#6802 - Rigalian Properties V. London Dockland Development Board - Restitution of Unjust Enrichment BCL

Rigalian Properties v. London Dockland Development Board

Facts

The defendant, London Dockland Development Corp (LDDC), is a corporation created in 1981 by the London Docklands Development Corporation (Area and Constitution) (Amendment) Order 1981. The two plaintiffs, Regalian Properties plc and Regalian Homes Ltd, which are companies in the same group, carry on the business of property development.

In 1986 LDDC owned four pieces of land in Wapping which it wished to see developed by the building of houses and flats. They were known as 'Hermitage Basin', 'Hermitage Wall', 'Orange Court' and 'Hermitage Riverside I'.

The developer would pay a capital sum for the grant of the licence, which would include a provision (referred to as an 'overage' provision) whereby any amounts ultimately realised by the developer from the sale of units in the development over sale prices, to be specified in the building licence, would be shared between the developer and LDDC as to 30% to the developer and 70% to LDDC.

Regalian's bid was accepted by a letter dated 25 July 1986 from LDDC to Mr Lee Goldstone of Regalian. The letter was headed 'Subject to contract'.

Regalian produced designs drawn by a firm of architects, which it proposed should be the architects to design the whole development. LDDC was not particularly impressed by this firm's proposals for the two Riverside sites, on which LDDC understandably wished to see a particularly prestigious development. As a result LDDC persuaded Regalian to use two other firms of architects recommended by LDDC in addition to the firm originally chosen by Regalian.

I accept Regalian's allegation that this change of architects did have the effect of increasing the cost to Regalian of the production of final designs for the whole Hermitage development. Regalian had in effect no option but to accept LDDC's suggestions as to the architects to be instructed, since LDDC was not only owner of the land, but also the relevant planning authority, and, as was apparent from the terms of LDDC's acceptance letter to which I have referred, Regalian had to satisfy the requirements of LDDC both as landowner and planning authority before it would succeed in obtaining a building licence of the development site…. Indeed, as time went by Regalian found itself spending ever increasing sums of money on fees paid to experts of one sort or another both for the purpose of producing detailed designs for the proposed development, which would be acceptable to LDDC… I accept that Regalian also went on to incur further significant costs in commissioning site investigations etc. in preparation for a speedy start to the development once the building lease was entered into.

I find that Regalian incurred this expenditure during a period in which both it and LDDC confidently expected that a building lease would be granted by LDDC to Regalian for the purpose of Regalian's carrying out the proposed development. However, I also find that each party was throughout this period well aware of the fact that, since Regalian's bid and LDDC's acceptance of it had been expressed to be subject to contract, there was no subsisting contract between them and each party was legally free to back out of the arrangement.

Finding of Fact – No request by LDDC: I accept that the expenditure concerned was incurred by Regalian with the encouragement of LDDC in the sense that the latter continued to give Regalian to understand (as was the case) that LDDC intended to grant the building lease to Regalian once LDDC was satisfied with the proposed designs, detailed planning permission had been obtained and the parties had agreed the terms of the lease. Contrary to Regalian's submission I do not accept that it incurred this expenditure or any part of it at the request of LDDC, save in the sense that some of it was incurred in an attempt to satisfy LDDC's requirements as to design which was a precondition of Regalian obtaining the building lease it wanted. The expenditure was incurred by Regalian in an attempt to put itself in the position of obtaining and complying with the terms of the proposed building lease from LDDC.

On 21 February 1988The Sunday Timescarried an article critical of the performance of LDDC because it had adopted a practice of agreeing deals with developers and then allowing long delays before the agreed consideration was paid. It referred specifically to the Hermitage site negotiations between LDDC and Regalian… In effect it accused LDDC of disposing of land held by it for public purposes at less than market value.

On 19 May 1988 LDDC instructed a firm of chartered surveyors, Messrs E A Shaw & Partners (Shaws), to express its view on the terms of the proposed disposal to Regalian. That firm produced a report dated 22 June 1988. In that report Shaws expressed the view that the proposed delayed instalment payments of the consideration payable by Regalian under the terms negotiated between the parties had the effect of reducing the real value of the consideration expressed as 18·435m by as much as 3·43275m. Shaws also considered that Regalian's estimate of the costs of the development was too high, and that the true open market value of the land on a residual basis (the basis intended to be represented by the consideration payable by Regalian) was 21·43117m.

It is, in my judgment, clear that by October 1988 such had already been the fall in the residential property market that Regalian realised not only that it was not prepared to pay any more for the Hermitage site, but also that it would be very unwise to enter into the proposed building leases on the terms previously agreed subject to contract between the parties.

As a consequence, parties could not agree on a price for the development project. Such are the facts in the context of which I must now consider Regalian's claim in this action. In essence that claim (as amended at the trial) is for reimbursement by LDDC of disbursements amounting to 2·43891m-odd, representing fees paid by Regalian to various professional firms in respect of the proposed development.

Holding

Distinguishing William Lacey: In my judgment, one important distinction between the facts in that case and those in the present case is that in that case the work for which the plaintiff claimed was not work done for the purposes of the expected contract, but was rather for what was described in the first passage I have cited from the judgment as 'for some extraneous or collateral purpose.' It was for the wholly separate purpose of enabling the defendant to negotiate a claim made by the defendant to the War Damage Commission. In the present case, by contrast, the expenditure for which Regalian claims recompense was, I find, all for the purpose either of satisfying the requirements of the proposed contract as to planning permission and the approval of the designs for the development by LDDC or of putting Regalian into a position of readiness to start the development in accordance with the terms of the proposed contract. In other words, it was expenditure made for the purpose of enabling Regalian to obtain and perform the expected contract.

At the request of the defendant the plaintiff had done work which had clearly benefited the defendant quite outside the ambit of the anticipated contract and had only not charged for it separately, as one would otherwise have expected him to do, because he thought he would be sufficiently recompensed by what he would be paid by the plaintiff under the contract. In those circumstances it is not surprising that the law of restitution found a remedy for the plaintiff when the contract did not materialise. I do not consider that the decision lends any real support to the claim made by Regalian in the present case for compensation for expenditure incurred by it for the purpose of enabling itself to obtain and perform the intended contract at a time when the parties had in effect expressly agreed by the use of the words 'subject to contract' that there should be no legal obligation by either party to the other unless and until a formal contract had been entered into. It was frankly accepted by Mr Goldstone of Regalian that he knew and intended that this should be the effect of the use of the phrase 'subject to contract', and indeed Regalian admits in its pleadings that those words were not intended to have any unusual meaning in the present case.

Did LDDC “benefit” from the services?

I should mention at this point the only question of fact on which there was any real issue between the parties. That is...