Teesside Power Holdings Ltd v Electrabel International Holdings BV & Anor

The meaning of a contractual provision must be determined from the contract as a whole. The wording is the starting point, but apparent clarity does not prevent examination of the contractual context. A term cannot be implied merely because it would produce a commercially attractive result. Where a contract distinguishes tax repayments from interest, a general reference to repayment of tax does not ordinarily include interest paid by HMRC. A specific provision governing interest prevails over a more general provision where both may apply.

The claimant and defendants were parties to a share purchase agreement and tax deed concerning the sale of shares in a power company. Clause 6 required the buyer to account to the covenantors for repayments of tax obtained by the company in respect of pre-completion matters.

The company obtained a repayment following the use of group relief, and HMRC also paid interest under section 826 of the Income and Corporation Taxes Act 1988. The preliminary issue was whether clause 6.2 required the buyer to pay that interest to the covenantors. The claimant relied on the contractual documents, an alleged implied term, the group-relief provisions and the commercial purpose of the deed.

Preliminary issue determined for the defendants. Clause 6.2 did not require the buyer to account for interest paid by HMRC on a repayment of tax.

1. Contractual construction. The meaning of the agreement was to be found in the SPA and tax deed. The court should begin with the wording, but should consider all the contractual possibilities before settling on the specific meaning.
2. Meaning of “repayment of Tax”. The SPA definition of Tax was directed to payments which a person was or might become bound to make in the nature of taxation. It did not naturally include interest which HMRC was liable to pay because it had held tax before repaying it. The reference to a repayment was also framed as an item which might appear as an asset in the completion accounts. Interest was a distinct matter.
3. Interaction of provisions. Clause 4 specifically addressed interest paid in connection with recoveries, reliefs or benefits. Where a situation fell within both clauses 4 and 6, clause 4 governed because it was specific and clause 6 was general. The express treatment of interest in clause 4 indicated that the parties recognised the need to address it if it was to benefit the covenantors.
4. Implied term and group relief. The court rejected the attempt to imply a term from the group-relief provisions or the alleged economic neutrality of the arrangements. Clause 10 was not intended to deal with refunds. If an actionable default under clause 10 occurred, interest might be claimable under ordinary principles governing late payment of debts, but that did not justify implying a term into clause 6.
5. Relief. The definition of Relief did not include section 826 interest. The listed concepts concerned the calculation or reduction of the tax liability, whereas interest was calculated by reference to the ascertained sum. The claim failed and there was no obligation on the buyer to account for the interest.