[2002] EWHC 1023 (COMM)
2001 FOLIO No 1038
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 21st May 02

B e f o r e :

      THE HONOURABLE MR JUSTICE TOMLINSON

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	(1) LUDGATE ADMINISTRATION NO.1 LIMITED
(2) UNITED REGIONAL NEWSPAPERS LIMITED	Claimants	
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	(1) NORTHERN & SHELL MEDIA LIMITED
(2) NORTHERN & SHELL MEDIA HOLDINGS LIMITED	Defendants	

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Mr Terence Mowschenson Q.C. and Mr Matthew Weiniger, solicitor advocate (instructed by Messrs Herbert Smith for the Claimants)
Mr Bernard Eder Q.C., Mr Richard Slowe, solicitor advocate and Mr Paul Stanley (instructed by Messrs S J Berwin for the Defendants)

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Approved Judgment

Mr Justice Tomlinson : 
1.	In this application under Part 24 the Claimants seek summary judgment for £4,279,107 and declaratory relief the effect of which would be to declare their entitlement to recover a further approximately £4.6 million.  The dispute has arisen following the sale of the Express Newspapers Group by the Claimants to the Defendants.  
2.	Broadly speaking in about late October 2000 the Northern and Shell Group agreed to buy from the United Group the titles and business of the Express Newspapers Group.  Northern and Shell Group wished to purchase the titles, which included the Daily Express and the Daily Star, and the means to produce them.  This was achieved by a sale of the entire issued share capital of Express Newspapers and Broughton Printers Ltd by the First and Second Claimants to the First and Second Defendants.  Express Newspapers and Broughton Printers Ltd together with their respective subsidiaries published the titles.  One of the subsidiaries thus acquired was Blackfriars Leasing Ltd.  
3.	The deal was struck at a high level as a result of discussions between, amongst others, Mr Bernard Gray, Director of Group Strategy of United News and Media and Mr Richard Desmond, Chairman of Northern and Shell.  Thereafter lawyers were instructed to draw up documentation formalising and recording the transaction.  Eminent solicitors were instructed on both sides, Messrs Ashurst Morris Crisp for United and Messrs Linklaters for Northern and Shell.  Mr Desmond’s only interest was the acquisition of the titles and the means to produce them.  Not unnaturally he did not concern himself with detailed terms in the documentation.  He left that to his solicitors.  He became aware however that the manner in which the sale was to be packaged was by leaving the titles in a Group of companies which would be “cleaned up” leaving them only with the assets which he had agreed to acquire.  This was described as a “cash free/debt free” arrangement, although it was accepted that the companies would come complete with trade creditors and debtors, it being apparently too complicated for those items to be extracted.  
4.	The documentation was produced in short order, in time for completion on 22 November 2000.  The documentation is as one would expect for a transaction of this magnitude and importance substantial.  Parts of it wear a somewhat labyrinthine air to the uninitiated, although as I was rightly reminded there can have been no more skilled navigators through this tortuous maze than the solicitors who produced it and whose expert advice was available to the parties.  Naturally the Agreement includes an “entire agreement” clause.  Whether either of the parties’ expectations was achieved is a matter of the proper construction of the agreement which they executed, subject to the claims for rectification thereof which each side advanced, albeit the rectification sought by the Defendants is more extensive that that sought by the Claimants.  It is however a feature of the case that the Claimants say that the very term upon which they base their claim contains an obvious blunder in the drafting, whereas the Defendants say that if the Agreement bears the meaning for which the Claimants contend then they have not achieved their objective which underlay the deal of acquiring the companies “cash free/debt free” because they are obliged to pay a further and unexpected £9 million.  It would seem to be common ground that the basis of the deal was that the companies were indeed to be cash free and debt free, subject to trade creditors and debtors, since the Disclosure Letter, one of the contractual documents, recites that on 14 and 22 November 2000 the sellers carried out internal reorganisations to ensure that the Group, by which is here meant the Group of companies being acquired, was cash free and debt free.  The parties are not however agreed as to the meaning of the expression cash free and debt free, whether generally in the context of a corporate acquisition or particularly in the context in which it was used in the Disclosure Letter.  It is moreover said by Mr Mowschenson QC for the Claimants that the extent to which the companies were in fact to be cash free and debt free is in any event a question of construction of the Agreement.  
5.	The claim brought is to recover the consideration allegedly due from the Defendants to the Claimants on the surrender of tax losses by members of the Claimants’ Group of companies to companies within the Express Newspapers Group purchased by the DefendantS from the Claimants, specifically in relation to the 1999 accounting period losses surrendered by United News and Media plc to Express Newspapers and by Austereland Ltd to Blackfriars Leasing Ltd.  
6.	The completion date, and the date of the Agreement was, as I have already mentioned 22 November 2000.  Before completion Mr Robert Sanderson, Finance Director of Northern and Shell Network Ltd, the parent company of the Defendants, saw the accounts of Express Newspapers and Blackfriars Leasing Ltd for the year ending 31 December 1999.  I shall henceforth refer to these companies as “Express” and “Blackfriars.”  Corporation tax due on trading profits earned in that year would in principle have been payable in three instalments—the first on 14 July 1999, the second on 14 October 1999 and the final and balancing payment on 1 October 2000.  A company is however entitled not to pay the corporation tax apparently due on trading profits if it is reasonably anticipated that those trading profits will be extinguished by, relevantly for present purposes, trading losses arising in the same accounting period sustained by another company or companies within the same Group—see Chapter IV of the Income and Corporation Taxes Act 1988.  A loss-making company that surrenders losses to a profitable company is known as a surrendering company.  A profitable company which claims those losses in order to be relieved from corporation tax is known as a claimant company.  The tax rules allow the claimant company to pay the surrendering company any amount up to the full amount of the loss surrendered by way of Group Relief, without giving rise to any tax impact in either company.  A feature of Group Relief is that it can be surrendered by one company to another provided that they were members of the same Group in the corresponding periods even if at the date the claim is made the companies have ceased to be in the same Group.  
7.	The Express accounts for 1999 were signed off on 22 February 2000.  The profit and loss account showed tax due on profit on ordinary activities as £3,614,751.  This was qualified by Note 8 which showed that UK Corporation Tax liability was £3,079,076.  Mr Neil Mepham, Head of Taxation at United Business Media plc and its subsidiary companies, describes that as an express provision for corporation tax liability.  The balance sheet showed creditors, amounts falling due within one year, as £108,158,402.  Note 13 qualifies that figure, explaining that it includes “corporation tax” £3,142,764.  
8.	United’s Group policy so far as concerns corporation tax and Group Relief is explained by Mr Damian Titman, Group Legal Advisor for United Business Media plc.  At paragraphs 22 to 24 of his Witness Statement he says this:-
“22.	In common with other large Groups, United Business Media plc (of which Express Newspapers and Blackfriars Leasing Limited formed a part) operates through a large number of companies.  In 1999, as in other years, some of these companies had taxable profits and others had tax losses.  The Group’s policy is for the loss-making companies to surrender Group relief to the profitable companies.  The companies claiming the Group relief will be liable to pay to the surrendering company an amount equal to the tax saved as a result of the surrender.
23.	I am informed by Carl Adrian, Group Taxation Manager of United Business & Media plc, that in 1997 and 1998 both Express Newspapers and Blackfriars Leasing Limited recorded profits that were extinguished (bar a small profit that was retained in Express Newspapers to enable the utilisation of double tax relief) by the surrender of Group relief from other Group companies.  In those years, though no actual taxation was payable, these amounts were described as “Corporation Tax” payable in the notes to the balance sheet.  
24.	The Defendants allege at paragraph 28.1 of the Amended Defence and Counterclaim that the Companies had “arranged” to reduce their liability for Corporation Tax by surrender of Group Relief.  There was not, however, any arrangement undertaken by the Companies prior to the Accounts Date [31 December 1999] in relation to the reduction of their liability for Corporation Tax.  The possibility of reducing their tax liability by the surrender of Group Relief was merely anticipated, and therefore the assertion that any arrangement was entered into is incorrect.”
9.	The anticipation of reduction of tax liability by surrender of Group Relief is further borne out by the fact that no tax was in fact paid in July or October 1999 or on 1 October 2000 when the final balancing payment was due which was a matter of days before Mr Desmond made his initial approach to Lord Hollick which led to the deal.  Furthermore Mr Sanderson at paragraph 10 of his Witness Statement says this:-
“Mr Titman explains United’s Group Relief policy in paragraph 22.  From my experience of the tax arrangements for a substantial Group of companies, I would expect that the Revenue would have sent to each company within the United Group in or about September 2000 a series of payment reminders, which in the ordinary course would be due to be returned with payment attached on or before 1 October 2000.  The standard printed instruction reads “If no payment is due please enter NIL on the attached payslip and return it to me.”  I have no reason to suppose that United, having apparently decided in accordance with its policy to surrender Group Relief, did not return the payslips so completed.”
10.	Set-off of losses against the profits of other group companies is achieved by making a joint election for Group Relief.  This gives rise to the cancellation of the losses in the loss making company and of the corresponding profits and corporation tax liabilities of the company to which the losses are surrendered.  There is no requirement for payment between the two companies but it is common practice for the profitable company to pay to the surrendering company an amount equal to the corporation tax which it would otherwise have had to pay.  The foregoing is taken from the Witness Statement of Mr Dickerson, the Defendant’s expert accountant witness and I believe it to be non-controversial.  
11.	It will be recalled that Mr Titman confirms that pursuant to United’s policy the company claiming the Group Relief will be liable to pay to the surrendering company an amount equal to the tax saved as a result of the surrender.  In such circumstances it becomes pertinent to enquire how the entries in the Express accounts to which I have already referred are properly to be characterised.  It was Mr Mowschenson’s contention, for the Claimants, that as at completion Express was liable to pay corporation tax on its unrelieved 1999 profits.  In the event that no joint election was made and accepted by the Inland Revenue Express would have to pay corporation tax and moreover would have to pay interest for late payment, since ex hypothesi final payment should have been made by 1 October 2000.  Mr Mepham describes the entry in the profit and loss account and Note 8 thereto as a provision for corporation tax liability.  On the other hand it is plain that as at the date when that provision was made, if that is how it is properly to be characterised, it was not anticipated that any corporation tax would be paid.  The Claimants’ expert accountant witness Mr Allen says this at paragraphs 11-14 of this Witness Statement:-
“11.	There is no prescribed accounting treatment under UK Generally Accepted Accounting Principles (“UK GAAP”) as to how a charge to taxation that is extinguished through Group relief is treated in the financial statements of the company recording the taxable profits and there is no guidance in relation to the treatment in the notes to the balance sheet.  The treatment is therefore open to interpretation within the context of UK GAAP.
12.	The notes  to the audited balance sheet of Express Newspapers at 31 December 1999 disclosed (in Note 13) the amount of £3,142,764 described as “Corporation tax” payable.  This amount related to the amount due as corporation tax on the profits of Express Newspapers for that year (which liability was being extinguished, on a Group basis, through the use of Group relief).
13.	At paragraph 23 of the Draft Witness Statement of Damian Edward John Titman, it is stated that in 1997 and 1998 Express Newspapers recorded profits that were extinguished (bar a small profit that was retained to enable the utilisation of double tax relief) by the surrender of Group relief from other Group companies.  In those years, though no actual taxation was payable, these amounts were described as “Corporation tax” payable in the notes to the balance sheet.
14.	I believe that the description as “Corporation tax” in Note 13 to the audited financial statements of Express Newspapers at 31 December 1999 was appropriate for the following reasons:
(i)	there is no accounting guidance under UK GAAP as to how amounts payable as corporation tax that are relieved against losses in other Group companies are to be treated;
(ii)	the amount recorded as “Corporation tax” payable is only provisionally treated as Group relief at the date that the accounts were approved by the directors; the liability to the Inland Revenue would only be formally replaced with an intercompany liability when the agreement of the Inland Revenue was obtained as to the level of taxable profits and the losses that could be relieved against them and valid Group relief claims and surrenders have been submitted.”
Mr Allen then goes on to express the following conclusion which is in my view of some importance:-
“It is therefore debatable as to whether the creditor represents corporation tax payable or an intercompany payable at the date of the approval of the accounts.”
If the accounts reveal a provision for corporation tax liability it might of course  be inferred by an informed reader of the accounts who sees them for the first time after 1 October 2000 that that tax will by then have been paid.  I do not decide that point, but I note that Mr Sanderson says that that is exactly the inference which he did draw.  In his first Witness Statement at paragraphs 5 and 6 he says this:-
“5.	In December 2000, the 1999 tax return forms for Express Newspapers and Blackfriars Leasing Limited, which had been completed by United, were forwarded to me by United.  Each of these returns included a claim for Group Relief to be surrendered by United.  Prior to the acquisition, I had seen the accounts of these companies for the year ending 31 December 1999, which I then believed included reserves for corporation tax.  Until I received these tax return forms, I had therefore assumed that the 1999 tax had been duly paid by 1 October 2000, well before completion, pursuant to the corporation tax instalment regime.
6.	Accordingly, I sought advice from PricewaterhouseCoopers, who are auditors and tax advisors to Northern & Shell, as well as being United’s auditors, as to the appropriate way with which to deal with the tax returns due to be submitted by 31 December 2000.  I was advised that, as United was surrendering Group Relief, we should sign the returns which they had completed stating that the tax payable was nil.  That seemed to me to be wholly consistent with my view that liability for this tax remained with United.  I assumed that, rather than paying the tax prior to completion, United decided that they would surrender Group Relief.  They must have made that decision some time before, when they determined that they would not pay the instalments of the 1999 tax.  It never occurred to me that United would want to be paid for this Group Relief surrender, nor did they ask for payment at that time.”
12.	On a point of detail the tax return form for Blackfriars which the Defendants received in December 2000 had in fact been signed on 6th November 2000 by Mr N R Brown, Group Taxation Manager, and sent to the Inland Revenue on that day.  The position concerning Blackfriars is as follows.  The accounts for the year ended 31 December 1999 were signed off on 17 October 2000.  The profit and loss account shows tax due on profit on ordinary activities as £90,721.  Note 5 explains that this figure represents UK corporation tax of £1,200,031 less transfer from deferred taxation £1,109,310 a balance of £90,721.  Mr Mepham describes this as a provision for United Kingdom Corporation Tax liability of £1,200,031.  The balance sheet shows creditors, amounts falling due within one year, as £1,372,485.  Note 11 explains that this figure includes corporation tax of £1,200,031.  Mr Allen makes the same observation about Note 11 in these accounts as he did about Note 13 in the Express accounts.  
13.	So far as concerns Blackfriars there are however some features which are not present so far as concerns Express.  As I have just recorded its tax return had been submitted on 6 November 2000.  It showed net trading profits of £3,967,046.  However it showed that no corporation tax was due, on the basis of a claim to Group Relief.  The surrendering company was identified as Austereland Ltd and the amount of Group Relief claimed was £3,967,046.  The Austereland accounts  for the year ended 31 December 1999 were signed off on 31 October 2000.  The profit and loss account showed under tax on profit on ordinary activities a receipt of £1,365,000.  Note 5 explained that this was “UK corporation tax credit at 30.25% (1998 equals 31%) current tax £1,365,000.”  In the balance sheet debtors were £322,260.  Note 7 explained that this included “corporation tax £1,365,000.”  Austereland was only incorporated on 2 December 1998.  There was therefore no possibility of the benefit of its tax losses being used to recover previously paid corporation tax because none had been paid.  The corporation tax credit and the debt for corporation tax must therefore represent sums recoverable from fellow Group companies as payment in consideration of the surrender of losses, i.e. payment for Group Relief.  
14.	To complete the picture on 22 December 2000 United Business Media Group Ltd submitted a Group Relief matrix to the Inland Revenue, signed by Mr Greenhow, Group Tax Manager.  The evidence does not reveal whether the Defendants were consulted concerning submission of either this document or the revised Group Relief matrix which was submitted on 27 July 2001.  By the 22 December 2000 matrix companies within the Claimants’ Group of companies surrendered to Express losses in the sum of £11million this being apparently an estimate of the taxable profits of Express at that time and surrendered to Blackfriars losses in the sum of £3,967,046.  It is to be noted that Austereland surrendered £155,046 to Blackfriars and £3,812,000 to Express—a total of £3,967,046.  United News and Media plc, the parent company of the Group surrendered £3,812,000 to Blackfriars and £2,959,726 to Express.  The balance of the £11million surrendered to Express comes from two other companies in the Group.  It is the Claimants’ case, as I understand it, that a claim for Group Relief becomes valid on submission to the Inland Revenue of the relevant Group Relief matrix—I paraphrase paragraph 16 of Mr Mepham’s Witness Statement.  Furthermore the letter of 22 December 2000 under cover of which the matrix was sent to the Inland Revenue said this:-
“I enclose for your attention a matrix showing all the companies in the Group for the year ended 31 December 1999.  This has been signed and dated and the declaration is subject to the submission of the outstanding computations.
I understand that the submission of the matrix by the filing date is to treat this as effectively containing the letters of consent to surrender for those companies making losses which have already filed their returns.”
I think that the Claimants would accept that as at 22 December 2000 on submission of this document the claimant companies Express and Blackfriars became liable to pay to the surrendering companies an amount equivalent to the corporation tax saved as a result of the surrender.  So far as concerns Blackfriars it is to be noted that the matrix does not accord with the previously submitted tax return, which indicated that losses of £3,967,046 were claimed from Austereland.  
15.	On 5 January 2001 Express submitted a tax return, signed by Mr Sanderson, whose evidence as to the circumstances in which he received the return and what he then did I have already set out.  This claimed Group Relief of £11,273,527 from United News and Media plc.  This does not of course accord with the previously submitted matrix, which showed losses of £11million surrendered to Express by four companies, including but not limited to United News and Media plc.  
16.	On 27 July 2001 United Business and Media plc submitted a further Group Relief matrix to the Inland Revenue, who were asked to “accept this as amendment of the tax returns of the companies included.”  This matrix differed from the earlier matrix in two relevant respects:-
(i)	losses surrendered to Express were now £11,273,527 and they were all surrendered by United News and Media plc;
 (ii)	the losses of £3,967,046 surrendered to Blackfriars all now came from Austereland.
17.	Two weeks before submission of the revised matrix the Claimants wrote to the Defendants making the claim which is pursued in these proceedings in respect of the 1999 accounting year.  The basis of the claim is and was that pursuant to the Agreement of 22 November 2000 the Defendant companies were liable to pay to the Claimant companies the amount by which the tax liability of Express and Blackfriars had been reduced by Group Relief.  I have not yet set out the provisions of the Agreement pursuant to which this liability is said to arise but the logic of the claim is set out very clearly by Mr Mepham in his Witness Statement from which I quote:-
“18.	Were it not for the Group Relief submitted to the Inland by the Claimants’ Group of Companies on 22 December 2000, Corporation Tax chargeable on the taxable profits of Express Newspapers and Blackfriars Leasing Limited in respect of the year ended 31 December 1999 would have become due and payable in quarterly instalments and in any event by 1 October 2000 pursuant to the provisions of the Corporation Tax (Instalment Payment Regulations 1998 SI 1998/3175).  Accordingly, sums to the Claimants from the Defendants became due and payable in any event on 5 January 2001 in respect of Express Newspapers and on 22 December 2000 in respect of Blackfriars Leasing, being the dates on which each of those companies claimed the benefit of the tax losses surrendered to them.
19.	As a result of the surrender of corporation tax losses by the Claimants, Express Newspapers and Blackfriars Leasing Limited were relieved of any liability to pay Corporation Tax in respect of their taxable profits for the year ended 31 December 1999.  Pursuant to the provisions of clause 10.6 of the Tax Deed, therefore, those companies are obliged to pay the Claimants a sum equal to the amount of Corporation Tax which they would have otherwise had to pay to the Inland Revenue.
20.	£4,279,107 is due to the Claimants in respect of corporation tax losses surrendered to Express Newspapers and Blackfriars Leasing Limited for the year ended 31 December 1999.  This is made up as follows:
(a)	£3,079,076 in respect of the tax losses surrendered to Express Newspapers.  This is the amount provided for corporation tax in the accounts of Express Newspapers for the year ended 31 December 1999, based on estimated taxable profits for that company;
(b)	£1,200,031 in respect of the tax losses surrendered to Blackfriars Leasing Limited.  This sum is 30.25% of the taxable profits of that company for the year ended 31 December 1999,such profits being £3,967,046.
		…………
22.	The Claimants also seek a declaration from the Court that they are entitled to reimbursement for corporation tax losses which may be surrendered by them (or by companies in their Group) to Express Newspapers Group companies for the period 1 January 2000 to 22 November 2000.  The Claimants are entitled to surrender such losses and to claim reimbursement for them from the Defendants on the same basis as their claim for reimbursement from the Defendants for the losses surrendered in respect of the year ended 31 December 1999, namely pursuant to clauses 10.5 and 10.6 of the Tax Deed.  Those clauses allow the Claimants to surrender, and claim reimbursement from the Defendants in respect of thereof, for any accounting period up to 22 November 2000.”
18.	Mr Sanderson describes receipt of the claim letter as coming “out of the blue.”  I reproduce paragraph 7 of his first Witness Statement as follows:-
“7.	Out of the blue, the head of corporate tax at Northern Shell, Richard Martin, received a letter dated 13 July 2001 from Neil Mepham, the head of tax at United (which Mr Mepham exhibits as part of NM5).  No explanation was given as to why the demand for payment was only made nearly 7 months after the Group Relief had been surrendered, a fact rendered bizarre by the final paragraph of that letter, which I quote in full:
Strictly, this amount should have been paid on the due dates for Corporation Tax (i.e. the final instalment was due on 1 October 2000), however if payment is received by 31 July [2001] we will accept that no interest is due in respect of the late payment.”
19.	There is an interesting inconsistency between the last paragraph of Mr Mepham’s letter of 13 July 2001 and paragraph 18 of his Witness Statement which is indicative of some difficulty in the underlying contractual analysis.  In his letter Mr Mepham asserts that the Defendants should have paid the Claimants on 1 October 2000.  This is plainly a nonsense, since the Claimants and the Defendants did not enter into their agreement until 22 November 2000.  However the logic underlying this assertion is obviously that it would have been on that day that the target companies would, but for the claiming of Group Relief, have had to pay corporation tax to the Inland Revenue and it is therefore on that day that there must be regarded as arising at least an implied obligation on the claimant company to pay to the surrendering company in consideration of the surrender an amount equivalent to the corporation tax saved by the surrender.  Such an implied obligation might be spelled out of the corresponding accounting entries in loss and profit making companies in the Group, the former anticipating a tax debtor which is in reality a payment for Group Relief from another Group company, the latter company anticipating an intercompany payable equivalent to the amount of corporation tax otherwise due or the amount due to be relieved.  However the Claimants would I think say that such an implied obligation could not usually be spelled out, for at least two reasons.  Firstly, they would say that unless at the least both companies indicated in their accounts the intended recipient of the surrender and the payment in consideration thereof, no correspondence or connection is established between the surrendering company and the claimant company out of which an implied agreement by the latter  to pay the former can be spelled.  Thus Mr Mowschenson submitted that whilst the accounts of Blackfriars and Austereland (incidentally both drawn up post 1 October 2000) were consistent with anticipated surrender of losses and claiming of relief in the same amount there was nothing in the accounts themselves to connect the two companies out of which an implied agreement could be constructed.  All that could be said was that Austereland anticipated surrendering losses to one or more Group companies and that Blackfriars anticipated paying one or more Group companies by way of consideration for the surrender of tax losses an amount equivalent to the corporation tax liability which it would have in the absence of Group relief.  Secondly the Claimant would say and Mr Mowschenson did I think submit that it was not until submission of the Group relief matrix that it would become apparent how the losses were to be distributed around the Group.  The matrix is regarded as constituting the necessary letters of consent to surrender—see the letter to the Inland Revenue of 22 December 2000.  It was only on such occurring that intercompany payables could be precisely identified in terms of establishing a quantified debtor/creditor relationship between two companies, as, for example, Blackfriars is obliged to pay Austereland £1,231,000 in respect of tax losses surrendered.  This is no doubt why Mr Mepham in his Witness Statement adopts a position at variance with that which he espoused in his claim letter.  His position in his Witness Statement I have already set out—it is that the Defendants became liable to pay the Claimants in respect of Blackfriars on 22 December 2000 and in respect of Express on 5 January 2001.  Blackfriars had submitted its tax returns to the Inland Revenue on 6 November 2000.  The matrix was however not submitted until 22 December 2000.  The logic of Mr Mepham’s position is that it was the submission of the matrix which gave rise to the obligation, express or implied, on Blackfriars to pay the consideration for the surrender, and that that was not achieved by the earlier accounts or by submission of the tax return, although his treatment of Express would seem to indicate that he regards the tax return as a necessary element in the construction of the obligation, for he is treating it as the mechanism by which Express claim the benefit of the tax losses surrendered to them, not regarding the obligation as arising on submission of the matrix alone.  This introduces a yet further difficulty in the underlying analysis where, as here, neither tax return is consistent with the matrix.  This may be thought ultimately unimportant in a Group context and where, ex hypothesi, the relevant payments can only pass between members of the Group.  It does however to my mind demonstrate or perhaps underscore the difficulty in properly characterising the provisions in the accounts which are variously described as representing corporation tax payable or as an intercompany payable at the date of the approval of the accounts.
20.	In this regard I have already recorded Mr Allen’s view that it is debatable how properly the creditor in the claimant companies’ accounts should be characterised.  He continues:-
“(iii)	In the absence of any authority to comply with UK GAAP the fundamental accounting concept of consistency should be applied.  Consistency relates to the adoption of consistency of accounting treatment throughout a Group and from year to year;
(iv)	The description as “Corporation tax” in Note 11 was consistent with the description of the corresponding note in the audited financial statements of Express Newspapers for both 1997 and 1998 (in which the profits chargeable to taxation were also extinguished through the use of Group relief).”
Mr Dickerson however points out that Mr Allen considers the matter only from the perspective of the claimant companies.  Mr Dickerson points out that it was only the anticipated Group Relief treatment which entitled the loss making members of the group to recognise the existence of debtors for the sums concerned.  His conclusion on the question whether the creditors in the 1999 balance sheets of Express and Blackfriars described as corporation tax are correctly described as such is as follows:-
“4.1	Your first two questions are whether the creditors in the 1999 balance sheets of Express Newspapers and Blackfriars Leasing Ltd described as “corporation tax” are correctly described as such or whether they would be more properly described as inter company debt in relation to proposed surrender of Group relief.  Based on the information currently made available to me, it is my expert professional opinion that, in the circumstances of the accounting policies adopted by the United News & Media plc Group to the recognition as debtors in loss making companies of balances described as “Corporation tax” which clearly represent inter-company debtors, such balances would be more accurately described as relating to Group relief.
4.2	Ernst & Young consider such a description to be generally accepted accounting practice and failure to carry that practice through to profitable companies within a Group would result in lack of consistency between Group companies as to the status of the agreements between them.  If the companies recognising debtors consider that the creditor companies are sufficiently bound to justify their inclusion as a debtor, it is only logical that the companies which have that liability to fellow subsidiaries should recognise that other company as their creditor.
4.3	This is a preliminary opinion based on the information currently available to me and I reserve my right to amend that opinion if further information becomes available as a result of disclosure and exchange of witness statements.  However, such information would have to show that there was justification for loss making companies to recognise debtors even if Group relief were not available, for me to change my opinion that consistency with Group accounting policy over the recognition  of debtors makes it  essential to acknowledge that profit making companies had the intention of making payment to those loss making companies.
4.4	The above opinions are based on my perception that it was the intention of both Express Newspapers and Blackfriars Leasing Ltd, when making entries in respect of UK corporation tax on profits of the year in their 1999 accounts, that any liabilities were due to Group companies and not due to the Inland Revenue.  I have two principal reasons for reaching that conclusion.  
■	Loss making companies and their auditors were sufficiently satisfied that this was the intention that it enabled them to recognise debtors in the accounts of those loss making companies.
■	No payments of corporation tax were made by either company in respect of 1999 on 14 July or 14 October 1999 when, apart from the availability of Group relief, instalments would have been due.  If it had been the intention to pay corporation tax, further instalment payments would have been due on 14 January and 14 April 2000 with the balance of the liability being due on 1 October 2000 but the Matrix shows that no such payments were made.”
	In a second letter of advice Mr Dickerson says this:-
“In his letter of 16 April 2002 Mr Allen considers the issues only from the perspective of the companies Express Newspapers and Blackfriars Leasing Ltd.  He does not make any reference to the loss making companies who were to surrender their losses as Group relief.  In those companies the only justification for the inclusion of a debtor is likely to have been the intended Group relief receipt.  In my opinion, if the arrangements of the Group relief were sufficiently far advanced that the directors and auditors for potential recipients of those payments recognised those intended receipts in their accounts as debtors, then those same arrangements justified treating the liability as a liability for a Group relief payment in the profitable companies.  Without such an assumption, it would not have been appropriate to eliminate those balances by set-off against each other on consolidation.  Whilst, therefore, the Group relief arrangements had not been finalised, they were sufficiently far advanced for the balances to be recognised as Group relief  in the accounts of both paying and receiving Group companies.
Mr Allen stated…. “It is therefore debatable as to whether the creditor represents corporation tax payable or an intercompany payable at the date of approval of the accounts.”  I disagree.  In the context of the treatment adopted in the accounts of other Group companies and in the Group accounts, there can be no doubt that United News and Media plc and its subsidiaries were treating the Group relief arrangements as sufficiently far advanced that the balances concerned were regarded by them as an intercompany payable and not as a sum which would in due course be paid to the Inland Revenue.”
I need not take time setting out the matters to which Mr Dickerson refers under the rubric “consolidation.”  During the hearing the exercise of attempting to understand a debtor of £8.1million for corporation tax which appeared in the 1999 accounts of the holding company of the Group United News and Media plc but was eliminated on consolidation broke down.  At this stage I need merely note that what Mr Dickerson says about it is not accepted by the Claimants, but the point was in any event regarded by Mr Dickerson only as “a further indication” of the approach taken to treatment of corporation tax in the accounts.
21.	Finally I should note this paragraph in Mr Dickerson’s first letter of advice:-
“4.5	As a side issue, had it been the intention to make payments to the Inland Revenue, the balances would have been settled in full and eliminated from the balance sheets before the vendors entered into the Sale and Purchase Agreement.”
	I do not think that this paragraph was remarked upon at the hearing.  Again I can make no findings but I can see that it might be said that if Mr Dickerson’s observation is correct, then Mr Sanderson may not have been justified in assuming that the 1999 corporation tax had been duly paid on or by 1 October 2000.  At the end of the day it may not much matter what Mr Sanderson thought—the court will have to decide what is the effect of the agreement.  However on a point where UK GAAP is silent as to accepted practice there is at the least scope for misunderstanding, and evidently for disagreement between practitioners.  
22.	There are two further matters to which I should refer by way of background.  The Claimants rely on one further matter in relation to their suggestion that the Defendants appreciated that they would be assuming a liability to pay tax on the companies’ profits earned before completion.  Mr Titman refers to an Excel spreadsheet sent to the Defendants’ accounting advisors, Messrs PriceWaterhouseCoopers on 11 November 2000, including the Express Third Quarter Forecast Balance Sheet.  Mr Titman says that the eleventh column of this document refers to actual, as opposed to forecast, figures for October 2000, and row number 626, which is entitled “Taxation,” contains a figure of £12.875million which was owed by Express as at that date in respect of taxation.  He concludes that because the document shows the position as of the end of October 2000 therefore as at 11 November 2000, 11 days before completion, the Defendants had full knowledge that there was still a substantial outstanding liability for tax.
Mr Sanderson deals with this in his second Witness Statement at parargraphs 5, 6 and 7 as follows:-
“5.	Damian Titman relies on the receipt by the Defendants of the Excel spreadsheet entitled “Express Forecast.xls” and in particular, the Express Third Quarter Balance Sheet, which is exhibited at page 4 of CJT 2 to Christopher Tayton’s witness statement made on 14 February 2002.  He refers to the figure in row number 626 headed “Taxation”, which shows a liability of £12,875,000 as at 31 October 2000, and says that from this the Defendants had “full knowledge that there was still an outstanding liability for tax 11 days before completion”.  If that statement is intended to suggest that the Defendants thereby knew that they would be inheriting any such liability, I disagree.
6.	The purpose for which the balance sheet was requested and supplied was to confirm that the financial assistance, intended to be provided by Express Newspapers for the acquisition, satisfied the provisions of Section 155 of the Companies Act 1985.  While this was my principal concern, there was nothing on this balance sheet which suggested to me that tax was not being duly paid.  I assumed that, in accordance with what I believed were United’s obligations under the agreements that were being negotiated, all tax shown as outstanding would be cleared prior to completion.
I could not and did not ascertain from the spreadsheet that the 1999 tax had not been paid, in particular because:
(i)	the taxation entries are not referable to any particular year of account,
(ii)	the figures fluctuate significantly, both up and down, throughout the period,
(iii)	the “liability” recorded as being due as at 31 October is more than four times the amount supposedly reserved in relation to the 1999 tax year,
(iv)	the figures bore no relationship to any current trading profits disclosed to us, which were minimal,
(v)	nearly all the current year  “profit” made by Express Newspapers prior to Completion was apparently added subsequently by way of intraGroup interest payments, which were then extracted again almost immediately by means of the Dividend,
(vi)	it is clear that the “Taxation” entries relate to actual tax payable to the Revenue rather than to intraGroup liabilities, which were to be cleared on or before Completion,
(vii)	it is not clear to what extent the intraGroup transfers, referred to in the definition of “Pre-Transaction Steps” in the Tax Deed at sub paragraph (a), gave rise to tax liabilities for which we were to be indemnified, and 
(viii)	the cashflow forecast,  provided by United at the same time, showed net “tax” payments being made during the same period.”
Plainly I cannot on this application resolve the question what if anything of relevance is revealed by this spreadsheet.  
23.	On 6 November 2000 Express Newspapers declared an interim dividend of £151,559,000 in respect of the period ending 3 November 2000, payable on 6 November.  It appears in fact to have been paid the next day to the First Claimant as the then beneficial owner of all the issued share capital of the company.  The relevant minutes of the Board of Directors record that interim accounts prepared in accordance with section 270 of the Companies Act 1985 showed distributable reserves of £159,128,000.  The payment of the dividend was revealed in the Disclosure Letter at paragraphs 4.1 (k) and 4.1 (n).  Mr Titman says that the agreed sale price of £125million was calculated on the basis that the Claimants had declared the pre-sale dividend and included all known liabilities of the companies being sold, including those tax liabilities for which provision had been made in the accounts of the companies.  It is not suggested that the distribution was in any way irregular.  Section 270 of the Companies Act 1985 provides that the amount of a distribution which may be made is determined by reference to various items as stated in the company’s account, including profits, losses, assets and liabilities and provisions of any of the kinds mentioned in paragraphs 88 and 89 of Schedule 4 (depreciation, diminution of assets, retentions to meet liabilities, etc) and share capital and reserves (including undistributable reserves).  There is simply no evidence before the Court as to the manner in which the outstanding liability of Express and Blackfriars to pay corporation tax was taken into account in the calculation of the distribution.  This may be of some significance, and it is obvious that if the corporation tax liability had been discharged by payment to the Inland Revenue on or before 1 October 2000, the distribution would have been correspondingly smaller, by the amount claimed in this action.  Mr Harris, an investment banker who acted as financial advisor to the Northern and Shell Group in this transaction describes it as unprecedented in his experience that a vendor has sold a business on a cash free/debt free basis where the purchaser inherits a tax liability.  He regards the stripping out of the profits on which the tax arises by means of the dividend as inconsistent with the notion that the purchaser inherits the tax liability.  Mr Sanderson suggests that the situation sought to be achieved by the Claimants is particularly unusual.  He notes that £7,248,728 of the losses surrendered by United to Express Newspapers and for which the United Group now seeks payment from the Defendants relates to interest that was payable by other United subsidiaries to  Express Newspapers before it was sold to Northern and Shell.  The interest thus paid by the United companies to Express has been repaid to United as part of the pre-completion dividend, which is he says tax free in the hands of United.  He continues:-
“Accordingly, even leaving aside the question as to whether the tax burden was intended to fall on United or Northern and Shell, if United can now obtain payment for this internally generated Group Relief, they will obtain a cash windfall of £2,192,740 (30.25% of £7,248,728) on this element alone.  I cannot believe that United could seriously contend that such a result was intended.”
24.	With that introduction I turn to the Agreement and the claim brought under it.  I do not propose to burden this already over-long judgment with all the potentially relevant contractual provisions.  Pursuant to Clause 3.2 (e) of the Agreement one of the matters to be dealt with by the Sellers and the Buyers was the delivery of a Tax Deed on Completion.  Clause 8.5 provided that the only warranties given by the Sellers in respect of or relating to Tax or any Taxation Statutes are contained in paragraph 20 of Schedule 4 (which contains the Warranties given by Clause 4 of the Agreement) and in the Tax Deed.  Clause 8.3 of the Agreement provides:-
“The Sellers shall be under no liability under the Warranties in relation to any matter forming the subject matter of a claim thereunder to the extent that the same or circumstances giving rise thereto are fairly disclosed in the Disclosure Letter.”
	Paragraph 20 of Schedule 4 provides:-
“20.2  Accounts
The Accounts make full provision or reserve in respect of any period ended on or before the Accounts Date for all tax, other than deferred tax, assessed or liable to be assessed on the Group or for which it is accountable at the Accounts Date whether or not the Group has or may have any right or reimbursement against any other person.
Taxation Claims, Liabilities and Reliefs
(a)	Without prejudice to any liability which may arise under the Tax Deed to the best of the knowledge, information and belief of the Sellers, there is no liability to Tax in respect of which a claim could be made under the Tax Deed and there are no circumstances likely to give rise to such a liability.”
I should however notice also paragraph 4 of Schedule 4, since it is in my view fairly arguable that the provisions in the accounts which I have been discussing are not in respect of or relating to Tax or any Taxation statutes but are rather in respect of intercompany indebtedness.  That intercompany indebtedness might of course be said to be “in respect of or relating to Tax” but equally it might be said to relate to the elimination of profit.  At all events I do not consider that it can be determined on a summary application that the liabilities or obligations represented by the provisions in the accounts, if indeed there are such liabilities or obligations, fall outwith the scope of paragraph 4 of the Warranties, which provides:-
	“4.  CHANGES SINCE ACCOUNTS DATE
Since the Accounts Date [31 December 1999 for relevant purposes] — 
(c)	the Group has not, other than in the ordinary course of trading….
(ii)	assumed or incurred, or agreed to assume or incur, a liability, obligation or expense (actual or contingent);”
It is to be noted that Paragraph 22.1 of Schedule 4 also provides that the information set out in the Disclosure Letter is true in all material respects and not misleading.  I have already referred to the relevant parts of the Disclosure Letter.  In full they read as follows:-
“4.1(k)	……On 6 November 2000 the Sellers carried outa pre-sale internal reorganisation (“Reorganisation”) involving the transfer into the Group of the internet assets of United’s new media division which relate to Express Newspapers.   The Reorganisation also included the payment of a pre-sale dividend from Express Newspaper and the transfer of Express Printers Manchester from United Regional Newspapers Limited to Broughton Printers Limited.  The Reorganisation involved the repayment of certain inter company borrowings (please see document no. 85).
On 14th November 2000, the Sellers carried out an internal reorganisation to ensure the Group was cash free and debt free.  In this reorganisation United Regional Newspapers Limited applied for 500 A ordinary shares and 500 B ordinary shares in Broughton Printers Limited in consideration of a payment of £5,957,186.74.  Broughton then repaid outstanding inter-company indebtedness of £5,957,187.74 to United Regional Newspapers (please see documents 106 and 107).
Rider 1
On 22 November 2000, the Sellers carried out an internal reorganisation to ensure the Group was cash free and debt free.  In this reorganisation, United Regional Newspapers Limited applied for 500 A ordinary shares and 500 B ordinary shares in Broughton Printers Limited in consideration of a payment of £7,470,864.03.  Broughton then repaid outstanding inter-company indebtedness of £7,470,864.03 to United Regional newspapers (please see documents 108, 109 and 110).”
It is convenient next to set out Clause 4 of the main agreement, which provides:-
“4.	LOAN ACCOUNTS
4.1	The Sellers shall procure that by Completion:
(a)	all indebtedness due form the Sellers or any other member of the Sellers’ Group to any Group Company (other than Intra-Group Trading Indebtedness) is satisfied in full; and
(b)	all indebtedness from any Group Company to any member of the Sellers’ Group (other than Intra-Group Trading Indebtedness) is satisfied in full.
4.2	The parties agree that there will be a post-Competion adjustment in relation to net cash (the “Cash Adjustment Amount”) in accordance with Schedule 11.”
The Claimants say that Clause 4 by its heading indicates that it is concerned with funding debt.  They also say that the context in which the expression cash free/debt free is used in the Disclosure Letter is one of repayment of intraGroup funding debt.  
25.	Finally I must set out the relevant provisions of the Tax Deed itself.  So far as immediately relevant this provides:-
“2.	INDEMNITY
Subject to clause 2.3, the Covenantor hereby covenants with the Buyer to pay from time to time to the Buyer:-
(a)	an amount equal to each and every liability for Tax of the Company which arises:-……..
(ii)	in respect of any income, profits or gains earned, accrued or received on or before Completion;……
(c)	any liability of the Company (other than to any other Company) to make a payment for Group Relief in relation to an amount or amounts surrendered for an accounting period ended on or prior to the Accounts Date or to make a payment by  way of recharge in relation to VAT for any period ended on or before the Accounts Date;…….
The covenant contained in clause 2.1 shall not apply:-…..
(b)	to any liability to the extent that any Tax or other amount giving rise to the same or any Claim for Tax has been paid or that provision (other than provision for deferred tax) or reserve for the liability to which the same relates has been made in the Accounts and for the purposes of this clause 2.3(b) no provision or reserve shall be prevented from being adequate to the extent that the same proves to be inadequate by reason only of an increase in rates of Tax announced after the Accounts Date;…..
(h)	to any liability to the extent that it would not have arisen but for:-
(i)	any claim, election, surrender or disclaimer made, or notice or consent given, or any other thing done after the date of Completion (other than one the making, giving or doing of which was taken into account in computing any provision or reserve for Tax in the Accounts) under or in connection with the provisions of any taxation statutes by the Buyer or the Company; or…….
2.5	Any payment made under this deed between the parties (including in particular any payments made pursuant to clause 2.1 hereof by the Covenantor to the Buyer) shall be treated as an adjustment to the consideration paid by the Buyer under the Sale Agreement for the shares of the Company in question……
10.	GROUP RELIEF
10.1	The Buyer shall procure that the Company shall (to the extent permitted by law) surrender to the Covenantor or to such other member of the Covenanator’s Group as the Covenantor may specify all such Group Relief as the Covenantor may at its sole discretion direct in writing in respect of any accounting period of the Company ended on or before Completion.
10.2	The Buyer hereby undertakes that it shall procure that the Company shall, use all reasonable endeavours to procure that full effect is given to the surrenders to be made under clause 10.1 and that such surrenders are allowed in full by the Inland Revenue and (without prejudice to the generality of the foregoing) the Buyer shall procure that the company shall sign and submit to the Inland Revenue all such notices of consent to surrender (including provisional or protective notices of consent in cases where any relevant Tax computation has not yet been agreed) and all such other documents and returns as may be necessary to secure that full effect is given to this clause.
10.3	In consideration of each of the surrenders to be made under clause 10.1 above the Convenantor shall (to the extent it has not already done so) pay to the Company in respect of the surrender in question, or shall procure that the relevant member of the Covenantor’s Group shall pay to the company in question, or shall procure that the relevant member of the Covenantor’s Group shall pay to the company in question, a sum equal to the amount of corporation tax from which the company that is the claimant company in respect of such surrender has been relieved by virtue of that surrender being validly and effectively made.
10.4	Any amount payable under clause 10.3 shall be paid on the date on which any corporation tax chargeable on the taxable profits of the company which is the claimant company in respect of the surrender in question for the accounting period of it to which that surrender relates becomes due and payable, or would have  become due and payable had the claimant company incurred any liability to corporation tax in respect of that accounting period.
10.5.	If prior to the utilisation of all Reliefs including Buyer’s Reliefs the Company in question shall have an actual liability to pay corporation tax (or would otherwise have such a Liability but for the surrender contemplated by this clause 10.5), or has paid corporation tax in respect of any accounting period beginning prior to completion, then the Buyer shall, at the direction of the Covenantor, procure that the Company takes all steps as the Covenantor may require to allow the Covenantor at its sole discretion to elect by notice in writing to the Buyer to surrender or procure the surrender by any relevant member of the Covenantor’s Group to the Company Group Relief or any other Relief to the extent permitted by law.
10.6.	In consideration of each of the surrenders to be made under clause 10.5 above the company shall pay to the Covenantor in respect of the surrender in question, or shall procure that the relevant member of the Buyer’s Group shall pay to the Covenantor, a sum equal to the amount of corporation tax from which the Company that is the claimant company in respect of such surrender has been relieved by virtue of that surrender being validly and effectively made, save where and to the extent that the corporation tax liability would otherwise have given rise to a liability of the Covenantor under this deed (in which case no payment shall be made by the Company).
10.7.	Any amount payable under clause 10.6 shall be paid on the date on which any corporation tax chargeable on the taxable profits of the Company which is the claimant company in respect of the surrender in question for the accounting period of it to which that surrender relates becomes due and payable, or would have become due and payable had the claimant company incurred any liability to corporation tax in respect of that accounting period.
10.8.	The Buyer hereby agrees that in the event and on each occasion that the Covenantor shall require any amount to be surrendered by way of Group Relief under sub-clause 10.1 the Buyer shall, reasonably promptly after receipt by the Company of the amount under sub-clause 10.3, pay an amount by way of additional consideration for the Shares equal to the payment which the Company receives from the Covenantor pursuant to sub-clause 10.3.
10.9.	Any such amounts payable by any company pursuant to this clause shall be paid without set-off or counterclaim and free and clear of all deductions and withholdings except as required by law.”
In these provisions Accounts Date means, for relevant purposes, 31 December 1999, Company means the companies acquired by Northern and Shell from United including therefore Express and Blackfriars and Covenantor means the Sellers.  
26.	The Claimants bring their claim squarely within clauses 10.5 and 10.6 of the Tax Deed.  They say that the surrenders that have occurred by way of submission of the Group Relief matrix are the steps contemplated by clause 10.5 which, they suggest, is expressly dealing with the situation in which one of the target companies has a liability to pay corporation tax so that the Defendants cannot be heard to say that they thought  that any such liability would have been discharged.  They also point out that it is not suggested by the Defendants that they were in any way misled by the Claimants—in particular it is not suggested by the Defendants that the Claimants induced their belief that any outstanding tax liability would have been discharged prior to completion, although the Claimants also deny that the Defendants either did hold or should reasonably have held that belief.  
27.	The Claimants say that the reference to “Company” in the first and last lines of clause 10.6 is an obvious drafting blunder and that the reference should have been to “Buyer.”  Company makes no sense they say because the individual companies acquired were not party to the agreement and could not therefore have been assuming obligations thereunder, whereas the clause would make perfect sense if the reference is to Buyer carrying through the logic of clause 10.5 and achieving a symmetry between the regime set out in clauses 10.1—10.4 and 10.8 and that imposed by clauses 10.5—10.7.  
28.	The Claimants also point to clause 10.9 of the Tax Deed and assert that the Defendants cannot defeat the claim by establishing an independent breach of the Agreement by the Claimants, although the Claimants deny that there was any such breach.  The Claimants deny that the proviso to clause 10.6 of the Tax Deed is engaged.  They acknowledge that under clause 2.1 (a) (ii) the Claimants covenanted to pay the Defendants in respect of tax payable by the sold companies on profits earned prior to completion.  However they say that this liability would not arise if a provision had been made in the accounts of the sold companies for the tax payable—see clause 2.3 (b) of the Tax Deed.  
29.	Looking again at clause 2.3 (b) its structure is not entirely easy to follow.  It does not actually refer to tax for which provision has been made.  It is also not entirely easy to understand what is the “liability to which the same relates” in the third line bearing in mind that that apparently refers back either to “any liability” or to “any tax or other amount giving rise to the same.”  However that may be the Claimants say that a provision had been made in the accounts of the sold companies for tax and that that is what clause 2.3(b) envisages will remove the Claimants’ liability to indemnify the Defendants in respect of the unpaid tax on profits earned before completion.  The Claimants also say that an entry showing a creditor suffices as a provision or reserve.  They say that there is no provision in the Agreement requiring that the companies being acquired should be left with cash either sufficient to meet any outstanding tax liability or at all.  
30.	I also understood Mr Mowschenson to accept that on the face of it clause 2.1 (c) would generate a liability in the Claimants to reimburse the Defendants in respect of any liability of an acquired company to pay a company within the Sellers’ Group for a surrender of Group Relief in respect of the accounting year ended on 31 December 1999.  However Mr Mowschenson submitted that that obligation was prevented from arising by either clause 2.3 (b) or clause 2.3 (h) (i).  I have already observed that clause 2.3 (b) is not easy to understand.  However Mr Mowschenson submits that the provisions in the accounts satisfy the clause—they are either provisions for tax or they are provisions for the intercompany indebtedness envisaged by clause 2.1 (c). Alternatively Mr Mowschenson relies on clause 2.1 (h)(i) as excluding the prima facie liability on the basis that no intercompany indebtedness arose until submission of the matrix after the date of completion.  However this argument seems to me to run counter to the previous one, since it must be the Claimants’ case that the surrender made or notice or consent given after the date of completion was one the making or giving of which was taken into account in computing the provisions or reserves for Tax in the accounts of the target companies.  
31.	Lastly Mr Mowschenson, whilst challenging the Defendants’ assertion that they believed that the tax liability had been discharged, relies heavily on the fact that the Defendants were at all times advised by Messrs Linklaters whose specialist team would have had no difficulty in understanding the implications of the Tax Deed and of the Agreement as a whole.
32.	I assume for present purposes that the Claimants are correct in their assertion that there is an obvious blunder in the drafting of clause 10.6 of the Tax Deed and that the reference to “Company” in the first and last lines thereof should sensibly be read as a reference to "Buyer.”  It is obviously critical to the Claimants’ case that the proviso to clause 10.6 is not engaged.  That proviso is concerned with a liability to tax, not with any other liability, so that clauses 2.1 (c) and 2.3 (h) (i) are irrelevant to the immediate enquiry as to the application of the proviso.  Whilst I have very considerable misgivings about the drafting of clause 2.3 (b) it is tolerably plain that the draftsman at least intended to embrace within it a provision for tax.  If however I could on this summary application overcome my misgivings about the structure of clause 2.3 (b) that would not lead to a conclusion that it is appropriate to give summary judgment.  There is a fundamental ambivalence in the Claimants’ case on the question whether the critical provisions are provisions for tax or provisions for intercompany indebtedness, reflected in the view of Mr Allen that it is debatable how properly the provisions should be characterised.  That is not in my judgment a promising starting point for the assertion that the defences put forward are so weak that they must inevitably fail and that there is no compelling reason why the matter should proceed to trial.  The fact that there is no conventional treatment of this area under UK GAAP militates against the suggestion that the effect of the contractual provisions is clear and obvious, not capable of bona fide misunderstanding by professional persons experienced in the field.  In my judgment these are reasons why the matter should proceed to trial.  
33.	I must also at this stage accept at face value, unless inherently incredible, the evidence of Mr Desmond, Mr Harris and Mr Sanderson.  I cannot say that their evidence is inherently incredible.  It follows that I cannot dismiss as having no prospect of success the Defendants’ claim to rectify the Agreement so that it reflects the alleged common intention of the parties that tax on profits earned by the target companies prior to completion should be borne by the sellers.  It is apparent that there is at the very least a serious issue as to whether there was any such common intention.  
34.	I am also troubled by the point that, as it seems to me, the incidence of the obligation to discharge the tax liability of the target companies may be wholly dependent upon the fortuity whether the Group Relief matrix in respect of the 1999 accounting year is submitted before or after completion.  On the basis of the evidence currently before the court the submission of the matrix appears to have been an act carried out solely by the sellers’ group without any input from and without reference to the buyers, and it appears that there was no impediment to the sellers so acting—indeed the Claimants would I think say that clause 10.5 of the Tax Deed entitled them so to act.  That may be so, although in that regard the Defendants observed at the hearing, the point being hitherto unforeshadowed, that there was no indication in the evidence that there had been any “direction of the Covenantor” as apparently required or envisaged by clause 10.5, still less any notice in writing to the Buyer concerning the intention to surrender.   I appreciate that the Claimants had no opportunity to present evidence to rebut this point.  If however the Group Relief matrix had been submitted prior to completion then it would appear to be arguable that the Claimants would be obliged to indemnify the Defendants under clause 2.1 (c) in respect of the target companies’ obligation to pay for Group Relief.  That would be subject to the effect of clause 2.3 (b) and the proper characterisation of the provisions, assuming that they would be in similar form to those in fact relied upon, but I am in any event far from convinced that clause 2.3 (b) is concerned with provision for intercompany indebtedness as opposed to provision for tax properly so called.  Clause 2.3 (h) would be inapplicable to submission of a matrix prior to completion. 
35.	 It would also I think be arguable that in such circumstances the Claimants would be in breach of the warranty given under Paragraph 4.1 (c) (ii) of Schedule 4, in that the target companies would on the Claimants’ analysis have assumed or incurred or agreed to assume or incur a liability to pay for the losses surrendered.  I would not be prepared to hold on a summary basis that the Defendants were prevented from enforcing the warranty by reason of clause 8.5 of the Agreement.  I suppose that if a Group Relief matrix had been submitted prior to completion it would be likely that it would have been referred to in the Disclosure Letter.  That would have prevented a breach of warranty arising—see Schedule 5 paragraph 4.  However it seems to me at any rate arguable, on the basis of Mr Dickerson’s evidence, that by completion matters had sufficiently crystallised that the target companies should be regarded as having assumed or incurred, or agreed to assume or incur a liability, actual or contingent, to pay for losses surrendered by way of Group Relief.  I appreciate that the payee party or parties could not necessarily or finally be identified.  However the fact that the matrix when first submitted did not accord with either of the tax returns, and was then later adjusted, seems to me to indicate that this is an area in which it may be artificial or unreal to insist on too rigid formality.  If it is the case that submission of the matrix generated in the target companies a liability such as is described in paragraph 4.1 (c)(ii) of Schedule 4, and it is the Claimants’ case that it did, then I cannot rule out as having no prospect of success the argument that, for the purpose of giving sensible content to the warranties, the same result must be regarded as having been achieved by the accounting treatment adopted prior to completion combined with the non-payment of corporation tax when otherwise it fell due.  
36.	The question of the proper characterisation of the provisions in the accounts is determinative also of the issue whether paragraph 5.3 of Schedule 5 is of any application. 
37.	 I am also far from persuaded that it is appropriate on a summary application to regard clause 4 of the Agreement as having no application to intercompany indebtedness arising out of an obligation to pay for losses surrendered by way of Group Relief.  
38.	Finally it seems to me arguable that, on the Claimants’ case, there was a breach of the warranty given at paragraph 20.6 (a) of Schedule 4.  It seems to me that on the Claimants’ case there was a potential liability in the target companies to corporation tax which was to be avoided by the surrender of Group Relief, which would give rise to a claim by the Claimants under clause 10.6 of the Tax Deed.  
39.	I should also mention that Mr Eder Q.C. for the Defendants submitted that the Defendants might be in a position to invoke the doctrine recognised by the House of Lords in Alghussein Establishment-v-Eton College [1988] 1WLR 587 to the effect that, broadly, a party may be prevented from enforcing a contractual provision where he is in breach of another contractual provision designed to avoid the situation sought to be achieved coming about, or to cast onto him responsibility for the matter in question.  I agree that that is arguably so.  
40.	I am conscious that I have not dealt with every argument advanced.  The foregoing is sufficient to indicate why I regard the Claimants’ claim as inappropriate to be pursued by way of an application for summary judgment.  In my judgment there are arguable defences and there are compelling reasons why the matter should proceed to trial.  I leave out of account that, as I am informed, the Defendants have sent to the Claimants a proforma Part 24 application asserting an entitlement to recover pursuant to clause 2.1(c) of the Tax Deed any amount recovered by the Claimants in these proceedings.