Connolly v Bellway Homes
| Jurisdiction | England & Wales |
| Judgment Date | 23 April 2007 |
| Neutral Citation | [2007] EWHC 895 (Ch) |
| Court | Chancery Division |
| Date | 23 April 2007 |
[2007] EWHC 895 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice Strand, London. Wc2a 2ll
Stephen Smith OC
Sifting as Deputy Judge in the Chancen' Division
Stephen Moverley Smith QC and Helen Galley (Instructed by Dechert LLP) for the Claimant
Ian Pennicott QC (Instructed by IBB Solicitors) for the Defendants
Approved Judgment
Hearing dates: 26th, 27th, 28th February, 1st 2nd 5th and 6th March 2007
I direct that pursuant to CPR PD 39A para. 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Stephen Smith QC (sitting as a deputy judge of the Chancery Division)
In this case the Claimant, Connolly Limited (“Connolly”) seeks rectification of a contract for the sale of a piece of land for mixed commercial and residential development close to the centre of Canterbury. The contract was signed on 1 st May 2001. The purchaser of the land was Bellway Homes Limited (“Bellway”). There are two aspects to the rectification claim. In the alternative to one of these, Connolly also asserts a claim in deceit. Connolly has calculated that success on any of these claims will have the consequence that Bellway is liable to make a substantial (further) payment to it; and, as regards some of the claims, that the amount of Bellway's liability could be in excess of £4 million.
The discussions which are at the centre of Connolly's claims took place in the latter part of 2000 and the early part of 2001; the trial of the action took place in February and March 2007, over 6 years later. The principal reason why these claims did not come to trial sooner is that Connolly did not appreciate until 2005 that there had been – as it claims – mistakes made in the drafting of the agreement, or deceit (or both).
General background
I shall first set out the general history of the case, before focusing on the particular events which are at the heart of the claims.
The development site was formerly known as St Mildred's Tannery, Rheims Way, Canterbury. For many years the Claimant, or one or more companies connected with it, carried on the business of a tannery on the site. The site extends to some 8.44 acres. It lies within the line of the old city wall and is roughly three-sided; one side adjoins the River Stour, and another the city's inner ring road. The site is conveniently located for access to Canterbury city centre and to public transport, and has views of the cathedral.
Connolly decided to sell the site for development in the late 1990s. By early 2000 Connolly had appointed an agent, Pace Projects Limited (“Pace”), based in Radlett in Hertfordshire, to assist it with its plans for the site. Pace was throughout represented by Paul Draper, who was the only person called to give evidence of fact in support of Connolly's claim. Mr. Draper received his instructions from Joseph Connolly, one of Connolly's directors. Mr. Joseph Connolly was the director who ultimately signed the sale contract with Bellway on Connolly's behalf, and also the several formal amendments subsequently made to that agreement.
By letter dated 28 th June 2000 Pace received an expression of interest in purchasing the site or acting as the preferred development partner from a firm of surveyors and property consultants acting on behalf of Bellway. Several other well known developers also expressed a similar interest.
In a letter to Pace dated 22 nd August 2000 Bellway offered to purchase the site with vacant possession for £14.51m, subject to satisfactory planning permission being obtained. That was the highest offer Connolly received. In a further letter dated 6 th September 2000, Bellway indicated that it intended to devote 1.5 acres of the site to retail development, 1.2 acres to a hotel, and the remainder to a residential, primarily flatted, scheme.
Under cover of a letter dated 13 th October 2000 Bellway submitted to Pace a formal proposal document. Bellway's proposal was that it would purchase the site conditionally on the grant of planning permission.
There followed telephone discussions between Mr. Michael Davis, on behalf of Bellway, and Mr. Draper. During the course of those discussions it was proposed that the price to be paid for the site should be “indexed” in the sale contract. Mr. Draper was keen to ensure that, pending completion of the sale (which might take many months or – as transpired – years, given the requirement for acceptable planning permission) Connolly would share in any increase in the value of the land. Mr. Davis was agreeable to the idea, provided that allowance was made against the increase in the value of the land for any increase in building costs.
It is in connection with the way in which the provision for indexation found expression in the sale contract that this claim is brought.
Mr. Draper drafted a document entitled “Sale of site to Bellway Homes Limited Proposed Heads of Terms”, and sent this to Mr. Davis on 23 rd October 2000. Discussions ensued over those terms. By 8th November 2000 the parties had agreed the Heads of Terms document, and around that time Connolly sent the document to its solicitors, SJ Berwin, to assist them in drawing up a draft sale contract.
SJ Berwin sent the first draft sale contract to Bellway's solicitors, Iliffes Booth Bennett (“IBB”), on 24 th January 2001. A number of further versions of this document, or parts of it, followed. By 20 th April 2001, the indexation provision targeted in Connolly's claim had found its final form. The sale contract was signed on 1 st May 2001.
The 1 st May 2001 sale contract was in a different form from the form which now binds the parties. The May 2001 contract was an agreement which was conditional on the grant of planning permission within a defined period. That contract was varied by five supplemental agreements between August 2001 and July 2003. By the time of the last supplemental agreement – 3rd July 2003 – the contract had been recast as an unconditional sale contract. Whilst it is the contract in its July 2003 form which I am asked to rectify, the indexation provision remained in exactly the same form throughout.
The indexation provision in the sale contract
The sale price in the July 2003 contract was £6 million.
Provision was also made for additional consideration to be paid in respect of both the residential and commercial land, in certain eventualities. Those eventualities transpired as regards the residential land, and the “Residential Land Additional Consideration” (“RLAC”) fell due to be paid in 2005.
The RLAC was defined in Part 1 of the Second Schedule to the 2003 contract as £4,010,000 plus and minus a variety of figures. One of those figures is described as “plus the Inflation Adjustment (if any)”.
The Inflation Adjustment is the provision which Connolly seeks rectification of, in two respects. It is a provision which, as I have already pointed out, had become finally settled between the parties towards the end of April 2001, and it survived (unchallenged) the various changes wrought on the original May 2001 contract by the five supplemental agreements.
The Inflation Adjustment is defined thus in the sale contract:
“ Inflation Adjustment means an increase in the Residential Land Price (intended to reflect increases in sale prices after discounting inflation in building costs) in the same proportion as the following formula:
X = ( A – B x 100)—C%
212
Where
X = the increase to be applied to the Residential Land Price, expressed as a percentage
A = the Sales Price per square foot
B= £212 (representing the estimated average sales price per net square foot of the Residential Development at the date of this Agreement)
C= the % change in the Index between the Index Figure and the figure last published before the Residential Calculation Date”
It is common ground that the “date of this Agreement” in the definition of B is a reference to 1 st May 2001.
The “Sales Price per square foot” is defined as the average sales price per net square foot at (in the events which happened) the date of the receipt of acceptable planning permission, being “the average of three valuations made by three independent valuers to be appointed by the parties”. The Index referred to in the definition of C was the Index of Building Cost Information Service Quarterly Review issued by the Royal Institution of Chartered Surveyors, as adjusted for Kent.
The two aspects of the definition of the Inflation Adjustment which have given rise to this case are these:
(a) The first aspect is that the formula set out provides for the deduction of a percentage increase in building costs from a calculation which purports to reflect the percentage increase in the sales price per net square foot of the development. Thus if the former percentage were to turn out to be greater than the latter, there could be no uplift of the RLAC by virtue of the Inflation Adjustment.
(b) The second aspect is that whereas the formula provides that the sales price per net square foot of the development at the date of the grant of planning permission is to be determined by an average of the views of three valuers, the comparable figure as at 1 st May 2001 was specified as £212. Since that figure is the base figure for determining the rate of any increase in the value of the land, it obviously has a very significant effect in the determination of the extent of any increase.
On 28 th April 2005 satisfactory planning permission was received for the development of the site. On 17 th May 2005 three valuers were instructed to assess the sales price as at 28 th April 2005, for the purposes of the Inflation Adjustment. One of those valuers assessed...
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