Case No: B2/2007/2896
Neutral Citation Number: [2008] EWCA Civ 1295
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LUTON COUNTY COURT
(HIS HONOUR JUDGE FARNWORTH)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Tuesday, 7th October 2008

Before:

LORD JUSTICE LAWS,
LORD JUSTICE THOMAS
and
LORD JUSTICE WILSON
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Between:

	LEAFLET COMPANY LTD
	Respondent/Claimant	
	- and -		
	
(1)	SECURED ORCHARD INVESTMENTS LTD
(2)	COMPUTER TRAINING COLLEGE LTD	
Appellant/
Defendant	

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(DAR Transcript of 
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No:  020 7404 1400  Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

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Mr J Passmore (instructed by Messrs Cartwright Cunningham Haselgrove & Co) appeared on behalf of the Appellant.

Mr E Brown (instructed by Messrs Lawrence Graham) appeared on behalf of the Respondents.
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Judgment
Lord Justice Thomas:

1.	In 2004 the claimants, the respondents in this court, supplied and distributed leaflets for the second defendant, a company which was a wholly owned subsidiary of another company in which the first defendants had a majority shareholding.  Although irrelevant to the way in which the matter must be looked at, it is important to note at the outset that the second defendant is in administration.  The cost of supplying and distributing the leaflets was some £91,473.50.  That amount was not disputed.  It was invoiced but it has not been paid.  The claimants contended that both defendants were liable for the amount.  As a result of the placing of the second defendants into administration, that claim was stayed, and so the claim was only pursued against the first defendants.  The issue came on before the County Court Judge, HHJ Farnworth, as to whether the first defendants had agreed to be liable for the amounts invoiced in respect of the services provided.  In a reserved judgment given on 3 December 2007 he decided they were.  The first defendant appeals by leave of Sir Henry Brooke to this court.  Before the judge there were bundles amounting to some 421 pages.  The judge heard two witnesses on behalf of the claimants and one, a Mr Killick, on behalf of the defendants.  It is important to point out that Mr Killick was the company secretary and a director of both the defendants.

2.	As the judge was to point out, there were in fact only six pages of relevant documents.  Furthermore, what the witnesses had to say really added little, as the issue has to be decided primarily on the documents.  All the witnesses apparently tried to do was to place an interpretation upon them.  It is not necessary therefore to refer to the oral evidence at all.  The way in which the case was put on the pleadings did feature in the skeleton argument, but I do not think it necessary for me to refer to it as the matter can be looked at more simply.  The case made at trial was that in an exchange of e‑mails on 17 October 2004 the first defendants agreed it would be responsible for paying the invoices for the services supplied to the second defendants.  It was the claimants case that they would not have entered into an agreement or agreed to supply the leaflets to the second defendants had that agreement with the first defendants not been made.  When a subsequent agreement was entered into on 12 October in a letter, that agreement was an agreement between the second defendants and the claimants alone.  There was no change in that underlying first agreement.  

3.	The judge decided the case on that basis in favour of the claimants.  In this court it has been forcibly argued by Mr John Passmore, whose argument has lost none of its force by the succinctness with which it has been expressed, that the judge was wrong.  His case is essentially that the only agreement between the parties is contained in the letter of 12 October 2004, to which the first defendants were not a party.  There was no antecedent prior agreement or, if there was, it was subsumed in the letter of 12 October.

Was there an agreement contained in the documents that are before us which represent the exchange of e-mails?

4.	The first relevant document was an e‑mail sent at 12.20 on 7 October from Trevor Killick to Alison Lennon, who acted for the claimants, and to Colin Samuels who acted for the second defendants.  It was headed “New Agreement -- CTC”, the name of the second defendants.  It is, I think, important to stress that there are two persons involved for the defendants.  Mr Samuels appears to have acted for the second defendants.  It is clear that Mr Killick, though a director of both companies, was acting on behalf of the first defendants.  The reason I say that is that he signed the e-mail “Trevor J Killick, Financial Director, Secure Orchard Investment Ltd”, namely the first defendants.  In evidence to which I will subsequently refer, namely what was said in the later e‑mail in April 2005, it is also clear that he must have been acting solely in the capacity of the finance director of the first defendants.  Not only is that clear from what I have just said, but it will become clearer when I refer to the terms of the e‑mail.

“Further to our telephone conversation this morning I can now confirm that we are prepared to accept invoicing from you on behalf of The Computer Training College Limited (CTC) [that is to say the second defendants].  I can confirm the following details:
  
The registered office of both SOIL [the first defendants] and CTC [the second defendant] is Orchard House [it gives an address.  It then gives the registered company number of the first defendants and its date of incorporation and then says that the second defendant is a subsidiary of the first defendant.]  

If there is any further information you require please do not hesitate to contact me, otherwise I look forward to receiving confirmation of your trading terms.”

5.	It is argued on behalf of the first defendants that when the phrase “accept invoicing from you on behalf of CTC” is used, the words “on behalf of” show that Mr Killick, as the finance director of the first defendants, was acting as an agent of CTC.  I regret to say I cannot accept that submission.  It seems to me clear, when one looks at this from a commercial perspective, that what is happening is that the parent company is agreeing to accept the invoices and pay them itself.  That is plainly what is meant.  It makes no sense to read it in any other way.

6.	That that is what was intended becomes even clearer when one turns to the second e‑mail.  This was sent by Miss Lennon, of the claimants, to both Mr Killick and Mr Samuels.  Again, it is important to stress that both are involved.

“Hi Colin [that is Mr Samuels]/Trevor [that is to say Mr Killick],

 Many thanks for this information.  I have passed it by my FD who seems happy now to proceed -- in order to do this I have attached our company Terms and Conditions of trading for your reference.  The payment terms on free newspaper/solus bookings will be strictly 30 days and for any Royal Mail bookings it would be 14 days.  Trevor, please can you email me back to confirm that you accept these and are happy to go ahead with setting the account up.  Invoices and bookings will all be placed under Secure Orchard Investments Ltd account.”

Then an important second paragraph which was addressed to Colin Samuels:

“…once I have this approved I will call to let you know when the account is up and running and we can then proceed with WC 18th booking.”

7.	It is clear from this document that Alison Lennon on behalf of the claimants was looking at Mr Killick for one matter and to Mr Samuels for another.  She was telling Mr Killick what the payment terms were, as he had asked for them, and then she specifically wanted his confirmation that he accepted them.  In respect of dealing with the performance of the underlying contract which was to be entered into, it is clear that was dependent upon Mr Killick’s agreement, and it was only when that agreement was obtained that the agreement would be made with the second defendants.  It seems to me from this e‑mail clear beyond argument what the different capacities were in which the claimants were dealing with the defendants.  The Court has to look at these e‑mails objectively from a commercial perspective.  They can bear no other meaning.

8.	I then turn to the third e‑mail, which was sent at 1507 on 7 October 2004 by Mr Killick to Miss Alison Lennon at the claimants.  It is very brief.  It says:

“Hi Alison,  

Just to confirm our acceptance to payment terms at 30 days after the end of the month of invoicing (18th October = payment 30th November).  At the moment Royal Mail does not apply.”

9.	Now nothing could be clearer than Mr Killick was, in his capacity and on behalf of the first defendants, confirming the acceptance of those terms.  One then asks oneself the obvious question: why was he doing so?  The answer is clear.  He was doing so on behalf of the first defendants to enable the second defendants to enter into a contract with the claimants.  It seems to me that the capacity in which Mr Killick was acting is clear beyond argument.  First, because he signed the first document on behalf of the first defendants.  Second, from looking at the e‑mails as a whole there is a clear differentiation in the capacity in which Mr Killick is acting and Mr Samuels is acting, one for one defendant, the other for the other.  Thirdly there is the e‑mail of April 2005, to which I will come dealing with the matter chronologically.  It seems to me, despite the eloquent arguments that have been made by Mr Passmore, that if one reads these e‑mails, as one must, as documents exchanged between commercial people in their commercial context, there can be no doubt but that the arrangement was made that the first defendants would pay the invoices for services rendered to the second defendants if the claimants would enter into a contract with the second defendants.

The agreement of 12 October 2004

10.	It is clear on my view that when one then turns to look at the contract of 12 October, which was the contract into which the second defendants subsequently entered, that the commercial purpose of these exchange of e‑mails was then carried out.  I therefore consider that the County Court Judge, HHJ Farnworth, was entirely correct in the view he took of the e‑mails that a contract was constituted at that stage.  I then turn to look at the letter of 12 October which evidenced the agreement between the claimants and the second defendants.  This is a letter sent by the claimants to Mr Samuels of the second defendants.  Although it is not signed on behalf of the second defendants, it is accepted that this constitutes the agreement between the second defendants and the claimants, the letter being accepted either by signature or a document that has been lost, or by conduct.  The letter provides as follows:

“Thank you for your recent bookings and your acceptance of Leaflet Company Terms and Conditions; hopefully we will continue a long and happy working relationship.  
I hope the following rates/terms meet with your approval and that you will be happy to confirm, sign and return back a copy.”

Then there are set out the rates for the particular advertisement in the newspaper.  It then says “Payment Terms”:

“Payment terms will be strictly 30 days end of month if invoiced through Secured Orchard Investments Limited for all free newspaper bookings.  

Payment terms for any Royal Mail bookings will be strictly 14 days for letterbox distribution date.  Royal Mail standard terms and conditions apply to each booking.  

A total credit limit of £50,000 will be available which may be reviewed / increased subject to payment turnaround.  

Payments can be made either via CHAPS/BACS paid directly into our account or a Cheque (Bank details have been supplied).  

I hope this meets with your approval.  I would be grateful if you would sign and return a copy of this contract.  I look forward to speaking to you soon.”

11.	When this letter is looked at in the context of what has gone before, it is clear that this was the document that was envisaged as a result of the exchange of e‑mails.  The claimants being satisfied that the services would be paid for not by the subsidiary but by the ultimate parent company, it was prepared to enter into the agreement.  The way that the documents fitted together can be seen from the terms I have quoted in respect of payment.  “Payment terms will be strictly 30 days of month if invoiced through Secure Orchard Investments Limited for all free newspaper bookings.”  That is precisely the term to which Mr Killick had agreed on behalf of Secure Orchard Investment Limited (the first defendants) and therefore the documents lock together.  Of course it is possible that these could have been more fully expressed in much longer documents, but the whole of these documents fit together as an obvious commercial arrangement.  It was in no way intended to vary or discharge the first agreement.  It was entered into on the basis of the first agreement between the claimants and the first defendants and this agreement, the agreement between different parties, would never have been entered into if the first agreement contained in the e‑mails had not been made.  I cannot accept the arguments that have been made as regards the language.  First of all the fact that the letter was sent c/o the first defendants can make no difference.  As I have already tried to explain, the payment terms fit in perfectly with the antecedent arrangements.

Subsequent events

12.	It is the case that the invoices were subsequently largely paid by the second defendants, though the first defendants no doubt paid one of them.  No doubt that was for some internal arrangements between the two defendant companies.  It cannot in any way vary what was agreed.

13.	Then when difficulties arose in April 2005 there was the e‑mail to which I have already referred (but not set out in any detail) from Mr Killick to the claimants.  It said:

“As you are aware we are the holding company of CTC and I believe you were instrumental in setting up the account with our Chairman Des Wood back in October of last year.  The agreed terms of trading are 30 days after the end of the month of invoicing.  It was also agreed we would underwrite the amount outstanding, hence invoices are sent care of Secure Orchard Investment Limited.”

14.	There was then set out a little bit of history of what had happened and the current position.  The e‑mail refers to a discussion with a Mr Ian Springett.  The e‑mail then continues and this is the fourth paragraph:

“When I spoke to Ian he was not receptive to the proposals and commented that our credit rating was not good.  However there is no risk to you on this account since if we ceased tomorrow we would continue to perform the forward contracts with very little ongoing cost and thereby collect the £1.6 million.  In addition we are underwriting the account.”

15.	The document is then signed “Trevor J Killick, Financial Director, the Orchard Group”.  Before I turn to the argument attractively presented to us as to the real meaning of what the word “underwrite” is in this document, the one thing that is clear is that Mr Killick was sending this in his capacity as the finance director of the Orchard Group when he referred to the words “we would underwrite”.  That means that it is unarguable to suggest that the agreement made, as I have said, in the e‑mail exchange on 7 October was an agreement other than one between Orchard Investments (the first defendants) and the claimants.

16.	There is, however, the argument that arose as to the meaning of “underwrite”.  It is based on what transpired at the trial.  It is not necessary to refer to the evidence for it is conveniently summarised in paragraph 23 of the judgment of HHJ Farnworth.  After referring to the e‑mail the judge says:

“This […] of course does not create any contract between the claimant and the first defendant but what it does do, to my mind, in unequivocal terms is confirm the agreement reached in the e‑mails exchanged in October, in respect of which of course Mr Killick was a principal player and where he identified himself as the Financial Director of the first defendant.  In his evidence, he sought to say that underwrite, which is the term used in the April e‑mail, in this context meant that the first defendant was investing in the second defendant.  I accept the first defendant probably did invest in the second defendant but that was not the impression given in the October e‑mails.  In any event, underwrite as such is not used in the October e‑mails.  In those e‑mails, the first defendant said he was prepared to accept invoicing and I have already determined what that means.”

17.	Before us Mr Passmore sought to argue that the word “underwrite” must imply underwriting as between the first defendant and the second defendant.  He said that is what was meant as an underwriter underwrites risks.  Transposing that term to the e‑mail in question, what Mr Killick must have meant by using the term “underwrite” -- if he did not mean what he said in his evidence which was “invest” -- was to provide something akin to insurance by the parent company in favour of its subsidiary, the second defendants.

18.	In my view, if one is to place that strained interpretation on the word “underwrite”, it could equally well mean that the Orchard was underwriting, ie providing some surety in respect of the accounts of the second defendant in favour of the claimants.  The use of the term “underwrite” is neutral.  It does not imply who is to be the beneficiary of the particular agreement or who is to be the party to it.

Conclusion

19.	It seems to me therefore that the judge reached entirely the correct conclusion in this case and I would, for my part, dismiss the appeal despite the attractive arguments made by Mr Passmore.

Lord Justice Wilson: 

20.	I agree.

Lord Justice Laws:  

21.	So do I.

Order:  Application refused