Summary

The determination of an expert appointed under an option agreement construing the agreement in favour of the purchaser was contractually binding between the parties but not binding on the court as it was not a judicial decision. A concession by the vendor on the construction issue, made before bringing a rectification claim, left it without a remedy when the court construed the agreement in its favour, as the rectification claim had to fail.

Facts

The claimant property vendor (W) brought a claim for rectification of an option agreement it had made with the defendant developer (P). P wished to create a residential development in an area where the local authority typically, as a condition of planning permission, required developers to make an agreement under the Town and Country Planning Act 1990 s.106to provide affordable housing. Clause 21 of the option agreement provided that W would bear financial contributions in respect of a s.106 agreement save in respect of affordable housing. Schedule 7 para.11 of the option agreement provided that costs of carrying out works complying with a s.106 agreement were "development costs", meaning that they were deductible from the price payable by P. The parties disputed where costs under a s.106 agreement would fall on a true construction of the option agreement; an expert appointed under the option agreement found in favour of P. W argued that although the agreement, on its true construction, provided that the costs of affordable housing should be deductible, the parties had had a common intention that P would bear the costs and the agreement should be rectified to reflect that.

Held

(1) The question of construction was an essential preliminary to the rectification claim. The expert's determination of the construction issue was binding as a matter of contract between the parties. However, such a contractual resolution of the question could not bind the court because it was not a judicial decision and the doctrine of res judicata did not apply. Accordingly, if the court found that the agreement put the burden of the affordable housing costs on P, the rectification claim would have to fail because there would be nothing to rectify, leaving W without a remedy (see paras 5-6 of judgment). (2) Both parties had known that it was W's responsibility to apply for planning permission, that any grant would almost certainly require a s.106 agreement to provide affordable housing, and that it was open to the parties to agree between themselves how the burden of that obligation should be borne. The verb "bear" in cl.21 denoted where the ultimate burden of an obligation would fall: it was not an appropriate word to use, at least without qualification, to say who would pay the costs of affordable housing as they arose without prejudice to where liability should ultimately fall. Consistently with that, cl.21 provided that W would not be responsible for any financial contributions in respect of affordable housing. Schedule 7 para.11 extended to all costs incurred in complying with a s.106 agreement, although it said nothing explicitly about affordable housing. In the absence of cl.21, para.11 would have covered the expenditure in issue. However, given that cl.21 dealt explicitly with affordable housing, the general provision in para.11 was to be read as subject to the specific provision in cl.21. Accordingly, on the true construction of the agreement the burden of the costs of affordable housing fell on P and was not deductible from the purchase price, meaning that the rectification claim failed (paras 34-38). (3) (Obiter) If that was wrong, having analysed the relevant negotiations, it was apparent that there had been a common intention that P would bear the costs of the affordable housing and it would have been appropriate to rectify the agreement (para.83).