The High Court's judgment in Teesside Power Holdings Limited v (1) Electrabel International Holdings B.V. (2) GDF International SAS [2012] EWHC 33 (Comm) has recently been published. The case, a rare decision on the contractual interpretation of tax deeds, concerns whether a provision in a tax deed, designed to pass the benefit of a tax repayment to the sellers, could be construed as also including the statutory interest that HMRC paid.

The High Court's judgment

His Honour Judge Chambers QC held that the provision in question could not be construed as including the statutory interest.  He decided that the definition of "Tax" in the associated Share Purchase Agreement (SPA) should be read as meaning all payments that are or purport to be in the nature of taxation and are made by a person under an actual or potential obligation to make them.  Therefore, in the context of the repayment of Tax, he considered it to be impossible to see how interest that HMRC is liable to pay to the taxpayer could be "Tax" as defined.

However, of perhaps wider significance, the tax deed contained two separate clauses that addressed the treatment of refunds.  The first expressly dealt with interest and the second (which was the applicable one in the circumstances) did not.  Part of the reasoning of the court in holding that the purchaser had no obligation to pass on the interest element of the refund was that if the parties had intended the second clause to include interest they would have mentioned it expressly in the same way as they had in the first clause.  Interest could not, therefore, be included by implication (or the requirements of common sense) in the second clause.  

The dangers of drafting by committee

While this judgment may yet be appealed, the decision highlights the need for special care to be taken when drafting to ensure consistency between clauses.  The court's conclusion in this case could be seen as support for a rule of construction that the express mention of something in one clause and its absence in another is grounds for inferring that the exclusion was deliberate in the latter clause.  Including something "for the avoidance of doubt" which should be covered anyway can therefore have the opposite effect than was intended.

In this case both clauses were found within a tax deed in close proximity to each other.   However the logic of the decision raises the possibility that the detailed provisions of a tax deed (which are usually not separate deeds at all but contained in a schedule to SPAs) may affect the construction of other clauses in the SPA which deal with similar subject matter.  It is common, for example, for the main body of an SPA to contain a number of limitations on the seller's liability which are similar to those in the tax schedule.  In practice different teams may be involved in negotiating the provisions and differences may merely reflect alternative drafting styles and precedent documents rather than different outcomes in commercial negotiations.  (For example it is not unusual for a tax deed or schedule and the main body of an SPA to be drafted by different firms).  On large commercial transactions a number of different specialist teams may each be primarily responsible for drafting separate schedules.  The Teesside case is a reminder that contracts are construed as a whole by courts, even though the practicality of their creation is that they are the sum of their parts.