Contract – Notice – Validity – Parties entering into agreement for development of power station and energy park – Claimant purporting to give notice to defendant triggering obligation to build infrastructure for transmission of services to park – Defendant alleging notice invalid and failing to carry out works – Claimant seeking declarations concerning validity of notice – Whether circumstances arising which entitled claimant to give notice – Claim dismissed
By a contract in writing dated 8 January 2008, the parties entered into an agreement for the development of the Langage Energy Centre (a gas-fired power station) by the defendant and the adjoining Langage Energy Park by the claimant or its successors in title.
In 1999, planning permission had been granted for the development. It was envisaged that the Energy Park could make beneficial use of steam, heat, gas and electricity from the Energy Centre which was built and commissioned in 2010. The Energy Park did not proceed due to the 2008 financial crisis.
The claimant asserted that, by letter dated 27 June 2018 from its parent company, the defendant was given notice to trigger the obligation to build infrastructure, including the laying, in phases, of service media for the transmission of services to the Energy Park, pursuant to paragraph 5 of part 5 of schedule 3 to the contract. The first phase was preliminary works. The second phase was more substantial and contingent on written notice from the claimant to the defendant that there was a demand from the occupier of the buildings for any of the services.
The defendant did not dispute the formal validity of the notice but contended that it was invalid in substance, because the circumstances in which the claimant was entitled to give notice had not arisen at that time.
The claimant sought a series of declarations about the validity of the notice and the consequential obligations of the defendant to build infrastructure.
Held: The claim was dismissed.
(1) A notice given under part 5 could not be valid if the claimant did not have an honest belief in what it stated. It was necessary to determine the meaning of the express words of the relevant paragraphs, within the contract as a whole, in its known factual context in January 2008, having regard to the commercial consequences of one or other interpretation, before considering whether any term as to honest belief or rational decision-making was implicit: Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] EGLR 8 applied.
The questions whether an occupier had to be identifiable and in occupation at the time of serving a notice, or might be an unidentified, future occupier; and whether the claimant had an unfettered right to give a notice or was effectively certifying a fact or exercising a judgment about future demand for the services, were issues of interpretation of the express terms of the contract.
The claimant could not give the notices to the defendant on the basis that it had an absolute right to do so; nor because it considered that the marketing of the Energy Park might benefit from being able to say that the services were available. The criterion was not whether provision of the services would assist the claimant in promoting or marketing its development but whether the occupiers of the development had or would have a need for the services.
(2) Whether the future development of the Energy Park was likely to be done speculatively by the claimant could have a bearing on the question of how the occupier demand was to be assessed. Given that the parties must be taken to have understood that development might proceed speculatively, there was a real possibility that demand for one or more of the services from the eventual occupiers of the units in the qualifying buildings would be determined by the claimant, by its choice of what enabling and infrastructure words to carry out and the base-build specification of any units built speculatively.
The claimant, in giving notice under paragraph 5, would not in all cases be asserting a provable fact about occupier demand but exercising its judgment about likely future events. That judgment, when made, would affect the interests of the defendant, as well as its own interests. The claimant accepted that in such circumstances it was insufficient for it to give notice on the basis that it believed that there might be occupier demand; it had to be on the basis that it believed that there would be a demand.
Despite the claimant’s concession, it was improbable that the parties understood that the control mechanism was the claimant’s honest belief in a future demand for the services. They were likely to have expected there to be a proper basis for a conclusion that there would be a demand in future for the services (or any of them) from an occupier. There was implicit in paragraph 5, a requirement that, in asserting in a notice that there was or would be a demand from occupiers for the services, the claimant had to reach a decision on each service by a reasonable process (in public law terms), not for extraneous reasons, and the decision had to be neither capricious nor irrational.
(3) On the evidence, when the notice was signed and arranged to be served on the defendant in June 2018, the claimant did not believe that there was or would be, as distinct from might be, a demand from the occupiers of the qualifying buildings. There were no actual intending occupiers at that stage. There was only one developer who was showing interest at that time, who wished to buy unserviced land for its own development, freed from the obligations of the contract. The claimant did not believe that there was demand on the basis that it was going to install the services speculatively, for the benefit of future occupiers.
The claimant served the notice because it considered that it had a right to do so, because it would be an initial step towards starting a development and it might be beneficial in terms of marketing land on the Energy Park to have the infrastructure for a supply of electricity, gas and hot water laid to the boundary of the Energy Park. The claimant did not prior to serving the notice consider the true nature of the three services, their unusual character or limitations, or ask themselves whether those particular services would be demanded by an occupier of the qualifying buildings.
Alexander Polley (instructed by Gowling WLG (UK) LLP) appeared for the claimant; Justin Mort QC (instructed by Eversheds Sutherland (International) LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Langage Energy Park Ltd v EP Langage Ltd
