Yewbelle Ltd v London Green Developments Ltd & Anor

Yewbelle pleaded that “in all the circumstances, and in particular to give business efficacy to the agreement, it was an implied term thereof that provided the Seller used all reasonable endeavours, if no Section 106 Agreement was obtained within a reasonable time of 23^rd May 2005 then the Agreement would automatically determine”. In other words, if the desired result cannot be achieved despite compliance with the obligation, the contract is at an end without further action by anyone. However, Mr Paul Morgan QC, appearing with Mr Mark Warwick for Yewbelle, accepted that the buyer could waive satisfaction of the condition, but only while the contract was still on foot, that is to say before the expiry of the reasonable time during which the seller was obliged to use reasonable efforts to complete the section 106 agreement.

Mr Morgan’s fallback position was that at the expiry of the reasonable time the contract would automatically come to an end unless the buyer had waived satisfaction of the condition. However, this position differed from Yewbelle’s primary case, because the only failure to waive that was relevant was a failure to waive after the seller had allowed the buyer an opportunity to waive.

Mr Edward Bannister QC, appearing with Mr Kevin Leigh for LGD, says that, under the sale contract, if Yewbelle uses reasonable endeavours for a reasonable time and is unable to obtain the section 106 agreement, LGD has the right to waive the condition and sue for specific performance. If LGD delays in seeking specific performance, that remedy will be refused on grounds of laches and the property will cease as a result to be encumbered by the estate contract. Any damages claim would be barred after six years. Accordingly there is no question of the contract continuing in being forever. Thus there is no need to imply a term.

As I have said, Mr Morgan accepted that the requirement of a completed section 106 agreement was inserted into the contract for the benefit of the buyer, and that the buyer could waive the requirement. In my judgment he was right to accept that. First, clause 3.1 contains the mutual obligations to sell and buy respectively. That obligation is expressly stated to be “subject to the remaining provisions of this Clause 3”. It is not expressly stated to be subject to anything else. On the face of it, therefore, the seller’s obligation to complete (and the buyer’s obligation to buy) is not expressly made conditional on the completion of the section 106 agreement in accordance with clause 25. Second, Clause 25.2 says that “the Buyer” will not be bound to complete until the section 106 agreement has been obtained. It does not say that the seller will not be bound to complete. Thus there is a derogation from the mutual obligation in clause 3, but only in the buyer’s favour. This suggestion points towards the conclusion that the buyer would be entitled to compel the seller to complete the sale in the absence of a section 106 agreement. In addition, all other obligations under the contract remain unaffected. Third, clause 6 of the contract provided for a fixed completion date of 15 September 2005. Completion of the sale was not tied only to the completion of the section 106 agreement. Clause 25.2 does not purport to alter this fixed contractual completion date. Fourth, clause 25.5 requires the buyer to cause the works to be carried out. This obligation arises as soon as practicable after “the later of” actual completion and the date on which the seller has obtained planning consent. The normal practice, where a section 106 agreement is in prospect, is for the local planning authority to resolve to grant planning permission subject to the completion of a section 106 agreement. That was recited in the draft agreement in the present case. Consequently, no planning permission will be granted before the section 106 agreement is completed. In practice completion of a section 106 agreement on which a resolution to grant planning permission depends and the grant of the planning permission itself are more or less simultaneous. If, therefore, the contract contemplates that the grant of the planning permission may be later than actual completion, it necessarily follows that the contract contemplates that completion of the sale may take place before the completion of the section 106 agreement. In my judgment all these features, taken together, point towards the conclusion that the buyer was to have the right to compel completion of the sale without a completed section 106 agreement. In addition, clause 25.3 of the contract expressly contemplated that the buyer could seek a variation to the section 106 agreement after its completion. The seller’s consent to a variation was not required. And under clause 25.2 the buyer was required to indemnify the seller against liabilities arising under the section 106 agreement. This does not suggest that the precise terms of the section 106 agreement were of importance to the seller.

The ability of the buyer to waive the condition is important in trying to understand how the parties must have intended the contract to work. Unusually, in the present case the party entitled to waive satisfaction of the condition is not the same person who is obliged to attempt to bring about its satisfaction. This, too, in my judgment, is of importance in considering how the contract must have been intended to work.

In support of its primary submission Yewbelle relies on a decision of mine in Jolley v Carmel Limited [2000] 2 EGLR 153, approved by the Court of Appeal at [2000] 3 EGLR 68. Jolley concerned a contract for the sale of a dilapidated property in Lytham St Annes. The contract entitled the buyer to apply to the local planning authority for planning permission for residential development within three months after the date of the contract. It went on to provide that in that case completion of the contract would take place 28 days after satisfactory planning permission for residential development for a minimum of 16 residential units had been granted to the buyer. In addition the buyer was given the right to complete “regardless of the situation at that time in respect of the said planning permission” in which case the completion date was to be 28 days from the date on which he called upon the seller to complete. There was no express term relating to efforts to obtain planning permission. I held that a term was to be implied to the effect that the buyer would make reasonable efforts to obtain planning permission within a reasonable time. There was no appeal against this part of my decision. I went on to hold that the buyer was not in breach of that implied term for as long as any delay in the grant of planning permission was attributable to causes outside its control and it had not acted negligently or unreasonably. I declined to hold that the reasonable time was to be fixed objectively at the outset of the contract. I held that the condition was still capable of fulfilment for as long as the buyer was complying with its obligation to make reasonable efforts to obtain planning permission within a reasonable time. It followed that for as long as the buyer complied with that obligation, the reasonable time was still running. The Court of Appeal dismissed an appeal against this part of my decision.

Since I held on the facts that the “reasonable time” was still running, the question whether the contract would have been discharged on the expiry of the reasonable time, without the grant of planning permission, did not arise. I cannot therefore regard Jolley as directly supporting the proposition that if the seller complies with his obligation, but does not achieve the desired result, the contract automatically determines. I should also note that in Jolley the completion date for both parties was tied to the grant of planning permission, whereas in the present case the absence of the section 106 agreement only suspends the buyer’s obligation to complete the sale. The important point, for present purposes, is that in Jolley the right to waive the condition was that of the party who was responsible for obtaining planning permission and would, therefore, have been in the best position to know what progress was being made towards the desired end.

In the Court of Appeal Robert Walker LJ approved my conclusion that as long as the promisor continued to perform his obligation the reasonable time was still running. He also held that I was right to run together the promissory condition and the contingent condition. In other words, for as long as the reasonable time was still running, the condition was still capable of being satisfied. Robert Walker LJ also said that the length of the “reasonable time” was to be measured by reference to events as they unfolded, rather than being fixed by reference to circumstances existing at the date of the contract. This latter conclusion is in line with the decision of the House of Lords in Pantland Hick v Raymond & Reid [1893] AC 22, in which it was said that in determining the length of a reasonable time in which to unload cargo it was necessary to take into account not only the ordinary course of events, but also the extraordinary events (in that case a dockers’ strike) which actually took place.

Mr Morgan also relied on the decision of the House of Lords in Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyds Rep. 209. The contract in that case concerned the supply of gas. The gas was to arrive at Bacton terminal in Norfolk. Bacton was a multi-user terminal receiving gas from different fields. This meant that all the owners of the gas delivered to the terminal had to become parties to an allocation agreement which regulated, by means of a mathematical formula, how much gas leaving the terminal was to be treated as having arrived from each of the different fields. Arco and Total entered into a letter agreement which was intended to be the prelude to a long-term supply contract. Clause 2.8.1 said that “This Agreement is conditional on” three conditions. The third was Arco becoming party to the allocation agreement. However, the contract did not prescribe a cut-off date by which that condition had to be fulfilled. The other two conditions were required to be satisfied by a fixed date. The scheme of the contract obliged Total to take gas from the “First Delivery Date”. This was a date which Arco was entitled unilaterally to select within a two month window. Arco duly made its selection, but failed to become party to the allocation agreement before its selected date. The House of Lords held that the condition had to be satisfied by the First Delivery Date, and that since it had not been, the contract was terminated. It was common ground that the condition was not capable of waiver by either party. Lord Slynn of Hadley said (p. 215):

“If the provision in an agreement is of fundamental importance then the result either of a failure to perform it (if it is promissory) or of the event not happening or the act not being done (if it is a contingent condition or a condition precedent or a condition subsequent) may be that the contract either never comes into being or terminates. That may be so, whether the parties expressly say so or not.” (Lord Slynn’s emphasis)

He continued:

“I do not, therefore, accept Mr. Pollock's argument that the effect of the failure of an event upon which further performance depends can only lead to the suspension of the party's obligation under the contract. In my opinion it depends on the proper construction of the contract as to whether on the non-happening of the event the parties' obligations are suspended or whether the contract ceases to bind.”

Lord Slynn went on to analyse the contract. He drew attention to the particular importance of the First Delivery Date; and concluded (p. 216) that it was the date which once fixed was certain and enabled the parties to begin to achieve the essential purpose of the agreement. As he said, if the allocation agreement had not been entered into by that date, the gas could not flow. He drew attention to the fact that Arco was entitled to decide the First Delivery Date in its discretion. He specifically rejected the submission (p. 217) that the condition had to be fulfilled within such period as was reasonably required to ascertain whether the allocation agreement would be concluded or not. Lord Steyn rejected the submission that the contract would only be terminated by frustration. He did so (p. 222) because of the uncertainty that this conclusion would produce and also because it gave no effect to the parties’ choice of the phrase “conditional on”. He also rejected the analogy with contracts for the sale of land, because the contract under consideration was so complex. In Jolley in the Court of Appeal Robert Walker LJ also rejected the analogy with Total, both because of the complexity of the contract under consideration and also because the contract in Total had a fixed First Delivery Date.

Both these distinctions apply to the present case. It is one thing to say that a contract comes to an end automatically on a fixed date. It is quite another to say that it comes to an end automatically at the end of an unpredictable period. There is a further distinction; namely that the condition in Total was not capable of unilateral waiver.

Mr Bannister’s analysis was as follows. First, the mutual obligation to buy and sell contained in clause 3 of the contract was subject only to the matters expressed in that clause (viz. satisfactory searches). That was the only contingent conditionality for which the contract actually provided. Second, nothing in clause 25.2 derogated from the seller’s obligation under clause 3. The only derogation was in favour of the buyer, and that amounted to no more than a suspension of the buyer’s obligation to complete the sale in the absence of a section 106 agreement. That was quite different from the Total case in which the whole agreement was said to be conditional. As Lord Slynn pointed out, whether a term in a contract has the effect of suspending obligations under the contract, or bringing the contract to an end is a question of construction of the particular contract. Third clause 25.2 was not expressed to be a contingent condition at all, so that any contingency would have to be an implied one. Dealing with the last point first, I cannot see how the suspension of the buyer’s obligation to complete the sale until completion of a section 106 agreement with LBM can be anything other than dependent on a contingent condition. A promissory condition and a contingent condition can overlap; but the essential difference between the two is that a promissory condition is one which the promisor has the power to fulfil or cause to be fulfilled whereas a contingent condition is one which is not within his power to fulfil even though he may undertake to use reasonable (or best) endeavours to bring about: Michaels v Harley House (Marylebone) Ltd [2000] Ch 104, 116 per Robert Walker LJ.

Mr Bannister recognised the unsatisfactoriness of a conclusion that the buyer could indefinitely stand on its right not to complete the contract of sale in the absence of a section 106 agreement, but at the same time assert that the contract remained in being. His submission was that the availability of equitable remedies was a satisfactory basis of dealing with the problem, and that in consequence there was no need to imply any term. The problem is thus dealt with, not by construing the contract so as enable it to be brought to an end, but by the availability of remedies.

There are, I think, two equitable principles in play in evaluating this submission. The first is that of conversion, arising out of the maxim that equity looks on that as done which ought to be done. On the entry into a specifically enforceable contract or a potentially specifically enforceable contract, the buyer acquires an equitable interest in the land, and the seller becomes a trustee (of some sort) of the land for the benefit of the buyer. However, the equitable interest is dependent on the continuing availability of specific performance. If specific performance is unavailable (and a fortiori if it is refused) the equitable interest of the buyer will come to an end. The second principle is that the availability of specific performance can be lost by the application of the doctrine of laches. In cases where the contract in question concerns land to be exploited for commercial purposes the period of delay that can lead to the refusal of specific performance may be comparatively short. If specific performance is refused, with the consequence that the buyer’s equitable interest in the property terminates, the seller can once more deal with his property unencumbered by the buyer’s interest.

Attractively though Mr Bannister put his submission, there are, in my judgment, a number of problems about accepting it. First, as he himself recognised the application of the doctrine of laches is, at best, “messy and uncertain”. Second, even if specific performance is refused, the contract will remain in being at common law. On Mr Bannister’s construction, the buyer has the right to defer completion indefinitely (as a matter of construction of the contract). There is no separate “equitable” construction. Thus the seller may be faced with a claim for damages for breach of contract at common law if, many years later, the buyer decides to waive the condition and call upon him to complete. Mr Bannister said that a claim for damages would itself be extinguished after six years. However, the difficulty with this part of the submission is in identifying the starting point for the six year period. It is, in my judgment, difficult to conclude that the seller is in breach of contract as soon as the fixed date for completion has passed if the buyer chooses to insist (at least for the time being) on fulfilment of the condition before his own obligation to complete arises. As Mr Morgan submitted, an obligation to complete a sale of land is a mutual obligation: the seller must execute the transfer and the buyer must pay the price. These are concurrent obligations, to be performed concurrently. If therefore the buyer is entitled to refuse to pay the price because the condition has not been satisfied, it must follow that the seller is not in breach of contract in not executing the transfer. On this basis, the limitation period will not start to run until the buyer has called on the seller to complete, and he has failed to do so. But Mr Bannister says that as a matter of construction of the contract there is no long-stop date by which the buyer must call on the seller to complete. Thus at common law, a claim for damages may not accrue for many years.

Mr Morgan also submitted that the doctrine of laches could not apply at all in circumstances in which the buyer was doing no more than to exercise a contractual right to defer completion. The doctrine exists in order to prevent injustice occasioned by the enforcement of a contractual right after long delay. But if the right to delay completion is itself a contractual right, what is the injustice about holding a party to the contract? Put another way, there is no relevant delay if the claimant has done no more than exercise his contractual right. I do not think that I need to decide whether the fact that the claimant is exercising a contractual right is an absolute bar to the application of the doctrine. In the modern law the doctrine of laches is closely allied to the defences of acquiescence and estoppel. In Re Loftus (deceased) [2006] 4 All ER 1110, 1124 Chadwick LJ said:

“The modern approach to the defences of laches, acquiescence and estoppel was considered by this court in Frawley v Neill [2000] CP Reports 20 to which reference was made in the judgment of Mummery LJ in Patel v Shah [2005] EWCA Civ 157, (2005) Times, 2 Mar, at [32]. After reviewing the earlier authorities—and, in particular, observations in Lindsay Petroleum v Hurd(1874) LR 5 PC 221 at 229 and Erlanger v New Sombrero Phosphate Co(1878) 3 App Cas 1218 at 1279—Aldous LJ (with whom the other members of the court agreed) said this:

'In my view the more modern approach should not require an inquiry as to whether the circumstances can be fitted within the confines of a preconceived formula derived from earlier cases. The inquiry should require a broad approach, directed to ascertaining whether it would in all the circumstances be unconscionable for a party to be permitted to assert his beneficial right. No doubt the circumstances which gave rise to a particular result in the decided cases are relevant to the question whether or not it would be conscionable or unconscionable for the relief to be asserted, but each case has to be decided on its facts applying the broad approach.'”

On the face of it it would not usually be unconscionable for a party to assert a right which the contract entitles him to assert. It seems to me therefore, that absent some other ingredient which, on particular facts, might give rise to an estoppel, the doctrine of laches would not provide an adequate solution. Accordingly it seems to me that some term must be implied.

Normally, if a party is in breach of a contractual obligation, the breach does not automatically discharge the contract. Even if the breach is a breach of a condition of the contract (in the sense of a promissory rather than a contingent condition) a breach of condition will normally amount to a repudiatory breach which gives the injured party the right to treat the contract as at an end. The law does not give that right to the contract breaker. I agree, therefore, with Mr Bannister’s submission that if Yewbelle had failed to comply with its obligation (e.g. it had not tried hard enough or had not tried for long enough), it could not rely on its inability to achieve the desired section 106 agreement as bringing the contract to an end. I did not understand Mr Morgan to dispute this.

The more difficult case, however, is where the section 106 agreement cannot be obtained despite compliance by the seller with its obligation. There is no express provision specifying the consequences of this situation, so Yewbelle can only appeal to the implication of a term. In effect Yewbelle contends for the implication of a contingent condition subsequent, non-fulfilment of which will bring the contract to an end. Any implied term must be fair and reasonable, but the reasonableness of a term is not a sufficient condition for implying it. A term can only be implied where either the term is necessary to give business efficacy to the contract; or it is so obvious that it goes without saying. Particular care is needed before implying a term into what is, on the face of it, a detailed contract drawn by professionals.

It is also necessary to consider what the contract does not say, or at least does not say expressly. It does not say that the seller must keep the buyer informed about progress towards completing the section 106 agreement. It does not say that the seller must tell the buyer that it considers that a reasonable time is about to expire or has expired. If the local authority is willing to enter into a section 106 agreement which differs from that annexed to the contract, it does not require the seller to show the buyer what is on offer.

If a term is implied in the manner that Yewbelle suggests as its primary case it would automatically discharge the contract in the event that the seller, despite compliance with its obligation, failed to secure the desired section 106 agreement. As I understood Mr Morgan’s submission the seller could decide for itself how long to keep trying to achieve the desired result; and provided that its decision was itself a reasonable one, it could not be impugned. Thus the implied term would also mean that the contract could be avoided at a time of the seller’s choosing, without prior warning to the buyer. Although Mr Morgan said that it behoved the buyer to keep himself informed about what was going on, he has no contractual means of doing so. Even if he does know what is actually going on, he has no means of knowing for how much longer the seller thinks it worthwhile to continue making efforts towards the desired objective. In addition, Mr Morgan said that any waiver would have to be made while the contract was still on foot; that is to say before the reasonable time had come to an end. In practice this would mean that the buyer would lose the ability to waive the contingent condition and yet insist on full performance of the seller’s promise. If the seller could not rely on his own failure to try for long enough as sufficient to discharge the contract, why should the buyer’s only chance to waive the condition arise before the seller had fully complied with his obligation? In my judgment such a term would be inconsistent with the overall shape of the agreement, and an unreasonable term to imply.

This is, I think, sufficient to dispose of the argument in favour of an implied term in the primary way in which Yewbelle puts the case, since any implied term must be a fair and reasonable one. But in my judgment the suggested term fails to pass either of the familiar tests for implication. Take obviousness first. If the parties had been asked at the moment of concluding the contract, whether the contract would automatically go off if the seller failed to obtain the desired section 106 agreement, I cannot see the buyer unhesitatingly saying “Yes”. He might say that it would depend on what the differences were between the draft attached to the contract and the section 106 agreement on offer. If they were not, in his view, critical to success or failure of the development he might choose to complete and accept what was on offer. He might say that he was willing to complete and take his chance with the planning authority. He might say that although the seller had used reasonable endeavours, the use of greater endeavours would do the trick, and he would use them. He might say that he would submit a fresh planning application and appeal against its non-determination or refusal in the absence of agreement to LBM’s terms. Many of the same points apply to the test of business efficacy. It must not be forgotten that the primary purpose of the contract was the sale of land, and the term implied must be such as to give business efficacy to that overall purpose.

Mr Morgan’s fallback position was that at the expiry of the reasonable time the contract would automatically come to an end unless the buyer had waived satisfaction of the condition. However, this position differed from Yewbelle’s primary case, because for the purposes of this submission the only failure to waive that was relevant was a failure to waive after the seller had allowed the buyer an opportunity to waive. Moreover, the opportunity to waive would necessarily be given after the seller had fully performed his obligation to use reasonable endeavours for a reasonable time, so that the buyer would have had the whole benefit of what he had been promised. This was not a pleaded implied term, but Mr Bannister did not object to Mr Morgan’s making this submission. But even this formulation did not require the seller to inform the buyer of all the circumstances or all the possibilities. In the course of Mr Morgan’s opening address I raised the question whether the buyer would have had to have known of the facts and of his right to elect before being in a position to waive (compare Peyman v Lanjani [1985] Ch 457); but Mr Morgan stressed that this was not a case of election of any kind. In the present case he said, on the facts, Yewbelle had given LGD the choice whether to complete the contract with no section 106 agreement in place, and LGD had declined to do so.

This way of putting the case involves three stages:

The argument in favour if this way of looking at the contract involves a number of strands. First, somewhat unusually, the obligation to complete the section 106 agreement is placed on the seller rather than the buyer. Second, the duration of that obligation is uncertain. Third, the seller has no obligation to keep the buyer informed about negotiations. Fourth, this formulation (unlike Mr Morgan’s primary case) gives the buyer the whole benefit of the contractual promise to use reasonable endeavours. Thus the buyer need not make a snap judgment about whether to waive satisfaction of the condition in an attempt to anticipate when the seller might decide that his obligation had been performed.

The first of these stages is governed by an express term of the contract. No implication is required. The third stage is the corollary of the buyer’s right to waive satisfaction of the condition. This is a right given to him by the law; so no implication of a contractual term is required. The only implication therefore is that at the end of the reasonable period, the seller will inform the buyer that the desired section 106 agreement has not been completed and give him the opportunity to waive satisfaction of the condition. In my judgment this implication is one that passes the test of giving efficacy to the contract; and is a necessary term to imply.

If, as I think, the seller must give the buyer an opportunity to waive satisfaction of the condition, the question then arises whether, in order to be effective, the buyer is entitled to any information before he makes his choice. Despite Mr Morgan’s assertion to the contrary, I find it difficult to see why the buyer’s right either to treat the contract as having terminated, or to assert a right to complete the contract despite non-satisfaction of the condition is anything other than an election between two inconsistent rights. The word “waiver” is used in legal parlance in a number of different ways. The first is in the sense just described, namely an election between two inconsistent rights, of which waiver of forfeiture in the law of landlord and tenant is a well-known example, and the acceptance of a repudiatory breach of contract is another. The second main sense in which the word is used is where a person so conducts himself as to lead another to the belief that he will not rely on a particular legal right and that other acts on that belief to his detriment. A waiver of a condition precedent seems to me to fall into the first category. In the first place, it is, as I have said, a choice between two inconsistent rights; and in the second place the choice is effective as soon as it has been communicated, without the counter-party having acted upon the communication.

The significance of this is that, at least in general terms, a valid election is dependent on the person making the election having knowledge or the means of knowledge of (at least) the relevant facts. He may also have to know that he has a choice between inconsistent rights. He is also entitled to an opportunity to consider his position. In Scarf v. Jardine (1882) 7 App. Cas. 345, 360-361, Lord Blackburn said:

“…where there is a right to elect the party is not bound to elect at once; he may wait and think which way he will exercise his election, so long as he can do so without injuring other persons, and accordingly in that particular case it was held that he had not lost his right to elect by a reasonable waiting under rather peculiar circumstances; but when he has once fully elected it is final.”

The seller’s obligation was to use reasonable endeavours to secure a section 106 agreement “substantially in the form of the draft” attached to the contract. Whether the section 106 agreement in the form of the draft sent on 21 December 2005 conformed to this description is, in my judgment, a question to be answered objectively. In other words it was not a question which was dependent only on the perception of the actual buyer.

The principal differences between the draft that LBM sent through on 21 December 2005 and the draft attached to the contract are as follows:

I should also note that:

Mr Morgan submitted that the only permitted departure from the draft section 106 agreement attached to the sale contract was a departure in “form”. No departure in substance was permitted. Even a departure in form could not be substantial. Mr Bannister, on the other hand, submitted that the reference to the “form” of the draft section 106 agreement was a reference to its terms; and that what the contract was driving at was that there should be no substantial change in those terms. I prefer Mr Bannister’s submission. In the case of a commercial contract such as this one, the parties would surely have been concerned with the effect of the terms of the section 106 agreement, rather than the manner in which those terms were presented. The contract in fact uses the phrase “in the form of” to describe a number of relevant documents; viz. the section 106 agreement, the planning consent and also the headlease to be granted back to the seller. In all these cases the appearance of the document is of little importance. Moreover, under clause 25.2 of the sale contract KGD was obliged to indemnify Yewbelle against all obligations contained in the section 106 agreement; and under clause 25.3 had the right to try to agree variations to it. In addition, the line between form and substance in the case of a document creating legal rights and obligations is not always an easy one to draw. Mr Morgan was, I think, constrained to accept that some changes in form were permitted, even though they changed the legal rights and obligation created by the agreement. For example, the draft attached to the contract contemplated the KGL’s mortgagee would be a party to it. But KGL paid off the mortgage, so that was no longer necessary. Mr Morgan accepted that this was a permissible change, even though KGL’s chargee would no longer be bound. So also, as I understood it, was the addition of LGD as a party. But Mr Morgan submitted that the redistribution of the £1.08 million “pot” between the different heads of expenditure was not a permitted departure. However, it seems to me that it would have been a matter of indifference to the developer how LBM internally allocated the various payments to be made by the developer, provided that the aggregate did not change.

Mr Bannister submitted that the consequence of the changes was to leave the financial and commercial effect upon the seller of the 12 November 2004 draft section 106 agreement completely unaltered. On the other hand Mr Morgan submitted that there were two alterations of potential significance. The first, he said, was the alteration of the definition of the Development. The second was the alteration relating to the library.

It was always appreciated that the south east corner did not belong to the seller, but at the date of the contract it was thought to belong to LBM. This assumption was falsified. Mr Morgan said that there were only two ways in which this problem could be cured. The first was by procuring the owner of the south east corner to execute the agreement. The other was to alter the definition of “Development” in the way that was done. Either option would have meant that there was a substantial change in the form of the annexed section 106 agreement. The consequence of this, Mr Morgan submitted, was that from the very inception of the contract the condition was never capable of fulfilment.

This is a very unattractive conclusion. Given that Mr Morgan accepted that a change in the parties to the agreement was capable of being a non-substantial change in the form of the agreement, I do not see why execution of the draft by the actual owner of the south east corner would have been an impermissible change in form. But there is also, as it seems to me, a third possibility, namely that either Yewbelle or LGD would acquire the south east corner. Mr Morgan submitted, and I agree, that Yewbelle’s obligation to use all reasonable endeavours to obtain the section 106 agreement would not require it to acquire the south east corner. But although Mr Morgan’s submissions were predicated on the basis that the definition of “Development” had been altered in the draft, no such alteration was in fact made to the 21 December version, and I was not shown any later version which changed the definition. The resolution to grant of 15 December 2005 still referred to the larger development (including the south east corner) and LGD had entered into a conditional contract for its acquisition before the slimmed down development was submitted for approval in August 2006. In my judgment this feature of the section 106 agreement would not have caused non-fulfilment of the condition.

The addition of the requirement of the grant of a lease to the library is a different matter. It does not seem to me to be possible to characterise this change as insubstantial. The draft attached to the contract enabled the residential units to be occupied once certain physical work had been completed. The cost of that work would, within limits, have been predictable. The carrying out of the works would have been wholly within the developer’s control. It would not have mattered whether the developer had agreed terms with LBM for the grant of a lease or not. The new version, by contrast, made the occupation of the residential units dependent on the grant of a lease to LBM. The grant of the lease must, necessarily, be preceded by agreement on its terms. That agreement would encompass not only the basic financial terms of the lease (rent, premium etc.) but also other terms such as the extent of and financial responsibility for fitting out. The prohibition on occupation of the residential units until these things had been agreed seems to me fundamentally to change the relative bargaining positions of the parties. From being in a position where the strength of LBM’s bargaining position was simply that, absent agreement, the developer would be left with a useless space, and the strength of the developer’s bargaining position being that, absent agreement, LBM would not acquire a library; the new position was such that LBM was placed firmly in the driving seat. For if the developer would not agree LBM’s terms, not only would it be left with a useless space (viz. the library) but it would not be able to exploit any of the residential units either.

As Mr Morgan pointed out this is bad enough; but the position of LGD would be even worse. That is because the lease of the library would not be granted by LGD, but by Yewbelle as headlessee of the commercial part of the developer. Nothing in the headlease requires LGD’s consent to be obtained to the terms of any sub-lease. So LGD would have no control over what, if anything, Yewbelle and LBM agreed. More importantly, unless and until Yewbelle and LBM did agree the terms of a sub-lease, LGD would not be able to exploit the value of the residential part of the development.

Mr Bannister submitted that since the application for planning permission always envisaged use of the space as a public library, it was implicit that the developer would at least have to give up the right to occupy that space, since the only candidate for running a public library in Merton was LBM itself. That may be so, but it does not follow that the planning application envisaged that LBM would be entitled to occupy it rent free; still less that it would have its fitting out costs paid. He also submitted, quite correctly, that the terms of the lease would have to be agreed at some stage. But the significance of the addition to clause 15.2, as I see it, is that, for the reasons I have tried to explain, the parties’ respective negotiating strengths would have been fundamentally changed.

In my judgment, therefore, the 21 December version was not substantially the same as the draft annexed to the contract.

Mr Morgan drew my attention to two cases concerned with contractual obligations to use “reasonable endeavours”. The first was the decision of the House of Lords in P & O Property Holdings Ltd v Norwich Union Life Insurance Society (1994) 68 P & CR 261. P & O were the developers of a shopping centre in Sutton, funded by the Norwich Union. Under the terms of the development agreement P & O and the Norwich Union were obliged to “use their reasonable endeavours to secure a letting of each lettable part of the Development.” The Norwich Union had advanced the maximum amount that it was required to advance under the terms of the development agreement. Because of weakness in the market, it was not possible to obtain good tenants at good rents without paying reverse premiums. The question before the House was whether the Norwich Union could insists that P & O in using its reasonable endeavours to obtain lettings was bound to pay reverse premiums “if a hypothetical reasonable landlord (ignoring who is to bear the cost of such premium) would agree to the payment of such a reverse premium”. The House held that it was not entitled to insist. The argument for the Norwich Union was that an objective standard had to be applied in order to give content to the obligation. The House rejected the argument. There were several reasons why the House came to that conclusion, but the relevant reason for present purposes was that the willingness of a landlord to pay a reverse premium would depend on his financial circumstances at the time. A landlord with a healthy cash flow, taking a long term view, would be willing to make such payments. A landlord who had cash flow difficulties would be looking for quick lets at the best rent available. The agreement did not enable one to say what kind of landlord was under consideration.

The second case was the decision of the Court of Appeal in Phillips Petroleum Company United Kingdom Ltd v Enron Europe Ltd [1997] CLC 329. This was another case of an agreement for the supply of North Sea gas. The contract contained a number of obligations requiring the parties to use “reasonable endeavours”. One was an obligation to use reasonable endeavours to co-ordinate the construction of their respective facilities. Another was an obligation to use reasonable endeavours to agree the date on which deliveries were to begin (“the Commissioning Date”) and the date of a three day test of the parties’ respective capacities to receive and deliver gas (“the Run-In Test”). The same clause went on to say that in the absence of agreement, the Commissioning Date would be 25 September 1996 and the Run-In Test would take place on 25 to 28 September 1996. Because of a fall in the price of gas Phillips refused to agree dates earlier than the fall-back dates. Enron argued that each party was under an obligation to use reasonable endeavours to reach agreement on the Commissioning Date and the Run-In Test having regard only to criteria of technical and operational practicability and without regard to selfish or commercial motives. The Court of Appeal rejected that argument. Kennedy LJ said:

“I find it impossible to say that they [i.e. the contract terms] impose on the buyer a contractual obligation to disregard the financial effect on him, and indeed everything else other than technical or operational practicality, when deciding how to discharge his obligation to use reasonable endeavours to agree to a commissioning date prior to 25 September 1996. If the obligation were to be strait-jacketed in that way, that is something which to my mind would have been expressly stated, and, as Mr Pollock's argument really conceded, this is not a situation in which it would be appropriate for the court to imply a term, not least because it is unnecessary to do so for purposes of business efficiency. The fall-back provision expressly states what is to happen if no early commissioning date is agreed.”

Potter LJ said:

“The GSA was an agreement drawn up between international energy companies intended to regulate their trading and financial relationship over a period of at least 15 years and involving hundreds of millions of pounds worth of business. They were plainly the product of much arm's length negotiation and careful legal drafting, which appears to have been calculated to provide sequentially for every contractual eventuality which might occur at the various stages of the development and operation of the supply contract. That being so, I see no reason to suppose that it was the expectation, let alone the obligation, of the parties that, in any area of activity in which room was left for manoeuvre or further negotiation, they were not at liberty to take into account their own financial position and act in the manner most beneficial to them, short of bad faith or breach of an express term of the contract.”

Much of the argument in the case was directed to the question whether an obligation to use reasonable endeavours to agree was an obligation capable of being legally enforced. As Millett LJ explained in Little v Courage Ltd (1995) 70 P & CR 469:

“An undertaking to use one's best endeavours to obtain planning permission or an export licence is sufficiently certain and is capable of being enforced. An undertaking to use one's best endeavours to agree, however, is no different from an undertaking to agree, to try to agree, or to negotiate with a view to reaching agreement; all are equally uncertain and incapable of giving rise to an enforceable legal obligation.”

It is not suggested in the present case that the obligation to use reasonable endeavours to obtain the section 106 agreement is unenforceable. Mr Bannister submitted that both P & O and Phillips were essentially cases about agreements to agree, and to that extent were unhelpful. I agree that this is a factor that I must bear in mind. However, the essence of the obligation required Yewbelle to use reasonable endeavours to reach an agreement, not with the other party to the contract, but with a third party. To that extent it seems to me that at the very least Phillips is a useful analogy. In using reasonable endeavours towards that end, I do not consider that Yewbelle was required to sacrifice its own commercial interests.

I come back to the question: for how long must the seller continue to use reasonable endeavours to achieve the desired result? In his opening address, Mr Morgan said that the obligation to use reasonable endeavours requires you to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted. You would simply be repeating yourself to go through the same matters again. I am prepared to accept this formulation, subject to the qualification that account must be taken of events as they unfold, including extraordinary events.

Until close to the end of 2005 I consider that Yewbelle complied with its obligation. The question, to my mind, is whether it continued to do so after Ms Lauder sent through the revised section 106 agreement in December 2005.

I am prepared to accept that Ms Lauder’s inclusion of the condition that the library lease had to be granted before the residential units could be occupied came as a bolt from the blue. I have already said that, in my judgment, a section 106 agreement containing that stipulation would not have been substantially in the same form as that attached to the contract. Mr Morgan did submit that Yewbelle had been pressing LBM throughout 2005. But it did not press LBM about this particular change in wording throughout 2005, because the change did not appear until the very end of the year.

What did Mr Lobetta do in order to persuade Ms Lauder to remove the requirement? In my judgment, the short answer is: nothing. The case papers spanning 2006 contain not a single letter from Mr Lobetta to Ms Lauder. There is no record of any meeting between them. The only telephone call that took place was that of 6 January 2006. But the upshot of that conversation was that although Mr Lobetta told Ms Lauder that he was disappointed, he said that he would seek his client’s instructions. He never went back to her after that.

Mr Morgan said that Mr Lobetta was the man on the ground and had been steeped in the history of the matter for a long time. If it was his judgment that the desired section 106 agreement could not be achieved, then the court should respect his judgment. Plainly that is a serious point. However, there are four factors which tell against it. The first is that, as Mr Lobetta himself said, he was not directly involved in planning matters. The second is that his view that there was an “impasse” was not shared by Mr Silk, who was directly involved in planning matters; and Mr Lobetta’s description of the “advice” he had received in his letter to Mr Segen of 2 February 2006 was plainly overstated. The third is that without going back to Ms Lauder to try to persuade her to remove the offending wording, it is difficult to see how Mr Lobetta was able to conclude that there was indeed an “impasse”. The fourth is that in the contemporaneous correspondence passing between Mr Lobetta and Mr Segen, the problem of the library lease was hardly mentioned; and the real problem in Mr Lobetta’s mind seems to have been the third party land. I do not consider that I should simply be guided by Mr Lobetta’s view, tinged as it now is with hindsight. As I have said, Mr Hughes chose not to give any evidence about Yewbelle’s decision-making process. The inference I draw is that at the meeting on 1 February 2006 Mr Hughes decided that no further efforts were to be made to obtain the desired section 106 agreement, despite the fact that Mr Silk did not share the view that it would be impossible to obtain it.

Mr Morgan submitted that it was not incumbent on Yewbelle to take any particular step towards achieving the desired section 106 agreement unless that step had a real prospect of success. But no one from LBM was called to say what LBM’s attitude would have been if Mr Lobetta had made a serious protest about the inclusion of the new wording. It must not be forgotten that in the report to the planning committee that preceded the December 2005 meeting, one of the justifications for the changes in the resolution to grant was that they would facilitate the completion of the sale of the land and the completion of the section 106 agreement. LBM was, to that extent, being helpful. Although Ms Lauder seems to have been aware that the contract of sale was conditional, she was not told that satisfaction of the condition depended on the precise form of the section 106 agreement. Mr Lobetta could have pointed out to her that the change in the form of the draft jeopardised the sale which LBM had hoped to facilitate by the amended resolution to grant. In addition, Ms Lauder’s draft did not actually reflect the deletions that the committee approved; yet Mr Lobetta did not point that out either. Nor did the committee approve the tying of the grant of the lease of the library to the occupation of the residential units, some of which at least were reserved for social housing. If any of this had been pointed out to Ms Lauder she might have altered the draft. I do not think that I can conclude that a reasoned protest would have had no real chance of achieving the result. In my judgment Mr Lobetta was wrong in saying on 2 February 2006 that “it was not possible” to obtain a section 106 agreement in the desired form.

Mr Morgan next submitted that given the inclusion in the 21 December draft of the offending words relating to the library, one permissible course of action for Yewbelle to take would have been to attempt to agree the terms of the library lease. Although the dealings relating to the library lease are included in my general narrative, it may be helpful to pick out the features:

What emerges from this summary is that by the time that Mr Lobetta declared the contract to be at an end, the current proposal on the table was the offer of a lease at £30,000 per annum, which Mr Aziz had said worked for him, and which LBM had not (yet) rejected. Although Mr Masson asked where that figure came from, no one ever told him. Between 11 October 2005 and 4 April 2006 there was no activity on the part of Yewbelle or its advisers in seeking to agree terms. It was not until after the meeting on 4 April 2006 that Mr Masson seemed to press for a peppercorn rent. Mr Aziz does not appear to have had any direct contact with LBM. Mr Hughes appears to have attended one relevant meeting and taken one relevant telephone call with LBM’s officers. Even then, despite the fact that Mr Hughes had “lost [his] rag” Mr Masson’s position was not challenged. Yewbelle have been doing little more than listening to Mr Masson’s demands. On the two occasions when the application has been referred back to the committee it has shown a desire not to impede the sale. It is not, in my judgment, possible to conclude that Mr Masson truly reflected the views of his political masters. And even Mr Masson himself might have softened his views if he had been told that his demands were threatening to abort the sale and with it Mr Green’s willingness to increase the contribution to the library.

In all these circumstances, I am not satisfied that Yewbelle has discharged its obligation. On that basis Yewbelle is not entitled to rely on the non-satisfaction of the condition as having discharged the contract.

Mr Bannister submitted that, in any event, the question of the library lease, like other “difficult matters” could have been resolved by the imposition of a condition attached to the planning permission as opposed to being contained within the section 106 agreement. I was not persuaded by this. In the first place, having regard to the legal limits on the power to impose conditions, I do not consider that a condition requiring the grant of a lease to LBM (still less to grant it at a peppercorn rent) would have been a lawful condition. In the second place, as Mr Morgan said, transferring this obligation to the planning consent might have put Yewbelle in breach of its obligation to obtain the planning consent in substantially the same form as that attached to the sale contract.

However, having regard to my conclusion that Yewbelle has not discharged its obligation, the action must fail.

This conclusion makes it unnecessary to consider the other potential issues of fact arising out of the implied term upon which Mr Morgan relied as his fall-back position. They are:

Following the conclusion of the hearing, Mr Morgan objected to my considering these issues on the basis of the evidence that I had heard on the grounds that:

Alternatively, if my conclusions on these issues would prove decisive on the outcome of the case, I should allow the evidence to be re-opened (and, I infer, direct further disclosure).

In response Mr Bannister not surprisingly said that

He invited me to proceed to judgment on the evidence I heard. Neither side, even now, has applied for permission to amend.

This presents a difficult question of case management. On the one hand, a resolution of these factual questions will not affect the result. On the other hand, I think that I must accept Mr Morgan’s point that (at least) he would have cross-examined Mr Green differently if these questions had been squarely raised on the pleadings. If I am wrong in my principal conclusion, these issues might become relevant. In those circumstances, I do not consider that it would be fair to Yewbelle to decide these questions on the evidence I heard.

However, since determination of these questions does not affect the result, I see no reason to delay giving judgment. If either party wishes me to determine these additional issues, an application for permission to amend will have to be made; and I will have to give directions for further disclosure and evidence.

In the light of my conclusions the action fails and must be dismissed. The primary relief sought by the counterclaim is a decree of specific performance of the contract. In the light of my conclusions, I will make such an order. LGD did not prove any loss caused as the result of any delay; and I decline therefore to give judgment for damages in addition to a decree of specific performance. I will hear counsel on the form of the order, if it cannot be agreed.