Consultancy appointment was not a relational contract (Perrucci v Orlean Invest Holding)
Commercial analysis: The claimant applied for summary judgment but was only partially successful in striking out various elements of the defendant’s defence. The defendant had terminated the claimant’s consultancy appointment for breach, which the claimant said was a repudiation of the contract. The defendant primarily relied upon a breach of an alleged oral agreement and a breach of implied terms, including an implied term of good faith (arguing that such a term could be implied as it was a ‘relational contract’). The court permitted the oral agreement defence to proceed, but was not willing to imply a contractual good faith provision into the consultancy contract.
What are the practical implications of this case?
Because there was no ‘non-compete’ clause for the defendant to rely upon, the defendant needed to rely upon an alleged oral agreement and implied terms. While the defendant’s oral agreement argument was permitted to proceed to trial, the judge indicated that it had real difficulties. When drawing up transaction documents, it is essential that all terms which have been orally agreed are incorporated into those documents. A straightforwardly express non-compete clause or other obligation not to provide services to a competitor would have saved the defendant considerable trouble.
Nonetheless, the judge was prepared to let the oral agreement argument proceed to trial. The judge concluded this was a factual issue reliant on witness evidence which would be wrong to dismiss summarily, in the absence of any documents to rebut that oral agreement. The claimant also disputed that there was any evidence of any breach of the alleged oral agreement. The judge allowed the allegation of breach to survive strike out on the logic that if the existence of the oral agreement required a trial, then so did the question of whether there was a breach.
This case also adds to the body of case law on implied terms of good faith. It appears to have been a stretch for the defendant to contend that a corporate transaction was a relational contract, even where there was an ongoing consultancy appointment as part of the transaction. The best method for introducing a good faith obligation into a consultancy arrangement (or in any contract) is to expressly provide for it in the terms and conditions.
What was the background?
The claim concerned an alleged repudiatory breach of a consultancy services agreement (‘CSA’). In 2019, the claimant (‘Mr Perrucci’) sold his shareholdings in the defendant (‘Orlean’) for $US150m.
Orlean operated oil and gas facilities in Nigeria. As part of this transaction, Mr Perrucci was also appointed as a consultant for Orlean and was to be paid a substantial monthly consultancy fee over a four-year period.
Orlean terminated the CSA in 2021, alleging that Mr Perrucci had not performed any services under the CSA and that he had been providing support to a particular competitor (with whom Orlean was also in dispute). Mr Perrucci denied he was in breach and brought a claim for repudiatory breach of the CSA, claiming the balance of his consultancy fee. His position was that he was only required to provide consultancy services ‘upon request’ (and no request for services had been made) and that he had not provided any support to the competitor.
Mr Perrucci applied for summary judgment on the claim. The central issues before the court were whether the following defences had real prospects of success:
- it was an orally agreed condition of the transaction that Mr Perrucci would not provide funding to the competitor/would not compete with Orlean
- there were implied terms that Mr Perrucci would act in good faith and would not harm Orlean’s interests
- there was a failure to provide services under the CSA
- there was a contractual right to terminate, and
- the CSA should be construed in a way to limit quantum
What did the court decide?
Mr Perrucci did not get summary judgment on his claim, although the court did strike out several of Orlean’s defences.
Although the alleged oral agreement was not mentioned in any of the transaction documents the Judge was not prepared to summarily reject this defence. The court held that the defence was plausible in the circumstances and was not contradicted by any documentary evidence. Because Mr Perrucci denied the existence of the oral terms, it followed that a trial was required to examine whether this denial was true.
The defendant relied upon the well-known case of Yam Seng Pte Ltd v International Trade Corporation Ltd  EWHC 111 (QB) (and subsequent authorities) to contend that the CSA was a relational contract, with an implied term of good faith. The judge rejected this argument on the grounds that the CSA was a contract for the performance of specific services; not a long-term relational contract. The other implied term that Mr Perrucci would not harm Orlean’s interests failed the business efficacy test.
Failure to provide services
The court rejected the ground of defence that Mr Perrucci was in breach of a condition of the CSA to provide services upon request. First, it was not reasonable to contend that the relevant obligation was a condition; rather it was an example of an intermediate term. Second, the pleading and evidence for this ground were inadequate.
Contractual right to terminate
Orlean had relied on the words ‘unless otherwise terminated in accordance with this Agreement’ as giving a right to terminate. The court decided against Orlean as contractual words with no contractual reference ought to be ignored as meaningless.
The court made a finding on quantum if the claim succeeded at trial. Mr Perrucci was entitled to the fees for the remainder of the four-year consultancy term, but when assessing damages, the trial judge should consider whether those damages should be reduced to take into account the probability that the defendant would have triggered an earlier termination of the CSA by the repayment of the loan notes.
- Court: Queen’s Bench Division (Commercial Court), Business and Property of England and Wales, High Court of Justice
- Judge: His Honour Judge Keyser QC (sitting as a High Court judge
- Date of judgment: 2 August 2022
This article was first published by Lexis®PSL on 02/09/2022