“Wrotham Park” or “negotiating” damages represent the sum of money that might reasonably have been demanded by a claimant from a defendant, had he been asked to permit the defendant to break his contractual obligations. The court will assess the sum that the parties would have arrived at themselves, had they made reasonable use of their respective bargaining positions and reached a negotiated settlement before any breach of contract had occurred. And, for these purposes, it is irrelevant that the parties would not, in reality, have agreed a deal.
The parties to the litigation in Burrows Investments Ltd v Ward Homes Ltd [2017] EWCA Civ 1577; [2017] PLSCS 191 were both developers, who split a development site between them. In addition to the purchase price, the buyer agreed to pay overage if the proceeds of sale of its houses exceeded a specified threshold. As is usual in such cases, the buyer had the right to make certain dispositions without reference to the seller. However, other types of disposal were prohibited in order to ensure that the buyer, or any subsequent purchaser, did not evade the overage obligations.
During the course of development, the property market began to stagnate. So the buyer sought planning permission to construct smaller units in the hope that sales would improve. In return, it promised the planning authority that it would transfer five new units to a registered social landlord for the provision of affordable housing. And, in due course, it went ahead and did so, without reference to the seller
The total net proceeds of sale of the units on the development never reached a level at which overage would become payable. Even so, was the seller entitled to negotiating damages anyway, in order to compensate it for having been deprived of the opportunity to negotiate a price for permitting the buyer to transfer the units to the registered social landlord and complete its development?
The case turned on whether the transfer fell within the following list of permitted dispositions: “the transfer/dedication/lease of land for the site of an electricity sub-station gas governor kiosk sewage pumping station and the like or for roads footpaths public open space or other social/community purposes”. The trial judge decided that it did, but the Court of Appeal has overturned the decision. It accepted that the provision of affordable housing units to a registered social landlord clearly achieved both “social” and “community” purposes, but ruled that the words had to be read in the light of the specified purposes that preceded them. In its view, the exemption, read in context and as a whole, did not cover disposals of completed units of affordable housing to a registered social landlord.
Therefore, the buyer should have negotiated terms with the seller before transferring the affordable housing in order to enable it to complete its development in accordance with the new planning permission. It would be regrettable if the buyer could escape scot free, without having to pay a proper price for obtaining a release from the restrictions in the sale and purchase agreement. Consequently, justice required an award of damages on a negotiating basis in an amount to be assessed by the trial judge, unless the parties could agree this for themselves.
Allyson Colby is a property law consultant
