Q- Park Ltd. & Ors v HX Investments Ltd [2012] EWCA Civ 708

[2012] EWCA Civ 708Case No A3/2011/3028
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Venue LEEDS DISTRICT REGISTRY[2011] EWHC 2758 (Ch)
HHJ ROGER KAYE QC (sitting as a Judge of the High Court)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 31/05/2012
Before
LORD JUSTICE MAURICE KAY (VICE PRESIDENT OF THECOURT OF APPEAL, CIVIL DIVISION)LORD JUSTICE STANLEY BURNTONLORD JUSTICE KITCHIN
Between
(1) Q-Park LimitedClaimants/(2) Ringway Airpark LimitedRespondents(3) Q-Park Securities LtdRespondent(4) Universal Parking LimitedRespondent(5) Q-Park (Liverpool) LimitedRespondentHX Investments LimitedDefendant/
Tom Leech QC (instructed by DWF LLP) for Claimants/RespondentsMark Warwick (instructed by Addleshaw Goddard LLP) for Defendant/AppellantHearing Hearing dates: 3 May 2012
Judgment

Introduction

[1]This is an appeal against a judgment of HH Judge Roger Kaye QC sitting as a judge of the High Court dated 3 November 2011 concerning the proper interpretation of an option agreement made on 2 October 2007 between the five respondents (collectively “Q-Park”) and the appellant (“HXI”). By that agreement HXI was granted an option to buy Q-Park’s interests in certain airport car parks.[2]The main issue decided by the judge and the only one arising on this appeal is whether, during the term of the option agreement and assuming HXI chooses not to exercise its option, Q-Park may sell their airport car parks individually to different purchasers, as Q-Park contend, or whether they may only sell them collectively to a single purchaser, as HXI contends. The judge found in favour of Q-Park and HXI now appeals against his decision and consequential order.

Background

[3]The essential background facts are not in dispute and may be summarised as follows. In 2007 Q-Park owned interests in five car parks at Newcastle, Glasgow, Manchester and Gatwick airports. They owned an interest in one car park at each, save for Manchester, where they owned an interest in two, Carminder and Ringway. In addition, Q-Park owned and operated through a subsidiary called BCP Limited (“BCP”) a business marketing and selling car park spaces.[4]The group of companies of which HXI forms part (“the HXI group”) conducts a business offering extras such as hotel accommodation, airport car parking and travel insurance to members of the public going on holiday. In 2007 the HXI group car parking business had two aspects to it, namely the operation of car parks, and the marketing and selling of car park spaces.[5]The HXI group considered BCP to be a significant competitor on the sales and marketing side and so, on 13 August 2007, a meeting was arranged in order to discuss ways of developing their businesses to their mutual benefit. One aspect of the discussions concerned the possible sale by Q-Park to the HXI group of the share capital in BCP. Another concerned the possibility of Q-Park entering into management agreements with the HXI group whereby Q-Park’s car parks would be managed on a long term basis, say 20 years, by the HXI group.[6]Negotiations continued over the next few weeks, in the course of which Q-Park disclosed to the HXI group a document they had prepared dated 17 August 2007 entitled “Q-Park UK Off Airport parking operations” (“the Q-Park document”). Under the heading “Executive summary” it stated: “The changing off airport market, lack of fit with other Q-Park operations and momentum for change have driven Q-Park to reconsider the position of UK Off Airport parking within its portfolio. - The changing off airport parking market requires a web-centric, cost efficient business model that is different to Q-Park’s core premium parking business model. - The departure of senior BCP management creates the momentum for change, and has led to the start of a significant improvement programme integrating BCP and airport sites more closely. - Q-Park has started to consider the future of off airport parking within its portfolio. Key options: 1. Q-Park executes the improvement program and continues to build operations at Heathrow and Manchester Ringway up to full pace, realising up to £2.7m EBITDA improvements. Mismatch of off airport business with the rest of core Q-Park businesses, remains a concern. 2. Q-Park sells the Off Airport business to another player who can leverage scale, realise synergies and derive greater value from the combined entities”.[7]By late September 2007 substantial work had been carried out to prepare a series of draft agreements between Q-Park and various companies in the HXI group. They included a draft agreement for the purchase by HXI of the entire issued share capital in BCP and draft long term management agreements for each of the car parks. Then, at a very late stage in the negotiations, HXI raised the possibility of acquiring an option to purchase Q-Park’s property interests in the car parks.[8]By 2 October 2007 a series of agreements had been finalised between the parties and they were all completed on that day. They fall into three categories: i) A share sale agreement in respect of the entire share capital in BCP by the fourth respondent to HXI for £5,062,329. ii) Five management agreements between, in each case, the Q-Park company which owned the property interest in a particular car park and APS Management Limited (“APS”), a company in the HXI group. The management agreements were to last until 1 July 2027, save that in the case of the two Manchester car parks which were owned under leases, the agreements were to run until expiry of the leases, subject to renewal. Under the agreements APS agreed to manage, supervise and maintain each car park and to pay fees to Q-Park calculated, after six years, by reference to any increase in revenue. iii) The option agreement under which HXI was granted the option to acquire Q-Park’s interests in the car parks, whatever they might be. This was executed as a deed.[9]The option agreement contains the following relevant definitions:
““Car Parks” means the properties at Bellair, Cellerton Lane, Newcastle Airport; Linwood, Glasgow Airport; Carminder/Flyaway, Thorley Lane, Manchester Airport; Ringway, Isherwood Road, Manchester Airport; Charlwood Road, Gatwick Airport as more particularly described in Part 1 of Schedule 1. “Deposit” means 10% of the Price. “Option” means the option for HXI to purchase such estate right and title as the Seller or each of them has in the Car Parks as set out in Schedule 1 on the terms of this Agreement. “Option Notice” means notice exercising the Option signed by or on behalf of the Buyer and substantially in the form set out in Schedule 2. “Option Period” means the period from and including the date hereof to and including 30 June 2027. “Pre-Option Notice” means written notice from HXI to the Seller indicating that HXI is contemplating exercising the Option (signed by or on behalf of the HXI) which expressly refers to all Car Parks where any Management Agreement has been determined … “Price” means Fifty Million four hundred and forty thousand pounds (£50,440,000.00) plus VAT (being the book value of the Car Parks in the accounts of the Sellers as at the date of this Agreement and apportioned in relation to each Car Park as set out in Schedule 1) subject to increase in accordance with the provisions of Clause 2.4 of this Agreement. “Seller” means such of Q-Park, Universal, Securities, Liverpool and Ringway as have any interest in the Car Parks (and their successors and permitted assigns under this Agreement).”
[10]Clause 2 contains the grant of the option and provides, so far as material: “2 GRANT OF THE OPTION2.1 The Seller grants the Option to HXI.2.2 The Option shall be exercised by HXI sending the Option Notice together with the Deposit to the Seller’s Solicitors at any time during the Option Period provided that HXI has served a Pre-Option Notice (if one is applicable) not less than 3 months before the Option Notice.2.3 On exercise of the Option the Seller (or such of them as has any such interest in the relevant Car Park) shall sell and HXI shall buy. (a) the Car Parks ….2.4 the Price shall be Fifty Million four hundred and forty thousand pounds (£50,440,000.00) plus VAT or, if greater, an amount equal to the product of multiplying such amount by the Index for the month preceding the purchase and dividing the result by the Index for the month preceding 1 July 2009. …. 2.8 The Option shall cease in respect of a Car Park in the event that the Management Agreement for that Car Park is lawfully terminated by the Seller for breach in which case the expression the “Car Parks” shall from the time of such termination be deemed to refer just to the remaining Car Parks in respect of which the Management Agreements have not been determined (and the Price shall be adjusted according to the relevant book value) unless the Seller notifies HXI within 1 month following receipt by the Seller of the relevant Pre-Option Notice that it requires HXI to acquire its interest in respect of such Car Park in any event. …. 2.13 Where and to the extent that the Seller’s interest in a Car Park ceases or is varied in accordance with provisions for cesser or variation as contained at the date of this Agreement in a Lease, then the Option shall lapse to the extent that the Seller’s interest ceases or is determined by such variation in which case references in this Agreement to the Car Parks shall be to the Seller’s retained interest (or to the varied interest where the variation results in a different holding for the Seller) but this Option shall otherwise continue in full force and effect in respect of the Seller’s continuing interests in the relevant Car Parks or part thereof upon the Seller’s interest so ceasing. 2.14 Subject to Clause 2.8, HXI shall not be entitled to exercise the Option (and the Seller shall not be obliged to transfer) other than in respect of all the Car Parks and the remainder of the Ringway Estate and the remainder of the Glasgow Estate.” (a) the Car Parks ….[11]In broad terms, HXI was therefore granted an option to buy the car parks for £50.44 million. In the event of termination of the management agreement in respect of a particular car park for breach, the option continues in respect of the other car parks. Similarly, if and to the extent that Q-Park’s leasehold interest in a car park comes to an end, the option continues in relation to Q-Park’s continuing interests in the other car parks. Importantly, the option may only be exercised in relation to all the car parks.[12]Clause 3 is of crucial importance, containing as it does restrictions on the disposal of the car parks by Q-Park. It reads, so far as material:
“3 RESTRICTIONS ON DISPOSAL 3.1 The Seller shall not during the Option Period dispose of any interest in the Car Parks (or any of them or any part of them) without first complying with the provisions of Clause 3.2 below. 3.2 In the event that the Seller wishes to effect a bona fide disposal of its interest in the Car Parks to a third party it must first give written notice to HXI of such intention and if within 2 months and 5 Working Days of such notice HXI has not served the Option Notice and paid the Deposit then the Seller shall be free to sell the Car Parks at any time within 6 months of expiry of such 2 month and 5 Working Days period free from the Option and upon such sale the Option shall cease and determine Provided that if such sale is not effected within such 6 month period then this Option shall continue in full force and effect and this process shall be repeated as often as necessary and Provided Further that the Seller shall not be entitled to serve any such notice (and any notice served prior to such date shall be void) before 1 January, 2008. 3.3 Intra group transfer to be permitted provided transferee enters into deed of covenant with HXI to observe and perform the covenants and conditions contained in this Option and such transfer does not materially diminish the open market value of the interest of the Seller or such Group Company. 3.4 The Seller shall be free to charge its interest in the Car Parks without the consent of HXI where undertaken in the ordinary course of the Seller’s business provided such charge is expressly made subject to this Option Agreement provided further that any notice served on HXI by such chargee shall be deemed to be the notice of the Seller and such chargee shall have the same entitlements as the Seller hereunder. 3.5 (Save as set out in Clause 3.3) the Seller shall not create any encumbrance over the Car Parks without the consent of HXI (which consent shall not be unreasonably withheld or refused but which may be refused in HXI’s absolute discretion where such encumbrance would or might materially adversely impact on operations at the Car Park or would or might materially diminish the open market value of the Seller’s interest in the Car Park (even though it may not at that time intend to dispose of that interest) unless the Seller makes up such diminution or adverse impact) and provided that HXI shall negotiate with the Seller in good faith in relation to the Seller’s proposals. For the purposes of this Agreement “encumbrance” includes, without limitation, any easement, restrictive or positive covenant, lease or right of occupation use or enjoyment of the Car Parks (or any of them or any part of them).”
[13]Again, in broad terms, the option period of 20 years coincides with term of the management agreements. HXI was entitled to exercise the option at any time until 1 January 2008. Thereafter, Q-Park were and remain entitled to sell the car parks but only after giving HXI notice. Upon service of such notice, HXI has a period of just over two months to serve a notice exercising the option. If it does not serve such a notice and pay the relevant deposit then Q-Park have a period of six months in which they may sell the car parks free from the option.[14]Finally, I should refer to Schedule 1 to the option agreement which contains a description of the car parks and specifies the book value of each them. The values vary considerably, the most valuable being Gatwick valued at £26.6 million and the least valuable being Carminder, Manchester valued at £1.[15]The management agreements each contain substantially the same clause 10.3:
“The parties shall, within 7 days of written notice from Q-Park at any time during the term of this agreement, execute a Deed of Novation (in such form as Q-Park reasonably requires) with any third party purchaser of Q-Park’s interest in the Car Park (the “Purchaser”) and Q-Park shall procure that such Purchaser shall enter into such Deed of Novation so that Q-Park’s rights and obligations under this Agreement shall be novated to and made enforceable by PHL [APS] against the Purchaser with effect from the date of the purchase. ”
[16]By letter dated 21 December 2010, Q-Park wrote to HXI giving notice that the notice period had expired. Then, in March 2011, it came to the attention of HXI that Q-Park had begun to market the car parks and were offering them for sale individually and collectively as a portfolio. HXI considered this was not permissible under the terms of the option agreement. Q-Park did not agree and so issued these proceedings seeking declaratory relief as to the true construction of clauses 3.1 and 3.2. The matter came on for trial on 15 September 2011. The judge had evidence before him in the form of witness statements, but the relevant background being largely undisputed, cross examination proved unnecessary.

The judgment

[17]Q-Park’s case before the judge was that they are entitled to market the car parks individually and collectively. They argued that their obligation under clause 3.2 is restricted to not disposing of the car parks without first complying with the notice requirements that clause contains and further, that they are entitled to serve notice where they wish to dispose of one or more of the car parks individually.[18]HXI countered that, on its proper interpretation, clause 3.2 prevents Q-Park from selling or serving notice under clause 3.2 in respect of individual car parks. It argued that Q-Park are restricted to serving a notice in respect of the car parks collectively.[19]The judge preferred the submissions of Q-Park. In summary, he considered it significant that whilst there is clear wording limiting the exercise of HXI’s option to the car parks collectively, there is no such clear wording restricting Q-Park in their own dealings with the car parks, save for the requirement they must first comply with clause 3.2.[20]As for the wording of clauses3.1 and 3.2, the judge accepted Q-Park’s submission that the term “Seller” is used flexibly throughout the agreement, sometimes to refer to an individual seller company and on other occasions to the seller companies collectively. He concluded that the reference to “Seller” in clause3.2 is capable of referring to each of the defined sellers individually. He also attached weight to the words of clause 3.1 which he believed to be consistent only with Q-Park’s interpretation.[21]Finally, the judge considered that it would have needed clear words to tie up the car parks as a collective unit for 20 years, and they were not to be found in the option agreement.

The appeal

[22]On this appeal the parties have been represented as they were before the judge. Mr Mark Warwick has appeared on behalf of HXI and Mr Tom Leech QC has appeared on behalf of Q-Park.[23]Mr Warwick submitted the judge’s reasoning was erroneous in a number of detailed respects, to which I shall come. But in essence he contended that the judge failed to give effect to the plain and ordinary meaning of the key parts of the option agreement; that the judge wrongly ignored the Q-Park document which signified why Q-Park were seeking to sell the car parks; and that in consequence the judge failed to take into account the reason why HXI wished the car parks to be retained and sold as a package, namely that this would enable it, in Q-Park’s own words, to “leverage scale, realise synergies and derive greater value from the combined entities”.[24]Mr Leech submitted that the judge was right for the reasons which he gave. He contended the language used in clauses3.1 and3.2 of the option agreement supports Q-Park’s construction and further, the construction contended for by HXI is capable of producing unreasonable or absurd results.[25]There was no dispute as to the principles governing the correct approach to the interpretation of a contract. The question is 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 of the contract to mean. As Lord Clarke explained in Oceanbulk Shipping SA v TMT Asia Ltd [2010] UKSC 44, [2011] 1 AC 662 at [40], the background knowledge may well include objective facts communicated by one party to the other in the course of the negotiations.[26]I begin with the option agreement and the grant of the option itself. Under clause2.1 Q-Park granted to HXI a single option to purchase the car parks. It is not a series of options over different car parks. Thus clause2.2 provides for the sending of a single option notice; clause2.3 makes clear that, on exercise of the option, Q-Park, must sell the car parks to HXI; a single price is fixed by clause 2.4; and the matter is put beyond doubt by clause 2.14 which specifies that HXI is only entitled to exercise the option in respect of all the car parks.[27]Clause 2 expressly contemplates two specific circumstances in which all the car parks will not be bound by the option. Clause 2.8 deals with the case where the management agreement in respect of a particular car park is terminated by Q-Park for breach, in which case that car park drops out of the definition of Car Parks, and the price to be paid upon exercise of the option in respect of the remaining car parks is adjusted according to the book values.[28]Clause 2.13 deals with the case where Q-Park has a leasehold interest in a car park which comes to an end. In this case the option lapses to that extent but otherwise remains in effect in respect of the remaining car parks.[29]That brings me to clause 3. This contains the restriction upon disposal. Clause 3.1 prohibits Q-Park from disposing of any interest in the car parks without complying with the notice provisions of clause 3.2. Both sides sought to draw support from the words:
“… the Car Parks (or any of them of any part of them) …”
. Mr Leech contended the words in parentheses would be unnecessary if Q-Park were only entitled to serve a notice of their intention to dispose of all the car parks collectively. Mr Warwick countered that if these words had not appeared then it would have been arguable that, although Q-Park were not permitted to dispose of an interest in the car parks collectively without complying with the provisions of clause 3.2, it would have been permissible for them to dispose of an interest in a single car park or part of a car park. In my judgment the words are consistent with the interpretations contended for by both sides and so provide no assistance in resolving the issue at the heart of this appeal. For that, it is necessary to turn to clause 3.2.[30]I have explained the general scheme of the notice provision contained in clause 3.2. Mr Warwick acknowledged that the term “Seller” is sometimes used in the singular sense and sometimes in the plural. This, he said, is not surprising because there were several car parks with different owners. But, he continued, much more significant and ignored by the judge is the use of the plural term “Car Parks” where all the car parks are referred to. Hence the use of the term “Car Parks” in clause 3.2 is only consistent with a right to give notice only in respect of the whole portfolio.[31]Attractively though Mr Warwick advanced this submission, I find myself unable to accept it. In my judgment “Seller” in clause 3.2 refers to each of the respondents individually. Such is clear from the context in which it is used:
“In the event the Seller wishes to effect a bona fide disposal of its interest in the Car Parks to a third party it must give written notice …”
(emphasis added).[32]Seller is used in the same sense in clause 3.4 which provides that the Seller may charge “itsinterest in the Car Parks” (emphasis added) without the consent of HXI subject to the terms of the clause. Mr Leech submitted, and I agree, that this is not only the natural meaning of the language but also that the alternative interpretation would lead to the unreasonable result that Q-Park’s ability to raise finance would be severely restricted because they could not charge an individual car park without HXI’s consent for a period of 20 years. Moreover, on HXI’s interpretation, the lender would not be able to realise its security by selling the particular car park the subject of the charge. The final words of the clause: “provided further that any notice served on HXI by such chargee shall be deemed to be the notice of the Seller and such chargee shall have the same entitlements as the Seller hereunder” would mean that the lender was constrained to sell the car parks collectively.[33]As for the use of the plural term “Car Parks”, I do not believe this is inconsistent with Q-Park’s interpretation. As has been seen, “Seller” is defined as “such of Q-Park, Universal, Securities, Liverpool and Ringway as have any interest in the Car Parks (and their successors and permitted assigns under this Agreement)”. If these words are substituted for the term “Seller”, then clause 3.2 reads as follows:
“In the event that such of Q-Park, Universal, Securities, Liverpool and Ringway as have any interest in the Car Parks (and their successors and permitted assigns under this Agreement) wishes to effect a bona fide disposal of its interest in the Car Parks to a third party it must first give written notice to HXI of such intention …..”
In other words, notice must be given of an intention to sell whatever interest in the car parks the seller may have.[34]Mr Warwick placed particular emphasis on the nature of the option. He submitted the language of the option shows there is a single option over all the car parks, not a series of options over different car parks. In this regard, he focused upon the terms of clause2.1 and2.2 and the definitions of “Deposit” and “Price”. He also pointed to the terms of clause 2.8 and 2.13 which cater for special cases where a management agreement of a car park has ended or the seller’s interest in a lease of a car park ceases or is varied. If the term “Car Parks” includes any car park why, he asked, are there these detailed provisions in the option agreement? He also questioned how the provisions of clause 3.2 can work on Q-Park’s interpretation. As he put it, if a sale pursuant to a clause 3.2 notice does not take place “then this Option shall continue in full force and effect and this process shall be repeated as often as necessary…”. How, he asked, can this provision apply if car parks can be sold off piecemeal?[35]The first answer to these submissions is that they assume that the restriction on disposal contained in clause 3 is a mirror of the option contained in clause 2. I accept that the option is limited to the car parks collectively. But that does not mean to say that Q-Park agreed not to dispose of the car parks individually for 20 years and, as I have said, on a natural reading of the words used in clause 3, they did not. In this regard, I consider the difference in the wording of clauses 2 and 3 is striking. Clause 2.14 makes clear that HXI is only entitled to exercise the option in respect of all the car parks. But there is no equivalent restriction upon disposal in clause 3. That simply provides that notice is to be given of an intention by the Seller to dispose of its interest in the car parks, whereupon, if no option notice is served, the Seller has a period of time in which it may dispose of its interest in the relevant car parks free from the option. If it does not then the option continues in full force and effect.[36]How then is the option to apply if the car parks are sold off piecemeal? To my mind this presents no difficulty. If Q-Park’s interest in any car park ceases then the option continues to apply to the remainder and the price and deposit are adjusted according to the book values in the schedule.[37]That brings me to clauses 2.8 and 2.13. Mr Warwick submitted that because these clauses provide for specific circumstances in which individual car parks would cease to be bound by the option, so also they provide the only circumstances in which individual car parks would cease to be bound.[38]In response to this submission, Mr Leech identified two other situations in which individual car parks might be removed from the scope of the option, both of which are, in my judgment, entirely reasonable. The first concerns the car park at Gatwick. In October 2006 a restriction was entered in the proprietorship register in respect of an equitable charge over this car park in favour of Cooperative Centrale Raiffeissen-Boerenleenbank RA, otherwise known as RaboBank. The security rights of RaboBank over the Gatwick car park have priority over the option agreement and, in the event of default, the bank would be entitled to sell it. Yet the option agreement would continue in respect of the remainder.[39]Second, clause 10.3 of each of the management agreements contains an express provision dealing with the sale of the car park the subject of the agreement to a third party and imposes upon the parties an obligation to enter into a deed of novation with the third party such that Q-Park’s rights and obligations under the agreement are novated to and made enforceable against the purchaser. These management agreements were all made on the same day as the option agreement and they all formed part of the same transaction.[40]I therefore have no doubt that the parties did contemplate that Q-Park’s interest in a particular car park might be disposed of or come to an end in circumstances other than those the subject of clauses 2.8 and 2.13. As Mr Leech submitted, there are gaps in the option agreement but this is hardly surprising given the late stage at which it was introduced and the speed with which it was drafted. Indeed, as he also observed, clause 2.14 refers to clause 2.8 but not clause 2.13; and clause 2.8 contains an express reference to adjustment of the price according to the relevant book value whereas clause 2.13 does not.[41]Mr Warwick also placed particular reliance upon the Q-Park document. This, he submitted, is admissible and shows an appreciation by the parties of the importance of keeping the car parks together. I am satisfied that the document is indeed admissible as part of the factual matrix. It shows that the parties were both aware of the fact that there were opportunities to derive greater benefits from the whole portfolio than the sum of its parts might suggest. But that, it seems to me, is as far as it goes, and it is not a matter which advances HXI’s case very far. It had the opportunity to exercise the option over the whole portfolio and it retains that option over such of it as remains. Q-Park may not dispose of any part of the portfolio without giving HXI notice, at which point HXI has what is, in effect, a right of pre-emption.[42]By contrast, HXI’s interpretation of the option agreement would mean that Q-Park had agreed not to dispose of or charge individual car parks within their portfolio worth over £50 million for a period of 20 years. If they were to market the whole portfolio but receive an offer for only part of it then, on HXI’s interpretation of the agreement, the offer could not be accepted. The judge considered that a party would require a good commercial reason to tie its hands in this way, and so do I. None has been suggested.[43]I would dismiss the appeal.[44]I agree.[45]I also agree.