England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr Justice Rimer)

		Royal Courts of Justice Strand London WC2 Tuesday, 11th December 2001

1. LORD JUSTICE ROBERT WALKER: This is an appeal from an order of Rimer J made in the Chancery Division on 1st February 2001, dismissing claims by two companies called Century 2000 Enterprises Limited ("Century") and Central Corporation Management Limited ("Central") in two actions relating to an agreement dated 29th July 1998 for the grant of a 35 year lease by Century to SFI Group PLC ("SFI"). The first action was commenced by writ on 8th April 1999 seeking a declaration. The second action was commenced by writ on 30th November 1999 claiming damages for breach of contract.
2. SFI was the defendant in both actions. Century had transferred its interest as landlord to Central but the judge referred to both claimants collectively as Century, and I shall do the same. Century is a property developer and its activities included developing and letting properties as public houses, bars and cafes. That is the sector of the licensed trade in which SFI operates. The agreement for lease related to premises at 86 to 92 Queen Street, Maidenhead, Berkshire, which Century had acquired piecemeal with a view to redevelopment. Century was to erect the shell of a new two storey building, with a basement under the frontage to Queen Street. SFI was interested in taking a lease of the newly built property for a themed cafe bar under its Bar Med brand. That was then a new brand for SFI. It had opened two or three Bar Meds at that time and has since opened about 30 more.
3. The dispute turns on some fairly elaborate provisions containing conditions about planning permission which was, from the outset, recognized as a problem. The proposed use was in Class A3, basically for the sale and service of food and drink on the premises, but that was not the established use. The local planning authority, the Royal Borough of Windsor and Maidenhead ("Windsor") was opposed to having a continuous frontage of A3 use along Queen Street. They wanted to see the A3 use broken up by other uses, including A1 use, that is basically retail shops.
4. That was the commercial context in which the agreement was entered into. It contained, as the judge put it, conditional provisions of a fairly elaborate nature. Clause 1 contained what the judge called "the usual set of interminable definitions which agreements such as this are prone to generate." Some of these were self-explanatory. Definitions which were not self-explanatory included the following. The Conditional Period was a period of one year from the date of the agreement. Development was defined as "development of the property as the First Scheme or the Second Scheme". The First Scheme and the Second Scheme were described by the judge as follows:

"The 'First Scheme' is one I need not dwell on. It was basically one providing exclusively A3 use on the ground floor of the property, which was ideally what SFI wanted but which they had no realistic prospect of getting, nor did they. It was defined more fully by reference to what the agreement described as 'Plans A'. The 'Second Scheme' was the less attractive one. It was defined as meaning:

'... the development of the property with a Class A3 unit and a Class A1 unit (with ancillary residential) but on the basis that the Class A3 unit is of approximately 4,500 square feet of gross external area on the ground floor and the Class A1 unit is of approximately 10 square metres of gross external area on the ground floor and with approximately 2,000 square feet of gross external area in the basement and with approximately 1,500 square feet of gross external area on the first floor in accordance with Plans B.'

'Plans B' were defined as meaning:

'.... the plans drawings and specifications bills of quantity engineering calculations and other data relating to the Landlord's Works annexed hereto and marked 'Scheme B' including (as they are from time to time made) any variations and alternations and additions to and revisions of Plans B made in accordance with the terms hereof including the variation relating to the ground floor shown on the plan marked 'Variation A' annexed hereto...'

Onerous Planning Conditions were defined as:

"... any condition restriction or obligation whether in or to be imposed in a Planning Agreement or in a planning consent which is not acceptable to the Landlord acting as a reasonable property developer or would normally make the use of the Property economically unviable to a modern theme-type cafe-bar operator (the Tenant acknowledges that the size of the Development is economically viable for such purposes) Provided Always that both parties agree that any planning condition in the terms of any condition set out in [a particular specified consent] shall be deemed not to be an Onerous Planning Condition."

5. Counsel has pointed out that the definition of "Onerous Planning Condition" is wide and is not necessarily limited to what would be imposed as a numbered condition in a grant of permission. Its width is no doubt sensible because of the lack of uniformity between different local planning authorities as to what is the substance of a grant of planning permission and what is appropriate subject matter for conditions attached to a permission.
6. The Planning Condition was defined as "the grant of Planning Permission" which was in turn defined as "Planning Permission granted pursuant to a Planning Application free from any Onerous Planning Conditions". Planning Application was defined as "any planning application submitted by or on behalf of [Century] for the Development" which in turn was defined as "the development of the property as the First Scheme or the Second Scheme".
7. In the course of argument in this court there has been a good deal of discussion as to the circularity of parts of the agreement, and in particular as to the circularity of these complicated definitions. Certainly they send the reader on a paperchase which does not make for ready comprehension of the true bargain between the parties. Quite a lot turns on the prepositions or prepositional phrases "pursuant to" in the definition of planning permission and "for" in the definition of planning application. It seems to me that it is in relation to these parts of the lease that Lord Hoffmann's well known observations in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913, which were invoked by counsel in a somewhat different context, are most apt. So much for the definitions.
8. Clause 2.1(a) of the agreement made all the following clauses of the agreement conditional on, among other things, the Planning Condition which, by clause 2.3, was incapable of being waived. Clause 2.9 contained provisions which were not referred to at all by the judge, probably because they were not relied on below, but they have been relied on in this court. They are as follows:

"2.9.1 Within 3 working days of the Landlord receiving a copy of a planning consent applied for by or on behalf of the Landlord relating to the Property the Landlord shall forward a copy or copies of the same to the Tenant and at the same time (time being of the essence) shall confirm whether or not in its view such planning consent satisfies the Planning Condition (giving detailed reasons if in its view such planning consent does not satisfy the Planning Condition) and if the Landlord fails to give such notification (with detailed reasons where appropriate) at such time the Tenant may treat such planning consent as satisfying the Planning Condition by giving written notice to such effect on the Landlord whereupon the Planning Condition shall (subject to the provisions of Clause 2.9.2) be deemed to have been discharged

2.9.2 The Tenant shall confirm within 5 working days of receipt of a copy of the said planning consent whether or not in its view such planning consent satisfies the Planning Condition (giving detailed reasons if in its view such planning consent does not satisfy the Planning Condition) by giving written notice to that effect to the Landlord (time being of the essence) and

(a) if the Tenant fails to give any such notice (with detailed reasons where appropriate) within such period the Landlord may treat such planning consent as satisfying the Planning Condition by giving written notice to such effect on the Tenant whereupon the Planning Condition shall be deemed to have been discharged

(b) if the Tenant gives written notice to the effect that such planning consent does not satisfy the Planning Condition (with detailed reasons where appropriate) then the Landlord may at any time thereafter give written notice on the Tenant rescinding this Agreement".

9. An exchange of letters between solicitors on 4th and 5th March 1999 did invoke the clause 2.9 procedure, although without detailed reasons being given on either side of the exchange. The following clauses, 3 to 8 inclusive, were rightly considered only very lightly by the judge, since they were all conditional on the Planning Condition. However, they included the landlord's obligation (in clause 3) to carry out the development to the stage of a shell building having been erected and the tenant's obligation (under clause 4) to fit out the shell for use as licensed premises. The judge also referred to clause 3.5 under which the landlord might, subject to various restrictions, alter the plan.
10. Schedule 2 to the agreement provided for Century as landlord to attempt to obtain the requisite planning permission. I should read paragraphs 1 and 2 of Schedule 2.

"1.1 The Landlord has at its own expense made a Planning Application to the local planning authority and shall take all reasonable steps necessary and use its reasonable endeavours to obtain Planning Permission (but shall not be required to appeal against any Refusal) including (where appropriate) entering into a Planning Agreement insofar as it is necessary for securing a Planning Permission provided that the Landlord shall be under no obligation to do so if the cost to the Landlord of the planning obligations exceeds £10,000 unless the Tenant agrees to pay any excess sum.

1.2 Before and/or following the submission of a Planning Application the Landlord shall if requisite or desirable in order to obtain Planning Permission enter into discussion or negotiation with the local planning authority.

1.3 The Landlord may in consequence of discussion or negotiation with the local planning authority if it appears requisite or desirable in order to obtain the planning Permission amend or withdraw and immediately submit a fresh application or duplicate for Planning Permission."

11. Paragraph 2:

"In conducting discussions or negotiations with the local planning authority the Landlord shall:

2.1 keep the Tenant reasonably informed of all applications the progress of applications relevant correspondence meetings negotiations proposals and proceedings and

2.2 allow the Tenant and its planning consultants to attend such meetings as observers only."

12. As the judge said, Schedule 2 recorded that Century had already applied for planning permission. Its application (sometimes referred to in the papers as the fifth application) was made on 18th June 1998 and it was an application for outline permission in accordance with the Second Scheme; that is, for the ground floor of the redeveloped premises to contain 10 square metres of A1 use and 406 square metres of A3 use. The judge said of this application:

"The proposed A1 area was at the extreme right of the Queen Street frontage. Such a tiny unit, little more than kiosk size, would obviously have its limitations but could be used as a newsagent's or confectioner's or the like. The planning application was indisputably for the second scheme."

13. Windsor delayed making a decision on the application while indicating that ultimate refusal was likely, and on 29th September 1998 Century appealed to the Secretary of State, as it was entitled to.
14. At that stage Century's planning advisers produced a modification to the proposals, increasing the ground floor A1 use from 10 square metres to 20 square metres. SFI was informed of this, but it was no part of Century's case that SFI had agreed to or acquiesced in this modification. The new plan was placed before the Inspector as an illustrative plan but there was no formal withdrawal of the so-called fifth application and no presentation of a new application for planning permission in its place. In February 1999 there was a public inquiry on Century's appeal. On 1st March 1999 the appeal was allowed, subject to 9 conditions. The only relevant condition was numbered 8:

"The A1 unit shall be located at the northern end of the building hereby permitted and shall comprise not less than 20 square metres of retail floorspace with a frontage to Queen Street of not less than six metres in length."

15. The judge commented on this:

The net effect of that is that Century's efforts resulted in a grant of planning permission for the property permitting A3 use over a ground floor area which approximated to that prescribed by the second scheme - and no one appears to have argued otherwise - but it did not grant permission for 'approximately 10 square metres' of A1 use as also there prescribed."

16. The condition numbered 8 imposed by the Inspector in effect followed the proposal in the new illustrative plan which had been placed before her. SFI took the view that the planning condition as defined in the agreement had not been satisfied, and on 4th and 5th March 1999 there took place the exchange of letters between solicitors referring to clause 2.9, which I have already mentioned. Soon after the expiration of the one year period, SFI gave notice on 6th August terminating the agreement. The essential issue in both actions, apart from the quantification of damages if breach of contract were established, was whether SFI was entitled to terminate the agreement.
17. The judge heard oral evidence from three witnesses but he did not regard their evidence as assisting him on the issue of construction, and it has been conceded in the course of this hearing that some of the evidence went to subjective intent and was not properly admissible on the question of construction. In a clear and thorough judgment the judge summarised the competing arguments of counsel who have also appeared in this court, Mr. Timothy Morshead for Century and Mr. Edward Denehan for SFI. I need not read the judge's summary except in the most abbreviated form, since arguments on the same general lines have been deployed in this court, although with some added refinements.
18. Before the judge, Mr. Morshead laid emphasis on the uncertainty as to the planning situation and the commercial need for flexibility provided that Century obtained a grant of planning permission which was commercially viable. He said that the requirement for 20 square metres of A1 use and a six metre frontage to Queen Street was not an onerous planning condition. Mr. Denehan relied on the plain and incontrovertible fact that the second scheme referred to a ground floor A1 use of "approximately 10 square metres of gross external area . . . in accordance with Plans B", and that 20 metres could not sensibly be regarded as being approximately 10 square metres, however the word "approximately" was interpreted. Mr. Morshead also relied on paragraph 1.3 of Schedule 2, on the flexible definition of Plans B and on clause 3.5 which I have already mentioned.
19. The judge preferred the arguments on behalf of SFI for two main reasons, which I can shortly summarize as follows. First, he took the view that mere commercial viability was unlikely to have been the touchstone for the parties to the agreement. He took the view that experienced commercial organizations were likely to have wanted more certainty than that. Secondly, the judge took the view that the textual points relied on on behalf of Century were not strong enough to overcome what he saw as the unambiguously clear definition of the Second Scheme.
20. In this court Mr. Morshead has relied on four main points set out in his written skeleton argument. He has also developed some oral submissions to the general effect that the Second Scheme was not static but, as he put it, dynamic, and that the Second Scheme should be seen as having evolved into the scheme which was eventually approved by the Inspector while still retaining its identity as the Second Scheme and not as something else. Therefore, Mr Morshead argued, the judge misdirected himself as to the meaning of the defined expressions "Planning Application" and "Planning Permission". He submitted that the Secretary of State's Inspector approved the Second Scheme, albeit in an amended form, pursuant to the so-called fifth application made on 18th June 1998, albeit that the content of that application had evolved with the new plan that was placed before the Inspector.
21. This is an attractive submission and Mr. Morshead developed it skilfully, but to my mind it places too much weight on the rather vague expression "pursuant to" (which can mean "following on" or "in accordance with" or some intermediate meaning). I think that it would be lacking in commercial reality to treat as conclusive the fact that the fifth application was not formally amended or withdrawn and replaced, especially since it was in any event an outline application. The real issue is, what were the indispensable core requirements of the Second Scheme or, putting it the other way round, how flexible or dynamic was the Second Scheme, consistently with the terms of the agreement?
22. Mr. Morshead placed clause 2.9 in the forefront of his written submissions. That clause shows, he said, that the judge was wrong in approaching the matter on the footing that there must be no room for argument about whether the planning condition had been fulfilled. Clause 2.9 provides for an exchange of views, with both sides giving "detailed reasons where appropriate". Counsel submitted that this undermines the judge's reliance on the importance to the parties of obtaining certainty. I agree that clause 2.9 reflects the possibility of a difference of opinion between the parties and provides the possibility, although only a limited possibility, for retreat from the agreement in that eventuality. The possibility of a difference of opinion is inherent in the definition of onerous planning condition, and neither that definition nor clause 2.9 provides any particular machinery for resolving it, apart from the limited possibility of withdrawal, which I have just mentioned. However, clause 2.9 seems to me to be neutral as to whether the principal or only cause of any difference of opinion is to be found in the definition of Onerous Planning Condition, or whether it also extends to other elements which go to make up the complex concept of the Planning Condition (as defined in the agreement in the tortuous way which I have already tried to describe).
23. Mr. Morshead's second point in his skeleton is that the judge did not give weight to Century's express powers to negotiate with the local planning authority and to amend the planning application if that was requisite in order to obtain the sought after permission (see Schedule 2, paragraph 1.2 and 1.3). The relevant passage in the judgment dealing with this point is as follows. It is what I called the judge's second main reason for deciding the case as he did:

"The nature of the planning permission required for the second scheme is made unambiguously clear by the definition of that scheme. SFI's duty [that should, I think, have been Century's duty] under para 1.1 of Schedule 2 was to use reasonable endeavours to obtain that permission. Mr Morshead's submission that para 1.3 entitled Century instead to apply for a quite different permission, involving the doubling of the A1 unit area is, in these circumstances, not only an unlikely power to find contained in the same schedule; it anyway involves a basic misconstruction of it. Whatever para 1.3 may permit Century to do, one thing it does make plain is that all its efforts must be directed to obtaining the 'Planning Permission'. Its drafting suffers from some syntactical inexactitude in that the draftsman has carelessly omitted to tell us what the object of Century's power to 'amend' is, but I regard the fairly clear sense of the drafting as meaning that it is a power to amend the planning application, not the planning permission which is the object of the application."

24. Mr. Morshead has said that that interpretation makes the power to amend the planning application nugatory. I cannot agree with that. The definition of the Second Scheme was precise in some ways, in particular as regards the gross external areas of different parts of the development, but in other respects, especially as regards design and layout, its only provision was by reference to Plan B, which might be varied as the definition of Plan B contemplates.
25. That leads on to the third point in Mr. Morshead's skeleton which relates to onerous planning condition and Plans B. It is common ground that Windsor, or on appeal the Secretary of State, might have indicated an intention to impose conditions, in particular as regards user or external appearance, which might require negotiations and even amendment of the planning application without any physical alteration whatsoever needed to be reflected in Plans B or in the definition of the Second Scheme.
26. However, from this starting point Mr. Morshead has argued, first, that the acknowledgement embodied in the definition of onerous planning condition, that is that the size of the development was economically viable for "a modern theme type cafe bar" shows that conditions restricting the size of the A3 use were contemplated as a possibility. Secondly and to the same effect, he has argued that the reference in the definition of Plans B to "any variations or additions to or revisions of Plans B made in accordance with the terms hereof" cannot be limited, as the judge thought, to variations under clause 3.5 made after the agreement had become unconditional.
27. I see considerable force in this last submission. Consistently with the fixed provisions as to the external ground areas, there was scope for variation in matters of physical layout, such as, for instance, the extent and position of the A1 kiosk frontage on to Queen Street and the position of the means of access between basement, ground floor and first floor. All these could have produced the need to alter Plans B under a power which must be implicit in Schedule 2, paragraphs 1.2 and 1.3, and which is reflected in the definition of Plans B. However, in my view it does not follow from this that there was power to depart from the fixed floor areas which were expressly prescribed in the definition of the Second Scheme and were not left to be simply derived from Plans B. The acknowledgment in the parenthesis in the definition of "onerous planning condition" can be understood as simply underlining that. The agreement is not a masterpiece of drafting and it is not safe to draw any very subtle inferences from its wording. Sometimes draftsman do, for a variety of reasons, see fit to state the obvious.
28. Fourth and finally, Mr. Morshead in his skeleton has submitted that the construction adopted by the judge is uncommercial, capricious and produces absurd results. I have to say that I am not without sympathy for this argument, or at any rate not without sympathy for the position in which Century found itself in March 1999. It seems to have gone to a great deal of trouble and expense to obtain a grant of planning permission which, as SFI has accepted, was consistent with economically viable operation of the permitted development as a cafe bar of the type which SFI wished to operate. 20 square metres is large in relation to 10 square metres, but it is almost insignificant in relation to 4,500 square feet. The judge recognized that an extra 10 square metres of A1 use was unlikely to make much difference to SFI's proposed business activities. But he added that the matter was not all that straightforward since the evidence indicated that the length of the A3 frontage to Queen Street was a matter of considerable commercial importance.
29. SFI's refusal to accept that the planning condition was satisfied may or may not have been a most unwelcome surprise to Century in March 1999. But as Lord Mustill said in Torvald Klaveness A/S v Arni Maritime Corporation [1994] 1 WLR 1465, 1473:

"Questions of this kind are better decided by looking at what the contract says than by speculating on the practical outcome of preferring one solution to another. Naturally, no judge will favour an interpretation which produces an obviously absurd result unless the words used drive him to it, since it is unlikely that this is what the parties intended. Where there is no obvious absurdity and simply assertions by either side that its own interpretation yields a more sensible result, there is room for error."

30. In any case of this sort the uncertainty of the eventual planning outcome raises the possibility of difficult borderline cases and of hard feelings if a small variation has the effect of bringing the matter down on one side or the other of the fulfilment of a fundamental condition. But the judge had to take the agreement as he found it. In my view, he was right, on the particular complicated wording of this agreement, to form the view that the external ground areas in the definition of the Second Scheme were immutable, except no doubt by a formal variation agreed by the parties, and that the concept of onerous planning condition was directed primarily to other matters which might interfere with the parties' plans. Condition No 8 did affect the area of A1 use but there were, it must be remembered, eight other conditions which the judge did not find it necessary to mention in his judgment.
31. I take a rather different view from the judge as to possible alterations in Plans B but that did not much affect his general approach to the case. He recognized that, on any view, commercial certainty could not be guaranteed, but he regarded the fairly rigid definition of the Second Scheme (as he saw it) as giving more certainty. Ultimately, it is a question of deciding what the contract says, construed in its commercial context but without speculation about the parties' unexpressed hopes and motives. I think that the judge reached the right conclusion, and I am substantially in agreement with his reasoning. I would therefore dismiss this appeal.
32. LORD JUSTICE WARD: I agree.
33. LORD JUSTICE AULD: I also agree. The appeal is dismissed.
Order: Appeal dismissed with costs.