Clarence Court Eggs Limited v Christine Margaret Chapman & Anor

The Court of Appeal considered the construction of the defined term "Stonegate Business" in undertakings given to the Competition Commission (the Final Undertakings) and the consequences of that construction for an application for specific performance of an option. The court held that the Stonegate Business must be assessed as at the Commencement Date in the undertakings and that, on the facts found, the Corby Land formed part of the Stonegate Business. The court also held that, although the land was part of the Stonegate Business, the divestiture effected in 2008 transferred the benefit of the Corby Land with the burden of the extant option and therefore amounted to an Effective Disposal under the undertakings.

As a result, the Court of Appeal dismissed challenges based on alleged failures of disclosure under clauses 4.2–4.4 of the undertakings because the option and the existence of planning permission had been disclosed to the Competition Commission and because the disclosure obligations were ancillary to the disposal obligations. However, the court allowed the appeal in part by holding that the question whether the exercise of the option (post-divestiture) infringed clause 7.4 (prohibiting the vendors from acquiring an interest in the Stonegate Business without prior written consent) raised a live issue that ought to proceed to trial.

Background and parties: Clarence Court Eggs Limited (formerly part of the CKHL group) acquired certain companies that had previously been divested pursuant to undertakings given to the Competition Commission following a merger. The first respondent, Ms Chapman, held by assignment an option (granted in 2006 to Mr Kent) to purchase a parcel of land known as the Corby Land for a fixed price. Ms Chapman exercised the option in February 2020 and sought specific performance. Clarence Court resisted, asserting defences based on alleged breaches of the Final Undertakings given to the Competition Commission in connection with the 2007–2008 divestiture.

Nature of the claim and relief sought: Specific performance of an option to purchase freehold land. The respondents sought summary judgment for specific performance; Clarence Court defended the claim and brought Part 20 arguments based on alleged breaches of the Final Undertakings.

Procedural posture: Appeal to the Court of Appeal from the judgment of Mr Justice Marcus Smith ([2021] EWHC 2743 (Ch)) which had concluded there was no arguable defence to the claim for specific performance. The Court of Appeal heard argument and reserved a decision on limited issues.

Issues framed by the court:

• Whether the Corby Land formed part of the definition of the Stonegate Business in the Final Undertakings.
• Whether there had been an Effective Disposal under clause 3 of the Final Undertakings or whether retention of the option meant the Stonegate Business had not been effectively divested.
• Whether there had been full disclosure to the Competition Commission under clauses 4.2–4.4.
• Whether clause 7.4 (post-divestiture prohibition on vendors acquiring an interest in the Stonegate Business without prior written consent) was engaged by the exercise of the option and required the prior consent of the Competition Commission/the CMA.

Court’s reasoning and conclusions:

• The term "Stonegate Business" is expressly anchored to the business "carried on by Clifford Kent as at the Commencement Date" and must be assessed at that date; that temporal anchor is both textually mandated and commercially sensible.
• On the facts before the court the Corby Land formed part of the Stonegate Business at the Commencement Date because it featured in the documents (including the draft and final disclosure letter and SPA), provided security for a group loan and was let to a tenant, generating income. The specific paragraph listing tangible assets in the Stonegate Business definition was not intended to limit the opening, wide description of the business; clause 1.2 also required "including" to be read as without limitation.
• Notwithstanding that the land formed part of the Stonegate Business, the executed 2008 transaction effected an Effective Disposal because the benefit of the Corby Land passed under the disposal but remained subject to the pre-existing option; the transfer of the asset together with the extant encumbrance satisfied the disposals required by the undertakings.
• The Competition Commission had been given the Savills report, the draft SPA and disclosure letter and was aware of the option and the planning permission. The judge was entitled to find that full disclosure had been made and that the disclosure obligations in clause 4 were ancillary to the disposal obligations in clause 3; where Effective Disposal had occurred the disclosure obligations were not left with a separate bite.
• However, whether the post-divestiture exercise of the option constituted the acquisition of an "interest in the Stonegate Business" within clause 7.4 and therefore required prior written consent from the CMA raised a live question of fact and law which should proceed to trial.

Wider context: The court noted this appeal involved no novel law but hinged on contractual construction, the proper application of undertakings given in competition remedy circumstances, and the practical consequences of transferring assets subject to pre‑existing encumbrances.

Appeal allowed in part. The Court of Appeal concluded that the Corby Land fell within the definition of the Stonegate Business as at the Commencement Date, but that the 2008 divestiture transferred the benefit of the Corby Land while leaving it subject to the pre-existing option, such that there was an Effective Disposal under the Final Undertakings. The court therefore dismissed challenges based on alleged failures of disclosure (clauses 4.2–4.4) and upheld summary judgment on those issues, but held that the question whether the post-divestiture exercise of the option breached clause 7.4 (and required CMA consent) raised a triable issue and allowed the appeal in respect of that issue, remitting it for trial.

Appeal from the High Court of Justice (Business and Property Courts in Birmingham, Property, Trusts and Probate List (ChD)) Mr Justice Marcus Smith, [2021] EWHC 2743 (Ch). The judgment under appeal was handed down on 21 October 2021 and was the subject of this Court of Appeal decision ([2022] EWCA Civ 1681) dated 20 December 2022.