Prenn v Simmonds
| Jurisdiction | UK Non-devolved |
| Judgment Date | 1971 |
| Court | House of Lords |
| Date | 1971 |
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.
(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.
The following cases are referred to in Lord Wilberforce's opinion:
Crane v. Hegeman-Harris Co. Inc. [
Hvalfangerselskapet Polaris Aktieselskap v. Unilever Ltd. (
MacDonald v. Longbottom (
River Wear Commissioners v. Adamson (
Utica City National Bank v. Gunn (
The following additional cases were cited in argument:
Bank of New Zealand v. Simpson [
Birch v. Depeyster (
Edwards v. Saunton Hotel Co. Ltd. [
Holdsworth (Harold) & Co. (Wakefield) Ltd. v. Caddies [
Shore v. Wilson (
Suisse Atlantique Societe D'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [
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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