David Freud Ltd & Anor v Vickbar Ltd

Contractual terms in a Tomlin-order schedule must be construed objectively against the relevant factual matrix. That matrix may include the litigation context, jointly obtained valuation material and financial records, even where the valuation and underlying figures were not agreed or binding. The expression ‘outstanding accruals’ was not confined to its narrow accountancy meaning of uninvoiced liabilities. In context, it referred to the outstanding management-fee entitlement. VAT was included. The words ‘approximately £10,000’ were a descriptive label indicating a relatively insignificant additional liability, not a contractual ceiling. An inaccurate estimate did not prevent the court from giving the substantive obligation a sensible meaning.

Vickbar Ltd held 50 per cent of Freud Lemos Ltd and presented a petition under section 459 of the Companies Act 1985. The proceedings were compromised by a Tomlin order under which David Freud Ltd agreed to buy Vickbar’s shares. Clause 4 required David Freud Ltd and Freud Lemos Ltd to procure repayment of outstanding accruals to Vickbar in the sum of approximately £10,000.

Vickbar claimed more than £21,000, relying on management-fee liabilities shown in financial material prepared for a joint valuation. The appellants argued that ‘accruals’ had its narrow accountancy meaning and that £10,000 imposed a limit. HHJ Cowell declared £21,945.71 payable. The appeal concerned the proper construction of clause 4, the use of disputed background material, the effect of the stated sum and the inclusion of VAT.

The Court of Appeal unanimously dismissed the appeal. Jonathan Parker LJ gave the judgment, with Ward LJ and Moore-Bick LJ agreeing. The order of HHJ Cowell declaring £21,945.71 payable under clause 4 was upheld.

1. Objective construction. The schedule had to be construed against the relevant factual matrix. It was legitimate and helpful to consider the section 459 proceedings, the disputes raised in the pleadings, the parties’ joint instruction of an expert, the financial records supplied for the valuation and the settlement terms. The fact that the valuation and much of the underlying material had not been agreed, and was not binding, did not prevent its use as contextual evidence.
2. Meaning of ‘outstanding accruals’. The expression was not confined to the narrow accountancy meaning of uninvoiced liabilities. The inclusion of clause 4 suggested that the parties contemplated a payment. The agreed buy-out price was precisely half the joint expert’s valuation of the entire share capital, and the material supplied for that valuation contained the relevant management-fee figures. In context, those matters supported the wider construction adopted by the judge.
3. Approximate sum. The words ‘approximately £10,000’ were treated as a label describing the additional liability as relatively insignificant in the context of a £1.1625 million buy-out. They did not limit recovery to £10,000. It was unnecessary to resolve the issue by applying the maxim falsa demonstratio non nocet.
4. VAT and calculation. Once the wider construction was adopted, VAT was properly included. The judge’s calculation, including the outstanding figures to 31 July 2003, the liability for the final period and the deduction of £25,000 in drawings, was correct.

• Court of Appeal (Civil Division) — On 30 November 2006, the court dismissed the appeal unanimously: [2006] EWCA Civ 1622.
• Central London County Court — HHJ Cowell, on 10 June 2005, declared £21,945.71 payable to Vickbar Ltd under clause 4 of the Tomlin-order schedule and ordered payment.