Dunblane Property Ltd. & Anor v Motorcare Holdings Ltd. & Anor [2003] EWCA Civ 1033

Case No A3/2003/0306[2003] EWCA Civ 1033
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Mr Arthur Marriott QC
Venue Royal Courts of JusticeDate Wednesday 29 July 2003
Strand,
London, WC2A 2LL
Before
THE PRESIDENTLORD JUSTICE CLARKELORD JUSTICE SEDLEY
Between
DUNBLANE PROPERTY LIMITED (1)ClaimantsANTHONY RICHARD RAND (2)RespondentsMOTORCARE HOLDINGS LIMITED (1)DefendantsMOTORCARE SERVICES LIMITED (2)Appellants
(Transcript of the Handed Down Judgment ofSmith Bernal Wordwave Limited, 190 Fleet StreetLondon EC4A 2AGTel No: 020 7421 4040, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr Thomas Macey-Dare (instructed by Matthew Arnold & Baldwin) for RespondentsMr Antony Peto (instructed by Jones Day Gouldens) for Appellants
JudgmentAs Approved by the CourtCrown Copyright ©

Introduction

[1]In this action the claimants, Dunblane Property Limited (“Dunblane”) and Mr Rand, claim damages against the defendants for breach of a share sale and purchase agreement (“the SSA”) dated 16 May 1995. The pleadings identify a number of issues between the parties. In order to keep the case within reasonable bounds the court directed that a number of questions should be determined as preliminary issues. Those issues were tried by Mr Arthur Marriott QC, sitting as a Deputy High Court Judge. He heard a good deal of oral evidence and on 20 December 2002 answered those of the issues which remained in dispute. In this appeal the defendants challenge all but one of the answers he gave. They do so pursuant to permission given by Rix LJ.[2]The preliminary issues are set out in an appendix to this judgment. As will be seen below, the judge determined all the issues except issue (d), which was settled. Issue (a) is not the subject of this appeal. When the appeal began, the appeal related to issues (b), (c) and (e), although issue (c) is in a category of its own for reasons explained below. The judge also expressed a view on a further question of construction of the SSA, which has become an additional subject of this appeal. It seems appropriate, before considering these issues further, to set out the terms of the SSA and to refer to some of the underlying facts.

The SSA

[3]The SSA provided for the sale by Dunblane to a company called Powerstore (Services) Limited (“Powerstore”) of the 519 shares which Dunblane owned in Motorcare Services Limited (“MSL”), which was described in the SSA as “the Company”. MSL had been incorporated in 1991 by Mr Rand in order to provide vehicle accident repair services for motor insurers.[4]As I understand it, the scheme worked in this way. MSL compiled a nationwide list of approved repairers in order to be able to provide a body repair service for cars damaged in accidents. Any insurer who used the scheme would give its policy holders the number of a telephone answering service called “GESA”. The GESA operators had a computerised map with the names and locations of all the repairers who were part of MSL’s scheme. On receiving a call requesting a repair, which was known as an “Accident Repair Notification” or “ARN”, GESA would contact the nearest available body shop. The approved repairer would then pick up the damaged car, provide the insured with a courtesy car and perform the repairs.[5]MSL’s role was to ensure that the repair service was properly provided, that its approved repairers were up to scratch and that the customer services were of a sufficiently high standard. MSL checked that the repair charges were properly incurred, paid the body shop bills to the repairers on behalf of the insurers and received a commission from the insurers.[6]By an agreement made on 17 March 1994 between (among others) Powerstore and Mr Rand, it was agreed that MSL would allot and issue 667 ordinary shares to Powerstore and that Mr Clive Vlotman would become a director of MSL. He became chairman as from that date. The judge held that within weeks relationships in the boardroom had deteriorated to such an extent that Mr Rand was asked not to attend MSL’s offices as from the end of July 1994.[7]The dispute involving Mr Rand was settled by the SSA, which contained an agreement and three schedules. The parties to the agreement were stated to be Dunblane, as the vendor of what, as I understand it, had in effect been Mr Rand’s shares in MSL, Powerstore, as purchaser of the shares and MSL. The sale of the shares caused no problems of which we are aware but the SSA also made provision for Dunblane, and indeed Mr Rand, to have certain rights in connection with the appointment of a “Preferred Supplier”.[8]The relevant provisions of the SSA (ignoring for the moment the schedules) were these:
“1. INTERPRETATION 1.1 In this agreement, including the Schedules 1.1.1 the following words and expressions have the following meanings, unless they are inconsistent with the context: ‘Agreement’ this agreement and its schedules and all documents referred to herein as being in agreed form ‘Consideration’ the sum of £362,868 together with the transfer to the Vendor of the Relevant Businesses and the appointment of the Vendor and any direct or indirect Subsidiary of the Vendor as a Preferred Supplier of the Company ‘Preferred Supplier’ a supplier to the Company in relation to which Schedule 3 shall apply. ‘Subsidiary’ a direct or indirect subsidiary of the Vendor as that term as (sic) defined in s 736 Companies Act 1985 3. Purchase Consideration 3.1 The Consideration shall be satisfied: 3.1.4 as to the appointment of the Vendor as a Preferred Supplier on Completion in relation to the Vendor and any existing Subsidiaries and in relation to any future Subsidiaries on the day on which they become Subsidiaries of the Vendor 4 Completion 4.2 The Vendor shall deliver or procure delivery to the Purchaser of: 4.2.2 the Restrictive Agreement duly executed by the parties thereto.” 1.1.1 the following words and expressions have the following meanings, unless they are inconsistent with the context: ‘Agreement’ this agreement and its schedules and all documents referred to herein as being in agreed form ‘Consideration’ the sum of £362,868 together with the transfer to the Vendor of the Relevant Businesses and the appointment of the Vendor and any direct or indirect Subsidiary of the Vendor as a Preferred Supplier of the Company ‘Preferred Supplier’ a supplier to the Company in relation to which Schedule 3 shall apply. ‘Subsidiary’ a direct or indirect subsidiary of the Vendor as that term as (sic) defined in s 736 Companies Act 1985 3.1.4 as to the appointment of the Vendor as a Preferred Supplier on Completion in relation to the Vendor and any existing Subsidiaries and in relation to any future Subsidiaries on the day on which they become Subsidiaries of the Vendor 4.2.2 the Restrictive Agreement duly executed by the parties thereto.”
[9]It is common ground that the schedules were an intimate part of the SSA. Schedule 2 was entitled “Restrictive Agreement” and the parties to it were Mr Rand, a Mr Swingland, Powerstore and MSL. In clause 2 it set out a number of covenants binding Mr Rand and Mr Swingland, who were defined as “the Covenantors”, not to carry on various activities, which were in effect activities which would compete with MSL’s business. For present purposes the important provision is clause 3.2 as follows:
“3 COVENANTS BY THE PURCHASER AND THE COMPANY 3.2 Subject to compliance with the terms of the definition of “Preferred Supplier” the Company will during the period of 5 years from the date hereof appoint and maintain any vehicle body repair business owned or controlled now or in the future by the Covenantors as Preferred Suppliers to the Company.” 3.2 Subject to compliance with the terms of the definition of “Preferred Supplier” the Company will during the period of 5 years from the date hereof appoint and maintain any vehicle body repair business owned or controlled now or in the future by the Covenantors as Preferred Suppliers to the Company.”
[10]Schedule 3 was in these terms:
“SCHEDULE 3 DEFINITION OF PREFERRED SUPPLIER A Preferred Supplier means: “1. A company owned directly or indirectly by the Vendor which fulfil the requirements commonly adopted by the Company for appointment as a repairer to any insurance scheme network managed by the Company and which is approved by the Company’s customers as an approved repairer, and 2. Which will be offered terms of trade no less favourable to the supplier than those offered to any other supplier, and 3. Which enters into a contract with the Company in the Company’s standard form from time to time and continues to comply with the terms thereof including as to levels, standards and quality of service, and 4. Which will be offered work, subject to their ability to carry it out in accordance with the Company’s terms and conditions, in preference to other repairers in the locality up to a maximum distance by road, of 10 miles in major metropolitan areas and 30 miles elsewhere.”
DEFINITION OF PREFERRED SUPPLIER

A Preferred Supplier means:

[11]It is common ground that, at the time the SSA was entered into, the “company’s standard form” of contract within the meaning of paragraph 3 of schedule 3 was an agreement entitled “The Motorcare Approved Repairer Scheme” between MSL as “the Company” and an entity described as “The Repairer”. Such an agreement was known as an approved repairer agreement or “ARA”. Clause 22 was in these terms:
“The Company is in any event under no obligation to refer repair work to The Repairer under this scheme.”
It can immediately be seen that there was a conflict between clause 22 of the standard contract and paragraph 4 of schedule 3 to the SSA.[12]Before considering the preliminary issues set out in the appendix, so far as is necessary for the disposal of this appeal, it is convenient to consider the further question of construction of the SSA to which I referred earlier. Before the judge there was debate as to the meaning of paragraph 4 of schedule 3 to the SSA and, in particular as to the meaning of “locality”. The judge considered the submissions made on both sides and reached conclusions which he expressed in paragraphs 113 and 114 of his judgment. As appears below, he preferred Mr Macey-Dare’s submissions to those of Mr Peto on this point.[13]Mr Peto initially proceeded on the basis that the judge’s ruling on this issue could not be the subject of appeal because it was not one of the preliminary issues to be tried and was not the subject of a binding declaration or any other order which could be the subject of an appeal. However, he indicated that it was MSL’s intention to re-argue the question at the trial of the action. As I understand it, at a subsequent hearing before another judge, the respondents argued that it was not open to MSL to do so because the judge’s conclusion gave rise to an issue estoppel. It seemed to us that that was an unsatisfactory situation and that we should treat the judge’s decision as a formal determination of the issue, which, given the fact that both sides argued it in detail, is what it was, and that we should both entertain an application for permission to appeal against the determination and hear and determine the appeal if permission was granted. We so held and indicated that we would make an appropriate declaration binding upon the parties depending upon the conclusions reached.[14]In the event we heard argument from both Mr Macey-Dare and Mr Peto on both the application and the appeal. We indicated that we granted permission to appeal. Both counsel made detailed submissions on the point. Mr Macey-Dare’s submission is that the effect of paragraph 4 of schedule 3 to the SSA was to confer a right of first refusal in relation to all ARNs occurring within 10 miles of the relevant repair facility. He simply submits that the words “will be offered work … in preference to other repairers in the locality up to a maximum distance by road, of 10 miles” means that the preferred supplier is entitled to be offered (and thus to first refusal of) work in the locality up to a maximum distance of 10 miles from its repair facility.[15]In paragraph 113 of his judgment the judge noted that both counsel asked him to express a view on the meaning of schedule 3. In paragraph 114 he said that he did not find the language used in paragraph 4 of schedule 3 obscure or uncertain and that it was quite capable of being given a sensible meaning. He then said this:
“I think it plain from the ordinary and natural meaning of the English language, that the preferred supplier was to be given preference, ie had a right to first refusal, over other repairers in the Motorcare network in the locality. Locality is not a defined term. However, the provision can be made to work without difficulty. If in a major metropolitan area there were one or more repairers within 10 miles of the vehicle or of the insured (whichever yardstick was being applied in a given case) then the preferred supplier is to be given preference. By preference is meant a right of first refusal.”
The judge added that the preference was subject to the supplier’s ability to carry work out in accordance with MSL’s terms and conditions, which is not in dispute.[16]As can be seen, the judge accepted Mr Macey-Dare’s submissions. Mr Peto submits that in doing so the judge misconstrued the SSA. Moreover he submits that the judge did not address his submissions, which may be summarised as follows. The SSA should be construed against the background of the duties which MSL owed to insurers and to GESA because they formed part of the factual matrix which was known to all parties to the SSA, including in particular Mr Rand. MSL owed a fiduciary duty to the insurers to ensure that they and their insured received the best, quickest and most cost-effective service, which would ordinarily mean that, other things being equal, it was under a duty to the insurers to refer any ARN to the nearest available approved repairer. Further, it was a term of the agreement between MSL and GESA that it would not enter into any agreement with a body shop under which it was obliged to refer work to that body shop. That duty underscored MSL’s obligation to protect insurers’ interests in its dealings with repairers.[17]In short Mr Peto submits that, having regard to the fiduciary duties owed to insurers and its contractual duties owed to GESA, the SSA should not be construed as putting MSL under an inflexible obligation to refer all work within a 10 mile radius of a repair business owned or controlled by Mr Rand or a subsidiary of Dunblane because to do so would put MSL in breach of those duties. Mr Peto submits that, in these circumstances paragraph 4 of schedule 3 should not be construed as giving a right of first refusal over all the other repairers within a 10 mile radius but only over “other repairers in the locality”.[18]In my opinion the judge was right to construe the SSA as he did. It appears to be common ground that the words “will be offered work … in preference to other repairers” gives a right of first refusal to the preferred supplier over an area of some kind. The issue is not whether paragraph 4 gives any such right but over what area it does so. In any event, to my mind, the paragraph plainly gives such a right and the judge was correct so to hold.[19]It follows that, if MSL owed the insurers a fiduciary duty of the kind referred to by Mr Peto, paragraph 4 provided for a breach of it. However, we have not seen the terms of the arrangements with the insurers, so that it is not possible to say to what extent if at all the SSA fell foul of them. It appears that the contract with GESA did include the provision which Mr Peto relies upon, so that paragraph 4 involved or potentially involved a breach of it. But, even on Mr Peto’s construction of paragraph 4 of schedule 3 to the SSA, it was inconsistent with the duties to which he refers, so that it was for MSL (as it were) to make the peace with the insurers and GESA and procure appropriate alterations to its arrangements with both. The only issue is how wide a construction should be given to the expression “locality”. To my mind the considerations advanced by Mr Peto are of little, if any, assistance in resolving that issue.[20]It may be said in favour of a narrow view of “locality” that the judge’s construction does not give any or any real effect to the word “maximum”. On the other hand Mr Peto was not able to suggest any meaning for “locality” beyond saying that it would mean an area of perhaps a few streets depending upon precisely where the repair shop was. He says that it must mean an area where another repairer is more or less equi-distant. All would depend upon the particular area or locality. However, the difficulty with that construction seems to me to be that there is no hint in the SSA that it was intended that the relevant locality should depend upon the whereabouts of other repairers. Moreover, on MSL’s construction there seems no reason for the reference to 10 miles or 30 miles at all.[21]Much to be preferred, in my opinion, is the judge’s view that paragraph 4 can be made to work without difficulty. Although the judge said that “locality” is not a defined term, he in effect held that it was defined in the clause as an area of a maximum of ten miles by road with the preferred supplier’s repair shop at the centre. In my opinion the only sensible reason for including a reference to the 10 mile (or 30 mile) area was to identify the locality within which the preferred supplier was to be offered work, or in other words to have first refusal.[22]It follows that I would dismiss MSL’s appeal on this issue and make an appropriate declaration to that effect. I see no reason why the parties should not be able to agree the terms of an appropriate declaration. I propose that, in the absence of agreement, we should finalise the terms of a declaration when the judgments in this appeal are handed down.[23]I note two points before leaving this question. The first is that the construction adopted by the judge is consistent with the way the paragraph was approached by the parties. The second is that there may remain scope for doubt on the question what should be at the other end of the 10 mile distance: the accident, the car, the insured etc. We have not, however, been concerned with that issue in this appeal.

Issues (b) and (e)

(b) and (e) 16 May to 21 August 1995

[24]The judge set out the facts in some considerable detail and with great care in his judgment, both in this period and throughout. It is not necessary for me to set out all those facts again, but simply to refer to those features which are directly relevant to the issues raised by the appeal.[25]On 11 May 1995 Mr Rand had bought an off the shelf company, the name of which was changed to Knightsbridge Holdings Limited (“KHL”) and which became a subsidiary of Dunblane. He used KHL to purchase the shares in an existing accident repair company called Knightsbridge Cars (Bodyshop) Limited (“KBL”), which carried on business at Kingsbury in London NW9. It is common ground that KBL was a “Subsidiary of the Vendor” within the meaning of clause 3.1.4 of the SSA. It follows that Dunblane was entitled under the SSA to have KBL recognised as a preferred supplier with the rights and obligations of a preferred supplier set out in schedule 3 to the SSA.[26]Equally, under clause 3.2 of schedule 2, Mr Rand (as a party to schedule 2) was entitled to have KBL appointed as a preferred supplier provided that KBL was a “vehicle body repair business owned or controlled” by him. There can in my view be no doubt that KBL’s body repair business was “owned or controlled” by Mr Rand within the meaning of that clause. Mr Rand was managing director of both KHL and KBL and, although the shares in Dunblane were, as I understand it, held by a Rand family trust known as Rysaffe, it was accepted in the Reply that Mr Rand was at all material times an authorised representative of Dunblane with actual authority to negotiate and contract on its behalf in all matters relating to the implementation and/or variation of the SSA. It was further expressly admitted in the Reply that Mr Rand’s knowledge in relation to the operation and implementation of the SSA was to be imputed or attributed to Dunblane. In these circumstances, it seems to me to be clear that Mr Rand at the very least controlled KBL and its body repair business.[27]The period between 16 May and 21 August is the period between the date of the SSA and the date of the first agreement signed by KBL and MSL, which was in the then standard ARA form. That agreement was the subject of preliminary issue (a) (set out in the Appendix), which in substance was what was the effect, if any, of the ARA dated 21 August 1995 between MSL and KBL on the rights and obligations of Dunblane, Mr Rand and MSL under the SSA. The judge answered that question “none”.[28]From 25 May onwards there followed a number of letters, to which the judge referred in detail, in which Mr Rand sought to achieve preferred supplier status for KBL. Mr Rand for the most part wrote to MSL and to Mr Vlotman and others on KHL or KBL notepaper but he sometimes wrote simply signing himself “AR Rand” without using company notepaper. As I read the correspondence he was not for the most part drawing a distinction between himself personally, Dunblane or KBL in making the request that MSL recognise KBL as a preferred supplier under the SSA. It would be very surprising if he did seek to draw any such distinction because he and Dunblane both had the right under the SSA and its schedules to have KBL, as a subsidiary of Dunblane, recognised as a preferred supplier and afforded the rights conferred on a preferred supplier by schedule 3 to the SSA.[29]As I read the correspondence, MSL did not afford KBL preferred supplier status during this period. Although a written agreement was signed between them dated 21 August 1995, it did not have that effect. It was in the standard form of ARA and thus included an obligation in clause 2(b) to collect and recover vehicles within a 30 mile radius. It also included clause 22 quoted above, which provided that MSL was under no obligation to refer repair work to KBL.[30]In resolving issue (a), the judge held that the terms of that agreement had no effect upon the obligations of the parties under the SSA. That conclusion is not challenged in this appeal, in my opinion correctly. There is no hint in the ARA of 21 August that the parties intended to vary the SSA and, when it is construed in its context, it is clear that it was not intended to have that effect, since Mr Rand and KBL were pressing MSL to agree to recognise KBL as a preferred supplier both before and after the agreement was made. 22 August 1995 to 14 March 1996[31]For example, on 22 August Mr Rand wrote to Mr Vlotman complaining that MSL seemed to be unaware of the 10 mile exclusion zone referred to in paragraph 4 of schedule 3 to the SSA. On 29 August he complained that Mr Rifkin of MSL had no knowledge of the “preferred supplier arrangements”. The judge held that Mr Rifkin operated as though the preferred supplier arrangements did not exist.[32]Thereafter disputes of various kinds arose between the parties, including disputes as to commission. It is the respondents’ case that MSL was throughout in breach of the SSA by failing to afford KBL preferred supplier status. For example Mr Rand wrote to Mr Vlotman on 23 October 1995 complaining that work was still being referred to other repairers “from within our exclusion zone”. Further correspondence followed, which included a letter of further complaint written by Mr Rand and dated 2 February 1996. Mr Vlotman contacted Mr Kresfelder, who was the managing director of MSL, saying that he would like problems resolved “soonest”. Mr Kresfelder replied setting out some of the difficulties, but it is not helpful for me to recite that letter here because it did not cross the line between the parties.[33]In order to resolve the problems which had arisen Mr Rand and Mr Vlotman agreed to have a meeting on 14 March. This meeting is of some importance because it led to the Key Repairers Agreement (“KRA”) between MSL and KBL which was signed on behalf of MSL on 14 March and on behalf of KBL by Mr Rand on 26 March.

The 14 March Meeting and the KRA

(e) The 14 March Meeting and the KRA

[34]The judge set out a good deal of the evidence given by both Mr Rand and Mr Vlotman as to what was said at the meeting. I will return to that evidence and the judge’s approach to it, so far as necessary, below, but the evidence is to my mind clear that both Mr Rand and Mr Vlotman wanted to resolve the issues which had arisen between them. The judge held that Mr Vlotman did not have a copy of a KRA with him but that he suggested that a KRA be entered into between MSL and KBL. Mr Rand agreed in principle and in the light of the discussions at the meeting a form of KRA was delivered to Mr Rand the next day under cover of a letter from Mr Rifkin of MSL dated 14 March 1996.[35]It was for the most part in MSL’s standard form of KRA and was thus in somewhat different terms from the ARA because it described the repairer as a “Key Repairer” instead of an “Approved Repairer”. In the form of agreement delivered to Mr Rand, MSL was referred to as “The Company” and KBL was referred to as “The Key Repairer”. As signed by both parties, it included the following terms:
“1. The Key Repairer will carry out vehicle accident damage repair work on vehicles of customers insured by (“The Insurer”) and referred to The Key Repairer by The Company or its agent on the terms and conditions set out in this agreement and The Schedule. Standards of customer service 2. The Key repairer will provide the following services to drivers of vehicles referred under this scheme free of charge to customers, The Company or The Insurer. (a) The Key Repairer will use his best endeavours to contact the customer as soon as possible and in any event within 60 minutes of receiving the instruction (Accident Repair Notification) of the Insurer to carry out repairs; … (b) The Key Repairer will collect and recover vehicles for repair within the agreed post code areas as listed in clause 9. (c) The Key Repairer will visit the customer at his place of work or home as required within the agreed postcode areas, to inspect the vehicle in order to prepare an estimate of repair costs. … 6. The Key Repairer undertakes as a Key Repairer to accept each and every ARN (Accident Repair Notification) that Motorcare or its agents deploy to them, in accordance with the Schedule and this agreement. … 8. Rights and obligations of the Key Repairer The Company will instruct its repair referral agents to offer the Key Repairer the agreed number of ARN’s in each calendar month, subject to the Key Repairer’s capacity to carry such repairs to comply with the standards of customer service and standards of repair specified in this agreement. Agreed number of ARN’s The Key Repairer indicates to accept the following No of ARN’s per calendar month 40 9. The Key Repairer agrees to provide the standards of customer service and standards of repair specified in this Key Repairer Agreement within the following agreed Post Code Areas:- NW2- 11,19 N2,3,6,8, 10,11,12, 14,20,22 EN4,5 WD1-7 AL1-2 HA UB4-6 … Variation and termination 24. Either party shall have the right to terminate this agreement or to vary the terms and conditions in the agreement and The Schedule attached (a) by giving 3 months written notice of termination or variation …”
Standards of customer service (a) The Key Repairer will use his best endeavours to contact the customer as soon as possible and in any event within 60 minutes of receiving the instruction (Accident Repair Notification) of the Insurer to carry out repairs; … (b) The Key Repairer will collect and recover vehicles for repair within the agreed post code areas as listed in clause 9. (c) The Key Repairer will visit the customer at his place of work or home as required within the agreed postcode areas, to inspect the vehicle in order to prepare an estimate of repair costs. … The Company will instruct its repair referral agents to offer the Key Repairer the agreed number of ARN’s in each calendar month, subject to the Key Repairer’s capacity to carry such repairs to comply with the standards of customer service and standards of repair specified in this agreement. Agreed number of ARN’s The Key Repairer indicates to accept the following No of ARN’s per calendar month 40 Variation and termination (a) by giving 3 months written notice of termination or variation …”[36]Mr Rand considered the form of KRA which he had been sent and signed it on behalf of KBL on 26 March. It is not absolutely clear to me what blanks there were in the document before it was signed by Mr Rand. However, Mr Rand agreed in the course of the evidence that when he received the draft, he filled in the figure of 40 ARNs, which had been suggested by Mr Vlotman and which they agreed at the meeting would be inserted in the KRA, and he filled in the postcodes he wanted, as Mr Vlotman had agreed he could do. In any event, the respondents expressly (and correctly) accepted in the pleadings that on that date a contract came into existence on the terms of the KRA between MSL and KBL. Any other conclusion would be untenable.[37]The effect of the judge’s judgment, however, is that the respondents, Mr Rand and Dunblane, as parties to the SSA, were not bound by the terms of the KRA between MSL and KBL because they were not parties to it and could enforce the terms of the SSA without regard to the KRA. This seems to me to be a somewhat startling proposition for this reason. I have already expressed the view that both Dunblane and Mr Rand were entitled under the SSA (including schedule 2) to have KBL appointed as a preferred supplier. There is no entity other than KBL which the respondents say MSL should have appointed as a preferred supplier.[38]The respondents’ case in the proceedings is based on the allegation that MSL was in breach of the SSA (and in particular schedule 3) in failing to appoint KBL as a preferred supplier in accordance with the SSA. Their case is that, if MSL had appointed KBL as preferred supplier with the full rights identified in schedule 3, KBL would have been profitable, instead of going into receivership and being wound up in October 1997, with the result that Dunblane suffered loss as KBL’s parent and Mr Rand suffered loss as a personal guarantor of the liabilities of KBL and KHL under various loan arrangements. In particular it is said that KBL should have been offered all work within a 10 mile radius of Kingsbury and, indeed, Iver, as to which see below.[39]It seems to me to be a startling proposition that after the meeting on 14 March and the signing of the KRA by Mr Rand on 26 March, albeit on behalf of KBL, he and Dunblane remained entitled to have KBL appointed as a preferred supplier on terms different from those contained in the KRA, even though KBL itself was bound by the terms of the KRA. I can see no commercial or other sense in such an arrangement. However, I will return in a moment to what was said at the meeting. Before doing so, I should I think compare the terms of the KRA on the one hand and the SSA on the other.[40]It can be seen that the KRA was in different terms from the ARA of 21 August 1995. It contained both rights and obligations of KBL and no longer contained a provision like clause 22 of the ARA, which provided that MSL was under no obligation to refer repair work to KBL. As Mr Peto correctly points out, there were three major differences between the KRA and the SSA. The first was that, by clause 8 of the KRA, MSL agreed to offer 40 ARNs per month, whereas no such specific figure appeared in the SSA. The second was that, also by clause 8, KBL agreed to accept 40 ARNs per month, whereas under the SSA the preferred supplier had the right to refuse any work offered.[41]The third difference was that, by clause 9 of the KRA, KBL agreed to provide repair services within specified postcode areas, whereas the area was differently defined in the SSA. It is common ground (and in any event appears from the map) that the area covered by the postcodes is not the same as the area of 10 miles from KBL’s premises. There are postcodes within the 10 mile area which are not included in clause 9 and there are a few postcodes which are within clause 9 but outside the 10 mile area.[42]It can thus be seen that the rights and obligations of KBL under the KRA were in significant respects different from those of a preferred supplier set out in schedule 3 to the SSA. It follows that KBL entered into a contract in different terms from those contemplated by the SSA. I do not think that there is any scope for the submission that, notwithstanding clauses 8 and 9 of the KRA, KBL was nevertheless entitled, as a preferred supplier appointed by Dunblane under the SSA, to first refusal in respect of all ARNs within 10 miles of Kingsbury. Such a right would to my mind conflict with the terms of the KRA. The question then becomes whether the Mr Rand and/or Dunblane remained entitled under the SSA to require MSL to enter into a different contract with KBL from that contained in the KRA. The judge in effect held that they were. I turn to the reasons which he gave for that conclusion.[43]They are set out in the form of his conclusions with regard to issues (b) and (e) in paragraphs 116 and 117 of his judgment as follows:
“116. I am asked to consider the question which appears in issues (b) and (e) as to the effect (if any) of the communications in March 1996 and the effect (if any) of the agreement of 26th March 1996. It is plain on the evidence to which I have referred, that Mr Vlotman did not regard the Preferred Supplier Agreement as being affected at all with respect to any sites other than Kingsbury. Also Mr Vlotman did not regard his negotiations as having resulted in the replacement of the preferred supplier provisions of the Share Sale Agreement by the Key Repairer Agreement of 26th March 1996. On the contrary, in Mr Vlotman’s view he was doing no more than proposing the implementation of the Preferred Supplier Agreement; and in the light of that evidence, the effect of the 26th March 1996 agreement as contended for in the Reamended Defence, is not justified. I accept the evidence of Mr Vlotman that he was not seeking to replace the Preferred Supplier Agreement and I accept the evidence of Mr Rand as to the circumstances in which it came into effect and in particular as to what Mr Vlotman said. The definition of postal codes and the reference to 40 ARNs a month represented an agreement between the parties as to how they would proceed under the Key Repairer Agreement, Mr Rand accepting that in relation to the monthly referrals being under that Key Repairer Agreement, he had no right of refusal. But Mr Rand plainly was not intending to give up, nor in my judgment did he, nor did Mr Vlotman expect him to, the preferred supplier provisions of Schedule 3 to the Share Sale Agreement. No reliance can be placed on a clause of the Key Repairer Agreement, if its effect is inconsistent with or negatives the provisions of Schedule 3. That would be in itself inconsistent with the express purpose avowed by Mr Vlotman of finding a way of implementing Schedule 3 in particular. 117. I therefore find that the provisions of the Share Sale Agreement, and Schedule 3 in particular, are unaffected by the discussions in March 1996 and by the Key Repairer Agreement. I agree with Mr Macey-Dare that the Share Sale Agreement can be given effect to without conflict; but if I am wrong in that, then the Share Sale Agreement must take precedence. In my view, if it is seriously to be maintained that the parties to the Share Sale Agreement were significantly changing their rights and obligations and, in particular, the status or the definition of Preferred Supplier, then not only would I have expected Mr Vlotman to have said so on the basis, for example, that in his view the agreement in its original form could not work and required amendment in the light of changed circumstances, but also that the nature of the changes would have been carefully recorded and expressly agreed to by all parties to the Share Sale Agreement.”
[44]Mr Peto submits that those conclusions are flawed. He submits that, in construing the KRA, and indeed what was said or agreed at the meeting, the judge should not have taken account of the subjective opinions of Mr Vlotman, or indeed Mr Rand. I would accept that submission. The subjective thoughts and intentions of either Mr Rand or Mr Vlotman are not relevant save to the extent that they were communicated to the other. Evidence of them was therefore only relevant to the extent that it might help to identify what was said at the meeting.[45]Mr Peto further submits that the judge’s findings as to the state of mind of Mr Vlotman at the meeting were not justified by the evidence and that, having said that he accepted the evidence of Mr Rand as to the circumstances in which the KRA came into effect and, in particular, as to what Mr Vlotman said, he should have made further findings which would have shown that it was objectively intended that the SSA should be replaced by the KRA. He also notes, as is the case, that the parties operated the KRA and that neither party sought to vary or terminate it, as it was entitled to do under clause 24.[46]Mr Peto makes a further discrete point. He submits that it was agreed at the meeting that the KRA would settle matters, not only for the future, but also for the past. The judge rejected that submission because he held that the KRA had no effect on the SSA at all. Mr Peto invites this court to say that it was agreed that all disputes were settled, both for the future and for the past.[47]It seems to me to be important to put the meeting of 14 March in context. As already indicated, that context was the dispute which had been going on for some considerable time as to the proposed status of KBL. Mr Rand, who was wearing all his hats, namely his own hat, his Dunblane hat and his KBL hat, was anxious that KBL should be accepted as a preferred supplier and Mr Vlotman too was keen to settle the issue. Thus the purpose of the meeting was to resolve matters, at any rate for the future. There was no suggestion that what was intended was some kind of interim solution.[48]The judge said in paragraph 116 that Mr Vlotman’s view was that he was “doing no more than proposing the implementation” of the SSA and that he accepted his evidence that he was not seeking to replace the agreement. Mr Peto submits that that is not an accurate statement of Mr Vlotman’s evidence. I have read Mr Vlotman’s evidence with some care and have reached the clear conclusion that the judge’s conclusions cannot be supported in their entirety. Thus Mr Vlotman said that he was “practically replacing” the SSA with the KRA and that he was “amending the practical implementation” of the preferred supplier agreement. The judge himself referred to a passage in Mr Vlotman’s evidence that “I was not cancelling the Preferred Supplier, I was amending the implementation”. It seems to me that the evidence shows that that is precisely what he intended, namely to amend the implementation of the agreement. The reason he wanted to do so was because of difficulties which had been drawn to his attention by Mr Kresfelder.[49]However, as already indicated, what Mr Vlotman thought he was doing is really irrelevant. The question is what was said. As to that, the judge said that he accepted the evidence of Mr Rand. The judge noted at paragraph 62 that Mr Rand said that Mr Vlotman explained that there had been problems and that MSL had introduced a new kind of programme called a “Key Repairer Programme”. The judge continued, quoting from Mr Rand’s evidence:
“… what this basically meant was that a repairer was under an obligation to accept all the jobs which referred to that repairer within a particular area. He talked about, when I say all the repairs, whatever the circumstances, I believe I said to him that is not a problem to us because we do not turn work away and if a total loss comes down the line, yes, we will sort out the total loss as part of the package. What he said was that Motorcare will undertake to provide you with a volume of repairs arising within your territory as part of the standard key repairer deal. He said he had not brought along a copy of the Key Repairer Agreement for some reason and he also said that he did not know what the volume of repairs were arising within our 10 mile area or whatever. He asked me not to put a figure which Motorcare might not be able to provide. Of course, Motorcare, he did not know what the level of commitment which he could make on behalf of Motorcare. He suggested I put in a figure of 40 repairs per month but he also said that this was not a constraint on the total amount of business which will be coming into your workshop. …. I agreed to Mr Vlotman’s suggestion that the figure which we put in the agreement should be the number 40, but I did not agree that that should apply as a cap to the volume of business to be provided to KBL either in the future or in the past. The postcodes which I inserted were actually the postcodes which roughly corresponded to the geographical range which I described to you.”
[50]As to the past, the judge observed in paragraph 64 that all that Mr Rand was prepared to concede was that “as far as I was concerned I was not going to rake over the past.”

The judge later quoted these further passages from Mr Rand’s evidence:

“I agreed that the Key Repairer Agreement would be sent to me, that we would read it through and sign it and send it back. I said that I would put in the postcodes and the areas for which I said I would wish we would cover, which broadly speaking we did. As suggested by Mr Vlotman in order to avoid the problem of the ability of Motorcare to refer work to us and the volumes which they had available to refer to us, I followed his suggestion and put in the figure of 40.”
[52]The judge said in paragraph 67 that Mr Rand accepted that he would sign “such an agreement in order to facilitate the implementation of the Preferred Supplier”. It was presented to him as the standard KRA. The judge further quoted this part of Mr Rand’s evidence at paragraph 68:
“It had been put to me by Mr Vlotman that this is what we needed to do in order to move forward with the Preferred Supplier, that implementation or to compliance with their obligations. I had said that I would put in the codes which we wanted to cover, which I did, and I gave him the figure of 40 which is the number which Mr Vlotman suggested. The context of that figure was that Mr Vlotman was not able to commit Motorcare to providing any more jobs in these postcodes or in our part of London because he had not checked before he came to the meeting and on that basis that is the number which I inserted. The understanding at that meeting was that that would not be treated as a cap.”
[53]The evidence set out by the judge seems to me to support the submissions made by Mr Peto. Thus agreement was reached in order to resolve the issues which had arisen and to facilitate the implementation of the preferred supplier agreement in the SSA, which involved some variations of it because (as set out above) the KRA introduced the obligation to offer and accept 40 ARNs and changed the area to one delineated by postcodes. It seems clear that the figure of 40 was expressly agreed and that Mr Rand put in his chosen postcodes. Moreover Mr Rand signed the KRA on behalf of KBL without other amendment or reservation.[54]Mr Rand said that it was understood that the agreed figure would not be treated as a cap. However, that must simply have meant that it was open to MSL to offer and KBL to accept further work if appropriate. I can see no justification for the conclusion that it was agreed that the KRA was to be some kind of interim arrangement which Dunblane or Mr Rand could abandon at any time by requiring MSL to adhere strictly to the terms of paragraph 4 of schedule 3 and thus vary the terms of the KRA. Mr Rand agreed the figure of 40 ARNs and chose the postcodes and he signed the KRA, which contained clause 24, so that he could (so far as I can see) have procured KBL to give 3 months notice to vary or terminate the agreement. However, he at no time did so and, in my opinion he, Dunblane and KBL were bound by the terms of the KRA so long as it remained on foot.[55]It is perhaps worth observing that, as the judge observed in paragraph 65 of his judgment, Mr Rand said in evidence that he did not say too much in the course of the meeting because he did not entirely trust Mr Vlotman or MSL and was concerned that MSL might not pay the sum of £120,000 which was due on 19 May, so that he did not want to rock the boat. That evidence seems to me to be inconsistent with the conclusion that Mr Rand said anything to Mr Vlotman which might have given the impression that he was reserving the right to require MSL to enter into some different contract with KBL from that contained in the KRA.[56]However that might be, for my part I do not think that the judge’s conclusion that the KRA was to have no effect on the SSA can be supported. A fair view of the evidence of Mr Rand and Mr Vlotman is that in order to resolve the issues which had arisen as to the status of KBL as a preferred supplier they agreed that MSL and KBL should enter into contractual relations on the terms of the KRA. I do not think that in all the circumstances a conclusion which enables Mr Rand or Dunblane to nullify or disregard the terms of the KRA at any time is consistent with the evidence. As already stated, my view is that the only course which could be taken to that end would have been by serving a notice under clause 24 of the KRA.[57]For these reasons, I am unable to agree with the judge that the answers to the questions posed by issues (b) and (e) are “none”. In my opinion the evidence shows that the interested parties, including Mr Rand, Dunlane and KBL on one side and MSL on the other, agreed that the rights of KBL and MSL for the future would be governed by the KRA and would only be governed by the SSA as varied by the KRA. Put another way, by what was said and done at the meeting of 14 March they evinced an objective intention that the KRA, if signed, would have the effect of changing MSL’s obligations under the SSA, so that when it was in fact signed it had that effect.[58]Two questions remain. The first relates to the period before the KRA was entered into and the second relates to the activities of KBL at premises other than Kingsbury. I will consider those in turn.

The Past

[59]There is nothing in the KRA which purports to govern the rights and liabilities of KBL (or Mr Rand or Dunblane) and MSL for the past. However, Mr Peto submits that it was agreed at the meeting of 14 March that in consideration of MSL entering into the KRA with KBL, Mr Rand and Dunblane (and I think KBL) abandoned any claims they may have had against MSL for breach of the SSA in the past.[60]Mr Peto is not able to point to any express agreement to that effect. The judge said in paragraph 64 that as regards “bygones be bygones” all that Mr Rand was prepared to concede was that he had said that as far as he was concerned he was not going to rake over the past. Mr Peto relies upon that evidence, but to my mind Mr Rand’s evidence does not go so far as amounting to an agreement that he would not make a claim for past losses. That evidence was part of this exchange in cross-examination by Mr Peto. “Q. You shook hands and agreed that bygones would be bygones? A. What Mr Vlotman said to me was that there had obviously been a lot of problems between Motorcare and KBL. I think that what he was saying to me about not letting bygones be bygones was that we should not rake over the past but we should try to properly implement a fairly straightforward commercial agreement. All I wanted to do was to get a flow of work coming into our business. I was not there to argue about the rights and wrongs of what Motorcare had done or had not done, although obviously I have got my own opinion about what they did. But my priority at the time, apart from the other priorities of running a business, which was fairly busy then …. as far as Motorcare was concerned I wanted to make sure that they complied with the Preferred Supplier Agreement and give us our rights under the agreement. I was not interested at all about raking over the past. Q. You agreed there should be a clean break with the last few months and that you should start afresh. A. No. What I said was that as far as I was concerned I was not going to rake over the past. Q. You were not going to rake over the past. Did you shake hands? A. Probably.”

Q. You were not going to rake over the past. Did you shake hands?

[61]In my opinion, that evidence is consistent with Mr Rand saying that he was not going to rake over the past at the meeting on the basis that he was looking to the future. It was the future that was the subject of the KRA which I have discussed at some length. In these circumstances I would hold that, although the parties did make a binding agreement on the terms of the KRA for the future, they did not do so for the past.

KBL Premises other than Kingsbury

[62]The judge said in paragraph 116 that Mr Vlotman did not regard the preferred supplier agreement as being affected at all with respect to sites other than Kingsbury. Equally there is no evidence that Mr Rand thought that any agreement was being made in relation to other premises operated by KBL or that there was any agreement relating to such premises in March 1995. The terms of the KRA are either expressly or by necessary implication limited to KBL’s premises at Kingsbury.[63]That is clear from clause 9 of the agreement. As already indicated, clause 9 sets out the agreed post code areas and the evidence makes it clear that those postcodes were essentially related to KBL’s body repair shop at Kingsbury. It would make no sense to apply the KRA to a body shop owned by KBL anywhere else. I might add that any such conclusion would be inconsistent with the separate KRA which was subsequently agreed between MSL and KBL in respect of a repair shop at Iver and which contained its own postcodes referable to Iver.

Conclusions on Issues (b) and (e)

(b) and (e)

[64]For these reasons I would allow the appeal on issues (b) and (e) and (subject to any submissions which the parties may wish to make on the precise form of order), I would answer them both in the same way as follows. Neither the KRA referred to in issue (b) nor any of the events referred to in issue (e) had any effect on the SSA in respect of events before the KRA became effective or in respect of any business carried on by KBL other than at Kingsbury, but the effect of the KRA (and those events) was that the SSA was varied so that the rights of Dunblane and Mr Rand to have KBL treated as a preferred supplier under the SSA were as set out in and governed by the KRA between MSL and KBL from the date on which it became effective.

Issue (c) - Iver

(c) - Iver

[65]The question raised by issue (c) was whether KBL owned a body repair business at Iver in Buckinghamshire between May and October 1977. The judge answered the question in the affirmative. During the course of the argument it became clear that it was not appropriate to limit the issues by asking only that question. After some discussion it was agreed that the appropriate course was to set aside the answer which the judge gave to the question posed by issue (c) and (in the absence of agreement) to leave all the issues raised by work done by KBL at Iver to be determined at a subsequent trial. It was also agreed that the costs of this issue both in this court and below should be reserved to the trial judge at or after such a trial.[66]In these circumstances, I do not think that it would be appropriate for me to discuss the various issues under this head, including any issues relating to the construction and effect (if any) of the KRA between MSL and KBL, which was dated 20 May 1997 and signed by one of the parties on 5 June 1997 and which in clause 9 contained postcodes based (as I understood it) on Iver.

Conclusions

[67]I would allow the appeal in part and would dismiss it in part. I would answer the questions raised by the appeal as follows, subject to any submissions which the parties may wish to make as to the form of the[68]I agree.

Dame Elizabeth Butler-Sloss P:

[69]I agree.

order

i) Construction of the SSA On the true construction of paragraph 4 of schedule 3 to the SSA, a preferred supplied in a metropolitan area was entitled (subject to the terms of the paragraph) to be offered, and have first refusal in respect of, ARNs up to a maximum of 10 miles from the relevant body repair shop. ii) Issues (b) and (e) Neither the KRA referred to in issue (b) nor any of the events referred to in issue (e) had any effect on the SSA in respect of events before the KRA became effective or in respect of any business carried on by KBL other than at Kingsbury, but the effect of the KRA (and those events) was that the SSA was varied so that the rights of Dunblane and Mr Rand to have KBL treated as a preferred supplier under the SSA were as set out in and governed by the KRA between MSL and KBL from the date on which it became effective. iii) Issue (c) – Iver The determination of the judge is to be set aside by agreement and the costs of this issue both before the judge and in this court are to be reserved to the trial judge. iv) Issues (a) and (d) These issues do not arise. Issue (a) did not give rise to any appeal and issue (d) was settled before the judge.

Cited in 2 later judgments