Anglo Continental Educational Group (GB) Ltd v Capital Homes (Southern) Ltd

On the proper construction of a sale agreement, a defined development may mean the buyer’s current proposal, rather than a development already permitted or completed. Where that meaning makes the price formula workable, the court will prefer it to an interpretation that makes the agreement uncertain or ineffective.

A contractual deduction for the cost of releasing restrictive covenants may therefore be available despite the absence of planning permission. At completion the deduction is the amount reasonably required to enable the buyer’s then proposal. It need not already have been paid, and it does not include a later increase caused by delay in obtaining permission.

A term providing for an estimated deduction and later adjustment will not be implied where the contract, properly construed, already permits the price to be ascertained at completion.

The seller agreed to sell two properties subject to a planning condition. The buyer could waive that condition. The purchase-price definition stated a fixed sum less the amount required to obtain a release or variation of restrictive covenants so that the defined “Development” could be implemented.

After the buyer waived the planning condition, completion did not occur because the parties disagreed about the deduction. The seller contended that no deduction was available without planning permission and actual payment for a covenant release. The buyer sought an implied mechanism for an estimated deduction at completion followed by a later adjustment.

The deputy High Court judge rejected both constructions and declined to declare the agreement’s true meaning: [2008] EWHC 2201 (Ch). The central issue was how the contractual definitions operated when the planning condition had been waived.

1. Appeal and respondent’s notice dismissed. The court nevertheless determined the proper construction so that the parties could proceed to completion. The judge had jurisdiction to make a declaration and, in the appellate proceedings, the parties had a full opportunity to advance competing constructions.

2. The court construed the agreement so as to preserve its enforceability and to produce a result the parties were likely to have agreed. The defined “Development” meant the buyer’s proposal for the time being to develop the property as residential flats with no more than 14 two-bedroom units. It did not mean a physical completed development or one for which permission had already been granted. The phrase “not more than 14” allowed the proposal to change during the agreement’s currency.

3. A term was implied, as necessary for business efficacy, that the buyer must act reasonably when formulating that proposal, having regard to relevant planning information and professional advice. The proposal would crystallise into the development for which permission was granted.

4. Read with that definition, the purchase-price deduction was not conditional on planning permission. It was the amount reasonably required at completion to obtain a covenant release or variation enabling the buyer’s current proposal. The buyer need not have paid that amount already, but could claim only a sum it would reasonably pay once permission was obtained; it could not claim a later uplift caused by delay. The price was thus capable of calculation as a finite sum at completion.

5. The buyer’s proposed estimated-deduction and later-reconciliation term was unnecessary and was not implied. If the parties could not agree the deduction, the matter could be remitted to the Chancery Division for determination.

6. The judge erred by giving insufficient reasons for his treatment of challenged pre-contractual material, but his conclusion that it did not assist either construction was clear. The court also gave case-management guidance to prevent disproportionate disputes over the admissibility of such evidence.

• Court of Appeal (Civil Division): Appeal and respondent’s notice dismissed, but the court determined the contractual construction and held that a declaration should be made if the amount could be agreed.
• High Court of Justice, Chancery Division: David Donaldson QC, sitting as a deputy High Court judge, rejected both parties’ constructions, dismissed the claim and counterclaim, and declined to declare the agreement’s true construction: [2008] EWHC 2201 (Ch).