TJH And Sons Consultancy Ltd v CPP Group Plc

A reference to another document’s calculation principles does not, without clear language, import a general discretion to withhold a contractual fee. The court must first determine the scope of incorporation and then read the incorporated terms into the host contract, excluding provisions that are inconsistent or insensible in that context. Contractual meaning is assessed objectively, with the natural and ordinary language carrying primary weight. Commercial common sense cannot retrospectively justify departing from clear wording, and subjective intentions are disregarded.

TJH, a consultancy company controlled by Mr Haig, entered into a consultancy agreement with CPP after Mr Haig moved from employment with CPP to consultancy work. The agreement provided for a daily fee and additional annual fees, with calculation by reference to the principles of CPP’s Regional Director’s Annual Bonus Plan.

CPP withheld the additional fees claimed for 2012 and 2013, relying on alleged group financial difficulties and a discretion to withhold payment. HHJ Gosnell held that CPP had that discretion, but also calculated the sums that would be payable if that interpretation were wrong. TJH appealed on the construction of clause 5.1(a) and the alternative calculation.

1. Appeal allowed. Lord Justice Lewison gave the judgment, with which Lord Justice Elias agreed. Once the additional fee had been calculated by applying the relevant principles of the Regional Directors’ Annual Bonus Plan, CPP had no general discretion to withhold payment. The question whether CPP had exercised such a discretion wrongly therefore did not arise.
2. The court applied the objective approach to contractual interpretation stated in Arnold v Britton [2015] UKSC 36. The natural and ordinary meaning of the words, the other contractual provisions and the purpose of the agreement were important. Commercial common sense could not be invoked retrospectively to overcome the contractual language, and subjective evidence of intention was not relevant. The judge had given excessive weight to CPP witnesses’ views of what CPP intended to achieve and to selective correspondence.
3. For incorporation by reference, the court adopted the two-stage approach in Tradigrain SA v King Diamond Marine Ltd [2000] 2 All ER (Comm) 542: construe the incorporating clause to determine its width, then read the incorporated wording into the host contract and reject terms that are inconsistent or insensible in their new context.
4. Clause 5.1(a) made the additional fee subject to the level of service and its impact on regional performance. It referred to an additional fee, not a bonus, and required a calculation by reference to specified principles. The background documents’ references to group performance were therefore excluded. They did not establish a general discretion to withhold payment. The judge also erred by treating TJH’s non-employee status as the basis for identifying inconsistent bonus-plan terms, rather than examining the consultancy agreement itself. Several contractual provisions were inconsistent with an intention to replicate employee status.
5. The quality-of-earnings assessment was nevertheless an applicable regional calculation principle. The judge was entitled to accept CPP’s evidence that the regional performance target had been missed. His alternative reasoning was sufficiently explained; a judge need not give elaborate reasons on a point that does not arise, provided the alternative conclusion and its basis are stated. TJH was awarded £72,600 for 2012 and 2013. The award to CPP on the counterclaim stood.

1. Court of Appeal (Civil Division): In [2017] EWCA Civ 46, allowed TJH’s appeal and awarded £72,600.
2. Leeds Combined Court, Queen’s Bench Division: HHJ Gosnell held that CPP had a discretion to decline payment, while stating the alternative sums that would have been awarded if that interpretation were wrong.