England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF
HIS HONOUR JUDGE MADDOCKS QC
(sitting as a High Court Judge)

		Royal Courts of Justice Strand, London WC2
		30th June 1995

Lord Justice Aldous:

This is an appeal against the order of His Honour Judge Maddocks of 8 December 1993 in which he awarded the plaintiff £84,758.64 which included interest and took into account a payment of £7,752.52 that had already been made by the Defendant.

The plaintiff, Mr William Aitchison, is the appellant. He is a chartered surveyor who carries on business as a property developer under the name of Aitchisons. The Defendant, Gordon Durham & Co Ltd, which I will refer to as Durham, is a builder.

The proceedings between the parties were started in 1989. In the writ dated 14 April 1989 Mr Aitchison claimed damages for breach of an agreement between him and Durham by which they undertook as a joint venture the development of a site in Newcastle adjacent to New Bridge Street and Market Street, known as the Plummer Tower Site. Durham disputed the existence of the joint venture. That issue came before the judge in 1992, and in his judgment of 30 November 1992 he held that there was an agreement for such a joint venture and that Durham was in breach of it. He ordered an inquiry as to damages. That inquiry came back before the judge about a year later and after hearing the evidence over about four days he gave judgment for Mr Aitchison for the sum I have mentioned. The facts as found in the judgment of 1992 are not in dispute. The sole question on this appeal is whether the judge was correct in the way that he assessed the damages and in the amount that he concluded should be paid.

The relevant background facts can be taken from the 1992 judgment. In 1986/1987 Durham was invited by the Newcastle Health Authority to tender for a new drug and alcohol unit which was to be built on a site owned by the City Council at Strawberry Lane. That did not proceed as the local authority withdrew the site from the market. However, the health authority suggested that the Plummer Tower site could be a good substitute. The site was owned by the city Council and comprised 1 acre of valuable land in the city centre and therefore it was not practical for it to be developed only as a drug and alcohol unit. The development, if it was to go ahead, had to include an office block and Durham realised that it needed the help of a property developer and approached Mr Aitchison. After discussions, Durham and Mr Aitchison came to terms which were set out in a letter dated 27 April 1988 and were formally confirmed in a letter dated 10 August. I will set out the terms contained in the letter of 27 August 1988 but it is sufficient to state at this stage of my judgment that the parties agreed to go ahead with the development of the Plummer Tower site. It was to be a joint development with the profit of the development being split equally between them. Durham was to oversee the building.

The parties realised that to obtain the contract to build the new drug and alcohol unit, it would be necessary for them to satisfy the City Council that the whole site would be developed at the same time and thereafter to agree terms for acquisition of the site. That they did and the tender for the unit was accepted. Thus the parties had on their hands a development consisting of an office block, for which no purchaser or tenant had as yet been found, and the unit which was pre-funded and pre-sold. The parties set about seeking a purchaser or a tenant for the proposed office block. Bernard Thorpe were instructed in August 1988 but the first person to show real interest was Mr Gavin Black who worked for an agency which is now part of Chestertons. In the beginning of December 1988, Mr Black told Durham that his client was Centreland Investments Ltd who were property developers. A meeting took place on 4 January 1989 which was attended by Mr Freeman of Centreland and employees of Durham who showed him plans for an office black of 36,000 square feet to be built on the site. Centreland indicated that if they went ahead they would require an increase in the size of the floor space and substantial modifications to the plans.

Centreland were not the only developers to show an interest. A firm called Nomad were sufficiently interested to encourage the parties to work out a price for the site and the building. The price quoted was £2,595,000, but negotiations did not proceed further.

On 8 February 1989 Centreland wrote to Durham:

"I refer to our meeting last month and to the conversations that have taken place between you and Gavin Black.

The Plummer Tower scheme offers a very interesting development and one that we would like to undertake with you.

I have pleasure in submitting an offer to purchase your leasehold interest in Plummer Tower and the Plummer Tower Office Development on the following terms:-

1. Gordon Durham would undertake the construction work in accordance with agreed plans and specifications.

2. The office building will comprise a 36,000 square feet gross area. 29,500 square feet net.

3. Gordon Durham will be responsible for the fees of the professional team involved in the construction work.

4. The purchase price for Plummer Tower will be £50,000.

5. The purchase price for the office building will be £2,750,000 payable as to £500,000 on the signing of the building contract. The balance of the purchase monies will be payable against architects certificates at a rate to be agreed between us.

I shall be pleased to explain any points to you, either on the telephone or to meet you at your offices if this would be more helpful."

That offer was expressed as being "subject to contract". In essence, it was an offer by Centreland to take over the development, with Durham carrying out the building work in accordance with plans and specifications to be agreed.

A copy of that letter was sent to Mr Aitchison and in a telephone conversation he expressed to Durham his satisfaction that something had happened at last. Thereafter the relationship between Mr Aitchison and Durham started to fall apart as Durham resolved to agree to Centreland's offer and decided that there was no need to involve Mr Aitchison any further. The result was that Durham's solicitors wrote to Mr Aitchison on 24 February stating that the arrangement, recorded in the letter of 27 April 1988 and confirmed in the August 1988 letter, did not constitute a binding agreement as it was only a statement of intent with which Durham were no longer prepared to proceed. An offer to pay Mr Aitchison for work that had been done was made and rejected and Mr Aitchison issued the writ on 14 April. The judge concluded that Durham:

" ... had no justification for the action it took in February 1989 of excluding Mr Aitchison from participation in the development."

As I said, the letter of 8 February 1989 from Centreland was expressed as being "subject to contract" and there can be no doubt that both Centreland and Durham contemplated that any concluded contract would relate to an office block with a larger floor space than that referred to in the letter and would also have different facilities as was mentioned at the meeting of 4 January 1989. In any case, discussions continued between Centreland and Durham during the early part of 1989 with a view to Centreland purchasing the development and Durham building the office block. The building was redesigned with two extra storeys, a more open plan design, expensive air conditioning, upgraded finishing and different lighting and lifts. All that required modified foundations.

In April 1989 Durham produced a memorandum comparing the appraisal for the original building with the outline appraisal for the building that was proposed to be built which gave a prospective development profit of £207,000. Also cost plans were prepared and considerable work was done so as to enable the actual agreement to be finalised. That agreement was dated 5 July 1989. It was between Durham and an associated company of Centreland called Tabgain Ltd.

The agreement was conditional upon Durham carrying out certain things including acquiring an additional piece of land. That was achieved at a cost of £20,000. Durham also had to obtain planning permission. Clause 5 of the agreement required Durham to undertake the development in accordance with the approved plans and specifications and to comply with the obligations in the building agreement. Durham was also under an obligation to ensure that all reasonable skill and care was taken in the design, supervision, selection of materials and goods for the development, and generally see that the building was properly erected. The purchase price was set out in clause 17.2 in this way:

"17.2. The purchase price is £4,100,000.00 which is apportioned as to £50,000.00 in respect of Plummer Tower and £4,050,000.00 in respect of the Market Street Site and shall be payable to the Vendor as follows:-

(a) the sum of £50,000 in respect of Plummer Tower and the sum of £500,000 on the date this Agreement shall become unconditional; and

(b) in accordance with the terms of Clause 16; and

(c) the balance thereof (less the retention) on the grant of the Lease."

Clause 16 provided for monthly interim payments by reference to interim valuations which were to be equal to the gross interim valuations which were to be equal to the gross interim valuation less retentions. The building costs were defined as the fixed sum of £3,190,691.

The development proceeded and was completed within the 20 months provided for in the agreement with the result that Durham was paid the full purchase price, £4,138,874.

The task of the judge on the inquiry was to assess the damages due to the breach of the agreement set out in the letter of 27 April 1988, the relevant parts of which were as follows:

" ... with reference to my conversation with Ian Bonar and yourself I am writing to set out the basis on which I suggest we proceed with the office development on the Plummer House site if we are successful in being selected by the city council.

1. The part of the site to be utilised for the D and A centre will be the responsibility of Gordon Durham and Co. Ltd and the subsequent contract with the Area Health Authority will be entirely within the province of Gordon Durham and Co. Ltd.

2. The office block and the Plummer House will be the subject of a joint development agreement between Gordon Durham and Co. Ltd. and WM Aitchison.

3. Under the terms of the joint development agreement the liability for all costs, fees, etc will be borne equally by the parties to the agreement and any profits resulting from being successful in the development of the office block will be divided equally between the parties.

4. WM Aitchison will be responsible for securing the long term funding of the project and the project will not proceed unless and until the long term funding is in place.

5. Gordon Durham and Co Ltd will be responsible for overseeing the building of the project."

The letter concludes:

"I trust these very broad details are sufficient for the moment and I would be pleased to hear that you are in agreement with the proposals."

The judge held that Mr Aitchison lost half of the development profit of the contract of 5 July 1989. That contract was, he held, the best evidence of the subject matter in which Mr Aitchison would have taken a share. He said (at page 17B of his judgment):

"I am bound to say that in my judgment the Defendant's case is manifestly correct. The events which have happened, quite apart from the evidence I have heard from Mr Bonar and from Mr Robert Freeman of Centreland, establish that there never was a development prospect or opportunity on the terms of the letter of 8th February, 1989. The only prospect was for a contract for a revised building in the form of the contract which in fact resulted; the Tabgain contract. The evidence is perfectly plain that the offer was made and indeed accepted simply as a stepping stone in that direction. That apart, the Tabgain contract, of itself, is the best evidence of the subject matter in which the Plaintiff would have taken a share.

If I take the simple stand of asking what sum will put the Plaintiff in the same situation as if the contract had been performed, the answer must be the sum which he would have obtained as his share of the developer's profit under the Tabgain contract, as entered into and as completed. That was the way in which the joint development agreement was in fact concluded, albeit without Mr Aitchison, and it was the only way in which, as at February 1989, it could realistically have been concluded.

It is of course true that the Tabgain contract was entered into after the date of the breach in February, and that I am assessing the damages as at that date. That does not, however, preclude me from looking at the events which have now happened; the conclusion and completion of that contract."

The judge went on to look at the actual costs incurred by Durham. He ascertained what was the cost of the land less the sum received in respect of the land on which the alcohol and drug unit was built. To that he added certain legal and professional fees, the building costs including sums for building profit, overheads and bank charges. He subtracted the total of those amounts from the contract price of £4,138,874 giving a figure of £156,973 as the development profit and concluded that Mr Aitchison was entitled to 50 % of that sum, namely £78,486.50 plus interest. That approach and the result was and is supported by Durham.

On behalf of Mr Aitchison, Mr Caswell submitted that the approach of the judge was wrong and that in any case the sums allocated by the judge as overheads and legal fees should be reduced. He also submitted that the judge was wrong in the way that he ascertained what was the appropriate interest that Mr Aitchison should receive. Thus, there are three areas of dispute, the first being as to whether the approach to quantification of damages for breach of contract, adopted by the judge and supported by Durham, was correct; second, whether the actual figures used by the judge were correct, and third, whether the amount of interest was correct. The second only need be considered if the judge's approach was right.

The legal approach.

On behalf of Mr Aitchison it was submitted that damages that had to be paid as compensation should be assessed as of the date of the breach, namely 24 February 1989. As at that date no development had been agreed, therefore the court's task was to estimate, using the factual background of that date, what was the gross development value of the project at that date and what would have been the building costs, including the costs that a builder would charge to erect the building and the necessary legal and professional fees. By subtraction, the development profit could then be obtained. It was submitted that as at 24 February 1989 the best evidence of what was the gross development value was the offer made in the letter of 8 February, namely £2.8 million, which included £50,000 for the hand on which the alcohol and drug unit was built. The building costs would be the standard costs in the industry, namely £50.60 per square foot, plus the cost of acquisition of the site and professional and legal fees, which in total would amount to £2,276,650, giving a development profit of £523,350, of which Mr Aitchison was entitled to £261,675.

The judge rejected that approach. He held that there never was a prospect of development on the terms suggested by Mr Aitchison. The only prospect was a contract for the sale of the development with the revised building as provided for in the contract that actually resulted. The offer was merely a stepping stone made subject to contract and that what happened under 5 July contract was the best evidence to use to ascertain what Mr Aitchison lost by reason of Durham's breach of contract.

That conclusion of the judge was criticised. On behalf of Mr Aitchison it was submitted that the judge fell into error when he took into account 5 July contract, because in doing so he failed to assess the development profit lost at the date of the breach, namely 24 February. He was assessing the damages upon the basis that Mr Aitchison had been a party to 5 July agreement.

Although Mr Caswell accepted that in appropriate cases the court could look at what actually happened, he submitted that that was not right in this case as the task of the court was to value Mr Aitchison's expectation under the contract as at 24 February 1989. He therefore sought to distinguish the cases relied on by the judge, namely Bwllfa and Merthyr Dawr Steam Collieries 1891 Ltd v Pontypridd Water Works Co [1903] AC 426 at 431, and In re Bradbury [1942] Ch 35 at 42. To support his submission he drew our attention to a number of authorities, but there is no need for me to refer to them all. In In re North Settled Estates; Public Trustee v Graham [1946] 1 Ch 13, 174 LT 303, Evershed J had to value a life interest as of 10 December 1938. He held that, when carrying out that task the court should not take into account the death of the wife's mother in 1949. He said at page 16 of the former report:

"I am inclined to think that the authorities go no further than this, that it is proper and legitimate from the date on which the valuation has to be made is later than events that which have in fact happened, material to the value, to take those events into account but prima facie it is not legitimate to take into account matters of fact occurring after the date which is the material date for valuing the life interest for hotch potch purposes."

The logic of that statement is apparent when it is realised that the judge was seeking, pursuant to the terms of the trust deed, to ascertain the value of the interest of the beneficiaries as of 1938. Thus to take into account an event that happened in 1941 would have produced a value which did not accord with the express wishes of the settlor. The passage that I have read from Evershed J's judgment does not therefore throw light upon whether it is right to take into account facts which arise after the date of determination of a contract and which could threw light on the loss of the person who has been wronged.

We were also referred to Williams Brothers v Ed T Agius Ltd [1914] AC 510. There the House of Lords had to decide what was the measure of damage for non-delivery for a cargo of coal. It was held that the correct measure was the difference between the contract price and the market price at the date that delivery should have taken place and that other contracts entered into outside the particular contract were irrelevant. That case has no relevance to whether it is appropriate for the court to take into account subsequent events to ascertain what the actual value of any particular contract was at a particular date. There was a market price for coal and therefore the compensation for failure to deliver could be, and had to be, ascertained by reference to the contract and market prices.

It has been said on more than one occasion that when assessing damages, the court should have in mind the general rule that was expounded by Lord Blackburne in Livingstone v The Rawyards Coal Co 5 AC 25 at 39:

"I do not think there is any difference of opinion as to its being a general rule that, where an injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages, you should as nearly as possible get at that sum of money which would put the party who has been injured, or has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation."

It is also essential to have in mind the contract which was terminated. In this case it is the contract contained in the letter of 27 April which was terminated on 24 February 1989. It was not a contract for the sale of delivery of goods for which there was a market price. It was not a contract for the supply of services. It was a contract in the nature of a joint venture or partnership in which the parties agreed to co-operate in the development of the Plummer Tower site. Mr Aitchison was wrongfully excluded by Durham from the development. He lost half of the developer's profit that would have been made if the joint venture had proceeded according to the parties' intention as expressed in the letter. Thus the task of the court is to ascertain what would have been the development profit if the Plummer Tower site had been developed according to the joint venture. When carrying out that task the court should not shut its eyes to what actually happened as that could provide the best evidence of what the development profit would have been. That was the conclusion of the House of Lords in the Bwllfa case when deciding what should be paid by way of compensation for a restriction on mining and was also the view of Uthwatt J in In re Bradbury.

The evidence, as to what would have happened if the joint venture had proceeded, established that in all probability the development of the Plummer site would have proceeded in the way that it did. The parties to the joint venture contemplated, when coming to the agreement of April 1988, that it might be executed in a number of ways. The preferred manner was by arranging a pre-letting of the whole of the building that would be erected, followed by a pre-sale to an institutional investor. Alternatively, the building would have been built as a pure speculation or the whole development would be sold off to another developer who would provide the finance and appoint the builder. In the end, it was that latter course which happened. As I have recounted, the parties appointed agents, but the only firm offer came from Centreland who were developers. Centreland indicated its intention to take over the development by making the offer in the letter of 8 February. As the judge held in his 1992 judgment:

"Suffice it to say that the offer was one to take over the existing development at an inclusive price for the site and building and thus, the benefit of the concluded negotiations for the acquisition of the site. Short of finding an institutional purchaser, it was just what the parties wanted."

Both Durham and Centreland knew that the offer made in February 1989 was only a statement of intent and that the actual building Durham would have to erect would be considerably different. Durham decided to accept the stated intention of Centreland to purchase the development, with Durham acting as builders and thereafter starting as prospective builders to carry out the design and make the necessary arrangements for the contract to build a modified building. Their work bore fruit. It was incorporated in the contract of 5 July 1989. As the judge held, the transaction contemplated in the February correspondence between Centreland and Durham proceeded upon the basis that there was to be a sale of the whole development to Centreland with Durham having the benefit and burden of a design and build contract. That was the effect of the contract. As Mr Freeman of Centreland made clear in cross-examination (Evidence 3, pages 56 and 57) Durham were contractors and Centreland were the developers.

There is no evidence that any alternative arrangement to that proposed by Centreland and agreed to by Durham was practical. That was confirmed by Mr Aitchison (Evidence 2, page 21F) where he made it clear in cross-examination that even if there had not been a breach of the agreement, the building site would have been developed by Centreland and the building would have been built by Durham in the form that it was. It follows that the sum of money that would put Mr Aitchison into the same position as he would have been in if he had not been excluded from the joint venture would be his share of any development profit included in the £4.1 million that was ultimately paid by Centreland for the development and the design and erection of the building. What that was could only be ascertained by ascertaining what proportion of the purchase price was attributable to design and building. That was the task the judge set for himself and then carried out.

The judge was right to reject the pleaded case of Mr Aitchison. There was no evidence to support the submission that the development of the Plummer Tower site would have gone ahead upon the basis of the offer made in 8 February letter with building costs of £50.60 per square foot. Everybody concerned with the project knew that Centreland wished to take over the development and that the actual contract that would be signed would be substantially different to that contained in the offer letter. Further, the submission that the £4.1 million would have been paid by Centreland to the parties to the joint venture as developers, who would have been responsible for employing a suitable builder, was contrary to the weight of the evidence and did not accord with is realities of the position at the time.

The pleaded case of Durham was supported by the evidence of Mr Whitfield, who is a quantity surveyor employed for a firm called Stapletons. He produced a Scott Schedule from the documents of Durham and information supplied to him by employees. In that schedule he set out the amounts that he concluded Durham had spent on legal and professional fees, building costs, including overheads and builders profit, bank charges, and the amount that Durham had received from the sale of the land. From that he worked out the sum that had been expended by Durham as builders. The detailed figures were not challenged, and I shall come to that later. However, the method of arriving at the building costs undertaken by Mr Whitfield is, in my view, more likely to be an accurate way of assessing the building costs than taking a figure of building costs which the trade would believe to be reasonable for a building of that size and adding to it an estimate for professional and legal fees. Actual figures are more likely to be right than estimates, particularly as Durham wished to maximise its profit and carried out its obligations under the contract in a proper manner. The judge was also right not to accept the submission made on behalf of Mr Aitchison, that the building costs, including profits and overheads, should have been around £66 per square foot for the reason that the evidence did not establish that figure to be the right one for the particular building that was erected pursuant to the particular contract entered into.

I conclude that the approach and method of calculation adopted by the judge was correct. I can therefore turn to the criticism of the sums which the judge allowed as part of the building costs.

Overheads.

Mr Whitfield split the overheads into two parts, namely "specific" and "general" overheads. The specific overheads were calculated using information given to him as to the amount of time taken by certain employees on the project between March 1989 and the end of the contract. The figure arrived at was £130,330.90. The general overheads related to office costs, which included such items as heat, light, telephone and administrative staff. He extracted that information from the accounts of Durham and made an apportionment which gave him a figure of £143,957.

The appellant did not criticise the mathematics, nor the way that the figures were arrived at. Mr Caswell submitted that part of the sums involved were attributable to Durham in its role as developer and therefore the figures arrived at by Mr Whitfield as building cost overheads were too high. In particular, he drew our attention to the fact that Mr Whitfield had made no allowance for any time of any employee acting as developer even though he had taken into account work carried out by employees before the contract was signed on 5 July 1989. He submitted that at the very least some employees of Durham must have been acting during the period in part as developer. He also submitted that the overheads could be calculated as, at most, 6 % of actual building costs, namely 6 % of £2,801,266, giving a figure of £168,700. That percentage was obtained from the assessment made by Durham in their cost plan and was, he submitted, within the normal range of overheads that a builder would allow.

Mr Rees QC, who appeared for Durham, submitted that Mr Whitfield was right to attribute all the overheads incurred by Durham on the project from about March 1989 as building costs, as it was from that date that Durham stopped acting as developers and began acting as builders. By that time, Centreland had agreed, subject to contract, to purchase the development and all that needed to be done was to carry out the work that was necessary for a satisfactory building contract to be concluded. Further, once the contract had been concluded, Durham acted as builders. The development had been sold to Centreland/Tabgain who carried out the developer's role.

I believe the submission of Mr Rees is correct. In March 1989 it was clear that Centreland would take over the role of developer and that therefore Durham acted as builders, making designs and generally working towards a satisfactory building contract. That was the evidence of Mr Bonar, the Assistant Surveyor Director of Durham. Further Mr Aitchison said in his cross-examination that if the contract had not been broken he would have been a sleeping party once the contract or contracts between Centreland and Durham had been concluded. By March 1989 all Durham had to do was to produce designs and costings to enable the building contract to be concluded. That being so, a builder, such as Durham, would be entitled to charge as part of its building cost a proportion of its overheads. As the mathematics were not criticised, I conclude that the sums allowed by the judge, namely those suggested by Mr Whitfield as appropriate overheads, were proper sums to be allowed as building costs.

Legal Fees.

There is no dispute that legal fees had to be incurred by Durham and would have had to be incurred by any builder. Thus, when ascertaining the development profit it was correct to deduct a sum for legal fees.

The judge held that £85,356 was allowable as legal fees. The dispute at trial appears to have centered around the fees of Freedmans, Durham's solicitors, which amounted to £50,633. That sum was the subject of five invoices which were respectively for £38,500, £15,706.33, £650, £1,050.90, £211.59 and a credit note of £5,485.83.

Mr Caswell submitted that not all those fees should have been allowed as a deduction. In the notice of appeal inclusion of the last three invoices was challenged upon the ground that it had not been proved that the work referred to related to Durham's work as builders. In opening, Mr Caswell sought to support that challenge, but after considering the evidence of Mr Bonar (Evidence 1, page 11) he accepted that the judge was right to allow those sums.

Mr Caswell also submitted that a sum amounting to £10,220 charged by Freedmans for arranging a knew debenture for Tabgain could not be a fee which was part of the building costs. He submitted that it was clearly a development cost.

Tabgain had originally arranged funding for the development through the National Westminster Bank. For that purpose Durham had agreed to enter into a debenture in favour of the bank. Before that debenture was activated, the National Westminster Bank decided to reduce its exposure to the property market and told Centreland that it was not prepared to fund the development. Centreland approached Credit Agricole which agreed to supply funds but required a change in the wording of the debenture. That was arranged by Mr Brown of Freedmans and in April 1989 he invoiced Durham for the sum of £15,706 exclusive of Value Added Tax. Mr Brown anticipated the cost would passed to Tabgain but was told that Durham had decided that it would not require Tabgain to pay. His firm then reduced their fees and issued a credit note in the sum of £5,485. Thus Durham paid £10,220 to their solicitors for the work that was done that should have been paid for by Tabgain as developers. On behalf of Mr Aitchison it was submitted that that sum was in fact a developer's cost and therefore should not have been deducted from the development profit. Mr Rees submitted the payment was a legitimate business expense paid by the builder. As the judge found, Durham wanted to maximise their profit and there was every reason to believe that the payment was in the interest of Durham as builders.

I have no doubt that technically the sum of £10,220 was a sum which should have been paid by the developer, namely Tabgain. However, in a contract of this size there would inevitably be disputes between the developer and the builder over various matters and it was both reasonable and proper for both sides to the contract, when seeking to maximise their profits, to arrive at an acceptable compromise on minor details, such as the fee of £10,220. This, Mr Rees submitted, was such an arrangement. He submitted it would have been perfectly reasonable for the parties to have accepted half the costs of arranging the new debenture in the context of the contract as a whole.

I was at one stage impressed by the submissions of Mr Caswell, but believe that the submissions of the respondent should be accepted. The evidence was that Durham sought to maximise its profit and thus the part of the profit which would be the developer's profit. There is no evidence that the decision not to recover the £10,220 from Tabgain was inconsistent with Durham's intentions. In one sense, waiver of the requirement to pay could be viewed as a gift, but viewed in the context of the contract as a whole, I have come to the conclusion that it was a legitimate business expense and therefore allowable as part of the general costs incurred by Durham as builders.

Interest.

In opening, Mr Caswell submitted that the judge had erred in two respects. First, the percentage used by the judge was not sufficient, and second, the judge should have ordered interest payments as of the date when the interim payments were made by Tabgain to Durham upon that part of the interim payments that were attributable to developer's profit.

Before the judge, counsel for Mr Aitchison submitted that interest should be awarded at 12 %, that being the percentage that was applied by the judge when he awarded bank interest as part of the overheads. What was sauce for the goose should be sauce for the gander. Counsel for Durham submitted that interest was to compensate Mr Aitchison for being kept out of his money, that the appropriate figure should be the rate allowed upon the special account on payment into court.

Clearly the judge was right to prefer the submissions made on behalf of Durham. In any case, the decision as to what is the appropriate rate of interest is one for the discretion of the judge and I can see no reason why it would be right for this court to exercise its discretion on the issue.

As to the dates when interest should be paid, I have no doubt that the judge was right when he said:

"In fact, the final payment under the account (leaving only some retention) was made on 8th October, 1991, and received on 15th October, 1991, just before the payment dated 31st July."

Following that, there were in fact further payments on 18th February, 1992, and again on 11th June 1992.

It seems to me that the first point in time at which it could fairly be said that Mr Aitchison could require a distribution of developer's profit was the period of the final payment of £46,309 received on the 15th October, which came in almost coincidentally with the earlier payment due on 31st July and received on 18th October.

In my view, the earliest time at which Mr Aitchison could seek that distribution would therefore be the 18th October and it seems to me, bearing in mind that funds have been paid to the Defendants over the period, that it would be right that he should receive the interest from that date, to the extent of the surplus for the time being in hand.

There were still, as I have said, further monies to come. There were receipts in February and July. I do not see how he could claim distribution of those monies until they were actually received. Although it is right that they were retentions against the building contract, they are all part of the monies coming in, out of which the development profit is being paid."

The reasoning of the judge must be correct. Until the final payments were made the profit could not be ascertained, let alone the share of the overall profit that was the developer's profit. Even so, Mr Caswell submitted that the approach of the judge was incorrect. His submission is encapsulated in para 39 of his skeleton:

"As regards the period, the approach adopted by the Judge assumed that the effect of the bargain between the parties was that the Plaintiff would only receive his share of the profit after the Defendant as a builder shall have been paid in full. But there was no contractual basis for that. The true position was that there were three parties being (i) the employer, Centreland (ii) the developer/contractor, Plaintiff and Defendant (iii) the sub-contractor builder, the Defendant. The developer would have received stage payments from the employer, and in turn would have made stage payments to the builder, being a lesser sum than that it had received. Hence, every stage payment which in the event was made by Centreland to the Defendant contained a proportion that represented developer's profit."

From what I have already said, it is apparent that I cannot accept that submission. The development was sold to Centreland. If there had been no breach, the developer would still have been Centreland, the builder would have been Durham and it would have received the payments that were actually made. At most, Mr Aitchison would have been a sleeping party. In those circumstances, I reject the submissions made on behalf of Mr Aitchison as to interest.

For the reasons that I have given, I conclude that this appeal should be dismissed.

Lord Justice Schiemann:

For the reasons given by my Lord, I also come to the same conclusion.

Lady Justice Butler-Sloss:

I also agree. Therefore, the appeal will be dismissed.

Order: Appeal dismissed with costs. Application to appeal to the House of Lords refused.