Ace Paper Ltd v Fry & Others (2015)
In construing the terms of an agreement between the parties where the ordinary and natural meaning of the words used could not have been intended, the court held that the re-assignment to the appellant of a debt for which it had already received the full value from the respondent was counterintuitive and would require much clearer words than had been used in the agreement.
The appellant, a business operating in the paper industry, appealed against an order of the Deputy Registrar refusing its application to set aside a liquidators' rejection of its proof of debt.
The appellant had entered into an invoice discounting agreement (IDA) with the third respondent (R) by which the appellant assigned to R all debts owed to it by its customers, including an aggregate debt owed by a company (C). Between 2008 and 2010, R made substantial payments to the appellant under the bad debt provisions of the IDA, a significant proportion of which was in respect of that aggregate debt. C went into liquidation. The IDA was terminated by an exchange of letters. In a letter dated 12 July, the appellant asked R to confirm that it had no existing or prospective claims against the appellant either arising under or incidental to the IDA and that, insofar as "any such claims" against the appellant or any third party existed or might arise in the future, "such claims" were "waived and released and transferred/re-transferred" to the appellant. That letter was signed on R's behalf and returned to the appellant. C's liquidators rejected a proof of debt which had been filed by the appellant in respect of the aggregate debt in reliance on the 12 July letter as effecting a re-assignment of that debt. The appellant applied to the Deputy Registrar, who held that no reasonable person would have understood the parties to have meant by the language used in the 12 July letter that the debt was re-assigned to the appellant.
The appellant contended that the Deputy Registrar had erred in his construction of the 12 July letter by making a commercial judgment about the proper scope of the assignment of the debt in a manner that went beyond a simple consideration of the words used by the parties in their contractual context.
If the expression "any such claims" in the letter of 12 July was intended to extend not only to claims against the appellant, but also to claims against any third party, it had to mean any "existing or prospective claims ... either arising under or incidental to" the IDA. If that was the correct interpretation of that phrase, then the question arose whether the aggregate debt fell within that wording. That debt was an existing claim of R's against a third party, namely C, immediately prior to entry into the 12 July letter. In order to come within scope, however, it also had to be a claim that arose under or was incidental to the IDA. Strictly speaking, the debt did not arise under the IDA, but when the appellant supplied the relevant paper goods to C. If "any such claims ... against any third party" referred only to "existing or prospective claims" without further qualification, then by the 12 July letter R assigned all of its claims against third parties of whatever nature. That was clearly absurd. The language used, read as a whole, was ambiguous. The case appeared to be one where the parties could not have intended the words used to have their ordinary meaning. It would be clear to a reasonable person with knowledge of the relevant background that the parties intended that some of R's claims against some third parties should be transferred or re-transferred to the appellant and that such claims should bear some relationship to the appellant, even if not, strictly speaking, arising "under" or being "incidental" to the IDA, Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios)  A.C. 191 followed. It was more consistent with business common sense that "any such claims ... against any third party" referred to R's claims against a third party that were originally customer claims of the appellant assigned to R by the IDA, for which R had not paid the appellant. The re-assignment to the appellant of a debt for which it had already received the full value was counterintuitive and would require much clearer words than were used in the 12 July letter, particularly as that document had been drafted by the appellant and should therefore be construed contra proferentem. Although the Deputy Registrar appeared to refer to the subjective intention of R, it was clear from his judgment that he had applied the correct test for determining the objective intention of the parties in accordance with Rainy Sky SA v Kookmin Bank  UKSC 50,  1 W.L.R. 2900, Rainy Sky followed (see paras 47-64 of judgment).