Mulville v Sandelson

Whether a contractual payment obligation is independent or dependent depends on the true construction of the agreement as a whole. The court considers the natural and ordinary meaning of the payment clause, the agreement’s other provisions, its purpose, relevant circumstances and commercial common sense, while identifying what the parties agreed rather than what they should have agreed.

A professionally drafted settlement deed which requires payment of a specified settlement sum by a fixed date, without set-off or deduction, may create a prior and unqualified obligation to pay. Later obligations concerning releases, resignations or transfers of shares do not necessarily qualify that obligation, particularly where the agreement is a settlement rather than a contract for the sale of shares.

Ms Karen Mulville presented a bankruptcy petition against Mr Jonathan Sandelson based on an unpaid obligation of £1.25 million under a settlement deed dated 10 January 2019. The Chief Insolvency and Companies Court Judge refused Mr Sandelson’s application to strike out the petition. Fancourt J granted permission to appeal.

The appeal turned on whether the payment obligation was a debt for a liquidated sum within section 267(2)(b) of the Insolvency Act 1986, or merely a claim for damages because it was dependent upon Ms Mulville’s performance of other obligations under the deed.

The appeal was dismissed. The payment obligation under the settlement deed was an independent and unqualified obligation, so the unpaid £1.25 million could support a bankruptcy petition under section 267(2)(b) of the Insolvency Act 1986.

1. The question was one of contractual construction. The court had to determine the parties’ intention from the instrument as a whole. Applying Arnold v Britton [2015] UKSC 36, the relevant matters included the natural and ordinary meaning of the words, the other provisions, the purpose of the clause and agreement, relevant circumstances and commercial common sense. Under Barnardo’s v Buckinghamshire [2018] UKSC 55, the nature and circumstances of the particular instrument also affected the appropriate interpretative approach.

2. Clause 2.1 expressly required payment of the Settlement Sum by 31 January 2019, without set-off, deduction, counterclaim, reduction or diminution. The wording was not what would ordinarily be expected for a conditional obligation. The description of the amount as a settlement sum indicated that it was consideration for settlement of the dispute, rather than payment specifically for the shares or loan assignments.

3. The agreement as a whole required JS to pay first. No act by KM was required to give rise to the payment obligation. Her releases, resignations, assignments and share transfers were expressed to be subject to receipt of the entire Settlement Sum, which reinforced rather than qualified JS’s prior obligation.

4. Doherty v Fannigan Holdings Ltd [2018] EWCA Civ 1615 was materially different. It concerned a pure share sale intended to involve a practically simultaneous exchange of payment and transfer documents. The present deed was a settlement agreement, and the share-transfer provisions were ancillary to the settlement. It was therefore not surprising that KM might retain her shares if the settlement sum was not paid in full.

The order below was upheld and the appeal dismissed.

• High Court (Chancery Division): Mr Justice Roth dismissed the appeal from the order of Chief Insolvency and Companies Court Judge Briggs.
• Chief Insolvency and Companies Court: Judge Briggs refused the application to strike out the bankruptcy petition.
• Permission to appeal: Fancourt J granted permission.