Quantum Advisory Ltd v Quantum Actuarial LLP
| Jurisdiction | England & Wales |
| Judge | Lady Justice Falk,Lady Justice Whipple,Lord Justice Snowden |
| Judgment Date | 19 January 2023 |
| Neutral Citation | [2023] EWCA Civ 12 |
| Docket Number | Case No: CA-2022-001291 |
| Court | Court of Appeal (Civil Division) |
[2023] EWCA Civ 12
Lord Justice Snowden
Lady Justice Whipple
and
Lady Justice Falk
Case No: CA-2022-001291
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN WALES
BUSINESS LIST (ChD)
HHJ Jarman QC
[2022] EWHC 1423 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Guy Adams (instructed by Harrison Clark Rickerbys) for the Appellant
Andrew Butler KC (instructed by Acuity Law) for the Respondent
Hearing date: 13 December 2022
Approved Judgment
This judgment was handed down remotely at 11.00am on 19 January 2023 by circulation to the parties or their representatives by email and by release to the National Archives.
Introduction
This is an appeal from a decision of His Honour Judge Jarman QC (sitting as a Deputy High Court judge) on a Part 8 claim. The decision, and single ground of appeal, relate to a short point of contractual construction.
The dispute relates to an agreement, titled “Services Agreement”, entered into on 1 November 2007 between the then recently formed defendant, Quantum Actuarial LLP (“the LLP”), and a predecessor to the claimant, Quantum Advisory Ltd (“Quad”). That predecessor is referred to in the judge's decision as “old Quad”. The Services Agreement was novated from old Quad to Quad shortly after it was entered into. It has a 99 year term.
This is the second time that the Services Agreement has been considered by this court. The previous dispute related to a number of aspects including the novation, whether certain services to clients were covered by the Services Agreement and whether provisions that prevented the LLP from soliciting or enticing away Quad's clients or doing work directly for them amounted to an unreasonable restraint of trade. His Honour Judge Keyser QC (sitting as a Deputy High Court judge) determined that dispute largely in favour of Quad ( [2020] EWHC 1072 (Comm)), and the LLP's appeal on the restraint of trade issue was dismissed by this court ( [2021] EWCA Civ 227).
The factual background is set out in more detail in the earlier decisions. For present purposes it can be summarised briefly. Prior to 2007 old Quad carried on business as a provider of administrative, actuarial and related services primarily for defined benefit pension schemes. The motivation for establishing the LLP was that those involved in old Quad and two other related companies had different ideas about the future of the business. The single largest shareholder and managing director of old Quad wanted to diversify, but his colleagues did not and they could not afford to buy him out. This led to the formation of the LLP and a reorganisation of the business.
The basic idea was that the existing business of old Quad would be ring fenced, with its existing clients and certain prospective clients remaining with it but being serviced by the LLP. The LLP would also be free to develop and expand its own business.
The remuneration provided for under the Services Agreement is that the LLP is paid a monthly amount equal to 57% of the aggregate of Quad's receipts of fee income from the clients serviced by the LLP and any commissions. HHJ Jarman found at [4] that this represented the cost to the LLP of providing the services, with no profit element. However, as part of the overall transaction the LLP took over all of Quad's staff and also gained full use of its premises, equipment and brand.
The issue between the parties is whether the Services Agreement requires the LLP to do what is necessary to enable tenders or re-tenders to be submitted on behalf of Quad for work from Quad's clients. Quad says that the judge was wrong to construe the Services Agreement as not extending to tendering work, and rather that he should have found that tendering to provide the “Services” required to be provided by the LLP under the Services Agreement is an activity for which the LLP is responsible.
HHJ Jarman's decision
The judge noted at [9] that Mr Adams, for Quad, relied neither on any implication of terms nor on any “infelicities of language or oddities” in the Services Agreement. Rather, he relied on a construction of the agreement as a whole and the fact that it was known to both parties at the time it was entered into that tendering had been and could in future be required. As the judge noted at [12], the LLP had worked on a tender to Swansea University between the arrangements being put into practical effect in April 2007 and the formalisation of the Services Agreement in November of that year. The LLP's position before the judge was that this work, and further tenders during the first year of operation, were performed to assist the LLP's cash flow but on the basis that the cost would need to be addressed in future, and that work on tenders thereafter was subject to individual negotiation and agreement.
There was no dispute before the judge as to the general principles to apply to the construction of contracts. The judge set out at [14] the recent helpful summary by Carr LJ in Network Rail Infrastructure Ltd v ABC Electrification Ltd [2020] EWCA Civ 1645 (“ Network Rail”) at [18].
The judge went on at [15] to comment that the Services Agreement “is a professionally drafted bespoke long-term and relational contract”, and that as such the court could expect the parties to adopt a reasonable approach in accordance with its long-term purpose. He set out the following extract from the judgment of Jackson LJ in Amey Birmingham Highways v Birmingham City Council [2018] EWCA Civ 264 (“ Amey Birmingham”) at [93]:
“I do, however, make this comment. Any relational contract of this character is likely to be of massive length, containing many infelicities and oddities. Both parties should adopt a reasonable approach in accordance with what is obviously the long-term purpose of the contract. They should not be latching onto the infelicities and oddities, in order to disrupt the project and maximise their own gain.”
The judge then considered the Services Agreement in some detail, and the parties' submissions, before reaching his conclusions at [37]–[38] in the light of the principles set out in Network Rail. In the course of his discussion, he noted at [27] that it was not disputed that Quad's business included obtaining and performing engagements to provide the relevant services, and that to obtain them it was necessary to participate in tendering from time to time. He referred to a tender to Cardiff Bus in 2004, and the tender to Swansea University just before the Services Agreement was finalised.
At [28]–[30] the judge also took into account submissions made by Mr Adams that the relevant background included the fact that Quad retained no staff, premises or equipment, but pointed out that it did not follow that the parties must be taken to have intended that Quad would be unable to get the work done by some means. He noted that the agreement envisaged that Quad would or could continue to be involved in some level of activity.
At [35] the judge referred to certain subsequent emails relied on by Mr Butler, for the LLP, on the topic of tenders. He correctly noted that they were inadmissible insofar as they conveyed the subjective understanding of the parties as to the meaning of the Services Agreement, but that some of them were relied on as demonstrating that the cost of tendering was not included in the calculation of the 57% fee split. The judge commented that the fact that the cost of tendering may not have been included did not assist, because tendering was for the benefit of both parties, the cost was likely to be factored into the calculation of the fees, and the process of tendering was an occasional rather than ongoing one.
The Services Agreement
The single recital to the Services Agreement, which clause 1.8 provides should be treated as part of the operative provisions, provides:
“Quad has resolved to appoint the LLP to carry out certain responsibilities for and on behalf of Quad in relation to its business, and the LLP agrees to carry out such responsibilities (the Services, as defined below) in consideration for the payment by Quad of the Administration Fees and any other payments due to Quad pursuant to this Agreement.”
Clause 2.1 provides for the appointment of the LLP in the following terms:
“With effect from the Effective Date, Quad confirms the appointment of the LLP to be (subject to the provisions of clause 2.8 below) solely responsible for the provision to Quad of the services set out in Schedule 7 to this Agreement to the extent that they:- (a) relate to any engagements of Quad by the Clients, or (b) are referred to Quad or the LLP by any of the Introducers during the Extended Period (save where any Introducer receives a bone fide substantive financial reward from the LLP), or (c) relate to the Pipeline Business, together with such other services as the parties may agree from time to time in writing that the LLP is to perform for Quad (the “Services”). Quad confers upon and grants to the LLP such power and authority as is necessary or desirable for providing the Services. The LLP hereby accepts the appointment to provide the Services to Quad, subject to the terms and conditions set out in this Agreement.”
The Effective Date was 6 April 2007, and the Extended Period was the period from 6 April 2007 to 31 March 2008. The definitions of Clients, Introducers and Pipeline Business are a little complex and appear (at least when read with clause 2.1) to include an element of circularity and duplication, but for present purposes the broad effect can be summarised as follows. The LLP was required to provide the services set out in Schedule 7 in respect of:
i) existing clients, being...
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