Powell & Ors v General Electric Company

Contractual wording which is clear and grammatically coherent should ordinarily be given its ordinary meaning, even if its operation produces commercial anomalies. A court may delete or add words only where the wording produces a result that is so commercially nonsensical that the parties cannot have intended it, and the alternative purpose can be identified with confidence. The same stringent test applies whether the proposed correction involves adding or deleting words. A contractual scheme may deliberately create different consequences for claims made during different periods. Apparent tension with other provisions is insufficient to justify rewriting the agreement.

General Electric Company acquired the entire issued share capital of PII Group Limited. The agreement established a £25 million retention account to secure warranty and tax covenant claims, with staged releases during four claim periods.

GEC notified substantial claims during the first claim period. An independent counsel assessed them at nil, and £15 million was released. GEC subsequently commenced proceedings. The Part 20 defendants sought a declaration that further releases were permitted, while GEC contended that outstanding first-period claims prevented release of the second-period amount under clause 6.2(b).

The preliminary issue was the proper construction of clause 6.2(b), including whether the court should delete words which appeared commercially anomalous.

1. Construction of clause 6.2(b). Clause 6.2(b) prevented release of the second-period maximum released amount while first-period retention claims remained undetermined or unsettled in accordance with clause 6.6. The clause had that ordinary and agreed meaning.
2. The apparent anomalies produced by clause 6.2(b), including its interaction with the independent counsel machinery in clauses 6.3 to 6.5, did not demonstrate drafting error. Clause 6.2 had been drafted consistently across the successive claim periods and deliberately preserved a limited restraint on releases where earlier claims remained outstanding.
3. The court considered the principles discussed in Mannai Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. Those principles did not justify admitting evidence of prior negotiations or rewriting clear contractual language merely because the result appeared commercially inconvenient.
4. Following the approach in City Alliance Ltd v Oxford Forecasting Services Ltd [2001] 1 All ER (Comm) 233, words could be added or deleted only if the wording produced a result so commercially nonsensical that the parties could not have intended it, and the intended alternative could be identified with confidence. That threshold was not met.
5. Disposition. The court made the declaration sought by GEC, amended to reflect the existence of third-period retention claims. Further consequential matters were reserved for determination if necessary.

First-instance decision. No appellate history was stated in the judgment.