Landowner disputes: enforcing an agreement
Ken McEwan, Director and Head of Personal Dispute Resolution recently acted in a long-running highly acrimonious dispute between owners of neighbouring residential properties worth millions of pounds. The dispute focussed on a claim to enforce restrictive covenants and an application for specific performance of the provisions of an agreement and Tomlin Order made in 2018 which had been agreed between the parties as a compromise of litigation then before the court.
As part of a mediated settlement of the wider dispute, the Defendants agreed to carry out all repairs reasonably necessary to an area of the Defendants land:
- Using reputable contractors and good quality materials
- To a standard sufficient to allow the local authority to repair and reopen the footpath
- To the reasonable satisfaction of a jointly appointed surveyor
- With reasonable expedition and in any event by a date in October 2018.
An expert had previously been retained by the local authority who had prepared a report setting out a proposed scheme of works. There had been an Indication from the contractor instructed by the defendant that the repairs in the report would likely cost in the region of £70,000. However, the test of compliance in the agreement was simply that the Local authority could reopen the footpath and the works had to be carried out to the reasonable satisfaction of the joint expert.
Unfortunate for the defendant then, that a project which he said he expected to cost some £70,000 ended up more likely to cost £2,000,000.
The defendant did not comply with the order and the claimant sought to enforce it and issued an application for specific performance. This was resisted by the Defendant, who argued that:
- The terms of the agreement were too uncertain in their meaning and scope to be enforceable and were therefore void.
- The agreement had become impossible to perform and the agreement was frustrated.
- The agreement was subject to an express or implied term that the works would be completed in the manner set out in the report prepared by the expert instructed by the local authority and who had prepared a report.
- The parties had entered into the agreement acting under a mistake.
- The works under the agreement could not be construed as to include land belonging to third parties.
- A specific performance order would cause undue financial hardship to the defendant so that being an equitable remedy should not be granted.
The defendant relied upon the disparity between what he said he thought the works were going to cost and what they were actually going to cost.
However, the judge accepted the claimant’s submissions, which drew heavily on the judgement in Arnold V Britton (2015) and the academic text, The Interpretation of Contracts 6th Edition by Sir Kim Lewison:
- that when interpreting the words in a written contract the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge would have understood it to mean. The court should be very slow to reject the natural meaning of a provision as correct, simply because it appears to be a very imprudent term for one of the parties to have agreed to.
- The governing principle is the parties mean what they say.
- Where the words are clear the court must give effect to them.
- The parties are the best judge of what is reasonable.
- Where a contract is professionally drafted there is less room for departure from the textual analysis.
- Background should not be used to elucidate the detailed points of interpretation.
- The court must not fall into the trap of rewriting the contract to produce what it considers to be a more reasonable meaning.
- If there is no doubt about what the words mean commercial common sense has little if any part to play.
Having considered all the facts the Judge took the view that:
- The heads of agreement was not ambiguous to the degree that permitted recourse to extraneous evidence as an aid to its construction which could be construed on its face from its wording.
- The natural and ordinary meaning of the clause, the overall purpose was to achieve stabilisation of the land which included the cliff face belonging to the third party.
- The clear and natural meaning of the clause made it all the more difficult to justify departing from it.
- The mere fact that the contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously for the defendants is not a reason for departing from the natural language. Any other conclusion would be to apply the benefit of hindsight (otherwise known as retrospectivity) to construction which is impermissible.
- The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice” (per Lord Neuberger op cit), it is impermissible for the court to substitute its view for what the parties should have agreed for what on its plain language they did agree.
- The subsequent even dramatic change in the financial consequence of the agreement to one of the parties is not a justification for an alternative construction of it.
- Contractual construction “… is not there to re-write the parties’ agreement because it was unwise to gamble on future economic circumstances in a long term contract or because subsequent events have shown that the natural meaning of the words has produced a bad bargain for one side” (per Lord Hodge op cit)
- There was no, let alone a ‘fundamental’ bilateral mistake, and any ‘mistake’ as there may have been was unilateral, on the part of the lay but professionally advised Defendants, which is insufficient either in law or in fact to vitiate the contract.
- It is relevant to this conclusion that the Heads of Agreement were professionally drafted and the agreed by parties that were professionally advised upon it.
Accordingly, the Judge held that the agreement unambiguously achieved its aim and granted an order for specific performance with costs against the Defendant.
GL Law acted throughout, from negotiating a mediated settlement over a restrictive covenant which restricted development on the Defendant’s land and then enforcing the agreement when the Defendant did not stick to his end of the bargain.
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