In a recent decision, the High Court had to consider the proper construction of a term which entitled the parties to rescind "if all of the Conditions have not been discharged" by the longstop date: Dooba Developments Limited v McLagan Investments Limited [2016] EWHC 2944 (Ch).

Describing the question as finely balanced, the court held that the power to rescind arose only where none of the Conditions had been discharged by that date; it did not arise where any of the Conditions had not been discharged.

The case highlights the ambiguity of the word "all" when used in a negative context, and the importance of using clear, unambiguous language to avoid questions over interpretation.

Kerrie Barrett, an associate in our disputes team, considers the decision below.

Background

Under an Agreement entered into between the claimant (Dooba) and the defendant (Asda), Dooba was to purchase a Property and build a superstore on it, together with an estate road linking the superstore to the highway. The Agreement was subject to four conditions: the Planning Condition, the Planning Agreement Condition, the Highway Condition and the Pre-Start Condition.

Schedule 4 to the Agreement contained various provisions relating to the Conditions, including the following at paragraph 2:

"Discharge of the Conditions

2.1 On the date on which all of the Conditions have been discharged … this Agreement will become unconditional…

2.2 If any of the Conditions have not been discharged by satisfaction by the date they are stipulated in this Agreement to be discharged by… the party entitled to rescind this Agreement in accordance with the relevant paragraph of this Schedule may rescind this Agreement by giving to the other not less than ten working days notice to that effect ….

2.3 Without prejudice to the provisions of paragraph 3 if all of the Conditions have not been discharged in accordance with this Schedule by the Longstop Date, then either Asda or Dooba may rescind this Agreement by giving to the other not less than ten working days written notice to that effect." (Emphasis added)

Paragraph 3 of Schedule 4 set out the dates by which each of the individual Conditions must be discharged, failing which either party would have the right to rescind under paragraph 2.2.

On 24 July 2014, the day after the Longstop Date, Asda served notice of rescission pursuant to paragraph 2.3, on the basis that the Highway Condition had not been discharged. Dooba sought a declaration that the notice of rescission was premature and therefore invalid, and Asda applied for summary judgment, seeking an order that the claim be dismissed.

The Master agreed with Asda that the rescission was valid, since at least one of the Conditions (the Highway Condition) had not been satisfied by the Longstop Date. Dooba appealed the decision to the High Court.

Decision

The issue before the judge (Mr David Halpern QC) was whether, on a proper construction of the agreement, the right to rescind arose:

  • if any of the Conditions had not been satisfied by the Longstop Date (argued by Asda); or
  • only if none of the Conditions had been satisfied by the Longstop Date (argued by Dooba).

He proceeded on the basis that at least one of the Conditions (the Highway Condition) had not been satisfied by the Longstop Date, but assumed it was arguable that the remaining Conditions had been satisfied by that date.

There was no dispute as to the principles the court had to apply in interpreting a written contract, namely to determine what a reasonable person having all the background knowledge available to the parties would have understood them to mean by the language used in the contract.

The judge described the merits of the opposing arguments as finely balanced, but ultimately agreed with Dooba that the right to rescind arose only where none of the Conditions had been discharged by the Longstop Date. He reached this conclusion on the following grounds:

The disputed clause: The subject of the clause was "all of the Conditions", and the characteristic which the subject must have was "have not been discharged". As a matter of Boolean logic this characteristic must affect all of the Conditions in order for the clause to give rise to a right to rescind. The judge agreed with Asda that the formula "if all…have not…" is sometimes used to mean "if not all …have", but did not agree that this had become its primary meaning. The meaning contended by Dooba was the one that was grammatically correct.

Paragraph 2: This conclusion was supported by sub-paragraph 2.2, which used the formula "if any of the Conditions have not been discharged". Not only was it striking that these two different formulas appeared in immediately adjacent provisions occurring in the same paragraph, but it also indicated that the draftsman knew of the correct formula which would avoid any ambiguity.

The Agreement as a whole: Sub-paragraph 2.3 did not sit happily with the alternative regime for rescission under sub-paragraph 2.2 and paragraph 3. Each party pointed to the weaknesses in the other party's case regarding the interaction between these provisions. The judge found each side's arguments equally unattractive, however, and decided they cancelled one another out.

Given the existence of an alternative regime for rescission under sub-paragraph 2.2 and paragraph 3, there was no assistance to be found by looking at the overall purpose of the Agreement or at commercial common sense. There was also no significant factual matrix to be taken into account, beyond the Agreement itself.

The judge therefore concluded that Asda was not entitled to rescind on 24 July 2014 unless all of the Conditions remained undischarged on that date. Although it had been established that the Highway Condition remained undischarged, there was a triable issue as to the remaining Conditions. This case was therefore not appropriate for summary judgment, and the appeal was allowed.