Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd

Contract – Repudiation – Preliminary issue – Appellant alleging agreement with respondent for grant of lease of site – Respondent deciding to dispose of land by competitive process – Appellant seeking damages for breach of contract – Preliminary issue arising whether document titled “Heads of Terms of Proposed Agreement” being binding and enforceable agreement between parties – High Court determining issue in favour of respondent – Whether court erring in law – Appeal dismissed In 2012, the respondent farming business had some unused land at Heath Farm, Metheringham Heath, Lincolnshire, comprising a former flax factory and adjoining field. The appellant company operated anaerobic digestion (AD) plants, producing biogas and electricity from organic matter. The appellant contended that the parties had entered into an agreement in November 2013 under which the respondent agreed to grant the appellant a 25-year lease of the site for the purpose of an AD plant. The agreement was allegedly contained in a document called “Heads of Terms of Proposed Agreement… Subject to Full Planning Approval and appropriate consents and easements” (the HoT). The appellant argued that the respondent had repudiated that contract, and had become liable for damages, in September 2014. The respondent contended that there had never been a binding contract: The only enforceable contract between the parties was an exclusivity or “lockout” arrangement by which the parties had agreed not to enter into negotiations with third parties until 31 July 2014. The court ordered the trial of a preliminary issue whether the document entitled “Heads of Terms of Proposed Agreement” was a binding and enforceable agreement between the parties other than in respect of the lockout provision. The High Court held that it was not: [2022] EWHC 1467 (Ch); [2022] EGLR 29. The appellant appealed contending that, although the judge set out the correct legal principles, she had not applied them correctly. Held: The appeal was dismissed. (1) Since it was common ground that the parties intended to be bound by the lock-out agreement, the omission of the phrase “subject to contract” was of less importance than it might have been. It was significant that the parties stipulated that a formal agreement should be drawn up. However, so long as they were only in negotiation either party might retract; and though the parties might have agreed on all the cardinal points of the intended contract, if some particulars essential to the agreement still remained to be settled afterwards, there was no contract. The parties, in such a case, were still only in negotiation. But as soon as the fact was established of the final mutual assent of the parties so that those who drew up the formal agreement had no power to vary the terms already settled, the contract was completed. It was envisaged that the formal contract would do no more than put into formal language that which the parties had already agreed: Rossiter v Miller (1878) 3 App Cas 124, Branca v Cobarro [1947] 1 KB 854 and RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG [2010] 3 All ER 1 considered. (2) In the case of an agreement, not to sell an existing estate, but to create an entirely new leasehold estate for 25 years, the reference to a formal agreement had added significance. The more complicated the subject matter the more likely the parties were to want to enshrine their contract in some written document to be prepared by their solicitors. That enabled them to review all the terms before being committed to any of them. The commonest way of achieving that ability was to stipulate that the negotiations were “subject to contract” but it was not essential that there should have been an express stipulation that the negotiations were to be “subject to contract”: Winn v Bull (1877) 7 Ch D 29 and Cheverny Consulting v Whitehead Mann Ltd [2006] EWCA Civ 1303; [2007] 1 All ER (Comm) 124 considered. In the present case, the grant of a lease for 25 years of an AD plant which was yet to be built was at the more complicated end of the spectrum. Each case depended on its own facts but where, as here, solicitors were involved on both sides, formal written agreements were to be produced and arrangements made for their execution, the normal inference would be that the parties were not bound unless and until both of them signed the agreement. It was striking that when, some months after the HoT, a draft lease prepared by the appellant’s solicitors was mooted as the basis for the lease, it ran to over 40 pages. The idea that that draft was merely embodying terms already agreed was untenable. (3) The time from which the term of a lease was to begin was a term that the law regarded as essential to the creation of a binding contract for lease. Thus, even where it was plain that the parties intended to enter into a binding contract for lease, if the time from which the lease was to begin was uncertain, the agreement was incomplete; and there was no binding contract. Equally, if the start date for the term of the lease was uncertain, it was a very powerful objective indicator that the parties did not intend to be bound. In this case, it was not possible to deduce from the terms of the agreement, with reasonable certainty, when the term was intended to begin. The final clause of the HoT provided for a formal agreement to be drawn up within one month of planning permission having been achieved. It might have been argued that the contractual completion date was the agreed date on which the 25-year term was to begin and there was no impediment to the grant of a lease the term of which was expressed to run from a date prior to its execution. However, the idea of a “rolling” 25-year term was the antithesis of certainty. The appellant had no express obligation to apply for planning permission; and even if such an obligation were to be implied, there was no timetable for making such an application. Therefore, if the agreement for a lease was contractually binding, but the lease would not come into effect until the date on which it was actually executed, the respondent’s land might be sterilised indefinitely. The more obvious inference was that the parties did not intend to be contractually bound: Liverpool City Council v Walton Group plc [2002] 1 EGLR 149 considered. James Pickering KC and Sally Anne Blackmore (instructed by Jackamans Solicitors) appeared for the appellant; Dov Ohrenstein (instructed by Roythornes Ltd) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd