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 THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE PUMFREY)

		Royal Courts of Justice Strand London, WC2 Wednesday, 23rd October 2002

1. LORD JUSTICE RIX: This is an appeal by Millenium Park (Grimsby) Limited ("MPG") against the order of Pumfrey J who, in a Part 24 application by the claimant, North East Lincolnshire Borough Council ("the Council") awarded by way of summary judgment specific performance of one aspect of a development agreement and thereby ordered MPG to construct a roundabout on a public highway that ran over the Council's land. On this appeal MPG submits that no such order should have been made and that the Council ought to have been confined to a remedy in damages for the breach of contract which it does admit.
2. The dispute arose in this way. There is a large site at Macaulay Lane, Grimsby, in North East Lincolnshire which was owned by the Council. It had been used as a refuse tip and was severely contaminated. On 14 March 1997 the Council entered into a development agreement with a company called Kestonbond Holst Limited ("Kestonbond") for the development of the site. The works on the site were addressed in an annexure to the contract called Annexure A. The agreement provided that, once various conditions had been satisfied, including the grant of planning permission and the obtaining of funding for the development, the site would be transferred to Kestonbond by the Council without payment. In return Kestonbond would eliminate the contamination and build a mixed leisure and commercial development and country park on the site.
3. Although outline planning permission was granted as early as 8th August 1997, there remains a dispute which the judge was not able to resolve and considered that he had no need to resolve in the Part 24 proceedings, as to whether the reservations contained in that outline planning permission have successfully been overcome. MPG submits and put evidence before the court for the purposes of the Part 24 application that its development of the site has been seriously delayed by the difficulties of complying with the planning reservations. It submits that it has not yet successfully identified a foundation solution upon which to commence the construction of the development of the site which is acceptable to the planning authorities and to itself.
4. On 7th March 2000 an agreement supplemental to the development agreement was made by which MPG was substituted for Kestonbond under the development agreement, and the development agreement was also varied so as to become unconditional. On the same date the Council transferred the site to MPG. On 30 June 2000 P & O Developments Limited ("P & O") acquired from Kestonbond a 50% stake in the development through MPG, and Kestonbond, P & O and MPG entered into a joint venture agreement and a supplemental joint venture agreement, whereby Kestonbond, as A shareholders and P & O as B shareholders were each entitled to appoint three directors to the board of MPG. There was no casting vote so that in the event of a difference of opinion between the Kestonbond shareholders and the P & O shareholders the MPG company would become a deadlocked company. On the same date funding agreements were entered into with the Urban Regeneration Agency, now succeeded in this respect by the Yorkshire and Humber Development Agency, otherwise known as Yorkshire Forward, and with the Council itself, to provide funds totalling some £4m for the development. The joint venture agreement and supplemental joint venture agreement involving P & O also provided for the funding by P & O of the development, without stating any cap, but conditional on the other funding just mentioned being "in place".
5. It is important to mention some terms of those agreements. Under clause 6.1 of the joint venture agreement:

"P & O hereby covenant and agree that it will provide by way of loan or guarantee to the company all the finance required by the company to discharge the development costs as incurred and payable and to perform the company's obligations under the joint venture agreement."

The development costs were defined as the costs in connection with the development, and the development was defined as "the construction of commercial and residential buildings, ancillary facilities and amenities, service roads, infrastructure and common facilities and amenities on or in connection with the development of the Millennium Park." Clause 5.1 of the same agreement, however, provided that the sole business of MPG would be to achieve the agreed objectives, that is to say the phased development and letting and sale of land and buildings on that development "in accordance with sound commercial principles". The question of sound commercial principles was further addressed in the supplemental joint venture agreement. Clause 3 of that read as follows:

"The parties hereby agree and declare:

3.1 In accordance with clause 5.1 of the joint venture agreement the affairs of the company are to be progressed in accordance with sound commercial principles and accordingly the parties intend to delay the commencement of the preparation and other construction works until the parties are reasonably satisfied as to all of the following.

3.1.1 The planning permission is lawfully implementable and approvals of all relevant reserved matters have been obtained in satisfactory form in order to commence construction of the development...

3.1.3 That there is in place an agreement for the provision of grant funding by English Partnerships." [That was the earlier name of the Urban Regeneration Agency and North East Lincolnshire Council in relation to the development].

3.1.4: That there are in place agreements for the preletting of premises in the Millennium Park at a level which is reasonably satisfactory to P & O and P & O shall act reasonably in this regard."

6. Following difficulties in finding an appropriate foundation solution for the buildings to be erected on the site and also difficulties in securing prelets and forward sales, no substantial development work has in fact been commenced. It is P & O's case, in the context of its relationship with MPG and its joint venture partner, Kestonbond, that this delay to the commencement of the development, and indeed to the commencement of initial site preparation, is justified under clause 3.1 of the supplemental joint venture agreement on the grounds (1) that approvals of all relevant reserved matters in relation to planning permission have not yet been obtained in satisfactory form, (2) that, although there were once in place agreements for the provision of grants by Yorkshire Forward and the Council, those agreements have been terminated in the light of the delay to the commencement of development on the site and, (3) that there are not in place agreements for the preletting or forward sale of premises on the site at a level which is reasonably satisfactory to P & O. Each of those matters is in issue at the level of one or other of the parties to these disputes which the delay in the development of the site has generated, but it is not possible as yet to form any definitive views as to the merits of the arguments deployed. Certainly the judge has not resolved any of them in these proceedings to date. In particular, in relation to clause 3.1.4 MPG has received advice from counsel (a note of his advice in conference is before the court) that P & O is entitled to defer the commencement of site preparation and other construction work and thus to defer funding in relation to such matters by reason of the disappointing scale of preletting and forward sale of premises. There is a counter argument which has yet to be resolved raised by Kestonbond and accepted, as I understand it, by the A directors, the Kestonbond directors of MPG, that P & O cannot successfully rely upon subclause 3.1.4 because, albeit prelettings and forward sales have been disappointing and have not reached a reasonably satisfactory level, that is nevertheless down to the fact that P & O has not used reasonable endeavours to obtain such prelettings or forward sales. P & O is not a party to these proceedings, and indeed its attempt to intervene as a party was not permitted by the judge, but its point of view has been put before the court by means of MPG's evidence. That is the state of the background issues and arguments.
7. It was in these circumstances that the Council commenced these proceedings on 13 September 2001. In its particulars of claim it alleges that MPG has failed to commence works within the required time -- that I think is not in dispute -- and it claims specific performance of the whole of the development agreement and all the works referred to in Annexure A. Pursuant to that claim it applied for summary judgment under Part 24. Although its claim for specific performance and its evidence was in particular addressed to the whole of the development works, nevertheless it is relevant to point out that the claim thereby embraced an agreement to build a roundabout on the Council's own land on the perimeter of the development area. One clause within the development agreement, namely clause 24.16 refers to the building of off-site highway works together with a road bridge which MPG had undertaken to construct "as soon as practicable acting reasonably after this agreement becomes unconditional and all necessary consents" had been obtained. Pursuant to that obligation the Council and MPG entered into a section 278 agreement on 7th March 2000; that is to say, on the same date as the novation agreement, the date when the development agreement became unconditional and the land was transferred. Section 278 is a section under the Highways Act 1980 and the section 278 agreement is a comprehensive agreement for the construction of a roundabout on the Cromwell Road, but for nothing more than that. The relevance of the roundabout is that it was anticipated that access to the site would be obtained by the building of a new spur road off the Cromwell Road, approached at that roundabout. The new road would be built over the land comprised within the transferred site, save for a short distance where the road would have to cross a railway line and where a bridge over the railway line would have to be built. That section of the land belonged to the railways. However, the land where the roundabout was to be built was the Council's own land, albeit when built the roundabout would become part of the public highway.
8. On the Council's Part 24 application the judge, in a lengthy judgment given on 12 February 2002, declined to order specific performance of the development works, that is to say, the Annexure A works. He did so on the ground that they had been insufficiently defined to make it appropriate to grant an order for specific performance. In the circumstances he did not need to come to any conclusion about whether the planning reservations had been properly overcome or not, and therefore whether it was in fact lawful for the development to commence. Nevertheless, at the end of that judgment he did indicate that he was mindful to find much more attractive a fallback position which the Council had adopted at the hearing of its application to the effect that, if specific performance of the whole site could not be obtained for lack of sufficient definition of the works involved, nevertheless the roundabout works at least could be made the subject of specific performance because those works had been fully defined in the section 278 agreement. Since, however, MPG had not had a full opportunity to consider this fallback position, the judge was willing to adjourn the ultimate question regarding the roundabout works for a further hearing. It was plain that he was amenable to the service by MPG of further evidence for the purpose of that hearing. In the event, MPG chose to enter no more evidence.
9. The matter came back before the judge on 15th March 2002. He gave summary judgment for specific performance of the roundabout works.
10. On this appeal, as before the judge, MPG have two essential defences on the basis of which it submits that the judge erred in granting specific performance. The first is that MPG has no assets of its own, is entirely dependent upon funding from elsewhere and, in the event, is entirely dependent upon its funding agreement with P & O. In circumstances where P & O is unwilling to advance any finance on the basis that it is not obliged to do so under its funding agreement, MPG is therefore unable to undertake any such works. This was a point which had already been advanced before the judge at the first hearing but which he found it unnecessary to deal with at that time. MPG's second main defence, raised again on this appeal, is that in any event, even if MPG was not impecunious and unable to finance the roundabout works, it was contrary to principles of settled practice of the law relating to specific performance for a court to make an order for the construction of works upon the claimant's own land, seeing that damages would be an adequate remedy.
11. In rejecting the first defence of impossibility of performance due to absence of funding, the judge said this:

"I do not doubt that in a case of actual impossibility of compliance the court will not make an order. I am not satisfied that this is a case of impossibility. First, the actual words in Mr Edgerley's witness statement are not in terms absolute. They leave open the possibility of other sources of funding. Second, the witness statement was directed to far greater sums involved in the schedule A works and not to the much smaller sum involved in the roundabout works. Third, there is no evidence of any attempt to obtain funding. I do not see why all directors cannot agree on seeking other funding, but no evidence that they have sought to do so. Fourthly, I do not believe that to make this order in this stage of the evidence relating to funding could be viewed as oppressive. It must be remembered that this is an obligation voluntarily entered into by the defendant. In Co-operative Insurance Services and Argyll Stores Holdings Limited [1988] AC 1,18 Lord Hoffmann specifically warned against relying on the court's limited powers to vary or discharge an order in response to a change in circumstances in deciding whether to make an order and waiting to see whether it could be complied with. Although his remarks were made in a different context this is an important warning. However, evidence of impossibility, rather than reluctance or unpalatability or difficulty, is what is required and there is no such evidence here. Fifth and finally, I observe that the defendant is willing to fund this litigation with funds provided by P & O rather than take refuge in winding up. The deadlock has now lasted since last July, a period of more than six months, and the defendant's directors must soon be bound to take steps to resolve the position."

12. In mentioning Mr Edgerley's witness statement in that passage, the judge was referring to the evidence by which the difficulties which MPG had experienced with obtaining funding from P & O had been explained. Mr Edgerley also stated in that witness statement that the only asset of MPG, apart from the site itself, was the sum of £50, but it also had many tens of thousands of pounds of liabilities and it could not obtain finance from any other source.
13. On behalf of MPG, Mr McGhee in effect submits that the judge adopted the wrong test. He overlooked that he was dealing with a case under Part 24, and he reviewed the evidence before him as though he was at final trial. It is surprising to note that, although he had mentioned in his first judgment the applicable test for a Part 24 application, namely whether there is a real prospect of successfully defending the claim, and the need always to bear in mind that there should be no mini trial upon affidavits of the rival contentions of the parties (Swain v Hillman [2001] 1 All ER 91), the judge did not specifically remind himself of those matters in the course of his second judgment. On the contrary, he expressly cited the submission of counsel for the Council that the evidence of inability to pay was "less than compelling", which, even with due allowance for advocacy, is hardly material to a Part 24 application. On this appeal Mr Chaisty QC, who appears for the Council on this occasion, submits that the judge was entitled to take the view that he did of the evidence and that he did not err. Mr Chaisty submits that MPG had been perfectly at liberty to address by further evidence in between the two hearings the specific case of impossibility not relating to a £20 million total development, but rather to the much smaller factor of the roundabout works which had been costed at a little over £400,000, but had chosen to submit no further evidence. The mere assumption by Mr Edgerley that it was not possible to obtain finance from any other quarter was simply not to be accepted without much franker and more detailed evidence as to attempts which had been made and the circumstances of failure. The development site, contaminated as it was, must have been worth something to someone as security for a loan.
14. In my judgment, however, it does appear that the judge had failed sufficiently to bear in mind the only preliminary stage at which the argument before him was being addressed. The question was not in truth whether he was "satisfied that this is a case of impossibility", to quote from the opening of the passage which I have cited above. The question for him was whether he was satisfied that there was a real or reasonable prospect of success in a defence against the remedy of specific performance based on a case of impossibility. Moreover, the reasons which the judge then proceeded to give to explain his fact finding seem to me essentially to accept MPG's case that funding was no longer available, at present at any rate, from P & O, and to emphasise instead the possibility of other sources of funding. He mentioned that possibility either expressly or by implication under his first, second, third and fourth reasons. In reasoning as he did, the judge expressly spoke of the need for "evidence of impossibility, rather than reluctance or unpalatability or difficulty". In doing so, he may have been misled by the test for a different purpose discussed in the House of Lords in the case of MV Yorke Motors v Edwards [1982] 1 WLR 444, a case deployed by the Council. The point in that case was this: in an Order 14 context, where a judge was very close to giving summary judgment but on a shadowy defence was prepared to give leave to defend upon condition of money being paid into court, what was he to do where a defendant presented evidence that it was impossible for him to fulfil the condition which the judge was minded to make? The House of Lords held that the Court of Appeal in that case had been entitled to infer from the evidence before it that, though it might be difficult it would not be impossible for the defendant to find the sum required as an earnest of his defence being put forward in good faith. In that context, where a court was considering the imposing of conditions for the purposes of giving leave to defend in a tightly balanced application for summary judgment, the court did then and there have to take a decision as best it could about what appropriate level of payment into court might be possible. But in deciding a final issue before it on an application for summary judgment, the court in my view, if faced with a real and non-fanciful case of impossibility, is not entitled then and there to seek to undertake a mini trial and conclude whether the evidence of impossibility proffered reaches a real state of impossibility or falls somewhat short of it as something within the description of mere difficulty.
15. In my judgment, the judge was wrong to say that there was "no such evidence" viz of impossibility before him. In effect, he accepted, at any rate for present purposes, P & O's refusal to fund. There was certainly evidence before him of that and of MPG's lack of funds. Mr Edgerley said it was impossible to obtain funding from elsewhere and that evidence, it seems to me, for present purposes was real and non-fanciful. MPG's only asset was a contaminated site, transferred to it for nothing, the development of which was stalled. It is true that no further evidence was put before the court after the first hearing specifically addressing the funding of the roundabout works alone, but this, while it did not add to the material before the court, did not detract from it either. In these circumstances the judge was in error in seeking then and there to resolve that question of impossibility. It follows, as Mr Chaisty has accepted in the course of argument, that if he fails on this ground, as in my judgment he does, the appeal must be allowed.
16. It is therefore unnecessary to decide the other main ground of MPG's appeal but, as it has been argued, I will briefly indicate my views on it. In my judgment, there is force in Mr McGhee's submission that there is now a view, which could be described as a settled rule of practice, that the remedy of specific performance will not be granted in a case like the present where the claimant owns the land on which something is to be built, save in quite exceptional circumstances. Specific performance as a whole has been described as an exceptional remedy available only as a matter of discretion to do justice where damages would be an inadequate remedy: see Co-operative Insurance Society v Argyll Stores [1998] AC 1,11F. In circumstances where specific performance is claimed for works of construction, however, it is stated in Snell's Equity 30th Edition, at paragraph 40-25, as a settled rule that specific performance requires (inter alia) that "the defendant is in possession of the land so that the claimant cannot employ another person to build without committing a trespass". The case of Greene v. West Cheshire Railway (1871) LR 13 Eq 44 is referred to in a footnote as an exceptional decision of doubtful guidance. The basic position is that where a claimant is in possession of the land, he can always quantify his loss by constructing the works himself: See Radford v de Froberville [1997] 1 WLR 1262. Even his claim in damages is subject, however, to the reasonableness and genuineness of his intention to do that work.
17. Mr Chaisty has nevertheless submitted that the present case is exceptional, and should follow the decision in Greene. There a railway company persuaded a land owner over whose land it wished to build a railway to withdraw his objection to the relevant bill going through Parliament, by promising that it would build a railway station on the landowner's land. No sooner had the company obtained the landowner's agreement not to press his opposition to the bill, than the company turned round and refused to perform its covenant. The breach of contract in that case was described in the following terms in the judgment of Sir James Bacon VC at 50:

"A more direct, wilful and determined violation of a plain contract cannot be suggested. No excuse is offered for it - no suggestion that it is impracticable or even that it is inconvenient ..."

Greene was explained by Lord Hoffmann in CIS v Argyll as being a case where there was an "element of personal breach of faith" - see at 18F. The judge placed great reliance upon Greene in his reasoning, but in my judgment it is at least very arguably inapplicable to a case such as this, where there is material before the court that what has led to the breach of contract here are the difficulties which have overcome the development as a whole in the form of planning permission reservations, the inability to obtain reasonable amounts of prelettings and sales, and the absence of funding.

18. Moreover, the position in this case is that either the Council genuinely and reasonably wants and intends to build the roundabout, in which case its damages can easily be quantified, or, since the development of the site as a whole is uncertain and the construction of the roundabout would not even result in access to the site because the spur road and the railway bridge have yet to be built, it may turn out that there is no real intention and indeed no need at present to construct the roundabout, since by itself it can do little good. By itself, it would be a roundabout to nowhere. Although it may well be argued, as the judge himself reasoned, that damages in those latter circumstances cannot be adequately assessed and therefore there is a prima facie case for saying that damages would not provide an adequate remedy, nevertheless on the same hypothesis one enters into an extremely speculative and uncertain situation where it is at least equally arguable that construction of a roundabout would be at present an unreasonable thing to do, a fortiori if it is to occur entirely at MPG's expense. It may well be unreasonable to insist in such a context on the expenditure of moneys by MPG, which the Council would be unwilling to expend in its own interest.
19. On this ground too, although it is unnecessary to decide the point, it seems to me that the judge paid insufficient regard to the status of the proceedings before him. He could only decide the point summarily against MPG if he was satisfied that there was no real prospect of MPG successfully defending the issue. Not only could he, in my opinion, not be satisfied of that, but there is strength in Mr McGhee's submission that he could not even be satisfied that the Council's claim fell within the settled grounds for the awarding of specific performance in the circumstances of this case.
20. In my judgment this appeal must therefore be allowed.
21. LADY JUSTICE ARDEN: The judge, I think, had considerable sympathy for the unfortunate position in which the North East Lincolnshire Borough Council now finds themselves and had regard to the public interest in decontaminating and developing the Macaulay Lane site which is an 84 acre landfill site. However, for the reasons given by my Lord, Lord Justice Rix, this was not a case where the judge could say that there was no defence to the Council's claim for specific performance at trial and that the defendant's case on impossibility was a fanciful one. It may be that the Borough Council will ultimately succeed at trial. In my judgment, there clearly has to be a trial.
22. Finally, I hope very much that the parties, and the judge having the management of the proceedings, will consider the possibility of a stay for the purposes of alternative dispute resolution. It may be in the public interest to see if an early resolution can be found.
23. LORD JUSTICE THORPE: I agree with both judgments.
Order: Appeal allowed with costs of the appeal; respondent to keep 50% of costs up to 12th February; costs after 12th February to be the appellant's costs; detailed assessment; application for permission to appeal to the House of Lords refused.