St Ivel Ltd v Wincanton Group Ltd & Anor

When construing a later contract, an earlier contract may form part of the surrounding circumstances, particularly where the later agreement substantially repeats its structure and terminology. The contractual reference to a warehouse was confined to the original premises where the specified warehouse services were provided, despite a later physical extension forming part of the leased site. “Associated costs” meant incremental costs incurred for the purposes of, or as a result of, additional business. Costs that would have been incurred regardless of that business, including costs of serving the existing customer base or generating the committed benefit, were excluded.

The court determined preliminary issues arising from agreements under which Wincanton provided warehouse services to St Ivel and the Uniq Group. The agreements provided for volume shortfall payments, subject to reductions calculated by reference to revenue from additional business, less associated costs.

The dispute concerned whether additional business conducted in a warehouse extension was relevant, and which costs could be deducted from the additional revenue. The issues were principally matters of contractual construction on largely agreed facts.

1. Construction by reference to prior agreement. A prior contract is admissible as part of the matrix or surrounding circumstances when construing a later contract, especially where the later contract substantially repeats the earlier agreement’s structure and terms. The court relied on Ladbroke Group p.l.c. v Bristol City Council, [1988] 1 ECLR 126, HIH Casualty and General Insurance Ltd. v New Hampshire Co, [2001] 2 Lloyds Rep. 161, and KPMG Llp v Network Rail Infrastructure Ltd, [2007] EWCA Civ. 363.
2. Relevant warehouse. The repeated references to the original warehouse’s dimensions, capacity, automated throughput and chilled operations showed that “warehouse” meant the original 165,000 square foot premises. The extension was excluded, although both areas fell within the lease. This construction accorded with commercial good sense because the extension was not available for the claimant’s throughput in the same operational form.
3. Capacity and throughput. “Spare capacity” and “throughput” were interrelated concepts. The relevant capacity was that of the original warehouse, and additional business had to make use of the same facilities for which the shortfall mechanism provided an allowance.
4. Associated costs. The phrase “gross revenue (less associated costs)” referred only to additional costs. A cost was associated if it would not have been incurred, or would have been lower, had the additional business not been sought and obtained. Ordinary costs incurred irrespective of that business, including costs of serving the Uniq Group or generating the committed benefit, were excluded.
5. Question 1A was answered on the basis that paragraph 4 of the side letter referred to the main warehouse only. Question 2 was answered by the stated construction of “associated costs”; the issue concerning extension costs consequently became redundant.