England and Wales Court of Appeal (Civil Division) Decisions

IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
MR JUSTICE FIELD
HQ10X00182

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/01/2011

Lord Justice Aikens :

1. The principal issue in this appeal is whether the appellant ("Amberley Ltd") is entitled, by virtue of contract terms, to increase unilaterally the fees charged to the respondent ("WSCC") for the care of 12 residents of the Residential Care Home called "Amberley" ("the care home") at Bognor Regis, during the period 2002-2008. The appeal is from the order of Field J dated 17 June 2010. There is one further issue in the appeal which concerns the charges that can be made by Amberley Ltd for four other residents of the care home. Several other disputes between Amberley Ltd and WSCC were determined by the trial judge but do not arise on this appeal.

The factual background and the terms of the "Contracts of Residence".

2. Mr Ronald Green and his wife ran the care home from 1983 until it was closed on 1 August 2008. It was a commercial venture. In September 1983 the care home was registered with the Registration Unit of WSCC. At first Mr and Mrs Green ran the care home in their own names, but in 1999 the business was transferred to a company, Amberley Ltd (UK) Limited, the appellant. The company is controlled by Mr and Mrs Green. On 17 November 1999 Amberley Ltd was registered as the manager of the care home under the Registered Homes Act 1984.
3. Between 1984 and 1993 a number of people under 65 years of age who suffered from moderate to severe mental illness became residents of the care home. Seventeen people in that group continued to live in there after 1993. One person in the group died before April 2002, but the other 16 lived there after that date and some of that group continued to live in the care home until it was closed in 2008. I will call that group "the Preserved Rights Residents" or "PRRs" for reasons I will explain below.
4. Field J found as a fact (at [25] of his judgment) that each of 13 of the PRRs had either signed a "Contract of Residence" on entering the care home, or it was to be inferred was subject to a contact on the same terms. Originally these contracts were between each of the 13 PRRs and Mr and Mrs Green. It was accepted by WSCC before us that any contracts originally between a PRR and Mr and Mrs Green would have been novated to the appellant, Amberley Ltd, when that company was formed in 1999. Therefore, for the purposes of the appeal, in respect of the 12 out of the 13 PRRs who survived after April 2002, the contracting parties to these contracts were Amberley Ltd and each of those PRRs. I will refer to the contracts between each of the 12 PRRs and Amberley Ltd as the "Contracts of Residence".
5. The Contracts of Residence contained a number of standard terms, which, we were told, had been approved by WSCC and were in a form that was used by a number of other care homes in Sussex and elsewhere at the time the contracts were concluded. The following terms are relevant to the appeal:

"This Home is registered with West Sussex County Council as a Home for the younger mentally ill.

This contract sets out the terms and conditions under which you may take up residence in this Home:

What you may expect from the Home.

What the Home will require of you.

……

Fees

The level of fees is subject to review as costs increase. No fee level is stated here as a standard, due to the reviews.

The level of fees applicable at the time of your admission is £……per week.

Payment of the fees covers full board and lodging.

……

Leaving the Home

…….

Residents must give a period of notice to leave the Home. This period will be one week unless by arrangement with the Management.

Residents will be asked to leave, and will be given two weeks notice to vacate the premises for the following reasons:

Any behaviour which threatens the security of the Home and or the other residents, or causes repeated disturbances of such a nature as to cause other residents to complain.

….."

6. The key term in the appeal is that dealing with fees. For reasons that I will explain below, after April 2002 WSCC were responsible for the payment of the 16 surviving PRRs who were resident in the care home. Mr and Mrs Green, who continued to control Amberley Ltd and ran the care home, were in dispute with WSCC between 2002 and 2008, claiming that the costs of providing care to all the PRRs had increased and that Amberley Ltd was entitled, by the terms of the contract term "The level of fees is subject to review as costs increase", unilaterally to raise its fees to pay for this increase. Amberley Ltd claimed that WSCC was obliged to pay these increased fees for each of the PRRs at the level set by Amberley Ltd from time to time.

The legislative background

7. In order to understand why it is WSCC that was responsible for the fees payable to Amberley Ltd (rather than the 12 PRRs themselves) and why it is said that WSCC was obliged to pay any increased fees, it is necessary to outline briefly the history of the relevant legislation. Under section 21(1) of the National Assistance Act 1948, ("the 1948 Act"), a duty was imposed upon local authorities to "make arrangements" for residential accommodation for those over the age of 21 (later 18) who needed it "with the approval of the Secretary of State and to such extent as he may direct". From 1948 until April 1993 a person who was resident in a care home but not placed there by a local authority under the 1948 Act could pay for the fees charged by the care home by using his entitlement to higher rates of supplementary benefit, or, from 1988, "Income Support".
8. In April 1993 the "community care reforms" under Part III of the National Health Service and Community Care Act 1990 ("the 1990 Act") came into force. The 1990 Act placed an obligation on local authorities to assess the needs of people in their areas and to decide whether they needed residential care. The 1948 Act was also amended so that, by section 26(1), as amended, local authorities were permitted to make arrangements with private providers of residential accommodation for those assessed to need it. However, those who, in April 1993, were already in residential care homes and whose fees were paid through their Income Support, were not brought within the responsibility of local authorities. The effect of section 43 of the 1990 Act, which inserted a new section 26A in the 1948 Act was that those who, prior to April 1993, were resident in a care home that had been registered under the Registered Homes Act 1984 (as this care home had been) and had the care home fees paid by Income Support, retained "preserved rights". These enable such residents to receive Income Support to pay for the charges of the care home where they were resident, albeit up to a statutory maximum rate. Such persons were known as "Preserved Rights Residents", or "PRRs" as I have called them.
9. This legislation was amended again as from April 2002, when section 50 of the Health and Social Care Act 2001 ("the 2001 Act") came into force. The overall effect of this section was to place PRRs in the same position as others with mental illness who needed residential accommodation. Thus local authorities became responsible for PRRs, who lost their preserved rights to have the fees of their residential care home paid for directly by central government, via Income Support. I have annexed section 50 of the 2001 Act to this judgment. For the purposes of this appeal its effect can be summarised as follows: (1) local authorities were required, either prior to 8 April 2002, or "as soon thereafter as is reasonably practicable" to carry out an assessment of the needs of all PRRs within their area and to provide PRRs with such "community care services" (with respect to the PRR's accommodation) as appeared to the authority to be appropriate: section 50(3)and (4). (2) If the assessment by the local authority showed that a PRR continued to require residential accommodation and such accommodation was provided by the responsible local authority, then that PRR's "existing arrangements" (ie. his accommodation and payment arrangements) would terminate from the date on which the PRR was provided with those community care services by the local authority: section 50(5). (3) However, where a PRR was not provided by the local authority with the community care services (either because there had been no assessment or because the local authority did not itself have suitable accommodation available), then "…any liability of [the PRR] to make any payment under his existing arrangements in respect of any period (or part of a period) falling within the period beginning with the appointed day…shall instead be a liability of the responsible authority" until those community care services were provided by the local authority or the PRR notified the local authority that he did not wish to be provided with those services: section 50(6).
10. It was common ground before us, for the purposes of Amberley Ltd's appeal only, that the 12 PRRs' obligations to pay the fees for their residential accommodation at the care home constituted "existing arrangements" within section 50(6) of the 2001 Act. Field J had held, at [31]-[32] that, during the period after April 2002, WSCC had not provided the 12 PRRs with community care services in accordance with section 50(3) of the 2001 Act. Therefore, subject to WSCC's Respondent's Notice, which we did not need to consider in the event, it was agreed that, by virtue of section 50(6) of the 2001 Act, the existing liability of the 12 PRRs to pay the fees due to Amberley Ltd for their residential accommodation there became the liability of WSCC as from 8 April 2002.

The dispute over fees payable by WSCC for the 12 PRRs after April 2002.

11. When the new legislative regime came into force in April 2002, Mr and Mrs Green expected that WSCC would pay higher fees to cover the higher costs of providing care for the 12 PRRs. The costs had outstripped the rise in the maximum Income Support that had been paid to Amberley Ltd up to that date. On behalf of Amberley Ltd, Mr Green wrote to WSCC on 14 March 2002 demanding that it pay care fees of £341 per week per resident. Over the next six years the weekly rates demanded were increased by steps to £445.44. WSCC refused to pay those rates and insisted on paying only in accordance with its published schedule of maximum rates for accommodation in registered care homes, which were significantly lower than those demanded by Amberley Ltd. The difference between the rates paid by WSCC and those demanded by Amberley Ltd formed the subject-matter of a counterclaim made by Amberley Ltd after WSCC had brought proceedings to recover sums it said were due to it from Amberley Ltd. Amberley Ltd claimed that WSCC had "underpaid" fees totalling £86,755.47.

The judgment of Field J.

12. Field J rejected the submission of Amberley Ltd that it was entitled unilaterally to raise the fee payable by the 12 surviving PRRs under the terms of the Contracts of Residence and that this price raising mechanism was part of the "existing arrangements" within section 50(6) of the 2001 Act. At [23] of his judgment, Field J held that the effect of the wording in the contract that "…The level of fees is subject to review as costs increase" was that "…whilst Amberley Ltd has the right to revise the weekly fee, the resident has the right to choose whether to accept the increase or to move to other accommodation". He held that in April 2002 "…there was no right vested in Amberley Ltd unilaterally to charge the fees for which it has invoiced WSCC in the period 2002 to 2008. In addition, there is no basis for concluding that the residents agreed to pay the fees for which Amberley Ltd invoiced WSCC".
13. At [25] of his judgment, Field J further analysed the contractual position after April 2002 between each of the 12 surviving PRRs and Amberley Ltd as follows:

"Thus, at April 2002, each of the remaining 12 residents had a contract under which Amberley Ltd was to provide accommodation at a rate equivalent to Income Support at the Higher Level, subject to Amberley Ltd being at liberty to propose increases which if accepted would lead to a variation of the contract, and if rejected, would lead to the resident having to leave the Home, unless Amberley Ltd acquiesced in his continuing to remain in residence".

14. Field J therefore rejected Amberley Ltd's primary claim to be entitled, in respect of the 12 surviving PRRs who had concluded Contracts of Residence (or were subject to those terms) to recover from WSCC the difference between the fees it had demanded and the sums actually paid to Amberley by WSCC.
15. Before Field J Amberley Ltd also contended that if it could not succeed on its primary case, then, in respect of the 12 surviving PRRs, there were two alternative bases on which it could claim the difference between the fees it had set and the sums paid by WSCC. The first was that Amberley Ltd was entitled to claim a reasonable sum by way of quantum meruit. At [26] the judge rejected that submission on the basis that the terms of the Contracts of Residence dealt comprehensively with the question of the price to be paid, so that the terms left no room to infer a right to a quantum meruit. Field J also held that even if he was wrong about that, Amberley Ltd had failed to prove that a reasonable price for the accommodation exceeded the maximum rates that had been paid by WSCC: see [27] and [38]-[40] of his judgment.
16. The second alternative argument of Amberley before the judge (in respect of the 12 surviving PRRs) was that a supervening contract should be inferred from the parties' conduct after April 2002, under which WSCC became obliged to pay the prices published by Amberley Ltd. The judge rejected that argument at [42].
17. In respect of the four PRRs who had not contracted on the terms of the Contracts of Residence, Field J held that Amberley Ltd had a right, by virtue of the doctrine of quantum meruit or by virtue of the terms of section 15 of the terms of the Supply of Goods and Services Act 1982, to be paid a reasonable sum for the accommodation supplied. He also held that this right was a part of the "existing arrangements" for the purposes of section 50(6) of the 2001 Act. However, the judge found that Amberley Ltd failed to adduce any " convincing evidence" of the costs of providing care at the care home, or any comparative evidence of rates charged by other homes in Sussex or elsewhere. In contrast, he held that WSCC had adduced evidence of its maximum rates paid for those who had residential care home need, the maximum rates paid by other local authorities and the rates charged by other care homes in Sussex.
18. The judge accepted the evidence of WSCC and concluded, at [40], that WSCC's maximum rate "…constituted a reasonable level of remuneration for the care provided by Amberley Ltd not only to the 4 signed off residents who had no contract with Amberley Ltd but also to the rest of the 17 residents identified by [Amberley Ltd]". He therefore rejected the claim in respect of the 4 non-contracting PRRs.

The issues arising on the appeal

19. In relation to the 12 surviving PRRs that are subject to the terms of the Contracts of Residence, Mr Peter Susman QC, for Amberley Ltd, renewed the submission made to Field J. He argued that, on their true construction, the terms of the Contracts of Residence gave Amberley Ltd the right to put up the fees for those PRRs in line with increases in the costs of their care at the Care Home and that each of the PRRs was contractually obliged to pay the fees as determined by Amberley Ltd. Mr Susman accepted that the fees could not be increased dishonestly, arbitrarily, capriciously or unreasonably. But, subject to those limitations, he submitted that Amberley Ltd had the right to increase fees in accordance with increased costs when it chose. Further, that right was a part of the "existing arrangements" within section 50(6) of the 2001 Act, so that the liability of the PRRs to pay increased fees as determined by Amberley Ltd became the liability of WSCC as from April 2002. Mr Susman submitted that, if this argument were correct, then Amberley Ltd would be entitled to recover from WSCC the rates that Amberley Ltd promulgated from time to time thereafter. Mr Susman submitted, in the alternative, that the matter should be remitted to the judge or a Master for further findings on the issue of quantum. Mr Susman did not advance the further alternative arguments made to the judge in respect of the 12 surviving PRRs.
20. In respect of the four PRRs who were not subject to the contract terms, Mr Susman submitted that the judge erred in his finding that Amberley had failed to adduce sufficient evidence to show that a reasonable rate for the residential care supplied by Amberley Ltd would have been above the maximum rate paid by WSCC. Mr Susman argued, in a somewhat muted way, that the judge should have accepted that Amberley Ltd was entitled to recover from WSCC payments at the rates that Amberley Ltd had been paid by other local authorities for PRRs that those other local authorities had placed with Amberley Ltd, or alternatively, that he should have acceded to the submission to hold a further hearing on the issue of a reasonable rate.
21. For WSCC, Mr Paul Stagg submitted that the judge was correct in his conclusions, both in respect of the construction of the contract and Amberley Ltd's failure to prove its case that the rates it demanded were reasonable rates. Therefore, he submitted, the judgment should be upheld.

Construction of the Contract terms.

22. The first question is whether the sentence in the Contracts of Residence that "The level of fees is subject to review as costs increase" gives Amberley Ltd the right, unilaterally, not only to increase the fees payable by the PRRs that are subject to the contract, but also to enforce payment of that increase. This is essentially a matter of construction of the contract term itself, placed in its factual context. Did the parties to the contract, objectively, intend to grant to Amberley Ltd the right unilaterally to increase the fees which the PRRs would then be obliged to pay? There is no doubt that, subject to any possible statutory safeguards (which it is not suggested are applicable in this case), parties to a contract can agree that one party shall be able, unilaterally, to vary the terms of the contract to the detriment of another. But, as Staughton LJ said in Lombard Tricity Finance Ltd v Paton,^[1] that is an unusual provision in a contract and, in general, clear words would be required to achieve that result. In that case the Court of Appeal held that the words of a credit agreement were sufficiently clear to entitle the credit company to vary (upwards) the rate of interest payable on the credit balance due to the company by a consumer upon notification to the consumer as required by consumer credit legislation.
23. The observations of Staughton LJ in that case were qualified in Paragon Finance plc v Nash et al,^[2] where this court held that a mortgagee finance company had, under the terms of its loan agreements with mortgagors, a discretion to increase the rate of interest payable on loans, in excess of the Bank of England or prevailing market rates of interest. However, the court also held (thereby qualifying the remarks of Staughton LJ in the Lombard Tricity Finance case) that this right was subject to implied terms of the contract that the finance company would not exercise its discretion to increase the rate of interest in a manner that was dishonest, for an improper purpose, or capriciously, arbitrarily or in a manner that no mortgagee, acting reasonably, would do.^[3] As I have already noted, Mr Susman accepted that those qualifications must apply to the present contract terms.
24. Mr Susman particularly relied on the decision of Moore-Bick J in Esso Petroleum Company Ltd v Addison and others.^[4] In that case Moore-Bick J had held that Esso, as the supplier of motor fuel to retailers, was entitled to rely on a clause in a licence agreement which gave Esso the right, every November, to "review" certain fees, costs and allowances granted to its retailers of motor fuel and, if, in Esso's opinion, changes were needed to them, to give effect to the changes one month later. Mr Susman submitted that Field J wrongly relied on the remarks at [132] of Moore-Bick J's judgment, where he said:

"……. I do not doubt that parties are free to make an agreement under which one of them effectively puts himself in the power of the other in relation to some aspect of the contract - see the comments of Staughton L.J. in Lombard Tricity Finance Ltd v Paton [1989] 1 All E.R. 918 at page 923 - but it would be an unusual thing to do and I do not think that one should readily accept that it was what the parties intended. In deciding the matter it is, of course, necessary to examine both at the language of the contract and its commercial context."

25. Mr Susman argued that the particular context in which Moore-Bick J made those remarks was inapplicable to the present case. In my view, Field J was entirely correct to note the remarks of Moore-Bick J that I have quoted above, which are consistent with previous Court of Appeal authority. Field J neither misunderstood those remarks nor misinterpreted them.
26. The term in the Contracts of Residence that "the level of fees is subject to review as costs increased" is laconic. It does not state expressly who will perform the "review" or how often or on what particular basis other than the fact that fees will be reviewed "as costs increase". There is nothing in the term, either in itself or in conjunction with the other terms of the contract, which gives Amberley Ltd an express right unilaterally to declare an increase in the fee and then enforce it upon the other party to the contract.
27. The Contracts of Residence were a standard form of contract which must apply both to those who paid the fees privately and to those whose fees were paid (albeit indirectly) by public bodies. Mr Susman's argument must entail that the terms of the contract not only give Amberley Ltd the right unilaterally to demand an increase in the fees payable by a resident but also, if the resident refuses or fails to pay the increased fee, even if he does not agree to it, that Amberley Ltd has the right to declare the resident is in breach of his Contract of Residence, thereby entitling Amberley to bring the contract to an end and to demand that the resident vacates the premises. In this regard it is, I think, striking that there is no term under the heading "Leaving the Home" which gives Amberley any express rights to determine the contract if a resident fails to pay any fees due, let alone any term which deals with the situation where Amberley Ltd has decided, unilaterally, that the fees should be increased but the resident either will not or cannot pay them.
28. Having considered the term relied on in its contractual and factual context, I have concluded that it means just what it says: the level of fees is subject to a "review" if costs increase. I would accept that the parties must have intended that Amberley Ltd would undertake the "review". But, in my judgment, the term goes no further than that. Therefore, if Amberley Ltd were to decide that it wished to increase the fees, it must obtain the agreement to the resident concerned so as to vary the contract between the parties.
29. I am not convinced (with respect) that Field J's analysis in the last part of the last sentence of [25] of his judgment is correct. If Amberley Ltd had the right to determine the contract with a PRR (or any other resident subject to the same contractual terms) if that person did not agree to Amberley Ltd's proposed unilateral increase after a review, that would mean that, upon the correct construction of the contract,^[5] Amberley Ltd had the implied right to determine the contract and could so force the resident to leave (unless Amberley Ltd acquiesced in the resident staying on at the lower rate). I think it neither reasonable nor necessary to construe the contract so as to give Amberley Ltd that right, nor would I regard that construction as one to which the parties would "obviously" agree. However, I appreciate that this conclusion would not affect Amberley's right to determine the contract on reasonable notice to a resident, as both sides accepted before us.
30. Mr Susman also argued that Field J failed to give sufficient weight to other matters relied on by Amberley Ltd in support of its submission that the contract term relied on entitled it unilaterally to increase the fees if costs increased. I cannot agree. The fact that in other situations it is common for there to be a power for one party to a contract to increase fees or charges unilaterally does not help solve the issue of construction of the particular contract term in this case.
31. Accordingly, I conclude that the contract term does not give Amberley Ltd the power unilaterally to demand or enforce payment of increase in fees payable by the surviving 12 PRRs. Therefore the appeal concerning those PRRs must fail.

The Four PRRs who were not subject to the Contract for Residence terms

32. Mr Susman recognised that he faced a difficult task in trying to persuade us that Field J was not entitled to make findings of fact that Amberley Ltd had failed to prove its case that the level of fees claimed constituted a reasonable rate of remuneration for the care provided for them by Amberley Ltd. In my view Mr Susman has failed to demonstrate that the judge was not entitled to make the findings that he did at [38]-[40] of his judgment. Moreover, Mr Susman acknowledged frankly that he had not pursued strongly before the judge the argument that the judge should adjourn the issue of "reasonable cost" for another occasion, so that Amberley Ltd could obtain more evidence. That is not surprising. There is no reason why the judge should have adjourned the matter, even if Mr Green had only recollected in his oral evidence at the trial that there were four PRRs without contracts. The alternative case of quantum meruit was always before the trial judge in respect of all the PRRs, as is clear from [24] of the judgment. Amberley Ltd had to be prepared to adduce convincing evidence of its alternative case that the fees it demanded constituted a reasonable sum by way of quantum meruit, but it failed to convince the judge that it had credible evidence to support its case.
33. Therefore I would dismiss the appeal in respect of the 4 PRRs not subject to the Contract of Residence terms.

Disposal

34. I would dismiss both aspects of the appeal.

Lord Justice Richards:

35. I agree.

Lord Justice Mummery:

36. I also agree.
APPENDIX Health and Social Care Act 2001

………..

"(50) (1)The following provisions, namely—

(a) section 26A of the National Assistance Act 1948 (c. 29) (which prevents local authorities in England or Wales providing residential accommodation for persons who were in such accommodation on 31st March 1993), and

(b) section 86A of the Social Work (Scotland) Act 1968 (c. 49) (which makes corresponding provision for Scotland),

shall cease to have effect on the appointed day.

(2) For the purposes of this section a "qualifying person" is—

(a) (in relation to any time before the appointed day) a person to whom section 26A(1) or section 86A(1) applies; or

(b) (in relation to any later time) a person to whom either of those sections applied immediately before that day.

(3) Where a qualifying person is immediately before the appointed day ordinarily resident in relevant premises in the area of a local authority ("the responsible authority"), that authority shall secure that—

(a) as from that day, or

(b) as soon thereafter as is reasonably practicable,

the person is provided with such community care services with respect to his accommodation as appear to the authority to be appropriate having regard to his needs as assessed under section 47(1)(a) of the 1990 Act (assessment of needs for community care services in England or Wales) or section 12A(1)(a) of the 1968 Act (corresponding provision for Scotland).

(4) Each local authority shall accordingly—

(a) use their best endeavours to identify every person ordinarily resident in relevant premises in their area who is a qualifying person; and

(b) carry out such a programme of assessments under section 47(1)(a) or 12A(1)(a) in respect of persons so identified as appears to the authority to be required for the purpose of enabling them to discharge their duty under subsection (3) in relation to such persons.

(5) Where a person—

(a) is a qualifying person immediately before the appointed day, and

(b) is provided by the responsible authority with any community care services with respect to his accommodation in accordance with subsection (3),

his existing arrangements shall, by virtue of this subsection, terminate on the date as from which he is provided with those services.

(6) Where any such person is not provided with any such services as from the appointed day, any liability of his to make any payment under his existing arrangements in respect of any period (or part of a period) falling within the period beginning with the appointed day and ending with—

(a) the date as from which he is provided with any such services, or

(b) the date on which he notifies (or is in accordance with regulations to be treated as notifying) the responsible authority that he does not wish to be provided with any such services,

shall instead be a liability of the responsible authority."

Note 1    [1989] 1 All ER 918 at 923B, giving the judgment of the court.    [Back]

Note 2    [2002] 1 WLR 685    [Back]

Note 3   See the judgment of Dyson LJ at [36]. Thorpe LJ and Astill J agreed with Dyson LJ.    [Back]

Note 4   [2003] EWHC 1730 (Comm)    [Back]

Note 5   I put it this way in the light of Lord Hoffmann’s approach towards “implied terms” in wholly written contracts, as set out in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, which approach was adopted by the Court of Appeal in Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] 2 Lloyd’s Rep 639. In other words, even though the courts have in the past talked of “implied terms”, in truth there are no additional terms; it is only a question of discerning what, from the wording of the contract as a whole and the relevant background, the contract is reasonably intended to mean. See in particular [21] to [27] of Belize.    [Back]