434. Re Sigma Finance Corp [2009] UKSC 2

Interpretation – split decision on meaning of “so far as possible” in document regulating realization and the payment of assets in informal winding up

The Facts

The “Security Trust Deed” of a “Structured Investment Vehicle” provided that during the realization period the security trustee should “so far as possible” discharge on the due dates therefor any short term liabilities falling due for payment during such period, using cash or other realizable or maturing assets of the issuer (the SIV).

A single short term liability which became due during the realization period exceeded all realizable assets.

Literal application of the quoted provision would result in one secured creditor being paid in full and all the other (substantial) secured creditors receiving nothing.

The most prominent interpretations were:-

1. the  literal interpretation;
2. that the directive to pay short term liabilities when they fell due, qualified by the expression “so far as possible”, meant taking into account the imperative found elsewhere in the document to share the assets among the creditors, pro rata.

Findings

Sales J (at first instance), Lloyd and Rimer LJJ in the Court of Appeal and Lord Walker in the Supreme Court favoured the literal interpretation.

Lord Neuberger in the Court of Appeal and Lords Mance, Hope, Scott and Collins in the Supreme Court favoured the second approach.

Commentary

The division between the judges followed a similar pattern to that in Chartbrook v Persimmon: a literal approach adopted by the judge at first instance; his judgment confirmed in the Court of Appeal but with a strong dissent then adopted by the majority in the House of Lords/Supreme Court.

The following illuminating passages appear in the judgment of Lord Neuberger:-

“98 Taking the provision on its own, there is considerable attraction in the judge’s view that the more natural meaning of the phrase is meaning (a) or (b). However, the provision must, of course, be construed not merely by reference to the language used, but also in its documentary and commercial contexts. Ms Prevezer Q.C., for party D, suggested that it was illegitimate to start by considering the effect of the language of the provision on its own. However, while one is seeking to interpret the document as a whole, the ultimate issue between the parties turns on the meaning of the provision, and, in order to resolve the issue, the reasoning and analysis have to start somewhere. The natural, indeed, I would have thought, the inevitable, point of departure is the language of the provision itself. However, where the interpretation of a word or phrase is in dispute, the resolution of that dispute will normally involve something of an *418 iterative process, namely checking each of the rival meanings against the other provisions of the document and investigating its commercial consequences.

99 Most words, and a fortiori, most phrases, can have more than one meaning, or at least different shades of meaning. This is certainly true, for instance, of the word “possible”, which can, for instance, mean physically achievable or legally permissible, to give two relevant examples. However, to consider what words could mean in abstract is not normally a helpful exercise. What one has to do, when assessing each rival interpretation, is to ask whether the words at issue are capable of having the meaning contended for, but even that question cannot be judged free of the documentary and commercial context. The more a particular interpretation, which accords well with the words in question judged on their own, produces a commercially improbable result and is hard to reconcile with other provisions in the document, the more ready the court will be to give the words another, perhaps linguistically more strained, interpretation, if that other interpretation complies with the other provisions and commercial reality.

100 The argument that the STD is a long and carefully drafted document is one which weighed with the judge, but I am bound to say that it does not seem to me to take matters much further. It is certainly a full document, but it does not strike me as particularly carefully (or, it is fair to say, particularly carelessly) drafted. Documents such as the STD are prepared in many different ways. They often have provisions lifted (sometimes with bespoke amendments) from other documents; they often have different provisions drafted inserted or added to by different lawyers at different times; they often include last-minute amendments agreed in a hurry, frequently in the small hours of the morning after intensive negotiations, with a view to achieving finality rather than clarity; indeed, often the skill of the drafting lawyer is in producing obscurity, rather than clarity, so that two inconsistent interests can feel satisfied with the result. If there is subsequent disagreement as to the effect of the document, then other lawyers then have to do their best to determine what, in all the circumstances, the document means.

101 Further, I do not think it is normally convincing to argue that, if the parties had meant a phrase to have a particular effect, they would have made the point in different or clearer terms. That is a game which all parties can normally play on issues of interpretation. Save in relatively rare circumstances (e.g. where the document concerned contains a provision elsewhere in different words which has the effect contended for by one of the parties), it does not take matters further. Of course, if the argument amounts to saying that a particular meaning is not one the phrase naturally bears, that is fair enough, but, in that case, it is normally an old argument in new clothes.”