Blackburne J:
Introduction
1. This dispute is over the date when a three-year option period conferred by the claimant on the defendant by an agreement dated 30 May 2001 (“the Agreement”) entered into by the claimant with the defendant (and one other as guarantor) was triggered. Was it, as the claimant contends, on 5 October 2004 or, at the latest, on 11 February 2005? Or was it, as the defendant contends, on the service of a letter dated 28 March 2007 from the claimant’s solicitors to the defendant? Material to this is whether it is still open to the defendant to exercise the option since it is common ground that the defendant has not yet attempted to do so. If the option period started on
2. The Agreement relates to two parcels of land (“the option land”) on the north bank of the River Tees, being part of a larger area of land owned by the claimant. For convenience I shall refer to the claimant as “the Commission”. The land lies to the east of Stockton Town Centre. The Commission is the national regeneration agency of England. Among other things, it works with external parties to deliver urban regeneration in deprived areas. One such area is the land of which the option land forms a part. The overall development area comprises approximately 53 acres of which the Commission owns about 43 acres within which the option land is situated. Others involved with the Commission in the regeneration of the area include an organisation called Tees Valley Regeneration, known for short as “TVR”. The land was the subject of a regeneration scheme, details of which were set out in a document published by the Commission in 2000 entitled Master Plan Design Guidance. The Plan detailed the proposed development. That document was subsequently overtaken by an updated Plan. One element of the scheme was the development of the option land for general business use within Class B1 of the 1987 Use Classes Order.
3. By the Agreement the Commission agreed with the defendant, which is described in it as “the Developer” but which I shall refer to as TH, that it should have an option to develop the option land by the design and construction on it of an office development, or a research and development facility, or a high-tech manufacturing facility, together with ancillary car parking and associated facilities. TH was then to take a lease of the land in question in consideration of a price to be agreed or determined in default of agreement by a third party expert together with an overage payment.
The Agreement
4. Clauses 1 and 2 of the Agreement set out various definitions to which I shall refer as necessary in setting out the material provisions of the Agreement.
5. By clause 4.1 the Commission granted TH, in return for a nominal £1 option fee, the option to develop and subsequently to take a lease (as defined in clause 2) on the terms of the Agreement. By clause 4.2 the option is expressed to be exercisable by TH (referred to in the Agreement as “the Developer”) by serving notice to that effect on the Commission:
“at any time following satisfaction of the Pre Conditions in relation to the part of the Property in respect of which this Option is at the material time being exercised but prior to the expiry of the Option Period (time to be of the essence).”
The Property there referred to is the option land. Clause 4.3 provides that TH may exercise the option in respect of the whole of the Property or identified parts (referred to as “a Parcel” or “a Relevant Part”) and states that:
“The exercise of the Option is respect of a Parcel or a Relevant Part shall not prevent the Developer from later exercising the Option in respect of the other Parcel or a further Relevant Part or Relevant Parts.”
Clause 4.7 then provides that “the Option will lapse to the extent that it has not been exercised by the expiry of the Option Period”.
6. “Pre Conditions” is defined to mean:
“(a) Approval of the Relevant Plans by the Commission in accordance with clause 5: and
(b) Completion of the On Site Works in relation to the Relevant Part of the Property;”
“Relevant Plans” means the plans, drawings, elevations and specifications relating to those aspects of the Building Works (ie the design and construction on the option land of the proposed development) which are to be carried out by TH and which are listed in part 2 of schedule 3 to the Agreement. “On Site Works” is defined to mean certain of the North Bank Works, an expression which I shall explain a little later.
7. It follows, therefore, that TH cannot exercise the option until (a) it has submitted the Relevant Plans to the Commission and the Commission has approved them under clause 5, and (b) the Commission has carried out the works comprised in the definition of On Site Works.
8. “Option Period” is defined, so far as material, as follows:
“The period of three years from the date of service of the Commission’s Notice or the date on which the Commission’s Notice ought to have been served under this agreement (if earlier) …”
There is then a proviso which it is common ground is of no materiality to the issues I have to decide.
9. “Commission’s Notice” is defined as meaning:
“A notice in writing from the Commission or the Commission’s Solicitors to the Developer confirming that the Commission has complied with clause 3.1 and that construction of both the NBGR and the North Bank Works have commenced and which notice shall contain the North Bank Programme and the NBGR Programme.”
“NBGR” means, so far as material, “the proposed one way gyratory road system and associated works proposed to be constructed on the North Bank (and adjoining land) … over which the Developer shall …be given full rights of access … under the Lease…” “North Bank” means the Commission’s land on the north bank of the
10. This brings me to clause 3 of the Agreement. The clause obliges the Commission to do various things. By clause 3.1 it is to:
“Use reasonable endeavours as soon as reasonably practicable to:
3.1.1 Apply for and obtain (but without obligation to appeal) the Outline Consent all Commission’s Approvals and financing required for the construction of the NBGR and the North Bank Works;
3.1.2 Acquire all the land required for the construction of the NBGR”
“Outline Consent” is defined to mean outline planning permission for the North Bank in accordance with the Master Plan Design Guidance “which is not subject to an Onerous Condition”. “Master Plan Design Guidance” means “the form of document …(currently in draft form dated March 2001) relating to the development of the North Bank”. “Onerous Condition” is defined to mean “a condition which imposes requirements in respect of land not comprised in the North Bank or otherwise in the control of the Commission or that would not at the date of this Agreement have reasonably been expected to be imposed”. “Commission’s Approvals” is defined to mean “all consents licences permissions and approvals whatsoever … necessary or desirable for the carrying out and completion of the construction of the NBGR and the North Bank Works”.
11. Clause 3.2 obliges the Commission to use reasonable endeavours to construct the NBGR in accordance with the NBGR Programme and to complete the North Bank Works in accordance with the North Bank Programme.
12. Clause 3.3 obliges the Commission to:
“Serve the Commission’s Notice as soon as the Commission has complied with clause 3.1 and construction of the NBGR and the North Bank Works have commenced and provide a copy of the Outline Consent and evidence of the Commission’s title to the land referred to in clause 3.1.2 in each case as soon as reasonably available and keep the Developer reasonably informed as to progress in complying with clause 3.1.”
The clause has therefore three limbs; the first is the obligation to serve the Commission’s Notice on compliance with clause 3.1 and the commencement of the NGBR and North Works; the second is the provision as soon as reasonably available of a copy of the Outline Consent and evidence of the Commission’s title; and the third is to “keep the Developer [ie TH] reasonably informed of progress in complying with clause 3.1”.
13. Clause 5.1 requires TH to consult with the Commission in the preparation of the Relevant Plans and to submit those plans to the Commission for approval prior to serving the Option Notice. It goes on to state that the Commission will not unreasonably withhold or delay its approval to such plans to the extent that they accord with the Master Plan Design Guidance current at the date of submission of the plans. Clause 5 then sets out a timetable for that to happen with recourse to a speedy dispute resolution procedure, contained in clause 19, in the event of certain disputes arising in the course of that process. Clause 5.5 provides that for the purposes of approval of the Relevant Plans or any amendments to or variations of them the relevant edition of the Master Plan Design Guidance is to be that current at the date of TH’s submission under clause 5.1 but with provision for resubmission of the plans in stated circumstances if the option is not exercised within six months of the date of their approval.
14. Clause 8 provides, by reference to schedule 3, for a series of obligations on TH and the Commission in connection with the development of the option land (and a timetable for compliance) once the option has been exercised.
15. Clause 21, headed “Termination”, provides that:
“If for any reason other than the default of the Commission:
21.1 The Commission’s Notice has not been served by the Termination Date; or
21.2 At any time before the Termination Date it becomes apparent that the conditions in clause 3.1 cannot be satisfied as a result of frustration,
then either party may at any time thereafter serve notice on the other to determine this Agreement.”
“Termination Date” is defined to mean four years after the date of the Agreement, that is to say
16. The scheme of the Agreement so far as concerns the Option Period is therefore that the Commission must (1) comply with clause 3.1, (2) serve the Commission’s Notice as soon as (a) it has complied with clause 3.1 and (b) construction of the NBGR and the North Bank Works has commenced, and (3) keep TH reasonably informed as to progress in complying with clause 3.1. The Option Period begins either when the Commission’s Notice is served or (if earlier) when the Commission’s Notice ought to have been served.
The Option Period
17. Two points about the definition of Option Period are to be noted. The first is that the Option Period can begin even though the Commission is in breach of its obligation under clause 3.3 to serve the Commission’s Notice. This is because the Option Period is expressed to start from “the date on which the Commission’s Notice ought to have been served” even though it has not been served. Indeed, subject to the next point, it is only if the Commission’s Notice is in fact served before the date on which that Notice ought to have been served that it is effective to start the Option Period. This follows from the fact that the Option Period is expressed to begin on the earlier of the date of service of the Commission’s Notice and the date on which that Notice ought to have been served. I call the latter the “commencement date alternative”.
18. The second point is that, as defined, the Option Period does not stipulate that TH must have knowledge of the circumstances which have occurred to have triggered the commencement date alternative. As expressed, that alternative is triggered by the Commission’s compliance with clause 3.1 and the commencement of construction of the NBGR and the North Bank Works.
19. It would, needless to say, make a commercial nonsense of the Agreement if, there being no service by the Commission of the Commission’s Notice but the conditions for its service having occurred, the Option Period could begin and run its course without TH having any awareness of that fact and thus no opportunity to exercise the option. It was common ground between the parties therefore that it is implicit in the commencement date alternative that TH has knowledge of the circumstances which trigger that alternative. Whether, as Mr Christopher Pymont QC who appeared for TH submitted and as Mr Nicholas Dowding QC who appeared for the Commission was disposed to accept, this is because the third limb of clause 3.3 (as I have described it) is, as Mr Pymont put it, the contractual assumption which underlies the commencement date alternative so that that alternative is only triggered if the Commission has complied with that obligation, or whether, more simply, it is necessary by reference either to business efficacy or to the officious bystander test to imply a pre-condition of knowledge of the occurrence of the circumstances which trigger that alternative, I do not need to explore. This is because, as I shall now explain, it is plain on the facts that the Commission did keep TH informed of progress in compliance with clause 3.1 and did inform TH of the commencement (and progress) of the construction of the NBGR and North Bank Works.
TH’s knowledge of the events triggering the commencement of the Option Period
20. There is now no dispute (1) that the Commission complied with the requirements of clause 3.1 and construction of the NBGR and North Bank Works commenced and (2) that this had all occurred by 5 October 2004. Nor is it in doubt that TH came in time to be aware of all of this. The question rather is the date by when TH was informed, or otherwise acquired knowledge, of these matters.
21. It is unnecessary to set out in any detail the steps taken by the Commission in that regard. I merely mention that stretching back to late 2001 there were frequent communications about the progress of these matters from the Commission to TH – many of them resulting from membership of the so-called North Bank Partnership Group of Mr Philip Leech, at the time a director of TH (and since late 2004 managing director of TH’s parent company). The Partnership Group was an organisation set up in connection with the North Bank Project. The Commission regularly reported to it. In the course of so doing the progress of the North Bank regeneration scheme was discussed, as a result of which TH was made aware of matters relevant to the Commission’s compliance with clause 3.1. Aside from all of that, Mr Leech, who gave evidence before me and whom I found to be a candid witness, accepted that he frequently travelled across a bridge over the Tees from which he was able to see, and did see, the progress of works on the North Bank site. In particular, he saw with his own eyes the reclamation works which under the Agreement constituted the North Bank Works. Although he was rather less certain about this, he also observed ground levelling works going on in the vicinity, and therefore as part of, the NBGR Works. I mention also that in September 2002 the Commission sent TH a copy of the planning consent approval which established the principle of a mixed use development at the North Bank site in accordance with the relevant Master Plan Design Guidance and which, subject to a point I shall shortly come to, constituted the Outline Consent referred to in clause 3.1.1. At the same time the Commission informed TH of the steps it was taking to acquire the land needed for the construction of the NBGR, obtain funding for the project, appoint contractors to carry out the reclamation works and finalise the programme for the construction of the NBGR.
22. Indeed, such was the progress of compliance with the conditions which would trigger the start of the Option Period that TH instructed solicitors, DentonWildeSapte (“DWS”), who on
“We act on behalf of Terrace Hill (
We refer to the Agreement under which, inter alia, our client is entitled to develop and secure the grant by your clients of a lease or leases of land shown edged red on the plan attached to this letter (the “Property”).
We understand that works which our client believes form part of the “NBGR” and North Bank Works” have commenced. Could you please confirm whether or not this is the case.
If this is the case, could you please let us know when the Commission anticipates serving the Commission’s Notice and the extent to which the conditions in clause 3.1 of the Agreement have been satisfied.
Our clients have also become aware of the fact that the Master Plan for the purposes of the North Bank Area is in the course of review by the Commission and that the current draft of the revised Master Plan appears to designate the Property for alternative uses.
The purpose of this letter is to draw your attention to the terms of the Agreement both in relation to service of the Commission’s Notice and in relation to the Master Plan, and to reserve our clients’ rights in relation to the Agreement.
For the avoidance of doubt, our clients would resist very strongly any attempt to amend the Master Plan in a manner which in any way prejudices their benefits under the Agreement. Also our clients would expect to be fully consulted in this matter to ensure that their rights under the Agreement are not prejudiced.
Please also note that if the Commission’s Notice is shortly to be served or, if the conditions in clause 3.3 of the Agreement have been satisfied so that the Option Period will commence to run (or, indeed, has commenced to run), our clients will potentially suffer if they are unable to carry out or complete detailed design or indeed to exercise the Option as a result of the proposed changes to the Master Plan which are outside the scope of the Agreement. You will appreciate that our clients’ rights are reserved in relation to this.”
It is evident from that letter that DWS and TH were fully aware of the circumstances in which the Option Period could be triggered, in particular that it could be triggered notwithstanding non-service (in breach of the Commission’s obligation in that respect) of the Commission’s Notice.
23. The letter was marked for the attention of Mr
24. DWS’s letter was answered by Eversheds LLP on
“We have been instructed by English Partnerships [ie the Commission] and asked to respond to your letter of
Wherever in this reply we use terms defined by your letter, or by the Agreement, those terms bear the same meaning in this letter.
The Commission must serve the Commission’s Notice under the Agreement as soon as the Commission has complied with clause 3.1 of the Agreement and construction of the NBGR and the NB Works have commenced (clause 3.3).
The Commission has, at face value been able to comply with clause 3.1 in that an Outline Planning Consent has been obtained (clause 3.1.1) and the NBGR Works have begun and should be completed by late summer 2005 and the North Bank Works have been completed insofar as they are relevant to the option.
We say that clause 3.1 has been satisfied at face value because actually the Outline Planning Consent was subject to Onerous Conditions in that it required highway works in three areas which had not been anticipated. The Commission is in the process of satisfying these requirements and has waived its right to treat them as Onerous Conditions.”
The letter next described the three areas of highway works. They are not relevant to the issues I have to decide. The letter then went on:
“You are correct in saying that the Master Plan is in the course of review.
Clause 5 of the Agreement makes it clear that a process of review is anticipated. For the purpose of approval of your client’s plans for redevelopment (“the Relevant Plans”) the edition of a Master Plan Design Guidance (“MPDG”) is that current at the submission of the Relevant Plans for approval by the Commission.
Meetings have already been held by Tees Valley Regeneration Company with your clients (and more are planned), at which the review of the MPDG is being discussed.
The Commission and Tees Valley Regeneration acknowledge the existence of the Agreement and are keen to work with your client to deliver development in accordance with the Agreement and the MPDG.”
It will be observed that that letter does not in terms answer one of the questions raised by DWS’s letter which was when the Commission expected to serve the Commission’s Notice. That said, it is abundantly clear that the letter was informing TH and its solicitors that the conditions which had to be satisfied in order to trigger the Commission’s obligation to serve the Commission’s Notice had all been satisfied. It is true that there is no explicit reference in that letter to the Commission having applied for and obtained what are referred to in clause 3.1.1 as “all Commission’s Approvals” and the “financing required for the construction of the NBGR and the North Bank Works” or to the acquisition of the land required for the construction of the NBGR referred to in clause 3.1.2. It would nevertheless have been obvious that those matters had been complied with because the letter in terms stated that the NBGR Works had begun – which on any reasonable view could not have occurred if the necessary approvals and financing required for them had not been obtained – and that the necessary approvals and financing must have been obtained in respect of the North Bank Works since, according to the letter, such works had been completed so far as relevant to the Agreement. It must also have been evident, since the NBGR works were said to have started, that the land needed for the construction of those works must have been acquired. In any event, it is evident from earlier communications to TH that the land had been acquired.
Commencement of the Option Period, ignoring estoppel
25. With the communication of that letter and its confirmation that the so-called Onerous Conditions in the Outline Planning Consent were being waived all of the conditions necessary to trigger the commencement of the Option Period under the commencement date alternative had been satisfied. The result of this, inevitably in my view, is that the Option Period thereupon commenced. The fact that, in breach of its obligation, the Commission did not then or subsequently until 28 March 2007 serve the Commission’s Notice does not seem to me to matter. As pointed out earlier, the existence of the commencement date alterative presupposes that the Option Period may commence notwithstanding that the Commission is in breach of its obligation in that respect.
26. Mr Pymont submitted that the Commission’s obligation of disclosure to TH extended to a duty to inform TH unequivocally that all of the conditions for the commencement of the Option Period had been satisfied – in effect that the time for service of the Commission’s Notice had arisen – and that the Commission did not do so, either in the letter of 5 October or subsequently until the omission was overtaken by service of the Commission’s Notice itself on 28 March 2007. I do not agree. I cannot spell such an obligation out of the third limb of clause 3.3 which speaks merely of the Commission keeping TH “reasonably informed as to progress in complying with clause 3.1”. Nor do I consider that such an obligation should be implied into the definition of Option Period as a pre-condition to the triggering of the commencement date alternative.
27. In the alternative, Mr Pymont submitted that the acknowledgement in the third paragraph of Eversheds’ letter of 5 October of the Commission’s obligation to serve the Commission’s Notice as soon as the Commission had complied with clause 3.1 and construction of the NBGR and North Bank Works had commenced, when taken with the remainder of that letter and, not least, the failure to accompany that letter with a Commission’s Notice (or to state that the letter should be taken to be such Notice), left, and reasonably left, a lingering doubt in TH’s mind that some aspect of the conditions necessary to be fulfilled to trigger the obligation to service the Commission’s Notice was still outstanding. He submitted that such a doubt could only be removed either by service of the Commission’s Notice or by an acknowledgement that all of the conditions had been satisfied.
28. Again, I do not agree. The submission comes perilously close to equating the non-service of the Commission’s Notice with the non-commencement of the Option Period, ie a reliance on the Commission’s failure to serve the Commission’s Notice to defeat the commencement date alternative. Fairly read, against the background of what TH already knew, the letter was informing TH that, as was the fact, the conditions for the service of the Commission’s Notice had been satisfied. Indeed, the letter was asserting in terms that clause 3.1 had been complied with. The fact that it concentrated simply on the conditions of the Outline Consent is no doubt because, in the light of what was happening on the ground (ie, completion of the North Bank Works and commencement of the NBGR, both matters to which the letter in terms referred), it was obvious that all of the other conditions had been satisfied.
29. That TH understood the Commission to be asserting that the conditions had been satisfied for service of the Commission’s Notice is, as Mr Dowding pointed out, evident from two other considerations: first, TH’s failure to send a letter asking whether in any respect the conditions had not been satisfied and, second, TH’s assertion in later letters from DWS that the conditions had been satisfied. It did so most strikingly in the very next letter that DWS sent to Eversheds. It was dated 8 October and was sent in response to Eversheds’ letter of 5 October. In it DWS stated: “If, as you say, the Commission has complied with clause 3.1 and construction of the NBGR and NB Works have commenced …”. In other words, it understood the letter of 5 October 2004 to have stated that the conditions had been satisfied.
30. It follows, in my view, that with the service of Eversheds’ letter of
31. That only leaves for decision whether, as a result of any subsequent event or events, the Option Period ceased to run (other than by expiry) or some other event or events occurred which estop the Commission from relying upon the running and, on 5 October 2007 or thereabouts, expiry of the Option Period.
Estoppel by convention
32. A very striking feature of this dispute is that, despite being repeatedly pressed in correspondence to say when it would serve the Commission’s Notice, the Commission steadfastly failed to do so until, as I have mentioned, it sent its letter of 28 March 2007 stating in terms that the letter was to be treated as the Commission’s Notice. As I have also mentioned, this failure cannot by itself prevent the Option Period from running if, as I have held, the conditions for its commencement (under the commencement date alternative) had been satisfied because it is inherent in the definition of Option Period that just such a state of affairs may occur. But it provides the context for TH’s other defence to the Commission’s claim that the Option Period began on 5 October 2004.
33. This is because TH contends that, as a result of an exchange of letters between DWS and Eversheds culminating in a letter from Eversheds to DWS (misdated 6 October 2004 but in all probability sent in the week starting Monday 15 November 2004 because, as I was told and accept, DWS received it on 19 November 2004), an estoppel by convention arose, the effect of which was to render it inequitable thereafter for the Commission to assert that the Option Period had commenced. TH contends that the convention remained in being, so that it continued to be inequitable for the Commission to assert the running of the Option Period by reference to the commencement date alternative, until effect was given to it by the service, on 28 March 2007, of the Commission’s Notice. TH contends therefore that it is only from this date and not before that the Option Period began.
34. The relevant exchange of correspondence is very short: it begins with the letter from DWS to Eversheds dated 8 October 2004 to which I have already referred. So far as it is material that letter reads as follows:
“Thank you for your letter of the
That is a reference to Eversheds’ letter, dealt with above, asserting in terms that clause 3.1 of the Agreement had been complied with and that construction of the NBGR and North Bank Works had commenced. DWS’s letter continued:
“1. We agree that the Commission is required to serve the Commission’s Notice under the Agreement in the circumstances contemplated by clause 3.3 of the Agreement.
If, as you say, the Commission has complied with clause 3.1 and construction of the NBGR and NB Works have commenced, when does the Commission intend to serve the Commission’s Notice?
2. For the avoidance of doubt, would you please confirm that the Commission has not as yet served the Commission’s Notice and therefore that the Option Period has not commenced.
3. The Agreement does of course provide for review of the Master Plan Design Guidance; what it does not provide for is any material variation in the location of the Property for the purposes of the Agreement.”
35. This was followed up by a chasing letter from DWS dated
“I refer to my letter of the
Could you please confirm that the Commission has not as yet served the Commission’s Notice and that consequently the Option Period has not commenced.”
Accompanying that letter was a copy of DWS’s earlier letter of
“Thank you for your letter of 10 November. Your letter of 8 October is with my clients awaiting their full instructions.
In the meantime, I can confirm that the Commission has not as yet served the Commission’s Notice and that consequently the Option Period has not commenced.”
Crucial to the existence of the convention is the single word “consequently”. In using it, Eversheds were taking up the use of that word in DWS’s letter of 10 November.
36. Mr Pymont submitted that all of the necessary ingredients for an estoppel by convention are present. First, the exchange of letters established a “convention” or conventional basis on which the parties intended to determine the date by reference to which the Option Period would arise; second, they regulated their subsequent dealings on that basis in that TH took no steps, which it would otherwise have taken, with a view to the exercise of the option; and third, it would be unjust or unconscionable for the Commission to resile from the convention by asserting, as it does, that the Option Period had, in truth, started with the receipt by TH’s solicitors of Eversheds’ letter of 5 October 2004, because the effect, if the Commission is permitted to do so, is that TH would be deprived of substantially less than the full 36 months of the Option Period for which it bargained.
37. Mr Pymont submitted that it is immaterial for the purpose of establishing the convention what precisely TH’s understanding was of the way the Option Period was triggered. The important thing, he said, is that the parties established a conventional basis upon which they would regulate, for the future, the circumstances in which the Option Period could be triggered. Implicit in the convention was that the Option Period had not already been triggered. But in any event, he said, the very fact that the Commission failed to serve the Commission’s Notice, notwithstanding its apparent assertion that the conditions for its service had occurred, gave rise to a lingering doubt as to whether, for some reason, the time for service had not yet arisen with the result that the Option Period had not yet been triggered.
38. Mr Dowding submitted that TH, both through Mr Leech who accepted in cross-examination that he had a thorough understanding of how the agreement operated and also through DWS, as evidenced by their letter of 2 September 2004, fully and accurately understood the circumstances in which the Option Period could begin, in particular the existence of the commencement date alternative. That being so, there could be no basis for the establishment of a convention. The existence of the convention presupposes, he said, the existence of a common assumption which the parties have acted upon. But, in any event, the convention, so long as it operated, only went so far as to require service of the Commission’s Notice before the Option Period could commence: in other words, it went merely to when the Option Period would begin; it did not go to whether the conditions for service of the Commission’s Notice had been satisfied.
39. I agree with Mr Dowding that the convention, if and for so long as there was one, went no further than to require service of the Commission’s Notice to trigger the Option Period. I do not accept that it is material to the establishment of such a convention that TH fully understood that the Option Period could be triggered without service of the Commission’s Notice whereas Eversheds (as seems likely) misunderstood how the Option Period could be triggered. In Amalgamated Investment & Property Co v Texas Commerce International Bank [1982] 1QB 84 at 121C Lord Denning MR stated that:
“If parties to a contract, by their course of dealing, put a particular interpretation on the terms of it – on the face of which each of them – to the knowledge of the other – acts and conducts their mutual affairs – they are bound by that interpretation just as much as if they had written it down as being a variation of the contract. There is no need to inquire whether their particular interpretation is correct or not – or whether they were mistaken or not – or whether they had in mind the original terms or not. Suffice it that type have, by the course of dealing, put their own interpretation on the contract, and cannot be allowed to go back on it.” (emphasis added)
40. Was then a convention adopted? TH, though DWS, had been pressing for the service by the Commission of a Commission’s Notice. They wrote to ascertain, not unreasonably in my view, whether, because the Commission had not served its Notice notwithstanding the Commission’s apparent assertion that the conditions for its service had been satisfied, the Commission would be contending that the Option Period had started. The Commission, though its solicitors, represented, through the use of the word “consequently” in Eversheds’ November letter, that because the Commission’s Notice had not been served the Option Period had not commenced. That seems to me to provide a possible basis for the future regulation by the parties of this aspect of their rights and obligations under the Agreement whatever, in truth, the Agreement might have provided. But before concluding that the alleged estoppel is established it is necessary to see what then happened and consider whether and to what extent both parties regulated their subsequent conduct on the basis of their shared assumption as to the way in which commencement of the Option Period would be triggered and, if they did, whether and on what terms it would be just to allow the Commission to rely on the terms of the Agreement and assert (as it does) that the Option Period commenced either on 5 October 2004 or not later than 11 February 2005.
41. TH continued, via DWS, to press for service of the Commission’s Notice. Thus, in a letter to Eversheds dated
“Having discussed the matter with [Mr Leech], and on the basis of the information provided in your letter of the 5 October 2004, [Mr Leech] and [the writer of the letter] are both of the view that your client should serve the Commission’s Notice as referred to in clause 3.3 of the Agreement dated 30 May 2001.
As indicated by your letter of the 5 October 2004, and in particular given your confirmation that your client has waived its right to treat those matters in the Outline Planning Consent which constituted Onerous Conditions as Onerous Condition, it is quite clear that the conditions in clause 3.1.1 and 3.1.2 have now been satisfied.
I look forward to receiving the Commission’s Notice as a matter of urgency and confirm that I am authorised to accept service of the Notice on behalf of [TH].”
42. There was no reply to that letter. On 18 January 2005 DWS wrote again to Eversheds to press for service of the Commission’s Notice. The only response was a letter from Eversheds dated 24 January 2005 thanking DWS for their letter and stating that the writer was waiting to hear from the Commission.
43. On 9 February DWS wrote to Eversheds asking for an update. The writer of the letter continued:
“Please note (as indicated in my letter of the 10 December 2004) that my clients are strongly of the view that the Commission’s Notice should have been served some time ago; any loss suffered by my clients by reason of your client’s failure to comply with its contractual obligations will be to your client’s account.”
44. Eversheds replied on 11 February to say that the writer had forwarded the letter to the Commission and would reply when she had its instructions.
45. By now, mid-February 2005, TH was becoming exercised, as Mr Leech made clear in his evidence, by the possibility that the fourth anniversary of the Agreement might pass without the Commission having served the Commission’s Notice. Its concern was whether this might trigger the Commission’s right, under clause 21, to terminate the Agreement altogether. That right arises if by that anniversary there has been no service of the Commission’s Notice (or it has by then become apparent that the conditions of clause 3.1 cannot be satisfied owing to frustration) and the omission is not the result of any default on the Commission’s part.
46. This concern led to a further letter from DWS. Dated 11 February (it probably crossed in the post with Eversheds’ letter, also dated 11 February, replying to DWS’s letter of 9 February) it stated as follows:
“I refer to my letter of the 9 February 2005 and to the correspondence which preceded that letter.
Having discussed the matter further with my client, we are of the view that there can be no doubt given the information supplied in your letter of 5 October 2004 that the Commission should have served the Commission’s Notice for the purposes of clause 3 of the Option Agreement dated 30 May 2001.
As a result:
1. The Option Period has commenced; in our view it should be treated as having commenced with effect from the date of this letter;
2. For the purposes of clause 21.1, the Commission’s Notice having been deemed to have been served prior to the Termination Date the right of termination ceases to apply.”
47. Mr Dowding submitted that that letter was stating, in unequivocal terms, that on the basis of the information supplied in Eversheds’ letter of 5 October 2004 the Commission’s Notice should have been served and, consequently, that the Option Period had already commenced (and had done so with effect from “the date of this letter”, ie 11 February 2005). TH, he said, was not calling for service of the Commission’s Notice in order to start the Option Period; on the contrary, assuming for the sake of argument that there was the convention contended for, TH was resiling from it by asserting that the Option Period had already commenced and, what is more, that the Commission’s Notice should, for the purpose of clause 21.1 and right of termination of the Agreement under that clause, be treated as having already been served. It was, submitted Mr Dowding, impossible to reconcile that letter with the continued reliance by TH on any convention established by the exchange of correspondence the previous November.
48. Mr Pymont submitted that that letter was to be understood as no more than a proposal, arising in the course of correspondence which stretched back to the previous month, that the parties should thenceforth proceed on the footing that the Option Period should be treated as having commenced, but only with effect from 11 February, and as if the Commission’s Notice had been served so that any right of termination under clause 21 should cease to available. TH, he said, was seeking by the letter to suggest how the parties should move forward. He pointed out that the Commission did not take up the invitation. The result was that the proposal remained just that: a proposal. The convention therefore remained in force. Thus, he said, Eversheds’ subsequent letter of 15 February promised a response. Their next letter, of 18 February, promised a response following a meeting of (or involving) the Commission fixed for early March “which will be well in advance of the longstop date” – a reference, almost certainly, to the termination date under the Agreement – and made clear that there was neither acceptance nor rejection of the “contention” (as it described them) put forward in DWS’s letter of 11 February. But no response ever was forthcoming.
49. In order to evaluate these contentions it is necessary to consider a little further how the parties conducted themselves subsequently.
50. The first thing to note is that, so far from abandoning the contentions set out in its letter of 11 February, DWS wrote subsequently to reassert them. Thus, in its letter dated 24 March 2005 DWS wrote to Eversheds to say:
“Without prejudice to the statements made in my letter of 11 February 2005, I wonder whether you have now had your meeting with [the Commission] and whether you are in a position to respond.”
In short, TH was standing by the contentions in the letter of 11 February; it was waiting for the Commission’s response.
51. Following a telephone conversation in late April 2005, DWS again wrote to ask Eversheds to “please press your client strongly for a response in relation to this issue”. The letter then stated:
“If we have to go down the route of obtaining a court declaration, so be it but it seems somewhat unnecessary given that your client should patently have served the Commission’s Notice at the end of last [year], if not before.
I look forward to hearing from you as soon as possible.”
The court declaration to which that letter referred could only sensibly be understood to be one declaring that the position was as the letter of 11 February had asserted it to be. The Commission did not respond in any substantive way. The only response that did come was on 3 June 2005. By then the fourth anniversary of the Agreement had passed. Eversheds’ letter of that date merely stated that a Mr Peter James of TVR had been trying to contact Mr Leech but without success.
52. By this time, indeed since the end of 2004, a new matter had begun to engage the attention of the parties. This was a revision of the Master Plan for the overall North Bank site. Its proposals included a use for a part of the option land different from what it was shown to be under the earlier Master Plan. Renamed the North Shore Master Plan, the new plan, a draft of which had been considered at a meeting of the North Bank Partnership Group in August 2004, approved by the Commission in November 2004 and formally launched on 19 January 2005, involved a two-stage tender process for the selection of the preferred developer for the overall site. TH was interested in becoming that developer. It was successful in being shortlisted for stage two of the appointment process. There were four others in the running. Final submissions in response to an Information Pack for Developers dated April 2005 were requested by
53. In a letter dated 5 July 2005, the day following the deadline for submission of tenders, Clyde & Co, who in the meantime had taken over conduct of the matter from DWS (the partner in DWS who had previously had conduct of it having moved to that firm), wrote to Eversheds to make clear that the submission was without prejudice to TH’s existing rights in relation to the option land. That could only mean that despite the fact that four years had passed since it was entered into there was no question of the Agreement having been terminated; on the contrary the option remained open for exercise.
54. In the event, TH’s tender was unsuccessful and another was appointed preferred developer. In December 2005, having got wind of this fact, TH again took up the question of the option. It did so in a letter from Clyde & Co to Eversheds dated
“I have noted press reports concerning your client’s arrangements with third party developers for the North Shore development and I felt it was appropriate again to emphasise the fact that my client does not accept that your client has any ability to deal with the land which is the subject of the option agreement dated 30 May 2001 (the “Option”) other than subject to the terms of the Option.
As you know, it is my client’s contention that the Commission’s Notice should have been served; your letter of 5 October 2004 acknowledged that your client had been able to comply with clause 3.1 of the Option and that, although the Outline Planning Consent was subject to Onerous Conditions, your client had waived its right to treat the same as Onerous Conditions for the purposes of the Option.”
There was no reference in that letter to any understanding that unless and until the Commission’s Notice was served the Option Period did not begin to run. The letter was silent on the point.
55. So far as “open” (as distinct from without prejudice) communications are concerned there was then a gap of some eight months. The matter of the option was taken up once more, this time by a letter from Eversheds to Clyde & Co dated 1 August 2006. That letter was as follows:
“We have been reviewing the correspondence between firms in the light of our respective clients’ on-going discussions concerning this site. In doing so it appears that we have not responded to your letter of 5 December 2005 concerning the Option Period. We apologise for this oversight on our part.
We should make it plain that our clients’ primary position remains that the outline planning permission granted on 7 June 2002 were subject to Onerous Conditions. The consequence was that our client was not obliged to give notice under clause 3.3 and that the Termination Date for the purposes of clause 21 was 30 May 2005. It was not open to our client unilaterally to alter the terms of the Option and accordingly, this firm’s letter of 5 October 2004 could not change those terms. In particular, the letter of 5 October 2004 could not operate to “waive” one of those terms and cause the Option to operate in a different way.
In the alternative, if our clients’ contention in this regard is incorrect, that result could only be reached on the basis that this firm’s letter of 5 October 2004 constituted an effective waiver of those Onerous Conditions. As we understand your letter of 5 December 2005, it acknowledges that if the Onerous Conditions were indeed waived by the letter of 5 October 2004 then this was the operative date for the start of the Option Period.
So that we may be clear on the point can you please confirm your client’s position. In the event that your client maintains that the Option Period commenced on a date other than 5 October 2004 please specify that date and explain precisely the reasons for relying on it.”
The attempt in the second paragraph of that letter to assert, in effect, that the conditions for the service of the Commission’s Notice had not been fulfilled with the result that the Option Period had not commenced was mistaken. It is not now suggested that the Commission could not waive, and had not waived, the Onerous Conditions. If the assertion had been correct it would presumably have been open to the Commission, by the date of that letter, to serve notice under clause 21 on TH terminating the Agreement. But the letter did not seek to do so. The alternative assertion, in the third paragraph, was to the effect that, assuming the Onerous Conditions had been validly waived, the Option Period had commenced on 5 October 2004. It invited Clyde & Co’s response. It is to be noted that there was no understanding on the writer’s part that there existed any form of understanding that the Option Period could only start if (and not before) the Commission’s Notice was actually served.
56. Clyde & Co’s initial response was to refer to an earlier without prejudice letter the contents of which, being privileged, were understandably not before the court.
57. Nothing much of substance was then communicated, at any rate on an “open” basis, until 11 October 2006 when Eversheds again took up the matter and sent the following letter:
“We would remind you that you wrote to us on 5 December 2005 …”
The letter then quoted from the paragraph of Clyde & Co’s letter of that date in which reference is made to the Commission’s compliance by 5 October with clause 3.1 of the Agreement. Eversheds then continued:
“Insofar as our letter to you of 1 August responded to this point, it asked that you confirm what we (and we should add Leading Counsel who our client has consulted on this issue) believe to be implicit in the passage quoted above, namely that your client contended that 5 October 2004 was the operative date for the start of the Option Period. Our client is most concerned that the reason for your failure to provide the confirmation is because your client now wants to contend for some other unspecified, unexplained date. It is, of course, imperative that both parties know where they stand in respect of their rights and obligations under the Option Agreement. Accordingly can we please ask you to respond as requested in the penultimate paragraph of our letter of 1 August.”
That is a reference to the fourth paragraph of that earlier letter. The letter then concluded by saying that, failing a reply within seven days, Eversheds would advise the Commission to apply to the Court for appropriate declaratory relief. As with Eversheds’ previous letter, there was no understanding on the writer’s part that, in the light of earlier communications, the Option Period could not commence before the Commission’s Notice had been served. Nor, more particularly, does it appear that anything had been said to Eversheds (or, it may be presumed, the Commission) to suggest that TH was relying on any understanding that the Option Period could only be triggered by the service of the Commission’s Notice. If any such suggestion had been made, the letter would surely have addressed the point.
58. Clyde & Co’s response finally came on 18 October 2006. The letter was expressed to be a response to Eversheds’ letters of both 1 August 2006 and 11 October 2006. It dealt first with the contention, in the letter of 1 August, that the Onerous Conditions in the outline planning consent could not be and therefore had not been waived and stated, correctly, that an effective irrevocable waiver of those conditions had indeed occurred. The letter then moved on to whether and if so when the Option Period had commenced. It stated as follows:
“We take it from your correspondence that you would assert that the Commission’s Notice ought to have been served on 5 October 2004, which makes your client’s behaviour in failing to serve notice all the more extraordinary. You invite us to concede that the Commission’s Notice ought to have been served by that date, yet we are unable to make that concession. Our client does not know, taking the issue of financing as an example, whether, on 5 October 2004, your client had in place the necessary financing as required by clause 3.1.1 of the Agreement. If your client did not then it would have been wrong to serve the Commission’s Notice at that stage.
However, putting to one side the issue of whether the Commission’s Notice ought to have been served, for the reason we explain in this letter, we do not accept that the Option Period has begun. We consider that a convention arose between the parties that the Option Period had not commenced (“the Convention”) by which our client regulated its subsequent dealings. Evidence of the Convention is to be found in [DWS’s] letter of 10 November 2004 and your reply of 6 October 2004…”
This then was the first occasion – at any rate on the basis of the evidence before the court – that any claim is made that the basis on which the Option Period commenced was different from what the Agreement provided and that the parties had regulated their subsequent dealings on this basis. The letter then commented on the incorrect dating of the last-mentioned letter and quoted from the two letters in question. I have set out the relevant passages at paragraph 35 above. The letter then continued:
“It is plain from this exchange of correspondence that, whatever the position might be as a matter of contract, the parties reached a convention between themselves that the Option Period had not commenced. The Convention overrides considerations as to whether the Commission’s Notice ought to have been served. Our client regulated its subsequent dealings by reference to the Convention (by not making arrangements to satisfy the Pre-Conditions) and we consider it wholly inequitable to allow your client to be permitted to resile from the Convention that the parties established, for two reasons:
(a) In order to suggest that the Option Period began on 5 October 2004 your client would be relying upon its own breach of contract;
(b) If the Option Period started on 5 October 2004 (contrary to the Convention) then our client no longer has sufficient time to comply with the Pre-Conditions to the exercise of the Option. In essence, if your client were permitted to go back on the Convention our client would be robbed of the benefit of the Option. We consider that unjust and unconscionable.
For the avoidance of doubt we do not believe that the suspensory effect of the estoppel by convention has been affected by any of the subsequent correspondence that suggested that the Commission’s Notice ought to have been served at an earlier date. It is plain from the correspondence that our client was trying to achieve clarity in order that a decision could be made in relation to the Option. By refusing to engage with our client in discussion over the Option Period your client left ours in the invidious position of choosing whether or not to incur substantial sums of money attempting to satisfy the Pre-Conditions to the exercise of the Option, in circumstances where your client might assert at a future stage that the Option could not be exercised because the Option Period had not begun. In short, our client was left in limbo and the fact that our client was doing its best to escape limbo does not mean that your client can get away from the Convention that arose.”
The letter suggested finally that if the Commission wished to achieve clarity it should serve the Commission’s Notice “in order that our client can make arrangements to satisfy the Pre-Conditions”.
59. Eversheds replied on 25 October 2006. They denied the existence of any estoppel by convention, referring in so doing to DWS’s letter of 11 February 2005, and again sought confirmation that the Option Period had begun on 5 October 2004. The letter threatened court proceedings for appropriate declaratory relief if the confirmation was not speedily forthcoming.
60. Clyde & Co replied on 3 November 2006 reasserting the points they had made in their letter of 18 October 2006.
61. With the parties unable to agree on whether the Option Period had commenced, Clyde & Co wrote on 9 January 2007 to say that, notwithstanding TH’s view that there was insufficient time to exercise the option before October 2007 (if, as the Commission was maintaining, the Option Period commenced on 5 October 2004), TH proposed nevertheless “at least to attempt to do so”. To that end it asked for a copy of the then current Master Plan Design Guidance to be delivered within seven days. After a chasing letter, the document was supplied by Eversheds under cover of a letter dated 2 February 2007. In the event, as Mr Leech made clear in his oral evidence, no steps were then taken, and none have been since, by TH to satisfy the pre-conditions to any exercise by it of the option.
62. Ultimately, on 27 March 2007, the Commission launched these proceedings. The next day, 28 March 2007, Eversheds wrote direct to TH, referred to the proceedings that had been launched, and in particular to a passage in Mr Buczynskyj’s evidence in which he accepted that the Commission should have served the Commission’s Notice on 5 October 2004, and stated:
“Accordingly, please treat this letter as a Commission’s Notice confirming that as at 5 October 2004 our client had complied with clause 3.1 and that construction of both the NBGR and North Bank Works had commenced.”
The letter then referred to various matters relevant to compliance with clause 3.1.
Conclusion on estoppel
63. Did then a convention to the effect that the Option Period could only commence with the service of the Commission’s Notice come into being with the exchange of letters and, if it did, did it survive DWS’s letter of 11 February 2005? The only basis for the existence of the convention is the appearance of the word “consequently” in Eversheds’ November letter. It seems likely that in employing that word Eversheds took up, carelessly, the use of it in DWS’s letter of 10 November to which Eversheds’ November letter was a response. On any view the inclusion of that word in that exchange of correspondence provides a slender basis for the convention.
64. One of the requirements of estoppel by convention where, as here, the estoppel is as to the parties’ apprehension of the legal effect of an agreement is that, having established a conventional basis for their subsequent dealings under the Agreement, both parties have regulated their subsequent dealings on that basis. See, for example, The “Vistafjord” [1988] 2 Lloyd’s Rep 343 at 352 (and also Chitty on Contracts, 29th Edition, Volume 1 at para 3-109 “…both parties must have conducted themselves on the basis of such a shared assumption…”). What is abundantly clear from the correspondence passing between the parties’ solicitors is that there is not the slightest basis for thinking that the Commission regulated its subsequent dealings with TH on the basis of the supposed convention. Nor is there any other evidence to suggest that the Commission acted upon the assumption said to have been established by the November exchange of correspondence. It is certainly not enough that, as Mr Leech stated in his first witness statement (see paragraphs 7, 8 and 11), TH did so. The position might have been different if TH or its solicitors had indicated to the Commission or its solicitors that, unless and until served with the Commission’s Notice, TH would proceed on the footing that the Option Period had not begun and therefore would take no steps to satisfy the preconditions to an exercise of the option and if the Commission, with that knowledge, had allowed TH to act on that basis.
65. But there is no evidence to that effect. On the contrary, DWS’s letter of 11 February 2005 can only sensibly be understood as indicating to the Commission that, so far as TH was concerned, the Option Period had already commenced. This is so whatever Mr Leech may have personally understood the position to be. But, whether one reads that letter as no more than a proposal for the future or, as I consider to be the better view, as a statement of TH’s understanding of the current position, it does not suggest to the Commission that TH’s understanding is that the Option Period will only be triggered by service of the Commission’s Notice.
66. Thereafter, until Clyde & Co wrote their letter of 18 October 2006 in response to Eversheds’ letters of 1 August and 11 October 2006, there was no suggestion in the correspondence or other communications passing between the parties, and therefore no reason for the Commission to think, that TH was regulating its dealings with the Commission on the basis of any shared assumption as to how the Option Period would be triggered other than as the Agreement provided.
67. In my judgment, therefore, TH fails to establish an estoppel in defence of the Commission’s reliance on its letter of 5 October 2004 as marking the commencement of the Option Period.
Result
68. The Option Period is the period of three years from 5 October 2004 or, more strictly, from the time of receipt by DWS of the Commission’s letter of that date.
