Nearfield Ltd v Lincoln Nominees Ltd & Anor

A contractual obligation to procure that a third party performs an obligation ordinarily requires the promisor to see to it that the obligation is performed. If the third party defaults, the promisor is liable in damages for the amount that should have been paid. The word is not given a weaker administrative meaning merely because the promisor has no beneficial interest in the transaction or acts in more than one capacity. Contractual meaning is assessed objectively against the admissible factual background. Negotiations and subjective intentions are generally excluded unless rectification or relief for mistake is claimed.

Nearfield advanced £3 million under a joint venture agreement involving Lincoln Trust Company (Jersey) Ltd, acting both as trustee and in its own capacity, and Lincoln Nominees Ltd. Clause 5.1.3 provided that the duration of the loan was three years and thereafter Lincoln would procure payment of the loan and interest on written demand.

Lincoln argued that the clause imposed only an administrative duty to seek repayment by Lincoln Nominees. Nearfield contended that it required Lincoln to see to it that repayment occurred and, if necessary, to pay damages. The issue was the proper construction of clause 5.1.3.

1. Meaning of “procure”. The ordinary meaning of “procure” is “see to it”. A party undertaking to procure another’s contractual performance must first attempt to secure that performance and, if the third party fails, must pay damages calculated by reference to the amount that ought to have been paid. The judge relied on Moschi v LEP Air Services [1973] AC 331 and the summary in Barnicoat et al v Knights et al [2004] 2 BCLC 464.
2. Construction evidence. The agreement was to be construed objectively, by asking what it conveyed to a reasonable person with the relevant background knowledge. Negotiations, drafts and subjective intentions were inadmissible as aids to construction in the absence of a claim for rectification or relief arising from mistake. Admissible background could include the genesis and objectively ascertained commercial aim of the transaction, but only within the limits explained in Prenn v Simmonds [1971] 1 WLR 1381 and Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896.
3. Application. Lincoln was a separate contracting party in its Lincoln capacity. The agreement imposed no limitation on its liability in that capacity. Its limited liability as trustee under a separate guarantee did not displace the primary obligation undertaken by Lincoln to procure repayment by Lincoln Nominees.
4. Clause 5.1.3 therefore required Lincoln to see to it that Lincoln Nominees repaid the loan to Nearfield. Lincoln was liable on that basis. Judgment was granted for Nearfield.