London & Medway Ltd v Sunley Holdings Plc

Contractual terms are determined objectively, by asking what a reasonable person in the position of the relevant party would understand from the communications viewed in their factual context. The court may consider the correspondence as a whole, rather than isolating the final message. Silence may exclude an existing contractual right where the surrounding communications and agreed structure make that meaning objectively clear. This does not depend on implying a term for business efficacy. Post-contractual conduct may assist in deciding whether a term was agreed, although it is generally unsuitable for construing the meaning of an already concluded contract.

London & Medway Limited, a property development consultant, claimed a 20 per cent share of profits from developments introduced to Sunley Holdings plc under an informal 2008 agreement. The parties subsequently negotiated a further agreement following termination of that relationship.

The preliminary issue was whether the agreement concluded on 30 April 2010 relinquished L&M’s right to profits from the Fulham Palace Road development. The dispute centred on an email of 26 April 2010 which did not refer expressly to that development, and on the meaning of the parties’ earlier correspondence and surrounding circumstances.

1. Contractual construction. The applicable principles required an objective analysis from the perspective of a reasonable person in the position of the offeree. The court was required to consider the relevant factual matrix and, in this case, the correspondence as a whole.
2. Meaning of the negotiations. From March 2010 onwards, both parties proceeded on the basis that L&M would relinquish any claim to profits from Fulham Palace Road. The proposed agreement had three connected elements: payment of profit shares on other developments, repayment of a specified sum from future profits, and deferred payment of part of the agreed amount.
3. The email of 26 April 2010 objectively adjusted the figures within that existing structure. It was not a fresh proposal preserving L&M’s claim to Fulham Palace Road. Its references to tightening the figures, acting as discussed, and simplifying the structure required the earlier correspondence to be taken into account. The complete list of revenues omitted any sum attributable to Fulham Palace Road.
4. That omission was objectively consistent only with the exclusion of a claim to profits from that development. The result followed from the true construction of the offer, not from implying a term as necessary for business efficacy. The fact that the development was then regarded as unlikely to be profitable reinforced the conclusion that relinquishing the claim operated as a sweetener.
5. Post-contractual events did not alter the conclusion. They were not decisive and were capable of alternative explanations. The application to adduce further evidence was not pursued and, if formally necessary, was dismissed.
6. The court therefore answered the preliminary issue affirmatively: by the agreement concluded on 30 April 2010, L&M relinquished its right to any share of profits from the Fulham Palace Road development and could not pursue such a claim.