Contract – Construction – Appellant purchasing development land from respondents – Terms of contract providing for purchase price reduction and mechanism for further payment of costs – Contract providing for payment to appellant of reasonable and proper costs of procuring local authority approval — Whether costs referring to incurred or anticipated costs – Whether appellant waiving requirement for respondents to carry out remediation works — Whether respondents proving appellant failing to mitigate loss – Appeal and cross-appeal dismissed
The respondents agreed to sell a development site to the appellant for £29,892,380. Under the respondents’ ownership, the site had been used for sand and gravel extraction since the 1950s and, when the workings had been exhausted, it had been used for landfill. It was difficult to price the sale of the land, because a great deal of work was necessary to make the site suitable for development. It was therefore agreed that the purchase price would be based on the site’s value as “clean, serviced land”, although that expression was not used in the agreement. Accordingly, it was agreed that the purchase price would be calculated by taking the notional value of the site as though it were clean, serviced land, which land could be priced according to the market of the time, and deducting the cost of the work necessary to achieve that condition.
Under clause 7A of the sale agreement, the purchase price could be adjusted and clause 14A provided a mechanism whereby the further payment of costs could be made in certain limited circumstances. The appellant identified 28 items that, under clause 7A, triggered the price adjustment mechanism to decrease the purchase price or, under clause 14A, entitled it to a cash payment from the respondents for costs incurred in negotiating and procuring approvals. It applied to the court for declarations to that effect.
In addition, clause 12.2 and 12.3 of the sale agreement obliged the respondents to carry out certain remediation works at the site. The appellant did not expressly require the respondents to carry out those works but performed them itself. However, it claimed the costs for doing so as damages for breach of contract and the costs of diverting a road within the site to enable the respondents to use their adjacent land for commercial purposes.
The court held that, having regard to the terms of the sale agreement and in accordance with commercial reality, the appellant was entitled to the declarations sought in respect of a limited number of specified items, including the cost of the remediation works: [2008] EWHC 2379 (TCC); [2008] PLSCS 284. The appellant appealed, giving rise to a question as to whether “reasonable and proper costs” in clause 14A.5 referred to incurred or anticipated costs. The respondents cross-appealed in respect of the clause 12 remediation works.
Held: The appeal and the cross-appeal were dismissed.
(1) On a proper construction of the agreement, clause 14A.5, read against the background of clause 7A, referred to anticipated costs rather than costs actually incurred. It was plain that a comparison had to be made for the purpose of clause 14A.5 between “works required by any approval” and works that had or had not “been taken into account in the calculation of the price”. The comparison was made with costs that were a matter of “allowance”, a word that fairly reflected the anticipated nature of the clause 7A exercise. Logic strongly supported a comparison of like with like, not a comparison of anticipated costs with incurred costs.
(2) The wording of clause 12.2 was in imperative terms. Since the respondents had not carried out any of the remediation work, they were prima facie in breach of their obligations under clause 12.2 and therefore liable to the appellant in damages for any losses suffered by that breach. The appellant’s unexplained and unquestioned actions in carrying out those works did not amount to an unequivocal representation that it was waiving the respondent’s obligation to perform in accordance with clause 12.2. The actions were equivocal. In any event, there was no evidence that the respondents relied on any representation by the appellant or conducted their affairs on the basis of a waiver of their obligations. Furthermore, they had failed to discharge the burden of proving that the appellant had failed to mitigate its loss.
Richard Wilmot–Smith QC and John Denis–Smith (instructed by Boodle Hatfield) appeared for the appellant; Thomas Keith (instructed by Eversheds LLP) appeared for the respondents.
Eileen O’Grady, barrister
