Prenn v Simmonds

JurisdictionUK Non-devolved
Judgment Date1971
CourtHouse of Lords
Year1971
Date1971
[HOUSE OF LORDS] PRENN APPELLANT AND SIMMONDS RESPONDENT 1971 June 8, 9, 10, 14, 15; July 20 Lord Reid, Lord Donovan, Lord Wilberforce, Lord Pearson and Lord Diplock

Contract - Agreement in writing Construction - Option to buy shares at named price if “profits” available for dividend of company over relevant period reached named sum - Whether “profits” referred to those of company alone or to “consolidated profits” of company and its subsidiaries - Whether evidence of prior negotiations between parties receivable as an aid to construction of agreement

The respondent brought an action against the appellant in which he claimed that under the terms of an agreement under seal dated July 6, 1960, he was entitled to acquire from the appellant for a consideration of £6,600 a four per cent. interest in the ordinary capital of R.T.T., a company controlled by the appellant. That interest was at the date of trial worth some £200,000. The appellant disputed the claim on the ground that a necessary condition prescribed by the agreement had not been satisfied because less than £300,000 profits available for dividend on the ordinary stock of the company over the relevant period had been earned. The dispute between the parties related to whether the “profits” in question meant (a) the separate profits of R.T.T. alone in which case the amount over the period fell short of the target figure by less than £10,000, or (b) the consolidated profits of the group consisting of R.T.T. and subsidiaries in which case the amount was largely exceeded.

Pennycuick J. rejected the respondent's construction that “profits” meant consolidated profits but ordered rectification of the agreement. On appeal, the Court of Appeal dismissed the appeal finding in favour of the respondent on the question of construction.

The appellant appealed to the House of Lords. On the hearing of the appeal it was contended, inter alia, on behalf of the respondent that it was permissible to look at prior negotiations between the parties as an aid in the construction of a written document: —

Held, (1) that in construing a written agreement evidence of negotiations or of the parties' intentions ought not to be received by the court, and that evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the “genesis” and objectively the “aim” of the transaction.

Hvalfangerselskapet Polaris Aktieselskap v. Unilever Ltd. (1933) 39 Com.Cas. 1, H.L.(E.) considered.

(2) That albeit the wider principle of construction contended for failed, the word “profits” in the context of the agreement meant “consolidated profits,” and that, accordingly, the appeal must be dismissed.

Decision of the Court of Appeal affirmed.

The following cases are referred to in Lord Wilberforce's opinion:

Crane v. Hegeman-Harris Co. Inc. [1939] 1 All E.R. 662; post, p. 1390.

Hvalfangerselskapet Polaris Aktieselskap v. Unilever Ltd. (1933) 39 Com. Cas. 1, H.L.(E.).

MacDonald v. Longbottom (1859) 1 E. & E. 977.

River Wear Commissioners v. Adamson (1877) 2 App.Cas. 743, H.L.(E.).

Utica City National Bank v. Gunn (1918) 118 N.E. 607.

The following additional cases were cited in argument:

Bank of New Zealand v. Simpson [1900] A.C. 182, P.C.

Birch v. Depeyster (1816) 4 Camp. 385.

Edwards v. Saunton Hotel Co. Ltd. [1943] 1 All E.R. 176.

Holdsworth (Harold) & Co. (Wakefield) Ltd. v. Caddies [1955] 1 W.L.R. 352; [1955] 1 All E.R. 725, H.L.(Sc.).

Shore v. Wilson (1842) 9 Cl. & Fin. 355, H.L.(E.).

Suisse Atlantique Societe D'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361; [1966] 2 W.L.R. 944; [1966] 2 All E.R. 61, H.L.(E.).

APPEAL from the Court of Appeal.

This was an appeal by leave of the House of Lords by the appellant, Daniel Dan Prenn, who was the defendant in the action, from the order of the Court of Appeal (Lord Denning M.R., Widgery and Cross L.JJ.) dated January 28, 1970, dismissing an appeal by the appellant from an order dated February 25, 1969, whereby Pennycuick J. in an action by the respondent, John Charles Simmonds, as plaintiff (1) ordered rectification of a deed dated July 6, 1960, executed by the appellant and the respondent for the acquisition by the respondent of certain shares in Controls & Communications Ltd. (formerly called Radio & Television Trust Ltd.); (2) ordered specific performance of the deed as so rectified and (3) ordered that the appellant should pay nine-tenths of the respondent's costs of such action.

The Court of Appeal granted the respondent specific performance of the deed without rectification.

The facts are set out in the opinion of Lord Wilberforce.

R. J. Parker Q.C., J. R. B. Fox-Andrews Q.C. and R. A. K. Wright for the appellant.

L. J. Bromley Q.C. and J. F. Lever (R. I. Threlfall Q.C. with them) for the respondent.

Their Lordships took time for consideration.

July 20, 1971. LORD REID. My Lords, I have read the speech of my noble and learned friend, Lord Wilberforce. I agree with it and would therefore dismiss this appeal.

LORD DONOVAN. My Lords, I find myself in entire agreement with the opinion of my noble and learned friend, Lord Wilberforce, and like him would dismiss this appeal.

LORD WILBERFORCE. My Lords, Dr. Simmonds' claim in this action is that, under the terms of an agreement under seal dated July 6, 1960, he is entitled to acquire from Mr. Prenn, for a consideration of £6,600, a 4 per cent. interest in the ordinary capital of a company controlled by Mr. Prenn called now Controls & Communications Ltd., but at the relevant date Radio & Television Trust Ltd. (“R.T.T.”). This interest was worth at the date of the trial about £200,000. Mr. Prenn disputes the claim, on the ground that a necessary condition set by the agreement has not been satisfied because less than £300,000 profits available for dividend on the ordinary stock of R.T.T. over the relevant period has been earned. Dr. Simmonds maintains that the condition has been fulfilled.

The dispute relates not to the figures, which are agreed, but to the definition of profits of R.T.T. available for dividend on its ordinary stock. If this means the separate profits of R.T.T alone, the amount over the period fell just short of the target, by less than £10,000. If it means the consolidated profits of the group consisting of R.T.T. and subsidiaries, the amount was largely exceeded. The small margin of deficiency, though capable of arousing sympathy for Dr. Simmonds, is not an argument for one or other side. A similar situation might arise on either interpretation and is inherent in the nature of “target” agreements.

The question is thus simply one of construction of the agreement and it should be capable of resolution shortly and cheaply. But Dr. Simmonds has claimed in the alternative that, if the agreement did not bear the meaning he contended for, it should be rectified so as to do so. This let in a mass of evidence, oral and documentary as to the parties' intentions, which would not be admissible on construction, though (as I shall explain) counsel for Dr. Simmonds tried to bring some of it in on that issue. It also involved some issues of law. This part of the case overshadowed the rest, so that by far the greater part of the time spent both at first instance and in the Court of Appeal was concerned with it. In this House argument was heard first exclusively on the question of construction and as your Lordships reached on it a conclusion in favour of Dr. Simmonds, no argument on rectification was heard. I...

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    • JD Supra United Kingdom
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    ...correct approach to be adopted to the interpretation, or construction, of contracts in a number of cases starting with Prenn v Simmonds [1971] 1 WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank [2011] UKSC 50 (see November 2011 Litigation When interpreting a written contract, the cou......
  • A Blockbuster Decision In Contractual Interpretation
    • Canada
    • Mondaq Canada
    • 11 August 2014
    ...first is the importance in contractual interpretation of the factual matrix. In two seminal cases in the 1970s (Prenn v. Simmonds, [1971] 3 All E.R. 237 (H.L.) and Reardon Smith Line Ltd. v. Hansen Tangen, [1976] 3 All E.R. 570 (H.L.)), the House of Lords recognized that resolving disputes ......
  • Costly Contracts And Problematic Punctuation
    • United Kingdom
    • Mondaq United Kingdom
    • 9 July 2009
    ...principles of contract construction, indicating that there was no clearly established case for revisiting the rule in Prenn v Simmonds (1971) 1 WLR 1381 that pre-contractual were inadmissible in construing a contract (the "exclusionary rule"). It was clear that any exception to the rule was......
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26 books & journal articles
  • Case Notes on Contracts of Guarantee
    • Ireland
    • Hibernian Law Journal No. 12-2013, January 2013
    • 1 January 2013
    ...of public policy why guarantees should not in general be construed in accordance with the principles enunciated in Prenn v Simmonds [1971] 1 W.L.R. 1381 and the ICS case.” Lord Hoffmann perhaps gave support to such views in Investors’ Compensation Scheme v West Bromwich Building Society [19......
  • Contract Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2002, December 2002
    • 1 December 2002
    ...the admissibility of evidence of the context and factual background (including the oft-cited House of Lords decision of Prenn v Simmonds[1971] 1 WLR 1381 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen[1976] 1 WLR 989; see also supra, para 9.5); and compare the recent Singapore Court of A......
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    ...change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 W.L.R. 1381, 1384–1386 and Reardon Smith Line Ltd. v Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, is always sufficiently appreciated. The result has been......
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    • Wildy Simmonds & Hill How Judges Decide Cases: Reading, Writing and Analysing Judgments. 2nd Edition Contents
    • 29 August 2018
    ...2001 102 Practice Statement (HL: Judicial Precedent) [1966] 1 WLR 1234, [1966] 3 All ER 77, [1966] 2 Lloyd’s Rep 151 7 Prenn v Simmonds [1971] 1 WLR 1381, [1971] 3 All ER 237, (1971) 115 SJ 654, HL 114 Price v Civil Service Commission [1977] 1 WLR 1417, [1978] 1 All ER 1228, [1978] ICR 27, ......
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