Anglo Continental Educational Group (GB) Ltd v Capital Homes (Southern) Ltd

The Claimant is the freehold owner of a property consisting of two houses at 10 and 12 Cavendish Place, Bournemouth, Dorset (“the property”). On 4 January 2006 it entered into a contract (“the contract”) to sell the property to the Defendant. The contract was negotiated and concluded on the basis, reflected in the contractual provisions, that the Defendant intended to redevelop the property into residential flats, requiring not only the grant of planning permission but the release of restrictive covenants preventing any such development.

The contract contained the following terms relevant to the dispute which is the subject of this action:

Applications by the Defendant for planning permission for fourteen and thirteen two-bedroom units were rejected by the planning authority and on appeal. By letter dated 14 February 2007 the Defendant gave notice under Clause 14.8 waiving the condition precedent of planning permission. In consequence, the contract fell to be completed on 26 March 2007. At that date, the parties were in disagreement as to the amount that the Defendant was required to pay. That dispute turns on the definition of the Purchase Price contained in Clause 1.1, and to resolve it both parties seek in this action declarations as to the meaning and effect of the contract. Though, as I was told by way of background, the Defendant has since obtained planning permission for nine units, the contract has still not been completed, but I was assured (without further explanation) that the declaratory relief sought by each of the parties was still of practical significance.

The basis of the dispute was the absence of any agreement with the covenantees at the completion date for payment of fees for release of the covenants. Enquiry had been made at an early stage by the Defendant of the covenantees, who were the trustees of the local estate. They had indicated - without commitment - a likely charge of £8,000 to £10,000 per unit, but the matter had not proceeded to a formal request for release, no doubt because of the then absence of planning permission.

The stance adopted by the Claimant at the completion date, and maintained in this action, was that the full £862,000 was payable without deduction. Given that no planning permission had been obtained by the completion date, it was argued that no amount was required for release/variation of the covenants to enable the Development to be implemented. The Claimant also argued that no such amount could be said to be required in the absence at the completion date of an agreement with the covenantees.

The Defendant’s contention was that a deduction was to be made for the cost of obtaining the release of the covenants, but that in the absence at the completion date of an agreement with the covenantees the cost of obtaining the release was to be the best estimate available of such cost subject to adjustment when it was concretised by such an agreement. On this basis, the Defendant had before the completion date offered to tender a sum equal to the £862,000 with a deduction of £141,762.50 . ( This was at the upper range of the fee which had been indicated earlier by the covenantees and based on a maximum 14 units.) Counsel for the Defendant accepted that this result could not be obtained by construction of the Agreement, but argued that a term to this effect should be implied.

I am unpersuaded by the submissions of either party.

The contract proceeded on the basis that the cost of clearing the title of the restrictive covenant should be for the account of the seller, achieved mechanically by a deduction from the £862,000. Whether, when, and for how many units the buyer could exploit the release by actually developing the property - which would depend on planning permission -are quite different questions. If it could not obtain planning permission within the contractual timetable, or not for the full 14 units, this could not sensibly have been intended by the parties as a reason why the buyer should pay more for the property than if it had not suffered these commercial misfortunes, which actually or potentially depressed its value. Nor is there any good reason why the price should depend on whether the covenantees had agreed a figure for release by the date of completion, a matter over which the Claimant did not have total control.

The Claimant’s suggested construction, therefore, in my judgment makes no commercial sense. The contract clearly requires a deduction to be made from the £862,000 to arrive at the purchase price. The question is how - in certain circumstances including those in the present case - the amount of the deduction is to be determined.

The Defendant is therefore right to focus on the subject of ascertainment. Its proposed answer, in the shape of the suggested implied term, is however in my judgment unwarranted.

Firstly, I find it impossible to conclude that the parties, had they focussed on the question at the time of signing the contract, would necessarily have regarded this implied term as the obvious answer. Its complexity (which Counsel found necessary to extend in oral argument to cover the question of interest on an over- or under-payment) in itself speaks against such a conclusion. Even then it fails to address such important matters as to how the estimate is to be made and on what basis. Though Counsel suggested that in the event of dispute it could be determined by the court, it was to my mind very far from obvious that the parties would have wanted litigation directed to a merely provisional determination of the price of the property.

Secondly, the contract provides for the Purchase Price to be paid at completion. Its amount must accordingly be determined at that date, and cannot therefore depend on a subsequent event such as the content of a future agreement with the covenantees. The implied term could have two results, depending on the estimate. The first would be to require the buyer to make at completion a payment in excess of the Purchase Price, for which there is no glimmer of warrant in the contract. Alternatively, it could lead to payment of part of the Purchase Price being postponed to a future date, a result in impermissible conflict with the express terms of the contract.

For these reasons the court cannot in my view properly imply the term proposed by the Defendant.

I must therefore refuse the declarations sought by both the Claimant and the Defendant.

When I adverted to this possibility in the course of submissions, Counsel for both parties suggested that I should make a declaration setting out my own view as to the correct meaning and effect of Clause 1.1 of the contract. However tempting the invitation, I have serious doubts whether I have jurisdiction to do so, and in any event I do not consider such a course to be appropriate. At least in the case of a contractual dispute, a declaration should only be made on the basis of a submission advanced by one of the parties, rejected by the other, and tested by adversarial argument. Moreover, as I indicated in Paragraph 3 above, the court has not been made aware of the reasons why the action has continued despite some significant events since the completion date, or of the nature of the parties’ current differences.

I therefore intend to order that