Proteus Property Partners Ltd v South African Property Opportunities Plc

Contractual construction is objective. The court considers the words used against the relevant background, including the commercial purpose, genesis and context of the transaction, as reasonably available to the parties. Previous negotiations and statements of subjective intention remain excluded when construing a written agreement, even where they reveal an apparent consensus. The court may consider the commercial setting and objectively known facts. Where an amendment states that an existing definition is being clarified, the court must identify the change made by the language used and the surrounding circumstances. Here, the amendment required the IFRS net asset value to be adjusted for the difference between book value and open-market property value, without further adjustments for deferred tax or other matters.

Proteus claimed unpaid performance fees and underpaid management fees under a management agreement with South African Property Opportunities Plc. The parties later entered into a Letter Agreement amending the definition of net asset value for remuneration purposes. The central dispute was whether the amended definition required an IFRS-based net asset value to be adjusted only for open-market property valuations, or whether it also required deductions for deferred taxation and other adjustments. The defendant counterclaimed for repayment of sums said to have been mistakenly overpaid.

1. Construction. The court applied the objective approach stated in ICS Ltd v West Bromwich BS [1998] 1 WLR 896, informed by the commercial purpose and context described in Reardon Smith Line v Yngvar Hansen-Tangen [1976] 1 WLR 989.
2. Under Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, pre-contractual negotiations and declarations of subjective intent were inadmissible as aids to construction. The fact that negotiations appeared to show consensus did not create an exception. Such material could be relevant to estoppel, but the estoppel issue did not require determination.
3. The Letter Agreement objectively made one change to the previous definition: the IFRS net asset value was to be adjusted by replacing the carrying value of the properties with their open-market value under prevailing RICS standards. It did not require deductions for deferred tax or the additional adjustments proposed by the defendant. The claimant’s calculation was therefore correct and the performance hurdle had been exceeded.
4. The subsequent conduct of the parties could not be used to construe the contract, applying L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235. The claimant’s claim succeeded, the performance fee was awarded, and the counterclaim was dismissed.
5. Interest was awarded at 3.5 per cent for the first period under section 35A of the Senior Courts Act 1981, and at 7 per cent for the period following expiry of the Part 36 offer. The enhanced rate was intended to incentivise acceptance of a sensible offer, not to penalise the defendant.