Landau v Barclays Bank Plc

A contractual sharing provision must be construed objectively in the light of the background known to the parties and the transaction’s commercial purpose. A reference to damages arising from a claim brought “by reference to” a particular report may identify the proceedings, rather than restrict the recoverable damages to loss attributable solely to that report. Where proceedings rely on several reports and settle all related claims without apportionment, the contractual share may therefore extend to the entire net settlement, provided the specified report formed part of the claim. Commercial common sense cannot justify departing from ordinary language where the resulting construction is commercially coherent.

A property developer assigned to the bank his claims against valuers concerning a valuation report. In return, the bank agreed to pursue claims against the valuers and to pay him 30% of net recoveries arising from proceedings brought by reference to that report.

The bank later settled proceedings concerning three valuation reports for £1.3 million. The Master and Neuberger J held that the developer was entitled only to the proportion of the settlement properly referable to the assigned report, although the judge treated that proportion as one-third. The bank appealed against the one-third determination, and the developer cross-appealed, claiming 30% of the whole net settlement. The central issue was the proper construction of the sharing provision.

1. Disposition. The bank’s appeal was dismissed and the developer’s cross-appeal was allowed. The order below was set aside. The developer was entitled to an account based on 30% of the net recoveries under the Tomlin settlement, without apportionment between the three reports.
2. Construction. Chadwick LJ held that the side letter had to be construed objectively against the background known to the parties and the commercial purpose of the transaction. The assignment gave the bank control of the developer’s claim under the second report, enabling it to include or compromise that claim with its own claims and thereby pursue an overall settlement. The sharing provision was intended to compensate the developer for surrendering the value of that claim, which could exceed his bank indebtedness.
3. The expression “any claim which the Bank might bring” meant proceedings which the bank might pursue, not a cause of action. The words “by reference to the Report” qualified the claim or proceedings. The requirement was satisfied because the bank’s proceedings relied on the second report. The words “arising out of or in connection with” had a wide reach, and did not require the settlement damages to be limited to loss attributable to that report.
4. Peter Gibson LJ agreed. He emphasised that ordinary language supported the same construction and that the developer’s interpretation did not produce an uncommercial result. Nourse LJ agreed with Chadwick LJ. The second issue, concerning the alternative one-third apportionment, did not arise and was expressly left undecided.
5. Interest was reduced to 4.85% for the relevant period. The costs were directed to detailed assessment, with an interim payment of £45,000 within 21 days.

• Court of Appeal (Civil Division) dismissed the bank’s appeal and allowed the developer’s cross-appeal, setting aside the order made below.
• High Court, Chancery Division (Neuberger J) held that recovery was limited to the proportion of the settlement referable to the second valuation report, but accepted that the proportion was one-third.
• Master Bowles directed an account limited to sums attributable to the second report and gave summary judgment for breach of the reporting obligation.