Paterson v Angelline (Scotland) Ltd
| Jurisdiction | Scotland |
| Judge | Lady Wolffe |
| Judgment Date | 21 July 2022 |
| Court | Court of Session (Inner House) |
| Docket Number | No 21 |
[2022] CSIH 33
Lady Wolffe
First Division
Contract — Construction — Express term — Role of surrounding circumstances and commercial common sense — Approach to be taken in absence of ambiguity
Contract — Construction — Implied term — Whether contract effective without proposed implied term — Whether proposed implied term sufficiently obvious
Contract — Rectification — Objective assessment of common intention of parties — Whether drafts other than final drafts of contract relevant to ascertaining common intention of parties — Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (cap 73), sec 8(1)(a)
Section 8(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (cap 73) (‘the 1985 Act’) provides, in part, “where the court is satisfied, on an application made to it, that– (a) a document intended to express or to give effect to an agreement fails to express accurately the common intention of the parties to the agreement at the date when it was made … it may order the document to be rectified in any manner that it may specify in order to give effect to that intention.”
The pursuer had been the majority shareholder in Keir Pharmacy Ltd (‘KPL’). KPL had a subsidiary, AD Healthcare Ltd (‘ADHL’). The defenders acquired the shares in KPL from the pursuer under a share purchase agreement (‘SPA’). Part of the price was payable as the “Initial Deferred Consideration” (‘IDC’). Clause 2 of agreement provided that the IDC would be adjusted downwards where the net “Current Assets” of the “Company” fell below a specified value. “Company” was defined in the SPA as “Keir Pharmacy Limited”. A prior draft had referred instead to the assets of “each Group Company”. The reference to “Group Company” was removed prior to the final draft of the agreement.
The net current assets of KPL fell below the specified value. The defenders sought payment of the balance which it contended was due to it when the downward adjustment was carried out. The pursuer contended that upward adjustment was required. The pursuer raised an action seeking declarator and payment. The defenders counterclaimed for the balance which they contended was due to them.
The pursuer submitted that the definition of “Current Assets” of the “Company”, read in the context of the circumstances surrounding the conclusion of the SPA and having regard to commercial common sense, included the assets of ADHL in addition to those of KPL. In the alternative, the pursuer contended that: (1) a term ought to be implied to that effect; and (2) the SPA failed to express the common intention of parties and ought to be rectified to include the assets of ADHL in the definition of “Current Assets”.
The defenders submitted that it was not open to the court to construe words in a manner other than their natural meaning even if the result were commercially improbable. There was no basis for implication of a term or rectification.
The commercial judge dismissed the defenders' counterclaim and allowed a proof before answer in the principal action. The defenders reclaimed.
Held that: (1) in the absence of ambiguity in the share purchase agreement, it was not possible to read the definition of “Company” as a reference to any entity other than Keir Pharmacy Ltd; prior negotiations and post-execution conduct being irrelevant (paras 32–34); (2) no term could be implied into a contract where the contract would be effective without it and the term was not obvious; the SPA being effective in the absence of the pursuer's proposed implied term and that term not being obvious (para 35); (3) the common intention of the parties at the time of execution for the purposes of sec 8(1)(a) of the 1985 Act fell to be assessed objectively; the reference to other group companies having been removed in the final draft of the SPA, rectification was unavailable (paras 36, 37); and reclaiming motion allowed.
Ashtead Plant Hire Co Ltd v Granton Central Developments Ltd 2020 SC 244, Network Rail Infrastructure Ltd v Fern Trustee 1 Ltd2022 SLT 997, Rainy Sky SA v Kookmin Bank[2011] 1 WLR 2900, Arnold v Britton[2015] AC 1619, Marks and Spencer plc v BNP Paribas Securities Services (Jersey) Ltd[2016] AC 742 and Wood v Capita Insurance Services Ltd[2017] AC 1173followed.
Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56; 2012 SC (UKSC) 240; 2012 SLT 205; 2012 SCLR 114; [2011] 50 EG 58 (CS)
Arnold v Britton [2015] UKSC 36; [2015] AC 1619; [2015] 2 WLR 1593; [2016] 1 All ER 1; [2015] HLR 31; [2015] 2 P & CR 14; [2015] L & TR 25; [2015] CILL 3689
Ashtead Plant Hire Co Ltd v Granton Central Developments Ltd [2020] CSIH 2; 2020 SC 244; 2020 SLT 575; 2020 SCLR 805
Bank of Scotland v Dunedin Property Investment Co Ltd (No 1) 1998 SC 657; 1999 SLT 470; 1998 SCLR 531
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363; 180 CLR 266; 52 ALJR 20
Briggs of Burton plc v Doosan Babcock Ltd [2020] CSOH 100; 2021 GWD 1-9
Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101; [2009] 3 WLR 267; [2009] 4 All ER 677; [2010] 1 All ER (Comm) 365; [2009] Bus LR 1200; [2009] BLR 551; 125 Con LR 1; [2010] 1 P & CR 9; [2009] 3 EGLR 119; [2009] CILL 2729; [2009] 27 EG 91 (CS); (2009) 153 (26) SJLB 27; [2009] NPC 87; [2009] NPC 86
Dragados (UK) Ltd v DC Eikefet Aggregates AS [2021] CSOH 117; 2021 GWD 39-518
FSHC Group Holdings Ltd v GLAS Trust Corp Ltd [2019] EWCA Civ 1361; [2020] Ch 365; [2020] 2 WLR 429; [2020] 1 All ER 505; [2020] 1 All ER (Comm) 719; [2019] 2 CLC 137; 187 Con LR 1
Glasgow City Council v VFS Financial Services Ltd [2022] CSIH 1; 2022 SC 133; 2022 SLT 181
Global Port Services (Scotland) Ltd v Global Energy (Holdings) Ltd [2015] CSIH 42; 2015 GWD 19-315
Inglis v Buttery & Co (1878) 5 R (HL) 87; 3 App Cas 552
Luminar Lava Ignite Ltd v Mama Group plc [2010] CSIH 1; 2010 SC 310; 2010 SLT 147
Macdonald Estates plc v Regenesis (2005) Dunfermline Ltd [2007] CSOH 123; 2007 SLT 791
Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] AC 742; [2015] 3 WLR 1843; [2016] 4 All ER 441; 163 Con LR 1; [2016] 1 P & CR 13; [2016] L & TR 8; [2016] CILL 3779
Moorcock (The) (Re) (1889) 14 PD 64; [1886–90] All ER Rep 530
Muirhead and Turnbull v Dickson (1905) 7 F 686; 13 SLT 151
Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2010] UKSC 47; 2011 SC (UKSC) 53; 2011 SLT 184; [2011] 1 All ER 175; [2011] 1 EGLR 67; [2011] 4 EG 102; [2010] 47 EG 141 (CS); 154 (44) SJLB 30
Network Rail Infrastructure Ltd v Fern Trustee 1 Ltd [2022] CSIH 32; 2022 SLT 997
Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd [2013] CSOH 18; 2013 SLT 729
Rainy Sky SA and ors v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900; [2012] 1 All ER 1137; [2012] 1 All ER (Comm) 1; [2012] Bus LR 313; [2012] 1 Lloyd's Rep 34; [2011] 2 CLC 923; [2012] BLR 132; 138 Con LR 1; [2011] CILL 3105
Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173; [2017] 2 WLR 1095; [2017] 4 All ER 615; [2018] 1 All ER (Comm) 51; 171 Con LR 1; [2017] CILL 3971
Keiron David Paterson brought an action under the commercial cause rules (Act of Sederunt (Rules of the Court of Session 1994) 1994 (SI 1994/1443 (S 69)), Ch 47) in the Court of Session against Angelline (Scotland) Ltd seeking declarator and payment of sums said to be due under a share purchase agreement. The defenders counterclaimed. The cause called before the commercial judge (Lady Wolffe) for a debate. On 12 October 2021, the commercial judge dismissed the counterclaim and allowed a proof before answer in the principal action ([2021] CSOH 101; 2022 SLT 114). The defenders reclaimed.
Scottish Law Commission, Obligations: Report on rectification of contractual and other documents (Scot Law Com no 79, July 1983), para 3.4 (Online: https:// www.scotlawcom.gov.uk/files/2612/7989/7470/rep79.pdf (11 September 2022))
The cause called before the First Division, comprising the Lord President (Carloway), Lord Woolman and Lord Pentland, for a hearing on the summar roll, on 7 July 2022.
At advising, on 21 July 2022, the opinion of the Court was delivered by the Lord President (Carloway)—
Opinion of the Court—
[1] The pursuer was formerly a director of Keir Pharmacy Ltd and its wholly-owned subsidiary, AD Healthcare Ltd. KPL owned and operated a pharmacy in Denny. ADHL owned and operated two pharmacies: one in Larbert and one in Plean. The pursuer owned 95 per cent of KPL's shares. A senior employee owned the remaining 5 per cent. The defenders acquired the KPL shares in terms of a share purchase agreement dated July 2019. This reclaiming motion (appeal) concerns a dispute about the calculation of one element of the purchase price. The pursuer claims that it ought to have included the net current assets of each company. The defenders argue that the SPA only permitted the inclusion of the net assets of KPL.
[2] The pursuer pleads...
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...general law and being, so far as the first defender and the contract were concerned, res inter alios. Paterson v Angelline (Scotland) Ltd 2022 SC 240 discussed, Muirhead and Turnbull v Dickson(1905) 7 F 686applied and Wood v Capita Insurance Services Ltd[2017] AC 1173followed. Cases referre......