Mactaggart & Mickel Homes Limited v Charles Andrew More Hunter and Sandra Elizabeth Hunter, Scottish Courts 16 September 2010

This case considers whether Mactaggart & Mickel had used reasonable endeavours to obtain a planning permission and also whether they had acted in good faith and reasonably when serving an “Unsatisfactory Planning Notice” in terms of their obligations under missives for the purchase of a site within a conservation area on Lanark Road West, Balerno.

The obligations

In terms of the missives, M&M were to purchase the site for £3.5m and were to pay a deposit of £1.5 million to the sellers (Mr and Mrs Hunter). M&M were then obliged to pursue a planning application for their proposed development (defined as a development of no fewer than 17 and no more than 19 units) of the site with all reasonable diligence and to use reasonable endeavours to obtain the detailed planning permission. Upon receipt of satisfactory planning permission, M&M were to serve a notice of satisfactory planning and thereafter pay the balance of the purchase price. If M&M did not, in their view (acting reasonably and in good faith), receive a satisfactory planning permission, they were entitled to serve an unsatisfactory planning notice, in which case Mr and Mrs Hunter were to repay the deposit to M&M and M&M were to re-convey the property to the Hunters.

The planning negotiations

Following failed attempts at engaging the principal planner in pre-application discussions, M&M submitted a planning application for 19 units. Thereafter M&M’s architects attempted without success to engage the planning officials in discussions about the application. However, following an email expressing disappointment at the lack of communication from the planning officials, they received a reply from the planning department expressing concerns with particular regard to the height, design, scale and massing of the proposed development and the fact it failed to make a positive contribution to its context. The Council took the view that the issues were so fundamental they could not be resolved in the application submitted and that a new application would be required. M&M sought to make withdrawal of the planning application conditional upon the Council agreeing a date for a meeting to discuss a future application for the site but the application was refused by the Council before a meeting was arranged. Following a meeting which appeared to indicate that the Council would not accept 3 story development, M&M produced a design for 13 units and again tried and failed to arrange pre-application meetings with the planning officials. The Council responded to requests for a meeting by issuing an email advising that the new development still failed to deal with their previous concerns. However, about 7 weeks later a meeting took place to discuss the 13 unit proposal and again the Council expressed the view that M&M were seeking to put too many units on the site. Thereafter M&M considered 10 unit proposals but decided they were not financially viable.

The arguments

As a result, M&M served a notice of unsatisfactory planning on the Hunters and, when the Hunters failed to repay the deposit, rescinded the missives and raised proceedings to recover the shortfall between the value of the property and the deposit.

The Hunters argued that M&M had not been entitled to serve the unsatisfactory planning notice as:

  1. M&M had failed to use reasonable endeavours to obtain planning permission before deciding that the permission would not be granted (in particular the Hunters criticised the absence of pre-application discussions);
  2. They had failed to prove that they had reached the view that planning permission would not be granted reasonably and in good faith;
  3. When it abandoned pursuit of an application involving 17 units, M&M had waived its right to serve the unsatisfactory planning notice.

The decision

With regard to the reasonable endeavours question, Lord Hodge made a number of observations:

  • The onus was on M&M to show that they had used reasonable endeavours;
  • “reasonable endeavours” in the context imposed obligations which were less onerous than would the phrases “all reasonable endeavours” or “best endeavours”;
  • Whichever phrase was used, an obligation of this nature does not oblige the obligant to disregard its own commercial interests;
  • The question to be asked with regard to M&M’s actions was what a reasonable and prudent board of directors acting properly in the interests of their company and applying their mind to its contractual obligations would have done;
  • In considering what steps are reasonable, the court must also consider whether any reasonable steps would have been successful (ie it would not be a breach of contract if the obligant were able to show that it would have been useless to take the steps as they would have been insufficient to achieve success).

Taking these factors into account Lord Hodge was satisfied that M&M had used reasonable endeavours to obtain planning permission. With regard to the question of pre-application discussions, expert evidence was agreed on the benefits of such discussions but it was recognised that securing the co-operation of the planning authority was not always possible. In this case, the application was only submitted following the failure to arrange a meeting. Also Lord Hodge was not persuaded that, even if M&M had managed to arrange the pre-application discussions, it would have made any difference to the application.

Lord Hodge also took the view that M&M had discharged the onus that was on them to show that they had acted reasonably and in good faith. The date for testing the reasonableness and good faith was the date when the board decided to resile from the missives. At the time the decision was made, their view that they would not obtain permission for 17 or more units was eminently reasonable. The directors of M&M only came to the decision they could not proceed with the missives after the Council expressed concerns about the scale of the 13 unit proposal and M&M had made an adverse financial assessment of the 10 unit proposal having regard to the Hunters’ expectations on price.

The case on implied waiver also failed as M&M’s actions, when looked at objectively, did not lead to an inference that they had abandoned their right to serve unsatisfactory planning notice on the purchaser with regard to the application for 17 units. Also, it could not be inferred that Mr Hunter had acted in reliance on a belief that M&M had done so. This was not a case where there had been inconsistent behaviour which had led to unfairness.

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