ON APPEAL FROM THE HIGH COURT OF JUSTICE
NEWCASTLE UPON TYNE DISTRICT REGISTRY
MR JUSTICE DAVID RICHARDS
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LLOYD
LORD JUSTICE GROSS
| BELLWAY HOMES LTD
|- and -
|BEAZER HOMES LTD
Jonathan Gaunt Q.C. (instructed by Dickinson Dees) for the Respondent
Hearing date: 13 December 2010
Crown Copyright ©
Lord Justice Gross:
" … the Defendant is obliged by clauses 3.1 and 3.2 of the Shareholders Agreement dated 26th July 1991 between (1) Bellway Homes Limited, (2) Leech Homes Limited and (3) Bradview Limited to exercise its voting rights in Leebell Developments Limited in such a way that the Claimant receives a disposal of land from the Middle Warren site which is sufficient to rectify the imbalance in the values of the land disposed of to Bellway and Beazer from the Cramlington site;"
The Judge further ordered that, in default of agreement, there should be an inquiry as to the land at Middle Warren to which Bellway was entitled under the declaration.
"2. In the late 1950s, the decision was taken to develop a number of new towns in the North-East, including Cramlington in Northumberland. Unlike other developments, Cramlington was a private venture. The freehold of the land was vested in William Leech (Investments) Limited (WLI). Under a succession of agreements with WLI, the new town was developed in stages by companies within two housebuilding groups, the Bellway Group and the Leech Group. Under these agreements, the two groups would develop agreed areas of land under individual 99-year leases which would then be assigned to the residential plot buyers.
3. In 1990/91 WLI decided to sell its remaining land at Cramlington. The Bellway and Leech groups agreed to form a joint venture company to acquire the land and allow its development in the same manner as before. A dormant company in the Bellway Group called Bradview Limited (the company) was used for this purpose. Its name was in due course changed to Leebell Developments Limited.
4. The arrangements between the parties were and remain governed by …[the]…Shareholders Agreement…to which the parties were Leech Homes Limited, Bellway and the company. The shares owned by Leech Homes Limited were later acquired by Beazer Homes Limited, which has always accepted that it is bound by the shareholders agreement in place of Leech Homes Limited, and I will use 'Beazer' to cover them both."
'Development' all demolition and clearance operations and all excavation building and other construction works and all associated drainage and infrastructure works for the development of land in the Counties of Northumberland, Durham, Cumbria, Tyne and Wear, Cleveland and North Yorkshire in accordance with this Agreement
3. Business of the Company
3.1 The business of the Company shall be:
(a) to acquire land and premises in the Counties of Northumberland, Durham, Cumbria, Tyne and Wear, Cleveland and North Yorkshire and obtain all planning permissions and other approvals and licences necessary for the Development of such land and premises ……
(b) to develop or procure the Development of such land and premises
(d) to dispose of the whole of or any part of such land and premises (whether by sale exchange or by lease then sale including disposals to the A Shareholders [Beazer] and B Shareholders [Bellway] in parcels of equal value as near as may be unless the Shareholders shall otherwise agree) and otherwise deal with such land and premises as the Shareholders shall think fit.
3.2 Each of … [Beazer] ... and Bellway undertakes to the other:-
(a) to observe and perform and (so far as it is able by the exercise of voting rights otherwise so to do) procure that the Company will at all times perform and observe all the provisions of this Agreement;"
"8. There had previously been extensive coal mining in the Cramlington area and substantial areas of the development land had to be remediated…..before development work could take place. Subject to planning requirements, Beazer and Bellway generally built first on the areas which were easier or cheaper to develop.
9. Development by Beazer and Bellway did not proceed over equal areas. When further land was needed for development it would be sold to them, not necessarily in equal amounts but often in agreed proportions to reflect the capacity of each to undertake development at that stage. In terms of cl. 3.1(d)….these were therefore not sales 'in parcels of equal value as near as may be', but cases in which the shareholders had agreed otherwise. Importantly though, they proceeded on the basis that any imbalance would be made up in subsequent sales by the company to them.
10. Sales of land by the company to the shareholders were not at open market value but on the basis of original cost plus interest, together with payment to another jointly-owned company to cover remediation costs. Remediation and infrastructure costs for the whole area allocated in each distribution were shared by Beazer and Bellway in proportion to the total area allocated to each of them, not by reference to the work required on any particular piece of land.
11. Distinctions were not made between different areas on the basis that some were, by reason of location or otherwise, more valuable than others….. Acreage was in effect taken as a proxy for value. Prior to each distribution, the particular allocation of land would be discussed and agreed between the appropriate directors of Beazer and Bellway."
i) For area 2D(ii), Bellway was allocated 1.95 acres and Beazer 3.87 acres;
ii) For area 3A, Bellway was allocated 11.58 acres and Beazer 6.29 acres; ironically, in the light of what later transpired, area 3A was then thought to contain more attractive land for development because it was entirely residential whereas area 2D(ii) was zoned for affordable or social housing;
iii) The upshot was that the aggregate acreage allocated to the parties at Cramlington was equalised (as near as may be): Bellway's total acreage amounted to 304.58 and Beazer's 304.56.
" …the open market value of the relevant parcels of land at the date of disposal. In relation to the land at Cramlington the parties agreed to use acreage as a proxy for value, but it does not appear that this was intended to produce any significant difference in the respective market values of the total areas allocated to each. "
"If at the date of disposal it had received its intended share of developable land, I agree with Mr. Pymont QC for Beazer that Bellway could not complain of a subsequent change in its suitability for development. However, it seems clear that area 3A was not developable at the date of disposal…."
The old mine workings were present and well-known and there was no suggestion of any "subsequent change in the local authority's policy of giving planning permission". Planning permission had in fact been refused within a relatively short period.
"It is therefore only if the allocation of land at Cramlington must necessarily be divorced from the allocation of land at Middle Warren that the course of dealing between the parties would not result in Bellway's shortfall being made up from land at Middle Warren. There is….. nothing in the shareholders agreement which dictates this result. The terms of cl. 3.1(d) do not do so. Having embarked on disposals of parcels of unequal value, on the basis that the balance would subsequently be redressed, the agreement does not ….prevent that arrangement being carried forward from one development to another. Equally, there was no agreement between the parties that the allocation agreed in September 1999 was to be a final and binding settlement of their respective entitlements, irrespective of whether the whole or parts of the land then allocated was capable of development. "
THE RIVAL CASES
i) To my mind, cl. 3.1(d) of the Shareholders Agreement, when dealing with disposals of land to the shareholders, focuses on individual disposals, with a view to achieving equality in value per disposal. The parties are at liberty to agree otherwise; however, absent such agreement, each disposal to shareholders is intended to achieve equality in value (or as near as may be). Value is accordingly assessed at the time of the disposal/s in question – here, in late 1999.
ii) Next and as already underlined, the parties made no express provision for the re-adjustment of the value of the land disposed by Leebell to the shareholders in the event that subsequent difficulties were encountered. As the Judge noted and agreed, if at the date of disposal Bellway had received its intended share of developable land, it could not complain of a subsequent change in its suitability for development.
iii) Unlike the earlier "on account" disposals, the disposals of Cramlington land dealt with in the September letters were intended both to bring finality and to restore equality to the allocation of Cramlington land. As Mr. Pymont submitted, these disposals were intended to enable the parties to start at Middle Warren with a clean slate. Although therefore the Shareholders Agreement was not confined to Cramlington, the intention behind the September letters was to deal only with Cramlington and on the basis of finality.
i) In September 1999, whatever the parties' expectations, as Mr. Pymont correctly submitted, full planning permission was "unknown and at large".
ii) There is no evidence that a decision had already been taken that the area 3A land was not developable, or that inquiries by the parties or by a third party (to mention a matter referred to by the Judge) would have revealed that it was not. The evidence that there had been meetings with local planning officers suggests otherwise; the land was thought to be developable but no final decision on full planning permission had yet been taken.
iii) The irresistible and natural inference is that, when agreeing the September letters and the disposals pursuant thereto, the parties took a view that the area 3A land would be suitable for development. No pre-existing facts vitiated that view but, subsequently, it transpired that the parties' hopes as to full planning permission were mistaken. Without more, their arrangements embodied in the September letters cannot be construed as an agreement that area 3A land was developable.
iv) In September 1999, the parties could have waited to see whether full planning permission would be granted. They could have reserved their position, in the event that it was not. Instead, they did no such thing. They went ahead, inescapably in my judgment relying on their own view as market professionals, with their eyes open.
v) Having done so, it seems to me that Bellway assumed the risk of a subsequent refusal of full planning permission. On this footing, absent some contractual mechanism for re-adjusting the allocation made pursuant to the September letters, the loss must lie where it falls – with Bellway. That the sphere of application of the Shareholders Agreement is not confined to Cramlington and extends (inter alia) to Middle Warren is neither here nor there. There is simply no basis for now revisiting the 1999 allocation.
i) The notion that the parties envisaged re-opening the allocation embodied in the September letters, years after the event, seems most improbable.
ii) To do so must involve imposing on Beazer a subsequent unequal disposal in respect of Middle Warren land, without agreement – an exercise encountering obvious difficulty contractually, having regard to the terms of the Shareholders Agreement.
iii) Furthermore and although, in agreement with the Judge, I would not be minded to conclude that the inquiry contemplated by Bellway was unworkable, the practical difficulties of now revisiting the 1999 allocation are formidable and ought not to be underestimated; suffice to say that it is again implausible that the parties should have contemplated, let alone intended, any such outcome.
Lord Justice Lloyd
The Master of the Rolls:
"To dispose of the whole of or any part of such land and premises (whether by sale exchange or by lease then sale including disposals to [Beazer] and [Bellway] in parcels of equal value as near as may be unless [they] shall otherwise agree) and otherwise deal with such land and premises as [they] shall think fit."
The reference to "such land and premises" is to the "land and premises in the Counties of Northumberland, Durham, Cumbria, Tyne and Wear, Cleveland and North Yorkshire" mentioned in clause 3.1(a).