In the world of litigation, a standstill agreement is an agreement that suspends or extends a limitation period. In Mortgage Express (an unlimited company) v Countrywide Surveyors Ltd [2015] EWCA Civ 1110; [2015] PLSCS 301 the Court of Appeal was asked to interpret a standstill agreement made between a lender and a firm of valuers that provided valuation reports on a number of properties for mortgage purposes.
The parties agreed that the standstill agreement covered claims in contract and negligence. However, they parted company on whether the agreement suspended time in relation to claims for deceit, which was important because, following investigation, the lender considered that the firm had engaged in systematic and deceitful overpricing (which the firm denied).
The valuers reminded the court that claims based on fraud and dishonesty are of a different character to claims based on negligence and breach of contract, and relied on Paragon Finance Plc v D.B. Thakerar & Co [1998] 1 All ER 400. In that case, Chadwick J considered that it would be contrary to common sense to hold that a claim based on allegations of negligence and incompetence on the part of a solicitor involved substantially the same facts as a claim based on allegations of fraud and dishonesty. Furthermore, Mortgage Express had not previously indicated that it was considering claiming for anything other than breach of contract and negligence.
The Court of Appeal reminded the parties that the ultimate aim, when interpreting a contract, and especially a commercial contract, is to determine what the parties meant by the language that they chose to use. The task must be approached objectively, by reference to what a reasonable person, with all the background knowledge that would reasonably have been available to the parties in the situation in which they were at the time of contract, would have understood the parties to have meant: Rainy Sky SA v Kookmin Bank [2011] UKSC 50.
The standstill agreement referred to the lender’s letter before action, which specifically reserved the right to “amend and/or raise additional allegations and/or particulars on receipt of any further relevant information”, and mentioned defences based on “laches”, which would not have been appropriate had the effect of the agreement been restricted to claims in contract and negligence. In addition, the agreement defined the term “dispute” in wide terms. It was expressed to mean any claim directly or indirectly arising out of or in any way connected with the valuations. This plainly extended beyond the negligence that was alleged in the lender’s letter before action – and the claims based on dishonesty were in some way connected with the valuations. Therefore, the standstill agreement had stopped time running in respect of claims for deceit, as well as in contract and negligence.
The draftsmen could have put paid to any doubt about the meaning of the agreement by specifically including deceit within its scope. But hindsight is always a wonderful thing. In this case, the lenders were able to convince the court that their interpretation of the agreement was correct thanks to the breadth of the language used and references made by the draftsmen.
Allyson Colby is a property law consultant
