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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Phoenix Consultancy (Scotland) Ltd v. Royal Bank Scotland Plc [2003] ScotCS 30 (11 February 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/30.html Cite as: [2003] ScotCS 30

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Phoenix Consultancy (Scotland) Ltd v. Royal Bank Scotland Plc [2003] ScotCS 30 (11 February 2003)

OUTER HOUSE, COURT OF SESSION
CA248/01	OPINION OF LORD EASSIE in the cause PHOENIX CONSULTANCY (SCOTLAND) LTD Pursuers; against THE ROYAL BANK OF SCOTLAND PLC Defenders:   ________________

 

 

Pursuers: C.H.S. MacNeill; Paul Gebal & Co

Defenders: Clark; Brodies, W.S.

11 February 2003

1. The pursuers in this action carry on business as suppliers of personnel, including information technology consultants. In about April 1997 they began to supply such consultants to the defenders. At intervals the pursuers submitted invoices to the defenders in respect of services provided to the defenders by the consultants. A number of the consultants so supplied were employed by, or otherwise were in direct contractual relationship with a company, Tummeltech Limited. As respects those consultants not in contractual relationships with Tummeltech the way in which the sum invoiced to the defenders was reached is averred by the pursuers to have involved the consultant submitting a time sheet to the pursuers, who then calculated the amount due, which included a "mark up". In the case of the Tummeltech consultants, it is averred by the pursuers that the consultant in question rendered a time sheet to Tummeltech, which then submitted an invoice, with a "mark up", to the pursuers who in turn rendered an invoice with a further "mark up" to the defenders. It is accepted that all the invoices had been paid.
2. The arrangements outlined in the preceding paragraph are averred by the pursuers ultimately to have come to an end in respect that at varying dates, the last and principal date being 8 May 2001, the consultants, other than Tummeltech consultants, entered into contracts of employment with the defenders or one of their subsidiary companies such as Direct Line Limited. The consultants whom the pursuers supplied through Tummeltech transferred their direct contractual relationship to a company known as Spring.com Limited and that company thereafter supplied the services of those consultants to the defenders. The reasons for the termination of the arrangements and for that transfer are disputed but for present purposes are not material, the averred factual basis for the pursuers' present claim for payment of £452,000 arising out of the defenders' having either directly employed the consultants; or having failed to prevent a subsidiary company from entering into a contract with the consultant; or having directly engaged the consultants through Spring.com Limited. The sum so claimed is the aggregate of sums respectively constituted by multiplying an averred hourly rate chargeable for the respective consultant in question by 400 (representing 10 weeks' engagement on the assumption of a 40 hour week).
3. The legal basis advanced for that aggregate claim stems from the terms of paragraphs (5) and (6) of the document No.6/1 of process which is headed "Summary of Terms of Business". Following that heading one finds the following exordium:

"Phoenix Consultancy (Scotland) Limited hereinafter referred to as the 'Company' is in the business of supplying specialist consultants to Clients. This is a summary of the main terms on which it makes that supply. The entire agreement between the Company and its Clients will be as set out in the Company's signed written Client Contract (a blank copy of which is available on request)."

The first four paragraphs of the Summary are in these terms:

"(1) The Company shall supply to the employer or hirer hereinafter referred to as the 'Client' a consultant or consultants hereinafter referred to as the 'Consultant' to undertake work specified by the Client.

(2) The Company's Client Contract, which is summarised herein is deemed to be accepted by the Client by virtue of an interview or the engagement by the Client of a Consultant introduced by the Company.

(3) The Client shall pay the Company a fee calculated by multiplying the hourly/daily/weekly charge rate of the Consultant as specified in the Schedule to the signed Client Contract, by the number of hours/days/weeks (or part thereof) engaged by the Consultant. The time engaged by the Consultant shall be recorded weekly on the standard Company time sheet for the Consultant and shall be signed by the Client's authorised officer. Once signed by the Client's authorised officer, the time sheet shall be binding on the Client. No fee shall be payable by the Client to the Consultant.

(4) The Company shall raise invoices monthly in respect of the fee payment and shall be paid by the Client within fourteen days of receipt, unless alternative arrangements have been agreed in writing."

There then follow the two particular paragraphs of the summary upon which the pursuers rely for their claim in this action:

"(5) The Client, shall not, and shall procure that any subsidiary or holding company of the Client (as defined in section 736 Companies Act 1985) or any subsidiary of the Client's holding company or any third party introduced to the Consultant by the Client shall not, directly or indirectly, engage the services of the Consultant or as an independent consultant or as a permanent employee, either during the Period of engagement of the Consultant hereinafter referred to as the 'Period' or for twelve months after termination of the Period, other than under an agreement with the Company.

(6) If, in breach of paragraph 5 above, the Client, or any subsidiary or holding company of the Client (as defined in section 736 Companies Act 1985) or any subsidiary of the Client's holding company, or any third party introduced to the Consultant by the Client, employs or engages the services of the Consultant during the Period or within twelve months after termination of the Period, the Client shall pay the Company an introductory fee equal to the fee payable by the Client to the Company or [sic] a standard forty hours per week, multiplied by ten (weeks)."

The remaining paragraphs of the summary are not, I think, material.

4. The averments tendered by the pursuers respecting that Summary, No.6/1 of process are in these terms:

"In or about April 1997 the pursuers agreed to provide such consultants to the defenders. At or about that time the pursuers submitted to the defenders their Summary of Terms of Business ('the Summary'). A copy of the Summary is produced and referred to for its terms which are held to be repeated and incorporated herein brevitatis causa. Although the summary refers in its first paragraph to a 'signed written Client Contract', no such document was executed by the parties. The Summary was considered by the defenders' Derek Caiden, who was at that time a senior information technology project manager, Terry Thorpe, who at that time was head of the information technology services project and David Barton, who at that time was head of information technology purchasing. They accepted those conditions as governing the relationship between the parties. No Client Contract having been entered into, the terms of the Summary applied mutatis mutandis."

Although it is thereafter averred that the pursuers invoiced the defenders and were paid by them "in terms of the summary", the actual arrangements are averred and admitted by the pursuers to be as already set out in this Opinion.

5. The defenders seek dismissal of the action on a number of grounds of which the principal bases of challenge may be catalogued as follows:

(a) The summary, No.6/1 of process, cannot constitute a document governing the parties' contractual relationship.

(b) If, contrary to the foregoing basis of challenge, it were to constitute the terms of the parties' contract, paragraph 5 is unenforceable by reason of its being an unlawful restraint of trade and paragraph 6 would in consequence also be unenforceable.

(c) Paragraph 6 of the summary is void on the grounds of uncertainty.

(d) Paragraph 6 is on any view a penalty clause and hence unenforceable also on that ground.

6. In advancing the first of those broad chapters of the argument for the defenders Mr Clark pointed out that the document founded upon by the pursuers as constituting the parties' contract did not bear to be a contract, or the terms of the contract, but a "summary of the main terms" on which the company, the pursuers, made the supply of services. The summary expressly stated that the entire agreement between the company and its client would be contained elsewhere, namely in the "signed written Client Contract". Paragraph 2 of the summary referred to a deemed acceptance of the client contract by interview or engagement of the consultant. It did not deem acceptance of the summary. Other provisions in the summary plainly proceeded on the basis of the conclusion of a written client contract, thus paragraph (3) - the fee payable - referred to the rate specified in the schedule to the client contract. Clause (5), referring to the period of engagement, presupposed an agreement on such a period in the client contract. Without the written client contract with such individual details, the summary obviously lacked precision and was unworkable as a coherent contractual document. Saying that the summary applied mutatis mutandis implied that the summary did not constitute the contract but required to be adapted or altered in some way unspecified in the pursuers' pleadings. The invocation of the summary as a contractual document was thus misconceived.
7. In his response to this branch of the attack on the relevancy of the action Mr MacNeill, for the pursuers, submitted that since the parties had intended to enter into a contractual relationship and subsequently did do so, they must have intended that relationship to have content. The terms of the summary indicated that there would be a separate written client contract on each consultant. But it was accepted by the pursuers that in no instance was such a written client contract ever executed. Accordingly, said counsel, the parties must have agreed to depart from the procedure envisaged in the summary whereby written client contracts incorporating the standard terms of business would be concluded. They had instead agreed to be bound by the terms of the summary, mutatis mutandis. That meant that in order to ascertain the terms of the contract one required to go through the summary deleting all references to the client contract. One thus required to delete the entirety of the last sentence of the preamble, the whole of paragraph (2) and all the words of the first sentence of paragraph (3) following the first mention therein of the word "Consultant". But it was not necessary to make any deletion in paragraphs (5) and (6), which could therefore apply.
8. Neither counsel cited any authority on this particular branch of the argument but both appeared rather to approach matters in terms of the documents and elementary principles of the law of contract. On that approach it appears to me to be plain that where a provider of goods or services tenders to a potential customer a summary or outline of his standard terms of business, assent or willingness of the customer to enter into future contracts on the terms summarised will not normally thereby constitute a contractual relationship. The position in the present case is perhaps a fortiori since the document, 6/1 of process, states expressly that any contract would be contained in a signed written client contract the schedule to which would record the essential details relating to the consultant, his attendance and the financial prestation. It further indicates that the signed written contract will set out the whole terms of the contract. The document does not assert that the terms contained in the summary are the actual terms of the proposed contract. Since the document No.6/1 of process thus makes evident that it is not a contractual document, assent to its terms is not, in my view, agreement of a contract. One is therefore not in the territory of a contract concluded orally, or by informal writing, which is to be reduced to a formal writing but which included all of its essential terms. Counsel for the pursuers accepted that of necessity there would have to be future agreement on such essential matters as the details of the consultant services to be provided and the consideration to be paid by the recipient. He accepted that in the present case such agreement must have occurred but that there had been no written client contracts as envisaged in the summary. It is not contended by the pursuers that the agreements - whether oral or by informal writing - whereby the various consultants were supplied incorporated the standard terms of a written "client contract". (No blank copy of such a document containing those terms has been produced). Rather the contention - or at least, as I understood it, the primary contention - of the pursuers is that in the absence of the written client contracts which the summary expressly envisaged, it is to be inferred from an expression of assent to the summary that the summary becomes the terms of the contract "mutatis mutandis".
9. Like counsel for the defenders, I do not regard that as a proper inference. It is equally, if not more so, to be inferred that having omitted in the case of every consultant supplied to have pursued the course described in the summary, viz. of procuring execution of a signed written client contract duly incorporating the standard conditions of business for which No.6/1 of process claims to be but a summary, the parties proceeded on the terms of the ad hoc informal arrangements with such conditions as might be implied by the general law. Put in other words, the parties evidently embarked on a course of transactions relating to the various individual consultants whose services were provided to the defenders without, in any single instance, concluding any of those transactions in accordance with the leading term of the summary, namely the conclusion of the standard written client contract envisaged by that summary. Having thus not followed the envisaged course of transacting subject to the standard conditions of the standard written client contract, the pursuers now seek to incorporate into the contracts, not those standard conditions, but the summary. The difficulty of importing the summary into the individual contracts is, I think, underscored by the pleader's need to resort to employment of the phrase "mutatis mutandis". The phrase is, to my mind, at least inapposite since as I understand it the phrase connotes the substitution, in similar cases, of the detail in the one for the corresponding detail in the other rather than the Procrustean exercise of deletion, to match his purpose, upon which counsel for the pursuers was constrained to embark.
10. I earlier indicated that the proposition of counsel for the pursuers to the effect that in the absence of the conclusion of any written client contract it was to be inferred that the summary applied mutatis mutandis appeared to be a primary contention. I employed the adjective "primary" because in the course of his submissions counsel for the pursuers went on to contend not simply that since no written client contracts were concluded the summary applied mutatis mutandis but that there had been an active or positive agreement not to conclude any written client contract and to treat the summary, subject to the deletions indicated by counsel, as constituting the parties' contract. Counsel for the defenders, who had already voiced complaint of lack of specification as to when, and by what means, Mr Caiden, Mr Thorpe and Mr Barton each accepted the summary of conditions retorted, on the basis of the natural reading of the averment of assent to the summary, namely a willingness to proceed by means of the conclusion of individual written client contracts, that if contrary to that natural reading it were now to be contended that there was an express agreement to proceed on the very different basis of the summary subject to deletions and without any individual written client contracts that would require clear and detailed averment. I agree. The suggestion that in tendering the summary of the terms of business, central to which is the execution of future written client contracts with detailed contractual conditions, the pursuers at the same time offered to proceed on a different basis (or alternatively that the defenders insisted on not having the written contracts central to the terms summarised in number 6/1 of process, to which insistence the pursuer acceded) is a contention which proceeds sufficiently in the direction of a highly unusual contractual arrangement that clear, express, and detailed averment as to how and when that peculiar arrangement was agreed upon is essential. The averments for the pursuers cannot be read as meeting that test. I would add that I do not consider the averment that the pursuers invoiced the defenders "in terms of the summary" to be of any assistance, given the absence of any peculiarity not arising in the ordinary course of the supply of a consultant.
11. In these circumstances I conclude that counsel for the defenders is well founded in his submission that the pursuers have not set out any relevant basis whereon the summary may constitute the terms of the parties' contract. Counsel for the pursuers requested that, in the event of my reaching a conclusion adverse to the pursuers on this branch of the argument by reason of lack of specification I should put the case out By Order with a view to giving the pursuers an opportunity of tendering further specification of communings in April 1997 between the pursuers and the three gentlemen mentioned in the pleadings. That request proceeded, at least implicitly, on the basis that if paragraphs (5) and (6) of the summary were terms of the contract, the remaining principal contentions for the defenders, on that hypothesis, were unsound. It is therefore necessary that I consider the principal remaining issues.
12. Counsel for the defenders argued that, if it were a condition of contract, paragraph (5) would be void or unenforceable as being an unjustified restraint of trade. Counsel for the defenders addressed various detailed aspects of this branch of the argument pointing to, among others, the width of the prohibition (which was not confined to the engagement of the consultant in the particular capacity in which he had been supplied); the prohibitions, being predicated upon a "period of engagement" which, in the absence of a specific client contract, was unspecified; and especially the obligation to procure that third parties would not engage the consultants. He also referred to a number of authorities in respect of the law relating to covenants in restraint of trade. It is however unnecessary to rehearse more fully this branch of Mr Clark's argument since counsel for the pursuers accepted and conceded that taken by themselves and viewed as a covenant in restraint of trade the provisions of paragraph 5 were plainly unenforceable as being too wide and going well beyond what could be seen as necessary for the protection of the pursuers' legitimate business interests.
13. As I understood it, the submission of counsel for the pursuers was that paragraphs (5) and (6) of the summary had to be construed together and against the averred factual background that the pursuers charged no finding or recruitment fee, no special weekend or holiday rates, and that their remuneration came from the "mark up" on the emoluments paid by them to the consultant in question. In light of those advantages to the defenders, it was reasonable, said counsel, that in the circumstances envisaged in paragraphs (5) and (6) of the summary the defenders should pay a contractually agreed sum for obtaining the services of the consultant on a more permanent basis. The reference in paragraph (6) to "breach" of paragraph (5) thus did not really mean any breach of contract. It simply meant that if, contrary to what was envisaged in paragraph (5), the consultants were engaged directly or indirectly paragraph (6) then provided the measure of the fee agreed to be payable. Paragraph (5) was therefore, said counsel, not a covenant in restraint of trade.
14. I am not persuaded of the soundness of this argument. Essentially the contention of counsel for the pursuers appears to me to amount to the proposition that paragraphs (5) and (6) of the summary (on the assumption that they are terms of contract) merely give to the client an option of engaging the consultant as his direct employee, in which event an "introductory fee" would be payable. The economic or commercial reasonableness of charging such a fee was said to lie in the considerations to which I have already referred in the synopsis of the submission. The first difficulty which is presented by this contention is that, had it been intended to give the client the option of engaging the consultant directly on payment of an additional introductory fee, that intention could readily have been expressed linguistically in terms of an option or a right to engage the consultant on payment of a fee. The part of the summary upon which the pursuers rely does not use such readily available language but, instead, employs terms of prohibition in the form of an undertaking not to employ the consultant directly. More significantly, and to my mind inimically to the very concept of an option to the client for his benefit, paragraph (5) contains undertakings by the client to procure that any third party introduced to the consultant by the client should not, directly or indirectly, engage the services of the consultant as an independent consultant or a permanent employee during the periods of time stipulated in the paragraph. In my opinion those provisions of paragraph (5) clearly place its terms within the ambit of a prohibition in restraint of trade. Ignoring questions of its invalidity as being too broad in terms of its restraint or restriction, I can see no reason wherefor in principle interdict might not be granted against a breach of that undertaking. Moreover, when one turns to paragraph (6) of the summary one finds that it applies in the event of a "breach" of the terms of the preceding paragraph. Mr MacNeill's submissions involve giving "breach" some unnatural meaning. As he conceded, "breach" would not actually mean "breach". The suggestion that the payment of an "introductory fee" had an economic justification by reason of the absence of provision for such a fee under the terms of the initial engagement is, among others, difficult to reconcile with the provisions in paragraph (6) whereby payment of the "introductory fee" would arise in the event that the consultant be engaged by any third party with whom he may have met during the "Period".
15. In these circumstances I consider that counsel for the defenders is correct in submitting that, if it were a condition of contract, paragraph (5) of the summary would be a covenant in restraint of trade for breach of which paragraph (6) provides a penalty. Since counsel for the pursuers expressly offered the concession that, as a covenant in restraint of trade, paragraph (5) was unenforceable as being too wide and going beyond what was necessary for the protection of the pursuers' legitimate business interests, it necessarily follows that the provisions of paragraph (6) also become unenforceable.
16. I would record that counsel for the pursuers submitted that, on the construction of paragraphs (5) and (6) for which he contended, the sums envisaged for payment under the latter paragraph would not be a penalty since there would be no breach of contract. Reference was made by him to EFT Commercial v Security Change (Number 1) 1992 S.C. 414 and Highland Leasing v Lyburn 1987 S.L.T. 92 as authority for the proposition - which I did not think to be in dispute - that penalty clauses are properly in issue only in the event of a breach of contract. The hypothesis upon which those cases proceeded is however superseded by the conclusions which I have reached.
17. Had I not been thus far against the argument for the pursuers, it would remain to decide whether their claim fell because of the ambiguity and uncertainty arising from the words in the concluding phrases of paragraph (6) purporting to define what would be payable by the defenders to the pursuers in the event of the defenders being in breach of paragraph (5). The matter turns upon the final "or" in the last sentence of paragraph (6). For convenience, I quote the pertinent parts of the text again:

"If, in breach of paragraph (5) above the Client ... [engages the services of the consultant etc.] ... the Client shall pay the Company an introductory fee equal to the fee payable by the Client to the Company or a standard forty hours per week, multiplied by 10 (weeks)".

18. In their defences to the summons the defenders contend that paragraph (6) is void for uncertainty, the quoted passage relating to payment of an "introductory fee" being "incomprehensible". The pursuers' response (set out in their note of argument, number 13 of process) was to say that the passage envisaged alternatives, namely the payment of the introductory fee actually agreed or alternatively a fee calculated by the 40 hours per week formula. Only the second could apply in this case. Having thus contended that "or" meant "or" and that rational content could be given to the terms of paragraph (6) on that basis, the pursuers, at the outset of the debate, altered their position to advance the contention that the passage in question in paragraph (6) did not envisage any alternative but involved a simple typographical error, namely that "or" should read "for".
19. Neither party invokes rectification under the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. Counsel for the pursuers referred to Glen's Trustees v Lancashire & Yorkshire Insurance Company (1906) 8 F 915 as authority for the proposition that where there is an evident blunder or infelicity of expression the court may rectify that infelicity of expression by construing the document as a whole. To that citation of authority I would add North British Insurance Co v Tunnock and Fraser (1864) 3M1, in which a similar approach was adopted. Essentially two issues arise. The first is whether, as a matter of interpretation of the document as a whole, the Court may treat the phrase as an obvious typographical or other error of expression which does not affect the ultimate construction of the document. The second, which only arises if the first issue is decided negatively, is whether the existence of alternative measures of claim without allocation of the option of choice renders the provision void for uncertainty.
20. On the first issue, counsel for the pursuers submitted, notwithstanding that which had previously been contended on behalf of the pursuers, that it was obvious that the "or" in question was a misprint for the word "for". There were, he observed, other apparent typographical errors in the summary. The initial framer of the summons plainly viewed the offending "or" as a misprint by reason of his insertion of the parenthetical "f" in the quotation encompassed in article 5 of the Condescendence annexed to the summons. For his part, counsel for the defenders submitted that, since the pursuers had reposted with the contention that "or" duly reflected the existence of alternatives it could hardly be said that the phrase in question was an obvious typographical error. Reference was made to Charter Re Insurance v Fagan [1997] A.C. 318, 384, 388.
21. In my view the fact that, at some point in these proceedings, the then pleader for the pursuers may have advanced the contention, from which the pursuers now depart, that "or" meant "or", is not, I think, a consideration of great weight. Once litigation ensues parties' legal advisers may commonly advance contentious interpretations of the language employed in the advancement of what they perceive to be an argument advantageous to the client. Untarnished by such tendentious approaches to the issue, I consider that one must look to the language employed in the document in question, namely the summary number 6/1 of process. On the necessary hypothesis that its terms constitute the terms of the contract between the parties I consider that the pursuers' argument for a typographical error is to be preferred for the simple reason that nothing in the preceding passages in the summary makes any reference to an "introductory fee". Given that there is nothing in the preceding terms of the hypothetical contract which could possibly be identified as a "introductory fee" the obvious meaning to be given to the ensuing phrase is that it erroneously omitted the letter "f" before the letters "or". I would therefore reject the submissions of counsel for the defenders on this branch of the argument.
22. However in light of my previous findings relating to the import and scope of paragraphs (5) and (6) of the summary, I consider that the action must be dismissed. I shall do so by upholding the defenders' first plea-in-law to the relevancy of the action.