Sale of land – Agreement for sale of property portfolio – Purchase price including sum for shares in holding company that owned properties – Price for shares expressed as fixed sum to be adjusted after completion by reference to net current assets of company at completion – Whether “net current assets” to exclude property stock and other items already taken into account in purchase price – Claim allowed
The defendants owned a substantial portfolio of properties through a holding company, its two subsidiary companies and a limited liability partnership. They wished to sell the properties and, on the advice of a firm of surveyors, marketed them at £16m for a sale of the entire portfolio; the corporately owned properties were to be sold by way of a sale of the shares in the holding company rather than a sale of the individual properties. The sale to a large property investment group was agreed and the claimant company was incorporated to act as the purchaser. Under the terms of the sale and purchase agreement, the agreed purchase price of £14.4m included a fixed sum of £3.219m in respect of the shares in the holding company. That sum was to be adjusted after completion by the payment of an additional amount in respect of the current net assets of the holding company on completion. Completion accounts setting out the current net assets were to be prepared in draft form by the defendants and delivered to the claimant within 60 days of completion.
Completion took place in April 2005, but the defendants did not provide the draft completion accounts within the stipulated 60 days. Eight months later, the defendants sent a document purporting to be the completion accounts, by reason of which they claimed almost £6m in additional payment as an “adjustment” to the purchase price for the holding company shares. That figure included a number of items, including a sum for the value of the holding company’s property stock, to which the claimant objected on the ground that those items had already been taken into account in the purchase price and paid for on completion.
The claimant brought proceedings in which it contended that, on the true construction of the agreement, the “net current assets” of the holding company were not intended to include the property stock and the other items for which it had already paid; in the alternative, it sought rectification of the agreement to state that those items were to be excluded.
Held: The claim was allowed.
It was inconceivable that the parties could have intended the purchase price for the shares in the holding company to be adjusted by reference to current assets that had already been fully taken into account in fixing the agreed purchase price before adjustment or for which the terms of the agreement had otherwise already made full provision. The parties could not rationally have contemplated that the claimant should pay twice for the corporately owned stock of properties: once as part of the net price agreed for the portfolio as a whole and again as part of the net current assets of the companies at completion.
Although a literal construction of Schedule 8 would require that the stock of properties be included in the draft statement of assets, a literal construction produced an absurd result that the parties could not have intended, such that the courts should, if possible, interpret the language used in a way that produced a sensible result: Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 and Antaios Compania Naviera SA v Salen Rederrierna AB (The Antaios) [1985] AC 191 applied. It was not necessary in the instant case to postulate that the parties had made a mistake. Schedule 8 should merely be read as being subject to a qualification that the draft statement of the net assets of the holding company was to exclude the stock of properties and the other items that had already been taken into account elsewhere. That did not involve implying a term into the agreement or giving the words a meaning that they could not bear. It merely recognised that those words were subject to an implied limitation when read in context, which needed to be spelt out so that the provision made commercial sense. Even if the omission were properly to be regarded as a mistake, it was still within the province of construction to correct it since, in the light of the relevant background material, it was obvious that a mistake had been made and it was clear what correction needed to be made in order to cure the mistake: East v Pantiles (Plant Hire) Ltd [1982] 2 EGLR 111; (1981) 263 EG 61 applied.
David Cavender (instructed by Hamlins LLP) appeared for the claimant; Peter Ralls QC and Robert-Jan Temmink (instructed by Cripps Harries Hall LLP, of Tunbridge Wells) appeared for the defendants.
Sally Dobson, barrister