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Dooba Developments Ltd v McLagen Investments Ltd [2016] EWHC 2944 (Ch)

14 December 2016

Facts

The buyer had entered into a conditional contract to purchase land for a headline price of £12m which was to be developed as an Asda superstore, with cafeterias, restaurants and a petrol filling station.

The agreement was conditional upon the satisfaction of four conditions: a Planning Condition, a Planning Agreement Condition, a Highway Condition and a Pre-Start Condition. The agreement provided that either party could terminate it once the relevant long-stop date had passed “if all of the Conditions have not been discharged in accordance with this schedule”.

The buyer served a notice to terminate the agreement after the relevant long-stop date had passed, relying on the fact that the Highway Condition had not been discharged. The seller claimed that the buyer was not entitled to serve such a notice at that time.

Issue

Was the buyer entitled to serve a notice to terminate the agreement if any of the four conditions had not been discharged by the relevant long-stop date or only if all four conditions had not been discharged by that date (which was not the case here)?

Decision

The court applied a grammatically correct literal interpretation of the relevant clause and ruled that the buyer could not terminate the agreement as all four conditions were not outstanding at the relevant time.

Points to note/consider

  1. The judge in this case was heavily influenced by the fact that an immediately preceding sub-clause contained a separate termination right if any of the Conditions had not been discharged by dates applicable to the individual conditions. The case does therefore show the importance of double-checking a document for consistency of terminology in similar clauses. A court does not construe a clause in isolation from the rest of a document and if different language is used to express similar concepts in different parts of a document (perhaps inadvertently), a court is likely to presume that a different meaning was intended for each concept.
  2. It is probably fair to say that the outcome may not match the expectations of most property development lawyers and leaves a number of questions unanswered. For example, if the agreement could not be terminated, does the buyer’s obligation to use reasonable endeavours to satisfy the outstanding condition continue? If so, for how long and what will ultimately happen if the outstanding condition is never satisfied? However, a court has to interpret the words actually used. The buyer’s construction of the agreement depended on turning the long-stop clause on its head and reading it to mean: “if not all of the conditions have been discharged”. But, this was not what the clause said and a court will not disregard the literal meaning of a phrase where that meaning is clear just because it creates an unsatisfactory result.
  3. This principle is also illustrated by another case this quarter – Elmfield Road Ltd v Trillium (Prime) Property GP Ltd [2016] EWHC 3122 (Ch). In this case, the parties to an existing lease had entered into a reversionary lease in December 2005, with the reversionary lease to start on 25 March 2010. The reversionary lease provided for the Initial Rent (£1.2m) payable under that reversionary lease to be reviewed “by multiplying the Initial Rent by the [Retail Prices] Index for the month preceding the relevant Review Date and dividing the result by the Base Figure”. The Base Figure was the Index for September 2005 (rather than the figure from the start of the reversionary lease). At the first review in March 2015, the tenant argued that the reversionary lease contained an obvious error and that the reference to the Initial Rent should instead have referred to the rent that had been payable under the existing lease since September 2005 (£965,000). The judge agreed with the tenant that there was a presumption that if the rent was index-linked, the parties intended the indexation to increase the rent in line with inflation from the date when the passing rent was fixed. However, that presumption was rebutted on the facts of the case. The landlord’s construction of the clause (that on the review in 2015, the rent of £1.2m would be increased by reference to changes in the retail prices index between September 2005 and February 2015) was the natural and ordinary meaning of the rent review clause.

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David Harris

David Harris

Professional Development Lawyer

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