Gateway Plaza Ltd v White

In a settlement agreement giving a purchaser an opportunity to exchange contracts for an alternative property, the reference to exchange contracts may include the normal pre-exchange conveyancing process. The court construes the agreement in its factual and commercial context, asking what it would convey to a reasonable person with the relevant background knowledge. Where the purchaser cannot exchange unilaterally, the vendor must co-operate so that the option can be exercised. That may require the vendor to provide correct contract documentation, answer reasonable enquiries and supply documents ordinarily needed for exchange, including a correctly completed mortgage-lender disclosure form where mortgage finance is known to be relevant. A vendor who fails to do so cannot rely on the purchaser’s failure to exchange by the stipulated date.

Gateway sued Mr White and another purchaser for damages arising from non-completion of an earlier plot purchase. In February 2012 the parties entered into a binding settlement agreement under which proceedings against Mr White were stayed for six weeks. He was given the opportunity to purchase a different plot, with the existing deposit credited against the price. If he exchanged contracts, the proceedings would be discontinued; if he did not, they would continue.

Gateway’s conveyancing solicitors supplied late and inaccurate documentation, including a Council of Mortgage Lenders disclosure form naming Mr Peace as a joint purchaser. They did not provide a corrected form despite repeated requests. Mr White did not exchange contracts. The recorder held that Gateway was in breach of the settlement agreement. Gateway appealed the preliminary issue to the Court of Appeal, arguing that the agreement required only the technical act of exchanging signed contracts. The central issue was the proper construction of the reference to exchange contracts and the obligations it imposed on Gateway.

1. Appeal dismissed. The settlement agreement was binding, and the recorder was right to find that Gateway was in breach of it. The proceedings were to continue in the county court.
2. Paragraph 2 was permissive as regards Mr White. Although it said that he “shall exchange” contracts, properly construed it gave him the opportunity, rather than imposing an obligation, to exchange by the stipulated date. Paragraphs 3 and 4 prescribed the consequences of exchange or non-exchange.
3. The agreement did not operate as a unilateral or “if” contract under which Mr White could bring the consequences into effect by his own act alone. Exchange required at least Gateway’s co-operation. Applying the approach to contractual construction stated in Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10 and Rainy Sky SA v Kookmin Bank [2011] UKSC 50, the court considered the language, relevant background and business common sense.
4. The relevant background included the six-week decision period, the fact that the property, price and principal terms were already settled, the ordinary practice that the vendor supplies draft conveyancing documents and answers reasonable enquiries, and the known intention to seek mortgage finance. The reasonable meaning of paragraph 2 therefore required Gateway to co-operate not only in the final exchange but also in the normal pre-contract conveyancing process.
5. Gateway was required to provide appropriate and accurate documentation, including a CML Disclosure of Incentives form naming Mr White alone, and to do so in time for exchange. The incorrect form and subsequent failure and refusal to provide a corrected version constituted breach. Mr White’s willingness to enter the settlement did not show that he had accepted the risk of having to purchase without mortgage finance.
6. The consequences of the breach were not determined on this appeal. The recorder’s directions for continuation of the proceedings remained in force. The court suggested, without directing, consideration of a further hearing before a specialist Chancery or Mercantile Circuit judge based in Leeds.

• Court of Appeal (Civil Division) [2014] EWCA Civ 555: dismissed Gateway’s appeal and upheld the recorder’s conclusion on the preliminary issue.
• Sheffield County Court: on 3 July 2013 Mr Recorder Philips held that the settlement agreement required co-operation by Gateway, that Gateway had failed to provide the necessary documentation, and that it was in breach.