Contract – Construction – Claimant purchasing development land from defendants – Terms of contract providing for purchase price reduction and mechanism for further payment of costs – Whether specified items of claim triggering mechanisms pursuant to contract terms – Whether claimant entitled to damages for breach of contract – Claims allowed in part
In 1999, the defendants agreed to sell a development site to the claimant for £29,892,380. Under the sale agreement, the purchase price could be adjusted pursuant to clause 7A and clause 14A provided a mechanism for the further payment of costs in certain limited circumstances.
The claimant identified 28 claim items, which it maintained either triggered the price adjustment mechanism so as to decrease the purchase price under clause 7A, or entitled it to a cash payment from the defendants under clause 14A. It applied to the court for declarations to that effect.
In addition, clause 12.2 and 12.3 of the sale agreement obliged the defendants to carry out certain remediation works at the site. It was common ground that the claimant did not expressly require the defendants to carry out those works and that it had performed the works. However, it claimed the costs of carrying out those works as damages for breach of contract. It also claimed the costs of diversion works to a road within the site, which it said were required to ensure that the defendants could continue to use their adjacent land for commercial purposes.
The principal issues for the court were whether: (i) on a proper construction of the sale agreement, and other subsequent agreements between the parties, the items of claim triggered the mechanisms under clause 7 and/or 14A; and (ii) the claimant’s claims for damages had been made out in principle and on the facts.
Held: The claims were allowed in part.
(1) A commercial contract had to be construed in the light of the circumstances, taking into account any background facts that a reasonable man would have considered relevant, even if the wording of the contract could be regarded as being unambiguous. However, it was necessary to retain a proper balance between the factual background, on the one hand, and the actual words used in the contract, on the other: Martin v David Wilson Homes Ltd [2004] EWCA Civ 1017; [2004] 3 EGLR 77; [2004] 39 EG 134 considered.
The proper construction of a contractual clause required a consideration of the clause in the context of the contract as a whole. An express term in a contract excluded the possibility of implying any term dealing with the same subject matter as that contained in the express term. Where a particular construction might produce an unfair result, the court would often require clear words to support the construction in question: Miller v Emcer Products Ltd [1956] Ch 304 and BCC v Ali [2001] 1 AC 251 considered.
Having regard to all the circumstances and the terms of the sale agreement and in accordance with commercial reality, the claimant was entitled to the declarations sought in respect of a limited number of specified items only.
(2) The claimant had made out its claim for damages since it was a mandatory requirement of the sale agreement that the defendants should carry out the remedial works. The defendants’ obligations were clear and, since they had failed to perform them, they were in breach of contract.
The correct measure of loss was the notional cost to the defendants of carrying out the work calculated by reference to the Landpac dynamic compaction methodology, which according to the expert evidence was not only a better alternative technically but was also cheaper.
(3) Pursuant to the terms of the sale agreement, the claimant had established a liability to be reimbursed by the defendants in respect of the diversion works.
Richard Wilmot-Smith QC and John Denis-Smith (instructed by Boodle Hatfield) appeared for the claimant; Thomas Keith and James Bowling (instructed by Eversheds LLP) appeared for the defendants.
Eileen O’Grady, barrister
