Lloyds TSB Foundation for Scotland v Lloyds Banking Group Plc [2011] ScotCS CSOH_105 (17 June 2011)

Lloyds TSB Foundation for Scotland v Lloyds Banking Group Plc [2011] ScotCS CSOH_105 (17 June 2011)

The Deed Covenant unambiguously requires calculation of the payment to the Foundation by reference to the group profit before taxation as shown in the audited consolidated accounts, adjusted only for minority interests and profits/losses on sale or termination of an operation. The inclusion of negative goodwill in pre-tax profit, though a change in accounting practice, does not render the formula ambiguous or absurd. The parties chose to rely on audited accounts as prepared under prevailing standards, and there is no basis for excluding negative goodwill or for equitable adjustment. The pursuer is entitled to payment calculated on the basis that negative goodwill is included in pre-tax...

Citation
[2011] ScotCS CSOH_105
Parties
Pursuer: Lloyds TSB Foundation for Scotland; Defender: Lloyds Banking Group plc
Jurisdiction
Scotland
Judgment Date
17 June 2011
Procedural Posture
Commercial Contract Dispute / Opinion After Proof Before Answer
Outcome
Judgment for the pursuer
Legal Topics
Interpretation of Deeds, Accounting Standards, Negative Goodwill, Charitable Covenants
Contract Law Charity Law Banking Law Interpretation of Deeds Accounting Standards Negative Goodwill Charitable Covenants

Case Brief

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Parties

Lloyds TSB Foundation for Scotland

Pursuer

Lloyds Banking Group plc

Defender

Procedural Posture

Commercial Contract Dispute / Opinion After Proof Before Answer

Legal Issues

  1. 1 Whether negative goodwill arising from the acquisition of HBOS should be included in 'Pre-Tax Profit' for the purposes of the 1997 Deed Covenant between the parties.
  2. 2 Whether the Deed should be equitably adjusted to exclude negative goodwill from the calculation of Pre-Tax Profits.

Ratio Decidendi

The Deed Covenant unambiguously requires calculation of the payment to the Foundation by reference to the group profit before taxation as shown in the audited consolidated accounts, adjusted only for minority interests and profits/losses on sale or termination of an operation. The inclusion of negative goodwill in pre-tax profit, though a change in accounting practice, does not render the formula ambiguous or absurd. The parties chose to rely on audited accounts as prepared under prevailing standards, and there is no basis for excluding negative goodwill or for equitable adjustment. The pursuer is entitled to payment calculated on the basis that negative goodwill is included in pre-tax...

Court Disposition

Judgment for the pursuer

Orders

  • Declarator that the Pre-Tax Profit for the Accounting Reference Period ending 31 December 2009 is £907 million, including negative goodwill.
  • Decree for payment by the defender to the pursuer of £3,543,433.