Judgment delivered on the 30th day of March, 2012 by McKechnie J.
1. The issues on this appeal arise out of a dispute between the parties regarding the provision of mortgage facilities over certain lands situated at Kilmore Road, Artane in the City of Dublin. These lands were the subject matter of an agreement in writing dated the 23rd November, 2006 (the "November Agreement"), made between the defendants/appellants ("the appellants") of the one part and the plaintiff/respondent ("Marlan Homes") of the other part. As of the date of its execution the appellants and Dublin City Council ("DCC") were in a state of advanced negotiation with regard to a certain portion of such lands, which was in the ownership of the council. An agreement in respect thereof was reached between these parties and committed to writing on the 20th December, 2006 (the "December Agreement"). Although evidently not concluded at the time of the November Agreement, there is, as will be seen, a close relationship between both such Agreements. It is by reference to these documents that the respective rights and obligations of the parties must be determined. In essence the disputed issue is one of contractual interpretation.
2. The High Court, as part of its resolution of this matter, was asked to determine two preliminary questions. It did so by way of order dated the 27th March, 2009, which reflected a judgment previously given by Clarke J. on the 20th March, 2009 [2009] IEHC 135. The appellants have served a notice of appeal in respect of this judgment and order.
3. Following upon such decision and in light of it, the High Court then proceeded to deal with the substantive issues between the parties. By judgment dated the 20th December, 2009 [2009] IEHC 576, Clarke J. held that, the appellants were in fundamental breach of the November Agreement and in the circumstances as found by him, further held that Marlan Homes were entitled to have that Agreement rescinded. Certain consequential orders were made as a result. Again, the appellants have served a notice of appeal arising out of this judgment. Both appeals were heard together and it is in respect thereof that this judgment is now being delivered.
4. The lands in question are Land Registry lands and are contained in three different folios. The appellants, prior to any engagement either with Marlan Homes or DCC, were registered owners with absolute title of the lands in two of those folios namely, Folio 929F and Folio 35060F County Dublin. The third parcel of land, comprising 1,390 sq metres or thereabouts, is part of Folio 4021, County Dublin, which has DCC as its registered owner. It is situated immediately contiguous to the lands first mentioned. For the purposes of a construction project, the appellants intended to assemble all such lands as a single unit, on which a residential development, authorised by Planning Permission (No. 4625) dated the 14th September, 2005, could be carried out. DCC consented to have its lands included, within the "development lands", for the purposes of the planning application. Evidently therefore, contact had existed between these parties for some considerable time before the agreement of November, 2006 was entered into.
5. Under the December Agreement the appellants obtained, (i) the right to enter on the lands of DCC within eight weeks of the issue of the planning permission and to remain thereon for a period of eighteen months, for the purposes of constructing the development ("the approved development") authorised by the said planning permission, and (ii) the right, when building works were completed to wall plate level and finished to a standard acceptable to DCC, and on payment of any balance due under its provisions, to obtain a lease of the land for a term of 999 years subject to an annual rent of €50 (Clause 12); the form of such lease being scheduled to this Agreement.
These entitlements were subject inter alia to the payment of €710,000, 15% of which was payable, and paid on the date of execution with the balance being payable on the date of entry. Apparently a cheque for €603,500 to represent this sum was sent to DCC on the 20th July 2007 but to date the cheque remains uncashed.
6. In addition, Clause 14 of the December Agreement provided:
"The agreement is an agreement for lease and shall not operate as a lease and shall not be transferable save in the case of a financial institution which has entered into a mortgage with the proposed lessee, details of which mortgage will be provided to the Council in writing and must have been entered into specifically for the purposes of financing the proposed lessee to enable it undertake the approved development on the site the subject matter of this agreement".
As can be seen the December Agreement between the appellants and DCC was an agreement for lease and not a lease and by virtue of this clause there was a restriction on alienation, save for the specific purpose as outlined. As will become clear in a moment, this provision has a significant bearing in determining what obligations the appellants and Marlan Homes undertook, with regard to mortgage procurement, under the November Agreement.
7. In broad terms the November Agreement conferred an exclusive licence and authority on Marlan Homes to enter, what was described as the "subject lands", for the purpose of carrying out the approved development. That development consisted of 48 dwelling units including an allocation of social and affordable housing and had a completion period of eighteen months from the date of the agreement. No estate or interest in the lands passed, by virtue of such agreement: this by the express acknowledgement of the parties. In consideration, Marlan Homes was to pay, and in fact did pay, on the execution of the agreement, the sum of €4.825 million, which was referred to as "the advanced payment" and which, according to Clause 4(b)(i) of the agreement, was non-refundable. A further sum of €100,000 was intended to be "washed out" over the sale period of the units. The entire sum, therefore, was €4.925 million and was characterised as "The Total Site Fine".
8. This agreement was structured in such a way that, when called upon to do so, the appellants were obliged to execute an assurance of each individual unit, when constructed, in favour of Marlan Homes, or as in practice intended, in favour of their nominee, the ultimate purchaser. This process of title transfer, rather than the more conventional way of Marlan Homes in the first instance obtaining legal title, was undertaken, as it resulted in a saving of a sum in excess of €400,000 in stamp duty that would be payable if Marlan Homes purchased the land and subsequently sold (together with a completed house) to the ultimate purchasers. Such a scheme has certain inherent risks which ought to be guarded against. Fundamentally a purchaser is paying an amount of money equivalent to the purchase price of the property but is only acquiring a licence to enter the site for a limited period of time and for the purpose of constructing houses. If for whatever reason it is not possible to construct and sell the houses within the time the licence may expire without any provision for recovery of any portion of the price paid. Here however the situation was complicated, and the risks multiplied, by the fact that only two of the three portions of land involved were owned by the appellants.
9. As will be recalled the overall site for which planning permission was granted included lands in all three folios. It is therefore not surprising that the phrase, the "subject lands", was described in the November Agreement, as including all such lands. Further, Recital A of that Agreement makes it clear that whilst the appellants were the registered owners, with absolute title, of the lands in Folio 929F and 35060F County Dublin, they were not in that position with regard to (part) Folio 4021F County Dublin. In that regard they were described in such recital as:
"… … the persons entitled to be registered with a Leasehold Interest … … on foot of an Agreement for Lease dated [BLANK] day of [BLANK] 2006 Dublin City Council of the one part … … and the Licensors of the other part."
This description, although intended to reflect the December Agreement, was incomplete, as such an entitlement was contingent only.
10. There are several references in the November Agreement to what later became the December Agreement:
* Recital A, as above described;
* Clause 1 defines, (i) the "Agreement for Lease" as meaning "the Agreement for Lease dated [BLANK] day of [BLANK] 2006" between Dublin City Council and the Appellants and (ii) "The Lease" as meaning the "Lease dated [BLANK] day of [BLANK] 2006" between the same parties;
* Clause 7(c)(i) and (ii): by which Marlan Homes covenants with the appellants that henceforth they will observe and perform the relevant obligations, covenants and conditions on the part of the Licensee (the appellants) contained in the Agreement for Lease and the Lease itself; and,
* The Schedule: in which the Agreement for Lease and the Lease is offered as part of the title documents.
11. Moreover, several of the covenants and conditions contained in the December Agreement were reproduced in the November Agreement, including Clause 14 which has been transcribed verbatim at Clause 7(k) thereof. It seems therefore clear from this, as it is from the evidence given at the hearing and from the trial judge's findings in that regard, that the parties entered into the November Agreement in the belief, that the then intended agreement between the appellants and DCC would be finalised and with full knowledge of its terms. As it happened it was executed in the form in which it then existed.
12. Of central importance to the issues in this case are the provisions of Clause 6 of the November Agreement, which has as its heading "Restrictions on Alienation". The pertinent sub-clause is that at subparagraph (c), which reads as follows:-
"The licensor shall at the request of the licensee execute a mortgage/charge limited in recourse to the subject lands in a form which is acceptable to the licensor in favour of any bank or lending institution providing loan facilities to the licensee to enable the licensee to fund the works on the subject lands or any part thereof and the payments of the sums covenanted to be paid by the licensee to the several parties under this agreement".
Essentially this case turns on the correct interpretation of this provision and that contained in Clause 14 of the December Agreement and set out at paragraph 6 above.
13. The two questions which were tried as preliminary issues were:-
A. Are the defendants (appellants) required to compel Dublin City Council to consent to a mortgage in respect of the lands owned by Dublin City Council comprising approximately 1,345 sq metres situate at Kilmore Road, Artane, in the City of Dublin; and
B. Having regard to the fact that the defendants executed a limited recourse mortgage in favour of AIB plc in respect of Folios 929F and 35060F County Dublin, which same was expressly accepted by the plaintiff, its servants or agents, by letter dated the 14th June, 2007, from the plaintiff's then solicitors, Messrs Callan & Company, are the defendants required to execute a further limited recourse mortgage?
14. Clarke J., in analysing Question A in his judgment of the 20th March, 2009, proceeded by noting:-
(i) that the issue between the parties was one of contractual interpretation, being one focused on the appellants' obligations in respect of assisting with the mortgage arrangements designed to enable Marlan Homes to obtain financial facilities regarding the construction project;
(ii) that the appropriate legal principles were not in dispute and were to be found in cases such as Kramer v. Arnold [1997] 3 I.R. 43 at 55 and Ryanair Limited v. An Bord Pleanála [2008] IEHC 1 (unreported, Clarke J., 11th January, 2008);
(iii) that by defining the "subject lands" (by reference to Recital A and Clause 1 of the November Agreement) in the manner in which this was done, the same included the relevant lands in all three folios above mentioned;
(iv) that Clause 6(c) of the November Agreement contemplated a mortgage being entered into by Marlan Homes in order to secure borrowings so as to fund the construction of the development works as well as the total site fee payable under the November Agreement;
(v) that Clause 14 of the December Agreement also contemplated some form of mortgage being entered into by Marlan Homes, apparently limited to funding for the approved development and not, as with Clause 6(c) of the November Agreement extending to the contractual payments under such agreement;
(vi) that insofar as the lands in Folios 929F and 35060F County Dublin were concerned, no difficulty could arise in that regard as the appellants were registered as full owners with absolute title;
(vii) that, contrary to the views of Marlan Homes, Clause 6(c) did not confer an entitlement to have a mortgage over the lands, as such, of Dublin City Council; accordingly the appellants had no contractual obligation to achieve this end; instead the correct interpretation of the Clause was to the effect that the appellants were obliged to procure that a mortgage over their interest in these lands, (such interest being that contained in the December Agreement) be made available as security in respect of the indebtedness of Marlan Homes.
In other words the contemplated mortgage was to extend over "the entirety" of the appellants' interest in the "subject lands" as so described;
(viii) that the said mortgage facilities, as envisaged under Clause 6(c), cover both the construction costs and the costs of acquisition: as such this interpretation prevails over the wording contained in Clause 14 of the December Agreement, which restricts the purposes of the mortgage to development funding;
(ix) that this conclusion is arrived at on the basis that any term of the December Agreement which is inconsistent with the November Agreement cannot be said to be imported into that agreement;
(x) that the appellants were required to procure the consent of DCC to such arrangements so that an "effectual security" may be offered by Marlan Homes to its financial lenders; and
(xi) that the question as to whether the appellants have a right to enforce, as against Dublin City Council, the mortgage facilitation as herein declared in respect of the council's lands, is not of relevance to the interpretative issue; frequently, parties undertake an obligation, which at the time of its acceptance, they may not be capable of delivering but which at the time of performance they expect or anticipate being in a position to do so.
15. As a result of the foregoing Question A was answered as follows:
"The [appellants] are required to seek to procure that Dublin City Council consent to a mortgage in respect of the interest of the [appellants], on foot of the December Agreement, in the lands owned by Dublin City Council comprising approximately 1,345 square metres situated at Kilmore Road in the City of Dublin."
16. Question B, or the second question, was answered in such a way that the appellants are required to execute a further limited recourse mortgage notwithstanding that they have already executed one such mortgage in favour of AIB plc in respect of Folios 929F and 35060F County Dublin. This finding has been accepted by the appellants and is not the subject matter of any appeal.
17. The substantive hearing proceeded by reference to the Court's answers to the two questions previously determined by its judgment of the 20th March, 2009. There were five issues considered which conveniently can be divided into two groups; those which relate to whether the appellants were in breach of contract and if so, in which way and to what extent, and if decided in favour of Marlan Homes, those which relate to what remedy that company may be entitled to. The first set of issues depended in part, on contractual interpretation but also in part on the facts of the case, with particular reference, (i) to how and when the appellants were asked to discharge the contractual obligations as previously found to exist and (ii) the fact that Marlan Homes made direct contact with DCC in mid-2007. This contact gave rise to an argument, relevant to all issues, that such contact, (a) prejudiced the obtaining of DCC's consent to the creation of the mortgage facilitation as sought, (b) disentitled Marlan Homes to any relief and (c) amounted to contributory negligence, with direct consequences for the remedies which otherwise might be available. The second group of issues ultimately refined themselves into the question as to whether, if breach was established, Marlan Homes were entitled to rescission or damages, with the primary relief sought in the statement of claim, namely specific performance, being no longer pursued.
18. A brief summary of the more salient events is required so as to understand the judgment of the trial judge. In this context a number of factors, which from time to time overlapped, must be noted.
19. In the first instance it is important to recall the timelines to which the parties were obliged to adhere to. The November Agreement provided for a construction period of eighteen months from the date of its execution. The dates given in the December Agreement were different, in that entry was permitted within eight weeks of the issue of the grant of planning permission, which of course, had been obtained as far back as September, 2005. It was further provided that works were to commence within three months from the date of the agreement and be completed within eighteen months from the date of entry. The High Court proceeded on the basis that the completion date was May 2008, being eighteen months from the date of the November Agreement. No objection has been taken to this approach.
20. Almost immediately difficulties were encountered with obtaining a fire safety certificate, which was a pre-requisite to the commencement of any work. The first application, dated the 27th October, 2006, as later amended, was rejected by the fire authority on the 1st March, 2007. A revised application was not made until August, 2007 with the required certificate ultimately issuing on the 6th November, 2007.
21. On the 31st July, 2007 a revised planning application was submitted by Marlan Homes to the planning authority which sought changes to the external finishes of the apartment block. While some correspondence was exchanged regarding what would have been a much more elaborate alteration of the plans, this was not pursued. As events transpired nothing turns on the application as made, even if it was expressly forbidden by Clause 10.2 of the November Agreement.
22. Marlan Homes first sought funding from AIB bank. At its request the appellants executed a limited recourse mortgage in the bank's favour on the 22nd January, 2007. This however, related solely to a facility to cover the VAT payment on the November Agreement. When construction funding was sought it was not possible to satisfy the security requirements of the bank, which included the giving of an indemnity by the appellants which they were unwilling to furnish. By July, 2007 Marlan Homes decided to seek facilities elsewhere.
23. Bank of Scotland Ireland (BOSI), which engaged with the project some time in mid 2007, initially sought to have a non-recourse guarantee executed by the appellants and an indemnity furnished by them, as part of the security for the proposed loan to Marlan Homes. This was unacceptable to the appellants. Eventually however, BOSI offered to provide a facility of €1.4 million on the 22nd November, 2007. Solicitors on behalf of Marlan Homes wrote to the appellants on the 7th December 2007, notifying them of the bank's requirement for DCC to consent to the mortgage over DCC's lands. This was the first occasion upon which the appellants were requested, in writing, to obtain the consent of DCC. The actual form of consent required was subsequently furnished. On the 11th December, 2007 the appellants notified Marlan Homes that they were in a position only to offer their interest under the December Agreement, being that of an agreement for lease, and not their interest under the lease, as of course that had not been granted at that time. On the 17th December, 2007 BOSI, as a security requirement, sought an assignment of the December Agreement in favour of Marlan Homes and the consent of DCC to same. On the 2nd January, 2008 the appellants wrote to DCC seeking the required consent.
24. For a number of reasons, one of which only related to finance, there were no works of any type, however preparatory, carried out in 2007. This state of affairs was becoming increasingly of concern to all involved. By letter dated 6th February, 2008 the appellants warned of the danger that Marlan Homes could be in breach of the November Agreement by not having commenced works up to that point in time. The correspondence from Marlan Homes, in the first part of 2008, indicated a growing unease on their part, at the absence of the required consent from DCC, as without it, an essential term of the mortgage facility could not be met. On the 9th July, 2008 Marlan Homes reiterated to the appellants that BOSI would refuse to sanction drawdown without such consent. On the 16th July the appellants wrote to DCC once again expressing concern about the delay in the issuance of this consent. As events transpired that consent was never forthcoming and the drawdown never activated.
25. In July 2007, the second named appellant, Mr. Wedick, made contact with Mr. Sean Quinn, who was the father of the directors of Marlan Homes, but who was not himself an officer of that company. The High Court was not satisfied that Mr. Wedick asked Mr. Quinn to contact DCC: however, he did so. In or about this time DCC wrote a letter to the appellants, reaffirming that the December Agreement was not assignable and that they were in breach of its provisions by failing to commence development works on the project. Further it would appear that the DCC was under the impression that Marlan Homes intended to enter the site merely as contractors, having been nominated for that purpose by the appellants. In circumstances where time pressure was mounting, where the fire safety certificate had still not been obtained and where DCC did not recognise Marlan Homes as a party to the transaction, it was not in the least surprising that direct contact was made between Marlan Homes and DCC. Nothing of substance however, turned on this contact: the appellants led no evidence to suggest that such had any real effect on DCC's attitude. The most that could have emerged was that DCC became aware of Marlan Homes' real interest in the project, which Mr. Sean Quinn could not reasonably have been expected to believe would come as news to it.
26. The trial judge having outlined these events, first considered what actions were required of the appellants so as to satisfy their contractual obligations, of making available their interest in the lands of DCC to a lender of Marlan Homes. Any matter extraneous to this requirement, whether demanded by Marlan Homes or their lenders, were not within this contractual remit and therefore were of no concern to the appellants. The seeking of a guarantee/indemnity fell into this category and could be ignored. What was central however, to this issue was the call by BOSI to obtain DCC's consent. The question which therefore had to be asked was whether such consent was reasonably necessary so that an "effectual mortgage/charge" could be obtained in respect of the appellants' interest in the lands of DCC?
27. Recalling the rationale behind the first judgment, it was clear according to the learned judge, that Marlan Homes would require financial facilities and that for such purpose, security would have to be offered over the "subject lands". With regard to (part) Folio 4102F, that could not be in the form of a legal mortgage but rather had to be confined to a charge over the appellants' interest in the December Agreement, for there was no other type of charge available over DCC's land at that time. For such "effective security" to be created, it would have to be of a type where if the borrower defaulted, the mortgagee could realise by disposing of the assets as pledged. The lands in Folios 929F and 35060F County Dublin presented no difficulty in this regard. However, the position with regard to (part) Folio 4021F was quite distinct. How could a lender sell Marlan Homes' interest in such lands? By virtue of the provisions of Clause 14, the December Agreement was not transferable, save for the purposes of a mortgage transaction: therefore the parties to it must have understood that the Agreement could be assigned for the purpose of giving security for the intended funding. That being so the creation of such a realisable charge, would have required the consent of DCC. Consequently there was an obligation on the appellants to procure that consent.
28. Whilst the appellants made efforts to obtain such consent, the same was never in fact forthcoming. It would appear therefore, that they had committed themselves to an obligation, which as events unfolded, they were unable to deliver on. The consequences of this were for themselves to bear.
29. A number of factors were then considered by the judge, so as to assess whether any one or more of them, might disentitle Marlan Homes from relying upon the presumptive finding, already made, namely that the appellants were in breach of contract. The inter-meddling issue was considered and dismissed. There was nothing improper in Marlan Homes (through Mr. Sean Quinn) making contact directly with DCC, as the only probable effect was that news of their involvement became known to the Council. Marlan Homes could not have anticipated this. They had a belief, based on a letter from the appellants' solicitors dated the 22nd November, 2006, that their existence was known to DCC as and from that date. Such a belief was reasonable. Therefore any contact which they had could be disregarded.
30. There was one further reason offered by the trial judge to justify his conclusion on this point. It appears, and the trial judge so found, that the appellants and their advisers did not want DCC to know of their arrangements with Marlan Homes. The judge comments that "the relevant correspondence bears no other construction". If therefore, difficulties arose in obtaining DCC's consent by virtue of its discovery of the involvement of Marlan Homes, then that difficulty can be exclusively traced to the appellants, who must take responsibility for the consequences.
31. Another potential disabling factor was the delay on the part of Marlan Homes in first requesting the appellants, to obtain the consent of DCC. It will be recalled that such a demand was only made late in 2007; at a time, when despite whatever rights it may have had, DCC as a matter of fact, had taken no steps to terminate the December Agreement. Being of the view, provisionally arrived at, in light of the fact that it was not a party to the litigation, that DCC in any event, may have had difficulty in terminating the December Agreement, the trial judge concluded that had consent been forthcoming in the early part of 2008, the same would have enabled Marlan Homes to obtain the required finance and in such circumstances the project would have proceeded to finality. Accordingly, the failure of the project stemmed from the appellants' breach of contract in the manner described.
32. The learned trial judge then considered what legal principles should apply to the claim advanced on behalf of Marlan Homes, that the November Agreement should be rescinded. In this regard he referred to a number of authorities and text book sources; in particular he relied on the decision of the Supreme Court in Northern Bank Finance Corporation v. Charlton [1979] I.R. 149. On applying these principles to the facts as found by him, the judge concluded that, as the appellants were and remained in fundamental breach of contract in failing to procure the consent of DCC to the mortgage transaction negotiated by Marlan Homes with BOSI, the appropriate relief in the circumstances was an order for rescission.
33. It was submitted on behalf of the appellants that in determining the preliminary question under appeal, the learned trial judge committed what were described as "key errors", leading to an erroneous analysis of the issue and to an incorrect conclusion on the answers. In this regard he failed to recognise the fact that essential features of the December Agreement, were by way of incorporation, contained in the November Agreement and secondly that the interpretation so placed by him on Clause 6(c) of the November Agreement was one that was not reasonably open on the application of the accepted canons of construction.
34. On the first issue it was said that the judge failed to give proper effect to the fact that Clause 14 of the December Agreement was included, in the November Agreement, having been transcribed verbatim into Clause 7(k) thereof. In this regard, to hold that it should be disregarded, merely because its provisions were inconsistent with other terms of the November Agreement, was in error. What the appellants acquired under the December Agreement was the right to enter on the lands of DCC, to carry out the approved development within a confined period and subject to certain conditions being met, to obtain a lease in accordance with the provisions of Clause 12. Having had express knowledge of the terms of the December Agreement as far back as September 2006, it was both the fact and the intention of all parties that the appellants were not granting to Marlan Homes any rights which they themselves did not acquire under the latter agreement.
35. The error of law involved in the interpretation of Clause 6(c) of the November Agreement, principally results from the judge's view that such provisions had to be construed in such a way, as to provide Marlan Homes with effective security. The November Agreement could not properly be read as conferring a contractual right on Marlan Homes to obtain a non-recourse mortgage sufficient to fund its obligations. To do so would involve the appellants in having undertaken to abide by any requirement of a lender, whether within its reach or not and irrespective as to how arbitrary or unreasonable that might be. What the appellants undertook was to execute a mortgage or charge which was within its power to deliver, and which was in a form acceptable to them. The adequacy or efficacy of such a mortgage was purely a matter for Marlan Homes. If therefore, the clause was insufficient to achieve an end, intended by Marlan Homes, that was not the responsibility of the appellants.
36. The appellants accepts that the appropriate principles of interpretation are to be found in cases such as Analog Devices BV v. Zurich Insurance Company [2002] I.R. 272 where Fennelly J. said at p. 294 that "[i]nsofar as Irish law is concerned, a contract is to be interpreted objectively in accordance with the meaning of the words the parties have used." The opinion of Lord Hoffman, in Investors' Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896 is to the same effect. In applying such principles the appellants were required only to execute a security document in a form acceptable to them and not otherwise. The learned trial judge in essence over-subscribed to an approach focussed on giving the relevant provisions of the November Agreement commercial efficacy. A number of cases including, Torvald Klaveness A/S v. Arni Maritime Corporation [1994] W.L.R. 1465 and Charter Reinsurance v. Fagan [1997] AC 313 have cautioned against such an approach. Therefore the answer which the trial judge gave to Question A in the preliminary ruling was incorrect.
37. The error by the trial judge in his interpretation of Clause 6(c) of the November Agreement, as obliging the appellants to provide an effective mortgage, was carried through into the final judgment of the 21st December, 2009. This can be seen from the analysis appearing at para. 8.5 of that judgment where the judge stated that, if repayment obligations were defaulted upon, a lender would have to be in a position to sell Marlan Homes' interest in the "subject lands", so as to realise its security. Such would have involved DCC itself in granting a mortgage over its lands, or in entering into some form of agreement whereby the lender could step into the shoes of the appellants, if their client defaulted. Neither type of agreement was ever envisaged by the said clause.
38. A further example is illustrated by the repeated references in the judgment to the obligation on the appellants, to provide security in respect of any type of mortgage contemplated by Clause 6(c) of the November Agreement, and if that created a problem, it stemmed from the fact that they entered into an agreement with Marlan Homes, which was "significantly different" in its scope, from the agreement which they entered into with DCC. This assessment, it is suggested, disregards the incorporation of Clause 14 into the November Agreement, as it does the principal focus of that provision, which is one of prohibiting alienation, save in the most limited circumstances. Moreover, the judge was influenced by the difference in wording between Clause 6(c) and Clause 14 of the December Agreement in that whereas the latter referred only to funding for construction works, the former also referred to the purchase price. As the entire payment due under the November Agreement was discharged at the date of its execution, this distinction has no practical effect.
39. The November Agreement did not have the effect of transferring to Marlan Homes the appellants' interest thereunder: what was acquired was a licence to enter and build. At all times Marlan Homes were aware of what was permissible under the December Agreement. They proceeded on that basis and cannot now insist upon the appellants producing a better title for their lenders, than Marlan Homes were themselves entitled to receive.
40. Further in this context insufficient weight was given to the commercial risk assumed by Marlan Homes when entering into the agreement.
41. Finally, for the several reasons outlined in the submissions, it was claimed that to have ordered rescission of the November Agreement, in the circumstances as outlined and as deducible from the evidence, was unjust.
42. Marlan Homes support both the preliminary and final judgments of the learned trial judge and the reasoning which he applied to both such judgments. In particular they have submitted that the correct approach to the interpretive question, where conflicting provisions arise, is one of harmony, so as to give "business efficacy" to the intention of the contracting parties. (Aga Khan v. Firestone [1992] ILRM 31: Lac Minerals Ltd v. Chevron Mineral Corporation, (unreported, High Court, 6th August, 1993): and Investors' Compensation Scheme v. West Bromwich Building Society [1998] 1 AER 98 at 115 of the report.
43. It is said that in applying these principles it clearly could not have been the intention of the parties that a mortgage, within Clause 6(c) of the November Agreement could be "unworkable, or useless or ineffectual": if so it could not have met the criteria of enabling Marlan Homes to obtain facilities to fund both the development and acquisition costs. Any other suggestion is contrary to both common sense and commercial reason. Therefore the conclusions of the trial judge, expressed at paragraph 7.7 of the preliminary judgment of 20th March, 2009 were correct.
44. The learned judge was also correct in identifying what Marlan Homes obtained under the November Agreement, which was not merely the right to enter and build but also the right, which was always within the parties' contemplation, to have their funding secured over the appellants' interest in the lands comprised in all three Land Registry folios. Unless this was so, the works could never have been carried out by Marlan Homes. If such circumstances should be the contractual result, it would mean that the appellants will have the benefit of almost €4.9 million for a consideration that has wholly failed.
45. In support of the general position, Marlan Homes suggest that they could have received no benefit under the November Agreement without being in a position to execute the works, which could not be done without financial support. In turn security was critical to this end. The mere fact that the word "effectual" was not recited in Clause 6(c) of that Agreement, does not affect this position. Any contrary proposition clearly points to absurdity which could not be allowed to exist.
46. The appellants argument that, they did not and did not purport to transfer their interest in the DCC's lands to Marlan Homes, disregards the saver in Clause 14 of the December Agreement which expressly permits alienation so as to underpin the obtaining of mortgage facilities. Moreover whilst Clause 14 may have been incorporated in the November Agreement, its provisions cannot be used to nullify those of Clause 6(c) of the same Agreement. Both should and can be read together and when approached in this way leads to the conclusion arrived at by the learned trial judge. Consequently, Marlan Homes fully support the position adopted by the High Court.
47. Finally, by reference to the decision in Northern Bank Finance Corporation v. Charlton [1979] I.R. 149 and to para. 716 of Keane Equity and the Law of Trust in the Republic of Ireland (Butterworths, 1988), the only and most effective remedy which could be granted in the circumstances was that as ordered by the judge. Therefore they fully support the ultimate conclusion of the High Court.
48. The central issue which first must be determined is whether or not the appellants are in breach of their contractual arrangements with Marlan Homes: if they are not, the remaining issues do not arise.
49. This issue, which is one of interpretation falls to be decided by reference to the appropriate principles which are not in dispute and which were put concisely by Keane J. in Kramer v. Arnold [1997] 3 I.R. 43 at p. 55, where the learned judge held:
"In this case, as in any case where the parties are in disagreement as to what a particular provision of a contract means, the task of the court is to decide what the intention of the parties was having regard to the language used in the contract itself and the surrounding circumstances."
The correct approach therefore is to have regard to the nature of the document in question and to consider the words used, by reference to the context in which they are set.
50. The type of document has a clear relevance in a specific sense but also in a general sense for, as has been pointed out in many judgments, courts will not "easily accept that parties have made linguistic mistakes, particularly in formal documents." This was stated by Geoghegan J. in Analog Devices B.V. & ors. v. Zurich Insurance Company & ors. [2005] I.R. 274, where she adopted the five principles set out by Lord Hoffman in Investors' Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896. One may obviously add that documents prepared with the benefit of professional assistance, including, but not limited to legal advice, increases such formality. The words in question must be given their ordinary and natural meaning, in a sense as would be understood by a reasonable person having an interest in or knowledge of the material circumstances.
51. It is important however to note that where the parties have committed their responsibilities to written form, in a particular manner, it must be assumed that they have intended to give effect to their obligations in that way. Such must be recognised as their right, both commercially and under contract law. Accordingly it is important that, when faced with a construction issue, a court should focus its mind on the language adopted by the parties being that which they have chosen to best reflect their intentions. It is not for the court, either by means of giving business or commercial efficacy or otherwise, to import into such arrangement a meaning, that might also be available from an understanding of the more general context in which the document came to exist, but is one not deducible by the use of the interpretive rules as mentioned.
52. The boundary between what is permissible and not in this context is captured by the following quotation from Charter Reinsurance v. Fagan [1997] AC 313 where at p. 388 Lord Mustill stated:-
"There comes a point at which the court should remind itself that the task is to discover what the parties meant from what they have said, and that to force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court. Particularly in the field of commerce, where the parties need to know what they must do and what they can insist on not doing, it is essential for them to be confident that they can rely on the court to enforce their contract according to its terms."
I would respectfully agree with this passage.
53. This was by any stretch of normality an extraordinary transaction, a reflection of the insatiable belief that whatever the costs and shortcomings of a deal may be, once land was involved, upon which houses could be built, and disposed of with a frenzy of marketing activity, money could be made. Proper, even basic practices, commercial assessment, legal appraisal and risk evaluation, were stood down. Whatever its legal construction and consequences might be, which I will come to in a moment, the essence of the November Agreement was that Marlan Homes was paying close to €5 million, up front, to enter a site for eighteen months. In fact I overstate the situation. At all times the availability of the lands of DCC was crucial: such was an integral component of the overall site and of the only planning permission which existed, for the development project as a whole. Yet, as of November 2006 the appellants had no interest, whatsoever, whether of a proprietary nature or otherwise, in a critical portion of the development lands, without which, even if no other difficulty existed, no works could take place. Whilst the parties may have had confidence that the December Agreement would come to pass, as it did, there was no legal guarantee of such outcome as of that time.
54. Moreover, according to Marlan Homes it was essential to the carrying out of the works, and thus to the success of the project, that funding would be obtained and that effective security, over all of the lands, was essential to this end. Yet when this substantial sum of money was paid, in a non-refundable context, no steps seem to have been taken in that regard and the precarious nature of the lands of DCC, seem to have mattered little.
55. Furthermore, it was also said by Marlan Homes that funding was required not only for the works but also for site acquisition. As previously noted there is a clear difference between the November Agreement and the December Agreement in this regard. The former refers to costings under both headings, whereas the latter is confined to development costs. Once more, whilst nothing turns on the point in the current circumstances, it is disbelieving to see how such confusion could have been allowed to exist.
56. From the outset it was clear that unless all aspects of the project were in place and proceeded simultaneously on the critical construction path, there would be huge pressure on time. The November Agreement allowed a total period of eighteen months. The December Agreement permitted entry within eight weeks from the date of the planning permission and the right to remain for a total of eighteen months "therefrom". Whilst nothing turns on this point, a strict reading of the relevant clause therefore, had a start date as of September 2005, which of course, was meaningless but nonetheless was signed up to. In another section of the Agreement (Clause 6) construction was to commence within three months and be completed within a total of eighteen months. It could not have been too demanding to have clarity about this simple but highly important point.
57. Of more significance was the absolute necessity that works should commence as soon as possible given the time constraints. Yet once more, obtaining the essential fire safety certificate was not achieved until November 2007. The first requirement for DCC's consent was December 2007. Whilst it is not relevant to the central issue on this appeal, but if it was, I would not be at all confident that the trial judge was correct in assuming that if the required consent and assignment was forthcoming in early 2008, the project could have proceeded to a successful conclusion thereafter.
58. Another most curious feature of the transaction, as initiated and as progressed, was the absolute reluctance of the appellants to disclose to DCC the fact of the arrangement which they had with Marlan Homes, or the details of it. As the trial judge noted the correspondence bears no other construction. Why Marlan Homes did not pursue their requirement, to obtain on closing confirmation that DCC was aware of the proposed arrangement, is not readily apparent but nonetheless they did not do so. They were of course obtaining a tax saving and were not in a position themselves to deal directly with DCC as the lands in Folio 929F and 35060F County Dublin were also necessary. It is not difficult however, to explain the approach of the appellants in this regard. Without the lands of DCC, the project could not proceed. They were paying a little over €700,000 for such lands. Yet they were receiving almost €5 million for the entire site of which these lands formed a sizeable part. One can readily infer, without much speculation, what the DCC reaction would likely have been if it had knowledge of this rather enterprising scheme.
59. As is readily apparent therefore, there were several aspects of the parties' relationship which were not tied down as well as perhaps they could have been. It may be that the parties were so advised and were satisfied to assume the risk of their commitments: in any event such therefore is the context in which their respective obligations must be determined.
60. It is interesting to look at the starkness of the case made by Marlan Homes in this regard in its submissions to the High Court. At page 6 they state:
This submission, in effect, seeks to impose an obligation on the appellants, arising out of the November Agreement, which in essence is one of guarantor, insofar as the required funding facilities are concerned. Whilst in their presentation to this Court, Marlan Homes did not put the matter as such, nonetheless they continue to infer such an obligation, but apparently are now satisfied to phrase the requirement in a less rigid manner.
61. In real terms the obligation which Marlan Homes called on the appellants to perform was to satisfy the security requirements sought by BOSI in December 2007, to the effect that the December Agreement should be assigned to the borrowers with DCC consenting to same. This is what the High Court held that the appellants were bound to do. As already noted no difficulty existed in this regard in respect of the lands in Folio 929F and 35060F County Dublin. Therefore the issue must be determined by reference to the lands of DCC in (part) Folio 4021F County Dublin.
62. Disregarding the precise relationship between the November Agreement and the December Agreement for a moment, it is to state the obvious that if Marlan Homes acquired any greater right or entitlement than what the appellants possessed under the December Agreement, such must be derived from the November Agreement, as at all times the appellants were prepared to facilitate Marlan Homes insofar as they legally could, in respect of their interest under the December Agreement. In other words, as the trial judge found, the appellants had committed themselves to Marlan Homes to an extent greater than Dublin City Council had committed itself to them. What they should have done, according to the judge, was to coordinate their rights under the December Agreement with their obligations under the November Agreement: as they had failed to do so they must carry the consequences in respect thereof.
63. A good deal of debate took place in the High Court and some in this Court, as to how both agreements should be interrelated as a matter of law. Difficulties in this regard could only arise where conflicting provisions exist. This point became acute with regards to whether acquisition costs were to be included within the mortgage facilitation, whatever that might be. Having given precedence to Clause 6(c) of the November Agreement over Clause 14 of the December Agreement in that particular regard, the High Court then held that any term of the later agreement, which was inconsistent with a provision of the earlier one, should be disregarded. It is not quite clear if this had any consequences of note. If it had however, I would be concerned with it. It is quite clear that several provisions of the December Agreement, were by express statement incorporated into the November Agreement. It is therefore difficult to see that where called upon, these should not be given a meaning like any other term of the Agreement. In particular Clause 14 of the December Agreement, as we have seen, is expressly part of the November Agreement (Clause 7(k)), and from its terms it is clear that, it must be read in conjunction with Clause 6(c), when the obligations of the appellant are being considered in the context of mortgage provision.
64. As previously outlined, under the November Agreement Marlan Homes were granted a licence, exclusive to themselves, to enter what was described as the "subject lands" for the purposes of completing the "approved development" within an eighteen month period. They obtained no estate or interest in these lands. What they received therefore, was a bare licence for a specific purpose. Clause 2 of the Agreement cannot have any other meaning. In return they were obliged to make the payments above mentioned and bound themselves to perform and observe the covenants and conditions on the part of the appellants as contained in what were referred to as the "agreement for lease" and the "lease". In addition to the provisions dealing with or touching upon mortgage facilities, there were other obligations undertaken which are not necessary to dwell on.
65. At the date on which this Agreement was signed, a draft of the December Agreement was available to both parties. That draft became the final Agreement when executed some weeks later. It conferred a right to enter and work on the lands for a specified period. It granted a right to a lease in respect of the lands, contingent on significant works being completed and on certain conditions being met. The terms of that lease were scheduled to the document. It is clear that such agreement was an agreement for lease and not a lease. It is clear that it was personal to the appellants and in principle non transferable (Clause 14). It is further clear that when called upon to do so the appellants could not create a mortgage or charge over the lands of DCC. They could do so only at a time when the works were completed to wall plate level and other terms satisfied. At such a point DCC was obliged to grant a lease, which when available could in the usual way be offered as land security. It was not possible to do that before then, at least in the sense demanded by the bank.
66. Furthermore, with full knowledge of this situation and presumably of its legal consequences which, at the very least were of considerable uncertainty, Marlan Homes nonetheless committed themselves to a very substantial outlay, in terms not solely confined to acquisition costs but also with regard to the necessary funding, required so as to complete the development project which they had contractually committed themselves to do. They must have known that construction to wall plate level was crucial: such was the key to success in obtaining a lease. At that point the attitude of DCC would be irrelevant. Simply put, they would have been removed from the picture. However, if construction did not proceed, evidently the contingency could not be satisfied: in such circumstances, no compulsion could exist over DCC.
67. Under Clause 6(c) of the November Agreement the appellants were obliged to execute a non-recourse mortgage over the "subject lands", in a form which is "acceptable to the licensor" in favour of any bank or lending institution providing loan facilities to the licensee, "to enable" the licensee to fund the works and to pay the sums covenanted to be paid to the several parties under the agreement.
68. A number of observations can be made about the following aspects of this clause: firstly, as the subject lands include the lands of DCC, the December Agreement also applies to such lands; secondly, the phrase "in a form acceptable to the licensor", cannot be read in a manner which restricts an obligation otherwise imposed on the appellants by virtue of this provision. I would read the phrase as being form directed rather substance based. Thirdly, the verb "to enable" means "to facilitate"; in its immediate context it means that Marlan Homes could call upon the appellants to execute a mortgage or charge so that they, Marlan Homes, can seek lending facilities. It could not in my view under any manner of interpretation be read, as imposing an obligation on the appellants themselves, to acquire such funding in favour of Marlan Homes, so that the financial obligations of the latter, are covered. This in essence is the construction which Marlan Homes suggests in their submissions referred to at para. 60 supra. I cannot identify any basis to support this contention.
69. As can be seen the clause is silent as to the nature of the interest which must be made available as part of such facility. It is agreed however, that it is intended to capture the interest of the appellants, as registered in Folios 929F and 35060F County Dublin. In other words, whatever title they have in these lands must be offered. It is suggested by the appellants that the same approach should be adopted in respect of the lands of DCC. By reference to the December Agreement it is clear what their interest in such lands was. On the other hand, Marlan Homes supports the High Court judge on this point.
70. With respect I cannot agree with the submission of Marlan Homes in this regard. As will be recalled the trial judge interpreted the relevant contractual provisions as obliging the appellants to provide, what he variously described as a "effective charge" or an "effective security" over, inter alia, the lands of DCC so that if a mortgagee was obliged to realise that security he could do so by way of sale or other disposal. I cannot see how Clause 6(c) and/or Clause 14 can be read in this manner, without doing what Lord Mustill cautioned the court against doing in Fagan (para. 52 supra), which was in substituting its own views of the bargain for those actually contracted for, by the parties.
71. The relevant provisions of both the November and December Agreements do not mention the giving of an "effective security" or any security with like effect. The obligation of the appellants does not extend to the value, quality or efficacy of the security: these are matters entirely for Marlan Homes. If it was intended otherwise, with regards to the lands of DCC, then an express provision to that effect would have to. Quite evidently, as is acknowledged by all concerned, the December Agreement did not confer such an entitlement or power in that regard on the appellants. This situation was or was capable of being fully known to Marlan Homes at all times. Therefore, as stated earlier, if such a requirement existed it would have to be found in the November Agreement. It cannot, in my view, be deduced from any of the relevant provisions of such agreement.
72. In fact when Clause 14 of the December Agreement is considered, in conjunction with the covenants which Marlan Homes entered into with regard to the appellants' obligations under that agreement, it is clear that such a requirement does not exist. Whether it was ever specifically adverted to is not known. If it was, its legal standing was not established in a contractual setting. The reasons why the parties proceeded as they did, remains a matter for them.
73. In my view, it would be quite incorrect to say that, in the absence of such type security being available in respect of the lands of DCC, the consideration paid under the November Agreement has wholly failed. Title was available, at all times, to the lands in Folios 929F and 35060F County Dublin. Moreover, there existed a right to enter, build and complete the development project, with the benefit of the planning permission which existed therefor. What Marlan Homes seems to have lost sight of, is the fact that they were obliged to secure the funding to enable this development to take place. That obligation was not on the appellants. Marlan Homes were the investors and as such, they had the responsibility of funding that investment. Whilst they may have intended to use the subject lands as security for such funding, there was clearly no obligation on them to so do. The project could have been funded otherwise than by sole reliance on these lands. A combination of the lands in Folios 929F and 35060F and other potential sources do not appear to have been considered as a means of funding the building to wall plate level, which was the crucial point. Such however, was a matter for the investor. It is not now possible to seek to exploit the terms of an agreement which simply do not exist.
74. Consequently, I am of the opinion that the appellants are not in breach of any obligation undertaken by them to Marlan Homes. Therefore the appeal will be allowed and the orders made in the High Court set aside.
75. The end result is and can be considered as unattractive, when one considers the respective positions of the parties following this judgment. However such are the inevitable and inescapable consequences, of this court having to apply the appropriate legal principles, to the structure of the arrangement put in place by the parties to regulate their affairs.
