QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL
B e f o r e :
Sitting as a Deputy High Court Judge
| REDBOURN GROUP LIMITED
|- and -
|FAIRGATE DEVELOPMENTS LIMITED
Mr Andrew Miller QC and Mr Austin Mahler (instructed by Debenhams Ottaway) for the Defendant
Hearing dates: 5, 6, 7, 8 March 2018
Crown Copyright ©
ANDREW BARTLETT QC:
. . . . I consider that FDL has no realistic prospect of defending this claim in principle or making any counterclaim on its own behalf. The most I am prepared to do is to accept that there may be arguments about quantum, both in relation to RGL's fee claim, and their claim for damages for wrongful repudiation. Those can be dealt with at a quantum hearing. . . . .
Whilst Fairgate House is the main property within the development site, to implement the scheme in full will require the purchase of additional property and leasehold interest, namely:-
1. The freehold purchase of 402-406 Wembley High Road.
2. The purchase of three leases within the above property.
3. To negotiate a new 150 year lease with Network Rail on the rear car park land, currently held under a lease by FDL for a term unexpired of approximately 67 years.
At the time of writing, 1 above has been completed and progress is now being made on items 2 and 3.
4.1 The fee set out in Schedule 4 plus applicable VAT will become due to RGL as set out in Schedule 4.
Stages 3/4 Development Management and Design for Tender and Build
This is a fixed fee element of £400,000 payable in two tranches as:
A fixed fee of £200,000 to be paid monthly over the planning and initial design for tender period. The approximate time line for this is anticipated to be August 2014-April 2016.
A fee of £200,000 payable upon the granting of full planning consent, the planning application having first been approved by FDL.
Stage 5 Project Management Fee
A fee equal to 2% of the estimated build cost for the project.
The build cost to be determined at the point the build contract is awarded following a full tender process. . . .
Additional performance fee
If the construction of the development completes on time and on budget (as those dates and amounts are set out in the awarded build contract) then RGL to receive a fixed fee of £250,000 on settlement of the final account with the design & build contractor.
At the sole discretion of FDL, an additional performance fee may be paid to RGL on completion of the project.
7.1 If a . . . liquidator . . . is appointed over any part of RGL's or FDL's assets and undertaking, or if RGL or FDL fails to remedy a material breach of the terms of this agreement within 14 days of the other party's notice specifying the breach, the other party may terminate RGL's appointment by giving notice in writing.
7.2 Any termination of RGL's appointment, howsoever arising, will be without prejudice to the rights and remedies of either party in relation to any omission or default of the other prior to such termination.
RGL'S CLAIM AND FDL'S RESPONSE
The Claimant would have had no contractual right under the Appointment to any further fees in the event that the Defendant had decided not to proceed to planning, as it would have. Nor would the Defendant have owed the Claimant any obligation with respect to how it made that decision, or as to the matters which it deemed relevant. Under the terms of the Appointment, the question of whether the Defendant wished to proceed would have been in the Defendant's sole discretion, and was at the Claimant's risk.
1. Has FDL's breach of contract caused RGL to sustain loss for which it is entitled to be compensated pursuant to the Remuneration clauses within Schedule 4, Stages, 3/4, 5 and Additional Performance Fee?
2. If FDL's breach has caused RGL to lose a chance to which it was entitled what is the value of RGL's lost chance:
2.1. to earn a fee of £200,000 payable upon the granting of full planning consent, the planning application having first been approved by FDL (Stage 3/4)?
2.2. to earn a fee equal to 2% of the estimated build cost for the project, the build costs to (have been) determined at the point the build contract (would have been) awarded. (Stage 5)?
2.3. to earn an Additional Performance Fee of £250,000 if the construction of the development (were to have been) complete(d) on time and on budget. (Additional Performance Fee)?
3. The effect of issues of mitigation, loss of profit and saved expenses on any award of loss of a chance damages for breach of contract.
Jonathan Best of Montagu Evans. Mr Best was involved in giving advice on planning matters from an early stage, initially at his previous firm and subsequently at Montagu Evans.
Mark Whitfield of Montagu Evans. Mr Whitfield dealt with negotiations with Network Rail after RGL's departure.
John Hall of Hamilton Partners Real Estate Finance LLP. Mr Hall became involved in late 2015 and more actively from late February 2016, when RGL and FDL parted company. He acted as a point of contact between FDL and its other consultants.
Christopher Waite of Lifschutz Davidson Sandilands ("LDS"). Mr Waite was the associate architect responsible for the project at LDS, under the supervision of Mr Alex Lifschutz.
Simon Long, general manager of Fairgate Group Ltd, the Defendant's parent company. Mr Long only commenced his employment in September 2017.
i) Brent Council had produced the Wembley Link Supplemental Planning Document, which was a design brief for the redevelopment of properties along Wembley High Road, of which Fairgate House was one.
ii) The proposed scheme was for retail at ground floor, a basement car park, and approximately 150 residential apartments in 8-12 storeys.
iii) FDL should prioritise the assembly of the necessary land. This would involve purchasing Pitman House and obtaining vacant possession of it, and negotiating with Network Rail for a new 150 year lease, or a freehold, of the car park area at the rear. Network Rail had informally indicated a willingness to grant such a new lease.
iv) Some of the Council's planning requirements, such as the inclusion of an element of commercial office space, the provision of a rear service road, the proportion of affordable housing, and the community infrastructure levy, should be resisted or reduced. To provide negotiating leverage on these points with the planners at the Council a less attractive alternative scheme involving refurbishment of Fairgate House would be prepared.
i) On 4 June 2014 Mr McGovern wrote: "Our Problem has been NWR!! Despite trying for over a year to secure a new long lease of 150 years, NWR have not come forward to offer this. . . . We strongly suspect the reason NWR have not come back is they are carrying out a strategic exercise of all the rear land along this stretch of WHR . . . to try to promote some major new initutive [initiative] unlocking the NWR land to the rear of these properties and creating greater value for NWR. This concerns me greatly . . . we have no wish to be part of some larger scheme . . . I am mindful that the Wembley Link Supplemental Planning Document . . . would be desirous in seeing a more major comprehensive solution as NWR might promote, but we will have to argue it is not deliverable, and our fallback would be the threat of the less exciting conversion of Fairgate House, if the Council cannot support our redevelopment proposals."
ii) In due course Mr McGovern's fears were realised. On 6 August 2015, nearly six months after the formal contract of appointment had been signed, Network Rail advised him that it was carrying out a strategic review of its land holdings along the railway line. Mr McGovern protested vigorously, but to no avail. In October 2015 he met with Peter Roberts of Rapleys, who by then was representing Network Rail, and stressed to him FDL's huge frustration at the lack of progress. On 20 November 2015 he complained to Mr Roberts: "we have now been in discussion with NWR for over 18 months on this matter and achieved nothing."
iii) Negotiations continued by way of a proposal from NWR (20 November 2015), a counter-proposal from RGL on behalf of Fairgate (30 November 2015), and a rejection from NWR (8 December 2015). Mr McGovern had to persuade FDL to be willing to grant an overage. This was put to NWR on 19 January 2016, and was met with a counter-offer on 29 January 2016. NWR's counter-offer stated, among other things, that it was fundamental that there be a 50:50 split of the marriage value of Fairgate's land with NWR's land.
i) Because previous discussions with Fairgate had not progressed, NWR had signed a letter of intent with Hub (developer of a nearby site) indicating a willingness to work with them to also promote land in NWR's ownership, including the car park and additional land behind the car park.
ii) The previous discussions had "floundered" due to the unrealistically low level of marriage value share (20%) that had been previously offered.
iii) NWR was still interested in a transaction with Fairgate, which could involve selling the car park land to Fairgate (based on an agreed percentage of the value of the site plus overage), or a joint sale once planning permission was granted.
NR have decided to dispose of the entirety of their interest in the land from the rear of Chesterfield House through to the Wembley Triangle to HUB. The primary reason for this is that this will enable a comprehensive development to be promoted that does not leave NR with surplus land. However, this approach also releases a higher return to NR that [than] would be achievable in breaking up their land and disposing of it in separate parcels. . . . this decision has been made having regard to the entirety of their land not just the land behind Fairgate House.
[5 September] We have had extensive discussions with Fairgate, but they did not make the most attractive proposal by some distance and we have therefore decided to go with the other interest. This other proposal gives us a more comprehensive solution, better value and more housing and so was preferred.
[6 September] . . . the first agent was Bartley McGovern and then following the failure to reach agreement, Mark Whitfield and Jonathan Best of Montagu Evans were subsequently appointed. Our targets are to maximise the value of our land to support railway operations and delivery of the maximum housing number we can. The other proposal better delivered on both objectives.
The main issue with this scheme is its construction cost of £75m (plus contingency) for 186 apartments . . . (including all residential space and the shops at ground and mezzanine level). The QS has confirmed previous advice that this is partly due to the density of construction on such a small site, the large amount of basement required for parking/bikes and servicing and the narrow depth/cost of the front building. There are ways of modifying the costs by reducing the number of structural piles under the towers or optimising the basement layout and so on, however these will have a relatively modest rather than a large effect.
. . . .
Our recommendation is that you immediately appoint a valuation agent to develop a viability appraisal for the existing scheme and for the modified schemes . . . to help you decide how to proceed
i) At the time when RGL was still involved, Network Rail was already in touch with Hub and was already considering more widely how its own interests and objectives would best be served.
ii) There was a hiatus in the negotiations between Network Rail and Fairgate from 29 January 2016 to 3 November 2016. This was partly due to Fairgate's dismissal of RGL and partly due to RGL not forwarding to Fairgate Network Rail's 29 January counter-offer.
iii) The evidence does not show that, if this hiatus had not occurred, and if RGL had remained in post, the outcome would have been any different. Whilst RGL would have worked with vigour, passion and commitment, it is very unlikely that this would or could have altered where Network Rail's best interests lay. Network Rail, properly advised as it was, would have reached the same conclusions regarding how best to advance its own interests and objectives. And there is nothing to show that Fairgate would ever have been willing to pay a sufficiently large sum to Network Rail to alter the outcome; nor does the evidence establish that it would have made commercial sense for Fairgate to do so.
iv) Although unknown to both parties in the period ending with RGL's wrongful dismissal, the development envisaged in RGL's appointment was not a realistic prospect. In evidence Mr McGovern expressed his strong conviction that development of the site was inevitable. If this was intended to refer to a development as envisaged in the agreement between RGL and Fairgate, I do not accept that part of Mr McGovern's evidence. He accepted that he was not a specialist in residential development. Because of the constraints arising from Network Rail's wider interests, the confined nature of the site, and the planning requirements, any viable development probably either had to be on a larger plot, encompassing some of the Network Rail additional land, with Network Rail's agreement (which realistically was not going to become available) or had to be a much more modest development which would not involve building on the Network Rail car park.
v) Despite the encouraging signs which existed as at September 2013 and from time to time thereafter, the reality was that, because of Network Rail's wider interests and the factors identified above, the car park land was never going to be conveyed to Fairgate on a 150 year lease (or as a freehold).
vi) It is highly likely that the land owned by Fairgate will be developed in the next few years, whether by Fairgate or by someone else. Such development may be confined to Fairgate's own land, or may be part of a much larger scheme which will have to be agreed with Hub or perhaps successors of Hub, or it may occur in some other way. But any such development will not be the project envisaged in RGL's appointment.
THE NATURE OF FAIRGATE'S OBLIGATIONS UNDER THE AGREEMENT
The court, in my view, has to conduct a factual inquiry as to how the contract would have been performed had it not been repudiated. Its performance is the only counter-factual assumption in the exercise. On the basis of that premise, the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted. The judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind.
a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.