1. THE JUDGE: This is the trial of a claim by Renewal Leeds Limited (?the Seller?) against Lowry Properties Limited (?the Buyer?). The claim asserts that terms fall to be implied into a contract dated 22nd October 2004 between them (?the Contract?). It seeks to enforce such terms or to recover damages for breaches of them.
2. Mr Weekes has appeared for the Seller. Mr Dutton has appeared for the Buyer.
The Contract.
3. The Contract was for the sale and purchase of freehold parcels of land at Wyther Park Hill,
4. Clause 12 of the Contract contained some definitions. Clause 13 set out terms which made it conditional on a ?Planning Consent? free from ?Onerous Planning Conditions?, clause 12.9 giving the definition for an ?Onerous Planning Condition?. Clause 13.1 provided:
?This Agreement is conditional upon the Buyer procuring a Planning Consent and in this respect the Buyer, at its own cost, will use all reasonable endeavours to procure the grant of the Planning Consent as soon as possible and by no later that (sic) the Target Date, subject to any extensions agreed in writing between the Buyer and the Seller and subject always to clauses 12.14 and 13.12.?
The target date was defined in clause 12.14 as 31st May 2005, subject to its postponement in case of a relevant Planning Appeal or Challenge. Provision was made for rescission of the contract at the target date if the ?Planning Consent? had not been granted or an Appeal refused.
5. Subject to that condition, the sale and purchase was agreed at the Purchase Price of £425,000 ?subject to the increase as per Special Condition 16? payable on the defined ?Completion Date?.
6. Special Condition 16 provided for ?Overage?, the provisions of which I cite:
?16.1 The Seller and the Buyer agree and acknowledge that the Seller may be entitled to an additional payment following the residential development of the Property in circumstances where the Buyer achieves an increase over and above its anticipated sales revenue.
16.2 The Buyer will keep records in accordance with good accounting practice and policy of the proceeds received on the disposal of the Completed Residential Units, and Overage will be calculated in accordance with the following formula (sic);
16.2.1 Not later than 20 working days after completion of the final sale of a completed residential unit on the Development the Buyer will provide to the Seller details of the Total Sales Revenue, together with the Buyer’s calculation of the Overage payments (sic) (if any).
16.2.2 Within 5 working days of the date of the provision by the Buyer of any calculations pursuant to clause 16.2.1 the Buyer and the Seller will endeavour to agree the Overage Payment.
16.2.3 If after the expiration of the period referred to in clause 16.2.2 the Buyer and the Seller have not agreed the Overage Payment (if any) then such disagreement shall be determined pursuant to the provisions of clause 16.4.
16.2.4 Within 5 working days after agreement or notification to the parties of any determination pursuant to clause 16.4 of such Overage payment the Overage will be paid in the following portions; 50 % to the Buyer, 50 % to the Seller.
16.2.5 The Buyer agrees that the Buyer’s Solicitors (or whomsoever the Buyer appoints to deal with its property sales on the development) will retain in the Buyer’s solicitors’ client account the proceeds of sale of the final Completed Residential Unit on the Development (?the Retained Money?) pending calculation of the Overage Payment in accordance with the formula for assessing the Overage payment referred to in the preceding clause, AND IN THIS RESPECT in the event that the Overage is to be paid (following calculation or determination as referred to in the preceding clause) THEN the Buyer agrees that all of the Overage to be paid to the Seller shall be paid directly from the Buyer’s Solicitor to the Seller’s Solicitors out of the retained money as soon as reasonably practical but in any event within seven days following the calculation or determination of Overage as herein provided for.
16.3 The Seller, without prejudice to the provisions of subclause 16.2 accepts that no Overage Payment shall be due to the Seller if the Total Sales Revenue does not exceed £7,419,725.00
16.4 Any disagreement between the Buyer and the Seller regarding any matter which touch and concern Overage shall be treated as a dispute (?a Dispute?) and shall be determined in accordance with the following provisions;
16.4.1 A Dispute shall be referred for a decision to a suitably qualified expert who shall be nominated (in default of agreement between the Buyer and the Seller) upon the application of either party by or on behalf of the President for the time being of the Royal Institute of Chartered Surveyors or the Institute of Chartered Accountants in England and Wales (as may be appropriate) (?the Expert?) whose decision (acting as an Expert and not as an arbitrator) (sic) shall be final and whose costs shall be payable by the parties in such proportion as the Expert shall determine…?
7. ?Overage? was defined at clause 12.10 as, ?Total Sales Revenue? in excess of £7,419,725.00 Total Sales Revenue was defined as the revenue due or received by the Buyer for all the Completed Residential Units as specified in the Planning Consent (clause 12.15).
8. It will be apparent from clause 16.1 that the parties anticipated that the Buyer would carry out a residential development of the Property and that it had anticipated a sales revenue of £7,419.725. Further, the parties clearly anticipated that the sales revenue might exceed that sum, hence the Overage agreement. The agreed trigger for the Overage payment under clause 16.2 was to be ?the final sale of a Completed Residential Unit?, and a Completed Residential Unit was defined as a ?structurally completed unit of residential accommodation? (clause 12.6).
Events.
9. The contract became unconditional on 20th January 2006 as the Buyer had obtained planning permission for 84 houses on the property, houses to be developed as two, three or four bedroomed homes in the Buyer’s ?Dunham? style. The contract was completed on 10th February 2006.
10. The Buyer duly developed the 84 houses. By 2009 it had sold 80 of the houses. As it scheduled at the request of the Seller, the total sales revenue for those 80 houses was £9,618.375.21, which was £2,198,550 more than the threshold. Overage earned in accordance with clause 16.2.4 in relation to those first 80 of the 84 houses would be £1,055,352.
11. The Buyer has, however, left four houses, being two pairs of semi-detached houses, incomplete and unsold. On its website those four houses are each shown as on the market for £169,950. That is substantially higher than the price obtained for any of the 80 houses that have been sold. Further, experts retained by the Buyer and the Seller for the purpose of this claim, agree that the market value of the four houses, even if completed, would only be £135,000. The Seller, through its Director, Ms Sherriff, and Manager, Mr Cook, came to the view last year that the Buyer was not seriously seeking a sale of those houses. No sale has post-dated August 2009. Work has stopped at those four houses. The show house at the property has been sold. Calls to Lowry’s phone number for that show house are given a changed number and calls to that changed number have not been answered. The Seller accordingly determined to offer and offered on 10th December 2009 to buy the four houses in their completed state for the £169,950 each shown on the website. That offer was rejected by the Buyer.
12. Mr Kilburn, a Director of the Buyer, stated that the Buyer does not want to frustrate terms of the 2004 agreement, but it is not commercially expedient where it is concerned, to accept the Seller’s offer. An obvious commercial reason not to do so is, in my judgment, a wish, if lawful, to avoid paying Overage.
13. Had the four houses been sold to the Seller at £169,950 each, total Overage would have been £1,395,252.
14. The parties agree and I accept that on a literal reading of the contract there is no express obligation on the Buyer to build or sell the final residential unit or indeed any unit. Moreover the contract at clause 13.11 had provided that the Buyer could waive the requirement to obtain the planning consent so as to discharge the planning condition to which the contract was subject, and the Buyer could have purchased the land for the £425,000 and, for example, to have land-banked it, in a phrase I used in the course of argument.
15. If the contract is so read, the Seller has no current right to Overage and, moreover, may never have such a right. If that is so it may, by the contract, have made a bad bargain.
Implied Terms.
16. The Seller contends, however, that terms fall to be implied into the contract, which incidentally avoid the result of a bad bargain. The Buyer, on the other hand, contends there is no room for such implication. That is the first and probably principal issue before me.
17. The alleged terms are positive and negative obligations on the Buyer:
?Upon carrying out the Development;
(1) To market and sell the houses on the development as soon as reasonably practicable and at the best price reasonably obtainable (disregarding the extent, if any, to which the Seller might be prepared to overbid due to its entitlement under the contract to Overage).
(2) Not to withhold or delay the sale of any houses on the development to a willing purchaser at the best price reasonably obtainable (disregarding the extent, if any, to which the Seller might be prepared to overbid due to its entitlement under the contract to Overage).
18. The bracketed disregard is alleged by permitted amendment following evidence from the Buyer’s expert, Mr Chary, that a special purchaser in the position of the Seller might be prepared to pay a substantial premium for the last four houses, a sum perhaps equal to 50 per cent of the Overage.
19. In argument Mr Weekes has contended that the alleged positive implied term should include an obligation to ?complete? the houses on the site. In so far as necessary I allow him so to re-amend the claim. The Seller, through Mr Dutton, is not prejudiced by such a re-amendment. It has maintained and continues to maintain there is no contractual obligation on the Buyer to build the final house or indeed any house.
Principles.
20. Both Mr Weekes and Mr Dutton correctly refer me to the restatement of the law relating to the implication of terms into instruments, including contracts, contained in the judgment or advice of the Privy Council delivered by Lord Hoffmann in Attorney General of Belize –v- Belize Telecom Limited [2009] 1 WLR 1988.
21. Lord Hoffmann has stated in particular, as I now cite:
?16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v
17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
19. The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority. In Trollope & Colls Ltd v
?The court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court’s function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves.?
20. More recently, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459 Lord Steyn said:
?If a term is to be implied, it could only be a term implied from the language of [the instrument] read in its commercial setting.?
21. It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson’s speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must ?go without saying?, it must be ?necessary to give business efficacy to the contract? and so on – but these are not in the Board’s opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
22. There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is ?necessary to give business efficacy? to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word “business”, is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman [2002] 1 AC 408 was decided. The second, conveyed by the use of the word “necessary”, is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
23. The danger lies, however, in detaching the phrase “necessary to give business efficacy” from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case, at page 459, when he said that in that case an implication was necessary “to give effect to the reasonable expectations of the parties.”
24. The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock [1889] 14 PD 64, 68:
“In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men.”
25. Likewise, the requirement that the implied term must “go without saying” is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. Any attempt to make more of this requirement runs the risk of diverting attention from the objectivity which informs the whole process of construction into speculation about what the actual parties to the contract or authors (or supposed authors) of the instrument would have thought about the proposed implication. The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries [1926] Ltd [1939] 2 KB 206, 227 is celebrated throughout the common law world. Like the phrase “necessary to give business efficacy”, it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what the contact would reasonably be understood to mean, but it carries the danger of barren argument over how the actual parties would have reacted to the proposed amendment. That, in the Board’s opinion, is irrelevant. Likewise, it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander “Could you please explain that again?” does not matter.
26. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] 180 CLR 266, 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was ?(not) necessary to review exhaustively the authorities on the implication of a term in a contract” but that the following conditions (“which may overlap”) must be satisfied:
“(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’ (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract”.
27. The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of “necessary to give business efficacy” and “goes without saying”. As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.?
22. As Sir Kim Lewison notes in The Interpretation of Contracts, 1st supplement to the 4th edition, the advice of the Privy Council in the
23. The question for me is thus what the contract read as a whole against the relevant background would reasonably be understood to mean?
24. Mr Weekes also cites from the speech of Lord Steyn in Sirius Insurance Co –v- FAI General Insurance [2004] 1 WLR 3251 as follows:
?19. There has been a shift from literal methods of interpretation towards a more commercial approach. In Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC, 191, 201 Lord Diplock, in an opinion concurred in by his fellow Law Lords, observed:
“If detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.”
In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, 771 I explained the rationale of this approach as follows:
“In determining the meaning of the language of a commercial contract . . . the law . . . generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them, and the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.”
The tendency should, therefore, generally speaking be against literalism. What is literalism? It will depend on the context, but an example is given in The Works of William Paley (1838 ed), Vol III, p60. The moral philosophy of Paley influenced thinking on contract in the 19th century. The example is as follows: The tyrant Temures promised the garrison of Sebastia that no blood would be shed if they surrendered to him. They surrendered. He shed no blood. He buried them all alive. This is literalism. If possible it should be resisted in the interpretative process. This approach was affirmed by the decisions of the House in Mannai Investment Co Limited v Eagle Star Life Assurance Co Limited [1997] AC 749, 775E-G, per Lord Hoffmann and in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 913D-E, per Lord Hoffmann.?
25. My reading of the contract before me should thus be in the way in which a reasonable commercial person would construe it.
26. At my prompting, Mr Weekes also cited the decision of the Court of Appeal in CEL Group Limited –v- Nedlloyd Lines UK Limited [2003] EWCA Civ 1716, concerning the implication of terms into a contract conferring on the claimant the right to provide for all the defendants’ defined haulage requirements. Hale LJ said the following in a judgment which was agreed by Carnwath LJ and Waller LJ:
?20. In Bournemouth and Boscombe AFC –v-
“. . . I have on occasion found it a useful test notionally to write into the contract under consideration a declaratory clause expressing the fact that the parties are not subject to the obligations which would flow from the clause which it is urged should be implied. I think it is useful in this case. We then get a contract reading: ‘It is further agreed that Manchester United Football Club will pay a further sum of £27,770 to Bournemouth & Boscombe Football Club when Edward MacDougall has scored 20 goals in first team competitive football for Manchester United . . . provided always that Manchester United shall be under no obligation to afford MacDougall any reasonable opportunity of scoring 20 goals.’ It at once becomes clear that the inclusion of the proviso renders this part of the contract ‘inefficacious, futile and absurd’, to use the words that Lord Salmon used in
21. Adopting that approach in this case, one might add into the termination clause, Clause 9, “provided also that NLL are at liberty to dispose of their business as a going concern to whomsoever they please whenever they please during the period of this contract.” Such a declaration would have rendered the exclusive right to provide for their transport requirements similarly inefficacious, futile and absurd.?
27. Mr Dutton reminds me that, ?The general presumption is against implying terms into written contracts. The more detailed and apparently completed the contract, the stronger the presumption (Lewison at 6.03)?. He also cites paragraph 6.04 and the need for various conditions to be fulfilled for a term to be implied, Sir Kim Lewison citing the passage from the advice of Lord Simon of Glaisdale in the Privy Council in the BP Refinery case, cited at paragraph 26 of the speech of Lord Hoffmann in the Belize case, and the Belize case is noted in the supplement as qualifying that paragraph of Sir Kim Lewison’s book.
28. Mr Dutton also reminds me that were the Seller to allege it had a contract to purchase the last four houses on this development that contract would not be enforceable for want of a contract in writing complying with the provisions of section 2(1) Law of Property (Miscellaneous Provisions) Act 1989. He cites Nweze and Nweze –v- Nwoko [2004] EWCA Civ 579 concerning the enforceability of a compromise agreement. The agreement in question included obligations to market the property and subject to conditions, to sell it to third parties and to account for the proceeds of sale (see paragraph 16(ii) of the judgement of Waller LJ in that case). It was not considered to comprise a sale agreement to which section 2(i) would apply.
Submissions.
29. Mr Weekes makes a number of points in support of the alleged implied terms, which I shall attempt to summarise. First, he points to a number of typographical errors and inconsistent definitions in the contract which suggest that it was prepared with inadequate care. I noted a few ?(sics)? earlier in this judgment, of the kind of error to which Mr Weekes refers. Second, he submits that it must have been the intention that if the Buyer carried out the residential development it would complete it and sell out. Third, he says it must have been anticipated that, viewed as a unit in isolation, it might not have been in the financial interests of the Buyer to complete the last house or last houses because of the Overage figure. Fourth, the final house sale figure is part of the machinery for the Overage payment. It would be surprising if it could control the substantive right to Overage. Fifth, he suggests the implied positive obligation avoids the absurdity that Overage may never become payable despite completion of the development. Sixth, he contends the implication is supported by wording of the contract which assumes residential redevelopment, and that the Buyer would not have a choice not to complete the final sales. Seventh, he contends that it is relatively clear that the implied obligations should be those he suggests. Eighth, he submits that the Overage provisions would be indeed ?inefficacious, futile and absurd? without their implication (the CEL Group case point). Finally, he contends that the obligation should be enforced, as damages would not be an adequate remedy for the Seller in this case.
30. I would seek to summarise Mr Dutton’s points as follows, in support of the case of the Buyer that there is no room for the implication of the term suggested. First, the Buyer did not agree to build or sell the development or the final house. Second, in reference to clause 16.2.5, he submits that the parties anticipated that the Overage would not be greater than the proceeds of sale of the final house, or at least that such proceeds would be sufficient to meet the Overage. He accordingly contends the parties did not anticipate a reason the Buyer might want to defer the last sale or to impose on the Buyer any contractual obligation not to defer that last sale. Third, whilst it is commonplace in Overage provisions for there to be build out obligations on a Buyer, the parties chose not to impose them in that contract. In support of that submission Mr Dutton referred me, for example, to a precedent for a relevant transfer schedule dealing with gross sales proceeds of completed development exceeding a fixed threshold, an example taken, helpfully, by him from The Encyclopaedia of Forms and Precedents. That precedent, at clause 4, did impose on the relevant party (the transferee in that case) relevant positive obligations in order to ensure that the relevant Overage could be calculated and paid. Fourth, Mr Dutton suggested that the implied terms for which the Seller contends are inconsistent with the right enjoyed with other rights expressly enjoyed under the contract and including, for example, the right to waive the planning condition and to use the land in the way I have already mentioned, simply as land-bank. Fifth, he contends that had the point been addressed by the parties at all, the Buyer would not have agreed the suggested implied price obligation because of its fetter on, for example, the power to give discounts and because it would impose an obligation in effect to agree, for example, gazumping. He contends that the clause 16 mechanism simply leaves no room for the subject matter of the implied terms or resolution of any disputes which might flow from them. Sixth, he contends that there could be no obligation to sell the last four houses to the Seller absent a contract compliant with section 2 of the 1989 Act. Seventh, he contends the Seller cannot show loss by reason of breach of the alleged implied terms. The Overage entitlement remains, though its falling due is delayed for want of the sale of the final house. Finally, he contends there is no obligation that can be specifically performed, though if he was wrong in that I understood him to concede there might be a case for specific performance.
Discussion.
31. The relevant circumstances in which this contract was made include the following matters. The Seller was in business to facilitate the development of residential housing on inner city sites. It was and is a charity having such facilities as one at least of its purposes. The Buyer was a developer of residential housing. The adjoining land had been or was being developed by Lovells as housing. It was anticipated by the parties that planning permission might be obtained for residential housing on the property (as indeed in due course it was to be obtained). The parties would have anticipated that if such planning permission were obtained the Buyer would proceed to develop the land if it could make profit from it.
32. Further, the parties will have known of the increases in residential property valuations in the preceding years (easily checked, for example, in relation to the ?Halifax? or ?Nationwide? average property prices that are published monthly). It is unsurprising in context that the parties agreed to Overage. Though I have not had evidence of the parties’ reasoning in this regard, the agreed threshold figure for Overage must have been calculated in relation to the Buyer’s planned income from residential redevelopment of the site, and it must have been anticipated that such income would be sufficient to meet the costs of the development of the planned or expected 88 houses.
33. Clause 16.1 anticipates a residential development of the property should the contract become unconditional and be completed and lead to an increase over and above anticipated sales revenue. Clause 16.2 sets out the machinery or ?formula? or provisions for the calculation of the Overage. I agree with Mr Weekes that the ?final sale? is part of that machinery and it would be surprising if the property were residentially redeveloped that such ?final sale? might never in fact be reached because of a choice by the Buyer. Mr Dutton points out that conceptually, a final sale might not be a sale of the last of the planned homes but for the purposes of the contract, which expressly anticipated development of a residential housing estate of approximately 88 houses, I consider that the final sale means the last of the 84 houses in fact the subject of the planning permission.
34. I do not read clause 16.2.5, as limiting Overage to the proceeds of the sale of a final unit, or that the parties thought that the Overage would not exceed those proceeds. There would only ever have had to have been a modest percentage increase in market prices for the Overage threshold to be substantially exceeded and indeed for it substantially to have exceeded the value of the last house.
35. There is obvious force in Mr Dutton’s points that the Buyer did not agree to build the development the subject of planning permission and that it could, for example, have chosen to buy the property and to have land-banked it. Further, there was no express agreement to build out any development that was undertaken pursuant to the permission. Further, it would not have been anticipated that the Buyer would have proceeded with the development if it could not see a profit in it.
36. Nonetheless the parties did, in my judgment, anticipate that if profits were to be made the Seller would share in them to the extent that Overage were achieved in relation to 50 per cent of such Overage which ?will be paid? (clause 16.2.4).
37. Were the parties to have addressed the question as to whether the Buyer could proceed with the residential development but then suspend or abort the final sales of units so that Overage would not arise, in my view the officious bystander would have said, ?Of course not?. To use what may be now a slightly redundant phrase in the light of the simple question posed by Lord Hoffmann in the Belize case I do not consider that it is inconsistent with the Buyer’s freedom to decide whether or not to carry out the anticipated residential development to consider that if the Buyer did so decide and commence development that it would not have a choice but to complete it or the right to frustrate the Overage by not seeing through the final sale. As it is, in that last sentence I have assumed the relevant freedom as it has not been made the subject of a challenge by the Seller. Though I have to say that I anticipate that some case might have been mounted for some wider terms in this case, no such case is before me. Further, I do not find it inconsistent with the right to waive the planning condition and, for example, land-bank or the fact that Overage does not have to be calculated until the final sale is achieved, and that clause 16 does not provide in terms for resolution of disputes as to, for example, valuations arising during the course of completing the development and selling all the houses with the fact that where the development is being carried out, the Buyer is under an obligation to sell the units. Overage in this case has had to be calculated in relation to revenue from all the housing units and the anticipation, in my judgment, was that the Buyer’s profits would come from the sale of all units and not from the sale of all units but one (or four) of them. In other words the anticipation was that the Buyer’s profit would be net of Overage and not beefed up by avoiding the mechanism for payment of Overage by suspending the final sale or by sterilising the final residential unit or units perhaps forever.
38. If there were added to clause 16 a provision that nothing in this clause, dealing with Overage, shall compel the Buyer to complete and sell the final unit of its residential development of the property it can be seen, in my judgment, that the Overage provisions would be ?inefficacious, futile and absurd?, to adopt the CEL Group case point.
39. This is a case in which I understand the contract read as a whole against the relevant background I have sought to summarise, means that if the Buyer were to carry out the planned residential development it was obliged to complete and sell the final unit and to share equally any Overage payment calculated in accordance with the mechanism in clause 16.2 of the contract. I repeat that the cost of development of the whole estate as planned would have been within the threshold figure.
40. I do not think that carelessness in drafting helps inform that conclusion. I do, however, think that the draftsman of this contract omitted to make express provision for some event because he had not fully thought through the contingencies. I accept I should be cautious in implying terms, as Mr Dutton submits that I should be. I have nonetheless concluded that this is a case anticipated rather at paragraph 18 than paragraph 17 of the speech of Lord Hoffmann in the
41. In relation to the suggested disregard of the ?special purchaser? status of the Seller, that is because of its interest in the Overage. Regard to that status would substantially cut down the 50 per cent share of Overage. If Mr Chary’s view is right as to the price for the remaining four units which the special purchaser would pay given the interest in Overage, it might reduce the share of Overage in paragraph 16.2.4 from 50 per cent to perhaps only 25 per cent. That, to my mind, is a rewriting of the bargain. I have found that the bargain was not a bad bargain and consider that the alleged implied terms should include the suggested disregards.
42. I agree with Mr Dutton that the Seller does not have a case for specific performance of a sale of the four units to it for want of any 1989 Act compliant contract for such a sale, but that does not, in my judgment, mean that the Buyer’s refusal to complete or sell the final four units is not a breach of the implied terms for which the Seller has contended.
43. It does appear to me that I should order specific performance of the implied obligations and that the parties should address me further on the proposed wording of the order, as I suggested yesterday, they should do after I had given my judgment today.
44. In context Mr Weekes has persuaded me that damages would not be an adequate remedy for the Seller. It is far from clear that the Buyer could in this case pay substantial damages and that is not so suggested in witness statements filed on its behalf. Further, specific performance would preserve for the seller at least the benefit of the security relating to the proceeds of sale of the last house to be sold, for which provision is made at clause 16.2.5.
45. I have been persuaded by submissions by Mr Dutton that calculating damages in this case may be relatively difficult, not least because the right to Overage is being delayed rather than finally denied. Further, as I am proceeding down the specific performance route, the question of breach of contract and least damages at law, has not arisen. I am persuaded in those circumstances that the sensible course is for me to adjourn the issue of damages, leaving liberty to apply. It may be in due course that the Seller may need to apply for an inquiry as to equitable damages, but we will see what happens in relation to performance of the implied obligations.
THE JUDGE: That, gentlemen, is my judgment, subject to two initial things; if I have by omission not included a reference to one of your submissions kindly remind me and I will now do it.
MR. DUTTON: Well, I said no breach. You have not dealt with no breach. You have gone to damages but you have not said why there has been a breach of contract.
THE JUDGE: Thank you very much, Mr Dutton. Is there any other submission that should be dealt with?
MR. DUTTON: Also one of my submissions in relation, for example, to the land-banking point was not so much it was inconsistent with the provision but that, shall we say, a commercial person who knew that the seller was quite relaxed about the property being land-banked for possibly 80 years/100 years, knowing that they are relaxed about that they would not have thought, as a matter of commercial business sense standing back, they would not have understood why there would (inaudible) to be any particular urgency (inaudible) being paid Overage if the development(?) was done later on. That is not a point you dealt with. You did it simply as a matter of whether or not it was consistent with the provisions, whereas mine was actually, at least in part, commercial sense, standing back, what is the underlying deal, because if it was known that 425 might be all they would ever get if, for example, it was subsequently developed for a different purpose or a different residential development, why the hurry, why imposing time limits for Overage in one set of circumstances when in the other the right to Overage might not arise for another 100 years? That was the point.
THE JUDGE: Well, in a transcript of this judgment I will add those submissions, Mr Dutton, and I will deal with them in this way. You are right that I should have said in terms that I have considered that the evidence of Mrs Sherriff and Mr Cook that I had earlier summarised shows a breach of the—
MR. DUTTON: Well, my Lord, in which case… Well, sorry, I will deal with that later on.
THE JUDGE: Right. No, Mr Dutton, come.
MR. DUTTON: Well, the point is this, the reason why we did not choose to cross-examine those witnesses is because Mrs Sherriff made it very clear in paragraph 28 of her statement that they were not suggesting the defendant was in breach, they were merely explaining the circumstances in which they made their offer. Now, if I had understood that the claimants were saying that there has been a breach, no breach being pleaded, if I had understood that I would have insisted that the witnesses were tendered for cross-examination. I have been deprived of that.
THE JUDGE: But the—
MR. WEEKES: It is pleaded. My Lord, in paragraph 9—
MR. DUTTON: The only breach that is pleaded is the failure to accept your offers, that is the only breach that is pleaded. You pleaded concern that there was a dragging of heels but that is not to say that there has been a dragging of heels, that is simply pleading a concern. That simply reinforces what Mrs Sherriff was saying, and then it pleads the offer and it says, ?The offer was rejected?. It has thereby (inaudible)—
THE JUDGE: Well, are you persuading me, therefore, that I do not need to add anything to my judgment because in effect, apart from qualifying the paragraph about there being no need to…
MR. DUTTON: For an enquiry as to damages.
THE JUDGE: Enquiry as to damages by saying that relevant damages have not yet been alleged.
MR. DUTTON: Well, that no breach has been established and, therefore, the only question of damages that would arise is possibly in relation to damages in lieu of specific relief, and I would be happy… Well, if specific relief is to be awarded the court always has the power later on to award damages in lieu.
THE JUDGE: Yes, they can come back for damages for that.
MR. DUTTON: Yes.
THE JUDGE: Well, I will limit that last paragraph of my judgment accordingly.
MR. DUTTON: Yes. So long as it is clear it is equitable damages, not common law damages.
THE JUDGE: Right. Well, I think I will add a paragraph, subject to anything you say, since we did not debate this yesterday afternoon. Mr Weekes, subject to anything you say that would bring an end to a case in this claim for damages for breach of the implied obligation, other than equitable damages should(?) there be no specific performance.
MR. WEEKES: Yes.
THE JUDGE: (inaudible) keep you happy, Mr Dutton?
MR. DUTTON: Yes.
THE JUDGE: Happy on that point.
MR. DUTTON: Exactly, yes. (inaudible) I would not say that we were overwhelmed with joy.
THE JUDGE: No, no, no, you can deal with application for permission to appeal in a moment but in a transcript of this judgment I will clear up that very last paragraph to make those points clear.
MR. DUTTON: There is a housekeeping point as well, and that is the implied term you found is not one that has yet been pleaded.
THE JUDGE: I indicated early on in this judgment along the line of the reasoning of yesterday’s amendments. It did not—
MR. WEEKES: And we have prepared a draft.
MR. DUTTON: A draft will be prepared.
MR. WEEKES: We have prepared one.
MR. DUTTON: Oh, can I have a look at it?
MR. WEEKES: Yes, and we have a draft order.
THE JUDGE: I indicated and I did not ask you in terms but, as you were not prejudiced by yesterday’s amendments, the re-amendment I could not see could cause prejudice since you had everything in issue.
MR. WEEKES: My Lord, overnight we have done a bit of work on the—
THE JUDGE: Now, this is the draft order?
MR. WEEKES: This is the worked out version of the draft order which annexes the—
THE JUDGE: What I anticipated earlier on in my judgment is that to the pleaded implied terms, which included the amendment allowed yesterday, you should simply add the word ?completed? as well.
MR. WEEKES: Yes, and we have done that. We have attached to the order what we see as the final version of the amended particulars of claim.
THE JUDGE: I anticipated (inaudible), as I said earlier in this judgment, in a completed state(?) it should just read, ?The Buyer shall complete, market and sell?.
MR. DUTTON: Yes. Well, my Lord, I think your formulation is, of the two, the preferable because it makes it clear what has to be done.
THE JUDGE: Yes.
MR. WEEKES: So shall complete, market and sell.
THE JUDGE: Yes, complete, market and sell. That is what I said earlier in this judgment and I had to give him the right to challenge it before I finish my judgment, but, subject to… As I indicated earlier on in this judgment my obvious impression is that you would not suffer relevant prejudice by allowing that amendment.
MR. DUTTON: Well, subject to the question of costs.
THE JUDGE: Yes, of course. Absolutely.
MR. WEEKES: My Lord, if I could just point out we have also added a paragraph to the (inaudible).
MR. DUTTON: I think technically, there being no prayer for further or other, he does. Having said that, there comes a point where I think (inaudible) can be taken too far.
THE JUDGE: Yes, and it is for me to make the order that I consider appropriate on my findings of fact.
MR. DUTTON: Well, had there been a prayer for other relief that would certainly be the case, but the point is that… Well, we will get on to costs in a moment. Perhaps I ought just to sit down and let my friend say what he wants to say.
THE JUDGE: Well, before we get to costs… (Pause) Well then Mr Dutton, you do think he needs to amend the prayer for relief?
MR. DUTTON: Oh, yes. Technically, yes, very much so.
THE JUDGE: Well then what are you saying about the re-amendment which will be in re-amended form, not amended form.
MR. DUTTON: I cannot say that I am prejudiced by the amendment.
THE JUDGE: No, you have got your costs question. I think the point is that, rightly or wrongly, I have found the implied terms made out and, therefore, then the question is what relief Mr Weekes can pursue in that regard.
MR. DUTTON: Yes. I think ultimately this is (inaudible) going to go to the question of costs and no more.
THE JUDGE: Yes, I think that is probably right. So they are in as re-amendments, and I want them in a re-amended form, not a substituted—
MR. WEEKES: The prayer as well?
THE JUDGE: Yes, so it is clear what has happened.
(Discussions/proceedings after judgment follow)
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