EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
	[2013] CSIH 103
Lady Smith Lady Dorrian Sheriff Principal R A Dunlop QC	XA2/13 OPINION OF THE COURT delivered by LADY SMITH in the appeal by FOREST BIO PRODUCTS LTD Appellant; against FOREVER FUELS LTD Respondents: _______________

Act: Thomson, advocate; Harper MacLeod LLP

Alt: Connal QC, solicitor advocate; Pinsent Masons LLP

29 November 2013
Introduction

[1] This appeal concerns the construction of an asset sale agreement. In particular, it concerns the construction of the term "unconditional written consent" as used in a definition of "Landlord's Consent" in the context of the assignation of a tenant's interest in a lease. The sheriff's interpretation favoured the appellant. The sheriff principal's interpretation favoured the respondent.

[2] The appellant seeks payment of the sum of £100,000 which is, it is said, due because the unconditional written consent of the landlord to the assignation of that lease was obtained and, if the mere obtaining of that consent was not sufficient, it was intimated to the respondent prior to a key date.

Background

[3] The appellant became tenant of land and premises at Balboughty Farm, Scone on 1 March 2008 under a twenty year lease ("the lease") between it and Viscount Stormont. Less than three years later, on 17 February 2011, joint administrators (Ian Scott McGregor and Kenneth W Pattullo, insolvency practitioners) were appointed by the holder of a floating charge. The lease was one of the assets available for realisation in furtherance of the administrator's objectives.

[4] Thus it was that on 30 and 31 March 2011, the appellant (through the administrators) and respondents signed a document entitled "Asset Sale Agreement" ("the agreement") which bore to relate to the sale of property including the lease. To achieve that sale, the lease required to be assigned to the respondent. That, in the usual way, required the consent of the landlord.

The Asset Sale Agreement

[5] The following clauses of the agreement, in which the appellant is referred to as "the Seller" and the respondent as "the Buyer", are relevant to the issue we have to resolve:

"1.1. 'Assignation' means an assignation of the Lease in the form of the draft assignation forming Part 4 of the Schedule subject to such other terms and conditions as the Seller, the Administrators, the Buyer and/or the Landlord may agree (whether as a condition of Landlord's Consent or otherwise);

...

'Completion Date' means the last date of signing of this agreement;

...

'Consent Consideration' means One Hundred Thousand Pounds (£100,000) payable by the Buyer to the Seller within 2 Business Days upon delivery by the Seller to the Buyer of Landlord's Consent and an Assignation of the Lease duly executed by the Landlord and the Seller, which gives an immediate right of entry to the Buyer;

...

'Landlord's Consent' means the unconditional written consent of the Landlord (and any other relevant party) to the grant of the Assignation of the Seller's interest in the lease to the Buyer on terms acceptable to the Buyer acting reasonably;

...

Schedule

Part 1

Conditions of sale: Leased Property

...

1.1 'Consent Date' means the later of (i) the date of delivery to the Buyer of an Assignation duly executed by the Seller acting through the Administrators and the Landlord if so required allowing for immediate occupation of the Leased Property; or (ii) the date of issue by the Landlord or its agents of the Landlord's Consent; or (iii) the date of delivery to the Buyer of a discharge of any standard security over the tenant's interest in the Lease along with appropriate signed Land Registration forms and a cheque in respect of the registration dues;

...

'Longstop Date' means the date three months from and including Completion or if later the date that the Buyer vacates the Leased Property.

...

2. Sale and purchase

2.1 Within 2 Business Days of the Consent Date, the Buyer will pay to the Seller the Consent Consideration. ....

...

4 Assignation or Transfer

4.1 Immediately following Completion, the Seller shall apply for and use reasonable endeavours to obtain the Landlord's Consent or the grant of a New Lease. The Seller will keep the Buyer updated as to the progress of the application. ...

...

5. Landlord's consent to a transfer of the Leased Property and other matters

5.1 If Landlord's consent is not granted by the Longstop Date, the Licence granted in terms of Part 2 of the Schedule will be deemed to have terminated automatically from the Longstop Date without further notice having to be given by either party. In this event, no sums will be payable by the Buyer to the Seller and/or the Administrators pursuant to paragraph 2 of part 1 of this Schedule.

5.2 The Buyer shall, without delay:

...

5.2.2 ensure that any amendments that the Buyer proposes to make to any form of Landlord's Consent .............are communicated promptly to the Administrator's Solicitors."

[6] A further £200,000 was to be payable by the respondent on assignation of the lease (see clauses 1.1 and 2.2). The references in Part 1 of the Schedule to "Completion" were agreed to have been intended as references to "Completion Date" and are, accordingly, references to 31 March 2011. The reference to a "New Lease" is to the possibility of the respondent entering into a new lease with the landlord and the reference to a licence is to parties having agreed that the respondent would, pending assignation and/or a new lease, have a licence to occupy the leasehold premises.

[7] As these extracts from the agreement alone show, the drafting is far from being a model of clarity and whilst it is tolerably clear that the parties intended that the "Consent Consideration" of £100,000, would be payable if the landlord's consent to assignation was obtained, even if the respondent decided not to go ahead and take an assignation of the lease, the identification of the circumstances in which liability to pay the £100,000 is triggered is far from straightforward.

The assignation document and the landlord's letter of 5 May 2011

[8] An assignation document - a tripartite agreement - was signed by two of the parties, the landlord and the administrators, on 5 and 19 May 2011, respectively. It has never been signed by the respondent. In terms of clause 2, the lease is said to be assigned, in consideration of "the Price paid" by the respondent which is, presumably, a reference to the sum of £200,000 referred to above. Clause 7 is in the following terms:

"7. The Landlords consent to this Assignation and discharge the Assignor of all obligations incumbent on the Assignors in respect of the Lease from and after the date of entry."

The landlord wrote to the appellant's solicitors, Harper MacLeod, on the same day as he signed the assignation document (5 May) in the following terms:

"Dear Sirs

Stormont Trading

Balboughty Farm, Scone

I refer to the assignation document between Forest (Bio-Products) Ltd (In Administration), Scott McGregor and Kenneth Pattullo in the one party and Forever Fuels Ltd, signed by me on 5^th May 2011 and herewith consent to this assignation only on the basis that the arrears, in the sum of £22,171.32 per the submitted claim dated 22^nd March 2011 are settled. This is confirmed as being agreed in an email from Douglas Reid to Gordon Kerr dated 4^th May 2011."

The arrears referred to were arrears of rent due by the appellant to the landlord under and in terms of the lease.

Intimation of the assignation document and Landlord's Consent

[9] A letter dated 29 June 2011, said - by the respondent's solicitor - to have been received on 1 July 2011, was in the following terms:

"Dear Pamela

Forest (Bio-Products) Limited (In Administration)

Forever Fuels Limited

Subjects at Balboughty Farm, Scone, Perthshire

With reference to the Asset Sale Agreement I now enclose the Assignation of Lease duly signed by the Landlord Viscount Stormont as per the particulars incorporated in his letter of 5 May 2011 and duly signed by the Administrator of Forest (Bio- Products) Limited as per the Particulars of signing enclosed.

I also enclose a copy of the Discharge by AIB Group (UK) plc in favour of Forest (Bio-Products) Limited dated 21 June 2011.

These items are enclosed to trigger the occurrence of the Consent Date in terms of Schedule Part 1 of the Asset Sale Agreement dated 30 and 31 March 2011.

Please let us know what progress has been made in obtaining the New Lease from the Landlord in order to trigger the Lease Date.

Yours sincerely

Douglas Reid

Associate

Harper Macleod LLP"

The respondent's solicitor wrote back, by letter dated 1 July, pointing out that the assignation and discharge documents were both incomplete and also, importantly, stating that it was not accepted that landlord's consent was unconditional; that was because it was said to be conditional on arrears of rent being paid.

[10] By letter dated 6 July, the appellant's solicitor sent executed copies of the assignation and discharge to the respondent's solicitor and stated that the landlord's consent was contained in the assignation itself and was, contrary to what was asserted on behalf of the respondent, unconditional.

[11] The arrears of rent of £22,171.32 have not been paid.

[12] The appellant avers that the respondent remained in occupation of the premises as at 8 July 2011. The respondent avers that the premises were vacated prior to 30 June 2011.

The decision of the sheriff

[13] The sheriff held that the £100,000 was due. He considered that the requirement for unconditional landlord's consent had been fulfilled notwithstanding the terms of the letter of 5 May. That was because the condition regarding payment of rental arrears was not one which, in his view, affected the respondent. The words "on terms acceptable to the Buyer acting reasonably" in the definition of "Landlord's Consent" in clause 1.1 were indicative of the only circumstances in which a condition of consent would not be regarded as unconditional. It was only where a condition required the Buyer to do something that it was relevant.

[14] The sheriff also concluded that, contrary to what was submitted on behalf of the respondent, the landlord's consent did not require to be intimated to the respondent for their liability to pay £100,000 to be triggered. The word used at (ii) of the definition of "Consent Date" was "issue" not intimation. It did not matter that "Consent Consideration" referred to the money being payable within two business days of "delivery" of "Landlord's Consent"; that just meant that the money was not in fact payable until after delivery of that consent.

The decision of the sheriff principal

[15] The sheriff principal disagreed. The words "unconditional written consent of the Landlord" were unambiguous. Settlement of the rent arrears was not beyond dispute; the consent given by the landlord was, in the circumstances, conditional. He considered that the intention of the parties must be taken to have been that any consent issued required to be free of any condition. He said:

"[38] ....Had it been put to the defenders, at the time, that "unconditional" would be restricted to a condition which only affected the defenders, I find it inconceivable that they would have accepted such a restriction on the language...

[39] Properly construed, the reference to the consent being "unconditional" was not a reference to such conditions as might affect the basis upon which the defenders would take an assignation of the lease. Rather it was a plain reference to the basis upon which the landlord was prepared to give consent. The question of construction is not exclusively concerned with the imposition of a condition upon the defenders. The de quo of the matter is whether the landlord's consent was in any way conditional."

Disagreeing further with the sheriff, the sheriff principal considered that notwithstanding the use of the word "issue" at part (ii) of the definition of "Consent Date" in paragraph 1.1. of Part 1 of the Schedule, the terms of the agreement showed, when considered as a whole, that parties envisaged that the Seller would be under an obligation to intimate Landlord's Consent to the Buyer once it was obtained and that the Consent Date could not arise in the absence of such intimation.

The appeal

[16] The grounds of appeal raise, essentially, three issues:

(i) Did Viscount Stormont's letter of 5^th May amount to "Landlord's Consent" as defined in clause 1.1 of the agreement?

(ii) If so, did it require to be intimated to the respondent prior to the "Longstop Date" before liability to pay the £100,000 could be triggered?

(iii) If (ii) is answered in the affirmative, was "Landlord's Consent" so intimated?

Submissions for the appellant

[17] Counsel for the appellant, Mr Thomson, very frankly accepted that the agreement was poorly drafted; it was, he accepted, characterised by inconsistency and lack of clarity. His approach was that it was not possible to arrive at a construction of the agreement which did not do some violence to the language but that was permissible in the context of a commercial contract, provided the language used was interpreted according to what a reasonable person would have understood the parties to have meant: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900. That might require the court to read in or read out particular words: Investors Compensation Scheme Ltd at 912-3; Mannai Investments v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 774-775; The Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201; Credential Bath Street Ltd v Venture Placement Ltd [2007] CSOH 208 at paras 14 - 28; Jumbo King Ltd v Faithful Properties Ltd (1999) HKCFAR 279 at para 59. Further, the fact that the contract was so badly drafted meant that the court ought not to place too much weight upon apparent rather than substantial inconsistencies. Drafting problems could make it easier to attribute problems to oversight rather than deliberate choice of parties: Aberdeen City Council v Stewart Milne Group 2012 UKSC 240 at 244. Construction was not, as was observed in Jumbo King Ltd, a matter of playing a game with words. The sheriff principal's construction concentrated too much on the literal meaning of the words and it attributed too much weight to the inter-relationship between the clauses.

[18] In relation to the first issue, Mr Thomson submitted that the definition of "Landlord's Consent" was ambiguous and so the court ought to select a construction which best accorded with business common sense. Whilst using the term "unconditional", parties could be seen to have anticipated that there could be a document which contained unconditional consent and also a condition; that was evident from the inclusion of both "unconditional" and "on terms acceptable to the Buyer acting reasonably" in clause 1.1 and also when the definition "Landlord's Consent" and the definition "Assignation" were considered in conjunction with one another. In the present case, the consent given required nothing of the respondent; when a sensible construction was employed, the consent given was unconditional within the meaning of the definition. That way the ambiguity was resolved.

[19] Elaborating on that submission, Mr Thomson said that the purpose of construction was to give meaning to the agreement as a whole. The present agreement showed that the purpose of the parties was that if the seller could procure from the landlord his agreement to an assignation in such terms as would be acceptable to a reasonable buyer, that would amount to unconditional consent to the assignation. It did not matter that if the landlord also sought to impose a condition which affected the seller and was not prejudicial to the buyer. He accepted that if his submissions in relation to the first issue were not well founded then the appeal could not succeed; issues (ii) and (iii) would not then arise.

[20] In relation to the second issue, Mr Thomson submitted that nothing in the agreement required delivery of Landlord's Consent prior to the Longstop Date albeit that it was likely that, to enforce the obligation to pay, the Seller would have to deliver the consent to the buyer. The sheriff's approach to this matter ought to be preferred. In the present case, the relevant Landlord's consent was delivered on 7 July 2011, at which point, as was averred by the appellant, the respondent had not vacated the premises. "Landlord's Consent" was, accordingly, delivered prior to the Longstop Date.

[21] In relation to the third issue, Mr Thomson accepted that the letter of 5 May required to be read together with the assignation. If it did not contain "Landlord's Consent" then there had been no intimation prior to the Longstop Date; he accepted that the assignation did not stand alone.

Submissions for the respondent

[21] For the respondent, Mr Connal submitted that the key to what parties thought when they entered into the agreement was illuminated by clause 4.1 of Part 1 of the Schedule; the appellant was obliged to keep the respondent updated as to the progress of the application for landlord's consent to an assignation of the lease. Taken in the round, in these circumstances where the seller was insolvent, what parties were plainly envisaging was that there would be a period of three months to "sort things out". The three month period applied to a number of matters, not just landlord's consent. Also, it was clear that parties had arranged that written consent to assignation of the lease and the assignation itself would be two separate items.

[22] Regarding the first issue, Mr Connal submitted that unconditional meant what it said. It could have been written differently but it was not. There was nothing arising from a wider consideration of the contract or from the likely intention of the parties or from commercial reality which suggested that there was anything stated in error. Why should it not be that parties provided that consent required to be unconditional? To do so made sense. The appellant's approach required a condition not to be a condition and that was a problem for the buyer who would have no reason to enter into such a contract. "Unconditional" was an unambiguous term and ought to be given its ordinary meaning : Charter Reinsurance Co. Ltd v Fagan 1997 AC 313 I at 343; Multi‑Link Leisure Developments Ltd v North Lanarkshire Council 2010 UKSC 47 at para 11. There was no need to find a meaning consistent with business common sense and reject a different meaning because there was no ambiguity: Rainy Sky v Kookmin Bank .

[23] Regarding the second issue, he submitted that the definition of "Landlord's Consent" itself made it clear that intimation was required. Then, when the definition was read in the context of the agreement as a whole, that was confirmed. He referred, in particular, to the seller's obligation to keep the buyer up to date (clause 4.1 of Part 1 of the Schedule), the use of the word "grant" (clause 5.1 of Part 1 of the Schedule) as distinct from "issue" in clause 1.1 of the lease, the reference to termination of the licence ( clause 5.1 of part 1 of the Schedule), and the buyer's obligation to communicate any amendments to "Landlord's Consent" promptly (clause 5.2.2 of Part 1 of the Schedule). It was, in all the circumstances, ridiculous to suggest that the buyer could have an established liability about which he did not know yet that was the import of the construction urged on the court by the appellant. Looking at the agreement as a whole, there was ample support for the proposition that intimation was a requirement.

[24] Mr Connal accepted that if the respondent did not succeed on the first issue but succeeded on the second issue, there would require to be a proof to establish whether or not the respondent had vacated the premises prior to 30 June and when exactly the letter of 29 June from Harper Macleod to their solicitor, was delivered.

Discussion and decision

[25] The submission that the term "Landlord's Consent" is defined in clause 1.1 of the agreement in terms that are ambiguous is not, we consider, well founded. That being so, resort need not be had to any of the techniques of construction that may be applied where there is ambiguity in a commercial agreement. Rather, we conclude that the meaning of "Landlord's Consent" in clause 1.1 is, notwithstanding the doubts and uncertainties to which the deficiencies in drafting give rise elsewhere in the contract, clear.

[26] The phrase "on terms acceptable to the Buyer acting reasonably" is not indicative of ambiguity because it qualifies not the words "unconditional written consent" - as was initially suggested - but "the Assignation of the Seller's interest". When the definitions of "Landlord's Consent" and "Assignation" are read together, it can be seen that the agreement, unsurprisingly, allows for a series of events in which, before Landlord's Consent to assignation of the lease is given, there is likely to be negotiation about the terms to be included in an assignation document. If the terms of that document are agreed and are such as would be acceptable to the hypothetical reasonable buyer, and the landlord gives unconditional written consent to an assignation in those terms, then the requirements of "Landlord's Consent" are met. If terms acceptable to a reasonable buyer are not agreed but the landlord gives consent to an assignation in such terms its requirements are also met. In this case, it was not suggested that the terms of the assignation document were other than such as would have been agreed to by the hypothetical reasonable buyer. There was no problem with the terms of the assignation itself.

[27] To put matters another way, the two definitions require the following questions to be asked: (i) have the seller, buyer and landlord agreed to an assignation of the lease? (ii) if not, on what terms would the hypothetical reasonable buyer agree to an assignation of the lease? and (iii) has the landlord given unconditional written consent either to the assignation which has been agreed or to an assignation in the terms identified at (ii)?

[28] Turning then to the issue of whether or not unconditional consent was given by the landlord, we reject the submission to the effect that a condition affecting only the seller would not deprive landlord's consent of the character "unconditional" as the term is used in clause 1.1. There is no basis on which it could be so interpreted. The phrase "on terms acceptable to the Buyer acting reasonably" does not, as we have explained, relate to the phrase "unconditional written consent" so it cannot be relied on as support for a restricted interpretation of the word "unconditional". Further, it is clear that so long as the landlord's consent is conditional, the buyer's right to the lease will be incomplete; there will be no consent upon which the buyer can rely in any question with the landlord until the condition is purified. The buyer's position, in that respect, is the same whether the condition requires action on his part or on that of the seller. It is inconceivable that parties could have intended that the buyer's position would be protected if the condition was one which he could purify himself but not if it was a condition the purification of which was outwith his power. There is nothing in the agreement which indicates that such absurdity could have been intended. As the March Hare might have observed, "unconditional" simply means what it says.

[29] Moving then to the terms of the letter of 5 May 2011, it is clear that the landlord's consent was conditional. Consent could be taken to be given once the rent arrears referred to had been paid but not until then. The position is confirmed by the terms of clause 7 of the assignation. Landlord's consent is there said to discharge the appellant of all obligations under the lease but that has to be read in conjunction with the terms of the letter of 5 May. That stage - the stage of consent having been given - will only be reached once the landlord is agreeable to discharging the appellant of all tenant's liabilities and the terms of the letter make it clear that he will not agree to that until the rent arrears have been cleared. Once that has been done, the assignation can take effect but the corollary is that if the rent arrears are not cleared, neither the appellant nor the respondent actually have landlord's consent. The consent contained in the letter of 5 May was written but it was not unconditional.

[30] In these circumstances and for the above reasons, we conclude that "Landlord's Consent" as defined by clause 1.1 and referred to in paragraphs 1.1 and 5.1 of Part 1 to the Schedule of the agreement, had not and - since the rent arrears remain, on the information before us, unpaid - has not been either issued or granted.

[31] The second and third issues are, accordingly, superseded. However, had we required to determine whether or not the buyer's liability to pay the "Consent Consideration" could be triggered without intimation to the buyer of "Landlord's Consent", we would have acceded to the submissions for the respondent. When the agreement is considered as a whole, it can only be concluded that parties intended intimation to occur. Quite apart from anything else, there would have been no need for paragraphs 4.1 or 5.2.2 of Part 1 to the Schedule if they did not envisage such intimation taking place. We accept, however, that there would then have required to be a proof to determine when intimation occurred and, if after 30 June, whether or not the respondent had vacated the premises prior to intimation being achieved.

Disposal

[32] We will, accordingly, refuse the appeal, affirm the interlocutor of the sheriff principal and reserve, meantime, all outstanding questions of expenses.