Loss Prevention Alerts

ALERT 29:  "No win, no fee" - Speculative Contracts

This loss prevention alert has been produced by the Loss Prevention Working Group (LPWG) of the AGS. It highlights issues that the LPWG considers may be of relevance to members. It is not intended to provide a definitive response to any issues and before taking action members should consider carefully whether they need to seek independent legal advice.

Stephen Donald Architects Ltd v. Christopher King

[2003] EWHC 1867 (TCC)

This loss prevention alert highlights the need for AGS members to make clear the basis upon which they are to be paid when providing professional services. It is very commonly alleged by developers and others as a way of avoiding the payment of fees that it was accepted that the professional's work would be done on a speculative basis and that he/she would not be paid unless the development proceeded. Without written evidence of the basis for payment, this can be a difficult argument to counter. In this case, the court held that there was no legally binding agreement between the architect and the client, and so the architect could not recover fees. 

When K, the developer in the case, was friends with the principle of SDA, the architect, he had instructed SDA in relation to the proposed development of a property that K owned. SDA was to prepare plans, apply for planning permission and arrange or supervise the building works. Prior to completion of the project a dispute arose regarding the payment for SDA's services. SDA sought: 

(a) payment of professional fees for architectural work done pursuant to a contract, or, alternatively, damages on a quantum meruit basis for such services; 

(b) damages for repudiatory breach of the alleged contract; and 

(c) payment, as part of the sum for professional fees, for the amount of an allegedly dishonoured cheque for £47,000. 

K counterclaimed for damages for breach of contract and negligence on SDA's part alleging, amongst other things, that SDA had failed to take into account K's actual requirements and funding capacity when preparing designs for the redevelopment, such that SDA's work was of no value to K. 

The Technology & Construction Court held that the relationship between SDA and K was not an ordinary one of architect and client. The redevelopment project was essentially a joint venture, out of which both SDA and K expected to make a profit. It followed that it could not necessarily be expected that the relationship would involve the payment of professional fees calculated in the conventional way, and the court found that there was no agreement to pay fees calculated on any particular basis. SDA knew that K did not have the means to pay fees until completion of the project. 

With respect to the cheque for £47,000, the court held that this was an informal loan from K to SDA as a "gesture of friendship", not a payment on account of fees. Accordingly, K was not liable for countermanding payment of that cheque because the cheque was not supported by consideration, and SDA had breached a collateral agreement not to present the cheque for payment until a later time.

The court though also found that K's counterclaim in negligence failed, and held that K had undoubtedly benefited from SDA's work and that that benefit was undoubtedly at the expense of SDA. However, K's enrichment was not unjust, given that the project was a joint venture between SDA and K for mutual profit, and given that SDA assumed the risk that K might decide not to proceed.

 Accordingly, the court dismissed both parties' claims and counterclaims but the fact remains that the architect, who had done a very considerable amount of work, was held not to be entitled to payment. 

Comment: Very often, AGS members will be working for clients who do not have the means to pay them until some event occurs, such as the grant of planning permission of the provision of funds by a financial institution. Of course there is nothing wrong with an AGS member taking on work on a speculative basis where it agrees that, unless the relevant contingency occurs, it will not be paid. However, this point should never be left in any doubt and it should be absolutely clear, and documented in writing, whether the AGS member has agreed to work on a risk basis or in the normal manner whereby a professional is paid for his work, provided always that that work is conducted with sufficient professional care and skill, regardless of whether the client's ultimate commercial objectives are met.

Prepared for the AGS by Steven Francis, DLA

Date of Issue: 1 October 2003