March 23, 2020

Contractual interpretation – leave it to the court

In Great Dunmow Estates Limited v Crest Nicholson Operations Ltd & Ors [2019] EWCA Civ 1683, the Court of Appeal held that (1) matters ‘agreed’ by parties during the process of expert determination did not have contractual effect where the main contract contained an anti-informal variation clause and that (2) the court retained jurisdiction to construe the contract defining the expert’s role, where this jurisdiction was not excluded in the main contract.

Background

A conditional contract for the sale of land (the “Contract”) between the buyer, Crest Nicholson Operations Limited and Crest Nicholson Plc (“Crest Nicholson”) and the seller, Great Dunmow Estates Limited (“GDEL”) gave rise to a dispute as to the purchase price of the relevant land. Pursuant to the Contract, an independent expert was appointed to resolve the dispute (the “Expert”). Following the Expert’s directions, the parties produced a Statement of Agreed Facts (the “Agreed Facts”) to include an agreement that the date on which the land was to be valued (the “Valuation Date”) was “the date that the expert issue(d) the determination”. The Expert instructed independent Counsel to determine various legal issues. Although not specifically instructed to advise on the Valuation Date, Counsel considered that under the Contract, the Valuation Date was not the date of the Expert’s valuation but rather the “Challenge Expiry Date” (defined in the Contract as “3 months and 5 days after the grant of planning permission”). Crest Nicholson resiled from its position as set out in the Agreed Facts to the position advised by Counsel.

At first instance, HHJ Kramer held that (1) the parties were bound by the Valuation Date agreed in the Agreed Facts which had binding legal force and (2) the Expert did not have exclusive jurisdiction to determine the Valuation Date himself, on the basis that the court’s jurisdiction had not been excluded by the Contract. Crest Nicholson appealed on the grounds (amongst others) that (1) the Agreed Facts were not intended to have binding contractual effect (2) the court’s jurisdictions to determine the Valuation Date had been excluded by the Contract.

Court of Appeal’s decision

Contractual Effect of the Agreed Facts

In the Court of Appeal, Patten LJ held that the Agreed Facts did not have contractual effect. The purpose of the Agreed Facts was to inform the Expert about what remained in issue between the parties’ own valuers but it did not prevent the parties from changing their own positions. Still less could it have been intended to commit them to what amounted to a variation of the Contract in terms of the Valuation Date. Patten LJ referred to the decision of the Supreme Court in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24 (for further discussion of this case, please see ‘No Oral Modification Clause’ featured in our September 2018 Real Estate Bulletin). Here, the Supreme Court held that there was no reason in principle why the parties to a contract could not bind themselves to a specified method for making a subsequent variation to the contract. The parties are to be taken to have agreed that purported variations which do not comply with the relevant conditions are to be invalid. Patten LJ held that the variation provisions contained in the Contract had not been complied with in relation to the Agreed Facts. However, he stated that the Supreme Court did leave open the possibility of a non-compliant variation being given effect by way of estoppel and that if the present Appeal were to be allowed on this ground (i.e. that the Agreed Facts did not have contractual effect), the case should be remitted back for further directions. It would then be for GDEL to make an application for permission to amend its case and include a further argument based on estoppel.

Court’s jurisdiction

The Court of Appeal held that the first instance judge was right to conclude that the expert did not have exclusive jurisdiction to decide the Valuation Date under the Contract. The court held that the scope and nature of an expert’s jurisdiction is determined by the contract between the parties. The expert has no other source of authority. The scope of his remit and the finality of his decisions within his authority are therefore dependent on the proper construction and terms of the contract which the parties have made.

This includes the question whether that very issue of jurisdiction is itself a matter for the expert or one for the court to adjudicate upon. In this situation, the correct valuation date depended upon the construction of the Contract. This was a question of law. In order to perform his task, the Expert needed to ascertain the Valuation Date based on his construction of the Contract but this did not of itself amount to an implicit instruction to construe the relevant clause in the Contract in a way which was intended to bind the parties, to the exclusion of the court’s jurisdiction.

Counsel for Crest Nicholson relied on the case of Norwich Union Life Insurance Society v P & O Property Holdings Ltd [1993] 1 EGLR 164 to argue that the court’s jurisdictions had been excluded. In Norwich Union, the Court of Appeal held that the question of whether a particular development had ‘completed’ in the context of a funding agreement was a matter for the nominated arbiter and not for the court to consider, as this question depended on facts and not on any clear-cut issue of law. However, Patten LJ held that the present Contract did not give the Expert exclusive jurisdiction over the scope of his own authority and jurisdiction. By contrast, it set out the approach and conditions which the Expert had to follow and comply with in order to produce a valuation binding on the parties. This was not a case like Norwich Union, as the valuer in this case was to correctly determine and apply the Valuation Date prescribed by the Contract. There was nothing in the Contract which could be read or implied as making him the sole arbiter of that question.

Implications

  • Parties to a contract will need to review any anti- variation clauses contained in the contract to ensure that any ‘agreements’ reached during the course of expert determination comply with such clauses. If the contract does not contain such clauses, any agreements reached may be contractually binding
  • The court will have the final say when determining the construction of a contract. If the parties intend for the expert to be the sole arbiter, the contract must clearly define this in the expert’s role

The end?

The question of whether the Agreed Facts should be given effect by an estoppel has been remitted to the High Court. This question will turn on whether it would be unconscionable to release Crest Nicholson from the position it adopted in the Agreed Facts.

The article first appeared in our Real Estate Bulletin - March 2020.