Tawil v Harrods Ltd

Summary judgment on contractual construction is inappropriate where an obscure agreement gives rise to reasonably arguable competing interpretations. This is particularly so where the construction issue would not dispose of the action and related defences, such as rectification or estoppel, remain for trial. A court should avoid separating and summarily deciding an issue where potentially relevant evidence may overlap with evidence required on those defences. The whole matter should ordinarily be dealt with at one hearing unless a preliminary issue has been deliberately agreed.

This was an interlocutory appeal concerning a licence agreement. The appellant had demanded guaranteed royalties which the respondent disputed, and had purported to terminate the agreement. The respondent claimed substantial damages for repudiatory breach.

The respondent applied under Part 24 of the Civil Procedure Rules for summary judgment on liability and an interim payment. Andrew Smith J dismissed those applications, but declared that the appellant’s construction of the agreement was unarguable. He left defences including rectification and estoppel, together with other issues, for trial. The appellant appealed against the declaration. The central issue was whether the contractual construction should have been decided summarily and separately.

1. Appeal allowed. Schiemann LJ, with Rix LJ agreeing, held that the declaration concerning the construction of the licence agreement should be removed. The remaining issues were left to proceed to trial.
2. Arguable construction. The agreement was obscurely worded, and the parties had advanced able arguments on competing constructions. It could not properly be said that the appellant’s construction was unarguable. The fact that the respondent’s construction appeared stronger did not justify summary determination.
3. Unsatisfactory division of issues. It was in principle unsatisfactory to decide the construction issue separately when it would not dispose of the action and defences including rectification and estoppel remained for trial. The issue had not been agreed as a preliminary issue and appeared to have been separated without the appellant’s assent.
4. Potentially relevant evidence. Although evidence relevant to rectification might not ordinarily be admissible on construction, it was not self-evidently just to deprive the appellant of a full opportunity to argue the construction issue. Rix LJ considered that the respondent’s own reply and defence to counterclaim provided a reasonable basis for arguing that evidence relevant to rectification might overlap with evidence relevant to construction.
5. Orders. The appeal was allowed. The appellant’s costs were payable by the respondent and were to be assessed by a costs judge unless agreed. An interim payment of £25,000 was ordered.

Court of Appeal (Civil Division): On 2 November 2001, the court allowed the interlocutory appeal and removed the declaration on contractual construction. The remaining issues were left for trial.

Queen’s Bench Division, Commercial Court: Andrew Smith J dismissed the applications for summary judgment and an interim payment, but declared that the appellant’s construction of the licence agreement was unarguable and left rectification, estoppel and other issues for trial.