Family Mosaic Housing Association v Pimlico Schoolhousing Association Ltd

Commercial contractual wording must be interpreted objectively, in its contractual and commercial context. Where two constructions are possible, the court may prefer the one consistent with business common sense, while applying clear language. Negotiation evidence and subjective intention are inadmissible to establish meaning. A termination clause providing for termination “upon three months’ written notice by either party and with the mutual consent of both parties” created alternative routes: termination on three months’ notice or by mutual consent. An alternative agency argument was left undecided.

Family Mosaic Housing Association appointed Pimlico Schoolhousing Association Ltd as managing agent under a 1992 management agreement. Family Mosaic gave notice purporting to terminate the agreement. Pimlico contended that the relevant clause required both three months’ notice and mutual consent.

The High Court considered the proper construction of clause 2(7)(c), and alternatively whether the agency relationship was terminable at will despite any resulting breach of contract.

1. The termination clause was construed objectively, by reference to its language, structure, context and commercial consequences.
2. Clause 2(7)(c) provided alternative methods of termination: mutual consent or three months’ written notice by either party. The interpretation requiring both conditions would leave the parties effectively locked together and was inconsistent with business common sense.
3. Evidence of negotiations and subjective intentions could not be used to determine contractual meaning.
4. The alternative submission that an agent’s authority is generally revocable was considered to have considerable force, but no final conclusion was reached because the contractual construction disposed of the case.
5. The 1992 agreement was declared determined with effect from 6 September 2009, with an order for an account.