Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd

In December 2013 the Claimant (‘Minerva’) obtained planning permission from Wandsworth Borough Council for a large and complex building regeneration scheme for an area in the borough known as the Ram Brewery. The Ram Brewery ceased operating 2006 and the site it occupied, together with adjacent land was earmarked for development. The site, which is located in London about 7 miles south west of the city centre, was acquired by the Claimant in 2007 or 2008.

The scheme for which planning permission was granted included the demolition of many existing buildings and the construction of several new buildings including a tower, referred to in the plans as Block 5, which would be 34 storeys high (‘the Tower’). It would have retail units at the ground floor level and then floors of apartments including some duplex apartments on the top two floors. The proposal sought consent for retail and residential uses together with a small-scale brewery and a museum. The plans also included the creation of public areas and a river walkway by the River Wandle that cuts through the site. As a condition for obtaining the planning permission of December 2013, Minerva had entered into an agreement with Wandsworth pursuant to section 106 of the Town and Country Planning Act 1990 (‘TCPA’). That section provides that any person interested in land in the area of the local authority may enter into an enforceable planning obligation to do something on the land or to pay the authority a sum of money. Under this agreement (‘the Original 106 Agreement’) Minerva took on various obligations including an obligation to build a certain number of affordable houses on the site (not as part of the Tower) and to pay up to an additional £1.2 million as an affordable housing contribution if the sales of the accommodation they planned to build sold for more than was expected.

Shortly before they had obtained this planning permission, which I will refer to as the “extant planning permission”, Minerva had sold the whole site to Greenland Holding Group Overseas Investment Company Ltd for £135,735,800. Minerva hoped to be able to improve on the extant planning permission by adding extra storeys to the Tower. The agreement between the parties for the sale of the site therefore incorporated terms the effect of which was that Minerva was entitled and obliged to apply for an enhanced planning permission for the site. If Minerva achieved a resolution by Wandsworth for an enhanced planning permission before 20 October 2014 then, if certain conditions were satisfied, Greenland would have to pay Minerva overage of £200 psf of additional saleable space. Under the sale agreement, Minerva had to submit its plans for the changes to the Tower to Greenland for its consent before applying for enhanced planning permission from Wandsworth. That consent from Greenland was subject to a tight timetable and could not be unreasonably withheld.

Between January and March 2014 Minerva pursued the idea of adding an additional 10 storeys to the Tower. This was abandoned because Wandsworth was unlikely to approve such a major increase in the height of the Tower in the period just before local elections were being held in May 2014. Later Minerva drew up plans to seek approval from Wandsworth for only two additional storeys to be added to the Tower, something which would generate additional revenue for Greenland but be less controversial from the Council’s point of view.

Minerva say that they made two requests to Greenland to approve the submission of an enhanced planning application to Wandsworth. The first request was made by email on 8 July 2014 and was refused by Greenland by an email on 9 July 2014. Minerva contend that the refusal was unreasonable. Minerva made a second more formal request by letter sent on 11 July 2014. Greenland replied to that on 17 July 2014 saying that it would need at least four weeks to consider the request. Minerva contend that that reply is to be treated as a failure by Greenland to respond so that according to the sale agreement, Greenland was deemed to have consented to Minerva making the application.

Despite the absence of Greenland’s consent, Minerva submitted an enhanced planning application to Wandsworth on 18 July 2014. A resolution to grant the enhanced planning permission for the two extra floors to be added to the Tower was passed by Wandsworth just before the deadline set in the sale agreement.

However, Greenland later refused to enter into the additional agreement pursuant to section 106 TCPA with Wandsworth upon which the actual grant of planning permission depended (“the Revised 106 Agreement”). The Revised 106 Agreement required Greenland to make an affordable housing contribution of £1.75 million in addition to the contribution already agreed for the extant scheme. Because the Revised 106 Agreement was not signed by Greenland, the planning permission that Wandsworth had resolved to grant was never granted and the resolution lapsed.

Minerva contend that Greenland’s refusal to enter into the Revised 106 Agreement with Wandsworth was a breach by Greenland of the sale agreement. They therefore claim in these proceedings damages for breach of contract in the sum of the overage they would have earned had planning permission being granted.

Greenland dispute this claim. They argue that only one request for approval for their consent to the submission of the enhanced planning application was made but that this request was invalid because it was not accompanied by the documents which Greenland needed to be able to assess whether to give its consent or not. They further argue that their reasons for refusing consent to the first request were good reasons under the contract. They say that Minerva was itself in breach of its obligations under the sale agreement because it failed to keep Greenland informed of the consultations and discussions taking place between Minerva and Wandsworth and between Minerva and its various building project consultants in the lead up to the request for Greenland’s consent. This meant that Greenland was bounced into having to decide whether to consent or not in too short a time and on the basis of incomplete information.

Further, Greenland argue that they were entitled subsequently to refuse to enter into the Revised 106 Agreement with Wandsworth because the conditions which had to be satisfied before their obligation to do so arose were not met.

The planning process

Before describing the factual background to this dispute, it is important to understand some basic concepts used in the planning permission process.

Section 73 of the TCPA

The application made by Minerva to Wandsworth on 18 July 2014 for enhanced planning permission was made under section 73 of the TCPA (‘section 73’). Section 73 concerns applications for planning permission to develop land where the developer does not want to comply with conditions which have previously been imposed in a planning permission granted for the site. Section 73(2) provides that where such an application is made, the local planning authority must consider only the question of the conditions subject to which the planning permission should be granted. The authority can decide to vary the conditions or grant the permission unconditionally or they can decide to refuse the application in which case the existing conditions remain in place.

Greenland stressed and I accept that although section 73 contemplates an existing planning permission which the applicant now wants to vary, the application is for a new planning permission and not simply an alteration of the existing planning permission. What is granted if the section 73 application is approved by the Council is a new planning permission not a variation of the old one.

Section 106 agreements and affordable housing contributions

Section 106 of the TCPA allows the local planning authority to attach conditions to the grant of planning permission. The authority can impose obligations on the developer to provide amenities or services to the local population that they might not otherwise want to include in their plan. One of the obligations that the local authority includes in the section 106 agreement is an obligation on the developer to provide affordable housing. This obligation can take a variety of forms. The developer can be required to include affordable housing among the residential units that it plans to build on the site. As well as or instead of building affordable housing, the developer can be required to make a payment in lieu to the local authority. This money is then used by the local authority to pay for affordable housing built somewhere else.

The decision by the authority as to how much affordable housing the developer of a particular site should be required to provide or how big a payment it should make in lieu of providing affordable houses depends on an assessment of the viability of the development scheme. Viability in this context does not mean simply that a development will be profitable but rather that the development is likely to generate more profit for the developer than the developer needs to have enough incentive to bring the land forward for development. An important part of the negotiation between the developer and the authority is therefore the preparation of a viability appraisal, working out how much surplus profit the developer is likely to make if the project is built according to the proposed permission.

How the local planning authority should go about assessing the right level of affordable housing contribution to impose on a developer of a particular site is the subject of policy and guidance which the authority is required to take into account. Policy and guidance is published at a national level, at a London-wide level and at a local borough level. National Guidance on planning matters was issued in March 2014. It is a web-based resource that is frequently updated by the Government. The National Guidance states that decisions on individual schemes must be underpinned by an understanding of viability ensuring that realistic decisions are made to support development and economic growth. It goes on to say that viability appraisals should be based on current costs and values. It also emphasises that affordable housing contributions should not be sought without regard to individual scheme viability. Guidance and policy issued at the London level and at the Wandsworth level also stress the importance of a viability appraisal in determining how much the developer should contribute to the borough’s affordable housing needs.

Different ways of appraising the financial merits of a planning proposal

The important point about a viability appraisal is that it does not focus on the individual circumstances of the developer who is seeking planning permission but posits a notional developer who will want to earn a set level of profit before it decides to go forward with the development. A viability appraisal therefore requires the following calculation. First there needs to be an assessment of how much money is going to be generated by the development when it is complete. This is referred to as the Gross Development Value or GDV. The GDV includes the likely sales proceeds of residential accommodation and will be affected by whether all the residential accommodation is going to be sold on the open market or whether some of it will be designated affordable housing and so will generate less than the market value. If some accommodation units are going to be leased rather than sold, there will be a capitalised sum representing the future income stream whether of ground rent for long lease residential units or annual rent for commercial units.

The second step is to work out the costs that the developer must incur to develop the site to generate that GDV including construction costs and professional fees. These costs also include the value of the land. For viability appraisal purposes the figure for the value of the land is not set at the price which anyone has in fact paid for the site or which anyone might ever pay for the site. Instead it is a hypothetical value given to the site for the purposes of the viability appraisal having regard to the existing use to which the land is being put or the alternative use to which it could be put. The correct value of the land to be included in the viability appraisal in respect of the Ram Brewery is an important area of dispute between the parties. The other ‘cost’ element is the profit to be earned by the developer. Again, this is not the actual profit which this developer expects or hopes to achieve from the development but is a hypothetical percentage return which the local planning authority recognises a notional developer will want to earn to be incentivised to bring the land to development. This therefore disregards any characteristics of the particular developer, for example that they may be prepared to develop the land on the basis of a lower expectation of profit for their own commercial reasons or alternatively that they might want a greater profit than the authority considers is appropriate.

The construction costs, the hypothetical price of the land and the reasonable profit are then deducted from the GDV. The amount left over is usually referred to as the surplus. If the surplus is a positive figure then that represents the additional return which the scheme is expected to generate over and above a reasonable return for the developer. That surplus is then taken to be the maximum amount which the local planning authority can ask the developer to pay towards affordable housing and still leave the development viable for this purpose.

One can see that when the developer is drafting its viability appraisal to present to the local authority to start the negotiations for the section 106 agreement, it will tend to lower the estimated proceeds of sale, increase the estimated costs of achieving the development (including the value of the land) and add as high a notional profit as is likely to be acceptable. Conversely the local authority will be scrutinising the level of costs to ensure that they are realistic and will be looking closely at how the value of the land has been calculated.

A viability appraisal can be contrasted with a developer’s appraisal. This is a calculation used to work out the likely profitability for a developer of a particular development scheme. It will also involve the developer in working out the net realisation to be received from the sale of the various component parts of the development and in calculating the costs to be incurred to get to the position to have those components for sale. But for this computation, the value of the land included in the calculation will be the actual price of the land that the developer has paid or expects to pay rather than a hypothetical price. The level of profit to be earned is not an input into the calculation as it is with the viability appraisal but is the output which the developer is trying to explore. A developer’s appraisal is therefore a way of working out this particular developer’s likely return on capital so that it can decide whether the development is likely to be sufficiently profitable to make it worth while to go forward with the project.

A third kind of calculation may be carried out by the developer if it wants to work out how much it should pay for the site. This is sometimes referred to as a residual land valuation. Since the point of this valuation is to work out what the site is worth, the developer will calculate the net realisation value of the completed components in the development, the construction costs and professional fees not including the land and then use a reasonable profit level that the developer wants to earn from the project. The residual land valuation therefore enables the developer to find out, given the likely proceeds of sale, costs of construction and the level of profit it would like to make from the proceeds of sale, what it can afford to pay for the site in order for the project to be worth while.

The parties and witnesses at the trial

Minerva

Minerva is a subsidiary company of a joint venture company Minerva Limited. Delancey Real Estate Asset Management Limited (‘Delancey’) provides development and asset management services to Minerva Limited and its subsidiary the Claimant. The main witness on behalf of Minerva, Mr Mark Enderby, is in fact not employed by Minerva but is the development director of Delancey. Mr Enderby first became involved with the development of the site in early 2012 when Delancey took over the development management. The other person heavily involved in the discussions between Minerva and Greenland throughout the relevant period was Richard Chambers who was not called to give evidence.

Various consultants and advisers were engaged by Minerva in relation to the development of the Ram Brewery site:

Although the work product of the consultant witnesses was the subject of criticism by Greenland, there was no attack on their credibility as witnesses and I find that they were all honest and straightforward witnesses doing their best to assist the court.

Greenland were however very critical of Mr Enderby as they regard him as primarily responsible for what they describe as a deliberate decision to keep Greenland in the dark about the evolving plans for the two storey addition to the Tower. I do not accept that Mr Enderby was an untruthful witness or that he was trying to mislead the court. It is true that some of his recollection was shown to be inaccurate when further documents were discovered part way through the trial. But a witness’ evidence is necessarily based on reconstructing in his mind what he did and thought at the time from the relevant email traffic. The fact that that recollection may change in the light of new documents does not mean that the witness was previously trying to mislead the court.

Greenland

The Greenland Group is one of the largest real estate developers in China based in Shanghai. It was formed in 1992 initially for Chinese domestic investments but it is now involved in projects globally. The defendant company is a subsidiary company of Greenland Holding Group Overseas Investment Company Ltd (“Greenland Holding”) registered in China. The Defendant now has 37 employees in the UK, based in London.

The witnesses giving evidence for Greenland were:

Mr Qian and Mr Ma both said in their witness statements that they were rarely the author of, or the direct recipient of, email correspondence as they do not read or speak fluent English. When they did receive or send an email, a member of the team in London would translate for them. Similarly, if a telephone call or meeting was conducted in English, one of the team would be present to translate for them. They both gave their evidence through interpreters. Through no fault of theirs or of the interpreters this proved a rather laborious and unsatisfactory process which made it difficult for me to form any clear view of their credibility or the accuracy of their recollection. Some of their evidence, as I describe later seems to me implausible but in the event, nothing much turns on this as there were no significant conflicts of evidence that are key to the issues I have to decide.

Ms Miao gave her evidence in English and was a clear and helpful witness. Another Greenland person involved in the events was Mr Zhou who was the director of marketing.

Minerva criticises Greenland for disclosing almost no internal documents for the period 30 June to 9 July 2014 during which there must have been internal discussions about the response to the request from Minerva for consent to the planning application. The Greenland witnesses say no such documents exist because their practice was to discuss things face to face rather than write them down. This strikes me as a surprising way to conduct business nowadays even in a small company, especially given that the subsidiary was set up here to enter into major development projects for which it would presumably be accountable to the group in Shanghai. Minerva also criticise Greenland for not calling Ms Wang to give evidence as she was present at some of the key meetings and must have been involved in the discussions within Greenland on how to respond to the requests for consent. No reason was given for Ms Wang not being called since it appears that she still works for Greenland in China. In these circumstances, I accept Minerva’s submission that the court should be cautious about allowing the Greenland witnesses to supplement to their advantage the small amount of contemporaneous correspondence that does exist.

The expert witnesses

Both parties called more than one expert witness and there was some overlap in the issues which they addressed. Some of those issues did not then figure in the trial.

The expert witnesses giving evidence on behalf of Minerva were the following:

The expert witnesses giving evidence on behalf of Greenland were from the firm Gerald Eve LLP, Chartered Surveyors and Property Consultants:

The extant planning permission and the Original 106 Agreement

In March 2013 Minerva made an application for planning permission for a mixed use development at the Ram Brewery site including the construction of the 34 storey Tower. Wandsworth resolved to grant that planning permission subject to a section 106 agreement being concluded.

The Original 106 Agreement included a wide range of obligations for Minerva to fulfil. It included phased obligations on Minerva to design, build and maintain a Riverside Walk, environmental improvements to the river, replacement of the river walls and new bridges over the river. Minerva also had to carry out Wandsworth High Street Crossing Works or make a financial contribution towards those; relay the perimeter footway; pay a bus provision contribution totalling £270,000; install signage for river transport; pay the environmental and transport contribution of £55,000; submit and implement residential and workplace travel plans; enter into an agreement with a car club operator, pay a green travel modes contribution; provide a location for a cycle hire docking station; provide electric vehicle charging points; pay a CCTV contribution; pay the Local Employment contribution; and pay a Controlled Parking Zone contribution.

Mr Cohu described the approach taken by Montagu Evans to the negotiations. He says that as part of these discussions and negotiations, developers inevitably have to make concessions whether these are in terms of design changes and/or the identification of other benefits that might compensate a local authority for a scheme not meeting all policy considerations. In the knowledge that the planning process often involves a negotiation, financial appraisers acting for developers typically factor a certain amount of slack into the initial iteration of their viability appraisal. This means that concessions can be made during the negotiation with the local authority without losing a great deal of ground. Once these points have been conceded then the gap between the parties is narrowed and the settlement parameters can be identified.

Ms Fone also described the discussions that took place in early 2013 about the viability appraisal of the extant scheme and the amount of affordable housing that Minerva was prepared to offer. The base viability appraisal carried out by Ms Fone on behalf of Minerva showed that the calculation of the GDV, total construction costs and a level of profit on the scheme as a whole (which included profit of 20% on the Tower) would show the scheme as generating a deficit of over £33 million. That was on the basis of the scheme incorporating 39 affordable housing units, about 6% of the total. Ms Fone’s sensitivity analysis showed that even if construction costs could be reduced by 5% there was still a deficit of about £14.5 million and that an increase of 5% in the sales revenue from the Site would give rise to a deficit of about £18 million. It was only if both construction costs could be lowered and sales revenue increased that a small surplus of £87,000 could be available to pay for more affordable housing.

Despite this gloomy picture, Mr Cohu confirmed to Wandsworth on 23 January 2013 that Minerva was still prepared to commit to 6% affordable housing as a minimum provision based on the submitted scheme.

Wandsworth engaged BNP Paribas (“BNPP”) to negotiate with Montagu Evans on their behalf. BNPP prepared their review of Minerva’s assessment of the viability and affordable housing provision for the extant scheme. In their report BNPP set out the following conclusions:

The result of the changes made by BNPP was to produce a surplus of £22.2 million rather than the deficit of £33 million reported by Montagu Evans – a result they described as ‘a very substantial swing’. This was the result, they said of two fundamental flaws in the approach taken by Montagu Evans, namely the calculation of the benchmark land value (too high in Montagu Evan’s appraisal) and the assessment of the retail unit rents (too low in Montagu Evan’s appraisal). The amendments made by BNPP also had a consequential effect of producing a substantial reduction in the financing costs.

Discussions between Ms Fone and Mr Lee and BNPP then ensued. On 19 April 2013 Ms Fone wrote to Mr Lee responding to the various points in the BNPP review, accepting some of the points and rejecting others. She reiterated that the offer remained as it was, namely 39 units in order for the scheme to remain viable.

Mr Lee wrote back to Ms Fone on 4 June 2013 also making some concessions the result of which was that the surplus identified by BNPP was now £3,240,798. By 28 June 2013 Montagu Evans were still maintaining that the figure that Wandsworth wanted of 66 units would result in a deficit of £2,250,000. But Ms Fone wrote that in order to reach an agreement and get the scheme before the planning committee on 23 July her client was ‘willing to absorb this deficit’ and therefore was prepared to offer 66 units.

BNPP remained concerned that the sales value of the residential accommodation would increase more sharply before the units were actually ready to be sold than was anticipated in the figures used. Towards the end of June the suggestion was made that this could be captured by introducing a review mechanism which would link levels of affordable housing to actual sales receipts rather than predicted sales values. Mr Cohu indicated that Minerva was happy to do this. The review mechanism agreed provided that in the event that the scheme generated private residential receipts in excess of the 5% compound growth shown in the appraisal, then an additional sum of up to £1.2 million would be paid. This meant that any net private residential sales receipts in excess of £425,322,000 would be paid to Wandsworth as an additional affordable housing contribution, up to a maximum of £1.2 million. The amount due would be calculated once half of the residential units had been sold.

In July 2013 Wandsworth resolved to grant the permission subject to the conclusion of the section 106 agreement. The Original 106 Agreement was signed on 6 December 2013. The affordable housing obligations comprised creating 66 residential units forming part of the overall housing mix to be located in Block 9 on the Site.

The development approved by the planning permission was split into phases. Phase 1 involved the redevelopment of the part of the site on which the brewery was located. Phase 2 covered the area on which the Tower together with eight other buildings were to be located. Attached to the planning permission was a condition, referred to as a Grampian condition, relating to the hazard presented by a gasholder station close to the northern boundary of the site. The Grampian condition stipulated that no residential or commercial units within some of the proposed buildings, including the Tower, could be occupied until the Hazardous Substances consent held by the gasholder had been revoked. A further phase of development, Phase 3, was contemplated but planning permission had not yet been obtained for that.

Once the Original 106 Agreement had been agreed with Wandsworth, Minerva decided to seek a joint venture partner for the site. Mr Enderby met representatives of Greenland Holding who were interested in buying the site outright rather than entering into a joint venture. Minerva was prepared to sell and on 29 November 2013 Minerva and Greenland Holding met to agree terms. The meeting started at about 11:30 am and went on until the early hours of the morning. By that time a detailed memorandum of understanding had been hammered out.

There were further negotiation meetings between Mr Enderby and Greenland Holding, the last of which was on 19 December 2013. At that meeting they worked through the night to get the terms of the contract for sale agreed. Contracts were exchanged in the early hours on 20 December 2013.

At that meeting the parties discussed the possibility of obtaining an improved planning permission. It was thought that there would be a chance of adding 10 more storeys to the Tower and Mr Enderby referred to this at the meeting. There was some hard bargaining over the length of time that Minerva should be allowed to achieve this enhanced planning permission. Minerva pushed for 24 months but Greenland Holding was keen for the development to progress more quickly than that. They reached a compromise on 10 months.

The main terms of the agreement for the sale by Minerva to Greenland of the site signed on 20 December 2013 (‘the Sale Agreement’) were as follows.

Prior to completion, Greenland Holding transferred the benefit of the Sale Agreement to the Defendant company. I will refer to the counterparty to the Sale Agreement as “Greenland” without distinguishing between Greenland Holding and the Defendant.

Much of the dispute between the parties turns on the meaning of the provisions in the Sale Agreement dealing with the application for enhanced planning permission. Clause 5.4 of the Sale Agreement stated that:

"It is the intention of the parties to seek Enhanced Planning Permission. If an Enhanced Planning Permission is granted in accordance with the provisions of Schedule 6 … and the Enhanced Planning Permission Satisfaction Date has occurred the Price is to be increased in accordance with the provisions of Schedule 6…"

Enhanced planning permission was defined in the Sale Agreement as full planning permission in relation to Block 5 of Phase 2 for a tower not exceeding 45 storeys which permits a greater net sales area and/or gross internal area than that permitted in Block 5 under the extant planning permission and to which clause 5 of the Sale Agreement and Schedule 6 to that agreement apply. I note here that the definition does not refer to the need to establish that the enhanced planning permission has added value to the scheme; it has only to add floor area.

The Enhanced Planning Permission Satisfaction Date was defined as the date seven weeks from the date of issue of an enhanced planning permission provided that no proceedings are commenced before that date.

The details of the agreement between Greenland and Minerva about what would happen after the conclusion of the Sale Agreement as regards the obtaining of an enhanced planning permission were set out in Schedule 6. Paragraph 1.1 of Schedule 6 provided:

“Subject to paragraphs 1.7 and 2, the Seller shall immediately make such reasonable preparations to submit applications for Enhanced Planning Permission as is necessary to achieve within ten months from the date of this Agreement a resolution of the planning committee of the local planning authority to grant the Enhanced Planning Permission.”

Paragraph 1.2 of Schedule 6 provided that the scope of the proposed enhanced planning permission is for the Net Sales Area of private and affordable residential accommodation and Gross Internal Area of retail accommodation to be increased as far as may be feasible beyond those areas permitted in the extant planning permission.

Paragraph 1.4 of Schedule 6 provided that Minerva was going to be in charge of the discussions with Wandsworth, subject to an obligation to involve Greenland (the Buyer being Greenland and the Seller being Minerva):

“1.4

As soon as may be practicable and following prior consultation with the Buyer, the Seller shall consult with the relevant Consultants and, if appropriate, thereafter enter into discussion or negotiation with the planning officers of the local planning authority in order to ascertain their views of what would be feasible to achieve by way of Enhanced Planning Permission and shall afford the Buyer the opportunity to be involved in any discussions with officers of the local planning authority including attending meetings to discuss the application for the Enhanced Planning Permission and ensuring that the Buyer is provided with copies of all correspondence relating to the preparation and submission of the application for the Enhanced Planning Permission.”

Paragraph 1.5 of Schedule 6 dealt with the need to obtain Greenland’s consent to the planning application before it was submitted: (emphasis added)

“1.5

Subject always to paragraph 1.7, following discussion with the planning officers of the local planning authority, the Seller shall:

(a)

require the relevant consultants to draw up plans and supporting materials and prepare a draft application for Enhanced Planning Permission having due regard to the information and views of the planning officers and to submit it to the Buyer for approval (such approval not to be unreasonably withheld or delayed); and

(b)

following approval by the Buyer pursuant to paragraph (a) submit the application and use its reasonable endeavours to obtain it.

Paragraph 1.6 dealt with the discussions that would need to take place with Wandsworth about any additional affordable housing contribution arising from the enhanced planning permission:

“1.6

The Seller shall use reasonable endeavours to minimise the amount of any affordable housing which may be required in order to secure the Enhanced Planning Permission and shall use reasonable endeavours to ensure that there is no requirement to increase the amount of affordable housing to be provided in Block 5 and Block 4 pursuant to the Planning Permission and the Planning Agreement and that any affordable housing which is required to secure the Enhanced Planning Permission is by way of a financial payment in lieu of the provision of additional affordable housing on the Property and that there is no requirement for the Seller/Buyer to provide offsite affordable housing.”

Paragraph 1.7 gave Minerva a discretion to decide not to pursue the enhanced planning permission if it concluded, following consultation with Greenland, that there was no reasonable prospect of obtaining an enhanced planning permission in time or at a reasonable cost.

Section 2 of Schedule 6 to the Sale Agreement was headed ‘Liaison with the Buyer’ and provided:

“2.1

The Seller shall seek the approval of the Buyer to the plans and specifications for an Enhanced Planning Permission such approval not to be unreasonably withheld or delayed.

2.2.

The Seller shall keep the Buyer properly and regularly informed about the application, its progress and the outcome of the meetings, discussions and proceedings, with reports of and in connection with the preparations for making the applications for Enhanced Planning Permission and of the submission of the application.

2.3

The Buyer shall cooperate with the Seller and use its reasonable endeavours to assist the Seller in applying for and obtaining Enhanced Planning Permission but, in so doing the Buyer may not act independently of the Seller.”

I shall refer to the various obligations placed on Minerva to keep Greenland informed and to consult with them about proposals to be put to Wandsworth as “Minerva’s duties to inform and consult”.

Paragraph 2.4 of Schedule 6 dealt with the anticipated additional section 106 obligations arising from the enhanced planning permission: (emphasis added)

“2.4

If reasonably so required by any public authority and reasonably required by the Seller the Buyer is to enter into any planning agreement (whether by amendment to the Planning Agreement or otherwise) which the local planning authority may require in relation to the grant of Enhanced Planning Permission and which is in a form approved by the Buyer (such approval not be to unreasonably withheld or delayed) and which is to be proportionately no more onerous that the Planning Agreement.”

Paragraph 2.5 provided that Minerva was to have “exclusive conduct” of the discussions with the planning officers at Wandsworth and any other relevant third parties such as neighbouring land owners, “subject to prior consultation with the Buyer”.

Section 3 of Schedule 6 dealt with the additional payment due from Greenland to Minerva if a resolution on enhanced planning permission was achieved by the deadline. Paragraph 3.2 set out the formula for arriving at the additional payment which was, broadly, the increase in the aggregate net sales area of residential accommodation expressed in square feet and the gross internal area of the retail accommodation expressed in square feet in the enhanced planning permission as compared with the extant planning permission multiplied by £200 minus Minerva’s costs in so far as they had already been paid by Greenland under other provisions of the agreement. The increases in square footage were to be determined by the architect EPR as soon as reasonably practicable after the grant of the enhanced planning permission.

Paragraph 3.1 of Schedule 6 provided that if a resolution to grant was not obtained by 20 October then the provisions of Schedule 6 ceased to apply.

I have highlighted some instances where the provisions of Schedule 6 refer to the need to obtain the consent of Greenland. Clause 1.15 in the main body of the Sale Agreement provided generally:

“1.15

Where this Agreement refers to any consent or approval from the Seller or the Buyer the parties agree that such consent or approval shall be deemed to have been given unless reasonably withheld or refused in writing within the following time periods from the Seller or the Buyer receiving written request therefor (time being of the essence):

(a)

… ; or

(b)

within 10 Business Days in respect of all other matters unless specified to the contrary.”

It was common ground on the pleadings that clause 1.15 operated as follows. If Greenland wishes to refuse consent, then it must make and communicate its decision within the ten business day period. If it does not make or communicate any decision within the ten business day period, then it is deemed to have given its consent. If it does communicate a decision and that decision is a decision to refuse consent, then the question is whether that consent has been reasonably withheld.

There are number of important issues that arise as to the construction of clauses in the Sale Agreement. Both sides urged the reasonableness and commerciality of the construction for which they were contending. In Arnold v Britton and others [2015] UKSC 36 Lord Neuberger (with whom Lord Sumption and Lord Hughes agreed) gave the following guidance in the context of a dispute about the wording of a lease:

“15.

When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”

Among the factors mentioned there by Lord Neuberger are the facts known to the parties. He said that when interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties: see paragraph 21.

I have approached the construction of the contract bearing in mind the following background facts which were known to both parties;

The initial plan to add 10 storeys to the Tower

In the first half of January 2014 Mr Enderby started to work on plans to improve the extant planning permission. The idea at this point was to apply for approval for an additional 10 storeys to be added to the Tower. However, it became apparent that such an application was unlikely to gain approval within the deadline set in the Sale Agreement because there were local council elections being held in Wandsworth on 22 May 2014. Elections have two consequences – they may result in a change of personnel as a result of a change in power and in any event, candidates do not wish to be associated with deciding controversial planning applications at a time when they are campaigning for election.

There was some dispute about when it became apparent that the local elections in effect made it impossible to achieve an enhanced planning permission for the 10 storeys by the deadline set in the Sale Agreement of 20 October 2014. Mr Enderby said in his witness statement that this was only confirmed at a meeting with Wandsworth on 20 February 2014 when the Wandsworth officials made it clear that any consultation on such an increase in height would have to take place after the elections. He said:

“I had not realised at the time that I agreed the Memorandum of Understanding or the Agreement that there were elections the following May and I did not realise that this would have been a reason for holding up any application for an EPP. Had I realised this I would have known that it would be unlikely to have been possible to obtain a new planning permission within the 10 month period provided for in the Agreement”

In fact it appears from the documents that this was apparent some time before then, in fact before the end of January 2014. Indeed, it would be surprising if the people involved, all being experienced building developers, did not know that the elections were taking place and did not appreciate the significance of this for a controversial scheme.

It was thus apparent that if the 10 storey addition was going to be pursued, there would need to be an extension of the time allowed by the Sale Agreement for the attainment of the planning permission. There was a meeting with Greenland and Delancey on 21 January 2014. However, Greenland were not told on that occasion about the issue with the elections and the need for an extension as that would be raised later. There was continuing discussion between the architect and the other members of the design team in February and early March 2014. Revised plans were generated on the 10 storey scheme. There was also discussion about the prospective discharge of the conditions on the extant planning permission.

There was a meeting on 20 February with Wandsworth attended by Mr Enderby and Mr Qian and Ms Wang of Greenland with the Assistant Director at Wandsworth. The outcome was reported in emails between Mr Enderby and Mr Chambers recording that the main sticking point was about the timing of approval. Wandsworth were reported to have been non-committal on whether the Tower would be considered too high.

On 10 March 2014, Mr Enderby wrote to Ms Wang explaining the position and asking for an extension of time of four months beyond 20 October 2014 for Minerva to achieve a resolution to grant planning permission. Ms Wang replied later that day and also forwarded the email to Mr Qian, Mr Ma and Mr Hanchao Miao (no relation of Ms Miao). In his second witness statement, Mr Qian said that the email was read aloud to him in Mandarin and they decided that they would stand on their rights under the existing agreement and refuse the extension request.

Mr Enderby wrote to Greenland on 20 March 2014 sending through the material and asking when Minerva was likely to get a decision. On 25 March 2014 there was a meeting between Mr Qian and Mr Enderby at Fortnum & Masons for coffee. Mr Qian’s evidence is that he told Mr Enderby at that meeting that Greenland would not agree to an extension of time to enable the 10 storey enhancement to be progressed with Wandsworth after the council elections. Mr Enderby did not come away from that meeting thinking that Greenland had definitely decided to refuse an extension of time and there was further email correspondence at the beginning of April when Mr Enderby was still chasing for an answer on the extension of time.

One significant point that came out of this episode was that Mr Enderby gained the impression from his discussions with Greenland, particularly with Ms Wang, and from Greenland’s refusal of the extension of time that Greenland had, for their own reasons, decided that they did not want to pay any more money for the project to Minerva, despite being bound by the obligation in the Sale Agreement to approve a reasonable enhancement application enabling Minerva to earn the overage. He could not understand why Greenland would refuse an extension of time. Although Greenland were keen to maintain their reputation as developers who made rapid progress delivering the projects they undertook, the extension of time was very unlikely in practice to delay the sale of the units in the Tower. The units in the Tower could not be occupied anyway until the Grampian condition requiring the suspension of the hazardous substance licence for the nearby gas holder was satisfied. Mr Qian and the other Greenland witnesses denied that there had been any such decision in Greenland or instruction from the headquarters in Shanghai to that effect. However Mr Qian was not present at the meeting where Mr Enderby gained this impression and Ms Wang, who was, was not called to give evidence. Whatever was said over this period, I accept Mr Enderby’s evidence that from this point forward he expected that Greenland might not cooperate with Minerva’s efforts to attain enhanced planning permission and to earn the overage set out in the Sale Agreement.

The plan to add two storeys and the requests for consent

A few weeks after the abandonment of the 10 storey proposal, Mr Enderby had the idea of a more limited enhancement to the extant scheme. He wrote to his colleague Richard Chambers on 22 May 2014 raising the idea of putting in an application for a non-material variation to the net floor area that would generate some more floor space and hence some more money for Minerva. By 3 June 2014 Mr Cohu was writing to Mr Enderby, Mr Wensink and others at Montagu Evans recording that he had spoken to Mr Tim Cronin at Wandsworth about potential changes to the Tower involving the introduction of two additional floors and a marginal increase in overall height of about 2.5 metres. As to how it was possible to incorporate two additional storeys within the Tower but only increase the overall height of the Tower by 2.5 metres, he reported that he had explained to Mr Cronin that this had “come out of detailed design/development work being undertaken by EPR on behalf of Delancey”. In order to understand the disagreement between Greenland and Minerva it is important to understand how the different storeys of the Tower were designed. A common measurement of the height of a storey of the Tower is the floor to floor height. This measurement starts on the surface of the floor of one apartment and measures the distance between that and the surface of the floor of the flat above. Most of this distance is made up of the distance between the floor of the flat and the ceiling of the same flat. But there are also several components in between the visible surface of the ceiling of the flat and the surface of the floor of the flat above. This space includes the slab, that is the concrete or steel slab which supports the flat above, a space for possible deflection of that slab, and a space for services such as pipes and wiring to run through. For the potential purchaser of the flats, the important measurement is the floor to ceiling height of the rooms of the flat that the purchaser is interested in buying but for structural and engineering purposes it is also important how high the ceiling zone between the ceiling and the floor above is so as to be sure that there is room for everything to be built in that needs to be included.

In his email, Mr Cohu went on to consider the effect of the design changes on the likely further affordable housing contribution that Wandsworth would be looking for as a condition for granting any section 73 application:

“I talked about the fact that this increased floor space/unit numbers would lead to an additional affordable housing contribution and raised the issue of promoting these amendments through a section 73 application. …

Tim is definitely there to be persuaded and as he put it “it’s not ringing any alarm bells”. … I discussed the timing of an application on the basis that we would want to submit by the end of June/first week of July in order to achieve a September committee date. Whilst he has no problem with commencing the required consultation in early July he was not able to confirm with any certainty that we would achieve a September committee date because of the backlog of applications that built up over the summer. If we were going to press the button on this project we would clearly need greater certainty about a committee date.”

Mr Cohu said in the email that he and Mr Enderby had already had a conversation about this. He set out a number of urgent action points including that Montagu Evans would give some initial consideration to the level of affordable housing payment.

On 4 June 2014 Mr Wensink sent Mr Chambers and Mr Enderby a comparison elevation showing what the elevation of the Tower would look like with 10 floors as previously suggested as compared with the current proposal to add an additional two floors of accommodation. He explained in that email where in the design there had been savings in height by reducing the height of the different elements in the ceiling zone so as to free up height for the additional two storeys:

“We have been able to introduce the two additional floors by increasing the overall height of the tower by 2.72 m.

•

Reduction of ground floor slab to slab to 3.74m (22 x 170 mm steps) – This was previously 4.65m

•

Reduction of typical floor slab to slab to 3.06 m (18 x 170mm steps) over 32 floors – This was previously 3.10m

•

Reduction of duplex floor slab to slab to 2.89m (17 x 170mm) over 4 floors – This was previous 3.10m

“The above assumptions have not been tested against structural and services solutions. We would therefore recommend that you appoint ARUP & Hoare Lee to work with us to ensure the revised design is deliverable.”

Mr Wensink described the number of extra residential units that could be added and the increase in net sales area. The number of additional units would depend on where in the Tower the two additional floors were added since at this time the Tower was not of uniform width throughout its elevation but had what has been described as a ‘space rocket’ shape. He noted another aspect of the changes to the design that is significant for some of the issues in this case that I describe later. That is that the changes to the design making it more ‘efficient’ not only added the extra space to accommodate the additional floors but also increased the floor space of all the apartments throughout the Tower making them all slightly larger. This extra space came from changes in the core design and the layout plan of the apartments at all levels.

On 10 June 2014 there was a meeting between Delancey and Greenland attended by Ms Wang, Ms Miao, Mr Qian and Mr Li to complete the sale of the site to Greenland pursuant to the Sale Agreement. It is accepted by Minerva that nothing was said at that meeting about the new proposal to add two floors to the Tower.

On 18 June 2014 Mr Cohu wrote to Mr Cronin at Wandsworth. He said that EPR had been carrying out further detailed design work on behalf of Delancey. The work had identified the potential to introduce two additional floors without significant alterations to the external appearance although the overall height of the Tower would increase by about 2.7 m over and above the approved plan. He suggested that these changes could be approved through the submission of a section 73 application. He also stated in the letter:

“We are in the process of preparing a list of documents that we believe will need to accompany the application which will include the viability appraisal with regards to the additional floorspace/units as this will give rise to an additional payment towards affordable housing. Again I anticipate you will need to have this verified by your external advisers.”

Over the following week there was much discussion amongst the various consultants finalising the design and the documents to submit with the section 73 application. Wandsworth also confirmed that they would be prepared to accept this as a section 73 application. On 25 June 2014 Mr Evershed at Montagu Evans sent Mr Cronin a schedule of the documentation they were proposing to submit as part of the application. This comprised 16 items including a viability appraisal.

Also on 25 June 2014 Mr Chambers wrote to Ms Wang at Greenland inviting her to a meeting to discuss various matters including Phases 2 and 3 of the project. That meeting took place on Monday 30 June 2014. It is common ground that this was the first time that the idea of adding two storeys to the Tower was mentioned to Greenland. Shortly after the meeting Mr Chambers wrote to Ms Wang attaching the plans showing three elevations; the appearance of the Tower under the extant planning consent, the previously proposed 10 storey addition and the proposed additional two storeys. This showed that the additional two storey plan resulted in only a very small additional height and was much shorter than the 46 storey tower would have been. In his email to Ms Wang, Mr Chambers said:

“On the proposed s73 application for Phase [2] we will send through a simple summary of the refinements to the current consent that achieve the additional two storeys. The additional area is achieved by driving greater efficiency out of the existing design, without increasing rights to light, daylight sunlight, or other environmental impacts, or compromising on quality of the internal space. We would be happy to explain the proposal in greater technical detail to your colleagues and wider team.

Please let me know if you have any comments. The meeting with Tim Cronin is arranged for 11am on Wednesday and you are of course welcome to join.”

Discussions among the consultants continued. On 1 July 2014 Mr Chambers wrote to Mr Wensink asking him to explain what was happening “in very simple step by step terms”. He asked “Basically are you confident that the overall quality of the space is at least maintained with what we had originally?”.

Early on the morning of 1 July 2014 Mr Chambers emailed Mr Enderby to say he had just picked up a voicemail from Ms Wang saying she still has “technical questions about the enhancement to phase 2” and that she wanted to talk before the Wandsworth meeting the next day. He said: “I’ll speak to her but it will be interesting to hear what they have to say - doesn’t sound like she is attempting to talk us out of it”.

Also on 1 July 2014 Mr Wensink responded to Mr Chambers’ request for a step by step guide to the changes. He said the changes were a reduction in the floor to floor measurements for the ground floor level, for the typical floors (that is floors 1 to 30) and for the duplex units (floors 31 to 34) generating an overall saving of 3.61 metres. The proposal was to add the two extra floors within the lower section of the Tower, increasing the height by 6.08 metres. Offsetting the saving of 3.61 metres suggested an overall increase of 2.47 metres. However, other changes to the roof and plant enclosure added an additional 0.25 m so the overall addition in height would be 2.72 metres. Mr Wensink said in the email:

“We do not currently have input from ARUP or HOARE LEE to prove any structural or services systems, but our assumptions are based on the work in progress for the taller tower abandoned at Greenland’s request. The simple answer to your question on quality is more height good, but below I’ve commented below on a floor by floor basis…”

He then set out his views on the sections of the Tower where there might be an issue with quality because of a reduction in the height of the residential units. He comments particularly on the “significant loss” to the bedrooms in the duplex apartments, suggesting that it would be useful to get an agent’s opinion to see if they have gone too far.

On the afternoon of 2 July 2014 there was a meeting between Mr Wensink, Mr Enderby, Mr Chambers and representatives from Savills and JLL. The purpose of that meeting was, according to Mr Wensink, for the agents to give their opinion on whether the duplex units had enough floor to ceiling height in the new planned elevation. Savills’ view was that the floor to ceiling heights in the bedrooms of the duplex apartments should not be inferior to the floor to ceiling heights in the bedrooms of the typical apartments and that this should be a minimum of 2.35 metres (as was the case for the standard flats). Mr Wensink went away to redraft the plans which he did, by reducing the space between the ceiling of one storey floor and the surface of the floor of the flat above by a small amount and reducing the height of the plant area by 6.8 cm at the top of the Tower. This further revision enabled the heights of the bedrooms in the duplex apartments to be a minimum of 2.35 metres.

On 2 July 2014 Mr Enderby emailed Mr Chambers to ask whether he had managed speak to Ms Wang. Mr Chambers replied:

“Yes. Entertaining/frustrating. I told her their analysis was wrong and we need to see Mr Ma etc to explain why they are wrong ASAP. Let’s discuss after the meeting.”

On 2 July 2104 Ms Wang emailed Mr Chambers twice. In the first email she asked for clarification as to whether there is a reduction of floor height on the ground floor and the residential floors. She also said:

“For Phase 2 and 3, we would also like to have reports and preparations for the plan and supporting materials, have further discussions on this if necessary with the help of professional consultants and then agree before taking further action so as to make sure the additional cost for such enhancement is proportionate to the value it creates for Phase 2 and a nice scheme on Phase 3. We are always in good faith and very concerned to provide a high-quality tower for customers and communities. We are always ready to cooperate with you and make endeavours as much as we can for our mutual benefit.”

About two hours later, she wrote again to clarify a few points on the Phase 2 enhancement. She emphasised that the contract price per square foot in the current scheme was based on the floor heights and other features. Those features set the quality of the building, the price for the sale of the units and the benefits for the community. She went on:

“Therefore, Greenland would not approve an enhance which low[ers] the quality of the building compared to the current scheme. Greenland would appreciate an enhancement in addition to the current scheme with same quality and proportionate cost to the value it creates. Consultation should be made with Greenland and relevant consultants and if appropriate thereafter enter into discussion with planning officers. And all correspondences, if any, relating to the preparation and submission of the enhancement should have been and be copied to Greenland. An approval from Greenland for the plans and specifications for an enhancement should be seeked. Greenland will act reasonably after receiving such plans and specifications. Reports of and in connection with the preparations for making the applications and submission should be made to Greenland with the information about applications, its progress and outcome of the meetings, discussions and proceedings. Greenland will cooperate and use reasonable endeavours to assist. Let us keep in touch on this then. Thanks a lot!”

Mr Chambers replied to her emails later on 2 July 2014. He said that his view and that of the professional team was that the proposed amendments to the Tower do maintain the overall quality of the accommodation. Furthermore, the changes were likely to improve the cost efficiency measured on a pound per square foot basis and would clearly enhance the overall value of the Tower through the addition of a substantial amount of net floor space. He reported that the meeting with Wandsworth had gone well and that there was a general agreement that changes should be processed under a section 73 application. He concluded:

“We appreciate that we need to set out an explanation of how the additional area has been achieved without compromising on overall quality of space and intend to send through additional detail within the next 24 hours. We would also like to meet again at 10.30am tomorrow morning to run you through the information if that’s convenient for you. We will also send you a full draft of the planning application when it is ready.”

Meanwhile Mr Chambers emailed Ms Finch at JLL and Mr Mann at Savills on 2 July 2014 giving them information about the proposed amendments to the extant scheme. He said that, given the limited scope of these variations, the critical measure for ensuring that the quality of the residential space was at least comparable with the extant scheme was presumably the clear floor to ceiling heights of the apartments. He then summarised the proposed changes namely that:

Mr Chambers asked Ms Finch and Mr Mann:

“Could you confirm having reviewed the attached information whether, in your opinion, the proposed changes would impact negatively upon either the value or the quality of the residential space provided when compared to the consented scheme?”

Attached to that email were some comparative elevation drawings and designs and a table of Critical Design Data showing the changes to the retail, typical floor, and duplex penthouse ceiling heights. Mr Chambers sent the same critical design data to a colleague in Delancey asking the same question. The next day Mr Chambers emailed Mr Johns at Gardiner & Theobald to ask for a comment on the impact on building costs. He said “The key is to be able to say that the increase in net area is achieved without compromising quality of the space and any impact in build cost is minimal when compared to the value creation”.

Mr Venn of Gardiner & Theobald responded quickly to Mr Chambers’ request. He concluded:

“Obviously, the overall cost for the Tower has increased for the additional area (14 apartments) but through economies of scale, improved enclosure ratio, the resultant £cost/ft2 has slightly decreased. Therefore the real estate sales value must be improved with the additional 14 apartments at a marginal increase in capital cost.”

The table attached to his email showed an additional 1,719 sf area costing an additional £3.95 million with the pounds per square foot reduced by £5.60 compared with the extant scheme.

On 3 July 2014 Mr Mann from Savills replied to Mr Chambers’ request for his view on the impact of the changes on the value of the residential units. His response was:

“Following our meeting and having reviewed the information provided by EPR, I can confirm we are happy with the proposed. Given that the only dimensions to diminish are the floor to floor measurements, with the floor to ceiling increasing by a small margin. There will be no negative impact on values, just the benefit of the extra area at full height, retaining the quality as originally planned.”

Ms Finch then replied that she was of a similar view. Her only comment was that through further design details, they should aim to maximise the height of the duplex bedrooms where possible. There was also an email from Mr Sanderson at CWM who were advising on the marketing of the retail units. He said that there will be no difference in rental value between heights of 3.4 m and 4.2 m in this location; “Whilst added height is preferable it doesn’t really correspond to additional rental value. 3.4 m is sufficient as long as this is clear or any downstand beams have holes for services”.

At this point it appears that Minerva’s plan was to submit the application to Wandsworth on Wednesday 9 July 2014. Mr Chambers emphasised to Mr Enderby that they needed to send the details to Ms Wang at Greenland first thing on 4 July 2014 together with the emails from the various consultants confirming that there would be no negative effect of the changes on the value of the project.

On the morning of Friday 4 July 2014 Mr Chambers wrote to Ms Wang copying in Mr Enderby as follows: (emphasis in the original)

“As you know, in accordance with the positive obligation set out within Schedule 6 of the sale and purchase agreement we have been progressing the scheme of proposed amendments to the tower (phase 2) pursuant to the Enhanced Planning Permission Provisions.

To recap on the proposed changes to the tower these are:

1)

Increase the height of the tower by 2.72 m

2)

Insert two additional floors within the lower part of the building to add 14 apartments for private sale

As you note in your email, the consideration per square foot attributed to any additional floor space within Phase 2 (£200 per sqft) is based on the consented scheme and Greenland would be concerned if the quality of the consented scheme were to be diminished as a result of these changes.

The clear height of the residential space in the typical apartments has marginally increased as a result of these refinements. The attached table summarises the detailed changes but in summary:

•

Typical residential clear height consented = 2.525m

•

Typical residential clear height now = 2.529m

•

Penthouse duplex clear height consented = 2.35m to 5.625m

•

Penthouse duplex clear height now = 2.35m to 5.374m

We have consulted with both JLL and Savills to test whether they felt that the changes would impact on either quality or value. The attached emails confirm that they do not.

We have consulted CWM on the changes to the retail space and the attached emails confirm that, in their opinion, the changes will not impact on quality or value.

You also queried whether the build costs associated with this change would be proportionate to the enhancement in value. The attached analysis from Gardiner & Theobald confirms that the build cost would increase by £3.95 million, but the build cost measured on a £ per sqft basis would actually reduce by £5.60 per sqft as a result of the increased efficiency driven out of the building.

Summary

The changes result in an increase of circa 17,400sqft (1,618m²) Net Sales Area. Conservatively this will add in excess of £20 million to the development value of the tower. The additional build cost has been assessed at £3.95m. There will be no impact on programme.

A draft planning application has been prepared in accordance with the positive obligation within the contract. We would like to meet on Monday to run you through this in detail. Please let me know your availability.”

On 7 July 2014 Mr Enderby wrote to James Piper at Ares Management the joint venture partners in Minerva. He explained to Mr Piper the obligation in the Sale Agreement to obtain planning permission for an enhanced scheme, the proposed additional two floors to the Tower and the confirmation that the change in internal structure does not have a negative effect on the sales value. He told Mr Piper:

“… The sales contract provides that Greenland’s consent is required for a revised scheme, consent not to be unreasonably withheld. However, due to the fact that the agents have confirmed in their opinion the changes do not affect the sales value of either the residential or retail floorspace, and the fact that the construction cost is slightly lower psf for the revised scheme it is difficult to see how Greenland could object particularly when the additional floorspace should add some £20m to the GDV of the building.”

He went on to explain the overage liability and that the costs of obtaining the planning consent are paid by Minerva. He estimated those costs would be about £400,000. He reported that Wandsworth have no objection to the additional height of the building but that the projected planning programme for the hearing of the application on 6 October “ … has no scope for slippage as failure to achieve a resolution by 19^th October will prevent Greenland having to make a further payment to Minerva under the sales contract”. He asked for Mr Piper’s agreement for Minerva to submit the section 73 application.

On 7 July 2014 Mr Chambers and Mr Enderby exchanged emails to say they had not heard back from Ms Wang and that they needed to chase for a response.

On 8 July 2014 Mr Chambers wrote to Ms Wang. This email was referred to at the trial as the first request for consent, without prejudice to Greenland’s contention that it was not a formal request. Mr Chambers wrote:

“Further to our meeting on 30^th June, and subsequent emails on 30^th June, 4^th July (attached again) and my voicemail message, you will be able to access a full copy of the planning application to LB Wandsworth, via the link in the email from Montagu Evans below.

As set out in my email of 4^th July it is clear that the amendments to the tower will add considerable value whilst maintaining quality through driving greater efficiency out of the building. As you know we are in a position to submit the planning application and have offered to meet to run you through the detail. We remain happy to meet but in the meantime please could you confirm your approval of the draft application pursuant to the agreement dated 20^th December 2013?

Please let me know if you have any queries.”

Mr Chambers attached to that email a link to a drop box containing all the information about the application. On 9 July 2014 Ms Wang wrote back to Mr Chambers as follows:

“Hi Richard,

Thank you for your email.

As for Phase 2, we still think that it is not an enhancement to the scheme which will bring more value to it. The quality of the tower will be lowered, the customers’ landscape and experience will be damaged. And therefore we do not approve this amendment to the scheme.”

Ms Wang asked for a meeting to be arranged to discuss further details in relation to Phase 3 of the development. Shortly after sending that email Ms Wang asked Mr Chambers to telephone her but as Mr Chambers was away, Mr Enderby replied instead. They had a phone conversation after which Mr Enderby emailed Ms Wang asking her to confirm that afternoon “why Greenland is of the view that the amended scheme included with the proposed S.73 application is not an Enhanced Planning Permission?”. He also confirmed a meeting arranged for 8 am on Friday, 11 July 2014.

Ms Wang replied on the afternoon of 9 July 2014:

“We still have concerns on the decrease value of the tower your currently proposed enhancement plan would trigger. The detail reasons have been explained in our previous emails last week. One among many perspectives is that each floor’s height is lowered and the view and experience for the users would be worse, esp for lower floor levels. As we discussed on the phone, obviously we need a further discussion face-to-face to solve the problem before further actions and that is why we propose a meeting on Friday morning 8 o’clock. We warmly welcome you to our new office at 11F, City Tower, 40 Basinghall Street, EC2V 5DE.”

Mr Enderby then emailed his colleague at Delancey, Mr Goswell. He said:

“Just to let you know that I am running into some resistance with Greenland which is not surprising. Due to meet them again at 8am on Friday to run through their objections. So far they have come up with nothing that is credible.”

The reference there to the resistance from Greenland not being surprising was, Mr Enderby said, because he had formed the view that Greenland for its own reasons did not want to spend any more money on the project even for the sake of gaining additional revenue.

Meanwhile on 10 July 2014 Mr Zhou at Greenland was preparing an email to send to Ms Finch and Mr Mann encouraging them to change their positive view of the revised scheme. The email was sent just after midnight on the night of 10/11 July 2014. It said:

“Richard from Delancey suggested the amendments for Phase 2 and 3, and attached your Email record as reference. The conditions you raised are reasonable, though, we do not think this amendments is the best choice for Greenland.

Apparently, the retail units will suffer a lot from the largely reduced height, resulting in inefficiency in attracting potential tenants. If this happens, the pre-sale of the residential may incur a lot of trouble later due to the inefficiency of the retail letting.

The residential lobby is also representative of quality and value, the sacrifice in height will bring a large difference in the customer experience, and bring down the overall level of the whole building.

The reduced slab depth will bring problems like poor performance in soundproofing. Left the customers with poor experience, as well.

As you know, the Ram Quarter project is the first Greenland project in UK, the most important thing is to build good reputation for Greenland Group in the UK. We do not think the proposed amendments will help to achieve this target.

Would you comment from the perspective for building the reputation of Greenland Group?”

A meeting took place between Greenland and Delancey early in the morning on 11 July 2014. Attending were Ms Wang, Ms Miao, Mr Li, Mr Zhou and Mr Ma from Greenland, Mr Enderby and Mr Chambers from Minerva and two solicitors from Ashursts (who were acting for Greenland) and representatives from Montagu Evans, Gardiner & Theobald and EPR. There is no contemporaneous note of this meeting but there is a note prepared by Greenland for the purposes of these proceedings. That note records that Greenland persisted in its view that the increased area led to a sacrifice of the quality of the scheme. Minerva presented its consultants’ advice to demonstrate that the quality of the residential flats within the enhanced scheme would not be reduced but Greenland still believed that the original scheme created residential units with better quality.

Following that meeting Ms Finch responded to Mr Zhou’s email trying to undermine her support for the revised scheme. She made it very clear that the revised scheme added further value to the GDV and should increase the price per square foot. She went on:

“We did not feel that any changes to the internal floor to ceiling heights on either the retail, triple height entrance or internal apartments had any detrimental effect and these were borne about through a period of more detailed design optimisation which is normal for any building.

The triple height lobby for residents remains and still is a showcase for the development whilst the construction will continue to be developed to building regulations and sound proofing guidelines so there will be no change for the residential occupier.

We don’t feel that any of the amendments proposed will damage the Greenland reputation or change the experience for the end user. We feel that this will add value to the development overall.”

After that meeting Minerva prepared a more formal application for consent to be delivered in hard copy to Greenland’s offices. This letter, delivered with all the accompanying documentation, was referred to at the trial as the second request for consent. The letter and documents were delivered to Greenland after office hours on Friday, 11 July 2014 and so came to their attention on the following Monday 14 July 2014.

The second request for consent opened by stating that Minerva was now in a position “to formally submit the draft application for Enhanced Planning Permission to you for approval”. They enclosed the draft planning application to Wandsworth and the plans and supporting materials drawn up by their consultants. They summarised the proposed changes to the scheme and reiterated the reasons why Greenland’s expressed concern about the lowering of the quality was misplaced. They stated that the clear height of the residential space in the typical apartments had marginally increased as a result of the refinements and set out again the clear height measurements for the typical apartments and the duplexes under the extant and proposed schemes. They repeated that JLL, Savills, and CWM had confirmed that there would be no impact on quality or value. They also referred to Gardiner & Theobald’s confirmation of build costs and the reduction in the per square foot cost because of the increased efficiency driven out of the building. They confirmed that there would be a negligible impact on the timing of the programme. The letter concluded:

“Taking into account the obligation on us to seek the Enhanced Planning Permission within 10 months of the date of the agreement of 20 December 2013 and the fact that to meet that timetable will require us to submit the application now, we must formally request your approval to the draft planning application and supporting materials submitted with this letter.

Given the fact that you have been kept informed throughout the process and that we have already had a considerable amount of e-mail correspondence between us on this matter, we would request that you please respond by no later than 12 noon on Friday 18 July 2014 either confirming your approval or setting out in detail the grounds on which you consider you may reasonably withhold approval.

Naturally we would hope that you will be able to respond more quickly than that in accordance with your own obligations in the agreement to co-operate with us and use your reasonable endeavours to assist us in applying for and obtaining an Enhanced Planning Permission.”

On Monday, 14 July 2014 Mr Enderby described to his colleague Mr Goswell how the meeting had gone on the previous Friday morning. He described it as:

“Very very painful. The best they could come up with was ‘tolerances’ and ‘co-ordination’ with other members of the design team. I made the point that there was a ‘safe’ tolerance in the original design and the updated scheme was no different in that respect. In terms of the design team Pascal confirmed the latest scheme was more coordinated than the last - Arups and Hoare Lee had been heavily involved with the design changes. At the end of the meeting I confirmed we would be formally writing to Greenland requesting their consent to submit the application. The request was submitted on Friday afternoon with the deadline for a response by them of noon this Friday. The application is ready to go save for the cheque which I will organise this week. I also understand [Wandsworth] has checked the draft application and are happy with its contents - the effect of this being they can validate the application within 24 hours once we submit it.”

On Tuesday, 15 July 2014 Miss Wang emailed Mr Enderby to say they had received the package of material and asking for five additional copies of all the material. She said that more copies would greatly facilitate and speed up their review work. Mr Enderby emailed Ms Wang with a link to the section 73 application providing more information on revised costs and values. He said that if there was anything further she needed she should let him know.

On 17 July 2004 Greenland sent its formal response to the second request for consent. The letter referred to the abandonment of the 10 storey addition and Greenland’s impression that following the Council’s rejection of that plan Minerva had decided not to proceed with an application for the Enhanced Planning Permission. The letter went on:

“ … However, at the pre-handover meeting held on 10 June 2014 you indicated that this was not the intention and that you would, in due course, aim to submit a planning application. It is a pity that you had not shared this intention with us in advance.

We have no objection to the principle of applying for an Enhanced Planning Permission. However, as you will appreciate, we will need time to consider the information which has been sent to us. We will also need to appoint independent consultants to review and advise on the potential implications of the scheme. Unfortunately, due to the holiday period and the process which we all need to go through in order to appoint consultants, it is highly unlikely that we will be in a position to undertake a proper review and provide you with our detailed comments on the application for at least a period of four weeks. We will not be in a position to respond by your suggested date of 18 July 2014.

We are very much alive to our obligation not to unreasonably withhold or delay approval of the application for the Enhanced Planning Permission and will do all that we can to review and respond as quickly as possible. Matters could have been helped quite considerably had you not been in breach of your obligation under the contract to commence preparation of the application as soon as possible and to consult with us much sooner. We do not accept the contention in Minerva’s letter of 11 July that we have been kept informed throughout the process.

I trust that you will appreciate that this is a complicated and complex matter and that we will not be in a position to respond immediately. I assume you will adhere to the terms of the contract to delay submitting the application for the Enhanced Planning Permission until we have reviewed, and there has been an opportunity for our comments to be properly considered and any necessary amendments made for the application to be in a form which meets our reasonable approval.”

Despite this letter, on 18 July 2014 Montagu Evans on behalf of Minerva submitted the section 73 application to Wandsworth and on 21 July 2014 Minerva wrote to Greenland telling them that this had been done.

The negotiation with Wandsworth over the Revised 106 Agreement

Once the section 73 application had been submitted to Wandsworth, Ms Fone at Montagu Evans started work on preparing a viability assessment to calculate the required additional payment towards off-site affordable housing provision. In her letter to her colleague Mr Cohu of 14 August 2014 she explains that:

The resulting figure generated by this computation as the appropriate payment in lieu of affordable housing is a one-off payment of £1,080,000.

Mr Cohu sent that viability appraisal prepared by Ms Fone to Mandy Ryeland the planning officer at Wandsworth on 14 August 2014. In his covering letter he explained that the appraisal has been carried out on the basis of identifying the available “surplus” after costs, fees, profit etc arising from the additional 14 units within the Tower. He went on:

“As you know we have already discussed and agreed the principle that any additional contribution would be dealt with by way of an off site payment and our initial assessment indicated this could be as much as £1.5 million. The attached Appraisal suggests that the total available contribution towards affordable housing is just under £1.1 million but I have authority from the applicant to increase the offer to £1.4 million.”

He reminded Wandsworth that they were likely to benefit from an additional £1.2 million under the extant scheme (assuming proceeds of the sale of the accommodation exceeded that anticipated in the Original 106 Agreement) and that the additional revenue arising from the extra 14 units could be added to that.

Wandsworth then contacted BNPP who had advised them on the affordable housing contribution for the extant scheme. Ms Ryeland reported back to Mr Cohu that Mr Lee at BNPP had quoted for the work on the basis that the viability assessment would need to cover changes to the scheme as a whole, not just the addition of 14 units. Mr Lee’s initial thought was that they would have to update all the uses within the development to determine whether the scheme could deliver more affordable housing. Mr Cohu told Ms Ryeland on 18 August 2014:

“Mandy I think we have a problem if [Mr Lee] thinks this is an opportunity to look at the whole scheme that is not what is on offer. We are prepared to discuss and agree a figure based on the two additional floors as per the application. Nothing else is on the table so if [Mr Lee] is looking for this we will withdraw the application as this is not what we have discussed. If BNP focus on this issue then I can agree £5000 plus VAT if not then we jointly need to look elsewhere.”

Ms Ryeland wrote back on 19 August agreeing:

“I quite agree with you. When I spoke with [Mr Lee] on Friday afternoon I made it quite clear that we were only looking at the 14 additional units. Perhaps he does not think this is appropriate. I am happy to have a chat with him again on his return and explain that the assessment we require is only in relation to the 14 units.”

Shortly thereafter BNPP agreed a fee of £3,000 exclusive of VAT and expenses for an assessment of the 14 units.

On 27 August 2014 Mr Enderby sent Ms Wang a copy of the viability appraisal prepared by Ms Fone and Mr Enderby’s covering letter to Wandsworth of 14 August 2014.

On 10 September 2014 Ms Ryeland at Wandsworth forwarded to Ms Fone at Montagu Evans the report that BNPP had prepared in response to Montagu Evans’ viability appraisal. The BNPP report concluded that the two extra floors justified a payment of £1,522,750 in lieu of affordable housing. The calculation was based on the inclusion of an item in the cost of construction valued at £500,000 to build a crane system for cleaning the windows. However, as I explain further below, BNPP were sceptical about this item of expenditure and recommended that the inclusion of the crane system be included as a planning requirement. If no such condition was included, they recommended that the payment in lieu would increase. I consider this report in more detail below.

Montagu Evans’ response took issue with some points in the BNPP report but stated that, if no condition was imposed about building the crane cleaning system, Minerva was willing to offer a payment of £1,650,000 payable on commencement of the Tower or when construction gets to the top floors. Mr Cohu also wrote to BNPP saying that he suspected they were not far off agreeing the base position.

On 11 September 2014 Mr Cohu wrote to BNPP confirming a revised offer of £1,665,000 if no condition relating to the crane cleaning system was included. There were further conversations between Mr Cohu and BNPP concluding in the early afternoon of 11 September 2014 when Mr Cohu wrote to BNPP confirming the offer of £1.75 million towards off-site affordable housing. He confirmed his understanding that BNPP had recommended this to Wandsworth and they had accepted the offer. I refer to this as the Revised 106 Agreement.

Montagu Evans were notified by Wandsworth on 8 October 2014 that the section 73 application for the enhanced planning permission would be considered by the Planning Applications Committee on 16 October 2014. The Committee report for that meeting noted that the application sought permission to allow an increase in height of the consented 34 storey tower by 2.72 m with an internal reconfiguration to provide an additional 14 residential units within the Tower. There was no change to the rest of the Ram Brewery site. The overall design of the Tower would remain the same with the two additional floors incorporated at lower levels (levels 11 and 12) of the Tower to allow the upper floors to remain as similar to what was approved as possible. It also noted that internal reconfiguration included the redesign of the core to reduce it by 6sq.m per floor. This increased the size of residential units, retail units, function room and gym. It also stated:

“Internally, there would be a reduction in floor to floor heights of 0.756m at ground floor level and 0.076m at all other levels. As proposed residential units would have floor to floor heights of 3.024m rather than the approved 3.1m. however at the same time the floor to ceiling heights in living areas will be increased by 4mm to 2.529m through alterations to servicing zones. The duplexes at the top of the tower would retain the same floor to ceiling heights with the exception of the double height living rooms which would be reduced in height by 0.251m to 5.374m. these alterations in floor heights have been achieved as a result of greater technical design of the tower.”

Under the heading “Affordable Housing” the Committee Report noted that no additional on-site affordable housing was to be provided but a contribution of £1.75 million was proposed with an additional £21,180 as a further pro rata contribution. These sums were in addition to the 66 on-site affordable units and £1.2 million sum, dependent on market sales exceeding more than 5% of a benchmark sales value. This contribution had been negotiated from the original offer of £1.4 million.

The report to the Committee concluded:

The committee therefore resolved to approve the section 73 application on 16 October 2014, just within the deadline set for Minerva by the Sale Agreement.

However Greenland refused to enter into the Revised 106 Agreement in January 2015 so that the resolution to grant was never converted into the grant of the section 73 application.

The first issue between the parties is whether Minerva was entitled under the Sale Agreement to submit the planning application to Wandsworth on 18 July 2014. There are several sub-issues that arise under this heading some of which relate to both the first and second requests and some relate to only one:

The absence of the viability appraisals from the requests for consent

Greenland contends that neither the first or second requests for its consent to the submission of the planning application complied with the provisions of paragraph 1.5(a) of Schedule 6 to the Sale Agreement. That paragraph required Minerva to submit the “draft application” to Greenland for approval. Greenland say this was not complied with because the material accompanying the requests for consent did not include either the viability appraisal that had been sent to Wandsworth in support of the extant planning permission or the viability appraisal produced to support the section 73 application for the enhanced planning permission.

Greenland say that the viability appraisals were essential to enable them to decide whether to give their consent. Although the viability appraisal for the enhanced scheme was sent to Greenland on 27 August 2014, some two weeks after it was sent to Wandsworth, the earlier appraisal for the extant scheme was not made available until this litigation commenced. Greenland point to the fact that paragraph 1.5(a) of Schedule 6 requires Minerva to draw up “plans and supporting materials” and prepare a draft application and to submit it to Greenland for approval. They contend that the reference to “draft application” must incorporate the “plans and supporting materials” and those include as a minimum all those materials necessary for the application to be determined by Wandsworth not just those necessary for the application to be validated by Wandsworth.

Further Greenland argue that it is consistent with the commercial purpose of the contract to read the terms “draft application” as including the supporting material. The Sale Agreement explicitly envisaged that the section 73 application might lead to an additional affordable housing contribution. A requirement for Greenland to see and approve the viability appraisal would assist Greenland in securing Minerva’s compliance with its obligation to use reasonable endeavours to minimise that contribution. A narrow interpretation of paragraph 1.5(a) would not, they submit, make commercial sense because Greenland had no means of policing Minerva’s duty to use reasonable endeavours to minimise affordable housing.

In my judgment there is no basis for concluding that the Sale Agreement required Minerva to provide Greenland with the viability appraisals when seeking its consent to a proposed planning application. Paragraph 1.5 (a) does not say that the two viability appraisals must be submitted to Greenland. It says only that the draft application for enhanced planning permission is be provided. As Minerva point out, Greenland did not seem to expect to receive the viability appraisals since they did not ask why they had not been provided when they were sent the request for approval on either occasion.

Secondly, Minerva did not include the viability appraisals in its planning application to Wandsworth. Indeed, the viability appraisal in relation to the enhanced scheme had not been completed at the time the section 73 application was submitted on 18 July 2014. Ms Fone explained that she did not generally submit a viability appraisal with the section 73 application because in the past that had led to commercially sensitive material being accidentally uploaded onto Wandsworth’s website with the rest of the application. That did not prevent Wandsworth accepting, validating and consulting on that planning application. If the viability appraisal is not something that has to be provided to Wandsworth at the time of the application, I do not see why it should be provided to Greenland to enable them to assess that application.

Thirdly, there is no commercial reason why the contractual provision should be interpreted as including a requirement to supply viability appraisals. The evidence shows that the viability appraisal is only the first step in the process of agreeing the affordable housing contribution. Following the discussions between the applicant’s valuers and the planning authority’s valuers, the ultimate figure agreed can be very different from that suggested by the initial viability appraisal. This is illustrated by what happened in relation to the affordable housing contribution determined for the extant planning permission. I accept that Greenland may want to see the viability appraisal for the enhanced scheme if an issue arises as to whether Minerva complied with its duty to use reasonable endeavours to minimise the affordable housing contribution. But that issue would only arise much later, after the application had been submitted. Greenland was provided with the viability appraisal for the enhanced scheme long before the question of whether they were obliged to enter into the Revised 106 Agreement arose. This does not provide a reason for interpreting the contract to mean that a request for approval without the provision of the viability appraisal is invalid.

I cannot see how the viability appraisal for the extant scheme could be relevant, even though there is some cross-reference to it in Ms Fone’s viability appraisal for the section 73 application. The comparison needed for the application of the “proportionately no more onerous” test in paragraph 2.4 of Schedule 6 is with the finalised Original 106 Agreement. How that agreement was arrived at does not seem to me relevant to Greenland. I do not accept that sight of the opening gambit submitted by Minerva for the extant scheme would have been either necessary or helpful to Greenland.

Both side’s expert witnesses expressed their views on whether the documentation provided to Greenland was complete without the viability appraisals. Although this is largely a question of the interpretation of the clause in the Sale Agreement, the experts’ views may cast light on what the parties’ expectations are likely to have been. Mr Rhodes for Minerva accepted that the viability appraisal is essential in order for the issue of affordable housing contribution to be resolved but rejected the contention that Greenland needed to see this at the time that the application was submitted. Ms Curtis’s view for Minerva was also that a developer does not need the viability appraisal because the appraisal initially put forward by the applicant may bear no relation to the figures ultimately agreed. Mr Bullock for Greenland took the opposite view and expressed the view that the viability appraisals were necessary for Greenland to be able to assess the proposed enhanced scheme.

I find that there was no obligation to provide a viability appraisal prior to the first or second request for Greenland’s consent to the submission of the planning application to Wandsworth. Such an interpretation of the contractual obligation is consistent with the fact that the viability appraisal was not sent to Wandsworth at the time that the application was submitted and that Greenland did not raise any issue about this at the time.

Were the requests for consent in accordance with the provisions of Schedule 6?

Greenland rely on clause 5.4 of the Sale Agreement as establishing that neither request was a valid request for consent under the Sale Agreement. To recap, clause 5.4 provides that: (emphasis added)

"It is the intention of the parties to seek Enhanced Planning Permission. If an Enhanced Planning Permission is granted in accordance with the provisions of Schedule 6 (Enhanced Planning Permission Provisions) and the Enhanced Planning Permission Satisfaction Date has occurred the Price is to be increased in accordance with the provisions of Schedule 6 (Enhanced Planning Permission Provisions)"

Greenland argue that this means that any breach of the obligations in Schedule 6, other than a de minimis breach, prevents the grant of the planning permission being ‘in accordance with Schedule 6’. Since they contend Minerva has been in breach of the duties to inform and consult imposed by Schedule 6, the grant of planning permission was not in accordance with Schedule 6 and no overage is payable.

Minerva object to Greenland’s reliance on alleged breaches of the duties to inform and consult on the basis that this was not pleaded and they did not come to court ready to address any such allegations. I discuss that point further below. Minerva also argues that it is not correct to construe the requirement in clause 5.4 of the Sale Agreement that the application be in accordance with Schedule 6 as making it a condition precedent of the submission of a valid request that there has been no breach by Minerva of its obligations under Schedule 6 such that any material breach of any provision of Schedule 6 results in the grant of planning permission for an enhanced scheme being in some way invalidated for the purpose of Minerva earning the overage. Mr Dowding QC for Minerva referred me to Yorkbrook Investments Ltd v Batten (1985) 52 P & CR 51 which concerned a lease under which a lessor covenanted “subject to the lessee paying the maintenance contribution” to perform various maintenance and repair works. The question arose whether those words meant that payment of the maintenance contribution was a condition precedent to any liability of the claimant to carry out repair works. The Court of Appeal held that the question whether liability in respect of one covenant in a lease was conditional upon the performance of another covenant was to be decided upon the true intentions of the parties to be gathered from the instrument as a whole. The court was entitled to take into account amongst other things guidance and indications from within the lease itself and to examine the possible consequences of each interpretation contended for. They held that in the circumstances of that case it was clear that, despite the wording used, the parties to the lease did not intend to create a condition precedent.

I find that Greenland’s proposed interpretation of clause 5.4 of the Sale Agreement is neither consistent with the language of the provision or with commercial sense. As far as the language is concerned, it is the grant of the planning permission, not the seeking of the planning permission that must be in accordance with the provisions of Schedule 6. That points to those provisions of Schedule 6 which deal with the grant of permission, in particular the requirement in paragraph 1.1 of Schedule 6 that the resolution to grant must be achieved within 10 months from the date of the Sale Agreement, and the requirement in paragraph 3.4 that the Enhanced Planning Permission Satisfaction Date must occur within 16 months of the date of the agreement.

I also accept Minerva’s submission that the drafting of the Sale Agreement looked at as a whole shows that the parties were well aware of the need to make it clear if one obligation was conditional upon, or subject to, compliance with a different obligation. There are various instances in the Sale Agreement where the drafter has expressed obligations in terms of “if x happens then y” or by contrast that “notwithstanding x a party shall be obliged or entitled to do y”. If the parties had intended to make compliance with every provision of Schedule 6 a precondition of the overage becoming payable, they would have spelt this out more clearly since this would be a very important factor so far as Minerva were concerned.

The interpretation of the contract for which Greenland contend would mean that any breach, even if of no great significance, would deprive Minerva of the opportunity to earn a substantial amount of overage regardless of how much work they had put in over the 10 months following the conclusion of the Sale Agreement, and even if the breach had no bearing on the merit of the enhanced scheme.

Without making any findings as to whether there was a breach of the Sale Agreement by Minerva, I find that that issue is not relevant to the validity of the first and second requests.

Was the first request on 8 July 2014 too informal to be a valid request pursuant to the Sale Agreement?

Greenland submit that the first request made by email on 8 July 2014 was not a formal request and did not therefore result in a formal answer refusing the request which refusal falls to be assessed as to its reasonableness.

I reject that contention. There is nothing in the Sale Agreement which states the form in which a request must be made. One can test the matter this way; if Greenland’s answer had been “Yes” on 9 July 2014 in response to the email rather than “No”, Greenland would have expected Minerva to act on that response and to submit the planning application to Wandsworth immediately. The parties would have moved onto the next stage of the process. It would not have been open at some later point to Greenland to argue that the request or the consent had not been made and given pursuant to the terms of the Sale Agreement so as in some way to undermine Minerva’s entitlement to submit its application to Wandsworth.

Mr Elvin QC appearing for Greenland also argues that there was no real refusal here because in the same email in which she put forward Greenland’s initial concerns, Ms Wang offered to meet Minerva to discuss the matter further.

I do not consider that that prevents the email exchange from being a formal request and a formal refusal. Ms Wang’s email of 9 July 2014 contained the sentence “And therefore we do not approve this amendment to the scheme.”. The fact that the parties did not immediately break off all contact after this first request and refusal does not mean that they were not actions covered by the Sale Agreement.

Did Greenland act unreasonably in refusing its consent to the first request?

The law

There is a great deal of case law about how the courts assess the reasonableness of one party’s refusal of consent where the contract between them stipulates that consent must be acquired for particular action but that that consent must not be unreasonably withheld. Most cases concern leases of premises where the tenant cannot assign the benefit of the lease without the consent of the landlord but where the landlord must not unreasonably withhold or delay his consent. The submissions made to me were on the basis that those common law principles apply in the present case.

Greenland accept that the issue of whether their refusal was reasonable or not must be judged on the basis of the reasons that influenced their mind at the date of refusal. But they argue that provided that those reasons did influence their mind at the relevant time, it is not necessary that the reasons were all communicated to Minerva in order to be relied on in these proceedings. As authority for this proposition, Greenland rely on the case of Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019. That case concerned the refusal by a landlord of consent to an assignment of the residue of the lease. The landlord in refusing consent expressly said they would not agree to the assignment of the tenancy of the flat to any other party. The tenant took the view that this refusal of consent was unreasonable and she signed the agreement to the defendant who moved into the flat. The plaintiff began proceedings for possession. In his judgment agreeing with the leading judgment of Cumming-Bruce LJ and Dunn LJ, Slade LJ referred to the tenant’s right to proceed with an assignment following the unreasonable refusal of consent and continued (page 1033 -1034): (my emphasis)

“It is of course open to the landlord thereafter to challenge the validity of an assignment effected in such circumstances, on the grounds that his refusal of consent was not in fact unreasonable. However, the tenant’s right to proceed with such an assignment would be rendered more or less nugatory, if, in subsequently advancing such a challenge, the landlord were entitled to rely on facts or considerations which had not in any way influenced his mind at the date of the assignment, but were mere afterthoughts. A tenant who decides to proceed with an assignment following an unqualified refusal of consent on the part of the landlord, must be entitled to take this course in the light of the facts as they exist at the date of the assignment. Even on this footing, he must still accept a degree of risk in adopting this course inasmuch as he may not be aware of all the factors which have in truth influenced the landlord in his refusal.

…

I find it rather more surprising that, when the landlords come subsequently to question the validity of the assignment in such circumstances, they should be free to rely on reasons for their refusal which had not been mentioned to the tenant, or even hinted at, either before or in the letter … which contained the outright refusal. In the absence of authority, I would have thought there was much to be said for the view that a landlord who, by stating to the tenant one reason only for refusing his consent to an assignment -- that reason being a demonstrably bad one — provokes a tenant into assigning without consent, should not thereafter be allowed to rely on unstated reasons for the purpose of attacking the validity of the assignment. However, authorities such as Sonnenthal v Newton (1965) 109 SJ 333, and Welch v Birrane (1974) 29 P. & C.R. 102 appear to establish that the court, in considering questions of reasonableness or otherwise in this context, is not confined to the reasons expressly put forward by the landlord prior to the date of the refusal.”

Slade LJ therefore was content to assume, without deciding, that that is the legal position subject only to the proviso that the landlord can only be permitted to rely on reasons which did actually influence his mind at the relevant date. After hearing the judgment delivered by Slade LJ, Cumming-Bruce LJ and Dunn LJ agreed with Slade LJ’s judgment on this point.

The parties before me agree that the position at common law is still that the party refusing consent can rely on reasons that influenced his mind at the time even though he did not express those reasons to the counterparty. That position has been changed by statute as regards the consent of a landlord to assignment of a lease in certain circumstances. But in the present context, the parties were agreed that that is the law to be applied.

As to what reasons are ‘reasonable’ reasons for refusing consent, Greenland also rely on Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59. In his speech in that case, Lord Bingham of Cornhill set out the three overriding principles to be applied when considering the reasonableness of the landlord’s refusal of consent for an assignment. First the refusal must be for a reason which has something to do with the relationship of landlord and tenant in regard to the subject matter of the lease. Secondly the question of whether the landlord’s conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact, each decision rests on the facts of the particular case and care must be taken not to elevate a decision made on the facts of the particular case into a principle of law. Thirdly the landlord’s obligation is to show that his conduct was reasonable, not that it was right or justifiable.

Greenland also submit that if an application for consent is incomplete, a person whose consent is required is under no duty to request the missing information and is entitled to consider only that information provided to him in the application, even if as a result of that information being incomplete, the landlord’s conclusion is to refuse consent. For this proposition, they rely on the decision of Lewison J (as he then was) in Royal Bank of Scotland PLC v Victoria Street (No 3) Ltd [2008] EWHC 579 (Ch). Lewison J referred to the observations of Lord Rodger in Ashworth Frazer when stating that it was common ground between counsel before him that a landlord who refuses consent “is able if he chooses to amplify the reasoning which led him to that conclusion”. The question in that case was whether the landlord was entitled to take the view that the proposed corporate assignee was not a respectable and responsible person because it had only been incorporated less than two months previously. Lewison J rejected a submission that the landlord ought, if it had concerns about the financial ability of the proposed tenant to comply with the lease, to have explored the possibility of obtaining a personal guarantee from the directors or the payment of a larger rent deposit. Lewison J held that the landlord is entitled to make a decision on the basis of the application as presented by the tenant.

Greenland’s pleaded case regarding the reasons for refusing the first request

The reasons expressed to Minerva at the time of the refusal were those set out by Ms Wang in her email of 9 July 2014. I have set out the text of that email in paragraph 113, above.

On the basis of the authorities I have cited above, it is open to Greenland to rely on reasons which were not expressed at the time to Minerva. However, if a defendant wishes to assert that there were reasons which influenced his decision to refuse but were not expressed to the claimant at the time of the refusal, it is very important that such reasons are properly pleaded by the defendant so that the claimant knows at least at that stage what reasons for the refusal are relied on to make the refusal reasonable.

Greenland’s pleaded case is that Minerva failed to demonstrate the full effects of the changes to a reduction in the ceiling zones of the Tower storeys along with the amendments to the central core layout and reduction in the height of the duplex units and the commercial units. It is alleged that Minerva wrongly assumed that it was unreasonable for Greenland to wish to question and take its own advice on the potential consequential effects: see paragraph 21 of the Defence served on 12 May 2015. Greenland further avers that the consequence of a reduction in floor to ceiling heights would be a diminution in the likely sales value of the individual units, alternatively that it would be a reasonable view that such a diminution was likely. It was reasonable for Greenland to question the advice and seek to appoint its own specialist consultants because it considered that the appointed advisers were now acting solely for Minerva rather than for both parties. It is alleged that Minerva was unwilling to afford Greenland a proper opportunity to go through this process and wanted to force Greenland to approve the documentation which Greenland was unwilling to do: paragraph 22.

The key paragraph in the Defence is paragraph 25. This responds to the allegation in paragraph 42 of the Particulars of Claim that the email of 9 July 2014 was an unreasonable refusal to approve the draft application. In the Defence it is averred that “in the light of the matters set out above” Minerva had not made a valid submission or request for approval in accordance with the Sale Agreement and Greenland was reasonably entitled to withhold consent “given the matters set out above”. Paragraphs 21, 22, 23 and 25 of the Defence were not amended when the Amended Defence and Counterclaim was served. That amended pleading highlighted for the first time the allegation that the requests for consent were defective because they failed to include the two viability assessments.

The reduction in floor to ceiling heights of the residential units in the Tower

The main reason given at the time and in the pleaded case for the refusal of consent was Greenland’s concern that the fact that two additional storeys were being incorporated in the Tower but were resulting in only a small increase in the overall height of the Tower must mean that the floor to ceiling height of all the residential units on all the floors of the Tower was being reduced. Although one can readily understand how this might be a layperson’s immediate reaction to the proposed change, I do not accept this was a reasonable or genuine concern. Further I find that no one in Greenland could reasonably have been worried about this point once it had been explained to them very clearly that the achievement of the additional two storeys was not at the expense of reducing the floor to ceiling heights in the typical apartment but arose from improvements in the design, which reduced the height of the ceiling zone, that is the distance between the ceiling of one flat and the floor of the flat above.

At the time of the first request for consent on 8 July 2014, Greenland was provided with the opinions of the experts tasked with selling the residential and commercial units. They gave their firm opinion that there was no diminution in the quality of the accommodation and therefore no risk that the proceeds of sale would be lower or that the quality of the building would damage Greenland’s reputation as a property developer.

I have described how immediately following the email refusing consent Mr Zhou pursued the concerns expressed with Ms Finch and Mr Mann in his email of 10 July 2014. Again Greenland received a very clear reply that there was nothing to worry about. Greenland say that this gave rise to concerns that JLL and Savills were now working in the interests of Minerva rather than in the interests of both parties. But I can see no basis for suspecting that the opinions expressed by Ms Finch and Mr Mann were anything other than their genuinely held professional views. It was in the interests of the agents for the accommodation ultimately to be sold for as high a price as possible.

The description of how improvement of the overall design of the Tower had led to savings in height which would offset the additional two storeys could not have been set out more clearly by Minerva in the emails and other documents they sent to Greenland. As I understand the evidence it is not unusual for initial design work on a building to be improved and refined as the project progresses to generate greater efficiencies. There is nothing suspicious or unexpected about that and I would expect Mr Ma at Greenland to know this.

There is also evidence after the email exchanges in July which persuades me that the reason put forward by Greenland was not genuinely held at the time. This is the evidence of the correspondence by which Greenland commissioned a report from the well-known agents Knight Frank about the effect of the changes in the enhanced scheme on the likely value of the project. In his witness statement, Mr Qian referred to the final version of this report issued by Knight Frank on 28 November 2014. Mr Qian sets out his recollection of the negative conclusions that Knight Frank drew. He relies on this as confirming Greenland’s concerns that the reduction of the ceiling heights would indeed adversely affect the quality of the Tower and the value of Greenland’s investment.

However, the documents disclosed by Greenland about how that Knight Frank report was drafted cast a very different light on this episode. On 17 July 2014 Mr Zhou had a meeting with two people at Knight Frank. He asked them to do a “marketing evaluation consultancy” on the proposed enhancement of the planning permission for the Ram Brewery. On 21 July 2014 Mr Kazan at Knight Frank sent Mr Zhou a proposed letter outlining their thoughts regarding the ceiling heights proposed in the residential tower of Phase 2. The letter which was still in draft form described the proposed variation in the following terms:

“The proposed variation compiled by EPR architects introduces a slight increase of 2.7 metres to the total height of the tower as well as an optimised slab structure and floor build up which releases sufficient space to accommodate the additional area with negligible impact on floor to ceiling heights in the residential areas. However, the schedule of critical design data supplied by EPR indicates that the finished floor to ceiling heights proposed are to range between 2.35 and 2.53 metres which we consider to be below current market expectations for private residential accommodation of the quality envisaged for this scheme.”

The draft Knight Frank report then set out some comparative data from other prime residential developments across central London with floor to ceiling heights in excess of those proposed. They conclude that the ceiling heights currently proposed in the Tower “are insufficient and likely to incur a discount at sale to full market value.”

What the report does not recognise at that stage is that the figures in the critical design data do not show any change between the extant planning permission on the basis of which Greenland bought the site and the enhanced proposed planning permission other than an increase of 4 mm in floor height in the enhanced plan in a typical floor. So if the point Knight Frank made about the floor to ceiling heights being below current market expectation was true, the same criticism could be made of the extant scheme in place at the time Greenland bought the site.

The matter was left there until beginning of October apparently because Greenland had formed the view that it was unlikely that Minerva would achieve planning permission for the enhanced scheme. On 9 October 2014 Daniel Lightwing from Greenland wrote to Mr Kazan at Knight Frank explaining that they wanted “a relatively simple report”. The report “should demonstrate clearly the impact of reducing ceiling height on the pricing of typical residential and commercial units”. Mr Kazan wrote back asking for clarification indicating that he thought he was being asked to assess the impact on value of a scheme of residential units with 2.35 m ceiling heights. Mr Lightwing confirmed to Mr Kazan that they were looking for “documentation that supports our claim that 2.35m ceiling height would reduce unit value”.

Mr Kazan wrote to Mr Zhou and Mr Lightwing on 22 October 2014 chasing for a response on the proposed fee of £2,000 for the drafting of an appropriate letter. Mr Zhou responded that “we would like to see the draft letter before we make the payment, in case there may be any small change required to the draft letter.”. He asked Mr Kazan to send him the current draft. Mr Kazan replied that Knight Frank were “happy to edit the letter as you require and we get it into a final form that you are happy with. This is of course on the understanding that our work is remunerated as agreed.”. He attached the current draft of the letter which was dated 21 October 2014. The draft attached still assumed that the floor to ceiling height of a typical residential unit would be reduced from 2.6 m in the original design to 2.52 m in the enhanced scheme. Nevertheless the letter was drafted in moderate terms for example:

This letter was not acceptable to Greenland. There was an internal discussion within Greenland and a track change draft was sent by Greenland to Mr Kazan. The proposed changes all greatly increased the negative views in the letter about the residential units. For example, an additional sentence was added on the first page to say “If the ceiling height is lowered it will affect the quality and look of the architecture and also the value of the building”.

As regards the typical residential units:

On 25 November 2014, Edward Morton Jack at Greenland reported to Mr Li that he had persuaded Knight Frank to make all the changes Mr Li had requested and he had also made further changes “to make your point stronger”. The conclusion in the final version of the letter issued by Knight Frank about the effect of reduced ceiling heights on the standard units had moved even further away from Knight Frank’s original view that the units could still achieve market value. The conclusion paragraph now asserted not only that the reduced height would affect the sales value of the units themselves but also result “in a discount to the full potential sales value of the building”.

In his cross examination at the trial Mr Qian was taken to the passage in his witness statement where he recalled Knight Frank’s conclusions. When the track changes made to the text by Greenland were shown to him, his evidence was that he had not instructed people at Greenland to do this and he did not know of the changes made to the letter at Greenland’s instigation. I find that evidence implausible. Mr Qian agreed that what Greenland had done was not appropriate and they should not have amended the conclusions of the Knight Frank letter. Where the figure of 5% came from is not clear.

At a time that these exchanges with Knight Frank were taking place, Greenland were aware that Wandsworth had granted the resolution approving the enhanced planning permission application and discussions were taking place with the view to that enhanced planning permission being granted. One might have expected them to be trying to find out whether their initial concerns about ceiling height reductions were misplaced as Minerva, JLL and Savills had explained so that, if they could be reassured on that score, they could even at this late stage get on board with the proposed enhanced scheme. Instead they were not really seeking the views of expert consultants at all but were manipulating those consultants to gain support for undermining Minerva’s efforts to obtain enhanced planning permission.

I find therefore not only that Greenland’s concerns about reduced ceiling height in the residential units were in fact unjustified but that they were not genuinely or reasonably held at the time that consent to the first request was refused on 9 July 2014.

Reduction in ceiling zones

The ceiling zone in the Tower is the space between the ceiling of one storey and the floor of the apartment on the storey above. Paragraph 21 in the Defence refers to a reduction in the ceiling zone of each floor from 200 mm to 100 mm. It is asserted that it was reasonable for Greenland to question and take its own advice on the potential consequential effects of this change.

In fact, the information provided by Minerva to Greenland namely the Critical Design Data showed no such reduction in the ceiling void. The table showed the maximum ceiling void as being 275 mm in the extant scheme and 279 mm in the enhanced scheme. To work out the minimum ceiling void one takes the floor to floor height (that is the distance from the surface of the floor on one storey to the surface of the floor on the storey above) and deducts from it the depth of the concrete slab, an allowance for slab deflection, the space taken by the floor build up and the maximum floor to ceiling height. This shows a minimum ceiling void of 100 mm for the extant design and 100 mm for the enhanced design. This is because although there is a reduction of 76 mm in the typical floor to floor height there is a reduction of 50 mm in the slab depth and of 30 mm in the floor build up and an increase of 4 mm in the maximum floor to ceiling height. So far as the duplex penthouses are concerned the minimum ceiling void is larger in the enhanced scheme compared to the extant scheme. Mr Wensink confirmed this in cross examination.

Mr Ma was cross-examined about this alleged problem about the ceiling zones. He agreed that it is straightforward to calculate the minimum ceiling void depth from the Critical Design Data provided. He says in his witness statement that he could not see “how on earth Minerva could work up a scheme adding 2 extra floors by only increasing the height of the Tower by 2.72 m”. Again, this evidence seems implausible if Mr Ma’s qualifications are indeed the equivalent of a structural engineer’s given that the evidence is that it is not unusual for a design to be improved during the process of refining the plans for the building. Mr Ma said as regards the claim that the floor to ceiling height of the typical residential units was increased while the floor to floor height was reduced that “I was shocked to see this. It did not seem possible.” He then describes how he downloaded PDF drawings for the existing scheme from the Wandsworth website and took measurements from those drawings. He thought that this showed that the slab depth in the existing scheme was 250 mm and the floor to floor height was 3.1 m so a floor to ceiling height of 2.6 m could be achieved. This contrasted with the figure of 300 mm in the Critical Design Data for the slab depth. What I understood Mr Ma to be saying was that he concluded from his measurements of the PDF drawings that the supposed saving of 50 mm by a reduction in slab depth between the extant and enhanced scheme was illusory so that there was no saving of 50 mm to offset against the 76 mm reduction in the typical floor to floor heights to arrive at the floor to ceiling height.

This evidence was however substantially undermined during Mr Dowding’s cross-examination of Mr Ma. Mr Ma accepted that he had done a lot of calculations but he had not retained those calculations so they were not before the court. He also said that he had not written down his conclusion but verbally reported it to Mr Qian. More significantly, it was pointed out to him that the PDF drawings for the extant scheme which he said he had downloaded and measured supposedly to arrive at the conclusion that the slab depth in the extant scheme was already 250 mm rather than 300 mm are all marked in the bottom left-hand corner “Do not scale”. Mr Ma said he did not pay any attention to that although he accepted when it was put to him that the words are a warning to anyone reading the drawing that they should not scale off it because the results may not be accurate or reliable.

When asked about this Mr Ma changed his evidence to say that he had not arrived at his conclusion by measuring elements of the PDF drawings himself but that there were measurements already written onto in the drawings. The following day, Mr Ma accepted that there had been no measurements on the drawing showing thickness of the floor slab. Further Mr Ma was shown a report that Greenland had commissioned from the engineering consultancy firm WSP UK Ltd in July 2014. The report from WSP, who specialise in the design of tall buildings, contained a section headed “Key aspects of the consented scheme and the proposed scheme”. That gives a figure for slab thickness for the extant scheme as 300 mm not 250 mm. Mr Ma initially countered that WSP had simply taken the figures from the Critical Design Data but that contention was not supportable given the text of the report. He was not able to explain why in his witness statement he had referred to his own measurements but not to the fact that WSP’s calculation seem to show that the slab depth in the existing scheme was 300 mm not 250 mm.

Mr Ma’s evidence was that he had conveyed his concern about the inaccurate slab depth measurement in the Critical Design Data for the extant scheme to Mr Qian and Mr Zhou on 4 or 5 July 2014. But Mr Ma had to accept that the point was not made by Mr Zhou in his email to Mr Mann and Ms Finch on 11 July 2014. He could not explain why Mr Zhou had not mentioned this if it was true that Mr Ma had made his calculations and raised the concerns with his colleagues. He also had to accept that he did not specifically ask Minerva or EPR about this inaccuracy in the Critical Design Data circulated by EPR between the date when he supposedly discovered it and the date when Greenland rejected the request for consent. The only requests that were made to Minerva were for more information about the proposed scheme not information about the extant scheme which might clear up a mistake about the slab thickness in the extant scheme.

My conclusion on this evidence is that I am very doubtful whether Mr Ma in fact made the measurements that he claims to have made. If he regards himself as qualified to take measurements from PDF drawings to challenge the architects’ figures, it is surprising to say the least that he did not notice or appreciate the significance of the “Do not scale” note on those drawings. I reject his evidence that he really believed that the slab depth in the extant scheme was 300 mm so that the offsetting saving in height by using a thinner slab in the enhanced scheme was incorrect.

I therefore conclude that there was no real concern within Greenland at the time they rejected the 8 July request that a reduction in the ceiling void might cause problems with the feasibility of the design or the attainment of the floor to ceiling heights proposed in the enhanced scheme.

Amendments to the central core layout

Paragraph 21 of the Amended Defence and Counterclaim alleges that changes to the central core layout of the Tower made it reasonable for Greenland to want to take its own advice on the potential consequential effects. There is no further detail given of what changes caused concerns within Greenland at the relevant time. Certainly there is no reference to changes to the core in either of Ms Wang’s two emails of 9 July 2014.

During the cross-examination of Mr Wensink, questions were put to him about the size and disposition of the structural supports in the drawings for the 10 storey extension to the Tower and the two storey extension. But there was no evidence put forward by Greenland either to the effect that the structural supports proposed for the new design of the 36 storey Tower would be inadequate in some way or that anyone in Greenland either noticed the changes or were concerned about them at the time that the first request for consent was refused.

If Greenland wanted to justify its refusal on the grounds that it had reason to be concerned that the design of the Tower would not physically stand up when built, they should have pleaded that more clearly. Evidence could then have been adduced at the trial on the issue of whether the technical drawings raised legitimate concerns about the feasibility of the Tower proposed. This concern was not mentioned in the emails from Ms Wang. Mr Ma’s evidence is that he only looked at the drawings of the core area a few days after he received them via the drop box link on 8 July 2014 so this could not have influenced the decision to reject the first request for consent on 9 July. There is no evidence to support the contention that this factor influenced the decision of Greenland to refuse consent even if it was not expressed to Minerva.

Reduction in the floor to ceiling height of the duplex apartments

The Critical Design Data show that the floor to ceiling heights in the bedrooms of two storeys of duplex apartments at the top of the Tower were not reducing but that the maximum floor to ceiling height in the double height living area was reduced by 251 mm from 5.625 metres to 5.374 metres. However, it is not enough for Greenland simply to say that there was a reduction in the floor to ceiling height unless it was reasonable for it to take the view that such reduction might result in a decrease in value. By the time of the trial the parties’ experts were agreed that there was no difference in value arising from the change in height. However, I bear in mind that according to Ashworth Frazer a landlord has only to show that his conduct in refusing consent was reasonable, not that it was right or justifiable.

Even so, I find that there is no real evidence that Greenland did hold the view that the reduction in ceiling heights in the duplex apartments would reduce their likely value, but even if it did, it was not a reasonable view. Ms Curtis’ evidence was that the reduction in floor to ceiling height would be too small to make any appreciable difference to the GDV. This is plausible since the double height living area was over 5 metres high. It is difficult to think that a reduction of about 25 cm would be perceptible by buyers and have any material impact on the sales value. Secondly JLL and Savills expressed the view at the time that the reduction in height made no difference to the likely sales proceeds from the flats. Greenland neither commented on that advice nor raised any queries about it. There is no evidence to show that Mr Ma or Mr Qian raised this concern with Mr Zhou who was Greenland’s marketing and sales director and who it might be thought would have a view on the effect of the height reduction on the marketability of the flats. When Mr Zhou did contact JLL and Savills setting out his concerns, these did not include the reduction in the floor to ceiling height of the double height rooms in the duplex apartments.

It is true that the initial draft letter provided by Knight Frank raised concerns about the low height of the duplex bedrooms (rather than the double height living area). But the figures which it appears Knight Frank used as the basis for their advice were different from the Critical Design Data in that they assumed a reduction in the height of the duplex bedrooms from 2.45 m to 2.35 m. In fact the floor to ceiling heights for both the lower level and upper level bedrooms in the duplex apartments were unchanged comparing the extant scheme and the enhanced scheme. Any problems arising from a floor to ceiling height of 2.35 m must have been apparent to Greenland when they bought the site in December 2013 and could not be a reason for them rejecting the enhanced scheme.

Reduction in the floor to ceiling height of the commercial units

The Critical Design Data showed that the floor to ceiling height in the commercial units was being reduced by 756 mm. Again, there is no evidence that this was a concern to Greenland at the time consent was refused. It was not mentioned in Ms Wang’s email of 9 July 2014 nor do the written statements of the Greenland witnesses refer to this as being something that influenced their decision to refuse consent. At trial the parties’ experts agreed that the reduction in the floor to ceiling height of the commercial units did not have any effect on the achievable values.

In any event I agree with Mr Dowding’s submission that it would not be reasonable for Greenland to have a concern that the reduction in height might have resulted in a decrease in value. Mr Webb of CWM Retail Property Advisers had told the parties that the revised height would be fine because it would allow enough room for the installation of the services needed for retailers. When Mr Zhou queried this in his email of 11 July 2014 with Mr Mann of Savills and Ms Finch of JLL, they both confirmed that this was not a problem. In mid July 2014 Mr Zhou wrote to Jonathan Eastwood at another surveyor, CBRE, asking for his view on a reduction in the heights from 4.225 m to 3.469 m. Mr Eastwood replied on 21 July 2014 that “Operators will be able to work within a head height of 3.469m, so you ought to proceed on this basis.”

Additional reasons for refusal relied on by Greenland at trial

Alleged breach by Minerva of its duties to inform and consult Mr Elvin QC submitted at the trial that there were flagrant and deliberate breaches on the part of Mr Enderby on behalf of Minerva in failing to tell Greenland about the plans that were being discussed with Wandsworth and with Minerva’s consultants about the possible additional two storeys in the Tower. He emphasises the commercial importance of the provisions in the Sale Agreement requiring Minerva to consult with and inform Greenland of any proposed planning permission application. The Sale Agreement clearly contemplates that such consultation will take place before any approach is made by Minerva to Wandsworth. Given that Minerva failed in many important respects to comply with its duties to inform and consult, Greenland was not in the position intended by the Sale Agreement that it should have been in when it received the request for approval. Greenland would have had a much better understanding of the proposals and an opportunity to raise queries as the proposals developed. In the light of these breaches, he submits, Greenland’s refusal was entirely reasonable.

Mr Dowding said that nobody reading the Amended Defence carefully could have anticipated the allegations put forward by Greenland in its closing submissions. He referred me to cases on the importance of pleadings. In Prudential Assurance Company Ltd v Revenue and Customs [2016] EWCA Civ 376 the Court of Appeal said:

“20.

… Our procedural system is and remains an adversarial one. It is for the parties (subject to the control of the court) to define the issues on which the court is invited to adjudicate. This function is the purpose of statements of case. The setting out of a party’s case in a statement of case enables the other party to know what points are in issue, what documents to disclose, what evidence to call and how to prepare for trial. It is inimical to a fair hearing that a party should be exposed to issues and arguments of which he has had no fair warning. If a party wishes to raise a new point, he should do so by amending a statement of case. We were told that by the time that skeleton arguments for trial were served each party would know what points were an issue. We do not regard that as sufficient.”

In the present case, there is no allegation in the Amended Defence and Counterclaim of breach by Minerva of the Sale Agreement and it is not pleaded as having influenced Greenland’s decision to refuse the request at the time. Mr Dowding submits and I accept that Minerva’s witness statements were prepared with great care after a consideration of the pleaded case against them. They did not address the question of alleged breaches of their duties to inform and consult.

If it had been alleged in Greenland’s pleaded case that Minerva had been in breach of the duties to inform and consult then Minerva would have sought further clarification of what breaches were alleged, what it was said they ought to have done and when and what the alleged consequences of the failure were. They might have then wished to call other witnesses such as Mr Chambers. What happened instead was that Mr Enderby was cross-examined at some length about these failures without having an opportunity to consider the matter before he went into the witness box. It would not be fair in my judgment to allow Greenland at trial to substitute for the reasons given at the time and pleaded in the Amended Defence and Counterclaim a new reason of which Minerva has not had notice, particularly where there is no evidence that this reason in fact influenced Greenland’s decision. In the light of the way the trial unfolded, I do not have enough evidence before me to make the findings of fact necessary to enable me to conclude whether or not there was a breach of Minerva’s duties to inform and consult and whether, if there was, such breach could justify the refusal of consent.

Concerns about lack of structural and other engineering input At the trial Mr Elvin questioned Minerva’s witnesses about how far the engineers who were working on the project had been involved in the preparation of the drawings and plans for the enhanced scheme. He put to some of the witnesses emails in which Mr Wensink had recommended that Minerva appoint Arup and Hoare Lee to work with EPR “to ensure the revised design is deliverable” (see for example the email of 4 June 2014 quoted in paragraph 83 above). Greenland say at the time they refused the first request for consent that they wanted to engage their own advisers and experts to check the work that was being done by those instructed by Minerva.

When questioned about this, Mr Wensink’s evidence was that Arup and Hoare Lee had been involved in the revisions to the design for the 10 storey scheme. It was at that stage that the building core had been made smaller following design workshops attended by the core design team. Mr Wensink’s evidence was that the work from the 10 storey plan had been carried forward into the plan for two additional storeys. The level of information they had at the time was suitable for this stage of the process when they were making the planning application. It was not necessary to have engaged engineers to arrive at a final structural solution before making the application.

There is no basis in my judgment for saying that this concern either influenced Greenland’s decision to reject the first request or would have been a reasonable basis for such rejection. If that had been Greenland’s concern, then they could have asked for Arup and Hoare Lee to provide their advice on the revised plan. There would have been time within the 10 days allowed to them under the Sale Agreement to respond to a request for consent if they wanted to allay any concerns they had. I do not accept that the decision of Lewison J in Royal Bank of Scotland PLC v Victoria Street (No 3) Ltd [2008] EWHC 579 (Ch) (see paragraph 167, above) is authority for the proposition that a party under an obligation not unreasonably to refuse consent is always to be treated as acting reasonably if he refuses consent because of some query in his mind raised by the request even if that query might be resolved by a question to the party requesting consent.

Further, I do not accept that Greenland could have had justified concerns about the bona fides of the consultants acting for them. They agreed in the Sale Agreement that the same advisers would be used for the enhanced scheme as had been used for the extant scheme. It was vital for Minerva to be able to use consultants already familiar with the scheme if they were to have a fighting chance of getting approval by the deadline. I do not accept that there was some conflict of interest undermining the reliability of the consultants’ expressed views. I can see no reason why the experts should draw up plans to be submitted to the local authority which would create a building which is structurally unsound.

I therefore find that none of the reasons relied on by Greenland to refuse consent on 9 July 2014 was a reasonable reason and therefore that Minerva would have been entitled to submit the planning application after that refusal had been communicated.

Did Minerva waive its right to rely on the unreasonable refusal on 9 July 2014?

Greenland submits that Minerva’s conduct in submitting a formal second request for approval on 11 July 2014 was an unequivocal waiver of any unreasonable refusal of the first request. On Minerva’s case, Minerva would have been entitled immediately to submit the section 73 application to Wandsworth after the unreasonable refusal of consent on 9 July 2014. Instead they held back and asked again for consent. Greenland accepts that there was no consideration provided by it for the alleged waiver and it did not rely to its detriment on Minerva’s conduct. But Greenland says this fall squarely within the doctrine of waiver by election - there has been an objective manifestation of choice. It argues that the proper conclusion is that Minerva cannot now rely upon the unreasonable refusal of the first request.

The test for whether a party has elected to waive his rights to affirm or rescind a contract was considered by the Court of Appeal in Peyman v Lanjani and others [1985] 1 Ch 457. The Court held that where a party to a contract was faced with the choice whether to affirm or rescind the contract, to render his election irrevocable he had to have actual knowledge not only of the facts of the serious breach of contract, but also of the fact that he has that right to make that choice. May LJ said that to hold otherwise would not only be unjustified but would be contrary to the principles of law which can be extracted from the decided cases. In Insurance Corporation of the Channel Islands Royal Insurance (UK) Ltd v The Royal Hotel Ltd and others [1998] Lloyd’s LR 151, 162 Mance J (as he then was) held that affirmation “requires an unequivocal communication to the other party of the making of the choice”. The communication itself or the surrounding circumstances must demonstrate objectively or unequivocally that the party affirming is making an informed choice. He went on:

“Whether conduct amounts to an unequivocal communication of the choice to affirm requires therefore, an objective assessment of the impact of the relevant conduct on a reasonable person in the position of the other party to the contract. A reasonable person in that position must, it seems to me, be treated as having a general understanding of the possibility of choice between affirmation and objection. In affirmation (as distinct from estoppel), the actual state of mind of the other party is not the test. Affirmation depends on the objective manifestation of a choice.”

The evidence here does not, in my judgment, support Greenland’s contention that Minerva waived its right to rely on the unreasonable refusal of the first request. Certainly, there was no express waiver by Minerva of its right to rely on the unreasonable refusal. There was no conduct on the part of Minerva inconsistent with preserving that right. Minerva was not obliged to submit the planning application following the refusal though it could have done so. There is nothing inconsistent with Minerva making the second request and its maintaining its position that the first request had been unreasonably refused. There was no sensible commercial or other reason why Minerva should have wanted to give up any such rights.

A similar situation arose in Go West Ltd v Spigarolo & another [2003] EWCA Civ 17 (‘Spigarolo’). That case concerned a lease of premises from the defendant landlord to the claimant tenant. On 13 March 2001, the tenant wrote to the landlord seeking permission to assign the lease. On 21 May 2001, the landlord wrote to the tenant seeking further information as a matter of urgency. But on 30 May 2001, before the tenant had a chance to respond to that request, the landlord wrote refusing consent because the tenant had failed to propose acceptable sureties. There was further correspondence between the parties and on 10 July 2001 the tenant commenced court proceedings seeking a declaration that the landlord had unreasonably withheld its consent to the proposed assignment. The judge at first instance gave judgment for the landlord. Although he held that on 30 May 2001 it had not been reasonable for the landlord to withhold its consent for the reasons given in its written notice, that was not the end of the matter. The subsequent correspondence showed that the parties effectively treated that refusal as having no real effect because both sides treated the tenant’s request for consent as continuing. On appeal, Munby LJ considered whether the subsequent correspondence between the landlord and tenant constituted a waiver, estoppel or release. He held that there had never been an unequivocal withdrawal either by the landlord of the refusal to allow assignment in the letter of 30 May 2001 or by the tenant of its assertion that it was entitled to rely upon the fact that the refusal was unreasonable. It was impossible to extract from the correspondence factual support for any waiver, estoppel or release. Any such release would need to be made by clear and unequivocal communication by words or conduct of the tenant’s intention no longer to treat the letter of 30 May 2001 as the refusal of consent by the landlord. The Court accepted the tenant’s argument that what happened there was merely that the tenant sought to avoid the risk, expense and delay involved in litigation by attempting to persuade the landlord to change its mind before resorting to litigation. By acting in that way, the tenant did not release the landlord from its breach of statutory duty on 30 May 2001. When the attempt to persuade the landlord to change its mind was unsuccessful, the tenant was entitled to commence proceedings based on the breach of statutory duty on 30 May 2001. Pill LJ delivered a concurring judgment. On the effect of the subsequent correspondence, Pill LJ said that the court should be slow to construe such attempts at agreement between landlord and tenant as involving a termination, to use a neutral word, of the right to sue.

Similarly here, I consider that it was entirely reasonable in all the circumstances for Minerva to try again to persuade Greenland to give its approval. It is important to recognise that parties who are in a continuing commercial relationship would naturally prefer to try to resolve their differences by further discussion rather than immediately standing on their legal rights. As Pill LJ said in Spigarolo, it would be wrong in effect to create a disincentive to parties to try to resolve their differences by negotiation by penalising them with the loss of the rights they have acquired from the unreasonable conduct of the counterparty. I find that there was no waiver of rights here.

Was there a deemed consent to the second request?

Since I have found that Greenland acted unreasonably in refusing its consent to the first request and that Minerva did not waive its right to submit the section 73 planning application to Wandsworth, I do not have to consider the second request for consent. However, as the matter was fully argued before me I will set out briefly my findings.

Clause 1.15 of the Sale Agreement provides that Greenland must, if it wants to refuse consent, make and communicate a decision to that effect within 10 business days. If no such decision is made and communicated, approval is deemed to have been given.

I have described earlier the letter that was sent by Minerva to Greenland on 11 July 2014 (received by Greenland on 14 July) (see paragraphs 119 and 120 above) and I set out the text of Greenland’s response on 17 July 2014 (see paragraph 123, above). That response was to say that because of the need to appoint independent consultants and the forthcoming holiday period it was “highly unlikely” that Greenland would be in a position to give an answer for a period of at least four weeks.

Greenland submits that the second approval request was not refused. It was not deemed approved under the Sale Agreement because Minerva submitted the section 73 application to Wandsworth less than 10 business days after making the second request. As of that date Greenland had not unreasonably delayed approval since it had only been four days since Greenland had first seen the second request.

Minerva argue that they were not obliged in these circumstances to wait until the end of the 10 days before submitting the application to Wandsworth. They rely on a different aspect of the Spigarolo decision. The Court of Appeal in Spigarolo posed the question whether the effect of the letter of 30 May 2001 was to bring to an end the reasonable time allowed to the landlord by section 1(3) of the Landlord and Tenant Act 1988. Munby LJ with whom Potter LJ agreed held first that it was a fallacy to suppose that there is some objectively ascertainable “reasonable time” which exists independently of and is not affected by the landlord’s refusal of consent. What is “a reasonable time” must be determined having regard to all the circumstances of the particular case, including circumstances known to the landlord and the tenant at the date when the tenant makes his application and also subsequent events. Thus subsequent events may serve to abbreviate what might at the outset have been thought to be a reasonable period. Importantly he held that if the landlord serves the written notice refusing consent he cannot assert that the reasonable time he requires to make up his mind has not yet elapsed:

“40.

… By taking the final step that has to be taken within the reasonable time, … the landlord himself necessarily brings that time to an end. If the landlord is able to, and does, serve the written notice required by the Act further time cannot reasonably be required: by sending the notice the landlord shows that he does not need any more time, so any further time would be unreasonable. By the very act of serving the written notice required … the landlord is, in effect, saying “I have had enough time … to do what I have to do, I do not need any more time, so here is my notice”. By his act the landlord shortens what might otherwise be a reasonable time. … In my judgment, he cannot subsequently be heard to say that it is open to him to reconsider the tenant’s application during the remainder of what might otherwise have been a reasonable period.”

I consider here that by stating in the email of 17 July 2014 that they would not be able to give an answer for at least four weeks, Greenland clearly indicated that they would not give an answer within the 10 day period set in clause 1.15. They cannot now say that they might, if Minerva had waited the remaining days, have given an answer.

Minerva also draws an analogy with anticipatory breach of contract. In Billson and others v Residential Apartments Ltd [1992] 1 AC 494, tenants undertook major works of reconstruction without seeking the landlord’s consent in breach of a covenant in the lease. The landlord served notice requiring the tenants to remedy the breach of covenant but the tenants failed to do so and continued their building works. The landlord re-entered. One issue before the Court of Appeal was whether the landlord had given the tenants a reasonable time to remedy the breach before re-entering. Sir Nicolas Browne-Wilkinson V-C held (page 508) that even if the breach had been capable of remedy, the tenants’ actions in continuing to press on with the reconstruction works in defiance of the warnings and in defiance of the notice requiring them to remedy demonstrated that they had no intention to remedy the breach at all. “If the actions of the lessee make it clear that he is not proposing to remedy the breaches within a reasonable time, or indeed any time, in my judgment a reasonable time must have elapsed for remedying breaches once it is clear that they are not proposing to take the necessary steps to remedy the breach but are committing further breaches.”.

The same principle should apply here. Greenland’s letter said it was not going to give an answer within the time allowed by clause 1.15. Instead it was going to postpone any decision until several weeks after the expiry of the relevant period even though clause 1.15 did not entitle it to do that. Greenland must have realised that their reply put Minerva in an impossible situation. If they were required to wait until the end of July for Greenland to respond to the request, they would effectively be giving up any chance of having the application considered by the Wandsworth planning committee in October 2014. They would therefore be losing the chance of achieving a resolution to grant by the deadline set in the Sale Agreement. It would be commercially unrealistic to construe clause 1.15 in a way which means that because Minerva did not sit out the remaining six or seven business days just in case Greenland suddenly reversed its position and came to a decision, that they thereby lost the opportunity of submitting an application to Wandsworth in time.

I therefore find that in respect of the second request for consent, clause 1.15 of the Sale Agreement came into operation and Greenland is to be treated as having given its consent to the submission of the planning application on 18 July 2014.

Paragraph 2.4 of Schedule 6 to the Sale Agreement provided that if reasonably so required by Minerva, Greenland would enter into any planning agreement with Wandsworth if that agreement was in a form approved by Greenland and if it was “proportionately no more onerous” than the Original 106 Agreement. Paragraph 1.6 of Schedule 6 provided that Minerva “shall use reasonable endeavours to minimise the amount of any affordable housing which may be required in order to secure the Enhanced Planning Permission”. Minerva for this purpose was represented by Montagu Evans. Although Minerva obtained a resolution to grant the enhanced planning permission from Wandsworth by the deadline set in the Sale Agreement, the grant foundered because of Greenland’s refusal to enter into the Revised 106 Agreement.

The issue whether that refusal was a breach of paragraph 2.4 depends on a resolution of the following points:

Did Minerva’s alleged breach of its duties to inform and consult mean that Greenland was not “reasonably required” to enter into the Revised 106 Agreement?

Paragraph 2.4 of Schedule 6 provides that Greenland must enter into the new section 106 obligations ‘if reasonably required by the Seller” to do so (see paragraph 63, above). Greenland argue that their obligation to enter into the Revised 106 Agreement was not triggered because Minerva’s breaches of its duties to inform and consult both in relation to the application for planning permission prior to 18 July 2014 and in relation to the content of the Revised 106 Agreement meant that it was not reasonable for Minerva then to require Greenland to enter into the Revised 106 Agreement.

However, it is not correct to interpret paragraph 2.4 of Schedule 6 as meaning that any breach of the Sale Agreement by Minerva prevents it being reasonable to require Greenland then to enter into any planning agreement. Such an interpretation does not accord with either the wording or the commercial sense of the Sale Agreement. First, the paragraph refers to two entities that can reasonably require entry into the new obligations; the public authority and Minerva. The reasonableness of the requirement by Wandsworth cannot be related to any breach of the Sale Agreement to which Wandsworth is not a party. Secondly a section 106 agreement, and hence any obligation on Greenland to enter into it, can only come into existence after a valid planning application has been made. It does not make sense, in effect to carry forward alleged breaches of the Sale Agreement which did not invalidate the making of the planning application and treat them as invalidating the obligation to enter into the section 106 agreement. As regards any breach of Minerva’s duties to inform and consult in relation to the negotiations of the Revised 106 Agreement itself, I do not accept that such breaches automatically render it unreasonable to require Greenland to enter into the new obligations. Paragraph 2.5 of Schedule 6 provides that Minerva is to have exclusive conduct of the discussions with the planning officers about the revisions to the section 106 agreement albeit this is subject to prior consultation with Greenland. Greenland did not include this ground of challenge in its pleaded case. It has not asserted that it could have made a useful contribution to the efforts to reduce the affordable housing contribution if it had been informed and consulted about what was going on. Further, Greenland’s position viz a viz the terms of the Revised 106 Agreement is protected by the ‘proportionately no more onerous’ requirement and by the obligation on Minerva to use reasonable endeavours.

Was the obligation in the Revised 106 Agreement ‘proportionately no more onerous’ than the Original 106 Agreement?

Before comparing the two section 106 agreements, one must first decide what is the relevant parameter to compare.

Minerva’s expert Ms Curtis recognises that the meaning of the term “proportionately no more onerous” depends on the proper construction of the contract and is therefore a matter for legal argument. However, she says that from her perspective as an expert on development appraisals, she believes that a developer would understand the phrase to mean that the increase in the cost of performing the Revised 106 Agreement should be proportionate to the expected return on the project: in other words, that the increase in the costs should be in proportion to the increase in profit or return on capital for the two schemes. Thus, if the return on capital for Greenland from the enhanced scheme, taking into account the additional obligations, is still the same as or higher than the return on capital generated by the extant scheme, and this is proportionate with the increase in the costs of complying then the Revised 106 Agreement is proportionately no more onerous and Greenland is obliged to enter into it.

In her report, Ms Curtis works out what the return on capital is for the two schemes. She does this broadly by carrying out two developer appraisals one for the extant scheme and one for the enhanced scheme. The first step is to calculate the costs of the existing and the enhanced schemes as follows:

Ms Curtis was cross-examined as to why she did not include the £200 psf overage in her computations of the cost. I agree with her that given that the purpose of the calculation is to decide whether it makes sense or not for Greenland to incur that additional cost, it does not matter whether the cost itself is included in the computation. She was also asked whether a small increase in the construction costs or the professional fees might wipe out the profit expected from the enhanced scheme and she accepted that it would. That is clearly true, but I do not see that it affects the exercise which is to compare the extant with the enhanced scheme. There is no reason to suppose that general market increases in costs or fees would be different depending on whether one scheme or the other were being implemented.

For her comparison of GDV of the extant and enhanced scheme, Ms Curtis undertook an appraisal based on values as at December 2014 on a per unit basis. Because the rationalisation to the core of the building in the enhanced scheme means that all the flats in the Tower are slightly bigger, she added an uplift to all the values rather than just adding 14 more units. She therefore included uplifts of £10,000 to the value of each studio and 1 bedroom flat, £20,000 for each 2 bedroom flat, £30,000 for each 3 bedroom flat, £50,000 for each 4 bedroom flat and £150,000 for each duplex. These showed that the impact of the additional floors and the design rationalisation resulted in an increase of GDV of £22.95 million. Although she did not include evidence of comparable sites in her report, Ms Curtis said in cross-examination that she had relied on comparable evidence when arriving at these values. However she did not take into account when valuing the individual flats factors that might distinguish one flat from another, such as the view out of the windows or the particular layout of the rooms.

Ms Curtis calculated that the enhanced scheme would generate an additional £5,850 in ground rent from the apartments per year. Capitalising that income stream at a yield of 5.5% generated an increase in GDV of £106,353.

She considered that the development time line was not affected by the changes.

The outcome of her comparison was therefore that:

She concludes that:

“5.56

On the basis of the assumptions detailed within this report and adopted in my appraisal, the [extant] scheme would be expected to deliver a profit of £3,458,916.

5.57

This is a low level of expected profit for a scheme of this size and complexity, and I have considered why this might be the case. Although all of the variables which I have discussed and used within the appraisal have a bearing on the expected profit on the development, a substantial item within this particular appraisal is the figure of £135,735,800 (plus stamp duty land tax and other acquisition costs) which Greenland paid Minerva to acquire the site under the agreement. My appraisal of the [extant] scheme indicates that Greenland (Ram) Ltd paid a high price to acquire the site, if the price was worked out on the basis of the value of the [extant] scheme alone, leaving very little margin for profit.

5.58

By contrast, on the basis of the assumptions detailed within this report and adopted in my appraisal, the [enhanced] scheme would be expected to deliver a profit of £19,515,875.

5.59

This is an increase in profit, when compared to the [extant] scheme, of £16,056,959. The increase in the GDV under the [enhanced] scheme substantially outweighs both the increase in the construction costs and the increase in the costs generated by the variations to the section 106 agreement.

5.60

It is therefore my opinion, based on the appraisals which I have carried out, that, if the [enhanced planning permission] had been granted and implemented, then this would have significantly increased the profitability of the development, when compared to the smaller scheme permitted under the Original Consent.”

Turning to issue whether the Revised 106 Agreement was proportionately no more onerous than the original one, Ms Curtis then calculates the increase in the cost of complying with the Original 106 Agreement and with the Revised 106 Agreement. Ms Curtis notes that the Original 106 Agreement imposed a requirement on the developer to provide 66 units of on-site affordable housing and the Revised 106 Agreement maintained that obligation and added the £21,180 (which she rounds up to £22,000) and the £1.75 million. However, she says that to decide whether this made the obligations more onerous, one must identify the overall costs of complying with the section 106 obligations in both the extant and the enhanced schemes, including the costs of the 66 affordable housing units. She treats the 66 on-site affordable units as costing £15,438,674 under both schemes, and the other costs (such as bus provision and paying for a high street crossing) also remain the same. The total cost of complying with the Original 106 Agreement she calculates as £17,797,274 and the cost of the Revised 106 Agreement is £1,772,000 more at £19,569,274. The increase is only about 10%. Thus whilst the costs of complying with section 106 obligations have gone up by only 10% (£17.8 million rising to £19.5 million), the profits generated by the scheme have gone up more than four-fold (£3.4 million rising to £19.5 million).

Ms Curtis then compares the total development costs, including the section 106 costs, as a proportion of the GDV. Under the extant scheme, the total costs were £536.2 million and the total GDV was £539.7 million so costs were 99% of GDV. Under the enhanced scheme costs would be £543.1 million and the GDV is £562.6 million, so costs were 97% of GDV. The costs of delivering the scheme (including the costs of complying with the section 106 agreement) represent a higher proportion of the GDV under the extant scheme than they do of the enhanced scheme. Similarly, the section 106 costs equate to five times the profit generated by the extant scheme (costs of £17.8 million compared with profit of £3.5 million) but are roughly equal to the profit generated by the enhanced scheme (costs of £19.6 million compared with profit of £19.5 million).

Ms Curtis therefore concludes that when looked at from the perspective of a developer, her opinion is that the terms of the Revised 106 Agreement are proportionately no more onerous than the terms of the Original 106 Agreement.

Greenland take a different approach. Their expert Mr Fourt starts by working out whether a viability appraisal of the enhanced scheme, properly done, would generate a surplus available to fund any additional affordable housing contribution. The way he carries this out shows that there is no such surplus. As I describe later in relation to the issue of reasonable endeavours, the reason why Mr Fourt’s calculations show the enhanced scheme to be unprofitable is because of the much higher land value he includes in his computation.

However, Mr Fourt does not then carry out a similar exercise to work out whether the extant scheme generated a surplus to support the affordable housing contribution required by the Original 106 Agreement. Instead he assumes that since Minerva was prepared to enter into the Original 106 Agreement for the extant scheme, they must have calculated that there was an available surplus. He therefore concludes that if one (a) assumes that there was an available surplus for affordable housing under the extant scheme and (b) accepts his calculation that there is no surplus generated by the enhanced scheme then it must follow that the imposition of additional affordable housing for the enhanced scheme must mean that the Revised 106 Agreement is more onerous than the Original 106 Agreement.

He was cross-examined about this by Mr Sefton on behalf Minerva to explore what was the basis for his assumption that the existing scheme was viable in the sense that term is used in this context, namely that it generated a profit of more than the 20 per cent required by the notional developer generating a surplus for affordable housing. He said that there were three bases for that assumption; the previous viability evidence, general market movement and the fact that the scheme had been implemented, in other words the fact that neither Minerva nor Greenland had walked away from the development in the light of the Original 106 Agreement. In answer to questions, however, it appeared that these three bases were different ways of saying the same thing, namely that the assumption that the previous scheme was viable was based on the fact that it was going ahead despite the Original 106 Agreement.

I have no hesitation in preferring the method used by Ms Curtis to that of Mr Fourt. I find that the parties’ intention in making Greenland’s obligation to enter into the Revised 106 Agreement conditional upon that agreement being proportionately no more onerous must relate to the profitability of the scheme for Greenland. That is best assessed by comparing developer appraisals for the two schemes. A viability appraisal is not directed at working out how profitable the scheme is for the landowner because the level of profit is a notional level assumed to be needed to incentivise a hypothetical developer. In the developer appraisal, the land value included as a cost is the price that Greenland actually paid for the land rather than some hypothetical value that a notional developer might be prepared to pay for the land given the planning permission in place. It makes no sense for Greenland’s obligation under the Sale Agreement to be based on the merits of the agreement for a notional developer. What is relevant is whether it will make money for Greenland. Similarly, it makes no sense to base an assessment of whether one scheme is more onerous than another on a land value which is not the price that Greenland has in fact paid for the land. I do not see why the parties would be interested to know how profitable the schemes would be if Greenland had paid a different sum for the land from the sum that it in fact paid.

I find that the way to find out whether one agreement is proportionately no more onerous than the other is to carry out the calculation that Ms Curtis has carried out in her report. Mr Fourt’s method is flawed because he has not applied his chosen method to the extant scheme but simply assumed that it would generate a surplus in viability appraisal terms. This is not right since Minerva and Greenland would have decided whether to implement the extant scheme based on their own individual circumstances. The fact that the developer chooses to proceed with the project does not mean that it accepts that there is in fact a surplus in viability appraisal terms. It means only that the planning authority has asserted that that is the case and the developer for his own reasons wants to go ahead with the project and considers that the proposed affordable housing contribution is an acceptable price to pay to get planning permission.

I find that using the correct measure that the parties would have expected to employ, the Revised 106 Agreement is proportionately no more onerous than the Original 106 Agreement. I note that even Mr Fourt’s figures for the enhanced scheme show that the GDV would increase by £11 million but costs increase by only £3.5 million giving an extra £7.5 million by way of profit from which the additional £1.75 million for affordable housing must be paid.

Greenland put forward various other metrics to try to show that the Revised 106 Agreement was more onerous. Mr Fourt calculates that the extant scheme has 661 units built in total and the Original 106 Agreement required a payment in lieu of affordable housing of up to £1.2 million. This amounts to a maximum of £1,815 per unit. The enhanced scheme produced an additional 14 units and required a payment in lieu of £1.75 million. So the payment was £125,000 per unit. Thus, Mr Fourt says, the payment obligations in relation to the additional units were much more onerous than the payment obligations in relation to the existing units. There are several flaws in this calculation, not least that the computation of the obligation in relation to the extant scheme ignores the obligation to include 66 affordable housing units in the project. Those housing units cost as much as the other units to build but will generate a much smaller sales value.

Greenland also carried out a rather more sophisticated computation converting the payment in lieu into a number of additional affordable housing units at the rate of £200,000 per unit and then expressing that as a percentage of the total units in the project. Thus:

Another metric Greenland put forward was to divide the number of residential units by the total section 106 agreement costs:

These calculations, Greenland argues, shows that the enhanced scheme was more onerous than the existing scheme.

I do not accept that either of these measures is relevant to the question whether the condition in Schedule 6 of the Sale Agreement was satisfied. As Ms Curtis pointed out, both she and Mr Fourt agree that this would not be the way that a developer would interpret the “proportionately no more onerous” criterion. Mr Fourt agrees that when looking at the question of ‘proportionately no more onerous’ one must consider the costs of the additional section 106 contribution in the context of the return that one would expect to see with the enhanced scheme: the return is an accepted basis of measuring viability. I cannot see why Greenland would base its decision on these other computations when deciding whether to enter into the Revised 106 Agreement. It is an artificial approach that bears no relation to the commercial interests of the parties.

I therefore find that the Revised 106 Agreement with its requirement to pay an additional £1.75 million in lieu was proportionately no more onerous than the Original 106 Agreement given the extra profit that could be expected from the revisions to the Tower.

Did Montagu Evans fail to use reasonable endeavours to minimise the affordable housing contribution?

Paragraph 1.16 of Schedule 6 to the Sale Agreement obliges Minerva to use reasonable endeavours to minimise the amount of any affordable housing which may be required in order to secure the enhanced planning permission. The parties referred to authorities on the content of a contractual obligation to use reasonable endeavours. In Mactaggart & Mickel Homes Ltd v Moore [2010] CSOH 130, Lord Hodge considered a contractual obligation to use reasonable endeavours to obtain planning permission. He held that an objective approach should be adopted. The question to be asked is what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done to try to obtain the planning permission. In considering what steps were reasonable, the court has also to consider whether any steps would have been successful. If the party can show that it would have been useless for it to have taken those steps because they would not have been sufficient to achieve success, that would give an answer to the claim for breach of contract. He cited the judgment of Croom-Johnson LJ in UBH (Mechanical Services) Ltd v Standard Life Assurance Company (unreported 5 July 1988) holding that whether the action which was not taken would have made any difference must always be a factor to be considered in deciding if the defendants’ endeavour was reasonable or not. If the evidence clearly shows it would have made no difference at all, the court only with great persuasion would be induced to say that if they were not to take it, it would be unreasonable.

Mr Dowding also pointed out an extra consideration here which is that in deciding how to conduct the negotiations with Wandsworth, Montagu Evans had to exercise their judgement in balancing the risks that putting forward a potential argument would backfire and lead to a worse outcome than not putting that argument forward.

Minerva submit that the question whether reasonable endeavours have been used must be addressed by reference to the specific failures which Greenland has alleged. It is not, they argued, an impressionistic exercise. This submission was aimed at countering an allegation put forward by Greenland broadly that Minerva had left itself too little time to press really hard for Wandsworth to reduce the payment in lieu. Greenland asserts that Minerva wasted the first four of the 10 months available to them under paragraph 1.1 of Schedule 6 by pursuing the plan to add 10 extra storeys to the Tower. By the time they came to negotiate the Revised 106 Agreement, Minerva knew that they were close to the deadline of 20 October 2014 for achieving a resolution to grant. That is why, Greenland submit, the negotiations were so short; why Minerva did not start from a position that nil additional affordable housing contribution should be paid; why the opening gambit in Mr Cohu’s letter was already substantially higher than the figure generated by Ms Fone’s viability appraisal; and why Montagu Evans in effect agreed to all the points put forward by BNPP on behalf of Wandsworth without much argument. Greenland point out that although Minerva may contend that Wandsworth would have been unlikely to accept a nil contribution, it never in fact advanced the case. They criticise Minerva further not calling witnesses from Wandsworth or BNPP to substantiate any such contention.

I do not accept that the shortness of the negotiation of itself proves that Minerva was in breach of this obligation. There needs to be some more specific alleged failure than that; otherwise it would always be open to a party to contend that if only its counterparty had held out a little longer they would have achieved a better result. Such a contention would be impossible to disprove. It is not realistic to suppose that an official from Wandsworth would come to court prepared to say that they would have agreed a lower figure if Montagu Evans had persisted. Nor do I accept that the fact that Minerva was under pressure to get the terms for a Revised 106 Agreement settled in time for the planning permission application to come before the Wandsworth committee in October automatically means that Minerva had not left itself sufficient time to use reasonable endeavours. This was a straightforward negotiation, the aim of which was to work out how much additional surplus and hence affordable housing contribution should be paid because of the changes proposed in the section 73 application. It is not fair to compare the time spent on the negotiation of the Revised 106 Agreement with the time taken to negotiate the Original 106 Agreement in relation to the whole complex phase 1 and phase 2 stages of the regeneration project.

The obligation to use reasonable endeavours in these negotiations must also be seen against the backdrop that the contract set a tight deadline of 10 months in which Minerva had to achieve the resolution to grant the enhanced planning permission. Greenland argue that if Minerva had not spent the first four months of that period pursuing the additional 10 storey option they would have had time not only to engage in more protracted negotiations but even to threaten Wandsworth with the prospect of an appeal to the Secretary of State if Wandsworth refused planning permission because Minerva did not agree to make the contribution Wandworth demanded. Again, that seems to me unrealistic. I doubt whether an obligation to use reasonable endeavours to obtain planning permission could ever impose an obligation to dig in one’s heels to the extent of pushing the planning authority to refuse permission on the basis that one would then pursue an appeal to the Secretary of State. Certainly that is not a reasonable construction of the obligation in the present context.

I turn therefore to the various criticisms are made of Montagu Evans by Mr Fourt. The ones explored at trial are as follows.

Limiting the appraisal to the two additional floors rather than reappraising the whole Tower

I have described how the changes that were made to the design of the Tower by the enhanced scheme included not only the two additional floors but also the expansion of the net sales area of all the flats in the Tower. The main area of contention between the parties was whether Montagu Evans had been right to base its viability appraisal on the two extra storeys and to press Wandsworth and BNPP to focus their attention on that rather than reappraising the whole Tower. Ms Fone explained that reappraising the whole Tower would have brought into account the increases in floor area on the other floors. Using Mr Fourt’s figures, the difference in GDV between the extant scheme and the enhanced scheme was £11 million. About half of that came from the extra two storeys. The rest came from the additional saleable area generated by the design improvements on the existing floors. If the whole Tower had been appraised an additional £5.5 million of GDV would have been brought into the appraisal and would have fed through directly into the amount of the surplus available for affordable housing contribution.

Mr Fourt’s objection to this approach was based on two criticisms. The first was that it was professionally inappropriate for Montagu Evans to try to pull the wool over Wandsworth’s and BNPP’s eyes by focussing on the additional two storeys thereby ignoring the increase in net sales area throughout the Tower. The second was that by focusing on the two additional storeys, Montagu Evans were unable to rely on advantages that he contended would accrue to Greenland if the viability of the Tower was assessed as a whole.

On the first point, Ms Fone was unapologetic about her wish to divert the Council’s attention from the increases in net sales area throughout the Tower flats. It was her evidence that the larger flats in the enhanced scheme were likely to generate substantially more revenue for Greenland than the smaller flats in the extant scheme. She thought that if she could get BNPP to agree to limiting the appraisal to the two additional floors, she would thereby be minimising the affordable housing contribution payable by Greenland and hence doing her best for her client. She also referred to the review mechanism included in the Original 106 Agreement, whereby any revenues generated over and above the expected level of £425.3 million would result in a payment in lieu of up to £1.2 million. Although that was intended to capture increases in revenue generated by a general rise in property prices, it would also be triggered by any increase in revenue generated by the flats being slightly larger. In this way, she felt she could justify ignoring the increase in size and value of the flats in the extant scheme - it would be taken care of by the review mechanism anyway.

Ms Dickinson described Montagu Evans’ approach as ‘probably quite a bold move’ in her oral evidence. But she endorsed this approach in her expert report, saying that to include floor space which forms part of the extant consent and which is already subject to a review mechanism was potentially complicated and would have been likely to raise concerns for the planning authority. I accept that the existence of the review mechanism in the Original 106 Agreement provides some justification for Montagu Evans’ approach, though given the cap of £1.2 million, it is not a complete answer to Mr Fourt’s criticism.

Mr Fourt accepted that a number of possible approaches could be right; it was a question of judgement which was the most appropriate in the circumstances of this application. However, his evidence was that it was illegitimate to adopt the approach taken by Ms Fone. He said that the whole purpose of financial viability in planning is to paint a true picture of what the viability position is. By missing this element out of the process Montagu Evans were not presenting a true position to the local authority.

Whether or not Mr Fourt’s criticism is justified, I do not see that it is relevant to the issue before the court. This is not, as Mr Sefton reminded Mr Fourt in cross-examination, a disciplinary tribunal hearing. If Montagu Evans had decided that their professional obligations required them to draw Wandsworth’s attention to the increase in flat size even though they thought this would be likely to increase the affordable housing contribution, there might have been an interesting legal question whether that meant that they had failed to comply with their contractual obligation to use reasonable endeavours to minimise the affordable housing contribution. As it is, that interesting legal question does not arise.

We do not know whether BNPP took any account of the increase in apartment size or not. It seems to me very likely that they were aware of it since the report drawn up by the planning officer for the Wandsworth Committee meeting on 16 October 2014 noted that the internal reconfiguration included the redesign of the core to reduce it by 6sq.m per floor, thereby increasing the size of residential units, retail units, the function room and gym. In my judgment, it was fair in the circumstances of this case, where it was not the purpose of the application to reopen the whole of the recently agreed Original 106 Agreement, for Montagu Evans to try to persuade BNPP and Wandsworth to look just at the two floors if that was likely to be to Greenland’s advantage.

Mr Fourt’s other criticism was based on his assertion that in fact it was not to Greenland’s advantage to limit the viability appraisal to the two additional storeys. He argues that reappraising the whole Tower would have entitled Montagu Evans to include a much higher land value in the viability appraisal than had been included in the appraisal for the Original 106 Agreement. Ms Fone used the same land value in her viability appraisal for the enhanced scheme as had been used in the appraisal for the extant planning permission. This value was £14.68 million. Mr Fourt contends that Montagu Evans should have revalued the land so that the benchmark value was much higher because now the Site benefited from the extant planning permission. That made the land more valuable for these purposes because, for example, the risk of not obtaining the extant planning permission that had existed when the viability appraisal was carried out had been removed. Mr Fourt interprets the RICS guidance and the applicable National Guidance on conducting viability appraisals as requiring the benchmark land value to be reassessed for the purposes of the enhanced scheme viability appraisal. He says that the benchmark land value for assessing the viability of the enhanced scheme “must fully reflect the grant of planning permission for the Extant Scheme”. He says further that an appraisal which focuses only on the difference between the cost and value of the schemes would limit the user’s ability to vary assumptions between the two appraisals, thereby failing to record minor differences in, for example, interest rates or risk profile.

Mr Fourt’s approach to appraising the viability of the enhanced scheme is this. His first step is to calculate a benchmark land value for the Site with the extant planning permission. He does this by considering three different parameters. The first is the amount that Greenland paid Minerva for the whole Ram Brewery site. This was £135,735,000 paid in June 2014 by which time, of course, the extant planning permission had been acquired. He then apportions a part of that to the Tower based on the floor space of the Tower compared with the floor space of the whole of the site. The Tower is about 25% of the whole site so he attributes £33.9 million of the total purchase price to the Tower.

Next Mr Fourt considers six comparable transactions in the area. This gives an average of £30.53 million on a per unit basis and an average of £36.6 million on a per square foot basis.

Thirdly he carries out what he describes as a sensitivity testing of the residual approach for the extant scheme. This involves considering valuations provided to him by the agents Hamptons, calculating construction and other costs for the Tower and including a reasonable profit for the developer. He then considers what effect a small increase in sales proceeds and a small decrease in construction costs would make. So, for example, if construction costs went down by 5% but sales proceeds also went down by 5%, then the residual land value would be £13.09 million rather than £14.68 million. Conversely, if construction costs rose by 5% but sales proceeds rose by 10% the residual land value would be £20.57 million. In the best of all possible worlds where construction costs go down by 5% but sales proceeds go up by 10% the residual land value would be £25.97 million.

This then gives Mr Fourt a range of benchmark values from which he chooses £26 million as the benchmark value for the Tower.

Mr Fourt then produced a viability appraisal for the enhanced scheme using that £26 million as the land value for the Tower (instead of the £14.68 million that was included as the land value by Ms Fone in the viability appraisal for the enhanced scheme submitted to Wandsworth). Mr Fourt rejects most of the figures that were used by Montagu Evans in constructing the actual viability appraisal, describing certain aspects of it as showing ‘a somewhat broad brush and rushed approach that does not reflect the unique characteristics of a scheme’ and therefore as not representing a reliable reflection of the viability position. He has therefore:

When Mr Fourt then undertakes the viability appraisal for the enhanced scheme with the new revenue figures he arrives at a GDV of £148,976,403 and net development value of £148,816,510. The cost of the land being £26 million and other costs being £112,765,365 he arrives at a profit of £10,051,145. That is only 6.75% of the GDV – well below what is generally accepted as being the reasonable level of profit that a developer will need to achieve to be incentivised to bring forward the land for development. From this Mr Fourt concludes that the enhanced scheme cannot afford to make any additional affordable housing contribution. Indeed, Mr Fourt carries out a sensitivity analysis on this result and finds that even if sales revenue increased by 10% and construction costs dropped by 5%, the profit for the developer would still only be 17.6%.

His view in summary is that Montagu Evans’ viability appraisal made a number of incorrect assumptions which resulted in Montagu Evans offering a payment in lieu which the enhanced scheme was unable to afford. The amount that it could afford was, in his view, zero.

Minerva’s experts reject Mr Fourt’s approach. They say that, even if the approach adheres to the strict logic of the applicable guidance it generates an absurd result and would have been rejected out of hand by Wandsworth and BNPP. Their expert on this point, Ms Dickinson, recognises that land value is a highly contentious issue in the context of viability. An applicant-neutral approach based on existing or alternative land value is, she says, the approach advised in policy and guidance and is consistent with the approach used in this case by Montagu Evans. She regards Mr Fourt’s approach as unrealistic both as a matter of principle and because of the way he has in fact calculated the value. In her opinion, Wandsworth would not have accepted a valuation which implied that the project had become unviable because of the grant of planning permission. The aim of the valuation is to find out how much affordable housing contribution can be demanded of the developer without removing the incentive for the developer to bring the land forward for development. Given the extant planning permission already granted, there was no additional financial incentive needed; the two extra floors are ‘additionality’.

Her conclusion is that relying on a higher land value in the viability appraisal for the enhanced scheme artificially depresses the value of the enhanced planning permission. Her evidence is:

“Furthermore, having regard to my experience in London Borough of Wandsworth, [BNPP] and specifically in the context of a s73 application enabling intensification of development, the suggestion by Robert Fourt that it could have been feasible to successfully promote a position whereby the introduction of an additional two floors materially reduces the viability of the scheme and should therefore justify a nil affordable housing contribution would, in my view, not have been accepted. There is already wide spread mis-trust of the development industry in its use of planning viability with the view being that developers 'manufacture' viability appraisals which do not reflect reality in order to prioritise developer returns over and above planning policy requirements meaning the communities affected by development are losing out. I consider that if Mr Fourt's approach of assuming a higher land value for the [enhanced planning permission] had been attempted to be relied upon it would not only have failed but would have risked frustrating and protracting discussions and it could have reduced the willingness of the Council to be reasonable (which it is apparent was important in being able to secure the planning consent).”

On this point I accept Ms Dickinson’s evidence that the chances of Wandsworth agreeing with the suggestion that the addition of 14 extra flats to the Tower turned a formerly viable project into an unviable project such that no additional affordable housing contribution was payable were very low. I recognise that Mr Fourt’s evidence was that in other developments where he has been negotiating with Wandsworth they have accepted that the grant of planning permission for a site increases the land value and, when that land value is used in a viability appraisal, the profit levels are lower and the affordable housing contribution is less. But in my judgment, it was reasonable for Montagu Evans to take the view that such an approach in this situation was more likely to cause harm than good. A viability appraisal is not an end in itself, but a means to an end; it operates as a starting point for negotiations of the affordable housing contribution. The output of the viability appraisal does not inexorably decide the size of that contribution but is one factor in the negotiations.

It was only a few months since the previous viability appraisal had been submitted. It would be obvious to Wandsworth and BNPP that Greenland would make a large additional profit from the two additional storeys for which they were seeking permission by their section 73 application. Minerva and Greenland had accepted that a substantial affordable housing contribution was payable for the extant scheme. It was unlikely that Wandsworth would accept that nothing further should be payable just because the grant of the extant planning permission increased the value of the site. Putting forward such an argument not only risked irritating Wandsworth and making them less likely to make other concessions in the course of negotiations. It also risked putting Greenland in a much worse position if the result of encouraging Wandsworth to reappraise the whole Tower was that Wandsworth insisted on the same land value being used in the viability appraisal and then also added in the extra value from the increased floor area in the other storeys of the Tower. It was not a risk worth taking.

Mr Elvin QC suggested that the alacrity with which Wandsworth and BNPP agreed to limiting the appraisal to the two additional storeys should have aroused Montagu Evans’ suspicions that BNPP had worked out that it was for the Council’s benefit to adopt this approach. That should have made them question the stance they were adopting. I do not accept that developers should assume that the Council will act in an unfair way. The Council knew that Minerva was under time pressure and that it would be cheaper and quicker to agree the approach proposed. There is no need to look for some devious motive behind the Council’s wish to be helpful in improving the Scheme.

On this point I conclude that Montagu Evans did not fail to use reasonable endeavours by adopting the approach to land valuation that Ms Fone adopted in her viability appraisal and limiting the appraisal to the two additional storeys.

In my judgment, the same answer applies to another point raised in Mr Fourt’s report. In the enhanced plan, there was a small reduction in the floorspace area for commercial lettings. Mr Fourt calculates this as a reduction of 13 sqm (140 sqft). Mr Fourt suggests in his report that Montagu Evans’ failure to reflect this in the viability appraisal submitted to Wandsworth must have been an oversight on Ms Fone’s part. Mr Fone says that the omission was not due to oversight. It was a deliberate decision to forego any small benefit arising from a reduction in the gross internal area of the retail units because if the viability appraisal had opened this point up, then any advantage arising would have been outweighed by the increase in the net sales area of the residential units throughout the Tower.

Even if, which is not clear, the reduction in floor space would have slightly reduced the likely letting income from the commercial units, I consider that it was reasonable for Montague Evans to forego this small reduction to limit the appraisal to the two additional storeys.

Use of Land Registry published data for updating sales values

In their viability appraisal Montagu Evans use the Land Registry’s published data as an index to update the sales values for the flats in the Tower for the purpose of arriving at the GDV. It was in Greenland’s interest to keep this increase as small as possible since the greater the GDV, the higher the likely ultimate surplus. It seems to be accepted that because of the delay that occurs in rising prices in the local housing market being reflected in the Land Registry index, the use of the index was likely to minimise price increases in a market where prices had risen rapidly between the date when the sales values for the flats had been agreed with BNPP for the extant scheme and the values at the time of the enhanced scheme. I do not accept that Montagu Evans can be criticised for this.

Starting with £1.4 million instead of £1.08 million and the speed of the negotiation

Greenland criticised Montagu Evans for putting forward the sum of £1.4 million in the covering letter to Wandsworth when they sent in the viability appraisal on 14 August 2014 (see paragraph 127, above). This undermined the result of the viability appraisal which had generated a figure of £1.08 million since it would be very rare for the contribution finally arrived to be lower than the opening offer from the developer.

Mr Cohu’s evidence is that it is not unusual in the context of a controversial application to propose an initial figure that was higher than that indicated by the viability appraisal. He uses his experience to pitch the offer at a level which is not ‘unduly concessionary’ but which will allow progress to be made with the local authority. The same thing had happened with the negotiation of the Original 106 Agreement where the viability appraisal had shown a very substantial deficit generated by the scheme but Minerva had opened with an offer of 6% affordable housing. Given the discussions that he had had with the people at Wandsworth about the section 73 application, he thought that £1.4 million was the minimum affordable housing contribution that BNPP and Wandsworth might realistically have been prepared to consider as a starting point in the negotiations. He said:

“Given the controversial nature of what was proposed, it was made clear to me by individuals at [Wandsworth] … that not only would the application need to be robust from a procedural perspective but that it would need to fully address policy issues in relation to design considerations and affordable housing.

…

28.

In having discussions with [Wandsworth] I was acutely aware that the way in which it was approaching affordable housing had moved on significantly since the Original Planning Application was made in December 2012 and that they were now looking at contributions that were much more aligned with policy. In real terms, this meant that [Wandsworth] had moved from typically accepting affordable housing provision in the 10-20% range to requiring an average percentage contribution north of 20% unless there were other significant benefits arising from any particular scheme. As I have commented above the additional two storeys, whilst acceptable in design terms, did not give rise to or contribute to other benefits for the Borough. A nil contribution in relation to the revised scheme would therefore have been flatly refused by [Wandsworth].

Their stance did not surprise me given my previous discussions with [Wandsworth] as to the controversial nature of the scheme and the need for it to be policy compliant if it were to be approved. It also did not surprise me given criticism that had been levelled at [Wandsworth] previously for approving large schemes that did not make sufficient provision for affordable housing.”

Mr Cohu was therefore concerned that a figure that was below a policy-compliant offer ‘could run the risk of a very lukewarm and potentially damaging response’ from Wandsworth. Together with Ms Fone and Mr Enderby he looked at an offer that compared with the figures agreed in the Original 106 Agreement. Ms Fone’s analysis suggested an off-site equivalent of between 6 to 7 residential units. Taking the higher figure and treating each unit as ‘worth’ £200,000, this generated the figure of £1.4 million.

Mr Cohu’s approach is supported by the expert opinion of Ms Dickinson. She says that affordable housing proposals are not generally informed by viability alone. It is appropriate for the advisor to consider whether by taking a purely viability based approach to affordable housing negotiations, there is a wider risk, for example the risk of losing credibility and the potential to engage with the Council. Ms Dickinson’s evidence at trial was that there are projects where the viability appraisal put forward by the developer shows that a nil contribution would be justified and, even though the council’s expert agrees with this, still the council insists that a substantial contribution must be made. This may be because the actual developer is prepared to accept a lower profit than is included as the profit for the notional developer posited in the viability appraisal. It may also be because where there is a large scheme with a phased development, the developer would expect to have growth in terms of inflation and cost. With such a project there will be an ‘on balance view’ which recognises that if the developer offers only a certain proportion of affordable housing, it will not get planning permission.

Further, Ms Dickinson says that it was reasonable for Minerva to take into account the steer that had been given to Mr Cohu by the Council that they expected an additional affordable housing contribution to be made in respect of the 14 extra flats. Mr Cohu’s evidence was that even though the Tower was only going to increase in height by a small amount, he was concerned that given the political and wider sensitivities surrounding increases in the height of the Tower, the proposal might still be too controversial. There had been considerable debate and objection to the Tower at the planning committee meeting when the extant scheme had been considered in December 2013 and the additional two storeys did not offer any significant wider regenerative benefits.

In the light of that evidence I conclude that it was reasonable for Mr Cohu to take the view that he took, that it was preferable to put forward an opening figure that was realistic in light of the discussions he had had with the officials at Wandsworth even if this was higher than the figure generated by Ms Fone’s viability appraisal.

The cost of the crane cleaning system

In her revised viability appraisal, Ms Fone included as a cost element an amount of £500,000 to pay for the installation of a crane operated cleaning system for the Tower. This increased the costs by £500,000, thereby reducing any surplus available for additional affordable housing contribution.

BNPP were sceptical about whether the developer really intended to spend the money on installing the crane. In their report of September 2014, BNPP noted that there had been a substantial increase in the cost of cleaning equipment because of a change from a cradle system to a crane system. They recommended to the Council that if these costs were going to be taken into account in assessing the affordable housing contribution, the Council should include a planning condition in respect of this item of expenditure. That way, if Greenland did not in fact install the crane, the costs would fall out of the equation and the affordable housing contribution would increase accordingly.

Ms Fone’s evidence was that there was never any real intention of actually spending the £500,000 on the crane – and BNPP had been right in effect to call their bluff on this point. What happened was that in response to BNPP’s scepticism, Montagu Evans agreed that they would reduce the cost of the crane to £250,000 in return for there being no review mechanism and no requirement to install the crane. That way an additional £250,000 was included in the total construction costs, without Greenland being under any obligation to spend that money. She explained that Mr Enderby was unwilling to include a review mechanism in the agreement. There was likely to be a substantial delay in the building of the Tower because of the need for the Grampian condition to be fulfilled (as regards the gasholders’ hazardous substances licence). He did not want to bind Greenland to installing the crane system if, by the time the Tower came to be built, some other technology was preferable.

Mr Elvin put to Minerva’s witnesses that Montagu Evans ought to have agreed to the imposition of a condition on the planning consent which required the crane cleaning system to be constructed. Mr Fourt’s point was the opposite namely that Montagu Evans should have resisted the imposition of such a condition.

Whether the inclusion of the cost by Montagu Evans and their subsequent concession of half the cost was a good idea depends on whether the intention was to spend the £500,000 on the crane system or not. The Minerva witnesses’ evidence was clear that there had been no intention of installing the crane. That is why they were very resistant to the imposition of the condition and why they thought they had done very well by persuading Wandsworth to include even half of the cost of the crane in the cost figure in the viability appraisal. There was no evidence from Greenland’s expert or factual witnesses to contradict this - there is nothing to suggest that they have installed or will install the crane cleaning system.

In my judgment, it appears that the slightly audacious move by Montagu paid off to Greenland’s benefit in that they managed to increase the construction costs by £250,000 (and hence reduce the surplus by that amount) without requiring the crane cleaning system to be built. I do not see that this can amount to a failure to minimise the affordable housing contribution.

I find that it was inevitable that additional affordable housing contribution would be demanded by Wandsworth as a condition for approving the enhancement of the scheme. By setting a tight deadline for achieving the resolution to grant, Greenland set a limit on how far it could reasonably expect Montagu Evans to prolong the negotiations over the level of contribution. There is no evidence before me to suggest that Montagu Evans mishandled the negotiations or failed to take points that were available to them. I find that there is no merit in Greenland’s complaints about how Montagu Evans went about negotiating the affordable housing contribution with Wandsworth and BNPP.

I have also found that the Revised 106 Agreement was proportionately no more onerous than the Original 106 Agreement and there was no other factor that made it unreasonable to require Greenland to enter into the Revised 106 Agreement. I therefore find that Greenland did not act reasonably in refusing to enter into the Revised 106 Agreement with Wandsworth and their refusal to do so was a breach of the paragraph 2.4 of Schedule 6 to the Sale Agreement. This breach caused Wandsworth’s resolution to grant the enhanced planning permission to lapse and prevented Minerva from earning the overage.

There is no dispute about the computation of the damages. Paragraph 3.2 of Schedule 6 to the Sale Agreement sets out the formula for the computation of the overage payment. The formula starts by taking the Net Sales Area of residential accommodation expressed in square feet together with the Gross Internal Area of commercial accommodation also expressed in square feet achieved by the enhanced planning permission. This figure is 350,882 sq ft. From that figure one must deduct the square footage of the extant scheme, being 331,950 sq ft. This results in a figure of an additional 18,932 sq ft. This must be multiplied by £200 psf generating damages of £3,786,400. This is the sum due to Greenland together with interest at the rate agreed under the Sale Agreement from 13 January 2015 being the date when Greenland should have executed the Revised 106 Agreement.

I therefore find that Minerva’s claim for damages succeeds: