England and Wales High Court (Chancery Division) Decisions

McLister v. London Borough of Southwark [2001] EWHC Ch 398 (5th July, 2001)

Case No: CH 1998 M 2865

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION  

St. Dunstan's House,

133-137, Fetter Lane,

London, EC4A 1HD

Date: 5 July 2001

B e f o r e :

HIS HONOUR JUDGE RICHARD SEYMOUR Q.C.

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Darryl Royce (instructed by Bosley & Co. for the Claimant)

Richard Bendall (instructed by Lyn Meadows for the Defendant)

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JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

H.H. Judge Richard Seymour Q. C. :

Introduction

1. This action is concerned with the premises known as and situate at 4A, 6 and 6A, Grove Lane, London SE5. In this judgment I shall refer to those premises as "the Property". The freehold owner of the Property is the Council of the London Borough of Southwark, to which I shall refer as "the Council". The Claimant in the action is Mr. James McLister.
2. It is not in dispute that an agreement was made between the Council and Mr. McLister for the grant to Mr. McLister of a lease of the Property. In this judgment I shall call that agreement "the Contract". It is common ground that the Contract has not been performed and that no lease of the Property has actually been granted. There is a vigorous difference between the parties as to whether the Council is in breach of the Contract in not granting a lease. The Council's case is that it is not, and has not been, bound to grant a lease because Mr. McLister has failed to pay a premium of £10,000 which he agreed to pay and he has refused to accept a lease unless the demise included an area of land referred to during the trial as "the Yellow land". Mr. McLister's case is that, far from it being he who should pay a premium on the grant of a lease to the Council, the Council is obliged under the Contract to pay him a reverse, or negative, premium of some £62,582. He also claims a declaration that the demise to him should include the Yellow land. He claims substantial damages against the Council for alleged breach of the Contract in not granting him a lease of the Property. Each party claims against the other specific performance of the Contract on the terms for which it contends.

3. It is common ground that the Contract was in writing. There is a difference between the parties as to the documents which were incorporated in the Contract. It is not in dispute that the Contract was contained at least in a letter dated 7 June 1988 addressed to Mr. McLister signed by the Council's Borough Valuer, Mr. T.G. Hanes, and a form of acceptance dated 4 July 1988 signed on behalf of Mr. McLister by his solicitors, Messrs. Bosley & Co. ("Bosley"). The Council's case is that the Contract is to be found only in the two documents which I have mentioned. Mr. McLister's case is that the Contract also incorporated a letter dated 26 November 1987 written by Mr. Kieran Hickland on behalf of the Council to Mr. McLister and a letter dated 9 December 1987 written by Mr. McLister to Mr. Hickland. For reasons which I shall explain later in this judgment this difference in analysis of how the Contract was made ultimately did not seem to me to be very important. Mr. McLister's pleaded case was that "a draft Lease undated and unexecuted" was also incorporated into the Contract. However, in opening Mr. McLister's case to me, Mr. Darryl Royce, who appeared on his behalf, rather abandoned that contention. In the event whether such draft lease was, on proper analysis, a contract document was overtaken by the agreement of the parties at the beginning of the trial that, subject to the resolution of differences between them as to (i) what further premium, if any, is payable by which of them to the other and (ii) what is the precise extent of the Property, I should at the end of the trial, having decided those issues, make by consent an order for specific performance of an obligation to grant a lease in the form of a draft attached to the Amended Particulars of Claim in this action, modified as necessary to take account of my findings as to the matters which I have identified. There is a problem in that agreement in that no date for commencement of the term for which the draft lease provides has been specified. I have drawn that matter to the attention of the parties and await the result of their further deliberations. However, that point does not affect my ability to reach conclusions on the matters in dispute between the parties.

4. At a Case Management Conference held on 13 October 2000 Master Bowles directed, amongst other things,

"(10) that the trial be limited to the following issues:

(i) all issues of liability including whether or not the Claimant was entitled to a negative premium; and

(ii) what if any relief in principle the Claimant is entitled to including the heads of any damages recoverable"

I decided at the trial that, in the light of the elements of damage claimed, what heads of damage were recoverable was likely to depend upon what elements of damage Mr. McLister could prove, assuming that he was successful on the issue of liability. It therefore did not seem to me to be useful to deal with the question of the recoverable heads of damage in isolation from the question of proof of damage, and so the trial has not been concerned with any question of damage, as opposed to the question of what further premium is payable by whom to whom.

The Contract

5. In 1985 and 1986, so he said in his witness statement, Mr. McLister had dealings with the Council in relation to a property known as and situate at 2, Grove Lane, London SE5 of which the Council was the freehold owner. Those dealings he regarded as successful. It appears that Mr. McLister's principal point of contact in relation to the transaction concerning 2, Grove Lane was Mr. Hickland. According to Mr. McLister's witness statement, in about June 1986 Mr. Hickland enquired whether Mr. McLister might be interested in acquiring an interest in the Property. The Property was at that time derelict and its condition had attracted complaints from residents of the neighbourhood. The Council had instructed a firm of building surveyors, Messrs. Calder Ashby & Co. ("Calder Ashby") in about 1983 or 1984 to prepare a scheme of redevelopment for the Property and that had been done. Calder Ashby had produced a number of drawings, including one which showed a bin store on the Yellow land. Copies of those drawings seem to have been provided to Mr. McLister in about August or September 1986. The Council considered that the undertaking of a redevelopment along the lines of the scheme proposed by Calder Ashby would be uneconomic and was for that reason interested in a possible disposal of an interest in the Property to Mr. McLister, if he would undertake the redevelopment of the Property. He indicated that he was keen to take the Property, but little was done until about the end of August 1986. In a letter dated 26 August 1986 to Mr. Hickland Mr. McLister wrote, so far as is presently material:-

"Further to our conversation today, I can now bring you up to date as to developments concerning my proposals for the above.

Firstly I confirm that I am still interested in proceeding with negotiations for this property, subject of course to investigating that my proposals can in fact be brought to fruition. These I attend to below.

Having adopted your suggestion that the premises may be suitable to a restaurant type usage, I have had negotiations and site meetings with the planners to discuss the shape, form and usage, and have had their informal comments. My own architect has been commissioned and is in the process of carrying out feasibility studies with respect to building work etc. Mr. Jones, the Conservation Officer for the area has also been consulted and attended meetings on site to discuss proposals for the premises, and has been quite supportive of some of our ideas.

However, having identified the above questions would not prove necessarily difficult to resolve, it now transpires that the critical item in our proposals would be the obtaining of a suitable licence to operate a business on the premises. As you may be aware, the obtaining of licences is a lengthy and tricky process and information on obtaining licences and the likelihood of being successful is not readily available. However, we are in the process of finalising a strategy for applying for a licence.

Consequently we expect shortly to be in a position to firm up our proposals along the lines we discussed originally, and I expect to be able to report to you one way or the other within some weeks, and would be obliged if, having done all this investigative work, you could hold open your offer to us until then. "

6. The position of Mr. McLister from the outset of his involvement with the Property seems to have been that he was enthusiastic to proceed provided that it appeared that he could redevelop it at a profit. The advantage which he in particular had over the Council in relation to undertaking a scheme of redevelopment was that he had an interest in a building company, Wavercroft Ltd., through which any redevelopment could be executed.

7. The process of discussion between Mr. McLister and the Council concerning the Property proved to be protracted. Mr. McLister did not wish to become involved in serious discussions in advance of obtaining a provisional Justices' Licence, and the process of obtaining one was drawn out. However, in a letter dated 18 November 1986 to Mr. Hickland Mr. McLister indicated that he would then like to enter into negotiations to resolve such questions as the premium to be paid on the grant of a suggested 125 year lease. Mr. Hickland asked in a letter dated 15 December 1986 for Mr. McLister's offer in respect of a premium. Mr. McLister appears to have made his initial offer orally, for in a file note dated 22 January 1987 Mr. Hickland recorded that at a meeting that day Mr. McLister had offered £1000. The note ended

"I think I'll try a Residual Valuation"

8. A residual valuation is a method of valuing a development. Essentially it involves estimating the value of the development when completed and then subtracting from that figure the estimated costs of completing the development. Mr. Hickland's note dated 22 January 1987 indicates that he was thinking along the lines of a financial arrangement between the Council and Mr. McLister in relation to the Property under which the premium payable was geared to the profitability to Mr. McLister of the redevelopment.

9. Correspondence continued between Mr. Hickland on behalf of the Council and Mr. McLister in relation to a premium to be paid on the grant of a lease of the Property in a desultory sort of way during most of 1987. In the course of that correspondence, under cover of a letter dated 10 March 1987, Mr. McLister sent to Mr. Hickland a schedule entitled "Basic Works to Building" which set out a number of items of construction work the total cost of which was estimated at £40,850. To that sum Value Added Tax was added at 15% to produce a total of £47,000. By about June 1987 it had been agreed in principle, and subject to contract, that a premium of £5000 would be paid in the first instance. After further intermediate contact, and a number of other proposals, in a letter to Mr. McLister dated 26 November 1987 Mr. Hickland wrote, so far as is presently relevant, as follows:-

"Further to recent correspondence regarding the above property, I set out below my proposal for dealing with the second premium:-

Estimated Capital Value

Upon Completion of Works to Shell Finish - £____

Less

(1) Cost of Works (shell finish)

(2) Land Costs (£5,000)

(3) Expenses –

Letting fees

Interest charges

Contingencies

@ 5% of building works

Profit Margin

£______

Additional Premium: £

I suggest that this proposal is incorporated into the lease and the "blanks" filled in upon completion of the works to Shell Finish. The estimated Capital Value could be established by a pseudo-letting procedure – your fees to be included in the calculation outlined above. "

In a letter to Mr. Hickland dated 9 December 1987 Mr. McLister stated, amongst other things:-

"I agree to the basis provided in your recent letter.

I refer to the Schedule of building costs enclosed in my letter to you of 10^th March 1987 showing costs (including non-recoverable VAT) at £47,000.

I enclose also a copy analyses based on this figure using your format and some typical percentages as shown and showing also the cases for variances on the building cost of +/- 10%.

This I believe represents a reasonable spread of the possibilities

I have adopted a valuation for the finished shell of £60,000 (which is top whack in my view). I have used only a nominal 1% profit margin."

The analyses enclosed with the letter disclosed a range of possible outcomes between -£6311.56 and +£4606.54. However, the latter figure was the only positive one of the three, and was based upon the premise that the actual building cost would be £42,300.

10. The next thing that happened was that the officers of the Council sought approval to the making of a formal offer to Mr. McLister in relation to the Property. Such approval was obtained. So it was that Mr. Hanes, the Borough Valuer came to write to Mr. McLister the letter dated 7 June 1988 the material terms of which were:-

"I am pleased to confirm that Committee approval has been obtained for the above transaction to proceed on the terms and conditions set out below:-

PARTIES To be the London Borough of Southwark and Mr. J. McLister…

PREMISES 4A, 6 & 6A, Grove Lane, S. E. 5.

TERM 125 Years from a date to be agreed.

PREMIUM £5000 payable upon taking possession. A further premium is to be paid upon completion of the work subject to a residual valuation being carried out upon completion of the works to shell finish. The lessee is to provide computerised data to enable accurate estimates of the cost of the work to be calculated. A ground rent of 1 peppercorn per annum is also payable.

REPAIRS The lessee is also to be responsible for refurbishing the property in accordance with any planning permission granted. The works must be completed within nine months from taking possession of the property.

USER Premises are to be used only in accordance with the planning permission obtained at any given time.

INSURANCE The lessee is to be responsible for insuring the premises against damage or destruction by fire.

STATUTES, It shall be at the responsibility of the

ORDERS lessee to comply at his own expense

AND with the proper requirements of the local

PERMISSIONS or other authority at all times during the term of the lease.

DISPOSAL OF The assignment or underletting of the

INTEREST tenants interest in the whole premises is to be permitted only with the previous consent of the lessor which shall not be unreasonably withheld.

OTHER TERMS Such other terms and conditions as the Head of Legal Services decides to include in the Lease.

If you wish to accept the above offer, please sign and date the attached form of acceptance. As a legally binding contract is created by the acceptance of these terms, I would recommend you obtain independent legal advice before signing… "

The form of acceptance referred to was in the following terms:-

"I hereby accept the offer of a lease of the premises referred to above in accordance with the terms contained in the Council's contract for a Tenancy dated 7^th June 1988

I enclose a remittance of £5,000.

I recognise that my signature to this document has the effect of creating a legally binding contract between myself and the Council and that I have been given the opportunity to seek independent legal advice before signing."

As I have already recited, a form of acceptance was signed on behalf of Mr. McLister by Bosley and dated 4 July 1988.

11. In my judgment the Contract comprised, and comprised only, the letter dated 7 June 1988 written by Mr. Hanes to Mr. McLister and the form of acceptance dated 4 July 1988. It is, I think, plain that the suggestion in the letter dated 26 November 1987 of a formula for calculating whether any further premium would be payable, and, if so, how much, represented but a stage in what was, at the time the letter was written and also at the time the suggestion was accepted by Mr. McLister in his letter dated 9 December 1987, an uncompleted negotiation. It is trite law that until the parties to a negotiation have reached the point at which their negotiations have been completed and all terms which either of them wish to incorporate into a contract have been agreed, no agreement made on a provisional basis during the course of discussions or correspondence is binding – see Rossiter v. Miller (1878) 3 App Cas 1124 per Lord Blackburn at pages 1150-1151. In the present case no offer capable of acceptance was made until Mr. Hanes wrote the letter dated 7 June 1988. The offer contained in that letter was accepted by the form of acceptance dated 4 July 1988. However, my finding that the Contract comprised only the letter dated 7 June 1988 and the form of acceptance dated 4 July 1988 seems to me to have little or no practical significance for two reasons. The first is that Mr. Royce sought to rely on the letters dated 26 November 1987 and 9 December 1987 really only to indicate what the parties meant in the letter dated 7 June 1988 by the expression "a residual valuation". That expression, in my judgment, has an established meaning which, so far as the present case is concerned, is not materially different from a valuation undertaken in accordance with the exercise suggested in Mr. Hickland's letter dated 26 November 1987. Even if I were wrong in that approach, the result would be that any ambiguity in the expression could be elucidated by extrinsic evidence, which could include reference to the parties' understanding of what a residual valuation involved as indicated in Mr. Hickland's letter dated 26 November 1987 as agreed to by Mr. McLister in his letter dated 9 December 1987.

12. I have already mentioned the agreement of the parties, subject to the resolution of the points in difference between them concerning a further premium and the extent of the Property, that a lease in the terms of the draft annexed to the Amended Particulars of Claim be executed in relation to the Property. In those circumstances the fact that no date for commencement of a term was specified in the letter dated 7 June 1988 – the date for commencement was left as "to be agreed" – may not be an obstacle for them. However, if it were left to me, separate from any agreement of the parties within the context of the litigation, to consider whether to grant specific performance of some agreement I should have declined to do so on the ground that the Contract is too indefinite in its terms to give rise to an enforceable agreement in the absence of agreement of a date for the commencement of the term – see Marshall v. Berridge (1881) 19 ChD 233; Harvey v. Pratt [1965] 1 WLR 1025.

A Reverse Premium?

13. The question whether in any circumstances a premium was payable by the Council to Mr. McLister depends, it seems to me, simply upon construction of the Contract. It is clear, in my judgment, that, on proper construction of the Contract, a premium was only ever potentially payable by Mr. McLister. It was not seriously suggested by Mr. Royce that the premium of £5000 expressed to be payable "upon taking possession" was payable by anyone other than Mr. McLister. Grammatically, the fact that that first premium was payable "upon taking possession" indicates that the premium was payable by whomever took possession, that is to say, by Mr. McLister. If there were any conceivable doubt about that, it is removed by construing the letter dated 7 June 1988 together with the form of acceptance enclosed with, and referred to in, it. The premium of £5000 had to be sent with the form of acceptance when accepting the offer contained in the letter dated 7 June 1988. The fact that "A further premium is to be paid upon completion of the work" makes it clear, it seems to me, that the second premium is in addition to the first, and therefore payable by the same party as was liable to pay the first. If what was intended was that in some circumstances the Council should be liable to pay a premium after the first premium had been paid, that would amount to a refund, in whole or in part, of the first premium, which would be a strange result. The timing of the payment of the further premium suggests also that the person liable to pay it was the person who would be undertaking the work upon completion of which the further premium was payable. Finally, there can be no scope for dispute that the ground rent expressed in the letter dated 7 June 1988 to be "payable" was to be paid by the lessee, that is to say, by Mr. McLister. Thus every reference in the letter dated 7 June 1988 to anything being "payable" is manifestly a reference to it being payable by Mr. McLister. It would be inconsistent with the whole tenor of the letter for the further premium to be something which, dependent upon how the figures worked out, might be "to be paid" either by Mr. McLister or by the Council. It defies commercial common sense to suppose that the Council, which had no control over the levels of Mr. McLister's expenditure on achieving a shell finish for the Property, should expose itself not only to the risk that it would not actually receive any further premium, but also to the risk that it might be called upon to reimburse Mr. McLister's expenditure to an unknown extent. If Mr. McLister's case were well-founded a possible consequence would be that the Council would find itself paying Mr. McLister to take off its hands a valuable asset which he would then be able, by dint of the Council's expenditure, to sell on at a substantial profit.

Was the Council in breach of the Contract because no lease was granted?

14. It seems to me that there is a fundamental flaw in the approach adopted on behalf of Mr. McLister to the question whether the Council was in breach of the Contract in failing to grant a lease of the Property. I put on one side the point that the Contract was, for the reasons which I have already explained, unenforceable. Neither party took that point before me. When I asked him about how Mr. McLister's case was put in relation to the Council being in breach of the Contract by reason of the non-granting of a lease of the Property, Mr. Royce submitted simply that the obligation lay on the landlord to grant a lease which he had agreed to grant. If that were correct, then it might be difficult for the Council to resist a finding that it was in breach of the Contract, some 13 years now having passed since the Contract was made. However, in my judgment, Mr. Royce's submission is not correct. The transfer of the freehold title to land may be effected by unilateral act of the freehold owner. Only his signature is required on the relevant document. That is not the case with the grant of a lease. The grant of a lease is a bilateral transaction. It is not simply the transfer of title to a piece of property: it is also a contract in itself under which both the lessor and the lessee accept rights and obligations. There can be no question of there being any legitimate expectation on the part of an aspiring lessee that he will be granted any right in respect of the demised premises other than in return for his covenants. The question then is, in the present case, did the Council ever refuse to execute a lease of the Property at a time when Mr. McLister was prepared to execute a lease in the terms which he had agreed to accept? In the analysis which follows I once more leave out of account any question of the Contract not being enforceable for want of an agreed date of commencement of the term.

15. Before the form of acceptance dated 4 July 1988 was sent Mr. McLister had instructed Bosley to act on his behalf in relation to the grant of a lease of the Property. After the form of acceptance was sent Bosley became engaged in correspondence with the Council regarding the terms of the lease. Although, under the terms of the Contract, it was open to the Council simply to impose such terms as the Head of Legal Services decided, in fact Mr. McLister wanted, through his solicitors, to have a say in the terms, and the Council was prepared to countenance him having such a say. Correspondence on the subject of the terms of a lease was protracted, with long periods of inactivity on both sides. It is a sorry tale which reflects no credit on either party. It was not until 1 December 1988 that the Council's Legal Department sent a draft lease to Bosley. Mr. McLister had been allowed into possession of the Property in July 1988 and execution of the work necessary to bring the Property up to shell finish had commenced. Mr. McLister seems to have gone at his own unhurried pace in executing these works, and the failure of Bosley to complain about the lack of diligence on the part of the Council's Legal Department in producing a draft lease appears to reflect the fact that at that time Mr. McLister was himself in no rush to perform his obligations under the Contract. Bosley did not return the draft lease to the Council's Legal Department until 6 March 1989.

16. In a letter to the Council's Legal Department dated 12 May 1989 Bosley expressed mild disappointment that it had not heard from the Council in response to a letter dated 17 March 1989. The letter went on:-

"Nevertheless our instructions indicate that the works under Special Provision 1 relevant to the residual valuation on Special Provision 2 have now been just about completed and perhaps you could arrange the valuation and deal with all outstanding matters together."

Mr. McLister told me in evidence that the redevelopment of the Property to shell finish had been completed certainly by June 1989. At this point a truly disgraceful delay on the part of the Council's Legal Department in responding constructively to Bosley occurred. Nothing of substance happened until the travelling draft lease was returned to Bosley under cover of a letter dated 9 November 1989. However, by that stage a question which had started to loom was that of whether a further premium was going to be paid by Mr. McLister, and, if so, how much.

An agreement by Mr. McLister to pay £10,000?

17. By about August 1989 Mr. Christopher Horn appears to have taken on in relation to the Property the role previously played on behalf of the Council by Mr. Hickland in the Borough Valuer's Department. Under cover of a letter dated 18 October 1989 Mr. McLister sent to Mr. Horn a number of sheets of lists of costs allegedly incurred by Mr. McLister in bringing the Property up to shell finish. The lists were put in evidence. Three sheets related to costs allegedly incurred in the period up to 4 October 1988. The total alleged expenditure was £19,847.49. A further four sheets covered the period up to 16 October 1989 and showed alleged further expenditure during the period 21 October 1988 to 10 October 1989 of £16,064.73. Thus the total alleged actual expenditure up to 16 October 1989 was £35,912.22. A mystery which Mr. McLister did not satisfactorily explain in his evidence before me, in my judgment, is why, when it had been indicated by Bosley in May 1989 that the works to bring the Property up to shell finish were "just about completed", and he himself told me that shell finish stage had been reached certainly by June 1989, expenditure continued beyond May of substantial amounts. An even greater mystery is that one of the sheets indicated that further expenditure of some £25,650, making a total on building works of £56,735, was yet to be incurred. It appears that Mr. McLister was seeking to represent that his total expenditure on shell works was some £83,756.11. That figure appeared on a sort of summary sheet where it was broken down as £56,735 direct costs, £14,096.40 overheads and profit at 24%, and a balancing figure for Value Added Tax. Mr. Richard Bendall, who appeared on behalf of the Council, by analysis of the sheets to which I have referred, demonstrated that the lists showed actual expenditure totalling £30,426.92 to the end of June 1989.

18. Mr. Horn gave evidence before me. I found him to be an excellent witness. Bearing in mind that he was dealing with matters which occurred now some eleven and a half years ago, I thought that he gave his evidence carefully, refreshing his memory as appropriate from his contemporaneous notes and letters. He said, and I accept, that he was not happy that he could just accept at their face value the lists of alleged costs put forward by Mr. McLister. He noted in particular the substantial difference between Mr. McLister's estimate of building costs in March 1987 at £47,000 and the sum contended for in October 1989, and had difficulty in understanding how costs could have increased to £83,756.11. A consideration of the detail of Mr. McLister's sheets only serves to reinforce that difficulty, it seems to me. Mr. Horn told me that he anticipated, after receiving Mr. McLister's lists of alleged costs, that he would either meet or speak on the telephone with Mr. McLister about whether any further premium was payable, and, if so, how much. By way of preparation for such discussion he worked out some figures. His workings were put in evidence. As a result of his position within the Borough Valuer's Department he was aware that a property owned by the Council at 4, Grove Lane, formerly used as a glazier's shop, but in need of renovation, was being offered to let. He was also aware that an offer had been received for a tenancy of the shop at a rent of £6500 per annum from Phoenix Women's Group, and that other offers had been received at levels of rent in the region of £6000 per annum. Mr. Horn told me that he considered that 4, Grove Lane was a property comparable to the Property in shell finish in that it was very close to it geographically and would need attention in order to be brought into a condition in which it could be occupied by a tenant. He analysed the rent offered by Phoenix Women's Group as equivalent to a rent of £13.29 per square foot. If the Property in shell finish was worth the same rent, Mr. Horn calculated that the value of the Property in shell finish was some £108,712, based on a net lettable area of 654 square feet and applying a yield of 8%. In fact, so Mr. Horn told me, he thought that arguably the Property in shell finish was worth more than £13.29 per square foot. If it was worth as much as £15 per square foot, Mr. Horn calculated that the value of the Property in shell finish was some £122,700, using the same yield. On the basis of these calculations Mr. Horn reached the conclusion that the value of the Property in shell finish was £115,000, a figure roughly mid-way between the results of the two calculations. He also calculated that, if the true cost to Mr. McLister of bringing the Property to shell finish was not the alleged figure of £83,756.11 but the original estimate of £47,000 increased by 50%, that is, £70,000, with appropriate allowances for interest and for the premium originally paid of £5000, the residual value of the Property in shell finish was £20,000.

19. Mr. Horn had a telephone conversation with Mr. McLister on 6 November 1989. There was no dispute that in the telephone conversation, of which Mr. Horn made a note at the time which was put in evidence, Mr. Horn told Mr. McLister that he considered that the value of the Property in shell finish was £115,000 and that a further premium of £20,000 was, in his view, payable by Mr. McLister. Mr. McLister did not accept that, but offered to pay a further premium of £5000. That was not acceptable to Mr. Horn. Mr. McLister told Mr. Horn that he, Mr. McLister, was expecting to receive a valuation of the Property from a firm called Fleurets, and it was left that Mr. McLister would get in touch with Mr. Horn once he had received that valuation.

20. Mr. Horn and Mr. McLister had a meeting on 4 January 1990 which began at the Property and then adjourned to Mr. McLister's premises in Iliffe Street, Walworth. The meeting was a long one, lasting some two hours. Mr. Horn, as seems to have been his general practice, made a note after the meeting. He said that his recollection was that the note was made on the same day as the meeting, after his return to his office. That evidence was challenged, but I accept it. The note read as follows:-

"Long and rather tedious meeting with McLister. After a variety of arguments and counter-arguments he eventually agreed to pay an additional premium of £10,000.

The problem with this case is that the formula agreed is totally in his favour. It is based on his assessment of costs incurred and whilst I believe that that he has inflated the costs we would find it extremely difficult to prove even if we did put a Q. S. into the building. Our Q. S.'s wouldn't deal with it, so we'd have to instruct an outside firm – add to that cost our share of arbitration fees etc and it would cost us in excess of £10,000 anyway.

I do think also that the value of the completed scheme is lower than McLister had hoped. He has had estimates from licensed property valuers (which I have seen) of £65,000 for the shell and £120,000 fully fitted. My assessment of shell value was £115,000.

I think we should accept £10,000."

The note was, of course made for Mr. Horn's own purposes, rather than as a public record. Mr. Horn in his oral evidence elaborated upon how the note should be understood. He said that he did not have any authority at the meeting to make any agreement binding the Council as to what sum should be paid as a further premium. He said that he explained that to Mr. McLister, and that he believed that Mr. McLister understood the position in relation to the authority of officers of the Council from his previous dealings with the Council. The agreement which was made was, therefore, Mr. Horn said, subject to approval at the appropriate level within the Council. Mr. McLister's evidence was that he never made any agreement at all to pay a further premium of £10,000. He said that he was not specifically aware that Mr. Horn would need approval for any figure which he agreed with Mr. McLister, although he later became aware of that. Mr. McLister said that Mr. Horn did mention a figure of £10,000 at the meeting on 4 January 1990, but he, Mr. McLister, did not agree to pay that sum.

21. Bosley wrote a letter dated 10 January 1990 to the Council's Legal Department. That letter included:-

"Our instructions are that the residual valuations now show that the matter should be concluded without further ado as in fact the expert evidence suggests that a negative premium would be payable."

Mr. McLister said in evidence that that letter was written on his instructions given after his meeting with Mr. Horn on 4 January 1990. Mr. Royce submitted that the terms of the letter were inconsistent with any agreement having been reached between Mr. Horn and Mr. McLister on 4 January 1990.

22. Mr. Horn wrote a letter dated 7 February 1990, marked "Without Prejudice", to Mr. McLister. The letter was in the following terms:-

"Further to our meeting of 4^th January 1990 I can confirm that the Council is agreeable, subject to contract, to proceed on the basis that you will pay an additional premium of £10,000 calculated in accordance with the "Offer of a Contract to take a Lease" dated 7^th June 1988.

The Borough Solicitor had been instructed in this matter and should be confirming details to your Solicitors in due course."

Mr. Royce called attention to the fact that the letter was marked "Without Prejudice" and expressed to be "subject to contract". He submitted that the terms of the letter were inconsistent with any agreement having been made on 4 January 1990. In particular, he submitted that it appeared from the terms of the letter that it was putting forward a proposal, not confirming an agreement.

23. In compliance with the internal procedures of the Council Mr. Horn submitted an application for approval for acceptance of a further premium of £10,000 from Mr. McLister. The application was put in evidence. It was dated 13 March 1990, as approved by Mr. Hanes, the Borough Valuer, under delegated powers.

24. In a letter dated 9 April 1990 to Bosley Mr. Ross of the Council's Legal Department requested that Bosley make contact with a view to the matter of the lease of the Property proceeding.

25. Mr. McLister did not respond to Mr. Horn's letter dated 7 February 1990 at once, but only in a letter dated 17 April 1990. The latter letter did not contain any direct comment on the letter dated 7 February 1990 and was mostly concerned with the question of a bin store, to which I shall return. It did, however, include the following passage:-

"You confirmed at that time [that is, at the meeting on 4 January 1990] that you would approach the Borough Engineer in order to seek the appropriate permissions for erecting bin storage at that location. I asked whether or not this provision would be included in the price that had just been negotiated and you confirmed that it would be.

At no time did you suggest that a further negotiation and settlement of a purchase price would be required between myself and the Borough Engineer."

Mr. McLister was asked in cross-examination by Mr. Bendall about that passage, and in particular what was the "price that had just been negotiated". It was suggested to Mr. McLister that the reference could only be to the agreement made on 4 January 1990 that he would pay a further premium of £10,000. He denied that, but he was unable, in my judgment, to provide any satisfactory explanation of to what he was referring in that part of the letter.

26. I accept the evidence of Mr. Horn as to the making at the meeting on 4 January 1990 of an agreement, conditional upon approval at the appropriate level within the Council, that Mr. McLister would pay a further premium of £10,000. That evidence is consistent with his note of the meeting as he elaborated upon it. It is also supported by him taking action to obtain the approval which was necessary for the agreement to become effective, and by the reference in Mr. McLister's letter dated 17 April 1990 to "the price that had just been negotiated". Bosley's letter dated 10 January 1990 upon which Mr. Royce relied sheds no necessary light on the issue unless, which I do not accept, the instructions mentioned in the letter were given after the meeting on 4 January 1990. Mr. Horn's letter dated 7 February 1990 to Mr.McLister is not, it seems to me, inconsistent with the agreement which I have found to have been made. The terms of the letter indicate, in my judgment, that acceptance by the Council of a further premium of £10,000 had been discussed at the meeting on 4 January 1990. The "Without Prejudice" marking and the reference to the agreement being "subject to contract" appear to me to reflect the fact that at the date of the letter Mr. Horn had not sought, still less received, the approval which was necessary for the agreement to become unconditional.

27. The £10,000 which I have found Mr. McLister agreed to pay has not been paid. When it was demanded as the price of the grant of a lease of the Property, Mr. McLister refused to pay it. He was wrong to do so. Mr. Royce accepted that, if I found that the agreement for which the Council contended was proved, Mr. McLister had no defence to a claim for payment now of that sum. He accepted in terms that the plea of a defence of limitation in the Amended Reply and Defence to Counterclaim was not intended to apply to any liability which I might find to exist to pay that £10,000.

28. In the light of my finding that Mr. McLister agreed with Mr. Horn to pay a further premium of £10,000 it is not necessary for me to consider what sum would have been payable but for the making of that agreement. That is just as well, for there was insufficient evidence put before me to enable me to reach any conclusion on the matter. The starting point in a residual valuation is the estimated value of the development when completed to whatever is the relevant stage, in this case shell finish. When the trial began there was no permission for either party to call any expert evidence as to valuation. Mr. Royce made application to me for permission to call Mr. Paul Pozzoni as an expert valuer on behalf of Mr. McLister. He offered, as the price of being given that permission, to accept that Mr. Horn, who as well as being a witness of fact at the trial is also a Chartered Surveyor and, indeed, the Council's Head of Property, could give expert evidence of value on behalf of the Council. The course proposed was acceptable to the Council and I granted permission for expert evidence from both Mr. Pozzoni and from Mr. Horn. The permission in relation to Mr. Pozzoni was that he could give evidence in accordance with his report dated 27 February 2001. I was aware of the existence of that report at the time I adjudicated upon the application for permission to call expert evidence, but I had not read it because I was knew from reading the order for directions made on a pre-trial review on 8 June 2001 by Ferris J that the question whether Mr. McLister should have permission to rely upon it was one which I should have to decide as the trial judge. The permission granted for Mr. Horn to give expert evidence was not limited by reference to any report because he had not prepared one. The reason for that was that, as it seemed to me, it was only as Mr. Royce's application was unfolding that the Council decided to accept that there should be permission for the evidence of Mr. Pozzoni conditional upon Mr. Horn also being able to give expert evidence. It was at all events clear to Mr. Royce at the time he made the application in relation to Mr. Pozzoni on the basis he did that, save in relation to material contained in the trial bundles as to evaluations made by Mr. Horn earlier in time, there would be no advance notice of what he would say in his capacity as an expert. No permission was sought by either party for reports as to the value of the Property prepared by Messrs. Fleurets and by Messrs. Christie & Co. in December 1989 to be admitted as expert evidence, and I made it clear in granting the permission which was sought that I would not treat those reports as expert evidence as to value.

29. It turned out when I came to read the report of Mr. Pozzoni dated 27 February 2001 that he had not dealt at all with the question of the value of the Property in shell finish in the period 1989-1990. When Mr. Royce called Mr. Pozzoni to give evidence he seemed to realise that this deficiency in Mr. Pozzoni's report and the terms of the permission which I had granted for expert evidence presented a bit of a problem. This he sought to overcome by a process which can only really be described as inviting Mr. Pozzoni to perform "back of envelope" calculations in the witness box. I drew attention to the fact that this went beyond the evidence for which I had given permission, but through Mr. Royce's skill in accepting my comments while asking Mr. Pozzoni questions phrased in such a way as to give Mr. Pozzoni the opportunity to continue to use the back of his metaphorical envelope, some answers came out upon which Mr. Royce sought to rely in his closing submissions. I have been in two minds as to whether to disregard the evidence which came out in this way as being adduced without permission or simply to reject it as of no value in any event. In the end it does not matter. I reject the evidence of Mr. Pozzoni.

30. The only evidence as to the value of the Property in shell finish in the period 1989-1990 which was the product of reflection and a consideration of comparable evidence was that of Mr. Horn. Had it been necessary I should have accepted his valuation of the Property at the end of 1989 at £115,000. However, that would have meant that I still needed to consider what amounts to deduct from such valuation in order to carry out a residual valuation. For the reasons which I have endeavoured to explain, I can make no sense of the material produced by Mr. McLister as his alleged costs of building. On his evidence that works to the stage of shell finish had certainly been completed by the end of June 1989 there is no logical reason why costs should continue to be incurred after that time. However, he insisted in his evidence that costs were incurred after June 1989. He also said that it was difficult to disentangle the costs relating to shell finish from costs relating to other works. I therefore have no confidence that one could simply resolve the question what were the costs of the works to shell finish by taking a cut-off date and treating all costs logged before that date as relating to shell finish works and all costs after that date as relating to something else. The probability is that some of the costs logged in respect of the earlier period would relate to something other than shell finish works. The result is that I am not satisfied that any particular sum represents the cost of completing the Property to shell finish.

31. In my judgment it cannot be proper in a residual valuation undertaken after completion of works to include any contingency sum. There should be no contingencies left. If any allowance is properly to be made for interest or for letting fees or the like, it seems to me that the allowance should be based upon expenditure actually incurred. No evidence was put before me of any such expenditure. In his calculations of residual value Mr. McLister had taken a figure for interest which was simply 10% of the alleged construction cost, notwithstanding that his own documents showed that of an alleged total construction cost, not including profit, of £58,735, £25,650 was yet to be spent. Letting fees were put in at a percentage of alleged capital value. In fact no expenditure can have been incurred in relation to letting fees because the Property has never been let by Mr. McLister.

The Yellow land

32. By the end of the trial the claim that the demise intended by the Contract included the Yellow land was but faintly pursued. I confess that I found it difficult to understand exactly how the claim was put even in its faintest form. Mr. Horn produced in evidence the Land Certificates relating to the Property (of which there were two, one relating to 4A, Grove Lane, and one covering the remainder of the Property) and to adjoining property also belonging to the Council. It was plain that the Yellow land is not included in either of the titles relating to the Property but is included within the title of the adjoining property. Mr. McLister accepted in his evidence that the Yellow land is not within the titles to the Property. In the Contract the Property was described only by reference to the street numbers in Grove Lane.

33. Mr. McLister's evidence was that physically there is a delineation between the Yellow land and the pavement adjacent to it. He said that he had never asked anyone before December 1989 whether the Yellow land was intended to be included within the land to be let to him. From what Mr. McLister said in cross-examination it seems that the Yellow land first came to any sort of prominence when an Environmental Health Officer enquired of him where he was proposing to put a bin store. The need for a bin store having been identified, Mr. McLister wrote to his solicitor in a letter dated 15 December 1989:-

"On the subject of the land boundary that you mentioned at a previous meeting, it has come to my attention that bin storage is required. I enclose two extracts from a drawing covering the proposal by the Council themselves to develop this site some time ago, which shows the bin store being constructed (as highlighted) partially on the pavement area.

I cannot tell from the lease plan whether or not this area is included in the current disposal, but clearly I do need it in order to comply with the regulations, and there seems to me to be a reasonable case based on extrapolating from their own scheme for asking for it as a necessary part of any redevelopment. "

That extract of that letter was sent by Mr. McLister to Mr. Horn under cover of a letter dated 17 May 1990. Mr. McLister raised with Mr. Horn at their meeting on 4 January 1990 the question whether he could have the Yellow land included within the land to be demised to him. Mr. Horn said that he would ask the Council's Borough Engineer. Mr. Horn did that by a memorandum dated 7 February 1990. In his letter dated 17 April 1990, just before the passage which I have already quoted, Mr. McLister wrote:-

"At our meeting of 4^th January, I raised the question of bin storage…

I pointed out to you that under the current regulations bin storage would have to be provided in the same way that had been shown on the Calder Ashby scheme of some time ago, that is to say, to the rear of the pavement on the corner of the access to the side street."

All this evidence, it seems to me, demonstrates that, far from the Yellow land being included within the land intended to be demised as part of the Property, that was never intended and Mr. McLister knew that perfectly well.

Was the Council in breach of the Contract because no lease was granted? Conclusion

34. I have already explained how, despite long delays, negotiations between the Council's Legal Department and Bosley as to the terms to be included in a lease of the Property continued up to the end of 1989. From about April 1990 the issue whether the Yellow land was to be included in any demise dominated the exchanges between the parties. A particular point of contention was the suggestion on the part of Mr. Horn that, if the Yellow land was to be included within the demise, Mr. McLister should pay a further sum of £5000 to the Council. In his letter dated 17 May 1990 to Mr. Horn Mr. McLister described the issue whether the Yellow land was to be included within the demise as "crucial to the whole scheme". Correspondence continued in a desultory sort of way until in a letter dated 25 November 1991 to Mr. Horn Mr. McLister sought to re-open the question what further premium should be paid by him. In the letter he offered £1 for completion of the lease. From this point the balance of the correspondence indicates that, while the Council wished to complete the lease, it was Bosley, and, presumably Mr. McLister, who had rather lost interest. In a letter dated 6 February 1992 to Mr. Horn Mr. McLister wrote:-

"With regard to completion of the lease, you should by now have received my letter setting out my views on completion of the lease and the terms upon which I would be prepared to do so, and as far as I am aware, the ball remains in your court."

The letter referred to seems to be that dated 25 November 1991. The letter dated 6 February 1992 appears to make it clear that Mr. McLister was not prepared to proceed with a lease of the Property other than on terms that the further premium payable by him be reduced to £1. That position was repeated in a letter dated 19 February 1992 which Mr. McLister wrote to Mr. Horn. After writing a letter dated 17 March 1992 to Mr. Horn again on the subject of what further premium, if any, he should pay, correspondence from Mr. McLister's side ceased until December 1992, despite letters from the Council's side.

35. In a letter dated 24 December 1992 to the Council's Legal Department Bosley identified as outstanding issues the question of the further premium and whether the Yellow land was to be included within the demise. The Council decided to seek advice from the Litigation Section of its Legal Department. That decision in fact meant that in real terms nothing happened in 1993. The Litigation Section appears to have considered that it had many better things to do than to give the advice sought. It was not until 27 July 1994 that the slumbers of the Litigation Section were sufficiently disturbed for a Miss Evelyne Jarrett to write to Bosley, conveying as the first and no doubt most important piece of information that she had been on leave apparently for the whole of 1993, and then stating that the Council was prepared to complete a lease of the Property on payment of the sum of £10,000 agreed between Mr. McLister and Mr. Horn. The question of the Yellow land, Miss Jarrett said, must be dealt with as a separate transaction. In its reply dated 1 August 1994 Bosley stated its instructions as being that there had been no agreement to pay a further premium of £10,000. It further stated that the Yellow land ought to be included within the demise. Another period of complete silence on the part of the Council ensued which was not broken until Miss Jarrett wrote a letter dated 24 October 1994 in which the Council offered to accept a further premium of £5000, rather than £10,000, and she held out the hope that the Council might be prepared to dispose of the Yellow land as a separate transaction at open market value. Bosley's reply was that Mr. McLister would complete only if no further premium were paid and the Yellow land were included within the demise. Further correspondence ensued concerning the Council's revised offer until early February 1995 and rested with a letter from Miss Jarrett to Bosley. Nothing was heard from Mr. McLister's side until Bosley wrote to the Council a letter dated 5 January 1996.

36. In its letter to the Council dated 5 January 1996 Bosley merely restated Mr. McLister's previously declared position. Thereafter there was more somewhat intermittent correspondence until this action was commenced. The highlights of that correspondence, which otherwise does not merit detailed analysis, were an offer by Bosley, on behalf of Mr. McLister, in a letter dated 24 July 1996 to the Council to pay £1000 on completion of a lease of the Property, provided the Yellow land was included, and an offer by the Council in a letter dated 6 December 1996 to forgo any further premium if a lease of the Property, not including the Yellow land, were completed.

37. The foregoing analysis demonstrates, in my judgment, that, far from it being the Council which was failing, in breach of the Contract, to grant a lease of the Property, from the beginning of 1990 it was Mr. McLister who prevented the grant of a lease by declining to execute one other than on his terms as to non-payment of any further premium and as to inclusion of the Yellow land within the property demised. Mr. McLister's claim for damages therefore fails.

Overall Conclusions

38. Mr. McLister's claim that the Council was in breach of the Contract in not granting him a lease of the Property fails and is dismissed. His claim that he is entitled to be paid a reverse premium by the Council on the grant of a lease of the Property fails and is dismissed. His claim that any lease of the Property granted by the Council in performance of the Contract should include the Yellow land fails and is dismissed. The Council's counterclaim for payment of a further premium of £10,000 succeeds and there will be judgment for the Council in that sum. I will hear Counsel as to the appropriate form of order to give effect to my findings.