Fans of the Great British Bake Off will be well aware of the importance of avoiding a soggy bottom in one’s pastry dish. The Court of Appeal has reminded us that a soggy bottom is not the only culinary sin. Lord Justice Patten considers that ‘most draftsmen tend to over-egg the pudding’.
This observation came at the end of a judgment (British Overseas Bank Nominees Ltd and another v Analytical Properties Ltd and another  EWCA Civ 43) turning on the construction of a conditional contract. The contract related to the purchase of the King Edward Shopping Centre (pictured) in Windsor. It was conditional on landlord’s consent and also contained the following clause: ‘As a pre-condition to completion the seller shall obtain (and supply true copies to the buyer of) all the emergency lighting certificates as soon as practicable and in any event prior to the date of actual completion (the seller carrying out any remedial work necessary at its own cost in order to ensure it is able to comply with its obligations in this clause).’
Failure to comply with the relevant UK standards for emergency lighting carries the significant risk for a landlord (in the event of any failure of emergency lighting and resulting in injury or death) of occupier’s civil liability and/or criminal guilt for corporate manslaughter.
Contracts were exchanged on 13 December 2013 with a contractual completion date of 17 December. By the 17th, neither the landlord’s consent nor the emergency lighting certificates were available. Completion took place on 17 January 2014. The delay in completion was not caused by any difficulties with obtaining landlord’s consent. Rather, it was caused by the time the seller took to provide the emergency lighting certificates. Was the seller in breach of contract by failing to complete on 17 December?
Practitioners will have studied the subtle distinctions between conditions precedent, conditional contracts and conditions subsequent. In the commercial pressures around exchange of contracts, it can be challenging for these subtleties to be front of mind when drafting.
Contracts require certainty. The terms of a condition to which a contract is subject must be clear and certain, otherwise the contract is void. Who should do what, and by when? Is there a date by which the contract will fall away if the condition is not fulfilled? Conditional contracts give one or other party the right to withdraw from the contract if the condition to which it is subject is not fulfilled. However, there is a distinction between a condition to be satisfied before completion, and a condition to be satisfied before the contract comes into effect.
In this case the parties seem to have agreed that the condition should have been satisfied before completion. It was also common ground that the seller should have obtained the emergency lighting certificates as soon as possible. Whether or not the seller fulfilled this obligation was not considered at trial. The case as tried was on the preliminary issue of whether the seller had to obtain the emergency lighting certificates by 17 December.
At first instance the judge found that it did. The clause was clearly for the benefit of the buyer alone. If the seller had not obtained the certificates by the contractual completion date, the seller was not released from the obligation. The seller had to carry on with its endeavours to get the certificates. The words ‘in any event prior to the date of actual completion’ were important in reaching this conclusion, because they differentiated between the contractual completion date and the date completion was achieved.
Contracts have to be considered as a whole. It was relevant that the contract contained a fault-free postponement of completion until landlord’s consent was obtained. The parties could have mirrored this fault-free postponement for the emergency lighting certificates had that been their intention.
The seller appealed and the Court of Appeal found in its favour. The clause meant that completion on 17 December was conditional on the seller obtaining the certificates by that date. The clause was for the buyer’s benefit, but this was relevant to waiver. The buyer could have waived the seller’s obligation to provide the certificates and completed on 17 December. As the buyer did not waive the condition, the condition continued to take effect. Far from waiving the condition, the buyer refused to complete without the certificates.
If the seller was in breach of its obligation to provide the certificates ‘as soon as practicable’ the buyer had a remedy in damages. The trial was on a preliminary issue and the court was not asked to consider this aspect.
The Court of Appeal felt that the words ‘in any event prior to actual completion’ were surplus, on both the buyer’s and seller’s arguments. If the words were intended to require the certificates by 17 December, the court would have expected the clause to refer to the contractual completion date. ‘Actual completion’ clearly envisaged some postponement. Furthermore, there were only three days between exchange and completion. It was difficult to see how producing the certificates within three days was anything other than ‘as soon as practicable’.
One can readily appreciate the buyer’s dilemma on the contractual completion date. Waiving the condition would allow completion, but the buyer would have to assume the occupier’s liability risk if the emergency lighting failed. Furthermore, the seller’s obligation to do any works required for the certificate would be discharged. In these circumstances, waiver would not be an attractive remedy for a buyer – or their mortgagee.
With the benefit of hindsight it is easy to say that the parties should have given more thought to what might happen if the emergency lighting certificates were not available on 17 December. As they did not, the court was free to decide that the words ‘in any event prior to the date of actual completion’ were too much of a good thing: the over-egged pudding.
Perhaps the wider point to take from the case is to be particularly alert to the definitions already in the contract when adding a last-minute amendment, even more so than when drafting at leisure.
Suzanne Gill is a commercial property partner at Wedlake Bell