England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		13/03/2012

Mr Justice Warren :

Introduction

1. This is an application by Rhinegold Publishing Limited ("Rhinegold") to restrain the presentation of a winding up petition by the respondent, Apex Business Development Limited ("Apex"). The proposed petition is based on sums originally owing by Rhinegold to Apex and also on sums owing by a company related to Rhinegold, Tannhauser Limited ("Tannhauser"). These two sums were the subject of statutory demands dated 8 July 2011 relating to the separate sums due by each of Rhinegold and Tannhauser to Apex. The total sum claimed from Rhinegold was £22,205.63 in respect of director's fees owing to a former director, the benefit of which had been assigned to Apex. The total sum claimed from Tannhauser was £31,473.25 in respect of a loan made by Apex, together with contractual interest on that loan.
2. Applications were made by Rhinegold and Tannhauser to retrain presentation of winding-up petitions based on those statutory demands on the basis that the sums claimed were not yet due. Shortly before the hearing of those applications, an agreement was reached on 15 August 2011 as a result of which the applications did not proceed. I am not concerned with the detail of that agreement since it was reduced to writing in the form of an agreement dated 23 September 2011 ("the Settlement Agreement"). The issue before me is the true interpretation of the Settlement Agreement.

The Settlement Agreement

3. The Settlement Agreement was made between Rhinegold and Tannhauser as the first parties, referred to as "Rhinegold" and "Tannhauser" and together as "the Companies. So far as material, the Settlement Agreement is in the following terms.

"Whereas

(A) On 8^th July 2011 Apex issued statutory demands to Tannhauser and Rhinegold Limited in the sums of £31,473.25 and £22,205.63 respectively (in total the sum of £53,678.88);

(B) On 9^th August 2011 the Companies issued applications to restrain Apex from presenting any petition for the winding up of the Companies based on the statutory demands ("The Applications");

(C) …………..

(D) The parties have agreed that the Applications should not proceed on the following basis.

NOW THIS DEED WITNESSETH as follows:

1. The Companies agree that the amounts claimed by the statutory demands are due and owing.

2. Apex agrees that it shall not present a petition for the winding up of the Companies based on the sums claimed on the statutory demands save as provided for in clause 6 below.

3. The Companies shall pay to Apex the sum of £8,000 on or before the last working day of August 2011 being the first payment in the reduction of the now outstanding sum of £50,692.11.

4. The Companies shall make Apex twelve payments of £3,500 on or before the last working day of each month, the first being made on or before the last working day of September 2011, and one payment of £692.11. Apex reserves the right to claim interest.

5. …………..

6. In The event that any payment due hereunder shall not be made by the due date Apex shall be entitled to give notice demanding payment of such missing payment and if payment is not made within 3 working days of the receipt of such notice by the Companies Apex shall be at liberty should it so wish to present winding up petitions against the Companies. For the avoidance of doubt such notice may be given by email sent on behalf of Apex to a director of one or both of the Companies and by fax to that director c/o William Sturges LLP, fax number 020 7873 1010.

7. …………..

8. Apex shall not, for as long as payments are made in accordance with this agreement, issue proceedings in any court as to the debts referred to in the statutory demands.

9. Each party shall bear their own costs of the applications.

IN WITNESS etc"

Events after the date of the Settlement Agreement

4. The initial payment of £8,000 due under the Settlement Agreement was made and a number of the monthly payments of £3,500 have been made. On each occasion of payment, the Companies have purported to appropriate the payment to the sums owing by Rhinegold falling within the statutory demand made on it. On that basis, the entirety of Rhinegold's indebtedness has been discharged. But there have been no monthly payments after December 2012 and the entirety of the sums owing by Tannhauser falling within the statutory demand made on it remain outstanding.

The position of the parties

5. Mr Temmink, who appears for Rhinegold, submits that on a true construction of the Settlement Agreement, Rhinegold is under no further liability to Apex. Rhinegold did not become a surety or guarantor of Tannhauser's debt, nor did it become directly liable for that debt. He submits that, reading the Settlement Agreement as a whole (which, of course, is what must be done), the whole thrust is that the separate debts remain separate with each company being liable only for its own debts. The Settlement Agreement resolves the dispute about whether the debts were due by providing the acknowledgment in Clause 1. In their context, Clauses 3 and 4 are inapposite to create any obligation on Rhinegold to pay Tannhauser's debt and vice versa.
6. Ms Allsop, who appears for Apex, submits, to the contrary, as her primary submission that the Settlement Agreement creates an entirely new debt equal to the balance outstanding (then £50,692.11) owing by Rhinegold and Tannhauser together and that the new debt is a joint and several liability. She submits that that is the clear and unequivocal effect of Clauses 3 and 4 read in the context of the Settlement Agreement as a whole. If that is wrong, she submits that the original debts remain owing, but that each of Rhinegold and Tannhauser has undertaken responsibility for the liability of the other.

Discussion

7. In my judgment, the Settlement Agreement operates in the way which I describe in the following paragraphs.
8. The first point to make is that the overall structure of the Settlement Agreement recognises the continuing existence of the debts due from each of Rhinegold and Tannhauser. Although Mr Temmink finds support for that in Clause 1, I consider that Clause to be essentially neutral on the issue. I consider that the overall structure recognises the continuing existence of the debts for these reasons:

(a) Clause 2 recognises that petitions might be presented based on the sums claimed in the statutory demands, that is to say in the circumstances provided for in Clause 6, to which I will come in a moment. It is true that Clause 2 refers to petitions in the plural and to the Companies, but it seems to me that this is really shorthand for saying that a petition may be presented in relation to each company in respect of the debt owing by it, that is to say the debt acknowledged in Clause 1 by each company to be due from it.

(b) Clause 6 also recognises, I consider, the continued existence of separate debts. If payment of the monthly amounts is not made, the stay under Clause 2 on winding up proceedings is lifted with the result that Apex can then proceed to present a petition against each company based on its own debt.

(c) Clause 8 is clearly drafted on the basis that the separate debts continue. It is saying no more than this, namely that Apex may bring proceedings against Rhinegold or Tannhauser (or both) to recover from the relevant company the debts referred to in the relevant statutory demands.

(d) If Ms Allsop is right in saying that the original debts are extinguished, I can see nothing in the Settlement Agreement which casts an obligation on Rhinegold or Tannhauser to pay the total amount outstanding immediately upon default in making the monthly payments. The only obligations created by the Settlement Agreement are to be found in Clauses 3 and 4 but there is nothing to accelerate payment of the outstanding instalments which therefore become due for payment only in accordance with the terms of Clause 4 itself. Further, it would follow if she is right, that Clause 6 would allow for the presentation of a winding up petition only in relation to the outstanding instalments and that Apex would be able to prove in the liquidation only on the basis that future instalments were precisely that and were not immediately payable.

9. The second point to make is that Clause 2 represents a stay on the presentation of a petition but that Clause 6 effectively lifts the stay if there is a default in payment of monthly instalments. Similarly, Clause 8 represents a stay on any other recovery proceedings, but it being implicit that such proceedings may be brought if there is default in payment of the monthly instalment. Thus, the condition on which these stays are agreed is that certain payments are made to Apex.
10. The third point to make is that the condition for those stays is that specified payments are made to Apex. It so happens that the payments are to be made by Rhinegold and Tannhauser. In seeing how the obligations of Rhinegold and Tannhauser operates within the structure, I have found it of some assistance to consider what the position would have been if a third party (for instance the shareholders of Tannhauser) had entered into the payment obligations found in Clauses 3 and 4.
11. In that situation, it would be clear that the third party was liable to make the monthly payments. The third party could not possibly suggest that there was no obligation to pay, and that the only effect of Clauses 3 and 4 would be that if monthly payment was made, then no petition would be presented and no proceedings would be taken to recover the debts.
12. In case of default, Apex would be able to present petitions or bring proceedings. But not only that, it would be able to bring proceedings against the third party for breach of its direct obligation under Clause 4, although I must reiterate that the third party's obligations arise month by month and there is no acceleration of its obligations in the event of default (subject to any arguments about repudiation and recovery of damages on that basis).
13. The position would be precisely the same if Rhinegold alone had entered into the obligations in Clause 3 and 4. It would be unarguable, in my view, that because it was originally only liable for its own debts, its new obligations under Clauses 3 and 4 were subject to an implied limitation that it should only be obliged to make payments so long as any part of its own debt remained outstanding.
14. From this analysis, it can be seen that the Settlement Agreement would operate in a sensible and coherent way if the obligations on Rhinegold and Tannhauser under Clause 3 and 4 are joint and several. In contrast, if the obligations are not joint and several, those Clauses have to be construed in this way: payments are to be made by the Rhinegold and/or Tannhauser in reduction of their respective debts but the timing of actual payment is constrained to the advantage of Rhinegold and Tannhauser so that the only requirement is to make an initial payment of £8,000 and monthly payments of £3,500, those payments being appropriated according to the ordinary (and unstated) rules of appropriations. But that is not what Clauses 3 and 4 actually say in express words.
15. In my judgment, the obligations under Clause 3 and 4 are joint and several. Rhinegold and Tannhauser are each under an obligation to make each of the payments provided for by Clauses 3 and 4. That is the more natural reading of the words actually used. It reflects a coherent structure of the Settlement Agreement. It cannot be said to lead to an uncommercial or impractical result or to any difficulty of operation of the Settlement Agreement.

Disposition

16. In my judgment, on the true interpretation of the Settlement Agreement, Rhinegold is obliged to meet all the payment instalments under Clause 4 of the Settlement Agreement notwithstanding that its own debt referred to in the statutory demand relevant to it has been discharged.
17. I will make a declaration accordingly.
18. Rhinegold is to pay Apex's costs of the application. The parties are to have the opportunity to agree those costs. If they cannot be agreed, Apex is at liberty to apply for a summary assessment. In the absence of such an application, the costs, if not agreed, are to be subject to a detailed assessment on the standard basis.
19. Rhinegold is not, however, under an immediate obligation to pay the whole of Tannhauser's debt. It is liable only for outstanding instalments under Clause 4. It would not be right, I think, for Apex to present a petition based on that debt without giving Rhinegold the opportunity to pay. Until this judgment, there has been a bona fide dispute about Rhinegold's obligations and the failure to pay the instalments cannot, hitherto, give rise to the inference of insolvency which Harman J was prepared to find in Cornhill Insurance plc v Improvement Services Ltd [1990] BCC 44. I hope that Apex will be able to agree that it should not present a petition for a reasonable period to allow Rhinegold to pay. If a period cannot be agreed, I should indicate that I would be prepared to grant an injunction until the end of this week restraining presentation of a petition in order to give Rhinegold the opportunity to apply for a longer restraint.