Absolute Living Developments Limited (in liquidation) v DS7 Limited & Ors.

In construing a carefully negotiated commercial agreement, the court must give effect to the natural and ordinary meaning of the words used in their documentary, factual and commercial context. Commercial common sense cannot ordinarily justify inserting words or rewriting the bargain. Corrective interpretation requires clear evidence that something has gone wrong with the language and that the intended correction is clear. A contractual right expressed in separate provisions remains freestanding where the agreement does not expressly subject it to a later longstop clause. Compliance with statutory transfer requirements does not require withholding declaratory relief where the parties’ obligations can be performed lawfully.

The liquidator of Absolute Living Developments Limited sought a declaration that, under a Settlement Agreement made on 29 November 2018, Absolute Living Developments (Orchid Point) Limited was obliged to transfer the leasehold property known as Empress Mill to the claimant or a nominee.

The dispute concerned the interaction between clauses 6.2 to 6.8, which governed the transfer, and clause 11.1.1, which prohibited notice under clause 6.2 after the relevant non-completion period. ALDOP argued that clause 11.1.1 also restricted rights under clauses 6.3 and 6.4, and that statutory notices required under the Landlord and Tenant Act 1987 had not been properly served.

1. Declaration granted. Clause 6.3 conferred a free-standing right enabling the liquidator, after the specified period, to direct ALDOP to transfer Empress Mill regardless of the number of tenancy surrenders obtained.
2. Clause 11.1.1 expressly referred only to a notice under clause 6.2. The agreement deliberately contained discrete provisions at clauses 6.2, 6.3 and 6.4, and elsewhere made separate reference to them. The court would not add references to clauses 6.3 or 6.4 by corrective interpretation.
3. The governing approach to contractual interpretation required the court to identify the meaning conveyed to a reasonable person with the relevant background knowledge, focusing on the words used in their documentary, factual and commercial context. Natural meaning, the other contractual provisions, purpose, known circumstances and commercial common sense were relevant, but the court would not readily interpolate words into a commercially negotiated agreement.
4. Corrective interpretation required clear evidence both that the language had gone wrong and what the parties would have intended instead. The evidence and circumstances did not justify rewriting clause 11.1.1. The alternative construction was at least equally sensible in the commercial context.
5. The absence or alleged inadequacy of notices under sections 5 and 5A of the Landlord and Tenant Act 1987 did not prevent the declaration. The Settlement Agreement required ALDOP to take the steps necessary to give effect to the transfer, and the liquidator had indicated that the statutory notices would be dealt with before enforcement. Compliance with the Act remained mandatory, and non-compliance could engage the criminal law, but that did not justify withholding declaratory relief.
6. The April Notice was also capable of being relied upon. Its basis was clear to the parties, and arrangements had to be made for the appropriate statutory notices. Costs were to follow the event, including the interim injunction proceedings, subject to the agreed form of order.