England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Edward Murray, sitting as a Deputy Judge of the High Court
[2015] EWHC 2287 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/10/2017

Lord Justice Henderson:

Introduction

1. This appeal concerns two issues arising from the sale of a housing development site in 2007 by a property investment company (Burrows Investments Limited ("Burrows"), which is the claimant and appellant) to a development company (Ward Homes Limited ("Ward"), which is the defendant and respondent to the appeal). Ward is a member of the Barratt Homes Group. The site is at White Sands, Camber, East Sussex. It originally formed part of a larger site which Burrows had already partially developed at the date of the sale to Ward. The land sold to Ward was defined as "the Property" in the contract of sale between Burrows and Ward dated 13 February 2007 ("the Sale Agreement"). The adjoining land which Burrows had already developed was retained by Burrows, and defined as "the Retained Land".
2. Apart from the initial purchase price of approximately £12.34 million, the Sale Agreement provided for Ward to make an overage payment upon completion of the development equivalent to just under 30% of the amount (if any) by which the total proceeds of sale received by Ward from disposals of the "Market Units" exceeded a specified sum per square foot of their gross internal area. In order to protect Burrows' right to receive this prospective overage payment, the Sale Agreement contained a number of restrictions on the types of disposal of the Property as a whole, or of individual parts of it, which Ward was permitted to make before the end of the Overage Period, which would occur on completion of the disposal of the last Market Unit within the residential development.
3. One type of disposal which Ward was permitted to make, by virtue of paragraph (c) of the definition of "Permitted Disposal" in clause 1.1 of the Sale Agreement, was "the transfer … of land … for roads, footpaths, public open spaces or other social/community purposes".
4. In the course of developing the Property, Ward applied to the local planning authority, Rother District Council, for new planning permission in relation to the final phases of the development. It is common ground that Ward was entitled to do this under the Sale Agreement. The new planning permission was granted by Rother District Council on 15 March 2012, subject to various conditions which included entry by Ward into an agreement under section 106 of the Town and Country Planning Act 1990 with the Council, which it duly did on 29 February 2012 ("the Section 106 Agreement"). The revised scheme with the benefit of the new planning permission enabled Ward to build a further 48 units, as opposed to the further 35 units which could have been built under the original scheme. The new units were, however, on average rather smaller than those for which permission had originally been granted. Sales of the units already constructed had stagnated in the wake of the financial crisis of 2008, and it was hoped that this change would improve the prospects of further sales.
5. Under the Section 106 Agreement, Ward was obliged to make provision for five units of affordable housing to one of a number of specified registered social landlords, or private registered providers of social housing as they are now more correctly termed. One of the specified registered social landlords was AmicusHorizon. Ward initially took the view that the sale of five units of affordable housing to AmicusHorizon at cost price would not be a permitted disposal under the Sale Agreement, and it began negotiations with Burrows about the terms on which Burrows would be prepared to approve such a transaction. These discussions began in March 2012. Before any agreement had been reached, and without prior notice to Burrows, Ward on 19 July 2012 completed the disposal of five residential units to AmicusHorizon in accordance with the Section 106 Agreement. When Burrows came to learn of this in September 2012, Ward asserted that it was in fact a permitted disposal under the Sale Agreement. The provision upon which Ward relied, however, was not paragraph (c) of the definition of "Permitted Disposal", but paragraph (a), which permits "a Residential Disposal" subject to an immaterial exception. "Residential Disposal" was in turn defined as:

"a disposal by the Buyer … of one or more Individual Market Units (whether to an individual private purchaser or a third party investor) in the open market at arm's length by way of the sale of the freehold or long leasehold estate in such Market Unit or Market Units."

6. Burrows disputed this assertion, and after attempts to reach agreement in correspondence had failed the present proceedings were issued by Burrows on 18 July 2013, seeking a declaration that Ward had acted in breach of the Sale Agreement and damages for breach of contract. The claim was initially brought under Part 8 of the CPR, but directions were given at an early stage for it to be continued as if it were a Part 7 claim. Ward filed points of defence, maintaining its position that the transfer to AmicusHorizon was a Residential Disposal as defined in the Sale Agreement. Some two months later, Ward raised by amendment the alternative contention that the transfer was permitted under paragraph (c) of the definition of "Permitted Disposal", on the basis that it was a transfer of land for social purposes.
7. The case came on for trial before Mr Edward Murray, sitting as a deputy judge of the Chancery Division, on 15 and 16 April 2015. In his reserved judgment, handed down on 14 September 2015, the judge held "on a narrow balance" that the transaction with AmicusHorizon was capable of falling within the scope of an "open market" transaction as those words are used in the definition of "Residential Disposal", but that on the evidence before him he was unable to make a finding of fact that the transaction had been marketed to other registered social landlords. On that narrow basis, therefore, Ward's primary contention was dismissed. On the other hand, the judge found in favour of Ward on its alternative contention that the transaction fell within paragraph (c) of the definition of "Permitted Disposal". Burrows now appeals to this court against that conclusion, with permission granted by Briggs LJ on 30 December 2015. That is therefore the first issue which we have to consider.
8. A further ground of appeal challenged the judge's conclusion that a sale of five units following marketing only to registered social landlords could in principal be a "Residential Disposal" within the meaning of the "Sale Agreement". This is no longer a live issue, because Mr McGhee QC now accepts on behalf of Ward that a marketing of units only to registered social landlords is not capable of being regarded as a sale "in the open market" within the meaning of the definition. I have no doubt that this concession was rightly made.
9. The second issue which we have to determine relates to damages, and arises only if Burrows' appeal on the first issue succeeds. By the time Burrows started the present proceedings, it had become clear that Burrows had no entitlement to an overage payment under the Sale Agreement because the threshold average price per square foot had not been attained when the development was completed. Accordingly, Burrows would have been unable to recover damages on the conventional basis of an amount equivalent to the overage payment of which it had been wrongfully deprived, for the simple reason that Burrows had suffered no loss as a result of the breach. Instead, Burrows claimed damages on a "negotiating basis", that is to say, based on the sum of money that Burrows might reasonably have demanded from Ward in return for releasing Ward from the restrictions in the Sale Agreement which prevented the disposal to AmicusHorizon. Damages assessed on this basis are often referred to as "Wrotham Park" damages after the case in which the principle in its modern form was first formulated: see Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798. The judge considered this issue in case he was wrong in his conclusion on the first issue. He accepted Mr McGhee's submissions that the circumstances of the present case fell outside the relevant principle, with the result that Burrows would not be entitled to any damages on a negotiating basis. Burrows now appeals to this court against that conclusion, again with permission granted by Briggs LJ.
10. In view of his conclusions on the first two issues, the judge understandably did not go on to consider the appropriate measure of damages on a negotiating basis, nor did he make any findings of fact in relation to the expert valuation evidence which he had heard. Accordingly, if Burrows' appeal on the first and second issues were to succeed, the case would have to be remitted to the judge for damages to be assessed.
11. With this introduction, I will now fill in some more of the background, and refer in more detail to the relevant provisions of the Sale Agreement, before turning to the two grounds of appeal.

Further background

12. The relevant facts are fully set out in the judgment below, the neutral citation of which is [2015] EWHC 2287 (Ch), and I will therefore concentrate on a few points of particular significance to the present appeal.
13. Burrows originally received planning permission for the development of 178 residential units on the site, under a planning consent dating from 1993. Burrows began construction of 56 units on part of the site, and in 2007 sold the remainder, constituting the Property, to Ward under the Sale Agreement. By this date, the existing planning permission for the Property allowed for the construction of 62 further residential units on the land sold to Ward. Twenty-seven of these units had been built when, some four years later, Ward decided in February 2011 to submit the application for revised planning permission, to which I have already referred. The application was granted by Rother District Council on 15 March 2012, and allowed (as I have said) a further 48 units to be constructed, making a total of 75 in all on the Property, which was 13 more than the 62 for which permission had already been granted.
14. There was no requirement for the provision of affordable housing in the existing planning permission, which was based on outline planning consent first granted in the early 1990s. By the time of the sale of the Property to Ward in February 2007, however, the position had changed. In particular:

a) Circular 05/2005 (Planning Obligations) dated 18 July 2005 from the Office of the Deputy Prime Minister ("ODPM") indicated a change of policy in favour of requiring on-site provision of social housing as part of new approvals for planning permission for residential development schemes: see in particular paragraphs B12 to B14; and

b) Rother District Council had aligned its own policy with the ODPM Circular in the Rother District Local Plan adopted in July 2006. The section of the Local Plan dealing with affordable housing said that the target proportion of affordable housing for residential developments should be set at 40% in both towns and villages, and that provision at a lower rate would be acceptable only if the 40% requirement would render the development of the whole site uneconomic. The minimum threshold for the provision of affordable housing should be five dwellings in villages or equivalent site areas. See generally paragraphs 6.4 to 6.15, and Policy HG1.

15. A few months after the sale to Ward, the Department of Communities and Local Government in June 2011 issued the fourth edition of Planning Policy Statement 3 ("PPS3"), which included in paragraph 29 a presumption in favour of the on-site provision of affordable housing by developers.
16. Under cross-examination, Mr Richard Williams (a chartered development surveyor who had acted for Burrows in relation to the Sale Agreement) agreed that he had been aware of ODPM Circular 05/2005, and said he would have assumed that the Rother District Local Plan of July 2006 had adopted the same change of policy in relation to affordable housing. He also agreed that he was aware in general terms of the June 2011 edition of PPS3: see the judgment at [29]. Although the judge made no equivalent findings of fact in relation to Ward or those acting for Ward, he clearly regarded this change in national and local planning policy with regard to affordable housing as part of the background knowledge which would have been available to both parties when the Sale Agreement was negotiated and concluded. In the part of his judgment dealing with the construction of paragraph (c) of the definition of "Permitted Disposal", the statement of his conclusion in paragraph [69] begins as follows:

"Construing clause (c) against the relevant background facts (including the Central Government and Rother District Council policy presumption in favour of on-site provision of affordable housing in effect at the time of entry into the Sale Agreement) …"

In my view, the judge was clearly correct to proceed on that basis and Mr Sims QC did not suggest otherwise in his oral submissions to us.

17. The judge also found, and again it is not in dispute, that at the time of the Sale Agreement the parties contemplated the possibility that Ward might apply for a new planning permission in the future: see the judgment at [51]. This is apparent from the definitions of "Residential Development" and "New Planning Permission" in the Sale Agreement, which clearly envisage the possibility of development of the Property by Ward in accordance with planning permissions which differed from the Existing Planning Permissions. Thus it was clearly within the contemplation of the parties at the time of the Sale Agreement that Ward might in due course develop the Property under a new planning permission which would reflect current national and local planning policy in relation to the provision of affordable housing.
18. The judge also found, at [51], that the parties "did not specifically contemplate the question of whether a disposal of residential units as affordable housing to a registered social landlord should be a Permitted Disposal" for the purposes of clause 4.9 of the Sale Agreement. Indeed, as I have already said, Ward's initial view was that such a disposal would not be a Permitted Disposal. This appears with particular clarity from an email sent on behalf of Geoff Blake, the Development Director of Ward, to Mr Williams on 22 March 2012, which was in the following terms:

"I refer to your telephone conversation with my colleague, David Banfield, earlier this week in respect of the above development. As I think David outlined to you, we recently secured a revised planning permission over parts of land area phase 5-7 improving product choice and mix to appeal to an ever-changing market place. This approval, however, obligates us to the delivery of five on site housing units. We have secured a registered provider to acquire those units, unfortunately the 2007 contract did not contemplate the sale of affordable housing units.

Obviously Burrows Investments still maintains the benefit of a restriction on our title to protect their future overage payment. The original 2007 contract includes a list of "Permitted Disposals" and in the event of such a disposal, the overage is not passed on to the incoming purchaser but instead remains with Ward. Open market residential sales are clearly within the definition of "Permitted Disposals" but disposals of affordable housing were not contemplated at the time of Ward's acquisition and therefore there is no specific category of "Permitted Disposals" to cover this.

What we are now seeking is a side letter to the 2007 agreement to vary that agreement and add to the definition of "Permitted Disposal" any disposal of affordable housing either to a registered provider or to an occupier of that affordable housing. I believe this would have been the intention had affordable housing been contemplated on this site in 2007 …"

19. It is only fair to add that this email was written five years after the Sale Agreement, and Mr Blake was not called by either side to give evidence at the trial. Nevertheless, its terms appear to evince a clear understanding by Ward that disposals of affordable housing were not included within the list of Permitted Disposals in the Sale Agreement. Had the position been otherwise, Ward would not have sought a side letter to vary the agreement, nor would the parties have embarked upon three months of fruitless negotiations before Ward, having taken legal advice in respect of which it has declined to waive privilege, decided to take matters into its own hands by selling the five units to AmicusHorizon without informing Burrows either of its intention to do so, or (after the event) of the fact that it had done so.

The Sale Agreement: relevant provisions

20. I have already referred to many of the relevant provisions of the Sale Agreement, and a full account of them may be found in the judgment below at [10] to [18]. I must, however, set out the full definition of "Permitted Disposal", and explain how the overage payment provisions in clause 4 were designed to operate.
21. The full definition of "Permitted Disposal" reads as follows:

"Permitted Disposal: means any of the following:

(a) a Residential Disposal save for a Residential Disposal of one of the last three Market Units on the Residential Development constructed or to be constructed and to be Disposed of; or

(b) the grant of any lease over the whole or any part of the Property at an open market rent without taking a premium; or

(c) the transfer/dedication/lease of land for the site of an electricity sub-station gas governor kiosk sewage pumping station and the like or for roads footpaths public open space or other social/community purposes; or

(d) a Disposal of the common parts of a residential scheme to a management company managing a residential scheme

(e) the grant of Security over the whole or any part of the Property

(f) any disposition of the types referred to in Sections 27(2)(d) or (e) of the Land Registration Act 2002 [which relate to easements and rent charges]."

22. Paragraph (a) needs to be read with the definition of "Residential Disposal", namely:

"a disposal by the Buyer or the Seller of one or more individual Market Units (whether to an individual private purchaser or a third party investor) in the open market at arm's length by way of the sale of the freehold or long leasehold estate in such Market Unit or Market Units."

The reason for excluding the disposals of the last three Market Units from paragraph (a) of the definition of "Permitted Disposal" will become clear when I come to the overage provisions in clause 4 of the Sale Agreement.

23. In broad terms, it can be seen that the permitted disposals fall into two main categories. The first category comprises sales in the open market at arm's length of freehold or long leasehold estates in individual Market Units, or the grant of any lease of the whole or part of the Property at an open market rent without taking a premium. One would not normally expect such disposals to have any adverse effect on the calculation of Burrows' entitlement to overage, because the disposal in question must either be in the open market or on open market terms. The second category (comprising paragraphs (c) to (f)) is of a more miscellaneous character, but includes disposals of various kinds which are either necessary or reasonably incidental to the development of the site and the provision of appropriate services and amenities for it. Again, one would not normally expect disposals of this general nature to prejudice Burrows' right to overage, because the overage payment is calculated by reference to the aggregate proceeds of sale received from the disposals of all the Market Units in the development. The definition of "Market Unit" is:

"a dwelling (being a flat house cottage maisonette bungalow or any other construction intended for residential use) with such garaging or carport or parking space or such other vehicle accommodation as the Buyer or Seller contracts to provide for a purchaser …"

At least at first sight, it is hard to see how the disposal of a Market Unit (as defined) could fall within any of paragraphs (c) to (f) of the definition of "Permitted Disposal".

24. I now turn to the overage provisions in clause 4. The judge helpfully summarised the operation of sub-clauses 4.1 to 4.8 as follows, at [11]:

"Broadly speaking, the overage payment provision worked as follows. Under clause 4.1 Ward was to give notice to Burrows of the exchange of contracts in relation to the disposal of the third to last residential unit to a residential buyer. (In clause 4.1, the terms "Buyer" and "Seller" are reversed, but it was not in dispute that this was simply a drafting error.) On completion of that disposal, Ward was required under clause 4.2 to make a payment on account [of the overage payment], calculated on the same basis as already described in paragraph 7 above, but excluding the gross internal area of the two residential units remaining to be sold. Clauses 4.3 to 4.5 dealt with the mechanics of calculation of the overage payment and referred to clause 5 for determination of any related dispute. Clauses 4.6 and 4.7 provided for an adjusting payment to be made by Ward to Burrows or vice versa, according to whether the overage payment on account exceeded or fell short of the final overage payment amount. Clause 4.8 provided for quarterly sales reporting by Ward to Burrows."

25. Clause 4.9 needs to be set out in full:

"The Buyer covenants with the Seller not to make any Disposal of the Property or part of it other than a Permitted Disposal at any time during the Overage Period without:-

4.9.1 first procuring that the person to whom the Disposal is being made has executed a Deed of Covenant and that Deed of Covenant is delivered to the Seller; or

4.9.2 in the event that the Disposal is of the third from last or second from last Market Unit on the Residential Development constructed and to be Disposed of making the Payment on Account (if any);

4.9.3 in the event that the Disposal is of the last Market Unit on the Residential Development constructed and to be Disposed of making the payment of the sum due under Clause 4.6 (if any)."

26. It can be seen, therefore, that clause 4.9 deals with any disposals of the whole Property or parts thereof during the Overage Period, other than Permitted Disposals. Such disposals are prohibited, unless (ignoring the special provisions relating to the final three disposals of Market Units) the person to whom the disposal is made has first executed a Deed of Covenant which has been delivered to Burrows. The definition of "Deed of Covenant" in clause 1.1 reads materially as follows:

"A deed of covenant with the Seller containing covenants in the same terms as those given by the Buyer in clauses 4.1, 4.2, 4.6, 4.8 and 4.9 … of this contract with such minor modifications as are approved by the Seller (such approval not to be unreasonably withheld or delayed)".

In other words, a disposal during the Overage Period, other than a Permitted Disposal, is prohibited unless the purchaser or other transferee enters into a direct covenant with Burrows to make the overage payment (if any) in accordance (or substantially in accordance) with the machinery laid down in clause 4. Clause 4.10 then provided that Ward would, in effect, be released from its obligations to make an overage payment under clause 4 upon delivery of a Deed of Covenant to Burrows pursuant to clause 4.9; while clause 4.11 provided that Ward should apply to the Land Registry to register a restriction against the Property to the effect that no disposition of the registered estate (other than a charge) was to be registered without a certificate signed on behalf of Ward or its conveyancer that the provisions of clause 4.9 of the Sale Agreement had been complied with.

27. Such a certificate was indeed signed by or on behalf of Ward after the sale of the five units of affordable housing to AmicusHorizon, thereby enabling AmicusHorizon to be registered as the proprietor of those units.

Ground 1: was the sale of five units of affordable housing to AmicusHorizon a Permitted Disposal within paragraph (c) of the definition?

(a) Principles of construction

28. This question is one of construction of the Sale Agreement. There is no disagreement between the parties about the principles by reference to which the question has to be answered. They have been the subject of much learning in the Supreme Court and the House of Lords in recent years, and the leading cases, beginning with the speech of Lord Hoffmann in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 (HL), are too well known to require detailed citation. Apart from the Investors Compensation Scheme case, the other cases in the series include Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900; Arnold v Britton [2015] UKSC 36, [2015] AC 1619; and Wood v Capita Insurance Services Limited [2017] UKSC 24, [2017] 2 WLR 1095.
29. By way of a bare summary, it is helpful to refer to the approach endorsed by Lord Neuberger PSC in Arnold v Britton at [15], where (omitting citations) he said:

"When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", … And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of [the contract], (iii) the overall purpose of the clause and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions."

30. In Wood v Capita, the Supreme Court has recently confirmed that the principles of contractual interpretation stated in Arnold v Britton did not involve any departure from the guidance previously given by the Supreme Court in the Rainy Sky case: see the judgment of Lord Hodge JSC (with whom the other members of the Court agreed) at [8] to [15].
31. With reference to the "unitary exercise" of interpretation referred to by the Court in both Arnold and Rainy Sky, Lord Hodge said this:

"12. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated: the Arnold case, para 77 citing In re Sigma Finance Corpn [2010] 1 All ER 571 , para 12, per Lord Mance JSC. To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.

13. Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements."

(b) The judge's reasoning

32. The reasoning which led the judge to conclude that the transaction with AmicusHorizon fell within the scope of paragraph (c), and was therefore a Permitted Disposal, is contained in paragraphs [65] to [69] of his judgment.
33. The judge began by saying:

"… it is clear, first of all, that "social/community purposes" means "social or community purposes or both". It is also clear that the provision of affordable housing achieves an important social purpose of substantial benefit to the community".

34. The judge then recorded Mr Radley-Gardner's submission, for Burrows, that he should "read those words down by reference to the other words in clause (c), presumably applying the principle of construction ejusdem generis." The Judge continued:

"66. As noted by Mr Justice Devlin in Chandris v Isbrandtsen-Moller Co. [1951] 1 KB 240 at 244, the rule "cannot be more than a guide to enable the court to arrive at the true meaning of the parties". One needs to look at the relevant words in context and determine on that basis how wide the general words are intended to be. Similarly, Lord Justice Fry in Earl of Jersey v Neath (1889) 22 QBD 555 at 566 warned against a mechanical application of the ejusdem generis rule, which could have the effect of narrowing the scope of a clause relative to the true (objective) intent of the parties. Accordingly, I do not find that principle of much assistance in relation to the question I am currently called on to decide and, to be fair, Mr Radley-Gardner did not expressly invoke it in his submissions."

35. The judge then said:

"67. Clause (c) falls into two parts, namely, "the transfer/dedication/lease of land for the site of [(i)] an electricity sub-station gas governor kiosk sewage pumping station and the like or [(ii)] for roads footpaths public open space or other social/community purposes". The whole of the clause clearly includes uses of land potentially required to comply with planning obligations, although it is, of course, not limited to such uses."

I would comment that, while I agree with the substance of this paragraph, it would I think be more accurate to identify the first part of paragraph (c) as beginning before, rather than after, the words "for the site of". I am also sure the judge did not mean to imply that paragraph (c) includes all uses of land potentially required to comply with planning obligations, although the types of transaction referred to will often have that purpose.

36. The core of the judge's reasoning is then contained in the next two paragraphs, as follows:

"68. The intention of clause (c) is clear. The clause recognises that some parts of the land comprised in the Property will need to be used for purposes other than the construction of residential units, for example, for the purpose of complying with planning obligations but also, for example, for generally improving the amenities and therefore saleability of the development. To the extent that this land is so used, it is not a disposal of the type restricted by clause 4.9. The provision of affordable housing units to a registered social landlord clearly achieves both social and community purposes.

69. Construing clause (c) against the relevant background facts (including the central government and Rother District Council policy presumption in favour of on-site provision of affordable housing in effect at the time of entry into the Sale Agreement) and in its contractual context (including, as part of that context, the clear purpose of clause 4.9, already discussed), I am of the view that the Amicus Horizon transaction fell within the scope of clause (c) and therefore constituted a Permitted Disposal."

(c) Submissions

37. Counsel for Burrows submit that the judge interpreted paragraph (c) of the definition of Permitted Disposal in a way that is contrary to the true meaning of its language and its commercial purpose. They submit that:

(a) paragraph (c) expressly covers only a disposal of land, either for the site of one of the specified facilities or for use in one of the specified ways, and not a disposal of a completed dwelling house;

(b) the words "and the like", in the first part of the paragraph, and the words "or other social/community purposes", in the second part, are to be construed in accordance with the ejusdem generis principle. The genus (or common category) which applies to the first part of the paragraph is ancillary facilities or services for a residential development, and in the second part, facilities of a residential development intended to be used by the public generally. A private dwelling house is not a facility of either kind;

(c) a built dwelling house is a "Market Unit", in the terminology of the Sale Agreement, not "land", and permitted disposals of Market Units are expressly dealt with in paragraph (a) of the definition. Since paragraph (a) only comprises sales of Market Units on the open market, it would be strange if paragraph (c) silently included sales of Market Units that did not fall within paragraph (a);

(d) the commercial purpose of the restriction on disposals in the Sale Agreement is to protect Burrows' interest in receiving an overage payment, if and when Ward has disposed of all (or nearly all) of the Market Units. A disposal of Market Units at cost (rather than at open market value) to a registered social landlord would inevitably have a depressing effect on the overage calculation. Had such a disposal been contemplated, the parties would have made express provision for it; and

(e) at the date of the Sale Agreement, the Property was serviced land with the benefit of full planning permission, with no requirement for affordable housing on the Property and no contemplation by the parties that affordable housing units would be required: see in particular Mr Blake's email of 22 March 2012 to Burrows.

38. Counsel for Burrows emphasise that clause 4.9 of the Sale Agreement contains a prohibition on any disposal of the Property, or part of it, subject only to defined exceptions. A disposal to another developer who enters into a Deed of Covenant is just one of the permitted cases, and quite separate from the excepted category of Permitted Disposals. A disposal to a registered social landlord therefore did not fall outside the purposes of the restriction on disposals, as the judge seemed to have considered in paragraphs [53] to [55] of the judgment.
39. Furthermore, it is argued, the fact that national and local government policy in 2007 favoured the provision of on-site affordable housing is not a strong pointer to a conclusion that the disposal must have been a Permitted Disposal. In the first place, there was an existing, full planning permission for the Property, which pre-dated that policy, and which contained no requirement for affordable housing on site. Secondly, an application for revised planning permission which Burrows had made, and was expressly referred to in the Sale Agreement, was for a minor change to part of the existing layout, and would not have been expected to trigger any review of the planning obligations already entered into. Thirdly, affordable housing was not in the parties' actual contemplation when the Sale Agreement was made. Fourthly, there was no further planning application by Ward that the parties had in mind at the date of the Sale Agreement. Fifthly, even though the Sale Agreement allowed for the possibility that Ward might obtain a different planning permission, the circumstances in which Ward eventually was obliged to provide affordable housing were unforeseeable in 2007. It was only the unforeseen effects of the recession which led to the application for a new planning permission in 2011. For all these reasons, says Burrows, it would be wrong to stretch the meaning of paragraph (c) to accommodate the present case. The fact that the disposal to AmicusHorizon was not a Permitted Disposal did not mean that AmicusHorizon had to enter into a Deed of Covenant. It merely meant that Ward had to negotiate a variation of the Sale Agreement with Burrows if it wanted to implement the new planning permission which it had obtained.
40. On behalf of Ward, Mr McGhee submits that there was nothing wrong with the judge's approach to the interpretation of paragraph (c), and he reached the right conclusion.
41. Mr McGhee submits that clause 4.9, and the definition of "Permitted Disposal", have to be construed in the light of the clear purpose of protecting Burrows' right to receive an overage payment calculated by reference to sales to residential purchasers.
42. Clause 4.9 deals with two central cases; the first is a disposal by Ward of the development or part of it to another developer, before construction and sale of units. In that event, the clear intention of the parties was that Ward should be released from its overage obligations provided that the new developer took on the same obligations by entering into a Deed of Covenant. The second case is the sale by Ward to the purchaser of an individual completed unit. Clearly, such a purchaser should not be required to enter into a Deed of Covenant, which would have entailed taking on responsibility for the overage for the entire development together with the onerous reporting obligations. Nor would Burrows have been content for Ward's covenant to pay overage to be replaced by a covenant from a purchaser of an individual unit. These considerations therefore account for paragraph (a) of the definition of "Permitted Disposal".
43. Mr McGhee next submits that paragraph (b) was included to deal with a lease at market rent without a premium, whether before or after construction of market units. In such a case, there would be no residential sale proceeds to go towards the calculation of overage, and it was therefore appropriate for the obligation to pay overage to remain with Ward rather than pass to the lessee. Paragraph (c) was then intended to deal with transfers of land required to satisfy planning obligations and the like in order for the residential development to take place. Again, the disponees could not reasonably be expected to take on responsibility for payment of overage or for Ward's reporting obligations, so it was again appropriate for liability for payment of overage to remain with Ward. The terms of paragraph (c) were clearly wide enough, says Mr McGhee, to include the disposals to AmicusHorizon which were required by the terms of the Section 106 Agreement. Similarly, paragraphs (d), (e) and (f) enabled the specified types of disposal to take place without triggering any obligations on the management company, lender or grantee to take on responsibility for overage or enter into a Deed of Covenant.
44. Mr McGhee emphasises that at the date of Sale Agreement the parties clearly contemplated that a new planning permission might be obtained by Ward, and that Ward might develop the Property in accordance with that new planning permission. Further, it must have been within the contemplation of the parties that, if a new planning permission was obtained, then it was likely to require that affordable housing be provided on site: this is apparent from Mr Williams' evidence, the ODPM Circular 05/2005 and NPP3. Furthermore, the parties would not have expected that on any such disposal the social housing provider would itself have provided a Deed of Covenant: see the judgment at [49] and [50]. There are at least three reasons for this: first, a registered social landlord purchasing only a small number of units would have been unwilling to take on the financial responsibility of paying overage in respect of all the units on the site; secondly, such a landlord would also have been unwilling to take on the reporting obligations in respect of sales, when it would be wholly reliant on information from Ward in order to discharge those obligations; and thirdly, Burrows would have been unwilling to release Ward from its overage obligations in return for a covenant from a registered social landlord which might have limited means and would have only a limited interest in and knowledge of the site.
45. In answer to some of the other points made by Burrows, Mr McGhee submits as follows:

a) There is no reason to construe the word "land" in paragraph (c) as excluding land with building on it, because it is an elementary proposition of land law that things attached to land become part of the land. Furthermore, the parties cannot sensibly have contemplated that a disposal of bare land to a social housing provider to allow it to build affordable housing units would be permitted, but that a disposal of such units which had already been built would not be permitted.

b) The phrase "social/community purposes" in paragraph (c) should not be read narrowly as confined to the provision of facilities intended to be used by the public generally. The paragraph is formulated in the widest possible terms so as to include planning obligations. It is also clear that the provision of affordable housing is an important social purpose: see the description of the role of registered social landlords in the provision of social housing by Elias LJ in R (Weaver) v London & Quadrant Housing Trust [2009] EWCA Civ 587, [2010] 1 WLR 363, at [7] to [18].

c) It is worth comparing the definition of "Permitted Disposal" with that of "Permitted Disposal of the Retained Land" in the Sale Agreement. The two definitions are in similar terms, except that the words "or for roads footpaths public open space or other social/community purposes" do not appear in paragraph (c) of the latter definition. The reason for this is presumably that the development of the Retained Land was well advanced at the date of the Sale Agreement, and was not expected to change, whereas it was specifically envisaged that Ward might later apply for a new planning permission for the Property, and might therefore be required, as part of its planning obligations, to dispose of land for social purposes.

d) Paragraph (a) of the definition of "Permitted Disposal" is not the only paragraph which is capable of applying to a disposal of Market Units: in addition to paragraph (c), a lease of a Market Unit would fall within paragraph (b), while the grant of security over a Market Unit would fall within paragraph (e).

e) With regard to Mr Blake's email of 22 March 2012, his subjective belief about the construction of the Sale Agreement was inadmissible, quite apart from the fact that it post-dated the Sale Agreement by some 5 years and he had not been called by either side to give evidence.

(d) Discussion

46. Mr McGhee's submissions were well sustained and attractively presented, but I have come to the clear conclusion that the transfer to AmicusHorizon did not fall within paragraph (c) and was therefore not a Permitted Disposal.
47. My starting point is that, as is now conceded, the disposal to AmicusHorizon was not a Residential Disposal within paragraph (a) of the definition of Permitted Disposal. Such a disposal must be of one or more individual Market Units, and must be made in the open market at arm's length. The disposal to AmicusHorizon was indeed of five individual Market Units, but it was not made in the open market. Had the parties contemplated that a disposal of completed Market Units might nevertheless fall within paragraph (c), as a "transfer … of land … for … social/community purposes", it seems to me implausible that they would have left this to be inferred from the very different context and language of paragraph (c) itself. This impression is reinforced by the fact that a disposal of completed Market Units to a registered social landlord at cost price could have been expected to have a significantly adverse effect on the calculation of the overage payment, particularly when it is remembered that the local authority might in principle have been able to require up to 40% of the new units to consist of affordable housing.
48. Mr McGhee is right to say that disposals of Market Units could also fall within paragraphs (b) and (e), but this does not in my view meet the point that in paragraph (c) it would be very strange to describe the transfer of a completed dwelling as a transfer of land, particularly when regard is had to the specific instances of transfers of land which are itemised in the paragraph. Land which is transferred for the site of an electricity sub-station, gas governor kiosk or sewage pumping station, or for use as a road or footpath, or as a public open space, is unlikely to have any buildings on it at the date of transfer, and will certainly not have a dwelling house on it. This, it seems to me, is the essential point of the ejusdem generis argument, which I prefer to regard not as a rigid canon of construction, but rather as a flexible aid to construction which reflects the twin requirements of commercial common sense and the need to construe contractual provisions as a whole and in their context. Another way of making the same point is to say that the words "or other social/community purposes" in the second part of paragraph (c) have to be read in the light of the three specified purposes which precede them, and with at least a provisional inclination to interpret the social and/or community purposes which the parties had in mind as being purposes akin to the provision of land for roads, footpaths or public open spaces.
49. I should add that we were referred to the relevant passages in Chitty on Contracts, 32^nd edition, and Lewison on The Interpretation of Contracts, 6^th edition, which deal with the ejusdem generis principle: see Chitty at paragraphs 13-090 to 13-093, and Lewison at paragraph 7.13. These passages distil much helpful learning on the subject, but in the end I find myself in respectful agreement with Sir Kim Lewison's comment that "no principle of interpretation is ever more than a guide to the true meaning of the contract."
50. I accept Mr McGhee's submission, and agree with the judge, that the provision of affordable housing units to a registered social landlord clearly achieves both social and community purposes. I also agree that the background knowledge available to Burrows and Ward in February 2007 would have included knowledge of the change in national and local planning policy with regard to the provision of on-site affordable housing, and they must therefore have contemplated the possibility that such a requirement would form part of any future planning permission for development of the Property that Ward might obtain.
51. These considerations provide a substantial measure of support for Ward's case, but they do not to my mind meet the crucial objection that the language of paragraph (c), read as a whole and in its context, is simply not apt to cover disposals of completed Market Units of affordable housing to a registered social landlord. Nor do I find this a surprising conclusion to reach, let alone an anomaly which might encourage a strained interpretation of the language of paragraph (c). The consequence of the proposed transfer to AmicusHorizon not being a Permitted Disposal was simply that Ward needed to negotiate terms with Burrows for release from the restriction if it wished to complete its development of the site in accordance with the new planning permission. That is what Ward understood the position to be in 2012, and the parties began negotiations accordingly. I do not see anything unreasonable about that, particularly bearing in mind the adverse effect on overage that such transactions might potentially have.
52. I am unable to agree with Ward that any useful light is thrown on the question by the difference in wording between the definitions of "Permitted Disposal" and "Permitted Disposal of the Retained Land". The omission of the second part of paragraph (c) from the latter definition may well be explained by the advanced state of development of the Retained Land when the Sale Agreement was made, but this factor cannot in my view assist in determining the correct meaning to attribute to the second part of paragraph (c). At best, it merely reinforces the point that the ultimate layout of the Property had not yet been finally determined, and it was open to Ward to seek a new planning permission.
53. I also consider that Ward's emphasis on the presence or absence of a Deed of Covenant is in the present context something of a red herring. Of course one would not expect a provider of affordable housing like AmicusHorizon to provide an overage covenant to Burrows in respect of the whole site, even with the benefit of an indemnity from Ward; but I fail to see how that consideration helps in ascertaining the true scope of paragraph (c).
54. As to the point that the word "land" would normally include land with buildings upon it, I do not doubt the correctness of the general proposition, or indeed that "land" has its usual meaning in paragraph (c). But this does not meet the objection that this is not the language which the parties would naturally have chosen in the present context if they had in mind a transaction which consisted of the transfer of completed dwellings, which would be Market Units in the terminology of the Sale Agreement, to an external purchaser.
55. For these reasons, therefore, I am satisfied that Burrows' appeal on the first issue should succeed.

Ground 2: is Burrows entitled to damages on a negotiating basis?

56. The best introduction to the topic of negotiating, or Wrotham Park, damages is the judgment of the Privy Council delivered by Lord Walker of Gestingthorpe JSC in the Pell Frischmann case (Pell Frischmann Engineering Ltd v Bow Valley Ltd and Others [2009] UKPC 45, [2011] 1 WLR 2370), on appeal from the Court of Appeal of Jersey. The principles for which Pell Frischmann is now the leading authority are conveniently summarised in the headnote at [2011] 1 WLR 2370, 2371 as follows:

"where a breach of contract could in principle have been restrained by injunction, damages could be awarded which represented such a sum of money as might reasonably have been demanded by the claimant from the defendant as a quid pro quo for permitting the continuation of the breach, even though no injunction had been claimed in the proceedings or there was no prospect, on the facts, of such an injunction being granted; that, since such damages were meant to be compensatory and were normally to be assessed or valued at the date of breach, principle and consistency indicated that post-valuation events were normally irrelevant; but that, given the quasi-equitable nature of such damages, the judge might where there were good reasons for doing so direct a departure from the norm, either by selecting a different valuation date or by directing that a specific post-valuation-date event be taken into account …"

57. Since we are concerned at this stage only with the question of principle whether Burrows is entitled to recover damages on a negotiating basis, we are not directly concerned with the principles upon which such damages would fall to be assessed in the present case, or the extent to which subsequent events should be taken into account. The crux of the matter, therefore, is whether Burrows is entitled to an award of damages to compensate it for the lost opportunity to negotiate with Ward an appropriate price for permitting the transfer of the five units to AmicusHorizon, notwithstanding that Burrows suffered no loss (other than the opportunity which I have mentioned) as a result of Ward's breach of contract, because the total net proceeds of sale of the Market Units on the Property never reached a level at which overage would become payable.
58. For present purposes, the most important part of Lord Walker's reasoning is to be found in paragraphs [47] and [48] of his judgment, from which I quote the following extracts:

"47. The topic of Wrotham Park damages has been discussed in a number of important judgments, some quite recent, of which the most illuminating (apart from the judgment of Brightman J in Wrotham Park [1974] 1 WLR 798 itself) are those of Nourse and Nicholls LJJ in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406 ("Stoke"); Sir Thomas Bingham MR and Millett LJ in Jaggard v Sawyer [1995] 1 WLR 269 ("Jaggard"); Lord Nicholls in Attorney-General v Blake [2001] 1 AC 268 ("Blake"); Mance LJ (and the short concurring judgment of Peter Gibson LJ) in Experience Hendrix Llc v PPX Enterprises Inc [2003] 1 All ER (Comm) 830 ("Experience Hendrix"); Neuberger LJ in Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] 2 EGLR 29 ("Lunn Poly"); Warren J in Field Common Ltd v Elmbridge Borough Council [2009] 1 P & CR 1; and Arden LJ in Devenish Nutrition Ltd v Sanofi-Aventis SA [2009] Ch 390

48. These instructive judgments are not completely consistent among themselves (especially as to the circumstances in which the court will award an account of profits, alias restitutionary damages, which is not an issue in the present appeal). But they establish the following general principles (much more fully developed in the judgments themselves):

(1) Damages (often termed "user damage") are readily awarded at common law for the invasion of rights to tangible moveable or immoveable property (by detinue, conversion or trespass): …

(2) Damages are also available on a similar basis for patent infringement and breaches of other intellectual property rights of a proprietary character…

(3) Damages under Lord Cairns's Act are intended to provide compensation for the court's decision not to grant equitable relief in the form of an order for specific performance or an injunction in cases where the court has jurisdiction to entertain an application for such relief: Lord Nicholls of Birkenhead in Blake [2001] 1 AC 268, 281. Most of the recent cases are concerned with the invasion of property rights such as excessive user of a right of way: Bracewell v Appleby [1975] Ch 408, Jaggard [1995] 1 WLR 269. The breach of a restrictive covenant is also generally regarded as the invasion of a property right (Peter Gibson LJ in Experience Hendrix [2003] 1 All ER (Comm) 830, para 56) since a restrictive covenant is akin to a negative easement. (It is therefore a little surprising that Lord Nicholls in Blake [2001] 1 AC 268, 283, referred to Wrotham Park as a "solitary beacon" concerned with breach of contract; that case was concerned with the breach of a restrictive covenant to which neither the plaintiff nor the defendant was a party; but the decision of the House of Lords in Blake decisively covers what their Lordships have referred to as a non-proprietary breach of contract.)

(4) Damages under this head (termed "negotiating damages" by Neuberger LJ in Lunn Poly [2006] 2 EGLR 29, para 22) represent "such a sum of money as might reasonably have been demanded by [the claimant] from [the defendant] as a quid pro quo for [permitting the continuation of the breach of covenant or other invasion of right]": Lunn Poly, at para 25.

(5) Although damages under Lord Cairns's Act are awarded in lieu of an injunction it is not necessary that an injunction should actually have been claimed in the proceedings, or that there should have been any prospect, on the facts, of it being granted: Millett LJ in Jaggard [1995] 1 WLR 269, 285 (but cf, at p 291); Lord Nicholls in Blake [2001] 1 AC 268, 282; Chadwick LJ in WWF-World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2008] 1 WLR 445, para 54."

59. In the light of these principles, the argument for Burrows is straightforward. Burrows submits that, had it been told by Ward in advance that Ward was going to transfer five properties to AmicusHorizon without consent or a Deed of Covenant, Burrows could have restrained the threatened breach of contract by injunction. It could then have proceeded with the negotiations to vary the Sale Agreement that Ward had started but abandoned. Burrows lost that opportunity, as a result of Ward's unilateral action, and is entitled to be compensated in damages for the breach of contract. It is irrelevant that Burrows has in fact suffered no actual loss as a result of the breach, because even if no loss was caused, Burrows is entitled to be compensated for the loss of the opportunity to negotiate a release of the contractual restriction. Indeed, it is precisely in circumstances where no or little actual loss has been caused by the breach that a party is likely to seek negotiating damages.
60. This argument was not accepted by the judge, for the reasons which he gave in the judgment at [75] and [76]:

"75. Mr McGhee responded to these submissions [for Burrows] by distinguishing this case from Wrotham Park. It was no part of the parties' intent that clause 4.9 should restrict the type of scheme that Ward could build out. The contractual restriction in clause 4.9 was, in contrast to Wrotham Park, not in the nature of a property right, but merely a personal covenant of Ward to protect the overage payment obligation. Mr McGhee noted that it was for this reason that the covenant in clause 4.9 could not be protected by notice on the register, requiring the parties to agree the restriction in clause 4.11 instead.

76. I agree with these submissions of Mr McGhee. The purpose of clause 4.9 was to prevent the sale of the Property to another developer or similar purchaser other than in circumstances where Burrows' right to payment of overage, if any, was protected by a Deed of Covenant. While the parties did, in general terms, contemplate that Ward might wish or need as part of its development of the Property (including under a new planning permission) to transfer, dedicate or lease land for social or community purposes, the parties did not expressly address in the Sale Agreement the sale of affordable housing units by Ward to a registered social landlord. The fact that they did not appear to have addressed their minds specifically to that scenario is, for present purposes, fortuitous. It should not, in my view, entitle Burrows to extract a profit by way of ransom. No legitimate interest or expectation of Burrows was breached by Ward's selling five residential units to AmicusHorizon to satisfy the condition in its new planning permission relating to the provision of affordable housing …."

61. With respect to the judge, this reasoning cannot in my view be supported. The simple fact is that Ward transferred the five properties to AmicusHorizon in breach of an express term of the Sale Agreement, namely clause 4.9. Burrows had a legitimate interest and expectation that Ward would not breach the Sale Agreement, reinforced in the present case by the fact that Ward had negotiated with Burrows for three months on the footing that the proposed transfer was prohibited by the Sale Agreement, and had then effected the transfer behind Burrows' back and without Burrows' consent. Burrows is not now seeking to extract a ransom from Ward, but merely to be compensated for the loss of the opportunity to negotiate a reasonable price for releasing Ward from its contractual obligations. The benefit of the contractual restriction was a potentially valuable piece of property in its own right, and Burrows was deprived of the opportunity to exploit it, for what it was worth, by Ward's unilateral action.
62. Burrows submits that the fact that it would in the event have suffered no actual loss as a result of granting the variation, and the question whether or not the case of affordable housing was foreseen at the time of the Sale Agreement, might well be factors in the hypothetical negotiation that would identify the quantum of the damages, as would the urgency and the value of the variation to Ward; but these factors are irrelevant to the question whether damages assessed on a negotiating basis are recoverable in principle. I agree.
63. Mr McGhee seeks to uphold the decision of the judge on the basis that the key consideration is whether the claimant has an interest in performance which is not readily measureable in terms of money, and for which an award of damages by reference to his financial loss would not provide him with proper recompense: see Attorney General v Blake at 282 B-C, per Lord Nicholls. Mr McGhee also submits that the purpose of clause 4.9 was simply to protect Burrows' right to overage, and not to restrict the development of the site or to provide Burrows with a ransom opportunity. I am unable to accept these submissions, which seem to me to ignore the fundamental point that clause 4.9 expressly prevented disposals of the Property or any part thereof, other than Permitted Disposals, at any time during the Overage Period without first procuring the execution of a Deed of Covenant by the transferee. Ward freely entered into a contract containing this express provision, and it deliberately breached it without giving Burrows the opportunity to seek an injunction to prevent the disposal. It would in my judgment be regrettable if Ward could escape scot free, in these circumstances, without having to pay a proper price for obtaining a release from the restriction.
64. For completeness, I should also note that we were referred by Mr McGhee to the decision of this Court in One Step (Support) Ltd v Morris-Garner [2016] EWCA Civ 180, [2017] QB 1. The main issue in that case, which does not arise in the present case, was whether damages on a negotiating basis were available even though the claimant might have been able, albeit with difficulty, to prove that it had suffered identifiable financial loss for which damages on a conventional basis would be recoverable. The leading judgment was delivered by Christopher Clarke LJ, with whom King and Longmore LJJ agreed, the latter adding a concurring judgment of his own. After a full and careful review of the authorities, Christopher Clarke LJ concluded that the availability of Wrotham Park damages was not confined to cases where the claimant could not demonstrate identifiable loss, and that the correct approach was for the judge to determine whether the assessment of damages on that basis was a just response. "What is the just response", he said at [121], "is, quintessentially, a matter for the judge to decide". The case is currently under appeal to the Supreme Court, which we were told is due to hear it later this year. For present purposes, it is enough to note that the difficult issue of the potential availability of Wrotham Park damages in cases where the claimant might in principle be able to recover damages on the conventional basis, does not arise in the present case, because it is common ground that Burrows suffered no loss on a conventional basis. And if the relevant question is what the just response would be to the facts of the present case, I would answer that justice to Burrows requires an award of damages on a negotiating basis.
65. For these reasons, I would also allow Burrows' appeal on the second issue. If Rupert Jackson LJ agrees, it follows that the case must now be remitted to the judge to determine the issue of quantum, if the parties are unable to agree it themselves.

Lord Justice Rupert Jackson:

66. I agree.