Bashir v Ali and another

Sale of land – Auction – Construction of contract – Appellant successfully bidding for property sold by respondents at auction – Parties mistakenly believing property to comprise shop and one flat – Property including two flats – Whether appellant entitled to specific performance of sale contract by transfer of entire property – Appellant held to be entitled to transfer but subject to leaseback of extra flat to respondents – Whether such approach permissible to correct mistake by process of construction – Appeal allowedThe appellant had successfully bid £103,500 at auction to purchase a freehold property from the respondents, who were selling as executors of the deceased owner. The property was described in the auction particulars as comprising a ground-floor shop, let at a rent of £7,000 pa, and a self-contained first-floor flat to be let for 125 years from completion at a rent of £100 pa; this referred to an intended leaseback of the first-floor flat to the respondents. The auction catalogue drew the attention of prospective purchasers to the general and special conditions of sale. It also stated that prospective purchasers were assumed to have inspected the properties in which they were interested, although the appellant had not in fact done so. Following the auction, the appellant signed a memorandum of sale agreeing to purchase the property for his bid price and subject to the relevant conditions of sale.It subsequently emerged that the property also included a ground-floor studio flat. The respondents claimed that they were obliged only to transfer a flying freehold comprising the shop and first-floor flat. However, the appellant served a notice to complete requiring them to transfer the entire property. When they did not comply, the appellant brought proceedings for specific performance by a transfer of the entire property, including the studio flat, subject only to the leaseback of the first-floor flat for 125 years at a rent of £100 pa.The judge rejected both parties’ cases. She held that: (i) the sale contract had to be construed in the light of both the sale price and the actual state of the property, of which they were assumed to be aware on an objective interpretation; (ii) an objective observer would realise that something had obviously gone wrong with the contractual language and that a gift of the studio flat with vacant possession could not be intended; and (iii) the contract should be construed as requiring a leaseback of the studio flat on the same terms as the first-floor flat. She ordered specific performance of those terms: see [2010] EWHC 2320 (Ch); [2010] 41 EG 127 (CS). The appellant appealed.Held: The appeal was allowed. Properly construed, the sale contract required a transfer of the entire property subject only to the existing shop lease and the leaseback of the first-floor flat.The wording of the auction catalogue and the memorandum of sale, as well as commercial reality, made it impossible to interpret the contract as being for the sale of only part of the freehold of the property. The documents, including the special conditions that described the property by reference to its address and title number, all pointed to a sale of the entire registered title. The description of the property in the auction particulars did not require the contrary conclusion. If a sale of a flying freehold had been intended, with all the conveyancing and mortgaging complications that that entailed, it was inconceivable that it would not have been highlighted in the clearest possible terms in the auction catalogue: Mustafa v Baptist Union Corporation Ltd [1983] 1 EGLR 177; (1983) 266 EG 812 considered. The respondents’ interpretation of the contract should therefore be rejected.Nor was there any justification for the approach taken by the judge below. Her interpretation had involved subjecting the sale to an incumbrance that was not mentioned in the documentation. That could not be justified by reference to the sale price or on the basis that, assuming the parties to have known of the existence of the ground-floor flat, it would be apparent that it mistakenly omitted from the description of the property and that the reserve of £80,000 was low. The principle that a mistake could be corrected by a process of construction, in circumstances where there was a clear mistake on the face of the instrument and it was clear what correction should be made in order to cure it, applied in the context of interpreting an agreement between two negotiating parties: Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 3 EGLR 119 and East v Pantiles (Plant Hire) Ltd [1982] 2 EGLR 111; (1981) 263 EG 61 considered. However, where a contract resulted from a bid made at auction, the terms were not negotiated and it was for the vendor to decide what to offer and on what terms; the bidder decided how much to bid in the light of that. If the property had been misdescribed and given a low reserve, leading the bidder to conclude that the vendor may have made a mistake in failing to take account of part of the accommodation, that did not mean that the contract had to be construed so as to rectify that mistake. The mistake could be corrected by construction only if, objectively, it was clear what property and terms the vendor had intended to offer and that the bidder had understood them and had intended to bid on that basis. Those requirements had not been met in the instant case.By contrast, the appellant’s interpretation did not involve interference with the language used in the documentation. The sale was simply of the registered freehold title to the property, subject to the only two tenancies identified in that documentation, namely the existing shop lease and the leaseback of the first-floor flat. The ordinary meaning of the wording used by the parties was clear and workable and did not lead to arbitrary or irrational results. Although it resulted in a good bargain for one of the parties, that was not a sufficient reason for supposing that the contract did not mean what it said: Chartbrook considered. Although in some cases the commercial advantage was so great that it moved the case into the sphere of irrationality and arbitrariness, the instant case was not of that kind. The appellant’s interpretation was therefore to be preferred and the judge’s order should be varied accordingly.Michelle Stevens-Hoare (instructed by Murdoch Solicitors) appeared for the appellant; Zachary Bredemear (instructed by GH Gelberg & Co) appeared for the respondents.Sally Dobson, barrister