Rhodia International Holdings Ltd & Anor v Huntsman International

The applicant in this case, Huntsman, entered into a sale and purchase agreement (“the SPA”) dated 27 February 2001 for the purchase of some of the business operations of the respondent Rhodia at a site in Whitehaven, Cumbria. The SPA contemplated the various contracts related to the business would be novated to Huntsman or its subsidiary. One such contract was an energy supply contract (“the energy contract”) between Rhodia and National Power (CoGeneration) Ltd (“Cogen”). That contract was a restrictive contract as defined in the agreement which require consent before it could be novated. Clause 15 of the SPA dealt with the parties’ obligations in that regard. Clause 15.1.2 imposed on Huntsman a qualified obligation to use reasonable endeavours to obtain Cogen’s consent to a novation of the energy contract. Mr Julian Flaux QC sitting as a deputy judge at the High Court was to find that Huntsman was in breach of that obligation and there is no appeal against that finding. Clause 15.1.4 provided that in defined circumstances Huntsman could give notice to Rhodia to exclude the energy contract from the sale but the judge held that the notice in fact served was invalid and again there is no appeal from that finding. This application for permission to appeal by Huntsman relates to the judge’s order made on 21 February 2007 that Huntsman remained under the obligation on or after 5 March 2004 pursuant to clause 15.1.3(b) to perform Rhodia’s obligations under the energy contract.

It is not quite clear how much turns upon that finding but the figures may well exceed £10 million, so is a substantial claim. Huntsman seek to appeal the judge’s construction of that clause. The clause is set out on page 5 of the judgment and reading it selectively it provides that subject to and “with effect from Completion”:

“(b)

Unless the relevant Restricted Contract…prohibits it, the Purchaser [Huntsman] shall,…perform all the obligations of RCSL [Rhodia] under such Restricted Contract…as agent for or sub-contractor to RCSL [Rhodia], but at Purchaser’s [Huntsman’s] expense.”

Clause 15.1.3(c), if I can paraphrase that, no doubt inelegantly, provides in effect that where delegation is prohibited and the consent is not forthcoming then Rhodia have to continue to service the energy contract.

The other relevant clause is clause 24.6 of the energy contract to be found on page 27 of the judgment, which provides for sub-contracting in these terms:

“Either Party shall have the right to sub-contract or delegate the performance of any of its obligations and duties arising under this Contract with the prior consent of the other, such consent not to be unreasonably withheld.”

It appears to have been common ground, says Mr Edwards-Stuart QC for the applicant, that clause 24.6 did not allow Rhodia to sub-contract or delegate the performance of any of its obligations or duties under the energy contract without the prior consent of Cogen, and that Cogen never gave such consent express or implied prior to Huntsman in fact undertaking the performance of Rhodia’s obligations which Rhodia had delegated to Huntsman.

The judge concluded in a few short paragraphs at the end of a judgment which was mainly concerned with the issues which arose under clause 15.1.2 that Huntsman remained liable under the clause because the word “prohibits” in the clause, “unless the relevant contract prohibits it”, meant a blanket prohibition, that is to say, a contract which does not permit sub-contracting or delegation under any circumstances whatsoever. This contract did permit that sub-contracting but only with prior consent, and emphasis is placed on the word “prior”. Because Cogen had acquiesced over a period of years in the performance of the obligations by Huntsman, the judge concluded that as between Cogen and Rhodia it would have been impossible for Cogen to contend that such performance by Huntsman is prohibited. Any such contention would have a complete answer because of waiver and estoppel. Such a construction, the judge concluded, corresponded with the commercial purpose of the provisions of clause 15.1.3 and there was no lacuna for Huntsman.

Mr Edwards-Stuart submits to us that this construction favoured by the judge creates a difficulty between Rhodia’s obligations to Huntsman under the SPA for Huntsman to perform the energy contract under clause 15.1.3(b) and Rhodia’s obligations to Cogen under the energy contract, which is not to sub-contract or delegate without Cogen’s prior consent. He submits that cannot have been the intention of the parties. The only lacuna that existed was created by Rhodia’s failure to obtain the necessary consent prior to the work being delegated.

Now whereas not objecting to a course of action taken by another may amount to a forbearance or waiver by the third party, that, submits Mr Edwards-Stuart, is not tantamount to or not capable of amounting to consent; certainly not prior consent. He relies among other cases on the case of Hyde v Pimley [1952] 2 All ER 102, 104 where Sir Raymond Evershed MR said at page 104:

“The learned judge was of opinion that consent to the commission of a particular act was not the same thing as forgiveness of the act after it had been committed and so far we agree with him.”

But he also refers to Hendry v Chartsearch Ltd, an unreported case in the Court of Appeal of 23 July 1998, albeit a case on assignment where Henry LJ said:

“The suggestion that the assignor can validly assign in breach of his contract without ever seeking prior consent by asserting that, as such consent could not reasonably be refused, so it is unnecessary, seems to me to be a recipe to promote uncertainty and speculative litigation. I prefer the simple certainty that prior consent never applied for is never withheld or refused (whether reasonably or otherwise).”

Millett LJ in the same case said at page 20 of the transcript before us:

“But it is essential that the lessor’s consent be sought before the assignment is made. Consent cannot be said to be withheld or refused if it is not asked for … It is no answer that no reasonable objection could have been made if consent had been sought; the proviso has no application unless it is.”

At page 21 he observed:

“But the contract requires the assignor to obtain the prior consent of the other party; retrospective consent, if given, may operate as a waiver, but cannot amount to the consent required by the contract.”

So far so good. That may indeed open a different question that of what has been called in the course of argument “intermediate consent”. That is to say, the consent that arguably might arise where for week one of a continuing contract the work is done without prior consent but no objection being taken to it at the beginning of week two. Question: does that operate as consent for week two? The argument advanced on this point does seem to me to be one which is certainly not fanciful, and permission should be granted on that ground accordingly.

As for the waiver, there Mr Edward-Stuart relies on a dictum of Diplock J in Enrico Furst and Co v W E Fischer Limited [1960] Vol 2 Lloyd’s Reports 340 at page 349 that:

“Waiver does not vary the terms of the contract … Waiver is conduct on the part of a party to a contract which affects his remedies for a breach of contract by the other party.”

So the submission is that whatever the effect of the waiver or estoppel as between Rhodia and Cogen, Cogen’s acquiescence in the fact that Huntsman was in fact performing this contract for a number of years cannot amount to the grant of prior consent which was a necessary precondition to the valid sub-contracting or delegation of the performance of the energy contract. The judge described those arguments as “ingenious”. In my judgment they are certainly not fanciful and according the applicant has satisfied me that there is a real prospect of success and I would grant permission accordingly.

I agree