High Court considers meaning of ‘acting by the Receivers’—TBAC Investments v Valmar Works

High Court considers meaning of ‘acting by the Receivers’—TBAC Investments v Valmar Works

In TBAC Investments Ltd v Valmar Works Ltd the High Court considered the validity of a notice to complete a property sale agreement, including who was the proper party to the sale agreement who could give such a notice, in circumstances where receivers were appointed over the property in question.

Original news

TBAC Investments Ltd v Valmar Works Ltd [2015] EWHC 1213 (Ch), [2015] All ER (D) 10 (May)

The claimant had defaulted on a loan from a bank and receivers had been appointed in respect of its properties, which were charged to the bank (the properties). The claimant, with the receivers acting as agents, had entered into a contract for the sale of the properties to the defendant. The completion of the sale did not take place by the specified date and the claimant’s solicitors served the defendant with a notice to complete, under the sale contract. The defendant failed to complete within the specified time and the claimant rescinded the sale contract and the premises were sold to another party at auction. The claimant sought declarations that, among other things, the contract had been terminated by rescission. The claimant applied for summary judgment. The issue was whether a valid notice to complete had been served in accordance with the sale contract.

The Chancery Division, in granting the application, held that the notice had been a valid notice to complete and that the claimant had been entitled to and had rescinded the sale contract. The proper ‘party’ to the sale contract who could give a notice to complete was the seller (the claimant) and not the claimant acting through the receivers.

What was the background to the case?

TBAC acquired certain commercial premises (together the Property) with the benefit of a bank loan which was secured by a legal charge over the Property. TBAC defaulted on the loan, following which the bank appointed receivers (the Receivers) over the Property.

An agreement for the sale of the Property (the Agreement) was entered into between TBAC, the Receivers and Valmar, being the proposed purchaser. The Agreement stated that the Receivers had entered into it as agents of TBAC. A few months after entry into the Agreement one of the Receivers resigned and an alternative Receiver was appointed in his place.

Completion of the sale of the Property did not occur on the completion date specified in the Agreement. The Agreement incorporated conditions 8.8.1 and 8.8.2 of the Standard Commercial Property Conditions (the Standard Conditions). These provide that, at any time on or after the completion date, a party who is ready, able and willing to complete may give the other a notice to complete, and that the parties are to complete the contract within ten working days of giving a notice to complete, excluding the day on which the notice was given, time being of the essence of the contract.

A document titled ‘Notice to complete’ (the Notice) was served on Valmar by the Receivers’ solicitors. There was no evidence that the Notice was signed. Valmar failed to complete in accordance with the Notice. The Receivers’ solicitors wrote to Valmar giving notice to rescind the Agreement.

The Property was subsequently offered for sale at auction and another party agreed to buy it. However, before the sale could be completed, Valmar’s solicitors wrote to the Receivers’ solicitors challenging the validity of the Notice and the purported rescission of the Agreement. Valmar took steps to register unilateral notices against the Property at the Land Registry preventing completion of the sale.

TBAC commenced proceedings seeking a declaration that the Agreement was terminated by rescission, an order that the unilateral notices be cancelled and an injunction restraining Valmar from attempting to register any other notice or restriction at the Land Registry in respect of the Agreement. Valmar issued a defence and counterclaim, claiming specific performance of the Agreement. TBAC applied for summary judgment.

What were the issues that the High Court had to decide and what were the main arguments put forward?

The issue for the High Court was whether the Notice was a valid notice to complete.

Valmar asserted that the Notice was not valid for four reasons:

  • the Notice was not signed
  • the relevant party to the Agreement who could give notice to complete was TBAC ‘acting by the Receivers’ who were defined in the Agreement by reference to the names of the original Receivers (not including their successors in title)—they suggested therefore that a notice to complete could only be given by those specific individuals
  • the Notice was very confusing as it contained errors, and
  • the Notice was given for the wrong date

What did the High Court decide, and why?

Mr Kevin Prosser QC, sitting as a Deputy Judge of the High Court, found that the Notice was a valid notice to complete and therefore TBAC was entitled to, and had, rescinded the Agreement. As Valmar’s attacks on the validity of the Notice and counterclaim had no prospect of success and there was no other compelling reason for a trial, TBAC’s application for summary judgment was granted and Valmar’s counterclaim dismissed. The court also declined to exercise its statutory discretion to order the return of the deposit and declared that TBAC could forfeit it. The reasoning is as follows:

Absence of a signature

The court rejected Valmar’s contention that a notice to complete is customarily signed, and as the Notice was clearly intended to be signed, the fact that it was not signed indicated that it was only a draft and was never intended to take effect. The judge found that a reasonable recipient would understand from the fact that the Notice had been sent (with a copy having been sent to Valmar’s solicitors) that it was intended to take effect, notwithstanding the fact that it had not been signed.

The meaning of ‘acting by the Receivers’

The court further rejected the assertion that the Notice was not a valid notice to complete as it was not given by both of the original Receivers on three grounds:

  • the ‘party’ to the Agreement who could give a notice to complete was TBAC (the seller) and not ‘TBAC acting through the Receivers’—the Agreement made it clear that the Receivers entered into it merely as agents for TBAC and the court did not construe the words ‘acting by the Receivers’ which appeared in the Agreement as words of limitation or compulsion; rather, they were words of description
  • in any event, the expression ‘the Receivers’ should be construed as including their successors in office—it would be absurd to give a literal construction to ‘the Receivers’ so as to exclude successors given their agency status
  • if, contrary to the above, TBAC could only act through ‘the Receivers’ which did not include their successors, ‘the Receivers’ included any one of them—this interpretation was confirmed by reference to the Agreement

Errors in the Notice

The court did not agree with Valmar’s assertion that errors in the Notice meant that it was very confusing, and therefore not a valid notice. The errors, although numerous, were minor because whether viewed separately or cumulatively they would not create any doubt in the mind of a reasonable recipient as to the purpose or effect of the Notice.

Incorrect date of completion

Regarding Valmar’s contention that the Notice was not valid due to the date given for completion being incorrect, the court found that a reasonable recipient of the Notice would understand that the Notice required completion of the Agreement in accordance with Standard Condition 8.8—ie within ten clear working days excluding the date of the Notice.

What practical lessons can those advising take away from the case?

The court’s sensible approach in construing the words ‘acting by the Receivers’ as mere words of description and not words of limitation or compulsion will be of interest to practitioners, although not a surprising outcome.

Although the absence of a signature was found not to affect the validity of the Notice in the present case, such notices should be signed to avoid arguments that they are in draft form only and not valid and effective. Likewise, consideration should be given to expressly stating in an agreement when parties include successors in title.

Again, although the errors in the Notice were held not to affect its validity, this case is a useful reminder for practitioners to ensure the accuracy of documents, and in particular that time periods are calculated correctly, especially when the relevant time period involves working days and falls over a bank holiday, as was the case here.

Dawn Grocock, solicitor in the Lexis®PSL Restructuring & Insolvency team.

Further Reading

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Powers, duties and liabilities of the LPA receiver

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First published on LexisPSL Restructuring and Insolvency

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