Agreement for sale of land – Agreement reached following mediation to resolve legal proceedings concerning occupation rights over property – Respondent to sell freehold to applicant – Heads of terms expressly stated to be “subject to contract” – Respondent contemplating sale to third-party bidder – Whether breach of agreement – Whether applicant entitled to injunction restraining sale – Application refused
The applicant and the respondent entered into legal proceedings concerning occupation rights over a property owned by the respondent. The proceedings were resolved by mediation, which resulted in an agreement whereby the applicant was to purchase the respondent’s freehold interest in the property at a given price. The heads of terms of the agreement were set out in a document that was stated to have been “signed by persons having full power and authority to bind the respective parties”, although it was also “subject to authorisation” by the parties’ respective boards of governors. The parties undertook to use reasonable endeavours to obtain that authorisation. The agreement was expressed to be “subject to contract in all respects”.
Shortly after the agreement was made, a third party contacted the respondent and made a higher offer for the property, which the respondent’s board of governors considered accepting. The applicant contended that such a sale would be in breach of the agreement and applied for an injunction to restrain the respondent from selling the property pending a trial. Opposing the injunction, the respondent maintained that there was no serious issue to be tried since the agreement was subject to contract and the respondent was accordingly free to walk away at any time and to sell to the highest bidder if it so wished. The applicant submitted that: (i) the expression “subject to contract” in the heads of terms should not be construed as having its ordinary meaning; (ii) the respondent was in breach of its express obligation to obtain the authority of its board of governors to bind it to the mediation agreement and/or an implied obligation to use reasonable endeavours to bring about the sale to the applicant; and (iii) a proprietary estoppel arose as a result of the respondent’s conduct, such that the applicant was entitled to an interest in the property.
Held: The application was refused.
(1) It was settled law that the expression “subject to contract” was a term with a particular meaning, namely that either party was free to walk away from the proposed transaction at any stage until a binding agreement, not expressed to be subject to contract, had been made between the parties: Rugby Group Ltd v Proforce Recruit Ltd [2005] EWHC 70 (QB) distinguished. Nothing in the heads of terms, taken as a whole, suggested that the expression had anything other than its ordinary meaning.
(2) The agreement only required the parties to use reasonable endeavours to obtain the authorisation of the board of governors for the head of terms themselves, including the “subject to contract” clause. Any failure to use reasonable endeavours could not convert a “subject to contract” arrangement into something capable of giving rise to binding legal obligations. To imply a further term of the type contended for by the applicant would be inconsistent with the respondent’s right to walk away from the proposed transaction at any time.
(3) The respondent’s conduct did not give rise to proprietary estoppel. The issue was not whether the respondent had acted unconscionably or inappropriately in seeking to sell to a rival bidder at a higher price than that contemplated by the heads of terms, but whether it had given any representation or encouragement to the applicant to make the applicant believe that it was abandoning the right to walk away that was expressly reserved by the heads of terms. The respondent had done nothing to give rise to any reasonable expectation that it would not seek to rely upon that right.
Jonathan Seitler QC and Joanna Smith (instructed by Browne Jacobson, of Birmingham) appeared for the applicant; John McGhee QC (instructed by Wragge & Co, of Birmingham) appeared for the respondent.
Sally Dobson, barrister
