A new consideration in the construction of contractual clauses

The lack of professional drafting advice has forced the courts to make sense of a contract to avoid “commercial nonsense”. In the recent case of DRSP Holdings Ltd and another v O’Connor and others, Judge Cawson QC highlighted the particular importance of considering contextual background factors when interpreting disputed contractual clauses drafted without the benefit of professional advice. This issue arose during a counterclaim which followed a claim for breach of database rights under the Copyright and Rights Databases Regulations 1997.

Factual Background

The claimants in this case were companies in the DRSP group (“DRSP”). DRSP carries on business as a claims management company in respect of consumer claims. The first defendant, Mr Thomas O'Connor was a director at a number of DRSP companies from 2013 until February 2018 when he ceased to be employed by DRSP, and became a consultant to DRSP acting on behalf of the third defendant Octax Limited (“Octax”). The proceedings against the second defendant were discontinued prior to the hearing.

The essence of the claim was that the defendants had unlawfully extracted and misused data contained in the DRSP’ database “Slate”. In May 2018, DRSP and Oxtax entered into an agreement (the “Introducer Agreement”) to enable Octax to access Slate to refer leads / cases to DRSP to pursue relevant claims, and also, for DRSP to provide data to Octax in respect of leads / cases where DRSP had not been able to engage with the customer. In each scenario DRSP would earn a fee if the claim was successful. It was Octax's position and the basis of their counterclaim that terms of the Introducer Agreement provided they were due 50% commission on any fee so earned by DRSP.

The Initial Claim

It was, in short, the claimants' case that DRSP had a database right in Slate, and that the defendants had infringed that database right by making unauthorised extractions therefrom. The claimants sought an inquiry as to damages, and restitution of the sum of £151,433 said to have been paid to the third defendant by mistake. It was the case of the defendants, Mr O’Connor and Octax, that they were entitled access to and use of the data in question within Slate pursuant to contractual arrangements between the parties.

Judge Cawson QC accepted that the claimed database right existed but rejected each alleged act of infringement in turn. The success of this claim stood and fell with whether DRSP knew of and consented to the acts complained of. When considering each instance of alleged infringement, Judge Cawson QQ highlighted that the defendants’ use of the database had been within the express consent of the claimants’. It necessarily followed that the claimants' claim was dismissed and their unjust enrichment claim could not succeed.

The Counter claim

Octax’s counterclaim sought the recovery of fees they argued where due and owing. It was their position that under the terms of the Introducer Agreement, Octax was entitled to a 50% commission on any fee recovered by DRSP in respect of leads / cases referred back to DRSP. They maintained that the claimants position that no commission was due created a “commercial absurdity” as it would be “odd and incongruous” if the work was not remunerated. Further and flowing from this, Octax claimed damages alleging that DRSP acted in breach of the terms of the Introducer Agreement by failing to perform it after 1 September 2018 until it could have been lawfully terminated.

DRSP maintained that the wording of the relevant provisions of the Introducer Agreement meant that a commission was not payable by DRSP in respect of the referred back work. Further to this, they argued that the commercial context supported such an interpretation as the parties could not reasonably have been expected to have agreed a 50% split of the kind contended.

Judgment

In this case, the parties held different views as to the meaning of their agreement. When such disputes arise the Court will first apply the guidance found in Wood [1], that contracts must be construed objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language to mean. This case further provided that what the parties subjectively intended or understood the contract to mean is inadmissible and irrelevant to the task of the Court. However, this guidance is not absolute and further guidance found in Chartbrook Ltd [2] directs that “if the court concludes from the background that something must have gone wrong with the language, the law does not require the court to attribute to the parties an intention which they plainly could not have had.”

While the starting point in most construction exercises is to apply the objective test found in Wood, Judge Cawson QC took the view that it was an important consideration in this case that the Introducer Agreement had not been professionally drafted. He considered that this fact emphasised the importance of context and so considered that it was appropriate that the Court read into the agreement “proper meaning even if this requires an element of corrective interpretation”. Judge Cawson QC first heard the oral evidence of the parties’ subjective intentions for the agreement but was mindful that he was required to “treat this evidence with great caution”. He then reviewed the relevant commercial considerations to construct the appropriate meaning of the contract. Following consideration of both the natural reading of the agreement and the relevant contextual considerations, the Judge concluded that Octax was entitled to the account that it sought.

Conclusion

It is common for the Court to use a range of sources to construct the proper meaning of contractual clauses where the parties disagree. The extent to which each source is used will vary according to the circumstances. This recent judgement highlights the power of the court to read sense into contracts as it sees fit and highlights the importance of thoughtful and robust drafting. It is vital when entering into a written contract to ensure that your meaning is accurately represented in the wording agreed.

We at Carson McDowell have a wealth of experience both in drafting contractual clauses and assisting our clients when contractual disputes arise. Should you need any advice regarding a new contractual agreement or a contractual dispute, please do not hesitate to contact our Commercial and/or Litigation & Dispute Resolution team for more information.

[1] Wood v Capita Insurance Services Ltd [2017] UKSC 24

[2] Chartbrook Ltd v Persimmon Homes Ltd [2009] AC.