CONSENT ORDERS, CONFIDENTIALITY AGREEMENTS, IMPLIED TERMS AND (LET'S BE HONEST) A PRETTY DETERMINED EFFORT TO AVOID PAYMENT

I am grateful to Tobias Haynes from Waterside Legal LLP  for sending me a copy of the judgment of His Honour Judge Cooke in Hartland -v- Buccament Bay Resort Ltd (7th July 2016) a copy of which is attached to this post Hartland v Buccament Bay app judgment.3BM30141 07.07.16 MT

KEY POINTS

• The claimants entered into a consent judgment which included a confidentiality clause.
• The defendant did not pay and the claimants issued a winding up petition. The contents of the agreement were disclosed in the course of the winding up.
• The defendant argued that the claimants were in breach of the confidentiality clause  because they failed to take positive steps to ensure that the contents of the agreement were not disclosed externally during the proceedings and when judgment was given.
• The judge rejected the defendant’s argument. It was not reasonable or necessary to imply such a term into the consent agreement.  The defendant was well capable (and probably in a better position) to seek confidentiality itself.

THE ISSUE

The claimants had entered into a consent judgment with the defendant. The defendant agreed to repay deposits the claimants had paid towards the construction of holiday homes which were never completed. The defendant did not pay.

The claimants sought to enforce the judgment.  The defendant argued:

• The agreement was ultra vires the company (which argument did not succeed before the District Judge, and was not pursued on appeal).
• That the claimants were not entitled to payment because of their breach of a confidentiality agreement contained in the consent judgment.  This was the argument the defendants maintained on appeal to the Circuit Judge.

THE CONFIDENTIALITY CLAUSE

The consent order contained the following provisions that each claimant

“agrees to keep the contents and existence of this agreement confidential and to not release [I think that means ‘not to release’] any information or details concerning it to any third party save for their professional advisers or as may be required by law or statute. Should the buyer fail to honour this condition precedent then the sums paid out under paragraphs 1 and 2 of this agreement shall become returnable forthwith to the seller,” the seller being the defendant and appellant company.

THE HISTORY OF THE ACTION

None of the claimants received payment:

• They issued a winding up petition, other creditors joined with them in that petition.
• The petition referred to the debt owing to the claimants as having arisen under the settlement agreements.
• The debt, therefore, became known to the other petitioners.
• A further petition had been brought by other debtors and the court directed that the petitions be heard together.
• A witness statement setting out the terms of the agreements were referred to in a witness statement made in the hearings in relation to the petition and featured in the judgment in relation to those petitions.

THE DEFENDANT’S ARGUMENTS

The defendant argued that there had been a breach of the confidentiality clause and any amount payable to the claimants would be in vain, as they would become immediately liable to repay the defendant under the cross claim.

THE DEFENDANT’S ARGUMENTS

The judge commented that the defendant’s case had changed over time.  Initially there were arguments of repudiatory breach. At the appeal stage it was argued that the agreement remained valid and the defendant was entitled to judgment on its cross-claim.

At the appeal stage the defendant conceded that the claimants were entitled to issue the petition and were not in breach by referring to it in the course of the hearings in relation to the petition.  The case was now put on the basis that the claimants were under a duty, in the course of the winding up proceedings, to seek orders that ensured that the terms of the settlement were not disclosed.

THE JUDGE’S JUDGMENT ON THIS POINT

The judge rejected the defendant’s argument, finding that it was not necessary to imply such an implied term into the consent agreement.

26. The case is now put on the basis that in the course of pursuing the winding up proceedings the claimants were obliged to seek orders such as would have ensured that the terms of the settlement agreements were not disclosed to persons other than the parties in those proceedings. In particular it is said that the claimants/petitioners could and should have sought orders pursuant to CPR 39.2 for the hearing before Mr Strauss QC to be in private and/or for the identity of the defendant company as a party to those proceedings not to be disclosed, or for the evidence not to be disclosed or for the judgment either not to be published or to be anonymised in such a way that the defendant could not be identified.

27. It seems to me inherent in putting the case in that way that the appellant accepts that the immediate cause of disclosure of the terms of the settlement agreements to non-parties was the publication of the judge’s judgment which is on the face of it an act of the court and not an act of the claimants.

28. In fact Mr. Maguire says that on his instructions the hearing before Mr. Strauss was in private. I have no firm information on that one way or another.  Thompson doubts that this can have been the case but that appears to be only on the basis that the judge has in fact published his judgment, which he says would not have occurred had the hearing been in private.  It is accepted on both sides that no application was made by either side, although both sides were represented by leading counsel, for any anonymity to be granted to the defendant or for any anonymisation or redaction of the judge’s judgment. 

28. I say that it seems to me to be accepted that the direct cause of the disclosure to third parties was the act of the court. In any event it is the case that there is no evidence or indeed positive allegation before me, nor was there before the district judge, that the claimants themselves sought or arranged for the publication of that judgment.  The allegation therefore is of a positive obligation on the claimants to seek what amounts to anonymity orders from the court. 

29. It is accepted that the appellant could have sought such orders itself but did not, save to the extent that it obtained an order prohibiting advertisement of the petition, but Mr. Thompson submits that that does not matter. He says that the ability of the appellant itself to seek such an order does not affect what he says is the obligation of the respondents — the petitioners in the action — to have sought that order themselves.

31. So put, it seems to me that the question has become one of implication of a term in clause 4 of the settlement agreements.

32. There is of course no express term set out in the language of clause 4 dealing with the conduct of proceedings in which the claimants seek to enforce their rights, still less any term descending to the particulars that are now alleged as to how they should have done so and the orders that should be sought. Necessarily therefore this is a matter of implication.  Given that it is conceded that the bringing and conduct of proceedings is not itself a breach of clause 4, any term as to the method by which such proceedings are to be conducted or the steps to be taken in the course of such proceedings must be one that has to be implied.

33. The Supreme Court has of course recently addressed the law on implication of terms of contracts in Marks & Spencer v BNP Paribas. The essence of that decision, if I may so briefly summarise it, was to consider whether the traditional law as to the conditions upon which terms would be implied in contracts had been changed as a result of the judgment of Lord Hoffmann in the Belize Telecom  The decision of the Supreme Court was that the law had not been so changed and it amounts to a reaffirmation of the traditional basis of assessment of whether terms should be implied in contracts where not expressly stated.

34. I am going to quote very briefly from part of that judgment. At paragraph 18 of Lord Neuberger’s opinion, with which two other justices agreed, he stated, with approval, the summary of the conditions set out by Lord Simon in the Privy Council in BP Refinery (Westernport) v President, Councillors and Ratepayers of the Shire of Hastings.  Lord Simon said this:  “For a term to be implied, the following conditions (which may overlap) must be satisfied:  (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must  not contradict any express term of the contract.”

35. Lord Neuberger then referred to various other expressions of the principles, which I shall not trouble to repeat.

36. At paragraph 21 of his judgment he said: “In my judgment, the judicial observations so far considered represent a clear, consistent and principled approach.”

37. He went on to say that without seeking to reformulate the principles he added six comments to Lord Simon’s summary of them. I shall not refer to all of those six comments but the second one of them seems to me to be relevant in the present circumstances.  It was:  “A term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them.  Those are necessary but not sufficient grounds for including a term.”

38. At paragraph 23 he referred to the approach of considering what a reasonable reader of the contract would understand to be implied, and said this: “The notion that a term will be implied if a reasonable reader of the contract, knowing all its provisions and the surrounding circumstances, would understand it to be implied is quite acceptable, provided that (i) the reasonable reader is treated as reading the contract at the time it was made and (ii) he would consider the term to be so obvious as to go without saying or to be necessary for business efficacy.”

39 With those observations in mind it seems to me that it is abundantly plain that the term that Mr. Thompson now contends for is not one which is necessary to give business efficacy to the contract or one which is so obvious that either the parties or a reasonable person reading the contract and knowing the circumstances would have considered obvious at the time. 

40. It is true, of course, that the test of necessity is not one of absolute necessity but one of consideration of those terms that any sensible business person would consider as essential for incorporation into a contract. The question is not one of whether there are no circumstances in which the contract could operate without such a term but one in which for the contract to be given ordinary business effect it is necessary that the term should be implied.  If one considers what the parties or indeed a reasonable bystander would have considered to be reasonably necessary to make this contract effective at the time, in circumstances in which their attention was directed to the way in which legal proceedings to enforce the claimant’s rights would be pursued, it seems to me that, to put it no higher, the parties could well have concluded or a reasonable bystander could well have concluded that it was not necessary for the claimants to be required to seek a court order to protect the defendant’s confidentiality because the defendant in the course of those proceedings would be perfectly able to seek such an order for itself, and in fact probably rather better placed to do so. 

41. It is plain of course that in the circumstances that actually happened in this case the defendant and now the appellant had exactly that opportunity. It availed itself of the opportunity to restrict advertisement of the winding up petition, no doubt because it did not wish third parties to become aware of the claims that were made against it.  It had every opportunity at that point to take points or to take additional points about the conduct of the proceedings such as would protect its confidentiality interests in the settlements that it had previously agreed with these claimants.

42. Of course one cannot look with hindsight from what actually happened back to what the circumstances would have been at the time of the contract but it seems to me that it is perfectly clear that if one was looking at the contract at the time it was made and prospectively considering what might become necessary in the future if its terms had to be enforced it was not necessary for the claimants to protect the defendant’s confidentiality because in such proceedings the defendants would have the opportunity to do so themselves.

43. For those reasons it seems to me clear that the implied term now sought fails the necessary test and cannot therefore be implied into the contract. There is therefore no such obligation on the claimants as is now asserted.  There was no breach of any such obligation therefore, and the district judge’s conclusion that there had been no breach of clause 4 was correct, albeit for reasons that are somewhat different from those that he gave; those arise, it seems to me, from the way in which the matter has been argued before me not being the same as the way it was argued before him.  It follows of course that there was no need for him and there is no need for me to consider the possible consequences of a breach had one been found.

44. The result is that the appeal is dismissed.