Sale of land – Covenants – Liability – Claimant-controlled companies selling plots of land to defendant purchasers – Defendants entering into covenants to pay sums to maintain roads – Claimants seeking payment of covenant charges – Judge declaring liability for payment not yet arisen – Claimant appealing – Whether judge erring in interpretation of covenants – Appeal dismissed
The claimant carried on the business of buying farms or other green field land (without planning permission), parcelling it into small plots, and selling to multiple buyers. Land-owning companies controlled by the claimant sold small parcels of green field sites to purchasers, including the defendants.
The defendants each acquired a freehold title to their parcel of land which, after payment in full of the purchase price, was registered in their name at the Land Registry. They generally paid the purchase price in instalments. They also entered covenants to pay additional sums towards the cleaning, maintenance and repair of roads, paths and other access ways on land described as retained by the sellers. None of the sites had planning permission for development and there were as yet no roads etc on any of the land retained by the sellers capable of being cleaned, maintained, or repaired.
The claimant sought payment of the amounts set out in the covenants. The defendants argued that, on the true interpretation of the sales contracts, they were not liable to pay anything as there were no roads capable of being cleaned, maintained, or repaired and there was no present prospect of any such services being carried out.
The judge declared that, on the true interpretation of the covenants, no liability for payment of the covenant charges had yet arisen. Other defences raised by the defendants failed but the judge held that they were overall winners and ordered the claimant to pay 50% of the defendants’ costs of the proceedings. The claimant appealed.
Held: The appeal was dismissed.
(1) The court’s task was to ascertain the objective meaning of the language used by the parties in their agreement. The court had to consider the language used and ascertain what a reasonable person, with all the background knowledge which would reasonably have been available to the parties at the time of the contract, would have understood the parties to have meant. The contract had to be considered as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to the objective meaning of the language used: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, Arnold v Britton [2015] EGLR 53, Wood v Capita Insurances Services Ltd [2017] AC 1173 and Lukoil Asia Pacific Pte Ltd v Ocean Tanker (Pte) Ltd [2018] EWHC 163 (Comm) considered.
(2) In the present case, the starting point was a close reading of the language and syntax chosen by the parties, read in their context. In each case, the wording and syntax operated to tie the obligation to pay to the provision of a service (cleaning, maintaining etc. the roads etc.) by the seller. The covenant was to pay a share of the costs incurred in, or to pay for, defined services. The relevant services were carefully identified. On a natural reading of the words used, the seller had to provide the (carefully specified) services in return for the right to be paid.
The claimant sought to draw an analogy with the reasoning of Morgan J in Arnold at first instance ([2012] EWHC 3451 (Ch)) where he concluded that (in the leases before him) the object of the verb “to pay” was a fixed sum (subject to uplift) and that earlier part of the clause was merely descriptive of the character of the payment (as a shared service charge). However, it was wrong to seek to construe a contract by seeing what a judge in another case had said about a differently worded contract. The syntax and structure of the service charge clauses in Arnold differed markedly from the present ones. Furthermore, the situation in Arnold was different from the present case.
A contextual reading of the language and syntax of each of the categories firmly favoured the defendants’ reading of the covenants. The purchasers bought their plots in the hope that, one day, the land would be developed and the roads would be built. But viewed objectively, there was no realistic prospect of that happening any time soon. It made commercial sense for the parties to agree that, if the roads came to be built and the sellers came to spend money on cleaning and maintaining them, the purchasers would have to pay a share of the costs incurred by the sellers; nor was it surprising, commercially, that the amounts then payable should be fixed by the contracts (subject to annual uplift).
But there was little commercial sense in plot purchasers having to pay, from day one, for the maintenance of roads that were not even foreseeably expected to be built. It would be commercially counter-intuitive to commit to paying an annual sum indefinitely for the cleaning or maintenance of roads which might never exist, where the seller had no obligation to build or maintain them, or even to keep the relevant land. Accordingly, the judge had been right to grant the declaration.
(3) An appellate court would only interfere with a judge’s exercise of discretion on costs in limited cases. An appellate court would not consider whether it would have exercised the discretion differently unless it first concluded that the judge had erred in principle, taken into account matters which should have been left out of account, left out of account matters which should have been taken into account, or reached a conclusion which was perverse. In the present case, the judge had reached a rational decision and had not erred in the exercise of his discretion. The judge was fully immersed in the details of the case and had a far better understanding of the various strands of evidence and how much time they took at trial. The judge had made an overall decision as to the justice of the costs order and the claimant had not established that his exercise of discretion was flawed: Johnsey Estates (1990) Ltd v Secretary of State for the Environment [2001] 2 EGLR 128 considered.
Andrew Spink QC, Andrew Maguire and Stephen Butler (instructed by Griffin Law) appeared for the claimant; Nicholas Bacon QC, Helen Swaffield and Martin Langston (of or instructed by Contract Law Chambers) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of Terracorp Ltd v Mistry and others
