Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Arnold,Lord Justice Birss |
| Judgment Date | 09 May 2023 |
| Neutral Citation | [2023] EWCA Civ 482 |
| Docket Number | Case No: CA-2022-001313 |
| Court | Court of Appeal (Civil Division) |
[2023] EWCA Civ 482
Lord Justice Lewison
Lord Justice Arnold
and
Lord Justice Birss
Case No: CA-2022-001313
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE BUSINESS AND PROPERTY
COURTS OF ENGLAND AND WALES BUSINESS LIST
JOANNE WICKS KC (sitting as a Deputy High Court Judge)
[2022] EWHC 1467 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
James Pickering KC and Sally Anne Blackmore (instructed by Jackamans Solicitors) for the Appellant
Dov Ohrenstein (instructed by Roythornes Limited) for the Respondent
Hearing dates: 27 April 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 09.05.2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
The issue on this appeal is whether the parties entered into a binding agreement for lease contained in clause 1 of Heads of Terms (“HoT”) signed by the parties on 27 November 2013. Ms Joanne Wicks KC, sitting as a judge of the Business and Property Courts, held that they had not. Her judgment is at [2022] EWHC 1467.
Background facts
I can take the background facts from the judge's judgment.
In 2012, Blankney Estates Ltd (“Blankney”) had some unused land at Heath Farm, Metheringham Heath, Lincolnshire, comprising a former flax factory and adjoining field, registered under title number LL302872 (“the site”). It was put in touch with Pretoria Energy Company (Chittering) Ltd (“Pretoria”), which was looking for a site for an anaerobic digestion plant (an “AD plant”). It was Pretoria's intention to develop three such plants: one, at Chittering, Cambridgeshire, for which planning permission was granted in 2012 and which was in the course of being constructed in 2013. A second opportunity was identified at Mepal, Cambridgeshire, for which planning permission was obtained in 2013. The Heath Farm site would have been the third.
Following some initial discussions, by email of 9 July 2013 Mr Ripley of Pretoria sent Tim Harper, Blankney's Farm Manager, a written proposal. This had five headings: “Lease”; “Contract Maize Growing”; “Digestate”; “Gas Supply” and “Energy Connection”. These headings reflected the fact that, in addition to the grant of a lease of the site, the parties had been discussing various other commercial arrangements. “Contract Maize Growing” referred to a proposal that Blankney would grow maize to be sold to Pretoria as fuel for the AD plant. “Digestate” is an organic fertiliser, a byproduct of the production of biogas through AD. The discussions included the prospect that Pretoria would supply solid and liquid digestate to Blankney from the AD plant. “Gas supply” related to the potential that Pretoria would supply electricity and/or biomethane generated by the AD plant to Blankney. Under the heading “Energy connection”, Pretoria confirmed that it had energy connection sites available to it (for the supply of methane to the National Gas Grid) and was negotiating exact connection points and methods; it asked Blankney to assist and co-operate in regard to any wayleaves required. Under the heading “Lease”, the proposal was for a rent of £150,000 per annum, based upon a “bare land site” and for a 25-year period.
It was common ground that Pretoria would be responsible for obtaining planning permission for the AD plant; and that Pretoria would also construct it. Mr Ripley, who gave evidence on behalf of Pretoria, explained in his witness statement that the rent of £150,000 per annum was what he regarded as “being at the top end of what it would be worth once the plant was constructed.”
Further negotiations took place (which I do not need to recount); and the proposal went through a number of different drafts. The final (but undated) version was signed on 27 November 2013.
The HoT
The final document was described as “Heads of Terms of Proposed Agreement” and was stated to be “Subject to Full Planning Approval and appropriate consents and easements.” It went on to say that the agreement:
“… will consist of four constituent parts, the core element being the lease. The fourth element is available and negotiable for length of contract, delivery and pricing.”
Clause 1, headed “Lease,” provided:
“This is based upon a bare land site, known as the Flax Factory.
The lease term is for a period of 25 years. It is agreed that the lease will be outside of the 1954 act.
The lease value is £150,000 per annum payable on quarter days with an annual review based on RPI.
Both parties recognise that the lease will need to make suitable arrangements for rolling forward or decommissioning of the lessees' assets remaining on site at the termination date.
The lease will be filed with the Land Registry and therefore will require the appropriate consents and easements.”
Clause 2 provided for contract maize growing. Clause 3 provided for the supply of digestate; and clause 4 dealt with gas supply. It is common ground that these clauses were not intended to create legally enforceable obligations. Clause 4 did, however, provide (in part):
“We would like to ask that Blankney will assist and cooperate in regards to any wayleaves required … We, Pretoria, are expecting to pay for an easement, the charge being waived or reduced if gas purchased by Blankney and at a discounted sale price.”
The final clause, headed “Acceptance”, provided:
“These Heads of Terms of Agreement are agreed and signed on the understanding that the formal agreement will be drawn up within 1 month from planning consent being achieved and subject to the consents and easements being obtained. Furthermore, it is agreed that Blankney Estates and Pretoria Energy recognise that the arrangements being negotiated are exclusive to both parties until the 31 st July 2014 and thereby agree not to enter into negotiations with third parties to the detriment of the terms contained herein.”
It is common ground that this clause created a legally binding lock-out agreement. This, therefore, is an unusual case in which it is common ground that some parts of the same document created binding contractual obligations; but other parts did not.
The issue is whether clause 1 created a contractually binding agreement for lease.
Subsequent events
On 21 January 2014 Pretoria applied for planning permission. It had held off doing so until the HoT were signed. On 21 February 2014 Blankney granted Pretoria a licence over a neighbouring field for the growing, harvesting and carting away of single crop of maize. Pretoria also took a lease from another farmer of some 350 acres to be used for growing maize. Planning permission was granted on 11 June 2014. Thereafter, Blankney instructed solicitors to progress the drafting of a lease and also took steps to demolish the former flax factory. At some stage the planning authority objected to the demolition; and those works were temporarily halted.
Following the expiry of the exclusivity period, Mr Banks, one of Blankney's directors, emailed Pretoria with a view to replacing the lock-out agreement with a new one. But shortly thereafter Blankney lost confidence in Pretoria's commitment to the project and its ability to deliver it in a timely fashion. Despite Pretoria's protests to the contrary, the parties could not resolve their differences and on 24 November 2014 Blankney informed Pretoria that it had concluded arrangements with a third party.
The legal framework
The judge set out the general approach to the question whether parties have entered into a binding contract. She formulated the principle by reference to the judgment of Lord Clark in RTS Ltd v Molkerei Alois Muller GmbH & Co KG [2010] UKSC 14, [2010] 1 WLR 753 at [45]:
“Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”
She went on to say at [26]:
“The issues of contractual intention and of certainty, both of which are mentioned by Lord Clarke in this passage, give rise to two distinct questions: Joanne Properties Ltd v Moneything Capital Ltd [2020] EWCA Civ 1541; [2022] 1 P & CR 1 at [33]. Nevertheless, one issue may inform the other: the more vague and uncertain an agreement is, the less likely it is that the parties intended it to be legally binding: MacInnes v Gross [2017] EWHC 46 at [77]. However, as the passage from RTS above indicates, it is in most cases for the parties to choose which terms they regard as essential for the formation of legally binding relations. They can agree to be bound contractually, even if there are further terms to be agreed between them: Barbudev v Eurocom Cable Management Bulgaria EOOD [2012] EWCA Civ 548 at [32].”
She continued:
“28. In a commercial context, the onus of demonstrating that there was a lack of intention to create legal relations lies on the party asserting it, and it is a heavy one: Barbudev, above, at [30]. Parties may expressly negative contractual intention, which they often do by using the phrase “subject to contract”. But the use of such words is not essential: Cheverny...
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