Claimant entering into contract to sell land to property developer – Contract requiring developer to pay additional sum upon obtaining satisfactory soil survey – Defendant obtaining survey and serving notice of dissatisfaction – Construction of contract – Whether service of notice of dissatisfaction unreasonable – Judge holding notice unreasonable – Appeal dismissed
By an agreement dated September 1997, the claimant agreed to sell a detached house with a large garden, known as Four Trees, Mill Lane, Amersham, to the defendant property developer at a price of £200,000. The contract, which incorporated the standard conditions of sale, provided, by clause 11, for the claimant to be paid a further £185,000 if planning permission were obtained for three houses. Clause 13.1 provided that the defendant should obtain a soil survey “so as to satisfy itself as to the suitability of the ground conditions for residential development.” By clause 13.3, the payment of the additional £185,000 was made conditional upon “receipt by [the defendant] of a soil survey which in the opinion of [the defendant’s] surveyor is satisfactory for its purposes…”
The defendant obtained a soil survey, dated November 1997, that stated, inter alia, that “the condition of the soil would not permit the defendant to construct the proposed development without incurring unusual and unexpected expenses”. Subsequently, the defendant served a notice of dissatisfaction, alleging that the soil survey was unsatisfactory for the purposes of clause 13.3 and that, accordingly, the defendant was not required to pay the additional sum of £185,000. None the less, it proceeded to erect three residential units on the land.
The claimant issued proceedings, contending that the purpose of the soil survey was “to satisfy the defendant as to the suitability of residential development” and that, since the defendant had built the three houses on the land, the survey could not be said to have been unsatisfactory. The defendant submitted that, in order to give effect to all parts of the contract, and in particular to all the words in clause 13.3, the only question was whether the surveyor’s opinion that the soil was not satisfactory was one that a surveyor could reasonably hold. It was contended that, having regard to the survey and the unusual and unexpected costs that would be incurred, the surveyor’s view was one that he could reasonably hold. The judge rejected the defendant’s construction of the contract and ordered it to pay the £185,000. The defendant appealed.
Held: The appeal was dismissed.
1. The contract was to be interpreted by ascertaining the meaning that it would convey to a reasonable person, having all the background knowledge reasonably available to the parties in their situation at the time of the contract: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. In this case, it was necessary to determine the “purposes” spoken of in clause 13.3 in the context of the contract as a whole.
2. The word “purposes” in clause 13.3 was to be read in the light of clause 13.1, where the survey was to assess the suitability of the soil “for residential development”. Accordingly, clause 13.3 was to be construed so as to read that the payment was conditional upon receipt by the defendant of a survey showing the soil to be “satisfactory for its purposes, namely, for residential development”. That being so, it was clearly inconsistent that the defendant should be at liberty to set up, as a “purpose”, additional matters that could not properly be written into clause 13.3. Furthermore, it was unreasonable to suppose that the claimant would have agreed to accept a term that would have the effect of depriving her of £185,000 while allowing the defendant to develop the site. Accordingly, the decision of the defendant to serve a notice of dissatisfaction was unreasonable.
Mark Warwick (instructed by Pitmans, of Reading) appeared for the appellant; Nicolas Stallworthy (instructed by Francis & How, of Amersham) appeared for the respondent.
Thomas Elliott, barrister
