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England and Wales Court of Appeal (Civil Division) Decisions
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Cite as:  EWCA Civ 2108
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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(His Honour Judge Behrens)
Friday, 30th November 2001
B e f o r e :
LADY JUSTICE ARDEN
MR JUSTICE MORELAND
|M O'DONNELL & SONS (HUDDERSFIELD) LIMITED|
|- v -|
|MIDLAND BANK PLC|
Smith Bernal Reporting Limited, 190 Fleet Street,
London EC4A 2AG
Tel: 0171 421 4040
Official Shorthand Writers to the Court)
appeared on behalf of the Appellant.
MR ROBIN KNOWLES QC (Instructed by Eversheds, Senator House, 85 Queen Victoria Street, London EC4V 4JL)
appeared on behalf of the Respondent.
Crown Copyright ©
Friday, 30th November 2001
"The Company as beneficial owner HEREBY CHARGES in favour of the Bank:-
(a)by way of first fixed charge all book debts and other debts now and from time to time hereafter due owing or incurred to the Company other than such of the said debts as the Bank may have specifically have agreed in writing to exclude from such first fixed charge (hereinafter collectively called `the debts'); and
(b)by way of floating charge all other undertaking of the Company and all other property whatsoever and wheresoever both present and future including its uncalled capital for the time being and such of the book debts and other debts referred to in Clause 4(a) which are not charged hereunder by way of first fixed charged (hereinafter collectively called `the assets')."
"The Company shall not except with the prior written consent of the Bank-
(a)purport to create or permit to subsist over all or any of the debts any mortgage charge lien pledge or other security other than this Charge..."
"(e)deal with its book or other debts or securities for money forming part of the assets otherwise than in the ordinary course of getting in and realising the same which course shall not include or extend to the selling or assigning or in any other way factoring or discounting of any of the said debts or securities."
6 UNTIL this Charge is discharged the Company will:-
(a)get in and realise the debts in the ordinary course of its business (which shall not extend to the selling or assigning or in any other way factoring or discounting the same) and hold the proceeds of such getting in and realisation of the debts (until payment debts to the special account as hereinafter provided) upon trust for the Bank;
(b)pay the proceeds of such getting in and realisation of the debts into such separate and denominated account with the Bank (the `special account') as the Bank may require."
"1.I think that the expression `other debts' was intended to be a mopping up clause covering all debts other than book debts. I cannot accept that there was some special category of debt excluded from the clause. Thus once it is accepted that the Alstan liability is a debt it is within clause 4(a).
2.The decision in Re Brightlife and the cases that follow it are clearly distinguishable on the grounds that the cash at the Bank was held not to be a debt at all.
3.Whilst there is an obligation in clause 6(a) to collect the debts in the ordinary course of business, I am in the end persuaded that that is not a reason to imply an equivalent term to the definition of other debts in clause 4(a). It was conceded that if there had been a sale of a business asset on credit terms whilst the business was a going concern that would have been an `other debt'. Such a sale would not have been in the ordinary course of business. Furthermore Mr Tamlyn's example of the sale of stock on credit at a closing down sale shows that it is not necessary for a business to be carried on."
"... I do not think that the bank balance falls within the term "book debts or other debts" as it is used in the Debenture. It is true that the relationship between banker and customer is one of debtor and creditor. It would not therefore be legally inaccurate to describe a credit balance with a banker as a debt. But this would not be a natural usage for a businessman or accountant. He would ordinarily describe it as `cash at bank': compare the balance sheet formats in Part 1, section B of Schedule 4 to the Companies Act 1985."
"... I further consider that the court can take account of accepted business and accountancy practice without evidence being adduced as to the existence of such practice."
"But in my judgment the ambiguity is resolved by the use of the same words in clause 5(ii), which prohibits Brightlife from dealing with its `book or other debts' without the prior consent in writing of Norandex `otherwise than in the ordinary course of getting in and realising the same.' A credit balance at the bank cannot sensibly be `got in' or `realised', and the proviso cannot therefore apply to it. If `book or other debts' includes the bank balance, the consequence is that Brightlife could not have dealt with its bank account without the written consent of Norandex. It would have had to obtain such consent every time it issued a cheque. The extreme commercial improbability of such an arrangement satisfied me that the parties used `book debts and other debts' in a sense which excludes the credit balance at the Bank."
"... I think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds  1 W.L.R. 1381, 1384-1386 and Reardon Smith Line Ltd v Yngvart Hansen-Tangen  1 W.L.R. 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the commonsense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of `legal' interpretation has been discarded. The principles may be summarised as follows.
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd v Eagle Star Life Assurance Ltd  [3 All ER 352].
(5) The `rule' that words should be given their `natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had."