Groveholt Ltd v Hughes & Anor [2012] EWHC 686 (Ch)

[2012] EWHC 686 (Ch)

Case No HC04C00899

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Rolls Building, Royal Courts of Justice, Fetter Lane,

Date 21/03/2012

London EC4A 1NL

Before

MR JUSTICE DAVID RICHARDS

Between

GROVEHOLT LIMITEDClaimant

ALAN HUGHESDefendants

DELBROOK PROPERTIES LIMITEDDefendant

Mr Neil Kitchener QC and Mr Zachary Bredemear (instructed by Jones Day, 21 Tudor Street, London EC4Y 0DJ) for Claimant

Mr Pav Korpal represented the First Defendant

Judgment

Introduction

[1]The issue in this case is the amount, if any, which was secured by a legal charge dated 16 September 1998 over land at Cawdor Quarry, Matlock, Derbyshire in favour of the first defendant Alan Hughes. The charge, so far as relevant, was over that part of the property known as the Phase One Residential Land. It secured overage payments due to Mr Hughes as vendor of the property on the grant of specified planning permissions. The charge itself was released by an order of the court made on 10 June 2004 and replaced by a payment into court of £3.4 million

[2]It is common ground that the maximum amount secured by the charge, before interest and costs, was £3 million. That amount is subject to reduction to the extent that site assembly and infrastructure costs, as defined, exceeded £4.5 million. Mr Hughes challenges many of the costs asserted by the claimant, Groveholt Limited (Groveholt), either as not relating to items falling within the relevant definitions of site assembly or infrastructure works or on a variety of other grounds specific to those particular costs. He also claims that the costs were greatly increased by delays, principally in obtaining planning permission and in the site assembly process, which constituted breaches of the relevant agreements. It is the claimant’s case that there was nothing secured by the charge, while Mr Hughes argues that it secured the full amount of £3 million.

[3]The sale contract containing the relevant provisions for the overage payments and the deduction of costs was made on 9 April 1998 between Mr Hughes as vendor and Chelverton Limited (Chelverton) as purchaser. The charge was created in accordance with the agreement. By an agreement made in December 2000 and completed in July 2001, the land was sold, subject to the charge, by Chelverton to Groveholt. Mr Hughes and Groveholt have not at any time been in contractual relations, but it is common ground that the amount, if any, secured by the charge is governed by the agreement between Mr Hughes and Chelverton and that Mr Hughes is entitled to rely for these purposes on any matter which was or would have been breach of the agreement by Chelverton.

[4]The relevant contractual arrangements, the facts and the procedural history are complex. There have been a number of decisions on the meaning and effect of the contracts, including two by the Court of Appeal in 2005 and 2010.

[5]The structure of this judgment is as follows: Subject Paragraph The trial 6 – 19 The proceedings to date 20 – 24 Backgrounds facts 25 – 33 Central issues 34 – 35 The relevant contracts 36 – 73 Earlier court decisions 74 – 78 Defences based on construction of the contracts 79 – 104 Issues on the facts: summary 105 – 109 Planning issues 110 – 178 Site Assembly 179 – 234 Infrastructure Works 235 – 304 Other defences 305 – 306 Conclusion 307 – 311

The trial

[6]The trial of these proceedings took place over a protracted period. Both sides called witnesses of fact and expert witnesses in the fields of planning and quantity surveying. There was a large amount of documents before the court. There were 21 days in court in July, October and November 2011 (21-22, 25-29 July, 10-14, 17-21, 24 and 27 October, and 1 November) which were for the most part taken up with evidence. The substantial closing submissions were made principally in writing, and were delivered on 26 October 2011 (Groveholt’s closing), 25 November 2011 (Mr Hughes’ closing, with a short supplement on 16 December 2011) and 20 December 2011 (Groveholt’s reply).

[7]The complexities of the case are such as to make legal representation of both parties, to put at its lowest, highly desirable in the interests of the parties and the court. While the claimant has throughout these proceedings been represented by solicitors and leading and junior counsel, Mr Hughes did not have legal representation at the trial.

[8]At the start of the trial, I was asked to permit Mr Hughes to be represented by Mr Pav Korpal, a friend of Mr Hughes and his family. This application was not opposed by the claimant and I acceded to it. Mr Hughes is 72 years old and suffered a heart attack two years ago. Having seen him give evidence, I am entirely satisfied that he would have been unable to represent himself.

[9]Mr Korpal has assisted Mr Hughes with this case over the last eight years. He told me that he had no legal training or prior court experience, except appearing for Mr Hughes on some applications in the present case. The pressure on Mr Korpal was considerable but he proved himself to be an effective advocate for Mr Hughes, both orally and in writing. He is intelligent and quick-witted, and was quick to learn courtroom techniques. While no doubt his cross-examination of, at any rate, the first of Groveholt’s witnesses took longer than would have been the case if Mr Hughes had been represented by an experienced advocate, he soon developed a more economical style. While putting Mr Hughes’ case with appropriate force, he at all times behaved with courtesy and restraint and accepted my rulings without complaint.

[10]The time allowed for written closing submissions was to accommodate Mr Korpal, who faced a large task assimilating the documents and transcripts of oral evidence, and, so far as the claimant’s substantial reply was concerned, to accommodate counsel’s other commitments.

[11]There were suggestions from time to time by the claimant that Mr Hughes had dispensed with solicitors and counsel not because he could not afford them but as part of what the claimant sees as a long policy on his part of obstructiveness and non-cooperation. The ability to pay for legal representation would have been a relevant factor in the decision whether to allow other representation, but I repeat that the application was not opposed and there was no investigation into Mr Hughes’ financial position to gainsay his position that he could not afford legal representation. I am entirely satisfied that Mr Korpal sought only to provide representation for Hughes and did not try to obstruct or delay the trial.

[12]Mr Korpal has complained in his closing submissions of a lack of disclosure in certain respects. This repeats complaints made on two applications during the trial. I rejected both applications. There are no grounds for concluding that Groveholt has not given proper disclosure.

Witnesses

[13]Groveholt called four witnesses of fact. Eifion Phillips is a development consultant who was engaged by Chelverton and then Groveholt to manage the development on their behalf through its many stages. He was very familiar with all aspects of the project from an early stage. Richard Kilkelly is a quantity surveyor. His involvement with the project began when he was employed by a firm of project managers engaged by Chelverton. When he left that firm in 2000, he continued to work on the project, assisting Mr Phillips, particularly on the technical aspects. John Lean is a solicitor and as a partner in Lawrence Graham acted for Chelverton and then Groveholt in respect of all or most of the various agreements and negotiations. Ian Holt is a quantity surveyor who, as a partner in a firm of quantity surveyors, was engaged by Sainsbury and was involved in the project from about 2002.

[14]For the defendant, Mr Hughes himself gave evidence. His planning expert, Mr Yarwood, was involved as head of the local planning authority until June 2001 in the planning process for Cawdor Quarry. His evidence was therefore partly evidence of fact and partly expert evidence.

[15]This is not a case which turns to a great extent on the recollections of the witnesses. It is not necessary to spend much time on the credibility or reliability of the oral evidence. I am satisfied that none of the witnesses was seeking to deceive the court. Mr Holt, who was of course independent of the parties, was a particularly impressive and helpful witness. He had a good recollection of most of the matters about which he was asked and gave explanations which were clear and dispassionate. Mr Phillips was a loquacious witness who tended to inflate his answers with arguments on the case and to speculate about matters when his recollection was not clear. Nonetheless, there was a good deal which he could recall and I am satisfied that his evidence was honestly given. Mr Kilkelly, perhaps learning from the example of Mr Phillips, kept his answers generally short and, unless he was absolutely sure he could remember a matter, he would not give evidence on it.

[16]In his closing submissions, Mr Korpal has alleged that Mr Phillips gave deliberately false evidence as to his knowledge of and involvement in some pre-sales of residential plots in 2004, which were not an issue in the trial. Mr Phillips denied more than passing knowledge of these pre-sales but Mr Korpal submits that this was wrong by reference to documents which were not put to Mr Phillips. There is no proper basis on which I can find that Mr Phillips’ evidence on this was untruthful. I should add that Mr Korpal made similar submissions based on other documents on an application in the course of the trial after Mr Phillips had completed his evidence. I rejected those submissions also.

[17]The evidence given by Mr Hughes was of very limited value. He did not attempt to mislead the court, but his recollection is now so general and vague that he could not really assist on the issues in this case, which turn on more detailed analysis.

[18]Each side called experts in planning and quantity surveying. The evidence of all four expert witnesses was very helpful. I would in particular commend the cooperative and professional approach of Mr Ennis and Mr Hackett, the quantity surveying experts, who were able to narrow very significantly the differences between them.

[19]In his closing submissions on behalf of Mr Hughes, Mr Korpal drew attention to the fact that neither Mr Rifkind nor Mr Levy, who own and control Groveholt, gave evidence. It does not appear to me that either would have been able to contribute much, if any, evidence on the issues raised in these proceedings. By contrast, the witnesses called by Groveholt were directly concerned in the relevant matters over an extended period. Mr Korpal makes allegations against Groveholt in his closing submissions (paragraphs 602-623) which are irrelevant to the issues in the case.

The proceedings to date

[20]The proceedings were commenced on 12 March 2004, for redemption of the charge held by Mr Hughes, seeking an account of the sums, if any, secured by the charge. Groveholt also applied for and was granted an injunction to restrain Mr Hughes from exercising his power of sale under the charge. On 14 April 2004, an application was made under section 50 of the Law of Property Act 1925 for a release of the charge on terms that the maximum possible amount secured by it, together with a sum for costs and interest, be paid into court to stand as substitute security. Although at first opposed by Mr Hughes, an order by consent was made on 10 June 2004, under which £3.4 million was paid into court and the directors of Groveholt gave a personal joint and several guarantee of any excess over £3.4 million found to be due to Mr Hughes up to a maximum of £600,000.

[21]On 8 July 2004 Mr Hughes applied for summary judgment in his favour, on the grounds that the provisions in the agreement with Chelverton for deductions of excess costs had ceased to apply with the disclaimer on 15 December 2003 of the agreement by the liquidator of Chelverton. Chelverton had gone into creditors’ voluntary liquidation on 15 October 2002. The application was dismissed by Nicholas Underhill QC, sitting as a judge of the Chancery Division, on 28 January 2005 and his decision was affirmed by the Court of Appeal in a judgment delivered on 18 July 2005 to which I will later refer.

[22]On 30 November 2007, Groveholt made an application for summary judgment, on the grounds that Mr Hughes had no real prospect of successfully defending Groveholt’s case that nothing was secured by the charge because the site assembly and infrastructure costs exceeded £4.5 million by more than £3 million. In the light of Mr Hughes’ evidence in opposition to the application, Groveholt sought instead a declaration that there fell to be deducted from the amount otherwise payable to Mr Hughes site assembly and infrastructure costs incurred by Sainsbury or Groveholt. I refer later to the terms of the declaration made on this application on 24 June 2008.

[23]On 1 July 2009 Mr Hughes applied to re-amend his defence and counterclaim to raise new issues. On 31 July 2009 Peter Smith J refused permission to make a number of the amendments. His decision was affirmed by the Court of Appeal in a judgment delivered on 20 May 2010 to which I will later refer.

[24]In addition to disclosure between the parties, Sainsbury’s Supermarkets Limited has provided disclosure in accordance with an unopposed order made on 7 August 2009 on Mr Hughes’ application. There have been numerous case management directions in the course of the proceedings but none which is now relevant to the issues to be determined. Background facts The site

Background facts

[25]The land which was subject to the charge was a significant part of Cawdor Quarry, just to the west of Matlock. While it had considerable development potential, it also presented great challenges. As well as the disused quarry, with its resulting topographical features, there were disused industrial buildings. An area of approximately 10.5 acres within the site had been designated as a Site of Special Scientific Interest. Major infrastructure works were necessary. The A6 trunk road, the River Derwent and a railway ran to the north of the site. It would be necessary to divert the A6 with a new road bridge over the river, to alter the line of the railway, to build a second diversionary road with a bridge over the railway and to build a footbridge over the railway. Railtrack and the highways authority would therefore have to be closely involved. It was also necessary to reach agreement to acquire various adjacent pieces of land to enable the infrastructure works to take place.

[26]The development envisaged for the site was a large food supermarket and residential use. A supermarket was necessary for the viability of any development, in view of the scale of infrastructure works required.

[27]The scale of infrastructure and other works required was recognised by Mr Hughes who said in a witness statement in these proceedings:

“5. It was obvious from the outset that it would be necessary to provide access to the site and that this would entail both infrastructure works and site assembly to achieve this access. In particular, it was obvious to me from the outset that it would be necessary in order to develop the site for a new bridge to be built over the River Derwent and over the railway line and for a new road junction to be created with the A6. (Initially it was contemplated that this would be a junction regulated by traffic lights but this was later altered to a roundabout.) The A6 ran through the centre of Matlock and was already subject to considerable congestion. I realised therefore that it would be necessary in order for the development to proceed for a new relief road to be constructed to the south of the railway line, which would divert the A6 traffic from the centre of town. 6. The re-routing of the Peak Rail link was also envisaged. At this stage, it was contemplated that there was to [be] a rail round link to enable trains to turn round. I envisaged a swap of land with Railtrack with an adjustment of money.”

Chronology of events

[28]Mr Hughes was an experienced property developer and in 1994 he purchased the Cawdor Quarry site. Mr Hughes entered into negotiations with Sainsbury and Safeway for the sale of that part of the site closest to the town centre for development as a supermarket. Safeway entered into an option agreement dated 2 December 1996 with Railtrack for the purchase of land needed for infrastructure works. If this was intended by Safeway to secure the land for itself, it failed because on 23 December 1996 Mr Hughes agreed to sell the supermarket site and another smaller part of the property to J. Sainsbury plc.

[29]The sale agreement dated 23 December 1996 was amended by a Loan Agreement dated 10 March 1998, under which among other things Sainsbury’s Supermarkets Limited (Sainsbury) was substituted for J. Sainsbury plc. I shall refer to the sale agreement as amended as the Hughes/Sainsbury Agreement. The essential terms were that £2.3 million was paid to Mr Hughes on completion on 30 January 1997, £2.5 million was lent by Sainsbury to Mr Hughes, and Mr Hughes agreed to indemnify Sainsbury against infrastructure costs in excess of £5 million.

[30]By an agreement dated 9 April 1998 (the Hughes/Chelverton Agreement) Mr Hughes sold most of the rest of the site to Chelverton Limited, which represented itself to be an experienced and successful development company. The consideration for the sale was the payment of £1,500,000 on completion and the payment of further sums on the obtaining of specified planning consents. These included £500,000 when outline consent was obtained for a leisure site on the property sold to Chelverton, £1.5 million when detailed planning consent was obtained for residential development on not less than 16.8 acres on a specified part of the property sold to Chelverton, and £1 million when outline planning consent for a food store on the land owned by Sainsbury, meeting the requirements of the Sainsbury Agreement, was obtained. It is common ground that each of these planning consents has been obtained, on dates between May 1999 and December 2001.

[31]In the Hughes/Chelverton Agreement. Mr Hughes warranted that the “site assembly costs” and the “infrastructure costs”, which in broad terms were the same as those for which the Sainsbury Agreement provided, would not exceed £4.5 million and in addition he agreed to contribute 5/11ths of the cost of purchase of land from Railtrack plc, up to a maximum of £500,000. Any costs in excess of £4.5 million would be borne by Mr Hughes and set against the sums otherwise payable on the grant of the various planning consents. Such sums were not payable by Chelverton until the site assembly and infrastructure costs were ascertained in accordance with the terms of the agreement. The amount due to Mr Hughes was secured by the first legal charge over the property sold to Chelverton.

[32]In December 2000 Chelverton agreed to sell the property to Groveholt and the sale was completed in July 2001. There are not, and have never been, any contractual relations between Mr Hughes and Groveholt, but the transfer of the property to Groveholt was subject to the charge in favour of Mr Hughes.

[33]The relevant events following the purchase of the property by Chelverton in 1998 and by Groveholt in 2001 concern planning, site assembly and the infrastructure and are set out in detail later in this judgment. The landmark events are as follows. In December 2001, Groveholt was granted detailed planning permission for residential development and also for the infrastructure works. In October 2002, Sainsbury was granted detailed planning permission for its supermarket development and for the infrastructure works. Negotiations for the necessary acquisitions for site assembly had already started but took a long time to result in contracts and acquisitions. This process, including agreements with the highways authorities, was not complete until December 2006. The infrastructure works started in late 2006 and were completed in the first half of 2008.

Central issues

[34]The central issue for decision is whether the costs of site assembly and infrastructure works under the Hughes/Chelverton Agreement are such as to reduce or extinguish the amount of £3 million otherwise payable to Mr Hughes.

[35]This in turn involves two principal elements. First, Groveholt must establish the amount of site assembly and infrastructure costs. Groveholt claims that the total costs exceed £13.7 million, but it need only show that they equal or exceed £7.5 million for its claim that nothing was secured by the charge in favour of Mr Hughes. Many of the items comprising these costs are either challenged by Mr Hughes, on the grounds that the items do not fall within the definition of such costs in the Agreement or that the amounts claimed are excessive. Other items are not admitted by Mr Hughes. Secondly, Mr Hughes alleges that Chelverton acted in breach of the Agreement, in a number of respects. The most important relate to the time which was taken to undertake the development, in terms of obtaining planning consent, site assembly and carrying out the works. He alleges that these breaches of contract caused the costs to be substantially higher than they would otherwise have been.

The relevant contracts

[36]There is a complex contractual background to the ownership and development of the site. While it is necessary to summarise these contracts, I do not intend to set out provisions from them unless it is absolutely necessary to do so. It will of course be necessary to set out a number of the provisions of the Hughes/Chelverton Agreement, on which the present issues turn.

Hughes/Sainsbury Agreement

[37]The terms of the Hughes/Sainsbury Agreement, as later amended by the Loan Agreement, have previously featured prominently in these proceedings and their relationship with the Hughes/Chelverton Agreement was the subject of the decision of the Court of Appeal in 2010 to which I refer below.

[38]The agreed price payable by Sainsbury was £7.3 million, of which £2.3 million was paid on completion on 30 January 1997. The balance of the purchase price, £5 million, was placed by Sainsbury on “Security Deposit” to be applied in paying the costs of the infrastructure works which were to be undertaken by Sainsbury, using a suitable contractor. If the total cost was less than £5 million, the balance was payable to Mr Hughes.

[39]Infrastructure Works were defined to mean:

“… the works relating to the Relief Road and construction of estate roadways and services and all such other works as may be necessary to provide fully levelled and serviced sites to enable the Sainsbury Development to be implemented upon the Property All such works being in accordance with the details thereof set out in the Third Schedule hereto”

[40]The Third Schedule listed a number of matters which were included in the infrastructure works. They were(i) the A6 relief road,

(ii) bridges over the railway line and the River Derwent,

(iii) a pedestrian bridge or crossing over the railway line linking the foodstore site to a new public car park,

(iv) specified estate roads,

(v) levelling the non-foodstore site sold to Sainsbury, and

(vi) all works required under any agreement with the planning authority under section 106 of the Town and Country Planning Act 1990 (section 106 agreement), including a new public car park adjacent to Matlock Station, a riverside footpath, alterations to the bus station access and pedestrianisation of Matlock Bridge (if required).

[41]Sainsbury and Mr Hughes agreed that they would jointly control and manage the obtaining of outline planning consent for retail, residential, industrial and leisure use of the entire site acquired by Mr Hughes, including associated infrastructure works, and dealing with any section 106 agreement. Sainsbury was permitted to apply for planning consent to develop the properties acquired by it for retail and other non-residential use.

[42]The Hughes/Sainsbury Agreement contemplated that there would need to be land purchases and other transactions with adjoining land owners and others to acquire land for the infrastructure works and to facilitate the development. This included the acquisition of land from Railtrack and other arrangements with it.

[43]The Agreement contained detailed provisions for dealing with the costs of site assembly and infrastructure works, which were replaced by new provisions in the Loan Agreement.

[44]The terms of the Hughes/Sainsbury Agreement were amended by the Loan Agreement dated 10 March 1998. Sainsbury’s Supermarket Limited was substituted for J Sainsbury plc as a party to the Hughes/Sainsbury Agreement. Sainsbury agreed to make a loan of £2.5 million to Mr Hughes, for the purposes of redeeming a prior charge over Cawdor Quarry and purchasing a piece of land adjacent to Cawdor Quarry referred to as the Gas Board Site. The loan was expressed to be repayable six months after drawdown. Mr Hughes completed the purchase of the Gas Board Site on 12 August 1998.

[45]The Loan Agreement substituted a new clause 15 of the Hughes/Sainsbury Agreement dealing with site assembly and infrastructure works and their respective costs, which may be summarised as follows. Upon “Satisfactory Planning Permission” being granted, Mr Hughes and Sainsbury would endeavour to agree the extent of what remained to be done under the site assembly process and the detail of the infrastructure works and would ascertain the cost of the infrastructure works by submitting them to tender by at least five suitable civil engineering contractors. Following completion of the site assembly process and the tender process, Sainsbury would enter into a contract for the infrastructure works. Following completion of the works, the actual costs of the site assembly process and infrastructure works would be ascertained, with a procedure for expert determination in the event of any dispute as to the extent or details of the site assembly process or infrastructure works or their cost. Sainsbury was to bear the costs up to £5 million plus VAT and Mr Hughes acknowledged that payment of such costs up to that amount would constitute payment of the outstanding balance of the price for the property. If the costs were less than £5 million, Sainsbury would pay the difference to Mr Hughes. Any excess over £5 million plus VAT would be borne by Mr Hughes who would indemnify Sainsbury against any such excess.

[46]The meaning of “Satisfactory Planning Permission” is relevant to an issue which arises in the present proceedings and I will refer to the provisions of the Hughes/Sainsbury Agreement which are in point when I deal with that issue. There are other detailed provisions of the Agreement as amended which are relevant to particular issues and again I will refer to them when addressing those issues.

Hughes/Chelverton Agreement

[47]The Hughes/Chelverton Agreement was made on 9 April 1998. I deal below in detail with its provisions. As I have earlier noted, the price payable to Mr Hughes for the sale of most of the site not already sold to Sainsbury comprised £1.5 million paid on completion on 16 September 1998 and further sums payable as and when certain specified planning consents were obtained. For the purposes of the Agreement, the land sold to Chelverton was divided into Phase One Residential Land and Phase Two Residential Land. As the name suggests the former was intended to be developed first. It is relevant to the present case, while the latter plays no part. The Agreement refers to the Hughes/Sainsbury Agreement, while acknowledging that its full terms remain confidential to the parties to it. It recites that Sainsbury is obliged to apply the sum of £5 million retained by it in meeting the site assembly and infrastructure costs, including the cost of acquiring land from Railtrack. Mr Hughes warranted that he and Sainsbury would comply with their obligations as regards the sum of £5 million and that the site assembly and infrastructure costs would not exceed £4.5 million. Mr Hughes agreed that he would pay the amount of any excess to Chelverton, save to the extent that he paid any excess over £5 million to Sainsbury under the Hughes/Sainsbury Agreement.

Agreements made on 16 September 1998

[48]On the same day as the sale under the Hughes/Chelverton Agreement was completed, 16 September 1998, Mr Hughes, Chelverton and Sainsbury entered into a Novation Deed, the effect of which was that Chelverton replaced Mr Hughes under the Hughes/Sainsbury Agreement as amended by the Loan Agreement. It also contained a covenant by Mr Hughes with both Chelverton and Sainsbury to transfer such parts of the Gas Board Site and of any other land owned by him as might be required to complete the Site Assembly Process or Infrastructure Works, as defined in the Hughes/Sainsbury Agreement.

[49]Two further relevant agreements were made on 16 September 1998. By one, Chelverton agreed with Mr Hughes to use all reasonable endeavours to obtain compliance by Sainsbury with its obligations under clause 15 of the Hughes/Chelverton Agreement as amended.

[50]The other agreement was made between Sainsbury and Chelverton. Among its provisions were the following.

[51]First, it recorded that Sainsbury had paid £500,000 to Safeway to release the option granted to it by Railtrack. Sainsbury and Chelverton agreed to use their respective reasonable endeavours to obtain either an assignment of the benefit of the Safeway option to Chelverton or the grant by Railtrack of a further option to Chelverton, provided that neither would be required to pay more than £1.1 million to Railtrack in connection with the acquisition of the relevant land from Railtrack. All such sums paid to Railtrack would be deemed to form part of the Site Assembly Costs as defined in the Chelverton/Sainsbury Agreement (formerly the Hughes/Sainsbury Agreement).

[52]Secondly, Sainsbury granted to Chelverton an option to purchase the smaller, non-food site for £1.2 million on the terms scheduled to the agreement, such option to be exercisable within two years.

[53]Thirdly, Chelverton warranted that Mr Hughes would play no further part in the Site Assembly Process or Infrastructure Works (as defined in the Chelverton/Sainsbury Agreement).

Hughes/Chelverton Agreement: detailed terms

[54]I turn now to consider the terms of the Hughes/Chelverton Agreement in detail. It identifies the land sold under the agreement, defined as the Property, the land previously sold to Sainsbury (the Sainsbury Land) and land owned by Railtrack (the Railtrack Land) by reference to an annexed plan.

[55]The payments to be made to Mr Hughes in consideration for the sale of the Property are set out in clause 5.1: “5.1 The Purchaser will make the following payments to the Vendor conditional upon or dependent upon the following events: (and within 14 days thereof save for payment under clause5.1.1 hereof which shall be paid on the Completion Date) 5.1.1 On completion – One million five hundred thousand pounds (£1,500,000) less the Deposit which will then be released to the Vendor

5.1.2 When outline planning consent has been obtained for the development of a leisure site within the Property – Five hundred thousand pounds (£500,000)

5.1.3 On the obtaining of detailed planning consent for residential development in respect of a minimum of 16.8 acres of net developable area within the Phase One Residential Land – One million five hundred thousand pounds (£1,500,000) plus the amount X where X equals the number of acres of net developable area on the Phase One Residential Land in respect of which the said planning consent has been obtained in excess of thirty acres net developable area multiplied by Ten thousand pounds (£10,000) per acre

5.1.4 On the obtaining of outline planning consent or local plan inclusion for residential development in respect of a minimum of 25 acres of net developable area within the Phase Two Residential Land – Two million pounds (£2,000,000)

5.1.5 On the obtaining of outline planning consent for a food store development on the Sainsbury Land which meets the requirements of the Sainsbury Agreement – One million pounds (£1,000,000) PROVIDED THAT no payment shall be due under clauses 5.1.2 or 5.1.3 hereof until a payment is due or has been paid under clause 5.1.5 save where clause 5.5 applies” 5.1.1 On completion – One million five hundred thousand pounds (£1,500,000) less the Deposit which will then be released to the Vendor 5.1.2 When outline planning consent has been obtained for the development of a leisure site within the Property – Five hundred thousand pounds (£500,000) 5.1.3 On the obtaining of detailed planning consent for residential development in respect of a minimum of 16.8 acres of net developable area within the Phase One Residential Land – One million five hundred thousand pounds (£1,500,000) plus the amount X where X equals the number of acres of net developable area on the Phase One Residential Land in respect of which the said planning consent has been obtained in excess of thirty acres net developable area multiplied by Ten thousand pounds (£10,000) per acre 5.1.4 On the obtaining of outline planning consent or local plan inclusion for residential development in respect of a minimum of 25 acres of net developable area within the Phase Two Residential Land – Two million pounds (£2,000,000) 5.1.5 On the obtaining of outline planning consent for a food store development on the Sainsbury Land which meets the requirements of the Sainsbury Agreement – One million pounds (£1,000,000)

[56]The requirement that the outline consent referred to in clause 5.1.3 should be for residential development in respect of a minimum of 16.8 acres of net developable area within the Phase One Residential Land plays an important part in this claim. “Net developable area” is defined as:

“… the area of land available with planning consent for development for residential purposes which shall include land occupied by dwellings, garages, gardens, internal estate roads, drives, footpaths and verges but shall exclude such public open space, children’s play areas and other commercial facilities (including social housing) reasonably required by the planning authority and the area occupied by the principal spine road its footpaths and its verges”

[57]Clause 5.2 provided that if the particular planning consents triggering payments under clause 5.1 were not obtained by particular long stop dates, the land in question would be transferred back to Mr Hughes for a nominal consideration. The long stop date relevant to detailed planning consent for residential use on the Phase One Residential Land under clause 5.2.2 was four years from the date of the agreement, i.e. 9 April 2002.

[58]Clause 7 imposed obligations on the parties as regards the planning process:

“7.1 The Purchaser shall use all reasonable endeavours to obtain as soon as reasonably practicable the leisure and residential planning consents referred to in 5.1.2 to 5.1.4 PROVIDED THAT the Purchaser shall not be obliged to make application or seek a residential planning consent in respect of the Phase Two Residential Land until the local plan provides for use of the Phase Two Residential Land for residential development purposes 7.2 The Purchaser shall promptly inform the Vendor at all times of what action it proposes to take regarding obtaining any planning consent referred to in 5.1 hereof and shall take due regard to any representation as to any reasonable modification or alteration to such action proposed by the Vendor 7.3 The Vendor having made a planning application number DDD/0897/0515 for outline planning permission for leisure and residential development in respect of part of the Property which application is shortly to be considered by the local planning committee the Vendor will continue to support that application and not withdraw the same PROVIDED THAT the Vendor will not take make any major variations or amendments to such application without the consent of the Purchaser and shall at all times consult with the Purchaser as to the furtherance of the said application already made by it 7.4 The Purchaser shall submit a detailed planning application for the consent referred to in 5.1.3 hereof within 3 month[s] of the receipt of outline consent”

[59]Clause 8 referred to and contained provisions relevant to the Hughes/Sainsbury Agreement and to the Sainsbury Land, and to the Site Assembly Process and Infrastructure Works. Clause 8.1 acknowledged that the Hughes/Sainsbury Agreement was confidential to the parties:

“8.1 Both parties accept that the Sainsbury Agreement is subject to a confidentiality clause and that therefore the Purchaser will not be able to see the Sainsbury Agreement until written consent to do so from Sainsbury is obtained (which will only be applied for if the parties hereto agree agreement not to be unreasonably withheld or delayed).”

[60]Clause 8.2 recorded one of the important provisions of the Hughes /Sainsbury Agreement that “8.2 In the event that a planning consent for a food store development on the Sainsbury Land is obtained which meets the requirements of the Sainsbury Agreement 8.2.1 Sainsbury are obliged in respect of the outstanding price to be paid to the Vendor under the Sainsbury Agreement (being the sum of Five million pounds (£5,000,000)) to meet the Infrastructure Costs and the costs of Site Assembly including any necessary acquisition of the Railtrack Land (with any balance to be released to the Vendor)” 8.2.1 Sainsbury are obliged in respect of the outstanding price to be paid to the Vendor under the Sainsbury Agreement (being the sum of Five million pounds (£5,000,000)) to meet the Infrastructure Costs and the costs of Site Assembly including any necessary acquisition of the Railtrack Land (with any balance to be released to the Vendor)”

[61]By clause 8.3.2, Mr Hughes warranted to Chelverton that “The Infrastructure Costs and costs of the Site Assembly including the cost of the acquisition of the Railtrack Land which is dealt with by clause 10 hereof shall not exceed Four million five hundred thousand pounds (£4,500,000) and if they do exceed that figure the Vendor will pay or direct to be paid a sum equal to the excess to the Purchaser (it being acknowledged (for the avoidance of doubt) that payment by the Vendor to the Purchaser of any such excess of those costs above Five million pounds (£5,000,000) will meet the obligations of the Vendor to Sainsbury in respect of such excess costs).”

[62]Clause 8 expressly contemplated a novation of the Hughes/Sainsbury Agreement, substituting Chelverton for Mr Hughes, as occurred on 16 September 1998. Clause 8.5.2 required Mr Hughes, if so directed by Chelverton, to endeavour to agree a novation with Sainsbury. Other provisions regulated the position pending a novation. For example, Mr Hughes undertook not to agree any item of the Site Assembly or Infrastructure Costs without Chelverton’s consent, and to obtain Chelverton’s approval to all submissions made for the purpose of the expert determination of costs under the Hughes /Sainsbury Agreement.

[63]Clause 9 deals with organising Site Assembly and the Infrastructure Works. Clause 9.1 provided:

“In the event that a planning consent for a food store on the Sainsbury Land which meets the requirements of the Sainsbury Agreement is obtained the provisions of Clauses 8 and 10 hereof shall apply in relation to Infrastructure Costs and the Costs of Site Assembly including dealing with the Railtrack Land and subject thereto the Purchaser will use all reasonable endeavours to agree the Site Assembly Agreements and subject thereto and to clauses 8 and 10 hereof will organise and effect the Infrastructure Works”

Clause 9.3 provided:

“The Purchaser agrees to use all reasonable endeavours as soon as reasonably practicable with regard to agreeing all Site Assembly agreements and as to working up agreeing and obtaining all necessary statutory planning and other approvals for the Infrastructure Works and the Vendor will render all reasonably practicable assistance and co-operation to the Purchaser in respect thereof and (without prejudice to the generality of the foregoing) if the vendor acquires the same will make available at no cost to the Purchaser any part of the former Gas Board/British Gas land on the far side of the River Derwent from the Property as is necessary to accommodate the Infrastructure Works and enter into a Site Assembly agreement in respect thereof and will procure that any company body or entity owned controlled or accredited with it will comply with the obligation herein in respect of that land.”

[64]Clause 10 dealt with the Railtrack Land, providing in clause10.1 and10.1.1 endeavour to take advantage of its ownership of the Property over which Railtrack plc may require rights or interests in such negotiations and

10.1.2 keep the Vendor fully informed and jointly co-operate together to negotiate the said price. 10.2 As between the Vendor and the Purchaser any consideration due to Railtrack and/or Safeway will be met and paid at the appropriate time

10.2 as follows: “10.1 The Purchaser shall use all reasonable endeavours to procure the purchase by it of the Railtrack Land and the transfer of the Railtrack Land to the Purchaser and either free of any option in favour of Safeway Stores plc (“Safeway”) or in circumstances where such an option cannot be effectively exercised at as low a price as is reasonably achievable but at a sum no more (for the purposes of payment under clause 10.2 hereof) than £1,100,000 and the Purchaser shall in any such negotiations with Railtrack plc (and if necessary with Safeway):10.2.1 As to six elevenths (6/11) by the Purchaser

10.2.2 As to five elevenths (5/11) by the Vendor but any consideration in excess of £1,100,000 will be paid by the Purchaser (subject to 10.4 below)” and

[65]Security for the sums contingently payable by Mr Hughes to Chelverton under clauses 8 and 10 was provided in clause 11 by way of set off against the contingent payments due to Mr Hughes under clause 5.1.2-5.1.5:

“11 Security for Payments to the Purchaser As security for the provisions within clauses 8 and 10 in so far as they allow for payment by the Vendor to the Purchaser or the procurement of payment from Sainsbury’s (but subject to the provisions of clause 5.1 hereof regarding the payment under clauses 5.1.2 and/or 5.1.3) any payments otherwise due under clauses 5.1.2-5.1.5 hereof shall not be payable until 11.1 the Site Assembly Costs are known and certain by exchange of all the Site Assembly Agreements and the Infrastructure Costs are known and certain to the extent that tenders for the carrying out of the works within a practicable timescale have been received and accepted and the cost thereof (including any fees) thus calculated 11.2 (in the event that clause 10 hereof has effect) the payment due from the Vendor under clause 10.2 is known and at such time when such costs are so identified and known then any further payments then due and payable to the Vendor under the said clauses 5.1.2-5.1.5 hereof after deducting amounts due to the Purchaser under clause 8.3 and 10 hereof shall be payable to the Vendor such payment being made within ten days thereof” 11.1 the Site Assembly Costs are known and certain by exchange of all the Site Assembly Agreements and the Infrastructure Costs are known and certain to the extent that tenders for the carrying out of the works within a practicable timescale have been received and accepted and the cost thereof (including any fees) thus calculated 11.2 (in the event that clause 10 hereof has effect) the payment due from the Vendor under clause 10.2 is known and at such time when such costs are so identified and known then any further payments then due and payable to the Vendor under the said clauses 5.1.2-5.1.5 hereof after deducting amounts due to the Purchaser under clause 8.3 and 10 hereof shall be payable to the Vendor such payment being made within ten days thereof”

[66]Security for the sums contingently payable by Chelverton to Mr Hughes under clause 5 was provided by the first charge over the Property which was executed, pursuant to clause6.1 of the Agreement, immediately following completion of the transfer of title to Chelverton on 16 September 1998. As regards the charge, clause

6.2 provided:

“The first charge referred to in 6.1 hereof shall be released by the Vendor from each parcel of land referred to in 5.1 hereof as and when the payment due for that parcel of land is made by the Purchaser to the Vendor or as and when there are no further payments due to the Vendor hereunder PROVIDED THAT if (if either or both) the proviso to clause 5.1 hereof and clause 11 hereof have effect so that the payment which would otherwise be due under clauses 5.1.2 and/or 5.1.3 is not immediately payable then notwithstanding such proviso the Charge over the particular land as identified in clause 5.1.2 and/or 5.1.3 hereof shall be released on the date when such payment would be due in accordance with that particular clause as if the said proviso did not have effect but such payments due under those clauses will be secured by any further charges given to the Vendor hereunder and neither those charges shall be released nor shall any payment be made under clause 8.3.3 hereof until any payments due under clauses 5.1.2 or 5.1.3 hereof (but subject to clause 11 hereof) which have been deferred because of the said proviso (if any) are paid by the Purchaser in accordance with the particular clause”

[67]This somewhat indigestible provision had the effect that Mr Hughes was obliged to release the charge over the part of the Property for which the relevant planning consent had been obtained, either if he received the sum triggered by the grant of the consent or if its payment was deferred or discharged by the operation of clause 11. There is a dispute as the effect of the words “but such payments due under those clauses will be secured by any further charges given to the Vendor hereunder”, to which I shall later refer.

[68]There are certain other provisions, dealing with specific matters, which I will refer to when considering those matters. At this stage the only other provisions which it is necessary to set out are some of the definitions. “Infrastructure Works” is defined as “… the provision of the Infrastructure by way of the A6 Inner Relief Road including the spur therefor to serve the Sainsbury Land and services therein and thereunder or the bringing to or taking services therefrom the outline of the new road being on Plan 1 as from time to time modified or varied and including:(i) any requirements for works and/or payments involved in meeting any planning condition or Section 106, Section 38 or Section 278 Agreement relating to the said Infrastructure Works or the development of the Sainsbury Land or the Phase One Residential Land or the site of the leisure development

(ii) the bridge across the River Derwent

(iii) relocation of the railway track and the laying of the bed for the railway track involved in the “run around loop” and any other works (if any) to or for the railway necessary to be carried out so as to permit the other of the Infrastructure Works but subject to (i) above does not include any further Infrastructure Works related to the roads or services within the Property which are the responsibility of the Purchaser” “Infrastructure Costs” is defined as “… the costs involved in the provision of Infrastructure Works including the reasonable fees of the professional team involved in the Infrastructure Works” “Site Assembly” means “… the entering into binding agreements for the acquisition of rights and/or the acquisition of land which will permit the carrying out of all of the Infrastructure Works and expressions such as cost of site assembly means the costs and payments due under such agreement and the reasonable legal and surveyor’s costs of negotiating such agreements and the completion thereof” “Site Assembly Agreements” means “the agreements envisaged in the definition of Site Assembly and each and every one of them.” (i) any requirements for works and/or payments involved in meeting any planning condition or Section 106, Section 38 or Section 278 Agreement relating to the said Infrastructure Works or the development of the Sainsbury Land or the Phase One Residential Land or the site of the leisure development (ii) the bridge across the River Derwent (iii) relocation of the railway track and the laying of the bed for the railway track involved in the “run around loop” and any other works (if any) to or for the railway necessary to be carried out so as to permit the other of the Infrastructure Works “… the costs involved in the provision of Infrastructure Works including the reasonable fees of the professional team involved in the Infrastructure Works” “… the entering into binding agreements for the acquisition of rights and/or the acquisition of land which will permit the carrying out of all of the Infrastructure Works and expressions such as cost of site assembly means the costs and payments due under such agreement and the reasonable legal and surveyor’s costs of negotiating such agreements and the completion thereof” “the agreements envisaged in the definition of Site Assembly and each and every one of them.”

Summary as at 16 September 1998

[69]It is helpful to summarise the position as it existed after these agreements. First, Mr Hughes had sold the Sainsbury Land to Sainsbury, for which he had received payment of £2.3 million but would receive no further payment. Secondly, he had sold most of the rest of the Cawdor Quarry site to Chelverton, for which he had received £1.5 million on completion and was entitled to receive from Chelverton further sums as detailed in clause 5 of the Hughes/Chelverton Agreement but subject to deduction of the amount by which the Infrastructure Costs and Site Assembly Costs exceeded £4.5 million. Thirdly, the net amount, if any, ultimately payable to Mr Hughes was secured by a first charge over the land sold to Chelverton, with an obligation on Mr Hughes to release the charge over parts of the land as provided by clause 6.2 of the Hughes/Chelverton Agreement. Fourthly, by a combination of the Hughes/Chelverton Agreement and the Deed dated 16 September 1998 between Sainsbury and Chelverton, Chelverton had primary responsibility as regards both Sainsbury and Mr Hughes for completing the Site Assembly and Infrastructure Works. As regards Mr Hughes, this obligation was set out in and was subject to clause 9.1 of the Hughes/Chelverton Agreement. Fifthly, Chelverton was obliged by clause 7 of the Hughes/Chelverton Agreement to use all reasonable endeavours to obtain the planning consents triggering payments under clause 5 as soon as reasonably practicable and to submit a detailed planning application for 16.8 acres of net residential development on the Phase One Residential Land within three months of the receipt of outline consent. Sixthly, Mr Hughes was obliged by clause 12.2 to use his reasonable endeavours to acquire by 9 April 1999 a parcel of adjacent land called the Halldale Land and then to transfer it to Chelverton. Seventh, Mr Hughes was obliged by clause 16.3 to use all reasonable endeavours to achieve the relocation of an industrial plant occupied by Permanite and the determination of their lease as soon as reasonably possible so as to obtain vacant possession.

Chelverton/Groveholt Agreement

[70]This remained the position as between the parties, including Sainsbury, until 21 December 2000 when Chelverton entered into an agreement with Groveholt. Chelverton agreed to sell the land bought from Mr Hughes to Groveholt for £3.6 million. By clause 5.1, Groveholt agreed as soon as possible to use all reasonable endeavours to organise and effect the Site Assembly and then to carry out and complete the Infrastructure Works in accordance with the Hughes/Chelverton and Sainsbury/Hughes Agreements. By clause 6 the parties acknowledged that until a novation Chelverton remained obliged to Sainsbury to undertake the Site Assembly and Infrastructure Works, and Groveholt covenanted to observe and perform Chelverton’s obligations under the agreements with both Sainsbury and Mr Hughes as Chelverton’s agent but entirely at its own cost and expense. Completion of the contract occurred on 4 July 2001.

[71]Mr Hughes submits that the sale to Groveholt and the terms of the Chelverton/Groveholt Agreement breached the covenant against assignment in the Hughes/Chelverton Agreement. I will return to this issue.

Later events

[72]On 15 October 2002, Chelverton went into creditors voluntary liquidation. On 11 December 2003, the liquidator disclaimed the agreements with Mr Hughes and Sainsbury. The continuing obligations of Chelverton and Mr Hughes under their agreement were thereby terminated. The property owned by Groveholt remained charged in favour of Mr Hughes to secure such sums as were covered by it.

[73]On 2 April 2004, Sainsbury and Groveholt entered into a deed whereby in summary Sainsbury assumed responsibility for Site Assembly and the Infrastructure Works, which Sainsbury thereafter undertook.

Earlier court decisions

[74]This “complex web of agreements”, as Arden LJ with good reason called it, gave rise to a number of issues of construction which have been resolved by decisions of the Court of Appeal and at first instance. The relevant judgments in chronological order are those of(i) the Court of Appeal (Auld, Jonathan Parker and Dyson LJJ)

[2005] EWCA 897

, 2 BCLC 421 (CA(1)) affirming a decision of Mr Nicholas Underhill QC,

(ii) Peter Smith J

[2008] EWHC 1358 (Ch)

, and

(iii) the Court of Appeal (Arden LJ, Wilson LJ and Henderson J)

[2010] EWCA Civ 538

(CA(2)) affirming a decision of Peter Smith J. In each case the submissions of Mr Hughes, who was then legally represented, were rejected.

[75]In CA(1) the Court of Appeal decided as follows. First, Chelverton’s right of deduction under clause 11 of the Hughes/Chelverton Agreement was not conditional on the full performance by Chelverton of all its obligations under clauses 9 and 10: see [96] of the judgment. Secondly, clause 11 entitled Mr Hughes only to payment of such sum, if any, as results from the netting-off process, which can take place only when the total amount of relevant costs can be determined in accordance with clauses 11.1 and 11.2: see [99]-[102] of the judgment. Thirdly, disclaimer by the liquidator of Chelverton did not affect the position of a third party such as Groveholt, so that the charge remained in being as security for the deemed obligation of Chelverton under the Hughes/Chelverton Agreement. The disclaimer therefore neither deprived Mr Hughes of the rights secured by the charge nor deprived Groveholt of the benefit of the netting-off process under clause 11 of the Hughes/Chelverton Agreement. The amount secured by the charge therefore remained the sums payable under clause 5 less the sums deductible under clause 11. As the Court of Appeal observed in CA(2), this decision was only that costs must be deducted, and did not define or identify the relevant costs.

[76]Peter Smith J decided at

[2008] EWHC 1358 (Ch)

that Mr Hughes was precluded by the decision in CA(1) from arguing that costs were not deductible if they were not incurred under the Hughes/Chelverton Agreement, but were for example incurred under Groveholt’s agreement with Sainsbury. However, in order to be deductible, the costs in question had to fall within the definitions of Site Assembly Costs and Infrastructure Costs in the Hughes/Chelverton Agreement. Before Peter Smith J, Groveholt accepted that Mr Hughes was entitled to raise any challenge to the amount claimed by way of such costs if he could have done so under the Hughes/ Chelverton Agreement. He could therefore raise defences or cross-claims based on failures to comply with the terms of that Agreement.

[77]The effect of the decision of Peter Smith J was set out in a declaration which he made as follows:

“It is ordered and declared that the First Defendant is obliged to deduct from any payment to which he would otherwise be entitled under the agreement dated 9 April 1998 (“the Agreement”) the amount of Infrastructure and Site Assembly costs incurred by Chelverton, Sainsbury and Groveholt provided that they are Infrastructure or Site Assembly costs within the meaning of the Agreement, save to the extent that the First Defendant would have been entitled as against Chelverton to reduce the amount of the costs to be deducted under clause 11 of the Agreement by reason of a breach of contract by Chelverton or for any other reason.”

There was no appeal from this decision and, as observed by Arden LJ in CA(2), it remains binding on the parties.

[78]In CA(2), the Court of Appeal held that deduction of costs under the Hughes/Chelverton Agreement was not dependent on compliance with the procedure provided under the Hughes/Sainsbury Agreement for the determination of costs. It also held that there was no significant difference between the site assembly and infrastructure costs under the two agreements (see [6] and [38]), so avoiding the difficult issues of construction which would otherwise arise under, for example, clause 8 of the Hughes/Chelverton Agreement. It confirmed that there was no requirement for the costs to be incurred “under the auspices of” the Hughes/Chelverton Agreement.

Defences based primarily on the construction of the agreement

[79]Before turning to the parties’ cases on the facts, I shall deal with submissions made by Mr Korpal on behalf of Mr Hughes as to some of the terms of the Hughes/Chelverton agreement.

Clause 8.3.2 of the Hughes/Chelverton Agreement

[80]A new argument of construction, which would limit Mr Hughes’ liability for any set-off of site assembly and infrastructure costs and therefore limit the extent of any set-off against sums otherwise due to him, was raised for the first time in the closing submissions for Mr Hughes.

[81]It arises under clause 8.3.2 of the Hughes/Chelverton Agreement which provides that if the site assembly and infrastructure costs exceed £4.5 million, Mr Hughes “will pay or direct to be paid a sum equal to the excess to the Purchaser [Chelverton] (it being acknowledged (for the avoidance of doubt) that payment by the Vendor to the Purchaser of any such excess of those costs above Five million pounds (£5,000,000) will meet the obligation of the vendor to Sainsbury in respect of such excess costs)”.

[82]At the date of the Hughes/Chelverton Agreement, Mr Hughes had contracted with Sainsbury under the terms of the Hughes/Sainsbury Agreement to pay to Sainsbury any excess of site assembly and infrastructure costs over £5 million. It was envisaged by clause 8.5.2 of the Hughes/Chelverton Agreement that, at Chelverton’s option, it would take Mr Hughes’ place under the Hughes/Sainsbury Agreement, if Sainsbury agreed.

[83]It is submitted for Mr Hughes that pending such novation, the words in parenthesis in clause 8.3.2 indicate that any sums received by Chelverton under the sub-clause would, if Mr Hughes was indebted to Sainsbury for any excess, be paid by Chelverton to Sainsbury to discharge Mr Hughes’ liability (paragraph 12 of the closing submissions for Mr Hughes). This is not controversial (see paragraph 20 of Groveholt’s submissions in reply).

[84]The further submission is made for Mr Hughes that after the novation of the Hughes/Sainsbury Agreement on 16 September 1998, the words in parenthesis in clause 8.3.2 show that the warranty and obligation in that sub-clause were kept in place for the specific and limited purpose of indemnifying Chelverton against any excess costs for which Chelverton became liable to Sainsbury under the novated agreement. Its purpose was to protect Chelverton from any exposure to any liability to Sainsbury for costs above £5 million plus VAT.

[85]I am quite unable to extract this suggested meaning from the terms of clause 8.3.2. It says nothing about indemnifying Chelverton against liabilities to Sainsbury. It imposes an unqualified obligation on Mr Hughes to pay to Chelverton a sum equal to the excess of the relevant costs over £4.5 million. The words in parenthesis were intended to protect Mr Hughes against a double exposure to Chelverton under clause 8.3.2 and to Sainsbury under the Hughes/Sainsbury Agreement. This risk ceased with the Deed of Novation dated 16 September 1998 and the words in parenthesis thereafter ceased to have any practical importance.

[86]This submission is in substance just another way of running an argument that has been rejected in the earlier decisions, namely that only costs in excess of £4.5 million incurred by Chelverton are to be deducted from the overage payments. The commercial logic, as held in those decisions, is not that Chelverton was to recoup excess costs incurred by it out of the overage payments but that in assessing any increase in value resulting from the planning permissions which give rise to the overage payments, account must be taken of the costs to be incurred in realising the development value. Whether or not Chelverton carried out the necessary work or incurred liability for its cost, the value to it of the property with planning permission was affected by those costs.

[87]Further, this submission is in my judgment contrary to the declaration made by Peter Smith J on 24 June 2008, from which there was no appeal and which is binding on the parties. Mr Korpal submits that this is not so, relying on the words “or for any other reason” at the end of the declaration but, in my judgment, they do not assist him. The main part of the declaration is clear that costs incurred by any of Chelverton, Groveholt and Sainsbury fall to be deducted if they are site assembly or infrastructure costs as defined. The saving at the end refers only to reductions in those costs. Mr Korpal’s submissions would deprive the main part of the declaration of its purpose and effect.

[88]In the closing submissions for Mr Hughes, there is extensive citation from submissions on behalf of Groveholt at earlier hearings and from correspondence after the agreement, which are relied on to show that the construction now suggested by Mr Hughes was common ground between the parties. If that is right, it is very puzzling indeed that this construction was not pleaded in Mr Hughes’ defence during the lengthy period when solicitors and counsel were acting for him. However, none of it is admissible or relevant on the issue of construction of clause 8.3.2 now raised by Mr Hughes which has not previously been raised for decision.

[89]This is sufficient to deal with this point. But Groveholt justifiably objects to the argument on the grounds that it was not pleaded and any application to amend to plead it would run counter to the order of Peter Smith J made on 17 June 2009 that:

“The First Defendant to make any application to further amend his Defence by 4.00 pm on 2 July 2009 after which date no further application will be entertained unless it arises from a matter or fact not known before today’s date.”

[90]This direction was not lightly given, but was given to achieve some finality in the formulation of Mr Hughes’ case to enable the case to proceed to trial. Mr Hughes would have to make a convincing case to be relieved of the effect of this order, and none has been made. It is submitted for Groveholt that if Mr Hughes were allowed to run this argument, it would necessitate reopening the trial and hearing further evidence as to its consequences. That would itself be a very strong reason for not allowing the argument to be raised at this stage. I have not, however, considered it necessary to investigate whether such further evidence would be needed, given my clear view that the suggested construction is not sustainable.

[91]Mr Korpal raises a further submission as regards clause 8.3.2, relating to the cost of the Railtrack Land. Clause 8.3.2 provides for the deduction of the excess over £4.5 million of the “Infrastructure Costs and costs of Site Assembly including the cost of the acquisition of the Railtrack Land which is dealt with by Clause 10 hereof”. Clause 10 provides for Chelverton to use its best endeavours to purchase the Railtrack Land and provides for the purchase consideration to be met as between Mr Hughes and Chelverton in agreed shares, with Mr Hughes’ share not exceeding £500,000. Mr Korpal suggests that this figure explains the difference between £4.5 million in clause 8.3.2 and £5 million in the Hughes/Sainsbury Agreement which is expressly referred to in clause 8.2.1 of the Hughes/Chelverton Agreement. The effect, Mr Korpal submits, is that for the purposes of clause 8.3.2 it is not the whole cost of the Railtrack Land which is to be taken into account but only that part for which Mr Hughes is not responsible. Further, as Groveholt, not Chelverton, purchased the Railtrack Land, contrary to what clause 10 contemplated, the cost of the Railtrack Land does not fall within clause 8.3.2 at all.

[92]These submissions are not in my judgment sustainable, for two reasons. First, clause 8.2.2 provides in terms that:

“For the avoidance of doubt the parties hereto acknowledge that the anticipated consideration to be paid for the Railtrack Land may be included as a cost of Site Assembly notwithstanding the agreement between the parties under clause 10 hereof.”

This, as it seems to me, provides a complete answer to Mr Korpal’s point. Secondly, his submission runs counter to the effect of the declaration made by Peter Smith J, discussed above, that it does not matter that costs were incurred not by Chelverton but by Sainsbury or Groveholt.

Was the Chelverton/Groveholt Agreement a breach of the covenant against assignment?

[93]Clause 21.1 of the Hughes/Chelverton Agreements restricts assignments as follows:

“The Purchaser shall not be entitled to assign its interest in this agreement without the consent of the Vendor but such consent shall not be unreasonably withheld or delayed to an assignment, to a reputable and substantial finance institution for the primary purpose of financing the purchase of the Property and/or the Halldale Land”

[94]A breach of this term is pleaded in cautious terms in Mr Hughes’ defence:

“In so far as the Chelverton/Groveholt Agreement purports to transfer to Groveholt the benefit of the Hughes/Chelverton Agreement, such a transfer is invalid by virtue of clause 21 of the Hughes/Chelverton Agreement”

[95]By the terms of the Chelverton/Groveholt Agreement, title to the land acquired by Chelverton from Mr Hughes was sold to Groveholt. This did not breach the Hughes/Chelverton Agreement because neither clause 21 nor any other provision prohibited or restricted a sale of the property. The Chelverton/Groveholt Agreement was careful not in terms to assign the benefit of the Hughes/Chelverton Agreement. Instead, Chelverton remained the party to that agreement and Groveholt undertook to perform Chelverton’s obligations as its agent but at Groveholt’s expense. It is not suggested that the agreement was, in a legal sense, a sham. It took effect in accordance with its terms, which did not include the one thing restricted by clause 21.1, an assignment of Chelverton’s interest in the agreement.

[96]That this is so is illustrated by the disclaimer of the agreement by Chelverton’s liquidator. If there had been an assignment of Chelverton’s interest, there would have been nothing for the liquidator to disclaim. On the contrary, Mr Hughes’ defence is right when it asserts in paragraph 19A that any agency under the Chelverton/Groveholt agreement came to an end either with the liquidation of Chelverton or with the disclaimer.

[97]In his closing submissions, Mr Korpal relies on a letter dated 21 January 2001 from Mr Phillips to Mr Hughes as showing that the Hughes/Groveholt Agreement amounted to an assignment but, reading the letter as a whole including in particular the third paragraph, the letter does not show this. Similarly, his reliance on one passage in a letter dated 29 January 2002 from Lawrence Graham to Mr Hughes is misplaced, in view of the entirety of the letter and in particular the whole of numbered paragraph 3. Finally, Mr Korpal relies on a letter dated 23 February 2004 from Sainsbury’s property consultants to Mr Phillips. While this letter refers to an assignment of the agreement to Groveholt, on the basis of what Mr Hughes accepted in cross-examination must have been information provided by him, it was written long after the event and cannot affect the legal analysis of the effect of the Hughes/Chelverton Agreement.

[98]The terms of Groveholt’s agreement with Sainsbury made in April 2004, on which Mr Korpal relies in paragraphs 47ff of his closing submissions, are irrelevant to the construction and operation of the Hughes/Chelverton Agreement, an agreement made six years earlier between different parties.

[99]I therefore reject the submission on behalf of Mr Hughes that the Chelverton/Groveholt Agreement involved a breach of clause 21 of the Hughes/Chelverton Agreement.

Other general defences

[100]In paragraphs 86-113 of his closing submissions, Mr Korpal makes submissions on other general lines of defence.

[101]First, in paragraphs 86-88, it is submitted that the arrangements constituted by the Hughes/Chelverton Agreement, taken over by Groveholt under the Chelverton/Groveholt Agreement, were abandoned by the joint effect of the disclaimer of the former agreement by the liquidator of Chelverton and the new arrangements contained in the agreement made on 2 April 2004 by Groveholt and Sainsbury. Mr Hughes then had no ability to influence, control or manage the project. The new arrangement was a “frolic” between Groveholt and Sainsbury of the type described by Peter Smith J in paragraph 7 of a short judgment given on 31 July 2009, allowing limited amendments to the defence and counterclaim:

“What is simply relevant is how much was spent, whether the amount that was spent falls within the definitions in the Hughes/Chelverton agreement, and whether there have been any other breaches committed by Chelverton or anybody else, which would be under the Hughes/Chelverton agreement, which have caused Mr Hughes loss; thus excluding technical objections, such as no demand has been made and, therefore, no sum is recoverable, and finally, whether or not, as I said in para.91, it is possible to argue that a purchaser and a stranger to these agreements, who embarks on his own frolic as regards the infrastructure works can transfer those to infrastructure works under the Hughes/Chelverton agreement. That is a point which I left open.”

The reference to paragraph 91 is to the judgment of Peter Smith J given on 20 June 2008,

[2008] EWHC 1358 (Ch)

. Paragraph 91 reads:

“Accordingly it is possible that works carried out by Sainsburys through the Groveholt/Sainsburys Agreement and thus through the Chelverton/Groveholt Agreement may have a direct effect on reducing the purchase price secured on the Property by virtue of the Hughes/Chelverton Agreement. It is equally possible that the works that were carried out were carried out as an agent for Chelverton and thus are claimable on that basis. It remains open in my view to Mr Hughes to argue that a purchaser per se who carried out the works cannot claim deduction under the Hughes/Chelverton Agreement. However that is to be tempered by the finding of the Court of appeal that as a matter of “business common sense” costs of enhancement works is deductible. What is required is the finding of the route whereby works that were carried out can be ascertained as falling under the Hughes/Chelverton Agreement. It also remains to be ascertained whether or not Mr Hughes can raise any claim under the Hughes/Chelverton Agreement to challenge or reduce or even eliminate any part of the costs. However merely because work is carried out it does not follow that it enhances the purchase price. What has to be looked at is what was done, how it was done, under what contractual relationship and the extent to which it falls within the Infrastructure Works determined in accordance with the Hughes/Chelverton Agreement. Finally it has to be determined whether or not Mr Hughes has any other claims to reduce or eliminate any such amount.”

[102]The submission is, as I understand it, that the Infrastructure Costs are not deductible from the sums secured by the charge because they were carried out by Sainsbury under a new arrangement with Groveholt. There are in my judgment a number of reasons why this submission must fail. First, in CA(1), it was held by the Court of Appeal that disclaimer of the Hughes/Chelverton Agreement did not prevent the deduction of Infrastructure Costs. Disclaimer necessarily means that there would have to be new arrangements if the Infrastructure Works were to be carried out. Secondly, the principle underlying the decision in CA(1) was that the overage payments subject to the deduction of excess costs represented the agreed value of the enhancement resulting from the grant of the planning permissions which triggered the right to overage payments. Thirdly, the effect of the declaration made by Peter Smith J on 24 June 2008 and the judgment of the Court of Appeal in CA(2) is that it does not matter that the Infrastructure Works were carried out by Sainsbury or Groveholt, not Chelverton, and that there was no requirement for the works to be carried out “under the auspices of” the Hughes/Chelverton Agreement. All that matters, subject to defences such as delay which would have amounted to a breach of the Hughes/Chelverton Agreement, is whether the costs are Infrastructure Costs, or Site Assembly Costs, as defined in the Hughes/Chelverton Agreement. Mr Hughes’ submission ignores, as have submissions made previously, that the case is not brought to enforce the Hughes/Chelverton Agreement but to determine the amount secured by the charge which survives the disclaimer of the agreement and which, as the Court of Appeal has held, secures a net sum.

[103]In paragraphs 89-93 of his closing submissions, Mr Korpal suggests that by deducting the Site Assembly and Infrastructure Costs from the overage payments, Groveholt is seeking to escape its contractual obligation to indemnify Chelverton under clause 6.3 of the Chelverton/Groveholt Agreement. In my judgment, even if true this would be irrelevant to the issue, which is as between Groveholt as owner of the charged land and Mr Hughes as holder of the charge to determine the amount, if any, secured by the charge. In any event, no question of an indemnity arises. Chelverton made no claim for an indemnity, nor do I understand the basis on which it could have done so (there has been no argument on this), and Chelverton is now dissolved. Mr Korpal refers to some observations made by Peter Smith J in the course of argument but there is no suggestion by the judge in any of his judgments that this could be a defence for Mr Hughes.

[104]In paragraphs 94-102, Mr Korpal further develops the argument that the Groveholt/Sainsbury Agreement of 2 April 2004 replaced the earlier arrangements by pointing to the absence of any mechanism for policing and challenging costs incurred by Sainsbury, in contrast to the mechanism in the Hughes/Sainsbury Agreement. The Court of Appeal in CA(2) rejected the submission that the latter mechanism was imported into the Hughes/Chelverton Agreement. The control mechanism is that provided by the definition of Infrastructure Costs and Site Assembly costs. Further, Groveholt accepts that if Mr Hughes can show that Chelverton would have prevented costs from being incurred by fully performing its obligations to Mr Hughes, those costs do not fall to be deducted. Mr Hughes seeks to do this in these proceedings on the basis of delay.

Issues on the facts: summary

[105]I turn now to deal with the parties’ cases on the facts. Some issues of construction of the relevant agreement will arise in the course of doing so.

[106]It is for Groveholt to establish that the costs which it seeks to deduct from the overage payments to arrive at the net sum, if any, secured by the charge constitute Site Assembly or Infrastructure Costs within the meaning of the Hughes/Chelverton Agreement. Mr Hughes has raised many objections to them, which will require a detailed consideration of the items claimed.

[107]As well as challenging the costs put forward by Groveholt, Mr Holt advances a positive case by way of defence and the onus of establishing it lies on him. He submits that there was substantial delay in respect of each element of the development process: obtaining planning consents, site assembly and undertaking the infrastructure works. His case is that such delays breached the terms of the Hughes/Chelverton Agreement and resulted in higher costs, so that, in accordance with the declaration made by Peter Smith J on 24 June 2008 and cited above, he is entitled to reduce the amount of deductible site assembly and infrastructure costs accordingly.

[108]The alleged delays are said to affect the deductible costs in two ways. First, if the costs had been incurred earlier as they would and should have been but for the delays, their quantum would have been less. I have had the benefit of expert quantity surveying evidence, which is largely agreed as to the effect of time on cost increases. If I find that there has been relevant delay over a particular period, it will be a relatively straightforward exercise for the experts to identify the effect of price inflation over that period. Secondly, Mr Hughes alleges that without the delays the scope of work required to be undertaken, particularly under section 106 agreements, would have been less and hence the costs would have been less.

[109]I propose to deal with these issues in broadly chronological order. As Mr Hughes’ case of delay is primarily directed at the planning and site assembly stages, this means that I will in large part be dealing with that defence first. The last major section deals with the infrastructure costs.

Planning issues

[110]The first stage in the development was for detailed planning permission to be obtained for the residential development on the Phase One Residential Land, which was the responsibility of Chelverton, and for the Infrastructure Works, which was Sainsbury’s responsibility. The first was granted, on Groveholt’s application, on 18 December 2001 and the second, on Sainsbury’s application, on 8 October 2002. In fact, Groveholt also applied for detailed permission for the Infrastructure Works, which was included in the permission granted on 18 December 2001.

[111]Mr Hughes alleges that both were obtained far later than they should have been, and that as regards the former Chelverton was in breach of its obligations under clause 7 of the Hughes/Chelverton Agreement as regards obtaining detailed planning permission for the residential development.

Planning history

[112]I will first set out an abbreviated chronology of planning events in order to set the scene for the detailed allegations.

[113]In August 1997, both Sainsbury and Mr Hughes submitted applications for outline planning consent to the local planning authority, Derbyshire Dales District Council (DDDC). Sainsbury sought permission for a foodstore, petrol filling station and associated infrastructure, including a relief road for the A6, a bridge over the River Derwent, and a bus station and car park. Mr Hughes applied for permission for housing, leisure, sport and industrial development and, by way of infrastructure works, a link road to Snitterton Road. He did not include the Infrastructure Works under the Hughes/Sainsbury Agreement which was to be dealt with under Sainsbury’s application. Mr Hughes’ application was accompanied by a plan (plan A) which showed specific areas for particular uses. Following objections by the Derbyshire Wildlife Trust a revised plan (plan B) was substituted for plan A, which did not allocate uses to particular areas and so left ecological issues to be dealt with by conditions. Because of the scale and importance of the site and the proposed development, Sainsbury’s application was the subject of a direction made in October 1997 by the Secretary of State under article 14 of the Town and Country Planning (General Development Procedure) Order 1995, preventing DDDC from granting planning consent until further notice and enabling a public enquiry to be held if the Secretary of State so decided.

[114]On 16 September 1998 the sale to Chelverton under the Hughes/Chelverton was completed.

[115]On 12 November 1998, the DDDC resolved to approve the planning applications submitted by both Sainsbury and Mr Hughes, subject to conditions. The article 14 direction for Sainsbury’s application was withdrawn in December 1998.

[116]On 19 May 1999, Sainsbury was granted outline planning consent for the development proposed in its application. It was subject to a total of 58 conditions, of which a number are relevant to the present dispute. Condition 1 required Sainsbury to apply for approval of certain reserved matters, relating largely to the development on its land rather than infrastructure works. Condition 2 required such application to be made within three years after the outline approval and the development to begin within five years from the date of outline approval or two years from the date of the approval of the last of the reserved matters, whichever was the later.

[117]Condition 4 related to the infrastructure works:

“Prior to commencement of the development hereby approved, details of a phasing scheme for the construction of roads, highway works in Crown Square and on Matlock bridge, car parking, supermarket, bus station, landscaping and re-routing of the railway shall be submitted to and approved in writing by the Local Planning Authority. The development shall thereafter be carried out in accordance with the details so approved unless the Local Planning Authority gives its written consent to any variation. The details submitted shall, in particular, identify the number and location of, and access to, public car parking available during the period of construction.”

[118]Condition 30 related specifically to the new bus station. Mr Hughes submits that the cost of construction of the new bus station is not deductible as an Infrastructure Cost because it was unnecessarily included by Sainsbury in its planning application and was not a requirement which the planning authority would have imposed. This is one of the discrete issues which I shall later consider. Condition 30 provided:

“Prior to the first opening of the foodstore for trading, the new bus station hereby permitted shall be constructed and available for use. The detail of the bus station, including its design, siting, external appearance, internal layout, hard surfaces and its signing from nearby routes, shall be in accordance with a scheme which shall previously have been formally submitted to and approved in writing by the Local Planning Authority. The bus station shall thereafter be permanently retained in accordance with the approved details.”

[119]Mr Hughes has also raised a discrete issue as to a footbridge, which was the subject of condition 28:

“Prior to the first opening of the foodstore for trading the pedestrian footbridge over the railway and corresponding route to the foodstore shall be fully constructed and available for pedestrian use. The footbridge and pedestrian route shall thereafter be permanently retained as such.”

[120]On 19 May 1999, Sainsbury also entered into a s.106 agreement with DDDC and Derbyshire County Council, containing some provisions relevant to issues raised by Mr Hughes, which I shall refer to when dealing with those issues.

[121]On 18 October 1999, Mr Hughes was granted outline planning consent. As regards residential development, the consent was for a minimum of 75 dwellings. The consent was subject to 43 conditions, including requirements as regards reserved matters similar to those applicable to Sainsbury and the following requirement in condition 4:

“Prior to the commencement of the development hereby approved, details of a phasing scheme for all elements of the proposal shall be submitted to and approved in writing by the Local Planning Authority. The development shall thereafter be carried out in accordance with the approved scheme unless the Local Planning Authority gives its written consent on any variation.”

Mr Hughes and Chelverton also entered into a s.106 agreement with DDDC which contained only one substantive provision, relating to a minerals consent.

[122]Chelverton did not follow up the outline planning consent granted to Mr Hughes with an application for reserved matters approval. Instead, on 10 November 2000, it submitted a new application for outline planning permission, including permission for 350 dwellings. The principal reason given by Chelverton for this course has been that Mr Hughes’ consent would not permit, or very probably would not permit, residential development in respect of a minimum of 16.8 acres of net developable area as required by clause 5.1.3 of the Hughes/Chelverton Agreement to trigger the payment of £1.5 million. Whether Mr Hughes’ consent would have allowed for such development is an issue on which I have heard the evidence of planning experts and to which I shall return.

[123]On 17 May 2001, the planning committee of DDDC resolved to grant outline permission on Chelverton’s application, subject to conditions which are not in evidence. However, outline permission was never formally granted and Chelverton’s application was recorded in February 2004 as withdrawn.

[124]Instead, on 2 August 2001, Groveholt submitted an application for full planning permission on the Phase One Residential Land. It did not proceed with Chelverton’s application because, as it said, it had a different vision for the development. The residential component was increased to 432 dwellings.

[125]Detailed planning permission was granted to Groveholt on 18 December 2001. A section 106 agreement was made on 19 December 2001 between DDDC and Groveholt under which Groveholt undertook a number of financial and other obligations. The grant of this permission triggered Chelverton’s obligation to pay £1.5 million to Mr Hughes under clause 5.1.3 of the Hughes/Chelverton Agreement, subject to the rights of set-off.

[126]Sainsbury was required to apply for reserved matters approval within three years of the grant of its outline consent. It did so on 16 May 2002, three days before the expiry of the deadline. It was granted approval on 8 October 2002.

[127]In the event, Groveholt did not proceed with development on the basis of the consent granted in December 2001. It submitted a further application for full planning consent on 30 September 2008. Consent was granted on 28 June 2010 and Groveholt entered into a section 106 agreement with DDDC on the same day, containing similar obligations to those in the agreement dated 19 December 2001. From evidence given at the trial, it appears that a small amount of residential development has since occurred on the site.

Planning: alleged breaches of clause 7

[128]Mr Hughes alleges that Chelverton delayed in obtaining detailed planning permission in breach of their agreement, in two respects. First, in breach of its obligation under clause 7.1, it failed to use all reasonable endeavours to obtain as soon as reasonably practicable the residential planning consent for the Phase One Residential Land referred to in clause 5.1.3. Secondly, in breach of its obligation under 7.4, it failed to submit a detailed (or reserved matters) application within three months of the grant of outline consent on Mr Hughes’ application or at all. It is clear, in my view, that clause 7.4 is linked to clause 7.3 and that “the receipt of outline consent” in clause 7.4 is a reference specifically to outline consent on the application by Mr Hughes referred to in clause 7.3. The application for detailed consent envisaged by clause 7.4 would be pursuant to the outline consent referred to in clause 7.3. Mr Korpal’s submission that clause 7.4 imposes an absolute obligation, unconnected with Mr Hughes’ application for outline permission referred to in clause 7.3, is inconsistent with the reasonable endeavours obligation imposed by clause 7.1.

[129]Mr Hughes alleges that, in consequence of these suggested breaches of clause 7, the development was delayed with the result that construction and associated costs increased, the application was expanded and more onerous obligations were imposed under the section 106 agreement.

Planning: alleged breaches of clause 7.4

[130]I will deal first with the allegation that Chelverton was in breach of clause 7.4 in not submitting a reserved matters application following the grant of outline permission on Mr Hughes’ application. Groveholt counters this by saying that the requirement in clause 5.1.3 for consent for residential development in respect of a minimum of 16.8 acres of net developable area within the Phase One Residential Land could not be achieved on the basis of the consent granted to Mr Hughes. If that is right, it must follow that Chelverton was discharged from the obligation under clause 7.4 on grounds that, for reasons outside the control of Chelverton, performance to achieve its contractual purpose was impossible. Alternatively, no loss flows from a failure to submit a detailed planning application under clause 7.4.

[131]Both of the planning experts considered this issue and in their joint report concluded that the net area available for housing in the Phase One Residential Land under Mr Hughes’ outline consent was 15.8 acres. However, this figure was on the assumption that some of the non-residential development could take place on the parcel of land owned by Sainsbury which was separate from the main site on which it proposed to erect its foodstore. This land is variously referred to as Area 7 or the Sainsbury non-food site. Mr Frampton expressly qualified his agreement to the figure of 15.8 acres on the basis that Area 7 should not be included for any development pursuant to Mr Hughes’ outline consent. Area 7 comprised 6.62 acres, so if it was excluded it is clear that 16.8 acres of residential development could not be achieved pursuant to Mr Hughes’ outline consent.

[132]Even on the basis of the agreed figure, the requirement under clause 5.1.3 for 16.8 acres could not be satisfied. In his oral evidence, Mr Yarwood qualified this joint conclusion. There was, he said, vagueness about some of the constituent figures in the calculation. It was the best figure they could come up with; it was a figure in the order of 15.8 acres. He reiterated his belief, expressed in his own report, that a competent developer would have expected to be able to achieve 16.8 acres of net residential developable land, because there was sufficient flexibility in the figures. Nonetheless, 15.8 acres was “the best we can do at the moment…It could have gone up, it could have gone down”.

[133]In his closing submissions on behalf of Mr Hughes, Mr Korpal suggested that Chelverton could have argued with DDDC that there should be no requirement for affordable housing, for which one acre was allowed in the joint calculation. However, it seems clear from the expert evidence that there would be need to be provision for affordable housing and that one acre was very probably an under-estimate.

[134]I find that the outline permission granted to Mr Hughes, even with the inclusion of Area 7, did not provide a minimum of 16.8 acres net residential development on the Phase One Residential Land and that there was therefore no point in Chelverton seeking reserved matters, or detailed, approval on the basis of the outline consent.

[135]The conclusion that the outline consent did not provide a minimum of 16.8 acres of net residential development is all the clearer if Groveholt is right that Area 7 should not be brought into account. It is common ground that Area 7 did not form part of the Phase One Residential Land and was not therefore available for residential development for the purposes of satisfying the minimum requirement. Area 7 was however within the land for which planning consent was sought by Mr Hughes and his case is that it could have been used for non-residential development required by the conditions attached to the consent, in particular new office or light industrial use, thereby making an equivalent area available for residential development within the Phase One Residential Land.

[136]At the time when the consent was granted, and until 2004, Area 7 was owned by Sainsbury. Groveholt submits that clause 5.1.3 does not contemplate a case where 16.8 acres of residential development can be achieved within the Phase One Residential Land only by the use of land in other ownership to satisfy the planning conditions, Otherwise, the satisfaction of the condition in clause 5.1.3 would in effect trigger for Chelverton not only an obligation to pay £1.5 million to Mr Hughes but also an obligation to purchase the other land or procure its use for the requisite purpose, if it was to be able to make use of the planning consent. I accept this submission.

[137]In any event, Mr Yarwood’s evidence was that it was pointless to pursue a detailed application without the cooperation of Sainsbury. Sainsbury’s view of appropriate uses of Area 7 can be gleaned from the terms of an option to purchase Area 7 which it had granted to Chelverton by a deed dated 16 September 1998. The schedule to the deed provided in paragraph 7(b) and (c) that, if the option were exercised, the transfer would contain covenants by Chelverton(i) that no part of the land would be used otherwise than for non-food retail and/or leisure and/or residential uses,

(ii) that Chelverton would use the site for non-food retail within four years and

(iii) that Chelverton would not dispose of the site without procuring a covenant by the transferee directly with Sainsbury to use the site for non-food retail. In fact, when in 2004 Sainsbury agreed to sell Area 7 to Groveholt, the transfer contained a covenant by Groveholt restricting its use to residential purposes. It is therefore fairly clear, and I find, that Sainsbury would not have permitted Area 7 to be used for industrial or office purposes. It might have permitted its use for indoor leisure development. This would not, however, have been sufficient to provide 16.8 acres of net residential use on the Phase One Residential Land, because the area allowed for leisure was 4.4 acres. In Mr Korpal’s closing submissions, he suggested that in addition to leisure use, Area 7 could have accommodated the 1.26 acres required for children’s play space. Even then, the area for residential development on the Phase One land would be 14.8 acres, but the inclusion of children’s play space within Area 7 was not considered in the evidence and I have no evidence as to whether or not it would be acceptable in planning terms, for example by reference to its distance from the houses, nor whether Sainsbury would have accepted it as “leisure” use.

[138]There is a further substantial point on the use of Area 7 in the ways suggested by Mr Hughes. It would have required the exercise by Chelverton of its option to purchase Area 7 at a price of £1.2 million. This would then have been added to the Site Assembly costs available for set off against the sums otherwise payable to Mr Hughes under the Hughes/Chelverton agreement.

[139]Mr Korpal argues that under clause 5.3.1 Chelverton was obliged to use all reasonable endeavours to seek the removal or relaxation of the conditions attached to Mr Hughes’ outline consent so as to increase the acreage available for housing. This was not pleaded as a breach in Mr Hughes’ defence nor was it explored in the evidence. In any event I consider that it is not a good point. Clause 5.3.1 provided as regards “any consent which triggers a payment to the Vendor” that “conditions attached to the consent shall have effect so as to render the consent invalid for the purpose of triggering a payment to the Vendor if such conditions render the development of the particular land uneconomic having regard to the particular payment to be made to the Vendor under clause 5.1 hereof” but in that event imposed the obligation to use all reasonable endeavours to remove or relax the condition. This provision applies in terms only to a consent “which triggers a payment to the Vendor”. If a consent would not permit the minimum of 16.8 acres’ residential development, it would not trigger any payment. It follows that the obligation under clause 5.3.1, which Mr Korpal prays in aid, would not be and was not applicable.

[140]I am therefore satisfied that there was no breach by Chelverton of clause 7.4 of the agreement.

[141]It was submitted on behalf of Mr Hughes that the claim that his outline application was deficient in not allowing for 16.8 acres of residential development had been contrived for the purposes of this litigation. I reject this submission. First, I am satisfied that Mr Phillips and others for Chelverton in fact were concerned about this and considered the question in the period after completion of the Hughes/Chelverton agreement in September 1998. Secondly, it is in any event a serious point which I have found to be correct.

Planning: alleged breach of clause 7.1

[142]The question remains as to whether there was a breach of clause 7.1. The overarching obligation under clause 7 was that contained in clause 7.1, to use all reasonable endeavours to obtain as soon as possible the planning consents triggering payments under clause 5.1.2 to 5.1.4. This obligation is not qualified by clauses 7.3 and 7.4. Chelverton was not entitled in all circumstances simply to wait until a decision was made on Mr Hughes’ application for outline consent, in circumstances where it would serve no purpose, either because there was no real prospect of it being granted (not the case here) or because it was or should have been apparent that such consent, if granted, would not permit the minimum level of residential development required to satisfy clause 5.1.3. The issue is essentially whether there was a breach of clause 7.1 because the detailed planning permission required by clause 5.1.3 was not obtained until 18 December 2001.

[143]Mr Phillips’ evidence was that when Chelverton completed the Hughes/Chelverton agreement in September 1998, it was concerned but did not know whether Mr Hughes’ application for outline planning permission, if successful, would permit residential development on a minimum of 16.8 acres as required by clause 5.1.3. Following completion, Chelverton appointed professional advisers to consider that issue and to undertake preparatory work by way of surveys and so forth with a view to making a planning application which, if successful, would satisfy clause 5.1.3. It became quickly apparent that Mr Hughes’ application was unlikely to achieve a minimum of 16.8 acres of residential development. Site investigations, ground water monitoring, a topographical survey and ecological surveys were carried out throughout 1999. Further ecological surveys and assessments were carried out in 2000. The ecological impact of any development of the site was a particularly important aspect and the surveys could be carried out only in the period from April to September in each year.

[144]These detailed surveys were not necessary for an application for outline planning permission, but would be necessary for an application for detailed consent. It was therefore work which had to be done at some stage to comply with clause 7 of the Hughes/Chelverton agreement.

[145]The conditions which might be applied to any outline consent granted on Mr Hughes’ application were important to the development of Chelverton’s proposals. The planning officer’s report on Mr Hughes’ application was submitted to the planning committee in November 1998 and was publicly available. The report recommended the grant of planning permission “subject to conditions and agreements relating to the following issues” and there followed a list of 22 topic headings to be covered by conditions. The details of any conditions were not known.

[146]Draft conditions for the outline planning permission to be granted on Mr Hughes’ application were sent by the planning authority to Mr Hughes on 24 June 1999 and shortly afterwards they were made available to Chelverton. There were 42 detailed draft conditions covering six pages which were in substantially the same form when attached to the permission granted to Mr Hughes on 18 October 1999. Before Chelverton could sensibly submit its own application, it needed to have discussions with the planning officials in the light of the conditions attached to the Hughes consent so as to be able to develop its proposals and identify the conditions that might be applied to any consent granted to it. Meetings to this end were held in October 1999 and in February, June, July, August and September 2000.

[147]In my judgment the challenges presented by the complexity of the site and by the conditions attached to Mr Hughes’ planning permission make it impossible to say that Chelverton was in breach of the obligation in clause 7.1 to use all reasonable endeavours to obtain detailed planning permission for residential development as soon as reasonably practicable by not submitting an application for outline consent earlier than November 2000.

[148]Nor do I consider that it was a breach of that obligation not to submit an application for full or detailed planning permission by that time. A good deal of the work needed for a full application had been done but much remained to be done in terms of the detail of the residential development itself. The task to be undertaken with an application for 350 houses (in Chelverton’s case) or 432 (in Groveholt’s case), as opposed to the minimum of 75 houses in Mr Hughes’ application, was very significant. The necessary work was undertaken by Groveholt in the first half of 2001, leading to its full planning application submitted on 2 August 2001.

[149]There is no criticism of the time taken by Groveholt in 2001, and the fact that full planning permission was granted in December 2001, only four months after submission of the application, shows that a good deal of the preparation and scrutiny required for that step had already been done by Chelverton and by the planning authority in connection with Chelverton’s application.

[150]It may well be that with every resource made available, an application for full planning permission could have been submitted before August 2001. But the contractual obligation was to use all reasonable endeavours to obtain detailed planning permission as soon as reasonably practicable. In my judgment there was no breach of this obligation.

[151]There is a further reason why Mr Hughes’ claim in this respect cannot succeed, even if it were the case that Chelverton should have submitted an application for either outline or detailed planning permission earlier than it in fact did. The reason in short is that any such Chelverton application was unlikely to achieve the necessary minimum of 16.8 acres of residential development. The Chelverton application sought to achieve that goal by reducing the amount of new land for employment and by locating it beyond the boundaries set both by the local plan and by the previous application. This involved a material departure from the local plan and it transpired that this departure was not acceptable to the planning authority. The report of the planning officers and the draft outline planning permission make clear that any permission would have included a condition that four hectares of new employment land was found within the existing boundary of the approved site. If this were to be imposed as a condition, as clearly it would have been, then the permission would not have secured the required minimum of 16.8 acres of residential development. This minimum was achieved by Groveholt on its application for detailed planning permission by suggesting instead the obligation to pay £500 per completed unit to the Prince’s Trust. This imaginative solution had not previously occurred to Mr Hughes, Chelverton or their advisers and no-one can be criticised for that. There therefore seems little chance that an outline or detailed planning permission satisfying the requirement of clause 5.1.3 of the Hughes/Chelverton agreement would have been achieved earlier than in fact it was achieved in 2001.

[152]I should briefly deal with an argument advanced by Groveholt to the effect that Mr Hughes knew and consented to the course of action adopted by Chelverton in preparing and submitting its own application for outline consent, rather than pursuing an application for reserved matters approval in the context of the application of Mr Hughes. Groveholt can establish in my judgment that Mr Hughes was aware of the steps being taken by Chelverton, because his agent Mr Armitage was kept informed by Chelverton and was present at a number of meetings during 1999 and 2000 when Chelverton’s proposals were discussed. Mr Hughes says, correctly it appears, that at some stage Mr Armitage deserted Mr Hughes and aligned himself with Chelverton and then Groveholt. But the evidence establishes that this did not occur until the end of 2000. It does not however seem to me that knowledge on the part of Mr Hughes is sufficient for Groveholt’s purposes. While Mr Hughes did not complain about the activities of Chelverton in this respect, his lack of protest cannot be taken as a consent by Mr Hughes or as a waiver of his rights under clause 7 of the agreement. Any suggestion of an estoppel has been withdrawn and I do not think that knowledge without any sign of consent is sufficient to amount to a variation of the contract, all the more so when clause 28.2 requires any variation to be in writing signed by or on behalf of both parties. The case that there should be taken to have been a variation of the agreement is all the less probable in the light of the attempt by Chelverton to obtain Mr Hughes’ agreement to a variation of the agreement by which the reference in clause 5.1.3 to detailed planning permission would have been replaced by a reference to outline planning permission. This was not agreed by Mr Hughes. I should add that Mr Hughes has argued that this document was deliberately omitted from the evidence given by Groveholt’s witnesses in an attempt to deceive the court. Not only was this suggestion not put to Mr Phillips, but I do not consider that there is any proper evidential basis for reaching this conclusion.

Section 106 agreement

[153]It is Mr Hughes’ case that the delay in obtaining detailed planning permission, alleged to have been in breach of clause 7 of the Hughes/Chelverton agreement, resulted in increased costs which would otherwise have been avoided. The costs result from obligations under the section 106 agreement made by Groveholt which, it is said, would have been avoided by an earlier application and grant of permission. The obligations were as follows: the provision of 32 residential units as affordable housing to be transferred to a social landlord; a contribution of £125,000 to off-site highways works; a contribution of £225,000 over three years to bus services; the payment of £500 per dwelling unit to the Prince’s Trust to facilitate business start-ups; the provision of a community building and a levy of £75 per dwelling unit towards a sinking fund for it; a contribution of £7,000 for a riverside walkway; and a contribution of £80,000 towards education provision.

[154]The opportunity for the planning authority to negotiate for further obligations in a section 106 agreement arose because Chelverton and Groveholt did not pursue an application for detailed planning permission based on the outline permission granted to Mr Hughes, but instead lodged fresh applications. For the reasons already given I have held that pursuit of Mr Hughes’ outline permission would not have satisfied the requirements under clause 5.1.3 of the Hughes/Chelverton agreement and that therefore a new application was inevitable. Something more than just a new application must therefore be relied on by Mr Hughes if he is to show that the section 106 obligations could have been avoided. Mr Yarwood identified two grounds for a conclusion that they could have been avoided. First, Groveholt should have negotiated harder. Secondly, the delay meant that the planning authority was able to take account of the changes to policy contained in the new local plan which, although not published until 2002, was well advanced by the end of 2001.

[155]Mr Yarwood considerably modified his views in the course of cross-examination. I will briefly take each of the obligations under the section 106 agreement.

[156]The requirement for affordable housing represents 7.4% of the total of 432 houses permitted for the development. This compares quite closely with the likely requirements in relation to Mr Hughes’ outline permission, but bears no comparison with the figure of 45% in the draft local plan. Mr Yarwood agreed that Groveholt had not done too bad a deal on this. The highway contribution of £125,000 arose because, as Mr Yarwood accepted, the Groveholt application and permission covered infrastructure works necessary for a housing development. Although such works were included in the Sainsbury permission, Groveholt guarded against the possibility that Sainsbury would not carry out its supermarket development. Under its section 106 agreement, Sainsbury was required to pay £75,000 and if paid, it was to be credited against Groveholt’s obligation, leaving Groveholt with a maximum liability of £50,000. Mr Yarwood accepted that it was reasonable for Groveholt to be required to pay any sum which was not paid by Sainsbury, and so far as the sum of £50,000 is concerned, he accepted that it was a matter for negotiation between the planning authority and Groveholt. Groveholt had every reason to negotiate as strongly as it felt it could, because the cost of section 106 obligations would either increase its costs of development or, if it sold before development, reduce the value of the property.

[157]The contribution towards bus services was taken by Mr Yarwood to be £75,000 per annum for three years. But on a closer reading of the relevant provisions it emerges that it is only £25,000 per annum for three years, provided that Sainsbury makes the contributions required by it under its section 106 agreement. In the light of this, Mr Yarwood said that Groveholt’s obligation was not an unreasonable one.

[158]The contribution of £500 per unit to the Prince’s Trust was described by Mr Yarwood in his report as an unjustified imposition. However, it was the price for not being required to include four hectares of new employment development, as required by the local plan. Mr Yarwood accepted that the requirement for new employment land in the local plan was significant and that a developer might well have regarded its replacement by an obligation to make payments to the Prince’s Trust as a good deal. In my judgment, it clearly was a good deal.

[159]The other requirements were, in the opinion of Mr Frampton and as Mr Yarwood agreed, within the range of matters which might be expected in a section 106 agreement relating to a development on the scale proposed by Groveholt. Additionally, the requirement for a community building was in part the price for not providing a serviced leisure site.

[160]In my judgment, none of the terms of the section 106 agreement was the result of the submission of Groveholt’s application in 2001 rather than at an earlier date. They stemmed from the greatly increased scale of the residential development proposed over that for which Mr Hughes’ outline permission provided and from the reasonable decision to include infrastructure works in the application. No convincing instance was given in the evidence of any impact of the emerging local plan on the terms of the section 106 agreement.

[161]Mr Hughes relies on the submission in November 2001 by the solicitors for Groveholt to the planning authority of a draft section 106 agreement associated with the Chelverton outline application. Like Mr Hughes’ section 106 agreement, it was limited to non-implementation of the minerals consent. There is no evidence that the planning authority agreed or would have agreed a section 106 agreement in those terms. In the light of the scale of the development proposed by Chelverton in its application, it seems to me unlikely in the extreme that it would have agreed it.

[162]Groveholt claims to deduct payments which it was required to make under the section 106 agreement dated 19 December 2001. That agreement was superseded by an agreement made with DDDC on 28 June 2010, although the requirements are very similar. Groveholt does not seek to bring into account liabilities under the latter agreement, rightly in my view.

[163]For the reasons given later, the time for determining the amount of the Infrastructure Costs in accordance with clause 11.1 of the Hughes/Chelverton Agreement was in April 2007 when the contract for the Infrastructure Works was made with Birse Civil Limited. The fact that some or all of the payments required by the earlier section 106 agreement may not have been paid does not affect the determination of the net sum secured by the charge. It is the existence of those obligations at the relevant time which affects the value to be attributed to the planning permissions which triggered the overage payments.

Bus station

[164]A significant item is the cost of construction of a new bus station close to the supermarket site, priced at a little over £852,000. Groveholt submits that it falls within the definition of Infrastructure Works as being a requirement “for works involved in meeting any planning condition” and therefore its cost is an Infrastructure Cost to be set against the sums secured by Mr Hughes’ charge under clauses 8.3.2 and 11.

[165]Sainsbury’s application for outline planning permission made on 13 August 1997 included the new bus station. Condition 30 of the conditions attached to the outline planning permission granted on 19 May 1999 provided that:

“Prior to the first opening of the foodstore for trading, the new bus station hereby permitted shall be constructed and available for use.”

[166]It is submitted for Mr Hughes that Sainsbury included the new bus station within the works for which it sought permission because, sited close to its supermarket rather than in the town centre, it would be commercially advantageous to it. In those circumstances, there should not be included as an Infrastructure Cost the cost of a development which Sainsbury wished to achieve.

[167]The factual circumstances in which the new bus station was included in Sainsbury’s application were examined in the evidence in some detail. It appears from Mr Yarwood’s evidence that DDDC did not as such require it. However, it was in favour of the pedestrianisation of Matlock bridge and, if that occurred, the bus companies had a strong basis for demanding a new bus station. One of the bus companies, Trent Buses, was forceful in its demand for a new bus station, a demand which it pursued after rejecting Sainsbury’s suggestion of the provision of lay-bys for buses on the A6.

[168]While I can see that the new bus station could well be commercially beneficial to Sainsbury, I am satisfied on the evidence that Sainsbury was primarily motivated to include it by a desire to avoid Trent Buses calling for a public inquiry into the application. There is no evidence that Sainsbury sought to have a requirement to build the bus station imposed upon it, either as a condition or under a section 106 agreement.

[169]In any event, given the terms of planning condition 30, which required the construction of the new bus station, it constituted “works … involved in meeting any planning condition” within the definition of Infrastructure Works. It follows that Groveholt is entitled to deduct the cost in accordance with clauses 8.3.2 and 11.

[170]An additional sum of £15,000 was included in the provisional sum in the main construction contract for CCTV equipment at the new bus station. The actual cost was £31,914. Mr Hughes has submitted that he is not liable for this item but, in my view, CCTV equipment is these days an inevitable and integral part of a public building such as a bus station, and therefore forms part of the bus station cost as an Infrastructure cost.

[171]In January 2007 Sainsbury was awarded a grant of £500,000 by the East Midlands Development Agency towards the cost of the new bus station, thus reducing the net cost to Sainsbury to just over £352,000. In an email to Mr Korpal about three weeks before the start of the trial, Groveholt’s solicitors conceded that the amount claimed for the bus station should be reduced by the amount of the grant. However, in their skeleton argument for the trial, Groveholt’s counsel stated that its primary case was that the grant did not fall to be deducted “because the definition of Infrastructure Costs is not concerned with the source of the funds for the Infrastructure Works”. This is repeated in their closing submissions.

[172]In my judgment, Groveholt was right to make the concession in its solicitors’ email. The Hughes/Chelverton Agreement contains no express provision dealing with grants towards Infrastructure Costs, requiring either that they be deducted from such costs or that they be ignored. If such grants have been awarded before the time for determining the amount of Infrastructure Costs under clause 11.1, but are ignored for the purposes of determining such costs, an extraordinary windfall would be conferred on Chelverton or its successor which would be contrary to all commercial common sense and cannot have been intended.

[173]The reasoning of the Court of Appeal in CA(1) at paragraph 97 was that:

“The provision for additional purchase consideration in clause 5 reflects the fact that the grant of a relevant planning consent will increase the value of the Chelverton land in the hands of Chelverton. But that increase in value must inevitably be dependent upon the amount of the preparatory costs which a developer will have to incur.”

(emphasis added)

[174]It is only the net costs which in any commercial sense the “developer will have to incur”. In my judgment, the words “the costs involved in the provision of Infrastructure Works” in the definition of “Infrastructure Costs” must be construed as referring to the net costs after grants from public funds.

Conclusion on planning issues

[175]In my judgment, Mr Hughes has failed to establish any breach by Chelverton of its obligations as regards obtaining planning permission under clause 7 of the Hughes/Chelverton agreement. There was no actionable delay on Chelverton’s part.

[176]Even if there had been any such delay, Mr Hughes would be unable to establish any loss resulting from it. This is for two reasons. First, I have rejected Mr Hughes’ submission that the obligations under the section 106 agreement were more onerous than they would otherwise have been but for any delay. Secondly, any delay in obtaining planning permission did not delay the execution of the Infrastructure Works and hence did not increase their costs, again for two reasons. First, the Infrastructure Works could not be carried out until the site assembly process was completed and, as appears from the next section, that could not be completed for a long time after 2001. Secondly, for the reasons given in the next section, Chelverton’s obligation under clause 9.1 to organise site assembly and thereafter to organise and effect the Infrastructure Works did not arise until after Sainsbury was granted detailed planning permission, which did not occur until 8 October 2002. The suggestion, made for the first time on behalf of Mr Hughes in Mr Korpal’s closing submissions, that the Infrastructure Works should have proceeded on the basis of the detailed planning permission obtained by Groveholt in December 2001 cannot be right in view of the terms of clause 9.1.

[177]Mr Hughes is critical of the time which it took Sainsbury to obtain detailed planning permission. It received outline permission on 19 May 1999 and made its application for reserved matters approval on 16 May 2002, only days before its outline permission would otherwise have expired. There is evidence that Chelverton and Groveholt encouraged Sainsbury to proceed with the development, but any delay on the part of Sainsbury does not assist Mr Hughes. Chelverton was under no obligation to Mr Hughes to procure that Sainsbury pursued an application for detailed planning permission nor was Sainsbury under any obligation to do so. Sainsbury was obliged by clause 14.1 of the Hughes/Sainsbury Agreement to obtain outline planning permission with due expedition but was under no similar obligation as regards detailed planning permission. On the contrary, clause 14.3 of the Hughes/Sainsbury Agreement provided that Sainsbury “may in its absolute discretion” make an application for reserved matters approval or a separate planning application, with no stipulation as to time.

[178]By the Deed of Novation dated 16 September 1998 Chelverton replaced Mr Hughes but it had no greater right than Mr Hughes in this respect. By the Supplemental Agreement dated 16 September 1998, Chelverton undertook to Mr Hughes to “use all reasonable endeavours to obtain compliance by Sainsbury” with its obligations under clause 15 of the Hughes/Chelverton Agreement (as previously replaced by the Loan Agreement). Sainsbury’s obligations under clause 15 arose only once “Satisfactory Planning Permission” was obtained, which for the reasons given below means detailed planning permission.

Site Assembly

[179]Site assembly refers to the acquisition of land and rights necessary to enable the infrastructure works to take place. Mr Hughes’ pleaded case is that in breach of sub-clauses 9.1 and 9.3 of the Hughes/Chelverton agreement, Chelverton or Groveholt did not proceed with reasonable diligence in relation to the process of arranging the infrastructure works and site assembly, with the result that the whole project was delayed and costs increased and the scope of the works expanded.

[180]For convenience I will again set out clause 9.1 which provided:

“In the event that a planning consent for a food store on the Sainsbury Land which meets the requirements of the Sainsbury Agreement is obtained the provisions of clauses 8 and 10 hereof shall apply in relation to Infrastructure Costs and the Costs of Site Assembly, including dealing with the Railtrack land and subject thereto the Purchaser will use all reasonable endeavours to agree the Site Assembly Agreements and subject thereto and to clauses 8 and 10 hereof will organise and effect the Infrastructure Works.”

By clause 9.3 Chelverton agreed to use all reasonable endeavours as soon as reasonably practicable with regard to agreeing all site assembly agreements.

Does clause 9.1 refer to outline or detailed planning permission

[181]An issue arises as to whether the opening words of clause 9.1 refer to outline or detailed planning permission. The same phrase, with immaterial differences in style, appears in clause 8.2 and is stated to trigger Sainsbury’s obligations under the Hughes/Sainsbury agreement to meet the infrastructure costs and the costs of site assembly.

[182]The Hughes/Sainsbury agreement refers to planning permission in two different ways. First, “Planning Permission” is defined to mean outline planning permission for the supermarket development and infrastructure works. That defined term is used in clause 14.1 of the Hughes/Sainsbury agreement which provides:

“Following completion the Buyer and the Seller will jointly (each to bear its own costs) control and manage the obtaining of the grant of Planning Permission and dealing with any s. 106 Agreement and the Buyer and the Seller shall use all reasonable efforts to obtain Planning Permission and conclusion of any s. 106 Agreement on such terms as it is reasonably practicable to obtain and accept and shall throughout act with due expedition.”

Clause 14.3 uses the same term when it provides that the buyer may in its absolute discretion “(i) make an application or applications for approval of reserved matters pursuant to the Planning Permission (whether in anticipation of its issue or otherwise) for the Sainsbury Development”.

[183]Secondly, the Hughes/Sainsbury agreement defines “Satisfactory Planning Permission” as meaning:

“planning permission for the Sainsbury Development which is granted either by Derbyshire Dales District Council or the Secretary of State for the Environment which in the reasonable opinion of the Buyer is satisfactory and which is free from judicial challenge.”

This phrase appears in clause 14.8:

“Upon grant of Satisfactory Planning Permission the provisions in clause 15 hereof shall apply immediately thereafter.”

[184]Clause 15 (as substituted by the loan agreement between Sainsbury and Mr Hughes dated 10 March 1998) provides in effect for the grant of “Satisfactory Planning Permission” to trigger, first, the site assembly process and, then, the infrastructure works

[185]It would defy all commercial commonsense for the site assembly and infrastructure works to be triggered by outline planning permission. No commercial concern would be likely to agree with a third party to be bound to purchase the land required for site assembly when it would not know whether it would obtain detailed planning permission and it could not lawfully carry out the infrastructure works without detailed planning permission. By not referring in the definition of Satisfactory Planning Permission to “Planning Permission” or to “outline planning permission”, a clear distinction with outline planning permission was being drawn. Accordingly, there cannot, in my judgment, be any real doubt but that clause 9.1 of the Hughes/Chelverton Agreement is referring to detailed planning permission.

[186]It follows that the obligation of Chelverton under clause 9.1 to use all reasonable endeavours to agree site assembly agreements and to organise and effect infrastructure works did not arise until 8 October 2002, when Sainsbury was granted reserved matters approval in respect of its planning application.

Mr Hughes’ charge

[187]The process of site assembly was complex, requiring Chelverton and Sainsbury to deal with a variety of different parties.

[188]An essential element in site assembly was agreement with Railtrack plc (later Network Rail plc) involving a transfer by Railtrack of land required for the proposed A6 diversionary route and transfers to Railtrack and DDDC of land owned by Chelverton for the laying of new substitute track and for construction of parts of the A6 diversion route. The evidence establishes that Railtrack and DDDC were not prepared to take transfers of land while it was still subject to a charge in favour of Mr Hughes. For Mr Hughes, reliance is placed on a letter dated 29 January 2003 from Mr Phillips to Mr Lean. It was not put to Mr Phillips but in any event it is not a significant counter to the evidence given by Mr Lean and Mr Phillips.

[189]The land in question formed part of the Phase One Residential Land, as defined in the Hughes/Chelverton Agreement. The Phase One Residential Land, together with the Phase Two Residential Land, was subject to the charge in favour of Mr Hughes created pursuant to clause6.1 of the agreement. Clause

6.2 provides for release of the charge “from each parcel of land referred to in 5.1 hereof” as and when the payment due for that parcel of land would be made but for the operation of clause 11. The relevant “parcel of land” for present purposes is the Phase One Residential Land, as the parcel of land referred to in clause 5.1.3, and Mr Hughes’ obligation to release it arose on the grant of detailed planning permission on 18 December 2001. The relevant payment was not made to Mr Hughes by reason of the operation of clause 11, but the obligation to release nonetheless arose under the express terms of clause 6.2.

[190]Mr Hughes failed and refused to release his charge until he consented to an order dated 10 June 2004 for its release under section 50 of the Law of Property Act 1925 on an application by Groveholt. Not only did Mr Hughes refuse to release his charge but in February 2004 he purported to exercise the power of sale under the charge. In evidence he sought to suggest that he had not known about or consented to this course of action but I am satisfied that the attempts to exercise the power of sale were made on his instructions. Apart from anything else, he made a witness statement on 1 April 2004 in which he claimed to have a power of sale and to be entitled to take possession of the land.

[191]Various grounds have at different times been put forward by Mr Hughes for his refusal to release his charge but none of them was in my judgment well-founded.

[192]First, when asked in January 2002 to release his charge, Mr Hughes replied in a letter dated 14 February 2002 that Chelverton had changed the infrastructure works so as substantially to increase cost. Chelverton was in breach “and as a result thereof I will not be executing any form of discharge until the outstanding issues are resolved. I am more than happy to meet to negotiate a settlement but failing that propose to leave matters as they are until such time as I have dealt with the “current court action” in which I am involved”. The reference to the current court action is to unrelated proceedings. Apart from the transaction between Chelverton and Groveholt which Mr Hughes alleges to have been an assignment in breach of the Hughes/Chelverton agreement, an allegation which I have already addressed, it is unclear as to the breaches of the agreement to which Mr Hughes may be referring. So far as I am aware, there were none and certainly none which justified a refusal on his part to comply with clause 6.2.

[193]Proceedings to enforce clause 6.2 were issued by Chelverton and Groveholt in August 2002 and defended by Mr Hughes. Ultimately they had to be abandoned after the liquidator of Chelverton disclaimed the Hughes/Chelverton agreement in December 2003. The suggestion in closing on behalf of Mr Hughes that Chelverton and Groveholt must accept the blame for this period does not bear examination. Throughout this period it was Mr Hughes who was refusing to comply with his contractual obligations.

[194]Secondly, it is submitted for Mr Hughes that clause 6.2 required Chelverton to give him an alternative charge in place of the charge to be released. The agreement contains no provision for the creation of any such substitute charge, nor defines the property over which any such charge might be created. Reliance is placed on behalf of Mr Hughes on the following part of clause 6.2:

“… but such payments due under those clauses will be secured by any further charges given to the Vendor hereunder and neither those charges shall be released nor shall any payment be made under clause 8.3.3 hereof until any payments due under clauses 5.1.2 or 5.1.3 hereof (but subject to clause 11 hereof) which have been deferred because of said proviso (if any) are paid by the Purchaser in accordance with the particular clause.”

It is suggested that this required Chelverton to provide a substitute charge on release of the charge over the Phase One Residential Land. This is not in my judgment the effect of the passage cited above. The reference to “any further charges given to the Vendor hereunder” is not to a further charge created on release of the earlier charge, but to charges on other property created pursuant to other provisions of the Hughes/Chelverton agreement, specifically the charge over the Phase Two Residential Land and, pursuant to clause 18.3, the Halldale Land.

[195]Thirdly, a further suggestion was made in the course of the trial that Mr Hughes should have been asked to release his charge only over that part of the Phase One Residential Land needed for the infrastructure works. The suggestion was not made at the time but in any event Mr Hughes was required by clause 6.2 to release the charge over the entire Phase One Residential Land.

[196]In his closing submissions, Mr Korpal relies on two letters to suggest that Groveholt did not think at the time that Mr Hughes’ charge would hold up development. The first of these letters, dated 28 November 2002, is expressly based on Mr Hughes’ obligation under clause 6.2 to release the charge and so cannot assist Mr Hughes. The second, a letter dated 29 January 2003 from Mr Phillips to Mr Lean was not put to Mr Phillips but, when it was put to Mr Kilkelly, he was clear in his understanding that Mr Hughes’ charge did affect the Infrastructure Works. I am satisfied on the evidence as a whole that it did indeed impede and would probably have prevented the start of the Infrastructure Works.

[197]In my judgment, it is clear that Mr Hughes’ refusal to release his charge was a breach of his obligations under the agreement and would on any footing have prevented the completion of site assembly and the commencement of the infrastructure works before June 2004. It follows that Mr Hughes cannot complain of delay prior to that time.

[198]Mr Hughes refers to and relies on a second charge created over the Phase One Residential Land by Groveholt in favour of Chelverton pursuant to the Chelverton/Groveholt agreement. This charge was released shortly after Mr Hughes released his charge, and the point is made for Mr Hughes that this second charge would as much delay site assembly and the commencement of the infrastructure works as Mr Hughes’ own charge. Even if true, this would not assist Mr Hughes because on any basis his refusal to release his charge was one of the factors preventing progress. But in any event the point is not well taken. By clause 4.6.1 of the Groveholt/Chelverton agreement, Chelverton was obliged to release the charge on “any disposal of the property or any part thereof”. This would therefore be triggered by a transfer to Railtrack or Network Rail.

Railtrack/Network Rail

[199]Mr Hughes accepts that agreement with Railtrack or Network Rail was the single most important piece of the jigsaw. The negotiations with Railtrack and its successor body Network Rail were long and tortuous. Chelverton started discussions early in 1999, long before it was contractually obliged to do so under clause 9.1 of the Hughes/Chelverton Agreement. Railtrack at first refused to negotiate until Safeway, as holder of the option granted by Railtrack, consented in terms satisfactory to Railtrack. This was achieved by September 1999. Negotiations on commercial terms, in particular the price demanded by Railtrack, continued through 2000, particularly following an offer made by Chelverton in July 2000.

[200]In January 2001 Railtrack made an offer subject to contract and subject to the formal surrender by Safeway of its option (which was provided by Safeway in or about May 2001). Technical discussions took place in the latter half of 2001 as to the scope of the railway works and similar matters, and it was only towards the end of 2001 that Railtrack instructed solicitors. Railtrack’s solicitors provided a 46-page draft agreement in January 2002, containing conditions which would require negotiations and agreement with other parties. Agreement on technical matters involved a two-stage process comprising Form A (an outline proposal) and Form B (approval of a detailed design). The technical issues were complicated by Railtrack’s agreement, described as unique, that the new track could be also used by Peak Rail, operating a steam train service out of Matlock.

[201]Discussions on legal and technical issues continued throughout 2002, leading to hopes that contracts might be exchanged in January 2003. A number of factors, all of them outside Chelverton’s control and including Mr Hughes’ refusal to release his charge, prevented this. Another factor was the need for a Station Change Order. Even after other outstanding technical and legal issues were resolved in discussions during 2003, the Station Change Order had not been made by the end of the year. By now, Network Rail had succeeded Railtrack. It seemed that exchange could take place in March 2004. However, in March 2004 Network Rail reported that internal responsibility for the project was to be transferred from Birmingham to York and that Network Rail would need to “re-authorise” the agreement.

[202]This was the start of new problems. Although the impediment of Mr Hughes’ charge was removed in June 2004, the York office did not agree with the shared track arrangements with Peak Rail and required, among other things, a total re-design of the works. Network Rail’s technical requirements in any case became stricter as a result of serious rail accidents over the previous few years. There followed protracted discussions with Network Rail, with Sainsbury now acting on the development side. Contracts were exchanged in February 2006, with the land transfers in April 2006.

[203]Mr Hughes makes a number of submissions. Primarily he submits Chelverton allowed the negotiations to drag on. He points to optimistic statements in letters and other documents as to when agreement was expected to be reached. He criticises Chelverton for the negotiations over price, advocating that instead Chelverton should have reached quick agreement to meet the price demanded by Railtrack. Mr Hughes accepts, I think, that the transfer of responsibility to York led to new problems and delay but his case is that final agreement could and should have been achieved before then. I do not consider that these submissions are well-founded.

[204]First, they ignore that Mr Hughes’ refusal to release his charge prevented final agreement until 2004, just when Network Rail in York assumed responsibility from Birmingham.

[205]Secondly, although discussions began in 1999, Chelverton had no contractual obligation as regards site assembly until Sainsbury was granted detailed planning permission in October 2002. Even if there were any merit in Mr Hughes’ criticism of the time it took to obtain a letter from Safeway in terms satisfactory to Railtrack, this was achieved in September 1999, long before any agreement could have been reached with Railtrack and long before Chelverton was obliged to seek such agreement.

[206]Thirdly, there can be no justified criticism of Chelverton in seeking to negotiate on price. Clause 10.1 of the Hughes/Chelverton Agreement required it to “use all reasonable endeavours to procure the purchase by it of the Railtrack Land … at as low a price as is reasonably achievable but at a sum no more … than £1,100,000”. In fact, Chelverton succeeded in reducing Railtrack’s price from a share of the development value of the residential site to a figure of £1.1 million and then to a figure of £600,000.

[207]Fourthly, it is clear from the evidence overall that the long time it took to reach agreement was not the result of a lack of reasonable endeavours on the part of Chelverton but was the result of both the complexity of the proposals and the pace at which Railtrack and Network Rail were prepared to proceed.

[208]Groveholt claims to deduct £5,000 in respect of an invoice dated 8 April 2003 rendered by Network Rail in respect of the development of the scheme and the preparation of the works agreement. Sainsbury’s quantity surveyor certified it as payable. There was discussion in the evidence as to whether this related to the preparation of an asset protection agreement which may only later have been a requirement. I see no reason not to take the invoice at face value, in which case Groveholt is entitled to include it in the sums to be set off.

[209]Groveholt also claims just under £500,000 as the cost of construction of a parapet wall for the A6 bridge. Mr Hughes says that this should have been an embankment which would have cost very much less. The requirements of Railtrack and then Network Rail for protection of track against vehicles increased as a result of the Ladbroke Grove, Hatfield and Selby crashes in 1999-2001. The evidence shows, and I find, that Railtrack/Network Rail at first specified a steel barrier and that in 2005 the requirement was changed to the more expensive option of a parapet wall. Sainsbury took legal advice as to whether this could be challenged but no challenge was made. Mr Hughes’ case is, in short, that if the agreement had been made with Network Rail before 2005, this additional cost would have been avoided. Mr Hughes fails, for the reasons previously given, to establish that with reasonable endeavours the agreement should have been made before 2005. Groveholt is therefore entitled to set off the sum claimed in respect of the parapet wall. DDDC

[210]DDDC owned land which was required for the new railway track. Sainsbury, Mr Hughes and Chelverton did not expect DDDC to require payment for the land, in view of the benefits which the scheme would bring. This was reflected in the Hughes/Sainsbury Agreement which in schedule 4 paragraph (D) stated that “it should be noted that the arrangements reached with [DDDC] should not involve the payment of any cash to be included within the Site Assembly Costs”. Discussions with DDDC began in early 1999 but it was only in July 1999 that DDDC indicated that it would seek payment and considered itself bound to do so under the Local Government Act 1972. After DDDC said in November 1999 that its bottom line was a payment of £600,000, agreement was reached in January 2000 on a capital sum of £50,000, with a further payment if the infrastructure works cost less than the estimate at that time of just under £6.9 million excluding professional fees. These terms were approved by DDDC’s property committee in June 2000. Final agreement was not reached until July 2002 because of disputes between Railtrack and DDDC. Contracts were exchanged in May 2004, with completion conditional on a number of matters including a highways agreement. The time for satisfaction of these conditions was extended by a supplemental agreement made on 21 July 2005, and Sainsbury agreed to pay a price of £85,000.

[211]Mr Hughes submits that no payment should have been agreed with DDDC. This is wholly unrealistic. DDDC’s land was needed, as Mr Hughes accepts, and DDDC insisted on payment for it. He further submits that, by virtue of Chelverton’s covenant in clause 1.1 of the Supplemental Agreement dated 16 September 1998, it was obliged to use all reasonable endeavours to obtain compliance by Sainsbury with the obligations as regards dealing with DDDC contained in the Hughes/Sainsbury Agreement. This submission fails. I have earlier cited the relevant part of the Hughes/Sainsbury Agreement, in schedule 4 paragraph (D), and it is a statement of expectation (the arrangements with DDDC “should not involve the payment of any cash”) not prohibition or obligation. It could not be known for certain that DDDC would not require payment. I reject Mr Hughes’ case that Chelverton was in breach of any contractual obligation as regards the purchase of land from DDDC.

Matlock Angling Club

[212]The northern end of the proposed road bridge over the River Derwent for the A6 diversionary route would be on unregistered land which was used for fishing by the Matlock Angling Club. Mr Hughes had entered into a Deed of Easement dated 12 May 1995 with “Matlock Angling Club” which treated the Club as freehold owner of the land and by which the Club granted Mr Hughes a right to build and maintain the bridge on the land, in consideration of Mr Hughes’ agreement to provide fishing rights over ponds on the Cawdor Quarry Site. By a licence dated 1 August 1998, Mr Hughes granted or purported to grant fishing rights over waters on the Cawdor Quarry Site for a period of 99 years for the benefit of the member of the Club. The grantees are not named but it is signed by two persons who, it appears, were officers of the Club.

[213]There were significant concerns about the legal efficacy of the Deed of Easement, both because it was made with “Matlock Angling Club”, an unincorporated association, and because of uncertainties over the legal ownership of the relevant land. Clause 11.1(d) and (e) of the Loan Agreement dated 10 March 1998 between Mr Hughes and Sainsbury required Mr Hughes to act as follows:

“(d) The Borrower covenants to use its best endeavours to procure that there is deduced to the Lenders the title of Matlock Angling Club to the property owned by it with evidence of the power and authority of Matlock Angling Club to enter into the Deed of Covenant dated 12th May 1995 between Matlock Angling Club (1) and the Borrower (2) and to procure that the Deed is registered against the title to the Property owned by Matlock Angling Club and that a note of the provisions benefitting the dominant land (as defined in the Deed) are made at HM Land Registry. (e) The Borrower covenants to use his best endeavours to replace or supplement the deed dated 12th May 1995 and made between the Borrower and Matlock Angling Club with more detailed and comprehensive documentation as soon as reasonably practicable such replacement or supplemental documentation to be in a form approved by the Lender and the Parent (such approval not to be unreasonably withheld or delayed) and to be in favour of the property at Cawdor Quarry comprised in title number DY257534 and in favour of the property owned by the Parent at Cawdor Quarry comprised in title number DY283005 and to adequately secure the right to construct a bridge over the River Derwent to carry any relief road, the parties taking due account in such process of Matlock Angling Club’s wish to acquire a licence for fishing rights over another part of Cawdor Quarry which licence shall be granted to the Borrower in a form to be approved by the Lender (such approval not to be unreasonably withheld or delayed).”

[214]The Hughes/Sainsbury Agreement, schedule 4 paragraph (d), provided as it did in relation to DDDC that “it should be noted that the arrangements reached with Matlock Angling Club …. should not involve the payment of any cash to be included within the Site Assembly Costs”. Chelverton and Groveholt received legal advice that the Deed of Easement could not be relied upon. There were negotiations with the Club, culminating in an agreement dated 25 February 2002 with the Club’s trustees. The agreement contained satisfactory obligations on behalf of the Club’s trustees, in consideration of a payment of £6,000, a covenant by Groveholt to use its best endeavours to acquire from Railtrack its fishing rights and then to transfer one half of the rights to the Club, and other obligations. It was conditional on agreement with all other landowners by 31 May 2004.

[215]This condition was not, of course, satisfied and the Club was approached for an extension. The Club received advice from surveyors that it held a ransom position and should negotiate for a large sum. Ultimately, at a meeting on 19 December 2005, attended by representatives of Sainsbury, Groveholt and the Club and by the chief executive of DDDC, agreement was reached involving the payment of £250,000 by Sainsbury to the Club.

[216]Mr Hughes submits first that the original Deed of Licence was adequate. I reject this. There were clearly significant and probably well-founded concerns about it and no developer could take the risk of relying on it. Secondly, it is submitted that Chelverton was obliged to ensure that Sainsbury made no payment for an agreement with the Club, by reason of clause 1.1 of the Supplemental Agreement and schedule 4 paragraph (D) of the Hughes/Sainsbury agreement. I rejected this submission as regards DDDC and for the same reasons I reject it here. Thirdly, Groveholt is criticised for agreeing to grant fishing rights to the Club which it did not own. In fact, however, it agreed to use all reasonable endeavours to do so. Mr Hughes has adduced no evidence that the Club would have entered into the agreement without that covenant. Fourthly, Chelverton is criticised for not including a right to extend the long stop date. In my judgment, it was a reasonable view as at February 2002 that everything would be in place by 31 May 2004, including the release of Mr Hughes’ charge. Reference is made to a draft clause for an extendable long stop date in an agreement with a different party but it is dated 8 September 2003. It was not put to any witness and nothing is known of its context.

Gas Board site

[217]A piece of land known as the Gas Board site was required for the roundabout linking the A6 with the A6 diversion route. The construction of this roundabout was required by the conditions attached to both Sainsbury’s outline permission and Groveholt’s detailed permission. By clause 1.1 of the Loan Agreement dated 10 March 1998, the loan facility of £2.5 million made available by Sainsbury to Mr Hughes was to be used, in part, for the purchase by Mr Hughes of the Gas Board site.

[218]By clause 9.3 of the Hughes/Chelverton Agreement, Mr Hughes agreed that if he acquired the Gas Board site he would make available at no cost to Chelverton any part required for the Infrastructure Works. A term to similar effect was included in the Deed of Novation dated 16 September 1998.

[219]Mr Hughes agreed to purchase the Gas Board site and the purchase was completed on 12 August 1998. The transfer triggered a requirement for first registration but Mr Hughes failed to obtain registration. His application for first registration was cancelled by the Land Registry in July 1999, because of his failure to supply information.

[220]In September 1998 Westpac Banking Corporation (Westpac) had obtained judgment against Mr Hughes for approximately £4.24 million and interest and on 30 March 1999 it was granted a worldwide freezing order against him. Westpac was granted an order for sale of the Gas Board site on 20 June 2000. Thereafter Westpac took possession of the site.

[221]Mr Hughes’ obligation to transfer such part of the Gas Board site as was needed for the Infrastructure Works depended on identifying the part or parts required and on carrying out certain investigations. For this purpose, Chelverton, Groveholt or Sainsbury or their agents required access to the site. Access was requested in 2002 but the terms on which it would be granted were considered too onerous. The decision was taken to wait until Westpac sold the site.

[222]Westpac sold the site to Olympia Homes Limited (Olympia) in February 2004. Westpac had acknowledged that the option rights of Chelverton and Sainsbury ranked ahead of its interest and Olympia purchased with actual knowledge of those rights. Unexpectedly, and as it transpired wrongly, Olympia claimed to have acquired title free of the option rights and refused to give effect to Sainsbury’s option rights. Sainsbury brought proceedings against Olympia and after a 6 day trial Mann J gave judgment in favour of Sainsbury on 17 June 2005: see

[2005] EWHC 1235 (Ch)

. The land required for the roundabout was transferred to Sainsbury on 2 August 2005.

[223]In my judgment, the position adopted by Sainsbury and Groveholt as regards access to the site and the decision to wait for a sale by Westpac cannot be criticised as unreasonable. The stance then adopted by Olympia was both unexpected and unjustified. It may be noted that these problems would not have arisen if Mr Hughes had secured first registration of the property and had not been subject to the judgment in favour of Westpac, both of which were outside the control of Chelverton or Sainsbury and prevented Mr Hughes from being in a position to comply with his obligation to transfer the part or parts needed for the Infrastructure Works.

Highways Agreements

[224]Before the Infrastructure Works could start, agreements had to be made with Derbyshire County Council as the highways authority and others under sections 38 and 278 of the Highways Act 1985. Negotiation of the necessary agreements began in early 2002 but moved slowly over the next two years, at least partly as the evidence shows because DCC was slow in dealing with it. To be fair, during that period there were many other features of site assembly which needed to fall into place before the highway agreements would be needed.

[225]DCC sent draft agreements to Lawrence Graham in June 2004 but its lawyer did not have instructions to respond to Lawrence Graham’s suggested amendments until October 2004. Agreement was reached on the section 278 agreement in March 2005 but DDC’s lawyer was without instructions in relation to the section 38 agreement until July 2005.

[226]The affected land owners had to be parties to the agreements which could not be finalised until all site assembly agreements had been made. In particular, by July 2005 the trustees of the Matlock Angling Club were delaying further progress. The highways agreements were finalised in the course of 2006, after final agreement with Network Rail and other parties on the site assembly agreements, and were signed on 1 December 2006. By then agreement on the main contract for the Infrastructure Works was well advanced, so much so that the contractor had started on site in November 2006.

Permanite

[227]A 7.5 acre site in the western part of the Cawdor Quarry site was occupied by Permanite Limited under a lease dated 2 November 1993 expiring on 24 March 2012. Permanite manufactures bitumen blocks on this site. Under clause 16.3.1 of the Hughes/Chelverton agreement, Mr Hughes undertook to use all reasonable endeavours “to achieve the relocation” of Permanite from the Cawdor Quarry site and the surrender or other determination of the lease “so as to obtain vacant possession of the site thereof”.

[228]Clause 16.3.2 provided that if “such surrender or other determination” was not achieved within two years, the sum of £250,000 would be deducted from the next payment due under the agreement to Mr Hughes, but subject to a proviso as follows:

“Provided that if after the expiry of such two years the said Lease is surrendered then there shall be brought back into account and added to the next said payment due under the clause 5.1 the said sum of Two hundred and fifty thousand pounds (£250,000.00) less the payments and all reasonable costs incurred by the Purchaser in achieving a surrender of the said Lease the Purchaser using all reasonable endeavours to achieve such a surrender in the most economical manner in the particular circumstances at the time.”

[229]The evidence establishes that by reason of the work undertaken by Permanite, the plant on its site and the difficulty of obtaining planning permission for an alternative site, it would be very difficult and expensive for Permanite to relocate elsewhere. Mr Hughes did not achieve its relocation and the surrender of its lease within two years, and accordingly under clause 16.3.2 the amount otherwise payable to him was reduced by £250,000. In subsequent exchanges with Chelverton, Permanite made it clear that it did not intend to relocate.

[230]In 2010, Groveholt extended the term of the lease to 2014, which took effect as a surrender and new grant. Mr Hughes submits that under the terms of the proviso to clause 16.3.2 he thereby became entitled to be re-credited with the sum of £250,000. This submission requires the reference to “surrender of the lease” in the proviso to be read in a literal sense. In my judgment, the context shows that the proviso is referring to a surrender involving Permanite ceasing to occupy the site. Clause 6.3.1 required Mr Hughes to use all reasonable endeavours to achieve this. The words “such surrender or determination” at the start of clause 16.3.2 refer back to “the surrender or other determination of the Lease … so as to obtain vacant possession of the site thereof”, and the words “the said Lease is surrendered” do likewise. Essentially, the deal was that Mr Hughes was to receive £250,000 if Permanite vacated the site and surrendered the lease, and a reading which allowed Mr Hughes that sum without Permanite vacating the site makes no commercial sense in this context.

[231]Mr Hughes also submits that Chelverton was under a contractual obligation to use all reasonable endeavours to achieve a surrender, by reason of the closing words in the proviso. I do not accept this reading of clause 16.3.2. If it had been intended to impose this on Chelverton as a freestanding obligation, it would not have appeared in the proviso. The reasonable endeavours obligation is to achieve a surrender “in the most economical manner in the particular circumstances at the time” and qualified Chelverton’s right to deduct from the sum of £250,000 to be re-credited to Mr Hughes “the payments and all reasonable costs incurred by the Purchaser in achieving a surrender of the said Lease”.

[232]In any event, Mr Hughes cannot show that with reasonable endeavours Chelverton could have obtained a surrender and vacant possession. Permanite had no intention of relocating.

[233]It follows that the sum of £250,000 is properly deducted from the amounts provided in clause 5.1 of the agreement.

Conclusion on Site Assembly costs

[234]I find that Groveholt has established deductible Site Assembly costs, including associated legal fees and the deduction in respect of the Permanite site, amounting to £1,470,451.

Infrastructure works

[235]The Infrastructure Works could start once the site assembly process, including the highways agreements, was complete. The principal works comprised the construction of the A6 diversionary route, including a roundabout and a road bridge across the River Derwent; the realignment of the railway line and the construction of a retaining or parapet wall to support the A6 diversionary route on the northern boundary of the realigned railway; the construction of a new road to provide access from the diverted A6 to the development and the existing Snitterton Road and a bridge to carry it over the realigned railway line; and the construction of a new public car park, a new bus station and a new footbridge over the railway.

[236]The main contractor was Birse Civil Limited (Birse) under a contract dated 18 May 2007, by which Birse undertook the bulk of the works on a design and build basis for a fixed price of just over £7.895 million. A number of additional provisional sums totalling £741,864 were also included in the contract.

[237]Groveholt’s case is that the Infrastructure Costs comprise: just over £8.5 million due under the main contract, including those provisional sums works which were carried out; sums totalling £757,000 payable by Sainsbury under its section 106 agreement; sums totalling £571,072 payable by Sainsbury under the highways agreements; sums totalling £958,400 payable by Groveholt under its section 106 agreement; fees totalling £361,417 paid to Mr Phillips and Mr Kilkelly; and professional fees and other costs paid by Sainsbury totalling £1,104,669. The total Infrastructure Costs are therefore said to be £12,257,529.

[238]All these costs are set out in two Scott Schedules, the second dealing exclusively with the fees and other costs paid by Sainsbury.

Birse contract

[239]The single largest component of the amount which Groveholt claims to set off against Mr Hughes’ claim is the sum, or most of the sum, paid to the main contractor for the Infrastructure Works. The contract sum, including provisional sums, was £8,636,998 from which two deductions are made to arrive at the claimed sum of £8,504,971. The contract with Birse was dated 18 May 2007, although work on site started in late 2006.

[240]Clause 15.1.3 of the Hughes/Sainsbury Agreement required the parties, upon grant of Satisfactory Planning Permission (which I have earlier held to mean detailed planning permission) for the Sainsbury development, to submit the Infrastructure Works to tender by at least five civil engineering contractors of relevant standing in accordance with criteria set out in the sub-clause. Clause 15.5 provided that following completion of the tender process and completion of the site assembly process, Sainsbury would enter into a contract for the Infrastructure Works with a suitable contractor. The tendering process for which the Hughes/Sainsbury Agreement provided was organised by Orbell Associates, quantity surveyors and construction costs consultants, who were engaged by Sainsbury. Tender documents were issued to six tenderers in January 2002. The analysis of the submitted tenders undertaken by Orbell showed Birse as providing the best price at £6,495,953. It was selected as the preferred contractor at a tender price of £6.43 million following a second tender round between the two best tenderers, Birse and Bowmer & Kirkland.

[241]Mr Hughes relies on a document prepared on 28 November 2002 setting out the costs on which an agreement with DDDC would be based. He points to the tender figure of £5,478,985 for “A6 Diversion and Relief Road” to suggest that it should be taken at Birse’s tender price. It is however clear that this figure does not relate to all the works for which Birse tendered.

[242]Both as a practical matter and under clause 15.5 of the Hughes/Sainsbury Agreement, the site assembly process had to be completed before the Infrastructure Works contract could be made. Site assembly was completed and the necessary highways agreement were made in the course of 2006.

[243]Birse had joined the design team after its selection as preferred contractor and in or about 2006 negotiations were undertaken with Birse to agree the works, contract terms and price. Mr Holt, as a quantity surveyor with Henry Riley, was intimately involved from early 2006 as Sainsbury’s project manager, having been involved in the project as an advisor to Sainsbury since December 2001. He gave clear and credible evidence as to the process by which the contract sum was agreed and the basis on which he advised Sainsbury to accept it. He said that his only concern was the bottom line. He was satisfied that the negotiated price was competitive and a good price from Sainsbury’s point of view. The increase in the price since the tender in 2002 was the result of a number of factors: development of the design, unforeseen items not included in the tender, the costs of Birse’s involvement in the project after its selection as preferred contractor and construction cost inflation.

[244]A number of objections on behalf of Mr Hughes to the Birse contract sum were identified in the Scott schedule. Some relate to specific items, which I will deal with below under separate headings. The general objections are as follows.

[245]First, it is said that the costs were increased because of a failure to put the contract out to tender in 2006 contrary to clause 15 of the Hughes/Sainsbury Agreement read with clause 1 of the Supplemental Agreement, whereby Chelverton agreed with Mr Hughes to use all reasonable endeavours to obtain compliance by Sainsbury with its obligations under clause 15. In my judgment, there was no breach of clause 15. Sainsbury put the contract out to tender earlier than required, as it did not receive reserved matters consent until 8 October 2002. It was not required to go out to tender again after completion of the site assembly process. In any event, there is no evidence that a tendering process in 2006 would have produced a better price than the contract sum, and Mr Holt’s evidence suggests that it would not have done so.

[246]Secondly, it is objected that the costs were excessive because of the delay. In the closing submissions, some specific examples are given of either costs or increases in costs which would not have been incurred but for delay, including those appearing in a schedule dated 2 October 2006 and in a schedule prepared by Birse in February 2007, and increases in the costs of the river bridge. I have earlier considered and rejected Mr Hughes’ case that there was any culpable delay by Chelverton or Groveholt.

[247]Thirdly, in his closing submissions for Mr Hughes, Mr Korpal focussed as he did in cross-examination, on the figure of just over £1.73 million for preliminaries in the contract sum. The expert quantity surveyors were agreed that this is an unusually high figure and that it would be usual to seek a breakdown of preliminaries, for two purposes. First, it is to ensure that the stage payments are tracking the execution of the items comprised in preliminaries and that payments are not being made too early. Secondly, it is to ensure that variations are correctly priced.

[248]It does not, however, follow from this that the high level of preliminaries led to a high or excessive contract sum. I have already referred to Mr Holt’s evidence which I accept, that his concern was the bottom line and that the contract price was a good price. It seems to me clear from the evidence, and this was the view of Groveholt’s expert quantity surveyor, that Birse re-allocated part of the contract sum to preliminaries. I am satisfied that an attempt to negotiate down the preliminaries would not have resulted in any agreement by Birse to a lower overall contract sum.

Snitterton relief road

[249]A sum of just over £356,000 is included in Birse’s contract sum for the construction of a relief road from the A6 inner relief road to the existing road leading to the nearby village of Snitterton. It was needed because of DDDC’s concern that the existing Snitterton Road would otherwise become a rat run. The new road was an integral part of each scheme put to the planning authority. Its construction was included as a condition in the outline and detailed planning permission granted to Mr Hughes and to Groveholt respectively.

[250]It is submitted for Mr Hughes that the Snitterton relief road does not come within the definition of Infrastructure Works in the Hughes/Chelverton Agreement. It is said that it is a road “within the Property” which under the terms of the closing part of the definition was to be the responsibility of Chelverton. Although it is a road within the Property, those closing words are expressed to be “subject to (i) above”, which includes “any requirements for works and/or payments involved in meeting any planning condition or Section 106, Section 38 or Section 278 Agreement”. Construction of the Snitterton relief road was required by clause 3.2 of the section 38 agreement dated 1 December 2006 and made between Sainsbury, Derbyshire County Council as the Local Highway Authority and others. Its construction was therefore within the definition of Infrastructure Works. I should add that, while it was a condition of the planning consents granted to Mr Hughes and Groveholt, it was not in my view, on a proper reading, a condition of the permission granted to Sainsbury or a term of its section 106 agreement. The Infrastructure Works were undertaken by Sainsbury pursuant to the permission granted to it, which is therefore the relevant permission for determining planning conditions.

[251]In his closing submissions, Mr Korpal suggests that Chelverton and Groveholt allowed it to be made a planning condition or a requirement of a section 106 or 38 agreement as a means of circumventing the exclusion of roads within the property in the definition of Infrastructure Works. This is a new suggestion, not explored in cross-examination, which is in any case against the overwhelming weight of the evidence that it was a matter of real concern to DDDC and Derbyshire County Council, as reflected in its inclusion as a condition of Mr Hughes’ own outline planning permission. The submission ignores also that the obligation in the section 38 agreement was undertaken by Sainsbury

[252]Mr Korpal also relies in his closing submissions on an argument that clause 16.2.2 and schedule 2 show that the relief road was to be the responsibility of Chelverton. Those provisions are triggered only if Mr Hughes acquired the Halldale Land within 12 months of Mr Hughes receiving detailed planning permission for the Phase One Residential Land. He never did receive detailed planning permission but in any event those provisions do not qualify the meaning of Infrastructure Works or the deduction of the excess costs of such works from the amount otherwise payable to Mr Hughes.

Footbridge

[253]Condition 28 of the Sainsbury’s outline planning permission required the construction of a pedestrian footbridge over the railway. It was therefore part of the Infrastructure Works as defined in the Hughes/Chelverton Agreement. Its cost at just over £189,000 was included within the fixed price works under the Birse contract. Mr Hughes objects, first, that it does not go to the new public car park and, secondly, that it cost a great deal more than he envisaged. There is, in my judgment, no force in either objection. The bridge meets the requirement of the planning condition and there are no grounds for challenging the reasonableness of its cost. Mr Hughes’ personal view at the time of his agreements of how the bridge should be constructed and what it would cost are not relevant to the operation of the provisions of the Hughes/Chelverton agreement.

Demolition

[254]A figure of just over £99,000 is included in the fixed priced work under the Birse contract for demolition. Mr Hughes accepts that the cost of demolition of buildings on the site of the Infrastructure Works falls within Infrastructure Costs, but he submits that this figure for demolition is too large. He submits it includes the demolition of buildings not on the site of the Infrastructure Works but on the Sainsbury supermarket site. This submission is based on a suggested discrepancy between, on the one hand, the evidence of Mr Holt that there might well have been more than ten buildings demolished by Birse and, on the other hand, Mr Kilkelly’s evidence that he knew of two or three such buildings and the evidence of a photograph taken before the works started showing, it is suggested, only two buildings on the site of the Infrastructure Works but numerous buildings on the Sainsbury site. Mr Hughes also relies on the lack of a health and safety method statement which could have established the number of buildings.

[255]In my judgment, the evidence as a whole establishes that the entire sum in the Birse contract relates to demolition of buildings on the site of the Infrastructure Works. First, Mr Holt’s evidence was that the demolition works on the Sainsbury supermarket site were undertaken not by Birse but by Bowmer & Kirkland under a separate contract. Secondly, the pre-tender health and safety plan dated January 2002 which is in appendix B to the Birse contract states in paragraph 2.4 that on the Infrastructure Works site “there are a number of existing and on the whole derelict buildings that will require demolishing”, a point repeated in paragraph 4.1.3. Thirdly, Mr Kilkelly gave evidence only of the demolished buildings which he knew about. He was not directly involved in these works and was clear that he did not have full knowledge of them. Fourthly, the figure of ten buildings was suggested by Mr Korpal. Mr Holt’s evidence was that he could not remember the number of buildings but there were “an awful lot of buildings” on the site, “various buildings and workings within the site, some old goods sheds” and “there might well have been more than ten”. Fifthly, it is impossible to tell from the photograph put to Mr Holt how many structures were on the site. Mr Holt was able to point to some structures which were largely masked by shadow or other buildings. It should be noted that his evidence, before he was shown the photograph, was that some of the buildings were “not really of much construction – more industrial sheds”.

Incoming services

[256]Building on two emails, it is submitted for Mr Hughes that the fixed price works under the Birse contract include the provision of gas, water, electricity and telephone services to the Sainsbury supermarket site and the Phase One Residential Land, although the provision of such services does not fall within the definition of Infrastructure Works.

[257]In the first email dated 29 March 2005 from Mr Holt to Mr Kilkelly, Mr Holt wrote “we need to identify under the infrastructure contract the route for the store’s incoming services and how we accommodate the requirements of the residential scheme (paid for by yourselves)”. In the second, dated 19 April 2006 from Mr Holt to Mr Phillips, Mr Holt confirms that he has asked Birse to break down their offer into headings provided by Mr Phillips and asks under which category “incoming store services”, among other items, should be inserted.

[258]Mr Korpal for Mr Hughes submits that “incoming services” means services such as gas, water and electricity which would not be Infrastructure Works and not, as Mr Holt said, foul and surface water. He says that Mr Holt gave inconsistent evidence on this and that I should reject his evidence that it refers to foul and surface water.

[259]In my view, these criticisms of Mr Holt’s evidence are unfounded. His evidence was that on a developer’s scheme he would include the foul water and surface water services as “incoming services”, although they are for taking water out of, in this case, the supermarket site. These services were provided across the site of the Infrastructure Works, terminating at the nearest point within Sainsbury’s boundary. He estimated the costs of these at £10-20,000. It was possible also that Birse dug the trench across the Infrastructure Works site needed for the electricity supply to Sainsbury’s site. If so, the cost would have been about £5,000. He was also clear in his evidence that in all other respects services such as gas, electricity and telephone were not part of the infrastructure contract with Birse but were provided by Bowmer and Kirkland under its separate contract with Sainsbury. He also gave evidence that the provision of services to the residential land was charged to Groveholt and does not form part of the sum put forward for set off by Groveholt.

[260]I reject the submission that there are costs of incoming services to be deducted from the Birse contract sum.

Decontamination works

[261]Included as a provisional sum in the Birse contract sum was a figure for decontamination works. Contrary to Mr Hughes’ case, Mr Holt’s evidence establishes that these were carried out at the Infrastructure Works site and that decontamination works on the Sainsbury site were separately undertaken and charged and are not included in the contract sum. It is suggested for Mr Hughes that at least part of the work related to contamination caused by illegal fly-tipping which was not prevented by Sainsbury and Groveholt. There is no evidence to support a finding that Sainsbury or Groveholt failed to prevent any such illegal fly-tipping or that any such failure contributed to the costs of the decontamination works.

Seven Rakes Vein Slab

[262]Another provisional sum was £30,000 for the construction of a concrete slab over a mineral vein beneath the railway line. The evidence establishes the necessity of this item, whenever the Infrastructure Works were carried out. Objections on grounds of delay fail for the reasons already given. The amount finally paid for this item was £41,995.

Sums payable under the section 106 and highways agreements with Sainsbury

[263]These sums are detailed as items 9-13 and 14-18 of the first Scott schedule. They were all certified by Mr Holt as payable. They fall within the definition of Infrastructure Works as “any requirements for works and/or payments involved in meeting any … section 106, section 38 or section 278 Agreements relating to the said Infrastructure Works or the development of the Sainsbury Land”. In his closing submissions, Mr Korpal did not develop any of the points stated in the Scott schedule against these items and none of them in my judgment has substance.

Crown Square Works

[264]The Crown Square works involved the removal of a roundabout and installation of a traffic lights system at the junction giving access to the entire retail and residential development. It was a substantial item which Sainsbury was required to provide under clause 3.3 of its section 106 agreement.

[265]A provisional sum of £265,000 was included in the Birse contract, additional to the contract sum, for these works. Mr Holt’s evidence establishes that the work was then still at an outline design stage. Subsequently, DDDC took the decision to do the works itself as part of a larger scheme. Sainsbury was released from its obligation under the section 106 agreement by a deed dated 15 December 2010 by which it agreed to pay £440,000 to DDDC.

[266]The payment of £440,000 to DDDC in effect for it to do the works, rather than to a contractor, does not prevent it from being an Infrastructure Cost. Infrastructure Costs are defined as “the costs involved in the provision of the Infrastructure Works” and the payment to DDDC satisfies that description.

[267]While Mr Hughes does not challenge that the Crown Square works as provided in the Sainsbury’s section 106 agreement constituted Infrastructure Works, he objects to the greatly increased costs of these works over the amount estimated in the Birse contract. He submits that there must have been a change in the scope of the works to account for the increase and that Sainsbury was under no obligation to agree to it. He submits that the amount to be deducted from the sums otherwise payable to him cannot be increased by a new agreement made so many years after the Hughes/Chelverton Agreement.

[268]Mr Holt’s evidence establishes that there was no increase in the scope of the works. The figure of £440,000 represented the costs which would have been incurred in carrying out the works, including design costs and fees.

[269]Nonetheless, Mr Hughes’ objection to a claim for £440,000 in respect of the contribution for the Crown Square works when the provisional sum in the Birse contract was £275,000 raises a point of some significance under the terms of the Hughes/Chelverton Agreement. Determination of the amount of the costs to be deducted from the payment otherwise due to Mr Hughes is governed by clause 11, which I have earlier set out. Sums due to Mr Hughes under clauses 5.1.2 – 5.1.5 are not payable until:

“The Site Assembly Costs are known and certain by exchange of all the Site Assembly Agreements and the Infrastructure Costs are known and certain to the extent that tenders for the carrying out of the works within a practicable timescale have been received and accepted and the cost thereof (including any fees) thus calculated …. And at such time when such costs are so identified and known then any further payments then due and payable to the Vendor under the said clauses 5.1.2-5.1.5 hereof after deducting amounts due to the Purchaser under clause 8.3 and 10 hereof shall be payable to the Vendor such payment being made within ten days thereof.”

[270]The Infrastructure Costs are therefore not the amount which they finally cost, unlike the Site Assembly costs, but are the cost (including any fees) calculated by “tenders for the carrying out of the works within a practicable timescale [which] have been received and accepted”. The Birse tender was accepted by making the contract with Birse dated 18 May 2007. In my judgment, therefore, Groveholt is not entitled to deduct in respect of the provisional sums works more than the provisional sums allowed. Its claim for the Crown Square works is therefore limited to £275,000 and claims for other such works are similarly limited. As regards the parapet wall, Groveholt has in fact limited its claim to the provisional sum of £265,000.

Legal fees

[271]A sum of £142,323 (£151,273 less two items totalling £8,970) is claimed in respect of fees charged by Lawrence Graham for work in relation to site assembly agreements, the section 106 agreement and the highways agreements. Mr Lean, the partner in Lawrence Graham who had handled or been responsible for this work, confirmed these fees in evidence and produced the relevant invoices. Mr Korpal challenged this item by reference to an internal document produced by Mr Phillips which gave the legal fees for site assembly up to the end of 2005 as £70,000 and an internal document produced by Mr Kilkelly which used the same figure of £70,000 (almost certainly derived from Mr Phillips’ earlier document) and showed an additional figure of £50,000 for the Olympia Homes litigation. These were not Mr Lean’s documents and he did not know how they had been compiled, but he was clear that his invoices included no fees for the Olympia Homer litigation.

[272]I accept Mr Lean’s evidence as regards the figures shown in his invoices. Groveholt is entitled to include the sum claimed.

Fees of Mr Phillips and Mr Kilkelly

[273]Groveholt claims a set off of fees totalling £235,484 and £125,933 paid to Mr Phillips and Mr Kilkelly.

[274]Its claim is based on two provisions of the Hughes/Chelverton Agreement. “Site Assembly” is defined as entering into binding agreements for the acquisition of rights and land which will permit all the Infrastructure Works to be carried out and “cost of site assembly” means:

“the costs and payments due under such agreement [sic] and the reasonable legal and surveyor’s costs of negotiating such agreements and the completion thereof.” “Infrastructure Costs” is defined as the costs involved in the provision of Infrastructure Works: “including the reasonable fees of the professional team involved in the Infrastructure Works.” “including the reasonable fees of the professional team involved in the Infrastructure Works.”

[275]The claims made for the fees of Mr Phillips and Mr Kilkelly are not broken down between Site Assembly and Infrastructure Works but are said to relate to both.

[276]To be included in the sums for set off, Groveholt must establish, as regards Site Assembly, that these were “the reasonable … surveyor’s costs of negotiating” and completing the Site Assembly agreements and, as regards Infrastructure Works, that they form part of “the reasonable fees of the professional team involved” in those works.

[277]I will first take Mr Phillips’ fees. In his first and second witness statements, dated 14 April 2004 and 25 October 2004, he described himself as a development consultant. In paragraph 2 of the first witness statement he described his role as follows:

“My firm specialises in indentifying and progressing land development opportunities. I have been involved closely in development land at Cawdor Quarry, Matlock since about 1994 with a view to facilitating this development on behalf of a number of different parties. I have been involved closely in all aspects of the development, including negotiating contracts for sales of various parts of the development land, and dealing with the various planning applications that have been made.”

[278]The claim for the fees of Mr Phillips and Mr Kilkelly was introduced by Mr Phillips in his third witness statement dated 29 November 2007. He stated in paragraph 2:

“I am a surveyor and development consultant. My firm specialises in identifying and progressing land development opportunities. I have been retained by Chelverton and subsequently by Groveholt in connection with the land sold under the 1988 Agreement. I have been involved closely throughout in facilitating the development, including all planning aspects and have liaised closely with Derbyshire Dales District Council (“DDDC”), and with Sainsbury’s Supermarkets Limited (“Sainsbury’s”) in relation to the development of the Sainsbury’s Land and the Phase One Residential Land, as defined in the 1998 Agreement.”

He expanded on his role in paragraphs 9 and 10:

“9. Following completion of 1998 Agreement, I was asked to direct the project on behalf of Chelverton. This included responsibility for ensuring that Chelverton’s obligations under the Agreement were observed. I was involved with every aspect of the development, including financial appraisal and strategy to maximise the development opportunity. In addition I was directly involved with the Site assembly process including the requisite negotiation with third parties. I also negotiated the terms of and liaised with the professional teams which were required to progress the Planning Application, Site Investigation (i.e. all the geotechnical investigations such as geological; environmental and other surveys, and modelling to ensure what could be built on site), tender for the Infrastructure Contract and Chelverton’s obligations in the Hughes Contract. 10. My consultancy arrangement with Groveholt in respect of Matlock was and is to direct all aspects of the development, and report directly to the principals, Charles Rifkind and Jonathan Levy. I was the client’s representative, with a degree of executive authority as regarded negotiation of all the Site Assembly agreements, together with various aspects of the Highways Agreements and section 106 Agreements. In addition, I was the point of contact between Groveholt and Sainsbury’s. I would emphasise that it was Groveholt (generally via me and my colleague, Richard Kilkelly and Lawrence Graham) that managed the process of the Land Assembly, including the negotiation of the terms of the Land Assembly Agreements. Mr Kilkelly and I have also been involved in all aspects of arranging and facilitating the Infrastructure Works.”

[279]Although Mr Phillips described himself as a surveyor as well as a development consultant in his third witness statement, he accepted in his oral evidence that he had no professional or other qualification as a surveyor but said that it was not necessary. He said in evidence (Day 5 p.546) that:

“A surveyor in fact can be somebody who identifies a site, puts it together in terms of site assembly, finds an end user, organises a professional team in order to undertake the development. It is a very wide ranging what you need to do to take a site from beginning to end, even going through the planning process. In Chelverton, for example, the whole team were called surveyors. They were not chartered surveyors.”

[280]He earlier said (Day 5 p.534) that he was “effectively doing the work of a project manager really, except that I had a slightly wider role than that”. In my judgment, the expression “the reasonable legal and surveyor’s costs” in the definition of Site Assembly costs is directed at the costs of the type of work undertaken by lawyers and professional land surveyors. It does not include the sort of project management work which Mr Phillips was undertaking. I should add also that, even if any of Mr Phillips’ fees fell within this definition, I am not satisfied that Groveholt has established the amount attributable to the narrowly defined category of negotiating and completing the Site Assembly agreements.

[281]The question then is whether Mr Phillips was part of “the professional team involved in the Infrastructure Works”. This would clearly include quantity surveyors, consulting engineers, architects and the like. Mr Phillips was not performing a function of that sort. His project management activities were essentially the management of the business of Chelverton and then of Groveholt as it related to the Cawdor Quarry development. His was not a professional but a management and commercial decision-making role.

[282]I reject Groveholt’s claim to include Mr Phillips fees.

[283]Mr Kilkelly was at the start of the project employed by Watson Whittaker Partnership, project management and development consultants, who were engaged by Chelverton. He left that firm in about April 2000 but continued as a consultant for Chelverton and then Groveholt. He described his role in his first witness statement dated 29 November as follows:

“2. I have been involved in the Cawdor Quarry redevelopment since December 1998, when I was brought in to assist Chelverton, at the request of their development consultant, Eifion Phillips. Chelverton needed a quantity surveyor and project manager to look at the various technical aspects of the development in order to facilitate the application for planning permission and to provide technical assistance to Mr Phillips regarding all elements of the Infrastructure Works and Site Assembly as defined in the 1998 Agreement. … 4. Groveholt agreed to purchase the residential development land in December 2000 (the sale was completed in July 2001), and retained Mr Phillips’ firm, EWP Associates, to continue project managing the development on Groveholt’s behalf. I was retained by Groveholt for the sole purpose of assisting Mr Phillips with the development of Cawdor Quarry. 5. My role for Groveholt has been entirely in relation to the Cawdor Quarry development. However, my role has been split between Infrastructure Works and Site Assembly process as defined in the 1998 Agreement, and the Groveholt’s residential development. In relation to Infrastructure Works and Site Assembly, my role has included organising site investigation works and topographical surveys to enable the detailed design for the Infrastructure Works, working with the Sainsbury’s and Birse team to achieve the optimum design for the Infrastructure Works and to achieve best value for the works, land assembly negotiations; liaison with Derbyshire Dales District Council and Derbyshire County Council in respect of the detailed design of the highway works in accordance with the standards for adoptable highways (section 38 and section 278 Highways Act agreements), and the detailed co-ordination and detailed design of the proposed Council car park and bus station works; liaison with Railtrack Property and Railtrack Engineers (the latter in relation to the land transfer between the parties and the run around loop referred to in the 1998 Agreement) and co-ordinating the highway works subject to the Section 38 and Section 278 agreements that have now been made.”

[284]Mr Kilkelly is a chartered quantity surveyor. As regards Site Assembly agreements, I would accept that he would be involved as a quantity surveyor in some of the agreements, for example the highways agreements and agreements with Network Rail. There is no evidence as to the amount of time spent on negotiating and completing those particular agreements and it is not for the court to make an uninformed estimate.

[285]It was, as Mr Korpal submitted, remarkable that neither Mr Phillips nor Mr Kilkelly kept any record of their time spent on Infrastructure Works or Site Assembly or on items within those broad categories. Combined with the omission of any mention of those fees when communicating costs estimates to Mr Hughes, it does suggest that no thought had been given to including them within the costs to be set off.

[286]As regards the Infrastructure Works, I do not think that Mr Kilkelly can properly be regarded as part of “the professional team”. His job was to assist Mr Hughes in his management role, including giving assistance on technical aspects. There were at all times independent firms of quantity surveyors and project managers engaged by Chelverton, Groveholt or Sainsbury on the Infrastructure Works. Nor, in my view, would Mr Kilkelly’s fees be within “the reasonable fees of the professional team” where the team included firms with expertise in his areas of work.

[287]I therefore reject the claim for Mr Kilkelly’s fees.

Sainsbury’s costs

[288]A total of £1,104,669 is claimed as a deduction in respect of professional fees and other items incurred and paid by Sainsbury. These are claimed as being “reasonable fees of the professional team involved in the Infrastructure Works”, or as otherwise being costs involved in the provision of the Infrastructure Works. They are set out in a Scott schedule headed “Sainsbury’s Costs” and references below are to the item numbers in the schedule.

[289]Mr Hughes takes issue with all or most of these deductions on a variety of grounds. Some of these objections are generic in nature.

[290]First, it is objected that any planning related costs are not deductible. These items fall into two categories. First, there are three items (items 9, 14 and 21) totalling £44,923.79 for planning consultants. In my judgment they are not deductible. They are costs incurred in obtaining planning permission, not in “the provision of Infrastructure Works”. The Hughes/Chelverton Agreement contains clauses dealing separately with the three stages of planning permission, site assembly and infrastructure works. Specific provision is made as regards costs associated with the second and third but not with the first. If it had been intended to treat planning costs as deductible, it would have so provided in clear terms.

[291]The second category of planning related costs (items 3, 5-8 and10) to which Mr Hughes objects are design and similar costs incurred during the planning process. Whether or not this work was used for the purposes of the planning process, the evidence establishes that the costs were incurred for the purpose of developing the design, specification and other features of the Infrastructure Works and were therefore costs involved in the provision of these works.

[292]Another generic objection is that the Birse contract was a design and build contract and therefore all design work was Birse’s responsibility. Mr Kilkelly’s evidence establishes that the Infrastructure Works had to be designed in sufficient detail to enable the tendering process to take place and the contract with Birse to be agreed. It was not the responsibility of Birse to design all the works from scratch. All the costs were certified by Mr Holt as payable by Sainsbury in addition to the Birse contract sum.

[293]A further, closely related, objection is that the Birse contract sum included a figure of a little over £750,000 in respect of “advanced works”, being design and other work undertaken by Birse in the years before late 2006 when it started work on site. It is suggested that amounts payable to others for design and other work before 2006 therefore duplicate the work done by Birse and are not allowable. This suggestion is not made good on the evidence, and Mr Holt’s evidence is that all the sums claimed were certified by him as payable by Sainsbury. Mr Holt’s certification and the evidence concerning the items claimed as Sainsbury’s costs meet the points made by Mr Korpal in paragraphs 587-589 of his closing submissions.

[294]There are some other general objections which are based on submissions for Mr Hughes which I have earlier rejected, for example that costs were increased by delay or that they related to items such as the new bus station which were said by Mr Hughes not to be Infrastructure Works.

[295]I turn to objections to specific items. Item 1 is £125,519 paid to Scott Wilson Kirkpatrick for rail design and project management up to 2004. In 2004 Network Rail refused to sanction the design proposals which had to be substantially re-worked. Mr Hughes submits that, because in the end much of this work had to be repeated, the earlier costs are not costs involved in the provision of the Infrastructure Works. I do not accept this. These costs were incurred solely for the purpose of providing the Infrastructure Works. It is an almost inevitable part of a design process that some of the design is modified or discarded. It is part of the process by which the Works are provided. In any event, Mr Holt’s evidence establishes that the earlier work was not wholly discarded. Item 2, fees totalling £10,000 paid to Scott Wilson Kirkpatrick in 2002 for work on the health and safety plan was necessary expenditure for the tender.

[296]Item 4 is £48,000 paid to Orbell Associates, in respect of pre-contract quantity surveying work. This related to the tendering process which was managed by Orbell Associates. Mr Hughes objects that the cost of the tendering process is not deductible. I disagree. The tender process was the means by which the Infrastructure Works contractor was selected and was therefore a preliminary part of the provision of the Infrastructure Works, and its costs fall naturally within “the fees of the professional team involved in the Infrastructure Works”. There is no element of duplication of the later work of Henry Riley who were not involved in the tender process.

[297]Mr Hughes objects to item 5, £18,177 to Geotechnics for a site survey conducted in 2002, on the grounds that under the Birse contract, responsibility for surveys lay with Birse. The contract does not, however, require Birse to reimburse Sainsbury for surveys already undertaken, and Mr Holt’s evidence establishes that this survey was required at an early stage in the development of the Infrastructure Works. The same considerations apply to item 8, £2,000 for a survey of the existing railway track.

[298]Mr Hughes took issue with item 12, a sum of £5,000 paid to Network Rail pursuant to an invoice dated 8 April 2003. The evidence establishes that this is part of the cost of agreeing and developing the rail-related part of the Infrastructure Works and so forms part of the Infrastructure costs.

[299]Mr Hughes also challenges sums totally £189,327 paid to Network Rail over the period from January 2005 to July 2007 for approval of the works as they progressed and onsite supervision. Sainsbury had no alternative but to accept Network Rail’s role in this respect and to pay its charges. It was clearly a part of the cost of providing the Infrastructure Works.

[300]Item 17 is a figure of a little under £26,000 for legal advice in relation to Sainsbury’s contract with Network Rail. Although no invoice was produced in evidence, this payment is proved by evidence from Sainsbury’s internal accounting system. Legal costs relating to the provision of the Infrastructure Works fall, in my judgment, within the definition of Infrastructure Costs. The same applies to the sum of £20,101 paid to Addleshaws (item 22) for advice relating to the Birse contract.

[301]A total of £195,538.67 is claimed for a payment to Halsalls, electrical and mechanical engineers. The evidence of Mr Holt and relevant documents establish that this relates to the diversion of electricity and water mains necessitated by the diversion of the A6. The work was undertaken by National Grid and Severn Trent, to whom sums of £155,773 and £32,697 (excluding VAT) respectively were paid. These sums are clearly infrastructure costs. The payments were routed through Halsalls because National Grid and Severn Trent were not set up on Sainsbury’s accounting system. Halsalls was paid a fee of £7,067.66 for providing this service. This is not an infrastructure cost, as defined. The need to pay it was not caused by the infrastructure works but by Sainsbury’s accounting system.

[302]Item 24 is two payments totalling £82,364 for telecoms diversionary works for the A6 and the new footbridge, which were part of the infrastructure works. Item 25 are payments totalling £95,667 for work on the lighting systems at Dale Road caused by the new roundabout and at the bus station. This item is therefore also part of the infrastructure works.

[303]In conclusion on Sainsbury’s costs, Groveholt establishes a right to bring into account a total of £1,052,677.

[304]I find that the total deductible Infrastructure Costs are £11,398,120. This comprises the fixed price and the provisional sums under the Birse contract which after the two deductions conceded in the Scott schedule amounts to £8,504,971; sums totalling £311,000 payable by Sainsbury under its section 106 agreement; sums totalling £571,072 payable by Sainsbury under the highway agreements; sums totalling £958,400 payable by Groveholt under its section 106 agreement; and professional and other costs paid by Sainsbury totalling £1,052,677. The grant of £500,000 is deducted and the fees paid to Mr Phillips and Mr Kilkelly are not allowed.

Other defences

[305]Mr Hughes’ Defence pleads a failure, in breach of clause 7.2 of the Hughes/Chelverton Agreement, to consult Mr Hughes in relation to the applications for planning permission made by Chelverton and Groveholt and the agreements made under section 106 and sections 38 and 278. It pleads a similar failure in breach of an alleged implied term to consult him on the terms of the Infrastructure Works and Site Assembly contracts. It further pleads that Mr Hughes could have assisted in the negotiation of these permissions and agreements. This defence was not pursued at trial. It would have faced formidable difficulties and there is no evidence that any such consultation would have resulted in any improvement in terms.

[306]Mr Hughes’ defence also pleads that Chelverton was in breach of clause 1.1 of the Supplemental Agreement dated 16 September 1998 in not using all reasonable endeavours to ensure compliance by Sainsbury with its obligations under clause 15 of the Hughes/Sainsbury Agreement, as substituted by the Loan Agreement. For the reasons given earlier in this judgment in relation to site assembly and the contract with Birse, I am satisfied that there was no breach by Sainsbury or Chelverton of clause 15.

Conclusion

[307]My overall conclusions are, first, that Mr Hughes has failed to establish any acts or omissions which were or would, but for the disclaimer, have been a breach by Chelverton of the Hughes/Chelverton Agreement. Mr Hughes has not established any delay in the various stages of the development which was or would have been a breach of contract by Chelverton.

[308]Secondly, I find that the total amount of Site Assembly and Infrastructure Costs, as defined in the Hughes/Chelverton Agreement, is £12,868,571. It follows that no sum is secured by the charge in favour of Mr Hughes. That is the case where the deductible costs are £7.5 million or more. The total deductible costs exceed that figure by a large margin.

[309]Mr Hughes believes that any such outcome is grossly unfair and totally uncommercial. There are, I believe, two principal reasons for this outcome. First, from the start Mr Hughes greatly underestimated the costs which would be incurred. He put forward figures for costs which were too low and agreed them in the Hughes/Chelverton Agreement. As early as 29 November 1999, Chelverton was writing to Mr Hughes to say that his estimates of both timing and costs before the agreement was made had proved to be overly optimistic and that the infrastructure costs were likely to be far higher than Mr Hughes’ original estimate, with the result that the claw-back clause would have to be implemented. Secondly, the site assembly process took a very long time, longer I believe than anyone had anticipated. One of the significant causes of this was Mr Hughes’ refusal, in breach of contract, to release his charge over the Phase One Residential Land. It is impossible to know whether the process would have been completed earlier if he had released his charge when obliged to do so.

[310]Mr Hughes believes that costs were run up excessively and unnecessarily because they were in effect for his account, as a result of, first, the deduction of excess costs from the overage payments and, secondly, his obligation to pay any further excess to Chelverton. This latter obligation was discharged by the disclaimer of the agreement by the liquidator of Chelverton. I do not consider that there are any grounds for this belief. I can see as a matter of theory that the level of costs made no financial difference to Chelverton provided that they did not exceed £7.5 million. But there is no evidence which I have seen that this led Chelverton, Sainsbury, Groveholt or anyone else to adopt an uncritical approach to costs. It would be dangerous to do so because if costs were unnecessarily incurred at an early stage it could lead to the total costs exceeding £7.5 million. I am satisfied that no comfort was taken from Mr Hughes’ obligation to reimburse costs in excess of £7.5 million. Mr Hughes was in difficult financial circumstances, with Westpac’s judgment for £4.24 million in September 1998 and a worldwide freezing order in March 1999. His financial circumstances did not improve and his personal circumstances added very significantly to his difficulties. It is inconceivable that Chelverton or Groveholt would have placed any reliance on Mr Hughes’ covenant to reimburse excess costs.

[311]Groveholt is entitled to the payment out of court of the sum lodged by it pursuant to the order of 10 June 2004, and Mr Rifkind and Mr Levy are entitled to the cancellation of the personal guarantees given by them pursuant to the same order.

Cited in 1 later judgment

Groveholt Ltd v Hughes & Anor 2012