England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		8th June 2011

 


Mr Justice Akenhead:

1. Reliant Building Contractors Ltd ("Reliant") seeks leave to appeal against a final award dated 22 December 2011 issued by a duly appointed arbitrator by which he decided what was essentially an issue of construction of a Transfer agreement dated 10 January 2008 ("the Transfer"), whereby BRB (Residuary) Ltd ("BRB") transferred to Reliant about 1.1 acres of freehold land ("The Property") near to New Cross Station in South East London. The Transfer allowed for a "clawback" or "overage" to be payable to BRB when future planning permissions were implemented or when all or part of the property was sold with the benefit of such a planning permission. The main issue between the parties related to the extent and scope of what dispositions by Reliant in future might be contractually exempt from the clawback provisions.
2. The Arbitration Act 1996 provides that leave to appeal against an arbitrator's award is required in this case and Section 69 (3) sets out the criteria:

"(3) Leave to appeal shall be given only if the court is satisfied—

(a) that the determination of the question will substantially affect the rights of one or more of the parties,

(b) that the question is one which the tribunal was asked to determine,

(c) that, on the basis of the findings of fact in the award—

(i) the decision of the tribunal on the question is obviously wrong, or

(ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and

(d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.

The authorities on how and when leave to appeal should be granted are well known and I will not set them out here.

3. Mr Justice Ramsey gave directions which led to a hearing before me on 27 May 2011 at which the question of whether leave should be given was argued albeit both Counsel also argued at length the merits of the case so that if leave is granted the Court would then decide the substance of the issue.
4. Consideration for the Transfer was £2.7m. By Clause 12.3.6, Reliance undertook to pay to BRB "the further considerations in accordance with…the Third Schedule". The Third Schedule defined in Clause 2 the various terms:

""2.1 "the Relevant Period" means…80 years from [10 January 2008]

2.2 "the Transferor's Percentage means [50%]

2.3 "disposition" means (a) a transfer or (b) a grant of a lease for a term exceeding 25 years of the Property or part thereof

2.4 "Exempt Disposition" means a Disposition of part of the Property to be used for one of the following purposes:

2.4.1 a residential unit or units or commercial unit or units…

2.4.2 any site for an electricity substation, gas governor, balancing tank or pond or a pumping station or similar;

2.4.3 for transfer or dedication to a statutory undertaker or service provider for the purposes of services drainage or access to or from the Property;

2.4.4 any part of the Property to be designated as public open space pursuant to Section 106 of the Town & Country Planning Act 1990; or

2.4.5 any part of the Property to a management or residents company established by or appointed by [Reliant] to provide communal facilities for residents within the Property.

2.5 "Planning permission" means permission granted after the date of the contract for this transfer…

2.6 a "Chargeable Event" means either of the following:

2.6.1 except where such is an Exempt Disposition the Disposition within the Relevant Period of the Property or part of it by the Transferee or persons deriving title through or under the Transferee with the benefit of Planning Permission or

2.6.2 save in relation to any part of the Property comprised in an Exempt Disposition the commencement of Implementation of Planning Permission by the Transferee or persons deriving title through or under the Transferee in relation to the Property or the relevant Part of it within the Relevant Period.

2.7 "Further Payment" means such a payment as is mentioned in paragraph 4 of this Schedule

2.9 "Implementation of Planning Permission" means the carrying out of a material operation within Section 56(4) of the Town & Country Planning Act 1990 but excluding…site remediation site clearance site preparation diversion and laying of services…"

5. Clause 3 imposed obligations on Reliant to notify BRB of a Chargeable Event and the full terms of any Disposition and to "pay to [BRB] such sum as is provided by" Clause 4 and Clause 6 (which dealt with interest for late payment). Clause 4 provided:

"The sum so payable shall (subject to paragraph 5 below) be:

4.1 in the case of a Chargeable Event under paragraph 2.6.1 the Transferor's percentage of the difference between the capital value of the consideration which would have been receivable without the benefit of any Planning Permission in respect of the Chargeable Event and the capital value of the consideration receivable without the benefit of any Planning Permission or any prospect that it may be obtained (the latter value to be ascertained on the basis of any open market disposition free from incumbrances except for such to which this Transfer is subject and which then subsist) PROVIDED THAT such capital value is no less than [£2.7m]..

4.2 in the case of a Chargeable Event under paragraph 2.6.2 the Transferor's percentage of the difference between the open market value of the Property or the relevant part of it as at the date or the Chargeable Event valued as though to be sold (free of incumbrances to which this Transfer is subject and which then still subsist)

4.2.1 with the benefit of the Planning Permission which gave rise to the Chargeable Event (and having regard to any value which the Property or the relevant part of it may have in conjunction with any other land to which the Planning Permission relates) and

4.2.2 without the benefit of such Planning Permission or any prospect that it may be obtained PROVIDED THAT such open market value is no less than [£2.7m]

6. Finally Clause 5 stated:

"If a Chargeable Event shall occur in relation to the Property or any part of it and there shall already have been made a Further Payment in respect of a previous Chargeable Event relating to the Property or any part of it or the same part (as the case may be) then the current prospective Further Payment shall be reduced by the amount of any previous Further Payment(s) or so much of it or them as shall be attributable to the relevant part PROVIDED THAT where a Further Payment has been made on a Disposition of the Property or part thereof with the benefit of a Planning Permission no Further Payment shall be due on the implementation of such permission but for the avoidance of doubt a Further Payment shall be due in respect of any additional or substituted Planning Permission (subject to reduction as hereinbefore provided)."

7. The award identified the dispute as concerning the meaning of "Exempt Disposition". It boiled down in reality to whether there would be an Exempt Disposition (to which the Chargeable Event provisions did not apply) in circumstances in which a Planning Permission is granted for residential or commercial units but no work has been done in actually erecting the units. In effect, Reliant argued that the definition of "Exempt Disposition" set out in Clause 2.4 ("…Disposition of part of the Property to be used for one of the following purposes: 2.4.1 a residential unit or units or commercial unit or units") was satisfied if it could be proved on a balance of probabilities that the part of the Property in question was "intended to be used" as a residential or commercial unit. BRB argued that the overall meaning was that there had to be some construction work started which showed that it was a residential or commercial unit.
8. The arbitrator unexceptionably set out at Paragraph 12 Reliant's submissions, largely repeated to the Court and at Paragraph 13 BRB's Submissions, also repeated. There was an unexceptionable summary of the law relating to the interpretation of contracts, which was amplified somewhat in Court. Ultimately he decided in favour of BRB at Paragraph 54:

"My determination is that a Disposition of a part of the Property to be used for any of the purposes specified in paragraph 2.4.1 of the Third Schedule to the Transfer will not qualify as an Exempt Disposition regardless of whether anything has been built upon it. A Disposition of a part of the Property will qualify as an Exempt Disposition pursuant to paragraph 2.4.1 of the Third Schedule to the Transfer

54.1 when and only when a residential unit or units recognisable physically as such has been constructed on the part of the Property the subject of the Disposition

Or

54.2 when and only when a commercial unit or units recognisable physically as such (even if capable of being put to another use) has been constructed on the part of the Property the subject of the Disposition

and in either case

54.3 if the part of the Property the subject of the Disposition is to be used as a residential unit or commercial unit or units as the case may be."

This was effectively repeated in the determinative part of the Award at Paragraph 55.

9. At first sight and a first read through of the award and the Transfer, this appears a surprising finding primarily because it adds many words to the relatively innocuous wording in Clause 2.4.1 (" "Exempt Disposition" means a Disposition of part of the Property to be used for one of the following purposes: 2.4.1 a residential unit or units or commercial unit or units…"). That might well explain why Mr Justice Ramsey in giving directions which led to this hearing may have thought that there was, so to speak, a case to answer.
10. When the Court calls for a hearing as to whether there should be leave to appeal against an arbitrator's award, the Court must still go through the requisite steps called for by Section 69(3) of the Arbitration Act 1996 before it decides whether leave to appeal is to be granted and, if so, whether to allow the appeal, albeit that if it grants leave on the basis that the award is obviously wrong the appeal will effectively be allowed.
11. I am first satisfied that there is no question of general public importance here. Although overage or clawback provisions are relatively common in agreements for the sale of land, the terms used here are very much of the "one-off" type and certainly not in any standard or usual form. It is argued that the application of "business common sense" in the face of clear wording as an aid to contractual interpretation raises an issue of public importance; I do not see however that the arbitrator has done any more than consider the overall wording in the context of what the parties seem from the wording to have been trying to achieve. I do not see therefore that Section 69(3)(c)(ii) is engaged.
12. I have also formed the clear view after reviewing in detail the arguments of the parties before the Court that the arbitrator was not only not obviously wrong but also was right. I was comforted in this view by the fact that, after almost three hours of excellent oral argument, I was undecided, albeit that I have now fully considered the matter. My reasons are as follows:

(a) From the wording in Clause 2.4 itself, the parties clearly envisaged the real possibility that a Planning Permission for residential or commercial uses would be obtained. The reality, which must have been obvious to the parties pre-contract, was that such a Planning Permission would or at least could significantly enhance the value of the land.

(b) The contract clearly provides for two alternative Chargeable Events, either disposing of all or part of the Property with the benefit of a new Planning Permission or the implementation by Reliant or persons deriving title through or under Reliant of a new Planning Permission. Reliant pays either way if there is an enhancement in the value. One needs to remember that these Chargeable Events apply during the Relevant Period which runs until 2088.

(c) In the first case, no new Planning Permission will have been implemented and therefore, if the Permission was for residential or commercial uses, nothing will have been built In the second case, the Permission will have been implemented and something will be built and, if the Permission is for residential or commercial uses, it will not be long before there will be recognisable units on the site. For either case, Clause 4 operates to assess on what net enhancement the Transferor's Percentage applies.

(d) One then needs to consider the relief available to Reliant by Clause 5 which in simple terms means that Reliant secures a credit on any further Chargeable Event in relation to the Property in respect of a previous payment under Clauses 3 and 4. The proviso to Clause 5 means that Reliant does not pay again any Further Payment when the Property or part thereof has been disposed of with the benefit of a new Planning Permission (the first case Chargeable Event) and later that permission is implemented.

(e) So far, this is clear and not obviously unfair or absurd. One then needs to turn to considering the wording of the Exempt Disposition definition. The whole sub-clause has in mind mostly, albeit not exclusively, residential or commercial developments: Clause 2.4.1 specifically refers to this and Clause 2.4.5 envisages a management or residents company being set up to facilitate these types of use. The purposes set out in Clauses 2.4.2 to 2.4.4 could apply to other uses but most obviously support a residential or commercial use; for instance a public open space is not uncommonly required for a residential development.

(f) Whilst the wording is not perfect, it is not possible or necessary to read the words "to be used" in the opening words as "intended to be used". The phrase "to be used" means what it says and effectively means that a part of the property is going to be used for one of the purposes set out. That can be established, in case of dispute, as a matter of evidence.

(g) If what was intended was that all dispositions for parts of the Property which had the benefit of a residential or commercial Planning Permission would be exempt, it would have been wholly unnecessary to use the expression in Clause 2.4.1 "a residential unit or units or commercial unit or units": all that would be needed would be "residential or commercial use". The parties used an expression which refers to "units" and one needs to try to give some sort of sensible meaning to this word. It most obviously means that there must be something which equates to a "unit" or "units" which translates into something which is recognisable as a residential or commercial unit. That is clearly what the arbitrator's thought process involved.

(h) One then needs to consider whether this is obviously wrong or contrary to what any sensible business people would agree. One can take the two examples involving a Planning Permission for 100 dwellings on the site and a sale of one dwelling or the whole site. If Reliant sells the site as a whole with such Permission, it pays 50% of the enhanced value as per Clause 4.1 but it and its purchaser does not pay when the Permission is implemented later (as per the proviso to Clause 5). If Reliant implements the Permission itself and then sells the whole to one purchaser, it pays 50% of the enhanced value as per Clause 4.2. Then when the purchaser sells or grants long leases of the dwellings there is no Further Payment because they will be Exempt Dispositions as the dwellings will be complete. If Reliant sells one plot on the Property without implementing the Permission, it pays as per Clause 4.1. If Reliant itself implements the Permission, it pays as per Clause 4.2 but pays nothing when it sells the plot as there will be a recognisable "residential unit". Neither of these seems obviously unrealistic or beyond what sensible business people might have had in mind.

(h) The references to Exempt Disposition in Clause 2.6 are then even more explicable if one has regard to the fact that these Chargeable Events can occur over an 80 year period. Yet further Planning Permissions could be obtained and Dispositions could include parts of the site which had already been developed as residential or commercial units. The Exemptions could and would apply over this term.

13. Although the award appears to add numerous words to the words used in Clause 2.4.1, that is explicable by the need to explain what the words in practice mean. Although some tribunals would not have included in a declaration the words which this arbitrator effectively did, there would be nothing wrong for the judgement or award to go into that level of detail to explain what the exemption applied to in practice.
14. I conclude that it is certainly the case that the arbitrator was not obviously wrong and indeed he was in substance right. Leave to appeal is therefore refused.
15. So far as costs are concerned, I invited the parties to let me have written submissions. The Defendant's summary assessment bill of £13,185.60. This is challenged on a number of grounds. This is a case in which standard costs are due and the successful party, the Defendant, should have its reasonable costs on the basis of what it is reasonable for the Claimant to pay. I have formed the view that the allowable amount should be £11,000. This takes into account that it is not reasonable for the Claimant to have to bear more than 4 hours' worth of time for attendances on Counsel and on opponents (rather than the 8 hours claimed) and a total allowance of no more than £6,200 plus VAT is reasonable for Counsels' fees overall. The remainder of the bill is reasonable. I have rounded the resulting figure to £11,000 which should be paid by 24 June 2011.