Stinnes Logistics AG v Palgrave Brown (UK) Limited

Where an agreement promises reimbursement of due diligence costs if a prospective purchaser makes a bid by a specified date, the meaning of bid depends on the language and context of the agreement. A bid need not be an offer capable of immediate acceptance where the wording does not require that result. Invitations to prepare draft contractual documents or improve an earlier bid are not conditions of reimbursement unless expressed in sufficiently clear conditional language. The same word should ordinarily bear the same meaning throughout the document. Commercial purpose may assist construction, but cannot replace the words agreed. Here, the due diligence and deadline requirements were contractual; the later invitations were encouragements intended to improve the purchaser’s prospects.

Stinnes agreed in March 1999 to reimburse Palgrave Brown’s due diligence costs up to £50,000 if its bid for the shares in RK Timber was unsuccessful. A letter invited Palgrave Brown to submit a bid by 22 April, to submit a draft share purchase agreement, and to materially improve its earlier indicative offer. Palgrave Brown accepted, incurred more than £100,000 in costs, and made further offers which remained subject to contract. Stinnes accepted a rival bid and refused reimbursement. HH Judge McGonigal gave judgment for Palgrave Brown. The appeal concerned whether bid meant an offer capable of acceptance and whether the drafting and improvement provisions were conditions of payment.

Lord Justice Waller delivered the leading judgment. Lord Justice Rix and Mr Justice Wilson agreed. The Court of Appeal dismissed the appeal in [2002] EWCA Civ 128.

1. Construction of the word bid. The word was unlikely to bear different meanings in different parts of the letter. The surrounding commercial objectives could support either party’s construction, so the court concentrated on the language the parties had actually used. The subsequent history did not assist because it was consistent with both interpretations.
2. Nature of the reimbursement promise. The first two paragraphs required Palgrave Brown to carry out due diligence and make a bid no later than 22 April. On the proper construction, that bid could be subject to contract and did not need to be capable of immediate acceptance.
3. Draft documents. The third paragraph invited Palgrave Brown to submit a draft share purchase agreement so that the lawyers could prepare the necessary documents. It was not expressed as a condition of reimbursement. The reference to documents being ready for signature on 22 April or earlier reinforced that construction.
4. Improvement of the earlier bid. The fourth paragraph invited Palgrave Brown to act on the premise that it would materially improve its earlier offer. It was a commercial warning that improvement would increase its prospects of success, not a condition requiring a higher bid before the £50,000 obligation arose. Clearer language would have been necessary to impose such a condition.
5. Palgrave Brown had made a bid within the meaning of the letter. The judge’s award of £50,000 plus interest therefore stood. Stinnes was ordered to pay the agreed appeal costs of £20,289.

• Court of Appeal (Civil Division): dismissed Stinnes Logistics AG’s appeal and upheld the award of £50,000 plus interest.
• Queen’s Bench Division, Leeds District Registry, Mercantile Court: HH Judge McGonigal gave judgment for Palgrave Brown on 23 February 2001.