Town and country planning – Planning obligation – Expert – Appellant developers and respondent local authority entering section 106 agreement – Appellants to pay portion of profits to respondent as contribution towards affordable housing and education – Dispute arising as to calculation of contribution – Appellants claiming declaration that expert determination not binding – Judge dismissing claim – Appellants appealing – Whether judge erring in interpreting agreement – Appeal dismissed
The appellants were a consortium of construction companies. The respondent was the local planning authority. In 2008, the respondent granted the appellants outline planning permission for a phased development of residential housing in Cheshire to comprise up to 1,200 residential units including flats and dwelling houses. A planning obligation was entered into under section 106(1)(d) of the Town and Country Planning Act 1990. In 2013, a revised planning obligation required the appellants to pay a portion of their profits to the respondent.
By paragraph 1 of schedule 5 of the 2013 agreement, the appellants were to submit to the respondent details of total sales revenue from the disposal of units in each phase. Paragraph 2 set out a formula for assessing the amount of contributions to be paid. At the end of the first phase, a dispute arose concerning the calculation of the contributions. The appellants contended that revenue from ground rents and from selling freehold reversions, as well as the capitalised value of retained freehold reversions, should be left out of the calculation. The dispute was adjudicated by an independent expert who determined that ground rents should be capitalised and form part of the actual sales revenue.
The appellants sought a declaration that the expert’s decision was not binding, and that it was wrong in law. The judge rejected the respondent’s contention that the doctrine of estoppel by convention precluded the appellants from denying that the expert’s determination was binding, but held that the expert had not erred in law. The disputed sums should be included in the calculation.
The appellant appealed giving rise to issues concerning the admissibility of certain documents for the purpose of interpreting the 2013 agreement and the interpretation of the term “sales revenue” in paragraph 2. A respondent’s notice raised again the estoppel issue.
Held: The appeal was dismissed.
(1) On a fair reading of the judgment as a whole, the judge had not regarded the disputed documents as having any material bearing on the interpretation of the 2013 agreement. He had referred to them without objection from the parties, and merely as part of his summary of the evidence. The judge had not fallen into error in having regard to pre-contractual negotiations in order to interpret the agreement, which would have been impermissible: Prenn v Simmonds [1971] 1 WLR 1381 and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 3 EGLR 119 followed.
(2) Commercial common sense was not to be invoked to undervalue the importance of the language of the provision which was to be construed; and was not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, had worked out badly for one of the parties was not a reason for departing from the natural language. While commercial common sense was an important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appeared to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of the wisdom of hindsight: Arnold v Britton [2015] UKSC 36; [2015] EGLR 53 followed.
In the present case the issue of interpretation turned on the correct meaning of schedule 5. Although the April 2013 agreement had to be read as a whole, giving full effect to each of its terms, that should not detract from the natural meaning of each of those terms. The natural meaning of paragraph 2 of schedule 5 was that it imposed an obligation on how much was to be payable by way of the affordable housing contribution etc, following completion of each development phase. A cap was imposed but that did not detract from the fact that there was to be an equal share in principle (subject to that cap) of the profits which the appellants made from disposal of the units in each phase above a fixed baseline.
(3) It was important not to lose sight of the underlying purpose of schedule 5: It was a planning obligation pursuant to the statutory functions of a local planning authority, expressly designed to achieve certain contributions towards affordable housing, education etc in the local community. The appellants had given no good commercial reason for excluding that underlying purpose. The fact that the developers were unable to provide any sound commercial reason for excluding what would otherwise naturally be regarded as part of the true profits of the scheme was a relevant factor in arriving at the true meaning of the terms which the parties had used. The judge had been right to hold that the determination of the expert was not wrong in law and that therefore it was conclusive and binding on the parties.
(4) The respondent’s notice submitted that the judgment should be upheld for the additional reason that the appellants were estopped by convention from challenging the expert’s determination. The effect of an estoppel by convention was to preclude a party from denying the assumed facts or law if it would be unjust to allow him to go back on the assumption. There was no room for an estoppel by convention in this case given that the parties were not acting outside the agreement but were acting pursuant to it. Furthermore, the agreement provided that any dispute as to any matter under or in connection with the obligation should be submitted for the determination of an expert. That was a duty. The parties had no choice but to submit the dispute to the determination of an expert although the ensuing determination was not necessarily to be conclusive and binding on the parties, except where there was a manifest error or an error of law. However, that did not reduce the status of the determination of an expert to that of merely an advisory opinion. The court’s duty was to give effect to the agreement, not to rewrite it.
Wilson Horne (instructed by Gateley Legal) appeared for the appellants; Jonathan Wright (instructed by Cheshire West and Chester Council) appeared for the respondent.
Eileen O’Grady, barrister
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