Claimant C, an English company specialised in the run-off of insurance businesses, had entered into an agreement (“the Agreement”) with A, an intermediate holding company in a group of companies active in the insurance sector, for the purchase of the shares of B, A’s direct subsidiary. The Agreement provided for the transfer, prior to its completion, of B’s “accumulated net worth” to A or elsewhere as directed by A. The day before completion of the Agreement the transfer took place in favour of Defendant D, the ultimate holding company of B, and the amount of the payment made was calculated on the basis of B’s distributable dividends.
After completion of the Agreement a dispute arose between C and D concerning the exact meaning of the expression “accumulated net worth” used in the Agreement. According to Claimant C it referred only to B’s distributable profits, while according to D it meant the whole of B’s net assets.
After a first judgment in favour of D, the appeal by C against the decision of the lower court was rejected by the Court of Appeal. In the Court's opinion, the expression “accumulated net worth”, if interpreted in the context of other provisions of the Agreement and the rationale of the underlying commercial transaction, clearly was intended to cover all the net assets of B and not only the distributable dividends. As to C’s argument that the amount actually transferred from A to D a day before completion of the Agreement was calculated by D’s director by way of dividend and was so expressly explained to a representative of C who was present when the amount was calculated, the Court pointed out that the extent to which pre-contractual negotiations can be admitted as evidence for the interpretation of a written agreement was a controversial issue in English law. While as a rule such evidence was not admitted, there were exceptions to this rule, and in this respect she quoted the passage of her opinion in Proforce Recruit Ltd v The Rugby Group Ltd [see UNILEX: Court of Appeal (Civil Division), 17 February 2006] where she had stated that evidence as to pre-contractual negotiations may be admissible even on a wider basis than the law presently permits and that for this purpose it may be appropriate to consider international instruments such as the UNIDROIT Principles and CISG. However, in the case at hand the Court decided not to admit the evidence of the communications that the parties had exchanged between themselves before completion of the Agreement for the interpretation of the expression “accumulated net worth” used in the Agreement. While admitting that the issue was not the subject of extended argument in the Court and recalling that after all when the transfer was made prior to completion of the Agreement there was no actual agreement between the parties as to the way in which the transfer had to be made, it stated that “the admission of evidence of pre-contractual negotiations for the purpose of interpretation […] would not be permitted under the law as it stands.”
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