Akzo Nobel UK Ltd v Arista Tubes Ltd

A contractual notice intended to terminate the parties’ obligations takes immediate effect when served, unless the agreement provides otherwise. It is not ordinarily capable of being unilaterally reversed by later performance during the notice period. Where specified consents have not been obtained, service of a valid termination notice may end the obligation to procure those consents and the counterparty’s obligation to enter into underleases. The related obligation to vacate must be performed by the end of the notice period. A qualification preserving antecedent breaches preserves accrued claims, such as arrears or damages, but does not preserve a continuing obligation which the notice has terminated.

The seller sought specific performance of the buyer’s alleged obligation to take underleases of factory premises under a business purchase agreement. The buyer had served a notice under paragraph 11 of Part B of Schedule 7, after the required property consents had not been obtained by the stipulated date, stating that it would terminate its licence and vacate the premises. The seller later obtained the consents and demanded completion of the underleases.

Floyd J dismissed the specific performance claim. The appeal concerned the construction of the notice provision, principally whether service of the notice immediately terminated the parties’ obligations or whether the seller could obtain the consents during the notice period and thereby require completion.

The Court of Appeal unanimously dismissed the appeal. Mummery LJ delivered the judgment, with Richards LJ and Sir David Keene agreeing.

1. Nature and immediate effect of the notice. Paragraph 11 provided a mechanism for terminating the parties’ contractual obligations in relation to the premises. It was not a notice to complete which gave the seller a final opportunity to obtain the lease transfer and property consents. In the absence of express contrary wording, a valid notice of termination had immediate legal effect on service.
2. Consequences for the parties’ obligations. Service of the notice ended the seller’s obligation to use reasonable endeavours to obtain the property consents and assignment of the lease. It also ended the buyer’s obligation to take the underleases and pay the licence fee. The obligation to take the underleases had not arisen before service, and the purpose of the notice was to prevent it arising subsequently.
3. Commercial certainty and construction. The seller’s construction would have allowed it to nullify a valid notice at any time during the notice period by obtaining the consents. That would leave the parties uncertain whether the buyer had to vacate, continue paying the licence fee, or take the underleases. The clause, read as a whole and in its commercial context, did not support that result.
4. Particular wording. The words “in which event” referred more naturally to the giving of the notice. The obligation to vacate arose then, but had to be performed by the end of the notice period. The words “without prejudice to antecedent breach” preserved accrued claims, including arrears and damages for breach of an indemnity, but did not preserve a continuing obligation to take the underleases.

The judge’s construction was therefore correct and the specific performance claim remained dismissed.

• Court of Appeal (Civil Division): In [2010] EWCA Civ 28, the appeal was dismissed.
• High Court of Justice, Chancery Division: Floyd J dismissed the seller’s specific performance claim on 30 March 2009, holding that a valid notice under paragraph 11 terminated the relevant obligations and prevented the obligation to complete the underleases from arising thereafter.