The Good, the Bad and the Ugly Drafting

TBAC Investments Ltd v Valmar Works LTD [2015] EWHC Civ 1213

Summary

In a decision that may seem somewhat surprising, the High Court has found that a notice to complete was valid notwithstanding the fact that it contained several clear errors, including the fact that it was incorrectly dated, and gave a miscalculation of the date by which completion was required. 

Following established case law, the Court found that a "reasonable recipient" of the notice would be able to understand its purpose despite the errors. Consequently the notice was valid, meaning that the party which had served it was entitled to rescind the contract and to retain the deposit.

It is important to note that this case is not a "get out of jail free" card. Whilst it demonstrates that even bad notices can be saved if the intention is clear, the case was nonetheless decided on its own unique facts. Therefore parties should not believe that all bad notices will be saved in this way. 

The Facts

The Claimant was the seller and the Defendant was the buyer of commercial premises located on the Valmar Trading Estate, Valmar Road, London ("the Premises").  The Claimant had acquired the freehold interest in the Premises in 2007, but subsequently failed to comply with the terms of its mortgage. As a consequence, the Claimant's bank appointed receivers. The receivers decided to sell the Premises. In due course, an agreement for sale was entered into between the Claimant, its receivers, and the Defendant, for the Defendant to purchase the Premises for £1,900,000.

On the same day as the contract for sale was exchanged, the parties also entered into a 12 month lease of the Premises. It is therefore likely that the Defendant was not in funds to complete a sale at this time, which led to a lease being granted in the interim to enable it to go into occupation before completion of the sale.  The lease provided for the Defendant to pay an annual rent of £99,000 plus insurance rent. The lease contained a clause permitting the Claimant to terminate it if the Defendant breached its covenants. The contracts contained further stipulations that the termination of the lease would also trigger completion of the sale and purchase of the Premises under the sale agreement.

Following the completion of the documents, one of the Claimant's original receivers resigned and was replaced by a new receiver. The Defendant then defaulted on the rent, meaning that the Claimant was entitled to call for the completion of the sale contract. The Claimant duly terminated the lease, but the Defendant still failed to complete the sale.

Three days later, the Claimant's solicitors served a "Notice to Complete", purporting to compel the Defendant to complete the sale within 10 working days. The Notice to Complete also referred to the stipulation in the contract which provided that, if the Defendant failed to complete following the service of the Notice to Complete, the Claimant was entitled to rescind the contract for sale and retain the deposit.

The Defendant confirmed that it was not in a position to complete before the deadline. The Claimant therefore served Notice to Rescind the agreement for Sale and put the Premises back on the market. After 6 months the Premises were sold at auction.

At this point, the Defendant began to question the validity of the Claimant's Notice to Complete and the following rescission. It registered Unilateral Notices against the freehold title to the property, which had the effect of preventing the sale.

The Claimant therefore issued proceedings to seek a declaration that the sale contract had been rescinded, an order that the unilateral notices be removed and an injunction preventing the Defendant from registering any further notices against the Premises. The Defendant disputed this and counterclaimed for an Order that the Claimant be compelled to proceed with the sale of the Premises. It also sought a declaration that, should the Claimant be successful, it should nonetheless be prevented from retaining the deposit.

The Claimant applied for summary judgment on the basis that the Defendant had little or no prospect of success.

Issues with the Notice to Complete

It is undeniable that the Notice to Complete contained a number of errors. As a consequence of these, the Defendant argued that it was not valid for the following four reasons:

  1. The Notice was not signed and must therefore be a draft only;
  2. The Notice had been given by the wrong receivers. This was on the basis that it had been given by one original receiver and the replacement receiver. The Defendant argued that it should have been given by the original receivers, because the seller as defined in the sale contract was the Claimant "acting by the receivers". In turn "the receivers" were only defined as the original receivers, and the definition did not include successors in title;
  3. The Notice was confusing, as it contained many errors, for example referring to a leasehold title rather than a freehold title; and
  4. The Notice was given to rescind the agreement on the wrong date, as the year was stated as 2012 instead of 2013. Furthermore, the period of 10 working days had been incorrectly calculated, as it did not take into account the Easter bank holidays.

The Decision

The Court found in favour of the Claimant and made the order for summary judgment. Taking each of the Defendant's arguments in turn, it held that:

  1. Taking wording from the leading case on the point, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19, the Court found that the "reasonable recipient" of the Notice to Complete would glean from the fact that it had been served, with a copy being sent to the Defendant's solicitors, that it was not intended to be a draft, despite the fact that it had not been signed. In fact, there was no legal requirement for the notice to be signed.
  2. The fact that the Notice was not served by one of the original receivers was not fatal. First, the party to the sale contract who could give notice to complete was the Claimant, not the receivers. It was clear in the contract that the receivers were merely agents for the  Claimant. Even if the Claimant could act only through the receivers, the term should be construed to include their successors in title, because the parties could not have meant that the death or resignation of the receivers should prevent completion. Finally, either both or any one of the receivers could have served the Notice, and at least one of them was an original receiver.
  3. The notice did contain an abundance of errors. The Claimant's interest was described as leasehold when it was freehold; the Notice referred to a memorandum of sale rather than to the actual sale contract; the Notice described the parties as "landlord" and "tenant" rather than "buyer" and "seller"; and there were references throughout to the wrong clauses.

Despite this, the Court found that the errors were minor, because the reasonable  recipient would have understood the intention of the Notice.

  1. The Court noted that the Notice gave a date of 2012 instead of 2013, and that it contained a miscalculation on the date for completion. Again, the Court felt that this was not sufficient to confuse the reasonable recipient, who would have consulted a calendar and calculated the date for himself based on the period  of 10 working days. As such, the Notice was sufficient to show the Claimant's intention.
  2. A notice to rescind had been served on 17 April 2013 and this had not been challenged.

Consequently, despite the errors peppering the Notice, the Court found that that the Defendant's counterclaim had no prospect of success because the notice was valid and the Claimant was therefore entitled to rescind the contract.

It is also worth noting that the Claimant stood to make a substantial profit from its sale of the property by auction rather than under the sale contract. The Defendant had argued that the Claimant should not be able to keep the deposit. However, the Court found that the Claimant's profit was not sufficient justification for the Court to exercise its statutory discretion to order the Claimant to refund the Defendant. The Claimant was entitled to retain the deposit and proceed to sell the Premises at auction.

Our Advice

Given that the Notice to Complete was riddled with errors, and had been drafted by solicitors for the Claimant, the Court's decision may seem surprisingly generous at first.

However, it is important to remember that the Court was only looking at this particular Notice and these particular facts. In this case, the Claimant had clearly intended to give a notice to complete; the buyer had confirmed that it was unable to comply; and the sale at auction took place many months later. Only at this point did the Defendant raise any queries over the notice. In any event, the errors were numerous, but not so significant that the recipient of the notice would have failed to understand it. Although the Claimant succeeded on all grounds, its sale was nonetheless delayed by the proceedings.

Going forward, we may well see this decision cited by those who are seeking to rescue bad notices. It would be a dangerous position indeed for a party serving a notice to believe that it would be saved because other incorrect notices have been. Each case will turn on its own facts, and yours may not be sufficiently exceptional. Property notices remain an area that is ripe for contention and litigation, and careful advice should always be sought before they are served.