NEW INGLISTON LTD AGAINST EDINBURGH AIRPORT LTD [2020] ScotCS CSOH

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> NEW INGLISTON LTD AGAINST EDINBURGH AIRPORT LTD [2020] ScotCS CSOH_64 (23 June 2020) URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSOH_64.html Cite as: [2020] CSOH 64, [2020] ScotCS CSOH_64, 2020 SLT 1281, 2020 GWD 31-396

[1] A property developer owned a large site next to an airport. The site was in the green

belt. The developer granted an option in favour of the airport to purchase, for operational

purposes, the part of the site immediately adjacent to the airport. The option was

conditional on certain conditions being met. The airport took the view that the conditions

had been fulfilled and served an option notice exercising the option. The developer took the

view that the conditions had not been fulfilled and raised a commercial action seeking

declarator that the purported option notice was invalid and of no legal effect

[2] The case called before me for debate on the issue of whether the conditions had been

[3] The Option is set out in an Option Agreement (the “Option Agreement”) between

the pursuer and the defender dated 29 October 2001, as subsequently amended by

Amendment Letters dated 11 December 2003 and 5 January 2004 and by an Amendment

Agreement dated 15 October 2004 and 2 December 2004. Unless specified otherwise,

references in this opinion to the Option Agreement are to the Option Agreement as so

[4] The Option was over around 8.094 hectares of land (the “Option Subjects”)

immediately adjacent to Edinburgh Airport. The “Option Subjects” were part of a much

larger area of around 87.819 hectares owned by the pursuer, being, in general terms, land

between the airport and the M8 Motorway. I shall refer to that larger area as the “Subjects”,

as that is the term used to describe it in the Option Agreement. However, it is important to

bear in mind that the Option is over only the Option Subjects and not the Subjects as a

[5] The acquisition of the Option Subjects was for the operational use of the airport. The

Option Subjects were to be conveyed under title restrictions (clause 4.4). The title

restrictions included a prohibition of use “other than airport operational uses as described in

Part 5 of the Schedule” (definition of “Title Restriction in Part 4 of the Schedule). Part 5

defined “Airport Operational Uses” as Air Traffic Control; Administration and

Management; Catering; Baggage Handling; Cargo Handling; Passenger Handling;

Passenger Convenience; Airline Operators; Customs and Excise; Immigration Control;

Security; Emergency Services; Cleaning Services; Maintenance, Servicing and Ground

Support; Fuel and Associated Services; Communications and other utilities; Vehicle

Services; Public Transport Services; and Business Services. The Title Restrictions also

included a right of pre-emption in favour of the pursuer whereby before any re-sale of any

of the Option Subjects to a third party the defender was required to offer them for sale to the

[6] Clause 3 of the Option Agreement (headed “Option”) provides:

“3.1 [The pursuer] grants to [the defender] an option to purchase the Option

Subjects in whole or in part in accordance with the provisions of this Agreement, by

service on the [pursuer] of one or more Option Notices at any time during the Option

3.2 Neither an Option Notice nor a Valuation Notice may be served unless and until

the conditions precedent set out in Clause 2 have been (a) satisfied in so far as

[7] The Option Period was defined in Part 5 of the Schedule of the original Option

Agreement as the period of 10 years from the date of commencement of the Option

[8] An Option Notice was served timeously on 26 October 2016, prior to the expiry of

the Option Period on 29 October 2016. Clause 4.3 of the Option Agreement provided that

with effect from the date of service of an Option Notice the defender was obliged to

purchase, and the pursuer obliged to convey, the land covered by the Option Notice in

return for the “Consideration”. The Consideration was defined as 65% of the Market Value

of the land conveyed (Schedule Part 1). Market Value was open market value and

[9] Clause 2 of the Option Agreement (headed “Option Conditions Precedent”) provides

various conditions precedent for the service of an Option Notice, of which only one is

“2. The conditions precedent to the service of an Option Notice…..are that:

2.1 … (a) the whole or the majority of the Subjects is zoned for a use which is

consistent with the Main Agreement in accordance with the Key Objectives…”

[10] The Main Agreement was an agreement between the pursuer and BAA PLC (“BAA”)

dated 29 October 2001, as subsequently amended by Amendment Letters dated 11 December

2003 and 5 January 2004 and by an Amendment Agreement dated 15 October 2004 and

2 December 2004. Unless specified otherwise, references in this opinion to the Main

[11] The “Key Objectives” were defined in Part 5 of the Schedule to the Main Agreement

as “those objectives specified in sub-paragraphs (a), (b), (c) and (d) of clause 2.1 of this

“2.1 The [pursuer] and BAA shall use all reasonable endeavours to:-

(a) ensure that the revision to the WEPF establishes the basis for (i) the

future development of the Subjects as an international business district

prior to expiry of the Initial Period and (ii) the provision of key

(b) achieve the optimum development potential for the Subjects as a whole;

(d) so far as commensurate with (a), (b) and (c) minimise the period required

“WEPF” is defined as the West of Edinburgh Planning Framework (Part 5 of the Schedule to

the Main Agreement (as amended)). The “Initial Period” was defined in Part 5 of the

Schedule of the original Option Agreement as the period of until the fifth anniversary of the

date of the Main Agreement, and this period was subsequently amended to the tenth

anniversary. It is important to note that, both in the original agreements and the amended

agreements, the Initial Period under Main Agreement is five years shorter than the Option

Period under the Option Agreement. The Subjects are the area of around 87.819 hectares

between the airport and the M8 motorway, and include the Option Subjects. “Planning

Consent” is any planning consent in respect of all or part of the Subjects granted pursuant

to a joint application by BAA and the pursuer, or an application by the pursuer (or in certain

circumstances a third party) during the Initial Period (Main Agreement, Part 5 of Schedule).

[12] The Key Objectives in the Main Agreement as amended differ from the Key

Objectives in the Main Agreement as originally entered into in one important respect. Key

Objectives (b), (c), and (d) were not amended. But a new Key Objective (a), as set out in para

[11] above, was substituted for the original Key Objective (a). The original Key Objective (a)

had made reference to a proposed masterplan for the development of the pursuer’s land in

conjunction with adjacent land owned by the Royal Highland and Agricultural Society

which by the time of the amendment was not being proceeded with. The original Key

“ensure that the Draft Masterplan is agreed with the Society and that the Council

adopts the Agreed Masterplan (and BAA shall consult fully with [the pursuer] in

[13] The Main Agreement was between the pursuer and BAA. The defender was a

subsidiary of Scottish Airports Limited which in turn was a subsidiary of BAA. Clause 1.2

“Although BAA will be responsible for its obligations under this Agreement, for so

long as BAA Lynton Developments Limited remains a wholly owned subsidiary of

BAA, the obligations of BAA hereunder may be performed through BAA Lynton

Developments Limited but without limiting BAA’s obligations under this

BAA Lynton Developments Limited (“BAA Lynton”) was the specialist commercial

[14] The pursuer and BAA undertook to each other during the Initial Period to cooperate

with each other and use all reasonable endeavours to achieve the Key Objectives, pursue a

planning application in accordance with the Key Objectives and cooperate fully with each

other in respect of planning issues in any Local Plan review or Structure Plan review

“Scottish Airports and Edinburgh Airport will use all reasonable endeavours to

secure the Scottish Executive’s approval to a revised WEPF in line with the Key

Objectives and confer fully with [the pursuer] and BAA in the implementation of the

BAA further undertook to the pursuer to procure that Scottish Airports and the defender

would act in support of the agreement between BAA and the pursuer in various ways

specified in clause 4.1, including fully supporting the planning application (clause 4.1.2) and

not acting in a way which had a material and adverse effect on the achievement of the Key

“Notwithstanding Clause 4.1, [the pursuer] hereby acknowledges and accepts that:

4.2.2 None of BAA, Scottish Airports nor [the defender] will support, and

each of them may object to, and none of them shall be obliged by [the

pursuer] to use reasonable endeavours under Clause 4.1.1 in respect of, any

matter which affects or is likely to affect materially and adversely the

[17] BAA and the pursuer established a steering group (the “Steering Group”) “to

manage and discuss their mutual business and objectives (including the pursuit of the Key

Objectives) which are the subject of [the Main Agreement]”. (Clause 5)

[18] Although the Subjects were owned by the pursuer and not BAA, the Main

Agreement made provision for BAA to share in the increase in the value of the Subjects

achieved under the Main Agreement. Only BAA shared in that increase: the defender did

not. BAA shared in the increase by means of a fee payable to it by the pursuer if, within the

Initial Period a Satisfactory Planning Consent was obtained and the Subjects were sold

(clause 6). Although the provisions for calculation of the fee were complicated, in broad

[19] To secure its obligation to pay the fee and its obligations under the Option, the

[20] The pursuer was entitled to terminate the Main Agreement on giving written notice

in the event that the defender ceased to be a wholly owned subsidiary of Scottish Airports

and/or Scottish Airports ceased to be a wholly owned subsidiary of BAA. The pursuer did

[21] Notices under the Main Agreement were to be sent not to BAA but to BAA Lynton

[22] The Main Agreement contained an entire agreement clause in the following terms:

“16.1 This Agreement and the Option contain the entire agreement between the

parties with respect to the matters contemplated herein and therein and shall

supersede all prior proposals, representations, agreement and negotiations relating

thereto, whether written, oral or implied, between [the pursuer] and BAA and their

[23] A similar entire agreement clause was contained in the Option Agreement as follows:

“8.1.1 This Agreement together with the Main Agreement contains the entire

agreement among the parties with respect to the matters contemplated herein and

shall supersede all prior proposals, representations, agreements and negotiations

relating thereto, whether written, oral or implied, between [the pursuer] and [the

[24] The pursuer led evidence from Roderick J Paterson. Mr Paterson has some 37 years

of experience in commercial property. He practised as a Chartered Surveyor and then

Development Surveyor until 1995 when he set up the pursuer, and has been its managing

director since that date. He was the individual primarily responsible for negotiating and

[25] Mr Paterson gave evidence that the pursuer is a single purpose property

development company which was specifically set up to complete multiple land acquisitions

and assemble the Subjects. The purpose of the pursuer is to develop and enhance the value

of this landholding. BAA Lynton was the specialist Commercial Property division of BAA

in 1995, when discussions first began between parties. Discussions with BAA Lynton began

in 1995. The pursuer instigated these discussions because as landowner, the pursuer

recognised the commercial and planning benefits of not only working together with BAA,

then the ultimate owner of the defender, but also bringing in the valuable expertise of BAA

Lynton on a national basis in planning and commercial development around major airports.

When discussions began, and for some time after, the Subjects were allocated in the

development plan as green belt with no support for any development other than agriculture,

horticulture, forestry, countryside uses, or other uses appropriate to the rural character of

the area. In 1995 the Subjects were farmland, namely Gogar Mains Farm and smallholdings

fronting the eastern edge to Eastfield Road, the access road to Edinburgh Airport.

[26] The same firm of solicitors acted for both BAA and Edinburgh Airport Limited in

[27] No planning application was made under the Main Agreement which expired on

29 October 2011 on expiry of the Initial Period. No fee was paid to BAA at the expiry of the

Main Agreement as no Satisfactory Planning Consent existed at the expiry date. Following

the expiry of the Main Agreement, the Standard Securities were discharged in May 2012.

[28] Mr Paterson went on to say that whilst the fee arrangement rewarded BAA for

obtaining a Satisfactory Consent during the Initial Period, it was agreed that the defender

should also be incentivised to assist the pursuer and BAA's efforts to achieve the Key

Objectives. BAA's benefits were tied to the grant of planning permission, ie the existence of

a Satisfactory Consent. The defender's benefit, however, could be triggered not only by the

grant of a Satisfactory Consent (clause 2.1(b) of the Option Agreement) but also arose where

the whole or a majority of the Subjects was zoned for a use which was consistent with the

Main Agreement in accordance with the Key Objectives (clause 2.1(a) of the Option

[29] Mr Paterson also gave evidence in which he disagreed with the evidence of Mr Neil

McDougall on pre-contractual negotiations, and I deal with this at para [33] below.

[30] The defender led evidence from Neil McDougall. He qualified as a Chartered

Surveyor in 1990 but gave up his membership in 2011. He was employed by BAA Lynton

from October 1997 to June 2004 but continued to advise BAA Lynton on a consultancy basis

until early 2006. Since 2004 he has worked as a self-employed property consultant.

[31] Mr McDougall’s evidence was that he met Mr Paterson and his co-director a few

times between late 1997 and early 1998 when they put forward a proposal for a joint venture

between BAA Lynton and the pursuer to promote an international business district on the

pursuer’s land. The concept of an airport related business park was in line with BAA

Lynton’s aims as a specialist airport and aviation related property developer. BAA Lynton

was entirely focussed on airport related development. Its activities had to fall within the

airport or aviation classification to satisfy BAA group policies. The Airport and Aviation

classification was cargo facilities, hotels, offices for airlines and travel companies, hangars,

staff reporting and administration and welfare (sports and social clubs and gyms). While

the focus was on that classification the following other uses would be permitted within the

sphere of influence of an airport: offices, world business centre, industrial, hotels, limited

[32] Mr McDougall’s position was that the defender would not have lent support to the

international business district had residential use been a feature. BAA Lynton never got

involved in housing. The attraction of the international business district was that it did not

include any housing and potential noise impacts could be more easily managed.

[33] Much of Mr McDougall’s evidence related to discussions and negotiations prior to

entering into the Main Agreement. He gave evidence about discussions between BAA

Lynton and the pursuer, and also between BAA Lynton and the defender. He referred to

various documents relating to these pre-contractual negotiations including an internal board

report on 18 November 1999, letters dated 25 May 1999, 31 May 1999, 28 June 2000 and a

Memorandum of Understanding of February 2000. Mr Paterson also gave evidence about

these matters. There were significant factual differences between the accounts of

Mr McDougall and Mr Paterson relating to the pre-contractual negotiations. In my opinion

these pre-contractual negotiations are excluded from my consideration by the law

(eg Prenn v Simonds [1971] 1 WLR 1381), and in any event by the entire agreement clause in

the Main and Option Agreements. Accordingly I have not taken the evidence of either

Mr McDougall or Mr Paterson on the pre-contract negotiations into account in coming to my

[34] Both the pursuer and the defender led suitably qualified planning experts. The

pursuer’s expert was Andrew Munnis, a partner of Montagu Evans LLP, Chartered

Surveyors and Chartered Town Planners. He holds a Bsc (Hons) in Town and Regional

Planning and a Diploma in Surveying. He is a member of the Royal Town Planning Institute

and the Royal Institution of Chartered Surveyors. He has over 22 years post qualification

experience in both public and private sectors and as an expert witness. The defender’s

expert was Steven Black, Lead Director in Jones Lang LaSalle’s Planning and Development

team in Scotland. He holds an Msc in Urban and Regional Planning and is a member of the

Royal Town Planning Institute. He has over 20 years’ experience, including as Planning

Officer with the City of Edinburgh Council between 2002 and 2007, when he was

responsible for assessing and determining planning applications in the West of Edinburgh,

[35] Much of the evidence of the planning experts on the evolution of planning policy

was uncontroversial, but there were certain important matters on which they disagreed.

[36] Both experts were in agreement that there was no planning policy support for any

development at the Subjects when the Main Agreement was concluded in 2001 and

amended in 2004, outwith the usual horticulture, forestry, countryside recreation or other

uses appropriate to the rural character of the area within the green belt.

[37] The Development Plan position over the Subjects, as at 2001, comprised the Lothian

Structure Plan 1994 and the Ratho, Newbridge and Kirkliston Local Plan 1985. The Lothian

Structure Plan (LSP) 1994 was approved by Scottish Ministers in 1997, subject to

modifications requiring green belt review. The existence of the Edinburgh green belt had

been a principal planning policy helping to shape the settlement strategy for Edinburgh and

the Lothians since the concept of a continuous green belt and its first boundaries were first

set in 1956. The LSP 1994 had a presumption against development in the green belt, unless

for the purposes of agriculture, horticulture, forestry, countryside uses, or other uses

appropriate to the rural character of the area. In terms of the Ratho, Newbridge and

Kirkliston Local Plan 1985, the Subjects were allocated as Countryside and Greenbelt, where

policy restricted development to agriculture, outdoor recreation or other uses appropriate to

a Rural Area. The Rural West Edinburgh Local Plan had progressed through a number of

stages by October 2001, but the Subjects continued to be restricted by green belt policy.

[38] The West Edinburgh Planning Framework (WEPF 2003) was published jointly by the

Scottish Government, Scottish Enterprise and the City of Edinburgh Council in 2003.

“West Edinburgh is nationally important in economic, land use, transport, and

environmental terms. The nature and scale of development, both existing and

committed, is significant to the regional and Scottish economy. Established land uses

such as Edinburgh Airport and the Royal Highland Showground play a national and

regional role, and have aspirations for long-term growth. The existence of the

Airport, and the road and rail routes that connect West Edinburgh to the rest of the

country place it in a strategically important accessible location, although growing

road congestion problems are evident. Much of the area is designated Green Belt,

which provides an attractive western edge to the City and plays a strategic role in

“In recognition of these factors, together with pressures for development and

opportunities to integrate transport and land use, the Scottish Executive, the City of

Edinburgh Council and Scottish Enterprise Edinburgh and Lothian have worked

with the stakeholders to prepare a long-term strategic planning framework for the

area. The Framework serves as an input to the structure and local plans for the area

and will be taken into account by the Scottish Ministers in their consideration of

development plans. It will also be a material consideration in development control

“Work being undertaken to inform the Aviation White Paper is exploring various

options for the future development of Edinburgh Airport. When a clearer

understanding of the future development and surface access requirements of the

airport is established, it will be necessary to make appropriate safeguards in the

[41] The Subjects remained in the green belt with no support for development other than

limited agriculture, horticulture, forestry, countryside uses, or other uses appropriate to the

[42] The WEPF 2008 was adopted in May 2008. It had the status of Scottish Planning

Policy (SPP) and would have been a material consideration in development management

decisions (paragraph 1). Paragraph 13 set out a vision for West Edinburgh which included:

“the allocation, preparation and promotion of sites, to be known as the International

Business Gateway for high quality, high value international business development

subject to master plan preparation with fully integrated walking, cycling and public

transport infrastructure within a green space network, and sustainable mode share

targets, and subject to master plan provisions for protection and management of the

Scheduled Ancient Monument at Gogar Mains Farm and the setting of the A-listed

[43] Further details of the International Business Gateway were given in schedule 1 as

This comprises a strategic reserve of land dedicated to international business

development. For this purpose “international business development” means

development of global, European or UK headquarters or accommodation supporting

high-value corporate functions for internationally recognised organisations operating

in more than one country and with 25% or more of their output produced outside

their country of origin. Planning permission will only be granted where applicants

can demonstrate that the investment decision of the intended occupier is between the

As well as meeting the occupancy criteria above, the development will require to be

of high quality in design and specification, campus style and single user.

Any proposed occupier will require to provide a substantial number of additional

new jobs rather than displacing employment from established businesses elsewhere

All development of the International Business Gateway will be subject to satisfactory

arrangements for road access and connection to walking, cycling and public

transport networks being put in place. With the exception of hotels justified by the

recent hotel needs study, all development of the International Business Gateway will

be subject to the prior provision of tram to the Airport and the new rail station

A legal agreement will be put in place to secure both the occupational and

development criteria noted above over the long term (or at least 10 years).

The definition is also intended to provide scope for Airport or International Business

Gateway related hotel and conference facilities, as well as an element of other high

quality ancillary developments (e.g. child nursery facilities, restaurants, health and

sports clubs, etc.) intended to service the occupants and visitors to the International

Business Gateway. Such ancillary development will only be permitted where, by

reason of its scale and nature, it is clear that it will not attract substantial numbers

This Planning Framework supports the removal of the site from the Green Belt

through the preparation of Strategic and Local Development Plans at the earliest

opportunity for the purposes above. It also supports an alteration to the Rural West

Edinburgh Local Plan (2006) to promote necessary land preparation, including

advance planting, landscaping and infrastructure works. Planning applications will

be guided by a Strategic Design Framework (adopted as supplementary planning

guidance) and a master plan. The master plan will cover matters including layout,

access, public transport mode share targets, urban design, landscaping, and

protection of heritage features. The Scottish Ministers are also minded to make a

Direction requiring any proposal in the master plan area which the City of

Edinburgh Council resolve to approve to be referred to them, where the proposal is

put forward prior to agreement of the master plan, or which is not in accordance

“In May 2008, the Scottish Government published a revised version of the West

Edinburgh Planning Framework (WEPF 2008). This sets out proposals for the phased

expansion of Edinburgh Airport, the implications in terms of the need to relocate the

Royal Highland Centre and the opportunity to create an International Business

Gateway. The Council is required to bring forward an alteration to the Rural West

Edinburgh Local Plan to reflect the land use allocations in WEPF 2008 and help

“WEPF 2008 identifies a strategic allocation of land for the creation of an

International Business Gateway (IBG). Its objective is to attract high quality and high

value international business development to a location which benefits from excellent

global, national and local connectivity. WEPF 2008 also supports ancillary

development such as hotel and conference facilities, child nurseries, restaurants and

sports clubs intended to serve the occupants of and visitors to the IBG.”

“WEPF 2008 and NPF2 introduce a new nationally important business opportunity

in West Edinburgh, the International Business Gateway (IBG). WEPF 2008 indicates

that this land should be removed from the green belt in future strategic and local

development plans. In the interim, in recognition of its potential value to the national

economy, IBG proposals may be approved as a justified exception to green belt

policy. The main purpose of the IBG is to attract inward investment and create new

jobs for Scotland. International business development may take various forms,

accommodation supporting high-value corporate functions for international

organisations. Proposals will not be supported which involve the relocation of

existing businesses from elsewhere in Scotland. A legal agreement may be required

to ensure that business premises are occupied by international organisations both at

the outset and in the longer term. WEPF 2008 also identifies ancillary uses which will

be acceptable in the IBG. These will play an important role in meeting the place-

making objectives set out in the WESDF. Policy ED6a requires proposals for the IBG

to be consistent with the WESDF and accord with an approved master plan.”

In recognition of its importance to the national economy, proposals for the

development of an International Business Gateway within the boundaries defined on

the Proposals Map will be supported. The following uses are supported in principle:

- International business development (as described in paragraph 6.31);

- Uses ancillary to international business development, such as child nursery

All IBG proposals must accord with the West Edinburgh Strategic Design

Framework and be consistent with an approved master plan. Proposals should be

- accessibility by public transport, pedestrians and cyclists; Supporting

information will be required to demonstrate how proposals will contribute to meeting

- impact on setting and views, including wider townscape impacts.”

[49] In a letter dated 26 September 2014, WEPF was withdrawn by letter from the

“2. The West Edinburgh Planning Framework has for the past eleven years provided

a strategic steer to key land uses in West Edinburgh. Latterly it has focused on

enabling the growth potential of Edinburgh Airport to be accommodated in

principle, whilst identifying land for a re-located National Showground Centre

within the area, as well as allowing for a new International Business Gateway to

3. The clear intent of West Edinburgh Planning Framework was to ensure that the

vision it set out should be drawn into Strategic and Local Development Plans to

4. The significant potential of developments in West Edinburgh around the airport

has been included in the South East Scotland Strategic Development Plan (SESPlan),

in alterations to the Rural West Edinburgh Local Plan, and in the emerging Local

Development Plan…..The Edinburgh International Development Partnership

(formerly West Edinburgh Development Partnership), tasked with delivering

development as set out by the West Edinburgh Planning Framework, has produced

6. Between the National Planning Framework 3, SESPlan, the Local Plan and

emerging Local Development Plan, Scottish Ministers have decided that the vision

8. Scottish Ministers believe that the available and emerging suite of planning

documents that address the area from the national, regional and local levels provide

the appropriate and ambitious policy framework to deliver quality development.

9. This being the case, West Edinburgh Planning Framework is no longer required

Preparation of the Edinburgh Local Development Plan 2016 (“ELDP 2016”)

[50] In his June 2016 Report on the proposed plan, the Reporter considered the

International Business Gateway. The main issue was whether the International Business

Gateway site should accommodate housing and if so at what scale (paragraph 118). The

draft plan included 300 to 400 houses as part of a business led mixed use development

(paragraph 116). He noted that the pursuer, City of Edinburgh Council and Scottish

Enterprise supported a housing capacity for the International Business Gateway of some

2,000 to 2,400 houses (paragraphs 120, 125,130). He noted that the Scottish Government

Planning and Architecture Division was of the view that such a significant increase in the

amount of housing would markedly change the uses within the International Business

Gateway from business led, and would significantly diminish the business opportunities for

that prime location, which would be lost to Scotland as a whole (paragraph 127). The

“161. …. I conclude that an opportunity for housing development should be

recognised. However, the scale of this (for example whether or not it constitutes a

level of housing that could be considered to be strategic in nature) should not be

predetermined (even through an indicative range) within this local development

plan. This matter should be left to further consideration through the masterplan and

subsequent development management process, in the context of delivering the

required national development and its emphasis on strategic airport enhancement

and related economic development. Development principles should set out the

parameters for the consideration of proposals through the development management

process. The opportunity for housing development should not be interpreted as a

formal housing allocation in the local development plan at this stage.”

Proposals for the development of an International Business Gateway (IBG) within the

boundary defined on the Proposals Map will be supported. The following uses are

• Uses ancillary to international business development, such as child nursery

• Housing as a component of a business – led mixed use proposal subject to

further consideration through the master plan process, appropriate

infrastructure provision and where consistent with the objectives of the

All IBG proposals must accord with the IBG development principles and other

relevant local development plan policies. The West Edinburgh Strategic Design

Framework (WESDF), supported by master plans where appropriate, provides

further guidance for development proposals, including guidance about the required

212 The purpose of this policy is to support the development of this nationally

important economic development opportunity and ensure proposals accord with

National Planning Framework 3. Further planning guidance is set out in the West

Edinburgh Strategic Design Framework (WESDF). The main purpose of the IBG is to

attract inward investment and create new jobs for Scotland. New housing will

support place-making and sustainability objectives. International business

global/European/UK headquarters and accommodation supporting high-value

corporate functions for international organisations. Compliance with the WESDF, the

IBG Development Principles (Part 1 Section 5) and other relevant local plan policies

will ensure IBG proposals are acceptable in terms of scale and location, accessibility

by public transport, pedestrians and cyclists, traffic generation and car parking,

landscaping, sustainable building, drainage and flood management, habitat

protection and enhancement, place-making and design and impact on setting and

Estimated number of houses: to be confirmed through the master plan process

An opportunity for housing development as a component of business-led mixed use

proposals is identified. However this is subject to further consideration through the

master plan process in terms of the extent that this would contribute to place making

and sustainable development objectives and to the primary role of the site in

supporting strategic airport enhancement and international business development.

The continuing master plan process for the IBG will demonstrate the relative balance

of uses that would be appropriate. The development principles in Part 1 Section 5

identify the requirements for the consideration of proposals for the IBG through the

development management process. Proposals must also accord with the provisions

[54] On 7 December 2015 the pursuer and others (not including BAA or the defender)

submitted an application for planning permission in principle for part of the Subjects for a

mixed use development including business, hotel and residential use. In September 2019,

Scottish Minsters required the application to be referred to them for determination, to allow

[55] Mr Munnis’ conclusion was that the process of optimising development potential

and maximising land value is delivered in a series of small steps, often over a prolonged

period of time, as planning policy evolves: that process had simply not been completed as at

[56] In his opinion the RWELP Alteration 2011 did not allow for optimum development

potential to be achieved consistent with Key Objective (b). This was because of green belt

allocation (zoning) the highly restrictive exception to green belt, and highly restrictive

support for development. The occupation of the International Business Gateway was

restricted to new global/European/UK headquarters and did not support the relocation of

existing businesses from elsewhere in Scotland. Key Objective (b) was not met because a

business only use would not satisfy the requirements of placemaking or sustainability under

Scottish Planning Policy. The restrictions imposed within WEPF and RWELP Alteration

2011 for the International Business Gateway meant that development potential could not be

optimised. Housing was highly relevant to the optimisation of development potential, as

higher value residential use would be required to make the development viable: key

objectives (b) and (c) were not met as housing was seen only as an opportunity and was

subject to further master planning and transport work. Although in his evidence in chief he

maintained that there was no zoning or allocation in the WEPF 2008 as these terms are

normally associated with an Adopted Local Plan/Local Development Plan and no other

planning document, he accepted in cross examination that the WEPF 2018 used the word

“allocation” and that a zoning was achieved as an International Business Gateway in the

[57] Mr Black was of the view that, whilst the WEPF 2008 had been withdrawn by the

date on which the Option Notice had been served, in planning terms the objective of

achieving an allocation as an international business district had been achieved in the

identification of the International Business Gateway in the WEPF in 2008 and subsequently

reflected in the RWELP Alteration 2011. The “international” dimension was used as the

basis of securing the zoning as an International Business Gateway and in that context the

optimised planning potential had been achieved by the date of service of the Option Notice

as the development was zoned as an International Business Gateway in WEPF 2008 and

RWELP Alteration 2011. The fact that a planning application was lodged in 2015 would

support the conclusion that the Key Objectives had been met. It was clear from the Key

Objectives that it was business use that was being promoted. The optimum development

potential as envisaged within the Main Agreement had been achieved as at the date of the

[58] In cross-examination Mr Black elaborated on the effect of the WEPF 2008. He

explained that at that time he was a planner working for Edinburgh Council. If he had got a

planning application for an International Business District, if he refused it he would be

going against government policy as set out in the WEPF 2008 and the chances of successfully

[59] Both parties led expert evidence as to valuation of the Subjects.

[60] Mr Hutchison holds a Bachelor of Land Economy degree and is a member of the

Royal Institution of Chartered Surveyors. He has specialised in valuation since qualifying in

1993, is currently a partner in Montagu Evans and has acted as an expert witness on various

[61] In his opinion Key Objective (a) was satisfied but (b) (c) and (d) were not.

[62] He was not aware of any industry standard definition of the phrase “optimum

development potential”, which is incorporated into many option agreements. In his

experience it was commonly held to mean that development is optimised in terms of

including the best mix of uses, higher practical density, most efficient designs, all within the

context of planning policy and the site’s constraints, to the effect that the end value of the

development is maximised, the cost of constructing the scheme is minimised so far as

possible and hence the land value is maximised. The intention is normally to ensure that the

landowner/seller receives the highest achievable price for the land.

[63] Mr Hutchison did not consider that the development potential of the Subjects was

optimised as at 26 October 2016. In his opinion, the land allocation as at the date of service

of the notice did not meet and was not in accordance with Key objective (b). The uses were

restricted to international business development and ancillary uses. Significant

infrastructure investment would be required including a major spine road and other

transport improvements. Occupier demand for an international business district would not

have been significant in October 2016 and land values would have been modest. Coupled

with high infrastructure and service costs (including developer contributions to the council),

together with increasing construction costs, an International Business Gateway development

would not have been (and still would not be) financially viable. The formal zoning did not

include any housing uses. The direction of travel was for a much larger housing allocation

but there was a need for significant further work before that allocation could be

[64] Mr Hutchison did not consider that the land value of the Subjects was optimised as

at 26 October 2016. In his view, demand for residential land was robust in October 2016 and

a gross headline land value of between £1million and £1.25million per acre would have been

achievable for serviced residential sites. Demand for business/commercial land would have

been more muted. A speculative office development would not have been financially viable.

Gross/headline land values for serviced plots on the Subjects would have been worth

between £250,000 and £400,000 per acre on 26 October 2016. Hotel use could have produced

up to £1m per acre, but there was a limit to how much hotel development could be sustained

at the Subjects. The only way to maximise the land value would have been to maximise the

number of housing units, subject to retaining the International Business Gateway’s status as

a national development with emphasis on strategic airport enhancement and related

economic development. Placemaking was essential and the key would have been a mixed

use development with business and residential use. The reporter, the Council and Scottish

Enterprise all recognised the opportunity for at least 2,000 houses to be included in a mixed

use development. The necessary work had not been done to clarify the higher number of

housing units permitted. In his opinion, the allocation did not meet Key Objective (c).

[65] Mr Stevens holds a Masters degree in Land Economy and is a member of the Royal

Institute of Chartered Surveyors and an RICS registered valuer. He has 16 years post

qualification experience in commercial and residential property valuation and is head of the

[66] Mr Stevens considered the Edinburgh office market at the time of the original Option

Agreement in 2001, the amendment in 2004 and the Option notice in 2016. In 2001 the

Edinburgh office market was exceptionally buoyant and the expectation was that this trend

would continue. The depth of the market at that point would have supported the

development of an International Business Gateway. By 2004, the office market had

stabilised after the 2001 economic slowdown, and although rents were down from 2001 the

expectation was that a number of new developments would be completed in 2006/7. By

2016 the lack of supply of Grade A office space saw the return of pre-let activity to the

market and a rise in speculative developments. West Edinburgh generally recovered in

2015/16 as a result of lack of availability and higher rents in the city centre. Rents of about

£30 per square foot had been achieved on new offices in the city centre, and £20 in

[67] Mr Stevens also gave evidence about ancillary uses in a business district. These

usually include restaurants, sports facilities, convenience retail and hotel accommodation

and make up a relatively minor proportion of the overall development. The one use which

had the potential to contribute meaningfully to gross development value was hotel

[68] Mr Stevens did not agree with Mr Hutchison that the size of the Subjects (around 217

acres) would have necessitated mixed use. Mr Stevens referred to the Royal Bank HQ site of

120 acres adjacent to the Subjects, and to various large scale HQ developments for single

companies through the UK ranging from 20 to 40 acres. In his view it was entirely

reasonable in 2001 and 2004 to have expected that the land could have been viably

[69] Mr Stevens did not agree that without planning permission for a significant

proportion of housing, key objectives (b) and (c) could not be met. Viability was not the

issue: the question was simply whether the optimum development potential and maximum

land value had been achieved in the context of an international business district. The parties

agreed that Key Objective (a) had been met and in his opinion (b) and (c) had also been met

[70] In cross examination he stated that the land value had been maximised in so far as it

could be maximised as an international business district. He accepted that in 2016 there

would not have been a positive land value for a business park development if it were

speculative, but maintained that there would have been for a pre-let development.

[71] Senior Counsel for the pursuer invited me to sustain the pursuer’s first plea-in law,

repel the defender’s pleas-in-law and to grant declarator that the purported Option Notice

dated 26 October 2016 served by the defender upon the pursuer was invalid and of no legal

[72] In his submission, the case law emphasised that judges should be cautious about

using their concept of commercial common sense to override the text used by the parties:

Arnold v Britton [2015] AC 1619, Wood v Capita Insurance Services Ltd [2017] AC 1173, Merthyr

(South Wales) Limited v Merthyr Tydfil County Borough Council [2019] JPL 989, Rainy Sky SA v

Kookmin Bank [2011] 1 WLR 2900. Evidence of prior negotiations should not be admitted or

relied upon when interpreting the provisions of the 2004 Agreements but may be relevant to

the parties’ knowledge of the circumstances in which particular words were used: Prenn v

Simmonds [1971] 1 WLR 1381, McAllister v McGallagley 1911 SC 12, Bank of Scotland v Dunedin

Property Investment Co Ltd 1998 SC 657, Reardon Smith Line Ltd v Hansen-Tangen (“The Diana

Prosperity”) [1976] 1WLR 989, Chartbrook Limited v Persimmon Homes Limited [2009] AC 1101.

It does not rest with either party to say “if the meaning is clear, why did you not express it

otherwise” (Charrington & Co v Wooder [1914] AC 71). Interpretation of planning documents

is a matter for the court (Tesco Stores Ltd v Dundee City Council 2012 SC (UKSC) 278).

[73] Counsel submitted that the defender’s construction that any form of zoning as an

International Business Gateway fulfilled the conditions precedent was wrong as Key

Objectives (b) to (d) remained to be pursued after Key Objective (a) had been met. The

parties had separately identified four discrete Key Objectives, each of which had its own

sub-paragraph. The over-arching commercial purpose was to increase land values and to

share in that increase. BAA obtained its financial benefit under clause 6 of the Main

Agreement not by zoning, but by the grant of a Satisfactory Consent. To regard the

achievement of Key Objective (a) as ipso facto achieving other Key Objectives contradicted

the structure and purpose of the 2004 Main Agreement. The references to the Key

Objectives in other provisions of the Main Agreement (eg clause 3.1.4) made no sense if

achievement of (a) could be read as simultaneously achieving or effectively defining (b), (c)

[74] Counsel further submitted that the wording of Key Objective (a) established only the

basis (not a zoning) for some future development. The parties neither defined the term

“international business district” nor identified any specific uses or Use Classes in terms of

the Town and Country Planning (Use Classes) (Scotland) Order 1997 (SI 1997 No 3061, as

amended). They did not use the term “international business district” in (or in connection

with) any of the Key Objectives (b), (c) or (d). The fact that the pursuer considered that Key

Objective (a) had been met did not justify equiparating (i) the meaning of the term

“international business district” as used by the parties to the Main Agreement and (ii) the

meaning of the term “International Business Gateway” in WEPF 2008 or RWELP. Moreover,

the mere fact that a site had been zoned for a particular use did not mean that the zoning

necessarily contributed positively to the matters covered by Key Objectives (b), (c) and (d).

[75] He submitted that the pursuer’s reading of the Key Objectives was supported by the

use in (b) and (c) of the term “the Subjects as a whole” in contradistinction to the term

“international business district”. This was consistent with the pursuer’s position that Key

Objective (a) was an initial step, and that there was logic to the order in which the Key

Objectives are written. The four Key Objectives were listed in a logical order, beginning

with the revision of the WEPF as a means to enable there to be permitted some development

in the green belt. Once the principle of development had been established, the next logical

step would be to optimise the development potential of the Subjects as a whole.

[76] Counsel further submitted that the defender’s construction of the Key Objectives and

their interrelationship did not make commercial business sense. It rendered nugatory the

commercial aim of maximising the parties’ financial return. It placed in the hands of

Scottish Ministers the means to fix or cap the development potential and the land value of

the Subjects as a whole, and thus to cut across the continuing mutual obligations undertaken

by the parties to the 2004 Main Agreement. It contradicted the flexible mechanisms

provided for under the 2004 Main Agreement, eg (i) the role of the Steering Group under

clause 5; (ii) the definition of “Planning Application” in Schedule 5, which allows for

amendment of the joint planning application “in accordance with the Key Objectives”; (iii)

the obligation to cooperate by pursuing jointly “all planning applications considered

appropriate to meet the Key Objectives in respect of the Subjects or any part of them”

(clause 3.1.4.2); and (iv) the provision in cl. 2.2 that records the parties’ intention that the

planning application(s) will be lodged inter alia “where planning circumstances are

[77] In respect of residential use, counsel submitted that the defender’s position that in

2004 the parties were not promoting residential use failed to have regard to the role that the

Key Objectives play in the Option Agreement. Housing use was appropriate for the Subjects

and was appropriate at the date of the Option Notice. Residential use was not excluded in

the 2004 agreements but was being promoted during the Initial Period by BAA and the

pursuer, with the knowledge and acquiescence of the defender. At the date of the Option

Notice, such use was appropriate not only in planning terms but also in order to maximise

[78] Counsel further submitted that when the condition precedent was read in the context

of clauses 8.1, 2.1(a) and paragraph 1.2 of Schedule 4 to the Schedule of the Option

Agreement the full wording of the condition precedent in this case was: “the whole or the

majority of the Subjects is zoned for a use or uses which is or are consistent with the Main

Agreement in accordance with the Key Objectives”. The overarching commercial purpose of

the Main Agreement was to maximise land values and to share the profit. The Option

Agreement was ancillary to that purpose in the context of the BAA group of companies.

[79] Counsel further submitted that on a plain reading of the four Key Objectives, it was

clear that each one was directed to a separate issue. Each one contains a distinct verb. Key

Objective (a) concerned a future decision by a third party, the Scottish Ministers. The WEPF

2008 could not amend the development plan but was merely a material consideration

(Hopkins Homes Ltd v Secretary of State for Communities and Local Government [2017] PTSR 623).

The objective merely looked to the WEPF revision to establish a “basis for” the future

development of the Subjects as an international business district. The objective did not use

the term “zoning for”; nor did it begin to define what might or might not in due course be

included in “an international business district”. Key Objective (a) was not intended to

dictate or restrict development potential or land value. The nature of the mutual

undertakings in the Main Agreement, and the words used in Key Objectives (b) and (c),

showed that the parties intended that their cooperation should, separately from the revision

of the WEPF, extend to such matters as development plan inquiries (clause 3.1.4.1); pursuing

as many individual planning applications as considered appropriate (clause 3.1.4.2); and

discussing and varying their planning strategy (clause 5.4). This clearly indicated that Key

Objective (a) was not an objective intended to define the scope or attainment of the parties’

ambition in terms of the agreements’ overarching commercial purpose. If the parties had

intended that Key Objective (a) should have a defining role, and that despite the wide range

of circumstances outlined in clause 2.2 of the 2004 MA its achievement should be quickly

followed by a planning application, that did not account for the definition of “Planning

Application” and ignored the continued force of Key Objectives (b) and (c) after a Planning

[80] Counsel further submitted under reference to definitions in the Oxford English

Dictionary that the words “consistent with” and “in accordance with” connote agreement,

compatibility and congruity and the uses referred to in the condition precedent must be

compatible with the terms of the Main Agreement: the interpretation of the Key Objectives

as referred to in clause 2.1(a) of the Option Agreement had to match their interpretation

under the Main Agreement. The phrase “optimum development potential” was not unusual

(Redrow Homes Ltd v Martin Dawn (Leckhampton) Ltd [2016] EWHC 934 (Ch); Molesey Football

and Social Club v Rushman Ltd [2017] EWHC 124 (Ch), Rennie v Westbury Homes (Holdings) Ltd

[2007] EWCA Civ 1401, Fulham Leisure Holdings Ltd v Nicholas, Graham and Jones

[2008] EWCA Civ,84, [2008] PNLR 22, Mitchem & Edmunds v Magnus Homes South West Ltd (1997)

74 P&CR 235 (CA) and could not signify an ambition fixed at the state of planning policy in

December 2004 because of: (i) the length of time parties anticipated would be required for

the achievement of the Key Objectives; (ii) the wording of Key Objective (a), with its

reference to “future development” and to an undefined “international business district”;

(iii) the fact that Key Objective (b) refers to the potential of “the Subjects as a whole” not of

“an international business district”; and (iv) the parties’ agreement to cooperate in

[81] Counsel further submitted that Key Objective (c) did not indicate any intention for

the parties to relinquish their land value ambitions at the point when Ministers introduced

[82] Counsel further submitted that by the time the Option Notice was served on

26 October 2016, WEPF 2008 had been withdrawn and esto WEPF amounted to a zoning that

zoning did not exist in 2016. Under RWELP the Subjects remained zoned in the green belt at

October 2016. The RWELP 2011 Alteration provided an interim zoning identifying a site

(including the Subjects) suitable for an “International Business Gateway, stating that “IBG

proposals may be approved as a justified exception to green belt policy”: that did not fulfil

the condition precedent in clause 2.1(a) of the Option Agreement.

[83] Senior Counsel for the defender submitted that the Option Notice served by the

defender on 26 October 2016 was valid and decree of declarator as sought should be refused.

[84] Counsel submitted that the central question to be answered in this action was

whether the condition precedent set out in clause 2.1 (a) of the Option Agreement had been

fulfilled at the date of the Option Notice: were the Subjects at the date of the Option Notice

zoned for a use which was consistent with the Main Agreement in accordance with the Key

[85] Counsel submitted that the primary area of dispute was the proper interpretation of

clause 2.1 (a) of the Option Agreement and clause 2.1 of the Main Agreement. The Pursuer

sought to separate Key Objective (a) from the other Key Objectives. The Defender’s position

was that Key Objective (a) did not disappear once it was achieved but established the basis

[86] Counsel submitted that clause 2.1 of the Main Agreement set out the Key Objectives

as (a), (b), (c) AND (d). They were not stand-alone clauses. Clause 2.1(a), was the key clause

and (b), (c) and (d) could ONLY be read in the context of (a): otherwise they would

contradict it. Zoning a development site as an “international business district” would not

result in the maximum possible development value. BAA had a legitimate commercial

interest in the nature of the development that would take place on the site next door to the

airport. Its support was critical to realising any development on the Subjects. Clause 2.1(a)

particularly reflected the interests of BAA, clauses 2.1(b) and (c) those of the pursuer. There

was no basis in the wording of clause 2.1 of the Main Agreement for interpreting it as setting

out that once (a) was achieved it served no further purpose and (b), (c) and (d) took over.

Key Objectives (b), (c) and (d) must be read in the context of (a). In a plan-led system, what

the relevant plan says was central to achieving (b), (c) and (d). Key Objective (a) was to

ensure that the revision to the WEPF established the future development of the Subjects as

an International Business District. The parties’ intention was to establish the basis for the

future development of the Subjects as an International Business District.

[87] Turning to the Option Agreement, it was clear that it was all the Key Objectives that

were referred to. The Option Agreement states “zoned for a use which is consistent with the

[88] Counsel further submitted that clause 2.1 of the Option Agreement provided two

alternatives for the trigger of an Option Notice, either “(a) the whole or the majority of the

subjects is zoned for a use which is consistent with the Main Agreement in accordance with

the Key Objectives, or (b) there is or is deemed to be a Satisfactory Planning Consent in

[89] Counsel submitted that the interpretation of clause 2.1(a) of the Option Agreement

and clause 2.1 of the Main Agreement required consideration of their wording in the context

of both the Agreements and the factual and commercial circumstances at the time they were

entered into. Under reference to Rainy Sky SA v Kookmin Bank, Arnold v Britton, Wood v

Capita Insurance Services Ltd, Ramoyle Development Ltd v Scottish Borders Council 2019 SLT 284,

Hill & Another v Stewart Milne Group [2016] CSIH 35 or 2017 SCLR 92, James Miller and

Partners Ltd v Whitworth Street Estates (Manchester) Ltd 1970 AC 583, Tesco Stores Ltd v Dundee

City Council 2012 SC (UK SC) 278 and Suffolk Coastal District Council v Hopkins Homes Ltd

[2017] 1 WLR 1865 or PTSR 623, he submitted that (i) the meaning has to be assessed in light

of the natural and ordinary meaning of the words used in the clause in their documentary,

factual and commercial context; (ii) facts and circumstances which existed at the time that

the contract was made and which were known or reasonably available to both parties, and

commercial common sense at that time assist where there is ambiguity about the meaning of

the words used in the contract; (iii) Commercial common sense was not to be invoked

retrospectively and the Court should not generally look at the subsequent conduct of

[90] Counsel submitted that the first Key Objective clearly influenced the other three

objectives. In a plan-led system the “zoning” of the Subjects will be central to assessing the

optimum development potential of the Subjects and to maximizing the land value of the

Subjects. Zoning assists in minimizing the period required in order to obtain planning

[91] He submitted that the pursuer’s interpretation of the Main Agreement required there

to be an implied term written into it separating (a) from (b), (c) and (d). The Pursuer’s

interpretation, that Key Objective (a) was a preliminary hurdle was at odds with the

wording of the clause 2.1(a) The parties have control over the language they use in a

contract (Arnold v Britton at paragraph 17). Further, clause 2.2 of the Main Agreement

highlighted how central Key Objective (a) was. It could be seen from clause 2.2 of the Main

Agreement that the pursuer and BAA intended to lodge a planning application when the

provisions of clause 2.1(a) had been met, or “in response to a major occupier requirement or

a major prelet…” Both these circumstances tie in with 2.1(a) and the future development of

[92] Counsel submitted that clause 3.1 made it clear that parties should co-operate fully to

use all reasonable endeavours to achieve the Key Objectives (3.1.1) and in order to achieve

the Key Objectives, co-operate fully in any Local Plan review or any Structure Plan

[93] He further submitted that the Subjects were “zoned” prior to the expiry of the Initial

Period, firstly in the WEPF 2008 and then the Local Plan Alteration 2011, as suitable for the

development of an international business district consistent with the Key Objectives of the

Main Agreement. At the date of the service of the Option Notice the Subjects were zoned for

an international business district. The pursuer accepts that Key Objective (a) was met.

[94] The issue in this case is whether the condition precedent for the exercise of the

Option has been fulfilled. The condition precedent was “the whole or the majority of the

Subjects is zoned for a use which is consistent with the Main Agreement in accordance with

“(a) ensure that the revision to the WEPF establishes the basis for (i) the future

development of the Subjects as an international business district prior to the expiry of

(b) achieve the optimum development potential for the Subjects as a whole;

(d) so far as commensurate with (a), (b) and (c), minimise the period required in

order to obtain the Planning Consent on the Terms and subject to the conditions

[96] The pursuer and the defender took different views as to how the Key Objectives

[97] The pursuer’s position was that Key Objective (a) was the first step, and having

fulfilled the first step BAA and the pursuer would go on to separately fulfil all the other key

objectives. There was no ranking of the Key Objectives in order of importance, but they

were listed from a practical viewpoint, recognising that at the time the Option was granted

the Subjects were zoned as green belt, preventing development. Key Objectives (b), (c) and

[98] The defender’s position was that Key Objectives (b), (c) and (d) should be read in the

context of Key Objective (a). When Key Objective (a) is met it does not fall away: the other

[99] The approach to be taken by the court in construing contractual provisions is set out

in the well-known cases of Rainy Sky v Kookmin Bank, Arnold v Britton and Wood v Capita

“15. When interpreting a written contract, the court is concerned to identify the

intention of the parties by reference to ‘what a reasonable person having all the

background knowledge which would have been available to the parties would have

understood them to be using the language in the contract to mean’, to quote Lord

Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, para 14. And it

does so by focussing on the meaning of the relevant words,… in their documentary,

factual and commercial context. That meaning has to be assessed in the light of (i) the

natural and ordinary meaning of the clause, (ii) any other relevant provisions…, (iii)

the overall purpose of the clause…, (iv) the facts and circumstances known or

assumed by the parties at the time that the document was executed, and (v)

commercial common sense, but (vi) disregarding subjective evidence of any party's

[100] At paragraphs 16 to 23, Lord Neuberger then went on to emphasise certain factors

“17. First, the reliance placed in some cases on commercial common sense

and surrounding circumstances (eg in Chartbrook …, paras 16-26) should not

be invoked to undervalue the importance of the language of the provision

which is to be construed. The exercise of interpreting a provision involves

identifying what the parties meant through the eyes of a reasonable reader,

and, save perhaps in a very unusual case, that meaning is most obviously to

be gleaned from the language of the provision. Unlike commercial common

sense and the surrounding circumstances, the parties have control over the

language they use in a contract. And, again save perhaps in a very unusual

case, the parties must have been specifically focussing on the issue covered by

19. The third point I should mention is that commercial common sense is not

to be invoked retrospectively. The mere fact that a contractual arrangement, if

interpreted according to its natural language, has worked out badly, or even

disastrously, for one of the parties is not a reason for departing from the

natural language. Commercial common sense is only relevant to the extent of

how matters would or could have been perceived by the parties, or by

reasonable people in the position of the parties, as at the date that the contract

21. The fifth point concerns the facts known to the parties. When interpreting

a contractual provision, one can only take into account facts or circumstances

which existed at the time that the contract was made, and which were known

or reasonably available to both parties. Given that a contract is a bilateral, or

synallagmatic, arrangement involving both parties, it cannot be right, when

interpreting a contractual provision, to take into account a fact or

22. Sixthly, in some cases, an event subsequently occurs which was plainly

not intended or contemplated by the parties, judging from the language of

their contract. In such a case, if it is clear what the parties would have

[101] In my opinion, on a proper construction of the contractual wording, the defender’s

[102] The starting point for consideration of the correct construction of the Key Objectives

is the natural and ordinary meaning of the clause. In my opinion the natural and ordinary

meaning of the wording of the Key Objectives supports the defender’s interpretation. It is

clear from the use of the word “and”, which applies to all of the Key Objectives, that all of

the Key Objectives must be read together. They are not alternatives. Further, as (a) is

specifically included as an objective, it cannot be said that the real objectives are (b) and (c)

and (a) is not truly an objective but merely a mechanical or procedural step on the way to

achieving (b) and (c). Key Objective (a) is an objective in its own right. All the objectives

must be read in the context of each other. When (b) and (c) are read in the context of (a), they

are restricted to development potential in the context of an international business district

and land value in the context of an international business district.

[103] Counsel for the pursuer placed emphasis on the words “Subjects as a whole” in Key

Objectives (b) and (c) in contradistinction to “Subjects as an international business district”

in Key Objective (a). I did not find that difference to be of assistance. All of the Key

Objectives refer to the “Subjects”. The phrase “Subjects as an international business district”

refers to the use of the Subjects. The phrase “Subjects as a whole” refers to the geographical

unity of the Subjects. There is no incompatibility between the phrases.

[104] The defender’s construction of the Key Objectives is also supported by a

consideration of other clauses in the overall contractual framework.

[105] Counsel for the pursuer focussed on the provisions of the Main Agreement,

submitting that the condition precedent in the Option Agreement imported the purpose of

the Main Agreement and that the interpretation of the Key Objectives in respect of the

Option Agreement had to match their interpretation under the Main Agreement. In my

opinion that is too narrow an approach. The contractual framework consists of two

documents, the Main Agreement and the Option Agreement. Each of these documents

refers extensively to the other. Each of these documents contains an entire agreement clause

which permits reference to both documents. Each of these documents is between different

parties. In these circumstances it is not enough to look only at the Main Agreement and

come to an interpretation on its clauses in isolation and then apply that interpretation to the

Option Agreement. Both of the documents require to be interpreted in the light of each

other. The contractual framework includes both documents, and the contractual framework

[106] The pursuer’s position was that the overarching commercial purpose of the

contractual arrangements was to increase land values at the Subjects and share in these land

values. However, when the Main Agreement and the Option Agreement are read together

as a whole, it can be seen that there was no such overarching purpose.

[107] The Option is in favour of the defender and not BAA. The contractual

documentation shows that the defender has a very different interest in the contractual

arrangements from BAA. The interest of the defender is as the operator of an airport.

Unlike BAA, the defender does not share in the increase of the value of the Subjects. The

only contractual advantage to the defender is that it obtains a small part of the Subjects

immediately adjacent to the airport. It obtains the land for airport operational purposes

only: the land it acquires is subject to a title restriction prohibiting its use other than for

airport operational purposes (Option Agreement clause 4.4). The defender requires to pay a

price for the option land which is likely to be substantially more than its value as green belt

or airport operational land: the consideration is 65% of the Market Value, which is

calculated by reference to the development value of the Subjects as a whole and is not to be

assessed on the basis only of operational uses in connection with Edinburgh Airport (Option

[108] Further, the interests of the defender and BAA in the contractual arrangements came

to an end at different times. BAA’s interest in sharing in the increase in land value came to

an end on the expiry of the “Initial Period” under the Main Agreement. The defender’s

interest in acquiring land adjacent to the airport for operational use came to an end five

years later on the expiry of the “Option Period” under the Option Agreement. Given that

the defender’s right to acquire land for operational purposes continued for five years after

the expiry of BAA’s right to share in the increase in value of the land, it cannot be said that

the right to share in the increase was the overarching commercial purpose of the contractual

[109] Even if the Main Agreement is taken on its own, in isolation from the Option

Agreement, the right of the pursuer and BAA to share in the increase in value is not

overarching but is subservient to the operation of the airport. Clause 4.2.2 of the Main

Agreement gives the defender a veto over any development which affects materially and

[110] Accordingly, on the natural and ordinary meaning of the words, and taking the

contractual framework as a whole, the correct interpretation of the condition precedent in

the Option Agreement is that Key Objectives (b), (c) and (d) must be read in the context of

Key Objective (a). Key Objective (b) must be read as achieving the maximum development

potential within the context of an international business district. Key Objective (c) must be

read as maximising the land value within the context of an international business district.

The planning position as at the service of the Option Notice on 26 October 2016

[111] As at the service of the Option Notice on 26 October 2016 the planning position was

[112] The WEPF 2008 had identified a strategic allocation of land for the creation of an

International Business Gateway (RWELP 2011 Alteration paragraph 6.13a). WEPF had

indicated that the land should be removed from green belt in future strategic and local

development plans and that in the interim International Business Gateway proposals “may

be approved as a justifiable exception to green belt policy” (RWELP 2011 Alteration

paragraph 6.31) Policy ED6a of the RWELP 2011 Alteration stated that proposals for an

[113] By letter dated 26 September 2014 the Chief Planner withdrew the WEPF. In his

letter he noted that the WEPF had allowed a new International Business Gateway to come

“The clear intent of West Edinburgh Planning Framework was to ensure that the

vision it set out should be drawn into Strategic and Local Development Plans to

The reason he gives for the withdrawal is that as the available and emerging suite of

planning documents that address the area from the national, regional and local levels

provide the appropriate policy framework to deliver quality development, the WEPF is no

[114] The Local Development Plan was at an advanced stage by the date of service of the

Option Notice on 26 October 2016. It was adopted less than a month later, on 24 November

2016. Policy EMP 6 provided that proposals for the development of an International

Business Gateway would be supported. The following uses were supported in principle:

international business development, hotel and conference facilities, uses ancillary to

international business development (such as nurseries, restaurants and health and sports

clubs) and “housing as a component of a business-led mixed use proposal.” The policy

explained that “the main purpose of the IBG is to attract inward investment and create new

jobs for Scotland. New housing will support place-making and sustainability objectives.

International business development may take various forms, including the development of

global/European/UK headquarters and accommodation supporting high-value corporate

[115] The planning documents use the phrase “International Business Gateway” whereas

the Option Agreement uses the phrase “international business district”. Nothing turns on

the slight difference in nomenclature. The schedule to the WEPF describes the International

Business Gateway as “dedicated to international business development”. There is no basis

on which it could be said that an “International Business Gateway” with the features

described in the planning documents was not an international business district.

[116] Clause 2.1(a) of the Option Agreement requires that the Option Subjects are “zoned”

for a use which is consistent with the Main Agreement in accordance with the key objectives.

[117] In my opinion the Option Subjects were “zoned” for an international business

district. Counsel for the pursuer argued that the Option Subjects had not been so zoned

because under the RWELP 2011 Alteration there was at the same time zoning as green belt

and also interim zoning as an International Business Gateway. In my opinion, that is an

overly technical analysis of the planning position. There was no conflict between the green

belt zoning and the International Business Gateway zoning. The 2011 Alteration permitted

development of the International Business Gateway as an exception to the green belt. The

green belt zoning could not prevent that development. Counsel further argued that even if

the WEPF 2018 was a zoning, the zoning did not exist at the time of the service of the notice

on 26 October 2016 as it had been withdrawn by the Chief Planner’s letter and the site was

not removed from the green belt until 24 November 2016 when the Local Development Plan

was adopted. In my opinion, the Chief Planner’s letter did not remove the zoning as an

International Business Gateway. The purpose of the letter was not to remove that zoning

but to withdraw the WEPF as being no longer necessary because the WEPF was now

addressed in the plans. The Subjects had been zoned as an International Business Gateway

in the RWELP 2011 Alteration. They continued to be so zoned in the ELDP 2016, which

would have been a material consideration in respect of any planning application as at the

date of service of the Option Notice. In these circumstances I am satisfied that the Option

Subjects were “zoned” as an international business district for the purposes of clause 2(1)(a)

[118] Both parties were in agreement that Key Objective (a) had been met.

[119] Key Objective (d) is not relevant. It concerns minimising the period of time to obtain

the “Planning Consent”, which is a defined term referring to a planning consent granted

prior to the expiry of the Initial Period under the Main Agreement. No such application was

Were the Subjects zoned for a use which was consistent with the Main Agreement in accordance with

[120] In considering Key Objective (b), it must be borne in mind that on a proper

contractual construction as set out above, it is not a free-standing objective but must be read

in the context of Key Objective (a). Key Objective (b) is “achieve maximum development

potential for the Subjects as a whole” within the context of an international business district.

The development potential is restricted to potential as an international business district.

[121] A contractual term to “achieve optimum development potential” is not an unusual

one. Similar provisions have been referred to in Redrow Homes Ltd v Martin Dawn

(Leckhampton) Ltd, Molesey Football and Social Club v Rushman Ltd Rennie v Westbury Homes

(Holdings) Ltd, Fulham Leisure Holdings Ltd v Nicholas, Graham and Jones and Mitchem &

Edmunds v Magnus Homes South West Ltd, albeit that these cases turned on other issues and

[122] Both party’s experts gave evidence on whether the optimum development potential

[123] I did not find the evidence of the pursuer’s expert Mr Munnis to be of assistance. His

conclusion that Key Objective (b) had not been satisfied was predicated on the development

potential being unrestricted and not limited to potential as an international business district.

In his view, the restrictions imposed within WEPF 2008 and RWELP 2006 meant that

development potential could not be optimised. However, when one looks at these

restrictions it is immediately apparent that restrictions of this nature are inherent to an

international business district. Given my findings on the correct contractual interpretation,

Mr Munnis was applying the wrong test. He was looking at the development potential of

the Subjects as a free-standing objective independent from Key Objective (a), whereas the

correct test is to look at the development potential as an international business district.

Under policy ED6a of the RWELP 2011 Alteration, there was support in principle for use as

international business development, hotel and conference facilities and uses ancillary to

international business development. Under policy EMP6 of the EDLP which was about to

be adopted when the Option Notice was served, these uses were extended to include

housing as a component of business-led use. There was no suggestion by either party that

any further uses were essential to the development of an international business district. It is

entirely appropriate that housing in an international business district should be

business-led. In these circumstances, in my opinion the Subjects were zoned for a use which

was consistent with the Main Agreement in accordance with achieving maximum

development potential for the Subjects within the context of an international business

Were the Subjects zoned for a use which was consistent with the Main Agreement in accordance with

[124] In considering Key Objective (c), it must again be borne in mind that on a proper

contractual construction, it is not free-standing but must be read along with Key

Objective (a). Key Objective (c) is “maximise the land value of the Subjects as a whole”

within the context of an international business district. The land value is restricted to value

[125] Planning and property development are dynamic processes which develop over

time. It is almost always possible to speculate that a more favourable planning environment

may exist at some time in the future, or that the demand for a particular use will grow or the

supply decrease, or that the general price of land will increase. If these things happen, then

the land value will be higher than what it is now. Taken to its logical conclusion, that would

mean that an option based on maximising land value would never be triggered: it would

always be possible that the value would be higher at some point in the future than it is

today. However the exercise of an option requires consideration of whether the conditions

triggering it have been met at a particular point in time. If these conditions are met then it is

not necessary to speculate as to whether there might be a higher land value at some point in

the future. In my opinion, Key Objective (c) must be looked at as at the date of the service of

[126] As at that date, Policy ED6a of the ELDP Alteration 2011 zoned the Subjects as an

international business district, including hotel and ancillary use. Policy EMP6 of the

imminent 2016 Local Plan supported housing as a component of a business-led proposal for

[127] The defender’s valuation expert Mr Stevens gave evidence that the key land use and

value driver for an international business district is office development. I accept his

evidence, which is based on data as to rents for office developments in central and west

Edinburgh, that there was a market for office development in 2016. On the other hand, the

pursuer’s valuation expert Mr Hutchison gave evidence that the principal use which would

have maximised the land value as at the date of the service of the Option Notice was

residential. In Mr Hutchison’s view the Subjects were large enough to accommodate a

significant number of residential dwellings in a business-led environment, whereby business

accommodation would still be the predominant use: while planning policy was clearly

moving in that direction, significant further work was still required including

masterplanning, a transport assessment and identification of specific road transport

[128] The question for the court is whether as at the date of service of the Option Notice,

the Subjects were zoned for a use which was consistent with the Main Agreement in

accordance with maximising the land value of the Subjects within the context of an

international business district. In my opinion they were zoned for such a use. They were

zoned under RWELP 2011 Alteration for an international business development, hotel and

ancillary uses. These uses in themselves are sufficient to satisfy Key Objective (c), without

any additional housing use. In any event the reality of the situation is that as at that date

housing would have been permitted as it was permitted under the imminent ELDP 2016

which would have been a material consideration. The condition precedent having been met,

there is no need to speculate about whether a larger housing element might be allowed at

[129] In my opinion, as at the date of service of the Option Notice the whole or the

majority of the Subjects was zoned for a use which was consistent with the Main Agreement

in accordance with the Key Objectives. The Option Notice was valid and of legal effect.

[130] I shall sustain the defender’s first plea in law and refuse declarator. I reserve all

questions of expenses in the meantime.

Scottish Court of Session Decisions