The aim of the court, when interpreting a provision in a contract, is to determine what the parties meant by the language used and, when doing so, the court will assume that every word, and every phrase, has been inserted for a reason. So, if parties use different language in overlapping clauses in an agreement, the court may well interpret them differently.
Dooba Developments Ltd v McLagan Investments Ltd [2016] EWHC 2944 (Ch); [2016] PLSCS 328 concerned a contract, which ran to nearly 70 pages, for the sale and purchase of land with a headline price of £12m. The land was to be developed as an Asda superstore, with cafeterias, restaurants and a petrol filling station and the agreement was subject to the satisfaction of four conditions precedent.
Either party was entitled to rescind if “any of the conditions have not been discharged” by dates stipulated for each particular condition. A further provision in the contract gave the parties the right to rescind “if all of the conditions have not been discharged.… by the longstop date”, which was 23 July 2014. Planning permission was granted in March 2014, but Asda tried to rescind the agreement immediately after the longstop date on the ground that the highway condition had still not been fulfilled. The seller claimed that Asda had acted prematurely. Who was right?
On an application for summary judgment, the trial judge decided that both parties would have wanted to be certain about the maximum duration of their agreement and would have included a longstop date (which was four years after they exchanged contracts) for that reason. Therefore, he interpreted the agreement in Asda’s favour to mean that the retailer could rescind if “any” of the conditions had not been discharged by the longstop date.
The High Court has overturned that decision. The court accepted that Asda’s interpretation of the contract was possible, especially if the clause had stood alone and the agreement had not made any other provision for rescission. But, after contrasting the clauses referring to “any of the conditions” and “all of the conditions”, the judge ruled that the phrase “if all the conditions have not been discharged” meant exactly what it said. So the power to rescind on which Asda relied arose only if none of the conditions had been satisfied by the longstop date. The highway condition had not been satisfied by that date, but there was a triable issue as to the remaining conditions. Therefore, Asda’s rescission notice had been premature and the contract remained in force.
The first instance decision reflects the way in which most commercial property lawyers set about drafting conditional contracts, but courts have to interpret the words actually used by the parties. Asda’s construction of the agreement depended on turning the longstop clause on its head and reading it to mean: “if not all of the conditions have been discharged”. But this was not what the contract said; all the conditions had to be unsatisfied for the right to rescind to arise. So, for the want of a correctly placed negative, the battle was lost.
Allyson Colby is a property law consultant
