COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUDICATURE
Strand, London, WC2A 2LL
B e f o r e :
THE RIGHT HONOURABLE LADY JUSTICE ARDEN
THE HONOURABLE MR JUSTICE WILSON
| STEPHEN JOHN STEPHENS
SHEILA DILYS STEPHENS
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr David Holland, of counsel, (instructed by Messrs Charles Russell & Co., Guildford) appeared for the Respondents.
Crown Copyright ©
MR JUSTICE WILSON:
"7. The Buyers will obtain planning permission for a single new dwelling on the property and thereafter market the property for sale. In the event that the new property is sold for a sum in excess of £1m, the Buyers will pay to the Sellers 50% of the amount in excess of £1m for which the property is sold subject only to the deduction therefrom of one half of the legal and estate agency fees incurred in connection with such sale.
8. In the event that the Buyers wish to retain the new property, the parties hereto shall appoint an independent valuer…to value the property and if such valuation is in excess of £1m the Buyers shall pay to the Sellers 50% of such amount of the valuation in excess of £1m.
9. In the event that the property has not been sold by the 28th February 2003 the Sellers require the Buyers to place the property on the market forthwith and to sell the property."
"The Bank's lawyers have come back indicating that the Bank is probably likely to agree a provision that clauses 7, 8 and 9 should apply but only after any monies due to the Bank under its security have been discharged in full. I assume that you do not have any major problems with this suggestion, although perhaps you would be so good as to confirm."
By their solicitor the sellers, who were keen that the buyers should be in funds with which to complete and to construct the dwelling, indicated that they were willing to enter into a Supplemental Agreement with the buyers which made clear that the bank's proposed charge over the property took priority over their rights under the overage condition. But they also wanted to make clear that the amount of overage payable to them by the buyers remained as before. By a letter from their solicitor dated 20 February 2001 they suggested that the Supplemental Agreement should conclude with the words:
"Provided that any money in excess of £1m repaid to Bank of Ireland from the proceeds of sale of [the property] shall first be taken from the share of the buyers."
That in the event those words did not find their way into the Supplemental Agreement was attributable to objection not by the buyers but by the bank. For, as a letter from its solicitors dated 21 February 2001 made clear, the bank construed them to be a restriction on the enforcement of its security.
"THE PARTIES hereto wish to vary the terms of special conditions 7, 8 and 9 of the Contract to the extent that special conditions 7,8 and 9 should only take effect provided that the legal charge in favour of the Bank of Ireland to be registered against both titles has been repaid in full and the entries in the Charges Register to both titles in respect of the legal charge have been cancelled and that the provisions of clauses 7,8 and 9 only apply to net proceeds of sale after the said charge has been discharged."
"The Buyers will obtain planning permission for one or more new dwellinghouses (not exceeding three) on the Property…and thereafter construct such new dwellings as soon as reasonably practicable and thereafter market them for sale. In the event that the new dwellings are sold for a combined sum in excess of £1m, the Buyers shall pay to [the Sellers] 50% of the amount in excess of £1m subject only to the deduction therefrom of one half of the legal and estate agency fees incurred in connection with such sale."
The effect of paragraph 2 of the schedule to the deed was to replicate the facility in Condition No. 8 for valuation and for an analogous payment to the sellers in the event that the buyers wished to retain the property or part of it.
(a) that the condition should only take effect provided that the legal charge in favour of the Bank of Ireland had been redeemed in full; and
(b) that the provisions of the condition should only apply to net proceeds of sale after the said charge had been discharged.
The buyers rely upon the second limb of the clause in arguing that the overage threshold is calculated after deduction of whatever is owed under the charge (as well as of legal costs) from the proceeds of sale.
"In the first place it is clear that this is the true construction of the original contract of 5th December 2000 which makes no reference to construction costs at all. This is equally true of the deed of covenant. The correspondence which led up to the supplemental agreement shows that this was purely a requirement of the bank and there is nothing in my view which indicates that there was to be any variation of the original agreement under which the [buyers] took the risk of development costs exceeding the difference between the price they paid, that is to say £600,000, and the figure of £1m, that is to say overall costs of £400,000. In giving evidence [the male buyer] accepted that he had originally taken the risk in respect of the amount of the construction costs…However he says that he instructed his solicitor to re-draft the contract so as to exclude the overage provisions and that it was this which led to the supplemental agreement. However, I do not accept his evidence on this…In my view [he] has persuaded himself of this supposed variation subsequently…upon realisation that the development costs would by far and away exceed the amount which he had estimated."
(a) The mode of calculation of the overage threshold could not have been more clearly expressed under Condition 7. Clear language would be necessary in order that a clause in a supplemental agreement, reached less than three months later, should dramatically alter the effect of the condition. Yet the second limb of the clause is thoroughly ambiguous.
(b) The correspondence which led to the making of the supplemental agreement showed that the need for it was driven only by a demand by the Bank of Ireland that, prior to making a loan to the buyers, clear provision should be in place for its security to take precedence over the right of the sellers to overage. When the sellers pressed for the inclusion of a proviso which would have made it totally clear that the provision for the calculation of overage under Condition 7 was to be unaffected, objection came not from the buyers but from the bank.
(c) Had the Supplemental Agreement made the dramatic alteration in the calculation of the overage threshold for which the buyers contend, one would expect to see the change reflected in the way in which the provision for overage was recast in paragraph 1 of the schedule to the Deed of Covenant dated 16 March 2001. Yet in that regard the wording of the deed is identical to the wording of Condition No.7.
(d) Mr Holland on behalf of the buyers argues that it would make no commercial sense for their borrowings from the bank not to be the subject of initial deduction from the price prior to the division of profit. I disagree. It is clear that the thinking of the buyers in entering into Condition No.7 was that they could fund the construction of the dwelling for £400,000 and that their total outlay on the property, above which the price obtained for it would be all profit, would be about £1,000,000; and the master records the concession of the male buyer in evidence that he had originally taken the risk that his estimate of £400,000 might prove too low. In my view it is the buyers' suggested construction of the overage condition, as varied by the Supplemental Agreement, which makes no commercial sense: for, were their construction right, the buyers would be motivated to borrow every penny of the sum required for purchase and construction from the bank upon charge, rather than to fund any part of it out of their own resources, in order to eliminate or reduce the overage.
I have no doubt that the two limbs of the variation effected by clause 2 of the Supplemental Agreement were belt and braces: both should be construed as providing that, as between the bank and the sellers, the former were to have priority, in respect of whatever was owed under charge, over the latter in respect of whatever was owed by way of overage. Neither limb altered the calculation of overage payable to the sellers in any way.
"It is always invidious for a court to have to choose between the views of two apparently honest and competent experts especially when their valuations are so far apart and there appears to be little material with which the court can bridge the gap."
"This aspect of the case is also by far the most difficult since I am confronted with expert evidence of two professional surveyors who are unable to agree upon a price range and who both present valuation ranges which are some way apart."
"21. I have to say that at the end of the day I found it very difficult to satisfactorily resolve this conflict of evidence which is based upon a difference of professional opinion, reflecting a number of matters of appreciation which are to some extent subjective in relation to the comparable properties. In particular I should mention that I do not think it is possible for me to enter into my own subjective view of the application of the particular factors, since that would be for me to set myself up as an expert and to usurp the role of the experts. It is necessary for me to choose between the views which are expressed on both sides, if it is possible to do so.
22. However, the conclusion which I have reluctantly reached is that I am unable to decide that I prefer one view over the other, and in those circumstances the case falls to be decided on the basis of the burden of proof. As the claimants bear the burden of proof to satisfy me on the balance of probabilities that their view is correct, and as they have failed to do this, I shall adopt the view put forward by the defendants. Accordingly I will proceed upon the basis of Mr Harvey's evidence, which is that the property would have sold for … £1.5m."
"because of the burden of proof, I felt constrained to accept the defendants' evidence".
"[It is] of great importance… that the judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take."
"The essential requirement is that the terms of the judgment should enable the parties and any appellate tribunal readily to analyse the reasoning that was essential to the judge's decision."
(a) The situation in which the court finds itself before it can despatch a disputed issue by resort to the burden of proof has to be exceptional.
(b) Nevertheless the issue does not have to be of any particular type. A legitimate state of agnosticism can logically arise following enquiry into any type of disputed issue. It may be more likely to arise following an enquiry into, for example, the identity of the aggressor in an unwitnessed fight; but it can arise even after an enquiry, aided by good experts, into, for example, the cause of the sinking of a ship.
(c) The exceptional situation which entitles the court to resort to the burden of proof is that, notwithstanding that it has striven to do so, it cannot reasonably make a finding in relation to a disputed issue.
(d) A court which resorts to the burden of proof must ensure that others can discern that it has striven to make a finding in relation to a disputed issue and can understand the reasons why it has concluded that it cannot do so. The parties must be able to discern the court's endeavour and to understand its reasons in order to be able to perceive why they have won and lost. An appellate court must also be able to do so because otherwise it will not be able to accept that the court below was in the exceptional situation of being entitled to resort to the burden of proof.
(e) In a few cases the fact of the endeavour and the reasons for the conclusion will readily be inferred from the circumstances and so there will be no need for the court to demonstrate the endeavour and to explain the reasons in any detail in its judgment. In most cases, however, a more detailed demonstration and explanation in judgment will be necessary.
LADY JUSTICE ARDEN:
LORD JUSTICE AULD: