Jani-King (GB) Ltd v Pula Enterprises Ltd and Others
|England & Wales
|His Honour Judge Peter Coulson QC
|23 October 2007
| EWHC 2433 (QB)
|Queen's Bench Division
|Claim No: HQ 06X02321
|23 October 2007
 EWHC 2433 (QB)
His Honour Judge Peter Coulson QC
(Sitting as a Judge of the High Court)
Claim No: HQ 06X02321
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
St Dunstan's House
133–137 Fetter Lane
London, EC4A 1HD
Mr Jason Evans-Tovey (instructed by Cubism Law) for the Claimant
The Defendants did not appear and were not represented
Hearing dates: 15 and 23 October 2007
The Jani-King organisation is based in America. It is the largest commercial cleaning franchise company in the world. The Claimant is responsible for its operations in Great Britain. Although the Claimant has its own management, sales and cleaning departments, its principal business comes through the sale of franchise agreements. The prospective franchisee is trained in the Jani-King cleaning system and then offered a certain amount of initial business by the Claimant. Thereafter, the franchisee will be offered new contracts negotiated by the Claimant's sales team, and also encouraged to seek its own cleaning contracts. The purpose is to provide a standardised cleaning service utilising the Jani-King system and manual.
The Second and Third Defendants signed a franchise agreement (“the first franchise agreement”) with the Claimant on 3 September 2003. There was also an addendum to that first franchise agreement, also dated 3 September 2003. The documents demonstrate that, between 15 and 19 September 2003, the Second and Third Defendants went through the Jani-King initial training process. Thereafter, they commenced operating under the first franchise agreement. The parties had agreed that, over the first two years, they would be provided by the Claimant with initial business which comprised cleaning contracts that paid a cumulative total of £22,000 per month. It appears that this figure for initial business was achieved in April 2004.
For reasons which are explored in greater detail below, later in 2004, the Claimant required all its franchisees to enter into a new franchise agreement. By this time, the Second and Third Defendants had set up a company called Pula Enterprises Ltd, the First Defendant in these proceedings, to act as the corporate franchisee under the new agreement. The extent of the Third Defendant's formal involvement in that company is unclear. When the second franchise agreement was signed on 26 November 2004, the parties were therefore the Claimant and the First Defendant. For reasons which will become apparent below, it is this second franchise agreement that lies at the heart of these proceedings. There was an addendum to the second franchise agreement, also dated 26 November 2004 and, following further changes to the Claimant's commercial strategy, a second addendum dated 28 April 2005. This second addendum to the franchise agreement was signed by the Claimant and the First Defendant, and by the Second and Third Defendants as guarantors.
On 1 August 2006, the Second Defendant wrote to the Claimant on behalf of the First Defendant, purporting to terminate the franchise agreement. The letter suggested that the Claimant was in breach of the terms of the second franchise agreement, although no details of the alleged breaches were identified. It was and is the Claimant's case that this letter constituted a wrongful repudiation of the second franchise agreement. These proceedings were commenced on 10 th August 2006, seeking damages in consequence of that wrongful repudiation. By way of their defence and counterclaim, the Defendants sought to justify the termination by reference to alleged breaches by the Claimant of the second franchise agreement. It is the Claimant's case that those alleged breaches are based on an erroneous construction of the express terms of the second franchise agreement and/or are founded on implied terms which cannot be justified in fact or in law. In consequence, the Claimant obtained an order from Master Fontaine dated 18 June 2007 for the hearing of certain preliminary issues arising out of the Defendants' construction of the second franchise agreement. This Judgment is solely concerned with the answers to those preliminary issues.
Although the Second and Third Defendants were present on 18 June, and were thus aware of this hearing of the preliminary issues, and although they provided witness statements to the Claimant's solicitors on 10 August 2007 dealing with the issues, all subsequent attempts to contact them have proved unsuccessful. The address in High Wycombe that had been used for the purposes of contacting the Defendants appears now to be unoccupied. The telephone numbers provided are live but are always switched to voicemail. The Claimant suspects that the Second and Third Defendants have gone back to South Africa, from whence they originally came.
In those circumstances, Mr Evans-Tovey, who appeared on behalf of the Claimant, invited me (pursuant to CPR Part 39) to continue to deal with the Preliminary Issues in the absence of the Defendants. In accordance with the over-riding objective ( CPR 1.1), and because the issues raised are almost entirely matters of construction, I acceded to that request. In reaching the conclusions set out in this Judgment, I have had regard to the written and oral evidence of Mr Ian Thomas, a director of the Claimant. I have also had regard to the written statements of the Second and Third Defendants, referred to above, although I consider that most of their content relates to matters which are irrelevant to the issues with which I am presently concerned. I have also paid particular regard to the Defendants' pleaded defence, which was settled by experienced commercial counsel. I have been carefully through the documents, including the many agreements between the parties. As to the relevant principles of law, I should express my gratitude to the considerable assistance on this topic that I have received from Mr Evans-Tovey.
B. THE CORRECT APPROACH TO ISSUES OF CONSTRUCTION
B1. The Importance Of The Factual Background
The leading case on this area of the law is, of course, . In his speech, Lord Hoffmann identified five key principles relating to the interpretation of contracts. For present purposes they can be summarised as follows:
“(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.
(2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact' but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent …
(4) The meaning which a document (or any other utterance) 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 the 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 …”
In Lord Hoffmann said that the true test of admissible extrinsic evidence was “anything which a reasonable man would have considered relevant” and he went on to say that, in , he was:
“… certainly not encouraging a trawl through 'background' which could not have made a reasonable person think that the parties must have departed from conventional usage.”
There has been a certain amount of debate as to whether or not the factual matrix is always relevant to questions of construction, or only admissible where the words are ambiguous or open to dispute. It seems clear that this debate has been settled firmly in favour of the principle that the factual matrix should always be considered, even if the wording is unambiguous and sensible: see, for example, ; ; and ; . Most recently, in (Ch); , Briggs J said at paragraph 36 that ambiguity was no longer a pre-requisite for recourse to the admissible background.
Despite that principle, it is plain, as Lord Hoffmann noted in , and reiterated in , that the most important source of information about the agreement is the contract itself, and not the surrounding documentation. As to the way in which the court should perform the necessary balancing act between the two, I find myself particularly attracted to the reasoning of Buxton LJ in ... ;
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