BL-2024-000734 - [2025] EWHC 3003 (Ch)

The second ground of appeal is that I erred in law in concluding that any material regarding the negotiating background to the Charge between the Claimants and the original lender was of no assistance to the process of construction of the Charge.

The issue here is that the Claimants were putting forward a construction of certain words used in the Charge (the “Information Provisions”, described in [12]) which was at variance with their apparent meaning, and involved a strained construction of those words. Their argument was that the construction for which they argued was supported by the fact that these words had been used in earlier security arrangements put in place between the same parties, where those security arrangements were of a different kind (fixed real estate charges rather than a general all purpose fixed and floating charges) and the words should therefore be construed to have the meaning which they were intended to have in those earlier charges.

I found that the words used had a plain meaning, which corresponded with commercial common sense and what one would ordinarily expect to find in a document of this kind [46]. It was therefore for the Claimants to show that they had a good arguable case that they meant something different. The Claimants’ argument in this regard was based on the fact that it might be possible at trial for them to show by evidence that, as between the original parties to the Charge (Brahma and the Claimants), it was agreed that the although the scope of the charge was expanded from a fixed charge over real estate to a general fixed and floating charge over all assets, the scope of the Information Provisions was to remain restricted to those assets which had previously been secured by the real estate charges. I noted that this seemed extremely unlikely, but that formed no part of my decision [45].

The key point as regards this issue is that, even if the Claimants could have shown that this was the clear intention of the parties as between the chargeor and the chargee at the time when the charge was entered into, this would have achieved nothing unless the assignee of the Charge was bound by that agreement.

My starting point here (at [25]) is the Judgment of Lewison LJ in Cherry Tree Investments v Landmain [2013] Ch 305, where he said:

“The reasonable reader would also understand that the parties had a choice about what they put into the public domain and what they kept private. He would conclude that matters which the parties chose to keep private should not influence the parts of the bargain that they chose to make public” (at [130]).

The effect of this principle is to prevent weight being given to private documents (and, a fortiori, private verbal agreements) collateral to the contract in question, even though they were known or reasonably available to the original parties. Instead, the admissible background is limited to that which any reader of the registered document would reasonably be supposed to know about: Cosmetic Warriors Ltd v Gerrie [2015] EWHC 3718 (Ch) at [27]. The effect of the application of this principle is that, even if the Claimants could show that there was a private agreement in place between the Claimants and the Chargee at the moment of creation of the Charge, the rights of an assignee of that Charge would not be limited by any such agreement, and the assignee would be entitled to rely on the written text.

The submissions made in support of the grounds of appeal argue that, where a private agreement is made between parties which is not disclosed on the face of a contract, neither assignability alone, nor registration alone, nor ignorance of any prior agreement alone, are complete bars to the use of such private arrangements in the construction of that contract. This may well be correct. However, the cumulative presence of all of these factors seems to me to make it impossible for the Claimants to establish at trial that an assignee of the Charge would be bound by the terms of any such private agreement between the chargeor and the chargee as against the chargeor.

I accept that Cherry Tree is not authority that such matters should be disregarded completely. However, on the facts of this case, it did not seem to me that there was any basis on which the existence of such a prior agreement, even if it could have been proved, would have been sufficient to persuade a trial court to interpret the clear words of the charge in a way inconsistent with commercial practice and common sense [46].

I therefore do not accept that the existence of such an agreement, even if it could be shown, would have any effect on the conclusion reached as to the construction of the Charge. This ground of appeal therefore has no reasonable prospect of success.