Dougland Support Services v Allscan Services Ltd.

LORD JUSTICE SCHIEMANN: I will ask Lord Justice Dyson to give the first judgment.

LORD JUSTICE DYSON: This is an appeal by Dougland Support Services Limited ("Dougland") from the decision of His Honour Judge Bursell QC on 16 February 2002, sitting at the Bristol County Court. He allowed the appeal by Allscan Limited ("Allscan") from the decision of District Judge Frenkel made on 13 December 2001, whereby he awarded Allscan damages of £2,510 for wrongful termination of a contract. Dougland had purported to terminate the contract by giving one month's notice in writing on 8 March 2001. The district judge held that the contract was terminable on three months' notice at any time. The judge held that the contract was terminable by at least three months' notice expiring on the anniversary date of the contract, on 19 January 2001.

Allscan had originally supplied the service of collection and disposal of sanitary and clinical waste at Bristol International Airport under a direct contract with Bristol Airport Plc ("BAP"). It was common ground that this contract could be terminated by either party on three months' notice at any time. BAP decided to let the contract for supply of these services to Dougland. On 23 May 1999 they served on Allscan a formal three months' notice terminating the contract with Allscan on 28 August 1999.

On 24 June 1999 Allscan wrote to Dougland offering to supply the services as subcontractor to Dougland. Thereafter there were discussions as to price; for example on 4 August 1999 Allscan offered a monthly rate of £666.66 plus VAT as from 1 September until end of February 2000 when additional arrangements would be required when new terminal buildings came into service. On 5 August Dougland replied by letter accepting the offer of 4 August saying that they looked forward to discussing the new airport's requirements in January 2000. This new contract was not further recorded in writing.

On 26 August 1999 Mr Peter Smith, the managing director of Allscan, wrote to Mr Bailey of Dougland to confirm that the supply of the service would:

In December discussions took place regarding the provision of services for the new terminal building. On 17 December 1999 Allscan sent Dougland a quotation in its standard form for the supply of services at the new building as from 16 December. The document was headed "Healthcare agreement/quotation". It identified the precise services to be provided and proposed a monthly rate of £953.33 plus VAT. It gave 16 December 1999 as "the commencement date". It also contained the following:

On 11 January 2000 Dougland responded saying that the price was above the budget set by BAP "and they clearly wish to see a reduced figure, I am seeking your response to their request".

On 19 January 2000 Mr Smith replied enclosing a revised quotation. This, too, was on Allscan's standard form of agreement/quotation. The revised quotation showed a new commencement date of 19 January 2000 and the revised monthly rate of £872.25 plus VAT. In all other respects it was the same as the previous quotation. The revised quotation contained a termination clause in precisely the same terms as that contained in the earlier quotation. There was no written response to this revised quotation. It is unclear to what extent there was any subsequent oral discussion about it. Certainly the district judge made no findings on this. Thereafter Allscan supplied the extended services described in the revised quotation and was paid in accordance with it.

In the Spring of 2000, and from time to time thereafter, there were discussions as to increases in the number of sanitary and clinical units that were to be serviced at the airport and the sums to be paid. At no time was there any discussion about the termination clause. An example of what was taking place appears in Mr Smith's letter to Mr Oldham of Dougland dated 4 December 2000 in which Mr Smith set out Allscan's proposed charges from April 2001 for both the existing services and certain additional services which were to be provided as from November 2000.

It would appear from the witness statement of Mr Smith that in early March 2001 Mr Oldham told him that Allscan could retain the contract only if they could match a competitive bid that had been received by Dougland from Rentokil Initial. Mr Smith realised this would not be possible and informed Mr Oldham, whereupon Mr Oldham said that Dougland would have to give one month's notice terminating the contract. On 7 March 2001 Mr Smith wrote a letter to Mr Oldham which included the following words:

On 8 March Mr Oldham wrote to Mr Smith giving Allscan one month's notice expiring on 9 April. In his response, dated 13 March, Mr Smith wrote:

There is a further letter dated 13 March 2001, apparently written by Mr Smith to Mr Oldham, to which the district judge did not refer and which was apparently not shown to the circuit judge. Mr Ascroft is unsure whether this document was before the district judge at all. It is, however, relied upon by Mr Kennedy and I should refer to the material parts of it. They are:

Allscan started proceedings against Dougland. By its particulars of claim Allscan alleged that it was a term of the contract that it could be terminated by at least three months' notice prior to the anniversary date on 19 January, and that the one month's notice purportedly given by the letter of 8 March was unlawful. Allscan claimed damages for breach of contract, which it quantified at £11,831 odd. In its defence Dougland alleged that it had expressly been agreed that the agreement could be terminated on one month's notice given at any time. Accordingly, the notice of 8 March was in accordance with the terms of the contract.

The district judge heard evidence from Mr Smith on behalf of Allscan and Mr Bailey on behalf of Dougland. In his judgment he said that he accepted the analysis of counsel for Dougland that there had been "an exchange of contracts" in August 1999. Save as to price, the parties informally agreed at that time to abide by the terms of the contract between Allscan and BAP. As regards the events in December 1999/January 2000, the district judge rejected the evidence of Mr Bailey that there was an oral agreement to accept the terms of Allscan's revised quotation with the substitution of a provision that the contract could be terminated on one month's notice. The district judge said that he was not satisfied that, in sending the quotation on 17 December and the revised quotation on 19 January, "it was the intention of Allscan to amend the other terms save that of quantity and price". By "other terms", he was referring to the other terms of the previous contract between Allscan and BAP.

The reason given by the district judge for reaching this conclusion was that in his letters of 7 and 13 March 2001 Mr Smith had referred to a simple three months' notice, not "at least three months' notice prior to the anniversary date". The district judge said of these two letters (having made no reference to the third letter):

The document at page 120 was the quotation sent on 17 December 1999. He concluded, therefore, that Allscan was entitled to three months' termination given at any time.

The judge made the point at paragraph 17 of his judgment that the district judge rejected the evidence of Mr Bailey that there was any concern in Mr Bailey's mind as to the termination clause contained in Allscan's quotations. He then continued at paragraph 18 and following:

The letters referred to by the judge at pages 136 and 132 were the letters of 8 and 13 March 2001.

On behalf of Dougland, Mr Kennedy submits that the judge was wrong to reverse the findings of the district judge. The district judge had the advantage of hearing the oral evidence of the witnesses who were parties to the negotiations in December 1999 and January 2000. The district judge was entitled to regard Allscan's quotations as merely an offer to vary the price and scope of the work and was right to do so. Allscan's evidence was that the only terms which were the subject of discussion were those relating to the price and scope of the services to be supplied. Mr Kennedy submits that the district judge was entitled to take into account the subsequent letters of Mr Smith as an indication of what he had intended at the time of the negotiations and, having heard the oral evidence and read the witness statements, to conclude that he was not satisfied that it was the intention of Allscan to amend the existing terms save as to quantity and price. He further submits that the district judge made no error of fact and his conclusions were reasonable in the circumstances. Accordingly, the judge was wrong to substitute his own findings for those of the district judge. Mr Kennedy relies on Tanfern Limited v Cameron-MacDonald [2000] 1 WLR 1311.

On behalf of Allscan, Mr Ascroft, in his skeleton argument, contends that the judge reached the correct conclusion and for the right reasons. He points out that the sole reason for the district judge's conclusion as to Allscan's contention only to vary the scope and the price of the work was that Mr Smith wrote the two letters in March 2001. The judge did not substitute his own findings of fact for those made by the district judge. Rather he drew different legal conclusions from the same findings. The district judge made no findings of fact in respect of what passed between the parties before, or at the time of, the submission of Allscan's quotations which required that they should be construed as offers in respect only of price and the scope of the service to be supplied. The judge was, therefore, right to conclude that the quotations were offers as to the basis on which Allscan was willing to provide services in the future and that the quotation of 19 January 2000 was accepted by conduct.

I see no answer to the submissions made on behalf of Allscan by Mr Ascroft in his skeleton argument. I shall refer only to the revised quotation sent on 19 January since it superseded the earlier quotation.

On its face, the quotation was not merely an offer to vary the existing terms as to price and supply. The document was headed "healthcare agreement/quotation". It purported to set out all the terms of the contract that would apply from its commencement date of 19 January 2000. It made clear that if the prices were to change pursuant to an annual review "the same terms and conditions of contract as agreed to on this original document would apply." In other words, the quotation was an offer to supply the specified services at the specified time from the specified commencement date on the terms and conditions stated in the document. These terms included the new termination clause. It is impossible to construe the quotation as not including the termination clause. If the district judge was relying on the March letters as a basis for construing the quotation, he was plainly wrong to do so. It is trite law that "it is not legitimate to use as an aid in the construction of the contract anything the parties said or did after it was made" (per Lord Reid in Whitworth Street Estates v Miller [1970] AC 583 at 603E).

On the other hand, I would accept that it is legitimate to have regard to what is said and/or done after a contract has been made in order to determine whether the parties have in fact agreed to vary its terms. On the same page of the report of Lord Reid's speech to which I have referred, appear these words:

An obvious example of a case where it would be legitimate to have regard to what the parties said is where there is a dispute as to whether there has been a variation of a contract. If, for example, A says that there was an oral agreement to vary his contract with B, and B denies that any such oral agreement was made, the evidence that B later admitted that the agreement had been made is plainly relevant and admissible to prove the variation. The position is quite different where there is no dispute as to what was done or said at the time of the making of the contract or variation of contract. That is this case. In particular, it is not permissible for the purpose of determining whether a contract or variation was made, for one party to adduce evidence as to what he intended by his acts and words, or what he understood his words and acts to mean.

In the present case there is no dispute that (a) there were no discussions in December 1999 or January 2000 about the termination clause or any contractual provisions except those relating to the scope and the supply of price; and (b) neither Mr Smith or Mr Bailey communicated to the other his intention in relation to the termination clause at the time. The issue for the district judge was whether in these circumstances the termination clause contained in the quotation was accepted by Dougland's conduct.

It seems to me that the district judge never addressed that question. He reached the conclusion that it was the intention of Allscan not to amend the existing termination clause solely on the basis of the March 2001 letters. There is nothing in his judgment to indicate that he relied on the oral evidence to reach his conclusion. Mr Kennedy suggests that there are certain passages in the witness statement of Mr Smith which could have supported a finding that it was the intention of Allscan not to amend the existing termination clause. But in my judgment there is nothing in the witness statement of Mr Smith as to what was said and done in December 1999 and January 2000 which supports a conclusion that he did not intend to amend the existing three months' termination clause.

In my judgment, therefore, the passages in Tanfern which are relied upon as justifying the conclusion that the judge should not have interfered with the findings of the district judge have no application here, because the district judge did not make any appropriate findings. For the reasons I have given, I consider that the district judge reached the wrong conclusion. The evidence as to the intention of Mr Smith, not even communicated to Mr Bailey until about 15 months after variation was made, was not a proper basis for reaching a conclusion as to the extent to which the quotation was accepted. It follows that, in my view, the judge was right to consider whether the termination clause contained in the quotation was accepted by Dougland's conduct and to do so on the basis of the material before him. Whether there has been an acceptance by conduct must be judged objectively. The question is whether it is clear that, by accepting supplies after January 2000 and paying for them, Dougland was accepting all the terms of the quotation including the termination clause. In my judgment the answer to this question must be "yes". As I have already said, the quotation was plainly an offer which set out all the terms on which Allscan was willing to do business with Dougland and the stated commencement date. These included an offer to supply on the basis that the contract could be terminated by at least three months' notice expiring on the anniversary date and not, as hitherto, on three months' notice given at any time.

The only sensible inference that can be drawn from the fact that Dougland performed the contract after receipt of the quotation is that it accepted its terms. It was certainly not possible to infer from the letters sent in March 2001 that Dougland did not accept the termination clause by its conduct. The letters were not even written by Dougland. But even if they had been written by Dougland, they would not have shed any light on whether the termination clause had been accepted by Dougland's conduct in the period after receipt of the quotation in January 2000. In my judgment, the judge reached the correct conclusion. I would dismiss this appeal.

LORD JUSTICE MUMMERY: I agree.

LORD JUSTICE SCHIEMANN: I also agree.