England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
The Chancellor of the High Court Sir Andrew Morritt
HC12C01369

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/07/2013

The Chancellor (Sir Terence Etherton) :

1. This is an appeal from an order dated 21 December 2012 of Sir Andrew Morritt, Chancellor, by which he dismissed the summary judgment application of the claimant, Ardagh Group SA ("Ardagh").
2. The application and this appeal turn on the proper interpretation of the provisions of an agreement dated 6 March 2001 between Ardagh (1) and the defendant, Pillar Property Group Limited ("Pillar") (2). That agreement ("the Sale Agreement") was for the sale by Ardagh to Pillar of the entire share capital in Yeoman Holdings Limited ("Yeoman"), a subsidiary of Ardagh. The Sale Agreement provided for Pillar to pay £2.2m on completion and a further contingent consideration calculated in accordance with clause 6. That clause concerned the potential utilisation of capital losses suffered by Ardagh to reduce taxable profits or gains. Ardagh claims that the obligation under clause 6 to pay additional consideration has been triggered. It applied for summary judgment in respect of its entire claim of £7,394,038.83. Pillar claims that it has no liability to pay any additional consideration.
3. Permission to appeal Sir Andrew Morritt's dismissal of the application with costs was granted by Lewison LJ.

The Sale Agreement

4. The Sale Agreement defines Ardagh (then called Yeoman International Holdings SA) as "the Vendor", Pillar as "the Purchaser" and Yeoman as "the Company".
5. The relevant provisions of the Sale Agreement are as follows:

"1.

1.1 where the context so admits:-

(E) references to "the Purchaser" and the "Company" shall include their respective successors in title and permitted assigns and references to "the Purchaser's Group" are references to the Purchaser and any holding company from time to time of the Purchaser and any subsidiary from time to time of the Purchaser or any such holding company or any other company falling within the economic ownership of the Purchaser other than the Company;"

"6. Contingent Consideration

6.1 In addition to the Completion Consideration, the Purchaser shall pay to the Vendor an amount equal to nine per cent of the losses used by any member of the Purchaser's Group or the Company by virtue of the effective off set against a taxable profit or gain, by such company of all or any part of: -

(A) allowable capital losses for tax purposes of the Company; or

(B) surplus management expenses of the Company

6.2 The amount or amounts of the Contingent Consideration referred to paragraph 6.1 above shall be payable on the date 5 business days after the date on which assessment for corporation tax in respect of any accounting period in which the profits or gains of the relevant member of the Purchaser's Group or the Company have been reduced by a Loss or Management Expenses … has been finally determined."

The factual background

6. So far as is necessary to understand the issues on this appeal, the factual background may be briefly summarised as follows. I gratefully acknowledge that the summary is largely taken from the judgment of Sir Andrew Morritt.
7. In February 2001 KPMG, which had been concerned for some years with the tax affairs of Ardagh, a non-UK resident company, sent to a director of Pillar, Mr Humphrey Price, a background note on Yeoman. The opening paragraph stated:

"[Yeoman] is a UK company with a realised capital loss. We believe that this loss is unaffected by the pre-entry rules due to the provisions of para 7(9) Sch 29 FA 2000. The purpose of the information contained within the following files is to aid a prospective purchaser in their decision making process."

8. By a letter dated 20 February 2001 Pillar engaged KMPG to report on Yeoman. On 5 March 2001 KPMG submitted a draft report. The draft report contained in paragraph 2 an executive summary. The summary recorded:

"[Yeoman] has realised capital losses of between approximately £97m and £112m.

Following the acquisition of [Yeoman] Pillar could elect under s.171A Taxation of Chargeable Gains Act 1992 such that any gains realised would be deemed to arise in [Yeoman] and covered by capital losses.

This is possible by virtue of the manner in which Finance Act 2000 has been worded. Very broadly this states that where a company was not part of a group prior to 21 March 2000 and becomes part of a group by virtue of the changes in the Finance Act then the anti-avoidance legislation preventing the buying in of capital losses does not apply.

This proposal is not without some uncertainty. The main areas of risk which are detailed in this report are:..."

9. The executive summary then referred to two areas of risk irrelevant to this appeal. The third was:

"Applicability or otherwise of the pre-entry loss legislation [the nature of which is then described]."

10. In paragraph 3.2.2.3 that risk was spelled out in greater detail as including the risk that HM Revenue & Customs ("the Revenue") might contend that the effect of paragraph 7(9) of Schedule 29 to the Finance Act 2000 ("paragraph 7(9)") was limited to allowing pre-entry losses only on the occasion of joining a group in consequence of the amendments made by that Act to the provisions of the Taxation of Chargeable Gains Act 1992 ("TCGA") Schedule 7A ("Schedule 7A") and not on the occasion of a subsequent sale into another group. As to that risk KMPG wrote in the draft report:

"In our view, ... the legislation did give effect to the apparent intention, but it gave effect to it in such a way as to allow further effects which probably were not intended. However it is not possible to say precisely what was intended from the legislative context, and it would be quite difficult to identify what provision should have been made as the legislation in this area is complex."

11. The Sale Agreement was then signed by the parties. It was conditional on Pillar not being advised by 14 March 2001 that the Budget Statement of the Chancellor of the Exchequer contained any statement or proposal which resulted in the basis for Pillar entering into the Sale Agreement being materially adversely affected. On 13 March 2001 KPMG wrote to Pillar confirming that:

"nothing in last week's budget announcements, press releases or other technical material would appear to change the law such that Pillar, following its acquisition of [Yeoman], would be unable to access its brought forward capital losses."

12. The Sale Agreement was completed on 23 March 2001.
13. In its returns for the purposes of Corporation Tax for the accounting periods ended 31 March 2002, 2003 and 2005 Yeoman (which changed its name to Ivoryhill Limited in 2001) sought to set off a total of some £82m of its loss incurred prior to 21 March 2000 against profits transferred to Yeoman by other companies in the Pillar Group pursuant to Part VI Chapter I TCGA. The entitlement of Yeoman to make any such set-off was first challenged by the Revenue in February 2004. Substantial correspondence ensued.
14. In a letter dated 24 June 2004 the Inspector of Taxes accepted that as at 28 February 2000 Yeoman had capital losses available to be carried forward of £112,070,852. The Inspector went on to contend, however, that paragraph 7(9) did not apply on a subsequent sale of Yeoman to the Pillar Group. That remained the position of the Revenue ever after.
15. In May 2005 Pillar, and therefore Yeoman, became members of the British Land Company plc group ("British Land").
16. Eventually the Revenue issued a closure notice deemed to have been given on 11 June 2009 refusing Yeoman the benefit of any of the set-offs claimed.
17. On 23 June 2009 Yeoman appealed. Its appeal was compromised by an agreement with the Revenue concluded on 4 December 2009 ("the HMRC Agreement"). The memorandum of the HMRC Agreement stated:
"[Yeoman] – Agreement with HMRC

[Yeoman] losses claimed of £82m (tax at 30% of £24.6m) will be agreed only on the basis that:

o Claimed use of Blaxmill 29 Limited loss against gain on Chester of £47m is withdrawn in full,

o A section 171A election is made for £40m of gains to transfer these gains into a company with no available losses so that a cash tax liability of £12m arises,

o No further use of the remaining [Yeoman] losses of £15m

o No further use of the remaining Blaxmill 29 limited loss of £50m."

18. Blaxmill 29 Limited and Chester mentioned in that memorandum were respectively a company in and a property owned by British Land rather than the Pillar Group.
19. In consequence of the HMRC Agreement the Revenue then allowed set-offs of the accrued losses of Yeoman against profits of other companies in the Pillar Group transferred into Yeoman for the years 2002, 2003 and 2005 in the aggregate amount of £82,155,987.
20. Ardagh then claimed from Pillar by way of contingent consideration payable under clause 6 of the Sale Agreement the sum of £7,394,038 being equal to 9 per cent. of that aggregate amount. Pillar declined to pay that sum contending that the terms of clause 6.1 had not been satisfied. In broad terms it contended, firstly, that the Pillar Group was not able to use, and did not use, Yeoman's capital losses because they were not allowable losses having regard to the provisions of Schedule 7A. It contended, alternatively, that the losses were not an "effective off set" within clause 6.1 of the Sale Agreement because the Revenue's agreement to off set the losses formed part of a wider agreement between British Land and Pillar, on the one side, and the Revenue, on the other side, pursuant to which the former gave up valuable rights and incurred liabilities for tax that it otherwise need not have incurred, and the value of the rights surrendered and additional liabilities incurred were not less valuable than the set off.
21. The present proceedings were instituted by a claim form issued by Ardagh on 29 March 2012.
22. Particulars of Claim dated 29 March 2012 were followed by a Defence dated 24 May 2012 and a Reply dated 18 June 2012.
23. On 26 June 2012 Ardagh issued an application for summary judgment on the whole of its claim.

The tax legislation

24. The relevant statutory provisions were summarised by Sir Andrew Morritt in terms which have not been criticised on this appeal. The following is based largely on his summary.
25. In its original form section 171 in Chapter I TCGA enabled one company in a group to transfer an asset to another company in the group on terms that neither a gain nor a loss would accrue to the disposer. If the company owning the asset wished to transfer it to a person outside the group section 171A enabled him to do so on the basis that the gain accrued to another group company. By these means gains might be transferred from the company in the group to which the gain had accrued to another group company which had the benefit of realised or accrued losses. In each case either both companies had to be resident in the UK at the time of the disposal or the asset was a chargeable asset of each of them, see s.170. There was no provision enabling allowable losses to be transferred by one group company to another.
26. The effect of the original provisions of Chapter I TCGA were restricted by the insertion of Schedule 7A into TCGA by the Finance Act 1993 ("FA 1993") section 88 and Schedule 8. The effect of Schedule 8 was to preclude losses accruing to a company before it became a member of a group of companies (pre-entry losses) being deducted from gains accruing to a group company or arising otherwise than on the realisation of, principally, pre-entry assets of the company to which the loss accrued. If the provisions of the original Chapter did not apply because, as in this case, the holding company was resident outside the UK, the amendment did not make it applicable.
27. The Finance Act 2000 section 102 and Schedule 29 made substantial amendments to Chapter I TCGA as amended by FA 1993 with effect from 1 April 2000. The principal effect of them was to remove the requirements in sections 171 and 171A that the relevant companies should be resident in the UK. The effect of the amendment was to make Yeoman a member of a group of companies within the legislation, thereby enabling it, subject to the provisions of paragraph 7 of Schedule 29, to take the benefit of sections 171 and 171A. That paragraph amended Schedule 7A in respect of any accounting period ending on or after 21 March 2000. Paragraph 7(9) provides:

"Where

(a) immediately before the time when the main amendments have effect in relation to a company in accordance with sub-paragraph (6), the company was not a member of a group of companies for the purposes of section 170 of the Taxation of Chargeable Gains Act 1992 (as it stood before the main amendments), and

(b) immediately after that time, the company is a member of a group of companies for the purposes of that section (as amended by the main amendments),

Schedule 7A to that Act shall not have effect in relation to any losses accruing to the company before that time or any chargeable assets (within the meaning of paragraph 1(3A) of that Schedule) held by it immediately before that time."

28. It is clear from that paragraph that, although the consequence of the amendments made by Schedule 29 to Chapter I and Schedule 7A was to make Yeoman into a group company, the restriction on the use of pre-entry gains imposed by Schedule 7A did not apply to the assets of Yeoman in relation to their use within the group of which it was to be treated as a member, that is to say as a subsidiary of Ardagh. There is an issue between Pillar and the Revenue as to whether the effect of paragraph 7(9) also freed Yeoman from any restriction on the use of pre-entry gains in the Pillar Group on or after 23 March 2001 when it became a member of the Pillar Group.
29. One other tax provision which it is necessary to mention is section 54 (1) of the Taxes Management Act 1970 ("TMA"), on which Ardagh relies. It provides as follows:

"Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the tribunal, the inspector or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the tribunal had determined the appeal and had upheld the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it, as the case may be."

The summary judgment application

30. Ardagh's summary judgment application is made pursuant to CPR Rule 24.2(a)(ii), that is to say on the ground that Pillar has no real prospect of succeeding in its defence and there is no other compelling reason why the claim should be disposed of at a trial.
31. It is supported by two witness statements of Mr John Rosenheim, a partner in SNR Denton UKMEA LLP, the solicitors for Ardagh. Mr Charles Middleton, a senior corporate tax executive in the tax department of British Land has made a witness statement for Pillar. Each of them exhibited relevant documents.
32. Sir Andrew Morritt heard the application on 4 December 2012. There was no cross-examination of either witness. A written judgment was handed down on 21 December 2012.
33. Sir Andrew Morritt stated his conclusions in paragraphs [26] to [30] of his judgment. He did not accept that TMA s. 54 is of any assistance in the correct interpretation of clause 6.1 of the Sale Agreement. Further, he said that he was reluctant to determine the scope of paragraph 7(9) in the absence of the Revenue if it was unnecessary to do so.
34. He considered that the requirement for an "effective off set" is additional to the need for the losses to be allowable and also additional to the need for an election within section 171A(2) by another company in the group to which relevant gains had accrued. He identified that additional element in paragraph [29] of his judgment as follows:

"In its context the additional ingredient must be commercial or financial value. The whole object of the clause is to ensure that Ardagh gets paid for the actual value of the asset of Yeoman consisting of its allowable losses payable as and when realised. The agreement between Pillar and HMRC made on 4^th December 2009 cannot be read as an unconditional agreement for the off set, pound for pound, of the losses of Yeoman against the gains of any group company. It was a single indivisible agreement. No doubt if the parties had foreseen all the possible consequences of clause 6.1 they might have added some valuation and arbitration machinery; but its absence is not sufficient to justify a different conclusion on the proper construction of clause 6.1."

35. He said that, in the circumstances, he was unable to conclude that there had been an "effective off set" of all or any part of the loss of £82,155,987 so as to be able to hold that the contingent consideration was £7,394,038, for which Ardagh claimed summary judgment. He said that there may or may not have been, an "effective off set" but that could only be determined at a full trial.
36. It was not necessary, in the circumstances, for Sir Andrew Morritt to consider whether or not the word "allowable" in clause 6.1(A) of the Sale Agreement imposed a requirement that the deductibility of the loss should not be precluded by being a pre-entry loss.

The appeal

37. The appeal raises, at the end of the day, a very short point of interpretation. On the one hand, Mr Robert Miles QC, for Ardagh, says that clause 6.1 of the Sale Agreement is perfectly clear and means exactly what it says, namely that Ardagh is entitled to an amount equal to nine per cent. of Yeoman's allowable losses which the Revenue have agreed can be set off against the taxable profit or gain of Yeoman or any member of the Purchaser's Group, as widely defined in the Sale Agreement. Mr Robert Howe QC, for Pillar, says that the proper interpretation of clause 6.1 is that Ardagh is entitled to an amount equal to nine per cent. of any commercial net benefit which Yeoman or any member of the Purchaser's Group has obtained from setting off Yeoman's allowable losses against the taxable profit or gain of Yeoman or of any such company notionally transferred to Yeoman for that purpose pursuant to the tax legislation.
38. The consequences of those two different interpretations are not, in principle, in dispute. It is not in dispute that under the HMRC Agreement the Revenue did agree that Yeoman's losses could be treated as allowable for off setting against the profit or gain of other companies within the British Land group. It is also not in dispute that under the HMRC Agreement the Revenue were willing to treat Yeoman's losses in that way if, and only if, other tax advantages claimed by British Land to be available to its group were given up. Accordingly, if Ardagh's interpretation is correct, then Ardagh is entitled to nine per cent. of the £82,155,987 of Yeoman's losses agreed by the Revenue in the HMRC Agreement, namely £7,394,038. If Pillar's interpretation is correct, it will be necessary to proceed to a trial in order to determine whether or not the companies within the British Land group have received a commercial net benefit from the set-off allowed by the Revenue under the HMRC Agreement bearing in mind the potential advantages, if that is what they were, required to be given up by British Land under that Agreement. The time estimate for that trial is five days.
39. Pillar's interpretation of clause 6.1 of the Sale Agreement undoubtedly has the appearance of a significant interference with, or rather addition to, the actual language of that clause. Pillar deploys a range of arguments to support its interpretation.
40. Mr Howe submitted that Ardagh's interpretation produces a result that is commercially absurd. It would impose an obligation to pay Ardagh a huge sum of money even though, in the light of the nature and strength of the tax advantages required to be given up under the HMRC Agreement, no financial advantage was obtained by the British Land group. He relied on Chartbrook Ltd v Persimmon Homes Ltd [2008] EWCA Civ, [2008] 2 All ER 287 (CA), [2009] UKHL, [2009] 1 AC 1101 (HL) and Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 as authority that clause 6.1 should, therefore, not be read in a strictly literal way, but rather in a way which gives it a commercially sensible meaning since that is most likely to give effect to the intention of the parties.
41. He submitted that it is possible to do so without nearly as much interference with the language of the Sale Agreement as was inflicted by the House of Lords on the contract in issue in Chartbrook. He said, as Sir Andrew Morritt has held, that it is possible to do so because of the word "effective" in the expression "effective off set" in clause 6.1.
42. He submitted that Ardagh's literal interpretation gives no meaning to the word "effective", and that the word denotes that the additional payment should be for some actual value or benefit arising subsequently to the making of the Sale Agreement. He emphasised that the words used in clause 6.1 are not to be viewed from a purely technical perspective in a tax setting, but are to be interpreted in the way that the commercial parties would have intended. He supported that argument by submitting that clause 6 was, in any event, not drafted in an entirely correct way from a purely technical perspective since it assumed that Yeoman's losses would be applied by other companies in reducing their taxable profit or gain. Technically, however, there would have to be a notional transfer of the profit or gain from that other company to Yeoman since, under the relevant tax legislation, losses could not be transferred out of a company in order to reduce the taxable gain or profit in another company.
43. Mr Howe emphasised the factual setting for clause 6.1 of the Sale Agreement and its proper interpretation. At the date of the Sale Agreement Yeoman was not a trading company and it had no accumulated profit. It had losses and it was being sold purely so that its losses could be used to reduce the taxable gain and profit in Pillar or any companies within Pillar's group. It was obvious that the companies within that group might change over time, and that is expressly recognised in the definition of "the Purchaser" and "the Company" and "the Purchaser's Group" in clause 1.1(E) of the Sale Agreement. Indeed, the wide definition in clause 1.1(E) presupposed that Yeoman's losses might be utilised by an entirely new group of companies, whose tax affairs would be entirely unknown and unpredictable at the time of the Sale Agreement.
44. Mr Howe pointed to the evidence in the witness statement of Mr Middleton, that at the time of the Sale Agreement it was known that the Revenue sometimes concluded package deals involving the global resolution of a number of different and distinct tax claims and disputes involving different companies within the same group. The relevant tax legislation itself required a joint election by both the company notionally transferring the profit or gain and the company holding the allowable losses.
45. Pillar's case is that, in the light of those matters, the parties to the Sale Agreement must have contemplated, or be taken to have contemplated, precisely the kind of package deal contained in the HMRC Agreement. KPMG's draft March 2001 report itself acknowledged that the proposed use of Yeoman's losses was not without uncertainty and risk. Mr Howe contended that such a package deal, like the HMRC Agreement itself, did not necessarily involve an unqualified acceptance by the Revenue of the legal validity of any tax saving aspect of such a package deal. He said that the Revenue have a duty to collect the right amount of tax, but they have a broad discretion as to how to go about collecting it. In the present case, he said, the Revenue had never accepted that the taxable profits of other companies in the Pillar group had been validly reduced by Yeoman's losses, and, moreover, they were entirely correct in law in that view. His submission was that the claim to use Yeoman's losses to reduce the taxable profit or gain in Pillar's group was always legally hopeless. The evidence is that the reason British Land preferred to set off Yeoman's losses under the HMRC Agreement, rather than insist on the other potential tax advantages given up under that Agreement, was that it would secure an advantage on interest liability for tax due.
46. Mr Howe submitted that there is no particular difficulty in evaluating the tax advantages given up under the HMRC Agreement. He said it merely requires an assessment of the value of the claims in the light of the possibility that they would or would not have been accepted by the Revenue. He explained that a percentage reduction would have to be applied to the face value of the potential tax allowances mentioned in the first and fourth bullet points in the HMRC Agreement to take account of the risk that the Revenue would not accept them. He drew an analogy with litigation claims for damages for the loss of a chance caused by a defendant's wrongful conduct. He pointed out that the present case is itself a not untypical example of the sale of a tax advantage to a third party, in which the parties had indeed arrived at a value for the sale. The only purpose of the Sale Agreement was to sell to Pillar the potential to save tax by using Yeoman's allowable losses for a basic consideration of £2.2m.
47. Mr Howe added support to those arguments by reference to the word "allowable" in the expression "allowable capital losses for tax purposes" in clause 6.1(A) of the Sale Agreement. He said that it reflected the concern and interest of the parties to the Sale Agreement that the losses would in practice be allowed by the Revenue against the profit of another member of the group. Mr Howe submitted that, in substance, they were not allowed. The Revenue, he said, had always denied that Yeoman's losses were legally allowable, and the HMRC Agreement did not substantively allow them because the British Land group was required to give up tax advantages of an equivalent value.
48. Neither side on the hearing of the appeal wished the Court to reach a conclusion on whether or not the claimed off set of Yeoman's losses was in principle legally valid and effective.
49. Mr Howe's written and oral arguments were impressive. I also give due respect to the analysis and decision of Sir Andrew Morritt. I would, nevertheless, allow this appeal for reasons which may be stated quite briefly.
50. The applicable principles of interpretation are well established and are not in dispute. If the language of the contract is unambiguous, the court must apply it. If there are two possible interpretations, the court should prefer the interpretation which is consistent with business common sense. Generally, in interpreting the meaning of a commercial document, read in its contextual setting, the court ought to favour a commercially sensible interpretation. If it is clear that something has gone wrong with the language, and it is clear what a reasonable person would have understood the parties to have meant, then that meaning should be given to the text even if that would involve extensive deviation from a literal interpretation of the words used: Chartbrook [2009] 1 AC 1101 at [25], Rainy Sky at [21]-[25].
51. In the present case, as is now so often the case, each side says that its preferred interpretation is more commercial than the other side's and indeed that the other side's is absurd or some similar description.
52. Pillar does not assert, as was the position in Chartbrook, that something has gone wrong with the language of the relevant contractual provisions because, if read literally, the language and structure are arbitrary and irrational. Pillar's case is that, read in its factual context and giving due weight and meaning to the expressions "effective off set" and "allowable capital losses" in clause 6.1, it is a necessary consequence of the express wording that the obligation to pay the contingent consideration only arises if the treatment of Yeoman's allowable losses has given Yeoman or the Purchaser's Group (as defined) a commercial net benefit.
53. I can quite see that this would, at one level, give a commercially sensible interpretation to clause 6.1 of the Sales Agreement. It would limit the payment of additional consideration, that is to say the contingent consideration, to circumstances where the purchaser or the purchaser's group has actually received an overall economic benefit.
54. There appears to be some conflict between the witness statement evidence of Mr Rosenheim, for Ardagh, on the one hand, and that of Mr Middleton, for Pillar, on the other hand, as to what would have been the understanding of the parties and their advisers at the date of the Sale Agreement as to the practice and the legality of the Revenue agreeing to "package" deals such as the HMRC Agreement in the present case, bearing in mind Pillar's case that Yeoman's losses were not legally allowable to off set against the taxable profit or gain of other companies in the British Land group. I am content to decide this appeal, however, on the footing that such a package deal is not unlawful and could have been envisaged as a possibility at the time of the Sale Agreement. Certainly, I would agree with Pillar that the terms of clause 6.1 of the Sale Agreement, the wide definition of "the Purchaser", "the Company" and "the Purchaser's Group" in clause 1.1(E) of the Sale Agreement and the relevant provisions of the tax legislation support the conclusion that the parties to the Sale Agreement would have anticipated that payment of the contingent consideration would be likely to arise in the context of a group of companies, in which the different tax circumstances of different companies would be relevant.
55. With respect to Mr Howe and Sir Andrew Morritt, however, it seems to me clear that the parties and their legal advisers would have ensured that the Sale Agreement contained very different provisions if they had intended the payment of the contingent consideration to be dependent on the kind of evaluation exercise for which Pillar contends. Mr Howe described a two stage valuation exercise in relation to the tax advantages and claims given up under the HMRC Agreement in order to ascertain the commercial net benefit to the British Land group. His first stage is, as I have said, to apply a percentage discount to those abandoned advantages and claims to reflect the risk that the Revenue would not have accepted them. The second is an evaluation of the likelihood that any appeal from an adverse decision of the Revenue would be successful. Mr Howe was not prepared, however, to rule out the possibility of some other, as yet unspecified, techniques for evaluating the abandoned advantages and claims.
56. The parties have estimated that the trial to determine those matters will take five days. Mr Howe said that there would be expert evidence. The valuation exercise, whether conducted in or out of court, would take place in the absence of the Revenue, but, at least at the first stage, on the basis of the perceived likely view to be taken by the Revenue about the legality and strength of the claims. The great difficulties in carrying out any such valuation are obvious. Mr Howe observed that the valuation exercise under clause 6.1 for ascertaining commercial net benefit could, in different circumstances, have been simpler. That is true. On the other hand, it might have been even more complex, depending upon the number of companies and their tax affairs involved in the package deal.
57. There is nothing whatever in the Sale Agreement to indicate that the parties contemplated any such elaborate and highly speculative exercise. On the contrary, it is wholly inconsistent with the five day period for payment following the determination of the relevant tax assessment as specified in clause 6.2 of the Sale Agreement. Sir Andrew Morritt did not address this problem or the inconsistency with the tight timetable for payment in clause 6.2 except to comment in paragraph [29] of his judgment as follows:

"No doubt if the parties had foreseen all the possible consequences of clause 6.1 they might have added some valuation and arbitration machinery; but its absence is not sufficient to justify a different conclusion on the proper construction of clause 6.1."

58. The brevity of that comment probably reflects that the fact that the difficulties of evaluation were not mentioned in the parties' skeleton arguments at the hearing of the summary judgment application.
59. Mr Howe sought to discount the significance of the five day payment period in clause 6.2 by saying that it merely fixed the time for payment and not the date for ascertaining what is due. It seems to me, however, highly improbable, to say the least, that the parties would have fixed a date for payment, non-compliance with which would have given rise to a breach of contract and a liability to interest on a potentially large sum, when it was highly probable that the sum would not be agreed for some time, if ever, and might only be resolved after court proceedings involving expert evidence.
60. Underlying the whole of the analysis in Sir Andrew Morritt's judgment and at the core of Pillar's submissions is that Ardagh's interpretation gives no meaning to the word "effective" in clause 6.1 of the Sale Agreement. I do not agree. I agree with Mr Miles that the better interpretation of the expression "allowable capital losses" is that they are losses of Yeoman allowable for capital gains tax purposes. The off set is "effective" when the set off of those losses is agreed by the Revenue or upheld by the court.
61. Giving the words that meaning produces a simple and certain framework for a non-contentious determination of both the accrual of the liability to pay the contingent consideration and its amount, which is entirely consistent with the five day period specified in clause 6.2.
62. Nor does it seem to me that produces a commercially unmeritorious benefit for Ardagh. It appears from Mr Middleton's evidence that British Land chose to structure the deal in the HMRC Agreement so as to minimise the interest it would have to pay on overdue tax. There is nothing in the evidence to suggest that it would have been impossible or difficult to structure the package deal by taking advantage of the other losses mentioned in the HMRC Agreement rather than Yeoman's losses. In that event, no contingent consideration would have been payable under clause 6.1.
63. Ardagh also relied upon the provisions of section 54 of the TMA. I agree with Sir Andrew Morritt that, for the reasons he gave in paragraph [26] of his judgment, those provisions do not assist.

Conclusion

64. For those reasons I would allow this appeal.

Lord Justice Kitchin

65. I agree.

Lord Justice Underhill

66. I agree. The arguments advanced on behalf of Pillar seem to me a good example of an illegitimate appeal to what is said to be the "commerciality" of a particular construction of a formally drafted agreement. In fact, as the Chancellor explains, the construction advanced by Pillar itself produces an outcome calling for a complex assessment of a kind which it is hard to regard as commercially sensible. But, even putting that point aside, the language used in clause 6 of the Sale Agreement is perfectly clear and plainly applies to the arrangement which Pillar reached with HMRC in the present case. All that has happened is that the Agreement failed to provide for the circumstances created by the particular arrangement which it made (or, rather, chose to make) with HMRC, so that it ended up paying out for an apparent benefit which was, in those circumstances, of no real value to the group. But that is not a licence for departing from the straightforward meaning of the words used: parties not uncommonly make contracts which work out expensively for them in particular situations for which they have failed to provide. This is a very long way from the sort of case considered in Chartbrook.