In C&S Associates UK Ltd v Enterprise Insurance Company Plc [2015] EWHC 3757 (Comm) (21 December 2015) the court was asked to determine preliminary matters arising from the termination of contract. The Claimant (“C&S”) was a motor insurance claims handler in Hampshire and the Defendant (“Enterprise”) was an insurance company incorporated in Gibraltar [1]. From 2 July 2012 C&S provided claims handling services to Enterprise pursuant to a ‘Claims Management Delegated Authority Agreement’, but it was terminated in January 2014. Enterprise contended it was entitled to terminate for repudiation on one or both of two grounds:
1. either because of C&S’s refusal to send claims files to it for the purpose of an audit of open files which it was conducting or
2. because of the seriously negligent performance by C&S of its services under the contract.
C&S contended that Enterprise was not entitled to terminate the contract on either ground and that its conduct in doing so was itself a repudiatory breach, which C&S has accepted. [2]
Audits for C&S’s files in November 2012 [29], January 2013 [30] and July 2013 [34] appeared to be satisfactory, but in October 2013 Enterprise requested an “Urgent File Review” [36]. Enterprise asked:
“…for all of the open files held by C&S to be couriered to Enterprise’s solicitors [(Ozon in Manchester)] for review and return, starting with files from 2010, 2011 and the first half of 2012. Follow-up emails from [Enterprise]… described this exercise as “business critical to us” and emphasised that Enterprise could not stress its urgency enough.” [36]
“C&S was concerned about the disruption to its business that couriering such a large number of files to Manchester would involve, as Mr Smith explained in an email dated 30 October 2013. Nevertheless he agreed to assist. He wrote:
“… We will of course endeavour to support your requirements. There’s no doubt the undertaking is challenging and will be hugely disruptive to the day to day operational activity but that aside, we will do everything we can to support your objectives. Perhaps we can speak first thing in the morning to talk thru’ logistics etc. [For] example, might it be possible for Ozon staff to come to the files rather than shift circa 5-6000 files to them. I only say this given the enormous volumes of post/email and telephone traffic that occurs day to day. Either way, we’ll accommodate …”” [38]
“At this stage the parties were not giving any thought to the question whether C&S was obliged to send the files to Ozon as distinct from permitting a review to take place at C&S’s premises. [C&S]… was simply focusing on the practicalities of the exercise and the avoidance of disruption. As there were over 2,660 open files where the accident date fell on or before 30 June 2012, the review which Enterprise was proposing to conduct was a major exercise. Some of those at C&S were concerned that Ozon did not have the resources or personnel available to conduct such an exercise in any reasonable timescale.” [39]
“C&S sent more than 2,000 claims files to Ozon in November 2013.” [40]
“On 6 January 2014 [C&S]… wrote again to [Enterprise]. [C&S]… observed that the time previously indicated for the completion of the audit (i.e. the end of 2013) had elapsed and that it had been some weeks since any meaningful volume of files had been called for. [C&S]… therefore requested a date for the proposed meeting. This appears to have prompted a request the following day that “the next batch” of files should be sent to Ozon for audit. The request was for a further 1,500 files be couriered to Ozon, starting with the oldest. The request seems rather odd as it appears from Enterprise’s pleaded case that Ozon had audited only 449 of the 2,000 or so claims files that it had already received.” [56]
“In circumstances where the claims files previously couriered to Ozon were not being returned … C&S was reluctant to send more files offsite…. However, by an email sent on 7 January 2014 Mr Ozon insisted that neither the return of files nor any meeting with Enterprise had any bearing on C&S’s instructions, which were to send further files to Ozon. On the same day [Enterprise]… confirmed these instructions and stated that [it] would be in touch shortly to arrange a meeting.” [57]
Enterprise purported to terminate the contract in a letter dated 13 January and sent 14 January 2014. [60]
The preliminary issues were whether:
Q.1. Whether C&S had committed a repudiatory breach of the contract by refusing to deliver the additional files to Enterprise’s solicitors? [64]
A.1 C&S was not obliged to send files to Ozon. Enterprise’s case that C&S’s refusal to do so was repudiatory fells at the first hurdle. [76] Enterprise “…was only entitled to examine the paper files themselves at C&S’s premises during business hours after giving reasonable notice of its wish to do so.” [73] With regards to the allegation of Repudiation,
“There was no real dispute between the parties as to the principles to be applied, which can conveniently be taken from Chitty on Contracts, 32nd edition (2015), Volume 1, para 24-041, citing among other cases Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings Ltd [2013] EWCA Civ 577 (23 May 2013) and Valilas v Januzaj [2014] EWCA Civ 436 (08 April 2014):
“….regard must be had to the nature and consequences of the breach in order to determine whether this right has arisen. The question whether a breach of an intermediate term is sufficiently serious to entitle the innocent party to treat himself as discharged is to be determined ‘by evaluating all the relevant circumstances’. In conducting this inquiry, the court is not exercising a discretion, but is engaged in a fact-sensitive inquiry which involves ‘a multi-factorial assessment’ and the use of various ‘open-textured expressions”. The bar which must be cleared before there is an entitlement in the innocent party to treat himself as discharged is therefore a ‘high’ one. A number of expressions have been used to describe the circumstances that warrant discharge, the most common being that the breach must ‘go to the root of the contract’.”” [78]
“It was common ground also that in determining whether a breach is repudiatory the questions identified by Lewison LJ at [51] and [52] of his judgment in the Telford Homes case would be relevant:
“Whatever test one adopts, it seems to me that the starting point must be to consider what benefit the injured party was intended to obtain from performance of the contract. … The next thing to consider is the effect of the breach on the injured party. What financial loss has it caused? How much of the intended benefit under the contract has the injured party already received? Can the injured party be adequately compensated by an award of damages? Is the breach likely to be repeated? Will the guilty party resume compliance with his obligations? Has the breach fundamentally changed the value of future performance of the guilty party’s outstanding obligations?”” [79]
Even if C&S was under an obligation to send the files, such refusal was not in the circumstances repudiatory since there had not been an out-right refusal, but instead a refusal to do so before a meeting took place accompanied by an offer of unrestricted access to the files at C&S’s offices in circumstances where Enterprise had broken its promises that files would be returned once reviewed and efficient claims handling would be disrupted by delivering yet further files. [80-84]
“C&S was not obliged to send files to Ozon. Even if it was under such an obligation, its refusal to do so was not repudiatory.” [84 and 148]
Q.2 Whether the pleaded allegations of negligence were capable of amounting to a repudiatory breach? [85]
A.2 “I must assume without deciding that… the breaches… if proved on a sufficient scale… are undoubtedly capable of satisfying the criteria for a repudiatory breach.” [86]
C&S resisted such conclusion on the basis that, amongst other grounds:
“Enterprise did not rely on C&S’s defective performance of the contract as a ground for termination in Ozon’s letter dated 13 January 2014 (in fact it reserved its position), but only on C&S’s refusal to send the next batch of files. As a general rule, a party who refuses to perform a contract, but who gives a wrong or inadequate reason or no reason at all, may later justify his refusal if there were at the time facts in existence which would have provided a good reason for the refusal. This general rule, however, has been held not to apply “if the point taken is one which if taken could have been put right”: Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273 at page 1278. I refer to this as “the Heisler qualification”…” [88]
Mr Justice Males continued:
“…the Heisler qualification applies only to anticipatory breaches or, to the extent that this is different, to situations where if the point had been taken steps could have been taken to avoid the party being in breach altogether, either by giving it an opportunity to perform its obligation in time or by enabling it to perform in some other valid way. This is not such a case” since if the breaches upon which Enterprise now rely are proven by Enterprise, they would have already occurred. [93]
“Accordingly… the breaches of C&S’s duties alleged by Enterprise are capable, if proved, of amounting to a repudiatory breach.” [111 and 148]
Q.3 Whether Enterprise’s purported termination of the contract by Ozon’s letter dated 13 January 2014 was itself repudiatory? [112]
A.3 “If Enterprise’s case on repudiation fails at trial, its purported termination of the contract by Ozon’s letter dated 13 January 2014 was itself repudiatory.” [112 and 148]
Q.4 Whether such repudiation accepted by C&S? [113]
A.4 “C&S’s solicitors accepted Ozon’s letter as a repudiation bringing the contract to an end by their letter dated 16 January 2014.” [114 and 148]
Q.5 Whether the contract had been varied by an exchange of emails in October 2013 so as to (a) increase the fees payable to C&S and (b) provide that the contract should continue for a minimum term of two years from 1 October 2013? [115]
A.5 “The contract was varied by an exchange of e-mails in October 2013 so as to (a) increase the fees payable to C&S and (b) provide that the contract should continue for a minimum term of two years from 1 October 2013.” [136 and 148]
Q.6 Whether the contract as varied include an implied term that Enterprise would continue to pass claims to C&S in the ordinary course of business up to 1 October 2015? [137]
A.6 “The contract as varied did not include an implied term that Enterprise would continue to pass claims to C&S in the ordinary course of business either up to 1 October 2015 or at all.” [145 and 148]
Q.7 Whether Enterprise entitled to (i) restrict the number of claims to be handled by C&S on its behalf to whatever level it saw fit; (ii) refuse to allow C&S to handle any new claims on its behalf; and/or (iii) withdraw from C&S claims which C&S had hitherto been handling on Enterprise’s behalf? [146]
A.7 “Enterprise was entitled to restrict the number of claims to be handled by C&S on its behalf to whatever level it saw fit and to refuse to allow C&S to handle any new claims on its behalf; but unless C&S had repudiated the contract, Enterprise was not entitled to withdraw from C&S claims which C&S had hitherto been handling on Enterprise’s behalf.” [147 and 148]
Nigel Davies
23 January 2016
The information & opinions expressed in this article and associated video are not necessarily comprehensive, nor do they represent the trenchant view of the author; in any event this article does not purport to offer professional advice. This article has been prepared as a summary and is intended for general guidance only. In the case of a specific problem, it is recommended that professional advice be sought.
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