England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CIVIL DIVISION
(HHJ MCGONIGAL)

		Royal Courts of Justice Strand London, WC2 Thursday, 3rd October 2002

1. LORD JUSTICE MANCE: This is an appeal with permission from Rix LJ against the judgment of HHJ McGonigal sitting in Leeds on 7^th December 2001. He determined against Mr Dixon, who appears before us in person today, a preliminary issue as to the voidness or unenforceability in part or in whole of an agreement or agreements consisting of a debenture, a trading agreement and a guarantee between the respondent to the appeal, Scottish and Newcastle Plc, as successor of Samuel Webster and Wilson Ltd, and the appellant, Mr Dixon.
2. I need not go in any detail into the agreements. They are agreements made between SWW, as brewers, and Mr Dixon's companies, particularly Victoria Development (Hessle) Limited, as operators of licensed premises, and Mr Dixon, in effect, as guarantor. The trading agreement contained a tie requiring the companies and Mr Dixon to buy from Samuel Webster & Wilson each year, at prices set out in Samuel Webster's price list from time to time, at least 3769 barrels of all or any of certain types of beer, and precluding purchase from any other sources. The debenture, which was closely linked with the trading agreement, charged the premises of Victoria Developments, consisting of three trading outlets and all its other property, as security for a loan of nearly £175 million made by Samuel Webster to Victoria Developments. The loan was on terms as to repayment of interest set out in the debenture. The payments of sums under each agreement (debenture and trading agreements) was made an obligation under the other and, as I said, Mr Dixon, and indeed his other companies, gave a guarantee of Victoria Developments' liabilities.
3. There were complicated terms, dealing with termination of the agreements and the effect of any termination, which may require close attention at any further hearing or at some subsequent stage. There were also provisions for concessionary interest to be charged in the first instance but, in the event of any breach or other monies becoming due, for interest at an increased rate of 4 per cent over base rate from time to time of the National Westminster Bank.
4. There were further provisions for barrelage compensation payments in the event of less than the minimum barrelage of 3769 barrels a year being taken. In summary, the trading agreement provided that if, during an initial period of trade, defined as 5 years, sums became repayable under the debenture, then the "purchaser" (and that here includes Mr Dixon and his companies) would become liable to pay, in respect of the balance of the initial period of trade, a sum calculated in like manner to the barrelage compensation payments which were due during the ordinary running of the agreement in the event of any shortfall in the barrelage taken. That, in the present case, appears a possible or probable basis of a quite substantial claim.
5. The pleadings claim a number of matters; (a) principal under the debenture loan plus a small addition advance on sums which were going to be credited to Mr Dixon's companies by way of discount; (b) interest calculated in two tranches: firstly, at the concessionary rate, and then at a rate which is the difference between the concessionary rate and 4 per cent per annum above base rate, and that is the first of the items which are likely to represent the real issue between the parties. Then there is (c) a small sum due in respect of trading monies and interest on that.
6. Next (and this is likely to represent the second real issue) there is (d) a claim for shortfall compensation for the full annual figure of 3769 barrels running for a period of some 3 years from 29^th June 1992 to 28^th June 1995, and that gives rise to a claim of some £418,000. The date 28^th June 1995 is obviously the end of the five year initial period of trade. The first date, 29^th June 1992, was explained to us as corresponding with the date of sale of the last of the three trading premises of Victoria Developments. The sale took place after Victoria Developments (allegedly) defaulted in the early 1990s, probably in 1990. This led to the appointment of a receiver in respect of all its premises. The receiver continued to trade until June 1992 when he sold the last of the premises. Apparently Scottish and Newcastle (or Samuel Webster) continued to supply the receiver until June 1992. In all events, for whatever reason, there was no claim for barrelage shortfall up to that date, but from that date, it is said, that barrelage shortfall compensation is payable in the maximum amount.
7. The parties probably agreed and, in any event, there was ordered a preliminary issue which was heard by the judge. It raises the question whether the agreement or any provision or part thereof is void or unenforceable on a true construction of The Supply of Beer (Loans Ties, Licence Premises and Wholesale Prices) Order 1989. That was an order made under the Fair Trading Act which, by section 56, enabled the Secretary of State to make orders to give effect to the report of the Monopolies and Mergers Commission on beer ties, which is a report dated March 1989 command 651. Perhaps, surprisingly (since it is referred to in the Fair Trading Act, and it was the obvious purpose of this order to give some sort of effect to the recommendations of the Commission, even if not in precisely the way the Commission recommended) the Monopolies and Mergers Commission report was not in front of the judge.
8. In fact the Commission recommended that loan ties be abolished full stop. That was not the course taken by the order. The order instead provided for such ties to be terminated to the extent not consistent with paragraph 2(3) of the order, and for it to be unlawful for any person to make or carry them out to the extent not so consistent. Paragraph 2(3) provided that an agreement was consistent only if it was capable (I summarise) of being repaid at any time, having given not more than 3 months notice of repayment and relevant purchases were not precluded or restricted once the loan was repaid, including payment of all interest due.
9. It went on to say that:

" . . . it shall not be inconsistent with this paragraph for an agreement to provide that if interest is payable at one rate for an initial period of one year or less and a higher rate for a subsequent period and the loan is repaid or payment made before the end of the initial period, interest at the higher rate is due in respect of all part or part of the initial period."

10. Finally, it said in paragraph 2(4), relied upon by the respondents, that nothing should be taken to advance the time of which any payment under an agreement was due from the person to whom the loan was made or other financial assistance was given, or to relieve that person from any obligation to make payments under the agreement as they fall due.
11. The preliminary issue and, indeed, the respondent's skeleton before us, appear to have led to argument about two questions which do not, however, appear to have been really distinguished. Firstly, the effect, if any, of the order regarding the giving of a 3 month notice, upon any financial terms which were attached to the giving of such a notice. Is the order's effect simply to require agreements to include a right to terminate on three months' notice, leaving it to the parties to attach whatever financial conditions they wish to the giving of such a notice? Or does the order intend to give rights to terminate (in summary) on payment of what is due up to the date of the expiry of three months' notice? Does it, to some degree at least, preclude the attaching of an obligation that accelerates what would otherwise be a future payment, e.g. an obligation to pay barrelage compensation in respect of a future period? Does it preclude the attaching of an obligation to pay interest at a higher rate relating to any period, up to the expiry of a three month notice, if that period would extend beyond an initial period of one year? The last part of paragraph 2(3) of the order might point in the latter direction, though the judge found it puzzling and I see some reason for puzzlement myself.
12. The judge, however, appears to have held quite clearly that the only effect of the order was to require agreement to include a right to terminate on three months' notice, leaving it to the parties to attach any financial conditions they like. He concluded that the last part of paragraph 2(3) was effectively either meaningless or incapable of altering the position, despite its last part. He stressed paragraph 2(4) in reaching that conclusion.
13. The second question is: what is the effect, if any, of the order on the trading agreement or the debenture at a time while those agreements are running in the ordinary course, prior to any actual (or, if it is relevant to make any such assumption for any purpose, any assumed) notice to terminate on three months' notice.
14. As I say, those two questions are not really distinguished. It is arguable that the pleading and the preliminary issue perhaps only raise the second question on which the respondent's case is clear. They say that the order is incapable of having any such general effect on a running agreement, and the judge appears to have taken precisely that view also.
15. However, even if the respondents are right on their answer to that question, it seems to me that the first question, which was also addressed by the judge, may at some stage be material, even if not precisely at this stage in the case, and even if not precisely on the pleadings as they are set out at the time.
16. Without expressing any concluded views at all, it may be material, it seems to me, what if any impact the order had on the giving of a 3 month notice, because if the trading agreement was discharged by repudiation then, for example, Scottish and Newcastle's claim in respect of the barrelage compensation is for repudiatory breach and the decision in Maredelanto v Bergbau (The Mihalis Aggelos) [1971] 1QB 164 could then be relevant. That decision indicates that where there is a repudiatory breach the defaulting party may nonetheless be able to say that if he had performed he would have had available to him an option to terminate, which would have meant that the contract really had no duration or value as far as the innocent party was concerned at all.
17. Here, by parallel reasoning, it might be said that, if the tenant was in repudiatory breach still all that cost Scottish and Newcastle was a contract under which the tenant could have given a 3 month notice. If the effect of a 3 month notice in the light of the Beer Ties Order would have been to entitle the tenant to avoid liability on paying barrelage compensation up to the expiry of the 3 month notice (or interest at an enhanced rate only in respect of some limited period) and no further than that could be relevant in that way to the assessment of damages. That of course leads to the question which the court raised with the parties and by writing just before this hearing yesterday: what is the case advanced as to how the agreement came to an end, if it is indeed alleged that it did come to an end?
18. Before us Mr Flynn very fairly recorded his client's acceptance that the trading agreement, at all events, must have come to an end at some point in the early 90s, bearing in mind the appointment of receivers and the sale of the trading premises. He did not suggest that the trading agreement could have survived, therefore, beyond 29th June 1992, which, as I pointed out, is, in fact, the starting date of his client's claim for barrelage compensation. If the discharge involved a repudiatory breach, therefore, the argument based on The Mihalis Aggelos may arise, and it may be relevant to identify, and for this court perhaps to consider as a separate question the impact of the order on a 3 month notice to terminate.
19. It is conceivable, though I say no more at this stage, that a similar sort of point might also be suggested to be relevant in another context, for example even if there is no question of breach. Mr Flynn drew our attention to a clause which simply provided that sums should become due in certain events, which he maintained was sums capable of being regarded as a genuine pre-estimate. So even if there is no breach other than one giving rise to a right to recover a genuine pre-estimate, still it might be suggested that the existence of a right to give three months' notice of cancellation had some relevance to the question whether the sums payable could be a genuine pre-estimate.
20. Those are the concerns which I, for my part, had. I have expressed them at a little length in the hope that that may be of some assistance. Those are no more than preliminary thoughts, and they will need to be considered, and an independent determination will have to be made whether there is anything in them. Further, I do not prejudge any issue regarding amendment.
21. For my part, it seems to me that Mr Dixon now has the opportunity to do just that, and hopefully will obtain legal assistance to enable him to do it.
ORDER: (1) Respondent's skeleton argument 2 weeks before hearing. (2) Appellant's skeleton argument three days before hearing. (3) No order as to costs. (4) Time estimate two-and-a-half hours.