John & Ors v Price Waterhouse

Contractual liability must be determined from the agreement read as a whole and against the admissible factual background known to the parties. Evidence of negotiations, including signed documents recording an interim negotiating position, is generally inadmissible when construing the final agreement. A clause regulating the appointment of agents does not necessarily apply to every person who performs functions associated with the contracting party’s duties. Its legal terminology, structure, financial provisions and specific exceptions must be considered together. Where the agreement’s commercial arrangements place tour-related functions and costs outside the contractual agent provisions, the court should not imply a system of reimbursement merely because the drafting is unsatisfactory.

Sir Elton John and associated companies appealed against orders of Ferris J in the Chancery Division dismissing their claim against Price Waterhouse concerning liability for tour agents’ costs under a management agreement dated 14 March 1986.

The High Court decided that the agreement did not require JREL, the management company, to bear the fees and expenses of the tour producer, booking agents and tour accountants. The appeal concerned the proper construction of clause 7, particularly clause 7.2. The Court of Appeal also considered what material formed part of the admissible factual matrix.

1. Appeal dismissed. By a majority, Pill LJ and Robert Walker LJ held that the 1986 agreement did not require JREL to bear the tour agents’ fees and expenses. Nourse LJ dissented and would have allowed the appeal.
2. Robert Walker LJ and Pill LJ held that the court must construe the agreement as a whole and have regard to the established arrangements for North American tours, the parties’ relationship, JREL’s indebtedness and relevant prior arrangements. The old basis/new basis memorandum and the heads of agreement were part of the negotiations and had to be excluded. The memorandum could not be used to establish the parties’ purpose in the absence of evidence that the negotiating position had remained unchanged.
3. The majority treated clause 7.2 as concerned principally with agents appointed by JREL in the legal sense, and with limited delegation of JREL’s personal obligations. The tour producer, booking agent and tour accountant were not agents of JREL in that sense. The contractual arrangements instead placed them within a structure in which other entities acted as principals.
4. Robert Walker LJ regarded the booking-agent exception as decisive. Read in context, it removed booking agents from clause 7.2 rather than merely dispensing with written consent. It would be inconsistent to treat the other tour agents, including the tour producer and tour accountant, as caught by the clause. Pill LJ agreed with that conclusion.
5. The majority also considered the absence of detailed provisions for the proposed reimbursement or recoupment system, and the agreement’s financial controls over JREL, powerful indications that the tour agents’ obligations and expenses were not intended to fall upon JREL.
6. Nourse LJ considered that JREL was responsible for the Schedule 5 functions whether performed itself or through others. He regarded the booking-agent exception as confirming that tour agents came within clause 7.2 and interpreted “paid” in clause 7.2.2 as including “borne”. That reasoning did not command the majority.

The appeal was dismissed with costs.

• Court of Appeal (Civil Division): Appeal from orders of Ferris J made on 11 April 2001 and 6 June 2001. The appeal was dismissed by a majority, with costs.
• High Court, Chancery Division: Ferris J dismissed the action after construing the 1986 agreement in favour of the defendants.