England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LEEDS COUNTY COURT
(HIS HONOUR JUDGE GRENFELL)

		Royal Courts of Justice Strand, London, WC2A 2LL
		18th March 2009

Sir Anthony Clarke, MR:

Introduction

1. This is an appeal against an order dated 7 May 2008 made by HHJ Grenfell in the High Court in Leeds after a trial of preliminary issues, in which he held that the defendant was liable to indemnify Cosmos Holidays Plc ("Cosmos") under the terms of a contract, dated 29 October 1999, between Cosmos and Dhanjal Investments Limited. The appeal is brought with permission granted after an oral hearing by Tuckey LJ and Longmore LJ. Permission to appeal had previously been refused on paper by May LJ, who considered that HHJ Grenfell's construction of the indemnity clause was plainly correct. Permission was limited to a single ground, namely the true construction of the indemnity clause.

The Facts

2. Cosmos is and was at the relevant time a tour operator. Dhanjal Investments Limited, which I will call "the hotelier" because it is so described in the contract, is, or was, a Kenyan hotelier. The hotelier owns and operates The Traveller's Beach Club Hotel in Mombassa and The Traveller's Mwaluganje Elephant Camp ("the camp"). The camp is located in an elephant sanctuary in a location some miles from Mombassa. Under the contract the hotelier was to hold 20 rooms for Cosmos and further to provide its clients with other amenities, including an overnight stay at the camp. The claim arises out of an incident on 4 May 2000, when nine of Cosmos' clients were staying at the camp as part of a 14-day inclusive holiday, when they were attacked by a gang of armed men. The clients had their property stolen and suffered other losses for which they sued Cosmos, making claims in both contract and tort, alleging that the camp had not been properly protected despite a similar attack three weeks earlier. Cosmos settled those claims in 2005 after a mediation. It then sought recovery of those sums and associated costs from the hotelier under the indemnity clause contained in the contract.
3. After service of these proceedings, the hotelier at first pursued a jurisdictional challenge on the ground that the English law and jurisdiction clause in the contract was not properly incorporated into it. However, that challenge was subsequently abandoned and a defence filed. District Judge Glentworth ordered trial of the preliminary issue which is the subject of this appeal, namely whether the hotelier is liable to indemnify Cosmos pursuant to clause 2(a) of the contract.

The Contract

4. The contract is contained on eight sides of A4 paper. The first sheet states that the contract was made in Mombassa on 29 October 1999 and is signed on behalf of both Cosmos and the hotelier. It also includes printed terms and conditions. The terms and conditions are standard terms and conditions which have been drafted and proposed, or proffered, by Cosmos. It is therefore common ground that Cosmos is the proferens and that, in the event of an ambiguity, they must be construed contra proferentem -- that is, against Cosmos. On the front page the hotelier is stated to contract as proprietor/lessee/director/manager/agent of the Hotel Traveller's Club at Mombassa in Kenya. It then provides:

"Now it is hereby AGREED as follows:

1. The Hotelier shall hold available and at the exclusive disposal of Cosmos, upon preferred allocation basis for the period specified, the accommodation indicated at the rates inclusive of all service charges, taxes, duties and commission as shown below upon the Terms and Conditions set out overleaf.

2. Cosmos agrees that the accommodation should be held available for it on the basis stated above and shall include the Hotel in its programme of hotel tours for the season(s) to which this Agreement relates.

3. All properties will be subject to a Fire and Safety inspection, should full and adequate standards not be met, notification of cancellation by COSMOS may be given within 14 days of signing any contract."

5. Details of the hotel and its room are then set out together with the "all inclusive" rates to be paid by Cosmos. The period of the contract is described as for winter/summer of 1999-2000, being from 15/11/99 to 23/12/00. In a box at the bottom it is stated that:

"This contract is valid for hot offers and/or brochure publication alike."

Then, under the heading "Comments/Additional Clauses/Special Offers", a number of reductions are set out and then this:

"Special millennium offer: possibility (pre-booked) of 31/12/99 at Travellers' Mwaluganje Elephant Camp.

See annexe of Hotel description for all-inclusive."

6. The contract provided for Cosmos to take 20 rooms out of 158 rooms in the hotel. I will return to the conditions in a moment, but I should first refer to the two annexes which form part of the contract because they are in my opinion relevant to the true construction of the critical clause. Annex 1 contains five sheets, each of which is signed on behalf of the hotelier, and dated 29 October 1999. As I see it, it is annex 1 which is the annex referred to in the box on the front page as "See annexe of Hotel description for all-inclusive". Sheet 1 of annex 1 is headed "Travellers' Club, the universally popular all-inclusive club", and states that there are 158 rooms, two suites, two restaurants, two bars, two pools, one children's pool, one kids' club and two snack bars. It also gives the opening date as 01/11/1999.
7. Sheet 2 includes:

"Travellers Club. In response to overwhelming demand from our Operators and Suppliers we have decided that as from 1^st November 1999 we shall offer an All Inclusive resort option on the North Coast of Mombasa at Banburi, 14 kms from Mombasa Island.

It is an inescapable fact that all inclusive holidays have become increasingly popular world-wide, not surprising when you consider that your holiday price includes your meals, drinks, entertainment, activities and sports including a range of non-motorised water, -- as well as your flight and accommodation of course!"

"…The NEW TRAVELLERS CLUB will consist of…" -- the document then sets out the amenities substantially as on the first sheet, but adds "And will offer the following:"

"FREE WATERSPORTS

Sailing (minisails and catamarans), windsurfing, pedal boats and snorkelling. Free scuba-diving. TRIAL LESSONS in our swimming pools --complete with equipment and instruction."

Sheet 2 thus sets out what is offered "free" and describes each item. Sheet 3 sets out what the rates included at "at no additional charge". It again refers, for example, to water sports and adds:

"BONUS OFFER. Outing to the Travellers Mwaluganje Elephant Camp Included. Day Excursion for a seven night stay, and Overnight Package for fourteen nights.

INCLUSIVE OF ALL DRINKS AND SANCTUARY ENTRANCE FEES"

Sheet 5 includes the following, with a picture of an elephant at the bottom:

"Special offer

To all our inclusive club clients.

All guests staying a minimum of fourteen…nights at our Travellers Club will be entitled to a one night overnight stay at our new deluxe tented camp the Travellers Mwaluganje Elephant Camp on a full board, all inclusive, basis including transfers, two game drives and sanctuary entrance fees."

It can thus be seen that the camp was described as "our" camp and was offered to hotel guests and thus to Cosmos' clients as part of the inclusive deal offered to them, just like all the other inclusive activities. It was, to my mind, just as much a part of the services included as, say, the kids' club or the water sports. The kids' club may very well be within the hotel, but the water sports clearly take place, at least in part, in the sea and not at the hotel. The camp is, of course, some miles from the hotel itself.

8. Annex 2 to the contract, which was also signed and dated in the same way, is headed "Cosmos Amenity Schedule" and sets out the various amenities. Although, so far as I can see, it does not refer to the camp, it does refer to "water sports provided by the establishment" which it describes as "according to tides", thus showing that they take place not in the hotel but at sea.
9. I return to the terms and conditions which provide so far as relevant as follows:

"1. Cosmos' Legal Liability

The Hotelier acknowledges that he is aware of Cosmos' liability as a travel organiser under the EU directive on package travel, package holidays and package tours and the UK Package Travel, Package Holidays and Package Tours Regulations 1992 and that he is aware of Cosmos' liability to its clients thereunder and of the legal liability which Cosmos is bound to assume thereunder in its own contracts with its own clients.

2. Safety of Clients.

Throughout the period of contract the Hotelier warrants and guarantees as follows:-

(a) that the design, installation, structure and contents of the Hotel and its furnishings and the services and goods supplied at the Hotel comply with all applicable national and local laws, decrees, regulations and codes of recommended practice, (including those promulgated by trade associations of which the Hotelier is a member) relating to hygiene, fire and general safety of those using the Hotel or any of its amenities. The hotelier shall indemnify and keep indemnified Cosmos against all losses, liabilities, claims or expenses for or in respect of injury (including death), loss or damage to persons or property which may arise from any cause whatsoever out of or in connection with the supply of services to Cosmos (excluding the negligence or default of Cosmos, its servants or agents but including any failure on the Hotelier's part to comply with the laws, decrees, regulations and codes of recommended practice referred to above);

(b) that the Hotel is comprehensively insured with a reputable insurance company in respect of its liability for death, illness, personal injury or other loss or damage suffered by third parties howsoever caused in a sum assured of not less than two hundred thousand pounds sterling for each and every individual third party for each and every incident but without limit or indemnity in respect of costs, fees and expenses; provided however that nothing in this sub-clause shall serve to limit the liability of the Hotelier to indemnify Cosmos under the terms of clause 2 (a) above;

c) that the Hotelier will at once inform Cosmos by the fastest available method if the Hotel or any of its facilities or amenities no longer comply with any of the said safety standards, etc., or if there any changes in its said insurance or if it c[e]ases to be so insured;

d) that in the event of the Hotelier having to sub-contract any of its obligations under this Agreement for whatever reason then the Hotelier will procure that the sub-contractor or if any sub-contractor fails to comply with the said safety standards and maintains insurance as aforesaid and the Hotelier further agrees that in the event of the negligence of any sub-contractor or if any sub-contractor fails to comply with the said standards or to maintain the said insurance the Hotelier will indemnify Cosmos and its clients against any loss, damage or expense (including costs) incurred by Cosmos in relation to claims which may be made against Cosmos whether for death, illness, personal injury or other loss or damage howsoever caused;

(e) that the Hotelier will from time to time at reasonable times allow Cosmos either by its own employees or agents or by its expert representatives to examine the Hotel's structure and all installations therein in order to check the said safety standards, etc., and will further allow Cosmos or its agents to examine the Hotel's insurance policy or certificate of insurance.

3. Description and amenities

a) The Hotelier hereby declares that at the date hereof the Hotel consists of and conforms to and has the characteristics, description, facilities and amenities set out in the Amenities Schedule relating to the Hotel which has been or will be agreed and signed by or on behalf of both parties and which forms part of this Agreement.

b) In the event of any alteration after the date hereof in those characteristics, description, facilities and amenities of the Hotel set out in the said Amenities Schedule the Hotelier shall give written notice to Cosmos or its representative of any alteration and shall sign a fresh Amenities Schedule incorporating all such alterations.

4. Accuracy of Hotel descriptions

The information for the description of the Hotel and its facilities in the Cosmos brochures and/or in the brochures of the Other Companies has been supplied by the Hotelier. The Hotelier is aware of the obligations of the Tour Operators under A.B.T.A's Code of Conduct and of Tour Operators' legal liability in the United Kingdom for false trade descriptions. The Hotelier further confirms that he has read the brochure description in respect of his Hotel and that the description is correct in all respects. The Hotelier further confirms that he will at once advise Cosmos if the description should, at any time and for any reason, become incorrect. In the case of the brochure description not being ready at the date hereof, the Hotelier will read and amend if necessary the description as soon as it is delivered to him. In the event of Cosmos incurring legal liability in the United Kingdom as a result of an incorrect brochure description, the Hotelier agrees that he shall refund forthwith to Cosmos any expenditure to which they shall have been put as a result of such legal liability.

….

7. Excursions

The Hotelier shall allow Cosmos full free unrestricted and exclusive rights to sell excursions to Cosmos clients in the Hotel and to collect money and tickets for the same and shall not prevent Cosmos employees in any way from exercising such rights."

I note in passing that clause 13 provides for English law and for the exclusive jurisdiction of the courts of England.

The Issues before the Judge

10. The judge identified and answered four questions as follows:

"(i) Does clause 2(a) extend to the Camp where the attack took place and does it entitle Cosmos to indemnity with respect to the liability of the consumers ('the construction issue')? Yes.

(ii) Is that clause an onerous and unusual contract clause such that it should not be incorporated into the contract? No.

(iii) Was Cosmos' decision to settle the claims of the consumers, in principle, a reasonable one and was it made in good faith? ('the reasonableness issue') Yes. I am satisfied that I should determine reasonableness as to settlement without having any regard to quantum.

(iv) Has Cosmos' claim been the subject of a compromise agreement? ('the compromise issue') No."

11. The hotelier did not seek to appeal the answer to question 4, the compromise issue. It renewed its application for permission to appeal against the judge's answer to question 3, the reasonableness issue, but that renewed application was refused orally by this court and does not therefore now arise. This court orally gave permission to appeal in respect of the answer to question 1, the construction issue. As to the answer to question 2, namely the judge's conclusion that clause 2(a) was not an onerous and unusual clause such that it could not be incorporated into the contract, as I read the judgment of Tuckey LJ, with whom Longmore LJ agreed, permission to appeal was refused on this ground. Tuckey LJ did, however, say that the allegedly onerous nature of the clause might be relevant to the question of construction of clause 2(a).

Discussion

12. The issue is a short one. Mr Ashfield submits on behalf of the hotelier that, when construed in its context, the second sentence of clause 2(a) should be construed as being limited to:

"…loss, liabilities, claims or expenses for or in respect of injury (including death), loss or damage to persons or property which may arise from any cause whatsoever out of or in connection with the supply of services to Cosmos …" at the hotel.

13. The basis of that submission is that the two sentences of clause 2(a) should be construed together and that, since the first sentence is limited to "the services and goods supplied at the hotel", the natural approach to, and the natural meaning of, the second sentence is that it should be construed in the same way. Mr Ashfield, to whom we are grateful for a conspicuously able but concise argument, points to the fact that the second sentence itself refers back to the first sentence. It also stresses the reference to the hotel in clause 2(b) and notes that clause 2(c) and 2(e) relate only to the hotel and that clause 2(d) relates to sub-contractors and imposes like duties on sub-contractors. He submits that there was nothing to stop Cosmos as the proferens from inserting a general indemnity into the contract, but says that if it had intended to do so it would have done so in a separate clause, and would not have included a general indemnity as part of clause 2(a) when the first sentence is limited to services at the hotel. In short, Mr Ashfield submits that the hotel provides the whole focus of clause 2 and that the second sentence of clause 2(a) should be construed accordingly as being limited to the hotel.
14. Mr Chapman submits by contrast that the second sentence of clause 2(a) is clear. The injury loss or damage must:

"…arise from any cause whatsoever out of or in connection with the supply of services to Cosmos."

It does not add "at the hotel". It should be given it s ordinary and natural meaning. The judge in essence accepted that submission. So would I.

15. As the judge said at paragraph 6 of his judgment, and as is indeed common ground, the correct approach to interpretation derives from Lord Hoffman's five principles set out in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913 as follows:

"(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) The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to 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. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(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. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax…

(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. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had."

16. The judge also correctly noted that Lord Hoffman himself introduced a qualification to those principles in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at paragraph 39:

"I should in passing say that when, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913, I said that the admissible background included 'absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man', I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background. It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken. But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage: 'we do not easily accept that people have made linguistic mistakes, particularly in formal documents'. I was certainly not encouraging a trawl through 'background' which could not have made a reasonable person think that the parties must have departed from conventional usage."

17. As Lord Hoffman noted in that last passage, the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage. Of course, the particular provision must be construed in the context of the clause as a whole, and the clause itself must be construed in the context of the contract as a whole, which must in turn be considered in its factual matrix or against the circumstances surrounding it. The language supports the construction adopted by the judge. So, too, in my judgment, does the context. Even if the focus were wholly on the terms and conditions, I would not accept Mr Ashfield's submissions. Clause 1 expressly notes the potential liability of Cosmos under the EU directive on Package Travel, Package Holidays and Package Tours and under the UK Package Travel, Package Holidays and Package Tours Regulations 1992. The purpose of the acknowledgment by the hotelier in clause 1 is, as I see it, to provide the context for the indemnity provisions that follow. Thus one would expect the purpose of the indemnity provisions to be to indemnify Cosmos against its liabilities to its own clients arising out of services provided by the hotelier.We were told that the directive and the regulations provide for the package tour operator to be liable for failings of the local hotelier under local regulations. Thus, one would expect the hotelier to be agreeing to indemnify the tour operator, here Cosmos, against that liability. On the facts of this case, the original claimants asserted that Cosmos was liable under the directive and the regulations. It was that claim that was settled in what the judge held was a reasonable settlement.
18. Against that background I turn to the language of clause 2. The language of the second paragraph of clause 2(a) is plain. It does not say "in connection with the services" at the hotel. It could easily have done so. I see no reason to read it as if it did. The point can be tested by a consideration of clause 2(a) as a whole. The first sentence is not limited to the hotel but includes a reference to those using "the hotel or any of its amenities". To my mind, those amenities would plainly include the provision of water sports, which, as I said earlier, take place, at least in part, not at the hotel but on the sea. If the expression "hotel or amenities" includes the provision of water sports, I do not see why it should not be construed as extending to the hotel and other amenities provided by the hotelier at its camp, which are part of the all-inclusive arrangements provided by the hotelier to Cosmos' clients under the contract. I note in passing that the reference to "the hotel" in clause 2(b) must be a reference to the hotelier, because it provides that "the hotel" be comprehensively insured in respect of liabilities. It is of course the hotelier, not the hotel, which as a matter of law needs liability insurance, and I have no doubt that clause 2B covers liabilities in respect of the safety of those "using the hotel or its amenities".
19. In these circumstances, I would not add a gloss to the second sentence of clause 2(a), but give it its ordinary and natural meaning. Even if that analysis is too narrow, I agree with the view expressed in paragraph 47 of the judge's judgment, which I would commend for its clarity and concision, that the contract as a whole makes it clear that the services provided to Cosmos for their clients included, as part of the all-inclusive arrangements, the overnight stay and other amenities provided at the camp. As stated earlier, the front page of the contract made it clear that the description of "all-inclusive" was to be found in annex 1, and annex 1 made it clear that the provision of the stay "at our new deluxe tented camp" was all part of the all-inclusive deal offered. It was reasonable for Cosmos to settle with its customers on the basis of their claim that Cosmos was liable under the directive and the regulations. One of the underlying purposes of the contract was to provide an indemnity against such claims. In these circumstances, I see no reason not to construe the language of the indemnity in accordance with its ordinary meaning. I agree with May LJ that the judge's construction of the clause was correct. I would therefore dismiss this appeal.

Lord Justice Toulson:

20. I agree.

Lord Justice Sullivan:

21. I also agree.

Order: Appeal dismissed