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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ace Paper Ltd v Fry & Ors [2015] EWHC 1647 (Ch) (18 June 2015) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2015/1647.html Cite as: [2015] EWHC 1647 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM DEPUTY REGISTRAR GARWOOD

		Royal Courts of Justice Strand, London, WC2A 2LL
		18 June 2015

Edward Murray (sitting as a Deputy Judge of the Chancery Division) :

1. This is the appeal of an order of Deputy Registrar Garwood, refusing the application of the Appellant, Ace Paper Limited ("Ace"), made under rule 4.83 of the Insolvency Rules 1986 to set aside the decision of the First and Second Respondents, who are the joint liquidators of Capital Print & Display Limited ("Capital"), to reject Ace's proof of debt dated 1 April 2011 for the sum of £138,716.70 lodged in Capital's liquidation.

The issue

2. Ace and the Third Respondent, RBS Invoice Finance Limited ("RBSIF"), were parties to an invoice discounting agreement dated 4 January 2008 (the "IDA"). Under clause 2.2 of the Invoice Discounting Terms forming part of the IDA (the "ID Terms"), Ace assigned to RBSIF all debts (and related rights) owed to it by its customers under sale contracts entered into with its customers in the United Kingdom, including debts existing at and debts created after the agreed commencement date of the IDA. Among the debts assigned to RBSIF under the IDA was the aggregate debt owed by Capital to Ace (the "Capital Debt") under a series of fourteen invoices, twelve dated 26 June 2008 and two dated 29 July 2008 (the "Capital Invoices"), set out in a statement from Ace to Capital dated 29 July 2008. The Capital Invoices totalled £138,716.70 (including VAT).
3. In May 2011 the parties agreed in principle to terminate the IDA, and the termination was confirmed by an exchange of letters, one from RBSIF to Ace dated 5 July 2011 (the "5 July 2011 Letter") and the other from Ace to RBSIF dated 12 July 2011 (the "12 July 2011 Letter"), which was signed on behalf of RBSIF and returned to Ace. This appeal concerns the proper construction of a provision of the 12 July 2011 Letter from Ace to RBSIF. The issue is whether under the 12 July 2011 Letter RBSIF re-assigned to Ace its claim against Capital in respect of the Capital Debt.
4. By order of Mr Registrar Baister dated 3 October 2013 a related issue arising from Ace's original application concerning the proper valuation of Ace's claim against Capital in respect of the Capital Debt was stood over until the issue mentioned in para 3 above was determined as a preliminary issue.

The Bad Debt Provisions

5. Under clause 2.3 of the IDA, read together with clauses 5.2, 18 and related provisions of the ID Terms (the "Bad Debt Provisions"), RBSIF provided credit risk protection to Ace in respect of certain approved debts. Under the Bad Debt Provisions, RBSIF agreed with Ace that if a "Credit Risk Event" occurred in relation to a relevant customer of Ace, then RBSIF would pay to Ace the value of the approved debt after deduction of:

i) the VAT element of the debt (it being assumed that Ace would be entitled to recover this under the VAT bad debt relief rules);

ii) the "First Loss", defined to be £1,000; and

iii) the "Recourse Percentage", defined to be 5 per cent of the value of the debt after deduction of the VAT element and the First Loss.

Capital

6. Like Ace, Capital was a company carrying on business in the paper industry. Ace supplied raw materials in the form of cardboard and paper to Capital, in respect of which Ace raised the Capital Invoices. Administrators were appointed in relation to Capital on 26 June 2008. This was a "Credit Risk Event" as defined in the ID Terms, triggering the application of the Bad Debt Provisions. Ace made a claim against RBSIF under those provisions by completing and sending to RBSIF a Statement of Loss dated 25 July 2008, which was received by RBSIF on 4 August 2008.
7. On 26 August 2008 RBSIF paid the amount of £111,203.93 in respect of the Capital Debt. The amount was calculated by deducting from the value of the Capital Debt, £138,716.70, the following amounts:

i) £20,659.93, representing the VAT element of the debt calculated as 17.5 per cent of £138,716.70;

ii) £1,000, representing the First Loss amount agreed by the parties; and

iii) £5,852.84, representing the Recourse Percentage, being 5 per cent of £117,056.77 (the amount equal to £138,716.70 less the VAT element and the First Loss).

8. Capital exited administration and went into creditors' voluntary liquidation on 12 March 2009. As already noted, the First and Second Respondents are the joint liquidators of Capital. They are neutral as to the outcome of this appeal, but participated by counsel in order to assist the court, if required, and to address the consequential directions that would be required if the appeal were to succeed. Among other things, there is a related county court action brought by Ace against the joint liquidators of Capital, which it is not necessary to describe for the purposes of this appeal.

Further background

9. In a letter dated 31 July 2008 Ace informed RBSIF that it had a retention of title claim to goods supplied under the Capital Invoices and that it was "endeavouring to recover goods on your behalf". Ace noted that the goods had been supplied to Capital in a non-standard form and therefore their value once "uplifted" would be greatly reduced. Ace subsequently recovered from Capital goods that had been invoiced to Capital at £36,285.17 (excluding VAT). Ace's own estimate is that it was only able to recover £19,361.21 (excluding VAT) in relation to the uplifted goods. It is not in dispute that Ace never accounted to RBSIF for that amount.
10. By letter dated 11 August 2008 RBSIF notified Begbies Traynor (South) LLP ("Begbies Traynor"), acting for the administrators of Capital, of the assignment of the Capital Debt by Ace to RBSIF and submitted a proof of debt in respect of the Capital Debt in the amount of £138,716.70. By letter dated 15 August 2008 Ace confirmed to Begbies Traynor its assignment of the Capital Debt to RBSIF.

Amendments to and termination of the IDA

11. During the period from 2008 to 2010 RBSIF made substantial payments to Ace under the Bad Debt Provisions, a significant proportion of which was in respect of the Capital Debt. By contrast it received a much smaller amount from Ace in service charges under the IDA. On 23 November 2010 Amit Odedra of RBSIF, the Relationship Manager for Ace, wrote to Darren Osborne, the Financial Director of Ace, by e-mail following up on an earlier telephone conversation regarding amending the IDA to delete the Bad Debt Provisions from a certain date but otherwise continuing it as a "recourse facility".
12. On 12 January 2011 Mr Odedra sent a further e-mail to Mr Osborne following up on earlier e-mails and telephone conversations on the same topic. This was followed by a telephone conversation between Mr Odedra and Mr Osborne on 14 January 2011, in relation to which Mr Osborne prepared a handwritten note for the benefit of Gary Brady, a Director of Ace, in which he recorded his understanding of the conversation with Mr Odedra concerning the termination of the Bad Debt Provisions. On 24 February 2011 RBSIF wrote to Ace confirming the termination of the Bad Debt Provisions with effect from 31 March 2011. The other provisions of the IDA were confirmed to continue in full force and effect.
13. In a further internal note prepared by Mr Osborne for Mr Brady following a telephone conversation on 3 May 2011 between Mr Osborne and Mr Odedra, Mr Osborne recorded that the parties had now agreed in principle that the IDA was no longer necessary for Ace as it no longer had any active customers. On the next day Mr Osborne confirmed this agreement by e-mail to Mr Odedra, asking him to "send the relevant paperwork for us to sign to cancel the facility for Ace Paper Ltd". This was followed eventually by the 5 July 2011 Letter and the 12 July Letter, to which I will return when considering the Deputy Registrar's order and judgment.
14. On 1 April 2011 Ace filed a proof of debt in respect of the Capital Debt with the joint liquidators of Capital, although on its own case it did not acquire the claim until 12 July 2011.
15. By letter dated 5 June 2013 the joint liquidators of Capital rejected Ace's claim in respect of the Capital Debt, setting out their reasons for doing so. The letter makes it clear that the liquidators had been made aware, by an earlier letter from solicitors for Ace, that in making its claim Ace was relying on its interpretation of the 12 July 2011 Letter as effecting a re-assignment of the Capital Debt by RBSIF to Ace. This rejection of Ace's claim led to the application by Ace before Deputy Registrar Garwood, whose order in relation to that application is the subject of this appeal.
16. By letter dated 5 June 2013 the joint liquidators of Capital accepted RBSIF's claim in respect of the Capital Debt, but noted Ace's claim and anticipated, correctly, that Ace would contest their decision to accept RBSIF's claim in lieu of Ace's.

The law

17. As this matter turns on the proper construction of the 12 July 2011 Letter, I was referred by counsel for Ace and for RBSIF to the leading case of Rainy Sky SA v Kookmin Bank Ltd [2011] UKSC 50 and in particular to paragraph 14 of that judgment. The Deputy Registrar quoted from this passage in his judgment. For convenience, I set out a slightly longer excerpt from that paragraph as a reminder of the basic principles:

"[T]he ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. As Lord Hoffmann made clear in the principles he summarised in the Investors Compensation Scheme case [1998] 1 WLR 896, 912H, the relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."

18. It is common ground, of course, that the purpose of contractual construction or interpretation is to determine the objective common intention of the parties. Their subjective intentions in entering into the contract are irrelevant to the process of construction. Evidence of the pre-contractual negotiations of the parties are also irrelevant, other than to the limited extent that such negotiations illuminate the context of background facts in which the contract must be read.
19. Each party relied on the principles quoted above from Lord Clarke's judgment in the Rainy Sky case to support its interpretation of the 12 July 2011 Letter, disagreeing, of course, as to what "a reasonable person would have understood the parties to have meant" by the words used in that letter.
20. Mr Sisley for Ace also referred me to paragraphs 31-36 of Lord Justice Lewison's judgment, with which Lords Justices Floyd and Longmore agreed, in Napier Park European Credit Opportunities Fund Limited v Harbourmaster Pro-Rata CLO 2 BV [2014] EWCA Civ 984, to paragraph 55 of Mr Justice Hamblen's judgment in Cottonex Anstalt v Patriot Spinning Mills Ltd [2014] EWHC 236 (Comm), [2014] Lloyds' Rep 615 and to paragraph [54] of Mr Justice Leggatt's judgment in Mihail Tartsinis v Navona Management Company [2015] EWHC 57 (Comm).
21. It is not necessary for me to consider these authorities in detail. The general thrust of Mr Sisley's submissions by reference to these authorities was to remind me that the principal source for determination of the objective common intention of the parties is the text of the contract itself. It is not necessary to look beyond the words used if those words are only capable of one meaning. The court should not impose its own view of "business common sense" or "commercial reasonableness" or elevate these to independent criteria of construction. These aspects only come into play where the words used are capable of more than one meaning, and the court is required to choose between different meanings. In such a case, the court is entitled to prefer the construction more consistent with business common sense, if that can be determined. That is not, however, this case, according to Mr Sisley.
22. Mr Curl for RBSIF accepted these authorities, but disagreed with Mr Sisley that the disputed provision of the 12 July 2011 Letter was capable of only one meaning or that Ace's interpretation is more consistent with business common sense than RBSIF's interpretation. Mr Curl also drew my attention to other passages in Lord Clarke's judgment in the Rainy Sky case, including paragraph 21:

"21. The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."

The conflicting contentions as to the proper construction of the 12 July 2011 Letter

23. Since the 12 July 2011 Letter is a response to the 5 July 2011 Letter and both are short, I will set them out here in full. The 5 July 2011 Letter was signed by Claire Wernick, Assistant Relationship Manager at RBSIF, addressed to Darren Osborne at Ace and reads as follows:

"Dear Darren

Ace Paper Limited – Invoice Discounting Agreement dated 4th January 2008

Please be advised that the Invoice Discounting Agreement between RBS Invoice Finance Limited (RBSIF) and Ace Paper Limited has been terminated.

We further acknowledge that:

RBSIF has discharged all of its obligations to Ace Paper Limited under the Agreement.

Ace Paper Limited has no existing or prospective claims against RBSIF either arising under or incidental to the Agreement or any other Agreement, and in so far as any such claims do exist or may arise in the future, such claims are hereby waived.

Should you have any queries, please do not hesitate to call me."

24. As I have already noted, this letter was sent in response to Mr Osborne's request to Mr Odedra in his e-mail of 4 May 2011 asking for Mr Odedra to "send the relevant paperwork for us to sign to cancel the facility for Ace Paper Ltd". In the event, Ms Wernick's letter did not require anything to be signed on behalf of Ace. Mr Osborne maintained that it did not reflect the agreement he had reached with Mr Odedra concerning the termination of the IDA, which as I have already noted had been operating as a recourse facility (that is, without the Bad Debt Provisions) from 1 April 2011. Mr Osborne drafted and faxed the 12 July 2011 Letter to Ms Wernick on 12 July 2011:

"Dear Claire

Ace Paper Limited – Invoice Discounting Agreement dated 4 January 2008

Many thanks for your letter of 5 July 2011 re the termination of the above agreement.

So that we can close this matter down, could you please kindly sign above 'Agreed' below and fax back to me on 020 8447 4241, your confirmation for our records (and those of our auditors) that:-

Ace has discharged all its obligations to RBSIF under the Agreement.

RBSIF has no existing or prospective claims against Ace or against Paperun (the guarantor) either arising under or incidental to the Agreement and insofar as any such claims against Ace or any third party do exist or may arise in the future, such claims are hereby waived and released and transferred/re-transferred to Ace.

RBSIF will co-operate in removing any charge in connection with Ace Paper from the Companies Register.

Many thanks for your help on this matter."

25. The reference to "Paperun" in the 12 July 2011 Letter is to Paperun Limited, an affiliate of Ace, which had also entered into an invoice discounting agreement with RBSIF. Under clause 3 of the IDA, Ace was required to deliver to RBSIF, as a condition precedent to the obligations of RBSIF under the IDA, an "unlimited Corporate Multi-Client Guarantee" executed by Ace and by Paperun.
26. Mr Osborne's witness statement dated 30 October 2013 sets out his (unchallenged) version of what happened next:

"30. … Ms Wernick rang me. She said that she would need to obtain authorisation from someone senior at RBSIF about the legalities before signing it and sending it back.

31. Soon afterwards Ms Wernick rang again. She said that the letter had been checked and authorised to be signed and returned to me. She also said that she had been asked to advise me that the charge registered by RBSIF at Companies House would need to be dealt with by Ace Paper completing and sending in the relevant form, and that she was going to email the form to me.

32. She sent me the form at 12.01 that day …. She then faxed back the signed letter …. It can be seen [on the copy included in the exhibit to his witness statement] that the signed letter was faxed from 'RBSIF' and sent at 12.15."

27. The language in the 12 July 2011 Letter that Ace maintains effected a re-assignment to Ace of the Capital Debt is set out in the second bullet point of the letter:

"RBSIF has no existing or prospective claims against Ace or against Paperun (the guarantor) either arising under or incidental to the Agreement and insofar as any such claims against Ace or any third party do exist or may arise in the future, such claims are hereby waived and released and transferred/re-transferred to Ace."

28. The key to this case is determining the proper scope of the term "such claims", which appears twice in this sentence. The substance of Ace's case is as follows. The Capital Debt was an existing claim of RBSIF against Capital, a third party, immediately prior to RBSIF's agreement to this provision. "Such claims" refers to "existing or prospective claims against Ace or Paperun (the guarantor) … or any third party", otherwise the reference to "any third party" has no meaning or purpose in the sentence. It does not make sense, in context, for RBSIF to waive or release any existing or prospective claim it has against a third party. The words "waived and released" must refer to any "existing or prospective claims against Ace or against Paperun (the guarantor) either arising under or incidental to the Agreement". It also does not make sense, according to Ace, that RBSIF should agree to "transfer" or "re-transfer" to Ace "any existing or prospective claim against Ace or against Paperun". The inclusion of the words "transferred/re-transferred" in the sentence can only refer to a claim against a "third party", reinforcing Ace's view that the words "such claims" must include "existing or prospective claims … against any third party". The then-existing claim of RBSIF for the Capital Debt was therefore re-transferred pursuant to this sentence to Ace upon RBSIF's acceptance of and agreement to the terms of the 12 July 2011 Letter, which it did by signing and returning a copy of the letter to Ace.
29. RBSIF's primary case is that the term "such claims" clearly refers only to "existing or prospective claims against Ace or against Paperun (the guarantor) either arising under or incidental to the Agreement". The first reference to "such claims" follows these words and as a matter of syntax can only properly refer to them. The addition of the words "against … any third party" after that reference is not capable of expanding the scope of "such claims" beyond claims against Ace or against Paperun.
30. RBSIF's secondary case is that the reference to "such claims" is capable of more than one interpretation, and therefore the court is entitled to prefer the interpretation that is more consistent with business common sense. It is not consistent with business common sense for RBSIF to transfer to Ace its claim against Capital, in respect of which RBSIF has already paid Ace under the Bad Debt Provisions.
31. Mr Curl also noted in this regard that by virtue of not accounting to RBSIF for the uplifted goods, which were recovered by Ace and re-sold to third parties at a time when the Capital Debt was unequivocally the property of RBSIF, Ace has already recovered more than the value of the Capital Debt, even using Ace's own reduced figure for the realised value of the uplifted goods. RBSIF paid £111,203.93 to Ace on 26 August 2008 in respect of the Capital Debt under the Bad Debt Provisions. In addition, Ace, on its own case, recovered £19,361.21 (excluding VAT) for the uplifted goods, for a total recovery in respect of the Capital Debt of £130,565.14. By contrast, its original claim against Capital in respect of the Capital Debt was £118,056.77, excluding the VAT element. It is not in dispute that Ace never accounted to HM Revenue & Customs in relation to the VAT element for the Capital Debt, for the simple reason, according to Mr Osborne's first witness statement, that as it had not collected the VAT from Capital or anyone else, it was not required under the applicable rules to remit it to HMRC.
32. Therefore, according to RBSIF's case, no reasonable person in possession of the relevant background facts would conclude that the words "such claims against… any third party … are hereby … transferred/re-transferred to Ace" were intended by the parties to include a transfer to Ace of RBSIF's claim against Capital in respect of the Capital Debt.

The judgment and order of Deputy Registrar Garwood

33. After summarising the facts and the positions of the parties, Deputy Registrar Garwood set out his principal conclusions in paragraphs 32 to 37 of his judgment. His first conclusion is that no reasonable person would have understood the parties to have meant "by the language used" (echoing Lord Clarke's phrase from paragraph 14 of his judgment in the Rainy Sky case, quoted in his judgment and set out in a slightly fuller form in paragraph 17 above) in the 12 July 2011 Letter that the Capital Debt was re-assigned by RBSIF to Ace.
34. The Deputy Registrar further concluded, in paragraph 33 of his judgment, that the critical phrase "such claims" would be limited to claims against Ace or Paperun or, if that was not correct, that the phrase was not capable of interpretation by a reasonable person "without reference to the background to RBSIF having so 'agreed'". In paragraph 34 of his judgment he summarises the relevant background as being that RBSIF had paid Ace in respect of the Capital Debt under the Bad Debt Provisions as a consequence of Capital's entry into administration. "Having done so [RBSIF] had become absolutely entitled to any dividend from Capital's subsequent Liquidation without any obligation to account or give credit to Ace in respect of any dividend received." The Deputy Registrar concluded that no reasonable person with knowledge of that background would have understood the parties to have meant "that the right to prove in Capital's Liquidation had 'by the language used' been transferred to Ace".
35. In paragraph 35 the Deputy Registrar stated that the last-mentioned conclusion must follow because the effect of the transfer of the Capital Debt to Ace would be to put Ace into a position where it could claim for a dividend in the liquidation of Capital notwithstanding its having received more than the value of its original claim against Capital through its recovery from RBSIF under the Bad Debt Provisions taken together with its recovery in respect of the uplifted goods.
36. The Deputy Registrar also noted in paragraph 36 of his judgment that in relation to the uplifted goods it was clear that RBSIF had, by virtue of the language used in the 12 July 2011 Letter, waived the claim it would otherwise have had under the IDA for Ace to account to it in relation to that recovery. The Deputy Registrar suspected that RBSIF may have overlooked this claim against Ace and not subjectively intended to waive it, but the language in this regard was clear and RBSIF was bound by its waiver. This did not, however, affect his conclusion that:

"[i]t was … far from clear from the 'language used' that RBSIF had agreed to transfer to Ace the right to a dividend from Capital's Liquidation in respect of the Debt and looking at the background to what the parties had agreed it had neither intended to do so nor done so."

37. Mr Curl, before the Deputy Registrar, had also raised the argument that to the extent that there was any assignment of debts by the 12 July 2011 Letter from RBSIF to Ace, it was not a legal assignment because it met only one of the requirements of section 136 of the Law of Property Act 1925, namely that a legal assignment must be in writing under the hand of the assignor. The second requirement, that notice of it must be given to the debtor, was not met.
38. Mr Curl's argument, as summarised by the Deputy Registrar in paragraphs 21 to 24 of his judgment, appeared to be that for there to be an equitable assignment of a debt, the language setting out the meaning of the alleged equitable assignment should be plain. That is not the case in relation to the 12 July 2011 Letter, particularly bearing in mind that the 12 July 2011 Letter was drafted by Ace and should be construed contra proferentem, meaning that any ambiguity or uncertainty in the words used should be resolved in favour of RBSIF.
39. In relation to these arguments, the Deputy Registrar concluded in paragraph 37 of his judgment as follows:

"[I]f Mr Curl is right in his submission that whatever might have been assigned was by equitable assignment only it clearly was not the intention of RBSIF to assign to Ace the right to prove in Capital's Liquidation or indeed in insolvencies of other customers of Ace where the debts had been assigned to it under the Agreement and under its bad debt protection provisions it had made payments to Ace."

40. Finally, the Deputy Registrar expressed some criticisms of Ace in paragraph 38 of his judgment. I will return to these in due course.

Construction of the letter of 12 July 2011

41. This appeal is brought on the basis that the Deputy Registrar erred in law in his construction of the second bullet point of the 12 July 2011 Letter. Rather than addressing the language used with the assistance of the normal rules of construction, the Deputy Registrar imposed his own view of what a reasonable person would have wanted to include in the assignment. In short, in Ace's view, he made a commercial judgment about the proper scope of the assignment in a manner that went beyond simply considering the words used by the parties in their contractual context and in light of their background facts. He took the view that RBSIF would not as a commercial matter have agreed to transfer the Capital Debt back to Ace after having paid Ace under the Bad Debt Provisions. In doing so, to the extent that it was permissible for the Deputy Registrar to have regard to commercial considerations or antecedent events in the process of construction, he failed to take properly into account Ace's arguments that the deal reflected in the 12 July 2011 Letter was the result of several months' negotiation between Ace and RBSIF and reflected what a reasonable person could have considered to be a good price (the re-transfer to Ace of the previously assigned debts, including the Capital Debt) for Ace's early release of RBSIF from the IDA.
42. During the hearing of the appeal, Mr Sisley criticised the final sentence of paragraph 36 of the Deputy Registrar's judgment, which I have quoted in paragraph 36 above, which Mr Sisley said was an impermissible reference by the Deputy Registrar to the subjective intentions of the parties, irrelevant to the proper construction of the 12 July 2011 Letter.
43. Mr Sisley similarly criticised the sentence from paragraph 37 of the Deputy Registrar's judgment that I have set out in paragraph 39 above. He submitted that this is a reference to the subjective intention of RBSIF, which it was not appropriate for the court to take into account when construing the 12 July 2011 Letter. He noted that subjective intention is relevant, in relation to an alleged equitable assignment, to the question of whether the alleged assignor had intended an assignment as opposed to some other action. It is not relevant to the contractual construction of the assignment, which would be governed by the normal principles requiring determination of the objective, rather than subjective, common intention of the parties.
44. In response to Mr Sisley's criticism of this aspect of the Deputy Registrar's judgment concerning the distinction between legal and equitable assignment, Mr Curl suggested that this is a red herring. I am inclined to agree. It does not appear to me that the Deputy Registrar's judgment turns on this point, but rather that he simply made reference to it in support of his principal conclusion as to the interpretation of the 12 July 2011 Letter by a reasonable person with all the background knowledge reasonably available to the parties in the situation in which they were at the time of entry into the agreement evidenced by that letter. Although I do not, in my view, need to decide the question, Mr Sisley may be right in his criticism of the passage in the Deputy Registrar's judgment that I have set out in paragraph 39 above. This makes no difference, however, if the Deputy Registrar was right to dismiss Ace's application for the principal reason he gave or on other grounds.
45. Turning to the proper construction of the second bullet point in the 12 July 2011 Letter, Mr Sisley had argued that I should focus on the text, the meaning of which was clear and capable of only one interpretation. It was not necessary for me to go beyond the four corners of the text to conclude that Ace's interpretation was correct. In such circumstances, as I am reminded by the passages he cited from the Napier Park, Cottonex Anstalt and Tartsinis cases, it is not necessary for me to filter my judgment as to the correct objective interpretation through the lens of business common sense, however surprising or unreasonable I might consider the result to be. In any event, he would say that the result was neither surprising nor unreasonable in this case, for the reasons he gave and to which I have referred above.
46. The first reference in the second bullet point of the 12 July 2011 Letter to "any such claims" follows the words "existing or prospective claims against Ace or against Paperun (the guarantor) either arising under or incidental to the Agreement". The natural initial reading of "any such claims" would be that it is any claim falling within that description, including the limitation to claims against Ace or Paperun. As the words "any such claims" are immediately followed by "against Ace or any third party", the natural initial reading immediately runs into difficulty, unless "any third party" is limited to a reference to Paperun. It would be odd, however, to refer to "any third party" if the parties intended to limit that reference to Paperun. In fact, there would be no need to include any words between "any such claims" and the words "do exist or may arise in the future". So it is necessary to consider alternative meanings for "any such claims".
47. One possible meaning is that "any such claims" simply means any "existing or prospective claims". This, however, runs into the difficulty that it would extend to any existing or prospective claims that RBSIF has or may have in the future against any third party, regardless of any connection with Ace. This is clearly far too broad and can be rejected out of hand. Accordingly, "any such claims" must mean any "existing or prospective claims … either arising under or incidental to the Agreement" if it is to extend not only to claims against Ace but also to claims against any third party.
48. If this is the correct interpretation of the phrase "any such claims" in the second bullet point of the 12 July 2011 Letter, then the question arises whether the Capital Debt falls within that wording. The Capital Debt was an existing claim of RBSIF against a third party, Capital, immediately prior to entry into the 12 July 2011 Letter. In order to come within scope, however, it must also be a claim that arises under or is incidental to the IDA. Strictly speaking, the Capital Debt did not arise under the IDA. It arose when Ace supplied the relevant paper goods to Capital. This did not occur, in any sense, "under" the IDA.
49. Is the Capital Debt "incidental to" the IDA? The word "incidental" has various meanings in English, according to context, some of which are clearly not relevant here, including the occurrence of one thing by chance in connection with another (such as "the incidental catch of dolphins in the pursuit of tuna", to borrow an example from the Oxford Dictionary of English (2nd edn, OUP 2009). In a legal context the word "incidental" is often contrasted with "necessary", for example, in para 13 of Schedule 1 to the Insolvency Act 1986, which enumerates the powers of an administrator or administrative receiver under sections 14 and 42, respectively, of the Insolvency Act 1986. Para 13 of Schedule 1 provides that an administrator or administrative receiver, as the case may be, has the power to make any payment "necessary or incidental" to the performance of his functions. Both Jowitt's Dictionary of English Law (3rd edn, Sweet & Maxwell 2009) and Osborn's Concise Law Dictionary (12th edn, Sweet & Maxwell 2013), while not defining "incidental" separately, define "incident" as "a thing appertaining to or following another". Could it be said that the Capital Debt appertains to or follows from some aspect of the IDA? Just as the Capital Debt does not arise under the IDA, it is hard to see how the Capital Debt is "incidental" to the IDA in any normal sense of the word "incidental". It is true that the Capital Debt was transferred to RBSIF under the IDA, but that does not, without more, make the Capital Debt incidental to the IDA.
50. Mr Sisley for Ace submitted that the "manifest meaning" of the second bullet point in the 12 July 2011 Letter is that all debt claims previously assigned by Ace to RBSIF were "transferred/re-transferred" or, in other words, re-assigned to Ace by virtue of RBSIF's agreement to that wording. It is not, however, in my view possible to reach that conclusion based simply on a careful and literal reading of the text. On a strict reading it would appear that no debt claims previously assigned by Ace to RBSIF were re-assigned, for the reason that none of them arise "under" the IDA, nor are any of them "incidental" to the IDA in the normal sense. And yet there is force in Mr Sisley's argument that some meaning must be given to the references to claims "against any third party" and to claims being "re-transferred".
51. As I have already stated, if "any such claims … against any third party" refers back only to "existing or prospective claims" without further qualification, then by the 12 July 2011 Letter RBSIF assigned all of its claims against third parties of whatever nature. This is clearly absurd. On the other hand, if "any such claims … against third party" refers to "existing or prospective claims … either arising under or incidental to the Agreement", then on a strict reading RBSIF did not re-assign to Ace any of the claims previously assigned to RBSIF. But this too seems unlikely to have been the objective intention of the parties reading the 5 July 2011 Letter and 12 July 2011 Letter together against the relevant background facts.
52. This appears to be a case falling with the scope of the following principle set out by Lord Diplock in The Antaios, Antaios Compania Naviera v Salen Rederierna [1998] 1 AC 191 at para 205:

"If a detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."

53. Accordingly, in my view, the language used, read as a whole, is ambiguous and requires further interpretation. This appears to be a case where the parties cannot have intended the words used to have their ordinary meaning.
54. In my view it would be clear to a reasonable person with knowledge of the relevant background that the parties intended that some claims of RBSIF against some third parties should be transferred or re-transferred to Ace and that the claims to be transferred or re-transferred should bear some relationship to Ace, even if not, strictly speaking, arising "under" or being "incidental" to the IDA.
55. I bear in mind that I am interpreting language in a relatively short letter prepared in a commercial context, apparently by Mr Osborne, the Financial Director of Ace, sent to a commercial counterpart at RBSIF, Ms Wernick, on the morning of 12 July 2011, and reviewed, signed and returned by Ms Wernick on behalf of RBSIF at 12:15pm that day, according to Mr Osborne's evidence. The application of business common sense must take these factors into account as part of the contractual context of the words.
56. It is Ace's case that the language used was intended to provide for the reassignment of all customer claims of Ace previously assigned to RBSIF. RBSIF's primary case is that "any such claims" is limited to claims against Ace or Paperun, but, as I have already noted, I do not think that this is sustainable. Its secondary case is that "any such claims … against any third party" refers to claims of RBSIF against a third party that were originally customer claims of Ace assigned to RBSIF by the IDA for which RBSIF has not paid Ace under the Bad Debt Provisions.
57. As between these two interpretations of the second bullet point of the 12 July 2011 Letter, Ace's case and RBSIF's secondary case, in my judgment the latter is more consistent with business common sense.
58. It is counterintuitive, to say the least, that RBSIF should re-assign to Ace the benefit of a debt in relation to which it had paid Ace the full value, less a small proportion for the combined First Loss and Recourse Percentage amounts, particularly in circumstances where Ace has recovered additional value for uplifted goods relating to the Capital Debt, more than covering off the deductions from the payment for the Capital Debt by RBSIF. The joint liquidators found this to be the case in rejecting Ace's claim in their letter to Ace of 5 June 2013 and, of course, the Deputy Registrar came to a similar conclusion in his judgment.
59. The Deputy Registrar appears in paragraph 33 of his judgment to have accepted RBSIF's primary case, which I have rejected. In the final sentence of that paragraph and in paragraph 34 of his judgment, however, he addresses the alternate possibility that the language could extend to claims against a third party and concludes, as I have already mentioned, that "'no reasonable person would have understood the parties to have meant' that the right to prove in Capital's Liquidation [in respect of the Capital Debt] had 'by the language used' been transferred to Ace." Referring to the right to prove in Capital's liquidation is, of course, simply another way of characterising the effect of the re-assignment of the Capital Debt to Ace.
60. Although the Deputy Registrar appears to refer to the subjective intention of RBSIF in the final sentence of paragraph 36 of his judgment (and, in the context of the discussion of legal versus equitable assignment, in the first sentence of paragraph 37 of his judgment), it is clear from paragraphs 33 and 34 of his judgment that he has applied the correct test for determining the objective intention of the parties as set out in Lord Clarke's judgment in the Rainy Sky case and, of course, in numerous other cases dealing with the principles applicable to the construction or interpretation of commercial contracts.
61. Even if my characterisation of the Deputy Registrar's reasoning is inaccurate, he has, in my view, made the correct order, rejecting Ace's application, for the reason I gave in paragraph 57 above.
62. It is clear from the Deputy Registrar's judgment that he disapproved of Ace's interpretation of the 12 July 2011 Letter, and as I have already mentioned, he criticised their conduct in asserting the claim in paragraph 38 of his judgment. Whether or not he was justified in his criticism of Ace, it is my view that he came to the right decision to reject Ace's application, for the reasons I have given.
63. Although the court determines the proper interpretation of a contractual provision without regard to pre-contractual negotiations, I was taken by Mr Sisley and, in response, by Mr Curl through evidence relating to correspondence and telephone conversations between the parties, principally between Mr Osborne for Ace and Mr Odedra for RBSIF (including related internal notes prepared by Mr Osborne), with the purpose, I was told, of illuminating the relevant factual background. I have summarised some of this evidence above and taken it into account as the context for the exchange of letters in July 2011 relating to the termination of the IDA, but only to that extent.
64. I see no objection in principle to Ace seeking to have the Capital Debt re-assigned to it. Although it had been paid under the Bad Debt Provisions and realised some value from related goods uplifted from Capital, it was perfectly entitled to propose to RBSIF that the Capital Debt should be re-assigned to it. I do not accept, however, that the language used in the second bullet point of the 12 July 2011 Letter was sufficiently clear to achieve this apparently counterintuitive result. The re-assignment to Ace of a debt for which it had already received more than the full value would require much clearer words than were used in this case in the 12 July 2011 Letter, particularly bearing in mind that the document was drafted by Ace and should therefore be construed contra proferentem, that is, construing the ambiguity in the drafting, which I have already highlighted, against the person who drafted it.

Consideration for the re—transfer of the Capital Debt by RBSIF to Ace

65. Mr Sisley sought to establish through his review of evidence concerning the pre-contractual correspondence and telephone conversations the rationale, and therefore the consideration, for Ace's obtaining a re-assignment of the Capital Debt. Mr Curl sought to rebut these submissions in a manner that appeared to cast doubt on Mr Sisley's submission that there was consideration for the re-assignment of the Capital Debt to RBSIF. Mr Sisley objected that RBSIF had not filed a Respondent's Notice in relation to this appeal taking issue with Ace's case in relation to consideration. My judgment in this case does not turn on whether or not RBSIF would have received consideration for a re-assignment of the Capital Debt if that had been the effect, objectively construed, of the second bullet point of the 12 July 2011 Letter.

Conclusion

66. In light of my conclusions above, Ace's appeal is dismissed.