Contractual interpretation and formation: back to basics

On 6 March, the Commercial Court (Dame Clare Moulder DBE) handed down Domidias Limited & Or v Sian Participation Corp. (In Liquidation) & Or [2024] EWHC 458 (Comm), granting summary judgment in favour of Domidias Limited and Merbau Synergy Limited. The decision has wider relevance to ongoing litigation being pursued by Mr Ziyavudin Magomedov, a Russian oligarch who was jailed in 2022 for 19 years on fraud and embezzlement charges, including a US$14bn conspiracy claim in the Commercial Court.

At its core, the judgment is a welcome reminder of the importance of fundamental contractual interpretation and formation principles.

Proceedings were commenced in 2021 by Sian Participation Corp. (In Liquidation) and Hellicorp Investments Ltd vehicles within Mr Magomedov’s investment structure. The claims primarily concerned the alleged exercise of a Call and Put Option Agreement entered into in 2012, and another further purported Call and Put Option Agreement said to have been entered into in 2019, which would have given the claimants certain options over shares in Far Eastern Shipping Company PJSC, one of the largest transportation and logistics companies in Russia.

Domidias filed for summary judgment in January 2023, with the application being heard before Dame Moulder on 12 – 14 February 2024. The issues for determination centred upon: the construction of the 2012 Option Agreement; whether the Alleged 2019 Option Agreement was in fact entered into; and whether certain parts of the Particulars of Claim relating to allegations of conspiracy should be struck out.

Construction of the 2012 agreement

One of the key issues for determination was the construction of the 2012 Option Agreement, and importantly whether it had expired prior to its purported exercise by the claimants.

With respect to the applicable principles for contractual interpretation, Dame Moulder reiterated that the correct approach to construction is that set out by the Supreme Court in Wood v Capita Insurance Services Ltd [2017] AC 1173 (in particular at [10], [12] – [13]). Indeed, Dame Moulder did not accept submissions in reliance on the oft cited summaries of principles applicable to construction in Lukoil Asia Pacific Pte Ltdv Ocean Tankers (Pte) Ltd [2018] EWHC 163 (Comm) and in Arnold v Britton [2015] AC 1619.

It was held that the claimants misinterpreted by Lord Hodge JSC’s approach in Wood, which was also summarised by Popplewell J in Lukoil, by suggesting that the takeaway from such decisions was the primacy of the language.

Applying the binding decision of Wood, Dame Moulder found she was “entitled to prefer” the construction which was “consistent with business common sense” and supported by the context, taking the agreement as a whole, in line with the ordinary and natural meaning. Dame Moulder held that there was “no commercial rationale” for the manner in which the claimants sought to construe the agreement and she was of the view that the defendants’ proposed construction was consistent with the approach of the Court of Appeal in Zoan v Rouamba [2000] 1 WLR 1509 at [34] as to the reckoning of time.

In light of the above, Dame Moulder found wholly in favour of the defendants and their construction of the 2012 Option Agreement. As a result, it was held that the option under the 2012 Option had expired prior to its purported exercise (the 2012 Option Agreement having been terminated on 28 November 2019).

The findings in the judgment emphasise the need for practitioners to take a realistic and common-sense approach to the construction of contracts. While there can often be ambiguity in drafting and competing interpretations which result in disagreement and disputes, it is refreshing to see that the courts remain willing to cut through proposed constructions which lack basis and have no commercial rationale.

Formation of the alleged 2019 agreement

Aside from matters of contractual interpretation, the judgment also serves as a reminder of the fundamental significance of basic contractual formation principles. In this case, based on the contemporaneous evidence, Dame Moulder was satisfied that the Alleged 2019 Option Agreement was never concluded. That was because, critically, there was nothing in the evidence which supported the claimants’ case that it had been accepted by the claimants and that such acceptance had been communicated to the defendants. While matters such as offer and acceptance might often be taken as a given in claims for breach of contract, it is fundamentally necessary to go back to basics and ensure that there is an established and properly formed contract on which to bring any such action.

In the context of the summary judgment application, Dame Moulder was also satisfied that disclosure would not materially add to or alter the evidence available at trial. In this case, the claimants sought among other things to amend the Particulars of Claim to introduce wide-ranging (and irrelevant) conspiracy allegations.

In reaching her decision, Dame Moulder also emphasised that the claimants’ alleged conspiracy in relation to the purported entry into the Alleged 2019 Option Agreement was no more than a theory which was not supported by any evidence, with Dame Moulder being of the view that “this is in the category of a speculative case where the claimants merely hope that disclosure will throw up something useful”.

Again, while it might go without saying, the decision should also serve as a reminder that allegations of fraud must be supported by essential facts to support the case. If fraud is to be inferred, as was the case here, the claimant must show on the balance of probabilities, that the facts show that a fraud occurred. If the facts can just as equally (or more so) explain honest conduct, fraud cannot be inferred. Further, claimants should not pursue spurious fraud claims in the hope that such allegations may later be substantiated.

It was deemed unnecessary for Dame Moulder to make any findings in relation to the defendants’ strike out request given the defendants’ summary judgment application was wholly successful.

Conclusion

Following on from Mr Magomedov’s failed attempt to obtain a US$8.8billion worldwide freezing injunction in October 2023, the Judgment will also have broader ramifications for Mr Magomedov’s US$14 billion conspiracy claim in the Commercial Court. Given the significance of the breach of contract allegations in these Option Proceedings to those conspiracy proceedings, this reinforces the very real need for practitioners to go back to basics and take stock of core contractual principles both when advancing and defending such claims, regardless of the perceived complexity of surrounding issues.

At the time of writing, an application for permission to appeal has been made by the Claimants to the Court of Appeal in relation to the construction of the 2012 Option Agreement (following Dame Moulder’s refusal to grant permission to appeal at first instance).