Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd

Whether a contract has been made is distinct from how an admitted contract is construed. For formation, the court asks whether a reasonable person in the offeree’s position, with the relevant knowledge, would understand the communication as a proposal intended to bind the offeror upon unequivocal acceptance. A request to confirm that correspondence records an agreed position ordinarily seeks confirmation of existing agreement, not fresh agreement, unless the context indicates otherwise. Distinct contractual concepts, such as target rent and open market rent, cannot be treated as interchangeable merely because a schedule labels one as the other. A mistaken statement in commercial correspondence does not become an offer simply because the recipient could have understood it as one.

Crest Nicholson brought proceedings against Akaria concerning the calculation of a profit payment under a development agreement. On preliminary issues, the High Court held that the open market rents for unlet units had been agreed by correspondence to be the target rents in an attached schedule: [2010] EWHC 243 (Ch). Akaria appealed. The central issue was whether the correspondence contained an offer capable of acceptance, or instead merely recorded matters previously agreed and misstated the contractual position.

1. Disposition. Sir John Chadwick gave the leading judgment. Lord Justice Longmore and Lord Justice Maurice Kay agreed. The appeal was allowed.
2. Applicable test. The court distinguished construction of an admitted contract from the question whether a contract was formed. The former asks what the parties intended by the words used in their agreement, applying the approach associated with Chartbrook Ltd and another v Persimmon Homes Ltd and another [2009] UKHL 38. For formation, the question is whether a reasonable person in the offeree’s position, possessing the relevant knowledge, would understand that the offeror was making a proposal intended to bind the offeror upon unequivocal acceptance.
3. The correspondence. The High Court’s analysis of offer, counter-offer and acceptance was incorrect. The email stating that the proposals in the letter were acceptable was an unequivocal acceptance of those proposals. The additional proposal concerning turnover rents was separate and was accepted by the reply. That analysis did not, however, establish that the original letter contained an offer concerning the treatment of target rents as open market rents.
4. Meaning of the letter. The request for confirmation that the letter correctly reflected the agreed position, read with the letter as a whole, sought confirmation of matters already agreed rather than agreement de novo. The letter identified four purposes, none of which included agreeing target rents as open market rents. The attached schedule showed target rents, while the development agreement treated target rents and open market rents as distinct concepts. In the absence of any prior agreement or discussion on the point, an informed reader would recognise the statement that the schedule showed open market rents as a mistake, not as a contractual proposal.
5. Subjective intention. It was unnecessary to decide whether mutually held but uncommunicated subjective intentions could form a contract. There was insufficient evidence that the recipient actually understood the letter as inviting agreement that target rents should be treated as open market rents. The High Court’s order was therefore not upheld.

1. Court of Appeal (Civil Division): In [2010] EWCA Civ 1331, the court allowed Akaria’s appeal.
2. High Court of Justice, Chancery Division: Sir Edward Evans-Lombe, on preliminary issues, held that the relevant open market rents had been agreed by correspondence to be the target rents in the schedule: [2010] EWHC 243 (Ch).