DAR International FEF Co v AON Ltd

J U D G M E N T

1. LORD JUSTICE MANCE: This appeal centres around essentially one short point of construction. By a judgment handed down formally on 23rd July 2003 which led to an order dated 16th September 2003, HHJ Knight QC, sitting as a Mercantile judge in the Central London Justice Centre, held that there was a binding agreement purportedly made between the claimant, DAR International F.E.F. Co, the defendant, Aon Limited, and a third party, Mr FN Sfeir, who at the time described himself as FNS Consultant, or FNS.

2. The judge held that that agreement was purportedly made upon terms memorialised in a letter dated 13th November 1998 from Aon, at the foot of which letter space appears for signature by all three contemplated parties. We have various copies of that letter including copies signed on behalf of Mr Sfeir and Aon. There may or may not have been a copy actually signed by Mr Said, the principal of DAR.

3. There is now no appeal against the judge's general conclusion that there was a purportedly binding agreement, although there is still technically before us an issue whether it is open to DAR to contend that it was a party to and can enforce the agreement, not because of any want of signature on the part of DAR but for reasons related to a suggested absence of consideration. It is fair to say that Mr Merriman QC, representing Aon, did not address any formal submissions to that issue and acknowledged that it was not his strongest point.

4. The letter dated 13th November 1998 read as follows:

"Dear Sirs,

Saudi Arabian Airlines

With reference to the above and our various discussions, we are pleased to confirm the following as a basis of allocation of remuneration.

All earnings generated by Aon in respect of the SAUDI ARABIAN AIRLINES account are to be considered as "revenue".

The "revenue" will be apportioned as follows:

Aon Aviation 40%

FNS Consultant/DAR 60%

Aon Aviation will provide FNS Consultant/DAR with all and any supporting documentation that may be required.

If the revenue received by AON Aviation if the revenue [sic] is less than US$400,000 it is agreed that the above named parties will sit down and discuss in good faith how this situation can be rectified to the satisfaction of all parties.

Payments to FNS Consultant/DAR will be made in accordance with the above pro rata basis, immediately upon receipt of "revenue" by Aon and into a designated Bank Account to be agreed.

Any chances [sic] to this agreement can only be made with the express agreement of all of the following:

AON AVIATION

FNS CONSULTANT

DAR INTERNATIONAL

This agreement is applicable from inception of the first policy and throughout its duration and extends to cover all and any coverage placed by Aon in respect of SAUDI ARABIAN AIRLINES.

Yours faithfully

Jonathan Palmer Brown,

Chairman,

Aviation Division,

AON Group Limited.

F N Sfeir

FNS Consultant

Mohammed Ameer Said

DAR International"

5. The background to this letter is that, in one way or another, Aon was introduced to the Saudi Arabian Airlines insurance account by Messrs Said and/or Sfeir. Renewal of the Saudi Arabian Airlines account, at least the aviation account, was due in mid-November 1998, so this letter was written to "confirm" the "basis of allocation of remuneration" as its first sentence states.

6. I can dispose, in these circumstances, of the issue of consideration at the outset. DAR's pleaded consideration was "doing its utmost to assist in the easy transfer of the business", in other words, obtaining the Saudi Arabian Airlines insurance account for Aon. The judge found, at the end of paragraph 29 in his judgment:

"Mr Head's [that is, counsel for Aon below] consideration argument seems to me must fail. The 13th November agreement followed up the discussions on 12th/13th October, pursuant to which AON sought the co-operation of DAR, which was provided. In my view this supplied adequate consideration."

7. Aon submits in its written submissions that this was wrong:

"The fact that the agreement followed earlier discussions does not mean that anything said at that earlier meeting was promised or provided in return for Aon's promise."

8. I disagree. No-one can have thought that DAR was going to work for nothing. DAR was to introduce or assist in the transfer of the Saudi Arabian Airline's business to Aon, something which Aon clearly wished and sought, and DAR, as the judge found, did this. DAR would have been entitled to remuneration on a quantum merit basis if there had been no specific agreement on a brokerage split. The agreement of 13th November 1998 crystallised the actual remuneration. The case falls within the principle in Chitty on Contracts 29th Edition, volume 1, General Principles, paragraph 3-029, whereby:

"Even an act done before the promise was made can be consideration for the promise if three conditions are satisfied. First, the act must have been done at the request of the promisor; secondly, it must have been understood that payment would be made; and thirdly, the payment, if it had been promised in advance, must have been legally recoverable."

9. Mr Merriman QC was right in these circumstances not to urge his appeal upon this point.

10. We heard considerable submissions as to what precisely it is that the judge has determined by his judgment and order. Following handing down of his judgment, counsel made oral and then, on 30th July 2003, written submissions which led the judge on 27th August 2003 to write a letter enclosing a draft order. This it seems was the basis of the ultimate order of 16th September 2003 which read in paragraphs 1 and 2:

"1. On the basis that:

a. there was an agreement between the Claimant and the Defendant by which the Defendant would pay to the Claimant and to FNS 60% of all revenues of whatever nature earned by or on behalf of the Defendant on any business for Saudi Arabian Airlines for the years 1998-99 and 1999-2000 and

b. there was an agreement between the Claimant and FNS by which they would share in the aforesaid 60% of revenues in the proportions 75% to the Claimant and 25% to FNS

the Defendant is to pay to the Claimant 75% of 60% of all such revenues found to be due to the Claimant under the said agreement, alternatively damages to be assessed.

"2. An account be taken of the applicable revenues due to the Claim [sic] pursuant to the aforesaid contract and the Defendant provide to the Claimant within 28 days of the date of this Order all supporting documentation, supported by affidavit, in relation to all such applicable revenues. The parties shall agree any necessary and appropriate directions for any further hearing (reserved to His Honour Judge Knight QC) and shall submit the same for approval."

11. So the judge decided (1) that there was a binding agreement; (2) that it covered "all revenues of whatever nature earned by or on behalf of the Defendant on any business for Saudi Arabian Airlines" for the two years specified -- the issue here was whether the agreement and the brokerage share split contained in it were confined to Saudi Arabian Airlines aviation business; (3) that there was agreement between DAR and Aon that Aon would pay DAR/FNS 60 per cent of all such revenues; (4) that there was agreement between DAR and FNS to share in that 60 per cent in the proportions 75 to 25 per cent; (5) that Aon should pay DAR 75 of 60 per cent of all such revenues found to be due, alternatively damages.

12. After discussions before us, the following points are common ground: (i) that the judge did not determine whether all or any brokerage received by Al Salamah Agencies ("ASA" -- an associated company of Aon in Jeddah, Saudi Arabia) on Saudi Arabian Airlines non-aviation business counted as revenue for the purpose of the agreement.

13. This point remains open for argument before the judge. DAR contends that all such brokerage received by ASA should count, alternatively that two-thirds of it was passed on as brokerage to Aon and should count. Aon admits, in the light of the judge's holding regarding the scope of the concept of revenue, that if Aon received monies from ASA that can properly be characterised as non-aviation brokerage, then that falls to be taken into account as revenue under the agreement, but Aon denies that it ever received any such monies. Any monies it received were, it submits as I understand it, simply received on behalf of Mr Boyce and Mr Sfeir as independent consultants or possibly brokers.

14. (ii) that the judge did not determine the significance or effect or the operation of the $400,000 figure referred to in the agreement. On Aon's case the effect of the clause referring to this figure is threefold: (A) Its satisfaction is a contractual condition to any liability to pay DAR/FNS any brokerage share. In other words, unless the revenue reaches $400,000 there is no such liability. (B) The $400,000 is an annual figure. (C) It refers to Aon's net remaining brokerage after payment away of the 60 per cent due to DAR/FNS.

15. DAR submits the opposite on each point: (A) On DAR's case the relevant clause has effect only as a gentleman's agreement to discuss if the $400,000 figure is not met, leaving the legal obligation to pay DAR/FNS their brokerage share quite unaffected if such discussion leads to no other solution. (B) The $400,000 figure is a one-off threshold. (C) The figure refers to gross brokerage. These issues therefore remain for further hearing before the judge.

16. I should add that Mr Merriman also floated before us, for the first time in the history of this convoluted case, the suggestion that Mr Said should have sued Mr Sfeir, not Aon. No doubt Mr Said should have done this if he does not have a claim against Aon for breach of contract, but if he does have such a claim the point's apparent lack of attraction is underlined by the indemnity which was in fact taken, as will appear, by Aon from Mr Sfeir when making payments to Mr Sfeir, and by Aon's resulting ability to join Mr Sfeir if they had wanted to. However, the suggestion is not before us formally and I say no more than about it.

17. I turn to the issue that is before us. It relates to the clause regarding payment into a designated bank account to be agreed. No such bank account was ever agreed or designated to receive the brokerage share due to DAR/FNS from Aon, if any. Mr Said, in mid-1999, sought to establish such an account at Coutts but Mr Sfeir apparently never completed the documentation.

18. In circumstances into which I need not go in great detail Aon has, it appears, paid monies on account of the 60 per cent brokerage due to DAR/FNS to Mr Sfeir alone, both in and after 1999. In January 2000 Aon agreed with Mr Sfeir that he would reimburse Aon if Aon incurred liability to Mr Said or his company DAR as a result of such payments. Mr Sfeir and Mr Said had evidently by then fallen out and Mr Sfeir was keen to eliminate Mr Said from the picture and was adopting the line that there had never been any agreement with Mr Said. Aon was apparently ready to proceed on that footing, subject to the indemnity.

19. DAR's case is that it was not open to Aon to make such payments to Mr Sfeir alone without any prior notice to and without any consent from Mr Said or DAR. The judge accepted that case. His order, as I have recited, held Aon liable accordingly to make to DAR payments equal to 75 per cent of 60 per cent of all revenues found to be due to the claimant. That is an odd and circular formulation itself which cannot literally be accurate and was presumably intended to refer to all revenues found to have been received by the defendant rather than to be due to the claimant.

20. Alternatively, the judge held Aon liable in damages to be assessed. It seems to me that an order of this nature, which is intended to resolve finally certain issues, at least preliminary issues, between the parties, cannot be formulated properly in the alternative and must adopt one basis or another. Mr Drake, representing DAR, now accepts that the primary basis adopted in the order cannot be sustained and that the order should on any basis be amended to provide, at the least in his submission, for damages to be assessed.

21. However, that is not the only problem that I detect about this order. There are others not focused on until a late stage in the submissions before us. The judge in paragraph 2 of his order clearly intended that the quantum of the applicable revenues received by Aon should be a matter of assessment so as to enable the court to know precisely what was due to DAR, and we have seen comparative schedules showing the parties' respective positions relating to the commission actually received by DAR and accounted for to Mr Sfeir as well as Mr Boyce, a consultant to whom I have already referred. It is apparent that there are issues in that regard. According to Aon's quantum schedule (which one must assume may prove to be correct, although I fully appreciate that Mr Drake on behalf of DAR takes issue with its correctness), Mr Sfeir has only been paid 55 per cent of the Aon aviation brokerage for the year 1998 to 1999, and 38 per cent of the Aon aviation for the year 1999 to 2000. Yet the order purports to hold Aon liable to pay 75 per cent of 60 per cent of the whole of the brokerage received by Aon, or, alternatively, damages.

22. Further, and more fundamentally, it is, as I have indicated, open for further argument whether the $400,000 figure is a contractual precondition to any liability on Aon's part, and is an annual figure and refers to net brokerage after deduction of any payment of the 60 per cent share, that being in each case Aon's case. If it is a contractual precondition and an annual figure, and refers to Aon's 40 per cent brokerage after payment away of DAR/FNS's share, then on the figures in Aon's quantum schedule the $400,000 threshold was not reached in either of the relevant years. On this presently hypothetical basis it is difficult to see how Aon could be liable in damages in paying FNS sums which it was not liable to pay DAR/FNS. The payments made to Mr Sfeir would, on the face of it, on this basis, appear to have been voluntary. It could hardly be a breach of contract to have made them.

23. So it seems to me that the order will in any event need further variation to eliminate the implicit finding in it of a breach of contract by the defendant Aon, and to arrive at some appropriate declaratory formula which keeps open all the issues still outstanding. It seems to me that counsel will need to agree a corresponding formulation or make further submissions, preferably in writing, if necessary by another short oral hearing.

24. This brings me at last to the issue of construction. Mr Merriman submits that, absent any designation by DAR and FNS of an agreed bank account, it was still Aon's duty to make payment and indeed to make it immediately, which he says is what Aon did by paying FNS or Mr Sfeir. There was much argument below and in the skeletons about whether the agreement should be regarded as having been made with DAR and FNS jointly, or jointly and severally. The fact that there are three parties to the agreement raises this point. It does not solve it. The test of a joint obligation is stated in Chitty, in paragraph 17-005:

"Creation of joint liability. The presumption is that a promise made by two or more persons is joint so that express words are necessary to make it joint and several."

25. Here we are in fact concerned with whether rights, not obligations, are joint. In other words, we are concerned with DAR/FNS's rights to a share of commission as provided in various clauses in this agreement, but I am content to assume for present purposes that a similar approach applies without having heard argument on it. The promises certainly look like promises to DAR/FNS jointly.

26. However, in other respects the agreement may require a more complex analysis. Take the clause: "Any changes to this agreement can only be made with the express agreement of all of the following ..." followed by the list of the names of the three parties. That must mean, one would think, that each party must agree to any change as between any of the parties. But be that as it may, Mr Merriman submits that in common law, the requirement to pay DAR/FNS jointly can be satisfied by paying either. He refers us to Chitty paragraph 21-049 which reads:

"Payment to joint creditors, partners, trustees, etc. The payment of a debt to one of a number of joint creditors discharges a debt owed to them jointly."

27. Mr Drake does not, as I understand it, take issue with that basic proposition. Mr Merriman was inclined to accept that, if there had been a designated bank account, then the requirement would have been to pay into it. That at least is how I understand it. The logic of that would seem to be that if payment was not so made, there would be a breach of contract. It may be that Mr Merriman would then have submitted that the only complainant could be FNS/DAR jointly.

28. However that may be, Mr Merriman certainly submits that, absent any designation by DAR and FNS of a bank account, it was open to Aon to pay either FNS or DAR, or both, as at common law in the simple case of joint creditors. Neither side was able to put before us any admissible surrounding circumstances against the background of which to construe this agreement. The relevant clause was clearly aimed at regulating the way in which payment should be made, not just its timing. The phrase "a designated bank account to be agreed" was on the face of it to ensure that there could be no doubt about where and to what place the joint venturers' share was to go. They were to agree and to designate a bank account for the purposes of receiving payments. On the face of it such a provision was important for everyone concerned; for Aon, who would know that it had to meet the obligation to FNS/DAR, and also to FNS and DAR, who would know as between themselves that the commission which they had obviously agreed to split between themselves in some proportion, even if Aon did not know what, would be safely received in the designated and agreed bank account for the protection of each of them.

29. The next clause underlines the importance of the terms of the agreement for each party insofar as it provides that any changes could only be made with the express agreement of all. In these circumstances I consider that the judge was right to say at paragraph 29 that this tri-lateral contract "included an implied negative obligation on Aon not to pay commissions other than into a designated bank account". The application in circumstances such as the present of the common law rule that payment to either joint creditor satisfies the obligor's obligation might be thought, even without more, to have a certain unexpected aspect. Not surprisingly, it seems to me, the parties here regulated the matter of payment and excluded the common law rule, or modified it, by requiring payment to be to a bank account which the joint venturers agreed between themselves and which they designated to Aon for the purpose.

30. That was, as I have said, for the benefit of each and every one of the three parties to the agreement and it seems to me that it is the necessary corollary of it that Aon owed a duty to DAR and to FNS, individually or severally, not to make payments otherwise. That was the duty that the judge held, albeit alternatively, that Aon broke.

31. If it is necessary to look for authority supportive of this conclusion, the analysis seems to me entirely consistent with that arrived at by Bingham J, as he was, in Catlin v Cyprus Finance Corporation (London) Ltd [1983] 1 QB 759. He was concerned with a joint deposit account opened on terms that no payment should be made out except on joint signatures: see page 768D. He said at page 771B to E:

"It was pointed out on behalf of these defendants that the mandate was a single document, signed by each joint account holder and containing no hint of anything other than a joint obligation save where a joint and several responsibility for any overdraft was expressly provided for. But it is still necessary to consider whether a single obligation owed jointly exhausts what may be taken to be the undoubted contractual intention of the parties so far as the duty of the bank is concerned.

"The defendants agreed to honour instructions signed by both account holders. This no doubt imported a negative duty not to honour instructions not signed by both account holders. This duty also could, in theory, have been owed jointly, but it must (to make sense) have been owed to the account holders severally, because the only purpose of requiring two signatures was to obviate the possibility of independent action by one account holder to the detriment of the other. A duty on the defendants which could only be enforced jointly with the party against the possibility of whose misconduct a safeguard was sought, and where the occurrence of such misconduct through the negligent breach of mandate by the defendants would deprive the innocent party of any remedy, would in practical terms be worthless. Indeed, it would be worse than worthless, because a customer would reasonably rely on the two signature safeguard and refrain from active supervision of the account, only to find when loss (allegedly irreparable) has resulted that the reliance was misplaced."

32. By parallel reasoning it seems to me that similar thoughts govern the present case. In that case there was a positive duty to honour joint instructions only, coupled with a negative duty not to honour instructions not signed by both account holders. In the present case there was a positive duty to honour joint instructions only, in the sense of paying only to a jointly agreed and designated bank account, combined with a negative duty owed to each joint venturer, in my view, not to honour instructions and not make payments not involving a jointly agreed and designated bank account.

33. As to Mr Merriman's submission that Aon was relieved of any such duty if there was no designated bank account agreed and notified, it seems to me that what Aon was in those circumstances relieved of was any duty to pay at all. Disagreement between the parties, or failure to agree a designated bank account, represented exactly the sort of circumstances which all parties must be taken to have had in mind in specifying that payment should be made to a jointly agreed and designated bank account, not just to one of them. There was no plea of any variation or waiver or termination of the provision requiring an account to be agreed and designated and requiring payment to be made into it. The obvious course for Aon to take was to withhold payment, which might well have brought Mr Sfeir rapidly into line, but would certainly have prevented Mr Sfeir receiving the whole or the bulk of any commissions payable.

34. As it is, however, Aon chose to go along with Mr Sfeir in running a case to the effect that there was never any concluded brokerage agreement involving Mr Said at all, a case which the judge rejected on terms which were critical of the quality of both Aon's and Mr Sfeir's evidence.

35. Assuming that the monies paid to Mr Sfeir were due in terms of the agreement as all or part of the brokerage share of FNS/DAR, then DAR has in my judgment a valid claim for damages, even though no designated account was ever opened. It was a breach in such circumstances to pay and, but for the breach, as I have said, one can readily surmise that Mr Sfeir and Mr Said would have come to some agreement, and in Mr Sfeir's case been forced, however reluctantly, to come to some agreement, about a joint bank account or jointly agreed method of payment, which would have meant that Aon did not hang on to their brokerage share indefinitely. Failing agreement on a joint bank account, it may well be that the court would either have been able to order payment by Aon into court, or in accordance with the shares agreed between FNS and DAR.

36. For these reasons I would therefore dismiss this appeal on the substantive issue, but allow it to the effect necessary to rephrase the judge's order in terms of a purely declaratory nature: (a) to reflect the fact that the true claim now lies, if at all, in damages and (b) to match the split between issues which I have described and to reflect the fact that there are issues remaining to be decided which have not been resolved by the judge and which will have to be remitted.

37. MR JUSTICE JACKSON: I agree with the judgment of Mance LJ, both in relation to the substantive issue in this appeal and also in relation to the necessary reformulation of the judge's order.

38. LORD JUSTICE WARD: I also agree.

Order: appeal dismissed, but judge's order to be reformulated.