Asda kept on the hook by using one wrong word in a development agreement

The case

Dooba Developments Ltd v McLagan Investments Ltd [2016] EWHC 2944 (Ch) involved an attempt by Asda (through its subsidiary McLagan) to walk away from a conditional development agreement affecting a site on the edge of Worksop in Nottinghamshire. Asda entered into the agreement with Dooba in July 2010 with a view to Dooba building a supermarket for Asda on its site together with some ancillary retail units including a petrol station. The development agreement was to take effect following the satisfaction of four conditions:

1. obtaining “Satisfactory Planning Permission” ;
2. entering into a satisfactory Section 106 agreement;
3. a “Highways Condition” whereby Dooba would acquire additional land and obtain the necessary consents for rebuilding the access to the site; and
4. a “Pre-Start Condition” whereby Dooba had to comply with outstanding conditions on an existing outline planning permission.

The agreement stated that “if all (sic) of the conditions have not been discharged…by the Longstop Date then either Asda or Dooba may rescind this Agreement”. The Longstop Date was defined as 23 July 2014.

The dispute

By 23 July 2014, although conditions 1, 2 and 4 had been satisfied, a dispute arose as to whether the Highways Condition had been met. McLagan purported to rescind the agreement on the basis that, since one condition had not been satisfied, not “all” of the conditions had been discharged. Dooba disputed McLagan’s right to do this, saying that the relevant provision only allowed rescission if all (meaning all four) conditions had not been satisfied. The case came before the High Court in October this year.

The judge, David Halpern QC, had to decide between two plausible interpretations of an ambiguous clause. He referred to the decision of the Supreme Court in Arnold v Britton [2015] AC 1619, which emphasises that the court must interpret the intentions of parties to a contract by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”. If there is ambiguity the court cannot ignore the words in front of it and try to decide what the parties really intended.

Although the judge accepted that Asda’s interpretation was possible, he decided that it was not the primary interpretation available. He favoured Dooba’s interpretation as the natural and ordinary meaning of the words used. He did not pay much attention to other considerations adopted by the Supreme Court in Arnold v Britton including “the overall purpose of the clause” and “commercial common sense”. His favoured interpretation means that the agreement continues on after the “Longstop Date”, with one or more conditions unsatisfied and a lack of certainty as to when the agreement can in fact be brought to an end.

This appears to fail to give effect to the intention of the parties in including a Longstop Date at all, not to mention the lack of commercial common sense in forcing the parties to continue to satisfy the remaining pre-condition indefinitely.

The consequences

The logic of the decision is certainly contestable and it would be harsh, with the benefit of hindsight, to criticise the drafter of the agreement for the choice of phrasing. If Asda had used the word “any” instead of “all” the ambiguity would have been removed. Because the phrase was ambiguous the judge was given the scope to choose an interpretation that has caused a serious problem for Asda and one that most commentators would disagree with. Development agreements are often complex to start with and tend to have layers of complication added during the process of negotiation. The case is perhaps a lesson in the importance of stepping back from such a document and having it sense checked before signing.