The Court will not allow a stalemate to arise.
The Court of Appeal has considered whether a retention agreed on a sale of a property in 2001 can now be released.
In 2001, Mr & Mrs Cordara bought a house in Hampstead for about £2.2million. However, a retention of £35,000 of the purchase price was agreed as the Cordaras had various issues in relation to the house which needed to be resolved. The £35,000 was therefore retained by their solicitors as stakeholder, pending satisfaction of the agreed outstanding matters by the vendor and its builders.
Unfortunately, the terms agreed by the parties at the time did not cater for the fact that one or more of the conditions required to be satisfied to secure the release of the retention might never be satisfied. It was the contention of the Cordaras that, as not all conditions had been satisfied, Relicpride was not entitled to release of the retention and they succeeded in the County Court in arguing that there was no obligation upon their solicitors to release the monies. Relicpride, as the builder now entitled to receive these monies, therefore appealed.
The relevant conditions that needed to be satisfied to secure the release of the retention related to resolving various planning issues and carrying out some remedial works and resolving the local authority’s objection to some air conditioning units. None of these conditions were ever actually fully satisfied as they either became redundant or, in the case of dealing with snagging items and the air conditioning units, the parties disagreed as to the extent and quality of the works required.
The case centred upon how the Court should construe the wording that the parties had used in 2001. The Agreements entered into simply provided for the £35,000 to be released upon the satisfaction of the last of the conditions and made no provision whatsoever for the possibility that one or more of the conditions might never be satisfied. In the County Court, the Judge construed the Agreements literally and held that, as not all of the pre-conditions have been met, there was no basis for release of the retention.
However, the Court of Appeal looked at the matter far more commercially. As is always the case when construing a commercial contract, it sought to ascertain what the common intention of the parties would have been at the time that the Agreements were entered into. Such interpretation is by reference to what a reasonable person, having knowledge of the background, would have understood such intention to have been based upon the language used in the Agreements.
The Court held it was clear that the parties clearly intended for the £35,000 to be paid once all the conditions were met but they had not made any provision as to what would happen if any condition remained unsatisfied. The Court took account of the fact that the retention was to provide the Cordaras with security in the event that the outstanding matters were not dealt with. Importantly, the sum of £35,000 was not described as a reduction in the purchase price and the Court held the Cordaras were not entitled to the full sum just because a condition remained unsatisfied.
The Court considered it would make no sense for the parties to have agreed that the retention should simply be held for ever by the Cordaras’ solicitors as stakeholders and it decided that the parties had intended that the retention would simply be used to compensate the Cordaras for any damage or loss they suffered due to any failure to satisfy nay condition and any balance should then be released.
The Court therefore allowed the Appeal and held that Relicpride was entitled to the retention, subject to such sum being set off in respect of any loss or damage actually suffered by the Cordaras as a result of the failure to meet all the agreed conditions. The case was therefore remitted to the County Court for an assessment of the loss and damage actually suffered by Cordaras and a determination of the balance then payable to Relicpride.