Murray Holdings Ltd v Oscatello Investments Ltd

Contractual construction is a unitary exercise focused on the language used in its documentary, factual and commercial context. Commercial common sense may assist where the words have competing available meanings, but it cannot justify departing from clear language merely because the bargain appears disadvantageous. A court may correct an obvious drafting mistake by construction only where it is clear that something has gone wrong and equally clear what reasonable correction is required. Rectification requires a continuing common intention, objectively manifested and existing at execution, which the instrument failed to record by mistake. For corporate parties, the relevant intention may be that of the person who was in reality the decision-maker, or of a negotiator whose intention was adopted by the actual decision-maker.

The claimant sought construction or, alternatively, rectification of a Framework Agreement governing the distribution of proceeds from the realisation of an interest in Somerfield supermarkets. It contended that the agreement was intended to give the defendant only the investment upside, while returning the claimant’s original capital before the defendant received the remaining proceeds.

The court first considered the natural meaning of the waterfall provisions and the relevance of commercial context. It then considered whether the wording contained an obvious error capable of correction by construction. Having rejected those arguments, the court examined whether the parties had a continuing, objectively manifested common intention which the agreement failed to record by mistake.

1. Construction. The words describing dividends, interest, disposal proceeds and other economic benefits referred to gross receipts. The expressions “Violet Economic Return” and “economic benefits” could not introduce a limitation for acquisition cost or convert those gross amounts into net profit. The costs provision concerned costs incurred by Isis in obtaining the return, not the original acquisition cost.
2. The construction exercise was unitary. Commercial common sense could assist in choosing between available meanings, but could not displace clear language because the result appeared commercially unattractive. The surrounding circumstances did not establish commercial absurdity.
3. The alternative construction argument also failed. There was no obvious mistake on the face of the agreement, and the admissible context did not make it clear either that a mistake had occurred or what correction should be made.
4. Rectification. The documentary evidence convincingly established that the negotiators, Mr Brown and Mr Gunnarsson, shared and communicated a continuing intention that the claimant would recover its £44.15 million acquisition cost before the defendant received the upside. That intention persisted through execution. The evidence also established the relevant intention on the defendant’s side through Ms Peck and, by attribution, the relevant corporate parties.
5. For rectification, the relevant intention is ordinarily that of the person authorised to bind the company, but a non-director may be the real decision-maker, or the company may have adopted the negotiator’s intention. The claimant’s directors performed a substantially formal role, so Mr Gunnarsson’s intention was attributable to it. The trust’s decision-maker, Ms Peck, independently shared Mr Brown’s intention, and that intention was attributable to the defendant.
6. The omission resulted from a mistake, although its precise source could not be identified. The claim for rectification therefore succeeded. The Framework Agreement was to be rectified so that, after expenses and before the defendant’s first payment, the claimant received its acquisition cost. The construction claim failed; the precise form of order was reserved.

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