This week, our team examine the Court's approach to implying terms into commercial contracts, in the case of Sheffield City Council v Scotfield Group Limited & Anor and we also look at an arbitration decision relating to high-value Covid arrears in the wake of the pandemic legislation. As usual we include insights from around the firm, together with positive news stories.
Sheffield City Council v Scotfield Group Limited & Anor – the importance of commercial coherence in contracts
This case concerns a contract for the sale of a development site for the sum of £2.565 million between Sheffield City Council (SCC) and Scotfield Group Limited (SGL). The contract was assigned by SGL to Camstead Limited (CL), the second Defendant, during the course of the proceedings.
The contract included the following terms which became pivotal to the discussions in the case:
- SCC were to retain control over the development of the land, post-sale;
- the contract was conditional, meaning that it was subject to Satisfactory Planning Permission being granted; and
- there was an obligation on SGL to provide SCC with evidence of a "Building Contract" and if on the long stop date, that evidence had not been provided, the long stop date was to be extended until such evidence was provided.
Key issue – implied terms:
The key issue in this case was broadly agreed between the parties to be:
"Should a term be implied into the contract to the effect that the First Defendant (SGL) was obliged to enter into and/or to provide evidence of the Building Contract within a reasonable time of the contract having become unconditional?"
Other issues before the Court related to SCC's ability to terminate the contract, the validity of a notice to terminate served by SCC in 2021 and the validity of a notice to rectify a breach by SGL. Further details can be found at paragraph 26 of the judgment.
Position of the parties:
In relation to the key issue, SCC argued that it was "necessary to imply a term into the contract to give it business efficacy … because once the contract had become unconditional on the grant of Satisfactory Planning Permission, there was an obligation imposed on both parties to complete the contract pursuant to clause 24. Although there was that obligation to complete, a difficulty arose because pursuant to clause 24.5, the time for completion was suspended unless and until the First Defendant had provided evidence of the Building Contract."
SGL on the other hand, submitted that "there was no need to imply a term and indeed the implication of any term would be unfair. … any term would be inconsistent with the express terms of the contract … Clause 14.3 did not require the First Defendant to enter into a Building Contract. Indeed, it could not do so because one could never specify a start date. Clause 24 supplemented and complemented clause 14 in providing that completion shall not take place unless and until the First Defendant provided evidence of the Building Contract. As such, failure to comply with those provisions could never be classified as a substantial breach." SGL further asserted that "an amendment is not required by the implication of a term because the contract works without any term being implied and thus has commercial coherence".
Judgment:
The Judge found it was both possible and necessary to imply a term to give the contact practical and commercial coherence. Therefore, it required a term to be implied into the contract that the First Defendant was obliged, within a reasonable time after the contract became unconditional, to provide evidence of the Building Contract.
Upon considering the other issues in the case, the Judge found that the contract had in fact been terminated and brought to an end by SCC and that SCC were entitled to forfeit and retain the deposit paid by SGL under condition 10.2 of the Standard Commercial Property Conditions as incorporated into the contract.
This case serves as a reminder that if a party can establish a "lacuna" in the terms of a contract, the Court will step in to imply a term that provides business efficacy where necessary.
Commercial Rent (Coronavirus) Act 2022: gone but not forgotten
A number of cases featuring high-profile commercial tenants being ordered to pay arrears that had accrued during the pandemic seemed to deter commercial tenants from challenging payment of their arrears through the Courts.
However, the Commercial Rent (Coronavirus) Act 2022 (the Act) provided an alternative - a bespoke arbitration process in which "protected rent debts" (i.e. arrears which had fallen due during the pandemic and in the circumstances set out in the Act) could, for a limited period of time, be referred to an independent arbitrator for resolution. Some landlords and tenants did sign up to the scheme. We reported on several of the early decisions and others, in respect of cases which were referred to arbitration before the scheme closed to new applicants on 24 September 2022, continue to trickle through.
London Dockside Limited (In Administration) v Mayor and Burgesses of the London Borough of Newham [2023] involved a protected rent debt of somewhere between £3,320,300.65 (on the landlord's calculations) and £2,880,696.63 (on the tenant's calculations). The London hotel tenant also had post-July 2021 non-protected arrears of between £1m and £2m, which the arbitrator had no jurisdiction to consider, but which had a bearing on the tenant's overall financial status.
When the statutory moratorium on taking enforcement action against tenants came to an end on 31 March 2021, allowing the landlord to then sue for the non-protected arrears – which the tenant knew it would not be able to pay – the tenant went into administration, though continued to trade. This was relevant to the tenant's solvency; if the business was not 'viable' then the provisions of the Act would not apply. It also complicated matters as an administrator was dealing with the arbitration rather than the tenant itself. The local authority landlord also advanced arguments about its fiduciary duty to taxpayers as to the proper use of public money including the recovery of debts owed.
The Arbitrator made the following decisions:
- The protected period for the business (which determined the amount of the protected arrears), being a hotel, came to an end on 18 July 2021
- The protected arrears amounted to £3,320,300.65, including interest
- The non-protected arrears amounted to £1,628,235.79, including interest
- The business was viable, following a detailed analysis of the financial information provided and notwithstanding the administration, with the Arbitrator stating, "the tenant’s business has, or will in the foreseeable future have, the means and ability to meet its obligations and to continue trading".
- The tenant was required to pay £513,181 plus VAT (payable in 6 quarterly instalments from September 2023) towards the protected arrears, with the balance of those arrears written off.
This arbitration was a win for the tenant, given the relatively low amount it was ultimately ordered to pay when compared to the total protected arrears, which were substantial. However, the decision, running to 203 pages, involved a deep dive into the tenant's financial status. Any business which chose not to arbitrate due to the requirement to provide detailed financial information is likely to be glad of their decision.
Avon Ground Rents Limited and Canary Gateway (Block A) RTM Company Ltd
This Court of Appeal case considered a right to manage claim where a number of the participants had shared ownership leases. It has provided clarity on the long-standing disputed issue of whether a shared ownership lease is a 'long lease' for the purpose of Section 76 of the Commonhold and Leasehold Reform Act 2002. Please see the full article here.
Insights from around the firm
- The importance of determining the long-term effect when it comes to disability
- Grounds for refunds of SDLT
- ''Awaabs Law'' - changes to the Social Housing Regulation Bill
Positive news
Wonderwoods Vertical Forest, a tower block being built in Utrecht, Netherlands, is to be covered in vegetation equating to 2.5 acres of woodland featuring 10,000 shrubs and 360 trees. Designed by Stefano Boeri it is expected to be completed by mid-2024 and absorb five tonnes of CO2 each year and draw 30 animal species to the city. It is part of a larger project with a second tower also being built.
A multi-cancer blood test has showed promise in an NHS trial. The SYMPLIFY study tested participants' DNA for more than 50 types of cancer and correctly revealed two out of every three cancers in more than 5,000 people with suspected symptoms. The test also correctly identified the original site in 85% of those cases.
An 11-year-old Asian elephant named Chhouk, cared for by the Wildlife Alliance in Cambodia, had to have his foot amputated after it was caught in a poacher's snare, but thanks to funding from but the Paradise Wildlife Park in the UK he has a prosthetic foot made out of recycled car tires and tow truck strapping allowing him to walk, run and swim again.