Case No: B2/2001/2832
Neutral Citation No [2002] EWCA Civ 1118
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CANTERBURY COUNTY COURT
(Mr Recorder Lobo)
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Friday 26th July 2002
Before :

LORD PHILLIPS OF WORTH MATRAVERS, MR
LORD JUSTICE MAY
and 
LORD JUSTICE LAWS

- - - - - - - - - - - - - - - - - - - - -
Between :

	AON RISK SERVICES (UK) LIMITED	Appellant	
	- and -		
	EDWARD JOHN MANSELL CHILD-VILLIERS	Respondent	

- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -

Miss C Gibaud (instructed by Aon Law Division) for the Appellant
Mr EJM Child-Villiers (Respondent) appeared in Person

- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court

Crown Copyright ©

Lord Justice May: 

This is the judgment of the Court:

1.	This is an appeal by the defendants, Aon Risk Services (UK) Ltd, against the decision and order of Mr Recorder Lobo given in the Canterbury County Court sitting at Tunbridge Wells dated 16th December 2001.  This was a reserved judgment following a trial over 3 days on the 10th, 11th and 12th September 2001.  The Recorder refused permission to appeal.  Permission to appeal was given on the papers by Mummery LJ on 14th January 2002.  

2.	The defendants are insurance brokers who took over the business of Bain Hogg Management Limited by whom the claimant, Mr Child-Villiers, was employed under a contract of employment whose terms were set out in a letter dated 18th April 1995.  His employment was terminated on 7th February 1999 when, so an Employment Tribunal subsequently decided, he was unfairly dismissed.  The circumstances of his dismissal are not central to the issue in these proceedings.

3.	In January and April 1998, the defendants were appointed by Rexam plc to manage its risk management and insurance broking requirements.  This was on terms that they would be paid a time-based fee.  Mr Child-Villiers claimed that his involvement in the defendants’ acquisition of the Rexam account entitled him to be paid a sales incentive bonus in accordance with paragraph 5 of his contract of employment.  The defendants denied this.  According to Mr Child-Villiers’ case summary, it was agreed, that if he was successful in his claim for a bonus under paragraph 5, he was entitled to an amount of £154,823 plus interest.

4.	The pleaded defence did not contain any reference to an allegation, which subsequently featured as part of the defendants’ case at trial, to the effect that Mr Child-Villiers’ terms of employment were supplemented with specific reference to the defendants’ dealings with Rexam by an oral agreement made over lunch on 26th September 1996 between Mr Child-Villiers and Mr McGloin, a managing director of  part of the defendant company.  According to Mr McGloin, the effect of the discussion was that Mr Child-Villiers would be paid a discretionary bonus out of a pot of money to be shared between the members of the defendants’ team who were involved in negotiating and tendering for the Rexam account.  The largest discretionary bonus paid to other members of the team was £15,000.  The defendants accepted that the agreement for which they contended entitled Mr Child-Villiers to a quantum meruit payment, which they said should not exceed £15,000.  They accepted in the alternative that he was entitled to a reasonable discretionary sum for services which he had undertaken for the defendants beyond the scope of his contract of employment.  They had offered him a discretionary payment of £15,000.

5.	The letter dated 18th April 1995 referred to a recent interview with Graham Garnsey and Giles Wood, and offered Mr Child-Villiers employment with Bain Hogg subject to satisfactory references.  The letter then set out terms and conditions of the offered appointment.  Under the heading “Duties”,  Mr Child-Villiers was to be employed as an “Account Executive within the Affinities & Personal Lines Division, based in our Premier Department within our Caterham office.”  The appointment was based at Caterham subject to a mobility clause contained in the Staff Handbook.  The starting salary was £45,000 per annum.

6.	Paragraph 5 was headed “Sales Incentive Bonus”.  It provided:

“An Incentive Bonus will be paid at the end of each year of employment at the under-noted threshold of New Business Acquisition at the rates indicated for terms subsequently agreed.” 

Thresholds of Net Retained Brokerage	Percentage of net retained
Or New Business acquisition for		brokerage based on New Business
Incentive Bonus Qualification:-		Acquisition for Incentive Bonus
						Calculation:-

£0.00    - £67,499				Nil
£67,500 - £99,999				33.3%
£100,000 - £149,999				45%
£150,000 +					To be agreed

7.	Mr Child-Villiers’ essential case was that he was instrumental in the defendants’ acquisition of the Rexam account so as to entitle him to a bonus payment under paragraph 5 of his terms of employment.  He described the factual basis of his claim as follows in his witness statement dated 12th April 2001:

“In about September 1994 my youngest son, Roddy, joined Rexam as the Director of Group Communications and as a member of the 12 man Group Management Committee, and thereafter I decided that it would be sensible if we were to try to tender for the Rexam insurances.  I therefore approached Graham Garnsey, the Director to whom I reported, to discuss how we should achieve this, and he and I agreed that he should approach our Corporate Division on my behalf.  

It is clear from my contract of employment that the purpose of my employment was that I should acquire new business, and I submit that there was no restriction in the contract as to the type of business I should acquire.  Indeed, Graham Garnsey told me, when I advised him of my contact with Rexam, that I should pursue the account.  Further, at a meeting with Jeremy Cary (who had succeeded Graham as the director to whom I reported) on 15th April 1998, after we had acquired the Rexam account, Jeremy commented that I would have shown a “dereliction of duty” if I had not pursued the account.

I further submit that there is no indication in my contract of employment that a bonus should be paid only with regard to “new clients” as opposed to “new business”.”
.

8.	The defendants’ essential first case was that, on its true construction, paragraph 5 did not apply to Mr Child-Villiers’ involvement in the acquisition of the Rexam account at all.  Their case was that he was employed, as the terms of his employment explicitly stated, to conduct private clients’ business at Caterham and that the sales incentive bonus related to the introduction of new private client insurance business for which substantial percentages of the net retained brokerage were appropriate as an incentive bonus.  The Rexam account was a quite different business of a large international corporate client. The account was acquired and the business conducted by the defendants’ separate corporate division.  The acquisition was not individual to Mr Child-Villiers, but a sustained composite effort by a team of a dozen people or more.  Those employed in the corporate division did not have sales incentive bonuses of the kind in Mr Child-Villiers’ contract of employment, but discretionary bonuses which were normally comparatively modest in comparison with that claimed by Mr Child-Villiers in these proceedings.  This was not a “New Business Acquisition”, because Rexam was an existing client.  The inapplicability of the paragraph was further illustrated by the fact that it referred to “Net Retained Brokerage”, when the Rexam account was not remunerated by brokerage at all, but by a fee.

9.	As we have said, there was evidence in the case over 3 days in September 2001.  Mr Child-Villiers gave evidence and was cross-examined.  A significant part of the evidence called on behalf of the defendants concerned the background of their business. Much of this evidence was admissible in accordance with the principles in Prenn v. Simmonds [1971] 1 WLR 1381 as placing the acquisition of the Rexam account and paragraph 5 of Mr Child-Villiers’ employment contract in their background factual context.

10.	We now turn to the Recorder’s judgment.  He first introduced the circumstances of the case with a brief summary of each parties’ case.  He then set out the relevant terms of the Contract of Employment.  He referred to the speech of Lord Hoffman in Investors’ Compensation Scheme v. West Bromwich Building Society  [1998] 1 WLR 896 and set out principles to which Lord Hoffman referred.  He referred in three short paragraphs to the defendants’ evidential distinction between their Personal Lines Division and their Corporate Division.  He then said:

“The defendants have produced a number of witnesses who state that in their experience the contract of JCV was a contract drawn up and specifically limited to acquiring private work only and has no place in the acquisition of corporate work.

None of these witnesses were involved in drawing up JCV’s contract.  Collectively I take their evidence to be that “in our experience of the insurance industry there is a difference between the organisation of corporate work and private work, and contracts of employment should reflect this difference”.  I do not doubt that over time different methods of working and remuneration have evolved in the private and corporate sides of the insurance broking industry, and procedures and contracts of employment reflect these differences.

In this situation I find as a fact that the Contract of Employment of [JCV] does not reflect the differences which the defendants say it does.  JCV  has seen an opportunity no doubt assisted by his son Roddy, and the defendants have been so keen to pursue that opportunity and acquire the account of Rexam that they have closed their minds as to how and on what basis JCV would be working.”

11.	The Recorder said that it was clear that the defendants appreciated that there was a problem about rewarding success for obtaining substantial clients.

12.	The Recorder then referred to the lunch meeting between Mr Child-Villiers and Mr McGloin on 26th September 1996.  He said this:

“It is suggested by the defendants that the terms and conditions of JCV’s contract were varied at a lunch meeting between JCV and Mr McGloin on 26th September 1996.

I find as a fact that this lunch agreement did not vary the terms of JCV’s contract.  I find as a fact that Mr McGloin was more interested in acquiring a contact at Rexam than in specifying a new contractual agreement.  There was no agreement between the parties.”

13.	The Recorder subsequently altered the terms of this last paragraph of his judgment, in circumstances which I shall later describe, so that it read:

“I find as a fact that this lunch meeting did not vary the terms of JCV’s contract, nor formed the basis of remuneration for JCV.  I find as a fact that Mr McGloin …”

14.	After reference to a meeting on 25th September 1997, the Recorder then said:

“I now apply the principles to which I have been referred to the contract of JCV.

I find his Contract of Employment is based in the Private Line Division, which deals with the insurance needs of  individuals of net worth.”  

15.	He described Mr Child-Villiers’ experience and skills.  He then said:

“I find as a fact that the contract of JCV does not exclude the acquisition of certain types of insurance work.  And indeed Mr Garnsey said that one was exhorted to get all the business.  JCV himself said that at Frizzell’s he had been a “catch it all broker”, which I take to imply nothing too big or too small.  

His terms of remuneration allow for a salary and for bonus if a certain level of Net Retained Brokerage is achieved.  I find as a fact that any bonus on Net Retained Brokerage in excess of £150,000 is to be agreed, shows that it was contemplated.  I find as a fact that the fact that JCV never passed the first threshold to obtain a bonus does not preclude him from obtaining one for work introduced.

I also find as a fact that the acquisition of the Rexam account was the acquisition of a “new client”, and it was not an extension of a previously acquired account.”

16.	There follows a paragraph about what a reasonable man bringing common sense principles to the situation would think and be aware of.  The Recorder then reached his conclusion as follows:

“For the above reasons I find on a balance of probabilities that the claimant is owed a sum of £154,823 by way of a sales Incentive Bonus under paragraph 5 of his employment contract dated 18th April 1995 in respect of work he did on a tender for the business of the Rexam Group.”

17.	The next paragraph of the original version of the Recorder’s judgment read as follows:

“I now come to the question of the level of involvement of JCV in the defendants’ acquisition of the Rexam account and the task of quantifying it.”

18.	The Recorder referred quite shortly to evidence called on behalf of the defendants to the effect that Mr Child-Villiers’ contribution to the corporate effort to acquire the Rexam account was not great in comparison with a large amount of work undertaken by others.  He said that this had to be seen in the light of memoranda and letters written by the defence witnesses in 1996, 1997 and 1998.  He summarised the contents of a series of documents, from which he concluded as follows:

“Taking the above evidence into account I find on a balance of probabilities that the contribution of JCV to the acquisition of the Rexam account was far greater than the defendants and Mr McGloin suggest in their evidence in this trial.  I prefer to accept the view of JCV that evidence of his real worth is contained in the memos and letters to which I have referred.”

19.	The Recorder said that Mr Child-Villiers’ evidence was clear and unambiguous and he preferred it to the evidence of the defendants’ witnesses and particularly Mr McGloin, whom he described as “a sad and unconvincing witness.”  Mr Child-Villiers’ contribution was vital and without it the others would not have succeeded.  He then said:

“I therefore award a quantum meruit to JCV of £51,607 being reasonable remuneration proportionate to his contribution in acquiring the Rexam contract.”

20.	Apart from other problems with this judgment, in its unamended version the Recorder found that the claimant was entitled both to an incentive bonus of £154,823 and to a quantum meruit payment of £51,607.  This seems to us to display a fundamental misunderstanding.  The claimant did not claim a quantum meruit.  Quantum meruit only came into the case as part of the defendants’ case as an alternative to the claim for an incentive bonus.  On no view was Mr Child-Villiers entitled to both a bonus under paragraph 5 and a quantum meruit.  It is right to point out that the order of the court as drawn up on 26th November 2001 gave judgment only for the £154,823 with interest, but this does not alter the fact that the unamended judgment also awarded the claimant a quantum meruit.  

21.	The Recorder amended  his judgment on either the 10th or 12th December 2001.  On 12th December 2001 the defendants applied for permission to appeal, which the Recorder refused.  We are told by Miss Gibaud that the Recorder amended his judgment as a result of submissions that were made in support of the application for permission to appeal.  The main amendments were that in place of the paragraph:

“I now come to the question of the level of involvement of JCV in the defendants’ acquisition of the Rexam account and the task of quantifying it.”

22.	which the Recorder deleted, he added in manuscript this paragraph:

“If I am found to be wrong in respect of the contractual argument I now turn to the question of the level of involvement of JCV in the defendants’ acquisition of the Rexam account and the task of quantifying it – the quantum meruit.”

23.	Then towards the end of the judgment and shortly before the Recorder awarded a quantum meruit of £51,607, he added this:

“Thus I find that there is an equal one third contribution to the success of the bid from “JCV”, “the Management”, and “the engine room contribution of Mr Jeal and Miss Durkin.”

24.	These additions were, we think, obviously designed to address criticism of the judgment in its original form, advanced in support of the application for permission to appeal, to the effect (a) that the Recorder had demonstrated a serious misunderstanding by apparently awarding both an incentive bonus and a quantum meruit, and (b) that the quantum meruit of £51,607 was reached without any reasoning at all.  In our view, both these criticisms of the original judgment were justified.  We also accept the submission on behalf of the defendants that the one third explanation of the assessment demonstrated another error. £51,607 was one third of the bonus amount of £154,823. Yet, if the claimant was entitled to a quantum meruit, the bonus payment, to which in those circumstances he was necessarily not entitled, was not a legitimate starting point for assessing the quantum meruit.

25.	It seems to us to be questionable whether the Recorder was entitled to amend the terms of his judgment in the way in which he did.  It is true that, in Flannery v. Halifax Estate Agencies Limited [2000] 1 WLR 377, it was suggested that a respondent to an application for permission to appeal on the ground of lack of reasons should consider inviting the judge to give his reasons, and his explanation as to why they were not set out in the judgment, in an affidavit for use at the leave hearing and at the hearing if leave be granted.  In English v. Emery Reimbold & Strick Limited and Others, 30th April 2002, Lord Phillips MR, giving the judgment of the court, said at paragraph 24 that the court was not greatly attracted by the suggestion that a judge who has given inadequate reasons should be invited to have a second bite of the cherry.  In paragraph 25, there were recommendations as to the course which might be followed which included:

“If an application for permission to appeal on the ground lack of reasons is made to the trial judge, the judge should consider whether his judgment is defective for lack of reasons, adjourning for that purpose should he find this necessary.  If he concludes that it is, he should set out to remedy the defect by the provision of additional reasons refusing permission to appeal on the basis that he has adopted that course.”

26.	In the present case, it seems to us unnecessary to decide whether the Recorder was strictly entitled to do what he did.  We think that the first objection to which we have referred, that is that he awarded both an incentive bonus and a quantum meruit, was in truth irremediable. The lack of understanding which it displayed could scarcely be dispelled.

27.	The criticisms of the judgment to which we have so far referred feature as grounds of appeal before this court.  In addition there are numerous other grounds of appeal, of which the more important ones may be summarised as follows:

(a)	The main issue before the court was the construction of a written contract of employment in the light of the admissible background factual context.

(b)	The Recorder did not construe the contract at all, but made a series of findings of fact.  Even if some of the findings of fact might be read as decisions on the construction of paragraph 5, there was no proper exercise of construction of the paragraph as a whole.

(c)	The Recorder made no proper analysis of the background factual context at all but summarised in a single sentence the evidence given by the defendants’ witnesses over two days. 

(d)	In so far as the Recorder might be said to have construed the contract, his construction was wrong.

(e)	The Recorder misunderstood the nature of the defendants’ case that there was an oral agreement between the claimant and Mr McGloin on 26th September 1996.  It was common ground that there was a meeting and conversation on that day.  It was the defendants’ contention that the evidence established that there was an agreement that the claimant would be entitled to a discretionary bonus, if the team won the Rexam account.  Alternatively, if no binding agreement was reached, he was entitled to a quantum meruit for work done at the defendants’ request beyond the terms of his contract of employment.  It was not the defendants’ case that there had been a variation in the employment contract. 

(f)	The Recorder gave inadequate reasons for rejecting the evidence of Mr McGloin to this effect.

(g)	The Recorder’s factual finding of the extent of Mr Child-Villiers’ contribution to the team effort was wrong and depended in part on an erroneous view of Mr McGloin’s evidence.

(h)	The Recorder’s assessment of Mr Child-Villiers’ quantum meruit entitlement was wrong.  It should not have exceeded £15,000.

28.	Miss Gibaud made detailed written submissions in support of these summary grounds.  Mr Child-Villiers, who has appeared in person, has made written submissions to the effect that the Recorder’s judgment was correct and should be upheld.  

29.	The grounds of appeal rely in part on contentions that the Recorder failed to give adequate reasons for his decision.  In English v. Reimbold, this court considered the earlier decision of Flannery in which Henry LJ had said that the general duty to give reasons is a function of due process and therefore justice.  Fairness requires that the parties, especially the losing party, should be left in no doubt why they have won or lost.  The requirement to give reasons also concentrates the mind.  The extent of the duty depends on the subject matter.  Where there is a straightforward factual dispute whose resolution depends simply on which witness is telling the truth about events which he claims to recall, it is likely to be enough for the judge (having no doubt summarised the evidence) to indicate simply that he believes one witness rather than the other.  There may be nothing else to say.  Where the dispute involves something in the nature of an intellectual exchange, with reasons and analysis advanced on either side, the judge must enter into the issues canvassed before him and explain why he prefers one case over the other.  

30.	In the English case, Lord Phillips MR referred to Strasbourg jurisprudence to similar effect.  He said at paragraph 12, that Article 6 of the ECHR requires that a judgment contains reasons that are sufficient to demonstrate that the essential issues that have been raised by the parties have been addressed by the domestic court and how those issues have been resolved.  The extent of the reasoning that the Strasbourg court requires does not go any further than that which is required under our domestic law.  By reference to common law, Lord Phillips said at paragraph 18:

“A judge cannot be said to have done his duty if it is only after permission to appeal has been given and the appeal has run its course that the court is able to conclude that the reasons for the decision are sufficiently apparent to enable the appeal court to uphold the judgment.”

And at paragraph 19:

“It follows that, if the appellate process is to work satisfactorily, the judgment must enable the appellate court to understand why the judge reached his decision.  This does not mean that every factor which weighed with the judge in his appraisal of the evidence has to be identified and explained but the issues the resolution of which is vital to the judge’s conclusion should be identified and the manner in which he resolved them explained.”

31.	In our judgment, there are substantial deficiencies in the Recorder’s judgment. We would identify the main deficiencies as follows:

(1)	There is, we fear, a general failure to understand the main structure of what had to be decided.  This is exhibited by (a) the original decision to award both the incentive bonus and the quantum meruit and (b) the fact that the Recorder’s decision on the issue was expressed erroneously as a series of decisions of fact, with the eventual decision expressed to be on the balance of probabilities.  There were, of course, factual decisions to be taken on the way for which the appropriate standard of proof was the balance of probabilities.  But the main decision was one of construction, not of fact.

(2)	The Recorder’s decision on what ought to have been the construction of paragraph 5 of the Contract of Employment was, in our view, flawed.  Even if this court were able to view what were expressed as decisions of fact as in substance elements of a process of construction, that process was not adequate and did not result in a proper decision as to the meaning of the clause. 

(3)	The process of construction could not properly be undertaken without a structured consideration of the background factual context.  There is no adequate consideration of this kind in the judgment.  It need not have been unduly long.  But it was necessary to address central details of the evidence. We agree that a single sentence composite summary of two days’ evidence did not constitute adequate reasons. 

(4)	Similarly, the decision which rejected a supplemental agreement on 26th September 1996 was inadequately reasoned.  Mr McGloin and Mr Child-Villiers had both given evidence  about this and the Recorder’s decision amounted to no more than a bare statement of the result.

(5)	The reasoning which resulted in a quantum meruit assessment of £51,607 was flawed.  Even if it were correct that Mr Child-Villiers made a contribution equivalent to one third of the corporate effort, an assessment based on one third of what he would have been paid as an incentive bonus if it were payable – which the quantum meruit exercise necessarily supposed it was not – has no basis in logic.

32.	In these circumstances, we consider that the Recorder’s decisions cannot stand.  We had at first thought that it would be necessary to have a re-trial before a different judge.  But this would have been highly unsatisfactory for the parties, both of whom urged this court to reconsider and decide the substantive issues.  We are persuaded that this can and should be done.  It requires an examination of evidence which the Recorder’s judgment did not address. 

33.	Mr Child-Villiers’ employment contract was with Bain Hogg Management Limited.  The contract was soon inherited by the defendants, but there appears to have been no substantial difference between the relevant businesses of Bain Hogg and the defendants.  

34.	One of those who interviewed Mr Child-Villiers was Mr Graham Garnsey, who gave evidence.  His witness statement was in the form of a letter dated 5th  May 1998 to Mr Child-Villiers.  He wrote that “the expression “New Business acquisition” was intended to encompass the introduction/influence of new business which resulted in its acquisition by the Company.  It was not envisaged that your Incentive Bonus would be reduced or negated by the involvement of colleagues …”.  It appeared to Mr Garnsey that Mr Child-Villiers’ involvement was a major factor in securing the Rexam account.  

35.	Mr Garnsey was the Director of the Premier Department within the Personal Lines Division.  His evidence included that the Private Client Division provided a source of specialist advice to wealthy individuals.  This included arranging insurance for members of the Country Landowners’ Association for country homes, estates and farms.  Mr Child-Villiers was recruited specifically to build up this business.  He had been for more than 20 years a broker with Frizzells.  They had been brokers for the Country Landowners’ Association, and Mr Child-Villiers had a lot of contacts in that association.  He brought a lot of business from them to the defendants.  The day to day tasks of an account executive involved looking after individual personal clients or potential clients. His main areas of business were Kent, Surrey and Sussex.  Mr Garnsey gave an example of what in this class of business would be regarded as new business. If a client already insured a country house through the defendants, the additional insurance of a yacht in the South of France would be termed new business.

36.	Mr Garnsey was referred to a three page document with his initials on it which we were told antedated Mr Child-Villiers’ contract of employment.  It was headed with his name and set out the aims of his then future employment.  There is reference to the Country Landowners’ Association and other related organisations.  He is described as having an area of responsibility in Kent, Sussex and Surrey.  He worked from home near Canterbury.  He was responsible for all client contact including new business, renewals and adjustments.  This meant that he was the sole person to whom clients would turn regarding all insurance matters.  The net retained brokerage of his business was £414,000.  The average brokerage per case was £500.  The number of his clients was 820.  The document stated that Mr Child-Villiers was probably the most influential member of Frizzells regarding the Country Landowners’ Association account and that his acquisition was essential to Bain Hogg winning that account.  There is a table with figures for an incentive bonus similar to, but not identical with, that eventually included in his contract.  There are calculations of projected income from his employment using an estimated net retained brokerage of £500 per client.  It is, in our view, entirely clear from this document that the incentive bonus arrangements which were included in his contract of employment were geared, as you would expect, to the kind of private client business which the document and the subsequent contract of employment describe.  Mr Carey, the Managing Director of the defendants’ Private Client Division, gave evidence to similar effect.  He said that the Caterham office of Bain Hogg, and subsequently of the defendants, had never conducted commercial business.  Its sole raison d’être was to serve country estates and private clients.  Mr Child-Villiers was specifically hired to build a portfolio of country estates in the South East as he had at Frizzells.

37.	There was much evidence describing the structure of the different divisions of the defendants’ business. There was a clear difference between the Personal Lines Division and the Corporate Division, which was concerned with acquiring the Rexam account.  Mr Carey described in his witness statement how the Private Client Division operated and gave evidence directed to explaining the incentive bonus structure in paragraph 5 of Mr Child-Villiers’ contract of employment.  In his oral evidence, he explained that the marketing strategy for private clients was largely built around personal relationships and networking with professional intermediaries and land agents.  On the corporate side, there was a sort of military precision about getting new business.  Acquiring the account of a substantial quoted company could start with knowledge of the date for the expiry of their existing insurance arrangements.  He was asked how this would be known and answered:

“Through the prospecting that the new business executives will have undertaken over a period of time, building relationships with the clients.  This will be information which they will have built up over a period of time.  But knowing that there is a review likely on a given date in two years’ time, there will be a whole process of courting that prospective client over that period of time.  It is a much more complex pitching process, given the breadth of resource that needs to be brought in.  If you are quoting on a widget manufacturer, then it is important that you have appropriate resources that understand widget manufacturers.”

38.	He was then asked whether those resources were sourced from within the corporate speciality side, and answered:

“Absolutely.  It is not just the new business executive that is involved in this.  You will have those that are going to be responsible for looking after the account once the account has been won.  You have those that will be responsible for project managing the review process.  You will have risk control consultants that will be going out.  There will be a huge breadth of resource that is drawn upon."

39.	Mr Carey explained that fees charged on the corporate side of the business tended to be time costed, so that it was transparent to the client what they were paying.  There was also a build up process so that all the costs of the team were taken into account, and then an element for profit was also built into the fee that was charged to the client.  This was not the case on the private side, which was remunerated by brokerage commission earned from the insurance company.  Net retained brokerage on the private clients side would be the sum of brokerage less any disbursements which were paid to introducing agents and others.

40.	Bonus arrangements for the Corporate Division were also different.  Mr Child-Villiers’ incentive bonus arrangement was based on a percentage of net retained brokerage.  On the corporate side, bonuses were by reference to a calculation of the surplus of income over expenses, which included the total relevant salary bill.  20% of the surplus went into a pot, and that was divided between the sales team on a discretionary basis based upon the work that each had done in winning the business.  The bonus was calculated over a period of a whole year and not on specific accounts.  In another part of his evidence, Mr Carey explained, in answer to questions by Mr Child-Villiers, that the acquisition of new private client business was a single-handed effort in comparison with the necessary team effort of the corporate division.  Mr Child-Villiers suggested to him that the terms and conditions of his employment did not exclude him from working in other areas than the Private Client Division.  Mr Carey answered:

“If you look at Aon as an organisation, it is a very broad organisation. It has built its success around segmentation – employing specialists into niche areas.  We have a Private Clients Division.  We have a Professions Division.  We have a small Commercial Division.  We have a large Corporate Division.  The fact that you were employed specifically by the Private Clients Division to build a book of private clients and estate business infers that you were not employed to be a major corporate business producer, or a professions producer for that matter.  You were specifically employed to work with the Affinities and Estates Private Clients Division.”

41.	Mr Carey agreed, however, that the terms of his employment did not exclude Mr Child-Villiers from assisting elsewhere.  But if he had single handedly taken it upon himself to target a major corporate client whilst he was employed by the Private Clients Division, that would have gone against the proper requirements of his employment.  The fact that he was supporting other corporate colleagues was fair. 

42.	Mr Carey said that every corporate incentive scheme that he had ever seen had been based on team pots and discretionary allocation based upon the performance of the whole team over a whole year, not on an account specific basis.

43.	Mr Gregory Collins was the Chief Executive of Aon Global Risk Consultants, a division of the defendants responsible for managing the relationships with their clients who were substantial quoted companies.  His evidence was that an incentive bonus structure such as appears in Mr Child-Villiers’ contract of employment was totally out of kilter with the division of the business with which he was concerned.  He was asked to explain the commercial logic of that, and said:

“Because in general terms, to acquire a piece of business of this scale takes a considerable amount of effort.  This is many thousands of hours of work.  But for some reason in our industry we do not charge for that acquisition.  We don’t charge the client for doing that work.  So it is speculation on our part and basically we have to make that back up, if you like, out of the first years’ fees.  So effectively we lose money on the first year of having won a major account and then hopefully over a two or three year period we get into profit.  So we would never expect to be paying out these sums of money simply because we wouldn’t have them available.”

44.	Mr McGloin explained in his oral evidence that, for accounts such as Rexam, the defendants agreed a fee with the client.  In the Rexam case, the fee was eventually £235,000 for the first year, with an additional fee for risk management.  The fee was calculated on the basis of the work that they expected to do dealing with the account.  It had to be a reasonable fee for the client to pay.  It had also to be a reasonable fee to cover the defendants’ costs and expenses and to make a reasonable profit.

45.	We have referred to a selection from a larger body of evidence.  Mr Child-Villiers did not challenge this evidence, except perhaps in small inconsequential detail.  In cross-examination, he agreed with the main lines of it.

46.	The history of the defendants’ acquisition of the Rexam account included, in the barest outline an invitation to tender in competition with others dated 9th June 1997; a report for the Broker Tender exercise (first stage) dated 11th July 1997; the selection of the defendant to proceed to a conceptual stage of the broker review with a time table for the next stages dated 5th August 1997; a brief for the second stage of the tender exercise dated 8th August 1997; a meeting between the defendants and Rexam on 16th September 1997; a second stage tender report delivered on 7th November 1997; a presentation at Rexam on 3rd December 1997; a meeting and presentation of a Risk Management Report on 17th December 1997; leading to the defendants’ appointment confirmed on the 24th December 1997.  This bare outline conceals a substantial team activity over more than six months.  The team consisted of about a dozen people in the United Kingdom and two in the United States including Michael Thrower, who was a vice-president of Aon Risk Services of the Carolinas.  

47.	Mr Child-Villiers, was not, we think, strictly a member of the team, but he made a contribution to this effort.  His youngest son, Roddy, was Communications Director at Rexam and Mr Child-Villiers wrote on 11th July 1997 that he had been pushing away at Rexam through his son.  He was sure that it was fair to say that Roddy made it definite that the defendants would be invited to tender, although they might have been invited anyway.  Mr Child-Villiers also thought it probable that his son could make a difference in a close finish.  However that may be, it was the defendants’ case that there were only three or four international brokers in the real running, of whom they were one.  It would have been extraordinary if they had not at least been invited to tender.  It was the defendants’ case that they would also have been short-listed and gone through to the final stage in any event.  As to Mr Child-Villiers’ contribution to the final stage of the tender, Miss Gibaud demonstrated that he had accepted in evidence that his contribution could be summarised as passing on information and making suggestions as to presentational alterations to the penultimate draft of the final tender report.  We are satisfied that the evidence clearly established that, useful as Mr Child-Villiers’ contribution was, nothing which he did was by itself determinative of the successful outcome.  It would be a misuse of language to say that Mr Child-Villiers “acquired” the Rexam account.  The account was acquired by a corporate team effort of the defendants’ Corporate Division to which Mr Child-Villiers made a useful contribution.

48.	In his submissions to this court, Mr Child-Villiers referred us to the transcript of his closing submissions before the Recorder and his written skeleton in answer to Miss Gibaud’s written submissions in support of the defendants’ appeal.  On the construction of his contract of employment, Mr Child Villiers submitted that evidence from witnesses other than Mr Garnsey was not relevant because they played no part in drafting his contract of employment.  He submitted that the subjective intentions of himself and Mr Garnsey were relevant and he referred to Mr Garnsey’s witness statement.  He submitted that the contract was not intended to exclude Rexam or any other new business. He was certainly not employed to deal with quoted companies, but his contract did not say that he should not. The expression “New Business acquisition” was intended to encompass the introduction and influence of new business which resulted in its acquisition by the company – a reference to Mr Garnsey’s witness statement.  

49.	There are, in our view, three difficulties with these submissions.  First, written agreements are not construed by reference to subjective intention.  Second, evidence is admitted of the background factual context.  Evidence which Mr Child-Villiers sought to brush aside was both admissible and relevant.  Third, the main question is, not whether work outside the terms of his contract was excluded, but whether what he did do qualified for an incentive bonus payment under the terms of paragraph 5.   In his skeleton submission, Mr Child-Villiers suggested that other provisions of his contract were of little importance as against paragraph 5.  Paragraph 1 outlined, but did not restrict his duties.  Paragraph 3 outlined, but did not restrict, his usual place of work.  Paragraph 5 was, however, specific to him.  It established that the purpose of his employment was to obtain business for his employer.  He submits that a reasonable man would agree that he should do so whenever he could and for whichever of his employer’s divisions he could.  Paragraph 5 did not restrict the types of business which would earn him a bonus.     

50.	Paragraph 5 of Mr Child-Villiers’ contract of employment has to be construed against the background factual context which we have outlined, and its applicability judged by reference to the essentially undisputed facts which we have just summarised.  In our judgment, the proper construction of the clause is sufficiently summarised as follows.   Mr Child-Villiers was engaged to conduct private client business at Caterham and the sales incentive bonus was directed to that kind of business.  He was not employed in the Corporate Division.  Neither his contract nor common sense precluded him doing things for the defendants which they wanted him to do strictly outside the ambit of his contract.  But it did not follow that everything which he did would attract a sales incentive bonus within the terms of paragraph 5.  We would construe that paragraph as operating upon “New Business” which Mr Child-Villiers “acquired”.  “New Business” in the context means new private client business.  To “acquire” such business denotes the kind of single-handed process by which private client business is acquired.  The percentages of net retained brokerage are so large that they can only make sense in the context of single-handed acquisition.  By contrast, the entitlement which Mr Child-Villiers claimed in these proceedings was obvious commercial nonsense.  On the facts, whose main outlines were undisputed, Mr Child-Villiers did not “acquire” the Rexam account.  Nor was paragraph 5 of his contract of employment capable of applying to the acquisition of the Rexam account, because that account generated no net retained brokerage.  This is not, we think, just a technical point, but one of substance illustrating that the acquisition of the Rexam account was not an operation which fell within paragraph 5 of this contract. 

51.	For these reasons, we conclude that Mr Child-Villiers was not entitled to a sales incentive bonus under paragraph 5 of his contract of employment, and that the Recorder was wrong to find that he was.

52.	Since the defendants accept that Mr Child-Villiers is entitled to be paid a reasonable sum by way of discretionary bonus for his contribution to the acquisition of the Rexam account, and since they accept that, in the context of these proceedings, it is not open to them to say that in their discretion they would award him nothing, it is not strictly necessary to define the legal basis for that entitlement.  Variants of the legal basis would not, we think, affect the quantification of the amount to which he is entitled, which is the only remaining issue.  It is, however, necessary to the process of evidential analysis to consider briefly the evidence relating to the agreement for which the defendants contended.  

53.	Mr McGloin’s witness statement contained the following paragraphs:

“33.	My first contact with the claimant was a telephone call from him suggesting that we meet up because he had an introduction into Rexam and he said that he could help me in developing the Rexam account.  I had lunch with him in Kent and I am happy to accept that this was in about September 1996.  This was the first time that I had met the claimant.  He told me that his son, Roddy, was Communications Director for Rexam and he was keen to help me convert them into a client.  

34.	He had a slightly naïve approach towards winning over new clients and was inclined to treat a global player such as Rexam rather in the same way as he would have treated a personal client where one simply finds out the renewal date of a particular policy and quotes against the existing broker.  I spent some time explaining corporate strategy to him and the Risk Management Services that a company such as Rexam would require.  I explained to him that the only way to secure a company such as Rexam was by a team effort with presentations that would convince the client that we could offer a better service than their existing brokers.

35.	We discussed payment of bonuses and commissions when accounts were won.  I explained that there would usually be a discretionary pot of money, which would be shared amongst members of the team.  I told him that, in the past, the Corporate Division had paid discretionary bonuses to those involved in acquiring new accounts where they had performed services above and beyond their ordinary duties.  We agreed that we would get the account first and discuss money then.  At no time whatsoever did he express any view as to his expectation.”

54.	It was established that this meeting had in fact taken place on the 26th September 1996.  Mr Child-Villiers was asked about this evidence when he was cross-examined.  He agreed that the meeting took place.  He did not recall in detail what was said.  He had no recollection of discussing payments and he thought that they were far more concerned about how to get the account.  But he was not denying Mr McGloin’s evidence.  He just had no recollection.  He agreed that, whether Mr McGloin said it or not at the meeting, his description in evidence of the process of acquiring a global account was lengthy and complicated and he did not disagree with it.  In these circumstances, in our view there was no basis for not accepting this part of Mr McGloin’s evidence.

55.	There was a subsequent meeting between Mr Child-Villiers and Mr Collins on 25th September 1997.  On 17th October 1997, Mr Child-Villiers made a written note, which referred to a telephone conversation and which recorded that he asked Mr Collins to agree commission payable to him if the defendants were successful; and that Mr Collins replied that Mr Child-Villiers would receive commission and said “we’ll see you’re all right”.  In his oral evidence, Mr Child-Villiers said that at the time he did not have the terms of his written contract of employment in mind, and so did not envisage a claim such as he was making in these proceedings.  But he wanted to resolve the problem before the defendants got the Rexam account.  Mr Collins said in evidence that he recalled the meeting, which was pre-arranged.  He recalled Mr Child-Villiers saying that he was helping and working on the Rexam account and that he hoped and expected that he would receive some personal financial recognition for his involvement.  Mr Collins recalled saying that it was not usual for the defendants to pay individual bonuses for contributions to winning these accounts, but that he would recognise contributions from individuals once they had won the account.  He agreed that he might have said what Mr Child-Villiers recorded in his note.  Again, in our judgment, there was no proper basis for the Recorder to do other than accept the substance of this evidence.

56.	Although, as we have said, it seems to us to be strictly unnecessary to determine whether either of these conversations amounted to a binding agreement to pay Mr Child-Villiers a discretionary bonus, the quantification of the reasonable sum, which the defendants accept Mr Child-Villiers is entitled to, should be on the basis that (a) Mr Child-Villiers made a useful contribution to the Corporate Division’s team effort to acquire the Rexam account, and (b) the discretionary bonus would be of the kind which members of the Corporate Division received.

57.	We have already indicated that in our view the Recorder’s quantification of a quantum meruit entitlement of £51,607 was fundamentally flawed.  His qualitative assessment was also, we think, misplaced.  This was not, in our view, a case where an intuitive weighing process of the comparative contribution by Mr Child-Villiers to the acquisition of the Rexam account was appropriate.  

58.	One element of the Recorder’s reasoning should, in our view, in fairness be rejected.  The Recorder said that Mr McGloin was a sad and unconvincing witness.  This was an insensitive thing to say of a senior director of a global insurance business who had started his evidence on the 11th September 2001 and been cross-examined on the following day.  The example which the Recorder gave to illustrate his view that Mr McGloin was an unconvincing witness concerned a telephone call on 18th December 1997.  The Recorder said that Mr McGloin appeared to be selective in what he remembered and what he did not.  He found as a fact that in the case of this telephone call he was deliberately not telling the truth.  He found that the call did take place in the manner which Mr Child-Villiers described.

59.	Mr Child-Villiers made a note dated 18th December 1997 in the following terms:

“Chris McGloin ’phones, says that David Gibson telephoned him yesterday and said that he wanted overall control in the UK, and that Aon’s big USA involvement is detrimental to our chances.  Can I help?”

60.	Mr Child-Villiers cross-examined Mr McGloin by reference to this document.  Mr McGloin said that he had no memory of the conversation at all.  It was inconsistent with everything that David Gibson had ever indicated to him, and he would be very surprised if the conversation took place.  He had already referred to a note written by David Gibson, saying that Aon's involvement in the USA was in fact very supportive and positive, far from being detrimental.  Mr Child-Villiers pointed out that Mr Gibson did not say this as strongly in his witness statement.  Mr McGloin certainly disputed that it was David Gibson’s opinion, and he disputed that there was a telephone conversation saying that.  

61.	David Gibson was Company Secretary and Director of Legal Affairs of Rexam.  In his witness statement, he explained how Rexam came to invite brokers to tender for their global insurance broking requirements.  The defendants were chosen to participate in the tender process.  They had been Rexam’s brokers in North America for some years.  Rexam were “reasonably pleased” with the service that they had obtained from the defendants in North America.  In his cross-examination of Mr McGloin, Mr Child-Villiers pointed to this, suggesting that it did not indicate an extremely good relationship.  Mr McGloin said that he could only go back again to the letter which David Gibson had put out which, he said, made it absolutely clear that the relationship particularly in the United States was one of the main criteria which led to the defendants being selected.  This was a reference to a memorandum of 20th January 1998, in which David Gibson explained to those within Rexam that four brokers, including the defendants, had been invited to participate in the tender.  The main criteria which led Rexam to select the defendants included:

“Success of the Group’s existing relationships with Aon in other parts of the world, particularly the United States.”

62.	The date of the telephone conversation recorded in Mr Child-Villiers’ note of 18th December 1997 was one day after the meeting at which the defendants presented their Risk Management Report to Rexam, and only six days before the defendants were awarded the Rexam account.  

63.	This court has not, of course, had the advantage of seeing and hearing Mr McGloin give evidence.  We only have the documents and the transcript of his evidence.  Nevertheless, the Recorder’s judgment that Mr McGloin was deliberately not telling the truth about this telephone call on 18th December 1997 seems to us to be difficult to sustain.  Mr McGloin could not remember the telephone conversation but expressed the view that its recorded contents did not accord with contemporary facts.  He had substantial documentary support for that position, and was not so much asserting a fact, as making a deduction from what he did know and could establish.  This is scarcely the subject matter of deliberate untruthfulness.  More importantly, the fact and content of this telephone conversation were hardly central to the issue, which was to assess the quantum meruit amount to which Mr Child-Villiers was entitled.

64.	In our judgment, on the evidence there was really only one basis on which this entitlement could be assessed.  Mr Child-Villiers had contributed to a team effort which had successfully acquired the Rexam account.  The Corporate Division of the defendants had discretionary bonus arrangements, which we have described.  The actual bonuses paid to members of the Corporate Division were mainly for the year, and were not solely referable to the Rexam acquisition.  Mr McGloin explained in evidence that a notional pot for the Rexam acquisition alone might have been £50,000.  That would have been divided between the team as a whole.  Corporate Division bonuses for the year in fact included £12,500 for Mr McGloin, £15,000 for Deborah Durkin (who reckoned that her contribution to a team effort of 2,000 hours was probably 200 hours) and £6,000 for James Jeal.  The department in the US for which Michael Thrower worked received a bonus of $25,000 of which he himself received $15,000.  The defendants’ case was that Mr Child-Villiers’ contribution was not as great as some other members of the team, Michael Thrower in particular.  Their assessment of an appropriate quantum meruit payment was no greater than £15,000.  In our judgment, there was no evidential basis for assessing a higher amount.

65.	Mr Child Villiers’ submissions on the issue of his quantum meruit entitlement may be summarised as follows.  His youngest son, Roddy, was a contact which the defendants had with Rexam.  Mr McGloin made the point that the defendants should use all existing contacts.  In 1997, contacts and information were of great importance to the defendants.  They acknowledged his contribution at the time and it was only in 2001 at the trial that the defendants’ evidence tried to diminish the importance of his contact.  Mr Child-Villiers’ major submission was that the defendants’ evidence in 2001 was completely different from what they had said in the contemporary documents.  Most of the witnesses did not attempt to diminish his role, but Mr McGloin did.  He tried to give the credit to Mr Thrower, but his contribution in the US was not supported by documents and he was far from the key influence to the defendants’ success.  He was only promised a bonus in December 1998.  Mr Child-Villiers was credited by Mr Carey with initiating the inquiry.  Mr Child-Villiers attacked the credibility of Mr McGloin’s evidence in detail with extended reference to a number of documents.  He summarised these submissions as follows:

“I suggest that David Gibson, being reasonably pleased with Aon in North America, would not on its own have achieved our invitation to tender, but that it was also achieved by Roddy nudging away at David, and by Chris McGloin telephoning David at an opportune time as a result of my advice to him.  I suggest that the documents and evidence have shown that my continuing influence and involvement was almost certainly essential to the success of our tender, and I suggest that the role I played is inadvertently acknowledged by the defence by way of its witness statements.  These mostly do not face the truths of 1997, but concentrate instead on arguments which it hopes will win this trial in 2001.”

66.	His concluding submission to the Recorder was:

“You have heard much from the defence of the effort, 2000 hours put in by the Corporate Division, and I do not in any way deny their effort, but I suggest the Division was fortunate to be able to be successful in its tender, and that much of its good fortune emanated from me.”

67.	The suggestion that Mr Thrower was not paid his bonus until December 1998 was explained by Mr Collins in his evidence.  He said that a bonus was awarded to the Division in which Mr Thrower worked in April 1998, soon after the acquisition of the Rexam account; but that the bonus paid by that Division to Mr Thrower was paid in the usual course at the end of the year.  

68.	Mr Child-Villiers makes the important point in his skeleton submission that the Recorder was able to see the witnesses and assess their credibility.  He suggests that it would be wrong for this court to interfere with his assessment of the evidence.  He suggests that there are no grounds on which this court should interfere with the exercise by the Recorder of his discretion.  On the specific issue of quantum meruit, Mr Child-Villiers now challenges the defendants’ estimates of the number of hours work which the team did.  He says that Deborah Durkin suggested twice as many hours as Mr McGloin.  This is in contrast with his explicit statement in his closing submission to the Recorder that he did not in any way deny the effort of the members of the Corporate Division.  As to his own imput, Mr Child-Villiers submits that estimates given by the defendants were absurdly low; but that the length of time was irrelevant.  What was relevant was his effectiveness.  Mr Child-Villiers appends to his skeleton submission material attacking the credibility of a number of the defendants’ witnesses.  

69.	We do not under-estimate the force of the submission that the Recorder made a judgment as to the credibility of witnesses whom he heard, whereas this court only has the material in written form.  In our judgment, however, once the proper basis for assessing a quantum meruit entitlement is determined, questions of credibility assume much less significance.  The level of bonuses in fact paid within the Corporate Division was not disputed.  For reasons which we have given, Mr Child-Villiers was not entitled to a bonus calculated as a percentage of brokerage or commission.  His submission that the profit from the acquisition of the Rexam account should be regarded as far higher than that stated by the defendants does not dislodge the fact that comparatively modest bonuses were in fact paid to the members of the team.  An assessment of his contribution could not reasonably put him higher than the top of the appropriate bonus scale, which is where the defendants’ £15,000 places him.  £15,000 is also, as it happens, not far short of 1/3rd of the estimated notional pot of £50,000.  Taking Mr Child-Villiers’ own assessment of his contribution at its highest, we do not consider that in the circumstances the evidence justifies placing him head and shoulders above other individuals in the team.  That result, is not, in our view, achieved by pointing to numerous inaccuracies in detail in evidence given by the defendants’ witnesses.  

70.	For these reasons we accept the defendants’ assessment of £15,000.  We allow the appeal and substitute that amount for the amount awarded by the Recorder.
Order: 
1.	Appeal allowed
2.	Sum of £15,000 will be substituted for the sum of £154,823 in paragraph one of the order of Mr Recorder Lobo dated 16 November 2001.
3.	Save as to that order of Mr Recorder Lobo will be set aside.
4.	Respondent to pay the appellant the sum of £126,123.68.
5.	Costs and Schedule of interest to be agreed and if not agreed matter to be relisted for hearing.
(Order does not form part of the approved judgment)