Akzo Nobel UK Ltd v Arista Tubes Ltd

A contractual termination notice may bring the parties’ relationship to an end even though the notice period has not expired. Where an obligation to complete is contingent on a future event, a valid notice terminating the relevant contractual obligations prevents that obligation from arising during the notice period. The construction of the clause must be assessed objectively, having regard to its purpose, its wording and the need for reasonable commercial certainty. A construction allowing completion to be triggered after notice would require clear contractual language, particularly where the same notice requires the occupier to vacate at the end of the notice period.

The claimant held leases of industrial premises and had agreed to grant the defendant underleases as part of a business sale. The agreement provided that, if the necessary property consents were not obtained within 12 months, either party could terminate the obligations relating to the premises by three months’ notice. The defendant served such a notice before the consents were obtained.

The claimant subsequently obtained the necessary consents during the notice period and sought specific performance of the defendant’s obligation to take the underleases. The central issue was whether the obligation to complete could arise after a valid termination notice had been served.

1. Claim dismissed. The defendant was entitled not to complete the underleases, and the claim for specific performance failed.
2. The court construed the termination provision objectively. The reference to the event triggering vacation of the premises meant service of a valid notice, because the defendant was required to vacate by the end of the notice period. The notice therefore had final consequences, subject to antecedent breaches.
3. The purpose of the provision was to enable either party to end the contractual relationship where the property consents had not been obtained within the specified 12-month period. It was not a further notice-to-complete regime or a last opportunity to complete during the notice period.
4. The obligation to execute and deliver the underleases was contingent on a future event and had not arisen when the notice was served. Once the notice had been validly served, neither party could require completion. If an obligation to complete had already arisen when notice was served, it would have continued until expiry of the notice and could have been enforced by specific performance.
5. The claimant’s construction would create commercial uncertainty by allowing completion to be triggered at any time during the period in which the defendant was preparing to vacate and the claimant was seeking another tenant. If that result had been intended, clearer words would have been expected, together with an express qualification of the obligation to vacate.

Not stated in the judgment.