Yewbelle Ltd v London Green Developments Ltd & Anor

This appeal arises from a transaction relating to land in South London on which stands a tower block (the Tower) which has been said to be one of the ugliest buildings in London. The Appellant Knightsbridge Green Ltd (KGL) and the Respondent (LGD) came to an agreement under which the Respondent would buy the land from KGL, would develop it in accordance with a planning permission, and would then lease parts of it back to KGL. The planning permission was defined by reference to a draft resolution which the London Borough of Merton (Merton) had approved as planning authority, subject to a suitable agreement being entered into under section 106 of the Town and Country Planning Act 1990. KGL was obliged to use all reasonable endeavours to secure a completed agreement under section 106, substantially in the form of the draft then in existence, and LGD was under no obligation to complete in the absence of such an agreement. Soon after the agreement for sale had been entered into, Merton’s requirements in respect of the section 106 agreement changed, affecting the transaction adversely. Moreover, it turned out that a small parcel of land at the south-east corner of the site, which was known not to belong to KGL, but had been assumed to belong to Merton, (which I will call the third party land) and which was needed for the development, belonged to an entirely independent company. During the course of the transaction KGL transferred the land to Yewbelle Ltd, but nothing turns on that. I will refer indifferently to KGL and Yewbelle, or both of them, as the Appellant or as the seller, unless it is necessary to distinguish the two for any reason. The question in these proceedings is whether the Appellant is still bound under the contract with the Respondent, or whether, having used all reasonable endeavours to overcome the two problems as regards the section 106 agreement, it is now able to regard the contract with the Respondent as at an end. In his judgment given on 8 December 2006, Mr Justice Lewison held that it was not, because it had not used all reasonable endeavours.

The questions for the court turn on the terms of the agreement for sale, but I must put this into the appropriate factual context. I will draw extensively on the judge’s admirably careful and full judgment in doing so.

In April 2002 Merton produced a planning brief in order to encourage potential redevelopment of the site. This stated that as part of the development Merton would want to see a community use, such as a public library, on the ground floor of the Tower. On 30 January 2003 architects submitted a planning application for the development of the property. The planning application itself identified, in outline, the steps to be taken as part of the development. The key elements of the proposed development were: the conversion of the Tower into flats, the erection of two six storey extensions to the Tower (north and south), the demolition of a multi-storey car park on the site and its replacement by a ten storey building and the creation of a public park. Overall the development would consist of 226 residential units, 370 square metres of retail space, 629 square metres for “a new public library facility”, a café/bar and 876 square metres of business and office space. The site covered by the planning application included not only the property owned by KGL, but also the third party land. Part of the library was to be constructed on that land. Merton’s planning officers recommended the grant of the application subject to the completion of a section 106 agreement and various conditions. Merton was particularly keen on the library, which its officers later described as one of the Council’s key aspirations. On 11 March 2004 Merton resolved to grant planning permission subject to the completion of a section 106 agreement and to various conditions. Heads of terms listed 16 items that were to appear in the section 106 agreement. None of those terms related specifically to the library.

Once the resolution to grant planning permission had been passed, work started on a section 106 agreement. By September 2004 a draft section 106 agreement was in existence. At this stage the sellers put together a sales pack inviting buyers for the property. At the same time as looking for a buyer for the property, KGL’s solicitors worked towards finalisation of the section 106 agreement. By December 2004 the section 106 agreement appeared to be close to its final form. Clause 15.2 of the draft section 106 agreement then read (so far as material):

LGD offered £13.75 million for the property, which the Appellant accepted. A sale agreement was negotiated. The parties’ solicitors met at the offices of KGL’s solicitors, Philippsohn Crawford Berwald (PCB), on 23 May 2005 to exchange contracts. At this exchange meeting Mr Green of LGD and his solicitor, Mr Segen, explained that the section 106 agreement had to be in place in order to enable LGD to obtain funding for the purchase. They therefore required a term in the agreement which deferred LGD’s obligation to complete the purchase until there was a completed section 106 agreement; otherwise exchange could not take place. Mr Lobetta, a partner in PCB, believed that the draft section 106 agreement was in final form. However he decided to check on this and telephoned Merton. He spoke to Sharon Lauder (Ms Lauder), the head of civic and legal services at Merton. He asked her whether the draft section 106 Agreement was in an agreed form. She said that if everything in the draft was agreed then she was in a position to engross the section 106 agreement for execution by the parties. A clause was inserted into the sale contract to deal with the section 106 agreement. It is that clause which is at the heart of the dispute. Exchange of contracts then took place. Both parties to the contract expected that the section 106 agreement would be completed within a relatively short period of time, and without substantial amendment. This was not to be.

On 15 June 2005 Ms Lauder raised two new points, of which one remains important for present purposes, namely a requirement that the new library be transferred to the Council at a peppercorn rent and without a premium. Some provision for the library would have been necessary in any event, if Merton was to be sure of getting its new library, but nothing had been said about the proposed terms until then. Eventually this requirement was reflected in a later draft section 106 agreement, in December 2005, under which clause 15.2 imposed an obligation “not to cause or permit occupation of the Affordable Housing Units and the Market Residential Units until the Class B1 Business Units and the library are constructed to shell and core and a lease of the library [had] been granted” to the council. Discussions as to the terms of the transaction as regards the library continued between the Appellant and Merton during 2006, which were difficult for the Appellant.

On 5 December 2005 Ms Lauder wrote to Mr Lobetta to tell him that the third party land belonged to a company called Pillar Retail Parks Ltd, a subsidiary of British Land. The Appellant considered for itself how this might be coped with, and concluded that it gave rise to serious problems. Mr Silk, the Appellant’s planning consultant, advised that these could be overcome by putting forward a revised planning application with a reduced site and reduced floor space for the development. On 2 February 2006 Mr Lobetta wrote to Mr Segen. He explained that Yewbelle had been trying to resolve a number of problems, “such as the library issue and additional contributions or works required by the Council”, and that the latest problem was that part of the proposed development encroached on land owned by a third party. The letter continued:

Mr Segen contended that the Appellant had not done all it was obliged to by way of its reasonable endeavours to get the section 106 agreement into place. On 24 February, Mr Lobetta set out the case for saying that they had done all they had to, and concluded by saying that unless he was told within 7 days that LGD was willing to complete the purchase without a section 106 agreement, the Appellant would rescind the sale agreement. After inconclusive further correspondence, on 10 March Mr Lobetta wrote again saying:

In the meantime, Mr Silk had prepared and submitted (on 24 February 2006) a new planning application, which would not require the use of the third party land. This was eventually submitted to the planning committee in August 2006 and was approved in principle, subject to a suitable agreement under section 106. By then LGD had come to a conditional agreement with the owner of the third party land (on 30 June 2006) under which it would have been able to bind that land to the terms of a section 106 agreement affecting that land. It had not, however, told the Appellant that it was aiming to do this, nor were they told that it had done it until some time later.

Correspondence continued through the summer of 2006. On 23 May Mr Lobetta wrote a long letter setting out the Appellant’s position. By then, he contended, his clients were further away than ever from being able to put in place a section 106 agreement, and he said that there was no realistic prospect of a section 106 agreement complying with the sale agreement being entered into, and that accordingly the sale agreement had come to an end because a reasonable amount of time had expired without a section 106 agreement being completed. On 12 June 2006 he wrote again asserting the same position as he had put forward in his letter of 10 March.

Proceedings were issued on 27 June 2006, Yewbelle as Claimant seeking the removal from the register of the entry which LGD had had made at the Land Registry to protect its interests under the contract. LGD defended, and counterclaimed against both Yewbelle and KGL for specific performance in a Defence dated 19 July 2006. In the course of the proceedings, LGD’s solicitors stated in a letter dated 3 October 2006 that LGD was happy to complete the contract in its original form without a section 106 agreement being in place. The Appellants’ contention was that, by then, it was not open to LGD to waive that condition, because the contract had already come to an end.

The terms of the sale agreement are the starting point for the issues on this appeal. It was between KGL as seller and LGD as buyer. It contained provisions under which KGL could transfer its interest to an associated company, as it later did to Yewbelle.

Clause 1 contained definitions, of which some are relevant. Clause 3.1 of the contract is as follows:

The price was a fixed price. The remainder of clause 3 confirmed that the Buyer had applied for local and other searches, required the Buyer to use all reasonable endeavours to obtain the result of the searches as soon as practicable, and gave the Buyer a right to rescind if the results of the searches revealed matters which to a material degree would deter a reasonably prudent purchaser or mortgagee from proceeding.

Clause 5 said that the sale was subject to a number of leases (which appear to have related to most of the Tower) but otherwise with vacant possession. Some of the leases contained capped service charges; by clause 22 the buyer agreed to contribute to the cost of vacant premises, and to any shortfall attributable to a service charge cap, and clause 24 also provided for adjustments between the parties according to the incidence of service charges and service charge expenditure.

Clause 6 provided a fixed completion date on 15 September 2005. Clause 15 said that the property was at the risk of the buyer as from the date of the contract, although clause 16 required the seller to continue to insure it.

Clause 25.1 required the seller to use all reasonable endeavours at its own cost to obtain the planning consent. This was defined as a detailed planning consent substantially in the form of the draft consent attached to the agreement. Clause 25.2 was the provision which dealt with the section 106 agreement. It said:

It is agreed that the reference in clause 25.2 to “completion” is a reference to the date of actual completion, rather than to the contractual completion date of 15 September 2005. Clause 1.22 of the Agreement defined the phrase “Section 106 Agreement” to mean:

A draft was duly attached to the Agreement. It would have been between KGL, its mortgagee and Merton. Recital (5) said that Merton had resolved to grant planning permission “following completion of this Agreement”. The draft agreement required the developer to make a number of cash contributions to Merton. These contributions, divided between various purposes (CCTV, environmental improvements etc.) were £1.08 million in aggregate.

Clause 25.3 of the sale contract provided that the Buyer could, after completion of the section 106 agreement, seek variations both to the planning consent and also to the section 106 agreement itself. However, that was not to affect completion of the sale.

Clause 25.5 obliged the Buyer to cause to be carried out “the Works” as soon as reasonably practicable after the later of actual completion and the date on which the Seller had obtained Planning Consent and the date the Buyer had obtained vacant possession of the Building. “The Works” were defined in clause 1.32 to include “the Commercial Works”, which were in turn defined in clause 1.4 to include works to create a new public library facility. Clause 25.5.5 obliged the Buyer to cause the Works to be carried out in accordance with a Specification attached to the Agreement. The relevant part of the Specification referred to the works being carried out to achieve a shell finish (i.e. the premises were to be left as a shell and not fitted out).

Clause 29 of the Agreement provided for the buyer to grant a headlease of the Commercial Works (including the library) to the seller. The seller was obliged to pay to the buyer a price calculated in accordance with clause 29.2 which included as part of that price a sum calculated by multiplying the number of square feet in the gross internal area of the premises to be demised (including the library) by £100. The application of this formula to the 629 square metres devoted to the library would require the seller to pay approximately £700,000. If it could not secure any commercial return on the library, plainly that would impact on the value of the headlease.

A draft headlease was attached to the agreement. Its term was 999 years. It contained few restrictions on alienation, and no restrictions on sub-letting.

Mr Bannister Q.C., for the Respondent, pointed out that the sale agreement was not, as it might have been, conditional on the grant of planning permission or entry into the section 106 agreement. But for the addition to clause 25.2, neither seller nor buyer would have been able to object to completion on or after the agreed completion date on the grounds that the planning permission and the section 106 agreement were not in place. That addition meant that the buyer was able to refuse to complete if a section 106 agreement complying with the sale agreement had not been entered into. Because clause 25.5 contemplated the possibility that planning consent might be obtained after actual completion, and because in practice the grant of planning permission and entry into the section 106 agreement would be simultaneous, it can be seen that the agreement might, at least in theory, be completed without planning permission or a section 106 agreement being in place. The later provisions of the sale agreement, from clause 25.5 onwards, under which the Appellant was to take a lease back of part of the completed building and, in effect, to grant an occupation lease of the library to Merton, as well as being in a position to grant commercial leases of the retail areas, and business or office space and the café/bar, would nevertheless have remained in place, though they could not be implemented unless the planning permission and the section 106 agreement were effective. Thus, the terms of the planning permission and the section 106 agreement were not only of interest and concern to the buyer; the seller’s interest as prospective lessee of the commercial part of the development was also affected by the terms of the planning permission and the section 106 agreement.

The situation which arose, unexpectedly, when Merton changed its position about the terms of the section 106 agreement as regards the library, and when it was realised that the third party land did not belong to Merton, was not covered by the contract. LGD could have waived the requirement for a section 106 agreement, but it did not do so, or not at first. If it had done, other questions would have arisen as to the implementation of the rights of the parties in respect of the headlease. While it did not do so, the Appellants were faced with a dilemma: if there were still reasonable endeavours that they could use to try to get to the position of having a compliant section 106 agreement, then they had to go on using those endeavours. If not, however, so that there was nothing more that they could reasonably be expected to do, they were left with the site, bound by an agreement for sale, but with no foreseeable prospect of that agreement being completed, unless the buyer were to change its mind and to decide to waive the requirement of a completed section 106 agreement.

Mr Dowding Q.C., for the Appellants, contended first that, when the seller had used all its reasonable endeavours, without success, the agreement came to an end automatically, unless before that date the buyer had waived the requirement. The judge had not accepted that contention as put to him by Mr Morgan Q.C., then appearing for the Appellant. Realistically, Mr Dowding concentrated on his fall-back position, which the judge had accepted, namely that in that situation the seller could notify the buyer of the position and give the buyer the option to decide whether or not to waive the requirement, and that if the buyer did not waive the requirement then the seller would be entitled to rescind the contract. The judge considered that the buyer would have to be provided with all relevant information before being put to a decision whether to waive or not, but nothing turned on this point in the light of his decision on the facts.

Mr Bannister argued that the judge was wrong to accept that the contract was subject to an implied term allowing the seller to call the contract off in these circumstances. He submitted that there was no case for an implied term. If the parties got to the impasse which I have described, there was no need for an implied term. Assuming that nothing in the buyer’s conduct precluded it from doing so, the buyer could keep its options open for a considerable period of time, and would only become disentitled from seeking to enforce the contract if barred by laches or acquiescence, after the passage of what might be a substantial amount of time. The judge rejected this contention.

The primary question of principle arising from the contract is this one: is any term to be implied into the contract under which, in any, and if so what, circumstances, the seller, having complied with its obligations under clause 25.2 but without success, can rescind the contract, the buyer not having by then opted to proceed to completion without there being a completed section 106 agreement? In addition we heard submissions as to the content of the obligation to use all reasonable endeavours. In relation to the facts of the case, the principal questions were whether the seller had used all reasonable endeavours under clause 25.2 having regard to (a) the problem of the provisions as regards the library and (b) the ownership of the third party land.

Mr Dowding challenged the judge’s interpretation of the obligation to use reasonable endeavours. The judge dealt with this in a passage in his judgment starting at paragraph 118. He accepted that, in using its reasonable endeavours, the Appellant was not required to sacrifice its own commercial interests: paragraph 122. He recognised that the obligation required the party to go on using reasonable endeavours until the point had been reached when all reasonable endeavours have been exhausted, and to go on would be mere repetition, though he observed that account had to be taken of events as they occurred, including extraordinary events: paragraph 123. In relation to the facts concerning the library issue, he recorded that reasonable endeavours had been used until December 2005, when the revised draft section 106 agreement was put forward. Thereafter no endeavours were used, so that the question was whether, by then, all reasonable endeavours had been exhausted, in the light of the circumstances as they then were. It was suggested that Mr Lobetta should have challenged the position adopted by Merton. The judge said, at paragraph 128: “I do not think I can conclude that a reasoned protest would have had no real chance of achieving the result”. Mr Dowding submitted that this formulation put the test too low, and that there had to be more of a prospect that the reasoned protest would have achieved the desired result, for it to be a reasonable endeavour which the Appellant was obliged to take.

In support of this submission he cited the decision of the House of Lords in A P Stephen v Scottish Boatowners Mutual Insurance Association, The Talisman [1989] 1 Lloyd’s Rep 535. That concerned an insurance claim for the loss of a vessel, and in particular rule 13 which required the insured to take all reasonable care to see that the vessel is kept in seaworthy condition, and continued:

It was argued that the owner and skipper ought to have done two things that he did not: he should have closed the seacocks and he should have sent out a mayday call. The House of Lords held that neither of these contentions justified holding that the insured had not used all reasonable endeavours to save the vessel. The question was posed, whether an ordinarily competent skipper, in the circumstances in which the actual skipper was, would reasonably be expected to attempt to close the seacocks; the answer given was that a skipper with ordinary skill and knowledge would not have appreciated that closing the seacocks would offer a significant prospect of saving the vessel. Similarly it was held that a skipper of ordinary skill and competence would not have regarded sending out a mayday call as offering a significant chance of saving the vessel: see per Lord Keith at pages 540 and 541. From that limited material Mr Dowding submitted that the House of Lords held that the test applicable to decide whether a particular step is within the scope of a reasonable endeavours obligation is whether, if taken, it would offer a significant chance of achieving the result aimed at. It followed, he argued, that Lewison J posed the wrong test in the present case, and that if he had asked whether a reasoned protest would have had a significant chance of getting Merton to change its position as regards the wording of clause 15.2 of the draft agreement under section 106, the answer should have been that it did not, so that the reasonable endeavours obligation did not require that the Appellant should make such a protest.

The present case is a long way from The Talisman on the facts, and in terms of the content and context of the reasonable endeavours obligation. I cannot accept Mr Dowding’s submission that Lord Keith laid down a general rule as to the standard by reference to which it is to be tested whether a party had undertaken all reasonable endeavours, under whatever kind of contract. In any event, I doubt whether, in expressing himself as he did at paragraph 128, Lewison J thought that he was applying a test which was different in substance. Mr Dowding suggested that a “real chance” assumes a lower threshold of probability than a “significant” or a “substantial” chance. In some cases it may, but in the context of the judge’s judgment in this case, I doubt whether he would have regarded the substitution for the word “real”, in relation to the chance, of another adjective such as “worthwhile”, “substantial” or “significant” as altering his meaning noticeably.

Thus, I do not accept that the judge applied the wrong legal test in judging whether the Appellant had used all reasonable endeavours under the contract.

Logically, the next question is whether he was right as to the implication of a term under which the vendor could rescind the contract if, despite the exercise of all reasonable endeavours, the necessary section 106 agreement could not be achieved, and the buyer did not waive that condition.

There is no express provision in the contract on which the seller can rely for this purpose. Mr Bannister submitted that no term was to be implied. Mr Dowding’s primary position was that the contract came to an end automatically, but as a fall-back he supported the judge’s conclusion that, subject to giving the buyer the opportunity to waive the condition, the seller could rescind in that situation.

The automatic termination implied term was advanced in paragraph 6.3 of the Particulars of Claim. The seller relied on (a) the absence of any express time limit for getting the section 106 agreement, and (b) the proposition that the parties could not have intended the agreement to continue forever, if the section 106 agreement was not obtained, and argued from those that, in all the circumstances, and in order to give business efficacy to the agreement, the agreement would determine automatically, provided that the seller used all reasonable endeavours, if the necessary section 106 agreement could not be obtained within a reasonable time after 23 May 2005.

The buyer’s Defence, at paragraph 12, denied this contention, and said that no term was to be implied, and that the seller remained obliged to complete whether or not it had obtained the section 106 agreement. This point was not taken any further in the Reply. Thus, in terms of the statements of case, the parties rested on their respective extreme positions: an automatic termination under an implied term, or no implied term at all.

However, as the case was developed at trial, Mr Morgan for the seller put forward an alternative implied term, namely that, provided that the seller had exercised all reasonable endeavours to obtain the section 106 agreement, and if despite those endeavours it had not been obtained within a reasonable time after 23 May 2005, then the seller could rescind the contract but only if the buyer did not waive the condition after being given the opportunity to do so.

The judge rejected Mr Bannister’s contention that no term was to be implied. He held that the contract did not work without an implied term, because otherwise the buyer could maintain indefinitely the position that it was not bound to complete, because no section 106 agreement had been obtained, but that the seller was still bound to complete, and that only by the application of equitable principles of laches (if applicable), or acquiescence or estoppel, could the position be reached in which the seller was, effectively, free from its obligation under the contact, because the buyer would not be granted specific performance of the seller’s obligation to complete: see paragraphs 90 to 95 of the judgment.

He also rejected Mr Morgan’s primary case, of automatic termination, which he said was neither fair nor reasonable, nor was it obvious that the parties would have agreed to it, nor necessary in order to give business efficacy to the agreement: paragraphs 96 to 100 of the judgment.

At paragraphs 101 to 106 he went on to consider and accept the alternative implied term argument, and to express the view that, in order to have the necessary opportunity to consider whether to waive satisfaction of the condition, the buyer had to be aware of the relevant facts. The buyer would also need to be aware of his having a choice whether to waive the condition or not, but no question arises as to that point in the present case, nor would it be likely to, since the seller would have to make it clear to the buyer (as the Appellant did) that it was being given the opportunity to waive the condition, in circumstances in which the seller contended that it could not be satisfied despite the exercise of all reasonable endeavours.

I have no doubt that the judge was right to reject the seller’s primary contention that the agreement came to an end automatically under an implied term, for the reasons he gave at paragraph 100. I would not wish to add anything to the judge’s reasoning on that point.

Mr Bannister argued against any implication, despite the judge’s conclusion at paragraph 95, which he challenged by way of a Respondent’s Notice. He complained in his skeleton argument of the alternative implied term having been raised without having been pleaded, and without the question of the length of the period during which the buyer would have the opportunity to consider whether or not to waive having been addressed in evidence or even in submissions. On the face of it this is inconsistent with the judge’s statement in paragraph 101 (fourth sentence) that Mr Bannister had not objected to Mr Morgan putting forward this argument even though it had not been pleaded. Mr Dowding responded robustly that, if any party had been put at a disadvantage by the way in which the case had been pleaded, it was the seller, not the buyer. I do not propose to enter into that debate.

Mr Bannister’s position was that no implied term was needed, or permissible, to qualify the position under the express terms of the contract, under which the seller was obliged to complete the sale of the land at all times from the contractual completion date onwards, but the buyer was not obliged to complete unless and until the section 106 agreement had been completed. If the time arrived when the seller had exercised all reasonable endeavours to try to obtain the section 106 agreement, but it could not be obtained and no further reasonable endeavours could make a difference to that, then, he submitted, the buyer could choose to waive the condition, but could not be made to do so. The buyer could bide its time, but would have to decide whether or not to require completion within a reasonable time, having regard to the circumstances as they were at the time, and on a continuing basis through the relevant period. As examples of the matters which would be relevant, on the facts of the present case, he cited the terms of the continuing correspondence between the parties through 2006, the need for the buyer to reorganise its financial arrangements in order to be able to cope with the absence of the section 106 agreement, and the failure of the seller to provide the buyer with more than a bare minimum of information. By reference to authorities about the defence of laches in relation to a claim for specific performance, he submitted that this period “might be as short as 12 months”.

The judge considered that laches might not provide a sufficient answer based on delay by itself, unless there were additional factors supporting a case of acquiescence or estoppel. He was also influenced by the thought that, even if an equitable defence would preclude the buyer from obtaining an order for specific performance, this would not provide a defence to a claim in damages for breach of contract. Accordingly, he held that this argument did not provide a solution which could avoid what he said Mr Bannister recognised as “the unsatisfactoriness of a conclusion that the buyer could indefinitely stand on its right not to complete the contract of sale in the absence of a section 106 agreement, but at the same time assert that the contract remained in being”: see paragraph 92. He said that, “absent some other ingredient which, on particular facts, might give rise to an estoppel, the doctrine of laches would not provide an adequate solution. Accordingly it seems to me that some term must be implied”: paragraph 95.

Having rejected both Mr Bannister’s submission and Mr Morgan’s primary case as to implication, the judge turned to the alternative implied term. This was formulated as involving three stages, which the judge set out at paragraph 102:

The judge’s reasons for accepting this submission appear from paragraphs 103 and 104:

The fact that this implied term is not open to the objection that the buyer would have to make a snap decision at an unpredictable time (unlike under the seller’s primary case) is evidently a point in its favour, but it is not necessarily sufficient to enable it to pass the tests for implication. It is implicit in the judge’s comment, to the effect that the only implication is that the seller has to tell the buyer that the section 106 agreement cannot be obtained and give him the opportunity to waive the condition, that if the opportunity given is not taken, then the seller can call the contract off.

Thus the judge concluded that the extent of the implication was limited, and he went on to say that it passed the test of giving efficacy to the contract, that test being one of necessity. He did not expressly pose the officious bystander test, but it seems to me that, if he had felt it necessary, he would have regarded the implied term as one which satisfied that test as well.

I agree with the judge on this. It seems to me that, in relation to a contract for the sale of this development site, with provision for the buyer to carry out an agreed form of development and to grant the seller a leaseback of part of the site, and where the land was itself the subject of leases which would have to be brought to an end in order to make the development possible, it cannot have been intended that an impasse could continue for an indefinite period which might be as much as 12 months, or even more, once it had become clear, after the exercise of all reasonable endeavours by the seller, that the necessary section 106 agreement could not be obtained. I would therefore reject the Respondent’s Notice by which the buyer argues that no term is to be implied, while also rejecting that part of the Appellant’s Notice by which a different implied term is asserted.

The judge did not have to decide whether the conditions of the implied term were met, because he held that the Appellant had not exercised all reasonable endeavours by the time that it sought to have the contract rescinded or discharged. The next question, therefore, is whether he reached the wrong conclusion on the facts as to whether all reasonable endeavours had been used. The obligation is single, but it is nevertheless unavoidable to address it, in practical terms, separately as regards the two unconnected problems that arose: the library and the third party land. I will set out the relevant facts, so far as not already mentioned, and then deal separately on each of the issues with the basis of the judge’s decision, and the submissions made to us on each side, but I will then take both issues together by way of discussion.

The judge’s decision that the seller had not used all reasonable endeavours on this point was based above all on the fact that, after Merton put forward the revised draft section 106 agreement, with its new version of clause 15.2, no attempt was made to persuade Ms Lauder to go back to the original version.

Mr Dowding submitted that the judge had wrongly focussed on the position after 21 December 2005, when the revised draft section 106 agreement was supplied. He said that Merton’s requirements in this respect had developed from 15 June 2005, and that the supply of the new draft section 106 agreement should not be seen as starting a new phase in the negotiation. For this purpose it is necessary to summarise the relevant history.

The judge dealt with the sequence of events between 15 June and 21 December 2005 at paragraphs 10 to 22 of his judgment. This included both the development of the library issue and the discovery of the third party land problem. I have drawn extensively on the judge’s account in what follows.

In response to Ms Lauder’s letter of 15 June 2005, described in paragraph [6] above, Mr Lobetta wrote on 16 June protesting strongly at the additional requirements. Mr Aziz, one of the two people behind Golfrate, the parent company of KGL, told Mr Green of LGD that it seemed that the sale would have to be cancelled. This led to a meeting between the parties at the Trocadero on 20 June 2005, attended by Mr Green, Mr Segen, Mr Aziz and Mr Lobetta. Merton’s proposal for a lease of the library at a peppercorn was one of the matters discussed. Mr Green had thought that there was an agreement between KGL and Merton about the terms on which the library would be made available, but he discovered that this was not the case. Mr Aziz was not at all happy with Merton’s proposal.

On 11 July 2005 Ms Lauder wrote again to Mr Lobetta, dealing mainly with the highway issue, in which she suggested a meeting with Mr Masson, Merton’s estate surveyor, about the terms for acquisition of the library. She added that unless agreement was reached on these issues “we will be unable to progress the S 106 agreement.” Mr Lobetta emailed Mr Green on 13 July. He said that Mr Green should arrange a meeting with Merton’s officers as soon as possible; and also said that Ms Lauder had told him on the telephone that Merton were looking for a compromise on the library issue. Mr Green said that he would deal with the library issue himself. At about the same time Mr Silk was engaged.

Mr Green’s proposal to the planning officer was that Merton should agree the section 106 agreement in its then current form, in order to enable the planning consent to be issued and the contract for sale to be completed. He would then try to amend the planning consent, and if he obtained consent for a better scheme, he would absorb the cost of the library. Mr Green did not consider that the remaining points on the section 106 agreement were material. Mr Silk supported that strategy.

Mr Silk and Mr Green met Mr Lewis (the relevant planning officer at Merton) on 5 September. However, fairly shortly afterwards Mr Green came to the conclusion that Mr Silk could not take instructions both from him and Mr Aziz, that it would be better if Mr Silk took his instructions from Mr Aziz alone and that Mr Green would let him get on with it. Mr Silk heard again from Mr Lewis, as he reported to Mr Aziz in an e-mail of 12 September. Mr Silk’s position on the cost of fitting out the library was that the £1.08 million “pot” (consisting of the aggregate of the various payments that were envisaged by the draft section 106 agreement) could be reallocated, but no increase in the aggregate was acceptable. Merton themselves had suggested a rent of no more than £30,000 per annum which Mr Silk thought was acceptable (although, as he pointed out, he was not a valuer). Mr Aziz replied that a rent of £30,000 “worked” for him.

The completion date of 15 September 2005 came and went. There was no completed section 106 Agreement. Mr Lobetta wrote to the local MP, Siobhain McDonagh, on 23 September 2005, hoping to bring further pressure to bear on Merton, explaining the problem caused by Merton’s late change of position about the terms of the section 106 agreement, and his clients’ frustration at the position.

On 7 October 2005 Mr Clark (Merton’s head of planning and public protection) wrote to Mr Lobetta, having seen a copy of Mr Lobetta’s letter to the MP. He said that the details of the section 106 agreement (including the sums associated with the heads of terms) were delegated to officers to negotiate and conclude. He concluded: “I am confident therefore that with goodwill on both sides that an agreement can be completed in the near future”. On the same day Mr Lewis reported to Mr Silk that it would be possible to reapportion the sums payable under the draft section 106 agreement so as to make more money available for the library without increasing the overall size of the “pot”. He indicated that Merton would be looking for a rent free period of no less than 2 years. He said that he had spoken to Ms Lauder about the outstanding issues on the section 106 agreement. He asked for details of the condition in which the library would be transferred to Merton. On 11 October Mr Lobetta wrote to Merton. He repeated much of what he had said to Ms McDonagh MP about the contract. He said that the main sticking point was the library, and that his clients were prepared to grant a twenty year lease of the library to Merton at a rent of £30,000, subject to review; and to deliver the library to Merton in a shell and core condition. There would be no rent free period.

Meanwhile Mr Silk had been discussing strategy with Merton. On 27 October he reported to Mr Lobetta and Mr Aziz that he and Mr Lewis had agreed “to put all “difficult matters” into amended Conditions, simplifying the s106 so that it can be signed and the site sold.” However, amendment of the conditions required the approval of the planning committee, and it was not due to meet again until 17 November.

On 7 November 2005 Mr Silk e-mailed Mr Lewis. He expressed his disappointment that the matter would not be ready in time for the November committee meeting, but had slipped to the December meeting. Mr Silk continued:

By 16 November Mr Silk had been told of internal discussions within Merton and was awaiting sight of redrafted conditions. Mr Lewis faxed Mr Silk on the same day. He had spotted that the boundary of the application site was larger than Yewbelle’s landholding. He continued:

He then set out certain proposed changes to the section 106 agreement and the planning conditions (none of which related to the library). Mr Silk relayed the substance of the proposal to Mr Aziz who said that he could live with them. On 5 December Mr Lobetta reported to Mr Green that Mr Silk had reached agreement with Merton for certain conditions in the section 106 agreement/planning consent to be removed and instead form amended conditions. That would enable the section 106 agreement to be signed and the planning consent issued.

The problem of the south east corner raised its head again in a letter from Ms Lauder to Mr Lobetta on 5 December, as mentioned in paragraph [7] above. She told him that the third party land belonged to Pillar Retail Parks Ltd. She made the point that if Pillar did own part of the site it would have to be a party to the section 106 agreement. Mr Lobetta’s reply was (rightly) that Pillar had nothing to do with the transaction and (wrongly) that the property which it owned did not form part of the arrangements between Yewbelle and Merton.

On 6 December Mr Masson commented on Mr Lobetta’s proposal for the terms of a lease contained in his letter of 11 October. He did not reject this proposal out of hand, but asked where the figure of £30,000 had come from and said that any rent would have to be the subject of negotiation. He also suggested a meeting. But on 12 December Mr Lobetta said that it was not appropriate for Yewbelle to provide further details about the library, because ultimately that would be a matter for discussion between LGD and Merton.

Mr Lewis’s proposal to put the “difficult matters” into amended conditions was implemented in a report to the planning committee dated 15 December 2005. Paragraph 1.2 of the report noted that “detailed arrangements with the owner for provision of the library are still under discussion.” Paragraph 1.3 stated that the applicant was in the process of selling the site and did not want the sale to be delayed on the basis of having to provide further details for inclusion in the section 106 agreement at this stage. Consequently certain matters that had previously formed part of the section 106 agreement were to be dealt with by conditions. Paragraph 7.10 of the report said:

The report concluded that the suggested amendments would “assist in progressing work on the draft S 106”. There was no proposal to amend the provisions of the draft section 106 agreement where it specifically referred to the library. Nor was anything said about the south east corner. The description of the permitted development remained the same as it had in the previous resolution to grant in 2004. The committee approved the recommendations at its meeting on 15 December; and resolved to grant planning permission subject to the completion of a section 106 agreement in revised terms. Mr Silk attended the meeting and reported to Mr Aziz and Mr Lobetta that there was only “minimal debate re library”.

Then on 21 December Ms Lauder sent to Mr Lobetta the revised draft section 106 agreement with the new clause 15.2 to which I have already referred (paragraph [6] above).

Mr Lobetta’s next contact with Ms Lauder after that was a telephone conversation on 6 January 2006. He said that he could not accept the new wording, which he needed to discuss with his client. He asked Ms Lauder why there was a reference to the library, and she said that it needed to be in there so that Merton could have their new library. He said that he thought that there would be no reference there “because we were going down the amended conditions route”. Ms Lauder did not give any other explanation for the presence of the new wording. Mr Lobetta said that he was very disappointed. He did not draw Ms Lauder’s attention to the terms of the contract with LGD, nor did he write any letter protesting at the inclusion of the new wording. Nor, the judge held, did he actually protest orally, even though he did not agree the wording. He said it was a matter that he would have to discuss with his clients, but he never went back to Ms Lauder on the point. Nor did he tell Mr Segen of the problem at this stage.

So far as the third party land was concerned, Mr Silk and Mr Lewis discussed this in January. Mr Lewis was willing to deal with amendments to the scheme resulting from the exclusion of this parcel of land as minor amendments which would not require the submission of a new planning application. Mr Silk was not sure that the members of the planning committee would agree to this, but he recommended amending the scheme to overcome this problem, even at the cost of a loss of floor space. Mr Silk advised Mr Aziz about this in an email dated 27 January, copied to Mr Lobetta:

On 1 February 2006, Mr Lobetta, Mr Silk and Mr Hughes (the other person, besides Mr Aziz, behind Golfrate and therefore the Appellants) met. Mr Lobetta and Mr Silk gave evidence at the trial, whereas Mr Hughes did not, and nor did Mr Aziz. Mr Lobetta’s position after the meeting was that it had been concluded that it would not be possible to obtain a section 106 agreement complying with the terms of the agreement dated 10 March 2005. Mr Silk did not recall having advised to that effect; though there were problems, there was no impasse at that stage.

On 2 February 2006, LGD was made aware, for the first time, of the two problems, in a letter from Mr Lobetta to Mr Segen which I have already mentioned: see paragraph [7] above. He explained that Yewbelle had been trying to resolve a number of problems “such as the library issue and additional contributions or works required by the Council”, and that the latest problem was that part of the proposed development encroached on land owned by a third party. He continued with the passage quoted at paragraph [777] above.

Mr Segen still thought that the third party land was owned by Merton. In a letter of 17 February Mr Lobetta said that it was not, but did not tell him by whom it was owned. Mr Segen’s immediate response, on 20 February, was that the area was very small and any necessary amendment to the scheme to exclude that area would not have been regarded as substantial. On 24 February Mr Lobetta wrote a longer letter setting out a summary of the steps taken by way of reasonable endeavours to obtain agreement to the section 106 agreement in the requisite form, and stating that the loss of floorspace which would result from amending the scheme to exclude the third party land would be significant, and would prevent the section 106 agreement from complying with the requirements of the sale agreement.

In response Mr Segen’s position was that the Appellant had made an error as regards the terms on which the library would have to be dealt with, and could not justify treating Merton’s detailed requirements as a substantial departure from the original draft agreement, and that it could not get out of the contract on that basis. Mr Lobetta countered with his letter of 10 March from which I have already quoted (at paragraph [8] above), stating that the contract was discharged because LGD had chosen not to waive the condition requiring a compliant section 106 agreement.

Although Mr Segen said nothing about it to Mr Lobetta, he had in the meantime discovered the identity of the owner of the third party land. He had also discovered that Yewbelle had made a new application for planning permission for a very similar scheme, but excluding the third party land, which he told Mr Lobetta that LGD would regard as substantially in the form of the original planning permission, so that LGD would complete once the planning permission and the associated section 106 agreement were in place.

Mr Silk suggested to Mr Lewis, of Merton, on 20 March that it would be a good idea to pursue the question of the terms for the library. This led to a proposal from Mr Masson of Merton in an email of 21 March, copied to Mr Silk. He proposed terms under which the library was to be leased back to Merton for a 125 year term and at a peppercorn rent, the developer was to bear the cost of providing the library to “category A specification”, which is well beyond shell and core finish as previously provided for by the draft section 106 agreements (including that of 21 December 2005), and that Merton would require a development agreement and security for the completion of the work to the library in accordance with the agreed specification. Mr Silk had made it clear that the Appellant would not bear the additional cost, which it was recognised might be of the order of £750,000, but had suggested that LGD might.

On 4 April Mr Hughes and Mr Silk met Mr Masson and Mr Lewis to discuss the library. On the next day Mr Hughes had a telephone conversation with Mr Masson, in the course of which Mr Hughes, in his own words, “lost my rag with him in the end”. Part of his frustration was at the time that it took to get Merton to commit itself to any position. He was aware that Mr Green was also having separate discussions with Merton, but he tried to get Merton to negotiate only with the Appellant. Mr Silk wrote to Mr Lewis on 12 April setting out the position indicated by Merton at the meeting on 4 April, which was not substantially different from that indicated by Mr Masson in his email of 21 March. He asked for prompt confirmation that this was Merton’s position. He did not get prompt confirmation from the officers, who said that it was for members to decide. On 7 June 2006 Mr Masson said to Mr Silk, in an email:

On 23 May 2006 PCB wrote a long letter to Segens setting out the history, as the basis for an assertion that “despite the best efforts of our client (which have been far in excess of those required when using reasonable endeavours), there is no prospect of LBM entering into a S.106 agreement substantially in the form annexed to the agreement”. They contended that the agreement had therefore come to an end, and called for the removal of the notice entered at the Land Registry to protect the agreement, failing which they would start proceedings. Segens’ response was that the Appellant was not entitled to take this position, and that if and when the alternative planning permission was granted, and a section 106 agreement entered into in relation to it, LGD would proceed to completion of the contract. The Appellant then commenced the present proceedings, in which LGD counterclaimed for specific performance.

The judge held that the revised draft section 106 agreement provided on 21 December 2005 was not substantially in the same form as the draft annexed to the sale agreement, because of the change to clause 15.2 as regards the library, which would have altered fundamentally the bargaining strengths of the respective parties. That conclusion is not challenged on the appeal. He also considered that until December 2005 the Appellant complied with its obligation to use its reasonable endeavours to obtain a compliant section 106 agreement, but he held that Mr Lobetta’s failure even to try to get Ms Lauder to agree to take out the new wording in clause 15.2 showed that the Appellant did not use all reasonable endeavours at that stage. He may have been influenced by his view that, at the meeting on 1 February 2006, “Mr Hughes decided that no further efforts were to be made to obtain the desired section 106 agreement, despite the fact that Mr Silk did not share the view that it would be impossible to obtain it”: see paragraph 127. He held that the Appellant had not shown that any further reasonable endeavours had no real chance of persuading Merton to agree to put the section 106 agreement back to its original form in this respect. As regards the later negotiations about the terms on which the library would be dealt with, the judge concluded that the Appellant had not done enough. He said this at paragraph 130:

On that basis he held that the Appellant had not discharged its obligation to use all reasonable endeavours, and could not rely on non-satisfaction of the condition as having discharged the sale agreement.

Mr Dowding submitted that the judge was unrealistic and wrong in his assessment of the chance of securing Merton’s agreement to go back to the original form of the section 106 agreement, as regards the library, and that he was also wrong to suppose that a different result could have been achieved by taking a different stance in relation to Mr Masson during 2006 on the question of the terms for the library lease.

He contended that the proper inference from the contacts between the Appellant (mainly through Mr Lobetta or Mr Silk) and Merton’s officers through to July 2006 was that there was no real or significant prospect of persuading Merton to revert to the original version of clause 15.2, because the library was a key element in the scheme for Merton, and clause 15.2 was crucial to Merton to ensure that it got its library. Moreover, the new clause 15.2 was a perfectly proper requirement in planning terms. The Appellant would have had no remedy under the planning legislation if Merton had insisted on it. The whole history from 16 June 2005 onwards, he said, showed protests by the Appellant, which achieved nothing other than the hardening of Merton’s position, from its first point that the lease had to be at a peppercorn, in June 2005, to the new clause 15.2 in December 2005, and then to the further requirement that the library should be completed to a higher standard than merely shell and core, as had been provided for by both the original and the revised section 106 agreements. Accordingly, he argued, it is clear that any further efforts after 2 February 2006 would have been (and indeed were) futile, so that the Appellant was not obliged by the contract to undertake any such further efforts.

Mr Bannister placed great reliance on the judge’s comment about the position taken by the Appellant on 1 February 2006, at the meeting mentioned at paragraph [80] above, on his finding that nothing was done to attempt to persuade Ms Lauder to agree to withdraw the amendment to clause 15.2, and, as regards the terms of the lease, on the fact that, as at the beginning of February, Merton had apparently suggested a rent of £30,000 with which Mr Aziz was content, so that at that stage, he said, the Appellant had no good reason to think that the library would cause problems. He also suggested that the reliance placed by the Appellant in the proceedings on the new clause 15.2 was an afterthought, and that it had not been seen as significant at the time. In support of that he pointed not only to Mr Lobetta’s failure to query it with Ms Lauder, but also to the absence of any reference to it in the correspondence at the time, and the fact that the Respondent was not made aware of the terms of the revised section 106 agreement until shortly before the trial.

He submitted that the judge was entitled to come to the conclusions he reached, and that the Appellant’s contentions did not meet these points. In practical terms, as regards the obligation to use all reasonable endeavours in relation to this contract, he suggested that the context was very different not only from the factual situation considered in The Talisman, where the vessel was sinking, but also from the legal context which, in that case, involved a comparison with what steps a reasonably competent skipper would have taken. Here, by contrast, Mr Bannister pointed out that the Appellant was not under anything like the same pressure as a skipper in a sinking boat. While accepting that if it were plain at the time that no further step could assist, then there was no obligation to do more, he asked rhetorically why the Appellant should not have tried further efforts if there was or might be some prospect or hope that they might work.

I have already set out the main events relevant to this aspect of the difficulties. I have also alluded to the fact that the Respondent, having discovered by its own efforts the identity of the owner of the parcel of land, came to an agreement, dated 30 June 2006, with that owner under which the Respondent would have been able to procure that this land was available for the development and was bound by the section 106 agreement. This agreement was reached on 30 June 2006, at a cost not far short of £500,000. The Respondent did not inform the Appellant that it was pursuing this course, nor did it tell the Appellant that it had done so successfully until some time into the course of the proceedings.

The judge dealt with this aspect of the case more briefly than the library. His reasoning is in paragraph 113, where he gave his reasons for rejecting the submission that the condition as to a section 106 agreement was never capable of fulfilment, from the outset:

On this point, which Mr Dowding put at the forefront of his submissions, he submitted that the judge failed to address several pertinent points. Thus, he said:

The Appellant had no significant prospect, by the use of reasonable endeavours, of procuring that Pillar should execute the section 106 agreement; indeed no-one suggested that it could;

The Appellant was not obliged to acquire the third party land in order to be able to execute the section 106 agreement in a way which bound that land;

Nor was it bound to raise the question with the Respondent, not even to see whether the Respondent wished to endeavour to acquire the land; it certainly could not require the Respondent to take any such steps, but neither did the Respondent offer to do so, or indicate that it wished to try to do so and therefore ask the Appellant to wait while it tried to do so.

On this basis, Mr Dowding submitted, there was at no time any basis for the Appellant to suppose that anything that it was obliged to do under the contract could resolve this problem. It should follow that no further reasonable endeavours were required of the Appellant on this score, and there was nothing more that it could be expected to do in pursuance of its obligation under clause 25.2 of the contract after 2 February 2006. The judge did not make a finding as to whether to proceed with the scheme without the third party land would have involved departures from the planning permission and the section 106 agreement which made them not substantially the same as the drafts annexed to the contract. By implication, from paragraph 112 of the judgment, it seems that he did accept that such amendments would have been substantial, because his emphasis in that paragraph is on resolving the problem by bringing the land into the agreement, not on revising the scheme so as to be able to do without the land. Mr Dowding submitted that this was correct, so that the revised planning application which the Appellant put in to cope with the problem was a departure from the contract, and one of which the Respondent could not take the benefit by claiming that it was within the scope of the contract.

He did not question the judge’s conclusion that it would have been a substantial compliance with the contract for the owner of the third party land to be brought in as a party to the section 106 agreement. He accepted that if the Respondent had been able to say, in response to the point being raised for the first time, that it was immediately able to procure that the owner of the third party land would enter into the section 106 agreement, then this issue would not have stood in the way of completion. However, he pointed out that, not only was this not the case at that time, but, first, it did not become so for some five months, secondly the Appellants were not told that it was the case until several more months later, and moreover the Respondent never told the Appellants that it was seeking to secure this result, but rather took a different line, one which it was not entitled to take, namely that the scheme should proceed without the third party land. He also argued that a reasonable time for the exercise of a choice on the part of the Respondent, as to whether or not to proceed without the section 106 agreement, had to be capable of being defined at the moment when that choice was offered to the Respondent, namely 2 February 2006, in the light of the circumstances as they then existed. As things were then, he said, a reasonable time could not be taken as lasting for as long as the Respondent needed to try to buy in the third party land, especially when the Respondent never said that this was what it wanted to do.

For his part, Mr Bannister relied on the pragmatic approach that, if the Appellant had not, early in February 2006, abandoned its attempts under clause 25.1 and 25.2 to procure that the sale agreement’s conditions were satisfied, in favour of an alternative scheme which avoided the need to use the third party land, the question of the third party land would not have presented a problem, because the Respondent secured the conditional contract with the third party at the end of June, and at that stage the problem had been solved.

Mr Dowding’s points about the hard line position adopted by Merton as regards the library, and the terms on which it had to be provided, are powerful. It seems to me that he may be justified in saying that the judge underestimated the difficulty of persuading Merton to agree to revert to the terms of the original draft section 106 agreement, or terms not substantially different from those. Merton had not committed itself irrevocably to the original draft, and it seems that further study of the issue within Merton demonstrated that the original draft did not give it enough assurance that it would get its library on suitable terms.

However, it is striking that, although Mr Lobetta had protested vehemently at the original proposal about a peppercorn rent in June 2005, he did not, formally or otherwise, protest at the revised clause 15.2, or suggest that this might lead to the frustration of the whole transaction. It could not be assumed that the Appellant had no bargaining strength with Merton. The transaction which the Appellant had entered into would result in the development of the site (which Merton was keen on achieving in any event) and in the provision of the library as part of this. If the scheme had to be abandoned, there might well be another development of the site in due course, but there would at least be substantial delay. In a negotiation with Merton based on the exercise of all reasonable endeavours to persuade them to go back to the original draft section 106 agreement, there would have been cards for the Appellant to play. The judge was evidently impressed by the fact that the Appellant chose not to play them, either in response to the revision of the draft section 106 agreement, or in relation to Mr Masson’s proposals in 2006 as to the terms for the library lease.

He took the view that the reason why the Appellant did not do more at that stage was that it had chosen a different path, in response to the problems which had arisen, in respect of the library and the third party land, namely not to seek to overcome these difficulties and make the sale agreement work, but to accept them and find a way round which did not involve the Respondent. That, he concluded, was the policy decision which emerged from the meeting on 1 February 2006, despite the fact that no advice was given at that meeting, or otherwise at that time, in particular by Mr Silk, that the end of the road had been reached. That was clear from the submission of a revised planning application by the Appellant alone, without consulting the Respondent, which did not involve using the third party land.

Mr Dowding criticised the judge’s reasoning in paragraph 127 of the judgment. The judge there mentioned four factors which, in his view, counted against an otherwise powerful point for the Appellant, that the view which Mr Lobetta had come to, as the man on the ground, deeply involved in the negotiation, namely that the section 106 agreement could not be achieved, was a view that the court should respect. The four points were these.

Mr Lobetta said himself that he was not directly involved in planning matters. Mr Dowding submitted that the issue was not so much a question of planning as of negotiation, which Mr Lobetta was responsible for, and was therefore the right person to judge whether there was scope for negotiation. There is some force in this comment so far as it goes.

Mr Silk, who was directly involved in planning matters, did not take the view that there was an impasse at the beginning of February 2006. Mr Dowding said that even if Mr Silk did not accept that there was an impasse, he referred to the point as being subject to negotiations which had not been concluded, and Mr Dowding went on to say that the negotiations were never concluded, and were never going to be. That last point begs the question, which is what view could or should have been taken at the beginning of February 2006. As it seems to me Mr Silk’s view, which was that there was not an impasse by that time, was highly pertinent.

It was not possible for Mr Lobetta to conclude that there was an impasse over the revised clause 15.2 without trying to persuade Ms Lauder to go back to the original version. Mr Dowding submitted that Mr Lobetta knew enough, from the previous negotiations and from his conversation on 6 January (see paragraph [70] above) to be able to tell whether there was any prospect of movement in Merton’s position. I must say that I do not find that point convincing. On the judge’s findings, the conversation on 6 January was limited and not aimed at exploring Merton’s position at all deeply.

The issue of the library lease was hardly mentioned in the correspondence between the parties at the time, as compared with the issue of the third party land. That seems to me to be a fair comment. The third party land did feature more prominently in the correspondence.

All in all, it seems to me that the judge was well entitled to make the points that he did in his paragraph 127, and they reinforce the point that he went on to make in paragraph 128, to which I have already alluded at paragraph [93] above, that the Appellant did not entirely lack bargaining strength, and did not necessarily have to accept Merton’s position as unalterable. Mr Dowding criticised one thing the judge said at paragraph 128, where he pointed out that the planning committee had not approved the tying of the grant of the lease of the library to the occupation of the residential units. It is a fair point that this was within the scope of what the committee had delegated to Ms Lauder. It could perhaps also be said that, if Mr Lobetta had tried to persuade Ms Lauder by suggesting that the whole development was threatened by Merton’s attitude, she might not have been able to take the decision to relax the terms of the draft section 106 agreement by herself. However, on balance it seems to me that the judge’s assessment of the position in relation to the library as at 2 February 2006 cannot be faulted. That aspect of the problems facing the parties had not yet been the subject of all reasonable endeavours on the part of the Appellant, in that it was not clear (as it might have become by the exercise of a serious attempt to get Merton to change its mind about clause 15.2) that a section 106 agreement substantially in the form of the original contractual draft could not be achieved on this score.

I also agree with the judge’s conclusion that a consideration of the subsequent negotiations over the terms for the library lease does not lead to a different result. It is fair for Mr Dowding to point out that Mr Masson was the person to whom the task of negotiation in this respect was delegated, but again it is not to be assumed that if the Appellant had taken a tougher line in negotiation, suggesting that Merton’s position would jeopardise the whole development, and thereby lead to, at the very least, a substantial delay before Merton could get its library from some other future and unforeseeable development of the site, a more accommodating line might not have been taken on the part of Merton.

As for the third party land question, on which, as mentioned above, Mr Dowding criticised the judge for not addressing the issues that arose on the question whether any reasonable endeavours could have made a difference to the position, it is fair to say that the judge was influenced by the fact that the Appellant had decided that the problem was insoluble without, so it seemed from the evidence, giving any real thought to whether, and if so how, it could be overcome, and had, even before telling the Respondent about the problem, embarked on its alternative course by starting to consider a revised planning application for the smaller site. As I have already mentioned (paragraph [71] above), Mr Silk advised Mr Aziz to that effect on 27 January, and that is how the Appellant did proceed. From then on, the Appellant could fairly be regarded as having decided to ride a different horse, which was not compatible with its obligation to take all reasonable endeavours under the original agreement, unless it really was the case that nothing could be done by then by way of further reasonable endeavours.

The judge also relied on the fact that, as it turned out, the Respondent had its conditional contract to acquire the third party land before Merton’s planning committee came to consider the revised planning application, for the site without the third party land. Mr Dowding submitted that this was illogical, since there was no special significance in that date. The Appellant had required the Respondent to choose whether or not to waive the condition long before that date, and he submitted that any reasonable period from then had expired well before 30 June, the date of the Respondent’s conditional contract. Moreover, as he said, the Respondent had not at any time stated to the Appellant that it intended to try to solve the problem in this way, and did not tell the Appellant that it had done so until much later. There was no reason, he submitted, why the Appellant should have had to wait so as to allow the Respondent a significant period of time for this, at any rate without the Respondent having communicated to the Appellant the fact that it wanted to explore this avenue, and perhaps not even if it had done.

I have some sympathy with the judge’s comment at paragraph 113 that the Appellant’s contention is unattractive, at any rate if it were the case that the condition in clause 25.2 was never capable of being satisfied. It is also curious, to say the least, and might be regarded as unattractive, that the Appellant, having known of the problem for almost two months before informing the Respondent of it, allowed the Respondent a good deal less than that amount of time after telling it of the issue (2 February 2006) before claiming, on 10 March 2006, that the contract was discharged. On the other hand, it is striking that the title to the third party land was not (as it could have been) checked before the contract was entered into. A search at the Land Registry would have revealed the true ownership of this land. Nor does it follow that nothing at all could have been done once the problem was discovered, when it turned out that the assumption made on all sides that Merton owned the land itself was not correct.

The Appellant’s position on this is that, accepting the implied term as found by the judge, its obligation was to exercise all reasonable endeavours to resolve this problem, but that there was nothing further that it was obliged to do in this respect, and that accordingly, subject to giving the Respondent a proper opportunity to decide whether or not to waive the condition, it was entitled to rescind the contract. It gave the Respondent that opportunity by the letter dated 2 February 2006, and the Respondent had had enough time to decide by 10 March, or in any event by 23 May or 10 June, when the Appellant’s solicitors repeated the contention that the contract had by then been discharged. The Respondent did not in fact choose to waive the condition until 3 October, in the course of the proceedings, but by then it was too late because the contract was no longer in force. No question arose on the judge’s point about the Respondent having to know the facts, because on this point the Respondent did know the facts from soon after 2 February.

I approach this point on the footing that a section 106 agreement which related to a smaller site, omitting the third party land, would not have been substantially in the form of the original contractual draft, because of its effect on the extent of the floorspace, including that under the headlease, but that a section 106 agreement in the original form, but which also provided for the owner of the third party land to be a party, so that this parcel of land would also be bound, would have been substantially in the same form as the contractual draft. Thus, the line taken by the Respondent at the time was not correct, when it sought to take advantage of the Appellant’s revised planning application for the smaller site. On the other hand, for the Appellant to put in a revised planning application might itself have been regarded as inconsistent with its obligations under the contract, unless there really was nothing more that could be done. So, as it seems to me, the Appellant’s case on this depends on that proposition.

I also take the view that the position in respect of the library is irrelevant to this point. Even on the basis, as set out above, that the seller had not yet exercised all reasonable endeavours as regards the library question by the time it called a halt to its efforts under clause 25.2 on that front, if there was nothing more that the seller could have done by way of reasonable endeavours about the third party land, that would be sufficient from the seller’s point of view. If the third party land was an insuperable obstacle, it is irrelevant that there may have been other obstacles which could have been overcome, or at any rate in respect of which the seller had not yet done all that could reasonably be expected of it to try to overcome. Mr Bannister submitted that the seller was in breach of the contract by stopping the process of its reasonable endeavours under clause 25.2, in respect of the library, and that it could not complain if something later happened which eliminated the problem of the third party land, namely the Respondent’s contract with the owner of the land. The fallacy in that argument, it seems to me, is that the seller’s obligation under clause 25.2 is a single obligation, not one which exists in parallel as regards different issues and has to be pursued on one regardless of the position on another. If the point had been reached by the beginning of February when the seller could do no more by way of all reasonable endeavours to overcome one problem which stood in the way of achievement of the required section 106 agreement, then it did not have to do anything more to overcome other problems which also stood in the way and which, on their own, might have been resolved.

Although it was for the Appellant to show that it had exercised all reasonable endeavours, rather than for the Respondent to show that it had not done so, it is pertinent to consider what it could be said that the Appellant had not done that it ought to have done in this respect. It being accepted that the Appellant was not obliged to lay out significant funds such as would have been required to attempt to buy in the land itself, and that to adapt the proposed development so as to fit on the site without the third party land was not consistent with the contract, and further that it was the seller’s obligation to do whatever needed to be done by way of reasonable endeavours to achieve the result, without, apparently, any reference to the buyer, it is difficult to identify anything which the Appellant should have done, as of 2 February 2006, that it had not done. It was not suggested that Pillar would have agreed to enter into the section 106 agreement without a substantial payment. Since the seller was not obliged to lay out its own money such as would have been required for that purpose, the only remaining possibility was that the buyer might do so.

Mr Dowding’s primary argument on this is that what the buyer might do was irrelevant, because the seller’s obligation is to use its own reasonable endeavours. I do not find that convincing, because there is no particular reason why a reasonable endeavour on the part of the seller might not be to inform the buyer, so as to see if the buyer had a solution to the problem. The seller has to tell the buyer of the situation in any event, in order to give it the opportunity to choose whether or not to waive the condition. So there is nothing inherently inconsistent with the contract in expecting the seller to inform the buyer of the difficulty that has arisen, which the seller cannot resolve by its own actions.

In any event, however, Mr Dowding submitted that if the seller was to be required to wait for the buyer to see if it could solve the problem by acquiring the third party land, it had to be told that this was the buyer’s aim. Otherwise, so far as it knew, the buyer had no answer to the problem, other than that which it promulgated in its solicitors’ letters, namely to try to claim the benefit of the seller’s revised planning application under the contract, which the judge rightly held it was not entitled to do. The seller could not be expected to wait for an indefinite period, faced with the buyer expressing an incorrect position under the contract, and entirely ignorant of the way in which the buyer was in fact trying to solve the problem for itself, unable to take any step either under the contract or independently of it.

It seems to me that Mr Dowding is right in submitting that the judge did not ask himself the questions which arose on this aspect of the case, once he had decided that a section 106 agreement which brought in the owner of the third party land could have complied with the condition in the contract, and that an agreement relating to a smaller area of land, omitting the third party land, would not have done so. The question which then arose was whether, on 2 February 2006, there was anything else that the Appellant could reasonably have done, with any real or significant prospect of overcoming the problem. The fact that, in the end, the buyer was able to do that which, if done in time, would have resolved the difficulty does not make it unnecessary to consider what the seller could have done at the earlier stage when it gave its notice to the buyer.

In my judgment, on this one point, the judge failed to consider a crucial question, and thereby came to the wrong conclusion. It seems to me that there was nothing that the seller could have done at the beginning of February to overcome this obstacle by the use of its own reasonable endeavours, regardless of what the buyer might wish to do. It was therefore appropriate for the seller to inform the buyer of the problem. It might have been better for it to do so at an earlier stage, but that is irrelevant in itself. It may be that it could not properly contend that a reasonable time for the buyer to consider what position it should adopt in relation to this problem was a shorter period than that which it had taken to think about it before informing the buyer, and that therefore the buyer was entitled to a period lasting until about the beginning of April. That point is not fatal to Mr Dowding’s submissions since the Appellant does not only rely on the letter dated 9 March 2006, and the Respondent can only succeed if the contract was still on foot on 3 October 2006.

I will assume that the buyer was entitled to see for itself whether it could resolve the difficulty within a reasonable period after being given notice under the contract of its need to choose whether or not to waive the condition. It seems to me that, even on that basis, Mr Dowding is correct in his submission that, if the buyer was to be able to require the seller to wait while it tried to buy in the third party land, the buyer would have to have told the seller that this is what it wanted to do, and that it needed time for that purpose. Given that, so far from doing so, the buyer adopted a position which it was not entitled to take under the contract, in my judgment the seller was not required to allow the buyer a longer period than it did, or, at the most, a longer period than it had itself taken to consider the issue. On that basis, at any rate by the time of the letter dated 23 May 2006 the seller was entitled to treat the contract as discharged, because of the third party land difficulty, even though not because of the library problem. It makes no difference that the buyer was (unknown to the seller) still trying to sort out the third party land by other means, and that later, on 30 June, it achieved its aim, and later still it told the seller of this.

It follows that, by the time (on 3 October 2006) when the buyer expressed itself willing to complete without the condition in clause 25.2 being satisfied, the contract had come to an end. It had already come to an end by the commencement of these proceedings in June 2006. If that is correct, then the claim by Yewbelle Ltd in the proceedings ought to have been upheld, and the Part 20 claim for specific performance should have been dismissed.

I would therefore allow this appeal, though only because of the point concerning the third party land.

The appellant Seller’s case as to the circumstances in which he is entitled to rescind the contract turned crucially on the implication of a term: in the event, the term set out by the judge in his §102 and by my Lord in §46 above:

The seller complies with its obligations to use all reasonable endeavours to complete the section 106 agreement and persists in those endeavours for a reasonable time;

The seller then gives the buyer an opportunity to complete the sale without any section 106 agreement;

The buyer chooses not to complete the sale.

As the judge put it, though not in quite these words, that term makes to work in the context of the contract as a whole the provisions as to completion; and my Lord has, with respect, set out in his §50 some considerations pointing forcefully towards the desirability of a provision of that nature. However, in order to determine whether the term meets the test of necessity, which the judge rightly adopted, it is necessary to return to the express terms of the contract with regard to completion.

The most important provision is to be found in clause 25.2:

That the two limbs of clause 25.2 are nonetheless separate is shown by the clear language that, even though the Seller has used all reasonable endeavours, if those endeavours have not in fact produced a S.106 agreement the Buyer is still excused from completion. And as the Judge also pointed out in his §81, none of that is intended to benefit the Seller. His use of all reasonable endeavours gives him no rights, in the sense of permitting him to derogate from his obligation to complete if those endeavours are unsuccessful. How, therefore, can the Seller nonetheless use the failure of his endeavours to produce a relevant S.106 agreement as a ground for holding that, in the absence of any “waiver” of its rights by the Buyer (a concept to which I return in the next paragraph), the contract is at an end?

The Seller’s principal case was that it must be implied that if the Seller, despite reasonable endeavours, could not obtain a qualifying S.106 agreement within a reasonable time after exchange of contracts, then the contract automatically determined. The only way in which the Buyer could prevent that outcome was by agreeing, before the expiry of the period for reasonable endeavours on the part of the Seller, that he would be obliged to complete even without a S.106 agreement in place. Such a step on the Buyer’s part was generally referred to as the waiver of the S.106 condition. That is technically a correct way of describing what was proposed, but the commercial reality was that the Seller’s failure was claimed to enable him to offer the Buyer a contract that lacked what had been acknowledged to be an essential protection for the Buyer, and to rescind if the Buyer did not accept that offer.

The Seller’s “fall back” position, set out above, was that if reasonable endeavours failed he could then call on the Buyer to abandon his rights under clause 25.2. If the Buyer refused, the contract would be at an end. The Judge accepted this second way of putting the case, but subject to a proviso that he stated in his §106 that, in accordance with established authority in relation to election, as set out for instance in Scarf v Jardine(1882) 7 App Cas 345, before electing the Buyer should have knowledge or means of knowledge of the relevant facts.

It will be noted that both ways of putting the case place on the Buyer an obligation to give up his rights under clause 25.2 if he is to save anything out of the contract. As my Lord says in his §48 of the judge’s comment in his §104 as to the limited extent of the implication:

The very cogent reasons that are said to demand the implication of one or other of the Seller’s proposed terms are that, without them, the Buyer, in the absence of a s.106 agreement, could simply do nothing, not complete, and thus leave the land sterile. Quite apart from its being entirely obscure except in one respect, mentioned below, as to why, in the real world, the Buyer should want that outcome (and it is the very reverse of what in the event the Buyer seeks in the present case), I was persuaded by Mr Bannister that if the Buyer sought to use his legal rights in a way plainly inconsistent with the overall intentions of the contractual scheme, then equity would come to the Seller’s rescue. The judge, in his §94, quoted the broad statement of principle in relation to unconscionable assertion of a beneficial right that was set out by this court in Re Loftus (deceased) [2006] EWCA Civ 1124, [2007] 1 W.L.R. 591. The judge thought that that approach could not apply to the assertion of a right conferred by a contract, such as the Buyer’s right under clause 25.2. I would venture to disagree, both in respect of the specific terms of the statement and in respect of its general objective. In an extreme case, I would expect the Buyer to be inhibited from standing on his contractual rights. That would be particularly so if, as might be feared, the Buyer sought to use the impasse in some sort of “ransom” way, or otherwise to obtain an uncovenanted benefit under the contract. And in any other less extreme case the Seller’s situation is not so obviously unreasonable, viewed against the terms of the contract, as to justify, or require, those terms to be adjusted to the extent contended for in this case.

I therefore have the misfortune not to be able to agree either with the judge or with my Lord as to the implication of the term that stands at the heart of the appellant’s case. That renders it strictly unnecessary to say anything about whether the Seller has indeed used all reasonable endeavours to complete the section 106 agreement, so as to fulfil the precondition to the Buyer’s implied obligation; but I deal with it briefly since the point may matter in the context of the appeal as a whole, and also because reflection on the nature of this obligation may cast some light on the implied term.

Although for convenience discussed under the two separate headings of the library and the third party land, the obligation is of course a single one, and the two problems merely part of the factual context in which it had to be performed. If the library issue stood alone, I would respectfully agree with my Lord, and with the judge, that the Seller had not demonstrated reasonable endeavours to overcome that obstacle to a completed section 106 agreement. However, I understand my Lord to take the view that on the facts of this case that is irrelevant to the question of whether the Seller has discharged his obligation under the first limb of clause 25.2, because the third party land problem was an insuperable obstacle to the achievement of the section 106 agreement.

I do not find this at all an easy issue, but two comments need to be made. First, the Seller’s obligation under clause 25.2 was not stated in terms of achievement of the section 106 agreement, but of use of reasonable endeavours to that end. Second, the third party land problem was not something that arose in the course of the contract, thus unshipping the assumptions on the basis of which the contractual promises had been made; but was the fact, and by what one would think to have been elementary precaution could have been discovered, before the Seller gave his undertaking. It is therefore very odd, and as the judge thought unattractive, for the Seller to be able to say, as the logic of this argument demands, that in the state of facts as they were at the inception of the contract, but not known to either contracting party, he could demonstrate his use of reasonable endeavours by doing nothing at all. No doubt the Seller is not obliged to use endeavours that he and the opposite party know to be futile. I find it much less easy to say that where the Seller has unreasonably failed to carry through efforts to meet a known problem threatening the section 106 agreement, in the shape of the library configuration, he can nonetheless claim to have discharged a positive obligation to use reasonable endeavours to complete that agreement.

And if that is the limit to the content of the Seller’s obligation, that reinforces my doubts about the implied term. The effect of this understanding of the Seller’s obligation, read into the implied term, is that the Seller, by demonstrating that the achievement of the section 106 agreement is and always was impossible, can nonetheless require the Buyer to complete the contract without the section 106 agreement; and if the Buyer refuses to do so it is the Seller who can rescind. In the usual case that construction may not have much practical significance; though in the present case the point matters because of the Seller’s claim that the contract came to an end under the implied term at least by the time of his letter of 23 May 2006, so that the Buyer cannot now seek to proceed under it, even without the section 106 agreement. But if, as agreed, the section 106 requirement was inserted for the protection of the Buyer, and if the section 106 agreement was always impossible of achievement, it should be the Buyer, not the Seller, who is entitled to rescind the contract for that reason. In that respect at least the operation of the implied term seems to reverse what was intended by the contract itself to be the respective position of the parties; which reinforces my instinct that the implied term is neither necessary nor appropriate.

I agree for the reasons given in the judgment of Lloyd LJ that this appeal must be allowed. I put my own views shortly referring to the appellants as the sellers and the respondents as the buyers.

As to the question whether some term should be implied it seems to me that if the position had been reached under which, despite the use of all reasonable endeavours to obtain a compliant section 106 agreement, it had become clear that no such agreement could be obtained, there must be a mechanism open to the sellers to give a reasonable notice requiring the buyers to make up their mind whether to complete or not, with the result that if the buyers do not elect to complete, the sellers can rescind the contract. To my mind it makes no commercial sense to construe the contract as one under which despite the fact that a compliant section 106 agreement cannot be obtained, the sellers are trapped in the contract for as many months as the buyers wish to spend making up their mind.

The question is whether the position had been reached under which the sellers were entitled to give notice to the buyers to make up their mind. If it had been reached in relation to one factor e.g. the third party land, then the fact that it had not been reached in relation to another factor seems to me irrelevant. The obligation is one composite obligation and if any use of reasonable endeavours is going to fail to produce a compliant agreement then I see no basis on which the sellers would be bound to go on endeavouring to negotiate some other aspect of the agreement.

It is only necessary therefore to consider one aspect – the third party land problem. In relation to that problem the question is whether the position had been reached where it was clear that any use of reasonable endeavours by the sellers could not produce a compliant section 106 agreement. It is clear as it seems to me that there were certain steps which the sellers were not obliged to take i.e. go out and purchase the land, or pay substantial sums of money to the owner of the land to become a party to the section 106 agreement. It furthermore seems to me that if the sellers put in a planning application excluding the third party land and negotiated an agreement by reference to that planning application the resulting section 106 agreement would not be “substantially” in the same form as that attached to the contract and thus if that was the best they could do, they had no obligation to attempt to achieve it.

The position before the sellers sent their letter of 2^nd February 2006 was thus that no reasonable endeavour of theirs could produce a compliant section 106 agreement.

In my view they were at that stage entitled to give notice to the buyers informing them of the position and requiring them to make up their mind whether they would complete without such an agreement in place, and they were bound to give a reasonable time in which the buyers should do so.

If on receipt of that notice the buyers had indicated that they were negotiating to buy the third party land, and had indicated that their endeavours would be able to produce a compliant section 106 agreement, then it may be that the sellers would have been obliged to allow a further reasonable period for that to happen in accordance with their own obligation to use reasonable endeavours, but no suggestion of that kind was made by the buyers.

Ultimately the buyers did not attempt to elect to complete without the necessary agreement in place until 3^rd October 2006 i.e. after the issue of proceedings on 27^th June. By that stage on any view a reasonable period had long since expired and the contract had been rescinded.