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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Walton Homes Ltd v Staffordshire County Council  EWHC 2554 (Ch) (08 October 2013)
Cite as:  EWHC 2554 (Ch)
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Strand, London, WC2A 2LL
B e f o r e :
| Walton Homes Ltd
|- and -
|Staffordshire County Council
Mr Wilson Horne (instructed by Staffordshire County Council) for the Defendant
Hearing dates: 30th July 2013
Crown Copyright ©
Peter Smith J :
"30 Although that conclusion is sufficient to dispose of the appeal, I would touch briefly on the alternative basis for decision relied upon by the Buyers, the reference in clause 10 to "manifest error". Morison J below went no further than to say that he was "inclined to the view that there was a manifest error here, due to the wrong test being used.
31 Morison J had previously considered the meaning of "manifest error" in Conoco (UK) Ltd v Phillips Petroleum (unreported, 19 August 1996) where, following dicta in earlier cases, he held that manifest error referred to: "oversights and blunders so obvious as to admit of no difference of opinion".
32 The question then arising is whether it is relevant to consider whether the error is one that affected the result. Considering that question in Conoco v Phillips, Morison J said this:
"… it seems to me that there is no room for any debate as to whether the oversight or blunder would or would not have made any material difference to the result. If it could be shown that there was a manifest error then in my judgment that would be an end of the case. If fraud was shown, I cannot accept that it would be open to debate as to whether the fraud did or did not affect the result; so also would manifest error."
33 I confess to some difficulty with this approach. Fraud, of course, would vitiate the determination irrespective of whether it affected the result: "Fraud or collusion unravels everything" (per Lord Denning in Campbell v Edwards). The exception for "manifest error", however, seems to me of a rather different character and to be designed essentially to fill the gap in the law created by the development to which I have already referred: the overthrow of the Dean v Prince principle of setting aside determinations for mistake. Nowadays, if parties wish to contract on the basis that they will not be held to mistakes made by the expert in the course of carrying out his instructions, they must needs include a term like this with regard to manifest error. But if they do, is it then really to be said that provided only the mistake is obvious, the determination will be avoided irrespective of whether it could affect the outcome? In this context I am inclined to think not. Take the very error committed in Frank H. Wright (Constructions) Limited v Frodoor, the erroneous inclusion of a 'not' in the report. I do not think that that ought properly to be regarded as a "manifest error". Rather I would extend the 'definition' of manifest errors as follows: "oversights and blunders so obvious and obviously capable of affecting the determination as to admit of no difference of opinion". (emphasis added).
34 If, of course, the error consists of a departure from instructions, then, assuming I am right in my earlier conclusion, it will never be necessary to ask whether in addition that error amounts to a "manifest error": it will vitiate the determination in any event. If, however, I am wrong in my earlier conclusion – if, in short, the Inspectors' use of the wrong test method here ought properly to be regarded as an immaterial departure from their instructions – I would not conclude that it nevertheless constituted a manifest error such as to entitle the Buyers to set aside the determination on that alternative basis.
35 That, however, is by the way. For the reasons given earlier, I would hold the determination not to be binding because of the Inspectors' material departure from their instructions, and accordingly dismiss this appeal."
"Some clauses permit a challenge on the ground of "manifest error". In Conoco (UK) Ltd v Phillips Petroleum (UK) Ltd Morison J said that a "manifest error" referred to "oversights and blunders so obvious as to admit of no difference of opinion". In IIG Capital LLC v Van Der Merwe Lewison J said that:
"A manifest error" is one that is obvious or easily demonstrable without extensive investigation."
If the mistake is obvious then it may be that it does not also need to be demonstrated immediately and conclusively. In Menolly Investments 2 Sarl v Cerep Sarl Warren J considered a provision referring to "manifest error" in a certificate of practical completion given under a building contract. He said:
"That is not to say that the only evidence admissible is the certificate itself. The certificate must, after all, be construed against the background of the contract under which it is given and its subject matter, as well as in the context of the factual matrix against which manifest error is to be Judged. Mr McGhee gives the example of the complete absence of an extra storey which the contractor has promised to build. This of course is a fanciful example; if a certifier were actually to certify the building as practically complete in such a case, it is obvious that something serious has gone wrong and that the certificate cannot stand. But the point is that it is only possible to say that something has gone wrong if (a) reference is made to the contract (which includes provision of the extra storey) and (b) the position on the ground i.e. that the extra storey has not been built. It cannot be the case that the obvious error must be apparent on the face of the certificate itself."
In Natoli v Walker, Kirby P said:
"Obviously, there is difficulty with the word "manifest". What may be "manifest" to one judicial officer may fail to persuade another. The criterion cannot be the swiftness of mind of the sharpest intellect. Nor can it be the perception of one whose whole career has been devoted to examining and reflecting upon building contracts. An objective, not a subjective, test for what is "manifest" is contemplated. But the word will not go away. Against the background of its history in this context it requires swift and easy persuasion and rapid recognition of the suggested error".
TERMS OF THE AGREEMENT
"Development Value Claw-back Clause
5.4TThe assurance of the Property to the Buyer shall also contain the following development value claw-back provisions for the benefit of the Seller:
(1) "Sub-clause (3) of this clause shall apply if at any time during a perpetuity period of eighty years from and including the date of this deed if either:
(a) the Buyer (or any successor in title to the Buyer in respect of the whole or any part of the Property) secures any planning permission for the carrying out of any development on the Property (or any part thereof);
(b) a third party obtains planning permission for the carrying out of a development on the Property (or any part thereof) and the Buyer (or any successor in title to the Buyer in respect of the whole or any part of the Property) resolves to implement the same or allows any third party to implement the development in question.
(2) For the purposes of this clause, the word 'development' shall have the meaning prescribed in Section 55(1) of the Town and Country Planning Act 1990 as amended by the Planning and Compensation Act 1991 (or any statutory re-enactment thereof);
(3) If this sub-clause applies then within one month of the occurrence of the relevant contingency set out in sub-clause (1) of this clause (time being of the essence) the Buyer or its successor in title (as applicable) shall serve notice on the Seller ("the Notice"):
(a) to inform the Seller of the granting of the relevant planning permission ("the Permission") in relation to the Property (or the relevant part thereof);
(b) enclosing a copy of the Permission together with (if the Permission relates to a part only of the Property) an ordinance survey based location plan showing clearly the extent of the Property effected by the Permission;
(c) stating the sum ("the Additional Consideration") which in its opinion (acting reasonably) represents the difference between the following two values determined as at the date of the service of the Notice ("the Valuations") (subject to sub-clause 5.4(4) below):
(i) firstly, either (whichever the greater) the open market value of the Property (or the relevant part thereof) assuming that the Permission does not exist, or £107,000 (provided that if the Permission relates to a part only of the Property the figure of £107,000 shall be applied on a pro-rata basis according to the proportion of the Property effected thereby);
(ii) secondly, the open market value of the Property (or the relevant part thereof) with the benefit of the Permission.
(4) For the purposes of sub-clause (3)(c) of this clause references to the "open market value" shall mean the open market value of the Property (or the relevant part thereof) determined by applying the definition of "open market value" set out in Practice Statement 4.2 of the Royal Institution of Chartered Surveyors' Red Book' in conjunction with the following additional assumptions:
(a) there is no onerous or unreasonable restriction or impediment to the implementation of the Permission;
(b) the Buyer is able to sell the Property (or the relevant part thereof) with vacant possession on completion, except in relation to any part thereof which is the subject of a lease or tenancy created prior to the service of the Notice in which case the valuation in respect of such part or parts thereof shall be at the open market value based on the existing use thereof);
(c) the Buyer is to sell the Property (or the relevant part thereof) with full title guarantee and free from incumbrances (other than incumbrances which were binding on the Property, or the relevant part thereof, as at the date of the Conveyance of the same to the Buyer by the Seller, in so far as the same are still subsisting and capable of taking effect as at the date of the service of the Notice);
(d) there is unrestricted vehicular and pedestrian access to the Property from the public highway.
(5) The parties shall each use their best endeavours to negotiate in good faith and agree the Valuations and the Additional Consideration within one month of the service of the Notice by the Buyer, provided that the Seller shall have the option of serving a counter-notice on the Buyer (or its successor in title, as applicable) at any time in order to waive the application of the succeeding provisions of this clause if the Seller concludes that the granting of the Permission has not had any material effect on the open market value of the Property (or the relevant part thereof; as applicable);
(6) If; within either (whichever the earlier) one month of the service of the Disposal Notice or two months of the granting of the Permission, the parties fail to agree the Valuations and the Additional Consideration, then at the request of either of the parties such determination shall be referred to an independent chartered surveyor to be nominated without delay by agreement between the parties ("the Surveyor") whereupon the succeeding sub-clauses of this sub-clause (6) shall also apply:
(a) if the parties are unable to agree who should act as the Surveyor then the
Surveyor shall be nominated on the joint application of the parties (or if either of them neglects to concur in such application then on the sole application of the other) by the president or other chief officer or acting chief officer for the time being of the Royal Institution of Chartered Surveyors;
(b) the Surveyor shall act as an expert and not as an arbitrator;
(c) the Surveyor shall set a strict (but nevertheless fair) timetable, not exceeding two months in its entirety, with which the parties must comply in order to secure a resolution of the dispute without undue delay or expense;
(d) the Surveyor shall invite the parties (or their respective agents) to submit written representations to him to explain their respective cases in relation to the dispute and the Surveyor shall disclose any such representations to the other party so that they can submit written comments on the same to the Surveyor, provided that the Surveyor shall not be fettered or bound by any such representations or the comments thereon;
(e) the decision of the Surveyor shall (in the absence of manifest error) be final and binding upon the parties, subject to the Surveyor providing each of the parties with a detailed statement setting out the reasons for making the decision which the Surveyor has arrived at;
(f) the costs of the application to the Surveyor shall be borne in equal shares by the parties or as otherwise directed by the Surveyor if the Surveyor concludes (acting reasonably) that there are proper grounds for determining that either of the parties have acted unreasonably in connection with the dispute.
(7) Within ten working days of either, the parties agreeing the amount of the Additional Consideration, or, the Additional Consideration being determined via the procedure referred to in sub-clause (6) of this clause (time being of the essence) the Buyer shall make a payment to the Seller by a bank transfer (or a bankers draft from a London clearing bank acceptable to the Seller) of a sum representing 50% of the Additional Consideration (subject to sub-clauses (8) and (9) of this clause);
(8)If the Buyer fails to make payment to the Seller in accordance with the time limit in sub-clause (7) of this clause or if the Buyer implements the Permission in whole or in part prior to the payment of the Additional Consideration to the Seller then the Buyer shall also pay interest to the Seller on sum payable under sub-clause (7) of this clause, which said interest shall be calculated from either (whichever the earlier) the date of the expiry of the time limit for payment set in sub-clause (7) of this clause or the date of the commencement of the development authorised by the Permission, and shall be payable up to and including the date that the sum payable under sub-clause (7) of this clause (and the interest thereon) is paid to the Seller as aforesaid;
(9)For the purposes of sub-clause (8) of this clause the interest payable by the Buyer (or its successors in title) shall be calculated at either the base lending rate of the Cooperative Bank Plc for the time being in force plus 4%, or the equivalent rate plus 4% of such other London clearing bank as shall be specified by the Seller in any notice served by it on the Buyer from time to time for the purposes of this sub-clause."
" 1.20 The basis of the valuation at that date shall be on the assumption that;
1.21 The Permission does not exist, the recommendation of the Planning Officer leading to the grant of the Permission has not been made and the resolution of the Planning Committee to grant the Permission as not being passed
1.22 I attach a copy of Counsel's opinion in this regard at Appendix 4 which sets out the reasoned argument leading to this Opinion and my Determination."
REASONING IN OPINION
"8 Pausing there, when the 1R1 refers to "the Permission", to my mind the literal meaning of that expression equates to what I have called the PDN. Upon a literal meaning, the expression "the Permission" is a reference neither to the recommendation of a planning officer addressed to the planning committee that permission ought to be granted, nor to the decision of the committee itself resolving to grant permission (which necessarily must precede the issue of a PDN). I consider that this view of the literal meaning of "the Permission" is supported by the fact that under clause 12.3(3) of the TR1, the Transferee or its successors is required to serve on the Transferor with the Notice a "copy of the Permission". Such language is apt to refer to the PDN, and is not apt to refer either to the recommendation of the planning officer, or the decision of the planning committee. Therefore the reference to "the Permission", speaking literally, is a reference to the PDN alone. Although the present point is a matter of the meaning of "the Permission" for the purposes of the TR1. I do note that the conclusion I have expressed is also the usual position under the general law (see R v. West Oxfordshire DC ex parte Pearce Homes Ltd  JPL 532 at 524 (2nd COL)). "
"18 However, I do not consider Walton Homes Ltd's ultimate contention is correct. This is because Walton Homes Ltd's contention that my instructing surveyor is to ignore the only the planning permission, but must take into account the planning officer's recommendation, must be based on the literal meaning of "the Permission" which I have outlined above. As I have said, I consider the literal meaning to be reasonably clear. However, I consider in the context of the TR1 as a whole, the court would not give effect to that literal meaning. "
"19 The reason is this. If the reference in clause 12.3(3) to "the Permission" is a reference to what I have called the PDN - and nothing else - it follows that disregarding "the Permission" would entail not merely valuing the Property with the benefit of the planning officer's recommendation, but also valuing the property with the benefit of the decision of the planning committee resolving to accept that recommendation and grant planning permission. In other words, if Walton Homes Ltd's approach is right, it proves too much. There is no reason to stop, as Walton Homes Ltd does, with the recommendation of the planning officer. The property must, on that approach also be valued with the benefit of the decision of the planning committee (because the PDN alone is to be ignored. The problem, it seems to me, is that, other things being equal, one might expect the value of a property with the benefit of a PDN to differ hardly at all from one which benefits from a decision of the planning committee to issue a PDN, but not an actual PDN itself. Walton Homes Ltd approach to the words in issue - although arguably supported by the literal meaning of those words - would therefore appear to make nugatory the provisions in the I`E1 for the calculation and payment of Additional Consideration. In particular, on Walton Homes Ltd's approach, it becomes very hard to see how the amount of the Additional Consideration would ever be more than a very small sum, if anything.
"20 I would reject such a result as commercially absurd. The broad intent of the TR1 is clear: it is that the Transferee or its successors should pay by way of Additional Consideration an amount reflecting the uplift in value brought about by the unlocking of the development potential of the property. The literal meaning of "the Permission" which underlies Walton Homes Ltd's submissions frustrates that intention.
"21 Where the literal meaning of words in a legal instrument leads to commercial absurdity, binding authority requires a departure from that meaning (see Investors Compensation Scheme Ltd v. West Bromwich BS  1 WLR 896)2. Further, the courts powers to substitute other words in order to achieve a non-absurd meaning are theoretically unlimited (ie there is no limit to the amount of "red pen" a court is permitted to use: see Chartbrook Ltd v. Persimmon Homes Ltd  3 WLR 267). In the present case, it seems to me that the only way to avoid the commercially absurd result to which one is led by a literal application of the words in issue in this case is to construe "the Permission" to embrace not merely the PDN, but also those steps in the planning process leading to the issue of the PDN. By "steps leading to" the PDN, I would exclude the making of the planning application itself, which may or may not have led to a PDN. But I would include the recommendation of the planning officer and the decision of the planning committee to accept that recommendation. In my view, both are to be assumed not to exist. "
"14 There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, 912-913. They are well known and need not be repeated. It is agreed that the question is 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. The House emphasised that "we do not easily accept that people have made linguistic mistakes, particularly in formal documents" (similar statements will be found in Bank of Credit and Commerce International SA v Ali  1 AC 251, 269, Kirin-Amgen Inc v Hoechst Marion Roussel Ltd  RPC 169, 186 and Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, 296) but said that in some cases the context and background drove a court to the conclusion that "something must have gone wrong with the language". In such a case, the law did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had. "
15 It clearly requires a strong case to persuade the court that something must have gone wrong with the language and the judge and the majority of the Court of Appeal did not think that such a case had been made out. On the other hand, Lawrence Collins LJ thought it had. It is, I am afraid, not unusual that an interpretation which does not strike one person as sufficiently irrational to justify a conclusion that there has been a linguistic mistake will seem commercially absurd to another: compare the Kirin-Amgen case  RPC 169 at pp. 189-190. Such a division of opinion occurred in the Investors Compensation Scheme case itself. The subtleties of language are such that no judicial guidelines or statements of principle can prevent it from sometimes happening. It is fortunately rare because most draftsmen of formal documents think about what they are saying and use language with care. But this appears to be an exceptional case in which the drafting was careless and no one noticed.
16 I agree with the dissenting opinion of Lawrence Collins LJ because I think that to interpret the definition of ARP in accordance with ordinary rules of syntax makes no commercial sense. The term "Minimum Guaranteed Residential Unit Value", defined by reference to Total Residential Land Value, strongly suggests that this was to be a guaranteed minimum payment for the land value in respect of an individual flat. A guaranteed minimum payment connotes the possibility of a larger payment which, depending upon some contingency, may or may not fall due. Hence the term "Additional Residential Payment". The element of contingency is reinforced by paragraph 3.3 of the Sixth Schedule, which speaks of the "date of payment if any of the Balancing Payment." (My emphasis).
"80 The ARP is defined as follows:
"23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value ['MGRUV'] less the [C&I]"
The amount of the C&I is agreed to have been relatively trivial - a little less than £250,000 for all 100 flats - and I put it aside for the moment, while recognising that it plays an important part in the technicalities of the argument on construction. If this item is disregarded for the moment the disputed text can be set out in a simplified form, using "RP" (for residential price) where the judge and the Court of Appeal referred to Unit Price: "23.4% of the RP in excess of the MGRUV".
81 The MGRUV was defined as meaning:
"for each Residential Unit [ie each flat] the [TRLV] divided by the number of Residential Units for which Planning Permission is granted". Under the planning permission eventually granted on 23 August 2002 there were to be exactly 100 flats, which simplifies the arithmetic. Nevertheless it may be unfortunate that the draftsman chose to define the ARP by a formula referring to the MGRUV rather than by referring directly to the TRLV (to which the MGRUV is directly linked, being, as events turned out, one per cent of it). The use of the two linked formulae rather than one, and the fact that the formulae are not set out in mathematical notation, make it harder to keep clearly in mind the structure of the arrangements contained in schedule 6.
82 Briggs J expressed the issue in paras 20 and 21 of his judgment:
"Leaving aside for the moment the point at which the C&I are deducted, the broad commercial effect of each of the parties' rival submissions may be summarised as follows. Chartbrook's case was that it was entitled to a 23.4% share of the net proceeds of sale of each Residential Unit in excess of a minimum guaranteed amount (being the unitised Total Residential Land Value of £76.34 per square foot of Residential Net Internal Area). Put another way, its stake in the residential part of the development was to be the whole of the first £76.34 per square foot of net sales value, and 23.4% of the surplus. By contrast, Persimmon's case was that Chartbrook was to receive an additional payment only if 23.4% of the net sales price amounted to more than the Minimum Guaranteed Residential Unit Value. Put more broadly, Chartbrook's stake in the residential part of the development was whichever was the greater of :
(i) 23.4% of the net residential sales price; and,
(ii) the guaranteed minimum of £76.34 per square foot of Residential Net Internal Area."
83 That is, with great respect to the judge, a confusing way of putting it, because it fails to distinguish between the two elements of the price for the residential development and to make clear whether it is addressing both elements, or only the ARP. The owner was to get the TRLV in any event, as the most important component of the TLV (a point that may be reflected in the expression "in excess of" in the definition of the ARP). Indeed paras 20 and 21 of the judgment are to my mind two ways of describing the same result, unless the judge intended para 20 to state the owner's view of the ARP alone, and para 21 to state the developer's view of the TRLV and the ARP operating in conjunction…….."
"84 In his brief judgment Rimer LJ quoted the definition of the ARP and observed in para 183:"There is nothing unclear, uncertain or ambiguous about that. It is clear, certain and unambiguous and its arithmetic is straightforward". Tuckey LJ agreed. With profound respect to both of them, I totally disagree. The definition is obviously defective as a piece of drafting. To start with defects that can be spotted and remedied fairly easily, the draftsman could not decide whether he was dealing with the flats ("each Residential Unit") collectively or individually. The MGRUV was one-hundredth of the TRLV, but the C&I was plainly defined as a single aggregate figure.
85 Much more significantly and problematically, the draftsman has failed to notice the ambiguity of the formula "x per cent of the RP in excess of the MGRUV less the C&I". The ambiguity could be resolved by the use of mathematical notation, as the judge observed in paras 18 and 19 of his judgment (though he did not mention that there was also a choice to be made as to putting another set of brackets round MGRUV - C&I, so producing four possibilities rather than two).
86 Treated acontextually, the formula "x per cent of A in excess of B" is undoubtedly ambiguous. It can mean (x/100 x A)-B or x/100(A-B). If required to guess I would opt for the latter meaning, because the expression "in excess of" has been used rather than "less", and to my mind "in excess of" suggests a focus on B as an integer and distances it from the percentage. But I readily accept that this would be little more than guesswork.
"The approach which must be taken to the construction of a clause in a formal document of this kind is well settled. The intention of the parties is to be discovered from the words used in the document. Where ordinary words have been used they must be taken to have been used according to the ordinary meaning of these words. If their meaning is clear and unambiguous, effect must be given to them because that is what the parties are taken to have agreed to by their contract. Various rules may be invoked to assist interpretation in the event that there is an ambiguity. But it is not the function of the court, when construing a document, to search for an ambiguity. Nor should the rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context may affect the meaning of the words. But unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail."
"24 I am not convinced that this is sufficient to bring Lord Hoffmann's two-stage test into play. On this view nothing has gone wrong with the language as such. The reference to EBITDA 2006 was intentional. The mistake was not in the language, but in failing to anticipate its consequences. "
25 In any event, I think the interpretation also falls down at stage 2. The question is not whether the judge's approach produces a fairer result, but whether it represents the clear alternative interpretation. The underlying assumption of this part of the judgment seems to be that, at whatever time the transaction might eventually take place, it would be possible objectively to identify "the current EBITDA", which could thus be said to be "implicit" in the transaction. This view does not appear to be supported by the evidence.
26 The judge had himself commented on the likely perceptions of the parties at the time of the Hawk Retainer:
"At the time of the Hawk Retainer neither the EBITDA for 2006 nor the EBITDA for 2007 could be known as a definite number. But the parties had forecasts of the EBITDA for both 2006 and 2007. The forecast for EBITDA 2006 for the combined enterprise of Ros Roca and Dennis Eagle was about €28 million…." (para 23(5))
This passage to my mind is consistent with ING 's submission that there is not necessarily a "current EBITDA" objectively ascertainable at any time. It is a matter of judgment depending on the circumstances, and involving a choice between actual and forecast figures. As Mr Phillips QC put it in his skeleton:
"The choice of EBITDA will always involve elements of judgment. Suppose, for instance, a valuation made mid-year; no exactly equivalent EBITDA figure (e.g. an EBITDA figure for the 12 months immediately preceding the valuation date) will be available. Comparison is necessarily to either a historical figure (e.g. the last audited figure) or to a forecast figure, which incorporates elements of speculation about what will happen after the valuation date."