The judgment Morgan J in Airport Industrial GP Limited and Airport Industrial Nominees Limited v Heathrow Airport Limited and AP16 Limited  EWHC 3753 (Ch) is worthy of review by Members (please click on case name above to download judgment from Bailii)
Saleem Fazal of the UK firm Taylor Wessing provides the following casenote from Lexology (original article may be accessed HERE)
This case concerned a party’s obligation to build a car park by 22 October 2016. Of particular importance was that the case went to trial almost a year before that date, on 26 October 2015.
The Court considered when orders for Specific Performance would be granted and also whether it could grant such an order prior to the date on which the contractual obligation was supposed to be performed.
At the time of the hearing, no planning permission had been obtained for the construction of the car park and there were various options that the party could pursue in order to comply with its contractual obligations.
Having established that there was a breach, the Court ordered specific performance of the obligation to construct the car park by 22 October 2018, thereby giving the party two years from the date previously agreed in the contract. In the meantime damages were payable by the defaulting party in respect of the losses arising.
The transactional history was complicated and concerned agreements entered into since 1990 and also following the Heathrow Express Railway Bill. In essence, the dispute centred over whether one party, AP16 Limited (”AP16“), was obliged to build a car park providing 280 car parking spaces by 23 October 2016. Heathrow Airport Limited (“HAL“) claimed that AP16 was under an obligation to do so, although this was denied by AP16.
There was a further complication in that the disputed obligation required AP16 to provide the 280 car parking spaces free of charge for a period of 999 years. This meant there would be no profit for the development of a small car park which would take the least amount of time. Consequently, if found to be in breach, AP16 wanted to implement a larger, more profitable scheme, which would, however, take longer to complete.
An interesting feature of this case was that it was brought long before the alleged contractual obligation date of 23 October 2016. This was a result of AP16 declaring its position that it was not in fact taking steps to build the car park.
The Court decided that AP16 was indeed under an obligation to build the car park by 22 October 2016, and so, then had to consider whether it had the power to grant an order for specific performance in these circumstances and, if so, how that power should be exercised.
The court reviewed the authorities and concluded:
- the remedy should be made available where it is the appropriate remedy and, in particular, where damages are not an adequate remedy;
- it will be relevant that the person with the benefit of the contract has no right to enter upon the relevant land and carry out, or procure the carrying out of, the work;
- in the case of an obligation to build contained in a lease, it will be relevant to consider whether the landlord with a right to forfeit the lease should be left to pursue that remedy, to recover possession of the premises and then to have the ability to carry out the building works; and
- the court’s order should contain sufficient definition of what is to be done.
Applying these principles to the current facts, the court concluded that, in principle, an order for specific performance could be made.
There was no direct authority on the question of whether or not an order for Specific Performance could be made prior to the date on which the obligation was to be performed. However, Mr Justice Morgan held that such an order could be made and that directions could be given as to the steps which AP16 needed to take in order to bring about performance of its obligations as soon as possible after the contractual date for performance, in this case 22 October 2016.
How should the obligation be performed?
- There were three schemes proposed, all of which would allow AP16 to develop some profit from the development of the land on which the car park was to be situated.
- The three schemes involved building car parks either of a much larger size so as to accommodate fee paying customers, or using a smaller part of the site to provide just 280 spaces in accordance with the contractual obligation.
- AP16 wanted a period of two years from 22 October 2016 to build the car park, bearing in mind its obligation was to provide parking spaces for 999 years.
- AP16 offered to compensate HAL in damages given the delay. In effect, HAL were providing these spaces elsewhere and this was depriving HAL of income from other fee paying customers.
HAL argued the following:
- The Court should refuse AP16 extra time, but if it did so then it should be the shortest time reasonably needed to allow AP16 to build a car park.
- Any alternative scheme should be the one that would take the least amount of time.
- AP16’s proposals had not been thought through and there was no assurance that any of them would be progressed.
- AP16 should pay a year’s damages into an escrow account.
What the Court decided
The parties’ respective proposals meant that they agreed that specific performance was the appropriate remedy and that damages were not an appropriate remedy.
Although there would be some delay in the provision of the car park following 22 October 2016, spaces were available elsewhere and damages would be a suitable remedy in the short term.
The Court would allow AP16 a period of two years to work up and develop a more profitable car parking scheme – it would have been disproportionate to “punish” AP16 by removing any prospects of deriving a profit.
As it is an equitable remedy, specific performance will only be granted in certain circumstances and all cases will be fact specific. However, this case demonstrates how far a Court might go in order to ensure that a party’s obligations are performed, even if the date for compliance has not yet arrived.
It also demonstrates a commercial approach of the Court in seeking to allow the defaulting party to derive a profit provided that by doing so the other parties were not financially prejudiced.”
5th April 2016