Euro London Appointments Ltd v Claessens International Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE CHADWICK,Lord Justice Moore-Bick,Mr Justice Lawrence Collins |
| Judgment Date | 06 April 2006 |
| Neutral Citation | [2006] EWCA Civ 385 |
| Docket Number | Case No: B2/2005/0340 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 April 2006 |
[2006] EWCA Civ 385
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LIVERPOOL COUNTY COURT
HIS HONOUR JUDGE MACKAY
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Chadwick
Lord Justice Moore-Bick and
Mr Justice Lawrence Collins
Case No: B2/2005/0340
4XJ 09804
Mr John Pugh (instructed by Berkson & Berkson, 40 Hamilton Square, Birkenhead, Merseyside, CH41 5BP) for the Appellant
Mr Russell Bailey (instructed by Downs, 156 High Street, Dorking, Surrey, RH4 1BQ) for the Respondent
This is an appeal from an order made on 7 February 2005 by His Honour Judge Mackay in the Liverpool County Court in proceedings brought by Euro London Appointments Limited, an employment agency, against its client, Claessens International Limited. The issue raised by the appeal is whether the claimant's standard terms and conditions include a provision which is in the nature of a penalty and so unenforceable.
The claimant's terms of business
The claimant's terms of business for the introduction to clients of permanent and contract staff provide for the payment of a fee by the client for an "Introduction" resulting in an "Engagement". Those expressions are defined in clause 1:
"'Engagement' means the engagement, employment or use of the Applicant by the Client or any third party on a permanent or temporary basis, whether under a contract of service or for services; under an agency, licence, franchise or partnership agreement; or any other engagement; directly or through a limited company of which he is an officer or employee.
'Introduction' means (i) the Client's interview of an Applicant in person or by telephone, following the Client's instruction to the Agency to search for an Applicant; or (ii) the passing to the Client of a curriculum vitae or other information which identifies the Applicant; and which leads to an Engagement of that Applicant by the Client".
In that context "the Agency" is Euro London Appointments Limited; "the Applicant" is the person introduced by the Agency to the Client for an Engagement; and "the Client" is the person to whom the Applicant is introduced.
Clause 3.2 of the terms of business provides that (save in a case where the Client decides to withdraw an offer of Engagement before the Engagement has commenced) no fee is payable by the Client until the Applicant commences the Engagement. The Agency will then invoice the Client. Payment is to be made within 7 days of the date of the invoice – clause 3.1(c) . The Agency may charge interest on invoiced amounts unpaid for more than 7 days at the rate of 4% per annum above the National Westminster Bank base rate – clause 3.3.
Clause 3.4 is in these terms:
"The fee payable to the Agency by the Client for an Introduction resulting in an Engagement is calculated in accordance with the accompanying Fee Structure on the Remuneration applicable during the first 12 months of the Engagement. VAT will be charged on the fee if applicable."
"Remuneration" is a defined term; but it is unnecessary, for the purposes of this appeal, to set out that definition. Where remuneration includes a salary of an amount which is between £25,000 and £35,000 per annum the relevant Fee Structure provides for payment of a fee at the rate of 20% of the salary.
Clause 4 provides for a refund of fees in a case where the Engagement terminates prematurely. The clause is in these terms:
"4.1 In order to qualify for the following refund, the Client must pay the Agency's fee within 7 days of the date of invoice and must notify the Agency in writing of the termination of the Engagement within 7 days of its termination.
4.2 If the Engagement terminates before the expiry of 12 weeks from the commencement of the Engagement (except where the Applicant is made redundant) the fee will be refunded in accordance with the accompanying Scale of Refund set out in the schedule to these Terms of Business.
4.3 Should the Client or any subsidiary or associated Agency of the Client subsequently engage or re-engage the Applicant within the period of 6 calendar months from the date of termination of the Engagement or withdrawal of the offer, a full fee calculated in accordance with clause 3.4 above becomes payable, with no entitlement to the refund."
The Scale of Refund is set out in the schedule:
"1. The following scale of refund only applies in the event that the Client complies with the provisions of clause 3.1 of these Terms of Business.
2. Where the Applicant leaves during the first 12 weeks of the Engagement, a partial refund of the introduction fee shall be paid to the Client in accordance with the scale set out below, subject to the conditions in clause 4.1
3. There will be no refund where the Applicant leaves during or after the 13th week of the Engagement."
| Week in which the Applicant leaves | % of introduction fee refunded |
| 1–2 | 100% |
| 3–4 | 80% |
| 5–6 | 60% |
| 7–8 | 40% |
| 9–10 | 20% |
| 11–12 | 10% |
As I have said, the principle that no fee is payable by the Client until the Applicant commences the Engagement is qualified in one respect. Clause 5.1 provides that if, after an offer of Engagement has been made by the Client to the Applicant, the Client decides for any reason to withdraw that offer, the Client shall be liable to pay the Agency "a minimum fee of one third of the annual Remuneration". The position, therefore, is that if the Client changes its mind between making an offer of Engagement and the acceptance of that offer by the Applicant, it becomes liable to a fee which may be greater than that which would have been payable (under the Fee Structure) if the Engagement had commenced ( say, 20% of annual salary) ; and, in that case, there is no provision for refund.
The underlying facts
The claim in the present proceedings is for introduction fees due to the Agency in respect of the Introduction of two Applicants to Claessens International Limited, as Client, in January 2004. The first of those Applicants, Ms Sandra Benhamed, was engaged by the Client as business development manager with effect from 5 January 2004, at a salary of £30,000. The fee payable in respect of her introduction (at 20% of salary) was £6,000. The second Applicant, Ms Claudia Ehrke, was engaged by the Client, with effect from the same date, 5 January 2004, as German account manager, also at a salary of £30,000. It had been agreed that the fee should be charged at a concessionary rate of 19% of salary – so the fee payable in respect of her introduction was £5,700. On 5 January 2004 the Agency issued invoices claiming payment of those introduction fees, with VAT. The total amount payable under the two invoices (inclusive of VAT) was £13,747.50. It is common ground that the Client did not pay the invoiced amount (or any amount) within 7 days of the date of the two invoices.
Neither applicant remained in employment for 12 weeks. Ms Ehrke resigned on 16 January 2004. Her last working day was 22 January 2004. On the basis that she left in the third week after her Engagement, the refund to which the Client would have been entitled under clause 4.2 of the terms of business was 80%—that is to say, an amount (on fees of £5,700) of £4,560. Setting that amount against the amount payable under the relevant invoice, the balance would be £1,140—or £1,339.50 with the addition of VAT.
Ms Benhamed was dismissed in February 2004. Her last working day was 26 February 2004. On the basis that she left in the eighth week after her Engagement, the refund to which the Client would have been entitled under clause 4.2 was 40%—that is to say, an amount (on fees of £6,000) of £2,400. Setting that amount against the relevant invoice, the balance would be £3,600—or £4,230 with the addition of VAT. That sum (£4,230) was paid by the Client on 5 March 2004.
The Agency did not accept that the Client was entitled to refunds under clause 4.2.: it relied on clause 4.1 of the terms of business. The Client had not paid the Agency's fee within 7 days of the invoice date and so, it was said, the Client did not qualify for a refund in either case.
These proceedings
These proceedings were commenced by a claim form issued on 24 March 2004 in the Northampton County Court. The amount claimed by the Agency was £13,547.77; but that included £3,978.27 claimed as a fee payable in respect of a temporary worker, Ms S.A. Struck. The balance (£9,517.50) was the sum of the two invoices of 5 January 2004 after deduction of the £4,230 paid on 5 March 2004. On 27 April 2004 the Client served a defence, admitting that £3,978.27 was due in respect of the temporary worker (but asserting that that sum had been paid since proceedings were commenced) and admitting that £1,339.50 was due in respect of the introduction of Ms Ehrke. That sum (£1,339.50) , of course, is the amount that would be due if the Client were entitled to deduct the amounts claimed as refunds under clause 4.2 of the terms of business.
On 11 June 2004 the Agency applied for summary judgment on the claim for £9,517.50 On 23 August 2004 the Client applied to amend its defence to add a further paragraph – paragraph 6—in these terms:
"6. In so far as the Claimant relies upon clause 4.1 of its standard terms and conditions to deprive the Defendant of the benefit of the discount the Defendant contends that upon its proper construction clause 4.1 is a penalty clause and therefore unenforceable. In particular:
(a) the clause purports to be triggered upon the breach of the payment obligation;
(b) the consequence of the clause being triggered is that the party in...
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