Summary

The court examined an option agreement relating to the purchase of land for development and was required to decide whether a clause providing for an extension to the option period had been validly executed. The finding involved application of the test in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749 to determine whether the notional reasonable recipient of the intending purchaser's notice to extend would have understood that the right to extend was being exercised.

Facts

The claimant (R) sought a declaration that an option agreement between him and the defendant developer (W) had ceased and that charges registered against his land to protect the option were to be vacated. The written agreement had provided W with an option to purchase land owned by R within 10 years of the date of the agreement. It had also provided that "at any time during the last year of the option period...the intending purchaser may by notice in writing served upon the intending vendor require such period to be extended by 5 years and upon service of such notice and payment...of GBP 20,000, this agreement shall be construed as if the option period was 15 years". A few days before the 10-year option period was due to expire, W had written to R advising that it would shortly be in funds to invoke the five-year extension and requesting bank details. R did not reply. On what was thought to be the final day of the 10-year period, W obtained account details of R's solicitors and transferred the money, receipt of which was acknowledged. It materialised that the option period had in fact expired one day earlier than the date of transfer of the money and R sought to return the payment in reliance on the fact that the option had not been validly renewed. R maintained that (1) W's notice to extend the option did not contain the information prescribed by the agreement, but was simply a statement of a future intention to exercise the right; (2) alternatively, the notice did not satisfy the test in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (1997) AC 749 that, for a notice to be valid, the reasonable recipient should be in "no doubt that the right reserved is being exercised", because the reasonable recipient would interpret W's letter as a notification that W was likely to exercise its right of extension, rather than a certainty that it was being exercised; (3) even if the letter met the Mannai test, the payment requirement had not been complied with because it had been effected a day late.

Held

(1) On the facts, the clause which provided for an extension of the option period did not lay down any condition that the notice had to contain specific information. It did lay down two indispensable conditions: that the notice had to be in writing and that it had to be served on R during the last year of the option period. However, the provision that W should, by the notice, require the option period to be extended by five years simply described what the notice had to convey to the recipient, without prescribing any particular form of words or detail that had to be included. It was simply a statement of the meaning which the notice had to communicate. Such a statement fell within the ambit of the Mannai test and the question was simply how it would have been understood by the reasonable recipient. (2) Although the focus of W's letter was on payment arrangements, there was no doubt that a reasonable recipient would have understood from it that W had decided to exercise its right to extend the option period. It was only in that context that the question of the payment had arisen, and in the absence of any content concerning the mechanics of payment in the agreement itself, the letter had been unequivocal in asking for practical information to implement payment. It therefore satisfied the Mannai test, Mannai and Lancecrest Ltd v Asiwaju (2005) EWCA Civ 117, (2005) L & TR 22 applied. The whole point of an objective analysis of how a notional reasonable recipient would have understood the letter meant that the subjective intentions and understandings of W were irrelevant. The immediate relationship between the parties, as constituted by the terms of the agreement, was the only relevant factor in determining the issue, but the wider contextual scene, although not necessary to the decision-making process, supported the judge's conclusion. (3) On the facts, the clause providing for extension of the option duration only obliged W to make a further payment of GBP 20,000, and did not specify the timeliness of payment. There was no basis on which to imply a term that payment had to be made within the initial option period, since time had not been made of the essence, the payment terms were sufficiently certain and payment had been made within a reasonable time, Millichamp v Jones (1982) 1 WLR 1422 applied.

Judgment for defendant