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UK – Case Law Deciding Costs on Aborted Transactions

UK – Case Law Deciding Costs on Aborted Transactions

The High Court recently shed some clarity on the recovery of transactional costs if and when a financial transaction is cancelled. This was a result of the judgement passed in Roundshield Partners LLP v. Ciudad Real International Airport SL & Ors [2019] EWHC 2733 (QB) where Griffiths J ruled in favour of the defendants and held that their liability to pay the remaining sum was not established.

There were two key questions answered in the ruling:

  1. Can the use of certain words (especially the clause in the contract of the case at hand) impose on the defendants a duty to pay the transactional costs?

The court held (here) that the terms used should be clear and unambiguous to enforce an extra duty and to decide on all expenses in full – not just at the point of invoicing.  Therefore, any contract clause should be fully informed to the defendants (other party entering the contract) and must be accurately tested for "adequately defined or sufficiently accurate" costs in order to offer (or refuse) consent to such costs being incurred. This "adequate information" is particularly necessary given the need to provide and "reasonably" withhold the consent of the defendants to such expenses.

  1. What amounts to a reasonable amount claimed?

The courts tailored this question to the case at hand and did not effectively give substantial guidance for all future cases. Since most of the demands for costs fell in the absence of an advance settlement, the court had only to address this problem in conjunction with a small number of invoices and, in all instances, measured the reasonableness of the sum charged by reference to the original quote or the current revision of the fees incurred (of which there were few) rather than by reference to the question of whether the amount stated was fair. Given that the plaintiffs were unable to provide evidence to show that the remainder of the alleged costs had been agreed in advance, or where advance negotiation was possible, this revealed that the payments reported bear no relation to the accepted quotations, the recovery of the claimants was severely restricted.

What we can learn from this summary is that, while entering into transactional contracts, one must always:

  • Clearly and precisely draft all clauses especially ones relating to expenses
  • Keeping record is paramount
  • Letters, invoices and all correspondence must be addressed correctly.