Micro Design Group Ltd & Anor v BDW Trading Ltd

Under an overage deed, a further payment tied to improved planning permission is payable only where the contractual machinery identifies the buyer as obtaining that permission. Clauses requiring the buyer to notify the seller and supply permission received by the buyer cannot operate when the seller independently obtains permission. Giving the seller a payment right in that situation would require adding words to, or rewriting, the agreement. That construction is also commercially sensible: after completion, the buyer alone determines whether further permission is needed for its development. The conclusion was confined to the preliminary issue and assumed facts. The court did not decide whether permission obtained by the seller as the buyer’s agent would count as permission obtained by the buyer, or whether another remedy might arise.

The sellers sold development land to the buyer subject to a deed of overage. The deed required further payments following a trigger event involving improved planning permission. The sellers later obtained two permissions increasing the net sales area and claimed overage. The buyer argued that payment arose only when it obtained permission and alternatively sought rectification.

On a preliminary construction issue, His Honour Judge Hodge QC decided in favour of the sellers. The buyer appealed. The Court of Appeal proceeded on the basis that the permissions had been obtained by the sellers and that there was no evidence of the buyer’s role. The central issue was whether the overage provisions applied where improved planning permission was obtained by the seller.

Appeal allowed. The Court of Appeal answered the preliminary issue in favour of the buyer.

1. The definition of improved planning permission had to be read with the operative machinery. Clause 2.4 required the buyer to notify the seller of a trigger event. Clause 3.1 required the buyer to supply permission received by it, with its calculation of the net sales area. Clauses 3.2 and 3.3 provided the ensuing calculation and dispute process. Those provisions contemplated only permission obtained by the buyer. They did not create liability where the seller independently obtained permission.
2. The seller’s construction could not make the mechanism operate. It would require the court to add a term providing that, if the seller obtained or received improved planning permission, clause 3 would apply mutatis mutandis. That would rewrite the deed rather than construe it.
3. The commercial purpose reinforced the textual construction. The court applied the business-common-sense approach stated by Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191. It noted that the passage in ICC v West Bromwich [1998] 1 WLR 896 restated the same principle, but it was unnecessary to rely on that corrective approach because the ordinary semantic construction already made commercial sense. After completion, the buyer alone was to determine whether further permission was required for the development. It made no commercial sense to give the seller power to obtain unwanted permission and thereby demand further payment.
4. The decision was limited to the issue and factual basis before the court. It did not determine whether permission obtained by the seller as agent or on behalf of the buyer might be treated as permission obtained by the buyer, or whether another remedy might be available. The lower court’s view that clause 3 could be adapted to seller-obtained permission was rejected.

1. Court of Appeal (Civil Division): In [2008] EWCA Civ 448, the appeal was allowed.
2. Chancery Division, Liverpool District Registry: His Honour Judge Hodge QC decided the preliminary construction issue in favour of the sellers, holding that the overage provisions applied where the seller obtained improved planning permission. The buyer appealed with permission from Pumfrey LJ.