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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd & Anor [2010] EWHC 243 (Ch) (19 February 2010) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/243.html Cite as: [2010] EWHC 243 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/02/2010

Sir Edward Evans-Lombe:

1. In this case the Claimant, Crest Nicholson (Londinium) Limited ("Crest") claims against the First Defendant, Akaria Investments Limited ("Akaria"), declarations as to the effect of clause 19.8 of an agreement dated 27^th February 2004 ("the Development Agreement"), whereby Crest agreed to develop leasehold property ("the Riverside Development"), known as Riverside, Hemel Hempstead in Hertfordshire for Akaria. Crest is one of a group of companies ("the Crest Group") which specialises in property development. Akaria is a company which acts as a vehicle for its shareholders to invest in property.
2. The Second Defendant has, at all material times, been an employee of Aberdeen Property Investors Limited ("Aberdeen") against whom Crest claims, in the alternative, damages for breach of warranty of authority.
3. By paragraph 6 of the order of Master Bragge of 30 January 2009, he ordered the following issues to be tried:-

"(1) The issue set out in paragraphs 8, 9 and 10 of the amended particulars of claim as to whether or not, for the purposes of clause 19.8 of the Agreement, the open market rent for each un-let Unit as at 13^th March 2008 was agreed to be the figure shown in the schedule attached to the letter dated 21^st June 2007 in the column headed "Target Rent";

(2) The issue set out in paragraphs 15 and 16 of the amended particulars of claim as to whether or not the Second Defendant is liable to the Claimant for breach of her warranty of authority; and

(3) The issue set out in paragraphs 12 to 14 of the amended particulars of claim as to the construction of clause 19.8.1 of the Agreement."

4. This judgment is directed to concluding those issues.

The background facts

5. Akaria is an Abu Dhabi-based investment company which acts in this country through asset managers. The relevant asset manager in respect of the Riverside Development was Aberdeen. Aberdeen is referred to in the Development Agreement as "the Owner's Asset Managers". The Second Defendant ("Ms Smith") is a qualified surveyor of some years experience and, at all material times, an employee of Aberdeen.
6. Akaria employed Aberdeen to manage its investment in the Riverside Development pursuant to an agreement of 24^th July 2002. In the result, Crest never had any direct dealings with Akaria but dealt exclusively with Aberdeen in relation to the Development Agreement.
7. The Development Agreement is dated 27^th February 2004 and was made between Akaria of the one part and Crest (then known as Crest Nicholson (London) Limited) and Crest's parent company, Crest Nicholson Operations Limited. The Riverside Development consisted of 19,500 square metres of retail space, a budget hotel and a public car park. Building work on the site had started in 2003 as a joint venture between Crest and Dacorum Borough Council. Subsequently Akaria became the funder of the development, taking a head lease from Dacorum and entering into the Development Agreement with Crest. Under the Agreement, Crest was responsible for the building works and, when those were complete, for letting the various retail units to tenants. Crest's involvement with the development was to cease two years after the date of practical completion when it would become entitled to receive various different "profit payments" from Akaria. Practical completion of the building works was achieved on 13^th March 2006 so that Crest became entitled to receive the profit payments, to be calculated as provided for in the Development Agreement, on 13^th March 2008.
8. Pursuant to the Development Agreement, it was the obligation of Aberdeen to keep a "Development Account" to which development costs and other payments were debited and credited. The Development Account formed the basis of the calculation of "Total Expenditure", which was a relevant component in the calculation of some of the profit payments that became due to Crest on 13^th March 2008 ("Buy-out").
9. Clause 18 of the Development Agreement contains detailed provisions dealing with the letting of the development during the two-year period following practical completion. It was Crest's responsibility to seek occupational tenants for units of the Riverside Development; Akaria retained substantial control over the identities of tenants and the terms of lettings. Relevant to this judgment are the provisions of clause 18.1 which provides:-

"Where reference is made to the Owner [Akaria] in this clause 18 it shall be deemed to include reference to the Owner's Asset Managers [Aberdeen] acting on behalf of the Owner."

10. The issues which I have to decide concern the provisions of clause 19 of the Development Agreement which governs the calculation of the profit payments payable by Akaria to Crest at the conclusion of the two-year letting period. The provisions of clause 18.1 set out above are to be contrasted with those of clause 19.1 which provides as follows:-

"For the purpose of this clause 19 reference to the Owner shall be deemed to mean reference to the Owner's Asset Managers who shall act on the Owner's behalf."

11. It follows from a comparison of these two sub-clauses that when Crest were operating the profit payment provisions of the Development Agreement under clause 19, by contrast with their duties under clause 18 when concerned with obtaining tenants for the Riverside Development, they were entitled to deal exclusively with Aberdeen and had no obligation to refer any question to Akaria.
12. Clause 19 provides for the making of profit payments to Crest as follows:-

(1) At clauses 19.5 and 19.6 an Initial Profit Payment payable once 92% of the capitalised value of the rents under completed leases (capitalised in accordance with a formula) up to the "Target Rents", exceeded the amount of the Total Expenditure (the sum of all money properly paid by Akaria as Development Costs), being the cost to Crest of incentives given to tenants, usually initial rent-free periods, and certain retentions.

(2) Under clause 19.7, subsequent Profit Payments payable on lettings taking place after the date for computation of the Initial Profit Payment (see (1) above).

(3) Under clause 19.8, a profit payment in respect of units still unlet at the expiry of the two-year letting period.

(4) Under clause 19.10, a profit payment as overage when Crest obtained a tenant at a rent exceeding the Target Rent in respect of the relevant accommodation.

(5) Under clause 19.11, a profit payment based on income from the car park received.

(6) Under clause 19.12, a profit payment based on net income received described as "Mall Income" being from the various different sources such as payments in respect of advertising hoardings.

13. The calculation of what was payable under each of these six headings was to be based on formulae set out in the various sub-clauses.
14. In the definition provisions of clause 1, the meaning of "Target Rent" is defined as:-

"…the rent attributed to each Unit as listed in the relevant column at Schedule 4 (which exclude Value Added Tax), save in the case of any Units both (i) which at the Final Practical Completion Date are not Pre-Let Units and are not subject to Approved Agreements for Lease or New Leases and also (ii) where the extent of any such Units varies from that shown in the Construction Documents at the date of this agreement in which case the Target Rents for such Units shall be adjusted (upwards or downwards) pro rata in such manner as shall be fair and reasonable."

Schedule 4 does not contain a column headed "Target Rents" but it seems clear that the relevant column is one headed by the word "Say" where rounded figures are given against each of the units to be let preceded by another column headed "ERV" shorthand for "estimated rental value". Thus, the column headed "Say" lists what the parties to the Development Agreement agreed were the achievable rents for each unit. The columns to the right of that column summarise what the parties agreed would be the likely incentives that would have to be offered to tenants in respect of each unit in order to achieve a letting. They were agreed at the time the agreement was made in 2004. It is not in issue that after the Development Agreement was made rental levels rose for some years.

15. The issues which I have to decide concern the construction and application of the provisions of clause 19.8.1 of the Development Agreement which provide as follows:-

"19.8.1. Where on the date which is two years after the Final Practical Completion Date there are any Units where no Lease has been completed and where there had been no payment of a Profit Payment calculated by reference to a Letting of such Unit, the Owner will pay the Developer a Profit Payment calculated as follows:

s = a x 92 x b

100

where s is the sum so payable

a is the aggregate of the open market rent for each such Unit as at such date such open market rent being agreed between the Owner and the Developer prior to such date or in default being determined by the Rental Expert which is calculated mutatis mutandis in accordance with the definition contained in paragraph 1 of the Fourth Schedule to the Lease in the Agreed Form and which will be assumed to be Let subject to Tenant's Incentives equivalent to such open market rent for no more than an 18 month period from such date.

b is 12.5."

16. It is agreed that the paragraph number appearing in the penultimate sub-paragraph should read paragraph "2".
17. As already described, there was Practical Completion of the building works on the property on 13^th March 2006.

Events post Practical Completion

18. Helen Smith started work for Aberdeen on 12^th February 2007. In her evidence she describes her job as titled "Retail Asset Manager" involving "advising on the management of property assets including dealing with issues such as lettings, rent reviews, assignments and lease renewals." Helen Smith qualified as an associate of the Royal Institute of Chartered Surveyors in 1993. She had a number of employments before joining Aberdeen in 2007. In her evidence she described how, on joining Aberdeen:-

"I took over responsibility for Riverside Shopping Centre in Hemel Hempstead from Simon Andrews, who was managing a large number of properties on his own and was very overworked. I joined a team of two; myself and Simon Andrews. I was to report to Simon Andrews in the first instance. My job description sets out my duties. They included, for example, liaising with the fund management team on portfolio strategy and asset management issues. I was to actively manage the retail assets within API's [Aberdeen's] direct mandates and collective investment vehicles."

The Riverside Development came to occupy, on her estimate, one quarter of her working time.

19. Helen Smith reported to a Mr Tim Sankey who became a director of Aberdeen in March 2007 with sole responsibility for the Akaria mandate in succession to a Mr Christopher Carter-Keall. His job title was "Fund Manager".
20. Mr Sankey's opposite number at Crest was a Mr Ian White. He was, at all material times until July 2008, a director of Crest. In practice, Crest's business was conducted by another company in the Crest Group, Crest Nicholson Developments Limited, which later changed its name to Crest Nicholson Regeneration Limited. I will refer to this company as "Regeneration". Regeneration employed a number of individuals who were concerned with the management of the Riverside Development. These included a Mr Duncan Tindale. In his evidence Mr White described him as becoming "involved in detail with the Riverside Development in early 2006 and he remained the principal person dealing with the development on a day-to-day basis until he left Crest in October 2007". Mr Tindale reported to Mr White. Part of those reporting duties was the making of written monthly reports to Mr White to be submitted before a routine monthly meeting between them at which the progress of each project in hand was discussed. A number of these project reports, which followed a standard format, were produced on disclosure.
21. At paragraph 7 of his first witness statement Mr Sankey says this of Helen Smith:-

"7. Helen Smith is a Retail Asset Manager employed by Aberdeen Property Investors Limited. She is required to report to me on issues which involve capital expenditure and on any other issue which would come within the ambit of the matters for which the Asset Manager requires Akaria's approval. Agreement on the open market value of an unlet unit leading, as it would, to the payment of a capital sum by Akaria to the Claimant, is such an issue."

22. At paragraph 7 of his second witness statement Mr Sankey, having described how from time to time he would visit Abu Dhabi to report to his clients, described his system for gathering information about the Riverside Development for routine reporting to the client as follows:-

"7. There is also a monthly reporting procedure which was more asset management focussed. This monthly reporting would take place by way of a conference call attended by the Fund Manager. There was an asset management schedule setting out all the investments held by Akaria, not just Riverside, with basic information listed tenant by tenant and updated on a monthly basis. This was sent to Akaria in advance of the conference call. There was a separate worksheet and narrative for Riverside. This telephone conference was the main reporting procedure. About a week before each conference call, I would have a meeting with the Asset Managers. This was their opportunity to report to me on what was happening. If any matters needed attention, they would be dealt with in the monthly meeting."

23. Throughout the relevant period – June and July 2007 – these monthly reports show the writer's assessment of the relevant rental market as being stable. On 19^th April 2007 there took place a meeting between Mr White and Mr Tindale for Crest, and Mr Carter-Keall, Mr Sankey, Mr Andrews and Ms Smith for Aberdeen. The meeting was attended by Mr Carter-Keall and Mr Andrews because they were in the process of handing over to Mr Sankey and Ms Smith respectively. Mr Sankey's evidence was that he regarded the meeting as one in which he could introduce himself to those concerned with the Riverside Development. It did, however, take place on the initiative of Crest in order to try and persuade Aberdeen, and through Aberdeen Akaria, to advance the process of profit payment to Crest from 13^th March 2008. For the purpose of that meeting Mr Tindale had prepared what became known as the "Red Book" which was a worked up calculation of what the ultimate profit payment would be, with associated explanatory schedules setting out how the figures were arrived at. Aberdeen were not persuaded that their client's interests would be served by advancing this date.
24. Nonetheless, the forthcoming profit payments remained under active consideration by the parties. In May 2007 Crest was approached by a potential tenant, J D Wetherspoons, offering to take one of the unlet units on a long lease at a premium but at a nominal rent. On 30^th May 2007 Ms Smith sent an e-mail to Mr Tindale saying:-

"I have spoken to Tim in some detail regarding this opportunity and in principle we are interested in pursuing JD Wetherspoon. If we do secure them this would trigger the first profit payment. I presume we could do this with an assumed Target Rent of £75,000 being reached?... ."

25. An important meeting took place on 8^th June 2007 between Mr Tindale and Ms Smith. There are no minutes of the meeting but Mr Tindale made some incomplete jottings in his notebook which are in evidence. Mr Tindale's account of the meeting is set out between paragraphs 24 and 26 of his first witness statement as follows:-

"24. I had a meeting with Helen Smith on 8 June 2007. As far as I can recall, the meeting took place at Aberdeen's offices. Helen Smith's diary notes the meeting as being for the purpose of dealing with "agent's package", which I assume means the incentive package which the agents were to be instructed to offer to prospective tenants. My recollection is that the meeting in fact dealt with a wide range of issues. I have been able to locate my notebook for the relevant period, and I attach as Exhibit "DWT1" what I believe are the relevant pages from my relevant notebook recording notes I made at about the time the meeting took place. The notes are not dated, but from the place they appear in my notebook I believe that they were made at the meeting with Helen Smith on that occasion.

25. My notes were not an attempt to record minutes of the meeting. They are merely my "jottings" and cover some of the matters we discussed. They are not a complete record of the meeting. I believe my subsequent letter is a fair reflection of the more important matters we discussed. The subjects we discussed at the meeting included:

(i) Issues relating to the development account and capital costs. I think we spoke, for example, about the storeroom under the spiral ramp which was an additional cost, and we discussed how that would be dealt with for the purposes of profit payment. There were similar points relating to car-parking machinery.

(ii) We talked about the current leasing and, in particular, the Nationwide and JD Wetherspoon proposals.

(iii) We talked about tenants' incentives, and I believe it was at that meeting we agreed that incentives of up to two years rent-free could be offered.

(iv) We had a general discussion about overage and profit payments, and the need to resolve as much as possible relating to the payment due to Crest on 13 March 2008 ahead of that date.

26. The context in which the meeting took place so far as Crest was concerned was that we could see the market was slowing down. It was very much in Crest's interests to ensure that further lettings were obtained, for which purpose additional incentives were required, but we did not want the additional incentives to impinge on the rental value which was applicable for the profit payments. Helen Smith was still confident about the market in June 2007 and she appeared to be more confident than me. It was certainly more difficult to obtain lettings, but rental values seemed to be holding up. Problems in obtaining lettings seemed to be to do with incentives rather than rental levels. Crest was keen to establish rental levels which would be applicable to vacant units, if indeed they remained vacant as at March 2008. That was not a subject I expressly raised at the meeting with Helen Smith on 8 June, but the issue of moving towards an agreed position for the purposes of profit payments was certainly part of our discussion."

26. Ms Smith's account of the meeting appears at paragraphs 7 and 8 of her first witness statement as follows:-

"7. The meeting on 8 June 2007 referred to by Duncan Tindale in his letter to me dated 21 June 2007 was just between the two of us, and was arranged separately from the regular monthly meetings with the joint letting agents, so that there could be a discussion without letting agents being present. The meeting took place at my office. My diary entry for Friday 8 June 2007 shows simply "Helen and Duncan regarding Hemel agents package in London". A copy of the relevant page is at "HFIS 2". My understanding was that the purpose of the meeting was to agree the instructions to be given to the letting agents, to agree the new Target Rent for Unit B7, as its floor area was reduced due to the letting of part to an ATM which was to be leased to Nationwide, and to agree how the rent for the ATM would be treated at buy-out.

8. There was no written agenda for the meeting on 8 June 2007. I attached no special significance to it. I made no notes of it. Duncan tended to lead the discussion. By the end of the meeting, we had agreed certain things, but nothing which I thought required me to seek Tim Sankey's approval. We definitely did not agree or even discuss a proposal that the agreed Target Rents for the unlet units would be treated as the open market rent under the Development Agreement. As I explain below, I could not and would not have agreed this. Agreeing Target Rents is quite different from agreeing open market rents."

Ms Smith's more detailed description of the meeting is at paragraphs 25 to 33 of her second witness statement as follows:-

"Meeting on 8 June 2007

25. Duncan and I arranged to meet on 8 June 2007. I have no written record of the meeting. I have recently seen Duncan Tindale's own brief manuscript notes of the meeting. The purpose of the meeting was to discuss issues relating to the letting programme in advance of our next meeting with the letting agents, which was going to be on 27 June 2007. Duncan and I needed to be in agreement on incentives in order to instruct the letting agents and that was the main purpose of the meeting. The meeting lasted about 40 minutes.

26. In paragraph 14 of my first statement, I said that back in the summer of 2007 there was no certainty as to the direction of the market, although the likelihood was that rental values were going to fall as retailer interest seemed to be slowing down. Although the credit crunch had not yet become apparent, and the banking crisis was still a year off, the position in relation to attracting retailers was already difficult. Retailers were becoming even more reluctant to take space, unless the incentives were sufficient, and there was no sign of it getting any better from a landlord's perspective. With improved incentives, there was a better prospect of more units being let, but even then getting the scheme fully let by March 2008 was just not going to happen; we might have been able to get a couple of units let, but not more. In fact, the only lettings which were approved by Akaria between June 2007 and March 2008, were the Laura Ashley letting (Unit C3) and the ATM letting to Nationwide Building Society which had been carved out of Unit B7.

27. Most of my discussion with Duncan Tindale at the meeting was to do with the fact that the letting agents were finding it difficult to progress, or even initiate, negotiations with prospective tenants. We were offering only a nine month rent free, and this made Riverside uncompetitive in an increasingly difficult market. We agreed that nine months rent free was uncompetitive.

28. The discussion about the incentive package involved a number of issues, including rent free periods, landlord's works and cash payments to incoming tenants. Increasing the incentives package from nine months to two years had implications for the Development Agreement, and potentially involved capital expenditure by, or a reduction in income to, Akaria. Before discussing these issues with Duncan at the meeting, I discussed them with Tim Sankey. Our discussion would have been in the normal course of our regular monthly meetings. All I was doing, however, was agreeing a package to be put to tenants in negotiations. When any such negotiations got to the point of Heads of Terms being signed by both parties, they would have to be put to Akaria for approval. The Heads of Terms documents usually expressly referred to "Fund approval", and Duncan Tindale had to obtain developer Board approval as well. In agreeing an improved incentives package, what was being agreed between us was the package that would be presented to prospective tenants. Any prospective deal with a tenant has to be approved by Akaria before Heads of Terms could be signed, and Crest also had to approve any prospective letting.

29. In addition to discussing the incentive package, Duncan Tindale and I also discussed the target rent for what remained of Unit B7 after the ATM had been carved out of it. We also discussed a potential letting to Multiyork Furniture Ltd, as referred to in my email to Duncan Tindale dated 6 June 2007, and the proposal from JD Wetherspoons for a 125 year lease, as referred to in my email to Duncan Tindale dated 7 June 2008 [sic]. These two matters are not covered in Duncan Tindale's subsequent letter dated 21 June 2007.

30. There was some discussion at our meeting about Crest having had, in the past, to pay more and carry out works to a number of units, in order to achieve lettings. Crest had not recovered this expenditure under the Development Agreement, and were generally unhappy that the development was not letting as quickly as they had hoped, and that it was costing more than they had budgeted. However, they were not willing to carry the burden, or even share the burden, of improved incentives.

31. We did not discuss open market rents for the purposes of the profit payment and unlet units as at March 2008. We did not discuss target rents for the unlet units, apart from briefly in relation to unit B7. The reason why there had been no lettings was lack of tenant demand. Any tenants who were interested in taking a letting seemed to be more interested in the incentives that they would receive in order to fit out the unit, than rent, although that was, of course, still very important. Duncan Tindale did not suggest at the meeting that the target rents should be the open market rents for the unlet units for the purposes of the profit payment in March 2008. There were still eight or nine months to go before March 2008. It would have been peculiar to discuss it then, especially given the difficult market conditions. There is no reference to any such discussion in Duncan Tindale's handwritten note of the meeting.

32. I did not, at this point, appreciate that the Development Agreement specified that the profit payment for unlet units was based upon open market rental values. In view of the dealings between Crest and Akaria, through Aberdeen, over the last few months and years, Duncan Tindale knew that an agreement on such an issue could not be reached in this way at a meeting with me. Express approval from both Tim Sankey and ultimately Akaria was required.

33. I also do not recall any discussion about the agreement said to have been reached previously between Tim Turnbull and Ian White in relation to overage. I also see there is no reference to this in Duncan Tindale's handwritten note of the meeting."

27. As a consequence of the 8^th June meeting, Mr Tindale wrote a letter to Ms Smith dated 21^st June 2007. This, and the responses to it, are the all-important documents in the case and the basis of Crest's claim that they resulted in a contract pursuant to which it was, inter alia, agreed that the target rents shown on the schedule attached to this letter, which reflected the target rents shown in schedule 4 of the Development Agreement, were to be treated for the purposes of calculating the profit payment payable under clause 19.8.1 as "market rents" under that clause. It was Mr Tindale's evidence that his communications with Ms Smith were usually by e-mail but he sent this communication in letter form because of its importance. The letter reads as follows:-

"Riverside Hemel Hempstead – Development Agreement/ Leasing

Following on from our meeting on Friday 8^th June 2007, I think that it is important to set down the approach that we have agreed for further leasing in the time remaining under the Agreement down to the second anniversary of the Final Practical Completion Date i.e. 13 March 2008, and the way that this will be treated in terms of the Development Agreement.

I would also like to confirm the position in terms of Overage and the potential letting of an ATM within Unit B7.

Leasing

It is agreed that we will instruct the agents to carry out targeted marketing for the balance of the units, using our existing quoting and target rents together with incentive packages ranging up to 2 years rental equivalent.

Crest will meet the cost of any inducements for each future letting in line with the levels anticipated in the original Funding Rent Schedule (schedule 4 of the agreement) i.e. 9 months equivalent with Akaria making up the balance.

This means that in terms of the Development Agreement

Any lettings on this basis will be treated for capitalisation under the terms of the Profit Payment Provisions of the agreement on the usual basis, save that any inducement beyond the 9 months equivalent will be disregarded in the calculation of the factor "d" in clause 19.5.1 relating to the initial profit payment, and the factor "c" in clause 19.7 relating to subsequent profit payments.

Overage

I would also like to use this letter to properly record what I understand to be the agreed position between us in relation to the treatment of Overage, following on the various historic e-mails between Ian White and Tim Turnbull.

Under this arrangement, it was recognised that the balance of value between any Overage due to Crest and full value would be recognised to offset letting inducements given by Crest beyond the 9 month allowance identified in the agreement, together with the cost of a marketing launch contribution by Crest of £37500.

A schedule dated 10^th November 2005 is attached showing the current position on this basis which, effectively, results in all rents secured to date as being treated as being Rack Rents up to the Target Rents under clauses 19.5.1 and 19.7 of the Agreement, without Overage being calculated. This leaves an unutilised balance still to be offset against any future overage of £381,437.

ATM-Unit B7

As you know we are on the point of instructing solicitors here for an ATM to be let to Nationwide Building Society at £12,000 pa to be carved out of the rear of Unit B7.

As previously discussed, for this deal to progress, we need to confirm that this income is to be capitalised at the full 14.59 multiplier and that the target rent on the balance of Unit B7 remains at £101,000. I attach an updated Target Rent schedule, which reflects this change and which also shows the open market rents for the remaining un-let units, which would be capitalised at the 12.5 multiplier under clause 19.8 of the Agreement in the event that they remain un-let at 13^th March next Year.

I hope that the above correctly reflects the agreed position, and would be grateful if you would confirm so that we can have a clear basis to work from when we come to sort out the Development Account and Profit Payments."

For the Funding Rent Schedule referred to above see the Schedule of Documents attached to this judgment at page 1.

28. Ms Smith's response was by e-mail dated 26^th July 2007 as follows:-

"The proposals set out in your letter are all acceptable. For completeness can I make a proposal for if [sic] a turnover deal were to be agreed. If say a deal is in place for the final 3 months of the Development Agreement we should multiply any turnover by 4 to get a full years rental. Accordingly we will need the tenant to provide monthly turnover figures."

29. Mr Tindale's response to that e-mail of 30^th July 2007 was as follows:-

"Thank you for your confirmation on these development agreement issues.

In addition I confirm that we agree the approach to the calculation of turnover rents you suggest in your email of 26 July."

30. It is Crest's case that an agreement is contained in the three preceding communications which was varied by an agreement contained in an e-mail from Ms Smith to Mr Tindale of 27^th February 2008 as follows:-

"Thank you for coming to meet us earlier this week. A few minor points so far:

A5 ERV should be £68,850 not £68,460 do you agree?

C4 ERV should be £103,000 not £104,000 do you agree?

can you confirm the amount of Building Retention (by reference to document if possible!)

can you confirm if there are any other warranties due (we have M&E, Planning Supervisor, QS & employers Agent, Highways, Noise, Architects and Structural engineer)

can I have a copy of the Final Practical Certificate of Condition giving the date of 13 March 2006

please let me know which car park costs you are querying soonest so I can investigate/provide an explanation

finally a minor point. There is a discrepancy of £318.90 of income on the car park dating back to 2006. Our cash collector does occasionally bank monies into our account that do not relate to this car park. This one is not properly due to Riverside. I propose to 'write this off'."

Both A5 and C4 were unlet units to which clause 19.8.1 would apply at Buy-out. The figure for rent in respect of A5 of £68,460 comes from the schedule to the 21^st June letter and that of £103,000 for C4 also appears to come from that schedule.

31. Mr Tindale responded by an e-mail of 10^th March 2008 as follows:-

"Further to your e-mail below I have now discussed the rents of A5 and C4.

On further investigation Ian (White) believes the ERV of A5 should be £68,980 however he is prepared to accept your figure of £68,850 below.

We agree that the ERV of C4 should be £103,000 and not £104,000 on the schedule."

32. It will be seen that Ms Smith took approximately five weeks to make a response to Mr Tindale's letter of 21^st June 2007. However, in the interim, as she accepted in the course of cross-examination, she had at least discussed the contents of the letter with Mr Sankey at one of the regular monthly meetings that she had with him on 27^th June in anticipation of reporting to Akaria. Ms Smith resisted the suggestion that she must have taken a copy of the letter to the meeting and would only accept that the relevant matter discussed "was an update, really, in terms of the leasing incentives, the position regarding the ATM and the remainder of that unit, all matters dealt with in the letter of 21^st June". I will return to Ms Smith's evidence describing this time later in this judgment.
33. However that may be, before responding to the letter of 21^st June Ms Smith sent an undated e-mail to Mr Tindale but which she accepts must have been sent on or about 17^th July 2007, part of which reads:-

"I have just had a frustrating time with accounts and will get to you for Friday [which must have been 20^th July] the revised Development Account. Can we have some time after the leasing meeting next week to review it and also your letter?"

34. Under cross-examination Ms Smith accepted that the reference to "your letter" was a reference to the letter of 21^st June.
35. Mr Sankey had no specific recollection of discussing the 21^st June letter with Ms Smith at his routine meeting with her on 27^th June, but accepted that it is likely that there was such a discussion. He cannot recollect which items in the letter were discussed with her, but he asserted that had it been raised with him that the letter asked for agreement that, for the purposes of calculating profit payments, target rents were to be treated as market rents, for the purposes of clause 19.8.1, he would not have agreed to it and he would have recollected that the subject had been raised. He could not recollect whether the letter itself was or was not produced at this meeting with Ms Smith. Again I will return to this evidence of Mr Sankey later in this judgment.
36. Consequent on Ms Smith's e-mail of 17^th July, she and Mr Tindale had the meeting suggested in her 17^th July e-mail, as she described, immediately before a planned meeting with letting agents on 25^th July. Ms Smith's account in the course of her cross-examination of her discussions with Mr Tindale on 25^th July was that they were principally centred on the proposal, mentioned in the letter of 21^st June, of a decision to enlarge the available incentives to potential tenants. Mr Tindale's recollection of this meeting is dealt with at paragraph 29 of his first witness statement in which he says:-

"I do not have any clear recollection of that meeting and I do not have any notes of it. I think it likely, however, that I reminded Helen Smith that I had not heard from her in response to my letter of 21^st June. I also believe that I had chased her for a response to the letter on more than one occasion previously. I do not recall Helen Smith's reaction to being chased either at the meeting or previously, other than that she did not indicate any problem with my letter. She just said that she would deal with it."

37. Ms Smith's response by e-mail to the 21^st June letter came the following day on 26^th July and is set out above.
38. On 4^th October 2007 a meeting took place between representatives of Crest and Aberdeen including Messrs White and Tindale and Ms Smith to discuss the payments becoming due to Crest. As a result of this meeting, Ms Smith sent an e-mail to the various concerned people at Crest and Aberdeen which, under the heading "Riverside Development Account etc" reads:-

"Thank you for the meeting today. I list below the actions/ agreements below which I hope I have captured correctly from our discussions. Any amendments please let me know. As we are all aware, we will want to reach agreement on the outstanding issues as soon as possible. Please feed back progress to me."

There then follows a list of tasks to be performed for the purpose of gathering information in relation to the Development Account. Under the heading "Timescale", appear the words "Crest by 19^th October to re-run "Red Book" trial buy-out and profit calculation." The e-mail concludes with the words "ALL working to complete financials by end March 2008."

39. By early 2008 Mr Tindale had left Crest and Ms Smith's contact had become a Mr Donald Clark, Finance Director of Regeneration. In anticipation of a meeting on 23^rd February 2008, Mr White sent an e-mail of 22^nd February to Ms Smith copied, inter alia, to Mr Clark. That e-mail reads "I attach estimates for the final settlement in respect of the above. I think the various schedules are self-explanatory and based as far as possible upon earlier agreed figures between Donald and Rupal [of Aberdeen]. The rents for the unlet units are taken from the schedule attached to Duncan's letter dated 21^st June." There then follow detailed points directed to the calculation of the payment becoming due to Crest.
40. There then followed a meeting on 25^th February 2008. Included amongst those attending were Mr White, Mr Clark, Mr Sankey, Ms Smith and Rupal Vyas. At paragraph 24 of his second witness statement Mr Sankey describes what took place at this meeting as follows:-

"Various issues arising from the latest version of the buy-out calculation were discussed. We did not, as far as I can recall, discuss open market rents for vacant units."

41. It is not in issue that the profit payment relating to unlet units becoming due under clause 19.8.1 was going to constitute a substantial part, if not the largest individual part, of the ultimate figure payable. There is no evidence that any objection was raised on Aberdeen's part to the methodology being put forward by Crest for the calculation of the ultimate profit payment. In particular, there does not seem to have been any objection to using the schedule of target rents which accompanied the letter of 21^st June in that calculation. This appears to be borne out by the content of an e-mail from Ms Smith to Mr Clark on 27^th February which starts with the words "Thank you for coming to meet us earlier this week. A few minor points so far…" and by Mr Clark's response of 10^th March, which concludes "We agree that the ERV of C4 should be £103,000 and not the £104,000 on the schedule."
42. On 20^th March 2008 Mr Sankey sent an e-mail to Suresh Nilakantan of Akaria which reads as follows:-

"Further to our tele con earlier in the week with regard to Hemel, please find enclosed a worked calculation as requested. The summary sheet is annotated with the clauses from the Development Agreement as requested and then there are individual worksheets illustrating each calculation. We are still waiting to agree certain figures highlighted in yellow but the numbers are good estimates and the overall figure will not change materially. We expect the developer, Crest Nicholson, to finalise these elements next week but if you could confirm that you are otherwise happy in the meantime that would help. Crest are aware that you will need ten working days to draw down the money from final agreement. I hope the annotated calculation is as you wished… ."

The e-mail then continues with a discussion of the figures which points out that the figures are less than anticipated because the development was not fully let and therefore the capitalised notional rents in respect of the unlet units under clause 19.8.1 were only capitalised with a multiplier of 12.5 as opposed to 14.59 in respect of let units. The e-mail concludes:-

"Clearly we would have preferred the scheme to have been more successful to this point but at least we are being compensated by acquiring it for less!... In the meantime, together with Nabarro, we are working to iron out the few other outstanding matters so that we can move to a smooth conclusion."

43. I attach in the schedule to this judgment at page 3 a copy of the schedule which accompanied this e-mail and which related to the clause 19.8.1 calculation. It will be seen that the column coloured purple under the heading "Goodman [Aberdeen] check rent" shows rental figures which vary only slightly from those shown in the schedule to the letter of 21^st June. The key to the schedule also attached at page 2 indicates to the reader that figures coloured purple are "agreed, checked and final number."
44. It will be seen, therefore, that up to this point Aberdeen joined in an assessment of the ultimate profit payment due to Crest from July 2007 consistently with there having come into existence an agreement that the rents in respect of unlet properties appearing in the schedule to the letter of 21^st June under the heading "Target Rents", were to be treated as "market rents" for the purposes of calculations pursuant to clause 19.8.1 of the Development Agreement. It is right, however, to mention that Mr Tindale admits at paragraphs 2 and 3 of his second witness statement that there is no reference in any of the project reports prepared by him of the agreement on which Crest bases its case. He had no explanation for this omission and put it down to simple oversight.
45. On 28^th March 2008 in an e-mail to Mr Clark, signed by Ms Smith with another, information was passed that "we are just querying the interpretation of clauses 19.5.1(d) and 19.5(c) with our lawyers. Once we've heard back from them we will send through to you our version of the buy-out spreadsheet."
46. On 31^st March 2008 Ms Smith e-mailed Mr Clark:-

"We have two more points to raise on the Development Agreement following advice from Nabarros which will have a significant effect on the numbers:-

19.6 Initial profit…

19.8 Profit Payment for Vacant Units – on the unlet units (a) [from the formula] is the open market rent and not the target rents that have been in existence for some time. I attach below an e-mail from the joint agents setting out their latest thinking… ."

Discussion

47. It is Crest's case that the open market rents for unlet units were agreed to be the same as the target rents for the same units provided for in the Development Agreement for the purposes of clause 19.8.1 by virtue of the letter from Mr Tindale on behalf of Crest to Ms Smith on behalf of Aberdeen of 21^st June 2007 which constituted an offer; the response of Ms Smith by e-mail dated 26^th July 2007 which, by adding a provision relating to turnover rents, constituted a counter-offer; Mr Tindale's agreement to the proposal relating to turnover rents by e-mail dated 30^th July 2007 which constituted acceptance of that counter-offer; and a minor variation of the resulting contract in respect of the rent for unit A5, proposed by Ms Smith by e-mail dated 27^th February 2008 which was accepted by Mr Clark on behalf of Crest by e-mail dated 10^th March 2008. I will hereafter refer to these communications as "the Documents".
48. It is Akaria's case that there was no such agreement because the letter of 21^st June 2007 could not be construed as an offer capable of acceptance by Crest and thus the chain of offer and acceptance required for the making of a contract does not exist. In the alternative it was submitted that if that defence failed, on the evidence, either or both of Mr Tindale and Ms Smith, when engaged in the correspondence comprising the Documents, did not intend to make a contract, in other words they did not intend to create a legal contractual relationship between them.
49. I will deal with the construction of the letter of 21^st June first and I will say straight away that I have come to the conclusion that it should be construed as an offer capable of acceptance by Aberdeen. I have had the benefit of helpful written closing submissions by counsel for Akaria and I propose to give my reasons by reference to those submissions. For present purposes, the law can be shortly summarised in the words of Lord Hoffmann in Chartbrook Ltd v. Persimmon [2009] UKHL 38:

"14. There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean."

50. It was Mr Driscoll's submission on behalf of Akaria that the letter of 21^st June must be construed in the context of the Development Agreement itself. I agree but would add with particular reference to the provisions of clause 19 and the definition of "a" in the formula contained in clause 19.8.1. It was also submitted that it must be construed in the context of the position of the person who was writing it and of the person to whom it was written. Again I agree. It was further submitted that the letter must be construed in the context of the time when it was written with particular reference to the fact that that time was nine months away from the date to which the amount to be paid by Akaria to Crest was to be calculated. Again I agree. I also agree, as was submitted, that the letter must be construed in a commercially sensible way. It was finally submitted "that the proper context for construing the letter must also include the meeting between Duncan Tindale and Helen Smith on 8^th June 2007". I agree.
51. It is, as counsel submits, common ground between the parties that at the meeting of 8^th June there was no discussion about clause 19.8.1 of the Development Agreement. The only evidence that the buy-out provisions of clause 19 were mentioned at all at the meeting was at paragraph 25(1) of Mr Tindale's first witness statement, where he says in relation to the development account and capital costs that it was discussed how that would be dealt with for the purposes of profit payment and at paragraph 7 of Ms Smith's first witness statement, where she says that "one of the purposes of the meeting was to agree a new target rent for unit B7… and to agree how the rent for the ATM would be treated at buy-out."
52. The pattern of Akaria's closing submissions on this question is a line by line analysis of the letter of 21^st June. This starts at paragraph 24 of those submissions which reads:-

"The letter begins with an explanation as to its purpose. That explanation does not signal in any way at all an intention to agree open market rents for unlet units as at 13^th March 2008 for the purpose of clause 19.8.1 of the Agreement. The explanation is that the purpose of the letter is to record what had already been agreed. The introduction to the letter would lead the reader to believe that all that the letter was doing was recording what the writer considered to have already been agreed and not be inviting the reader to agree something new."

53. I do not accept this submission. The first two paragraphs of the letter reveal that it was designed to fulfil at least four purposes. The first, "to set down the approach that we have agreed for further leasing in the time remaining under the Agreement" (the increase in the incentives to be offered to potential tenants); the second, the way that those increases "will be treated in terms of the Development Agreement" (i.e. for capitalisation purposes under clause 19); the third, "to confirm the position in terms of overage" and the fourth, to confirm plans for "the potential letting of an ATM within unit B7."
54. The first purpose was indeed to record what was agreed at the meeting of 8^th June. That subject is expanded in the next two paragraphs under the heading "Leasing". The second purpose was to explain the effect of the additional costs incurred in enlarging the incentives on the calculation of the profit payment under clause 19.5 of the Development Agreement. There is no evidence that this was discussed at the 8^th June meeting. In the fifth paragraph on the first page of the letter, under the heading "This means that in terms of the Development Agreement", Crest's view of how clause 19.5.1 operates is set out. This could be controversial and the final paragraph of the letter seeks confirmation that Aberdeen agrees that that paragraph "correctly reflects the agreed position…so that we can have a clear basis to work from".
55. The third purpose is properly to record "what I understand to be the agreed position between us in relation to the treatment of overage" (my emphasis added). It is common ground that this subject was not discussed at the 8^th June meeting (see paragraph 42 of Ms Smith's second witness statement). Mr Tindale's view of what had been agreed in the past in the course of, but not necessarily exclusively, an exchange of e-mails between Mr White and a Mr Turnbull of Aberdeen is set out in the first two paragraphs of the second page of the letter. Again, the writer of the letter, Mr Tindale, is seeking confirmation in the letter's final paragraph that his understanding of the past agreement of the parties as to how overage is to be treated for the purposes of the calculation of the final profit payment is correct.
56. The subject of the fourth purpose of the letter was discussed at the meeting of 8^th June. At paragraph 7 of her first witness statement Ms Smith says this:-

"My understanding was that the purpose of the meeting [of 8^th June] was to agree the instructions to be given to the letting agents, to agree the new target rent for unit B7, as its floor area was reduced due to the letting of part to an ATM which was to be leased to Nationwide, and to agree how the rent for the ATM would be treated at buy-out."

57. In the first five lines of the penultimate paragraph of the letter Mr Tindale seeks confirmation that the income from the letting of the ATM should be treated, for the purposes of the final profit payment, as subject to capitalisation at the highest multiplier of 14.59, and that the target rent (and, Crest would submit, thus the market rent for the purposes of clause 19.8.1 if it remained unlet) would not alter, notwithstanding the loss of floor area let, but would remain at £101,000.
58. At paragraph 30 of their written submissions Akaria's counsel comment on this aspect of the case as follows:-

"30… ATM – unit B7 was then expected to be a let unit, and B7 was only one of a number of then unlet units. Mr White and Mr Tindale accepted that the letter was not perfectly drafted in this respect. Once again the ATM and the effect it would have on the Target Rent for B7 had been discussed and agreed at the 8^th June 2007. Both Mr Tindale and Ms Smith accepted that it had been in their evidence. Mr Tindale was not therefore asking Ms Smith to agree something new."

59. Whereas I accept that both Mr White and Mr Tindale accepted that this part of the letter was not perfectly drafted, I do not accept that that failure of drafting related to the matter of the ATM – unit B7 aspect. The acceptance was in relation to the very much more important issue, namely whether the letter of 21^st June properly drew to the attention of the reader that Aberdeen was being asked to agree that, for the purposes of the calculation of the final profit payment under clause 19.8.1, market rents in that clause meant the schedule of target rents in the Development Agreement repeated in the schedule to the 21^st June letter. In any event I do not accept that by this part of the letter "Mr Tindale was not… asking Ms Smith to agree something new." He was asking for clarification of the effect of their discussions at the 8^th June meeting directed to how the ATM and unit B7 were to be treated.
60. It is, of course, Crest's submission that the letter of 21^st June had a fifth purpose which was to obtain confirmation that, for the purpose of calculating the final profit payment, the target rents shown in the Development Agreement were to be treated as market rents for the purposes of "a" in the formula set out in clause 19.8.1. Counsel for Akaria make the powerful point that, to establish this fifth purpose, Crest must rely on the words of the final three lines of the penultimate paragraph of the letter, appearing under a heading "ATM/UnitB7". Both Mr White and Mr Tindale conceded in cross-examination that this purpose would have been clearer had it appeared from a separate paragraph differently headed. I agree that that is the case. However, the words used refer to clause 19.8 and to the applicable multiplier being 12.5. The preceding lines of this paragraph show that Crest was contending that the appropriate multiplier for the receipts from the ATM was 14.59 (and thus the applicable clause in the Development Agreement was clause 19.5). A reasonable familiarity with the provisions of the Development Agreement would have shown the reader that the references there to a multiplier of 12.5 and clause 19.8 meant that the final three lines of this paragraph were not intended to apply to any issues involving the ATM or unit B7.
61. Akaria's counsel make another powerful point that the list of rents appearing in the schedule accompanying the letter are listed under the heading "Target Rents" and not "Market Rents" and that thus there is a dysfunction between the text of the letter and its schedule. The fact remains, however, that the list of rents in the schedule is the only list of rents in the schedule to which the final three lines of the paragraph could refer.
62. It is Akaria's counsel's submission, which I have accepted, that the letter "must be construed in the context of the position of the person who was writing it and the person to whom it was written" (see paragraph 15). This implies an inquiry into what the penultimate paragraph of the letter should reasonably have meant to Ms Smith with all her knowledge and experience of property investment and of the particular project in question, the Riverside Development and its associated Development Agreement. It seems to me that this inquiry is not limited to what the letter would have meant to Ms Smith but must extend to what the relevant part of the letter ought reasonably to have meant to any other responsible officer at Aberdeen to whom it was shown and, in particular, Mr Sankey.
63. Counsel for Akaria laid stress on the fact that the letter was written some nine months before the final profit payment was due to be made, at a time of pressure on rental levels for units such as were available to let at the Riverside Development. It was submitted that it was counterintuitive at this time that the parties to the Development Agreement should be prepared to agree to equate target rents with the market rent. Any assessment of the market rent must include a deduction from the "headline rent" ultimately achieved in any letting in respect of the cost of incentives given to the tenant to enter into a lease. At the time the letter was written such incentives extended to offering tenants an 18-month commencing rent-free period and the parties were contemplating even that being enlarged to two years.
64. I see the force of this submission. However, I am not persuaded by it. One has to bear in mind that the letter of 21^st June was written at a time when the parties had been and were continuing to discuss what the level of the final profit payment was going to be at Buy-out. Paragraph 19.8.1 required agreement between the parties "prior to such date or in default being determined by the rental expert…." With hindsight we know that rental levels dropped substantially in late 2007 and early 2008 – see Mr Amey's e-mail of 26^th March 2008. It does not follow that the parties knew this in July and that they excluded the possibility that rental levels might stabilise or even increase. A fixing of the market rent applicable to unlet units as at June/July 2007 might have been in the interest of either party. Though not to be treated as part of the "matrix of fact" existing as at 21^st June, it is, in my view, telling that nobody on Aberdeen's side surfaced in the succeeding months to point out that the equation between the target rents shown in the schedule to the letter, which had been fixed for the purposes of the Development Agreement in 2004, with market rents in June 2007 was a commercial nonsense until March 2008.
65. In my judgment, confronted with the letter of 21^st June, anyone of Ms Smith's and Mr Sankey's experience and knowledge both of the property market and of the Riverside Development and the Development Agreement would have realised, even on skim reading, that the letter of 21^st June was an important letter which required an answer. The final paragraph of the letter makes this abundantly clear. The letter was an offer to agree, for the purpose of the calculation of the final profit payment, certain points which were not part of any agreement flowing from the meeting between Ms Smith and Mr Tindale on 8^th June 2007 and also seeking confirmation of what had been agreed at that meeting. In my judgment, a reader of Ms Smith's experience and knowledge would have detected what I have described as the fifth purpose of the letter and realised that it was seeking confirmation that, for the purposes of the calculation of the final profit payment, the schedule of rents under the heading "Target Rents" which accompanied the letter were to be equated with the market rents required by the calculation under clause 19.8.1.
66. It follows that, subject to the "alternative approach" set out between paragraphs 39 and 41 of Akaria's counsel's written submissions, in my judgment the Documents constitute a contract which had the effect, inter alia, of fixing the level for market rents in respect of unlet units for the purposes of the calculation of the final profit payment under clause 19.8.1.

Akaria's alternative approach

67. I may deal with this submission briefly. It is submitted that I should conclude as a matter of fact, that "Mr Tindale never subjectively intended to offer Ms Smith the opportunity to agree that the agreed target rents should be the future open market rents where units were unlet, but simply assumed that as a matter of interpretation of the agreement target rents were automatically the future open market rents for the purposes of clause 19.8.1 and did not have to be specifically agreed as such for this purpose, and if Ms Smith never subjectively intended to accept any such offer then the law will not find that there was an agreement when to do so defeats the subjective intention of both parties. …As a matter of fact neither Mr Tindale nor Ms Smith subjectively intended to enter into an agreement as to open market rents." In other words, and subject to the question of their authority to do so, with which I will shortly deal, as a matter of fact, and notwithstanding the plain words of the Documents, neither Mr Tindale nor Ms Smith intended by that correspondence to create legal contractual relations between their employers which fixed the level of market rents for the purposes of clause 19.8.1.
68. For all the reasons already set out in this judgment for rejecting Akaria's submissions on the effect of the letter of 21^st June, I am unable to come to any such factual conclusion. In my judgment it is plain that Mr Tindale and Ms Smith intended to fix the level of market rents by making the agreement in advance of 13^th March 2008 contemplated by clause 19.8.1, thereby avoiding the cost and expense of a reference to the "rental expert" contemplated by that clause, so that "we can have a clear basis to work from when we come to sort out the Development Account and Profit Payments."

Authority

69. It is Akaria's alternative case that even if the letter of 21^st June is to be treated as an offer so that the Documents are to be treated as capable of comprising a contract in accordance with their terms, nonetheless because those communications passed between Mr Tindale and Ms Smith, and, because neither Mr Tindale nor Ms Smith, or either of them, had the authority of their employers to make such a contract, no contract in fact resulted. It is therefore necessary to examine the evidence relevant to the authority of Mr Tindale to send the letter of 21^st June and the other Documents and to go through the same process with relation to Ms Smith and her e-mail of 26^th July.

The authority of Mr Tindale

70. I may deal with this contention briefly. It is not in issue that, at all material times, Mr White has been a director of Crest. He was also a director of Regeneration and Crest Estates Ltd. All those companies were subsidiaries of Crest Nicholson Operations Ltd and had other cross-directorships besides Mr White. As already described, Regeneration was the active company in the group which managed Crest's business as agent at all material times. It was Mr White's evidence and I find that there was delegated to him the task of administering the Development Agreement so far as it concerned Crest. True it is that there was no evidence of a board resolution of Crest making this delegation and that Crest was not an active company in the sense that the staff who actually administered the contract were not its employees but the employees of sister companies in the Crest Group, in particular Regeneration. The fact remains that before, at the time of, and after the sending of the letter of 21^st June to Ms Smith, Mr White, a director of Crest, was the senior executive in charge of administering the Development Agreement on Crest's behalf. Throughout the documents in the case he can be seen to be doing so. Mr Tindale, who was not an employee of Crest but of Regeneration, was the executive in immediate charge of administering the Development Agreement for Crest, who reported for that purpose to Mr White.
71. It was both Mr White's and Mr Tindale's evidence, substantially unchallenged, that Mr Tindale drafted the letter of 21^st June but before sending it he showed it in draft to Mr White, who approved it. Although written on the paper of Regeneration, it plainly concerned, and Ms Smith read it as concerning, aspects of the Development Agreement of interest to Crest. It seems to me plainly to follow that either Mr Tindale, through Mr White, had authority to send the letter on Crest's behalf, or, the letter is to be treated as Crest's, being approved for dispatch by Crest's duly authorised director.
72. If, however, I am wrong in this conclusion, it seems to me that Crest, through Mr White, ratified the sending of the letter of 21^st June. It seems clear that at least by 25^th February 2008 all parties concerned with the negotiation of the amount of the final profit payment were aware of the letter and the schedule which accompanied it. In particular, it is expressly referred to in Mr White's e-mail to Ms Smith on 22^nd February 2008, the relevant passage from which is set out above. See also Ms Smith's e-mail to Mr Clark of 10^th March 2008 as evidence that the letter was common currency between the parties in the process of negotiation in which she says, "forgive me but I can't find Duncan's letter of 21^st June on our files. I realize on reviewing my files that I cannot put my hands on the revised target rents schedule… and this may explain my slight difference on rents in the calculation". True it is that there is no evidence of express ratification of the letter by anyone on behalf of Crest, but it seems clear to me that Crest's treatment of the letter in the process of the negotiations, by implication, ratified it. It was Crest's alternative case on ratification that such took place when these proceedings were issued by Crest based, amongst other things, on the contract flowing from the letter of 21^st June. This was met by Mr Driscoll by an argument based on Article 19 of Bowstead and Reynolds on Agency, that such ratification, coming after the date prescribed by clause 19.8.1 for agreement of the market rents for unlet properties, 13^th March 2008, in default of which the issue had to be referred to the "rental expert", was too late. In the light of the conclusion I have already arrived at, I do not have to deal with this issue.

The authority of Ms Smith

73. I have already held that the power to authorise the sending of the letter of 21^st June by Mr Tindale rested with Mr White and, by approving the draft of that letter, Mr Tindale had the authority of Crest to send it. No specific challenge is raised by Akaria as to Mr Tindale's authority to send the e-mail of 30^th July 2007 accepting Ms Smith's proposal in her e-mail of 26^th July. At paragraph 31 of his first witness statement Mr Tindale describes his belief that he discussed the counter-proposal in Ms Smith's 26^th July e-mail with Mr White and that they both considered her proposal sensible. This led to Mr Tindale's reply of 30^th July which, accordingly, had Crest's authority.
74. I have come to the conclusion that, notwithstanding the denials of Mr Sankey and Ms Smith, the sending by Ms Smith of the e-mail of 26^th July had the authority of Mr Sankey, on his own admission the Fund Manager with responsibility for managing the carrying out of the Development Agreement on behalf of Akaria. I will now give my reasons for arriving at this conclusion.

The evidence of Ms Smith and Mr Sankey

75. In the course of the following passage in this judgment, I highlight a number of inconsistencies in the evidence of both Ms Smith and Mr Sankey. Those inconsistencies have led me to approach their evidence as to the events which followed the sending of the letter of 21^st June with considerable caution. I am not prepared to accept their account where it appears to be inconsistent with Crest's evidence and with the content of contemporary documentation.
76. The relevant events occurred over the period between the meeting between Mr Tindale and Ms Smith on 8^th June 2007 and the dispatch of Mr Tindale's e-mail of 30^th July, a period of approximately five weeks. On the basis that the first three of the Documents constituted a contract, there does not seem to be any issue that that contract was varied by the e-mails of 27^th February 2008 from Helen Smith, the proposals in which were accepted by Mr Clark on behalf of Crest by e-mail of 10^th March 2008.
77. In relation to this period the following facts are, as I understand it, accepted; that on 8^th June there was a meeting between Mr Tindale and Ms Smith at which various matters were discussed some of which were relevant to the calculation of the final profit payment. As a consequence of that meeting Mr Tindale, with the authority of Mr White, wrote the letter of 21^st June to Ms Smith. At paragraphs 15 and 16 of his first witness statement Mr Sankey says this:-

"15. …If Helen Smith had been negotiating the open market rent of the vacant units with Duncan Tindale, she would have told him that express authority was required. She did not tell him that because she was not negotiating or agreeing the open market rent of the vacant units. That also explains the five week period. She was not under the impression that she needed to respond to his letter.

16. Helen Smith did not refer the letter from Duncan Tindale or the contents of it to me. In particular she did not refer to me the question whether she could agree figures for open market rents for unlet units. I therefore gave her no authority to agree figures for this purpose and she did not seek it from me… There was, as I have said, no reference by Helen to me and no reference by me to Akaria."

78. However, in the course of his cross-examination Mr Sankey admitted that a routine meeting had taken place between him and Ms Smith on 27^th June at which the contents of the 21^st June letter would have been discussed "from Helen Smith's perspective", although he did not "recall the meeting specifically." When it was put to him that the discussion would have been "by reference to the letter" his response was "Helen may have referred to it. That does not mean she necessarily brought it to the meeting. She knew what the issues were and she did not need to bring the letter to the meeting. I do not recall that she did." Mr Sankey accepted that he could not recall which aspects precisely were referred to but he was not prepared to accept that it was overwhelmingly likely that all of the aspects of the letter were referred to. He asserted that "if the matter of agreeing the target rents had been raised, I would certainly have recalled that and we would have had a more detailed discussion on it."
79. The next accepted event in the chronology of this period of seven weeks was the e-mail from Ms Smith to Mr Tindale dated 17^th July, the relevant contents of which I have already set out, in which Ms Smith suggests to Mr Tindale that they might have "some time after the Leasing Meeting next week to review it and also your letter?" It is accepted that such a meeting took place on 25^th July but Mr Tindale has no recollection of what actually happened at it.
80. At paragraph 36 of her second witness statement Ms Smith also asserts that she "did not discuss the letter with anyone else." When confronted with the evidence of Mr Sankey, given shortly before, she was compelled to admit the meeting of 27^th June and Mr Sankey's account of it. When asked whether she showed him the letter itself, her reply was "I do not think I did."
81. There then follows Ms Smith's e-mail of 26^th July finding the "proposals" contained in the letter of 21^st June "acceptable", and proposing "for completeness" an approach to how any lettings at rents based on turnover of the tenant would be treated for the purpose of the Development Agreement, which proposal was accepted by Mr Tindale by his e-mail of 30^th July.
82. As already described, Ms Smith's evidence was that she did not read the letter of 21^st June as requiring any response from her; see paragraph 10 of her first witness statement. That evidence was plainly inconsistent with her own e-mail dated 17^th July, to which I have already referred. In answer to certain questions put by me, she described the letter as "unimportant" and said that she did not read it with any care "in the period before my response." She said she simply filed the letter electronically and that she did not "at any stage think it appropriate to tell somebody else about it." She only came to read it thoroughly when "a copy of it had been sent to me by Crest round about February" [2008]. She said she only came to reply to the letter because she was prompted by Mr Tindale to do so, at which point she "re-read it quickly and responded". She said she did not think that there were any proposals in the letter and she did not refer it to Mr Sankey "because there was – items in it were things I had already discussed with Tim."
83. It will be seen that this evidence contradicts hers and Mr Sankey's account of the meeting between them on 27^th June. The suggestion that she "skim read" the letter before filing it is also inconsistent with other answers she gave to questions about the proposal in the 21^st June letter as to how the cost of the increased inducements to potential tenants was to be borne in the course of which she accepted that when she read the letter, on its receipt, she recognised that these proposals would constitute a variation of the Development Agreement. Further she agreed that she had discussed the subject matter of these proposals with Mr Sankey. That she, upon receipt of it, filed the letter of 21^st June electronically is inconsistent with her e-mail to Mr Clark of 10^th March 2008; see paragraph 72 above.
84. I also note in passing that Ms Smith's answers in cross-examination, in which she said that she accepted the proposals in the 21^st letter in relation to overage because she was aware of a previous agreement in relation to it, again shows she must have read the letter with some care but is also inconsistent with paragraph 43 of her second witness statement, which concludes with the words "I did not feel that I was in a position to confirm or reject what Duncan Tindale's understanding of any agreement with relation to overage may have been."
85. Through all this it must be borne in mind that, on their own evidence, Ms Smith and Mr Sankey shared an open-plan office with desks situated 20 yards apart approximately and were in close communication on a daily basis.
86. Given the obvious importance of the letter to any reader with Ms Smith's qualifications and what must have been her knowledge of the surrounding circumstances, and the given the caution with which I conclude I must approach her evidence and the evidence of Mr Sankey as to what occurred during this five-week period, I have come to the conclusion that I cannot accept their account. In particular, I cannot accept that Ms Smith did not appreciate the importance of the letter of 21^st June and the necessity to respond to it however speedily she may have read it initially. I find that before responding to it she consulted Mr Sankey and, on the balance of probabilities, showed him a copy of the letter. I find that they both would have appreciated the significance of the letter's penultimate paragraph that Crest was asking them to agree that the target rent schedule attached to the letter of 21^st June was to be treated as showing market rents for the purpose of the application of clause 19.8.1 of the Development Agreement in the calculation of the final profit payment to Crest. The delay in responding allowed full consideration of the letter. I accept that Ms Smith may well have thought that she did not have authority to accept or otherwise on behalf of Aberdeen Crest's proposals in the letter of 21^st June. I am unable to accept that she did not consult Mr Sankey on how to respond and in consequence I find that the response in the e-mail of 26^th July 2007 carried his authority. Mr Sankey was the Fund Manager with authority to administer the Akaria mandate for Aberdeen. It therefore carried the authority of Aberdeen.

Events post July 2007

87. As I have already pointed out, between the end of July 2007 and early April 2008 all those at Aberdeen concerned with the Development Agreement proceeded on the basis that the calculation of profit payment to Crest in respect of unlet units was to be made on the basis that the target rents shown in the schedule to the letter of 21^st June were to be treated as market rents for the purposes of "a" in the formula in clause 19.8.1. In cross-examination Mr Sankey and Ms Smith were driven to accept that this had occurred and that their change of view resulted from the intervention of Akaria's solicitors in March 2008. Their explanation was that in some way, which they could not explain, they came to accept that view which they subsequently realised was mistaken.
88. In passing, I would draw attention to paragraph 24 of Mr Sankey's second witness statement where he said that at 25^th February 2008 meeting, which I have described above, "we did not, as far as I can recall, discuss open market rents for vacant units." Under cross-examination as to what occurred at the 25^th February 2008 meeting, Mr Sankey said, in relation to his suggested mistaken view that target rents were to be treated as market rents:-

"I believe Ian [White] said in that meeting, it may have [been] in a subsequent one, but, I think, he may have said in both [meetings] this is something that has already been agreed. I did not understand why he said that."

Later he said:-

"I did not understand what that alluded to. He [Mr White] said that the rents have already been agreed. So, I did not have anywhere to start my investigation. It sat with me until we had our subsequent meeting where he made the same reference, again I am sure I would have asked around, asked Helen, if she understood what he was referring to but we did not know what he was referring to."

There is no evidence that any investigation was pursued by Mr Sankey, in particular, by directing questions to Mr White or anyone else on the Crest side. Mr Sankey went on to send his e-mail to Akaria of 20^th March 2008 which I have already set out explaining the calculation of the final profit payment by reference to figures which, with very slight variation, were those contained in the schedule to the 21^st June letter. The corrections to the rental figures agreed in the e-mails of 22^nd and 27^th February 2008 dealt with the mistake by Mr White in recording "£104,000" as the rental value for unit C4 rather than £103,000 by taking the line below the correct one on the schedule to the letter of 21^st June.

89. I am unable to accept that this was their state of mind and find that they acted in the way that they did because they understood that there had been an agreement as to what constituted market rents as a result of the letter of 21^st June and the three responses to it. I find it particularly hard to accept Mr Sankey's explanation. There is an obvious difference between a target rent which a developer may be seeking to achieve in letting a property in the future and the market rent which experts might assess that that property commanded from time to time. Clause 19.8.1 speaks only of market rents. That Mr Sankey must have been familiar with the provisions of clause 19.8.1 is shown by paragraphs 2 and 3 of his third witness statement. He there describes how, after taking over as fund manager in May 2007, a mere month before I find he saw the 21^st June letter, he "reviewed the terms of the Development Agreement and produced a document which summarised the profit payment calculations." He continues:-

"I created this for my own purposes, so that I could understand the way in which the Development Agreement worked, and what would happen when the profit payment calculations had to be made. The first page of that document summarises the way in which the units were to be let and the way in which Akaria would buy out Crest Nicholson. The information that I put into the document was taken from the Development Agreement and the funding rent schedule…

3. At that stage, therefore, I appreciated that the parties would need to agree the open market rents of the unlet units in order to do the profit payment calculation."

90. It is apparent that Mr Sankey had the provisions of clause 19.8.1 in mind in February 2008 as is shown by paragraph 23 of his second witness statement where he says:-

"On 18^th February 2008 I did an e-mail to Suresh Nilakantan [of Akaria] which was copied to Helen Smith and Nicola Willis. I raised with him, for the first time, the issue of the buy-out in March. I gave him a copy of a paper that I had prepared in about May of the previous year which set out the basic principles of how the buy-out would work. I had prepared the paper as an easy guide to the Development Agreement. The paper dealt with the calculation of the final profit payment for unlet units and said that the payment was calculated on the aggregate market rents which are to be agreed by the developer with Akaria and are not the target rents. The paper then sets out a schedule of the units that were unlet at the time that paper was prepared. The schedule was for administrative purposes only as the actual calculation would involve some negotiation over the rental values. The rental values were the target rents used in the Development Agreement."

In the course of his cross-examination, Mr Sankey himself put forward the proposition that to equate target rents with market rents was "counter intuitive".

91. In my judgment when Mr Tindale and Ms Smith entered into the Documents they did so with the actual authority of their employers, Crest and Aberdeen respectively.
92. That is sufficient to decide the case. Mr Martin advanced two alternative arguments against the proposition that Ms Smith lacked the authority of Aberdeen to send the e-mail of 26^th July 2007. Those arguments are that on the evidence she had implied authority from Aberdeen to do so, alternatively, that she had ostensible authority to do so. I will express my views on these alternative arguments briefly. It seems to me that they overlap in the sense that they both depend on an assessment of the evidence of the conduct of Ms Smith, in particular, her conduct in the negotiations between Crest and Aberdeen intending to lead to the agreement of a figure for the total profit payment payable by Akaria to Crest under the provisions of clause 19, under which clause, by sub-clause 19.1, Aberdeen had authority to deal with Crest without reference to Akaria. I will deal with the matter under the heading of "ostensible authority".
93. There was no evidence of any limit on Ms Smith's authority to agree matters which would have had an impact on the calculation of the profit payments. Thus, it is not in issue that she had authority to agree entries in the Development Account, which would have a direct impact on the amount of Total Expenditure and thus the amount payable to Crest under clause 19.5.1. Under cross-examination Mr Sankey agreed, in relation to the 25^th February 2008 meeting, that he left the detail of the figures to be agreed to Ms Smith. It was Mr White's evidence that she appeared to him to be in charge of the negotiations. Specifically Mr Andrews, Ms Smith's predecessor at Aberdeen, accepted that he had authority to agree changes in target rents by reason of any variations that might take place in the process of construction in respect of individual units. Ms Smith would have had the same authority. At the meeting of 8^th June 2007 Ms Smith appeared to have authority to agree that prospective tenants be offered an increased incentive package and to agree the consequences of a split in unit B7 to admit the construction of an ATM as outlined in the letter of 21^st June. If it were necessary for me to do so, I would conclude that Ms Smith had ostensible authority to send the e-mail of 26^th July 2007 so as to bind her employer Aberdeen.
94. Finally, Mr Martin submitted that, in any event, the conduct of Aberdeen following the exchange of the Documents and, in particular, the sending of the 20^th March 2008 e-mail with its attached schedules to Akaria amounted to ratification of the agreement for which Crest contend. I accept his submission.
95. In the result I answer paragraph 6(1) of the order of Master Bragge of 30^th January 2009 in the affirmative in favour of Crest. I answer sub-paragraph (2) in the negative and it is unnecessary for me to deal with sub-paragraph (3) and I do not do so.
SCHEDULE TO JUDGMENT Before : Sir Edward Evans-Lombe (sitting as a Judge of the High Court) - - - - - - - - - - - - - - - - - - - - - Between :

	Crest Nicholson (Londinium) Limited	Claimant
	- and -
	Akaria Investments Limited Helen Frances Isabella Smith	Defendants