Compensation Specialists Ltd. & Ors v Compensation Claims Service Ltd.

An interim contract may be inferred where the parties’ conduct, commercial circumstances and agreed changes show that earlier agreements were terminated by consent and replaced. Its duration and termination depend on the terms properly implied into that arrangement. Termination concerning new client acquisition does not necessarily end obligations relating to existing clients. Where contractual materials, read as a whole, require continuing client care during the life of a claim, that obligation survives termination of the franchise relationship. A franchisee who fails to provide the remaining service must credit the franchisor the cost of providing it in substitution.

Three franchisees operated under individual franchise agreements with Compensation Claims Service Limited. Following changes associated with the Access to Justice Act 1999 and the formation of a company combining their territories, the parties operated on interim terms, including a flat fee for new clients. The franchisees later terminated the relationship.

The High Court found that the original agreements had been replaced by an interim agreement, that the franchisees were entitled to terminate it in relation to new business, and dismissed the counterclaim for loss of profits. It nevertheless indicated that client-care expenditure might be deducted from sums due. Compensation Claims Service Limited appealed on the duration of the interim agreement and the continuing obligation to care for existing clients.

Mr Justice Holman gave the judgment of the court. Lord Justice Jonathan Parker and Lord Justice Brooke agreed.

1. Appeal in part. The appeal was dismissed on the loss-of-profits issue and allowed on the client-care issue.
2. Replacement of the original agreements. The trial judge was entitled to find that the individual franchise agreements had been impliedly terminated by consent on 1 April 2000 and replaced by an interim agreement between the company and Compensation Claims Service Limited. The changes to remuneration, the merger of territories, the parties’ conduct and their expectation of a later formal agreement supported that conclusion. It was not open to Compensation Claims Service Limited to argue that no contractual relationship existed between it and the company.
3. Duration and termination. The duration of the interim agreement was a matter of construction and implication. It was tenable to imply a term that, so far as soliciting and engaging new clients was concerned, the agreement lasted until the proposed formal agreement was accepted or rejected. The Court of Appeal would not interfere with that conclusion, reached by the judge who had heard the evidence. Failure to agree new terms would not, without more, automatically terminate an existing contractual commitment.
4. Continuing client care. The obligation to solicit and engage new clients was distinct from the obligation to provide continuing care to existing clients. The operating manual and the franchise agreements, read as a whole, imposed a binding obligation to provide client care during the life of each claim. The use of the word should in some provisions did not reduce them to non-contractual targets.
5. The client’s terms created an obligation on Compensation Claims Service Limited to provide the local specialist’s services throughout the claim. That obligation, incorporated into the interim agreement, survived termination of the franchise relationship for unfinished claims. The franchisees therefore had to credit Compensation Claims Service Limited with the cost of providing that service in substitution. Judgment was entered for Compensation Claims Service Limited on paragraph 21(2) of the Re-amended Defence and Counterclaim against all four claimants, with damages to be assessed.

• Court of Appeal (Civil Division): on appeal from the Queen’s Bench Division, dismissed the appeal concerning loss of profits and allowed the appeal concerning continuing client care: [2003] EWCA Civ 1108.
• Queen’s Bench Division: Judge Geddes, sitting as a Judge of the High Court, gave judgment for the claimants, directed an assessment of damages, and dismissed the counterclaim, while indicating that properly incurred client-care costs could be deducted from sums due.