This article looks at the case of First Personnel Services Limited and Halfords Limited, 2016.
The High Court recently decided a dispute relating to the arrangements, and their termination, for the supply of temporary workers by First Personnel to Halfords, the well-known cycling and motor retailer. The parties ended up in an eleven day trial arguing over the interpretation of their contract and the payment of transfer and introduction fees of around £490,000. The parties engaged in a legal case lasting over two years and presumably incurred substantial legal fees, ultimately leading to a judgment spanning 112 pages which is recommended reading for recruitment agencies touched by the same facts. This article considers the lessons to be learned from their dispute when drafting and administering your contracts, managing your expectations and how you increase your chances of recovering debts from a party able to pay.
First Personnel supplied temporary workers to Halfords from the mid-1980s until December 2011. During this long relationship there had been occasional discussion between the parties as to the rates at which workers would be supplied. However, and following a tender, Halfords decided to terminate this long standing relationship and awarded the contract for the supply of workers to another company. By reason of the change, most of the workers who had been employed by First Personnel were transferred over to the new agency. First Personnel claimed that it was entitled under its contract with Halfords to the payment of transfer or introduction fees.
Halfords disputed its liability to pay, and suggested that the contractual fees did not apply in the circumstances, but that if they did apply (1) they were not incorporated as they were unusual and onerous (2) they were unenforceable under Regulation 10 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003, and (3) they were void for uncertainty. The Court therefore had to (1) decide how to properly construe the contract between the parties, and (2) decide whether any parts of the contract were unenforceable.
The Court was not assisted by how the contract had been written. Halfords attacked the clauses relied upon by First Personnel as being ambiguous in that they could be construed in numerous ways. They also argued that certain clauses were onerous and unusual and were not incorporated into the contract because they had not been sufficiently drawn to their attention. They argued that the print on the contract document was small, and on some copies blurred. There was also unclear and misleading terminology, incomplete and unintelligible sentences and clauses, together with unclear syntax and structure. Halfords argued that senior staff at First Personnel were not clear as to the relevant terms themselves, as illustrated through incorrect invoicing.
First Personnel argued that there was nothing uncertain about the provisions concerned, when set in the context of the contract as a whole, the facts and circumstances known to the parties and commercial common sense.
The Court commented in relation to the contract conditions that they 'are not well drafted. They are badly set out and structured, ungrammatical, and the syntax is poor. However, parties are not to be deprived of the benefit of their agreements because the manner in which they have chosen to express themselves would not pass muster as an exercise in English composition.' The Court kept firmly in mind the observation of Lord Hoffman when he warned of the dangers of giving 'too little weight to the actual language and background and [relying] unduly upon the expressions of judges used in other cases dealing with different documents'. The Court considered the contractual provisions in their setting as between the parties, and decided that it was clear that both parties proceeded on the expectation that introduction and transfer fees would be payable in certain circumstances.
The Court had to determine what 'introduction' meant in these circumstances and decided that by setting in motion the retendering process, this led to the transfer of workers to the new agency, so that there was an introduction for the purposes of the contract. On the question of notice of the potential liability, the Court decided that the liability was not hidden from Halfords, a substantial organisation with the resources to devote to consideration of the terms on which it dealt with suppliers. It helped too that the liability clause appeared on the front page of the conditions and evidence was presented which suggested that Halfords were aware of the clause from emails discussing the conditions, and that the terms were brought to Halfords' attention over a long course of dealing. It also assisted that the practice of charging transfer fees is well established in the employment business industry, a fact demonstrated by the fact that the Conduct of Employment Agencies and Employment Businesses Regulations 2003 specifically intervene to strike a balance between the protection of legitimate interests of employment organisations and the need for flexibility of movement of staff and suppliers in the employment market.
The life of a disputed contract can be very similar to that of a relationship which ends in divorce. There begins a courtship and flirtation phase, where the parties dance around the possibility that they might work together. Often this phase will be through a tender process. There is an excited exchange of needs and solutions, and a choice is made. An engagement follows, where the parties negotiate and set down in writing the terms of the contract they will have between them. Often there is substantial activity around this phase, which results in substantial information being generated both in writing and from discussions. Then there is the marriage - the signing of the contracts and delivery of what has been agreed. Positivity in this phase of the relationship sometimes frustrates a realistic examination between the parties as to what will happen if their union leads to a divorce. Often it is only at the stage of dissolution that a magnifying glass falls upon each party's understanding of their contract and all of the circumstances of their particular relationship. It appears from this case that Halfords did not expect that they would face a substantial liability for wishing to change supplier after a tender process. Akin to a divorce, they could not exit their old relationship without first dealing with their obligations.
How you draft your contracts is therefore vital. Clear and unambiguous drafting with expectations simply and neatly set down will greatly assist in any claim for recovery of fees or a stated liability due following the termination of a contractual relationship.
How you manage your contracts through their lifespan is equally vital. Many contracts come to life in a spirit of excitement only to end up in the back of filing cabinet, or stored in a data base. Consider how you store your contracts, and what information you will retain with them. If there have been substantial negotiations through meetings and discussions, how will you log what you consider has been discussed? Contemporaneous minutes of meetings and discussions can be a useful record, with dates and times recorded for future reference. So often in a dispute it is hard for litigation lawyers to piece together the factual background, as information has walked out of the door with departing members of staff or as a result of poor record keeping.
Have all of your expectations been properly addressed in the contract? Is anything left unsaid? Have you considered the termination provisions carefully? This is not just a literal consideration of the terms, but a reality check too. How will it actually work in practice? Consider running through dispute scenarios with your advisors so that you can test whether your terms fit with your expectations, and what has been discussed within the contract set up phase.
The recovery of debts arising from a contractual obligation are far easier to run as cases where the contractual provision for those debts to fall due is written clearly and without ambiguity. If ensuring the payment of the debt is an important outcome for your business, then some time and money spent at the drafting stage and through a contract management resource could save time, money and stress where you end up at the end of a contractual relationship.