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ContractlawCaselawupdate
January–March2017
In this issue…
Unfair terms constrained by implied statutory obligations: Abbot v RCI Europe [2016] EWHC 2602 (Ch)
3
4A disagreeable agreement to agree: Teekay Tankers Ltd v STX Offshore and Shipbuilding Co Ltd [2017] EWHC 253 (Comm)
From timeshares to all-inclusiveholidays-rollonsummer!
WelcometotheSpring2017editionofourcontract lawcaseupdater,now in its fourth
publication.Wehopeyouwillcontinuetofindthesehandycasesummariestobeauseful
tool inkeepingyouuptospeedwiththemostsignificantcontractlawdevelopmentsof
thelastquarter.
In this issue Nick Pointon considers intentions to create legal relations over dinner
(MacInnesvGross[2017]EWHC46),agreementstoagreetosellships(TeekayTankersv
STX[2017]EWHC253),unfaircontracttermsintimeshareschemes(AbbottvRCIEurope
[2016]EWHC2602)andthemetaphysicsofbuffetsinthepackageholidayindustry(Wood
vFirstChoice[2017]EWCACiv11).
NatashaDzamehreviewsthedutyofsolicitorstowarnclientsabouttherisksofalternative
interpretations(BalogunvBoyesSuttonandPerry[2017]EWCACiv75)andthescopeof
solicitors’professionalindemnityinsurance(AIGEuropeLtdvWoodman[2017]UKSC18).
Wealsotakethisopportunitytodrawreaders’attentiontothelaunchoftheexcitingnew
“SJCJuniorInsight”seminarseries,abrandnewcollectionofseminarsonkeyaspectsof
civil procedure rolling out this Summer. Introductory details of the new series appear
below–pleasedo letusknow ifyourfirmwould liketoarrangeanyseminarswithour
juniorcounselinthecomingmonths.
NickPointon
April2017
5
7
8
Intentions to create legal relations over dinner: MacInnes v Gross [2017] EWHC 46 (QB)
The metaphysics of buffets: Wood v First Choice [2017] EWCA Civ 11
Solicitors’ duty to warn and alternative interpretations: Balogun v Boyes Sutton and Perry (a firm) [2017] EWCA Civ 75
10The scope of solicitors’ professional indemnity insurance: AIG Europe Ltd v Woodman [2017] UKSC 18
2
Contributorstothisedition…
NickPointon(2010call)
RankedasaleadingjuniorincommercialdisputeresolutionbyChambers andPartners 2015, 2016and2017,Nick acts in awiderangeofcommercialandchancerymatters.Nickhasalsotaughtthesubjectofcontractlawatbothundergraduateandpostgraduate level at the University of Bristol and regularlydeliversseminarstoregionalandnationallawfirms.
“He’saclassactwhoisreallygoodatthedetail–hejustoozesability”ChambersUK,2017
“An impressive advocate and one to watch; an extremelycapableandbrightyoungbarrister”ChambersUK,2016
NatashaDzameh(2010call)
Natasha joined Chambers as a commercial and chancerytenantinOctober2016followingthesuccessfulcompletionofherpupillage.Sheenjoysabusycourtandpaperpractice,regularlyappearingintrialsandinterimapplicationsontheWesternCircuitandbeyond.Shehasalreadybeensuccessfulin an application for permission to appeal and the appealitself.Natashaacceptsinstructionsinabroadrangeofcommercialfields including specialist areas such as construction,insolvency,insuranceand intellectualproperty.Shehasaninterestinprofessionalnegligenceclaimsagainstarchitects,builders, solicitors and surveyors. Natasha’s chancerypractice encompasses a variety of real property, personalproperty,trustandwilldisputes.Sheishappytoattendfirmstodeliverseminarsontopicsrelatedtoherpracticeareas.
3
Intentionstocreatelegalrelationsoverdinner.
MacInnesvGross[2017]EWHC46(QB)
NickPointon
Fans of the hit television showMadmen
willbefamiliarwiththecustomarypractice
among 1960s advertising executives of
doingeachandeverydealinanupmarket
steak restaurant with a hefty number of
OldFashionedstolubricatetheprocess.In
MacInnesvGrosstheHighCourtreiterated
thatsuchaninformalsettingwouldrarely
(anddidnotonthisoccasion)evidencean
intention to create legally binding
relations, with the result that any deal
donewouldnotaltertheparties’positions
in the slightest, save perhaps by giving
themaraginghangovertocontendwith.
InthiscaseAclaimed€13.5millionfromB
for breach of contract. It all started at a
meeting over dinner in an upmarket
Mayfair restaurant (Zuma). A’s case was
thatduringthismeetingheagreedthathe
wouldleavehisjobataninvestmentbank
(Investec) and provide his services to B
instead, in exchange for which A would
receive 15% of any difference achieved
betweenthetargetandactualsalepriceof
B’s business. That night, after dinner, A
emailedBexpressinghisdelight “thatwe
are agreed on headline terms”. Nine
months laterasaleof thebusinessbegan
tomaterializeandA forwardedhisearlier
email toB.Brepliedinpositivetermsbut
added “next timewe seeeachother let’s
makeapropercontract”.Thebusinesswas
sold and A sued for payment under the
allegedcontract.
Coulson J beganwith the leading caseof
RTS vMolkerei [2010]UKSC14; [2010] 1
WLR 753, surmising that “the governing
criteria is the reasonable expectations of
honest and sensible businessmen” (at [76]).
Paragraphs76–78ofthejudgmentcontaina
very useful summary of the key principles
relating to the intention to create legal
relations.
At[81]CoulsonJsaid“Themerefactthatthe
discussion tookplaceoverdinner inasmart
restaurant does not, of itself, preclude the
comingintoexistenceofabindingcontract.A
contract can be made anywhere, in any
circumstances. But I consider that the fact
that this alleged agreement was made in a
highly informal and relaxed setting means
that the court should closely scrutinise the
contention that, despite the setting, there
wasanintentiontocreatelegalrelations.”
Aalsoputhisclaimonthealternativefooting
ofquantummeruit,againbeginningwiththe
leading case of Benedetti v Sawiris [2013]
UKSC 50. Paragraphs 162 – 164 contain a
useful summary of the key principles
applicable to claims for unjust enrichment.
Interestingly Coulson J suggested that even
where the parties have reached an
agreement about remuneration, it would
usually need to be supplemented with
objective evidence relating to the market
value of the services being provided (at
[166]). Although the parties subjective
valuationof theservices(asreflected inany
agreementaboutremuneration)issomething
of which the court can take account, it
remains the case that the startingpoint for
valuing any benefit to the defendant is the
objective market value of the services
provided.
Surprisingly the claim in quantummeruit
was pleaded at the same value as the
contractual claim (€13.5m) and no lesser
claimadvancedinthealternative.Thatwas
fatal and Coulson J expressly refused to
consideranyclaimforalessersumbecause
it was not pleaded. At [180] Coulson J
explain that “a proper quantum meruit
claim has to be set out in full – services
provided, value ascribed, explanation for
thatvalue–inorderthatadefendantcan
consideritandjoinissuewiththosepartsof
the claim to which it takes objection.”
Applyingthatstatement,theoftappearing
throwawayalternativepleasofaquantum
meruit suddenly look rather precarious
and, in future, care should be taken to
pleadsuchclaimsproperly.
Inbrief…- An informal setting for
negotiations will rarely evidencean intention to create legalrelationsinmattersofimportanceorvalue.
- The governing criteria fordetermining intention to createlegal relations remains the“reasonable expectations ofhonest and sensiblebusinessmen.”
- Vague alternative pleadings ofquantummeruitwillrarelyassistaclaimantwho fails in his primarycontractual claim. The quantummeruit case requires fullparticularization.
4
Adisagreeableagreementtoagree.
TeekayTankersLtdvSTXOffshoreandShipbuildingCoLtd
[2017]EWHC253(Comm)
NickPointon
InTeekayTankersLtdv STXOffshoreand
Shipbuilding Co Ltd [2017] EWHC 253
(Comm) a purported agreement to grant
anoptiontopurchaseshipswasheldtobe
ofnoeffect,beingmerelyanagreementto
agree.
The judgment contains a very detailed
survey of the authorities on both
agreementstoagree[129]–[149]andthe
general principles applicable to the
implicationofterms[152]–[160].
Theclauseinissueprovidedthattheships
would be delivered on a date to “be
mutuallyagreed”andthatSTXwouldmake
“best efforts” to have a delivery within
2016forthefirstvesselsand2017forthe
rest.WalkerJfeltunabletoimplyatermas
to thedate for deliverybecausedoing so
would be inconsistent with the express
languageof theagreement, bywhich the
partiesweretomutuallyagreesuchadate.
The claimant sought to overcome the
apparent uncertainty by arguing that a
term should be implied that, failing
agreement, the delivery date would be
suchdateasthedefendantoffered,having
useditsbestefforts,within2016or2017,
or the earliest date thereafter; or
alternatively an “objectively reasonable
date”determinebythecourt.
AlthoughtheCourtplainlyrecognizedthat
thepartieshad intendedtheiragreement
to bebinding, it ultimately felt unable to
resolve the uncertainty created by the
mutual agreement clause by means of
implying terms. The Court cited
Mamidol-JetoilGreekPetroleumvOkta
Crude Oil Refinery AD (No 1) [2001]
EWCACiv406asauthorityforthe(fairly
obvious) proposition that the court
shouldstrivetogiveeffecttotheparties’
bargainwherepossible.In thatcaseRix
LJ,at[69]setout tenguidingprinciples
whichWalker J adopted here, together
with five similar principles identifiedby
Chadwick LJ in B J Aviation v Pool
Aviation[2002]2P&CR25(towhichhe
gavethecatchytitle,“theRix/Chadwick
principles”).
The first implied term proposed by
TeekayTankerswasrejectedbecauseit
was unilateral in nature (effectively
allowing Teekay to impose the date),
whereas the express terms of the
parties’ agreement clearly envisaged
mutualagreement.
Astothesecondimpliedtermproposed
byTeekayTankers,WalkerJrecognized
that this was mutual in character but
ultimately also impossible to imply. He
drewadistinctionbetweenagreeingto
use best efforts or endeavours to
achieveaparticularresult,andagreeing
to use best efforts or endeavours to
reachagreementuponanessentialterm
in a contract (at [203]). It was the
presence of the reference to “best
efforts” in the later context which
proved fatal and, in Walker J’s words,
“aspirational”.
The importance of the case lies in (1)
reiterating the inclinationof the courts
to uphold a contractual bargain
whereverpossible; but (2) identifyinga
limit upon its ability to do so, namely
where the terms of the parties’
agreement are inconsistent with, and
thereby prevent, the implication of a
termbasedsolelyuponreasonableness.
Inbrief…- Vaguecontractualstatements
aboutterms“tobemutuallyagreed”oragreeingtouse“bestendeavours”toagreemayhavetheunintendedeffectoflimitingthescopefortheimplicationoftermstocompletetheparties’bargain.
“[W]herethepartiesmaydesireorneedtoleavematterstobeadjustedintheworkingoutoftheircontract,thecourtswillassistthepartiestodoso,soastopreserveratherthandestroybargains,onthebasisthatwhatcanbemadecertainisitselfcertain.”
Mamidol-JetoilGreekPetroleum
vOktaCrudeOilRefineryAD(No1)[2001]EWCACiv406
5
Unfairtermsconstrainedbyimpliedstatutoryobligations.
AbbotvRCIEurope[2016]EWHC2602(Ch)NickPointon
InAbbot v RCI Europe [2016EWHC2602
(Ch) the High Court considered the
circumstancesinwhichtermswillbeunfair
as creating a significant imbalance in the
parties’ rights and obligations within the
meaningofreg5(1)oftheUnfairTermsin
Consumer Contract Regulations (SI
1999/2083). The latter have since been
replacedbytheConsumerRightsAct2015,
but the relevant provisions of both are
materiallyidentical.
Theimportanceofthiscaseliesinthefact
that (1)a statutorily impliedobligation to
usereasonablecareand skill;and(2) the
commonlawrequirementnottoexercisea
discretion arbitrarily, capriciously or
unreasonably,hadtheeffectofpreventing
a wide contractual discretion from being
unfair.
The facts of this test case involved a
schemeforexchangingweeksattimeshare
properties. The operators of the scheme
had,underitsrules,averywidediscretion
astohowweeksinpropertiesweretraded.
The claimants were members of the
scheme and the defendant was its
operator. In essence the claimants
complained that the operator had been
rentingouttheirtimeshareusagerightsto
people outside of the scheme pool,
effectivelyreducingtherightsavailablefor
exchangewithinthatscheme.
The scheme contained a very widely
wordedclausewhichprovidedthatwhena
member deposited their timeshare rights
into the exchange pool they thereby
relinquished all rights to use them and
agreedthattheschemeoperatorcoulduse
them without restriction (the “permitted
userclause”).
Proudman J held that the permitteduser
clause did not create a significant
imbalance in the parties’ rights and
obligationsbecausetheschemeoperator’s
rights were, even though expressed very
broadly,limitedbystatutoryandcommon
lawprinciples.Firstly,byvirtueofss.13of
theSupplyofGoodsandServicesAct1982
the operators had to operate the system
withreasonablecareandskill.Curiously,at
[46] Proudman J suggested that the
impactofthisimpliedtermwasthatthe
schemehadtobeoperated“fairly,with
reasonable care and skill”, citing the
1982Actinsupport.Nothinginthe1982
Actimposesanyobligationtoactfairly.
Secondly, Proudman J held that at
common law the operator was
prevented from exercising this
discretion arbitrarily, capriciously or
unreasonably,citinginsupportBraganza
vBPShipping [2015]UKSC17.But that
doesnotholdwatereither.InBraganza
itwasheldthatacontractualfact-finder
(in that case an employer considering
whether an employee had committed
suicide after disappearing from a ship)
had to action rationally in the
Wednesbury sense. As all familiar with
basic public principles will know,
Inbrief…- Anotherwiseunbridled
contractualdiscretionmightbesavedfrom“unfairness”byreferencetostatutorilyimpliedtermstousereasonablecareandskilland/orthe(suggested)commonlawrequirementnottoexercisediscretionarbitrarily,capriciouslyorunreasonably.
- Anobligationtoactingoodfaithmightbecraftedbyaliberalinterpretationoftheimpliedobligationtoexerciseadiscretionreasonably.
“Therearesigns,therefore,thatthecontractualimpliedtermisdrawingcloserandclosertotheprinciplesapplicableinjudicialreview.”
BraganzavBPShipping[2015]
UKSC17,perBaronessHaleat[28]
6
Introducing…
SJCJuniorInsight
Chambers’ChanceryandCommercialPracticeGrouparepleasedtointroduceabrandnewseriesofseminarsfor2017,
aimed at developing strongworking relationships between junior practitioners at the Bar and in the firms of our
instructingsolicitors.
LaunchinginJuly2017,juniorbarristersspecialisinginchanceryandcommerciallitigationwillbeofferingarangeof
seminarstojuniorsolicitors,traineesandparalegals,withafocusuponkeyaspectsofcivilprocedureastheyapplyto
chanceryandcommerciallitigation.Seminarswillbedeliveredatyouroffices(oranalternativevenuedependingupon
numbers)andwilladoptacollegiate,workshopstyleapproach,focusingupontheissueswhichyoufindmostpressing.
Uptodatematerialsarebeingproducedtodistill thekeyprinciples, tacticsandpitfalls intoa formuseful forbusy
juniorpractitioners.
IfyouwouldliketodiscussyourPSL/CPDneedsorwishtoarrangeoneormoreseminarswithourteam,pleasecontact
[email protected],ortelephone01179234690.
Wednesbury unreasonableness is a far
cryfrom“reasonableness”asemployed
in the ordinary contractual (or even
tortious)context.IndeedinBraganzathe
context of the particular contract was
importantand,atleastforLadyHale(at
[32]), the context of the employment
contract in that case differed from an
ordinarycommercialcontractbecauseit
broughtwith itan impliedobligationof
trustandconfidence.
Thus the relatively simple suggestion
that the scheme operator had to
exercise its discretion fairly and could
not do so unreasonably (with no
referencetothenotionofWednesbury
unreasonableness) is not borne out by
the authorities relied upon for those
propositions. In effect, the limitations
which Proudman J has implied so as to
restrain the apparently unbridled
discretion of the scheme operator
approximate quite closely to implying an
obligation to exercise that discretion in
good faith. Given the ever growing and
ever oscillating body of case law on the
implicationofobligationsofgoodfaith,itis
surprisingthatthematterdidnotresurface
here, at least not in those terms. Yet
arguablythatispreciselywhatProudmanJ
has achieved by implying fetters which
prevent the unfair or unreasonable
exercise of an otherwise unbridled
contractualdiscretion.
The case is therefore interesting in two
respects. Firstly, it almost unwittingly
touchesupon the good faithdebateby
reaching something very close to an
obligation to act in good faith by
implying obligations not to act
unreasonably or unfairly. Secondly, it
providesapotentiallyvery far reaching
defencetoclaimsthatbroadcontractual
termswhichprimafacie,contrarytothe
requirement of good faith, create an
imbalance in the parties’ rights and
obligations within the meaning of s.
62(4)ofthe2015Actmightbesavedby
usingthese impliedfetterstocutdown
their effect, even if the contractual
counterparty might never appreciate
thosefettersuntiltestedinlitigation.
“Respectedchamberswithagrowingcommercialpractice,praisedforitsconsiderationofpracticalitiessuchascostsandfunding.Theyhavethefeelofaheavyweightsetandtheyareimaginativeinofferingsolutionstohelpyousettleacase.”
ChambersUK,CommercialDisputeResolution(2017)
7
Themetaphysicsofbuffets.
WoodvFirstChoice[2017]EWCACiv11NickPointon
Everylegalbandwagontendstocomewith
a radio and daytime televisionmarketing
campaign which begins with a forthright
enquiry into the listener’s private affairs,
though the enquirer tends only to be
interestedinthelastthreeorsixyears.The
latest claims industry surrounds food
poisoning while on holiday, and it just
receivedahelpinghandintheformofthe
CourtofAppeal’sdecisioninWoodvFirst
Choice[2017]EWCACiv11.
Theissuewaswhetherpropertyinfoodor
drink consumed while on an all-inclusive
holidaypassedtothecustomer,suchthat
thecontractwasoneforthesaleofgoods
intowhich s.4(2)of theSupplyofGoods
andServicesAct1982wouldimplyaterm
that the food or drink must be of
satisfactory quality. The Court of Appeal
heldthatitwas.
If the contract were only one for the
provisionofservices(i.e.theprovisionofa
holiday) then the furthest one gets is an
implied term that the service will be
providedwithreasonablecareandskill(s.
13 of the 1982 Act). Food might,
conceivably, still induce food poisoning
evenifthetouroperatorhasexercisedall
reasonablecareandskillintheselectionof
hotels,restaurantsetc.Yetwhenatermas
to satisfactory quality of the goods
themselves isimplied, thatpossibilityfalls
away.Onnoviewcanitbesaidthatfood
which induces food poisoning is of
satisfactory quality, even if the fault for
that lies with the hotel and the tour
operatorisfreefromblame.Nevertheless,
the effect of this ruling is that the tour
operatorwillordinarilybeliable.
First Choice put their case quite
attractively.TheyarguedthatallthatFirst
Choicedidwastoprovidealicencetoall-
inclusivecustomerstoconsume foodand
drink with no question of them ever
becomingtheownersofwhatwasontheir
platesorintheirglasses.Onceconsumed,
thegoodsweredestroyed.YettheCourtof
Appeal, founding itself on a first instance
decision in 1938 (Lockett v A&M Charles
[1938]4AllER170)anddistinguishingthe
morerecentSupremeCourtdecisioninPST
Energy 7 Shipping v OW Bunker Malta
[2016] UKSC 23, held that when the
customer takes food from the buffet the
propertyinthefarebecomeshis.
In response to First Choice’s floodgate
concerns,Sir BrianLevesonPopined that
“it will always be difficult (indeed, very
difficult) to prove that illness is a
consequenceoffoodordrinkwhichwasnot
of satisfactory quality, unless there is
cogent evidence that others have been
similarly affected and alternative
explanations would have to be excluded”
(at [34]), though presumably only on the
balance of probabilities. No doubt a
plethora of newly incorporated claims
companieswillhaveagoodgo.
The case is not completely devoid of
academic interest. Query what would
happenif,inquiteflagrantbreachofbuffet
etiquette,aholidaymakertook food from
the buffet (at which point it apparently
becomeshisproperty)beforechanginghis
mind and putting it back. Would he be
responsibleforthehavocitmightwreakon
his fellow holidaymakers digestion, or
wouldthelawperceivesomere-transferof
property, not to the hotel but to the
package tour operator with whom the
guesthadcontracted?
“Wetoohaveenjoyedsubmissionsofa
metaphysicalnaturewhichmightsurprise
themanythousandsofcustomerswhoenjoyedbreakfast,perhapswith
orangejuice,teaorcoffee,intheirhotelsor
guesthouseseverymorning…”
WoodvFirstChoice[2017]EWCACiv11,perCoulsonJ[48]
“StJohn’sChambersisoneofBristol’sleadingsetsofchambersforcompanyadvisoryandadvocacywork,withitsbarristersobtainingregularinstructioninshareholderdisputes,directors’dutiesanddirectors’disqualificationcases.Thesetispraisedbysourcesforitsprovisionofcommerciallymindedadviceandtheprofessionalandincrediblyflexibleattitudeofitsbarristers.”
ChambersUK,Company(2017)
8
Solicitors’dutytowarnandalternativeinterpretations
BalogunvBoyesSuttonandPerry(afirm)[2017]EWCACiv75NatashaDzameh
ThedecisionofBalogunvBoyesSuttonand
Perry(afirm)[2017]EWCACiv75confirms
the fact sensitive nature of determining
whetherasolicitorisinbreachofadutyto
warnaclientastotheriskofalternative
interpretationsbythecourt.
Facts and First Instance Decision (High
Court–QBD)
Mr Balogun was a restauranteur who
retained the service of Boyes Sutton and
Perry (“Boyes”), a solicitors’ firm, in
relation to the acquisition of a 15 year
commercialunderlease(“theUnderlease”)
ofaunitknownasUnit1onthelowerand
upper ground floors of a building on
NorwoodRoadinLondon(“theUnit”).Mr
BalogunspecificallyinstructedMrDavies,a
partner at Boyes, who knew that he
intendedtofitoutandrunarestaurantin
theUnit.MrDaviesqualifiedasasolicitor
in1976andhadsubstantialexperienceof
commercial conveyancing which included
involvementwithapproximately10leases
ofrestaurantsasshellfit-outs.
The Unit was comprised of residential
premises above the ground floor and
commercial premises on the ground and
basement levels. The commercial units
were subject to a 999 year lease (“the
Headlease”) granted to Anacar Ltd
(“Anacar”). The head landlord was
originally Mizen Properties Ltd (“Mizen”)
butatthematerialtimesitwasLondon&
QuadrantHousingTrustLtd(“L&Q”).TheUnit
had planning permission for restaurant use
andapurposebuiltventilationshaftranfrom
thegroundfloorceilingthroughtotheroofof
thesecondfloor.Completionoccurredanda
disputearosebetweenMrBalogunandL&Q
regardingtheworksMrBalogunproposedto
execute,inparticularthesizeofthechimney
which was to be installed above the
ventilationshaft.
Mr Balogun brought a professional
negligence action against Boyes, the key
pointsbeingthat:
1. Mr Davies failed to provide him with
anyoranyadequateadviceconcerning
the permission required fromL&Q for
useoftheventilationshaft;
2. The Underlease created a risk in
relation to which advice and drafting
wererequired;
3. MrDavies failed to proveMr Balogun
with advice as to his rights to install
something in the ventilation shaft
bearing in mind that the planning
permission contained a condition
concerningtheextractionoffumes;
4. Mr Davies failed to adequately advise
Mr Balogun that the plans he was
submittingtoAnacar insupportof the
grantofalicencewereinadequate.
The claim was dismissed and Michael
BowesQCheldthatMrBalogun:
1. Didnot explaintoMrDavies that
ductingwouldneedtobeinstalled
intheventilationshaft.Hedidnot
obtain the necessaryprofessional
advice regarding the ventilation
shaft prior to completion. The
scope of Mr Davies’ duty was
limitedbythetermsofitsretainer
thushewasentitledtoacceptMr
Balogun’s instructions that no
worksneededtobecarriedoutin
relation to the ventilation shaft.
Mr Davies’ duty of care did not
require him to go behind his
instructions and investigate
whetherthiswastrue;
2. Could not show that there was
“real scope for dispute” as to
whethertheUnderleasegavehim
Inbrief…- Asolicitormaybreachthe
dutytowarnevenwherehis/herinterpretationofthecontractiscorrect.
- Thestrengthofthefactorsfavouringanalternativeconstructioniskeytodeterminingwhetherthedutyhasbeenbreached.
9
a right to connect and use the
ventilationshafttoventUnit1;
3. FailedtoproveMrDavieshadaduty
to make further enquiries of Mr
Balogun regarding the specific
condition within the planning
permission;
4. Had submitted planswhich showed
everything hewas asking for in the
licence. Mr Davies had indicated
more detail was necessary but Mr
Balogundidnotprovideitandthere
was no duty onMr Davies to push
himfurtheronthispoint.
CourtofAppeal
Mr Balogun appealed to the Court of
Appealinrelationtopoints2and3ofthe
deputyjudge’sfindingsnotedabove.
Solicitors’dutytowarn
Thiswaspresentedintwoways.Firstlythat
theUnderleasedidnotprovidearightof
access to the ventilation shaft and
secondly,evenifitdid,therewasarisk it
did not andMr Balogun should have been
warnedofthatrisk.
Lloyd Jones LJ determined that the
Underleasedidprovidearighttoconnectto
andusetheventilationshaft.Hestated:
“Thequestionwhetherasolicitorisinbreach
ofadutytowarnhisclientoftheriskthata
courtmaycometoadifferent interpretation
fromthatwhichthesolicitoradvisesiscorrect
will necessarily be highly fact-sensitive and
will depend on the strength of the factors
favouring a different interpretation and
therebygivingrisetotherisk.”
IfMrDavieshadconsideredtheprovisionshe
would have appreciated that theHeadlease
and the Underlease did not necessarily
correspondinrelationtotheventilationshaft
access.Regardlessofthecourt’sfindingasto
thecorrectconstructionoftheprovisions,the
risk of the court arriving at a different
determinationwassufficientlygreatthatMr
Davies should have advised Mr Balogun
accordingly and amended the draft
underleasetoremovetherisk.Failuretodo
soconstitutedabreachofduty.
MrBalogunhadnotsufferedanylossbecause
of the breach of duty as Anacar and L&Q
acceptedhehadtherighttoventthroughthe
ventilation shaft. The dispute had instead
concernedtheextentoftheright.
Failuretomakefurtherenquiries
This point had arisen in the courseof cross
examinationonthelastdayoftrialandhad
notbeen pleaded. Lloyd Jones LJ expressed
concernsastothefairnessofthetrialjudge’s
decision to allow this point to be taken.
Nonetheless he did not consider it
appropriate to determine this ground of
appealonapleadingpoint.
Lloyd Jones LJ stated thatMrDavieswas
not under a duty to investigate whether
writtenapprovalhadbeengiveninrelation
to the relevant planning permission
condition.Further,hadMrDaviesmadean
enquiryofthelocalplanningauthorityand
discoveredtherewasnowrittenapproval,
itwouldnotnecessarilyhaveprovidedhim
with any information as to whether the
workhadbeendoneinconstructingaflue
in the ventilation shaft. The relevant
conditionwastiedtotheoperationofthe
restaurantand therewasnorequirement
tocomplywith ituntil therestaurantwas
tooperate.Lackofwrittenapprovaldidnot
meannofluehadbeenconstructedinthe
ventilationshaft.
Analysis
Thedutytowarnaclientthatacourtmay
arrive at a different construction when
interpreting a contract is particularly
important. The mere fact a solicitor has
correctlyinterpretedthecontractdoesnot
absolve him/her from a finding that the
duty has been breached should the
appropriate advice not have been given.
Thiscasealsoreiteratesthatdetermining
whether the duty has been breached is
fact-sensitive and depends upon the
strength of the factors favouring an
alternativeconstruction.
The saving grace for Boyes was that Mr
Balogun was unable to establish he had
sufferedany lossasaresultofMrDavies’
failure to inform him of the contentious
natureoftheinterpretationpoint.Thiswill
notalwaysbethecase.Solicitorsshouldbe
awarethatifaclientfailstorecoverlosses
whichs/hehassufferedasaresultoftheir
breach,eventhoughtheyhaveinterpreted
the contract correctly, the client may
pursuethemforthesesums.
“Thequestionwhetherasolicitorisinbreachofadutytowarnhisclientoftheriskthatacourtmay
cometoadifferentinterpretationfromthat
whichthesolicitoradvisesiscorrectwillnecessarilybe
highlyfact-sensitiveandwilldependonthestrengthof
thefactorsfavouringadifferentinterpretationand
therebygivingrisetotherisk.”
BalogunvBoyesSuttonandPerry(afirm)[2017]EWCACiv75,per
LloydJonesLJ
10
Thescopeofsolicitors’professionalindemnityinsurance
AIGEuropeLtdvWoodman[2017]UKSC18NatashaDzameh
Facts and First Instance Decision (High
Court–QBD)
A developer was advised by a solicitors’
firm(“theFirm”)whichdesignedascheme
wherebyinvestors’moneywasplacedinan
escrow account and the Firm acted as
escrowagent.Theinvestorswereinvesting
in two proposed holiday home
developments in Turkey and Morocco.
Following the placing of funds in the
escrow account the investors became
beneficiariesofatrustwhichheldsecurity
overthelandthatwastobepurchasedfor
thedevelopments.Theschemefailedand
214 investors sued the Firm for losses
totalling approximately £10 million. The
Firmheldprofessionalindemnityinsurance
(“theInsurance”)withtheclaimantwhich
hadalimitof£3million.TheInsurancewas
requiredtocomplywiththeLawSociety’s
MinimumTermsandConditions(“theMTC”).
Clause 2.5 of the MTC permitted the
aggregationofclaimsasfollows:
"The insurance may provide that, whenconsidering what may be regarded as oneClaim…
(a)allClaimsagainstanyoneormoreInsuredarisingfrom:
(i)oneactoromission;
(ii)oneseriesofrelatedactsoromissions;
(iii) the same act or omission in a series ofrelatedmattersortransactions;
(iv) similar acts or omissions in a series ofrelatedmattersortransactions
…
willberegardedasoneClaim."
The issue arose as to whether the claims
could be aggregated in accordance with
Clause2.5(iv)oftheMTC.Theinsurerapplied
for a declaration that the investors' claims
against the Firm should be aggregated and
considered as one claim with a £3 million
indemnitylimit.Thetrusteescontendedthat
the land purchases had failed for different
reasons so the acts or omissions were not
similar. Alternatively, the individual
investmentswereseparateandindependent
of eachother thus theywere not part of a
seriesofrelatedmattersortransactions.
MrJusticeTearerefusedtheapplication.He
consideredthat:
1. ThepolicyunderlyingtheMTCwasto
ensure solicitors were financially
capable of compensating their client
whenclaimsweremadeagainst them
albeit the limit per claim and the
aggregation meant the ability to
compensatemay be limited to a sum
less than the claim.Whilst the court
mustconsider theunderlyingpolicy it
was too simplistic an approach to
simply adopt the construction which
provided the public with the greatest
level of protection. The court had to
construe Clause 2.5 in a neutral
manner and identify the meaning it
would reasonably be understood to
bearinitscontext.
2. In construing the adjective “similar”,
“therequisitedegreeofsimilaritymust
be a real or substantial degree of
similarity as opposed to a fanciful or
insubstantialdegreeofsimilarity”.The
developercouldnotpaythevendorfor
the land and the firm had failed to
provide effective security thus the
cover test was not properly applied.
Inbrief…
Constructionofaggregationclausesisfact
sensitiveandmustbeviewedobjectivelyratherthanfromthesubjectiveviewpointofoneofthe
parties.
“Becausesuchclauseshavethecapacityinsomecasestooperateinfavouroftheinsurer(bycappingthetotalsuminsured),andinothercasestooperateinfavouroftheinsured(bycappingtheamountdeductibleperclaim),theyarenottobeapproachedwithapredispositiontowardseitherabroadoranarrowinterpretation.”
perLordToulsonJSCat[14]
11
This meant that after the investors’
money was released, they were
exposed to loss when the
developments failed. Consequently,
the requisite degree of similaritywas
present.
3. A “series of related matters or
transactions" referred to transactions
which, byreasonof their terms,were
dependentoneachotherrather than
beingindependent.
CourtofAppeal
AIG appealed the decision. The Court of
Appeal determinedMr Justice Teare had
beenincorrecttosaythetransactionsmust
bedependenton eachother inorder for
aggregation to occur albeit theymust be
inter-connected insomeway.Therewere
differentdegreesofconnectionanditwas
notthecasethatanydegreeofrelatedness
wouldbesufficient.Theaggregationclause
did not adopt a wide formulation. The
historyoforiginof theclauseconstituted
partofthematrixagainstwhichitmustbe
construed. This resulted in a conclusion
thattherelationshipbetweentherelevant
transactionsmustbe intrinsic rather than
remote.
SupremeCourt
The Supreme Court determined that the
Court of Appeal’s formulation was
unsatisfactory.Judgmentwasdeliveredby
LordToulsonJSC.Theterm“intrinsic”was
an elusive term when describing the
relationship between two transactions.
Each limb of sub-clause (iv) must be
satisfiedforittoapply.Theword“related”
implied some inter-connection between
themattersortransactionsorthattheyfit
togetherinsomeway.TheLawSocietyhad
not applied any criterion to “a series of
relatedmattersortransactions”whichwas
unsurprising given the scope of
transactions which could involve solicitors
providingprofessional services.Determining
whether transactions are related is “acutely
fact sensitive” and involves “an exercise of
judgment,notareformulationoftheclauseto
beconstruedandapplied”.
Lord Toulson stated the first step was to
identify themattersortransactions.Theact
giving rise to the claimwas the paymentof
moneyfromanescrowaccountwhichshould
not have occurred. This happened in the
course of a transaction which involved
investment in a development scheme
pursuanttoacontractualarrangementwithin
whichthetrustdeedandescrowagreement
were encompassed as means by which
investors would obtain security. It was a
principally bilateral transaction with a
trilateral component due to the solicitors
beingescrowagentsandtrustees.The trust
deed created a multilateral element as a
resultoftheinvestorsbeingco-beneficiaries.
Thetransactionsenteredintobytheinvestors
were connected in significant ways. The
investors were investing in a common
development and the money they had
advanced was intended to provide
developers with the requisite capital. All
investors participated in a standard scheme
andwereco-beneficiariesofacommontrust.
Lord Toulson further explained that the
applicationof the aggregation clausewas
to be judged by “objectively taking the
transactions in the round” rather than
looking at them exclusively from the
viewpointofonepartyoranother.Onan
objective basis, he considered that the
connecting factors he had identified
resultedintheconclusionthattheclaimsof
eachgroupofinvestorsarosefromactsor
omissions in a series of related
transactions. These transactions fit
together due to the common underlying
objective of execution of a specific
development project and through trusts
whereby the investors were co-
beneficiaries.
The claims of the two separate sets of
investorscouldnotbeaggregatedwithone
anotherasalthoughtherewasasimilarity
that was insufficient. The transactions
enteredintobytheinvestorsintheTurkish
development were not connected to the
transactionsenteredintobythe investors
in theMoroccandevelopment.Whilst the
developmentcompanieswererelatedand
the development projects had a similar
legalstructure,theprojectswereseparate
and unconnected. They concerned
differentsitesanddifferentdeedsoftrust
over different assets which protected
differentgroupsof investors.The insurers
hadnorighttoaggregatetheclaimsofthe
Turkish investors with the Moroccan
investors.
Analysis
TheSupremeCourthasprovidedguidance
astohowtoapproachtheconstructionof
“a series of related matters or
transactions”. Nonetheless it is evident
that this isnotaneasytaskas it isa fact
sensitiveone.Thisjudgmentwillnotbring
an end to claims which turn on
construction of the relevant aggregation
clause but may encourage more careful
policywording.
“Byrequiringthattheactsoromissionsshouldhavebeeninaseriesofrelatedtransactions,thescopeforaggregationisconfinedtocircumstanceswherethereisarealconnectionbetweenthetransactionsinwhichtheyoccurred,ratherthanmerelyasimilarityinthetypeofactoromission.”
perLordToulsonJSCat[18]
12