Summary

On the proper construction of an agreement between a property developer and landowners, whereby the developer had agreed to use its expertise to maximise the potential of land for development in return for a fee payable upon the sale of the land once planning consent had been obtained, the landowners were prevented from selling or otherwise disposing of the land whilst the agreement remained in force.

Facts

The first claimant property developer (B) sought a declaration that the defendant farmers (P) were not entitled to sell or otherwise dispose of any estate or interest in land that had been the subject of an agreement between them before the grant of a planning consent for development, and an injunction restraining any sale contrary to the terms of that declaration. P counterclaimed seeking a declaration that there was no restriction upon their entitlement to dispose of their interest in the relevant land prior to the grant of planning consent for development. The parties had entered into an agreement whereby B was to use its property development expertise to maximise the potential of a substantial part of P's land for development; in return B would receive a fee if and when the land was sold with consent for development. B was subsequently active in promoting P's land for development and the prospects of the land obtaining a planning consent of considerable value had been enhanced by B's efforts, but consent had not yet been obtained. B became aware of P's expressed wish to sell the land to a third party for a highly advantageous price, and issued the instant proceedings. An issue arose as to whether P were free to sell part of their farm that was subject to the agreement or whether a sale of that land by P would be an actual or an anticipatory breach of the express or implied terms of the agreement or both. B contended that P were not free to sell any part of the land as the agreement was to be read as providing that the parties were to remain in the relationship of consultant and landowner until the position had crystallised in relation to the planning objective and the obtaining of consent. B submitted that a fee was payable to it only by P and no other party, and that the agreement would become unworkable if P were to sell before consent was obtained, and further that the agreement had imposed on P a contractual obligation to observe reasonable standards of fair dealing in accordance with their action and faithfulness to the agreed common purpose and consistency with B's justified expectations. P denied that such an obligation could be construed, and further argued that, in order to interpret the agreement, draft consultancy agreements should be considered by the court.

Held

(1) The draft consultancy agreements were not admissible in evidence as an aid to the interpretation of the concluded agreement, Prenn v Simmonds (1971) 1 WLR 1381 applied. In any event, even if admitted, those materials would not have assisted the court. (2) On the proper construction of the agreement, the intended sale by P would place them in breach of it. An agreement could create a contractual obligation to act in utmost good faith, Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd (1989) QB 433 considered. The agreement had obliged the parties to act with the utmost good faith towards each other, and reasonably and prudently at all times. Since making the agreement, B had invested considerable time and effort and had incurred expense, which had enhanced the value of P's land. There had been no offer by P to pay B a reasonable fee, and B had no entitlement to a reasonable fee in the event of the proposed sale. A third party would not be bound by the agreement to pay B. The sale envisaged by P therefore broke the obligation to act in good faith as it did not observe reasonable commercial standards of fair dealing or faithfulness to the agreed common purpose, and was not consistent with B's justified expectations. (3) In view of the conclusion that a sale by P would be a breach of the express terms of the agreement, it was not strictly necessary to determine whether it was appropriate to imply a term restricting the sale or other disposal of the land in addition to P's express obligation. However, in the circumstances, it would have been necessary to give business efficacy to the agreement to imply into it a term that P were not free to sell the land whilst the agreement remained in force.

Judgment for claimants