Case No: A80LS826

IN THE LEEDS COUNTY COURT

 

The Court House

Oxford Row

Leeds LS1 3BG

 

Date: 28 January 2015

 

Before :

 

His Honour Judge Behrens

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Between :

 

 

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Jonathan Cohen (instructed by Metis Law) for the Claimant

Paul Brook (instructed by Simpson Millar) for the First Defendant

 

Hearing dates: 16 December 2014

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Judgment

Judge Behrens :

 

1      Introduction

1.       This is a further hearing in the dispute between Gateway Plaza Ltd (“Gateway”) and Mr White in relation to the purchase of a development plot of land (plot 159) in Barnsley in 2005 and the settlement agreement reached between the parties in February 2012 under which Mr White was to have the opportunity up to 28^th March 2012 to exchange contracts on a substitute plot (plot 2) of land at a price of £92,000. No such exchange took place.

2.       On 3 July 2013 Mr Recorder Philips decided two preliminary issues in favour of Mr White. He decided that the settlement agreement was binding between the parties and that Gateway was in breach of an implied term of the settlement agreement, namely to collaborate not merely in the process of the eventual exchange, if it was to happen, but also in the normal pre-contract conveyancing procedures, supplying Mr White’s solicitors with the appropriate and necessary documents, and answering such reasonable enquiries as they might address on the basis of the information supplied. In particular he held that the failure to supply a Council of Mortgage Lenders (“CML”) Form by Gateway or its solicitor despite repeated requests was a breach of contract.

3.       On 8^th May 2014 the Court of Appeal (Sir Timothy Lloyd, Vos LJ and Rimer LJ) unanimously dismissed Gateway’s appeal. At the end of his judgment Sir Timothy Lloyd said:

What the consequences of this conclusion are as between the parties may not be straightforward, if they cannot be agreed, but that was not a question which the recorder was required to resolve, and equally it is not before us.  As directed by the recorder the proceedings will continue in the county court.  I suggest, but I do not direct, that once the appropriate procedural directions have been given, consideration be given to the possibility of having any further substantive hearing listed before one of the specialist Chancery or Mercantile Circuit judges based in Leeds.

4.       On 23 September 2014 DJ Babington directed that a remedies hearing be heard before a Chancery Judge and made a number of uncontroversial procedural directions. The remedies hearing took place on 16^th December 2014 following which I reserved judgment.

5.       Before dealing with the submissions it is right that I should acknowledge with gratitude the considerable assistance I have received from Counsel both in their helpful skeleton arguments and in their succinct oral submissions.

2      The facts

6.       The facts are largely uncontroversial and can be taken practically verbatim from the judgment of Sir Timothy Lloyd.

7.       On 29 July 2005 Mr White agreed to buy plot 159 in a development in Barnsley from Gateway at a price of £168,000.  He acted jointly with a Mr Ian Peace, with whom he was, at that time, in business.  The plot formed part of a development which Gateway was undertaking.  The property to be bought was not finished until 2010.  The contract was not performed by Mr White or Mr Peace, and Gateway forfeited the deposit of about £17,000, and then sued Mr White and Mr Peace for damages.  For reasons which it is not necessary to describe, Mr White was unaware of the proceedings until early in 2012.  He and Mr Peace had fallen out in 2008.

8.       Mr White acted promptly once he got to know of the proceedings, and discussions followed between him and Gateway, which led to an agreement by which Mr White would purchase a different flat in the development, and the £17,000 which had already been paid would be credited against the purchase price of £92,000.  This agreement was finalised in an email dated 16 February 2012 from Gateway’s solicitors, Metis Law (Natalie Milnes), to Mr White’s solicitors, Simpson Millar (Alex Dunne), to which agreement was given on 17 February. 

9.       Before the settlement agreement was reached, it was made clear by Mr White to Gateway that he would be seeking mortgage finance in order to complete the new purchase.  At a meeting on 23 January 2012, between Mr White and Mr Stephens, of Gateway, the latter suggested that Mr White should use a particular mortgage broker.  On 1 February Mr White’s solicitors told those acting for Gateway that he had contacted the recommended broker and had started on the process of applying for mortgage finance.  On behalf of Gateway Mr Cohen accepted in argument that it was known to both sides at the time of the settlement agreement that Mr White would be seeking mortgage finance for the purchase.

10.     The agreement was that the proceedings be stayed for 6 weeks, to enable Mr White “to proceed with the alternative purchase set out herein”.  In consideration of that stay, under paragraph 1, Mr White was required to pay Gateway’s solicitors £15,000 by two instalments, on making the agreement and on or before 28 February 2012, which sums were to be held to Mr White’s order.  This reflected the fact that Gateway had obtained an order requiring Mr White to pay £15,000 as an interim payment on account of the damages claimed.

11.     Paragraphs 2 to 4 are central to the case:

2.      “On or before 28 March 2012 [Mr White] shall exchange contracts with [Gateway] for the purchase of Plot 2, Gateway Plaza on the same terms as previously agreed, save for the substitution of the new property details set out in this paragraph, at a purchase price of £92,000 … less an allowance of £17,000 … on account of deposit and reservation fee previously paid but subsequently forfeited.”

3.      In the event that [Mr White] complies with paragraph 2 above:

(i)     [Gateway] and [Mr White] shall each consent to an order providing that that [Gateway’s] claim against [Mr White] shall be discontinued and that [Mr White] shall pay 50% of the [Gateway’s] costs to the date of discontinuance, to be assessed if not agreed

(ii)   [Mr White] shall direct that [Gateway’s] solicitors shall apply the funds held to his order as against the sale contract exchanged under paragraph 2 (above)

4.      In the event that [Mr White] fails to comply with paragraph 2 (above) the proceedings shall continue and [Mr White] shall direct that [Gateway’s] solicitors shall apply the funds held to his order against any sums due to [Gateway] arising out of the proceedings.

12.     Gateway used different solicitors for conveyancing, Gordons, and for litigation, Metis.  As soon as the settlement agreement had been reached Simpson Millar asked Metis to ask Gateway to instruct Gordons as soon as possible, so that they could get contract papers out without delay.  Not until 12 March did Gordons send to Simpson Millar a draft contract and other related documents.  Their letter and the enclosed documents proceeded on an incorrect basis, namely that the purchase would be by Mr White and Mr Peace together.  In that respect the draft contract, the engrossment of the lease and a form, referred to as the CML form, sent with the letter were all incorrect.  The letter enclosed all of those documents and some others.  It anticipated that there would be further enquiries on the part of the buyer. 

13.     On 20 March Simpson Millar replied.  They sought to make amendments to the contract over and above correcting the name of the purchaser.  They also asked for the lease to be corrected and for the CML form to be provided giving the correct name of the buyer.  Gordons replied on 2 April, refusing to amend the contract in any substantive respect, but saying that both it and the lease could be amended in manuscript to delete the name of Mr Peace.  They said that they had requested the CML form from their client.

14.     Simpson Millar chased Gordons for the CML form later on 10 April, 18 April, 30 April and 2 May.  The only answer given by Gordons was that they had requested it from their client and it had not been provided. 

15.     Mr Peace played no part in the negotiation for the settlement agreement, but he did agree to the consent order by which, pursuant to that agreement, the proceedings were stayed for 6 weeks.  Apart from that stay, the settlement agreement only affected the position as between Gateway and Mr White.  Gateway would retain whatever rights it had against Mr Peace in any event.  In March 2012, however, Mr Peace died suddenly.  It is not clear how soon that became known to Mr White or to Gateway, but Gateway was aware of it by 4 May.  On that date a letter from Gordons to Simpson Millar stated that Gateway was reviewing its position as a result of Mr Peace’s death.  The Second Defendant in these proceedings, who has taken no part in the proceedings before me, is Mr Peace’s personal representative.  Eventually later in May Gateway took the position that it was not willing to proceed with the sale to Mr White, and there has therefore never been an exchange of contracts as envisaged by the settlement agreement.

16.     As noted above, Mr Recorder Philips and the Court of Appeal both held that Gateway was in breach of the implied term of the settlement agreement that Gateway would supply the CML Form. Furthermore they also held that

The CML form is a modern form but it is one which is, in practical terms, essential for a purchase transaction, except in the case of people who buy a property without a mortgage, who are necessarily comparatively rare.”  [see paragraph 21 of Mr Recorder Philips’s judgment and paragraph 38 of the judgment of Sir Timothy Lloyd]

17.     In the hearing before me Mr Cohen conceded that if Gateway had supplied the CML Form Mr White would have exchanged contracts for the sale of Plot 2 within the time specified in paragraph 2 of the settlement agreement. In my view he was right to make that concession. As Vos LJ pointed out in paragraph 55 of the judgment:

.  Gateway sat on its hands, and produced (late in the day) inadequate drafts and an inaccurately completed CML form.  Mr White’s solicitors repeatedly chased Gateway’s solicitors without success.  There was nothing more Mr White could do.

3      The effect of the breach.

18.     There is a difference between the parties as to the effect of Gateway’s breach of contract. Mr Cohen submits that Gateway’s breach does not prevent Gateway from pursuing its claim for damages in respect of the original sale of Plot 159. Mr Brook submits that it does. Mr Cohen puts his argument in two ways.

19.     First, he submits that as a matter of construction of the settlement agreement Gateway’s claim for damages in respect of Plot 159 is not excluded. He points out that nothing in the settlement agreement provides that it has been so compromised. He draws my attention to paragraph 3 which provides for discontinuance if Mr White complies with paragraph 2. He points out that Mr White did not comply with paragraph 2.  He points out that paragraph 4 expressly provides for the proceedings to continue in the event that Mr White fails to comply with paragraph 2. He submits that that is what has happened here.

20.     Second, he submits that another way of putting these points is in the language of accord and satisfaction. He submits that there was no accord in the sense that there was no agreement to discontinue the claim against Mr White in respect of the plot 159 agreement and that there was no satisfaction in the sense Mr White did not perform his obligation under the agreement by exchanging contracts on plot 2. He referred me to a passage from the judgment of Greer LJ in British Russian Gazette and Trade Outlook Limited v Associated Newspapers Limited [1933] 2 KB 616 at 644.

It will be seen that we have not been referred to any case in which it was necessary to decide that an action will not lie on an agreement which is a mere accord, and has not been performed. On the question whether such an agreement can be a binding contract opinions of judges have varied. I therefore feel that we are now entitled to decide the question on principle, and I think at the present stage of the development of the law we ought to decide that an agreement for good consideration, whether it be an agreement to settle an existing claim or any other kind of agreement, is enforceable at law by action if it be an agreement for valuable consideration, and such valuable consideration may consist of the promise of the other party. The old decisions that an accord without satisfaction is no answer to an action on the original cause of action or tort until it has been performed seem to me to be decisions on a question of interpretation. Unless it appears to be intended that the contract itself is to extinguish the liability, this liability can only be extinguished by performance, and if the plaintiff refuses performance of the executor agreement the only remedy the defendant has is to sue him for damages. In the old days this would have had to be done by cross action, but now it may be by counterclaim

21.     Forcefully as these arguments were put I do not accept them. To my mind there are two answers to Mr Cohen’s submissions both of which lead to the same result.

22.     I accept that there is no express term of the settlement agreement to the effect that the claim for damages in respect of plot 159 will be discontinued if Mr White is prevented from exchanging contracts for plot 2 as a result of Gateway’s breach of contract. However, in my view and in accordance with Mr Brook’s submission such a term is to be implied under paragraph 3 of the settlement agreement.

23.     The law relating to implied terms is set out in paragraphs 29 – 31 of the judgment of Sir Timothy Lloyd and it is unnecessary for me to repeat the citations from his judgment save to note:

the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant.  In doing so the court must have regard to all the relevant surrounding circumstances.

24.     In paragraph 37 of his judgment Sir Timothy Lloyd set out some of the factors which would be included in the background knowledge. In addition as is clear from the settlement agreement itself it would include the fact that Gateway was willing to forego its claim to damages in respect of plot 159 if Mr White entered into a contract for plot 2. In my view a reasonable person would have understood the parties to have meant that Gateway would also forego its claim to damages if Mr White was prevented from exchanging contracts as a result of Gateway’s breach. To my mind paragraphs 3 and 4 of the settlement agreement are ambiguous in that they do not deal with a situation where failure to exchange contracts on plot 2 before 28^th March 2012 is caused by Gateway’s breach of contract. The construction set out above is, in my view, in accordance with business common sense.

25.     To use a more old fashioned test I think that if an officious bystander were asked if Gateway could pursue a claim for damages in respect of plot 159 if it had wrongfully prevented Mr White from exchanging contracts on plot 2 he (or she) would answer “Of course not”, or “it goes without saying”.  I am conscious that in paragraph 25 of Lord Hoffman’s speech in A-G of Belize v Belize Telecom [2009] UKPC 10, [2009] 1 WLR 1988 he commented on the “officious bystander” test and in paragraph 27 he explained that the old fashioned tests were to be regarded:

not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so.

26.     In my view the officious bystander test does assist me in determining what the settlement agreement actually means.

27.     In my view this analysis is not affected by consideration of the authorities on “Accord and Satisfaction”. Rather it is a question of construction of the settlement agreement.

28.     The second answer to Mr Cohen’s submission lies in considering the measure of damages to which Mr White is entitled as a result of Gateway’s breach of contract. Mr White is entitled to as a result of Gateway’s breach of contract.

29.     Subject to questions of remoteness and mitigation the normal rule for the assessment of damages for breach of contract is that the Claimant is, as far as money can do it to be placed in the same position as if the contract had been performed. [See Chitty on Contracts 31^st Ed Vol 1 paragraph 26-001 and the cases cited at footnote 5 including the well known case of Robinson v Harman (1848) 1 Ex 850, 855]

30.     If the settlement agreement had been performed by Gateway it is conceded that Mr White would have exchanged contracts for plot 2 before 28^th March 2012. In that event the matter would have been governed by paragraph 3 and the parties would have consented to Gateway’s claim (for damages for breach of the contract relating to plot 159) being discontinued with Mr White paying 50% of Gateway’s costs to the date of discontinuance.

31.     It follows, in my view, that the only way to put Mr White in that position is (i) to prevent Gateway from continuing its claim in respect of plot 159 but to set off against sums otherwise due to Mr White a sum equivalent to 50% of Gateway’s costs to the assumed date of discontinuance or (ii) to award Mr White by way of his Counterclaim the sum necessary to put him in the same position as if Gateway’s claim had been discontinued in accordance with paragraph 3. That sum would include any sum awarded to Gateway either by way of damages, interest or costs and any costs properly incurred by Mr White. Credit would of course have to be given for the 50% f Gateway’s costs. In such circumstances it would be quite pointless to permit Gateway’s claim to proceed.

32.     For both of these reasons I am satisfied that Gateway should not be permitted to pursue its claim for damages for Mr White’s alleged breach of the contract in respect of plot 159.

4      Measure of Damages for Gateway’s breach of contract

33.     Pursuant to the order of DJ Babbington Mr White has prepared a Scott Schedule setting out the damages claimed. There are 6 heads of claim which are summarised in the following table:

Net loss of profit on purchase of plot 2 being the projected income over an 18 year period less the expenses	£27,767.78
Money Paid by Mr White under the compromise agreement and held on account by Gateway’s solicitors	£15,000.00
Deposit paid on purchase of plot 159 being reservation fee and contractual deposit	£16,800.00
Abortive Conveyancing Fees/Expenses	£555.13
Fee paid to Mr White’s Mortgage Broker	£495.00
Fee paid by Mr White on making the mortgage application	£395.00

34.     It is possible to deal with four of these items relatively quickly.

35.     As I noted in paragraph 29 above the normal measure of damages is to place Mr White in the same position as if the contract had been performed. If the contract had been performed Mr White would have incurred the conveyancing costs, the fees paid to the broker and the fee paid on making the mortgage application. Thus they are not recoverable as damages for breach of contract. They were part of his necessary expenses of acquiring plot 2.

36.     There are formidable difficulties with the loss of profit claim. Factually the claim is based on a large number of assumption which will be difficult (if not impossible) to establish. In addition there are substantial legal hurdles to surmount. Damages are normally assessed as at the date of the breach with interest being awarded on the damages to compensate for the delay in receiving the damages. It is not clear why this case is said to be an exception to the normal rule and why damages should be assessed as at the date of the trial. Even if this case is such an exception there would plainly need to be a discount for the fact that the claim is for a period 15½ years into the future. There are plainly issues relating to remoteness of damage. It is not suggested that this is a case falling within the second limb of Hadley v Baxendale. Faced with these difficulties (and possibly others that had been discussed between Counsel) Mr Brook very sensibly decided not to pursue the loss of profit claim and was content for damages to be assessed on a normal basis.

37.     If the contract had been performed Mr White would have acquired plot 2. Although the purchase price was £92,000 Mr White would not have had to pay £92,000. The price he would have had to pay would have been reduced by the deposit and reservation fee (£16,800) and the sum held by Gateway’s solicitor (£15,000) in accordance with paragraphs 2 and 3(ii) of the settlement agreement. Thus the sum that Mr White would have had to have paid was £60,200.00. In addition Mr White would have had to pay 50% of Gateway’s assessed costs to the date of discontinuance.

38.     It is tempting to assess damages as the difference between the purchase price and the sums payable by Mr White. However during the course of the hearing before me Mr Cohen suggested that the 2012 value of plot 2 was less than the purchase price and that the market value of plot 2 should be used rather than the purchase price.

39.     As a matter of law Mr Cohen is correct. Mr White’s measure of damages is the difference between the market value of plot 2 as at March 2012 and the price that Mr White would have had to pay to acquire it. He is entitled to interest on that sum from March 2012 to the date of judgment.

40.     There is no valuation evidence before the Court and neither side is in a position to make submissions as to plot 2’s value. The question of valuation evidence was not addressed by D J Babbington in his order of 23 October 2014.

41.     Mr Brook made the point that there must have been a mortgage valuation at or around £92,000 for Mr White to have received the mortgage offer. Equally there must be a number of documents on Gateway’s files dealing with the method of fixing the price of plot 2 and relating to other plots within the development. All these are relevant to the issue of the value of plot 2 in March 2012.

42.     I am conscious that this is a modest claim which has already had 2 hearings in the County Court and one in the Court of Appeal. I am equally conscious that neither party has approached the matter in the way that appears in this judgment. In those circumstances I have come to the conclusion that it would not be right to yield to the temptation referred to above and to assess damages by reference to the purchase price. It follows that, absence an amicable solution or a successful ADR there will have to be a further hearing to determine the value of plot 2 and the value of the costs that Mr White would have been liable to pay. When judgment is handed down I will give the necessary directions.

43.     There are two final points. Mr Cohen suggested (albeit without evidence) that the market value of plot 2 in March 2012 was so low (i.e. less than £60,000) that the moneys payable by Mr White would have exceeded its value. In that event he suggested that there would be some claim by Gateway which was based on his claim for breach of contract in respect of plot 159. It follows from my conclusion in section 3 that I do not accept that submission.

44.     If it turns out that the value of plot 2 is substantially less than the purchase price of £92,000 it may still be open to Mr White to invite the Court to assess damages on the alternative basis of wasted expenditure. I have heard no detailed argument on the claim based on wasted expenditure and I am aware that the law is by no means straightforward. Thus it is by no means clear to me that this is the sort of case where a claim can be based on wasted expenditure. Furthermore it is not clear what items of wasted expenditure qualify for recovery. There may, for instance be a difference between the £16,800 which was forfeited under the agreement for plot 159 and the £15,000 which is held by Gateway’s solicitor pursuant to the settlement agreement. I am simply making the point that if the parties cannot resolve this claim amicably I have not ruled on the claim based on wasted expenditure. Nothing in this paragraph is intended to suggest a view either way on such a claim.