Summary

Where an agreement required a warehouse operator to give credit for additional business it had secured in order to utilise spare capacity, that additional business, on the true interpretation of the agreement, did not include business conducted from an extension to the warehouse.

Facts

The court was required to determine preliminary issues relating to an agreement under which the defendant (W) agreed to provide warehouse services to the claimant (S). S and W were formerly subsidiaries in the same group. Their parent had constructed a new chilled national distribution centre. W and S then entered into an agreement for W to provide warehousing services at the centre to S. Later W was demerged from the group and the centre became a multi-user site and the agreement between S and W was revised accordingly. Under the revised agreement, S agreed to put a minimum amount of goods into or through the centre annually, failing which S would be liable to make a volume shortfall payment to W. That payment was to be reduced to the extent that W secured additional third party business. Parts of S's business were then sold and the revised agreement was replaced by new agreements. A dispute arose when S did not meet the threshold volume of goods under the agreement and W claimed shortfall payments. The issues were whether an extension to the warehouse was to be taken into account for the purpose of giving credit for additional business, and the extent of the associated costs to be deducted from the gross revenue generated by the additional business. W submitted that the figures from the revised agreement, entered into prior to the construction of the extension and referring to the use and capacity of the original warehouse, had been adapted for use in the later agreement without adjustment to reflect the extension, which indicated that "warehouse" in the later agreement meant the original warehouse and did not include the extension.

Held

1) It was striking, as W submitted, that there was no material disparity between the terms of the revised agreement and the later agreement despite the construction of the extension in the meantime. The correct inference was that the "warehouse" in both agreements was the same, namely the original warehouse without the extension. That accorded with commercial good sense. It was difficult to see why W, having incurred the cost of constructing an extension, should give credit to S for part of the revenue derived from obtaining customers for the new space, particularly when that space was not available for S because of the absence of automation and refrigeration. The allowance against the shortfall payment had to reflect additional business making use of the same facilities. It followed that the only relevant space was the original warehouse. (2) In relation to the second question it was only necessary to decide that the associated costs were limited to those costs incurred for the purposes or as a result of the additional business and which would not have been incurred or would have been lower if the additional business had not been sought and obtained.

Preliminary issue determined in favour of defendant