In Openwork Ltd v Forte [2018] EWCA Civ 783, the Court of Appeal Civil Division held that a contractual provision permitting the respondent to clawback commission paid to the appellant was not void for uncertainty, despite the lack of an express formula for calculating such commission. The provision was instead interpreted to reflect the parties’ intention. The appeal was dismissed. As this is an English decision, it is not technically binding in Scotland but it is highly persuasive.
Facts
Mr Alessandro Forte, a financial advisor, and Openwork Limited (“Openwork“), which runs a network of franchised advisors, entered into a written agreement pursuant to which Mr Forte became one of Openwork’s franchisees (the “Agreement”).
The business of Mr Forte and Openwork was the sale of investments, including an investment referred to at trial as “Sterling”. Under the Agreement, on the sale of a Sterling investment to a client of Mr Forte, (i) Openwork was entitled to commission from the investment provider, and (ii) Mr Forte was entitled to commission from Openwork (being 84.85% of the commission payable by the investment provider to Openwork).
However, if an investor withdrew from the Sterling investment within three years, Mr Forte would need to repay a proportion of his commission to Openwork to be determined by reference to three criteria, namely: the amount invested, the duration of the investment, and the amount withdrawn (the “Clawback Provision”).
The dispute in this case was whether the Clawback Provision was sufficiently clear in specifying how it was to operate.
The Judge found that where a contract provides that a party is entitled to a part or a proportion of a specified whole, then the issue is whether the nature of that whole and proportion can be identified. Although the Clawback Provision did not expressly state how the clawback amount should be assessed, the contractual intent and criteria for determining the clawback amount were clear.
The Judge concluded, applying the three criteria of the Clawback Provision, that commission would be clawed back by Openwork from Mr Forte on a straight line reducing basis over time, from the full commission at the date of investment to zero at three years.
On appeal, counsel for Mr Forte submitted that the Judge was not entitled to invent his own calculus or means of ascertaining the amount due under the Clawback Provision and that, as the Agreement did not provide an express formula, the Clawback Provision should be void for uncertainty.
Decision
The Court held in dismissing the appeal that:
- the parties plainly intended the words of the Clawback Provision to have some effect as they had provided three criteria to be used in determining the amount;
- the Court should strive to give some meaning to contractual clauses agreed by the parties if it is at all possible to do so; and
- the Judge was correct to find that the parties’ intention was reflected in a straight-line calculation of entitlement to clawback and that this formula, although not expressly set out in the Agreement, gave effect to the identified criteria.
Comment
Cases in which contractual provisions are challenged as being void for uncertainty are and continue to be decided on their facts. This case is a good example of the Courts applying the maxim of “words are to be understood such that the subject matter may be more effective than wasted”, and giving effect to the parties’ intentions. Despite the Courts’ reluctance to find a contract or term void for uncertainty, contracting parties should take care to ensure that their intention is clearly captured in an agreement between them to ensure the Courts can uphold the parties’ bargain in the event of a dispute.
