Brierley v Otuo & Anor

Where parties agree that a payment will be made under a consent order, the payment must be appropriated according to that order unless the payer attached a condition consistent with a different agreed allocation. A later payment of a larger sum does not, without more, revive an allocation previously proposed and rejected. The construction of the order depends on its wording and, where relevant, what a reasonable person would have understood the parties to mean in context. A clause providing that a payment is to reduce one debtor’s indebtedness, and only insofar as that indebtedness is discharged, to reduce another debtor’s indebtedness, gives priority to the first debt. The contra proferentem principle does not apply where the wording is clear rather than genuinely ambiguous.

The claimant had obtained substantial costs orders against the defendants, secured over several properties. An earlier order provided for the proceeds of sale of one property, owned by the first defendant, to discharge his indebtedness alone. The parties later entered into a consent order permitting the defendants to retain that property in return for a payment of £250,000.

Before signing the consent order, the defendants had proposed that the payment should discharge specified debts of both defendants, including debts of the second defendant. The claimant rejected that proposal. The first defendant later applied for the payment to be appropriated in accordance with it, alternatively pro rata between the defendants’ debts. The issues were the basis on which the payment was made and the proper construction of the consent order.

1. The appropriation application was dismissed. The claimant was entitled to appropriate the sum in accordance with the consent order.
2. The correspondence showed that the defendants’ earlier allocation proposal had been expressly rejected. The consent order was subsequently signed and the money transferred without any condition stating that it was to be allocated differently. The consent order therefore represented the parties’ final agreement on the allocation of the £250,000. The additional £180.25 did not alter that conclusion.
3. Clause 2.2 provided that the £250,000 was first to reduce or discharge the first defendant’s indebtedness. Only if that indebtedness was discharged could the payment be applied to the second defendant’s indebtedness. The wording did not permit the second defendant’s debt to be reduced while the first defendant remained indebted.
4. That interpretation was reinforced by the commercial context. The consent order was an alternative to the sale of the first defendant’s property under the earlier order, under which its proceeds would have been applied to the first defendant’s debts alone. The proposed alternative allocation would have removed security from the property while extinguishing the second defendant’s debts, leaving the claimant in a materially worse position. The correspondence showed that the claimant had never agreed to that result.
5. The suggestion that the clause should be construed contra proferentem failed. That principle could arise only if the clause were genuinely ambiguous. The meaning of the clause was clear.