Case No. QBCMI 99/1056/A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION (Commercial Court)
The Honourable Mr Justice Longmore
Royal Courts of Justice
Strand, London, WC2A 2LL

Thursday, 17 February 2000

B e f o r e :
LORD JUSTICE KENNEDY
LORD JUSTICE THORPE
and
LORD JUSTICE MANCE

	SINOCHEM INTERNATIONAL OIL (LONDON) CO. LTD.	Respondents/
Claimants	
	and		
	MOBIL SALES AND SUPPLY CORPORATON 
& ANOTHER	Appellants/
Defendants	

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040,  Fax No:  0171 831 8838
Official Shorthand Writers to the Court)

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       	    Mr Iain Milligan Q.C. and Mr Michael Ashcroft (instructed by Messrs. Watson, Farley, Williams) appeared on behalf of the Claimant	
	Mr Charles Hollander (instructed by Messrs. Norton Rose) appeared on behalf of the Defendants	
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Judgment
As Approved by the Court

Crown Copyright ©

Lord Justice Mance:

1.	This case raises a short point of construction under a one-off contract. The problem involved arises on the border between what the appellants submit is “commercial construction” (cf per Lord Steyn in Mannai Investment Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749, 770G) and what the respondents say would be re-writing the parties’ contract.

2.	The contract under which the issue arises (which I will call “the London contract”) was concluded on 29th October 1998 following an exchange of telexes between Sinochem International Oil (London) Ltd. (“Sinochem London”) and Mobil Sales and Supply Corporation (“Mobil Delaware”) through its Singapore office. It was for the sale by Sinochem London of a quantity of crude oil f.o.b. Mena Al Bakr in November 1998. It was subject to “SOMO” conditions. It is common ground that (subject to any right of set off) a total of $10,529,131.99 became due by Mobil Delaware to Sinochem London on 10th December 1998 (30 days after shipment). $2,348,369.18 was paid on 29th December 1998, leaving $8,180,742.18. 

3.	Mobil Delaware submits that it is contractually entitled to set-off in extinction of its liability for this balance amounts allegedly due and unpaid under three other contracts (“the Hong Kong contracts”). The matter came before Longmore J. on an application by Sinochem London for summary judgment under CPR Part 24 and for determination of the proper construction of the London contract. He gave summary judgment in favour of Sinochem London for $8,180,742.18 with interest and costs.

4.	The Hong Kong contracts were between Sinochem International Oil Co. Ltd. (“Sinochem Beijing”) as buyer and Mobil Oil Hong Kong Ltd. (“Mobil Hong Kong”) as seller. These contracts were made in February and March 1998, and provided for interest to be paid on sums unpaid. Under them, as is alleged though formally not admitted, the total price of $9,390,482.62 became due on 2nd June 1998. But only $549,827.88 was paid by Sinochem Beijing in that month. For present purposes, the assumption is that, with interest, the resulting balance outstanding under the Hong Kong contracts at all material times exceeded the balance which became due under the London contract with which we are directly concerned. Mobil Hong Kong pursued requests for payment of the balance by Sinochem Beijing on 8th September, 12 November and 3rd December 1998. Failing such payment, Mobil London asserted the alleged contractual set-off under the London contract. For good measure, Mobil Hong Kong has on 24th March 1999 also assigned to Mobil Delaware all its rights and benefits under the Hong Kong contracts, but it is not suggested that this makes any difference to the issues before us.

5.	The first of the telex exchanges which led to the London contract included in clause 8 provision that payment should be “without discount, withholding or setoff”. In reply Mobil Delaware requested a number of amendments, including the incorporation as clause 18 of the following:

“Non-performance

All payments under this agreement shall be made without setoff or counterclaim and will not be subject to any conditions except as provided in the following:

Notwithstanding any other provisions of this or any other contract between the parties or their affiliates, in the event any party (“the non-performing party”) shall (I) default in the payment or performance of any obligation to the other party under this or any other contract after two business days’ notice of such failure, (II) become bankrupt or insolvent (however evidenced), or (III) be unable to pay its debts as they fall due, then in any such event, the other party (“the performing party”), shall have the right, in addition to, and not in limitation or exclusion of, any other rights which the performing party may have, (whether by agreement, operation of law or otherwise), to set off, counterclaim or withhold payment in respect of any default by the non-performing party or any affiliate of the non-performing party under this agreement or any other agreement between the parties or their affiliates, regardless in each case of the office or branch through which a party is acting, and the performing party’s obligations hereunder to the non-performing party shall be deemed to be satisfied and discharged to the extent of such setoff, counterclaim or withholding.

‘Affiliate’ for the purposes of this agreement means a company which directly or indirectly controls, is controlled by, or is under common control with, a party hereto.  For this purpose, ‘control’ means the right to exercise more than 50% of the voting rights at a shareholders’ meeting.”

6.	The proposed amendments were agreed by Sinochem London on 29th October 1998. It is accepted for the purposes of this application that Sinochem London and Sinochem Beijing were and are affiliates within the meaning of clause 18, and likewise Mobil Delaware and Mobil Hong Kong. I shall call the events identified in the early part of clause 18 events (I), (II) and (III).

7.	One may perhaps be forgiven for speculating that clause 18 was drafted or requested by Mobil Delaware in the consciousness of sums outstanding under the Hong Kong contracts. However, neither party has asserted this, still less suggested that the Hong Kong contracts or any sums outstanding under them constituted background within the actual or assumed knowledge of both parties which could be relevant to the construction of the present contract. The speculation (which is all that it is) is irrelevant. There is also no suggestion that any unfair dealing was involved on Mobil London’s part in the drafting or putting forward of clause 18. Its effect is a matter of construction in the light of its terms and general aim, so far as that is apparent in the light of the contract. The fact that Mobil London invokes clause 18 is however relied upon as justifying a narrow construction of the clause, if its meaning is ambiguous.

8.	The judge succinctly summarised the rival contentions, as presented before him:

“Mr Milligan Q.C. in support of the Seller’s claim for summary judgment submitted:-
(1) The words “any party (“the non-performing party”)” in line 6 could only refer to a party to the actual contract of sale, not to “any party or the affiliate of any such party”;
(2) similarly the words “the other party (“the performing party”)” could only refer to the other party to the actual contract of sale;
(3) when the draftsman wanted to refer to an affiliate of either party to the contract, he did so in terms;
(4) the clause operated perfectly satisfactorily in that if the Seller owed money to the Buyer under the actual contract (e.g. by way of demurrage at the loading port), the Buyer could set that off against his liability for the price and if the Seller owed money to the Buyer under some other contract e.g. if he was a buyer under a separate contract of sale and the price was still outstanding, the Buyer under this contract could set off that liability against his own liability for the price;
(5) in either event, he could also set off any liability of an affiliate but there had first to be a default of the actual contracting party before that could happen; that would be particularly useful when one or more companies in the group were insolvent;
(6) any ambiguity should be construed against the Buyer who had proffered the clause.
Mr. Hollander Q.C., on behalf of the Buyer and opposing the application for summary judgment, submitted:-
(1) the purpose of the clause was to allow set off of an affiliate’s liability;
(2) it was absurd to suppose that there had to be a double default by both the contracting party and the affiliate and, if that was what the clause appeared to say, that was not a natural meaning and could not have been the intention of the parties;
(3) the correct way to construe the provision was to treat the word “party” in line 6 as including “affiliate”, as the main clause of the provision did in terms;
(4) this construction accorded with the purpose of the clause;
(5) even if this can be described as an “energetic interpretation” such energy has been sanctioned by the House of Lords in cases when the court is engaged in choosing between competing unnatural meanings, see Mannai Investments Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1977] A.C. 749 and Investor Compensation Scheme Ltd. v West Bromwich Building Society [1988] 1 W.L.R. 896 especially at 913D-194G.”

9.	The judge went on to say that he preferred Mr Milligan’s submissions. But he based this conclusion primarily on the words in clause 8 and the opening 26 words of clause 18, saying:
 
“But for cl.8 and the opening [26 words] of cl.18 there would be much to be said for Mr Hollander’s submissions in the light of the fundamental change which has overtaken the Court’s approach to construction in recent years to which Lord Hoffmann has alluded in the Investors Compensation Scheme case at p.912F.”

10.	In my view the judge’s reasoning places too much weight on the provisions of clause 8 and the opening 26 words of clause 18. Clause 8 can hardly have been formulated to prohibit anything save set-off of sums due between the same parties, since that is the only set-off which could in law exist apart from it. Yet the effect of clause 18 on either party’s interpretation is completely to reverse this legal position (subject to the reservation that, on either party’s interpretation, “two business days’ notice” of default is required before set-off under event (I)). The opening 26 words of clause 18 are on one view subject to the same observation. But, if in view of the rest of the clause, they are read as purporting to negative set-off in a wider sense, this does not assist decide whether (a) the remainder of clause 18 is wide enough to permit set-off generally by reference to affiliate indebtedness or whether (b) affiliate indebtedness may only be relied on if there has been some other default (however minor) by Sinochem London under the London contract or under any other contract (if there happened to be any) between Sinochem London and Mobil Delaware. On either party’s view, there remains some indebtedness which may not be set off in any event, e.g. on Mobil Delaware’s case indebtedness where two business days’ notice of default has not been given under event (I), and indebtedness by associated companies not qualifying as affiliates. The clause, as will appear, is also no model of draftsmanship. The prohibition of set off in the first 26 words may have been little more than cosmetic in effect. But it strains credibility in my view to treat it as demonstrating or underlining an intention either to limit affiliate indebtedness to certain circumstances, or to erect a hurdle of affiliate set off consisting in some other default by Sinochem London in relation to Mobil Delaware.

11.	The present issue turns therefore in my view on the proper construction of the main body of clause 18. The strength of Mr Milligan’s interpretation is that it creates greater (though as will appear by no means complete) grammatical consistency. Its weakness to my mind is that it is very difficult to believe that commercial parties could have selected such a scheme. The clause bears the appearances of drafting expanded during its course to introduce or emphasise additional points, in a way which may explain an element of incoherence.

12.	It is a fair assumption that a clause of this provenance and detail was regarded as having some significance. The most obvious payment obligation to which it was intended to apply was Mobil Delaware’s obligation to pay the price of the crude oil. Mr Milligan drew our attention to various contractual obligations which could lead to payments being due under the SOMO conditions in the London contract by Mobil Delaware to Sinochem London, such as shifting expenses (article 5.3), damage to terminals (article 5.5) and demurrage (article 7.1). The clause certainly applies both ways, but both Sinochem London and Mobil Delaware must I think be treated as having had primarily in mind set off against the price payable by the latter.
 
13.	It is clear, as Mr Milligan submits, that “the non-performing party” and “the performing party” are concepts introduced with a view to identifying parties against whom and by whom set off may take place under the London contract. But the performance referred to (and the “non-performance” of the clause’s title) is not, on any view, confined to performance under the London contract. Even on Mr Milligan’s case, a party who performs the London contract in every respect may still be a “non-performing” party for the purposes of the London contract, because performance may on any view be judged by reference to some other contract(s). Likewise, on Mr Milligan’s case a party refusing to perform the London contract may nonetheless maintain that it is in reality the performing party, because it performed and the other party to the London contract defaulted under some other contract(s). The essential issue is: under what other contract(s), and do they include affiliate contracts and so ally a party with its affiliates for that purpose?

14.	After the initial reference to “provisions of this or any other contract between the parties or their affiliates”, clause 18 refers immediately to the event that “any party (“the non-performing party”) (I) default in the payment or performance of any obligation to the other party under this or any other contract after two business days’ notice of such failure”. Reading the clause from its start, the words “under this or any other contract” in event (I) appear as an obvious shorthand reference back to the earlier expanded phrase “any other contract between the parties or their affiliates”. Had any draftsman intended a narrower reading here, he would at least have been expected to make this critical distinction at the very outset of the clause clear, e.g. by adding here expressly “between the parties to this contract”. The mere use of the word “party” in the phrase “any party (“the non-performing party”)” does not to my mind do so. Rather it is confirmation that the draftsman does at certain points use “party” to embrace a party to a contract between affiliates. This is, as it happens, confirmed later in the clause, as will appear, by the phrase “regardless in each case of the office or branch through which a party is acting”. The suggested difficulties about reading the words in event (I) as a shorthand reiteration of the longer earlier phrase arise later in the clause, when one comes to co-ordinate such a reading with the later references to “the performing party” and “the non-performing party”.

15.	Before considering these later references further, I turn more generally to the three specified events. The principal thrust of Mr Hollander’s case is that it is absurd to think that event (I) was designed as a condition limited to default by Sinochem London but which might, if satisfied, enable Mobil to set off other sums due from affiliates. On such a reading, the condition could be satisfied by the most minor default – enabling then much greater defaults by Sinochem affiliates to be set off. Moreover, for affiliate set-off to have any relevance at all, the satisfying condition must necessarily have involved a default in an amount less than sufficient to extinguish Mobil Delaware’s liability to Sinochem London under this contract. Mr Milligan argued that the commercial purpose of such a scheme was to protect each party to the London contract against the risk of non-performance by the other, saying:

“He does not need protection from a default or insolvency of an affiliate. However, once the trigger has been pulled, he may want extensive protection such as that provided by this clause.”

16.	If one party simply wishes protection against the risk of non-performance by the other under this or any other contract between them, then there is no reason why that protection should enable it to set off affiliate indebtedness at all. If it wishes protection against affiliate indebtedness, there is no reason to make such contingent upon the existence of some other default by the second party under this or another contract. I can see no sensible reason for agreeing so haphazard a scheme – particularly when the second party’s default need only be trivial and must on any view be less in value than the amount owed to the second party. The argument that the parties wished to confine their dealings to themselves unless and until one of them committed any default, whereupon all affiliate indebtedness whatever would come into play, postulates to my mind a most improbable line of thinking. By contrast, a straightforward wish to provide for set off of affiliate indebtedness corresponds with obvious realities of the corporate groupings through which international organisations like Mobil and Sinochem commonly conduct their business.

17.	Events (II) and (III) appear to have received little attention below. Before us, it was common ground that, in so far as clause 18 purports, in whatever circumstances, to allow set off of sums due by any affiliate of Sinochem London against sums due to Sinochem London in insolvent liquidation, it would to that extent be void in any English liquidation of Sinochem London as being contrary to the statutory scheme, whereby only mutual dealings may be set off. This would not be so, if and insofar as events (II) or (III) could also operate by reference to the insolvency of an affiliate of Sinochem. However, I agree with Mr Milligan that this is of very limited assistance as any pointer towards the wider construction which Mr Hollander advocates. A presumption that a clause should be construed rather as valid than invalid has force in many contexts. But in the present it seems just as likely that the draftsman overlooked the effect of an English winding up, or simply thought it worth including the provision for whatever it might be worth in England or elsewhere.

18.	The rationale of events (I), (II) and (III) is worth exploring a little further. On Mr Milligan’s contruction, event (I) requires Mobil Delaware to show that Sinochem London had committed some (however minor) default (in respect of which two business days’ notice had been given). Events (II) and/or (III) would require it to show that Sinochem London was insolvent - which is likely to be a much more difficult exercise, unless Sinochem London is actually in liquidation. Under event (I), Sinochem London’s lesser default would allow Mobil Delaware to introduce the affiliate indebtedness which alone could extinguish Mobil Delaware’s liability to Sinochem London. But under events (II) and (III) Mobil Delaware need not show any default at all by Sinochem London. The London contract (and any other contract) may have been entirely satisfactorily completed by Sinochem London. Yet Sinochem London’s insolvency would permit Mobil Delaware to extinguish the price by reference to affiliate indebtedness. This underlines the strangeness of the scheme for which Sinochem London argues.

19.	I would however observe that, even on Mr Hollander’s case, events (II) and (III) seem to be little more than belt and braces. In other words, assuming that events (II) and (III) can be satisfied by affiliate insolvency, why are they really necessary, when what can be set off (subject only to giving two business days’ notice) is any debt owed by Sinochem London or any affiliate, insolvent or not? However redundancy or duplication in the hands of a less than clear-sighted draftsman is nothing like as surprising as the intention for which Mr Milligan contends.

20.	The linguistic difficulty to which Mr Milligan points in Mr Hollander’s construction appears when one comes, after the three events, to the first reference to “the other party (“the performing party”)”, to which clause 18 gives “the right …. to set off, counterclaim or withhold payment”. The clause provides at its end that it is “the performing party’s obligations hereunder to the non-performing party” which are thereby satisfied and discharged. The words “the other party” must therefore refer - either exclusively or inclusively - to the party (Mobil Delaware) wishing to set off under the London contract. And the reference to the performing party’s obligations “hereunder to the non-performing party” makes clear that, here at least, that party is being referred to as a party to the London contract. This, if terminology is consistent, is relied upon as throwing doubt on the initial conclusion that, in event (I), “the non-performing party” defaulting “under this or any other contract” refers to any party to “this or any other contract between the parties or their affiliates”.

21.	Further, as Mr Milligan points out, the draftsman did distinguish between a party and its affiliates, when spelling out, towards the end of the clause, the nature of the indebtedness which may be set off. So the references to “the performing party” and “the non-performing party” are less easily read as embracing two rival camps, including affiliates. As against that, however, the draftsman did also, in the same passage towards the end of the clause, refer to “a party” in a sense embracing affiliates. That is in the phrase “regardless in each case of the office or branch through which a party is acting”. The words “in each case” clearly refer back to the two immediately preceding phrases “the parties” or “their affiliates”. The drafting cannot on any view be regarded as consistent. If “party” may embrace both a party to the London contract and an affiliate party to an affiliate contract, then “the non-performing party” and “the performing party” may also have this expanded scope, even though of course it is only obligations of the performing party to the non-performing party hereunder which can actually be extinguished by set off.
I do not anyway regard the very detailed drafting of the later part of the clause spelling out that affiliate indebtedness may be set off as indicating that the draftsman had in mind at the outset of the clause a hurdle or trigger, consisting in a need to show some default, however minor, by Sinochem London, before any of this became relevant. The later very specific drafting is much more readily explicable in my view on the basis that the draftsman gave his best efforts to spelling out at this point what he regarded as central, namely that the clause extended to embrace and allow set off of affiliate indebtedness, and overlooked the risk of unbalancing the language. That drafting took place at different times is also suggested by the clause’s change of language from “contract” at its beginning of the clause to “agreement” towards its end.

22.	The relevant principles by which we must determine the proper construction of this contract are indicated by the Investors Compensation Scheme and Mannai Investment cases.  In the former Lord Hoffmann stated them as follows at p.912G:

“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having 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.
….
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. ….
(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Co. Nav. S.A. v. Salen Red. A.B. [1985] A.C. 191, 201:

“if 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.”

23.	In Mitsui Construction Co. Ltd. v. A-G of Hong Kong (1986) 33 Build.L.R. 14 (P.C.), Lord Bridge also said of a poorly drafted and ambiguous contract, that poor drafting itself provides:

“no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language they have used interpreted in the light of the relevant factual situation in which the contract was made. But the poorer the quality of the drafting, the less willing any court should be to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention, if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis.”

24.	The central question is whether, without any background save our instinctive appreciation of commercial likelihood, it is permissible to conclude that the parties or the draftsman intended under clause 18 to permit set off, without any trigger save the giving of two business days’ notice, of any affiliate indebtedness, or that this is the meaning which the clause would convey to a reasonable businessman (who, in view of the appearance of this clause in an exchange of business telexes giving rise to a sale of oil, must be our guide).

25.	Mr Milligan submits that, if this had been the intention, the draftsman could have expressed it very simply. But it seems to me that any draftsman faced a real problem, in that, assuming he had in mind affiliate (as well as contracting party) default or insolvency, he had nonetheless to relate such default or insolvency to this, the London contract, and to the parties to it, when he came actually to permit set-off. He had in other words to identify a default under what might be no more than an affiliate contract by a defaulting party who might be no more than an affiliate of a party to this contract. But he had also to identify the party to this contract against whom set-off of such a default would be permitted because of the contracting party’s association with its defaulting affiliate. One can understand how a draftsman could find difficulty in expressing such an intention, and why he might have used concepts like “non-performing party”, “performing party” and “party” in expanded or even inconsistent senses.

26.	I do not in the circumstances accept Mr Milligan’s submission that clause 18 is clear and unambiguous in the sense for which he contends. Whether it is or not is itself a question in relation to which we are entitled to consider the consequences of each party’s construction. In my view, Mr Milligan’s construction is capricious and cumbersome in its operation and effects.

27.	I bear in mind that clause 18 was proffered by Mobil Delaware. But construction against the party putting forward a clause is a rule of last resort. I add (although the rule is not confined to exceptions clauses) that I would not regard it as appropriate to view this clause as an exceptions clauses, any more than an anti-set clause is (as to which cf Continental Illinois National Bank & Trust Co. of Chicago v. Papanicolaou (The “Fedora”). [1996] 2 Ll.R. 441, esp. 444; Society of Lloyd’s v. Leighs [1998] CLC 1398, 1407). The clause is in terms mutual, although its main relevance was no doubt to the price, and it merely regulates the manner in which payment obligations may be satisfied. Our primary task should be to construe its provisions in a way which corresponds with its business purpose.

28.	There is an element of artificiality in supposing that any or many reasonable businessmen would undertake the detailed scrutiny of clause 18 which counsel undertook with us. Reading clause 18 through as a whole, without pausing too long on detail, its general thrust is in my view to deal with affiliate default as much as with default by Sinochem London. Affiliate contracts feature right from the outset, and, as I have said, are then naturally embraced within the wording of event (I). Reading further into the clause, I think it most improbable that it would occur to any reasonable businessman that, in the case of affiliate default (only), event (I) must refer not just to a different default to any default which can be set off but to a different defaulting party to any defaulting affiliate. The later language of clause 18 lends Mr Milligan’s case support on a grammatical construction, if one insists on reading “party” wherever the word appears as confined to a party to the London contract. But even that is not possible on a grammatical basis, as the phrase “regardless ....” shows.

29.	The court cannot either re-write contracts or impose on parties to them what the court may think would have been a reasonable contract. But, in the case of the present one-off contract, for all the reasons I have given, I am ultimately unable to accept that any reasonable businessman would consider that clause 18 was intended to have the restricted scope and conditional application in relation to set off of affiliate indebtedness for which Mr Milligan contends. Fairly read, it has in my view the straightforward general aim, whatever the vicissitudes of drafting, of permitting set off by either party against any indebtedness under the London contract of any cross-indebtedness of the other party or any of its affiliates to the first party or any of its affiliates under this or any other contract.

30.	I would therefore allow this appeal, dismiss Sinochem London’s application for summary judgment and determine that clause 18 allows Mobil Delaware to set off, against its liability for the price otherwise due to Sinochem London under the London contract, any indebtedness of an affiliate of Sinochem London to an affiliate of Mobil Delaware (in respect of which two business days’ notice of default has been given) without it being necessary first to show any default by Sinochem London under the London contract or any other contract with Mobil Delaware.

Lord Justice Thorpe:  
31.	Having been brought into this appeal at a late stage in view of the obvious possibility that my lords might disagree I was not surprised to hear from counsel that the judge below had changed his opinion between the conclusion of the argument and the delivery of his judgment.  That even balance was also apparent from the submissions in this court.  Although the appeal was argued extremely skilfully neither advocate landed a punch that was anything like decisive.

32.	At the conclusion of the argument I favoured the appellant’s argument simply on the grounds that the construction contended for seemed to me to make better commercial sense and that the decisions in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Investors Compensation Scheme v West Bromwich Building Society [1988] 1 WLR 896 allowed a sufficient latitude in construction to justify the rejection of what the respondent’s claimed to be the literal meaning of the disputed clause.

33.	In the meantime I have had the advantage of reading in draft the judgments of my lords.  I find myself in agreement with the judgment of my lord, Lord Justice Mance.  I agree that the appeal should be allowed with the consequential orders that he proposes.  I also agree his reasoning.

Lord Justice Kennedy:
34.	In my judgment the trial judge was right for the reasons which he gave.  It seems to be common ground that the meaning of the clause as drafted is reasonably clear, namely that before there can be any set-off or counterclaim there must be a default by a party to the instant agreement “in the payment or performance” of an obligation to the other party “under this or any other contract”.  I leave aside for the moment the possibility of bankruptcy, insolvency or inability to pay debts as they fall due.

35.	If there is such a default then the other party, the performing party, becomes entitled to set off in respect of any default of the non-performing party (or any affiliate) under this agreement or any other agreement between the parties or their affiliates “regardless in each case of the office or branch through which a party is acting”.

36.	Mr Hollander QC for Mobil contends that despite what seems to me to be relatively clear wording the contract does not mean what it says.  He submits that we should adopt what he describes as a purposive construction.  He points out that the clause is long, and submits that if read literally the clause does not, at least initially, extend rights of set-off under the instant contract or provide a construction which accords with “commercial common sense”.  I accept Mr Hollander’s proposition that the clause in question, Clause 18 of the Contract, which was incorporated at the instigation of the oil purchaser, Mobil, does, in certain circumstances, extend the right of set-off, but I see nothing objectionable or non-commercial about the fact that, as spelt out in the contract, before there can be any set-off there must first be a qualifying default by a paying party in the instant contract or in some other contract between the same two parties.  I accept that the trigger provision can be criticised.  It can be said that if the purpose was to preserve the integrity of the relations between the parties to the instant contract from pollution by debts attributable to other transactions the wording could have been better because, as Mr Hollander points out, a trivial default by the non-performing party in relation to the instant contract, or in relation to some other contract between the parties, will open the floodgates, but that does not seem to me to be a sufficient reason for the court to say that the clause does not mean what it says.

37.	I accept, of course, that, as Lord Hoffman said in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913d -
“We do not easily accept that people have made linguistic mistakes, particularly in formal documents.  On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.”
	
38.	But here there is, as it seems to me, no significant background to guide us, and, as Mr Milligan, QC, for the respondent points out, the way in which the clause is drafted shows that the original intention was to ring-fence the contract, to exclude set-offs and counterclaims of every kind.  Starting from that position what, one may ask rhetorically, is uncommercial about an adjustment to the terms which provides that if one party does not comply with his obligations under this (or any other) contract the party not in default shall be entitled to resort to set-off and counterclaim?

39.	 I confess that I have difficulty with the words “regardless in each case of the office or branch through which a party is acting”.  Mr Hollander drew our attention to that phrase, but in my judgment its obscurity is such that it helps neither side.  What does seem to me to be more persuasive is that if Mr Hollander is right as to the object of the clause it could have been expressed in a very few simple words.  The fact that it was not so expressed seems to me to demonstrate that the parties were intending to achieve a different result.

40.	I accept that if bankruptcy or insolvency were relied upon as the trigger in the instant case problems might arise under the general law which is designed to prevent some creditors securing an unfair advantage over others, but that is not this case, and even if the second or third triggers set out in clause 18 were considered to be objectionable no one has suggested that the objection should be extended to the first trigger, which suffices for the purposes for the present case.

41.	As a fall-back position Mr Milligan submitted that as -
(1) clause 18 was incorporated at the instance of Mobil, the paying party in relation to the instant contract, and as -
(2) it is Mobil who seek to rely on it to circumscribe the express general provision excluding all set-offs and counterclaims -
	it should be construed “contra proferentem”.  I see some force in that argument, but in my judgment it is unnecessary to go that far.  I believe that the parties should be taken to mean what they have said.  I can find nothing to suggest that they had a different objective in view which their words failed properly to express.  I would therefore dismiss this appeal, but as the majority opinion  is to the opposite effect the appeal will be allowed and the order of the court will be as set out at the end of the judgment of Lord Justice Mance.

Order:  Appeal allowed; Counsel to submit agreed minute of order.  Order does not form part of approved judgment.