Groveholt Ltd v Hughes & Anor

This judgment is in respect of the Claimant’s application for Summary Judgment pursuant to CPR 24 issued on 30th November 2007.

On 24th April 2008 the Claimant issued an application to amend its Summary Judgment application to seek an order that the First Defendant (“Mr Hughes”) is obliged to deduct from any payment to which he would otherwise be entitled under the Agreement dated 9th April 1998 the amount of the Infrastructure and Site Assembly costs incurred by Sainsburys or the Claimant (“Groveholt”).

The Defendants indicated that they would not oppose that amended application but would seek costs that they said had been wasted in dealing with the original form of the relief sought which Groveholt was not currently minded to pursue. In so seeking to amend the Part 24 application Mr Nicholas Strauss QC who with Mr Neil Kitchener QC appears for Groveholt made it clear that this was in the light of evidence served by Mr Hughes and they reserved the right to contemplate seeking further summary relief in the event that it was considered appropriate so to do. I think this kind of piecemeal approach to actions is dangerous and has to be reviewed very carefully.

The nature of the relief sought is difficult to understand without further elucidation.

The action is for redemption of a charge and an account of any sums due under it. It arises from a number of agreements in respect of the development of Mr Hughes’ former property at Cawdor Quarry, Matlock, Derbyshire (“The Property”). The redevelopment involved the construction of a Superstore for occupation by Sainsburys and further potential opportunities for residential development (the latter has not proceeded as I understand it).

The dispute arises out of the consideration of a number of documents as follows:-

As it will appear from an examination of those various documents there is perhaps surprisingly no direct relationship between Groveholt and Mr Hughes. Their only relationship arises out of the fact that Groveholt acquired the property from Chelverton. That company had charged the Property to Mr Hughes as security for overage payments due to him under the terms of the Hughes/Chelverton Agreement. The major dispute concerns the ability of Groveholt to deduct costs from the overage payments which are undoubtedly due to Mr Hughes in respect of Infrastructure and Site Assembly costs. The ascertainment of the amount that Groveholt contends can be deducted involves consideration of the works required to be done under the terms of the Hughes/Sainsbury Agreement, the Loan Agreement and the Hughes/Chelverton Agreement. Groveholt is not a party to any of those arrangements nor did it subsequently become a party by novation or otherwise. That is a key difficulty of this case in my view at this summary judgment stage.

This case demonstrates in my view the dangers involved in summary judgment applications when the application even if successful will not end all disputes between the parties. It is graphically demonstrated by the fact that Mr Hughes issued his own application for summary judgment for the balance of the overage money claiming that no deductions were possible under the terms of the agreement and he lost. It is ironic indeed that one of the arguments raised by Groveholt in opposition to that application was that it was not appropriate to grant declaratory relief by way of summary judgment.

In the event when Mr Hughes’ summary judgment application was heard before Nicholas Underhill QC (as he then was), he dismissed Mr Hughes’ application. An appeal by Mr Hughes was also dismissed by the Court of Appeal (both the first instance and the Court of Appeal judgments are to be found at [2005] 2 BCLC 421).

A major argument raised by Groveholt before me is that in the light of the judgment of Mr Underhill QC and the Court of Appeal it is no longer open to Mr Hughes to challenge the deductibility of the items referred to in Groveholt’s amended Part 24 application as the issue (Groveholt contends) is res judicata having been determined against Mr Hughes in those two decisions.

There are a number of competing principles that come into play on a summary judgment application. The civil procedure rules it is submitted by Mr Strauss QC introduced by Part 24 a speedy procedure to resolve issues that ought not to have to go to trial because there is no real prospect of defending them. As a matter of general observation that is right but it can be overstated. In reality that was a procedure that was generally open under the former RSC order 14 but it can I suppose be said that it is made more clear that the Courts are empowered by the CPR to achieve an early determination of issues as expeditiously as possible. It can also be said that as Part 24 gave a right to a Defendant to make the application (hence Mr Hughes’ original application) that reinforced that view. The theory behind this is of course is the desire to save people unnecessary costs of taking cases to trial if issues can be finally determined earlier.

Against that the CPR (especially in relation to its summary costs procedures under CPR 44) was designed to prevent “litigation fatigue”. By that I mean that it was well established that some parties’ ability to take cases to trial was diminished or even extinguished by an unscrupulous party on the other side making constant interlocutory applications. This tended to drain the other party’s resources because often in interlocutory applications even if unsuccessful no adverse costs order was made or the costs were rolled up to be determined at the end of the trial. To discourage this, the CPR introduced by rule 44 a procedure for summary assessment of costs. However that only applies to a one day case. The circumstances of the present application are instructive. Initially it was listed with a 2 day estimate. As arguments developed further supplemental arguments in writing were provided during the course of the hearing and the case ultimately took 4 days. There is therefore no procedure to make a summary assessment of the costs in favour of a successful party (although that can be partially mollified by a detailed assessment coupled with a significant interim payment).

Thus on the one hand the CPR encouraged Part 24 applications but equally it marked a disapproval of failed Part 24 applications.

Where a successful application will not lead to a final resolution of all disputes between the parties the Court has to be particularly careful. The reasoning behind this need for caution is well exemplified by the present case.

Mr Strauss QC stressed on a number of occasions that the CPR through the Part 24 procedure encouraged early resolution of issues in preference to a deferral to trial. I agree that was one of the significant developments under the CPR but it cannot be pressed too far. This case was listed for 2 days. That of course is quite a long time for a summary judgment application (disregarding the oft stated plea by the Defendants in such cases that a case cannot be suitable for summary judgment if it takes 2 days). The hearing actually lasted 4 days.

Further as I have said the Claimant seeks to amend its summary judgment application and during the course of argument Mr Strauss QC was constrained to concede further variations to the relief sought. As I have said above the case demonstrates the difficulties of piecemeal summary judgment applications.

Even if the Claimant is successful on its Part 24 application there will in my view not be any significant saving in costs. The amount of deductions which the Claimant contends it can make from the purchase price due to the First Defendant under the agreements below will involve a detailed consideration of the actual expenditure on a line by line basis. There are also disputes as to the ability of Mr Hughes to challenge the deductions. The best that Mr Strauss QC could say is that if the Claimant won on this aspect i.e. an argument that the works carried out by Sainsbury PLC was deductible as a matter of principle is that the Defendants might be more willing to avoid a costly trial on the issues as to quantum. To my mind that is unrealistic. These arguments have spread over 4 days but I doubt very much whether 4 days would have been taken with these arguments if they had been part of a trial on the merits.

This case in my view is a classic instance of where the parties are best served by progressing the case speedily and expeditiously towards trial. The proceedings were initially commenced on 12th March 2004. There was then the interlude where the parties went to the Court of Appeal concerning the insolvency of Chelverton. That clearly delayed matters. The present Part 24 application itself was issued as long ago as 30th November 2007. That too has delayed the progress and matters towards trial. For the reasons that I have set out above I do not accept that the resolution of this dispute will resolve all of the disputes between the parties so that there must inevitably (absent settlement or capitulation) be a substantial trial between the parties. The hearing of that trial has been substantially delayed. Disclosure has not yet taken place. That too in my view is significant. There is no doubt that but for the Part 24 applications this case would have come to trial already.

The longer the hearing went on the more it became clear to me that this was not a case for summary judgment and that the matter ought to proceed to a trial as expeditiously as possible. In my view the applications have created the kind of satellite litigation which prolongs cases and increases costs when in reality the Court ought to encourage the parties (absent mediation or settlement proposals) to list the case as soon as possible. At the hand down of this judgment I propose to set a vigorous timetable to bring this case to trial as early as possible this year if possible.

I will be seen therefore that I do not think that the Claimant should have any form of summary judgment whatsoever. It is not appropriate for a Judge who declines to give summary judgment in my view generally to go into the detail of a case in order to avoid expressing views in the absence of full knowledge which might not be correct and might therefore have an adverse impact or prejudicial impact on the subsequent trial.

During the course of his submissions Mr Strauss QC referred me to the “Report and Recommendations of the Commercial Court Long Trials Working Party” (December 2007). This document arises out of the difficulties the Commercial Court experienced in 2 very large claims which led to well publicised criticisms of the procedures used in long and complex trials. The Commercial Court organised a Symposium on the topic in October 2006 and in January 2007 set up the working paper which led to the Report. Mr Strauss QC referred to section H dealing with summary judgment applications and the well known observations of the late Lord Hobhouse in the House of Lords decision on the BCCI case that suggested (quite understandably in the context of the case) that long and detailed cases strongly cry out for an exclusion of anything that is unnecessary for the achievement of a just outcome for the parties (Three Rivers DC v The Governor & Company of the Bank of England (No 3) [2003] 2 AC1 HL at paragraph 156.

These generalised statements are laudable but it is essential to approach each case on a case by case fact by fact basis. The general thrust of the Report clearly deserves careful consideration but I am by no means convinced that it necessarily represents a solution to the problem of long trials. Certainly I am not aware of the Chancery Division necessarily experiencing the difficulties of long trials that appear to have occurred in the Commercial Court. There may be various reasons for that but for the present purposes I do not find the Report of any assistance to me in the present application.

Part 24 provides that the Court may give summary judgment against a Claimant or a Defendant on the whole of the claim or on a particular issue if:-

“(a)

it considers that –

(i)

the Claimant has no real prospect of succeeding on the claim or issue; or

(ii)

the Defendant has no real prospect of successfully defending the claim or issue; and

(b)

there is no other compelling reason why the case or issue should be disposed of at a trial”

The Courts have clarified the meaning of this important provision in a number of cases which are well known. They are summarised in the current White Book at paragraph 24.2.3.

The clearest clarification is to be found in the judgment of Mummery LJ in The Bolton Pharmaceutical Company 100 Ltd v Doncaster Pharmaceuticals Group Ltd [2006] EWCA Civ 661 to which I will refer.

In addition it is very important that the Judge on a hearing of a summary judgment application does not embark on a mini trial. There is no procedure for preliminary assessments of cases. Either a party has no reasonable prospect of succeeding/successfully defending in which case summary judgment should be given against that party or the matter must go to trial. (I ignore for present purposes the ability of the Court to make a conditional order on a summary judgment application). This has been exemplified as long ago as Wenlock v Maloney [1965] 1WLR 1238 and reiterated in Swain v Hillman [2001] 1 All ER 91.

It is nevertheless incumbent on a Judge hearing a Part 24 application to consider the case fully on the merits before him but to bear in mind a number of factors:-

There is nothing new in this analysis. Mummery LJ (in words far more eloquent than mine) summarised these in the Doncaster Pharmaceuticals Group Ltd case referred to above. Thus he said:-

“[4] Summary judgment procedures, which are designed for the swift disposal of straight forward cases without trial, are only available where the applicant demonstrates that the defence (or the claim, as the case may be) has no “real” prospect of success and if there is no other compelling reason why the case or issue should be disposed of at a trial: CPR Pt 24.2. Thus, without the assistance of pre-trial procedures, such as disclosure of documents, and without the benefit of trial procedures, such as cross examination, the court's function is to decide whether the defendant's prospect of successfully establishing the facts relied on by him is “real”, that is more than “fanciful” or “merely arguable”. The test to be applied was summarised by Sir Andrew Morritt V-C in Celador Productions Ltd v Melville [2004] EWHC 2362 (Ch) at paras 6 and 7.”

[5] Although the test can be stated simply, its application in practice can be difficult. In my experience there can be more difficulties in applying the “no real prospect of success” test on an application for summary judgment (or on an application for permission to appeal, where a similar test is applicable) than in trying the case in its entirety (or, in the case of an appeal, hearing the substantive appeal). The decision-maker at trial will usually have a better grasp of the case as a whole, because of the added benefits of hearing the evidence tested, of receiving more developed submissions and of having more time in which to digest and reflect on the materials.

[6] The outcome of a summary judgment application is more unpredictable than a trial. The result of the application can be influenced more than that of the trial by the degree of professional skill with which it is presented to the court and by the instinctive reaction of the tribunal to the pressured circumstances in which such applications are often made.

[7] I doubt, however, whether the decision to have or not to have a trial of the action is much affected by the fact that it is heard by a specialist judge. I see no objection, for example, to the use of judges or deputy judges, who are not intellectual property specialists, to hear and decide applications for summary judgment in this field. I mention this topic and wish to say a little more about it for two reasons. First, as a result of hearing some recent appeals against the grant of summary judgments in a variety of areas of law, I have some general concerns about the use of the summary judgment procedure. Secondly, I am aware of views recently aired in the profession questioning the “efficiency” of using non-specialist judges for summary judgment applications in intellectual property cases.

[8] In my opinion, the decision whether or not an action should go to trial is more a matter of general procedural law than of knowledge and experience of a specialised area of substantive law. All judges, specialist and non-specialist, are experienced in procedure and practice. Procedural justice is the judicial specialisation par excellence. It may take a little longer for the application to be opened to a non-specialist judge, but that may be no bad thing. I am confident that all judges to whom such applications are likely to be made will have the necessary procedural expertise to sort out those cases that can properly be disposed of without a trial. (I add that the leading practitioners' text book on trade mark law (Kerly 14th edition 2005) contains no discussion of summary judgment procedure in infringement actions. That is an indication that the decision whether or not to grant summary judgment is more one of general procedure and practice than specialist expertise in substantive trade mark law.)

[9] I also wish to say a few words about the litigation expectations and tactics of claimants and defendants. Claimants start civil proceedings (including intellectual property actions) in the expectation that they will win and often in the belief that the defendant has no real prospect of success. So the defence put forward may be seen as a misconceived, costly and time-wasting ploy designed to dodge an inevitable judgment for as long as possible. There is also a natural inclination on the part of optimistic claimants to go for a quick judgment, if possible, thereby avoiding the trouble, expense and delay involved in preparing for and having a trial.

[10] Everyone would agree that the summary disposal of rubbishy defences is in the interests of justice. The court has to be alert to the defendant, who seeks to avoid summary judgment by making a case look more complicated or difficult than it really is.

[11] The court also has to guard against the cocky claimant, who, having decided to go for summary judgment, confidently presents the factual and legal issues as simpler and easier than they really are and urges the court to be “efficient” ie produce a rapid result in the claimant's favour.

[12] In handling all applications for summary judgment the court's duty is to keep considerations of procedural justice in proper perspective. Appropriate procedures must be used for the disposal of cases. Otherwise there is a serious risk of injustice.

[13] Take this case. Although it was described by the claimant's counsel as an open and shut case in which a “smoke screen” defence was being raised, it was rightly accepted in the court below that the evidence “looks quite lengthy.” It certainly is lengthy for a Pt 24 application. The papers look to me more like a set of trial bundles rather than interlocutory application bundles. There are four files of witness statements, exhibits and associated legal documents and two lever arch files of authorities, many of them on EU competition law.

[14] The claimant's counsel supported the application for summary judgment by a 22 page skeleton argument, accusing the defendants of “diversionary tactics designed to try to avoid summary judgment,” of introducing “red herrings” and of having used their “best efforts to make the matter appear to be complicated”. It was submitted that the case nevertheless “remains a matter appropriate for summary disposal”. But already the seeds of doubt have been sown about how open and shut the case really is and whether the court should set out along summary judgment road at all.

[15] On the appeal counsel for the claimant repeated that the defendants' arguments in this court “are further designed to try to make matters look complicated and unsuitable for summary determination” and so attempt to avoid liability. As explained later, the case may turn out at trial not to be really “complicated”, but it does not follow it should be decided without a fuller investigation into the facts at trial than is possible or permissible on summary judgment.

[16] In this case there are, as we shall see, two particular fact-sensitive areas: (a) the alleged presence of “economic links” or “the possibility of control” connecting entities which have been or have become proprietors of the relevant trade mark; and (b) whether the circumstances have made it inequitable to enforce the trade mark against the alleged infringers.

[17] It is well settled by the authorities that the court should exercise caution in granting summary judgment in certain kinds of case. The classic instance is where there are conflicts of fact on relevant issues, which have to be resolved before a judgment can be given (see Civil Procedure Vol 1 24.2.5). A mini-trial on the facts conducted under CPR Pt 24 without having gone through normal pre-trial procedures must be avoided, as it runs a real risk of producing summary injustice.

[18] In my judgment, the court should also hesitate about making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.

So the Court needs to distinguish between “cocky Claimants” on the one hand and “rubbishy Defences” on the other part.

Limb (b) of CPR 24.2 provides that there should not be summary judgment if there is some other compelling reason why the case or issue should not be disposed of at trial. The longer the hearing went on the more I had a sense of unease that the issues between the parties required a full investigation at trial after full disclosure and service of appropriate evidence. The reason for that is primarily because in my view the relationship between the parties in the dispute is unusual. The action is a redemption action by the Claimant over land which is charged to secure purchase monies due under an agreement in favour of the First Defendant to which the Claimant is not a party. Conversely the amounts to be deducted against that purchase price are sums which arise under an agreement (and a whole series of variations to it) between the Defendant and other parties to which the Claimant was also not a party. This relates to the amount of the Infrastructure Works that were required to be done to enable the site primarily to be developed for use by Sainsbury. The actual Infrastructure Works were not carried out pursuant to a direct contractual relationship as between the Claimant and the First Defendant. In fact the works were carried out in accordance with contractual arrangements that the Claimant entered in to with Sainsburys to which the First Defendant was not a party. None of this is necessarily objectionable but it leaves me with a great sense of unease that at summary judgment stage I am being asked to determine definitively what might or might not be capable of being deducted by the Claimant from the admitted top line purchase price figure due to the First Defendant before there has been disclosure and the service of evidence. Further in that context I also envisage disclosure being obtained from parties who are not parties to these proceedings (such as Sainsburys and Chelverton) which might be relevant to the issues.

This in my view means that the Claimant’s case is not plain and straight forward (despite the attempts of Mr Strauss QC persuasively to make it otherwise). This in my view means that the case falls classically within the alternative ground in sub paragraph (b). However I am firmly of the view that the Claimant has failed to establish the primary ground under sub paragraph (a) either. Both parts of CPR 24.2 prevent the Claimant obtaining summary judgment.

The original application was for “there be an order for summary judgment in favour of the Claimant and (a) a declaration that no sums are due to the [First Defendant] that are secured by the charge and (b) there is an order for payment to the Claimant of the sums in Court and (c) an order that the Defendant do pay the costs of the action and (d) such other order as the Court thinks fit”.

In the light of the First Defendant’s witness statements the Claimant did not wish to proceed with that application as I have said and sought instead an order “that the First Defendant is obliged to deduct from any payment to which he would otherwise be entitled under the Agreement dated 9th April 1998 the amount of Infrastructure and Site Assembly costs incurred by Sainsburys or Groveholt or either of them”.

During the course of the hearing Mr Strauss QC was compelled to retreat further from that relief. In the course of argument he acknowledged (without conceding any validity of the point) that the First Defendant would not be in any worse position than he had been under the original agreements that he had entered in to and that any costs that Sainsburys and/or Groveholt incurred in carrying out the Infrastructure and Site Assembly costs had to fall under the terms of the original agreements and could not be determined under the agreements under which the work was actually carried out. He also acknowledged that Mr Hughes ought to be entitled to raise any challenge to the amount claimed if he could have done so under the Hughes/Chelverton Agreement.

This concession in my view demonstrates graphically why the Claimant’s case was not appropriate for summary judgment.

The Claimant contends that there is no issue because the Court of Appeal on the dismissal of the First Defendant’s appeal against Mr Nicholas Underhill QC’s judgment dismissing his summary judgment application not only dismissed his Part 24 application but also determined issues against him on that application in favour of the Claimant. That meant it is submitted that the Court of Appeal decision was res judicata and it would be an abuse of the process of the Court to enable the First Defendant to re-run issues which had been decided against him in the Court of Appeal. I do not accept this for the reasons set out below.

Before coming to the Court of Appeal decision it is necessary in my view to consider the various documents which are relied upon by the Claimant and which were considered in some way by the Court of Appeal.

This is the first agreement involving the development of the Property. This was a conditional agreement between Mr Hughes and Sainsburys dated 23rd December 1996 whereby Sainsbury agreed to buy part of the Site (the Property being a further part). This agreement was linked to a simultaneous Infrastructure contract which provided for Infrastructure Works as defined in this agreement. The purchase price was £7,300,000 plus VAT. The Completion Date was 15th January 1997 (subject to variations in respect of obligations to satisfy the conditions to which the agreement was subject). On completion Mr Hughes was entitled to £2,300,000 plus VAT. The balance was payable in accordance with clause 15.7.

Clause 15 provided a structure whereby the Infrastructure Works were to be ascertained. Clause 15.4 gave either party a right of rescission if the anticipated costs exceeded £5,000,000. Sainsburys (clause 15.5) was given an option in the event that the Infrastructure costs exceeded £5,000,000 to assume the liability at its sole expense and pay the excess as and when the sum became due.

The structure of this agreement therefore anticipated that in effect the Infrastructure Costs were expected to be £5,000,000 and that Sainsburys would assume the responsibility for that £5,000,000. However it was entitled to the return of that figure in stages as and when the Infrastructure Works were carried out by way of repayment of the Security Deposit (clause 15.11). Under clause 15.3 any dispute was referable to expert determination in accordance with clause 19.

In addition to providing a loan from Sainsbury to Mr Hughes this agreement dated 10th March 1998 varied the Hughes/Sainsbury’s agreement. It introduced new provisions in respect of Infrastructure Works by amending clause 15 as follows:-

“15 Infrastructure Works, Infrastructure Costs, Site Assembly Process and Site Assembly Costs”

15.1

Upon satisfactory Planning Permission being granted, the seller and the Buyer will, as soon as reasonably practicable:

15.1.1

review progress in relation to the Site Assembly Process and endeavour to agree the extent of matters outstanding in relation to, and any necessary variations to, the Site Assembly Process and the anticipated cost of the Site Assembly Process;

15.1.2

endeavour to agree the extent and detail of the Infrastructure Works taking into account the terms of the Satisfactory Planning Permission and any planning agreement relevant thereto; and

15.1.3

ascertain the anticipated cost of the Infrastructure Works by submitting the Infrastructure Works (as agreed pursuant to clause 15.1.2) to tender by at least 5 civil engineering contractors of national repute and of sound financial standing and competence for works of the type, size and scale involved.

15.2

Upon Satisfactory Planning Permission being granted, the Seller and the Buyer will continue to jointly manage and control the Site Assembly Process each using all due expedition and all reasonable endeavours to obtain the best practicable terms.

15.3

The Seller and the Buyer shall each at all times liaise with the other and keep each other fully informed in relation to the progress and cost of the Site Assembly Process. All the documentation in relation to the Site Assembly Process shall be in the joint names of the Seller and the Buyer unless otherwise agreed.

15.4

For the avoidance of doubt the parties may:

15.4.1

decide to seek from the appropriate authority assistance by way of CPO powers of whatever nature to be exercised against an unwilling adjoining land owner or any other party with an interest that could adversely affect the Site Assembly Process; and/or

15.4.2

have to propose, in view of a third party’s stance, a variation in the basis of the now anticipated Site Assembly Process and in such event the parties will endeavour to reach agreement upon such variation on the basis of the variation being reasonable and practicable in all the circumstances but in the event the parties cannot so agree, the issues shall be dealt with by and submitted for the determination of an expert in accordance with clause 19.

15.5

Following completion of the tender process referred to in clause 15.1.3 and completion of the Site Assembly Process the Buyer will enter into the Infrastructure Contract with a suitable contractor and upon terms including the amounts to be paid at various stages of the Infrastructure Works, such terms to be approved by the Seller which approval shall not be unreasonably withheld or delayed.

15.6

During the period commencing on the date falling 7 days after the latest of:

15.6.1

agreement of the anticipated costs of the Site Assembly Process pursuant to clause 15.1.1;

15.6.2

determination of the anticipated costs of the Site Assembly Process pursuant to clause 15.2; and

15.6.3

ascertainment of the anticipated costs of the Infrastructure Works pursuant to clause 15.1.3.

And ending on completion of the Site Assembly Process and the Infrastructure Works, the Buyer shall pay to the Seller on the last Working Day in each calendar month an amount equal to interest accrued on the Deposit at the Interest Rate.

15.7

Following completion of the Site Assembly Process and the Infrastructure Works, full account shall be taken as soon as reasonably practicable to ascertain the actual aggregate costs of the Site Assembly Process and the Infrastructure Works (such costs to include all VAT paid in respect thereof) (the “Actual Costs”). In the event that the Actual Costs are less than £5,000,000 plus VAT, the Buyer shall forthwith pay to the Seller (in full and final payment of the Price) the amount by which the Actual Costs are less than £5,000,000 plus VAT.

15.8

The Buyer shall bear the Actual Costs up to a maximum aggregate limit of £5,000,000 plus VAT and the Seller hereby acknowledges that payment of the Actual Costs up to such limit by the Buyer shall (subject to clause 15.7) be deemed to constitute payment of the outstanding balance of the Price.

15.9

To the extent that the Actual Costs exceed £5,000,000 plus VAT they shall be borne by the Seller and the Seller agrees to indemnify the Buyer on demand against all costs and expenses in excess of £5,000,000 plus VAT incurred by the Buyer in connection with the Infrastructure Works and/or the Site Assembly Process.

15.10

Any dispute relating to:

15.10.1

the extent or details of the Site Assembly Works and/or Infrastructure Works;

15.10.2

the actual costs of the Infrastructure Works or the anticipated or actual costs of the Site Assembly Process; or

15.10.3

the respective liabilities of the parties in relation to the Actual Costs,

shall be referred to an expert in accordance with clause 19.”

By virtue of this provision for some reason which remains unexplained Mr Hughes (clause 15.9) bore the responsibility of the cost of the Infrastructure Works if they exceeded £5,000,000 plus VAT. The dispute procedure was retained (clause 15.2).

This agreement is dated 9th April 1998. This was a sale of a further part of the Site adjacent to the land agreed to be sold to Sainsburys under the above mentioned agreements. Somewhat bizarrely recital (B) provided that Mr Hughes was bound by the terms of the Sainsburys agreement but it was confidential.

This agreement is the primary agreement which forms the present dispute. Mr Hughes’ entitlement is set out in clause 5 as follows:-

“5

Payments to the Vendor

5.1

The Purchaser will make the following payments to the Vendor conditional upon or dependant upon the following events: (and within 14 days thereof save for payment under clause 5.1.1 hereof which shall be paid on the Completion Date.

5.1.1

On completion – One million five hundred thousand pounds (£1,500,000) less the Deposit which will then be released to the Vendor

5.1.2

When the outline planning consent has been obtained for the development of a leisure site within the Property – Five hundred thousand pounds (£500,000)

5.1.3

On the obtaining of detailed planning consent for residential development in respect of a minimum of 16.8 acres of net developable area within the Phase One Residential Land – One million five hundred thousand pounds (£1,500,000) plus the amount X where X equals the number of acres of net developable area on the Phase One Residential Land in respect of which the said planning consent has been obtained in excess of thirty acres net developable area multiplied by Ten thousand pounds (£10,000) per acre

5.1.4

On the obtaining of outline planning consent or local plan inclusion for residential development in respect of a minimum of 25 acres of net developable area within Phase Two Residential Land – Two million pounds (£2,000,000)

5.1.5

On the obtaining of the outline planning consent for a food store development on the Sainsbury Land which meets the requirements of he Sainsbury Agreement – One million pounds (£1,000,000)”

There are then somewhat curious provisions in respect of the Sainsbury agreement in clause 8 as follows:-

“8

Sainsbury Agreement and Sainsbury Land

8.1

Both parties accept that the Sainsbury Agreement is subject to a confidentiality clause and that therefore the Purchaser will not bee able to see the Sainsbury Agreement until written consent to do so from Sainsbury is obtained (which will only be applied for if the parties hereto agree agreement not to be unreasonably withheld or delayed)

8.2

In the event that a planning consent for a food store development on the Sainsbury Land is obtained which meets the requirements of the Sainsbury Agreement

8.2.1

Sainsbury are obliged in respect of the outstanding price to be paid to the Vendor under the Sainsbury Agreement (being the sum of Five million pounds (£5,000,000)) to meet the Infrastructure Costs and the costs of Site Assembly including any necessary acquisition of the Railtrack Land (with any balance to be released to the Vendor)

8.2.2

For the avoidance of doubt the parties hereto acknowledge that the anticipated consideration to be paid for the Railtrack Land may be included as a cost of Site Assembly notwithstanding the agreement between the parties under clause 10 hereof

8.3

The Vendor warrants that it will procure that:

8.3.1

Sainsbury and the Vendor will comply with their obligations as to the said sum of Five million pounds (£5,000,000) and the provisions and use thereof

8.3.2

The Infrastructure Costs and costs of Site Assembly including the cost of acquisition of the Railtrack Land which is dealt with by Clause 10 hereof shall not exceed Four million five hundred thousand pounds (£4,500,000) and if they do exceed that figure the Vendor will pay or direct to be paid a sum equal to the excess to the Purchaser (it being acknowledged (for avoidance of doubt) that payment by the Vendor to the Purchaser of any such excess of those costs above Five million pounds (£5,000,000) will meet the obligations of the Vendor to Sainsbury in respect of such excess costs)

8.3.3

Any balancing payment due to be paid to the Vendor out of the sum of Five million pounds (£5,000,000) referred to in Clause 8.2.1 shall be paid to the Purchaser

8.3.4

Save for the encumbrances and matters referred to in Clauses 15 to 18 hereof there are no provisions of the Sainsbury Agreement which could be binding on the Purchaser which would materially prejudice the Purchaser in seeking the planning consents referred to in Clauses 5.1.2 to 5.1.4 or in developing the Property (save for those obligations which the Purchaser under Schedule 4 hereof agrees to undertake to meet)

8.4

The Vendor hereby irrevocably instructs the Vendor’s solicitors to direct Sainsbury that any such payment as referred to in Clause 8.3 above (including any release of monies to the Vendor from the Security Deposit) is paid to the Vendor’s solicitors and not directly to the Vendor and such payment shall then be passed by the Vendor’s solicitors onto the Purchaser in accordance with Clause 8.3 hereof

8.5

The Vendor undertakes with the Purchaser:

8.5.1

that the Vendor will not agree with Sainsbury any item of the Infrastructure Costs or the Costs of Site Assembly without the consent of the Purchaser it being acknowledged by the Purchaser that if the Vendor and Sainsbury do not agree the Infrastructure Costs or the Costs of Site Assembly the matter under the Sainsbury Agreement is referred to an expert for determination (and in the event of such reference to expert determination all submissions or representations by the Vendor to such expert shall be first approved by the Purchaser)”

Despite the apparent confidentiality of the Sainsburys/Hughes agreement (clause 8.1) Mr Hughes warranted that he would procure that he and Sainsburys comply with the obligations as to the sum of £5,000,000 and Mr Hughes agreed that if the Infrastructure costs and the Site Assembly costs exceeded £4,500,000 he would pay direct to the Purchaser i.e. Chelverton the excess (clause 8.3.2).

Somewhat surprisingly in my view therefore Mr Hughes agreed to pay if Infrastructure costs and Site Assembly costs (which were not carried out by him) exceeded that figure of £4,500,000. However there is no suggestion in the case that any of these agreements are not reflective of the bargains struck between the parties.

It should also be noted that whilst there is an alienation restriction as regard the agreements (clause 21.1) there is no restriction it is said (Mr Purle QC conceded this in the Court of Appeal) on the freehold title which Chelverton acquired pursuant to this agreement being sold on. This provision is contrasted with clause 22 which restricts the requirement to transfer the Property to someone other than the purchaser or somebody nominated. I should also observe that this agreement contains an entire agreement clause. Any sale of the freehold owned by Chelverton would of course be subject to the charge in favour of Mr Hughes conferred by clause 6.1 securing the monies due to him under clause 5.

The charge was not actually executed until 16th September 1998. On the same day Mr Hughes and Chelverton entered in to an agreement whereby Chelverton “will operate and comply with the obligations on the part of [Mr Hughes] as varied and imported by the Loan Agreement and would use all reasonable endeavours to obtain compliance by Sainsburys with the obligation on its part in clause 15 and would not agree to any variations of clause 15 and the obligations of the parties thereto without the prior consent of Mr Hughes not to be unreasonably withheld or delayed”.

On that same day (16th September 1998) Mr Hughes, Chelverton and Sainsburys entered into a Novation Deed. That recited the Hughes/Sainsburys Agreement, the Loan Agreement and recital (C) states:-

“Sainsburys has agreed to release and discharge Mr Hughes from and Chelverton has agreed to assume the obligations of Mr Hughes to Sainsburys under the Hughes/Sainsburys Agreement and Mr Hughes agreed to release and discharge Sainsburys from its obligations to him under the Hughes/Sainsburys Agreement”.

The result of the Novation Agreement was that Mr Hughes released Sainsburys and Sainsburys released Mr Hughes, Chelverton assumed all the obligations of Mr Hughes to Sainsburys and Sainsburys agreed to be bound by all of its obligations in favour of Chelverton as if it had been a party to it.

Thus Mr Hughes was released from his obligation to pay Sainsburys any excess of the Infrastructure and Site Assembly costs if it exceeded £5,000,000 plus VAT under clause 15.9 of the Hughes/Sainsburys Agreement as varied by the Loan Agreement. However Chelverton by virtue of the Novation Agreement assumed that obligation. Thus Chelverton was obliged to pay Sainsburys if the Infrastructure and Site Assembly costs exceeded the figure of £5,000,000 plus VAT.

Mr Hughes therefore is out of the Hughes/Sainsburys Agreement and the Loan Agreement and has no power directly to control matters which arise out of those Agreements.

Nevertheless there was apparently no release of his promise (now back to back) to pay Chelverton if the Infrastructure costs exceeded £4,500,000 under clause 8.3.2 of the Hughes/Chelverton Agreement and the charge executed pursuant to it. This too seems to me surprising. However it is not suggested that that arrangement did not comply with the parties intentions.

On the same day (16th September 1998) Sainsburys and Chelverton entered in to an agreement which was stated to be supplemental to the Hughes/Sainsburys Agreement, the Loan Agreement and the transfer made immediately before whereby the premises comprised in the Chelverton Agreement were transferred by Mr Hughes to Chelverton, the Novation Agreement and an option.

Mr Hughes is not a party to this agreement.

Clause 7 gave Sainsburys rights if Chelverton failed to carry out and complete the Infrastructure Works as defined in the “main Agreement”. Once again if Sainsburys exercised that right if the costs exceed £5,000,000 Chelverton are obliged to reimburse it to Sainsburys. However the counter obligation of Mr Hughes under the Chelverton/Hughes Agreement of course apparently still remains in place.

Interestingly clause 9 prohibited Chelverton from selling the land it acquired from Mr Hughes without requiring a transferee to enter in to a direct relationship with Sainsburys under the terms of the Hughes/Sainsburys Agreement. That arrangement was protected by a restriction at HM Land Registry clause 11. The absence of such a corresponding provision in the Hughes/Chelverton Agreement has in my view created the difficulty in the present case as regards the dispute with Mr Hughes and Chelverton as Chelverton was enabled to transfer the Property on to Groveholt without his consent but of course subject to his charge. Nevertheless that divorced the obligations under the various agreements to the Infrastructure Works from the ownership of the Property. Notwithstanding all of this Mr Hughes bore the ultimate responsibility if the Infrastructure costs overran the sum of £5,000,000.

This agreement is dated 21st December 2000 i.e. some 2 years after the main Agreement. Mr Hughes was not a party to it. By clause 5 Groveholt took over the responsibilities of carrying out the Infrastructure Works in accordance with the Hughes/Chelverton Agreement and the Hughes/Sainsburys Agreement.

Clause 6.3 gave Chelverton an indemnity from Groveholt from all demands or costs arising against Chelverton by reason of any failure to comply with the Chelverton obligations (which are those assumed under the Novation Deed) notwithstanding that Sainsburys might not accept that Chelverton could pass on the responsibility.

The final relevant document is dated 2nd April 2004 between Sainsburys and Goveholt. Once again Mr Hughes is not a party although he is referred to in unnecessary terms in the definitions.

By this agreement (clause 2.3.1) Sainsburys covenanted to complete the Site Assembly process and (clause 3.2) at its own cost to carry out the Infrastructure Works as defined.

Groveholt’s case is that the Infrastructure and Site Assembly costs are £13,354,623.20 being nearly £9,000,000 in excess of the £4,500,000. It contends therefore that Mr Hughes has no claim for the balance of the purchase price under clauses 5 and 11 of the Hughes/Chelverton Agreement. The Hughes charge was discharged by the relevant monies being paid in Court in the redemption action to abide the result.

Of course it could have gone beyond that. Under the terms of the Hughes/Chelverton Agreement referred to above Mr Hughes would have been under an obligation to pay that £9,000,000 excess to Chelverton. Thus Mr Hughes on that analysis would have in effect contributed his land to a development and paid many millions as the price for doing so. I find it difficult to believe anybody intended Mr Hughes to have such a charitable disposition in favour of the likes of Sainsburys.

It appears that the works have been done by Sainsburys. If they have done them however they have done them under the terms of the Groveholt/Sainsburys Agreement to which Mr Hughes was not a party.

The question for consideration is what is deductible as against the balance of the purchase price which was charged on the land sold under the Hughes/Chelverton Agreement. That dispute is now between Groveholt as owner and Mr Hughes as mortgagee. They have never been in a direct contractual relationship.

Chelverton went in to Creditors Voluntary Liquidation from 15th October 2002. By notice as filed on 11th December 2003 the liquidator disclaimed both the Hughes/Chelverton Agreement and the Deed of Novation under section 178 Insolvency Act 1986. It will be noted that the liquidator did not disclaim the Chelverton/Groveholt Agreement dated 21st December 2000. That preserves therefore in the hands of Chelverton Groveholt’s indemnity under 6.3.

The consequence of the disclaimer in respect of the Hughes/Chelverton Agreement (fortunately for Mr Hughes) eliminated his obligation to pay Chelverton the excess in Infrastructure Works. All parties agree that is the case.

Mr Hughes applied for summary judgment as a result of the disclaimer. The application was based on an argument that the result of the disclaimer by the liquidator of the Hughes/Chelverton Agreement that meant that the offset provisions as regards the Infrastructure Works had come to an end so that there were no sums that were capable of being set off against the purchase price. Thus it was contended that Mr Hughes is entitled to the entirety of the purchase price free from any prospect of it being abated because of the Infrastructure Works exceeding the figure of £4,500,000 under clause 8.3.2.

Mr Hughes’ application was dismissed. The reasoning for the decision is to be found in paragraphs 17 and following of Mr Underhill QC’s judgment.

I have already observed that the Groveholt initial stance was that the whole matter was not suitable for summary judgment. Having obtained the victory however Groveholt’s stance is not only has the matter been determined as against Mr Hughes in respect of his application but that there are certain consequential findings by Mr Underhill QC which were upheld by the Court of Appeal which entitle it to seek summary judgment.

Those arguments flow initially from paragraph 8 of Mr Underhill QC’s judgment which states as follows:-

“[8] It should be noted that the Chelverton agreement contains no machinery for the ascertainment of the preparatory costs such as appeared in the Sainsbury agreement. Any reduction to the overage payments is to be calculated, and the resulting net payment made, at the point when the costs become 'known'/'known and certain' in accordance with the provisions of cll 11.1 and 11.2. Nor does the Chelverton agreement specify who shall have borne (or be liable for) the costs: that omission is no doubt deliberate, since, whether the costs were directly borne by Sainsbury or by Chelverton (or by any subsequent purchaser from either), they would constitute costs of the development, which would reduce the commercial value of what Chelverton was paying for.”

Mr Strauss QC fastens on the part in parenthesis “by any subsequent purchase from either”; thus he submits Mr Underhill QC determined that Infrastructure Works carried out by Groveholt were deductible against the purchase price.

As the arguments developed Mr Strauss QC retreated from that. At first sight it would appear (and this was the thrust of Groveholt’s original Part 24 application) that it was their case that in effect all of the Infrastructure Works that were carried out by Sainsburys under the Sainsburys/Groveholt Agreement effectively were deductible. This seems to me to be an unlikely scenario. I did not see how arrangements could be made between parties who were not a party to the Hughes/Chelverton Agreement could increase (or decrease for that matter) Mr Hughes’ liability or exposure under that Agreement. Faced with that proposition Mr Strauss QC acknowledged that the ascertainment of the Infrastructure costs under the Hughes/Chelverton Agreement must be ascertained in accordance with that agreement.

That necessarily involves in my view a careful examination of what works were done, by whom, at what cost and whether those works would fall within the ambit of the Hughes/Chelverton Agreement.

Mr Strauss QC also acknowledged that it was open to Mr Hughes on that analysis to raise any argument in respect of those claimed costs which would have been open to him under the Hughes/Chelverton Agreement. It is possible that he can dispute the manner in which the works were carried out (for example delay) under clause 15.10 of the Hughes/Sainsburys Agreement as modified by the Loan Agreement on the basis that Chelverton would have had that right by virtue of the Novation Agreement. Thus Chelverton could not “overload” Mr Hughes’ exposure by failing to enforce that provision. This is reinforced by clause 1.1 and 1.2 of the Agreement dated 16th September 1998 (Hughes/Chelverton Agreement).

It was canvassed in debate whether or not there will be an implied term to that effect. No final submissions were made in that regard and it remains in my view arguable as to whether or not an implied term would be incorporated in the Hughes/Chelverton Agreement.

For my part I am not convinced that Mr Underhill QC decided definitively that costs carried out by Groveholt as purchaser as opposed to Groveholt under an obligation to Chelverton fall to be deducted. I do not regard paragraph 8 as being anything other than an observation which may or may not have been correct. I do not think the point was seriously argued by either side and in my view all arguments as to whether or not that intended a purchaser to have a direct right of deduction remain open.

Mr Strauss QC submits that the Court of Appeal effectively endorsed paragraph 8 of Mr Underhill’s judgment because they did not criticise it nor overrule it.

The judgment of Jonathan Parker LJ analyses Mr Underhill’s judgment in paragraph 42 and following. He does not deal with paragraph 8 of Mr Underhill’s judgment. It will be seen that the grounds of appeal (referred to in paragraph 57) are based on the effect of the disclaimer under section 178 IA 1986. Groveholt put in a Respondent Notice but nothing turns on that.

I was taken to the arguments that were deployed in front of the Court of Appeal and the skeleton arguments and the exchanges between Mr Purle QC counsel for Mr Hughes and Lord Justice Jonathan Parker. In my view it is dangerous to analyse arguments in this way with a view to attempting to determine what the Court of Appeal decided. Many things are debated during the course of arguments; some of them are often referred to in judgments but it does not mean that the Court of Appeal is pronouncing on those matters.

Thus Lord Justice Jonathan Parker in commenting on the judgment (paragraphs [42]-[63]) and commenting on the arguments on behalf of Mr Hughes (paragraphs [63]-[78]) makes no reference at all to paragraph 8 of the Judge’s judgment below.

Further when he analyses the judgment on behalf of Groveholt (paragraph [79] to [93]) he similarly failed to address paragraph 8.

In my judgment the only clear issues decided by the Court of Appeal were twofold. First the Court concluded (and this is not open to challenge by Mr Hughes in view of that decision) that the construction of the Chelverton Agreement which entitles Mr Hughes to additional purchase consideration would not make commercial sense if the costs of putting the site in to a state where a development was subject to those planning consents could be implemented is not taken into account. The argument to the contrary it was said flew in the face of “business common sense” see paragraph [97] as follows:-

“[97] In any event, a construction of the Chelverton agreement which had the effect of entitling Mr Hughes to additional purchase consideration in respect of the planning consents without taking full account of the costs of putting the site into a state where the development the subject of those planning consents could be implemented would, in my judgment, be to fly in the face of 'business common sense' (to use Lord Diplock's expression in The Antaios (see para [72] above)). The provision for additional purchase consideration in cl 5 reflects the fact that the grant of a relevant planning consent will increase the value of the Chelverton land in the hands of Chelverton. But that increase in value must inevitably be dependent upon the amount of the preparatory costs which a developer will have to incur. So I can see no commercial sense in an additional purchase consideration which does not reflect the amount of those costs.”

The Court of Appeal clearly determined that Mr Hughes in claiming his entitlement to an enhanced price for the Property was subject to a requirement to give credit for the works that were carried out to enable that enhanced value to be achieved. What the Court of Appeal did not do was give any guidance as to how that exercise was to be decided. It arises under the Hughes/Chelverton Agreement but Chelverton of course is not a party to the current dispute. Self evidently Groveholt is not a party to that Agreement. Equally the works do not appear to necessarily have been done under the auspices of the Hughes/Chelverton Agreement. I say necessarily because no disclosure has taken place and as I have set out above there are other contractual arrangements between different parties which were applicable to the work. In particular it is significant that whilst Chelverton disclaimed the Hughes/Chelverton Agreement it did not disclaim the benefit of the Chelverton/Groveholt Agreement and in particular the obligations on behalf of Groveholt to carry out the Infrastructure Works and its indemnity against the obligations arising under the Novation Deed.

Finally in this context I point out that the actual works were apparently carried out by Sainsburys under the Sainsburys/Groveholt Agreement.

Chelverton of course cannot enforce the Hughes/Chelverton Agreement because it disclaimed it. That had a benefit if that is the right word to Mr Hughes because of the over exposure in the light of the apparent costs of the Infrastructure Works. What is happening now is that whilst Groveholt freely assumed an obligation to Chelverton to carry out the Infrastructure Works and passed that liability on to Sainsburys it now seeks to recover by way of set off against Mr Hughes’ purchase price the costs under the Hughes/Chelverton Agreement. Of course its land is subject to that charge but it never took over the obligations expressly of the Hughes/Chelverton Agreement.

I do not see absent disclosure, absent a full investigation of the inter relation of the various Byzantine contracts and how that impacts on the surviving provisions of the Hughes/Chelverton Agreement any clear progress of the implementation of the principle set out in the Court of Appeal can be achieved.

Mr Hughes has raised various arguments one of which is a matter of construction that no claims can be made if the work was done by Sainsburys but not under the Chelverton/Hughes Agreement. Such an argument in my view is not open to Mr Hughes as a result of the Court of Appeal decision which plainly decided that if work was done that enhanced the value then credit must in some way be given for that. It was the examination of that principle which led to the changes in stance of Groveholt during the Part 24 hearing as set out above. Disclosure in my view is necessary (not in all probability limited to the parties to this litigation) in order to see how the Infrastructure Works were carried out. This is not as Mr Strauss QC submitted seeking to look at ex post facto events as an aid to construction of the Hughes/Chelverton Agreement; it is more a question of finding out what actually happened. Subject to the overriding decision of the Court of Appeal it seems to me that all arguments remain open and cannot be finally determined at this stage.

The other part of the Court of Appeal decision related to section 178 IA 1986. Here the Court of Appeal determined that the disclaimer did not affect any third party. Groveholt is a third party which means that the Hughes/Chelverton Agreement is still alive for the purpose of ascertaining the amount secured on the Property. I do not see that the Court of Appeal decided anything else clearly. In particular I do not see that the Court of Appeal expressed a view on paragraph 8 of Mr Underhill QC’s judgment and for the reasons I have set out above I do not accept that part of Mr Underhill QC’s judgment is a determination that the works carried out by a purchaser can be deducted under the Account taken on redeeming the charge over the Property. That too remains open.

Accordingly it is possible that works carried out by Sainsburys through the Groveholt/Sainsburys Agreement and thus through the Chelverton/Groveholt Agreement may have a direct effect on reducing the purchase price secured on the Property by virtue of the Hughes/Chelverton Agreement. It is equally possible that the works that were carried out were carried out as an agent for Chelverton and thus are claimable on that basis. It remains open in my view to Mr Hughes to argue that a purchaser per se who carries out the works cannot claim deduction under the Hughes/Chelverton Agreement. However that is to be tempered by the finding of the Court of Appeal that as a matter of “business common sense” costs of enhancement works is deductible. What is required is the finding of the route whereby works that were carried out can be ascertained as falling under the Hughes/Chelverton Agreement. It also remains to be ascertained whether or not Mr Hughes can raise any claim under the Hughes/Chelverton Agreement to challenge or reduce or even eliminate any part of the costs. However merely because work is carried out it does not follow that it enhances the purchase price. What has to be looked at is what was done, how it was done, under what contractual relationship and the extent to which it falls within the Infrastructure Works determined in accordance with the Hughes/Chelverton Agreement. Finally it has to be determined whether or not Mr Hughes has any other claims to reduce or eliminate any such amount.

It is plain from the above I hope that I do not see that this is a case for summary judgment. I will therefore dismiss Groveholt’s application.

I will hear further submissions as to costs and (in my view more importantly) submissions to set a timetable so that this dispute can be brought to trial this year if possible. The parties should attend with availability and estimates of length of hearing so that a realistic timetable can be set.