Urban Retreats Ltd v Harrods Ltd

In construing a commercial indemnity, words such as “fall due” must be read in context. They may include employment liabilities which have arisen, although the payment date has not yet arrived or the liability has not crystallised. “Any liability” is not limited to liabilities already payable where the wording contains no such restriction. A catch-all provision may allocate all liabilities originating before termination, even where payment is made afterwards. Where a definition distinguishes contractual payments from liabilities connected with employment legislation, an exception relating to TUPE liabilities may attach only to the latter category, according to the structure and punctuation of the clause.

Urban Retreats Limited and Harrods Limited entered into a settlement agreement terminating a licence under which Urban Retreats operated hairdressing, beauty and spa facilities in Harrods’ department store. Harrods continued the businesses after termination, and staff transferred to Harrods under the TUPE regulations.

The application concerned whether clause 12H required Urban Retreats to indemnify Harrods for salaries, commissions and holiday pay earned before termination but payable afterwards. The court was required to construe subclauses 12H(a), (b) and (e), and the definition of “Employment Liabilities”.

1. Construction of “which fall due”. The words could not automatically be confined to sums already due for payment. Read in their contractual and commercial context, they were ambiguous and could reasonably include obligations which had arisen, even though the payment date had not arrived or the obligation had not crystallised. That construction made business sense and avoided an unexpected windfall for the claimant.
2. Subclause 12H(b). “Any liability” bore its ordinary wide meaning and was not restricted to liabilities which had already become payable. The claimant’s submission that it meant “any other liability” was rejected. The absence of the word “other” was significant, particularly because that word was expressly used in subclause 12H(e).
3. Subclause 12H(e). The provision operated substantially as a sweep-up clause. It showed that clause 12H was intended to ensure that liabilities originating before termination remained the claimant’s responsibility through the indemnity, even where Harrods made the payment after termination.
4. Definition of “Employment Liabilities”. The definition separately identified “all contractual payments” and “all actions, proceedings” and other liabilities connected with employment legislation. The statutory and regulatory wording, including the exception for Transfer and Undertakings (Protection of Employment) Regulations 1981, attached to the second category and not to contractual payments. The structure, numbering and punctuation supported that reading and produced a commercially sensible result.
5. The court therefore accepted Harrods’ construction of each disputed aspect of clause 12H.