Ardagh Group SA v Pillar Property Group Ltd

On an application for summary judgment, the court may determine a short point of law or construction where the evidence is sufficient and the issue does not require a trial. Contractual words must be construed objectively, as part of the agreement and in their relevant factual and commercial context. The court must give meaning to every material word. An “effective offset” may require more than the procedural use of losses or the making of an election: it may require an identifiable commercial or financial benefit. Where the evidence does not establish that requirement, summary judgment should be refused and the issue left for trial.

Ardagh sold Yeoman Holdings Ltd, a company with substantial accrued capital losses, to Pillar. The sale agreement provided for contingent consideration equal to 9% of losses effectively offset against taxable profits or gains by Yeoman or members of Pillar’s group.

HMRC subsequently allowed specified set-offs following a compromise agreement with Pillar. Ardagh claimed £7,394,038 as contingent consideration. Pillar disputed whether the contractual requirements of “allowable capital losses” and an “effective offset” were satisfied. Ardagh applied for summary judgment under CPR rule 24.2(a)(ii).

1. Application dismissed. The court could determine a short construction point summarily if it had all evidence necessary for a proper determination and the parties had an adequate opportunity to argue it. The court should not conduct a mini-trial or decide summarily where further evidence reasonably expected at trial could affect the result.
2. The agreement was construed objectively and as a whole, giving the words their natural and ordinary meaning in context and against the relevant background known to both parties. The word “effective” in “effective offset” had to be given substantive meaning.
3. The contractual requirement of an effective offset was additional to the requirement that the losses be allowable. Under the statutory machinery in Taxation of Chargeable Gains Act 1992, losses in Yeoman could be used against gains attributed to it from other group companies only through the relevant statutory processes, including the election contemplated by section 171A(2).
4. Those procedural steps did not necessarily establish an effective offset. In context, the additional requirement referred to commercial or financial value. The HMRC compromise was a single indivisible agreement and could not be treated as an unconditional pound-for-pound offset of Yeoman’s losses against group gains.
5. The court could not determine on the evidence whether all or any part of the £82,155,987 losses had been effectively offset. A full investigation and valuation at trial were required. It was therefore unnecessary to decide whether “allowable” also excluded losses whose use was precluded by the pre-entry loss provisions.