Fraser Turner Ltd v PricewaterhouseCoopers LLP

The Court of Appeal dismissed the appellant's challenge to the High Court strike-out of its claims. The appeal concerned contractual interpretation and the law on implied terms, and the duties owed by administrators both in common law (assumption of responsibility / special relationship) and under paragraph 74 of Schedule B1 to the Insolvency Act 1986. The court held that the Royalty Deed, when read as a whole, did not impose an express obligation on London Mining or LMCL to procure that a purchaser of the Marampa mine assume or pay the royalty and that no clear, necessary or obvious term to that effect could properly be implied into the deed (noting clauses 3.1, 3.5, 3.9, 6.1, 6.2, 6.3 and 12.11).

The court also held that the administrators had not assumed responsibility to the claimant so as to give rise to a special duty of care; their duties were owed to the company and the body of creditors as a whole and, acting to achieve the best realisation for creditors, they did not unfairly harm the claimant under paragraph 74. The appeal was therefore dismissed.

Background and parties: Fraser Turner Limited (FT) provided consultancy services and had a Royalty Deed (dated 8 June 2012) under which LMCL (a Sierra Leone subsidiary of London Mining PLC) would pay FT a 0.3% royalty on iron ore produced at the Marampa mine; London Mining guaranteed and was to procure payment in certain circumstances. After London Mining and LMCL became insolvent in October 2014, the receivers sold LMCL's business and assets (including the mine) to Timis Mining without the purchaser assuming or being informed of the Royalty Deed. FT sued PwC (and two named partners who acted as administrators/receivers) alleging breach of contract, inducing/ procuring breach, conspiracy, negligence/misfeasance and unfair harm under paragraph 74 Schedule B1.

Procedural posture: At first instance Mr Phillip Marshall QC struck out FT's claims and refused permission to amend (see [2018] EWHC 1743 (Ch)). FT obtained permission to appeal; the Court of Appeal heard the appeal and dismissed it.

Nature of the relief sought: FT sought to hold the defendants liable for failing to draw the Royalty Deed to the purchaser's attention and failing to procure transfer or accession of the royalty obligation (or secure equivalent protection) — alternatively to establish tortious or statutory liability against the administrators and relief under paragraph 74.

Issues framed: (i) whether terms should be implied into the Royalty Deed so London Mining had a continuing obligation to procure and guarantee royalty payment after an asset sale; (ii) whether express construction or implication could impose on London Mining/LMCL an obligation to procure a purchaser to assume the royalty or execute an Accession Deed; (iii) whether the administrators owed FT a special duty to protect it from the loss; and (iv) whether FT could bring a successful claim under paragraph 74 Schedule B1.

Court’s reasoning: The court applied established principles of contractual interpretation (including Arnold v Britton and Marks & Spencer on implied terms) and emphasised the relevance of the express wording and the fact the deed was professionally negotiated. Clause 3.5 only amended invoicing mechanics if a New Asset Holder existed; clause 6 and its sub-clauses governed guarantees and the mechanisms by which London Mining’s obligations could cease (Accession Deed or Deed of Guarantee). The court found no express obligation to procure a purchaser's accession and rejected implied terms because the contract already addressed the subject, the alleged implication would contradict express terms or impose an unanticipated new obligation, and no single formulation of an implied term was sufficiently obvious, necessary or certain.

On the tort/duty point the court held that FT could not show an assumption of responsibility or special relationship with the administrators; communications from FT’s director were insufficient to create a special relationship or an enforceable undertaking. The administrators’ duties were to the company and creditors as a whole and protecting one unsecured creditor at others’ expense would have been inconsistent with those duties. Finally, under paragraph 74 FT could not establish unfair harm because the administrators acted in good faith in the interests of creditors generally and FT’s complaint was essentially that it lost a private commercial opportunity rather than that it had been unfairly treated as a creditor of the insolvent company.

Appeal dismissed. The Court of Appeal agreed with the first-instance judge that (i) the Royalty Deed did not impose an express obligation on London Mining/LMCL to procure a purchaser of the mine to assume or pay the royalty and no appropriate term could be implied to that effect, (ii) the administrators had not assumed responsibility to FT or formed a special relationship giving rise to a duty to protect FT specifically, and (iii) FT had no sustainable claim under paragraph 74 Schedule B1 because any loss resulted from administrators acting for creditors as a whole in good faith.

High Court (Chancery) — Mr Phillip Marshall QC struck out FT's claims and refused the proposed amendment ([2018] EWHC 1743 (Ch)). Permission to appeal was granted (Floyd LJ 24 October 2018) and the Court of Appeal dismissed the appeal ([2019] EWCA Civ 1290).