Akzo Nobel UK Ltd v Arista Tubes Ltd
Contract for sale of business and grant of underleases – Completion to take place once consent of landlord obtained – Obligations of parties terminable upon three months’ notice if consent not obtained within 12 months – Defendant purchaser to vacate premises upon expiry of notice – Defendant giving notice – Claimant obtaining consents and seeking to complete within notice period – Whether defendant under obligation to complete after notice given – Whether claimant entitled to specific performance – Claim dismissed
In late 1998, the claimant purchased a business that was carried on at several industrial units that were held on leases for a term expiring in 2012. The leases were to be assigned to the claimant, pending which it would be granted a licence to occupy. In the event, the assignment was not completed until 2007. Meanwhile, the claimant agreed to sell a division of its business to the defendant. By a business purchase agreement entered into in December 1998, the defendant agreed to take underleases of the business properties. The claimant granted licences to occupy to the defendant, on the same terms as its own, pending completion of the assignment to it. The licences were to continue until the landlord’s consent had been obtained to that assignment and the grant of the underleases to the defendant. The business purchase agreement provided that the seller and purchaser would use all reasonable endeavours to obtain those consents as soon as reasonably practicable. If, 12 months after the date of the agreement, those consents had not been obtained, either party would be entitled to terminate the parties’ obligations in respect of the business properties upon giving three months’ notice in writing, “in which event” the purchaser was to vacate the premises at the end of the notice period.
The consents were not obtained by December 1999 and, accordingly, the option to terminate arose. In October 2007, the defendant gave notice to terminate the licence agreement in January 2008. In December 2007, the claimant finally obtained the transfer of the leases and the landlord’s consent to grant the underleases to the defendant. The claimant sent the necessary forms of underlease to the defendant for execution. The latter refused to complete, relying upon its earlier notice of termination. The claimant brought proceedings for specific performance. It contended that, notwithstanding service of the notice, completion could still be required if it could be brought about before the expiry of the notice period, since all the parties’ obligations remained in force until then.
Contract for sale of business and grant of underleases – Completion to take place once consent of landlord obtained – Obligations of parties terminable upon three months’ notice if consent not obtained within 12 months – Defendant purchaser to vacate premises upon expiry of notice – Defendant giving notice – Claimant obtaining consents and seeking to complete within notice period – Whether defendant under obligation to complete after notice given – Whether claimant entitled to specific performance – Claim dismissedIn late 1998, the claimant purchased a business that was carried on at several industrial units that were held on leases for a term expiring in 2012. The leases were to be assigned to the claimant, pending which it would be granted a licence to occupy. In the event, the assignment was not completed until 2007. Meanwhile, the claimant agreed to sell a division of its business to the defendant. By a business purchase agreement entered into in December 1998, the defendant agreed to take underleases of the business properties. The claimant granted licences to occupy to the defendant, on the same terms as its own, pending completion of the assignment to it. The licences were to continue until the landlord’s consent had been obtained to that assignment and the grant of the underleases to the defendant. The business purchase agreement provided that the seller and purchaser would use all reasonable endeavours to obtain those consents as soon as reasonably practicable. If, 12 months after the date of the agreement, those consents had not been obtained, either party would be entitled to terminate the parties’ obligations in respect of the business properties upon giving three months’ notice in writing, “in which event” the purchaser was to vacate the premises at the end of the notice period.The consents were not obtained by December 1999 and, accordingly, the option to terminate arose. In October 2007, the defendant gave notice to terminate the licence agreement in January 2008. In December 2007, the claimant finally obtained the transfer of the leases and the landlord’s consent to grant the underleases to the defendant. The claimant sent the necessary forms of underlease to the defendant for execution. The latter refused to complete, relying upon its earlier notice of termination. The claimant brought proceedings for specific performance. It contended that, notwithstanding service of the notice, completion could still be required if it could be brought about before the expiry of the notice period, since all the parties’ obligations remained in force until then.Held: The claim was dismissed. Under the relevant clause in the agreement, the “event” that triggered the obligation to vacate was the service of a valid notice by one of the parties. Service of a valid notice was final and carried the consequence that the defendant would have to vacate the premises by the expiry of the notice. The purpose of that clause was to encourage the parties to obtain the necessary consents within the 12-month timescale. Were that 12-month deadline not met, either side could bring their contractual relationship to an end by serving a notice; there was no “last chance” to require completion after such a notice had been served. The obligation to complete under the agreement was contingent upon a future uncertain event, namely the obtaining of the necessary consents. In the instant case, that obligation had not arisen at the date of the notice, and it would be inconsistent with the purposes of the clause to permit it to arise subsequently. Further, the clause contemplated a period of certainty when the claimant could seek another tenant and the defendant could prepare to vacate. It would be destructive of reasonable commercial certainty if completion could be required during the notice period, since the defendant could be placed in a position where it did not know where it stood until shortly before the expiry of the notice period. Accordingly, once a valid notice had been served, it was no longer open to either party to require completion.Christopher Pymont QC (instructed by Reed Smith Richards Butler LLP) appeared for the claimant; Jonathan Gaunt QC (instructed by Geldards LLP, of Derby) appeared for the defendant.Sally Dobson, barrister
