Gateway Plaza Ltd v White [2014] EWCA Civ 555

Case No B2/2013/2068[2014] EWCA Civ 555
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SHEFFIELD COUNTY COURT
MR RECORDER PHILIPS
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 08/05/2014
Before
LORD JUSTICE RIMERLORD JUSTICE VOSSIR TIMOTHY LLOYD
Between
GATEWAY PLAZA LIMITEDAppellant(1) JOHN DAVID WHITEDefendant(2) KATHRYN PEACEDefendantDefendant but not party to the appealDefendantGATEWAY PLAZA LIMITED Claimant Appellant- and -(1) JOHN DAVID WHITE Defendant Respondent (2) KATHRYN PEACE Defendant but not party to the appeal
Jonathan Cohen (instructed by Metis Law) for AppellantPaul Brook (instructed by Simpson Millar) for RespondentHearing Hearing date: 15 April 2014
JudgmentSir Timothy Lloyd:Introduction
[1]This appeal, from an order made by Mr Recorder Philips in the Sheffield County Court on 3 July 2013, requires the court to consider the true construction of an agreement reached in the context of court proceedings. The litigation arose from the non-completion of a contract for the purchase of a plot in a development carried out by the claimant, Gateway Plaza Ltd (Gateway). By the settlement agreement, made on 17 February 2012, Mr White, the defendant, had the opportunity to buy another plot in the development, if he committed himself by exchange by a given date. If so, the litigation would be discontinued as against him. If he did not, the litigation would continue. He did not exchange by the given time or at all, but in answer to Gateway’s contention that the original litigation therefore remains in existence, he argues that the only reason that he did not exchange was that Gateway was in breach of the contract itself, as a result of which he was unable to do so.[2]The recorder had to decide a preliminary issue, as to whether there was a binding settlement agreement and, if so, whether Gateway was in breach of it. At the hearing it was not in dispute that the settlement agreement was binding. The recorder held that the settlement agreement imposed an obligation on Gateway of which it was in breach, and that it was Gateway’s fault that Mr White did not enter into an agreement to purchase the substituted plot.[3]Gateway appeals against that finding, with permission granted by Lord Justice Davis. It has been represented on the appeal by Mr Jonathan Cohen, who did not appear below. Mr White was represented, as he had been below, by Mr Paul Brook. Despite Mr Cohen’s powerful submissions I consider that the recorder was right in his conclusion and I would dismiss the appeal. I set out my reasons in what follows.

The essential facts

[4]In 2005 Mr White agreed to buy a plot in a development in Barnsley from Gateway. He acted jointly with a Mr Ian Peace, with whom he was, at that time, in business. The plot formed part of a development which Gateway was undertaking. The property to be bought was not finished until 2010. The contract was not performed by Mr White or Mr Peace, and Gateway forfeited the deposit of about £17,000, and then sued Mr White and Mr Peace for damages. For reasons which it is not necessary to describe, Mr White was unaware of the proceedings until early in 2012. He and Mr Peace had fallen out in 2008.[5]Mr White acted promptly once he got to know of the proceedings, and discussions followed between him and Gateway, which led to an agreement by which Mr White would purchase a different flat in the development, and the £17,000 which had already been paid would be credited against the purchase price of £92,000. This agreement was finalised in an email dated 16 February 2012 from Gateway’s solicitors, Metis Law (Natalie Milnes), to Mr White’s solicitors, Simpson Millar (Alex Dunne), to which agreement was given on 17 February.[6]Before the settlement agreement was reached, it was made clear by Mr White to Gateway that he would be seeking mortgage finance in order to complete the new purchase. At a meeting on 23 January 2012, between Mr White and Mr Stephens, of Gateway, the latter suggested that Mr White should use a particular mortgage broker. On 1 February Mr White’s solicitors told those acting for Gateway that he had contacted the recommended broker and had started on the process of applying for mortgage finance. On behalf of Gateway Mr Cohen accepted in argument that it was known to both sides at the time of the settlement agreement that Mr White would be seeking mortgage finance for the purchase.[7]The agreement was that the proceedings be stayed for 6 weeks, to enable Mr White “to proceed with the alternative purchase set out herein”. In consideration of that stay, under paragraph 1, Mr White was required to pay Gateway’s solicitors £15,000 by two instalments, on making the agreement and on or before 28 February 2012, which sums were to be held to Mr White’s order. This reflected the fact that Gateway had obtained an order requiring Mr White to pay £15,000 as an interim payment on account of the damages claimed.[8]Paragraph 2 is central to the appeal. It is as follows:
“On or before 28 March 2012 [Mr White] shall exchange contracts with [Gateway] for the purchase of Plot 2, Gateway Plaza on the same terms as previously agreed, save for the substitution of the new property details set out in this paragraph, at a purchase price of £92,000 … less an allowance of £17,000 … on account of deposit and reservation fee previously paid but subsequently forfeited.”
[9]If Mr White complied with paragraph 2, paragraph 3 provided that the parties were to consent to an order discontinuing the proceedings, with a provision that Mr White was to pay half of Gateway’s costs of the proceedings up to the time of discontinuance, assessed if not agreed, and the £15,000 was to be applied towards the purchase price under the new contract. If, on the other hand, Mr White did not comply with paragraph 2, paragraph 4 provided that the proceedings were to continue and the £15,000 was to be applied towards any sum due to Gateway arising out of the proceedings.[10]It is common ground that, despite the wording of paragraph 2, which appears to oblige Mr White to exchange contracts with Gateway, the settlement agreement did not require him to do so. Rather, it gave him the opportunity to do so within the stipulated time, and it set out the consequences according to whether he did so or not.[11]Gateway used different solicitors for conveyancing, Gordons, and for litigation, Metis. As soon as the settlement agreement had been reached Simpson Millar asked Metis to ask Gateway to instruct Gordons as soon as possible, so that they could get contract papers out without delay. Not until 12 March did Gordons send to Simpson Millar a draft contract and other related documents. Their letter and the enclosed documents proceeded on an incorrect basis, namely that the purchase would be by Mr White and Mr Peace together. In that respect the draft contract, the engrossment of the lease and a form, referred to as the CML form, sent with the letter were all incorrect. The letter enclosed all of those documents and some others. It anticipated that there would be further enquiries on the part of the buyer.[12]On 20 March Simpson Millar replied. They sought to make amendments to the contract over and above correcting the name of the purchaser. They also asked for the lease to be corrected and for the CML form to be provided giving the correct name of the buyer. Gordons replied on 2 April, refusing to amend the contract in any substantive respect, but saying that both it and the lease could be amended in manuscript to delete the name of Mr Peace. They said that they had requested the CML form from their client.[13]By then, of course, the original date stipulated in the settlement agreement had gone by, but no-one treated that as fatal at the time.[14]Simpson Millar chased Gordons for the CML form later on 10 April, 18 April, 30 April and 2 May. The only answer given by Gordons was that they had requested it from their client and it had not been provided. Since a form had already been provided, albeit in the wrong names, it is difficult to see what reason there could have been for not supplying a correct form. None was ever advanced. The case turns on whether Gateway was obliged to provide the correct form before exchange.

The CML form

[15]CML means the Council of Mortgage Lenders. The form, which I will continue to refer to as the CML form, as the parties did, is properly called a CML Disclosure of Incentives form.[16]The evidence includes the CML form supplied in March, and briefing notes provided by the CML about their form, as well as the witness statement and oral evidence of Mr Thackray, the conveyancing solicitor at Simpson Millar. The CML form is said to be intended to draw all relevant financial information about the sale of newly built, converted or renovated properties into a single form, for the benefit of mortgage lenders lending on the security of such a property, and of valuers providing valuations for such a lender. It is the responsibility of the seller to complete the form, and it is required to be provided to the lender’s solicitor or conveyancer as a standard part of the process. According to the CML’s briefing notes “the form should be sent to the lender’s solicitor/conveyancer as early as possible in order to avoid any last minute delays and no later than 7 working days before exchange of contracts/missives”.[17]Mr Thackray said in his witness statement that he could not commit his client to exchange without having received a CML form in the correct terms. He was cross-examined on this point, but maintained his position that, as a matter of prudence for his client Mr White, he needed the CML form before exchange.[18]I must mention Mr Peace. He played no part in the negotiation for the settlement agreement, but he did agree to the consent order by which, pursuant to that agreement, the proceedings were stayed for 6 weeks. Apart from that stay, the settlement agreement only affected the position as between Gateway and Mr White. Gateway would retain whatever rights it had against Mr Peace in any event. In March 2012, however, Mr Peace died suddenly. It is not clear how soon that became known to Mr White or to Gateway, but Gateway was aware of it by 4 May. On that date a letter from Gordons to Simpson Millar stated that Gateway was reviewing its position as a result of Mr Peace’s death. The Second Defendant in these proceedings, who has taken no part in the appeal, is Mr Peace’s personal representative. Eventually later in May Gateway took the position that it was not willing to proceed with the sale to Mr White, and there has therefore never been an exchange of contracts as envisaged by the settlement agreement.

The issues in the proceedings

[19]The preliminary issue arose, and therefore this appeal arises, in the course of the original proceedings by Gateway against Mr White and Mr Peace. Gateway’s claim is for damages for the purchasers’ failure to buy in accordance with the original contract. Mr White served a Defence and Counterclaim, by which he asserts that the claim against him was compromised by the settlement agreement. He also contends that Gateway withdrew from the settlement agreement in repudiatory breach of that agreement, and that he is accordingly discharged from further performance of the original contract. He claims damages consisting of the £16,800 paid by way of deposit and reservation fee on the original contract and the £15,000 paid in February 2012 under the settlement agreement. So far as I know, there has been no Reply and Defence to Counterclaim. The preliminary issue was directed in March 2013, arising on Mr White’s counterclaim.

The judgment

[20]At the trial which took place over a single day in July 2013, oral evidence was given by Mr White, Mr Alex Dunne, and Mr Thackray and, for Gateway, by Mr Stephens, who were all cross-examined on their witness statements. The recorder gave judgment that afternoon.[21]In his judgment, he considered the submission made to him, as it has been made to us, for Gateway that because no exchange took place by 28 March (or any later date) therefore paragraph 4 of the settlement agreement applies and the proceedings remain in being.[22]He rejected that contention for reasons set out first in paragraphs 12 and 13. “12. I do not consider that that simple view is the appropriate one in this case, and I say that for this reason. Without needing to imply terms into the contract, I have to construe it, and I have to construe particularly the expression “On or before 28 March 2012 [Mr White] shall exchange contracts with [Gateway]” for the purchase of a particular plot. What does that mean? It is not an obligation which is capable of being carried out by [Mr White] on his own. It is impossible for one person to exchange contracts with another without at least a modicum of cooperation from the other party, because the word is “exchange” and you can only exchange something if there is a contract moving from one side and its counterpart moving from the other side in the traditional way in which conveyancing has been carried out in this country for many hundreds of years. So it requires cooperation on the part of both parties, and that is the essence of the obligation which [Mr White] undertook. He undertook the obligation to do what he could towards the exchange of contracts but that was contingent upon [Gateway] doing also what they could towards the exchange of contracts.”[23]For Gateway Mr Cohen takes no exception to what the recorder said in that paragraph. His challenge starts with paragraph 13:
“13. The second matter I divine from the use of this particular expression in this particular context is that when they talk about the exchange of contracts for the purchase of a piece of land (Plot 2 in this particular case), the meaning to be attached to it is the ordinary natural meaning of exchanging contracts in accordance with the normal practice of conveyancers. It does not require an implied term. It is what the words mean. If you ask your solicitor to exchange contracts with the solicitor for your vendor or your purchaser, you are asking him to do the job in the way in which it is normally done as between solicitors in ordinary conveyancing transactions, and this means doing it in a way in which neither party will be put at an irremediable disadvantage. Conveyancing solicitors are, perhaps by their nature, perhaps by their training, cautious and they will not normally engage in exchange of contracts unless everything is in place to ensure that when completion comes, completion can take place, and this is the way in which one would expect any solicitor to proceed in the exchange of contracts. It is not simply a case of posting one part off to the other side and hoping something will come back through the post from the other, or even using more modern means of communication; it is a process which does not just involve, as I say, a handing over from one to the other and back again but it involves going through the normal process that is engaged in the normal way of conveyancing.”
[24]Mr Cohen’s criticism of this passage is that there is nothing in the words of the agreement that permit it to be read as referring to anything other than the process of exchange of contracts itself; it cannot mean the preparatory processes as well. In paragraph 13, the recorder did not refer to the CML form, but he referred to it later, in paragraph 21. Having explained briefly what the form is, he went on as follows:
“21. … A solicitor who is to exchange contracts needs to ensure that everything is in place for completion to take place within a relatively short period of time. One of the things he needs to be sure about is, of course, that there are no untoward charges on the property which would survive a transfer, another is that he needs to be sure that when the day comes he can hand over a banker’s draft for the appropriate amount of money and, of course, he can only be sure of that in a mortgage case if he can be sure that the building society or lender will be obliged to provide him with that money, and that is the normal way in which these transactions are carried out. It is not necessary to imply any specific term about mortgages and the like. All it is necessary to do is to consider the expression “exchange of contracts” by reference to the normal way in which such transactions are conducted, and the normal way in which they are conducted is for the purchaser’s solicitors to have everything right at the time of exchange because, of course, it is well known that once contracts have been exchanged then the purchaser is stuck with the need to purchase and, of course, his solicitor would face, to say the very least, a degree of criticism if he allowed that to happen when he was not sure that the purchase could take place. The CML form is a modern form but it is one which is, in practical terms, essential for a purchase transaction, except in the case of people who buy a property without a mortgage, who are necessarily comparatively rare.”
[25]Having reached that conclusion as a matter of the interpretation of paragraph 2 of the settlement agreement in principle, he applied it to the facts of the case at paragraphs 25 to 27. Towards the end of paragraph 25 he said this:
“25. … If it is the obligation, as it undoubtedly is, for the vendor to provide [the CML form] in order that an exchange can take place in accordance with the normal practice of conveyancers, and if the vendor fails, in spite of being pushed and chivvied … to do something about it and fails to do so, the vendor cannot, in my judgment, turn round and say that the purchaser is at fault for failing to exchange contracts on the relevant date, or even on any later date.”
[26]In paragraph 26 he said that he found Mr White not to be in breach of contract and to have done everything in his power to comply with the contract. He concluded his judgment at paragraph 27 as follows:
“27. This was a contract which required mutual action by both parties and the reason it came to nothing was simply, as I have said, lack of action on the part of [Gateway] and/or their solicitors. Whatever remedy they may have is not a matter of concern to me. If it is necessary to put it in terms of [Gateway] being in breach of the agreement, then I would happily do so, but I do not really think it is necessary to go as far as that, it is simple enough to say that the cause of the fact that that did not materialise was entirely the inaction of [Gateway].”
[27]Since the preliminary issue as defined required the court to decide first whether the settlement agreement was binding and secondly whether Gateway was in breach of it, it is not clear to me why the recorder did not regard it as necessary to put it on the basis that Gateway was in breach; in discussion after judgment he indicated that the answer to the two preliminary issues was yes, i.e. Gateway had been in breach. Clearly he did regard Gateway as having been in breach of its obligations under the agreement, and I propose to proceed on the basis that this was his finding.

Discussion

[28]Mr Cohen contended that the words “exchange contracts” cannot refer to anything other than the actual process of exchange of one signed contractual document for another in matching terms, each signed by or on behalf of one party to the contract. He argued that the recorder’s reading of the words as including the preparatory processes such as solicitors normally conduct in advance of exchange in a normal case, where at that stage the parties’ positions are not affected by any contractual obligations, is just not permissible as a matter of language. He said that the recorder was right to eschew any process of the implication of terms, but that this was what the recorder had, in reality, undertaken in stretching the meaning of “exchange” beyond its only legitimate reading.[29]Counsel cited to us a number of familiar passages about the process of interpretation of contracts and about the implication of terms into contracts, including parts of Lord Hoffmann’s judgment in Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988, and that of Lord Clarke of Stone-cum-Ebony in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900.[30]Of these passages, I find it helpful to refer to part of Lord Hoffmann’s paragraph 16:
“The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-3.”
[31]From Lord Clarke in Rainy Sky, I take paragraph 21 and the first sentence of paragraph 23:
“21. The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. … 23. Where the parties have used unambiguous language, the court must apply it.”
[32]Mr Cohen pointed out that the present case is far from being comparable to the normal case where parties proceed towards the exchange of contracts for the purchase of land at a time when there is no existing obligation as between them. In a normal case, he said, there was every reason for the purchaser to be able to ask, and for the vendor to respond to, reasonable pre-contract enquiries about the property, because it was only at the end of that process that the purchaser would be in a position to decide whether or not to commit himself, for the first time, to legal obligations in respect of the purchase. Here, by contrast, he said, since the contract was to be on terms which had already been stipulated, and since the parties were already bound by contractual obligations one to the other, there was no reason for the purchaser to need to have enquiries answered, and no reason to regard the vendor as under an obligation to answer any such enquiries as might be addressed. He also submitted that the fact that Gordons did supply contractual documentation, including a CML form (albeit incorrect), in March and that they did respond, to some extent at least, to pre-contract enquiries on 2 April, did not show that in either respect they were obliged to do so. On his contention, Gateway and its solicitors could have done no more than supply a contract in the correct terms, with a draft lease annexed in the correct terms and a correct plan identifying the relevant flat, and could have declined to supply any other document or to answer any query, leaving it for Mr White to decide, with the limited information supplied, whether he was prepared to commit himself to an exchange of contracts by the relevant date.[33]I agree with Mr Cohen that, often, a reference to the exchange of contracts is only to the final process of the actual (or notional) exchange of two matching contractual documents, one signed by or for each party. That is clearly the case once all the terms have been agreed, the documents have been prepared and all relevant enquiries have been answered and clear searches obtained. If at that stage a client on either side gives instructions to the solicitor to exchange contracts, those instructions refer only to the final process of the exchange itself.[34]That, however, was not the position on 17 February 2012. Moreover I do not accept Mr Cohen’s proposition that there was no point in enquiries after that date and no need for them. It is true that Mr White had committed himself to legal obligations under the settlement agreement, but he had not committed himself to buy the substituted property. He could have decided that it was not sufficiently attractive, or that for some reason it was not an appropriate purchase, and that he would take his chances in the litigation instead. He was afforded six weeks under the settlement agreement in which to decide whether to “proceed with the alternative purchase” (see paragraph 1).[35]Moreover, although paragraph 2 is expressed in terms of imposing an obligation on Mr White, it is clear on analysis that it does not impose any obligation on him. To the contrary, it provides for what happens if he takes a certain course, but this is something which is not open to him on his own. It requires at least some collaboration from Gateway. Viewed in that light, the paragraph is all the more unfortunately phrased, because the only obligation, properly so-called, which it imposes is one on Gateway, not on Mr White. If Mr White calls for an exchange of contracts for the purchase of plot 2, then Gateway is obliged to cooperate, at least by way of exchange.[36]So the question is, applying the correct approach as identified by Lord Hoffmann and Lord Clarke in the passages cited above, what do the words in the contract mean, that is to say, what would the words of the agreement convey to a reasonable person having all the background knowledge which would reasonably be available to the parties at the time of the agreement?[37]That knowledge included at least the following facts. i) Mr White was to have six weeks in which to proceed with the alternative purchase of plot 2, so that by the end of that period he could decide whether or not to proceed under paragraph 2, exchanging contracts for the substitute purchase, or not to do so. ii) The terms of the purchase, if he chose to proceed with it, were settled by the agreement (except for the completion date). The property, the price and the parties were agreed, and the purchase was to be otherwise on the same terms as the previous contract. In any event, on the sale by a developer of a unit in a newly completed development, the terms of the sale, including those of the lease by which the sale was to be completed, would rarely be open to negotiation to any extent, because of the need for all dispositions to be on matching terms. iii) As is usual with the sale of units on a development by the developer, there were matters within the knowledge and control of the vendor relating to the particular property which the buyer would need to know of or be supplied with; in the present case they included a cover note for a building guarantee issued by Zurich Insurance, and a certificate of completion under the Building Regulations issued by the relevant local authority. iv) The normal practice of conveyancing is that the vendor’s solicitor provides the draft contract and related documents, the purchaser’s solicitor asks questions arising from the documents, some in standard form and others ad hoc according to the circumstances, which may include requests for additional or amended documents, and the vendor’s solicitor answers these so far as the vendor’s instructions permit. Then the intending purchaser (and, for that matter, also the intending vendor) is in a position to decide whether to proceed to exchange. Here it was for the purchaser alone to decide whether to proceed, as the vendor was committed to selling to Mr White if the latter wished to do so on the given terms and within the stipulated time. In that respect the situation was akin to an option to purchase. v) Mr White was seeking mortgage finance to enable him to purchase the substituted property. He might or might not have been able to proceed without it, but at any rate he wanted it. If he was able to obtain the offer of a mortgage advance from a lender which was a member of the CML, the lender would require the CML form to be issued and provided by the vendor; normally that form is supplied in advance of exchange of contracts.[38]I should say that, in addition to his main ground of appeal, Mr Cohen submitted that the judge’s conclusion as to the significance of the CML form was wrong and unsupported by the evidence. Realistically Mr Cohen did not elaborate on this in his oral submissions. It seems to me that the judge was amply justified by the evidence, both that of Mr Thackray and the CML’s own briefing notes about the form, in making the holding that he did in paragraph 21 about the significance of the CML form and the need for it to be supplied before exchange.[39]Mr Cohen’s essential proposition in support of the appeal is straightforward and simple. Paragraph 2 of the settlement agreement did not oblige Mr White to do anything; it gave him an opportunity, namely to exchange contracts for the purchase of the new property, on given terms, so long as this happened by 28 March 2012. If he did not, then paragraph 4 of the agreement set out the consequences. In the circumstances that happened, his failure to exchange by 28 March might not have been fatal, but it put him at risk of Gateway not being willing to extend the time. Eventually, in May, Gateway became unwilling to extend time, and there was no obligation on Gateway under the settlement agreement of which it was or could be in breach in taking that position. In this context, the point of the reference to “exchange” is that whether the consequences set out in paragraph 3 or in paragraph 4 follow depends on whether Mr White had exchanged contracts by the given date (or any agreed extension). In that context clearly “exchange” has its normal, technical meaning, not any extended meaning which includes normal pre-contract processes.[40]Mr Cohen asserted that Gateway was not required by the settlement agreement to do anything except wait to see whether Mr White would offer to exchange contracts, on or before 28 March, in appropriate terms, and if he did, then to participate in the process of exchange. Mr Cohen developed his submissions with conspicuous ability, but I cannot accept his analysis of the obligations arising under the agreement.[41]Paragraph 2 of the settlement agreement is not a case of a unilateral contract, an “if contract”, such that, if one party does something entirely within his control, such as to serve a notice in a prescribed way, then certain consequences follow. Mr White could not ensure that paragraph 2 was satisfied by his own acts alone. He required Gateway’s collaboration at the very least to the extent of taking part in the exchange.[42]Moreover, the recorder was clearly right to say that it is for the vendor to take the initiative in providing the draft contract and other related documents. That is and has always been the case as regards vendors generally, but it is particularly true in the case of vendors of properties comprised in a development which is sold off in units. Consistently with that practice, Gordons did, of course, supply the contract documentation with their letter dated 12 March 2012, albeit that some of it was not in the correct form.[43]In the light of all the factors that I have mentioned, it seems to me that the recorder was right to conclude that the meaning which paragraph 2 would convey to the reasonable person with the relevant knowledge was that, despite the obligation being expressed to be imposed on Mr White, in fact such obligation as there is under paragraph 2 is imposed on Gateway, and also that this obligation required Gateway to collaborate not merely in the process of the eventual exchange, if it was to happen, but also in the normal pre-contract conveyancing procedures, supplying Mr White’s solicitors with the appropriate and necessary documents, and answering such reasonable enquiries as they might address on the basis of the information supplied. In particular, given the known wish of Mr White to obtain mortgage finance, it was Gateway’s obligation to supply a CML form in the correct terms, and to do so before exchange.[44]The documentation which Gateway was obliged to supply pursuant to this requirement had to be appropriate to the intended transaction. It therefore had to identify the purchaser correctly, namely Mr White alone. The error in the draft contract and the engrossed lease could be corrected in manuscript by Mr White’s solicitors, so although in these respects Gateway had not fulfilled its obligation correctly, nothing turned on this because it could easily be corrected. That was not true of the CML form, which had to be initiated by Gateway itself, and had to be produced in the correct terms. It was therefore a proper and reasonable requirement on the part of Mr White that a correct CML form should be issued, and, no reason being advanced as to why this could not be done, I consider that the recorder was right to conclude that Gateway was under an obligation, by virtue of paragraph 2 of the settlement agreement, to supply the correct CML form, and to do so in time for Mr White to exchange by the stipulated time.[45]I therefore agree with the recorder that Gateway was under an obligation to supply to Mr White’s solicitors the appropriate pre-contract documentation in correct terms, that this included a CML form showing Mr White as the sole purchaser, and that therefore Gateway was in breach of contract when it supplied the CML form in the wrong terms and when it failed and refused to supply a correct version of that form[46]Mr Cohen supported his argument by a submission that the agreement allocated to Mr White the risk that he would not be able to get mortgage finance. He pointed out that the original purchase agreement in 2005 had been entered into at a time when no mortgage finance was in place. I do not find that surprising, given that the building was not completed until five years later, nor illuminating as regards the settlement agreement. He also pointed out that by entering into the settlement agreement Mr White took the risk that he would not get mortgage finance for his substituted purchase. That is true, but then, at that stage, he was not committed to undertaking the substitute purchase. If for any reason he chose not to proceed with it, he would remain subject to the existing litigation, and the aim of resolving that litigation was no doubt a strong motivation for him. But all was not lost for him if it did continue. He would face the challenge of getting the judgment against him set aside but since, according to him, the proceedings had never been served upon him, that application might not face too much difficulty.[47]At all events, I cannot accept that Mr White’s willingness to enter into the settlement agreement shows that he was willing, at the later stage of exchange (if it ever took place), to accept the risk that he might have to proceed to purchase without mortgage finance. Accordingly, the normal position as regards the CML form in a case where mortgage finance is relevant is not affected by the factors relied on in this respect by Mr Cohen

Conclusion

[48]I would therefore dismiss the appeal. My reasoning is more elaborate and more laborious than that of the recorder in his clear and admirable judgment given on the afternoon of the hearing, but my analysis is essentially the same as his.[49]What the consequences of this conclusion are as between the parties may not be straightforward, if they cannot be agreed, but that was not a question which the recorder was required to resolve, and equally it is not before us. As directed by the recorder the proceedings will continue in the county court. I suggest, but I do not direct, that once the appropriate procedural directions have been given, consideration be given to the possibility of having any further substantive hearing listed before one of the specialist Chancery or Mercantile Circuit judges based in Leeds. Lord Justice Vos[50]I agree with Sir Timothy Lloyd’s judgment, but would wish to add just a few words of my own.[51]Paragraph 2 of the agreement between Mr White and Gateway provided that Mr White “shall exchange contracts with [Gateway] for the purchase of Plot 2 Gateway Plaza on the same terms previously agreed, save for substitution of the new property details set out in this paragraph” at the stated price. Paragraphs 3 and 4 provided respectively for the agreed consequences of compliance and non-compliance with paragraph 2. As was ultimately common ground between the parties in argument, the provisions of paragraph 2 were permissive so far as Mr White was concerned. Properly construed, the words “shall exchange” meant “may exchange”. In other places, however, the agreement used the word “shall” to connote a mandatory obligation – as, for example, in paragraph 4 where it was provided that Mr White “shall direct that [Gateway’s solicitors] shall apply the funds [£15,000] held to his order against any sums due to [Gateway] arising out of the proceedings”. The agreement was not, therefore, in drafting terms, free from difficulty or ambiguity.[52]The key questions that I think emerged for determination were(i) whether the words in paragraph 2 that I have set out had only one possible meaning or whether they were ambiguous so that it was open to the court to prefer the meaning that was consistent with business common sense, and(ii) if the latter, whether the judge was right to say that the agreement was referring to exchanging contracts in accordance with the normal practice of conveyancers, rather than just to the act of exchanging signed contracts.[53]The two questions are, as it seems to me, inter-connected. The agreement was a very unusual one in that normally, absent the existence of an option agreement, parties do not agree anything substantive before they exchange contracts for the sale of land. Thus, it is in their mutual interests for them and their respective legal representatives to co-operate with one another in order to make it more likely that they will ultimately be able to agree to exchange contracts. In this case, at first sight at least, the parties had already agreed that they would exchange contracts. It is this that caused Mr Cohen to submit, in effect, that there was nothing more to be done by Gateway, save to receive a signed version of the contract “on the same terms previously agreed” from Mr White.[54]In my judgment, however, this is over-simplistic. The factual matrix to the agreement included both parties’ knowledge that Mr White wanted a mortgage loan to make the purchase, that he might decide not to go ahead with the purchase and instead to defend the litigation as contemplated by paragraph 4, and that he wanted 6 weeks in which to decide whether to exchange contracts. I have no doubt that the reasonable observer looking at the agreement made by the parties against this factual matrix would have understood that the parties were regarding the decision to be made by Mr White as to whether to exchange contracts as mirroring precisely the position of a person who had made and had accepted a “subject to contract” offer for a property and was instructing solicitors to take the necessary usual conveyancing steps to proceed towards an intended exchange of contracts. Admittedly, in this case, those steps were more limited than usual, because the terms of the contract were already agreed, and the property was a new build rather than one that had already been occupied. But that did not mean that Mr White’s decision-making process should be inhibited by Gateway’s refusal to answer his solicitors’ questions. A reasonable observer looking objectively at the agreement would, in my judgment, think that the parties were, as the judge said, intending to proceed to exchange in accordance with the normal practice of conveyancers. In this case, that meant, as Mr Brook submitted, that Gateway would carry out the usual processes in the run-up to the exchange of contracts, including producing the necessary documents (a draft contract, draft lease and plan, and a properly completed CML form) to Mr White’s solicitors, and responding to their reasonable inquiries.[55]Any other construction of the agreement would lack business common sense. It would effectively be unworkable, as in fact turned out to be the case. Gateway sat on its hands, and produced (late in the day) inadequate drafts and an inaccurately completed CML form. Mr White’s solicitors repeatedly chased Gateway’s solicitors without success. There was nothing more Mr White could do. If Gateway’s construction of the agreement were correct, Mr White had entered into a contractual arrangement that was unworkable and unfit for the purpose any reasonable person would have thought the parties intended.[56]Mr Cohen argued persuasively that the whole thing turned on risk. Mr White was agreeing to exchange contracts come what may on the terms specified, and he was taking the risk that he would not obtain mortgage finance or that some other problem would arise. I do not agree. The agreement was, as I said, drafted on the premise that Mr White should have a choice about whether to exchange contracts. It was obviously intended that the normal conveyancing process would be followed so as to assist him in making that choice within the 6-week period allowed.[57]For the reasons I have sought to give, in my judgment paragraph 2 was ambiguous in that it could have had the black-letter meaning that Mr Cohen advocated, but it could also have had the commonsense meaning that I have already referred to. I have no doubt that the judge was right to prefer the commonsense meaning that any reasonable person would have understood the parties to have intended from reading the words they used. In short, the parties must be taken to have envisaged that they would proceed to a point where Mr White could decide whether to exchange in pretty well the normal way. Along the route, it was envisaged that Gateway would provide the necessary drafts and other documents, including a properly completed CML form, and answer Mr White’s solicitors’ reasonable enquiries. Their failure to provide the required CML form was a breach of Gateway’s contractual obligation.[58]Accordingly, I too would dismiss the appeal. Lord Justice Rimer[59]Although Mr Cohen’s persuasive arguments breathed life into an appeal that I had provisionally regarded as unpromising, I too would dismiss the appeal, for the like reasons given by Sir Timothy Lloyd and Vos LJ. The key to the case is the fact that paragraph 2 of the settlement agreement imposed no contractual obligation upon Mr White. All it did was to give him the right, if he so chose, to exchange contracts for the purchase of Plot 2 on or before 28 March 2012, which was a date six weeks after the settlement agreement. If he did exchange, the paragraph 3 consequences followed. If he did not, those in paragraph 4 followed. Insofar as paragraph 2 of the settlement agreement imposed obligations, it did so only upon Gateway. That is because a proposing purchaser cannot unilaterally exchange contracts. He can only do so if the proposing vendor has first put him in a position in which he is able to do so. At the very least, that requires the proposing vendor to provide him with a form of contract that he is in a position to exchange.[60]The question in this case is whether the proposing vendor was required to do more. In my view, the reasonable man equipped with the background knowledge to which Lord Hoffmann referred in the Attorney-General of Belize case (see paragraphs 29 and 30 of Sir Timothy Lloyd’s judgment) would have no doubt that the point of the six-week period allowed for any exchange was to enable the conventional pre-exchange conveyancing formalities to take their normal course, which would at the very least include an obligation upon Gateway during that period to answer Mr White’s reasonable inquiries and supply correct and appropriate contract documentation, including the required CML form. The recorder was, I consider, correct to find that Gateway failed to perform this obligation and was, in consequence, in breach of the obligation imposed upon it by the settlement agreement. He was therefore correct to decide the preliminary issue in favour of Mr White.[61]The appeal will be dismissed.