Groveholt Ltd v Hughes & Anor

A proposed pleading based on an implied contractual term is arguable only if the term satisfies the rigorous test of necessity. The term must be necessary for business efficacy, rather than merely reasonable or fair, and both parties must have accepted it without hesitation. A significant condition which removes an entire contractual liability is unlikely to have been left to implication.

Later agreements do not change the meaning of an existing contract unless the parties made a new agreement or there is an evidential basis for attributing a new meaning to the earlier terms. An amendment must also plead its legal significance and consequences with sufficient clarity. An unappealed determination cannot be reopened merely by reformulating the rejected argument.

The appeal arose from Peter Smith J's refusal to permit Mr Hughes to amend his defence in proceedings concerning overage payable following the development of a former quarry. The proposed amendments alleged that compliance with accounting and cost-control procedures in a separate agreement with Sainsbury was a condition precedent to deducting infrastructure and site-assembly costs. Alternatively, Mr Hughes alleged an implied term to similar effect.

Mr Hughes also sought to treat later novation and supplemental agreements as altering the factual matrix for interpreting the earlier Hughes/Chelverton Agreement. A further amendment alleged that certain costs had not been incurred under the auspices of that agreement. The central issue was whether those proposed defences were reasonably arguable or were precluded by earlier determinations in the same proceedings.

1. Appeal dismissed. Arden LJ, with whom Wilson LJ and Henderson J agreed, upheld the refusal of permission to make the proposed amendments. The respondent's notice was allowed in part, and the judge's costs order remained undisturbed.

2. The earlier summary judgment decisions had established that costs could in principle be deducted, but had not determined every question concerning which costs were deductible. The proposed condition-precedent and implied-term arguments were therefore not barred by issue estoppel. Nor would their late introduction, in the circumstances of this complex litigation, justify refusing to consider the amendment as an abuse of process.

3. Nevertheless, the proposed condition precedent and implied term were not reasonably arguable. Both depended on implication and therefore had to satisfy the rigorous test of necessity. It was insufficient that the suggested term might make the contract fairer or better. The court had to be able to conclude that the term was necessary for business efficacy and that both parties would have accepted it without hesitation.

   The proposed term would have made any material non-compliance with the separate Sainsbury procedure capable of eliminating the right to deduct costs. Such a significant consequence was unlikely to have been left unstated. Moreover, the later Supplemental Agreement imposed only a best-endeavours obligation to obtain Sainsbury's compliance. That express obligation was inconsistent with an absolute condition precedent and indicated that breach would sound in damages rather than prevent all deduction.

4. The later Novation Agreement and Supplemental Agreement could not alter the meaning of the earlier Hughes/Chelverton Agreement without an evidential basis for finding that the parties had made a new agreement or intended the earlier terms to acquire a new meaning. Neither later agreement repeated the relevant provision. The proposed factual-matrix case therefore lacked an arguable factual foundation.

5. The allegation that costs were not incurred under the auspices of the Hughes/Chelverton Agreement failed to identify its legal consequence and lacked the clarity required of a pleaded defence. Alternatively, if it merely meant that the costs were incurred under another agreement, the point had already been decided against Mr Hughes in an unappealed order and could not be reopened.

1. Court of Appeal (Civil Division): By [2010] EWCA Civ 538, dismissed Mr Hughes's appeal against the refusal of permission to amend, allowed the respondent's notice in part and upheld the costs order.
2. High Court, Chancery Division: Peter Smith J refused permission on 31 July 2009 to make the disputed amendments and ordered Mr Hughes to pay 50% of the hearing costs.
3. High Court, Chancery Division: On 20 June 2008, Peter Smith J dismissed Groveholt's summary judgment application, holding that a trial was required to ascertain the deductible costs. His unappealed decision also rejected an argument that costs incurred outside the Hughes/Chelverton Agreement could not be deducted.
4. Court of Appeal (Civil Division): In [2005] EWCA Civ 897, affirmed the rejection of Mr Hughes's earlier summary judgment application, while varying the declaration concerning whether the overage sums were secured by the charge.
5. High Court, Chancery Division: In [2005] EWHC 48 Ch, Mr Nicholas Underhill QC, sitting as a deputy judge, rejected Mr Hughes's summary judgment application and held that infrastructure and site-assembly costs were deductible in principle.