Portsmouth City Football Club v Sellar Properties (Portsmouth) Ltd & Anor

In February 1999 Portsmouth Football Club Ltd was placed in administration, and in July 1999 the assets of the club were taken over by a new company formed for that purpose, Portsmouth City Football Club Ltd ("the Club"). Fratton Park Football Ground is the ground of the Club, which is now in the premier league.

For some time the Club has wished to enlarge and modernise its stadium, but one of the impediments to enlargement on the present site was that it could not do so unless it was able to make use of a site to the east of the stadium owned by Railtrack or National Carriers, and also find a solution to the problem that there was a public footpath and cycleway, Milton Lane, running west to east along the northern boundary of the stadium.

These proceedings relate to an issue arising out of the redevelopment of the former Fratton Goods Yard and Fratton Park. The development comprises two parts. The first is the Pompey Centre, a mixed development of retail, A3 and commercial units, which are now mainly completed and occupied. The second is a proposed all-seater stadium which the Club wishes to construct on its existing site and on the adjoining land.

The first defendant, Sellar Properties (Portsmouth) Ltd, is part of the Sellar Property Group, and is the vehicle which is being used for the development of the Pompey Centre. I shall refer to the Sellar Property Group and its members as "the Developer."

In July 1998 the Council issued a Planning Brief in respect of a redevelopment of a former and then derelict British Rail goods yard near to the Club’s ground which the Council wanted to see developed. The Council saw the redevelopment of the goods yard as related to the development of an adjoining industrial site and the extension and improvement of the Club’s stadium. A redevelopment of the combined site required the construction of a link road between Rodney Road and Goldsmith Avenue (the "Spine Road") to serve the new development, which would cross over Milton Lane. Any developer would be required to fund the construction of the Spine Road.

By the late 1990s the Developer had become interested in carrying out a development in accordance with the Planning Brief. It acquired (or secured options) over an area of land at and adjoining the Goods Yard. As a result of the Council’s policy, the Developer needed to collaborate with the Club so that the Club could gain something out of the proposed development, namely land on which to extend and improve its ground. It was for that reason that in October 1999 the Developer granted an option to the Club to purchase some goods yard land to the west of the existing stadium, and some land north of Milton Lane.

On March 7, 2001 the Council granted planning permission in outline for the development of the land by "redevelopment for 35,000 all seater football stadium with supporting facilities; non-food retail; office/industry/warehousing uses; restaurant with drive-through facilities (A3); associated vehicle parking and associated new access roads (as amended)."

The land within the area of the planning permission included at its eastern end the Club’s stadium. The Council regarded the provision of a new stadium for the Club as an important planning gain in the context of the development as a whole. On March 6, 2001, the day before the grant of planning permission, the Developer and the Club entered into an agreement with the Council under section 106 of the Town and Country Planning Act 1990, under which it was agreed that none of the floor space on the development site would be occupied for trade unless the owners had entered into an option agreement with the Club offering to transfer the freehold interest in the Club land to the Club on terms acceptable to the Club. A vital part of the overall development was the construction of the Spine Road. Condition 14 of the planning permission provided that the link road should be completed in its entirety before any of the buildings permitted within the development were first occupied.

Between Milton Land and Rodney Road, to the north of Milton Lane, there lay a piece of land known as the Barwood Land. In order for the Spine Road to cross the whole development site it had to cross Milton Lane and the western part of the Barwood Land.

The freehold of the Barwood Land was owned by the Council, and in 1960 and 1961 two 99 year leases at low rents (not subject to review) were granted of different parts of the Barwood Land, and in 1969 a further strip was added to the second lease. On September 8, 1998 the user clause became "not other than that of a light industrial building warehousing or storage without the previous consent in writing of the Corporation (such consent not to be unreasonably withheld or delayed)".

The annual rents were very low (£822 p.a. in aggregate) and there was no provision for review. In July 1999 the Developer was granted an option to acquire the leases for £1.4 million. The Council’s freehold reversion was worth only about £15,000.

The Pompey Centre has now been largely completed and the greater part of it is occupied, but the new stadium has not been built.

The Developer (and subsequently, the Club) was also interested in acquiring from the Council land previously used by British Telecom at Anson Road, north of the stadium ("the BT Land").

Mr David Deacon, whose family had until 1998 owned the majority of the shares in Portsmouth Football Club Ltd, and who was vice-chairman until 1995, became managing director of the Club from its transformation in 1999 until June 2000, and was a director and company secretary until February 2001. Since April 2002 he has been a part-time consultant to the Developer in connection with the development of the Pompey Centre.

In April/May 1999 Mr Deacon contacted Mr Irvine Sellar, and they negotiated for the Club to have an option to buy 5 acres of Railtrack land to the west of the stadium from the Developer. The essence of the deal was that the Club would have an option to buy the Railtrack land for a basic price of £2 million and a further 1½ acres of Barwood Land for an extra £1 million. The Developer would give the Club a fully accessed site with a Spine Road built and all the services laid to the boundary and would be paying the whole cost of the planning application for the new stadium.

By an Agreement of October 21, 1999 ("the 1999 Option Agreement") the Developer granted the Club an option to buy the freehold in part of the Railtrack land (described as the "Red Land") and the Developer’s leasehold interests in part of the Barwood Land. By clause 1.11 the purchase price was to be £3 million "PROVIDED THAT … there shall be deducted from the Purchase Price the Milton Lane Allowance …."

By clause 1.34 "the Milton Lane Allowance" meant:

Subsequently three supplemental agreements were entered into between the parties, the first and second on September 28, 2000, and a third on January 9, 2002. The first supplemental agreement of September 28, 2000 ("the Supplemental Agreement") contained a number of changes:

Unknown to the Developer and the Club, the Council owned the freehold in the relevant parts of Milton Lane (as one title with the Barwood Land), and in March 2001 the Developer acquired the freehold title for £4,255,000. The Council refused to apportion the figure as between the title to Milton Lane and the title to the Barwood Land. The Club says that on the true construction of the 1999 Option Agreement as amended, and the light of the circumstances, the purchase price is £900,000, that is £2,000,000 less the unabated £1,100,000. The Developer says an amount attributable to the consent to cross over Milton Lane can be ascertained, even if not identified by the Council, and that it exceeds £1,100,000, and consequently the purchase price is the full £2 million, or, in the alternative, the clause is unworkable and the contract is frustrated.

These Part 8 proceedings were issued on June 18, 2003. The Club seeks a declaration that the Milton Lane Allowance is £1,100,000 and that the purchase price is therefore £900,000. The second defendant is joined solely because it became in 2000 a surety for Developer’s obligations under the option agreement in issue. It has agreed to be bound by the result and has taken no part in the proceedings.

By Order of Lindsay J made on July 2, 2003 it was ordered that the hearing of this claim be expedited so as to be heard before the contractual date for completion of the purchase by the Club, namely September 18, 2003.

The main persons concerned for the purposes of this judgment are as follows. James Snaith of Paris Smith & Randall, Portsmouth, was the Club’s solicitor, and Mr John Stephenson of what is now Bircham Dyson Bell, was the Developer’s solicitor. Barry Ostle is the property director of the Developer. Each of these gave evidence, but since this case is primarily one of construction, evidence of negotiations is inadmissible, and evidence of subjective intention is irrelevant. There is little or no dispute as the background facts, and the oral evidence adds very little to the documentary record.

The principal officers of the Council who were concerned were Stephen Checkley (Head of Property Services), Cliff Piper (Planning Officer), Kenneth Glendinning (Senior Valuer). Idris Curtis of the District Valuer’s Office in Southampton was subsequently involved.

Messrs Vail Williams were local surveyors who acted, mainly through Jeremy Lear, for both the Developer and the Club, in negotiations with the Council. In July 2000 the Developer dispensed with their services and appointed Messrs Montagu Evans (Mr R. D. Harvey) to act for the Developer in place of Vail Williams, who appear to have continued to act thereafter for the Club alone. Gardiner & Theobald Management Services were the Developer’s project managers.

I will set out the background as reflected in the documents. Except to the extent that it throws light on the parties’ common knowledge of the Council’s position, it is generally inadmissible for the purposes of the questions of construction in issue.

In about April 1999 there was a meeting at the offices of the Council between officers of the Council and representatives of Railtrack, the Developer (Mr Ostle) and of Gardiner & Theobald Management Services. The minutes of the meeting record:

On May 27, 1999 Mr Burns (of Vail Williams) wrote to Mr Ostle in connection with Vail Williams’ fees:

On July 21, 1999 an option agreement was entered into between Fratton Estates Ltd and the Developer under which the Developer was given an opportunity to purchase the leasehold interests in the Barwood Land.

On August 18, 1999 Mr Burns wrote to the Developer to raise the question of "the legality of the City Council’s approach in trying to ‘ransom’ the development of the Goods Yard". He said:

On August 30, 1999 a list of terms was exchanged between the Club and the Developer.The Developer was to transfer 4.57 acres of the Railtrack land for a nil premium and would also sell partof the Barwood Land for £1 million to enable the construction of a new stadium. If the planning consent for the scheme included no food retail element, then the price for the Railtrack land would be £2.4m, and the price for the Barwood Land would remain £1 million, provided that the Club would be under no obligation to complete the purchases until the Developer had constructed to adoptable standard the Spine Road, within 1 year from the grant of full planning consent. The Club and the Developer were, jointly with Railtrack and National Carriers Ltd, to submit an outline planning application for a scheme including retail space and a stadium with a seating capacity of between 25,000 and 40,000.

On September 14, 1999 Mr Burns reported to the Developer that Mr Checkley of the Council had mentioned that his aspirations for the "ransom" strip had increased.

On September 23, 1999 (in a fax which is, apparently incorrectly, dated September 9, 1999) Mr Ostle reported to Mr Stephenson of Bircham & Co that he had agreed in principle with Mr Deacon that the prices would be £1 million for the Barwood Land, £2 million for the Railtrack land, and that the figure of £2 million would be adjusted downwards by the sum equivalent to a 50% share of the moneys saved below £1 million in paying the Council for receiving consent for the Milton Lane crossover (capped at £500,000). The evidence of Mr Deacon was that by this period the Developer had put in a budget figure of £1 million for the "ransom" payment.

On October 19, 1999 there were further revisions to the draft option agreement, and the figure of £1 million in what became the Milton Lane Allowance was altered to £1.1 million after last minute negotiations. The 1999 Option Agreement was exchanged on October 21, 1999. It gave the Club an option to purchase within 6 months of the grant of planning permission.

The 1999 Option Agreement contained the following provisions:-

On October 22, 1999 the planning application was made.

After the 1999 Option Agreement had been entered into, the Developer opened negotiations with the Council over the Barwood Land and over Milton Lane. Jeremy Lear of Vail Williams was instructed by the Developer (and also by the Club) for the negotiations. The Club was also interested in acquiring the BT Land for its own expansion and development plans.

In mid-November 1999, the Developer sought advice from Mr Clive Newberry QC on the strength of the Council’s bargaining position both as local authority as freeholder (of the Barwood Land and of Milton Lane up to the halfway point). Mr Newberry was told that the Developer had allocated in its budget a sum of approximately £1 million for complying with the Council’s requirements in respect of Milton Lane, but the sum being presently considered by the chief planning officer of the Council was more like £3 million to £4 million.

At a consultation on November 29, 1999 Mr Clive Newberry QC advised, on the basis of R v Warwickshire County Council, ex parte Powergen plc (1997) 75 P & CR 89 (C.A.), that the Council would not be entitled to resist either on principle or by way of a "ransom payment" the cross-over at Milton Lane, but would be required to co-operate with the Developer in settling the terms of an agreement under section 278 of the Highways Act 1980 (providing for execution of works at the expense of a developer) He also advised that the Developer should buy the freehold of the Barwood Land. He did not expect that after the grant of planning consent the Council would demand such a price for the freehold as to constitute a ransom but he thought it likely and reasonable that it would require an enhanced payment for the freehold, to reflect the fact that planning consent had been granted. There was a difference between such an enhanced payment the sort which a developer would normally pay, and a "ransom" demand.

Following this advice, there was a meeting on December 17, 1999 between Mr Checkley and Mr Glendinning of the Council, and Mr Messenger (of the Developer) and Mr Lear. At the meeting Mr Lear confirmed that three areas would need to be purchased by the Club (or a consortium), which comprised the BT Land, Milton Lane and the Fratton Estates/Barwood interest. The note says that Mr Lear "confirmed that the total offer for all of these interests was in the region of £1.1M". He also told the Council that Mr Newberry’s opinion was that a local authority could not resist the provision of access across highway status land when it had been allocated in a development brief. Mr Checkley confirmed that this was also his own opinion. But he said that this did apply to the Fratton Estates land (i.e. the Barwood Land), but only to the Milton Lane highway area.

On December 20, 1999 Mr Checkley sent a fax to Mr Lear asking for a copy of Mr Newberry’s opinion and instructions and asked: "How do you intend moving on to the next stage i.e. establishing an argument, that ‘non highway land is caught by the same precedent’ ".

On December 21, 1999 Mr Stephenson wrote to Mr Newberry to say that things had moved on since the time of their consultation in November in it did not appear that the Council were going to hold the Developer to ransom over the Milton Lane crossover as such. It seemed that the Council’s attention was now much more focussed on the opportunities presented by the fact that it owned the freehold of the Barwood Land. Mr Newberry was therefore asked in his written opinion to focus particularly on the rights of the Council, once a planning consent was granted, to frustrate or ransom the development by using its position as freeholder of land in setting a price for the freehold.

On January 7, 2000 it was agreed that the option period would be extended to 18 months.

On January 19, 2000 Mr Newberry QC gave an opinion (to be shown to the Council) advising that if the Council was unreasonable and/or obstructive either in the context of its leasehold responsibilities or in the context of the sale of the freehold then application should be made without delay to the Secretary of State for an order that the Council dispose of its interest in the site. He also wrote a separate note indicating that he had deliberately not referred to the Milton Lane problem.

On January 25, 2000 the Developer acquired the leasehold interests in the Barwood Land from Fratton Estates Ltd.

On March 9, 2000 Mr Lear of Vail Williams reported to Mr Ostle that he had had a meeting that day with Mr Checkley and Mr Glendinning of the Council in respect of the acquisition of the freehold purchase of the BT Land, the right to cross over Milton Lane, and the freehold interest in the Barwood Land. Mr Lear reported that he had previously told them that his position was that the figures were £986,600 for the purchase of the BT Land, nil for the Milton Lane crossover, and about £100,000 for the freehold interest in the Barwood Land. He went on:

Mr Lear also reported that the Council had said that the District Valuer thought the combined value of the freehold interest was £6 million. Mr Lear told them that at that level there was no deal and this would be another lost opportunity in the redevelopment of Portsmouth. It was agreed that Mr Lear would put his views as to value in writing, and the District Valuer would reconsider the valuation.

On March 24, 2000 Mr Lear wrote to Mr Glendinning following the meeting. He confirmed the offer to acquire what was described as "the freehold of the City’s interest" for £1,110,000 (i.e. approximately the aggregate of the prices for the BT Land and the Barwood Land offered at the meeting), which encompassed (a) the diversion of Milton Lane coupled with the right to cross over; (b) the BT Land and (c) the Barwood Land. The cost of the diversion of Milton Lane was to be met by the Developer. He recalled that in the early stages of the negotiations it was suggested that a ransom should be paid to cross Milton Lane, but that the Council had been provided with a copy of notes of counsel’s opinion, which supported the contention that no payment should be made to the Council for the right to cross Milton Lane which was in any event a public highway. He said that a copy of the opinion would be forwarded when received.

After Mr Lear’s letter had been sent to the District Valuer, on March 31, 2000 Mr Curtis stated that he remained of the opinion that his valuation of £6 million was still valid. He said that the consortium did not address the point that the value of the interests of all parties would be greatly enhanced if the whole site were assembled and then made the subject of a comprehensive redevelopment scheme. He also said:

On April 12, 2000 Mr Lear and Mr Ostle had meetings with Mr Curtis and Mr Checkley, following which Mr Checkley wrote on April 13 to Mr Ostle to say that all parties accepted "the need for the City Council to adopt best value practices in this respect and consequently, to achieve a settlement at a fair and proper figure." He also said that it had emerged that the District Valuer did not have complete information and had had to work on the basis of a number of prudent assumptions. Mr Checkley said that the fact that a significant part of the site related to the proposed stadium development had led him to the conclusion that the two main elements of development should be disengaged, which would enable separation of the valuation exercise which he felt would better meet the aspirations of all and help to facilitate development.

There was a further meeting between Mr Curtis and Mr Checkley and Mr Lear on April 14, and on the same day Mr Lear reported to Mr Ostle on the discussions. He stated that the reference to a £1 million ransom strip was discussed, and Mr Checkley acknowledged that it was possible that a figure along those lines might have been mentioned, and he went on "Until todays meeting, IC [Mr Curtis] had not appreciated that this sum related to crossing Milton Lane. ..[H]is considerations of the ransom strip arose from his interpretation of the ground leases and the need to obtain landlord’s approval". Mr Lear summarised points which required clarification, including "the City’s commitment to accept payment of £1 million to cross Milton Lane".

There was a further meeting with the District Valuer on April 19. Mr Lear reported to the Developer and the Club that the principal areas of dispute focussed on whether or not the Council had a right to a ransom in respect of (a) the Milton Lane crossover and (b) the right as landlord to refuse consent for change of use for the Spine Road in respect of the Barwood Land. The District Valuer was prepared to accept £2.5 million (£1.4 million for the BT Land plus £1.1 million for what was described as the "ransom strip"), together with a percentage of the overage in excess of £41 million. The District Valuer asked whether or not they would be prepared to compromise at a figure between that suggested by Mr Ostle at the previous meeting of £2 million and his figure of £6 million.

On May 20, 2000 Mr Ostle confirmed to Mr Deacon that part of the Barwood Land would be removed from the option, and that what was described as "your £1m facility for the Milton Lane crossover" would still persist in the option agreement as previously set out.

On May 22, 2000 (in a fax incorrectly dated May 16) Mr Ostle wrote to Mr Deacon to say that while they were jointly pressurising the Council using Vail Williams as their lead negotiator it could take some time before they concluded negotiations for the purchase of the Milton Lane crossover, the Barwood freehold and the BT Land and went on: "We would confirm that the arrangement for [the Club] to benefit from 100% of the savings secured for the Milton Lane crossover below £1m will still persist through the length of the option agreement."

Shortly afterwards Mr Ostle instructed Mr Stephenson to amend the agreement to reflect removal of the Barwood Land (except for a 20% slice) from the option.

At about this time the Council took advice from Miss Sasha White of counsel as to whether the ownership of Milton Lane gave the Council any additional valuation arguments and whether it could properly refuse to dedicate it as public vehicular highway where it crossed a new link road. She was instructed that the Council was the owner of Milton Lane. In her opinion of June 7, 2000 she said that it was not apparent what the nature of the Council’s ownership was, but her view was that ownership of Milton Lane was under section 263(1) of the Highways Act 1980. Section 263(1) provides that the highway maintainable at the public expense vested in the authority which is for the time being the highway authority of the highway. Since the Council’s ownership was as highway authority and not as private landowner, the Council could not lawfully use its status as a highway authority as a means of exacting a ransom payment.

On June 7, 2000, Mr Snaith wrote to Mr Stephenson stating that the Club required the wording of the definition of the Milton Lane Allowance to be simplified. By June 13, 2000 the draft had been agreed and an engrossment for signature was sent on June 21. It was executed by June 29, 2000 by the Club and by the Developer by July 26. The Developer was advised that it would be preferable for the supplemental agreement to be entered into immediately following agreement with the Council under section 106 of the Town and Country Planning Act 1990, and on August 18, 2000 Bircham & Co for the Developer undertook to complete the supplemental agreement forthwith upon the section 106 agreement being completed. The undertaking was conditional upon the Club’s solicitors releasing their signed part of the supplemental agreement.

On June 16, 2000 Miss White gave a further advice as to whether her previous advice was changed by the fact that the Council owned the subsoil of the land under the footpath. Her advice was that: (a) if the Council owned the subsoil of the highway other than as highway authority, a compulsory purchase order would be required to acquire its interest unless it agreed to a dedication; (b) as a private landowner the Council would not need to agree to the dedication (i.e. it could refuse); and (c) the Council could extract an appropriate ransom payment, and accordingly if the Council was the owner of the land in question it would be entitled to refuse to allow the development of the land until a proper capital receipt had been paid.

On June 20, 2000 Mr Curtis wrote to Mr Lear following receipt of the opinion of counsel to set out terms which he was prepared to recommend to the Council, namely that the Developer should pay £5.95 million for the freehold of the Barwood Land (excluding the part required for the Club’s purposes) and the freehold of Milton Lane between "points A and B" (i.e. where the Spine Road would cross it).

On the same day Mr Curtis wrote to the Club to say that he would be prepared to recommend to the Club a proposal whereby the Council would sell to the Club the BT Land for £1.3 million (together with the freehold of Milton Lane between points B and C, i.e. that part which ran along the stadium) and the freehold of the part of the Barwood Land which was required for stadium purposes. This is the first reference to a transfer of the freehold in a section of Milton Lane as opposed to the grant of a right to cross it.

Mr Ostle on behalf of the Developer and Mr Deacon on behalf of the Club met Council officers at some time in June 2000. The Club says that the date was June 22, but there is no documentary evidence of this meeting. The precise date is not material. The effect of Mr Ostle’s evidence was that at the meeting the Council (Mr Barry Smith) informed Mr Ostle and Mr Deacon that the Council "had not placed a value on the crossing of Milton Lane".

On July 1, 2000 Mr Lear’s appointment to negotiate the crossover for the Developer was terminated, and Mr Harvey of Montagu Evans was appointed in his place.

On July 31, 2000 Mr Harvey wrote to Mr Curtis (following a meeting on July 17, 2000) suggesting that the marriage value was £750,000 which split 50:50 with the Council would give a ransom value of £375,000 for the Barwood Land but on August 15 Mr Curtis replied that a 50:50 split in the value released by the unencumbered freehold of the land necessary to provide the essential second access was £7.2 million, but he was prepared to recommend a payment of £5.75 million.

On August 22, 2000 Mr Curtis had a meeting with Mr Harvey, and agreed to reduce his additional asking price of £7 million to £4,250,000, and on the same day Mr Harvey reported to Mr Sellar that he had agreed that figure on the Developer’s instructions. He went on to recommend the proposal and said:

On August 23, 2000 Mr Curtis wrote to Mr Harvey confirming his offer, and stated:

On September 13, 2000 Mr Harvey asked Mr Curtis to apportion the agreed sale price of £4.25 million between the Barwood Land and Milton Lane. Mr Curtis wrote on that day to Mr Harvey as follows:

On September 22, 2000 Mr Harvey wrote to Mr Checkley, the head of property services at the Council, to set out heads of terms, confirming that the Developer would make a financial payment of £4,250,000 to the Council for the freehold interest in the Barwood Land and stated that "the payment also includes the freehold interest in Milton Lane that falls outside the lease and that is shown, for identification purposes only, shaded red on the attached plan."

On September 28, 2000 the Supplemental Agreement was exchanged. It provided:

On October 25, 2000 Mr Ostle wrote to Mr Glendinning confirming the figure of £4,250,000 for the freehold interest in the Barwood site and that the freehold interest in Milton Lane fell outside the lease and stating that "the payment will be included in a single purchase contract agreement." This was agreed by the Council, subject to a requirement that the Developer make a contribution to the Council’s legal fees. The purchase price became £4,255,000, and I think it likely (although Mr Ostle could not remember it) that the additional £5,000 was a contribution to Nabarro Nathanson’s fees.

After October 2000 the Council deduced title to the land. It was only then for the first time that its solicitors knew that the Council had title to the whole of Milton Lane and not just to the middle of it. Both Mr Snaith and Mr Stephenson gave evidence that they did not know at the time of completing the 1999 Option Agreement that the Council would claim ownership as landowner of the whole of Milton Lane. They expected that the Council would claim, in its capacity as landowner of the Barwood Land, title to the soil under half the width of the roadway of Milton Lane adjacent to the Barwood Land on the principle that it was a public roadway. Mr Stephenson says that he did not recall becoming aware of the Council’s specific title to the subsoil of Milton Lane until he received a copy of the relevant conveyance from the Council’s solicitors, Nabarro Nathanson, after its purchase, with the Barwood Land, had been agreed in October 2000.

On March 6, 2001 an agreement was entered into between the Council and the Developer for a revised price of £4,255,000. The Developer acquired a parcel of freehold land which comprised (a) the freehold interest in a section of Milton Lane required for the construction of the Spine Road and showing a common boundary with the Barwood Land and (b) the Council’s freehold reversionary interest in the Barwood Land.

It was expressly agreed that the Council entered into the contract "solely in its capacity as landowner and nothing contained herein … shall prejudice or affect any of the statutory rights powers discretions obligations and duties for the time being vested in their [Council] as local authority for the area …." On the same day there were section 106 agreements.

On March 7, 2001 outline planning consent was granted.

On March 28, 2001 the Council made the City of Portsmouth (Milton Lane) Diversion Order 2001.

On September 18, 2002 the Club exercised the option.

On May 13, 2003 Mr Snaith sought confirmation on behalf of the Club that the price would be £900,000. On May 27, 2003 Mr Stephenson replied for the Developer that the Milton Lane Allowance was not applicable and the price was therefore £2 million.

In July 2003 the Council confirmed that it was not prepared to apportion the purchase price.

Valuation experts were instructed by the parties to provide an opinion as to the proper apportionment of the £4,255,000. Mr Derek Hellier FRICS (of Hellier Langston in Fareham) was instructed by the Club, and Mr William Newsom (of FPD Savills, London) was instructed by the Developer.

They produced a joint statement in which they agreed that (a) prior to the transfer to the Developer, the value of the Council’s existing freehold interest in the Barwood Land had a value of £15,000 excluding any marriage value, and the Council’s then existing freehold interest in the relevant part of Milton Lane had a nil value, excluding any marriage value; (b) that the payment of £4,255,000 for the reversion in the Barwood Land had little or no relevance to the value of the Council’s then existing freehold interest, but instead arose as a consequence of some wider benefit to the overall development of the Pompey Centre.

The areas lacking agreement were that Mr Newsom was of the opinion that the transfer consideration (less the value of the Council’s existing freehold interest) should be apportioned 50:50 between the two interests, whereas Mr Hellier was of the opinion that the transfer consideration (less the value of the Council’s existing freehold interest) would be apportioned between the two interests on a site area basis.

In his opinion, Mr Hellier took into account (inter alia): (a) the planning process was made much easier by the fact that the proposals included a new football stadium and had the support of the Club; (b) the development would not have received permission without the provision of the Spine Road, because the existing road system could not have coped with the increased traffic flow; (c) he could understand why the District Valuer did not believe an apportionment was necessary in view of the fact that the Council were the owners of both freeholds; (d) the approach of the Council was that theoretical valuations were rarely relevant, with the main criteria being (1) return on capital and (2) how much the purchaser was prepared to pay. Consequently the theory of "marriage value" rarely formed part of productive negotiations.

He therefore adopted the approach of a proportionate basis related to area, which he considered was the fairest way.

The real value was to provide an acceptable access to the Pompey Centre which would not otherwise have been possible.

If the £4,255,000 purchase price was to be apportioned between the Barwood Land and the relevant section of Milton Lane he did not believe that it was right and fair to share it 50:50 but on the basis of size apportionment, in which case the Milton Lane share would be £123,645.

Mr Newsom’s view was that Mr Hellier’s approach was totally inappropriate as it was not a question of size but a matter of strength of negotiating position. Marriage value is the difference between (a) the open market value of two or more interests in property following the merger of those interests and (b) the aggregate open market value of the separate interest prior to their merger.

The fundamental principle of marriage value is that where the respective negotiating positions of the parties are equally balanced, then in such negotiations the parties would be deemed to agreed to share in equal proportions the uplift in value arising from their collaboration. This is because marriage value only arises through two (or more) parties collaborating together, and until such mutual co-operation arises, all such marriage value remains unrealised.

The Developer was paying £4.255 million for (a) the Council’s existing freehold interest in the Barwood Land; (b) that part of the Council’s interest in Milton Lane that it needed to release in order to complete the construction of the Spine Road. But (as agreed) the value of the existing interest of the Council in the Barwood Land excluding marriage value was £15,000. The interest in Milton Lane had a nil value because the Council merely owned a cycle way and footpath which was not generating any income. Accordingly almost the whole of the £4.255 million represented marriage value.

In those circumstances apportionment should be 50:50, and therefore (after taking account of the £15,000 value of the Barwood Land) the arithmetic was that £2.12 million should be apportioned to Milton Lane.

The submissions by Mr Michael Driscoll QC for the Club were:

The first mention of the freehold in Milton Lane came in the Council offer letters of June 20, 2000. Until then, consistently with Mr Stephenson’s evidence, it would have been supposed that ownership of the freehold on either side of Milton Lane would have given the Club title to Milton Lane itself (the "ad medium viae" presumption). The mention of a transfer of the freehold in a section of Milton Lane, as opposed to the grant of a right to cross it, came not from the need to build the Spine Road but the need to perfect the Club’s title to the land which it was to acquire.

On the approach to construction, the Club says that the starting point is to identify the natural and ordinary meaning of the words used. It is only if the application of the grammatically correct meaning of words will obviously lead to a result which the parties cannot sensibly have intended, that it can be legitimate as an exercise of construction to attempt to give the words some other meaning.

The words should first be looked at it in their original context as set out in the 1999 Option Agreement before revision. The words which remained after the Supplemental Agreement are likely to have the same meaning after revision unless it is clear by the form of the Supplemental Agreement revision that they should not. The Supplemental Agreement did however make an important change, for whereas before the parties were looking for an aggregate sum for a number of things, now they were looking for a sum, albeit still called an aggregate sum, for one thing only (namely the Council’s consent for the Spine Road to cross the roadway known as Milton Lane).

The fixed price which the parties agreed that the Club should pay for the Property is clear. It is £900,000. That it has been drafted as £2,000,000 less (£1,100,000 – X) does not mean that it should be given any meaning which would be different if it had been drafted as £900,000 + X (X not to exceed £1,100,000).

The "capital sum" could be a nil sum. It does not make sense for the parties to have agreed that if the Council did not require any payment at all for its consent in relation to Milton Road there was no X but if it required £1 there was.

The words "attributable to and specifically identified by" the Council must have been intended by the parties at the time of the Supplemental Agreement to mean a sum specifically referable to the consent in relation to the Spine Road crossing Milton Lane. They did not mean a sum which was part of a larger sum where the Council had not identified that part as the part referable to the Milton Lane consent.

The expression "as required" is in a present rather than a past tense, and does not contemplate a retrospective exercise. The parties to the contract clearly had in mind the price which the Council would seek at the time of the negotiation and at the time that the contract was entered into between the Council and the Developer for the relevant consent. They envisaged a negotiation with the Council which would result in a price. The words do not suggest that they had in mind that after the contract with the Council had been concluded they could go back to the Council and say: how much would you have charged for the consent if we had asked for it or if we had asked you separately for it?

The expression "consent for the Spine Road to cross the roadway known as Milton Lane" clearly contemplates consent from the Council as highway authority. It also refers only to the physical construction of the road and not also its dedication: (a) both parties knew that the Council was a highway authority and that Milton Lane was a public highway (footpath and cycleway). As such the Council owned the property in the surface of the road and in so much of the soil below and air above as is reasonably required for the control protection and maintenance of the highway, and could authorise the construction of a new road in the property which it owned as highway authority; (b) the reference to "consent" was a reference to consent from the Council as highway authority for no-one knew in 1999 or even at the time of the Supplemental Agreement that the Council owned the whole width of the roadway, and therefore the only power which the Council had to give the relevant consent to "cross" was as highway authority; (c) the relevant "consent" was something different from "sale of the land": the parties did not know that the Council owned the land save up to the middle of the road as freehold owner of the Barwood Land; consent was used as the word in relation to the crossing of Milton Lane but in relation to the Barwood Land the parties had specifically contemplated and referred to "the acquisition of the freehold … (if required) to enable the Spine Road to cross the Barwood Land. The natural and ordinary meaning of "consent" is no more than permission. If the Developer is seeking the Council’s consent to construct its road across the Council’s road nothing more is required than that the Council gives the Developer permission to do so.

The attribution and specific identification of a sum does not need to be in any particular form. When the evidence of what was negotiated and said in the course of negotiations by Council officers is analysed it shows clearly that the officers were saying that they attached no price to the relevant consent. They accepted that the principles embodied in the Powergen case made it impossible for them to do so as highway authority.

Alternatively, no sum was identified, therefore there is no X and nothing therefore to deduct from the £1,100,000 with the consequence that the Milton Lane Allowance is £1,100,000. To say that if no sum is identified then there is no Milton Lane Allowance gives the Developer the unilateral power to decide whether the price is £2,000,000 or £900,000, which is not what the parties could have intended.

In the further alternative, if it is necessary for X to be identified for the purpose of the Milton Lane Allowance, that it was not identified is because the Developer decided not to seek a sum from the Council for the consent but to negotiate a wider deal which included the purchase of Milton Lane as part of a single purchase of the Barwood Land; this was a breach by the Developer of Clause 13, and the principle of construction generally known as "no man can take advantage of his own wrong" applies.

Even if it is necessary for X to be identified for the purpose and it has not been that does not frustrate the contract; X would have been nil or nominal and the non-identification of it does not radically alter performance of the contract. It is clear from the evidence before the court that the price which the Council would have sought for its consent would have been nil. If it is found that the Council has not sufficiently attributed or specifically identified a nil price to its consent or that X is for any other reason not identified the contract is still not frustrated. Even without the determination of X the contract is not radically different in its performance to what it would have been if X had been determined.

If the choice is between frustration and intervention by the court to make good a gap in the machinery for determining the Milton Lane Allowance, the court should choose intervention, and make its own apportionment of the £4,255,000 paid for the Barwood Land and the Milton Lane Section; in doing so it must have regard to the fact that the Council accepted that as highway authority it had to give its consent for a nil payment, and if necessary dedicate and that it had power to do both; that the Council would not have apportioned the single price internally on the ground of some notional bargaining process between itself as owner of Milton Lane and itself as owner of the Barwood Land; that the application of such a process is not only manifestly unfair and unreasonable in the result it produces but is contrary to (1) the obvious course taken in the 2000 negotiations and (2) the Council’s duties as highway authority; the fair and reasonable apportionment must be on an area basis; most of the section of Milton Lane sold to the Developer was sold to enable it to be transferred to the Club for its development purposes, and therefore the relevant area should be that part of the road actually required for the purpose of the crossing.

The fair and reasonable approach is an area apportionment which results in a figure of £123,645. But this figure should be further adjusted downwards to reflect the fact that the Developer acquired more than the consent referred to in the Milton Lane Allowance. The Developer’s valuer’s approach gives rise to a grotesque result. It assumes an internal negotiation within the Council itself which would and could not take place in practice. It ignores the evidence that the Council at the time attached no value to the particular consent and had statutory duties as the highway authority over the roadway (whether in its original position or diverted it was still a roadway over which the Spine Road would have to cross) which at very least limited the price it could charge for its consent. It assumes that there are two distinct pieces of land in different ownerships when the reality is that there is one indivisible piece (not even two separate pieces) in one ownership.

The arguments of Mr Michael Barnes QC for the Developer were these. The reason for the Milton Lane Allowance and formula as an element of the calculation of the purchase price is that it was known when the 1999 Option Agreement and the Supplemental Agreement were executed that the Developer would need to gain the right to construct the link road across Milton Lane and that a sum would have to be paid to the Council for that purpose.

It emerged that the Council, as well as being the Highway Authority, owned the subsoil of Milton Lane. Thus it was necessary (a) that the Council used their statutory power as a Local Authority to divert Milton Lane and (b) that the Developer acquired ownership from the Council of the subsoil so that it could construct the link road across it and dedicate it as a public vehicular highway. The first requisite has been satisfied in that the Council on March 28, 2001 made the City of Portsmouth (Milton Lane) Diversion Order 2001 under section 257 of the Town and Country Planning Act 1990. The Lane was to be diverted to the north so as to cross the Barwood Land and other land.

In diverting Milton Lane the Council was performing a statutory function and was not entitled to require a sum of money in order to induce it to do so. It had to act in the public interest. However, subject to the removal of rights of way in favour of the public over the area of Milton Lane the Council became, or would become, the owners of the land unencumbered with any such public rights. It would then be in the position of any other landowner. In practice it would only be by way of acquisition of the relevant piece of land that the Developer, who wished to construct the road and dedicate it, and indeed who became bound to do so if it was to implement the planning permission, could implement its project. The Council was prepared to consent to this but at a price. Someone owning such a ransom strip would demand an appropriate share of the development value released by his sale of the land in order to induce him to effect that sale.

The Council was therefore entitled to extract from the Developer the value in question. The reality which faced the Developer was that it could not carry out the development without constructing the whole of the Spine Road and it could not construct the whole of the Spine Road without acquiring the Milton Lane land which was apart from this consideration valueless.

Accordingly, the Council required £4,255,000 in return for its selling to the Developer (a) the freehold in the relevant strip of Milton Lane and (b) the freehold reversion on the long leases of the Barwood Land. The respective values of these two interests, ignoring the need to construct the spine road, was nil as regards the Milton Lane strip and £15,000 as regards the freehold reversion in the Barwood Land. What is not known is the sum specifically identified as required by the Council from the Developer for the Council giving its consent to the Spine Road running across Milton Lane.

The primary submission of the Developer is that, the agreed machinery having broken down, the court has itself power to carry out the necessary valuation exercise so as to identify on a fair and reasonable basis that proportion of the consideration of £4,255,000 which is attributable to the acquisition of the right to cross Milton Lane: Sudbrook Trading Limited v Eggleton [1983] 1 AC 444; Re Malpass [1985] Ch 42. If this is done the figure so determined can be inserted into the formula and the option agreement as a whole can be implemented as the parties intended.

Alternatively, as a matter of construction, it is arguable that as a matter of strict linguistics a sum has been identified for the Milton Lane land, namely £4,255,000, but as other land was sold at the same time for the same total consideration an apportionment is necessary. The allowance is the capital sum "attributable to and specifically identified by the Portsmouth City Council" as required for their consent for the spine road to cross Milton Lane. In any event what is apparent is that a sum, £4,255,000, was identified by the Council as what it required for the two pieces of land transferred to the Developer so as to enable the link road to be built. One piece was the Milton Lane land.

On this basis, then it is not so much a matter of the machinery having broken down but of there being a gap in the machinery, that is the absence of a provision stating who should carry out an apportionment if one were needed. The capital sum has been identified as what the Council required. It is £4,255,000. Without it the Council would not have granted its consent to cross Milton Lane. The specified machinery has therefore operated. What is now needed is an apportionment, something for which the machinery did not provide. The court may fill that gap by itself making the necessary apportionment if it cannot be agreed.

If none of these solutions is acceptable or correct in law then the agreement as a whole is now unenforceable. It has become inoperable due to a supervening event, namely the refusal of the Council to identify a particular sum within a reasonable time. The agreement has come to an end through the doctrine of frustration: Lord Diplock in the Sudbrook case at p 479. Contracts for the creation or transfer of an interest in land are in principle subject to the doctrine of frustration: National Carriers Ltd v Panalpina [1981] AC 675. On this basis the Club is not entitled to a transfer of the option land. The Developer, however, remains willing to sell the option land to the Club for the agreed price of £2 million, and its position is that if the agreement is held to be unenforceable the offer will be kept open for 21 days from the judgment of the Court. The offer is made on the understanding that the option land is used by the Club for the purpose of constructing a new stadium and ancillary uses, and a covenant to that effect will be required. Nonetheless the Developer makes it clear that having made and now continuing that offer its wish is that the Club should decline it since the view of the Developer is that the option land has always been and is today worth substantially more than £2 million. Strictly speaking this voluntary offer made by Sellar may not concern the Court.

If the Court is willing to carry out the valuation exercise of apportioning the £4,255,000 between the Milton Lane land (the strip) and the Barwood Land it should do so on a fair and reasonable basis. The Developer obtained a far greater benefit from the Milton Lane land than it did from the freehold reversions in the Barwood Land. It had no existing interest in the Milton Lane land. Therefore it had no entitlement to construct the Spine Road across that land or to dedicate any part of the land as a highway until it did acquired ownership of it. The strip had no inherent value and so it was a true ransom strip.

The position as regards the Barwood Land was very different. The Developer had recently acquired three long leases in this land with about 60 years to run for £1.4 million. Under the terms of the leases (as varied in 1998) it was entitled to build the Spine Road with the consent of the Council as landlords, that consent not to be unreasonably withheld. There was no possible reason for a landlord, whose expectation of possession was 60 years off and whose rent was fixed at a low figure for the whole of that period, to refuse consent. Thus the Developer was entitled as long leaseholder to build the spine road across the Barwood Land.

At the date of the agreement by the Developer to buy the two areas of land on March 6, 2001 the Developer was under no obligation to dedicate the Spine Road as a public highway, although it was contemplated that this would be done. Even if dedication was necessary the Developer could have achieved it by virtue of its long leasehold interests.

It is not entirely clear in law whether a dedication of land as a highway can be made for a term by a lessee of that land. In Dawes v Hawkins (1860) 8 CB (NS) 848 Byles J said that a dedication must be in perpetuity. But in Attorney General v Biphosphated Guano Company (1879) 11 Ch D 327 the Court of Appeal appear to have assumed that a lessee could dedicate land as a highway although on the facts there was no sufficient evidence of dedication. In Corsellis v London County Council [1908] 1 Ch 13 the Court of Appeal said that in effect dedication could occur for a limited term as a result of a an estoppel or contract. It is also possible that a distinction must be made in this context between an express dedication and a dedication implied from long use by the public. Thus, while the point is not free from doubt the Developer could have mounted at least a strong argument that it was entitled to dedicate the new road as a public highway for 60 years without the consent or co-operation of anyone.

But any doubt is resolved in this case in that the Council, which wished for the dedication, was itself the freeholder and so could join in that dedication.

The apportionment should be carried out by reference to the real benefits obtained by the purchaser from the two respective areas. As regards the Milton Lane land the Developer by its purchase of that land acquired the right to construct and dedicate the Spine Road and so the right to carry out the main development. As regards the reversions on the Barwood Land the Developer did not in law need these interests in order to construct and dedicate the Spine Road. It could have done so pursuant to its recently (and expensively) acquired long leases in that land. Therefore the greater part of the value should be apportioned to the Milton Lane land. Precisely how much of the £4,255,000 should be apportioned to that land does not matter since if it is any amount over £1,100,000 the Milton Lane Allowance will be nil. In fact the amount apportioned to the Milton Lane land should be well in excess of £1,100,000.

If the Developer had an equal need to acquire the Milton Lane land and the freehold reversions in the Barwood Land if it was to construct and dedicate the Spine Road, the position is as follows.

On the facts of the present case the amount of the development value paid to the Council as a ransom is known. It was agreed by negotiation with the District Valuer as £4,255,000. The only issue is a fair and reasonable apportionment of that sum between the Milton Lane land and the reversions in the Barwood Land. The only fair and reasonable apportionment is on a 50-50 basis. The fact that the Barwood Land was much bigger in area than the Milton Lane land is irrelevant for these purposes. Both pieces of land had an equal ransom value. It would have been purposeless for the Developer to have acquired the one but not the other. The only slight complication is that apart from the large ransom value the Milton Lane land had no value whereas the freehold reversions in the Barwood Land were worth about £15,000, and this factor must be reflected in and makes a slight difference to the calculation.

The primary questions on this Part 8 application relate to the interpretation and application of clause 1.34 of the Supplemental Agreement. On the approach to questions of interpretation I was referred to some of the familiar authorities, including Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] AC 191; Investors’ Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 and Bank of Credit and Commerce International v Ali [2002] 1 AC 251. Lord Hoffmann said in Investors’ Compensation Scheme at 912-913:

He then went on to quote the well-known passage (to which I was also referred) in Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] AC 191, 201, where Lord Diplock said:

Lord Hoffmann said in BCCI v Ali [2002] 1 AC 251, at 269, that the relevant surrounding circumstances were those which a reasonable man would have regarded as relevant, and he was not "encouraging a trawl through ‘background’ which could not have made a reasonable person think that the parties must have departed from conventional usage".

By clause 1.34 of the 1999 Option Agreement "the Milton Lane Allowance" meant:

As a result of the Supplemental Option Agreement the relevant part of clause 1.34 became the following:

It is not suggested by either side that it was intended that the relevant words should bear a different meaning in the Supplemental Option Agreement to that in the 1999 Option Agreement, or that any matters occurring after the 1999 Option Agreement are relevant to the interpretation of clause 1.34 as amended, although they are plainly relevant to its application.

The reason for the Milton Lane Allowance formula as an element of the calculation of the purchase price is that it was believed when the 1999 Option Agreement and the Supplemental Agreement were executed that the Developer would need to gain the right to construct the Spine Road across Milton Lane and the Barwood Land and that a sum would have to be paid to the Council for that purpose. The Developer believed in 1999 that it would have to pay a sum to the Council of the order of £1 million in order to secure from the Council the right to construct the road across Milton Lane and across the Barwood Land. The Developer was willing that if it paid less than the eventual figure of £1.1 million to the Council the difference should not be retained by it but should go to the Club by way of a correspondingly reduced option price. The double negative formula in the definition of the Milton Lane Allowance was designed to achieve that purpose.

I consider that the relevant surrounding circumstances prior to the execution of the 1999 Option Agreement were these:

The facts in the period after the 1999 Option Agreement are relevant for the purpose of determining whether a sum (and if so, what sum) is attributable to the right to cross over Milton Lane:

The principal questions, in my judgment, are (a) the meaning of the words "for and in consideration of [the Council’s] consent for the Spine Road to cross the roadway known as Milton Lane"; and (b) once the meaning has been ascertained, what sum (if any) is (or can be) "attributable to and specifically identified by [the Council] for and in consideration" of that consent. The first question is one of interpretation, and the second question is a question both of interpretation and application.

I consider that the expression "consent for the Spine Road to cross the roadway known as Milton Lane" means and clearly contemplates consent from the Council as highway authority. The natural and ordinary meaning of "consent" is no more than permission. Both parties knew that the Council was a highway authority and that Milton Lane was a public highway (footpath and cycleway), and they did not know when they entered into the 1999 Option Agreement or the Supplemental Option that the Council owned the whole width of the roadway. Consent was used as the word in relation to the crossing of Milton Lane but in relation to the Barwood Land the parties had specifically contemplated and referred to "the acquisition of the freehold thereof (if required) to enable the Spine Road to cross the Barwood Land."

Accordingly I do not accept that the expression "consent" includes all possible rights ultimately acquired by the Developer in connection with crossing of Milton Lane by the Spine Road and to secure the dedication of the Spine Road as highway. A formidable difficulty would arise in determining the content of the extended meaning for which the Developer contends. No doubt this was why there was never any serious possibility of a claim for rectification being raised by the Developer in this case, for it would have not been possible to show any common intention for a concept other than "consent." In particular I do not accept that the natural meaning of the words could result in the acquisition of the freehold being regarded as a consent, nor that it is intended to include all steps necessary to allow the Spine Road to be dedicated as a public highway. Nor do I accept the characterisation of the Club’s argument by the Developer as the kind of "detailed semantic and syntactical analysis of words" deprecated by Lord Diplock in The Antaios [1985] AC 191. On the contrary, in the light of the circumstances at the time of the 1999 Option Agreement, when the parties expected the Council to extract a ransom payment for the right to cross Milton Lane and to build the Spine Road over the Barwood Land, the natural and ordinary meaning is strongly confirmed by the factual matrix.

The position was different when the Supplemental Agreement was entered into in September 2000 (and also in August 2000 when Bircham & Co gave an undertaking on behalf of the Developer that it would be completed when the section 106 Agreement was completed). By then the Council’s position was that it could not extract a ransom for the right to cross Milton Lane, and yet clause 1.34 still provided for the Milton Road Allowance, but limited to consent for the Spine Road to cross Milton Lane.

As I have said, both parties accepted that the wording in the Supplemental Agreement must be interpreted in the same way as in the 1999 Option Agreement, and that events after the 1999 Option Agreement could not be taken into account to interpret the wording of clause 1.34, including the wording as amended by the supplemental agreement. If my interpretation of clause 1.34 is right, then the amendment was made at a time when both parties realised, or should have realised, that the figure for the sum required for consent for the Spine Road to cross Milton Lane was likely to be nil. If that had been the case at the time of the 1999 Option Agreement, it would have been support for an extended interpretation of the notion of consent to cross over Milton Lane, since the court will not easily find that a provision has no commercial effect. But the parties accept that the words have the same meaning in the Supplemental Agreement as they do in the 1999 Option Agreement, and the continued inclusion of the same formula is equally consistent with neither party having spotted the point, or with each of them being content to leave the matter as it stood and not raise an issue which might require re-negotiation. In any event, the Developer has not sought to argue that there was a common intention in the sense for which it contends such as to give rise to a claim for rectification or an argument for estoppel by convention.

In my judgment also the "capital sum" could be a nil figure, where expressly or by implication the Council had required no such sum for its consent. I accept the Club’s contention that it would not make sense for the parties to have agreed that if the Council did not require any payment at all for its consent in relation to Milton Road there was no X but if it required £1 there was. This is not the same question as whether the "capital sum" could be a nil figure where the Council had required such a sum for its consent, but where the sum was not "attributable to and specifically identified as required" by the Council. I will revert to the question whether the words "attributable to and specifically identified by" the Council must have been intended by the parties to mean a sum specifically referable to the consent in relation to the Spine Road crossing Milton Lane at the time when it was given.

I also accept that the attribution and specific identification of a sum does not have to be in any particular form. In my judgment it is clear from the documents that all parties ultimately accepted that the Council could not extract a price for the consent, and that Council attached no price, and in substance ultimately accepted Mr Lear’s description of the price at the meeting of March 9, 2000 as "nil."

In my judgment, on the facts a nil figure was attributable to, and identified by the Council with regard to, X. The same result would also follow, as a matter of necessary implication, if a nil figure was in fact attributable to X, but the Council had failed to specifically identify it, either on the basis that X was nil, or that there was nothing to be deducted from the figure of £1,100,000.

Those conclusions dispose of the case, since their effect is that the purchase price is £900,000, i.e. £2 million, minus (£1.1 million – nil).

I now turn to consider shortly some of the other issues should I be wrong on the principal points.

The first such issue arises if I am wrong in concluding that "consent" meant just that, but rather had the wide meaning for which the Developer contends, and if the £4,255,000 payment included a substantial sum for that consent, but also (as here) included a sum payable for other rights, i.e. the freehold of the Barwood Land. I do not think that this question can be answered as an abstract question of interpretation of clause 1.34 without reference to the other provisions of the Agreement. Clause 13 required the Developer and the Club jointly to negotiate X. The Club probably waived its right to negotiate after Vail Williams ceased to act, and Montagu Evans (who acted exclusively for the Developer) negotiated with the Council, but the Developer remained under an obligation to negotiate the lowest possible sum for X. Instead what happened was this. On August 18, 2000 Bircham & Co agreed to complete the Supplemental Agreement once the section 106 agreement was completed. On August 22, 2000 Mr Harvey and Mr Curtis agreed a global sum of £4,250,000 without reference to the Club. On September 13, 2000 Mr Harvey attempted, without success, to persuade the District Valuer to apportion the price between the Barwood Land and Milton Lane. On September 22, 2000 he confirmed the price with the Council. In his written evidence Mr Ostle correctly stated that after the deal was done, but before contract, Montagu Evans asked the Council to apportion the price, but the Council refused. In his oral evidence he went much further and suggested that the Developer had attempted in various telephone conversations to negotiate separate prices for the two elements. He could point to no document which supported his evidence on this point, and I am satisfied that he is mistaken. On September 28, 2000 the Supplemental Agreement was exchanged. On March 6, 2001 the Developer entered into the contract for sale.

In these circumstances I do not think it is open to the Council to rely on the Council’s failure to identify a sum referable to Milton Lane. Were it not for clause 13, I consider that it would be an uncommercial interpretation to rule out any deduction simply because the Council (and the Developer) had failed to identify the sum at the time of their contract. But X was not identified because the Developer decided not to seek a sum from the Council for the consent but to negotiate a wider deal which included the purchase of Milton Lane as part of a single purchase of the Barwood Land in breach by the Developer of clause 13, and it cannot rely on the consequences of its breach: Alghussein Establishment v Eton College [1988] 1 WLR 587, HL. Cf. Cia Barca de Panama SA v George Wimpey & Co Ltd [1980] 1 Lloyd’s Rep. 598 (CA).

It follows from my primary conclusions that this is not case where the agreed machinery has broken down, or where there is a gap in the machinery. Where the machinery for determining the purchase price has broken down, the court can substitute machinery of its own: Sudbrook Trading Limited v Eggleton [1983] 1 AC 444; Re Malpass [1985] Ch 42.

There are two limitations on the application of the principle in Sudbrook. First, there must be some objective basis for the valuation so that the Court can, with the aid of evidence, perform that valuation. Secondly, the specified machinery must be an inessential term of the contract. The question is whether the precise specified machinery, which ex hypothesi has broken down, is an essential term of the contract as that word is used in the present context. In Sudbrook Lord Fraser said at pp 483-4:

In the present case (which should, if I am wrong in my primary conclusions, be regarded as a case of a breakdown in the machinery, rather than – as contended by the Developer – a mere gap in the machinery), neither of these limitations would have presented a problem. What would be required would be a determination of what part of the total consideration of £4,255,000 was fairly and reasonably attributable to the acquisition of the Milton Lane strip, which can be done with the assistance of expert evidence. The naming of a particular person (here, the Council) does not necessarily mean that the term is essential: Re Malpass. I do not therefore see any reasonable basis on which I could have found that the agreement is frustrated or unenforceable.

If I were wrong in my conclusion that the figure in the formula for the relevant consent was nil, and if "consent" in clause 1.34 had the meaning for which the Developer contended and if it had been appropriate to carry out the apportionment exercise, I would have preferred the result (if not necessarily the reasoning) for which Mr Newsom contended. Apportionment on the basis of acreage (for which Mr Hellier contended) has nothing to commend it, but I also find the concept of the hypothetical bargaining for which Mr Newsom contended very artificial in this context (and not really supported by any practical experience of similar exercises). But common sense suggests that where two pieces of land without any inherent value are needed for the purpose required in this case, the price may reasonably be apportioned in substantially equal shares.

For the sake of completeness, I will mention the argument on behalf of the Developer that as lessee of the Barwood Land it could have constructed the Spine Road over the Barwood Land and dedicated it as highway. The argument was deployed to suggest that no part of the £4,255,000 was, or should be, attributable to the Barwood Land freehold, and that consequently it was beyond doubt that X was more than £1,100,000. The argument depends on (a) the lessee being able to secure the consent of the landlord to construct the road; and (b) a lessee having the right to dedicate land as highway. Each limb is doubtful. A landlord might reasonably refuse to consent to part of its land being used to construct a road if at the end of the term it will be returned as public highway. It is also doubtful (as Mr Barnes QC for the Developer recognised) whether a lessee has the power to dedicate land as public highway. Indeed, according to Halsbury’s Laws, vol 21, para. 71 (where the authorities relied on by Mr Barnes are cited), a lessee cannot dedicate land as highway without the consent of the landlord.

I will therefore make the declaration sought by the Club, that the purchase price is £900,000.

I should record that I have derived great assistance from the excellent arguments of Mr Michael Driscoll QC for the Club and Mr Michael Barnes QC for the Developer.