Council wins contract termination battle with developers over city centre development

Sheffield City Council has won a contract termination case in the High Court over land in the city centre.

In Sheffield City Council v Scotfield Group Ltd & Anor [2023] EWHC 990 (Ch) Her Honour Judge Kelly, sitting as a judge of the High Court, found for the council and against developers Scotfield Group and Camstead.

The case concerned a Part 8 Claim by Sheffield and a counterclaim by the two defendants over a contract agreed in March 2019 for the sale by the council of land at Hoyle Street.

Sheffield sought declarations that the contract had been terminated by notice in November 2021, and that it was entitled to forfeit and retain the deposit paid under the contract. It also asked for an order to have a small parcel of land at the site conveyed back to the council’s ownership.

The defendants sought an order for specific performance of the contract, transferring the site pursuant to it and naming Camstead as transferee.

They also said that the deposit should be returned to them if the court found the contract had been properly terminated.

The court was told that the £2.56m sale of the land was initially for a mixed-use development comprising three blocks of student flats, two blocks of private residential flats and townhouses and nearly 8,000 square feet of commercial or retail space. The student flats were later replaced by residential ones.

Sheffield wished to ensure that the agreed development would be built and not - as had happened in other cases - see the land sold or an agreed development changed unilaterally by the developer after buying land.

It therefore set a condition that planning permission would be granted before the sale of the land. The contract became unconditional once such permission had been granted and the time for challenge had expired.

The small parcel of the site was though transferred immediately to the developers for a nominal consideration because this change of ownership was needed to terminate a tenancy there. But if the contract was terminated Scotfield had to re-convey this site to the council.

The contract became unconditional in April 2020 and included an obligation that Scotfield provide evidence of ‘the building contract'.

HHJ Kelly noted: “Unusually, the term ‘the building contract’ was not itself defined in the contract in the definition section although it is later defined in clause 14.3.

“Unfortunately, the parties do not agree as to what is meant by ‘the building contract’.”

Scotfield entered negotiations with building contractor NMCN but that entered administration in October 2021.

Sheffield served a notice on Scotfield that month requiring “remedy of an alleged breach of an implied obligation to enter into a building contract or to provide evidence of a building contract within a reasonable time after the unconditional date”.

Scotfield sent Sheffield a large number of documents but the council was not satisfied these provided evidence of a bona fide arm's length building contract.

Sheffield the next month served a notice terminating the contract but Scotfield asserted it was not entitled to terminate as negotiations were in progress.

In January 2022, Scotfield said all that was required was evidence of a bona fide arm's length building contract, “not necessarily the one which would be entered into by [Scotfield]” the judge said.

“The building contract provided was in effect a standard building contract, albeit that Yelcon Limited was now intended to be the main contractor.”

Sheffield served a notice to complete and then issued its claim. Scotfield meanwhile assigned the benefit of the contract to Camstead, a company wholly owned by Yelcon.

HHJ Kelly found an implied term in the contract that Scotfield was obliged within a reasonable time after the contract became unconditional to provide evidence of ‘the building contract’ which either had been or would be entered into for the development.

Both defendants argued the court should use its discretion to return the deposit to Scotfield as the condition precedent, which had been satisfied.

They also argued by retaining the deposit the council would gain windfall because the premises now had planning permission, which Scotfield had spent £1.4m to obtain.

HHJ Kelly said: “In my judgment, the various facts and matters relied upon by the defendants do not establish exceptional circumstances which would justify departure from the ordinary contractual expectations of parties.

“There is no evidence that the site has in fact increased in value. There is no evidence about timelines and the cost for any compulsory purchase of the additional land owned by the defendants which would be required to enable the claimant to take advantage of the current planning permission.

“A developer would expect to spend money on planning and other expenses to be able to develop the site. None of that is unusual. In those circumstances, I do not accept that it would be right to exercise my discretion to order the claimant to return the deposit to the first defendant.”

She found the contract had been terminated and also ordered the re-conveyance of the small parcel of land for a £1 consideration.

Mark Smulian