Priory Caring Services Ltd v Capita Property Services Ltd [2010] EWCA Civ 226

Case No A1/2009/0387

[2010] EWCA Civ 226

IN THE HIGH COURT OF JUSTICE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE QUEEN’S BENCH DIVISION

LIVERPOOL DISTRICT REGISTRY

TECHNOLOGY AND CONSTRUCTION COURT

HIS HONOUR JUDGE STEPHEN DAVIES

TCC No 36/08

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 11/03/2010

Before

LORD JUSTICE RIX

LORD JUSTICE WILSON

SIR SCOTT BAKER

Between

PRIORY CARING SERVICES LIMITEDAppellant / Claimant

CAPITA PROPERTY SERVICES LTDRespondent / Defendant

(Transcript of the Handed Down Judgment of

WordWave International Limited

A Merrill Communications Company

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Ms Lesley Anderson QC and Mr Graham Sellers (instructed by Gregsons Solicitors) for Appellant

Mr Alexander Nissen QC and Mr Richard Coplin (instructed by CMS Cameron McKenna LLP) for Respondent

Hearing Hearing date : Friday 11 th December 2009

Judgment

Lord Justice Rix :

[1]In these proceedings, the claimant (in this court the appellant), Priory Caring Services Limited (“Priory”), seeks to recover damages from the defendant (in this court the respondent), Capita Property Services Limited (“Capita”), in respect of Capita’s alleged negligence in the course of undertaking the design, specification and supervision of the repair and refurbishment of Priory’s hotel, the Priory Hotel, at Prescot Road in St Helens, Lancashire (the “hotel”). The proceedings were commenced on 24 January 2008. The negligence complained of relates to events in 1998/2000, when the hotel was being repaired after a fire which had occurred on 12 January 1998.

[2]In February 2005 Priory discovered that the refurbished hotel had been disastrously affected by damp penetration. The hotel has thus suffered ordeal first by fire and then by water. The damp penetration is ascribed to the negligence of Capita’s surveyor, Mr Vince Owen, in failing properly to specify and supervise the necessary repairs following the fire, in particular in relation to the hotel’s roof, as well as in failing in his report of October 2000 to identify the inadequacy of those remedial works.

[3]Capita’s response to being sued has been to rely inter alia on a preliminary point arising out of an agreement made between the parties on 10 March 2003 and evidenced by a letter of that date from Priory’s solicitors to Capita’s solicitors. Capita submits that the agreement bars Priory’s claim. The trial judge, HHJ Stephen Davies, sitting as a judge of the Technology and Construction Court in the Liverpool District Registry, agreed and struck out Priory’s claim. This is Priory’s appeal from his judgment and order dated 6 February 2009.

The letter of 10 March 2003

[4]The letter was from Mr Michael Baden of Messrs Gregson & Ashton, solicitors to Priory, to Mr Jim Pinsent of DLA, solicitors to Capita, and reads as follows:

“I refer to our telephone conversation this afternoon and confirm the following: 1. I am authorised on behalf of my client Priory Caring Services to send this letter to you. 2. Ian Murray, having provided his statement of today’s date, my client Priory Caring Services confirm and undertake that it will not issue proceedings against Capita in relation to matters arising from Capita’s appointment as surveyors to Priory Caring Services in relation to the Priory Hotel – irrespective of whether such appointment was conducted through Vince Owen or otherwise in relation to the Priory Hotel. 3. It is agreed that Priory Services will pay Capita the fees outstanding in relation to the matter, in the event that such fees are recovered within the existing arbitration proceedings before Mr Stephen Grime against CGU. 4. Save in relation to non-payment of such fees in the event of recovery as outlined in 3. above, it is agreed that Capita will not issue proceedings against Priory Caring Services Limited.”

[5]Capita submitted, and the judge agreed, that the present proceedings had been commenced in breach of the undertaking given on behalf of Priory in paragraph 2 of that letter, in other words that these proceedings were “in relation to matters arising from Capita’s appointment as surveyors to Priory Caring Services in relation to the Priory Hotel”. Capita submitted, and the judge agreed, that the negotiated release was broad and without limit, but that in any event Priory knew, already in March 2003, of serious question-marks over the performance of Mr Owen, who was specifically singled out for mention at the end of paragraph 2 of the letter.

[6]Priory submitted, however, that on its true construction, the release of claims was limited to claims of which the parties were aware at the time of the letter and did not extend to claims which were then unknown to the parties. On that basis, it submitted that Priory did not then know of the damp penetration only discovered in February 2005.

[7]On this appeal, Priory maintains that submission, but seeks to combine it with a further point, in part based on the production of new documents, to the effect that the true and only subject-matter of the letter was the then current threat by Priory to dispute Capita’s fees. At its broadest, Priory now maintains, the release was concerned only with a second, separate retainer to Capita in relation to expert witness and other assistance that Capita was providing to Priory in relation to a dispute which had broken out between Priory and its insurers, CGU, and which was then being dealt with in arbitration (referred to in paragraph 3 of the letter).

[8]Mr Murray (referred to in paragraph 2 of the letter) was a director of the northern building surveying business of Capita. Priory was keen for him to make a witness statement in the arbitration between it and CGU, to assist Priory in fighting off a point being made against it in its arbitration, to the effect that Priory had given inadequate disclosure in the arbitration.

[9]There is also a point, made by Priory to the judge below, to the effect that the release was ineffective as a contract because it lacked consideration.

[10]It is necessary to explain the background to these submissions.

The factual background to the letter

[11]No trial took place other than the trial of the preliminary issue relating to the release of claims contained in the letter. Therefore when I speak of the factual background to that letter, such facts are a mixture of pleaded allegations, whose truth has been assumed for the purposes of the preliminary issue, and facts found by the judge as to the immediate circumstances of the agreement evidenced by the letter.

[12]In January 1998, shortly after the fire, Priory engaged a firm of surveyors originally called Richmond Associates, but which almost immediately became KDP Richmond Limited, for which Mr Owen had worked before its business was acquired by Capita (“KDP”). KDP was in due course sued in these proceedings as the first defendant (Capita is the second defendant). It has allowed default judgment to be entered against it. It is without means. KDP was engaged to survey the fire damage and to design and project-manage remedial works to the hotel. When in June or July 1999 Capita acquired KDP’s business, it stepped into the shoes of KDP’s retainer. As Priory pleads the matter in its particulars of claim:

“In January 1998 the Claimant instructed Richmond Associates…to act on its behalf in supervising the repair and refurbishment of the Hotel…By letter dated the 13th July 1999 [Capita] informed [Priory] that it had acquired the business of [KDP]. Thereafter it continued to act on behalf of [Priory] in respect of the Hotel in (inter alia) inspecting the works and dealing with [Priory’s] insurers.”

[13]Mr Owen transferred to Capita and continued to work on the hotel project until he left Capita’s employment in 2000. As

the judge puts it (in para 3 of his judgment):

“it is common ground that in or around June or July 1999 [Capita] took over the business of [KDP] and continued from that time onwards to perform the same role for [Priory] that [KDP] had performed.”

[14]It appears to have been KDP’s responsibility to prepare a specification for the refurbishment of the hotel, and to instruct and supervise a building firm, TRPS Limited, which had been selected to carry out that refurbishment (“TRPS”). A specification for “Hotel Works and Alterations” bearing the date of June 1998 was brought into existence, which ought to have been issued to TRPS as the basis of their work, but it would seem that this specification (the “specification”) was backdated and not in fact brought into existence until about June 1999 and thus possibly just within the era of Capita’s retainer. Priory pleads: “the same was not in fact prepared until about June 1999 [and] was not issued to TRPS”.

[15]TRPS began its work in June 1998 and ceased in about May 1999. That was before Capita appeared on the scene. On 24 October 2000 Capita produced a report of that date in relation to the state of the hotel (the “report”). The judge finds that the report was prepared by Mr Owen. At that date it would seem that the refurbishment programme had ceased, but had not been completed. Priory pleads:

“The completion of the refurbishment of the Hotel was thereafter delayed due to differences between [Priory] and its insurers which resulted in lengthy arbitration”

. Priory complains that the report ought to have picked up the defective refurbishment work which had occurred, but failed to do so. As the judge observed, “the only specific allegation made against [Capita] in the Particulars of Claim is that it produced a report…and that in the report it failed to identify or to bring to [Priory’s] attention the fact that the remedial work that had already been done was defective and undertaken without adequate contractual instructions to the contractor from [KDP] as project manager” (at para 3).

[16]Priory’s principal witness for the trial was its managing director, Mr Frank Westhead. It was Mr Westhead who discovered the damp penetration in the hotel in February 2005. His evidence, in the form of a witness statement dated 26 November 2008, dealt more or less exclusively with the circumstances of the letter. All evidence at the trial was given by way of witness statements: there was no cross-examination.

[17]The judge’s findings about this period were as follows. Priory had the benefit of property insurance with CGU covering fire and other risks, but from some time in 1999 a dispute arose between Priory and CGU which required Priory to proceed to arbitration against CGU. Initially, Mr Owen had acted as Priory’s expert surveyor in the arbitration. However, by January 2001 he had fallen out with Capita and left its employment. In March 2002 the arbitration went to trial, and the disaffected Mr Owen gave evidence for CGU. In June 2002, while an award was still awaited, CGU filed evidence from Mr Owen to the effect that Capita held electronic records of all of its (and KDP’s) documents, and that Priory had failed to provide full disclosure of such records. CGU therefore applied to the arbitrator to rehear the entire evidence in the arbitration, a matter of great concern to Priory.

[18]As a result, Priory had to consider all such records with Capita. In doing so, with the assistance of a Mr Keith Dickson, who had been a director of KDP and Capita in turn, it came to light that Mr Owen was, at the very least, suspected of backdating documents to cover up his own responsibility for delayed projects, both in the hotel project and in a project for another of Capita’s clients. It followed that there were grounds for believing that Mr Owen was an unreliable witness, and therefore that what he had been saying in the arbitration (on behalf of CGU) was simply not true.

[19]In his witness statement, Mr Westhead put the matter in the following way:

“12. I spoke to Mr Murray then in Capita’s employment and explained the matter of the discrepancies to him. I told him that I believed that documents had been deliberately backdated to conceal evidence of Mr Owen’s negligence and that we needed a statement from him confirming that the discrepancy between document dates held on KDP’s computer hard disc were the same as the discrepancies that have come to light on the CD-R which he had provided. Mr Murray’s response was to say that he was greatly concerned that in providing such a statement Capita could be exposed to possible litigation and prior to providing a witness statement he would need an undertaking that Priory…would not issue proceedings against Capita and that he would contact Jim Pinsent a solicitor with DLA who was acting for Capita at that time… 59. I further believe that evidence of Mr Owen’s deliberate concealment of his negligence and back dated documentation has been in the possession of [Capita] from the date of their purchase of KDP Richmond [in] June 1999 and from January 2000 were fully aware of the true situation regarding Vince Owen’s deliberate concealment of his negligence and the existence of back dated documentation and themselves (Capita) deliberately concealed this evidence from [Priory] until it came to light in March 2003.”

[20]In the light of Mr Westhead’s evidence, it is not at all surprising that the judge finds that Mr Westhead believed that documents had been deliberately backdated to conceal evidence of Mr Owen’s own negligence; or that Mr Murray’s response to Priory’s request for a statement to confirm that fact, in order to undermine Mr Owen’s evidence in the arbitration, was to the effect that he was greatly concerned that in providing such a statement Capita would be exposed to possible litigation: so that prior to providing such a statement he would need an undertaking that Priory would not issue proceedings against Capita (para 13 of the judgment).

[21]We have now reached the immediate run-up to the making of the agreement which resulted in the letter. The judge went on to make detailed findings about the circumstances in which that letter was agreed. He did so because there were issues at trial concerning(i) contractual intention, for Priory asserted that there was no intention to enter into legal relations with respect to the letter, and

(ii) economic duress, for Priory asserted that the release agreement could be avoided on this ground, as having been extracted from Priory by Capita by oppressive means. Both those arguments failed, and have not been resurrected on this appeal. There was also the argument which has survived into this appeal that, as a matter of construction of the letter, it should be limited to claims of which the parties were aware at the time of giving the release, and should not extend to claims outside the contemplation of the parties. For that reason as well, the run-up to the making of the release agreement contained in the letter was examined as a matter of contractual matrix. On this appeal, subject to a number of applications to broaden its scope, to which I will refer below, only the question of construction arises (and the consideration point). I am uncertain in my mind in these changed circumstances how much of the material examined by the judge remains admissible on a matter of pure construction, even with the assistance of an investigation into contractual matrix, and how much is inadmissible as a matter of pre-contract negotiations (see Prenn v. Simmonds

[1971] 1 WLR 1381

, and Investors Compensation Scheme Ltd v. West Bromwich Building Society

[1998] 1 WLR 896

for instance at 913B). However, no point was taken on this distinction before us.

[22]In the context of the more limited argument which arises on this appeal, I think it would be sufficient if I record the following further material as to the run-up to the making of the letter agreement. This reflects the background material pleaded by Priory (in its reply) as being in any way relevant to the letter.

[23]On 17 January 2003 Mr Baden (Priory’s solicitor) wrote to Mr Pinsent (Capita’s solicitor) saying he had a suggestion which “could significantly benefit Capita” and was designed to be “mutually beneficial”. He asked for a meeting, which in the event took place on 29 January. The meeting was attended by the two lawyers and by Mr Westhead and Mr Dickson. It will be recalled that it had been Mr Dickson who had first explained to Priory what Mr Owen’s documentation showed. Mr Dickson (“KDP” stood for Keith Dickson Partnership) had transferred as a director from KDP to Capita, until he left Capita in October 2000. Therefore at the time of these events in 2003, he was independent of Capita. It was perhaps for this reason that, although he was assisting Priory in its arbitration, and had already given one statement in it, and was willing himself to make a further statement about Mr Owen and his documentation for the purposes of the arbitration (and did so, dating it 4 March 2003), Priory was also keen to have a statement from a current representative of Capita itself.

[24]There is a contemporaneous file note of the meeting of 29 January 2003 made by Mr Baden, which he attached to his witness statement for trial. It contains the following passages which are significant regarding Mr Owen’s possible negligence and the threat which he posed as a possible cause of litigation on the part of Priory against Capita:

“…I [Mr Baden] took Jim [Mr Pinsent] through the strengths of our case against KDP and Capita for breach of confidentiality, breach of contract insofar as Vince Owen’s activities were concerned and highlighted the various area[s] in which we were homing in on particularly in the light of his asserted adherence and compliance to ISO 9001. I went through the breaches of confidence and negligence and pointed out that there was documentary evidence…and that much of what Owen had passed over to the insurance company was grossly inaccurate and misleading… The reality had already been dealt with by Keith Dickson in his statement and we also pointed out the fact that much of the work which had been done in Owen’s name was actually carried out by inadequately supervised students and Joanne Blakemore who was a secretary, not a qualified surveyor. I highlighted a number of areas where it had come to light that Vince Owen had been negligent and had told demonstrable lies… Jim had already latched on to the strength of our case against Capita even on a vicarious basis which I expected he would. He agreed, regarding the matter of Priory’s provision of an immunity…that a form of words acceptable to Capita was required prior to Ian Murray providing a statement and also the matter of the outstanding fees needed to be agreed… The context of all this was that before Ian Murray would provide a witness statement we would need to agree the proposed immunity from prosecution and also agree the payment of outstanding fees. In the event that we did not provide an immunity Ian Murray would not provide a witness statement…”

[25]In the follow-up to that meeting, on 10 February 2003 Mr Pinsent wrote to Mr Baden as follows:

“In short the position is this. If you can satisfy me that an agreement as between your client and Capita, in the circumstances that you outlined in our discussions would be binding, and/or that Priory would not take any proceedings then Ian Murray would be prepared to assist.”

[26]On 14 February 2003 Mr Baden replied to Mr Pinsent:

“Might it be appropriate if my client company and my Directors were to let you have an acknowledgment in open correspondence, that they would release your clients from any liability which may attach to Richmond Associates, the Keith Dickson Partnership, or Capita in so far as the activities of Mr Vincent Owen are concerned.”

[27]On 17 February 2003, Mr Pinsent replied, to suggest that Mr Baden put forward some wording for his consideration. On 7 March 2003 Mr Pinsent responded to a request for Mr Murray’s statement by an imminent deadline by saying:

“Obviously, the provision of any statement will be contingent upon agreement as to the undertaking to be provided by Priory and also as to an undertaking by Priory to pay Capita all outstanding fees.”

[28]On 10 March 2003, Mr Murray’s statement was prepared and signed, subject to final agreement on the wording of the undertaking. A first letter from Mr Baden to Mr Pinsent of that date put the offer of an undertaking thus:

“Priory…will not, in fact, issue any proceedings against Capita in respect of the conduct of Vince Owen in relation to the services provided in connection with the fire at the Priory Hotel and Capita’s subsequent involvement in it.” 29. As for the separate matter of fees, Mr Baden wrote: “It appears from Vince Owen’s timesheets which have now come into our possession that my client has been grossly overcharged in respect of Owen’s fees. If anything my client would appear to be in a position to demand a substantial credit. Whatever fees may be owing will be claimed within the parameters of the arbitration and whatever is recovered will be paid to your clients in full.”

[29]Ultimately, in Mr Baden’s second letter dated 10 March 2003, which I have cited at the outset of this judgment, the matter of the undertaking was dealt with in paragraph 2, and the matter of fees in paragraphs 3 and 4. It would appear that the matter of fees was dealt with as contemplated in the first letter, that is to say that Capita would rest content with such fees as might be recovered by Priory within the arbitration. As for the undertaking of release, however, that appears to have been widened so as to refer not only to the conduct of Mr Owen, but, by the addition of the words “or otherwise”, generally.

[30]What is significant for present purposes, however, is that all this material demonstrates, to my mind quite clearly, that Priory was well aware of the significance of the material which had come to light about Mr Owen’s activities. Quite apart from any problem of breach of confidentiality arising out of Mr Owen’s assistance to CGU in the arbitration, these documents are replete with references to Mr Owen’s negligence, that is negligence in the conduct of his responsibilities in relation to the hotel. Although Priory did not know at that time of the latent defects which in due course would be revealed by the discovery in February 2005 of the water damage at the hotel, it was plainly on notice that Mr Owen had prima facie been negligent and even dishonest in the discharge of his responsibilities.

The proceedings and judgment below

[31]In these circumstances, the judge was somewhat bemused in the course of argument as to the strength of the factual case sought to be made by Priory at trial (inherent in its submission that the letter of release should be limited to claims of which the parties were aware) to the effect that Priory did not know of any possible cause of action against Priory for the negligent conduct of its retainer. When pressed in argument by the judge with this difficulty, Mr Graham Sellers, who appeared for Priory at trial below and does so again on this appeal albeit now led by Ms Lesley Anderson QC, quite properly recognised it but submitted that a distinction should be made between a major claim and lesser claims, thus:

“The only point I’d make is that what wasn’t envisaged was a claim regarding defective works of such a magnitude that are currently on foot…”

(at para 43 of the transcript); and again “But the primary point that I ask your Lordship to accept is that what wasn’t envisaged was proceedings in respect of defective workmanship and effectively a claim of the magnitude that is the subject matter of the current action” (at para 92 of the transcript).

[32]The judge was conscious that, in dealing as he was with a preliminary issue raised by Capita’s plea in bar that Priory could not proceed in the light of the letter, the parties had prepared for that sole preliminary issue by deploying only a limited range of evidence. Moreover, the parties had willingly proceeded to trial on the preliminary issue without any formal disclosure exercise: no orders for disclosure had been agreed or sought for the purposes of the directions which the court had made. It was simply left for the parties to annex to their witness statements such material as they wished to rely on. The judge was therefore concerned that the parties should be aware of the restrictions which these circumstances might place on the arguments which they could deploy at the hearing. For instance, at one time it had been contemplated that a second preliminary issue would be taken in tandem, relating to Capita’s reliance on the prima facie expiry of the limitation period (given that the proceedings had been commenced in January 2008 in relation to negligence which had occurred in 1998/2000) and to Priory’s reliance on deliberate concealment pursuant to section 32(1)(b) of the Limitation Act 1980. As it was, Mr Westhead’s statement had, albeit only very briefly, referred to Priory’s allegation of deliberate concealment in para 59 (quoted above at para 19). There, the concealment had come to an end by March 2003. Moreover, Priory’s skeleton argument for trial (at para 16) had observed, directly in the context of the construction argument relating to the letter, that, whereas Capita knew, as of 10 March 2003, that such a claim as Priory was now making was possible, Priory was ignorant “of this extremely important fact”. That submission appears to have gone beyond Mr Westhead’s para 59. The question of any concealment, or one-sided and unconscionable knowledge, was also potentially relevant to the argument on duress.

[33]Thus the judge had para 16 of the skeleton argument in mind when he said this to Mr Sellers (at paras 30ff of the transcript):

“30…for example, I look at paragraph 16 of your skeleton, which seems to me to be potentially at least raising a defence of unconscionability, in effect saying that…your clients have no idea…that there was such a possible claim, wheras [Capita] did, they knew that you didn’t and effectively, deliberately kept quiet about it and that seemed to me to be something that was going far and beyond what is in paragraph 3, or indeed in the evidence… 32…it’s not a pleading point, it’s a point really that there isn’t any evidence, any evidential foundation for it.” 35. To which Mr Sellers replied: “33…I think the only option for me is effectively to abandon that part of the argument in paragraph 16.”

The judge also said this:

“44…I’m not, as it were, concerned at this stage to shut you out from arguing points, but equally I think it’s important that we ensure that this preliminary issue is…confined to what is currently in issue and certainly at the moment…if neither party’s evidence, as I understand it, has addressed or is dealing with a detailed comparison as to what, if anything, was in contemplation in 2003 as opposed to what precisely is claimed in these proceedings. Now, so long as the parties are content that we deal with it, as it were, on the basis of the evidence we’ve got, then I’m not going to try and stick my oar in, but it’s always important I think at the outset for everyone to understand where we’re going rather than at the end.” 37. To which Mr Sellers replied: “45. My Lord, indeed. I’m grateful to your Lordship.”

[35]It was in the light of such exchanges that in his judgment the judge put any question of bad faith or unconscionability or concealment on the part of Capita (other than of course on the part of Mr Owen) out of his mind. For instance, in the context of his discussion of duress, he said:

“33. Again there is no suggestion or basis for a suggestion, in my judgment, that [Capita] acted in bad faith in seeking to obtain this release as a condition of giving the witness statement…”

I draw attention to this material, both because it has possible relevance to the question of the effectiveness of a release in the face of sharp practice by the beneficiary of the release (see the leading case of Bank of Credit and Commerce International SA v. Ali

[2001] UKHL 8

[2002] 1 AC 251

, per Lord Nicholls of Birkenhead at para 32), and also in the light of new arguments and evidence which Priory seeks leave to deploy which I discuss below.

[36]As it was, the judge did not have to deal with any argument of unconscionability or concealment, but with a submission which he recorded in these terms:

“48…Mr Sellers submitted that…as at March 2003 [Priory] was not aware of the problems of damp penetration…and thus…had no reason to believe that [Capita] had been guilty of any negligence such as would make it liable for the consequences of that dampness…the only claims which were in contemplation of the parties at the time were firstly a potential claim for recovery of overpaid fees paid to [Capita] and secondly a claim or a complaint in relation to the conduct of Mr Owen in relation to the falsification of dates on documents.”

The judge rejected that submission in these terms:

“55. So far as the factual matrix is concerned, I accept, as Mr Sellers has submitted, that there is no evidence to the effect that at the time this release was entered into [Priory] had any express knowledge of the damp related problems, or that it was aware that there were defects which had been caused by the alleged negligence of [Capita]. But it seems to me, equally, to be the case that those were matters which were not completely outside the contemplation of the parties. In general terms [Priory] was aware that there were at the very least significant concerns arising in relation to the quality of the performance by [KDP] and [Capita] of their respective duties, that those concerns extended to overcharging, that they also extended to the deliberate falsification or backdating of documents, and it seems to me to be a small step from that to contemplating that there were also, or might also be, concerns about the quality of the service provided, and more particularly whether or not the supervision provided and the reports produced had led to a situation where there were defects in the hotel for which [Capita] could be said to have been responsible. This is thus in my judgment not a case where the relevant factual matrix is remotely similar to that in BCCI v. Ali. 56. It seems to me that there is no warrant in the relevant factual matrix in this case for limiting the width of the release only to the particular matters which were known about at the time… 57. I say all this with the cautionary principle expounded by Lord Bingham in BCCI v. Ali very much in mind. Nonetheless in my judgment decisions such as the present are particularly fact sensitive, dependent upon a careful analysis of the facts of the particular case. When I analyse the facts as known to the parties in this case at the time the release was entered into, it seems to me that they admit of only one answer, which is that the release was, and objectively was intended to be, a wide release, covering all claims, whether present or future, known or unknown, arising out of [Capita’s] appointment on this project.”

[38]On the question of whether Capita provided any consideration for the release, the judge found such consideration, first, in Capita’s agreement to limit its claim for fees to such as might be recovered in the arbitration, and secondly in Mr Murray providing a witness statement, voluntarily, and thus conferring a practical benefit upon Priory. Priory’s application to adduce new evidence on the issue of construction.

[39]Following the trial and the loss of its claim, Priory obtained further evidence concerning the background to the letter of 10 March 2003. This evidence came forward in the form of a witness statement from Mr Glen Nicholas dated 26 February 2009. Mr Nicholas had been an employee at Capita who had first worked with and then succeeded Mr Owen as having responsibility for the Priory account. He left Capita as from 1 August 2001 to set up his own firm, but he continued to work on the Priory account as a sub-contracting consultant to Capita. Mr Nicholas had in fact given an earlier witness statement on behalf of Priory for the trial. However, it was only after the trial that he had searched in his own papers and found some further documentation relating to the background to the release letter. He does not say why he had not made this search before. I would assume that he was asked on behalf of Priory to see what a search might provide, but it hardly matters. The fact is that Mr Nicholas and his papers, such as they were, were reasonably available to Priory prior to the trial.

[40]In any event, the further documents which Mr Nicholas has provided, and explained in his witness statement, are of no particular assistance to Priory. They essentially consist of some items of correspondence, first concerning Mr Owen’s role, and then about his own appointment by Capita to provide sub-contracted services after his departure from Capita. Thus he has produced a copy of a fax from Mr Owen to Mr Westhead at Priory, dated 15 June 1999, addressing the consequences of the acquisition by Capita of KDP’s business. The fax reads as follows:

“As discussed in relation to Capita’s acquisition of KDP’s business, I am able to confirm that Capita will assume responsibility for works carried out to the Priory Hotel under your agreement with KDP. With regard to the particular circumstances of works to the hotel being placed in abeyance until matters are resolved with the insurance company and without prejudice to the above agreement, in the interim, Capita’s delivery of surveying service is as agreed a separate appointment. Surveying service will be provided on a lump sum basis or as may be subsequently agreed.”

[41]There followed a letter from Capita dated 1 July 1999, again from Mr Owen to Mr Westhead, concerning negotiations with the loss adjusters. Mr Owen wrote: “However, these are insurance related matters and are additional to and separate from the services previously provided. As a consequence we will require an additional fee…” details of which are then canvassed.

[42]Later, when, as a result of Mr Owen’s activities in the arbitration and the discovery of complaints about his conduct in relation to his work at the hotel, there was dispute between Priory and Capita inter alia about Capita’s fees, this dispute had a knock-on effect as between Capita and Mr Nicholas’s new company. Thus on 27 December 2002 Mr Nicholas wrote to Mr Murray at Capita to complain that Capita was keeping him out of payment of his fees. He recorded his understanding that Mr Westhead was considering what action to take regarding overpayment of fees, but protested that his entitlement to be paid by Capita was not dependant upon Capita’s recovery from Priory. He threatened to suspend his services until the matter was resolved. Then on 10 March 2003 itself, Mr Murray wrote to Mr Nicholas to say – “We have resolved the matter of KDP’s fees. Frank [Westhead] has agreed not to sue for them and we have agreed to accept the decision of the arbitration on the final amount, so you can continue support on Priory’s job.”

[43]Priory now relies on these documents to develop two new submissions, and to enhance another previous submission. One submission is that the provision of expert services to Priory for the purpose of the arbitration was a separate retainer from the original retainer to provide services in relation to the repair of the hotel. On that basis, it is said that the release letter was only concerned with claims arising out of that separate retainer, and not with claims arising out of the original retainer to which Capita had succeeded. The other is that the release letter was only concerned with a dispute about fees, and Ms Anderson now submits that that point has been given added weight by this new material.

[44]However, I would not accept these submissions. Mr Owen seems by his letter dated 1 July 1999 mainly to be concerned with ensuring that different services would generate additional fees. Whether it would be right to describe the enhancement of the services provided by Capita as a separate appointment is a debatable question. But, in any event(a) Priory’s particulars of claim did not approach the matter in such a way;

(b) Mr Westhead was always in a position to know about such matters – the fax and letter now relied upon are addressed to him and ought to reside in Priory’s files, and there is no evidence before the court that they do not; and

(c) the release letter is plainly concerned inter alia with the question of Mr Owen’s negligence in his responsibilities with regard to the repair of the hotel, as well as his breach of confidence in moving from one side of the arbitration to the other.

[45]As for the correspondence between Mr Nicholas and Capita, I accept that this had taken place outside Priory’s knowledge: but(a) Mr Nicholas could always have been asked to look for such documents in time for the trial;

(b) the interest of Mr Nicholas in his fees throws no light on the issues before the court; and

(c) we know in any event that one of the bones of contention discussed between Priory and Capita at the relevant time was the question of fees, both outstanding fees which Priory was threatening to withhold and fees already paid which in the light of Mr Owen’s negligence may have been subject to some form of claw-back. It seems to me that the new material takes matters no further. It simply throws a side-light on something which the correspondence between the parties directly involved (Priory and Capita) had already demonstrated.

[46]In these circumstances, none of the Ladd v. Marshall

[1954] 1 WLR 1489

tests for the admissibility of fresh evidence are met. At the hearing we therefore refused the application to adduce this further evidence.

Priory’s application to renew a ground of appeal relating to unfairness

[47]Ms Anderson submitted that there had been a “serious procedural or other irregularity in the proceedings” causing injustice (see CPR 52.11(3)(b)) in two respects. First, the court should never have sanctioned a preliminary issue on the effect of the letter in circumstances where that issue could not be fairly disentangled and tried from other issues in the case, such as those arising out of the true circumstances of Mr Owen’s apparently dishonest conduct and its deliberate concealment by Capita. Secondly, and cumulatively, the trial of the preliminary issue became impossible without any disclosure of the parties’ documents. This was illustrated by the documents which had come to light with the assistance of Mr Nicholas and which demonstrated the true factual matrix of the release, namely Capita’s concern about being sued in respect of the overpayment of professional fees.

[48]However these submissions are without merit. Preliminary issues on the effect of the letter and on limitation were agreed between the parties, at a case management conference on 7 November 2008. At that time appropriate directions were agreed, which did not include any direction for disclosure. That could always have been requested, but was not. CPR 31.5(2) permits dispensation with standard disclosure. At that time at any rate, Priory appears to have regarded the issue of construction as comparatively straightforward. No issue had as yet been raised on the pleadings as to why the letter, relied on by way of bar in Capita’s defence, was not a straightforward matter of construction of its language. It was only at a further hearing on 5 January 2009 that there was a discussion of the need for a reply from Priory, to deal with any issues which might be said to arise in respect of Capita’s two defences based on the letter and on limitation. At the same time it was decided that the upcoming trial would be limited to the first preliminary issue only, that relating to the letter. The trial date had been fixed for 6 February 2009, and thus was imminent.

[49]Priory served its reply on 14 January 2009. This was the first time that it had formally put forward its case on the letter. It pleaded certain documentary material as its context, but had no positive case as to its construction, merely stating that “No admissions are made as to whether the current proceedings actually constitute a breach of clause 2 of the said letter”. Rather, the whole of its positive case was to the effect that the letter was not an effective contract, or could be avoided as such: the letter was not binding, it was unenforceable, it was void for public policy, it was entered into under economic duress. In the context of such pleas, it might have been argued that the limitation issue, Priory’s response to which as pleaded in the reply was to the effect that there had been deliberate concealment, both in Capita’s report and in the form of the backdating of “a whole host of documents (both primary and secondary)” in a deliberate attempt to conceal from Priory the fact that KDP and Capita had been negligent, could not have been safely tried separately from the issue of duress. However, no such argument was addressed to the court.

[50]It was only on the day of trial itself, by reference to Mr Sellers’ skeleton argument dated the previous day, 5 February 2009, that Priory for the first time adopted a positive case to the construction of the letter, to the effect that because Capita knew, but Priory did not, of the possibility of a claim for negligence, therefore, on the authority of BCCI v. Ali, the letter of release did not contemplate or cover the claim made in the proceedings. The judge was immediately concerned as to whether such an issue could be tried in the current state of the pleadings and the evidence, and mentioned his concerns for the parties’ consideration within a few minutes of the opening of the proceedings (“But I’ll let you talk about those issues rather than seeking to debate it now”, para 14 of the transcript). The court then adjourned. When it resumed, Mr Sellers elected to continue with the trial, or at any rate not to seek any adjournment, and to abandon any argument based on unconscionable knowledge or deliberate concealment on the part of Capita. It was also inherent in the decision to continue, that the basic documents in the case fell to be construed without the influence, if any such influence there might have been, of evidence from Priory specifically directed to establish that, whatever might have been the position in 1998/2000, nevertheless as of 10 March 2003 Priory was still ignorant of any possibility that Mr Owen’s negligence and/or dishonesty might in due course lead to a claim in respect of damage to the hotel. In the light of the documents which have been reviewed above, that might have been difficult evidence to sustain. On the contrary, Mr Westhead’s witness statement, even when it came, in its final para 59, to the question of deliberate concealment on the part of Mr Owen and Capita, only alleged that such concealment was effective “until it came to light in March 2003” (see the quotation at para 19 above).

[51]In these circumstances the renewed ground considered here lacks any arguable merit, and thus it was that we refused the application to bring it into the appeal.

Priory’s application to introduce a new ground of appeal based on Capita’s dishonesty

[52]This was Priory’s so-called ground 15. It was premised on a draft amendment to the notice of appeal put forward under an application dated 25 November 2009, a few weeks before the hearing of this appeal, and on three new witness statements (with documentary material annexed), from(i) Mr Paul Harding, who had been a director of the contractor TRPS which had carried out the hotel repairs in 1998/99;

(ii) Mr Paul Lockley, a chartered engineer who had acted in connection with the hotel fire and repairs for the loss adjusters instructed by CGU; and

(iii) Mr Nicholas, whom I have already introduced, namely Mr Owen’s subordinate and then successor at Capita. The burden of their evidence was that the repairs had been carried out without the benefit of the backdated specification. In addition Mr Nicholas gave detailed evidence about Mr Owen’s backdating of the specification and other documents. He based that evidence on the results of looking “again”, at Mr Baden’s request, through papers which he continued to hold deriving from Capita’s file. Mr Harding’s statement is dated 2 November 2009, Mr Lockley’s statement is dated 4 November 2009, and Mr Nicholas’s second, post-trial, statement is dated 10 November 2009.

[53]On this fresh evidentiary basis, the new ground develops a new pleaded case of dishonesty against Capita, expressed as follows. It is said that since the judgment it has now emerged that – “15.1 [Capita] has deliberately and/or fraudulently concealed and/or suppressed from [Priory] the fact that no specification and/or no proper specification based on drawings was actually in existence when the works to the Hotel were carried out…[Priory] will invite the Court to conclude that [the specifications] have been deliberately and/or fraudulently created after the event so as to conceal the fact that works to the Hotel were in fact carried out with no specification or no proper specification; 15.2 by letter dated 2nd September 1999, [Capita] wrote to [Priory] fraudulently representing to [Priory] and/or assuring [Priory] that the works carried out up to 2nd April 1999 were satisfactorily completed to their specification version 02 with the exceptions therein set out. In truth, however, such works cannot possibly have been carried out in accordance with such specification given that the same did not actually come into existence until April 1999 at the very earliest.” On this basis, Priory seeks two remedies:(1) recognition that it is entitled to avoid the release agreed in the letter;

(2) the setting aside of the judge’s trial judgment.

[54]There are, however, a number of major difficulties with this new ground and new evidence. First, it is not new. Priory has known since 2003 of the problem of Mr Owen’s backdating of documents and the inference of deceitfulness which it sets up as a device to cover up his own negligence. Although Priory has gone to Mr Harding, ex the building contractor TRPS, for confirmation that TRPS had no specification to work on, that is merely further confirmation of a scenario which was already known about. Secondly, Priory was always in a position to have sought out this additional evidence, and there is no satisfactory explanation of the delay over the years for its failure to do so. It appears to be simply that Priory has drawn this shot out of its locker in a last attempt to make use of the appeal procedure in the period between obtaining permission to appeal (on other grounds) and the hearing of this appeal. Thirdly, the allegation of unconscionable knowledge and deliberate concealment, which had already been made in Priory’s preparations for trial below, sketchy as it was in the way it had been advanced, had been withdrawn by Mr Sellers in the face of the court: see para 33above. Without that allegation, it would seem that Capita was as much the victim of Mr Owen as was Priory: and Mr Dickson (ex Capita) and Mr Nicholas (also ex Capita) and Mr Murray (a director of Capita) were all willing to help Priory in 2003 to get over the difficulties that Mr Owen had created with Priory’s insurers. Admittedly, Capita’s help was on terms that were protective of Capita, but that was understandable where Capita was being asked to support a case that was being made about its own employee’s negligence and dishonesty. Fourthly, the still wider allegation of fraud now made, including the allegation that Capita had itself deliberately and fraudulently suppressed the dishonesty and incompetence of Mr Owen, and the suggestion that both the letter of release and the judgment below had been procured by its ongoing effect and must therefore each be set aside, even to this day remain unparticularised.

[55]In such circumstances, jurisprudence shows that, although there is an exceptional discretion to permit newly discovered allegations of fraud to be introduced into the appeal process, the basic rule is that the litigant is required to start new proceedings: see Jones Co v Beard

[1930] AC 298

, Kuwait Airways Corporation v Iraqi Airways Company and Republic of Iraq(No2)

[2001] 1 WLR 429

(HL), and see also Couwenbergh v Valkova

[2004] EWCA 676

, [2004] CP Rep 38 and Pell v Express Newspapers

[2005] EWCA Civ 46

, [2005] WL 62259. I would by no means encourage Priory to commence such new proceedings; but I would reject as without merit its attempt to derail the current appeal process by the means attempted.

The construction of the letter

[56]I therefore arrive at last at the real subject-matter of this appeal, which is whether the judge erred in his evaluation of the scope of the letter’s release as including the claim currently brought in these proceedings.

[57]As the judge directed himself, and as is common ground on this appeal, the leading authority on such a question is BCCI v. Ali. The release in that case was given by bank employees who agreed, in return for redundancy payments, to accept the money “in full and final settlement of all or any claims…of whatsoever nature that exist or may exist”. That was a release in the widest terms. Later, however, they sought to claim damages for breach of an implied term of their employment contracts in respect of disadvantage on the labour market. That claim followed the decision in Mahmudv. Bank of Credit and Commerce International SA

[1998] AC 20

, where, as Lord Nicholls put it at para 33 of BCCI v. Ali, “the House developed or, put more bluntly, changed the law”, by deciding that as a matter of law corrupt and dishonest activities by an employer are capable of giving rise to a claim in damages, also called “stigma damages”. Thus, in the words of Lord Bingham of Cornhill (at para 19) neither the bank, even when fixed with knowledge of the bank’s misdeeds, nor the employees “could realistically have supposed that such a claim lay within the realm of practical possibility”. For that reason, despite the width of the release, and the theoretical possibility of agreeing to release claims of which a party is unaware, even “of which he could not be aware, even claims which could not on the facts known to the parties have been imagined” (per Lord Bingham at para 9), if appropriate language is used, nevertheless the House of Lords held that the release in that case did not extend to the claim in question, which at the relevant time of agreement could never have been within the parties’ contemplation as a matter of law.

[58]Thus, in addition to Lord Bingham, who had pointed out that the employees’ claim had at the relevant time lain outside the realm of practical possibility, Lord Nicholls (at para 35) said:

“…I consider these parties are to be taken to have contracted on the basis of the law as it then stood. To my mind there is something inherently unattractive in treating these parties as having intended to include within the release a claim which, as a matter of law, did not then exist and whose existence could not then have been foreseen.”

Lord Clyde also referred to the stigma claim as “one which neither party could have contemplated even as a possibility as the law stood at the time when the agreement was made” (at para 86). Lord Browne-Wilkinson agreed with Lord Bingham. Lord Hoffmann dissented.

[59]The House made it plain that the issue was one of construction, and that the parties’ intention was to be discovered in the ordinary way as a matter of interpretation in the light of the contractual matrix, but that there was in this context long standing jurisprudence which entailed a cautionary principle, albeit not a rule of law, that – “in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware” per Lord Bingham at para 10. After reviewing that jurisprudence, Lord Bingham said (at para 17):

“But I think these authorities justify the proposition advanced in paragraph 10 above and provide not a rule of law but a cautionary principle which should inform the approach of the court to the construction of an instrument such as this…I share their reluctance to infer that a party intended to give up something which neither he, nor the other party, knew or could know that he had.”

[60]Lord Nicholls developed this reasoning by pointing out that to some extent the solution of a such an issue of interpretation might depend on the context of a particular subject-matter, and on the possible intrusion of sharp practice. Thus, on the first matter he said this:

“28. This approach… should not be pressed too far. It does not mean that, once the possibility of further claims has been foreseen, a newly emergent claim will always be regarded as caught by a general release, whatever the circumstances in which it arises and whatever its subject matter may be. However widely drawn the language, the circumstances in which the release was given may suggest, and frequently they do suggest, that the parties intended, or, more precisely, the parties are reasonably to be taken to have intended, that the release should apply only to claims, known or unknown, relating to a particular subject matter. The court has to consider, therefore, what was the type of claims at which the release was directed.”

On the second matter, he observed:

“32…Materially different is the case where the party to whom the release was given knew that the other party had or might have a claim and knew also that the other party was ignorant of this. In some circumstances seeking and taking a general release in such a case, without disclosing the existence of the claim or possible claim, could be unacceptable sharp practice. When this is so, the law would be defective if it did not provide a remedy.”

[61]If BCCI v. Ali is the leading authority in modern times, one further recent example of the interpretation of release agreements is apposite, especially as it comes from the context of property and construction disputes. Thus in Mostcash Plc v. Fluor Ltd

[2002] EWCA Civ 975

[2002] BLR 411

the parties had contracted for the provision by Fluor to Mostcash of engineering and construction services. Disputes arose under this contract and litigation ensued which was compromised. The compromise contained a carefully negotiated release provision in the following terms:

“This agreement…is in full and final settlement of all claims and in satisfaction of all causes of action…arising out of or in connection with [the project]…and excluding only any cause of action that may in future accrue to [Mostcash] (a) for any latent defect arising from [Fluor’s] design (to the extent, if at all, it is not excluded by the terms of the [original contract]; or (b) in connection with any personal injury claim…”

[62]Mostcash later commenced new proceedings in respect of negligence in Fluor’s design. Fluor said that the claim was barred by the release agreement. There were complex arguments, including claims to rectification of the original contract, on the question whether Mostcash’s latest claims did or did not fall within proviso (a) of the clause cited above. On the general question of how such an agreement was to be construed, however, this court emphasised the following points. First, that the decision in BCCI v. Ali was driven by its particular facts and especially the fact that the stigma claim was one which “could not have been in [Mr Ali’s] contemplation” at the time of the release (at para 52, see also para 59); secondly, that but for proviso (a), the claim now advanced by Mostcash fell squarely within the general release and was plainly intended to do so (at paras 46/47); and thirdly, that claims arising out of latent defects are precisely the kind of claims which may be expected to be within the contemplation of parties to a construction contract (at para 53) as was demonstrated in this particular case by proviso (a) itself (at para 59). In that last connection, Chadwick LJ said:

“It must be a matter of common experience amongst those who commission, design and manage the construction of commercial buildings that defects come to light after – perhaps years after – the contract has been performed and the building handed over. The books are full of such cases…”

(at para 53).

[63]Against this jurisprudential background, how does the present case stand? Ms Anderson has put the question of construction under twelve separate grounds of appeal, but they all come back to an issue of interpretation of the letter, set in the context of the contractual matrix and the parties’ contemplation. Ms Anderson seeks to confine that matrix and the parties’ contemplation to a limited subject matter, such as the provision only of expert services for the purpose of the arbitration, or the pending dispute about the payment of outstanding fees or even the reclaiming of overpaid fees. However, in my judgment, such attempts at limiting the subject matter of the letter are unsuccessful.

[64]As for the reliance on a second retainer in respect of services for the arbitration, which Ms Anderson maintains even in the absence of Mr Nicholas’s new documentation, it is to my mind plain that Priory’s pleading makes no distinction between the subject matter of any of Capita’s services. It is also plain that the primary focus of the release was not the danger of claims from Priory arising out of the provision of expert services for the arbitration (although I accept that these services were within the contemplation of the parties because of Mr Owen’s breach of confidence in relation to his own role, even if that breach occurred after he had left Capita’s employment), but concern about Mr Owen’s negligence in his earlier performance of the original subject matter of the retainer given to KDP and to which Capita had succeeded, namely that in relation to the repair and refurbishment of the hotel. This is plain from Mr Baden’s file note of the meeting of the parties on 29 January 2003, and from the correspondence as a whole. It is plain from the nature of Priory’s evidence and pleadings in this case, and from the statement given by Mr Dickson and Mr Murray for use in the arbitration. It is above all plain from the language of the letter itself, thus “will not issue proceedings against Capita in relation to matters arising from Capita’s appointment as surveyors to Priory…in relation to the Priory Hotel” (emphasis added). It is also plain from the express reference to Mr Owen in the same paragraph of the letter:

“irrespective of whether such appointment was conducted through Vincent Owen or otherwise in relation to the Priory Hotel”

. Thus, Mr Owen is specifically mentioned, but the language goes on to stress that the release goes wider than Mr Owen’s faults alone.

[65]As for Ms Anderson’s reliance on the subject matter of fees, this attempt to restrict the release to a limited subject matter is also unsupported by the evidence and the terms of the letter itself. All the material leading up to the agreement of the letter shows that, while fees were a matter of concern, this was an additional matter, itself premised on Mr Owen’s negligence or dishonesty in connection with the specification and the hotel’s refurbishment. That is what the letter demonstrates, for the question of fees, at any rate the question of outstanding fees, is dealt with in the separate paragraphs 3 and 4 of the letter.

[66]As for what the parties knew or had in contemplation, the parties actually knew that there was at the very least a question mark over Mr Owen’s competence and indeed honesty. They plainly contemplated that Mr Owen’s defaults or errors could lead to claims against Capita. What those claims might be would perhaps depend on future events, although I accept that one aspect plainly referred to was the possibility of claims for the overpayment of fees. However, as Chadwick LJ said in Mostcash v. Fluor, in this context there is or must be regarded as being complete familiarity with the possibility of the emergence, sometimes years later, of damage caused by previously latent defects in works, due to negligence in the design, specification, or other professional services provided by those involved in construction. Where Mr Owen’s negligence was expressly and specifically in contemplation, the fact that the damp penetration did not emerge for another two years can by no means take Priory’s resulting claim from having been within the contemplation of the parties on 10 March 2003, and within the express language of the letter of that date.

[67]In such circumstances the cautionary principle identified by the House of Lords in BCCI v. Ali cannot help Priory. Priory was a commercial concern which, with the assistance of its lawyers, made a deal with its eyes open, knowing of the possibility of negligence and worse on the part of Mr Owen, willing to forgo claims that might arise out of those circumstances, even if ignorant of how important such claims might turn out to be, and extremely keen to buy the assistance of Capita, through the witness statement of Mr Murray, so as to achieve success in its arbitration against its insurers. Having won that arbitration with Capita’s assistance, it now wishes to say that the later discovered damage at the hotel, which it ascribes to the negligence of Mr Owen and to Capita’s failure to remedy his negligence in time, can lie outside its then agreement to release Capita from claims “in relation to matters arising from Capita’s appointment as surveyors…in relation to the Priory Hotel…irrespective of whether such appointment was conducted through Vincent Owen or otherwise in relation to the Priory Hotel”. In my judgment the judge was right, for the reasons he gave, to say that that attempt must fail.

Consideration

[68]Finally, I come to an issue for which Jacob LJ gave permission to appeal, mistakenly thinking that Priory had requested such permission. In fact Priory had not thought to take its point that the release agreement lacked consideration to appeal, but was not willing to look a gift horse in the mouth. However, it is sufficient to say that this point is a bad one, for the reasons given by the judge.

Conclusion

[69]In sum, this judgment contains the reasons why at the conclusion of the hearing of this appeal, this court refused Priory’s various applications to expand its appeal, and dismissed its appeal.

Lord Justice Wilson :

[70]I entirely subscribe to the explanation given by Rix LJ in his judgment of the reasons for our determinations announced at the the hearing on 11 December 2009.

Sir Scott Baker :

[71]I also agree.

Cited in 1 later judgment

Gamatronic (UK) Ltd & Anor v Hamilton & Anor 2016