Summary

A company was entitled to be allocated land at a site it was developing with a second company where they had both previously agreed that the first company was due to receive land elsewhere which was later found to be incapable of development.

Facts

The claimant (B) sought a declaration that it was entitled to be allocated part of some development land, owned by a joint venture company (L) which B jointly owned with the defendant (X). B and X owned L in equal shares and used it to develop and sell land for residential use. Areas of land on one site were sold to B or X, not necessarily in equal amounts, but often in agreed proportions to reflect the capacity of each to undertake developments at different stages. Under the terms of the shareholders' agreement that approach was permitted with X and B's consent. X and B continued to develop the site in that manner on the basis that any imbalance would be made up in subsequent sales to them by L. When only two areas of the site were remaining, X had received more land than B had received. They therefore agreed that B would take a greater portion of one of the remaining two areas. However, it was later discovered that that area could not be developed. In the meantime, L had acquired a second site which B and X had started developing. The court was required to determine, as a preliminary issue, whether B was entitled to a declaration that it should receive a disposal of land from that second site to rectify the imbalance in the values of the land previously disposed of to B and X from the first site. X argued that each development had to be taken separately and that the allocation agreed had been final as regards their rights under the shareholders' agreement so the risk of development passed to B and X individually.

Held

B and X had intended that the final allocation of land at the first site would be the means by which B caught up so that overall it would have acquired the same amount of developable land as X. However, the area of land concerned was not developable at the date of disposal. Planning permission was refused within a relatively short period of time. If looked at in terms of the value of the land, any potential third-party purchaser would have inevitably looked carefully at whether planning permission would be given and there was no reason to suppose that a purchaser would have concluded that permission would be given. The final allocation of land at the first site did not therefore achieve what B and X had intended. X had accepted that if, at the date of agreeing the allocation, the area of land concerned had been known to be incapable of development, it would have been excluded and B would have been entitled to make up its existing shortfall of land from the other remaining area at the first site. The course of dealing between B and X demonstrated that if what occurred in relation to the area concerned had occurred at an earlier allocation of land at that site, B would have been entitled to make up the balance at a subsequent allocation of land there. Therefore, only if the allocation of land at the first site had to necessarily be divorced from the allocation of land at the second site would the course of dealing not result in B's shortfall being made up from land at that second site. There was nothing in the shareholders' agreement which dictated that result. Having embarked on disposals of parcels of unequal value, on the basis that the balance would subsequently be redressed, the shareholders' agreement did not prevent that arrangement from being carried forward from one development to another. There was also no agreement between B and X that the allocation was to be a final and binding settlement of their respective entitlements, irrespective of whether the whole or parts of the land then allocated were capable of development.

Declaration granted