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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> China Town Development Company Ltd v Liverpool City Council [2017] EWHC 3347 (Ch) (19 December 2017) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2017/3347.html Cite as: [2017] EWHC 3347 (Ch) |
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BUSINESS AND PROPERTY COURTS IN MANCHESTER
BUSINESS LIST
Strand, London, WC2A 2LL |
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B e f o r e :
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Claimant |
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- and - |
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LIVERPOOL CITY COUNCIL |
Defendant |
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David Mohyuddin QC (instructed by Brabners) for the Defendant
Hearing dates: 23 November 2017
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Crown Copyright ©
MR JUSTICE BARLING:
Introduction
Background
"Completion Date Phase 1: the date that is 12 weeks after the Unconditional Date"
"Completion Date Phase 2: the date that is the first anniversary of this agreement [viz 26 November 2016]"
"Development: means the redevelopment of the Property and the erection of a mixed use development in the manner set out in Planning Application of the Tenant…"
"Property means: land at Great George Street and St James Street in Liverpool and as more particularly defined in the Phase 1 Lease and the Phase 2 Lease…"
"Funding Condition: means funding for the Development being in place to the Landlord and Tenant's satisfaction acting reasonably"
"Possession Condition: means the securing of vacant possession of the Phase 3 Land, free of occupiers and occupational interests by the Tenant"
"Premium: means the sum of £2,500,000… payable by the Tenant to the Landlord for the Phase 1 Lease and the Phase 2 Lease and comprising for the Phase 1 Lease the sum of £500,000… and for the Phase 2 Lease the sum of £2 million…"
"Unconditional Date: means the date on which the last of the Conditions Precedent has been satisfied (or the Possession Condition waived by the Tenant) pursuant to this agreement" [NB the Phase 1 Completion Date is defined as occurring 12 weeks after this date. On the face of it, this very arguably indicates that the Phase 1 Lease cannot be granted until all the conditions precedent have been satisfied (or the Possession Condition waived).
"2.3 Completion of each Lease shall take place following the grant of Planning Consent to the Tenant as hereinafter provided and on satisfaction of the Conditions Precedent."
"3.1 The Tenant shall from the date of this agreement at its own cost use all reasonable endeavours to satisfy the Possession Condition in relation to the Phase 3 Land.
3.2 the Tenant shall keep the Landlord promptly and reasonably informed of the progress being made relating to the satisfaction of the Possession Condition.
3.3 the Landlord shall co-operate with the Tenant in relation to satisfying the Possession Condition including if necessary using its compulsory purchase powers if reasonably requested by the Tenant but for the avoidance of doubt the Tenant shall be responsible for any and all costs in relation to the satisfaction of the Possession Condition including compulsory possession indemnity costs if required.
[NB This was a reversal of the original agreement with Urban Splash, under which the Council bore responsibility for satisfying this requirement.]
3.4 Notwithstanding the provisions of this clause, the Tenant may request that the Landlord complete the Phase 1 Lease at any time after the grant of the Planning Consent provided the Tenant acknowledges the waiver of the Possession Condition, if this remains unsatisfied, and for the avoidance of doubt, the Funding Condition shall always be required to be satisfied."
"5.1 Clauses 2, 3 and 4 are conditional on the occurrence of the Unconditional Date and shall come into force on the Unconditional Date.
5.2 In consideration of the Tenant's obligations under this agreement, the Landlord will grant to the Tenant and the Tenant will accept from the Landlord Leases in respect of the Phase 1 Land and the Phase 2 Land on the terms set out in this agreement.
5.3 On completion of this agreement, a deposit of 5% of the Premium being the sum of £125,000… ("Deposit") shall be paid by the Tenant to the Landlord.
5.4 Further, the Premium shall be paid by the Tenant to the Landlord promptly and without delay at all times, and in the following manner and tranches:
(a) on the Completion Date Phase 1, the sum of £475,000… [The clause then provides that further instalments of £475,000 are to be paid by the Tenant on 17 February 2016, 25 May 2016, 31 August 2016 and 7 December 2016. The clause then continues:]
"together with interest thereon at the Base Rate for all the sums referred to at clauses 5.4 (a) to 5.4 (e)… PROVIDED that if any of the sums referred to at clauses 5.4 (a) to 5.4 (e) remain outstanding on the Completion Date Phase 2 for the Phase 2 Lease [26 November 2016] then all sums due shall be paid to the Landlord immediately prior to or on completion of the Phase 2 Lease and the Landlord shall be under no obligation to complete the Phase 2 Lease without these payments being made…"
"14.4 If any completion date is delayed due to the Tenant's default or the Tenant fails to pay any sum due under this agreement in full on completion or on the date set out in clause 5, then the Tenant will pay interest in addition to damages for losses incurred by the Landlord as a result of the delayed completion.
14.5 The interest will be payable at the Contract rate [4% above Barclays Base Rate] on any unpaid amount for the period from the Completion Date to the date of actual payment."
Legal principles
"I have to emphasise, however, in this context that it is well established that the threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up petition, and may be reached even if, on an application for summary judgment, the defence could be regarded as "shadowy"."
"(i) The ultimate aim of contractual construction is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. The reasonable person is taken to have all the background knowledge which would reasonably have been available to the parties in the situation in which they were in at the time of the contract.
(ii) The Court has to start somewhere and the starting point is the wording used by the parties in the contract.
(iii) It is not for the Court to rewrite the parties' bargain. If the language is unambiguous, the Court must apply it.
(iv) Where a term of a contract is open to more than one interpretation, it is generally appropriate for the Court to adopt the interpretation which is most consistent with the business common sense. A Court should always keep in mind the consequences of a particular construction and should be guided throughout by the context in which the contractual provision is located.
(v) A contract is to be read as a whole, and an "iterative process" is called for:
"… involving checking each of the rival meanings against other provisions of the document and investigating its commercial consequences."
"When interpreting a written contract, the Court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean" and it does so by focusing on the meaning of the relevant words… in their documentary, factual and commercial context. That meaning has to be assessed in the light of, (i) the natural and ordinary meaning of the clause, (ii) any other relevant provision of the [contract], (iii) the overall purpose of the clause and [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions."
The basis of the application
(1) He submits that, on the true construction of the Phase 1 Lease, the premium for that lease is £500,000, not £2.5 million; alternatively the Company is entitled to have the Phase 1 Lease rectified to have that effect. Since the statutory demand is based on a debt of £950,000 allegedly due as premium under the Phase 1 Lease, and since more than £500,000 (in fact £1,550,000) has admittedly been paid by the Company pursuant to the AFL, if the Company's submission is even arguably correct, the statutory demand has no proper foundation, as no such debt as alleged would be due under the Phase 1 Lease.
(2) Alternatively, Mr Berragan submits that on the true construction of the AFL, and in the circumstances which have occurred, payment of the outstanding sums of £950,000 plus contractual interest is a concurrent condition with the grant of the Phase 2 Lease. He submits that the negotiations with the third party purchaser YHG between the autumn of 2016 and April 2017, in which the Council participated, must be taken into account. The Council could have served a statutory demand for payment of the August 2016 instalment of £475,000, and if that sum had been paid the Company would have had the Phase 2 Lease, which under the AFL was due to be granted on 26 November 2016, notwithstanding that there was a further instalment of £475,000 due in December 2016. As things turned out, the negotiations with the third party continued beyond that point, and although the Council raised the outstanding payment issue with the Company, no steps of the kind with which we are now concerned were taken until May 2017, after the Company had given notice to the Council that it was ready and able to complete the Phase 2 Lease. The Council then refused to grant the lease, and said the Company was "out of time".
Discussion and conclusions
"The grant is made with the Tenant paying the following as rent…
(a) the Premium…"
and to clause 6 (1) which states:
"The Tenant shall pay the Premium and any VAT in respect of it"
and to clause 6 (3) which states:
"The Premium shall be paid on the dates specified in the AFL…"
(1) The definition in clause 1 of the AFL of "Premium" as meaning "the sum of £2.5 million payable by the Tenant to the Landlord for the Phase 1 Lease and the Phase 2 Lease and comprising for the Phase 1 Lease the sum of £500,000 and for the Phase 2 Lease the sum of £2 million."
(2) The fact that under the terms of clause 5.4 of the AFL, the sum of £500,000 is required to be paid before the date for completion of the Phase 1 Lease.
(3) Emails between the parties in September/October 2015 prior to the entry into the AFL and the Phase 1 Lease. In an email to the Council on 24 September 2015 the Company stated:
"As promised I am writing in connection with our purchase of Phase 1 and 2 on NewChina
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Town.
My proposal to get to the figure you require of £2.5 million GBP is the following
Phase 1
We will exchange as a matter of urgency with 5% deposit and complete in full within 12 weeks of receiving full planning permission for a total price of £500,000
Phase 2
We will exchange with 5% deposit. The remainder of funds will be split into four equal payments. The first payment after exchange will be 12 weeks and the other three payments will be every 14 weeks thereafter. I agree to pay an agreed interest rate for the remaining funds that are outstanding. Purchase price excluding interest £2 million."
The Council replied by email the next day:
"Thanks for your email and your payment proposal for Phase 1 and Phase 2 and on this basis I am happy to accept this proposal."
(4) The commercial unattractiveness, if not absurdity, of the argument that the requirement to pay the Premium of £2.5 million was a free-standing obligation, not dependent upon the completion of the Phase 1 Lease and the Phase 2 Lease. Mr Berragan referred to the statement of Scrutton LJ in Hill v Booth [1930] 1 KB 382, at p.387, that:
"Ordinarily a premium is paid to obtain a lease, and it does not matter what happens to the lease afterwards."
In the same case, Greer LJ said at p.389:
"The consideration for the premium was given by the lessor once and for all on the execution of the lease, and, consequently he is entitled to the whole £1000, and not merely the first instalment of it. The fact that the premium is made payable by instalments makes no difference to the proper description of the £1000 as a "premium" payable for the granting of the lease."
And Slesser LJ said, at p.391:
"The view that the premium is a consideration for which the lease itself is granted, as appears clear on the face of the lease itself, is made even more clear by the fact that…"
"The party seeking rectification must show that:
(1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
(2) there is an outward expression of accord;
(3) the intention continued at the time of the execution of the instrument sought to be rectified;
(4) by mistake, the instrument did not reflect that common intention.
I would add the following points derived from the authorities:
(1) The standard of proof required if the court is to order rectification is the ordinary standard of the balance of probabilities.
"But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself." …
(2) While it must be shown what was the common intention, the exact form of words in which the common intention is to be expressed is immaterial if, in substance and in detail, the common intention can be ascertained: Co-operative Insurance Society Ltd the Centremoor Ltd [1983] 2 EGLR 52, at page 54, per Dillon LJ, with whom Kerr and Eveleigh LJJ agreed.
(3) The fact that a party intends a particular form of words in the mistaken belief that it is achieving its intention does not prevent the court from giving effect to the true common intention: See Centremoor at p.55A-B, and Re Butlin's Settlement Trusts (Rectification) [1976] Ch 251, at page 260, per Brightman J."
(1) It is common ground that the Planning Condition is satisfied, and that this was achieved on the basis of detailed planning permission for Phase 1, and outline consent for Phases 2 and 3. So, the issue between the parties relates to the Possession Condition and the Funding Condition.
(2) It is common ground that the Funding Condition was satisfied for Phase 1 as long ago as March 2016.
(3) It is also accepted by the Council that funding information (costings) cannot be provided on the basis of mere outline planning permission, which is what satisfied the Planning Condition. Nor does it appear that the Council has sought any further costing information from the Company.
(4) It is also common ground that the Possession Condition was waived by the Company when the Phase 1 Lease was granted in March 2016.
Decision