Akzo Nobel UK Ltd v Arista Tubes Ltd

Contract for sale of business and grant of underleases – Completion to take place after consent of landlord obtained – Obligations of parties terminable on three months’ notice if consent not obtained within 12 months – Respondent purchaser to vacate premises on expiry of notice – Respondent giving notice – Appellant obtaining consents and seeking to complete within notice period – Whether appellant entitled to specific performance – Appeal dismissedIn 1998, the appellant purchased a business for the purpose of selling it to the respondent. The business was carried on at industrial premises held on a 25-year lease, under which the landlord’s consent was required for any assignment or underletting. The business purchase agreement between the appellant and respondent provided that the former would procure an assignment of the lease to itself and would in turn grant underleases to the respondent; the appellant was to use all reasonable endeavours to procure the consent of the landlord to those transactions. Pending the assignment, the appellant was granted a licence to occupy the premises and it allowed the respondent occupation on the same terms, with payment of a licence fee. The business purchase agreement provided that if the necessary consents had not been obtained within 12 months, either party could “by three months’ notice in writing to the other, terminate on the date of expiry of that notice the obligations of the parties hereto in respect of the Business Property… in which event the purchaser shall vacate the Business Property… by the end of such notice period.”The landlord’s consents were not obtained within the 12-month period. The respondent remained in occupation under the licence arrangement for several years. However, in October 2007, it gave notice to terminate the agreement with effect from the end of January 2008. In December 2007, during the notice period, the appellant obtained the transfer of the leases and the landlord’s consent to grant the underleases to the respondent. It sought to complete the underleases with the respondent, but the latter refused, relying on its 2007 notice of termination.The appellant brought a claim for specific performance against the respondent. Dismissing the claim, the court held that, on a proper construction of the agreement, no obligation to complete the underleases could arise once the respondent had served a valid notice to terminate the obligations of the parties, since the effects of such a notice were final and automatically led to the respondent vacating the premises: see [2009] EWHC 497 (Ch); [2009] PLSCS 99. The appellant appealed.Held: The appeal was dismissed. The respondent had served a valid notice to terminate the parties’ contractual obligations pursuant to a provision that allowed either party to escape from obligations in respect of the premises. Such a notice could be served by either party in the event that the appellant did not obtain the consents by the stipulated date. In the absence of express provisions or fresh agreement between the parties, it would not reasonably be expected that a notice terminating their obligations could be revoked or reversed unilaterally, or that it would have no legal effect on the parties’ obligations before the notice expired. The obligation to take the underleases had not arisen prior to the giving of the notice; the purpose of the notice was to prevent it from ever arising. The immediate effect of the notice was that the appellant was no longer obliged to use reasonable endeavours to obtain the consents or an assignment of the lease, and the respondent was under no obligation to take underleases of the premises and it would have to vacate the premises by the end of the notice period. The words “in which event” referred to the giving of the notice as being the date when the obligation to vacate arose; the obligation was to vacate by the end of the notice period. The relevant provision did not permit the appellant to reverse or vary that position by obtaining the consents at any point down to the expiry of the notice. Any other interpretation would create uncertainty since it would allow the appellant to nullify a valid notice of termination by obtaining the consents, with the result that, down to the last moment of the notice period, neither side could be sure whether the respondent would have to vacate the premises, continue paying the licence fee, or be obliged to take the underleases. Such a result would be uncommercial and was unlikely accurately to reflect the parties’ intentions.Christopher Pymont QC (instructed by Reed Smith LLP) appeared for the appellant; Jonathan Gaunt QC (instructed by Geldards LLP, of Derby) appeared for the respondent.Sally Dobson, barrister