National & Provincial Building Society v British Waterways Board and others

Summary judgment — Contract for sale of land — Development scheme for land owned by appellants — Site leased by appellant to developer — Phased transfer of site by appellant to developer — Development finance provided by building society — Building society receiving legal charge on lease as well as assignee of agreement — Developer becoming insolvent — Society granted specific performance of contract between appellant and developer — No covenant requiring society to be put on terms with other obligations of the lease — Appellant granted unconditional leave to defend actionBWB was the freehold owner of a site of 3.965 acres at Armagh Wharf and Parnell Wharf adjacent to the Hertford Union Canal at Tower Hamlets, London. In 1987 the site was ripe for development. The site was part of a larger area of land owned by BWB on both sides of the canal. BWB was a public body which was concerned, among other things, with environmental considerations. A development scheme for the site was prepared by a company (“A”) and submitted to BWB in October 1986. That scheme showed that developing the site with 282 houses and by selling the units at prices between £120 and £180 per sq ft, a sum of £26,261,250 should be achieved. By deducting from that the estimated costs of development and a notional developer’s profit, the sum of £4,055,000 was left as the price for the site. If the units sold for prices exceeding those estimated, it was agreed that the additional profit, known as “overage”, should be divided equally between BWB and A. The machinery adopted for the implementation of the development scheme was a lease of the site made between BWB as lessor and A as lessee for 39.5 years and the rent reserved was a peppercorn (if demanded). Clause 3 of the lease contained detailed covenants by A to develop the site according to agreed and approved plans and specifications and to complete the development before December 31 1991. Clause 5 contained provision for payment of the overage. Clause 7 provided for the phased transfer of the site by BWB to A since the scheme contemplated as the sequence of events: (1) a transfer of the freehold to the developer; (2) the creation of two intermediate charges; (3) a third charge to secure the lessor’s share or basic overage; and (4) the release of the charge on the sale of each house. On the same date A entered into a joint-venture agreement with building contractors (“L”, the third defendant), which provided for the contractors to advance £1,500,000 for the development of the site to be secured by a legal charge over the lease. Subsequently A, with the consent of BWB, transferred its interest in the lease to its subsidiary company, AD Ltd. The building society agreed to provide development finance to A to a total sum of £9,854,851, secured by a legal charge on the lease and an assignment of the benefit of the contract to buy the freehold contained in the lease. The contractors agreed to the society’s charge ranking in priority to its charge. BWB agreed to a variation of the lease by extending the date for completion of the development to June 30 1992 and by the provision of an additional payment to BWB of £300,000. The funding agreement with the society was replaced by a revised funding agreement and there was a new mortgage debenture by A in favour of the society and a new legal charge by A in favour of the contractors. In each case there was included an assignment (by way of security) of the benefit of clause 7 of the lease. The priorities as between the society and the contractors were reconfirmed. BWB agreed to a second variation of the lease in return for the payment of a sum of £700,000. A slowed and then stopped the development of the site by the middle of 1990. On October 2 1991 a compulsory winding-up order was made against A which was insolvent and there was no prospect of BWB being able to recover from A any part of the moneys due. On May 20 1992 the society issued a writ to which BWB, A and the contractors were defendants, claiming specific performance of the agreement in clause 7 of the lease. Judge Maddocks, sitting as a judge of the High Court, granted summary judgment for specific performance of the contract of sale. BWB appealed against that decision. Following the judgment a dispute arose as to the form of the conveyance by BWB to A required to give effect to the order. The question was whether it should include a covenant, restrictive in form, so as to be binding on the society, not to use the site or any part of it save for the purpose of development and sale in accordance with the covenants contained in clauses 3 and 5 of the lease. The judge held that the conveyance should not contain any restrictive covenant. The result was that if his order stood, the society would become entitled to a transfer of the remainder of the site free from any obligation to pay to BWB the second instalment of additional overage and further overage and interest leaving BWB with a worthless claim for damages against A. Further, the society would take free from any obligation to develop it in accordance with the scheme of development as laid down by the lease to the possible detriment of BWB’s environmental concerns and its interest in adjoining property. Held The appeal was allowed. BWB was given unconditional leave to defend the action. 1. In the absence of possible relevant evidence, the court would proceed on the assumption that the judge was right in holding that clause 67 of the lease created a free-standing contract for sale, independent of the other obligations in the lease. Nevertheless that was not of itself sufficient to require the court to decree specific performance of the contract in clause 7, leaving BWB to its worthless remedy in damages in respect of its rights under clauses 3 and 5. 2. In practice, where a single transaction was involved, the court would not concern itself with the question whether it was possible formally to split up the transaction into two separate contracts; the question was whether the obligation which the plaintiff had failed to perform was sufficiently important (having regard to its connection with the obligation which the plaintiff was seeking to enforce) to make it inequitable to grant specific performance. 3. It was not the case that wherever it was possible formally to split up a single transaction into two separate contracts, specific performance of the one contract would always be granted, notwithstanding breaches of the obligations in the other contract which were highly material to the transaction considered as a whole. 4. Where the agreement was one which involved the continuing of future acts to be performed by the plaintiff, he must fail unless he could show that he was ready and willing to carry out those obligations, which were in fact part of the consideration for the undertaking of the defendant that the plaintiff sought to have enforced: see Chappell v Times Newspapers Ltd [1975] 1 WLR 482 at p 502; Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 WLR 425. 5. In the present case whatever might turn out to be the position at the trial there were very strong arguments against the grant of specific performance of the contract contained in clause 7 of the lease without the society being put on terms as to compliance with A’s other obligations contained in clause 3 and 5 of the lease. Terence Etherton QC (instructed by Linklaters & Paines) appeared for the appellant, British Waterways Board; David Neuberger QC (instructed by Eversheds, Hepworth & Chadwick) appeared for the first defendant; Laura Garcia (instructed by Davies, Arnold and Cooper) appeared for the third defendant.