DESTINY 1 v LLOYDS TSB BANK

As discussed in Crest Nicholson, it is imperative for disputing parties to recognise that the wording of documents and the terms implied behind them, are not to be misconstrued to the detriment of those seeking justice (as is demonstrated in this brief matter).

When a small business owner found himself in a position to expand upon his success as a retail outlet, he began negotiations with a new bank that had shown an interest in helping him secure an additional property with a view to opening a second store.

As there were complex requirements within the proposed arrangement, there needed to be a number of component contracts that would collectively form a single binding contract.

These came in a number of different forms, including several small charges against the properties held under title by the appellant, a guarantee of indemnity for a supplier the appellant had chosen for his new store, and  a re-financing of an existing loan with his current bank; which due to its significant size, formed the footing of the agreement, because without it the bank had no means by which to achieve a workable profit.

As part of the pre-contract process, the bank sent a letter that conveyed its agreement to proceed with the package contract, on the proviso that the appellant also agreed to submit to the terms contained within the letter and the actions he was required to undertake prior to their commencement.

The appellant duly signed and returned the letter to display his compliance with those terms, but unfortunately for reasons not outlined within the appeal hearing, the bank was unable to proceed with the loan refinancing; therefore, the proposed arrangement could not be realised.

It was this unexpected withdrawal that promoted the appellant to cite that his business had subsequently suffered pecuniary losses through the inability to expand, and that the banks unwillingness to endorse his guarantee to the potential supplier constituted a clear breach of contract.

When given broad and considered thought in the Court of Appeal, it was reiterated that while the bank and the appellant had drawn up a multi-layered agreement to contract, no breach could be found without the complete participation of all the arrangements, for without them functioning as a whole, no such contract could be seen to exist.

Likewise, the the bank’s letter merely outlined that they needed the appellant’s agreement to the terms contained within, and that his acceptance did not by extension, form a binding arrangement.

Furthermore, while the bank’s cessation to undertake business with the appellant had left him dissatisfied, there could be no causal link between a failure of the contract to become manifest, and any obstruction of commercial expansion under his own efforts.

Hence, the court dismissed the appeal, while reminding the parties that:

“[T]he law decides whether a contract has come into existence by looking objectively at what each party said to the other, not at their subjective intentions or understandings.”

CREST NICHOLSON v AKARIA INVESTMENTS

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 schedule 4 of the agreement) set down by the owners were to be achieved where reasonable.

In addition, 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, accepted and 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 any acceptance was expressed and any offer openly agreed to.

Hence, for those two reasons the appeal was upheld, while the court reminded the parties that:

“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 become binding as soon as it is accepted by the person to whom it is addressed.””

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