Edi Central Limited V. National Car Parks Limited

JurisdictionScotland
JudgeLord Glennie
Neutral Citation[2010] CSOH 141
Published date27 October 2010
Docket NumberCA108/09
CourtCourt of Session
Date27 October 2010

OUTER HOUSE, COURT OF SESSION

[2010] CSOH 141

CA108/09

OPINION OF LORD GLENNIE

in the cause

EDI CENTRAL LIMITED

Pursuers

against

NATIONAL CAR PARKS LIMITED

Defenders

________________

Pursuers: McLean, Q.C., MacColl; Shepherd & Wedderburn LLP

Defenders: Clark Q.C., Simpson; Harper Macleod LLP

27 October 2010

Introduction

[1] The pursuers, EDI Central Limited, are a wholly owned subsidiary of the EDI Group Limited ("the EDI Group"). The EDI Group was established in the mid to late 1980s by the then Edinburgh District Council, the predecessor of the City of Edinburgh Council, to carry out the development of Edinburgh Park. Although originally run from within the Council, the EDI Group became fully independent from it in 1991. Since then it has been involved in residential and commercial developments in Edinburgh, West Lothian and North Ayrshire. All the shares in the EDI Group are owned by the City of Edinburgh Council ("the Council"). Its board of directors is composed of Councillors, in rough proportion to the political balance within the Council, together with the Chief Executive of the Council, the Director of Property and Development and the Director of Finance. Nonetheless, it operates independently of the Council as a private limited company, earning profits and paying taxes. The Chief Executive of the EDI Group from 2001 until April 2008 was Ian Wall. He was succeeded as Acting Chief Executive from April 2008 until July 2009 by John Mark Di Ciacca who, until then, had been Director of Property and Development. The pursuers were set up as a wholly owned subsidiary of the EDI Group to run the proposed Castle Terrace development with which this action is concerned. According to the evidence, the EDI Group is given no preferential treatment by the Council in respect of any development opportunities.

[2] The defenders are National Car Parks Limited ("NCP"), a company traditionally associated with the running of car parks. Amongst the car parks which it runs in Edinburgh is the Castle Terrace Car Park, on Castle Terrace ("the subjects"), which is owned by the Council and leased to NCP. A copy of the Lease between the Council and NCP was lodged in process. It ran for 25 years from the end of March 1995, and by 2005 had a further 15 years to run. The annual rent payable by NCP was the greater of (a) a cash sum fixed in the Lease as adjusted in accordance with a rent review clause and (b) a sum equivalent to 52.5% of the figure representing NCP's total receipts from their operation of the car park less the VAT collected on such receipts and less the amount of general, sewage and water rates exigible on the subjects. Clause FIFTH of the Lease provided that, subject to an exception which is not material for present purposes, the subjects were to be used by NCP "solely as a car park for private cars and light vans".

[3] It is clear from the unchallenged evidence given by Stephen Litherland, one of NCP's regional directors until 2006, that the Castle Street Car Park is highly successful and very profitable. For about 20 weeks a year it operates at about 80% capacity, which, he explained, is virtually as full as a car park can be, and for the remainder of the year it operates at about 60% capacity.

[4] Mr Litherland explained that in recent years NCP has moved on from just running car parks to become "a more profit-focused development business". A disposal and development strategy was implemented, with employees being encouraged to look for every development opportunity at NCP sites. Its surveyors would approach developers to explore development opportunities wherever they arose. The Castle Street Car Park was identified as such a development opportunity. Its prime location marked it out as a prominent development site. NCP had received expressions of interest from a number of developers. However, it had no right under the lease to redevelop the site and, as a result, quite apart from any question of planning permission, NCP was aware that any development proposal would need the support of the Council.

[5] NCP was introduced to EDI through an intermediary, Peter Grant of Montagu Evans. Mr Grant was not called to give evidence. In about 2002 NCP made an initial approach to EDI to discuss the development potential of the site. At about this time, Mr Litherland, together with Mr McNaughton (the then Chief Executive of NCP), met Mr Grant and Mr Di Ciacca, who was then the Head of Property and Development at EDI Group.

[6] It appears that there was considerable interest from a number of developers. However, Mr Litherland explained that from the outset EDI represented that, because of its close links with the Council, it was uniquely well placed to deliver the development of the Castle Terrace site and unlock its full development potential. NCP therefore entered into detailed discussions with EDI. The idea put forward, in broad terms, was that, in exchange for NCP getting a cash payment from EDI and a share in the profits, EDI would be interposed into the lease of the Castle Terrace Car Park. In other words, with the consent of the Council, NCP would assign its lease of the car park to EDI and EDI would in turn grant a sub-lease to NCP. Such an arrangement would enable EDI to pursue the development by negotiating directly with the Council and obtaining the necessary consents. From NCP's point of view, the arrangement would generate immediate capital, which, as Mr Litherland explained, was important because NCP was winning contracts for on-street car parking and had to put up bonds of up to £1 million each time in favour of the relevant local authority. Also of importance to them, however, was their expectation that the site would be developed and that they would have a commercial share in it.

The Agreement

[7] Discussions between NCP and EDI came to fruition in 2005. Missives were concluded between April and November 2005. Annexed to the missives was a draft Agreement. That Agreement was never, in fact, executed by the parties but it is not in dispute that they were bound by it by virtue of a term in the missives. The parties to the Agreement were (1) NCP, (2) the pursuers, EDI Central Limited, who are referred to in the Agreement as "the Developer", and (3) the EDI Group, referred to in the Agreement as "EDI".

[8] The basic structure of the Agreement was that, in exchange for a capital payment to NCP of £5 million, the pursuers would take an assignation of NCP's interest under the lease, and would then grant a sub-lease back to NCP. This is reflected in the Recitals to the Agreement, which provided in para.(b) that

"In order to procure the development of the Leased Subjects, NCP has agreed (i) to grant an assignation of the Existing Lease of the Leased Subjects to the Developer, who wishes to procure construction thereon of a commercial (or commercial and residential) building together with related services, car parking (if any) landscaping and others and (ii) to take the CT Sub-Lease (as hereinafter defined) of the Leased Subjects on the terms and conditions hereinafter mentioned"

The CT Sub-Lease is the term used for the sub-lease of the subjects to NCP. Other paragraphs of the Recitals should be noted. Para.(d) stated that the Developer had agreed to grant certain rights of first refusal to NCP in respect of the Development Area, an area within certain postcodes in central Edinburgh; and para.(e) recorded that the Developer and NCP had agreed to share Profit (a defined term) on the terms and conditions thereafter mentioned. The Agreement was conditional upon certain matters, in particular NCP obtaining on terms acceptable to the Developer and NCP (both acting reasonably) the prior written consent of the landlords (i.e. the Council) both to the assignation and to the sub-lease: clause 2. NCP was to give to the Developer a written notice ("an NCP Clearance Notice") when those conditions had been satisfied: clause 2.2. Clause 3 of the Agreement dealt with the up-front cash payment, and provided that the Assignation of the Lease should be granted by NCP in exchange for a payment by the Developer of £5 million, described as the "Assignation Consideration".

[9] I have referred to the fact that Recital (e) records that the parties had agreed to share Profit. This is one of the matters that Mr Litherland regarded as important. The provisions concerning Profit Share are complex and it is unnecessary to set them out in any detail. Clause 9 of the Agreement provided for the Profit Share to be calculated as soon as reasonably practicable after the CT Trigger Date. Clause 9.3, however, provided that once outline or detailed planning permission for the CT Project (i.e. the whole development including the design and construction of the works and the letting of the lettable units on the market) had been obtained in terms acceptable to the Developer, NCP should have the opportunity to negotiate terms with the Developer to be an equal joint partner in it. If this share in the potential profit was to be of value to NCP, it clearly required some assurance that the Developer would pursue the development to the best of its ability. Clauses 6 and 13 of the Agreement reflect this intention.

[10] Clauses 6 and 13 are at the heart of the present dispute between the parties. They provide, so far as is material, as follows:

"6. DISPOSAL

6.1 The Developer shall procure that the CT Project is pursued with all reasonable endeavours and as would be expected of a normal prudent commercial developer experienced in developments of that nature and in accordance with the Main Objectives. Save insofar as they are precluded from doing so by any confidentiality undertakings or the like, the Developer shall deliver to NCP, prior to the Developer entering into any Agreement for Lease for the same, an executive summary of such Agreement for Lease (and of such relevant Lease) (disclosing all material details of the same).

6.2...

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1 firm's commentaries
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