TC09562 - [2025] UKFTT 00762 (TC)

Fecha: 23-May-2025

Initial observations on the Agreements and the Side Letter

Initial observations on the Agreements and the Side Letter

31.

It is something of an under–statement to say that the Agreements and the Side Letter would not win any prizes for drafting. Mr Gammie, on behalf of CPW, candidly accepted that they contained a number of errors and infelicities.

32.

As far as they relate to the issues to which this case gives rise, some notable features of the relevant documents are as follows:

(1)

the SPA contained a number of provisions which indicated that what CPW was doing by entering into the agreement in addition to selling the Goodwill was not agreeing to sell to BBUK the Businesses, as such, but rather agreeing to sell to BBUK the right to carry on the Businesses – see in this regard, recital (B) and clauses 2 (particularly 2.1) and 3.1.2. On the other hand, it also contained a number of provisions which suggested that what CPW was doing by entering into the agreement was selling both the Goodwill and the Businesses – see, in this regard, clauses 4.1 and 7.1. Clause 9 was something of an amalgam as it referred in clause 9.1 to the transfer of the right to carry on the Businesses and in clause 9.2 to the transfer of the Businesses;

(2)

clause 5.1.2 of the SPA, which appeared under the heading “Accounting Records”, stipulated that, from completion, CPW would “assume the liabilities arising from the Businesses only on behalf of [BBUK]”. It therefore had nothing whatsoever to do with accounting records but instead suggested by implication (but without saying so expressly and in somewhat obscure terms) that BBUK would be responsible for the liabilities of the Businesses with effect from completion. I will discuss further below my interpretation of this clause in the context of the arrangement as a whole;

(3)

clause 5 of the MSA provided that the management charge payable by BBUK to CPW would be equal to 95% of “the aggregate revenue excluding VAT of the Businesses” but it contained no definition of the phrase “aggregate revenue”;

(4)

the MSA contained very few restrictions on CPW’s activities in carrying on the Management Services. The only restrictions placed on CPW in doing so were those contained in clauses 3.1.2 and 3.1.3 – namely, the need to carry out the Management Services with reasonable skill and care to the extent reasonably necessary for the Businesses to continue to be operated at no lesser standard than that at which they were operated immediately prior to the agreement and the need to take out employers’ liability insurance and public liability insurance. In addition, clause 3.2 prevented BBUK from doing anything to restrict CPW from carrying out the Management Services. The Management Services were broadly defined in schedule 1 to the agreement, as noted in paragraph 28(3)(a) above. Accordingly, the effect of that schedule, along with the terms of clause 3, was to leave CPW with wide–ranging legal rights and obligations in relation to the conduct of the Businesses without the need to consult BBUK;

(5)

the MSA contained no provisions dealing with the consequences of its termination – for example, on the quantum of the fee payable to CPW in the period in which termination occurred or, more significantly, the means by which BBUK would operate the Businesses following termination;

(6)

the Side Letter, which was executed some eighteen months after the Agreements, appeared to be a belated attempt to cover some of the deficiencies in the MSA noted above in that, in addition to adjusting the management fee, it contained a definition of the term “the revenue”, it required CPW to obtain the prior approval of BBUK before making any major strategic decision in relation to the Businesses and it specified that, on the insolvency of CPW, BBUK would assume the management of the Businesses and fulfil all of the Businesses’ obligations. However, these changes largely served to highlight the deficiencies in the MSA. Moreover:

(a)

the definition of the term “the revenue” in the Side Letter was clearly contrary to the parties’ intentions in entering into the arrangement (and how the parties had been operating the arrangement in practice), which was to calculate the revenue as the gross revenues of the Businesses (excluding VAT) before taking into account the expenses of the Businesses;

(b)

although the Side Letter provided examples of major strategic decisions (in the form of the cessation of the Businesses and “significant changes in the operations of the Businesses”), the precise parameters of the phrase were not set out;

(c)

the provision in relation to the insolvency of CPW was not linked to the termination of the MSA. Clause 7.2 of the MSA provided that BBUK would have the right to terminate the MSA in the event of CPW’s administration, dissolution or liquidation but that was merely a right and did not occur automatically. It is therefore by no means clear what the arrangement would have been if CPW were to have become insolvent and the MSA were to have remained operating; and

(d)

with the exception of the retrospective change to the management fee referred to in paragraph 4, the Side Letter did not purport to amend the terms of the MSA as such but instead merely to record retrospectively the intentions of the parties at the time when the MSA was executed. This means that analysing it from the contractual perspective is not straightforward. I will discuss this later on in this decision but, for present purposes, I will observe that there is no evidence in the terms of the Agreements themselves of the intentions recorded in the Side Letter and that no consideration was specified in the Side Letter for CPW’s agreement to the reduction in the management fee.