Bellway Homes Ltd v Beazer Homes Ltd

In a contractual joint venture, a clause requiring land to be disposed of in parcels of equal value ordinarily operates at the time of each disposal, unless the parties agree otherwise. An agreed allocation intended to restore equality and bring finality cannot generally be reopened because planning permission is later refused. Where experienced developers knowingly allocate land before permission is granted, the risk of refusal rests with the party receiving the affected parcel, absent a contractual adjustment mechanism. A shared assessment that permission is likely to be granted is not, without more, a sufficiently fundamental common mistake to justify relief. Practical fairness and the existence of other land within the joint venture do not displace the parties’ contractual allocation.

Beazer appealed from a preliminary-issue judgment of David Richards J in the High Court, dated 4 March 2010. The judge had declared that Beazer was obliged under clauses 3.1 and 3.2 of the Shareholders Agreement to exercise its voting rights so that Bellway received further land from the Middle Warren site, rectifying an alleged imbalance in the value of land previously allocated at Cramlington.

The dispute arose after the parties’ final 1999 allocation included land at Cramlington for which full planning permission was later refused. The central issues were whether the 1999 allocation was final, whether the Shareholders Agreement permitted a later balancing disposal from another development, and whether the unexpected refusal of planning permission engaged common mistake.

The Court of Appeal unanimously allowed the appeal. Gross LJ gave the principal judgment, Lloyd LJ agreed with Gross LJ and the Master of the Rolls, and the Master of the Rolls stated additional reasons in his own judgment.

1. Construction of the Shareholders Agreement. Clause 3.1(d) focused on each individual disposal of land. Unless the parties agreed otherwise, each disposal was to be divided between them in parcels of equal value, or as near as possible. Value was assessed at the time of the disposal. The agreement did not itself provide a general mechanism for later re-adjustment if the value or development potential of land subsequently changed.
2. Effect of the September 1999 allocation. Earlier unequal disposals had been made on account, with the expectation that the imbalance would later be corrected. The September letters were intended to restore equality in the Cramlington allocation and to bring finality. The disposal of the valuable part of the final allocation was implemented. The fact that another part was not developed did not justify reopening the completed allocation.
3. Allocation of risk. In September 1999 full planning permission remained unknown. The parties were experienced property developers and chose to proceed without waiting for permission or reserving their position. They therefore assumed the risk that the affected land would later prove unsuitable for development. The absence of an adjustment mechanism meant that the resulting loss lay where it fell. The Shareholders Agreement’s application to Middle Warren did not alter that conclusion.
4. Common mistake. The Master of the Rolls proceeded on the footing that an accord followed by a disposal could in principle be rescinded or adjusted for common mistake. However, the parties’ mistaken assessment of the likelihood of planning permission was not sufficiently fundamental. Applying Great Peace Shipping v Tsavliris Salvage Ltd, the mistake did not support relief.

The declaration in Bellway’s favour could not stand. The appeal was allowed.

1. Court of Appeal (Civil Division) — Appeal allowed on 20 January 2011.
2. High Court of Justice, Chancery Division — David Richards J determined the preliminary issue in Bellway’s favour on 4 March 2010 and granted a declaration requiring a further balancing disposal from the Middle Warren site.