The Engineering Equipment And Materials Users Association Ltd v JLT Ltd & Anor

Contractual provisions must be construed according to their natural and ordinary meaning, read in the context of the agreement and its commercial purpose. Commercial common sense cannot justify rewriting clear words or transforming the parties’ pre-existing rights. A specific provision dealing with book debts applied only to debts owed to the seller where the wording referred to amounts owing to the seller and the debts were to remain the seller’s property. A provision requiring transfer of cash applied only to cash belonging to the seller, not cash accumulated and owned by the buyer. Apparent drafting assumptions or provisions which had no application on the facts did not justify adopting an implausible construction.

The Association sold the CompEx business to JT under a Business Sale Agreement, with JTL guaranteeing JT’s obligations. The dispute concerned whether the agreement required JT to pay the Association sums representing book debts and cash shown in JT’s balance sheet.

The County Court at Central London dismissed the Association’s claim concerning book debts. In relation to cash, it held that JT had a relevant obligation but allowed an account and inquiry concerning possible deductions for overheads and expenses. The Association appealed on both issues, and JT cross-appealed on cash.

The central questions were whether the contractual provisions covered debts and cash owned by JT, and whether the agreement’s references to the seller’s receipts and liabilities altered the parties’ pre-existing arrangements.

1. Book debts. The appeal by the Association was dismissed. Clause 11 was the specific provision governing book debts. Its natural and ordinary meaning was that it concerned debts owed to the Association. The debts shown in JT’s balance sheet were already owed to JT and could not be treated as debts which remained the property and responsibility of the Association.
2. The court rejected the proposed substitution of “owing to the Business” for “owing to the Seller”, and then treating that expression as including debts owed to the buyer. That construction departed substantially from the contractual language and flouted business common sense.
3. The fact that clause 11 might apply to no debts on the facts did not justify distortion of its wording. The agreement appeared to have been drafted on a mistaken understanding of the parties’ earlier arrangements, but that did not permit the court to rewrite the bargain.
4. Clause 9. Clause 9.2 was construed against the background of the pre-existing arrangements. It confirmed, rather than disturbed, the position up to the Effective Date. The Association remained entitled to profits and receipts to which it had previously been entitled, including fees payable by JT, but JT’s entitlement to the business revenues acquired under the Management Agreement was not transformed.
5. Cash. JT’s appeal was allowed and the Association’s appeal concerning cash was dismissed. The words “administered” in the definition of Cash and “the Seller’s” in clause 2.2.4 indicated that clause 5.3.4 concerned cash belonging to the Association. Requiring JT to transfer its own cash to the Association made no commercial sense and was unsupported by the agreement’s language or purpose.
6. The judge’s proposed result, under which JT could use its cash for expenses but would then owe the net balance to the Association, could not be sustained. The Association’s claim was therefore dismissed in its entirety.

• High Court (Chancery Division): On appeal and cross-appeal, the Association’s appeal concerning book debts was dismissed. JT’s appeal concerning cash was allowed. The claim was dismissed in its entirety.
• County Court at Central London: By order dated 15 March 2019, the Association’s book-debt claim was dismissed. JT was held liable in relation to cash subject to an account and inquiry concerning overheads and expenses.