Berkeley Community Villages Ltd & Anor v Pullen & Ors

A contract must be construed from its final terms and admissible background circumstances. Prior drafts and negotiations generally cannot be used to show that an omitted term was deliberately rejected. An express no-win, no-fee provision does not necessarily confer an unrestricted right to dispose of the subject land. A contractual obligation of utmost good faith may require reasonable commercial standards of fair dealing, fidelity to the agreed common purpose and consistency with the other party’s justified expectations. Where a landowner’s sale would breach express obligations, frustrate contingent contractual obligations and undermine the commercial efficacy of the agreement, the court may imply a term restricting disposal during the contractual period.

The defendants owned approximately 840 acres at Chilmington Green Farm. Under an agreement dated 12 December 2003, the first claimant agreed to promote approximately 520 acres through the planning process. Its fee was payable if the land obtained development consent and was then sold in accordance with the agreement.

The defendants later proposed selling the land to a third party for more than £35 million, before consent had been obtained. The first claimant sought declarations and an injunction restraining the sale. The defendants counterclaimed for a declaration that no express or implied restriction prevented disposal before planning consent. The central issues were the construction of the agreement, the effect of its good-faith clause, the availability of a quantum meruit or restitutionary payment, and whether a restriction on disposal should be implied.

1. Construction and prior negotiations. The court applied the orthodox approach stated in Prenn v Simmonds [1971] 1 WLR 1381. The final agreement had to be construed against its admissible factual matrix. The earlier draft consultancy agreements, including provisions restricting disposal, could not be compared with the executed agreement as an aid to interpretation. The limited private-dictionary exception discussed in Pro Force Recruit Limited v Rugby Group Limited [2006] EWCA Civ 69 did not apply.
2. Express terms. Paragraph 2 of the Second Schedule did not confer an unrestricted right to sell or dispose of the land. It contemplated that disposals might occur in some circumstances, but did not define those circumstances or override other express obligations. A present sale would breach paragraphs 2, 7 and 8 of the Third Schedule because it would prevent the defendants from cooperating in the promotion of the land, assisting the claimant’s efforts to obtain consent and avoiding conduct which directly prejudiced that objective.
3. Contingent obligations. A sale would also disable the defendants from performing future obligations concerning planning agreements and sale arrangements if the relevant contingencies arose. The court left open whether an injunction could be based specifically on anticipatory breach of a contingent obligation or on a quia timet basis.
4. Good faith. Paragraph 33 imposed a contractual obligation to observe reasonable commercial standards of fair dealing, fidelity to the agreed common purpose and consistency with the claimant’s justified expectations. In the circumstances, the proposed sale would breach that obligation. The claimant had invested substantial time, effort and expense, materially increasing the land’s value, while the sale would leave it without the contractual fee it expected to earn and would release the purchaser from the agreement.
5. Remuneration and implied term. The express fee provisions left no scope for a quantum meruit or restitutionary claim where consent was never obtained. Nevertheless, the agreement lacked business efficacy without protection against a voluntary sale. It was therefore an implied term that the defendants would not sell or otherwise dispose of the land while the agreement remained in force.
6. The defendants accepted that, if the proposed sale contravened the express or implied terms, an injunction was appropriate. The court therefore found for the claimant and directed that the terms of the injunction and any necessary declaration be settled after further submissions.