Planning obligation — Section 106 agreement — Section 2 of Law of Property (Miscellaneous Provisions) Act 1989 — Whether agreement void for failing to contain signature — Whether implication of term — Whether rectification of agreement
The plaintiff and D Ltd owned adjoining sites suitable for residential development. The local plan required the inclusion of affordable houses in the development of that area. In negotiations between the plaintiff and D Ltd, D Ltd proposed to build 32 affordable houses. That number would satisfy the requirements of the local plan for both sites. By an agreement between the plaintiff and the defendant council, made pursuant to section 106 of the Town and Country Planning Act 1990, the plaintiff agreed to allocate an area for affordable housing and to transfer that site at a discounted price to a housing association. A provision of that agreement released the plaintiff from the obligation, on a pro rata basis, if the council entered into a section 106 agreement for a minimum of 30 affordable houses on D Ltd’s site. By an agreement dated 9 October 1997, also pursuant to section 106, between the council and D Ltd, D Ltd was obliged only to provide 15 affordable houses. On 25 November 1997 the council informed the plaintiff that, in the light of the wording of the agreement with D Ltd, the plaintiff was not released from its obligation to provide a site for 15 affordable houses. The plaintiff contended that there had been a clear-cut arrangement by which D Ltd would provide all the affordable housing (which, in fact, it did) and the plaintiff would be free to construct houses of its choice; this arrangement was not correctly reflected in the section 106 agreements. The plaintiff also contended that the section 106 agreement was void in whole or in part by reason of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Alternatively, a term should be implied into the agreement or it should be rectified to give effect to what was the true intention of the parties.
Held Judgment for the plaintiff.
The provisions of the section 106 agreement relating to the conveyance of the site for affordable housing fell within the requirements of section 2 of the 1989 Act. By reason of section 2, they were of no effect because they lacked the signature of the purchaser as required by that provision. Apart from those provisions, the agreement remained otherwise in effect. In the alternative, there was implied in the agreement a term that the council would, in negotiations with D Ltd, ask Ltd to agree to provide 30 affordable houses or, in the further alternative, the agreement should be rectified to the same effect. |page:1|
BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings [1977] AuLR 363; (1978) 52 AJLR 20, PC
Commission for New Towns v Cooper (Great Britain) Ltd [1995] Ch 259; [1995] 2 EGLR 113
Director of Public Prosecutions v Hutchinson [1990] 2 AC 783; [1990] 3 WLR 196; [1990] 2 All ER 836; (1990) 89 LGR 1, HL
Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567; [1995] 4 All ER 355; [1996] 1 EGLR 175; [1996] 13 EG 125
Hertsmere Borough Council v Brent Walker Group plc [1994] 1 PLR 1
McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38; [1996] 4 All ER 995; (1997) 74 P&CR 343, CA
R v Somerset County Council, ex parte Dixon (1998) 75 P&CR 175
This was a claim by the plaintiff, Jelson Ltd, for relief arising out of an agreement with the defendants, Derby City Council.
MR DAVID MACKIE QC: In this case the plaintiff, Jelson Ltd (Jelson) seeks relief against the consequences of what it contends has been sharp practice by the defendants, Derby City Council (Derby), over agreements for permitting the development of land off Rymill Drive, Oakwood, Derby (the Jelson site). The dispute surrounds an agreement under section 106 of the Town and Country Planning Act 1990 (the 1990 Act). Jelson contends that by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 the agreement is void in whole or in part. Alternatively, Jelson seeks to imply a term into the agreement or to have it rectified to give effect to what it says was the true intention of the parties. I am grateful to Mr Pascal Bates and to Mr James Howlett, as without their ability and willingness to co-operate the trial would have been much longer and more expensive for the parties.
Facts
Before turning to the legal issues I first summarise the background and the evidence. The area of conflict is limited to the reasons for and motives behind the parties’ actions, there being no serious disagreement about what happened.
Jelson acquired its site in 1991, and, in June 1995, applied for permission to build 51 houses on it. Another developer, William Davis Ltd (Davis), owned the neighbouring site (the Davis site). In August 1996 Jelson applied, under section 73 of the 1990 Act, to carry out a development under an earlier permission granted in 1985. That application was refused, and, on 23 December 1996, Jelson appealed to the Secretary of State. Much of the subsequent negotiation was under the |page:2| shadow of that appeal. This explains, first, why so many relevant letters are marked ‘without prejudice’, and, second, why the parties were keen to reach an agreement in the summer of 1997, before the result was known.
After a meeting on 19 December 1996, Mr Amatt, a team leader with Derby, responsible for implementing development in line with local planning policies and negotiating with developers on planning obligations, wrote, on 6 January 1997, to Mr McGreal, the Jelson land manager responsible for the project. He wrote, among other things, about affordable housing, the issue at the centre of this case. That letter pointed out that for the area covered by the Jelson and Davis sites the local plan provided for 30 affordable dwellings, with a pro rata requirement of 15 for the Jelson site. Jelson did not want to have to provide affordable housing, mainly because mixed sites are less attractive to homebuyers. Davis, however, is a specialist in affordable housing and proposed to build 32 houses on the Davis site for sale to housing associations. The letter led to a meeting on 28 January 1997 led by Mr Amatt, accompanied by Mr Inwood, responsible for planning applications, and Mr Teasdale, the solicitor employed by Derby who was dealing with the matter (and who is also the solicitor having the conduct of this litigation). The meeting did not lead to agreement. Jelson, for whom Mr Scott and Mr McGreal were most involved, instructed Grimley International Property Advisers (Grimley), the partner was Jeremy Wilson FRICS, and an associate, Sarah Avery, was the one most involved.
During a consultation on 3 March 1997 Mr Lockhart-Mummery QC advised Jelson that it would be useful for Jelson to negotiate with Davis, which might have reached a solution with the council about affordable housing. It is fair to point out that, at that consultation, Jelson observed that Derby were the least onerous council that it had dealt with on affordable housing.
After further contact, Miss Avery saw Derby on 15 May to discuss the educational and open-space requirements. The council may set an educational requirement requiring a developer to pay a sum towards the provision of education, the need for which will be created by the children who later live in the houses to be built. The council initially sought £65,000 from Jelson and £70,000 from Davis. Following work by Grimley, Jelson’s contribution was negotiated down to £30,000, a reduction of £35,000.
On 21 May Davis told Mr Amatt, of the council, of its intention to seek to build 32 affordable houses. Meanwhile, Mr Teasdale was pressing Jelson for progress. On 27 May Davis applied for planning permission to build those houses. On 29 May Mr Scott and McGreal, of Jelson, met Mr McInnes, of Davis, to discuss the development. The companies reached what Mr McInnes described as not a ‘legal’ arrangement but an informal one, and one which Mr Scott and Mr McGreal saw as a verbal understanding. This was to the effect that Davis would build 32 affordable housing units on its site, so satisfying the entire requirement for the two sites, and Jelson would provide the know-how that later enabled Davis to negotiate its educational requirement down from £70,000 to £43,512. This led Miss Avery to write to Mr Teasdale on 2 June informing him that Davis |page:3| agreed to accept the provision of 32 affordable houses on its site to fill the entire requirement for affordable housing on the two sites. She suggested a meeting, and one was held on 11 June, a full note of which was prepared by Miss Avery. Those present included Mr Amatt, Mr Teasdale and Mr McGreal. The accuracy of the note has not been seriously disputed, although I accept, of course, that it is not a verbatim note.
Mr Amatt:
confirmed that Davis’ provision of affordable housing can be taken into consideration in the context of Jelson’s site once provision of it by Davis has been secured by means of a section 106.
He also confirmed:
that the housing department is satisfied that the housing to be built by Davis under its current proposal are ‘affordable’.
Rather than awaiting the completion of a section 106 or Davis providing satisfactory proof of intention to build these 32 affordable housings, MA suggested that an agreement is reached with Jelson whereby if, within a certain time period, Davis has not provided the houses or not all of them, Jelson will make up the shortfall. This suggests that Jelson would need to leave part of the site available for affordable housing, should Davis not deliver, but if they do, within the timescale, market houses could then be built on the reserved Jelson land.
The meeting was followed by swift exchanges of letters between Miss Avery and Mr Teasdale. On 17 June Mr Teasdale agreed that if Davis would:
provide 32 affordable homes on their site this will satisfy the affordable housing site requirements of the ‘whole site’.
He also said:
in order to secure provision of affordable housing prior to the issue of any planning permission for the Jelson site, we would require your client [Jelson], to guarantee the provision of up to 15 houses that meet our affordable housing requirements.
and suggested one acre of the site be identified for this purpose. He went on:
your client, in any event, will be released from their obligations to provide a site for affordable housing and to provide a subsidy, if William Davis provide 30 houses that meet the council’s affordable housing requirements on their site. (If William Davis provides less than 30 such houses but more than 15, your client will be released on a pro rata basis).
Miss Avery’s reply, on 18 June, suggested that the second paragraph be replaced by:
In order to secure provision of affordable housing prior to the issue of any planning permission for the Davis site, we would require your client Jelson Ltd…
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Mr Teasdale thanked Miss Avery by letter the following day, made no comment on her proposed change and confirmed that the matter would be considered by the planning subcommittee on 26 June. He referred to his understanding that officers would recommend approval, subject to conditions and to a section 106 agreement, and offered to start drafting the section 106 agreement if Jelson’s solicitors would contact him.
On 23 June Mr Tyler, of Ironsides, instructed by Jelson, asked Mr Teasdale for a draft section 106 agreement, which Mr Teasdale sent the following day. When writing to Mr Tyler on 24 June, Mr Teasdale recorded that:
It has been agreed between ourselves and your client that should all these houses [ie the 32 Davis houses] be provided this would be sufficient to satisfy the affordable housing requirements of [both sites]. If, however, the housing is not provided, Jelson will have to provide an area for affordable housing to meet the shortfall.
At this point, it is convenient to summarise the relevant parts of the section 106 agreement (which I shall call the Jelson agreement). This planning agreement between Jelson and Derby for the site is dated 15 August 1997, and, with schedules, runs to 21 pages.
By clause 9, headed ‘affordable housing’, Jelson agrees with Derby that no development will commence until it has allocated on a plan 0.4ha for an affordable-housing site. Clause 9.3 permits the owner to require the size and area to be reduced, where the requirements for clause 12.1.1 have been met. By 9.5, the owner is obliged to transfer the affordable-housing site to a housing association nominated by the council, and to do so at a discounted price to be calculated on the basis set out in the Fourth Schedule and on the other terms and conditions set out in the First Schedule, which is headed ‘General Terms and Conditions for Sale of affordable housing Site’. If the discounted price in the Fourth Schedule cannot be agreed, there is a valuation provision in the Fifth Schedule. Under clause 10, the council must nominate the housing association not before the end of one year but within four years of the date on which development starts, and the transfer notice must be given within two years of the housing association being nominated.
Clause 12 is headed ‘Release from affordable housing Transfer’, and, by this, the council agree to release Jelson from its clause 9 obligations in certain events. Under 12.1.1, Jelson is released if Derby enter into a section 106 agreement with Davis (which I shall call the Davis agreement) for the provision of a minimum of 30 affordable houses on the Davis site. If the Davis agreement provides for the provision of more than 15 affordable houses on the Davis site, Jelson may require the affordable-housing site to be reduced by one-fifteenth of its original area for each house above 15. Under clause 12.1.2, Jelson is also released if a nominated housing association does not complete the purchase within five years of the start of development, but Jelson must then pay Derby the land subsidy, essentially one-third of the open market residential value of the affordable-housing site. By clause 20, the agreement takes effect as a deed, and clause 19 |page:5| requires Jelson to pay the council’s legal fees of £375.
Mr Teasdale’s draft clause 12.1 released Jelson from its clause 9 obligations if, before Jelson started development, 30 affordable houses were completed to the council’s satisfaction on the Davis site. On 25 June Mr Tyler suggested amendments. These included changing clause 12 so that the release of Jelson’s obligation to provide affordable housing should take effect on Davis entering a section 106 agreement, rather than on Davis completing the housing. The purpose of the amendment was to free Jelson to plan and build once the Davis agreement was in place, rather than later after Davis had completed its 32 houses. We know from Mr Tyler’s letter to his client and to Jelson on the same day that he, following a telephone conversation with Mr Teasdale the previous day, was hopeful that the new proposed clause 12.1.1 would be agreed. He suspected that there would be more difficulty with a proposed condition about payment of land subsidy and about a proposal that each side pay its own costs.
On 26 June Mr Teasdale responded with handwritten comments, including agreement to the relevant parts of clause 12.1. His covering fax read: ‘Please find attached my comments on your suggested amendments. Hopefully we can agree these.’ On that day, the planning officer’s report on the Jelson application to the council’s planning subcommittee made it clear that the overall affordable-housing requirement for the sites was to be met in whole or in part on the Davis site, as envisaged at the 11 June meeting. An addendum to the planning and technical services planning subcommittee agenda of 26 June 1997 mentioned in the relevant part:
However Jelsons will be released from this obligation if William Davis provide the full target of 30 affordable dwellings on their site. If William Davis provide more than their target figure of 15 affordable dwellings, but less than the overall target of 30 affordable dwellings, the requirement on Jelsons would be reduced on a pro-rata basis.
It adds, as regards the educational position:
the offered commuted sum is less than I requested. However it is still a relatively substantial sum and in view of the uncertainty of the outcome of an appeal should it proceed, I believe it is an offer which should be accepted.
There is a conflict of evidence about the negotiation of clause 12 to which I will return.
At the beginning of July the parties discussed various minor amendments. On 15 August the Jelson agreement was executed and delivered as a deed, planning permission was granted, the council received the £30,000 educational contribution and the £375 agreed legal costs. Meanwhile, on 24 July, the report to the subcommittee on the Davis application (which had been made in May) was submitted, linking the matter to the affordable-housing requirements of the Jelson site. The subcommittee accepted the recommendations. On 30 July Mr Amatt and Mr Inward discussed with Davis the terms of a section 106 agreement. On 18 August Mr Teasdale wrote to Mr Byass, of Moss, solicitors for Davis, proposing terms for a section 106 agreement, and negotiations proceeded. |page:6| On 20 August Mr McGreal, of Jelson, wrote to Mr Teasdale asking for information about Davis’ application and confirming Jelson’s withdrawal of its section 73 appeal. Mr Teasdale replied that he was ‘not at liberty at present to disclose the terms’ of the Davis negotiations.
On 4 September Moss wrote to Mr Teasdale to inform Derby that Davis was in negotiations with two housing associations. In response, Mr Teasdale sent a draft with a blank affordable-housing clause, and Mr Byass suggested that the Jelson agreement might be used as a precedent. On 19 September Mr Teasdale sent to Mr Byass an amended draft section 106 agreement with an affordable housing requirement, but for only 15 units. This draft said nothing about 30 houses being needed or required. As Mr Byass emphasised in evidence, Davis was anxious to finalise the agreement to start building, and there was therefore little controversy about its terms. Mr Byass was not aware of the agreement by Davis to provide the 30-house requirement. It seems that while his client Mr McInnes was aware of it, he did not appreciate that it was to be recorded in this agreement. The Davis agreement was executed on 9 October, after further discussion about details. On 10 October, the next day, Mr Teasdale wrote to Mr Byass’ assistant stating, among other things:
It may be useful if I explain briefly the effect of the relevant clause in the Jelson agreement.
The section 106 agreement with Jelson Ltd imposes various obligations to provide affordable housing on their site. If, however, we enter into a section 106 agreement with the owners of your client’s site, then for every house that that section 106 agreement provides for over and above the first 15 houses, the obligation on the owners of the Jelson site will be reduced proportionately.
The current agreement with your client only puts an obligation to provide 15 houses on your client’s site in any event and accordingly, would not release Jelson Ltd from their obligations to provide affordable housing on their site.
Mr Teasdale also wrote to Mr McGreal, but not until 25 November, to tell him that, in the light of the wording of the Davis agreement, Jelson was not released from its obligation to provide 15 affordable houses. Mr McGreal was angered by what he read. This led to a meeting on 9 December between Mr Amatt and Mr Teasdale, for Derby, and Mr Scott and Mr McGreal, for Jelson. The background to the meeting was two telephone calls involving Mr Teasdale and Jelson. Mr Teasdale’s note of the first call states of Mr McGreal that he was ‘crying foul play, not a happy chap’. His note of the second call records Mr Scott asking for a release and the council suggesting that they receive something in return. The council suggested to Jelson that the obligation to provide 15 affordable houses would be released in return for a payment of £35,000. Derby now suggest one reason for that figure being arrived at. Jelson has pointed out that it corresponds to the total reduction secured on the educational requirement. Mr McInnes, of Davis, wrote to the council on 22 January 1998 in terms that are of interest. The letter points out that Davis had no financial interest of its own to serve, and stated:
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Our understanding of the situation was that if we provided 30 units on our site, then Jelson would be released from their obligation to provide 15 units on their site. We were not aware of the detailed wording of the Jelson agreement and that our section 106 specifically had to make reference to such provision. Your officers were aware that parts of our site were to be disposed of to Derwent & Home Housing Association Ltd, which of course has now taken place.
We do feel that the overall objectives of the council have been reached and that the spirit of the agreement between the parties and the ultimate objectives have been achieved and we do not therefore believe that it is right to seek an enhanced position by trying to gain advantage from the wording of the Jelson section 106 agreement, which we are told by Jelson’s is the case.
Jelson is aggrieved because what appeared to be a clear‑cut arrangement, by which both Jelson and Davis would be free to proceed, with the latter supplying all the affordable housing, has been translated by the legal agreements into one whereby Jelson is committed to provide 15 affordable houses, even though Davis has already built 32. The council complain that this is an oversimplification. I now turn to some of the evidence, although much of it confirms the correspondence and the picture I have described above.
Evidence
Mr McGreal and Miss Avery, the chartered surveyor who had worked for Grimley, had similar recollections of the negotiations. Mr McGreal had a similar impression to Mr Scott of the two meetings they had attended together in May and December. Miss Avery’s evidence bore out the contemporaneous documents until she handed over to the lawyers in June.
Mr Scott, now retired but formerly of Jelson, explained that Jelson and Davis were not rivals in this case because of the different operations that both proposed for the sites. He described the meeting with Davis on 29 May and what happened when he and Mr McGreal met the council on 9 December. He said that at the meeting on 9 December 1997 Mr Amatt admitted that a mistake had been made and that he and Mr Teasdale were going to take full advantage of it. He said that if the boot had been on the other foot Jelson would have taken advantage and that Derby had suffered in the past from similar mistakes. Mr Amatt had suggested, to Mr Teasdale’s apparent annoyance, that there might be room for manoeuvre on the £35,000. Mr Scott said that he had no doubt at all that Davis would have been happy to enter into its agreement specifying 30 affordable houses.
Mr Tyler, Jelson’s solicitor, understood, when instructed to write to Derby for a draft section 106 agreement, that Davis had agreed to provide and build at least 30 houses within the category of affordable housing, releasing Jelson, in whole or in part, from its own obligations. He was aware that a release of his client’s obligations depended upon what Davis did, but did not know that Davis had already applied for planning permission. His proposed amendment to para 12 emerged at his own suggestion following his conversation with Mr McGreal. He was aware of |page:8| the distinction between what he proposed, release on Davis entering into the agreement, as opposed to the provision in the first draft for release on physical completion of the houses. His understanding of the intention of Davis came from his client, not from Davis itself or from Derby, and he made no inquiries of either. He discussed the various proposed amendments on the telephone with Mr Teasdale, but there was no sign of the latter being annoyed at the amendment to clause 12 or seeing it as a major issue. Mr Teasdale’s main concern seemed to be to get things done swiftly before the outcome of the appeal process. Mr Tyler had no impression of annoyance or displeasure from Mr Teasdale but some sense that the two transactions were going along simultaneously.
Mr McInnes, of Davis, had a recollection of the meeting in May 1997 similar to those of Mr McGreal and Mr Scott. There was pressure to complete the section 106 agreement as Davis had wanted to start work. In September 1997 he received a draft section 106 agreement providing for 15 affordable houses, at which point they intended to build 32 units, having agreed terms with housing associations to buy them. He was therefore content for the agreement to contain a requirement of only 15 houses, although if Derby had included a requirement for 30 it would not have been a problem. He had, unprompted, drafted his letter of 22 January 1998, as he felt that all the parties had, in practice, achieved the result that all had intended.
Mr Byass, Davis’ solicitor, described his negotiations with Derby and his awareness of parallel discussions with Jelson, which explained why, in his letter of 8 September to the council, he suggested to Mr Teasdale that the draft agreement should be based on the Jelson precedent. He never saw a copy of the Jelson agreement, his concern was that of Davis, to get the agreement finished. He was indifferent as to whether the number of affordable houses should be 15 or 32.
He had no recollection of any telephone conversation with Mr Teasdale. There is no record in his time log or his file of such a discussion, and he said that it is more likely that any conversation would have been with his assistant solicitor, Mr Dunbar. If he had had the conversation he would have expected to have reported it to his client, but there was no evidence of him having done so.
Mr Teasdale’s evidence was, like those of other witnesses, largely uncontroversial until production of the draft section 106 agreement on 24 June 1997. He said that he saw the meaning of Davis having to ‘provide’ affordable housing as being a reference to development being completed, and this is what his draft clause 12.1 had recorded. He said that Mr Tyler had called him just before lunch on 25 June about a fax he was intending to send, and that he made reference to various minor amendments, but also to the one that caused Mr Teasdale ‘most concern’; the amended clause 12.1.1. Mr Teasdale said that this was clearly different to what had originally been agreed and that he had said so strongly, stating that he was not happy with the amendments.
Mr Teasdale said that his annoyance was apparent to such an extent that Mr Tyler suggested it would be more constructive to fax the |page:9| amendments through for consideration. Mr Teasdale says that he agreed to that, although indicating that the amendments, including the affordable-housing requirement, were unlikely to be accepted. He said that he was annoyed because he thought that Mr Tyler was trying to change the ground. As Mr Teasdale saw it, the proposed amendment involved a risk that they might only have 15 affordable houses provided on the site, as there was no certainty that Davis would build 30 on its site or even start development. It will be remembered that Mr Tyler has no recollection or note of the conversation, no impression of any annoyance and there is nothing in any of the documents and exchanges, quite regular and quite fast at the time, to suggest any such expression of view on Derby’s behalf.
Mr Teasdale’s dealings with the other solicitor witness, Mr Byass, also indicate a conflict of evidence. He said that although there was no note on the file, Mr Byass had telephoned him to discuss the draft during what Mr Teasdale later said was quite a short conversation — two to three minutes at the longest. Mr Byass had questioned the need to draft an affordable-housing clause with a complicated mechanism, suggesting that it might be easier simply to draft it to provide that all land on the Davis site be for affordable housing. Mr Teasdale said that he had emphasised that he wanted to keep to the agreement reached between Davis and Mr Amatt.
He believed that he had written to Mr Dunbar, of Moss, on 10 October about the Jelson agreement to assist him in arrangements for completion. He had written to Jelson with the news because the file had come up for review and action.
As regards the meeting on 9 December, Mr Teasdale recalled that Mr Amatt had agreed with Jelson that the original intention was for Jelson to be released from having to provide affordable housing on its site if Davis built 30 affordable houses on its site. It was Jelson’s insistence on changing the terms during the negotiations on the draft and the council’s acceptance of the proposed changes that had led to the agreement not reflecting that original intention. The council had suggested a payment of £35,000 as an increased contribution towards school provision in return for a release from the affordable-housing obligation. This would reflect the fact that what Jelson had offered, in its hard and uncompromising negotiating stance, had resulted in proposals falling short of what should have been provided from a planning policy viewpoint.
Mr Amatt, team leader, gave evidence about the background and Derby’s real and genuine need for affordable housing. While agreeing in broad terms with the note of the meeting of 11 June, he did not recall saying what was attributed to him in paras 19 and 20 of the note to which I have referred above. He remembered sharing Mr Teasdale’s concern that the amended para 12 was not what had been negotiated and would not guarantee that the affordable houses were actually built. He felt that if Davis entered an agreement and did not proceed with development, Jelson would be free not to provide its 50% contribution. He also felt it would be unreasonable and against government policy to require Davis to |page:10| provide the whole affordable-housing contribution when they were only developing half the site. He felt that despite the fact that he knew it was Davis’ intention to provide 32 houses, all of which were affordable. He felt this notwithstanding the fact that the addendum of 25 June to the subcommittee envisaged that Davis would provide the full 30 houses and the planning officer’s report of 24 July on the Davis application, which recorded ‘the dwellings are intended to be affordable houses and are linked with the requirement of such housing generated by the recently considered Jelson’s proposed development to the south west’. Mr Amatt saw a risk to the council in agreeing to the June proposal, but saw potential for the Davis agreement to include only the pro rata share; 15 dwellings. In this event, if Davis built its 32 dwellings, Jelson would have to provide a further 15. In short, he saw in return for the risk the chance of benefit to the council from the proposed amendment.
On 30 July Mr Amatt met Mr McInnes, of Davis, whom he had already seen on 21 May when he had been told of Davis’ intention to construct 32 affordable houses. He was aware, at that point, that the Jelson agreement had not been finally executed (it was on 15 August) but he did not mention this to Mr McInnes. He asked for 15 affordable houses, the pro rata share of the target figure, aware of the implication for Jelson.
Mr Amatt had agreed with Mr Teasdale to meet Mr McGreal in late November. Their view was that the requirement on Jelson to provide affordable housing was of value to Derby and would not be released except in return for the benefits of similar community work. At the meeting on 9 December, Mr Amatt recalled telling Mr Scott that they had originally agreed to release Jelson upon Davis providing 30 affordable dwellings, but that was not, as a result of its own proposed amendment, what the agreement had required. It suggested a financial contribution of £35,000, being half the subsidy, he said in cross-examination, of £70,000, calculated on a value of £210,000 per acre.
Conclusions about the facts
Thus, the impression given by the council witnesses, and Mr Teasdale in particular, about the course of negotiations is that:
(a) The amended clause 12 was put forward by Jelson to change the basis of the deal that had been provisionally agreed, and that this was the cause of real anger and concern to the council. However, the wording proposed by the competing drafts of clause 12 were both means of accomplishing the objective agreed in June, which was expressed in general terms. Unlike Mr Teasdale, I do not read ‘provide’ used in a general sense as necessarily meaning ‘complete’. I reject the evidence of Mr Teasdale that he was annoyed by the draft change. He expressed no annoyance to Mr Tyler. The concerns he expressed were primarily about other clauses, as Mr Tyler’s evidence and his reports to his client made clear. The terms and timing of Mr Teasdale’s responses to Mr Tyler are inconsistent with suggestions of annoyance. They are, of course, as Mr Amatt seemed to concede, consistent with seeing an opportunity to |page:11| secure an unexpected advantage for the council.
(b) Mr Tyler’s proposed clause 12 created risks for both sides. This is literally correct, but, in the context, the risk of Davis not building was minimal. The council cannot have believed that Davis was anything other than very anxious to get started. The ‘risk’ for Jelson, which had not occurred to it, was only that Derby would not invite Davis to build 30 affordable houses.
(c) There was real concern about the propriety of obliging Davis to build more than its pro rata share of affordable housing. I do not accept this. All the discussions had presupposed that Davis would, as it had planned and wished, build only affordable housing. The documents placed before the subcommittee at the very time the council claim to have been having these concerns say nothing about them. It is very unlikely that it was thought improper for Derby to invite Davis to do what Derby knew it was willing to do.
(d) The Davis and Jelson applications were different transactions handled separately. It is apparent from the documents presented to the subcommittee, from the correspondence between Jelson and the council, from the evidence of Mr McInnes and his instructive letter of 22 January 1998, that that is not the case. Mr Teasdale properly dealt with the section 106 agreements, as he intended to, one immediately after the other. Mr Teasdale kept Davis and Jelson apart (although there was, of course, no reason why they should not have consulted each other more closely), but handed the transaction as part of one overall deal.
I reject much of the evidence of Mr Teasdale and, to some extent, of Mr Amatt on these matters. Mr Amatt was a step removed from Mr Teasdale and his recollection is understandably less detailed and less relevant to the points really at issue. Mr Teasdale’s evidence contradicts that of other witnesses I have no reason to disbelieve, in particular the two independent solicitors. Apart from Mr Tyler, Mr Teasdale insists that a telephone conversation took place of which Mr Byass, someone with no interest of his own to protect, has no recollection and made no mention in his records of the transaction or of his expense of time. Mr Teasdale’s disputed recollections are inconsistent, where there are written records, with what these say. My evaluation of Derby’s evidence also takes account of other features that are unconvincing, such as the explanation for how the £35,000 put forward at the 9 December meeting was arrived at.
I also have regard to two other features of the evidence of Mr Teasdale.
First, Mr Teasdale was the central and most controversial witness in this case, yet the council or Mr Teasdale though it appropriate for him also to be the solicitor with the conduct of this action. It is highly undesirable that a solicitor who is a material witness should also, as an individual, have the conduct of an action. Leaving aside questions of whether or not he or she has the proper detachment necessary to give professional advice to the client, the court may be left with some unease about the candour of the solicitor’s witness statement and the accuracy of statements of other witnesses who have worked closely with him on the matter in dispute. The fact that a solicitor instructs counsel does not detract from the point. |page:12| A solicitor has advice of his own to give and important duties in preparing a case for trial, as well as deciding what material to give to counsel and what questions to ask.
Second, Mr Teasdale was properly cross-examined at length about his role in this transaction. Quite apart from being inconsistent at points with the documents and with the recollections of witnesses of obvious truth, his evidence was very unsatisfactory. He found it difficult to give straightforward answers to almost any question, and, indeed, on one occasion had to be asked three or four times. Mr Teasdale’s answers were evasive, and he appeared unusually nervous and ill at ease when giving evidence. While the court is cautious before attaching much importance to a witness’s demeanour, it was consistent with Mr Teasdale being aware that he was not being forthcoming and with him feeling unease about his role in these transactions. I formed the view that he is a conscientious solicitor for Derby, often under pressure from property developers, who, on this one isolated occasion, has been responsible for events of which he is less than proud.
It is clear that, by June 1997, Jelson, Davis and the council were all aware that Davis would go ahead if and as soon as it got permission to build 32 affordable houses, that Jelson would, as a result, be released from what might otherwise be its obligation to provide 15. There was the pressure of urgency both for Jelson and the council because of the section 73 appeal. For all practical purposes, the two developments were seen as one project. The council saw an opportunity, given the proposed amendment, to take advantage of Jelson in circumstances where they felt, perhaps understandably, bruised by the position into which they had been negotiated. The council went on to contract with Davis, not by adapting the obvious precedent of the Jelson agreement but by proposing only 15 affordable houses. There was therefore no possibility, because of the council’s actions, of there ever being an agreement ‘for the provision of a minimum of 30 affordable houses on the alternative affordable housing site’ envisaged by the Jelson agreement. The way the story unfolded from August to December is consistent with the council identifying a stratagem, putting it into effect and concealing it until both agreements were firmly in place; for example, in the timing of their decision to inform Davis and Jelson and their attitude and approach to the December meeting. The council took advantage of its position as the only party to both agreements to produce a result that, on the face of it, was to the council’s advantage and different from what all three parties had anticipated would happen. Discussions and agreements directed at securing 30 affordable homes on the site have led to Jelson, on the face of it, being required to build a further 15 to the 32 now built. The question that then arises is what remedy, if any, is available to Jelson among the three on which it relies in the pleadings.
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989
Section 2 provides in relevant part:
(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the |page:13| parties have expressly agreed in one document or, where contracts are exchanged, in each.
(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.
(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.
Jelson says that clause 9 is an express obligation upon it to transfer the affordable-housing site to a nominated housing association at a price and on terms and conditions ascertainable from the schedules. No housing association can be nominated until Jelson has begun to develop the site, and, what Mr Bates says is a fatal flaw, there is and can be no signature to the Jelson agreement of the housing association. As a result, the agreement is void ab initio. Jelson says that the effect of the agreement, if valid, is to compel it to convey land on terms ascertainable from the schedules as and when the council designate an association. This is a contract for the disposition of an interest in land, but is invalid because it lacks, inevitably, the signature of one of the parties.
Mr Bates points to what he calls the strict construction of section 2 in the cases, particularly Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 at p1571B-H. (In a sense he is right, although the approach of the court seems more a concern to recognise that the 1989 Act creates a new regime and to honour its plain wording.)
Mr Howlett submits that this is wrong. He first suggests that the court lacked jurisdiction over any aspect of the agreement. Section 106A(1) of the 1990 Act prevents a planning application from being modified or discharged, except by agreement between the parties or a special appeal procedure. This issue, not surprisingly, fell away in the course of the hearing. Mr Howlett also submits that a section 106 obligation, although contained within an agreement, is part of the statutory code regulating planning control, and these obligations possess characteristics that ordinary contracts lack. It is clear that a section 106 agreement creates planning obligations, but their nature and extent depends upon usual principles of interpretation, and, in the absence of statutory provision to the contrary, on other requirements of the law of contract. As I see it, if a provision in a planning agreement falls within section 2 but fails to satisfy that section, then that provision will not be a valid disposition of the interest in land that it purports to deal with.
He also submits that the obligation in this case does not require Jelson to develop at all; will lapse if the planning permission expires before the effective date; does not identify the association or the site (although providing mechanisms for ascertaining it); and fails to provide what will happen if transfer notices are not served in time or at all. He further argues that the agreement does not give rise to an obligation to transfer land, it merely provides a framework under which an obligation may arise in future. He submits that there is nothing that justifies seeing this arrangement as a contract for the sale or other disposition of an interest in land. This is an agreement by which two parties agree that one of them |page:14| should, on the happening of certain events, transfer land to an unascertained third party. In order to be a contract for the sale of land there must be, as a minimum, an agreement between identified parties and identification of the land, of the consideration and of the interest to be granted.
Parliament intended to introduce new and strict requirements as to the formalities to be observed for the creation of a valid disposition of an interest in land: see the observations of Neill LJ in McCausland v Duncan Lawrie [1997] 1 WLR 38 at p44G. In my judgment, clauses 9 to 12 contain, in effect, an option for the council to nominate a housing association to which Jelson is required to convey land at a price and on conditions, based on the Standard Conditions of Sale (3rd ed), to be set by the schedules to the agreement. Upon nomination, Jelson can be required, without more, to sell an interest in land to another party. That is an obligation that the section requires to be in writing and signed by the parties if it is to have legal effect. Section 2 must bite at the point where a party can be compelled, in certain circumstances, which may or may not come about, to sell or dispose of an interest in land.
It is true that the Jelson agreement is not a contract for the disposition of an interest in land made between seller and eventual purchaser, and it is therefore unsurprising that there is, and can be, no purchaser’s signature. In that sense, there is an absence of agreement between identified parties, which Mr Howlett suggests is a prerequisite for a contract for the sale of land. But, if Jelson starts to develop the land and Derby nominate an association, there will be, on the face of it, a binding obligation on Jelson to dispose of an interest in land to the association. In view of the intention of parliament, it would be odd if Jelson could be compelled to dispose of an interest in land without the signature of a purchaser who has not yet been identified, but not obliged to dispose of land if the purchaser had been identified and joined as a party but also had not signed. The test seems to me to be this. Are there conditions under which Jelson can be compelled to dispose of an interest in land under this agreement? If the answer is yes, then section 2 must be complied with. Here, once Jelson starts to develop it may be required by Derby to transfer this interest in land to an association on the terms set out in the schedules. Since the relevant parts of the Jelson agreement do, but for the section, commit Jelson to convey the property, they are of no effect, as they lack the signature of the purchaser.
The issue that then arises is the effect that this conclusion has on the Jelson agreement. If these clauses are of no effect, does the whole agreement fall? Jelson contends that the failure to comply with section 2 should invalidate the entire agreement, but that if it does not a ‘blue pencil’ test should be applied to the offending provisions. This is a decision that I make with some hesitation, as only two decisions have been cited to me. First, Director of Public Prosecutions v Hutchinson [1990] 2 AC 783 (see, in particular, p801A-C), and, second, R v Somerset County Council, ex parte Dixon (1998) 75 P&CR 175 at p187. In the first case, the House of Lords is concerned with severance in the context of public law cases,
where, as Lord Bridge points out, the ‘blue pencil’ test has become well established quite independently from the private law cases. In the second case, Sedley J applies a ‘blue pencil’ test to a section 106 agreement when considering an application for leave. There is no practical difficulty in applying a ‘blue pencil’ test and counsel are agreed upon the provisions that fall if I do. There does not seem to be any difficulty of principle, either. This approach would not leave the nature of the contract altered except as regards affordable housing. In practice, Jelson would cease to be obliged to provide affordable houses, but in circumstances where no one, at least after June 1997, intended or expected it should do so and where the 30 houses envisaged by the plan have all been built. The Jelson agreement therefore remains in effect, apart from the clauses dealing with transfers of the affordable-housing site identified in para 37 of the statement of claim. As a result, I refuse Jelson’s application for return of all money paid under the Jelson agreement.
Implied term
This needs to be considered in case I am wrong about section 2. Jelson contends that a term must be implied into the agreement that the council would use their ‘best endeavours’ in negotiating with Davis to enter into an agreement for the provision of a minimum of 30 (or as many as possible above 15) affordable houses on the site.
Mr Bates drew my attention to Hertsmere Borough Council v Brent Walker Group plc [1994] 1 PLR 1 in which Jacob J, in an interlocutory matter, proceeded on the assumption that terms could be implied into a section 106 agreement. I respectfully agree, because, as I have already indicated, except to the extent that statute requires otherwise, an agreement under the Act should generally be approached and interpreted like any other contract.
Mr Bates submits that the council knew before the contract was signed that without additional terms the contract would lead, on their interpretation, to the construction of 47 affordable houses, not the 30 required by the City of Derby local plan. He says Derby cannot have considered that Jelson would ever have agreed to this. Derby must have appreciated that Jelson would expect them to use their best endeavours, in their negotiations with Davis. The council, rather than using their best endeavours to enter into an agreement with Davis to provide 30 affordable houses, were doing their utmost to avoid entering into an agreement that made reference to any more than 15 houses, the council taking no adequate steps to let Jelson and Davis into the real result they were seeking until after agreements had been executed and registered with the local land charges.
Mr Howlett makes forcible submissions to the contrary. It would be odd for the council to have a duty, in their negotiations with Davis, to protect the commercial interests of Jelson; all the more so in an agreement under section 106, where they have a statutory obligation and discretions to be exercised in an unfettered way as part of fulfilling their primary function as the local planning authority. These points carry all the more |page:15| force when it is suggested that the obligation is to use best endeavours, which, as the cases cited to me indicate, is an onerous standard. He also submitted by reference to BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings [1977] (PC) Aust LR 363 at p376 and its five‑point test that a term could not, and should not, be implied. Reasonableness is not enough to imply a term. It must also be necessary, and, he submits, obvious.
In the course of argument, Mr Bates, seeing that I was unreceptive to a best endeavours obligation, put forward an alternative approach, identified obliquely in the pleadings, of seeking to imply terms in a descending scale of obligation. This faced the obstacle that one’s immediate expectation of the suggested implication of a term is that its ambit will be identified with clarity and pleaded at the outset. The court is also wary of obligations that resemble a commitment to negotiate. Further, the nature of the term to be implied turns on the presumed intention of the parties at the time the contract was entered into, not on looking at what happened later.
A simple reading of the detailed and negotiated agreement, uninformed by the context, does not suggest that its provisions need complication by implication of further terms. It was always possible that, for a variety of reasons, the Davis agreement would not be executed, and the Jelson agreement recognised this. The cause of failure might be some real difficulty experienced by the council or by Davis or by obduracy on the latter’s part. This argument is frequently advanced to resist the implication of a term.
The key to this claim, however, seems to me to be the context in which the agreement was negotiated. Davis had applied for planning permission, and were pressing to build what the council and Jelson knew would be 32 affordable homes. The council and Jelson had agreed that the affordable housing for the sites would be provided in this way, and Davis were content. The officers had so informed a council subcommittee. There was no doubt a possibility that Derby or Davis might fail to enter into a section 106 agreement and disagree about terms. But it must have seemed obvious that in any section 106 agreement the council would, at the least, be suggesting to Davis that it might build 30 affordable homes. It is argued, as it often is when the implication of a term is being resisted, that Jelson could have expressly asked Derby to agree to propose 30 houses to Davis. That is true, but Jelson could not reasonably have anticipated that Derby would fail to do this. It is also argued that if the tri-party arrangement were fundamental, one would have expected to see a written commitment or, at least, written evidence of some verbal commitment to that effect by Davis obtained by Jelson. In this case, however, Jelson, rightly as it turned out, saw no reason to doubt the commitment of Davis to the arrangement. In the special context of these discussions, there was an implicit obligation upon the council to propose, in the absence of reasons for not doing so other than a wish to take advantage, a section 106 agreement inviting Davis to agree to build 30 affordable houses. This is necessary to give effect to the overall arrangement that was well understood by Jelson, Davis and Derby. It is also one that, if put to the
parties by the proverbial officious bystander, would have been met with the common response: ‘Oh, of course’.
I therefore conclude that there was implicit in the Jelson agreement a term at the lowest end of the scale suggested by Mr Bates, that Derby would, in negotiating with Davis, ask Davis to enter into a section 106 agreement for the provision of a minimum of 30 affordable houses on the alternative affordable-housing site. Derby did not so ask Davis. If asked, Davis would unquestionably have agreed to accept a minimum of 30 affordable houses. If Derby had complied with this implied term the Davis agreement would indeed have provided for 30 affordable houses, and Jelson would now not be faced with the prospect of building 15. I next turn to consider the third ground, in case I am wrong about both the first two.
Rectification
This discussion must make what to me is the artificial assumption that no term is to be implied. Mr Bates argues that the agreement should be rectified to give effect to the full intention of the parties, and does so by reference to Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 2591. He contends on two alternative bases. First, he submits that Jelson made a mistake intending to contract on a different basis from the written terms, and that the council knew of the mistake, failed to alert Jelson and the result was a gain to the council or a detriment to Jelson. Alternatively, he submits that, as in the New Towns case, the council intended Jelson to be mistaken, and so conducted themselves (without necessarily any overt deceit or misrepresentation) to divert Jelson’s attention from discovering its mistake in circumstances where Jelson was indeed mistaken.
Mr Howlett points out that the burden of proof is a high one, and I must be satisfied that there is a prior agreement between the parties that remained effective when the document to be rectified was executed, that, by mistake, the document failed to carry out the agreement and that the document, if rectified, will then accurately represent the true agreement at the time of its first execution. He contends that there are numerous obstacles in Mr Bates’ way:
(a) The parties’ intention was common until Mr Tyler put forward the revised draft clause 12. He suggests that the pre-existing common intention was to release Jelson ‘on actual provision’, ie completion by Davis. It does not seem to me that the common understanding was ever this specific.
(b) Mr Tyler’s proposed amendments changed the common understanding, the council’s officers evaluated these and the risks and accepted them. I find that Mr Tyler’s amendment did not change the common understanding; it was one way of achieving it: more advantageous to Jelson in its detail than Mr Teasdale’s draft, but a vulnerable one should the council decide to frustrate the arrangement.
(c) A term requiring best endeavours was never within the contemplation of the parties and could never have been acceptable to the council. I agree.
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(d) Jelson is seeking to revert to the original draft clause 12, an absurd contention falsified by the amendment Mr Tyler put forward. The reality is that Jelson seeks not the original draft, but, in the context of Mr Tyler’s amendment, to ensure that the council provide Davis with the opportunity to enter into a section 106 agreement for 30 affordable houses.
(e) Even if Jelson did have the intention now contended for, it is submitted that the council did not know this, and that it was not put upon inquiry as to any other intention. Having heard the evidence, I am sure that the council saw and seized an opportunity. This explains the wording and negotiation of the Davis agreement, and their dealings with both developers from June onwards.
(f) There is no sharp practice by the council. For the reason I give below, the standard required for rectification is less rigorous than ‘sharp practice’.
(g) The new suggested clause contained risks for both sides. The risk to the council, given the Davis enthusiasm for its project, was minimal. The risk to Jelson, which it had not appreciated, was only that the council might deprive Davis of the chance to agree to 30 houses.
(h) Even if there had been sharp practice, there is no benefit to the council. Even if this be wrong, there is no real benefit to the council in having 15 additional affordable houses or detriment to Jelson. I disagree. The benefit to the council was 15 affordable houses. The detriment to Jelson is the burden of building those houses rather than those it proposed to construct.
Having discussed the competing submissions, I return to the basic principle. The purpose of rectification is to bring a document that was intended to give effect to a prior agreement into harmony with what had in fact been agreed. The earlier agreement must be clear and continue unchanged until the execution of the document. The parties reached an understanding in June. Whatever minor changes were agreed, they did not affect the essential requirement that Derby would ask or invite Davis to agree to build 30 affordable houses. At the point of acceptance of Mr Tyler’s draft, that requirement become more specific, but remained in place.
Mr Tyler was mistaken about the effect of his draft, but Mr Teasdale was not. There was therefore no mutual mistake. Where the mistake is a unilateral one it is not necessary for the plaintiff to have to show sharp practice. The relevant question is in the passage from Spry on Equitable Remedies 4th ed p599, cited with approval in Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 at pp277 and 292. Are there:
additional circumstances that render unconscionable reliance on the document by the party who had intended that it should have effect according to its terms?
It is therefore not necessary, for this purpose, to place the facts of this case within the particular examples given by the Court of Appeal. The relevant facts do, in my judgment, render unconscionable reliance by
Derby on the existing document going beyond fair dealing in a commercial arm’s-length transaction. Should it be necessary, I therefore would be minded to grant rectification. The term to be inserted into the agreement by way of rectification would, as with the implied term, be likely to be at the bottom end of the sliding scale suggested, on both issues, by Mr Bates.
Conclusion
It follows from the above that my conclusions on the pleaded causes of action lead to the consequence that Jelson is, or should be, freed from any obligation to construct 15 affordable houses on the Jelson site. I am not sure how far, in those circumstances, it is necessary for me to formulate the relief in terms more precise than that, but I will hear argument about this when I deal with costs and any other matters outstanding. It will be helpful if counsel for the parties can draft suggested forms of order for the court to consider.
Judgment for the plaintiff.
