Mr Justice Cooke delivered his judgment in the Commercial Court on 7 June 2013 in a banking dispute between a partnership (known as the "Birr Partnership") and Ulster Bank Ireland Limited (the "Bank"). In this case the Birr Partnership sought a declaration that it was not liable for the repayment of capital under a loan agreement it entered into with the Bank. Maples and Calder acted on behalf of the Bank.
Under a 2005 loan agreement (the "2005 Facility") the Birr Partnership borrowed a multi-million euro sum to purchase a development site in Birr, Co. Offaly. The 2005 Facility was for a short term and expressly provided that the Bank would have full recourse to the borrowers for capital and interest until planning permission on the site was granted, and thereafter for interest only.
Planning permission was not granted until February 2008 and interest had continued to be rolled up on the facility in the interim. The Bank issued a further facility letter in May 2008 (the "2008 Facility") which was expressed to supersede the 2005 Facility and was for the purpose of financing the continuation of interest roll-up to the 2005 Facility. The 2008 Facility provided for full recourse to the borrowers for both capital and interest.
The Birr Partnership claimed that the recourse provision in the 2008 Facility was ambiguous and failed to properly reflect the actual agreement for renewal of the facility made between the representatives of the Birr Partnership and the Bank, which was to the effect that the recourse provisions of the 2005 Facility were in substance carried over. The argument was principally based on the addition of the word "Held" in brackets as a post-script to the recourse provisions of the 2008 Facility, which the Birr Partnership claimed had the effect that the recourse remained as per the 2005 Facility, with recourse only for interest once planning permission was granted.
In the alternative, they argued that, if the 2008 Facility was not ambiguous, it was worded as the result of a mutual mistake which entitled the Birr Partnership to rectification.
Further, it was argued that, if there was no mutual mistake, there was a unilateral mistake on the part of the Birr Partnership's representative which was induced by a misrepresentation on the part of the Bank's representative.
Mr Justice Cooke usefully summarised the principles governing contractual interpretation as follows:
- The starting point in the construction of any written agreement where its meaning is in dispute is the actual text of the provision in question;
- The task of the Court is to ascertain objectively the intention of the parties by reference to the meaning to be taken from the words they have used;
- The meaning should be assessed by reference to the language employed, but taking into account the surrounding circumstances including the purpose and context of the contract as known to the parties at the time – the so-called "factual matrix";
- The content of earlier negotiations and declarations by the persons concerned as to what their intention had been are irrelevant;
- The Court should ask itself what the reasonable person possessed of relevant information as to the surrounding circumstances would understand the parties to have meant by the words in which they have expressed their agreement;
- Where the wording used is capable of more than one meaning, that which gives commercial sense in the context of the contractual purpose should be preferred; and
- Where the wording is ambiguous and capable of more than one meaning, the provision should be construed against the interest of the party responsible for the drafting and presentation of the document.
The judge went on to reject the argument that the use of the word "Held" in the 2008 Facility introduced an ambiguity which had to be construed by reference to the "factual matrix" of the 2008 Facility. On the basis that no particular significance could be attached to the employment of the word "Held" and in circumstances where the recourse provisions were otherwise clear, the judge ruled that "it is impermissible to create an ambiguity about the words actually used in the document as signed by reference to the factual matrix".
The judge's observations in response to the plaintiffs' mistake arguments is a reminder of the importance of credible oral evidence where the witnesses for each party gave conflicting testimony on whether the Bank had represented to the Birr Partnership that the recourse provisions under the 2008 Facility would remain the same as under the 2005 Facility.
Observing that it was for the plaintiffs to establish in evidence and on the balance of probabilities that the representations were in fact made, the judge held that there were important discrepancies in the evidence given by the witness for the Birr Partnership and very significant flaws in his recollection. The testimony of the Bank's witness was by contrast judged to have been "cogent, coherent and consistent with any relevant documentation".
On that basis the Court concluded that there was no prior oral agreement as to what was intended by the Bank or as to what was meant by the new recourse clause contrary to its plain and unambiguous language. There was therefore no mistake whether unilateral or mutual on the part of the plaintiffs' representative and no misrepresentation on the part of the Bank.
The judgment is a timely restatement of the principles of contractual construction. It also serves as a warning against falling into the error of having recourse to the factual matrix for the purpose of introducing an ambiguity where none exists on the face of the document.
Finally, it highlights the central role of oral evidence and the importance of witness credibility in determining outcomes where key facts are in dispute.
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