England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		02/02/2005

IMr. Justice Field:

1. This is an appeal from the decision of the Senior Master given on 12 November 2004 whereby he dismissed the appellant's application to have the respondent's claim for breach of contract struck out under CPR 3.4 and /or dismissed by way of summary judgement under CPR Part 24.
2. The appellant ("Rugby") manufactures cement at sites in various locations including Rugby and Southam. The respondent ("ProForce") is an employment and recruitment agency based in Rugby. Since 1997 Rugby has used ProForce and a predecessor company, Sterling Resources, to supply temporary workers for work at both sites, especially the Rugby site ("the site"). On 31 July 1991, ProForce's Managing Director, Mr. Allen Bloor and Rugby's Works Manager at the Rugby site, Mr. Derek Bell, signed a document on behalf of their respective companies. It is on this document ("the agreement") that ProForce bases its claim for breach of contract.
3. The relevant parts of the agreement are as follows:

Introduction

ProForce have pleasure in submitting the following proposals for a service cleaning contract between Rugby Cement and ProForce.

Terms and Conditions

In addition to the normal terms and conditions that exist between Rugby Cement and ProForce, it is also agreed that, subject to contract, the following conditions will apply. [Italics supplied]

ProForce will purchase from Rugby Cement the following equipment for the better performance of this contract:-

8 x 4 rigid 'E' Series Vac Press 5000 at	£71,000
Volvo FL 6 Road Sweeper at	£1,500
…….

Rugby Cement will have the option to purchase back both vehicles at book value or at a figure assessed by an independent valuer.

ProForce guarantee that the above equipment will be maintained at a satisfactory level to perform the services required …

All personnel supplied by ProForce will be carefully screened before being submitted, not only to ensure current availability and an accurate skills match – but to ascertain whether they have the right attributes for the role.

ProForce Service Team Charges

ProForce will supply the following personnel in pursuance of this contract.

Vac Press 5000 Operators

Weekly Hours	Hourly Rate	Cost Per Week
168 hours x 2 men		£12.75	£4,284.00

Road Sweeper Operator

Weekly Hours	Hourly Rate	Cost Per Week
50 hours (Operative)	£12.75	£637.50
50 hours (Supervisor)	£12.75	£637.50

Volvo Shovel Operators

Weekly Hours	Hourly Rate	Cost Per Week
168 hours days	£12.75	£2,142.00
168 hours nights	£12.75	£2,142.00

All shifts are 4 on 4 off pattern as enclosed

Total for ProForce Service Team =

£9,843.00p per week

Any additional hours worked in excess of the above will be charged at the normal hourly rate. No additional charge will be made for the use of machinery….

Equipment Charges

Equipment	Cost per week
Vac Press 5000	£1,200.00
Road Sweeper	£275.00
Water Bowser	... £69.00
Volvo Shovel (For loading Oxide Materials)	£4,450.00
Total for Machinery =	£1,994.00
Grand Total for Contract =	£11,837.00 per week

This contract will be of a minimum two-year period and will be re-negotiable at the end of that period. During that period ProForce will hold preferred supplier status. [Italics supplied]

4. The sums expressed to be due for the Vac Press (£71,000) and the Roadsweeper (£1,250) were paid in August 2001, although the invoices for these payments were raised on 24 July 2001 before the agreement was signed. The personnel identified in the agreement were provided and paid for throughout the stipulated period of two years. Indeed, ProForce began supplying these personnel from 16 July 2001. They also provided other labour to the site for which they invoiced increasing amounts but from November 2001 the amounts due for this additional labour fell away because Rugby had begun to use other employment agencies to satisfy their requirements over and above those provided for in the agreement.
5. ProForce contend that Rugby's failure after November 2001 to look to them to provide their additional personnel requirements at the site was in breach of that part of the agreement that reads:

"This Contract will be of a minimum 2 year period and will be re-negotiable at the end of that period. During that period ProForce will hold preferred supplier status."

It is common ground none of the additional personnel that Rugby took through other suppliers of labour were employed to do cleaning work.

6. The Senior Master construed the agreement against the whole of the background deposed to by Mr. Bloor in his first witness statement and found that ProForce were a preferred supplier with respect to all categories of labour and personnel and not just cleaning personnel. He found that the conferral of preferred supplier status was "the sweetener" to induce ProForce to provide cleaning staff and to buy the machinery. In his view ProForce's claim was not one that had no real prospect of success or for which there were no reasonable grounds. He accordingly dismissed Rugby's applications.
7. In support of the judgement of the Senior Master, Mr. Derek Sweeting QC for ProForce contends that the words "preferred supplier status" mean that during the two year period Rugby were obliged: (a) to offer ProForce the opportunity to supply contract labour and hire equipment at the Rugby site in preference to other suppliers; and (b) not to engage other suppliers of contract labour and hire equipment without first having offered ProForce a reasonable opportunity of meeting Rugby's requirements in such respects. In the alternative Mr. Sweeting argues that in order to give the agreement commercial efficacy there were implied terms whose effect was the same as if the words were to be construed as he contended.
8. Mr. Sweeting supports this construction by reference to what he submits was the factual matrix of the agreement. He says that the factual matrix is made up of the matters deposed to in the first witness statement of Mr. Bloor dated 21 October 2004 which must be accepted as being true for the purpose of this appeal. In his first witness statement Mr. Bloor says that in 1999 Rugby abruptly terminated a contract with ProForce to supply security staff in breach of a condition in the contract requiring 90 days's notice of termination. When Mr. Bloor threatened legal proceedings he was invited to discuss the matter with Rugby's General Manager, Mr. Stephen Eastwood. At a meeting on 10 November 1999 Mr. Eastwood told Mr. Bloor that he should not be hasty in bringing legal proceedings. Rugby were opening a new site at Rugby (the site) and there would be an opportunity for ProForce to supply a large amount of skilled and non-skilled labour under a Preferred Supplier Agreement.
9. The following day Mr. Bloor received a letter from a member of Rugby's Contract Engineering Sourcing Team stating that it was Rugby's intention "to move to Approved Supplier Lists for the majority of our goods and services …. [A]pproved suppliers will be asked to consider partnershipping (sic) based upon an open approach to commercial issues leading to significant rewards for both." The letter enclosed a tender pro-forma that had to be received no later than 19^th November 1999. The letter also made clear that not all current suppliers would be invited to meet the team.
10. As requested at the meeting of 11 November 1999 Mr. Bloor wrote to Mr. Eastwood on 17 November 1999 indicating what personnel and services ProForce were in a position to supply. Mr. Eastwood replied on 23 November 1999 stating that he was awaiting the outcome of the tendering exercise and would write further in relation to the termination of the security personnel contract. Mr. Bloor does not say in his statement whether ProForce submitted a tender.
11. Mr. Bloor sent a chasing letter in March 2000 to which he received no reply. However, he did not pursue the breach of contract complaint or the question of a tender because during the rest of 2000 ProForce were supplying increasing numbers of personnel to Rugby to the extent that by the end of 2000 ProForce had 90 long-term personnel working at the new site.
12. In 1991 Ms. Emma Gough, the assistant Works Manager at the site, raised with Mr. Bloor the possibility of ProForce supplying labour to a company called Hansons which was providing cleaning machinery at the site. Rugby were having difficulties with Hansons and it was thought that the situation could be alleviated if Hansons took on a number of ProForce workers. This idea was not proceeded with, however, on grounds of cost and Mr.Bloor was then asked by Mr. Bell to consider the possibility of ProForce purchasing cleaning and other machinery from Rugby to allow it to provide both the machinery and the operatives as a package. The machinery in question was both large and expensive but Mr. Bell suggested that if ProForce bought it ProForce might be given a "Preferential Agreement". In Mr. Bloor's words: "discussions continued in that vein until about May when Emma Gough offered ProForce "Preferred Supplier Status" explaining that we would have the opportunity to supply all labour and additional plant at the Rugby site."
13. Mr. Bloor insisted on something in writing and was asked to provide a draft. This he did and the document after various amendments became the document that was signed on 31 July 2001.
14. In the course of the hearing I was told that invoices for the sale price of the Vac Press and the Roadsweeper had been raised on 24 July 2001 and paid sometime in August 2001. It was agreed that I would be provided with copies of the invoices and more precise details of when they were paid. After the hearing copies of the invoices were forwarded to me by Rugby and ProForce served a second statement of Mr. Bloor. However, that statement deals with a number of matters over and beyond the payment of the invoices and I have decided that it came too late to be admitted save to the extent that it states that the invoices were paid after the agreement was signed.
15. Mr. Tager QC for Rugby contends that by virtue of the words "subject to contract" under the heading "Terms and conditions", the agreement is not an enforceable contract and therefore ProForce's claim must fail. In the alternative, he contends that the words "ProForce will hold preferred supplier status" mean no more than that to the extent that Rugby might maintain a list of preferred suppliers, ProForce will be on that list. Alternatively, he argues that any opportunity to supply labour and hire equipment that might be conferred by the words is limited to supplying cleaning requirements. Mr. Tager accepts that the events related in Mr. Bloor's first witness statement down to the conversations he had with Mr. Bell and Ms Gough in 2001 are capable of being part of the factual matrix. Indeed he himself relies on a letter dated 23 September 1998 sent to Mr. Bloor's predecessor labour supply business, Sterling Resources, announcing a move towards approved supplier lists based on an appraisal of suppliers. However, Mr. Tager contends that the conversations in 2001 between Mr. Bloor and Ms. Gough relied on by Mr. Sweeting and anything said to Mr. Bloor thereafter leading up to the signing of the agreement cannot be part of the factual matrix because such statements are to be regarded as forming part of the pre-contractual negotiations and also because of the effect of Clause 9.2 of ProForce's standard terms. These standard terms are expressly incorporated into the agreement. Clauses 9.2 and 9.3 provide:

9.2 This Agreement together with any other document expressed to being operated herein constitutes the entire contract^[1] between the parties and supersedes all prior representations, agreements, negotiations or understandings whether oral or in writing.

9.3 These terms and conditions are to prevail over any terms and conditions sought to be included herein by the Client.

16. I deal first with the contention that the agreement is not an enforceable contract because it contains the words "subject to contract". In general, except in a very strong and exceptional case, the effect of these words in an agreement is to prevent an executory contract from coming into existence because they are taken to mean that until a further contract has been executed neither party is to owe the other any contractual obligation. However, in this case, save for the alleged breach, the agreement cannot be regarded as being executory because after it was signed the parties did those things that the agreement contemplated that each should do for the benefit of the other. Thus after 31 July 1991 ProForce paid for the Vac Press and the Roadsweeper and supplied the personnel and equipment defined in the agreement and Rugby paid the stipulated monthly charges for personnel and equipment. This being the case it is my view that the parties are to be taken to have entered into an implied binding contract on the terms of the agreement.
17. I turn then to the rival contentions as to the meaning and effect of the words: "This contract will be of a minimum 2 year period and will be re-negotiable at the end of that period. During that period ProForce will hold preferred supplier status." I say at once that I consider Mr. Sweeting's alternative implied term argument to be hopeless. The agreement is substantially efficacious even if the words mean what Mr. Tager contends they mean. Nor can it begin to be said that the postulated implied terms are obviously stipulations that the parties must have intended to form part of the contract. The question therefore is whether Mr. Tager's construction argument is such as to establish that there are no reasonable grounds for bringing the claim and/or ProForce has no real prospect of succeeding on the claim.
18. In ICS Ltd. v West Bromwich Building Society [1998] 1 WLR 896 at 912 F-G, Lord Hoffmann observed that there has been a fundamental change in the courts' approach to the construction of documents as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381, 1384-1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 995-997. As is well known, in both of these speeches Lord Wilberforce said that when a document is being construed it must be placed in the matrix of facts in which it is set. In support of this approach he cited Utica City National Bank v Gunn (1918) 118 N.E. 607 where Cardozo J., referring to Stephen's Digest of the Law of Evidence and Wigmore on Evidence, said that the "the genesis and aim of the transaction" may rightly guide the court's choice between the primary or strict meaning that renders the whole transaction futile or the secondary meaning which gives it efficacy and purpose. In the recent case of Sirius International Insurance Company (Publ) v FAI General Insurance Limited and others [2004] UKHL 54, para 18, Lord Steyn said that the aim of the enquiry when a commercial instrument is construed

"is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language. The inquiry is objective: the question is what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language. The answer to that question is to be gathered from the text under consideration and its relevant contextual scene."

19. What then is the factual matrix or contextual scene of the agreement? Does it include the statements alleged to have been made to Mr. Bloor by Mr. Bell and Ms. Gough in 2001? In ICS Ltd. v West Bromwich Building Society Lord Hoffmann said that the matrix of fact does not include the negotiations of the parties or their subjective declarations of intent, but subject to this and subject to the requirement that it should have been reasonably available to the parties it includes absolutely everything which would have affected the way in which the language of the document would have been understood by a reasonable man (912H-913A). In BCCI v Ali [2001] UKHL8, para 39, Lord Hoffmann said that in expressing himself as he did in the ICS he meant anything that a reasonable man would have regarded as relevant.
20. The reason why the parties' negotiations are excluded from the factual matrix was explained by Lord Wilberforce in Prenn v Simmonds as follows:

The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience … It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final document, though converging, are still divergent. It is only the final document that records a consensus. …..The words used may, and often do, represent a formula which means different things to each side, yet may be accepted because that is the only way to get "agreement" and in the hope that disputes will not arise. The only course then can be to try to ascertain the "natural" meaning. Far more, and indeed totally, dangerous is to admit evidence of one party's objective --- even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than what they want. So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised.

21. In my judgement, the statement alleged to have been made by Mr. Bell that ProForce might be given a Preferential Agreement if ProForce were prepared to take the machinery, the discussions that continued in that vein and the alleged statement made by Ms. Gough that "Preferred Supplier Status" meant that ProForce would have the opportunity to supply all labour and additional plant at the site all constitute negotiations and form no part of the factual matrix to be used in construing the agreement.
22. Even if I were wrong about this, in my view these statements are "prior representations, negotiations or understandings" within clause 9.2 of the standard terms and by virtue of that clause cannot be relied on by ProForce in seeking to establish their claim for breach of the agreement. Mr. Sweeting argues that the effect of clause 9.2 was limited to barring reliance on pre-contract statements that are later said to be terms of the agreement. Whilst the clause may not exclude liability for misrepresentation (cf Thomas Witter Ltd. v TBP Industries Ltd. [1996] 2 All E R 573) in my opinion the effect of the words "This agreement ….supersedes all prior representations, agreements, negotiations or understandings" is that the things superseded are to have no bearing on the meaning of the agreement.
23. The 1991 representations of Mr. Bell and Ms Gough apart, the factual matrix of the agreement for construction purposes is constituted by all of the pre-contract facts and matters deposed to by Mr. Bloor. What happened after the execution of the agreement is irrelevant to the issue of construction. Thus the fact that between July and November 2001 ProForce supplied non-cleaning personnel to Rugby under increasingly remunerative arrangements can have no bearing on the meaning of the agreement.
24. In my opinion, construed against the relevant background, the words "ProForce will hold preferred supplier status" mean that if Rugby choose to operate a system of contracting only with preferred suppliers in respect of the Rugby site, ProForce are to be treated as being one of those preferred suppliers for all categories of personnel, not just cleaners. The words do not mean that Rugby areobliged during the term of the agreement to contract only with preferred suppliers and that throughout the term of the agreement Rugby must operate a preferred supplier system. Mr. Sweeting submits that if the words did not oblige Rugby to contract only with preferred suppliers they would be effectively meaningless because they would confer no benefit on ProForce and yet the parties must have intended that a substantial benefit was to be conferred because ProForce were agreeing to buy and provide expensive machinery. ProForce were the only preferred supplier during the relevant period and he contends that the effect of the words was to oblige Rugby to look to ProForce to satisfy all their personnel requirements at the site so long as ProForce's terms were reasonable.
25. I reject Mr. Sweeting's submissions. At the time the agreement was signed it was possible that Rugby would introduce a preferred supplier system in respect of the site over the next two years. If Rugby were to have introduced such a system, as they were planning to do at the end of 1999, the conferral of preferred supplier status on ProForce would have constituted a very real benefit because ProForce would then have been in the inner ring of suppliers and ahead of their competitors that were outside the ring. The price paid for the machinery by ProForce was £72,500 and ProForce were under an obligation to maintain it and provide it at the site. However, over the term of the agreement ProForce were due to be paid £153,400 by way of equipment charges and at the end of the term if it was not purchased back by Rugby, it would have had some residual value. It is not possible to tell if ProForce's equipment obligations would be covered by the equipment charges but the figures in the agreement show in my view that the parties were not contracting on the basis that the conferral of supplier status was intended materially to off-set ProForce's equipment obligations.
26. As it happened, Rugby did not adopt a preferred supplier system for the site during the contractual term. Instead they looked to a number of suppliers of labour who did not have the status of preferred supplier to satisfy their non-cleaning requirements. In my judgement, in acting in this way Rugby were not in breach of the agreement.
27. It follows that I respectfully disagree with the judgement of the Senior Master. Rugby's appeal is allowed and I shall strike out ProForce's claim and give judgement for Rugby under CPR Part 24.

Note 1   Instead of “contract” the word “control” is appears in 9.2 but it is common ground that “control” was a clerical error for “contract”.     [Back]