Malkinson & Ors v Secured Orchard Investments Ltd & Anor

An option period defined by fixed dates is not extended merely because planning permission might later be obtained. An extension clause takes effect only where, at the contractual expiry date, one of its specified conditions exists and a development obligation is then required. A later legal charge cannot be used to construe an earlier option agreement where it was made in different circumstances. In a commercial security document, a manifest drafting error may be resolved by supplying omitted words where the document’s structure and cross-references make that the more likely explanation. A covenant requiring one party to procure another to release an option contemplates deliberate, formal action. Mere expiry, inaction or failure to require exercise is not a release, and the court will not rewrite the bargain to cure an anomaly.

The claimants, members of the family associated with Boston United Football Club, entered into a land option agreement with Orchard (Developments) Holdings PLC and a legal charge with Secured Orchard Investments Ltd. The option concerned the Club’s ground and related premises. The charge secured the Club’s borrowing and potentially the claimants’ contribution towards planning expenses.

The claimants contended that the land option expired on 31 December 2003 and that they were entitled to redeem the charge. The defendants contended that the option remained exercisable under clause 8.2 and that the charge continued to secure the planning-cost covenant in clause 5.3. His Honour Judge Langan QC decided the issues in the claimants’ favour, subject to rejecting their challenge to the drafting of the secured-liabilities definition. The defendants appealed, and the claimants served a respondents’ notice. The central questions concerned the construction and effect of the option-extension and release provisions.

The Court of Appeal, by a judgment of Lord Justice Lloyd with which Lord Justices Maurice Kay and Auld agreed, dismissed both defendants’ appeals and the respondents’ notice.

1. Land option. Clause 8.2 extended the option period only where one of its specified conditions existed on 31 December 2003. Those conditions concerned a resolution to grant planning permission, an existing permission whose implementation required a development obligation, or another circumstance in which such an obligation was necessary. The clause did not revive the option merely because a later planning appeal or challenge might lead to circumstances satisfying it. None of the conditions existed at the contractual expiry date, so the option was no longer exercisable.
2. Construction of the legal charge. The definition of “Secured Liabilities” contained a manifest drafting error. The more likely explanation was an omission of the words referring to the Chargor in the opening part of the definition. Read in that way, the charge secured the claimants’ liability under clause 5.3 as well as the Club’s liability, subject to the applicable caps. The respondents’ notice was therefore rejected.
3. Release requirement. Clause 5.3 required Investments to procure that Developments released the option before the planning-cost liability arose. In the context of a commercial conveyancing document, that wording required deliberate steps and a formal release. Mere expiry of the option, passivity, or failure to require its exercise did not amount to a release. The same meaning applied to the release requirement in clause 5.2.2.
4. The court declined to strain the language of the charge to cure the commercial anomaly identified by the defendants. Doing so would have created a bargain which the parties had not made. The claimants were accordingly entitled to the relief ordered below.

• Court of Appeal (Civil Division): In [2005] EWCA Civ 1509, dismissed both defendants’ appeals and the respondents’ notice.
• High Court of Justice, Chancery Division, Leeds District Registry: His Honour Judge Langan QC determined the construction issues by order dated 17 May 2005, giving rise to the appeal.