Mr Justice Henderson:
Introduction: The Option Agreement
- The basic question that I have to decide in this case is whether an option agreement was validly extended by the service of a notice in accordance with the terms of the agreement. If the answer to that question is affirmative, further questions arise whether the sum of £20,000 payable on the extension of the option period was paid in time, and (if not) what are the consequences of the failure to make the payment in good time.
- The option was granted in 1992 by the claimant, Peter Anthony Rennie, and his late wife, Rita Marjorie Rennie, who were the joint owners of Angel Farm, Coleford, Gloucestershire. Angel Farm extends to some 21.53 acres and consisted then, as it does now, of agricultural land on the outskirts of Coleford. It was thought that the land had development potential, and the Rennies entered into negotiations with the defendant, Westbury Homes (Holdings) Limited ("Westbury"), a company whose business included the identification and acquisition of land suitable for house building and the development of such land. The negotiations culminated in the grant of the option by an option agreement ("the Option Agreement") dated 17th September 1992 and made between Mr and Mrs Rennie (1) and Westbury (2).
- The Option Agreement defined the Rennies as "the intending Vendor" and Westbury as "the intending Purchaser". Angel Farm was defined as "the Land", and the "Property" as the Land or (if less at any relevant time) so much of the Land as should (in short) have the benefit of planning permission for residential development on terms reasonably acceptable to Westbury.
- "The Option Period" was defined in clause 1.1.9 as meaning (without prejudice to certain immaterial provisions permitting later exercise of the option in specified circumstances):
"…the period expiring on the date 10 years from and including today's date or (if the intending Purchaser shall have exercised its right contained in clause 9.1) the period expiring on the date 15 years from and including today's date."
It is now common ground that the Option Period expired at midnight on 16th September 2002, although in the run up to the end of the Option Period it is clear that Westbury, and probably Mr Rennie and his solicitors too, were under the misapprehension that it expired a day later at midnight on 17th September.
- By clause 2 of the Option Agreement the Rennies, in consideration of payment of £50,000 by Westbury, granted Westbury the option to purchase the Property upon the terms and conditions therein set out, provided that the option should first have been validly exercised. By clause 8.1 the option was exercisable on up to three occasions over the whole or specified parts of the Property. The price payable on exercise of the option was 50% of the open market value of the Property (if the exercise related to the whole of the property) or a corresponding proportion of that sum if the exercise related to only part of the Property. By clause 7 Westbury agreed to undertake various planning obligations at its own expense, including obligations to apply as soon as practicable for planning consent in relation to the Land, and to use every reasonable endeavour to optimise the development value of the Land.
- Clause 9.1 provided for extension of the Option Period in the following terms:
"At any time during the last year of the Option Period (meaning the period of 10 years referred to in clause 1.1.9) the intending Purchaser may by notice in writing served upon the intending Vendor require such period to be extended by 5 years and upon service of such notice and payment to the intending Vendor of the additional sum of TWENTY THOUSAND POUNDS (£20,000) this Agreement shall be construed as if the Option Period was 15 years."
- Clause 8.7 provided that:
"If the intending Purchaser shall not exercise the Option within the period or periods for exercise prescribed by this Agreement (including any extensions thereof as herein provided) this Agreement shall cease and determine and the intending Purchaser shall cancel any C(iv) Land Charge which it may have registered in respect of this Agreement."
- Clause 19.2 provided that any notice or document should be sufficiently served by or on a party if it was served by or on their respective solicitors.
The purported exercise of the option
- There was no exercise of the option by Westbury over any part of the Property before September 2002.
- On 26th October 1998 Mrs Rennie died, and her interest in Angel Farm passed to Mr Rennie by survivorship. He was also her executor and the sole residuary beneficiary under her Will.
- On 12th September 2002, a few days before the expiry of the Option Period, Westbury's solicitors, Messrs. Davies and Partners, wrote to Mr Rennie's solicitors, Messrs. Everett & Tomlin, in the following terms:
"Dear Sirs,
Rennie to Westbury Homes (Holdings) Limited
Angel Farm, Coleford
We shall very shortly be placed in funds for the extension of the option for a further 5 years upon payment of £20,000 by Westbury (clause 9.1 of the option agreement refers).
We presume that payment should be made to your good selves. Please could you let us [have] your bank account details so that we can organise a chaps transfer.
The payment arrangements will be handled by our Mr Herbert at our Birmingham office – please note the details of this letterhead. It would be appreciated if you could please fax your bank account details through to our Birmingham office. Thank you."
- This is the letter that is now relied on by Westbury as having constituted a valid notice pursuant to clause 9.1 of the Option Agreement. It was received by Everett & Tomlin on the following day, 13th September, which was a Friday. However, they did not respond to it either before or after the weekend, nor did they fax their bank account details as requested.
- Nothing then happened until the following Tuesday, 17th September, when Davies and Partners telephoned Everett & Tomlin and asked for details of their client account, which they were then given by a secretary. The £20,000 was then transferred into Everett & Tomlin's client account at 3.07 p.m.. On the same day, Davies and Partners sent a fax to Everett & Tomlin saying:
"We refer to our letter dated 12th September.
We write to confirm that we have today arranged for a telegraphic transfer in the sum of £20,000 to be sent to your client account for the extension of the option for a further 5 years in accordance with clause 9.1 of the option agreement.
We should be obliged if you would kindly acknowledge receipt of the sum of £20,000.
We look forward to hearing from you."
- Everett & Tomlin replied later on 17th September, saying simply:
"Thank you for your fax dated 17th September 2002. We acknowledge receipt of the sum of £20,000 relating to the extension of the option relating to the above."
- Two days later, Everett & Tomlin wrote again and now for the first time took the point that the Option Period ran until (and included) 16th September, but did not extend to the following day. They alleged that the option had not been validly renewed, and sought to return the £20,000 by enclosing a cheque for that amount.
- It is unnecessary to carry the narrative of events any further. The question of when the Option Period expired was debated in correspondence, and as early as 23rd September 2002 Davies and Partners were putting forward the essential contentions on which Westbury now rely, to the effect that the letter of 12th September gave notice that Westbury required the option to be extended, and that there was no requirement for the £20,000 to be paid within the original 10-year Option Period.
- Eventually, letters before action were exchanged in April 2006 (with Wragge & Co now acting as litigation solicitors for Westbury), and on 12th June 2006 Mr Rennie issued a claim form under CPR Part 8 seeking a declaration that the Option Agreement had ceased and determined, and consequential orders vacating the Class C(iv) Land Charges which had been registered by Westbury in respect of the Option Agreement, and a subsequent entry against the registered title to Angel Farm which had been entered on its first registration on 16th September 2002.
The first issue: Was the letter of 12th September 2002 a valid notice pursuant to clause 9.1 of the Option Agreement?
- On behalf of the claimant, Mr Anthony Trace QC submits that the letter of 12th September 2002 was not a valid notice pursuant to clause 9.1 of the Option Agreement. He puts this part of his case in two alternative ways.
- His first contention is that clause 9.1, on its true construction, prescribes an indispensable condition for exercise of the power to extend the Option Period, namely that Westbury should, by notice in writing, require the period to be extended by 5 years. He submits that the letter of 12th September 2002 clearly does no such thing. It is simply a statement of what Westbury's solicitors understood the current position to be, together with an indication of their future intention to exercise the right to extend the period when they had been placed in funds. Accordingly, submits Mr Trace, the case is of the type described by Lord Steyn in Mannai Investment Co. Ltd v. Eagle Star Life Assurance Co. Ltd [1997] AC 749 ("Mannai") at 767D, viz:
"a case of a contractual right… which prescribes as an indispensable condition for its effective exercise that the notice must contain specific information."
The notice does not contain the prescribed information, and it is for that reason alone invalid.
- Mr Trace's second contention, if his first contention is rejected, is that the validity of the notice falls to be tested by reference to the criterion adopted by the majority of their Lordships in Mannai, which (briefly stated) is how a reasonable recipient would have understood the notice in its context. Applying this test, the notice will be valid if it would leave the reasonable recipient in no doubt that Westbury was thereby exercising its right under clause 9.1 to require an extension of the Option Period by 5 years. Again, however, Mr Trace submits that the notice does not satisfy the test, because the reasonable recipient would take the letter of 12th September as no more than a notification that Westbury was likely to exercise its right under clause 9.1 within the next few days before the expiry of the Option Period.
- I can deal briefly with Mr Trace's first contention. I am unable to accept it, because clause 9.1 does not, in my judgment, lay down any condition that the notice must contain specific information in the sense in which Lord Steyn must be understood to have used that expression. There are, no doubt, two indispensable conditions which the notice did have to satisfy. First, it had to be in writing; and secondly, it had to be served upon Mr Rennie or his solicitors during the last year of the Option Period. Failure to comply with either of those conditions would have been fatal, because the notice would not have been a notice of the type stipulated by clause 9.1. But the provision that Westbury should by the notice "require [the option] period to be extended by 5 years" is a stipulation of a different nature. It simply describes what it is that the notice must convey to the recipient, without prescribing any particular form of words or any particular details that must be included. There is nothing in the nature of a condition precedent to valid exercise of the right, but rather a statement of the meaning which the notice must communicate to the intending Vendor. Such statements fall squarely within the ambit of the Mannai test, and the question is simply how they would have been understood by a reasonable recipient.
- I therefore move on to Mr Trace's second contention, and the application of the Mannai test.
- There was little, if any, disagreement between the parties about the general nature of the test to be applied. The question in Mannai was whether a notice in purported exercise of a break clause in a lease was invalid because the date specified in the notice for the expiry of the lease was not, as the break clause required, the third anniversary of the term commencement date (which was agreed to be 13th January 1995), but 12th January 1995. Mr Trace referred me in particular to the speech of Lord Steyn at 767G-768G, from which I cite the following extracts:
"(2) The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene. …the inquiry is objective: the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. Given that the reasonable recipient must be credited with knowledge of the critical date and the terms of clause 7(13) the question is simply how the reasonable recipient would have understood such a notice.
…
(3) It is important not to lose sight of the purpose of a notice under the break clause. It serves one purpose only: to inform the landlord that the tenant has decided to determine the lease in accordance with the right reserved. That purpose must be relevant to the construction and validity of the notice. Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient.
(4) There is no justification for placing notices under a break clause in leases in a unique category. Making due allowance for contextual differences, such notices belong to the general class of unilateral notices served under contractual rights reserved, e.g. notice to quit, notices to determine licences and notices to complete. …To those examples may be added notices under charter parties, contracts of affreightment, and so forth. Even if such notices under contractual rights reserved contain errors they may be valid if they are "sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate": the Delta case [Delta Vale Properties Limited v. Mills [1990] 1 WLR 445] at 454E-G, per Slade LJ… That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it."
- For his part, Mr John Male QC for Westbury referred me to the helpful summary of the relevant principles and authorities by Neuberger LJ (as he then was) in Lancecrest Limited v. Asiwaju [2005] EWCA Civ 117, [2005] 1 EGLR 40 ("Lancecrest") at paragraphs [29] to [33].
- The relevant issue in Lancecrest was whether a tenant's counternotice under rent-review provisions in a lease was valid. The landlord had served a notice, more than a year after the relevant review date, proposing a new rent of £30,000 per annum from the review date. The tenant replied, alleging that the landlord's notice was invalid for various reasons which were not upheld by the Court of Appeal; but his reply did not in terms challenge the new rent which had been proposed. If his reply was not a valid counternotice informing the landlord that the tenant did not accept the annual amount proposed by the landlord, the consequence was that the new rent would prevail.
- In paragraph [29], Neuberger LJ said that the question whether the letter constituted a valid counternotice was to be determined by reference to the test laid down by Sir Nicolas Browne-Wilkinson V-C in Nunes v Davies Laing & Dick Limited (1985) 51 P&CR 310 at 314:
"namely that the counternotice should be in terms which are sufficiently clear to bring home to the ordinary landlord that the tenant is purporting to exercise his right …"
- Neuberger LJ went on to say that this approach was in his view consistent with the subsequent decision of the House of Lords in Mannai and, after summarising the reasoning of Lord Steyn in Mannai at 767E-769A, and observing that the reasoning in the speeches of Lord Hoffmann and Lord Clyde was "to much the same effect", he continued as follows at paragraph [32]:
"32 The decision in Mannai represents an authoritative and, if I may say so, refreshingly practical attitude to the validity of notices and other unilateral documents to be served under contractual arrangements. It is a decision that calls into question the reliability of a number of earlier decisions that had manifested a rather more technical attitude to the construction of such documents ….
33. This is not to say that a slipshod approach to the drafting of such notices has thereby been sanctioned by the House of Lords …."
- In the light of these principles, the question that I have to decide is how, on an objective appraisal, a reasonable recipient with knowledge of the terms of the Option Agreement would have understood the letter of 12th September 2002. The question must be answered, in Lord Steyn's words, "taking into account the relevant objective contextual scene"; the question is "what reasonable persons, circumstanced as the actual parties were, would have had in mind."
- Looking for the moment simply at the terms of clause 9.1 itself, the right to extend the option period has to be exercised by:
(i) a notice in writing;
(ii) served by Westbury upon the intending Vendor; and
(iii) by which Westbury requires the Option Period to be extended by 5 years.
Upon service of such a notice, and upon payment to the intending Vendor of the additional sum of £20,000, the Option Agreement is then to be construed as if the Option Period was 15 instead of 10 years.
- There is no difficulty, in my judgment, with the first and second of the above requirements. The letter of 12th September 2002 was clearly capable of constituting a notice in writing. It was written by Westbury's solicitors; and it was addressed to, and received by, Mr Rennie's solicitors. Mr Rennie was the survivor of the original grantors of the option, and the sole owner for the time being of the land. He was therefore the only person who answered the description of "the intending Vendor" as at 12th September 2002: see clause 1.2.1. Further, as I have already mentioned, clause 19.2 expressly authorised service of notices by or on a party's solicitors.
- I move on now to the third requirement: did the letter, looking at the matter objectively, require the Option Period to be extended by 5 years? I begin by making the following observations. First, the letter refers in terms in the first paragraph to "the extension of the option for a further 5 years upon payment of £20,000 by Westbury", and it also refers in terms to clause 9.1 of the Option Agreement. So the reasonable recipient could have been in no possible doubt that the letter was concerned in some way with exercise of the right to extend the Option Period in clause 9.1. Secondly, the reasonable recipient would have appreciated that the last year of the original 10 year Option Period, and therefore the one year period during which the right of extension had to be exercised, was going to expire within a few days; although he might well have been uncertain, without taking legal advice, whether the final day of that period was the 16th or 17th September. Thirdly, the reasonable recipient would also have appreciated that clause 9.1 conferred a unilateral right on Westbury, and did not require any action to be taken on his part. All that Westbury had to do in order to exercise the right was to serve a notice which satisfied the three requirements which I have set out in paragraph 29 above. There was, of course, also the additional requirement to pay £20,000; but there was no express requirement to pay that sum before the expiry of the 10 year period. Rather, it was a further obligation which had to be performed before the Option Agreement could be construed as if the Option Period was 15 years instead of 10. Finally, the reasonable recipient would have noted that the obligation to pay the £20,000 only arose as a consequence of service of a notice requiring the Option Period to be extended. If the Option Period was not extended by service of a valid notice, there would obviously be nothing for which the £20,000 could be paid. It is, in short, an obligation which pre-supposes service of a valid extension notice.
- The reasonable recipient would in my view have gone on to note that there was nothing uncertain or tentative about the proposals for payment of the £20,000 set out in the letter. The letter says: "we shall very shortly be placed in funds", and asks for bank account details "so that we can organise a chaps transfer". The payment arrangements "will be handled by our Mr Herbert at our Birmingham office". Furthermore, there was obviously an element of urgency, because the letter requests the bank account details to be faxed through to the Birmingham office.
- Taking all these points into account, I am left in no doubt that a reasonable recipient of this letter would have understood from it that Westbury had decided to exercise its right to extend the Option Period. It is only on that basis that the question of payment of the £20,000 arises. The letter states unequivocally that payment will be made very shortly, and simply asks for the necessary practical information to implement the payment, no machinery for that purpose having been provided for in the Option Agreement itself. Accordingly, although the focus of the letter is on the payment arrangements, it would, in my judgment, have conveyed unambiguously to any reasonable recipient that Westbury did indeed require the Option Period to be extended by 5 years. It therefore satisfied the Mannai test of leaving the reasonable recipient "in no doubt that the right reserved is being exercised" (per Lord Steyn at 768G-H). It was therefore a valid notice for the purposes of clause 9.1.
- In reaching this conclusion I have not found it helpful or necessary to look at any surrounding circumstances beyond the relationship between the parties constituted by the Option Agreement and the terms of the Option Agreement itself. However, each side sought in different ways to place some reliance on the wider contextual scene, so I will say a little more about it.
- For Westbury, reliance was placed on evidence contained in the witness statement of Sarah Tait, who is the Regional Planning Director for Persimmon Homes (South Midlands) Limited, a trading division of Persimmon Homes Limited which acquired the business and assets of Westbury in February 2006. This evidence gave details of steps which had been taken by Westbury in relation to the land and the ultimate realisation of its development potential between September 1992 and August 2002. By the latter date, the position was that part of the land had been allocated for housing development in the Forest of Dean Local Plan Review, and preparations were being made for a forthcoming Public Inquiry. Westbury had already engaged leading counsel to advise and represent it at the Inquiry and had spent in excess of £110,000 (in addition to the original option fee of £50,000) over the course of the previous 10 years in professional and other fees with the object of achieving the allocation of the land in the Local Plan. The claimant was aware of this expenditure, and (as one would expect) took a lively interest himself in the planning prospects for the land. As he says in his own witness statement, he displayed the interest of a prudent land owner, and wished to protect his position in the event that Westbury chose, for whatever reason, not to exercise or extend its option over the land. Accordingly he, too, wished to make his own representations at the forthcoming Public Inquiry, although he was content to do so in writing.
- In my judgment, this evidence, none of which was the subject of cross examination, does not carry matters much further; but it does provide some additional support for the conclusion I have reached. In the light of the forthcoming Public Inquiry, and the efforts that Westbury had made over the past 10 years to realise the planning potential of the land, no reasonable landowner in Mr Rennie's position could have been surprised that Westbury wished to exercise its right to extend the option. Indeed, failure to do so would, on the face of it, have been inexplicable. Accordingly, the letter of 12th September 2002 was in no sense a bolt from the blue, and the message that it conveyed was, in my judgment, the message that any reasonable landowner in Mr Rennie's position would have been expecting to receive.
- For the claimant, Mr Trace QC took a point of a rather different nature. He argued that the letter of 12th September was never intended by Westbury or its solicitors to constitute a notice under clause 9.1, but was meant to be merely preparatory to a future exercise of the power to extend. The letter that was intended to constitute such a notice was the letter of 17th September; but that letter was a day too late, so the purported notice was invalid. In support of this submission Mr Trace relied on the answers given to a recent request for further information, which show (a) that the persons dealing with the matter on Westbury's behalf (including, in particular, Mr Mark Waite, who was a Strategic Land Manager working for Westbury's Central Regional Office based in Quedgeley, Gloucestershire) were under the misapprehension that the Option Period expired on 17th September, and (b) that, although Mark Waite was authorised to instruct solicitors on 12th September, formal Board authority for the extension and the payment of £20,000 was not in fact obtained until 16th September. Mr Trace submitted that this is part of the relevant context which the Court should take into account, and that, in the light of it, the Court should not construe as a notice under clause 9.1 a letter which was never meant by those who sent it to be such a notice, and which did not in terms purport to be such a notice. He further submitted that there is no reported case in which the Court has upheld the validity of a document which was never intended by its sender to operate as a valid notice.
- I am not persuaded by these submissions, clearly and forcefully though they were advanced by Mr Trace. In my judgment, the whole point of an objective analysis of how a notional reasonable recipient would have understood the letter is that the subjective intentions and understandings of Westbury are irrelevant. There is no suggestion that Mr Rennie or his solicitors knew anything about Westbury's internal position, or the stage that authorisation for the extension had reached, or indeed about Westbury's mistaken view that the Option Period expired on 17th September (although the terms of Everett & Tomlin's letter of 17th September suggest that they may well have shared the same misapprehension at that date). So none of this material formed part of the objective context known to both parties, and it cannot assist in answering the question how a reasonable recipient would have understood the letter of 12th September. The dangers of attaching any weight to such material seem to me at least as great as the dangers of relying upon how the recipient of a notice reacts to it, on which see the observations of Neuberger LJ in Lancecrest at paras [38] to [43], with which Brooke LJ (although dissenting on the application of the Mannai test) agreed at para [88].
- I am also far from convinced that there is no example in the existing case law of a case where the Court has upheld the validity of a notice which was never intended to operate as such. To go no further than Lancecrest itself, it seems clear to me that the letter sent by the tenant was not consciously intended by him to operate as a counternotice for the purposes of the rent review machinery in the lease, but it was nevertheless construed by the majority in the Court of Appeal as having that effect and as being a valid counternotice. Indeed, it seems to me inherent in the objective nature of the Mannai test that a document which was never intended by its sender to be a valid notice may nevertheless operate as one, and vice versa.
The Second Issue: Payment of the £20,000
- If the Court was against him on the first issue, Mr Trace's next submission was that clause 9.1 on its true construction required the £20,000 to be paid before midnight on 16th September. If that is the correct construction, the requirement was not complied with because payment was not effected until shortly after 3.00 pm on the following day.
- I can deal with this submission shortly, because in my judgment it rests upon a misconstruction of clause 9.1. The only step that clause 9.1 expressly required Westbury to take before the expiry of the last year of the Option Period was service of the notice. The clause then continues:
"and upon service of such notice and payment to the intending Vendor of the additional sum of [£20,000] this Agreement shall be construed as if the Option Period was 15 years."
This part of the clause states the consequences of service of such a notice, and adds the further obligation to pay £20,000, but it says nothing about when the £20,000 has to be paid. In those circumstances, the law will, in my judgment, imply an obligation to make the payment within a reasonable time, unless the time for payment can be fixed by a process of necessary implication: see Lewison on the Interpretation of Contracts, 2004, para 6.13 and the cases there cited. I am quite unable to find any basis for a necessary implication that the payment must be made before the expiry of the 10 year period, and I observe that if this is what the draftsman had intended it would have been a simple matter for him to say so, for example, by adding the words "together with" before "payment to the intending Vendor", or the words "during such period" after them. Once the notice has been served, the owner of the land knows where he stands, and he knows that he also has the benefit of a contractual obligation to pay £20,000 within a reasonable time.
- Mr Trace said that the requirement of certainty, on which the Courts place much emphasis in the context of options, means that any argument which would allow payment to be made after the end of the 10 year period must be rejected. I disagree. The implication of a requirement to make the payment within a reasonable time is sufficiently certain, and it would (if necessary) have enabled Mr Rennie to make time of the essence by service of a notice specifying a reasonable deadline for payment. Upon failure to comply with such a notice, Mr Rennie would then have been entitled to treat the Option Agreement as terminated. In fact, however, the payment was made only 15 hours after the expiry of the original Option Period, so nobody could suggest that it was not made within a reasonable time.
- The conclusion I have reached is consistent with the approach that the Court has taken to the payment of deposits in connection with the exercise of options in a number of cases including, in particular, Millichamp v Jones [1983] 1 All ER 267 (see at 274 d-e per Warner J). However, every case turns on the precise wording that the Court has to consider and, as Mr Trace points out, the present case is concerned not with the exercise of an option, which brings into being a concluded bilateral contract for the sale of the land, but with the earlier stage of extension of the Option Period. So, although I have found it helpful to be referred to these authorities, I will not prolong this judgment by referring to them in detail. It is enough to say that the general approach of the Court in cases like Millichamp v Jones encourages me to reach the conclusion to which I would anyway have come based on the wording of clause 9.1 itself.
Conclusion
- For these reasons, the claim must, in my judgment, be dismissed. There is no counterclaim by Westbury, but it seems to me that the appropriate course would be for the Court to declare that the Option Period has been validly extended for 5 years. I will hear argument, if necessary, on the precise form of the Order and on costs when this judgment is handed down.
