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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Merthyr (South Wales) Ltd (FKA Blackstone (South Wales) Ltd) v Merthyr Tydfil County Borough Council [2019] EWCA Civ 526 (28 March 2019) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2019/526.html Cite as: [2019] JPL 989, [2019] EWCA Civ 526 |
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ON APPEAL FROM THE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES, CIRCUIT COMMERCIAL COURT (QBD)
HHJ KEYSER QC
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE DAVID RICHARDS
and
LORD JUSTICE LEGGATT
____________________
MERTHYR (SOUTH WALES) LIMITED (FKA BLACKSTONE (SOUTH WALES) LIMITED) |
Appellant |
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- and - |
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MERTHYR TYDFIL COUNTY BOROUGH COUNCIL |
Respondent |
____________________
Matt Hutchings QC and Shomik Datta (instructed by Merthyr Tydfil County Borough Council) for the Respondent
Hearing date: 12 March 2019
____________________
Crown Copyright ©
Lord Justice Leggatt:
The background
(1) All coal extraction must cease no later than 6 September 2022;
(2) Final restoration of the land must be completed no later than 6 December 2024; and
(3) "After care" must be undertaken for not less than five years after each phase of a progressive restoration scheme has been certified as complete.
(1) The original parent company guarantee should be replaced by a guarantee from the holding company, also limited to £15m; and
(2) In addition, "a cash escrow fund will be established for the purpose of securing £15m of the restoration costs of [the land reclamation scheme]".
The Escrow Account Agreement
"(a) Subject to paragraphs (b) and (c) below, on each Funding Date, the Company shall deposit an amount equal to £625,000 (as adjusted pursuant to paragraphs (c) and (d) below,[1] the 'Quarterly Amount') into the Account.
(b) Subject to paragraphs (c) and (d) below, if on any Funding Date the Company fails to pay all or part of the Quarterly Amount into the Account (the 'Missed Funding Date'), the Quarterly Amount for the following Funding Date shall be equal to £625,000 plus the outstanding amount payable on the Missed Funding Date.
(c) Subject to paragraph (d) below, if the Company fails to pay all or part of the Quarterly Amount on two or more consecutive Funding Dates, the Quarterly Amount shall increase on each subsequent Funding Date by an amount equal to the aggregate outstanding amounts on each previous Missed Funding Date.
(d) If the Final Funding Date is a Missed Funding Date, the Company shall pay an amount equal to Total ERA Sum less the amount standing to the credit of the Account on the Final Funding [Date] by 30 June 2022 (the 'Funding Longstop Date')."
The "Funding Dates" are set out in Schedule 1 to the agreement and are a series of 24 quarterly dates beginning on 31 March 2016 and ending on 31 December 2021.
The dispute
The mining company's textual arguments
Textual analysis of clause 4.2
Business common sense
Inconsistency with the express terms
"It is no answer to this objection to speak of 'obligation' in the Pickwickian sense in which on occasion Mr Sims used it, because that is simply to say that one has an obligation to make a payment but that, if one chooses not to make it, the obligation is cancelled…"
That in turn, I would add, is tantamount to saying that one does not actually have an obligation to make the payment at all.
Commercial purpose
The mining company's further arguments
The duplication argument
The redundancy arguments
"It is well-established law that the presumption against surplusage is of little value in the interpretation of commercial contracts."
Sir Kim Lewison summarises the relevant principle, in terms that I would adopt, as being that "an argument based on surplusage cannot justify the attribution of a meaning that the contract, interpreted as a whole, cannot bear."
The "genesis" of the provision
"In the (unlikely) event that [the mining company] is unable to meet a quarterly payment, then it is agreed with [the council] to roll forward the outstanding payments, subject to the full £15 million being deposited into [the escrow restoration account] no later than six months after the final date in the "Schedule of Quarter Dates for Payments" detailed above, i.e. by 30 June 2022."
"It may be said that previous documents may be looked at to explain the aims of the parties. In a limited sense this is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact. …
In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of [one party's] intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction."
The sense in which the exercise is objective was spelt out by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen (The "Diana Prosperity") [1976] 1 WLR 989, 996, when he said that:
"when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties."
"Accordingly, in interpreting a contract, regard may be had to the content of the parties' negotiations to establish 'the genesis and object' of a provision. This seems to me to be a relevant part of the factual matrix, since if the parties in the course of their negotiations are agreed on a general objective which is to be achieved by inclusion of a provision in their contract, that objective would naturally inform the way in which a reasonable person in the position of the parties would approach the task of interpreting the provision in question."
"It is often not easy to distinguish between those statements which (if they were made at all) merely reflect the aspirations of one or other of the parties and those which embody at least a provisional consensus which may throw light on the meaning of the contract which was eventually concluded. But the imprecision of the line between negotiation and provisional agreement is the very reason why in every case of dispute over interpretation, one or other of the parties is likely to require a court or arbitrator to take the course of negotiations into account."
Ibid at para 38. Lord Hoffmann concluded (at para 41) that there was no clearly established case for departing from the exclusionary rule, as a rule which sometimes causes relevant material to be left out of account "may be justified in the more general interest of economy and predictability in obtaining advice and adjudicating disputes."
"The rule excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant. It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel. These are not exceptions to the rule. They operate outside it."
He went on to consider a group of cases of which the leading example was The Karen Oltmann [1976] 2 Lloyds Rep 708, in which evidence of pre-contractual communications had been admitted to show that the parties had negotiated on an agreed basis that certain words should bear a particular meaning. Lord Hoffmann concluded that such an exception to the exclusionary rule could not be justified and that the only legal principles on which evidence of pre-contractual communications can be admitted for this purpose are those of rectification and estoppel by convention: see Chartbrook at paras 43-47.
"It seems to me that there is a very fine line between looking at the negotiations to see if the parties have agreed on the general objective of a provision as part of the task of interpreting the provision and looking at the negotiations to draw an inference about what the contract meant (which is not permissible), a line so fine it almost vanishes."
"The genesis and aim of a particular provision may be sufficiently important to qualify as part of the genesis and aim of the whole transaction. If so, it will be admissible pursuant to Prenn v Simmonds; if not, it is contrary to Prenn v Simmonds to allow it to be admitted."
Sir Kim Lewison considers this approach to be correct (see The Interpretation of Contracts, 2017 supplement, at 3.09), and so do I.
"To take the primary or strict meaning is to make the whole transaction futile. To take the secondary or loose meaning, is to give it efficacy and purpose. In such a situation, the genesis and aim of the transaction may rightly guide our choice."
Conclusion
Lord Justice David Richards:
Lord Justice Longmore:
UPON the Appellant's appeal of the orders dated 19 June 2018 and 13 July 2018 (filed with the Civil Appeals office on 31 July 2018) with permission of Lord Justice Longmore dated 14 September 2018 (the Appeal)
AND UPON hearing Hugh Sims QC and Oliver Mitchell for the Appellant and Matt Hutchings QC and Shomik Datta for the Respondent
IT IS ORDERED THAT
Dated this 28th day of March 2019
Note 1 The reference here to “paragraphs (c) and (d) below” must on any view be a slip in the drafting and should be read as a reference to “paragraphs (b) and (c) below”. [Back]