Clarence Court Eggs Limited v Christine Margaret Chapman & Anor

In construing contractual divestiture undertakings, a business defined by reference to its position at a specified date must be assessed at that date. Property may form part of the business even if it is not used in the principal trading activity, where it is used as security or generates rental income. Words such as “includes” and “including” ordinarily enlarge a definition, especially where the contract states that they operate without limitation. A transfer of property together with an existing option burden may constitute an effective disposal. The subsequent exercise of the option may nevertheless engage a covenant requiring prior regulatory consent. If that issue is properly arguable, it should proceed to trial.

Clarence Court Eggs Limited appealed from summary judgment granted by Marcus Smith J in favour of Christine Chapman and Michael Kent on a claim for specific performance of an option to purchase land. The High Court decision is reported at [2021] EWHC 2743 (Ch).

The appeal concerned whether the land fell within the defined “Stonegate Business” under competition-law divestiture undertakings, and whether the retention or exercise of the option involved breaches concerning effective disposal, disclosure, or post-divestiture acquisition without regulatory consent.

Lord Justice Coulson delivered the leading judgment. Lord Justice Newey and Lady Justice King agreed.

1. Construction. The reference in the definition of the Stonegate Business to the business carried on at the Commencement Date created a necessary temporal anchor. The business had to be assessed as at that date. The Corby Land was nevertheless part of that business because it was used as security for Stonegate’s borrowing and was leased to a tenant, producing rental income. Its non-use for procuring, packing and supplying eggs was irrelevant.
2. Scope of the definition. The words “and includes” introduced examples rather than limitations. Clause 1.2 required “including” to be read without prejudice to the generality of the preceding description. An ejusdem generis construction narrowing the general word “business” was therefore impermissible. Other expressions in the definition, including “ancillary or connected to” and “in connection with”, also pointed towards breadth.
3. Effective disposal. The land and the option were fundamentally interconnected. Transfer of the benefit of the land with the burden of the option constituted an Effective Disposal of the Stonegate Business. Clarence Court consequently could not rely on an alleged breach of clause 3. The cross-appeal on whether regulatory approval independently established effective disposal was unnecessary.
4. Disclosure. The pleaded allegation that the option had not been disclosed failed because the option and the planning permission were disclosed. A new allegation could not properly be introduced in a Reply rather than the relevant pleading. Clauses 4.2–4.4 were ancillary to the effective-disposal obligations in clause 3 and had no remaining work to do once Effective Disposal had occurred. It would also be disproportionate to require a trial of an unpleaded and unsubstantiated allegation.
5. Post-divestiture consent. The exercise of the option appeared to be the type of post-divestiture event addressed by clause 7.4. The distinction between acquiring an asset and acquiring an interest in the Stonegate Business remained arguable. Summary judgment on that issue was therefore set aside and the issue was remitted to trial.

The appeal was allowed in part. Summary judgment was upheld on the effective-disposal and disclosure allegations, but not on the alleged breach of clause 7.4.

• Court of Appeal (Civil Division): allowed the appeal in part. Summary judgment was upheld on the effective-disposal and disclosure issues, but set aside on the clause 7.4 consent issue, which was to proceed to trial.
• High Court of Justice, Business and Property Courts in Birmingham, Chancery Division: Marcus Smith J granted summary judgment in favour of the respondents in [2021] EWHC 2743 (Ch).