Construction of contract to assign a lease: was the right to terminate the agreement validly exercised?

Lancashire Insurance Co Ltd v MS Frontier Reinsurance Ltd ([2012] UKPC 42, PC) was an appeal to the Privy Council from the Court of Appeal of Bermuda.  LI had entered into a contract to assign a lease to MS. The agreement provided that LI would serve notice on MS that it was ready to move out. Completion was to take place within 15 working days after MS’s receipt of the notice. The agreement provided that either party could serve a notice to terminate the agreement if completion had not taken place by 31 December 2009. On 18 December 2009, LI served notice that it was ready to move out. This meant that completion would take place by 13 January 2010 at the latest. MS served notice to terminate the agreement on 13 January 2010.

On the face of it, MS was simply exercising the right to terminate conferred on it by the agreement. LI contended that there was an implied term to the effect that no notice to terminate could be served after midnight on 12 January. The Privy Council accepted LI’s contention that a term had to be implied that would reconcile the timing of the right to terminate with other aspects of the timetable for completion contained in the agreement. On the other hand, this did not lead to the implied term contended for by LI. The notice to terminate could be served at any time on 13 January.

There had been discussions between the parties concerning completion arrangements after LI had served notice of its readiness to move. These did not give rise to a waiver by MS of its right to terminate. Nothing in what MS said or did amounted to a clear and unequivocal communication to LI that it would not exercise its right to terminate.

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