Sale of property – Mortgagee – Receivers – Claimant defaulting on bank loan secured by legal charge over commercial property – Claimant and receivers entering into a contract for sale of property to defendant – Completion not taking place by specified date – Claimant serving notice to complete on defendant – Defendant failing to complete and claimant rescinding contract for sale – Property being sold at auction to third party – Defendant registering unilateral notices against property – Claimant applying for declaration that contract terminated by rescission and seeking summary judgment – Whether unsigned notice to complete being valid where not given by receivers – Application granted
The claimant company acquired the freehold title to commercial premises with the benefit of a loan from a bank, repayment of which was secured by a charge by way of legal mortgage over the property. The claimant defaulted on the loan and the bank appointed receivers of the property pursuant to sections 101 and 109 of the Law of Property Act 1925. Section 109(2) provided that a receiver should be deemed to be an agent of the mortgagee. Clause 7 of the deed of appointment provided that any act required or authorised to be carried out by the receivers might be done by one or more of the receivers for the time being holding office.
The claimant, acting by its receivers, entered into a sale contract to sell the property to the defendant for £1.9m. Clause 19.2 of the sale contract provided that if there was a breach of the purchaser’s obligations under the sale contract, the claimant, acting by the receivers, might terminate it by giving notice to the defendant. Conditions 8.8.1 and 8.8.2 of the standard conditions, which were incorporated into the sale contract, provided that, at any time on or after the completion date, a party who was ready, able and willing to complete might give the other a notice to complete, completion to be within ten working days of giving a notice, excluding the day on which the notice was given, time being of the essence of the contract.
A notice to complete was served on the defendant. There was no evidence that the notice was actually signed. When completion of the sale did not take place by the specified date, the claimant gave notice to rescind the sale contract, pursuant to the standard conditions of sale. The property was later sold by auction to a third party. The defendant then took steps to register unilateral notices against the freehold titles to the property, thereby effectively preventing completion of the sale to the third party.
The claimant commenced proceedings, seeking, among other things, a declaration that the sale contract had been terminated by rescission, an order that the unilateral notices be cancelled, and an injunction restraining the defendant from making any further application to the Land Registry for the registration of any other notice or restriction in respect of the sale contract. The defendant issued a defence and counterclaim, seeking specific performance of the sale contract. The claimant applied for summary judgment and summary dismissal of the defendant’s counterclaim. The main issue was whether the notice had been a valid notice to complete, even though it had not been signed and had not been given by the receivers even though the sale contract had specified that the claimant was “acting by the receivers”.
Held: The application was granted.
(1) The court had to construe the notice objectively by asking what a reasonable recipient of the notice with all the background knowledge which would reasonably have been available to it at the time of the notice would have understood the maker of notice to have meant; and if there were two possible constructions, the court was entitled to adopt the construction which was consistent with business common sense and reject the other construction. There was no legal requirement for a notice to complete to be signed and, in the present case, a reasonable recipient of the notice would understand from the fact that it had been signed that it was intended to take effect and not merely to be draft, despite the fact that it had not been signed: Rainy Sky v Kookin Bank [2011] UKSC 50; [2011] 1 WLR 2900 applied.
(2) The party to the sale contract who could give a notice to complete was the seller, the claimant, and not the claimant acting through the receivers. The receivers had entered into the sale contract merely as agents for and on behalf of the claimant. The provision that the claimant “(acting by the receivers) shall sell” the property did not give the defendant the right to require the claimant to act through agents, let alone particular agents, in performing its obligations and exercising its rights under the sale contract. The defendant had no commercial or other interest in insisting on being able to deal with the claimant through the receivers as agents and not directly; and the claimant could not have intended that the defendant should be able to object to completion of the sale contract merely because, for example, the claimant had discharged its indebtedness to the bank so that the receivers had ceased to act. The words “acting by the receivers” were not words of limitation or compulsion but were mere words of description. It followed that the defendant’s attacks on the validity of the notice, and its counterclaim, had no prospect of success and there was no other compelling reason why the claimant’s claims or the counterclaim should be disposed of at a trial.
(3) Even if the claimant could only act through the receivers, the expression “the receivers” should be construed as including their successors in office. It would be absurd to give a literal construction of that expression so as to exclude their successors, given that the expression referred, not to the party himself, but merely to his agent: City Inn (Jersey) Ltd v Ten Trinity Square Ltd [2008] EWCA Civ 156 and Starlight Shipping Company v Allianz Marine & Aviation Versicherungs AG [2014] EWHC 3068 (Comm) considered.
Philomena Harrison (instructed by DLA Piper UK LLP) appeared for the claimant; Adrian Davies (instructed by Hepburns Solicitors LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: TBAC Investments Ltd v Valmar Works Ltd
