Connolly Limited v Bellway Homes Limited [2007] EWHC 895 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2007] EWHC 895 (Ch)Venue Royal Courts of Justice, Strand. London. WC2A 2LL
Between
Connolly LimitedClaimantsBellway Homes LimitedDefendants
Before
Stephen Smith PCSitting as Deputy Judge in the Chancery DivisionStephen Moverley Smith QC and Helen Galley (Instructed by Dechert LLP) for the ClaimantIan Pennicott QC (Instructed by IBB Solicitors) for the DefendantsHearing dates: 26th, 27th, 28th February, 1st, 2nd, 5th and 6th March 2007Date 23 April 2007
[1]Stephen Smith QC (sitting as a deputy judge of the Chancery Division) In this case the Claimant, Connolly Limited ("Connolly") seeks rectification of a contract for the sale of a piece of land for mixed commercial and residential development close to the centre of Canterbury. The contract was signed on 1 st May 2001. The purchaser of the land was Bellway Homes Limited ("Bellway"). There are two aspects to the rectification claim. In the alternative to one of these, Connolly also asserts a claim in deceit. Connolly has calculated that success on any of these claims will have the consequence that Bellway is liable to make a substantial (further) payment to it; and, as regards some of the claims, that the amount of Bellway's liability could be in excess of £4 million.[2]The discussions which are at the centre of Connolly's claims took place in the latter part of 2000 and the early part of 2001; the trial of the action took place in February and March 2007, over 6 years later. The principal reason why these claims did not come to trial sooner is that Connolly did not appreciate until 2005 that there had been - as it claims - mistakes made in the drafting of the agreement, or deceit (or both). General background[3]I shall first set out the general history of the case, before focusing on the particular events which are at the heart of the claims.[4]The development site was formerly known as St Mildred's Tannery, Rheims Way, Canterbury. For many years the Claimant, or one or more companies connected with it, carried on the business of a tannery on the site. The site extends to some 8.44 acres. It lies within the line of the old city wall and is roughly three-sided; one side adjoins the River Stour, and another the city's inner ring road. The site is conveniently located for access to Canterbury city centre and to public transport, and has views of the cathedral.[5]Connolly decided to sell the site for development in the late 1990s. By early 2000 Connolly had appointed an agent, Pace Projects Limited ("Pace"), based in Radlett in Hertfordshire, to assist it with its plans for the site. Pace was throughout represented by Paul Draper, who was the only person called to give evidence of fact in support of Connolly's claim. Mr. Draper received his instructions from Joseph Connolly, one of Connolly's directors. Mr. Joseph Connolly was the director who ultimately signed the sale contract with Bellway on Connolly's behalf, and also the several formal amendments subsequently made to that agreement.[6]By letter dated 28 th June 2000 Pace received an expression of interest in purchasing the site or acting as the preferred development partner from a firm of surveyors and property consultants acting on behalf of Bellway. Several other well known developers also expressed a similar interest.[7]In a letter to Pace dated 22 nd August 2000 Bellway offered to purchase the site with vacant possession for £14.51m, subject to satisfactory planning permission being obtained. That was the highest offer Connolly received. In a further letter dated 6 th September 2000, Bellway indicated that it intended to devote 1.5 acres of the site to retail development, 1.2 acres to a hotel, and the remainder to a residential, primarily flatted, scheme.[8]Under cover of a letter dated 13 th October 2000 Bellway submitted to Pace a formal proposal document. Beltway's proposal was that it would purchase the site conditionally on the grant of planning permission.[9]There followed telephone discussions between Mr. Michael Davis, on behalf of Bellway, and Mr. Draper. During the course of those discussions it was proposed that the price to be paid for the site should be "indexed" in the sale contract. Mr. Draper was keen to ensure that, pending completion of the sale (which might take many months or - as transpired -years, given the requirement for acceptable planning permission) Connolly would share in any increase in the value of the land. Mr. Davis was agreeable to the idea, provided that allowance was made against the increase in the value of the land for any increase in building costs.[10]It is in connection with the way in which the provision for indexation found expression in the sale contract that this claim is brought.[11]Mr. Draper drafted a document entitled "Sale of site to Bellway Homes Limited Proposed Heads of Terms", and sent this to Mr. Davis on 23 rd October 2000. Discussions ensued over those terms. By 8th November 2000 the parties had agreed the Heads of Terms document, and around that time Connolly sent the document to its solicitors, SJ Berwin, to assist them in drawing up a draft sale contract.[12]SJ Berwin sent the first draft sale contract to Bellway's solicitors, Iliffes Booth Bennett ("IBB"), on 24 th January 2001. A number of further versions of this document, or parts of it, followed. By 20 th April 2001, the indexation provision targeted in Connolly's claim had found its final form. The sale contract was signed on 1 st May 2001.[13]The 1 st May 2001 sale contract was in a different form from the form which now binds the parties. The May 2001 contract was an agreement which was conditional on the grant of planning permission within a defined period. That contract was varied by five supplemental agreements between August 2001 and July 2003. By the time of the last supplemental agreement - 3rd July 2003 - the contract had been recast as an unconditional sale contract. Whilst it is the contract in its July 2003 form which I am asked to rectify, the indexation provision remained in exactly the same form throughout. The indexation provision in the sale contract[14]The sale price in the July 2003 contract was £6 million,[15]Provision was also made for additional consideration to be paid in respect of both the residential and commercial land, in certain eventualities. Those eventualities transpired as regards the residential land, and the "Residential Land Additional Consideration" ("RLAC") fell due to be paid in 2005.[16]The RLAC was defined in Part 1 of the Second Schedule to the 2003 contract as £4,010,000 plus and minus a variety of figures. One of those figures is described as "plus the Inflation Adjustment (if any)".[17]The Inflation Adjustment is the provision which Connolly seeks rectification of, in two respects. It is a provision which, as I have already pointed out, had become finally settled between the parties towards the end of April 2001, and it survived (unchallenged) the various changes wrought on the original May 2001 contract by the five supplemental agreements.[18]The Inflation Adjustment is defined thus in the sale contract:
"Inflation Adjustment means an increase in the Residential Land Price (intended to reflect increases in sale prices after discounting inflation in building costs) in the same proportion as the following formula: Where X = the increase to be applied to the Residential Land Price, expressed as a percentage A = the Sales Price per square foot B= £212 (representing the estimated average sales price per net square foot of the Residential Development at the date of this Agreement) C= the % change in the Index between the Index Figure and the figure last published before the Residential Calculation Date"
[19]It is common ground that the "date of this Agreement" in the definition of B is a reference to 1 st May 2001.[20]The "Sales Price per square foot" is defined as the average sales price per net square foot at (in the events which happened) the date of the receipt of acceptable planning permission, being "the average of three valuations made by three independent valuers to be appointed by the parties". The Index referred to in the definition of C was the Index of Building Cost Information Service Quarterly Review issued by the Royal Institution of Chartered Surveyors, as adjusted for Kent.[21]The two aspects of the definition of the Inflation Adjustment which have given rise to this case are these:(a) The first aspect is that the formula set out provides for the deduction of a percentage increase in building costs from a calculation which purports to reflect the percentage increase in the sales price per net square foot of the development. Thus if the former percentage were to turn out to be greater than the latter, there could be no uplift of the RLAC by virtue of the Inflation Adjustment.(b) The second aspect is that whereas the formula provides that the sales price per net square foot of the development at the date of the grant of planning permission is to be determined by an average of the views of three valuers, the comparable figure as at 1 st May 2001 was specified as £212. Since that figure is the base figure for determining the rate of any increase in the value of the land, it obviously has a very significant effect in the determination of the extent of any increase.[22]On 28 th April 2005 satisfactory planning permission was received for the development of the site. On 17 th May 2005 three valuers were instructed to assess the sales price as at 28 th April 2005, for the purposes of the Inflation Adjustment. One of those valuers assessed the price at £257 per net square foot, another at £263 per net square foot and the third (Messrs. Cluttons) at £285.25. The average of the three assessments for the purposes of the formula was £268 psf.[23]Bellway then instructed Gleeds, a firm of management and construction consultants, to calculate the RLAC. deeds' calculation is dated 26 th July 2005. The missing figure was the figure for C in the contractual formula. Gleeds calculated that figure to be 39.8%. This meant that the application of the formula produced a result as follows:[24]It followed that there was to be no uplift to the RLAC by virtue of the Inflation Adjustment.[25]This outcome was not what Connolly was expecting. It resulted in the spotlight being thrown on the definition of the Inflation Adjustment over 4 years after that provision had been agreed. The upshot of that review was the issue of these proceedings on 19 th January 2006.[26]As originally issued, the proceedings sought rectification of the formula by substituting as 'B' (ie the £212 figure to be deducted from £268) "the figure of £170", alternatively "damages for misrepresentation".[27]The Particulars of Claim have undergone two amendments. What is now claimed, in addition to damages for misrepresentation, is that the formula be amended by substituting £173 for £212.[28]Connolly additionally (or in the alternative) claims rectification of the formula to: Where D is the figure specified in the Index last published before the date of calculation of the RLAC, and E is the Index Figure.[29]The significance of the suggested new formula, which Connolly acknowledges had not been put forward by anybody at any time during the 5 years prior to service of the draft Re-Amended Particulars of Claim in December 2006, is that it relates the increase in building costs to the same starting point (B) as the increase in the sales price per square foot. The consequence can most easily be seen by filling in the figures (assuming for the present that B remains as £212) and comparing the result with the one achieved by Gleeds applying the contractual formula as set out in paragraph 23 above: If B were also rectified to £173 pursuant to the first rectification claim, X would equal 40.38%.[30]By my calculation, a 14.55% uplift would result in an additional £1,554,376.50 being payable to Connolly, and a 40.38% uplift an additional £4,313,795.40.[31]Finally, to complete the general history of events, in 2005 an independent expert was appointed to determine the RLAC (though not, and without prejudice to, the dispute regarding the Inflation Adjustment). The expert's determination was that the RLAC was £4,683,000, which I understand has been paid to Connolly.[32]There is a further element of the contractual price which I have not been tasked to consider, viz. any additional amount payable in respect of the land subject to commercial development. Key events in more detail[33]I shall now focus in more detail on how the indexation formula came to take the form it did. The individuals principally involved on behalf of the respective parties were Mr. Draper and Mr. Davis. Both are by profession chartered surveyors. Mr. Davis remains a senior land manager with Bellway; Mr. Draper has since the events of 2000/2001 moved to Winchester in semi-retirement. Both gave evidence before me. The task of recollecting exactly what happened, and where necessary why, was not an easy one, partly for the obvious reason that neither witness had had any inkling for over 5 years that that task would have to be performed, and partly also because, to the extent that either of them made detailed notes of discussions at the time (it is not clear that either actually did), those notes are no longer available. The initial discussions[34]Mr. Davis joined Bellway in May 2000. At the material times his office was in Uxbridge in Middlesex. It is not clear exactly when Mr. Davis became involved with the site in Canterbury. He says it was late July 2000, when he took over from a colleague who had left. Mr. Draper was informed by letter dated 24 th July 2000 that the transaction would be handled for Bellway by Mr. Davis and Chris Edginton (a superior to Mr. Davis, who had the title of"sales director").[35]By fax dated 16 th August 2000, Mr. Davis wrote to David Parry at Cluttons, land agents. The fax had been preceded by a discussion between Mr. Davis and Mr. Parry, which was the first contact between them. With the fax, Mr Davis enclosed some details of the units which it was envisaged might be built on the site. Mr, Davis asked Mr. Parry to give "an indication of the likely sale values we would achieve on this scheme for these types". Mr. Davis mentioned that the envisaged specification for the units would be similar to that used by Berkeley Homes (another national housebuilder) at a local site in Canterbury known as Holter's Mill, and he also sought Mr. Parry's comments with regard to the type, size, style and specification of the units.[36]Mr. Parry was regarded as the residential homes specialist within the Cluttons Maidstone office (which covered Canterbury). He had set up a database of comparables to assist him in undertaking tasks such as the one Mr. Davis had set him. He knew the Tannery site well. Its arrival on the market was, he told me, much anticipated, and he regarded the location as one of the most exciting in Canterbury. He was happy to provide free advice to Mr. Davis along the lines requested, because he was hopeful that, in due course, Cluttons might obtain Bellway's instruction to act as marketing agent for the units when constructed; that hope did eventually materialise.[37]Mr. Parry responded to Mr. Davis by fax dated 18 th August 2000. _He enclosed a schedule of resale figures which he described as "reasonably sensible and could give leeway for uplift in certain cases". He made recommendations to include ensuite bathrooms, which he said were becoming increasingly fashionable, and a variety of kitchen styles, and said that "quirky items of character will add value". He took into account that "all the properties will enjoy the ambience of the river and the historic surrounds particularly to the south; some of the units may enjoy cathedral views"; he also assumed that the landscaping would be carried out to a high standard.[38]Mr. Parry referred to sales figures for two other sites. One was the Holter's Mill site, which Mr. Davis had mentioned in his fax. As to that, Mr. Parry said this:
"Good sale rates have been achieved at St Dunstan's Gate/Holters Mill in July - the success story for the South of England as far as Berkeley Homes are concerned - with figures of £161-£200 psf being achieved."
Mr. Parry went on to say that the Tannery site was "definitely superior to Holters Mill" because the latter has a railway running close by.[39]The other site to which Mr. Parry referred had not yet been launched, so no achieved sales prices were available. That site was referred to at trial as Merchant's Store. It is also located in Canterbury, but was not a new build: as a conversion (of a warehouse) it was thought by Mr. Parry that it would be "of superior quality", and would be likely to achieve resale prices of £189-£200 psf.[40]The figures in Mr. Parry's schedule ranged from £160 psf for a 1400 square foot, 3 bedroom townhouse with no river views, to £192 psf for a duplex 630 square foot, third floor apartment. The average figure across all the units considered by Mr. Parry was £179.39 psf. In the penultimate paragraph of his fax, however, Mr. Parry said this:
"Overall, I think that you should easily achieve £200 per sq ft for one or two of the units when the plans are more detailed, but I think it is wiser to adopt the above figures for budget purposes and indeed to take these as an average, An excellent site, with good potential..."
[41]Also on 18 th August 2000, Bellway produced the first of a series of spreadsheets known as a "viability report". That listed the number of flats to be developed by type and gave details for each type, including square footage and estimated sales price. It follows that the anticipated price per square foot could then be calculated, and it was. On that first report the prices per square foot for private sales ranged from £156.67 psf for a 1500 square foot, 4 bedroomed townhouse, to £190 psf for a 600 square foot, 2 bedroomed flat. The average estimated price psf for private sales was £180.69.[42]Also on the viability report were included details in respect of "social housing". It was anticipated that 15 out of the 247 dwellings to be constructed would be required to be "affordable social housing". As such, the likely sales price per square foot would be considerably lower than the price per square foot of private housing. On the August spreadsheet the price per square foot of the 15 social housing units (each of 630 square feet) was estimated to be £98.57 psf. When the figures in respect of the social housing were factored into the overall figures on the August viability report, the average selling price came down from £180.69 psf to £176.69 psf.[43]The main purpose of the viability reports was to calculate the likely rates of profit to Bellway from the development, after making certain assumptions as regards costs, in particular as regards the purchase price of the site. The August spreadsheet showed a likely rate of gross profit of 14.02%, and a profit before interest of 6.02%. After interest was taken into account, however, the development would have made a loss. That outcome was of course not viable, so the figures had to be reworked: the way of doing that was by reducing the price to be paid for the land. Bellway's target was to achieve a gross profit of 20%.[44]Following Bellway's offer of £14.51m for the site, in a letter to Mr. Draper dated 6 th September 2000 Mr. Davis disclosed that the value allocated to the commercial and hotel developments in the offer was £3m and £1.5m respectively; consequently the value attributed to the residential development in the offer was just over £10m. In a viability report produced on the same day which generated a figure of 20% for gross profit, the cost of the residential land was assumed to be £10.4m. The assumed figures for the average net selling prices per square foot remained at £180.69 and £176.69.[45]By the end of September Bellway was easily the front runner for the site. The next best offer which Mr. Draper had received was £11.4m; Berkeley Homes, a developer with significant recent experience in Canterbury, was in fifth place, at only £10m.[46]On 28 th September 2000 Mr. Davis was informed that Mr. Draper "expects to conclude negotiations by the end of October, and wishes to have a legal agreement signed by the end of November".[47]By letter (headed subject to contract) dated 13 th October 2000 Mr. Davis sent to Mr. Draper what he described as "our proposal document for the purchase" of the Tannery. The significance of this document for present purposes lies only in a comment written by Mr. Draper in manuscript in the margin of one of the pages. That comment was:
"? relates to sales price of 210 per sq ft"
Mr. Draper could not remember when or why he wrote that comment, but he was sure that it would have been written after or during a conversation that he had with Mr. Davis. The Heads of Terms[48]Mr. Draper next proceeded to draft a document entitled "Proposed Heads of Terms". The draft went through several versions before it was sent to Bellway on 23 rd October 2000. In a version dated 17* October 2000, the following appears as regards indexation:
"Indexation - The contract shall provide that in relation to the parts of the site to be developed for residential purposes the sale prices and the costs to be deducted shall be indexed between exchange of conditional contracts and completion in accordance with the increase in sales prices per sq. ft. of development achieved on the sale of the first phase of residential units. The sales price per net sq. ft. of development is currently agreed at £ ... and in the event the sales price achieved per sq. ft. shall exceed that sum Bellway shall make an additional payment to Connolly equivalent to the land sale price multiplied by the percentage increase in the sales price per sq. ft of development. The payment shall be made when the sale of the first ten units has been completed."
[49]In the version produced with the next day's date, the "currently agreed" figure for the "sales price per net sq. ft. of the development" was completed by Mr. Draper as £212. Mr. Draper said that this figure was inserted following a conversation he had had with Mr. Davis. It follows that that conversation must have taken place on either 17 th or 18 th October 2000.[50]Mr. Draper's evidence about how he came to insert the figure of £212 was as follows:
"22. Mr. Davis initially proposed a residential sales price of £210 per net square foot. He said to me that he had looked at current residential sales prices at locations comparable to the Site. According to Mr. Davis, the closest comparable was the large-scale Berkeley Homes development at Station Road West. It was only this comparable that Mr. Davis said he was relying on to derive the residential sales price of £210 per net square foot."
According to Mr. Draper, Mr. Davis did not say that he was relying on other local developments. It is common ground that Mr. Davis did not mention that he had received advice from Cluttons.[51]Mr. Draper continues in his witness statement:
"25. With regard to Station Road West, I had visited the development and knew that it was a "dense" development with some flats and conversions and that the location was broadly similar to the Site. ... Mr. Davis said that the figure of £210 was derived from the Station Road West comparable and should be increased "a little" to reflect the better location of the Site which has better views of the cathedral and is closer to the town centre. 26. Given that Bellway and Connolly were working together in close partnership to progress the sale and development of what was, on any view, a problematic site, and that Mr. Davis worked for Bellway as a Development Manager for the Kent region and, as such, was involved in considering many sites offered for sale for development, I was content to rely on his local knowledge of residential sales prices in Kent generally and Canterbury in particular. In order to assess the value of sites Bellway wished to purchase in Kent, I assumed that Mr. Davis had access to (or could rely on others to access) values of recently completed residential units. In addition, I knew that Mr. Davis reported directly to Mr. Clarke who would (I thought) have been involved in approving site acquisitions and needed to be assured that proposed sales were correctly assessed. Given Mr, Davis' knowledge of local sales prices, internal support within Bellway, external expertise at its disposal and the fact that my knowledge was limited since I was, at that time, based in Hertfordshire, I relied upon the figure proposed of £210 as being a genuine and accurate estimate of the average sales price per square foot at the relevant time. 27. I was wary, however, of Mr. Davis' suggestion that there should be an uplift on the £210 figure and I wanted to keep this uplift to a minimum. Therefore I suggested a £2 uplift (i.e. £212 in total). Mr. Davis agreed to this. 28. Following the agreement that the residential sales price was £212 per square foot, the figure was not revisited by either party during the course of later negotiations (though the formula for the inflation adjustment was). From my perspective, I was keen not to reopen this issue because Bellway might have argued that between agreeing the heads of terms on 8 November 2000 and the signing of the agreement on 1 May 2001 ..., house price inflation had occurred and there should be an uplift to the figure of £212."
[52]There are several points to note on this evidence:(a) The figure of £212 was Mr. Draper's own figure, albeit one derived from Mr. Davis' figure of £210.(b) Mr. Draper himself carried out no analysis of what the appropriate figure should be. He accepted in cross examination that he felt that the figure proposed by Mr. Davis was "in the right ballpark". In re examination, he explained what he meant by this, namely that he believed that £210 was within "the broad parameters", "[i]n other words, I did not think it would be a million miles away from what it... ought to be."(c) Although, according to Mr. Draper, Mr. Davis said that his figure was derived from the Station Road West comparable, Mr. Draper assumed that Mr. Davis was applying to the question "his local knowledge of residential sales prices in Kent generally and Canterbury in particular", and that Mr. Clarke would have done likewise. (In cross examination, Mr. Draper did not hold to this account in its entirety: he said that what Mr. Davis said was that "he felt the nearest comparable was the Berkeley scheme", and that he did not specifically exclude from consideration the other comparables).(d) Thereafter, Mr. Draper was concerned that Bellway might argue that the figure of £212 was too low a figure, and did not revisit the point in the months which followed before the contract was signed lest Bellway sought to increase it.[53]As I have said, Mr. Davis had instructed Mr. Parry to assist him. Mr. Davis said that on receiving Mr. Parry's fax of 18 th August he had been encouraged by Mr. Parry's reference to certain units easily achieving £200 per sq. ft. "and was confident that the units at the Property would achieve sales values in excess of £200 per sq. ft." As regards Mr. Parry's reference to the proposed sale prices being "reasonably sensible" with "leeway for uplift in certain cases", Mr. Davis said that he understood this to mean that the estimates were conservative. He said he also noticed Mr. Parry's suggested design improvements and believed that Bellway would effect those enhancements. He considered that "the average sales values would be at the higher end of the scale proposed by Mr. Parry", and that the "special location" of the site would assist in achieving higher values.[54]Mr. Davis also said that he visited a number of comparable developments in the period July to October 2000, and collected sales and marketing literature and prices.[55]Mr. Davis' evidence was that his proposal of the £210 figure was "on the basis of my enquiries and advice received", and was not made by specific reference to only one comparable (viz. Station Road West). In reaching that figure he said he took into account (though he did not say this to Mr. Draper), the advice he had received from Cluttons; the fact - as he said he saw it - that "a period of increasing house price inflation was being experienced at the time", and - so he believed - the likelihood that the sale contract would not be signed until Spring 2001; the sales prices at other local developments (in particular Halter's Mill and similar developments in Station Road West); the special location and quality of the site; and the intention to effect the design enhancements mentioned by Mr. Parry. Mr. Davis said he did not say that the figure of £210 would have to be uplifted, on the contrary, according to Mr. Davis, he said: "that the figure took account of a small uplift on sales prices being achieved on other nearest comparable sites in the city to reflect the special nature of the site".[56]When, after having made his proposal, Mr. Davis received Mr. Draper's draft Heads of Terms under cover of Mr. Draper's letter dated 23 rd October 2000, Mr. Davis said he was surprised to see the figure of £212 included as representing the sales price per net sq. ft. "as currently agreed", on two counts. First, because Mr. Draper had seemingly volunteered an increase in the figure of £210, which appeared to be contrary to his own client's interests; and secondly, because, as he acknowledged in cross examination, he was expecting Mr. Draper to come back to him to query the figure, and perhaps to negotiate a reduction.[57]As regards the first point - the increase from £210 to £212 - Mr. Davis frankly admitted that he assumed that Mr. Draper had made a mistake, or a typographical error. Nonetheless, he did not feel obliged to query, still less correct, the point, since it was not in his client's interest to do so. I should perhaps add at this juncture that it is not part of Connolly's case that, if all else fails, the figure of £212 should be rectified to £210; such a small reduction would not lead to a positive result from the application of the indexation formula.[58]The avowedly self-interested approach of Mr. Davis to a perceived slip by Mr. Draper actually finds reflection in the approach taken during the pre-contractual negotiations by Mr. Draper himself. It will be recalled that when Mr. Draper had first proposed the inflation adjustment, Mr. Davis had agreed to the idea so long as provision was made for increases in building costs. Mr. Draper initially made the latter provision, but removed it from the version of the Heads of Terms sent across to Bellway. He explained to Mr. Connolly why he had done this in a letter dated 25 th October 2000:
"They have thus far commented on the likelihood of wishing to link building cost of the units to inflation as we wish to see the land price linked. They also want to allow for other possible S.106 planning agreement costs to be deducted if encountered. On both of those aspects I am not at all surprised; I had originally allowed for the build cost inflation on the units but then took it out as it is up to them to raise points!"
In the witness box, Mr. Draper said that if Mr. Davis had not spotted the omissions, he would not have felt obliged to raise the point with him because it would have been against his client's interests. The drafting of the indexation provision for the sale contract[59]As Mr. Draper said in the extract from his witness statement quoted in paragraph 51 above, after its insertion in the Heads of Terms document, the figure of £212 was never revisited. The wording of much of the rest of the indexation provision was, however, frequently revisited during the drafting of the contract; it has even been revisited during the course of the proceedings.[60]The first proposed change was by Mr. Davis on 31 st October 2000. The relevant suggestion was: "The sales price per net sq ft of development is currently agreed at £212. In the event the sales price per sq ft at completion as valued by an independent valuer exceeds this figure Bellway shall make an additional payment to Connolly equivalent to the Residential Land sale price x the net % increase calculated in accordance with the formula below:[61]It is to be noted that the formula proposed by Mr. Davis on 31 st October is not materially different from the formula which was eventually included in the sale contract on 1 st May 2001.[62]SJ Berwin's first draft sale contract circulated on 24 th January 2001 did not get to grips with the indexation provision. The next draft, circulated on 14 th February 2001, had ''[to be discussed]" under the heading "Inflation Adjustment means ...". On 20 th March 2001 IBB suggested amendments which essentially incorporated Mr. Davis' drafting from almost 5 months earlier.[63]On 3 rd April 2001, SJ Berwin circulated a further draft of the sale contract which had significant changes to the Inflation Adjustment provision. For the first time, the definitions included in parentheses in the final version were included, and a new formula (set out for the first time in algebraic form) was proposed, viz.:[64]Mr. Draper commented on this version in an e-mail to SJ Berwin dated 4 th April 2001. He thought that the formula worked, provided that the division was under the whole of A-(BxC). In satisfying himself regarding the proposed formula, Mr. Draper worked through it with some hypothetical figures. The hypothesis was that by the time of completion building costs had increased by 5% and the sales price by 9.1%. On that hypothesis, Mr. Draper calculated that X would equal 1.044%, which would have resulted in an increase in the price of the residential land of £17,800 per acre.[65]There are a couple of points to note on Mr. Draper's calculation. First, using Mr. Draper's hypothetical figures, the contractual formula eventually adopted would itself have yielded an inflation adjustment of some 4.43% (ie a greater figure than the formula Mr. Draper was proposing). Secondly, using Mr. Draper's proposed formula and the actual figures for A and C as found by the experts and Gleeds respectively, the uplift to the RLAC would be much more modest than Connolly's proposed formula (as rectified).[66]What Mr. Draper does not appear to have contemplated when working through the formula was what the position should be if the increase in the building costs index was greater than the increase in the sales price.[67]In a letter dated 5 th April 2001, IBB passed on Mr. Davis' suggested formula. SJ Berwin's next version of the draft contract, dated 9 th April 2001, included the formula as proposed by them on 3 rd April. Further discussions ensued, and it was not until a draft circulated by SJ Berwin on 20 th April that what became the contractual formula was finally settled upon. The Beltway Acquisition Pack[68]As the drafting of the sale contract was approaching its conclusion, Bellway took steps to obtain the appropriate authority to enter into the transaction, in particular from the board of directors of its ultimate parent company. To that end, what was termed an "acquisition pack" was created.[69]Included in the acquisition pack was a viability report. Also included were a land manager's report and a sales and marketing report. I was concerned to note that the latter two reports had not been disclosed by Bellway to Connolly until shortly before the trial commenced; and I was alarmed to hear Mr. Davis explain in the witness box that as regards at least one of these reports, consideration had been given at an early stage by Mr. Davis and Bellway's solicitors to the question of whether it should be disclosed. The decision then was that the report was irrelevant, and therefore it was withheld from disclosure. I do not understand how that decision could have been reached in this case. The reports were plainly relevant, as the number of references to them during the course of the trial demonstrated.[70]Prior to the preparation of the sales and marketing report, Mr. Davis reverted to Mr. Parry at Cluttons, to ask Mr. Parry to update his earlier figures. In a faxed letter dated 29 th March 2001 Mr. Parry duly obliged. He revised some prices upwards, and reduced others, and explained why. He also provided updated information as regards other developments. Mr. Parry's fax was another document which, regrettably, was disclosed by Bellway only at a very late stage, even though it appears that there were versions of the document (either original or copy) in at least two places, viz. in Mr. Parry's own files and in a filing cabinet in Bellway's offices.[71]Mr. Parry enclosed a schedule of revised prices. Those ranged from £160 psf for a 1400 square foot 3 bedroomed townhouse to £195 psf for a 1000 square foot 3 bedroomed duplex flat overlooking the river. The revised average price was £183.33 psf excluding the townhouse figures, and £181.54 psf including the townhouse figures.[72]On 2 nd April 2001 Mr. Davis passed Mr. Parry's fax on to Mr. Edginton, and asked the latter to prepare a sales and marketing report for the acquisition pack.[73]Mr. Edginton's report is dated 4 th April 2001. After referring to developments at three comparable sites in Canterbury, Mr. Edginton recommended that Bellway price the apartments at an average of £185 psf, and the townhouses at £165 psf. He commented:
"I believe this to be a conservative/realistic level based on competitors pricing and the fact that our site is within the City walls and is considered to be a superior residential location."
[74]The land manager's report is not dated but is believed to have been written at about the same time as the sales and marketing report. The report refers to the adjustment for inflation, and states that the residential land price will be increased at completion ''if the sales price exceeds £212 per sq. ft." The report also records that overall the selling prices included in the latest viability report equate to an average of £177 psf. Connolly's claims[75]When the case was opened to me, Connolly was pressing 4 claims, viz.:(a) a claim that the £212 figure should be rectified to £173 because of the parties' alleged mutual mistake;(b) a claim that the £212 should be rectified to £173 because of Connolly's unilateral mistake, encouraged by Bellway;(c) a claim that the formula for indexation should be rectified on the ground of the parties' mutual mistake; and(d) a claim for damages for deceit.[76]By the time of closing speeches, however, Connolly had prudently abandoned claim (a): it recognised that whatever was in the minds of Mr. Draper or Connolly or both, Mr. Davis and Bellway were not mistaken about the inclusion of the figure of £212: that was certainly what they intended.[77]I should explain the derivation of the figure of £173.[78]Both parties retained expert valuers to assess "the average sales price per net square foot for residential property on the Tannery site, Canterbury as would have been prevailing in late October/early November 2000" (per the instructions prepared by Connolly).[79]Bellway retained Antony John Meire, a partner at Cluttons. Cluttons are of course not independent as regards issues raised in this litigation, though Mr. Meire himself is. No objection was taken to Mr. Meire giving expert evidence.[80]It soon became apparent that for the purpose of assessing likely sale prices of residential developments, particularly in Canterbury, Mr. Parry is the Cluttons partner with the most experience. Mr. Meire's practice is less specialised.[81]Mr. Meire's approach was to establish as best he could the achieved average selling price for property at four other locations in Canterbury (including Holter's Mill and Merchant's Store). He then applied the appropriate figure derived from the Halifax New Price Index for the South East to the average selling price in each location, to obtain an equivalent figure as at the final quarter of 2000 and as at May 2001. The range was from £185-186 psf as at October 2000 and £169-£190 as at May 2001. Mr. Meire considered the £169 result to be an aberration caused by heavy discounting of sales prices, and he therefore ignored it. That left Mr. Meire with average figures in October 2000 of £185 and in May 2001 of £190. Mr. Meire uplifted both of these figures by 5% to account for the better location of the Tannery site. He thus concluded that the appropriate figures for his valuation were £194 psf in October 2000, and £200 psf in May 2001.[82]I did not find Mr. Meire's approach particularly helpful. It was based on price inflation calculated entirely with the benefit of hindsight at four other sites; it used a general inflation index for the whole of the South East of England, rather than one which concentrated on East Kent (or even Canterbury); and it assessed an allowance for location at a somewhat arbitrary figure of 5%. Mr. Meire made no attempt to step into the shoes of a hypothetical expert valuer on the ground at the relevant times. I also found it a little ticklish that Mr. Meire's conclusion was that the appropriate values were significantly higher than the values which had been expressed by his fellow - and more specialised - partner at Cluttons at more or less the two relevant points in time (Mr. Meire said - and I accept - that he had not seen Mr. Parry's reports when preparing his own determination).[83]The average of the figures set out by Mr. Parry in the schedule to his fax dated 29 th March 2001 was £181.54 psf; Mr. Meire in November 2006 believed the figure as at May 2001 was £200 psf. In my judgment, the true figure is much closer to Mr. Parry's than to Mr. Meire's.[84]Connolly retained Stephen Deakin of Strutt and Parker. Mr. Deakin did try to put himself in the position of a hypothetical valuer at the relevant times, and based his assessment on, inter alia, contemporary information from comparable developments. He looked at figures arising in respect of four such developments (but not the same four as Mr. Meire). Mr. Deakin's conclusion is that the average sales price as at October/November 2000 was £166 psf if the affordable housing was included in the calculation and £173 psf if it was not included; the equivalent figures as at 1 st May 2001 were £173 psf and £177 psf.[85]The figure of £173 appearing in the Re-Amended Particulars of Claim can thus be seen to be Mr. Deakin's valuation of the average price per square foot of the units as at 1 st May 2001/ taking into account the affordable housing. Since Mr. Davis and Mr. Draper do not appear to have paid attention to the impact of the affordable housing in their deliberations, the better figure for comparison based on Mr. Deakin's report is £177 psf.[86]I prefer Mr. Deakin's approach to Mr. Meire's, but consider that Mr. Deakin's conclusions are too low. Whether this is because Mr. Deakin did not materially enhance the prices being achieved on other developments because he did not consider the location of the Tannery to be significantly superior, or whether it reflects questionable omissions of some higher figures during the calculation process, or because Mr. Deakin omitted to consider some more favourable comparables, or whether it is simply a result of a more conservative approach, or for some other reason, I do not believe it is necessary for me to establish. There is some scope for criticism of Mr. Deakin's report in at least some of these respects.[87]I should just mention the matter of the superiority of the Tannery site as perceived by Bellway's witnesses (and taken into account by Mr. Parry in his valuation), which perception in my judgment was well founded. This was most succinctly expressed by Mr. Parry in cross examination:
"For years the tannery site at Canterbury was known to be what a lot of developers would have loved to have bought, because it was regarded as certainly the best site in Canterbury, if not probably in east Kent, because of its special characteristics."
[88]In my judgment, the true objective figure for the average achievable price per square foot of the units to be constructed at the Tannery, as at 1 st May 2001, was £183 excluding the affordable housing (and £180 if the affordable housing was included).[89]I shall now address each of Connolly's remaining three claims.

(a) Rectification of the formula

[90]The claim that the formula should be rectified is put on the ground of mutual mistake only.[91]The principles to be applied by a court determining a claim to rectification on the ground of mutual mistake are set out in the judgment of Peter Gibson LJ in Swainland Builders Ltd v. Freehold Properties Ltd [2002] EWCA 560, [2002] 2 EGLR 71 , at p. 74:
"The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention."
[92]As was confirmed in Swainland, the fact that the parties intended that the agreement should include a particular form of words, does not prevent the court from substituting different words if it finds that the parties were mistaken in their belief that their chosen words gave effect to their common intention.[93]In my judgment this claim fails for a number of different reasons, each of which would have been sufficient on its own to deny Connolly the remedy of rectification.[94]First, assuming for the present that the contractual formula did not reflect Connolly's intentions, I have no doubt that it reflected Mr. Davis' and therefore Bellway's. Not only do I have Mr. Davis' evidence for this, resolutely adhered to in the witness box, I also have the drafting history which I have set out above. The formula included in the sale contract was very similar to the formula proposed by Mr. Davis on 31 st October 2000.[95]Whether it was commercially sensible from Connolly's point of view to agree the contractual formula in the terms which it did, is not relevant in this context. True it is that the formula could perhaps be described as rather broad brush, but in principle, if the percentage increases had turned out as one might have expected (namely a greater percentage increase in land prices than the percentage increase in building costs) some uplift would have occurred.[96]In truth, what this claim to rectification does is highlight the inappropriateness of the figure of £212. If, instead of £212, the figure had been £183, the inflation rate for land prices would have been some 45%, and the application of the contractual formula would have been as follows: In other words, Connolly would have been entitled to receive a further (£10,683,000 x 6.648087% =) £710,214.38 by reason of the inflation adjustment.[97]Secondly, I am not persuaded that Connolly was itself mistaken when the formula was agreed. I shall assume for these purposes that Mr. Draper's knowledge was Connolly's knowledge, even though it was Mr. Joseph Connolly, not Mr. Draper, who signed the sale contract and all its amendments (cp. George Wimpey UK Ltd v. VIC Construction Ltd [2005] EWCA 77, [2005] BLR 135 ). The fact that even when proceedings were issued in 2006 (after, one assumes, Connolly and its advisers had spent some time closely scrutinising the formula), no claim was made to rectify the formula, suggests that it was not felt then that the formula did not reflect the parties' intentions back in 2001.[98]Connolly relies heavily on the definition included in parentheses in the first and second lines of the definition of Inflation Adjustment, which was inserted by SJ Berwin at a late stage in the negotiation of the detailed terms of the contract, on 3 rd April 2001, viz.:
"(intended to reflect increases in sale prices after discounting inflation in building costs)"
But it is not clear to me that the contractual formula does not do this. The definition does not explain how it was intended that the discount was to operate, and it seems to me that a simple deduction of the percentage figure representing inflation in building costs was one way of effecting the discount. It does not follow from the definition that the reduction in respect of building costs inflation had to be weighted so that, for instance, only a part of that inflation figure was to be applied.[99]Thirdly, I have difficulties in imagining what the correct formula might be, if I were otherwise minded to accede to the application. I have already drawn attention to the variety of formulas discussed during the drafting of the contract. Even after proceedings were issued and then amended, Mr. Draper put forward in his first witness statement a new formula which in his second witness statement he felt compelled to renege on. It is interesting to see how he described his change of mind. He said:
"Since preparing my first witness statement in these proceedings, it has been drawn to my attention that the formula set out in paragraph 45 of that statement is not the correct arithmetical expression of the parties'common intention,"
This does lend support to the observation of Mr. Pennicott QC for Bell way, that this claim for rectification is "manifestly lawyer-generated".[100]Moreover, under cross examination by Mr. Pennicott, Mr. Draper appeared to accept that even the latest proposed reformulation did not accord with the intention which he said, in his first witness statement, he held in 2001.[101]Whilst I accept, as urged upon me by Mr. Moverley Smith QC for Connolly, that in an appropriate case the Court can itself draft the form of words which it considers gives effect to the true common intention of the parties, I do not believe the Court should take such a course without a high degree of certainty that the wording proposed would achieve that aim. Since in this case I am not satisfied that the contract did not give effect to the parties' common intention, I cannot begin such an exercise; but even if I were satisfied, I would still feel some trepidation on embarking on such an exercise, in the light of the history in this case of different formulas advanced on behalf of Connolly with apparent conviction, only to be later withdrawn. Unilateral mistake[102]As I have already mentioned, Connolly's claim that the sale contract should be rectified to substitute another figure for the figure of £212, on the ground that the £212 figure failed to represent the true common intention of the parties, was abandoned after the evidence had been heard.[103]Connolly, however, maintains a claim to rectification of the £212 figure on the ground of unilateral mistake.[104]As was recently pointed out by Lightman J in Rowallan Group Ltd v. Edgehill Portfolio No. 1 Ltd [2007] EWHC (Ch) 32 , when striking out claims for rectification based on unilateral mistake (para. 14):
"... the remedy of rectification for unilateral mistake is a drastic remedy, for it has the result of imposing on the defendant to the claim a contract which he did not, and did not intend to, make. Accordingly the conditions for the grant of such relief must be strictly satisfied."
[105]The conditions for the grant of relief on the ground of unilateral mistake are set out in the judgment of Buckley LJ in Thomas Bates Ltd v. Wyndhams (Lingerie) Ltd [1981] 1 WLR 505 , at p. 516:
" ... it must be shown: first, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision ...; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. If these requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A's intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake."
There was no dispute at trial that if there was a relevant mistake and if Mr. Davies was aware of that mistake / Mr. Davis had omitted to draw the mistake to the attention of Mr. Draper or Connolly; and that any such mistake would benefit Bellway. Thus the attention at trial was on the first and second elements of this test.[106]The way in which Connolly puts its case on the ground of unilateral mistake is as follows:(a) it was Connolly's intention that the figure to be inserted as "B" in the formula "would be a genuine and accurate estimate of the average sales price per net square foot of the Residential Development" at the date of the agreement (ie in the events which happened, 1 st May 2001);(b) the figure of £212 which was inserted did not reflect that intention;(c) Connolly was mistaken and Bellway "knew, or wilfully shut its eyes" to the obvious fact that Connolly had made a mistake, but did not draw the mistake to Connolly's intention;(d) it would be inequitable for Bellway to object to rectification.[107]It seems clear to me that Mr. Draper was in error when he went back to Mr. Davis and suggested the figure of £212. But the error he made was in not challenging the figure proposed by Mr. Davies. This is not a case where "one party ... erroneously believed that the document sought to be rectified contained a particular term or provision". Mr. Draper's error was an error as to the quality (in commercial terms) of the agreed figure.[108]There has never been any doubt that both parties intended the agreement to include the figure of £212. Connolly's reliance on the definition of the figure (viz. "representing the estimated sales price per net square foot of the Residential Development at the date of this Agreement") is misplaced: the £212 was what the parties agreed as representing the estimated sales price.[109]This is in truth a case where one party has subsequently come to appreciate that it should not have agreed to the inclusion of a particular term. But that is not the sort of error which enables a court to rectify the agreement. The court cannot remake the parties' bargain just because it has turned out to be significantly to the detriment of one party, and significantly to the benefit of the other.[110]This case, it seems to me, is just the sort of case which Sedley LJ had in mind in his judgment in the George Wimpey case (loc cit) when he said (at para. 62):
"There are at least two kinds of mistake. One is a literal misunderstanding of some fact material to the proposed contract. The other is an error of judgment in entering into the contract. I find it difficult to think that the second kind has any relevance to the law of unilateral mistake."
[111]I therefore reject the claim for rectification on the ground of unilateral mistake because it does not satisfy the first of the elements of the test set out in the Thomas Bates case.[112]In those circumstances it is not necessary for me to address the interesting further argument advanced by Mr. Pennicott, that the claim for rectification must fail for the reasons expressed (obiter) in the judgments of two of the judges in the George Wimpey case, viz. because Connolly did not call Mr. Joseph Connolly to give evidence, and because without evidence from Mr. Connolly, ie from the individual who signed the sale contract on behalf of Connolly, I could not be satisfied that Connolly - as opposed to Mr. Draper - was mistaken. Deceit[113]In contrast to the way in which the case was opened to me, by the time closing submissions were reached Connolly's primary case had become the claim in deceit.[114]The elements of a claim in deceit are:(a) a clear false representation of fact (or law);(b) fraud by the maker, in the sense that he knew that the representation was false, or had no belief in its truth, or was reckless whether it was true or false;(c) an intent by the defendant that the representation should be acted upon by the claimant;(d) action by the claimant in reliance on the representation;(e) damage suffered by the claimant by reliance on the representation.[115]In its Re-Amended Particulars of Claim, Connolly put its claim in deceit as follows:(a) "Mr. Davis told Mr. Draper that he had looked at current residential sales prices at other locations comparable to the Property and felt that the closest comparable was the Berkeley Homes development at Sutton Road West Canterbury. Mr. Davis represented that an appropriate estimated net sales price per square foot based on this comparable was £210 plus a small uplift to take account of the better location of the Property ('the Representation')"(b) "... Mr. Draper (who had no local knowledge, being based in Hertfordshire) accepted the Representation and, in order to pre-empt any attempt by Mr. Davis to apply a larger uplift, Mr. Draper suggested to Mr. Davis that the figure including the uplift should be £212."(c) "The Representation was false in that the average sales price per net square foot of comparable developments including the Berkeley Homes' development at Station Road West Canterbury at the time of negotiation of the heads of terms between Mr. Davis and Mr. Draper was in fact £170."(d) "... the Representation was made by Mr. Davis at a time when he was in receipt of independent advice from Cluttons ... and in the knowledge that the Representation was false or was made recklessly as to whether it was true or not and/or with no belief in the truth thereof and in the knowledge that Connolly by its agent, Mr. Draper, was mistaken when accepting the figure of £212 as a genuine and accurate estimate of the average sales price per net square foot of the Residential Development at the date of the Agreement."(e) "by reason of the misrepresentation ... Connolly has suffered loss and damage being ... £2,759,418.90".[116]I must first establish as best I can what I think was actually said in the relevant part of the conversation between Mr. Draper and Mr. Davis. The representation[117]I have set out in paragraphs 50-57 above the competing accounts of the fateful conversation on 17 th or 18 th October 2000. No detailed note of what was said was prepared by either party, or at least if one was, it has not survived. The only possible note of any part of the discussion is the annotation on the letter from Mr. Davis to Mr. Draper dated 13 th October 2000, to which I referred in paragraph 47 above. That note refers to a "sales price of 210 per square foot".[118]Mr. Davis has this account in paragraph 25 of his witness statement (my emphasis):
" ... I proposed to Mr. Draper that on the basis of my enquiries and advice received, in my view, the estimated achievable sales price per sq.ft. for the development should be about £210"
And in paragraph 27 (my emphasis):
"... I did state that the figure took account of a small uplift on sales prices being achieved on other nearest comparable sites in the city to reflect the special nature of the site"
[119]In the witness box Mr. Davis said that when he made his proposal he was not certain that Mr. Draper would disagree with it, but he did expect him to query it and to have some discussion about it, and possibly to negotiate a different figure. He said that as part of a negotiation, he would not have been able to accept a figure that was commercially unviable for Bellway, and that he would have been loathe to have gone down to the level of £180 psf, but "I think I would have struggled to have resisted something that was in the ballpark of £200".[120]In my judgment, Mr. Davis' account of what he said is to be preferred to Mr. Draper's. In other words, I find that what Mr. Davis said to Mr. Draper was that(1) his view was that(2) based on the enquiries he had made and the advice he had received(3) the estimated achievable sales price per square foot (sc. the average price) for the development should be about £210(4) which figure took account of a small uplift on sales prices being achieved on other nearest comparable sites to reflect the special nature of the Tannery site.[121]I reach these conclusions principally for the following reasons. As regards the uplift issue, I accept Mr. Davis' evidence that after proposing the figure of £210 he expected Mr. Draper to query it and (perhaps) to come back to him with a lower proposal, and was not expecting Mr. Draper to suggest a higher figure. I also do not believe that a focused individual such as Mr. Davis would have missed an opportunity to enhance the figure to be proposed.[122]I also note that on Mr. Davis' letter dated 13 th October 2000 referred to in paragraph 47 above, Mr. Draper did not write "£210 +", he wrote £210. In cross examination Mr. Draper agreed that it was "quite probable" that if he had written that note during the course of his conversation with Mr. Davis and Mr. Davis had indeed said "£210 plus a bit", Mr. Draper would have reflected the addition in his note.[123]It is possible that Mr. Draper simply misunderstood Mr. Davis' reference to an uplift. There has undoubtedly been some confusion in the Connolly camp about exactly what Mr. Draper thought happened, since the proceedings were first prepared. In an early version of the Particulars of Claim Connolly alleged that it was in fact Mr. Davis who had put forward the figure of £212. That allegation was dropped on a later amendment. Whilst in cross examination Mr Draper said that he was not the source of the suggestion that Mr. Davis had proposed the figure of £212, before he started to re-examine Mr. Draper, Mr. Moverley Smith was constrained to draw to my attention a recollection of his instructing solicitors that Mr. Draper did put forward as his recollection of the conversation with Mr. Davis that a figure of £212 was proposed by Mr. Davis at the relevant time.[124]In connection with the comparable issue, I accept Mr. Davis' evidence that after receiving Mr. Parry's views in August, which he considered to be conservative, he investigated the position at other sites. By the time he had the conversation with Mr. Draper, he had thus acquired some knowledge - however incomplete - of prices being sought at several local sites. I cannot see any sensible reason why Mr. Davis would have wanted to tie his proposal to just one development, when he had considered others. His proposal would have appeared stronger, the more comparables it had reference to.[125]I did not find Mr. Draper's evidence on the comparable issue convincing. I have quoted above the key part of his first witness statement (paragraph 22). I have also quoted above a later passage in the same statement (paragraph 26), in which Mr. Draper sets out the assumptions he made when he relied on the proposal of £210 psf to make a counterproposal of £212 psf. These included that Mr. Davis would have brought to bear "his local knowledge of residential sales prices in Kent generally and Canterbury in particular", and that Mr. Clarke would have been involved, who would also have had some general knowledge of local prices. In that paragraph Mr. Draper also indicates that he assumed that Mr. Davis would have had recourse to "external expertise at [Bellway's] disposal". These assumptions do not sit easily with the notion that Mr. Draper thought that Mr. Davis' proposal was based on one comparable only. Consequences for the claim[126]What Mr. Davis did was put forward a proposal which he described as reflecting his view of the average achievable price based on the advice he had received and the enquiries he had made. The proposal was made in the course of an arm's length negotiation about the terms for a contract which it was hoped would be entered into in due course.[127]In this connection I note the following passage from Clerk & Lindsell on Torts, 19 th edition (2006) at para. 18-10 (liability in deceit for promises and statements of intention):
"... it should be noted that there is an exception where parties are in negotiation over price, in which case a misstatement as to the highest price which the one party has the intention to give, or the lowest price which the other has the intention to accept, will not afford a cause of action. The law permits the seller some latitude in exaggerating the value of his goods and so the purchaser is not bound to disclose the highest price he chooses to give..."
[128]Mr. Pennicott also drew to my attention the following further observations of Sedley LJ in his judgment in the George Wimpey case, viz.:
"58. There is, as it seems to me, a paradox in the notion of what an honourable and reasonable person would do in the context of an arm's length commercial negotiation. This is a context in which honour (or honesty) and rationality (or reasonableness) are frequently not on speaking terms. I doubt that [counsel's] submission that the two epithets qualify each other does more than compound the paradox. 59. Take the present case. An honourable person negotiating for [the Defendant] would probably have asked [the Claimant] if they realised that E had been left out, but I very much doubt whether a reasonable negotiator would have done so. His first duty would have been to his own principal, whose interests undoubtedly lay in leaving E out and not alerting [the Claimant] to the omission. 60. The phrase "honest and reasonable" is not a term of art. It is a judicial attempt to sketch a line beyond which conduct may be regarded as unconscionable or inequitable. Its duality, however, is a recognition that honesty alone is too pure a standard for business dealings because it omits legitimate self-interest; while reasonableness is capable of legitimising Machiavellian tactics."
[129]Having regard to these considerations, Mr. Pennicott submitted in closing:
"... [Connolly] must prove that Mr. Davis' opinion as to the estimated average sales value was an opinion which he did not in fact believe, or to which given the facts known to him, he could not have honestly held. Given the subject matter of the alleged representation (ie an opinion as to valuation with all the subjective factors that this involves) what that must mean in practical terms in the context of this dispute is that Mr. Davis' figure ... was so far wide of the mark that dishonesty or deceit can be unequivocally inferred by the court."
[130]I am in no doubt that the figure of £210 psf was "wide of the mark", for at least the following reasons:(a) I have already explained that in my view the true objective figure based on the views of the experts was £183 psf (at the date of the discussion in October 2000, it would have been about £3 lower).(b) Even Mr. Meire, the expert valuer called by Bellway, on a generous approach which I consider flawed, did not support a figure above £197 psf.(c) Whereas there are references to particular flats in particular developments having achieved prices in excess of £200 psf by the time of the relevant discussion in October 2000, there is no evidence that any development had by then achieved an average sales price per square foot of £200. Indeed, Mr. Meire's adjusted average sales prices over the four developments he considered was £183 psf as at October 2000 and £188 psf as at May 2001; the highest adjusted average sales price of the four developments was £190 as at May 2001.(d) Mr. Parry, the expert consulted by Mr. Davis as recently as 16 th August, recommended an average price per square foot of £179.(e) None of Bellway's internal viability reports included an average price per square foot greater than £180.69.(f) The three documents which Bellway did not disclose until just before the trial commenced, showed average sales prices estim ated some 5-6 months later by or for Bellway which were considerably below £210 psf, viz. (1) the land manager's report (£177 psf); the sales and marketing report (£177 psf); and (3) Mr. Parry's updated opinion of 29* March 2001 (£181 psf).(g) Mr. Davis himself said in cross examination that in his view Bellway's parent board would have been "elated" if an average of more than £185 psf was actually achieved for the flats.[131]On an application of Mr. Pennicott's test, does this mean that the figure of £210 psf was so far wide of the mark that I should infer dishonesty or deceit?[132]£210 is some 14.75% greater than £183. That difference has to be related to the formula which Mr. Davis had successfully ensured was included in the sale contract. If the figure of £183 had been inserted instead of the figure of £212, according to my calculation in paragraph 96 above, an additional £710,214.38 would have been payable to Connolly.[133]In these circumstances, in my judgment the figure of £210 psf was so far wide of mark that, on Mr. Pennicott's test, I can infer dishonesty. I was pressed with Mr. Draper's evidence in cross examination that at the time of the discussions Mr. Draper himself thought that the figure of £210 psf was "in the right ballpark" or "not a million miles away" or within "the broad parameters". Whilst I accept that evidence, all it does is show that Mr. Draper was misled: if he had not thought at the time that £210 psf satisfied those descriptions, he would not have agreed to its inclusion in the sale contract. I also do not think it especially significant in this context that Mr. Draper himself mistakenly proposed an uplift to £212 psf. He did that because he was misled into thinking that £210 psf was about the right figure, whereas in my judgment it plainly was not. It is trite law that the negligence of the victim in relying on the misrepresentation is no defence to a claim in deceit.[134]But quite apart from an application of Mr. Pennicott's test, I am satisfied that Mr. Davis did not believe when he made his proposal that £210 was a genuine or realistic estimate of the average achievable sales price of the flats at the Tannery site. Mr. Davis was aware of factors (b), (c) (save for the results of Mr. Meire's research) and (d) in paragraph 130 above when he had the discussion with Mr. Draper, and he became aware of factors (e) and (f) by the time the sale contract was entered into on 1 st May 2001 (which is legally the more significant time). In my judgment Mr. Davis would not just have "struggled" to defend the figure of £210 psf had Mr. Draper queried it, he would have been forced to concede that it was not appropriate: he did not have any material to support such a high average price.[135]Factors (e), (f) and (g) are in my judgment especially telling. When Mr. Davis was involved in fulfilling his duties to Bellway or its parent company, the estimates of average achievable sales prices were far lower than £210 psf. Even allowing for the fact that internal proposals connected with viability may be inherently more conservative than proposals made to the outside world, £177 psf is a long way from £210 psf. If Mr. Davis had genuinely believed that the average achievable sales price was £210 psf but had misled his superiors at Bellway into believing that he actually thought the true figure was much lower, I cannot see how he would have been in anything other than serious dereliction of his duties as an employee.[136]In cross examination, Mr. Davis' position also appeared particularly weak as regards the statement in his witness statement that he had told Mr. Draper that the £210 figure took account of sales prices "being achieved" elsewhere. He first endeavoured to suggest that what he had said was prices "achievable" elsewhere, but that would have made little sense. He then said that perhaps he "did not think hard enough about the word 'achieved' and maybe I should have been saying marketing or information that I viewed would be achieved or whatever".[137]I therefore find that the figure of £210 proposed by Mr. Davis was beyond the bounds of any genuine estimate of the average achievable sale price based on the enquiries he had made and the advice he had received, even allowing for a small uplift, and that when he put that figure forward Mr. Davis knew that it was not a genuine estimate. I am also satisfied that Mr. Davis intended Mr. Draper to believe that the view he expressed was a genuine estimate based on the investigations he had carried out, and that Mr. Draper did in fact believe that it was.[138]It follows that I am satisfied that Connolly has established the first four elements of a claim in deceit.[139]As regards the fifth and final element, viz. whether Connolly has suffered damage in reliance on the misrepresentation, the answer is I think clearly in the affirmative. Connolly agreed an estimated average sales price which was considerably above what I have found to be the objectively determined figure.[140]As regards quantification of damages, in Connolly's submission:
"The appropriate figure for damages is that which the Court considers would have been the product of the negotiations between the parties. In this regard the starting point is Mr. Deakin's figure of £166 and Mr. Davis volunteering that he would have gone as low as £180."
[141]The hypothesis is thus that Mr. Draper would have consulted Mr. Deakin at the time to advise on the price, and that, based on Mr. Deakin's advice, Mr. Draper would have proposed the figure of £166 psf. If Mr. Draper had made that proposal, I am very confident that Mr. Davis would have rejected it out of hand. Mr. Davis had the advantage of Mr. Parry's view, which he considered to be on the conservative side. Additionally, the viability of the development would be likely to have been threatened at a level below £177 psf.[142]In my judgment, the most likely scenario is that the parties would have settled on the figure which I have determined was the objectively estimated average sales price as at 1 st May 2001, viz. £183 psf.[143]Subject to any further submissions either party may wish to make as regards quantum, I therefore propose to award Connolly damages of £710,214.38 together with interest from the date on which the RLAC became payable to Connolly under the sale contract.

Cited in 2 later judgments