Summary
In the recent case of Richard Slade and Company Ltd v Guinevere Holdings Ltd [2023] All ER (D) 145 (Jul) Judge Anderson KC helpfully reconfirmed the generally understood position that the court will interpret a commercial contract on the basis of its express drafting and will not interfere in a commercial agreement between contracting parties by implying terms unless it is absolutely necessary. Handed down on 28 July 2023, the judgment emphasised that business efficacy as opposed to fairness is the key consideration for the court when determining the correct construction of commercial contracts.
Background facts and contractual matrix
A matrix of arrangements pursuant to which loans and a commitment of equity were made available were considered by the court. Relevant documentation included the following:
- Grenda Investments Limited (Grenda), a BVI company and Alymere Holdings Limited, a real estate company incorporated in Jersey (Alymere), entered into a high interest bridging facility agreement in May 2014, as lender and borrower respectively (the 2014 Facility Agreement).
- Alymere and Grenda (amongst others) entered into a further facility agreement in June 2015 (the 2015 Facility Agreement) for a significantly larger sum than the 2014 Facility Agreement, and for the purpose of funding development works to a number of properties for which Guinevere Holdings Limited, a BVI property development business (Guinevere) was noted as the registered proprietor (the Properties).
- A commitment letter was then entered into by Guinevere and Mr Hayward (a business owner and property investor, and protector and discretionary beneficiary of a trust which owned Alymere and Guinivere) in December 2016, pursuant to which c. £2.46 million (the Total Repayment Sum) was purported to be due to Grenda under the 2014 Facility Agreement (the Commitment Letter).
- By an April 2018 agreement, Grenda assigned its interests in the receipt of certain payments under the 2014 Facility Agreement and the Commitment Letter to Richard Slade, a law firm that had represented Grenda in multiple cases and to which Grenda owed outstanding sums.
- In May 2022, Richard Slade gave notice of the assignment to Guinevere and Mr Hayward and demanded payment of the Total Repayment Sum.
- Grenda and Richard Slade (the Claimants) made an application for summary judgment on the claim, or alternatively for an order striking out the defence. The claim was defended by Guinivere and Mr Hayward.
Relevant points in the Commitment Letter
The Commitment Letter created a nexus between (i) the release of the Properties from the transaction security associated with the 2015 Facility Agreement; and (ii) the payment of the Total Repayment Sum.
The key clause of the Commitment Letter provided the following with respect to the payment of the Total Repayment Sum:
"Provided that Completion occurs on the Completion Date… [Guinevere] agrees to do the following on the Repayment Date subject to the further terms of this letter: pay… the [Total Repayment Sum]"
"Completion" was defined as "the release of the .....Properties from the [security documents]" and the "Completion Date" was defined as the date on which Completion was to take place. "Repayment Date" was defined as 30 June 2017. The fact that payment had not been made by the time of the trial was not disputed.
What were the issues in contention?
The Claimants' argument was fairly simple: Completion had occurred on the day that the last of the Properties was released from the transaction security and accordingly, the Defendants' obligations under the Commitment Letter became unconditional at that point in time.
The claim was defended on a number of grounds, notably including the following:
- on the proper construction of the Commitment Letter, Completion was to occur prior to the Repayment Date. The Total Repayment Sum was due on Completion and as such the Defendants were not required to have made payment; and
- there was no time expressly stated in the Commitment Letter by which Completion should take place therefore there was an implied term in it that certain obligations set out therein were conditional on Completion occurring within a reasonable time. It was contended that there were cogent reasons why the time allowed was not reasonable.
Findings of the court
Construction Issues
- With respect to the issues on construction, following the analysis of Nugee LJ in Britvic Plc v Britvic Pensions Ltd & Another [2021] EWCA Civ 867 the court found that the liability of Guinevere and Mr Hayward was intended to be and was conditional as a result of the proviso that Completion had occurred on the Completion Date. However, there was "simply no support in the actual words used… to conclude that there was an additional condition, namely that Completion had to occur on or before the Repayment Date".
- Further, the Judge noted that it is usual to include contractual longstop dates within commercial contracts; therefore, the parties would have expressly stated that Completion had to occur by the Repayment Date if that had been the agreed intention.
- The Claimants could not advance an argument that convinced the court that the additional condition was intended, relevant or necessary and as such, it was confirmed that Completion could occur at any time when the Properties were released from the transaction security.
Implication of terms
- Turning to the issue of implication of terms, the court was not convinced that the Defendants had advanced any case or provided any explanation as to why the implication of a condition as to reasonableness was "necessary to give business efficacy or why these terms are so obvious as to go without saying".
- A term cannot be implied into a contract simply because it is fair or one party may well have agreed to such a term if it had been raised during the contractual negotiations. This was the standard on implication of terms applied by the Supreme Court in the authoritative case of Marks & Spencer v BNP Paribas Securities Trust Co (Jersey) Ltd & Another [2015] UKSC 72.
- Further, the Marks & Spencer case confirmed that proving the actual intention of the parties is not the relevant standard for implication of terms, but rather establishing what the notional reasonable person in the position of the contracting parties would have agreed. In this case, notwithstanding the potential dispute as to which party was liable under the Commitment Letter if Completion did not occur within a reasonable time, the judge was satisfied that the notional reasonable person in the position of the parties at the time of contracting would not have agreed that the timeframe for Completion must be reasonable. If anything, implying such a term into the Commitment Letter would have only added uncertainty to the positions agreed therein, which the court was not prepared to do.
Key takeaways
The findings in this case offer comfort to future contracting parties and reinforce the position that the court will not interject in the commercially agreed contractual agreements between parties (including commitment letters) unless doing so is absolutely necessary. Contracts will be interpreted in accordance with the express drafting set out therein and terms are not implied in order to satisfy a condition of fairness, but to give business efficacy to agreements.
The importance of expressly stating the precise intentions of the parties to a commercial agreement in that agreement, and the difficulty of rowing back from agreed positions where there is no manifest error that affects the ability to make sense of the contract, if not already clear, is certainly reinforced by the outcome in this case.
Find out more
To discuss the issues raised in this article in more detail, please contact a member of our Banking and Finance team.
