Bhatia v Toor

An appellate court need not discard all evidence merely because both parties have given unreliable accounts. A trial judge may sift the evidence, accepting reliable parts and rejecting unreliable parts, while testing it against documents, commercial realities and inherent probabilities.

In construing a settlement or release, the court must consider its primary objective, the recitals, the background knowledge of the parties, and their legal and commercial relationship. Generic wide wording may remain confined by that context. A personal loan to one member of a business group is not released where it was not a natural part of the negotiations and the agreement contains no specific reference to it.

The claimant recovered £40,000 plus interest after Her Honour Judge Walden-Smith QC found that he had personally lent that sum to the defendant. The judge rejected the defendant’s case that the payment was an investment in Evershine Glazing Services Ltd and that the claim had been discharged by a Financial/Commercial Discharge Agreement dated 9 December 2004.

The defendant appealed, contending that the finding of a loan was against the weight of the evidence and that the Discharge Agreement covered the loan claim. The central issues were the proper approach to allegedly unreliable evidence on an appeal and the construction and scope of the release provisions.

1. Appeal dismissed unanimously. The Court of Appeal upheld the finding that the £40,000 payment was a personal loan to the defendant and that the Discharge Agreement did not release the claimant’s claim for repayment.
2. A trial judge is not required to abandon all witness evidence merely because both parties have been unreliable. The judge may sift the evidence, distinguishing reliable from unreliable parts. Judge Walden-Smith was entitled to rely partly on the claimant’s presentation in the witness box and partly on documents, commercial realities and inherent probabilities. Nothing materially undermined her findings that the defendant’s account had changed significantly, that no shares had been transferred, and that there was no evidence that the claimant had been treated as a shareholder.
3. The contractual construction principles derived from Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, BCCI v Ali [2001] UKHL 8, Fiona Trust and Holding Corporation v Privalov [2007] UKHL 40 and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 were not challenged. Applying those principles, weight had to be given to the agreement’s recitals and primary purpose, the parties’ background knowledge, and the identity of Party B as a composite group connected with the business.
4. The loan was made to the defendant personally. It therefore did not form a natural part of negotiations between the claimant and the business-related group comprising Party B. A specific reference to the loan would reasonably have been expected if it was intended to be released. The generic wording in paragraph 3 did not alter that contextual construction. The judge’s construction was therefore correct.

• Court of Appeal (Civil Division) — The appeal was dismissed on both grounds: the finding that the payment was a loan and the construction of the Discharge Agreement. [2012] EWCA Civ 565
• Central London Civil Justice Centre — Her Honour Judge Walden-Smith QC gave judgment for the claimant for £40,000 plus interest on 28 September 2011.