Cape Distribution Ltd v Cape Intermediate Holdings Plc
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Picken |
| Judgment Date | 17 May 2016 |
| Neutral Citation | [2016] EWHC 1119 (QB) |
| Docket Number | Case No: HQ12X01829 |
| Court | Queen's Bench Division |
| Date | 17 May 2016 |
[2016] EWHC 1119 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Picken
Case No: HQ12X01829
Michael Kent QC and Jason Evans-Tovey (instructed by Berrymans Lace Mawer LLP) for the Claimant and Part 20 Defendant
Justin Fenwick QC, Leigh-Ann MulcahyQC andAndrew Kinnier (instructed by Nabarro LLP) for the Defendant/Part 20 Claimant
Hearing dates: 18, 19 and 20 April 2016
Introduction
The background to this substantial litigation is that the Claimant ('CDL') was in business producing asbestos-related products at Cowley Bridge Works, Uxbridge, Middlesex. Former employees of CDL subsequently developed and continue to develop asbestos-related illnesses and blame CDL. In many cases CDL has not been able to dispute the validity of such claims and has settled such claims with the assistance of indemnities under an employers' liability policy no. W864304 with Railway Passengers Ltd. ('RPA') first issued in 1957 (the 'Policy') covering the period starting on 31 December 1956 and renewed annually until expiration on 31 December 1966. RPA became part of the Commercial Union Assurance Group to which the Part 20 Defendant ('Aviva') is the successor.
At all material times CDL was a wholly-owned subsidiary of the Defendant/Part 20 Claimant ('CIH'). In 2012, the Court of Appeal confirmed in Chandler v Cape Plc [2012] EWCA Civ 525, [2012] 1 WLR 3111 that CIH had owed its own common law duty of care to a former employee of CDL who had worked at the Cowley Bridge Works in 1959 and 1961–1962 (CIH's duty being additional to those duties owed by CDL as employer) and that CIH was directly liable to the former employee of CDL in tort for his asbestos-related illnesses. As a consequence, by this action Aviva, exercising rights of subrogation in the name of CDL, seeks an indemnity (alternatively contribution) from CIH under the Civil Liability (Contribution) Act 1978 ('the 1978 Act') and CDL's entitlement to the same is currently due to be tried in early 2017.
Under an agreement described as an "Agreement for Sale" dated 1 January 1964 (the 'Sale Agreement'), CDL agreed to transfer to CIH its whole undertaking, property and assets in return for various things, including an indemnity and other obligations in CDL's favour. CDL's primary case is that, by virtue of the Sale Agreement, it is entitled to be held harmless by CIH in respect of CDL's outlay on claims paid or claims to be paid to or in respect of former employees of CDL suffering from asbestos-related disease whenever during the material period that employee was exposed to asbestos in breach of CDL's duty. CIH opposes the relief, partly in reliance on its interpretation of words in the Sale Agreement and partly in reliance on a November 1964 endorsement to the Policy (the 'Endorsement'). As to the latter, in the Part 20 proceedings, CIH claims that, by virtue of the Endorsement, it is entitled to indemnity from Aviva as successor to RPA in respect of the very claims that are being advanced against CIH in the main action.
This judgment follows the trial of certain preliminary issues (the 'Preliminary Issues') which, at a hearing on 16 and 17 December 2015, I directed should be determined. Essentially the Preliminary Issues concern: whether CDL is entitled to an indemnity or other payment from CIH under the terms of the Sale Agreement; the effect of the Endorsement; and whether Aviva is precluded from recovering the same by way of subrogation. A little more specifically, Preliminary Issues 1 to 8 focus on the differences between the parties as to the extent to which, if at all, CDL is entitled to an indemnity in respect of claims by or in respect of former employees for asbestos-related illnesses and their consequences arising out of acts or omissions occurring between 31 December 1956 and the end of 1966. There are issues as to whether any contractual obligation on CIH to satisfy such claims, whether (i) by way of indemnity or (ii) performance of express obligations under the Sale Agreement or (iii) indirectly by way of damages for breach of the Sale Agreement, relate to claims for damages in respect of disease contracted after the date of the Sale Agreement (1 January 1964). There are subsidiary issues as to whether, if there is such a contractual obligation, it extends to acts or omissions which caused that disease but which occurred wholly after that date. Preliminary Issues 9 to 16 focus on the effect of the Policy and the Endorsement.
Construction: applicable legal principles
The parties were agreed as to the applicable legal principles concerning construction of contracts. These principles of interpretation have been discussed in many cases, notably by Lord Hoffmann in Mannai Investment Co Ltd. v Eagle Star Life Assurance Co Ltd. [1997] AC 749, in Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 WLR 896 at pages 912F-913G, and in Chartbrook Ltd. v Persimmon Homes Ltd. [2009] AC 1101 at [21] to [26], by Lord Clarke in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 at [14], and by Lord Neuberger in Arnold v Britton [2015] UKSC 50, [2015] AC 1619. With a degree of reluctance in circumstances where the principles are now well-known, the Chancellor recently describing them as being set out in "the usual cohort of authorities" (see Credit Suisse Asset Management LLC v Titan Europe 2006–1 PLC & Others [2016] EWHC 969 (Ch) at [23]), but in deference to the work done by counsel, in what follows I summarise the principles.
When construing a commercial document a tribunal should seek to give it the meaning it 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: Investors Compensation Scheme at page 912. In a commercial contract it is certainly right that a tribunal should know the commercial purpose of the contract. This presupposes knowledge of the genesis of the contract, the background, the context and the market to which the parties are operating: Reardon Smith Line Ltd. v Ynvar Hansen-Tangsen [1976] 1 WLR 989 at pages 995 to 999 cited with approval by Lord Scott in HIH Casualty v Chase Manhattan Bank [2003] Lloyd's Rep IR 230 at [103]. When one is speaking of the aim or object, or commercial purpose, one is speaking objectively of what reasonable persons would have had in mind in the situation of the parties: Reardon Smith Line at 995.
The commercial background (or factual matrix) also includes the statutory context ( Doleman v Shaw [2009] EWCA Civ 279, [2009] Bus LR 1175 at [35] per Mummery LJ and at [56] per Elias LJ), the relevant law ( Prenn v Simmonds [1971] 1 WLR at page 1388C per Lord Wilberforce; BCCI v Ali [2002] 1 AC 251 at [39] per Lord Hoffmann and at [78] per Lord Clyde) and market practice falling short of trade usage ( Crema v Cenkos Securities [2010] EWCA Civ 1444, [2011] 1 WLR 2066 at [42] per Aikens LJ). Also, a concluded antecedent agreement may be relied upon when interpreting a later instrument made pursuant to it: Lewison, The Interpretation of Contracts (6 th Ed., 2015), paragraph 3.05.
When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties: Arnold at [21] per Lord Neuberger.
The meaning of the contract has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the contact, (iii) the overall purpose of the clause and the contract, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions: Arnold at [15] per Lord Neuberger; MDIS v Swinbank [1999] LRIR 516 at [13] per Clarke LJ (as he then was), and ABTA v BA [2000] 2 Lloyd's Rep 209 at [34] per (again) Clarke LJ. The resolution of an issue of interpretation is an iterative process involving checking each of the rival meanings against other provisions of the document and investigating its commercial consequences: Rainy Sky at [28] per Lord Clarke. The implications or consequences of a particular construction should be taken into account: Gan Insurance Co Ltd. v Tai Ping Insurance Co Ltd. (No 2) [2001] 1 All ER (Comm) 299 at [16] per Mance LJ (as he then was). However, in the end the exercise to be conducted "is essentially one unitary exercise": Rainy Sky at [21] per Lord Clarke.
Where the parties have expressed their agreement in a written document, the primary source of information about the agreement and the parties' intention is the document itself. What the parties meant is most obviously to be gleaned from the language of the provision because, unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. Again save perhaps in a very unusual case, the parties must have been specifically focusing on the issue covered by the provision when...
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Cape Distribution Ltd v Cape Intermediate Holdings Plc
...my earlier judgment dealing with certain preliminary issues which I handed down on 17 May 2016 and whose neutral citation number is [2016] EWHC 1119 (QB) (the 'Preliminary Issues Judgment'). In that judgment, which appears on the BAILII website, I set out at [1] to [4], in summary terms, t......