Summary

A defendant failed to establish that an estoppel by convention had arisen to alter the date when an option period commenced, as the other contracting party had not regulated its subsequent conduct on the basis of the alleged convention.

Facts

The claimant commission sought declaratory relief in respect of the terms of an option agreement. The commission had granted the defendant developer (T) an option to develop land and to take a lease of the land after development. The agreement provided that T could only exercise the option when a number of pre-conditions had been met, including an obligation on the commission to complete specified on-site works. The agreement stated that the option was open for three years from the date of service of a notice by the commission confirming that it had complied with its contractual obligations to prepare the site, or from the date on which the commission ought to have served its notice. The commission's solicitors informed T on October 5, 2004, that it had completed its contractual obligations with regard to the on-site works, but the commission failed to serve the contractual notice upon T. T sought confirmation that the option period had not yet commenced. Despite the express terms of the agreement, in November 2004 the commission's solicitors stated that the commission's notice had not been served and consequently the option period had not yet commenced. The commission submitted that the option period had commenced when T received its letter of October 5, 2004, as the terms of the agreement were clear. T submitted that the commission had a duty to inform it unequivocally that all of the conditions for the commencement of the option period had been satisfied. Alternatively, T argued that as a result of an exchange of letters between the parties' solicitors, the commission had agreed that the option period had not yet commenced and therefore an estoppel by convention had arisen and had remained in place until March 28, 2007, when the commission eventually served its notice.

Held

(1) The commission did not have a contractual obligation to inform T that all of the conditions for the commencement of the option period had been satisfied. Nor was such an obligation implied into the definition of option period as a pre-condition to the triggering of the commencement date. Under the terms of the agreement, the option period could begin even if the commission was in breach of its obligation to serve its notice upon T. That was because the option period was expressed to begin on the earlier of either the date of service of the commission's notice or the date on which that notice ought to have been served. However, it was common ground between the parties that T had to have knowledge of the circumstances that triggered the start of the option period where no notice had been served by the commission. It was plain on the facts that the commission had kept T informed of its progress in complying with its contractual obligations, and had informed T of the commencement of construction work on the site and the access road. The commission's solicitors had informed T by letter of October 5, 2004, that the conditions which had to be satisfied in order to trigger the commencement of the option period had been satisfied. The result was that the option period thereupon commenced. The fact that, in breach of its obligation, the commission did not then or subsequently until March 28, 2007, serve its notice did not matter. (2) Before concluding whether the alleged estoppel was established, it was necessary to consider whether and to what extent both parties regulated their subsequent conduct on the basis of their shared assumption as to the way in which the commencement of the option period would be triggered, Norwegian American Cruises A/S v Paul Mundy Ltd (The Vistafjord) (1988) 2 Lloyd's Rep 343 considered. There was not the slightest basis for thinking that the commission regulated its subsequent dealings with T on the basis of the supposed convention. Nor was there any other evidence to suggest that the commission acted upon the assumption said to have been established by the November exchange of correspondence. It was certainly not enough that T did so. T's solicitors later indicated that so far as they were concerned the option period had already commenced. There was therefore no reason for the commission to think that T was regulating its dealings with the commission on the basis of any shared assumption as to how the option period would be triggered other than as the agreement provided. T's estoppel defence therefore failed. The option period was the period of three years from October 5, 2004, or, more strictly, from the time of receipt by T's solicitors of the commission's letter of that date.

Application granted