Groveholt Ltd v Hughes and Another

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLady Justice Arden,Lord Justice Wilson,Mr Justice Henderson
Judgment Date20 May 2010
Neutral Citation[2010] EWCA Civ 538
Docket NumberCase No: A3/2009/1833
Date20 May 2010

[2010] EWCA Civ 538



(Chancery Division)

Peter Smith J

Before: Lady Justice Arden

Lord Justice Wilson


Mr Justice Henderson

Case No: A3/2009/1833

Groveholt Limited
Alan Hughes & Anr

Mr John Martin QC & Mr Alex Hill-Smith (instructed by Lester Aldridge LLP) for the Appellant

Mr Neil Kitchener QC & Mr Zachary Bredemear (instructed by Messrs Jones Day) for the Respondent

Hearing dates: 14/15 January 2010

Lady Justice Arden

Lady Justice Arden:


This is an appeal from the order dated 31 July 2009 of Peter Smith J in so far as (1) he refused permission to the appellant, Mr Alan Hughes, to amend his re-amended defence in terms of paragraphs 31, 32, 33 and 50 of his draft re-amended defence and (2) ordered Mr Hughes to pay 50% of the costs of the hearing assessed at £10,000. The action concerns the entitlement to the proceeds of sale of a substantial development at a former quarry known as Cawdor Quarry, Matlock, Derbyshire (“the Quarry”). The Quarry was originally owned by Mr Hughes. Since no major change had been made to the Quarry following the cessation of mining operations, it was necessary to incur major costs in providing infrastructure and acquiring additional land before the Quarry could be developed. Mr Hughes sold part of the site to a developer, Chelverton Limited (“Chelverton”), pursuant to an agreement dated 9 April 1998 (“the Hughes/Chelverton Agreement”), on terms that he would receive overage payments of up to £5m. The respondent, Groveholt Ltd (“Groveholt”), is a successor in title to Chelverton. The dispute in these proceedings centres round whether (1) under the complex web of agreements surrounding the development, (2) in the events which have happened and (3) following earlier judicial decisions on the effect of the agreements, certain infrastructure and site assembly costs fall to be deducted. The amendments that the judge rejected reflect a new way in which Mr Hughes wishes to put his case for resisting their deductibility. The amendments are set out in appendix 1, and they are explained below.


(1) The complex web of agreements surrounding the development of the Quarry


In 1996, Mr Hughes sold part of the Quarry to J Sainsbury plc (“Sainsbury”) for development as a supermarket. Under an agreement for sale, dated 23 December 1996, as varied by a loan agreement dated 10 March 1998 (which agreement, as so varied, is referred to below as “the Sainsbury Agreement”), Mr Hughes became entitled to receive in addition to the price a further sum called “the balancing payment”. Provision was made for an account to be taken on completion of the costs of the Site Assembly Process and Infrastructure Works as defined (together “the Costs”). The balancing payment was the difference between £5m and the amount of the Costs (if less than £5m). However, Mr Hughes was obliged to indemnify Sainsbury against costs in excess of this sum. The loan agreement also provided for the substitution as obligor of another company in the Sainsbury group but that substitution can be disregarded for the purposes of this appeal.


The Sainsbury Agreement plays a crucial part in the argument on this appeal. Its provisions are important. The Costs are defined in some detail: I have summarised those provisions in appendix 2 to this judgment. Clause 15 prescribes a detailed procedure for regulating how the Costs were to be incurred. For example, the site assembly process was to be jointly managed and controlled by Sainsbury and Mr Hughes, both parties using due expedition and all reasonable endeavours to obtain the best practicable terms. Thus the procedure in clause 15 safeguarded the interest of Mr Hughes in ensuring that excessive costs were not incurred.


There were a number of further agreements and novations between Mr Hughes, Sainsbury and Chelverton. On 9 April 1998, Mr Hughes sold the remainder of the Quarry to Chelverton. Under clause 5 of the Hughes/Chelverton agreement, Mr Hughes became entitled to receive overage payments from Chelverton if various planning approvals were given (which condition was fulfilled): these are the payments which give rise to the present dispute. The overage provisions gave Mr Hughes a share of the development in the form of a series of fixed sums.


Clause 5 of the Hughes/Chelverton Agreement did not make any express general provision for the deduction of the costs of putting the Quarry into a condition whereby the value of the land with the planning permissions could be realised. There was a special clause (clause 8) dealing with the Sainsbury Agreement. Clause 8.1 recorded that Chelverton had not seen the Sainsbury Agreement, which was confidential. Clause 8.2 recorded that Sainsbury was obliged to pay up to £5m towards the Costs, with any balance to be released to Mr Hughes. Mr Hughes undertook that Sainsbury would comply with that obligation (Clause 8.3.1), and that the site assembly and infrastructure costs (as defined in the Hughes/Chelverton Agreement) would not exceed £4.5m. Mr Hughes was obliged to pay Chelverton the costs over £4.5m, which could be paid direct to Chelverton rather than to Sainsbury in accordance with the Sainsbury Agreement (Clause 8.3.2). Mr Hughes also agreed to pay the balancing payment to Chelverton (Clause 8.3.3).


The definitions of infrastructure works and site assembly works in the Sainsbury Agreement and the Hughes/Chelverton Agreement are not identical, but as Mr John Martin QC, for Mr Hughes, submits they appear largely to cover the same ground. Mr Neil Kitchener QC, for Groveholt, submits that there is at least one material difference, that is that the definitions in the Sainsbury Agreement are materially more generous since they allow the deduction of all professional fees and not just reasonable professional fees. These differences do not seem to me to be fundamental and thus I would accept Mr Martin's submission that there was no significant difference between the infrastructure costs and site assembly costs referred to in each agreement. Accordingly, I will use the term “Costs” to refer to site assembly costs and infrastructure costs arising under the Sainsbury Agreement or the Hughes/Chelverton Agreement, as the case may be.


Clauses 9 and 10 of the Hughes/Chelverton Agreement set out obligations of Chelverton in respect of site assembly and infrastructure. By clause 9, Chelverton assumed an obligation to use its best endeavours to organise and effect the infrastructure works and to agree site assembly agreements. Under clause 10 it agreed to use its best endeavours to acquire land belonging to Railtrack which formed part of the land needed to develop the Quarry.


Chelverton agreed to charge the land sold to it in favour of Mr Hughes to secure the overage payments (Clause 11). Clause 11 provided that the overage payments should not become payable until:

“11.1 the Site Assembly Costs are known and certain by exchange of all Site Assembly Agreements and the Infrastructure Costs are known and certain to the extent that tenders for the carrying out of the works within a practicable timescale have been received and accepted and the costs thereof (including any fees) thus calculated

11.2 (in the event that clause 10 has effect) the payment due from the Vendor under clause 10.2 is known and at such time when such costs are so identified and known, then any further payments then due and payable to the Vendor under the said clauses 5.1.2 to 5.1.5 hereof after deducting amounts due to the Purchaser under clause 8.3 and 10 hereof shall be payable to the Vendor such payment being made within ten days thereof”


One of the events for which the parties to the Hughes/Chelverton Agreement did not provide was the liquidation of Chelverton. That in due course occurred, as explained below. The parties also failed to provide a procedure for the ascertainment of the costs of the infrastructure and site assembly works.


Chelverton executed a deed of charge dated 16 September 1998 (“the Charge”) to secure the overage payments. This contains a promise to make the overage payments but there is no material difference between the obligations to make the overage payments in the Charge and those in the Hughes/Chelverton Agreement.


Pursuant to a Novation Agreement also dated 16 September 1998, the Sainsbury Agreement was novated and Chelverton became bound in place of Mr Hughes. Essentially, Chelverton stepped into Mr Hughes’ shoes as developer but he remained entitled to the overage payments under clause 5 of the Hughes/Chelverton Agreement and liable to make payments under clause 8 of that Agreement. By a Supplemental Agreement, likewise dated 16 September 1998, between Mr Hughes and Chelverton, Chelverton agreed to use its reasonable endeavours to obtain the compliance by Sainsbury with its obligations with respect to the Costs, and not to agree any variation to those obligations without the prior consent of Mr Hughes.


By a deed dated 21 December 2000, Groveholt acquired the land from Chelverton and agreed to perform Chelverton's obligations under the Hughes/Chelverton Agreement. It is to be noted that Groveholt and Mr Hughes were not at any time in any direct contractual relationship. On 2 April 2004, by agreement between Sainsbury and Groveholt (“the Groveholt /Sainsbury Agreement”), Sainsbury agreed to complete the site assembly process and to carry out the infrastructure costs at its own expense. Groveholt undertook to make further payments to Sainsbury upon...

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