Category Archives: JV Agreements

No prospects of planning so negligence did not cause application expense losses

Where a claim for breach of contract is successful, the first set of principles concerns the date of assessment of damages:

1. The overriding principle is that contractual damages are compensatory. The damages should represent the value of the contractual benefit the claimant has been deprived of by the breach of contract.

2. Prima facie damages are to be assessed as at the date of breach without regard to later events.

3. You can depart from that rule where it is necessary to ensure that the claimant is not over-compensated or under-compensated having regard to events which have occurred since the date of breach, in particular where matters which were contingencies at the date of breach have become faits accomplis later.

4. Where this is necessary, one way of departing from the rule is to assess the damages as at a later date. Another approach is to assess damages as at the date of breach, but in the light of later events.

In claims for professional negligence against solicitors and barristers where the lawyer’s negligence has resulted in their client losing the chance to bring a claim against a third party, a second set of principles apply to the quantification of damages. Here, the court must value the chance which has been lost. That means the court must assess the client’s prospects of success. If the underlying claim was certain to fail anyway, it will have had no value and the claimant will have no loss as a result of the lawyer’s negligence.

In Ridgewood Properties Group Ltd & Anor v Kilpatrick Stockton Llp & Ors [2014] the First Claimant (“RPG”) entered into a series of 9 contracts with Texaco Ltd (in its then and later names) (“Texaco”), known as the Airspace Agreements. Here RPG acquired conditional options to buy sites used by Texaco that were or included petrol filling station shops. RPG would apply for planning permission for redevelopment to become a shop with flats above. On planning permission, RPG would take a building lease of the site and carry out the development, and then, RPG would either acquire the freehold or a long lease of the site, subject to Texaco retaining the shop.

In apparent repudiatory breach of the options Texaco sold the 9 sites, to Somerfield Stores Ltd (“Somerfield”) and Azure Properties LLP (“Azure”), without reserving to RPG the power to compel Somerfield or Azure to perform Texaco’s obligations to RPG under the Airspace Agreements.

RPG claimed that their solicitors had negligently failed to advise RPG about their right to terminate the Airspace Agreements prior to March 2006. RPG said that, if the solicitors had advised that Texaco’s apparent repudiatory breach of the Airspace Agreements enabled RPG to terminate the Agreements and claim damages for loss of opportunity to perform them, RPG would have done so, and would not have continued to seek planning permissions.

The court concluded that irrespective of any repudiation of the Agreements by Texaco, RPG had never had a real prospect of successfully obtaining the planning permissions anyway, so any claim for wasted costs would fail. Going ahead with something which (independently of any Texaco breach or solicitor’s negligence) they had no chance of getting had broken the causal link between any Texaco breach of contract/solicitor’s negligence and their loss incurred in wasting expenditure on planning applications: as that loss was always bound to occur if they went ahead with applications which had no prospects of success – regardless of the status of the Airspace Agreements.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Court looked at Sales Speak and Reality when deciding on prohibited Property Collective Investment Scheme

Section 235 of the Financial Services and Markets Act 2000 (“FSMA”) controls sales of land, or arrangements relating to sales of land, which are “collective investment schemes” within the meaning of that section.

In Asset Land Investment Plc & Anor v The Financial Conduct Authority (FCA) [2014] the respondent was the Financial Conduct Authority (“the FCA”). By its claim, it alleged that certain so-called “land banking” schemes established and operated by Asset Land were unauthorised “collective investment schemes” within the meaning of Section 235 of FSMA and that certain of the defendants had been knowingly involved in such schemes in contravention of various provisions of FSMA.

A principal issue was whether there were “arrangements” within Section 235.

The court of appeal found that Sections 235(1), (2) and (3) are drafted in such a way as to justify the giving of a very wide meaning to term “arrangements”. It included understandings and agreements that were not legally binding.

Here “arrangements” came into existence through (i) the representations and statements made by brokers acting for Asset Land as to what the schemes entailed, coupled with (ii) understandings as to what the schemes entailed reasonably formed by investors (again based on what they had been told).

The test was to be approached objectively and was whether, based on what they had been told, reasonable investors participating in the scheme would have understood that the scheme involved arrangements of the type described under Section 235.

The Appellants’ argument that what investors were told was mere sales talk from which they made unjustified assumptions and formed aspirations, cut little ice.

“Arrangements” under Section 235 may subsist even in the case of inconsistent contractual terms.

In each case the judge must objectively decide what, in reality, were the “arrangements” between the operator of the scheme and the investors, and how the scheme was designed to, and did, operate in practice.

The mere fact that a contract had been concluded between the parties could not necessarily mean the “arrangements” were restricted to the terms of the contract.

As the Appellants accepted, the term “arrangements” extends to matters which are not contractually binding and are otherwise of no legal effect.

The differences in understanding of the Scheme as between the different investors were irrelevant because “each [investor] entered into [individual] arrangements with Asset Land that were covered by Section 235(1).

Also the mere fact that one or two individual participants had different intentions as to the future use of their individual land plots did not prevent the purpose of the scheme, as described by Asset Land’s representatives, from satisfying the purpose/effect requirements of Section 235(1).

What was needed was an objective assessment of the purpose of the arrangements. Here the arrangements which had been presented to all investors by Asset Land’s brokers were the acquisition of land for investment purposes. The fact that a limited number of investors may have signed up to the plan for reasons other than investment did not prevent “arrangements” within Section 235(1) from arising.

In ascertaining and determining the relevant “arrangements”, for Section 235, the court was not obliged to rely solely upon a strict view of the legal rights and duties of the parties as presented in the legal documentation.

The court had to look at the overall realities of the scheme, as it was designed to operate in practice, and, as it had been presented to investors.

The judge was perfectly entitled to find that, in truth, the essential features of the “arrangements” were those that had been represented in the oral, often telephone, sales pitch to investors, and not the artificial and misleading picture, attempting to negate “arrangements”, that Asset Land tried to present in the footers to some of its brochures and its contractual documentation.

That was particularly so as (i) it was only after an investor had paid the purchase price for his plot in full that he received a written contract containing those clauses; and (ii) any investor who did query the effect of those clauses, or otherwise raised the written contract’s terms with Asset Land representatives, was told not to worry about the provisions, they were merely legal requirements, or that the correct position had been as represented during earlier telephone calls.

So Asset Land’s appeal was rejected and the arrangements had been prohibited collective investment schemes.

This blog is posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Non payout highlights need for lawyer negotiated provision for payout deadline extensions in property Joint Venture Agreements

If there are circumstances that might justify the extension of a Joint Venture, Option or Conditional Contract Period it is very important that they be spelt out in the Agreement and that these be backed up by appropriate dispute resolution mechanisms.

Nordic Insulated Doors Ltd v Land Resources Ltd [2014] was a dispute between the parties under a Joint Venture Agreement (“the JVA”) of 31st August 2011 for the development of a property at St Lukes Court Willerby Hull (the “Property”). the Claimant wanted £160,000 damages for the Defendant’s failure to pay the amount due under the JVA.

The Claimant’s Mr Finn provided the expertise to renovate and/or improve properties and the Defendant’s Mr Maguire would put in the finance.

The JVA had been drawn up by the parties without legal advice.

Initially there was an dispute about the split of any profits on the sale of the Property with the Defendant claiming the first £600,000 of profit i.e. after repayment of the considerable sums that it had put in to JVA’s expenses.

The Claimant’s case was that the Defendant was entitled to a fixed sum of £600,000 on account of its expenditure after which the profits were to be split 50/50. Thus the Claimant was entitled to £150,000 plus a modest figure in respect of rental income.

clause 6 of the JVA was the major reason for non payment:-

“6. This agreement will finish on 01/08/2012 and after that date [the Claimant] will have no vested interest in the site.”

This passed a high risk to the Claimant. As this case illustrated, it could do a lot towards a sale only then to be denied any entitlement because the £900,000 sale only completed after 1st August 2012. Nevertheless, the Claimant’s Mr Finn had worded this clause and had conceded he knew and understood that, without any extension, the JVA came to an end after 1st August 2012 and that the Claimant would have no claim in respect of the JVA after that.

The sale did not take place until after 1st August 2012. So the Defendant contended that the Claimant was not entitled to anything.

The court found that there had been no point agreeing another 3 months extension in the hope that something might turn up. Neither Mr Finn nor Mr Maguire were willing to put any more money into the project. The Defendant had reached or exceeded the £600,000 allowed for deduction of expenditure. Nor would 3 months have been anything like long enough to obtain necessary planning permissions and building regulation approval.

Although the Defendant’s relationship with the Claimant had broken down, the Defendant was willing to stand by the letter of the JVA but nothing more. It did so.

Completion was 2 days too late for the Claimant to get a share for reasons that were not the Defendant’s fault. Had the Defendant wanted to block the Claimant getting the monies there were any number of things it could have done to slow the progress of exchange and completion whilst avoiding appearing to be thwarting the completion. In fact the sale would have exchanged and completed within the JVA time limit but for the fact that the buyer did not have sufficient funds.

The Claimant’s misfortune here arose from the freely agreed penal nature of clause 6 of the JVA and not from any default on the part of the Defendant.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.