Town and country planning — Planning obligation — Section 106 agreement — Section 2 of Law of Property (Miscellaneous Provisions) Act 1989 — Whether agreement void for failing to contain signature — Whether implication of term — Whether rectification of agreement
The plaintiff and D Ltd owned adjoining sites
suitable for residential development. The local plan required the inclusion of
affordable houses in the development of that area. In negotiations between the
plaintiff and D Ltd, D Ltd proposed to build 32 affordable houses. That number
would satisfy the requirements of the local plan for both sites. By an
agreement between the plaintiff and the defendant council, made pursuant to
section 106 of the Town and Country Planning Act 1990, the plaintiff agreed to
allocate an area for affordable housing and to transfer that site at a
discounted price to a housing association. A provision of that agreement
released the plaintiff from the obligation, on a pro rata basis, if the
council entered into a section 106 agreement for a minimum of 30 affordable
houses on D Ltd’s site. By an agreement dated 9 October 1997, also pursuant to
section 106, between the council and D Ltd, D Ltd was obliged only to provide
15 affordable houses. On 25 November 1997 the council informed the plaintiff
that, in the light of the wording of the agreement with D Ltd, the plaintiff
was not released from its obligation to provide a site for 15 affordable
houses. The plaintiff contended that there had been a clear-cut arrangement by
which D Ltd would provide all the affordable housing (which, in fact, it did)
and the plaintiff would be free to construct houses of its choice; this
arrangement was not correctly reflected in the section 106 agreements. The
plaintiff also contended that the section 106 agreement was void in whole or in
part by reason of section 2 of the Law of Property (Miscellaneous Provisions)
Act 1989. Alternatively, a term should be implied into the agreement or it
should be rectified to give effect to what was the true intention of the
parties.
106 agreement relating to the conveyance of the site for affordable housing
fell within the requirements of section 2 of the 1989 Act. By reason of section
2, they were of no effect because they lacked the signature of the purchaser as
required by that provision. Apart from those provisions, the agreement remained
otherwise in effect. In the alternative, there was implied in the agreement a
term that the council would, in negotiations with D Ltd, ask D
agree to provide 30 affordable houses or, in the further alternative, the
agreement should be rectified to the same effect.
following cases are referred to in this report.
BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings [1977] (PC) Aust LR 363; (1978) 52 AJLR
20, PC
Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259; [1995] 2 WLR
677; [1995] 2 All ER 929; (1995) 72 P&CR 270; [1995] 2 EGLR 113; [1995] 26
EG 129
Director of Public Prosecutions v Hutchinson [1990] 2 AC 783; [1990] 3 WLR 196; [1990] 2 All
ER 836; (1990) 89 LGR 1, HL
Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567; [1995] 4 All ER 355; [1996] 1
EGLR 175; [1996] 13 EG 125
Hertsmere Borough Council v Brent Walker Group plc [1994] 1 PLR 1
McCausland v Duncan
Lawrie Ltd [1997] 1 WLR 38; [1996] 4 All ER 995; (1996) 74 P&CR 343, CA
R v Somerset
County Council, ex parte Dixon (1997) 75 P&CR 175; [1997] JPL 1030
This was a claim by the
plaintiff, Jelson Ltd, for relief arising out of an agreement with the
defendants, Derby City Council.
Pascal Bates (instructed by Kingsford Stacey
Blackwell) appeared for the plaintiff; James Howlett (instructed by the
solicitor to Derby City Council) represented the defendant council.
Giving his decision, MR DAVID MACKIE QC said: In this case the plaintiff,
Jelson Ltd (Jelson), seeks relief against the consequences of what it contends
has been sharp practice by the defendants, Derby City Council (Derby), over
agreements for permitting the development of land off Rymill Drive, Oakwood,
Derby (the Jelson site). The dispute surrounds an agreement under section 106
of the Town and Country Planning Act 1990 (the 1990 Act). Jelson contends that
by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 the
agreement is void in whole or in part. Alternatively, Jelson seeks to imply a
term into the agreement or to have it rectified to give effect to what it says
was the true intention of the parties. I am grateful to Mr
and to Mr
the trial would have been much longer and more expensive for the parties.
Facts
Before turning to the legal issues I first
summarise the background and the evidence. The area of conflict is limited to
the reasons for and motives behind the parties’ actions, there being no serious
disagreement about what happened.
Jelson acquired its site in 1991, and, in June
1995, applied for permission to build 51 houses on it. Another developer,
William Davis Ltd (Davis), owned the neighbouring site (the Davis site). In
August 1996 Jelson applied, under section 73 of the 1990 Act, to carry out a development
under an earlier permission granted in 1985. That application was refused, and,
on 23
the subsequent negotiation was under the shadow of that appeal. This explains,
first, why so many relevant letters are marked ‘without prejudice’, and,
second, why the parties were keen to reach an agreement in the summer of 1997,
before the result was known.
After a meeting on 19 December 1996, Mr Amatt, a
team leader with Derby, responsible for implementing development in line with
local planning policies and negotiating with developers on planning
obligations, wrote, on 6 January 1997, to Mr McGreal, the Jelson land
manager responsible for the project. He wrote, among other things, about
affordable housing, the issue at the centre of this case. That letter pointed
out that for the area covered by the Jelson and Davis sites the local plan
provided for 30 affordable dwellings, with a pro rata requirement of 15
for the Jelson site. Jelson did not want to have to provide affordable housing,
mainly because mixed sites are less attractive to homebuyers. Davis, however,
is a specialist in affordable housing and proposed to build 32 houses on the
Davis site for sale to housing associations. The letter led to a meeting on
28
responsible for planning applications, and Mr Teasdale, the solicitor employed
by Derby who was dealing with the matter (and who is also the solicitor having
the conduct of this litigation). The meeting did not lead to agreement. Jelson,
for whom Mr Scott and Mr McGreal were most involved, instructed Grimley
International Property Advisers (Grimley), the partner was Jeremy Wilson frics, and an associate, Sarah Avery,
was the one most involved.
During a consultation on 3 March 1997 Mr
Lockhart-Mummery QC advised Jelson that it would be useful for Jelson to
negotiate with Davis, which might have reached a solution with the council
about affordable housing. It is fair to point out that, at that consultation,
Jelson observed that Derby were the least onerous council that it had dealt
with on affordable housing.
After further contact, Miss Avery saw Derby on
15
may set an educational requirement requiring a developer to pay a sum towards
the provision of education, the need for which will be created by the children
who later live in the houses to be built. The council initially sought £65,000
from Jelson and £70,000 from Davis. Following work by Grimley, Jelson’s
contribution was negotiated down to £30,000, a reduction of £35,000.
On 21 May Davis told Mr Amatt, of the council, of
its intention to seek to build 32 affordable houses. Meanwhile, Mr Teasdale was
pressing Jelson for progress. On 27 May Davis applied for planning permission
to build those houses. On 29 May Mr Scott and Mr
Mr McInnes, of Davis, to discuss the development. The companies reached what Mr
McInnes described as not a ‘legal’ arrangement but an informal one, and one
which Mr Scott and Mr
the effect that Davis would build 32 affordable housing units on its site, so
satisfying the entire requirement for the two sites, and Jelson would provide
the know-how that later enabled Davis to negotiate its educational requirement
down from £70,000 to £43,512. This led Miss Avery to write to Mr Teasdale on 2
June informing him that Davis agreed to accept the provision of 32 affordable
houses on its site to fill the entire requirement for affordable housing on the
two sites. She suggested a meeting, and one was held on 11 June, a full note of
which was prepared by Miss Avery. Those present included Mr Amatt,
Mr
seriously disputed, although I accept, of course, that it is not a verbatim
note.
Mr Amatt:
confirmed that Davis’ provision of affordable
housing can be taken into consideration in the context of Jelson’s site once
provision of it by Davis has been secured by means of a section 106.
He also confirmed:
that the housing department is satisfied that the
housing to be built by Davis under its current proposal are ‘affordable’.
Rather than awaiting the completion of a section
106 or Davis providing satisfactory proof of intention to build these 32
affordable housings, MA suggested that an agreement is reached with Jelson
whereby if, within a certain time period, Davis has not provided the houses or
not all of them, Jelson will make up the shortfall. This suggests that Jelson
would need to leave part of the site available for affordable housing, should
Davis not deliver, but if they do, within the timescale, market houses could
then be built on the reserved Jelson land.
The meeting was followed by swift exchanges of
letters between Miss Avery and Mr Teasdale. On 17 June Mr
that if Davis would:
provide 32 affordable homes on their site this
will satisfy the affordable housing site requirements of the ‘whole site’.
He also said:
in order to secure provision of affordable
housing prior to the issue of any planning permission for the Jelson site, we
would require your client [Jelson], to guarantee the provision of up to 15
houses that meet our affordable housing requirements.
and suggested one acre of the site be identified
for this purpose. He went on:
your client, in any event, will be released from
their obligations to provide a site for affordable housing and to provide a
subsidy, if William Davis provide 30 houses that meet the council’s affordable
housing requirements on their site. (If William Davis provides less than 30
such houses but more than 15, your client will be released on a pro rata
basis.)
Miss Avery’s reply, on 18 June, suggested that the
second paragraph be replaced by:
In order to secure provision of affordable
housing prior to the issue of any planning permission for the Davis site, we
would require your client Jelson Ltd…
Mr Teasdale thanked Miss Avery by letter the
following day, made no comment on her proposed change and confirmed that the
matter would be considered by the planning subcommittee on 26 June. He referred
to his understanding that officers would recommend approval, subject to
conditions and to a section 106 agreement, and offered to start drafting the
section 106 agreement if Jelson’s solicitors would contact him.
On 23 June Mr Tyler, of Ironsides, instructed by
Jelson, asked Mr
Teasdale sent the following day. When writing to Mr Tyler on 24 June, Mr
Teasdale recorded that:
It has been agreed between ourselves and your
client that should all these houses [ie the 32 Davis houses] be provided this
would be sufficient to satisfy the affordable housing requirements of [both
sites]. If, however, the housing is not provided, Jelson will have to provide
an area for affordable housing to meet the shortfall.
At this point, it is convenient to summarise the
relevant parts of the section 106 agreement (which I shall call the Jelson
agreement). This planning agreement between Jelson and Derby for the site is
dated 15
By clause 9, headed ‘affordable housing’, Jelson
agrees with Derby that no development will commence until it has allocated on a
plan 0.4ha for an affordable-housing site. Clause 9.3 permits the owner to
require the size and area to be reduced, where the requirements for clause
12.1.1 have been met. By 9.5, the owner is obliged to transfer the
affordable-housing site to a housing association nominated by the council, and
to do so at a discounted price to be calculated on the basis set out in the
Fourth Schedule and on the other terms and conditions set out in the First
Schedule, which is headed ‘General Terms and Conditions for Sale of affordable
housing Site’. If the discounted price in the Fourth Schedule cannot be agreed,
there is a valuation provision in the Fifth Schedule. Under clause 10, the
council must nominate the housing association not before the end of one year
but within four years of the date on which development starts, and the transfer
notice must be given within two years of the housing association being
nominated.
Clause 12 is headed ‘Release from affordable
housing Transfer’, and, by this, the council agree to release Jelson from its
clause 9 obligations in certain events. Under 12.1.1, Jelson is released if
Derby enter into a section 106 agreement with Davis (which I shall call the
Davis agreement) for the provision of a minimum of 30 affordable houses on the
Davis site. If the Davis agreement provides for the provision of more than 15
affordable houses on the Davis site, Jelson
its original area for each house above 15. Under clause 12.1.2, Jelson is also
released if a nominated housing association does not complete the purchase
within five years of the start of development, but Jelson must then pay Derby
the land subsidy, essentially one‑third of the open market residential
value of the affordable-housing site. By clause 20, the agreement takes effect
as a deed, and clause 19 requires Jelson to pay the council’s legal fees of
£375.
Mr Teasdale’s draft clause 12.1 released Jelson
from its clause 9 obligations if, before Jelson started development, 30
affordable houses were completed to the council’s satisfaction on the Davis
site. On 25
clause 12 so that the release of Jelson’s obligation to provide affordable
housing should take effect on Davis entering a section 106 agreement, rather
than on Davis completing the housing. The purpose of the amendment was to free
Jelson to plan and build once the Davis agreement was in place, rather than
later after Davis had completed its 32 houses. We know from Mr
letter to his client and to Jelson on the same day that he, following a
telephone conversation with Mr
the new proposed clause 12.1.1 would be agreed. He suspected that there would
be more difficulty with a proposed condition about payment of land subsidy and
about a proposal that each side pay its own costs.
On 26 June Mr Teasdale responded with handwritten
comments, including agreement to the relevant parts of clause 12.1. His
covering fax read: ‘Please find attached my comments on your suggested
amendments. Hopefully we can agree these.’ On that day, the planning officer’s
report on the Jelson application to the council’s planning subcommittee made it
clear that the overall affordable-housing requirement for the sites was to be
met in whole or in part on the Davis site, as envisaged at the 11 June meeting.
An addendum to the planning and technical services planning subcommittee
agenda of 26
However Jelsons will be released from this
obligation if William Davis provide the full target of 30 affordable dwellings
on their site. If William Davis provide more than their target figure of 15
affordable dwellings, but less than the overall target of 30 affordable
dwellings, the requirement on Jelsons would be reduced on a pro-rata basis.
It adds, as regards the educational position:
the offered commuted sum is less than I
requested. However it is still a relatively substantial sum and in view of the
uncertainty of the outcome of an appeal should it proceed, I believe it is an
offer which should be accepted.
There is a conflict of evidence about the
negotiation of clause 12 to which I will return.
At the
beginning of July the parties discussed various minor amendments. On 15 August
the Jelson agreement was executed and delivered as a deed, planning permission
was granted, the council received the £30,000 educational contribution and the
£375 agreed legal costs. Meanwhile, on 24 July, the report to the subcommittee
on the Davis application (which had been made in May) was submitted, linking
the matter to the affordable-housing requirements of the Jelson site. The
subcommittee accepted the recommendations. On 30
Inward discussed with Davis the terms of a section 106 agreement. On 18 August
Mr
terms for a section 106 agreement, and negotiations proceeded. On 20 August Mr
McGreal, of Jelson, wrote to Mr Teasdale asking for information about Davis’
application and confirming Jelson’s withdrawal of its section 73 appeal. Mr
Teasdale replied that he was ‘not at liberty at present to disclose the terms’
of the Davis negotiations.
On 4 September Moss wrote to Mr Teasdale to inform
Derby that Davis was in negotiations with two housing associations. In
response, Mr Teasdale sent a draft with a blank affordable-housing clause, and
Mr
On 19 September Mr Teasdale sent to Mr Byass an amended draft section 106
agreement with an affordable housing requirement, but for only 15 units. This
draft said nothing about 30 houses being needed or required. As Mr Byass
emphasised in evidence, Davis was anxious to finalise the agreement to start
building, and there was therefore little controversy about its terms. Mr Byass
was not aware of the agreement by Davis to provide the 30‑house
requirement. It seems that while his client Mr
did not appreciate that it was to be recorded in this agreement. The Davis
agreement was executed on 9 October, after further discussion about details. On
10
stating, among other things:
It may be useful if I explain briefly the effect
of the relevant clause in the Jelson agreement.
The section 106 agreement with Jelson Ltd imposes
various obligations to provide affordable housing on their site. If, however,
we enter into a section 106 agreement with the owners of your client’s site,
then for every house that that section 106 agreement provides for over and
above the first 15 houses, the obligation on the owners of the Jelson site will
be reduced proportionately.
The current agreement with your client only puts an
obligation to provide 15 houses on your client’s site in any event and
accordingly, would not release Jelson Ltd from their obligations to provide
affordable housing on their site.
Mr Teasdale also wrote to Mr McGreal, but not
until 25 November, to tell him that, in the light of the wording of the Davis
agreement, Jelson was not released from its obligation to provide 15 affordable
houses. Mr McGreal was angered by what he read. This led to a meeting on
9
and Mr McGreal, for Jelson. The background to the meeting was two telephone
calls involving Mr Teasdale and Jelson. Mr
call states of Mr McGreal that he was ‘crying foul play, not a happy chap’. His
note of the second call records Mr Scott asking for a release and the council
suggesting that they receive something in return. The council suggested to
Jelson that the obligation to provide 15 affordable houses would be released in
return for a payment of £35,000. Derby now suggest one reason for that figure
being arrived at. Jelson has pointed out that it corresponds to the total
reduction secured on the educational requirement. Mr McInnes, of Davis, wrote
to the council on 22 January 1998 in terms that are of interest. The letter
points out that Davis had no financial interest of its own to serve, and
stated:
Our understanding of the situation was that if we
provided 30 units on our site, then Jelson would be released from their
obligation to provide 15 units on their site. We were not aware of the detailed
wording of the Jelson agreement and that our section 106 specifically had to
make reference to such provision. Your officers were aware that parts of our
site were to be disposed of to Derwent & Home Housing Association Ltd,
which of course has now taken place.
We do feel that the overall objectives of the
council have been reached and that the spirit of the agreement between the
parties and the ultimate objectives have been achieved and we do not therefore
believe that it is right to seek an enhanced position by trying to gain
advantage from the wording of the Jelson section 106 agreement, which we are
told by Jelson’s is the case.
Jelson is aggrieved because what appeared to be a
clear‑cut arrangement, by which both Jelson and Davis would be free to
proceed, with the latter supplying all the affordable housing, has been
translated by the legal agreements into one whereby Jelson is committed to
provide 15 affordable houses, even though Davis has already built 32. The
council complain that this is an oversimplification. I now turn to some of the
evidence, although much of it confirms the correspondence and the picture I
have described above.
Evidence
Mr McGreal and Miss Avery, the chartered surveyor
who had worked for Grimley, had similar recollections of the negotiations.
Mr
had attended together in May and December. Miss Avery’s evidence bore out the
contemporaneous documents until she handed over to the lawyers in June.
Mr Scott, now retired but formerly of Jelson,
explained that Jelson and Davis were not rivals in this case because of the
different operations that both proposed for the sites. He described the meeting
with Davis on
December. He said that at the meeting on 9 December 1997 Mr
that a mistake had been made and that he and Mr
take full advantage of it. He said that if the boot had been on the other foot
Jelson would have taken advantage and that Derby had suffered in the past from
similar mistakes. Mr Amatt had suggested, to Mr Teasdale’s apparent annoyance,
that there might be room for manoeuvre on the £35,000. Mr
had no doubt at all that Davis would have been happy to enter into its
agreement specifying 30 affordable houses.
Mr Tyler, Jelson’s solicitor, understood, when
instructed to write to Derby for a draft section 106 agreement, that Davis had
agreed to provide and build at least 30 houses within the category of
affordable housing, releasing Jelson, in whole or in part, from its own
obligations. He was aware that a release of his client’s obligations depended
upon what Davis did, but did not know that Davis had already applied for
planning permission. His proposed amendment to para 12 emerged at his own
suggestion following his conversation with Mr McGreal. He was aware of the
distinction between what he proposed, release on Davis entering into the
agreement, as opposed to the provision in the first draft for release on
physical completion of the houses. His understanding of the intention of Davis
came from his client, not from Davis itself or from Derby, and he made no
inquiries of either. He discussed the various proposed amendments on the
telephone with Mr
annoyed at the amendment to clause 12 or seeing it as a major issue. Mr
Teasdale’s main concern seemed to be to get things done swiftly before the
outcome of the appeal process. Mr Tyler had no impression of annoyance or
displeasure from Mr Teasdale but some sense that the two transactions were
going along simultaneously.
Mr McInnes, of Davis, had a recollection of the
meeting in May 1997 similar to those of Mr McGreal and Mr Scott. There was
pressure to complete the section 106 agreement as Davis had wanted to start
work. In September 1997 he received a draft section 106 agreement providing for
15 affordable houses, at which point they intended to build 32 units, having
agreed terms with housing associations to buy them. He was therefore content
for the agreement to contain a requirement of only 15 houses, although if Derby
had included a requirement for 30 it would not have been a problem. He had,
unprompted, drafted his letter of 22
parties had, in practice, achieved the result that all had intended.
Mr Byass, Davis’ solicitor, described his
negotiations with Derby and his awareness of parallel discussions with Jelson,
which explained why, in his letter of 8
suggested to Mr
Jelson precedent. He never saw a copy of the Jelson agreement, his concern was
that of Davis, to get the agreement finished. He was indifferent as to whether
the number of affordable houses should be 15 or 32.
He had no recollection of any telephone
conversation with Mr
file of such a discussion, and he said that it is more likely that any
conversation would have been with his assistant solicitor, Mr Dunbar. If he had
had the conversation he would have expected to have reported it to his client,
but there was no evidence of him having done so.
Mr Teasdale’s evidence was, like those of other
witnesses, largely uncontroversial until production of the draft section 106
agreement on 24 June 1997. He said that he saw the meaning of Davis having to
‘provide’ affordable housing as being a reference to development being completed,
and this is what his draft clause 12.1 had recorded. He said that Mr Tyler had
called him just before lunch on 25 June about a fax he was intending to send,
and that he made reference to various minor amendments, but also to the one
that caused Mr
Teasdale said that this was clearly different to what had originally been
agreed and that he had said so strongly, stating that he was not happy with the
amendments.
Mr Teasdale said that his annoyance was apparent
to such an extent that Mr Tyler suggested it would be more constructive to fax
the amendments through for consideration. Mr Teasdale says that he agreed to
that, although indicating that the amendments, including the affordable‑housing
requirement, were unlikely to be accepted. He said that he was annoyed because
he thought that Mr Tyler was trying to change the ground. As Mr Teasdale saw
it, the proposed amendment involved a risk that they might only have 15
affordable houses provided on the site, as there was no certainty that Davis
would build 30 on its site or even start development. It will be remembered
that Mr Tyler has no recollection or note of the conversation, no impression of
any annoyance and there is nothing in any of the documents and exchanges, quite
regular and quite fast at the time, to suggest any such expression of view on
Derby’s behalf.
Mr Teasdale’s dealings with the other solicitor
witness, Mr Byass, also indicate a conflict of evidence. He said that although
there was no note on the file, Mr Byass had telephoned him to discuss the draft
during what Mr
three minutes at the longest. Mr Byass had questioned the need to draft an
affordable-housing clause with a complicated mechanism, suggesting that it
might be easier simply to draft it to provide that all land on the Davis site
be for affordable housing. Mr Teasdale said that he had emphasised that he
wanted to keep to the agreement reached between Davis and Mr Amatt.
He believed that he had written to Mr Dunbar, of
Moss, on 10
arrangements for completion. He had written to Jelson with the news because the
file had come up for review and action.
As regards the meeting on 9 December, Mr Teasdale
recalled that Mr Amatt had agreed with Jelson that the original intention was
for Jelson to be released from having to provide affordable housing on its site
if Davis built 30 affordable houses on its site. It was Jelson’s insistence on
changing the terms during the negotiations on the draft and the council’s
acceptance of the proposed changes that had led to the agreement not reflecting
that original intention. The council had suggested a payment of £35,000 as an
increased contribution towards school provision in return for a release from
the affordable‑housing obligation. This would reflect the fact that what
Jelson had offered, in its hard and uncompromising negotiating stance, had
resulted in proposals falling short of what should have been provided from a
planning policy viewpoint.
Mr Amatt, team leader, gave evidence about the
background and Derby’s real and genuine need for affordable housing. While
agreeing in broad terms with the note of the meeting of 11 June, he did not recall
saying what was attributed to him in paras 19 and 20 of the note to which I
have referred above. He remembered sharing Mr Teasdale’s concern that the
amended para 12 was not what had been negotiated and would not guarantee that
the affordable houses were actually built. He felt that if Davis entered an
agreement and did not proceed with development, Jelson would be free not to
provide its 50% contribution. He also felt it would be unreasonable and against
government policy to require Davis to provide the whole affordable-housing
contribution when they were only developing half the site. He felt that despite
the fact that he knew it was Davis’ intention to provide 32 houses, all of
which were affordable. He felt this notwithstanding the fact that the addendum
of 25 June to the subcommittee envisaged that Davis would provide the full
30 houses and the planning officer’s report of 24 July on the Davis
application, which recorded ‘the dwellings are intended to be affordable houses
and are linked with the requirement of such housing generated by the recently
considered Jelson’s proposed development to the south west’. Mr Amatt saw a
risk to the council in agreeing to the June proposal, but saw potential for the
Davis agreement to include only the pro rata share; 15 dwellings. In
this event, if Davis built its 32 dwellings, Jelson would have to provide a
further 15. In short, he saw in return for the risk the chance of benefit to
the council from the proposed amendment.
On 30 July Mr Amatt met Mr McInnes, of Davis, whom
he had already seen on 21 May when he had been told of Davis’ intention to
construct 32 affordable houses. He was aware, at that point, that the Jelson
agreement had not been finally executed (it was on 15
not mention this to Mr McInnes. He asked for 15 affordable
implication for Jelson.
Mr Amatt had agreed with Mr Teasdale to meet
Mr
to provide affordable housing was of value to Derby and would not be released
except in return for the benefits of similar community work. At the meeting on
9 December, Mr Amatt recalled telling Mr Scott that they had originally agreed
to release Jelson upon Davis providing 30 affordable dwellings, but that was
not, as a result of its own proposed amendment, what the agreement had
required. It suggested a financial contribution of £35,000, being half the
subsidy, he said in cross-examination, of £70,000, calculated on a value of
£210,000 per acre.
Conclusions about
the facts
Thus, the impression given by the council
witnesses, and Mr
is that:
(a) The amended clause 12 was put forward by
Jelson to change the basis of the deal that had been provisionally agreed, and
that this was the cause of real anger and concern to the council. However, the
wording proposed by the competing drafts of clause 12 were both means of
accomplishing the objective agreed in June, which was expressed in general
terms. Unlike Mr
as necessarily meaning ‘complete’. I reject the evidence of Mr Teasdale that he
was annoyed by the draft change. He expressed no annoyance to Mr Tyler. The
concerns he expressed were primarily about other clauses, as Mr Tyler’s
evidence and his reports to his client made clear. The terms and timing of Mr
Teasdale’s responses to Mr Tyler are inconsistent with suggestions of
annoyance. They are, of course, as Mr Amatt seemed to concede, consistent with
seeing an opportunity to secure an unexpected advantage for the council.
(b) Mr Tyler’s proposed clause 12 created risks
for both sides. This is literally correct, but, in the context, the risk of
Davis not building was minimal. The council cannot have believed that Davis was
anything other than very anxious to get started. The ‘risk’ for Jelson, which
had not occurred to it, was only that Derby would not invite Davis to build 30
affordable houses.
(c) There was real concern about the propriety of
obliging Davis to build more than its pro rata share of affordable
housing. I do not accept this. All the discussions had presupposed that Davis
would, as it had planned and wished, build only affordable housing. The
documents placed before the subcommittee at the very time the council claim to
have been having these concerns say nothing about them. It is very unlikely
that it was thought improper for Derby to invite Davis to do what Derby knew it
was willing to do.
(d) The Davis and Jelson applications were
different transactions handled separately. It is apparent from the documents
presented to the subcommittee, from the correspondence between Jelson and the
council, from the evidence of Mr McInnes and his instructive letter of 22
January 1998, that that is not the case. Mr Teasdale properly dealt with the
section 106 agreements, as he intended to, one immediately after the other.
Mr
reason why they should not have consulted each other more closely), but handed
the transaction as part of one overall deal.
I reject much of the evidence of Mr Teasdale and,
to some extent, of Mr Amatt on these matters. Mr Amatt was a step removed from
Mr
relevant to the points really at issue. Mr Teasdale’s evidence contradicts that
of other witnesses I have no reason to disbelieve, in particular the two
independent solicitors. Apart from Mr Tyler, Mr
telephone conversation took place of which Mr Byass, someone with no interest
of his own to protect, has no recollection and made no mention in his records
of the transaction or of his expense of time. Mr Teasdale’s disputed
recollections are inconsistent, where there are written records, with what
these say. My evaluation of Derby’s evidence also takes account of other
features that are unconvincing, such as the explanation for how the £35,000 put
forward at the 9 December meeting was arrived at.
I also have regard to two other features of the
evidence of Mr
First, Mr Teasdale was the central and most
controversial witness in this case, yet the council or Mr
it appropriate for him also to be the solicitor with the conduct of this
action. It is highly undesirable that a solicitor who is a material witness
should also, as an individual, have the conduct of an action. Leaving aside
questions of whether or not he or she has the proper detachment necessary to
give professional advice to the client, the court may be left with some unease
about the candour of the solicitor’s witness statement and the accuracy of
statements of other witnesses who have worked closely with him on the matter in
dispute. The fact that a solicitor instructs counsel does not detract from the
point. A solicitor has advice of his own to give and important duties in
preparing a case for trial, as well as deciding what material to give to counsel
and what questions to ask.
Second, Mr Teasdale was properly cross-examined at
length about his role in this transaction. Quite apart from being inconsistent
at points with the documents and with the recollections of witnesses of obvious
truth, his evidence was very unsatisfactory. He found it difficult to give
straightforward answers to almost any question, and, indeed, on one occasion
had to be asked three or four times. Mr Teasdale’s answers were evasive, and he
appeared unusually nervous and ill at ease when giving evidence. While the
court is cautious before attaching much importance to a witness’s demeanour, it
was consistent with Mr
forthcoming and with him feeling unease about his role in these transactions. I
formed the view that he is a conscientious solicitor for Derby, often under
pressure from property developers, who, on this one isolated occasion, has been
responsible for events of which he is less than proud.
It is clear that, by June 1997, Jelson, Davis and
the council were all aware that Davis would go ahead if and as soon as it got
permission to build 32 affordable houses, that Jelson would, as a result, be
released from what might otherwise be its obligation to provide 15. There was
the pressure of urgency both for Jelson and the council because of the section
73 appeal. For all practical purposes, the two developments were seen as one
project. The council saw an opportunity, given the proposed amendment, to take
advantage of Jelson in circumstances where they felt, perhaps understandably,
bruised by the position into which they had been negotiated. The council went
on to contract with Davis, not by adapting the obvious precedent of the Jelson
agreement but by proposing only 15 affordable houses. There was therefore no
possibility, because of the council’s actions, of there ever being an agreement
‘for the provision of a minimum of 30 affordable houses on the alternative
affordable housing site’ envisaged by the Jelson agreement. The way the story unfolded
from August to December is consistent with the council identifying a stratagem,
putting it into effect and concealing it until both agreements were firmly in
place; for example, in the timing of their decision to inform Davis and Jelson
and their attitude and approach to the December meeting. The council took
advantage of its position as the only party to both agreements to produce a
result that, on the face of it, was to the council’s advantage and different
from what all three parties had anticipated would happen. Discussions and
agreements directed at securing 30 affordable homes on the site have led to
Jelson, on the face of it, being required to build a further 15 to the 32 now
built. The question that then arises is what remedy, if any, is available to
Jelson among the three on which it relies in the pleadings.
Section 2 of the Law
of Property (Miscellaneous Provisions) Act 1989
Section 2 provides in
relevant part:
(1) A contract for the sale or other disposition
of an interest in land can only be made in writing and only by incorporating
all the terms which the parties have expressly agreed in one document or, where
contracts are exchanged, in each.
(2) The terms may be incorporated in a document
either by being set out in it or by reference to some other document.
(3) The document incorporating the terms or,
where contracts are exchanged, one of the documents incorporating them (but not
necessarily the same one) must be signed by or on behalf of each party to the
contract.
Jelson says that clause 9 is an express obligation
upon it to transfer the affordable-housing site to a nominated housing
association at a price and on terms and conditions ascertainable from the
schedules. No housing association can be nominated until Jelson has begun to develop
the site, and, what Mr Bates says is a fatal flaw, there is and can be no
signature to the Jelson agreement of the housing association. As a result, the
agreement is void ab initio. Jelson says that the effect of the
agreement, if valid, is to compel it to convey land on terms ascertainable from
the schedules as and when the council designate an association. This is a
contract for the disposition of an interest in land, but is invalid because it
lacks, inevitably, the signature of one of the parties.
Mr Bates points to what he calls the strict
construction of section 2 in the cases, particularly Firstpost Homes Ltd
v Johnson [1995] 1WLR 1567* at p1571B-H. (In a sense he is right,
although the approach of the court seems more a concern to recognise that the
1989 Act creates a new regime and to honour its plain wording.)
*Editor’s note: Also reported at [1996] 1 EGLR
175
Mr Howlett submits that this is wrong. He first
suggests that the court lacked jurisdiction over any aspect of the agreement.
Section 106A(1) of the 1990 Act prevents a planning application from being
modified or discharged, except by agreement between the parties or a special
appeal procedure. This issue, not surprisingly, fell away in the course of the
hearing. Mr Howlett also submits that a section 106 obligation, although
contained within an agreement, is part of the statutory code regulating
planning control, and these obligations possess characteristics that ordinary
contracts lack. It is clear that a section 106 agreement creates planning
obligations, but their nature and extent depends upon usual principles of
interpretation, and, in the absence of statutory provision to the contrary, on
other requirements of the law of contract. As I see it, if a provision in a
planning agreement falls within section 2 but fails to satisfy that section,
then that provision will not be a valid disposition of the interest in land
that it purports to deal with.
He also submits that the obligation in this case
does not require Jelson to develop at all; will lapse if the planning
permission expires before the effective date; does not identify the association
or the site (although providing mechanisms for ascertaining it); and fails to
provide what will happen if transfer notices are not served in time or at all.
He further argues that the agreement does not give rise to an obligation to
transfer land, it merely provides a framework under which an obligation may
arise in future. He submits that there is nothing that justifies seeing this
arrangement as a contract for the sale or other disposition of an interest in
land. This is an agreement by which two parties agree that one of them should,
on the happening of certain events, transfer land to an unascertained third
party. In order to be a contract for the sale of land there must be, as a
minimum, an agreement between identified parties and identification of the
land, of the consideration and of the interest to be granted.
Parliament intended
to introduce new and strict requirements as to the formalities to be observed
for the creation of a valid disposition of an interest in land: see the
observations of Neill LJ in McCausland v Duncan Lawrie Ltd [1997]
1 WLR 38 at p44G. In my judgment, clauses 9 to 12 contain, in effect, an option
for the council to nominate a housing association to which Jelson is required
to convey land at a price and on conditions, based on the Standard Conditions
of Sale (3rd ed), to be set by the schedules to the agreement. Upon nomination,
Jelson can be required, without more, to sell an interest in land to another
party. That is an obligation that the section requires to be in writing and
signed by the parties if it is to have legal effect. Section 2 must bite at the
point where a party can be compelled, in certain circumstances, which may or
may not come about, to sell or dispose of an interest in land.
It is true that the Jelson agreement is not a
contract for the disposition of an interest in land made between seller and
eventual purchaser, and it is therefore unsurprising that there is, and can be,
no purchaser’s signature. In that sense, there is an absence of agreement
between identified parties, which Mr Howlett suggests is a prerequisite for a
contract for the sale of land. But, if Jelson starts to develop the land and
Derby nominate an association, there will be, on the face of it, a binding
obligation on Jelson to dispose of an interest in land to the association. In
view of the intention of parliament, it would be odd if Jelson could be
compelled to dispose of an interest in land without the signature of a
purchaser who has not yet been identified, but not obliged to dispose of land
if the purchaser had been identified and joined as a party but also had not
signed. The test seems to me to be this. Are there conditions under which
Jelson can be compelled to dispose of an interest in land under this agreement?
If the answer is yes, then section 2 must be complied with. Here, once Jelson
starts to develop it may be required by Derby to transfer this interest in land
to an association on the terms set out in the schedules. Since the relevant
parts of the Jelson agreement do, but for the section, commit Jelson to convey
the property, they are of no effect, as they lack the signature of the
purchaser.
The issue that then arises is the effect that this
conclusion has on the Jelson agreement. If these clauses are of no effect, does
the whole agreement fall? Jelson contends that the failure to comply with
section 2 should invalidate the entire agreement, but that if it does not a
‘blue pencil’ test should be applied to the offending provisions. This is a
decision that I make with some hesitation, as only two decisions have been
cited to me. First, Director of Public Prosecutions v Hutchinson [1990]
2 AC 783 (see, in particular, p801A-C), and, second, R v Somerset
County Council, ex parte Dixon (1997) 75 P&CR 175 at p187. In the first
case, the House of Lords is concerned with severance in the context of public
law cases, where, as Lord Bridge points out, the ‘blue pencil’ test has become
well established quite independently from the private law cases. In the second
case, Sedley J applies a ‘blue pencil’ test to a section 106 agreement when
considering an application for leave. There is no practical difficulty in
applying a ‘blue pencil’ test and counsel are agreed upon the provisions that
fall if I do. There does not seem to be any difficulty of principle, either.
This approach would not leave the nature of the contract altered except as
regards affordable housing. In practice, Jelson would cease to be obliged to
provide affordable houses, but in circumstances where no one, at least after
June 1997, intended or expected it should do so and where the 30 houses
envisaged by the plan have all been built. The Jelson agreement therefore
remains in effect, apart from the clauses dealing with transfers of the
affordable-housing site identified in para 37 of the statement of claim. As a
result, I refuse Jelson’s application for return of all money paid under the
Jelson agreement.
Implied term
This needs to be considered in case I am wrong
about section 2. Jelson contends that a term must be implied into the agreement
that the council would use their ‘best endeavours’ in negotiating with Davis to
enter into an agreement for the provision of a minimum of 30 (or as many as
possible above 15) affordable houses on the site.
Mr Bates drew my attention to Hertsmere Borough
Council v Brent Walker Group plc [1994] 1 PLR 1 in which Jacob J, in
an interlocutory matter, proceeded on the assumption that terms could be implied
into a section 106 agreement. I respectfully agree, because, as I have already
indicated, except to the extent that statute requires otherwise, an agreement
under the Act should generally be approached and interpreted like any other
contract.
Mr Bates submits that the council knew before the
contract was signed that without additional terms the contract would lead, on
their interpretation, to the construction of 47 affordable houses, not the 30
required by the City of Derby local plan. He says Derby cannot have considered
that Jelson would ever have agreed to this. Derby must have appreciated that
Jelson would expect them to use their best endeavours, in their negotiations
with Davis. The council, rather than using their best endeavours to enter into
an agreement with Davis to provide 30 affordable houses, were doing their
utmost to avoid entering into an agreement that made reference to any more than
15 houses, the council taking no adequate steps to let Jelson and Davis into
the real result they were seeking until after agreements had been executed and
registered with the local land charges.
Mr Howlett makes forcible submissions to the
contrary. It would be odd for the council to have a duty, in their negotiations
with Davis, to protect the commercial interests of Jelson; all the more so in
an agreement under section 106, where they have a statutory obligation and
discretions to be exercised in an unfettered way as part of fulfilling their
primary function as the local planning authority. These points carry all the
more force when it is suggested that the obligation is to use best endeavours,
which, as the cases cited to me indicate, is an onerous standard. He also
submitted by reference to BP Refinery (Westernpoint) Pty Ltd v Shire
of Hastings [1977] (PC) Aust LR 363* at p376 and its five‑point test
that a term could not, and should not, be implied. Reasonableness is not enough
to imply a term. It must also be necessary, and, he submits, obvious.
*Editor’s note: Also reported at (1978) 52 AJLR
20, PC
In the course of argument, Mr Bates, seeing that I
was unreceptive to a best endeavours obligation, put forward an alternative
approach, identified obliquely in the pleadings, of seeking to imply terms in a
descending scale of obligation. This faced the obstacle that one’s immediate
expectation of the suggested implication of a term is that its ambit will be
identified with clarity and pleaded at the outset. The court is also wary of
obligations that resemble a commitment to negotiate. Further, the nature of the
term to be implied turns on the presumed intention of the parties at the time
the contract was entered into, not on looking at what happened later.
A simple reading of the detailed and negotiated
agreement, uninformed by the context, does not suggest that its provisions need
complication by implication of further terms. It was always possible that, for
a variety of reasons, the Davis agreement would not be executed, and the Jelson
agreement recognised this. The cause of failure might be some real difficulty
experienced by the council or by Davis or by obduracy on the latter’s part.
This argument is frequently advanced to resist the implication of a term.
The key to this claim, however, seems to me to be
the context in which the agreement was negotiated. Davis had applied for
planning permission, and were pressing to build what the council and Jelson
knew would be 32 affordable homes. The council and Jelson had agreed that the
affordable housing for the sites would be provided in this way, and Davis were
content. The officers had so informed a council subcommittee. There was no
doubt a possibility that Derby or Davis might fail to enter into a section 106
agreement and disagree about terms. But it must have seemed obvious that in any
section 106 agreement the council would, at the least, be suggesting to Davis
that it might build 30 affordable homes. It is argued, as it often is when the
implication of a term is being resisted, that Jelson could have expressly asked
Derby to agree to propose 30 houses to Davis. That is true, but Jelson could
not reasonably have anticipated that Derby would fail to do this. It is also
argued that if the tri-party arrangement were fundamental, one would have
expected to see a written commitment or, at least, written evidence of some
verbal commitment to that effect by Davis obtained by Jelson. In this case,
however, Jelson, rightly as it turned out, saw no reason to doubt the
commitment of Davis to the arrangement. In the special context of these
discussions, there was an implicit obligation upon the council to propose, in
the absence of reasons for not doing so other than a wish to take advantage, a
section 106 agreement inviting Davis to agree to build 30 affordable houses.
This is necessary to give effect to the overall arrangement that was well
understood by Jelson, Davis and Derby. It is also one that, if put to the
parties by the proverbial officious bystander, would have been met with the
common response: ‘Oh, of course’.
I therefore conclude that there was implicit in
the Jelson agreement a term at the lowest end of the scale suggested by Mr
Bates, that Derby would, in negotiating with Davis, ask Davis to enter into a
section 106 agreement for the provision of a minimum of 30 affordable houses on
the alternative affordable-housing site. Derby did not so ask Davis. If asked,
Davis would unquestionably have agreed to accept a minimum of 30 affordable
houses. If Derby had complied with this implied term the Davis agreement would
indeed have provided for 30 affordable houses, and Jelson would now not be
faced with the prospect of building 15. I next turn to consider the third
ground, in case I am wrong about both the first two.
Rectification
This discussion must make what to me is the
artificial assumption that no term is to be implied. Mr Bates argues that the
agreement should be rectified to give effect to the full intention of the
parties, and does so by reference to Commission for the New Towns v Cooper
(Great Britain) Ltd [1995] Ch 259*. He contends on two alternative bases.
First, he submits that Jelson made a mistake intending to contract on a
different basis from the written terms, and that the council knew of the
mistake, failed to alert Jelson and the result was a gain to the council or a
detriment to Jelson. Alternatively, he submits that, as in the New Towns
case, the council intended Jelson to be mistaken, and so conducted themselves
(without necessarily any overt deceit or misrepresentation) to divert Jelson’s
attention from discovering its mistake in circumstances where Jelson was indeed
mistaken.
*Editor’s note: Also reported at [1995] 2 EGLR
113
Mr Howlett points out that the burden of proof is
a high one, and I must be satisfied that there is a prior agreement between the
parties that remained effective when the document to be rectified was executed,
that, by mistake, the document failed to carry out the agreement and that the
document, if rectified, will then accurately represent the true agreement at
the time of its first execution. He contends that there are numerous obstacles
in Mr Bates’ way:
(a) The parties’ intention was common until Mr
Tyler put forward the revised draft clause 12. He suggests that the
pre-existing common intention was to release Jelson ‘on actual provision’, ie
completion by Davis. It does not seem to me that the common understanding was
ever this specific.
(b) Mr Tyler’s proposed amendments changed the
common understanding, the council’s officers evaluated these and the risks and
accepted them. I find that Mr
understanding; it was one way of achieving it: more advantageous to Jelson in
its detail than Mr Teasdale’s draft, but a vulnerable one should the council
decide to frustrate the arrangement.
(c) A term requiring best endeavours was never
within the contemplation of the parties and could never have been acceptable to
the council. I agree.
(d) Jelson is seeking to revert to the original draft
clause 12, an absurd contention falsified by the amendment Mr Tyler put
forward. The reality is that Jelson seeks not the original draft, but, in the
context of Mr Tyler’s amendment, to ensure that the council provide Davis with
the opportunity to enter into a section 106 agreement for 30 affordable houses.
(e) Even if Jelson did have the intention now
contended for, it is submitted that the council did not know this, and that it
was not put upon inquiry as to any other intention. Having heard the evidence,
I am sure that the council saw and seized an opportunity. This explains the
wording and negotiation of the Davis agreement, and their dealings with both
developers from June onwards.
(f) There is no sharp practice by the council. For
the reason I give below, the standard required for rectification is less
rigorous than ‘sharp practice’.
(g) The new suggested clause contained risks for
both sides. The risk to the council, given the Davis enthusiasm for its
project, was minimal. The risk to Jelson, which it had not appreciated, was
only that the council might deprive Davis of the chance to agree to 30 houses.
(h) Even if there had been sharp practice, there
is no benefit to the council. Even if this be wrong, there is no real benefit
to the council in having 15 additional affordable houses or detriment to
Jelson. I disagree. The benefit to the council was 15 affordable houses. The
detriment to Jelson is the burden of building those houses rather than those it
proposed to construct.
Having discussed the competing submissions, I
return to the basic principle. The purpose of rectification is to bring a
document that was intended to give effect to a prior agreement into harmony
with what had in fact been agreed. The earlier agreement must be clear and
continue unchanged until the execution of the document. The parties reached an
understanding in June. Whatever minor changes were agreed, they did not affect
the essential requirement that Derby would ask or invite Davis to agree to
build 30 affordable houses. At the point of acceptance of Mr Tyler’s draft,
that requirement become more specific, but remained in place.
Mr Tyler was mistaken about the effect of his
draft, but Mr Teasdale was not. There was therefore no mutual mistake. Where
the mistake is a unilateral one it is not necessary for the plaintiff to have
to show sharp practice. The relevant question is in the passage from Spry on
Equitable Remedies 4th ed p599, cited with approval in Commission
for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 at
pp277 and 292. Are there:
additional circumstances that render
unconscionable reliance on the document by the party who had intended that it
should have effect according to its terms?
It is therefore not necessary, for this purpose,
to place the facts of this case within the particular examples given by the
Court of Appeal. The relevant facts do, in my judgment, render unconscionable
reliance by Derby on the existing document going beyond fair dealing in a
commercial arm’s-length transaction. Should it be necessary, I therefore would
be minded to grant rectification. The term to be inserted into the agreement by
way of rectification would, as with the implied term, be likely to be at the
bottom end of the sliding scale suggested, on both issues, by Mr Bates.
Conclusion
It follows from the above that my conclusions on
the pleaded causes of action lead to the consequence that Jelson is, or should
be, freed from any obligation to construct 15 affordable houses on the Jelson
site. I am not sure how far, in those circumstances, it is necessary for me to
formulate the relief in terms more precise than that, but I will hear argument
about this when I deal with costs and any other matters outstanding. It will be
helpful if counsel for the parties can draft suggested forms of order for the
court to consider.
