SPECIALITY SHOPS LIMITED v YORKSHIRE & METROPOLITAN ESTATES LIMITED [2002] EWHC 2969 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2002] EWHC 2969 (Ch)Case No Case No: HC/290/02Venue Royal Courts of Justice, The Strand, London WC2A
Between
SPECIALITY SHOPS LIMITEDCLAIMANTYORKSHIRE & METROPOLITAN ESTATES LIMITEDDEFENDANT
Before
Mr Justice ParkMISS JUDITH JACKSON QC and MR COURTENAY (Instructed by Messrs Fosters) appeared on behalf of the ClaimantMR A de FREITAS (Instructed by Messrs Dunn & Baker) appeared on behalf of the DefendantDate 27 November 2002
[1]MR JUSTICE PARK : Overview In this judgment I refer to the Company, Speciality Shops Ltd as "SSL", although for some of the time relevant to this case it was called Speciality Shops Plc. I refer to the defendant, Yorkshire and Metropolitan Estates Ltd as "Y&M". Another company which is involved in the events is Wilson Bowden Developments Ltd, which I will call "WB".[2]The case concerns a development project in Norwich known as St Anne's Wharf. SSL owns most of the site and has an option to acquire the rest of it. SSL was acting in conjunction with Y&M, which was the corporate vehicle of a property consultant, Mr Brian Tanner. There was a project management agreement between SSL and Y&M. There was also a side letter, or "comfort letter", which (assuming that it was capable of having legal effect) gave some form of pre-emption or first refusal right to Y&M if SSL decided not to develop the site itself, but to sell it in an undeveloped state. SSL has decided to do just that, and has exchanged contracts to sell the site to WB.[3]Y&M says that SSL's exchange of contracts with WB "triggered" its rights under the comfort letter, and that the rights so triggered are not just contractual rights against SSL, but interests in the development site itself. It has sought to protect its interests by registering cautions at the Land Registry.[4]By this application SSL seeks to have the cautions vacated. I agree with the submissions advanced on behalf of SSL, and I shall direct that the cautions be vacated. This decision does not necessarily mean that Y&M is remediless. It may have a good claim for damages against SSL, but that is not before me now.[5]I should record that Miss Judith Jackson QC and Mr Charles Courtenay appeared for SSL. Mr Anthony de Freitas appeared for Y&M. The Facts[6]The area of land which the case is about is a development site in Norwich, the St Anne's Wharf project. It is made up of three or four parts, of which two are directly relevant to this application: the Brewery site and the option land. The Brewery site is registered land and comprises two registered titles. SSL owns the Brewery site, and is the registered proprietor of the two titles. The option land is also registered land, and also comprises two registered titles. SSL does not own the option land, but it has an option to purchase it from the registered proprietor, a company called Knutsford Properties Ltd. I will refer to the option as "the Knutsford option". I mention for completeness that there is another substantial part of the St Anne's Wharf site, referred to in the case as the Readicrete site, which is unregistered land. SSL has a contract to purchase it. The contract is due for completion on 30th November 2002, which is only three days after the date on which I am delivering this judgment.[7]SSL is a property development company. Discussions about it acquiring and later developing the Norwich site began as long ago as 1995. SSL was working on the project with Mr Tanner, the property consultant. He operates through companies, or at least he has done in this instance. The defendant company, Y&M, is controlled by Mr Tanner. It is the company through which his services and expertise have been provided to SSL. The basic idea was that SSL would acquire the whole site and, when the time was right, carry out the redevelopment of it. Mr Tanner, through Y&M, would provide consultancy and project management serves. Y&M would be remunerated by monthly fees from SSL, and would also be entitled to receive from SSL a share of the eventual profit.[8]Negotiations for the detailed legal relationship between SSL and Y&M took place during 1995 and 1996. They culminated in agreed terms set out in a letter from SSL dated 26th February 1998, accepted by Mr Tanner on behalf of Y&M in a letter dated 2nd March 1998.[9]There was, however, one matter which was not covered by the agreement made in the exchange of letters, but which was dealt with in another way. It is the matter which this application has been about. The main agreement assumed that SSL would both acquire all the parts of the St Anne's Wharf site and carry out the development. There was, I assume, a potential for profit simply in the assembly of the complete site. But there was also another potential for further profit in the carrying out of a successful development. If SSL adhered to its intention, it would both assemble the site and carry out the development. So in that case Y&M would be entitled to a profit share in the complete profit, comprising both the site assembly profit element and the development profit element. But what if SSL, having assembled the site, changed its mind and, instead of developing the site itself, sold it to a third party? (In the event, that is exactly what seems likely to happen). Y&M would be entitled to a share of the site assembly profit, in so far as it was realised on resale by SSL, but it would not participate in any development profit.[10]In the negotiations in 1997 Y&M proposed that there should be inserted into the project management agreement a clause giving it (Y&M) a right of first refusal of the undeveloped site if SSL sought or intended to dispose of it to an independent third party. SSL was not willing to agree that there should be such a clause in the agreement. It did, however, agree that it would provide a "side letter" or a "comfort letter", and in the event such a letter was written on 8th April 1998.[11]The present application turns on the legal effect of 8th April 1998 letter. I will be referring to the letter from time to time as this judgment progresses, and I think that the course which is most convenient for a reader, is for me to set it out in full in an annexe at the end. I do that, and the reader who is unfamiliar with the case might find it convenient to break from this judgment at this point and read the letter. I record now that, while there are arguments that the letter was inherently incapable of taking legal effect (principally on grounds of absence of consideration or of an intention to create legal relations), the present application has proceeded on the basis that (for the purposes only of this application) the letter was capable of taking legal effect. In this connection I mention that in Y&M's letter of 2nd March 1998 (the letter which accepted the terms of the project management agreement) Mr Tanner wrote:
"…please accept this letter as my acceptance, subject to receipt of the comfort letter, the draft of which I think you already hold."
[12]In 1999 there were changes in the ownership of SSL. It is now a subsidiary in a group headed by Delancey Estates Ltd (previously Delancey Estates Plc). On 8th January 2001, Delancey wrote to Mr Tanner at Y&M terminating the project management agreement. SSL, in the ownership of Delancey, continued with the process of assembling the site. On 8th January 2001 the only part of the entire St Anne's Wharf project which it owned was the Brewery site. Later in that month it entered into the option agreement with Knutsford Properties under which it has "the Knutsford option" to purchase the option land.[13]In September of 2001 it entered into a contract to purchase the Readicrete site (the part of the entire site which is not registered land). The Readicrete contract is the one which is due for completion in three days' time, on 30th November 2002.[14]By the time of the contract for the Readicrete site, or very soon thereafter, SSL must have decided that it no longer wanted to develop the Norwich site itself, and that instead the site should be sold. It agreed to give to Y&M an exclusivity period in which Y&M might put together some sort of financial backing to make an offer. This was not in precise compliance with the terms of 8th April 1998 comfort letter, which would only be "triggered" by SSL receiving an offer from a third party which it was minded to accept. However, Miss Jackson has said to me that SSL's conduct in giving Y&M the first opportunity to come up with an offer for the site was in accordance with the spirit of the comfort letter. I agree. However, Y&M's efforts to put together an offer package during the exclusivity period were not successful. In April 2002 SSL informed Y&M (through its solicitors) that it (SSL) had decided to place the St Anne's Wharf site on the open market.[15]Over the following months Y&M, in the person of Mr Tanner, continued to try to assemble a purchasing structure. It came close on two occasions, but the offers which it was able to make (or to arrange to be made by other parties) were not acceptable to SSL. I need not go into the reasons, which had to do with completion dates and the strength of financial backing of the offerors (or at least SSL's perception of that strength).[16]SSL, having placed the property on the market, did not take it off the market while Mr Tanner was still trying to put new offering structures together. SSL received a number of approaches from other prospective purchasers, one of which was Wilson Bowden Developments Ltd (WB). WB required SSL to agree to a condition that negotiations between the two parties should be confidential. The negotiations proceeded smoothly, and SSL exchanged contracts with WB on 23rd August 2002 for completion on 30th November 2002 (the same date as the completion date for SSL's purchase of the Readicrete part of the entire site). WB has agreed to purchase the Brewery site and the Readicrete site, and to take an assignment of the Knutsford option. The price is £5.8 million, or £6.3 million, depending on whether notice has already been given to exercise the Knutsford option, with SSL paying the option price to the grantee of the option (Knutsford Properties Ltd). The option price is £500,000. If at completion the option has not been exercised, so that SSL assigns the unexercised option to WB and (presumably) WB exercises the option later and pays £500,000 to Knutsford Properties, the price from WB to SSL is £5.8 million. If the option has been exercised and SSL has paid or will pay the £500,000 option price to Knutsford Properties, the price from WB to SSL is £6.3 million.[17]As I have said, the negotiations between SSL and WB were conducted in confidence, so Y&M and Mr Tanner knew nothing about them. Contracts having been exchanged between SSL and WB on 23rd August 2002, Y&M was informed about the exchange on 26th August 2002. A meeting and some correspondence followed. On 9th October 2002 Y&M lodged at the Land Registry cautions against SSL's titles to the Brewery site, and against the titles to the option site. (The present application is that those cautions be vacated.) On 11th October 2002 Mr Tanner, on behalf of Y&M, wrote to SSL. He referred to 8th April 1998 comfort letter and to "the possible exercise by us of the clear right of pre-emption which we hold". Y&M offered to purchase the entire site (the Brewery site, the Readicrete site and the Knutsford option) for £5.8 million, with completion on 30th November 2002.[18]Mr Tanner said in his letter that Y&M was being backed by a company called Arum Trading Ltd, which had been involved in one of Y&M's earlier offers which had not been accepted. Mr Tanner's letter stating that Y&M's offer was backed by Arum Trading was on 11th October 2002. On 30th October 2002 Arum Trading wrote to the Delancey group (which own SSL). The letter said that Arum Trading was not providing backing to Y&M. I do not know what lies behind that letter, or precisely what Y&M's financial backing now is for the offer of £5.8 million which Mr Tanner made in his letter of 11th October. There is some very recent evidence from Mr Tanner intended to show that he has arranged alternative funding, or at least is in the process of doing so.[19]That is how matters now stand. On 30th November 2002 (in three days' time) two contracts are due for completion:(1) The contract for SSL to purchase the Readicrete site.(2) The contract for WB to purchase from Y&M: (i) the Brewery site; (ii) the Readicrete site; (iii) the Knutsford option. In the normal way completion would proceed with: (i) SSL transferring the Brewery site to WB; (ii) the vendor of the Readicrete site transferring it to WB; (iii) SSL assigning the Knutsford option to WB; (iv) WB, which has already paid to SSL a deposit of £630,000, paying the balance between the deposit and £5.8 million or £6.3 million, depending on whether it (WB) or SSL is going to pay the £500,000 option money to Knutsford Properties Ltd. Of the completion monies payable by WB, WB would normally pay to the vendor of the Readicrete site the balance due to that vendor, and would pay the rest of the completion monies to SSL. That, as I said, is what would happen in the normal way.[20]However, Y&M has placed its cautions on the titles to the Brewery site and the option land. I do not think that it is known what attitude WB will take if the cautions are still in place at the time of completion on 30th November, but SSL perceives a risk that WB may refuse to complete. It is plainly in the interests of SSL to have the cautions removed before that date. Hence the present application to me. Discussion and Analysis[21]Where land is already registered the provision which governs cautions is section 54 of the Land Registration Act 1925. I quote part of subsection (1):
"Any person interested under any unregistered instrument … or otherwise howsoever, in any land … registered in the name of any other person may lodge a caution with the Registrar to the effect that no dealing with such land … on the part of the proprietor is to be registered until notice has been served upon the cautioner."
It is not disputed by Mr de Freitas (for Y&M) that the word "interested" in "any person interested" refers to a property interest recognised as such in law. (Thus section 54 operates consistently with section 53, which, in the case of land not yet registered, permits the lodging of cautions only by persons claiming to have the sorts of interest which entitle a holder to object to dispositions of the land without his consent.) SSL's case is that Y&M may be commercially interested in the land involved in this case, in the sense that what happens to the land can have a major impact on Y&M's contractual rights against SSL, but that does not make Y&M "a person interested in" the land within section 54.[22]Mr de Freitas does not dispute the proposition that, if Y&M's interest is a contractual one only, it cannot maintain its cautions, but he says that, once SSL decided that it was going to exchange contracts with WB, Y&M thereupon acquired a property interest which it could protect by a caution. On behalf of SSL Miss Jackson and Mr Courtney disagree. They say that any rights which Y&M has are simply contractual rights against SSL. SSL's act in exchanging contracts with WB may or may not have been a breach of the contract between it and Y&M (assuming that there was such a contract), but even if it was Y&M's only remedy is an action for damages against SSL. The breach of contract, if it was one, did not confer on Y&M any property right or interest capable of being protected by the lodging of a caution under section 54 of the Land Registration Act 1925. Therefore the cautions which Y&M has lodged should be vacated.[23]I agree with Miss Jackson and Mr Courtenay.[24]The issue turns on the nature of Y&M's rights under the 8th April 1998 comfort letter (reproduced in the annexe at the end of this judgment), and the effect on those rights of SSL exchanging contracts with WB. The comfort letter, assuming (as I do for the purposes of this application) that it was capable of creating enforceable rights and obligations, set out to provide for Y&M some form of pre-emption right or right of first refusal. The nature of such rights has been examined in several cases, to which I was helpfully referred, in particular Pritchard v. Briggs [1980] Ch 338, Kling v. Keston Properties Ltd (1985) 49 P&CR 212, Tuck v. Baker [1990] 2 EGLR 195, Bircham & Co (Nominees) (2) Ltd v. Worrell Holdings Ltd (2001) 82 P&CR 427. I will not examine the cases in this judgment, but I have studied them with care, and I believe that the discussion which follows is in all respects consistent with them.[25]The cases (particularly the judgment of Chadwick LJ in Bircham & Co (Nominees) (2) Ltd v. Worrell Holdings Ltd (supra)) stress that there can be substantial variations between the terms of different agreements all of which might be described generically as pre-emption agreements or first refusal agreements. It is necessary to consider carefully the precise terms of the agreement which is in issue in any particular case. One feature which they all tend to have in common is that they provide for a period during which the landowner's obligations are negative and the other party's rights are, in a sense, inchoate but then they provide that, upon an event occurring which triggers the rights of the other party, those rights assume a different content. In the present case the triggering event under the terms of the comfort letter is SSL attracting an offer for its interest in the St Anne's Wharf project and being minded to accept it: see lines two and three of the letter. Until the triggering event (however it may be expressed) occurs the other party to a pre-emption contract does not have an interest, legal or equitable, in the land: Pritchard v. Briggs (supra). The other party may or may not acquire such an interest when the triggering event occurs, depending on the precise terms in which the agreement is cast.[26]I will mention three possibilities. More possibilities may exist, but three will do for the purposes of this judgment. One possibility is that, upon the occurrence of the triggering event, the owner is obliged to offer to sell the property to the other party (the pre-emption holder), and the owner also must leave the offer outstanding and capable of acceptance for a specified period. In that case, during the period when the offer cannot be revoked, the pre-emption holder does have an interest in the land. He is in a position equivalent to an option holder: Pritchard v. Briggs (supra) (in which the offer could not be revoked or altered for 21 days). (What I have just said is subject to section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which may mean that the pre-emption holder does not have an interest in the land after all. I shall refer more specifically to that Act later.)[27]A second possibility is that, upon the triggering event, the landowner must offer to sell the land to the pre-emption holder, but is not obliged to leave the offer open for any period. So he can revoke it at any time, as long as he does so before the pre-emption holder accepts it. That it is possible for an agreement to be of this nature was confirmed by the Court of Appeal in Tuck v. Baker (supra). In such a case the effect of the Court of Appeal decision in the Bircham case (supra) is that the pre-emption holder does not, on the triggering event, acquire an equitable interest in the land. Chadwick LJ did, however, leave open the possibility that it might be different if the landowner did still want to dispose of the land.[28]A third possibility is where, upon the triggering event, the landowner is not obliged positively to offer to sell the land to the pre-emption holder, but rather he is obliged to notify the pre-emption holder of the situation, leaving it for the pre-emption holder to make his own offer to purchase the land if he chooses. If the pre-emption holder does choose to make an offer, only a very unusually worded agreement would provide that the landowner was bound to accept it. In all normal cases one would expect the landowner to be free to accept or refuse the pre-emption holder's offer. Of course the landowner would not be entitled (as between himself and the pre-emption holder) to refuse the pre-emption holder's offer and then go ahead with a sale to a third party on the same or worse terms. But it seems to me that, if the landowner actually did that, the pre-emption holder's remedy would be a claim for damages against the landowner for acting in breach of his contractual obligations under the pre-emption agreement. I cannot see how the pre-emption holder could assert any sort of proprietary interest in the land.[29]In cases of the third type which I have just described, I do not think that the pre-emption holder at any stage acquires an equitable interest in the land as such, unless and until he makes an offer to purchase the land and the landowner accepts it. But in my opinion he does not have an interest in the land at any of the following earlier times:(1) when the triggering event has occurred but the landowner has not yet informed the pre-emption holder about it;(2) when the landowner has informed the pre-emption holder but the pre-emption holder has not made an offer to purchase the land;(3) when the pre-emption holder has made an offer to purchase the land but the landowner has not accepted it.[30]With those general observations, and still leaving section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 for later examination, I turn to the facts of this case. Under the comfort letter the triggering event was when SSL attracted the offer from WB and was minded to accept it. I agree with Mr de Freitas that that must have occurred before SSL actually exchanged contracts with WB. The comfort letter was, in my opinion, within the third type of case which I described earlier. That is to say, the effect of the triggering event was not that SSL was obliged to offer to Y&M to sell the site to it, but rather that SSL was obliged to notify Y&M of the triggering event, leaving it to Y&M to make a matching offer if it wanted to do so:
"This comfort letter offering you the opportunity of matching any offer we may attract…"
In the circumstances I cannot see that the particular type of pre-emption agreement which features in this case was one where the pre-emption holder (Y&M) could acquire an equitable interest in the land, unless and until SSL accepted a purchase offer made by it.[31]It may be true that SSL acted in breach of contract towards Y&M by going ahead and exchanging contracts with WB without first giving Y&M an opportunity to match WB's offer. SSL would have had a problem over giving Y&M such an opportunity, given WB's requirement of confidentiality, and SSL fairly points out that it had previously given Y&M several opportunities, not to match offers from others, but to make offers of its own, and that Y&M had not succeeded in putting together an acceptable offer package. However, let me assume that SSL was in breach of contract. The effect, in my judgment, is that Y&M has a possible claim for damages, not that Y&M has an interest in the St Anne's Wharf site such that it can protect it by caution.[32]If I am right in what I have said so far that appears to me to be sufficient to justify a decision in favour of SSL. However, I ought to consider Mr de Freitas' carefully constructed argument in support of a contrary conclusion. The first stage in his argument is that, although the comfort letter was expressed in terms of Y&M making an offer to purchase, not receiving an offer to sell, nevertheless on the construction of the letter as a whole, if Y&M did make an offer which matched WB's offer and which met the conditions of the second paragraph of the letter (proof of funding, etc), SSL was bound to accept Y&M's offer. He says that Y&M did make a purchase offer which did match WB's offer, and that the offer did comply with the second paragraph of the comfort letter.[33]I think that Mr de Freitas would also say that, whatever the position may have been if SSL had received WB's offer, was minded to accept it, but had not yet actually accepted it, nevertheless, once SSL had accepted WB's offer, it (SSL) could not justify a refusal to accept Y&M's matching offer.[34]I do not agree with Mr de Freitas. My main reason is that I do not agree that it is possible to extract from the comfort letter anything which says, or necessarily implies, that, if Y&M makes a matching offer, SSL is already bound to Y&M to accept the offer. As a generalisation, an offer is something which the offeree can accept or refuse. It is not an imposition on the so-called offeree to which he must acquiesce whether he likes it or not. I agree that there are provisions in the second paragraph of the comfort letter which tend to assume that, if Y&M does make a matching offer, the offer will be accepted, or at least will probably be accepted. But I cannot read the paragraph as impliedly imposing on SSL an obligation to accept the offer.[35]There are also doubts about whether Y&M's offer complies with the funding conditions of the second paragraph of the letter, particularly given that it was originally made on the basis that it was backed by Arum Developments Ltd, but Arum Developments has written that it is not backing the offer. However, I do not base my decision primarily on that point.[36]Let me suppose, however, that I am wrong so far. Mr de Freitas' argument would be that, upon the receipt by SSL of Y&M's offer in its letter of 11th October 2002, Y&M there and then and without more acquired an interest in the land and could protect it by a caution: it would be just as if Y&M had been granted an option which it exercised by notice on 11th October 2002. I am afraid that I do not agree with that either. This is the point at which, if Mr de Freitas was right so far, his argument would nevertheless be undermined by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. By subsections (1) and (3) a contract for the sale of an interest in land can only be made in writing, and all the terms of the contract have to be incorporated in a document or documents signed by both of the parties to the contract. In this case, on Mr de Freitas' argument, the only document incorporating all the terms of the alleged contract would be Y&M's letter of 11th October 2002. That letter was signed on behalf of Y&M, but not by or on behalf of SSL. Therefore it cannot comply with section 2, and it cannot operate to dispose of an interest in the land in favour of Y&M.[37]Mr de Freitas seeks to overcome this objection partly by relying on section 2(5) (which provides that section 2 does not affect the creation of constructive trusts), and partly by reference to the Court of Appeal judgments in Yaxley v. Gotts [2000] Ch 162 , which suggests that, notwithstanding section 2, an interest in land may arise without writing not just by virtue of a constructive trust, but also under the principles of proprietary estoppel. I am afraid that I cannot agree with him on either point. I do not see how a constructive trust can arise. If SSL was in breach of contract to Y&M by exchanging contracts with WB, SSL appears to have a remedy in the form of an action for damages, and I do not think that the law would impose a constructive trust.[38]A proprietary estoppel would only arise if representations were made to Y&M that it would acquire an interest in the St Anne's Wharf site and Y&M acted on them to its detriment. I am not sure what is the conduct which is said to have been Y&M acting to its detriment, or indeed acting in reliance on the alleged representations that it would acquire an interest in the site. If it was the efforts which Mr Tanner put in over the years towards the acquisition of the site and the obtaining of planning permission, Mr Tanner did those things pursuant to the project management agreement. Under that agreement Y&M was paid monthly fees for its services, and it is entitled to its contractual share of whatever profit SSL makes on the sale of the St Anne's Wharf development to WB. Y&M has suffered a commercial disappointment through SSL deciding to withdraw from the project before the development is carried out. Y&M may or may not have a claim for damages for breach of contract in consequence of the way in which SSL implemented its decision to withdraw. Whether it has or not, I can see no justification for the argument that Y&M acquired an equitable interest in the land by virtue of proprietary estoppel. Conclusion[39]For the foregoing reasons I believe that SSL is entitled to the relief which it seeks by this application. I will direct that the cautions which Y&M has lodged with the Land Registry be vacated. - - - - - -

Cited in 3 later judgments