Case No: A2/2000/2302
Neutral Citation Number: [2001] EWCA Civ 1070
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM  QUEEN’S BENCH DIVISION
(Mr David Foskett QC, sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 19 June 2001

B e f o r e :

LORD JUSTICE KENNEDY
LORD JUSTICE CHADWICK
LORD JUSTICE RIX

	SHAILESH GONDHIA & OTHERS
	Appellant	
	- and -		
	ESSO PETROLEUM COMPANY LIMITED
	Respondent	

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(Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited, 190 Fleet Street,
London, EC4A 2HD
Tel:  0207 421 4040
Official Shorthand Writers to the Court)
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Romie Tager QC (instructed by Messrs Israel Strange & Conlon for the Appellant)

Andrew Popplewell QC (instructed by Messrs Lovell White Durrant for the Respondent)
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Judgment
Lord Justice Rix: 

1.	This appeal raises three short points of construction arising out of the interrelationship between an agreement for the supply of petrol to a petrol station and a letter which extended the terms of that agreement beyond its termination date pending negotiation for a new contract.
2.	The appellants, who were claimants below, are four brothers, Messrs Gondhia, who own and operate a petrol station at Feltham in Middlesex. In 1993 they entered into an agreement with the respondent, Esso Petroleum Company Limited (“Esso”), relating to the supply of petrol and associated products to their petrol station. The agreement, which is called a “Motor Fuels Supply Agreement”, was dated and signed 13 August 1993 but, as is common ground, did not come into effect until 1 January 1995. It was for a period of three years, expiring on 31 December 1997.
3.	During the latter part of 1997 the question arose as to whether and, if so, on what terms Esso might continue to supply the petrol station after the end of that year. The parties entered into protracted negotiations, but in the event those negotiations broke down in June 1999 when Esso gave notice that they would cease to supply the petrol station after the end of July 1999. The Gondhia brothers made a new agreement with another supplier. 
4.	During the interim period of nineteen months from January 1998 to July 1999 Esso had continued to supply the petrol station under the terms of a letter dated 19 December 1997 (the “letter”). That letter provided as follows:
		“Your Motor Fuel Supply Agreement (the Supply Agreement) with Esso expires on 31st December 1997. We are currently involved in discussions aimed at agreeing the terms of a new Motor Fuel Supply Agreement."

		“I am now writing to confirm that from 1st January 1998, Esso agrees to supply you with motor fuel in accordance with the terms set out in the Supply Agreement. For the avoidance of any doubt, however, you shall not be entitled to any rebate or credit card support from Esso during this negotiation period. If, as a result of the negotiations, you enter into a new Supply Agreement with Esso, then it is possible that Esso will backdate any rebate and credit card support to cover the negotiation period. This is a matter for discussion and negotiation.”
5.	It is convenient to describe the first sentence of the second paragraph of the letter as the “first sentence” and the following sentence as the “second sentence”.
6.	The question which has divided the parties is whether any payment is due to the Gondhia brothers in respect of what I shall call the hold-over period by virtue of Part Two of the Schedule to the Rider to the Supply Agreement, which provides for “Annual Payments: In Arrears”. Part Two states in full as follows:
		“Esso agrees to pay to the Dealer THREE annual payments each calculated as set out below, payable in arrears as soon as practicable after the first/second/third anniversaries of the commencement date of the Supply Agreement."

			£75,000 if the Dealer has purchased from Esso 2,225,000 litres of motor fuels in the 12 month period immediately preceding the anniversary."

			A reduced payment will be made on a pro rata basis if the Dealer has purchased a lesser volume of motor fuels in such 12 month period.”
7.	Two questions were therefore debated in the court below before Mr David Foskett QC, sitting as a deputy high court judge. The first was whether the Part Two annual payments were a “rebate” and therefore excluded under the second sentence of the letter (“you shall not be entitled to any rebate”). The second was whether the Part Two annual payments were in any event effectively incorporated into the hold-over period arrangement seeing that Part Two had provided for only three such payments (“THREE annual payments”), which had been exhausted. The judge dealt with those two issues in that order. He decided the first in favour of the Gondhia brothers: the Part Two payments were not a rebate. But he decided the second in favour of Esso, and the Gondhia brothers therefore lost their claim.
8.	Hence their appeal. In its respondent’s notice, Esso seeks to say that the judge should also have rejected the Gondhia brothers’ claim on the rebate issue as well. In a very recent supplementary skeleton, Mr Popplewell QC, having just come on the scene on behalf of Esso, takes a third point, without objection on the part of Mr Romie Tager QC, who appeared on behalf of the Gondhia brothers, namely that the Supply Agreement, properly so called, is distinct from its Rider, so that the terms of the Rider, as distinct from the Supply Agreement, are not in any event incorporated by the letter’s reference to “the terms set out in the Supply Agreement. 
9.	Thus there are now three short points of construction. (1) Does the letter incorporate the terms only of the Supply Agreement per se as distinct from its Rider? (2) Does the exclusion of “any rebate” in any event exclude Part Two annual payments from the hold-over period? (3) Is the language in which Part Two refers to annual payments in any event inapt to incorporate them into the hold-over period?
10.	For the purpose of this appeal it is not necessary to set out any further facts save for those which are bound up with the terms of the contractual documents themselves, and save also for the judge’s finding that it is “not unknown” for dealers and Esso to take over a year to conclude a new agreement. It is, however, necessary to go into further detail about the Supply Agreement, its Rider, and their basic structure. I may at times in this judgment speak of the Supply Agreement for convenience as including its Rider but I do so without prejudice to Esso’s new point.
11.	The Supply Agreement itself is a short three page document, signed and dated at its end. The Gondhia brothers are described and referred to as “the Dealer”. The critical term of the agreement is clause 1(a) which sets out the solus element of the arrangement and also provides for a three year term. It reads as follows:		“Esso agrees to sell to the Dealer and the Dealer agrees to buy from Esso the Dealer’s total requirements for motor fuel for resale at the Service Station for a period of THREE years from the first delivery of Esso motor fuels"
12.	Another important term is clause 1(b) which provides that the price “shall be Esso’s Wholesale Schedule Price to Dealers at the date of delivery”. Clause 2 is a rebate clause, providing for a nil rebate. It is not therefore of any financial consequence, but its presence, as will be seen, is still relevant. It could, I suppose, have been struck out of the agreement, but on the contrary it appears to have been completed by the insertion of the reference to “0.0” pence. It reads as follows:
	“2.  ESSO AGREES
	To allow the Dealer on all motor fuels purchased by the Dealer under this Agreement a rebate of 0.0 pence per litre calculated quarterly in arrear up to the 28th February, 31st May, 31st August and the 30th November in each year, and paid as soon as possible thereafter.
	Clauses 3(c) and (d) require the Dealer to use only Esso’s trade marks and brand names and to permit the erection and removal of an Esso identification sign if required by Esso. There is an extensive force majeure clause in clause 4 and not much else. In clause 4(c) Esso stipulates for the right to terminate the agreement summarily in the event of Esso’s breach or insolvency.
13.	The question arises as to the price at which the Dealer may sell Esso products. This is not dealt with in the Supply Agreement, but the judge recorded his understanding of the evidence before him, which was that the Dealer is free to fix his own price, but the effect of competition and Esso’s guidance mean that in practice the Dealer is willing to sell at the price which Esso suggests on the basis of its monitoring of the local competition. The judge found as a fact that the Gondhias’ gross margin towards the end of 1997 was about 1p per litre. In effect, it would seem that Esso so determines its Wholesale Schedule Price as to leave its dealers with a gross margin, as compared with a competitive pump price, of about 1p per litre.
14.	The Supply Agreement itself says nothing about what, if any, quid pro quo Esso is willing to give to its Dealer in return for the solus arrangement. It is a matter I suppose which could have been dealt with in the rebate clause, but was not. Instead the Rider to the Supply Agreement (which describes itself as “RIDER ATTACHED TO MOTOR FUELS SUPPLY AGREEMENT”) sets out in its Schedule the “assistance” which Esso is willing to accord to the Dealer. Condition 1 of the Rider states that the Supply Agreement will cease to have effect at the end of three months unless within that period Esso shall have sent to the Dealer written confirmation of the assistance described in the Schedule. Since Mr Popplewell’s new point was not taken below there is no finding as to when the Rider was signed by the parties. The judge obviously treated it as part and parcel of the same contract, made on the same day. I would draw the same inference, but in any event that was common ground between the parties.
15.	The Rider’s condition 1 whereby Esso (but not the Dealer) appears, as Mr Popplewell submitted, to be given a further three months period in which to choose whether or not to confirm the Rider’s provisions as to financial assistance, is a puzzling aspect of the contractual arrangements, but not one which needs to be analysed or determined on this appeal. It would seem to indicate, however, that the scheme is that the Supply Agreement will only survive in a form in which its Rider is attached.
16.	The Rider’s Schedule, called a “Schedule of Assistance” is divided into four parts. Part One is headed “Credit Card Contributions Payable Monthly In Arrears”. It provides a formula for contributing to the costs involved in providing credit card facilities to the station’s customers. In essence the formula assumes that half of all sales will be effected with the use of credit cards and that (subject to review) the cost of such facilities is 1.6% of the average pump price per calendar month. Thus the Dealer gets a contribution of 0.8% of his pump sales. The contribution is paid monthly in arrears.
17.	Part Two is headed “Annual Payments: In Arrears”, and I have already set out its terms in paragraph 6 above. 
18.	Part Three is headed “Other Assistance Monies for ERIC Equipment”. This is designed to assist the Dealer with the cost of purchasing and installing the “Esso Retail Identification” equipment listed. In this case the contribution was fixed at £15,000, to be paid up-front and “written down” over the three year period of the contract, a so-called “write-off period”. Within three months of the end of the write-off period Esso is entitled on notice to purchase the equipment for £1. Appendix B to Part Three lists the Dealer’s obligations throughout the write-off period. These obligations, which extend over two pages, comprise the basic obligations of a Dealer of the kind one would expect to find in a solus agreement. They include the obligations to operate the business of the petrol station, to keep the equipment in good repair, to keep the shop area clean and tidy and so on. They also repeat a solus obligation. In the event of any breach by the Dealer of such obligations, Esso is entitled inter alia to require repayment of the £15,000 or such proportion of it as the unexpired months of the write-off period bear to the write-off period as a whole.
19.	Part Four is entitled “Details of Additional Rebate To Be Paid At Year End”, and is also referred to as an “Additional rebate at year end on volume achievement”. It provides for an “additional rebate on all motor fuels purchased” in the year ending with any anniversary of the commencement date of the Supply Agreement and is dependent on total purchases exceeding a series of stated levels. Thus if total purchases in a year exceed 2,350,000 litres (the lowest such level) the Dealer obtains an additional 0.8p per litre. The highest level stated is 3,150,000 litres, at which point the Dealer obtains an additional rebate of 1.6p for every litre purchased. “Any such additional rebate due to the Dealer will be paid in arrear on the next quarterly date for calculation of rebate following the said anniversary”. The reference to such quarterly date for calculation of rebate appears to be a reference to clause 2 of the Supply Agreement, which provided stated quarterly dates for such a calculation. Thus although the Part Four additional rebate is only paid annually – necessarily so, for it depends on the level of annual purchases – it is paid on a date fixed by reference to the quarter date following the year end as set out in clause 2. It may also be noted that whereas clause 2 and Part Four speak in terms of rebate or additional rebate, Part Two payments are not referred to as a rebate. Mr Popplewell submits that they are nevertheless in substance a species of rebate and therefore within the reference to “any rebate” in the letter.
20.	It is logical and convenient to deal with the three issues described above in the following order.
Does the letter incorporate the terms only of the Supply Agreement per se as distinct from its Rider
21.	Mr Popplewell submits that the Supply Agreement and its Rider are distinct and to be kept distinct, and that when the letter refers to “the terms set out in the Supply Agreement” it intends to refer only to the Supply Agreement itself properly so called, and not so as to encapsulate its Rider. He points out that the Rider itself defines the Agreement to which it is attached as “the Supply Agreement” and that its terms carry through that definition. For example when the Rider refers to the terms of the Supply Agreement it speaks of “the terms thereof” (condition 1 of the Rider), but when it refers to its own terms it speaks, for instance, of “condition 1 hereof” (condition 2 of the Rider). It follows, therefore, that none of the financial assistance provided by the Rider can apply to the hold-over period while negotiations are pursued. Although the second sentence of the letter does refer to elements of the Rider, by speaking of “any rebate” and “credit card support”, nevertheless that is merely “For the avoidance of doubt”, as the opening of the second sentence made clear.
22.	In my judgment, however, the critical document to be construed for these purposes is the letter rather than the Rider: when the letter says that Esso agrees to supply the Gondhia brothers “in accordance with the terms set out in the Supply Agreement”, what does “Supply Agreement” mean there? In its first paragraph the letter had already referred to the Supply Agreement: it said that the Supply Agreement expired on 31 December 1997 and that there were ongoing discussions for a “new Motor Fuel Supply Agreement”. Mr Popplewell was inclined to accept that a new supply agreement would include matters contained in a rider and that this reference to a new agreement was not therefore to an agreement sans rider. It seems to me that it is equally obvious that the letter’s original reference to “Your Motor Fuel Supply Agreement (the Supply Agreement)” is to the full Agreement together with its Rider. Whatever might have been the cautious draftsmanship by which Esso proceeded from Supply Agreement per se to Rider, and then, after three months to an indefeasible contract which combined Supply Agreement and its Rider (“Rider attached¼”), the fact is that by December 1997, and indeed long before then, any reference to the Supply Agreement could only have been properly understood as being a reference to the full Supply Agreement, Rider and all. Indeed, most of the meat of the parties’ contract was contained in the Rider rather than outside it. The Rider contained all the terms relating to Esso’s financial assistance for the Dealer, and nearly all of the Dealer’s obligations.
23.	It is impossible to think that Esso intended by its letter to have a situation where the Dealer was not obliged during the hold-over period to be subject to all the Dealer’s obligations in the meantime. Most of those obligations are tucked away in Appendix B to Part Three of the Schedule to the Rider. It follows that the Rider must prima facie have been intended to bind. Mr Popplewell sought nevertheless to submit that those obligations were no longer binding, and that Esso’s sole protection and remedy during the hold-over period was the right, following termination of the Supply Agreement, to bring the hold-over contract to a summary end. I disagree. Esso was not entitled to throw over the hold-over contract summarily, but only on reasonable notice. Moreover, the fact that Esso had as one of its remedies the right to terminate the hold-over contract on reasonable notice (or even, let me suppose, summarily) does not mean that one would expect to find that the Dealer’s Appendix B duties had been spent. "
24.	Even in the Rider itself, outside its early provisions which are concerned with the confirmation of the contract, there are drafting signs that reveal the reality of the situation, namely that Supply Agreement and Rider make up one agreement. Thus Part Four refers both to the “Supply Agreement” and to “this Agreement”, where “this Agreement” is obviously a reference to the Supply Agreement as expanded  by the Rider."
25.	Moreover, if the letter, in referring to the Supply Agreement, intended to exclude reference to its Rider, it is surprising and anomalous to find that the second sentence makes specific reference to certain aspects of the Rider, viz to “any rebate” and to the credit card support, with the intention of stressing their exclusion from the hold-over contract. It would have made more sense on Mr Popplewell’s case to have made specific reference to the Rider itself, or to all financial assistance, in the attempt to avoid doubt (“For the avoidance of doubt¼”) as to whether its terms could operate at all for the benefit of the Dealer during the hold-over period.
26.	Mr Popplewell nevertheless submits that the language at the beginning of the second sentence – “For the avoidance of doubt” – demonstrates that the two sentences are not counterpoised but both premised on the exclusion of “any rebate” and “credit card support”; and that that presupposes that the first sentence itself excludes reliance on anything in the Rider. In my judgment, however, that is to put far too much weight on those opening words. The second sentence merely wishes to put beyond doubt that “any rebate” and “credit card support” are not included in the hold-over package. The conjunction “however” which joins the two sentences in any event undermines Mr Popplewell’s submission.
27.	Mr Popplewell also submits that in effect the second sentence does exclude the Rider and all financial assistance in it as a whole, since “any rebate” covers and therefore excludes both Parts Two and Four, “credit card support” covers Part One, and Part Three did not need specific exclusion since the financial assistance under it (the £15,000) had already been provided and in any event its provisions had been spent. That brings into play the second issue relating to the scope of “any rebate”: I shall deal with that below, but suffice it to say that I do not see that “any rebate” does include a reference to Part Two payments. 
28.	In my judgment, therefore, Mr Popplewell’s new point must fail. 
Does the exclusion of “any rebate” in any event exclude Part Two annual payments from the hold-over period?
29.	On this issue Esso failed before the judge. Mr Popplewell’s submission in essence is that “rebate” must be given a broad meaning so that anything which can in substance be called “any rebate”, and he stresses the first word in that expression, falls within it. I am quite prepared to accept that it is possible to call the annual payments a rebate. That, however, does not carry Mr Popplewell home. The letter must be construed against the background of the Supply Agreement, where the word “rebate” is found both in clause 2 (“rebate”) and in Part Four (“additional rebate”), but not in Part Two. Do the annual payments nevertheless fall so clearly into the same category of payments as the clause 2 and Part Four payments as necessarily to be embraced in the same expression?"
30.	To answer that question I must analyse the three kinds of payments more closely. The clause 2 payment (if it existed in this contract, which it does not, for the rebate is 0.0 pence) is earned on each litre purchased, and is payable quarterly in arrears as soon as practicable after defined quarterly calculation dates. The Part Four payment is also earned on each litre purchased, provided purchases exceed certain annual targets, and is payable at the end of each year on the next quarterly day for calculating the clause 2 payment. Thus clause 2 rebate and Part Four additional rebate both share the same concept of a certain defined allowance being made on each litre purchased. The Part Two payment, however, is payable neither on nor as soon as practicable after a quarter date as defined, and is not defined as a payment expressed by reference to so many pence per gallon, but is defined rather by reference to the lump sum figure of £75,000 for purchase of 2,225,000 litres. Because that lump sum figure is earned pro rata for each litre purchased, it follows that up to 2,225,000 litres it is possible to calculate (but not to read off the page) that each litre purchased is worth approximately 3.37p, but if the annual purchase is higher than 2,225,000 litres the payment remains capped at £75,000, so that the recovery per litre begins to fall. At 2,500,000 litres the payment of £75,000 is worth only 3p per litre, and at 2,750,000 litres only approximately 2.73p per litre."

31.	It is also clear from the structure of the Supply Agreement as a whole that the Part Two payment has a very different function from the Part Four payment. Since the retail gross profit margin on each litre sold is only about 1p, it follows that if 2,225,000 litres are sold in a year, the petrol station’s gross profit is only about £22,250 without the Part Two payment. Even if 2,500,001 litres are sold in a year, the gross margin rises to only £50,000 (£25,000 plus £25,000 under Part Four) without the Part Two payment. On the other hand, once the Part Two payment is taken into account, at a throughput of 2,225,000 the petrol station earns £97,250 (£22,250 plus £75,000); even at only 2,000,000 litres of throughput in a year the petrol station earns £87,416) (£20,000 plus £67,416). At 2,500,001 the station earns £125,000. Two matters become  apparent. First, the Part Two payment is actually critical to the viability of the station: it is impossible to think that the station can survive on a gross margin of £22,250 per year (plus such further profits as the shop might generate). Secondly, whereas the Part Four payments are uncertain, because they depend entirely on exceeding a certain level of throughput in a year and therefore may never materialise, the Part Two payments are assured and only their quantum may depend to a certain extent on how closely the station may get to the figure of 2,225,000 litres in a year. Presumably, however, that figure was estimated to relate in some way to the achievable annual throughput of the station. There is no evidence as to such matters, save that in 1998 the throughput was just under 2,000,000 litres. That is, I accept, of very little relevance to what the parties’ expectations were in August 1993 when they made the Supply Agreement.
32.	None of these considerations suggests that it is proper to regard the Part Two payments as just another form of rebate. On the contrary, they suggest that the Part Two payments in form and function are the critical component of the overall transaction whereby the owner and operator of the petrol station agrees to take all its motor fuel products from Esso and no one else. If so, then Mr Popplewell’s construction flies not only in the face of the language of the Supply Agreement (because only clause 2 and Part Four, but not Part Two, adopt the language of “rebate”), but also in the face of the different functions of the various payments and ultimately in the face of the commercial construct of the transaction as a whole. There is every reason why the letter should have distinguished in the second sentence between Part Four payments and Part Two payments: the former add cream if throughput is high, but the latter are critical to the viability of the enterprise.
33.	It is of course true that Part Two payments are only earned at the end of each year in respect of the purchases made in the whole of the previous twelve months. (A contrary submission by Mr Tager, to the effect that they could be prorated throughout part of a year, is impossible. He only made that submission in order to protect the Gondhia brothers’ position in respect of 1999, when the hold-over period came to an end at the close of July. However, he accepted that it was not his best point, and did not seek to argue it further than it merited. In my judgment, the submission cannot survive the language of Part Two: the payments are described as “annual” payments, they are payable as soon as possible after the anniversary date of the commencement of the contract, and they are paid in respect of the throughput in the previous twelve month period.) It follows that, critical or not, they are not available to the Dealer unless the contract lasts at least a year. The same, however, is true of the Part Four additional rebate, and the fact that it was, as is common ground, specifically excluded from the hold-over period contract under the words “any rebate” demonstrates that the letter contemplated the possibility, which had to be eliminated “[f]or the avoidance of doubt”, that if the hold-over were to last for at least a year such annual payments might become payable. That was because, given the nil rebate payable under clause 2, the only rebate payable under the Supply Agreement was the additional rebate paid annually under Part Four.
34.	Since the Part Two payments are only payable after an anniversary date, they may not avail the Dealer during the hold-over period. The parties may negotiate a new contract within the year; or Esso could give reasonable notice to terminate the hold-over contract before the end of the year. All that is true; but, subject only to the third issue below, it does not mean that it would not make perfectly good sense for the Part Two payment to be part of the hold-over arrangement. The fact that the payment is only earned after a full year is designed to encourage loyalty. Loyalty to Esso is as important, if not more important, during a hold-over period, as it is during a three year contract
35.	For all these reasons, I would reject Mr Popplewell’s submission.
Is the language in which Part Two describes the annual payments nevertheless inapt to incorporate Part Two into the hold-over contract?"
36.	On this issue Esso succeeded before the judge. His reasoning expresses submissions put before this court by Mr Tager and Mr Popplewell. He said:
		“Mr Tager says that the letter of 19th December indicates that, with effect from 1st January 1998, the Supply Agreement is to continue with full force with the exception of those features expressly excepted. This meant that the annual payments provided for under Part 2 would continue to fall due. I am unable to accept this. The Supply Agreement was a fixed term contract. Doubtless it was contemplated between the parties that it would be renewed, but of course neither party would at the inception of the three-year term know precisely what terms would be agreed at the commencement of the next term. Of course, it may not even be a three-year term. It could be shorter or longer. But the original Supply Agreement was expressly agreed to be for three years and annual payments provided for at the conclusion of each of those years payable by reference to the volumes of fuel purchased in each year. For my part, I cannot see how the letter of 19th December, which was plainly intended to operate as a temporary arrangement whilst the parties continued to negotiate for a new agreement, can be interpreted so as to extend the original Supply Agreement with the effect of demanding the continued payment by Esso of those annual payments for three years. This is what the letter must do for Mr Tager’s argument to be sustainable.”
37.	Mr Popplewell rightly submitted that when a question of incorporation has to be decided it is often necessary to decide not only how much of the incorporated document is apt to be incorporated by the language of incorporation, but also how much of the incorporated document is apt to be incorporated by reason of its own terms. In the present case Mr Popplewell relies on his submissions under the first two issues discussed above for the argument that the language of the letter is not wide enough to incorporate the Part Two payments. I have already dealt with those submissions. He also submits, however, that Part Two is dealing with a subject-matter that is not germane to, and therefore not fit for incorporation in, the hold-over contract, and, further, that the precise language of Part Two makes it inapt for incorporation. As for the first half of that submission he stresses the inappropriateness to a temporary hold-over contract of a payment to be made only after a year dependent upon volume purchased in that year. As for the second half of the submission, he stresses the following aspects of the Part Two wording: that it provides for three and only three payments, by reference to the first/second/third anniversaries of the commencement date and not by reference to any fourth or subsequent anniversary. He also submitted that there was no reason why a payment which the parties saw fit to include in a contract of a specific duration was intended to be part of any further or future contract, by which time market conditions may have changed in wholly unanticipated ways. He sought to illustrate that point by drawing the court’s attention to Esso’s proposal to the Gondhia brothers contained in a letter dated 10 October 1997. That proposal (a) was limited to one year only, (b) referred to a dealer margin, credit card support and a specific but small rebate per litre but not to any payment of the nature of a Part Two payment, and (c) was on decidedly less generous terms than the Supply Agreement of 1993.

38.	In my judgment, the Part Two payment was intended to be incorporated into the hold-over contract, and I would seek to express my reasons as follows.
39.	First, the proposal of October 1997 is irrelevant. It is inadmissible to seek to construe a contract by prior negotiations. Although Mr Popplewell sought to distinguish the classic situation in Prenn v. Simonds [1971] 1 WLR 1381 from the present case on the ground that in the former the excluded negotiations were those leading up to the contract which falls to be construed, whereas in the instant case the proposal was for a new contract which was never made and was not a negotiation towards the hold-over contract which has here to be construed, in my view this is a false distinction. The hold-over contract was an interim solution along the possible path to a new supply agreement. The proposal was as much part of the negotiation to the one as to the other. It is the parties’ agreement, not their negotiations which have to be construed.
40.	Secondly, whereas it is true that the Supply Agreement may well have reflected an arrangement which was out of date (although the Gondhia brothers’ evidence at trial was to the contrary, since they said that they had replaced their supply arrangements with Elf in 1999 on much the same “bottom-line” basis as they had previously enjoyed under the Supply Agreement with Esso), that still left open the question of the terms on which the parties would contract for the hold-over period. The considerations for that purpose were not only what might currently have been on the table from Esso or counter-proposed from the Gondhia brothers, as to which by definition there had not yet been agreement, but also what the immediately previous regime had been, as to which there had been agreement although that agreement had expired or was shortly about to do so. Further considerations were that negotiations may, or may not, be completed within a year, and that either side would have the opportunity of bringing the hold-over period to an end on reasonable notice. It was up to the parties to agree a reasonable holding position to take account of these considerations. In these circumstances, it is certainly not possible to say that a payment, the Part Two payment, which would only be payable if negotiations dragged on for a year, was inappropriate for including in the hold-over contract, particularly when regard is had (see above) to the fact that the basic functions of such a payment were to provide viability to the whole arrangement, a quid for quo for the solus obligation, and an incentive towards loyalty to Esso.
41.	Thirdly, such considerations take one back to the language of the letter. The first sentence is clear: continued supply will be “in accordance with the terms set out in the Supply Agreement”. Prima facie that means all the terms. Mr Popplewell’s attempt to hive off the Rider has failed. The second sentence has also been resolved: it excludes “any rebate” and “credit card support”, but nothing else. Mr Popplewell’s attempt to hive off the Part Two payments has failed as well. The expression of one thing excludes another (a vernacular attempt to translate expressio unius exclusio alterius). Prima facie – it is of course only a maxim of construction, not a rule – the express exclusion of Part One and Part Four payments suggests that Part Two payments are not excluded.
42.	Fourthly, one comes to the language of Part Two itself. It refers to “THREE annual payments¼payable¼after the first/second/third anniversaries of the commencement date¼” The judge’s reasoning suggests both that the provision is spent at the end of the third year and also that an incorporation of this clause requires three further payments. I do not regard the matter in that way. Of course the provision is in one sense spent: the three year contract provides for three annual payments, not for four or more annual payments. The question is what this means when the contract is extended for a further period. In my judgment the language used has the same meaning as if the word “three” was not present. It provides for an annual payment payable after the anniversary of each of the three years of the contract. The “THREE” in the text merely expresses and reflects the fact that this is a three year contract and not a contract of some other length. (Of course, if the three year contract were only to have provided for two annual payments, then the matter would have been different. There would not have been unity between the length of the contract and the number of annual payments.) If the contract were to have been subsequently extended, expressly, for a fourth year, it would in my judgment be quite wrong to say that the Part Two payments did not apply to the extension. The same linguistic argument regarding “THREE annual payments” would remain, but the obvious commercial intent to extend the whole of the parties’ working arrangement would have to dominate. It would make no sense to suppose that the parties, while intending to extend their contract for a fourth year, at the same time intended to exclude the most important single provision under which the Dealer is remunerated. If, moreover, the general extension of the Supply Contract for a fourth year which I am hypothesising were to contain a specific exclusion of  Part One and Part Four payments, the argument for the inclusion of a further Part Two payment at the end of the fourth year becomes, if possible, even stronger.
43.	At the end of the day I am satisfied that the letter providing for a hold-over period is sufficiently like the general extension of the Supply Agreement for a fourth year for the same reasoning to apply. The hold-over contract, of course, is not an extension for a further year: and that permits the argument that a payment to be made at the end of a further year is not even germane to the new contract. That argument, however, to my mind fails, for reasons set out above. Indeed, whether or not the parties had the possibility of a complete hold-over year sufficiently in their minds to affect the drafting of the letter by Esso, or its acceptance by the Gondhia brothers, the fact is that it could occur, had occurred before, did occur, and in any event its relevance to the letter is proved by the specific exclusion of the Part Four payment under the wording of “any rebate”.
44.	I am not certain whether the solution at which I have arrived involves modification of the language of Part Two for the purposes of the hold-over contract, or whether it merely involves a question of construction of its language when incorporated into its new context. I am inclined to think the latter. If, however, it requires a degree of modification, it is in my judgment no more than is permitted in such cases of incorporation so as to allow the parties’ true intent to be achieved. I recognise that the need to modify, where it exists, should cause the court to pause and consider very carefully whether it has analysed the effect of the incorporation in the right way. Cases demonstrate, however, that an essential component in that analysis is a consideration of the commercial reason of the thing: see the contrasting cases of  Adamastos Shipping Co Ltd v. Anglo-Saxon Petroleum Co Ltd [1959] AC 133 and Miramar Maritime Corporation v. Holborn Oil Trading Ltd [1984] AC 676.
45.	It is in the nature of ordered submissions and analysis that the separate issues raised on this appeal have been dealt with separately. I am mindful, however, and have been throughout the argument of this appeal and the preparation of this judgment, that the various issues all impinge upon one another. I have specifically asked myself, therefore, when dealing with this third issue, whether the points which arise under the third issue, when weighed together with the points made under the first two issues rather than upon the premise that the first two issues have been correctly determined, should lead to a different conclusion as to any of the three issues. But I am not persuaded to any such result.
Conclusion
46.	In my judgment, therefore, this appeal should be allowed in part. The Gondhia brothers are entitled to a Part Two payment in respect of 1998, but not in respect of 1999.   It is common ground that the calculation for 1998 is in the sum of £67,189.89. 
Lord Justice Chadwick:
47.	I agree that this appeal should be allowed to the extent proposed by Lord Justice Rix; that is to say, to the extent only of the appellants’ claim to a payment under Part Two of the schedule to the agreement signed on 13 August 1993 in respect of the year ended 31 December 1998.

48.	The 1993 agreement set out the terms upon which Esso Petroleum Company Limited agreed to sell and the appellants agreed to purchase motor fuels for resale at the appellants’ Bedfont Lane Service Station. Part Two of the schedule to that agreement provided for Esso to make annual payments to the dealer. It was in these terms:
		“Esso agrees to pay to the Dealer THREE annual payments each calculated as set out below, payable in arrears as soon as practicable after the first/second/third anniversaries of the commencement date of the Supply Agreement.

			£75,000 if the dealer has purchased from Esso 2,225,000 litres of motor fuels in the twelve month period immediately preceding the anniversary.
	
			A reduced payment will be made on a pro rata basis if the Dealer has purchased a lesser volume of motor fuels in such 12 month payment.”

49.	The 1993 agreement was for a fixed period of three years commencing on 1 	January 1995. That fixed period expired on 31 December 1997. On 19 December 1997 Esso wrote to the appellants “. . . to confirm that from 1st January 1998, Esso agrees to supply you with motor fuel in accordance with the terms of the Supply Agreement”. The short question of construction raised by this appeal is whether, in the event which happened - that is to say, that the appellants continued to purchase motor fuel for resale at their Bedfont Lane Service Station exclusively from Esso throughout 1998 upon the basis of the letter of 19 December 1997 – the effect of the words “in accordance with the terms of the Supply Agreement” is that the appellants are entitled to a fourth annual payment under Part Two of the schedule to that agreement in respect of the twelve month period immediately preceding the fourth anniversary of the commencement date.

50.	I acknowledge the force of the contention, advanced on behalf of Esso, that its 	obligation under Part Two of the schedule to the 1993 agreement is limited to three annual payments, to be made in respect of three consecutive periods of twelve months following the commencement date of the agreement – that is to say, to be made in respect of the calendar years 1995, 1996 and 1997 – and that there is no provision under Part Two for the making of any further annual payments, whether in respect of a fourth consecutive period of twelve months or otherwise. If it were not for the fact that the 1993 agreement was, itself, made for a fixed term of three years, that contention would be unanswerable. But, to my mind, the contention loses much of its force when the obligation in Part Two is set in the context that the three twelve month periods in respect of which annual payments are to be made together comprise the whole term of the Supply Agreement. The obligation in Part Two of the schedule to the 1993 agreement would be exactly the same, in the context of the agreement of which it forms part, if the words “THREE” and “first/second/third” had not been included – that is to say, if the introductory paragraph in Part Two had read:
		"Esso agrees to pay to the Dealer . . . annual payments each calculated as set out below, payable in arrears as soon as practicable after the . . . anniversaries of the commencement date of the Supply Agreement.”
	
The question, as it seems to me, is whether, in the context of a holding-over under the letter of 19 December 1997, it is appropriate to give to the words “in accordance with the terms of the Supply Agreement” a meaning which incorporates the obligation in Part Two of the schedule to the 1993 agreement as if it were in the form which I have just set out.

51.	In my view it is appropriate to construe the letter of 19 December 1997 so as to incorporate an obligation in that form. The obligation upon Esso is to make annual payments during the period for which motor fuel is supplied under the letter (“the hold-over period”), calculated as set out in Part Two of the schedule to the 1993 agreement, in arrears as soon as practicable after each anniversary of the commencement date of the Supply Agreement. An obligation in that form does not, of course, require any payment to be made unless the hold-over period extends for twelve months or more; and then only in respect each complete consecutive period of twelve months. It is for that reason that the appellants’ claim in respect of the first seven months of 1999 must fail.

52.	I must explain why I take the view that it is appropriate to construe the letter of 19 December 1997 so as to incorporate an obligation to make annual payments in respect of each consecutive complete period of twelve months during the hold-over period. It is, of course, necessary to construe the sentence in that letter to which I have already referred in conjunction with the sentence which immediately follows. The two sentences, together, read:
	“I am now writing to confirm that from 1st January 1998, Esso agrees to supply you with motor fuel in accordance with the terms set out in the Supply Agreement. For the avoidance of any doubt, however, you shall not be entitled to any rebate or credit card support from Esso during this negotiation period.”
	
The key to the true construction of those two sentences, as it seems to me, is to be found in the phrase by which the second sentence is introduced: “For the avoidance of any doubt . . ”. Unless that phrase is to be treated as meaningless verbiage, it must be assumed that the writer of the letter had identified some “doubt” which would otherwise exist; and which the inclusion of the second sentence was intended to “avoid” or dispel.

53.	The matter was argued before us on the basis that the “doubt” which had been identified, and which was to be dispelled, was whether the Rider attached to and signed on 13 August 1993 at the same time as the three page document headed “Motor Fuels Supply Agreement” – to which Rider Part Two (and the other Parts) were scheduled – was properly to be regarded as comprised within the “Supply Agreement”. Lord Justice Rix has explained why it is impossible to think that Esso intended by its letter of 19 December 1997 to allow a situation in which the dealer was not to be subject, during the hold-over period, to the obligations imposed in Appendix B to Part Three of the schedule to the 1993 agreement. I agree. I think it inconceivable, also, that the possibility that the Rider and its schedule were not an integral part of the “Motor Fuel Supply Agreement” – in the sense in which that expression and the related expression “the Supply Agreement” are used in the letter of 19 December 1997 – was in the mind of the writer of that letter at the time when he wrote it, or would have been in the minds of the appellants when they received it. It is, I think, significant that the contention that “Supply Agreement” should be given a meaning, in the context of the letter of 19 December 1997, which excludes the Rider and its schedule was not advanced before the judge. It was a late point, thought up by Mr Popplewell QC in the course of preparing his arguments for the appeal. It it were a good point it would be none the worse for that.   But it is not a good point.  I reject the suggestion that it was that point which gave rise to the “doubt” which the writer of the letter had identified in December 1997.

54.	The “doubt” which had been identified by Esso at the time that the letter of 19 December 1997 was written arose, as it seems to me, from the terms of the various Parts of the schedule itself. Part One of the schedule to the 1993 agreement provided for the payment by Esso of “Credit Card Contributions” monthly in arrears. Paragraph 3(a) of Part One provided that those contributions should be paid by direct debit “and will continue for the duration of the Supply Agreement or until such time as the said agreement is determined under any circumstances.” Part Four of the schedule provided for the payment by Esso of “Additional Rebate” at each year end. The obligation in Part Four is in these terms, so far as material:
	“If upon any anniversary of the commencement date of the Supply Agreement (whilst the Supply Agreement is in force) the Dealer shall have purchased from Esso under the terms of this agreement motor fuels for sale at the Service Station during the previous year in excess of a volume figure shown below then Esso will pay to the Dealer an additional rebate on all motor fuels purchased under the terms of this Agreement in that year from Esso . . .”  [emphasis added in italics]

55.	A question, therefore, which would arise in relation to both Part One and Part Four, was whether the obligation to make payments survived the termination of the Supply Agreement on 31 December 1997;  that is to say, whether the provision in Part One that Credit Card Contributions would continue “for the duration of the Supply Agreement” and the provision in Part Four that Additional Rebate would be paid “whilst the Supply Agreement is in force” had the effect that no payments under Part One or Part Four would be due in respect of any part of the hold-over period.

56.	That, as it seems to me, was the doubt which the second sentence in the letter of 19 December 1997 was concerned to address and dispel. Clearly the second sentence does dispel that doubt in relation to payments under Part One and Part Four of the schedule to the 1993 agreement. Equally clearly, the second sentence does not address the question whether the obligation to make annual payments under Part Two continues during the hold-over period. That is because, for the reasons which Lord Justice Rix has given and which I gratefully adopt, annual payments under Part Two do not fall within the words "any rebate".

57.	There are three possible reasons why the second sentence in the letter of 19 December 1997 does not address the question whether the obligation to make annual payments under Part Two continues during the hold-over period. First, because the writer of the letter thought that the terms of Part Two itself – restricting the obligation to three annual payments - was so clear that there was no “doubt” which needed to be addressed and dispelled. Second, because the writer thought, wrongly, that the point was covered by the words “any rebate”. Third, because Esso was content, in the event that the hold-over period did continue for more than twelve months, to make an additional support payment under Part Two. 

58.	I would reject the first of those possible reasons. There is, as it seems to me, no basis for an assumption that, having identified a “doubt” in relation to Part One and Part Four – for the reasons which I have sought to explain - the writer of the letter of 19 December 1997 would have chosen to ignore the possibility that the same, or a similar, doubt might arise in relation to Part Two. In a letter which includes a sentence of which the express purpose is (at the least) to dispel doubt about the applicability of Part One and Part Four, it would, in my view, be bordering on the fool-hardy for the writer to assume that the position in relation to the same, or a similar, question in the context of Part Two was so clear that it was unnecessary even to mention it.

59.	I would reject, also, the second of those possible reasons. It seems to me that, had the writer of the letter of 19 December 1997 wished to deal with the position under Part Two, he would not have been content to use the words “any rebate”. As Lord Justice Rix has pointed out, the structure of the financial assistance provided under the 1993 agreement makes a clear distinction between “rebate” in clause 2 of the Supply Agreement and “Additional Rebate” in Part Four of the schedule to the Rider (on the one hand) and “Annual Payments” in Part Two (on the other hand). I think it obvious that an area manager employed by Esso, addressing his mind to the question “are the words ‘any rebate’ so obviously the appropriate way to describe Annual Payments under Part Two in the context of this letter read with this agreement that there is no room for a different view?”, would have reached the conclusion that, in pursuit of his stated aim to avoid any doubt, he should use some other expression. I agree with Lord Justice Rix that, if the writer of the letter of 19 December 1997 had intended to exclude Part Two payments – as well as payments under Part One and Part Four - he would have referred to the “schedule to the Rider” or to “all financial assistance”. He would not have used the words “any rebate” which he did use.

60.	I am left, therefore, with the third of the three possible reasons why the second sentence in the letter of 19 December 1997 does not address the question whether the obligation to make annual payments under Part Two continues during the hold-over period;  that is to say, that Esso was content, in the event that the hold-over period did continue for more than twelve months, to make an additional support payment under Part Two. That does not seem to me to be so commercially improbable that it must be rejected. Esso retained power, at any time, to bring the hold-over period to an end upon reasonable notice. If the hold-over period extended beyond twelve months, that was because Esso was content that it should. There is, as it seems to me, no reason to assume that Esso was not content with an arrangement that, if in the event it suited both Esso and the appellants to allow the hold-over period to run on, Esso should not pay some price for the advantage of the solus tie which would continue during that period. At the least, if it were not prepared to accept that arrangement, it should have made that clear. To my mind, the letter of 19 December 1997 agreement conveys the opposite impression.

61.	I am conscious that the point – as is often the case in matters of this nature – is, perhaps to some not insignificant extent, a matter of impression.  I have reached the conclusion that the judge was wrong; and that the appeal should be allowed to the extent indicated.
Lord Justice Kennedy:Error! Reference source not found.
62.	I agree with my Lords in relation to two of the three main issues raised by this appeal, but in relation to the third issue I am of a different opinion.  The Motor Fuel Supply Agreement dated 13th August 1993 committed Esso to supply fuel to the appellants, and the appellants to buy fuel only from Esso, for a period of three years (clause 1(a)), the price to be Esso's Wholesale Schedule Price to Dealers at the date of delivery (clause 1(b)).  The evidence showed that Esso monitored the retail competition, and suggested a retail-selling price which, by late 1997, gave the appellants a profit margin of about 1 penny per litre.

63.	Clause 2 of the agreement, which was clearly a standard form agreement, enabled Esso to allow the dealer a rebate of whatever might be considered to be the appropriate number of pence per litre, that rebate to be calculated quarterly in arrears up to specified dates and paid as soon as possible thereafter.  In fact the figure chosen for this agreement was nil, but the clause remained in position because later in the documentation there was a reference back to it.

64.	Attached to the agreement was a Rider with a schedule in four parts.  The Rider was not incorporated in to the agreement.  It was, as is clear from the opening words of the Rider, simply attached to the agreement.  For present purposes I can go straight to the four part "Schedule of Assistance".  By part 1 Esso agreed to contribute to a specified extent to the charges imposed by credit card companies with whom the appellants had a franchise.  Part 2 is central to this case.  It is headed "Annual Payments: in arrears" and is set out in full in paragraph 6 of the judgment of Rix LJ.  It is an odd provision because it looks as if it started life, with the words "or more" after the word "litres" but without its last sentence, as a simple lump sum bonus offered annually for hitting a sales target, and was then amended to give the dealer an extra margin of 3.37 pence per litre on sales up to 2,225,000 litres.  At that point there was a cut-off, so if more than that amount of fuel was sold the margin was reduced across the board, and there was no provision for any payment in respect of anything less than a 12 months period.

65.	Part 3 of the schedule dealt with "Other Assistance Monies for ERIC (Esso Retail Identification) equipment.  It began by stating that "in consideration of the dealer entering into the Supply Agreement Esso agrees to pay the dealer the sum of £15,000 to assist the dealer with the cost of purchasing and installing" the ERIC equipment set out in Appendix A.  So, Mr Popplewell submits, the wording makes it clear that the agreement and the Rider are separate entities.  The obligations of the dealer during the three year write-off period are spelt out in Appendix B, and if the dealer failed to comply with those obligations that is said to constitute "a breach of this agreement" (which must mean the part 3 agreement), entitling Esso to exercise the rights set out in Appendix C.  The obligations in Appendix B consist of a re-iteration of the solus agreement to be found at the beginning of the main Supply Agreement, and a number of other obligations clearly designed to safeguard and to make use of the ERIC equipment to its best advantage.  In the event of any breach of the part 3 agreement by the dealer, Esso can rely upon Appendix C to recover all or part of its capital advance, or require that the ERIC equipment be surrendered to Esso.  Esso can also exercise the rights give to it by Appendix C in circumstances unconnected with a breach of Appendix B, namely if the dealer makes an arrangement with its creditors, or becomes bankrupt, or has judgment recorded against him, etc.  And part 3 also entitles Esso at the expiration of the three year write-off period to purchase the ERIC equipment for a nominal sum.

66.	Part 4 of the schedule deals with Details of Additional Rebate to be paid at the year-end.  It is of some importance, and it is explained in paragraph 19 of the judgment of Rix LJ.  The only previous reference to the rebate in either the Supply Agreement or the Rider is to be found in clause 2 of the Supply Agreement, which also identified the quarterly dates for calculation of rebate.

67.	It is common ground that the three year Motor Fuel Supply Agreement with its attached Rider, to which the four-part schedule was annexed, began to operate on 1st January 1995.  It was therefore due to expire at the end of 1997, and in late 1997 the parties were negotiating with a view to reaching a further agreement to take effect after the existing agreement expired.  On 10th October 1997 Mr Headland, the Esso Area Manager, wrote to Mr Bhikhu Gondhia of the appellants suggesting a one year contract with a dealer margin of 1.2 pence per litre, existing credit card support, one payment of £2,500 towards pump maintenance and a rebate "off ticket" (i.e. on fuel delivery) of 1 penny per litre, so the total margin offered was 2.2 pence per litre.  That was not accepted, and whilst the letter, like a letter written subsequently on 6th March 1998, indicates the framework within which, as both parties knew, Esso were seeking to negotiate, those negotiations cannot assist us in relation to the issues of construction with which we are concerned.  Equally we cannot, as it seems to me, be assisted by speculation as to the gross income which might be needed in order to run the service station at a profit.  In order to provide for the period of transition Mr Headland, on 19th December 1997, wrote the letter which is set out in paragraph 4 of the judgment of Rix LJ.  This case is concerned with the effect of that letter.

68.	Mr Popplewell's first submission is that the first sentence in paragraph 2 is inclusive, but it only refers to the Supply Agreement with a capital "S" and a capital "A" not to the attached Rider or the four part schedule.  The Agreement was always a separate entity.  The Rider and the schedule so regarded it, and there is no reason why it should not have been given an extended life of its own.  Furthermore, Mr Popplewell contends, some support for that submission can be gained from the opening words of the next sentence in the letter.  This submission was not advanced in the court below, where Mr Popplewell did not appear, and it does not feature in the Respondent's Notice, but was revealed in the Respondent's skeleton argument for this 
court, and was developed in oral argument without objection being raised by counsel for the appellants.  I was originally attracted by the argument, but I am in the end satisfied that it is mistaken.  The letter of 19th December 1997, although a standard letter, was a letter written by one businessman to another.  Although it only refers in terms in its first sentence to the Supply Agreement ending on 31st December 1997, both the writer and the recipient knew that it was not only the Supply Agreement but also its attached Rider and the Schedule annexed to the Rider which were about to expire.  If the writer intended only to keep alive one part of the package it is reasonable to expect him to have said so in terms.  In fact by saying "for the avoidance of doubt, however, you shall not be entitled to any rebate or credit card support ..... he made it possible for the retailer to feel reassured that otherwise, so far as was practical in the circumstances, the life of the Rider and its schedule was extended.  If Mr Popplewell is right the writer could have said simply that for the avoidance of doubt the Rider and its schedule will cease to have effect on 31st December 1997.  One obvious reason why the writer would be reluctant to say that is that it would have deprived Esso of its rights under Appendix C to part 3 of the schedule, and in particular those rights which were not dependent upon a breach by the dealer of the dealer's obligations under Appendix B, as well as the right to recover ERIC equipment for a nominal sum.  I therefore conclude that the first sentence of paragraph 2 of the letter of 19th December 1997 should be read as referring not only to the Supply Agreement as identified in the Rider, but also to the Rider and its schedule. 

69.	Mr Popplewell's next submission relates to that part of the letter which tells the recipient that he will not be entitled to any rebate.  Clearly that applies to clause 2 of the main Agreement, but that is of no moment because nothing was payable under that clause.  It also applies to part 4 of the schedule to the Rider, but does it apply to part 2?  Mr Popplewell contends that part 2 payments are in substance a rebate, but they are not so described and, as I have already indicated, they operate in a somewhat unusual way, whereas the connection between the rebate envisaged by clause 2 and that is provided for by part 4 is clear.  In my judgment when the letter refers to rebate it cannot be taken to be referring to the annual payments provided for by part 2, and the trial judge was right so to decide.

70.  That leaves only the issue as to the effect of the letter of 19th December 1997 on part 2 of the schedule.  Mr Tager, for the appellants, contends that the effect of the letter was to resuscitate part 2, to give rise to a right to other payments in arrears if perchance negotiations should drag on for a further 12 months, as they did.  The negotiations were not in fact terminated until June 1999, but on the evidence such a prolonged period of negotiations was very unusual.  Mr Bhikhu Gondhia claimed to have had one similar experience in 1994/95 in relation to another service station, but Mr Headland said that typically the negotiating process would take "perhaps three months may be four".  In my judgment Mr Popplewell is right in his submission that the letter of 19th December 1997 did not breathe new life into part 2 of the schedule because Esso's obligations under that part were precise and, at least by early 1998, they had been discharged.  Esso was required to make three annual payments after the first/second/third anniversaries of the commencement date of the Supply Agreement.  It was not obliged to make a further payment.  As Chadwick LJ said during the course of argument, this approach to part 2 would be unanswerable if the Supply Agreement were for a term other than three years or were open-ended, but in my judgment the extension of the Supply Agreement to permit further negotiation cannot be regarded as giving rise to new rights under part 2.  Suppose, for example, the Agreement had been extended by a finite period of six or nine months.  Plainly that would not have given rise to any rights under part 2, and I cannot see that the position is any different simply because the extension was open-ended.

71.	Furthermore, as it seems to me, the construction for which Mr Tager contends is unreal in business terms.  There may not, in December 1997, have been great pressure to conclude a further agreement, but the idea of Esso offering to pay an extra £75,000 if the negotiations should drag on for a year, but nothing if they should be concluded without a new agreement prior to that, seems to me to be unacceptable.  No doubt a part 2 payment would be very welcome to the appellants, but throughout 1998, on any view, they continued in business without any right to expect it, and I just cannot envisage business being conducted on either side on that uncertain basis, so in my judgment the court should not favour a construction which produces that result.

72.	I would therefore dismiss the appeal for the reasons given by the judge, but as your Lordships are of a different opinion the appeal will be allowed.
	Order:  Appeal allowed with the costs below and £11,000 to be paid on account within 14 days otherwise detailed assessment.  Costs in Court of Appeal in the sum claimed.  Permission to appeal was refused.