Commercial Thinking
In Extra MSA Services Cobham Ltd v Accor UK Economy Hotels Ltd [2011] EWHC 775 (CL) the claimant (a developer) made an application for a declaration of the High Court that the right to terminate an agreement for lease to construct a hotel (the defendant/tenant being a hotel chain) was not conditional on the proper performance by the claimant of its obligations under the agreement.
The key provisions of the agreement were that: (i) the developer had to obtain "Requisite Consents" for the development to proceed; (ii) the developer had to use its reasonable endeavours to obtain the Requisite Consents by a specified longstop date; and (iii) a mutual right to terminate the agreement if the Requisite Consents were not obtained by the specified longstop date.
The developer contended that since the right to terminate under (iii) was not expressed to be conditional on the proper performance of (ii), such conditionality should not be implied and it was therefore entitled to terminate even if it had not properly performed its obligation under (ii). The tenant contended that this would go against the general principle of construction (that stated in Cheall v A.P.E.X. [1983] AC 180] that a contract should not be construed so as to permit a party to take advantage of his own wrongdoing unless the contract clearly allows this.
The High Court agreed with the tenant and refused the developer's application. As a result, if it were demonstrated that the developer had failed to use all reasonable endeavours, it could not terminate. This fact will be determined at a later trial as the developer's application specifically determined only the point of law above.
It is common for contracts to allow for parties to get out of them if, through no fault of the parties, it is not possible to satisfy specified pre-conditions. However, this judgement places a rational limit on that common position – a party cannot benefit from its own breach of contract – unless the contract specifically provides otherwise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
