Property company – Sale and purchase agreement – Construction of contract – Claimant purchasing shares in property company from defendant – Claimant paying deposit – Completion subject to contractual obligations relating to carrying out of building works – Claimant to forfeit deposit in event of non-compliance – Defendant failing to complete building works within time limit — Claimant seeking return of deposit – Claimant and defendant both seeking summary judgment – Whether defendant in breach of contractual obligations under agreement — Whether defendant fulfilling completion obligations – Claimant’s application allowed — Defendant’s application dismissed
The defendant agreed to sell to the claimant shares in a company that beneficially owned a portfolio of European hotels. The completion of the sale was dependent on the fulfilment of certain conditions by 19 December 2008, including the completion of building works to be assessed by a code that provided for proper notice of the defendant’s projected substantial completion to be served 10 business days before the completion date, the claimant’s right to inspect and a clearly prescribed method of dispute resolution should the claimant contend that the works had not been substantially completed.
The agreement also provided for notice to be served of a new projected completion date were the defendant to ascertain that substantial completion would not take place on a previously notified date. The claimant would forfeit its deposit if it failed to perform its obligations by the completion date; and similarly, if the defendant failed to perform its obligations by ensuring that the redevelopment plans were substantially completed by the agreed date, the agreement would be terminated and the deposit would revert to the claimant.
The defendant served a notice that substantial completion would occur on 5 December 2008, which date it served a notice of those items that had not been finalised, but which it said did not prevent completion of the sale. However, the claimant served a notice disputing substantial completion of the building works. On 18 December 2008, the defendant served a notice stating that: (i) final completion would be on 31 December 2008; (ii) the substantial completion date was 18 December 2008; and (iii) the hotel was completed, whatever the outcome of any dispute as to whether it should have been completed on an earlier date.
The claimant and the defendant both applied for summary judgment in the claimant’s action to enforce the return of the deposit under the share sale and purchase agreement.
Held: The claimant’s application was allowed. The defendant’s application was dismissed.
In determining the meaning of the language of a commercial contract and unilateral contractual notices, the law generally favoured a commercially sensible construction that was more likely to give effect to the intention of the parties. Words were to be interpreted in the way in which a reasonable commercial person would construe them and whose standard was hostile to technical interpretations and undue emphasis on the niceties of language: Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 1 EGLR 57; [1997] 24 EG 122; [1997] 25 EG 138, and Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 considered.
Prima facie the validity of the notice depended on the precise observance of the specified conditions. However, a consideration of the relationship of the notice requirements to the contract as a whole and with regard to general considerations of law might show that a stipulated requirement, for example, that notice be given “without delay”, was intended by the parties to be an intermediate term, the non-observance of which would not invalidate the notice (unless the other party was seriously prejudiced), but would give rise to a claim for damages only: Valentines Properties Ltd v Huntco Corporation Ltd [2001] UKPC 14; [2001] 3 NZLR 305 considered.
Inherent in a time limit was the notion that the parties were drawing a line. In the absence of a contrary indication, a date fixed by a conditional contract as the date by which the condition was to be fulfilled had to be strictly adhered to, and the time allowed was not to be extended by reference to equitable principles. In the instant case, there was no contrary intention in the language of the agreement, nor could it be inferred from the context.
The defendant’s notice of 18 December was without contractual effect and therefore did not trigger the rights and obligations under the agreement regarding disputes. Having agreed a notice period, it was unlikely that the parties could have intended that no period of notice was to apply to the notice of 18 December. The agreement did not suggest that the parties had in mind that the notice of such a projected substantial completion date could be given on the date itself.
Further, the timing provisions had to be strictly complied with in order to avoid commercial confusion. The language of the agreement was emphatic and its terms were part of a scheme that provided for the exercise of rights by each party. The validity of the notice depended on the precise observance of the specified conditions as to time; the wider considerations, and no contrary indications, displaced that assumption. The defendant’s submission, that there was an alternative means of demonstrating substantial completion that avoided that process, was entirely uncommercial in the overall context of a complex share purchase agreement: Bremer Handels GmbH v Vanden-Avenne Izegem PVBA [1978] 2 Lloyds Rep 109 considered.
The completion condition was a conventional provision obliging the parties to co-operate, but it was expressed to be in respect of laws and regulations, and did not oblige a party to waive its substantive rights in order to ensure that completion could take place. The agreement was a carefully drafted document in which both language and legal principles were deployed logically and with care. There was no proper basis for inviting the court to impose one party’s conception of what was sensible and reasonable. The mandatory completion provisions were less concerned with the fact of completion than with the process by which completion was deemed to occur: Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 3 WLR 267 considered.
Laurence Rabinowitz QC and Daniel Toledano QC (instructed by Travers Smith LLP) appeared for the claimant; Mark Howard QC and Ben Valentin (instructed by White and Case LLP) appeared for the defendant.
Eileen O’Grady, barrister
