Shoreline Housing Partnership Ltd v Mears Ltd

This is an appeal by the defendant, Shoreline Housing Partnership Limited (“SHP”), against the refusal by Akenhead J to strike out Mears Limited’s (“Mears”) Points of Claim as disclosing no reasonable cause of action pursuant to CPR 3.4 (2) (a). Leave to appeal was granted by Richards LJ on 25^th February 2013. The trial has been fixed for 29 July 2013.

The facts, the extent to which they are in dispute, and the procedural chronology, are fully set out in the judgment of Akenhead J, which is reported at [2013] EWHC 27 (TCC.)

In paragraph 25 of the judgment the judge referred to the fact that, despite certain inconsistencies in Mears’ evidence and pleadings, there had been no evidential challenge by SHP’s witnesses to that evidence. The paragraph concluded

“…In the circumstances it would be quite wrong for this court at this stage without the benefit of mutual disclosure and witness evidence to guess whether and if so to what extent the factual case is weak or strong. I strongly suspect that much will depend on the inherent credibility of Messrs Lester, Critchley, Tomkinson and Clarke. I will therefore proceed upon the basis that sufficient has been produced by Mears on this application to support some arguable factual case”.

The judge then moved on to what he described as:

“What may turn out to be an esoteric discussion at an early stage of litigation as to fine principles of law, relating to estoppel and representation”.

Having summarised the basic facts he concluded at [27] that:

“This scenario if true and factually established at the very least gives rise to an arguably meritorious position for Mears, both on the facts and the law”.

He concluded at [33] that it was “reasonably arguable that estoppel by convention may well, or at least could, have application in this case if the facts so pleaded by Mears are found to exist”; and that that was so notwithstanding SHP’s argument that Mears was not entitled to rely on estoppel by convention as a “sword”. He said that he did not see this argument “ultimately as a major potential drawback” because in essence Mears’ contention was that it had been agreed that the contract did not have to be amended to reflect the common assumption.

In relation to the case based on estoppel by representation he held at [37] that it was arguable

“… that the representation was continued by conduct in that the parties acted upon it until January 2010 and there was no amendment to the R&M Contract. It would follow that arguably SHP would be estopped from arguing that the R&M Contract needed amending to reflect the “agreement” relating to the CRED and the Composite Codes”.

Similarly in relation to Mears’ actionable misrepresentation claim, he concluded at [38]

“… similar considerations apply in relation to the representation that the R&M Contract did not have to be amended even though the Composite Codes were to be used, in that there was arguably an expression of intention which was continued by being acted upon and by not being withdrawn. As also for estoppel by representation, it could be said that, if the representation had not been made or was not withdrawn, Mears would not have entered into a contract which prevented it from recovering payment on the basis of the Composite Codes”.

In conclusion at [41] he reiterated that the case was one which

“… will ultimately turn on the factual findings which will be made, the nuances of the evidence and the inferences which can be drawn from what the more reliable witnesses say and the contemporaneous documents record”.

Grounds 1 and 5 of SHP’s Grounds of Appeal contend that the judge took the “wrong approach” to an application under CPR rule 3.4.2 (a).

The parties agree as to the correct test on a strike out application under CPR 3.4(2)(a). Mr Speaight QC, on behalf of Mears, was content to accept the Appellant’s formulation in the following terms :-

“The Court should proceed on the assumption that the facts relied on by Mears are true… If those facts do not disclose any legally recognisable claim against SHP then the claim should be struck out, subject only to the consideration as to whether the defect can be cured by amendment…”

Mr Marc Rowlands QC, who appeared for SHP, submitted that the judge applied the wrong test to the strike out application, or wrongly confused the approach to an application for summary judgment with that appropriate for a strike out. In my judgement, that complaint is without substance. So is SMH’s further complaint that the judge wrongly speculated as to how the case might be put as to a continuing representation as opposed to confining himself to the pleaded case in Mears' Amended Particulars of Claim. The judge clearly applied the right test to the strike out application and had well in mind the difference between that test and the summary judgment test. He was also perfectly justified in analysing for himself how, once the relevant facts had been found, a case based on estoppel by representation, might succeed. His analysis in paragraph 38 of his judgement cannot be characterised as "speculation" going beyond Mears' pleaded case. According I reject SMH's appeal in so far as it is based on grounds 1 and 5.

It follows that each I agree with Mr Speaight’s submission that the real question on this appeal is whether the facts as relied upon by Mears and as analysed by the judge disclosed a legally recognisable claim, in relation to which Mears has a real, as appeared to fanciful, prospect of success. In other words, on the facts as pleaded, was the claim bound to fail?

In my judgment, for the reasons which he gave, the judge was right to decide that the claim as pleaded satisfied the requisite test. My reasons for this conclusion are as follows.

In relation to all three heads of claim, SHP’s grounds of appeal and written submissions contended that all the claims were doomed to failure because of the wording of the entire agreement clause in the R&M contract. This provided:

“12.4

This contract is the entire agreement between the parties”.

In my judgment (but without deciding the actual issue) it is realistically arguable that, in the particular factual circumstances here, the clause does not operate as a bar to any of the claims. First of all, as the judge pointed out at [33], Mears’ case is that it was understood and agreed that the R&M Contract did not have to be amended to reflect the alleged common assumption between the parties that Mears would be paid on the basis of the CRED and the Composite Codes. This was supported by the fact that, for the purposes of the strikeout application (although SHP will apparently dispute the fact at trial), the assumption was to be made SHP had indeed paid on this basis for a considerable period of time, namely from July 2009 until January 2010; see paragraph 33 of the judgement.

Second, as the authorities demonstrate (see e.g. per Rix LJ in Axa Sun Life Services v Campbell Martin [2012] Bus LR 203 at [78] to - [94]) - the exclusion for liability for misrepresentation has to be expressly stated. In his oral submissions, Mr Rowlands appeared to accept that the entire agreement clause did not operate as a bar to the claim in misrepresentation.

Third, Mr Rowlands sought to argue, by reference to paragraphs [143], [144] and [171] of the judgement of Aikens LJ in Springwell Navigation v J P Morgan [2010] 2 CLC 705 that the entire agreement clause here operated to bar any claim based on estoppel by representation or by convention. But the detailed wording of the extensive express exclusion clauses in Springwell was very different from the simple entire agreement clause in the present case. As the Court of Appeal held in Springwell at [141]-[171], the doctrine of freedom of contract allows parties to agree that, at the time they enter into the contract, a representation-free state of affairs exists, even if, in reality, that is not the case and prior representations have been indeed been made that might ground an estoppel. But here there was no such express contractual wording as was present in Springwell preventing the parties from reliance on prior representations or estoppels, or deeming the parties to be contracting on a representation-free basis. It is therefore in my judgement at least arguable that, on the true construction of the entire agreement clause, and given the particular nature of the alleged representation, viz. that there was no need to amend the R&M Contract to revise the pricing structure which had been agreed as between the parties, the entire agreement clause does not bar Mears' estoppel arguments. The nature and extent of the estoppel itself may define the limitations of what the contract provides.

Of course, at the end of the day the trial judge may come to a very different conclusion as to what was the commercial agreement or arrangement between the parties as to their pricing arrangements, and what if anything they agreed in relation to the R & M Contract. But at this stage I am not prepared to conclude that Mears’ case is bound to fail because of the entire agreement clause. That conclusion is, at least to some extent supported by the “mutual trust and co-operation” clause contained in clause 10.1.

SHP contends that Mears cannot rely on the alleged estoppels by convention or representation, because it is seeking to rely upon the estoppel as a sword rather than as a shield. Thus Mr Rowlands submits that Mears's attempt to rely on the alleged estoppels are, on proper analysis, no more than an illegitimate attempt to create a cause of action where none exists and to subvert the doctrine of consideration. He relied upon cases such as Amalgamated Investment & Property v Texas Commerce International Bank [1982] 1 QB 84; Johnson v Gore Wood & Co [2002] 2 A C 1 at 38; and Baird Textile v Marks & Spencer [2002] 1 AER (Comm) 737. He submitted that these authorities demonstrated that it was not legitimate, in the absence of consideration, to attach legal consequences to a bare assurance or conventional understanding.

I agree with the judge that it is arguable that such an argument would not amount to a bar to Mears’ claims based upon estoppel. The reality here is that it is to be assumed (at least for the purposes of the strikeout) that SHP did indeed pay Mears the full sums claimed for the work carried out in the period from July 2009 to January 2010 and then sought to set off what it believed was the overpayment against what was due to Mears for later work. On this hypothesis, it is therefore SHP who, by way of defence, will have to support the deduction by way of set off and make good its case at trial that it was entitled to do so.

In his oral submissions Mr Rowlands, by reference to the contractual and other pricing documentation, sought to argue that this was a wrong analysis of the operation of the contractual payment mechanisms and that, in reality, this was a claim by Mears, who was wrongly seeking to subvert the doctrine of consideration by using estoppel as a sword. However it was clear that, in order to determine this issue, in relation to which the parties were in dispute, there would need to be a detailed factual analysis of the method of payment, and the contractual, or non-contractual, basis upon which services were being provided and Mears was being paid. That is quintessentially a factual enquiry which can only be conducted at trial.

Moreover a strike out application on the basis of uncertain, undetermined facts is not an appropriate arena for the resolution of any conflict between what may be perceived to be the different schools of thought demonstrated respectively in Amalgamated Investment & Property v Texas Commerce International Bank [1982] 1 QB 84 and Baird Textile v Marks & Spencer [2002] 1 AER (Comm) 737.

There are clear factual differences between the situation in the present case and those in the authorities upon which Mr Rowlands seeks to rely. For example, this is not a case where the Claimant is seeking to set up a contract by estoppel, in a situation where there was no contract at all (c.f. Baird). This is a case where the estoppels are alleged to have qualified the terms of the contract themselves and where it is alleged that the parties conducted their contractual relationship on the basis of an assumed and shared state of facts or law; see per Lord Steyn in Republic of India v India Steamship [1998] AC 878 at 913E.

Accordingly, I agree with the judge that it is arguable, for the purposes of this application, that Mears is entitled to plead and rely upon the alleged estoppels. Whether the remedy of reliance upon an estoppel will in fact be available to Mears will ultimately depend on the trial judge’s finding of facts. Any attempt at this stage to embark on a detailed analysis of the law is premature.

In relation to Mears's claims of estoppel by representation and misrepresentation (but not in relation to its claim based on estoppel by convention), SHP contended that the representations alleged were not representations of a character to found an estoppel by representation, or to provide a basis for a claim in misrepresentation. Mr Rowlands submitted that the operative representation or misrepresentation had to be as to present and existing facts, whereas, as pleaded, they were no more than non-binding statements as to future intentions, or conduct, which, without consideration, were insufficient to ground an estoppel or support a claim for misrepresentation. He submitted that the pleaded representations were no more than promises to do something in the future, unsupported by consideration, as opposed to representations or misrepresentation as to the existing rights of the parties. He referred to authorities such as Azov Shipping Co v Baltic Shipping Co [1999] 2 Lloyd's Law Reports 159; and Argy Trading Co Ltd v Lapid Developments Ltd [1977] 1WLR 444.

Like the judge, I take the view that it is at least arguable that the alleged representations by SHP (to the effect that there was no need to amend the R&M Contract) were indeed representations of fact sufficient to ground an estoppel by representation or to provide the basis for a claim for misrepresentation. Again, at this stage, whether the necessary legal requirements will be made out is highly dependent upon the factual enquiry.

Accordingly I would dismiss this appeal. In the circumstances of this case, the decision by the judge as to whether to strike out the claim was essentially a discretionary case management decision for him. It was clearly based upon his appreciation that, in circumstances where there was real uncertainty as to what the evidence would establish at trial, an esoteric debate as to the finer points of the application of the doctrine of estoppel, or the nature of an actionable misrepresentation, at this stage, when the parties are facing a trial in a few weeks time, was a sterile exercise. I agree. I do not consider that the decision is one with which this court should interfere.

I agree.

I also agree.