Utilise TDS Ltd v Davies & Ors

This is my extemporary judgment on the trial of a preliminary issue in a claim by Utilise TDS Limited (as claimant) against Mr Neil Cranstoun Davies, Watertrain Limited and Watertrain Acquisitions Limited (as defendants), claim number 3MA30330.

The background to this preliminary issue is that by a claim form issued on 11^th June 2013 the claimant sought a declaration that one third of the shares in the third defendant company, Watertrain Limited, were held on trust for the claimant together with certain other consequential relief. The claimant contended that there had been an agreement that that one third shareholding was to be held equally by a predecessor company of the claimant, Utilise Training and Development Solutions Limited, Mr Davies (the first defendant), and the former second defendant, Bolton College. Utilise Training and Development Solutions Limited had gone into creditors’ voluntary liquidation in May 2010 and the claimant claimed to have succeeded to its rights and interest in the third defendant company. After the issue and service of the proceedings, the former second defendant, Bolton College, had transferred its by then 50 percent interest in the third defendant company to the fourth defendant, Watertrain Acquisitions Limited. At that time the fourth defendant had not been joined as a party to the proceedings.

On 4^th November 2014 there was a mediation attended by representatives of the claimant, Mr Davies and Bolton College. The claimant and Bolton College entered into a written compromise agreement dated 4^th November 2014. Pursuant to the terms of clause 3 of that compromise agreement, a Tomlin order was approved on 12^th December 2014 staying all further proceedings as between the claimant and Bolton College. The present defendants say that the effect of that compromise agreement is to release them, or to prevent the claimant from continuing with its claims against them. The claimant denies that such is the effect of the compromise agreement. Whether that is its effect is essentially the preliminary issue now before the court.

At the trial of this preliminary issue the claimant is represented by Mr Mark Harper QC, and the remaining defendants are represented by Mr David Mohyuddin QC. Both have submitted detailed written skeleton arguments which I have had the opportunity of pre-reading. Mr Mohyuddin addressed me in opening for the defendants for about an hour. Mr Harper responded for about 45 minutes and Mr Mohyuddin then replied for a little over 15 minutes.

Although the trial of this preliminary issue had been listed for a day and a half, the hearing in fact concluded at about 12.15 after starting shortly after ten o’clock. I indicated that I would deliver this extemporary judgment at two o’clock this afternoon, which I proceed to do.

It is necessary for me at this stage to set out the terms of the pleadings so far as relevant to the preliminary issue. Before doing so, however, I would make the point that this claim had originally been listed for a substantive trial before me on 23^rd November 2015. At that time, although Mr Mohyuddin represented the remaining two defendants, Mr Davies and Watertrain Limited, the claimant was represented not by Mr Harper but by Mr Brad Pomfret (of counsel). In the course of his written skeleton for that trial Mr Mohyuddin had referred to the compromise agreement and to its alleged effects. However, the release of all outstanding claims by the claimant against the then remaining two defendants, Mr Davies and Watertrain Limited, had not been pleaded by way of defence. I took the view that it was necessary for that aspect of the matter to be pleaded. For that and for other reasons the trial was adjourned. The claimant was given permission to join Watertrain Acquisitions Limited as a defendant to the proceedings and to make any necessary re-amendments to its particulars of claim. The first defendant, Mr Davies, was given permission to re-amend his defence so as to plead the facts of the compromise agreement which had been reached between the claimant and the second defendant on 4^th November 2014 and the terms of such compromise agreement. That was duly done.

The particulars of claim seek declaratory relief to the effect that the claimant is the beneficial owner of one third of the issued shares in the third defendant company, Watertrain Limited, and that those shares are held upon trust for the claimant by the first and fourth defendants, Mr Davies and Watertrain Acquisitions Limited, respectively. Paragraph 2 of the re-amended particulars of claim pleads that although the claimant originally sought relief also against the second defendant, Bolton College, that entity has, since the commencement of these proceedings, transferred its shareholding in Watertrain Limited to Watertrain Acquisitions Limited, a company of which Mr Davies and a Mr Paul Bartlett are the shareholders. The claimant now seeks relief against Watertrain Acquisitions Limited as well and has joined it to the proceedings as the fourth defendant.

The relief sought is a declaration that the claimant is the beneficial owner of one third of the issued shares in the third defendant company and that such shares are held upon trust by the defendants for the claimant absolutely. Further or alternatively, the claimant seeks a declaration that it is entitled in equity to those shares. Amongst other heads of relief the claimant seeks an order that the defendants do execute all documents necessary for the transfer of the said shares to the claimant, alternatively for the allotment of 100 shares in the third defendant company to the claimant, and that the register of members of the third defendant company is rectified accordingly to confirm the claimant as the registered holder of one third of the issued shares in the company. An account of any distributed profits is also claimed together with payment of an appropriate share of those profits, with interest, to the claimant.

So far as relevant paragraphs 50A and following of the re-amended defence plead as follows. Bolton College, the former second defendant, transferred its shares to the fourth defendant company, Watertrain Acquisitions Limited, on 23^rd December 2013 pursuant to a share purchase agreement and by a stock transfer form. The claimant and Bolton College entered into a compromise agreement on 4^th November 2014. The effect of that compromise agreement is said to be set out in paragraphs 51A to 51C of the re-amended defence. The terms of the compromise agreement are set out at paragraph 51A.

Paragraph 51B pleads the effect of the compromise agreement. It is said that this was to release the claimant’s claims against Mr Davies and the fourth defendant company, Watertrain Acquisitions Limited. It pleads as follows:

“(a)

The claimant’s claim was brought against Mr Davies and Bolton College, alleging that they owed the claimant one joint obligation;

(b)

At the time the claimant entered into the compromise agreement it knew that:

(i)

Bolton College had disposed of its shares in the company; and

(ii)

The shares in the company were held as to half by Mr Davies and as to the other half by Watertrain Acquisitions Limited;

(c)

The claimant compromised its entire claim and not just part thereof on the basis of payment by Bolton College of £35,000, releasing its entire claim against Mr Davies and Bolton College in return for such payment;

(d)

The compromise agreement makes no mention of Bolton College’s shareholding in the company;

(e)

The compromise agreement contains neither an expressed nor an implied - there being no basis in the admissible factual matrix for such implication - reservation of rights against Mr Davies or any other party;

(f)

The compromise agreement includes an express release. The further inclusion of a covenant not to sue does not restrict the effect of the release;

(g)

The claimant’s claim is not a money claim. It is not possible for the claimant to give credit for the £35,000 received from Bolton College. The claimant cannot be entitled to the £35,000 and one third of the shares in the third defendant company;

(h)

The claimant entered into a release by way of an accord and satisfaction with Bolton College, being one of two joint, or joint and several, contractors, which has also discharged its claim against Mr Davies, such discharge having occurred before Watertrain Acquisitions Limited was joined to these proceedings. Accordingly the claim should be dismissed.”

Paragraphs 4 and 5 of the defence of the fourth defendant, Watertrain Acquisitions Limited, adopt and repeat Mr Davies’s defence, with all necessary modifications, and it adopts and repeat paragraphs 51A and 51B of that defence. For the reasons set out in those paragraphs it is said that the claim should be dismissed.

The defence that the claim has been released is addressed at paragraphs 33A through to 33D of the amended reply. The compromise agreement is admitted but its effect is, for the reasons pleaded, denied. Paragraph 33C asserts that the factual matrix against which the compromise agreement was concluded between the claimant and Bolton College included the fact, known to and agreed by both parties, that the claim or claims against the remaining defendants to the proceedings would, notwithstanding any compromise between the claimant and Bolton College, continue. That is said to be evidenced by, amongst others, the fact or facts that the negotiations and agreement proceeded, and were concluded, in circumstances where, known to both the claimant and Bolton College, the claimant continued to deal with the remaining defendants and to progress the claims against them unaffected by the negotiations and agreement with Bolton College. By paragraph 33D it is pleaded that in those circumstances it was:

“The obvious common but unexpressed intention of the parties to the compromise agreement that the right or rights and claims of the claimant against the remaining defendants were reserved.”

Following upon the close of those re-amended and amended pleadings a case management conference took place before me on 8^th March 2016. Paragraph 1 of my order on that day directed that there should be tried a preliminary issue, namely, whether the effect of the compromise agreement entered into on 4^th November 2014 between the claimant and the second defendant had, on its true construction, the effect of compromising the claimant’s claims against the first and/or fourth defendants. Paragraph 3 directed that the preliminary issue was to be tried on the basis of a schedule of agreed or assumed facts. Further consequential directions were then recorded in my order.

In due course a schedule of agreed or assumed facts for use at the trial of the preliminary issue was concluded. That schedule reads as follows:

“(i)

On 11^th June 2013 the claimant issued proceedings against the first, second and third defendants;

(ii)

On 4^th November 2014 a mediation took place at which the claimant, the first defendant, the second defendant and the third defendant were either present or represented;

(iii)

The claimant did not reach agreement with the first or third defendants;

(iv)

In terms then unknown to the first defendant the claimant reached agreement with the second defendant, which agreement is recorded in the compromise agreement dated 4^th November 2014, a copy of which is annexed hereto. The express terms of the compromise agreement, and what is not expressly provided for in the same, can be discerned from a reading of the compromise agreement and are not listed as individual facts;

(v)

As part of, or consequential upon, the compromise agreement the claimant and the second defendant signed a Tomlin order in agreed form and submitted the same to the court;

(vi)

On 2^nd December 2014 District Judge Harrison made an order in the proceedings in the form of the submitted Tomlin order;

(vii)

The particulars of claim were amended on 24^th August 2015 and re-amended on 14^th December 2015;

(viii)

The proceedings as against the first defendant, the third defendant and, once joined, the fourth defendant continued. The defendants reserve their position as to whether it is appropriate to include this in the schedule of facts and will develop their submissions in this regard as appropriate at the hearing of the preliminary issue.”

During the course of this morning’s hearing I enquired as to the terms of the agreement pursuant to which the fourth defendant, Watertrain Acquisitions Limited, had acquired Bolton College’s former shareholding in the third defendant company, Watertrain Limited. Mr Mohyuddin, for the defendants, rightly drew my attention to paragraph 50A of the re-amended defence of the first defendant, which referred to the share purchase agreement and the stock transfer form which were said to be annexed to the re-amended statement of case as documents Q and R respectively. I pointed out that those documents were not part of the agreed hearing bundle. I enquired whether it might be part of the relevant factual matrix for the court to know what the terms of those documents provided. As a result of enquiries made during the course of this morning’s hearing, I was told by Mr Harper that all that the claimant had been aware of at the time of the mediation was the fact that Bolton College had transferred its shareholding to Watertrain Acquisitions Limited. I was told that the claimant had not known the terms of the agreement upon which Bolton College had done this, or the terms of any agreement between Bolton College and the remaining defendants, at the time of the mediation. Therefore knowledge of the terms of that document was not known to both of the parties to the compromise agreement and therefore should be excluded from consideration as part of the factual matrix. I therefore proceed on that basis.

The compromise agreement is dated 4^th November 2014. The parties are the claimant (described as Party A) and Bolton College (described as Party B). Under the heading “Background” the agreement recites:

“(A)

That court proceedings were commenced on 11^th June 2013 in the High Court of Justice, Chancery Division, Manchester District Registry [with the claim number being given] (defined as “proceedings”) by Party A against Party B regarding the provision of shares in Watertrain Limited (defined as “the dispute”);

(B)

The parties to this agreement have settled their differences and have agreed terms for the full and final settlement of the dispute and wish to record those terms of settlement on a binding basis in this agreement.”

The compromise agreement then sets out what are said to be the agreed terms. Clause 1 is headed “Effect of this agreement” and states that:

“The parties hereby agree that on entering this agreement it shall immediately be fully and effectively binding on them.”

Clause 2 is headed “Payment”.

“2.1: Party B shall pay to Party A the total sum of £35,000, payable by way of bank transfer to [an identified account], on or before 4pm on 7^th November 2014.

2.2

Interest shall accrue and be payable by Party B on any part of the £35,000 that is not paid in accordance with clause 2.1 at the rate of two percent per annum above the base rate for the time being of Barclays Bank Plc.”

Clause 3 is headed “Stay”. It provides that:

“The parties hereby consent to, and shall take all necessary steps to obtain, an order in substantially the form of the draft order in annex A.”

Clause 4 is headed “Release”. It provides:

“This agreement is in full and final settlement of, and each party hereby releases and forever discharges, all and/or any actions, claims, rights, demands and set offs, whether in this jurisdiction or any other, whether or not presently known to the parties or to the law, and whether in law or equity, that it ever had, may have or hereafter can, shall or may have against the other party or any of its related parties arising out of or connected with:

(a)

The dispute;

(b)

The proceedings (described collectively as “the released claims”).

The term “related parties” is not defined in any way in the compromise agreement.

Clause 5 is headed “Agreement not to sue.” It provides that:

“Each party agrees on behalf of itself not to sue, commence, voluntarily aid in any way, prosecute or cause to be commenced or prosecuted against the other party any action, suit or other proceedings concerning the released claims in this jurisdiction or any other.”

Clause 6 is headed “Costs”. Sub-clause 6.1 provides that:

“The parties shall each bear their own legal costs in relation to this dispute and this agreement.”

Clause 6.2 provides that:

“This clause 6 supersedes and overrides any and all previous agreements between the parties and any court order regarding the legal costs in relation to the dispute and the proceedings and in relation to this agreement, including the implementation of all matters provided by this agreement save for the costs being subject to the notice of commencement of bill of costs in the Court of Appeal (Civil Division) High Court claim number A3/2014/0870.”

By clause 6.3:

“The parties agree to co-operate to ensure the expeditious release of the funds currently held in court by way of security for Party B’s costs.”

Clause 7 is headed “No admission.” It provides that:

“The agreement is entered into in connection with a compromise of disputed matters and in the light of other considerations. It is not, and shall not be, represented or construed by the parties as an admission of liability or wrongdoing on the part of either party to this agreement or any other person or entity.”

Clause 8 is headed “Severability.” It provides that:

“If any provision of this agreement is found to be void or unenforceable that provision shall be deemed to be deleted from this agreement and the remaining provisions of this agreement shall continue in full force and effect and the parties shall use their respective reasonable endeavours to procure that any such provision is replaced by a provision which is valid and enforceable and which gives effect to the spirit and the intent of this agreement.”

Clause 9 is headed “Entire agreement.” Clause 9.1 provides that:

“This agreement constitutes the entire understanding and agreement between the parties in relation to the subject matter of this agreement.”

Clause 9.2 provides that:

“Each party acknowledges that it has not entered into this agreement in reliance wholly or partly on any representation or warranty made by or on behalf of the other party, whether orally or in writing, other than as expressly set out in this agreement.”

Clause 10 is headed “Governing law and jurisdiction.” It provides that:

“This agreement shall be governed by and construed in accordance with the law of England and Wales. Any dispute arising out of or in connection with or concerning the carrying into effect of this agreement shall be subject to the exclusive jurisdiction of the courts of England and Wales and the parties hereby submit to the exclusive jurisdiction of those courts for these purposes.”

Clause 11 is headed “Variation” and provides that:

“Any variation of this agreement shall be in writing and signed by or on behalf of each party.”

The agreement concludes by recording that the agreement had been entered into on the date stated at the beginning of it, namely 4^th November 2014. The signatory on behalf of the claimant is stated to be a representative of Linder Myers LLP, who were the solicitors then acting for the claimant in connection with this litigation. They are no longer so acting. The document was signed for and on behalf of Bolton College by an individual whose signature is indecipherable.

Although this preliminary issue really turns upon the terms of clauses 2, 3, 4 and 5 of the compromise agreement I have set out its detailed provisions in full so as to indicate the very complete and detailed nature of the written compromise agreement.

The Tomlin order was approved by District Judge Harrison on 2^nd December 2014. The Tomlin order itself is entitled in the claim between the claimant and the second defendant only. The Tomlin order itself contains no reference to either of the other two then defendants, Mr Davies or Watertrain Limited. The Tomlin order itself states that it was made upon reading the letters from the parties’ solicitors and upon the parties having agreed terms of settlement.

It then recorded by consent that it was ordered that:

As contemplated by the order that I made on 8^th March 2016 I have heard no oral evidence, or received any written witness evidence, on the trial of this preliminary issue. It falls to be tried on the basis of the pleadings and the schedule of agreed or assumed facts, as supplemented by the additional point indicated to me by Mr Harper during the course of this morning’s hearing (as stated earlier in this extemporary judgment).

Mr Mohyuddin was the first counsel to address me. Mr Mohyuddin began the substance of his written skeleton submissions by emphasising that what was alleged by the claimant in this case was that Mr Davies and Bolton College had had one joint obligation, which was to ensure that the claimant, Mr Davies and Bolton College, owned equally the shares in Watertrain Limited. Mr Davies and Bolton College were said by the claimant to be joint contractors. The declaration sought in the proceedings was that the shares were held upon trust by the defendants (in the plural).

The claimant’s case on the compromise agreement seems to be that the claimant and Bolton College had agreed that the claim against Mr Davies - Watertrain Acquisitions Limited not then being a party - should continue but that such agreement had not found its way into the written compromise agreement. It is said that that can be seen from the use of the phrase “obvious, common but unexpressed intention” which is to be found in paragraph 33D of the amended reply.

Mr Mohyuddin points out that there is no plea in terms of any implied term or mistake, nor is there any claim for rectification of the compromise agreement, or any plea of estoppel, both of which (if they were to be relied upon) would have to have been specifically pleaded and clearly established. Mr Mohyuddin also pointed out that there was no evidence which attempted to support the allegation that there was an obvious, common but unexpressed intention on the part of the claimant and Bolton College.

Mr Mohyuddin pointed out in his written skeleton argument that it was well established that a release by way of an accord and satisfaction between a claimant and one or more of a number of joint or joint and several contractors operated to discharge the claim against all of them. Mr Mohyuddin submitted that one joint contractor, Bolton College, had been released. He asked whether there was anything in the words of the compromise agreement itself, or in the relevant admissible background, that pointed to the conclusion that the claimant’s claims against Mr Davies were (impliedly) preserved despite the release of Bolton College.

He submitted that the answer was in the negative. He emphasised that it was not for the court to relieve a party from the consequences of a bad bargain. That was because it was the court’s function to ascertain the meaning of the contract and not to re-write it. He submitted that the purpose of interpretation was to identify what the parties had agreed, and not what the court thought they should have agreed.

He pointed to the fact that the relevant admissible background facts were limited to those set out in the schedule of assumed and agreed facts. The compromise agreement itself contained an express release clause in clause 4, the terms of which were said to be clear. There was said to be no ambiguity. The compromise agreement was also said to contain in clause 5 (a covenant not to sue) which was said really to add nothing. Looked at in terms of hierarchy, the express release came above the covenant not to sue. He submitted that that clause simply provided additional protection and supported the stay, dismissal and release. In any event, he contended that the covenant not to sue could not be used so as to dilute the effect of the release clause. If there was to be any attempt to imply a reservation of the claimant’s rights to proceed against Mr Davies (which attempt was said to be notably absent), the express release clause was said to be the only place for it. Any such attempt would be resisted, not least on the basis that it was said not to be necessary.

Mr Mohyuddin submitted that paragraph 33C of the amended reply, referring to the fact known to, and agreed by, both parties that the claim, or claims, against the remaining defendants to the proceedings would, notwithstanding any compromise between the claimant and Bolton College, continue, was an illegitimate attempt to engineer into the so-called background the parties’ subjective intentions. Mr Mohyuddin submitted that the claimant had been a trading company which, at the mediation, had been represented by what he described as a sophisticated legal team of solicitors and counsel. The claimant could, and should, reasonably be supposed to have understood the legal consequences of settlement with one, but not all, of the defendants, the inclusion of an express release clause, and the absence of any reservation of rights against Mr Davies.

Mr Mohyuddin pointed to the fact that by the time of the compromise agreement, Bolton College had disposed of its shares in the company, Watertrain Acquisitions Limited, but no mention of that had been made in the compromise agreement. Indeed Watertrain Acquisitions Limited had not been joined to the proceedings until 23^rd November 2015.

Mr Mohyuddin pointed to the fact that Bolton College had not sought any protection, such as an indemnity from the claimant, from any claim for contribution made against it by Mr Davies in the event of the claimant proceeding against him. That is said to have been because Bolton College had no need to do so. The release had operated so as to prevent the claimant from continuing its claim against Mr Davies.

Mr Mohyuddin submitted that the claimant had chosen to compromise on the basis of payment by Bolton College of £35,000. There was said to be nothing in any suggestion that might be made that it was commercially improbable that the claimant should have compromised its entire claim for £35,000 because there was no evidence of the true value of the company, nor of the advice that the claimant had been given as to the merits of its claim, or as to the length of time it was taking to reach a resolution. By the time of the compromise agreement, Mr Mohyuddin pointed out that there had already been one trip to the Court of Appeal on the question of whether the claimant had been caught by the terms of CPR 3.14. The claimant’s appeal had been resisted by Bolton College and had been heard on 16^th to 17^th June, with judgment being given on 4^th July 2014, a part of the combined appeals in Denton v TH White Limited [2014] EWCA Civ 906.

Notwithstanding the compromise agreement, the claimant’s case remained that it was entitled to one third of the shares in the third defendant company; but, Mr Mohyuddin asked rhetorically, how does the claimant account for the £35,000 it has already received from Bolton College? It attempts, by the amendments it made in December 2015, post-dating the compromise agreement, to say that it will give credit for the £35,000 against any profits that are ordered to be paid to it; but that is said to fly in the face of the terms of the express release clause. That is because the claimant had not restricted the release to its claim for an account of profits; the release clause was much, much more widely drawn. In fact the claimant had released all and/or any actions, claims, rights, demands and set offs. It is said that what is described as the claimant’s glib, after the event, attempt to rationalise what it chose to receive in return for the release has no merit; the proper inference to draw is not that the claimant was taking £35,000 on account of the relief sought but rather in full and final settlement of it, as the express words of the release clause stated. Mr Mohyuddin submitted that any acts post-dating the compromise agreement were inadmissible for the purposes of its construction. Further, there was no clear estoppel to which any such acts could be relevant.

In the circumstances, the proper conclusion was said to be that the effect of the compromise agreement was to release Mr Davies. There could be no continuing claim against him or, it followed, against the fourth defendant, Watertrain Acquisitions Limited. The preliminary issue ought therefore to be determined in the defendants’ favour by being answered affirmatively, with the claim being dismissed in consequence.

In the course of his oral submissions this morning Mr Mohyuddin emphasised two points by reference to the recent decision of the Supreme Court in the case of Marks & Spencer Plc v BNP Paribas Securities Services [2015] UKSC 72, reported at [2015] 3 WLR 1843. Mr Mohyuddin had added that authority to the bundle of authorities previously placed before the court because of the heavy reliance that Mr Harper had placed in his skeleton argument upon the decision of the Privy Council in the case of Attorney General of Belize v Belize Telecom Limited [2009] UKPC 10, reported at [2009] 1 WLR 1988. Mr Mohyuddin’s concern had been that Mr Harper had appeared to rely upon the Belize case for the submission that the question whether a term should be implied into a contract was simply part of the process of construction of the relevant document. By reference to the judgment of Lord Neuberger, with which both Lord Sumption and Lord Hodge had agreed, Mr Mohyuddin submitted that Lord Hoffmann’s opinion in Belize no longer represented the law on the implication of terms as part of an exercise in construction.

In the light of Lord Neuberger’s observations, which were said (given the support of Lord Sumption and Lord Hodge) to represent the view of the majority of the Supreme Court, it was now said to be clear that the process of implication of a contractual term was distinct from, and followed on from, the process of construing the written instrument. As a result, Mr Mohyuddin submitted that, in the absence of any pleaded case supporting the implication of a term into the compromise agreement, it was simply not open to the claimant to submit that a term should be implied into the compromise agreement.

Mr Mohyuddin also relied upon the Marks & Spencer case for a second reason. He submitted that it supported the view that there should be no dilution of the strict test applicable to the implication of a term in a written contract. He submitted that it was clear that the test remained that of necessity. It must also be just and reasonable to imply a term, and the term to be implied must not be inconsistent with any express terms of the compromise agreement. Mr Mohyuddin submitted that it was only in paragraph 20 of Mr Harper’s supporting skeleton argument that one first discerned the nature of the term which Mr Harper was contending needed to be implied into the compromise agreement, namely, that the rights and claims of the claimant against the first and third defendant, and indeed any person other than the second defendant, were reserved.

Mr Mohyuddin pointed out that there was no pleaded case as to why it was strictly necessary for any such term to be implied into the compromise agreement. There was nothing said in the amended reply as to why the implication of such a term would be just and reasonable. Moreover Mr Mohyuddin submitted that the implication of such a term would be inconsistent with the express terms of the compromise agreement. Therefore he submitted that the only conclusion was to resolve the preliminary issue in the defendants’ favour, with the consequence that the proceedings would come to an end in their entirety.

Mr Mohyuddin took me to the Supreme Court’s decision in the Marks & Spencer case. He referred me to paragraph 1, where the issue in that case was identified. The issue was whether a tenant could recover from its landlord the apportioned rent in respect of a period from the break date to the end of the quarter for which a quarter’s instalment of rent had been paid on the earlier usual quarter day. The resolution of that issue was said to turn on the interpretation of the lease, and to require the court to consider the principles by reference to which a term was to be implied into a contract, in that case the lease document.

Mr Mohyuddin invited me to read the whole of paragraphs 14 through to 31 of Lord Neuberger’s leading judgment. He pointed out that the first part of that passage dealt with the principles governing the implication of terms into a written contract whilst the second part dealt with Lord Hoffmann’s observations on the process of implication of terms in the Belize case.

Mr Mohyuddin also invited me to look at the judgments of Lord Carnwath and of Lord Clarke; but he emphasised that the majority view was that of Lord Neuberger and that to the extent that there was any difference between his judgment and that of the judgments of either Lord Carnwath or Lord Clarke, Lord Neuberger’s views were to be treated as authoritative, given that they had been endorsed by two of the other members of the Court in the persons of Lord Sumption and Lord Hodge. I accept that analysis of the Supreme Court’s decision.

As a result, I accept Mr Mohyuddin’s submission that the implication of a term into a written contract is not to be treated as part and parcel of the process of construction; rather it follows on from the ascertainment of the true meaning of the contract, although that must be qualified by the fact that (at the end of paragraph 28 of his judgment) Lord Neuberger acknowledged that he accepted a point made by Lord Carnwath at paragraph 71 of his judgment to the extent that in some cases it could conceivably be appropriate to reconsider the interpretation of the express terms of a contract once one has decided whether to imply a term. Even if that was right, however, it does not alter the fact that the express terms of a contract must be interpreted before one can consider any question of implication.

In the light of that, Mr Mohyuddin submitted that it was not open to Mr Harper to say, as part of the exercise of construction, that one could argue for an implied term. Mr Mohyuddin objected that there was nothing in the amended reply about the implication of terms into the compromise agreement. Paragraph 33D of the amended reply was said not to support the implication of a term into the contract; rather it was closer to a plea for rectification, which had not been advanced. Mr Mohyuddin submitted that the claimant should have set out in its statement of case:

For all of those reasons, it was said by Mr Mohyuddin not to be open to the claimant to run the implication argument. Implication was not to be treated as part of the process of construction but was a distinct process of its own, governed by separate legal principles.

Mr Mohyuddin’s second argument was that in any event, the implication of a term into the compromise agreement was unjustified. The traditional tests identified by Lord Neuberger in the Marks & Spencer case were to be applied. The claimant needed to identify the factors prayed in aid to support the implication of a term; and those factors had to justify such implication. The only place where a term could be implied was in clause 4, the release clause, of the compromise agreement. The only matters that could be relied upon in support of such implication were those set out in the schedule of agreed or assumed facts.

Mr Mohyuddin emphasised that the claimant had been represented at the mediation by solicitors and counsel and that it had known that it had a claim against the first and third defendants, as well as against the second defendant. A bespoke compromise agreement had been created with the assistance of solicitors and counsel, and in the knowledge that the claim was addressed to the first and third defendants as well as the second defendant. Nothing, however, had been said, in terms, about the reservation of any rights against defendants one or three. It had simply been forgotten, or not thought about.

With the benefit of hindsight, the claimant could see that there should have been a term in the compromise agreement to address the position of the continuing claims against defendants one and three; but, Mr Mohyuddin submitted, the court could not make up for the shortcomings of the drafting of the compromise agreement by the implication of a term that had been omitted from the release clause.

There was no evidence of any protection that had been afforded to the second defendant from any claim against it by the first, third or fourth defendants if the claim were to be pursued against them. That absence of any protection was said to operate in the defendants’ favour. It was said that the implied term contended for was inconsistent with the compromise agreement, which had provided for the payment by the second defendant to the claimant of £35,000 in full and final settlement of the claim without saying anything about how it was to be accounted for in any proceedings against the first defendant. There was simply no mechanism in the compromise agreement to account for that payment. As a result, the implication of the term now contended for would be inconsistent with the compromise agreement, and that was a bar to any implication.

Mr Mohyuddin addressed Mr Harper’s reliance upon the fact that the only parties named in the compromise agreement, and the Tomlin order, were the claimant and the second defendant. The reason for that was said to be because the parties who entered into the compromise agreement had not given any thought to the effect of that agreement on the existing claim against the first defendant. The proper inference was not that suggested by Mr Harper (at paragraph 17 of his written skeleton argument) that the claimant and the second defendant were proceeding on the common basis that the second defendant would be extracted from the claim, but that it would continue as between the claimant and the remaining parties. Rather, the proper inference was simply that the claimant and the second defendant had not applied their minds to the effect of a release of a joint contractual claim or liability. On that basis, there was no unexpressed common intention and therefore, even on the claimant’s pleaded case, such an assertion of an unexpressed common intention could not succeed.

There was an express release clause and no reservation of rights against the remaining defendants. It was therefore said that the submissions advanced by Mr Harper could not succeed, even on the authority of the Belize case. The implied term sought was not necessary, whether for business efficacy or otherwise. The compromise agreement was capable of working perfectly well without it. It might have worked rather better for the claimant if there had been a reservation of rights against the remaining defendants, but that was not the test. It was not obviously what the parties would have agreed if the officious bystander had asked them. Nor was it just and reasonable to imply such a term which, it was said, would be inconsistent with the express terms of the compromise agreement. Those were Mr Mohyuddin’s submissions.

Mr Harper submitted that a term was to be implied into the agreement to give effect to the common - as between the claimant and the second defendant - but unexpressed intention that the rights and claims of the claimant against the first and third defendants (and any person other than the second defendant) were reserved.

At paragraph 6 of his written skeleton argument Mr Harper expressly acknowledged that it was common ground between the parties that if no such term were to be implied into the agreement, then the effect of that would be to release the defendants, and each of them, from liability for and/or to compromise the claims, both for breach of contract and breach of trust, which had been brought by the claimant against them.

Mr Harper placed considerable reliance upon what had been said by Lord Hoffmann at paragraphs 16 through to 25 of the Belize case. He also referred to the decision of the Court of Appeal in the case of Gladman Commercial Properties v Fisher Hargreaves Proctor [2013] EWCA Civ 1466 at paragraphs 25 to 42 in the leading judgment of Lord Justice Briggs. Lord Justice Ryder agreed with that judgment although the presiding Lord Justice (Lord Justice Longmore) added a few additional observations at the end of the judgments at paragraphs 84 to 85.

In the Gladman case the Court of Appeal had applied the principles relating to the implication of terms in considering whether or not a term which reserved rights against joint tortfeasors should be implied into the compromise agreement before it. Mr Harper, however, pointed to a significant difference between the facts of the Gladman case and those of the instant case. In the Gladman case there had been a compromise of proceedings between the two sellers of a property at a time when no proceedings were on foot against the joint tortfeasors, the claims against which were said to have been released as a result of that compromise. That was said to be a significant difference between the facts of the Gladman case and those of the instant case, where legal proceedings were on foot by the claimant against the relevant joint contractors.

Mr Harper submits that because the compromise agreement had not sought any order addressing the position in the claim as between the claimant and the remaining defendants, the inescapable inference to be drawn was that they were proceeding on the common basis that the second defendant alone should be extracted from the claim, which would continue as between the claimant and the remaining defendants. Mr Harper submitted that if the intention of the claimant and the defendant had been to compromise all claims, then the Tomlin order:

In those circumstances, Mr Harper submits that the compromise agreement, particularly clause 4, and the Tomlin order, would have been reasonably understood as meaning that:

Mr Harper submitted that a term needed to be implied into the compromise agreement so as to give effect to the unexpressed but common intentions of the claimant and the second defendant that the claimant’s rights against the first and third defendants, and anyone other than the second defendant, were reserved. On that basis, the claimant submitted that the preliminary issue should be answered in the sense that the compromise agreement did not operate to compromise the claimant’s claims against the first and/or fourth defendants.

In his oral submissions, Mr Harper submitted that whether one approached the matter by way of construction or the implication of a term, the question remained whether clause 4, read with clause 3 and the general background, had operated to release the claimant’s claims against any defendant other than the second defendant. He submitted that there remained an overlap between the construction of a written contract and the implication into it of a term.

He acknowledged that the claimant had difficulty in relying upon the implication of a term on the basis of business necessity; but what the claimant submitted was that it was obvious from the terms of the compromise agreement, and the accompanying Tomlin order, and against the background, that the release was only to operate as between the claimant and the second defendant. He submitted that that was so obvious as to satisfy the officious bystander test.

He relied upon what was said towards the end of paragraph 16 of Lord Neuberger’s judgment in the Marks & Spencer case. There Lord Neuberger had referred to Lord Justice Scrutton’s observation in Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592 at 605 that a term would be implied if it was such a term that it could confidently be said that if, at the time the contract was being negotiated, the parties had been asked what would happen in a certain event, they would both have replied: “Of course, so and so will happen; we did not trouble to say that; it is too clear.” He also relied upon the citation of Lord Justice MacKinnon’s observation in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227 to the effect that:

“Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying.’

Mr Harper submitted that that test was satisfied in the present case. It was so obvious that the claimant and the second defendant were only releasing the claims as between themselves that such a reservation of rights should be implied into clause 4 of the compromise agreement.

In support of that submission, Mr Harper pointed to certain provisions in the compromise agreement. He pointed to the fact that the parties were the claimant and the second defendant only. He pointed to the fact that they were the only parties referred to in recital A to the compromise agreement. The other defendants to the existing proceedings were not mentioned in the recitals at all. Mr Harper also relied upon the fact that recital B expressly stated that the parties to this agreement, ie, the claimant and the second defendant, and no one else, had settled their differences and had agreed terms for the full and final settlement of the dispute and wished to record those terms of settlement on a binding basis in the agreement.

The compromise agreement was limited in its terms and effect to the claimant and the second defendant alone. The refusal of the Court of Appeal to imply any reservation of rights against the non-parties to the settlement agreement had been justified in the Gladman case, Mr Harper submitted, because those non-parties were not parties to any existing litigation. In the present case, however, the first and third defendants were parties to existing litigation and the compromise had not in terms extended to them. The officious bystander, in answer to the question: who do you intend to be settling against?, would clearly have answered: the second defendant and no one else. The officious bystander, if asked whom do you intend to be affected by this settlement? would simply have said: the second defendant and no one else. That was said to be reinforced by the terms of the Tomlin order, which was intended to stay proceedings only as between the claimant and the second defendant. There was said to be nothing in the surrounding circumstances to lead the officious bystander to the conclusion that the claim was not to continue against the first defendant. The intention was only to dispose of the claim as between the claimant and the second defendant.

Mr Harper submitted that the “entire agreement” clause presented no obstacle to this analysis because it clearly did not prevent reliance upon the terms of the Tomlin order because that had been expressly referred to in, and incorporated by the provisions of, clause 3 of the compromise agreement. Whether one approached the matter from the position of construction of the compromise agreement or the implication of a term therein the consequence was said to be the same. The only countervailing consideration was said to be the prima facie legal position, that a release of one joint contractor releases the others. But, Mr Harper emphasised, that that was only the prima facie legal position.

During the course of his submissions, I referred Mr Harper to the agreement not to sue in clause 5 and enquired whether the inclusion of that provision suggested that clause 4 was going further and operated as a release in accordance with the general law of all claims against all joint contractors. Mr Harper’s response was that clause 5, the agreement not to sue, had been included on a “belt and braces” approach and must be approached on the footing that clause 4 should be treated as limited to the parties to the compromise agreement. He pointed out that the compromise agreement had not been individually tailored to the requirements of the particular parties. He submitted that there was nothing in the surrounding circumstances that would lead the officious bystander to conclude that either party to the compromise agreement had intended the consequences incorporated by the general law applicable to the release of a joint contractor. He submitted that the parties had simply seen the need to provide some mechanism to remove the second defendant alone from the continuing litigation.

Mr Harper asked rhetorically: what had the parties to the compromise agreement intended to happen in relation to the existing litigation against the remaining defendants? He submitted that it was clear from the terms of the Tomlin order that they had intended that litigation to continue. On that basis, nothing had been intended to release the remaining defendants from the outstanding claims in the pending litigation. That was to be contrasted with the position in the Gladman case where no reservation of the right to sue could be implied in relation to persons who were not then parties to the existing litigation. The facts of that case were very different from those of the instant case. Nothing in the compromise agreement here had been intended to release the other existing defendants from any liability they might have had to the claimant.

When Mr Harper was asked how he dealt with the payment of the sum of £35,000 by the second defendant to the claimant, Mr Harper described that as a red herring. He accepted that it would have to be taken account of in the existing litigation against the remaining defendants, but he said that there was nothing to show that the payment of £35,000 was intended to compromise all of the claims against all of the defendants. He acknowledged that it would clearly give rise to difficulties of treatment at trial; but he submitted that it could not be used as a reason for giving the compromise agreement an effect it was never intended to have. It was an issue to be wrestled with at trial.

Mr Harper concluded by acknowledging that the point raised by the trial of this preliminary issue was a short one, incapable of much elaboration.

In his reply, Mr Mohyuddin submitted that implication was no longer part of the process of construction. Lord Carnwath had been in a minority on that issue. Mr Mohyuddin submitted that on the construction issue, the point had effectively been conceded by paragraph 6 of Mr Harper’s skeleton argument, where he had acknowledged it to be common ground that if no term was to be implied into the agreement, then its effect would be to release the defendants, and each of them, from liability for and/or to compromise the claims, both for breach of contract and breach of trust, that had been brought by the claimant against the remaining defendants.

On that footing, Mr Mohyuddin submitted that the claimant could only succeed on the preliminary issue on the basis of an implied term. The question was said not to be whether there had been any intention to release the claims in their entirety. It had been conceded that that was precisely the effect of the compromise agreement as a matter of general law. Mr Mohyuddin submitted that the compromise agreement itself did not allow the court to find any reservation of rights against the remaining defendants. He submitted that the fact that the compromise agreement and the Tomlin order did not mention the other defendants assisted his clients, rather than the claimant, because of the position under the general law. He submitted that the difficulty here for the claimant was simply that whoever was representing it at the mediation had simply not addressed their minds to the claims against the remaining defendants, about which the claimant was obviously aware.

There was said to be nothing in the admissible material to support the approach that the claimant and the second defendant had entertained a common intention that there should be a reservation of rights in relation to the claims against the remaining defendants. Whether or not that may have been the claimant’s intention, a sole intention on the part of one only of two contracting parties was not sufficient to justify the implication of any term.

Mr Mohyuddin submitted that there had been nothing to prompt an officious bystander to ask what about the position of the remaining defendants. That was because their position had not been addressed at all in either the compromise agreement or the Tomlin order.

So far as the Tomlin order itself was concerned, the reliance that could be placed upon that by the claimant was said to be limited because it was merely part of the mechanism to give effect to the compromise agreement itself. It did not have any independent effect. Anyone reading the Tomlin order would simply take the view that it was bringing an end to the litigation.

Mr Mohyuddin pointed out that Mr Harper had ventured no response to his pleading point, namely, that an implied term had not been alleged. Mr Mohyuddin submitted that there was nothing to gainsay the clear effect of the general law that the intention of the compromise agreement had been to operate as a release of all parties. There was nothing to support the existence of any common intention to keep the litigation alive against the remaining defendants.

Clause 4 on its face, as Mr Harper acknowledged, operated to release the first defendant as well as the second defendant. The only escape route from that conclusion could be by the implication of a term; but there was no reason why the officious bystander test could justify the implication of such an implied reservation. The compromise agreement, as it stood on its face, clearly did not lack any commercial or practical coherence. The Tomlin order did not enable the claimant to assert a common intention to keep the claim alive as between the claimant and the other defendants, and to remove the consequences of the general law relating to the release of one joint contractor.

Moreover, there was no good reason why the officious bystander would say that the parties had left unresolved the issue of how the payment of £35,000 from the second defendant to the claimant should be credited against the claimant’s claim to recover a third of the shares in the third defendant company. Mr Harper had not ventured any convincing answer to the points raised at paragraph 47 of Mr Mohyuddin’s skeleton. The failure to deal with the ongoing claim expressly in the compromise agreement was fatal to the implication of any reservation of rights against the first defendant as a joint contractor. If the claimant had wanted to preserve such rights, then it could, and should, have done so expressly. If the Tomlin order had been intended to be limited to the disposal of the claim as against the second defendant only, then why had that not been addressed expressly in the compromise agreement by way of a reservation of rights?

Those were the parties’ submissions. I am grateful to both counsel for their detailed and skilful submissions, both written and oral. I confess that I have not found the matter an easy one; but at the end of the day I have come to a clear conclusion. Mr Harper expressly accepts that absent any formal qualification upon the face of clause 4 of the compromise agreement, its effect is to release the claim against the remaining defendants. In my judgment no reservation can be implied, whether as the result of a process of construction or a process of implication.

I do not accept that I should accede to Mr Mohyuddin’s submission to dispose of this preliminary issue solely on the basis of the way in which the matter is pleaded by the claimant. Whilst I acknowledge that the implication of a term could have been more clearly pleaded in the amended reply, in my judgment, the plea in paragraph 33D of the amended reply - that in the circumstances it was the obvious, common, but unexpressed intention of the parties to the compromise agreement that the rights or claims of the claimant against the remaining defendants were reserved - is sufficiently clear and explicit to justify the court in finding an implied term to that effect. So I would reject Mr Mohyuddin’s pleading point. But when one turns to the substance of the matter, I do not see how the only escape route available to the claimant - that of an implied reservation on the width of the clause 4 release - is made out on the basis of the material before the court on this preliminary issue.

The general effect of a release upon the liability of a joint contractor is clear and is agreed. The compromise agreement is clearly a detailed agreement negotiated at a mediation, with the benefit of legal advice, and signed on behalf of the claimant by its then solicitors. There is simply no basis for implying a reservation of a right to proceed against the remaining defendants. Mr Harper, I think, acknowledged that it was difficult to imply the necessary reservation of rights on the footing of considerations of business efficacy. In my judgment he was right to acknowledge that because the compromise agreement works perfectly well without any such implied reservation.

Mr Harper is entitled to point to the fact that in the Marks & Spencer case Lord Neuberger expressly acknowledged (at paragraph 21) that business necessity and obviousness could be alternatives, in the sense that only one of them needed to be satisfied; but Lord Neuberger went on to acknowledge also that he suspected that in practice it would be a rare case where only one of those two requirements would be satisfied. In my judgment this is not such a rare case.

In my judgment, the test of implication on the basis of obviousness cannot be satisfied in the present case. The officious bystander would not, in my judgment, say that it was so obvious that rights were being reserved against the other defendants that he would testily respond: “oh, of course”. The officious bystander would, of course, appreciate the terms in which the recitals to the compromise agreement, and the terms of the Tomlin order, were expressed; but the officious bystander would, if he were considering the position of the remaining defendants, also be concerned to know how the £35,000 payment provided for by clause 2 of the compromise agreement was to fit in with the release of claims against the second defendant but the continuation of the claim against the first defendant.

Mr Harper had difficulty in supplying an answer to that question; and in my judgment for good reason. It is very difficult to see how the payment of £35,000, in full and final settlement of the claim against the second defendant, is intended to fit in with the continuation of a claim to a third of the shareholding in the third defendant company. So I do not consider that an officious bystander would say that it is so obvious that the claim was to continue that it did not need to be expressed.

In those circumstances, I accede to Mr Mohyuddin’s submission that the difficulty here is that the claimant, and those representing it, failed adequately to address the effect of the general rule relating to the release of one of two joint contractors. In my judgment, there is nothing to justify the importation into the compromise agreement of any restriction upon the effect, as a matter of general law, of the release contained within clause 4. If anything, that is supported by the fact that there is a separate clause 5 by which there was an agreement not to sue, or to prosecute a claim against, the second defendant. The fact that there was a release in addition to an agreement not to sue supports the view that the release was intended to have some additional effect over and above that resulting from the agreement not to sue.

So for those reasons, and for other reasons advanced by Mr Mohyuddin under the second part of his oral submissions, I would find, in relation to the preliminary issue, that the effect of the compromise agreement was to compromise the claims against the first and/or fourth defendants as well as the claim against the second defendant.