LIMITATION :”STANDSTILL AGREEMENT” HAS WIDE SCOPE & COVERS CLAIM IN DECEIT: COURT OF APPEAL DECISION

In Mortgage Express -v- Countrywide Surveyors Limited [2015] EWCA Civ 1110 the Court of Appeal construed a limitation “standstill” agreement. It is, possibly, the first time a “standstill” agreement has been construed on appeal. Given that these agreements are now increasingly popular, so as to avoid excessive court fees. The decision may have considerable practical consequences, not least for those responsible for drafting “standstill agreements”.

THE CASE

The claimant had an action against the defendant alleging negligence, and deceit, in relation to the valuation of 46 properties. At a hearing on a preliminary issue the judge held that a Standstill Agreement did not have the effect of suspending time in relation to claims in deceit.

KEY POINTS

  • The standstill agreement should not be construed so as to exclude claims for deceit.
  • The court looked at the position from the point of view of determining what the parties meant and ascertaining what a reasonable person would have understood the parties to have meant.
  • The definition of dispute was drafted in wide terms.

THE STANDSTILL AGREEMENT

  1. There is an opening preamble paragraph which was headed, ‘Background’. It is convenient to refer to this as ‘the Background Preamble’.

1. The Surveyors were instructed on various dates to act on behalf of the Claimant in relation to the production of a valuation report of a number of properties for mortgage purposes. In reliance upon the valuation report, the Claimant issued a mortgage offer to the borrower to either remortgage or purchase and mortgage each property. Completion of the remortgage or purchase and mortgage of the property followed.

2. The properties in respect of which the Surveyors were instructed to provide valuations, and which are relevant to the Claimant’s intimated claims and to this Agreement, are set out in the attached schedule (the ‘Properties’).

3. It is alleged, as more particularly set out in the Claimant’s Letter of Claim dated 12 November 2010, that the valuations of the Properties produced by the Surveyors were outside the parameters of what would be regarded as reasonable in that each valuation was negligent and beyond the level of skill, care and diligence expected of a reasonably competent surveyor.

4. In this Agreement, ‘Dispute’ means any claim or claims directly or indirectly arising out of or in any way connected with the matters referred to in paragraphs 1, 2 and 3 above

  1. Agreement to Suspend Time’.
The parties hereby agree that:
2.1. For all purposes of any defence or argument based on limitation, time bar, laches, delay or related issue in connection with the Dispute (a ‘Limitation Defence’), time will be suspended from the date of this Agreement until 30 days after the service by any Party of a notice which is compliant with Clause 3 below stating that the running of time is to recommence (the ‘Standstill Period’).
2.2. No party shall raise any Limitation Defence that relies on time running during the Standstill Period.
2.3. For the avoidance of any doubt nothing in this Agreement shall prevent any party from relying on a Limitation Defence which accrued prior to the date of this Agreement.
2.4. No party can issue proceedings in relation to the Dispute prior to service of a notice which is compliant with Clause 3 below.

THE DECISION OF THE JUDGE AT FIRST INSTANCE

The judge viewed the agreement and the background preamble and came to the conclusion that “I do not see how a claim in deceit can either directly or indirectly arise out of (1) and (2) and (3) of Background [Preamble]. The deceit claim is a case of systematic, opportunistic and deceitful overpricing from the outset and over the full period of time by these surveyors of each and every one of the 50 properties …”

THE JUDGMENT IN THE COURT OF APPEAL

  1. In my view the Court’s approach to the issue of construction can conveniently be summarised by reference to the Judgment of Lord Clarke of Stone-cum-Ebony in Rainy Sky SA and others v. Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900. At [14], after referring to a number of authorities, he said this:
… the ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the contractual language which was used, which involves ascertaining what a reasonable person would have understood the parties to have meant. As Lord Hoffmann made clear in the Investors Compensation Scheme case, the relevant reasonable person is one who had all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contract.
  1. Among the background which would reasonably have been available to the parties in the present case was (1) the knowledge that a claim based on fraud and dishonesty is of a different character to a claim based on negligence and breach of contract, see above; and (2) the fact that no specific claim had been intimated prior to Standstill Agreement other than a claim for breach of contract and negligence.
  2. On the other hand, as noted above, the Letter of Claim specifically reserved the right to amend and/or raise additional allegations. The words used in Clause 2.1, the operative part of the Standstill Agreement, could hardly be wider: ‘for all purposes of any defence or argument based limitation … in connection with the Dispute …’ (emphasis added); and the reference to laches was inapposite if the only claims which were subject to the Standstill Agreement were claims in contract and negligence.
  3. Furthermore, the definition of ‘Dispute’ in paragraph 4 of the Background Preamble is itself drafted in very wide terms: ‘Dispute means any claim or claims directly or indirectly arising out of or in any way connected with the matters referred to in paragraphs 1, 2 and 3 above,’ (emphasis added).
  4. Paragraph 3 of the Background Preamble referred to allegations which were made of breach of contract and negligence, but in my judgment the wide definition of ‘Dispute’ plainly extends beyond what had been alleged by the First Claimant at that stage. It would, for example, plainly cover a claim for breach of fiduciary duty based on the payment of a bribe. The difficulty with Mr Lawrence’s reading down of the paragraph 4 is that it could have been achieved by a much shorter paragraph 4: ‘In this Agreement, ‘Dispute’ means any claim or claims directly or indirectly referred to in paragraphs 1, 2 and 3.’ His answer, that the Claimant might have wanted flexibility in relation to particular valuations does not, in my view, give sufficient weight to the words ‘in any way connected with.’
  5. In my judgment the proper construction of the Standstill Agreement is that if the claims arise ‘indirectly’ from the matters referred to in paragraphs 1-2 of the Background Preamble, or if they were in some way connected to those matters, they fall within the suspension provisions. The claims based on dishonesty fall within this very broad category of claims since they were at least in some way connected with the factual matters set out in paragraphs 1 and 2 of the Background Preamble and with the specific allegations described in paragraph 3.
  6. While acknowledging the care taken by the Judge in his analysis of this issue, I would allow the appeal.”

THE IMPORTANCE OF CLEAR DRAFTING AND AGREEMENT

It is worth noting that the claimants were not so fortunate in the case of Excel Polymers Limited -v- Achillesmark Limited [205] EWHC 1927 (QB) where the issue of construction was also considered. The judge held that the limitation period had not been further extended to cover a further period after a company had been restored to the register.

THE JUDGMENT IN EXCEL POLYMERS ON THE CORRECT APPROACH TO ASSESSING THE MEANING OF THE AGREEMENT

  1. The Agreement Neither party has contended that as a result of the different understanding of the two solicitors no agreement was in fact made on 9th January 2004. Moreover both parties have accepted that the effect of the extension agreed on 6th May 2004 was to extend whatever had been agreed on 9th January 2004. On the evidence I agree with both as the correct approach in this case.
  2. Starting accordingly with the construction of the agreement, the approach to be taken is familiar and well-established. Having ascertained the facts which surrounded the making of the agreement, its meaning is for this court to determine. The task of ascertaining the meaning of the agreement should be approached objectively. The question is not what one or other of the parties actually intended or understood by what had been agreed but the meaning which the words used in the circumstances in which they were used would convey to a reasonable person having all the background knowledge which would reasonably have been available to the actual parties in the situation in which they were at the time the agreement was made.

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