Cohen v Teseo Properties Ltd & Anor

Where a professionally drafted contract contains poor or uncertain language, the court must construe it objectively in its commercial context. Business common sense may resolve an ambiguity and, in an appropriate case, prevail over a literal reading that produces an unbusinesslike result. A contractual extension mechanism must be exercised within the period necessary to prevent the contract’s termination, where the agreement requires certainty as to the parties’ continuing obligations. A termination provision is not ordinarily defeated by an open-ended right to require completion after termination. An implied term is justified only where necessary to give effect to the agreement or its commercial objective. Under section 49(2) of the Law of Property Act 1925, repayment of a land-sale deposit is exceptional where the deposit formed part of the agreed allocation of risk and consideration for an option-like benefit.

The claimant contracted to sell development property to Teseo Properties Ltd. Completion depended on planning-related conditions and the occurrence of an Effective Date. The contract provided for a Long Stop Date of 6 January 2014, subject to an Extension of Time requested under clause 13.5 and paid for by further monthly payments.

Teseo did not request an extension by 6 January 2014, but sought one later. The claimant treated the contract as terminated. Teseo sought specific performance and, alternatively, repayment of its £50,000 deposit under section 49(2) of the Law of Property Act 1925. The central issues were whether the contract had terminated, whether clause 3.1.2 preserved a right to require completion after termination, and whether the deposit should be repaid.

1. Contractual interpretation. The court applied the approach in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 and the guidance quoted from Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299. The contract was poorly drafted, so particular weight had to be given to business common sense when choosing between reasonably available interpretations.
2. Clause 13.5 entitled Teseo to request an extension during the life of the contract, including on 6 January 2014, but not after that date had passed without a request. Allowing a request as late as 9 June 2014 would leave the claimant bound for an uncertain period without payment and would undermine the agreed certainty of the termination mechanism. The contract therefore terminated on 6 January 2014.
3. The court rejected Teseo’s argument under clause 3.1.2. That clause permitted a unilateral call for completion while it remained possible for the Effective Date to occur. Once the Termination Date had passed, clause 12.2 made that possibility impossible. The clause did not preserve an open-ended right to require completion after termination.
4. No implied qualification requiring a request within a reasonable time was necessary. Applying AG of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 and Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2014] EWCA Civ 603, the proposed terms were unnecessary and would introduce uncertainty into a contract based on precise timetables.
5. The court declined to order repayment of the deposit under section 49(2) of the Law of Property Act 1925. Following Midill (97PL) Ltd v Park Lane Estates Ltd [2008] EWCA Civ 1227; [2009] 1 WLR 2460, there were no special or exceptional circumstances. The payment was both an earnest of performance and the agreed price for an option-like benefit. The claim for a declaration succeeded, specific performance was dismissed, and no part of the deposit was repayable.

First-instance decision. No prior appellate decision is stated in the judgment.