England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
(HIS HONOUR JUDGE PLAYFORD QC, sitting as a High Court Judge)

		Royal Courts of Justice Strand London WC2 Tuesday, 9th July 2002

Tuesday, 9th July 2002

1. LORD JUSTICE WALLER: I will ask Tuckey LJ to deliver the first judgment.
2. LORD JUSTICE TUCKEY: In the proceedings involved in this appeal the claimants (Eurofi) claimed a success fee from the defendants (CMB) for acting as their consultants to obtain a research and development grant from the European Commission (EC). CMB accepted liability for the fee, but disputed the amount claimed on a number of grounds. Eurofi appeal that part of the judgment of Judge Playford QC (sitting as a High Court Judge) in which he held that their fee was to be calculated on the amount of the grant paid to CMB and not on the whole grant paid to CMB and their partners.
3. In the proceedings below no distinction was made between the three defendants, who are part of the expanded metal box group and a multinational conglomerate. It was accepted that the contract (to which I will refer in a moment) was made with one of those companies on behalf of the others in the group to enable any company in the group to make use of Eurofi's services on the terms of the contract.
4. This contract was contained in a letter of engagement of 26th November 1990. The letter was in the form of a quotation by Eurofi for acceptance by CMB. The writer said:

"... I have pleasure in confirming below our formal quotation for our Grants Retainer services in respect of all your activities within the EC.

TERMS OF REFERENCE

Eurofi Plc to review your medium term capital expenditure plans and programmes and to review your R and D budgets...

Eurofi to identify the opportunities to apply for and negotiate financial incentives to support the above.

Eurofi Plc to provide all necessary assistance in the preparation of applications and negotiating documents in pursuit of the above.

Eurofi Plc to provide all necessary advice and assistance in the negotiation of the applications submitted above."

5. A retainer was to be paid for the first 12 months and the letter continued (and this is the important part for the purposes which this appeal):

"In addition to the retainer fee, the following contingency fees would also be payable:-

Fees equivalent to 2.5% [varied as the judge found to 10%] of the value of grants offered per project would be invoiced on the date of formal offers of same."

6. There were similar terms for "the value of loans offered per project". The contract was subject to Eurofi's standard terms and conditions, Clause 2(b) of which said:

"In the event of such fees (or any part thereof) being wholly or partly dependent upon any contingency (including but not limited to the Client obtaining grant, loan or equity monies) in respect of any Project, the Client shall be deemed to have appointed the Company to provide the Consultancy Services in respect of the Project on an exclusive basis. For the avoidance of doubt, the Company's entitlement to charge fees under the agreement shall not be affected or diminished in the event of the Client preventing the company from performing Consultancy Services, where the payment of such fees (or any part thereof) is contingent upon the Client obtaining grant, loan or equity monies, the contingency shall be deemed to be satisfied when the relevant authority has signified its approval in writing to the payment of such monies to the Client."

"The project" is defined as "the project as identified in the letter." But the letter does not identify any particular project.

7. The R and D project, the subject of this dispute, was called the Brite Euram Project. This project involved the development of new equipment for the manufacture of thin-walled cans. R and D grants from the EC were not available for this type of project unless the application was made by a consortium of at least two partners from different industrial sectors, preferably from different member states. In this case the grant application was made by the co-ordinating partner, the Danish Technological Institute (DTI). CMB, Loughborough University and three other EEC companies or institutions are shown as the other participating partners. The grant was based on each partner's contribution to the costs of the project which they had to calculate and substantiate in detail in the application for the grant.
8. As the judge said:

"DTI, listed first, with a share almost as large as CMB, were the cashiers. They managed and co-ordinated the Project, they received payment of the grant and they distributed it to the other participants, including CMB, according to their respective defined shares. The position is clearly set out in the witness statement of Mr Jones... In return for the administrative burden assumed by DTI, the other participants made a 5% contribution to DTI."

9. Mr Jones was CMB's head of planning systems. In the statement to which the judge refers, he says:

"The grant application... was a single combined application submitted as a single integrated project claim by the lead partner (the Danish Technological Institute) on behalf of all the project participants.

When the European Commission offers a grant for a project, the European Commission requires the participants to appoint a project co-ordinator to be responsible for amongst other things the distribution of the grant payment made by European Commission. The distribution of the award is made according to each partner's actual contribution to the project costs... Neither the project co-ordinator nor any other partner is empowered to redistribute the partners' shares of the grant between the partners. The project co-ordinator merely acts as the European Commission's cashier."

10. Eurofi were involved in the grant application process. The judge made no specific findings as to what they actually did, but there was no dispute that Eurofi had provided services to CMB which entitled it to the fee provided by the letter of engagement. However, Eurofi were not retained by any of the other partners.
11. On 29th July 1994 the EC made a formal offer and paid a grant of the sterling equivalent of £1,137,406.50 to DTI of which CMB's share was £340,633.65. If Eurofi's success fee was only payable on CMB's share they were entitled to be paid £34,063.37. CMB in fact paid £26,688.76. Based on his finding the judge therefore gave judgment for Eurofi for £7,374.61.
12. In deciding that Eurofi were only entitled to their fee on CMB's share of the grant the judge said that the words "the value of grants offered per project" in the letter of engagement were ambiguous. He said:

"If they stood alone it might be that, on balance, they would bear the meaning that Miss Andrews [QC who appeared then as she does now for Eurofi] propounds. There was indeed one Project, one grant and one offer of one sum referable to that project but equally, or almost as equally, that grant was allocated by the Commission into a number of grants, each distinctly referable to each participant. I think that the words in the letter are capable of supporting either view."

13. He said that the letter had to be considered together with the standard terms and in particular Clause 2(b) of those terms, about which he said:

"This makes it clear that the triggering event occurs 'upon the client obtaining grant', this being when the Commission 'has signified its approval in writing to the payment of such monies to the client'. There may be a distinction between obtaining and being offered a grant, though, for my part, I think that any distinction is minimal, especially in the light of the concluding words of clause 2(b), in which case I accept that the contingency is satisfied as soon as the grant is offered. The important thing is that the offer must be to the client and 'client' on the evidence would include any of the CMB Group but not some third party, be it a co-venturer or otherwise.

Looking at the contract as a whole, therefore, it is my clear view that the contingency arises when CMB are offered a grant on any particular project. That offer may be direct from the relevant authority or it may be made, as here, through an intermediary, such as DTI. There is no contractual basis for charging a fee on what the other participants were offered. Still less is there any logical basis for charging a fee based on what CMB and DTI alone of the participants are offered. Eurofi's first bill was on this basis [although that had not been pursued.]"

14. He added that his view of the construction of the contract was fortified by Eurofi's internal documents which showed that they thought they were only entitled to a percentage of the amount paid to CMB, although the judge made it clear that their view of their legal rights was not determinative.
15. Miss Andrews firstly submits that the agreement was not ambiguous. There was, as the judge accepted, only one project and one grant, so Eurofi was entitled to 10% of the whole grant. The judge was wrong to say that the allocations to each participant were equally or almost equally a number of grants. They were not. What was done after the grant was offered for the project was irrelevant. No different or smaller grant was offered to CMB.
16. Alternatively, Miss Andrews submits that if the agreement was ambiguous Clause 2(b) does not help to resolve the ambiguity. The part of that clause relied on by the judge is only concerned with the time at which the fee becomes payable. It says nothing about what the fee should be. There is nothing, therefore, to support the judge's construction in those standard terms and so Eurofi's construction is to be preferred.
17. I do not accept these submissions. One must start from the commercial premise that a consultant will expect to be remunerated by reference to the benefit which his client receives from his services. It makes no commercial sense for his remuneration to be based on benefits received by others by whom he has not been retained. In this case if CMB only had a 5% interest in this project it would be very surprising if they had contractually bound themselves to pay a fee based on 100% of the grant. Eurofi were not retained for a specific project as Ms Andrews pointed out, but generally to do various things across the range of CMB's multinational activities. If for example CMB and others had obtained EC loans for a particular project it would again be surprising if CMB were liable to pay a fee based on more than the loan which they themselves received, though if Miss Andrews' construction of the letter is right, such fees would be payable because the words used are the same. Only CMB is Eurofi's client as the letter of engagement by its references to "your" and the standard terms make clear.
18. This is the background against which the words "the value of grants offered per project" have to be construed. One starts by asking does the value of the grant mean the whole grant or simply the value of that grant to the client. Having regard to the background, one is bound to say that it was intended to mean only the value to the client. At the very least it is not clear and is therefore ambiguous. Next, the words in question do not say to whom the grant or grants have to be offered. One would naturally assume in a contract of this kind that the offer had to be made to the client. If so, Eurofi would not be entitled to any fee since, on their analysis, the grant was only offered to DTI. As this was not the intention of the parties the words are obviously ambiguous in that sense as well. The word "project" is not defined in the letter either, despite what the standard terms say. Does it mean the entire project in which the client is involved or simply his participation in that project?Again the word is ambiguous.
19. To resolve the ambiguity I return to commercial reality. The parties cannot have intended that Eurofi's remuneration should be based upon that part of the grant in which CMB had no interest, to which they had no right and which was irrevocably allocated to others. If that had been intended the contract could and should have said so, but it did not.
20. It follows that I think the judge reached the right conclusion in this case. I do not think Clause 2(b) really helps to resolve the ambiguity because that part of it relied upon by the judge is concerned with when the fee becomes due, rather than its amount. However, it does underline what I think is obvious in any event which is that in an agreement of this kind success is measured by the amount of money received by the client.
21. For those reasons I would dismiss this appeal.
22. LADY JUSTICE HALE: I agree.
23. LORD JUSTICE WALLER: I also agree.
(Appeal dismissed; Appellants do pay the Respondents costs, assessed in the sum of £21,183).