Crystal Palace FC (2000) Ltd v Paterson & Anor

Commercial contracts are construed objectively in their factual and commercial context, while respecting the agreement’s actual words of sale. Language expressing an intention that a purchaser acquire all assets used in a business does not, without operative words of sale, transfer assets outside an agreed list of specified assets. In an insolvency or potential insolvency context, “debt” may include a contingent debt. “Other debts outstanding” is not confined to book debts or sums already due and may include contingent fees arising under existing transfer arrangements. Such fees therefore remain with the seller where the agreement excludes the seller’s outstanding book or other debts.

Crystal Palace FC (1986) Limited, while in administration, sold its football-club business and assets as a going concern to Crystal Palace FC (2000) Limited under an agreement dated 8 May 2000, completed on 5 July 2000. Contingent transfer fees later accrued under player-transfer arrangements made before completion. The liquidator applied for directions under section 112 of the Insolvency Act 1986 concerning entitlement to £761,732 held by the Football League.

The Deputy High Court Judge held that clause 2.2(ix) excluded the fees as the seller’s other debts outstanding at the transfer time. The appeal concerned whether the agreement transferred rights outside the specified assets and whether the contingent fees fell within that exclusion.

Appeal dismissed. Lord Justice Clarke gave the judgment, with which Lords Justice Wall and Mummery agreed. The appellant was ordered to pay the respondents’ costs, subject to detailed assessment.

1. Contractual construction. The agreement had to be construed objectively in its factual matrix and commercial context. The court adopted the commercial approach described in Sirius International Insurance Co (Publ) v FAI General Insurance Ltd and others [2004] UKHL 54. The relevant question was what a reasonable person in the parties’ circumstances would have understood from the language used. Literalism should yield where it would defeat business common sense, but contextual construction could not create operative words of sale where the agreement contained none.
2. Specified assets. Clause 2.1 expressly sold the seller’s rights, title and interest in the listed assets. Its concluding words expressed the parties’ intention that the buyer should acquire the assets used in the business and continue it as a going concern. Those words were not apt to transfer assets outside the list. The allocation of consideration under clauses 3 and 6 also supported that construction.
3. Outstanding debts. Even if the concluding words of clause 2.1 extended beyond the specified assets, clause 2.2(ix) excluded the seller’s book or other debts outstanding at the transfer time. In the insolvency context, Rule 13.12(3) of the Insolvency Rules 1986 recognised that a debt could be present or future, certain or contingent. “Outstanding” was capable of meaning more than “due”.
4. Application. The phrase “other debts outstanding” was wide enough, in this context, to include contingent debts arising from existing player-transfer arrangements. The contingent fees were therefore excluded from the assets sold and remained payable to Crystal Palace FC (1986) Limited.

• Court of Appeal (Civil Division): The appeal was dismissed on 3 February 2005. [2005] EWCA Civ 180
• High Court, Chancery Division: On 30 July 2004, Mr Bernard Livesey QC, sitting as a Deputy High Court Judge, held that the contingent fees were excluded by clause 2.2(ix) of the business sale agreement.