Lloyds TSB Foundation For Scotland v Lloyds Banking Group Plc [2011] ScotCS CSIH_87 (29 December 2011)

Lloyds TSB Foundation For Scotland v Lloyds Banking Group Plc [2011] ScotCS CSIH_87 (29 December 2011)

The Deed of Covenant unambiguously requires calculation of the payment based on the 'group profit before taxation' as shown in the audited consolidated accounts. The inclusion of negative goodwill in that line, as required by IFRS 3, must be respected, regardless of whether the parties foresaw such accounting changes. There is no basis in Scots law for an equitable adjustment to exclude negative goodwill from the calculation.

Citation
[2011] ScotCS CSIH_87
Parties
Pursuer and Reclaimer: Lloyds TSB Foundation For Scotland; Defender and Respondent: Lloyds Banking Group Plc
Jurisdiction
Scotland
Judgment Date
29 December 2011
Procedural Posture
Commercial Contract Dispute (reclaiming Motion) / Appeal (inner House, Court of Session)
Outcome
Reclaiming motion allowed; cross-appeal refused.
Legal Topics
Interpretation of Contracts, Accounting Standards in Contracts, Charitable Covenants, Equitable Adjustment, Scots Law
Contract Law Commercial Law Interpretation of Contracts Accounting Standards in Contracts Charitable Covenants Equitable Adjustment Scots Law

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Parties

Lloyds TSB Foundation For Scotland

Pursuer and Reclaimer

Lloyds Banking Group Plc

Defender and Respondent

Procedural Posture

Commercial Contract Dispute (reclaiming Motion) / Appeal (inner House, Court of Session)

Legal Issues

  1. 1 Whether negative goodwill recognised under IFRS 3 should be included in 'Pre-Tax Profits' for the purposes of a Deed of Covenant between the parties.
  2. 2 Whether Scots law recognises a doctrine of 'equitable adjustment' permitting the court to moderate contractual obligations in changed circumstances.

Ratio Decidendi

The Deed of Covenant unambiguously requires calculation of the payment based on the 'group profit before taxation' as shown in the audited consolidated accounts. The inclusion of negative goodwill in that line, as required by IFRS 3, must be respected, regardless of whether the parties foresaw such accounting changes. There is no basis in Scots law for an equitable adjustment to exclude negative goodwill from the calculation.

Court Disposition

Reclaiming motion allowed; cross-appeal refused.

Orders

  • Recall the Lord Ordinary's interlocutor of 17 June 2011.
  • Sustain the first and second pleas-in-law for the pursuer and reclaimer.