ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725

Case No A3/2006/2231[2007] EWCA Civ 725
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
Venue ON APPEAL FROM MANCHESTER DISTRICT REGISTRY MERCANTILE COURT
QUEEN’S BENCH DIVISION
(HIS HONOUR JUDGE HEGARTY QC)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Wednesday, 13 th June 2007
Before
LORD JUSTICE WARDLORD JUSTICE BUXTONLORD JUSTICE MOORE-BICK
Between
ICI CHEMICALS & POLYMERS LIMITEDAppellantTTE TRAINING LIMITEDRespondent
(DAR Transcript ofWordWave International LimitedA Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
MR A LATIMER (instructed by Messrs Aaron & Partners LLP) appeared for Appellant.MS L ANDERSON QC (instructed by Messrs DLA Piper UK LLP) appeared for Respondent.
Judgment
[1]This is an appeal against an order of HHJ Hegarty QC sitting as a judge of the High Court in the Manchester Mercantile Court dismissing an application by the defendant for summary judgment against the claimant. The claimant in this case, ICI Chemicals and Polymers Limited (“C&P”), is seeking to recover from the defendant, TTE Training Limited (“TTE”), the sum of £359,763 said to be due as a debt under or pursuant to an agreement made in March 1990.[2]TTE is a company limited by guarantee which was incorporated in 1990 by three members, C&P, Shell UK Limited and Associated Octel Company Limited, which has since changed its name to Innospect Limited but which can conveniently still be referred to as “Octel”. It was established pursuant to an agreement of 6 March 1990 in order to provide vocational training to the members’ employees working in the chemical industry. In accordance with the agreement the members provided financing to TTE to enable it to perform its functions. Clause 8.10 of the agreement recorded that it was the intention of the parties that TTE should at all times have sufficient funds to meet its day-to-day operating expenses and they agreed to pay in advance their shares of the estimated amounts initially required for that purpose. It continued in these terms:
“. . . this advance will remain outstanding as a debt owed by the Centre to each Party until such time as the Centre has sufficient funds to fully or partially repay the Advance, or the Centre is wound up, or until a Party withdraws its membership of the Centre and from this Agreement. If the Centre is wound up, the Advance will be re-paid to the Parties less any outstanding Operating Expenses or costs of Capital Items attributable to that Party. If a Party withdraws its membership of the Centre and from this Agreement, the advance will be re-paid to that Party less any outstanding operating expenses or costs of Capital Items attributable to that Party at the end of that particular Academic Year.”
It is common ground that none of those events had occurred at the time of the agreement with which this appeal is concerned. By clause 15 the agreement of 6 March 1990 was expressed to remain in force until terminated by agreement between all the parties or until TTE was wound up.[3]Between March 1990 and December 1994 the members of TTE paid various amounts to the company to enable it to carry out its training functions. Some of those funds which were not immediately required for that purpose were subsequently designated by TTE in its accounts as “members’ funds”, indicating that they were potentially repayable to the members by whom they had been contributed. It was common ground for the purposes of the application before the judge that as at 31 December 1995 a sum of £495,004 was shown in the company’s books as members’ funds and that on 18 February 1999 the directors had resolved to designate the members’ funds as current liabilities in its accounts. It was also common ground that the bulk of that sum, £359,763, had been contributed by C&P.[4]In or about 2001 C&P sold the assets relating to part of its chemical business at Runcorn to another company now known as Ineos Chlor. It was that part of its business which had given rise to the training requirement that had been met by TTE and so, following the sale of the business, C&P had no further need of those facilities. On the other hand Ineos Chlor, which had taken over the business, did have a need for training and it was therefore sensible for it to become a member of TTE in place of C&P.[5]That was the context in which C&P entered into an agreement with Shell, Octel, TTE and Ineos Chlor dated 10 June 2002 which lies at the heart of the present appeal and to which it is therefore necessary to refer in some detail. The agreement was drafted by Mr David Edwards, then the company secretary of TTE, who says in a witness statement made for the purposes of the application that he was asked to prepare an agreement to enable Ineos Chlor to step into the shoes of C&P. That was to be achieved by the withdrawal of C&P and the admission of Ineos Chlor as a member of TTE and by the transfer from C&P to Ineos Chlor of all rights and obligations in relation to TTE, other than any liability there might be for existing breaches of contract (although no one was aware of any at the time).[6]The parties to the agreement of 10 June 2002 were C&P, Shell, Octel, Ineos Chlor and TTE itself. Having referred in the first paragraph of the recitals to the agreement of 6 March 1990, it continued as follows:
“WHEREAS . . . . . . . . . . B) C&P wishes to cease to be a member of the Centre “C) Ineos has agreed to become a member of the Centre and wishes to become a party to the Principal Agreement in place of C&P on the terms of this Agreement. “D) This Agreement is supplemental to the Principal Agreement.”
[7]The operative provisions of the agreement are to be found in clauses 2 and 3 which provided as follows:
“2. Principal Agreement With effect from the date of this Agreement:- 2.1 Ineos will assume the rights and be bound by the obligations of C&P under the Principal Agreement or otherwise in respect of the Centre (other than any obligations in relation to which C&P may be in breach of the Principal Agreement); 2.2 The expression “the Parties” and any similar expression contained in the Principal Agreement will be read and construed as though they included Ineos; and 2.3 Shell, Octel and the Centre release and discharge C&P from any further obligations under the Principal Agreement. 2.4 C&P will cease to be a member of the Centre. 3. Miscellaneous 3.1 Save as expressly amended by this Agreement, the Principal Agreement will continue in full force and effect and this Agreement and the Principal Agreement will be read and construed as one Agreement.”
It is unnecessary to refer in detail to clauses 3.2 and 3.3.

With effect from the date of this Agreement:-

[8]It appears that from an early stage after the execution of the agreement C&P took the view that, notwithstanding its terms, it was still entitled to recover from TTE the balance of the funds that it had provided prior to June 2002 which were not required to enable TTE to carry out its operations. Eventually on 18 May 2006 it began proceedings against TTE in the Mercantile Court in Manchester to recover that balance as an outstanding debt.[9]In its defence TTE denied that the members’ funds constituted a debt payable to the members of the company. It also alleged that since the members were obliged to provide funds needed to meet the company’s operating expenses the members’ funds should be set off against, and in the case of C&P were extinguished by, the operating losses it had incurred during the period 1992 to 2002. More importantly for present purposes however, TTE relied on the agreement of 10 June 2002 as constituting a novation in favour of Ineos Chlor of C&P’s rights under the agreement of 6 March 1990 and any other rights it might have or acquire against TTE.[10]On 21 June 2006, TTE issued an application under CPR Part 24 for summary judgment against C&P on the grounds that by reason of the agreement of 10 June 2002 the claim was bound to fail. Although the argument had not been foreshadowed in its defence, on the hearing of the application TTE also sought to rely on a letter dated 6 December 2000 written by C&P to its auditors in which C&P said that it regarded the excess contributions as recoverable at such time as TTE and its three members determined. It was said that the letter evidenced an agreement that the funds in question were not to be repayable on demand, but only at a time agreed by all the members and TTE itself. It was not suggested that there had been any such agreement at the time the proceedings were brought.[11]The first of these arguments raises a short point of construction which on the face of it the court could conveniently decide on an application of this kind. Indeed the judge invited the parties to agree that he should decide it as a preliminary issue, but they were unwilling for him to take that course. Counsel for TTE apparently was unable to obtain instructions to enable him to agree to it and counsel for C&P was reluctant to do so because of the potential relevance, so it was said, of extrinsic evidence not then before the court. The judge therefore proceeded on the footing that it was necessary for him to decide only whether C&P had a real prospect of succeeding in its claim notwithstanding the terms of the agreement of 10 June 2002.[12]In my view the judge should have followed his original instinct. It is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent’s case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant’s case is bad in law, the sooner that is determined, the better.[13]In cases where the issue is one of construction the respondent often seeks to persuade the court that the case should go to trial by arguing that in due course evidence may be called that will shed a different light on the document in question. In my view, however, any such submission should be approached with a degree of caution. It is the responsibility of the respondent to an application of this kind to place before the court, in the form of a witness statement, whatever evidence he thinks necessary to support his case. Where it is said that the circumstances in which a document came to be written are relevant to its construction, particularly if they are said to point to a construction which is not that which the document would naturally bear, the respondent must provide sufficient evidence of those circumstances to enable the court to see that if the relevant facts are established at trial they may have a bearing on the outcome.[14]Sometimes it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial. In such a case it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.[15]In the present case C&P did not seek to put forward any evidence of the background to the agreement beyond the fact that it had been entered into in connection with the sale of part of its business to Ineos Chlor. Its solicitor, Mr Dolan, who made a witness statement on its behalf in opposition to the application, referred at length to correspondence and other documents, some of which are said to reflect an understanding on the part of one or other party that the members’ funds were repayable. However, that does no more than support C&P’s argument that TTE, and perhaps others, considered that the funds in question were held for the benefit of the members.[16]Miss Anderson QC submitted that it was not possible at this stage for C&P to put forward evidence of the background to the agreement, since on the sale of the business all the relevant documents had been transferred to Ineos Chlor and C&P no longer had access to them. I do not find that submission very persuasive. The commercial men who were involved in the sale of the business to Ineos Chlor and in the negotiations with the other parties to the agreement of 5 March 1990 must surely have some recollection of the nature of the exercise and the circumstances in which these agreements came to be signed and could at least have put their account before the court. No attempt has been made to do so.[17]None of the materials to which Mr Dolan refers has any real bearing on the question of construction raised on this application; nor does the suggestion that disclosure might bring to light other documents which would shed light on how the funds were treated by the members or by TTE itself carry the matter any further. In those circumstances there was no basis in my view on which the judge could be satisfied that any evidence bearing on the construction of the agreement was likely to emerge at a trial.[18]This was a case, therefore, in which all the relevant material was before the judge and in which the parties were ready, as they subsequently demonstrated, to argue the point fully. In my view, therefore, he ought to have proceeded on the basis that the agreement bore its natural meaning and that since that involved a short question of construction he could and should determine the issue. In the event, however, the judge approached the question of construction on a strictly provisional basis. He noted that clause 2 was expressed to operate “with effect from the date of this agreement” and concluded that it was arguable that the agreement had no effect on accrued rights, including C&P’s right to recover its share of the members’ funds. On that basis he refused the application.[19]The dispute over the construction of the agreement of 10 June 2002 lies in a very small compass. In substance it is whether with effect from 10 June 2002 Ineos Chlor was substituted for C&P as a member of TTE not only for the future, but also in respect of existing rights and obligations, subject to any exceptions for which the agreement provided; or whether it became a member of TTE and a party to the agreement of 6 March 1990 only for the future. I have already referred to the only aspect of the factual background which is relevant to the construction of that document, namely, the transfer by C&P to Ineos Chlor of the business to which the training facility operated by TTE related. However, that fact seems to me to be essentially neutral since it does not point clearly in favour of either construction. It would make just as much sense from a commercial point of view for Ineos Chlor to take over C&P’s membership solely for the future as it would for it to take over its position both in relation to the future and the past. The only difference would be the financial consequences, which would be a matter for determination between Ineos Chlor and C&P. So in my view the commercial background provides no real assistance and one is thrown back on the language of the agreement itself.[20]The expression “with effect from the date of this agreement”, which introduces clause 2, loomed very large in the parties’ arguments before the judge, though less so in their arguments before this court. In my view it does not itself take the matter very far, being consistent with either construction: it may have been intended to indicate that the agreement, albeit retrospective in operation, was to come into effect on 10 June 2002, or it may have been intended to mean that it was to relate only to rights and obligations arising on and after 10 June 2002. In my judgement, however, clause 2.1 does contain a clear indication that the parties intended that Ineos Chlor should take over C&P’s existing rights as well as rights and obligations arising under the agreement in the future. As I have already mentioned, it provides as follows:
“Ineos will assume the rights and be bound by the obligations of C&P under the Principal Agreement or otherwise in respect of the Centre (other than any obligations in relation to which C&P may be in breach of the Principal Agreement).”
[21]That clause too could be said to be neutral were it not for the reference to obligations in relation to which C&P may be in breach of the Principal Agreement. The words in parenthesis can only refer to obligations which fell due for performance prior to 10 June 2002 and must have been included to make it clear that Ineos Chlor was not assuming any such obligations of which C&P was already in breach, whether known of or not. It follows that Ineos Chlor was intended to assume all C&P’s other obligations, primarily of course obligations arising for performance after the date of the agreement. However, the fact that those words form part of a single sentence dealing in general terms with rights and obligations indicates that the reference to rights was also intended to encompass rights in general, both those that had already accrued and those that would accrue in the future. Had the draughtsman intended to exclude accrued rights, he would, in my view, inevitably have qualified the general reference to “rights” by some words excluding accrued rights, if indeed he had not chosen to draft the clause in a different way altogether so as to make it clear that Ineos Chlor only became a party to the agreement for the future and thus only assumed rights and obligations that accrued after its date. In my judgement, therefore, one finds in these words a clear pointer in favour of the construction put forward by TTE.[22]Miss Anderson submitted, however, that that was not the correct construction, essentially for two related reasons. The first was that the word “rights” is not apt to refer to an asset such as a debt. In my judgement, however, that argument is not well-founded. A right to claim a debt is a right just like any other right and the word is used in this clause in an all-embracing sense which in my view is quite capable of covering the right to recover a sum of money paid to fund the operations of TTE as and when it might arise.[23]Miss Anderson’s second reason was that it would be very odd for C&P and Ineos Chlor to have dealt with just one of the assets of the business in this agreement while dealing with all other assets in the agreement for the transfer of the business itself. How the parties chose to deal with C&P’s assets, however, was entirely a matter for them. One can understand that it might have been tidier for the agreement dealing with the transfer of the business to have covered this particular asset, but the parties may have thought that it was more convenient to deal with it in the context of transferring the membership of TTE from C&P to Ineos Chlor. Whether the agreement for the transfer of the business made any reference to this particular debt we do not know. The only question we have to decide is whether this particular clause on its true construction is apt to extend to the right to recover any sum of money that might be or become due from TTE.[24]In my judgement the effect of this agreement was to place Ineos Chlor in the shoes of C&P for all purposes in relation to TTE, other than liabilities arising from any existing breach of the contract of 6 March 1990. That was a perfectly sensible commercial arrangement, given that the existence of any existing liability was, according to Mr Edwards, little more than speculation and its amount unquantifiable. In my view none of the other terms of the agreement point clearly in favour of one or other construction, being consistent with either view. Thus, paragraph C) of the preamble speaks of Ineos Chlor wishing to become a party to the Principal Agreement “in place of” C&P, but is silent as to whether that is for the future only or for the past as well. Similarly, in clause 2.3 Shell, Octel and TTE release and discharge C&P from any “further obligations” under the Principal Agreement, but again in my view that is consistent with either construction.[25]Miss Anderson suggested that some assistance could be derived from the use of the word “include” in clause 2.2, but I find that difficult to accept in an agreement worded as this one is. Since the agreement of 6th March 1990 would continue to govern the relationship of the parties after ICI had ceased to be a member, it would not be wholly appropriate for the expression “the Parties” to include both C&P and Ineos Chlor in relation to matters occurring after 10th June 2002, although even in that context the word “include” may be loosely used to mean “refer to”. However, it would be appropriate for both to be treated as parties in relation to events occurring before that date if C&P remained liable in respect of some obligations (as it did) and Ineos Chlor assumed existing rights. If anything, therefore, I am inclined to think that this clause tends to support TTE’s argument.[26]At this point it may be appropriate to mention briefly a letter written by C&P to TTE on 20 June 2002 in which C&P said:
“However, the purpose of this letter is to record with you that the amount shown in your records as owing to [C&P] (£359,763) should continue to be shown as owing to [C&P] and not to Ineos Chlor Ltd.”
It is possible that this letter was written before the agreement dated 10 June 2002 was finally ratified but its context is not otherwise explained.[27]Miss Anderson suggested that the letter shows that at the time the agreement was signed C&P did not intend to assign the debt represented by its share of the members funds, and that if the agreement had that effect it may be entitled to seek rectification. A claim for rectification raises quite different issues, of course. There is no claim for rectification in the present action and it is not a matter with which we are concerned. We are concerned solely with the question of construction, on which C&P’s subjective opinion as to the effect of the agreement has no bearing.[28]In my judgement the agreement on its true construction did have the effect of transferring to Ineos Chlor with effect from 10 June 2002 all existing rights of C&P in relation to TTE, including any right that may have existed at that time to recover its share of the members’ funds. That being so, the claim has no real prospect of success; indeed it is bound to fail.[29]That makes it unnecessary to consider TTE’s alternative argument based on a letter from C&P to the auditors of TTE dated 6 December 2000 and I shall therefore deal with it briefly. In that letter C&P expressed the view that the sum due in respect of members’ funds was recoverable at such time as TTE and its three guarantors might determine. The fact that it was C&P’s understanding that advances should not be repaid until that position had been reached is also, in my view, beside the point. It is not suggested that this letter gave rise to any variation of the agreement of 6 March 1990, or to some collateral agreement binding upon the parties or even to an estoppel of some kind. Nothing of that kind has been suggested and no basis for any such argument is to be found in evidence. In my view the judge was right to treat this letter simply as part of the evidence before him, though even then it is difficult to see how it could have any bearing on the construction of the agreement with which we are concerned.[30]For these reasons I would allow the appeal.[31]I entirely agree. I would venture to add one very short footnote. In the forefront of her forceful and comprehensive arguments, Miss Anderson QC placed the contention that the claim that C&P made upon TTE was for the recovery of a debt. That being so, she said, it was a claim in respect of an asset, and therefore it was arguable that it would have been dealt with other than through the medium of clause 2.1 of this agreement, which refers to rights and not to assets.[32]The agreement however says:
“Ineos will assume the rights and be bound by the obligations of C&P under the Principal Agreement or otherwise in respect of the Centre.”
I would emphasise the last part of that statement. The liability that C&P asserts under the agreement and under this claim is indeed that a liability arises under the principal agreement or otherwise in respect of the Centre as shown in the Centre’s accounts. That debt may well be shown as an asset in the company accounts of C&P, but it is not a claim in respect of an asset that C&P asserts under the principal agreement. The claim is quite clearly one to a right to repayment and is certainly so stated in the points of claim.[33]For that reason therefore I would not accept Miss Anderson’s characterisation in terms of an asset and, as I have already indicated, I would agree with all the rest of that which has fallen from my Lord.[34]I agree with both judgments and so the appeal is allowed. The claim is dismissed. It follows that the cost order against the defendant must be set aside.

Order

Appeal allowed.

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