020 7242 4986 or  0333 240 0591 London  |  Birmingham  |  Cardiff

Judge finds that open cast mine case is open and shut

This case - Merthyr Tydfil County Borough Council v Blackstone (South Wales) Ltd [2018] EWHC 1506 (QB) - concerns a major opencast coal mine at Ffos-y-fran, on the outskirts of Merthyr Tydfil.

The judgment contains a useful analysis of the correct approach to identifying the commercial purpose of a contract as an aid to construction, and in particular the relevance of pre-contractual negotiations for this purpose. It also establishes that it will be very difficult, in a commercial context, for one contracting party to argue that the other contracting party was on notice as to undue influence allegedly exercised by a third party over the first contracting party, or alleged breach of fiduciary duty by agents entering into the contract on its behalf.

The dispute
The dispute concerned an Escrow Account Agreement ("the EAA") under which Blackstone, the operator of the site, was to make quarterly deposits of £625,000 into a designated account, in order to build up a fund to be used by Blackstone for the restoration of the site after the cessation of coaling.

The EAA was entered into in December 2015 as a result of the restructuring of the group of companies of which Blackstone was a subsidiary. Its parent companies, the Miller Group and the Argent Group, wished to get out of coal mining. The council renegotiated a number of agreements concerning the site, including the replacement of a £15m guarantee provided by the parent companies by a similar guarantee provided by Blackstone's holding company. At the same time, Blackstone entered into the EAA.

Blackstone failed to make a number of quarterly payments. The council therefore brought a claim for specific performance of the EAA.

Blackstone defended the claim on three bases: (i) that a "roll-over" clause in the EAA entitled it to delay payments until 30 June 2022, (ii) undue influence and (iii) excess of authority by its directors in entering into the EAA. The council applied for summary judgment.

The judgment
HHJ Keyser QC, sitting as a Judge of the High Court in the Business and Property Courts of Wales, granted the council's application for summary judgment and ordered Blackstone to pay £5.625m into the account. A copy of the judgment can be found here.

Rejecting Blackstone's argument as to the "roll-over" clause, HHJ Keyser QC held that:

• Pre-contractual negotiations (including a report to full council) suggesting that Blackstone would have the right to roll over payments in certain circumstances were either inadmissible or not helpful in construing the EAA or identifying its commercial purpose (para 40).

• Blackstone's construction was contrary to the obvious purpose of the EAA apparent from its provisions, which was to build up a fund as security for Blackstone's restoration obligations (para 42).

• Although the wording of the EAA presented difficulties for both sides' constructions, Blackstone's negated the effect of the language imposing obligations to make quarterly deposits (para 44).

• The Judge accepted the council's argument that there was an alternative interpretation of the relevant clauses, which did not allow Blackstone to roll-over payments, and that gave effect to the overall commercial purpose of the EAA (para 45).

Accepting the council's argument that Blackstone's undue influence defence was "completely hopeless", the Judge found that:

• A parent company or other shareholder of a company could not be presumed to be in a relationship of ascendancy over it for the purposes of the doctrine of undue influence (para 59).

• Entering into the EAA, by which Blackstone undertook additional obligations to build up a fund to abide its existing restoration obligations was not a transaction calling for an explanation (para 60).

• It was therefore impossible to argue that the council was on notice as to the exercise of undue influence by the parent companies over Blackstone (para 61).

Further, the Judge found that no ground whatsoever had been shown for concluding that the council knew or ought to have known that Blackstone's entry into the EAA, in the context of a group re-structuring, was contrary to Blackstone's commercial interests and therefore in breach of the directors' fiduciary duties (para 68).

Accordingly, the Judge ordered Blackstone to pay the money outstanding under the EAA (para 73).

Matt Hutchings QC and Shomik Datta represented Merthyr Tydfil County Borough Council.