Rowles-Davies & Ors v Call 24 7 Ltd

In this action the claimants contend that the defendant is obliged to make payments which they say are due under an Agreement between a company called Claims Support Limited (“CSL”) and the defendant and damages for wrongful termination of the Agreement. The claims amount in all to the sum of £827,535.91 plus interest. The defendant denies that on a true construction of the Agreement the payments are due and denies that its termination of the Agreement was wrongful.

The claimants say they are entitled to succeed either because there was an assignment of the benefit of any right of action CSL may have had to the first and second claimants or there was an assignment or novation of the contract between the defendant and CSL to the third claimant. The outcome of the case depends on a number of issues of fact to which I now turn.

The Accident Group (“TAG”) was the name of an enterprise which sprang out of the legislation which legalised conditional fee arrangements with litigants. TAG sought to attract and give assistance to persons who had suffered personal injuries and wanted compensation. It devised and operated a scheme whereby prospective claimants could approach a TAG panel firm, borrow money from a particular bank (either the First National Litigation Funding plc or Halifax Bank of Scotland plc) in order to fund the cost of expert medical reports and fund after the event (“ATE”) insurance cover from a number of insurers (various syndicates at Lloyds and the National Insurance and Guarantee Corporation Ltd (“NIG”)).

On 30^th May 2003 TAG went into administration. There were at the time believed to be some 250,000 live claims in existence being run by some 1,000 different panel firms. When this occurred the financial institutions which stood behind the services which TAG provided were in urgent need of information as to the status of the individual cases, so that they might the better keep a check upon the extent of their exposure during the period of run off.

There were two sorts of financial institution which had this interest: firstly the banks and secondly the insurers (“the Stakeholders”). Each of the members in the various groups had a mutual interest in appointing a company to manage the run off.

Both Mr Rowles-Davies and the defendant were in a good position to seek a share of the work because they had both worked for NIG who brought them together. Mr Rowles-Davies was a solicitor with experience of personal injury litigation who had for some time been more interested in the business side of the profession, in the management of claims and in particular in the provision of audit services. At that time he owned two different companies, Claims Support Limited (“CSL”) and RDA Solicitors Limited (the third claimant - “RDA”);

The defendant’s main business was the running of a call centre for various operations. Its Managing Director was a Mr Ian Griswold. Mr Griswold had experience of claims management but little experience of providing auditing services which would be required.

In June 2003 a joint bid to manage the run-off and audit the files of TAG was put together by four companies, the defendant, CSL, Ashley Ainsworth and Blue Sky under the name “United 4 Solutions”. None of the companies individually had the size or range of skills to be able to carry out the work on its own. A presentation was made to the senior directors of the Stakeholders on 16 June 2003 on the basis that each of the companies would manage 25% of the total claims process.

The presentation was successful but the Stakeholders indicated that they would prefer not to contract with four different entities but with one; that the defendant, being the largest enterprise and with an established call centre facility, should hold the contract; and that the defendant should enter into such sub-contractual arrangements as were necessary with the other members of the Group.

In the result, by two letters (“Stakeholder Letters”) dated 14^th July 2003 the two banks (in one letter) and the various insurers (in another letter) recorded in virtually identical terms an agreement with the defendant for the latter to provide the services required on the following basis. Each letter

Following upon the Agreement with the Stakeholders, the defendant evidently sub-contracted services down to each of CSL, Ashley Ainsworth and Blue Sky by (it seems) entering into written agreements with each of them. Disclosure has not been given of the defendant’s agreements with Ashley Ainsworth or Blue Sky and so it has not been possible to draw any help from what the defendant might have arranged contractually with those companies.

As regards CSL, there were discussions between Mr Griswold and Mr Rowles-Davies leading to a document entitled “Heads of Agreement” which was drafted by Mr Rowles-Davies at some time on about 18^th August 2003, was backdated to 14th July 2003 and signed by Mr Rowles-Davies and Mr Griswold. The defendant contends that this document did not constitute a binding agreement; the claimants argue that it was contractually binding. There is also a dispute as to its meaning. The organisational and financial terms of the arrangement were changed in early September and an Addendum (which was also backdated to 14^th July 2003) incorporated changes to the terms. As varied by the Addendum, the Agreement stated as follows:

It is evident that the four parties to the group arrangement commenced work in preparation for winning the contract well before the date of the presentation. Very soon after the 14^th July 2003, when it was apparent that the Group been successful, both CSL and the defendant incurred significant start-up expenses. The defendant incurred the costs of legal fees dealing with the banks and insurers, TUPE indemnities, purchasing the right of access to the TAG database, operating system and file servers. CSL incurred the costs of recruiting suitable employees, training them in the systems and securing new premises in which the newly expanded workforce was to work and equipping them with necessary electronic systems and company cars.

It is evident that a number of the Stakeholders required the defendant to provide their services and in turn the defendant passed on the request for services to CSL, Ashley Ainsworth and Blue Sky.

It is also clear that various Stakeholders began to enter into negotiations for the formation of the detailed formal contract that it was envisaged in the Stakeholders’ Letters would be entered into between the Stakeholders and the defendant though it is equally clear that these negotiations were not carried on with all the reasonable endeavours contemplated.

On the 3^rd November 2003 Mr Griswold sent an email from the defendant to the stakeholders, but copied also to the subcontractors, stating:

“Gentlemen, October Invoices. All heads of agreement have now lapsed and to date I have only received October monies from [First National] and NIG. My U4S partners feel extremely concerned that payments to them are delayed and I am unable to give them any certainty going forward. Your prompt responses would be appreciated. Regards Ian [Griswold].”

It has been assumed in argument, and I continue to assume, that the reference to “all heads of agreement” refers to what has been referred to as the Stakeholder letters.

I have been told by Mr Griswold that he had no response from Mr Rowles-Davies to the information contained in this email. He says that “If Mr Rowles-Davies needed to know more about the situation, the Heads of Agreement or anything else, all he needed to do was ask me. He raised no questions, because he was fully aware of what was happening.” Nor has my attention been drawn to any response from the addressees of this email and I have not been told in detail about it.

I rather think that more is being made of the 3^rd November 2003 e-mail than it deserves. That is because the Stakeholder letters did not contain any provision for the interim arrangement to “lapse”; indeed there was no express term authorising the defendant to terminate it. What is evident though is that at least in the case of some Stakeholders the interim arrangement continued in practice and all of the members of the Group continued to provide services in accordance with the interim arrangement. Moreover, the defendant continued to negotiate with those Stakeholders who were still interested though at a somewhat leisurely pace for the formation of the formal contract.

It appears that from about the beginning of 2004 a number of the Stakeholders were having second thoughts about the arrangements made with the defendant for managing and auditing the TAG run-off. The arrangements did not run smoothly for a number of reasons including the fact that there was a fundamental conflict between the commercial interests of the banks on the one hand and the Insurers on the other. In addition, at the turn of the year NIG ceased underwriting ATE insurance and was put into run off and then taken over. A new manager at NIG then indicated to the defendant that it no longer wished CSL to provide any services. At the same time one of the banks ceased providing work to the defendant.

It is evident that money was being withheld from the defendant and the defendant was itself withholding payments from CSL. The financial pressure on the parties was evident from an exchange of emails.

On 4 February 2004 Mr Rowles-Davies asked for payment of the outstanding fees for January and the defendant responded that “we havent been paid as yet ourselves and as soon as we have we will settle up”. On 25 February 2004 the defendant further explained that it “had been ‘promised’ all the January fees this week from the underwriters and First National. HBOS have not given me a commitment to pay. HBOS represents 25% of the contract sum, and whilst this is most unsatisfactory, I shall be transferring 75% of your January fees into your account”.

On 16 March 2004 Mr Rowles-Davies sent an email to Mr Griswold explaining the pressure that was being put upon him by his bankers and how the expenses of running CSL’s operation was providing little room for profit; that the delay in payment was providing real pressure on his business. The email continued:

It is clear that the two men spoke again about money on 2^nd April 2004 following which Mr Guy Woods of the defendant sent an e-mail explaining how “HBOS still owe us 59% of their monthly fees from October to December 2003" and other payments, figures which did not appear to be in dispute but simply were unpaid, and that other insurers owed large amounts for other reasons. He continued:

“As discussed with you, we are prepared to draw a line under the state of the accounts to 31 December [2003]. In any event you have been paid your fees in full to December. It still leaves us the problem of recovering over £100K from HBOS on our shoulders but so be it - that’s life!

.............

My proposal to you this morning is to pay you both the January and Fenruary fees but to retain the HBOS element for now which is at risk. HBOS’ contribution is 15% of the contract sum. ............”

On 18 May 2004 Mr Rowles-Davies sent an e-mail to Mr Griswold complaining about the outstanding indebtedness and stating:

“Put simply, we have three options.

1.

We continue as we are in accordance with the contract. But, we are paid regularly and are paid the o/s amounts including HBOS retentions. Recovery of these can only be effected by you, I cannot influence that so I should not be prejudiced by it.

2.

You take over the auditing function, but that is without any involvement from my firm or me. The contract is terminated by agreement. To do this it will cost me over £100K in expenditure and my minimum loss of profit will be £300K, plus the o/s amounts. So a minimum of £496K would be due from you.

3.

I sue you for repudiatory breach or contract. Clearly this would be the most unpleasant and unwanted option, as I am sure you will agree. ...

These seem to be the only options. I think we should speak soon and choose one.”

Mr Griswold says that just before sending the email Mr Rowles Davies telephoned and said that he was going to send a “heavy” email and that it was written for the benefit of his bankers and that he should ignore it when it was received. He therefore did ignore the email and points out that it is significant that Mr Rowles-Davies did not chase for a reply to it.

On 24^th May 2004 the defendant sent Mr Rowles-Davies a letter explaining that the defendant was sending to RDA’s bank fees due for April, that HBOS had not paid any fees since December nor had NIG since February and therefore the defendant was sending only “pro-rata to the fees we have received from the stakeholder” with the result that they would receive that month only 64.94% of the fees which they had agreed they would be paid.

On 25^th May 2004 Mr Rowles-Davies stated that he had forgotten why it was that there was a reduction of 45% and asking for an explanation, pointing out that he would be running a trimmed down team. The same day Mr Griswold replied with an explanation and said “For clarity we should meet to agree service levels and the levels of staff you intend to provide”. He says in his statement “By now, because our agreement with the banks had also come to an end and they no longer required CSL’s audit services, Mr Rowles-Davies’ role was dramatically reduced. The only ongoing audit requirement by this stage was for the Lloyd’s syndicates.”

On 21^st June 2004 an email from Lloyds to the defendant was forwarded to Mr Rowles Davies. In it stated: “We do not want RDA to undertake any aspect of their auditing role during the [Irwin Mitchell] revet programme as we anticipate that this may frustrate their audit. Please therefore instruct RDA that until end of July we no longer wish them to attend and visit Panel firms. We will review our decision at end July.”

Mr Rowles-Davies replied that he would “action as requested”. There was no provision in the agreement for a suspension of services: however it appears that RDA did indeed stop providing services from that time, though it did continue to retain the employees whom, it anticipated, would be required when normal service resumed.

On 7^th July 2004 Mr Rowles-Davies asked the defendant for “an update as to when the work will recommence, as I would like to say something to the audit staff for obvious reasons. Equally, to obtain appointments for August we need to be making requests [sc. To firms of solicitors] now. Perhaps you could let me know how we are to proceed, if at all?”

On 16 August 2004 Mr Cox sent Mr Howarth an email asking for payment of fees for August. On 17 August 2004 Mr Howarth replied “enclosing a spreadsheet of the reconciliation of your account ... I note we paid you for full audit fees in Oct, Nov and Dec last year, even though we have still not been paid by HBOS. (Guy must be going soft in his old age!) Please arrange figs and I will arrange [transfer].” The enclosed spreadsheet showed that a total sum of £434,001.59 had been “paid to Nick” and the balance due was £4,841.59. The spreadsheet also showed that as from 1^st January 2004 the monthly payments made to Mr Rowles Davies’ companies had been reduced by the amounts by which certain of the Stakeholders had defaulted on the payments they had made to the defendant.

On 19^th August 2004 Mr Rowles-Davies had a conversation at the telephone with Mr Griswold who explained that there was no longer any need for the auditing services and purported to give oral notice to terminate the Agreement. Subsequently on the same day he asked Mr Griswold “if he could put something either e-mail or fax in writing to confirm the termination of the contract please. As you can no doubt understand I need to explain the position to the bank and my accountants”.

Mr Griswold says that he did send a letter (a copy of which is in my papers and is dated 23^rd August 2004) which Mr Rowles-Davies says was not received. The letter was addressed to CSL and stated as follows:

“I refer to your email sent on the 19^th August 2004 requesting written confirmation of our verbal agreement to terminate our Heads of Agreement.

In accordance with the terms of the letter of agreement entered into between us on the 14^th July 2003, I can confirm that Call 24-7 has not yet entered into a formal contract with the Stakeholders for the run off of the schemes previously administered by TAG and is therefore not in a position to enter into a formal arrangement with you in this respect.

As you are aware The Funders and NIG had previously given notice that they no longer required and were not prepared to pay for Solicitor Audit Services and various administration functions and on the 21^st June we were advise by the remaining Lloyds Underwriters that they no longer required Solicitor Audit Services also. In the circumstances we terminated the services you were providing for us and we emailed you to this effect on the same day the 21^st June.

For the avoidance of doubt Call 24-7 are not either providing or subcontracting Solicitor Audit Services for any of The Stakeholders involved in the TAG run off. We agreed to pay certain additional funds till the 30^th June in full and final settlement. I enclose a copy of that agreed schedule sent to you on the 17^th August.”

The termination of the income stream had the consequence that the financial failure of RDA was assured. On 10^th September 2004 RDA was put into Members Voluntary Liquidation. Within a short time this became a creditors’ Voluntary Liquidation.

In October 2004 the defendant did manage to secure the formal agreement to which reference had been made in the Stakeholder Letters. It bears the title “Third Party Administration Agreement” and was entered into between the defendant and only seven of the ten original Stakeholders. Mr Griswold contends that it has no relevance to the current proceedings.

The claimants contend:

The outcome of this case depends in part upon the proper construction of the contract and in part upon matters of fact which themselves to some extent depend on the credibility of the witnesses.

The trial took place over 4 days. I received evidence in person from Mr Rowles-Davies, Mr Matthew Cox and Mr Peter Yeldon (Joint Liquidator of RDA) for the claimants; and from Mr Griswold and Mr Derek Howarth for the defendants. A statements from Sarah Jarman, the former wife of Mr Rowles-Davies was read.

I was very conscious of the fact that the matters about which the witnesses spoke had occurred some 6 to 7 years prior to the date of the hearing. My view of Mr Rowles-Davies is that his primary interest and strength probably lay in being an entrepreneur rather than a solicitor or indeed, businessman. By this I mean that as a businessman he did he not display the level of skill, shrewdness or ruthless which was required for success but was rather more relaxed in his dealings with those with whom he had to deal allowing them rather more leeway at his expense than was desirable in his own interests. I did not think that his appreciation of the law was one of his strong points. I also came to the conclusion that his recollection of events was less clear than he thought or would have liked.

As regards Mr Griswold I formed the judgment that he was a more focussed businessman and had a better recollection of events than did Mr Rowles-Davies. However, he had during disclosure applications been less open than he should have been. In particular following an order for disclosure he swore an affidavit on 5^th April 2006 which stated:

“3.

The Bank Heads of Agreement and the Underwriter Heads of Agreement are the only agreements which were ever put in place between Call 24-7 and the Stakeholders involved in the TAG run off scheme. Although both HOA’s were signed only subject to contract basis, and include terms requiring the parties to use their reasonable endeavours to agreed (sic) a formal agreement or agreements to replace the TAG arrangemenets, no further or other Stakeholder Contracts were concluded.

4.

For the sake of completeness. I should mention that a number of the Stakeholders were parties to:

4.1

the agreements by which Call 24-7 bought assets from the administrators of TAG; and

4.2

the indemnity agreements put in place to provect the administrators from TUPE liabilities ...

None of these agreements relate to the terms of the contract between Call 24-7 and the Stakeholders for the TAG run off scheme.”

This statement on oath was plainly untrue. It seems to me that Mr Griswold made it in order to deflect arguments which might arise from the disclosure that Call 24-7 had in fact concluded a formal agreement (which had been contemplated in the Stakeholder Letters) on 18^th October 2004. This clearly affected adversely the extent to which I was able to accept his evidence on certain issues.

Mr Cox had in 2003 been a trainee of Mr Rowles-Davies, had invested the sum of £54,000 in RDA and had become a director of the company. I did not have any reason to doubt his evidence. However, he was very much a junior partner, was not directly involved in the negotiation of arrangements and derived his view of matters in part from what Mr Rowles Davies represented to him and in part from an observation of the documents he read, most if not all of which are just as available for me to read and form my own view.

Mr Howarth was a co-director of the defendant. He was not centrally involved in negotiating the terms of the original agreements. He acknowledged that his evidence on matters was largely derived from what he had been told by Mr Griswold and had been affected by the passage of time. I did not feel that he made a large contribution to an understanding of the matters relevant to the issues in this case.

I now propose to turn to the individual issues which the parties put to me.

Logically the first issue to consider is whether the document entitled Heads of Agreement had contractual force: in my judgment it manifestly did have contractual force. I draw attention to the following features about it.

First of all, I attach significance to the fact that the Heads of Agreement was in writing and signed with the formality which is characteristic of those who intend their agreements to have contractual force. Secondly, it did not incorporate the words of reservation which would have been familiar to both Mr Rowles-Davies and Mr Griswold. Thirdly, the total amount of money covered by the Agreement was a figure in the region of close on £1,467,000. Fourthly, if the Heads of Agreement was not to have contractual effect, there would not be any need for it to have “a break clause” or a clause providing for compensation for loss of profit on termination: clause 7 of the Agreement is plainly such a clause. Fifthly, since the defendant was already under a contractually binding obligation to provide the Stakeholders with services, it would be very odd commercially if it did not seek to protect itself from exposure to the risk of default by entering an equally enforceable agreement by way of sub-contract with those individuals who it contemplated would be required to supply them.

Interpreting the Heads of Agreement: Since I have concluded that the Heads of Agreement does have contractual effect, I need to turn to those issues which depend on a proper interpretation of the Agreement. In interpreting the Agreement I have taken into the account the likelihood that the obligations between the parties were not contained wholly within the terms of the Heads of Agreement but that the agreement between them was part oral and part written and, in any event, can be interpreted only by having regard to the matrix of facts known to the parties at the time when agreement was reached.

It was clearly known to the parties that the services provided by the defendant were being provided to the Stakeholders pursuant to an interim arrangement and that a formal contract was in the course of negotiation and preparation. I am quite satisfied that Mr Rowles-Davies was aware of the contents of the Stakeholder Letters at the time when he drafted the Heads of Terms. I reject his contention that he was not; I think he cannot clearly remember one way or the other. The Heads of Agreement referred to such characteristics as must have been known to the parties for any such term to be agreed. I cannot conceive a person, even one as relaxed about formality as Mr Rowles-Davies, proceeding with the enterprise and drafting a Heads of Agreement without ensuring that he was acquainted with the terms in which the Stakeholder Letters were written, even if he only had sight and did not keep a copy of the Letter itself, particularly because he was adopting obligations which mirrored those in the Stakeholder Letters.

I turn to consider whether, as the claimants argue, the provision as regards payment was fixed for 3 years in total or was terminable on 6 months notice (or indeed, two weeks’ notice as the defendant argues).

The notion that the term of the Heads of Agreement was to be of fixed duration of 3 years appears to derive from the fact, specified in the Stakeholder Letters, that the payment of the fee by the Stakeholders was to be in 36 monthly instalments and the further fact that the draft formal Agreement was to specify a 3 year term. The notion that it was to be terminable on 6 months notice derives from the fact that the Schedule to the Stakeholder Letters raised the need to agree a term for notice in the formal Agreement which was then under negotiation and made mention that 6 months’ notice was in contemplation. There is much mention in Mr Rowles-Davies witness statement about his contemplation that Mr Griswold was going to insist on a minimum 6 months’ notice of termination and discussion between them to that effect.

However, these aspects were for inclusion in the main contract between the defendant and the Stakeholders, which the parties undertook to exercise their best endeavours to agree but had not yet agreed. Instead the Stakeholders were operating on an interim basis on the basis of a contract which was separate (though included within the same Stakeholder letters) for the provision of interim services. The word “interim” speaks for itself; apart from which, each stakeholder could terminate the interim arrangement on two weeks’ notice.

It follow therefore in my judgment, that neither of the claimants’ propositions is correct. Clause 7 of the Heads of Agreement states as follows:

Clause 7 contemplates the existence of both the interim arrangement and ongoing plans for a formal contract: it is clear that the present Heads of Agreement were also to govern as an interim arrangement until CSL and the defendant themselves had entered into a formal contract after the contract with the Stakeholders had itself been finalised. There is also a clear intention expressed in clause 7 that the present Heads of Terms should contain the terms for the termination of the agreement in identical terms to those in the Stakeholder Letters. I conclude that the same period of notice - i.e. two weeks’ notice - was incorporated into the Heads of Terms by clause 7 until such time as the contemplated formal agreement was executed and imported by reference a different period.

The claimants have also advanced the argument that very late disclosure by the defendant discloses the following facts:

In my judgment there are grounds for thinking that the claimants’ assertion is factually correct. However, the complaints which the claimants now advance are insufficient to affect the conclusions I have reached in paragraph 53 above because, inter alia, the facts alleged and the legal route to any contrary legal conclusion are not pleaded, not satisfactorily developed in argument or supported by authority and are in any case not apparent to me.

The point originally taken by the claimants is that the defendant did not validly terminate the Heads of Agreement under clause 7; that is because clause 7 provided that the Heads of Agreement should mirror the provisions in the Stakeholders letters “to the extent that those agreements provide for a break clause ...” and because the Stakeholder letters provided that “any Appointor shall be entitled to terminate provision of interim services ... on not less than two weeks’ notice in writing”. Therefore, they argued that notice in writing was required and, because notice was given only orally, it was not effective to terminate the Agreement which therefore continued. This argument was abandoned in the claimants’ closing submissions.

In its place the claimants advanced the new argument that the earliest date at which the notice to bring the Heads of Terms to an end could be served was on a date not less than 18 months from the date of the commencement of the Heads of Terms with a period of notice of 180 days.

In my judgment the argument cannot succeed. At the date when the defendant gave to CSL notice of termination of the Heads of Agreement, the provisions as to termination were governed by clause 7 of the Heads of Agreement. Since at that date there was not a formal agreement between the defendant and any of the Stakeholders, the period of notice was that set out in the Stakeholder Letters, that is to say a period of two weeks and there was no minimum period of 18 months which had to elapse before notice could be given.

The issue arising here is whether the claimant is correct to argue that the sum of £25,224.84 was deducted from the first instalment without agreement, authority or justification. The relevant facts are these:

I reject Mr Rowles-Davies’ assertion that there was not an agreement that the sub-contractors should contribute to certain of the set-up costs. In my judgment it is more probable than not that there was an express agreement to share the specified start-up costs and that, although Mr Rowles-Davies does not recollect it now, he was party to that agreement. I reach this conclusion not only because there is no contemporary evidence that Mr Rowles-Davies objected to the charge but also because the terms of his letter dated 20^th August 2003 support the idea that he was in agreement to the charge being deducted. This comes about not merely from his use of the words “Just in case there is any concern” but also “I expect only to receive”. Had there not been an agreement I would have expected him to query why the defendant was looking to the sub-contractors to pay any proportion of them.

As regards the sum of £10,416.67, I have to return to the Amended Heads of Agreement. It was agreed between CSL and the defendant that the sum of £122,916.67 would be an initial payment made by the defendant to CSL for its services. The amendment was agreed between the parties in September 2003, by which time the services (including those supposed to have been rendered to Ashley Ainsworth) had been performed and the amount of legitimate deductions had become known. There has been no direct suggestion that the terms as to payment in the Amended Heads did not reflect the true agreement between the parties and there has not been any application to rectify the amended Heads of Agreement. The agreement did not state that the payment should be recovered from Ashley Ainsworth but required the defendant to pay. It has not done so to date and in my judgment has the primary obligation to do so. It was the defendant which was in contract with Ashley Ainsworth and had the ability to recover from that company any overpayment that had been made to it. CSL had no contractual relationship with Ashley Ainsworth and no means of making a recovery of any overpayment that the defendant might have made to it.

“Pay and be paid”: the defendant argues that it was a term of the agreement with the members of the group that they would be paid for their work only when payment was received from the Stakeholders. Mr Griswold explains how it turned out that a conflict developed between the interests of the insurers and those of the banks. As a result, the insurers refused permission for the defendant to supply to the banks information which the defendant had agreed to obtain and provide. He explained in his statement how

Mr Griswold says that “It had been made very clear to everyone involved, and agreed at the initial meeting in Marple between all parties, that payments to subcontractors would only be made on a ‘pay and be paid’ basis” and that “that was the clear and accepted understanding between the parties from the start and there was no other way of running the arrangement between us”. .......... ; therefore the defendant argues that CSL was entitled to payment only on a “pay and be paid” basis. This the claimants deny. Each party sought to derive support from the terms of emails and attached documents passing between them: there was no contemporary documentary evidence put before me of an express agreement nor that the supposed term was incorporated in arrangements between the defendant and Ashley Ainsworth and Blue Sky.

In my judgment it was not a term of the Heads of Agreement that CSL was to be paid only on a pay and be paid basis. First of all, the case has not been pleaded or run on the basis that the term could be implied: an express agreement has been pleaded and alleged. Secondly, an agreement of this nature is prima facie contrary to the express terms of the Heads of Agreement. Thirdly, the only oral evidence in support of the term is that of Mr Griswold and that evidence was contradicted by Mr Rowles-Davies. In fact, I do not accept the evidence of Mr Griswold on this on grounds of credibility. Fourtly, there is notably no contemporary documentary evidence of such a term which is surprising since it is of such considerable importance and contradicts the express evidence as to payment in the Heads of Agreement. Fifthly, if there was such a term it would have been agreed by all four of the participants to the arrangement, and one would have expected it to have been written into the terms of the contracts with Ashley Ainsworth as well as that of Blue Sky, which were never in the possession of the claimants and have not been disclosed by the defendant. Sixthly, had there been such an agreement amongst the group, it could be expected that the representatives of Ashley Ainsworth and Blue Sky as parties to it could have been brought to court to support the allegation. Seventhly, from the available contemporary evidence I find a number of factors and representations which support the absence of such a term.

These include the fact that payments until the turn of the year 2003 were made without reduction by the defendant referable to substantial non-payment of monies due to it by Stakeholders. In his statement and evidence Mr Griswold accepted that there had been an overpayment but contended that this had been quite simply a mistake on the part of Mr Guy Woods, one of the directors of the defendant, and those payments should not have been made when they were. However, in an email dated 2^nd April 2004 (to which I have already referred (see para 23 above) referring to the continuing embarrassment of delayed payment Mr Griswold stated:

“As discussed with you, we are prepared to draw a line under the state of the accounts to 31 December [2003]. In any event you have been paid your fees in full to December. It still leaves us the problem of recovering over £100K from HBOS on our shoulders but so be it - that’s life!”.

Apart from which, the defendant did have a contractual relationship with the Stakeholders but this was not a benefit which CSL or the other subcontractors enjoyed. Thus, if any of the banks did not fulfil its contractual obligation to make payment to the defendant, the latter could advance a claim for payment, at the very least under the arbitration provisions in the Stakeholder letters and had in any event the entitlement to give notice to CSL to terminate its services. CSL was not in the position to recover any fees from the Stakeholders.

In the result, it seems to me that the possibility that the Banks or Insurers might default in making payment was something which did not occur to the parties to the arrangement at the time when the contractual arrangements were put in place. This explains why it is that Mr Woods made the payments as they fell due under the Heads of Agreement. It was only when the default of HBOS in particular became persistent and prolonged in early 2004 (and the other Stakeholders gradually started withdrawing) that the defendant sought to withhold payment and began in effect to with hold payment. At this stage it is evident that Mr Rowles-Davies had neither the stomach nor the financial muscle to do other than complain mildly about the financial pressure on his companies.

At some time before the end of October 2003 it is evident that Mr Rowles-Davies was having difficulties in securing appropriate professional indemnity insurance for CSL and came up with the idea of substituting another company owned by him, the third defendant, in place of CSL. In his witness statement he puts the matter in this way:

“In view of this I decided that CSL would assign its contract with the Defendant to the Third Claimant and the Defendant would be invoiced for the audit work that was being undertaken to the Third Claimant. I sent Mr Griswold an e-mail and informed him of the current position with PI insurance and the reason why I was making this amendment. I explained that the payment for the work done would have to be made to the Third Claimant. I also sent to Mr Griswold the amended Heads of Agreement showing the assignment to the Third Claimant.

The e-mail he sent to Mr Griswold, dated 31^st October 2003, stated the reason for the problem and continued:

According to his witness statement, Mr Rowles-Davies did not hear anything from Mr Griswold but the invoices for the work undertaken were changed from CSL and put on RDA’s headed notepaper. Because these invoices were paid into RDA’s bank Mr Rowles-Davies says “I therefore believed that Mr Griswold on behalf of the Defendant had agreed that there should be a direct business relationship between the Defendant and [RDA] and that CSL would cease to be involved in the TAG run-off scheme.

Mr Griswold denies that he reached any agreement about this with Mr Rowles-Davies. He chose not to confirm any agreement though he did not mind at all sending a cheque for payment direct to RDA. Payment was not a matter which concerned him unduly. He was however reluctant to reach a formal agreement because it would require formal approval by each Stakeholder to RDA becoming a sub-contractor and obtaining a delegated authority to act for Insurers.

It does appear that CSL and RDA at some stage signed a Heads of Agreement backdated to 14^th July 2003, for the provision by RDA to CSL of the self-same services as CSL were contractually obliged to render to the defendant and which was in virtually identical terms to the Heads of Agreement between the defendant and CSL and at the same price. But the Agreement is obviously the pre-existing agreement referred to in the above email. It is not an assignment by CSL of the benefit of its contract with the defendant but an agreement between RDA and CSL for RDA to provide services to CSL by way of subcontract. There is no other evidence to suggest there was an assignment. There is no evidence whatsoever to support the contention that there was a novation between the defendant and RDA of its agreement with CSL.

In the result, RDA does not have a right of action against the defendant. That remained in CSL which is now in liquidation and has in any event assigned any rights it may have had to Mr Rowles-Davies and Mr Cox.

My conclusion therefore is that CSL is entitled to be paid the sum of £10,416.67 (as discussed in paragraph 61 above); it is also entitled to be paid the sums specified in the Amended Heads of Agreement until the termination of the Agreement upon expiry of the period of notice given by the defendant on the 19^th August 2004.

The claimants seek to be paid interest on the sums due pursuant to the Late Payment of Commercial Debts (Interest) Act 1998. The Act applies to “a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, other than an excepted contract” (this was not an excepted contract). By clause 1 (1) of the Act it is an implied term of the contract that any qualifying debt created by the contract carries simple interest as set out in the Act. The current rate applicable since 2002 is the rate of 8 per cent above the official bank rate. Interest is to be applied unless the interests of justice require that statutory interest should be remitted in whole or part by reason of any conduct of the supplier: see section 5. The note to paragraph 9B-1340 of the White Book suggests that the discretion can be exercised where the claimant has unreasonably delayed in either issuing or prosecuting the claim. I have been referred to the case of Ruttle Plant Hire Limited v Secretary of State for Environment Food and Rural Affairs [2009] EWCA Civ 97.

It is not disputed that the Act applies to the contract and both the sum of £100 by way of statutory compensation and statutory interest is to be applied unless it is to be remitted under section 5. The defendant argues that interest should be remitted for a number of reasons, including (i) the fact that no separate invoice was sent in relation to the sum of £10,416.67 and the sums due for the final month and notice period; and (ii) because neither CSL nor any of the claimants raised a query about the spreadsheet sent by the defendant on 17^th August 2004 (showing a debit balance of only £4,841.59), did not seek to advance a claim until 4 years later and did not issue proceedings until 29^th May 2008. The claimants argue that such a submission misses the point about the statutory interest prescribed by the Act.

In my judgment in the case of the present contract it is not a prerequisite for the Act to apply for an invoice to be sent. That is because the debts arising from the obligation on the defendant to make payment pursuant to clause 6 of the Heads of Agreement (as set out in paragraph 12 above) are fixed sums payable on agreed dates, that is to say in an initial payment on the formation of the contract and at monthly intervals thereafter: see section 4(3) of the Act.

In my judgment the delay in pursuing the claim is a matter which I can take into account under section 5 but I also need to preserve the spirit of the Act which includes the obligation to pay statutory interests on late payment of debts as an implied term of the contract between the parties. In my judgment it is in the interests of justice that the statutory rate should be remitted to a rate of 4 per cent above the official bank rate from the date when each debt became due until 30 days after the Letter of Claim was received by the defendant and at 8 per cent above the official bank rate thereafter until the judgment in the action has been satisfied.

I would be grateful if counsel could seek to agree the amount of the judgment both as regards the amount outstanding under the Agreement and the statutory compensation and statutory interest due.