Cluttons LLP v Regis Group Ltd

This is the appeal of Regis Group Ltd, brought with the permission of Sir Mark Waller, from the order of Mr Recorder Bowdery QC, made in the Central London County Court on 23 November 2011. He gave judgment in favour of the claimant, Cluttons LLP, for £114,664, being the sum due under a guarantee given by Regis in an agreement made on 5 July 2002. The issue is whether LLP (as I shall refer to the claimant) is entitled to the benefit of that guarantee.

The facts, in summary, are as follows. In April 1995, Trinity House (the well-known city corporation) appointed another firm of surveyors, Daniel Smith, to manage its portfolio properties, some of which were situated in east London. In 1997, Daniel Smith merged with Cluttons, another firm of surveyors, then an unincorporated partnership (to which I shall refer as the Firm). It is not disputed that the agreement made between Trinity House and Daniel Smith in 1995 was suitably novated so that both the obligations and the rights in relation to Trinity House thereunder were transmitted from Daniel Smith to the Firm.

On 5 July 2002, an agreement was concluded between the Firm of the first part, Equity Asset Management Ltd of the second part and its holding company, Regis Group PLC (to which I have already referred to as Regis) of the third part. Under that agreement, Equity acquired from the Firm its business, including the right to manage certain property portfolios, including the portfolio of Trinity House.

The relevant provisions of that agreement are contained in Clause 10 and 18 in the following terms (and I substitute the names of the parties as I have abbreviated them for the term given in the agreement itself. Clause 10 is in these terms:

"10.1

Insofar as the benefit (subject to the burden) of any of the Management Contracts cannot be transferred by [the Firm] to [Equity] except by way of an agreement or novation or with the consent to the assignment from a third party:- ....

10.1.1

[the Firm] and [Equity] shall use all reasonable endeavours to procure such Management Contracts are novated or assigned as aforesaid as soon as is reasonable practicable but at [the Firm's] discretion,"

It is common ground that that was never done. The Clause continues:

"10.1.2

unless and until any such Management Contract shall be novated or assigned as aforesaid [the Firm] shall hold the benefit of such Management Contract upon trust for Equity absolutely...

10.1.3

[Equity] shall for its own benefit and to the extent that the Management Contracts permit perform on behalf of [the Firm] (but at [Equity's] expense all the obligations of [the Firm] arising after [05.07.2002] and indemnify [the Firm] against all costs, proceedings, claims, demands and expenses which may be incurred by [the Firm] as a result of any neglect, default or omission on the part of [Equity] to perform or comply with any such obligations of [the Firm]..."

Clause 18.1 provided that (and I quote again with the substitutions I have mentioned before):

"[Regis] guarantees to [the Firm] the due performance by [Equity] (notwithstanding any legal limitation on or incapacity of or other circumstances relating to [Equity]) of all the obligations on the part of [Equity] under this Agreement and [Regis] covenants with [the Firm] that if and whenever [Equity] shall make any default in any such obligation it will indemnify [the Firm] against all such losses, damages, costs and expenses which may be incurred by [the Firm] by reason of such default."

That is the indemnity upon which LLP sued in the action in which this appeal is now brought. Of course, when given, it was given to the Firm and not to LLP.

On 31 March 2005, there was executed a Business Transfer Agreement made between the Firm of the one part and the claimant in the action, Cluttons LLP (to which I shall refer to as LLP), of the other part. Under that agreement LLP acquired the business of the Firm with immediate effect. That agreement contained a number of material terms. Clause 1 contained definitions. "The Business" was defined as meaning the business of chartered surveyors and estate agents carried on by the Firm under the business name of Cluttons. "Client Contracts" was defined to mean all contracts, agreements and orders for the supply of services made or placed with the Firm in connection with the business and not completed as at the effective date. There is then a definition of "Liabilities" as meaning "the amounts due to the Creditors and all other liabilities and obligations, whether accrued, deferred or contingent, of the Transferors relating to the Business, including, without limitation, any unperformed obligations of the Transferors under the Transferred Contracts and any liability for acts of negligence committed by the Transferors or any of them prior to the Effective Date", and I need not read the rest of that definition.

Clause 2 was headed "Transfer" and provides as follows, as far as relevant:

"2.1

The Transferors [that is the Firm] shall sell with all Encumbrances attaching thereto and the Transferee [that is LLP] shall buy with effect from the Effective Date as a going concern the Business comprising all of the following assets:

...

2.1.5

the full benefit (subject to the burden) of the Client Contracts;

...

2.1.9

the full benefit (so far as the same can lawfully be assigned or transferred to or held in trust for the Transferee) of all rights and claims of the Transferors under any warranties, conditions guarantees or indemnities express or implied in favour of the Transferors in relation to any property rights or assets included in the transfer made pursuant to this Agreement."

Clause 3 provides that:

"The consideration for the transfer of the Business shall be:

3.1

the assumption by [LLP] of the Liabilities and the obligations of [the Firm] under any Transferred Contracts..."

Clause 6 dealt with client contracts. It provided in Clause 6.1 that the LLP shall assume responsibility as from the Effective Date of the due performance of the Client Contracts. Clause 6.2 provided that:

"Pending the receipt of any required novation, consent or other agreement, [the Firm] shall hold the benefit of the Client Contracts on trust for [LLP] and [LLP] shall as from the Effective Date perform at [LLP's] expense the outstanding obligations of [the Firm] under the Client Contracts."

In Clause 8.1 it was provided that:

"[LLP] will discharge promptly and in full all the Liabilities and will indemnify [the Firm] in full against any loss or damage or any liability (which liability shall include all losses or costs, claims, expenses and damages including legal and other professional fees and expenses) which the Transferors may suffer or incur directly or indirectly as a result of a breach by the Transferee of this clause save where any such cause of action is attributable to an act or omission of [the Firm] for which [the Firm] have valid insurance."

And Clause 8.2 provided that:

"The Firm] will at the request of [LLP] take all such steps as [LLP] should require to enforce any claim against any third party concerned in respect of a breach or default by such third party in relation to any aspect of the Business or to any of the Transferred Contracts."

The assumption by LLP of the liabilities of the Firm, therefore, took place on 1 April 2005. On 2 July 2007, Trinity House made a claim against the Firm in relation to the management of its properties by Equity. That claim was settled on 17 June 2010 by the payment of £70,000 by LLP direct to Trinity House. That, of course, is to be regarded as a payment by LLP to the Firm and a payment by the Firm to Trinity House in satisfaction of its liability. Then, on 8 October 2010, the Firm issued the Part 7 claim in these proceedings against Regis, seeking recovery of £126,660 by way of indemnity against its liability to Trinity House of the Firm but settled by LLP. Finally, on 18 November 2011, notice of the assignment of the benefit of the Regis indemnity under Clause 18 of the 2002 agreement was given to Regis.

The claim came before the Recorder on 25 November 2011. He gave judgment in favour of LLP for the sum I have already mentioned. So far as relevant, he reached a number of conclusions. First, he concluded that LLP was entitled to sue under Clause 18 of the 2002 agreement as an equitable assignee of its benefit. Second, Clause 10.1.3 of the 2002 agreement obliged Equity to indemnify the Firm against claims by clients (that is to say Trinity) for the defaults of Equity in its vicarious performance of the management agreements. Third, he concluded that Clause 18 of the Business Transfer Agreement obliged Regis to indemnify the Firm against any defaults of Equity to indemnify the Firm under Clause 10.1.3 of the 2002 agreement. Fourthly, and finally, that LLP was obliged to indemnify the Firm against the claims made by Trinity under Clauses 3 and 8 of the Business Transfer Agreement. Accordingly as LLP was entitled to sue under the guarantee, it was entitled to recover the sums that it had paid to Trinity.

On this appeal, the case for Regis is put quite simply in these terms: the burden of, and the liability under, the management agreement made between Trinity House and originally Daniel Smith, but later novated to become a liability of the Firm, remained with the Firm at all times and did not pass as a liability to LLP. That is common ground. It is then submitted that LLP was not liable to Trinity, Regis was not liable to LLP and Regis guaranteed the liabilities of the Firm not of LLP. Accordingly, as the liability of the Firm was paid by LLP and Regis was not liable to LLP, the latter cannot recover the amount it paid from the former.

The case for LLP, as expressed in counsel's written submissions, is that the Trinity House management agreement was a client contract for which LLP assumed responsibility under Clause 2.1.9 of the Business Transfer Agreement. Accordingly LLP was obliged to indemnify the Firm against its liability to Trinity House. At the same time, the benefit of the Regis guarantee was assigned to LLP under the same clause and, accordingly, LLP was, and is, entitled to sue Regis under, firstly, its guarantee of the obligations of Equity to perform the obligations of the Firm under the Trinity House agreement and, secondly, by way of subrogation to the rights of the Firm to an indemnity from Regis.

I can express my conclusions shortly. I accept the submission of counsel for Regis that the Firm, and the Firm alone, was liable to Trinity House; but that, with respect, is not the point because Regis guaranteed the due performance of the obligations of Equity vicariously to perform those of the Firm to Trinity House. Consequently, Regis is ultimately liable for any shortfall in performance by Equity but only to one entitled to sue. LLP was assigned the benefit of the Regis guarantee by the operation of Clauses 2.1.5 and 2.1.9 of the Business Transfer Agreement. As such assignee, it was, and is, entitled to enforce the Regis guarantee for the purpose of recovering what it paid to settle the claim of Trinity House against the Firm; that is not because that was the loss of LLP but because LLP had satisfied the loss of the Firm. It is that loss which Regis is obliged to pay. That is an end of the matter.

The same result is achieved by recognising that LLP was a guarantor to the Firm of the due performance of the client contracts by, as it happened, Equity. As such guarantor, it was called on to pay, and did pay, £70,000 to Trinity House. Accordingly, it was subrogated to the rights of the Firm against Equity and any guarantor of the obligations of Equity. Regis was such a guarantor and on this ground too LLP was, and is, entitled to sue Regis under Clause 18 of the 2002 agreement.

For those reasons, I would dismiss this appeal.

LORD JUSTICE PATTEN:

I agree.

LORD JUSTICE MCFARLANE:

I also agree.