England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM STAINES COUNTY COURT
District Judge Trigg
2YK56599

		Royal Courts of Justice Strand, London, WC2A 2LL
		27th January 2015

Lord Justice McCombe:

(A) Introduction

1. This is an appeal, with permission granted by Vos LJ, brought by the Defendant in the proceedings, Myers Catering Ltd ("Myers") from the order of 3 December 2013 of District Judge Trigg made in the Staines County Court whereby she dismissed Myers' counterclaim and gave directions for the further conduct of the claim by the Claimant, Thorney Park Golf Limited ("Thorney Park"). The order was made upon trial of a preliminary issue "as to liability", which in effect was to be a trial upon the short point of contractual construction that arose in the action.
2. The agreement between the parties was for the provision by Myers of catering services at Thorney Park's golf club premises known as Laleham Golf Club, Laleham Reach in Surrey ("the Club") from 1 June 2009. The point of construction arising was whether the agreement provided for an initial term of three years, terminable thereafter by either party on four months notice, or whether it was for a fixed term of three years but terminable nonetheless at any time by four months notice within the initial three years. Myers contended for the former construction; Thorney Park contended for the latter.
3. By a letter dated 9 June 2010 Thorney Park sought to terminate the agreement. Myers contended in the proceedings that such termination was unlawful and by its counterclaim claimed damages for the alleged breach. The judge decided the point of construction against Myers and dismissed its counterclaim accordingly. Myers appeals against that decision and the resultant order.

(B) Background Facts

4. The background of the case can be shortly stated as follows.
5. Myers was at all material times a company operated by Ms Sarah Sims and Mr William Myers. Ms Sims and Mr Myers had provided catering services at the Club from at least April 2007, trading through a number of limited companies. Between 2007 and 2009 the relevant company was Dial-a-Chef Limited ("DAC") and services were provided pursuant to a written agreement, dated 21 December 2007, with the then owners and operators of the Club. That agreement was terminable by either party on three months notice. DAC was paid a monthly management fee of £250 plus VAT. There was no provision for any initial specific term, whether fixed or otherwise
6. Thorney Park purchased the Club in August 2008 and by letter of 19 August 2008, from its Managing Director Mr Andrew Killing, it wrote to Ms Sims, with reference to matters discussed at a then recent meeting, and confirmed the continuation of the September 2007 agreement. By letter of 5 February 2009, however, Mr Killing wrote to Ms Sims giving three months notice terminating the 2007 agreement, but stating that he would like to discuss "an updated version of this agreement at your earliest convenience". On 19 April 2009, Mr Killing sent to Ms Sims a draft new form of agreement between the parties, as prepared by him, envisaging that the contracting entity as caterers at the Club would be a company called Gable Inns Limited which was also owned and controlled by Ms Sims and Mr Myers.
7. Although no further agreement between the parties was signed, it appears from the skeleton arguments before the judge that it was common ground before her that the terms of that draft represented the terms of the agreement between these parties. This was not initially the case. In particular, Thorney Park had initially denied that the provision of the draft agreement (clause 4), providing for an initial 3 year term, had been agreed between these parties at all: see paragraph 11 of the Reply and Defence to Counterclaim. In view of the common ground at trial and in this court that the draft does represent the parties' contract, I shall refer to it as "the Agreement".
8. As already mentioned, Thorney Park gave notice terminating the Agreement on 9 June 2010 and on 10 October 2010 Myers ceased to provide the catering services at the Club.
9. By claim form issued in June 2012 Thorney Park claimed a total sum of £22,810.18 for arrears of "rent" (i.e. "Fees" under the Agreement) and other sums claimed to be due from Myers to Thorney Park. By Defence and Counterclaim of 8 August 2012, Myers denied that any sums were due from it and claimed damages for repudiatory breach of contract committed by Thorney Park in terminating the Agreement, estimating the losses at about £90,000.

(C) Relevant terms of the Agreement

10. The Agreement is called a "Bar and Catering Franchise Agreement". In the preamble it is stated that the Agreement replaces any previous agreements that may have been in place for the provision of bar and catering services to the Club.
11. Clause 1 is a definitions clause. The word "Club" is defined as meaning the Club as in this judgment. The "Company" is Thorney Park. The word "Franchise" (perhaps intended to be "Franchisee") is defined in the draft as Gable Inns Limited, although, as I see it, the word "Franchise" does not re-appear in this sense, except in one bullet point under clause 5. The expression used to describe the opposite party's role is the "caterer". "Fee" is said to be "the agreed amount for the franchise contract".
12. Clauses 2, 3 and 4 then provide as follows:

"2. This agreement takes effect from 1^st June 2009 if mutually agreed by yourself and the company. This agreement outlines the basic principles of terms and will be amended and updated regularly by mutual agreement as the nature of the business develops.

3. The fee of £500 per week (plus vat at the current rate) must be paid in advance in four weekly instalments upon production of an invoice supplied by the company. This fee will be valid from 1^st June 2009 until 31^st March 2010. This fee will be reviewed in March 2010 with consideration given to the current finances and situations of both parties.

4. In order for this contract to be reasonable for both parties to develop and invest in a viable business development plan an initial term of three years (with the fee reviewed annually) must be agreed. Upon agreeing these terms the company will allow and undertake the following……"

Clause 4 then sets out the specific obligations to be assumed by Thorney Park in a number of "bullet points", which include the obligation to provide the facilities with suitably fitted kitchen and storage, with such facilities being maintained by it, and so forth.

13. Clause 5 sets out the "caterer's" responsibilities, including the obligation to "provide full professional bar and catering services for the club for the benefit of the members, guests and employees".
14. Clause 6 then states as follows:

"6. The club may terminate this agreement immediately if the caterers:

Commit any act of gross misconduct or continue or repeat after written warnings any other material breach of your obligations under this agreement.

Are guilty of any conduct which in the reasonable opinion of the company brings you or respective employees the club or its members or guests into disrepute.

Commit any acts of dishonesty or convicted of any criminal offence.

Become bankrupt or insolvent or make any arrangement with your creditors.

Otherwise either party may terminate this agreement without given reason in writing giving four months notice or any such period that is mutual to both parties."

(D) The Judgment

15. The judge's conclusions on the construction of the Agreement appear in paragraphs 4 and 5 of her judgment as follows:

"4. The defendant makes a number of very persuasive submissions. The defendant says that a fixed term is commercially inconsistent with an implied term of notice and relies upon the Jani King^[1] case on that point. That is not the case I have in front of me. What I have in front of me is a case which includes an express term giving notice. The defendant also says that the leading textbook on franchising law by Martin Mendelssohn to which I have been referred states that a lengthy initial period is common in a franchise agreement. However, in this case there was no large franchise fee being paid up in front as there are in many franchise agreements. The defendant says clause 4 is a new term inserted by the claimant, and indeed it is, but clause 6 was also imported into the 2009 franchise agreement from the earlier agreement in its entirety. The defendant says that if the claimant could serve notice at any time that would be commercially disastrous for the defendant, but the defendant could also have served notice and both parties would have four months in which to make alternative arrangements – an increase from three months in the earlier contract.

5. It therefore follows that I accept the claimant's submissions that: one, the wording of the contract is clear and, two, the meaning of the contract is clear. For both parties an initial term of three years, (with the fee to be reviewed annually), must be agreed. However, the club may terminate immediately for misconduct. Otherwise, either party may terminate without giving a reason in writing, giving four months notice or any other such period that is it is mutually agreed by both parties. The ordinary meaning of the express terms of the agreement when read as a whole was that the parties were not in fact locked into a three year agreement and that they both had an exit strategy at any time upon four months written notice."

(E) The Appeal and my Conclusions

16. The sole ground of appeal is that the learned judge was wrong in deciding the point of construction as she did.
17. For Myers, it is submitted by Miss Markandya that this is an agreement drafted by a layman (Mr Killing) to be read and understood by a layman (Ms Sims). The phrase "initial term" would naturally convey to the lay-person a fixed term which continues thereafter for as long as the parties might wish. That meaning is consistent with the express commercial purpose of clause 4 to provide both parties with reasonable opportunities to develop. She points to the fact the clause expressly states that the initial term is included, "In order for this contract to be reasonable…etc.", i.e. in order to give the contract commercial sense.
18. Further, Miss Markandya submits that real meaning should be given (if possible) to all the provisions of a contract and that Thorney Park's preferred construction deprives clause 4 of practical application. She contends that the fact the fees are to be reviewable annually is not fatal to Myers' case, since (if necessary) a term for payment of a reasonable fee would be implied. On the contrary, she submits that the provision for review of the fee on an annual basis indicates a desire by the parties for continuity of the relationship.
19. The final point made by Miss Markandya is that there is one feature of the background facts to which the court is entitled to have regard on this point of construction. That feature is that the old 2007 agreement provided for the contract to be determined simply on 3 months' notice. In the Agreement, however, there was express provision made for the first time for the 3 year initial term in clause 4.
20. Mr Bell for Thorney Park argues that clause 6 of the Agreement is entirely unambiguous and that nothing is to be gained by reference to any perceived commercial background which would only be only relevant to resolve ambiguity: see Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 per Lord Clarke of Stone-cum-Ebony. In particular, says Mr Bell, clause 6 is entirely clear and it is in two parts: the first part provides for immediate termination in a case of gross misconduct or parallel situations; "otherwise" there is an unfettered right to terminate on four months' notice. He submits that, when analysed syntactically, the second limb of clause 6, introduced by the word "otherwise", must indicate that that limb of clause 6 must also be operative within the initial term.
21. He argues that Myers' favoured construction would be that there would be no right to terminate, even for gross misconduct, until after the expiry of the 3 year initial term. He argues that Myers' case would require further words to read into the first part of clause 6, namely that it should be read as if it said:

"Otherwise either party may terminate this agreement, but only after the expiry of the initial term of three years, without given [sic] reason in writing giving four months notice of any such period that is mutual to both parties."

22. Mr Bell says that the Agreement is no different in substance from a lease for a fixed term which may include a break clause within the term.
23. Of course, agreements of each type contended for by the parties are known to the commercial world and to the law. In differing circumstances parties may agree to contract for a fixed term or until termination upon notice thereafter on the one hand or they may contract for a fixed term but with liberty to either or both to terminate during the fixed term on the other. The question is to ascertain what these parties must be taken to have intended by their particular agreement, objectively construed.
24. One has to acknowledge that the Agreement was prepared by and concluded between lay persons and exactitude of language may perhaps not be expected. Indeed, the lack of precision is obvious in some of the features to which I have already alluded above.
25. It seems to me to be of significance that, at the forefront of this contract in clause 4, the parties identified the initial term of three years as being required in order for the contract to be reasonable, i.e. it would have been unreasonable without it, and it was to enable both parties to develop and invest in a viable development plan. It was provided that this "must be agreed". Then, the same clause states that upon agreement to those terms Thorney Park "will allow and undertake" its obligation specified in the remainder of the clause. An element of conditionality, dependent on agreement to the initial term, is introduced. The idea that four months immediate notice might have been given by either party on day 2 of the initial term seems to me to be inimical to such a provision.
26. I also think that it is a relevant element of background that this provision was expressly inserted into the Agreement in 2009, when the 2007 contract had simply provided for termination by either side upon notice. The contrast is to my mind striking and I do not think that the parties should be taken to have contemplated that the express change should be of such little significance as Thorney Park's construction of the document would imply.
27. I recognise the force of Mr Bell's argument based upon the syntax of clause 6, but in the end it seems to me that that argument fails to give suitable effect to clause 4, the forceful terms in which that clause is expressed and the making of Thorney Park's obligations conditional upon agreement to it. The argument is also inconsistent with the significant point that the parties clearly intended a change from the previous agreement operated at the Club. It is clear to me that the terms in which that change is expressed shows that it was to go beyond the mere change of the notice period from 3 months to 4 months. They expressly stated that they wanted (what amounted to a change from past) a fixed initial term in order to make the new contract "reasonable" and to enable them to develop and invest in a viable business plan. In such circumstances, in my view, to focus upon the syntax of clause 6 gives too much force to one clause at the expense of the commercial sense of the Agreement as a whole.

(F) Conclusion

28. For these reasons, I would allow this appeal.

Lord Justice Ryder:

29. I agree.

Lord Justice Longmore:

30. I also agree.

Note 1   This is a reference to the decision of Judge Coulson QC (as he then was) in Jani-King (GB) Ltd. V Pula Enterprise Ltd. [2007] EWHC 2433 (QB).    [Back]