England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
HER HONOUR JUDGE HAMPTON (Sitting as a Judge of the High Court)

		Royal Courts of Justice Strand, London, WC2A 2LL
		12th February 2015

Lord Justice Longmore:

Introduction

1. In cases in which a claimant and a defendant are negotiating the terms of an anticipated contract and a claimant renders services to the defendant in the expectation that such a contract will materialise but it does not, it will often be difficult to decide whether the parties accept that, if the negotiations fail, the claimant will receive no recompense for his services or whether the claimant will be entitled to recompense on a quantum meruit basis because the parties expected the service to be paid for even if there was no express agreement to that effect, as was the case for example in William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932.
2. That is the background to the issue which arises in the present case but there is the significant difference that the parties did after a period of negotiation agree that the claimants would be paid €150,000 plus VAT. The question is whether, on the true construction of this agreement, it was an agreement to pay for services rendered in the past or only if further work was done. That further work was not performed and the defendant says therefore that nothing is due.
3. The claimants in the present case (respondents to the appeal) are a German company, D & K Drost Consult GmbH, and a German firm of architects, SHE Architekten, to which I shall refer compendiously as "Drost and SHE". The defendant (appellant) is an English company, Foremost Leisure (Holdings) Ltd ("Foremost"). Her Honour Judge Hampton found in favour of Drost and SHE and awarded them the agreed sum. Davis LJ initially refused permission to appeal but Sir Stanley Burnton granted permission at an oral hearing.

Factual History

4. Foremost is a franchisee of the Holiday Inn Express brand which is licensed by the International Hotels Group ("IHG"). It wanted to expand into the German market and in 2005 IHG introduced Foremost to a Mr Gross, a consultant who initiated and realised hotel projects by co-operating with developers, planners and architects in Hamburg. It was Mr Gross who introduced Foremost to Drost and SHE. Drost is a company providing project management services, who acted through Mr Uwe Drost. SHE which acted through a Mr Schrick. Drost acted on behalf of SHE as necessary since their interests for the purpose of the project were identical. Foremost acted mostly through a Mr Van de Loo but at times also through their CEO, Mr Dessoky.
5. On 17^th December 2005 Mr Gross sent Foremost a proposal for the development of a hotel on a site in the St Pauli district of Hamburg. The proposal was prepared with the help of Drost who had suggested the particular site. SHE prepared some architectural drawings showing the feasibility of the proposed development; those drawings were sent to Foremost on 18^th December.
6. On 3^rd January Mr Gross emailed Foremost offering

"an integrated project management providing excellent local know how" which would "encompass planning architecture administration."

He also stated:-

"… depending on the services needed we would agree on a reasonable consulting fee."

7. On 5^th January 2006 Foremost emailed Mr Gross recognising the need to agree

"a fee for the site and a fee for the drawings, planning with the council, project management."

Mr Gross forwarded that email to Drost and at the same time proposed a profit sharing agreement whereby he, Drost and SHE would share the difference between the price paid to the vendors of the site by them and the price charged by them to Foremost.

8. So at this early stage it appears to have been contemplated by all parties that Drost and SHE would be remunerated for their services, although there was no binding agreement to that effect.
9. There was then a meeting on 10^th January 2006 attended by Mr Drost (on behalf of Drost and SHE), Mr Gross and Mr Van de Loo on behalf of Foremost. The judge found (para 25) that there was "a mutual understanding" that Drost and SHE should carry out work to carry the project forward and (para 26) that Mr Van de Loo's remarks in the email of 5^th January 2006 "gave rise to reasonable expectation that" Drost and SHE "would be paid for their preliminary work and this was not speculative work being carried out at their own risk". The judge added, however, that no formal agreement was reached about when or how much they would be paid.
10. On 18^th January Mr Gross sent an "Investment Tableau" to Foremost setting out various costings and proposed fees and charges.
11. The meeting was followed by various proposed letters of intent drafted by Mr Gross. One such letter of 25^th January 2006 recorded a proposal that Drost and SHE were to be instructed on preliminary work (such as securing the site and necessary planning consent) as well as the substantive development. Foremost did not sign that letter of intent but preliminary work did proceed. Another draft letter of intent of 23^rd February 2006 was signed by Foremost with additions formulated by them stating that the proposal was not a contract and

"should there be no agreement or contract following this proposal (letter of intent) each party are free to walk away, without any whatsoever obligation or claim."

Drost refused to sign the letter in those terms.

12. The judge found that preliminary work done by Drost and SHE included

i) the arrangement of surveys at the site which had been filled with builders' rubble after the second world war. Costs revealed by the survey might affect the purchase price Foremost would have to pay for the site;

ii) discussions with the Bauamt, the local planning authority, which it was hoped would lead to planning consent in due course;

iii) discussions and revisions of initial plans prepared by SHE and further plans after consultation with an architect employed by IHG called Ms Rummel; Mr Schrick had given evidence that SHE's plans had reached their eighth version; and

iv) drafting a potential timetable for the project.

13. It seems that by early March 2006 Foremost were becoming dissatisfied with progress on the project. They decided to engage the services of another project manager by the name of Mr Meding of Meding Plan and Project GmbH ("MPP"). Foremost did not inform Drost or SHE of this development; nor did Drost or SHE or Mr Gross inform Foremost of the proposed profit sharing agreement which Mr Gross put into formal terms on 28^th March but which was never signed.
14. In April SHE and Drost found out about the engagement of MMP and SHE did no further work on the project thereafter, save for delivering a fee computation on some date in May 2006 in the sum of €116,000 for services to date and €203,000 for future services if rendered. Mr Drost and Mr Gross did, however, continue discussions with the owners of the site.
15. Also in May 2006 Mr Gross drew up a document called "Hotel Development Service Agreement" ("the HDSA") to which Drost, Mr Gross and MPP were parties described as "partners". Section 2 set out Mr Gross's responsibilities under the heading "Hotel Investment and Development Consulting"; section 3 set out Drost's responsibilities under the heading "Securing and developing the Land" which included "a search for a suitable site". Section 4 set out MPP's responsibilities under the heading "Project Management and Controlling". It further provided for each partner to take a fee of €106,660 to be distributed at various stages of the project. The fees would be distributed by MPP. The reference to searching for a site showed that the document looked backwards as well as forwards. The document was dated 30^th May 2006 but was never signed.
16. Matters then came to something of a head on 6^th June when the draft purchase contract for the site was to be discussed with the vendors and, if agreed, signed. Mr Van de Loo and Mr Dessoky had travelled from the United Kingdom to Germany for the meeting but Mr Drost did not attend. The judge did not think that this was deliberate on Mr Drost's part saying merely (para 39)

"It appears that he may have overlooked an email from Mr Gross notifying him of the appointment."

Understandably Mr Van de Loo and Mr Dessoky were angry about this and the next day Mr Meding of MPP emailed Mr Drost that there would be another meeting the following day at which he would

"try to discuss whether the project will go forward and, if so, how. It is certain however that I will be the sole contact partner in case of further property negotiations."

On the face of it, that would appear to be the end of Drost's participation as contemplated by the HDSA.

17. The judge held (paras 40 and 42) that Foremost had, by this time, already decided to pursue the project using MPP for project management and architectural services and wanted to come to an arrangement to end the relationship with Drost and SHE. She found further that Mr Meding and MPP were acting on behalf of Foremost and were aware that the Drost and SHE expected to be paid something for their work.

The Agreement Sued On

18. It was in these above circumstances, according to the judge, that the agreement (which I shall call "the June agreement") on which Drost and SHE sued, came to be signed. MPP drafted a letter on 14^th June 2006 called "Remuneration Offer" which was sent to Drost and SHE on 20^th June 2006 and signed by them on that date. It said:-

"In regards to your contribution to the above mentioned project I herewith submit you the following offer:

To reward your services as defined by the Hotel Development Service Contract presented to me by Mr Gross and Mr Meding which consists of

1) Assisting by Negociations [sic] purchasing the land and Securing and Developing the Land (Mr Drost) and

2) Architectural preliminary Planning (Mr Shrick).

You will get paid €150,000 plus VAT. Further performances from your side are not necessary.

This sum is fully due upon the granting of a legally effective building permit for the proposed hotel with 120 rooms."

19. Drost attended one more meeting and signed one more letter to do with the project after this agreement. Thereafter neither Drost nor SHE had any further involvement with the project either of their own motion or at the request of Foremost.
20. The St Pauli site was acquired in November 2006; a building permit was granted on 18^th July 2007 which was "legally effective".

The Judgment

21. The judge held that an objective assessment of the June 2006 agreement led to the conclusion that the agreed sum was payable for Drost and SHE's contribution up to the date on which the agreement was signed and that no further performance was necessary or required. She held that Foremost's proposed construction (that further work was required before payment was due) made no commercial sense in the light of the sentence

"further performances from your side are not necessary."

Foremost's appeal

22. There were originally 19 grounds of appeal but in oral argument they have been reduced effectively to two. First, Foremost attacked the judge's decisions

i) that any agreement or understanding was reached at the meeting of 10^th January; it was submitted that Drost and SHE's engagement was at that stage on a speculative basis only;

ii) that the proposals for a Profit Share Agreement were irrelevant as not being in the parties' minds when the June 2006 was made; it was submitted that, in fact, it showed that Drost and SHE were never expecting payment from Foremost;

iii) that the HDSA (and thus the June agreement) referred (even partially) to work already done; it was submitted that the judge was wrong to hold that the wording of the June agreement could have referred to work which had already been done; and

iv) that the relationship between the parties had been effectively terminated by the time of the 20^th June agreement; in fact Drost (and also SHE) were attempting to preserve the working relationship and wanted to continue working on the project until its conclusion.

23. Secondly, Foremost said that the agreement could not be referring to past services since any past services for which Drost and SHE had been expecting payment would have been the subject of an invoice rendered before June 2006. There would moreover have been no reason for the agreement to refer to the HDSA or any work done; the agreement would just have stated that an agreed sum would be payable.

Discussion

24. This second ground can be disposed of summarily. On any view until the end of May, and probably somewhat later, Drost and SHE were hoping agreement could be reached about remuneration for future as well as past work. In those circumstances it is hardly surprising that Foremost were not invoiced before the Remuneration offer was agreed. It is further, also unsurprising that the agreement for remuneration, even if it related to past work only, should refer in general terms to the work which was being remunerated.
25. The first three complaints about decisions made by the judge on the way to her final conclusion can be disposed of equally summarily. The judge's finding in para 26 of the judgment which I have set out above is a finding of fact based not merely on the documents to which I have referred but also made after hearing Mr Drost, Mr Schrick and Mr Van de Loo give evidence. It was clearly open to her on the evidence and this court cannot possibly reverse that finding. Mr Chichester-Clark for Foremost argued that the fact that no agreement for preliminary work was made meant that there could not be a settlement contained in the June 2006 agreement (as asserted by the particulars of claim) since there was no right to be paid anything at that time. That submission disregards the fact that there might well have been a right for the reasons given in paragraph 1 above. It also disregards the fact that it is claims, not rights, that are the subject matter of settlements. If it is right to regard the June agreement as applying to past work, the fact that there might have been in law no right to be paid is nothing to the point.
26. The existence of discussions in relation to profit sharing is, in my view, irrelevant to the question as to whether the June agreement related to past or future work. It is understandable that Drost and SHE would wish to hedge their bets in the light of Foremost's reluctance to commit themselves (before June) to any payment of any particular fee. No doubt if Drost and SHE had agreed to become agents for Foremost, any profit share agreement (if made) would have been a breach of the duty they owed to Foremost as principal but, in the absence of any agreement as to remuneration, it is difficult to see how such duty could have arisen on the facts of this case. At trial the existence of the discussions were said to throw doubt on the honesty of Mr Drost as a witness but the judge rejected that attack on his credibility and it was not renewed before this court. The judge said (para 52) that these discussions were not in the minds of the parties when the June agreement was made and cannot influence the court's decision as to what the agreement means. I agree.
27. The third complaint is based on the incorrect assumption that the reference to the HDSA in the June agreement could not include work already done. I have already pointed out that section 2 of the HDSA included a search for a suitable site. That site had been found.
28. Much the most impressive argument advanced by Mr Chichester-Clark related to his fourth complaint. He submitted that the judge was wrong to say that the relationship between the parties had terminated by the time of the agreement. He said that the judge had not referred to or taken into account the following matters:-

i) an email of 13^th June 2006 from Mr Gross to Mr Schrick, copied to Drost and MPP, in which Mr Gross said that Mr Schrick's fees were too high and that he expected outstanding points on the purchase contract for the site to be confirmed "this week and eventually exchanged";

ii) para 15 of Mr Meding's statement (standing as his evidence in chief) which said that he was encouraged by Mr Gross's email to think that there was real progress with the development and continued:-

"At this time, Mr Drost told me and Mr Gross that he and the second claimant would require a written fee agreement in order to continue with the project. On this occasion, Mr Drost specifically told Mr Gross that – subject to the conclusion of a fee agreement – they could and would ensure that the property could be immediately acquired for a purchase price of EUR 1.5 million and the planning permit for the hotel would be issued based on plans prepared by the second claimant, as Mr Drost and the second claimant would continue to work on the planning permit and Mr Drost would use all of his influence to secure the granting of the planning permit."

iii) the evidence of Mr Meding was not challenged in cross-examination.

This, said Mr Chichester-Clark, showed that Mr Drost was still actively pursuing the development on 13^th June and that the agreement of 14^th – 20^th June could only refer to work which would continue to be done and which would be remunerated once the building permit had been granted. The only reason why no further work was done by Mr Drost (and Mr Schrick) was that (as recorded in para 19 of Mr Meding's statement) Mr Collee, who was acting on behalf of the vendors of the site, told Mr Meding that only he (Mr Collee, not Mr Drost) had authority to sell the site on the vendor's behalf. It was only after this that Mr Drost had no further involvement.

29. The third of the above points is not made good because the transcript (pages 182-186) of Mr Meding's cross-examination shows that Mr Roe QC, on behalf of Drost and SHE, put fairly to Mr Meding that Mr Drost had dropped out of the picture, for whatever reason, by the time the June agreement was signed.
30. As to the rest it is true that neither the email nor para 15 of Mr Meding's statement are expressly alluded to in the judgment. Nevertheless the judge made the following relevant findings

"42. By mid June 2006 the defendants had lost confidence in the claimant. I find on the facts that they had decided they wished to use Mr Meding's services to proceed with the project and they wished, through Mr Meding, to come to an arrangement to end the relationship between the claimants and the defendant. Mr Meding was now acting on behalf of the defendant and was aware of the claimants' expectation that they were entitled to some payment. I find that it was in these circumstances the letter dated 14^th June 2006, which is the Agreement now under dispute, was written."

and again at para 51

"The reason for the final breakdown in the relationship between the parties was, I find on the facts, the failure of Mr Drost to attend the meeting on 6^th June."

31. These findings by the judge are therefore crucial. They are findings of fact and the question is whether there was evidence to support them.
32. There certainly was such evidence. It was the gist of para 11-15 of Mr Drost's evidence in chief and, although he was unwilling to be drawn further in his cross-examination (to the extent that some judges might have thought he was being equivocal) it was for the judge who heard the witnesses to decide whether she believed his evidence in chief. Paras 25-26 of Mr Schrick's evidence in chief were to the same effect. The natural reading of Mr Meding's email of 7^th June ("It is certain that I will be the sole contact partner in case of further property negotiations") is that the relationship between Drost and SHE (on the one hand) and Foremost (on the other hand) was at an end. The first communication from MPP to Foremost after 20^th June about the project (almost ostentatiously) does not copy in Mr Drost.
33. In these circumstances it is not possible for us to come to a different conclusion from the judge on the essential findings of fact, which were the foundation for her conclusion that the June agreement referred to work done in the past and that, as the June agreement specifically said, further performance was not necessary.

Conclusion

34. Despite Mr Chichester-Clark's (sometimes) gallant arguments to the contrary, I would dismiss this appeal.

Lord Justice Underhill:

35. I agree.

Lady Justice Sharp:

36. I also agree.