Development land — Shareholders’ agreement — Construction — Parties entering into shareholders’ agreement in respect of development land — Agreement providing for parties to be allocated land in parcels of equal value — Appellant receiving more developable land than respondent — Respondent obtaining declaration for reallocation of land to rectify imbalance — Whether shareholders’ agreement providing for proposed reallocation of land — Appeal allowed
The parties owned a joint venture company (L) in equal shares for the development and sale of land for residential use. Areas of land on in Cramlington, Northumberland (the Cramlington site) were sold to each party pursuant to a shareholders’ agreement. The parcels were not of equal size but reflected each party’s capacity to undertake developments at different stages. The parties developed the Cramlington site on the basis that any imbalance would be rectified in subsequent sales by them to L. By 1999, the appellant had received more land than the respondent and the parties agreed in writing (the September letters) that the respondent would take a greater portion of one of the two remaining areas (the area 3A land) to redress the shortfall. It was subsequently discovered that that land could not be developed following the unexpected refusal of full planning permission.
Meanwhile, L had acquired a second site (the Middle Warren site), which the parties had started to develop. The respondent contended that L should make a sufficient disposal of land from the Middle Warren site to rectify the imbalance in respect of the Cramlington site. Land was available to do so provided that such a disposal was allowed under the shareholders’ agreement. The appellant resisted the respondent’s claim, contending that the agreement did not provide for or allow such an adjustment. It further contended that any resulting inquiry would be unworkable given the timescale and changes in value.
The respondent sought a declaration that it was entitled to part of the Middle Warren site and David Richards J held in its favour on the basis that, having embarked on disposals of parcels of unequal value, in the belief that the balance would subsequently be redressed, the shareholders’ agreement did not prevent that arrangement from being carried forward from one development to another. Moreover, the parties had not agreed that the allocation was to be a final and binding settlement of their respective entitlements, irrespective of whether the land then allocated was capable of being developed: see [2010] EWHC 423 (Ch). The appellant appealed.
Held: The appeal was allowed.
The refusal of full planning permission for the area 3A land gave rise to an unexpected situation, and one for which the parties had not provided. In considering rival submissions in a finely balanced dispute, the court had to assess which solution best reflected the parties’ September 1999 dealings. The September letters neither constituted a new contract nor varied the shareholders agreement. This appeal concerned the correctness (or otherwise) of the judge’s conclusions, which involved inferences from primary facts or matters of construction.
In September 1999, full planning permission whatever the parties’ expectations, could not be guaranteed. There was no evidence that a decision had already been taken that the area 3A land was not developable or that enquiries would have revealed to be the case. The land was thought to be developable, but a final decision on full planning permission had not then been taken. No pre-existing facts vitiated that view. However, it subsequently transpired that the parties’ hopes were mistaken. The parties had proceeded, inescapably relying on their own view as market professionals, with their eyes open. Having done so, the respondent had assumed the risk of a subsequent refusal of full planning permission. Thus, absent a contractual mechanism for readjusting the allocation made pursuant to the September letters, the loss lay where it fell, that is, with the respondent. There was no basis for revisiting the 1999 allocation.
(Per Lord Neuberger MR): Ascribing a value to an asset was frequently a difficult exercise, and even where the price could be ascertained easily, as with quoted shares, the result could, with hindsight, appear fortuitous or capricious. That was the nature of value because it meant market value. Unexpected changes in the economy could, within a short time, render a valuation given on a particular day unrealistic.
In the case of development land that had not been granted planning permission, the valuation difficulties could sometimes be acute. In the instant case, difficulties were less likely to arise because the parties were partitioning areas of development land between themselves and acreage was taken as a proxy for value. In practice, what the parties had agreed in September 1999 was a partition of the remaining two areas of land into two parcels that (subject to balancing for past inequalities) had, or were at least believed to have, equal value. There was no reason to think that the value of the two parcels was not equal as at September 1999 since the parties had anticipated that planning permission would be forthcoming for the area 3A land. Given that both parties were experienced housebuilders, it could be inferred that that must have been the view of the market, at least in the absence of any evidence to the contrary. It was not possible retrospectively to factor the refusal of planning permission into the valuation process as at September 1999.
Christopher Pymont QC (instructed by Walker Morris LLP, of Leeds) appeared for the appellant; Jonathan Gaunt QC (instructed by Dickinson Dees LLp, of Newcastle upon Tyne) appeared for the respondent.
Eileen O’Grady, barrister
