Tariq Mahmood Malik v Mahboob Hussain Jr & Ors

An express contractual obligation must be construed before any question of implying terms arises. A court must not use an assumed implied term to determine the meaning of an express provision.

In a sale mechanism requiring a successful bidder to exchange contracts within a stated period, the natural meaning may require exchange of an executable contract tendered by the sellers. A bidder is not, without clear language, absolutely bound to procure an exchange beyond that bidder’s control. The court may enforce a court-directed sale mechanism despite an interim sale to a contracting party, unless enforcement would cause material injustice.

Following dissolution of a partnership owning restaurant premises and a shareholding, the High Court ordered a sale mechanism. Usman became the successful bidder, paid a £430,000 deposit and was required to exchange contracts within seven days.

Draft contracts agreed by the partners were supplied only shortly before the deadline. Contracts were not exchanged. The judge held that Usman had failed to do all that was required to secure exchange, so that his bid became invalid and the deposit was forfeit. The partnership assets were then sold to Mahboob at the reserve price.

Tariq appealed, supported by Usman. The central issues were the construction of clause 5.4 of the sale mechanism, Usman’s procedural entitlement to support the appeal, and whether the sale to Mahboob should now be displaced in favour of the original sale to Usman.

1. Appeal allowed unanimously. Phillips LJ, with whom Peter Jackson LJ agreed, held that the judge erred by treating an implied duty of co-operation as informing the prior construction of clause 5.4. Interpretation of the express term had to precede implication: Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72. The court then applied the unitary and iterative approach described in Wood v Capita Insurance Service Ltd [2017] UKSC 24.

2. Properly construed, the requirement that the bidder exchange contracts within seven days meant that the bidder must execute and exchange contracts presented in a form capable of execution and exchange. It did not impose an absolute and uncertain obligation to procure an exchange regardless of the conduct of others. The seven-day period ran from presentation of such contracts. Accordingly, Usman was not in breach, his deposit was not forfeit, and his bid remained valid.

3. The court observed, though this was unnecessary to its decision, that the parties and sale conductor had an implied mutual duty to co-operate. Their failure to provide agreed draft contracts until the deadline was imminent was egregious and inexcusable. Usman’s solicitors were entitled to await agreed drafts and their principal proposed amendments were reasonable. Had construction not resolved the appeal, that failure of co-operation would have justified an extension of time.

4. Tariq had standing as a vendor to seek a declaration preserving the higher bid. Usman, as a respondent, could support the relief for which Tariq had permission to appeal without filing a separate appeal or respondent’s notice. In any event, relief from sanctions would readily have been granted under Denton v TH White [2014] EWCA Civ 906.

5. The court could enforce the court-directed sale mechanism. The completed interim sale of Tariq’s interest to Mahboob was no obstacle because the assets were held by a contracting party. Applying the equitable considerations identified in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1988] AC 1 HL, enforcement caused no material injustice: Mahboob would receive Usman’s higher purchase price and the asserted losses were unproved, remediable, or substantially self-created.

6. Usman was required to lodge the balance of the purchase price within seven days. The parties were then to finalise and exchange contracts under the stated expedited procedure. The matter was otherwise remitted to the judge for supervision.

• Court of Appeal (Civil Division) — allowed Tariq’s appeal and declared that Usman’s bid remained valid: [2023] EWCA Civ 2.
• High Court, Business and Property Courts in Manchester — HHJ Stephen Davies, sitting as a High Court judge, dismissed Tariq’s application on 14 October 2021, holding that Usman had failed to meet the exchange deadline under the sale mechanism.