Fairhaven Shipping Company (UK) Ltd v Rolf Hugo Munding

Contractual interpretation requires the court to identify the objective meaning of the language used, read in the context of the agreement as a whole, its commercial purpose and the consequences of competing constructions. Punctuation is rarely decisive, particularly in poorly drafted agreements.

Where a pre-emption agreement defines a disposal as a sale or similar transaction, “whether or not for money’s worth to an independent party at arm’s length” may include transactions with connected parties and transactions not negotiated at arm’s length. The question is what protection the parties objectively agreed. A clause requiring a disposal to be on terms no less favourable requires a direct comparison with the terms offered to the pre-emption holder. An unavoidable difference between purchasers cannot be disregarded.

Fairhaven Shipping Company (UK) Ltd appealed against a decision of the Property Chamber of the First-tier Tribunal concerning restrictions registered against the title to Falmouth Wharves.

Fairhaven had transferred the property to Southern Wharfage Ltd, a connected company, after offering it to Mr Munding under pre-emption and overage agreements. The First-tier Tribunal held that the transfer was not a “Disposal” and, alternatively, that its terms were less favourable to Fairhaven because payment of the purchase price was deferred until registration.

The appeal concerned whether the connected-party transfer was a “Disposal” and whether its terms were no less favourable than those offered to Mr Munding.

1. Appeal dismissed. Although the transfer to Southern Wharfage Ltd was a “Disposal” within the Pre-emption Agreement, its terms were less favourable to Fairhaven than those offered to Mr Munding. The transfer therefore did not extinguish Mr Munding’s pre-emption right, and the restriction remained in place.
2. The court adopted the established approach to contractual construction summarised in EMFC Loan Syndications LLP v The Resort Group plc [2021] EWCA Civ 844; [2022] 1 WLR 717. The task is to ascertain objective meaning by reading the relevant words in their documentary, factual and commercial context, having regard to the contract as a whole and its commercial consequences. The interpretative process is iterative. Punctuation is not a strong guide where drafting is erratic, as explained in Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173.
3. The phrase “whether or not for money’s worth to an independent party at arm’s length” was best read as a composite phrase. Each element was governed by “whether or not”, so the definition included the specified transactions whether or not they involved money’s worth, an independent party or arm’s-length negotiations. The contractual structure supported that construction. Excluding connected-party transactions would leave Fairhaven free to make such transactions without triggering the pre-emption machinery or the overage protections.
4. The words “on terms no less favourable” required a direct comparison between the terms offered to Mr Munding and those agreed with the third-party purchaser. It was impermissible to disregard the delayed payment merely because the difference arose from the registered restriction or because other purchasers might have accepted less favourable terms. Payment by Southern Wharfage Ltd was deferred until registration, with no certainty as to when or whether it would occur. That was less favourable to Fairhaven than payment on completion.
5. The deposit issue was unnecessary to the result. The court nevertheless agreed with the First-tier Tribunal that the written contract required a 10% deposit and that the director’s intention not to pay it did not amount to a tacit variation or alter the objective interpretation of the contract.

• Upper Tribunal (Lands Chamber): appeal against the Property Chamber of the First-tier Tribunal dismissed. The Tribunal held that the transfer was a “Disposal” but that its terms were less favourable to Fairhaven, so Mr Munding’s rights and the registered restriction continued.