Groveholt Ltd v Hughes & Anor

The Court of Appeal dismissed the appellant's challenge to the refusal of permission to amend his re-amended defence. Central legal questions concerned the deductibility of site assembly and infrastructure costs from overage payments under a chain of contracts (notably the Hughes/Chelverton Agreement and the Sainsbury Agreement) and whether detailed procedural machinery in the Sainsbury Agreement (clause 15) gave rise to a condition precedent or implied term preventing deduction unless that procedure was followed. The court held that the proposed amendments were not reasonably arguable: the suggested condition precedent and implied term failed the necessity test for implication and were inconsistent with the contractual matrix (including the Supplemental Agreement). Further proposed amendments alleging that certain works were not carried out "under the auspices" of the Hughes/Chelverton Agreement lacked clarity and were either estopped by earlier decisions or non-arguable. The judge's costs order was left undisturbed.

This dispute arose out of competing claims to overage payments payable following development of land at Cawdor Quarry, Matlock. The respondent Groveholt Ltd was successor to Chelverton, the purchaser/developer, and the appellant Mr Alan Hughes was the original vendor entitled to staged overage payments under the Hughes/Chelverton Agreement. The Sainsbury Agreement (relating to an earlier sale of part of the quarry) contained detailed procedures for ascertaining site assembly and infrastructure costs (the "Costs"). Chelverton was novated into some Sainsbury obligations, but later entered liquidation and its liquidator disclaimed the Hughes/Chelverton Agreement. Sainsbury completed the works; total Costs exceeded £13 million, which would eliminate Mr Hughes' overage absent successful challenges to the deductibility of those Costs.

The proceedings involved earlier interlocutory and appellate decisions, including judgments of Mr Nicholas Underhill QC (Deputy Judge) and this court ([2005] EWHC 48 (Ch); [2005] EWCA Civ 897), and a fuller trial judge judgment by Peter Smith J (20 June 2008) which directed that the question of what Costs were deductible required trial. On 31 July 2009 Peter Smith J refused permission to the appellant to amend his defence in specified respects and ordered him to pay 50% of the costs of the hearing.

The appellant sought to amend his plea to assert (i) that compliance with the Sainsbury procedure was a condition precedent to deduction of Costs, (ii) that there was an implied term that Chelverton could not recover more than the aggregate costs as would have been identified under the Sainsbury procedure, (iii) that the Sainsbury Agreement formed part of the factual matrix for construing the Hughes/Chelverton Agreement after novation and supplementation, and (iv) that certain works were not done "under the auspices" of the Hughes/Chelverton Agreement.

The Court of Appeal analysed each proposed amendment. It accepted that prior decisions established that deduction of Costs was required in principle but had not decided which Costs. However, the court concluded that: (i) the condition precedent and implied-term arguments were not reasonably arguable because they required the implication of a significant, necessary term which the parties would not have left to implication; (ii) the Supplemental Agreement, which required only best endeavours as to compliance with the Sainsbury procedure, was inconsistent with the appellant's proposed implied term; (iii) there was no evidential basis to treat the Novation/Supplemental Agreements as altering the meaning of the earlier agreement so as to admit the Sainsbury Agreement into the contractual matrix for interpretation; and (iv) allegations that works were not "under the auspices" of the Hughes/Chelverton Agreement lacked clarity and were precluded by earlier rulings or non-arguable.

The appeal was dismissed and the judge's order on costs was left undisturbed.

The appeal against refusal of permission to amend was dismissed. The Court of Appeal held that the proposed amendments—seeking to import a condition precedent, an implied term, or to treat the Sainsbury Agreement as changing the contractual matrix—were not reasonably arguable. The implication of the substantial condition precedent or term failed the necessity test; the Supplemental Agreement (best endeavours) was inconsistent with the proposed implied term; and the allegation that costs were not incurred "under the auspices" of the Hughes/Chelverton Agreement lacked clarity or was estopped by earlier decisions. The judge's costs order was not disturbed.

This judgment is an appeal from the order of Peter Smith J dated 31 July 2009 refusing permission to amend the defence and ordering cost contributions. The litigation had earlier involved interlocutory rulings by Mr Nicholas Underhill QC (Deputy Judge) ([2005] EWHC 48 (Ch)) and an appeal to this court ([2005] EWCA Civ 897) addressing the effect of the disclaimer by Chelverton's liquidator and whether Costs could be deducted; Peter Smith J gave a fuller judgment on 20 June 2008 directing trial on the quantification of deductible Costs.