|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Nearfield Ltd v Lincoln Nominees Ltd & Anor  EWHC 2421 (Ch) (09 October 2006)
Cite as:  EWHC 2421 (Ch)
[New search] [View without highlighting] [Printable RTF version] [Help]
Strand, London, WC2A 2LL
B e f o r e :
| Nearfield Limited
|- and -
|(1) Lincoln Nominees Ltd
(2) Lincoln Trust Company (Jersey) Ltd
Mr James Corbett QC and Mr David Herbert (instructed by Fladgate Fielder) for the Second Defendant
Hearing dates: 18th, 19th, 20th, 21st and 26th July 2006
Crown Copyright ©
Peter Smith J :
"5. Duties of Lincoln and LNL
LincolnLNL will utilise the first £1.625 milion of the Loan to forward lend the said sum to the Company to enable such sum to be paid toward the deposit on the Property
5.1.2 Lincoln will procure that the balance of the Loan is to be paid to the Royal Bank of Scotland into a Rent Deposit account as required by the Bank in relation to the property, to be released on terms agreed with the Bank and diminution of the Loan, or used to pay Stamp Duty as required
5.1.3 The duration of the Loan will be three years from the date hereof and thereafter Lincoln will procure the payment of the Loan together with all outstanding interest thereon, on written demand by Nearfield
5.2.1 The shares in the Company will be issued to LNL, which LNL will hold as nominee 100% for and on behalf of Lantau, provided that until the totality of the Loan and interest due is repaid to Nearfield it is agreed between all parties that
LincolnLNL will hold all the issued shares for and to the order of Nearfield by way of a lien over the shares
5.3.1 Lincoln will appoint Directors of the Company and will procure that such Directors will act wholly and exclusively in accordance with the wishes of MP and Lantau, and in full compliance with the terms of this Joint Venture Agreement
5.4 Lincoln will secure a second legal charge for £3,000,000 over the property to be granted by the Company substantially in the form of the draft deed of priorities, a copy of which is attached hereto, and will hold that charge for and on behalf of Nearfield until the loans made by Nearfield are repaid. "
JVA AND GUARANTEE
THE PRESENT PROCEEDINGS
OUTCOME OF JOINT VENTURE
"1. the real parties to the Joint Venture were Mr Potel and Mr Blatchly;
2. Mr Blatchly, which was known to Mr Potel, chose to use the Lantau Trust as the vehicle through which he would pursue the Joint Venture;
3. the Joint Venturers were named as Mr Potel and the Lantau Trust;
4. Lincoln Trust was not a party to the Joint Venture itself in anything other than in its capacity as Trustee of the Lantau Trust;
5. the profits of the Joint Venture were to be shared in a ratio of 1:3 between Mr Potel and the Lantau Trust – Lincoln Trust was not entitled to any of the profits of the Joint Venture or to any other financial or other reward;
6. in so far as it was a party to the JVA in its personal capacity that was solely in an administrative function;
7. Lincoln Trust was prepared to guarantee LNL's obligation to repay the Nearfield loan only in its capacity as trustee of the Lantau Trust and even than only in circumstances limiting the guarantee to (a) £1.5m plus interest on £3m or (b) the assets of the Lantau Trust;
8. None of the documentation shows that at any time was Lincoln Trust considered by any of the parties to be truly or properly participating in the Joint Venture;
9. no documentation supports Mr Shaw's assertion that "it was at all material times understood and agreed by all the parties to the JVA that Lincoln (in its own right, as opposed to in its capacity as the sole corporate trustee of the Lantau Trust) was unconditionally undertaking to procure that Lincoln Nominees Limited would repay the Nearfield loan";
10. the documentation supports the opposite view – see for example:
10.1 an email from Ken Shaw to Brent Hill dated 25th February 2002 in which Mr Shaw set out his understanding of the transaction. The email refers to matters in respect of which his client required an "irrevocable confirmation and undertaking from the trustees of Lincoln [sic]" – none of the undertakings sought included and obligation to repay the £3m loan. However, the email goes on expressly to refer to the Guarantee: "so far as concerns the guarantee for 50% of the loan, I understand that it is to follow the same form as the guarantee to Royal Bank of Scotland. Kindly confirm and let me have a copy."
10.2 Mr Shaw wrote to Mr Potel twice on 28th February 2002, stating first, "I am concerned that there is no final facility letter or guarantee document in existence…." and then, "I am not yet comfortable with the transaction. I have not seen the actual guarantee nor the limit placed on it."
10.3 On 18th March 2002 Mr Shaw wrote to Brent Hill by email, copying in Messrs Potel, Blatchly & Homer, stating "On the question of interest, Ian [Blatchly] has confirmed that Lincoln will guarantee payments of interest as well as 50% of the loan and therefore in the Joint Venture Agreement under clause 10.3 an additional sentence guaranteeing all interest payable to [Mr Potel] and Nearfield under the Joint Venture Agreement. Kindly confirm".
11. it was always a part of the Joint Venture negotiations that Lincoln Trust as trustee of Lantau Trust would provide a guarantee (proper) to secure the borrowing, whereas clause 5.1.3 was only introduced into the JVA at a late stage and it is unclear at whose behest and for what purpose;
12. it would have all times been clear to the parties to the JVA that there was no reason for Lincoln Trust to give such an unconditional undertaking or any undertaking at all in its personal capacity;
13. it would have been very unusual if not unheard of for a trustee to have given such an undertaking in its own capacity and would have made no commercial sense – it could potentially jeopardise Lincoln Trust's whole business as acting as a corporate trustee and administrator".
"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. Cardozo J. thought so in the Utica Bank case. And if it can be shown that one interpretation completely frustrates that object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation, if that can reasonably be found."
That is the Second Defendant's contention. However it is important to see what Lord Wilberforce said next:-
"But beyond that it may be difficult to go: it may be a matter of degree, or of judgment, how far one interpretation, or another, gives effect to a common intention: the parties, indeed, may be pursuing that intention with differing emphasis, and hoping to achieve it to an extent which may differ, and in different ways. The words used may, and often do, represent a formula which means different things to each side, yet may be accepted because that is the only way to get "agreement" and in the hope that disputes will not arise. The only course then can be to try to ascertain the "natural" meaning. Far more, and indeed totally, dangerous is it to admit evidence of one party's objective -- even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want. So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised……………. In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of Dr. Simmonds' 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."
As to the circumstances, and the object of the parties, there is no controversy in the present case. The agreement itself, on its face, almost supplies enough, without the necessity to supplement it by outside evidence. But *1386 some expansion, from undisputed facts, makes for clearer understanding and I include a reference to these in what follows".
"There were prolonged negotiations between solicitors, with exchanges of draft clauses, ultimately emerging in clause 2 of the agreement. The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back: indeed, something may be lost since the relevant surrounding circumstances may be different."
"My Lords, I will say at once that I prefer the approach of the learned judge. But 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. Yngvar 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 common sense 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 the 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 a 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 Co. Ltd.  2 WLR 945
(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. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. 19851 A.C. 191, 201:
". . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense".
GESTATION OF THE JVA
DRAFT 4 AND DRAFT 5
DRAFT 6 [5/4]
DRAFT 7 [12/302]
VERSION 9 22ND MARCH 2002 EXECUTED JVA [3A/223]
"However you mentioned that Nearfield Limited would be acting as lender to the Trustee. Obviously inherent in the Loan to the Trustee would be the "Guarantee" to repay its own debt. Lincoln Trust Company (Jersey) Limited sole could not guarantee this debt".
Mrs Cudlipp does not deal with this in her witness statement. She adopts what Mr Homer said in his third witness statement. In paragraph 70 he merely comments that there was some confusion with regards the Guarantee to be given by Lincoln as Trustee of Lantau. That really does not do justice to Mrs Cudlipp's email. She is pointing out the fact that the Loan is made to Lincoln and the Guarantee is also given by Lincoln (under its Lantau hat). The significance of the words "own debt" cannot in my view be understated. She plainly appears to be acknowledging that Lincoln had a primary liability which was inconsistent with it guaranteeing it as well. Mr Shaw took this up on 25th March 2002. He referred to the Agreement which of course under clause 4 advances the Loan to Lantau. With respect to Mr Shaw he is misunderstanding the position because Lantau could hardly guarantee a loan made to Lantau. He sent her a further email of 25th March 2002 indicating that the Loan should not be with Shiatsu (on the insistence of her clients) and referring her to the JVA. On 28th March 2002 Mr Shaw faxed various amendments to Miss Binet. He said that the amendments were agreed with Mr Hill on behalf of Mr Blatchly and if they were approved could she please arrange for each of the signatories to authorise him to initial the alterations on behalf of the signatories.