UCB Corporate Services Ltd v Thomason & Anor

Commercial agreements are construed objectively. The question is what a reasonable person in the parties’ circumstances would understand from the language and relevant context. Where an agreement specifies the circumstances in which it may end, a recital identifying the basis for entering into it may not create an additional condition precedent. Non-fraudulent misrepresentation may support rescission under the Misrepresentation Act 1967, subject to the equitable discretion in section 2(2). That discretion requires consideration of the nature of the misrepresentation and the losses flowing from upholding or rescinding the contract. Loss may include a lost chance of obtaining more money, assessed in light of the counterparty’s financial position. The face value of an underlying guaranteed debt is not automatically the relevant loss.

UCB Corporate Services Ltd claimed more than £2.8 million under guarantees given by Kenneth and Christian Ann Thomason, or alternatively damages for breach of a waiver agreement under which UCB had accepted approximately £34,000. The Thomasons had made extensive non-fraudulent misrepresentations and failed to disclose material financial arrangements.

Pumfrey J held that the waiver agreement did not permit UCB to revive the guarantee liabilities. Although UCB was entitled in principle to rescind for non-fraudulent misrepresentation, he refused rescission and damages in lieu under section 2(2) of the Misrepresentation Act 1967, finding no significant loss established. UCB appealed on construction, rescission and loss.

1. Disposition. The Court of Appeal unanimously dismissed the appeal.
2. Construction of the waiver agreement. Commercial language had to be construed objectively, by asking what a reasonable person in the parties’ circumstances would have understood from the text and relevant context. The court applied the approach stated in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Sirius International Insurance Co (Publ) v FAI General Insurance Ltd & Ors [2004] UKHL 54; [2004] 1 WLR 325. The phrase following on the basis that identified the material relied upon by UCB when entering into the agreement. It operated as a recital, rather than as a condition precedent whose breach automatically defeated the waiver. The express proviso dealt with the discovery of further material assets and sensibly excluded other termination events.
3. Misrepresentation and rescission. The non-fraudulent misrepresentations entitled UCB in principle to rescind under section 1 of the Misrepresentation Act 1967, even though the agreement had been performed. Section 2(2) nevertheless required the court to decide whether it was equitable to leave the agreement subsisting and award damages in lieu. The relevant matters were the nature of the misrepresentation, the loss caused to UCB if the waiver stood, and the loss rescission would cause to the Thomasons.
4. Assessment of loss. Loss for this purpose could include financial loss, detriment and a significant but difficult-to-value chance of obtaining more through further negotiations or bankruptcy proceedings. The judge was entitled to assess that chance in light of the Thomasons’ financial position. The guaranteed debt was not itself the loss caused by the misrepresentation. On the evidence, no better recovery in bankruptcy had been established, so no substantial loss or damages were proved.
5. The judge’s discretion was not flawed by his failure to refer expressly to the nature of the misrepresentation. His findings showed that he was fully aware of its multiple, intentional and fundamental character. Rescission and damages in lieu were therefore correctly refused.

• Court of Appeal (Civil Division) dismissed UCB’s appeal.
• High Court (Chancery Division) Pumfrey J dismissed UCB’s claim on 19 May 2004: [2004] EWHC 1164 (Ch).