![[2025] EWHC 2275 (Ch)](https://backend.juristeca.com/files/emisores/logo_O3rEzCI.png){kind=logo}
Applicable legal framework – interpreting contracts
Applicable legal framework – interpreting contracts
Over recent years, there have been a number of higher authorities dealing with the principles to be applied on the interpretation of commercial agreements, such as the SBA. These include Investors Compensation Scheme Ltd v West Bromwich Building Society (No.1) [1998] 1 W.L.R. 896, Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, Re: Sigma Finance Corporation [2009] UKSC 2, Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Arnold v Britton [2013] EWCA Civ 902 and Wood v Capita Insurance Services Ltd [2017] UKSC 24.
The principles outlined in those authorities were helpfully summarised by Popplewell J, as he then was, in Lukoil Asia Pacific PTE Limited -v- Ocean Tankers (PTE) Limited [2018] EWHC 163 (Comm), as follows:
“[8.] …..The Court’s task is to ascertain the objective meaning of the language which the parties have chosen in which to express their agreement. The Court must consider the language used and ascertain what a reasonable person, that is a person who has 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, would have understood the parties to have meant. The Court must consider the contract as a whole and depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of a wider context in reaching its views as to the objective meaning of the language used. Interpretation is a unitary exercise and striking a balance between the implications given by the language and the implications of the competing constructions, the Court must consider the quality of drafting of the clause and it must also be alive to the possibility that one side may have agreed to something, which with hindsight did not serve his interest. Similarly, the Court must not lose sight of the possibility that a provision may a negotiated compromise, or that the negotiators were not able to agree more precise terms. This unitary exercise involves an iterative process, by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. It does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions, or a close examination of the relevant language in the contract, so long as the Court balances the implications given by each.”
Issue 1 – Are the Defendants entitled to additional land under the SBA?
Declarations sought
The Claimants seek a declaration that;
“.. on the true construction of clause 16, in consideration for the transfer of their shareholdings in [PPL], the Defendants, alternatively a corporate vehicle of their choice, are entitled to receive Sites F and G and a balancing sum in cash, the combined value of which will be equal to the valuation of their aggregate shareholding”.
The Defendants seek a declaration that
“… on the true construction of clause 16.1 of the [SBA], the Defendants are entitled to receive Sites F and G, together with an additional site or sites and a balancing cash payment as required, the combined value of which is equal to the valuation of their aggregate shareholding”.
Parties respective arguments
In summary, it was argued on behalf of the Claimants that:
The underlying purpose of the SBA was to achieve a complete demerger of the Defendants’ interests in PHL and PPL so as to achieve a complete clean break between the Claimants and the Defendants.
A clean break cannot be achieved if the Defendants retain an interest in properties from which PCo either operates its business or relies on for the operation of its business (including for rights of access, storage and parking). All the other Sites (other than F & G) are used by PCo in one way or another. The words in Clause 16.1.1 that “the properties to be transferred…shall include” mean that the Defendants shall receive no less than Sites F and G and in contemplation of the possibility that, in the event that the Defendants were owed less than the subsequent valuations of Sites F and G, the Defendants would then be required to make a balancing payment as expressly contemplated under Clause 16.1.2.
There is a further issue, which suggests that it was not intended that Defendants would have additional Sites. At the time of the SBA, if such a course was intended, then a third (or fourth) Site would have been agreed, or at the very least a mechanism at how such additional Site(s) might be chosen. There is nothing at all, not even as to whose decision it is.
If the Defendants have ownership of additional Sites, then they will still have at the very least interactions with the Claimants/PCo. Further, if the Defendants then chose to sell the Sites, the Claimants/PCo would have lost total control of these important business assets and would have to deal with (unknown) third parties. The Claimants’ construction is therefore also consistent with business common sense.
In summary, it was argued on behalf of the Defendants that:
The start and end point (absent a successful claim for rectification, which has not been made) is that the words “the properties to be transferred…shall include” can import no other sensible meaning other than that the Defendants are entitled to Site F and G plus another or other Site(s).
If the Parties had intended that only Site F and G were to be transferred, clause 16.1.1 would have said “the properties to be transferred are Site F and Site G’”. It is not credible to argue that “shall include” is a synonym for “are”.
Therefore, the Defendants contend that the Court need look no further than the words of the clause 16.1.1 itself.
Relief favouring the Defendants’ construction is expressly pleaded by the Defendants at paragraph 40 of the Counterclaim but not actively countered in the Reply. It was only at trial for the first time that the Claimants sought to argue a meaning that the Defendants shall receive no less than Sites F and G.