Bright Asset Ltd v Lewis

The meaning of debt and new debt in a commercial consultancy agreement is determined from the agreement read as a whole and in its admissible factual matrix. Where the agreement contemplates an insolvency process and transfer of a business, index debt is not confined to liabilities of the original company. It may include funding committed to a successor vehicle, including an invoice discounting facility and deferred purchase-price credit, where it falls within the agreement’s purpose. The order in which funding is committed is immaterial. Debt need not be paid upfront: commitment suffices. Separate credit tranches may each be counted where they are distinct. Ordinary trade debt remains outside the calculation.

Bright Asset agreed to provide consultancy services to Mr Lewis concerning the debts of Hi-Gear Leisure plc and the exit of HSBC as its incumbent debt provider. After Hi-Gear entered administration, its business and assets were sold to Cool Brands Ltd, a successor vehicle in which Mr Lewis had an interest. Cool Brands obtained an invoice discounting facility, and the purchase price was payable by instalments.

The county court awarded Bright Asset success fees calculated by reference to a loan, the deferred purchase price and the invoice discounting facility. Mr Lewis appealed on contractual interpretation. The issues were whether Cool Brands’ funding could qualify as replacement or new debt, whether an invoice discounting facility was debt, and whether the deferred purchase price was separately chargeable.

1. Appeal dismissed. The agreement was construed as a commercial instrument, read in the light of the admissible factual matrix.
2. The interpretative exercise is a single exercise directed to the meaning the document would convey to a reasonable person with the background knowledge reasonably available to the parties. The agreement cannot first be interpreted in isolation and only then compared with the surrounding circumstances. Pre-contractual negotiations and subjective intention are excluded as evidence of contractual meaning. Evidence of discussions may, however, be admitted for the limited purpose of identifying facts known to both parties and the commercial purpose of the agreement. This approach was consistent with the principles stated in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.
3. The agreement was not confined to debt owed by Hi-Gear. Its contemplation of an insolvency process, potentially involving a sale of the business to another person or company, and its reference to canvassing new debt providers showed that funding committed to Cool Brands could qualify. The commercial purpose was to provide consultancy concerning Mr Lewis’s interests in the business, whether held by Hi-Gear or a successor vehicle.
4. The sequence in which the various debts were committed was immaterial. The relevant question was whether the funding fell within the overall purpose of the agreement. Ordinary trade debt was outside the calculation, but working-capital funding was within it. The contra proferentem principle did not arise because the agreement was not sufficiently doubtful.
5. Debt had a contextual meaning under the agreement and was not limited to loans strictly so called. The description of HSBC as the incumbent debt provider included its invoice discounting facility. The asset-based-lending exception in clause 4 also indicated that some non-loan funding was included. The word committed meant that funding need not have been advanced upfront.
6. The £2 million invoice discounting facility was index debt committed. The court could infer from the chronology and circumstances that it was required for working capital. The £800,000 deferred purchase price was also new debt because it represented credit extended by the administrators. No minimum credit period was required. The deferred purchase-price credit and invoice discounting facility were separate debts, so counting both did not constitute double counting.

• Court of Appeal (Civil Division): On appeal from the Mayor's and City of London County Court, the appeal was dismissed.
• Mayor's and City of London County Court: HHJ Birtles QC gave judgment for Bright Asset on 5 May 2010, awarding £51,112.50 plus interest and costs.