Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd

The Respondent/Defendant operates a conference centre and exhibition venue in the centre of Manchester formerly known, until 2007, as the “G-Mex” and the Manchester Convention Centre. The ultimate beneficial owner of the Defendant is Manchester City Council. The conference venue is the largest facility of its type in the north-west of England.

The Appellant/Claimant is as its name suggests a professional catering company involved in the provision of catering services.

By a detailed but undated written agreement concluded in April 2007 the Respondent appointed the Appellant the exclusive supplier of catering services at these two venues for a five year period beginning on 1 April 2007. The services to be provided were defined within the agreement as:-

“Catering Services and includes the whole of the service to be performed, including without limitation any employees, equipment, goods or materials to be supplied by the Contractor in accordance with the Service Level Agreement and the other Contract Documents and involves any modification thereto made pursuant to these Conditions and the Contract Documents”.

The structure of the arrangement was that the Respondent permitted the Appellant to cater for events at the venues and thereby to earn revenue from third party event organisers and those attending the events, the Appellant paying the Respondent a share of its turnover (21% of retail sales paid for at point of sale by attendees and 23% of hospitality sales paid for by organisers or in advance), subject to a minimum guaranteed annual figure. Various clauses in the Agreement provided that it was for the Appellant to acquire and pay for staff, food, equipment and utilities. However, the Appellant was entitled pursuant to the Agreement to use equipment belonging to the Respondent which was on site, and listed in an Equipment Inventory, and in particular was entitled, indeed bound, to use the on-site facilities such as kitchens and the normal ancillary facilities associated therewith.

Clause 7.5 of the Agreement obliged the Appellant, therein called the Contractor, to invest an initial £50,000 in the provision of the services and to use such investment to purchase further equipment for use exclusively in the provision of those services. By the same clause the Contractor was also obliged to invest a further sum of £300,000 in the same way, although this latter “Write Down Investment” was to be written down on a straight line basis by the Contractor over ten years and, in the event that the Respondent, therein called the Company, did not offer the Contractor an extension of the Agreement after the term of five years, the amount not written down was recoverable by the Contractor from the Company.

The Agreement was performed for over three years but unhappily dispute thereafter arose. On 1 July 2010 the Respondent wrote to the Appellant purporting to terminate the Agreement either contractually, on one month’s notice, pursuant to certain entitlements afforded it by the contract or, and with immediate effect, at common law. The Appellant in turn wrote to the Respondent on 8 July 2010 purporting to treat the Respondent’s actions as a repudiatory breach of the contract and to accept the same as terminating the Agreement.

The Appellant has a claim against the Respondent which includes a claim for £1.3 million “damages for substantial financial losses in respect of lost profits” that would have been earned during the remaining 20 months of the five year term of the Agreement. The Respondent denies having repudiated the Agreement and has brought a substantial counterclaim.

The Respondent also alleges that its liability in respect of the claim for lost profits is precluded by Clause 18.6 of the Agreement which provides, inter alia:-

“The Contractor hereby acknowledges and agrees that the Company shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits . . .”

The Appellant denies that Clause 18.6 formed part of the Agreement since on its account the parties agreed to delete this clause during the pre-contractual drafting negotiations. However the Appellant also denies that on its true construction the clause is apt to exclude the Respondent’s liability as alleged. If necessary the Appellant seeks rectification of the Agreement.

Master Eyre directed the trial of the following preliminary issue:-

“On the proper construction of Clause 18.6 of the Agreement, (and ignoring any allegation of rectification) is any or all liability for the Claimant’s loss of profits (claimed and particularised in paragraph 10 of the Particulars of Claim) excluded.”

In the absence of any agreed or assumed facts, the trial of that preliminary issue requires the assumption that on 1 July 2010 the Respondent repudiated the Agreement and that on 8 July the Appellant accepted that repudiation as terminating the contract.

On 19 April 2012 His Honour Judge Seymour QC, sitting as a Deputy Judge of the Queen’s Bench Division, tried the issue and determined that Clause 18.6 is apt to exclude the Respondent’s liability for the Appellant’s claimed loss of profit. Hence the appeal to this court, brought with permission of Longmore LJ.

The judge directed himself by reference to several of the modern authorities which give guidance as to the manner in which the court should construe a commercial contract including, in the order in which he cited them:- Photo Productions Limited v Securicor Transport Limited [1980] AC 827; Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896; Chartbrook Limited v Persimmon Homes Limited [2009] 1 AC 1101; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; Co-operative Wholesale Society Limited v National Westminster Bank plc [1995] 1 The Estates Gazette Law Reports 97 and Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios No 2)) [1985] AC 191.

The judge thought that the only words relevant to his task of construction were those words from Clause 18.6 of the Agreement set out in paragraph 8 above. The judge did not, at any rate overtly, look at those words either in the context of the clause in which they appeared or in the context of the contract as a whole, save perhaps to the extent that he regarded the context as “an ordinary commercial contract” whereunder the benefit that the Appellant anticipated was making profits. However the judge seems to have thought, [53], that “The issue of construction only arises if there are at least two alternative interpretations of the form of words used”. The judge thought that the words which he regarded as relevant were “perfectly clear . . . Their effect is that in any case in which there might otherwise be a liability in contract to pay damages in respect of loss of profits there is not one. It is as simple as that.” [54]

The judge went on to say, [55], that it was neither necessary nor appropriate “for the court to consider what the parties could possibly have intended if what they have actually stated is clear and unambiguous”. The judge nonetheless went on to deal with counsel for the Claimant, Mr Stuart’s, submission that the judge’s approach to the clause “could not possibly be what the parties had intended”. The judge was not persuaded by that submission, principally because he regarded it as impossible for the Defendant alone to bring about the situation which Mr Stuart submitted the parties could not have contemplated, one in which the Agreement was terminated prematurely without the Claimant having a claim for substantial damages for loss of profits. This was because the Claimant was not bound to accept the repudiation and that it “had potentially other remedies available to seek to enforce the contract” if it wished to continue its performance and to continue to secure the performance of the contract by the Defendant. Presumably the judge had in mind an order for specific performance or, as Mr Stephen Phillips QC for the Respondent in this court preferred to put it, a negative injunction restraining the Respondent from excluding the Appellant from the venues or, perhaps, a negative injunction to prevent the Respondent from employing any other caterer, in breach of its obligation under Clause 3.1 of the Agreement to grant exclusivity to the Appellant.

I put on one side the point that none of these suggested remedies would be of any utility to the Appellant in the event that the Respondent decided, for whatever reason, to discontinue use of the venues. That may be an unlikely hypothesis albeit it is one which demonstrates that, if the judge is right, the Appellant could be left without any remedy in the event of premature termination of the Agreement by the Respondent. My difficulty with the argument is more fundamental. In his skeleton argument prepared for this appeal Mr Phillips submitted that “the Appellant could always refuse to accept a repudiation. In those circumstances the Appellant would probably be able to enforce the Agreement by an action for specific performance, as the obligation enforced is little more than that the Respondent grant the Appellant access and exclusivity, and therefore requires little supervision or co-operation.” Again I put on one side the circumstance that one can be confident that an action for specific performance would have been fiercely resisted by the Respondent whose case it was that the Appellant’s performance fell seriously short of the contractual standard required and amounted to “material and persistent breach of contract”. Even assuming, as I must, that the Respondent would have been unable to make good that case, even to the standard required to deprive the Appellant of interim injunctive relief without which the final remedy would be futile, the assertion that the Appellant would “probably” be able to enforce the Agreement by an action for specific performance seems to me very optimistic. The suggestion that the obligation being enforced is little more than the Respondent granting access and exclusivity requiring little supervision or co-operation also seems to me a mischaracterisation of the nature of the Agreement.

It is true that the formal Agreement itself, although a document of 42 pages and 54 clauses, imposes few obligations upon the Respondent. However it provides at Clause 1.14 that ““Contract Standard” means the standard set out in the Service Level Agreement specifying the standards for the Services (a copy of which is set out in the Schedule)” and by Clause 7.1 it is provided that “during the Contract Period the Contractor shall provide the Services to the Standard as set out in the Contract Standard . . .” The Schedule contains the Catering Service Level Agreement the principal purpose of which is said to be “for the practical expression of, and interpretation of expected and required standards of performance, roles and responsibilities of each of the parties . . . It is intended to provide a basic working framework for the life of the current Contract. By the very nature of the Services the SLA is dynamic in that requirements and therefore services may change as the businesses grow and develop.” The SLA contains numerous provisions indicative of the co-operative nature of the relationship envisaged and of the co-operation without which the Agreement would be unworkable. Examples include the “Mission Statement” – “Working in partnership to seamlessly establish (sic) and deliver a World Class Standard of Catering and Hospitality Service that sets the benchmark that other competitive venues aspire to.” There follow a series of obligations expressed as follows:-

“1.) Manchester Central should ensure that:-

•

Its strategic business plan for the next 5 years is shared at the earliest opportunity with the appropriate director(s) of Kudos (respecting confidentiality).

•

Kudos develops a Catering strategy for the life of the Contract to identify the goals and targets it will set to contribute to the delivery of Manchester Centrals ambitions.

In order for Kudos to complete their strategy, MC should as a minimum provide relevant and timely information.

•

Proposed Capital Investment that will impact on the nature, style and volumes of the catering activity.

•

Growth and income generation projections

•

Sales and marketing strategies

•

Key dates and activities for confirmed major conferences and events to 2012.

2.) Developing a Culture of Continuous Improvement

By the end of year 1, both parties should agree a plan for the next 4 years that identifies how services will be continuously improved to ensure first class customer satisfaction levels, achieve high levels of repeat business and thereby enhance reputations.

Targets should be set to include, but not limited to:-

•

Quality standards

•

Customer satisfaction levels

•

Environmental and Sustainability Standards

•

Efficiency and value for money

•

Accreditation to relevant Industry Standards e.g. IjP, Hospitality Assured

•

Equality Matters

3.) Shared Values

By the end of Year 1 to have:

•

Agreed and defined appropriate values that underpin the delivery of Services (Draft Values that could form the basis of such an agreement are appended to the SLA).

•

All staff to have received relevant training and can articulate their individual and service contribution.

•

Manchester Central to publicise the Values at points of entry and through information dissemination to current and potential clients.

4.) Annual Review

At least two months before the start of each new contract year, Senior Company Management from MCCL and Kudos should meet to review performance and agree the forthcoming years operating plan. This will include financial, operational and marketing objectives to be delivered.

. . .

Operating Standards

Operating standards and service levels are attached as Appendix 2 to this SLA. They detail the core objectives of the Catering Service, the roles and responsibilities of each of the parties and include as appropriate ratios and service standards. Additionally the tender submission contains other relevant detail on service standards.

. . .

G. Sustainability and Environmental Management

Manchester City Council has produced a guide ‘Greening your Event’ specifically for the conference and event market. MC will lead the work with Kudos to draw up a joint action plan to meet the basic standards required.

Timescales for this work are to be agreed by both parties. Key targets and dates for implementation of the various activities will be set.

. . .

K. Communication and Liaison

To ensure effective management of the Contract the following schedule of business meetings is proposed:

[A Schedule is then set out]

. . .

Additionally, it is incumbent upon both parties to inform each other of any issues / changes that may have an impact upon venue reputation, service delivery or customer experience.

In establishing an effective partnership and communications system a culture of “no surprises” should prevail. Certain specific communication requirements are place[d] on Kudos within the Contract document e.g. paragraph 32 Industrial Action.

. . .

Core Objectives and Operating Standards

Purpose

To provide a high quality food drinks and associated services to Manchester Central customers using an agreed appropriate pricing structure that is both customer focused and helps to ensure Manchester Central meets its objectives in the provision of catering services.

Objective 1:

To ensure the successful implementation and ongoing running of a comprehensive World Class catering service appropriate to the requirements of MCCCL.

What Kudos undertake to provide (and timescales where appropriate)

1.

Provide Project/Operational personnel with sufficient experience & support to update and continuously improve all aspects of the customer service.

2.

Provide when required, Design / fit out / procurement personnel to work in association with the operational manager(s) and the relevant Client personnel – where necessary – to lead/assist in all respects in the development of concepts and front of house styles and services that endorse the vision of a ‘platform of excellence’.

3.

Sales-focused manager(s) capable of liaising with MCCCL sales team in respect of bookings, diary dates, menus and quotations handling agreeing pricing strategies and providing menus and prices to suit buyers profiles / expectations.

4.

Provide staffing, induction, training, management and recruitment procedures to deliver a customer welcome and standard of service that exceeds the customer expectations whilst conforming with all aspects of procedures, personnel planning, staff needs, set up programmes.

What MCCCL undertake to provide (and timescales where appropriate)

1.

Project/Operational personnel with sufficient experience and support to update and continuously improve all aspects of the customer service criteria and infrastructure.

2.

Sales Manager(s) and sales personnel with the authority and knowledge to liaise with the catering team and assist in customer negotiations that result in the delivery of a high quality profitable catering service which is complimentary [sic] to the objectives of MCCCL and meets the expectations of the customer.

3.

Provide a bookings, diary system that is suitable for the managing of time and notice periods to ensure that the Catering team have sufficient information and time to deliver the service expected.

4.

In conjunction with the catering management team, develop an induction programme for nominated catering personnel that establishes a “culture of excellence” within the overlaying brand of Manchester Hospitality.

Objective 2

For MCCCL and KUDOS to establish a seamless join across all of the services to maximise the customers experience through efficient practices suitable equipment and pricing relative to the expectations of the specific customer profile relative to the specific events and the commercial needs of this contract. This to be called the “Minimum Standard”.

What KUDOS undertake to provide (and timescales where appropriate)

Our minimum Standard should include:

1.

Provision, payment and management of all consumables.

2.

Support of the sales team(s) in the generation of sales.

3.

Integrate with MCCCL Events team in the planning and implementation of Events.

4.

Establish and implement reporting systems to meet MCCCL programme / event monitoring requirements.

5.

Agree standards for all aspects of the catering service on a general as well as on an event by event basis to incorporate as a minimum

a.

Room lay-up equipment and procedures

b.

Counter equipment set ups and operating procedures.

c.

Event planning systems – to have a system to integrate with MCCCL systems.

d.

Staff training and induction programmes.

e.

Staffing ratios for all conference and banqueting scenarios.

f.

Minimum staffing for all service outlets relevant to an events service and subject to the financial capabilities of the event.

g.

Staffing ratios for all areas when set up as restaurants.

h.

Staffing ratios for bars relative to differing show environments.

i.

Staffing ratios for hospitality in the designated areas.

What MCCCL undertake to provide (and timescales where appropriate)

1.

MCCCL will provide sufficient staff to undertake the provision of services and the setting out of a room prior to the catering team arriving to dress tables and set out counters and bars.

2.

Establish commercial agreements that provide the maximum exposure for catering merchandising in retail-dependant events.

3.

Agree with organisers suitable set outs for events to ensure catering areas are not disadvantaged in their exposure to the selling opportunities.

4.

Advise organisers, stand holders, and other participants on the “house rules” that own food is not permitted and all catering requirements should be ordered from KUDOS.

5.

MCCCL will undertake a commercial attitude in agreeing arrangements to ensure that unnecessary labour costs are not incurred and that where feasible event labour cost ratios can be improved upon to enable other events to benefit where there is commercial advantage to do so.”

The Agreement itself, in its second preamble under the rubric “BACKGROUND” provides:-

“(B)

During the tender procedure the Company informed the Contractor of its intention to develop a “co-operative” relationship whereby the Contractor and the Company would work together in good faith to fully develop (sic) the service proposals by way of implementing innovative and creative ideas so that the provision of the services could be developed within this co-operative relationship.”

I did not find entirely persuasive Mr Phillips’ suggestion that this duty of mutual co-operation was intended only to subsist during the tender procedure. Manifestly, it set the tone for performance of the contract. Clause 1.2 of the Agreement called for the appointment by the Company of an “Authorised Officer” to act as the representative of the Company for the purpose of the Agreement. There are numerous references throughout the Agreement to the role of the Authorised Officer, not least Clause 9.15 which provides:-

“The Contractor’s employees engaged in and about the provision of the Services shall primarily be under the control and direction of the Contractor’s own supervisory staff but shall nevertheless obey all reasonable instructions given to them by the Authorised Officer in matters occasioned by the operational needs of the company or the health and safety or welfare of anyone.”

It is to my mind obvious that without daily and detailed co-operation between the Contractor and the Authorised Officer this contract would not be capable of performance.

In short, I regard as wholly unsustainable the suggestion that the Appellant could perform this contract without the full-hearted co-operation of the Respondent. I also have serious reservations as to whether a court would in any event compel an operator of venues such as those operated by the Respondent to continue to employ a caterer in which it had lost confidence, although in view of my conclusions concerning the nature of this specific relationship I do not need to rest my decision on more general considerations. Mr Phillips sought to rely upon the decision of this court, powerfully constituted (Ackner and Robert Goff LJJ and Sir Roualeyn Cumming-Bruce) in Regent International Hotels (UK) Limited v Pageguide Limited, The Times 13 May 1985, Court of Appeal (Civil Division), Transcript No 164 of 1985. In that case this court upheld an order restraining the defendant from terminating a long term contract for the management of the Dorchester Hotel. However that was a case in which the court evidently concluded that it was seriously arguable that Pageguide had no intention of performing the agreement even when entering into it. The identity of the beneficial interest behind Pageguide had been suppressed when the purchase from Regent was negotiated and completed. Critically, the day to day management and operation of the hotel rested with the Regent companies who were given autonomous and independent control over specific delegated functions. There was no need for constant supervision or co-operation – see per Ackner LJ at paragraphs 19-20 of the transcript. The court also considered that there was a serious issue to be tried whether Pageguide had in fact lost confidence in the Regent companies.

In my view therefore the Agreement is, if the judge’s construction of Clause 18.6 is adopted, effectively devoid of contractual content since there is no sanction for non-performance by the Respondent. It is inherently unlikely that the parties intended the clause to have this effect. The parties thought that they were concluding a mutually enforceable agreement. As Lord Wilberforce said in the Suisse Atlantique case [1967] 1 AC 361 at 431-2:-

“[An exception clause] must, reflect the contemplation of the parties that a breach of contract, or what apart from the clause would be a breach of contract, may be committed, otherwise the clause would not be there; but the question remains open in any case whether there is a limit to the type of breach which they have in mind. One may safely say that the parties cannot, in a contract, have contemplated that the clause should have so wide an ambit as in effect to deprive one party’s stipulations of all contractual force; to do so would be to reduce the contract to a mere declaration of intent.”

Nonetheless, where language is fairly susceptible of one meaning only, that meaning must be attributed to it unless the meaning is repugnant to the contract in which case it may be necessary to ignore it – see per Briggs J in EU Network Fiber v Abovenet [2007] EWHC 3099 at paragraph 257.

But as Lord Clarke of Stone cum Ebony pointed out in The Rainy Sky case, above, at paragraph 21:-

“. . . The exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would have reasonably been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

To similar effect is a passage in fact cited by the judge from the judgment of Hoffmann LJ, as he then was, in Co-operative Wholesale Society Limited v National Westminster Bank, at page 99. After citing the well-known passage from the speech of Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios No 2), above,Hoffmann LJ continued:-

“This robust declaration does not however mean that one can rewrite the language which the parties have used in order to make the contract conform to business common sense. But language is a very flexible instrument and, if it is capable of more than one construction, one chooses that which seems most likely to give effect to the commercial purpose of the agreement.”

There also in my view comes into play the presumption that neither party to a contract intends to abandon any remedies for its breach arising by operation of law – see per Lord Diplock in Modern Engineering v Gilbert-Ash [1974] AC 689 at 717. Lord Diplock went on to say that clear words must be used to rebut this presumption and the judge plainly thought that the words here used were sufficiently clear for that purpose. The judge should not in my view have reached that conclusion without first examining the context.

As I have already observed above, the judge cited some of these passages from the authorities but, in my view, he fell into error in thinking that the ascertainment of the meaning of apparently clear words is not itself a process of contractual construction. He failed to consider the words of the clause in their wider context.

The section of the Agreement in which Clause 18.6 appears is headed “INDEMNITY AND INSURANCE”. Clause 1.52.6 of the Agreement provides that “Condition headings are for ease of reference only and shall not affect the construction of this Agreement” but this obviously does not preclude close attention to the nature and content of the provisions which follow the rubric. It is necessary to reproduce in full the series of sub-clauses.

“INDEMNITY AND INSURANCE

18.1

The Contractor shall indemnify and keep indemnified the Company against all actions, claims, demands, proceedings, damages, costs, charges and expenses in respect of, or in any way arising out of the provision of the Services in relation to the injury to, or death of, any person, and/or loss of, or damage to, any property including without limitation property belonging to the Company except and to the extent that it may arise out of the negligence of the Company its employees or agents.

18.2

Without thereby limiting its liabilities under Condition 18.1 the Contractor shall effect and maintain insurances at all times with an insurance company approved by the Authorised Officer (such approval not to be unreasonably withheld or delayed) against liabilities arising out of the Services which would in usual circumstances be covered by such insurances including but not limited to injury to or death of any person and loss of or damage to any property and provided further that:-

(i)

the Contractor shall maintain employers liability insurance for at least the sum of £10 million pounds for any one incident and without limit on the number of claims in any one Financial Year or other period; and

(ii)

the Contractor shall maintain public liability (including product liability) insurance for at least the sum of £10 million pounds (in respect of both public liability and product liability) for any one incident and without limit on the number of claims in any one Financial Year or other period; and

(iii)

the Contractor shall maintain business interruption insurance at a level approved in writing by the Authorised Officer such approval not to be unreasonably withheld or delayed.

18.3

The Contractor shall supply to the Company forthwith on the Commencement Date and upon each renewal date of any relevant policy a certificate from its insurers or brokers confirming that the Contractor’s insurance policies comply with this condition 18 and the Contractor shall supply to the Company on request copies of all insurance policies, cover notes, premium receipts and other documents necessary to establish compliance with this Condition 18. The Contractor will use all reasonable endeavours to procure that the interests of the Company are duly noted where appropriate on insurance policies and/or such policies contain an indemnity to principals condition.

18.4

The Company shall indemnify and keep indemnified the Contractor against all actions, claims, demands, proceedings, damages, costs, charges and expenses whatsoever in respect of or in any way arising out of the provision of, or damage to, any property including property belonging to the Contractor to the extent that it may arise out of the negligence of the Company, its employees or agents.

18.5

If the Contractor shall fail to comply in any respect with the provisions of this condition 18 the Company shall be entitled (but will not be obliged) to arrange the insurance cover required by this clause 18 and charge all and any market rate premiums so incurred to the Contractor as a debt, and the Company may set off such premiums against any sums owed and due by the Company to the Contractor.

18.6

The Contractor hereby acknowledges and agrees that the company shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits, anticipated savings or wasted expenditure (whether reasonably foreseeable or not) or indirect or consequential loss suffered by the Contractor or any third party in relation to this Agreement and the limitations set out in this condition 18.5 shall be read and construed and shall have effect subject to any limitation imposed by any applicable law, including without limitation that this Condition shall not apply to personal injury or death due to the negligence of the Company.

18.7

The Company will maintain comprehensive buildings insurance and third party (occupier’s liability) insurance and insurance against wilful destruction for an appropriate amount as is reasonably available in the market and to the extent the premium costs are not prohibitive and will note the interest of the Contractor on such insurance policies. The Company will promptly at the Contractor’s request provide the Contractor with details of all such insurance policies.”

Thus Clause 18.1 sets out an indemnity provided by the Contractor to the Company. Clauses 18.2 and 18.3 prescribe the nature and form of the insurances which the Contractor must take out to support the indemnity. Clause 18.4 turns to an indemnity to be provided by the Company to the Contractor. Thus Clause 18.5 appears out of place, since it reverts to the subject matter of Clauses 18.2 and 18.3 and deals with the consequences of the Contractor’s failure to effect the required insurances which is, broadly, that the Company shall be entitled to arrange them in its stead and at its expense. Clause 18.5 may have been inserted in the wrong place, an impression heightened by the circumstance that there appears in the sixth line of Clause 18.6 the words “. . . the limitations set out in this Condition 18.5 . . .” which is perhaps what Clause 18.6 once was in an earlier draft. Whatever the explanation, it is plain in my judgment that Clause 18.6 is to be read with Clause 18.4. It is undoubtedly intended to qualify the apparently wide ambit of Clause 18.4. The question is perhaps whether it has any further function. This section of the agreement, as is apparent from its content if not permissibly from its title, is not the place in which one would expect to find a wide-ranging exclusion clause of general application. One would more naturally expect to find such a provision amongst its more usual bedfellows, here represented by Clause 43, Waiver, Clause 44, Force Majeure, Clause 45, Variations, Clause 47, Rights of Third Parties, Clause 48, Entire Agreement, Clause 49, Independent Contractor, Clause 50, Notices, Clause 51, Governing Law and Clause 52, Disputes.

Clause 18.4 provides a wide-ranging indemnity albeit it is one which arises only on the negligence of the Company, its employees or agents. The subject matter of the indemnity is both third party claims (actions, claims, demands, proceedings) to which the Contractor may be exposed and damages, costs, charges and expenses incurred by the Contractor itself, in either case arising out of the provision of, or damage to, any property including property belonging to the Contractor. The paradigm example of property to be provided by the Company is of course the equipment in or associated with the kitchens, the defective nature of which could, as Mr Jeffrey Gruder QC for the Contractor pointed out, give rise to losses in various different contexts. Third party claims might equally be forthcoming from various quarters, amongst which the Contractor’s suppliers visiting the site in order to effect deliveries was an example put forward by Mr Gruder.

Both its position and its content show that Clause 18.6 is intended to qualify the extent of the indemnity afforded by Clause 18.4. Thus one finds a reference to third party liability, which can only sensibly be read in context as qualifying the extent to which the Company must, pursuant to Clause 18.4, indemnify the Contractor against third-party claims, since plainly any provision in this contract will be ineffective to protect the company from third party claims made directly against it. Similarly the express reference to negligence in the last line of Clause 18.6 is a reflection in my view of the limited scope of Clause 18.4, albeit it may also have its roots in the prohibition against contracting out of liability for death or personal injury resulting from negligence to be found in section 2 of the Unfair Contract Terms Act 1977.

I cannot however go all the way with Mr Gruder and accept that Clause 18.6 serves only to qualify the extent of the indemnity afforded by Clause 18.4. The language “no liability whatsoever in contract, tort (including negligence) or otherwise” cannot sensibly be read as simply restricting an indemnity which is itself expressed only to arise in the event of the Company’s negligence. Something more is intended. The key to the proper construction of this provision is in my view that it excludes heads of loss “suffered by the Contractor or any third party in relation to this Agreement” (emphasis supplied). In the context, as I have already remarked, the third party loss which is referred to in clause 18.6 can only be a loss suffered in consequence of negligent performance by the Company of its contractual obligation, express or implied. It is only such third party losses which will, if brought home to the Contractor, generate in the Company an obligation to indemnify. Such a loss presupposes defective performance of the contract but not a refusal to perform it or to be bound by it. The Company does not undertake to indemnify the Contractor against liability which it incurs to third parties in consequence of the refusal of the Company to perform the contract. In my judgment it is a similar type of loss which is intended to be excluded or qualified whether suffered directly or indirectly by the Contractor, i.e. a loss arising out of the flawed performance of the contract, and it is for that reason that such loss is in each case described as “loss suffered . . . in relation to this Agreement”. Had it been intended simply to exclude all liability for loss of profits etc in the event of any breach of contract by the Company, including a simple refusal to perform, there would have been no need to refer to third party losses as a separate category, since they would have been excluded from the scope of the indemnity by the general words. Reference to third party losses in my view informs the proper construction of the clause, indicating that the circumstances in which the company’s liability is intended to be qualified are similar to, albeit not co-extensive with, those which might also give rise to the obligation to indemnify the Contractor against third party losses. In order to construe the provision consistently with business common sense, I would regard the expression “in relation to this Agreement” as meaning in this context “in relation to the performance of this Agreement”, and thus as not extending to losses suffered in consequence of a refusal to perform or to be bound by the Agreement.

Mr Phillips suggested that such an approach represents an objectionable resort to the discredited doctrine of fundamental breach of contract, usefully summarised in Chitty On Contracts, 31^st Edition, Vol 1 at paragraphs 14-020 to 14-024, but I repudiate that suggestion. Rather it is, I hope, a legitimate exercise in construing a contract consistently with business common sense and not in a manner which defeats its commercial object. It is an attempt to give effect to the presumption that parties do not lightly abandon a remedy for breach of contract afforded them by the general law. Mr Phillips in my judgment came close in his skeleton argument to recognising that the judge’s construction of the clause defied business common sense, for at paragraph 48 he submits that “Without conceding the point, it is far from clear that Clause 18.6 would apply to a knowingly unlawful repudiation, and therefore that the Respondent could deliberately repudiate without being liable for lost profits.” I accept that, on the assumption which I have made for the purpose of determining this preliminary issue, we are not concerned with a “deliberate” in the sense of a “knowingly unlawful” repudiation, but I am yet to learn that the consequences of a repudiatory breach of contract differ according to whether it is informed or uninformed, deliberate or inadvertent, hopeful or hopeless.

The parties could had they so wished have provided that there should be an exclusion of all liability for financial loss in favour of the Company, but not the Contractor, in the event of a refusal to perform. That would be a bargain which Mr Phillips has, I suggest, come close to acknowledging is unlikely, not just for the reason given in the last paragraph but also because of his insistence that whilst the Company accepted no liability for loss of profits, the Contractor could enforce the contract against it and thereby earn those profits. Had the parties intended such an exclusion of all liability for financial loss in the event of refusal or inability of the Company to perform, I would have expected them to spell that out clearly, probably in a free-standing clause rather than in a sub-clause designed in part to qualify an express and limited indemnity, and in one which moreover forms part of a series of sub-clauses dealing with the provision of indemnities and the insurance to support them. It is plain that the parties intended that this wide category of loss – goodwill, business, revenue, profits, wasted expenditure – should not be recoverable in respect of breaches of the sort itemised by the Respondent in paragraph 47 of its skeleton argument – the inadvertent provision of wrong information concerning events or likely attendance size, the inadvertent exclusion of the Appellant from the catering area or areas ancillary thereto by blocking off, the failure to set out the necessary furniture as required by Clause 19.11 and so on and so forth. In my judgment however by their language and the context in which they used it they demonstrated that the exclusion related to defective performance of the Agreement, not to a refusal or to a disabling inability to perform it.

Accordingly I would allow the appeal. I would substitute for the declaration made by the judge a declaration that the answer to the preliminary issue is ‘no’, on the assumption that the liability asserted arises out of the Company’s repudiatory refusal further to perform the contract.

By way of footnote I would question the wisdom of proceeding by way of the determination of this preliminary issue. I see from Master Eyre’s order that it was done by consent and upon the Defendant’s application. It may be that its resolution will enable the parties to compose their differences and I hope that that is so. However in a case where the Defendant denies that his conduct was repudiatory and the Claimant denies that the clause in question formed a part of the contract I have my doubts whether their interests have been best served by resolving what may prove to be a hypothetical question.

I entirely agree with the judgment of Tomlinson LJ. In particular, I agree with and would wish to emphasise my agreement with paragraphs 28 and 29 of the judgment. Quite apart from the separate point of construction made by my Lord as to the potential ambit of clause 18.6, beyond the confines of clause 18, I consider that the result advanced on behalf of the Respondent would defy business common sense in the context of this agreement as a whole, including the contents of the Service Level Agreement the important provisions of which are set out in paragraph 17 of my Lord’s judgment. For my part, for this reason, I would have been prepared to hold that in clause 18.6 the words “…in relation to this Agreement…” as they appear in that clause should be taken to mean “…in performance of this Agreement…”.

I too would allow the appeal.

I agree that the appeal should be allowed for the reasons given by Tomlinson LJ.  In particular, I agree with his construction of clause 18.6 set out in paragraph 27 of his judgment, and with McCombe LJ's emphasis on the good sense of paragraphs 28 and 29.