Montpelier Business Reorganisation Ltd v AJP One LLP & Ors

In construing a commercial contract, the court must identify the meaning a reasonable person would give the language in its documentary, factual and commercial context. Clear wording is not displaced merely because the result is imprudent or disadvantageous. A contractual condition which relieves a party from payment must be satisfied within the period specified by the clause where the language and purpose so require.

Direct invoicing contrary to the agreed contractual mechanism constituted breach, but the claimant had to prove resulting loss. Directors acting in a conflict arising from a transaction with their company were not required to resign under section 175(3) of the Companies Act 2006. They nevertheless had to account for company monies. The defendants recovered the unpaid deferred consideration, subject to agreed and judicially determined deductions.

The claimant acquired goodwill and assets from two LLPs under an Asset Purchase Agreement and entered into a Management Services Agreement with the LLPs and their individual principals. Part of the purchase price was deferred and was subject to adjustment if specified contractual breaches were notified and remained unremedied.

The claimant alleged breaches concerning invoicing, financial information, promotion of its brand and directors’ duties. The defendants counterclaimed for the unpaid second deferred payment, subject to the claimant’s entitlement to a share of fees. The principal issues were the construction of the deferred-payment condition, the validity of the claimant’s notice, the parties’ invoicing and accounting obligations, the status of the Management Services Agreement, loss, and permissible deductions.

1. Construction. The court applied the approach summarised in Arnold v Britton 2015 AC 1619, including the natural and ordinary meaning of the words, the contract as a whole, its purpose, the circumstances known to both parties and commercial common sense. Commercial common sense could not be used retrospectively to undervalue clear language or improve an imprudent bargain.
2. Deferred payment. Clause 3.3 of the Asset Purchase Agreement required the relevant failure, opinion, notice and unremedied period to occur within the Deferred Payment Period. The claimant’s notice of 9 March 2012 was therefore too late. The second deferred payment of £250,000 remained due.
3. Invoicing and accounting. Clause 6.1 of the Management Services Agreement required the service providers to invoice MBR, so direct invoicing by the LLPs was a breach. The defendants also failed to provide financial information and to account for MBR’s share of receipts. The court found a breach in failing to account, but no substantive loss or gain was proved.
4. Directors’ duties. The individual defendants were conflicted in relation to the transaction, but section 175(3) of the Companies Act 2006 meant that the conflict duty did not apply to conflicts arising from a transaction or arrangement with the company. They were not obliged to resign. Retaining MBR’s money was not justified by that exception, and the interests of the company included creditors’ interests where insolvency was in issue.
5. Termination and damages. The Management Services Agreement was terminated by May 2012, or was in practical effect terminated earlier by suspension and conduct. The claimant could not recover continuing fees or loss of company value on the evidence. Applying the principle that damages cannot compensate for performance the defendant was not bound to provide, the court assessed the claimant’s recoverable position accordingly.
6. Order. After deductions for pre-completion work in progress and recorded but unbilled time, the defendants were awarded judgment for £51,000, including nominal damages.

First-instance decision. No prior appellate decision is stated in the judgment.