Mr Justice Roth :
INTRODUCTION
- By a contract dated 4 January 2006 ("the Contract"), the defendant ("ASN"), under its previous name, Capital Homes (Southern) Ltd, agreed with the claimant ("Anglo") to purchase two adjacent properties in Bournemouth, 10 and 12 Cavendish Place (together, "the Property"). This case concerns the determination of the purchase price under the Contract in the events which have happened and, depending on that determination, a claim by ASN for damages for breach of the Contract or a claim by Anglo for compensation for default pursuant to the Contract.
- These proceedings have an unfortunate history. On what became the contractual completion date, 26 March 2007, the parties were unable to agree as to what was the purchase price. On 23 August 2007, proceedings were started by Anglo seeking a declaration as to the true meaning and effect of the purchase price in the Contract. At a hearing that came before Mr David Donaldson QC, sitting as a deputy High Court judge, each party contended for a conflicting interpretation of the purchase price. By his judgment delivered on 2 July 2008, the deputy judge rejected both parties' interpretations but declined to state what the correct interpretation was in the absence of adversarial argument regarding any other formulations. On appeal, the Court of Appeal, in a reserved judgment delivered on 17 March 2009, dismissed the appeal and cross-appeal against the judge's rejection of the parties' conflicting interpretations but proceeded, as strongly urged by the parties, to set out the correct meaning of the contractual provision. However, perhaps because it lacked benefit of full factual findings in the judgment of the court below and, it seems, was not fully apprised of all the relevant facts, the interpretation enunciated by the Court of Appeal has itself given rise to difficulties. The inability of the parties to agree on the correct interpretation and application of the Court of Appeal's judgment to the facts has therefore led to this further trial. As a result, actual completion of the purchase of the Property has still not taken place.
THE FACTS
- The Property is at the end of a cul-de-sac within the Dean Park Conservation Area not far from the centre of Bournemouth. On each of 10 and 12 Cavendish Place there was a low residential house erected in the 1970s. The Property was marketed on the basis that it had "potential to demolish and replace with a 2/3 story block of 12-14 flats (subject to the necessary approvals which cannot be guaranteed)". The estate agent's marketing materials stated:
"Planning: We have not made any formal enquiries and we suggest that prospective buyers should satisfy themselves prior to entering into any agreement."
- ASN is a property development company and its director and driving force is Mr Ali Sadeh. He went to view the Property, as did Mr Jonathan Harrison, the principal director of Harriplan Ltd, who acts regularly for Mr Sadeh's companies in architectural and planning matters. Mr Sadeh is an experienced and successful developer and he considered, no doubt with Mr Harrison's advice, that it should be possible to produce a design for a block of 12-14 flats that would receive planning permission. However the contract that was concluded between Anglo as seller and ASN as buyer was conditional. Clause 14.1 provides:
"This Agreement is conditional on the Buyer at its own expense obtaining a satisfactory planning permission (as hereinafter defined) for the Development…"
- The "Development" was defined as: "the development of the Property as residential flats with not more than 14 two-bedroom units".
- The Contract provided that if no satisfactory planning permission had been granted within nine months then, subject to any outstanding appeal, it could be terminated by either party. However, the buyer had the right at any time before satisfactory planning permission was granted to waive that requirement and make the contract unconditional. The relevant provisions are in clauses 14.5 and 14.8, which provide (insofar as material):
"14.5 If a satisfactory planning permission has not been granted by the date nine months after the date of this Agreement, then unless there is an outstanding appeal against a refusal or against conditions imposed on a planning application submitted within six months of the date of this Agreement made by the Buyer hereunder to be processed by way of written representation and not public inquiry … either party shall on giving written notice to the other or their solicitors … prior to the subsequent grant of a satisfactory planning permission be at liberty to terminate this Agreement whereupon it shall be at an end…
14.8 Notwithstanding the provisions of clause 14.1 hereof the Buyer may at any time before the granting of a satisfactory planning permission waive by notice in writing to the Seller or his solicitors clause 14.1 hereof whereupon this Agreement shall be completed 28 working days after receipt of such notice or earlier by arrangement."
- The contractual definition of the Purchase Price, which has given rise to so much contention, is as follows:
"£862,000 less the amount (including covenantees' fees and costs) required to obtain a deed of release/variation of the covenants contained in entry 1 of the charges registers to both Title No DT 61359 and DT 56503 to enable the Development to be implemented." [These being the title numbers of 10 and 12 Cavendish Place.]
The deduction to be made under this formulation from the principal sum of £862,000 has been referred to as "the discount."
- There is also an overage provision in schedule 2 of the Contract That applies once planning permission has been granted (either by the local planning authority or following an appeal). It provides that if a further planning application is submitted within 21 years from the contractual completion date and permission is granted, an overage payment of £30,000 for each additional unit over and above 12 units would be paid to Anglo.
- The registered covenants referred to in the definition of the Purchase Price are restrictive covenants on each of the two plots that existed in favour of the Cooper-Dean Estate. I was told that the Cooper-Dean Estate covers a significant part of Bournemouth and in the 1950s it was vested in the two Cooper-Dean sisters, referred to as Miss Ellen and Miss Edith. As the properties on the Estate were sold off, the purchasers were required to enter into restrictive covenants which were expressed to be for the benefit of the covenantees' Dean Park Estate or so much of it as remained unsold. In 1975, the Cooper-Dean Estate was divided between Miss Ellen and Miss Edith and the properties in Cavendish Place formed part of the share that went to Miss Edith. On her death, Miss Edith's property passed to Mr Robert Gates. Nos. 10 and 12 Cavendish Place were sold off, respectively, in 1976 and 1978 and the sales contained covenants in very similar form that, in essence, restricted the right to demolish the existing buildings and prevented the erection of any new development on the land. Accordingly, it was clear to both parties in entering into the Contract that release or variation of these covenants would have to be obtained in order to permit the Development, as envisaged by the Contract, to take place.
- Even before the contract was formally executed, the parties agreed that such negotiations with the Cooper-Dean Estate, or more accurately with Mr Gates, should be conducted by Anglo. This made good sense since Anglo, as the existing landowner, was in a better position to negotiate a release with Mr Gates and his advisers. Moreover, as it reasonably appeared to the parties at the time, under the Contract a lower price for release of the covenants should benefit Anglo rather than ASN since that cost was to be deducted from the Purchase Price which Anglo would receive. Put another way, the lower the price achieved for release from the covenants, the lower the discount under the contractual definition of the Purchase Price. Hence the understanding of the parties at the time the Contract was entered into was that the effective cost of acquisition for ASN should be £862,000, subject of course to any application of the overage provision. Had planning permission been granted as envisaged, there is no reason to suppose that this mechanism for determination of the Purchase Price would not have worked in a satisfactory manner. But that is not what happened.
The Planning Applications
- On about 13 March 2006, ASN applied for planning permission for erection of a block of 14 flats with an underground car park. That application was refused by a decision of Bournemouth Borough Council ("the Council") on 9 May 2006. On 30 June 2006, ASN submitted a second application for the erection of a block of 13 self-contained flats. That application also was refused by a decision dated 31 August 2006. The reasons given for the refusal of the two applications were very similar. I quote from the Council's decision on the second application, which stated, inter alia:
"The proposed building by reason of its size, design and footprint is considered to result in an overly cramped appearance and an excessive bulk of building which would form an uncharacteristic and unsympathetic development detracting from the original villas in Cavendish Place.
The proposals are therefore considered to adversely affect the character and appearance of the Dean Park Conservation Area.
The proposed building, by reason of its size, siting and design is considered to adversely affect the outlook of adjacent properties and result in an overbearing form of development, detrimental to neighbour's amenities…"
- The two planning applications had been prepared on behalf of ASN by Mr Harrison. On receipt of these decisions, Mr Sadeh consulted Mr Malcolm Brown, a chartered town planning consultant who had great experience in dealing with the Council. He advised that an appeal stood a good chance of success and ASN then applied against both decisions. However, on 12 February 2007, the appeals were dismissed. The Inspector's appeal decision, after setting out detailed reasons, concluded:
"Overall, these would not be schemes which would adequately reflect or relate to the architectural form, grain or pattern of the existing built development within the Conservation Area. They would introduce bulky buildings which would be perceived as filling the plot width, producing an over-developed appearance out of character with the generally spacious nature of the surrounding area. This would be inconsistent with the overall existing design form, would not respect local building traditions and relationships, and would not integrate well into the street scene. These problems have largely arisen because of the high density of the schemes."
Communications with the Covenantees
- As required by the Contract, ASN had supplied Anglo with copies of the planning applications and kept it informed of their progress. Anglo had made contact with Preston Redman, the solicitors to Mr Gates, regarding release of the restrictive covenants. It is relevant to refer to that correspondence. Already in August 2005, Lester Aldridge, as solicitors to Anglo, had written to Preston Redman to enquire how much their client would charge to vary the covenants to allow a residential development with approximately 12-14 units. Preston Redman replied saying that it was difficult to assess the situation without some plans "and perhaps the proposed planning application for exactly what consent is required". In mid-September 2005, Lester Aldridge wrote to Preston Redman stating that "their client" intends to apply for 12-14 flats of two bedrooms each. By letter dated 13 October 2005, Preston Redman wrote as follows:
"My client is prepared for there to be an outline figure given of some £8,000 to £10,000 per unit. This naturally depends on the type of planning permission given, and the position at the time generally. The figure will not exceed the top figure given.
My client is prepared to leave this offer open for 18 months (to allow the planning permission) or 2 months from achieving the planning permission, whichever is the earlier.
In addition the owner would be liable for this firm's costs plus VAT."
This letter was not provided by Lester Aldridge to either ASN or its solicitors, who saw a copy only when it was sent to them by Preston Redman in March 2007.
- In subsequent correspondence, Preston Redman indicated that the costs to which they had referred would be between £1,000 and £1,500 plus VAT.
- On 13 April 2006, Lester Aldridge wrote to Preston Redman with copies of the plans that had been submitted as part of the first planning application. Preston Redman's substantive response of 20 April 2006 stated:
"The time to conclude matters is when the planning permission has been granted. I will then deal with the licence expeditiously."
- It is clear that Anglo made no further attempt to pursue discussions or any negotiations with Preston Redman.
12 February to 2 April 2007
- The Inspector's decision on the appeal came as a shock to Mr Brown and was no doubt a great disappointment to Mr Sadeh. It left him in a position where his company could either terminate the contract under clause 14.5 or exercise the option to waive the planning condition under clause 14.8. Mr Sadeh said in his evidence that he did some preliminary calculations to ascertain what was the minimum size of development, in terms numbers of units, that would be profitable. He was not able to produce his original notes of his calculation but had reconstructed it and was clear that at the time he calculated that a development providing only nine units would just break even. In his view, he needed a minimum of 12 units to make what he regarded as a satisfactory profit. Although the evidence of the single joint-expert in this case, Mr Beattie, cast some doubt on the way in which Mr Sadeh had performed his calculations, Mr Sadeh was not challenged on them and I accept that this was indeed the view that he reached at the time.
- Mr Sadeh received a copy of the Inspector's decision by fax from Mr Brown with a covering letter dated 13 February. After making strong criticism of the decision, Mr Brown stated:
"Because of the damning nature of the decision, I have to say that I think it would be difficult to obtain planning permission for any more than 12 flats, possibly less. I think the building would have to be reduced in width which might enable you to take the access drive round the side to an entrance to an underground garage. The detailed design would have to be reconsidered including the narrowing of any projecting gables…."
- Mr Brown discussed the matter further with Mr Sadeh over the telephone that day, presumably after Mr Sadeh had received the fax. I shall return to the substance of that telephone conversation.
- By letter dated 14 February 2007 from its solicitors, Dibbens, to Lester Aldridge, ASN formally waived the planning condition under the Contract pursuant to clause 14.8. In consequence, the contractual completion date was 28 working days later, ie 26 March 2007.
- On 16 February 2007, Dibbens wrote to Lester Aldridge stating that their clients were arranging to have an informal meeting with the Council planning officer to try and agree exactly what would be permissible and suggesting that if Anglo agreed to a further extension of the contract then ASN would still be happy to honour any payments due under the overage provisions should it be possible to get planning permission for more than 12 units. In response, Lester Aldridge took the position that the discount from the specified sum of £862,000 no longer applied. They contended that since the contract was now unconditional on planning permission, "clause 14 in the contract is no longer relevant". Their letter continued:
"Indeed, it is impossible to calculate the amount which the beneficiary of the covenant may charge, and their professional team may charge, for a hypothetical development that may never take place."
- Dibbens replied, by letter of 23 February, that the definition of the Purchase Price in the contract remains unchanged and that:
"It is perfectly possible to ascertain from the covenantees the cost of a hypothetical development. Indeed, it is the usual way forward to establish these matters before a development commences."
- At that point Dibbens wrote directly to Preston Redman explaining that despite the failure to obtain planning permission, ASN needed to know what Preston Redman's client would charge as a premium for the release of the covenants in order to calculate the allowance that should be made against the purchase price. It appears that this letter was followed by a telephone call since in their written reply of 14 March, Preston Redman wrote to Mr John Crawford at Dibbens stating:
"In our telephone conversation I gave you an estimate of £10,000 per unit. This naturally depends on the type of planning permission given and detail."
He added that he estimated his client's fees at £1,500 plus VAT, and he enclosed a copy of his firm's letter to Lester Aldridge of 13 October 2005: paragraph 13 above.
- While the solicitors were in correspondence, Mr Harrison, on behalf of ASN, initiated fresh discussion with the planning officer at the Council. He sent an e-mail on 7 March explaining that he was preparing sketches for a modified scheme which he would like to come to discuss the following week. However, the planning officer asked to see the sketches first and on 9 March Mr Harrison sent the Council an outline sketch, showing a revised building footprint. He said in his evidence that he and Mr Sadeh agreed that they would "simply put in a sketch to ascertain the size and scale of the development that the Council would accept". The sketch included an L-shaped return so as to push the footprint of the proposed building towards the boundaries. Mr Harrison explained in his evidence that he was trying to establish acceptance of a large enough building that could achieve up to 12 units in total on the site and he included a double car-port to establish the idea of a roofed building that might later be modified to become one of those 12 units. Including the double car-port, the sketch provided for nine parking spaces. Although Mr Harrison pressed for a meeting the following week, it was only on 2 April that he received a response. That response was not favourable. The planning officer, Mr David Hodges, wrote that he would not be able to support the scheme as shown. His letter stated:
"I am concerned that the form of the building is uncharacteristic of the traditional properties in the Conservation Area. In particular the rear element with its 'L shape' results in an overly long flank elevation of an inappropriate form. I am unclear as to the scale of this part of the building and would have to express my concerns over the potential bulk of the structure as a result. This may also potentially have a detrimental impact on the outlook of the neighbouring property. I would suggest removing the rear element or reducing it considerably and setting the building slightly further back in the site. …"
- By the date of this letter, however, the contractual completion date had passed. In the few weeks running up to the completion date, the position of Anglo, as expressed by Lester Aldridge, was that it was willing to allow a discount in the purchase price of £50,000 on the basis that that sum would become payable to it should no planning permission be obtained and no sums paid to the beneficiary of the covenants within 24 months of completion. By contrast, ASN, through Dibbens, adopted the position that the discount should be £140,000 (plus Preston Redman's fees) but offered to complete with a discount of £120,000 on the basis that a smaller building would be created for 12 flats and that the price of release of the covenants was £10,000 per unit as set out in Preston Redman's letter. It is not necessary for present purposes to set out all the exchanges and the various formulations that were proposed. In summary, there was no agreement and completion did not take place. However, Anglo had not served notice to complete so the Contract remains on foot.
Obtaining Planning Permission
- ASN, through Mr Harrison, continued to deal with the Council on the question of planning permission. It appears that a meeting between Mr Harrison and the planning officer, Mr Hodges, finally took place in late April. As a result, Mr Harrison prepared a series of detailed drawings for a revised scheme that comprised 10 units. Those were submitted on 2 May and on 21 June Mr Hodges finally responded, stating that he considered the new proposals a significant improvement on the earlier schemes. But his letter continued:
"However, I would request you take account of the following points. The level of the accommodation within the roof space remains extensive and necessitates an uncharacteristically large flat roof area as part of the building. The two flats provided at this level necessitate a significant number of openings which are not represented on your sketches and in my view will be likely to result in the 2nd floor accommodation not being subservient to the main building. This would be contrary to the character of traditional properties within the Conservation Area.
In addition I am not wholly convinced that the overall length of the building is acceptable. The rear wing needs to be subservient to the main block, however, currently it is of a similar length. This element of the scheme may need to be shortened in order to gain a favourable recommendation."
- In his discussion with Mr Harrison, Mr Hodges had suggested that the building might need to comprise only nine units. Mr Harrison had discussed this response with Mr Sadeh but they agreed that Mr Harrison would prepare revised drawings that sought to address Mr Hodges' concerns but still preserve the possibility of 10 units. A formal application in those terms was finally submitted in September 2007.
- By that stage Anglo had commenced court proceedings. It was in the light of the new planning application that, in December 2007, ASN's solicitors proposed to complete on the basis of a discount of £100,000 in respect of the cost of release of the covenants (10 x £10,000) plus £1,750 on account of Preston Redman's costs. Their calculation also allowed for interest on the price since 26 March 2007. ASN's solicitors wrote to Lester Aldridge on 13 December 2007 stating that they were in a position to proceed with a tender of that amount. However, Lester Aldridge in response made clear that their client would only complete on the basis that there was no discount from the specified sum of £862,000, which was the contention Anglo advanced in the pending proceedings.
- On 4 January 2008, the Council granted planning permission, but for a development encompassing only nine flats. At the same time permission was also granted for the demolition of the two existing buildings on the Property, but it was always understood that any planning permission for development and for demolition would be granted together.
Settlement with the Covenantees
- In June 2008 Lester Aldridge re-opened correspondence with Preston Redman, referring to the grant of planning permission and raising, for the first time, the argument that by reason of substantial developments that had occurred to the original Dean Park Estate, the covenantees no longer obtained any benefits under the covenant which, accordingly, could be discharged by the Lands Tribunal under section 84(1) of the Law of Property Act 1925. Their letter stated that in the absence of a satisfactory justification for retention of the covenants, they were instructed by Anglo to issue an application to the Lands Tribunal. In fact, little appears to have happened until after the Court of Appeal judgment (given on 17 March 2009) when Lester Aldridge resumed their correspondence and, in late April 2009, again threatened an application to the Lands Tribunal and stated that the previous indication by Preston Redman (back in October 2005) that their client would agree to variation of the covenants for between £8,000 and £10,000 per unit cannot be justified. Preston Redman responded on 5 June saying that they had instructions to accept service of proceedings and stating:
"We have put forward the terms to facilitate the development by way of a variation. Our client is prepared to negotiate and therefore we think that it is for your client to open those negotiations."
- However, no negotiations then took place. Anglo initiated an application before the Lands Tribunal on 8 May 2009. Because of the need to publish approved publicity notices and receive objections, the Lands Tribunal proceeding progressed slowly until, in late June 2010, a settlement was agreed between Lester Aldridge on behalf of Anglo and Preston Redman on behalf of Mr Gates that the covenants would be released at a price of £3,000 per unit. The Lands Tribunal proceedings were accordingly withdrawn and, on 29 July 2010, Mr Gates and Anglo concluded a formal agreement whereby Mr Gates would enter into a deed of variation of the covenants for a development of up to nine residential units at a price of £3,000 per unit.
DISCUSSION
- At the trial, I heard evidence from Mr Sadeh and four other witnesses called on behalf of ASN, and from Mr Guido Schillig, a director of Anglo. There was also evidence from the single joint expert, to whom I have already referred, Mr Philip Beattie, an associate director of Savills (L&P) Ltd, who was cross-examined on behalf of both parties. I find that all the witnesses of fact were honest and doing their best to recall events, some of which happened several years ago. However, while I consider that Mr Sadeh has great experience as a property developer and I find that he was indeed confident in February-March 2007 that he would achieve planning permission for a development of 12 units, I think that he failed to make any clear distinctions in his evidence between the situation where that would be achieved in the end, by staged applications for permission, and the situation where it would be accomplished in one go. As I shall explain, that distinction is significant for the matters which I have to decide.
- The discount under the Contract is expressed to be "the amount (including covenantees' fees and costs) required to obtain a deed of release/variation of the covenants… to enable the Development to be implemented". The covenantees' costs are agreed between the parties at £1,500 plus VAT. It is also common ground that the price required by the covenantees would be expressed in terms of a fixed sum per unit. Since the Purchase Price was to be paid on the contractual completion date of 17 March 2006, there are essentially two issues between the parties:
(a) what was "the Development" as at that date;
(b) what amount represents the price per unit "required" to obtain a deed of release/variation from the covenantees as at that date?
(a) The Development
- The Court of Appeal upheld the decision of the deputy judge that waiver of the planning condition did not mean that there was to be no discount in the Purchase Price. In her judgment, with which Thomas and Richards LJJ agreed, Arden LJ explained the meaning of "Development" as follows:
"15. In my judgment, the difficulties of interpretation in this case fall away when it is appreciated that the definition of Development refers not to a physical, completed development but to the buyer's proposal for a development. It cannot mean a development for which planning permission has been given or implemented because clause 14 refers to an application for planning permission for the Development. Under clause 14, the buyer accepts an obligation to apply for the Planning Permission as defined and to use all reasonable endeavours to obtain it. The Planning Permission is defined as "satisfactory planning permission for the Development".
16. Furthermore, the definition of the Development uses the words "not more than 14 two-bedroom units". These words, as I see it, introduce a sliding scale into the buyer's proposal, thus making it clear that the meaning of Development accommodates the possibility of change during the currency of the agreement. It thus means the buyer's proposal for the time being for the development of Property as residential flats with not more than 14 two-bedroom units. That makes it necessary to investigate as a question of fact at the material time what the buyer's proposal was. Moreover, the court would in my judgment imply a term as a matter of business efficacy that the buyer should act reasonably in formulating its proposal. The buyer would therefore be bound to act in an appropriate way on the basis of the advice or information provided by the planning officers of the local planning authority and on professional advice. Accordingly, it should not be difficult to identify the Development at any particular point in time. It will crystallise into the development for which planning permission is given.
17. This meaning of Development must then be inserted into the definition of the Purchase Price. In my judgment, it is then clear beyond doubt that the discount is not conditional on planning permission. The discount is applicable whether or not planning permission has been granted. Moreover, since the agreement expressly contemplates that the buyer may waive the planning condition at any time, the definition of Purchase Price has to work even though there is no planning permission.
18. Next, the definition of Purchase Price has to be read with the procedure for completion. Clause 3 provides in the usual way that at completion the Purchase Price and all other monies payable on completion shall be paid by the buyer to or at the direction of the seller. Thus it is clear that the Purchase Price must be a sum which is capable of being rendered into a finite sum of money at the completion date."
- On that basis, ASN submitted that the Development should be held to comprise 12 units because that was the proposal formulated on behalf of ASN as at 26 March 2007, as reflected in the outline sketch submitted by Mr Harrison to the Council on 9 March. Anglo submitted that the proposal at that point was in reality for nine units. Mr Harrison's sketch showed parking spaces for nine cars and it was to be inferred that there was to be one parking space for each unit. It was submitted that what was being put forward to the Council in March was a footprint of a building that was large enough to accommodate more than nine units but was presented in terms of an initial proposal for only nine units.
- I do not accept Anglo's submission. It was clear from the evidence of both the planning professionals, Mr Harrison and Mr Brown, that at this time the Council did not have a rigid policy of requiring one parking space per unit for a development such as this that was close to the town centre. I do not think that Mr Harrison, who was a very frank and straightforward witness, was disingenuous in trying to create an impression that he was seeking a structure of only nine units on behalf of his client, nor does Mr Hodges at the Council appear to have viewed it in those terms, as indicated by his subsequent comments.
- In his letter to Mr Sadeh of 13 February 2007 commenting on the planning appeal decision, Mr Brown had advised that he thought it would be difficult to obtain planning permission "for any more than 12 flats, possibly less": para 18 above. In the light of that, and Mr Sadeh's clear determination to achieve the maximum number of possible units, I do not see that Mr Harrison would have put forward, in re-opening discussions with the Council after the appeal, a proposal for only nine units.
- However, it is important to have regard to the implied term set out in Arden LJ's judgment. ASN had to act "reasonably" in formulating its proposal on the basis of appropriate advice. In my judgment, the outline sketch sent by Mr Harrison on 9 March was intended only to test how far the boundaries of the building could go to be acceptable to the planning officer as it was now critical to obtain his broad support. Mr Harrison admitted that he did not expect Mr Hodges to accept that proposal and he was not surprised by the response that required a reduction in the building's scale and footprint. I consider that the reference in the Court of Appeal judgment to a reasonably formulated proposal means a proposal that had a reasonable prospect of being accepted. That follows from the Court's explanation that it should be one based on appropriate professional advice and discussion with the planning officers. The short time between the date of the planning appeal decision and the contractual completion date, combined with the fact that the Council planning officer was not available to meet with Mr Harrison in mid-March as he hoped, meant that the submission of that reasonable proposal took a little longer.
- It is therefore necessary to determine what was the hypothetical reasonable proposal that, on an objective view, would have been formulated as at the completion date. That can be done not on the basis of hindsight but on the basis of the planning appeal decision and the professional advice which ASN received at the time. In my judgment, that was a proposal for a development comprising 10 units. I reach that conclusion for several reasons. First, it followed from the appeal decision that the scale and bulk of the building had to be significantly reduced. Secondly, Mr Brown explained that Mr Hodges, the particular planning officer at the Council who had, in effect, the custody of this application was known to be particularly difficult and he would have been emboldened in his objections by the fact that an appeal against his two previous planning decisions had been dismissed. Thirdly, Mr Brown said in his evidence that he advised Mr Sadeh on the telephone on 13 February 2007 that the best tactic to follow in seeking to achieve 12 units on the site was to put forward a proposal for a building with a smaller number of units and then, when the footprint and overall structure had received approval, to submit an amended application, or possibly several applications, for an increase in the number of units within the building. He explained that this is a common strategy and that his advice to Mr Sadeh would have been to apply that strategy and seek his desired 12 units in stages. Mr Harrison also acknowledged that that was a recognised approach. He explained that once you had "banked" a consent for a particular size of building, it would then be possible to reconfigure the interior to achieve a larger number of units. At the outset, Mr Hodges was emboldened by a planning appeal decision and Mr Harrison therefore had "little ammunition" in seeking a larger number of units than Mr Hodges was inclined to accept. But once approval for the overall structure was granted, then it would become difficult for the Council to object to a renewed application for the same structure but with a larger number of units within it.
- Since that was the opinion of the two professionals advising ASN at the time, I consider that it establishes the proposal which would be reasonably formulated as at that time, applying the test I have set out. I am reinforced in that conclusion by the fact that this was the basis of the new application which ASN did make, following a discussion with Mr Hodges at the Council, in September 2007. I note that in her judgment, Arden LJ observed that in the events which have happened, ASN would have to justify a discount on the basis of a redevelopment of more than nine two-bedroom flats. However, although in the end planning permission was granted for only nine units, for the reasons I have explained I consider that a proposal for 10 units constituted a reasonably formulated proposal considered as at 26 March 2007.
(b) The price required to release the covenants
- As to this element, Arden LJ said the following:
"It must be an amount which is reasonably required for the purpose of obtaining a release or variation of the applicable restrictive covenants such as would enable the Development, that is, the buyer's proposal for the time being for the development of the properties as residential flats with no more than two-bedroom units, to take place. It may be possible to ascertain the amount by making enquiries of the Cooper Dean Estate, but if not it will have to be found as a matter of fact (unless agreed). The fact that the Estate would not release the covenants until the planning permission was granted does not present any obstacle. A purchaser acting reasonably would not pay any sum to the Estate until the planning permission was granted. That, therefore, is the only sum (apart from costs) which he can claim. He cannot, in my judgment, claim any uplift on account of the fact that it may take another year to get planning permission, during which period the Estate may have increased its charges. But the submission that the amount must actually have been paid before completion is completely unwarranted. All that is necessary is that payment is "required"."
- ASN contended that the amount was therefore £10,000 per unit because that is the figure which Preston Redman gave in their letter of 14 March 2007. Although the covenantees' solicitors put forward this amount as the estimated price, I do not consider that this necessarily means that it is the amount that was "reasonably required". I do not read the judgment of the Court of Appeal as meaning that any figure quoted by the Cooper-Dean Estate was to be accepted and applied in the Contract to compute the discount. Once completion took place, it would be open to ASN to enter into negotiations with the covenantees, and if it was to be expected that this would achieve a significantly lower price, then if £10,000 was used to calculate the discount the difference would be a windfall for ASN: that would be contrary to the parties' intention in the way the definition of the purchase price was formulated. The amount stated by Preston Redman was certainly relevant as, in effect, the estimated asking price; but if that was likely to be negotiated down, the parties had to make an estimate of the amount that in fact would be reasonably required on the outcome of those negotiations.
- The position here was that Anglo had not undertaken any serious negotiations with Preston Redman prior to March 2007. The period between 14 February and 26 March 2007 did not give ASN sufficient time to carry out effective negotiations, especially as Preston Redman, on behalf of their clients, were likely to adopt an inflexible stance if they knew that ASN required a price to be agreed by that deadline. But that did not preclude ASN from determining what sum would reasonably be required once effective negotiations could take place.
- Mr Beattie, the single joint expert, explained that a key element is the question of a credible threat to take the covenantee to the Lands Tribunal. Negotiations take place against that background. Here, the covenantee would have been particularly concerned at any such risk since the Cooper-Dean Estate has the benefit of a very large number of similar covenants and the prospect that they might be declared invalid would deprive it of a significant source of income. Mr Beattie said that there is an element of bluff in his experience of such negotiations: the developer may threaten to take the matter to the Tribunal even though, because of the time and expense involved, it would be reluctant to do so. The covenantee has to assess the likelihood that the developer would proceed along that course. He explained that the settlements reached in such negotiations are, as one would expect, based on consideration of comparable fees paid for covenants in the area, especially as the number of surveyors acting in such negotiations around Bournemouth is quite small and they all know one another.
- Mr Sadeh, for his part, said that if the contract had been differently worded such that his company had to absorb the cost of securing a release from the covenants, he would have consulted an expert surveyor in Bournemouth to check the going rate. ASN did not do so, but Mr Beattie was able to give his opinion, having looked into comparables, on exactly that basis. His expert view was that the reasonable settlement price as at March 2007 was £6,000 per unit, plus costs. There was no other evidence before the court as to what a surveyor would have advised as the reasonable outcome at the relevant time. Accordingly, I consider that there is no reason for the court not to accept Mr Beattie's opinion.
- Anglo contended that the price per unit for the purpose of the contractual discount should be £3,000 as that was the figure actually required under the agreement reached with the covenantees in June 2010. However, that is not only to apply hindsight to the situation as it was in March 2007. It was also a figure that was reached in a significantly weaker property market and after proceedings had been initiated before the Lands Tribunal and had been on foot for over a year. I therefore do not regard that as the amount which was "reasonably required" assessed as at March 2007. As Arden LJ stated, the purchase price "must be a sum which is capable of being rendered into a finite sum of money at the completion date" (para 18).
- Anglo further sought to rely on a letter from Preston Redman dated 23 June 2010 in which the (unnamed) author stated on behalf of the firm that "a premium of £3,000 would have been achievable and acceptable to the firm's client in March 2007 for a development of up to 12 units". No notice under section 2 of the Civil Evidence Act 1995 ("the Act") was served with regards to this letter, nor was the maker of the statement called to give evidence. Although it is admissible, I do not give that statement any weight having regard to the considerations set out in section 4 of the Act. In response to my enquiry, counsel for Anglo could not suggest any reason why it was not practicable to have called the author of the letter, and I consider that if it were to be relied on he or she should clearly have been called since it goes to a fundamental issue in this case. Had he or she given evidence, there would doubtless have been cross-examination raising the matters to which I have adverted above.
- As for the assertion by ASN that Anglo should have negotiated with Preston Redman in 2006, that was not a contractual requirement. If Anglo had started Tribunal proceedings challenging the validity of the covenants in 2006, it might have achieved agreement on a price lower than £6,000, and then would have had the benefit of a lesser discount. But that is hypothetical as it never took such steps. The lack of negotiations by Anglo with Preston Redman (for the covenantee) is, in my judgment, irrelevant.
- Counsel for Anglo advanced an alternative submission based upon the Court of Appeal judgment. He argued that the completion date at which the court said the discount is to be determined was the date of actual completion, when the discount could be calculated upon the actual amounts required, as opposed to the contractual date of completion. On that basis, the discount, in the light of developments in 2009-2010, was 9 x £3,000 (plus the agreed figure of Preston Redman's costs of £1,500 plus VAT). As I understood his submission, it was that the contractual mechanism provides that the "Purchase Price" can change beyond the contractual completion date according to subsequent progress of the planning application, so that if completion is delayed, once actual completion takes place ASN as the purchaser must pay the price calculated as at that date. However ASN would still be in breach of contract for having failed to tender on the contractual completion date the purchase price that, on this analysis, would then have been calculated on a different basis.
- This alternative interpretation, which indeed was the primary interpretation advanced on behalf of Anglo at trial, is nowhere set out in Anglo's pleadings. Although Anglo served draft Amended Points of Defence and Counterclaim one month before trial, for which amendment I gave permission at the outset of the trial, the declaration sought by that Counterclaim is inconsistent with this proposition as it expresses the discount on the basis of the development proposal which ASN is found to have had as at 26 March 2007. But aside from the question of pleading, I unhesitatingly reject that submission. I can find no warrant for it whatever in the Contract and if the Court of Appeal had intended to set out what I regard as a very unusual, if not bizarre, interpretation of the Contract, I consider it would have made this clear. On the contrary, the statement by Arden LJ that in the events which have happened, ASN would "have to justify any discount for the cost of any variation on the restrictive covenants to allow redevelopment of the properties into more than nine two-bedroom flats" is inconsistent with this submission since, if the discount is to be determined on the actual date of completion there would be no possibility of seeking to justify any discount other than in respect of the nine units for which planning permission was eventually given. In short, when the Court of Appeal refers to the completion date, I have no doubt that this is a reference to the "Completion Date" as defined in clause 1.1 of the Contract.
- Accordingly, I hold that the discount to be applied in calculating the purchase price is 10 x £6,000 plus the agreed costs of £1,500 plus VAT (ie £1,762.50). Therefore the "Purchase Price" is £800,237.50.
Breach of contract
- It is clear that ASN never offered to complete on the basis of that price, let alone tender an amount accordingly. As counsel for ASN very properly accepted, in that event there could be no breach by Anglo in failing to complete. The damages claim advanced by ASN according falls away.
Compensation for default
- Under clause 6 of the Contract, the Standard Conditions of Sale (4th edition) are incorporated, subject to amendments by special conditions. Clauses 6.11 to 6.13 amend several of the paragraphs of Standard Condition 7.3. It is appropriate to set out the whole of clause 7.3 incorporating the amendments made by the special conditions:
"7.3 Late completion
7.3.1 If there is default by the Buyer in performing its obligations under this Agreement and completion is delayed the Buyer shall pay compensation to the Seller.
7.3.2 Compensation is calculated at the contract rate on the purchase price less any deposit paid for the period between the Completion Date and Actual Completion.
7.3.3 Any claim for loss resulting from delayed completion is to be reduced by any compensation paid under this contract.
7.3.4 Where the Property is tenanted or occupied on licence (whether in whole of in part) the Seller may at its option take the net income from the Property and claim compensation under Standard Condition 7.3.1 as well."
- Anglo accordingly counterclaims for compensation pursuant to clause 7.3.1 calculated on the Purchase Price less the deposit. In response, it was submitted for ASN that "default" in clause 7.3.1 has a special meaning. ASN argued that if the purchaser failed to complete due to some unforeseen occurrence, then although the purchaser may be in breach of contract it was not to be regarded as in "default" for the purpose of this condition.
- The foundation for this submission was the judgment of Wilberforce J in In re Hewitt's Contract [1963] 1WLR 1298. There, the 14 shareholders who together were acting as the purchaser failed to complete until 14 days after the contractual completion date due to their underestimating the time it would take to finalise the necessary registration of the transfer of their holdings. In considering the meaning of "default", Wilberforce J stated (at 1304):
"…I have to discern whether this is a case where the vendors saw that there were certain difficulties, but, nevertheless, thought they could be overcome, or, on the other hand, whether some unforeseen occurrence sprung upon them, which was not attributable in any way to their negligence or default, had the effect of contributing to delay in completing the purchase."
However, that statement has to be read in the context of the contractual condition that fell to be applied in that case. This read:
"The purchaser shall not be liable to pay interest [for late completion] -
(i) so long as the delay in completion is attributable to any act or default of the vendor…"
Accordingly, the issue there was whether the default was causative of the delay. Hence Wilberforce J's reference to some unforeseen occurrence which had the effect of contributing to the delay. I do not read his statement as holding that if there had been such an unforeseen occurrence, the vendor would not have been in default at all. He was explaining that, in those circumstances, any default by the vendors would not make them liable for the delay. This is made clear, in my view, by the judge's conclusion, after finding that the vendors had underestimated the time required so that completion was not delayed through any unexpected difficulty, when he stated (at 1305):
"That being the factual position … It is not possible for the vendors to say that, through some unforeseen occurrence which exonerates them from their liability for default they are not responsible for the delay." [my emphasis]
- There is a further qualification as the to meaning of "default" in such clauses explained by the Court of Appeal in Newbery v Turngiant Ltd (1991) 63 P&R 458. Referring to In re Hewitts Contract and the earlier decision of the Court of Appeal in Re Woods and Lewis' Contract [1898] 2 Ch 211, Dillon LJ stated:
"There is no default on the part of the vendor if, between contract and completion a technical defect is discovered in title of which the vendor did not know and which he had no reason to suspect."
But as Dillon LJ proceeded to explain, that qualification derived from the rule in Bain v Fothergill which has since been abolished by statute in relation to contracts entered into after 26 September 1989. Hence Dillon LJ stated (at 470):
"In a future case arising under a contract entered into after 26 September 1989, the vendor will be in default if he fails to clear before the contractual completion date any defect in his title which becomes apparent between contract and completion, of which he has been unaware at the date of the contract, however reasonable his conduct may have been."
- Accordingly, I consider that "default" is not to be given any different meaning from breach of contract. If the buyer fails to tender the purchase price on the completion date, as the contract requires, the buyer is in breach and therefore in default. A separate question is whether in those circumstances the seller is entitled to compensation, which will depend upon the contractual clause at issue. In the present case, the compensation provision in clause 7.3.1 does not expressly stipulate that the delay in completion must be caused by the buyer's default. It is notable that the compensation provision is distinct from potential liability on the part of the buyer for damages for delayed completion: see clause 7.3.3. Nonetheless, I consider that it is implicit in clause 7.3.1 that there must be some causative link between the default and the delay. That follows from the equitable principles that are to be applied to the interpretation of such provisions. The application of these principles was explained by Dillon LJ in Newbery v Turngiant Ltd at 466:
"It is, however, well established that it is proper to construe a contract for the sale of land against the general background of equitable rules and consequently that an obligation on a purchaser to pay interest on the balance of the purchase money if completion is delayed does not apply in so far as the delay is attributable to default on the part of the vendor; a vendor cannot take advantage of his own wrong to compel a purchaser to pay interest. See Re Woods and Lewis' Contract and Re Hewitt's Contract. Thus the obligation of the defendant as purchaser to pay interest under clause 8 of the contract does not apply in so far as the delay in completion was caused by default on the part of the vendor. But it does apply in so far as the delay was due to a default on the part of the purchaser, or (as in Re Woods and Lewis' Contract) was due to something which was not the fault of either party."
See also per Ralph Gibson LJ at 474.
- Here, it is true that Anglo as the seller had indicated that it required payment of a price that was higher than I hold the purchase price to be. But I do not see that this is sufficient to invoke this equitable principle so as to preclude Anglo from recovering compensation under the clause. ASN, as I have found, failed to tender the purchase price. That failure would clearly have delayed completion in any event. I certainly do not see that on the wording of clause 7.3.1 it would be appropriate to apply a "but for" test of causation. At most, this was a case where, because of uncertainty as to the true construction of the contractual definition of the purchase price, in the events that had occurred, both sides had difficulty in working out what the price should be on the contractual completion date. But ASN was nonetheless in default and there is no ground to disapply the ordinary meaning of clause 7.3.1. Anglo is therefore entitled to compensation at the contract rate pursuant to clause 7.3.2. I shall hear both parties as to the exact formulation of the declaration which the court should make if that cannot be agreed between them.
