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Brady v Morgan

COURT OF APPEAL (CIVIL DIVISION)

HEARING-DATES: 25 JULY 2000

25 JULY 2000

COUNSEL:
I McCulloch for the Appellant; The Respondent did not appear and was not represented

PANEL: SEDLEL LJ, LADY HALE J

JUDGMENTBY-1: SEDLEY LJ

JUDGMENT-1:
SEDLEY LJ: [1] This appeal arises out of the transfer of a taxi business which the defendant and respondent, Mr Morgan, ran in Towyn. Initially Mr Morgan had a Hackney Carriage licence which enabled him to ply for hire, but he changed that for a Private Hire licence because, as the judge below found, most of his business was, or turned out to be, prebooked. For reasons that I will return to, these elementary facts are the most significant background facts in the case.

[2] Late in 1996, for reasons that it is not necessary to go into, Mr Morgan sold the taxi business to Mrs Brady, the claimant and now the appellant, for the sum of £5,000. The consideration included the trading name, which (for reasons which do not appear) was Pancho's, and any goodwill together with "all outstanding bookings" and two vehicles, a mini-coach and a Volvo saloon. The contract drawn up by Mr Morgan -- and this is perhaps the one further important fact of the case -- included a restrictive covenant in the following terms:

"The above Richard John Morgan also agrees not to own or otherwise engage in any Taxi or Private Hire business within a radius of 25 miles of Towyn, Gwynedd within the period of 2 years from the date of this Agreement without the express agreement of the above Sylvia Brady or her agent."

[3] Pausing here, such a covenant is normal, indeed, essential, if it is the business and not just its assets which is to be sold. Thus Mrs Brady was, for her part, to hand over £5,000 and Mr Morgan, in return, was going to part with the equipment, the contacts and, within fair limits of time and space, the activity which together made up the business.

[4] It transpired, however, that Mr Morgan had kept from Mrs Brady a contract which he had with the local education authority to carry children to and from school. He went on performing that contract using a vehicle which he had retained along with his private hire licence, although it was not, it appears, necessary in law for the school bus work that he should have a private hire licence.

[5] The school bus contract was not readily transferable because the local education authority naturally had to assure itself that any contractor was a wholly trustworthy individual. On the other hand, there was nothing to prevent Mrs Brady seeking the local education authority's approval of her as a successor to Mr Morgan had he given up the contract work and passed it to her as part of the deal. Mrs Brady's case was that he should have given it up pursuant to his contract and, in particular, to the restrictive covenant. She therefore sued him in the county court for an account of the money he had earned since the transfer and which she averred that she should have earned or, at least, have had the opportunity of earning.

[6] In the Aberystwyth County Court Mr RecOrd Hughes QC found against Mrs Brady on the ground that the covenant did not, on its proper construction, include the school transport work. He considered that as a matter purely of language the phrase 'private hire business' meant business for which a private hire licence was legally needed. It was common ground that this did not include the school transport. Had he needed to consider the extrinsic evidence of the parties' intentions, the Recorder would not have held that, in any event, it widened this meaning to include school transport.

[7] Before I turn to the question of whether the Recorder was right or wrong about this, it is necessary to say a word about what has happened since the Recorder's decision was given on 10 November 1998. Mrs Brady's solicitor applied out of time for permission to appeal, giving reasons for the delay which Sir Anthony McCowan, sitting as a single Lord Justice, considered sufficient for the enlargement of time. In the result, notice of appeal was ultimately given on 5 March 1999 and was received by Mr Morgan's solicitors four days later. A year after that, in March 2000, Mr Morgan's solicitors applied to come off the record because they had been unable to locate their client in order to obtain instructions and were without funds. They had asked, it appears, to be put on notice of any application for permission to appeal out of time but had not received such notice. As soon as the notice of appeal was received, an enlargement of time and permission having been given, they had tried to contact their client; but he had moved without, it seems, leaving a forwarding address. All their efforts to find him in the subsequent twelve months had failed. In consequence, their application to come off the record was granted by Deputy Master Joseph on 5 April 2000. Since then the court's own attempts to effect service on Mr Morgan by post have been equally unsuccessful. He was called this morning at the start of the present hearing and did not respond.

[8] His former solicitors, as they now are, make the point to the court in correspondence that if they had been served within time, they might well have been able to alert their client and obtain instructions. It is open to this court, no doubt, to revoke an extension of time if justice so requires. But here there is a distinct oddity in Mr Morgan's sudden removal from his home in Towyn without leaving any means of tracing him, even to his own solicitors, and no reason to believe that an earlier notice of appeal would have found him or, if it had, would have kept him active and in touch with them. In the end, it seems to me that the best that we can do is to hear out the submissions made by Mr McCulloch on the appellant's behalf with a critical ear; and that we have done.

[9] Returning then to the appeal, it seems to me, having heard Mr McCulloch, that the Recorder has given the restrictive covenant an artificial and an incorrect meaning. This covenant was part of a contract by which Mr Morgan was to part with his taxi business to Mrs Brady in return for a payment. To continue to conduct part of the very business that he was supposed to be selling would, unless it was clearly excluded from the sale, be inconsistent with the deal. The self-evident purpose of the restriction was, in my view, the natural and legitimate one of preventing Mr Morgan, within a decent margin of time and place, from resuming the very business he had parted with. The natural and legitimate meaning to look for in the phrase "any taxi or private hire business" is, correspondingly, a comprehensive one. This, as it happens, is also in my judgment the ordinary meaning of the phrase. There is no warrant in my view (contrary though it is to that taken by the Recorder) for construing "private hire business" as a legal category derived from the licensing legislation. It is simply the counterpart of "taxi business". "Taxi business" signifies business obtained by plying for hire. "Private hire business" signifies business obtained by direct booking. It therefore plainly includes the school bus work.

[10] As it happens, everything in the evidence cited by the Recorder in his judgment points towards Mr Morgan himself having believed this to be what his own contract meant. The Recorder said, for example, at page 4C:

"He [that is Mr Morgan] also, curiously, retained his Private Hire Operator's Licence and that relating to the Sierra. I find it impossible to attribute any explanation to this other than that either he thought he needed to retain the licences to perform the schools contract or was contemplating dishonouring the terms of his agreement with Mrs Brady."

[11] But this is no more than corroboration of the natural meaning for which the covenant, in its contractual and factual context, is a complete foundation.

[12] It seems to me that this construction is arrived at without reference to the legislation and without any presumptions of law to assist it. The Recorder, however, reached his contrary conclusion, in part at least, by applying the contra proferentem principle in Mr Morgan's favour on the ground that it was Mrs Brady who was relying on the covenant and therefore proffering it to the court. Mr McCulloch, for whose submission we are most grateful, submits that in law the party proffering the covenant, or the contract, was Mr Morgan, since he was the author of the grant which fell to be construed, so that an opposite presumption, in his submission, ought to have been adopted.

[13] If one is being schematic, it is not altogether easy to decide where the presumption comes to rest where what is being construed is a restrictive covenant operating as a counterweight to rather than an integral element of the conveyance of a business. One might perhaps equally ask oneself whether caveat emptor also has a bearing. But the doubt that I entertained has been laid largely to rest by Mr McCulloch's citation of the judgment of the Privy Council delivered by Lord Mustill in the case of Tam v Bank of Credit and Commerce Hong Kong Limited (in liquidation) [1996] 2 Butterworth's Company Law Cases, page 69. Lord Mustill said at page 77:

"Moreover the basis of the contra proferentem principle is that a person who puts forward the wording of a proposed agreement may be assumed to have looked after his own interests, so that if the words leave room for doubt about whether he is intended to have a particular benefit, there is reason to suppose that he is not."

[14] That seems to me, with respect, to put its finger on the rationale of the contra proferentem rule. Applying it here to the contract written by Mr Morgan, it makes it clear that if there were problems which could not be solved without the application of the presumption, then it is against Mr Morgan and his interests that the covenant should be construed.

[15] So far as concerns the legislation, again I have reached my conclusion without reliance upon it. But I record as a further factor giving weight to his appeal Mr McCulloch's submission that far from excluding the work that Mr Morgan purported to retain, the statutory meaning of "private hire" tends to operate in Mrs Brady's favour. He has relied upon s 4(5) of the London Cab Act 19684 and s 80(1) of the Local Government Miscellaneous Provisions Act 1976. The former defines "private hire car" and the latter "private hire vehicle", each in terms which, though not identical, are fully capable, in Mr McCulloch's submission, of covering the school bus work. It may very well be so, and that would add a further string to his bow; but he has, in my judgment, already hit the mark with the opening submission on the straightforward meaning of this covenant read, as it has to be, in the context first of all of the contract, and secondly of the deal which the contract was to carry into affect.

[16] It follows inexorably that by continuing with the school transport contract Mr Morgan was breaking his own agreement. Whether it follows that Mrs Brady has lost what Mr Morgan has gained by the breach we cannot know. The defence has put it in issue and the issue must be remitted, as Mr McCulloch accepts, to the county court for trial, assuming that Mrs Brady considers that the elusive Mr Morgan is still worth powder and shot.

[17] What have to follow are two things: one is that the appeal on liability must be allowed; the other is that the order for Mrs Brady to pay Mr Morgan's costs on scale 2 must be reversed. Since Mr Morgan's solicitors have somehow quantified those costs at £13,067.90 inclusive of VAT this alone will have made the present appeal worth Mrs Brady's while.

JUDGMENTBY-2: LADY HALE J

JUDGMENT-2:
LADY HALE J: [18] I agree.

DISPOSITION:
Appeal allowed. Judgment below set aside and judgment to be entered for the appellant as claimant. Inquiry ordered into the damage, if any, suffered by the appellant by reason of the respondent's breach of covenant. Appellant to have her costs of this hearing and hearing below. Legal aid assessment of costs.

SOLICITORS:
Alwena, Jones & Harrison, Gwynedd