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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Chartbrook Ltd v Persimmon Homes Ltd [2008] EWCA Civ 183 (12 March 2008) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2008/183.html Cite as: [2008] 2 All ER (Comm) 387, [2008] EWCA Civ 183, [2008] 11 EG 92, [2008] NPC 30 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE BRIGGS
HC05C02402
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE LAWRENCE COLLINS
and
LORD JUSTICE RIMER
____________________
CHARTBROOK LIMITED |
Claimant/ Respondent |
|
- and - |
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(1) PERSIMMON HOMES LIMITED |
Defendants/Appellants |
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-and- |
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STEPHEN VANTREEN |
Part 20 Defendant/ Second Respondent |
____________________
Mr Robert Miles QC and Mr Timothy Morshead (instructed by Herbert Smith LLP) for the Respondent
Hearing dates : December 18 & 19, 2007
____________________
Crown Copyright ©
Lord Justice Lawrence Collins:
I Introduction
II The Agreement and the dispute
"Total Residential Land Value" shall be £76.34 per square foot multiplied by the Residential Net Internal Area (less the Section 106 Money and less the Rights of Light Money and less the Sub-Structure Assumptions Additional Cost)
"Total Commercial Land Value" shall be £38.80 per square foot multiplied by the Commercial Net Internal Area plus VAT.
"Total Residential Car Parking Land Value" shall be £3,024 multiplied by the Residential Car Parking Spaces
"Additional Residential Payment" means 23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives.
"Residential Unit" means each of the flats forming private residential accommodation for which Planning Permission is granted
"Minimum Guaranteed Residential Unit Value" means for each Residential Unit the Total Residential Land Value divided by the number of Residential Units for which Planning Permission is granted.
"Costs and Incentives" means the aggregate of all costs and incentives provided by the Developer for the purchasers of the Residential Premises and the Residential Car Parking Spaces including the cost or allowance given to purchasers for enhancements or variations to the specification for such premises.
"Additional Residential Payment" means 23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives.
(1) Persimmon's case
Net sales proceeds £23,848,788
23.4% of net proceeds £ 5,580,616
Minimum guaranteed sums £ 4,683,565
Balancing Payment £ 897,051
Minimum + Balancing payment £ 5,580,616
(2) Chartbrook's case
Net sales proceeds £23,848,788
Minimum guaranteed sums £ 4,683,565
excess £19,165,223 23.4% of excess (Balancing Payment) £ 4,484,862
Minimum + Balancing payment £ 9,168,427
III Facts
Negotiations with Persimmon for sale and purchase: September 2000 to January 2001
"In addition, you asked us to consider some form of sales related overage, that would enable you to share in any sales uplift that is experienced during the course of the development of the project. We have given careful considerable (sic) to what we anticipate both build costs and sales inflation to be over the course of the project, and can confirm that we are prepared to offer you 30% of all net sales revenue achieved above a defined trigger level.
In terms of the calculation of this trigger, I suggest it is done by way of a multiplication of the total net internal area of the private sale residential element, (I suggest the same definition is used as that to define the planning related overage) and £345.00 per square foot. As with the calculation for the planning overage, we will be able to define exactly what the trigger is at the point when we obtain our Detailed Planning Permission. …I would, however, state that the above mentioned trigger is exclusive of any revenue we achieve for the disposal of the car parking places. At the present time we have costed these at a value of £10,000 per space and do not envisage experiencing any growth on this value"
"Our clients apparently agreed last minute amendments to the transaction and I have set out below my understanding of these:-
1. The initial purchase price to be reduced - £500,000.00.
2. The primary [overage] is to be without any capping. Therefore the provision of £1,000,000.00 will be removed.
3. There will be a secondary [overage] which will not take into account any sums paid under the primary [overage]. The secondary [overage] from my understanding is to be 1/3 (one third) of the sale price of each residential unit in excess of £345.00 per square foot for which the formula would appear to be:-
Residential unit and sale price
_______________________ - 345:-1/3(one third)
Square footage of unit
My clients do want confirmation in writing that the above does reflect both parties agreement and intention."
1.1 "Aggregate Total Net Proceeds" means the aggregate sum of money (after the deduction of Costs and Incentives) received by the Buyer from purchasers of the Net Internal Area which exceeds £345.00 per square foot of the Net Internal Area and excluding any sum of money received by the Buyer for any car parking spaces constructed on the Development.
1.2 "Costs and Incentives" means the aggregate of all costs and incentives provided by the Buyer for the purchasers of the private residential units forming part of the Development and which costs and incentives will be reasonable and usual for similar developments in the locality of the Development.
1.3 …..
1.4 "Gross Sale Proceeds" means the gross sum payable for each private residential unit forming part of the Development including the price achieved for any car parking space sold with such flat and the Costs and Incentives paid or allowed in respect of such flat.
1.5 …..
1.6 "Net Sales Overage" means 30% of the Aggregate Total Net Proceeds.
1.7 "Net Sale Proceeds" means the sum of money received by the Buyer for each private residential unit forming part of the Development excluding any monies received for any car parking spaces sold with such flat and excluding the Cost and Incentives paid or allowed in respect of such flat.
"I assume the trigger figure is that produced by multiplying the total net internal area by £345. Once that figure has been reached, my client is entitled to 30% of the aggregate net proceeds thereafter."
Negotiations for Building Licence Agreement: January/February 2001
"Building Licence Arrangement
This is a relatively simple arrangement, whereby Chartbrook retain the freehold ownership of the site and grant a licence to Persimmon Homes to enter the property in order to undertake the development works. At the point, when units are completed and ready to be sold, the lease is granted directly by Chartbrook to the purchaser thus avoiding the need for any form of transfer between Chartbrook and Persimmon Homes that would involve the payment of stamp duty.
On the basis that such an arrangement is of interest to yourself and Stephen, we would be prepared to pay you 29.8% of the net sales proceeds generated from the private sale residential element of the scheme and a further 45% of the net sales revenue generated from the disposal of the commercial element of the site. We would pay you this proportion of the income regardless of the development costs incurred by my Company and the quantum of accommodation that we ultimately obtain planning permission for.
In order to enable you to make a comparison, based on the uplift scheme for 80 units, the land value generated through a building licence is approximately £5,760,000 (five million, seven hundred and sixty thousand pounds). In addition, on the basis that you would retain the freehold, you would also be able to benefit from any income generated by the ground rents which when disposed of, could yield further income of approximately £200,000. By tying your land value to a percentage of income, you will also automatically share in any sales uplift that we experience
…
… it appears that the land value that could be obtained by Chartbrook would be significantly higher than if the site was sold on the open market and would warrant the additional holding costs that you would incur during the development period…. "
"Upon receipt of the purchase monies, the revenue will be apportioned to Chartbrook, on the basis of 29.8% of the net revenue achieved from the disposal of the private sale residential units and 45% of the net revenue from the disposal of the commercial units. In addition, we are prepared to provide you with guaranteed backstop dates and minimum payments that will be made regardless of the actual performance of the project both in terms of timescales and cost."
There was appended to the letter a schedule of guaranteed payments in 8 stages amounting in aggregate to £5,760,000, each payable either on the sale of 10 plots or upon specific dates starting 25 months and finishing 46 months after the implementation of the Planning Consent.
"Based on the current scheme for 80 units, and 9,020 sq ft of commercial floor space, the minimum land value we are prepared to pay to Chartbrook on the disposal of each residential unit is £67,000, together with a further minimum payment of £400,000 on the disposal of the commercial unit. If as a result of improvement in the market, Chartbrook are entitled to more than the minimum payments I suggest that an equalisation calculation takes place following the disposal of the last unit.
As mentioned above, the figures contained herein are based upon our uplift scheme and we would obviously need to adjust the land value and guarantees depending upon what the actual outcome of planning is. Within the contract, I therefore suggest that a formula is included whereby the land value is calculated using the following inputs:
Private Sale Residential Accommodation (NIA) - £94.96/ sq ft
Affordable Housing Accommodation (NIA) - £0/sq ft
Commercial Floor Space (NIA) - £44.34/per square foot
Once the total land value has been calculated, a simple formula can then be applied to divide the land values by the number of units, in order for us to calculate the guaranteed payments that you will receive on the sale of each plot. I suggest that the guaranteed backstop dates for the receipt of these payments, together with the percentage of open market value that you are entitled to, remains the same regardless of the outcome of the Planning Application. "
Percentage of Sales Revenue | Minimum Value per Plot | Number of Plots | Total | |
Residential Apartments | 29.87% | £65,576 | 80 | £5,246,068 |
Residential Car Parking Spaces | 29.87% | £2,987 | 38 | £113,506 |
Commercial | 42.02% | £400,000 | 1 | £400,000 |
"You will see that, while I have broken the elements down further, the total land value payable to yourselves, still remains unchanged at £5,760,000. We are obviously also prepared to continue with the minimum guaranteed payment dates and I enclose a revised schedule with this letter. As a result of the re-apportionment of the revenues, the multiplier to calculate the land value for the Private Sale Residential element is changed to £92.92 per sq ft NIA. All the other multipliers remain unchanged. "
Draft Agreement: February 2001
Second draft and meeting of March 20, 2001
"We then dealt with the Agreement by going through it line by line, flagging up those matters which would need discussion tomorrow with Persimmon.
The last point left was the Seventh Schedule relating to calculation in price, as I have stated they have negotiated this with Persimmon and had Persimmon's letters relating its calculation and they agreed they would themselves go through that Clause to confirm that the construction of the price and payment was agreed."
"… please find attached Schedule 7 from our proposed Purchase Agreement that sets out exactly how the land value is to be calculated.
In summary each of the individual elements of the scheme, i.e. sale residential, private sale residential car parking spaces, commercial and affordable housing, is each calculated by taking the total NIA of that particular element that obtains Planning Permission and is multiplied by an agreed land value per square foot or per space. This formula will calculate the minimum guaranteed land value, although we have agreed to make a balancing payment, which is calculated upon a percentage of the net sales revenue."
"Option 1
This Option is consistent with our previous agreement, whereby Chartbrook will not receive any form of premium on either exchange of the Building Licence Agreement or alternatively on the receipt of the Detailed Planning Permission, but rather take all of the Purchase Price as deferred payments dependant upon the performance of the project , albeit with guaranteed backstop dates and minimum sums.
Based upon this proposal, Persimmon Homes (South–East) Limited are prepared to offer a total land value of £7,191,947 (seven million one hundred and ninety one thousand, nine hundred and forty seven pounds) on the basis that our respective Companies enter into a Building Licence Agreement and that the necessary level of security is afforded to Persimmon Homes through a First Charge as well as a Power of Attorney to grant leases directly from Chartbrook to our purchasers.
The table below sets out the minimum guaranteed land values that you will receive for the respective elements of the scheme, together with the percentage of sales revenue that you will also be entitled to if the project performs better than is currently anticipated.
Percentage of Sales Revenue | Minimum Value per Plot | Number of Plots |
Total | |
Residential Apartments | 23.4% | £53,333 | 105 | £5,600,000 |
Residential Car Parking Spaces | 30.24% | £3024 | 80 | £241,947 |
Commercial | 45.02% | £1,350,000 | 1 | £1,350,000 |
TOTAL | £7,191,947 |
In addition to the above guaranteed payments, we are also prepared as with our previous proposal, to provide you with guaranteed backstop dates when these payments will be made regardless of the performance of the actual project. The attached schedule sets out our proposals in respect of this matter.
Given that the contract will be conditional upon planning, it is obviously not possible at this stage to finalise the exact land value for each of the individual element of the scheme and hence calculate the minimum guaranteed payments. I therefore suggest that the contract includes a ratchet mechanism incorporating a formula that multiplies that net internal floor area for each of the respective elements by an agreed land value in order to calculate the total land value for the whole scheme. The table below sets out the proposed land value for each of the elements.
Land Value per Sq ft NIA | |
Private Sale Residential Accommodation | £76.34 per sq ft |
Residential Car Parking Spaces | £3,024 per space |
Commercial Accommodation | £38.80 per sq ft |
Affordable Housing Accommodation | £0 per sq ft |
You will see from the above table that if it is necessary to provide affordable housing on the scheme it is placed into the equation at nil value. This is consistent with our previous agreement."
Conclusion of the Agreement: May to October 2001
"…. the Vendors are seeking to ensure that they are able to obtain the maximum return from the Building Licence, and specifically from the potential sales overage that is incorporated within the Agreement. As with all licences, the payment Chartbrook receive is either a minimum guaranteed sum or 23.4% of the net sales revenue, whichever is the gr[e]ater"
December 2001
"In addition to the above Chartbrook are to receive the Total Residential Car Parking Land Value which will be £3,024 multiplied by each of the residential car parking spaces for which planning has been obtained plus a balancing payment of 23.4% of the price achieved for each residential unit in excess of the minimum guaranteed residential unit value."
"It is apparent that the guarantee from Persimmon after deduction of the commercial payment will be more than sufficient to repay the borrowings and of course this takes no account of the balancing payment on completion of the development. This amounts to 23.45% of the price achieved for each residential unit in excess of the minimum guaranteed unit value. This figure cannot be quantified until we have planning permission but if the submitted application is successful it would mean a guaranteed residential unit value of approximately £65,500-00 and if we assume average sales at £200,000-00 per unit the balancing payment will be in excess of £3 million."
IV The judge's conclusions and the appeal
A Construction of the Agreement
(1) On the basis that the prior negotiation materials are not admissible
The judge's conclusions
Persimmon's position on the appeal
Chartbrook's position on the appeal
Conclusion
"Additional Residential Payment" means 23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives.
"Minimum Guaranteed Residential Unit Value" means for each Residential Unit the Total Residential Land Value divided by the number of Residential Units for which Planning Permission is granted.
"Total Residential Land Value" shall be £76.34 per square foot multiplied by the Residential Net Internal Area (less the Section 106 Money and less the Rights of Light Money and less the Sub-Structure Assumptions Additional Cost)
(2) Admissibility of negotiations
Judge's conclusions
Persimmon's argument on the appeal
Chartbrook's argument on the appeal
Conclusions
" … The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does the construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back; indeed, something maybe lost since the relevant surrounding circumstances may be different. And at this stage there is no consensus of the parties to appeal to. It may be said that previous documents may be looked at to explain the aims of the parties. In a limited sense it is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact … The words used may, and often do, represent a formula which means different things to each side, yet may be accepted because that is the only way to get 'agreement' and in the hope that disputes will not arise. The only course then can be to try to ascertain the 'natural' meaning. Far more, and indeed totally, dangerous is to admit evidence of one party's objective - even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want. So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised…
In my opinion, then, evidence of negotiations …ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction."
"… there will be occasions where the pre-contract negotiations do shed light on the meaning the parties intended to convey by the words they used. There will be occasions, for instance, when the parties in their pre-contract exchanges made clear the meaning they intended by language they subsequently incorporated into their contract. When pre-contract negotiations assist in some such way, the notional reasonable person should be able to take that evidence into account in deciding how the contract is to be interpreted.
This would not be a departure from the objective approach. Rather, this would enable the notional reasonable person to be more fully informed of the background context. This would recognise that pre-contract negotiations are themselves part of the background of a contract and that, like other background material, they may be relevant when interpreting a contract. They differ from other background material in that, unlike other background material, they may afford direct evidence of the parties' actual intentions. That is not a reason for banning their use. That would be perverse. That would mean that in deciding the meaning intended to be conveyed by the language chosen by the parties the notional reasonable person would always be barred from having regard to what may be the best evidence of all. He must always conjecture, he must never know. The preferable approach is to recognise that pre-contract negotiations are relevant and admissible if they would have influenced the notional reasonable person in his understanding of the meaning the parties intended to convey by the words they used."
"...the principle can be stated as follows. If a contract contains words which, in their context, are fairly capable of bearing more than one meaning, and if it is alleged that the parties have in effect negotiated on an agreed basis that the words bore only one of the two possible meanings, then it is permissible for the Court to examine the extrinsic evidence relied upon to see whether the parties have in fact used the words in question in one sense only, so that they have in effect given their own dictionary meaning to the words as the result of their common intention. Such cases would not support a claim for rectification of the contract, because the choice of words in the contract would not result from any mistake. The words used in the contract would ex hypothesi reflect the meaning which both parties intended."
"However, on the basis that the word 'after' … is capable of bearing two meanings as a matter of construction, I do not think that there is any authority precluding the Court from examining the pre-charter-party exchanges in order to see whether the owners can make good their contention that the parties were in agreement in using this word in only one of its two senses, and having in effect both given it the same dictionary meaning to the exclusion of the other meaning. Having then considered the pre-charter-party exchanges on this basis I find that this contention is established. In these circumstances it seems to me that the charterers cannot now depart from this common meaning by asserting that this word has the opposite meaning in the charter-party."
"would not support a claim for rectification of the contract, because the choice of words in the contract would not result from any mistake. The words used in the contract would ex hypothesi reflect the meaning which both parties intended."
"… as stated in Chitty on Contracts para 12.119, evidence of facts about which the parties were negotiating is admissible to explain what meaning was intended and evidence of what the parties said in negotiations is admissible to show that the parties negotiated on an agreed basis that the words used bore a particular meaning."
"In this case, the parties have used a very unusual combination of words ('preferred supplier status'). These words are undefined and they are not introduced or accompanied by any words of explanation. In those circumstances it is in my judgment reasonably arguable that on their true interpretation those words bear the meaning that the parties in common gave them in their communications leading up to the signing of the agreement. In admitting evidence as to those communications, the court would be hearing that evidence not with a view to taking the parties' subjective intent into account for the purposes of interpretation (a purpose precluded by the principles laid down by Lord Hoffman in the ICS case) but for the purpose of identifying the meaning that the parties in effect incorporated into their agreement in circumstances where the court was satisfied that on their true interpretation the terms of the agreement were to have this effect."
"In my view each of the letters in question is admissible on the issue of construction. They show the genesis and subject matter of paragraph 38(3) of the defence which became a term of the Compromise. They show the connection between the actuary's calculations and that paragraph and explain the figures and other terms which appear in it. None of them is relied on as indications of subjective intention and on the face of them they are not objectionable on that account. The mere fact that they were written in the course of inter-solicitor correspondence seeking to agree a redundancy package is not, in my judgment, a sufficient objection. "
B Rectification
Judge's conclusions
"I have after considerable difficulty come to the conclusion that Persimmon has not proved either of its alternative rectification cases with sufficient clarity. I have real difficulty in understanding how Messrs Reeve and Vantreen made the mistake of thinking that Persimmon were offering in February what the first draft definition of the ARP clearly offered in March, but I have had to overcome similar difficulty in understanding how both Mr Assael and Mr Pendlebury failed to understand what that definition meant when they respectively framed and checked it.
But those difficulties are of lesser force than the difficulty of persuading myself that Mr Reeve and Mr Vantreen are the rogues which they would have to be if the necessary factual basis for Persimmon's rectification case were to be accepted. I had the advantage of seeing both of them cross examined at considerable length and with great skill. I have not been persuaded that their evidence should be rejected as incredible, where to do so would involve a conclusion as to their honesty and probity wholly at variance with the impression which they made on me. In this Mr Skelly was an equally powerful support, and each of them gave evidence in the absence of hearing the evidence (or reading the transcript of the evidence) of those who preceded them. It follows that I dismiss the counterclaim."
Persimmon's argument on the appeal
Chartbrook's argument on the appeal
Conclusion
"We then dealt with the Agreement by going through it line by line, flagging up those matters which would need discussion tomorrow with Persimmon.
The last point left was the Seventh Schedule relating to calculation in price, as I have stated they have negotiated this with Persimmon and had Persimmon's letters relating its calculation and they agreed they would themselves go through that Clause to confirm that the construction of the price and payment was agreed."
Disposition
Lord Justice Rimer:
"'Additional Residential Payment' [ARP] means 23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value [MGRUV] less the Costs and Incentives [C&I]"
"[ARP]" means the amount (if any) by which 23.4% of the price achieved for each Residential Unit is in excess of the [MGRUV] less the [C&I]."
Lord Justice Tuckey:
ARP means the amount (if any) by which 23.4% of the price achieved for each Residential Unit less the [C+I] is in excess of the [MGRUV]less the [C+I].