City and General (Investment) Ltd v Razama Ltd

A contractual requirement for written consent must be construed in its commercial context. Approval in principle is not necessarily invalid because it reserves approval of technical detail, where that reservation concerns reasonable conditions for protecting adjacent infrastructure. A consent approving a proposed development, while reserving approval of foundation details needed to protect and operate a railway, may satisfy a contractual requirement for consent to the development. A buyer may withhold approval only where there is a reasonable contractual basis for doing so.

City and General (Investment) Ltd v Razama Ltd appealed from an order of the High Court, Chancery Division, made by HHJ Mackie QC on 31 March 2009. The judge dismissed a Part VIII claim seeking a declaration that the seller had obtained the Network Rail consent required by a land sale agreement.

The agreement required the seller to use entire endeavours to obtain consent before completion. The proposed Network Rail letter approved the development permitted by planning permission but reserved approval of foundation details and compliance with reasonable conditions. The central issue was whether that letter constituted the defined Network Rail consent.

Lord Justice Laws gave the leading judgment. Lord Justice Jacob and Mr Justice Lewison agreed. The appeal was allowed.

1. The contractual definition of Network Rail consent had to be construed against the commercial background. The restrictive covenant in the 1966 transfer was an obstacle to the purchaser’s intended development, and the consent was intended to enable the development to proceed as against Network Rail.
2. The definition gave primacy to written approval permitting development in accordance with the planning permission. Its generality was qualified only by the provision allowing covenants, restrictions and impositions generally imposed by Network Rail for protection and operation of the adjacent railway.
3. The Network Rail letter approved the whole development in principle. The planning permission did not determine the design of the foundations, which would have to be designed by the purchaser. A reservation of approval over foundation detail was therefore commercially necessary and was narrower than the restriction in paragraph 1(b) of the transfer.
4. The reservation did not make the approval conditional in a manner repugnant to the contractual definition. It demonstrated that Network Rail had accepted the development in principle while retaining a proper right to regulate foundation details for railway protection and operation. The High Court’s construction, which effectively required unqualified approval, could not be sustained.
5. There was no reasonable basis under the contract for the buyer to withhold approval of the consent. The contractual condition had been satisfied and the appeal was allowed.

• High Court, Chancery Division: HHJ Mackie QC dismissed the seller’s Part VIII claim on 31 March 2009.
• Court of Appeal (Civil Division): The court allowed the appeal and rejected the High Court’s construction. The decision is reported at [2009] EWCA Civ 1568.