IN THE HIGH COURT
OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
31st July 2003
BETWEEN:
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BETWEEN:
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1. This Judgment is given in relation to applications by both Defendants in action number HQ03X00331 and by the Second and Third Defendants in action number HT-03-53. No distinction needs to be drawn between these Defendants whom I shall refer to simply as Telia. The two actions are concerned with the same events and substantially with the same parties. By Order dated 16 April 2003, HH Judge Havery Q.C., ordered that the two actions be heard together. Subsequently, on 13 May 2003, Telia issued an application in each action, inter alia, to strike out the Particulars of Claim as against them. The applications were heard t together and, as will appear, the issues in the second action are in part dependent on findings in the first action. Although the two actions have not been formally consolidated, I made it plain that I considered that they should be dealt with together and neither party has raised objection. I therefore give my decision in the form of a Consolidated Judgment. If it were necessary to do so I would additionally order that the actions be consolidated, at least for the purpose of these applications.
2. The common factual background, as disclosed in the Particulars of Claim and in the witness statements of David Almond in the first action, Paul Jonathan Mellish in the second action and Susannah Emma Fink in both actions, are as follows. Telia held a leasehold interest in premises at Westferry Road, Docklands. They intended to build new premises on the site, but the terms of the lease we re unsatisfactory and they were minded to seek arrangements by which the terms of the lease could be renegotiated as part of a package in which the new building could be financed and constructed for their use. Accordingly, from about September 2001 Telia set up arrangements by which City Connect were to act as a principal party taking a new lease from the freeholder, Hilcourt (Docklands) Limited, upon surrender of Telia's existing lease; acting as the Developer in letting a design and build contract for the new building; raising the necessary finance for the development; and granting a new lease of the development to Telia. In that capacity, it is evident that City Connect would themselves be undertaking substantial risks for which there would be commensurate opportunities to profit from the venture. The broad terms of the deal as proposed by City Connect are set out in two letters dated 16 October 2001 addressed respectively to Hilcourt (Docklands) Limited and to Telia. City Connect contend that, by their acceptance of the second letter of 16 October 2001, Telia agreed to pay City Connect's costs in the event of the project not proceeding.
3. The claim brought by City Connect asserts that as from about 16 October 2001 it was expressly agreed that Telia would pay City Connect's reasonable fees and costs if the project did not proceed to completion (para. 7). Alternatively it is asserted that Telia represented that they would pay City Connect's reasonable fees and costs if the project did not proceed and that Telia are estopped and precluded in equity from denying such liability (para. 8). In the further alternative, City Connect advance a restitutory claim, contending that they worked on the project on behalf of Telia upon the common belief and understanding that they would be paid their reasonable fees and costs, and that it would be unfair and unjust to allow Telia to go back on that understanding (para. 9).
4. Parallel with these arrangements, City Connect approached a number of parties to act as part of the professional team for the development. These included Mellish & Lynch Limited ("Mellish") who are Quantity Surveyor; and Project Managers. From October 2001, Mellish attended meetings, inter alia, with City Connect and Telia to discuss the building project. Mellish contend that, in the course of correspondence and at meetings, there emerged a contract by which Mellish were engaged by City Connect, and further that undertakings were given by Telia to pay the reasonable professional costs incurred by Mellish. In addition, Mellish contend that the contract made by City Connect with Telia was intended to confer a benefit upon Mellish which they are entitled to enforce pursuant to the Contract (Rights of Third Parties) Act 1999.
5. Telia, by their applications issued in each action, contend that the claims against them disclose no reasonable grounds of claim and have no reasonable prospects of success. Telia's principal ground of attack arises from the terms of the letter of 16 October 2001 from David Almond of City Connect to Andrew. Brown of Telia, which includes the following statements:
I also enclose the terms between City Connect and Telia AB for the development and occupation as a Data Centre on the following terms and conditions subject to formal contract.
9. Would look to all reasonable costs incurred on commencement of professional formalities in the event of Telia AB not proceeding to be payable by Telia AB.
On 29 October 2001 Mr. Brown responded to this letter stating, without qualification, that paragraph 9 was "accepted".
6. Subsequently, on 5 November 2001, Mr. Almond again wrote to Mr. Brown including the following:
I refer to my conversation with you on Friday and confirm agreement of terms on the following terms and conditions subject to formal contract.
9. We would look to all reasonable costs incurred on commencement of professional formalities in the event of Telia AB not proceeding to be payable by Telia AB.
Mr. Almond explains in his statement that there was a telephone conversation following this letter in which Telia were requested to confirm that the costs to be payable would include any legal costs reasonably incurred by City Connect and Hilcourt. Mr. Brown accordingly responded with a further letter of 7 November stating:
I am writing to confirm our conversation of 7 of November 2001. In the event Telia decides to exit the proposed arrangement prior to the signature of the proposed arrangement, then Telia shall pay City Connect's reasonable legal costs, this shall include the reasonable legal costs of Hill Court Docklands Limited which may be charged to City Connect.
7. In support of the application to the Court Mr Elliott QC for Telia placed reliance on the words in the opening paragraph of the letter of 6 October "subject to formal contract" and contended that the words, in accordance with long-standing legal convention, deprived the terms following of legal effect. Furthermore, once introduced into negotiations, such qualification continues unless expunged by express agreement of the parties or where this is necessarily to be implied: see Cohen v. Nessdale [1982] 2 AER 97 citing Tevanan v. Norman Brett 223 EG per Brightman J, a passage subsequently approved by the Court of Appeal. Telia accepts that the label "subject to contract" could be avoided in rare cases of estoppel: see AG of Hong Kong v. Humphreys Estate (Queens Gardens) [1987] 1 AC 114. To establish an estoppel, however, there must be some representation, expressly or by implication, that the party had surrendered his right to rely on the “subject to contract" label. No such estoppel could be established in the present case. As regards the restitutory claim, Telia rely on Regalian Properties v. L.D.D.C. [1995] 1 AER 1005 and contends that the present case is indistinguishable.
8. Before considering the issues in more detail it is necessary to recall the basis upon which Telia's application is made. It was not suggested that there was in this case any relevant distinction between an application for summary judgment under CPR 24.2 and an application to strike out under CPR 3.4: the test is whether it is established that the claim has no real prospect of succeeding, or alternatively, discloses no reasonable grounds for bringing the claim. It is necessary to show not that the claim is bound to fail, but that there is no realistic prospect of success. In the present case, while the parties have had the opportunity to put forward detailed written submissions and to develop those submissions orally, I must re: resist the temptation to treat the matter as a preliminary issue to be decided on the balance of argument. Plainly, the applicant bears the burden of showing that the claim, if fully investigated, have no realistic prospect of succeeding.
9. Returning to the central issue, it was contended by Mr Ralls QC on behalf of City Connect that the words "subject to formal contract" may be given a different meaning if, as City Connect contend, "something has gone wrong" in the drafting: see Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 AER 98. In that case Lord Hoffmann, summarising the cases on legal construction stated:
On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.
Reliance is also placed on Confetti Records v. Warner Music UK Limited (Transcript 23 May 2003) per Lewison J in which the effect of the words "subject to contract" is reviewed. The judgment considered the decisions in Michael Richard Properties v. St. Saviour's Southwark [1975] 2 AER 416 and Alpenstow v. Regalian Properties [1985] 1 WLR 721, concluding that these were cases where "something had gone wrong with the language" and that the problem in each case could be solved by the usual methods of construction.
10. In written submissions Mr. Ralls drew attention to passages in the evidence of Mr. Almond stating that Telia had specifically agreed at a meeting on 26 October to pay City Connect's abortive costs if the deal was not signed, and contended that Telia had provided no evidence to the contrary. Mr. Almond as asserts that the agreement to pay costs was not subject to contract and this issue could rot be resolved without hearing the relevant evidence. In oral argument, Mr Ralls contended that the letter of 16 October 2001 was to be read as making the proposals for setting up the project itself "subject to formal contract" but also, ancillary to that, as creating a separate and free standing agreement that Telia would pay City Connect's reasonable costs if the project did not go ahead. Mr. Elliot, in response, contended that the words "subject to formal contract" necessarily applied to all relevant contracts and that the agreement to pay City Connect's fees was therefore subject to the same words.
11. Pursuing this issue further, the project arrangements described in both the letters of 16 October and that of 5 November 2001 plainly required the drawing up of lengthy and complex documents, so that it was readily understandable that the proposals set out should be "subject to formal contract". The same is not necessarily true of the proposal that Telia should pay City Connect's costs. The correspondence in and after November 2001 in fact revealed lengthy negotiations be between DLA, Telia's solicitors, and Trowers & Hamlins, acting on behalf of City Connect. In those negotiations agreement was sought on a form of costs undertaking by which Telia were to accept responsibility for a proportion of the estimated fees of a large number of parties who were to become involved in the project, the relevant proportion of fees being referred to as the "abortive " fees. The nature of the discussions was to seek to arrive at capped figures for all these costs, including legal and accountancy costs. The negotiations between the solicitors became increasingly complex. They were expressly conducted on a "subject to contract" basis and came to an as yet unexplained end in early January 2002. However, at no point does any connection appear to have been drawn between these negotiations and the earlier exchanges between Telia and City Connect in October and early November 2001.
12. Given that the solicitors, in the later negotiations, were seeking to agree caps to be placed on all the relevant costs, one can see every reason why those negotiations should have been conducted "subject to contract". Reverting to the letter of 16 October 2001, the notion that City Connect, who drafted the letter, should have had any reason to make the request for an undertaking to pay their fees subject to contract is unexplained and not readily understandable. If the words "subject to formal contract" are to be taken to refer to the conclusion of the project documents (which seems at least arguable), the notion that City Connect's fees should be payable subject to the same contingency makes little sense, since the proposal is itself conditional on the project not proceeding.
13. It would seem to me at least properly arguable that the he construction urged by Mr. Ralls is correct and that the effect of the letter was to render the project proposal "subject to formal contract", but at the same time to create an ancillary or freestanding agreement to pay City Connect's costs in the event of the project not proceeding. To the extent that the letter, as a matter of construction, would alternatively render the whole of City Connect's proposals subject to, the words "subject to formal contract" I consider it similarly arguable that something has gone wrong with the drafting of the letter and that the words are not, in relation to the proposed undertaking as to payment of costs, to be given their established legal meaning.
14. In the light of this conclusion, it follows that the pi primary claim by City Connect against Telia is not to be struck out and it becomes necessary to consider the remaining submissions and issues in rather less detail.
15. As regards the issue of estoppel, Mr. Ralls relies on the series of meetings from late October 2001 onwards in which Telia are recorded as accepting an obligation to pay City Connect's abortive costs. He contended that this afforded material on which the restrictive approach demonstrated by AG of Hong Kong v. Humphreys Estate could be avoided and distinguished on the basis that, without such assurances, City Connect would not have continued to expend time and money on the project. As regards the restitutory claim, it was submitted that Regalian v. LDDC could be distinguished on the basis that, in that case, there had been no reference to the payment of abortive costs and the negotiations were accepted as having been "subject to contract". For the purpose of this application, it would be necessary to conclude that these arguments do not have any realistic prospect of success and it is sufficient to say that I am not so persuaded in relation to either issue.
16. Without any disrespect to the careful written and oral submissions advanced by Mr. Cavender on behalf of Mellish & Lynch in the second action, those issues were necessarily subsidiary to the fate of the main application in the first action. In the event of City Connect establishing the existence of a contract with Telia, it was not argued on behalf of Telia that such a contract could not be the subject of a claim under the Contracts (Rights of Third Parties) Act. Having concluded that the claim by City Connection is not to be struck out, it follows that he claim brought by Mellish & Lynch based on City Connect's contract is also not to be struck out.
17. Mellish & Lynch pursue an alternative claim for quantum meruit arguing that Telia have benefited from the work of Mellish & Lynch. There is a dispute on the evidence as to whether the services provided by Mellish & Lynch should be regarded as having been provided for City Connect or for Telia. It is sufficient to conclude that that issue is properly arguable on behalf of Mellish & Lynch. In my view, it is not established that a quantum meruit claim has no realistic prospect of success.
18. Accordingly, I have reached the conclusion that both applications should be refused. Telia maintain an alternative application for striking out part of the claim brought by City Connect. In the event this is pursued, in the light of my decision on the primary application, I invite further oral argument.