Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 31 January 2018 |
| Neutral Citation | [2018] EWHC 118 (Ch) |
| Date | 31 January 2018 |
| Court | Chancery Division |
| Docket Number | Case No: C30LS707 |
[2018] EWHC 118 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
Royal Courts of Justice
Rolls Building, London, EC4A 1NL
Mr Justice Norris
Case No: C30LS707
Mark Wonnacott QC and Harriet Holmes (instructed by Metis Law) for the Claimant
Piers Hill (instructed by Geoffrey Leaver Solicitors) for the Defendant
Hearing dates: 2–15 May 2017
Judgment Approved
How hard do you have to work to make yourself liable to pay £1.4 million? The essential question for decision in this case is whether a developer used ‘reasonable endeavours’ to achieve ‘as soon as reasonably practicable’ the satisfaction of certain conditions upon the fulfilment of which the developer became obliged to make an overage payment of £1.4 million: and if it did not, then whether the overage payment or damages in lieu are payable.
I will begin with a description of the site and an identification of the key interests.
The site in question is at Elder Gate in Milton Keynes (“the Site”). It was almost square. Although this is not the precise orientation, it is convenient for the purposes of this judgment to say that to the north lay Avebury Boulevard, to the west lay Elder Gate, to the south lay another branch of Elder Gate and beyond it Childs Way, and to the east Grafton Gate.
Within the Site and adjacent to its northern and western boundaries was a large square structure called ‘the Leisure Plaza’ (“the Leisure Plaza”): the remainder of the Site (in an ‘L’ shape around the Leisure Plaza) was car parking and open space.
It is sufficient for the purposes of this judgment to say that by 2002:
a) The land to the east of the Site was in the ownership of the Zurich insurance group and occupied by two retail stores (Argos and Toys'R'Us) (“the Zurich Land”)); and
b) Land to the south of the Site (adjacent to Elder Gate/Childs Way) was in the ownership of the Homes and Communities Agency (“HCA”).
In 2002:
a) The freehold in the Site was owned by the HCA:
b) The HCA title to the Site was encumbered by a “claw-back” covenant in favour of Milton Keynes Borough Council (“the Council”) that was protected by a restriction on the title:
c) The freehold title to the Site was also encumbered by a lease (“the Superior Lease”) originally granted to First Leisure Trading Limited in 1992.
d) Out of the Superior Lease First Leisure had granted two underleases of part of the Leisure Plaza (which can together be called “the Ice Rink Lease”) and this leasehold interest was vested in Planet Ice Limited (“Planet”).
e) The land demised by the Ice Rink Lease was used and occupied by Planet as a commercial ice rink and as the home of the MK Lightnings hockey team (“the Rink”).
f) The remainder of the Leisure Plaza was occupied by premises built as a ten-pin bowling alley and a nightclub/restaurant.
g) Out of the Superior Lease First Leisure had also granted two underleases relating to electricity substations (“the Transformer Leases”). From one of the sub-stations ran cabling and electrical conduits which serviced the Zurich Land (and in respect of which the proprietor of the Zurich Land held appropriate service easements).
The Elder Gate Leisure Plaza was not a successful attraction. First Leisure had built the Rink as a “planning gain” in order that they could build and run nightclubs and other more profitable operations. They originally ran the Rink at a loss but then closed it as unviable. It was acquired in 2000 by Planet for about £750,000: and Planet then invested a very considerable sum in making the Rink more attractive. But Planet could do nothing to make the adjacent leisure facilities attractive and by 2003 both the ten-pin bowling alley and the nightclub/restaurant had closed. The Council began conducting a Feasibility Study. The whole area was plainly ripe for redevelopment.
Abbeygate Helical (Leisure Plaza) Limited (“Abbeygate”) was an equal joint venture between Helical Bar PLC (“Helical”) and Abbeygate Developments Limited (“Developments”). Its object was to acquire and to redevelop the Site and any necessary adjoining land. In May 2003 the Superior Lease was acquired by Abbeygate for £2m. To redevelop the Site Abbeygate then had to (a) buy the freehold of the Site or alter the Superior Lease to permit redevelopment and (b) buy in all interests derived out of the Superior Lease (including the Ice Rink Lease and the Transformer Leases).
By a Transfer dated 4 July 2003 Planet transferred to Abbeygate the Ice Rink Lease. Abbeygate paid an immediate premium of £1.525m and entered into an overage covenant. There was, at trial, a debate about whether the “purpose” of this overage covenant was to provide to Planet supplemental value if development was achieved, or whether it was to provide a relocation fund for the operators of the Rink if the redevelopment involved closure of the Rink. But in my judgment the “purpose” does not matter. Whatever the reason for entering the overage covenant (and each side may have had a different reason) it is the legal obligation itself (“the Overage Provision”) which must be given effect.
By Clause 2.1 of the Overage Provision Abbeygate covenanted that it would not later than 10 working days after any “Trigger Date” pay to Planet the “Additional Payment”. The “Additional Payment” was a fixed sum of £1.4m. This sum is what the case is about.
The “Trigger Date” was defined in Clause 1.1.15 of the Overage Provision in these terms:-
““Trigger Date” means…the Date of an Acceptable Planning Permission…”
(There were other Trigger Dates specified but these are not material). There is one adjustment that might be made to the Trigger Date to which I refer below.
The expression “the Date of an Acceptable Planning Permission” was defined in Clause 1.1.6 of the Overage Provision to mean:-
“The date on which following the grant of an Acceptable Planning Permission is 3 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 in tact valid and of full effect.”
So the structure is that the “Trigger Date” will be a minimum of 3 months after the actual date on which planning permission is granted.
Of the defined expressions in that provision it is necessary to address only “an Acceptable Planning Permission”. This key term was defined in clause 1.1.2 to mean:-
“A Planning Permission…which is granted on terms and subject to conditions which in the reasonable opinion of [Abbeygate] are acceptable and commercially viable”.
It is useful to call this “the Planning Condition”.
By Clause 4.5 of the Overage Provision Abbeygate covenanted that it would “use its reasonable endeavours to obtain an Acceptable Planning Permission” having regard to current strategic and local planning policy and the advice of its consultants.
The payment obligation contained in the Overage Provision was subject to one proviso and one condition. The proviso was contained in the definition of the “Trigger Date” and said:-
“PROVIDED THAT no date more than 10 years after the date hereof will be a Trigger Date.”
The transfer containing the Overage Provision was dated 4 July 2003: so the Trigger Date had to fall before 4 July 2013. This longstop date is important in this case.
The condition was contained in Clause 3.1 of the Overage Provision and said that the obligation to pay the £1.4m was:-
“…conditional upon [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…for all purposes contemplated by the Acceptable Planning Permission or [b] 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 [c] the registered leases are merged in the Superior Lease and the Superior Lease is merged in the freehold” [Integers [a] [b] and [c] are inserted and are not in the original].
In fact, as at the date the Overage Provision became binding Abbeygate had already acquired the Superior Lease: and by the Transfer containing the Overage Provision itself Abbeygate acquired the Ice Rink Lease. But the argument advanced by Planet assumed that this did not satisfy option [b] and that it was option [c] that required fulfilment. It is useful to refer to this as “the Assembly Condition” since it relates to the gathering in or variation of property interests in the Site as part of the development process. Option [c] employs the language of “merger”. In strict law “merger” occurs where the tenant acquires the reversion or a third party acquires both lease and reversion. Read literally, what was contemplated by option [c] was that Abbeygate as holder of the Superior Lease would acquire the freehold from HCA: but what was contemplated in relation to leasehold interests derived out of the Superior Lease (if “merger” is read strictly) is less clear.
About the fulfilment of the Assembly Condition Clause 3.3 of the Overage Provision contained an obligation that Abbeygate would:-
“as soon as it considers strategically advisable (taking into account the requirement to obtain an Acceptable Planning Permission) commence and thereafter use reasonable endeavours to negotiate and agree with the parties entitled to the reversions…the variations contemplated by Clause 3.1 as soon as reasonably practicable”.
The party entitled to the reversion on the Superior Lease was the HCA. Abbeygate already owned the reversion on the Ice Rink Lease (and any replacement lease) and on the Transformer Leases because...
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