England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		6/9/2018

Master Clark:

Application

1. This is the claimant's application dated 26 March 2018 for summary judgment on its claim.

Parties and the claim

2. The claimant is the trustee of the Caribonum Pension Scheme ("the Scheme").
3. The defendant, Pelikan Hardcopy Production AG, is a company registered in Switzerland. It is part of a group of companies, ("Pelikan Group"), which includes:

(1) Pelikan Hardcopy Scotland Limited, ("the Employer"), a company registered in England, which was a participating employer in the Scheme (and is now in liquidation); and

(2) the Employer's ultimate parent company, Pelikan International Corporation Berhad, ("the Parent"), a company registered in Malaysia.

4. The Scheme is a registered occupational pension scheme, which provides benefits on a defined benefit basis. It was closed to future accrual of benefit from 29 February 2012. From January 2018, it has been in an Assessment Period of the Pension Protection Fund ("the PPF"), during which time the PPF will determine whether to accept the transfer of the Scheme.
5. The Employer, as a participating employer, is obliged to make contributions to the Scheme, which are payable to the claimant as trustee. It went into administration on 21 January 2018. It is now in liquidation and, as part of a pre-pack arrangement with the administrator, its assets have been assigned to the claimant in part settlement of debts owed to it by the Employer.
6. The PPF has^[1] lodged a proof of debt in the Employer's liquidation claiming the entirety of the Scheme's estimated debt under s.75 of the Pensions Act 1995 (£35,528,000). The claimant asserts (though this is not accepted by the defendant) that this amount gives 'credit' for unpaid employer contributions, so that the s.75 debt figure when certified will increase if the claim fails.
7. The claim is made under a deed of guarantee dated 27 March 2008 ("the Guarantee") made between the claimant and the defendant. Clause 2.1 of the Guarantee provides that:

"The [defendant] irrevocably and unconditionally:

(a) guarantees to the [claimant] punctual performance by the [Employer] of all its Guaranteed Obligations;

(b) undertakes with the [claimant] that, whenever the [Employer] does not pay any amount when due in respect of its Guaranteed Obligations, it must immediately on demand by the [claimant] pay that amount as if it were the principal obligor; and

(c) indemnifies the [claimant] immediately on demand against any loss or liability suffered by the [claimant] if any payment obligation guaranteed by it is or becomes unenforceable, invalid or illegal; the amount of the loss or liability under this indemnity will be equal to the amount the [claimant] would otherwise have been entitled to recover

8. "Guaranteed Obligations" are defined (in clause 1.1) as:

"all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally and in any capacity whatsoever) of [the Employer] to make payments to the Scheme up to a maximum amount equal to the lower of (a) the lowest non-negative amount which, when added to the assets of the Scheme, would result in the Scheme being at least 105 per cent funded on the date on which any liability under this Deed arises, calculated on the basis set out in section 179 of the Pensions Act 2004, where a valuation is to be conducted as at that date, and (b) £12,600,000."

9. The sum claimed is £4,306,605.33, which is the unpaid amount due from the Employer to the Scheme as at 30 November 2016. A demand in writing for this sum was made on 5 December 2016.
10. The claim was issued on 9 August 2017.

Summary judgment – legal principles

11. Before turning to the Defence, I set out the legal principles to be applied on applications for summary judgment. They are well established and were summarised by Lewison J, as he then was, in Easyair Ltd v Opal Telecom Limited [2009] EWHC 339 (Ch), in a formulation approved in a number of subsequent cases at appellate level, including AC Ward & Sons v Catlin (Five) Limited [2009] EWCA Civ 1098 and Mellor v Partridge [2013] EWCA Civ 477. It is unnecessary to set them out here.

Defence

12. In his skeleton argument and submissions, the defendant's counsel raised two main defences to the claim:

(1) The Construction Point: on the true construction of the Guarantee, the capacity and obligation of the defendant to make any payment under the Guarantee is limited to the extent of its freely disposable reserves; alternatively, there is a collateral contract to like effect;

(2) The Abuse of Process Point: that the claim is an abuse of process.

13. I turn therefore to consider whether the defendant has a real prospect of success in the two defences raised by it.

Construction Point

14. The provisions of the Guarantee relevant to this point are:

Clause 2.4

"Waiver of defences

The obligations of the [defendant] under this Clause will not be affected by any act, omission or thing which, but for this provision, would reduce, release prejudice any of its obligations under this Clause. This includes:

…

(g) any unenforceability, illegality, invalidity or non-provability of any Guaranteed Obligation."

Clause 5

"REPRESENTATIONS

5.1 Representations

The representations set out in this Clause are made by the [defendant] to the [claimant].

…

5.4 Legal validity

Subject to the Reservations, this Deed is its legally binding, valid and enforceable obligation."

Clause 1

"INTERPRETATION

1.1 Definitions

In this Deed:

…

Reservations means:

…

Any other reservations or qualifications of law contained in any legal opinion delivered to the [Employer], the [claimant] or the [defendant] in respect of this Deed."

15. Annexed to the Guarantee is a legal opinion dated 27 March 2008 ("the Swiss Opinion") addressed to the claimant, as the client of the Swiss law firm providing the opinion, Meyer Lustenberger Rechtsanwaltgesellschaft mbH ("MLB").
16. The Swiss Opinion sets out in numbered form various conclusions as to the capacity of the defendant to enter into the Guarantee, and its validity and enforceability in Switzerland. It then continues at [10]:

"The above opinion is subject to the following qualifications:

a. This opinion relates to the laws of Switzerland…

…

c. Where we refer to enforceability, we only express an opinion as to enforceability under the rules of procedure applicable in Switzerland.

…

e. Claims may become barred under statutes of limitation or prescription, or may be or become subject to available defences such as set off, counterclaim, force majeure, material error duress or fraud.…

…

l. Any provision of a guarantee or indemnity which constitutes, or purports to constitute, a restriction on the exercise of any statutory power by the [defendant] may be ineffective. The enforcement of a guarantee, indemnity or other obligation of the [defendant], for, or with respect to, any obligation of its shareholder or any of its affiliates or sister companies (such as [the Employer]) is limited to the freely disposable shareholder equity of the [defendant]."

(emphasis added)

17. It concludes:

"This Opinion is given for the benefit of [the claimant] as trustees of the [Scheme] but may also be relied upon by the Pension Protection Fund but may not be relied upon by any other person for any purpose."

18. On 14 December 2016, MLB responded the claimant's demand for payment in terms which included the following:

"[The defendant] has no freely distributable equity (reserves) as a result of operational losses in the past years and is not allowed to make any distributions."

19. The evidence before me includes the defendant's accounts for the year ending 31 December 2016, which show a negative equity figure of 8,831,000 Swiss francs. The claimant accepts that the defendant has a real prospect of showing that it has no distributable reserves.

Construction point – legal principles

20. The parties were agreed as to the relevant principles applicable to construction of the Guarantee. They are conveniently set out in the judgment of Lord Neuberger in Marley v Rawlings [2014] UKSC 2 at [19]:

"When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document; (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party's intentions."

21. The defendant also relied upon Lord Clarke in Rainy Sky v Kookmin Bank [2011] UKSC 50 at [21]

"the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."

(the defendant's counsel emphasising the passage in italics)

Construction point –submissions, discussion and conclusions

22. The first point to note is that the Defence does not in fact plead that it was a term of the Guarantee that the defendant's liability under it was limited to the extent of its freely disposable reserves; nor does it plead that there was a collateral contract to the like effect, or, indeed, the necessary elements of such a contract: offer, acceptance, consideration. There is no application to amend to plead these matters. This would be sufficient for the claimant to succeed in its application. Nonetheless, I consider the defendant's arguments on their merits.
23. The starting point is clause 2.1 of the Guarantee, the clause creating the primary obligation. It is unambiguous and entirely unqualified.
24. The only basis on which the defendant seeks to limit its liability under clause 2.1 is clause 5.4. However, clause 5.4 is not apt linguistically or logically to limit liability elsewhere in the Guarantee. It does reduce the defendant's liability under its representation/warranty in clause 5.4 itself, but not its liability under clause 2.1. As the claimant's counsel submitted, the two clauses, 2.1 and 5.4 create parallel sets of obligations. If the Guarantee is not enforceable, then the claimant would have a breach of warranty claim against the defendant; and clause 5.4 limits the scope of that claim. If the Guarantee is enforceable, then the representation/warranty in clause 5.4 never comes into play.
25. The defendant's counsel did not argue that the representations made in clause 5 were, in their natural and ordinary meaning, terms of the Guarantee. Realistically, he accepted that they were representations, but submitted that it was at least reasonably arguable that it was the intention of the parties that the representations should be contractual terms. He relied upon the principles set out in the well-known case of Inntrepreneur Pub Co Ltd v East Crown Ltd [2000] 2 Lloyd's Rep. 611, Lightman J.
26. In support of this submission, he relied upon the fact that when giving the Guarantee the defendant had no prior legal liability to the Scheme. Its intention in entering into the Guarantee was, he submitted, to obtain a reduction in the levy payable by the Employer to the PPF, and thus to ease the financial burden on it in funding the Scheme. In doing so, the limitations in the Swiss Opinion were, he said, critical to the defendant.
27. As to the Inntrepreneur decision, this is concerned with the recognition of pre-contractual promises or assurances; where it is alleged that these have become incorporated into the parties' contract or otherwise intended to have contractual effect. In this case, the representations are made within the Guarantee itself, and expressly described as such: they are not pre-contractual. There is no basis for departing from the clear express words of the Guarantee and inferring that the parties intended them to be contractual terms. As the claimant's counsel submitted (and I accept), the defendant's motive in entering into the Guarantee is irrelevant to its construction; as are the consequences for third parties of its enforcement.
28. As to the limitations in the Swiss Opinion, and the defendant's alleged reliance on them, it is important to recall that the representations were made by the defendant to the claimant, not the other way around. The structure of the Guarantee commits the defendant but not the claimant to the truth of the representations.
29. In my judgment, therefore, the defendant has no real prospect of success in its case that these were intended to be terms of the Guarantee.
30. However, even if I am wrong about this, in my judgment, the extent of the relevant reservation is limited to enforceability in Switzerland. The defendant's counsel accepted that the Swiss Opinion distinguishes between liability and defences to liability on the one hand; and enforceability on the other. Nonetheless, he submitted that the first sentence of para 10(l) of the Swiss Opinion (set out above) referred to liability; and that the second sentence was arguably to be read together with the first sentence. However, despite the fact that MLB have written to the claimant on the defendant's behalf, the defendant did not seek to adduce any evidence from them (or any other Swiss lawyer) as to the meaning of the first sentence of para 10(l), and, in particular, the meaning of "restriction on the exercise of any statutory power"; or as whether the second sentence of para 10(l) is to read as an instance of when the Guarantee is "ineffective". The defendant's counsel relied upon MBL's letter dated 14 December 2016 (the relevant part of which is set out at para 18 above). However, this does not engage with the point in issue; and does not in my judgment assist the defendant.
31. In my judgment, therefore, the defendant has no real prospect of success in showing that the relevant reservation concerns liability, rather than just enforceability.
32. In addition, the Swiss Opinion is only concerned with Swiss law, enforceability under Swiss law, and, to the extent that it refers to defences, such defences as would be available in Swiss proceedings. The Guarantee expressly provides that it is governed by English law; and that the English courts have (non-exclusive) jurisdiction to settle any dispute in connection with it. The defendant's liability under the Guarantee in this claim is unaffected by its position under Swiss law.
33. Finally, the purpose of the Guarantee was to provide a contingent asset for the purpose of the PPF's determination on the amount of the levy payable to it by the Employer; and to protect the PPF from a shortfall of assets needed to meet its own statutory liabilities. It was common ground that there are no material differences between the PPF standard form guarantee and the Guarantee. There is nothing in this commercial context which supports the construction advanced by the defendant.

Abuse of process

34. The defendant relies upon a number of features of the statutory framework and factual circumstances surrounding the claim:

(1) The claimant's entitlement to claim for unpaid employer contributions against the National Insurance Fund, via the Redundancy Payments Service - under s.228 (3) Pensions Act 2004, which creates a statutory debt in the sum of the unpaid contributions;

(2) The claim by the PPF in the liquidation of the Employer for the entirety of the Scheme debt;

(3) The fact that any sums recovered by the claimant will only reduce the amount of compensation paid by the PPF when it assumes responsibility for the Scheme.

These are said to have the consequence that there is no proper basis on which to bring this claim. In my judgment, they are irrelevant to the question of whether the claimant is entitled to judgment against the defendant in respect of its liabilities under the Guarantee.

35. A more formal defence of abuse of process arises from the assertion that even if the defendant is liable under the Guarantee, any judgment against it will be unenforceable. This fact, the defendant's counsel submitted, tainted the claimant's purpose in bringing the claim, its true purpose being to put pressure on the Parent, with whom the claimant has no legal relationship.

Abuse of process – legal principles

36. The parties were agreed on the principles applicable to abuse of process by way of an improper collateral purpose, which so far as relevant are:

(1) The institution of proceedings with an ulterior motive is not of itself enough to constitute an abuse: an action is only that if the Court's processes are being misused to achieve something not properly available to the claimant in the course of properly conducted proceedings: Broxton v McClelland (No. 1) [1995] EMLR 485 at 497;

(2) When a litigant sues to redress a grievance no object which s/he may seek to obtain can be condemned as a collateral advantage if it is reasonably related to the provision of some form of redress for that grievance: Goldsmith v Sperrings Ltd [1977] 1 WLR 478 (CA) at 503.

Abuse of process - submissions, discussion and conclusions

37. The claimant's counsel submitted that it was pursuing the claim for the simple and appropriate purpose of securing payment of the sums due under the Guarantee; and that that was not an abuse of process.
38. As to enforceability, the claimant's position is that it believes that the Guarantee is or may be enforceable at least as to part; if not in Switzerland, then against non-Swiss assets or under an inter-company indemnity. However, the claimant does not identify any non-Swiss assets of the defendant, and it is not a party to the relevant indemnity, so these seem to be unlikely to be fruitful sources of recovery. In my judgment, the defendant has a real prospect of showing that its liability under the Guarantee is not enforceable.
39. As to whether the commercial pressure placed on the defendant and the Parent renders the claim an abuse, the claimant submitted that this type of pressure was of a type "ordinarily encountered in the course of properly conducted litigation" (Broxton at [3]) and reasonably related to the provision of some form of redress for [the breach of the Guarantee]" (Goldsmith at p503); and is not therefore an abuse of process.
40. I do not accept that an inability to enforce the judgment against the defendant, and only to obtain satisfaction of the judgment through the Parent's wish to support its subsidiary renders this claim an abuse. If the claimant has, as I have held, a valid claim under the Guarantee, then it is entitled to judgment; and the possibility that its judgment may be satisfied by someone other than the defendant is not an improper collateral advantage.
41. The general position is that an absence of assets to satisfy a judgment is not a ground for not granting judgment; and in my judgment, an inability to enforce a judgment for other reasons is directly analogous. The commercial pressure on the Parent derives not from the claim itself; but from the defendant being unable to satisfy the judgment from its own resources. That pressure is not, in my judgment, a "collateral advantage" sought by the claimant in bringing the claim. Indeed, in this case, it would be open to the Parent not to "bail out" the defendant, and to leave the judgment debt unsatisfied – the existence of the judgment does not ensure that the claimant will receive satisfaction of it.

Conclusion

42. For the reasons set out above, therefore, I will grant summary judgment for the claimant.

Note 1   pursuant to section 137(2) Pensions Act 2004    [Back]