Right to rescind where all conditions have not been discharged (Dooba Developments Ltd v McLagan Investments Ltd)

The High Court was asked to construe a clause in a property sale and purchase agreement which gave either party a power of rescission ‘if all of the Conditions have not been discharged...by the Longstop Date’.

Original news

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

In this case, the High Court considered whether a provision that gave either party a power of rescission 'if all of the Conditions ...have not been discharged...by the Longstop Date...' should be construed as meaning that the power to rescind the agreement arose where none of the conditions had been discharged by the longstop date or where any of the conditions had not been discharged by such date.

What was the background to the case?

Dooba Developments Ltd (Dooba) and McLagan Investments Ltd (Asda) entered into a sale and purchase agreement pursuant to which Dooba was to purchase land upon which it was to build a retail superstore for Asda, together with an estate road linking the superstore to the highway (the Agreement). Completion of the Agreement was subject to four conditions (the Conditions):

  • the planning condition
  • the planning agreement condition
  • the highway condition
  • the pre-start condition

The Agreement included various provisions dealing with the discharge of the Conditions, including the following paragraphs:

  • 2.2 'If any of the Conditions have not been discharged by the date they are stipulated in this Agreement to be discharged by...the party entitled to rescind this Agreement...may rescind this Agreement...'
  • 2.3 '...if all of the Conditions have not been discharged...by the Longstop Date, then either Asda or Dooba may rescind this Agreement...'

On the day after the longstop date, Asda served notice of rescission pursuant to paragraph 2.3 on the basis that Dooba had failed to satisfy one of the conditions (ie the highway condition). Dooba then issued proceedings seeking a declaration that the notice of rescission was invalid as being premature and Asda applied to the Master for summary judgment seeking an order that the claim be dismissed.

The Master, on the basis that at least the highway condition had not been satisfied by the longstop date, accepted that Asda had validly rescinded the Agreement under paragraph 2.3 since at least one of the Conditions had not been satisfied by the longstop date. Dooba appealed the decision to the High Court.

What was the key issue in the case?

The case turned on the issue of whether on the proper construction of paragraph 2.3, the power to rescind arose if any one or more of the Conditions remained undischarged at the longstop date (as Asda contended) or whether the power to rescind arose only if none of the Conditions had been discharged by the longstop date (as Dooba argued).

The approach taken by the judge, Mr David Halpern QC, to construction of this provision was based on the authority in the Supreme Court decision in Arnold v. Britton [2015] AC 1619. That case emphasised that when interpreting a written contract, the court is concerned to identify the intention of the parties by reference to 'what a reasonable person having 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'.

What did the judge decide?

The judge regarded the merits of Dooba and Asda's arguments as finely balance. However, the judge, taking a literal construction of the provision decided that the right to rescind only applied where none of the Conditions had been satisfied by the longstop date. The subject of the clause is 'all of the Conditions' and as a matter of strict Boolean logic, the relevant characteristic is a negative one which must affect all of the Conditions.

The judge did, however, accept that the formula 'if all...have not...' is sometimes used to mean 'if not all...have', but did not accept that this had become its primary meaning.

The judge drew attention to the fact that paragraph 2.2 (being immediately adjacent to the provision in question) indicated that the draftsman knew the correct formula which avoids any ambiguity, in stark contract to the drafting in paragraph 2.3.

The judge accepted that had paragraph 2.3 stood alone, there would have been a strong ground for a purposive construction that would result in the Agreement being terminable if any of the Conditions had not been discharged by the longstop date. However, given that there was an alternative workable regime under paragraph 2.2, there was no such imperative in this case.

What practical lessons are there to be learned?

Although, on the facts of this case, the Agreement contained different, overlapping provisions, it highlights the importance of ensuring that there is no ambiguity when drafting provisions dealing with the right to rescind a contract for failure to discharge conditions. The case highlights the ambiguity of the word 'all' when used in a negative context and the importance of ensuring that such right to rescind is effective if 'any' of the conditions are not satisfied.

Case details

  • Court: High Court of Justice, Chancery Division
  • Judge: Mr David Halpern QC sitting as a Deputy High Court Judge
  • Date of judgment: 23 November 2016

By Maria Delyfer

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