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
LEEDS DISTRICT REGISTRY
HIS HONOUR JUDGE LANGAN Q.C.

		Royal Courts of Justice Strand, London, WC2A 2LL
		13th December 2005

Lord Justice Lloyd:

1. This is an appeal from an order of His Honour Judge Langan QC sitting as a High Court Judge at Leeds on 17^th May 2005. The case concerns two distinct but related transactions concerning the ground and other premises of Boston United Football Club. The factual context is well summarised in the first seven paragraphs of the judge's judgment, as follows.

"[1] The claimants are members of a family which has for some seventy years been actively involved in the affairs of Boston United Football Club Limited ('the Club'). The claimants themselves hold the majority of the issued shares in the Club. They are also the owners of land at York Road, Boston ('the property'), which consists of the Club's home ground and an adjacent car park.

[2] Mr Des Wood is a property developer. He holds the majority of the shares in the defendant companies. As is indicated by their names, the first defendant ('Investments') is an investment company while the second defendant ('Developments') is engaged in property development.

[3] In the autumn of 2001 the claimants decided that they wished to sever their connection with the Club. Discussions started between the claimants and Mr Wood, and their respective colleagues and legal advisers, with a view to the claimants selling the property and their shares. From Mr Wood's point of view, the attraction of a deal lay in the potential, subject to planning consent, for development of the property, either for a supermarket or for housing. It was envisaged that the Club would relocate its football activities to a new ground elsewhere in Boston. At the same time, if the Club were to survive, it would require financial support which, it seems, the claimants were not in a position to provide directly.

[4] The negotiations between the claimants and Mr Wood resulted in the execution of a number of agreements. Three of these agreements are relevant to this litigation, and the issues which are before the court arise on the first and third.

[5] First, there was an agreement ('the land option agreement') dated 4 January 2002 and made between the claimants and Developments. By the land option agreement, the claimants granted Developments an option to acquire the property at a price of £1,600,000. The issue for determination on the land option agreement is whether the option expired on 31 December 2003 (the claimants' case) or remains enforceable until Developments has exhausted all its avenues of appeal against a refusal of planning consent (the defence case).

[6] Second, there was an agreement ('the share option agreement') also dated 4 January 2002 and made between the claimants and Pilgrim Property Developments Limited ('Pilgrim'). Mr Wood owns the majority of the shares in Pilgrim, which is a company which he formed or acquired specifically as a vehicle for use in the intended development of the property. By the share option agreement the claimants granted Pilgrim an option to acquire their shares in the Club for a nominal consideration. No question relating to the share option agreement formally arises for decision in this action, but the terms of the share option agreement have a bearing on the interpretation and effect of the land option agreement.

[7] Third, there was a legal charge ('the legal charge') dated 28 February 2002 and made between the claimants and Investments. The background to the legal charge is that Investments advanced money to the Club, and the legal charge was executed to provide security for these advances up to a limit of £200,000. The issue is whether the claimants are now entitled to redeem the legal charge (the claimants' case) or the legal charge is a continuing security for a potential liability of the claimants to reimburse fees and expenses incurred by Developments in its planning application (the defence case)."

2. The issues on the appeal are the same as they were before the judge, who granted permission to appeal himself.
3. Discussions between the parties and then between their solicitors continued from late 2001 into February 2002. The Club was in financial difficulties which needed to be contained until the end of the season at least. The basis of the discussion was that Pilgrim would help the Club to borrow money from a third party lender which would be guaranteed by the claimants and secured on the property. At first this was to be up to £400,000 but eventually the claimants would only agree to give security for up to £200,000. In addition Mr Wood wanted to be indemnified against Developments' planning costs if planning permission was obtained but the land option was not exercised so that the claimants would obtain the benefit of the planning permission. Originally the amount to be indemnified was to be within the ceiling figure of £400,000 but eventually it was agreed as subject to a separate cap of £75,000, not aggregated with the amount guaranteed in respect of the loan.
4. As regards the land option agreement the question is whether it is still enforceable. That turns on the correct interpretation of clause 8.2 in its context. As the judge did, I must set out some of the provisions of the agreement in order that it may be understood, including in particular clause 8.2 and also clause 5.1 on which Mr Davie for the defendants placed particular reliance.

"1.1.1 'the Development' means the development of the Property pursuant to the Planning Permission.

1.1.2 'Development Obligation' means any agreement or obligation under section 106 of the Town and Country Planning Act 1990 section 33 of the Local Government (Miscellaneous Provisions) Act 1982 sections 38 and/or 278 of the Highways Act 1980 section 204 of the Water Industry Act 1991 or under any other relevant statute or with any government department authority or utility company which

1.1.2.1 may be required to be completed by a resolution of a local planning or other relevant authority or authorities or may be reasonably considered necessary by the intending Buyer to lead to the grant of the Planning Permission or otherwise shall be required as a condition precedent to the grant of the Planning Permission and/or

1.1.2.2 is required as a condition precedent (in consequence of a condition in the Planning Permission or otherwise) to the implementation of the Planning Permission and/or

1.1.2.3 may be reasonably necessary to enable the Development to be carried out …

1.1.8 'the Option Period' means the period commencing 30 April 2002 and expiring 31 December 2003 …

1.1.11 'the Planning Permission' means a full planning permission for the development of the whole or part or parts of the Property in a form which is acceptable to the intending Buyer …

1.1.14 'Share Option' means the option granted by the intending Seller to Pilgrim Property Developments Limited of even date hereof ..."

3 The intending Buyer may determine this Agreement at any time by notice in writing served upon the intending Seller if the intending Buyer shall consider that there is no reasonable prospect of obtaining the Planning Permission within the Option Period …

5.1 The intending Buyer shall (having regard to its obligation contained in clause 5.2) use reasonable endeavours to obtain the Planning Permission for the whole of the Property (or as much of the same in respect of which it will be likely (on the basis of proper planning advice) to obtain Planning Permission as soon as practicable and in particular (but without limiting or prejudicing the previous provisions) the intending Buyer shall:

5.1.1 in respect of development plans monitor and review the process relating to all development plans and generally promote allocation of the Property for development and ancillary associated purposes

5.1.2 prepare submit (at such time as shall be apposite) and pursue diligently an application for the Planning Permission

5.1.3 as appropriate withdraw and/or modify and resubmit an application for the Planning Permission and/or submit fresh application for the Planning Permission.

8.1 The Option shall be exercisable at any time within the Option Period in relation to the Property by notice in writing from the intending Buyer to the intending Seller

8.2 If it is a requirement of a resolution to grant the Planning Permission that a Development Obligation shall be completed to lead to the grant of the Planning Permission or if it is a condition or the consequence of a condition of the Planning Permission or otherwise necessary that a Development Obligation shall be completed to enable the Development to be carried out the period within which the Option shall be exercisable shall be extended to such date as shall give the parties a reasonable period of time in which to negotiate the terms of and enter into such Development Obligation.

8.3 The perpetuity period applicable to the exercise of the Option shall be twenty-one years from today's date."

5. The share option agreement gave Pilgrim the option to acquire the claimants' shares for one pound. It was exercisable during the option period, defined as "the period commencing 30 April 2002 and expiring 31 December 2003 or upon earlier determination of the Land Option pursuant to clause 3 of the Land Option." Pilgrim could not insist on completion of the sale of the shares unless the land option had been exercised at the same time. Correspondingly, Developments could not insist on completion of the sale of the land pursuant to the land option unless the share option had been exercised at the same time. By implication, if the period for exercise of the land option were extended under clause 8.2, the period for exercise of the share option must also be extended similarly.
6. Turning to the legal charge, which gives rise to the other issue before us, it is made between the claimants, described as the Chargor, and Investments, described as the Lender. The Borrower referred to in the legal charge is the Club. The claimants charge the property to the Lender as security for payment of the Secured Liabilities. That phrase is defined as follows:-

"'SECURED LIABILITIES' means any present, future, actual or contingent liability of the Borrower to the Lender (whether as principal debtor surety or otherwise and whether such liability is the sole liability of the Borrower or the Chargor or a joint and/or several liability of the Borrower or the Chargor with any other person) and any costs, charges and expenses owed to, or incurred directly or indirectly by, the Lender in relation to any of the foregoing, and all costs in relation to the enforcement of the security hereby created. PROVIDED THAT the amount of such secured liabilities (excluding any fees and expenses payable under clause 5.3) shall not in any event exceed £200,000 (or such higher amount as shall be agreed in writing by the Chargor which shall not in any event exceed £400,000)."

7. Clause 5.3, to which reference is made in that definition, is the clause giving rise to the obligation to contribute to Developments' planning costs. Clauses 5.2 and 5.3 are as follows:-

"5.2 The Lender shall not exercise any power of sale conferred on it by virtue of this charge nor exercise its power of attorney pursuant to clause 8 unless and until:

5.2.1 a Planning Decision has been made (whether or not a Relevant Permission is granted); and

5.2.2 subject to clause 5.3, the Option being released by Orchard (and the Share Option as defined in the Option also being released) in favour of the Chargor.

5.3 In the event that a Relevant Permission is granted pursuant to a Planning Decision, then in consideration of the Lender procuring that Orchard shall release the Option prior to the Lender exercising its power of sale, the Chargor covenants to pay to the Lender a sum equal to the professional fees and expenses properly incurred by Orchard in seeking and obtaining such Relevant Permission, provided that the total amount of such expenses when aggregated with the Secured Liabilities shall not exceed £75,000 (or such higher sum as the Chargor may agree in writing)."

8. A "Relevant Permission" is defined as the grant of permission for a change of use of the property whether to retail use or non retail use (for example housing) under planning legislation. A "Planning Decision" is defined as follows:-

"'PLANNING DECISION' means a decision by the Local planning authority either granting or refusing planning application in respect of the Property followed by in the case of a refusal either the determination of an appeal or a decision by Orchard to withdraw its application or appeal based on the advice of a lawyer experienced in planning matters that there is less than a reasonable chance of such an application or appeal being successful."

9. References to the option in the legal charge are to the land option agreement.
10. The reference in clause 5.3 of the legal charge to a cap of £75,000 "when aggregated with the Secured Liabilities" makes no sense; it must be right to ignore the words about aggregation, leaving distinct caps of £75,000 under this clause and £200,000 in respect of the guarantee of the Club's debt.
11. The land option agreement, entered into on 4 January 2002, did not allow for the option to be exercised before 1 April 2002, presumably because of the need to allow the season to be completed. Developments was not precluded from applying for planning permission before that date, or preparing to do so, but it did not apply to Boston Borough Council for planning permission until July 2003. That application was refused in October 2003. Just within the time allowed it appealed, in April 2004. A hearing was held on that appeal in January 2005 and the appeal was dismissed in February 2005. The second defendant then applied to the court to challenge the refusal of the planning appeal on a point of law. That application had not been heard at the time of the trial before Judge Langan. It has since been heard and was dismissed by His Honour Judge Gilbart QC by an order made on 1^st July 2005. Permission to appeal to the Court of Appeal was refused on paper by Lord Justice Pill on 14^th October 2005. I understand that an oral hearing of the renewed application is due to take place on 16^th December 2005.
12. In the meantime, by the end of 2003 the Club owed Investments just over £200,000. The claimants paid £200,000 to Investments. Receipt and satisfaction of that liability of the claimants is not in dispute. The question under the legal charge is whether it remains as security for a contingent liability of the claimants under clause 5.3.
13. The judge referred in paragraph 25 of his judgment to evidence given by a Mr Killick, a director of the defendant companies, who said in cross examination that the share option had been divested in favour of a Mr Sotnick and he said that it was no longer open to Pilgrim to exercise the share option. The judge went on to say "quite why or how this came about was not made clear". We were told in the course of argument on the appeal that not only had Pilgrim parted with the share option in favour of Mr Sotnick but the claimants had parted with their shares in favour of Mr Sotnick, so that the share option was a dead letter. On the construction of the land option agreement which I consider to be correct, nothing turns on the true position in this respect.
14. The questions of construction arising on the land option agreement and the legal charge are to some extent related. Before the judge it appears not to have been in dispute that each document could be considered for the purpose of construing the other. He said, at the beginning of paragraph 32 of his judgment, that he accepted that it was legitimate to look at the terms of the legal charge for the purpose of construing the land option agreement. For myself I question that proposition. The land option agreement is dated 4 January 2002. The legal charge was executed on 28 February 2002. It is common ground that at the earlier stage it was contemplated that the claimants would give security to support borrowing by the club, but the borrowing would not at that stage have been from any of the defendant companies but rather from a third party commercial lender. The terms of a legal charge entered into under those circumstances would have been different from that eventually entered into. At the beginning of February a separate legal charge was entered into on an interim basis over the car park which formed part of the club's property. It is legitimate to look at that for the purposes of construing the later legal charge which superseded it. But I do not, for my part, see how the later legal charge can, in those circumstances, be part of the relevant material for construing the land option agreement.
15. Before I consider the issue of construction on the land option agreement itself, there is a discrete question on the legal charge which the judge decided in favour of Investments but which is challenged by a Respondents' Notice on the part of the claimants, leave to serve which out of time was given at the hearing of the appeal. This turns on the definition of Secured Liabilities.
16. As the judge said, there was plainly a mistake in the drafting of that definition. He considered that the phrase at its heart should be read as if it were as follows (the words in italics showing the insertion he favoured):

"any liability of the Borrower or the Chargor to the Lender whether such liability is the sole liability of the Borrower or the Chargor or a joint and/or several liability of the Borrower or the Chargor".

Either the words "or the Chargor" have been omitted in the opening part of that phrase by mistake or they have been inserted by mistake in the two places where those words do appear in the later part of that quotation. If there should not have been any reference to the Chargor then the liability under clause 5.3 was a personal liability only and was not to be secured by the legal charge. If, on the other hand, the error lay in omitting the words "or the Chargor" after the first appearance of the word Borrower, then the security was intended to cover the liability under clause 5.3 as well as the Club's liability up to £200,000.

17. The judge decided this question in favour of Investments on the basis that the manifest error should be solved by reading the definition as set out in paragraph 16 above. I agree with the judge on this point for the reasons that he gave. It seems to me that it is much more likely that the error in this instance lay by way of omission in the early part of the definition, particularly having regard to the cross reference to clause 5.3 later in the definition.
18. In support of his Respondents' Notice, Mr Hedley showed us the equivalent provision in the legal charge over the car park dated 1 February 2002. The definition of Secured Liabilities in that document is in the same terms apart from not including the proviso as to a cap and the cross reference to clause 5.3. There was no equivalent obligation in that legal charge to clause 5.3. He therefore submitted that the inclusion of clause 5.3 could not explain or illuminate the answer to the dilemma created by the evident mistake in the drafting of the definition. He submitted that, because there was no comparable obligation on the part of the Chargor under the interim legal charge of the car park, the correct resolution of the dilemma was that there should have not been any reference to the Chargor in the definition of Secured Liabilities.
19. That, however, assumes that there could not have been any liability of the Chargor to the Lender, under that interim legal charge, which was to be secured by the charge itself. Although there is no liability of a distinct nature such as clause 5.3 of the later legal charge, there are provisions in the interim legal charge under which money might well fall due from the Chargor to the Lender, for example under clause 9 dealing with indemnities. In those circumstances I cannot accept that the comparison with the interim charge assists in any way in support of Mr Hedley's submission. I would therefore reject the point raised by the Respondents' Notice.
20. I return to the land option agreement and the question whether it is still exercisable. Under its terms, the option is exercisable within the option period which expired at the end of 2003. However, Developments relies on clause 8.2, which I have already cited. Mr Davie submitted that, for so long as it remains possible that a planning permission may be granted which requires that a development obligation be completed in order that the development be carried out, the option period is capable of being extended to a date which will allow a reasonable time to negotiate the terms of and enter into a development obligation. Mr Hedley on the other hand submitted that this would amount to a revival rather than an extension of the option period, unless clause 8.2 is limited to a case where the conditions for the extension for the period exist on 31 December 2003. Those conditions are threefold, corresponding to the three elements in the definition of Development Obligation in clause 1.1.2. The first possibility is that a resolution has been passed to grant the planning permission but that it is a requirement of that resolution that a development obligation be completed in order to lead to the granting of the planning permission. The second is that a planning permission has already been granted but that it is a condition, or a consequence of a condition, of that planning permission that a development obligation shall be completed in order to enable the development to be carried out. As for the third, Mr Davie pointed to the words "or otherwise necessary" in clause 8.2 and submitted that this shows that the extension of the option period may apply even if there has not been a resolution to grant the planning permission, still less a grant of planning permission, but if it is necessary in some other circumstances that a development obligation shall be completed in order to enable the development to be carried out. It would be possible to imagine some circumstances, however unlikely, which might satisfy that. For example, a planning permission might be granted which does not require as a condition that a development obligation be undertaken and completed, but as a matter of commercial necessity it may be necessary before the development can be undertaken or completed that some such development obligation be entered into. Although it is probably an invariable practice that a planning permission of this kind will include conditions as to entry into agreements with the highway authority and other public authorities, theoretically the planning permission might be unconditional in that respect but the developer might recognise that it was essential to enter into an agreement with the highway authority in order to be able to exploit the development commercially. There may be other instances which would satisfy those words "or otherwise necessary".
21. Whatever may be the explanation of or content of the words "or otherwise necessary", the dispute between the parties on this clause is as to whether it must be possible to say on 31 December 2003 that the extension is required for the purpose mentioned or whether the need for the extension can arise at some later time when the terms of the clause come into operation. Mr Davie relied on Developments' obligations under clause 5 as regards planning. He pointed out that Developments was obliged to use reasonable endeavours to obtain the planning permission as soon as practicable and, without limiting the generality of that obligation, was to do things including modifying and resubmitting the planning application or indeed submitting a fresh application for planning permission. There is no limitation in time in clause 5.1. He pointed out that, although the planning application was not submitted until July 2003, no point has been taken hitherto by the claimants that Developments was in breach of its obligation under clause 5.1 in that respect. He said that, although there was no reference in clause 5 to an appeal against the refusal of planning permission, the reasonable endeavours to which Developments was committed by clause 5.1 could well include, as a general proposition, appealing against a refusal, if proper planning advice, which it was obliged to take and to follow under clause 5.2.2, suggested that an appeal might stand a reasonable prospect of success.
22. He referred in this context to the fact that the legal charge, in its definition of Planning Decision, does refer to a planning appeal as a possibility. For reasons already given it seems to me that it is not proper to look at the terms of the legal charge in order to construe the land option agreement. I would agree, however, with the judge that, if it were a legitimate exercise, the reference to an appeal in the legal charge does not assist Mr Davie on the land option agreement but rather pointed out the contrast. Mr Davie submitted that, while the definition of the option period by reference to precise dates suggests a wish of the parties to have certainty as to the temporal scope of the option, the inclusion of the somewhat indeterminate extension provision under clause 8.2 showed that certainty was not the be-all and end-all of the parties' intentions in respect of this transaction. That is a fair point so far as it goes. But it seems to me that Mr Davie's construction, which involves a potentially very lengthy period of uncertainty indeed under clause 8.2, while the parties await the outcome of, first of all, a planning appeal and then proceedings in the High Court and indeed in this court for the challenge to the unfavourable result of the planning appeal, and then, if the challenge is successful, the renewed process of the planning appeal, is something that cannot have been intended as the consequence of the rather limited provision for extension of the period within which the option is exercisable under clause 8.2.
23. I am no more impressed than the judge was by Mr Davie's argument based on clause 8.3, which specifies a 21 year perpetuity period for the land option, and on the other hand it seems to me, as it did to the judge, that the two year period allowed by the terms of the option agreement for an outline planning permission to be obtained was one which should, given a reasonably prompt application for consent followed perhaps by an appeal, have been sufficient for matters to be brought to a state of certainty. Mr Davie criticised that on the basis that the period only started in April 2002 and was therefore only twenty one months rather than the full period of twenty four months as the judge had said. That is a false point because there was nothing to stop Developments applying for planning permission before 1 April 2002. The only constraint was that it could not exercise the option before that date, presumably because the Club would still be playing football on the ground. Mr Davie also criticised the judge for his reference to the property being sterilized and pointed out that it could still be used for football. That is certainly right and in the absence of a planning permission for change of use it can only be used for that or similar uses. But that is not what the judge had in mind, particularly given the evidence he had as to the Club's financial difficulties. These however are subsidiary points. In my judgment the question really turns entirely on the terms of clause 8.2 and, as I have said, on that I agree with the judge that the conditions for an extension had to exist on 31 December 2003. They did not exist on that date, and accordingly the option was no longer exercisable after that date. I would therefore dismiss Developments' appeal.
24. I turn to the issue on clause 5.3 of the legal charge. Investments contends that the legal charge is security for the Chargors' covenant to pay up to £75,000 towards Developments' planning expenses under clause 5.3, and that therefore the mortgage is still security and it can hold on to it until it becomes clear whether or not the obligation under clause 5.3 will arise in practice. Since I have decided the point on the Respondents' Notice in favour of Investments, the point turns, as it did before the judge, on the relevance and effect of the words in clause 5.3 requiring that Investments should procure that Developments release the land option prior to Investments exercising the power of sale, as a condition of the obligation arising under clause 5.3.
25. The point of clause 5.3 is that the claimants should be required to contribute to Developments' planning expenses if planning permission is obtained but Developments does not take advantage of the land option. In that event the benefit of any increase in value of the property resulting from the grant of planning permission would go to the claimants as owners of the property, and Developments would not obtain that advantage by exercise of the land option. Looking at the matter broadly, while it would clearly be necessary for the land option to be released if it was otherwise still exercisable, there is no particularly obvious reason why it should be a requirement that the option should have been released if, by the time that clause 5.3 comes to bite, the option is no longer exercisable at all. For reasons already discussed, the option might be exercisable for a period after 31 December 2003, in given circumstances, and there might be a period of some uncertain duration when it was not altogether clear whether the option was still exercisable, even disregarding the contention which the judge rejected, as I would, that the clause allows a much longer extension. If there was any case for saying that the option was still exercisable, it would be necessary for it to be released in order that the benefit of clause 5.3 should arise.
26. Similar words are used in clause 5.2, and for a similar reason. That clause concerns the exercise of the power of sale under the legal charge. If the property is to be sold pursuant to that power of sale it is clearly necessary that the land option should also be released because otherwise the claimants might find that they no longer owned the property, which had been sold by the mortgagee, but they were still liable in contract under the provisions of the land option. That explains why the land option had to be out of the way if the power of sale was to be exercised. Again in this situation it is not altogether clear why a release should be necessary if, by the relevant time, it was clear that the option was no longer exercisable.
27. Mr Davie pointed out that, if the option did expire on 31 December 2003 and if that meant that it could no longer be released and that therefore clause 5.3 could never thereafter apply, the effect by analogy in relation to clause 5.2.2 would be that the legal charge would cease to be effective, at any rate as regards the primary remedy available to the mortgagee, at the end of the option period which might be the very time at which the lender would wish to enforce its security. Since by virtue of 5.2.1 the power of sale is not exercisable until a planning decision has already been made, regardless of whether it results in the grant of a planning permission, and, by virtue of the definition of a planning decision, that may be following a planning appeal, the power of sale may not be exercisable until a date beyond the end of 2003. If clause 5.2.2 is to be read in the same way as the judge has read clause 5.3 the consequence is that the power of sale cannot be exercised until after a date which may very well not have happened by the end of the option period, but it cannot be exercised unless the option has already been released which, on the judge's construction, would have to have happened before the end of the option period. It seems to me that Mr Davie is right to submit that references to the release of the option must have the same meaning in clause 5.2.2 as they do in clause 5.3 and that, if a formal release by 31 December 2003 is needed, then the practical efficacy of the legal charge is quite seriously impaired from Investments' point of view.
28. Investments' answer to this contention is set out in paragraph 14A in the defence, an amendment made with the permission of the judge at trial. This involves submitting that there was an actual release of the option procured by Investments, in that Investments did not require Developments to exercise the option prior to 31 December 2003. That is therefore a contention on the facts to the effect that the land option has already been released. That sits very oddly with Developments' primary contention which is that the land option is still exercisable by virtue of clause 8.2. If the land option had already been released by the end of 2003 no question of an extension under clause 8.2 could arise. It seems to me that this contention cannot succeed. I agree with the judge that a formal release is required by clause 5.3 and also by clause 5.2.2. It seems to me untenable to suggest that there has been a release simply by the expiry of the option period and equally untenable to argue that one defendant procured the other to release the option simply by not requiring the other to exercise it.
29. In the course of considering the implications of this rather unsatisfactory document, it occurred to me to wonder whether the references to a release in both clauses could be read as subject to a proviso that the release was required only if the option was still exercisable, or alternatively whether a documentary release might be regarded as necessary regardless of the option being still exercisable on the basis that such a document would put the position beyond doubt. Neither point was advanced by the defendants before the judge and there would be obvious difficulties with either of them, which may well be why they were not put forward.
30. The judge's conclusions on this point are set out in paragraphs 42 to 44 of his judgment, as follows:-

"[42] At the heart of the second argument is the proposition that mere failure to exercise the option by 31 December 2003 constituted a release of the option on that date, so that the claimants remain contingently liable to reimburse expenses incurred in obtaining planning permission on some future date. Reliance is placed on dictionary definitions of "release" in terms of deliverance or liberation from some obligation, without stipulating that such must occur by virtue of some positive act. Reliance is also placed on an argument from fairness: it was clearly the intention of the parties that the claimants should contribute to the cost of obtaining a planning consent which enured to their benefit, and the construction put on clause 5.3 of the legal charge by Investments is consistent with this intention. Lastly, there is what might be called an argument from anomaly: if the construction put on clause 5.3 by the claimants is correct, it is difficult to see how the power of sale could under clause 5.2 ever become exercisable.

[43] Whatever may be derived from dictionary definitions, the interpretation advanced by Mr Davie on behalf of Investments appears to me to be a somewhat unnatural one. The relevant concepts found in clause 5.3 are that Investments is to procure that Developments shall release the option. These are, in my judgment, concepts which involve one party in taking steps to ensure that another shall achieve a result. What is envisaged is deliberate activity, rather than passivity or simply allowing matters to lie still. Further, the legal charge is a document which is commercial in its origin and is in conveyancing form. If such a document speaks of a release which is to have serious consequences for the rights and liabilities of the parties, it is likely that the draftsman intended that the release should be effected in some formal manner, as by the execution of a deed, which would leave no uncertainty as to what had occurred.

[44] I acknowledge the force of the arguments based on fairness and anomaly. They cannot, however, carry Investments to success on this issue. The parties could have made provision for reimbursement of planning expenses in the event of the option lapsing by effluxion of time. They did not do so, perhaps because they envisaged that by 31 December 2003 the planning position would have been finally ascertained, as indeed it might well have been but for the very long delay in making the initial planning application. It is not for the court to construct, by a strained interpretation of language, a fresh bargain for quite different circumstances."

31. Despite the force of Mr Davie's argument based on anomaly as regards clause 5.2.2, and his point that the commercial purpose of clause 5.3 does not require a release if the option is plainly no longer exercisable, I agree with the judge that they do not justify reading clause 5.3 as not requiring a release and therefore as giving rise to an obligation to pay the planning expenses if there has not been a release at a time when the option is still exercisable. I agree with the judge's comment at the end of paragraph 44 that to find in favour of Investments on this point would require straining the language of the legal charge and creating a different bargain which the parties did not reach. To adopt either of the readings mentioned in paragraph 29 above would be to rewrite the agreement, not to construe it.
32. Accordingly, despite the clear, economical and attractively presented submissions of both Counsel in support of the appeal and the Respondents' Notice respectively, I agree with the judge on all points in the case and could have contented myself by saying that he was right for the reasons which he gave. For those reasons I would dismiss the appeals of both Investments and Developments as well as the Respondents' Notice.

Lord Justice Maurice Kay

33. I agree.

Lord Justice Auld

34. For the reasons given by Lord Justice Lloyd, I agree that the appeals and the Respondents' Notice should be dismissed.