St Ivel Ltd & Anor. v Wincanton Group Ltd

A contractual credit for profits from additional business depends on the scope of the defined premises in which the contracted services are to be provided. That scope is determined from the agreement read as a whole, including its operational specifications, capacity, throughput and rent provisions. A later agreement may be construed against the background of an earlier agreement it replaces. Where those features consistently refer to the original chilled and automated facility, and treat a planned extension as a separate option or alternative, the defined warehouse does not expand merely because the extension later forms part of one physical building. Commercial good sense may confirm that construction where the extension’s costs are borne by the supplier and the customer cannot use it.

St Ivel Limited and Uniq Prepared Foods Limited appealed against the decision of Mr Justice David Steel in the High Court, Queen’s Bench Division, reported at [2007] EWHC 2906 (Comm). The dispute arose from warehousing agreements and a related side letter governing threshold volumes, volume shortfall payments and credits based on profits from additional third-party business.

The central question was whether the defined term Warehouse referred only to the original chilled and automated warehouse or also included an 87,000-square-foot extension constructed before the later agreement and side letter. The High Court held that it referred to the original warehouse. Its separate ruling on associated costs was not appealed.

Lord Justice Rix delivered the judgment. Lord Justices Richards and Stanley Burnton agreed. The appeal was dismissed.

1. The side letter used Warehouse in the same sense as the 2002 agreement. The definition identified the relevant leased premises and then narrowed them to the premises in which the contractual Warehouse Services were to be provided.
2. The question was one of contractual construction. The 2002 agreement and side letter could be construed against the background of the 2001 agreement, as recognised in HIH Casualty and General Insurance Co Ltd v New Hampshire Co [2001] EWCA 735 and Electrosteel Castings Ltd v Scan-Trans Shipping & Chartering Sdn Bhd [2002] EWHC 1993 (Comm). The court stressed that the answer did not depend on prediction or an after-the-event narrative.
3. The contractual language and structure pointed decisively to the original warehouse. The agreements repeatedly referred to its 165,000-square-foot area, 85-million-case capacity, chilled conditions, automated handling, throughput parameters and Phase 1 rent. Schedule 3 treated the extension as a possible means of accommodating increased St Ivel requirements, alongside alternative sites, rather than as part of the existing contractual Warehouse.
4. The extension was partly unchilled and lacked the automated equipment required for St Ivel’s goods. The absence of any express or implied provision bringing it within the Warehouse, together with the commercial consequences of allowing St Ivel to share extension profits without contributing to its costs, confirmed the natural construction.

The side letter therefore confined the reduction of Volume Shortfall payments to profits from Additional Business at the original warehouse. The High Court’s decision stood.

• Court of Appeal (Civil Division): In [2008] EWCA Civ 1286, the appeal was dismissed. Rix LJ gave the judgment, with Richards and Stanley Burnton LJJ agreeing.
• High Court, Queen’s Bench Division: Mr Justice David Steel, in [2007] EWHC 2906 (Comm), held that Warehouse referred to the original warehouse rather than the extension. His separate ruling on associated costs was not appealed.