Persimmon Homes (South Coast) Ltd v Hall Aggregates (South Coast) Ltd & Anor

By a Sale Agreement dated 22 December 1999 (the “agreement”), the defendants, whom the judge called “RMC”, as shall I, sold a large development site, which was about two kilometres in length and about 300 metres wide, known as Cherque Farm, Lee-on-Solent, in Hampshire. The buyer was the claimant, whom I shall call Persimmon. Nearly a decade later that site has been developed, but the parties are still in dispute about the financial consequences of the sale.

The reason for this dispute in practical terms goes back into the history of the site. Under RMC’s ownership it had been used for sand and gravel extraction since about 1950, and when the workings had been exhausted, it had later been used for landfill, including putrescible waste. This made it difficult to price the sale of the land, because much work had to be done to make the site suitable for development. It was therefore agreed that the purchase price of the site would be based on its value as “clean, serviced land”. Although that expression was not used in the agreement, it has been common ground in this litigation that that was the fundamental pricing concept of the parties’ bargain. Accordingly, it was agreed that the purchase price would be calculated by taking the notional value of the site as if it had been clean, serviced land (something which could be priced according to the market of the time), and then by deducting from that notional value the cost of the work necessary to render the site in a clean and serviced condition. The calculation of the appropriate deduction would therefore take into account potentially expensive works, such as the resolution of a methane gas problem engendered by the putrescible waste, the provision of public utilities for the site (but not for individual properties), including foul and surface water drainage, and the construction of a link road.

Moreover, the southern area of the site had not been filled in, following the sand and gravel extraction, to the same level as the rest. Therefore further works were required in order to bring up the level of this southern part to the level of the remainder of the site. Whereas the rest of the work, which the judge described as “the necessary rehabilitation works”, was to be done by Persimmon, but at RMC’s cost to be taken as a deduction from the price, the in-fill of the southern area was to be undertaken by RMC at its own expense following the sale.

The judge, Coulson J, described the first of these two mechanisms as follows:

“Of course the difficulty was that many of these costs could not be accurately ascertained in December 1999, because the precise scope of the necessary rehabilitation works had not been defined. It appears that the parties decided that the best way of dealing with this problem was to calculate the initial purchase price by taking the notional value as the starting point, and deducting from an estimated figure for the costs of the necessary rehabilitation works. These were referred to as “benchmark costs”, and they were designed to represent the parties’ best estimate of the costs of those works at the time that the Sale Agreement was entered into. However, those benchmark costs would be capable of adjustment, when greater certainty was possible, and that adjustment would, in turn, lead to an adjustment in the purchase price. That is the genesis of the clause 7A mechanism.”

I shall set out clause 7A below. It is headed “Price Adjustment”.

As for the second mechanism, this was provided for by clause 12 of the sale agreement, which is headed “Post exchange works”. I shall set out that clause below as well, but the essence of it was that RMC would “remediate the void space” in accordance with Persimmon’s reasonable requirements, using remediation materials provided by Persimmon from other parts of the site, hauling them to the landfill area in the southern part, and hauling away surplus materials, all at no cost to Persimmon.

The principal point raised by Persimmon on its appeal relates to what it submits was a third mechanism for ensuring that Persimmon would only pay for the site on the basis of “clean, serviced land”: namely that (at any rate with respect to certain works required in accordance with approvals given by the local highways authority and water undertaking) Persimmon would be entitled to a rebate on the price to the extent that the final incurred costs of the necessary rehabilitation works exceeded the clause 7A estimated costs. For this purpose Persimmon pointed to clause 14A of the agreement, headed “Approvals”. However, the judge held that this claim failed.

There is also a cross-appeal by RMC in relation to the clause 12 mechanism. What happened was that Persimmon did all the clause 12 remediation work itself, at its cost, and only subsequently sought to charge RMC with that cost which, under the agreement, should have been incurred by RMC. The judge found in favour of Persimmon on this claim, hence RMC’s cross-appeal.

The points on appeal and cross-appeal are entirely separate, and I agree with what Aikens LJ has said about the latter in his judgment. In sum, on the point of waiver, there was no unequivocal representation. Although that issue must be looked at objectively, not subjectively, Mr Barrett's evidence merely confirms what is in any event inherent in the circumstances themselves, namely that one strong possibility in the situation was that Persimmon had overlooked the clause 12 provision. Mr Barrett's evidence is, moreover, directly relevant to the questions both of reliance and of what is just and equitable. On the point of mitigation, RMC's reliance on Toepfer v. Warinco [1978] 2 Lloyd's Rep 569 is misplaced. In that case, the buyers' failure to protest and stop the shipment had itself caused (in the sense that it had failed to prevent) the damages in question, which arose out of the sub-buyers' need to separate out the course-ground and fine-ground meal. Those damages would have been avoided if the shipment had been promptly stopped. In the present case, however, Persimmon's failure to call upon RMC to perform the work has not caused RMC any additional costs beyond those which under the agreement it was obliged to incur in any event. Any failure to mitigate would have neither caused nor contributed to any loss. If RMC had been called upon to perform, it would have incurred the costs that have been awarded against it as damages.

I therefore turn to set out the agreement terms which are relevant to Persimmon’s appeal.

The following provisions set out the structure of the pricing of the sale. Clause 7 identifies the price to be £29,892,380, to be paid in seven equal instalments between January 2000 and January 2006, as the site was transferred in seven separate parcels scheduled in that clause. Clause 7A sets out a price adjustment to the extent that “Costs” (defined as the “Costs referred to in the Fifth Schedule” and stated in clause 7A.1 to be “provisional estimated figures”), when once agreed by the parties or determined by an independent engineer, either exceeded or fell short of the scheduled Costs. Those scheduled Costs related to eleven separate items concerned with the remediation of the site. For example, the largest single item was item 3 described as “Remediation costs in accordance with the “Methane Gas Specification” as defined and set out in the 106 Agreement” which was provisionally costed in the sum of £8.2 million. The total of the provisional figures in the Fifth Schedule was £15,938,500. Thus, if the finally established Costs were greater than that figure, then the price of £29,892,380 would be reduced by the excess, and if the finally established Costs were less than that figure, then the price would be increased by the amount of the deficit. The logic of the agreement (although not expressly spelled out in the agreement) was that, pending the ultimate determination of the Costs, the price to be paid of £29,892,380 reflected the difference between a nominal remediated value of the site of £45,830,880 and the provisional estimated costs of the remediation of £15,938,500.

This was explained in an internal memo dated 20 December 1999 (two days before the date of the agreement) passed between employees of RMC and summarising the discussions with Persimmon. Although an internal document, the judge set it out (at para 32 of his judgment) as a useful and accurate summary of the pricing concept. The figures are very slightly different from the contractual figures, but the concept is well explained. The memo read as follows:

“The purchase price for the land is £29,892,372. This is to be paid in 7 instalments. It is based on a Gross Land Price of £45,830,872, which equates to £587,500 per net acre (78.01 net acres)…

The Purchaser’s costs are to be deducted from the Gross Land Price. These are to be calculated within 6 months of the sale agreement. An estimation has been made of these in Schedule 5 of the Agreement of £15,938,500 to give the purchase price. If the costs are different after 6 months then there will be an adjustment of price. The schedule 5 costs are deliberately low so as to focus everyone’s minds to keeping them low. However, I do anticipate them increasing to near Persimmon’s figures of £19.7m, which would reduce the price by about £3.8m i.e. the purchase price will be approximately £26 million. The majority of the costs will be calculated either by going out to tender to contractors or they will be figures supplied by statutory undertakers providing services and so will be the lowest achievable. The remaining costs will be calculated with the assistance of Quantity Surveyors…

The above summarises the sale contract with Persimmon…”

Clause 7A provided as follows:

“7A.1 Within 6 months of the date hereof the parties shall endeavour to agree final figures for the Costs (the figures in the table of Costs being provisional estimated figures) and the parties shall have regard to any projected increase in the Costs due to the time period for the incurring of Costs in any such agreement and if such figures are not agreed by the end of such period of 6 months then the determination of the outstanding Costs (and any projected increase thereof as above) shall be referred to an Independent Engineer…

7A.3 The Independent Engineer shall act as an expert and not as an arbitrator (unless he shall refuse to act as an expert when he shall act as an arbitrator) but before making his determination he shall afford to each party the opportunity to deliver to him written representations…

7A.4 The Independent Engineer shall make his determination as soon as practicable but in any event within two (2) months from the date of his appointment

7A.5 Unless the Independent Engineer has failed to observe the procedures specified in this Clause then his determination shall be final and binding on the parties

7A.6 Following the agreement or determination of the Costs the Price shall be adjusted by a sum equal to the difference between the total of the Costs as so agreed or determined and the total of the Costs set out in the table under the column “benchmark costs” (to the effect that if the final figure of Costs is more than the figure for the benchmark costs the Price shall be reduced by the amount of the difference and if the final figure for Costs is less than the figure for the benchmark costs the Price shall be increased by the amount of the difference

7A.7 The Price adjustment shall be apportioned equally between the various Parcels and (in respect of a Price adjustment for any Parcel the transfer of which has been completed) the Purchasers shall pay to the Vendors such sum as is due to the Vendors for that Parcel if the Price has been adjusted upwards and vice versa if the Price for that Parcel has been adjusted downwards but in either case without interest

7A.8 The parties shall use all reasonable endeavours to keep the Costs to a minimum which is commensurate with and in accordance with all necessary approvals for the Development

7A.9 In the event of the Costs being determined by an Independent Engineer pursuant to the provisions of this clause the Independent Engineer shall not have regard to the sums of money referred to in the Fifth Schedule as benchmark costs”

It will be observed that: clause 7A is designed to reach finality in respect of the scheduled provisional Costs for the purpose of finally disposing of the question of the price; if the matter, in default of agreement between the parties, has to go to the independent engineer, his determination shall be “final and binding” on the parties; the inference is that any agreement which makes it unnecessary to go to an independent engineer is also intended to be final and binding between the parties; the parties are to have six months to reach agreement, after which any outstanding issue “shall be referred” to the independent engineer; the independent engineer is to render his determination within two months of his appointment; and any agreement or determination shall have regard to inflation over the period during which the costs will be incurred (potentially up to six years).

Clause 14A provides the central focus of Persimmon’s appeal, although it has to be read against the background of clause 7A. Clause 14A (“Approvals”) reads as follows:

“14A.1 In this clause “Approvals” means:-

a)

any drainage agreement which is required from Southern Water Services Limited relating to the provision of foul and surface water sewers and mains water supply forming part of the Development

b)

any approval which is required from Hampshire County Council or Gosport Borough Council as the Highways authority relating to the construction and dedication of the Link Road and other highway works forming part of the Development

c)

any drainage discharge approval which is required for the Development being secured from the Environment Agency

14A.2 The Vendors shall use all reasonable endeavours to procure the Approvals within 5 months of the date of this agreement

14A.3 The Purchaser shall be entitled to assume responsibility for negotiations as necessary to procure any Approvals that have not been procured by the Vendors under 14A.2

14A.4 The Vendors shall bear the Purchasers reasonable and proper costs (including the costs of consultants employed by the Purchaser) incurred as a result of the Purchaser taking over negotiations and procuring any Approvals pursuant to clause 14A.3

14A.5 The Vendors shall bear any additional and proper costs of works required by any Approval to the extent that such works have not been taken into account in the calculation of the Price (or vice versa if the reasonable and proper costs of such works is less than any allowance in respect of such works made in the calculation of the Price) with any dispute to be referred to an Independent Engineer on the same basis as set out in clause 7A.”

It will be observed that clause 14A has only a limited scope, namely with respect to the costs (it is pointed out that the clause does not say “Costs”) of defined Approvals, namely those relating to sewers and mains water supply, and to the Link Road and other highway works. It is common ground that this subject matter falls within the area of the first two items only of the Fifth Schedule, which read as follows:

“1.

The Link Road constructed to a specification which accords with any approval which is required by the highways authority

2.

Provision of public utilities for the Development to the Development site boundary at point ‘X’ as shown on the Plan. Provision of foul and surface water connections (including any pumping stations and balancing facilities) connected to all points on the boundary to the Development west of the Link Road to service the Development the positions to be in accordance with drawings approved by Southern Water…”

It will also be observed that the Approvals which are the subject-matter of clause 14A were to be procured (so far as all reasonable endeavours could do so) within 5 months of the date of the agreement, ie within approximately the same timescale as that laid down by clause 7A.

The principal issue on Persimmon’s appeal arises out of the reference in clause 14A.5 to “any additional reasonable and proper costs of works required by any Approval”. On behalf of Persimmon, Mr Richard Wilmot-Smith QC submits that this is a reference to actual incurred costs. Thus, it is submitted that to the extent that such costs have not been taken into account in the calculation of the price (viz either under the Fifth Schedule or under the clause 7A mechanism), then RMC is to bear them. In effect, the submission is that, to the extent that clause 14A approvals fall within the scope of items 1/2 of the Fifth Schedule, the clause 7A price adjustment mechanism is overtaken (RMC would say subverted) by the clause 14A mechanism. In place of a mechanism for valuing the costs by agreement of the parties or determination of the independent engineer in advance of their being incurred, these elements of the remediation costs were to be valued in the outcome. If they were higher than they had been set for the purpose of calculation of the price, then to that extent RMC had to bear them. If, however, they were lower than they had been set for the purpose of the calculation of the price, then Persimmon had to reimburse RMC the difference (a reference to the vice versa provision contained in the parentheses within clause 14A.5).

On behalf of RMC, however, Mr Thomas Keith submitted that clause 14A was only concerned with approvals which unexpectedly required work which had not been anticipated, and for that very reason had not been calculated as part of the Costs which had gone into the calculation of the Fifth Schedule and thus the price. Alternatively, the unexpected change to an approval might have rendered unnecessary works which had been costed as part of the make up of the price, in which case there might be a lower cost base which would have led to Persimmon having to pay more money to RMC. In either case what was being spoken of in clause 14A, as in the case of clause 7A, was anticipated or estimated costs, not actual incurred costs. Mr Keith submitted that the language of “reasonable and proper costs” was as apt to describe estimated costs as actual incurred costs.

The judge determined this issue in favour of RMC.

The background to the judge’s determination was his view of clause 7A itself. Although there might have been some issues at the trial stage between the parties with reference to clause 7A, there was none by the time of appeal.

It is therefore sufficient to record what the judge said about the clause 7A mechanism, with which I agree. In any event, it is no longer in dispute. He said this:

“49.

However, it is plain to me that clause 7A operated on the basis that both parties intended that the figure for costs would be finalised within 6 months of the sale, so that an agreed purchase price could be fixed as quickly as possible. That explains the reference to the 6 months in clause 7A.1, and the prompt timetable required of the independent Engineer (who had to deal with any disputed items) set out in clauses 7A.3 and 7A.4. Therefore, whilst the costs figure for the necessary rehabilitation works, and thus the price, remained uncertain as at the date of the Sale Agreement, the parties were operating on the basis that both the costs and therefore the price, would be fixed within 6 months or so of the date of the Sale Agreement.

50.

This is important when considered against the background of the proposed development. As noted above, the proposed development was going to last in excess of 7 years; at the time it was entered into, the parcel of land relevant to phase 7 would only be provided to Persimmon on 7 January 2006. Accordingly, on the proper construction of clause 7A, I conclude that the parties intended to agree the costs, and therefore the purchase price, long before the works at the site had been completed by Persimmon.

51.

How could they do that where the costs of those works would not be known (at least with complete precision) for years? The answer can again be found in clause 7A.1. The clause envisaged that the parties would agree “final figures for the Costs” within 6 months based on their best estimate of the likely future costs. That estimation and agreement of future costs is what 7A.1 envisaged: it expressly referred to the parties having regard to “any projected increase in the Costs due to the time period for the incurring of Costs”. Moreover, if such an agreement was not possible between the parties, then clause 7A.1 expressly envisaged that the binding determination of the outstanding costs by the independent engineer would also include “any projected increase” in those outstanding costs.

52.

Accordingly, it is clear that clause 7A envisaged a situation in which the parties would either agree (or have determined by a independent engineer) long before the works had been completed, a figure for the necessary rehabilitation works, and therefore a final purchase price…

53.

Furthermore, I am in no doubt that this mechanism was designed to fix figures for the costs, and therefore the price, which were both final and binding. There were two options open to the parties: either the costs would be agreed, or they would be determined by the independent engineer. Clause 7A.5 makes plain that the independent engineer’s determination “shall be final and binding on the parties”. In those circumstances, it seems to me that, once the costs of the necessary rehabilitation works, and therefore the price, had been fixed, either by agreement or by a determination of the independent engineer, those costs and that price could not be opened up. Subject to any part of the Sale Agreement which might provide to the contrary, those costs and that price could not be opened up. Subject to any other part of the Sale Agreement which might provide to the contrary, they would be final and binding.”

As for clause 14A, the judge rejected Persimmon’s case that it provided a mechanism for fixing the costs of the relevant remediation works by reference to the actual costs incurred. His reasons were essentially as follows. He considered that clause 14A, like clause 7A, was dealing with estimated costs, to be fixed within a short time-scale at the beginning of the development programme, hence the reference to the five months period within clause 14A.2. The difference between clause 14A and clause 7A was that the former was dealing with the possibility that the water utility and highway works might have led to some change in the requirements of Southern Water or Hampshire County Council, formalised in the necessary approvals, which could not have been foreseen or expected and therefore could not have been already taken into account in the Fifth Schedule’s Costs. If, however, work had been taken into account there, and had been fixed either by agreement or by determination of the independent engineer, then it could not be re-opened. Of course, an unexpected turn of events could operate both ways, either to increase or to diminish the otherwise estimated or agreed or determined Costs, hence the vice versa provision of the parentheses within clause 14A.5.

The judge also pointed to a particular difficulty of Persimmon’s construction relating to inflation costs. Since such costs were required to be taken into account as part of the clause 7A exercise (see clause 7A.1 with its reference to “any projected increase in the Costs due to the time period”), then not only was it incoherent for them to be re-opened subsequently by reference to actual costs, but it would be extremely difficult to calculate the extent to which they had been exceeded. Thus a settlement agreement in June 2001 relating to most of the Fifth Schedule Costs agreed a global figure for “inflation, increase costs etc” of £4.2 million. It would be impossible to deconstruct that figure for the purposes of a retrospective calculation based on actual incurred costs in respect of only two items from the Fifth Schedule to determine to what extent if at all those costs had been taken into account already.

Mr Wilmot-Smith’s submissions on appeal were to the following effect, closely focussed on clause 14A.5 and in particular the parentheses within it concerning the vice versa situation of a repayment to RMC. He acknowledged that the opening language of the clause, up to the parentheses, was not helpful to his case that it was concerned with the difference between estimated costs and actual costs: because he accepted in the course of argument that whereas he wished to construe those opening words as though they said “to the extent that such costs have not been taken into account in the calculation of the Price”, they in fact said “to the extent that such works have not been taken into account in the calculation of the Price”. He very fairly and properly acknowledged that the actual language of the clause, at any rate thus far, was not only not helpful to him, but made life rather difficult for him. However, he submitted that the true import of the clause was clarified by the vice versa parentheses: because that made clear that what was being compared by the clause for the purpose of finding a difference to be reflected in a payment in either direction was “the reasonable and proper costs of such works” on the one hand (ie the actual incurred (reasonable and proper) costs and “any allowance in respect of such works” (ie the estimated future costs) on the other hand. This contrast therefore had to be carried back into the opening part of the clause, and it thus became clear that the earlier language “to the extent such works have not been taken into account” was an elliptical, even if strictly somewhat inaccurate, reference to the true intent, namely “to the extent that [thecostsof] such works have not been taken into account”.

He frankly acknowledged that his construction made the clause 7A exercise redundant (this candour was also recorded by the judge, at para 60 of his judgment), and he had difficulty explaining why this overriding mechanism for a retrospective accounting on an actual incurred cost basis was confined to only the first two items of the Fifth Schedule. However, he submitted that this was in effect a compromise made by the parties: the first two of the eleven scheduled items were ultimately to be valued on an incurred cost basis, whereas the other items were to be valued on a prospective, ultimately estimated, cost basis.

This is ultimately a short point of construction. The issue is whether “reasonable and proper costs” in clause 14A.5 is a reference to incurred or to anticipated costs. I would seek to explain my reasons for rejecting Mr Wilmot-Smith’s submissions, as follows.

Clause 14A is of limited application, relating only to “Approvals” required from Southern Water, Hampshire County Council and the Environment Agency in connection with water utility and highway matters. It is common ground that these matters are limited to items 1 and 2 of the Fifth Schedule. It follows therefore that clause 14A should be explicable on a basis which makes sense in terms of the distinction made between these items and the other necessary remediation works dealt with in the Fifth Schedule. Mr Wilmot-Smith has essentially no explanation for this distinction – other than that was what the parties had agreed.

It is noticeable however that these two items depended upon approvals from third parties. To that extent the parties to the sale agreement were in the hands of others. It was possible that the approvals would require matters which had not been anticipated for the purpose of the Fifth Schedule and clause 7A exercise. It was also possible that the approvals would drop some requirement which had been anticipated for that exercise, or alter some such requirement, such as the example given of a change between a bridge and an underpass. It made sense for the parties’ contract to provide for such eventualities, because they would run counter to the exercise upon which the sale price depended.

Clause 14A.2 provides that RMC should use all reasonable endeavours to procure the necessary approvals within 5 months. That is within the six months provided for any agreement between the parties pursuant to clause 7A. If the approvals had been procured within that period, then it may have been possible for any clause 14A consequential adjustments to have been dealt with by the parties as part of their clause 7A exercise, or, if there was any dispute, in time for them to have been dealt with by an independent engineer “on the same basis as set out in clause 7A” (clause 14A.5), possibly at the same time as any clause 7A determination by such an independent engineer. However, I would accept that the language of clause 14A, although it refers to clause 7A expressly and by implication (by reference to “the calculation of the Price”), nevertheless makes it clear that the clause 14A exercise is not itself part of that clause 7A exercise. Thus, any payment required under clause 14A is not said to affect the price directly, although no doubt in practice it could have been added to or set off against an instalment of the price. The reason for this separate treatment is probably because, although it was hoped that the necessary approvals would be procured within the 5 months time-scale referred to, there could be no certainty about that. The obligation on RMC was only to “use all reasonable endeavours”. Clause 14A expressly contemplated that after that five-month time period, Persimmon might want to take over the “responsibility for negotiations as necessary to procure any Approvals that have not been procured by the Vendors under 14A.2”. Therefore, the exercise was kept separate, in case there was any danger that it might delay the important fixing of the price. Nevertheless, the desired time-scale of five months for the procuring of the necessary approvals is a strong indication that the parties were looking to fix any payment required under clause 14A.5 in the short term. That is to my mind a strong pointer that the costs which had to be assessed under clause 14A.5 were anticipated costs, not actual incurred costs. The latter might well take many years to be expended over the seven years or so of the contemplated development.

It is plain that a comparison has to be made for the purpose of clause 14A.5 between “works required by any Approval” and works which have or “have not been taken into account in the calculation of the price”. It is only necessary to compare the costs of such works to the extent that there is any relevant difference between such works. If there is no relevant difference between such works, it must follow that there is no cost comparison to be made. It must therefore also follow that the essential comparison is not between incurred and anticipated costs, but between the costs of required work (“works required by any Approval”) which had not been taken into account and the costs of work which had been taken into account. Ex hypothesi, however, the costs of work which had been taken into account were assessed on an anticipated, not on an incurred basis. It ought follow that the costs of works required which had not been taken into account should be assessed on the same basis, that is to say on an anticipated, not an incurred, basis. It is necessary to compare apples with apples, not apples with pears.

Is this logic, which is what the opening words of clause 14A.5 demand, faulted by the parentheses? I would acknowledge that this speaks of a comparison between the costs of works required by any approval and “the allowance in respect of such works made in the calculation of the Price”: so that the comparison here is between the costs of works rather than between the works themselves. However, that does not require any amendment to the language or the construction of the language in the opening part of the clause. That is for two reasons. The first is that, as a matter of principle, it would be unsatisfactory to allow the tail to wag the dog. The vice versa clause (itself an extremely elliptical and condensed form of expression) should take its meaning from the principal clause, rather than the other way around. Secondly, however, the vice versa clause is plainly contemplating a situation where there will be a payment to RMC (rather than by RMC to Persimmon). Why is that? Given the logic of the main clause, what must be contemplated is that either the required work is less than the work which had been taken into account for the purpose of the calculation of the price, as where some requirement has been simply dropped, or there has been some more complex change such that what has been dropped is to be costed at less than what has been required. In either event, a comparison has ultimately to be made with the costs allowed “in respect of such works made in the calculation of the Price”. For instance, where some work has simply been dropped, the allowance for such work within the Fifth Schedule (as possibly updated by agreement or determination) has to be removed from the parties’ calculations. Expressly, the comparison is made with costs which are a matter of “allowance”, a word which fairly reflects the anticipated nature of the Fifth Schedule or clause 7A exercise. Here again, the logic of the matter strongly supports a comparison of like with like, viz anticipated costs with anticipated costs, not a comparison of anticipated costs with incurred costs.

Although the expression “reasonable and proper costs” can fairly reflect incurred costs, they are equally capable of referring to anticipated costs. Only “reasonable and proper” such costs will be taken into account.

Clause 14A.4, in dealing with the “reasonable and proper costs” which Persimmon might incur in negotiating and procuring the necessary approvals pursuant to clause 14A.2, says that Persimmon is entitled to charge those costs to RMC (see clause 14.A4). It is noticeable that in that sub-clause, where incurred costs are referred to, they are specifically identified as such, for the language reads “The Vendors shall bear the Purchasers reasonable and proper costs (including the costs of consultants employed by the Purchaser) incurred as a result of the Purchaser taking over negotiations and procuring any Approvals pursuant to clause 14A.3” (emphasis added). There is no use of the word “incurred” in clause 14A.5, but, if Persimmon’s construction of that clause were right, there could so easily have been.

It is a serious difficulty in Persimmon’s path that its construction of clause 14A.5 makes the clause 7A exercise essentially redundant in the case of two items out of the Fifth Schedule. If the parties had wanted to adopt an incurred costs regime for these particular items, they could very easily have done it by express language, which would have started with taking items 1 and 2 of the Fifth Schedule out of the clause 7A regime.

Mr Wilmot-Smith submitted that the use of the word “costs” in clause 14A.5, with no capital letter, as distinct from the defined word “Costs”, assists him. I do not agree. The word “costs” is used, not in order to distinguish incurred from anticipated costs, but because what is being contemplated are required works which are not within the Fifth Schedule. It follows that the costs of those works are not within the Fifth Schedule. However, the definition of “Costs” is “Costs referred to in the Fifth Schedule”. The point is therefore ineffective.

Mr Wilmot-Smith also complained that the judge had construed the agreement by reference to the post-contractual conduct of the parties. In my view he did not. He merely remarked that his construction was capable of being shown to be a commercial and realistic construction by reference to how the parties in fact behaved.

In sum, in my judgment clause 14A.5 refers to anticipated, not incurred, costs, and for these reasons, which very largely reflect and reproduce the reasons of the judge, I would reject Persimmon’s submissions on this point. If Persimmon had surmounted this hurdle, it would also have had to overcome some other points which the judge had decided against it. As it is, Mr Wilmot-Smith accepts that Persimmon has to succeed on this first major point in order to proceed further. It is unnecessary therefore to consider Persimmon’s subsequent points. I would therefore dismiss Persimmon’s appeal.

I have had the advantage of reading in draft the judgments of both Rix and Aikens LJJ in this case. For the reasons each gives I am in complete agreement that both the appeal and the cross-appeal should be dismissed.

I agree that the appeal of Persimmon should be dismissed for the reasons set out in the judgment of Rix LJ.

I therefore move onto the cross – appeal of RMC. I will adopt the abbreviations used by Rix LJ in his judgment. Rix LJ has set out the broad dispute between the parties concerning clause 12 of the agreement at paragraphs 2, 3, 5 and 7 of his judgment and I do not need to repeat them. The judge dealt with the question of whether RMC was in breach of the obligation to carry out certain remediation works at the site under clause 12.2 of the Sale Agreement at paragraphs 289 – 319 of his judgment. As Rix LJ has recorded, the judge found in favour of Persimmon.

Clause 12.2 of the agreement provides:

“The Vendors shall make available at no cost to the Purchaser such void space located within the Extraction Area for the deposit of surplus remediation materials arising from such parts of the Property as are remediated by the Purchaser and the Vendors shall provide the haulage for such surplus remediation materials at no cost to the Purchaser and the Vendors shall remediate the void space all in accordance with the Purchaser’s reasonable requirements subject to there being sufficient capacity within the void space and provided such deposit and remediation is in accordance with any licence consent or permission that is necessary to permit such activity”.

Broadly, therefore, Clause 12.2 provides for an arrangement that when Persimmon removed the top layer of the site at phases 1 – 5, for remediation purposes, that material, known as “surplus remediation materials” would be taken to phases 6 and 7. There it was to be used to build up the ground level of those areas, which were lower than other areas of the site. Clause 12.2 provides that RMC will provide the haulage for such remediation materials at no cost to Persimmon. It also provides, most importantly for present purposes, that RMC “will remediate the void space all in accordance with [Persimmon’s] reasonable requirements….”, subject to various other conditions which need not be set out here.

The judge recorded (at paragraph 2 of the judgment) that it was common ground before him that Persimmon did not expressly require RMC to carry out the remediation works identified in clause 12.2; Persimmon did the work themselves. In their Particulars of Claim, Persimmon alleged that RMC had been in breach of contract in “…failing to remediate the void space in accordance with [Persimmon’s] reasonable requirements”: (para 19(8)(a)(iii)) and claimed the cost of carrying out that work, which they calculated at £1,527,019.62.

The judge recorded, at paragraph 291 of his judgment, that four facts were agreed in relation to this claim. (1) RMC did not provide either the haulage or the labour to remediate the void space. (2) RMC were never expressly asked by Persimmon to provide either the haulage or the labour to remediate the void space. (3) Persimmon themselves provided the haulage and the labour to remediate the void space. (4) RMC knew that Persimmon were providing the haulage and the labour and made no comment either way. RMC did not point out that it was their responsibility pursuant to the Sale Agreement to do that work.

Mr Barrett, RMC’s Estates and Development Director at the time, stated in evidence that he was well aware that RMC were required by the agreement to carry out the remediation work identified in clause 12.2 and that Persimmon were doing that work themselves. He did not tell Persimmon of their apparent error. The judge commented (paragraph 299): “I was left with the impression that [Mr Barrett] hoped, by staying silent, to avoid this potentially onerous obligation altogether”.

In presenting the cross - appeal of RMC on this part of the judgment, Mr Keith said it was also indisputable that Persimmon had produced no document nor adduced any other evidence at the trial to explain why it had carried out the remediation work itself. Furthermore, he noted that Persimmon had made no complaint and gave no intimation to RMC of any claim for damages until the letter before action from Persimmon’s solicitors dated 3 April 2007.

The first argument before the judge and before us concerned the correct construction of clause 12.2, in particular the effect of the obligation on RMC to provide the haulage and remediate the void spaces “…all in accordance with [Persimmon’s] reasonable requirements….”. The judge held (at paragraph 296) that those words did not mean that RMC’s obligation to carry out the work only arose if Persimmon specifically told RMC that they were required to carry them out. He held that the words only referred to the way in which the works were to be carried out. The judge stated:

“The provision of the haulage and the remediation of the void space was to be carried out by RMC, but at a time and in a way that was convenient for Persimmon, subject to the proviso, of course, that Persimmon’s requirements had to be reasonable”.

Before us, Mr Keith modified this construction argument. He submitted that the words “…all in accordance with [Persimmon’s] reasonable requirements…” were not confined to the manner of carrying out the works. They were broad enough to permit Persimmon to indicate to RMC (by words or conduct) that Persimmon did not require RMC to carry out the works at all. On the facts, Mr Keith submitted, the conduct of Persimmon in carrying out the remediation work themselves indicated clearly that they did not require RMC to carry out these works at all. Therefore RMC was not in breach of any obligation under clause 12.2 by not carrying out the remediation works.

I am unable to accept that argument. As the judge pointed out, the wording of clause 12.2 is in imperative terms. It states that RMC “shall” provide the haulage and “shall” remediate the void space. Those are the primary contractual obligations of RMC under that clause. Those primary and absolute obligations are made subject to three qualifications, the second two of which are irrelevant to the present dispute. The first qualification – “all in accordance with [Persimmon’s] reasonable requirements” - plainly qualifies the manner in which the primary obligations are to be carried out; they must be done according to the requirements of Persimmon, which requirements must be reasonable. If those words were a condition precedent to any obligation on RMC to carry out the primary obligations, then the word “reasonable” would not make sense, particularly given the other qualifications that are expressly stated in the clause. Either Persimmon would require RMC to do the work or they would not; “reasonable” would add nothing and would make no sense. Therefore, as a matter of construction, the words “all in accordance with [Persimmon’s] reasonable requirements…” mean that Persimmon is entitled to direct the manner in which the remediation works “shall” be carried out by RMC.

It follows that, because RMC did not do the remediation work at all, they are, on the face of things, in breach of their obligations under clause 12.2 and therefore liable to Persimmon in damages for any losses suffered by that breach.That leads to the major argument of Mr Keith on RMC’s cross - appeal. He submitted to the judge and he submitted to us that, by doing the remediation work themselves, Persimmon waived the obligation of RMC under clause 12.2 to perform the remediation works and also waived their rights to any damages for any failure of RMC to perform those works.

The judge rejected that argument. He said (at paragraph 304) that “…a waiver of this kind is very similar to a promissory estoppel. Once that comparison is made, the difficulties with RMC’s case become manifold”. The judge found that there was no clear and unequivocal promise by Persimmon or any indication that they no longer relied on clause 12.2 of the agreement. He also held that there was no reliance by RMC on any waiver by Persimmon and “…certainly no discernible detriment arising from any such reliance”.

A party to a contract (A) may waive the obligation of the other party to the contract (B) to perform a stipulation in the contract that is for the benefit of A. A may waive the obligation without any request by B that A do so. But A will only be taken to have waived the obligation of B to perform that stipulation of the contract if, (in the absence of a request to do so by B), A has made an unequivocal representation to B that A does waive the performance of the stipulation. That unequivocal representation can be by words or conduct, but does not have to be as blunt as “I hereby waive” the other party’s obligation to perform the stipulation. For the waiver to be effective, B must either act on the unequivocal representation of A to his detriment; or he must conduct his affairs on the basis of the waiver.

The doctrine of waiver, as summarised above, is similar to that of equitable estoppel, although in the case of the latter the effect of the equitable estoppel may only be temporary. Both doctrines are to be contrasted with that of election, although all three have sometimes been called “waiver”. See generally: Bremer Handelsgesellschaft mbH v Vanden Avenne – Izagem PVBA [1978] 2 Lloyd’s Rep 109 at 126, 127 per Lord Salmon; Motor Oil Hellas (Corinth) Refineries SA v shipping Corporation of India (The “Kanchenjunga”) [1990] 2 Lloyd’s Rep 391 at 397, 399 per Lord Goff of Chieveley.

In this case, the judge found as a fact that there had been no unequivocal representation by Persimmon that it did not require RMC to perform the stipulation of doing the remediation work in accordance with clause 12.2. Mr Keith submitted that this finding is clearly wrong and inconsistent with the admitted fact that Persimmon openly did all the remediation work themselves. Mr Keith argued that this act, looked at objectively, could only amount to a representation that Persimmon did not require RMC to perform its obligation to do that work. He submitted, further, that once Persimmon had themselves done the remediation work, then it was beyond RMC’s power to do the work, so Persimmon’s acts had forced a change of position on RMC. It would therefore be inequitable to permit Persimmon to contend that RMC had been in breach of its obligations to perform remediation work under clause 12.2.

Mr Keith relied on the decision of Gloster J in Bottiglieri de Navigazione SpA v Cosco Qingdao Ocean Shipping company (The “Bunga Saga Lima”) [2005] 2 Lloyd’s Rep 1. That case concerned an application for leave to appeal on a point of law from a decision of arbitrators. The arbitrators had decided that time charterers had waived the obligation of the owners of the bulk-carrier Bunga Saga Lima to clean the holds of the vessel to grain standard by the first load port, because the charterers had made an unequivocal representation that they waived the requirement by accepting the vessel without demur and had not insisted on hold cleaning at the first load port when both they and the owners knew that the holds were not clean to grain standard. The owners acted on this by not cleaning to grain standard at the material time. Furthermore, once the vessel had left the first load port, the contractual obligation to clean before the first load port could not be fulfilled by the owners. Therefore it would be inequitable for the charterers to contend thereafter that the vessel should have been cleaned to grain standard. The judge held, unsurprisingly, that the arbitrators’ conclusion was not “obviously wrong” as a matter of law so there could be no appeal under section 69 of the Arbitration Act 1996.

That decision does not help Mr Keith. Like almost all decisions on waiver, it depends on its facts. The key facts were: (1) both the charterers and the owners knew that the holds were not clean and yet the charterers accepted the vessel and permitted the first cargo to be loaded at the first load port, when they could have insisted on cleaning; and (2) the owners conducted themselves accordingly. Its facts are a long way from the present case and provide no useful analogy.

Whether Persimmon’s actions can be objectively characterised as an unequivocal representation that it was waiving RMC’s obligation to fulfil its obligations under clause 12.2 depends on what was known by both parties at the time. Persimmon did not explain at the time the reason for their actions in doing the remediation work themselves. Nor did anyone at RMC ask why Persimmon were doing this, although Mr Barrett of RMC was fully aware that this remediation work was a contractual obligation that fell upon RMC. Mr Barrett accepted in cross examination that, at the time, he thought that there were two possible reasons why Persimmon was doing the work. First, that they had decided to do the works themselves and not charge RMC; secondly, because they were under a contractual misapprehension about who was to do that work.

Against that factual background, when viewed objectively, Persimmon’s unexplained and unquestioned actions do not amount to an unequivocal representation that they were waiving the obligation of RMC to perform in accordance with clause 12.2. The actions were equivocal. The judge’s finding on this issue cannot be faulted.

Even if Persimmon’s actions could constitute an unequivocal representation, there is no evidence that RMC relied upon that representation or conducted their affairs on the basis of a waiver of their obligations. They did nothing. Obviously, once the work was finished, RMC could not then redo the work. But RMC only found themselves in that position because they kept quiet and allowed Persimmon to do the work without asking any questions. The judge was justified in saying that it would be neither just nor equitable if, in those circumstances, RMC could now assert that Persimmon had waived performance of RMC’s obligations under clause 12.2 and their right to damages for that failure.

Therefore, the waiver argument fails at all stages.

That leads to the last issue on RMC’s appeal: what damages are Persimmon entitled to claim for RMC’s failure to perform its clause 12.2. obligations to do the remediation work? Two arguments were raised before the judge and before us. First, did Persimmon act reasonably in mitigating their loss; secondly, what is the proper measure of damages, assuming that Persimmon acted reasonably? The judge rejected RMC’s argument that Persimmon did not mitigate their loss reasonably by not insisting on RMC carrying out the remediation works (paragraph 307). He held that the correct measure of damages was equal to the sum it would have cost RMC to do the remediation works. But, if it had cost Persimmon more to do those works than it would have cost RMC, then, to that extent Persimmon would have failed to mitigate its loss that resulted from RMC’s failure to perform its obligations under clause 12.2: (paragraphs 308 and 309).

Mr Keith submitted to us that the judge had been wrong to reject the argument that Persimmon failed to take reasonable steps to mitigate their loss by their failure to call on RMC to do the remediation work. As before the judge, he relied on the decision of Brandon J in Alfred C. Toepfer v Warinco AG [1978] 2 Lloyd’s Rep 569. In that case the sellers had contracted to sell fine grain soya bean meal to the buyers FOB Hamburg. The difference between fine grain meal and course ground meal was found by the arbitrators to be obvious and ought to have been spotted by the buyers’ representatives at the ship as soon as loading started, but they only noticed after most of the cargo had been shipped. Two issues arose on an appeal to the court by way of Special Case. First, had the buyers waived their right to claim damages for selling goods which did not match the contract description? Secondly, did the buyers fail to act reasonably to mitigate their loss by the failure of their representatives to protest about the loading of coarse grain meal and so stop its delivery?

Brandon J found against the sellers on the first point because there was no finding of fact by the arbitrators that the buyer’s representatives at the load port had the buyers’ actual or ostensible authority to waive the breach of condition of the sale contract. On the second point, however, Brandon J held that the representatives were authorised and should have protested and stopped the loading and, if they had done, it was clear from the arbitrators’ findings of fact that fine grain meal would have been loaded instead and so no damages suffered.

Mr Keith submitted to us that the Toepfer case and the present case were both instances of a failure by a claimant, with knowledge of the relevant facts, to put an end to the breach of contract being committed by the defendant. Persimmon could and should have so acted. Because Persimmon did not do so, thenit must follow that Persimmon are entitled only to nominal damages. Mr Keith submitted that the judge (at paragraph 307) was wrong to dismiss the Toepfer case as a “….particular case on its particular facts and concerned with the sale of goods…” and so not relevant.

Having concluded that Persimmon did not waive RMC’s breach in failing to perform its contractual obligations under clause 12.2, it must be accepted that Persimmon had to act reasonably to mitigate the loss suffered as a result of that breach. But Mr Keith’s argument then faces an insuperable difficulty. The burden of proving a failure to mitigate lies on RMC. Unlike the Toepfer case, there are no findings of fact to help Mr Keith. The judge did not find that either it would have been reasonable for Persimmon at any particular stage to call upon RMC to carry out its contractual obligations, or that Persimmon acted in an unreasonable way in failing to call on RMC. Mr Keith submitted that the judge did not get to grips with the facts of mitigation and he emphasised that Mr Barrett had said, at paragraph 94 of his witness statement, that RMC would have carried out the remediation work if they had been asked to do so by Persimmon. That is so, but this issue was not developed in the oral evidence of Mr Barrett and the judge records his reservations about Mr Barrett’s enthusiasm for doing the remediation work. Mr Keith cannot point to other evidence which demonstrates clearly that the judge should have found that Persimmon acted unreasonably and so failed to mitigate its loss by not calling on RMC to do the work.

Therefore, this argument must fail.

That leaves the second question: what is the proper measure of damages to which Persimmon is entitled for RMC’s failure to fulfil its obligations under clause 12.2? By the end of the argument before us, there was really no dispute between the parties on this issue, once the question of mitigation of loss had been decided. Mr Wilmot – Smith accepted that Persimmon was entitled to recover as damages the notional cost to RMC of it carrying out the remediation work it was obliged to do under clause 12.2 but no more than that. There was no challenge by Persimmon to the judge’s conclusion, at paragraph 318, that the extra cost of land filling by compaction in 1 metre layers on phase 7 was not recoverable.

The judge relied, by analogy, on the decision of this court in Pearce and High v Baxter and Anr [1999] 66 Con LR 110, [1999] EWCA Civ 789. That case was concerned with a different issue, ie. whether an employer’s failure to notify a contractor of defects in works within a defects period, thus preventing the contractor from remedying the defects himself, precluded the employer from claiming damages for those defects and, if not, what the measure of those damages should be. Evans LJ gave the leading judgment and held that, on the wording of the defects notification clause, a failure to notify did not preclude the employer from claiming damages. However, the proper measure of those damages was the amount it would have cost the contractor to remedy the defects if the employer had given proper notice within the defect notification period. Alternatively, the employer’s failure to give notice meant he had not acted reasonably to mitigate the loss suffered by the contractor’s breach of contract (in doing defective work), so that the damages must be limited to the notional cost to the contractor of doing the remedial work: see in particular paragraphs 17 – 20 of the judgment.

I agree with Mr Keith that the decision in that case is not directly relevant to the present factual situation. However, the judge was correct to conclude that the proper measure of damages to which Persimmon is entitled is the notional cost of RMC doing the remediation work it was obliged to perform under clause 12.2. The calculation of that head of loss will either be agreed by the parties or referred to an independent engineer or to the TCC for determination.

The cross – appeal must therefore be dismissed.