Leaflet Company Ltd v Secured Orchard Investments Ltd & Anor

Commercial correspondence may create a binding agreement even though a later contract is made between different parties. The court must read the documents objectively, as a whole and in their commercial setting. A parent company’s agreement to accept and pay invoices for services supplied to its subsidiary may be an undertaking directly enforceable by the supplier where that is the clear meaning of the correspondence. A later agreement between supplier and subsidiary does not supersede or discharge the earlier undertaking where the documents form one commercial arrangement. Subsequent payment arrangements do not alter that conclusion. The expression underwrite is neutral: standing alone, it does not identify the beneficiary or the party bound.

Leaflet Company Ltd supplied and distributed leaflets for the second defendant, which was a subsidiary of the first defendant. The invoices, totalling £91,473.50, remained unpaid. After the second defendant entered administration, the claim continued against the first defendant.

The County Court held that an exchange of e-mails on 7 October 2004 created an agreement by which the first defendant would pay the invoices. A later letter of 12 October recorded an agreement between the claimant and the second defendant. The first defendant appealed, arguing that the letter was the only agreement or had superseded any earlier arrangement. The central issue was whether the documents, read objectively in their commercial context, established and preserved a separate payment undertaking by the first defendant.

The Court of Appeal unanimously dismissed the first defendant’s appeal.

1. The e-mails had to be construed objectively, as documents exchanged by commercial parties and read as a whole. Their commercial meaning was clear and did not support the strained interpretation advanced by the first defendant.
2. Mr Killick was acting for the first defendant, not as agent for the subsidiary. His signature as financial director of the first defendant, the different roles of Mr Killick and Mr Samuels, and the e-mail correspondence read together established that distinction.
3. The first defendant agreed to accept and pay invoices for services supplied to the second defendant. That agreement was made to enable the second defendant to contract with the claimant, and was sufficiently certain and binding.
4. The 12 October agreement between the claimant and the second defendant implemented the commercial arrangement contemplated by the earlier e-mails. It fitted with, and depended upon, the first defendant’s antecedent undertaking. It did not vary or discharge it.
5. Payments subsequently made by the second defendant did not alter the agreement. The later reference to the first defendant underwriting the account confirmed the October arrangement, but the word underwrite was neutral and did not itself identify the beneficiary or the contracting parties.

The County Court judge had therefore reached the correct conclusion. The formal order recorded the application as refused.

1. Court of Appeal (Civil Division) On 7 October 2008, Thomas LJ delivered the judgment, with Laws and Wilson LJJ agreeing. The appeal was dismissed.
2. Luton County Court On 3 December 2007, HHJ Farnworth held that the first defendant had agreed to be liable for the invoices.