Consultancy agreement – First claimant agreeing to assist in obtaining planning consent for defendants’ land in return for fee on sale with benefit of consent – Defendants seeking to sell before consent obtained – Whether agreement precluding sale before consent obtained or contractual expiry date – Whether such term to be implied – Claim allowed
The defendants owned the freehold of a farm in Ashford. The first claimant, a property developer and a subsidiary of the second claimant, agreed to use its expertise to maximise the development potential and value of a 520-acre area of the farm on a “no win, no fee” basis. If it were successful in obtaining planning consent for the land, it would receive 10% of the net returns on a sale with that consent. Paragraph 2 of a schedule to the agreement provided that the first claimant would not be paid its fee on a sale or disposal unless that disposal were achieved pursuant to the terms of the agreement. By clauses 2, 7 and 8, the defendants covenanted to co-operate with the first claimant, to render it all reasonable assistance in obtaining a consent and not to do anything in respect of the land that might directly prejudice the first claimant’s attempt to do so. Clause 33 imposed an obligation on the parties to act towards one another with the utmost good faith. The original draft agreement had contained clauses restricting the defendants’ freedom to sell the land during the currency of the agreement, but those provisions were deleted from the final version.
The land in question was zoned for agriculture in the local plan, but the emerging development plan supported the idea of growth in the Ashford area. As a result of the claimants’ efforts, the prospects of obtaining a valuable planning consent for the defendants’ land were improved. A third party offered to purchase the land for £35m. The claimants brought proceedings for an injunction restraining the sale and a declaration that the defendants were not entitled to dispose of any estate or interest in the land prior to the grant of a consent or the contractual expiry date, whichever was the earlier. The claimants sought to argue that the deleted clauses were relevant to the issue of construction. The defendants argued that para 2 of the final agreement effectively amounted to an express statement that they could sell or otherwise dispose of the land at any time.
Held: The claim was allowed.
(1) The deletions from the draft agreement fell under the general rule that the court should not, when construing a contract, take account of prior negotiations between the parties. Accordingly, the court should not receive into evidence or be influenced by the fact that some of the terms of the draft agreement were not repeated in the final executed agreement: Prenn v Simmonds [1971] 1 WLR 1381 applied. The drafts were not admissible for the purpose of comparison with the final agreement as an aid to the interpretation of the latter. This was not a case that involved a standard form of contract that could be said to form part of the general legal background that would be known to anyone negotiating an agreement of the type in question: Mottram Consultants Ltd v Bernard Sunley & Sons Ltd [1975] 2 Lloyd’s Rep 197 considered; Team Services plc v Kier Management & Design Ltd (1993) 63 BLR 76 distinguished.
(2) Although para 2 contemplated that, in some circumstances, the defendants would be able to sell or dispose of the land, it did not define the circumstances in which they could do so, and certainly did not provide that they could do so whenever they chose, in any circumstances. The purpose of para 2 was simply to restate the “no win, no fee” nature of the agreement. A present sale of the land would place the defendants in breach of their obligations under clauses 2, 7 and 8 of the agreement. Such an action would prejudice the prospects of obtaining a consent by preventing the defendants from entering into a collaborative arrangement with adjoining landowners. It would also constitute a failure to act with the utmost good faith, contrary to clause 33. Such a clause imposed a contractual obligation on the defendants to: (i) observe reasonable commercial standards of fair dealing in their actions in respect of the agreement; (ii) be faithful to the agreed common purpose; and (iii) act consistently with the first claimant’s justified expectations. A present sale by the defendants would not meet those requirements, given that the first claimant had expended time, effort and money on promoting the land and enhancing its value. In doing so, it had expected to take the promotion of the land to a conclusion that involved the grant of a consent and the sale of the land. The agreement precluded it from recovering a fee in any other circumstances, based upon a reasonable fee or a quantum meruit. Further, if the court were wrong on the good faith issue, it would be necessary, in order to give business efficacy to the agreement, to imply a term that the defendants could not sell the land while the agreement remained in force.
Derek Wood QC and Wayne Clark (instructed by Ashurst) appeared for the claimants; Christopher Pymont QC and Andrew Ayres (instructed by Hallett & Co, of Ashford) appeared for the defendants.
Sally Dobson, barrister