Say what you mean and mean what you say

Jones and another v Oven and another [2017] EWHC 1647 (Ch)

Summary

This is a very interesting case where the High Court construed a contract to mean what the parties had intended to say, rather than what they had actually said.

The Court found that, on the proper construction of a contract for the sale of a plot of land, a strip that had to be transferred back to the original owners was bound by the same restrictive covenants that affected the land that the original owners had retained.

This was not what the contract said, but the Court felt that a literal reading of the covenants as drafted in the contract would have negated the purpose behind them. It is an unusual decision, as the Court usually confines itself to interpreting the agreement that the parties made, rather than the agreement that they intended to make.

The facts

The Claimants, Mr and Mrs Jones, and the Defendants, Mr and Mrs Oven, lived on neighbouring properties in Chelmsford, Essex.

Historically, the Claimants owned all the land, which was farmland. In 2002, they sold two plots of land to a developer. The contracts contained restrictive covenants that would bind both the plots that were being sold and the land that was being retained by the Claimants.

In particular, the Claimants’ retained land was not to be used for agricultural activities that would conflict with residential neighbours. There was a specific covenant preventing the Claimants from using the land for keeping livestock, unless it were horses.

There was a further covenant that required the purchaser to transfer a strip of land back to the Claimants if a particular barn on that strip were to be demolished. The covenant did not go on to spell out that the strip would then become subject to the restrictive covenants that bound the rest of the Claimants’ retained land.

By 2003 the developer had built a house on the land. In 2005 he sold both plots to the Defendants as a single parcel of land. The Defendants therefore inherited the benefit of the restrictive covenants binding the Claimants’ retained land and the burden of the covenants on their own land. They also agreed with the purchaser that they would transfer the strip of land back to the Claimants if the barn were ever demolished.

In 2009, the Defendants demolished the barn, and in doing so, triggered the obligation to transfer the strip of land back to the Claimants. The Claimants were willing to take the strip of land back, but they wanted it to be freed from the Defendants’ restrictive covenants.

Whilst the terms were being thus disputed, the Claimants began to keep pigs on the retained land, in breach of the restrictive covenants. Indeed, the Claimants even allowed the pigs to roam onto the strip of land. The parties were at an impasse: the Claimants would not take the strip unless it was free from restrictive covenants; the Defendants would not transfer it unless it were bound by the Claimants’ covenants.

In 2015 matters came to a head when the Claimants brought a claim for specific performance and damages on the basis that the strip of land was essential for their equine livery business, which they had been unable to develop as a consequence of the Defendants’ failure to transfer the land.

The issues

The High Court had to consider the following issues:

  • On the proper construction of the sale contract, did the definition of “retained land” to which the Claimants’ restrictive covenants would apply include the strip?
  • If the answer to 1 were “no”, should the Court imply a term to that effect?
  • Should the Court make the order for specific performance for the transfer of the strip?
  • Had the Claimants suffered any loss?

The decision

The Court found that:

  • If read literally, the sale contract did not include the strip within the definition of “retained land”. However, to read the contract in this literal way would lead to a situation where the piece of land that lay closest to the Defendants’ home could be used for any agricultural activities, even very anti-social ones

This consequence would be so absurd that it could not have been the intention of the parties at the time they entered into the contract. Therefore the contract had to be read in such a way that “retained land” did include the strip;

  • If the judge were wrong on the first point, he would nonetheless have implied a term into the contract requiring the Claimants to observe the restrictive covenants on the strip, even though it was not set out in express wording;
  • The strip should be transferred to the Claimants;
  • The Claimants were awarded damages of just £2.00.

Our comments

This case is interesting for a number of reasons.

It is a rare decision where the Courts will construe an unambiguous contract in any other way than with the exact meaning of the words, even where those words produce an undesirable result. It is more usual for the Courts to be asked to read a commercially sensible outcome from an ambiguous contract. The decision chimes a clear reminder that sometimes the Courts can look at the literal meaning of even a plainly worded contract.

The case is also useful on the limitations of the scope of the Court’s jurisdiction to grant specific performance. The Court commented that jurisdiction to grant specific performance on certain terms was limited to situations where events that had taken place after the completion of the contract would have changed the position so as to cause hardship. In the absence of such factors, the Court could only make a simple order for specific performance.

In addition to this, the case demonstrates how the Court will apply the test of necessity when deciding whether to imply a term into a contract. In this case, whilst the terms could have been applied as drafted, the result would have lacked “commercial or practical coherence”. This was how the judge justified his decision at number 2 above.

The damages award is also interesting. The Court had to consider whether the claim was too “remote”, ie whether the failure of the Defendants to transfer the strip was responsible for any loss to the Claimants’ fledgling livery business. The judge felt that, given that the strip could have been put to a range of uses, there would have to be something special in the contract to show that the party with the obligation to transfer it was aware of the particular use for which the Claimants intended it. In this case, there was nothing to support this argument and therefore the damages claim failed on the grounds of remoteness.

From a practical perspective, the case illustrates the importance of careful drafting, to ensure that the sequence of transactions results in the correct land having the correct burden or benefit. The consequences should be sanity checked to ensure that they are acceptable to the parties who will have to live with them.