England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		2nd February 2010

JUDGE PURLE:

1. This is an application to determine what is the appropriate valuation date in respect of an option agreement dated 16^th March 1998 between the defendants and the claimant relating to land at Fairfield Farm, Upper Weald, Calverton, Milton Keynes.
2. The option agreement contains provisions embodying a two-fold process. Following the grant of planning permission, a notice was served in respect of stage one. That does not commit either party to buy or sell at a particular price or by reference to any particular date, because the agreement does not specify one. The service of that notice triggered a mechanism for ascertaining the option price in respect of such part of the land which has the benefit of a planning permission meeting certain criteria which, it is accepted, are met in this case. Once the price is determined, the claimant will have the option to purchase the land at that price.
3. The price is ascertainable by reference to two concepts: one is the agricultural value, the other is the open market value, both being defined terms. The price is to be 75% of the open market value unless a particular multiple of the agricultural value achieves a greater result, in which case the price is that multiple. The details do not matter.
4. It is clear that, unless the parties agree, there needs to be an efficient mechanism for determining the option price. There is such a mechanism in clause 7.5 of the agreement upon which a great deal of attention has been focused before me. I should therefore read the material part:

"If the Vendor and the Purchaser shall fail to agree the consideration payable for the Development Land within a period of sixty days from the date on which negotiations are to be commenced pursuant to clause 7.4 or (if earlier) the date when the parties agree to commence such negotiations any party may require the Open Market Value and the Agricultural Value of the Development Land and the consideration payable by the Purchaser for the Development Land to be determined in accordance with the provisions of clause 11 hereof."

5. Clause 7.5 does not specify a valuation date. Clause 11 is a clause providing for the appointment of an expert/arbitrator to determine the value in case of disagreement.
6. Mr Male QC, for the defendants, who are the current owners, contends that upon the proper construction of the 1998 agreement, the valuation date is the date upon which notice is given requiring an expert to be appointed to determine the two values. That is a date in April 2008, more precisely 21^st April 2008. They have advanced that date in preference to their earlier contention which was a date in January 2008, more precisely 15^th January 2008. This was the date upon which the parties were obliged under the terms of the agreement to commence negotiations to agree the consideration, which was necessarily prior to the expert's appointment.
7. I agree with Mr Male QC as to his preference for the later of those two dates if the proper construction of the agreement requires one of them to be adopted. The arguments he has deployed on behalf of the defendants lead more naturally to that later date.
8. However, those are not the only two possible dates. Mr Randall QC for the claimant puts forward a third. So the real question is whether the appropriate date is 21^st April 2008, as Mr Male QC contends, or whether the appropriate date is, as Mr Randall QC contends, the date upon which the expert actually determines the value.
9. Mr Male QC argues that the April 2008 date has the advantage of being fixed and certain. It is also (he says) fair because it prevents either party from manipulating the dispute resolution process so as to cause delay, which would advantage the one side or the other depending upon whether the market was falling or rising.
10. Mr Randall QC argues in favour of the later (as yet unascertained) date because no contract of sale can come into being until the price is ascertained and the option exercised. It would be unnatural to attribute to the parties an intention to contract by reference to anything other than the price current at the determination date, as that is the closest practicable date to any exercise of the option, and any resulting contract of sale.
11. There are provisions (in clause 22 of the agreement) for dispute resolution on a non-binding basis. Those provisions were invoked in this case. The result was that Mr Paul Darling QC was appointed to resolve (so it was hoped) this dispute under that clause. His role is described in the agreement as that of a "Specialist" That is an appropriate description, as Mr Darling QC is a specialist QC having knowledge of issues relating to contracts, especially development contracts.
12. Clause 22.10 provides as follows:

"The decision of the Specialist shall not be final and binding on the parties to the Dispute and for the avoidance of doubt either Party shall be entitled to apply to the Courts of England for resolution of the Dispute."

13. So sensible though it was to have that dispute resolution process, it is not surprising, in view of what has happened to land values since the turn of 2008, that this dispute now comes before the court.
14. Mr Male QC has adopted the essential reasoning of Mr Darling, who said this in the relevant part of his decision as a Specialist:

"The expert is appointed as a consequence of a requirement given pursuant to Clause 7.5 [that is the clause which I have read]. Prima facie I would anticipate that the date upon which the expert was required to determine the two values would be the date upon which the requirement was made. That would be the date upon which his jurisdiction was established. Of course, that date would yield to any contrary expression in the Clause; the Clause is however completely silent as to a valuation date. The language of Clause 7.5 seems to me to be require a valuation as at the date of the requirement."

15. In the next paragraph, he continued:

"The suggestion that the date of determination by the expert would be the correct date strikes me as implausible. Submissions would be out of date as soon as served. There would be no date upon which the parties could fix their attention. The expert's decision would inevitably be based on submissions of the parties as to an earlier date. When the date in fact was would depend upon the efficiency or lack of it of the expert. These factors militate strongly against the date of the expert's decision being the correct date."

16. Later on, he referred to what he describes as "the scheme of the Option" and noted:

"Whilst I understand the desire to have as up to date a valuation as possible for obvious reasons, it does not seem to me that that factor is sufficient to displace what seems to me to be the clear and obviously correct construction."

17. That is all I need to cite from Mr Darling QC's decision which, as I have said, is not binding but which has, understandably, been the subject of argument and analysis.
18. As is so often the case in matters of construction, the starting point is the reader's initial impression, which quite often leads the reader to say: "It obviously means this, that or the other." As a matter of legal analysis, first impression is not, of course, enough, but it is noteworthy that final impressions do quite often match up with first impressions. The interpreter very often does (as Mr Darling has done in this case) reach a conclusion which, having been reasoned through, is expressed (as Mr Darling QC expressed it) to be the "clear and obviously correct construction".
19. I have also reached a view (through the same process) as to the clear and obviously correct construction. Unfortunately for the defendants, it is the opposite of Mr Darling's. I very much prefer the construction put forward by Mr Randall QC for the claimant, principally for the following reasons. Clause 7.5 itself is silent as to the valuation date. One therefore asks what is it that the valuer is being asked to do? He is being asked to determine the open market value and the agricultural value of the land for an option which can only be exercised once the values have been determined. One would more naturally expect the parties to have in mind the current market value, not a retrospective valuation. When one gets to see his determination, one expects to find the valuer using language along the following lines: "The open market value is this, that or the other; the agricultural value is such-and-such." It would be surprising to find him, without any clear indication in the agreement to that effect, using the past tense and producing a retrospective valuation. There is no clear indication to that effect in this agreement.
20. Clause 11 is the clause relating to the appointment of an expert. He is to be a member of the Royal Institution of Chartered Surveyors of not less than ten years' standing, and experienced in dealing with matters relating to planning and development of land.
21. It is clear therefore (which comes as no surprise) that the person appointed was expected to bring his own expertise and experience into the process of determining the two relevant values, open market and agricultural. I should mention also that the agricultural value definition refers to an index. It is not entirely clear that there was such an index in 1998, but I shall assume that there was. However, so far as open market value is concerned, it was never contemplated that the matter could be short-circuited by reference to an index. Open market value is defined as being:

"...the Open Market Value of the Development Land as agreed in writing between the Vendor and the Purchaser or in default of agreement to be determined by an expert in accordance with the provisions of Clause 11, and the principles and guidelines as described in the Practice Statement last published by the Royal Institution of Chartered Surveyors before the date of valuation [which is tantalisingly not specified] and on the following additional assumptions... [which I need not read]."

22. Returning to clause 11, I have already noted that the expert was to have certain qualifications. One would expect, therefore, any expert appointed to be able to bring his expertise to bear upon the situation relatively speedily. Clause 11.5 provides that the expert shall make his determination within three months from the date of his appointment. However, that relates to "the expert". The particular expert who has been appointed appears to be acting as arbitrator. That arises because of clause 11.4, which reads as follows:

"The expert shall act as an expert and not as an arbitrator (unless he shall refuse to act as expert when he shall act as arbitrator) but before making his determination he shall afford to each party the opportunity to deliver to him written representations (to be delivered within twenty eight days of receipt of the letter requesting the same) and the opportunity to reply to any representations made by any party (to be delivered within fourteen days of receipt of a copy of such representations from the expert or such longer period as the expert shall determine)."

23. It is then provided that the expert shall make his determination within three months from the date of his appointment. One notes from clause 11.4 that there is built into the process the ability of the expert, even if acting as expert, to grant extensions of time for reply representations.
24. Mr Darling QC was also asked to consider whether this timetable applied in the case of an expert who opted to act as an arbitrator. He found, with a degree of reluctance, again on a non-binding basis, that it did not, because he considered that an arbitrator was something so radically different from an expert that the timetabling provisions which relate (and relate only) to an expert could not apply to him. I understand Mr Darling QC's reluctance, and the point is not directly before me. However, one of the arguments before me which both sides espoused was that an arbitrator's appointment could unduly delay matters beyond the three months' period (as has in fact happened) as the three months applies only to an expert acting as an expert and not an expert acting as an arbitrator. The suggestion on Mr Randall QC's side is that because of that potential for delay, it would be very unfair for his client to be lumbered with a valuation at a date bearing no or little relationship with the date when the exercise of the option comes to be considered. As I said earlier, there is a two-fold process and we are only in stage one at the moment. Stage two will occur when the consideration is determined, it then being for the claimant to decide whether or not to exercise the option.
25. It seems to me that the parts of clause 11 which lay down a timetable should be construed as applying as much to an arbitrator as well as to an expert, as the expression "expert" and "he" are used so as to apply to the same individual in whatever capacity he may be acting. Accordingly, if there is anything in the potential for delay point, I doubt whether the ability of the "expert" to act only as an "arbitrator" is of great significance.
26. There may still be something in the potential for delay point, however, as, in addition to the express power to grant extensions for reply submissions, an arbitrator has power under section 34(3) of the Arbitration Act 1996 to grant extensions which I shall assume (without deciding) would authorise an extension of the 3 month date. On that assumption, the possibility of there being a substantial extension is present, and has occurred. However, I do not think this can have been contemplated as likely at the time of the 1998 agreement. That, after all, is why the agreement provides for an expert to be appointed, to use his expertise. By designating himself as an arbitrator he is not throwing all his expertise out of the window. The clear intention is that (however he chooses to label himself) he should call upon his expertise in considering the parties' submissions when reaching his view. The only significant consequence that I can see for the self-designation of the expert as an arbitrator is to attract the immunity of an arbitrator rather than the relative vulnerability of an expert.
27. Other suggestions for the change of self-designation were canvassed either before me or by Mr Darling QC, such as the expert might have wished to give the parties an opportunity to appeal, or that the expert might decide that he would require assistance from a hearing. I regard those examples as somewhat unreal. It does not appear that the expert can designate himself as an arbitrator once he has accepted appointment as an expert. The desire for a hearing, or the identification of a point upon which an appeal might be worthwhile, would, one would expect, only arise post-appointment. I say that because the words in clause 11.4 are: "...(unless he shall refuse to act as expert when he shall act as arbitrator)...". Once he has accepted an appointment as expert, that is what he is. He has not refused to act as expert, but has agreed to do so. What the precise sequence of events was in this case is not entirely clear, but the expert seems now, as a result of an earlier indication he gave, to be acting as an arbitrator. This appears to be accepted by both sides.
28. As I have said, I proceed on the assumption that the three months period set out in clause 11.5 might properly be extended in the circumstances of an arbitration. But I do not regard that as something which was in the contemplation of the parties as likely when the agreement was entered into, because the appointment of someone with the relevant expertise who was acting subject to a timetable (albeit one that might, I am assuming, have changed) seems to me to indicate that the parties did not anticipate the sort of delay that has in fact occurred in this case. The fact that there has in the event been a greater period of delay than might have been anticipated is not a significant factor (if indeed it is legitimate to take it into account at all) in the construction of the agreement.
29. Mr Male QC also prayed in aid the potential for delay in the arbitration process as a reason for attributing to the parties the desire to fix a certain date (rather than a floating date) which would not be open to manipulation. It seems to me, given that Mr Randall QC relied upon the same possibility in the other direction, that the point is really a neutral one. As I have said, the contemplation of the parties must have been to have a relatively speedy determination. Mr Male QC also relied upon that as indicating that no mischief would be done by taking the date of requiring an expert's appointment, because, as a speedy resolution was contemplated, one would not expect there to be any significant fluctuation over the ensuing months. I dare say that the parties - although they must, of course, have been aware of the fact that the property market, like other aspects of the economy, is cyclical - did not in fact contemplate the cataclysmic events of recent years. That may be why the agreement does not specify a valuation date. This consideration does not however seem to me to be determinative, or even particularly helpful, in ascertaining the valuation date.
30. I was urged by Mr Randall QC to have regard to the analogy of a compulsory purchase. I was urged by Mr Male QC to pay little or no regard to that analogy which, as he correctly pointed out, is subject to different considerations and the policy requirement of the need to do justice between a citizen and the State. I agree with Mr Male QC that the analogy is not precise but I do find it of some assistance.
31. In the leading case of Birmingham Corporation v West Midland Baptist (Trust) Association Inc [1970] AC 874, the House of Lords, in considering what was then the Acquisition of Land (Assessment of Compensation) Act 1919, as re-enacted substantially by section 5 of the Land Compensation Act 1961, held in the context of compulsory purchase that the relevant date for assessing compensation was the date on which the land was taken or (depending on which rule applied) when work of reinstatement might have commenced. There had been a substantial delay of many years in that case, with a substantial increase in value after the service of the notice to treat. The House of Lords effectively reversed what was then regarded as a rule of law that the earlier date of the notice to treat counted. The case itself was a reinstatement case.
32. Lord Reid pointed out at p. 899:

"No stage can be singled out as the date of expropriation in every case. Sometimes possession is taken before compensation is assessed. Then it would seem logical to fix the market value of the land as at that date and to take actual consequential losses as they occurred then or thereafter, provided that the dispossessed owner had acted reasonably. But if compensation is assessed before possession is taken, taking the date of possession can I think be justified because then either party can sue for specific performance and the promoters obtain a right to the land, as if there had been a contract of sale at that date."

33. That seems to me, albeit in a different context, to be the right approach in the case of the exercise of an option. The option will not be exercised (or, indeed, technically become exercisable) until the consideration is fixed, which requires (in the present case) ascertaining first the open market value and the agricultural value. If and when the option is exercised, a contract for sale will come into being, but not before. It seems to me natural and right to attribute to the parties an intention to have a valuation date as close to the exercise date as is practicable. It cannot be the exercise date in this case because the structure of the contract necessarily requires the consideration to be fixed before the option can be exercised. The latest available date is the date of the expert's determination, in whatever capacity he is acting, i.e. expert or arbitrator. It seems to me that, by analogy with the West Midland Baptist case, I should adopt that date. Lord Reid, in the passage which I have set out, equated the possession date with a specifically enforceable contract. Here, no specifically enforceable contract of sale comes into being unless and until the option is exercised, and the closest available date to that is the date of the expert's determination.
34. As to the difficulties in dealing with out of date submissions, the point is, in my judgment, answered by the observations of the Court of Appeal in W & S (Long Eaton) Limited v Derbyshire County Council (1975) 31 P & CR 99. That also was a compulsory purchase case, in which the Court of Appeal applied directly the earlier West Midland Baptist (Trust) decision in a valuation (rather than reinstatement) case. In the Long Eaton case, Buckley LJ (at pp 105-6) giving the judgment of the Court dealt with the supposed difficulties thus:

"The claimants point out that the valuation evidence can never relate precisely to the date of the award since the tribunal's rules require that its decision shall be given in writing and the award is consequently and necessarily in the nature of a reserved judgment. We think that there is nothing in this. The award must be based on evidence; the evidence must be given at the hearing and so must to some extent antedate the award, but normally the interval would be relatively short and of no significance. If in a particular case the tribunal were to think it likely that the values had changed materially since the hearing and before the award was promulgated, further evidence could be heard and, if thought desirable, arrangements could be made for the award to follow almost immediately after the further hearing."

35. It seems to me that those observations apply here even if I ignore the obvious fact that the expert, even when acting as an arbitrator, has a particular expertise which the parties must be expecting him to bring to bear upon his consideration of the evidence and its application down to the date of his award. In those circumstances, I see no difficulty in determining that the valuation date is the date of the actual determination.
36. In those circumstances, the claimant is, in my judgment, entitled to succeed.
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