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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> St Ivel Ltd v Wincanton Group Ltd & Anor [2007] EWHC 2906 (Comm) (06 December 2007) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2007/2906.html Cite as: [2007] EWHC 2906 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
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St Ivel Limited |
Claimant |
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- and - |
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Wincanton Group Limited -and- Uniq Prepared Foods Limited |
Defendant Third Party |
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Christopher Pymont QC and James Counsell (instructed by Clyde & Co) for the Defendant
Hearing dates: 31 October & 1 November 2007
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Crown Copyright ©
Mr Justice David Steel :
Introduction
The Parties
The National Distribution Centre at Gloucester
Previous contractual arrangements between the parties
i) the NDC should cease to be a dedicated site and would become a multi user site;
ii) Wincanton would seek other business to fill up the capacity of the site; and
iii) Uniq would be released from its obligation to take back the lease of the NDC in the event that the Warehouse Management Services Agreement of 1997 was terminated.
The new agreements
Performance of the agreements
Dispute Resolution Procedure
The relevant provision
"4.1 In this paragraph:
- Additional Business means revenue received by Wincanton from customers additional to the Uniq Group and additional to the Committed Benefit;
- Committed Benefit shall mean… £4,090,000 in respect of each [year];
- Volume Shortfall in respect of a Relevant Agreement means the difference between the Threshold Volume as defined in that Agreement and the Actual Volume of Goods (as defined in that Agreement) provided by the Uniq Group to Wincanton at the Warehouse pursuant to that Agreement in each Year of that Agreement where the actual volume of such goods provided by the Uniq Group to Wincanton at the Warehouse is less than that of the Threshold Volume under that Agreement;
- Relevant Agreement means such of the Agreements… as shall for the time being and from time to time be vested in the Uniq Group…
4.2 Wincanton shall use reasonable endeavours to develop and secure additional business with a view to utilising spare capacity and throughput in the Warehouse. Subject to paragraph 4.3 below, in the event that Wincanton agrees that any payment due by the Uniq Group in respect of a Volume Shortfall under a Relevant Agreement shall be reduced by:
(a) in respect of the payment for the first 10% of the Volume Shortfall, 60%; and
(b) in respect of the payment for the balance for the Volume Shortfall, 40% of the gross revenue (less associated costs) generated as a result of that Additional Business."
The principal issue
"1 Definitions
1.1 "Lease" means the lease of the whole site entered into between Britel Fund Trustees Limited and UDS Limited on 17 February 1999
"Operating Parameters" means those parameters between the parties set out in Schedule 1 within which the Warehouse Services are to be provided by Wincanton
"Rent" shall have the same meaning as in the Lease
"Threshold Volume" means 23.25 million cases in each year of the Term;
"Volume Shortfall" means the difference between the Threshold Volume and the actual volume of goods provided by the customer to Wincanton at the Warehouse in each year of the Term where the actual volume of Goods provided by the Customer to Wincanton at the Warehouse is less than that of the Threshold Volume;
"Warehouse" means the warehouse premises let subject to the Lease in which the Warehouse services are to be provided;
"Warehouse Services" means the loading and unloading, storing and handling of the Goods, the management of the Warehouse and any ancillary or complimentary services to be provided to the customer, as indicated by the Warehouse Services Specification;
"Warehouse Services Specification" means the requirements for the Warehouse Services as agreed between the parties from time to time and which Specification will be based on the warehouse services specification comprised in Schedule 3 to the Previous Agreement (a copy of which schedule, for convenience is annexed as Schedule 3 to this Agreement);
………
9 Guaranteed Volume
9.1 The Customer shall provide the Threshold volume of goods to Wincanton at the Warehouse each year of the Term. If the Cusomer fails to provide the Threshold Volume it agrees to compensate Wincanton therefore by payment of charges for Volume Shortfall calculated in accordance with paragraph 1.1© (i) of Schedule 1.
10. Customer Strategy Volumes
10.1 Wincanton shall ensure that the capacity of the Warehouse is sufficient to meet Customer Strategy Volumes plus an additional 10% of such volumes at the hourly throughput rates specified in Schedule 2 in each year of the Term.
Schedule 1
Charges
1.1 Amount of charges
Wincanton shall be entitled to charge for Warehouse Services provided to the Customer under this Agreement as follows:
(a) Threshold Volume
For volumes up to and including the threshold Volume an amount equal to a rate of 17.06p per case …
(c) Reduced Volumes
…for all volumes below the Threshold Volume, an amount equal to the Agreed Rates … plus 13.14 pence per case in relation to the volume Shortfall…..
1.3 Adjustments and Review
(a) Rent
Subject to the due performance by Wincanton of its obligations pursuant to clause 14 the Customer agrees to pay the increase in Rent at each Rent Review under the Lease payable as a proportion of the Agreed Rates calculated as follows: (165,000 x £4.50 per sq. ft.) x 41.73% x percentage increase in Rent following Rent Review.
(a) Customer Strategy Volumes for the Warehouse are as follows:
Million Cases | Plus 10% | Total | |
First year of Term: | 26 | 2.6 | 28.6 |
Second year of Term: | 29 | 2.9 | 31.9 |
Third year of Term: | 31.9 | 3.19 | 35.09 |
Fourth year of Term: | 35.09 | 3.51 | 38.6 |
(b) Hourly rates of throughput at the Warehouse are as follows:
Capacity\Category:
Goods Inwards | 234 pallets per hour |
Replenishment to FMP Cranes | 168 pallets per hour |
Full pallets to marshalling | 100 pallets per hour |
Pallets out of FMP pick up area | 188 pallets per hour |
Total pallets out | 288 pallets per hour |
Case pick | 16 000 cases per hour |
…..
(d) Hourly rates of throughput for each year shall be calculated as follows:
(the Customer Strategy Volume for the preceding 12 months + 10%) ÷ 85 million x 100 = percentage rate of hourly throughput applicable to each capacity category…..
The St.Ivel National Distribution Center (NDC) at Brockworth Gloucester commenced operations in May 1999 with the objective to supply storage, picking and distribution facilities to the St.Ivel chilled products business.
The site is operated by Wincanton on an open book contract which is managed by St.Ivel against an operational specification and a series of Key Performance Indicators KPI's…..
The following document outlines the procedural specification to which St.Ivel expects Wincanton to operate the NDC under a closed book contract.
2. General Parameters
….
The site will operate 24 hours per day and 7 days per week….
The NDC will operate at 2 degree C +/- 1 degree C
If third party business is integrated into the NDC and the storage space utilised then Wincanton are unable to guarantee volumes above the agreed capacity. Options would need to be considered as to how this requirement is to be satisfied either within the NDC extension or alternative sites.
3. Strategic Volumes
The St Ivel strategy volumes are below…..
[e.g. 2002/2003 49 million cases: plus 10% 53.9]
4. Storage Capacity
….
The mix between sites may change but the overall stock should not exceed 5985 pallets
[Agreed Capacity 5764]
If third party business is integrated into the NDC and the storage space utilised then Wincanton are unable to guarantee volumes above the agreed capacity. Options would need to be considered as to how this requirement is to be satisfied either within the NDC extension or alternative sites.
….
6. MHE Throughput
Peak volumes per day = 185,000 case pick + 650 full pallets
Hourly volumes (based on 16 hour pick window) = 8,060 cases picked per hour and 41 full pallets per hour. During peak periods this pick window can be extended to 18 hours and the peak full pallet throughputs calculated below are based on an 18 hour window.
21. Housekeeping
The warehouse should be maintained to an acceptable level of cleanliness.
The site will need to comply with independent Uniq Hygiene audit conducted every 6 months and recommended actions will need to be fulfilled."
The Claimant's case
i) The extension was built before the 2002 agreement.
ii) The "warehouse" is the premises subject to the lease.
iii) The leased premises are both the original warehouse and the extension: indeed the lease expressly contemplated the construction of the extension on the premises.
iv) Indeed both the plans and the photos demonstrate that they form one single unit or building.
v) The "warehouse services" are those services provided under Schedule 3 to the "NDC": this encompasses the whole building.
vi) Although MHE throughput relates to automated activity in the warehouse, additional business utilising "spare capacity and throughput" cannot be restricted to automated activity otherwise there would be no meaning to "spare capacity".
vii) When the Side letter was executed there was spare capacity in both the original warehouse and the extension.
viii) The original pleaded case of Wincanton (together with the witness statements) proceeded on the basis that the warehouse included the extension: such was a strong pointer to the ordinary and natural meaning of the words within their commercial context.
The Defendant's case
i) The predecessor agreement, entered into in 2001, was executed prior to the construction of the extension.
ii) The charge rates, strategy volumes, committed benefit etc. were all by reference to the use, capacity and cost of the original warehouse.
iii) These same figures were adapted for use in the 2002 agreement without adjustment to reflect the extension.
iv) The fact that "warehouse" referred to the original warehouse is further confirmed by the following matters:-
a) It is defined by reference to the services set out in the Specification in Schedule 3 which are all automated.
b) It is defined by reference to operations at 2°C which excludes the operations at ambient temperatures in the extension.
c) There is no contractual obligation to furnish space within the extension if third party business exceeds the relevant agreed capacity of the original warehouse.
Discussion
i) Schedule 1 was concerned with charges in respect of the threshold volume of 39 million cases per year and any volume shortfall. These charges were open to review. The formula for adjustment, so far as reflecting increases in rent, was by reference to the area of the original warehouse (namely 165,000 square feet). Furthermore the applicable percentage of the increase (namely 70%) was based on the prescribed strategy volume divided by the capacity of the original warehouse.
ii) Schedule 2 was concerned with St Ivel strategy volumes and throughput volumes year by year. By virtue of clause 10 of the 2001 agreement, Wincanton was required to ensure that the warehouse capacity was sufficient to meet those volumes plus 10% at the specified throughput rates. It followed that the warehouse for these purposes was to be the original warehouse since not only was the extension yet to be built but also because (a) the total available capacity was 85 million cases and (b) the throughput rates reflected automatic handling.
iii) Schedule 3 sets out the specification of "warehouse services" which were to be provided within the leased warehouse. These services were to be provided within the original warehouse:-
a) because the extension had yet to be built.
b) because it was solely directed to St Ivel chilled products business.
c) because it expressly provided that third party business would eliminate any guarantee of volumes above the agreed capacity in which case the requirement might have to be absorbed in the proposed extension.
i) the terms of the rent review clause in Schedule 1 are still expressed by reference to the area of the original warehouse and with operating parameters still expressed by reference to automated throughput.
ii) the strategy volume in Schedule 2 continued to be expressed in the context of automated throughput within the total capacity of the original warehouse.
iii) Perhaps the most striking of all the original Warehouse Services Specification is annexed in Schedule 3 without amendment: this both gives the appropriate measure of automated throughput of chilled goods but also expressly distinguishes between the NDC on the one hand and the NDC extension on the other.
"(2)In calculating the amount of "gross revenue (less associated costs) generated as a result of that Additional Business", are "associated costs" limited to variable costs incurred with respect to any Additional Business and, in particular:
(a)to what extent (if at all) is Wincanton entitled to treat any part of the costs of the Warehouse extension as "associated costs" of Additional Business;
(b)to what extent (if at all) is Wincanton entitled to treat the costs of employers' liability and public liability insurance as "associated costs" of Additional Business; and
(c)to what extent (if at all) is Wincanton entitled to treat the costs of management and administration as "associated costs" of Additional Business?"
"Associated costs:
(a)are not limited to variable costs incurred with respect to any Additional Business;
(b)are not limited to costs directly associated with Additional Business;
(c)can be calculated or assessed as a part or proportion of any larger item of cost provided that the part orproportion is an associated cost of generating the source revenue;
(d)include any costs which may in fact be associated with the generation of the Additional Business."
"In calculating the 'gross revenue (less associated costs) generated as a result of that Additional Business' for the purpose of paragraph 4 (2) of the Side Letter, the "associated costs" do not include costs which would have been incurred by Wincanton even if the Additional Business had not been obtained and /or undertaken (including costs incurred in providing services to the Uniq group or in generating the Committed Benefit)."