Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd

English Contract Law

Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd
Image: ‘The Junction’ by Elias Gayles

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Law of contract operates in a world that extends well beyond the niceties of discourse, and in doing so, relies upon certainty of both intention and expression. In this appeal case, the confused and often assumptive approach to business between a property owner’s asset manager and developer, left the judges with no choice but to re-assess the contracting parties interpretations, in order to establish conclusive judgment.

As part of an ongoing development agreement, the two companies had outlined very specific terms to their arrangement, and which due to their complex nature, commanded considerate specificity. While the majority of the schedules to the contract were secure and without contention, the subject of rental values remained less certain, due to the poor wording (or at least absent text) within the respondent’s letter.

Much like the ‘elephant in the room’, the discussion around whether unoccupied properties were subject to an expected target rental figure or market-driven rates, was left improperly addressed, while in the letter from the respondents, there was also a tone of trying to set the terms of the contract. Clause 18.2.1 of the development agreement required that the developers were bound to seek open market occupation of the properties as soon as possible, and that the target rents (as defined in sch.4 of the agreement) set down by the owners were to be achieved where reasonable. In addition to this, clause 19.8.1 stated clearly that where no occupation occurred within an agreed period, the appellants would agree to pay a calculable sum, based upon the open market rent value at the time.

Unfortunately, during the exchange of letter and email, it was implied by the developer that the sum awarded would be based upon the pre-agreed target rent values and not, (as was expressed within the above clause) the open market value. By the appellant explaining that the proposed terms within the letter were ‘acceptable’, it was also argued that they had, by virtue of their response, agreed to be bound by the principle that the target rent values were those in effect, and not that of any (as yet undeterminable) open market rent rate.

After consideration of the assumptive wording of the letter, it was concluded within the Supreme Court that no reasonable person, including those with inside knowledge of the working arrangement, would have construed that such a statement was (i) expressed (ii) openly agreed to, and for those two reasons the appeal was upheld.

Key Citations

“A statement to a party to an already existing contract which (incorrectly) purports to set out the legal effect or factual position under that contract is not, without more, to be taken as an offer to be bound by the position as stated.”

“An offer is defined as “an expression of willingness to contract on specified terms made with the intention (actual or apparent) that it is to be come binding as soon as it is accepted by the person to whom it is addressed.””

“There is nothing in those headings to suggest that any of the four sections is intended to introduce a further purpose in addition to the four which have been identified in the first paragraph.”

“[T]here is no sufficient evidential basis for a submission that Ms Smith did, in fact, understand that she was being invited to agree to a proposal that Target Rents should be treated as market rents.”

“[I]t would have been impossible for her to reach an understanding that the letter of 21 June 2007 was inviting her to agree to a proposal, advanced for the first time and in the absence of any prior discussion, that the Target Rents shown in the schedule should be taken as the open market rents for the purposes of clause 19.8.1.”

Author: Neil Egan-Ronayne

Author, publisher and foodie...

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