England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		04/07/2012

Mr Justice Roth :

INTRODUCTION

1. "Creekside Village West" is a significant residential and commercial development scheme ("the development") on land close to the south bank of the River Thames at the border of Greenwich and Deptford in London SE8. The site is bordered by Creek Road, Creekside and Copperas Street, and is adjacent to the Trinity Laban Conservatoire of Music and Dance. The development comprises four blocks: Blocks B, C and D are laid out in a straight line and Block A is more or less at a right angle to Block B, with the triangular space between Blocks A, B and C designed to provide a raised piazza. The blocks are designed to be of varying height and provide commercial accomodation on the ground, first and second floors, with residential accomodation on the floors above, comprising a total of 371 flats, and two floors of underground parking below.
2. The Defendant is a property development and construction company. In 2007 it acquired from Creekside Ltd. the freehold of the site, registered under title no TGL83507 ("the Property"). At the time, the Defendant was owned as to 50% by Telford Homes Plc ("Telford") and 50% by a subsidiary of the Royal Bank of Scotland ("RBS"). The purchase of the Property was completed on 3 September 2007 with a loan from RBS.
3. The Claimant is a company registered in the British Virgin Islands with its directors in Guernsey. It is engaged in property development and its sister company, Ampurius Nu Homes (UK) Ltd, acquired in 2005 the adjoining site, known as "Creekside East". In the events with which this case is concerned, the Claimant acted through Mr Menachem Oren, an Israeli businessman with much experience in property development who holds the majority of the beneficial interest in the Claimant, and Mr Jeff Shapiro, who is based in London and acted as a consultant to the Claimant.
4. On 7-8 October 2007, the Claimant and the Defendant entered into a contract for the construction and grant of long leases of the ground and first floor commercial units in all four blocks ("the Contract"). The so-called 'credit crunch' and collapse of the property market form the background to the resulting dispute. Although work started promptly on the construction, in March 2009 the Defendant decided that it would be necessary to put work on Blocks A and B on hold, beyond the initial stages, because of funding difficulties, and work on those blocks did not resume until early October 2010. The Claimant sought to terminate the Contract by letter from its solicitors dated 22 October 2010 on the basis of repudiatory breach by the Defendant. It contends in the alternative that it was entitled to rescind the Contract for fraudulent, or alternatively negligent, misrepresentations by the Defendant regarding the funding of the development. The Defendant denies these allegations and, on the ground that the Claimant failed to make a payment due under the Contract, itself terminated the Contract on 9 November 2010 for repudiatory breach by Claimant. It counterclaims for its alleged loss.
5. Accordingly, it is common ground that the Contract came to an end in late 2010 before the development was complete. Further, it is not in issue that if the Claimant was not entitled to terminate the Contract, then it was in repudiatory breach such that the Defendant was entitled to do so. The issues in the case are essentially the following:

i) Did the Defendant make the alleged misrepresentations, either fraudulently or negligently, which the Claimant contends it relied upon in concluding the Contract?

ii) Was the Defendant in repudiatory breach of the Contract as alleged?

iii) If yes, had the Claimant affirmed the Contract by 22 October 2010 so as to be disentitled to accept the repudiation, or is it otherwise estopped from doing so?

iv) If the Claimant succeeds on its misrepresentation claim and/or was entitled to accept the repudiation, what loss can it recover?

v) If the Claimant was not entitled to terminate the Contract, what loss can the Defendant recover on its counterclaim?

THE TRIAL

6. At the trial, I heard seven witnesses of fact, and one further witness called by the Defendant was not challenged so his witness statement stands as his evidence. The Defendant, but not the Claimant, called an expert as to property valuation.
7. The Claimant had three witnesses: Mr Jeff Shapiro, Mr Menachem Oren, and its solicitor, Mr Jerome Shapiro. I have to say that I found none of them an altogether satisfactory witness. Mr Jeff Shapiro was at times evasive in his answers, and less than frank in certain respects. Mr Oren's first language is not English and I make allowance for that as regards the manner in which he gave his evidence; however, he gave some very direct and confident answers which, as will be apparent, I cannot accept in some important respects. Mr Jerome Shapiro is the brother of Jeff Shapiro and was not only the solicitor to the Claimant in their dealings concerning the Contract but, through his firm, acted for them in this litigation. It is perhaps unfortunate that Mr Shapiro should have acted in litigation where he was a material witness of fact: see para 11.06 of the Solicitors Code of Conduct 2007, and the guidance thereto. I do not suggest that this prejudiced his independence in his conduct of the proceedings, but I do find that, whether out of family loyalty or self-persuasion, his evidence on a material aspect of the misrepresentation claim did not accord with the facts, as I found them to be.
8. The Defendant called three of its directors, who also hold senior positions in Telford. Mr John Fitzgerald is a director of the Defendant and the managing director of Telford. He was at times very defensive in his testimony, which I found coloured some of his answers and, as will be apparent, I cannot accept all of his evidence. Mr Andrew Wiseman was until 30 June 2011 the CEO of Telford, of which he is now the chairman. Mr Jonathan Di-Stefano was at the material time the financial director of Telford, where he is now the CEO. I found both Mr Wiseman and Mr Di-Stefano gave frank and honest evidence, seeking to assist the court.
9. The Defendant also called the solicitor who acted for it as regards the negotiation and execution of the Contract, Mr Richard Ellis, who has more recently joined Telford as director of legal services. Although his correspondence at the time with Mr Jerome Shapiro is very significant, since they were the main source of documentary communication on behalf of their respective clients, as a witness at trial his evidence was largely tangential to the issues I have to decide and was not seriously challenged. The further witness whose evidence was read is Mr Richard Grossman, a director of the estate agents Lewis Craig Ltd. His witness statement concerns their efforts to market the commercial units in Blocks C and D from 2011, and then Block B after January 2012.
10. The Defendant's expert was Mr Graham Chase FRICS, a past president of the Royal Institution of Chartered Surveyors. I shall address his evidence when considering the issue of valuation and loss.

THE FACTS

(a) Pre-Contract

11. Telford is a well-established property developer with its interests particularly focused in London. The development was expected to involve an overall investment of some £102 million to completion, and Telford entered into a joint venture with RBS for this purpose, establishing the Defendant that was half-owned by KUC Properties Ltd, a subsidiary of RBS.
12. Prior to the Defendant contracting to purchase the Property, the development had already been designed by the architects, Squire and Partners ("Squires"), who had also designed a proposed development on Creekside East. The agreement to purchase the Property between the Defendant and Creekside Ltd was entered into on 14 February 2007 and was subject to a decision to grant planning permission for the development. It was expressly envisaged that the planning process would include an agreement under section 106 of the Town and Country Planning Act 1990 ("S.106 agreement").
13. On 27 July 2007, the Defendant granted an option to Heathcote Investments Ltd ("Heathcote") to acquire a 999 year lease of all the non-residential units in the proposed development save for those that could not be sold or let without restriction as to occupier or rent ("the Heathcote Option"). The Option therefore excluded those units that may be subject to a requirement for disposal on a less than open market basis as part of a S.106 agreement. Under the terms of the Heathcote Option, the Defendant was to construct the development to shell and core, including the parking spaces, in accordance with the existing plans.
14. Already in 2006, following the Claimant's acquisition of Creekside East, representatives of the Claimant were in discussion with Creekside Ltd and a Mr Pat Conlon regarding the Property, in which the Claimant expressed interest. The details of those discussions are not relevant, save that after the Claimant sold the Property to the Defendant and granted the Heathcote Option, Mr Conlon assisted negotiations between Heathcote and the Claimant that culminated in an agreement between them concluded on 20 December 2007. The details of that agreement are also not relevant to the present dispute, save to note that the agreement provided, in broad outline, for Heathcote to procure that the Defendant would grant an option to the Claimant, in place of the Heathcote Option, to acquire the commercial units or, failing that, that Heathcote would assign its own option to the Claimant. The Claimant paid Heathcote a deposit of £800,000 under this agreement, and says that it also paid a commission to Mr Conlon of £150,000 plus VAT.
15. There was some dispute as to whether, and to what extent, the Defendant was aware over this period of the negotiations between the Claimant and Heathcote. Mr Jeff Shapiro had been introduced by Mr Conlon to Mr Wiseman earlier in 2007 when they discussed their interests in the development and marketing of Creekside (ie both East and West) and the architect's designs. In late October 2007, Mr Conlon informed Mr Wiseman that Heathcote was close to concluding a deal for the sale to the Claimant of the commercial space; and on 21 November 2007, the Claimant's solicitor, Mr Jerome Shapiro, spoke to Mr Richard Ellis of the Defendant's solicitors on the basis that the Claimant might become the purchasers or end users of the commercial units. On 18 December 2007, Mr Jeff Shapiro, together with Mr Oren, had a meeting with Mr Wiseman, Mr Di-Stefano and Mr Fitzgerald at the Great Eastern Hotel in London to discuss possible cooperation in the development of the Claimant's adjacent site at Creekside East. For reasons that will appear, I regard it as unnecessary to decide whether the Claimant's representatives referred at that meeting to the imminent agreement with Heathcote.
16. By the time of that meeting, the Defendant had concluded a S.106 agreement with Greenwich Council ("Greenwich"), and the planning position was indeed discussed at the meeting. In fact, the original planning permission and S.106 agreement required amendment, which was set out in a supplementary agreement executed on 3 March 2008. The S.106 agreement as amended required the Defendant to provide 1500 sq m "Affordable Cultural Space", to tenants who required such space. The criteria for selection of such tenants and the definition of affordability were left rather vague, but clearly involved more generous financial terms than an open market rental.
17. On 18 January 2008, Heathcote's solicitor informed the Defendant's solicitor of the agreement it had reached with the Claimant. The Claimant and Defendant then commenced negotiations of an agreement for the construction and subsequent grant of a long lease of the commercial units, on the basis of a surrender of the Heathcote Option.
18. As mentioned above, the purchase of the Property had been made with a land loan from RBS, and while the discussions took place with the Claimant, Telford, on behalf of the Defendant, began negotiations with RBS regarding the provision of development finance. In about May 2008, RBS gave approval in principle to funding for the development. It was envisaged that the finance would be provided in tranches, and for funding purposes the development was divided into two stages. As finally defined, Phase I was the construction of the underground car park and podium and the finishing of Blocks C and D. The construction of Blocks A and B (above podium level) constituted Phase II. Mr Di-Stefano accepted a condition that 85 residential units had to be pre-sold (i.e. sale off-plan prior to completion) for progression to Phase II. However, at that time this was not regarded as presenting any difficulty and despite the division for the purposes of the funding arrangement, the Defendant envisaged proceeding in the construction from Phase I to Phase II without interruption.
19. On 29 August 2008, Mr Di-Stefano received an email from a Mr Cheeseman of RBS confirming that "formal credit approval" for the development funding had been granted. At that point, the full details of the funding agreement had still to be finalised and the documentation had not yet been drawn up. The email set out in some detail the proposed conditions, and the contents of this email proved of some significance in this case. It evidently followed discussions that had been conducted with Mr Di-Stefano about the proposed loan. Mr Cheeseman stated:

"Presales trigger - For the sake of clarity if the trigger is not met then we fully appreciate that you will continue the full construction of Blocks C & D but if you still wish to construct blocks A & B you will need our blessing. As you appreciate the trigger is 85 units - in addition we wish to stipulate that a minimum of 50 must be within blocks C & D reflecting their earlier practical completion. I hope this will not cause you any concern and happy to debate. A failure to meet the pre-sales trigger will give us a right for the project to be revalued (and I think we would exercise the right) and to ratchet down the Loan to Cost [to] ensure compliance with the LGDV covenant. As part of the revaluation process we will need to ensure we are happy there is no significant reduction in the land value relating to blocks A & B but are not proposing to introduce a further covenant here.

Presales trigger date – We wish to stick with the existing date for compliance of 31^st March 2009. This is partly because of your build programme – deferring the date till June would be after works are supposed to start on blocks A & B. Naturally we will remain in close dialogue with you and are happy to review matters nearer the time i.e. if further pre-sales can be achieved in the period March/June 2009 there is no reason why phase 2 could not commence, by mutual consent, all other things being equal."

20. At that stage, RBS had already permitted an initial drawdown on funding in the amount of just under £1.7 million, and in his email Mr Cheeseman stated that RBS were content for the Defendant to take a drawdown on the loan pending completion of the documentation. Accordingly, on 1 September 2008 Mr Di-Stefano requested a further drawdown of £1.36 million, which the Defendant duly received the next day.
21. The funding facility agreement, providing for a total loan of £32.969 million, was signed on 28 October 2008. RBS was formally acting as agent for National Westminster Bank plc which is accordingly the lending bank. It incorporates a definition of Phase II, as indicated above, and provides that the bank will not advance any funds for Phase II unless "pre-sale" contracts have been concluded for at least 85 residential units, of which at least 50 must be in Blocks C and D. The agreement does not in fact incorporate a requirement that this condition must be achieved by 31 March 2009. However, it was clear on the evidence that the Defendant was working in early 2009 on the basis that this was the target date, and indeed discussion at the Defendant's Board meeting on 23 March 2009, to which I return below, proceeded on the basis that the funding arrangement incorporated this date.
22. Work on site had commenced on 18 August 2008. On 28 August, Telford instructed two estate agents, DTZ and King Sturge, to start marketing the residential units. At the end of September, a high profile launch of the Property was held at the Marriott Hotel in Park Lane. However, on Monday, 15 September 2008, Lehman Brothers collapsed, sending shock-waves around the financial markets. Unsurprisingly, this had a significant effect on the launch and only four residential units were sold. As Mr Wiseman readily accepted, the launch could not be regarded as successful: in normal circumstances he would have hoped to sell some 30-40 units. However, a report dated 29 September presented to the board of Telford for its meeting on 9 October, stated:

"Marriott launch event drew 40+ visitors & was … well received in spite of dire financial circumstances of weekend. Prices considered reasonable, scheme spectacular & location excellent so should start to move as conditions & confidence return gradually."

23. It was shortly before the formal conclusion of the funding agreement with RBS and shortly after the disappointing launch, that the Contract between the Claimant and Defendant was agreed at a meeting on 7 October 2008 that is of particular importance in this case.

(b) The Contract

24. The meeting took place at Telford's offices. Messrs Wiseman, Fitzgerald and Ellis, on behalf of the Defendant, and Messrs Jeff Shapiro, Oren and Jerome Shapiro, on behalf of the Claimant were present. The parties had before them a draft agreement prepared by their solicitors following the previous discussions. The meeting lasted all day, and culminated in a copy of the draft incorporating various inserted amendments being agreed. It will be necessary to consider below what was said at this meeting before the Contract was agreed, but as a result of this process the final document is not a polished, clean copy but shows various insertions and deletions.
25. Although entitled an "Agreement for Lease", the Contract in fact covers both the construction of the development to shell and core and the grant of long leases covering the commercial units on the ground and first floors of each of the four blocks with a total of 40 parking spaces. It is necessary to set out a number of the provisions of the Contract, in which the Claimant is referred to as "the Tenant" and the Defendant as "the Landlord."
26. The Contract defines "Affordable Workspace" as the Affordable Cultural Space referred to in the supplemental S.106 agreement: see para 16 above. The other definitions include:

""Commercial Units" The Ground Floor and first Floor commercial units comprising 54,153.68 square foot Net Internal Area^[1] which includes open market space ("the Open Market Units") and affordable working space ("Affordable Workspace Units") all of which is shown coloured pink on the ground and first floor Plans annexed.

"Estimated Purchase Price" £8,426,181.40 plus VAT (including the parking spaces at £600,000) as calculated in accordance with clauses 4.3.1 and 4.3.2 apportioned between the Blocks as provided in clause 4.4;

"Landlord's Works" The construction of the Property to shell and core as set out in clause 2 and in accordance with the Plans and Specifications and to include the construction of the Parking Spaces;

"Parking Spaces" The 40 spaces edged red shown on the car park plans;

"Price" The sum of the Open Market Unit Price, the Affordable Workspace Unit Price and the Parking Space Price as set out in clauses 4.3.1 and 4.3.2 as apportioned between the Blocks in accordance with clause 4.4.

"Property" The Commercial Units and the Parking Spaces;

"Target Date" Blocks A and B 28^th February 2011

Blocks C and D 21^st July 2010."

27. By clause 1.1, the Contract incorporated the Standard Commercial Property Conditions of Sale (2^nd edition) ("SCPC"), subject to certain express amendments that are not material for present purposes.
28. By clause 1.2, a deposit of £421,309.07, being 5% of the Estimated Purchase Price, was payable on signing to the Defendant's solicitors.
29. By clause 1.3, further deposits of £143,958.17 for Blocks A and B and £267,350.90 for Blocks C and D were payable to Defendant's solicitor within 20 working days of notice from the Defendant to the Claimant that the concrete frame of the relevant blocks had been completed, as evidenced by a certificate from the Defendant's architect.
30. By clause 1.4, if any of the deposits payable under clause 1.3 were not paid within 30 working days of the clause 1.3 notice, the Defendant was entitled to rescind the Contract and retain the deposits already paid.
31. Clause 2 is headed "Landlord's Works" and provides insofar as material:

"2.1 The Landlord shall:-

…

(ii) regularly update the Tenant of any application development and progress made in connection with any matter concerning the development which may affect the Tenant's property …

…

2.3 The Landlord will procure that the Landlord's Works are carried out:

(i) in a good and workmanlike manner.

(ii) using good quality materials of their several kinds.

…

(vi) with due diligence.

2.4 The Landlord will use its reasonable endeavours to procure completion of the Landlord's Works by the Target Date or as soon as reasonably possible thereafter."

32. The price was dealt with in Clause 4, which insofar as material provides as follows:

"4.3.1 The purchase price for the Property shall be such sum as is calculated by multiplying the Net Internal Area of the Open Market Units by £150 per square foot plus VAT ("the Open Market Unit Price") and the Net Internal Area of the Affordable Workspace Units by £120 per square foot plus VAT thereon ("the Affordable Workspace Unit Price") subject to the provision by the Landlord to the Tenant of a valid VAT invoice.

4.3.2 The Estimated Purchase Price is based upon 44257.98 square foot Net Internal Area of Open Market Workspace and two thirds (such two thirds being 9,895.70 square foot Net Internal Area) of the Affordable Workspace as required by the Supplementary S106 Agreement being included in each Block of the Property but shall be adjusted according to the apportionment of the Affordable Workspace between the three floors of commercial area finally agreed between the Landlord and the London Borough of Greenwich and the Landlord shall consult and the parties shall make a joint application to the Council to satisfy the S106. [the Landlord shall have to obtain the Tenant's prior consent in writing such consent not to be unreasonably withheld, prior to the Landlord entering into the S106 with the Council with the Tenant in respect of this apportionment and the Landlord shall obtain the Tenant's agreement in writing to such apportionment (not to be unreasonably withheld or delayed) provided that if the Tenant refuses or delays agreement which results in the Landlord being unable to satisfy the conditions of the S106 Agreement then such refusal or delay shall be deemed unreasonable." [sic]

33. The wording of clause 4.3.2 suffers from the process of amendment by insertion and deletion from an earlier draft as described above, but its overall meaning was not in dispute: the Defendant was required to consult the Claimant as regards the apportionment of Affordable Workspace as between the three floors of commercial area and to make a joint application with the Defendant to the planning authority in that regard; and the Defendant was required to obtain the Claimant's consent prior to agreeing the apportionment with the authority (such consent not to be unreasonably withheld).
34. Clause 4.3.3 provides that the price for each Parking Space shall be £15,000 and clause 4.4 states that the Price and the Estimated Purchase Price shall be apportioned between each block as set out in the attached schedule.
35. Clauses 4.5.1, 6.1 and 7 provide that on the Completion Date^[2] for each block the Defendant will grant to the Claimant a lease of the relevant block in the form annexed and the Claimant will pay the Estimated Purchase Price less the deposit as apportioned to that block, subject to a proviso that the Defendant could not serve a Certificate of Practical Completion in respect of Block C or D without the other or in respect of Block A or B without the other.
36. There is no dispute that the split as between the two pairs of blocks (C & D and A & B) for the purpose of Target Dates for completion was on the insistence of the Defendant. The Claimant had wanted all four blocks to be completed together, since it considered that sale of the commercial units was dependant on the whole of the development being completed, and that it would be difficult to sell commercial units while construction work was still going on as regards half the development. The Contract reflects a compromise, whereby the two Target Dates were some seven months apart and subject to the provision of clause 2.4.
37. On 8 October, the day after the Contract was executed, Heathcote surrendered the Heathcote Option and Heathcote and the Claimant terminated their agreement of 20 December 2007. The deposit of £800,000 paid under that agreement was divided, Heathcote retaining £445,000 and returning the balance to the Claimant. With the surrender of the Heathcote Option, the Contract between the Claimant and Defendant became unconditional and the initial 5% deposit pursuant to clause 1.2 was duly paid.

(c) Post-Contract

38. Already at the time the Contract was signed, the bulk of the excavation of the double story basement and the foundation piling for the blocks had been completed. For the remainder of 2008 and early 2009, works proceeded successfully on Phase I of the development. However, no real progress was made in attracting residential purchasers. By early March, if not (as the Claimant contends) well before, it was clear that demand for such flats had largely dried up in the UK; and although the Defendant through its agents tried to seek investors overseas, it was evident that the threshold of 85 pre-sales would not be met by the end of the month. On 23 March 2009, the Defendant held a board meeting, of which the Minutes record the following regarding the development:

"Construction An adjusted programme has been established with blocks A&B stopping although access and power for Block A is being built. These can be brought forward as required. The concrete can be mobilised quickly but the external cladding has a 6 month lead in period. A&B can be readily fenced off / separated from the remainder of the development.

The programme for Blocks C&D has been reviewed and it is proposed to slip back the timing of Block C to assist with cash flow. The programme forecasting Sep 2010 for the handover of Block D and February 2011 for the hand over of block C. These dates also suit the marketing advice being received from the Agent.

4 flats have been sold within Block D and the implications are being assessed. Oskomera has some plumbers scheduled to be on site at the end of August.

The podium slab is 50% complete with the transfer slab to g[i]ve a clear basement below. The uprights are 75% complete and Block D 1^st floor slab is 5% complete.

Site is currently running 5 days per week although this is under review.

Sales Strategy The scheme is not currently being actively marketed / advertised. The units have not yet been re-priced since blocks A&B have been deferred and C&D will be reassessed once marketing commences. Consideration is being given to a marketing visit to the Far East in Autumn 09."

39. In accordance with this decision, work on Blocks A and B was halted in June 2009, although work continued to the shell on Block A to the extent necessary for the delivery of the energy unit and car park entrance that served also Blocks C and D.
40. On 14 April 2009, there was a meeting at Squires attended by Mr Oren and Mr Jeff Shapiro for the Claimant and by Mr Fitzgerald and others from the Defendant, along with representatives of the architects and structural engineers, at which various design and structural aspects were considered.
41. In response to an inquiry through its solicitor, Mr Jerome Shapiro, for an up-date on works undertaken and projected completion of the concrete frame of the blocks, Mr Ellis sent on 11 June 2009 on behalf of the Defendant a "Current Status" schedule for the development. This said that all works to ground floor podium level were complete, and then as regards each block stated that for Blocks C and D, works up to level 3 slab were in progress, with completion anticipated in October 2009, whereas for Block A the vertical elements to level 1 were in progress with no works in progress for Block B. For both Blocks A and B, the schedule stated that anticipated completion was "To Be Confirmed." This elicited a follow-up inquiry from Mr Shapiro on 22 June. Mr Shapiro wrote a further chasing letter on 30 June. This was taken up at a meeting on 2 July when Mr Wiseman and Mr Fitzgerald met Mr Oren and Mr Jerome Shapiro.
42. In that meeting, the Defendant's representatives told Messrs Oren and Shapiro that Blocks A and B were on hold and that it was a condition that 85 pre-sales are made for the release of Phase II funding. Mr Fitzgerald said under cross-examination that he had told the Claimant previously about the decision of 23 March. I do not accept that evidence for a number of reasons. All the Claimant's witnesses were clear that the first they heard of the decision to halt works on Blocks A and B was at this meeting, and their evidence to that effect was not challenged. The minutes of the meeting at Squires refer to discussion of the phasing of the scheme, but make no reference to a cessation of work to two of the four blocks, whereas such a significant development would surely have been recorded had it been mentioned. The follow-up letter of 22 May 2009 from Mr Van Eyck of the Defendant to Mr Oren after that meeting does not allude to this in its reference to target handover dates but, on the contrary, refers to the speed at which Telford's work was progressing. Moreover, the letters inquiring about progress on Blocks A and B from Mr Jerome Shapiro to which I have referred are inconsistent with the Claimant already being aware that works to those blocks was on hold. I find that this news came as a surprise and concern to Messrs Oren and Shapiro at the July meeting.
43. At around the same time, on 22 June 2009, Telford completed the acquisition of a company from Shore Capital that led to the injection of some £6.3 million by way of additional funding, and this eased the cash-flow difficulties referred to at the 23 March board meeting. I accept the evidence of the Defendant, in particular from Mr Di-Stefano, that although the Board had proposed on 23 March to delay the programme for Blocks C and D to assist with cash flow, once the Shore Capital funds were committed Telford decided to deploy most of those funds to this major development so that such delay was no longer necessary. In consequence, therefore, the work on Blocks C and D was not put back.
44. On 14 July, following the meeting, Mr Fitzgerald wrote to Mr Jeff Shapiro confirming the discussion. His letter stated:

"Delivery

We discussed delivery and production and I outlined that construction continues very well on site and that we are on programme. I then went on to explain that following the collapse of the housing market and in general the global economy we have recently renegotiated all of our financial facilities. Due to only having 4 open market units sold at Creekside our development funding has temporarily been restricted to the amount required to deliver all basement works up to podium, all of block D, all of block C and a small amount of build works on A to facilitate the delivery of D & C. Therefore, we confirm that the concrete frames to blocks C and D should be complete on the dates previously advised (06/10/2009 block D and 27/10/2009 block C), that the commercial units within these blocks will be ready for completion on 21^st July 2010 for both Blocks D and C and that at present blocks A and B are on hold until the secured development finance is released. We are looking into alternative sources of funding to continue with the construction of A & B but do not have an answer on these yet.

We will of course keep you up to date with programme and delivery of all units on the site."

45. Although this letter is somewhat disingenuous in suggesting that the restriction of the development funding because of poor sales had recently been imposed, I do not, for the reasons just explained, regard it as misleading as regards Blocks C and D.
46. A few days before, on 10 July, the Claimant's solicitor had written to the Defendant's solicitor contending that since only two of the four blocks were being constructed, that part of the initial deposit paid which related to the two other blocks should be applied to the further deposit due (under clause 1.3) once the concrete frame of Blocks C and D was completed. The Defendant's solicitor rejected that suggestion, and further inconclusive correspondence debating that issue continued through July.
47. On 8 October 2009, the Defendant's solicitor wrote to the Claimant's solicitor advising that the concrete frames for Blocks D and C were expected to be completed on 26 October and 27 November respectively, triggering the liability to pay the further deposits under clause 1.3 of the Contract. This provoked the following response from the Claimant's solicitor in a letter dated 5 November 2009 which it is appropriate to quote in full:

"I note from the letter dated the 14^th July 2009 from John Fitzgerald to Jeff Shapiro that, as at that date, construction of Blocks A and B were on hold as a result of the financial problems of your client. So far as we are aware this is still the position.

It is therefore clear that your client is in breach of, at least, its obligation to procure that the landlord's works are carried out with due diligence (Clause 2.3 (vi)) and to use its reasonable endeavours to procure completion of the Landlord's Works by the Target Date or as soon as reasonably possible thereafter (Clause 2.4).

This is a deliberate and ongoing breach by your clients of the terms of the contract. By its conduct it has made it abundantly clear that it does not intend to be bound by the terms of the contract and is, therefore, in repudiatory breach of contract. My client is currently considering whether to exercise its option to accept the repudiatory breach. If my client decides to do so it will, of course, be entitled to the return of all deposits paid to date together with substantial damages.

There is a material adverse effect on my client's ability to market and/or sell (pre-let) any of the commercial units without all four blocks being built and more particularly the main block in respect of which no works have begun.

My client may be persuaded not to exercise its right to treat the contract as at an end (but not its right to recover damages for breach) if your client:

(i) Can now give a clear timetable for completion of all four blocks: given the delays to date the agreement would have to be varied so as to expressly make time of the essence for completion;

(ii) Agrees that the further deposits payable pursuant to clause 1.3 of the contract would be payable only upon completion of the concrete shell of the last block to be constructed."

48. The Defendant's solicitor in response rejected these allegations and asserted that:

"There is no breach of Contract by my client and it has every intention of being bound by the terms of the Contract."

49. Following this exchange, there was an extended period of negotiation between the parties, starting with a meeting on 26 November at which a variation of the Contract was discussed. On 1 December 2009, the Defendant's solicitor sent a draft deed of variation to the Claimant's solicitor, and over the following months there was a series of correspondence regarding the terms of this deed.
50. The Defendant contended that there was agreement in principle on 26 November to the variation, but it is accepted that that meeting was 'without prejudice', as was all this subsequent correspondence, and it is not suggested that a binding contractual variation was ever agreed. Although I was taken through all this correspondence and the various proposals, and in that respect the privilege was waived in these proceedings, I consider that it is clear that all these negotiations were without prejudice to the Claimant's right to seek to terminate the Contract for breach if agreement was not reached. In the event, I do not find those exchanges of much assistance in determining the issues in this case. However, I consider that there was discussion, as one would expect, at the meeting on 26 November as to when the Defendant expected to start work on Blocks A and B, and although I do not accept that this was expressed as a firm commitment I further find that the Defendant indicated that it hoped to be in a position to start in March 2010. That corresponds to what is said by the Claimant's solicitor in his subsequent letter of 29 June 2010, which was not challenged by the Defendant's solicitor in his reply; and Mr Wiseman in his evidence accepted that March 2010 might have been mentioned in those terms. Further, it was in the light of those negotiations that the Defendant did not demand payment of the further deposit under clause 1.3 upon completion of the concrete frames to Blocks C and D, for which the architect gave his certificates on, respectively, 2 December and 6 November 2009.
51. The exchanges also demonstrate that the Claimant continued to be concerned about the implications of the delay, and that the parties discussed amending the contractual terms in the light of those concerns. On 16 June 2010, Mr Jerome Shapiro sent an open email to Mr Ellis asking: "Have your clients commenced the works to Blocks A and B?" To this Mr Ellis responded as follows:

"My clients are expecting the necessary finance to be confirmed within the coming week to enable the further development of Blocks A and B to commence in January 2011."

52. The reference to finance related to the discussions being conducted between Telford and RBS to buy out KUC's 50% holding of the Defendant and convert RBS' equity into debt. Those discussions had started in late 2009, after RBS told Telford that it would not put any more equity into the development. Without further funding from RBS, and with pre-sales of the flats proceeding very slowly, the Defendant faced a serious financial situation. Mr Di-Stefano also sought funding from other sources, but in the difficult economic climate at that time, those efforts were unsuccessful. However, RBS was anxious to extract itself from the Defendant. Telford's negotiations with RBS were prolonged, but by June 2010 the basic terms of the transaction had been agreed. The formal contracts were executed on 17 September 2010 whereupon the Defendant became a wholly owned subsidiary of Telford.
53. To return to the sequence of events as between the Claimant and the Defendant, a further 'without prejudice' meeting took place on 29 June 2010, at which another unsuccessful attempt was made to resolve matters. Following that meeting, an exchange of open correspondence took place between the parties' solicitors. The Claimant's solicitor wrote an open letter that same day to the Defendant's solicitor, referring back to their correspondence of November 2009 and stating:

"Regrettably however following 8 months of negotiations with a view to settle the dispute between the parties they have come to a standstill and the dispute remains.

As referred to in my letter to you of the 5^th November and that of the 12^th November 2009 in the circumstances additional deposit is not payable to your client at present.

It is with regret and much concern that your clients have not commenced the works to Blocks A and B notwithstanding the obligation on your clients to use their "best endeavours" to implement the planning permission and to "use reasonable endeavours" to complete the works "by the Target date" and or reasonably soon thereafter.

It is clear that your clients do not have the funds nor the ability to carry out the works to Blocks A and B.

My clients have entered into the agreement on the basis of their acquisition of 4 blocks known as A, B, C and D, not merely 2 blocks C and D.

The failure on your clients to commence works to Blocks A and B is not only in breach of the terms of the agreement but also causes damage to my clients in their attempts to sell/sublet the commercial units as tenants are mainly concerned that:

Your clients will never carry out the works to Blocks A and B and/or that your clients will carry out the works over a period of time that would inflict damage and/or interfere with the businesses to be set out in the commercial units."

54. The letter continued by seeking agreement to appoint an arbitrator to resolve the dispute by reference to clause 9 of the Contract. However, as Mr Mayall, appearing for the Claimant, accepted, this was based on a misunderstanding of that provision, which concerns the appointment of an expert (not an arbitrator) to resolve a dispute regarding the correct measurement of the net internal area of the Commercial Units for the purpose of determining the Price: see clauses 4.2 and 4.5.2.
55. The Defendant's solicitor responded on 2 July:

"It is certainly not my clients' position that negotiations have come to a standstill. My clients have every intention of performing and completing the contract.

Your clients are house builders and are fully aware of the financial difficulties of the last two years. These difficulties have been demonstrated by the lack of development finance and the considerable slow down in the sales of new homes. These are matters totally outside my clients' control.

You state:-

"It is clear that your clients do not have the funds nor the ability to carry out the works to Blocks A and B".

This is simply not true. Despite the "credit crunch" and low rate of sales my clients have now secured further development finance for Blocks A and B. Your clients will be fully aware that development finance will only partially cover the costs of works but our clients will have full funding available by the end of the year to enable them to continue with Blocks A and B in January. Your clients will be aware from inspection that the sub-structure of Blocks A and B is already in place.

It was always clear that Blocks A and B would be delivered after C and D. The contract was specifically drafted to take account of this. The delays to the whole development arising from the international financial difficulties will not change this position."

Mr Ellis also pointed out that the suggestion that there was a dispute for arbitration under the Contract was mistaken.

56. This elicited a long response from the Claimant's solicitor, which included the following passages:

"C. I am content to note that your clients do not regard the "negotiations to have come to a standstill" and note "their intention of performing and completing the contract". However, it is not only a matter of their "intention", it is a matter of "specific performance." Your clients have undertaken and are contractually obliged to undertake the works in accordance with the terms of the initial Agreement dated 7^th October 2008 and to rectify the breaches committed by them as per my letter to you of the 5^th November 2009. Your clients are obliged to undertake the works within the period of time, to use their "best endeavours" to implement the planning and to use their "reasonable endeavours" to complete the works before, or soon after the Target Date.

….

E. The Agreement between our respective clients was not for your clients to build Blocks C and D whilst charging deposit on exchange of contracts in relation to Blocks A, B, C and D and for your clients to carry out the works to Blocks A and B as and when it suited your clients. Your clients are under contractual obligation. You state that "this is simply untrue. Despite the credit crunch and low rate of sales my clients have now secured further development finance for Blocks A and B". Accordingly your clients must commence carrying out the works now. Your clients are under contractual obligation to specifically perform the contract.

F. The contract does provide the right for your clients to require the completion of Blocks C and D without completion of Blocks A and B. However, your clients are in a material breach of contract as per my communication dated the 5^th November 2009."

In his letter, Mr Jerome Shapiro continued to urge the appointment of an arbitrator.

57. The Defendant's solicitor responded on 14 July, stating inter alia:

"The situation as it currently stands is exactly in accordance with the provisions of the draft supplemental agreement. The timing put forward by my clients for completing Blocks C and D and for continuing with and completing Blocks A and B accord with the terms of the draft supplemental agreement. Those were the terms agreed in principle at the meeting in November and you are well aware that I have been pressing for that agreement to be completed. There has been no change since November to my clients' position. "

58. Simultaneously with this open correspondence, the solicitors were exchanging 'without prejudice' letters making proposals for variation of the contract to resolve the dispute. I do not find it necessary to refer to those, save to note that they demonstrate that the Claimant was not at that stage seeking to terminate the Contract. The discussions concerned the timing for further payments and for the works to Blocks A and B. The solicitors also continued to debate during August the question of appointing an arbitrator.
59. On 6 September 2010, the Defendant's solicitor wrote a letter before action for the purpose of claiming the outstanding deposit under clause 1.3 of the Contract with regard to the completion of the concrete frames to Blocks C and D. That letter referred back to the letters of October-November 2009, when that work was completed, and noted that even if (which it strongly disputed), the Defendant was in breach of contract because of the delay in the work to Blocks A and B, the Contract remained on foot and the deposits were accordingly due.
60. There followed further 'without prejudice' discussions and, in particular, a meeting on 15 September held at the offices of the Defendant's solicitors. Along with Mr Jerome Shapiro, Mr Oren was there for the Claimant and Mr Wiseman, Mr Fitzgerald and Mr Ellis attended for the Defendant. (Mr Jeff Shapiro was not at this meeting.) According to Mr Jerome Shapiro, it was a very heated meeting (and that description was not challenged) in which further proposals and counter-proposals were put forward regarding timings but no agreement was reached. I think it is only relevant to note, first, that Mr Oren made it clear that the Claimant was not prepared to take over Blocks C and D without completion of the landscaping to Blocks A and B, which proposal Mr Wiseman rejected; secondly that the Defendant told the Claimant that it expected to commence works to Blocks A and B on 4 October; thirdly, that there was discussion regarding the location of the Affordable Workspace; and fourthly, that Mr Oren asked for the 'as built' measurements for the commercial premises in Blocks C and D.
61. Despite the lack of agreement at the meeting, the parties agreed to continue negotiations and, in order to give two more weeks for discussion, the Defendant's solicitor withdrew the notice under clause 1.3 given on 6 September and issued an equivalent notice on 20 September. Subsequently, that notice was in turn replaced by a further notice sent by letter dated 24 September seeking payment of the deposit in the sum of £267,350.890 plus VAT. As a result, the date for payment of the deposit pursuant to that notice was 22 October.
62. Two further significant communications then took place. First, on 24 September, the Claimant's solicitor sent by email and fax an open letter to the Defendant's solicitor, in response to his letter of the same date demanding payment of the deposit. In his letter the Claimant's solicitor stated:

"a. In relation to Affordable Works Space it has not been confirmed to date what the actual space required is and within which Block (whether A, B, C or D) the space is required and to what extent.

b. Unless and until my clients are fully informed what space is available to them to acquire and in what Blocks are to be made available [sic] for affordable use, then it is impossible for my clients to agree the re-letting of any of the areas. This is common sense and no doubt your clients will agree that the failure to provide this information to date is causing my clients loss.

…

d. Please confirm what state of the negotiations, with whom and what endeavours have been undertaken by your clients in respect of the dealings with the Authority concerning the said affordable areas. Please provide a copy of any relevant documentation.

…

f. Please confirm whether or not the works to Blocks A and B have been commenced and if not then what is the commencement date and what guarantees are available that such works will indeed be commenced."

63. Secondly, by letter dated 30 September (and sent by email on 1 October), the Defendant's solicitor sent the Claimant's solicitor the 'as built' measurements as requested at the meeting, and also as regards the Affordable Workspace a copy of the submissions which the Defendant had made to Greenwich on 13 July 2010, with an email from a Ms Murat commenting on the submission. Mr Ellis' letter stated:

"My clients continue discussions with Greenwich regarding the affordable workspace. Nothing has been agreed and I will keep you informed of progress."

64. The Defendant's solicitor's letter of 30 September does not respond to the request regarding commencement of works to Blocks A and B in paragraph (f) of the Claimant's solicitor's letter of 24 September. It was submitted by Mr Gaunt QC for the Defendant, and I accept, that Mr Ellis' letter was not in fact a reply to the letter of 24 September (to which it does not refer) but was written directly as a result of the requests at the 15 September meeting. On that basis, it is not in dispute that the request about commencement of works to Blocks A and B quoted above in the Claimant's solicitor's letter was not answered at all.
65. The Defendant's "Proposal for Affordable Workspace" addressed to Greenwich set out the Defendant's expected market rental values for the commercial premises and the 25% discount which it proposed for the Affordable Workspace. It will be necessary to return to that when considering the question of damages. The Proposal states:

"Our financial model does not allow for the long term rent of these units and we therefore intend to market the Commercial space on the basis of the Sale values given above."

And the Proposal included the following statement:

"Overview

Further to our previous submissions and agreement to locate all 1500m2 of Affordable workspace in Block A in accordance with the attached plans we have held discussions with a number of workspace providers & would set out our incentives as follows:

As agreed we have kept all the workspace in a single building (Block A).

This will allow for a mix of spaces to be accommodated across ground, first & second floors to facilitate the range of uses you mentioned from Studio space through to Office use."

66. In an email exchange with Mr Hall of Telford on 16 July 2010, Ms Murat of the Development Team at Greenwich asked if the Defendant was "still proposing to SELL the units and require a management company to charge the rents specified?" Mr Hall responded: "Yes we propose to market them for Sale as Shell & Core."
67. There is no dispute that the first time the Claimant saw these documents was when they were received by their solicitor on 1 October 2010. Moreover, as the Proposal expressly indicates, the suggestion of locating all the Affordable Workspace in Block A had previously been discussed by the Defendant with Greenwich. On 21 January 2010 Mr Hall had written to Ms Murat enclosing plans for the units marked up with the suggested location for the Affordable Workspace, saying:

"Following your suggestion (and as a result of feedback from our various meetings) we have tried to keep all the Workspace in the same building – Block A."

Those emails were not copied to the Claimant.

68. In his evidence, Mr Fitzgerald (to whom Mr Hall reported) explained that the Defendant had received advice from its estate agents that Block A was the least desirable commercial space which is why it was seeking to keep all the Affordable Workspace there. He said that sometime before January 2010 he had discussed this with Mr Jeff Shapiro, who had agreed with his approach. I reject that evidence regarding discussion with or informing Mr Shapiro: there is no such suggestion in Mr Fitzgerald's witness statement where he addresses the formulation of the proposal to Greenwich; it was not put to Mr Shapiro in cross-examination; and it is not consistent with the Defendant's pleaded case responding to the allegation in paragraph 9 of the Particulars of Claim that the Defendant failed to consult the Claimant over the apportionment of the Affordable Workspace. I find that the Claimant was not aware of the situation with Greenwich in this regard when it raised the matter at the meeting on 15 September, followed up by its solicitor's open letter of 24 September 2010.

(d) Termination of the Contract

69. It is clear from the site diary that works to Blocks A and B were recommenced on 4 October 2010. However, no one on behalf of the Claimant visited the site in October.
70. On 21 October, a further without prejudice meeting took place between Mr Jeff Shapiro and Mr Fitzgerald in what appears to have been an 11^th hour attempt to resolve the dispute. They did not succeed. The next day, 22 October, the Claimant by its solicitor's letter to the Defendant's solicitor purported to terminate the contract. The letter stated:

"We refer to our letter of the 5^th November 2009.

Since that time your client has neither commenced work on blocks A and B in any meaningful way nor given the agreement requested in the said letter. As stated your client is in fundamental breach of its obligations pursuant to the agreement. Our client is entitled to and does now accept the repudiatory breach.

In addition the agreement requires, at clause 4.3.2, your client to consult with our client and to make a joint application to the council to adjust the apportionment of the affordable cultural space from the equal apportionment between all blocks and between all three lower floors of each block envisaged by the agreement. Our client has to give consent to any re-apportionment. Notwithstanding this your client, according to its submission to the Council dated 13^th July 2010 (copied to us on 30^th September 2010) has agreed with the Council that all of the affordable cultural space will be included in block A. The submission also indicated that it is your client's intention to sell the freehold of the whole of block A to an investor at a price which will allow that investor to let the ground and first floors at a subsided rent. This is wholly incompatible with the obligation to let the ground and first floors to my client.

The above amounts to further fundamental breaches of the contract, which my client now accepts."

71. The Defendant's solicitor responded rebutting the suggestion that there had been any repudiation or fundamental breach, and by letter of 2 November 2010 stated:

"With reference to your letter dated 22 October I can confirm that the further development in respect of Blocks A and B commenced at the beginning of October.

The terms and allocation of the affordable cultural space is still subject to discussion. Your client will be consulted before any terms are concluded. The submission dated 13 July 2010 proposed that the cultural space be included in Block A. I was under the impression that your client favoured this arrangement. There was no reference to the freehold in the submission and clearly any arrangements in respect to the affordable cultural space will take account of your client's contractual position."

The letter stated that payment of the deposit was required by 5 November, in accordance with clause 1.4 of the Contract. Since the money was not paid, the Defendant by its solicitor's further letter of 9 November rescinded the Contract in reliance on that provision.

72. Thereafter, the Defendant continued with the development. I was told that completion of the commercial units in Blocks A and B would take place, respectively, in June and April 2012 but Mr Fitzgerald for the Defendant said (and this was not challenged) that if the Contract had not been terminated, this would have been achieved a little earlier, on 1 May 2012 for Block A and 20 February 2012 for Block B. I shall deal with the letting of the commercial premises when addressing the question of damages.

THE MISREPRESENTATION CLAIM

73. The Claimant alleged, by amendment to the original Particulars of Claim, that its entry into the Contract on 7 October 2008 was induced by a fraudulent, alternatively negligent misrepresentation.
74. With an allegation of that kind, it is important to consider precisely what representations are being alleged. Paragraph 19 of the Amended Particulars of Claim states:

"On numerous occasions prior to entering into the Agreement the Defendant, by its employees, servants or agents and, in particular by Mr. Fitzgerald and Mr. Wiseman, represented to the Claimant that the Defendant was engaged in a joint venture with Royal Bank of Scotland Plc who owned half of the Defendant and, accordingly, that the Defendant had no concern whatsoever as to the availability of funds to carry out the development."

75. Paragraph 20 pleads that at the meeting on 7 October 2008:

"Mr Wiseman repeated in front of all parties attending that the Defendant was in a strong position financially in view of the joint venture with RBS."

76. Paragraph 21 states:

"By making the said statements the Defendant was expressly or impliedly representing to the Claimant:

(i) That it had funding in place to carry out the landlord's works (including the construction of Blocks A and B) in accordance with the term of the Agreement (including the target date).

(ii) Alternatively that it had no concerns as to the availability of funding to carry out the landlord's works in accordance with the terms of the Agreement including the construction of Blocks A and B in accordance with the terms of the Agreement (including the target date)."

77. The pleading then sets out in summary the factual situation regarding the RBS development loan, including that it was signed only on 28 October 2008; that as at 7 October the terms being offered by RBS included a trigger for Phase II of 85 residential units being pre-sold by the end of March 2009 (see Mr Cheeseman's email at para 19 above); and that only four sales had been secured by the end of September 2008. None of that is in dispute. On that basis, the Claimant contends that the Defendant must have known when making the alleged representations:

i) that it did not yet have any funding in place for the development;

ii) that any funding which it expected to obtain to construct Blocks A and B would be conditional on this pre-sales trigger; and

iii) that since only four sales had been achieved, "there was no realistic possibility of the condition being met alternatively a real likelihood of the condition not being met."

(a) Express representations

78. There is no doubt that Mr Wiseman told the Claimant's representatives that the Defendant was a joint venture between Telford and RBS. He readily admitted this, and it is indeed stated in his letter sent on 21 March 2007 soon after meeting Mr Jeff Shapiro when they discussed the Creekside project and possible cooperation over the Claimant's proposed development at Creekside East. It does not particularly matter whether or how often Mr Wiseman may have mentioned this thereafter in the course of the extended period over which the Contract was negotiated. The statement was of course correct.
79. However, although Mr Jeff Shapiro in his witness statement suggested that Mr Wiseman had also said that the Defendant accordingly had no concern as to the availability of development funding, in cross-examination he accepted that this was a conclusion which he himself had reached based on the fact that it was half owned by a major bank, from whom he assumed the funding would come, and the various inquiries that he made of third parties in the market about Telford and its other developments, which he ascertained were successful. Neither of the Claimant's other two witnesses gave evidence of representations prior to the meeting on 7 October. Accordingly, I do not consider that Mr Wiseman made an express representation prior to the meeting that the Defendant had no concern about the availability of funding; but if he had, then I find that this too would have been correct. The Defendant was confident that RBS would enter into a satisfactory arrangement to fund the development just as the bank had earlier provided funds for the purchase of the site Property.
80. It became clear during the trial that the Claimant was really relying on what it alleges was said by Mr Wiseman on 7 October. That meeting took place some three weeks after the collapse of Lehman Brothers. This was of course a very significant event that attracted enormous public attention. Accordingly, I think it is likely that either when the participants gathered for their meeting or at some point when the parties solicitors' were engaged in the detailed drafting of particular clauses, there would have been some discussion between the businessmen as to how the financial world looked. Mr Wiseman frankly accepted this in response to a question from the Court. Mr Wiseman did not recall saying anything in that meeting about the Defendant being in a financially strong position because it was a joint venture with RBS, but I think it is very possible that he may have done so. However, the fact of the JV was well-known to all; it is not suggested that there was any reason at that point to doubt the liquidity of RBS; and such a statement could not be criticised as negligent. Indeed, that is not the basis of the Claimant's challenge.
81. In their evidence, the Claimant's witnesses contended that Mr Wiseman went further and stated in the meeting that the Defendant/Telford had funding in place for the development. Mr Oren said that he specifically asked Mr Wiseman whether they had funding in place; he indeed emphasised that making sure of this was "the only thing that was important to me" in that meeting. Mr Jeff Shapiro gave evidence to the same effect. Mr Jerome Shapiro said that both Mr Wiseman and Mr Oren boasted about how well their respective businesses were doing (Mr Oren had property interests in Israel) and said he was confident that the issue of funding and Telford's ability to carry out the transaction was raised at the meeting as it was so important for Mr Oren.
82. Messrs Wiseman and Fitzgerald strongly disputed this, and Mr Ellis also said that he did not recall any such statement.
83. Neither Mr Ellis nor Mr Jerome Shapiro made an attendance note of the meeting, which so far as they were concerned was devoted to finalising the negotiation and drafting of the Contract.
84. Although I consider, as he was prepared to accept, that Mr Wiseman may well, in general conversation, have said something to the effect that Telford was profitable and doing well, I reject the Claimant's case that Mr Wiseman made any specific statement regarding the Defendant's funding for this development. (Nor did Mr Fitzgerald, although that was not particularly suggested). The allegation is notably absent from Mr Jeff Shapiro's first and full witness statement of 19 December 2011. As indicated above, it is not expressly pleaded. Mr Oren's first witness statement simply adopted and agreed with Mr Shapiro's. The evidence that Mr Oren asked such a direct question eliciting the specific assurance from Mr Wiseman was first put forward in Mr Oren's second witness statement and Mr Jeff Shapiro's third witness statement, both made on 23 April 2012, two days before the start of the trial. Given its obvious importance to a central plank of the Claimant's case, that is in itself sufficient ground to undermine its plausibility. Moreover, when I asked Mr Oren why he had not included this in his first statement given that it was not mentioned by Mr Jeff Shapiro in the latter's statement to which he cross-referred, he could only reply that there was so much information that "it slipped out of my mind", and that it was only in the last few days as he was preparing for the trial that he seriously concentrated on the case. From an experienced businessman undertaking expensive litigation in which the company he represents is alleging fraud, that is a lamentably inadequate explanation.
85. It is striking that after the Defendant informed the Claimant that it was putting work to Blocks A and B 'on hold' because of funding problems, the Claimant did not, when expressing its concern and indeed alleging breach of the Contract, indicate surprise still less protest on the basis that this was contrary to what it had been given to understand at the outset. If such an express assurance about funding had been given by Mr Wiseman before the Contract was signed, I consider that the Claimant would have pointed this out and relied on it in the extensive correspondence to which I have referred.
86. Furthermore, in his two witness statements dated 22 March 2012 and 17 April 2012, Mr Jerome Shapiro makes no mention of any such statement by Mr Wiseman. Only in his oral evidence did he assert that such a statement was made. He sought to explain this on the basis that it was only when sitting in court, being taken back to the events of the day and thus re-living the experience, that he recalled that there was an exchange about funding. While I recognise that hearing the evidence at trial can serve to refresh memories, I have regrettably come to the conclusion that here Mr Shapiro is misguidedly seeking only to support his client's case.
87. Mr Wiseman also said that if Mr Oren had raised any serious questions about funding, he would have asked Mr Di-Stefano, who was the Financial Director of Telford at the time, to come into the meeting to explain the position. Although not in itself decisive, I consider that this supports the conclusion which I have reached.
88. I accept that Mr Oren was concerned to satisfy himself regarding the financial standing of the Defendant. However, I find that he did so by careful examination in advance of the meeting of 7 October of Telford's recently published 2008 annual report and accounts, which he accepted he carried out and which refer to the company having negotiated a development facility with RBS for this project. He relied on that, coupled with his knowledge that RBS was Telford's joint venture partner in the Defendant.
89. Furthermore, even if I were wrong and Mr Wiseman had made such a statement, I would not regard the express representation as false. Mr Mayall sought to make much of the fact that the development loan agreement was executed only some weeks later, on 28 October, something which the Claimant discovered only on disclosure in these proceedings. However, I consider that it was very clear to everyone at the Defendant by 7 October that such lending would be provided. As explained by Mr Di-Stefano, the critical point is the bank's credit approval, which RBS had given in August 2008. Looked at commercially, the fact that the formal document had not been drawn up and signed did not mean that there was a real risk that the lending was not forthcoming. There could scarcely be a clearer demonstration of this than the fact that RBS had allowed the Defendant to draw down a total of over £3 million in two tranches against the loan by the end of September 2008.

(b) Implied Representations

90. The further case alleged against the Defendant was based on the requirement of pre-sales of 85 residential units as a condition for funding Phase II, in the light of the launch event in mid-September when only four flats were sold.
91. In my judgment, even if a representation was made to the effect that funding was in place, that would not carry the implication that the funding had no conditions attached. It is well known that most large-scale bank funding is subject to certain conditions and I accept the Defendant's evidence that a condition of this nature was not remarkable. Similarly, the pleaded allegation that Mr Wiseman stated that the Defendant was "in a strong position financially" does not imply that funding for the development contained no conditions.
92. However if, contrary to my finding, Mr Wiseman did state that funding was in place, I accept that this would carry the implication that the Defendant had no concerns regarding the availability of funds, and thus that any condition attaching to the loan could be met. Mr Wiseman was very frank in his evidence in accepting that if he had been asked about funding, and if he had considered that there was a real risk that the Defendant could not fulfil the condition for release of the money, it would have been dishonest not to disclose this.
93. Since I have rejected the Claimant's case as to the alleged representation, the point does not arise. But as I heard evidence upon it, I shall address the question of whether such an implied representation would have been false. In my judgment, it would not. Despite the very disappointing result of the launch, that was in the immediate aftermath of the Lehman collapse. As Mr Wiseman explained, Telford had experienced previous poor launch events for projects that had subsequently gone well. The group's property sales had picked up well after the collapse of Northern Rock. In this regard, it is necessary to avoid the benefit of hindsight. Mr Wiseman said that they did not in early October appreciate the full significance which the Lehman collapse would have for the property market. That view is reflected in the report on Creekside West presented to the Telford board meeting two days after the Contract was signed: para 22 above. Accordingly, I find that the Defendant at that point did not consider that the 85 pre-sales condition for Phase II funding was a cause for concern. Nor do I consider that it was negligent in having that view. The Defendant had almost six months in which to achieve the further required sales. It was only in the months after the Contract was signed that the extent and implications of the financial crisis became apparent. And I accept Mr Di-Stefano's evidence that RBS was not in the habit of including conditions in such a lending facility that were unlikely to be met. The fact that Mr Cheeseman in his email discussed this contingency does not mean that he regarded it as likely.
94. Accordingly, the Claimant's case on misrepresentation fails.

THE CONTRACT CLAIM

(a) Was the Defendant in repudiatory breach?

95. This breaks down into two questions: (i) was the Defendant in breach of the Contract at all; and (ii) if so, was the breach (or breaches) repudiatory?
96. The primary breach alleged is of the obligation in clause 2.3(vi) to procure that the works are carried on "with due diligence". Along with this, reliance was placed on the obligation in clause 2.4 to use "reasonable endeavours to procure" that the works are completed by the Target Dates "or as soon as reasonably possible thereafter." The Claimant submitted that the decision to place work on Blocks A and B 'on hold', taken at the board meeting on 23 March 2009 and then put into effect a few months later, was a clear breach of clause 2.3(vi) and at least some time thereafter became a breach of clause 2.4 when in consequence it became impossible for the work on those blocks to be completed by the contractual Target Date of 28 February 2011.
97. For the Defendant, Mr Gaunt QC, appearing with Mr Rosenthal, submitted that the due diligence obligation must be read in context and that in this agreement the obligation as to time is dealt with in clause 2.4 so that "due diligence" in clause 2.3(vi) was to be interpreted as meaning only to do the work carefully. I do not accept that submission. It is trite to observe that the agreement must be read as a whole, but on that basis clause 2.3(vi) cannot be considered in isolation from the other provisions of clause 2.3. Obligations as to skill and care are expressly imposed by clauses 2.3(i) and (ii). This is not a statute, and it is not infrequent for overlapping obligations to be imposed by different contractual provisions. As has been observed, the presumption against surplusage is of little weight in the interpretation of commercial contracts: see per Staughton LJ in Howard v Shirlstar Container Transport [1990] 1 WLR 1292, 1298. "Due diligence" is a familiar concept in construction contracts, and Mr Gaunt accepted that it usually connotes both due care and "due assiduity/expedition." I see no reason to give it here a restricted interpretation. Indeed, it was well known to both parties that the Claimant was keen to have delivery of all four blocks as close together in time as possible, and if the exercise of due diligence would have enabled the Defendant to complete Blocks A and B less than seven months after Blocks C and D, I consider that this clause would have obliged it to do so.
98. On that basis, I do not see how the deliberate cessation of all work on two of the four blocks that comprise the development can be consonant with due diligence. The fact that the Defendant may have been led to that decision because of an unexpected lack of funding may explain, but cannot eliminate, the breach of its contractual obligation which, as Mr Mayall emphasised, was to procure that its works were conducted with due diligence. Indeed, if Mr Gaunt was wrong on the issue of interpretation, I did not understand him seriously to suggest that the Defendant was not in breach of this term.
99. It may therefore not be strictly necessary to determine whether the Defendant was also in breach of clause 2.4, but as it was the subject of argument I shall address it. Mr Gaunt submitted that the expression "reasonable endeavours" encompassed financial resources, so that if the Defendant could not complete by the Target Dates because of its funding problems, it would not be in breach so long as it had made reasonable endeavours to procure finance. Mr Di-Stefano gave evidence of the efforts he made in that regard, and if that were the test I would have no doubt that the Defendant was doing all that could reasonably be done in that regard. After all, it was as much in the Defendant's as the Claimant's interest to proceed with the development.
100. However, I do not think that a 'reasonable endeavours' clause as regards the time of completion in what is, in this respect, a construction contract can extend to endeavours to have sufficient money to perform the contract. Although the language could literally bear that meaning, in my judgment, on an objective reading the qualification of "reasonable endeavours", as opposed to an absolute obligation to complete, is designed to cover matters that directly relate to the physical conduct of the works, thereby providing an excuse for delay in such circumstances as inclement weather or a shortage of materials for which the Defendant was not responsible. The clause does not, in my view, extend to matters antecedent or extraneous to the carrying out of the work, such as having the financial resources to do the work at all. I should add that I did not find the case of Yewbelle Ltd v London Green Development Ltd [2006] EWHC 3166 (Ch), concerning a "reasonable endeavours" obligation to obtain a S.106 agreement with the planning authority, on which the Defendant relied, of any assistance in the very different circumstances of the provision at issue in this case.
101. As at March or indeed July 2009, it is not clear that the Defendant was in breach of clause 2.4, since an early resumption of work may well have enabled it to recover progress and still complete by the end of February 2011 (subject always to delay for other reasons that would prevent a breach). However, the Defendant did not resume work until early October 2010. Had the Contract not then come to an end, on the Defendant's evidence Block B would have been completed for handover on 20 February 2012 and Block A on 1 May 2012. That is, respectively, a year and 14 months after the contractual Target Date for those two blocks. Self-evidently, some considerable time before October 2010 it would have been clear that the Target Date was going to be substantially exceeded. As at that point (and I do not think it is necessary to determine precisely when that was), I consider that the Defendant was in breach of clause 2.4 since the reason for the delayed completion was the deliberate decision to halt work on those two blocks. Moreover, this was a continuing breach for so long thereafter as the work was halted.
102. It follows that I find that the Defendant was in breach of both clause 2.3(vi) and clause 2.4. But were those breaches repudiatory? The Contract does not use or incorporate any of the standard forms of building contract, which contain specific and often detailed provisions as to when the employer is entitled to terminate. This was an ad hoc contract, drafted by the parties' respective solicitors, and it notably does not include any provisions addressing breach by the Defendant.
103. Neither of these terms can be categorised as a condition or a warranty, adopting the traditional classification. Manifestly, they could be breached in ways that had little or minimal impact or in a manner that was much more serious. I regard them both as intermediate or innominate terms, and the issue of repudiation therefore turns on the nature of the breach. I did not understand Mr Mayall to suggest otherwise. But it follows that I do not accept that because time was not of the essence of the Contract (and this was common ground), the Defendant could be in repudiatory breach through delay only if the Claimant had first served reasonable notice expressly making time of the essence. I think that would be to apply an unduly formalistic approach that did not respect what, objectively viewed, was the commercial intention of the parties.
104. Repudiation for breach of a term of this nature is discussed in Chitty on Contracts, 30^th edn (2008) at para 24-040.

"Where the failure of performance is not a breach of condition, but of an "intermediate" term, it may still justify the innocent party in treating himself as discharged. But in such a case regard must be had to the nature and consequences of the breach in order to determine whether this right has arisen. A number of expressions have been used to describe the circumstances that warrant discharge, the most common being that the breach must "go to the root of the contract". It has also been said that the breach must "affect the very substance of the contract", or "frustrate the commercial purpose of the venture", and, at the present day, a test which is frequently applied is that stated by Diplock L.J. in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd.^[3]

'Does the occurrence of the event deprive the party who has further undertakings to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?'"

105. I note that in his judgment just quoted, Diplock LJ referred (at 70) by way of example and with approval to the early case of Jackson v Union Marine Insurance Co Ltd, where:

"… breach of an undertaking by a shipowner to sail with all possible despatch to a named port does not necessarily relieve the charterer of further performance of his obligations under the charterparty, but if the breach is so prolonged that the contemplated voyage is frustrated it does have this effect."

That demonstrates that an ongoing breach may at the outset not constitute a repudiation, but that as it continues it can after a time acquire a repudiatory character.

106. Moreover, where, as here, the agreement is not an entire contract but comprises different parts or stages, I think that if the breach goes 'to the root' or substantially deprives the innocent party of the benefit of a significant part or stage, it constitutes a repudiatory breach even though he has had the benefit of the other part or stage. Thus if, for example, after completing Blocks C and D the Defendant had said that it was going to wait for three years and concentrate on other projects before completing Blocks A and B (but that it would indeed complete them then), I do not think that it could fairly be said that this was not a repudiatory breach because the Claimant would receive Blocks C and D and thus, in effect, half the benefit of the Contract. Put another way, I find that the Contract envisaged a single project involving four blocks, with three of them framing a piazza. I accept the Claimant's evidence that this was regarded as an important feature for the purpose of marketing the commercial units. Mr Ellis also referred to the concern expressed by the Claimant at the time the Contract was being negotiated to avoid, so far as it could, having to take leases of some blocks while building work continued on the others since that might interfere with sub-letting. It would therefore "frustrate" the commercial purpose if, for a substantial period, the Claimant received only two blocks, while the rest of the development remained a building site.
107. Although I have to say that I do not find the established tests, as summarised in Chitty, particularly easy to apply (and see in that regard, Treitel on Contract, 13^th edn (2011), para 18-026), I consider that at least by the end of 2009, if not before, the Defendant's ongoing breach of clause 2.3(vi) had become sufficiently substantial to be repudiatory. By then, work on Blocks A and B had been halted for over five months, and the Defendant was unable in response to the repeated requests made on behalf of the Claimant to state when it might be in a position to resume. By early December 2009, the concrete frames to Blocks C and D had been completed, and the fact that the Defendant asserted that it fully intended to re-commence work on the other two blocks as soon as funding became available is not, in my judgment, an answer to the question of whether the cessation of work on those blocks, which at that point was indeterminate and prolonged, was so substantial as to defeat the commercial purpose of the venture. I do not think that it is an effective answer to say, as Mr Gaunt submitted, that since the Claimant would in the end have received the four blocks, this was just a case of substantial delay to two of them that can be compensated in damages. That ignores the fact that this was seen from the outset as one, unified development, albeit divided for practical purposes into two closely related stages of construction. I am satisfied that this was the common intention of the parties at the time the Contract was entered into, albeit for different reasons. The Claimant made clear that it wanted delivery of all four blocks as close in time as possible if it could not receive them together, since it regarded them as interlinked for the purpose of commercial marketing; and the Defendant had planned to proceed without interruption in the construction of Blocks A and B well before Blocks C and D were complete.
108. Mr Gaunt relied on the decision of the Court of Appeal in Shawton Engineering Ltd v DGP International Ltd [2005] EWCA Civ 1359, (2006) BLR 1. In that case, Shawton had purported to terminate for delay a sub-contract for the production of five packages of designs which, following variations to the sub-contract, had to be produced within a reasonable time. May LJ (with whose judgment Jacob and Lloyd LJJ agreed) said at [32]:

"Shawton could only in law legitimately determine the contracts for delay if either

(a) they gave reasonable notice making time of the essence; or

(b) DGP's failure to complete within a reasonable time was a fundamental breach such that the gravity of the breach had the effect of depriving Shawton of substantially the whole benefit which it was the intention of the parties that they should obtain from the contracts.

Where time is not of the essence and where the party said to be in breach by delay is nevertheless making an effort to perform the contract, it is intrinsically difficult for the other party to establish a fundamental breach in this sense."

However, although DGP were slow, they were continuing to produce designs. There was no question of them stating that they were not going to continue with any work on some of the packages: the court found that they were doing their best to furnish all the required designs. (Indeed, it was not established that they were in breach at all.) Mr Gaunt referred also to a passage near the end of May LJ's judgment at [76]:

"I accept that, even if time is not of the essence, it is theoretically possible for a party to show that another party's delay is so profound as to be repudiatory. But what has to be shown is, not mere breach, but a breach of such gravity as to deprive the other party of substantially the whole benefit which it was the intention of the parties that they should obtain from the contract."

However, I do not regard this as seeking to set out a special rule for breach by delay but as an orthodox statement of the law concerning repudiatory breach to which I have already referred.

109. The fact that the Defendant did not exercise its right in December 2009 to demand payment of the further deposit for Blocks C and D does not affect the analysis. That was no doubt a sensible step as part of the commercial negotiations, and when those negotiations faltered the Defendant then asserted its right to payment in early September 2010.
110. Insofar as it were necessary to reach a separate determination as regards the breach of clause 2.4, I consider that this constituted a repudiation by at least July 2010. By then the works to Blocks A and B had been halted for about a year and it would have been clear that the cessation of work left no possibility of completion of those blocks close to the Target Date. The response to the demand from the Claimant's solicitor that work should commence "now" was to say that the Defendant would act in accordance with the draft supplemental agreement "agreed in principle" at the meeting in November 2009. However, that was a 'without prejudice' negotiation and the Defendant accepts that no supplemental agreement was ever concluded. The Defendant was manifestly not in a position to carry out the work in accordance with the original Contract, which continued to be binding, and the breach had the substantial effect discussed above.
111. I should make clear that I am not concerned to consider whether the 'without prejudice' proposals being made by the Defendant at various points in the negotiations were reasonable or unreasonable. Although I was taken through that correspondence and heard evidence about the various meetings, that question does not affect the contractual analysis and I did not understand Mr Gaunt to suggest otherwise.
112. The Claimant put its case in the alternative on the basis of a renunciation of the Contract, relying on the fact that the cessation of work was a deliberate decision communicated by the Defendant. Mr Mayall referred to the following passage at para 24-018 of Chitty:

"A renunciation of a contract occurs when one party by words or conduct evinces an intention not to perform, or expressly declares that he is or will be unable to perform, his obligations under the contract in some essential respect. The renunciation may occur before or at the time fixed for performance. An absolute refusal by one party to perform his side of the contract will entitle the other party to treat himself as discharged, as will also a clear and unambiguous assertion by one party that he will be unable to perform when the time for performance should arrive. Short of such an express refusal or declaration, however, the test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provisions. The renunciation is then evidenced by conduct. Also the party in default:

"…may intend in fact to fulfil (the contract) but may be determined to do so only in a manner substantially inconsistent with his obligations,""

113. However, that paragraph goes on to state:

"Nevertheless, not every intimation of an intention not to perform or of an inability to perform some part of a contract will amount to a renunciation. Even a deliberate breach, actual or threatened, will not necessarily entitle the innocent party to treat himself as discharged, since it may sometimes be that such a breach can appropriately be sanctioned in damages.

…

If one party evinces an intention not to perform or declares his inability to perform some, but not all, of his obligations under the contract, then the right of the other party to treat himself as discharged depends on whether the non-performance of those obligations will amount to a breach of a condition of the contract or deprive him of substantially the whole benefit which it was the intention of the parties that he should obtain from the obligations of the parties under the contract then remaining unperformed."

114. This is not a case where the Defendant stated that it had no intention of completing the work but, on the contrary, it repeatedly asserted that it was going to do so, and it indeed did so after the Contract came to an end. Accordingly, considering this case in terms of renunciation does not take the matter any further.
115. The Claimant alleged an entirely separate breach of the obligation in clause 4.3.2 of the Contract regarding consultation and a joint approach to Greenwich regarding the location of the Affordable Workspace: see paras 32-33 above. This arose from the discovery in early October 2010 of the Proposal which the Defendant had sent to Greenwich the previous July submitting that all the Affordable Workspace should be in Block A. I have found that the Claimant had no previous knowledge of that Proposal: para 68 above.
116. In answer to this, the Defendant contended that this was not a formal application to Greenwich but only "intended to test the water to see whether it would be worth making a formal application" under the S.106 agreement in those terms: Defence para 17. This was supported by the evidence of Mr Fitzgerald.
117. I reject that defence. Not only does the Proposal have all the appearance of a formal submission but, significantly, on receipt of the Proposal, Ms Murat of Greenwich emailed Mr Hall of the Defendant on 16 July 2010, asking:

"… please indicate if you would like this to be a formal submission of details [for the S.106 Clause in the planning permission]. If so you will need to send in three hard copies and a letter requesting discharge of the Clause."

To that, Mr Hall immediately responded:

"Will put 3 copies in the post tonight as you suggest."

118. Any covering letter sent by Mr Hall was not in evidence, but what was in evidence (although not expressly referred to) was Greenwich's formal decision of 16 June 2011 rejecting the application, described as being set out in a letter dated 16 July 2010 and the Proposal of 13 July 2010. That only confirms my view that this was indeed a formal application.
119. Accordingly, I find that the Defendant was in breach of Clause 4.3.2. However, that provision is also, in my view, clearly an intermediate term. The location of the Affordable Workspace within the commercial premises being provided to the Claimant was manifestly a matter of considerable significance, since that governed the location of the "Open Market" units and thus their attraction to potential tenants. However, I have no hesitation in concluding that the breach of this provision which I have found was not repudiatory. The Defendant's proposal that all the Affordable Workspace be located in Block A was not unreasonable: it followed estate agent's advice with a view to maximising the potential for the commercial units; and the Claimant did not suggest that if it had been consulted in advance as it should have been, it would have disagreed with this proposal. Therefore, although I think that discovery of this breach may have influenced the Claimant in its decision to bring the Contract to an end, it does not affect the essential issues in the case.

(b) Did the Claimant affirm the Contract so as to lose the right to accept the repudiation?

120. Although the Claimant alleged that the Defendant was in repudiatory breach in its solicitor's letter of 5 November 2009, to which the Claimant's solicitor repeatedly referred in his subsequent correspondence, it is common ground that the Claimant did not purport to accept the repudiation and bring the Contract to an end until 22 October 2010. The Defendant submitted that if (contrary to its contention) it was in repudiatory breach, by then it was too late for the Claimant to accept the breach since the Claimant had repeatedly affirmed the Contract. Although this argument was not stressed in the Defendant's written closing submissions, it was nonetheless maintained on its behalf.
121. As stated in Chitty at para 24-003:

"Affirmation may be express or implied. It will be implied if, with knowledge of the breach and of his right to choose, [the innocent party] does some unequivocal act from which it may be inferred that he intends to go on with the contract regardless of the breach or from which it may be inferred that he will not exercise his right to treat the contract as repudiated."

122. In Yukong Line Ltd of Korea v Rendsberg Investments Corp of Liberia (Preliminary Issues) [1996] 2 Lloyd's Rep 604, after setting out the established principles as to the right of election that rests with the injured party and the issue of affirmation, Moore-Bick J (as he then was) said this (at 608):

"...the Court should not adopt an unduly technical approach to deciding whether the injured party has affirmed the contract and should not be willing to hold that the contract has been affirmed without very clear evidence that the injured party has indeed chosen to go on with the contract notwithstanding the other party's repudiation. In my view, the Court should generally be slow to accept that the injured party has committed himself irrevocably to continuing with the contract in the knowledge that if, without finally committing himself, the injured party has made an unequivocal statement of some kind on which the party in repudiation has relied, the doctrine of estoppel is likely to prevent any injustice being done.

Considerations of this kind are perhaps most likely to arise when the injured party's initial response to the renunciation of the contract has been to call on the other to change his mind, accept his obligations and perform the contract. That is often the most natural response and one which, in my view, the Court should do nothing to discourage. It would be highly unsatisfactory if, by responding in that way, the injured party were to put himself at risk of being held to have irrevocably affirmed the contract whatever the other's reaction might be, and in my judgment he does not do so. The law does not require an injured party to snatch at a repudiation and he does not automatically lose his right to treat the contract as discharged merely by calling on the other to reconsider his position and recognize his obligations."

123. I regard those observations as apposite to the present case. The fact that the Claimant engaged in prolonged negotiation with the Defendant, and that various proposals and counter-proposals were made as the basis on which the issue could be resolved, does not in my view constitute an affirmation. Although the Claimant was clearly reluctant to bring the Contract to an end and sought a resolution by negotiation (or indeed, arbitration), those discussions were always without prejudice to its contention that it would be entitled to terminate the Contract if no resolution was reached. It must be emphasised that this was a situation of a continuing breach, the effect of which became more serious as time went on: this was not a case of the injured party taking 12 or 15 months to decide what to do about a one-off breach that had occurred, and the effects of which had crystallised, at the start of that period. Moreover, although the Defendant pleaded that the Claimant was estopped from terminating, I do not discern in the conduct of the Claimant or all the exchanges between the parties after July 2009 which I have described any acts or statements which could reasonably have been understood by the Defendant as indicating that the Claimant definitely intended to keep the Contract on foot, given that the Defendant had neither resumed work to Blocks A and B nor given a commitment as to when that work would be resumed, such that it would be inequitable for the Claimant then to terminate.
124. However, the Defendant, as well as the Claimant, sought to rely on the observations of Rix LJ in his judgment (with which Tuckey and Aldous LJJ agreed) in Stocznia Gdanska S A v Latvian Shipping Co Ltd (No 2) [2002] EWCA Civ 889, 2 Lloyd's Rep 436, at [87]:

"In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing "writ in water" until acceptance, can be overtaken by another event which prejudices the innocent party's rights under the contract – such as frustration or even his own breach. He also runs the risk, if that is the right word, that the party in repudiation will resume performance of the contract and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract."

125. Referring to the final sentence of this paragraph, Mr Gaunt submitted that since here the Defendant resumed work to Blocks A and B on 4 October 2010, the very situation which Rix LJ envisaged had occurred by the time the Claimant served notice terminating the Contract on 22 October.
126. However, I consider that Rix LJ was there addressing the position when there is an anticipatory repudiatory breach, where the intention of the guilty party not to perform is evinced before the time when his performance is due, which was the situation in the Stocznia case. If the dicta are of broader application, then I do not think that Rix LJ was seeking to set out a hard and fast rule. When it comes to questions of election and affirmation, everything will depend on the circumstances. As Lord Wilberforce remarked in Johnson v Agnew [1980] AC 367 at 398, in an observation quoted by Moore-Bick J in the Yukong Line case:

"Election, though the subject of much learning and refinement, is in the end a doctrine based on considerations of common sense and equity."

127. Here, I regard it as relevant that the resumption by the Defendant of construction works to Blocks A and B was not done simply with a view to performance of the Contract, but because the Defendant was itself deeply committed to the development, of which the sale of the commercial units to the Claimant was only a small part. Irrespective of any affirmation of the Contract by the Claimant, the Defendant was going to carry out these works. Furthermore, although the Claimant may have been told at a "without prejudice" meeting on 15 September 2010 that the Defendant was going to re-start work in October, various dates for commencement had been mentioned in previous discussions and I find that it is therefore understandable that, following the meeting, on 24 September the Claimant's solicitor wrote an open letter asking in terms whether the works had been commenced, and if not when they would be commenced and whether that was guaranteed: para 62 above. For whatever reason, the Claimant received no reply to that letter.
128. I accept the Claimant's evidence that it did not know when its solicitor sent the letter of termination that the works had just resumed. In all the circumstances, I find that the Claimant had not lost the right to accept the Defendant's repudiation by reason of the fact that the works had recommenced less than three weeks before.

(c) What loss can the Claimant recover?

129. Since the Contract incorporated the SCPC, it is accepted that the Claimant is entitled to recover the deposit it had paid, in the amount of £421,309.07 plus interest.
130. In its Amended Particulars of Claim, the Claimant sought to claim the difference (if any) between the contract price and the value/sales price of the commercial units when completed. However, the Claimant served no expert evidence supporting such a higher value/sales price, and that head of claim was abandoned by Mr Mayall at the start of the trial.
131. Instead, the Claimant sought to recover its wasted expenditure, i.e. the monies it spent in anticipation of the Contract. That was stated to be the sum of £445,000 paid to Heathcote for it surrender of the Heathcote option and the £176,250 paid to Mr Conlon. (There was also a claim under this head for "legal and other costs" but no evidence was filed in support and this was not pursued).
132. This claim was advanced on the basis that it was in the reasonable contemplation of the parties that the Claimant would be able to recoup this expenditure from the benefit of the Contract. In Omak Maritime Ltd v Mamola Challenger Shipping Co [2010] EWHC 2026 (Comm), [2011] 1 Lloyd's Rep 47, after a careful and thorough review of the authorities Teare J stated (at [44]-[47]):

"… The expenditure which is sought to be recovered is incurred in expectation that that the contract will be performed. It therefore appears to me to be rational to have regard to the position that the claimant would have been in had the contract been performed.

If there were an independent principle pursuant to which expenditure incurred in expectation of the performance of a contract was recoverable without regard to what the position would have been had the contract been performed the defendant would in effect underwrite the claimant's decision to enter the contract. If the contract was unwise from his point of view, because his expenses were likely to exceed any gross profit, it is difficult to understand why the defendant should pay damages in an amount equal to that expenditure. His breach has not caused that loss. The claimant's expenditure should only be recoverable where the likely gross profit would at least cover that expenditure.

…

The authorities therefore state a rational and sensible explanation for the view that the expectation loss principle underpins the award of damages in wasted expenditure cases. In some cases a contract can be shown to be a bad bargain. In other cases it may not be possible to show one way or the other whether the likely gross profits would at least equal the expenditure. In that latter type of case the question arises as to which party should bear the evidential burden of proof. Should the burden be on the claimant to show that the likely profits would at least equal his expenditure or on the defendant to show that the likely profits would not at least equal the claimant's expenditure? The authorities to which I have referred, in particular L. Albert & Son v Armstrong Rubber and CCC Films (London) Ltd. v Impact Quadrant Films Ltd., provide a rational and sensible explanation for the view that that burden should be on the defendant."

133. Both sides accepted this as a correct statement of the governing principle. Accordingly, if the Defendant can show that the Claimant would not have made sufficient profit if the Contract had been properly completed to recoup this expenditure, the claim for wasted expenditure fails.
134. The purchase price which the Claimant had to pay under the Contract was calculated on the basis of £150 per sq ft for the "Open Market Units" and £120 per sq ft for the "Affordable Workspace Units"; and £15,000 for each of the 40 parking spaces: clauses 4.3.1, 4.3.3. Accordingly, the Claimant would have had to achieve more than that by way of the capitalised value of a rental in order to recoup the expenditure for which it is claiming.
135. As I have observed, the Defendant called as its expert Mr Graham Chase. He has impressive credentials and I found him a careful witness, who made every effort to assist the court and readily acknowledged the limits of his expertise. In his expert's report, Mr Chase valued each of the four blocks separately, and explained that he regarded Block B as the best block. His conclusion as regards the price for each block was as follows:

Rate per square foot (ground and 1^st floors)

	Open Market Units	Affordable Workspace Units
Block A	£125	£100
Block B	£150	£120
Block C	£100	£100
Block D	£125	£100

136. The Claimant called no expert evidence. Mr Mayall sought to counter Mr Chase's evidence in the first place by reference to the rates set out by the Defendant itself in the Proposal for Affordable Workspace submitted to Greenwich in July 2010. In that document, it stated that it expected the current rental values for the commercial (i.e. Open Market) units in each block to be:

"Ground floor	£18 per ft²
First floor	£14 per ft²
Second floor	£10 per ft²"

On the basis that those were the "market prices", the Defendant proposed that the rents asked for the Affordable Workspace should be at a 25% discount. It also applied a yield of 8% to provide Greenwich with a capital value of its proposals.

137. However, Mr Fitzgerald, who had responsibility for this document, said that this was put forward for the purpose of negotiating with Greenwich on the Affordable Workspace rents. That is to say, the figures were in effect inflated on the basis that they would be negotiated down. Of the rents set out above, he said: "We would not have expected to receive these figures." Whether Greenwich in fact appreciated that this was the basis on which the figures were being put forward, and whether that was an appropriate way for the Claimant to behave, are not matters for decision in this case. I accept that this was indeed the basis on which the document was prepared and that the quoted figures did not represent the Defendant's genuine opinion as to the market values. But even if they did, that does not mean that the Defendant's view was correct.
138. Mr Chase was cross-examined exhaustively regarding his report. He was criticised for indicating that the development should be regarded as being in the Deptford area as opposed to the higher value Greenwich area – it is geographically on the boundary of the two; but Mr Chase explained why he considered the commercial premises were more susceptible to custom from the Deptford side. He was criticised for not being able to find and include in his evaluation comparables as to rent from any other properties nearby. However, I consider that Mr Chase's response to that criticism was entirely apt: this was not a case where he was expressing his opinion as to the value of property that had not been sold or let. The Contract with the Claimant having been terminated, when the commercial units in the blocks were ready the Defendant sought to market them itself. The Defendant naturally sought to achieve the best terms that it could. Unsurprisingly, Mr Mayall never sought to suggest otherwise and there was no challenge to the evidence of Mr Richard Grossman, of the commercial department of the estate agents Lewis Craig Ltd that was instructed by the Defendant for this purpose, regarding the marketing efforts which they made and the lettings achieved.
139. Accordingly, I accept Mr Chase's view that the best source to determine the market value of the commercial units is to be found in the rates actually realised on those units to date. As Mr Gaunt put it in his closing submissions, the question in this case is not really the traditional kind of valuation question at all: here, the market has shown the values applicable to this very property. There was no suggestion that the market had declined such that the values would have been higher if the Defendant had completed the construction earlier.
140. However, that is subject to the question of the yield adopted for the purpose of capitalising the rent. Since the lettings analysed by Mr Chase in Block D were not sales of long leases, a yield factor needs to be applied to achieve a capital value to be compared to the price in the Contract. For the letting of two units on the ground and first floor of Block D to a gym operator, Mr Chase applied a yield of 8.5%, which produces a capital value of £119.41 per sq ft. (or £112.93 if purchaser's costs are deducted). Mr Chase said that he tried, but could not find, yields for this kind of property in the area to use as the basis for comparison. However, his selected 8.5%, which he said is a good yield for property of this type, is close to the 8% adopted by the Defendant in its Proposal to Greenwich, which sought to present a generous, "negotiating" figure. I see no ground on which to differ from the yield applied by Mr Chase for this rental. As he observed in re-examination, this development shows no sign of attracting blue-chip tenants and this is accordingly not to be classified as prime property in commercial terms.
141. The other rental on the relevant floors of Block D was to a day nursery at a higher rent. However, Mr Chase explained that because that was for a much smaller area and, more particularly, the lease included a break clause at the fifth year for the tenant's benefit, a higher yield is appropriate. He said that it is well-recognised in valuing property that such a break clause affects the valuation. I accept that explanation and that Mr Chase's yield of 10% for that letting is accordingly fair and reasonable. That produced a capital value of £129.40 per sq ft. Agreement has been reached (or at least heads of terms agreed) to let all three commercial floors of Block C on a long lease to a hotel operator. I return to that shortly, but because of the improvement which the presence of the hotel will bring to the scheme generally, Mr Chase enhanced the capital value derived from the units let to the gym to arrive at a figure of £125 per sq ft for the commercial space on the ground and first floors in Block D.
142. The Defendant also sold long leases on the second floor of Block D at prices amounting to £114.42 per sq ft and £117.75 per sq ft. Although it was put to Mr Chase that the ratios of relative value between floors set out in the Defendant's Proposal to Greenwich should be applied to those figures, he said that he did not accept those ratios as realistic, and that the second floor is not necessarily less valuable to an office user than the ground. In the absence of any expert evidence to the contrary, I see no reason not to accept Mr Chase's expert opinion.
143. It follows that I accept Mr Chase's valuation of the commercial space in Block D at £125 per sq ft. He applied the same rate to Block A, and there is no reason to find otherwise. As regards Block B, where there have been no letting to date, he applied £150 per sq ft for the commercial units, to reflect the fact that he considered this the best block in the development (a view that was not challenged), and that a pharmacy was showing interest in one of the units and is likely to pay a premium. I am satisfied that this approach is reasonable.
144. For the Affordable Workspace Units, Mr Chase applied for Block B the same rate as in the Contract (i.e. £120 per sq ft) and for Blocks A and D the same percentage discount (i.e. 20%) to arrive at £100 per sq ft.
145. As regards Block C, the Defendant has agreed to grant a long lease of all three commercial floors for a hotel at the rate of £100 per sq ft. Mr Chase accordingly applied that value to the commercial units on the ground and first floors of Block C. In this one respect, I think his approach is too favourable to the Defendant. If the Contract had not been terminated, the Claimant would have obtained only the ground and first floors and therefore (without some further arrangement between Claimant and Defendant) that transaction would not have occurred. There was clearly a significant benefit to the Defendant to find a tenant willing to take a long lease of all three floors and it seems to me likely that this was reflected in the price. Mr Chase was prepared to accept that in principle, but said that the hotel letting benefits the development as a whole, since it reduces the available supply of commercial space, and led him to apply higher rates for the other three blocks. On that basis, the rate for Block C should not be valued any higher. I did not find that justification very convincing and when considering the counter-factual situation of what would have happened if the Contract had been fully performed and the Claimant had taken over the ground and first floors, I am not persuaded that the Claimant would have let the Open Market units on the ground and first floors of Block C for so much less than in the other three blocks, and indeed at the same rate as the Affordable Workspace. Bearing in mind that the burden is on the Defendant, I shall accordingly apply the same rate to Block C as to Blocks A and D, i.e. £125 per sq ft.
146. Nevertheless, even with this adjustment, that is sufficient to demonstrate that the Claimant would not have exceeded the Contract rates for the commercial space if it had been letting the space itself. In the light of that, it is not necessary to consider the effect of the location of the Affordable Workspace (in view of the higher valuation of Block B), or the valuation of the parking spaces. I should, however, note that long leases have been granted for two parking spaces in Block D at a premium plus annual rent of which Mr Chase calculated the overall capital value at £13,500.
147. Finally, I should note that Mr Mayall sought to rely on the values quoted to the Claimant in September 2010 by agents it had instructed in respect of Creekside East, indicating a rental value for the commercial space there of £20 per sq ft. However, no explanation is given for that view, described in the agent's letter as "our up to date thoughts on potential pricing" and the author was not put forward as a witness. Accordingly, I do not give any weight to that document, or, similarly, to marketing particulars prepared for the Claimant by another agent for one of the blocks in Creekside Village West seeking a price of £210 per sq ft. It appears that such over-optimistic forecasts sustained the Claimant's expectations for the development that I consider were wholly unrealistic given the downturn in the property market.
148. Accordingly, I have no hesitation in finding that the Defendant has established that, on the balance of probabilities, the Claimant would not have made a profit from the Contract such that it would have been able to recover the expenditure claimed. In the light of that, it is unnecessary to consider the distinct question whether the Defendant had in contemplation that the Claimant was incurring expenditure of that nature at all.
149. I should only add that this is not a case where the Claimant terminated the Contract because it was seeking to escape from a bad bargain. It appears that the Claimant genuinely believed that the Contract would be to its advantage and that is why it continued to carry on negotiations with the Defendant for such a long time and did not accept the repudiatory breach at the first opportunity.

CONCLUSION

150. Accordingly, for the reasons set out above, I find that:

i) there was no misrepresentation by the Defendant, whether fraudulent or otherwise;

ii) the Defendant was in repudiatory breach of the Contract, which repudiation the Claimant was entitled to and did accept;

iii) apart from recovery of the deposits paid under the Contract, the claim for damages for breach of the Contract is dismissed;

iv) the Defendant's counterclaim is dismissed.