Westvilla Properties Ltd v Dow Properties Ltd

The Claimant, Westvilla Properties Ltd (“Westvilla”) claims specific performance of a contract of sale dated 19^th March 2008 (the “Contract”), whereby Westvilla agreed to sell its freehold interest in 24 High Street, Andover, Hampshire SP10 1LJ registered under title number HP686663 (the “Property”) to the Defendant, Dow Properties Ltd (“Dow”) for £850,000.

The sale was subject to the grant by Dow, on completion, of a 999 year lease of the upper parts of the Property to Westvilla at a peppercorn rent (the “Intended Lease”). The draft of the Intended Lease attached to the Contract referred to two plans, Plan A and Plan B, but did not attach copies of them. In addition, the service charge percentage in that draft Intended Lease was blank. Not surprisingly, these omissions have given rise to this litigation.

The sale was also subject to a lease dated 14^th March 2007 of the ground floor of the Property in favour of Cheltenham & Gloucester plc (“C&G”) for a term of some 15 years expiring on 20^th December 2021, at a rent of £48,000 per annum (the “C&G Lease”). C&G had covenanted in the C&G Lease to pay 36% of the costs of the ‘Building Services’ for the Property.

The Property was placed in an auction conducted by Allsop LLP, but was not sold under the hammer. Instead, Dr Morad Arefin, Dow’s company secretary, signed the Contract on behalf of Dow after the sale, and delivered a deposit cheque for £85,000 to the auctioneers. Completion was due to take place on 14^th May 2008.

Prior to the auction, an auction pack had not been sent or provided to Dow, but was available for inspection at the offices of the auctioneers by any potential purchaser. The pack was not in fact inspected by Dow prior to the conclusion of the Contract. Plans A and B, showing the extent of the Property and the intended demise of the upper floors, which ought to have been attached to the draft of the Intended Lease attached to the draft Contract, were found within the auction pack in two places: first attached to the draft Contract, and secondly attached to the C&G Lease.

After the Contract was signed, the following material events took place:-

On these relatively simple facts, Dow raises two main arguments in answer to Westvilla’s claims:-

In these circumstances the main issues that arise for determination are as follows:-

The sale memorandum provided simply that “The SELLER agrees to sell and the BUYER agrees to buy the LOT for the PRICE. This agreement is subject to the CONDITIONS so far as they apply to the LOT”.

“CONDITIONS” are defined in the glossary contained in the Common Auction Conditions attached to the Contract as “This glossary, the conditions for the conduct of the AUCTION, the GENERAL CONDITIONS, any EXTRA CONDITIONS and the special CONDITIONS”.

“DOCUMENTS” are defined in the Glossary as “Documents of title (including, if title is registered, the entries on the register and the filed plan) and other documents listed or referred to in the SPECIAL CONDITIONS relating to the LOT”.

Clause 7 of the General Conditions provided as follows:

“7.1

The SELLER or the BUYER may on or after the AGREED COMPLETION DATE but before COMPLETION give the other notice to complete within ten BUSINESS DAYS (excluding the date on which the notice is given) making time of the essence.

7.2

The person giving the notice must be READY TO COMPLETE [defined in the Glossary as: “Ready, willing and able to complete …”].

…

7.4

If the SELLER fails to comply with a notice to complete the BUYER may, without affecting any other remedy the BUYER has,

(a)

rescind the CONTRACT and

(b)

recover the deposit and any interest on it …”.

The Tenancy Schedule at the end of the Special Conditions list the C&G Lease and “the 999 year and [sic] to be made between [Buyer] (10)[sic] and Westvilla Properties Limited (2) in the form attached”.

The Intended Lease attached to the Contract provided as follows:-

Mr Ari Bloom, is a partner in Solomon Taylor & Shaw, Westvilla’s solicitors. He was not an entirely impressive witness. But when I asked him some questions about paragraph 12 of his statement, he candidly admitted that what he was really saying was that it was obviously intended that the service charge percentage under the Intended Lease should be 36%, because the “service charge for the building would need to be covered by [C&G] and the long leaseholder of the upper floors [Westvilla]”. If Westvilla were covering the service charge for the upper floors (ignoring for a moment the Rear Rooms on the ground floor and the Basement), and Westvilla were primarily responsible for carrying out the Building Services, then Westvilla could only have been intended to collect from Dow the service charge paid by C&G under the Intended Lease. In that way, as Mr Bloom accepted, Dow would “wash its face” on the Property as one would have expected the freeholder to do. His attempt in paragraph 12 of his statement to suggest that it ought to have been obvious that a fair and reasonable proportion of the service charge to insert in the draft Intended Lease was 64% was, therefore, in my judgment, illogical and deliberately obtuse.

Mr Mark Charles Gower, a salaried partner in Allsop LLP, the auctioneer, was responsible for the sale of the Property though he did not deal with Dr Arafin. He thought that the draft lease plans would have been included in the auction pack available to purchasers at the auction.

Dr Morad Arefin, the company secretary of the Defendant, was also not an entirely satisfactory witness. His statement said that Dow’s notice to complete dated 28^th May 2008 had required completion in accordance with the Contract, rather than completion of a revised Intended Lease agreed after the Contract at the meeting on 17^th April 2008. But in oral evidence, Dr Arefin accepted that Dow was in fact telling Westvilla at the time that it would complete only on the terms of Dow’s own draft lease that had been provided to Mr Bloom on 14^th May 2008. His (not wholly convincing) justification for this change of evidence was that Westvilla wanted the revised lease, and he would have completed whatever was necessary to get the deal done.

As Sir Kim Lewison records in The Interpretation of Contracts 2007 edition at paragraph 8.12 “Where parties have entered into what they believe to be a binding agreement the court is most reluctant to hold that their agreement is void for uncertainty, and will only do so as a last resort”. As Megarry J said in an oft cited passage in Brown v. Gould [1972] 1 Ch. 53 at 57-8: “No doubt there may be cases in which the draftsman's ineptitude will succeed in defeating the court's efforts to find a meaning for the provision in question; but only if the court is driven to it will it be held that a provision is void for uncertainty”.

In relation to the use of factual matrix in construing contracts, Lord Hoffmann’s already well-known speech in the recent case of Chartbrook v. Persimmon Homes Ltd. [2009] 1 AC 1101 provides the latest guidance. He said at paragraph 14, after referring to the principles stated in Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896 at 912-3, that: “It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”.

With regard to the correction of mistakes made in documents by the process of construction, Lord Hoffmann said this in Chartbrooksupra at paragraphs 22-25:

“22 In  East v Pantiles (Plant Hire) Ltd  (1981) 263 EG 61 Brightman LJ stated the conditions for what he called "correction of mistakes by construction":

"Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction."

23 Subject to two qualifications, both of which are explained by Carnwath LJ in his admirable judgment in KPMG LLP v Network Rail Infrastructure Ltd  [2007] Bus LR 1336, I would accept this statement, which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents. The first qualification is that "correction of mistakes by construction" is not a separate branch of the law, a summary version of an action for rectification. As Carnwath LJ said, at p 1351, para 50:

"Both in the judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph 'as it stands', as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended."

24 The second qualification concerns the words "on the face of the instrument". I agree with Carnwath LJ, paras 44-50, that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration.

25 What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied”.

There is also some specific authority on the need for certainty in the identification of property. Emmet and Farrand on Title 2009 say this at paragraph 2.040, having cited Mordern College Trustees v. Mayrick [2006] EWHC 574: “It has long been established that although the description of the property may be vague, if it contains sufficient internal information to enable the property to be ascertained, parol evidence should be admissible for that purpose”. In Plant v. Bourne [1897] 2 Ch. 281, parol evidence was admitted to identify the 24 acres of land that had been agreed to be sold. Lindley LJ in the Court of Appeal cited Sir William Grant in Ogilvie v. Foljambe 3 Mer. 53 with approval: “The subject-matter of the agreement is left, indeed, to be ascertained by extrinsic evidence; and, for that purpose, such evidence may be received. The defendant speaks of “Mr Ogilvie’s house’ … and parol evidence has always been admitted in such a case to shew to what house, and what premises, the treaty related”. Lindley LJ stated the general rule at page 288 as being “Id certum est quod certum reddi potest, and I am of the opinion that this maxim applies here”. The maxim may be translated as: “That is certain which can be rendered certain”.

It is now common ground on the evidence that Plans A and B were not, for whatever reason, attached to the two parts of the Contract signed by the parties on 19^th March 2008. It is equally clear, on my view of the evidence, that Plans A and B were included in the auction pack available at the sale to be viewed by potential purchasers including Dow and Dr Arefin. Dr Arefin did not, however, take advantage of that opportunity, and signed the Contract having looked briefly at the terms of the Intended Lease, but without having seen Plans A and B.

The Contract provided, as I have set out above, that the Intended Lease should be executed in the form attached to the Contract, which did not include the Plans. There are really, therefore, two points subsumed within this issue:- First whether the verbal definition of the Premises demised by the Intended Lease attached to the Contract is itself sufficiently certain to identify those premises, and secondly, if not, whether the extrinsic evidence of the Plans attached to the draft Contract in the auction pack can be admitted to make the definition sufficiently certain

As to the first question, I am satisfied that the wording is not sufficiently clear, by itself, to identify the premises demised with sufficient certainty. The wording, absent Plans A and B, makes it seem that the entirety of the Premises above the ground floor is demised, where it says: “the upper parts from and including one half in depth of the joists supporting the first floor … of the Building … including the roof and structural parts of the upper floors”. But in fact, Plans A and B show that the area of the demise is less than the entire footprint of the Building. Other plans within the auction pack (and in particular a plan showing C&G’s proposed scheme for the Building) show that the upper floors are actually more extensive than the area demised. The first floor, for example, includes corridors and a staircase not demised, whereas the verbal definition would give the clear impression that everything above half of the first floor joists was demised.

This makes it necessary to consider whether parol evidence may be admitted in this case to clarify the words used or to supply the missing Plans. In my judgment, this is clearly a case where it is appropriate to construe the Contract as if the Intended Lease attached to the Contract included the two missing Plans. Brightman LJ’s two tests (as qualified by Lord Hoffmann in Chartbrook) are satisfied here. There is a clear mistake on the face of the instrument, in that the Plans have been omitted in error. Moreover, it is clear what correction ought to be made in order to cure the mistake: the Plans must be taken to have been attached. Adapting the words of Lord Hoffmann that I have cited above, a reasonable person, having all the background knowledge which would have been available to the parties, would have understood the Contract to have been referring to the Plans contained in the auction pack. Dr Arefin made it clear to me in evidence that he was an experienced property purchaser. He knew that a legal documents pack was available at the auction. I have found that he did not actually seek to look at the auction pack, but that does not mean that he did not know of its existence. He did. And any reasonable person, knowing what Dr Arefin knew, would have known that the Plans were in all probability to be found in the available auction pack as they in fact were.

For these reasons, I hold that the definition of the Premises demised in the Intended Lease attached to the Contract was sufficiently certain, once the evidence of Plans A and B, contained in the auction pack, are admitted to supplement the words in the definition.

This issue is the centrepiece of Dow’s defence. Dow says, in the broadest outline, that, because the draft Intended Lease attached to the Contract was in non-standard and unusual terms, it is impossible for the Court to ascertain what percentage must have been intended to be included by the parties for the Landlord’s Share of the Service Charge. Moreover, Mr Evan Price, Counsel for Dow, submits that he has been able to find no case in which the Court has been willing to fill in a blank of this kind in order to validate what would otherwise be a void contract on the grounds of uncertainty.

Dow identifies at least 4 possibilities for the percentage as follows:-

I will deal with each of these possibilities in turn, without attempting at this stage to decide the issue that has to be determined.

The 64% advanced by Westvilla as the fair and reasonable percentage is, in my judgment, counter-intuitive. It cannot have been what either party intended or what any reasonable observer would have thought the Contract meant. If Dow were to pay 64%, it would be handing over to Westvilla the 36% it received from C&G, and adding a wholly arbitrary 28% on top of that. So far from being fair and reasonable, the suggested 64% is an irrational and unreasonable figure which neither party can have intended. Mr Bloom as good as accepted that to be the case.

Absent the existence of the Rear Rooms and the Basement, the suggested 36% share would seem immediately to be the most logical amount. It allows the normal service charge position to prevail, namely that Westvilla pays for the service charge on its upper floors demise, and C&G pays for the service charge on its ground floor demise and Dow, as the landlord freeholder, is left with no residual liability. I have little doubt from the evidence that this is what Westvilla and Mr Bloom would have included in the draft Intended Lease had they remembered to include a figure at all.

Since, however, the Rear Rooms were, in error, left out of the Intended Lease attached to the Contract, so that they remained with Dow, the suggested “36% plus a reasonable percentage for Dow’s continued occupation of the Rear Rooms and the Basement” (leaving aside the common parts) is, on one analysis, what would have been fair and reasonable. It is not, however, what anyone thought about or would have contemplated at the time.

The suggested 100% figure would be eccentric and absurd. It would make Dow liable for the service charge on Westvilla’s occupation of the upper floors almost in perpetuity, since 999 years is obviously far longer than the expected life of the Building. I have no doubt that neither Westvilla nor Mr Bloom, as property professionals, would ever have contemplated such an uncommercial arrangement. Apart from anything else, it would have made the freehold unmortgageable for obvious reasons.

I should record at this stage that Mr Timothy Harry, Counsel for Westvilla, made two primary submissions. He argued first that the blank service charge percentage should be construed as meaning “a fair and reasonable proportion”, and secondly, in the alternative, that 64% was such a fair and reasonable proportion in all the circumstances. Only as a third alternative did he contend for the other options that I have recorded above.

Westvilla’s pleading does not actually advance any case beyond the contention in paragraph 1(4) of its Amended Reply that the Intended Lease should be read as requiring the payment of a fair and reasonable proportion of the relevant service charges. Mr Price, however, accepted that his client was not prejudiced by the alternative cases that I have mentioned being advanced, and I am prepared to allow Westvilla to amend its pleading, if necessary, to allow it to do so.

In my judgment, the question of what this draft Intended Lease means when it defines the Landlord’s Share of service charges at “[ ] per cent” requires, again, the application of the principles summarised by Lord Hoffmann in Chartbrook. The question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to have meant the percentage to be, judged from the language they used. It may be, of course, that a reasonable person could simply not have known, even relying upon the appropriate factual matrix, which I have already held to have included the material in the auction pack. In that event, the Contract would indeed be too uncertain to be enforced, and notwithstanding the Court’s reluctance to reach such a conclusion, it would be driven to it in this case.

This issue also requires (though not in isolation as Lord Hoffmann explained) the application of Brightmans LJ’s dictum that I have also set out above. If there is a clear mistake on the face of the instrument, and it is clear what correction ought to be made in order to cure the mistake, then the correction can be made as a matter of construction. Here there is certainly a clear mistake in that the service charge percentage has been left blank in error. The question is only whether it is clear what correction should be made to correct it.

In the unusual circumstances of this case, I cannot accept that a reasonable person having all the background knowledge which was available to these parties would have understood them to have meant to include the words “a fair and reasonable percentage” in place of the blank. That might be a reasonable conclusion in some cases, but not here. In the first place, the service charge provisions are upside down, and an actual figure was plainly intended to be included. Moreover, fairness was not what Westvilla was about. It was seeking to sell on specific terms. It intended to include a percentage as can be seen from the rest of the Contract. Any reasonable person would have concluded that the parties intended to include a fixed percentage in the Intended Lease but omitted to do so in error.

The central question therefore reduces to the relatively simple one of whether it is clear from the terms of the Contract, taking into account the appropriate factual matrix, what correction must be made to correct that error.

I have considered carefully the two cases put before me in which the Court has been prepared to supplement the language in similar (but far from identical) cases. In Hackney LBC v. Roy Thompson 11^th October 2000 unreported, the Court of Appeal (Aldous and Sedley LJJ) construed the covenant to pay a ‘due proportion’ of management expenses as conferring obligations on the Claimant to make a reasonable estimate of the expenses, and on the Defendant to pay an appropriate or reasonable percentage of them. In Liverpool CC v. Walton Group plc 25^th July 2001 Westlaw 825285, Neuberger J (as he then was) construed the draft lease attached to an option agreement as being sufficiently certain, notwithstanding that its start date was blank. He held that the Contract should be construed so as to mean that the Lease was to begin on the date it was executed (paragraph 56). Neuberger J set out the test he was applying at paragraph 46 as follows: “The question which therefore falls to be determined is whether, after considering all those matters which can properly be taken into account when construing the Agreement and the draft lease, one can, with “reasonable certainty”, be satisfied as to the date upon which the parties intended the lease to start”.

I have concluded that it is possible in the unusual factual matrix here present to say what must be done to correct the parties’ error. I can say with reasonable certainty what the reasonable person with the parties’ knowledge would have thought the parties intended to include by way of a percentage service charge payable by Dow.

In my judgment, the error was the failure to include the figure of 36% for the “Landlord’s Share”. There are a number of reasons for this.

First, the structure of the arrangement was to reverse the usual responsibility for “Building Services”, but there is no indication anywhere in the documents that it was intended to reverse the usual payment structure. There is a clear logic about that. Westvilla was retaining a 999 year peppercorn lease of the bulk of the Property, save for the ground floor, which was let on a profitable lease to C&G. Westvilla was really selling an investment, but was to retain occupation of the largest area of the Building. It was to obtain what has been described as a quasi-freehold, and must have wanted to retain control of the repairs and management of the Building for that reason. But the service charge provisions in the draft Intended Lease attached to the Contract otherwise mirror those in the C&G Lease, and, as I have said, there is no indication that Westvilla intended to reverse the normal payment responsibilities. Indeed such a reversal would, as I have already said, have been uncommercial. No purchaser could be expected to pay out for the service charges attributable to Westvilla’s demise – certainly not for the duration of a 999 year lease under which no rent was payable. Such an arrangement would have been unacceptable to any commercial purchaser, and certainly to any purchaser seeking to borrow on the security of the freehold. Dow was very much such a buyer.

Secondly, the normal commercial arrangement would be that the landlord would collect, rather than pay, service charges. That is what any commercial parties would have expected. In this case, Dow was to collect C&G’s 36%, and Westvilla was obviously to pay its share for the upper floors. The common parts would be split in the same proportions. It was plain, therefore, that the only possible arrangement was that Dow would pass on C&G’s 36% to Westvilla, and Westvilla would finance the rest. The wrinkle here is that, by another mistake, the Rear Rooms were omitted from the demise to Westvilla. But this, in my judgment, makes no difference. The reasonable person knowing what both parties knew from the documents would not have known about the mistake or about Westvilla’s plans to convert the Rear Rooms, which included two large two toilets, into a small flat. The reasonable person looking at the Contract and the auction pack would have thought that those Rear Rooms were to be treated as common parts and have no separate service charge attributable. Ironically, Westvilla also would also have expected no adjustment to the 36% attributable to the Rear Rooms, because it thought they were part of its demise, when they were not. Had it realised its mistake, it might subjectively have wanted Dow to pay something by way of service charge for them. But its subjective uncommunicated intentions cannot affect the proper construction of the Contract. Had Dow thought about the Rear Rooms, which it did not, it would, in my view, have regarded the matter in the same way as any reasonable person. Finally in this respect, some reliance can also be placed on paragraph 3 of the Fifth Schedule to the Intended Lease attached to the Contract. Though perhaps mercurially worded, it gives some apparent power to Westvilla to adjust the Landlord’s Share to make reasonable allowances for differences in the services provided to or enjoyable by any part of the Building which is let from time to time. Thus, at least if Dow converted and let the Rear Rooms or Basement, Westvilla might make some adjustment to the 36% to take account of that letting.

Thirdly, as I have explained above, none of the other possible options are realistic possibilities for service charge percentages. The bottom line is that any commercial parties and any reasonable purchaser would have realised that the freeholder would wash its face under the service charge provisions. The Property would have been otherwise unsaleable under the Contract.

For these reasons, it seems to me that the Court can in this case fill in a blank. The situations in which it will generally be able to do so will undoubtedly be limited, and the facts of this case are unusual. But here I can say with reasonable certainty, on the basis of the remaining terms of the Contract and the surrounding factual matrix including the auction pack and the commercial realities of the transaction, that the required correction was clear. The draft Intended Lease attached to the Contract ought, as a matter of pure and orthodox principles, be construed as providing for Dow’s share to be 36% of the service charges for the Property.

In my judgment, therefore, the Contract was not void for uncertainty as a result either of the omission of Plans A and B or of the omission of a service charge percentage.

I have not forgotten Mr Price’s more general submission that the accumulation of errors in the Contract and the draft Intended Lease attached to it makes the Contract overall too uncertain to enforce. But once my findings on Issues 1 and 2 are taken into account, it can be seen that the errors made by the parties, and the minor infelicities of drafting to which Mr Price alluded, could not and did not render the substantive terms of the Contract and the Intended Lease uncertain.

The notice to complete dated 28^th May 2008 does, as I have said, refer to the Contract, and therefore, requires Westvilla to complete the Intended Lease on the terms appended to the Contract. It did not, on its true construction, require completion of the Intended Lease on any amended terms, let alone those that were agreed at the meeting on 17^th April 2008.

The Court of Appeal held in Quadrangle Development and Construction Co. Ltd v. Jenner [1974] 1 ALL ER 729 (per Buckley LJ at page 733f) that a notice to complete under the then condition 22 of the National Conditions of Sale (18^th edition), required the giver to be ready and willing to fulfil its outstanding obligations under the contract, not only at the time when the notice was served, but also at any time during the period of the notice. There is nothing in the provisions of the Contract to allow a different position to prevail here, save that General Condition 7 requires the person serving the notice to be “ready, willing and able to complete”. The question for me, therefore, is whether, as a matter of fact, Dow was ready, able and willing to complete the Contract according to its terms throughout the period between 28^th May 2008 and 12^th June 2008, when I believe the 10 working days expired.

Dr Arefin told me in evidence, as I have already recorded, that he was prepared to complete on any terms – either the draft that Dow’s solicitors had sent across on 14^th May 2008 following the 13^th April meeting, or the draft Intended Lease attached to the Contract. I have looked at the correspondence, which was put to Dr Arefin, in detail, and I cannot accept Dr Arefin’s evidence on that point. It seems to me from a fair reading of the correspondence that, despite the significant misunderstandings of the law and the facts that affected both solicitors (in a variety of ways), Dow’s solicitors were making it abundantly clear to Westvilla’s solicitors during the period of the 28^th May Notice that Dow would only complete at the reduced purchase price of £845,000 on the terms of the draft Intended Lease that Dow’s solicitors had put together and sent to Westvilla’s solicitors on 14^th May 2008. Dow’s solicitor’s second letter of 10^th June 2008 is, by way of example, unequivocal. It says in terms that they “see no basis on which completion is to be effected under the terms of the auction contract as this was superseded by the agreement reached on 17^th April 2008”. In these circumstances, Dow cannot assert that it was ready, able and willing to complete the Contract on the terms of the Intended Lease attached to that Contract. Its solicitors said exactly the reverse, and it is quite clear that their letters were written on Dr Arafin’s instructions.

In these circumstances, Dow was not ready, able or willing to complete the Contract at all times after service of the 28^th May Notice on the terms of the Intended Lease attached to the Contract, and Dow was not entitled to rescind the Contract when it purported to do so on 12^th June 2008.

Westvilla’s second notice to complete served on 25^th June 2008 was, however, valid, and Dow has failed to comply with it.

For the reasons I have given, I will order specific performance of the Contract as sought by Westvilla. I will hear Counsel on the precise form of order, interest and costs, if those matters cannot be agreed between them.