Westcoast (Holdings) Ltd v Wharf Land Subsidiary (No 1) Ltd & Anor

A contractual survival proviso must be read with the termination clause and the commercial arrangement as a whole. It should preserve accrued rights and corresponding obligations where necessary, but should not extend operative restrictions beyond termination unless the language clearly requires that result. A restriction preventing shareholders from pursuing winding-up, dissolution or administration proceedings may protect a venture during its agreed term without surviving its termination. After termination, an unpaid shareholder loan creditor may use ordinary recovery remedies, including judgment and a creditor’s winding-up petition.

Westcoast, a shareholder, lent £999,900 to Wharf Land Subsidiary (No 1) Ltd under a loan agreement connected with a shareholders agreement concerning a five-year land development venture. The loan was not repaid when due. Westcoast sought repayment and a declaration that it could present a winding-up petition.

The company and Wharf Land Investments Ltd appealed from the decision of the High Court of Justice, Queen’s Bench Division, reported at [2011] EWHC 3028 (QB). They accepted that Westcoast could sue for the debt, but argued that clause 5.3 continued to bar a creditor’s winding-up petition through the proviso to clause 19, despite termination of the agreement on its fifth anniversary. The central issue was the proper construction and effect of that proviso.

Lord Justice Rimer gave the lead judgment. Lord Justices Pitchford and Mummery agreed.

1. Disposition. WL was given permission to appeal, but the appeal was dismissed and the High Court’s order was upheld.
2. Construction in context. Clause 19 had to be read as a whole and in the context of the commercial arrangement. The court should endeavour, if possible, to give commercial effect to the entire clause rather than treat the proviso as contradicting the substantive termination provisions. The possibility that a repugnant proviso might be void was noted by reference to Forbes v Git and Others [1922] 1 AC 256 at 259, but that issue did not need to be decided.
3. Five-year scheme. The agreement created a five-year venture. The interest-free shareholder loans were repayable at the end of that period, while clause 5.3 protected the venture during the term by preventing shareholders from taking steps likely to cause its collapse.
4. Effect of the proviso. The proviso preserved accrued rights and the enforcement of corresponding obligations arising during the agreement. It did not continue the agreement’s operative terms generally. In particular, its general and imprecise language could not be construed as extending clause 5.3 beyond the five-year term. After termination, an unsatisfied loan creditor could pursue ordinary remedies, including a creditor’s winding-up petition.
5. The judge was also right to exclude evidence concerning negotiations and the parties’ subjective views of intended meaning from the construction exercise. That ruling was not relied on in the appeal.

1. Court of Appeal (Civil Division): Granted WL permission to appeal and dismissed the appeal.
2. High Court of Justice, Queen’s Bench Division: Under [2011] EWHC 3028 (QB), entered judgment for Westcoast for £999,900, declared that Westcoast was entitled to present a winding-up petition, dismissed the counterclaim and refused permission to appeal.