Chilli Developments Ltd v The Commission for the New Towns (Known as English Partnerships) & Anor [2008] EWHC 1310 (QB)

[2008] EWHC 1310 (QB)Case No HQ07X00044
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 18/06/2008
Before
MR JUSTICE JACK
Between
CHILLI DEVELOPMENTS LIMITEDClaimant(1) THE COMMISSION FOR THE NEW TOWNSDefendants(2) TEES VALLEY REGENERATION LIMITEDDefendant
Philip Noble & Simon Livingstone (instructed by Watson Burton LLP) for ClaimantTom Leech (instructed by Eversheds LLP & Dickenson Dees LLP) for DefendantsHearing Hearing dates: 28 April to 9 May 2008
JudgmentMr Justice Jack :
[1]The enclosed area of water formerly known as Middlesborough Dock and now renamed Middlehaven is part of the history of Teesside. Some years ago the surrounding land was identified as an area which might be redeveloped and was cleared. It had been derelict since 1982. The first development was by Terrace Hill and was to the south east of the dock. At an early stage those behind the claimant company, Chilli Developments Limited, expressed an interest in undertaking a development on the land. There were negotiations with English Partnerships and Tees Valley Regeneration Limited for a development agreement to enable Chilli to build on land to the west of Terrace’s Hill’s site. The English Partnership, often called EP, is a combination of the Commission for New Towns and the Urban Regeneration Agency. The Commission is the owner of the land. Tees Valley Regeneration Limited, often called TVR, is a body created to encourage and coordinate regeneration in the Tees valley. The negotiations with Chilli were terminated by EP by a letter dated 15 July 2005. During the negotiations Chilli and EP entered two lock-out or exclusivity agreements, whereby EP agreed not to deal with others in respect of the land for their period. The first was dated 26 October 2004 and ran until 21 December 2004. The second was dated 21 December 2004 and ran until 21 April 2005. Chilli allege, but EP deny, that the second agreement was extended to 21 August 2005. In this action Chilli claim damages from EP for breaches of the lock-out agreements as extended, and from TVR for inducing those breaches. By an order made on 16 October 2007 it was provided that there should be a trial first of the issue whether the defendants were liable to the claimants.[2]Chilli Developments Limited was incorporated on 27 June 2003 as a special purpose vehicle for the intended Middlehaven development. Its driving force is Mr Simon Brown, who holds 50% of the 1,000 issued shares of £1. Mr Brown is a business man who in 2000 started a company in Middlesborough named Chilli Media Limited which offers IT assistance such as websites to local businesses. Chilli Developments Limited was thus a company with no assets of any substance and no track record. Mr Brown did not have any direct experience as a developer in a substantial development. The second shareholder in Chilli, Mr Philip Allick, with 25%, had some property development experience but none on a par with what was proposed by Chilli at Middlehaven. The third shareholder in Chilli, Mr Derek Fowler, with 25%, had experience relevant to the obtaining of finance.[3]The two lock-out agreements are in the same terms save as to period. There were terms of each: by clause 1.1.2, EP agreed that it would not during the period of each agreement ‘invite tenders for or enter into negotiations for the sale, development letting or charging of the Property’; by clause 1.1.3, EP agreed that it would not during the period of each agreement ‘allow any person to view, measure, survey or carry out site investigations on the Property unless required to do so by law ..’; by clause 4.1.2, Chilli and EP agreed that ‘each owes the other a duty of good faith’. ‘The Property’ was the area of land adjacent to Middlehaven, to which the negotiations with Chilli for a development agreement related.[4]It is alleged in Chilli’s statement of case that the agreements as extended were broken, in summary, in the following ways:(1) During the period of the agreements as extended TVR and EP negotiated with, and provided prohibited information to, a consortium named Placemakers, or entertained a tender from Placemakers, for land including the Property;(2) During the period of the agreements as extended TVR and EP entertained a presentation from Placemakers relating to land which included the Property.(3) In breach of the duty of good faith it was the intention of EP and TVR throughout the period of the agreements as extended that EP should not enter a development agreement with Chilli. A large number of matters were relied on in support of this allegation as to the intention of EP and TVR, and I will come to them in due course. It is alleged that TVR induced EP’s breaches of agreement.[5]The allegation of bad faith lies at the heart of the action. The assertion is that EP and TVR went through the motions of negotiating with Chilli, and let Chilli incur considerable expense, when in reality they had no intention of entering any agreement with Chilli. It is asserted that the negotiations and the lock-out agreements were a sham: the commencement of opening written submissions on behalf of Chilli – “C’s case is that LOA is a sham and has been breached by D2 and therefore D1”. The allegation was not properly pleaded until the fourth day of the trial. It is unclear how far that is to be laid at Chilli’s door.[6]There is no case pleaded in misrepresentation, or, put more bluntly, deceit.[7]Some of the difficulties of a claim for breach of a lock-out agreement, or an exclusivity agreement as it is sometimes called, were considered in the judgment of Lord Ackner in Walford v Miles [1992] AC 128. The remainder of their Lordships concurred in Lord Ackner’s speech. The agreement there was not the same in all relevant respects as that here. Lord Ackner considered the concept of a duty to negotiate in good faith at page 138:
“However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. ….. But that still leaves the question - how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an “agreement”? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a “proper reason” to withdraw. Accordingly a bare agreement to negotiate has no legal content.”
[8]The agreement in Walford v Miles did not contain an express term as to good faith. The argument there was that one must be implied to give efficacy to the agreement. But that may not detract from the force of Lord Ackner’s remarks in the context which he was considering: but that context was not that of alleged sham negotiations. Lord Ackner referred to the need that a party avoid misrepresentations. In fact the trial judge had there awarded the claimants damages for misrepresentation in the sum of £700 for wasted expenditure, which award was upheld by the Court of Appeal and was not contested on the further appeal.[9]Mr Thomas Leech for the claimants referred me to one further authority as to good faith and negotiation, Petromac Inc v Petroleo Brasileiro SA [2006] 1 Lloyd’s Rep 121. There was an express duty to negotiate in good faith, but it was held that the issue of breach of it did not arise. However the Court of Appeal had heard submissions, and Longmore LJ expressed some tentative views upon them. He referred to the lecture by Lord Steyn published in 113 LQR 433 where Lord Steyn had hoped that the House of Lords might reconsider Walford v Miles. Longmore LJ stated that he did not consider that Watford v Miles would have required him to hold that the particular clause he had to consider was wholly without legal substance.[10]My first task is to determine the facts which are relevant to the claim. It is only if the facts give rise to an issue of law that I need consider the issue.[11]Before coming to dealing with the allegations of breach of contract I should set out an outline of the history to provide a context in which to consider Chilli’s allegations.[12]As I have stated, Chilli was incorporated on 27 June 2003. Mr Brown first became interested in a development at Middlehaven in about May 2002. On 26 July he had a meeting with Mr Joe Docherty, the newly appointed chief executive of TVR. Mr Docherty expressed doubt whether Mr Brown would be able to obtain the 100% bank finance which Mr Brown proposed. A design was prepared. Mr Brown asserts that he was led to believe that land in fact allocated to Terrace Hill was available. I have not heard evidence or seen documents which would enable me to decide whether Mr Brown was in fact misled, and if so by whom. In October 2002 TVR were involved and it was suggested that Mr Brown might combine with Terrace Hill. By a letter of 1 November 2002 from One NorthEast – a development agency for the north east of England, Mr Brown was informed that another site could be made available, and that his scheme would need to adhere to the master plan for the whole of the land to be developed. In an internal e-mail of 28 April 2003 EP recorded that Terrace Hill would not offer Chilli Media a deal and that Chilli should be given a chance to demonstrate that it had the expertise and financial backing required to carry out its proposed development. The e-mail was doubtful whether Chilli could do that. On 27 May the Bank of Scotland wrote to Mr Brown stating that the bank was agreeable in principle to provide development funding subject to due diligence, which would include a desk-top viability study. In July a site was identified to be offered to Chilli. On 4 August EP asked TVR to put draft heads of terms to Mr Brown with an explanation of how any agreement would be structured. On 5 August Mr Brown wrote to TVR at TVR’s request to make a formal request for the land that had been identified to the west of the Terrace Hill site. On 15 August TVR replied saying that the master plan for the area was being reassessed and that a master planner would be appointed the following week, and that in those circumstances TVR could give no positive response to Mr Brown’s proposal. The letter also stated that Mr Brown would have to provide proof of ability to deliver the development as he had no track record as a developer: it suggested he appoint a professional development consultant with appropriate experience. It indicated that TVR could not take matters forward until the beginning of the next year. On 10 November a meeting took place between Chilli, EP and TVR to discuss Chilli’s development proposal. On 19 November Mr James of TVR wrote to MR Buczynskij of EP in somewhat negative terms. He was doubtful whether the design and lay out was appropriate and as to the viability of the proposal. On 25 November a meeting took place between the Bank of Scotland and EP, which was followed by an e-mail on 26 November from the bank setting out its position of support for the development with 100% funding. On 11 December Mr Buczynskij wrote to Mr Brown reviewing the position. He referred to concerns in relation to the funding by the Bank of Scotland, and other issues raised by the development: but EP was prepared to seek to resolve these while negotiating a development agreement. He said that the design proposed by Chilli needed to be considered against the master plan being prepared by Alsop Architects. He suggested that Chilli put design on hold in the meanwhile. I insert here that the problem was that Chilli was seeking a development on land covered by the master plan with a design prepared in advance of the master plan. The letter referred to the fact that Chilli would be proceeding at its own costs and risk, and suggested a meeting to decide how best to take matters forward.[13]That meeting took place on 23 January 2004, and was followed by a letter from TVR of 27 January. The letter stated that TVR was supportive of Chilli’s scheme. It said that Chilli had gone ahead with design despite warning about the master plan, and that Chilli’s design did not accord with the master plan. It suggested the changes that were necessary. Mr Brown wrote on 29 January to EP complaining about TVR’s letter and that the overall scheme had changed - which it had: he was not sure how much longer he could retain the interest of the Bank of Scotland.[14]On 24 May 2004 TVR wrote asking Chilli for an up-date on their proposals. By 29 June Chilli were in possession of a draft development agreement. On 16 July TVR recorded that Alsop did not think that the Chilli design was appropriate. The problem was that the Alsop plan envisaged a line of multi-storey ‘sugar cubes’, the first three of which were to be on the land under consideration for Chilli, whereas the Chilli design was originally for one long building. The Chilli design was modified to incorporate the appearance of cubes into the building. On 25 August Chilli’s solicitors wrote to TVR’s solicitors asking for a lock-out agreement. At a meeting of the Greater Middlehaven Project Board on 8 September Chilli presented its design, which was approved in concept. Chilli produced a development appraisal dated 15 September setting out the projected figures for its development. On 1 October the Royal Bank of Scotland, to whom Chilli were now looking for finance, wrote to Chilli setting out terms on which it would be prepared to provide it. The first lock-out agreement was entered into on 26 October. It ran to 21 December.[15]Meanwhile EP and TVR were taking the first steps to secure a developer for the main part of the site. On 28 October 2004 an advertisement was placed inviting requests for the Developers Information Pack. This covered the land under discussion with Chilli and made no reference to Chilli. Expressions of interest were invited by 10 December 2004. From those who responded a short list of six was to be prepared. Bids were to be obtained from the six by mid March. The appointed developer was to be chosen by mid April. This process was running in parallel with the negotiations with Chilli. If the negotiations with Chilli came to nothing, the appointed developer would be required to build the part of the overall scheme with was under discussion with Chilli. So the negotiations with Chilli had to be brought to a conclusion in time to enable that to happen if Chilli was unsuccessful.[16]Draft heads of terms between EP and Chilli were circulated on 5 November 2004. On 11 November Chilli submitted an application for planning permission to Middlesborough Borough Council. On 1 and 7 December Ms Gill, the solicitor handling the matter for Chilli wrote concerning the proposed heads of terms, and on the latter date she also requested a new lock-out agreement for 2 months. On 12 December Mr Buczynskij replied on behalf of EP saying that two months could be too short. On the same day solicitors for EP sent a draft agreement for 4 months. This second lock-out agreement was entered into on 21 December and lasted until 21 April 2005.[17]On 7 January 2005 Chilli obtained planning permission. On 10 January the Greater Middlehaven Project Board endorsed the selection of 6 preferred developers from over 80 responses to the request for expressions of interest. The Placemakers consortium was included among the 6. The Board noted that the financial appraisal of Chilli’s project was continuing.[18]On 24 January 2005 the design and development brief for Middlehaven Phase 1 was sent out with other documentation to the 6 short-listed developers. The development brief stated that EP had a prior commitment to Chilli and excluded the land which Chilli proposed to develop from the proposals that the developers were invited to submit.[19]In January 2005 Chilli were now looking to Allied Irish Bank to fund the project. The bank were not happy that under the heads of agreement Chilli would have no more than a building licence, which would not give the bank sufficient security. But this was not raised with EP at this stage. On 1 February Lamb & Edge, surveyors advising EP, reported on Chilli’s development proposal. On 15 February Mr Buczynskij submitted a report to EP’s regional management team that Chilli should be appointed preferred developer for its site. A condition was that Chilli should provide 100 per cent bank finance – which had always been Chilli’s proposal. On that date the heads of terms were agreed in principle subject to agreement on a land price. On the same date but following this agreement, Ms Gill raised the question of AIB’s security. At a meeting of the Greater Middlehaven Project Board on 21 February it was considered that the financial appraisal of Chilli’s scheme remained unsatisfactory. Deadlines were set as to the signing of a development agreement by 21 April, and a start on site by 7 June. This was necessary to avoid a clash with the main procurement process. 21 April was the expiry date of the second lock-out agreement.[20]On 30 March 2005 Ms Gill requested an extension to the lock-out agreement. The Project Board minutes for 4 April record that there was to be a meeting the next day with Chilli’s funders. That meeting was not with Chilli’s funders but was used by Chilli to ask for financial assistance by way of a guarantee. This was refused. At the end of the meeting Ms Gill asked about an extension of the lock-out agreement, and was told that it should not be a problem. There then followed a number of e-mails in which Ms Gill sought to amend the heads of terms to obtain a security acceptable to AIB, and failed. The problem of security apparently led to Allied Irish Bank dropping out. EP had set a deadline of 13 May for agreement of the revised terms which had been offered. They were accepted on 13 May, but Chilli was without a funder. Ms Gill got no answer to requests on 14, 20 and 28 April for an extension of the lock-out agreement. The Project Board Minutes for 22 April refer to the security problem, and to the need to monitor quality if the Chilli development proceeded. On 11 April the bidders were assessed. Placemakers scored highest. On 25 April TVR and EP had a meeting with Placemakers at which it was stated that the Chilli development was likely to go ahead. Placemakers wanted the Chilli site, and the possibility of discussions between Chilli and Placemakers was raised.[21]On 18 May 2005 Ms Gill informed Mr Buczynskij that in addition to Allied Irish Bank Chilli were negotiating with Clydesdale Bank and the Bank of Scotland. On 19 May Chilli were given until 20 May to secure its funder’s agreement to the terms. Ms Gill replied the same day that the deadline was unworkable. On 20 May EP set out and explained its position. In an e-mail of 26 May EP referred to the need to have the funder’s confirmation that it would guarantee the obligations of Chilli under the development agreement. This had been provided for in the original draft heads of terms. On 26 May Mr Buczynskij set out a new time table: agree terms of the development agreement by 30 June, exchange that agreement by 7 July, start on site by 18 August. Revised documentation was sent to Chilli the same day.[22]Meanwhile Chilli had obtained tenders for the building works. The lowest tender, that of Laing O’Rourke at £17,723,734, was substantially above what Chilli had allowed (£13,246,989). The tender suggested ways in which savings could be made. Chilli had also entered discussions with the Esh Group as a partner in the development.[23]At the Project Group meeting on 2 June 2005 it was reported that Chilli’s funders had agreed to the terms of the proposed development agreement but details were awaited. On 11 May the Yorkshire Bank had written a general letter of support for the development on the basis that it was carried out as a partnership between Chilli and Esh. It appears that Esh had been introduced by the Yorkshire Bank. It seems that this letter of 11 May was not provided to EP until about 2 June. On 6 June EP asked for an explanation as to Esh. A further letter from Yorkshire Bank dated 9 June and again in general terms, was provided that day, together with a summary of arrangements between Chilli and Esh. A letter dated 13 June from Placemakers to EP shows that Placemakers had been in discussion with Chilli. Unfortunately this letter and the discussions were not considered in the evidence. On 15 June Lamb & Edge reported to EP that, based on Laing O’Rourke’s quotation, the viability of the scheme was very doubtful. In an e-mail of 22 June Mr Buczynskij’s expressed EP’s concerns to Mr Brown. EP’s concerns as to where the development stood were set out Mr Buczynskij in an e-mail of 27 June. The Project Board’s minutes of a meeting on that day record that a meeting was being held on 30 June to review all aspects. The view of TVR was that the scheme presented a number of risks and was not of sufficient quality.[24]A meeting was arranged for 30 June 2005 to be attended by Chilli, Esh, EP and TVR. The meeting appears to have been called mainly but not wholly to address the question whether the design changes which Chilli had proposed and which were needed to reduce the cost of building works had compromised the quality of the development. They were such that a new planning application would be required. There are no satisfactory minutes of the meeting. It began with a discussion of those matters, and it is probable that Chilli and its team were able to answer the questions raised satisfactorily. But later Mr James, TVR’s director of development, spoke in terms which were highly critical of Chilli, suggesting that Chilli was not able to deliver the project.[25]On 29 June 2005 in a letter delivered by hand Placemakers referred to the meeting the next day, it was stated that the position as to Terrace Hill and Chilli’s proposal rendered Placemaker’s proposals unviable, and that the writer was confident that if the Chilli proposal were passed on to Placemakers, Placemakers bid could be closed. This attempt to hold a gun to EP’s head did not succeed. Mr Higgins, the chief executive of EP, responded to the letter by speaking to Mr Munro, senior regeneration manager of EP, who was directly involved with Chilli. Mr Munro gave him a report on the position with Chilli which included Chilli’s difficulty in getting finance. Mr Higgins said that Chilli should be given every chance to obtain funding within a limit of time.[26]On 7 July 2005 Mr Munro e-mailed Chilli that EP was prepared to extend dates as follows: agree terms of development agreement by 1 August, exchange agreement by 8 August, and start on site by 26 September. He started that EP would not consider any other partners for Chilli other than Esh. He set out the financial information that was required.[27]On 12 July Esh wrote to Chilli to say that having conducted an appraisal of the project Esh no longer wished to proceed. It was Chilli’s case that the reason was the conduct of Mr James at the meeting on 30 June. I am satisfied that Esh’s decision was not caused by Mr James’s conduct at the meeting. As stated in evidence by Mr Manning, chief executive of Esh, the reason was that the scheme did not show sufficient profit to justify the substantial risk.[28]On 15 July 2005 Mr Brown wrote by e-mail to EP referring to the withdrawal of Esh and saying that Chilli had a fall-back position which was being finalised and that he would then revert to EP. EP replied the same day saying that in the circumstances it was terminating negotiations.[29]I am satisfied by the evidence I heard and the documents that I have read that EP and TVR negotiated with Chilli in good faith, that is to say, provided Chilli could meet their requirements they were willing that EP enter a development agreement with Chilli. They were not confident that Chilli would be able to do so, and some individuals were more doubtful that others, but they were willing to give Chilli the chance. Despite the doubts, there was goodwill towards Chilli. That was why EP was willing to enter the lock-out agreements and to extend the deadlines when they were not met. In February 2005 Chilli was accepted as EP’s preferred developer. It was only after the failure of the proposed joint venture with Esh supported by the Yorkshire Bank, that EP called a halt. The Yorkshire Bank had followed Allied Irish Bank, the Bank of Scotland and the Royal Bank of Scotland as the proposed source of finance.[30]It has to be asked why EP and TVR should go through the process with Chilli if they did not want EP to enter a development agreement with Chilli. The only reason that could be advanced was that it was done for appearances sake, because EP and TVR would not want to be seen to be shutting out a local company. This case was really founded on the e-mail of 28 April 2003, which was written by the then regional director of EP, Mr Carr. But a further e-mail of 4 August 2003 also written by Mr Carr shows that it was not a just an exercise. That was accepted by Mr Brown in cross-examination. Mr Brown also accepted that EP and TVR were not difficult until February 2005. He further accepted that until 30 June 2005 there was a genuine willingness on the part of EP and TVR to proceed: Day 4, pages 113. Mr Griffiths, the partner in Baker Mallet, Chilli’s project managers and surveyors, who dealt with EP and TVR on a day-to-day basis also agreed in cross-examination that there was a genuine willingness to proceed at least until the meeting of 30 June 2005.[31]I can turn next to the specific allegations which were made on Chilli’s behalf to support its case that EP, and TVR, intended that Chilli should not obtain a development agreement, and that the negotiations were a sham. I will take them from the amended particulars of claim, paragraph 7A.[32]Paragraph 7A.1(i) At meetings on 31 March and 15 June 2005 Faithful & Gould, consultants for the Middlehaven combined heat and power project were instructed that they should not contact Chilli about the project for the time being. The project involved the proposed generation of electricity and supply of heat for the Middlehaven project generally. It was at a very early stage and has since been abandoned. The probable explanation is that given by Mr Egan that, if Chilli went ahead, they would be well in advance of the CHP project.[33]Paragraph 7A.1(ii) Mr Allick gave evidence that on a day in February or March 2005 he saw as he drove past a vehicle digging on the site allocated to Chilli. He saw it twice, on a different part of the site on each occasion. He made no complaint about it at the time. The allegation was not in the original particulars of claim, and was only introduced shortly before the trial. Chilli’s case was that EP had allowed Placemakers onto the site to do some exploratory work. There was no evidence to support that apart from the evidence of Mr Allick. EP’s evidence was that a licence would have had to have been granted for such work. No such licence had been located, but I am not satisfied that the failure to find one during such searches as were made is by itself significant. The site log for February kept by the security company cannot be located. The log for March showed nothing. The evidence of Mr Halsall, the managing director of the Placemakers company, Bioregional Quintain, was that Placemakers did not go onto the Chilli site until after July 2005. I think that if Mr Allick had seen work being carried out on Chilli’s site during the period of the second lock-out agreement and at a sensitive time in the negotiations, Chilli would have raised the matter at the time. I am reluctant to conclude that Mr Allick has invented the evidence. I think it likely that what he saw was on the Terrace Hill site. A second explanation which has occurred to me since the trial is that this was an unauthorised incursion from an authorised entry to another part of the site. It is enough for me to find it as not established that EP allowed any person to enter the Chilli site to carry out site investigations. I refer to clause 1.1.3 of the lock-out agreements.[34]Paragraph 7A.i(iii) It was alleged that TVR, in particular Mr Docherty, its chief executive, was negative and dismissive about Chilli’s experience and ability to secure funding. Emails of 29 April and 19 November 2003, and 19 February and 10 November 2004 were relied on. Mr Docherty was not cross-examined about these emails. The reference to 29 April 2003 should actually be to 28 April 2003, an email which was copied to Mr Docherty on 29 April. That of 19 November 2003 is from Mr James to Mr Buczynskij and contains Mr James’s examination of Chilli’s proposal. One passage in particular was objected to:
‘I would question the values on the apartments but I am investigating this further. Is a local Middlesborough boy going to pay £500K for a penthouse – possibly?’
It was suggested that this was a derogatory reference to Mr Brown. It was not: it was simply a mildly flippant questioning as to the price for the penthouses. The e-mail of 26 February 2004 was from Mr Egan to Mr James, both of TVR. It read:
‘… we are going to have to formally decide if they can have this plot !!! Otherwise it could lead to certain political problems down the line. I am open-minded so long as it does not put off other “track record” developers – its not like we don’t have more land to work with – can we discuss.’
Although this does suggest that the author had doubts about Chilli, it does not suggest that TVR were about to embark on sham negotiations but on genuine ones. The e-mail of 10 November 2004 was to Ms June Kelly of TVR’s publicity agents from Mr James and was concerned with a photo call at Chilli’s site which Mr Brown was arranging. In it Mr James said that TVR were not yet in a position to say it had a deal with Chilli and so could not attend a photo call. He wrote:
‘We are however supportive of the scheme and hope that our negotiations will result in a formal agreement.’
The e-mail supports the case of TVR and EP and not that of Chilli. Mr Docherty himself has a background in banking. He became chief executive of TVR in July 2002. It was his view that Chilli would always find it difficult to secure bank funding. In his evidence he put it in the strong terms that it would have been irresponsible lending by a bank. That was his view, and he was entitled to it. It was never put to him that he regarded the negotiations with Chilli as a sham, and that even if Chilli had arranged appropriate financial backing he would have nonetheless advised against EP entering a development agreement with Chilli.[35]Paragraph 7A.1(iv) It was alleged that EP and TVR failed to inform Chilli that Terrace Hill had an exclusivity and pre-emption agreement for its site. This goes back to 2002. As I have said, the circumstances in which Mr Brown came to have a design prepared for the Terrace Hill site were not explored in evidence. I am not satisfied that Mr Brown was misled. But whatever the position, it cannot have any bearing on the events of during the period of the lock-out agreements. The exclusivity provision with Terrace Hill was irrelevant to Chilli’s later proposals. Mr Brown had been informed of the provision by a letter from One NorthEast of 1 November 2002.[36]Paragraph 7A.1(v) The Developers Information Pack advertised on 28 October 2004 made no reference to the land ear-marked for Chilli although it did refer to Terrace Hill. The pack was sent to Mr Brown as he acknowledged by e-mail of 4 November 2004. There was subsequently a meeting between Mr Egan of TVR and Mr Brown at which Mr Egan explained that the pack had been prepared before the lock-out agreement came into being. Mr Egan stated that at the next stage Chilli’s interest would be identified, which it was. The pack was an invitation to express interest in being appointed a developer. It did not invite a tender and so was not in breach of clause 1.1.2 of the lock-out agreement.[37]Paragraph 7A.1(vi) It was alleged that the White Young Green report prepared for the short-listed bidders included a detailed survey of the land covered by the lock-out agreements, and together with the Design & Development Brief made it plain that the land covered by the agreements might be available. The report was an engineering report containing a summary of all the information concerning the land covered by phase 1 of the overall development. The brief made it quite plain the relevant land was reserved for Chilli and that tenders were not sought in respect of it. There was no breach of the lock-out agreement.[38]Paragraph 7A.1(vii) It was here alleged that EP and TVR conducted the negotiations in such a way as to obstruct them. 31 matters were relied on:(1) It is alleged that at a meeting on 29 October 2002 to discuss finance Mr Docherty was negative and dismissive. In fact following the meeting Mr Docherty sent an e-mail referring to an aspect of the scheme as innovative and interesting. He was not cross-examined about the meeting. I have already referred to Mr Docherty’s view as to the likelihood of Chilli obtaining finance.(2) This refers to the availability of the Terrace Hill site, which I have already covered in paragraph 35.(3) This refers to the suggestion made in October 2002 that Mr Brown might combine with Terrace Hill. It was pleaded that Mr Docherty knew that Terrace Hill would not be interested. This allegation was not pursued in cross-examination and there was no evidence to support it.(4) This refers to the e-mail of 28 April 2003 (mispleaded as of 29 April). In it Mr Carr, the then Regional Director of EP stated:
‘It is obvious that [Chilli] will not be offered a deal by Terrace Hill and that they continue to believe they have a worthwhile investment proposition. We all have doubts about that but I think unless we take [Chilli] seriously there is a danger we could have egg on our faces if [Chilli] manage to create jobs and investment elsewhere outside their home town, although I agree the chances appear slim. The way out of the impasse is to indicate to [Chilli] that a site could be made available ….. .’
He ended ‘If [Chilli] isn’t successful, which is far more likely, then we have lost nothing and have been seen to have given a local entrepreneur a proper opportunity to make his case.’ Chilli were given a considerable opportunity to ‘make [their] case’ but failed. Mr Carr’s view that Chilli were likely to fail is not the same as a view that Chilli should be made to fail. Further, as I have said in paragraph 30, in a later email of 4 August 2003 Mr Carr made it further plain that he genuinely thought that Chilli should be given its chance, and asked Mr James to give it top priority. (5) This is in effect a complaint that Chilli was offered no public funding. Chilli’s proposal was that it would finance the development itself without public funding and that the development would make a profit. Placemakers have subsequently required ‘gap funding’. That is a different matter to funding the project while it is in progress, which is what Chilli sought assistance with. Gap funding is required by Placemakers because they have calculated that the development will not make a profit, and so, if it is to go ahead, public money is needed to bridge the gap. (6) and (7) In August 2003 Chilli was told it must make a formal request to be allocated a site. That is correct. I am unclear why this was necessary. It was not examined at the trial. It does not seem to have been of any importance. (8) By letter of 15 August 2003 Chilli was told that delays were due to the reassessment of the Masterplan and were advised to appoint an appropriate development consultant. As I have stated the Masterplan was then being made and Chilli’s problem was that Chilli was ahead of it. The advice as to a consultant was appropriate. (9), (10 and (11) (9) referred to a letter of 12 September 2003 from Mr Brown to Mr Walker, the Chief Executive Officer of EP apparently complaining about the conduct of TVR. I was given no reference for it, and it does not appear to be included in the trial papers. It did not feature in the trial. (10) and (11) assert that Mr Walker agreed to support Chilli. That hardly suggests that EP were obstructing Chilli. (12) This concerns guarantees and the Bank of Scotland. EP had always required a guarantee of Chilli’s performance. The reason and justification was not investigated at the trial, but is may well have been that Chilli was a company with no funds or experience. (13) This refers to the e-mail of 19 February 2004, which I have covered under 7A.1(iii) in paragraph 34. (14) This refers to the problems of accommodating Chilli’s design to the Masterplan, which were continuing in early 2004. They were not holding up the discussions of other matters. The Masterplan provided for three separate ‘sugar cubes’ on the Chilli site. Chilli proposed originally a single long building. A compromise was reached whereby three facades were inserted into the Chilli building. This was a considerable accommodation to Chilli. (15) This is a complaint about Terrace Hill’s exclusivity rights, and asserts that Chilli did not know about them. I refer to paragraph 35 above. (16) This concerns the difficulties with the Royal Bank of Scotland in the autumn of 2004. The matters complained of were not investigated in evidence. (17) By e-mail of 1 October 2004 Mr Egan stated; ‘Simon’s [Mr Brown] letter from the bank does look encouraging although I am slightly worried about the cost engineering that has clearly gone on and the issue of delivering quality.’ Mr Egan was entitled to his view. The e-mail was not raised with him in cross-examination. (18) This refers to the refusal of EP to offer a 7 year lease under the development agreement rather than a building licence. This was in accordance with EP’s usual practice. (19) This simply refers to Laing, O’Rourke’ tender and their appointment. (20) This raises a complaint about the purchase price of the land which Chilli would have been obliged to pay. Chilli had in fact been given a ‘credit’ against the price of £600,000 on account of the design changes required to meet the Masterplan. The land value which EP required followed a valuation by Lamb & Edge dated 1 February 2005. Mr Brown was refused a copy of the report. This may have been because of comments which EP did not wish Chilli to see. However by e-mail on 16 February Mr Buczynskij told Ms Gill that Lamb & Edge would happily talk to Chestertons – who had been retained by Chilli. That offer was not taken up. It is also complained that EP made the price of land a ‘deal breaker’. They were entitled to do so. The figure was accepted by Chilli and matters moved on. (21) This refers to the setting by EP of deadlines on 21 February 2005, to which I have already referred. It was essential for there to be progress with Chilli. The deadlines were later the subject of generous extension. (22) The main complaint is as to the refusal to assist Chilli by a guarantee. I have already covered this in paragraph 21. (23) This asserts that in a telephone conversation on 6 April 2005 Mr Brown asked Mr Docherty if he was aware of any incentive funding and that Mr Docherty told Mr Brown that he was not interested in Chilli developing the property, that he had told Mr Brown at the start that he would not be able to do, and ended by swearing at Mr Brown. Mr Brown made a note of the conversation, which did not include a reference to swearing. I think it unlikely that the note was made close to the event and I do not regard it as reliable. In his witness statement Mr Docherty said that he had no recollection of the conversation. He was not cross-examined about it. I think that there was a conversation in which Mr Brown asked Mr Docherty for assistance with funding, and Mr Docherty did decline. He may well have stated that he had always thought that Mr Brown would have difficulty with funding, as indeed he had. Given his view Mr Docherty is unlikely to have wanted to involve himself with Mr Brown’s difficulties. But negotiations continued for another three months, with Chilli being given further opportunity to see if it could put a package together. (24) This refers to the failure to respond to Ms Gill’s requests for an extension to the lock-out agreement. Mr James said in evidence that following the termination of the second lock-out agreement TVR and EP acted on the basis that its spirit still applied. In fact they did not deal with any other party in respect of the land until after the negotiations with Chilli had been terminated. I conclude that TVR and EP did not wish to have a formal extension of the agreement, or a fresh agreement, because of the delays which had taken place and the difficulties which Chilli continued to face, but meanwhile they were not going to deal with the land over Chilli’s head. That was a position which they were entitled to take: it was not unfavourable to Chilli. It would have been better is TVR and EP had stated what their position was. It is likely that silence was preferred because they did not want to be tied down. (25) This refers to e-mails of 19 May and 20 May 2005. In the first Mr Gawthorpe reminded Ms Gill that EP needed both confirmation of who Chilli’s alternative funders were and confirmation that the heads of terms were acceptable to those funders. He asked for the latter by close of business the next day, saying that otherwise the offer would be withdrawn. Ms Gill provided the confirmation the next day. It was wholly reasonable for Mr Gawthorpe to require this confirmation. If the new funders were not prepared to proceed on the basis of the heads of agreement, no progress had been made. (26) On 26 May 2005 Ms Kenny, EP’s financial structuring manager e-mailed Mr Brown requesting a list of information required to investigate Chilli’s ability to carry out the development. It is asserted that all information was provided. (27) This refers to Mr Buczynskij’s e-mail of 26 May 2005 whereby he set deadlines including agreement of the terms of a development agreement by 30 June. This was sensible. (28) This refers to concern at Chilli’s design, which concerns were referred to in an internal note of 20 June 2005. These concerns were correctly raised because, as a result of the Laing O’Rourke tender being far above what Chilli had allowed, changes were proposed to the design. They were sufficient to require a fresh planning application. (29) and (30) These refer to the setting up of the meeting on 30 June 2005 as a meeting to discuss design issues and the request that Esh attend the meeting. Mr Buczynskij’s e-mail of 27 June, which is referred to, shows that there were wider issues than simply design. The Project Board’s minute of 27 June refers to the meeting as ‘being organised to view all aspects’. An e-mail from Mr Brown refers to the main focus of the meeting being to convince EP of the design changes and the financial implications. Complaint is made that Esh were asked to attend. The reason seems obvious to me: if the development had gone ahead as a joint venture between Chilli and Esh, Esh would have been the major partner. (31) This refers to the meeting on 30 June 2005. It complains that Esh were asked to provide a guarantee, and Chilli was asked if it had alternative funding. As I have stated, a guarantee had always been required. It was sensible to make sure that Esh were aware of this. The complaint as to Chilli being asked if it had alternative funding probably refers to Mr James’s intervention in the meeting. I will deal here with the meeting in rather wider terms than pleaded here. As I have stated in paragraph 24 the meeting began with discussion of the points as to design. At some later point Mr James spoke in strong terms about Chilli’s ability to deliver the project. It was never asserted in terms that Mr James did this with the intention of persuading Esh that they should withdraw and so bringing to an end Chilli’s participation: but that was the underlying suggestion. I am quite satisfied that the suggestion should be rejected. Mr James might be criticised for speaking out as strongly as he did, but he did not even come to the meeting with the intention of doing so. I refer to his evidence at Day 7 pages 67 and 68, which I accept. It seems that he is a plain spoken man and his exasperation at the lack of progress, as he saw it, took over. He was frank and straightforward in the witness box about it. What he said at the meeting was not in fact the reason why Esh withdrew: Esh’s withdrawal came about as a result of their study of the figures. The other witnesses called by EP and TVR who were present at the meeting were much more reticent about Mr James’s part than he was. I was troubled by this. Until Mr James was called it seemed almost that Mr Brown and his witnesses had been at a different meeting. It may be that what Mr James had to say made far less impression on the other EP and TVR attendees than on Mr Brown and his team. It may be that they were protective of Mr James. But this only matters if there was something akin to a plot to derail the negotiations. As I have said, I am satisfied that there was not. I am satisfied that the EP and TVR took part in the meeting with the wholly bona fide intent of seeing the way forward if they could.[39]Paragraph 7A.1.(viii) This raises three separate matters. The first is that EP were prepared to fund Placemakers but not Chilli. I have already set out in paragraph 38(5) the difference between the two situations, namely between the gap-funding required by Placemakers and funding to see the project to completion required by Chilli. The second is that Chilli was prepared to pay an unduly high land price. I have referred to this is paragraph 38(20). The third matter is the car park. The construction of multi-storey car park for use in connection with Chilli’s building was not included in phase 1 of Chilli’s project but in phase 2. But the money to build it would have to be raised from the profits on phase 1. It was there correct that EP insisted that Chilli ‘account for the cost of constructing a car park’ – the words of the pleading.[40]Paragraph 7A.1(ix) This complains that EP and TVR interfered with Chilli’s funding arrangements by contacting their funders. Two matters are relied on. The first was a meeting with the Bank of Scotland on 25 November 2004. This was called by the Mayor of Middlesborough. It appears that both the bank and EP and TVR were surprised that Chilli were not there. The meeting was followed by a long e-mail from Mr Williams of the Bank of Scotland to Mr Buczynskij on 26 November, which was copied to Mr Brown. Mr Brown said that he would not have received it because he was not at that time using the e-mail address to which it was sent. However other e-mails show clearly that he was. There is nothing in this complaint. The second matter is a telephone call by Mr James to Allied Irish Bank in March 2005, when a solution was being sought to the problem of the Bank’s security. In an e-mail of 23 March Mr James had asked that the bank attend a meeting. Mr Gawthorpe had previously spoken to the bank and had relayed his conversation to Ms Gill, as is recorded in his e-mail of 23 March to Mr James. The bank did not attend the meeting, and so Mr James spoke by telephone. The object was to find a way forward. Again there is nothing in this. At some point Mr Brown made a note with purports to record a conversation he had with Mr McGarry of Allied Irish Bank about Mr James’s conversation. I do not accept the accuracy of the note because the subject matter of Mr James’s conversation as recorded is not what Mr James’s would have needed to discuss with the bank, namely the security problem.[41]Paragraph 7A.1(x) On 25 April 2005 EP and TVR met with Placemakers to discuss their development proposals which included proposals for the land designated for Chilli. Placemakers had ignored the fact that the land designated for Chilli was not available to Placemakers and had included designs for three cubes on that land. Placemakers wanted to develop the whole site. I have referred to the meeting on 25 April in paragraph 20. Chilli’s rights were respected by EP and Placemakers were told that it was likely Chilli’s development would go ahead. In his closing submissions Mr Noble suggested on behalf of Chilli that EP and TVR must have in effect invited Placemakers to tender for the whole of the land including Chilli’s. I reject this. It was unsupported by the evidence, and Placemakers were but one of six who were short-listed to tender. I thought that the evidence of Mr Halsall as to Placemakers’ reasons for including the cubes on Chilli’s land was less than frank: I am satisfied Placemakers did so because it wanted the whole development and hoped to get it. But that aggressive stance is not to be held against EP or TVR.[42]Paragraph 7A.1(xi) It was asserted that EP and TVR acted on ultimatums made by Placemakers in letters of 13 June and 29 June 2005. I referred to the letter of 13 June in paragraph 23 above. It is the letter which refers to discussions having taken place between Placemakers and Chilli, a matter which was not investigated in the evidence. It expresses concern more about Terrace Hill than Chilli. The second letter has been described by me in paragraph 25, together with how EP reacted to it. EP and TVR did not act on the letters in the manner alleged.[43]Paragraph 7A.1(xii) This contains two allegations. The first is that EP and TVR unreasonably required that Chilli must proceed with a joint venture with Esh. This must refer to Mr Munro’s e-mail of 7 July 2005. At this point it was perfectly proper for EP to say that, if the partnership with Esh failed, the negotiations would be terminated. The second allegation is that EP unreasonable required Esh to provide a guarantee. I have dealt with this in paragraphs 21 and 38(22).[44]Chilli also relied on the matters set out in its original pleading in paragraphs 5 and 7. I have sufficiently covered these allegations in dealing with the allegations made in paragraph 7A.1.[45]I conclude that EP and also TVR acted in good faith throughout the negotiations, and that there were no breaches of the two lock-out agreements. Further, although there was no extension of the lock-out agreement after 25 April 2005, there was no breach of the terms during the period during which EP continued negotiations. There was no bar to EP terminating negotiations as it did.[46]I was provided with 9 lever arch files of documents. I extracted those that were referred to and was able to insert them comfortably into one file. The case is a particularly bad example of the tendency to copy all documents regardless of relevance.[47]The main allegation made in this action against EP and TVR and so also against their representatives was of serious misconduct, namely that together they had led Chilli along to believe that it had a real chance of entering a development agreement with EP when there was no chance because the negotiations were a sham. That allegation was not supported by the documentary evidence. Nor apparently was it really believed by Mr. Brown: I refer to his answers given in cross-examination which I have mentioned in paragraph 30 above. The allegation should not have been made.[48]The action must be dismissed.