England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
HH Judge Raeside QC
Technology and Construction Court
(Leeds District Registry)

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/10/2015

Lord Justice Simon:

Introduction

1. This appeal turns on a short point of construction of a written agreement dated 26 November 2010 between the First Claimant and the Defendant (the 'Standstill Agreement'). This provided that time would be suspended for the purposes of any limitation defence in relation to claims made by the Claimants.
2. A claim has been made by the Appellant, a mortgage lender, against the Respondent, a valuer. The Appellant claims that the Respondent was at fault in relation to 46 valuations of property, and deceitfully so in relation to 41 of them. The allegation is directed against two particular surveyors employed by the Respondent and is denied.
3. It is common ground that the Standstill Agreement covered claims in negligence. The issue on this appeal is whether it also suspended time in relation to claims for deceit. The First Claimant contends that it does. The Defendant submits that it does not. If the First Claimant is right, all of its claims in deceit will proceed to trial; if it is wrong, the First Claimant will not have a contractual answer to the Defendant's limitation defence in relation to most of its claims in deceit, although it may have other answers.
4. At the hearing of a preliminary issue on 5 March 2015, in the High Court (TCC) at Leeds, HH Judge Raeside QC concluded that Standstill Agreement did not have the effect of suspending time in relation to the First Claimant's claims in deceit; and the First Claimant now appeals that decision.

The relevant terms of the Standstill Agreement

5. The Defendant is described in the Standstill Agreement as 'the Surveyors'.
6. There is an opening preamble paragraph which was headed, 'Background'. It is convenient to refer to this as 'the Background Preamble'.

1. The Surveyors were instructed on various dates to act on behalf of the Claimant in relation to the production of a valuation report of a number of properties for mortgage purposes. In reliance upon the valuation report, the Claimant issued a mortgage offer to the borrower to either remortgage or purchase and mortgage each property. Completion of the remortgage or purchase and mortgage of the property followed.

2. The properties in respect of which the Surveyors were instructed to provide valuations, and which are relevant to the Claimant's intimated claims and to this Agreement, are set out in the attached schedule (the 'Properties').

3. It is alleged, as more particularly set out in the Claimant's Letter of Claim dated 12 November 2010, that the valuations of the Properties produced by the Surveyors were outside the parameters of what would be regarded as reasonable in that each valuation was negligent and beyond the level of skill, care and diligence expected of a reasonably competent surveyor.

4. In this Agreement, 'Dispute' means any claim or claims directly or indirectly arising out of or in any way connected with the matters referred to in paragraphs 1, 2 and 3 above.

7. The nature of the standstill was set out in Clause 2, which was headed, 'Agreement to Suspend Time'.

The parties hereby agree that:

2.1. For all purposes of any defence or argument based on limitation, time bar, laches, delay or related issue in connection with the Dispute (a 'Limitation Defence'), time will be suspended from the date of this Agreement until 30 days after the service by any Party of a notice which is compliant with Clause 3 below stating that the running of time is to recommence (the 'Standstill Period').

2.2. No party shall raise any Limitation Defence that relies on time running during the Standstill Period.

2.3. For the avoidance of any doubt nothing in this Agreement shall prevent any party from relying on a Limitation Defence which accrued prior to the date of this Agreement.

2.4. No party can issue proceedings in relation to the Dispute prior to service of a notice which is compliant with Clause 3 below.

8. Clause 3 dealt with the service of notices by either party bringing an end to the standstill.
9. The 'attached schedule' (referred to in paragraph 2 of the Background Preamble) set out the addresses of 49 properties.
10. The Claimant's Letter of Claim dated 12 November 2010 (referred to in paragraph 3 of the Background Preamble) was a letter written by its solicitors, Cobbetts LLP, pursuant to section B2 of the Professional Negligence Pre-Action Protocol. The second paragraph of the letter was in these terms:

Without prejudice to the following we reserve the right to amend and/or raise any additional allegations and/or particulars on receipt of any further relevant information …

11. The letter included a schedule of properties, the valuations given by Respondent and a calculation of overvaluation.
12. The nature of the claim was set out under the heading, 'Breach of Duty of Care':

On the basis of the information provided in the retrospective valuation reports and the valuation reports obtained by our clients on repossession (where appropriate), we have reason to believe that your firm was negligent in the preparation and submission of valuation reports to our client. Your firm breached the terms of its contract with our client and breached the duty of care it owed to our client by providing a valuation which was inaccurate and which did not reflect the true value of the Property. In doing so, your firm, in each case failed to carry out the valuation to the standard expected of a reasonably competent surveyor.

The Judgment below

13. HH Judge Raeside QC set out the circumstances in which the Standstill Agreement came into existence. Materially for present purposes, the First Claimant's solicitors had approached the Defendant's solicitors to agree a standstill agreement. The Defendant's solicitors did not agree to this before a claim letter had been sent. A Letter of Claim was sent two days later, and the Standstill Agreement was entered into some two weeks after that.
14. The Judge also set out the procedural history of the claim. Proceedings had been issued in a Claim Form dated on 3 October 2013, where the claim was expressed as:

… damages for fraudulent misrepresentation and/or deceit and/or breach of contract and breach of duty of care.

15. At [35]-[54] the Judge reviewed a number of authorities on the construction of contracts, to which it is unnecessary to refer since the principles are well established and were not in dispute on this appeal.
16. The Judge then went on to consider the relevance of subsequent events, and rightly concluded, at [44], that they did not assist in the task of construing the contract. He also considered how the phrases 'directly or indirectly arising out of' and 'or in any way connected with' were treated in the context of arbitration and jurisdiction clauses and found that this too did not assist, see [50].
17. At [51]-[54] of the Judgment he referred to the decision of this Court in Paragon Finance Plc v. D.B. Thakerar & Co (a firm) [1998] 1 All ER 400. In that case a claim had been made for negligence, breach of contract and breach of fiduciary duty against a firm of solicitors who had acted for both the plaintiffs as mortgage lenders and borrowers. After the limitation had expired the plaintiffs sought to amend their pleadings (under what was then RSC Order 20 r.5, and is now CPR Part 17.4) on the basis that the new causes of action arose out of the same or substantially the same facts as the claim. The Judge cited a passage from the judgment of Millett LJ at p.418g-h.

Whether one cause of action arises out of the same or substantially the same facts as another was held by this court in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 4 All ER 10, [1994] 1 WLR 1409 to be essentially a matter of impression. In borderline cases this may be so. In others it must be a question of analysis. In the Thakerar case Chadwick J observed that it would be 'contrary to common sense' to hold that a claim based on allegations of negligence and incompetence on the part of a solicitor involved substantially the same facts as a claim based on allegations of fraud and dishonesty. I respectfully agree. In all our jurisprudence there is no sharper dividing line than that which separates cases of fraud and dishonesty from cases of negligence and incompetence.

The observations of Pill LJ were to similar effect.

I agree with the view of Millett LJ … that an amendment to make a new allegation of intentional wrongdoing by pleading fraud, conspiracy to defraud, fraudulent breach of trust or intentional breach of fiduciary duty where previously no intentional wrongdoing had been alleged constitutes the introduction of a new cause of action.

18. In later parts of the Judgment the Judge concluded that the words 'connected with the matters referred to in paragraphs 1, 2 and 3' indicated that the connection must be with the matters set out in each of those paragraphs; and, at [71], he expressed himself in this way:

I do not see how a claim in deceit can either directly or indirectly arise out of (1) and (2) and (3) of Background [Preamble]. The deceit claim is a case of systematic, opportunistic and deceitful overpricing from the outset and over the full period of time by these surveyors of each and every one of the 50 properties …

The arguments of the parties

19. Mr Lowenstein QC (for the Appellant) submitted (in summary) that 'Dispute' in paragraph 4 of the Background Preamble was widely defined and that Clause 2.1 was in terms that were sufficiently wide to cover claims in deceit. He argued that the Judge had failed to give sufficient weight to the words, 'in any way connected'; and had focussed too much on the need to show a connection with the matters referred to in paragraphs 1-3 of the Background Preamble, rather than on whether new claims were 'in any way connected' with these matters.
20. For the Defendant, Mr Lawrence QC argued that the law draws a stark distinction between claims in negligence or for breach of contract on the one hand, and claims in deceit on the other. The claims had different consequences for defendants, the limitation periods were different and the evidence adduced at trial was different. The key to the construction issue was whether the claim in deceit, which had not been foreshadowed in any prior communication could be said to be 'connected with' the claims in negligence and breach of contract, which had been referred to in the Letter of Claim. There was no other good reason to refer to the letter in the preamble; and if it had been intended to include any claim of any type arising out of the valuations, then the background preamble need only have contained paragraphs 1, 2 and 4. He relied on authorities which make clear that all parts of a contract must be taken into account, and that there is a presumption against surplusage or redundancy when construing contract. In summary, the Judge was right in his conclusion.

Discussion

21. In my view the Court's approach to the issue of construction can conveniently be summarised by reference to the Judgment of Lord Clarke of Stone-cum-Ebony in Rainy Sky SA and others v. Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900. At [14], after referring to a number of authorities, he said this:

… the ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the contractual language which was used, which involves ascertaining what a reasonable person would have understood the parties to have meant. As Lord Hoffmann made clear in the Investors Compensation Scheme case, the relevant reasonable person is one who had all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contract.

22. Among the background which would reasonably have been available to the parties in the present case was (1) the knowledge that a claim based on fraud and dishonesty is of a different character to a claim based on negligence and breach of contract, see above; and (2) the fact that no specific claim had been intimated prior to Standstill Agreement other than a claim for breach of contract and negligence.
23. On the other hand, as noted above, the Letter of Claim specifically reserved the right to amend and/or raise additional allegations. The words used in Clause 2.1, the operative part of the Standstill Agreement, could hardly be wider: 'for all purposes of any defence or argument based limitation … in connection with the Dispute …' (emphasis added); and the reference to laches was inapposite if the only claims which were subject to the Standstill Agreement were claims in contract and negligence.
24. Furthermore, the definition of 'Dispute' in paragraph 4 of the Background Preamble is itself drafted in very wide terms: 'Dispute means any claim or claims directly or indirectly arising out of or in any way connected with the matters referred to in paragraphs 1, 2 and 3 above,' (emphasis added).
25. Paragraph 3 of the Background Preamble referred to allegations which were made of breach of contract and negligence, but in my judgment the wide definition of 'Dispute' plainly extends beyond what had been alleged by the First Claimant at that stage. It would, for example, plainly cover a claim for breach of fiduciary duty based on the payment of a bribe. The difficulty with Mr Lawrence's reading down of the paragraph 4 is that it could have been achieved by a much shorter paragraph 4: 'In this Agreement, 'Dispute' means any claim or claims directly or indirectly referred to in paragraphs 1, 2 and 3.' His answer, that the Claimant might have wanted flexibility in relation to particular valuations does not, in my view, give sufficient weight to the words 'in any way connected with.'
26. In my judgment the proper construction of the Standstill Agreement is that if the claims arise 'indirectly' from the matters referred to in paragraphs 1-2 of the Background Preamble, or if they were in some way connected to those matters, they fall within the suspension provisions. The claims based on dishonesty fall within this very broad category of claims since they were at least in some way connected with the factual matters set out in paragraphs 1 and 2 of the Background Preamble and with the specific allegations described in paragraph 3.
27. While acknowledging the care taken by the Judge in his analysis of this issue, I would allow the appeal.

Lady Justice Gloster

28. I agree.

Lady Justice Arden

29. I too agree.