MM Packaging (UK) Ltd v Philip Potter & Ors

This appeal concerned the construction of a settlement agreement clause which provided for payment of "90 days of gross pay" to former employees. The central legal question was whether that phrase required calculation on a per diem basis (average daily pay multiplied by 90) or on a calendar basis (including non-working days) consistent with the statutory scheme for a protective award under the Trade Union and Labour Relations (Consolidation) Act 1992 (sections 188–190). The Court of Appeal held that the phrase should be read in its contractual context and, in particular, against the known fact that the agreement was compromising a union claim under section 189 for a protective award of up to 90 days. On that holistic reading the payment was to be calculated in the same way as a statutory protective award (calendar basis under section 190(2)).

The court rejected the narrower literal approach adopted by the trial judge and emphasised that pre-contractual negotiation evidence need not be admitted to obtain the correct contextual meaning where the objective matrix is clear. Because the correct construction favoured the defendant company, there was no need to decide the alternative counterclaim for rectification.

The appellant company closed its Bootle factory and entered into a comprehensive settlement agreement with its former employees and their trade union. Clause 1.2(ii) of the agreement provided for payment of "90 days of gross pay" to employees. The parties disputed whether that phrase required a per diem calculation (average daily pay times 90) or a calendar calculation consistent with statutory protective awards under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 and the calculation method in section 190(2). The company paid on the calendar basis; some employees sued for declarations that the per diem approach applied. The company counterclaimed for rectification if the court preferred the claimants' construction.

The trial before HH Judge Graham Wood QC heard evidence about the negotiation process and adopted a construction favouring the per diem approach. On appeal to the Court of Appeal the principal issues were (i) the proper approach to construction of the written settlement clause and the admissibility and weight of evidence of pre-contractual negotiations, (ii) whether the clause should be read in its commercial and statutory context, and (iii) whether rectification would be required if the clause were construed for the claimants.

The Court of Appeal rejected the trial judge's isolated literal approach and his reliance on detailed negotiation evidence. The court applied a holistic objective approach to construction, placing decisive weight on the fact that the agreement explicitly compromised the union's section 189 claim for a protective award of up to 90 days and that the statutory scheme, via section 190(2), calculates remuneration on a calendar/week's pay basis. The court concluded that an objective reader would understand "90 days of gross pay" as referring to the claimed statutory entitlement and therefore to the calendar method of calculation. The appeal was allowed and the claim dismissed; the rectification issue did not require determination.

Appeal allowed. The Court of Appeal held that the correct construction of "90 days of gross pay" in the settlement agreement, read holistically in its objective context, was to be understood as referring to the statutory protective award entitlement under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 and thus to be calculated on the calendar basis indicated by section 190(2). The trial judge's narrower literal approach was displaced by the contextual reading; because the contractual construction favoured the company, the alternative claim for rectification fell away.

Appeal from the trial decision of HH Judge Graham Wood QC (sitting as a Deputy High Court Judge), judgment handed down 6 August 2015; this Court of Appeal judgment [2017] EWCA Civ 1471 dated 31 July 2017.