Smales v Lea & Anor [2011] EWCA Civ 1325

Case No B2/2010/0086

[2011] EWCA Civ 1325

IN THE COURT OF APPEAL ( CIVIL DIVISION )

ON APPEAL FROM BROMLEY COUNTY COURT

HIS HONOUR JUDGE DAVID RICHARDSON

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

Date Wednesday 19 th October 2011

Before

MASTER OF THE ROLLS

LORD JUSTICE JACKSON

LORD JUSTICE GROSS

Between

Robert SmalesAppellant

Martin LeaRespondents

Alison KemsleyRespondent

( DAR Transcript of

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Mr Philip Newman (instructed under the Public Access Scheme) appeared for Appellant.

Ms Sarah Haren ( instructed by Chancellors Lea Brewer Solicitors ) appeared for Respondents.

Judgment

[1]This judgment is in six parts, namely: Part 1. Introduction Part 2. The facts Part 3. The present proceedings Part 4. The appeal to the Court of Appeal Part 5. Was the contract between the claimant and Mr Bartram an entire contract? Part 6. Was the claimant entitled to sue for his fees before his negotiations with insurers had either concluded or broken down?

Part 1. Introduction

[2]In this action a surveyor who is suing for his professional fees appeals against a decision that his claim is statute barred. The claimant is Mr Robert Smales, a chartered surveyor of many years' experience. The defendants are Mr Martin Lee and Ms Alison Kemsley, who are the executors of Mr Herbert Bartram deceased, the claimant's former client. I shall refer to them as "the executors".

[3]An insurance company which will feature in the story is Co-operative Insurance Limited (to which I shall refer as "CIS"). CIS engaged a firm of loss adjusters to act for them called Ellis and Buckle. There came a time when Ellis and Buckle changed its name to Cunningham Lindsey. For simplicity, however, I will continue to refer to that firm by its original name. I shall refer to the Limitation Act 1980 as "the Limitation Act".

[4]Section 5 of the Limitation Act provides :

"An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued."

[5]The issue which arises starkly in this appeal is when the claimant's cause of action for payment of fees, a cause of action in contract, accrued. This issue, as it has been argued today, involves consideration of the doctrine of “entire contract” and also consideration of the proper construction of a contract evidenced by a letter sent by the claimant and the late Mr Bartram.

[6]After these introductory remarks I must now turn to the facts.

Part 2. The Facts

[7]In 1995 Mr Herbert Bartram was living with his mother, Mrs Petherwick, in the ground floor flat at 13 Therapia Road, Honor Oak, London SE22, of which they were the leasehold owners. Mr and Mrs Ansbro, who were the freehold owners of the building, lived in the first floor flat. At the front of this building there is a two-storey bay window which is of benefit to all the occupants, both upstairs and downstairs.

[8]In 1995 the bay window at 13 Therapia Road suffered subsidence. Mr and Mrs Ansbro instructed the claimant to inspect the damage, provide a report and thereafter handle their insurance claim. On 15 August 1995 the claimant inspected and prepared a report for Mr and Mrs Ansbro. He could see that the same problem concerning the bay window affected both the ground floor flat and the first floor flat. Accordingly on 16 August 1995 he wrote as follows to Mr Bartram and Mrs Petherwick:

"Yesterday at the request of Mr and Mrs Ansbro, I made an inspection of the cracking and structural damage which has occurred to the front bay window within their maisonette number 13A. Internally there are cracks and gaps in the wall and ceiling plaster and gaps at the side of the bay window frame, etc. Externally there are cracks and gaps around the bay window together with a substantial gap between the roof of the bay window and the adjoining wall where the bay has pulled away from the wall. Significant cracking has also occurred to the bay window at ground level … I have prepared a report of the damage to the upper maisonette for submission to the insurers since the bay window as a whole will have to be dealt with. I shall be obliged if you will notify the insurers of your ground floor flat that subsidence damage has occurred to the bay. To help you to make an insurance claim I shall be pleased to inspect your property and prepare the necessary report of the damage for submission to the insurers. Then, subject to your agreement, negotiate the extent of your claim, nature of the repair and rebuilding works, etc, prepare a specification for submission to builders for pricing. Appointment of the builder, supervision of builders, checking of the plans etc would be undertaken on your behalf. My fees and expenses would form part of your insurance claim "

[9]Mr Bartram and Mrs Petherwick could see the good sense of that suggestion. Accordingly they instructed the claimant to act on their behalf as set out in his letter.

[10]The claimant duly carried out the instructions which he had received from his two pairs of clients. He reported on the damage, handled the insurance claims and arranged for remedial works to be carried out. All remedial works were completed by the end of 1998.

[11]On the insurance front, the claimant had to deal with claims under two separate policies. The insurers of Mr Bartram and Mrs Petherwick were CIS. CIS instructed Ellis and Buckle to act as their loss adjusters. The claimant negotiated with Ellis and Buckle and through them arranged for CIS to meet the costs of remedial works attributable to the ground floor flat.

[12]In relation to the claimant's own fees, agreement in principle was reached at an early stage. On 12 October 1999 Ellis and Buckle wrote as follows to the claimant:

"Insurers have confirmed that they have no objection to you continuing your involvement and they have accepted that an agreed proportion of the final rendered fees should fall to the CIS for financing."

[13]Mrs Petherwick died in 1996. Thereafter the claimant was acting for Mr Bartram as his sole client, but in the expectation that CIS would in due course meet Mr Bartram's liability for the claimant's fees.

[14]Unfortunately, shortly after the remedial works were completed, the claimant suffered ill health. During 1999 he managed to sort out the final accounts from the various contractors involved, but he did not get round to delivering a bill for his own services. In November 1999 the claimant prepared a bill for his professional services in relation to the ground floor flat at 13 Therapia Road. This bill was dated 19 November 1999 and addressed to Mr Bartram as his surviving client. The claimant did not deliver that bill either to Mr Bartram or to Ellis and Buckle or to CIS.

[15]In 1999 and 2000 Ellis and Buckle chased the claimant on many occasions to deliver his bill. For obvious reasons both CIS and Ellis and Buckle were anxious to close their books on this particular claim, but it was to no avail.

[16]Eventually in or about June 2001 the claimant sent to Ellis and Buckle his bill dated 19 November 1999. This bill was prepared on an hourly rate basis and was in the total sum of £12,583 odd. Ellis and Buckle considered that this total was far too high. They also considered that it was calculated on the wrong basis. They accepted that the claimant's charges in the early investigative period should be on an hourly rate basis. However, they maintained that the claimant's charges in respect of administering the various construction contracts should be on a percentage basis, not on an hourly rate basis.

[17]Ellis and Buckle also maintained that they could not make payments direct to the claimant. The claimant should deliver his bill to Mr Bartram and Mr Bartram, in turn, should claim to be indemnified by his insurers. This requirement reflected the contractual relationships between the parties and it also reflected the way matters had been dealt with during the course of the construction works. During that period the insurers had paid to Mr Bartram the sums due to the various contractors and Mr Bartram had then passed that money to the contractors concerned.

[18]In those circumstances the claimant attempted to make contact with Mr Bartram in late 2001. He discovered that Mr Bartram had moved away from Therapia Road without leaving a forwarding address. The claimant attempted to trace Mr Bartram, but those attempts were unsuccessful during Mr Bartram's lifetime.

[19]In the meantime the claimant's discussions with Ellis and Buckle continued in a desultory fashion. At a meeting on 26 September 2001, Mr West of Ellis and Buckle told the claimant that his proposed costs of £12,583 were unacceptable and asked for further details of the bill. The claimant, who was still suffering from ill health, took four-and-a-half years to produce those further details.

[20]On 24 March 2006 the claimant delivered to Ellis and Buckle further details of his bill. The results of this exercise were to increase the total bill, not reduce it. The claimant's bill dated 24 March 2006 (again addressed to Mr Bartram) was in the total sum of £16,166. Ellis and Buckle informed the claimant that such a figure was totally unacceptable.

[21]On 21 October 2006 Mr Bartram died. Shortly afterwards the claimant discovered through his researches the address to which Mr Bartram had moved.

[22]By letter dated 29 November 2006 Ellis and Buckle offered to pay £5,766 in settlement of the claimant's claim for fees. Ellis and Buckle indicated that they would be willing to make that payment directly to the claimant. The claimant rejected that offer. On 21 August 2007 the claimant issued a further bill, this time for £16,791 based upon 250 hours' work. Unsurprisingly Ellis and Buckle refused to pay that bill. By a letter dated 20 April 2007 Ellis and Buckle set out the reasons why they were unwilling to pay the sum which was claimed. They set out their arguments and they repeated their view that the proper sum due to the claimant was £5,766. In the last paragraph Ellis and Buckle wrote as follows:

"Finally I see that you are in contact with the solicitors for the executors. I will be confirming to them what I consider to be the reasonable level of your fee as stated above and that this sum is available under the policy."

[23]This was an indication that Ellis and Buckle were prepared to pay £5,766 to the executors for the executors to pass on to the claimant. However, Ellis and Buckle were not willing to pay any larger sum to the executors in respect of the claimant's fees.

[24]Thereafter the claimant continued to correspond with the executors of Mr Bartram and he requested that they should pay his full invoice. The executors refused to do so. In those circumstances and, after some further delay on the claimant's side, the claimant commenced the present proceedings.

Part 3. The Present Proceedings

[25]By a claim form issued in the Bromley County Court on 24 November 2008 the claimant claimed against Mr Bartram's executors outstanding fees of £16,791 together with interest. The executors resisted this claim. They served a defence asserting that the claimant's claim was barred under the Limitation Act. The executors also brought third party proceedings against CIS, but those third party proceedings are not material to the present appeal.

[26]Very sensibly, the court ordered that the question of limitation should be determined as a preliminary issue. The trial of the preliminary issue came on for hearing before HHJ Richardson ("the judge") at Bromley County Court on 11 November 2009. The claimant gave oral evidence and was cross examined. The claimant's daughter provided a witness statement, which was taken as read since no one wished to cross examine her about it.

[27]The defendants did not call any evidence, since there was little dispute between the parties about the primary facts. These are as set out in Part 2 above.

[28]On 23 November 2009 the judge handed down his reserved judgment. He held that the claimant's entitlement to be paid his proper professional fees arose shortly after completion of the remedial works. Accordingly the claimant's cause of action in contract against Mr Bartram accrued in 1999. Since the claimant did not issue proceedings until nine years later, his claim was statute barred. The judge added that, even if the cause of action accrued in 2001, when the claimant delivered his bill to the loss adjusters, the claim was still statute barred.

[29]Having reached that decision on the preliminary issue, the judge then dismissed the claimant's claim against the executors and ordered the claimant to pay the costs of the action.

[30]The claimant was aggrieved by the judge's decision on the limitation issue. Accordingly he appealed to the Court of Appeal.

Part 4. The appeal to the Court of Appeal

[31]By an appeal notice dated 12 January 2010 the claimant appealed to the Court of Appeal on five grounds. They were in essence as follows: 1) the judge wrongly failed to find that the contract between the parties was an entire contract. (2) The judge wrongly found an implied term that the claimant was obliged to submit an invoice for his fees within three months of the end of the works. (3) The judge erred in finding that the claimant's right to payment arose before he had completed his contractual obligation to negotiate with insurers about his own fees. (4) The judge wrongly found that time began to run for instituting any legal claim for the claimant's fees against Mr Bartram promptly after completion of the work. (5) The judge erred in not finding that the claimant's entitlement to be paid did not arise until after he had negotiated his fees.

[32]It can be seen that those five grounds of appeal really revolve around two questions. First, there is the entire contract question and secondly there is the issue concerning the proper construction of the contract between the parties.

[33]Sir Richard Buxton, upon considering the papers in this case, refused permission to appeal, but such permission was subsequently given by the court at an oral hearing. Argument today has revolved around two principal questions: 1) whether the contract was an entire contract; and 2) whether the claimant was entitled to sue for his fees before his negotiations with the insurers had either concluded or broken down. I shall address these two questions separately.

Part 5. Was the contract between the claimant and Mr Bartram an entire contract?

[34]An entire contract is a term used to describe a contract under which one party must perform all of his obligations before the other party comes under an obligation to make payment. The textbook extracts helpfully provided by counsel on both sides take Cutter v Powell (1795) 6 TR 320 as the classic authority in this field. In that case the defendant entered into a contract with a seaman, Mr Cutter in the following terms :

“Ten days after the ship Governor Parry, myself master, arrives at Liverpool, I promise to pay to Mr. T. Cutter the sum of thirty guineas, provided he proceeds, continues and does his duty as second mate in the said ship from hence to the port of Liverpool. Kingston, July 31st, 1793.”

[35]Unfortunately Mr Cutter died during the voyage. His personal representatives claimed payment for Mr Cutter's services during the period before his death. The claim was dismissed by a court comprising Lord Kenyon CJ, Ashurst J and Grose J. Ashurst J said:

“And as it is entire, and as the defendant's promise depends on a condition precedent to be performed by the other party, the condition must be performed before the other party is entitled to receive anything under it.”

[36]So this was a classic example of an entire contract in which no payment was due from the master of the ship until such time as the deceased had performed all of his obligations, which of course he was unable to do.

[37]The principle has been applied a number of times in more recent cases, quite often in construction cases. The authority which has been drawn to our attention by counsel as being pertinent is the well known case of Hoenig v Isaacs [1952] 2 All ER. 176. In that case the plaintiff was an interior decorator and designer and was employed by the defendant to carry out works to the defendant's flat for the sum of £750. Certain payments were made on account. The plaintiff then sued for the balance of £400, which he said was due. The official referee held that there were certain defects in the work done but there had been substantial compliance with the contract.

[38]Lord Denning MR gave valuable guidance as to when a contract constitutes an entire contract. At 180 to 181 he said this: “In determining this issue the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment. It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment. When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions. The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition. … It is, of course always open to the parties by express words to make entire performance a condition precedent "

[39]The contract in the present case is evidenced by the letter which I read out in Part 2 of this judgment. That letter does not contain any express term stating that it was an entire contract or that no payment would be due to the surveyor until all the obligations set out in the letter of 16 August 1995 had been performed.

[40]Mr Newman, in his able submissions this morning, submitted that, despite the fact that there was no such express term, and even acknowledging the weight which that passage in Lord Denning's judgment carries, nevertheless, upon its true construction, it can be seen that the contract of retainer in this case was indeed an entire contract. He submitted that if one looks at the letter one can see that it imposes "a clear tight package of obligations". He pointed out that the fees and expenses of the claimant were part of the insurance claim. For my part, I can see that the letter did indeed impose upon the surveyor a coherent package of obligations. However, in my view, it does not go one stage further and say that every obligation must be performed before there is any entitlement to payment.

[41]Mr Newman invited this court to distinguish the Court of Appeal's decision in Hoenig v Isaacs and he submitted that, as a matter of business common sense, the contract in this case must be an entire contract. In support of that submission he drew our attention to some exchanges between the judge and counsel for the executors. It seems to me that, in those exchanges between the judge and counsel for the defendants, the judge was indeed putting to counsel the claimant's case and the arguments against the defendants in order to test those arguments and see the response. It is clear to me that that passage does not reflect the judge's final view, because that is not the way it comes out in the judgment. It is not at all unusual for judges to try out points on counsel to see how an argument stands up to analysis.

[42]In my view the natural interpretation of this contract is that it imposes a number of obligations on the surveyor. He has got to get the remedial works done and paid for. He is then required to negotiate with the insurers about his own fees. However, I am quite unable to interpret this contract as an entire contract whereby the surveyor had no entitlement to any remuneration until each one of the obligations set out in the letter dated 16 August 1995 had been performed.

[43]In modern construction of contracts and contracts of retainer for professional services, it is relatively unusual for the client to have no obligation to make any payment unless and until the contractor or the professional firm has performed every single one of the obligations undertaken. It does, of course, happen in some cases, but in my judgment the case before this court is not such a case. To be fair to Mr Newman, his oral argument did not press the “entire contract" argument as forcefully as it appears in his various skeleton arguments.

[44]For all of these reasons, I reject the contention that the contract in this case was an entire contract and my answer to the question posed in Part 5 of this judgment is no. Part 6. Was the claimant entitled to sue for his fees before his negotiations with insurers had either concluded or broken down?

[45]It seems to me, as was canvassed in argument this morning, that the claimant's case on this issue becomes more difficult if the court holds, as I believe it should, that the contract between the parties was not an entire contract. Mr Newman manfully pressed on with this argument, submitting that even if he failed on the entire contract issue he could still succeed. He argued that time only started to run when it was clear that it was not possible to complete negotiations. That was on 20 April 2007 when the loss adjusters made it plain that the figure of £5,766 was their final offer. Mr Newman said that that was a derisory sum, which the claimant could not accept. Therefore the negotiations broke down. Therefore at that point the obligation to negotiate with insurers concerning the claimant's fees became impossible of fulfilment and so for the first time the claimant became entitled to sue for his fees.

[46]I do not accept that analysis. It seems to me that the claimant became entitled to recover his professional fees at the latest in 1999. By the middle of 1999 all the remedial works had been carried out. The various contractors including the builders, the drainage contractors and so forth had been duly paid, their accounts had been agreed and the respective insurance companies had remitted the sums which were due for the construction works. At that point the claimant had carried out the principal part of his obligations and he was entitled to payment for the work which he had done. It is quite true that his client, although liable to pay professional fees, also had a right to claim those professional fees from the insurers. It is also quite true that the claimant had a duty to negotiate concerning his own fees with the insurers. However, on any sensible and business like interpretation of the contract, I do not believe that those circumstances meant that in 1999 the claimant did not have any entitlement to be paid his fees.

[47]Mr Newman placed great emphasis on the last paragraph of the letter dated 16 August 1995, which I read out in Part 2 above. In particular he stressed the final sentence of that paragraph:

"My fees and expenses will form part of your insurance claim."

[48]In answer to the Master of the Rolls, Mr Newman accepted the proposition that really his case turned upon that paragraph. He was saying that until the negotiations ended, whether with success or in tears, there could be no entitlement to professional fees.

[49]Although it was put attractively, I do not accept that submission. I put to Mr Newman in argument this question. Suppose in 2001 the claimant had sued for his fees. Would he have had any entitlement or could the executors have said:

“no cause of action has yet arisen”? It seems to me that if in 2001 the claimant had sued the executors for his fees, they could not have said: “no cause of action has arisen”

. What the executors could have said was this:

“Your negotiations with the loss adjusters have reached this position. You are only entitled to be paid on a much more limited basis than that set out in your invoice, namely hourly rates for the early work and percentage basis thereafter.”

The executors would have had a good defence along those lines and they would not have been liable to the claimant for any larger sum than that. They could not, however, have said:

“No, we have no liability to you at all. Your cause of action has not accrued.”

[50]Let me now draw the threads together. I have come to the conclusion, I must say with some regret, that I am obliged to reject the argument that the claimant's cause of action did not accrue until 2007. My answer to the question posed in Part 6 of the judgment is “No”. In the result, therefore, I agree with the decision of the judge and for my part I would dismiss this appeal.

[51]I agree and simply add my own tribute to counsel's skilfully formulated submissions.

Lord Neuberger:

[52]I agree that this appeal should be dismissed, and that it was well argued on behalf of the appellant.

[53]I would, however, add this. The issue on this appeal involves a point of law (albeit that it can be expressed in more than one way) concerning the effect of the contract. It turns on facts, which are fully set out in the clear and careful judgment of HHJ Richardson below, and on the terms of a letter (and in particular one paragraph of that letter) which runs to two pages. Yet in addition to the judgment below, the formal court documents, the skeleton arguments and copies of the authorities, we have got bundles running to over 700 further pages of documents including irrelevant correspondence, some of it duplicated, and a transcript of the hearing below. In saying that, I do not intend to be critical specifically of those involved in the present appeal. The obtaining and provision of an unnecessary transcript of the hearing below and, even more, the copying and provision of a large number of unnecessary documents, are sadly familiar experiences to those hearing appeals in this court. Such a course is unfair on the parties as it increases the expense of any appeal. It is unfair on the court office and court staff as it involves receiving, dealing with, storing and distributing a massive amount of unnecessary documents. And it is unfair on the judges who hear the appeal, and often on counsel and solicitors (with consequences for their clients in terms of cost), as it can result in much irritatingly unnecessary work.

[54]The Practice Direction to CPR 52 states at paragraph 5.6A(1)(l), that normally, the appellant must include in the appeal bundle certain documents including “any other documents which the appellant reasonably considers necessary to enable the appeal court to reach its decision on the hearing of the application or appeal”. Paragraph 5.6A(2) goes on to provide that "All documents that are extraneous to the issues to be considered on the application of an appeal must be excluded." It then goes on to say that certain documents such as affidavit and witness statements can be included "but only where these are directed relevant to the subject matter of the appeal”. The Practice Direction then says, in paragraph 6.3 A(1)(d), that, after permission to appeal has been granted, the appellant must add “any document which the appellant and the respondent have agreed to add to the appeal bundle in accordance with paragraph 7.11”. Lastly, paragraph 7.11 says that “If the respondent wishes to rely on any documents which he reasonably considers necessary to enable the appeal court to reach its decision on the appeal in addition to those filed by the appellant, he must make every effort to agree amendments to the appeal bundle with the appellant.” This, one of the main underlying themes of the Practice direction is that the documents before the court should only be those that are necessary for the determination of the appeal.

[55]A new Practice Direction is shortly to be issued. It will contain of course some changes, but the requirement that the documents provided to the court be limited to those which are necessary for the determination of the appeal will, unsurprisingly, remain in it.

[56]This is an important aspect of litigation in this court that the requirement is complied with, but it is a requirement which is being routinely ignored. I appreciate that it is sometimes difficult to be sure in advance which documents will certainly not be relevant, so the court, after the hearing of an appeal, should not be unreasonably particular or unrealistically critical of parties in this connection. However, in many cases, and this is one, it appears to me that, even allowing for practical realism, it is clear that the court bundle includes a large number of documents which no reasonable person would possibly believe could be relevant to the appeal.

[57]Unless there is an improvement in relation to the extent of the documents included in appeal bundles, so that the requirements of the Practice Direction to which I have referred are complied with, I will have to consider whether to propose some appropriate sanctions to ensure compliance with those requirements in the future.

[58]As it is, the appeal is dismissed.

Order

Appeal dismissed