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
COMMERCIAL COURT
Sir Richard Field sitting as a Deputy High Court Judge
CL-2015-000497

		Royal Courts of Justice Strand, London, WC2A 2LL
		26/07/2018

Lady Justice Asplin:

1. This appeal raises a short point of construction in relation to a contract dated 29 June 2007 made between the Appellant, PM Law Limited, ("PML") and the Respondent, Motorplus Limited, ("Motorplus") (the "2007 Agreement"). PML is a firm of solicitors which specialises in personal injury litigation and particularly in claims arising out of road traffic accidents. Motorplus is an insurance intermediary which in the period from 2006 – 2011 referred such claims to selected firms of solicitors for a fee.
2. Sir Richard Field, sitting as a Deputy Judge in the High Court, dismissed PML's claim based upon the 2007 Agreement and decided amongst other things that: properly construed clause 1 of the 2007 Agreement did not require Motorplus to refer a quantity of claims to PML but merely expressed Motorplus' present intention to do so; and that the consideration promised by PML was no more than a promise to pay the specified fee for each accepted referral rather than a promise to accept every referred claim or a minimum number of claims. The Judge's conclusion and reasoning is at paragraphs [45] and [46] of his judgment, the citation of which is [2017] EWHC 1352 (Comm). The relevant passage is as follows:

"45. I was at first attracted to the propositions that: (a) clause 1 constituted the 2007 agreement a synallagmatic contract under which Motorplus promised to refer "a quantity" of vetted claims of the types specified in clause 1 in exchange for PML's promise to pay the stipulated referral fees; and (b) "a quantity" meant "a reasonable quantity". However, on further reflection, I have come to the view that, properly construed in the context of the 2007 agreement as a whole and the factual matrix, including in particular the 2006 agreement under which Motorplus did not guarantee to refer a minimum number of claims, the words "Motorplus Ltd shall refer a quantity of ... claims for compensation" merely express Motorplus's present intention to refer a quantity of claims and do not mean that Motorplus is promising to refer a quantity of claims …

46. Mr Mawrey argued strongly that the six month notice provision in clause 10 inevitably meant that Motorplus was under a contractual obligation to refer a quantity of claims but I think he understated the true meaning and effect of clause 1 and overstated the effect of clause 10 when it is construed in the relevant context. In my judgment if it had been the intention of the parties that Motorplus were to be under a binding obligation to refer a minimum quantity of claims to PML, the agreement would have said so in much clearer language than is to be found in clause 1. The effect of clause 10 is therefore to impose an obligation on Motorplus to give six months' notice that it will thereafter definitely cease to refer any claims within the agreement."

3. The sole ground of appeal for which permission was granted is that the Judge was wrong to decide that clause 1 of the 2007 Agreement did not impose an obligation on Motorplus to refer any claims to PML. Mr Mawrey QC for PML submits that the 2007 Agreement is, in fact, a synallagmatic contract under which Motorplus was obliged to refer some claims to PML and PML was required to handle them in accordance with the terms of the 2007 Agreement and to pay the referral fees set out in clause 3 in relation to the claims which it accepted. He says that what was a "reasonable" quantity of referrals was ascertainable from the relevant factual matrix and that in ceasing to refer claims altogether, Motorplus committed a repudiatory breach of the 2007 Agreement.

Background

4. Prior to the execution of the 2007 Agreement, Motorplus had referred claims to PML in accordance with an agreement reached orally on 23 August 2006 and recorded in an email of that date (the "2006 Agreement"). The 2006 Agreement related to personal injury claims generated and forwarded by Action Claims, a partner of Motorplus, which "cold called" individuals who had reported an accident to insurers but had not made a personal injury claim. The relevant part of the email recording the 2006 Agreement provided that: "We intend to send approx. 100 claims per month . . .". From September 2006, PML accepted more than an average of 100 claims each month under the 2006 Agreement until April 2007 when according to PML's records the number of accepted claims dropped for that month and the following two months to 80, 61 and 43, respectively, the relevant period in June 2007 being the first three weeks.
5. As I have already mentioned, the 2007 Agreement was dated 29 June 2007. It was drafted by the senior partner of PML, Mr Mackay, using a precedent that he said was circulating in the solicitors' personal injury market relating to claims of the kind which were referred under the 2006 Agreement and which reflected a new Solicitors' Code of Conduct which required, inter alia, a referral fee agreement to be in writing. The 2007 Agreement was signed within days of the new Code of Conduct coming into force.
6. The 2007 Agreement was concerned with personal injury claims which were "first notice of loss" claims ("FNOL Claims") which had been notified to Motorplus itself. These included some Employers' Liability and Public Liability claims. In the course of their discussions before the execution of the 2007 Agreement, Mr Mackay and Mr Sayer (the Chief Executive Officer of Motorplus) had also agreed an arrangement under which for every two referred motor personal injury claims, PML would accept one "non-fee earning non-Motor Claim" in which it would be unlikely to recover any costs and disbursements and one "Helpline Call" at its own expense.
7. Mr Mackay had testified that he had sent the 2007 Agreement to Motorplus for signature following a telephone conversation with Mr Sayer during which Mr Sayer said that Motorplus would refer a sufficient number of FNOL Claims to PML to produce about 100 accepted claims each month: see the judgment at [9]. However, the Judge found that there was no such oral agreement. Permission to appeal in relation to that finding was refused.
8. To return to the chronology of events, in the course of 2009, Motorplus also made referrals to PML in respect of employment tribunal cases. In addition, Mr Sayer informed Mr Mackay that Motorplus would be referring claims made by Kwik-Fit Insurance Services Limited insureds to PML. They began to be referred in July 2010 and the referrals were made under the 2007 Agreement as amended to reflect the Kwik-Fit arrangement. In the first six months of 2010, the average number of cases referred to PML significantly exceeded 100 per month and in the second six months both the non-Kwik-Fit and the Kwik-Fit referrals exceeded 100 cases per month. However, throughout the year, the number of cases actually accepted by PML each month was well below 100. In fact, the same was true for most of the time since April 2007: see judgment at [24] and [27].
9. From late 2009, Motorplus became concerned about the late payment and non-payment of referral fees and a dispute arose over the sums to be credited in relation to claims initially accepted but subsequently rejected. There were no new referrals after 31 January 2011 and PML issued proceedings on 26 March 2014 claiming inter alia, damages in excess of £4 million for breach by Motorplus of an alleged contractual obligation made in respect of the 2006 and 2007 Agreements and the Kwik Fit arrangement, to refer 100 cases per month which were capable of acceptance. The first time the claim had been intimated was in an email of 14 February 2011: see judgment at [27].

The 2007 Agreement in more detail

10. Clause 1 of the 2007 Agreement is as follows:

"1. In consideration of the payment of referral fees by PM Law Ltd Solicitors as set out in clause 4 of this Agreement Motorplus Ltd shall refer a quantity of road traffic accident, accident at work, public or private liability and product liability PI & Non PI claims (the "Referred Claims") to PM Law Ltd Solicitors which PM Law Ltd Solicitors will handle on behalf of Motorplus injured customers ("the Referred Customers") in accordance with the terms of this Agreement and the terms of contracts to be entered into between the Referred Customers and PM Law Ltd Solicitors.

The reference to clause 4 is an error and ought to be to clause 3. Clauses 2.1 - 2.4 contain provisions requiring Motorplus amongst other things, to vet the claims, make an assessment as to whether they possessed better than a 50% prospect of success and would achieve an award of damages in excess of £1,000, defined as "Good Prospects of Success", and to refer to PML only those claims which in its reasonable opinion possessed such a prospect. Clauses 2.5 – 2.11 contain provisions relating to the way in which PML was required to handle claims referred to it. By clause 2.9, PML was required to make a decision whether to accept or reject a referred claim within 48 business hours of contacting the "Referred Customer" and to accept only claims which it considered would have a Good Prospect of Success. By clause 2.10, PML was required to pay a referral fee to Motorplus for each accepted "PI Referred Claim" in accordance with clause 3. Clause 3 itself was as follows:

"3.1 [Motorplus] shall be entitled to charge [PML] a referral fee for each accepted PI Referred Claim. The amount of the referral fee shall be:

3.1.1 Motor PI gross referral fee of £600 or in the case of a Motorcyle PI claim £825. If the Referred Claim is an MIB Untraced Motorist PI case £225;

3.1.2 In all other PI cases, the gross sum of £600 per Referred Claim

3.3 All referral fees shall be invoiced by [Motorplus] upon receipt of [PML's] written notification of acceptance and shall be paid within 7 days of receipt of the invoice by [PML] by way of BACS transfer."

11. Clause 6 contains a provision preventing PML during the continuance of the 2007 Agreement, from contacting "Referred Customers" by mailshot without the consent of Motorplus or from soliciting business from any of Motorplus' brokers, save for brokers with whom PML had conducted business prior to the date of the 2007 Agreement. Clause 7 contains detailed provisions under which Motorplus undertook to act in a way which was consistent with PML's regulatory duties under the Solicitors' Code of Conduct 2007 and in particular with "Rule 7 – Publicity" and "Rule 9 - the Solicitors' Introduction and Referral Code." Clauses 8 and 9 contain provisions as to compliance with the law and data protection respectively which also reflected the requirements of the Solicitors' Code of Conduct 2007: see [14] of the judgment. Clause 10 contains a provision for termination of the 2007 Agreement by either party upon 6 months' written notice and clause 11 contains confidentiality provisions.

Discussion and Conclusion

12. It is common ground that the court's task when construing clause 1 of the 2007 Agreement is to ascertain the objective meaning of the words used by the parties in the context of the 2007 Agreement as a whole, taking into account the relevant factual background which would have been available to the parties, but excluding subjective evidence of the parties' intentions. The court must focus on the meaning of the relevant words in their documentary, factual and commercial context. If there is an ambiguity, or in other words, there are rival meanings, the court can give weight to the implications of the rival constructions by reaching a view as to which is more consistent with business common sense: Arnold v Britton & Ors [2015] AC 1619 per Lord Neuberger PSC at [14] – [23] and Wood v Capita Insurance Services Limited [2017] AC 1173: [2017] UKSC 24 per Lord Hodge JSC at [8] – [15].
13. It seems to me that if one focuses on the words used in clause 1 of the 2007 Agreement in the light of the terms of the Agreement as a whole and the relevant factual matrix including the nature of the relationship between the parties immediately prior to its execution and the change in the Solicitors' Code of Conduct which occurred at or around the same time, the meaning is clear. Viewed in that light, I agree with the Judge that the phrase "Motorplus Ltd shall refer a quantity of . . . claims" does not amount to a promise or an obligation to refer a quantity of claims or any claims. It is merely an expression of a present intention and the clause as a whole is a description of the intended referral relationship if and when claims are referred. The details of the way in which claims which are referred must be dealt with is set out in the remainder of the 2007 Agreement.
14. First, it is of note that despite the use of the word "shall" in the phrase "shall refer a quantity . . ." and "will" in relation to the handling of claims by PML, clause 1 does not contain any reference to any particular quantity of claims to be referred or accepted, to a formula by which that quantity can be ascertained or to a minimum number of claims to be referred in any particular period, despite the fact that it would have been easy to do so. It seems to me that the absence of such a reference or formula is consistent with an absence of any obligation to make referrals.
15. Mr Mawrey submitted that there is an ambiguity in the term "quantity" in clause 1 and therefore, the court should take into account business common sense when determining which of the rival constructions is correct. He says that business common sense requires one to construe the term as a reference to a reasonable quantity or to a range, being more than one referral and therefore, that the use of the word "quantity" must lead to an interpretation of clause 1 resulting in an obligation to refer some or a reasonable quantity of claims which are accepted. Once one arrives at that conclusion Mr Mawrey submits that an assessment of damages for breach of contract would not be limited to a minimum level of performance, for example, a single accepted referral. He says that instead, the court would assess damages having conducted a factual inquiry as to how the contract would have been performed: Durham Tees Valley Airport Ltd v BMI Baby Ltd & Anr [2011] 1 All ER Comm 731; [2010] EWCA Civ 485.
16. However, in my view there is nothing ambiguous about "quantity". It is an ordinary English word with an ordinary meaning. Where the parties have used unambiguous language, the court must apply it and must not seek out differences of meaning in order to enable it to re-write the bargain in accordance with what it considers to be fair or to be business common sense. It seems to me that Mr Mawrey is asking us to import an element of uncertainty into clause 1 by reference to what he says was the subjective intention of the parties, or of PML at least. Such an exercise is impermissible.
17. In any event, I agree with the Judge that neither the 2006 Agreement nor the 2007 Agreement depended for its business efficacy upon a guaranteed level of accepted referrals. As the Judge put it at [40]: ". . . Motorplus needed a panel of solicitors to handle the many claims reported to it and a decision to agree to Motorplus's terms on the basis of Motorplus's estimate of the number of referrals was capable of making commercial sense, even in the absence of a guaranteed number of referrals. Businesses take such calculated risks all the time." In my view, business efficacy was also unaffected by the additional oral arrangement under which for every two referred motor personal injury claims, PML would accept one "non-fee earning non-Motor Claim" in which it would be unlikely to recover any costs and disbursements and one "Helpline Call" to be dealt with at its own expense. Those arrangements were the subject of separate oral discussions and were not encapsulated in the 2007 Agreement itself. See the judgment at [17].
18. Further, it seems to me that the position is entirely different from that which was under consideration in the BMI Baby case. That was a case in which an airline had agreed to establish "a minimum of x 2 based aircraft operation" operating exclusively from a particular airport from a particular date. The agreement contained a detailed charging structure but did not specify the minimum number of flights required. Patten LJ, with whom Toulson and Mummery LJJ agreed, decided that the absence of a minimum performance clause indicated that any decision on the flying programme was for the airline and the addition of such a clause was not necessary for the enforceability of the contract. Patten LJ went on to decide that were it necessary for the court to decide whether the number of flights undertaken during any given period amounted to "operating the aircraft" there were sufficient terms in the contract to allow that to be done and that an assessment of damages for breach of contract would not be limited to a minimum performance but would require a factual enquiry: see [57] – [59] and [79] of the judgment. The case turned, therefore, upon the meaning of "operation". It was concerned with the extent of the obligation it created, whether a minimum performance clause was necessary to render the contract enforceable and how damages would be assessed. It is of no assistance to PML. The question here is whether the words used give rise to an obligation to make referrals at all. No question of unenforceability arises, nor is there an issue as to business efficacy or common sense.
19. Secondly, turning back to the express language in clause 1, as the Judge points out, the consideration referred to is the payment of the referral fees set out in clause 3 (incorrectly referred to as clause 4). Clause 3 provides for the payment of fees on an individual referral by referral basis rather than by reference to a minimum number of claims or otherwise in bulk. The referral fee also relates to each referral ultimately accepted by PML. It seems to me that that is consistent with dealing separately and determining the quality of each referral made on an individual basis. That is in turn more consistent with the unilateral contract which the Judge describes at [45] of his judgment than a synallagmatic contract under which Motorplus is contractually obliged to refer any particular quantity of claims or at least some claims and PML is obliged to handle them.
20. Thirdly, such a construction is consistent with clause 1 viewed in the context of the 2007 Agreement as a whole. Clause 2 contains the details of the arrangements which are to apply in anticipation of making a referral and if a referral is made. It places obligations upon Motorplus to vet and assess claims before they are referred and to refer only those which in its reasonable opinion have a good prospect of success and once made, prescribes the way in which they must be handled by PML. There is nothing to suggest that referrals or at least some referrals must be made.
21. Fourthly, I do not agree with Mr Mawrey's submission that clauses 6 and 10 are inconsistent with the Judge's construction or at least, are more consistent with an obligation to refer a quantity of claims. The non-solicitation provisions contained in clause 6 are expressly stated to apply during the continuance of the 2007 Agreement and therefore, it is important to have a means by which to bring them to an end. Hence the termination provision contained in clause 10 which is also necessary to bring to an end the confidentiality provision in clause 11 and the requirement to handle referrals in accordance with clause 2. Further, it seems to me that the non-solicitation provisions themselves are equally consistent with an agreement containing an obligation to refer claims as with one in which it is intended that referrals will take place but there is no promise to do so.
22. Fifthly, the inclusion in the 2007 Agreement of the lengthy and detailed provisions at clause 7, together with clauses 8 and 9, all of which were necessary for the purposes of the Solicitors' Code of Conduct 2007, creates an important bridge between the terms themselves and the relevant factual matrix. It goes without saying that the 2007 Agreement must be construed in the light of that matrix including in particular: the fact that the 2007 Agreement was drafted by Mr Mackay of PML himself, using a precedent which was circulating at the time in the solicitors' personal injury market relating to claims of the sort that were referred under the 2006 Agreement and reflected the requirements of the new Solicitors' Code of Conduct 2007: see [10] of the judgment; although the source of claims which were the subject of the 2007 Agreement was different from that with which the 2006 Agreement was concerned, the claims were essentially of the same nature; the 2007 Agreement was executed days before the new Code of Conduct came into force and, it can be inferred, was executed in order to comply with it; the parties had an existing referrals relationship which had been recorded in the 2006 Agreement under which Motorplus did not guarantee the number of referrals; and the number of accepted referrals under that arrangement had fluctuated.
23. Lastly, we are entitled to take into account that an experienced judge of the Commercial Court reached the conclusion that there was nothing uncommercial about construing the 2007 Agreement in a way which did not oblige Motorplus to refer a quantity of claims: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; [2011] UKSC 50 per Lord Clarke at [41].
24. In the circumstances, it is not necessary to consider whether Motorplus is entitled to rely upon estoppel by convention or whether PML waived any alleged breach of the 2007 Agreement.
25. For all of the reasons set out above, I would dismiss the appeal.

Lord Justice Simon:

26. I agree.

Sir Geoffrey Vos, Chancellor of the High Court:

27. I also agree.
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