Proforce Recruit Ltd v The Rugby Group Ltd

At an interlocutory application for strike out or summary judgment, a claim should proceed to trial where its success depends on genuinely arguable issues of contractual meaning and evidence requiring findings of fact. An undefined contractual expression with no obvious natural and ordinary meaning must be construed in the context of the agreement as a whole and the surrounding circumstances. Pre-contract negotiations are ordinarily excluded from the background used for interpretation, but that exclusion does not necessarily bar evidence that the parties negotiated an agreed meaning for ambiguous words or used them as shorthand for a shared meaning incorporated into the contract. An entire agreement clause may exclude material used to add terms or create a collateral contract without necessarily excluding material used to interpret an existing term. The appeal was allowed and the claim restored for trial.

ProForce supplied labour and cleaning services to Rugby under a written agreement dated 31 July 2001. The agreement stated that ProForce would hold preferred supplier status. ProForce alleged that this created a right of first refusal for additional labour requirements and claimed damages when Rugby used other agencies.

The Senior Master dismissed Rugby’s applications under the CPR for strike out or summary judgment. Field J allowed Rugby’s appeal, ruled that the pre-contract evidence was inadmissible, and struck out and dismissed ProForce’s claim. The Court of Appeal considered whether the meaning of preferred supplier status and the admissibility of pre-contract material raised issues with a real prospect of success requiring a trial.

Appeal allowed unanimously. The Court of Appeal restored Master Turner’s order, holding that ProForce’s claim should not have been struck out or dismissed summarily.

1. The court had to proceed at the interim stage on the basis that ProForce’s allegations could be proved. The disputed construction and admissibility issues could not properly be resolved without factual findings. A trial was therefore required.
2. Mummery LJ held that preferred supplier status was undefined and had no obvious natural and ordinary meaning. Its meaning had to be considered in the context of the agreement as a whole and the surrounding circumstances. It was reasonably arguable that the evidence could establish an agreed meaning or shared understanding giving ProForce a right of first refusal.
3. The ordinary rule stated in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 excludes pre-contract negotiations and subjective declarations of intent from the background used for interpretation. Mummery LJ held that the authorities did not completely rule out the evidence relied on. Arden LJ considered it reasonably arguable that evidence could identify a meaning effectively incorporated into ambiguous contractual words. The court made no final ruling on the ultimate admissibility of the evidence.
4. There was a reasonably arguable distinction under clause 9.2 between using prior material to add terms or establish a collateral contract, and using it to ascertain the meaning of an existing term. Arden LJ also identified an alternative arguable case based on a binding representation, applying the principle in De Tchihatchef v The ‘Salerni’ Coupling Limited [1932] 1 Ch 330.
5. The case was to proceed to trial, with the relevant factual and evidential issues determined at first instance. The parties were directed to agree the consequential order, including costs, or make written submissions if agreement proved impossible.

• Court of Appeal (Civil Division): Allowed ProForce’s appeal and restored the Senior Master’s order.
• High Court, Queen’s Bench Division: Field J allowed Rugby’s appeal from the Senior Master on 2 March 2005, struck out and dismissed ProForce’s claim, and made a costs order. The judgment is identified as [2005] EWCA 698.
• Senior Master: Master Turner dismissed Rugby’s applications for strike out or summary judgment on 12 November 2004.