Property – Settlement agreement – Interpretation – Claimant company marketing and selling leases of apartments off plan – Liquidator of claimant bringing claim alleging third defendant director dishonestly diverted monies from claimant to other companies including OP and registered sham charges over claimant’s assets – Settlement agreement being reached – Liquidator seeking declaration that OP obliged to transfer leasehold of property to claimant – Whether liquidator entitled to direct transfer under terms of settlement – Declaration granted
The claimant company was in the business of marketing and selling leases of apartments at various development properties on an off-plan basis, to foreign investors. It entered compulsory liquidation in April 2016.
The liquidator applied for a declaration that, in accordance with the terms of a settlement agreement dated 29 November 2018 another company (OP) controlled by the third defendant was obliged to transfer certain leasehold property known as Empress Mill, Empress Street Works, Empress Street, Manchester to the claimant, or otherwise to a third party nominated by the liquidator. The application was strongly contested by OP.
The liquidator alleged that the claimant was controlled by the third defendant, who she said dishonestly caused the claimant to divert to him monies received from investors, which ought properly to have been used to fund the claimant. It was also alleged that sham charges were permitted to be registered over assets of the claimant, in favour of the first defendant, a company of which the third defendant was the sole director.
On 25 September 2017, the claimant (acting by its liquidator) issued proceedings seeking an order releasing or discharging the allegedly sham charges, and also equitable compensation from the third defendant and others, in the sum of more than £14.5 million.
On 29 November 2018, the liquidator entered into the settlement agreement with nine of the 13 defendants and also OP.
The liquidator argued that, pursuant to the settlement agreement, she accrued the right to sell the claimant’s development properties free from what she considered to be the sham charges, and thereafter divide the proceeds between the claimant and the first defendant in accordance with an agreed waterfall.
Held: The declaration was granted.
(1) Interpretation was the ascertainment of the meaning which the document would convey to a reasonable person having 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. When interpreting a written contract, the court was concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”: Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896, Chartbrook Ltd v Persimmon Homes Ltd [2009] 3 EGLR 119; [2009] AC 1101 and Arnold v Britton [2015] EGLR 53; [2015] AC 1619 applied.
(2) There could be little doubt that in a commercial setting, and as here where an agreement was the result of careful negotiation over several days, with the resulting document having been prepared with the benefit of what appeared to have been competent legal advice, the court would strain to give the usual and ordinary meaning to the actual words appearing in the contract. The court would not readily interpolate words into a written contract unless it was clear that words had been omitted. If applying ordinary sense to the meaning of the words would lead to an absurdity or a manifest inconsistency with the remainder of the contract that might be one thing, but the court would not lightly engage in verbal manipulation if the actual words used in a contract make good sense without any modification. If it was to be treated as a matter of corrective interpretation, any mistake in the words used had to be clear and plain. But the burden would be an onerous one if, as here, the parties had benefitted from legal advice and the document had been the subject of a period of negotiation: Mannai Investment Co Ltd v Eagle Star Life Assurance Ltd [1997] 1 EGLR 57; [1997] AC 749 considered.
It was also uncontroversial to hold that if the provision under scrutiny was said to lead to a position otherwise than that which the parties clearly intended, and so required an amount of “corrective interpretation”, then the body of evidence before the court to make good that proposition had to be substantial.
(3) Under clause 6.2 of the settlement agreement, subject to clauses 6.3 and 6.4, the liquidator might (at her sole discretion) direct (by giving written notice to the nominated person) that OP transfer the full legal and beneficial ownership of Empress Mill (free from any encumbrance, to the claimant or any third party nominated by the liquidator, together with all rights and benefits attaching to the property, subject to having achieved the surrender of at least 50% of the leases over that property.
It had been argued that clause 6.3 was not a simple free-standing right to direct that OP transfer the ownership of Empress Mill, as claimed by the liquidator because clause 11.1.1 had to be read as bringing down a guillotine on such right as 6.3 gave rise to. However, it would not be right for the court to intervene between the parties to effectively re-write their bargain, because of a view that, it was said, the court could take as to the true intention of the parties, gleaned from an appraisal of the settlement agreement as a whole and the circumstances leading to its execution. It was not for the court to say whether the liquidator was to be time-limited in the way suggested, where it had no evidential or other basis on which it could properly rely for so holding.
(4) Pursuant to clause 6.3, the liquidator had been given a simple free-standing right to direct OP to transfer the full legal and beneficial ownership of the property to the claimant or a nominated third party which had not been limited by the operation of clause 11.1
It was plain that clause 11.1.1 expressly referred only to clause 6.2 and had put a time limit on the liquidator’s discrete right under that clause. It did not, on its face at any rate, seek to impose a restriction on the operation of clause 6.3. Accordingly, the court would make the declaration sought.
Simon Passfield (instructed by Mishcon de Reya LLP) appeared for the claimant; Emma Read (instructed by Direct Access) appeared for the defendants.
Eileen O’Grady, barrister
