AJ Building and Plastering Ltd v Turner & Ors

These are in the nature of test cases, involving only small amounts of money but raising issues that affect a significant number of further cases.

The claimant company is a general building contractor. Its core business relates to renovation, alteration and repair of domestic properties. Each of the defendants is a householder in the Carmarthen area, who had a policy of household insurance with Zurich Plc (“Zurich”).

The defendants’ houses all suffered damage, and each defendant made a claim on his or her insurance. In each case, Zurich instructed a company in the Rok group of companies (collectively, “Rok”) to carry out remedial works and Rok in turn engaged the claimant to do the works.

In each case, the claimant carried out the works and invoiced Rok. Zurich paid Rok; but, before paying the claimant, Rok went into administration. The claimant was left unpaid and without any prospect of recovering payment from Rok. The claimant has no contractual relationship with Zurich.

In each case, the claimant asserts that it is entitled to receive payment for the works directly from the householder. It relies on a document headed “Works Authority & Mandate” (to which I shall refer as “the mandate”), which was signed by each householder before the works were commenced, and says that the mandate creates a direct contractual obligation on the part of the defendant to make payment in full to the claimant. The defendants say that, for a number of reasons, the mandate does not have that effect.

I have been greatly assisted by the written and oral submissions of Mr Heap for the claimant and Mr McMeel for the defendants and am grateful to them.

The details of the business relationships between Rok and Zurich and between the claimant and Rok were not within the scope of the defendants’ knowledge. For the purposes of this judgment, it is therefore unnecessary to set them out. However, some background to the present disputes will be of assistance.

Rok plc was the holding company of the Rok group of companies. Among the companies in the group was Rok Building Ltd, which as its name suggests provided building and construction services. The distinctions between the various companies were not always clearly observed, and for the most part they are not important for the purposes of this judgment. The companies in the group entered administration on 8 November 2010. Rok Building Ltd went into creditors’ voluntary winding up on 6 November 2012, shortly before the trial of these claims.

The claimant’s business relationship with Rok commenced in 2003. At that time, Rok was interested in the prospect of buying the claimant’s business. Accordingly the parties entered into a form of partnering agreement, whereby the claimant carried out all Rok’s contracts within defined parts of Wales and operated as, in effect, a regional sub-division of Rok. The closeness of the relationship is shown by the fact that in 2004 the claimant placed Rok’s name and livery on its vans.

However, in 2008 Rok decided to stop working by means of partnering agreements. Thereafter the claimant carried out works for Rok simply as a subcontractor. On 1 November 2008 Rok and the claimant executed a framework agreement, which set out the terms that would apply to works carried out by the claimant for Rok during the following year. It is unnecessary for me to set out here the detailed provisions of that framework agreement. Suffice it to say that the relationship between the claimant and Rok was clearly to be that of subcontractor and its employer. The persons in whose houses the works were to be carried out were described in the framework agreement as “End Users”. Clause 5 prohibited the claimant from undertaking works privately for End Users without Rok’s written permission.

The framework agreement expired at the end of October 2009. Despite its efforts, the claimant failed to persuade Rok to put pen to paper on a new twelve-month framework agreement. The claimant’s managing director, Mr Andrew Jones, gave evidence that the claimant had thereafter been uncertain who its employer was when it did insurance work on Rok’s instructions. In fact, the documentation in the case shows clearly that Rok instructed the claimant as a sub-contractor and on terms that purported to incorporate the terms in the framework agreement. The claimant for its part sent invoices to Rok. Until the latter part of 2010 Rok made the payments to the claimant. It is possible that, in the period leading up to Rok’s entry into administration, Zurich began to make payments directly to the claimant; this is uncertain.

The claimant had begun issuing mandates to insured householders before the expiry of the framework agreement; Miss Turner’s is such a case. The reason for issuing the mandates is not, I think, material. In fact, Mr Jones’ evidence was that they were used not because of the risk of Rok’s insolvency—far less the risk of Zurich’s insolvency—but so that, if a householder raised unmeritorious complaints about the claimant’s workmanship that persuaded the insurer to withhold payment, the claimant need not become involved in a dispute with the insurer but could press for payment directly from the insured.

I shall set out briefly the facts specifically relating to the three cases. There are two main points of difference among them. First, it is Miss Turner’s case that she asked for and was given by the claimant an explanation of the mandate and that she signed it on the strength of that explanation. Second, the mandate signed by Mrs Munday was in slightly different terms from that signed by Miss Turner and Mr Dalling.

Miss Turner suffered an insured loss on 20 April 2009, when her dining room flooded after a leak from her bathroom. She promptly notified her insurer, Zurich, and made a claim on her policy of property insurance. Zurich told her that she would be contacted by a surveyor, who would arrange to visit the property to assess the damage and to propose a scheme of remedial works.

Very shortly afterwards, Miss Turner was contacted by Rok, who arranged for their surveyor to attend at the property on 22 April 2009. On that day a Rok surveyor carried out an inspection of Miss Turner’s home, pursuant to instructions from Zurich, and assessed the necessary remedial works. The results of the inspection were entered on an Appraisal Form, which Miss Turner signed. The Appraisal Form was a pre-printed form, to be completed in manuscript. The logo at the top of each page described Rok as “The Nation’s Local Builder”. Miss Turner’s evidence, which I accept, is that she understood that Rok would report to Zurich, and that the surveyor told her that he would arrange for workmen to attend to carry out the necessary works.

On 8 May 2009 Rok issued a request to the claimant to carry out sub-contract works subject to the terms and conditions of the framework agreement. Rok also sent to the claimant a form headed “Sub-contract Order (Insurance)”; it had already been signed on behalf of Rok (described as “the Contractor”) and was later signed by an employee on behalf of the claimant (described as “the Sub-Contractor”).

The claimant provided the mandate to Miss Turner under cover of a letter dated Monday 11 May 2009, which was the first contact between them. Also enclosed with the letter was a document setting out the scope of the works.

The terms of the letter of 11 May 2009 were as follows:

“Having discussed your claim with your insurers we are pleased to inform you that they have approved the restoration works required at your property.

We enclose a copy of the work to be carried out, and a mandate. Please read carefully, sign where applicable and return. On receipt of your authorisation forms, we will be in touch with you to schedule the work required.

Please can you notify us if you have any objection to our operatives using your facilities, such as toilets, as if you are not content with this we will be required to place a Portaloo at the place of work.

Please return the signed information forms in the Freepost Envelope provided.”

The document setting out the scope of the works was dated 8 May 2009. Next to the words “Sub Total”, “Net Total”, “Vat” and “Grand Total” was written, “met by insurer”; no figures were shown.

The mandate was on the claimant’s headed paper. It stated the claim number, and it showed Miss Turner as “customer/employer” and the claimant as “contractor”. Its text was as follows (I add paragraph numbers for ease of reference):

“[1] I/We herby (sic) agree to employ AJ Building & Plastering Ltd to undertake the works as detailed in their estimate/schedule of works.

[2] I/We authorise our insurance company to make payment direct to AJ Building & Plastering Ltd upon completion.

[3] I/We understand that I/we remain responsible for payment of any policy excess or any monies due for work authorised by me/us, which is not paid by my/our insurer.

[4] Whilst every care will be taken, I/we understand that AJ Building & Plastering Ltd cannot accept liability for furnishings/personal belongings left on site that may in any way be damaged during works. Please note that all areas to be worked in must be cleared of furniture, including the loft space where applicable.”

I heard evidence from Miss Turner. Having regard to that and other witness evidence and to the disclosed documents, I find the following facts. On 12 May 2009 an employee of the claimant attended at Miss Turner’s property and carried out an inspection. Although it is possible that the employee brought with him the letter of 11 May 2009 and its two enclosures and handed them to Miss Turner, it is more likely that they were not handed to Miss Turner personally on 12 May and indeed that they were sent by post. The form completed by the employee after his inspection shows that he met Steve Chapman (Miss Turner’s partner) on site; it says nothing about meeting Miss Turner. It is not to be assumed that both Miss Turner and her partner would have been present, and as Miss Turner was the insured it is likely that the form would have mentioned meeting her. Further, the date next to Miss Turner’s signature on the mandate is 15 May 2009; in the context of her evidence regarding the circumstances in which she signed the form, this makes it less likely that the form was handed to her on site. Finally, the claimant’s evidence is that the mandates were always sent out by post; I accept that evidence.

Miss Turner gave evidence that, being concerned at the apparent meaning of the mandate, she sought and obtained an explanation as to its meaning from a representative of Rok and that she signed the mandate on the basis of that explanation. For reasons that will become apparent, I shall deal with that evidence later in this judgment. At all events, I find that Miss Turner returned the signed mandate in the Freepost envelope.

The claimant completed the works and on 16 July 2009 sent to Miss Turner a certificate of completion for her to sign. Part of the certificate was in the following terms:

“MANDATE

I/We, the undersigned authorise and request the insurer in respect of Claim No. BAA00020 to pay the necessary monies, relating to the damage at the above property, directly to AJ Building & Plastering Ltd.”

Miss Turner was dissatisfied with the standard of the work and refused to sign the certificate. On 23 July 2009 the claimant sent to Rok an invoice for the full price of £2,013.44. Rok disputed that invoice on the ground that it had been required to return to site and carry out further works because of the unsatisfactory nature of the claimant’s works. It agreed to pay a total of £292.43 plus VAT but no more.

Mr Dalling’s case was next in time. He made a claim on his insurance policy when his house suffered storm damage on 25 March 2010. Zurich told him that they would arrange for a surveyor to attend at his property to assess the damage and the necessary remedial works.

On 9 April 2010 a surveyor from Rok carried out an inspection of Mr Dalling’s home, pursuant to instructions from Zurich, and assessed the remedial works that were necessary. The information concerning the insured event and the necessary works was entered on an Appraisal Form, which Mr Dalling signed. I accept Mr Dalling’s evidence that, during the course of the inspection, he had a conversation with the surveyor about the possibility of having some other necessary works carried out, though they were not part of the insurance claim; the surveyor said that this would not be a problem but that Mr Dalling would have to agree to pay for the additional works. The surveyor noted that conversation on the Appraisal Form.

On 13 April 2010 Rok issued a request to the claimant to carry out sub-contract works subject to the terms and conditions of the framework agreement. The request was contained in an email, which noted that Mr Dalling wanted a quote for the additional works. A Sub-Contract Order Form was attached to the email. The scope of the works to which it related did not include the additional works.

On the same day Rok Insurance Services wrote to Mr Dalling on paper headed with the Rok logo (cf. paragraph 15 above). The relevant parts of the letter were in the following terms:

“The reason for our appointment is to assess your claim and confirm that the damage reported has resulted from an event caused by one of the perils listed in your insurance policy.

I am please (sic) to advise that the damage detailed under the building engineers report is covered by your buildings insurance policy.

We have now appointed our local Rok Centre to contact you to arrange a convenient start date for these works to commence.

In accordance with your insurance policy a £150.00 policy excess is applicable and is now due for payment.

Could you please forward a cheque at your earliest convenience … made payable to Rok Insurance Services.”

Although no copy of the letter exists, I find that the claimant wrote to Mr Dalling in mid April 2010, enclosing with the letter a mandate for his signature and a document setting out the scope of the works. I find that the letter was sent to Mr Dalling by post, although he cannot remember receiving such a letter. On the available evidence, it is impossible to be certain whether the letter was in the terms of the letter to Miss Turner or in the slightly different terms of the letter sent to Mrs Munday or in different terms again. As the terms of the enclosed mandate were identical, mutatis mutandis, to those of the mandate sent to Miss Turner and different from those of the mandate sent to Mrs Munday, it is more likely than not that the terms of the letter were the same as those of the letter to Miss Turner.

Mr Dalling signed the mandate on 22 April 2010 and returned it to the claimant on that date. The covering letter asked the claimant to quote for carrying out some additional works. On 26 April 2010 the claimant wrote to Mr Dalling to the effect that, if its stated hourly rate was acceptable to him, the claimant would assess the additional works when it attended to carry out the insurance works.

On 7 May 2010 an employee of the claimant attended at Mr Dalling’s property and carried out an inspection.

The works were carried out later in May 2010, subject to some variations that were subsequently approved by Rok. During the course of the works, Mr Dalling had conversations with employees of the claimant concerning the apportionment of the total cost between the insurance works and the additional works; nothing was said in those conversations about circumstances in which Mr Dalling would be personally liable to pay for the insurance works.

On 27 July 2010 the claimant sent to Mr Dalling a certificate of completion for him to sign. I have not seen it, but it is probable that it was in materially identical terms to that which had been sent to Miss Turner. In fact Mr Dalling did not sign it, because an employee of Rok assured him that Rok would deal with all necessary matters directly with the claimant.

On 10 September 2010 part of Mrs Munday’s property was flooded. She promptly made a claim on her insurance policy and very shortly afterwards was contacted by telephone by Rok to arrange an inspection. Probably on 14 September 2010 Mrs Munday received a letter from Rok Insurance Services, on Rok’s headed paper; it informed her that Rok Insurance Services had been instructed by Zurich “to validate the recent damage” to her property and that she would be given a report on the damage after the inspection had taken place.

On 14 September 2010 the Rok surveyor carried out an inspection of Mrs Munday’s property, pursuant to instructions from Zurich. Mrs Munday signed the Appraisal Form, on which the employee recorded information concerning the insured event and the necessary works.

On 29 September 2010 Rok requested the claimant by email to carry out sub-contract works. The Sub-Contract Order form was attached to the email and was signed in acceptance on the following day on behalf of the claimant.

On Thursday 30 September 2010 the claimant wrote to Mrs Munday, enclosing with the letter a mandate for her signature and a document setting out the scope of the works. The letter said:

“We are pleased to inform you that your insurance company have approved the restoration works required at your property and instructed us to carry out the work.

We enclose a mandate; please read carefully, sign where applicable and return to the above address OR hand to our representative.

Please can you notify us if you have any objection to our operatives using your facilities, such as toilets; if you are not content with this we will be required to place a Portaloo at the place of work.”

The mandate was signed by Mrs Munday, who carefully deleted the inapplicable words “we”, “our” and “us”. It read as follows (again I add paragraph numbers for ease of reference):

“[1] I herby (sic) agree to employ AJ Building & Plastering Ltd to undertake the works as detailed in your pre-agreed damage appraisal.

[2] I understand that I remain responsible for payment of any monies due for additional work authorised by me, which is not paid by my insurer.

[3] Whilst every care will be taken, I understand that AJ Building & Plastering Ltd cannot accept liability for furnishings/personal belongings left on site that may in any way be damaged during works. Please note that all areas to be worked in must be cleared of furniture, including the loft space where applicable.

[4] Please Note: Your insurance only covers damage as a direct result of the peril you have claimed. Any additional work i.e. filling walls, that is not directly related to your insurance claim will not be carried out by our operatives.”

The document setting out the scope of the works was dated 29 September 2010. Next to the words “Sub Total”, “Net Total”, “Vat” and “Grand Total” was written, “met by insurer”; no figures were shown.

On Friday 1 October 2010 a representative of the claimant met Mrs Munday at her home and carried out an initial loss survey. Mrs Munday had a vague recollection that the mandate was given to her by the representative. The claimant’s documentation records that it was sent out by first class post and I think it more likely that Mrs Munday received it in the post on the day of the initial loss survey. The signed mandate is stamped as received by the claimant on (Monday) 4 October 2010. The claimant may have received it by post. But it is also possible that Mrs Munday signed it in the presence of the representative and handed it to him—as the letter said she could—and that it was stamped when the representative took it to the office on the following Monday. Having regard to all of the evidence, including Mrs Munday’s association, albeit vague, of the representative and the mandate, I find that she handed the signed mandate to the representative.

When she was cross-examined about signing the mandate, Mrs Munday said that as far as she was concerned she was engaging the claimant to do the works because it was the company that her insurance company had appointed to do them. She attached no greater importance to the word “employ” than that she was permitting the claimant to do the works that the insurance company had been instructed to do. She said that, if she had been engaging a builder personally, she would have agreed a price; as it was, she had no idea how much the works were going to cost. Her evidence carried the clear implication that she had no concern regarding the cost of the works, because it was to be “met by insurer”.

On 6 October 2010 Rok wrote to confirm to Mrs Munday that the agreed repairs were covered by her insurance. On 8 October 2010 the claimant wrote to Mrs Munday, asking her to complete the certificate of completion, which was in materially the same terms to that which had been sent to Miss Turner. She did so on 9 October 2010 and at about the same time paid her £50 policy excess to Rok. On 25 October 2010 the claimant sent an invoice to Rok for the cost of the works, namely £1,977.15.

The defendants say that the mandates do not impose on them any personal liability to make payment to the claimant. The primary ground for this contention is an argument as to the correct interpretation of the mandates. I shall focus on this ground, before considering some of the additional arguments raised in support of the defendants’ case.

The first question is how to set about understanding the mandates. Only when they have been understood can their legal effects be considered. Unusually, there was some disagreement between the parties concerning the applicable principles of contractual interpretation.

The principles applicable to the construction of contractual documents in a commercial context are well established. The aim is to determine what the parties meant by the language that they used. However, the court is not concerned with the subjective intentions of the parties but with the meaning that the language used would have conveyed to a reasonable person who had all the background knowledge that would reasonably have been available to all of the parties to the contract; that background knowledge must be considered in all cases, not merely in cases of linguistic ambiguity. The relevant background information does not, however, include the pre-contractual negotiations, which are inadmissible as an aid to construction. If the language of the contract, when read against the relevant background, leads clearly to the conclusion that one particular construction is the correct one, the court must give effect to it. But if there is more than one possible construction, the court is entitled to prefer the construction that best accords with commercial common sense, even though another construction would not produce an absurd or irrational result. See Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912F-913G, Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, paras 21-26, Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770, paras 16 – 23, and Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50, paras 15 - 30.

It was common ground between the parties that the mandates fell to be construed in the context of the background knowledge that would reasonably have been available to the claimant and the respective householders. It would be wrong to isolate the texts of the mandates from the circumstances in which they came to be signed. On the other hand, the subjective understandings that the various parties had as to the nature and extent of any personal liability on the part of a householder are irrelevant to the process of legal interpretation.

However, Mr McMeel submitted that, subject only to the relevance of background knowledge, the interpretative method applicable to commercial contracts was inapplicable to the interpretation of the mandates, by reason of regulation 7 (2) of the Unfair Terms in Consumer Contracts Regulations 1999 (“the 1999 Regulations”):

“If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail, but this rule shall not apply in proceedings brought under regulation 12.”

(The final clause of the paragraph does not apply in this case, but I shall refer to it below.)

The 1999 Regulations apply “in relation to unfair terms in contracts concluded between a seller or a supplier and a consumer”: regulation 4 (1). Regulation 3 (1) defines “seller or supplier” to mean “any natural or legal person who, in contracts covered by these Regulations, is acting for purposes relating to his trade, business or profession …”; and it defines “consumer” to mean “any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession”. It is clear that, if there were contracts between the claimant and the defendants, the claimant was a seller or a supplier within the meaning of the 1999 Regulations and each defendant was a consumer.

Despite the terms of regulation 4 (1), however, regulation 7 must apply generally to the written terms of consumer contracts and cannot be limited to “unfair terms” in such contracts. The expression “unfair terms” is defined in regulation 5 (1):

“A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.”

As an unfair term “shall not be binding on a consumer” (regulation 8 (1)), the application of regulation 7 (2) can hardly be supposed to be confined to unfair terms. The same is true of regulation 7 (1):

“A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language.”

The conclusion in paragraph 49 above is confirmed, if it needs confirmation, by the final clause of regulation 7 (2). The entirety of regulation 7 (2), including the final clause, implements the provisions of Directive 93/13/EEC. Proceedings under regulation 12 are applications by the Office of Fair Trading for injunctions to restrain the continued use of unfair terms. In Commission of the European Communities v Spain, (2004) Case C-70-03, the Court of Justice of the European Communities (First Chamber) observed that in such applications the courts would necessarily be assessing terms in abstracto rather than in the concrete circumstances of a particular case and that, if the general principle of interpretation were applied to such claims, enforcement action against ambiguous terms might be rendered ineffective; the need to interpret such terms in the most favourable way to consumers would permit their continued use if, in the abstract, it were possible to construe them in a way that would render them not unfair. That argument rests on the general application of the principle of interpretation in the private sphere.

Accordingly, if a contract arose between the claimant and a defendant, the principle of interpretation in regulation 7 (2) applies to it.

That principle has been said to be similar or analogous to the common-law contra proferentem rule, according to which any doubt as to the meaning of contractual words will be resolved by construing them against the party that put them forward. In Association of British Travel Agents Ltd v British Airways Plc [2000] 2 Lloyd’s L.R. 209, at 220-1, Sedley LJ described the common-law rule as “a principle not only of law but of justice” and said that its origin and first purpose was “to limit the power of a dominant contractor who is able to deal on his own take-it-or-leave-it terms with others”. However, the contra proferentem rule is to be invoked only in cases of genuine doubt or ambiguity. In Direct Travel Insurance v McGeown [2003] EWCA Civ 1606, [2004] 1 All E.R. (Comm) 609, Auld LJ said at [13]:

“A court should be wary of starting its analysis by finding an ambiguity by reference to the words in question looked at on their own. And it should not, in any event, on such a finding, move straight to the contra proferentem rule without first looking at the context and, where appropriate, permissible aids to identifying the purpose of the commercial document of which the words form part. Too early recourse to the contra proferentem rule runs the danger of ‘creating’ an ambiguity where there is none”.

Accordingly the court must begin by attempting to construe the contract according to the ordinary principles of construction. Only if no firm conclusion can be reached by that route does the court, as a matter of last resort, turn to the contra proferentem rule. Thus in Mira Oil Resources of Tortola v Bocimar N.V. [1999] 2 Lloyd’s Rep. 101, at 104, Colman J said with reference to the case before him:

“Further, this is not a case where the meaning of the words is so finely balanced that the contra proferentum (sic) rule should be applied in favour of the owners. If in the view of the Court one of two suggested meanings is significantly preferable to the other, as a matter of construction, it can safely be concluded that the former meaning reflects the mutual intention of the parties.”

See too St Edmundsbury and Ipswich Diocesan Board of Finance v Clark (No. 2) [1975] 1 W.L.R. 468, at 477, where the Court of Appeal made clear that the rule can only come into play “if the court finds itself unable on the material before it to reach a sure conclusion on the construction” of the contract and that the rule “is not itself a factor to be taken into account in reaching the conclusion” as to whether or not an ambiguity exists.

In my judgment, there is no material difference between the principle of construction in regulation 7 (2) and the contra proferentem rule. In The Financial Services Authority v Asset L. I. Inc [2013] EWHC 178 (Ch), Andrew Smith J said that they were “to much the same effect”. I respectfully agree. The fact that the contra proferentem rule is a matter of common law whereas regulation 7 (2) is a creature of statute is no reason to differentiate between their applications; the 1999 Regulations give wholesale effect to a European Directive and it is unnecessary to suppose that they were intended to affect the common law relating to contractual interpretation. The occasions on which the principle of construction and the common-law rule apply are the same: their operation is limited to cases of genuine interpretative doubt or ambiguity: see du Plessis v Fontgary Leisure Parks Ltd [2012] EWCA Civ 409, at [40]. Lewison on the Interpretation of Contracts (5^th edition, 2011), at para 7.09, suggests the possibility that regulation 7 (2) goes beyond the common law rule, on the basis that the former but not the latter would require a court, faced with a case of ambiguity, to favour one less likely interpretation over two more likely interpretations. I would respectfully reject that suggestion. If the normal principles of construction yield a clear preference, even of two competing interpretations over one, the remaining ambiguity applies only to the preferred interpretations; all others have been rejected before invoking any rule or principle of last resort; and they are still rejected, even if they remain possible interpretations in the sense that there is room for other courts or judges to favour them—a common enough state of affairs in appellate courts. Neither at common law nor, in my view, under regulation 7 (2) is the court that invokes what I may call the tie-breaker required or permitted to apply it in favour of an interpretation that has already been rejected by means of the application of the normal canons of construction.

It follows from what I have already said that I reject Mr McMeel’s oral submission that, in a case to which regulation 7 (2) applies, the usual principles of construction, as summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, have no application. In my judgment, the usual approach to construction applies, not only in respect of the need to have regard to relevant background information (which Mr McMeel accepted) but in all other respects. Of course, the particular application of the principles of construction might differ from case to case, to reflect the different natures of the contracts and the contracting parties; but that is a matter of sensitivity to the particular factual background and nature of the given contract and the circumstances of the parties to it rather than indicative of a difference of approach. If the normal principles of construction lead to a firm conclusion as to the meaning of a document, there is no room for regulation 7 (2) to apply. However, if the process of construction does not lead to a firm conclusion, but the court is left with two or more interpretations that it cannot reject on other grounds, regulation 7 (2) will operate as a tie-breaker.

Mr McMeel submitted that it was helpful to begin by considering what the position would have been if the mandate had not been signed. He referred for guidance to Brown & Davis Ltd v Galbraith [1972] 1 W.L.R. 997, which he said was materially similar to the present case. On the facts of Brown & Davis Ltd v Galbraith, it was held that the plaintiff motor repairer had carried out repair works to the defendant’s car pursuant to two contracts: first, a contract with the insurer, under which the insurer agreed to pay for all the work covered by the insurance; second, a contract with the defendant, under which the plaintiff was obliged to carry out the works efficiently and expeditiously and the defendant was obliged to pay such part of the cost as was not covered by insurance, including the policy excess. Therefore, when the insurer became insolvent, the defendant was not liable for the balance of the price. Mr McMeel submitted that, if the mandate were left out of the picture, the correct analysis in each of the present cases would be that there was (i) a contract between the defendant and Zurich and (ii) an implied contract, relating only to the excess and any insured works, between the defendant and Rok; the claimant, as a mere subcontractor to Rok, would fall out of the picture as regards the defendant.

I agree that, for the purpose of locating the mandate in its relevant surrounding circumstances, it may be useful to consider how the contractual relations among the parties would naturally be understood apart from the terms of the mandate. However, I make the following observations.

Viewing the position apart from the mandate, therefore, I would have found that each defendant had two contracts: the first with Zurich; the second with the claimant. The position under the latter contract would be that the defendant permitted the claimant to carry out works at the property and undertook a limited payment obligation, discussed below; and the defendant came under a duty to perform the works within a reasonable period and to a reasonable standard. Behind the scenes (so to speak), Zurich engaged Rok to carry out the works and Rok subcontracted that engagement to the claimant. But this latter chain, of which the defendants did not know details, does not require that a contract between Rok and the defendant be posited.

Leaving aside the mandate, I would have considered that the defendants’ payment obligations under their contracts with the claimant were strictly limited to additional works that fell outside the scope of the insurance policy. Although the particular facts of Brown & Davis Ltd v Galbraith are not in point, two passages in the judgments suffice to indicate the correct approach. At 1005-6 Cairns LJ said:

“In order to imply a promise by the owner to pay for these repairs, it is necessary to say not merely that it would be a businesslike arrangement to make but that any other arrangement would be so unbusinesslike that sensible people could not be supposed to have entered into it. It appears to me that it is very doubtful whether it could be said that it would be a businesslike arrangement to make, and I certainly am not prepared to say that it was so obvious a term that it ought to be implied in order to give business efficacy to the transaction. This being so, in my opinion it is not established that the owner ever contracted to pay for these repairs beyond the amount of the excess ….”

Buckley LJ, in a short concurring judgment, said at 1006-7:

“Now, the inference of such an implied contract [i.e. that the defendant would be liable to pay the full amount] can, in my judgment, only be drawn if it is a matter of necessary inference, that is to say, if it is an inference which the business realities of the situation really make necessary to make sense of the dealings between the parties so that they can be implemented in a sensible manner. In my judgment, there is no sufficient material to be found either in the documentation in this case or in the oral evidence of the witnesses to support such an inference. On the contrary, it seems to me … that all the indications, such as they are, are to the contrary. None of them individually is such as to make the matter clear beyond a peradventure, but taking them together, in my judgment, they clearly indicate that the arrangement between the parties was that the repairers would look to the insurance company for payment for the repairs, except to the extent of the excess … That view of the agreement or agreements between the three parties is … consistent with the documentary history of the matter, and particularly with the way in which the work was invoiced by the repairers. Of course, things which occur after the date at which the contract must have been entered into cannot alter the nature of the contract, but they may very well form valuable evidence showing what the parties conceived the contract to be.”

Mr Heap’s submission on behalf of the claimant was in essence very simple. Paragraph [1] of the mandate was a straightforward employment by the defendant of the claimant under a contract for services to carry out the works. Paragraph [2] did no more than provide a mechanism by which the implied payment obligation under the contract for services could be discharged. Paragraph [3] was an acknowledgment that the mechanism in paragraph [2] did not relieve the defendant of the primary obligation to make payment; if the insurer did not pay, the obligation would remain. Without doing violence to the language of the mandate, no other interpretation of the mandates was possible. Accordingly the mandate did not merely reflect the situation that would have existed apart from the mandate but rather changed what would otherwise have been the nature of the parties’ contractual relationships. Miss Turner correctly recognised this; that is why she sought an explanation of what were, on their face, unexpected terms.

This is an attractive submission. However, if one must guard against the risk of permitting the factual context to override the clear meaning of the mandate, one must also beware of paying insufficient attention to that context. In my view, it is perfectly possible to interpret the mandate, and in particular the payment obligation imposed by it on the householder, in a different manner, having regard both to the text of the document and to the wider factual circumstances. If that is correct, then as the decision of the Supreme Court in Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50 makes clear, the court is entitled to prefer the construction that best accords with commercial common sense, though it may not substitute for the contract actually made a different and (in the view of the court) preferable contract.

I have already identified a number of significant features of the relevant surrounding circumstances. First, the mandates were presented by the claimant and signed by the defendants in circumstances where the parties shared the knowledge that Zurich had approved and were going to pay for remedial works under the relevant insurance policies. Second, although the defendants consented by the terms of the mandate to the claimant carrying out works at their properties, the claimant had been selected not by the defendants but by the insurer (in fact, by Rok pursuant to its own agreement with Zurich; but the defendants did not know the details of the chain; and the use of the claimant was indeed the insurer’s approved method of carrying out the remedial works). Third, the claimant could only carry out the works with the permission of the defendants as householders. That, indeed, is one reason why there would anyway be an implied contract between those parties. Fourth, apart from the question of additional works for uninsured losses, the defendants had no involvement at all regarding the price: they did not know how much the works would cost and they neither agreed nor were asked to agree the price. Fifth, the “scope of works” document (paragraph 18 above) specifically showed no figure for the price but said, “met by insurer”.

These points, though they do not automatically rebut Mr Heap’s interpretation of the mandates, make it doubtful whether that interpretation reflects the meaning that the language used would have conveyed to a reasonable person who had all the background knowledge that was reasonably available to the parties to the mandate.

It is worth asking what, in practical terms, would have reasonably appeared to be the point of paragraph [3] of the mandates. In the context of insurance claims, where the claimant was carrying out works approved by Zurich and was acting as the builder appointed by Zurich (or, as was in fact the case, by Zurich’s own main contractor), what was the intended referent of the mention of the payment for which the insured would remain responsible?

Paragraph [3] refers to two things for which the insured is responsible: (i) the policy excess and (ii) any moneys due for works authorised by the insured but not paid by the insurer. The first item is clearly an uninsured loss. According to the claimant, the second item may include both insured losses (in the sense of losses that fell within the scope of the policy and had been approved by the insurer) and uninsured losses (that is, extras). What meaning would paragraph [3] reasonably convey to the parties to the mandate, having regard to their shared knowledge of the circumstances? It is implausible that the parties were contemplating the insolvency of Zurich or a bald and groundless refusal by Zurich to pay the cost of the approved works. The defendants knew nothing of the moneys going first to Rok and then to the claimant; the risk of Rok’s insolvency was, objectively, not the matter being addressed. One possibility—which appears, on the basis of the evidence of Mr Andrew Jones, to have been the subjective intention of the claimant—is that paragraph [3] was directed to the situation where, because of complaints by the householder about the standard of work, Zurich withheld payment: in such circumstances (it might be said) the claimant could enforce payment directly against the householder without becoming embroiled in a dispute with the insurer. In my view, that is far from being a very obvious reading of paragraph [3]. It also makes little commercial sense, at least if the matter is viewed in the context of the insurance claim and with an eye to how the mandate would be understood by both parties. Paragraph [3] does not entitle the claimant to any moneys that are not “due”—there is no suggestion that the entire, though unknown, price has to be paid regardless of whether it is actually due—and, as the works were pursuant to an insurance claim, it is artificial to suppose that the insurer is to be left out of the reckoning. A final possibility is that the insured losses to which the second part of paragraph [3] refers is any moneys that are paid directly to the householder rather than directly to the claimant in accordance with paragraph [2] of the mandate. That would not apply in this case.

In my judgment, it is both a perfectly possible reading of paragraph [3] of the mandate and far more consonant with the commercial common sense of the situation to interpret that paragraph to mean that, although the insurer will be responsible for paying the cost of the insured losses, the householder will remain liable for all other costs, namely the policy excess and any works not covered by the insurance.

As Mr McMeel observed, it is only paragraph [3] of the mandate that deals expressly with a payment obligation. Mr Heap’s argument, which takes the engagement in paragraph [1] as the basis of the payment obligation and views paragraph [3] as in essence no more than an acknowledgment of the subsistence of that obligation, relies tacitly on an implied obligation to make payment. However, a contract directly between the insured and the one doing the works does not necessarily give rise to the implication of an obligation to make payment for the insured component of the works: this is demonstrated by Brown & Davis Ltd v Galbraith. The use of the word “employ” does not itself answer the question of the scope of the payment obligation, having regard to the context and to the need for the householder to approve the identity of the builder that was to carry out works at his or her home.

The silence of the mandate as to the amount of the payment obligation is itself of some relevance. Mr McMeel raised the point in support of his argument that, if the claimant’s interpretation were correct, the mandate could not constitute a valid contract because it lacked certainty, being incomplete and uncertain as to a basic term. I should prefer to consider the same point at the prior stage of interpretation. What moneys, on the claimant’s case, are the defendants liable for? Perhaps the price agreed by Zurich; but that is unattractive, for reasons already mentioned in paragraph 61 above. Perhaps a reasonable price; but that would make the payment obligations of the defendants and the insurer (or Rok) different, and it is hardly appealing to suppose that the sum payable pursuant to an insurance claim was left undefined. These problems are avoided by interpreting the mandate as I have interpreted it.

Accordingly, without recourse to the last resorts of regulation 7 (2) of the 1999 Regulations or the contra proferentem rule, I would hold that the payment obligation arising under the mandate was limited to the payment of the uninsured parts of the cost, namely the policy excess and the cost of the additional works that were not authorised by the insurer.

Mr McMeel made a submission that, if the payment obligation were any greater than I have indicated, the mandate would amount to a guarantee by the defendant of Zurich’s primary liability to pay the price for the works. Such a guarantee, he submitted, would be invalid on two grounds: first, it would fail to identify the primary liability with sufficient certainty; secondly, it would be a guarantee of a non-existent liability, because in fact Zurich had no liability at all to the claimant. In the light of my decision as to the true interpretation of the mandate, this point does not arise for determination. However, if Mr Heap’s proposed interpretation of the mandate were the correct one, I should incline to think that the obligation it imposed on the defendant was a primary liability to pay the price under a contract for services rather than a secondary guarantee of the liability of a third party.

If Mr Heap’s proposed construction of the mandate were correct, the question would still arise whether the moneys due had been “paid by [the] insurer” within the terms of the concluding words of paragraph [3] of the mandate. Mr Heap submitted that the reference to such payment must be limited to direct payment to the claimant pursuant to paragraph [2] of the mandate. Insofar as this submission involves the contention that a payment by Zurich to Rok would not suffice for the purposes of paragraph [3], I disagree. The parties’ knowledge of the relevant commercial arrangements was, of course, different. The claimant knew that it was selected to carry out the works by virtue of a contract with Rok, and that Rok but not the claimant was in a direct contractual relationship with Zurich. The claimant did not have a contractual entitlement to receive payment directly from Zurich; its entitlement was to receive payment from Rok, and Rok was contractually entitled to receive payment from Zurich. By contrast, the defendants’ reasonable perception was that the claimant was in direct contractual relationship with Zurich, having been appointed by Zurich as its nominated contractor. The result is that, although the claimant could foresee a chain of payments—first by Zurich to Rok, then by Rok to the claimant—the defendants had no reason to foresee this; from the defendants’ point of view, the only payment by Zurich would be to the claimant. The central point of paragraph [2] of the mandate, however, did not concern the precise mechanism of the payment. Rather it was that the insurer would settle the insurance claim by approving, arranging and paying for the works, not by paying money to the householder so that the householder could settle up with the builder.

Accordingly, both by reason of the actual wording of paragraph [3] of the mandate and having regard to the commercial purpose of that paragraph, I would hold that a payment by Zurich to Rok, in accordance with the contractual chain of which the claimant was the third and final link, was a payment that discharged pro tanto the defendant’s liability. This conclusion would cause me no regret. The claimant’s position in this regard has amounted to the contention that the risk of the payment by Zurich effectively disappearing in Rok’s hands should be borne by the defendant, who knew nothing of the interposition of Rok, rather than by the claimant, who of course knew well that Rok stood between it and Zurich but had drafted the mandate in a manner that did not make that clear to the defendants.

Mrs Munday’s case is, if anything, stronger than that of Miss Turner and Mr Dalling. Paragraph [3] of her mandate refers only to “monies due for additional work authorised by me, which is not paid by my insurer”. In the event, the result must be the same as in those cases.

Various other grounds of defence to the claim were relied on. Although they do not properly arise for consideration in the light of my decision on the construction of the mandates, I shall discuss briefly the more important matters raised.

As I have mentioned (paragraph 22, above), Miss Turner gave evidence as to the circumstances in which she signed the mandate. Mr McMeel relied on this evidence as affording to Miss Turner a further ground of defence. In the light of my findings as to the construction of the mandate, it is strictly unnecessary to say anything about the evidence or the argument that was based on it. However, I shall briefly summarise the evidence and explain why, if I had construed the mandate in a sense unfavourable to Miss Turner, I would not have found against the claimant on the basis of Miss Turner’s evidence or Mr McMeel’s argument.

Miss Turner’s evidence was that, when she received and read the mandate, she was surprised at its contents. She took it to mean that, if Zurich did not pay the claimant, she was required to do so. As the works were being carried out under an insurance claim, she had not expected to incur any personal liability, beyond the policy excess, and was unwilling to do so. Accordingly she asked an employee of the claimant for clarification of the meaning of the mandate; she could not remember whether the relevant conversation was face to face or by telephone. Miss Turner said that she asked an employee of the claimant to explain the purpose of the mandate. The employee said that the words “I/we remain responsible for payment of … any monies due for work authorised by me/us, which is not paid by my/our insurer” related only to any additional works that were requested by Miss Turner but did not fall within the scope of the insurance claim. Satisfied by that explanation, she signed the mandate.

In the course of his closing submissions, Mr McMeel argued that the evidence of the conversation provided Miss Turner with a ground of defence by reason of misrepresentation as to the terms of the mandate, on the basis of the well-known decision of the Court of Appeal in Curtis v Chemical Cleaning and Dyeing Co [1951] 1 K.B. 805.

Mr Heap gave what seems to me to be a sufficient answer to that point, in the specific circumstances of this case. First, the alleged misrepresentation would not itself affect the true interpretation of the mandate; indeed, it was a misrepresentation (if at all) precisely because it misrepresented the true meaning of the document. Second, a defence that sought to displace the true interpretation of the mandate by reliance on a misrepresentation ought to be pleaded; the matters relied on by Mr McMeel were not pleaded.

As to the first point, which Mr McMeel’s submissions tacitly accepted, Mr Heap is correct both as a matter of logic and in consequence of the speeches of the House of Lords in Chartbrook Homes Ltd v Persimmon Homes Ltd [2009] A.C. 1101. Lord Hoffmann considered at length the exclusionary rule that prohibits recourse to pre-contractual negotiations for the purpose of interpreting a contractual document. Although his treatment of the topic was strictly obiter, it received the approval of the other members of the Judicial Committee and must be taken to settle the law for the time being. In particular, Lord Hoffmann considered and rejected the contention that there was an exception as follows to the exclusionary rule: “If a contract contains words which, in their context, are fairly capable of bearing more than one meaning, and if it is alleged that the parties have in effect negotiated on an agreed basis that the words bore only one of the two possible meanings, then it is permissible for the court to examine the extrinsic evidence relied upon to see whether the parties have in fact used the words in question in one sense only, so that they have in effect given their own dictionary meaning to the words as the result of their common intention.” At 1122-3, para 47, he said:

“There are two legitimate safety devices which will in most cases prevent the exclusionary rule from causing injustice. But they have to be specifically pleaded and clearly established. One is rectification. The other is estoppel by convention …: see Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84. If the parties have negotiated an agreement upon some common assumption, which may include an assumption that certain words will bear a certain meaning, they may be estopped from contending that the words should be given a different meaning. Both of these remedies lie outside the exclusionary rule, since they start from the premise that, as a matter of construction, the agreement does not have the meaning for which the party seeking rectification or raising an estoppel contends.”

As to Mr Heap’s second point, Miss Turner’s Defence contained no plea of estoppel by convention (which may possibly have been available; cf Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] Q.B. 84), rectification or misrepresentation. The penultimate paragraph of each of the three Defences (not Miss Turner’s alone) reserved the defendant’s right to amend the Defence after the exchange of evidence and the receipt of further information “to plead misrepresentation and/or economic duress arising from statements or representations whether in writing or oral by representatives of [the claimant] made in order to procure [the defendant’s] signature on [the mandate].” No application to amend was ever made, nor was Miss Turner’s conversation with the claimant’s employee ever pleaded. Mr Heap adverted to that omission when he opened the case and Mr McMeel indicated that he was continuing to review the position. In the event, there was never an application to amend the Defence and the question of misrepresentation raised its head when, in his closing submissions, Mr McMeel argued that the evidence of the conversation provided Miss Turner with a ground of defence on the basis of the decision in Curtis.

Mr McMeel submitted that, although the matter might have been pleaded “in an ideal world”, it would not involve too much latitude to permit it to be argued without being pleaded. I disagree. Statements of case are not always the place for refined legal analysis, and the precise nature of the relevant defence (estoppel, misrepresentation etc) might well emerge only in the course of argument. But the need to plead the basic facts relied on is well known and was obvious in this case. Mr Heap practically invited an application to amend when he opened the case. Even in a world that is less tolerant of late applications to amend than it used to be, there is often much to be said for a relatively permissive approach to such applications. If an application had been made, even at a late stage, it might have succeeded. But I see no reason to permit the misrepresentation defence to be taken if a decision has been taken not to seek permission to raise it by amendment, especially when the point was taken only after Mr Heap had made his primary closing submissions. In the event, I need consider neither the defence nor the other authorities, including Peekay Intermark Ltd v ANZ Banking Group Ltd [2006] EWCA Civ 386, [2006] 2 Lloyd’s Rep 511, that might have been relevant to a consideration of the proper scope and limits of the principles to be derived from Curtis.

As an alternative ground of defence, Mr McMeel relied on the provisions of the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008, which came into force on 1 October 2008. Regulation 5 provides, so far as material:

“These Regulations apply to a contract, including a consumer credit agreement, between a consumer and a trader which is for the supply of goods or services to the consumer by a trader and which is made— (a) during a visit by the trader to the consumer’s home or place of work, or to the home of another individual; …”

Regulation 7 provides, so far as material:

“(1)

A consumer has the right to cancel a contract to which these Regulations apply within the cancellation period.

(2)

The trader must give the consumer a written notice of his right to cancel the contract and such notice must be given at the time the contract is made …

(6)

A contract to which these Regulations apply shall not be enforceable against the consumer unless the trader has given the consumer a notice of the right to cancel and the information required in accordance with this regulation.”

It is common ground that for the purposes of regulation 5 the claimant would be a trader and each defendant would be a consumer, and that, if the Regulations would otherwise apply, they are not excluded by the provisions of regulation 6. It is also clear that no notice of a right to cancel was given to any of the defendants. The question in each case is accordingly whether the contract was “made … during a visit by the trader to the consumer’s home”.

Mr McMeel abandoned the point in respect of Mr Dalling.

Any contract with Miss Turner that was made by the mandate would in my judgment have been made when she posted the signed mandate back to the claimant. It was therefore not a contract made at Miss Turner’s home.

The case is different with Mrs Munday. I have found that she handed the signed mandate to the claimant’s representative when he visited her home, in accordance with the option given to her by the letter dated 30 September 2010. In my judgment that was sufficient to conclude the contract then and there. The contract was accordingly made during a visit by the claimant, by its representative, to Mrs Munday’s home. It is therefore unenforceable against her by reason of regulation 7 (3).

Finally, Mr McMeel relied, very tentatively, on the provisions of the Consumer Protection from Unfair Trading Regulations 2008 (“the Consumer Protection Regulations”), which give effect in domestic law to the Unfair Commercial Practices Directive, 2005/29/EC. Regulation 3 of the Consumer Protection Regulations prohibits “unfair commercial practices”, which include “misleading actions” (regulation 5) and “misleading omissions” (regulation 6).

It is unnecessary to set out here the provisions of these regulations. They provide no arguable assistance to the defendants. The Directive provides only for public enforcement (article 11) and the Consumer Protection Regulations provide for enforcement only by the Office of Fair Trading certain other enforcement authorities. Regulation 29 provides in terms: “An agreement shall not be void or unenforceable by reason only of a breach of these Regulations.” Although a conviction for breach of the regulations might in a suitable case result in a compensation order in favour of a victim, the regulations do not provide for any right of action in private law. Quite properly, no claim to damages on the basis of any such right was pleaded on behalf of the defendants.

For the reasons set out above, the claims fail and will be dismissed.