’s expected departure until November 2006, some 6 months after the contracts had been signed and work had started.
For reasons which are not entirely clear, the project hit the rocks and the defendant stopped paying the claimant who sued. The defendant counter-claimed alleging that it had been induced to enter into the contracts on the basis that Blake would manage the project and that the claimant’s failure to inform them of Blake’s resignation amounted to a misrepresentation and a breach of contract.
The Decision
The court found for the defendant allowing the counterclaim:
- The claimant’s failure to inform the defendant was motivated by its belief that the defendant would not have signed the contracts if it had known that Blake would not be involved throughout the project.
- The defendants signed the contracts because they had been induced by the claimant into believing that Blake would lead the project throughout.
- By not informing the defendant, the claimant had acted fraudulently because it had knowingly and deliberately made a false representation without belief in its truth solely to induce the defendant to enter into the contracts.
- By not informing the defendant after the contracts were signed, the claimant had acted in breach of an implied term of co-operation, ie that because the contracts specified that the project leader would be Blake, the claimant was duty-bound to inform the defendant promptly once it became apparent that Blake was not going to stay.
- However, notwithstanding the fraudulent misrepresentation, because the contracts were for personal services, it was hard to identify what, if any, financial loss had been suffered by the defendant. The court found that there was no evidence of delay or disruption to the defendant and that all it could recover financially was a reduction in the claimant’s fees for any charges relating to the additional work and duplication Blake’s departure had caused the claimant.
Conclusion
The lessons to be learnt from this case are especially pertinent for service providers such as advertising agencies, management consultants and accountants:
- In pre-contractual negotiations be upfront and clear about who will be running your client’s team/project and ascertain the importance of that person to your client.
- Ensure that your client contract deals expressly with key staff and team composition issues and, whenever possible, retain full control and flexibility over the make-up of your client team. Ideally the contract should make it clear that you have no obligation to notify the client of any key person or team changes.
- Let your client know as soon as you reasonably believe that a key person is leaving especially if you think that person is highly valued by your client. Consider doing so even if your contract allows you to choose the team so as to avoid breaching the implied term of co-operation. If it is well drafted, your client may not be able simply to walk away from its contract with you.