Ipsofactoj.com: International Cases [2005] Part 7 Case 3 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

Bride Hall Estates Ltd

- vs -

St George North London Ltd

LORD JUSTICE KEENE

LORD JUSTICE CARNWATH

LORD JUSTICE MAURICE KAY

18 FEBRUARY 2004


Judgment

Lord Justice Carnwath

  1. This appeal raises a short but difficult issue, concerning the true construction of "overage" provisions in a contract of sale of land. The property is 171/176 Aldersgate Street, in the City of London. By the contract, dated 29th October 1997, the Claimants sold the property to the Defendants, on terms which required the Defendants to obtain planning permission for a "new primarily residential building" with associated parking, to carry out the development, and to market the resulting units. (Subsequent variations of the agreement do not appear materially to affect the issue before us.) The Claimants were entitled to "overage" based upon the achieved sale prices of the residential units in the development.

  2. The issue is whether, as the Defendants claimed, the amounts paid for parking spaces (attached to some but not all of the residential units) were to be deducted in the calculation of the overage. The total sales price of all units was of the order of £20m. By the Defendants’ calculation, the amount to be deducted for parking was £823,000, and the overage to which the Claimants were entitled was £302,557. The Claimants did not accept that the figure of £823,000 was the correct apportionment of the amounts attributable to parking, but more fundamentally they challenge the right to make any such deduction under the agreement. On that basis the overage would be £590,765.

  3. On the application of the Claimants, it was ordered that a preliminary issue should be tried in the following terms:

    Whether upon the true construction of the Agreement .... and in the events which have happened the aggregate sale prices for the Residential Units includes the sum paid in respect of parking spaces for the purposes of calculating overage under Clause 11.4 of the Agreement.

  4. Deputy Master Nurse answered this question in the negative, in favour of the Defendants. His decision was reversed on appeal by John McDonnell QC, sitting as a Deputy High Court Judge.

  5. In anticipation of the discussion of the judgment below, I should note the reference in the preliminary issue to "the events which have happened". This phrase was taken directly from the Particulars of Claim, but it was not further particularised, and its precise intended significance is obscure. The only evidence before the courts below was contained in two affidavits (one on each side) with exhibits. The one reference to a subsequent "event" of potential significance concerned the details of the contract relating to Flat 6 (dated 12th May 1999):

    1. Mr. Maxfield for the Claimants noted that the price in the contract was "a global one for the flat and the parking space". This was in support of his suggestion that the Defendants’ proposed figures for parking, making up the total of £823,000, represented their own apportionments of the sale prices, rather than contractually agreed figures; and that such issues of quantification should be left for subsequent resolution if the Defendants succeeded on the point of principle.

    2. Mr. Brierley for the Defendants disputed this interpretation. He exhibited correspondence relating to Flat 6 which showed that "separate prices were achieved for the flats and car-parking spaces ...." He asserted that:

      .... the car parking spaces were indeed marketed separately to the flats and revenue for the sales of the car parking spaces was treated entirely separately.

    There is no indication in the papers, or skeleton arguments below, that either party thought the resolution of this apparent dispute to be relevant to the preliminary issue. It seems to have been left open as a matter to be resolved if necessary at the quantification stage.

    THE RELEVANT CLAUSES

  6. The Defendants were required to obtain planning permission as set out in Clause 3.2.1:

    St George shall obtain detailed planning permission for the Works in a form satisfactory to the Company and St George .... for the construction on the Property of a new primarily residential building comprising in aggregate approximately 60,963 sq ft of Net Internal Area and consisting of a unit on the ground floor and part first floor .... for use within Class A3 of the Schedule to the Town & Country Planning (Use Classes) Order 1987 and a mix of apartments of 54,505 sq ft of Net Internal Area (or thereabouts) for residential use together with associated car parking (whether at basement and/or ground level) ....

  7. The overage provision was in clause 11.4:

    11.4.

    1

    On the sales of the Residential Units if the aggregate sale prices (subject to Clause 11.4.2) achieved exceeds (sic) £340 per square foot of the total Net Internal Area of the Residential Units (measured in accordance with Clause 3.2) then within 5 days following completion of the sale of the last Residential Unit St George shall pay a sum calculated at 35% of the amount by which the total sale price for the Residential Units exceeds £340 per square foot as aforesaid apportioned equally between the Company and the Option Holder.

    2

    St George will use all reasonable endeavours to procure that the Residential Units are sold at the best price reasonably obtainable and as soon as reasonably possible (which may include off-plan sales). St George confirm that it is not their normal practice to offer sale incentives but if, acting reasonably, market conditions dictate that incentives should be given, the sale prices achieved for the Residential Units shall be net of reasonable sales incentives consisting of any of the following: carpets, curtains, purchasers’ legal fees and stamp duty, but shall otherwise be the gross sale price achieved. St George shall notify the Company in each case of the amount of such incentives and such net sale price.

  8. "Residential Units" and "Net Internal Area" were defined as follows by clause 1:

    ‘Residential Unit’ means the residential units for which planning consent shall be obtained under Clause 3.2’.

    ‘Net Internal Area’ means the number of square feet of area to be provided in a unit of accommodation each such unit of accommodation to be measured from the internal face of its perimeter walls .... It will exclude common areas such as entrance lobbies corridors lifts and fire escapes and will exclude terraces and balconies and car parking spaces.

    Unfortunately, there was no definition of "aggregate sale price" in clause 11.4.1, other than the indication in the following subclause that it was to be the "gross sale price" (subject to deduction of "incentives").

  9. The judge records that 81 apartments were built together with 41 parking spaces; and that 40 spaces were sold residential lessees and one reserved for disabled parking.

    Mention should also be made of the "Class A3" unit, which was to be a wine bar. This was to be covered by a "Wine Bar Lease", which was defined by reference to heads of terms in Annexure 3, and was subject to obligations specified by Clause 9. It is unnecessary to refer to those provisions in detail, other than to note, first, that there is no indication in the heads of terms that any car parking spaces were expected to be allocated to the wine bar; and, secondly, that the terms were arranged so that the bulk (and, by later amendment, the whole) of the occupational rent on the wine bar accrued to the Claimants.

    THE ARGUMENTS

  10. The principal submissions of the parties (below and before us) can be summarised briefly:

    1. For the Appellants (Defendants):

      1. Residential Units do not naturally comprise or include car parking, at least where the units are apartments, and the parking is physically separate. The word "unit" connotes a physical living space.

      2. The agreement left the Defendants free (subject to the planning permission) to deal with the car parking spaces as they saw fit. They were not obliged to attach them to the individual flats, nor to dispose of them at any particular time or at all. For example, they could have been kept back, and offered on short-term licences to the residential lessees, or even to the wine bar for its staff or customers.

      3. The terms of the agreement contain a number of indications that the parties did not regard dealings with the car parking as equivalent to dealings with the Residential Units:

        1. clause 11.4 obliges the Defendants to use all reasonable endeavours to sell the Residential Units as soon as reasonably possible, but imposes no equivalent obligation in relation to the car parking;

        2. clause 3.2.2.1, which sets out the circumstances in which the Defendants may "declare dissatisfaction" with the planning permission, makes no reference to onerous car-parking conditions;

        3. overage is payable within 5 working days of the sale of the last Residential Unit (Clause 11.4.1), but makes no provision for the possibility of parking being sold at a later time;

        4. the calculation of overage is related to the prices per square foot of the Net Internal Area, which excludes car parking areas.

    2. For the Respondents (Claimants):

      1. In ordinary language the price for a flat is the price for the bundle of rights and collections of bricks and mortar which the purchaser buys, including ancillary rights of various kinds. Clause 11.4.2 makes it clear that these are to be the gross sale prices, except that certain specified sales incentives can be deducted if they are reasonable.

      2. In Clause 3.2.1 the word "apartment" is used in contrast to "residential unit"; a "residential unit" includes the apartment plus parking. The aggregate prices include the price of car parking, just as they include all the other benefits that go with a flat, such as balconies, common parts, lifts etc. Further, the language of clause, and the restriction of the Wine Bar to the ground and first floors, show that the parking spaces are associated with the apartments and not the Wine Bar.

      3. The definition of "Net Internal Area" does not affect the meaning of the aggregate sales prices, since

        1. it is a measuring provision, not a valuation provision.

        2. it excludes from valuation not only car parking spaces, but also the common parts, balconies and even external walls, all of which are naturally included in the price of the flat. The price of a flat also includes things which are not in ordinary language part of the flat - such as the right to use common parts, communal gardens or other common facilities.

    THE JUDGMENTS BELOW

  11. The Deputy Master broadly accepted the Defendants’ submissions. He drew attention to the fact that at least half the flats would be sold without parking; and to the apparent illogicality of including car-parking in the calculation of value, when it was excluded from the defining criterion of net floor area. He thought that if the parties had intended parking to be included in the sale price for the purpose of overage, they would have set it out clearly in the agreement.

  12. The Deputy Judge allowed the Claimants’ appeal, but by a somewhat different route. Viewing the case as " a pure question of objective construction" of the agreement, he saw it as "impossible to give a confident answer", having regard to the "valid considerations" on both sides; but he thought those in favour of the Claimants were "on balance" stronger (paras 20, 23, 28). However, he considered that the "real question" was whether the Defendants were entitled to deduct overage "in the events which have happened" (para 31, his emphasis).

  13. Basing himself on the evidence relating to Flat 6, he noted that the "property" sold was the Flat itself, together with "the exclusive right to use" a specified parking space (subject to the Vendor’s right to allocate a different space); and that there was a single price for the property as so defined. Having reviewed some of the other sales material, he said:

    36.

    I infer that all 40 permitted parking spaces were in fact sold with individual flats under agreements expressing the flat and the parking space to be sold for a single price and that where a parking space was included in the sale both flat and parking space were conveyed by a single lease.

  14. In those circumstances, he concluded, the Defendants could not justify deduction from those prices or the elements representing the parking spaces.

    38.

    Since the Defendant has chosen to sell the 40 permitted parking spaces with 40 of the flats in each case as a single property, and since each such property is clearly a "residential unit for which planning consent has been obtained under Clause 3.2 ".... and since a car parking space is not one of the "extras" for which a deduction is permitted under Clause 11.4.2, I can see no basis for the deduction which has been made.

  15. Commenting on the Deputy Master’s reliance on the definition of "Net Internal Area", he considered it to be inconsistent with the Deputy Master’ view in two ways:

    40.

    .... First of all, it treats a car parking space as an area which would naturally be included when measuring the "area provided in a unit of accommodation". Secondly, it means that the area of the terrace or balcony of a flat is excluded when calculating the threshold amount under the first part of the formula in Clause 11.4 even though the value of the terrace or balcony is clearly part of the total consideration for the purposes of working out the Claimant’s percentage. The parties plainly treated that as a perfectly sensible approach (as indeed it was), so there is nothing surprising about the conclusion that the car parking spaces were treated in the same way. 

  16. He summarised his conclusion:

    41.

    .... the Agreement plainly envisaged that (the parking spaces) might be disposed of as part of ‘units of accommodation (see the definition of ‘Net Internal Area’) and since that is what the Defendant actually chose to do the Claimants are entitled to their percentage in the events which have happened.

    DISCUSSION

  17. The agreement was not well drafted on this point. The parties and their solicitors may have known what they intended, or thought it was obvious. But they did not express it clearly in the agreement. The court therefore has to do the best it can to arrive at the most likely interpretation, using such pointers as it can find in the agreement itself, or in the factual background against which it was concluded.

  18. The Defendants fairly criticise the judge for having apparently given undue weight to "the events which have happened". Apart from the ordinary principle that subsequent events are not relevant to questions of statutory interpretation, the main objection is that this was not how the case was argued before him. As I have already noted, although those words were included in the preliminary issue, neither party had regarded them as materially affecting the issue. It was not suggested by either party that the respective entitlements of the parties could vary depending on subsequent events.

  19. On the other hand, I have some sympathy with the Judge in looking for some external aids to construction, given the deficiencies of the agreement itself. Unusually, the evidence before him gave very little information about the common understanding of the parties of the background to the transaction. For example, the papers include the Planning Officer’s report on the application for planning permission, which indicates that the City’s planning standards normally require the provision of one parking space per residential unit, although he was prepared in the circumstances to accept a relaxation to one space for every two flats. It says nothing about the need for parking for a wine bar. Although the report itself was subsequent to the contract, and therefore not strictly admissible, I would be very surprised if the parties and their advisors were not well aware at the time of the contract of the relevant planning policies. Equally I would be surprised if the commercial background did not make it fairly obvious that parking spaces were to be allocated to flats where possible, whereas it is not normal for wine bars in the City to provide car parking for their staff or customers. To that extent the subsequent events may well be no more than illustrative of the factual background of which the parties were aware. However, evidence to that effect was not before the Court or before us, and I therefore disregard it in what follows.

  20. There are however enough pointers in the agreement to indicate that the Judge’s view was correct:-

    1. The term "residential unit" is defined by reference to the description (Clause 3.2.1) in which the planning permission is defined. That refers to the building as being "primarily residential", the components being the wine bar (the class A3 unit) and "a mix of apartments .... for residential use together with associated car parking." Although it is grammatically possible that the word "associated" refers to the wine bar as well as the apartments, the more natural reading is that it is associated with the apartments only. This view is reinforced by the fact that the wine bar is subject to separate provisions defining the nature of the lease, which contain no indication that any parking is to be provided.

    2. "Net internal area" is defined as excluding the common areas, and also specifically "terraces and balconies and car parking spaces." This strongly suggests that such rights are regarded as prima facie appurtenant to the residential unit, but to be excluded for the purposes of calculation. It also strongly suggests that the rights of individual flat owners to car parking spaces are regarded as in the same category as terraces and balconies. Although clearly the availability of a terrace may add significantly to the value of a flat, just as may a car parking space, it is not included in the specific comparison required by Clause 11.4. Like the Judge, I think the Deputy Master was wrong to treat the exclusion of car parking spaces as something which favoured the Defendants’ construction. On the contrary, I see it as a strong pointer in favour of the Claimants’ construction. If it is accepted that the residential unit included the rights to common areas and terraces and balconies, although not within the definition of "net internal area" there seems no reason why the rights to car parking spaces should be treated any differently.

    3. I agree with the Claimants that the "gross sale price" referred to in Clause 11.4.2 would normally mean the price, not just of bricks and mortar, but also of the "bundle of rights" which the purchaser acquires. Apart from the specific "incentives" referred to in that clause, there seems no reason to deduct the value of the right to a car parking space where this is provided, any more than a right to a terrace or to any other ancillary facilities.

  21. I have noted the Defendants’ contrary arguments above. The strongest point is perhaps that there is no specific obligation to dispose of the car parking spaces within any time scale. While one may assume that a terrace or balcony will naturally be connected to a particular flat, and therefore sold with it, the same is not necessarily true of car parking spaces. In theory the Defendants could have retained the car parking spaces, and perhaps made them available on short-term licences to occupants of the building. There is also possible uncertainty about whether overage would be payable on the sale of the last flat, if some of the parking remained unsold at that time.

  22. In this connection the Defendants sought permission to introduce evidence to show that in six cases car parking spaces were not sold at the same time as the flats, but were attached to them later by separate side-letters for an additional price. We did not find it necessary to rule on the admissibility of this evidence, since it did not seem to us to be relevant to the issue of construction. With or without evidence of what actually happened, it is clearly possible that car parking spaces would be sold separately or subsequently. It is also true that the agreement does not clearly deal with this possibility. However given the other inadequacies of the agreement, it is scarcely surprising to find that it does not cover all eventualities. It is sufficient to say that these hypothetical possibilities do not to my mind displace the more likely interpretation, as derived from the factors to which I have referred.

    CONCLUSION

  23. For the above reasons, I consider the Judge was in substance correct, although his reliance on "subsequent events" was unnecessary and misplaced.

  24. For these reasons I would dismiss the appeal.

    Lord Justice Maurice Kay

  25. I agree.

    Lord Justice Keene

  26. I also agree.


Representations

Mr. James Thom QC (instructed by Watson Farley & Williams) for the Claimants/Respondents

Mr. Jonathan Seitler QC and Mr. Jonathan Small (instructed by DLA) for the Defendants/Appellants


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