The Court of Appeal today began hearing a case about a property deal that missed a 10-year deadline by four days, saving the developer £1.4m.
The case centres on overage – a sum a seller in a property deal may be entitled to after the sale if various conditions are met.
In this case the seller, Gaia Ventures, sold development land in Milton Keynes to Abbeygate in 2003 for £1.5m and agreed to pay an extra overage of £1.4m if planning consent and some other conditions were met with 10 years of the purchase.
The conditions were met four days after the expiry of the 10-year “trigger date” owing to delay in the financing of the deal.
Abbeygate said it was not liable for the overage, so Gaia sued, claiming that Abbeygate had not used “reasonable endeavours” to satisfy the conditions that would lead to the payment of the overage.
In a ruling last year, High Court judge Mr Justice Norris agreed.
He ruled that, while it was reasonable that the development took some time to get moving, Abbeygate’s approach in the months before the trigger date was motivated by “a desire to leave things as late as possible”.
He ruled in favour of Gaia, noting: “How hard do you have to work to make yourself liable to pay £1.4m?”
However, Abbeygate appealed and at a hearing at the Court of Appeal today, its barrister, Piers Hill, argued that the judge had made an incorrect finding of fact.
“The judge’s primary finding was that the delay was caused by a desire to manipulate the timing to ensure that the financing was put in place after the trigger date,” he said.
However, he argued that the evidence did not support this. They “weren’t sitting on their hands”, he said.
The evidence, he said, shows that “the timing was entirely governed by the finances” and the company could not have got the financing in place any sooner.
“The fact that it had another consequence,” in making the firm no longer liable to pay £1.4m “is neither here nor there… it is a matter of background fact”.
“They don’t get home simply by saying there was a desire not to pay overage,” he said.
Gaia disputes this interpretation.
“The judge found that from late 2011 onwards [Abbeygate] was considering how it could impose a ‘haircut’ on the overage obligation,” it said in a written argument.
The judge also ruled, it said, that Abbeygate’s witnesses “all knew exactly what they were doing when they arranged the speed at which, and order in which, matters were attended to between 31/10/2012 and 26/6/2013”.
In addition, it said, the judge found that the company sought “to take advantage of any delay that might be engineered (without being blatant) or which otherwise occurred”.
Its characterisation of Abbeygate’s appeal case is thus:
“There is no appeal from the judge’s findings that [Abbeygate] deliberately breached the covenant by trying to time it out. [Abbeygate’s} case on this appeal has to be that [Gaia] has suffered no loss, because the same result would have been inevitable, even if [Abbeygate] had performed the covenant.
“That is not a particularly attractive point for a deliberate contract–breaker to take, and against the judge’s findings, the burden of proving that the same result would have been inevitable is not an easy one to discharge.”
Alison Hardy, a property partner at law firm Ashurst, said that the wider question at the heart of the appeal was the extent to which Abbeygate could have regard to its own commercial interests.
“Abbeygate says that the judge got the facts wrong and that he misinterpreted Abbeygate’s desire not to take risks that were commercially reckless in the extreme, if not suicidal, as ‘manipulating’ the timing of receipts and expenditure obligations,” Hardy, who isn’t connected to the case said.
“The question that the Court of Appeal is being asked to decide, and which will have wider application, is whether, when a party takes on a reasonable endeavours obligation, it is entitled to take into account its commercial interests and to decline to take steps that it considers to be commercially irresponsible.
“It will be interesting to see whether the court finds that Abbeygate was entitled to take into account its own commercial interests in satisfying its obligation to use reasonable endeavours, and if so, to what extent. On a broader note, this judgment may reach far beyond overage obligations, given that the obligation on parties to use reasonable endeavours can be found in agreements across a great spectrum, extending far beyond the obligation to pay overage and property-related agreements.”
The case is scheduled to last two days.
Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd
Mark Wonnacott QC and Harriet Holmes (instructed by Metis Law) for the claimant
Piers Hill (instructed by Geoffrey Leaver Solicitors) for the defendant
Court of Appeal (Patten LJ, Floyd LJ, Males LJ)
Hearing dates: 3-4 April 2019
