Bashir v Ali & Anor

An auction contract is construed objectively from the catalogue, sale conditions and memorandum, viewed in their commercial context. Where those documents identify a freehold by its address and registered title and contain no clear reservation, the sale is of the whole registered freehold, even if the accommodation is imperfectly described. An intended sale of a flying freehold should be stated clearly. Misdescription, a low reserve, or the possibility of a valuable bargain does not permit the court to rewrite clear terms by construction. Correction of a mistake requires objective clarity about both the property and terms intended by the vendor and the basis on which the bidder contracted. Construction must be distinguished from rectification for mistake.

The appellant bid successfully at auction for a property described as a freehold comprising a ground-floor shop and a first-floor flat. A vacant ground-floor studio flat was omitted from the auction particulars, although it formed part of the registered title. The respondents refused to complete, arguing that the contract covered only part of the freehold or, alternatively, that the ground-floor flat should be subject to a lease-back.

The Deputy High Court Judge construed the contract as requiring transfer of the whole freehold subject to the shop lease and lease-backs of both flats, and ordered specific performance. The appeal concerned whether the contractual documents required transfer of the entire registered title and whether the court could insert the additional lease-back to reflect the omission and the reserve price.

Disposition. The appeal was allowed unanimously. The order was varied so that the respondents were required to transfer the entire registered freehold, subject only to the shop lease and the lease-back of the first-floor flat.

1. The auction catalogue, associated documentation and memorandum identified the subject matter by the property address, its freehold status and the Land Registry title number. Taken together, they pointed to the whole registered title. The references to the shop and first-floor flat described the identified tenancies and accommodation; they did not reserve the ground-floor flat or create a flying freehold. A sale of only part of the freehold would have required clear and prominent wording, given the unusual conveyancing and mortgage complications of a flying freehold. Mustafa v Baptist Union Corporation Ltd [1973] 1 EGLR 177 supported that conclusion.
2. The court rejected the attempt to construe the contract so as to insert a 125-year lease-back of the ground-floor flat. An omission or misdescription in auction particulars, and a reserve or price which appears low, do not by themselves justify correcting the vendor’s mistake by construction. Auction terms are set by the vendor rather than negotiated, and the bidder decides whether and how much to bid on the terms offered.
3. Correction by construction requires a clear mistake in the contractual language and clarity as to the correction required. In an auction context, it must also be objectively clear what property and terms the vendor intended to offer, and that the bidder understood and intended to bid on that basis. Those requirements were not satisfied. The purchaser might instead have understood that the clear contractual wording offered him a bargain resulting from the respondents’ oversight.
4. The fact that the ordinary construction favoured one party was insufficient. The wording did not produce an irrational or arbitrary result, and the evidence did not establish that the reserve or price was so far below the value of the property as to justify departing from it. The clear and workable construction also made it unnecessary to alter the contract to avoid uncertainty.

The respondents did not pursue on appeal their alternative arguments based on rectification or common mistake, and did not argue that specific performance should be refused as a matter of discretion.

1. Court of Appeal (Civil Division): Appeal allowed and the order varied.
2. Chancery Division: On 30 September 2010, Miss Elizabeth Jones QC, sitting as a deputy High Court Judge, construed the contract as requiring transfer of the freehold subject to the shop lease and lease-backs of both flats, and ordered specific performance on that basis.