England and Wales Court of Appeal (Civil Division) Decisions

BG Plc v Nelson Group Services (Maintenance) Ltd. [2002] EWCA Civ 547 (24th April, 2002)

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM H.H. JUDGE BOWERS

		Royal Courts of Justice Strand, London, WC2A 2LL
		24th April 2002

Lord Justice Kennedy :

1. This is an appeal by the defendant, BG plc, from a decision of Judge Bowers sitting as a High Court Judge. On 6^th April 2001 he gave judgment substantially for the claimant (Nelsons) in relation to five preliminary issues, and gave permission to appeal in relation to three of them. Mr Ivory QC for BG has chosen only to pursue the appeal in relation to issues 1 and 5. In relation to issue 1 the question for consideration is whether section 2(1) of the Misrepresentation Act 1967 applies to implied misrepresentations such as those which the judge found to exist in this case. Issue 5 is concerned with wider questions, namely the proper interpretation of two contractual provisions which are to be found in two compromise agreements made between the parties in June/July and August 1996. BG contend that those provisions prevent Nelsons from pursuing the claim which they now seek to advance.

Background Facts

2. In order to give proper consideration to issue 5, which it is convenient to consider first, it is necessary to say something about the factual background, and I can do that by summarising part of what was said by the trial judge in his admirably clear judgment. In this appeal, with very limited exceptions, the primary facts are not really in dispute.
3. The retail operations of British Gas incurred significant trading losses, so in 1994 12 autonomous regions were replaced by five national divisions, one of which, British Gas Retail (BGR) was to run retail showrooms. Another division, British Gas Services (BGS) was to sell and install central heating, but it would not, as previously, install other types of appliance sold by BGR showrooms. That work was to be contracted out to regional independent contractors selected by tender, of whom Nelsons turned out to be one. They were allotted four out of twelve regions, and from mid 1995 to early 1997 they did installation work in those regions. This case is primarily concerned with the way in which they were persuaded to undertake that work. In late 1994 they sought projected sales figures for each retail shop and detailed sales figures for the previous two years. The latter were never supplied, but sometime in January 1995 BG did supply detailed forecasts, known as the ITT forecasts, on the basis of which Nelsons were able to complete their preparation of tender documents. The forecasts were critical, because successful tenderers were required to recruit staff, provide for the handling of goods, and recover their overheads within the strait jacket of fixed unit prices, which would remain firm for the first 24 months of the contract. In April 1995 Mr Dixon, the logistics manager of BGR, at a meeting with Mr Harflett of Nelsons, commented that he expected the forecasts to be exceeded. That was said when attempting to persuade Mr Harflett that Nelsons’ storage facilities would be inadequate. The judge declined to find that what was said amounted to a guarantee, but it reflected BGR’s very up-beat and bullish mood. The same applied to other similar assurances by other members of BGR’s negotiating team.
4. Mr Harflett recognised that sales/installation figures could not be guaranteed, but presented Nelsons’ tender on the basis that the forecasts would be fully met. He also used a 60% achievement rate to demonstrate how the costs would rise if there was a shortfall. When giving evidence Mr Harflett accepted that when preparing the tenders he recognised that compared with the forecasts there could be a fluctuation of 5% or 6%, maybe 10%, but he said that he would be surprised if installation requirements proved to be down by one third, and “flabbergasted” if they were only 50% of what was forecast.
5. Between 10^th May 1995 and 5^th July 1995 Nelsons were awarded the four regional contracts to which I have already referred, and on various dates between mid June and early September 1995 they began to take over installation work in those four regions. There were two other successful contractors and from the outset they were all plagued with inaccurate information emanating from BGR due, it seems, to computer problems. Appliances would be delivered at the wrong time, or the wrong appliance would be delivered, or no appliance would be delivered, and the time of contractors’ engineers would be wasted. In addition the contractors had difficulty in recruiting and training engineers.
6. In August 1995 BG engaged KLR, a management consultancy firm, to investigate the operation and costs structures of the installers to whom contracts had been given. The installers co-operated with KLR but were not shown KLR’s reports.
7. On 27^th October 1995 Mr Harflett wrote to Mr Waplington the BGR director of logistics. He complained of the inaccurate information leading to Nelsons’ returns being substantially less than anticipated, and said that when work carried out to 30^th September 1995 was set against “the anticipated returns based on our tendered rates” the shortfall was £246,980.00. By the time that letter was written BGR had just begun to supply Nelsons with actual weekly sales figures. They were supplied from 7^th October 1995 onwards.
8. BGR’s response to Nelsons’ claim was to ask Mr Ruben of KLR to examine it, which he did. His report to BGR was not disclosed.
9. Both before the judge and in this court counsel for BG has emphasised that by late 1995 Nelsons knew that actual installation volumes were running far below those predicted in the ITT forecasts but, as the judge said at paragraph 32 of his judgment, that is “not the same as knowledge by them (Nelsons) that the original forecasts were calculated on a misconceived or improper or unjustified basis”. Mr Boyle, Nelsons’ accountant, accepted when cross-examined that in late 1995 or early 1996 he would have considered, amongst other possibilities, the possibility that the basis upon which the ITT forecasts were prepared was misconceived, but, as he said a little later –

“I do not think I was considering how they were conceived. I was just suspicious that things were not as they should be.”

Mr Boyle was, he said, concerned all year, and the judge said that even if, which he doubted, the possibility did cross the mind of Mr Boyle that the basis upon which the forecasts had been prepared was misconceived, there was no evidence whatsoever to show that Nelsons were aware or made aware by BG of how the ITT forecasts had been calculated.

10. On 4^th December 1995 BGR offered £47,000 to Nelsons as a contribution to Nelsons’ additional costs in operating with BGR in the period to 30^th November 1995. Nelsons on 5^th December 1995 offered to accept that sum as an interim payment. At about the same time, as the judge found, KLR started to work with the installation contractors to prepare a computer model which could analyse the actual cost of each contractor and thus calculate a 1996 price. For the benefit of BGR only it would also indicate which contractor was most cost-effective, and thus produce bench mark figures. On 2^nd February 1996 KLR introduced their computer model into Nelsons’ computers. Using Nelsons’ information as to their own costs the model showed a prospective income shortfall for Nelsons in 1996 of nearly £1.7 million and on 5^th February 1996 Mr Harflett wrote again to Mr Waplington. In that letter Mr Harflett suggested that “we now input our actual trading figures for the period ending December 31 1995 into the computer model. This will provide the actual cost to this Company of supporting British Gas Retail and will form the basis of our claim.” As the judge pointed out, it was never made clear at the trial what volume figures were used in the model run on 2^nd February 1996, but it is clear that a retrospective modelling exercise was carried out before the parties met on 15^th February 1996. BGR then agreed to negotiate in respect of the 1995 claim, as indicated by their Purchasing and Contract Manager Mr Kotecha in his letter to Mr Harflett of 21^st February 1996, the material part of which reads –

“(1) 1995 Shortfall in income.

BGR intends to apply the BGR/KLR financial model retrospectively using the ITT parameters as a basis. The results from this exercise will provide the basis for a negotiated settlement between BGR and NGS, taking into account the difficulties encountered by both parties which culminated in an income shortfall for NGS.

Whilst BGR does not accept liability for any income shortfall or any additional costs incurred by NGS, BGR are prepared to make an ex-gratia payment on the basis of the above negotiations. Such payment will be in full and final settlement of all claims NGS may have against BGR up to 31.12.95, or such date that the 1996 prices become effective (which ever is the latter). It is BGR’s intention to conclude this matter before 31.3.96.

(2) 1996 Price Review.

BGR intend to consider NGS’s proposals for 1996 prices.”

To signify his acceptance of those intentions Mr Harflett on 7^th March 1996 signed and returned a copy of the letter of 21^st February. Meanwhile, at some point in February 1996, Nelsons did receive from BGR a computer disc with a figure of 87,000 for installations, but the judge was given no assistance as to the basis on which that calculation was made, or by whom it was made within BGR.

11. On 18^th March 1996 Mr Kotecha wrote to Mr Harflett offering an “ex-gratia payment” of £150,000 to cover additional costs incurred by Nelsons on terms, the first of which reads –

“It is in full and final settlement of all claims which NGS may have against British Gas Retail (BGR) up to 31^st December 1995.”

12. I should perhaps say at this point that the £47,000 offered earlier was never paid. That offer was overtaken by the later negotiations. There was a meeting on 21^st March 1996 at which Nelsons expressed disappointment with the new offer, complaining of the bench mark figures used in respect of 1995, and saying that the offer did not cover their losses. As to 1996 Nelsons were asked to assess the impact on their claim and on prices on four scenarios which included a decrease in volumes (apparently as against 1995 figures) of 20% and an increase in volumes of 10%. The judge found that –

“No one from BGR at any time stated in terms to Nelsons, that the ITT volumes were hopelessly optimistic or misconceived; nor did any one state that the 1996 price should be fixed on the basis of 50% of the ITT volumes.”

I have mentioned already that in 1995 BGR’s computer problems led to installers being given inaccurate information and inappropriate supplies. To meet their complaints BGR agreed to pay for the time of engineers when there was no work available because of a failed delivery. Nelsons advised BGR that they proposed to charge £19.80 per hour for this “work smoothing” and raised invoices accordingly. Those invoices were not paid, and by March 1996 the outstanding work smoothing invoices were another problem which the parties had to address. It was mentioned at a meeting between the parties on 9^th April 1996 when Nelsons were seeking at least £250,000 in respect of their 1995 claim, and BGR offered £195,000 together with a 12% average increase for 1996. BGR were clearly upset by the work smoothing invoices, and in his letter of 23^rd April 1996 Mr Kotecha accused Mr Harflett of knowingly allowing significant manpower to stand idle. He continued –

“In view of significant sums involved there will clearly need to be a link established between this and our on-going discussions on the 1995 claim and 1996 price review.”

Mr Harflett responded indignantly on 24^th April 1996, and said –

“There is no link between this matter and our discussions in the 1995 claim and the 1996 price review. The work smoothing charges are instigated with your agreement and have no bearing on the changes required to be made for actual work done.”

There was then a meeting and further correspondence. As the judge said, the work smoothing issue was peripheral to the facts which he had to decide, but it was in the arena at the material time, and was discussed by Mr Harflett and Mr Kotecha on the telephone on 31^st May 1996 together with the 1995 claim and the 1996 prices. What was said on that day bore fruit on 10^th June 1996 when Mr Kotecha again spoke to Mr Harflett on the telephone and offered £235,000 in respect of the 1995 claim. Mr Harflett accepted that offer, and faxed an invoice to BGR on that day.

The June-July agreement.

13. Although, as the judge found, an oral agreement was made on 10^th June 1996 it is common ground that the agreement made that day was superceded by or merged into an agreement based on a letter writen by Mr Waplington to Mr Harflett on 11^th June 1996. The material parts of that letter read –

“I refer to recent negotiations re the 1995 shortfall in income and the review of the 1996 prices.

In terms of the former, we are prepared to make an ex-gratia payment to Nelsons ... of £235,000 to cover additional costs incurred by NGS. This offer is made on the following terms and conditions:

(a) it is in full and final settlement of all claims which NGS may have against British Gas Retail (BGR) up to 31^st December 1995.”

There were three other conditions which I need not quote, and Nelsons were asked to confirm acceptance by signing and returning a copy of the letter. Mr Harflett took advice from the in-house legal department of Nelsons’ holding company, Staveley Industries plc, and on 16^th June 1996, in a letter to Mr Kotecha, he replied to the letter of 11^th June. He protested at the introduction of conditions after settlement had been agreed, but went on to say that Nelsons were prepared to sign the agreement “on the understanding that no harm will come to this company by so doing”. On 19^th July 1996 Mr Kotecha responded saying that BGR was not prepared to accept that caveat, and BGR then sent a cheque for £235,000 which Nelsons cashed. Thus agreement was reached on a basis which included the conditions set out in the letter of 11^th June.

14. The judge at one point defined the issue which arises out of the June-July agreement thus –

“Would a reasonable man with the knowledge reasonably available to both parties at the time, conclude that they intended to settle a claim for misrepresentation based on the premise that there was no factual justification of the ITT forecasts?”

The judge answered that question in the negative, and BGR contend that he was wrong to do so. That is the first of three essential matters which arise for consideration in this appeal.

The August agreement.

15. On any view the agreement made in June-July 1996 left some problems unresolved, namely the 1996 prices, the work smoothing invoices, and a problem which had arisen in relation to survey rates. Negotiations continued in relation to those problems, with Mr Duckett of Staveley Industries assisting Nelsons. As happened in relation to the agreement made in June, there was an issue as to whether an oral agreement was reached on 13^th August. The judge found that no agreement was reached on that date, but the issue became unimportant because BG accepted that even if an agreement was reached it was merged into a written agreement based on Mr Kotecha’s letter to Mr Harflett of 14^th August 1996. The letter is headed “work-smoothing claim/1996 price review” and it begins –

“Further to our meeting last night with Tom Duckett and Ged Boyle, I am pleased to confirm the following:

(1) Work Smoothing

(a detailed agreement in relation to work smoothing is then spelt out)

(2) 1996 Price Review

British Gas Energy Centres Ltd (BGEC) agree a flat increase of 19% to Nelson Group Services on the 1995 unit prices to be effective from 1.1.96. .....

(3) Survey rate.

BGEC do not accept a survey rate of £19.80. As agreed last night, this will form the basis of a separate discussion.

The above offer is made subject to the following conditions:

(a) it is in full and final settlement of all work-smoothing claims and price increase requests for 1996. In terms of the price increase, this is very much a one-off discretionary offer which will not be used as a bench mark for future price reviews.

(b) BGEC will categorically not entertain any further claims under this contract.”

There were 5 other lettered conditions which I need not recite, and Nelsons were again asked to sign and return a copy of the letter, which they did on 27^th August 1996. As in relation to the June/July agreement, the judge said that the issue to be decided is –

“Whether a reasonable man with the knowledge of both parties at the time would conclude that they had intended to settle this claim for misrepresentation based on there being no factual justification for the ITT forecasts.”

The judge decided that issue in favour of Nelsons, and whether he was right to do so is the second essential matter which arises for consideration in this appeal.

16. After the August agreement the parties encountered further difficulties, and they terminated their relationship in 1997. In February 1997 Mr Duckett prepared a claim report which the judge, in my judgment rightly, regarded with caution, and I derive no assistance from it in relation to the issues which arise in the appeal.

These Proceedings.

17. Nelsons then began these proceedings. In their Statement of Claim served in December 1998 and amended in August 2000 they assert that by sending to them the ITT forecasts BG –

“Impliedly represented that it knew of facts which justified the same and/or that there were substantial and reasonable grounds upon which the same were based.”

Those representations were said to be –

“False, inaccurate and misleading in that there were no facts which justified the forecasts for the four areas and/or there were no substantial or reasonable grounds upon which the same were based.”

The case was also presented in negligence on the basis that BG was under a duty to Nelsons to take care in and about the preparation of the forecasts, and to correct them to the extent that they required correction. In paragraph 29 of the Statement of Claim Nelsons contend that had the misrepresentations/negligent mis-statements not been made they would not have entered into the installation contracts for the four areas, and assert that as a result of having done so they have sustained losses of approximately £1.7 million calculated as at 1^st December 1998.

18. In paragraphs 20 and 22A of their amended defence BG rely on those terms of the June/July and August agreements to which I have already referred.

Legal Principles of Construction

19. Our attention was invited to a number of authorities dealing with how courts should approach issues of construction such as those with which we are concerned, but I should say at once that I do not discern in Mr Ivory’s submissions any suggestion that the judge in the present case misunderstood or mis-stated the law. His case really turns on the application of the law to the facts of the case, so, as Mr Onions QC for Nelsons submitted, it is really common ground that in those passages of the judgment which I have already cited in relation to each of the agreements the judge did ask himself the relevant questions. That being the situation I turn to the authorities for the assistance they provide as to the relevance of surrounding circumstances. In General Accident v IRC [1963] 1 WLR 421 and again in Cornhill Insurance v Barclay Court of Appeal 6^th October 1992 unreported, it was accepted that in construing a consent order the court must have regard to the surrounding circumstances in which the agreement is reached, which include evidence as to the nature of the dispute comprised by the order. In ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 Lord Hoffmann at 912 set out 5 principles to be applied when contractural documents are construed. In summary form those principles are –

“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) ....subject to the requirement that it should have been reasonably available to the parties and the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. ...

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean ....

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents ....”

In Scottish Power plc v Britoil Times Law Reports 2^nd December 1997 Staughton LJ emphasised that subjective evidence of intention by either party is not admissible because the court is looking for the common intention of the parties. “Both parties were entitled to know, or to have the means of knowing, what the contract meant at the moment it was made.” Staughton LJ also expressed some misgivings about the width of the approach adopted by Lord Hoffmann.

20. In BCCI v Ali [2001] 2 WLR 735 the House of Lords held that there are no special rules of interpretation applicable to a general release. At 739, paragraph 8, Lord Bingham said –

“The object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the party’s relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the party’s intentions the court does not of course inquire into the parties subjective states of mind and makes an objective judgment based on the materials already identified. The general principles summarised by Lord Hoffmann in ICS Ltd v West Bromwich Building Society apply in a case such as this.”

At 740 Paragraph 10 Lord Bingham added –

“But a long and in my view salutary line of authority shows that, in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware.”

In the Ali case the bank’s liquidators sought to recover loans made to employees, who counter claimed seeking damages for misrepresentation and breach of their employment contracts as a result of which, they claimed, they were at a disadvantage on the labour market. They had signed agreements containing words of general release at a time when the possibility of obtaining “stigma damages” was not known, and at 744 paragraph 19 Lord Bingham said –

“On a fair construction of this document I cannot conclude that the parties intended to provide for the release of rights and the surrender of claims which they could never have had in contemplation at all. If the parties had sought to achieve so extravagant a result they should in my opinion have used language which left no room for doubt.”

At 746 Lord Nicholls said –

“However widely drawn the language, the circumstances in which the release was given may suggest, and frequently they do suggest, that the parties intented, or, more precisely, the parties are reasonably to be taken to have intended, that the release should apply only to claims, known or unknown, relating to a particular subject matter. The court has to consider, therefore, what was the type of claims at which the release was directed.”

Similarly at 762 Lord Clyde said –

“The knowledge reasonably available to them must include matters of law as well as matters of fact. The problem is not resolved by asking the parties what they thought they intended. It is the imputed intention of the parties that the court is concerned to ascertain. The parties may well never have applied their minds to a particular eventuality which has subsequently arisen, so that they may never in fact have any conscious intention in relation to that eventuality. It is an objective approach which is required and a solution should be found which is both reasonable and realistic. The meaning of the agreement is to be discovered from the words which they have used read in the context of the circumstances in which they made the agreement. The exercise is not one where there are strict rules, but one where the solution is to be found by considering the language used by the parties against the background of the surrounding circumstances.”

In HIH v New Hampshire [2001] 2 LL R 161 Rix LJ said at 179 paragraph 83 that in principle it is even possible to look at prior contracts as part of the matrix or surrounding circumstances of a later contract, but for the reasons he explained a cautious and sceptical approach should be adopted before finding any assistance in the earlier contract.

Interpretation of June/July agreement.

21. In the light of those authorities I turn to consider Mr Ivory’s submissions in relation to the June/July agreement. He submits that although the claim presented on 27^th October 1995 was limited to losses experienced by Nelsons as a result of the shortfall of installation requirements as compared with predictions up to 30^th September 1995, that claim “evolved” by way of the letters of 5^th and 21^st February 1996 and the history to which I have referred into a claim which reflected all of Nelsons’ 1995 discontents arising out of the inaccuracy of the ITT forecasts with which they had been provided, and which the parties sought to evaluate by the retrospective use of the KLR model. As part of the evidence of this evolution Mr Ivory relies upon Mr Harflett’s letter of 28^th June 1996 in which he refers to the contract rates as “volume related” and goes on to say that “our claim for 1995 reflects British Gas Retail’s inability to meet these volumes, as indeed does our claim for increases in the 1996 rates.” However, that seems to me to be no more than a statement of the obvious, lending no real support to the point which Mr Ivory seeks to establish. From start to finish the volume was critical, both in relation to rates and in relation to shortfall, and consequently in relation to any claim presented as a result of shortfall.
22. Mr Ivory then submits that it is important, though not necessarily decisive, to determine whether Nelsons were or could have been aware of the claim brought in these proceedings at the time when the settlement agreements were entered into. That, to my mind, is a potentially misleading digression. What we must do is, as Lord Bingham said in Ali, ascertain the intention of the parties objectively, by reading the terms of the contracts as a whole, in the context of the relationship between the parties and all other relevant circumstances of which we are aware, bearing in mind that we should not readily infer that Nelsons intended to surrender rights and claims of which they were unaware, even if they could have known of them.
23. I accept, as Mr Ivory points out and as the judge recognised, that the Particulars of Falsity relied upon to demonstrate misrepresentation in paragraph 25 of the Statement of Claim as originally pleaded were matters which Nelsons knew or could have known in June/July 1996, but that is not conclusive of the issue which in this case the court has to decide. Mr Ivory is entitled to be critical of the judge’s finding that in the summer of 1996 Nelsons had no reason to suspect that the original ITT forecasts were not justified by the facts, but the judge was entitled to find as he did, namely that that particular issue had never been raised. It was, as Mr Onions points out, long after August 1996 before Nelsons first alleged that they had been induced to enter into the installation contract by the misrepresentations found by the judge.
24. Before the judge and before us Mr Ivory placed considerable reliance on Mr Boyle’s concession in cross examination that in late 1995 or early 1996 he would have considered, amongst other possibilities, the possibility that the basis upon which the ITT forecasts were prepared was misconceived. Mr Ivory submits that the judge was wrong to doubt that concession, but the judge saw and heard the evidence, and even without that advantage it seems to me that the conclusion which he reached is consistent with the other known facts. The judge said he did not believe that Mr Boyle, or any one else at Nelsons, “stood back from the problem in order to consider why the ITT forecasts were wrong” (my emphasis). Had they done so it seems to me almost inconceivable that the result would not have been reflected in at least one of the contemporary documents, and it was not.
25. Mr Ivory is right when he points out that in Ali the possibility of stigma damages was unknown when the bank employees entered into the agreement containing the general release on which the bank’s liquidators sought to rely, whereas the possibility of damages for misrepresentation and negligent mis- statement was well known long before June 1996. So, it is said, on its particular facts Ali was a stronger case for restricting the scope of the words used in the general release. But the value of that authority lies not in any comparison of the facts, but in its exposition of the principles which we have to apply.
26. Turning to the words used in the letter of 11^th June 1996, Mr Ivory emphasises their generality. The court, he submits, should strive against a construction that permits Nelsons to make a further claim based on the same facts but dressed in different legal clothing. But that, as it seems to me, betrays a misconception. The claim which Nelsons made and which BGR settled in June/July 1996 was founded on losses which Nelsons incurred in 1995 because the number of appliances they were required to install fell far short of the ITT forecasts. That claim could have been mounted and settled even if the ITT forecasts had been so carefully prepared that any allegation of misrepresentation or negligent mis-statement would have been bound to fail. The explanation for the lack of installation demand might have been, for example, an unforeseeable market collapse. So it is simply not right to say that the present claim is a further claim based on the same facts but dressed in different legal clothing. The focus of the present claim is the justification for the ITT forecasts, not the gap between those forecasts and the installation demands, and the measure of loss is not simply the loss which Nelsons experienced because of low installation demands. It is such loss as they can establish that they experienced as a result of being drawn into contracts which, as they assert, if they had not been misled they would not have touched.
27. The judge pointed out that it is impossible to read condition (a) in the letter of 11^th June 1996 as including “all claims known or unknown or in connection with the contract up to 31^st December 1995” because the work smoothing claim dispute related in part to 1995. The judge went on to say that as the condition does not include all “known” claims up to 31^st December 1995 he saw no justification for it including “unknown” claims up to that date. Mr Ivory is critical of that passage. He submits that it is inappropriate to go straight from the proposition that condition (a) cannot be applied to all possible claims relating to the relevant period, to the proposition that the condition only applies to the specific claims being considered at the time, but that is not what the judge said. He was, perfectly properly attempting to establish the boundaries of this condition which BG had seen fit to impose, and he said that it must be read in the context of the whole of the letter in which it appears, which includes the reference to the 1995 shortfall in income and additional costs incurred by Nelsons. The judge continued –

“In my judgment the proper construction which any reasonable man would impart to this clause is that it is intended to be a full and final settlement of all claims for shortfall of income and additional costs incurred by NGS up to 31^st December 1995. It does not on its proper construction include all possible claims by Nelsons against BGR up to 31^st December 1995.”

Mr Ivory submits that condition (a) plainly does extend at the very least to preclude claims, such as the present, which are of a similar type or which are based on the same or similar facts as the claims for shortfall in income and additional costs. But the present claim is a claim in tort, and, as I have already explained, there is a critical difference in relation to its factual base.

28. In considering the case for BG I have referred to many of the matters on which Mr Onions for Nelsons relies. He submits that the fact that BG provided compensation under both compromise agreements for the failure to meet ITT forecasts does not mean that the agreements should be construed so as to cover fundamentally different claims, namely claims that the forecasts should never have been given. As Mr Onions points out, the judge found that when the compromise agreements were made neither party had even contemplated a misrepresentation claim. So far as BG is concerned that finding is not challenged, so it is a little surprising to find Mr Ivory contending that Nelsons foresaw, or should have foreseen, a type of claim which his own clients did not foresee. That of course is not conclusive, but it does mean that if BG are to succeed condition (a) in the letter of 11^th June 1996 does have to be read as applicable to an unforeseen claim, bearing in mind that (per Lord Bingham) in the absence of clear language courts will be very slow to infer that a party intended to surrender rights or claims of which he was unaware. Mr Onions submits that, read in context, the langauge is not that clear. It is certainly less clear than the wide wording used in Ali’s case, and if there is any ambiguity then, as Mr Onions submits, the condition falls to be construed against the party which introduced it and now seeks to rely upon it. In paragraphs 21 and 22 of his skeleton argument Mr Onions submits –

“The question is: would a reasonable man, with the knowledge of the parties at the time, conclude that the parties had intended to settle a claim for misrepresentation based on the fact that there was no justification for the original forecasts? Nelsons submits that the answer to that question, as the judge has concluded was no. A reasonable man would say, first, ‘what misrepresentation?’ and, secondly, ‘the parties are not addressing any such claims’.”

I agree, and accordingly in my judgment on the first of the essential matters in this appeal the judge was right to conclude as he did in relation to the June/July agreement.

Interpretation of the August agreement.

29. I turn now to the August agreement, recognising that much of the ground has been covered already. Condition (a) in the letter of 14^th August 1996 makes it clear that the offer is “in full and final settlement” but that condition is restricted to work smoothing claims and price increase requests for 1996, so it is condition (b) on which Mr Ivory relies.
30. The first thing that has to be said is that, as the judge recognised, the wording is unusual for a condition now said to constitute a general release. It is worded as a declaration of intention by BGEC not to “entertain any further claims under this contract”. Nelsons recognised and accepted that intention on 27^th August 1996 when they signed and returned a copy of the letter, but, as the judge said, an acknowledgement of BGEC’s position cannot be read as an undertaking by Nelsons not to make any claim. Furthermore, condition (b) envisages further claims “under this contract”. Which contract? The August 1996 compromise, or one of the four regional installation contracts, and if so which? Under the installation contracts Nelsons had no right to relief if installation requirements did not match ITT forecasts, so any payment made by BG was ex-gratia, and on any view condition (b) cannot be read as drawing a line under all claims arising out of or in connection with the installation agreements because –

“(1) the survey rates claim was specifically left for later discussion, and –

(2) when the agreement was made in August 1996 the installation contracts still had some time to run. Mr Ivory does not even contend that if after August 1996 BG were to act in breach of their obligations under one or more of the installation contracts condition (b) could be relied upon in answer to a claim in contract. And of course the present claim is not a claim under any contract. It is a claim in tort.”

The judge’s conclusion was that “the terms of the letter of 14^th August 1996 are clearly restricted to the settlement of the price increase for 1996 and the work smoothing claim. The defendants are stating that as a matter of fact they will not re-open either of these claims for any further increases.” Mr Ivory submits that the judge’s approach effectively robs condition (b) of any meaning because all that needs to be said is said in the first sentence of condition (a), and in principle so far as possible no part of a contractual document should be treated as inoperative (see for example, Lewis v Barnet [1982] 264 EG 1079 at 1080). He submits that the reference to “any further claims” expressly envisages claims additional to those referred to in condition (a) and at the very least condition (b) should be read as precluding all claims (including the present claim) which reflect the failure of BG to achieve the ITT forecasts. The weakness of this line of argument, to my mind, is that it is re-writing condition (b) which is part of the business letter, not, on the face of it, part of a carefully drafted legal document. In such a letter it is not surprising to find the writer emphasising that the offer in respect of the type of claims under consideration really is the end of the road.

31. Mr Ivory submits that if condition (b) is not read as he submits that it should be read, it follows that having agreed a substantial price increase to compensate for lower volumes after protracted negotiations Nelsons could next day have claimed additional compensation for misrepresentation/negligence in respect of the forecasts, and that this would make a complete nonsense of the settlement. But that, as Mr Onions submitted, assumes what has to be proved, namely that the claim for misrepresentation was embraced by the settlement. It also, at least by implication, suggests that after the August settlement was concluded it would be unjustifiable for Nelsons to pursue any misrepresentation claim. That again depends on the terms of the settlement, but if Nelsons had a valid claim in misrepresentation/negligence for £1.7 million I do not see why it should be thought to be unjust or unfair for them to pursue that claim when they appreciated its viability just because they had previously accepted from the proposed defendants a contribution towards their losses, especially when it is recognised that in reality the contribution would have to be set against any award of damages in tort.
32. Mr Onions submitted that at best, from the BG point of view, condition (b) is ambiguous and any ambiguity should be construed against the party which introduced the condition and now seeks to rely upon it. He also drew our attention to the decision of this court in Fillite (Runcorn) v Aqua-Lift [1989] 45 BLR 27 where a contract provided that any dispute .... “arising under these Heads of Agreement” was to be referred to arbitration. When misrepresentation was alleged the question arose whether that allegation was a dispute arising under the heads of agreement, and the Court of Appeal held that it was not. At 41 Slade LJ said –

“In my judgment, on the ordinary and natural meaning of words, the phrase ‘disputes arising under a contract’ is not wide enough to include disputes which do not concern obligations created by or incorporated in that contract.”

At 44 Nourse LJ said –

“The preposition ‘under’ presupposes that the noun which it governs already has some existence. It operates in time as well as in space. I think that it means ‘as a result of and with reference to’. .. The disputes as to negligent mis-statement, misrepresentation under the 1967 Act and collateral warranty or contract, while they may in a loose sense be said to arise with reference to the contract, cannot be said to arise as a result of it. They all relate to matters which either preceded the contract or at best were contemporaneous with it.”

As Mr Onions recognises, the background in the Fillite case was different, but, he submits, it is instructive to see how in that case the court approached a wording similar to that which we have to consider in condition (b).

33. In paragraph 157 of his judgment in the present case the judge said –

“In my judgment there is no factual matrix which justifies an interpretation of the 14^th August letter in the wide terms for which the defendants contend. A reasonable man with the knowledge of both parties at the time would not conclude that they intended to settle this claim for misrepresentation on the basis of the conditions attached to the letter of 14^th August.”

I agree, and accordingly the appeal fails in relation to the second essential matter, namely the proper interpretation of the August agreement.

Issue 1.

34. The third and final essential matter which we have to consider is the proper interpretation of section 2(1) of the Misrepresentation Act 1967. That section reads as follows –

“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable not withstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”

In Cremdean Properties Ltd v Nash [1977] 244 EG 547 the Court of Appeal considered whether a disclaimer contained in a footnote to special conditions of sale was effective to exclude liability, having regard to the provisions of section 3 of the 1967 Act. Counsel submitted that there was a distinction between giving information or making a statement of opinion or belief on the one hand, and making a representation on the other. As to that Bridge LJ said–

“For my part the distinction seems to be one without a difference. The word ‘representation’ is an extremely wide term; I cannot see why one should not be making a representation when giving information or when stating one’s opinion or belief. To my mind it would be a retrograde step if the court were to give the word ‘representation’ when it appears in the Misrepresentation Act 1967 any narrow or limited construction, less wide than the perfectly natural meaning of the word.”

With that observation the other members of the court agreed.

35. Unfortunately Cremdean does not seem to have been cited in Lancaster City Council v Unique Group Ltd. 15^th December 1995 unreported. In that case Jonathan Parker J was concerned with the applicability of section 2(1) of the 1967 Act to estimates given as to the future income of a theme park. Having set out the words of the subsection he continued –

“In my judgment it is clear as a matter of construction of section 2(1) of the Act that in order to give rise to a liability for damages under the section the representation must be a representation of fact. Were that not so, the statutory defence (i.e. that the representor ‘had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true’) would be meaningless.”

The judge then set out the representation relied upon and said that in his judgment they did not amount to representations of fact so as to give rise to liability in damages under section 2(1) because “they are not statements of existing fact: they are statements of opinion.” After referring briefly to Esso Petroleum Co Ltd v Mardon [1976] 1 QB 801 he continued –

“A statement as to ‘existing’ earning potential is no more than a forecast by another name. I cannot see how earnings potential can ‘exist’ as a fact in itself. In the context of a claim for damages under section 2(1) of the Act the only relevant representation of fact involved in a representation as to ‘existing’ earning potential as it seems to me, is a representation that a forecast in such terms has been made.”

After examining the Esso case in some detail the judge said –

“Reverting to the instant case, in my judgment Esso v Mardon does not support counsel’s submission that the first two pleaded representations (that is to say the forecasts as to future gate receipts and future merchandising income) are representations of fact. On the authority of Esso v Mardon, the only representations of fact involved in the making of those forecasts were (a) the representation that the forecasts had been made (i.e. that they represented Unique’s opinion), coupled with (b) the implied representation that Unique knew facts which (to use Bowen LJ’s word) ‘justified’ that opinion. Representation (b) involves two, as it were, sub-representations. The first is that Unique bona fide believed that its opinion was reliable; the second (which comes to more or less the same thing) is that there were reasonable grounds for holding that opinion. But in my judgment neither of those two sub-representations is an actionable representation for the purposes of section 2(1) of the Act since the statutory defence makes no sense when applied to them. In my judgment the only relevant representation for the purposes of the claim under section 2(1) is representation (a).”

I confess that I do not find that reasoning persuasive. When an opinion is expressed the person who expresses it either does or does not know facts which justify that opinion. The existence of those facts, and his state of knowledge in relation to them, are themselves facts capable of being misrepresented by implication by the expression of opinion. As Langley J put it in Sumitomo Bank Ltd v BBL [1997] 1 LL.R. 487 at 515 –

“Granted that a representation of opinion may (as I think was the case here) carry with it the implication that the opinion is itself based on facts sufficient to provide reasonable grounds for believing it I have some difficulty in seeing why the section cannot operate sensibly in such a case. Nor do I see why in principle a representation that ‘I have taken proper care to do X’ cannot be a representation within the section.”

36. I therefore cannot agree with Mr Ivory that Jonathan Parker J was right, and should be followed. Sometimes an expression of opinion may carry with it no implication other than that the opinion is genuinely held. But on other occasions, as in this case, the circumstances may be such as to give rise to the implied representation that the person knew of facts which justified his opinion. In such a case I see no reason why the representee should not rely upon section 2(1). I would therefore decide this final essential matter which we have to consider in favour of Nelsons, and I would dismiss this appeal.

Lord Justice Mantell: I agree.

Sir Swinton Thomas: I also agree.

* * * * * * * *

LORD JUSTICE KENNEDY: For the reasons set out in the judgment which has been handed down, and which is now available, this appeal will be dismissed.

There is before us an order, which has been agreed by counsel on both sides, and which is in the following terms:

(i) that the appeal be dismissed;

(ii) that the appellants pay to the respondents the costs of the appeal. Such costs to be the subject of a detailed assessment if not agreed.

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