The defendant contracted to purchase a property, consisting of a concrete office block and multi-storey car park, from the claimant’s sister company, K. K’s interest as seller was later transferred to the claimant. Under the agreement, the seller undertook to use “all reasonable endeavours” to obtain a planning agreement with the local council, under section 106 of the Town and Country Planning Act 1990, in substantially the form of a draft attached to the sale contract. The buyer was not obliged to complete until that agreement had been obtained.
The council had resolved to grant planning permission for a mixed residential, retail and business development on the site, incorporating a public library, subject to a satisfactory section 106 agreement being concluded. It was originally expected that that agreement would be completed within a relatively short period of time and without substantial amendment from the draft. Subsequently, however, the council made further demands, including that the library should be transferred to them at a peppercorn rent and without a premium.
The claimant informed the defendant that it was unable to procure a section 106 agreement substantially in the form attached to the sale contract. The defendant indicated that it was unwilling to complete without one. The claimant brought proceedings for a declaration that the sale contract had ended. It submitted that a term should be implied into the contract that it would automatically determine if, despite the seller using all reasonable endeavours, no section 106 agreement had been entered into within a reasonable time. The defendant counterclaimed for specific performance.
Held: The claim was dismissed; the counterclaim was allowed.
(1) The requirement of a completed section 106 agreement had been inserted into the contract for the benefit of the buyer. It provided a derogation, in the buyer’s favour, from the parties’ mutual obligations to buy and sell: the buyer was not bound to complete until the section 106 agreement had been obtained. No such derogation applied to the seller’s obligations, and the buyer was entitled to compel the seller to complete the sale in the absence of a section 106 agreement. There was no authority for the proposition that if the seller complied with its obligation to use reasonable endeavours, but did not achieve the desired result, the contract automatically determined at the end of some unpredictable period: Jolley v Carmel Ltd [2000] 2 EGLR 153 (Ch); [2000] 3 EGLR 68; [2000] 43 EG 185 (CA) and Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyds Rep 209 distinguished.
(2) None the less, it was necessary to imply some condition as to termination of the contract in order to avoid the problem of a buyer being able to defer completion indefinitely, in the absence of a section 106 agreement, while at the same time asserting that the sale contract remained in being. The equitable doctrine of laches was insufficient to deal with the problem. The term that the claimant suggested was unreasonable and inconsistent with the overall shape of the agreement. The appropriate term to be implied was that if no section 106 agreement were reached after a reasonable time, despite the claimant using all reasonable endeavours, the defendant would have an opportunity to: (i) waive the requirement for a section 106 agreement and complete the sale without one; or (ii) choose not to complete, in which case the contract would come to an end. The validity of the defendant’s election between those two rights would be dependent upon it having the knowledge, or means of knowledge, of the relevant facts, and it would be entitled to an opportunity to consider its position before choosing: Scarf v Jardine (1882) LR 7 App Cas 345 applied.
(3) On the evidence, the claimant had not used its best endeavours to secure a section 106 agreement substantially in the form of the draft. In those circumstances, its claim failed and an order for specific performance would be made in favour of the defendant.
Paul Morgan QC and Mark Warwick (instructed by Philippsohn Crawfords Berwald) appeared for the claimant and the Part 20 defendant, K; Edward Bannister QC and Kevin Leigh (instructed by Segens) appeared for the defendant.
Sally Dobson, barrister
