City and General (Investment) Ltd v Razama Ltd

This is an appeal, brought with permission of the judge below, against the order of HHJ Mackie QC sitting as a High Court judge made on 31 March 2009 by which he dismissed the appellants’ Part VIII claim for a declaration that the appellants had obtained a consent from Network Rail, which was required by an agreement between the parties for the sale and purchase of a parcel of land in London NW1. The facts of the case are carefully set out at paragraphs 2-9 inclusive of the judgment of the learned judge below and I see no purpose in rehearsing them in different language. The deputy judge said this:

“2.

The property which is the subject of the contract in dispute is 46-50 Gloucester Avenue and 1 and 2 Dumpton Lane NW1. Detailed planning permission for the redevelopment of the property by the erection of a three-storey building and a two-storey building for business use, as well as putting up eight houses, was obtained in November 2004. On 21^st December 2007, the claimant agreed to sell the property to the Defendant for £8.45 million, with the benefit of that planning permission. Part of the property is subject to a restrictive covenant which affects the development of the property. The restrictive covenant is imposed on the transferee under a transfer dated 1^st September 1966. Clause 1 of the transfer provides that the transferee and its successors in title covenant:

‘not at any time – (a) without previously submitting detailed plans and sections thereof to the Board and obtaining their approval thereto and (b) without complying with such reasonable conditions as to foundations or otherwise as the Board shall deem it necessary to impose to erect or add to any building or structures or to execute any works on any part of the land hereby transferred.’

3.

The contract in this case imposes an obligation on the claimant as regards the obtaining of approval from Network Rail (the successors of the British Railways Board). That obligation is in clause 7.1 which obliges the claimant to use entire endeavours to obtain the Network Rail consent prior to the completion date. That raises the question of what is meant by ‘entire endeavours’ and the ‘Network Rail consent’. Entire endeavours is defined in clause 1.7 of the contract as

‘All those actions which a prudent and determined seller acting in its own interest and anxious to achieve development of the property in accordance with the planning permission dated 2^nd November 2004 would take to obtain Network Rail consent but for the avoidance of doubt and the buyer acknowledge[s] that in taking those actions the seller shall not be obliged to incur any expenditure or liability actual or contingent whether as to capital expenditure fees costs expenses or other outgoings exceeding a maximum aggregate financial obligation of £50,000 excluding the VAT.’

4.

‘Network Rail consent’ is defined in clause 1.12 of the contract as:

‘Written approval whether by deed or otherwise pursuant to clause 1(a) of the British Railways Board transfer and referred to in entry (1) of the charges register to title no. NGL 775319 permitting development of the part of the property affected by the British Railways Board transfer in accordance with the planning permission dated 2^nd November 2004 which consent may include covenants restrictions and impositions as are generally imposed by Network Rail for the protection and operation of the adjacent railway such consent to be in such form as the buyer shall approve such approval not to be unreasonably withheld or delayed.’

5.

Clause 7.3 provides that if the consent has not been obtained by the completion date (set for 29^th February 2008) the Defendant is still required to complete but on terms that £846, 000 is held by the Defendant’s solicitors as stakeholders from which the Defendant can withdraw £141,000 each month until the consent is obtained or the £846,000 is exhausted.

…..

7.

The solicitors acting for the claimant had discussions with Network Rail and, in time, they produced a form of approval letter acceptable to Network Rail, which they submitted to the solicitors for the purchasers, in a letter of 5^th February 2008, beginning with the words: ‘I am delighted to enclose the form of approval letter which Network Rail will be issuing formally in the next few days.’ The purchaser’s solicitors responded promptly, disagreeing with the validity of the proposed letter from Network Rail for reasons which are at the heart of this dispute. But the letter was obtained anyway and submitted. It is dated 21^st February 2006 (which should of course by 21^st February 2008), in advance of completion which was to be on 7^th March 2008. It is from the Territory Outside Party Engineer of Network Rail to City & General Investments Limited (the claimant) and it reads, after referring to the 1966 restrictions and to the fact that the claimants are the owners, as follows:

‘Pursuant to the restriction, I confirm that Network Rail, as owner and successor in title to the British Railways Board, the railway situated on the land shown edged green on the plan in Appendix 1, approves the proposed development of the property as outlined in the planning permission issued by London Borough of Camden dated 2^nd November 2004 and the drawings referred to in the planning permission (“the development”), copies of which are annexed hereto as Appendix 2. This approval is subject to (a) Network Rail approval of the further detail of the development in relation to foundations for the protection and operation of the adjacent railways to be undertaken as part of the development, and (b) compliance with any reasonable conditions which may attach to the approval referred to above in paragraph (a). The approval contained in this letter shall not constitute a form of release, waiver or variation of any of the restrictions and covenants and transfer which will continue in full force and effect.

I confirm that this consent is issued with the knowledge and consent of Allan Williams, the Network Rail’s Territory Outside Party Engineer.’

I should add that the expressions ‘transfer’ and ‘restrictions’ are definitions referring back to the 1966 transfer and to the restrictive covenant.

8.

Completion occurred in accordance with the contract, but the £846,000 remained held by the Defendant’s (then) solicitors in the light of its contentions that the Network Rail consent had not been vaildily obtained. As the structure of the agreement was that the Defendant was entitled to withdraw £141,000 of that sum each month until the consent was obtained or the sum was exhausted, this is a dispute about who should have the £846,000.

9.

Proceedings were started in September 2008 and have come for trial today. The claimant, as I say, seeks a declaration that, on the true construction of the agreement, the claimant obtained the Network Rail consent as defined by clause 1.12 of the agreement prior to the completion date on 29^th February 2008 as required by clause 7.1 of the agreement and, accordingly, the condition as to that consent has been satisfied.”

Thus the question is whether the letter of Network Rail quoted by the judge at paragraph 7 constituted “Network Rail consent” as defined in paragraph 1.12 of the contract. Clearly the respondent was buying the land with a view to implementing the planning permission of 2 November 2004, for which the latest date was 2 November 2009. The planning permission could not be implemented without compliance with the restrictive covenant stipulated in clause 1 of the 1966 Transfer and set out at paragraph 2 of the judgment. The Network Rail consent was intended to amount to such consent as would enable the respondent, as against Network Rail, to proceed with the development. As the judge put it at paragraph 17:

“The 1966 restrictive covenant is part of the background against which the court interprets the bargain and is important because the Network Rail consent was intended to remove what would otherwise be this obstacle for the purchaser.”

Paragraph 1.12 of the contract which defines Network Rail consent is of the first importance:

“Network Rail consent” means written approval (whether by deed or otherwise) pursuant to clause 1(a) of the British Railways Board Transfer and referred to in entry (1) of the Charges Register to title number NGL775319 permitting development of the part of the Property affected by the British Railways Board Transfer in accordance with the planning permission dated 2 November 2004 (ref. PEX0200634) which consent may include covenants restrictions and impositions as are generally imposed by Network Rail for the protection and operation of the adjacent railway such consent to be in such form as the buyer shall approve (such approval not to be unreasonably withheld or delayed).”

The generality of the “written approval” provided for by paragraph 1.12 is thus qualified only by the provision that the consent:

“…may include covenants restrictions and impositions as are generally imposed by Network Rail for the protection and operation of the adjacent railway”

The learned judge dismissed the claim, essentially on the basis that the definition of Network Rail consent in paragraph 1.12 effectively required an unqualified approval and that was not provided: see paragraphs 19 to 21 of the judgment.

In my judgment paragraph 1.12 has to be construed against the commercial background in which it arises. First, the planning permission referred to in paragraph 12 did not make any provision as to the design of the foundations of the development. Plainly it would be for the buyer as developer to design the foundations. Secondly, Network Rail have in the letter clearly approved the whole development encompassing the fact of its close proximity to the railway line. There could in reality be no question of Network Rail repudiating the development in principle because of some dissatisfaction with the design of the proposed foundations. The development could not in any event go ahead immediately. There would be party wall procedures. Procedures vis-à-vis the local authority and tenants in the existing building were, as we were shown, entitled to 12 months’ notice to quit.

Next it is, I think, of the first importance to appreciate how narrow is the qualification placed in the Network Rail letter on the approval there given. It refers to approval of the detail of the development in relation to foundations for the protection and operation of the railway. This is a narrower restriction than that imposed by paragraph 1(b) of the transfer. It serves, to my mind, to emphasise that the development was agreed to in principle and that there could be no question of Network Rail frustrating its execution by reason of any dissatisfaction with proposed foundations. On the respondent’s case, the restrictions at (a) and (b) in the letter are repugnant to the generality of the approval contemplated in the definition at paragraph 1.12 of the contract, and the judge agreed with that position. In my judgment, however, the nature of those provisions set out in the letter’s contents plainly demonstrate that the letter is in truth consonant with the provision contained in paragraph 1.12. As I have said, the respondent was bound to design the foundations. Network Rail was, in truth, bound to reserve a right to approve their detail for the protection and operation of the railway. Given all these considerations the judge’s construction cannot be sustained. In those circumstances there was no reasonable basis on which the buyer might within paragraph 1.12 withhold approval of the consent and for these reasons for my part I would allow this appeal.

I agree.

I also agree.