Contractual interpretation: Starbev GP Ltd v Interbrew Central European Holdings BV [2016] EWCA Civ 449

How is “the purpose” of a particular activity determined?

The facts

Starbev was the purchaser of a brewing business owned by Anheuser Busch InBev (ABI) and its subsidiary Interbrew. The sale agreement contained an anti-avoidance provision in connection with deferred consideration, which required certain proceeds received by Starbev to be returned to ABI, where a subsequent transaction was structured or undertaken “with the purpose of reducing payments due to ABI”.

A dispute arose as to whether the on-sale of the business to Molson Coors engaged the anti-avoidance provision on the basis that the transaction, and specifically a convertible note, was structured with the purpose of reducing the payments due to ABI.

The High Court decided that the reduction in payments due to ABI had to be the “dominant purpose” and, on the evidence, reducing the payments due to ABI had indeed been the dominant purpose of the transaction. Starbev had deliberately structured the sale to Molson Coors mainly to achieve that effect. Starbev appealed.

The decision

The Court of Appeal rejected Starbev’s appeal. The Court noted the comments in the Supreme Court decision of Hayes v Willoughby [2013] UKSC 17 (a protection of harassment case), that “A person’s purposes are almost always to some extent mixed, and the ordinary principle is that the relevant purpose is the dominant one”. The Court considered that the trial Judge had been entitled to rely on this in a commercial context to hold that the word “purpose” in the current case should be construed as the “dominant purpose”.

The Court also noted that, if “the purpose” was interpreted to mean “the sole purpose”, it would be all too easy for the anti-avoidance provision to be itself avoided, and so it would not prevent the mischief at which it was aimed.

Why is this important?

The decision clarifies that the word “purpose” will usually be interpreted as meaning the “dominant purpose” in commercial agreements.

Any practical tips?

If a contract requires use of the expression “for the purpose of” (or similar), consider whether the phrase can be made more specific, for example: (1) “for the sole purpose of”, or (2) “for the
dominant/principal/primary purpose of”; or (3) “if the purpose ...includes”.

It is also worth assessing whether the intention can be made clearer by addressing the activities themselves and avoid wording referring to “purpose” altogether.