[2024] EWHC 3625 (TCC)

commercial common sense; but

disregarding subjective evidence of any party’s intentions.

The provisions contained in Option Agreement C are, at first blush, somewhat puzzling.

Clause 8.1 provides that Orchard House is to pay the deposit on the date of the exercise of Option C and Clause 8.4 stipulates that failure to do so will result in the exercise of the option being “null and void”.

However, Clause 17.2 envisages that the parties might reach agreement on the Purchase Price within 20 working days after the date of the exercise of Option C and Clause 17.3 provides that, in the event that they fail to do so, either party may refer the matter for determination by an expert. In either case, when exercising the option, it would not be possible for Orchard House to pay the deposit, because it could not be calculated, the Purchase Price not having been agreed or determined. Moreover, whilst Clause 8.5(b) is not altogether clear in its application, it suggests that there are circumstances in which no deposit is payable on the exercise of Option C.

Applying the principles of contractual interpretation set out above, it is important not to lose sight of the natural and ordinary meaning of Clauses 8 and 17.

Clause 8 attaches importance to the timely payment of the deposit in that it invalidates any attempt to exercise the option if the deposit is not paid on the date on which the option is exercised.

Equally, Clause 17 envisages a timetable for agreement or determination of the Purchase Price which does not allow for the deposit to be paid in accordance with Clause 8.1 and 8.4.

In my judgment, the most reasonable interpretation of these apparently conflicting provisions is that the deposit is payable on the exercise of Option C if the Purchase Price has been agreed in advance of the option being exercised, failing which the sanction in Clause 8.4 applies and that, if no Purchase Price has been agreed, no deposit is payable at that point.

If I were to conclude otherwise, then either Clause 8.4 would be of no effect or it would apply in circumstances in which Orchard House could not possibly comply with its obligation to pay the deposit. In either case, I would not be giving effect to the natural and ordinary meaning of the provisions.

In my view, this interpretation of the contractual provisions makes commercial sense. It reinforces the importance of paying the deposit on exercising the option where it is possible to do so, but it leaves open the prospect of deferring payment of the deposit where the Purchase Price has neither been agreed nor determined. This is in keeping with the overall purpose of the clauses and the contract.

I have no hesitation in concluding that, in circumstances where the Purchase Price has been ascertained prior to the option being exercised, it is a condition precedent that the deposit is paid. In my judgment, the wording of Clause 8 makes it plain that payment of the deposit is an essential step to be taken before the option can be exercised validly. The words “null and void” are clear words to that effect.

In the present case, I have found that no agreement was reached in relation to the Purchase Price and, in any event, the option was exercised on the basis that the expert determination provisions were being invoked. The amount of the deposit was, therefore, not ascertainable and payable by Orchard House when the option was exercised.

In light of my conclusions, I do not need to go on to address the issue of waiver.