UT (Tax & Chancery) UT/2023/000103 - [2025] UKUT 00102 (TCC)

One is whether the term used “domain name” admits of any ambiguity. In this regard, it is necessary to keep in mind another important principle re-affirmed in Rainy Sky, namely “Where the parties have used unambiguous language, the court must apply it.”

However, as part of the iterative process of interpretation, in deciding whether the language of the contract is clear and unambiguous, the court must test the rival interpretations against their commercial consequences, see Lewison on the Interpretation of Contracts, (8^th Edition, 2024) at 2.82, and Napier Park European Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata CLO 2 BV [2014] EWCA Civ 984, where Lewison LJ said:

“Thus we must seek to discern the commercial intention, and the commercial consequences from the terms of the contract itself; and that feeds in to the process of deciding whether a particular word or phrase is in reality clear and unambiguous. It follows in my judgment that, where possible, the court should test any interpretation against the commercial consequences. That is part of the iterative process of interpretation. It is not merely a safety valve in cases of absurdity.”

It is also necessary to be aware that deciding whether a term is ambiguous is not always easy. As Briggs LJ (as he then was) observed in Sugarman v CJS Investments Ltd [2014] EWCA Civ 1239:

“There can unfortunately be a fine dividing line between that which appears commercially unattractive and even unreasonable and that which appears nonsensical or absurd. It causes continuing difficulty in the application of English law to problems of constructions, not least because it is not unusual for apparently reasonable judicial minds to disagree on the question whether a particular contractual or other documentary provision has crossed it….”

Another relevant principle is whether one outcome or the other produces a result which is absurd. It suffices to cite Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749 at 771:

“In determining the meaning of the language of a commercial contract and unilateral contractual notices, the law therefore favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would interpret them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on the niceties of language.”

There are, however, limits on the application of commercial common sense. See for example, Lord Neuberger in Arnold v Britton [2015] UKSC 36:

“…while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of the wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill advised, even ignoring the benefit of wisdom of hindsight and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid rewriting it in an attempt to assist an unwise party or to penalise an astute party.”

First, the term used in the contract – “domain name” – appears at first sight to be clear.

Second, it is important not to ascribe to the parties the clarity of analysis which we are now able to bring to bear. By that we mean the clarity of the distinction between a domain name and the website accessible at that domain name. We recognise that “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” should reflect the imperfect knowledge of these particular contracting parties.

Third, the domain name in question was www.formwise-washrooms.co.uk. This is plainly not an inherently valuable domain name. One can think of the highly generic domains such as www.business.com which might achieve a high valuation. Indeed, this domain would only appear to have value for a business named formwise connected with washrooms.

Fourth, the valuation which had taken place produced a figure of £145,000, but it was explicitly a valuation of the domain name alone, even though the website is mentioned as part of the analysis leading to the valuation.

Fifth, it is apparent from the valuation that it relied on an analysis of the trading performance of the company. Leaving aside the question of whether this valuation approach was appropriate because the valuation by Savile appears to have been closer to a valuation of the goodwill of the business, a valuation of the domain name alone at £145,000 can only be described as absurd. Thus the valuation points fairly strongly to the point that the valuation was of domain name and website. This also means that a literal interpretation of the term ‘domain name’ appears to lead to a commercially absurd result.

Sixth, it is relevant to note that this is not a case where the parties to the relevant contract argue for different interpretations. Indeed, it appears that the parties to the contract agree on the wider interpretation that the term “domain name” includes the website. It is HMRC which argues for a different and more literal interpretation.

Seventh, it is apparent that there was a lack of care involved: no-one appears to have applied their mind to the question of what asset was actually involved in this transaction. It is clear that an appreciation that (a) a domain name and a website were different assets and (b) that a domain name on its own was of negligible value only came much later, long after the assessments were issued, in the course of preparing for the FTT hearing.

Eighth, in terms of the transaction itself, the background knowledge available to the parties at the time was that: IP could be transferred under a sale agreement; a SSAS can buy IP assets from the related employer company; domain names were a type of IP; a valuer could be instructed to provide a value for the IP which would form the basis of the sale agreement; in reliance on that value, a seller could transfer the IP to the buyer; the buyer could then license or lease the IP back to the seller in exchange for regular payments; but

nonetheless, the parties clearly intended that this transaction involved a valuable asset, precisely in order to justify the size of the sum being paid to Formwise.