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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd  EWCA Civ 823 (14 May 2019)
Cite as:  EWCA Civ 823
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
LEEDS DISTRICT REGISTRY
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE FLOYD
LORD JUSTICE MALES
| GAIA VENTURES LIMITED
|- and -
|ABBEYGATE HELICAL (LEISURE PLAZA) LIMITED
Mark Wonnacott QC and Harriet Holmes (instructed by Metis Law) for the Respondent
Hearing dates : 3 & 4 April 2019
Crown Copyright ©
Lord Justice Patten :
"… the Date of an Acceptable Planning Permission… "
which, according to clause 1.1.6, meant:
"The date which following the grant of an Acceptable Planning Permission is three months after the Grant Date without a Challenge being made or in the event of such a Challenge the date upon which such Challenge has been abandoned or lost or finally disposed of leaving in place an Acceptable Planning Permission intact valid and of full effect."
"a Planning Permission (granted by the local planning authority or the Secretary of State or an Inspector or where the context requires the outcome of any Challenge) which is granted on terms and subject to conditions which in the reasonable opinion of the Buyer are acceptable and commercially viable".
"… use its reasonable endeavours to obtain an Acceptable Planning Permission but such obligation shall have regard to the current strategic and local planning policy and the advice of its consultants including Planning Counsel of at least five years standing from time to time and it shall not be obliged to do so for the duration of any period after which it is advised that it does not have a greater than 60% prospect of success provided that nothing herein contained shall prevent the Buyer from submitting more than one Application."
"3.1 The obligation to make the Additional Payment contained in clause 2 hereof is conditional upon the Buyer having obtained a variation of the provisions of the registered leases and the Superior Lease to permit the use and development of the premises demised by the Superior Lease and the Property for all purposes contemplated by the Acceptable Planning Permission or alternatively the acquisition of any necessary interest in the Superior Lease or the registered leases so that the necessary variation is available to it or the registered leases are merged in the Superior Lease and the Superior Lease is merged in the freehold.
3.2 If on the Date of an Acceptable Planning Permission the condition set out in clause 3.1 above has not been satisfied the Trigger Date will be postponed until 10 working days after satisfaction of the said condition subject always to the proviso in clause 1.1.15 hereof.
3.3 The Buyer shall as soon as it considers strategically advisable (taking into account the requirements to obtain an Acceptable Planning Permission) commence and thereafter use reasonable endeavours to negotiate and agree with the parties entitled to the reversions immediately expectant on the determination of the terms of the registered leases and the Superior Lease the variations contemplated by clause 3.1 as soon as reasonably practicable.
3.4 The Buyer shall notify the Seller as soon as reasonably practicable after the satisfaction of the condition in clause 3.1 and shall at the request of the Seller provide the Seller with details of the progress made in satisfying the said condition."
(a) Abbeygate having obtained a variation of the provisions of the registered leases and the Superior Lease to permit the use and development of the premises demised by the Superior Lease and the Property for all purposes contemplated by the Acceptable Planning Permission; or alternatively
(b) the acquisition of any necessary interest in the Superior Lease or the registered leases so that:
(i) the necessary variation is available to it; or
(ii) the registered leases are merged in the Superior Lease and the Superior Lease is merged in the freehold.
(1) "[HCA] being satisfied… that [Abbeygate] has supplied to [HCA] an Ice Specification which adequately defines and delineates in sufficient detail to [HCA's] reasonable satisfaction the Ice Refurbishment Works provided that [HCA] agreed that the Ice Specification annexed hereto satisfies this condition but for the avoidance of doubt [HCA's] approval… will be required to any material amendments or variations…". ("the Ice Specification Condition");
(2) "A legally binding, non-assignable agreement for lease in a form acceptable to [Abbeygate] [and in such form as [HCA] shall approve in writing…] which is conditional only on this agreement becoming unconditional and [Abbeygate] obtaining any necessary planning permission for the Ice Refurbishment Works and on the buyer carrying out the Ice Refurbishment Works [such agreement for lease] to be made between [Abbeygate], [a prospective tenant for the [Rink] acceptable to Abbeygate and approved in writing by HCA] and [a guarantor acceptable to [Abbeygate] and approved in writing by [HCA]]…". ("the Ice Condition"); and
(3) The entering into of a legally binding agreement to lease the superstore on the Site to Morrisons in accordance with the Draft Heads of Terms scheduled to the HCA Agreement.
(1) the HCA Agreement becoming unconditional;
(2) the entry by Abbeygate into an agreement for a lease of the Ice Rink (on terms acceptable to Abbeygate) which was either unconditional or was conditional only on the Morrisons Agreement becoming unconditional;
(3) the obtaining by Abbeygate of detailed planning permission for the building of the superstore in accordance with the Morrisons Agreement; and
(4) the execution of a deed or binding agreement releasing the service easements in favour of the Zurich land or at least re-locating the route of the services so that the rights were not exercisable over the land to be demised to Morrisons.
"36. They set about achieving what was openly referred to by them and by Mr Faine of Developments as the "miracle" of back-to-back funding. This required the completion date of the Morrisons Agreement to be contemporaneous both with that of the HCA Agreement and with the on-sale of the development package to an institutional investor who would pay development funds up-front i.e. who would buy the Morrisons supermarket before it was built, would pay for the land on completion, and would pay the balance of the consideration for the completed development into an escrow account that could be drawn down to fund the building works themselves. To that end an approach was made to the managers of the Lime Property Fund managed by Aviva Investors Global Services Limited ("Aviva") which already had a portfolio of assets let on long leases to tenants with strong covenants, and which proved to be keenly interested in the Site.
37. The miracle was achieved, the detailed negotiations taking from 23 November 2012 until 26 February 2013. But it remained essential to manipulate the conditions in the Morrisons Agreement (and hence the HCA Agreement) to ensure that there was no gap between the time for performance of Abbeygate's obligations and Abbeygate's access to funding.
38. In that regard Abbeygate had the power to influence the Land Condition Date (the date on which the HCA Agreement became unconditional). This involved the manipulation of satisfaction of the three conditions I have noted in paragraphs  to  inclusive above, relating to the Ice Specification, the Ice Condition and the Pre-Letting Condition (the last of which itself involving satisfaction of six conditions, amongst them the occurrence of the Variation Date, relating to the release of the services easement benefitting the Zurich Land). But Abbeygate's room for manoeuvre was limited by the obligations contained in the 2003 Overage Provision that Abbeygate had to use "reasonable endeavours" to achieve particular outcomes "as soon as reasonably practicable": and by the Long-stop date of 31 March 2013 in the HCA Agreement."
"72. I hold that the term "registered leases" refers both to the Rink Leaseback and to the Transformer Leases. First, the words "the registered leases" naturally refer to such leases as are registered against the title to the Superior Lease, and not to some only of such encumbering interests. Second, "the registered leases" relevant to the satisfaction of the Assembly Condition were not the two leases making up the Ice Rink Lease that were acquired by Abbeygate under the transfer of 4 July 2003 but the new Rink Leaseback intended to be granted afresh. So, there is no necessary link between what was being transferred by the TR1 containing the Overage Provision and "the registered lease" that had in the future to be acquired. Third, I do not consider that the term "merger" was being used in a strictly technical sense in contra distinction to "surrender". At the time when the clause was drafted what was envisaged was that Abbeygate would buy in and combine the reversions and the leases: in fact, by the time that the transfer was signed and the Overage Provision took effect Abbeygate had already acquired the Superior Lease, so that it made sense to speak of "merger" of the freehold and the Superior Lease in a strictly technical way: but the combination of the other interests might have taken effect either by merger (strictly so called) or by surrender."
"94. I find and hold that reasonable endeavours were not made to attain satisfaction of the Ice Condition as soon as reasonably practicable. Exchange with Planet MK was indeed deliberately delayed. In relation to the Ice Condition there was no inherent reason why it could not have been satisfied at the end of March 2013 or the beginning of April 2013. The failure to achieve exchange within that timeframe was caused by Abbeygate's desire to manipulate the conditions in its various agreements so as to secure that its building commitments aligned with its funding position. But Abbeygate cannot be heard to say "we have by our own act made it impracticable to do what was otherwise reasonably practicable": their promise was not to use reasonable endeavours to acquire the reversion on the Superior Lease "when convenient" or "when it suits our fund flows" but "as soon as reasonably practicable". If steps had been taken "as soon as reasonably practicable" the Ice Condition would have been satisfied well before mid-June 2013."
"105. So far as the Transformer Leases are concerned, on 4 July 2013 Western Power Distribution agreed in principle to surrender the Transformer Leases after diversionary works were completed and to take new lease of the relocated transformers. It was not clear from the evidence at trial when the first approach was made to Western Power: the tenor of the e-mail of 4 July 2013 is that it is simply providing written confirmation of something that was well understood on the ground. My own reading has included an e-mail of 30 May 2013 from Western Power which indicates that that there is no technical difficulty (and which raises no legal opposition) and a "Key Milestones" document that suggests that the statutory diversion works were pencilled in to start on 10 June 2013: that material would confirm the impression given by the e-mail.
106. The necessary legal work had not been completed when (on 10 July 2013) Morrisons agreed to waive the requirement for the surrender of the Transformer leases and Aviva said it was willing to "take a view" and agree to that waiver to get the deal completed. That demonstrates how confident they were that that surrender of the Transformer Leases was a pure formality. It may be taken that prompt agreement to surrender would have been the attitude of the owner of the Transformer Leases whenever asked. If the request to surrender the Transformer Leases had been made as soon as reasonably practicable (and there is no reason why that should not have been in November 2012 following the entry of the HCA Agreement) it is highly probable that a specifically enforceable agreement for surrender and re-grant would have been made so that the Assembly Condition was satisfied well before 20 June 2013."
"109. The simple truth is that what lay behind this approach was not a desire to take steps as soon as reasonably practicable but a desire to leave things as late as possible to ensure that the Morrisons Agreement remained conditional until funds were released by Aviva. If matters had been driven by a desire to do things as soon as reasonably practicable it is highly probable that by mid-February a specifically enforceable agreement for a variation (and it is probable that a completed Deed of Variation) would have been in place."
"87. I find that Mr Gwynne, Mr Faine and Mr Pittman all knew exactly what they were doing when they arranged the speed at which, and order in which, matters were attended to between 31 October 2012 and 20 June 2013: and I hold that when the Court comes to take account of whether, on an objective basis, Abbeygate used reasonable endeavours to achieve a particular outcome as soon as reasonably practicable the Court is, when weighing Abbeygate's protestations that it did exert all reasonable endeavours as soon as reasonably practicable, entitled to have in mind that knowledge.
88. In my judgement Mr Gwynne, Mr Faine and Mr Pitman knew that there was concern on the other side that Abbeygate might try to "chip" them, because Mr Petrouis expressed that concern at a meeting in early December 2011 about the refurbishment. According to his evidence Mr Petrouis (who was becoming concerned that Abbeygate was playing its cards very close to its chest in relation to the progress of the development) said to Mr Faine that "the lads" or "the boys" were becoming worried that Abbeygate was going [to] "chip" them at the end of the deal: and that Mr Faine disavowed any such intention. Mr Faine denied that such an event had occurred; and Abbeygate's Counsel submitted that Mr Petrouis' supposed recollection was in effect built upon the adventitious disclosure of the "haircut" e-mail during the case. But having seen Mr Petrouis and having gained a little insight into the way he conducts business it seems to me that it is the very sort of thing he would say: and I consider he probably did say it. I consider that Mr Petrouis' comment influenced Abbeygate to seek to take advantage of any delay that might be engineered (without being blatant) or which otherwise occurred i.e. whenever possible to sit back and let events take their course, rather than positively to perform the obligation that Abbeygate had undertaken in 2003 to use reasonable endeavours to bring about a scenario as soon as reasonably practicable."
"80. The term "reasonable endeavours" is a descriptive phrase without any immutable content. Its application requires a judge to make a value judgment in the light of all the facts of the particular case, so that reference to other decided cases is of limited assistance. But I was assisted by being reminded of the decision of Mr Julian Flaux QC (as he then was) in Rhodia International Holdings Limited v Huntsman  EWHC 292. In the course of it he pointed out that the content of the duty lies on a spectrum dependent upon the precise language used. He said at para : -
".. There may be many reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours…"
81. What is undertaken is a positive obligation: a promise to use "reasonable endeavours" or to take "reasonable steps" is not to be read as equivalent to a promise to act "if and to the extent that it is in conformity with my proposed arrangements". This was an obligation to take reasonable steps. The question is whether the relevant step was feasible, and then whether in all the circumstances it was reasonable to take it (or unreasonable not to take it), balancing the risk of adverse consequences against the obligation to perform the promise. When assessing adverse consequences, the court is concerned to see whether the consequences of taking a particular step are on an objective view unreasonable and impractical. As Alghussein Establishment v Eton College (CA) The Times 16 February 1987 makes clear, something which merely affects the margin of a developer's profit would not in the ordinary course be taken into account in considering whether it is reasonably practicable for a developer to commence or continue development at any time. (The appeal to the House of Lords in Alghussein was upon a different point)."
"The phrase "as soon as is reasonably practicable" is repeated later in Clause 3(b), but the later part of the clause is ill-drawn and the syntax is obscure. I take it however, that the words "as soon as is reasonably practicable" at the opening of Clause 3(b) are to be read as a general overriding phrase applying alike to the commencement and completion of the development. There is no doubt that, at all material times, the commencement and completion of the development has been practicable in the sense that there has been no engineering or construction difficulty, and all necessary consents and permissions have been available.
There is no doubt also in my view -- and this is really common ground -- that in a general sense the appellants are not required to do anything unreasonable so as to complete the [development] earlier. For instance, they are not required to use arc lights and pay vast amounts of overtime in order to work the site round the clock, seven days a week, to finish the completion of the development sooner. Equally, they are not required to hire expensive equipment to start excavation a few days earlier when the site is deeply frostbound.
Other such instances can be thought of where a measure of delay could be avoided at very high cost to the developers. Those are matters which affect the profit of the developers. From their point of view that is why to incur such costs would objectionable. Indeed, practically anything that happens may affect the profit of a developer. But as it seems to me these matters are outside the contemplation of this agreement because, as methods of working, they are on an objective view unreasonable and impracticable and not merely because they would affect the profit of the developer.
The agreement does not guarantee to the developer any specified level of profit or even, in my view, a reasonable profit. The fact, therefore, that there are matters such as those I have mentioned, as to which it may be said that it would be unreasonable to expect the developer to bear such costs which would in fact so adversely affect his profit, does not mean that any matter which would affect his profit is a matter to be taken into account in considering whether it is reasonably practicable for him to commence or continue the development at any time. It does not mean that all financial matters have to be considered as matters of fact and degree."
(i) that there could have been a specifically enforceable agreement for the surrender and re-grant of the Transformer Leases before 20 June 2013 ("Ground 3");
(ii) that approval by the HCA of the Ice Specification could have been obtained before mid-June 2013 ("Ground 4"); and
(iii) that a specifically enforceable agreement for the variation of the service easements could reasonably have been obtained by mid-February 2013 ("Ground 5").
"74. I hold that what the Overage Provision requires is merger in equity. Abbeygate's contractual obligations relate to matters over which it has some influence or which fall to be undertaken according to a statutory timetable. The object of the Assembly Condition is to postpone the Trigger Date until such time as Abbeygate has acquired sufficient property interests (a) to facilitate a variation of the relevant property rights to permit the use and development of the Site for all purposes contemplated by the planning permission, or alternatively (b) to render that variation unnecessary because all relevant interests are "in hand". That latter position is achieved once Abbeygate is the owner in equity of all the relevant interests, enabling Abbeygate to compel their legal owners to concur in the alteration of the titles at HM Land Registry. This also reflects reality, is consistent with s.24 of the Land Registration Act 2002 and does not makes the parties' mutual rights dependent upon the administrative processes of an executive agency."
Ground 3: the Transformer Leases
Ground 4: the Ice Specification
Ground 5: the Service Easements
Lord Justice Floyd :
Lord Justice Males :