Our legal blogger looks at the crux of the Chelsea Barracks case and why the supposed winner may not be celebrating its entitlement to compensation

There can be few people who haven’t heard about the plans by the Qatari Royal family and the Candy brothers to re-develop the former Chelsea Barracks into a very large development in Belgravia.

Many people will also know that the development became increasingly mired in controversy over the design of the proposed buildings which included private properties, social housing, hotels, shops and so forth. The proposals and objections by local residents and others increasingly were played out in the press.

Boris Johnson the new mayor of London became involved in the process. Most controversially, the Prince of Wales not only objected to the design but met the Qatari funders to make his views known. Now the courts have had their say too.

Sale and purchase agreement

The arrangements between the Candy brothers’ company and the Qatari sovereign investment fund were set out in a sale and purchase agreement where the Candy brothers sold their interest in the development company for an immediate payment and an amount of deferred consideration.

This agreement set out the obligations of the parties which the court had to look at in detail. The reason for this was that the application for planning consent before Westminster Council was withdrawn by the Qataris before it was considered.

They were entitled to do this and the agreement made reference to this happening, but the Candy brothers argued that in the circumstances surrounding the withdrawal triggered a breach of the Qataris obligation under clause 7 of the agreement and that therefore they were entitled to damages of circa £70m as provided for in the agreement.

They also argued that the Qataris had breached their duties of utmost good faith under the agreement. The court had therefore to analyse not only the conduct of the two parties, each of whom was alleging bad faith by the other party, but also the nature of the planning process, the role of the mayor and his office and the real reasons behind the withdrawal of the planning application by the Qataris. This aspect centred on the intervention by the Prince of Wales in the process and whether that had led to the planning application being withdrawn.

The planning process under the spotlight

The case throws light on the whole planning process in England and the way in which such crucial matters in the development of the capital city and elsewhere in England are dealt with by discussions where intimations of views, indications of concern and the like by representatives of for example the mayor are made.

In this case at the centre of the dispute was the question of whether in the course of six meetings with the mayor or his representatives the mayor had “indicated” disapproval of the existing scheme sufficiently to justify the withdrawal of the scheme in such a way as to avoid payment to the Candys of the deferred consideration.

The analysis of the facts by the judge show what a game of brinksmanship the planning process is, with the mayor’s office indicating lack of enthusiasm for the scheme and issuing veiled threats whilst not actually saying that the proposals would not be approved.

It does beg the question of whether this kind of horse-trading is the best way to encourage a transparent planning process in England and Wales. The question is particularly relevant in this case as much of the argument about appropriate development was either done by leaks to the press or through private discussions between members of the respective royal families of England and Qatar.

I wonder whether other potential property investors will look at the process and the case and wonder whether investing in property in the UK is such a good idea?

It is also rather sad that the whole process should have had to be aired in public particularly since the original planning application was withdrawn and has yet to be re-submitted.

A hollow victory for the Candys

The Candy brothers did obtain the right to be compensated for what the judge found was a breach of the sale and purchase agreement because the Qataris had withdrawn the planning application but not for one of the reasons listed in the agreement.

The Candy brothers are therefore entitled to damages but their victory has been somewhat hollow . The damages is not for the £70m figure that they would have been awarded if they could have proved a breach of clause 7 of the agreement.

Instead they will have to prove their loss flowing from the breach which would be a comparison between what would have been the position had the Qataris continued with the planning application, (and presumably appealed if that were necessary, and presumably battled against opposition from the mayor and from the Prince of Wales), on the one hand; and what has happened and presumably what will happen now that the planning application has been withdrawn and the agreement remains in being on the other hand.

This arguably cannot properly be valued at this stage and the Candys will probably have to wait for their money. Proving what the loss is will also be complicated and costly.

Arguments of bad faith

The other unedifying aspect of the case is the arguments of bad faith at the centre of it. This is particularly sad given that the agreement provided for the exercise of duties of utmost good faith.

The case provides a rare example of how English law treats this concept, which whilst commonplace elsewhere is rarely used here and the judge was pointed to Australian and American decisions and legal commentary on this issue to help him.  

The judge’s conclusion was that the content of the obligation of utmost good faith in the SPA was: to observe the spirit of the contract

  • to achieve reasonable commercial standards of fair dealing
  • to be faithful to the agreed common purpose
  • to act consistently with the justified expectations of the parties.

He also expressed the view that without bad faith, it was difficult to see how there can be a breach of a duty of good faith, utmost or otherwise.  The test therefore, despite what you might think from the words is not that high a test.

Ironically, the judge also decided that despite all that had happened both parties were still bound by the sale and purchase agreement. Perhaps this will encourage the parties to reflect on how little has been gained by this whole expensive spectacle and use the opportunity to find a commercial solution to their issues which avoids further washing of their dirty linen in public which so far doesn’t seemed to have benefitted either them or the image of the English system.