‘Somewhat vague’ contract sparks dispute

Posted: 11th June 2013

The wisdom of taking professional advice prior to entering into commercial relations has been underlined by a case in which the ‘somewhat vague’ terms of an agreement between residential property developers gave rise to a costly High Court dispute over the division of profits.

CaterpillarTwo builders (the claimants) had engaged in a number of successful development projects with a designer and property consultant (the defendant) prior to a cooling of their relationship. It was agreed that net profits generated by the ventures would be split 50:50 between the claimants and the defendant but the terms of their agreement were in other respects imprecise.

Following the termination of their business relationship, the claimants launched High Court proceedings claiming that the defendant owed them £562,000 in respect of their share of profits. They relied, inter alia, upon an accountant’s letter to that effect and a purported ‘promissory note’ which was not directly enforceable because it failed to meet the requirements of the Bills of Exchange Act 1882.

In denying liability, the defendant argued that he had been entitled to charge consultancy fees on projects prior to the division of profits and that the claimants had agreed to accept £100,000 in cash and shares in a hotel venture in settlement of their financial claims.

Ruling in favour of the claimants, the court noted that the hotel venture had not come to fruition and that, on analysis of the oral and documentary evidence, there was a clear agreement that the defendant would pay £562,000, only £39,900 of which had been remitted through a third party. Judgment was entered for the claimants for the balance of £522,100, plus interest.