Development land — Contract of sale — Vendor granting charge over land — Events triggering vendor’s entitlement to conditional payments — Whether vendor having vested right to recover principal sum under agreement — Whether liquidator’s disclaimer of conditional payments affecting vendor’s rights — Appeal dismissed
The appellant owned a former quarry. The land had development potential but required a considerable amount of preparatory work. The appellant entered into an agreement to sell part of the quarry to a third party, S, for £7.3m. He received £2.3m on completion, the remaining £5m being set aside to pay for the preparatory work. The original agreement was superseded by a loan agreement whereby S loaned a further £2.5m to the appellant. It was agreed that if the actual cost of the work was lower than the £5m set aside, the balance would be refunded to the appellant, but should the works exceed £5m, the appellant would indemnify S against the excess.
The appellant subsequently sold the remainder of the land to a second purchaser, C, which agreed to assume the appellant’s liability or benefit in respect of the earlier agreement with S. Clause 11 of that agreement contained a mechanism for setting off any money owed by the appellant to C under clauses 8 and 10 against sums owed by C to the appellant under clause 5.
Under clause 5, the appellant would receive £1.5m upon completion together with four further sums to be paid upon the grant of various planning permissions (the overage payments). By clause 6, the appellant was granted a charge over the transferred land in order to secure his obligations under clause 5. Under the agreement, the overage payments would not become payable until the final amount of the preparatory work had been ascertained. In July 2001, C sold the land, subject to the charge, to the respondent.
In 2002, C went into voluntary liquidation and the liquidator disclaimed the conditional payments. The appellant claimed entitlement to £3m in respect of the overage payments due at that date. He contended that the effect of the disclaimer, or, alternatively, the liquidation itself, was to terminate the respondent’s right to make deductions under clause 11. On that basis, the appellant applied for summary judgment for the sum of £3m. That application was unsuccessful and the appellant appealed: [2005] EWHC 48(Ch); [2005] PLSCS13.
Held: The appeal was dismissed.
It was common ground that, at the date of the disclaimer, the total amount of the preparatory costs had not been ascertained, but, on the evidence, it appeared that they were sufficiently high so as to extinguish the appellant’s entitlement to the £3m that he claimed, were there to be a set-off under clause 11. The true construction of clause 11 was to entitle the appellant to benefit from the increased value of the land following the grants of planning permission. This could not be ascertained until such time as the works had been completed and the preparatory costs deducted. On that basis, each party was contingently entitled to a future unascertained sum. Where a sum of money became payable upon the happening of a contingency, “there is no debt owing or accruing“: O’Driscoll v Manchester Insurance Committee [1915] 3 KB 499.
It followed that since the final amount of the preparatory costs was not yet known, the appellant had no present right to recover any sums due under the charge.
Charles Purle QC and Alexander Hill-Smith (instructed by DKLL of Epsom) appeared for the appellant; Nicholas Strauss QC and Neil Kitchener (instructed by Lawrence Graham) appeared for the respondent.
Eileen O’Grady, barrister
