Advinia Care Homes Ltd v (1) BUPA Care Homes Investments (Holdings) Ltd & Ors

Factual and Procedural Background

These applications were brought by the Claimant, Company A, and its parent, Third Party Company B (together, the "Claimant Parties"). Company A operates approximately 37 residential care homes in England and Scotland, employing about 3,500 persons and providing residential care to around 3,200 residents. The Defendant companies are members of Company C Group, a global health insurance and health care provider.

The proceedings arise from transactions whereby the Defendants sold certain care homes and related businesses to Company B through its purchase of the shares in Company A. The share purchase completed on 14 February 2018, but ongoing obligations of the parties form the subject matter of these proceedings and related applications.

The original application notice, issued on 19 February 2020, sought urgent listing for two applications: (1) a variation of a prior Order dated 24 October 2018 to adjust the fortification of Company A's cross-undertakings relating to a mandatory injunction, specifically to release funds paid into Court ("Money in Court"); and (2) an interim payment pursuant to CPR 25.7 from the First Defendant to Company B.

On 24 April 2020, the Claimant Parties issued an amended application notice fundamentally changing the primary relief sought to summary judgment pursuant to CPR 24.2 on a major part of the claim. They sought declarations regarding the non-variation of certain agreements and payment of trust funds held by the First Defendant. A further amendment was sought the day before the hearing to amend the Defence to Additional Claim and Counterclaim.

The factual background involves a Business Transfer Agreement ("BTA") and a Sale and Purchase Agreement ("SPA") between the parties relating to the transfer and sale of care home assets and shares. The BTA included provisions for trust monies, no set-offs, and no oral variations. The SPA completed on 14 February 2018, with a Completion Accounts process outlined for adjusting the purchase consideration.

Following completion, a netting-off arrangement ("Netting-Off Agreement") was agreed in emails dated 4 July 2018 between finance directors of the parties, allowing weekly net payments to be made between the parties instead of gross payments. Disputes arose as to whether this agreement was binding and its terms, including whether it had ended in August 2018 or continued until October 2018.

On 24 October 2018, the Court granted a mandatory injunction (the "Nugee J Order") requiring the Defendants to discharge Company A's October 2018 payroll liability using trust monies or their own funds, with the Money in Court held as security. The order included cross-undertakings from Company A and a trust ("Kanoria Foundation").

Company A issued claims seeking declarations that the Defendants hold monies on trust, accounts of such monies, and orders for payment of trust monies including release of the Money in Court. The Defendants rely principally on the Netting-Off Agreement as a defence and counterclaim, asserting authority to apply trust monies to discharge Company A's debts until October 2018. There is also an Additional Claim by the First Defendant concerning the Completion Accounts under the SPA, which is the basis for the Interim Payment Application.

Procedurally, the main pleadings closed in March 2019. A split trial was ordered to resolve issues in stages, with disclosure deadlines extended by consent. The Summary Judgment Application was only pursued more than a year after pleadings closed, with the Court noting the unusual timing and context of the application.

Legal Issues Presented

1. Whether the Netting-Off Agreement constituted a valid and binding variation of the Business Transfer Agreement permitting set-off of sums owed by Company A against trust monies held by the Defendants without prior consent.
2. Whether the First Defendant is obliged to pay all trust monies received after a specified date without set-off, deduction, or withholding.
3. Whether summary judgment is appropriate on the construction point concerning the Netting-Off Agreement.
4. Whether the Nugee J Order should be varied to release the Money in Court and substitute cross-undertakings.
5. Whether an interim payment should be ordered pursuant to CPR 25.7 based on an alleged admission of liability by the First Defendant concerning the Completion Accounts.

Arguments of the Parties

Appellant's Arguments

• The Summary Judgment Application involves a short point of contractual construction suitable for determination under CPR Part 24.
• The Netting-Off Agreement did not vary the underlying agreements to permit set-off without Company A's consent.
• The words "on ad hoc agreement by both parties" in the 4 July 2018 emails indicate no automatic netting off but a framework for weekly agreement.
• There was no consideration from the Defendants to support a variation of the BTA.
• The Variation Application should be granted due to a material change in circumstances, including Company A's urgent need for funds to address regulatory compliance issues.
• The Interim Payment Application should be granted as the First Defendant admitted liability for the sum sought.

Appellee's Arguments

• The Summary Judgment Application and all related applications are misconceived and the construction issue should be determined at trial with full disclosure and evidence.
• The Netting-Off Agreement was a binding agreement in writing that validly varied the BTA, permitting weekly netting off of sums owed under the agreements.
• The phrase "on ad hoc agreement by both parties" refers to the Netting-Off Agreement itself, not to separate weekly agreements.
• The Netting-Off Agreement continued until 22 October 2018, when Company A gave notice to revert to payments without netting.
• The Interim Payment Application fails because the First Defendant has not admitted present liability to pay the sum; any liability depends on finalisation of Completion Accounts.
• The Variation Application should be dismissed as there has been no material change in circumstances since the original Order and the Money in Court provides necessary security.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
ICI Chemicals & Polymers Limited v TTE Training Limited [2007] EWCA Civ 725	Summary judgment can be granted on a short point of law or construction if all evidence necessary is before the court and the respondent has no real prospect of success.	The Court considered this authority in deciding whether to "grasp the nettle" and decide the construction point on summary judgment but concluded that factual disputes prevented this.
Hallman Holding Ltd v Webster [2016] UKPC 3	Parties must plead relevant background facts known at the time of contract for them to be considered in construction.	The Court noted the absence of pleaded relevant factual matrix by the Defendants and cautioned against considering unpleaded background facts.
Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896	Modern principles of contractual interpretation focus on the meaning conveyed to a reasonable person with all background knowledge reasonably available to the parties at the time.	The Court applied this objective approach to interpret the Netting-Off Agreement and underlying contracts.
Arnold v Britton [2015] AC 1619	Factors relevant to contractual construction include natural meaning, overall purpose, other contract provisions, known facts at execution, and commercial common sense.	The Court considered these factors in analysing the 4 July 2018 emails and the BTA clauses.
Wood v Capita Insurance Services Limited [2017] AC 1173	Textualism and contextualism are tools for interpretation; the emphasis depends on the nature of the contract.	The Court accepted that the informal nature of the Netting-Off Agreement required greater emphasis on factual matrix.
Whitworth Street Estates (Manchester) Limited v James Miller & Partners Limited [1970] AC 583	Post-contractual conduct is inadmissible as an aid to contractual construction.	The Court noted that parties’ reliance on post-contractual conduct was inadmissible for construction purposes.
Rock Advertising Limited v MWB Business Exchange Centres Limited [2019] AC 119	No oral variation clauses prevent informal variations to contracts to avoid misunderstandings and abuses.	The Court acknowledged the no oral variation clause in the BTA and considered whether the emails constituted a valid written variation.
Tibbles v SIG plc [2012] 1 WLR 2591	Variation or revocation of Court orders requires material change of circumstances or misstatement of facts; such variations are rare.	The Court applied this principle in considering the Variation Application to the Nugee J Order and found no material change.
Chanel Limited v FW Woolworth & Co Ltd [1981] 1 WLR 485	Rehearing or variation of interlocutory orders requires significant change of circumstances or new facts not reasonably known earlier.	The Court relied on this to deny variation of the Nugee J Order absent material change.
Todaysure Matthews Limited v Marketing Ways Services Limited [2015] EWHC 64 (Comm)	Good cause is required to be shown to be released from undertakings given to the Court, typically a change of circumstances or discovery of new facts.	The Court held that undertakings given as part of the Nugee J Order should not be varied without good cause.

Court's Reasoning and Analysis

The Court approached the Summary Judgment Application mindful of the principles governing such applications under CPR 24.2. It acknowledged that summary judgment is appropriate where the defendant has no real prospect of success and there is no compelling reason for trial. However, the Court found that the construction of the Netting-Off Agreement, embodied in informal and brief emails, raised several disputed factual issues requiring examination of the factual matrix, including contemporaneous telephone conversations and the parties' conduct.

The Defendants had pleaded relevant factual matrix and presented evidence that could reasonably be expected to be tested at trial, creating a real prospect of successful defence. The Court noted that the parties had agreed extended disclosure on the issue and that the factual disputes could not be fairly resolved on summary judgment. The ambiguity of the phrase "on ad hoc agreement by both parties" was pivotal and the Court found it necessary to consider full disclosure and cross-examination before construing the emails definitively.

Regarding the Variation Application, the Court applied established principles that variation or revocation of interlocutory orders requires a material change of circumstances or new facts. The Court found no such material change since the Nugee J Order, noting that compliance with the Order (payment of Money in Court) was not a change, and the Claimant Parties' need for funds was known at the time. The substitution of undertakings was not justified absent material change and was resisted by the Defendants.

On the Interim Payment Application, the Court held that jurisdiction to order interim payments under CPR 25.7(1)(a) requires an admission of liability by the defendant. The First Defendant's position was conditional on acceptance of the Draft Completion Accounts as final, which the Claimant Parties disputed. Accordingly, no admission of present liability existed, and the Court lacked jurisdiction to make the order.

Overall, the Court concluded that the Summary Judgment Application was unsuitable for summary disposal due to factual disputes; the Variation Application lacked grounds for variation; and the Interim Payment Application failed for lack of admitted liability.

Holding and Implications

The Court DISMISSED all three applications: the Summary Judgment Application, the Variation Application, and the Interim Payment Application.

Permission was granted to Company B to amend its Defence to the Additional Claim and Counterclaim as sought. The Court directed that the substantive issues, particularly those concerning the Netting-Off Agreement and Completion Accounts, proceed to trial with full disclosure in accordance with existing directions.

The decision maintains the status quo established by the Nugee J Order, preserving the Money in Court as security and requiring the parties to resolve disputed factual and contractual interpretation issues at trial. No new precedent was established, and the ruling underscores the Court's caution in granting summary judgment where significant factual disputes remain.