Restricted development: Good faith obligations in development agreements; and the Court’s inherent jurisdiction to alter the register 28 March 2022
The recent High Court decision in Quay House Admirals Way Land Ltd and another v Rockwell Properties Ltd [2022] EWHC 545 (Ch) raises and answers interesting questions about interim remedies, good faith obligations, and the inherent jurisdiction of the Court to order the alteration of the register, all of which will be of interest to all property litigators.
Summary
A landowner and a developer fall out. L seeks to terminate their development agreement, but D’s interest is protected by an agreed restriction. L can’t get funding to continue the development with the restriction in place. It applies to remove it, but trial is 18 months away. There is no specific contractual term requiring the removal of the restriction. Can L get the restriction removed on an interim basis?
Persuading the Court to give an interim remedy required L to demonstrate the relevant degree of urgency. Then, in the absence of a specific express term, L either needed an implied one – which didn’t work – or it needed to rely on a general obligation of good faith – which did. Then L needed to persuade the Court both that it has inherent jurisdiction to order the removal of an agreed restriction, and that it should exercise that jurisdiction – both of which worked.
Background
The Claimant owns a very valuable development site, and the Defendant is a developer which entered into an agreement with the Claimant to develop it. The agreement provided for the Defendant’s interest under it to be protected by a restriction on the Claimant’s registered title. It also provided that the parties should act in good faith to use reasonable endeavours to procure the necessary funding for the development, and give each other all necessary assistance to facilitate that the completion of that funding.
The parties fell out, and the Claimant purported to terminate the development agreement for alleged breach. The Claimant wanted to press on with the development, but could not do so while the restriction remained on the register, because no potential “forward funder” would consider lending when a third party (the Defendant) could prevent it getting good title at the end.
The Defendant did not accept that it was in breach of the agreement, or that it had been terminated. It refused to agree to the removal of the restriction, arguing that the agreement did not have an express provision for its removal, and that in fact it was precisely in these circumstances that the restriction was needed.
The Claimant applied to the Court for the removal of the restriction, but the trial was 18 months away. The Claimant was concerned the delay would lead to the collapse of the whole development project, so it applied on an interim basis for the removal of the restriction pending trial.
What did the court decide?
Interim relief?
The first thing the Court had to decide was whether it was appropriate to give interim relief at this stage. It decided that it was. With the restriction in place, no potential funder would be prepared even to commence the due diligence process necessary for lending £100m, and if nothing was done until trial, that would be the end of the project in its current form.
Timing pressures and funding constraints are ever-present features of development projects, and this case illustrates how those factors can justify the Court’s early intervention in disputes over the construction and termination of development agreements.
Implied term?
The agreement did not contain a specific term obliging the Defendant to remove the restriction for the purposes of allowing funding to be arranged, so the next question for the Court was whether such a term should be implied into it. The Court rejected that argument, because the officious bystander test was failed. This decision is a reminder of just how high the hurdle now is for the implication of terms.
Good faith
The Claimant also argued that the generalized obligations to act in good faith in facilitating funding obliged the Defendant to remove the restriction. The Court agreed, stating that generalised inchoate obligations to act in good faith are in practice an invitation to the court to apply those obligations on a case by case basis in a way which is analogous to implying a term, but is in fact simply interpreting the existing term.
Removal of the restriction: the inherent jurisdiction
The restriction could not be removed pursuant to the statutory jurisdiction to alter the register, so the Court had to decide whether it had the inherent jurisdiction to remove it. The Court’s inherent jurisdiction to remove unilateral notices is well established (see Nugent v Nugent [2015] Ch 121 and Law v Haider [2017] UKUT 212 (TCC)). The Defendant’s argument that the inherent jurisdiction did not extend to agreed restrictions failed.
The case also addresses the question of what tests should be applied to the exercise of that inherent jurisdiction, and decides that they are the same for agreed restrictions as for unilateral notices: the summary judgment test, in cases where it is clear the beneficiary has no real basis for retaining the restriction, and otherwise the familiar interim injunction test.
Back to articles
