Citation: [2022] EWHC 432 (CH)
In a judgment handed down on 4 March 2022, Fancourt J held that:
the Claimant’s notice that there will be “demand” for certain services, served pursuant to a section 106 agreement made between the Defendant and the local planning authority (incorporated into a further agreement made as between the Claimant and the Defendant), was not valid on the basis that the Claimant did not hold honest belief in the truth of its content;
in addition: it was implicit that in order for the notice to be valid the Claimant had to have a reasoned basis for making the evaluation of the matters asserted in the notice.
Background
The parties were once subsidiaries within the same group, but no longer. The Defendant was the owner and operator of a gas-fuelled power station. The Claimant was the owner of land adjacent to the power station which was to be developed into an “energy park”.
The two parties had each entered into section 106 agreements with the local planning authority relating to their respective projects some years ago.
The Defendant’s section 106 agreement had been revised a number of times but the relevant and most recent version provided for the provision of certain services or utilities by the Defendant to the occupier or occupiers of the Claimant’s energy park, namely (1) electricity to be supplied directly from the power station, (2) un-odorised gas to be supplied at high pressure (75 bar) and (3) thermal energy i.e. hot water heated by the (gas) power station.
The Defendant’s obligation to install the infrastructure required for these services arose once the owner of the energy park land (the Claimant) had served notice that there is or will be demand on the part of the occupier of the energy park.
Characteristics of the three services meant that there was no certainty that there would be any “demand” for these services. In particular a supply of un-odourised gas at high pressure would only be of use to a specialist industrial user (eg a facility for the manufacture of hydrogen), or another gas power station.
The supply of thermal energy would be intermittent: the Defendant was not obliged to provide a constant supply. Any occupier taking such a supply would therefore also require a back-up system for the extensive periods when there would be no hot water. In addition since any such thermal energy would be heated by gas its carbon cost would be much greater than taking the same energy from the national grid. When the idea of the energy park was first formulated in the late 1990s that would not have been an issue; it was an issue by the time of the events giving rise to these proceedings. In practice the operation of the Building Regulations and carbon targets meant that the use of a heating system fuelled by a fossil fuel would be problematic and undesirable.
A further issue that might limit “demand” was that the Defendant’s s106 obligations only persisted for 15 years from the commissioning of its gas power station. That had occurred in about March 2010. Therefore after March 2025, any occupier by then dependent upon the supply of these rather specific services would either have to obtain them from another source or seek to persuade the Defendant to continue the supply but from a somewhat hopeless bargaining position.
The parties entered into an agreement (referred to as the cooperation agreement) which allowed each of the parties to enforce the other party’s s106 obligations against one another.
The dispute
The Claimant purported to serve notice dated 27 June 2018 to the effect that there would be occupiers and therefore demand for the services in about mid-2019.
As at that stage, the Claimant itself had done nothing to commence building the development; it had no occupiers or even prospective occupiers. It had outline planning permission for the energy park only, save for reserved matters planning permission for a small area of offices only. It did not have effective permission for the sort of occupier that might have any use for a high pressure gas supply.
The Claimant contended that in order for its notice to be valid it needed only to hold honest belief in the truth of its contents.
The Defendant disputed honest belief. The Defendant also contended that, as a matter of construction of the s106 agreement, there needed to be an identified occupier (whether or not one physically on site) with the requisite demand or future demand; the court rejected that argument.
The Defendant contended in the alternative that in order to serve a valid notice, the Claimant had to hold not only an honest view that there was or would in the future be demand on the part of the occupier but also one that was not capricious or arbitrary, and one that took into account all relevant matters and disregarded all irrelevant ones (in other words that there should be an implied term of the kind upheld in Abu Dhabi National Tanker Co v Product Star Shipping Ltd (No 2) [1993] 1 Lloyd’s Rep 397 and/or Braganza v BP Shipping Ltd [2015] UKSC 17).
The Claimant brought proceedings under CPR part 8 (supported initially by a statement made by the Claimant’s external solicitor, acting in the proceedings), contending that the issue of the validity of the notice was a short point of construction and/or legal argument. In the event the court directed that the case remain within part 8 but that there be a five day hearing with expert evidence and cross examination of expert and lay witnesses.
In due course the Claimant served extensive evidence on the part of the author of the disputed notice (a statutory director of the Claimant company) as to the Claimant’s honest belief as at the time of the notice. He gave oral evidence and was cross-examined.
It became apparent during that oral evidence that the Claimant’s witness had really no direct knowledge as such about any of the matters referred to in his various statements or in the correspondence from the time. His information came from a co-director, one of the Claimant’s general counsel, who was also the author of all or nearly all of the correspondence from the time (although he had not signed the June 2018 notice itself, the honesty of which was in issue in the proceedings). The GC did not make a statement or appear as a witness at the trial.
Of particular note (so far as the Defendant was concerned) was repeated reference made in the GC’s correspondence with the Defendant, and in the Claimant’s witness evidence, to a plurality of potential tenants or occupiers who had or would have demand for the services as of June 2018. In the event the documents disclosed by the Claimant indicated that (1) there was at most a single party, (2) that one party was interested not as a potential “occupier” (which is what the s106 agreement referred to) but as a developer, and (3) far from having demand for the relevant services that party wanted to acquire land that was not serviced, and to obtain a release excluding that area of land from the application of the cooperation agreement.
Judgment
The learned judge found that the Claimant did not hold the requisite honest belief. In reaching that conclusion he found that the witness evidence contained matters that were “untrue and misleading” and that the correspondence and witness evidence sought to give a “false” picture of the position.
The court also upheld the Braganza-type implied term and found that the Claimant’s evaluation of future demand was without adequate basis.
Justin Mort QC appeared for the successful Defendant, instructed by Jessica Neuberger and Alice Maloney of Eversheds Sutherland (International) LLP.
