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 QUEEN'S BENCH DIVISION
(MR JUSTICE PARK)

		Royal Courts of Justice Strand London, WC2
		26th July 2006

1. LORD JUSTICE TUCKEY: This is an appeal from a judgment of HHJ McCahill QC sitting in London as a High Court Judge in which he found the defendants, Anglo Dutch Meats UK Limited ("ADM"), liable to the claimant under the terms of a guarantee and gave judgment for the principal sum of £184,824.26 plus interest and costs. ADM say that the judge was wrong to reject their defence that the claimant was not the beneficiary of the guarantee.
2. ADM is a meat processor and wholesale supplier to the manufacturing and food service industries. It is part of a substantial group of companies, 40% of which is owned by Mr Askaroff.
3. The claimant was incorporated in 1991 and changed its name from Sapod UK Limited to Gastronome UK Limited in March 2004. It is based in Wallingford and is the United Kingdom subsidiary of a French company, Gastronome SA, which specialises in the supply of poultry products and is owned by French agricultural co-operatives. Other Gastronome subsidiaries carry out various activities in France, including Soparvol Industrie Le Bignon SARL, whose name changed to Gastronome Le Bignon SARL in April 2004, which prepares and cooks chickens at a factory on an industrial estate in Le Bignon, and another subsidiary which prepares fresh turkey crowns on premises at Luche Priange, 250 kilometres away.
4. The claim arises out of the supply of cooked chicken and turkey crowns by the claimant to International Foods Solutions Limited ("IFS"), another English company of which ADM was a 76% shareholder. IFS went into liquidation in December 2004, owing the claimant the principal amount to which it had obtained judgment.
5. The guarantee under which the claim was made is dated 19 December 2003 and was in identical terms (except as to dates) to an earlier guarantee dated 26 June 2002. It was in the form of a letter on ADM paper addressed to Gastronome ZA La Foret, 44140 Le Bignon, France. The letter reads:

"Dear Sirs

"IFS Limited

"We confirm that we are willing to guarantee any amounts properly due from IFS Limited to you for a period of 12 months from 1 July 2003. We trust that this is satisfactory for your purposes.

"Yours faithfully."

The letter was then signed on Mr Askaroff's express instructions by his personal assistant above his name, which is shown as "Nick Askaroff FCA Managing Director". The French address was that of the factory in Le Bignon but the letter was sent by IFS to the claimant at its address in Wallingford.

6. There was a good deal of evidence before the judge about how this and the earlier guarantee came to be provided, and this has given rise to some argument about how much of this evidence was admissible as an aid to construction. I will start, however, by setting out what I think are the salient features of this evidence.
7. IFS was incorporated in November 2001 and started discussions with the claimant, which it referred to as "Sapod UK/Gastronome" ,with a view to its supplying Gastronome's poultry products to the UK market. ADM specialised in beef and pork and wanted to expand its business into poultry through its interest in IFS. The judge found that through Mr Askaroff it was closely involved in IFS's business and had a detailed and intimate knowledge of its day-to-day affairs. Gastronome products for the UK market were to be supplied by the claimant but it would not supply IFS without credit insurance or some other means by which it could ensure that its invoices would be paid. IFS's first orders were for chicken, which was to come from Le Bignon, but these orders were not accepted until IFS sent the June 2002 guarantee to the claimant which it said was "confirmation of ADM's invoice guarantee for" IFS.
8. After receiving the guarantee the claimant fulfilled IFS's orders for Gastronome products. IFS was not supplied by any other Gastronome company. The judge found that these facts and the fact that the claimant was a Gastronome subsidiary were known to ADM. The claimant's invoices to IFS were paid by ADM into the claimant's bank account. The claimant itself was supplied by and paid another Gastronome subsidiary, Gastronome Distribution SA.
9. By 1 July 2003 the claimant had become concerned at the amount owing by IFS and that ADM's guarantee had expired that day. In an e-mail to IFS the claimant's Managing Director Mr Rostron said:

"Reference my telephone conversation with you today, I note that the guarantee given by ADM Ltd in relation to the credit extended to International Food Solutions Limited by Sapod UK Limited expired today …

"As a matter of urgency would you kindly arrange for ADM Ltd to send to me a renewal of their guarantee for a further 12 months of all payments due to Sapod UK Ltd in respect of all invoices raised by Sapod UK Ltd for product ordered by and delivered to or on behalf of IFS.

"Please arrange for the original document to be sent to me, which must be signed by a director/directors of ADM Ltd authorised by the Board to give such a guarantee."

10. After a number of delays, the guarantee of 19 September was sent by IFS to the claimant in Wallingford after the claimant had said that without it future business would not be allowed to proceed. IFS wished to place a large order for turkey crowns from Luche Priange for the Christmas market. ADM accepted that it had given the guarantee to enable the continued supply of Gastronome products to IFS.
11. ADM's submission to the judge was that there was no ambiguity in the guarantee. As a matter of construction, its beneficiary was the French company operating at Le Bignon. It could not possibly be construed to mean the claimant in Oxfordshire. Nor, if there was an ambiguity, could this result be reached by reference to the extrinsic evidence.
12. The judge concluded at paragraph 29 of his judgment:

"In my judgment, I should interpret the guarantee in the light of all the relevant extrinsic evidence, even in the absence of any ambiguity. However, even if I were wrong in this, and ambiguity, or the avoidance of commercial nonsense or the avoidance of a totally unreasonable result, were a necessary precondition to the admission to extrinsic evidence, then I would have concluded (and do conclude) that such ambiguity is present here. This is because the name and address in the guarantee is a generic term, capable of applying to the claimant, which does not identify any particular company. The fact that an address in France is given does not go far enough to eliminate that ambiguity, when the address is merely a works address where chicken was being cooked and prepared. No invoice was ever rendered by the company which operated that chicken processing plant at Le Bignon. That was never its function. Therefore, because the reference was not to a corporate or legal entity but was a generic term, extrinsic evidence is admissible to resolve the ambiguity. It simply is unrealistic and destructive of the underlying commercial purpose of the guarantee to confine the guarantee to the operating company at Le Bignon, since, at the time of the second guarantee, the only substantial business was the provision of turkey crowns which were being produced at Luche Priange. It would have made commercial nonsense, and would have been productive of a totally unreasonable result, if that guarantee were confined to Gastronome Le Bignon. I ask myself, therefore, what was the background of facts which were known to, or should have been known to, the parties as reasonable people at the time when they concluded their agreement, embodied in the guarantee of 19^th September 2003? … I answer that by saying that the defendant and Mr Askaroff knew that the only company supplying IFS with Gastronome products was the claimant, which they knew to be a subsidiary of Gastronome. At the very least, this knowledge was reasonably available to the defendant."

13. Mr Hare for ADM submits that the meaning of the words used in the guarantee is clear. It was issued to that Gastronome company which operated from the address in Le Bignon. There was such a company and it was to supply the chicken which IFS was to order in 2002, so the guarantee was not a commercial absurdity. He supported this submission by reference to one of the claimant's orders to the distribution company which identified the factory as "Gastronome/Le Bignon", and the fact that there was a visit to the factory by IFS in July 2002. During that year, it was almost exclusively chicken products which were supplied by the claimant to IFS. Mr Hare submits that the judge has re-written the guarantee so as to make it refer to a different corporate entity operating from a different address in another jurisdiction. Such creative re-writing of a commercial document of this kind went beyond the proper limits of construction.
14. There has been some debate about what those limits are. But I do not think there is now any doubt about the principles of construction applicable to a case of this kind. They were summarised by Lord Hoffman in ICS v West Bromwich Building Society [1998] 1 WLR 896 at pages 912H to 913F and applied by this court to a case about a guarantee in Egan v Static Control Components Europe Limited [2004] EWCA Civ 392. The question which the court posed for itself in that case was: what meaning would the guarantee convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time it was given? I think that this was the right question to ask in our case.
15. Mr Hare did not really quarrel with this. He did, however, make a number of criticisms of the judge's approach, saying that the judge had only been able to find ambiguity by looking at extrinsic evidence, which was impermissible, and that he focused exclusively on the sense of the transaction from the claimant's perspective and so ignored that of ADM, which was simply to ensure a supply of products from abroad.
16. But these submissions bring one back to Mr Hare's simple submission that on a proper construction the meaning of the guarantee is clear. He referred us to the judgment of Rix LJ in Dumford Trading AG v OAO Atlantrybflot [2005] EWHC Civ 24, another case about a guarantee where the courts decided on appeal against a summary judgment that there was a real issue as to whether the claimant was the beneficiary of the guarantee in issue in that case. After an analysis of a number of misnomer cases Rix LJ said (at paragraph 32):

"It seems to me that the doctrine of misnomer is of uncertain width. It is clearly a doctrine of construction, but it is not plain to what extent it permits the reference to extrinsic evidence. Davies v Elsbury Brothers Limited would suggest that where there are two possible entities, the rule is a strict one: unless one can say from the four corners of the document that the parties must have intended to refer to one rather than the other entity, then the doctrine does not apply. If, however, there is only one possible entity, then it is possible to use extrinsic evidence to identify a misdescribed party."

17. For reasons which I will explain, I think the result of this appeal is the same whether one asks the question posed in the Egan v Static Control case or adopts what might be considered to be the more restrictive approach suggested by Rix LJ.
18. So what was the relevant background to the September 2003 guarantee? It was (1) to ADM's knowledge the claimant alone had been supplying IFS with Gastronome poultry products from Le Bignon and Luche Priange for over a year, for which ADM had been paying the claimant (Mr Hare sought to dispute the judge's findings as to ADM's knowledge but this challenge was, in my view, hopeless. Not only was it not the subject of the appeal but the judge's findings of fact about this were based on his assessment of Mr Askaroff's evidence; see paragraphs 17 and 18 of the judgment); (2) the claimant would not further supply IFS, particularly with its large order for turkey crowns, unless ADM guaranteed payment. ADM gave the guarantee to enable the supply of Gastronome products to IFS to continue; (3) the address on the guarantee was that of the factory at which chicken products were prepared and cooked for supply to the claimant and on sale to IFS; (4) Gastronome was not the name of a French company. The factory was at that time operated by Soparvol Industrie Le Bignon SARL.
19. Against this background, I think it is indisputable that the commercial purpose of the guarantee was to ensure that the claimant's invoices would be paid for products it supplied to IFS, if IFS failed to do so. Its genesis was the claimant's concern that it would not be paid and ADM's concern that IFS should continue to receive a supply of poultry products. It cannot have been the parties' intention that the guarantee was only to apply to amounts due from some imprecisely identified Gastronome entity which was not to contract with or invoice IFS. That would have been a commercial nonsense.
20. In these circumstances, I think the guarantee must be construed as a reference to the company within the group which was actually to contract with and invoice IFS. By September 2003, this was undoubtedly the claimant. The word "Gastronome" did not identify any particular company or legal entity. The address on the guarantee(to which it was not actually sent) was simply a mistake. Looked at in its context, there was only one entity to which the guarantee was addressed, so if it is to be considered as a case of misnomer the extrinsic evidence could be used to identify the claimant as the misdescribed party. None of this involves re-writing the contract; it is simply the result of the enquiry as to what the parties must have intended.
21. Mr Hare argued that the 2002 guarantee is part of the relevant background because it is in the same terms as the 2003 guarantee which was simply renewed. At the time of the 2002 guarantee it could not be said that the reference to the company at Le Bignon was a mistake. All I need say about this is that it may be that if the court only had to construe the 2002 guarantee the mistake would have been less obvious. But that is beside that point. This case is only concerned with the construction of the 2003 guarantee, the background to which was different and more extensive than the background to the earlier agreement and, as it seems to me, entirely unequivocal.
22. For these reasons, I think the answer to the question which I posed in paragraph 14 is clear: the guarantee was meant to apply to amounts due from IFS to the claimant and it should be construed in this way.
23. I would therefore dismiss this appeal.
24. LORD JUSTICE DYSON: I agree.
25. SIR PETER GIBSON: I also agree.

Order: Appeal dismissed.