Armchair Answercall Ltd v People in Mind Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke,Lord Justice Ryder,Lord Justice Moore Bick |
| Judgment Date | 26 October 2016 |
| Neutral Citation | [2016] EWCA Civ 1039 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: B2/2014/3887 |
| Date | 26 October 2016 |
[2016] EWCA Civ 1039
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MAYOR'S AND CITY OF LONDON COURT
HIS HONOUR JUDGE COLLINDER QC
2YM25736
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moore-Bick
Lord Justice Ryder
and
Lord Justice Christopher Clarke
Case No: B2/2014/3887
Matthew Hardwick QC (instructed by Bonallack & Bishop) for the appellant
Lawrence McDonald (instructed by Seth Lovis & Co) for the respondent
Hearing date: 11 th October 2016
The question in this appeal is whether the one-year contract for services between Armchair Answercall Limited, the Appellant ("AA"), and People in Mind Limited, the Respondent ("PIM") was frustrated during its term.
Kendlebell Ltd ("Kendlebell") ran a franchise business offering telephone answering services. It had 10 franchisees who, between them, had about 1800 customers. The franchisees would recruit customers and provide premises, equipment and call handlers in places or centres across the country. They would also invoice customers and receive payments. The customers of the franchisees would enter into arrangements with the franchisees by which telephone calls made to the customers which they were not able to answer would be diverted to the franchisee. The franchisee would have on a computer screen details of the customers' business and would be able, hopefully, to deal with questions from the customer and give help in relation to the business whose call was taken.
Kendlebell, as franchisor, provided the necessary "know-how", hardware and software, an operational manual, training, a brand name, and other services in return for a commission of 8–10% of the gross turnover. Mr Stephen Beasley ("Mr Beasley") was its managing director from 2010 until 31 August 2011. He had been involved with it since 2005, becoming its full-time Operations Director in 2009.
The franchisees varied in size. One might be a small concern where husband and wife operated from a front room in their home. Others were larger operations with separate premises, a number of call handlers, and a large customer base. There were problems with this method of operation. It was in reality a set of individual businesses. There were few economies of scale and difficulties had arisen between Kendlebell and the franchisees.
Kendlebell made overtures to AA with a view to a possible takeover of Kendlebell by AA. AA was a competitor of Kendlebell and specialised in providing telephony services. It was a much larger, centralised business. Mr Gerry Budd ("Mr Budd") was its Commercial Director and Mr Neil Murphy ("Mr Murphy") its Chief Executive.
The Services Agreement
AA was not prepared to take over Kendlebell. Instead, on 14 July 2011 Kendlebell and AA entered into an agreement ("the Services Agreement") under which AA was to take over the management of Kendlebell's business. The business was to be carried out by a new method ("the New Method"). Under the New Method the call centres would be centralised at AA's headquarters in Andover. The franchisees would, in effect, become sales branches for services to be carried out in Andover. They would be responsible for servicing existing customers and recruiting new ones; but not for operating the day to day call centre business. AA would bill the customers and collect the income but the franchisees would receive 25% of the gross revenue.
The contractual arrangements in place in relation to those using the services of the franchisees ("the customers") are not wholly clear. There appear to have been, at least in some cases, standard terms in force applicable between the franchisee and the customer. There were also agreements between Kendlebell and some customers, as was reflected in the Services Agreement (see [8] and [35] below), although, as we were told, this was not so in every case. The terms of the agreements between the customers and Kendlebell and/or the franchisees were not before us nor, it would seem, the judge. Quite how both contracts would work together is obscure. In evidence Mr Beasley said that " Kendlebell really owned the clients, not the franchisees. They had a licence to manage them".
The Services Agreement, pursuant to which Mr Murphy was appointed as Chief Executive of Kendlebell for the purpose of enabling him on behalf of AA to take action in the name of Kendlebell had two Recitals which provided as follows:
"A Kendlebell wishes to restructure their franchised telephone answering business to allow it to operate more efficiently so that a secure income stream can be generated from the operation. Kendlebell no longer wishes to fund its own management staff and infrastructure to manage the day to day operation of the franchise network so seeks a contractual relationship with Armchair to take over the management of the network on its behalf and to effect the changes necessary to allow network and it's clients companies to operate within a more robust and efficient business model.
B Armchair Answercall Limited (Armchair) is experienced in the telephone answering business and has the necessary skills and management resource to provide Kendlebell with a permanent solution to its requirement to restructure and manage its business."
Clause 3 provided:
"The Services provided by [AA] to Kendlebell will change the Method [being the existing 'plan or system used by Franchisees'] from the Implementation Date [being no later than 6 weeks after the date of the Services Agreement]. Kendlebell authorises [AA] on its behalf to ensure that the amendments to the Method which are necessary in the sole discretion of [AA] as a result of this Agreement are documented in the Manual and circulated to the Franchisees".
By clause 4.7 AA agreed:
"…to contract directly with Stephen Beasley from 1 st September 2011, once his employment contract with Kendlebell ceases on 31 st August 2011, as an independent contractor not as an employee of Armchair, to assist the Personnel with any aspect of the Transition for an initial 12 month contract for the equivalent of 3 days per week at a rate of £3,000 per month. Stephen Beasley may request for this payment to be billed through a separate limited company if he prefers. Stephen Beasley will be responsible for paying his own tax, national insurance and any other costs he incurs in relation to the contract, except that his reasonable travelling expenses will be reimbursed by Armchair. Should Kendlebell wish to enter into any new contractual relationship with Stephen Beasley for work beyond that contracted with Armchair then this will be Kendlebell's own responsibility."
I consider the definition of " Transition" below.
Clause 15.3. provided that:
"[AA] shall be entitled to terminate this Agreement immediately, on written notice to Kendlebell, if there are no Franchise Agreements remaining in force."
Schedule 2 noted:
"Under the revised method [AA] will, following the agreed Transition Period(s), handle all telephone calls and other services generated under the Kendlebell Customer Agreement in connection with Existing Customers and New Customers and will be entitled to receive all the set up fees, subscriptions, call charges and other fees levied from these clients under the Kendlebell Pricing, which will all be collected by [AA] into a bank account it controls."
In Schedule 3 the following was noted:
"Both parties to this Agreement accept that the Transition is unlikely to be effected without issues arising with individual Franchisees and Existing Customers which could result, directly or indirectly, in some loss of Existing Business"
Thereafter AA began communications with the franchisees to outline the changes it proposed to make to Kendlebell's business mode.
On 26 August 2011 AA emailed the existing franchisees to notify them that AA would now collect all monies due from franchisees. On 31 August 2011 Mr Beasley left Kendlebell.
The Contractor Agreement
By an agreement dated 1 September 2011 ("the Contractor Agreement") between AA and PIM, a company which was in effect a nominee for Mr Beasley, AA agreed to engage PIM to provide services for a year. The Recitals to the Agreement were as follows:
"(1) The Company has identified the need for expert help and assistance in the performance and completion of the services as defined in this agreement, Schedule 1 and as laid out in the services agreement between Armchair Answercall Limited and Kendlebell Limited dated 14 th July 2011, clause 4.7 ("Services Agreement").
(2) The Contractor has the required level of expertise and has agreed to provide the required assistance subject to the terms of this agreement."
Under the Contractor Agreement PIM agreed to provide the " Service" as detailed in Schedule 1 subject to the terms of the Agreement. By clause 2 the duration of the Agreement was to be from 1 September 2011 to 31 August 2013. By clause 3 PIM agreed that it would for the duration of the Agreement:
" 3.1. perform the Contractor's Services described in Schedule 1 to this Agreement
3.2. make themselves available to [AA] at such times and such locations as [AA] and [PIM] shall agree from time to time;
3.3. perform their obligations in an expert and diligent manner and to the best of their ability."
Schedule 1 defined the " Services to be performed" as follows:
"Advice on Kendlebell history and practices, acquisitions, systems development, bid compilation and franchisee recruitment.
Support, in whatever capacity is agreed between [AA] and [PIM], in understanding the current Kendlebell franchise operational performance and in the management of the transition of operating model as set out in the Services Agreement.
Such other services as [AA] and...
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...event that something goes wrong will help to avoid disputes. The recent case of Armchair Answercall Limited v People in Mind Limited [2016] EWCA Civ 1039 is an example of parties to an agreement appreciating the likelihood of issues arising, but not setting out in their agreement how these ......