Corporate Focus - November 2009

Information is key

Companies must inform their clients of changes to key personnel

In the recent case of Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 the Technology and Construction Court (TCC) has looked at whether an architectural practice's failure to inform a client of the resignation of a key individual could be considered to amount to fraudulent misrepresentation.

The circumstances of this case were that a director at Fitzroy Robinson Ltd (the architect) resigned in March 2006. That director had been expected to carry out a key role on two projects for Mentmore Towers Ltd (the client). The architect did not inform the client of the resignation. The written professional appointments were also entered into after the resignation and the client was still not informed. In November 2006, the architect informed the client of the resignation. The director was expected to work out his notice period, which the architect and the director agreed to extend to one year.

In considering this case, Coulson J held that the architect made a fraudulent misrepresentation by not informing the client of the director's resignation.

From the point of view of any business which utilises and contracts for the uses of their professional skills, three key practical lessons emerge:

• Professional consultants should inform their clients of changes in key personnel as soon as practicable. If they don’t, they could be guilty of professional misconduct (breaking the rules of honesty imposed by their relevant professional bodies); breach of contract; negligent misrepresentation; and/or fraudulent misrepresentation.
• Even after proving a fraudulent misrepresentation, it does not necessarily follow that the client will be able to recover substantial damages. Mentmore Towers Limited did not seek to rescind the professional appointments. To claim substantial damages, the aggrieved party must demonstrate the losses it suffered as a result of the misrepresentation and/or as a result of entering into the professional appointments. The court in this case suggested this would be limited to disruption and duplication of work arising out of the director's resignation.
• When drafting a professional appointment, it is always helpful to include an express term dealing with key personnel. This removes the possibility of ambiguity and leaves both parties in no doubt who should be providing the professional services.

What is apparent is that there is a need to ensure that when dealing with professional appointments, both parties are clear as to who will be undertaking the work. Although a contract may be with a firm, if there is a definite intention for specific personnel to carry out the work on behalf of a client, then any change to that personnel must be informed as soon as practically possible.

If you would like any advice on the inclusion of Key Personnel clauses in your contracts, or any advice on service contracts generally, please contact Danni Bensley on 020 7822 1983.