You may be forgiven for thinking that when two commercial companies agree in a contract that adjudication is a condition precedent before litigation can be commenced, you have a 'hard stop' on litigation. However, as demonstrated in the recent case of Lancashire Schools SPC Phase 2 Limited v (i) Lendlease Construction (Europe) Limited and Others [2024] EWHC 37 (TCC) the Court isn't always willing to apply the brakes. Indeed, the brakes might prove mechanically unsound.
A number of recent cases have illustrated how agreements may fall foul of Section 2 but also the efforts the Courts will often go to to uphold agreements, notwithstanding that they may be short on detail, relatively informal or have been entered into without the assistance of lawyers.
In Thandi v Saggu, Mrs Thandi agreed to sell her property to Mr Saggu for £270,000. The agreement was recorded in 3 letters which specified the parties, the property and the purchase price and certain advance payments made by Mr Saggu. These documents, though not prepared by solicitors, used reasonably formal language and provided for the letters to be signed and witnessed.
The Court had no difficulty in finding that the agreement was in writing and was contained in one document (since each letter replaced the previous one and was on the same terms) signed by the parties.
However it found that the agreement did not satisfy Section 2 because there were other terms, such as the amount of the deposit, payment of legal costs and a long stop date, which were clearly evidenced in the correspondence but not recorded in the written agreement. As the Court confirmed, "it only takes one term not to be in the written document to render the contract invalid".
The Court also rejected Mrs Thandi's argument that, because the letters required the parties to "find independent solicitors to draw up the agreement for sale", they were impliedly subject to contract.
The Court found that the terms of the letters were sufficient to indicate that the parties did intend to be immediately legally bound by the letters, until such time as they were superseded by a more formal agreement. Therefore, but for the Section 2 point, the agreement would have been enforceable. This once again highlights the importance of marking documents containing terms which are not intended to be legally binding as "subject to contract."
In Khan v Malik, Mr Khan was the Landlord of restaurant premises. When the business was struggling, the Tenant approached Mr Malik and his son for their help. At a meeting between the Landlord, the Tenant and the Maliks in 2016 a verbal agreement was reached, under which:
- The Maliks would buy out the shareholders of the Tenant company and refurbish the restaurant;
- The Landlord would grant a new lease to a new company to be incorporated and controlled by Mr Malik's wife; and
- If the lease was not granted, the Landlord would pay the Maliks the refurbishment costs.
The Maliks bought the shares and refurbished the restaurant but the Landlord failed to grant the lease to Mr Malik's wife or any company controlled by her. The Landlord sought to argue that the 2016 agreement was void for uncertainty because it did not identify the prospective tenant, the commencement date or the other terms of the lease.
The Court decided that the agreement by the Landlord to grant the lease to the new entity was not an agreement for lease, because the prospective tenant company did not exist at the date of the agreement. It was therefore more akin to an agreement to offer a lease to the new tenant entity. Accordingly Section 2 did not apply and the agreement did not fail for not being in writing.
As to the uncertainty point, the Court acknowledged its general reluctance to disallow contracts for uncertainty and was willing to insert the necessary implied terms by reference to the previous lease and the likely intentions of the parties. The 2016 agreement was therefore upheld and the Maliks were entitled to the costs of the refurbishment and of buying the shares in the Tenant company.
This case serves as a useful reminder that Section 2 applies equally to agreements for lease as to agreements for sale and that, if the requirements of Section 2 are not met, the agreement for lease will fail. It was also interesting (and a little surprising) in this case that the Court was able to find that another type of agreement did exist in order to find in the Maliks' favour.
