LM-2023-000035 - [2025] EWHC 1989 (Comm)

The Law

The parties agree that the correct approach to take to this issue (who did Xtellus contract with?) is set out by the Court of Appeal in Hamid v Francis Bradshaw [2013] EWCA Civ 470.

Where the identity of a contracting party is unclear, extrinsic evidence is admissible (paragraph 50), and (see Estor v Multifit (UK) Ltd [2009] EWHC 2565 TCC cited at paragraph 56 of Hamid) it is legitimate to consider what the parties said to each other in the period leading up to the offer and acceptance. The exercise of identifying a party to a contract is not the same as interpreting the terms of the contract. For example, one piece of extrinsic evidence I am entitled to consider is the negotiations which led to the conclusion of the contract.Negotiations are “[excluded] from the admissible background” when the court considers questions of “pure” construction (see ICS v West Bromwich [1998] 1 WLR 896 at pages 912 to 913 paragraph (3) cited at paragraph 48 of Hamid). The rationale for this approach is clear: generally (and certainly in the present case) the parties will negotiate the terms of a contract, they will not negotiate the identity of a contracting party.

The words chosen by the parties to identify the counterparty (and identify it as “the Company”) are, however, the starting point of the investigation into the identity of the counterparty.

The question of authority (should it be reached and should I have determined that the Defendant is the correct counterparty) requires me to consider actual authority, apparent or ostensible authority (I deal with the alternative of ratification below). The issue of actual authority is governed by the law that governs the relationship between the principal and the agent. That is, Polish law. Whether Dominik Leszczyński had apparent or ostensible authority is determined by the law of the contract, that is the law of England and Wales.

There is no suggestion that Dominik Leszczyński had actual authority to bind the Defendant if the Defendant was the counterparty to the Mandate. The main issue is therefore ostensible (apparent) authority. The key requirements were set out by Diplock LJ (as he then was) in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Limited [1964] 2 QB 480 at 506:

There is a dispute between the parties about the extent (if at all) that Polish law needs to be taken into account when considering first, whether representations capable of creating apparent authority have been made and secondly whether the contract has been ratified.

The experts on Polish Law agree, having regard to the National Court Register (the “NCR”) that the Defendant may be bound by:

In deciding if the Defendant is in fact bound, and given that there is no clear express outward declaration of intent (as there would be if the Prokurist had signed the Mandate in that capacity) I am entitled to look at the actions of the Prokurist (or the Management Board members) and decide if it is appropriate to infer an intention to enter into a contract.

In practice (and as far as is relevant to this claim) that means that at all material times the joint acts of Katarzyna Dorosz-Wosiek and Wirginia Leszczyńska or the sole act of Katarzyna Dorosz-Wosiek up to 24 March 2022 (when she ceased to be Prokurist but became a Board Member) may be sufficient to bind the Defendant.

The issues raised under the umbrella of the third issue are construction questions, in particular the construction of clauses 4, 6.3 and 7 of the Mandate.

Whilst there was broad agreement about the approach I should take, the parties were at odds on the extent to which I can take account of “commercial common sense.” That was the central issue before the Supreme Court in Rainy Sky v Kookmin Bank [2011] UKSC 50.

The general approach to interpretation is set out at paragraph 14 of Rainy Sky:

“The ultimate aim of interpreting a provision in a contract, especially in a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant…..The relevant reasonable person is one 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”

Lord Neuberger’s reminder at paragraph 18 of Arnold v Britton [2015] UKSC 36 is important: “when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning.”

Mr Brown KC refers in particular to paragraphs 21, 23 and 30 of the opinion of Lord Clarke in Rainy Sky. In short, where the parties have used unambiguous language, the court must apply it (paragraph 23). But the language used by the parties in contracts which the courts are asked to construe is rarely unambiguous. Where there is more than one potential meaning “the court is entitled to prefer the construction which is consistent with business common sense and to reject the other” (paragraph 21). In summary, “the term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense” (paragraph 30).

Mr Reay suggests that Xtellus uses commercial common sense impermissibly, not as an aid to the proper construction of ambiguous terms, but to address the anterior question of whether a term is in fact ambiguous. I agree that such an approach would be improper. As Lord Neuberger said in Arnold (paragraph 17) “the reliance placed in some cases on commercial common sense and surrounding circumstances… should not be invoked to undervalue the importance of the language of the provisions which is to be construed.” I am not however persuaded that this is the approach adopted by Xtellus.

Mr Reay also submits that commercial common sense must be treated carefully and not applied from the sole point of view of Xtellus. Again, I agree. Lord Neuberger makes that point in Arnold at paragraph 19: “commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date the contract was made.”