Micro Design Group Ltd & Anor v BDW Trading Ltd

The respondents to this appeal, a company and Mr Martin James Rooke and Mrs Catherine Margaret Stanford as trustees for the pension scheme of that company, to whom I shall refer as “the seller”, were the owners of a site at 60 Kenilworth Way, Leamington Spa, Warwickshire. That land had a real prospect of development with planning permission for housing.

On 26 September 2005 the sellers sold the site to the appellants, to whom I shall refer as “the buyer”, who are a well-known house building firm. The sale price was £4.5 million. Under the agreement the buyer was bound to provide a deed of overage under which further payments would become due to the seller in the event of improvements in the planning permission that was anticipated and that was in any event granted shortly after the sale agreement. The deed of overage was agreed on 3 October 2005 on the same day as the sale was completed and the land transferred to the buyer.

It is in relation to the deed of overage that a dispute has arisen between the parties. The deed of overage provided in terms that if and so often as there was what was called a “trigger event” in relation to the site, the buyer was to make to the seller a further payment. It is necessary, as the issues in this case revolve very largely on the precise wording of the agreement, to refer to some of the terms in it.

A trigger agreement was defined as

“the date of grant of an Improved Planning Permission.”

Improved planning permission was defined as:

“…a planning permission (including any variation) for development of the Property which has the effect of authorising a higher Net Sales Area on the property than that authorised by the Base Planning Permission.”

The base planning permission was defined to mean:

“…planning permission granted pursuant to planning application W04/11221 or (if a further payment has been made) such planning permission as constituted the ‘Improved Planning Permission’ in the calculation of the Further Payment last made to the Seller.”

The matter, the subject of this appeal, came on for trial as a preliminary issue before the judge in the Chancery list at Liverpool. The judge heard evidence in circumstances I shall in a moment describe, but it is necessary to set out what I believe the facts to be as they emerged from what was before the judge, as there was no agreed statement of facts:

Those were the facts as they existed at the time the deed was entered into. The subsequent matters, which are not relevant to the construction of the deed but explain the nature of the dispute, were, as appears for the purpose of the determination of the issue before us, the following:

It is important for me to stress that the preliminary issue has come before us and came before the judge on the basis that:

This court and the judge proceeded to consider the issue of construction on the basis that planning permission had been obtained by the seller.

The seller contended that they were entitled to overage as a result of the planning permission it had obtained. It sought £252,054 as a result of the planning permission granted in December 2005, together with VAT, and £88,145.72 as a result of the planning permission granted in July 2006, together with VAT. The buyer declined to pay on the basis it was not liable for payments in respect of planning permission, which it had not itself obtained. The buyer contended that, under the deed of overage, payments were only to be made when it, the buyer, obtained planning permission.

As the parties could not resolve the dispute, proceedings were commenced in the Chancery List in Liverpool in November 2006. The buyer contended that, on the true construction of the deed, it was not liable, or in the alternative claimed rectification based on what it contended were agreements reached in the antecedent contract negotiations to which I have briefly referred.

It appears that the matter proceeded on the basis that a preliminary issue was to be tried, and the issue was the following:

“On the true construction of the deed of overage, do the provisions thereof, in respect of further payment, apply when an improved planning permission, as defined in Clause 11 F thereof, is obtained by the seller.”

That issue came before HHJ Hodge QC in the Chancery List at Liverpool on 17 October. He decided the issue in favour of the seller; the buyer appealed to this court by permission of the late Pumfrey LJ.

It is necessary to refer to one other matter of background which was put forward by the seller, but which is now common ground. The seller contends that the agreement must be construed against the background of the planning legislation, and in particular Article 6(1) of the Town and Country Planning (General Development Procedure) Order 1995, and ss.65(2), 69 and 71 of the Town and Country Planning Act. It is not necessary to set them out. It is sufficient to say that under those provisions a person who is not the owner of the land is entitled to apply for planning permission, but the local planning authority is obliged to keep all applications on a register and to give publicity to all planning applications, and to do their best to ensure that the owner of the land knows of the application.

The approach to the construction of this document must be one that is set out by Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at page 2001:

“I take this opportunity of restating that, if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to the conclusion of the client’s business common sense, it must be made to yield to business commonsense.”

It is not necessary to refer to the passage in the opinion of Lord Hoffman in ICC v West Bromwich [1998] 1 WLR 896 at 913, where he restates that principle.

It is, I think, on the view I have taken of this case, not necessary to rely upon rejecting a conclusion that is arrived at by detailed semantic and syntactical analysis because it conflicts with commonsense. In my view, for reasons which I shall explain in a moment, it seems to me that a syntactical and semantic analysis of the words result in what is commercial sense. The argument of the buyer, to that effect, is simple. It says that provisions of the agreement clearly contemplate only payments being made where there is an improvement as a result of an application made by the buyer. It primarily relies on the clauses in the overage agreement which I have set out as to the contractual mechanism. It is clear that the contractual mechanism contemplates, and only contemplates, the buyer obtaining the planning permission. It is important, I think, also to stress that, where in Clause 3.1, the words used are “within ten working days of the receipt by the buyer of an improved planning permission”, those words must clearly refer to something that the buyer has sought.

Secondly, the buyer says that the commercial purpose of overage is to enable the seller to benefit from improvements in the planning permission obtained by the buyer, and all standard forms of agreement of this kind always provide that it is only where the buyer obtains further planning permission that these payments become due.

The buyer then contends that, if the seller was entitled to obtain payments by applying for planning permission on land which it has sold, it would in effect be able to dictate to the buyer how the buyer was to develop the land which was now its own land or pay the seller for not developing it in that way. The seller would, on the seller’s argument, be entitled to apply, like any other non-owner for planning permission, but, if it succeeded in obtaining it, be able to impose on the buyer an increase in the footage of the development by obtaining planning permission, which the buyer did not want and which had been obtained against the buyer’s will. Its counsel gave, in his skeleton argument, a number of instances of the problems that this would cause. It is not necessary to refer to them in detail, but one or two examples will suffice. It was pointed out that, as the deed was for five years, the seller could exercise the powers over five years by getting as much development on site as it could persuade the planning authorities to grant, even though it had sold the land to the buyer. It could get payments by altering the site in a way that the buyer did not want, and even do that after the buyer had started to build on the site. As the planning permission was not limited to residential development on the terms of the deed of overage, the seller could seek planning permission for offices, and if these were granted and if this resulted in a greater area, then additional payments would be due. The buyer also contended that there was nothing on this construction to prevent the seller seeking planning permission that might supersede the old planning permission and, if granted and the area was greater, this would enable a further payment to be obtained.

In my view, it seems to me clear that the arguments on construction put forward by the buyer are right. The deed is, in my view, clear, and the provisions of Clause 2.4 and 3.0 are consistent and consistent only with payment only being due if the buyer obtains permission. To read the deed as giving the seller a right to payment if it obtains permission would, in effect, require reading clauses into the agreement.

It was contended on behalf of the seller that it was possible to read the agreement so that the mechanism under Clause 3 could operate if the seller obtained the improved planning permission. It seems to me that that cannot be so. The clauses are clear. They set out a clear contractual mechanism that is to operate when the buyer obtains the planning permission. It would require reading into the agreement a term that plainly is not there, in effect, something along the lines that, “if the seller obtains or receives improved planning permission, then the provisions of Clause 3 shall apply mutatis mutandis”.

It seems to me that that is a very powerful point against the construction which the seller seeks to advance because it, in effect, requires the re-writing of the agreement. It seems to me that is sufficient to decide the matter in favour of the buyer.

But there is also an argument that supports this construction based upon the commercial purpose of the agreement. The seller accepts that under a standard deed of overage it would be provided that payments were to be made by the buyer when the buyer obtained planning permission and not if the seller obtained permission. It is contended, however, that as the words “obtained by the seller” are not part of the definition of the trigger event then the experienced parties, together with their experienced legal advisors who negotiated this deed, must have contemplated that the seller would be able to receive a payment if it (the seller) obtained an improvement in the planning permission. It contends that the arguments advanced by the buyer which show that such an intention would be absurd are fanciful. It says that some of the suggestions put forward were ones that simply would not happen because of the operation of planning law and planning policy.

It seems to me that it is not necessary to go into whether some of the examples postulated by the buyer are or are not fanciful. It is accepted on behalf of the seller that their contention involves, at a very minimum, its ability to obtain a payment if it obtains planning permission which the buyer has not sought and which the buyer does not want. The commercial argument has to be looked at simply in relation to that example. It seems to me clear that no person would enter into an agreement to buy development land with planning permission and then give the seller the right after completion to obtain further payments by seeking and obtaining planning permission itself which the buyer might not want. Once the land was transferred it was the buyer who alone would determine whether any further planning permission on the land it had bought was required. It would make no sense to give the right to do that to the person who had disposed of the land to a person who had bought it to develop it in the way in which it wanted to do it.

In essence the argument of the seller comes simply down to the argument that the definition of trigger event on the literal reading of the definition does not preclude the seller from applying for planning permission and, that as a result, the buyer has made a bad bargain because of the buoyant state of the property market and done something that would be outside what would normally be in an overage agreement.

However, for the reasons I have given the agreement does not so provide; it was wholly unnecessary to add those words because it was obvious from the rest of the agreement that the payment would only become due if planning permission was obtained by the buyer. That construction also accords with commercial sense.

The judge seems to have reached the opposite conclusion because he considered that, whilst the parties may not have contemplated the application might be made by the seller, there was nothing in the deed to prevent it. He also considered that Clause 3 could be made to work by saying that if the seller obtained planning permission then it would wish to notify the buyer of that fact and the buyer could go through the procedures in Clause 3. However, as I have pointed out that is not how the agreement reads. There is no provision that enables the payment mechanism to operate if the seller had obtained the planning permission. The reason why there is no such provision is that no-one contemplated that that would be done; that is the simple answer to the way the matter was put.

It seems to me what happened before the judge was that unfortunately the buyer put before him a series of inadmissible documents relating to the pre-contractual negotiations and it appears very clearly from the judge’s judgment, which was given ex tempore, that what he thought the buyer was trying to do was to try and get the judge to correct a mistake that had been made in drafting the deed rather than construing the deed as it was. It seems that it was because of the way in which the case was put before the judge that the judge apprehended that to be the argument and not the very simple argument on construction; or it may be that the very simple argument on construction got lost, as often is the case, when people become involved in putting before a court evidence in relation to pre-contractual negotiations which for very good reasons are inadmissible.

It seems to me, therefore, that the clear conclusion in this case is the construction which the buyer argues is correct and that the seller is not entitled to the payment that it seeks.

I must add, however, that that is an answer to the preliminary issue that I think should be given solely on the basis of the issue before the court. We have not been into the facts. This court does not know if the buyers played any part in the obtaining of the improvement in the planning permission. Indeed it was accepted on behalf of the buyer that if the seller had obtained the permission on its behalf the position would be different because in such a case the seller would be obtaining it on behalf of the buyer. However we do not know whether that was in fact the case or whether the facts may be otherwise or whether for other reasons or by virtue of other remedies available at law the seller is entitled in this case to recover a payment. I simply answer the question on the basis of the issue put before the judge and before this court and on the basis of the facts which were before the judge and this court and on nothing else.

I agree. The question is what is meant in the overage deed by the expression “improved planning permission”? It is defined; it does not say who has to be the person who got it but it is absolutely evident that the only kind of improved planning permission contemplated is one which the buyer is going to supply to the seller within ten working days of receipt by him, the buyer. That is the only kind of improved planning permission to which this document relates. If the seller has acted as agent for the buyer then maybe that is to be regarded as an improved planning permission obtained by the buyer, but that is not a question before us.

I agree with both judgments and although we are disagreeing with the conclusion reached by the judge, I do not propose to add a judgment of my own.