CPA On-Line Limited v Guest Motors Limited

A contractual term should not be treated as meaningless merely because a phrase is undefined. The court should try to give meaning to all words used. Meaninglessness and ambiguity are distinct. If a clause is truly meaningless, it cannot support a contractual claim, and the contra proferentem rule cannot supply the missing meaning. On a renewed application, there was substance in the argument that the trial judge had treated the term as unclear too readily and had relied on untenable views that it was a penalty and a trap. Permission to appeal was therefore granted, without deciding the ultimate construction or other defences.

The applicant provided debt-collection services under contracts for blocks of letters. The contracts also regulated charges for letters sent on a client's own letterhead. After more than 18,000 such letters were sent, the applicant issued a further bill exceeding £140,000, relying on a term referring to the number of related units.

Judge Hutton, sitting as a Deputy High Court Judge, dismissed the claim, finding the relevant term unclear because related units was undefined. Permission to appeal was initially refused on paper. On the renewed application, the central issue was whether the applicant had an arguable case that the contractual wording had a definite meaning or could be construed in light of the factual matrix.

Permission to appeal granted. The application was allowed, with costs to be in the appeal. The Court of Appeal did not determine the final construction of the contracts or the respondent's other defences.

1. The trial judge had treated the reference to related units as undefined and the relevant clause as unclear. The applicant contended that the wording referred to the contracted blocks and that the clause imposed the higher charge after the permitted ratio of client letters was exceeded.
2. The Court of Appeal held that the court should try to give meaning to all the words used in a contract. The absence of a definition did not necessarily justify treating a term as incapable of meaning. If a clause was genuinely meaningless, it could not form the basis of a contractual claim. The contra proferentem rule was not the answer to meaninglessness, particularly where the case was that the clause was meaningless rather than ambiguous.
3. The judge's additional conclusions that the clause was a penalty and in the nature of a trap were regarded as untenable and did not strengthen the dismissal. The applicant could also argue its alternative case based on the factual matrix, although that argument appeared to reintroduce evidence which the judge had rejected.
4. If the appeal succeeded, a retrial would be necessary because the judge had not determined the respondent's other defences. The court encouraged the parties to use its voluntary ADR scheme, observing that the costs of a retrial might exceed the sum in dispute.

• Court of Appeal (Civil Division): On the renewed application for permission to appeal, Lord Justice Tuckey granted permission, ordered costs to be in the appeal, and encouraged the parties to pursue ADR: [2001] EWCA Civ 1774.
• High Court: Judge Hutton, sitting as a Deputy High Court Judge, dismissed the contractual claim after finding the relevant term unclear.