England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		08/12/2006

Mr Justice Lewison:

Introduction	1
The facts	4
The contract	60
Planning obligations and planning conditions	73
How does the contract work?	78
The seller's analysis	78
The buyer's analysis	80
The condition can be waived	81
The authorities on conditional contracts	83
Does the contract work without an implied term?	90
Automatic termination?	96
The fall back position	101
Opportunity to waive?	101
What is an opportunity to waive?	105
Is the draft section 106 agreement compliant with the contract?	107
Permitted departures	107
The third party land	112
The library lease	114
Did Yewbelle comply with its obligation?	118
Reasonable endeavours	118
Yewbelle's efforts	124
Other issues	134
Result	141

Introduction

1. Directly opposite Colliers Wood underground station, in the London Borough of Merton, there is a triangular site between the intersections of Merton and Colliers Wood High Streets, Christchurch Road and Priory Road. It consists of:

i) A 17-storey pre-cast concrete office building built in the 1960s. It is often called the Brown and Root Tower (after its principal tenant, for many years, Brown and Root) or simply "The Tower".

ii) A circular 5-storey multi-storey car park constructed at the same time as the Tower.

iii) An open space to the north (with a small surface car park).

2. The property was owned by Knightsbridge Green Limited ("KGL"), a subsidiary of Golfrate Holdings Limited ("Golfrate"). KGL entered into a contract to sell the property to London Green Developments Limited ("LGD"). After the date of the contract KGL transferred its interest to a sister company, Yewbelle Ltd. LGD was not bound to complete until the seller had entered into an agreement with the London Borough of Merton ("LBM"), as local planning authority, under section 106 of the Town and Country Planning Act 1990 in the form of a draft attached to the sale contract, or in substantially the same form. Some eight or nine months after the date of the contract, no section 106 agreement had been completed. Yewbelle now claims that the contract has been discharged. The question is whether Yewbelle is right.
3. I heard evidence from Mr Julian Lobetta, Yewbelle's solicitor; Mr Sean Silk, its planning consultant; and Mr Philip Green, the moving spirit behind LGD. Mr Aziz and Mr Hughes are the moving spirits behind Golfrate and its subsidiaries. Neither of them chose to give evidence.

The facts

4. The Tower and the multi-storey car park are unattractive buildings and the whole site is ripe for redevelopment. Indeed, the Tower has been voted one of the ugliest buildings in London. There is therefore much local interest, and some political pressure, to see it redeveloped. In April 2002 LBM produced a planning brief in respect of the overall site in order to encourage potential redevelopment. The planning brief included the statement that as part of the development LBM would want to see a community use, such as a public library, on the ground floor of the Tower. On 30 January 2003 a firm of architects submitted a planning application for the development of the property. It was allocated reference number 03/P0202 by LBM on 7 February 2003. The planning application itself identified, in outline, the steps to be taken as part of the development. The key elements of the proposed development were: the conversion of the Tower into flats, the erection of two six storey extensions to the Tower (north and south), the demolition of the multi-storey car park and its replacement by a ten storey building and the creation of a public park. Overall the development would consist of 226 residential units, 370 square metres of retail space, 629 square metres for "a new public library facility", a café/bar and 876 square metres of business and office space. The site covered by the planning application included not only the property owned by KGL, but also a small rectangular parcel of land at the south eastern corner, which was thought at the time to be owned by LBM. Part of the library was to be constructed on that parcel. LBM's planning officers recommended the grant of the application subject to the completion of a section 106 agreement and various conditions. LBM were particularly keen on the library, which LBM's officers later described as one of the Council's key aspirations. On 11 March 2004 LBM resolved to grant planning permission subject to the completion of a section 106 agreement and to various conditions. Heads of terms listed 16 items that were to appear in the section 106 agreement. None of those terms specifically related to the library.
5. Once the resolution to grant planning permission had been passed, work started on a section 106 agreement. By September 2004 a draft section 106 agreement was in existence. At this stage Golfrate put together a sales pack inviting buyers for the property. At the same time as looking for a buyer for the property, KGL's then solicitors worked towards finalisation of the section 106 agreement. By December 2004 the section 106 agreement appeared to be close to its final form. Clause 15.2 of the draft section 106 agreement then read (so far as material):

"the Developer covenants not to cause or permit occupation of the Affordable Housing Units and the Market Residential Units until the Class B1 Business Units and the library are constructed to shell and core."

6. By April 2005 the leading buyer for the Property was Barratts. However, at a late stage, in April 2005, LGD emerged as a competitor for the purchase. In the event LGD's offer of £13.75m for the property was accepted by KGL.
7. The parties' solicitors drafted a sale agreement. They met at the offices of LGD's new solicitors, Philipsohn Crawford Berward ("PCB") on 23 May 2005 to exchange contracts. At this "exchange" meeting Mr Green of LGD and his solicitor, Mr Segen, explained that the section 106 agreement had to be in place in order to enable LGD to obtain funding for the purchase. They therefore required a term in the agreement which deferred LGD's obligation to complete the purchase until there was a completed section 106 agreement; otherwise exchange could not take place. Mr Lobetta, a partner in PCB, believed that the draft section 106 agreement was in final form. However he decided to check on this and telephoned LBM. He spoke to Sharon Lauder ("Ms Lauder") the head of civic and legal services at LBM. He asked her whether the draft section 106 Agreement was in an agreed form. She said that if everything in the draft was agreed then she was in a position to engross the section 106 agreement for execution by the parties. A clause was inserted into the sale contract to deal with the section 106 agreement. It is that clause which is at the heart of the dispute. Exchange of contracts then took place. I will return to its detailed terms later. Both parties to the contract expected that the section 106 agreement would be completed within a relatively short period of time, and without substantial amendment.
8. On 2 June 2005 Mr Lobetta sent a fax to Ms Lauder. He said:

"I refer to our recent telephone conversation regarding the above property…… I am pleased to confirm that my clients agree to the latest draft of the Section 106 Agreement and therefore would you please arrange for engrossments of the document to be forwarded to me as soon as possible for execution by my clients and their funders."

9. On 7 June 2005 Ms Lauder replied. She simply explained that two plans were awaited. Then on 15 June 2005 her position changed. She wrote again. She said:

"Unfortunately my instructing officers have raised a couple of important issues on the draft agreement. Firstly I am instructed that the new public library within the development should be transferred to the Council at a peppercorn rent and without a premium.

I am also instructed that there is a lack of clarity on the highway works to be carried out by the developer on the Christchurch Road frontage … It is probable that your client will be required to enter into a S278 Highways agreement and Bond in order to carry out works on the public highway.

These issues were only brought to my attention within the last few days following my request for authority to complete the agreement."

10. Mr Lobetta's immediate reaction to this was contained in an e-mail to Mr Aziz of the same day. His concern was that if LBM insisted on the highway works, LGD might argue that they were not bound to accept the document. So far as the proposal about the peppercorn rent was concerned, Mr Lobetta simply expressed the hope that this should not be material to LGD but that he would need to inform LGD if Mr Aziz agreed to it. Mr Lobetta also advised KGL to engage a building surveyor or architect to advise on the section 106 agreement. Mr Aziz e-mailed Mr Green saying that it looked like the sale would have to be cancelled. Mr Green asked for a meeting; and a meeting was duly arranged. It took place at the Trocadero on 20 June 2005, attended by Mr Green, Mr Segen, Mr Aziz and Mr Lobetta. LBM's proposal for a lease of the library at a peppercorn was one of the matters discussed. Mr Green had thought that there was an agreement between KGL and LBM about the terms on which the library would be made available; but in cross examination he accepted that at the meeting he discovered that this was not the case. Mr Aziz was not at all happy with LBM's proposal. Mr Aziz did not have much experience of residential development, in contrast to Mr Green; and he asked Mr Green whether he could help resolve the difficulties. Mr Green agreed.
11. Clause 7.3 of the Agreement had expressly recognised that KGL was intending to transfer the Property to another subsidiary of Golfrate. This transfer occurred on 6 July 2005, the transfer was to Yewbelle Limited ("Yewbelle"). Yewbelle was registered at the Land Registry as the proprietor of the Property on 31 August 2005.
12. On 11 July 2005 Ms Lauder of LBM sent another letter in which more detail was given of the proposed highway works and the bond was quantified at an estimated £650,000. She suggested a meeting with Mr Chowns of LBM's highways department to discuss highway issues; and a separate meeting with Mr Masson, LBM's estate surveyor, "regarding the terms for acquisition of the library." She added that unless agreement was reached on these issues "we will be unable to progress the S 106 agreement." Mr Lobetta e-mailed Mr Green on 13 July. He said that Mr Green should arrange a meeting with LBM's officers as soon as possible; and also said that Ms Lauder had told him on the telephone that LBM were looking for a compromise on the library issue. Mr Green said that he would deal with the library issue himself. At about the same time Sean Silk, a chartered town planner, was engaged. At that time Mr Silk worked for the well-known firm of GL Hearn. Later in the year he set up his own planning consultancy.
13. On 18 August Mr Lobetta reported that Mr Green had been chasing the planning officer and that his proposal was that LBM should agree the section 106 agreement in its then current form, in order to enable the planning consent to be issued and the contract for sale to be completed. He would then try to amend the planning consent, and if he obtained consent for a better scheme, he would absorb the cost of the library. Mr Green did not consider that the remaining points on the section 106 agreement were material. Mr Silk supported that strategy.
14. Mr Silk and Mr Green met Mr Lewis (the relevant planning officer at LBM) on 5 September. However, fairly shortly afterwards Mr Green came to the conclusion that Mr Silk could not take instructions both from him and Mr Aziz; that it would be better if Mr Silk took his instructions from Mr Aziz alone and that Mr Green would let him get on with it. Mr Silk heard again from Mr Lewis, as he reported to Mr Aziz in an e-mail of 12 September. Mr Silk's position on the cost of fitting out the library was that the £1.08 million "pot" (consisting of the aggregate of the various payments that were envisaged by the draft section 106 agreement) could be reallocated, but no increase in the aggregate was acceptable. LBM themselves had suggested a rent of no more than £30,000 per annum which Mr Silk thought was acceptable (although, as he pointed out, he was not a valuer). Mr Aziz replied that a rent of £30,000 "worked" for him.
15. The completion date of 15 September 2005 came and went. There was no completed section 106 Agreement. The local MP, Siobhain McDonagh, also became involved. On 23 September 2005, Mr Lobetta wrote to her expressing Yewbelle's concern at the position. He copied his letter to LBM. He said:

"I can confirm that my clients have exchanged contracts for the sale of the above property and completion was due to take place on 15^th September. However, the contract states that the buyer is not obliged to complete until an Agreement pursuant to s.106 of the Town and Country Planning Act 1990 has been entered into with the London Borough of Merton.

The S. 106 agreement was in an agreed form prior to my clients exchanging contracts for the sale of the property. Completion of the S. 106 Agreement should have been a formality but the London Borough of Merton then decided to impose additional unreasonable obligations for my clients to perform. My Clients are already obliged under the proposed S. 106 Agreement to make financial contributions to the Council in excess of £1M. The additional financial and other requirements now demanded by the London Borough of Merton at the eleventh hour are unacceptable and therefore a stalemate has occurred.

I understand that the buyer proposes a comprehensive redevelopment of the property in accordance with the proposed planning consent or any improved consent it obtains from the local authority. My clients are utterly frustrated at the position since they cannot complete the sale of the Property to the Buyer and the buyer cannot proceed with the redevelopment of the Property".

16. On 7 October 2005 Mr Clark (LBM's head of planning and public protection) wrote to Mr Lobetta. He said that the details of the section 106 agreement (including the sums associated with the heads of terms) were delegated to officers to negotiate and conclude. He concluded: "I am confident therefore that with goodwill on both sides that an agreement can be completed in the near future". On the same day Mr Lewis reported to Mr Silk that it would be possible to reapportion the sums payable under the draft section 106 agreement so as to make more money available for the library without increasing the overall size of the "pot". He indicted that LBM would be looking for a rent free period of no less than 2 years. He said that he had spoken to Ms Lauder about the outstanding issues on the section 106 agreement. He asked for details of the condition in which the library would be transferred to LBM and for a plan relating to the dedication of land for highway. On 11 October Mr Lobetta wrote to LBM. He repeated much of what he had said to Ms McDonagh MP about the contract. He said that the main sticking point was the library, and that his clients were prepared to grant a twenty year lease of the library to LBM at a rent of £30,000, subject to review; and to deliver the library to LBM in a shell and core condition. There would be no rent free period. Meanwhile Mr Silk had still been discussing strategy with LBM. On 27 October he reported to Mr Lobetta and Mr Aziz that he and Mr Lewis had agreed "to put all "difficult matters" into amended Conditions, simplifying the s106 so that it can be signed and the site sold." However, amendment of the conditions required the approval of the planning committee; and it was not due to meet again until 17 November.
17. On 7 November 2005 Mr Silk e-mailed Mr Lewis. He expressed his disappointment that the matter would not be ready in time for the November committee meeting, but had slipped to the December meeting. The cause of this was Mr Lewis' workload. Mr Silk continued:

"We have agreed matters between us on the issues of the library and highway works, primarily through reapportioning existing s106 monies and would be grateful to receive reconfirmation of the details on these so that lawyers can finalise amendments necessary to the s106. I see no reason why the amended s106 cannot be resolved and then we only need to await Member agreement to the amended Conditions on 15^th December for the issue of Planning permission."

18. By 16 November Mr Silk had been told of internal discussions within LBM and was awaiting sight of redrafted conditions. Mr Lewis faxed Mr Silk on the same day. He had spotted that the boundary of the application site was larger than Yewbelle's landholding. He continued:

"… I have reiterated my views to colleagues in Libraries and Property Management that finalising the wording of the S106 could proceed in advance of and separate from detailed negotiations between the Council's Property Management Section and the owner on the library. I am pursuing a similar approach with my legal advisor on the issue of highways works so as to break the current deadlock."

19. He then set out certain proposed changes to the section 106 agreement and the planning conditions (none of which related to the library). Mr Silk relayed the substance of the proposal to Mr Aziz who said that he could live with them. On 5 December Mr Lobetta reported to Mr Green that Mr Silk had reached agreement with LBM for certain conditions in the section 106 agreement/planning consent to be removed and instead form amended conditions. That would enable the section 106 agreement to be signed and the planning consent issued. The problem of the south east corner raised its head again in a letter from Ms Lauder to Mr Lobetta on 5 December. It had turned out that the south east corner was not owned by LBM but by Pillar Retail Parks Ltd. Mr Lobetta's reply was that Pillar Retail Parks Ltd had nothing to do with the transaction and that the property which it owned did not form part of the arrangements between Yewbelle and LBM.
20. On 6 December Mr Masson commented on Mr Lobetta's proposal for the terms of a lease contained in his letter of 11 October. He did not reject this proposal out of hand, but asked where the figure of £30,000 had come from and said that any rent would have to be the subject of negotiation. He also suggested a meeting. But on 12 December Mr Lobetta said that it was not appropriate for Yewbelle to provide further details about the library, because ultimately that would be a matter for discussion between LGD and LBM.
21. Mr Lewis's proposal to put the "difficult matters" into amended conditions was implemented in a report to the planning committee dated 15 December 2005. Para 1.2 of the report noted that "detailed arrangements with the owner for provision of the library are still under discussion." Para 1.3 stated that the applicant was in the process of selling the site and did not want the sale to be delayed on the basis of having to provide further details for inclusion in the section 106 agreement at this stage. Consequently matters that had previously formed part of the section 106 agreement (such as arrangements for a "green travel plan", a car park management plan and highway works) were to be dealt with by conditions. Paragraph 7.10 of the report said:

"Given the on-going discussions between the Council and the developer regarding the provision of the library as part of the scheme it is considered that the relevant head of terms (Number 11 in the March 2004 Committee report) regarding education be recast so as to refer to improved education of life-long learning. It is considered that such an adjustment would better reflect the scope of the scheme, which includes a key community facility, which the Council's adopted planning brief aspires to, and would ensure greater flexibility in the assignment of any S 106 benefits."

22. The report concluded that the suggested amendments would "assist in progressing work on the draft S 106". There was no proposal to amend the provisions of the draft section 106 agreement where it specifically referred to the library. Nor was there anything said about the south east corner. The description of the permitted development remained the same as it had in the previous resolution to grant in 2004. The committee approved the recommendations at its meeting on 15 December; and resolved to grant planning permission subject to the completion of a section 106 agreement in revised terms. Mr Silk attended the meeting and reported to Mr Aziz and Mr Lobetta that there was only "minimal debate re library".
23. On 21 December Mr Lobetta e-mailed Ms Lauder asking for a revised section 106 agreement. He said that he was not anticipating any substantial changes. Quite why he thought this is puzzling, since the committee had resolved to delete two of the "heads of terms" to be included in the section 106 agreement (relating to the green travel plan, the car park management plan and highway works). On the same day Ms Lauder faxed a revised draft. The most significant change was to clause 15.2 which now read:

"the Developer covenants not to cause or permit occupation of the Affordable Housing Units and the Market Residential Units until the Class B1 business units and the library are constructed to shell and core and a lease of the library has been granted to the Council" (changes in italics)

24. I set out the other changes later. There was no change, at this stage, to the definition of the "Development".
25. With the imminence of the Christmas break Mr Lobetta took until the new year to consider the position and discuss it with his clients. He spoke to Ms Lauder on the telephone on 6 January 2006. This conversation was only briefly referred to in his witness statement, but seemed to grow in importance as his evidence progressed. In his witness statement he simply said that Ms Lauder explained that the increase in the education contribution was "to fit out the library" and that LBM "still required the lease to be granted to it pursuant to the S 106 agreement otherwise it would not be sure that it would get a library". Since the 21 December version was the first time that a lease had been mentioned in the draft section 106 agreement, Mr Lobetta must be wrong in saying that LBM "still" required the lease to be granted "pursuant to the section 106 agreement." In cross-examination he expanded on his own part in the conversation, but only to the extent of saying that "I telephoned Miss Lauder and said what I needed to say in the telephone conversation." The new wording was not accepted, because it was something he needed to discuss with his client. This conversation, he said, made Ms Lauder "aware of our feelings on the point". He amplified his evidence on this conversation in re-examination. He said that he had asked Ms Lauder why there was a reference to the library, and she said that it needed to be in there so that they could have their new library. He said that he thought that there would be no reference there "because we were going down the amended conditions route". Ms Lauder did not give any other explanation for the presence of the new wording. Mr Lobetta said that he was very disappointed:

"We had gone down this route thinking that it would resolve problems, yet here we were with still a reference to a lease back in [the] section 106 [agreement] and it was a feeling of utter frustration. They required it in here and it was sort of a case of, you know, where do we go from here?"

26. Mr Lobetta did not draw Ms Lauder's attention to the terms of the contract with LGD; and he did not write any letter protesting at the inclusion of the new wording. Nor, as it seems to me from his account of the conversation with Ms Lauder, did he actually protest orally, even though he did not actually agree the wording. He said it was a matter that he would have to discuss with his clients; but he never went back to Ms Lauder.
27. Mr Silk and Mr Lewis continued to try to find a solution to the problem over the extent of the development. Mr Lewis was willing to deal with amendments to the scope of the development (necessitated by the exclusion of the south east corner) as minor amendments which would not require the submission of a fresh planning application. Although Mr Silk regarded this as good news, he was sceptical about whether the elected members of the committee would agree this, since the description of the development on the face of the application would change. In fact LBM had already agreed to treat as a minor amendment the dropping of a proposal for a hotel, which had previously been on the face of the application. So Mr Silk was unduly cautious. Mr Silk set out his thinking in an e-mail to Mr Aziz of 27 January 2006. His initial review of the drawings had, however, led him to conclude that there would be a loss of floorspace. His advice was to amend the scheme.
28. A meeting took place on 1 February 2006 between Mr Lobetta, Mr Silk and Mr Hughes. Although Mr Lobetta mentioned this meeting in his witness statement, he did not give an account of it. He did, however, describe the upshot of the meeting as follows:

"It was therefore decided that whilst Yewbelle would try to find a solution to the problem of the library being built on third party land, LGD should be put on notice that we considered that the Sale Agreement to have come to an end given (i) the impasse reached over the terms of the library; (ii) that the Development would have to be amended and (iii) the difficulties faced in having a revised development of the Property approved which did not encroach on third party land."

29. However, he did not seem to me to have had a clear recollection of the meeting when questioned about it in cross-examination. What he said was:

"Mr Silk would have been party to the discussions we had at that meeting. We would have discussed where we were, we would have discussed what we had done, and the conclusion that was reached at the end of that meeting was that we were not going to be able to obtain a Section 106 agreement substantially in the form attached to the sale agreement."

30. This seemed to me to be largely reconstruction rather than recollection. However, he said that he himself was not directly involved in planning issues; and he agreed that Mr Silk had not advised that obtaining the desired section 106 agreement was impossible. Mr Silk said in his witness statement:

"I attended a meeting on 1 February with Mr Hughes and Mr Lobetta at which I provided some drawings to show changes to the Development to avoid the third party land. It was agreed that given (i) there were still serious issues concerning the library; (ii) there was now the problem of having to amend the Development; and (iii) LGD had no intention of implementing the development permitted by the First Resolution, that LGD should be asked if it would complete without the benefit of the S. 106 agreement."

31. Mr Silk also had no clear recollection of the meeting. But he did not recall having advised that it would be impossible to obtain the desired section 106 agreement; and thought that it was improbable that he would have given that advice. Mr Silk's view at the time was that, in planning terms, there was no impasse with LBM. To that extent he disagreed with Mr Lobetta. Although the library issues had not been resolved, and would need to be sorted out, they were still subject to negotiations that had not been concluded. As I have said Mr Hughes did not choose to give evidence.
32. On 2 February 2006 Mr Lobetta wrote to Mr Segen. He explained that there had been a number of problems that Yewbelle had been trying to resolve "such as the library issue and additional contributions or works required by the Council." He said that the latest problem was that part of the proposed development encroached on land owned by a third party. He continued:

"I am therefore advised that it will not be possible for my clients to procure a Section 106 Agreement substantially in the form attached to the Sale Agreement between our respective clients. Would you please explain the position to [Mr Green] and see if he is willing to complete in the same terms and conditions contained in the Sale Agreement but without any Section 106 Agreement being in place. If [Mr Green] does not wish to complete or is not able to complete on this basis then I am instructed that my clients will have no option but to treat the Sale Agreement as at an end and return the deposit to your client."

33. Mr Lobetta was unable to recall who had given the advice to which the letter referred. In fact it is tolerably clear that no such advice was given. The letter was, therefore, a considerable overstatement of the true position.
34. Mr Segen replied that he needed to take instructions and investigate finance; and followed this up on 6 February with a request for sight of the planning application. By another letter of the same day, Mr Segen said that his client had the right to waive satisfaction of the condition and also said that his client was anxious to proceed. Mr Lobetta immediately replied saying that since the contractual completion date had passed "your clients can now either elect to complete (and waive the [condition]) or the contract must be capable of being terminated by my clients." Coincidentally, on the same day Mr Aziz e-mailed Mr Silk to say that he was keen to proceed with the amendment to the planning application.
35. On 9 February Mr Lobetta sent a copy of the original planning application. On 13 February Mr Segen queried whether the planning application he had been sent was the correct one. In fact it was. The confusion arose because the original application included the proposal for a hotel, which had already been dropped by minor amendment. He also asked for sight of correspondence with LBM. He was clearly under the impression that the south east former belonged to LBM who, he understood, were willing to sell it. He added that he was certain that "we can obtain a Section 106 Agreement in substantially the form annexed to the contract." He concluded by reminding Mr Lobetta that Yewbelle had an obligation to use all reasonable endeavours to obtain the desired section 106 agreement and added that "my client is more than willing to assist." On 17 February 2006 Mr Lobetta replied. He said that the south east corner was not owned by LBM. It was owned by "a third party" although, for some reason, Mr Lobetta did not name the owner. He said that it was impossible to revise the scheme to fit all the previously specified floorspace onto the reduced site. He reiterated that his client intended to rescind the contract unless LGD confirmed that it would be willing to complete without a section 106 agreement in place. On the following day Mr Segen complained that he had not had sight of any evidence that Yewbelle had used all reasonable endeavours to obtain the section 106 agreement. On 20 February 2006 Mr Segen wrote:

"As your clients are well aware my clients cannot and will not complete without a Section 106 Agreement in place because funding would not be available. My client is quite happy to work with the planners and obtain an acceptable section 106 agreement either substantially in the form of that annexed to the contract (which we are confident can be obtained) or in a form wherein my client can (as contractually entitled) waive that requirement and then proceed to completion".

36. On 24 February Mr Lobetta sent Mr Segen a selection of correspondence. The selection did not include the 21 December version of the draft section 106 agreement. In his covering letter he set out a number of steps which KGL/Yewbelle had taken towards obtaining the section 106 agreement. The culmination was:

"The lawyer at the Local Authority subsequently [i.e. after the committee meeting on 15 December 2005] produced a revised draft of the S.106 Agreement purporting to give effect to the amended conditions. However, the amended draft still referred to the library and additional issues arose due to part of the proposed scheme still being in the ownership of a third party. At this stage, my clients were exacerbated at the situation hence my letter to you of 2 February."

37. The letter did not refer to difficulties over agreeing a rent for the library, although the selected correspondence did include Yewbelle's offer to lease the library at £30,000 a year. Nor did it draw attention to the words that had been added to clause 15.2. Instead the real problem seemed to be the encroachment of the scheme onto third party land. On the same day Mr Silk sent Mr Lewis revised drawings. On 27 February Mr Segen replied. He said that the source of the problem was the library. He said that the original section 106 agreement always envisaged the provision of a library for LBM at a peppercorn rent and without premium. The central thrust of the letter was that:

"To the contrary, he can clearly obtain a Section 106 in substantially that form. That Section 106 Agreement would however provide that your client has to give the library back without premium or rent. That was always the case and is the case now. Your client cannot rely on this to get out of the contract."

38. On 28 February Mr Segen proposed a meeting to try to clear the air and to work towards a solution. Yewbelle declined to meet because they thought that it was not in their interests to do so.
39. On 8 March Mr Silk e-mailed Mr Lewis. He said that, assuming that no new matters arose from consultation on the new drawings "I hope we should be in a position to finalise the s 106 legal agreement by the end of next month, once Members resolve to approve the final scheme".
40. On 10 March 2006 Mr Lobetta wrote to Mr Segen saying: "My clients cannot obtain a Section 106 Agreement substantially in the form attached to the sale contract". He added:

"Your client has stated that he does not wish to complete the purchase of the Property without any Section 106 Agreement in place. Accordingly this letter should be treated as confirmation that the sale contract between our respective clients is now treated as being discharged due to my client's inability to procure a Section 106 Agreement substantially in the form attached to the sale contract".

41. This letter brought an immediate response from Mr Segen. He denied that the contract was discharged. It was his contention at that time that the seller had to provide a library to LBM rent free and asserted that Yewbelle had not complied with its obligation.
42. On 20 March Mr Silk e-mailed Mr Lewis to say that it "would seem expeditious if we could move forward to resolving terms for the library". He also asked Mr Lewis whether he should deal with Mr Masson. He telephoned Mr Masson in March 2006 and Mr Masson summarised the position in an internal LBM e-mail dated 21 March 2006. Mr Silk and Mr Lewis were copied into this e-mail. The e-mail refers to a lease to LBM for 125 years and states:

"We would want the Developer to bear the cost of providing the library to a category A specification (which goes well beyond the shell and core finish) and will provide Merton with a virtually fully finished unit".

43. He also said that the library should be leased at a peppercorn rent. Mr Masson went on to refer to the figures and explained that a shortfall of about £750,000 was needed to fit out the library, and this had to be found from somewhere. He suggested the seller would need to find it. He said that he had asked for a meeting with Mr Silk, Mr Hughes (Golfrate's development director) and Mr Lobetta "so that we can explore the options" with Mr Green.
44. Mr Masson confirmed the fact that LBM was "looking for the building to be finished off to a category A condition" in his letter of 22 March 2006. On 4 April 2006 Mr Silk had a meeting with Mr Masson and Mr Lewis. He wrote a letter setting out his understanding of the position on 12 April 2006. It seems from that letter as though Mr Masson was asking for a fit out to the same standard as the fit out at another of LBM's libraries at Raynes Park (which at roughly equivalent rates per square foot would have been about £750,000). However, Mr Silk's letter came to the conclusion that there would be a funding shortfall of £750,000. The figures in his letter are difficult to reconcile, and I did not find Mr Silk's attempt to explain them convincing. In addition Mr Silk said that at the meeting itself Mr Masson was proposing a rent for the library at a rate 15 per cent below an office rate. But Mr Masson appears to have gone back on that position in a conversation he had with Mr Hughes on the day following the meeting when he reiterated that LBM wanted a lease at a peppercorn. Not surprisingly this change of position caused Mr Hughes to "lose [his] rag".
45. On 10 April Mr Segen wrote to Mr Lobetta. He had learned that Yewbelle had not withdrawn the planning application. He said that on the basis that the application was the same as the one of which details had been given, LGD would accept it as being substantially in the same form as that annexed to the contract.
46. Mr Masson telephoned Mr Silk on 27 April. He confirmed that LBM were looking for a long lease at a peppercorn rent. However, he said that there was no dialogue between himself and the planning department; and that if the planning department were to accept the current position any shortfall in funding would have to be addressed in any subsequent planning application. The reference to a subsequent planning application was to an application which LGD was then in the course of preparing.
47. Mr Silk sent another e-mail on 5 May 2006 to Mr Masson, copied into Mr Lewis and others. He said:

"Since I will be reporting to my client on our discussion I thought it would be helpful to summarise what you have said to me, namely :

1. The cost of fitting out the library is unlikely to be less than £750,000 discussed to date. The cost could well be greater bearing in mind your experience at Raynes Park and the fact that the fit-out cost at Colliers Wood could exceed £100/square feet.

2. It is your opinion that LBM will not fund the costs of the fit out from the total contribution to be made by my client of £1.080m.

The logical consequence of our discussions including the above points is that LBM would therefore require the draft Section 106 Agreement to be revised to provide for my client to bear the fit out costs as set out above. Could I please ask you to confirm that my understanding is correct by Wednesday of next week. If I do not hear from you by then I will assume my understanding is correct and that my client can proceed on this basis."

48. The second of these points seems to be a further change of position by LBM. The agreement between Mr Lewis and Mr Silk was that the £500,000 provided for in the draft section 106 agreement as a contribution to education would be used as a contribution towards the fitting out costs of the library, which appears to me to have been reflected in the committee's resolution of 15 December 2005; but Mr Masson's position was now that no part of those monies would be used for that purpose. Why he thought he had the authority to gainsay the committee is a puzzle. However, Mr Masson's more conciliatory reply, on 8 May, was that:

"Any matters concerning the section 106 agreement or the Planning Application are for our planning section to deal with. They are not part of my remit. I will work with the documentation that is provided either by the planners or the planning section in our legal services section who have supplied a copy of the S106 agreement."

49. Mr Silk sent a follow up e-mail on 12 May 2006 after which he left a follow up voicemail. On 15 May 2006 he sent an e-mail saying "As I have not received any reply I can only assume that my e-mail accurately records the position and my client will therefore now proceed to make decisions on this basis".
50. On 23 May 2006 PCB wrote a 10 page letter to Mr Segen explaining that Yewbelle had come to the conclusion that the agreement had been discharged. LGD was invited to remove its notice on the Yewbelle's title. It refused to do so.
51. On 7 June 2006 Mr Masson e-mailed Mr Silk. He said that Mr Silk would have to speak to the planners about the section 106 agreement; but that his understanding was that the draft would remain in its current form and would not be amended. He had been sent costings by consultants. These costings were for a fit out that went beyond even a fit out to Category A standard. The total cost was of the order of £1.4 million. Mr Masson did not feel able to propose funding the shortfall to LBM.
52. On 27 June 2006 Yewbelle issued and served proceedings. The relief claimed is a declaration that the sale contract has come to an end; and an order for the removal of the agreed notice protecting the contract at the land registry. LGD counterclaimed for specific performance.
53. On 30 June 2006 LGD entered into a conditional contract for the acquisition of the south east corner. The condition was the acquisition by LGD of the Tower. If the condition was not satisfied by 29 June 2007, then the contract would terminate.
54. On 17 August 2006 a further report was placed before the planning committee. The primary reason for going back to committee was that amendments to the scheme had been made so as to exclude the south east corner. This was explained in the officers' report. Para 1.2 of the report said:

"The Section 106 obligation has not been completed and planning permission has not yet been issued. The overall amount of financial contributions to the Council under the terms of the planning obligations is the subject of agreement although detailed arrangements with the owner for the provision of the library have yet to be finalised."

55. It went on to say that the committee had considered the scheme at its meeting in December 2005. The committee were reminded that:

"The report also provided an opportunity for members to review the wording of the heads of terms to ensure that any education contribution could reasonably be directed towards financing a library as part of the proposals. The initiative to take the application back to Committee flowed from the knowledge that the application was in the process of selling the site and did not wish the sale to be delayed while further details were developed which could be superseded were the new owner to submit a fresh planning application. The Planning Applications Committee endorsed the report's recommendations."

56. This also seems to contradict Mr Masson's stated position about financing the fitting out costs. The report set out a comparison of the scheme as originally approved and that which the committee was being asked to approve:

	Original scheme	Amended scheme
Studio flats	5	12
1 bedroom flats	64	66
2 bedroom flats	145	128
3 bedroom flats	12	12
Library	629 sq m	629 sq m
Retail	370 sq m	370 sq m
Food and drink	102 sq m	102 sq m
Office	876 sq m	822 sq m

57. The report concluded that the proposed amendments would assist in progressing work on the draft section 106 agreement. The committee approved the amended scheme. So far as the evidence goes no further changes have been suggested to the section 106 agreement in the version in which it existed on 21 December 2005.
58. On 3 October Segens wrote to PCB to say that LGD was "happy to complete this contract in its original form without having a Section 106 Agreement in place. We are quite happy to suggest that there be a fixed completion date of, say, 28 days."
59. The question for me is whether Yewbelle is correct in asserting that the contract has come to an end. This depends primarily on the correct interpretation of the contract, and secondarily on whether Yewbelle is correct in saying that it has been unable to complete the section 106 agreement in substantially the form annexed to the contract despite having used "all reasonable endeavours" in that regard.

The contract

60. The contract, dated 23 May 2005 was made between KGL, called "the Seller" and LGD called "the Buyer". Clause 1 contains a number of definitions, which I will refer to as they become relevant. Clause 3.1 of the contract says:

"Subject to the remaining provisions of this Clause 3 the Seller shall sell and the Buyer shall purchase the property for the Purchase Price in accordance with the provisions of this Agreement."

61. The price was a fixed price. The remainder of clause 3 confirmed that the Buyer had applied for local and other searches; required the Buyer to use all reasonable endeavours to obtain the result of the searches as soon as practicable; and gave the Buyer a right to rescind if the results of the searches revealed matters which to a material degree would deter a reasonably prudent purchaser or mortgagee from proceeding.
62. Clause 5 said that the sale was subject to a number of leases (which appear to have related to most of the Tower) but otherwise with vacant possession. Some of the leases contained capped service charges; and by clause 22 the buyer agreed to pay one half of any shortfall attributable to a service charge cap.
63. Clause 6 provided a fixed completion date on 15 September 2005. Clause 14 incorporated the Standard Commercial Conditions of Sale (2^nd edition), with modifications. No one suggests that anything turns on them.
64. Clause 15 said that the property was at the risk of the buyer as from the date of the contract, although clause 16 required the seller to continue to insure it.
65. Clause 25.1 required the Seller to use all reasonable endeavours at its own cost to obtain the planning consent. This was defined as a detailed planning consent substantially in the form of the draft consent attached to the agreement. Clause 25.2 was the clause drafted to deal with the section 106 agreement. It said:

"The Seller will use all reasonable endeavours by completion to obtain the completed S.106 Agreement and the Buyer will not be bound to complete until the S.106 Agreement has been obtained by the Seller subject to the Buyer hereby indemnifying the Seller against all obligations contained in the S.106 Agreement and the buyer paying the legal costs of the London Borough of Merton in connection therewith."

66. Both parties have proceeded on the basis that the reference in clause 25.2 to "completion" is a reference to the date of actual completion, rather than to the contractual completion date of 15 September 2005. In my judgment this assumption is correct. Clause 1.22 of the Agreement defined the phrase "Section 106 Agreement" to mean:

"the proposed Agreement to be entered into between the Seller (1), the Seller's mortgagee (if any) (2) and the Mayor and Burgesses of the London Borough of Merton (3) substantially in the form of the draft attached to this Agreement".

67. A draft was duly attached to the Agreement. Recital (5) said that LBM had resolved to grant planning permission "following completion of this Agreement". So far as the library was concerned the draft attached to the agreement said in clause 15.2:

"the Developer covenants not to cause or permit occupation of the Affordable Housing Units and the Market Residential Units until the Class B1 Business Units and the library are constructed to shell and core."

68. The draft agreement required the developer to make a number of cash contributions to LBM. These contributions, divided between various purposes (CCTV, environmental improvements etc.) were £1.08 million in aggregate.
69. Clause 25.3 of the sale contract provided that the Buyer could, after completion of the section 106 agreement, seek variations both to the planning consent and also to the section 106 agreement itself. However, that was not to affect completion of the sale.
70. Clause 25.5 obliged the Buyer to cause to be carried out "the Works" as soon as reasonably practicable after the later of actual completion and the date on which the Seller had obtained Planning Consent and the date the Buyer had obtained vacant possession of the Building. "The Works" were defined in clause 1.32 to include "the Commercial Works" which were in turn defined in clause 1.4 to include works to create a new public library facility. Clause 25.5.5 obliged the Buyer to cause the Works to be carried out in accordance with a Specification attached to the Agreement. The relevant part of the Specification referred to the works being carried out to achieve a shell finish (i.e. the premises were to be left as a shell and not fitted out).
71. Clause 29 of the Agreement provided for the Buyer to grant a Headlease of the Commercial Works (including the library) to the Seller. The Seller was obliged to pay to the Buyer a price calculated in accordance with clause 29.2 which included as part of that price a sum calculated by multiplying the number of square feet in the gross internal area of the premises to be demised (including the library) by £100. The application of this formula to the 629 square metres devoted to the library will require the seller to pay approximately £700,000. If it cannot secure any commercial return on the library, plainly that will impact on the value of the headlease. If, on top of that, it is required to fund an additional £750,000-worth of fitting out costs, the burden will be substantial.
72. A draft headlease was attached to the agreement. Its term was 999 years. It contained few restrictions on alienation; and no restrictions on sub-letting.

Planning obligations and planning conditions

73. The power to grant or refuse planning permission is a statutory power given to local planning authorities under s. 70 of the Town and Country Planning Act 1990. It says:

"(1) Where an application is made to a local planning authority for planning permission—(a) subject to sections 91 and 92, they may grant planning permission, either unconditionally or subject to such conditions as they think fit; or (b) they may refuse planning permission

(2) In dealing with such an application the authority shall have regard to the provisions of the development plan, so far as material to the application, and to any other material considerations…"

74. Case law has established limits to the ability of local planning authorities to impose conditions on the grant of planning permission. In order to be valid a condition must (1) be for a planning purpose and not for any ulterior one; (2) fairly and reasonably relate to the permitted development; and (3) not be Wednesbury unreasonable. The way in which the courts have applied this test means that, in practice, local planning authorities are not entitled, by the imposition of conditions attached to planning permissions, to require developers to donate or dedicate land for public purposes. This was decided in Hall & Co Ltd v Shoreham-by-Sea UDC [1961] 1 WLR 240; and is reflected in para 83 of the current circular explaining the Secretary of State's policy (Circular 11/95). Partly to overcome the lack of flexibility in formulating and imposing conditions, there is a parallel system of voluntary planning obligations. It is contained in section 106 of the Act, which says:

"(1) Any person interested in land in the area of a local planning authority may, by agreement or otherwise, enter into an obligation (referred to in this section and sections 106A and 106B as "a planning obligation"), enforceable to the extent mentioned in subsection (3)—

(a) restricting the development or use of the land in any specified way;

(b) requiring specified operations or activities to be carried out in, on, under or over the land;

(c) requiring the land to be used in any specified way; or

(d) requiring a sum or sums to be paid to the authority on a specified date or dates or periodically.

(2) A planning obligation may—

(a) be unconditional or subject to conditions;

(b) impose any restriction or requirement mentioned in subsection (1)(a) to (c) either indefinitely or for such period or periods as may be specified; and

(c) if it requires a sum or sums to be paid, require the payment of a specified amount or an amount determined in accordance with the instrument by which the obligation is entered into and, if it requires the payment of periodical sums, require them to be paid indefinitely or for a specified period.

(3) Subject to subsection (4) a planning obligation is enforceable by the authority identified in accordance with subsection (9)(d)—

(a) against the person entering into the obligation; and

(b) against any person deriving title from that person.

(4) The instrument by which a planning obligation is entered into may provide that a person shall not be bound by the obligation in respect of a period during which he no longer has an interest in the land."

75. The current policy on planning obligations is contained in Circular 05/2005. A planning obligation must be:

i) relevant to planning;

ii) necessary to make the proposed development acceptable in planning terms;

iii) directly related to the proposed development;

iv) fairly and reasonably related in scale and kind to the proposed development; and

v) reasonable in all other respects.

76. It is, however, clear from the section itself that a planning obligation (unlike a condition) can require the payment of money. The circular says that contributions may be in cash or in kind.
77. As was reflected in the draft section 106 agreement attached to the contract, it is the normal practice for a local planning authority, minded to grant planning permission subject to a section 106 agreement, to resolve to grant it on completion of the section 106 agreement.

How does the contract work?

The seller's analysis

78. Yewbelle pleaded that "in all the circumstances, and in particular to give business efficacy to the agreement, it was an implied term thereof that provided the Seller used all reasonable endeavours, if no Section 106 Agreement was obtained within a reasonable time of 23^rd May 2005 then the Agreement would automatically determine". In other words, if the desired result cannot be achieved despite compliance with the obligation, the contract is at an end without further action by anyone. However, Mr Paul Morgan QC, appearing with Mr Mark Warwick for Yewbelle, accepted that the buyer could waive satisfaction of the condition, but only while the contract was still on foot, that is to say before the expiry of the reasonable time during which the seller was obliged to use reasonable efforts to complete the section 106 agreement.
79. Mr Morgan's fallback position was that at the expiry of the reasonable time the contract would automatically come to an end unless the buyer had waived satisfaction of the condition. However, this position differed from Yewbelle's primary case, because the only failure to waive that was relevant was a failure to waive after the seller had allowed the buyer an opportunity to waive.

The buyer's analysis

80. Mr Edward Bannister QC, appearing with Mr Kevin Leigh for LGD, says that, under the sale contract, if Yewbelle uses reasonable endeavours for a reasonable time and is unable to obtain the section 106 agreement, LGD has the right to waive the condition and sue for specific performance. If LGD delays in seeking specific performance, that remedy will be refused on grounds of laches and the property will cease as a result to be encumbered by the estate contract. Any damages claim would be barred after six years. Accordingly there is no question of the contract continuing in being forever. Thus there is no need to imply a term.

The condition can be waived

81. As I have said, Mr Morgan accepted that the requirement of a completed section 106 agreement was inserted into the contract for the benefit of the buyer, and that the buyer could waive the requirement. In my judgment he was right to accept that. First, clause 3.1 contains the mutual obligations to sell and buy respectively. That obligation is expressly stated to be "subject to the remaining provisions of this Clause 3". It is not expressly stated to be subject to anything else. On the face of it, therefore, the seller's obligation to complete (and the buyer's obligation to buy) is not expressly made conditional on the completion of the section 106 agreement in accordance with clause 25. Second, Clause 25.2 says that "the Buyer" will not be bound to complete until the section 106 agreement has been obtained. It does not say that the seller will not be bound to complete. Thus there is a derogation from the mutual obligation in clause 3, but only in the buyer's favour. This suggestion points towards the conclusion that the buyer would be entitled to compel the seller to complete the sale in the absence of a section 106 agreement. In addition, all other obligations under the contract remain unaffected. Third, clause 6 of the contract provided for a fixed completion date of 15 September 2005. Completion of the sale was not tied only to the completion of the section 106 agreement. Clause 25.2 does not purport to alter this fixed contractual completion date. Fourth, clause 25.5 requires the buyer to cause the works to be carried out. This obligation arises as soon as practicable after "the later of" actual completion and the date on which the seller has obtained planning consent. The normal practice, where a section 106 agreement is in prospect, is for the local planning authority to resolve to grant planning permission subject to the completion of a section 106 agreement. That was recited in the draft agreement in the present case. Consequently, no planning permission will be granted before the section 106 agreement is completed. In practice completion of a section 106 agreement on which a resolution to grant planning permission depends and the grant of the planning permission itself are more or less simultaneous. If, therefore, the contract contemplates that the grant of the planning permission may be later than actual completion, it necessarily follows that the contract contemplates that completion of the sale may take place before the completion of the section 106 agreement. In my judgment all these features, taken together, point towards the conclusion that the buyer was to have the right to compel completion of the sale without a completed section 106 agreement. In addition, clause 25.3 of the contract expressly contemplated that the buyer could seek a variation to the section 106 agreement after its completion. The seller's consent to a variation was not required. And under clause 25.2 the buyer was required to indemnify the seller against liabilities arising under the section 106 agreement. This does not suggest that the precise terms of the section 106 agreement were of importance to the seller.
82. The ability of the buyer to waive the condition is important in trying to understand how the parties must have intended the contract to work. Unusually, in the present case the party entitled to waive satisfaction of the condition is not the same person who is obliged to attempt to bring about its satisfaction. This, too, in my judgment, is of importance in considering how the contract must have been intended to work.

The authorities on conditional contracts

83. In support of its primary submission Yewbelle relies on a decision of mine in Jolley v Carmel Limited [2000] 2 EGLR 153, approved by the Court of Appeal at [2000] 3 EGLR 68. Jolley concerned a contract for the sale of a dilapidated property in Lytham St Annes. The contract entitled the buyer to apply to the local planning authority for planning permission for residential development within three months after the date of the contract. It went on to provide that in that case completion of the contract would take place 28 days after satisfactory planning permission for residential development for a minimum of 16 residential units had been granted to the buyer. In addition the buyer was given the right to complete "regardless of the situation at that time in respect of the said planning permission" in which case the completion date was to be 28 days from the date on which he called upon the seller to complete. There was no express term relating to efforts to obtain planning permission. I held that a term was to be implied to the effect that the buyer would make reasonable efforts to obtain planning permission within a reasonable time. There was no appeal against this part of my decision. I went on to hold that the buyer was not in breach of that implied term for as long as any delay in the grant of planning permission was attributable to causes outside its control and it had not acted negligently or unreasonably. I declined to hold that the reasonable time was to be fixed objectively at the outset of the contract. I held that the condition was still capable of fulfilment for as long as the buyer was complying with its obligation to make reasonable efforts to obtain planning permission within a reasonable time. It followed that for as long as the buyer complied with that obligation, the reasonable time was still running. The Court of Appeal dismissed an appeal against this part of my decision.
84. Since I held on the facts that the "reasonable time" was still running, the question whether the contract would have been discharged on the expiry of the reasonable time, without the grant of planning permission, did not arise. I cannot therefore regard Jolley as directly supporting the proposition that if the seller complies with his obligation, but does not achieve the desired result, the contract automatically determines. I should also note that in Jolley the completion date for both parties was tied to the grant of planning permission, whereas in the present case the absence of the section 106 agreement only suspends the buyer's obligation to complete the sale. The important point, for present purposes, is that in Jolley the right to waive the condition was that of the party who was responsible for obtaining planning permission and would, therefore, have been in the best position to know what progress was being made towards the desired end.
85. In the Court of Appeal Robert Walker LJ approved my conclusion that as long as the promisor continued to perform his obligation the reasonable time was still running. He also held that I was right to run together the promissory condition and the contingent condition. In other words, for as long as the reasonable time was still running, the condition was still capable of being satisfied. Robert Walker LJ also said that the length of the "reasonable time" was to be measured by reference to events as they unfolded, rather than being fixed by reference to circumstances existing at the date of the contract. This latter conclusion is in line with the decision of the House of Lords in Pantland Hick v Raymond & Reid [1893] AC 22, in which it was said that in determining the length of a reasonable time in which to unload cargo it was necessary to take into account not only the ordinary course of events, but also the extraordinary events (in that case a dockers' strike) which actually took place.
86. Mr Morgan also relied on the decision of the House of Lords in Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyds Rep. 209. The contract in that case concerned the supply of gas. The gas was to arrive at Bacton terminal in Norfolk. Bacton was a multi-user terminal receiving gas from different fields. This meant that all the owners of the gas delivered to the terminal had to become parties to an allocation agreement which regulated, by means of a mathematical formula, how much gas leaving the terminal was to be treated as having arrived from each of the different fields. Arco and Total entered into a letter agreement which was intended to be the prelude to a long-term supply contract. Clause 2.8.1 said that "This Agreement is conditional on" three conditions. The third was Arco becoming party to the allocation agreement. However, the contract did not prescribe a cut-off date by which that condition had to be fulfilled. The other two conditions were required to be satisfied by a fixed date. The scheme of the contract obliged Total to take gas from the "First Delivery Date". This was a date which Arco was entitled unilaterally to select within a two month window. Arco duly made its selection, but failed to become party to the allocation agreement before its selected date. The House of Lords held that the condition had to be satisfied by the First Delivery Date, and that since it had not been, the contract was terminated. It was common ground that the condition was not capable of waiver by either party. Lord Slynn of Hadley said (p. 215):

"If the provision in an agreement is of fundamental importance then the result either of a failure to perform it (if it is promissory) or of the event not happening or the act not being done (if it is a contingent condition or a condition precedent or a condition subsequent) may be that the contract either never comes into being or terminates. That may be so, whether the parties expressly say so or not." (Lord Slynn's emphasis)

87. He continued:

"I do not, therefore, accept Mr. Pollock's argument that the effect of the failure of an event upon which further performance depends can only lead to the suspension of the party's obligation under the contract. In my opinion it depends on the proper construction of the contract as to whether on the non-happening of the event the parties' obligations are suspended or whether the contract ceases to bind."

88. Lord Slynn went on to analyse the contract. He drew attention to the particular importance of the First Delivery Date; and concluded (p. 216) that it was the date which once fixed was certain and enabled the parties to begin to achieve the essential purpose of the agreement. As he said, if the allocation agreement had not been entered into by that date, the gas could not flow. He drew attention to the fact that Arco was entitled to decide the First Delivery Date in its discretion. He specifically rejected the submission (p. 217) that the condition had to be fulfilled within such period as was reasonably required to ascertain whether the allocation agreement would be concluded or not. Lord Steyn rejected the submission that the contract would only be terminated by frustration. He did so (p. 222) because of the uncertainty that this conclusion would produce and also because it gave no effect to the parties' choice of the phrase "conditional on". He also rejected the analogy with contracts for the sale of land, because the contract under consideration was so complex. In Jolley in the Court of Appeal Robert Walker LJ also rejected the analogy with Total, both because of the complexity of the contract under consideration and also because the contract in Total had a fixed First Delivery Date.
89. Both these distinctions apply to the present case. It is one thing to say that a contract comes to an end automatically on a fixed date. It is quite another to say that it comes to an end automatically at the end of an unpredictable period. There is a further distinction; namely that the condition in Total was not capable of unilateral waiver.

Does the contract work without an implied term?

90. Mr Bannister's analysis was as follows. First, the mutual obligation to buy and sell contained in clause 3 of the contract was subject only to the matters expressed in that clause (viz. satisfactory searches). That was the only contingent conditionality for which the contract actually provided. Second, nothing in clause 25.2 derogated from the seller's obligation under clause 3. The only derogation was in favour of the buyer, and that amounted to no more than a suspension of the buyer's obligation to complete the sale in the absence of a section 106 agreement. That was quite different from the Total case in which the whole agreement was said to be conditional. As Lord Slynn pointed out, whether a term in a contract has the effect of suspending obligations under the contract, or bringing the contract to an end is a question of construction of the particular contract. Third clause 25.2 was not expressed to be a contingent condition at all, so that any contingency would have to be an implied one. Dealing with the last point first, I cannot see how the suspension of the buyer's obligation to complete the sale until completion of a section 106 agreement with LBM can be anything other than dependent on a contingent condition. A promissory condition and a contingent condition can overlap; but the essential difference between the two is that a promissory condition is one which the promisor has the power to fulfil or cause to be fulfilled whereas a contingent condition is one which is not within his power to fulfil even though he may undertake to use reasonable (or best) endeavours to bring about: Michaels v Harley House (Marylebone) Ltd [2000] Ch 104, 116 per Robert Walker LJ.
91. Mr Bannister recognised the unsatisfactoriness of a conclusion that the buyer could indefinitely stand on its right not to complete the contract of sale in the absence of a section 106 agreement, but at the same time assert that the contract remained in being. His submission was that the availability of equitable remedies was a satisfactory basis of dealing with the problem, and that in consequence there was no need to imply any term. The problem is thus dealt with, not by construing the contract so as enable it to be brought to an end, but by the availability of remedies.
92. There are, I think, two equitable principles in play in evaluating this submission. The first is that of conversion, arising out of the maxim that equity looks on that as done which ought to be done. On the entry into a specifically enforceable contract or a potentially specifically enforceable contract, the buyer acquires an equitable interest in the land, and the seller becomes a trustee (of some sort) of the land for the benefit of the buyer. However, the equitable interest is dependent on the continuing availability of specific performance. If specific performance is unavailable (and a fortiori if it is refused) the equitable interest of the buyer will come to an end. The second principle is that the availability of specific performance can be lost by the application of the doctrine of laches. In cases where the contract in question concerns land to be exploited for commercial purposes the period of delay that can lead to the refusal of specific performance may be comparatively short. If specific performance is refused, with the consequence that the buyer's equitable interest in the property terminates, the seller can once more deal with his property unencumbered by the buyer's interest.
93. Attractively though Mr Bannister put his submission, there are, in my judgment, a number of problems about accepting it. First, as he himself recognised the application of the doctrine of laches is, at best, "messy and uncertain". Second, even if specific performance is refused, the contract will remain in being at common law. On Mr Bannister's construction, the buyer has the right to defer completion indefinitely (as a matter of construction of the contract). There is no separate "equitable" construction. Thus the seller may be faced with a claim for damages for breach of contract at common law if, many years later, the buyer decides to waive the condition and call upon him to complete. Mr Bannister said that a claim for damages would itself be extinguished after six years. However, the difficulty with this part of the submission is in identifying the starting point for the six year period. It is, in my judgment, difficult to conclude that the seller is in breach of contract as soon as the fixed date for completion has passed if the buyer chooses to insist (at least for the time being) on fulfilment of the condition before his own obligation to complete arises. As Mr Morgan submitted, an obligation to complete a sale of land is a mutual obligation: the seller must execute the transfer and the buyer must pay the price. These are concurrent obligations, to be performed concurrently. If therefore the buyer is entitled to refuse to pay the price because the condition has not been satisfied, it must follow that the seller is not in breach of contract in not executing the transfer. On this basis, the limitation period will not start to run until the buyer has called on the seller to complete, and he has failed to do so. But Mr Bannister says that as a matter of construction of the contract there is no long-stop date by which the buyer must call on the seller to complete. Thus at common law, a claim for damages may not accrue for many years.
94. Mr Morgan also submitted that the doctrine of laches could not apply at all in circumstances in which the buyer was doing no more than to exercise a contractual right to defer completion. The doctrine exists in order to prevent injustice occasioned by the enforcement of a contractual right after long delay. But if the right to delay completion is itself a contractual right, what is the injustice about holding a party to the contract? Put another way, there is no relevant delay if the claimant has done no more than exercise his contractual right. I do not think that I need to decide whether the fact that the claimant is exercising a contractual right is an absolute bar to the application of the doctrine. In the modern law the doctrine of laches is closely allied to the defences of acquiescence and estoppel. In Re Loftus (deceased) [2006] 4 All ER 1110, 1124 Chadwick LJ said:

"The modern approach to the defences of laches, acquiescence and estoppel was considered by this court in Frawley v Neill [2000] CP Reports 20 to which reference was made in the judgment of Mummery LJ in Patel v Shah [2005] EWCA Civ 157, (2005) Times, 2 Mar, at [32]. After reviewing the earlier authorities—and, in particular, observations in Lindsay Petroleum v Hurd (1874) LR 5 PC 221 at 229 and Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1279—Aldous LJ (with whom the other members of the court agreed) said this:

'In my view the more modern approach should not require an inquiry as to whether the circumstances can be fitted within the confines of a preconceived formula derived from earlier cases. The inquiry should require a broad approach, directed to ascertaining whether it would in all the circumstances be unconscionable for a party to be permitted to assert his beneficial right. No doubt the circumstances which gave rise to a particular result in the decided cases are relevant to the question whether or not it would be conscionable or unconscionable for the relief to be asserted, but each case has to be decided on its facts applying the broad approach.'"

95. On the face of it it would not usually be unconscionable for a party to assert a right which the contract entitles him to assert. It seems to me therefore, that absent some other ingredient which, on particular facts, might give rise to an estoppel, the doctrine of laches would not provide an adequate solution. Accordingly it seems to me that some term must be implied.

Automatic termination?

96. Normally, if a party is in breach of a contractual obligation, the breach does not automatically discharge the contract. Even if the breach is a breach of a condition of the contract (in the sense of a promissory rather than a contingent condition) a breach of condition will normally amount to a repudiatory breach which gives the injured party the right to treat the contract as at an end. The law does not give that right to the contract breaker. I agree, therefore, with Mr Bannister's submission that if Yewbelle had failed to comply with its obligation (e.g. it had not tried hard enough or had not tried for long enough), it could not rely on its inability to achieve the desired section 106 agreement as bringing the contract to an end. I did not understand Mr Morgan to dispute this.
97. The more difficult case, however, is where the section 106 agreement cannot be obtained despite compliance by the seller with its obligation. There is no express provision specifying the consequences of this situation, so Yewbelle can only appeal to the implication of a term. In effect Yewbelle contends for the implication of a contingent condition subsequent, non-fulfilment of which will bring the contract to an end. Any implied term must be fair and reasonable, but the reasonableness of a term is not a sufficient condition for implying it. A term can only be implied where either the term is necessary to give business efficacy to the contract; or it is so obvious that it goes without saying. Particular care is needed before implying a term into what is, on the face of it, a detailed contract drawn by professionals.
98. It is also necessary to consider what the contract does not say, or at least does not say expressly. It does not say that the seller must keep the buyer informed about progress towards completing the section 106 agreement. It does not say that the seller must tell the buyer that it considers that a reasonable time is about to expire or has expired. If the local authority is willing to enter into a section 106 agreement which differs from that annexed to the contract, it does not require the seller to show the buyer what is on offer.
99. If a term is implied in the manner that Yewbelle suggests as its primary case it would automatically discharge the contract in the event that the seller, despite compliance with its obligation, failed to secure the desired section 106 agreement. As I understood Mr Morgan's submission the seller could decide for itself how long to keep trying to achieve the desired result; and provided that its decision was itself a reasonable one, it could not be impugned. Thus the implied term would also mean that the contract could be avoided at a time of the seller's choosing, without prior warning to the buyer. Although Mr Morgan said that it behoved the buyer to keep himself informed about what was going on, he has no contractual means of doing so. Even if he does know what is actually going on, he has no means of knowing for how much longer the seller thinks it worthwhile to continue making efforts towards the desired objective. In addition, Mr Morgan said that any waiver would have to be made while the contract was still on foot; that is to say before the reasonable time had come to an end. In practice this would mean that the buyer would lose the ability to waive the contingent condition and yet insist on full performance of the seller's promise. If the seller could not rely on his own failure to try for long enough as sufficient to discharge the contract, why should the buyer's only chance to waive the condition arise before the seller had fully complied with his obligation? In my judgment such a term would be inconsistent with the overall shape of the agreement, and an unreasonable term to imply.
100. This is, I think, sufficient to dispose of the argument in favour of an implied term in the primary way in which Yewbelle puts the case, since any implied term must be a fair and reasonable one. But in my judgment the suggested term fails to pass either of the familiar tests for implication. Take obviousness first. If the parties had been asked at the moment of concluding the contract, whether the contract would automatically go off if the seller failed to obtain the desired section 106 agreement, I cannot see the buyer unhesitatingly saying "Yes". He might say that it would depend on what the differences were between the draft attached to the contract and the section 106 agreement on offer. If they were not, in his view, critical to success or failure of the development he might choose to complete and accept what was on offer. He might say that he was willing to complete and take his chance with the planning authority. He might say that although the seller had used reasonable endeavours, the use of greater endeavours would do the trick, and he would use them. He might say that he would submit a fresh planning application and appeal against its non-determination or refusal in the absence of agreement to LBM's terms. Many of the same points apply to the test of business efficacy. It must not be forgotten that the primary purpose of the contract was the sale of land, and the term implied must be such as to give business efficacy to that overall purpose.

The fall back position

Opportunity to waive?

101. Mr Morgan's fallback position was that at the expiry of the reasonable time the contract would automatically come to an end unless the buyer had waived satisfaction of the condition. However, this position differed from Yewbelle's primary case, because for the purposes of this submission the only failure to waive that was relevant was a failure to waive after the seller had allowed the buyer an opportunity to waive. Moreover, the opportunity to waive would necessarily be given after the seller had fully performed his obligation to use reasonable endeavours for a reasonable time, so that the buyer would have had the whole benefit of what he had been promised. This was not a pleaded implied term, but Mr Bannister did not object to Mr Morgan's making this submission. But even this formulation did not require the seller to inform the buyer of all the circumstances or all the possibilities. In the course of Mr Morgan's opening address I raised the question whether the buyer would have had to have known of the facts and of his right to elect before being in a position to waive (compare Peyman v Lanjani [1985] Ch 457); but Mr Morgan stressed that this was not a case of election of any kind. In the present case he said, on the facts, Yewbelle had given LGD the choice whether to complete the contract with no section 106 agreement in place, and LGD had declined to do so.
102. This way of putting the case involves three stages:

i) The seller complies with its obligation to use all reasonable endeavours to complete the section 106 agreement and persists in those endeavours for a reasonable time;

ii) The seller then gives the buyer an opportunity to complete the sale without any section 106 agreement;

iii) The buyer chooses not to complete the sale.

103. The argument in favour if this way of looking at the contract involves a number of strands. First, somewhat unusually, the obligation to complete the section 106 agreement is placed on the seller rather than the buyer. Second, the duration of that obligation is uncertain. Third, the seller has no obligation to keep the buyer informed about negotiations. Fourth, this formulation (unlike Mr Morgan's primary case) gives the buyer the whole benefit of the contractual promise to use reasonable endeavours. Thus the buyer need not make a snap judgment about whether to waive satisfaction of the condition in an attempt to anticipate when the seller might decide that his obligation had been performed.
104. The first of these stages is governed by an express term of the contract. No implication is required. The third stage is the corollary of the buyer's right to waive satisfaction of the condition. This is a right given to him by the law; so no implication of a contractual term is required. The only implication therefore is that at the end of the reasonable period, the seller will inform the buyer that the desired section 106 agreement has not been completed and give him the opportunity to waive satisfaction of the condition. In my judgment this implication is one that passes the test of giving efficacy to the contract; and is a necessary term to imply.

What is an opportunity to waive?

105. If, as I think, the seller must give the buyer an opportunity to waive satisfaction of the condition, the question then arises whether, in order to be effective, the buyer is entitled to any information before he makes his choice. Despite Mr Morgan's assertion to the contrary, I find it difficult to see why the buyer's right either to treat the contract as having terminated, or to assert a right to complete the contract despite non-satisfaction of the condition is anything other than an election between two inconsistent rights. The word "waiver" is used in legal parlance in a number of different ways. The first is in the sense just described, namely an election between two inconsistent rights, of which waiver of forfeiture in the law of landlord and tenant is a well-known example, and the acceptance of a repudiatory breach of contract is another. The second main sense in which the word is used is where a person so conducts himself as to lead another to the belief that he will not rely on a particular legal right and that other acts on that belief to his detriment. A waiver of a condition precedent seems to me to fall into the first category. In the first place, it is, as I have said, a choice between two inconsistent rights; and in the second place the choice is effective as soon as it has been communicated, without the counter-party having acted upon the communication.
106. The significance of this is that, at least in general terms, a valid election is dependent on the person making the election having knowledge or the means of knowledge of (at least) the relevant facts. He may also have to know that he has a choice between inconsistent rights. He is also entitled to an opportunity to consider his position. In Scarf v. Jardine (1882) 7 App. Cas. 345, 360-361, Lord Blackburn said:

"…where there is a right to elect the party is not bound to elect at once; he may wait and think which way he will exercise his election, so long as he can do so without injuring other persons, and accordingly in that particular case it was held that he had not lost his right to elect by a reasonable waiting under rather peculiar circumstances; but when he has once fully elected it is final."

Is the draft section 106 agreement compliant with the contract?

Permitted departures

107. The seller's obligation was to use reasonable endeavours to secure a section 106 agreement "substantially in the form of the draft" attached to the contract. Whether the section 106 agreement in the form of the draft sent on 21 December 2005 conformed to this description is, in my judgment, a question to be answered objectively. In other words it was not a question which was dependent only on the perception of the actual buyer.
108. The principal differences between the draft that LBM sent through on 21 December 2005 and the draft attached to the contract are as follows:

i) Yewbelle was substituted for KGL as "Developer"; KGL's chargee was omitted and LGD was added as a party;

ii) References to the chargee were omitted in the recitals, and instead they referred to the fact that a conditional contract mad been made with LGD;

iii) The date of the resolution to grant was changed from 11 March 2004 to 15 December 2005

iv) the overall £1.08 million contribution remained the same, although it was redistributed between the various elements of the draft agreement;

v) clause 15.2 (dealing with the library) added that no occupation of the Affordable Housing Units and Market Residential Units was to be permitted until 'a lease of the library has been granted to the Council' (the earlier draft had simply said "until the library [is] constructed to shell and core");

vi) landscaping works were omitted; and

vii) minor amendments to sense were made.

109. I should also note that:

i) There was no change in the definition of "the Development", which continued to refer to 226 residential units, 370 square metres of retail, 876 square metres of offices and 629 square metres of library;

ii) There was no change in the definition of "the Red Land", to which the section 106 agreement was to apply. That land was to be identified on a plan attached to the agreement; but neither the draft annexed to the contract, nor the 21 December draft attached the plan;

iii) The draft did not delete reference to the Green Travel Plan or the Car Park Management Plan (which the committee had resolved should be replaced by conditions).

110. Mr Morgan submitted that the only permitted departure from the draft section 106 agreement attached to the sale contract was a departure in "form". No departure in substance was permitted. Even a departure in form could not be substantial. Mr Bannister, on the other hand, submitted that the reference to the "form" of the draft section 106 agreement was a reference to its terms; and that what the contract was driving at was that there should be no substantial change in those terms. I prefer Mr Bannister's submission. In the case of a commercial contract such as this one, the parties would surely have been concerned with the effect of the terms of the section 106 agreement, rather than the manner in which those terms were presented. The contract in fact uses the phrase "in the form of" to describe a number of relevant documents; viz. the section 106 agreement, the planning consent and also the headlease to be granted back to the seller. In all these cases the appearance of the document is of little importance. Moreover, under clause 25.2 of the sale contract KGD was obliged to indemnify Yewbelle against all obligations contained in the section 106 agreement; and under clause 25.3 had the right to try to agree variations to it. In addition, the line between form and substance in the case of a document creating legal rights and obligations is not always an easy one to draw. Mr Morgan was, I think, constrained to accept that some changes in form were permitted, even though they changed the legal rights and obligation created by the agreement. For example, the draft attached to the contract contemplated the KGL's mortgagee would be a party to it. But KGL paid off the mortgage, so that was no longer necessary. Mr Morgan accepted that this was a permissible change, even though KGL's chargee would no longer be bound. So also, as I understood it, was the addition of LGD as a party. But Mr Morgan submitted that the redistribution of the £1.08 million "pot" between the different heads of expenditure was not a permitted departure. However, it seems to me that it would have been a matter of indifference to the developer how LBM internally allocated the various payments to be made by the developer, provided that the aggregate did not change.
111. Mr Bannister submitted that the consequence of the changes was to leave the financial and commercial effect upon the seller of the 12 November 2004 draft section 106 agreement completely unaltered. On the other hand Mr Morgan submitted that there were two alterations of potential significance. The first, he said, was the alteration of the definition of the Development. The second was the alteration relating to the library.

The third party land

112. It was always appreciated that the south east corner did not belong to the seller, but at the date of the contract it was thought to belong to LBM. This assumption was falsified. Mr Morgan said that there were only two ways in which this problem could be cured. The first was by procuring the owner of the south east corner to execute the agreement. The other was to alter the definition of "Development" in the way that was done. Either option would have meant that there was a substantial change in the form of the annexed section 106 agreement. The consequence of this, Mr Morgan submitted, was that from the very inception of the contract the condition was never capable of fulfilment.
113. This is a very unattractive conclusion. Given that Mr Morgan accepted that a change in the parties to the agreement was capable of being a non-substantial change in the form of the agreement, I do not see why execution of the draft by the actual owner of the south east corner would have been an impermissible change in form. But there is also, as it seems to me, a third possibility, namely that either Yewbelle or LGD would acquire the south east corner. Mr Morgan submitted, and I agree, that Yewbelle's obligation to use all reasonable endeavours to obtain the section 106 agreement would not require it to acquire the south east corner. But although Mr Morgan's submissions were predicated on the basis that the definition of "Development" had been altered in the draft, no such alteration was in fact made to the 21 December version, and I was not shown any later version which changed the definition. The resolution to grant of 15 December 2005 still referred to the larger development (including the south east corner) and LGD had entered into a conditional contract for its acquisition before the slimmed down development was submitted for approval in August 2006. In my judgment this feature of the section 106 agreement would not have caused non-fulfilment of the condition.

The library lease

114. The addition of the requirement of the grant of a lease to the library is a different matter. It does not seem to me to be possible to characterise this change as insubstantial. The draft attached to the contract enabled the residential units to be occupied once certain physical work had been completed. The cost of that work would, within limits, have been predictable. The carrying out of the works would have been wholly within the developer's control. It would not have mattered whether the developer had agreed terms with LBM for the grant of a lease or not. The new version, by contrast, made the occupation of the residential units dependent on the grant of a lease to LBM. The grant of the lease must, necessarily, be preceded by agreement on its terms. That agreement would encompass not only the basic financial terms of the lease (rent, premium etc.) but also other terms such as the extent of and financial responsibility for fitting out. The prohibition on occupation of the residential units until these things had been agreed seems to me fundamentally to change the relative bargaining positions of the parties. From being in a position where the strength of LBM's bargaining position was simply that, absent agreement, the developer would be left with a useless space, and the strength of the developer's bargaining position being that, absent agreement, LBM would not acquire a library; the new position was such that LBM was placed firmly in the driving seat. For if the developer would not agree LBM's terms, not only would it be left with a useless space (viz. the library) but it would not be able to exploit any of the residential units either.
115. As Mr Morgan pointed out this is bad enough; but the position of LGD would be even worse. That is because the lease of the library would not be granted by LGD, but by Yewbelle as headlessee of the commercial part of the developer. Nothing in the headlease requires LGD's consent to be obtained to the terms of any sub-lease. So LGD would have no control over what, if anything, Yewbelle and LBM agreed. More importantly, unless and until Yewbelle and LBM did agree the terms of a sub-lease, LGD would not be able to exploit the value of the residential part of the development.
116. Mr Bannister submitted that since the application for planning permission always envisaged use of the space as a public library, it was implicit that the developer would at least have to give up the right to occupy that space, since the only candidate for running a public library in Merton was LBM itself. That may be so, but it does not follow that the planning application envisaged that LBM would be entitled to occupy it rent free; still less that it would have its fitting out costs paid. He also submitted, quite correctly, that the terms of the lease would have to be agreed at some stage. But the significance of the addition to clause 15.2, as I see it, is that, for the reasons I have tried to explain, the parties' respective negotiating strengths would have been fundamentally changed.
117. In my judgment, therefore, the 21 December version was not substantially the same as the draft annexed to the contract.

Did Yewbelle comply with its obligation?

Reasonable endeavours

118. Mr Morgan drew my attention to two cases concerned with contractual obligations to use "reasonable endeavours". The first was the decision of the House of Lords in P & O Property Holdings Ltd v Norwich Union Life Insurance Society (1994) 68 P & CR 261. P & O were the developers of a shopping centre in Sutton, funded by the Norwich Union. Under the terms of the development agreement P & O and the Norwich Union were obliged to "use their reasonable endeavours to secure a letting of each lettable part of the Development." The Norwich Union had advanced the maximum amount that it was required to advance under the terms of the development agreement. Because of weakness in the market, it was not possible to obtain good tenants at good rents without paying reverse premiums. The question before the House was whether the Norwich Union could insists that P & O in using its reasonable endeavours to obtain lettings was bound to pay reverse premiums "if a hypothetical reasonable landlord (ignoring who is to bear the cost of such premium) would agree to the payment of such a reverse premium". The House held that it was not entitled to insist. The argument for the Norwich Union was that an objective standard had to be applied in order to give content to the obligation. The House rejected the argument. There were several reasons why the House came to that conclusion, but the relevant reason for present purposes was that the willingness of a landlord to pay a reverse premium would depend on his financial circumstances at the time. A landlord with a healthy cash flow, taking a long term view, would be willing to make such payments. A landlord who had cash flow difficulties would be looking for quick lets at the best rent available. The agreement did not enable one to say what kind of landlord was under consideration.
119. The second case was the decision of the Court of Appeal in Phillips Petroleum Company United Kingdom Ltd v Enron Europe Ltd [1997] CLC 329. This was another case of an agreement for the supply of North Sea gas. The contract contained a number of obligations requiring the parties to use "reasonable endeavours". One was an obligation to use reasonable endeavours to co-ordinate the construction of their respective facilities. Another was an obligation to use reasonable endeavours to agree the date on which deliveries were to begin ("the Commissioning Date") and the date of a three day test of the parties' respective capacities to receive and deliver gas ("the Run-In Test"). The same clause went on to say that in the absence of agreement, the Commissioning Date would be 25 September 1996 and the Run-In Test would take place on 25 to 28 September 1996. Because of a fall in the price of gas Phillips refused to agree dates earlier than the fall-back dates. Enron argued that each party was under an obligation to use reasonable endeavours to reach agreement on the Commissioning Date and the Run-In Test having regard only to criteria of technical and operational practicability and without regard to selfish or commercial motives. The Court of Appeal rejected that argument. Kennedy LJ said:

"I find it impossible to say that they [i.e. the contract terms] impose on the buyer a contractual obligation to disregard the financial effect on him, and indeed everything else other than technical or operational practicality, when deciding how to discharge his obligation to use reasonable endeavours to agree to a commissioning date prior to 25 September 1996. If the obligation were to be strait-jacketed in that way, that is something which to my mind would have been expressly stated, and, as Mr Pollock's argument really conceded, this is not a situation in which it would be appropriate for the court to imply a term, not least because it is unnecessary to do so for purposes of business efficiency. The fall-back provision expressly states what is to happen if no early commissioning date is agreed."

120. Potter LJ said:

"The GSA was an agreement drawn up between international energy companies intended to regulate their trading and financial relationship over a period of at least 15 years and involving hundreds of millions of pounds worth of business. They were plainly the product of much arm's length negotiation and careful legal drafting, which appears to have been calculated to provide sequentially for every contractual eventuality which might occur at the various stages of the development and operation of the supply contract. That being so, I see no reason to suppose that it was the expectation, let alone the obligation, of the parties that, in any area of activity in which room was left for manoeuvre or further negotiation, they were not at liberty to take into account their own financial position and act in the manner most beneficial to them, short of bad faith or breach of an express term of the contract."

121. Much of the argument in the case was directed to the question whether an obligation to use reasonable endeavours to agree was an obligation capable of being legally enforced. As Millett LJ explained in Little v Courage Ltd (1995) 70 P & CR 469:

"An undertaking to use one's best endeavours to obtain planning permission or an export licence is sufficiently certain and is capable of being enforced. An undertaking to use one's best endeavours to agree, however, is no different from an undertaking to agree, to try to agree, or to negotiate with a view to reaching agreement; all are equally uncertain and incapable of giving rise to an enforceable legal obligation."

122. It is not suggested in the present case that the obligation to use reasonable endeavours to obtain the section 106 agreement is unenforceable. Mr Bannister submitted that both P & O and Phillips were essentially cases about agreements to agree, and to that extent were unhelpful. I agree that this is a factor that I must bear in mind. However, the essence of the obligation required Yewbelle to use reasonable endeavours to reach an agreement, not with the other party to the contract, but with a third party. To that extent it seems to me that at the very least Phillips is a useful analogy. In using reasonable endeavours towards that end, I do not consider that Yewbelle was required to sacrifice its own commercial interests.
123. I come back to the question: for how long must the seller continue to use reasonable endeavours to achieve the desired result? In his opening address, Mr Morgan said that the obligation to use reasonable endeavours requires you to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted. You would simply be repeating yourself to go through the same matters again. I am prepared to accept this formulation, subject to the qualification that account must be taken of events as they unfold, including extraordinary events.

Yewbelle's efforts

124. Until close to the end of 2005 I consider that Yewbelle complied with its obligation. The question, to my mind, is whether it continued to do so after Ms Lauder sent through the revised section 106 agreement in December 2005.
125. I am prepared to accept that Ms Lauder's inclusion of the condition that the library lease had to be granted before the residential units could be occupied came as a bolt from the blue. I have already said that, in my judgment, a section 106 agreement containing that stipulation would not have been substantially in the same form as that attached to the contract. Mr Morgan did submit that Yewbelle had been pressing LBM throughout 2005. But it did not press LBM about this particular change in wording throughout 2005, because the change did not appear until the very end of the year.
126. What did Mr Lobetta do in order to persuade Ms Lauder to remove the requirement? In my judgment, the short answer is: nothing. The case papers spanning 2006 contain not a single letter from Mr Lobetta to Ms Lauder. There is no record of any meeting between them. The only telephone call that took place was that of 6 January 2006. But the upshot of that conversation was that although Mr Lobetta told Ms Lauder that he was disappointed, he said that he would seek his client's instructions. He never went back to her after that.
127. Mr Morgan said that Mr Lobetta was the man on the ground and had been steeped in the history of the matter for a long time. If it was his judgment that the desired section 106 agreement could not be achieved, then the court should respect his judgment. Plainly that is a serious point. However, there are four factors which tell against it. The first is that, as Mr Lobetta himself said, he was not directly involved in planning matters. The second is that his view that there was an "impasse" was not shared by Mr Silk, who was directly involved in planning matters; and Mr Lobetta's description of the "advice" he had received in his letter to Mr Segen of 2 February 2006 was plainly overstated. The third is that without going back to Ms Lauder to try to persuade her to remove the offending wording, it is difficult to see how Mr Lobetta was able to conclude that there was indeed an "impasse". The fourth is that in the contemporaneous correspondence passing between Mr Lobetta and Mr Segen, the problem of the library lease was hardly mentioned; and the real problem in Mr Lobetta's mind seems to have been the third party land. I do not consider that I should simply be guided by Mr Lobetta's view, tinged as it now is with hindsight. As I have said, Mr Hughes chose not to give any evidence about Yewbelle's decision-making process. The inference I draw is that at the meeting on 1 February 2006 Mr Hughes decided that no further efforts were to be made to obtain the desired section 106 agreement, despite the fact that Mr Silk did not share the view that it would be impossible to obtain it.
128. Mr Morgan submitted that it was not incumbent on Yewbelle to take any particular step towards achieving the desired section 106 agreement unless that step had a real prospect of success. But no one from LBM was called to say what LBM's attitude would have been if Mr Lobetta had made a serious protest about the inclusion of the new wording. It must not be forgotten that in the report to the planning committee that preceded the December 2005 meeting, one of the justifications for the changes in the resolution to grant was that they would facilitate the completion of the sale of the land and the completion of the section 106 agreement. LBM was, to that extent, being helpful. Although Ms Lauder seems to have been aware that the contract of sale was conditional, she was not told that satisfaction of the condition depended on the precise form of the section 106 agreement. Mr Lobetta could have pointed out to her that the change in the form of the draft jeopardised the sale which LBM had hoped to facilitate by the amended resolution to grant. In addition, Ms Lauder's draft did not actually reflect the deletions that the committee approved; yet Mr Lobetta did not point that out either. Nor did the committee approve the tying of the grant of the lease of the library to the occupation of the residential units, some of which at least were reserved for social housing. If any of this had been pointed out to Ms Lauder she might have altered the draft. I do not think that I can conclude that a reasoned protest would have had no real chance of achieving the result. In my judgment Mr Lobetta was wrong in saying on 2 February 2006 that "it was not possible" to obtain a section 106 agreement in the desired form.
129. Mr Morgan next submitted that given the inclusion in the 21 December draft of the offending words relating to the library, one permissible course of action for Yewbelle to take would have been to attempt to agree the terms of the library lease. Although the dealings relating to the library lease are included in my general narrative, it may be helpful to pick out the features:

i) On 15 June 2005 Ms Lauder said that she had been instructed that the library should be transferred to LBM at a peppercorn and without premium;

ii) Despite that, on 11 July she suggested a meeting to discuss terms of acquisition of the library, and told Mr Lobetta that LBM were looking for a compromise on the library;

iii) On 18 August Mr Lobetta reported to Mr Aziz that Mr Masson had said that he would like the library but was not confident of getting it as he appreciated that the developer had been "squeezed enough already";

iv) In early September, LBM suggested a rent of no more than £30,000 per annum, which "worked" for Mr Aziz;

v) In early October Mr Lewis said that the £1.08 million "pot" could be reallocated to help with the library fit out. He raised the question of a rent free period, but otherwise did not revert to the peppercorn rent proposal (which would of curse have obviated the need to discuss a rent free period);

vi) On 11 October Mr Lobetta said that his clients were willing to grant a lease for 20 years at £30,000 per annum with five-yearly rent reviews, but without a rent free period;

vii) On 6 December Mr Masson asked where the figure of £30,000 had come from and said that any rent would have to be negotiated;

viii) On 21 December 2005 Mr Lobetta received the revised section 106 agreement;

ix) On 2 February 2006 Mr Lobetta told Mr Segen that the condition could not be fulfilled, and on 10 March he said that the contract had terminated;

x) On 20 March Mr Silk e-mailed Mr Lewis to say that it "would seem expeditious if we could move forward to resolving terms for the library";

xi) On the following day Mr Masson indicated that LBM wanted a 125 year lease at a peppercorn and fit out to Category A. He confirmed this by letter of 22 March;

xii) At the meeting on 4 April Mr Masson seemed prepared to accept a rent of 15 per cent below a comparable office rent, but resiled from this in a conversation with Mr Hughes on the following day, when he reverted to the proposal for a peppercorn rent and a high quality fit out;

xiii) Since then Mr Masson has maintained his position, but it has never been challenged by Yewbelle.

130. What emerges from this summary is that by the time that Mr Lobetta declared the contract to be at an end, the current proposal on the table was the offer of a lease at £30,000 per annum, which Mr Aziz had said worked for him, and which LBM had not (yet) rejected. Although Mr Masson asked where that figure came from, no one ever told him. Between 11 October 2005 and 4 April 2006 there was no activity on the part of Yewbelle or its advisers in seeking to agree terms. It was not until after the meeting on 4 April 2006 that Mr Masson seemed to press for a peppercorn rent. Mr Aziz does not appear to have had any direct contact with LBM. Mr Hughes appears to have attended one relevant meeting and taken one relevant telephone call with LBM's officers. Even then, despite the fact that Mr Hughes had "lost [his] rag" Mr Masson's position was not challenged. Yewbelle have been doing little more than listening to Mr Masson's demands. On the two occasions when the application has been referred back to the committee it has shown a desire not to impede the sale. It is not, in my judgment, possible to conclude that Mr Masson truly reflected the views of his political masters. And even Mr Masson himself might have softened his views if he had been told that his demands were threatening to abort the sale and with it Mr Green's willingness to increase the contribution to the library.
131. In all these circumstances, I am not satisfied that Yewbelle has discharged its obligation. On that basis Yewbelle is not entitled to rely on the non-satisfaction of the condition as having discharged the contract.
132. Mr Bannister submitted that, in any event, the question of the library lease, like other "difficult matters" could have been resolved by the imposition of a condition attached to the planning permission as opposed to being contained within the section 106 agreement. I was not persuaded by this. In the first place, having regard to the legal limits on the power to impose conditions, I do not consider that a condition requiring the grant of a lease to LBM (still less to grant it at a peppercorn rent) would have been a lawful condition. In the second place, as Mr Morgan said, transferring this obligation to the planning consent might have put Yewbelle in breach of its obligation to obtain the planning consent in substantially the same form as that attached to the sale contract.
133. However, having regard to my conclusion that Yewbelle has not discharged its obligation, the action must fail.

Other issues

134. This conclusion makes it unnecessary to consider the other potential issues of fact arising out of the implied term upon which Mr Morgan relied as his fall-back position. They are:

i) Whether (and if so when) LGD had sufficient information on which to base a valid election or waiver;

ii) Whether (and if so when) it made a valid election or waiver.

135. Following the conclusion of the hearing, Mr Morgan objected to my considering these issues on the basis of the evidence that I had heard on the grounds that:

i) They had not been pleaded;

ii) No disclosure had been given by LGD of materials relating to its detailed understanding of the planning position; and

iii) Mr Green had not been cross-examined about his state of knowledge of the planning position between the beginning of 2006 and 3 October 2006 (which was the date on which LGD purported to waive the condition).

136. Alternatively, if my conclusions on these issues would prove decisive on the outcome of the case, I should allow the evidence to be re-opened (and, I infer, direct further disclosure).
137. In response Mr Bannister not surprisingly said that

i) These issues arose out of Yewbelle's own introduction of an unpleaded fall-back position

ii) He had cross-examined Mr Lobetta without objection about LGD's requests for information during 2006; and

iii) Full information about what had been going on behind the scenes had only been supplied on disclosure.

138. He invited me to proceed to judgment on the evidence I heard. Neither side, even now, has applied for permission to amend.
139. This presents a difficult question of case management. On the one hand, a resolution of these factual questions will not affect the result. On the other hand, I think that I must accept Mr Morgan's point that (at least) he would have cross-examined Mr Green differently if these questions had been squarely raised on the pleadings. If I am wrong in my principal conclusion, these issues might become relevant. In those circumstances, I do not consider that it would be fair to Yewbelle to decide these questions on the evidence I heard.
140. However, since determination of these questions does not affect the result, I see no reason to delay giving judgment. If either party wishes me to determine these additional issues, an application for permission to amend will have to be made; and I will have to give directions for further disclosure and evidence.

Result

141. In the light of my conclusions the action fails and must be dismissed. The primary relief sought by the counterclaim is a decree of specific performance of the contract. In the light of my conclusions, I will make such an order. LGD did not prove any loss caused as the result of any delay; and I decline therefore to give judgment for damages in addition to a decree of specific performance. I will hear counsel on the form of the order, if it cannot be agreed.