Interpreting Exclusion Clauses in Hive Down Agreements: The Case of MIR Steel UK Limited, Study notes of Business

Download Interpreting Exclusion Clauses in Hive Down Agreements: The Case of MIR Steel UK Limited and more Study notes Business in PDF only on Docsity! 1 Case: MIR Steel UK Limited v (1) Christopher Morris (2) Mark Fry (3) David Hudson (4) Alphasteel Limited (in liquidation) [2012] EWCA Civ 1397 (1/11/2012) Synopsis: A contract should be interpreted in light of the commercial context in which it was made. The principles laid down in the case of Canada Steamship are not to be applied mechanistically and should simply be regarded as guidelines. Topics covered: Contractual terms; exclusion clauses; hive down agreements; contractual interpretation; procuring breach of contract; conspiracy; administrators’ powers and duties The Facts The Appellant ("Mir Steel") appealed, against a High Court ruling refusing to allow the four respondents to be joined as defendants. For details of the lower decision, see ILA bulletin 383. Alphasteel Limited (in liquidation) (“Alpha”), the fourth respondent, was a steel manufacturing company. Lictor Anstalt (“Lictor”) had been engaged to assemble a hot strip mill at Alpha’s premises, but contractually purported to retain title to the asset. Alpha commenced administration, and the first, second and third respondents were appointed administrators. The administrators sold the business and assets of Alpha to Libala and it was acknowledged by Libala that there may be a title dispute with regards to the hot strip mill. The sale was structured by way of a hive down of the business and assets to the newly incorporated Mir Steel, and Libala then purchased (for a £1) the entire issued share capital in Mir Steel. Clause 9.5 of the hive down agreement provided that: "the purchaser agrees that it shall be responsible for settling any claim made against it by [Lictor] in respect of the hot strip mill situated at the Property". The agreement also contained the usual exclusions of liability in favour of the administrators. Following completion of the sale to Libala, Lictor sued Mir Steel (and Libala) for alleged conversion, seeking delivery up of the equipment and damages. It also raised other claims against Mir Steel and Libala for (i) inducing a breach of contract; and (ii) conspiracy on the basis that the alleged inducement of breach of contract amounted to a conspiracy by unlawful means. In turn, Mir Steel sought permission to join Alpha and the administrators as Part 20 defendants in respect of the claims for (a) damages for breach of warranty under the hive down agreement; (b) repayment of sums to have been paid by mistake of fact and/or law; and (c) contribution to Lictor’s claims against Mir Steel for inducing a breach of contract and for conspiracy. The judge at first instance held that the Part 20 claim had no prospect of success and so MIR Steel v Morris – interpretation of exclusion clauses Technical Bulletin No: 461 2 refused to join Alpha and the administrators as co-defendants. Mir Steel appealed. Mir Steel relied upon Canada Steamship Lines Ltd v King, The [1952] A.C. 192, stating that clear words should be used in an exclusion of liability clause to include claims based upon intentional wrongdoing, such as under the torts of inducing a breach of contract and conspiracy. The Decision The Court dismissed the appeal. The Canada Steamship principles were not to be applied mechanistically and should be regarded merely as guidelines. In interpreting contractual provisions, the Court's function was always to interpret the particular contract in light of the context in which it was made. In this case, the Court's role was to approach the interpretation of clause 9.5 in light of the overall commercial purpose of the hive down agreement. The question for the Court was whether it was "inherently improbable" that the wording of clause 9.5 was directed at releasing the respondents from liability to contribute to a claim in conversion and also from liability to contribute to any other claim that Lictor may bring against Mir Steel in respect of the hot strip mill. It was stressed that all parties were aware of the title issue surrounding the hot strip mill. The clear purpose of clause 9.5 was to insulate Alpha and the administrators from liability and shift to Mir Steel the entire risk and burden of any claim that Lictor might in future bring against Alpha and the administrators in respect of the hot strip mill. Indeed, the language extended to all claims that Lictor had brought. Accordingly, the words "any claim" in clause 9.5 of the hive down agreement should be read widely so as to include any claim for inducement of breach of contract or conspiracy. Since it was not open to Mir Steel to join Alpha and the administrators as co-defendants, the appeal was dismissed. Comment Rimer LJ stated that the commercial purpose of the hive down was obvious. The administrators were seeking to achieve the purpose of the administration as quickly and as reasonably as practicable, and all parties knew that there was an issue surrounding title to the hot strip mill. The Court emphasised that a distinguishing factor of this case was that all parties knew about the title issue. This was not a scenario where, as may more typically be the case, the administrators simply were unaware of the title dispute until after the sale. However, the case serves as an important reminder that any exclusion of liability clause for the benefit of administrators should be widely drafted to ensure that all claims are excluded (including both contractual and tortious claims). In this case the exclusion clause did not expressly exclude liability of either Alpha or its administrators and so it was necessary to rely upon interpretation. The judgment makes clear that as between Mir Steel and Alpha, the exclusion clause was intended to shift liability for Lictor's claims to Mir Steel. However, it is noteworthy that (in these proceedings at least) Lictor did not sue the administrators personally for conversion, which may potentially have been a more straightforward claim. In this respect, and as