England and Wales High Court (Technology and Construction Court) Decisions

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Cite as: [2000] EWHC Technology 138

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Mayor and Commonalty and Citizens of the City of London v. Reeve and Company Ltd, G Lawrence Wholesale Meat Company Ltd, Citigen (London) Ltd [2000] EWHC Technology 138 (25th February, 2000)

In the High Court of Justice
Technology and Construction Court
Before: His Honour Judge Hicks QC

Between

The Mayor and Commonalty and Citizens
of the City of London

Claimants and Part 20 Claimants

- and -

Reeve and Company Limited

Defendant in Case 1999-TCC-126

- and -

G. Lawrence Wholesale Meat Company Limited

Defendant in Case 1999-TCC-127

- and -

Citigen (London) Limited

Part 20 Defendant

--------------------------------------------------------------

Case numbers: 1999-TCC-126 and 1999-TCC-127 (consolidated by order 10 March 1999)

Date of Judgment: 25 February 2000

Michael McLaren for the Applicant and Part 20 Defendant (solicitors: Masons)
Daniel Pearce-Higgins QC for the Respondents and Part 20 Claimants (solicitors: Berrymans Lace Mawer)

CPR 24.2(a)(i) - Summary judgment against Part 20 Claimant - Whether no real prospect of success

1. Indemnity - Indemnity against loss etc suffered by reason of indemnifier's breach of contract - Date of accrual of cause of action - Breaches giving rise to claims by third parties - Whether cause of action accrues when liability to third parties arises or is satisfied

2. Construction of documents - Settlement agreement - Recital of agreement to "resolve all outstanding matters" - Waiver of "all claims or causes of action .... [arising] prior to the date of this Agreement" - Whether claims under indemnity included if cause of action had not accrued

3. The text of the judgment approved by His Honour Judge John Hicks QC is as follows:

JUDGMENT

The facts

1. The Claimants, whom I shall call "the City", own the Smithfield Meat Market. The Defendants, whom I shall call "Reeve" and "Lawrence", are tenants of two of the units there. The Part 20 Defendant, whom I shall call "Citigen", entered into a "Co-operation Agreement" with the City in 1991 under which it agreed to develop and operate a combined heat and power station in Charterhouse Street, opposite Smithfield. There were a number of "Collateral Agreements", and under "Collateral Agreement No 19", dated 23 June 1995, Citigen contracted to supply cooling water in a primary circuit to the City, who used it to cool water in a secondary circuit serving the meat market. The City's agreements with its tenants contained obligations on the part of the City for the supply of cool water necessary for the satisfactory operation of the tenants' refrigerators.

2. The City and Citigen became involved in a number of disputes, and in 1996 Citigen commenced an action against the City for damages for breach of contract and other relief. The City counterclaimed for damages for breach of contract and other relief.

3. In 1994 the City had entered into agreements with Reeve and Lawrence for leases of the shop and office units which they were to take. In the event neither lease was granted, but nothing turns on that - Reeve and Lawrence were at all material times in possession on the terms of the agreements. Lawrence wrote to the City on 13 August 1996 complaining of "further breakdowns in .... refrigerators" because of failure on the City's part to meet the temperature and flow rate criteria for cool water supply, and again on 24 August 1996 giving notice of a "formal claim which we shall be making". On 5 February 1997 the minutes of the City's Central Markets Committee record that a claim for losses had been received from Lawrence. A letter from the City Solicitor to Lawrence's Ward Councillor on 24 February 1997 refers to Lawrence's "claim". Lawrence began to withhold deductions from its rent on the basis of this claim.

4. There is no doubt a parallel history of complaints and deductions by Reeve, but the details of that were not explored on this application.

5. The claims by Reeve and Lawrence were not at that stage passed on to Citigen. They formed no part of the counterclaim in Citigen's action, and in the letter of 24 February 1997 already referred to the City Solicitor wrote: "It is not therefore a simple case of a claim against the Corporation forming the basis of a counter-claim against Citigen .... the claim will be dealt with by the Corporation's insurers .... ".

6. On 20 June 1997 Citigen's action was settled. The terms of settlement are embodied in a long and complex document which also includes agreement between Citigen and the City on a number of other matters, including a waiver on which Citigen relies in this application. I must return to the detail of the relevant provisions later.

7. On 21 August 1998 the City commenced the present actions against Reeve and Lawrence for possession of the shops and offices comprised in the agreements for lease, arrears of rent and other relief. Reeve and Lawrence counterclaimed for damages for breach of contract by failure to meet the temperature and flow rate criteria for the supply of cool water. The City issued Part 20 proceedings against Citigen claiming an indemnity or contribution in respect of those counterclaims on the ground that any such failure established by Reeve or Lawrence was caused by breaches by Citigen of Collateral Agreement 19. It is common ground, although not to my mind so clearly pleaded, that the claim to an indemnity is also made under the express term of the agreement in that behalf.

The application

8. Citigen applies under Part 24 of the Civil Procedure Rules for summary judgment dismissing the Part 20 claim on the ground that the City has no real prospect of succeeding. The basis of that application is that the City's causes of action in the Part 20 claim are within the waiver clause of the settlement agreement of 20 June 1997.

9. Mr Pearce-Higgins, for the City, submits that there is a heavy burden on Citigen if it is to satisfy the requirement for obtaining summary judgment under Part 24. Mr McLaren, for Citigen, submits that the application raises a straightforward construction issue which should be addressed on its merits.

10. Rule 24.2 reads, so far as relevant:

4. The court may give summary judgment against a claimant .... on the whole of a claim .... if -

(a) it considers that -

(i) that claimant has no real prospect of succeeding on the claim .... ; or

(ii) .... ; and

(b) there is no other reason why the case .... should be disposed of at a trial.

11. There is no suggestion that head (b) has any application here. Head (a)(i) therefore sets out the test which, so far as I can see, I must apply. The question is how that is to be approached.

12. Where there are disputes of fact the Part 24 test, like the Order 14 test before it, although perhaps with a slightly different emphasis, plainly requires a very different approach from that at a trial. In this case, however, there are no such disputes relevant to the issues which I have to decide, all of which turn on points of law, in particular the construction of documents. What difference, if any, does that make?

13. In my view help in answering that question can be derived from two sources. In the first place Part 24 of the Civil Procedure Rules replaces both Order 14 and Order 14A of the Rules of the Supreme Court. Order 14A provided a means for the summary disposal of "any question of law or construction of any document" which would be finally determinative of the proceedings or of any claim or issue in them. Under Order 14A the court was simply to "determine" any such question raised before it. I should, I think, approach the exercise of my powers under Part 24 on the basis that it was not intended to exclude the sort of jurisdiction previously exercised under Order 14A.

14. Secondly, in the exercise of the jurisdiction under Order 14, and even before the introduction of Order 14A, it was recognised that "Where the court is satisfied that there are no issues of fact between the parties, it would be pointless to give leave to defend on the basis that there is a triable issue of law, and this is so even if the issue of law is complex and highly arguable" (Supreme Court Practice, 1999, paragraph 14/4/2, citing R.G.Carter Ltd v Clarke [1990] 2 WLR 209).

15. I bear in mind that the terms of Rule 24.2 are different from those of either Order 14 or Order 14A and must be construed in the context of the changes of practice of which the Civil Procedure Rules are part, and in particular in the light of the overriding objective set out in Rule 1.1, but subject to that caution I believe that the considerations set out in paragraphs 13 and 14 above are of some relevance and assistance.

16. I also take into account that the questions raised by this application could indubitably be disposed of as straightforward points of law on the trial of a preliminary issue, but that it would be a futile waste of time and costs to order a trial at which, so far as I can see, precisely the same arguments would be repeated as have been deployed before me.

17. I therefore apply the test required by Rule 24.2 with all those considerations in mind.

18. For lack of time this application, which first came before me on 3 December 1999, had to be adjourned part heard. When it resumed on 28 January I was told that meanwhile the claims and counterclaims between the City on the one hand and Reeves and Lawrence on the other had been settled on payment by the latter of all arrears of rent less Ł60,000. That presumably helps to quantify the Part 20 claim and leaves it as the only part of the case remaining to be tried, but does not affect the questions which I have to decide.

The issues

19. The clause in the settlement agreement on which Citigen relies provides as follows:

3. The Parties waive any claims or causes of action they may have against each other arising out of or in connection with the Co-operation Agreement and/or the Collateral Agreements which are not included in the Action or Counterclaim and which arose prior to the date of this Agreement [with an irrelevant exception].

20. Since the City's Part 20 claims undoubtedly arise out of Collateral Agreement 19 the only question is whether they arose prior to 20 June 1997.

21. As to the claim for an indemnity or contribution on the basis simply that Citigen were in breach of contract, the damages for which include the whole or part of the City's liability to Reeves and Lawrence, there is no dispute that the cause of action arises at the date of breach. I shall therefore deal with that claim first.

22. The claim under the express indemnity clause of Collateral Agreement 19, however, raises a hotly debated question as to when the cause of action under such a clause arises. That question, which occupied a good deal of the time taken in arguing the application, involves issues both of the general law and of the construction of the indemnity clause itself. I shall deal with it in a separate section before turning to the construction of the waiver clause in the Settlement Agreement, as applying to such a cause of action.

23. All the above points relate to the words "causes of action" in the waiver clause, on which most of the argument centred. There is finally a short question whether the words "claims or" add anything, and if so what.

The breach of contract claim

24. As I have already noted, it is not in doubt that the cause of action for breach of contract arises at the date of breach. Although no dates are pleaded in the Part 20 Particulars of Claim I do not understand the City to dispute that the alleged breaches on which it relies for the purposes of its Part 20 claim all occurred before 20 June 1997. They are therefore plainly, on the face of it, within the waiver clause.

25. Mr Pearce-Higgins, as I understood him, conceded that if this were "purely a claim for damages" it would be caught by the waiver clause. His argument was that it was not; it was "a claim to be indemnified". In my view, however, a claim of the former kind is plainly raised, albeit there is also a claim under the express indemnity clause. The two are quite different in a number of ways, although of course there could not in any event be double recovery, and Mr McLaren, for his part, conceded that his application might in principle succeed in relation to the breach of contract claim but not the indemnity clause claim. In my judgment they do fall to be separately considered and Citigen does succeed on the breach of contract claim, in that I find that the City has no real prospect of succeeding on it and that it should accordingly be dismissed.

The indemnity clause

26. The indemnity clause in Collateral Agreement No. 19 provides as follows:

8.3 [Citigen] hereby indemnifies the [City] against any direct loss damages proceedings compensation or liability which the [City] shall suffer or be obliged to pay as a result of any material or persistent breach by [Citigen] of its rights or obligations under or pursuant to this Agreement.

27. In dealing with the question when the cause of action on a contract to indemnify against liability to a third party accrues Chitty on Contracts comments with some justification that the modern authorities are conflicting (28th edition, paragraph 29-045). The conflict, put shortly, is whether the cause of action accrues as soon as liability is incurred or only at some later date, such as when it is quantified, or established by judgment, or realised by payment. If a generic term is to be used in each case the contrast is perhaps best conveyed by distinguishing between the "inception" and the "realisation" of liability.

28. It is not necessary, in this case, to choose between different formulations of the second alternative, because it is common ground that on the one hand liability was incurred before 20 June 1997, when the alleged breaches by the City relied upon by Reeves and Lawrence occurred, while on the other hand all the possible alternatives occurred after that date. Mr McLaren, indeed, puts one of his arguments in the form of a dilemma: if the City's contentions are correct, he says, then the very same considerations which go to show that the cause of action had not accrued before 20 June 1997 go equally to show that it had not accrued when the Part 20 claim was made, so that that claim is premature and unsustainable.

29. It is convenient to dispose of that argument at once. If it were correct many of the authorities in this field could not have been decided in the way they were. Moreover it was raised, fully argued and rejected in County and District Properties Ltd v C Jenner & Son Ltd [1976] 2 Lloyds LR 728. I respectfully agree with Swanwick J that "it is perfectly competent for a [party] .... to bring [Part 20] proceedings in order to enforce a cause of action which will arise only in the event of judgment being given against him." (page 738).

30. Turning to the main issue, I was taken to a number of the "modern authorities" to which Chitty refers, but do not find it necessary or helpful to review them at length. In both the leading case in which the date of inception was adopted (Bosma v Larsen [1966] 1 Lloyd's LR 22, at page 27) and the leading authority for the date of realisation (Telfair Shipping Corp. v Innersea Carriers SA [1985] 1 WLR 553, at page 566F) it is said that the question is one of the construction of the contract in question. On that basis other cases are at best illustrative.

31. In so far as the question involves any general point of principle, therefore, it must reside in guidance as to the factors of particular relevance to the task of construing indemnity clauses for this purpose. In the Telfair case Neill J addressed this point in words frequently cited as the most helpful summary of the position. Using A to denote the party in the position of the City here, B the party corresponding to Reeves and Lawrence and C the party in Citigen's place he said, immediately after the statement already cited that the question is one of construction:

5. If the indemnity is an indemnity against liability, as it was held to be in Bosma v Larsen .... , the cause of action will come into existence when A incurs a liability to B. .... If, however, the indemnity is a general indemnity, as the relevant clause was held to be in R & H Green & Silley Weir Ltd v British Railways Board [1985] 1 WLR 570, then time will not begin to run against A for the purpose of pursuing his indemnity against C until A's liability to B has been established and ascertained .... . (page 566F).

32. I must confess to being unclear as to the force and effect of the word "general" in this context, but in so far as it suggests a wide range of matters within the scope of the indemnity the clause here is in my view of that nature. Mr McLaren submits that the inclusion of the word "liability" in the list is decisive, even if others also appear, but in my view that cannot be the test.

33. The question being one of construction I consider it helpful, as a start, to look at the list of matters to be covered by the indemnity and the verbs which indicate how they arise in order to see whether they show any consistency, or at least preponderance, in one direction or the other. On that approach "loss", "damages" and "compensation" all naturally fit with one or both of "suffer" and "be obliged to pay" and all these combinations look to the date of realisation. "Proceedings" is not so obviously paired with either verb, but can clearly not be relevant until litigation has begun. That leaves "liability" as the only word consistent with the date of inception, and it lacks the obviously appropriate verb "incur". In my view the preponderance is heavily in favour of the date of realisation.

34. The impression which I gain from the authorities as a whole is a general leaning in favour of the date of realisation, to the extent of an overall impression that Bosma v Larsen is relegated to the category of a "difficult" exception to a general rule. The only other authority adopting the date of inception on which Mr McLaren relied was National House-Building Council v Fraser [1983] 1 All ER 1090. In my judgment that sheds no light on the issue before me. It concerned a time-limited guarantee of a building company's obligations by its directors, coupled with an indemnity against "all losses .... incurred" by reason of its failure to perform them. It turned, not on the authorities as to indemnities, but on those as to the effect of the expiration of guarantees, and on Forster v Outred [1982] 1 WLR 86 as to when damage by negligent advice is suffered.

35. So far as the authorities help, therefore, they support rather than cast doubt on the conclusion which I reach as a matter of the construction of clause 8.3. I accordingly find that the City's cause of action based on that clause had not accrued at 20 June 1997.

The waiver clause

36. In the preceding section I have, except in direct quotations, used the word "accrue" rather than "arise" in order to avoid any appearance of begging the question whether my conclusion there automatically disposes of the issue whether, within the meaning of the waiver clause, the cause of action on the indemnity "arose" before 20 June 1997. The two terms are not normally distinguished, and in that sense the "natural and ordinary" meaning of "arise" in relation to causes of action is no doubt the same as "accrue", but I am mindful of the now well-known passage in the speech of Lord Hoffmann in Investors Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912F to 913E, and in particular the following extracts from that passage:

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(4) The meaning which a document .... would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of a document is what the parties using those words against the relevant background would reasonably have been understood to mean. ....

(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. ....

37. There are a number of background matters which Mr McLaren invited me to take into account in construing the waiver clause. They came at the beginning of his submissions, before he dealt with the indemnity clause, and did not therefore specifically distinguish between the consequences of winning and (as he has) losing on the construction of the latter. If he had won on the construction of the indemnity clause, however, it would have been he who would have been urging me to apply the "natural and ordinary" meaning of "arose" in the waiver clause. As it is, these background matters must be judged against the test of whether, in what is undoubtedly in Lord Hoffmann's terms a "formal document" they persuade me to conclude that a reasonable man with knowledge of them would have understood the parties to mean something other than the use of that word would normally convey.

38. The first matter on which Mr McLaren placed reliance was recital E in the settlement agreement itself. Recitals A to C have briefly set out the history and recital D has stated the parties' wish to settle the litigation. Recital E reads:

6. E. The [City] and Citigen have agreed to resolve all outstanding matters between them as part of this settlement agreement.

39. I agree that that is very material to the construction of clause 3, which is clearly intended to give effect to it, but I do not see how it assists Citigen on the issue before me. Background knowledge, to be of relevance, must be common to both parties. There is no evidence that Citigen knew of the claims by Reeve or Lawrence. Those claims were not, in any ordinary sense, "outstanding matters" between the parties.

40. Mr McLaren's next submission was that since clauses 1 and 2 of the agreement "comprehensively disposed of the 1996 action" clause 3 must be construed as covering matters falling outside that action. Again, I accept that that is a relevant consideration, but its force depends on there being no other "outstanding matters" between the parties outside the 1996 action. There was no evidence that that was so and it seems unlikely.

41. Finally Mr McLaren relied on the fact that clause 5 of the agreement provided for the need to redesign the systems for the supply of condenser cooling water to Smithfield and addressed the problems of what changes needed to be made in the supply specification of that water, what technical modifications were needed in the system and who should pay for them. These provisions, he said, were intended, at least in part, to avoid a recurrence of the problem which had given rise to Lawrence's claim and any further exposure of the City to liability to its tenants. It would be very odd, said Mr McLaren, if against that background clause 3 excluded the City's claim against Citigen for the City's potential liability to its tenants.

42. In my view that argument begs in Citigen's favour the question discussed and decided against it in paragraphs 38 and 39 above. The "oddness" postulated by Mr McLaren arises only if the parties had this in mind as one of the "outstanding matters between them".

43. In my judgment, therefore, there is nothing in any of these aspects of the background knowledge of the parties, separately or together, sufficient to displace the conclusion that the causes of action founding the Part 20 claim based on the indemnity clause had not arisen, within the meaning of the waiver clause, prior to 20 June 1997.

Claims

44. Mr McLaren's first submission on the words "claims or" in the waiver clause is that they cannot be surplusage and must therefore refer to something other than causes of action. I do not agree that that is necessarily so; duplication of words having little or no differing reference is perhaps not as common now in legal documents as it was in the heyday of Victorian conveyancing, but it is by no means unknown. If no other sensible separate meaning can be attributed to the word "claim" that must remain a possibility.

45. Secondly he says that it cannot here mean "proceedings". I agree that that is an implausible meaning in the context.

46. Thirdly, and positively, he says that it must therefore have its ordinary non-technical sense, which he says is "the principal elements on which a cause of action will be based (such as here the breaches of contract), even if the cause of action may technically be as yet incomplete - such as where the liability of the City to [Reeve and Lawrence] has yet to be ascertained and established". The trouble with that is that it bears no relation to what in my experience is the ordinary non-technical usage of the word, which involves the assertion of a right to payment, compensation or other relief coupled with a demand that it be satisfied. Whether that or the possibility canvassed in paragraph 44 above is preferable may be debatable, but neither assists Citigen; the "cause of action" meaning has already been dealt with and there had clearly been no claim in the sense described above by the City against Citigen before 20 June 1997.

Conclusion

47. With the exception of what I have called the "breach of contract" claim, dealt with in paragraphs 24 and 25 above, the application therefore fails.