Developer’s £15m damages claim against council over Commonwealth Games site dismissed as ‘irrelevant’

The proposed hotel was designed by Reiach & Hall Architects
The proposed hotel was designed by Reiach & Hall Architects

A property development company which sued Scotland’s largest local authority for £15 million following a dispute over a contract to develop a site has had its claim dismissed as “irrelevant”.

PIP3 raised an action against Glasgow City Council for breach of contract after the local authority rescinded an agreement over the development of a site within the area designated for the 2014 Commonwealth Games.

It sought to recover the “lost profit” on the proposed development, but a judge in the Court of Session ruled that this was a “no transaction case” and that the company could only claim for “abortive costs”.

Lord Woolman heard that several years prior to the Games, PIP3 Limited entered into negotiations with the council to acquire the 4.6-acre brownfield site in the east end of Glasgow and planned to construct a hotel and car park on the land.

The company, which required external funding of about £25m to carry out the project, regarded the environmental condition of the site as a key factor in its plans, as the state of the soil had a significant bearing on its feasibility and profitability.

Lenders generally require assurances about the condition of a site, supported by collateral warranties, and between 2006 and 2011 PIP3 instructed various investigations to be carried out, which disclosed that the property was relatively free from hazardous waste.

But in 2011 the company received a survey report from the council and on comparing it with a 2006 report, noticed that there was a substantial quantity of extra earth on the property.

The council confirmed that between June 2009 and January 2010 at least 33,840 tonnes of spoil had been deposited there, which was derived from the construction of the other Commonwealth Games facilities in the vicinity.

In late 2011 PIP3 and the council signed an “option agreement”, linked to the grant of planning permission, whereby the council granted PIP3 an “exclusive option” to purchase the property.

Following the conclusion of the agreement, the council instructed contractors to remove the spoil and also to “skim” the underlying soil to a depth of 600mm.

A total of 56,812 tonnes of material from the property, of which 18,859 tonnes were hazardous waste, was removed during the works, which took place between January and March 2012.

Just over a year after the conclusion of the agreement, PIP3 exercised the option and in February 2013 it asked the council to provide it with copies of a site waste management plan (SWMP) and a materials management plan (MMP).

The council replied to the effect that it was obtaining the documents, but that it was “under no legal obligation” to deliver them at settlement.

PIP3 did not pay the initial purchase price (IPP) of £1.425m on the settlement date, maintaining that it was not obliged to do so, standing the council’s failure to provide copies of the SWMP and the MMP.

In June 2013 the council delivered copies of those documents to PIP3, but as PIP3 still did not pay the IPP, the council rescinded the agreement on 4 July 2013.

PIP3 contended that during the period of about two years that it was present at the property, contaminants leached into the soil, which “materially and adversely affected its environmental condition”.

But that council disputed that assertion, maintaining that the removal works “returned the property to the same condition” as prior to the deposit.

PIP3 also averred that it only learned about the hazardous material in February 2013 by speaking to contractors involved in carrying out works at the Commonwealth Games site, but the council stated that PIP3 was aware that the deposit contained the hazardous material from July 2011.

PIP3 claimed damages of £15,372,790 for breach of contract, representing its estimate of the profit it would have made if the development had gone ahead, on the basis that the council failed to provide the SWMP, MMP and the collateral warranties.

In the alternative PIP3 sought to recover the abortive costs, estimated to be £1,254,779 including professional fees, that it incurred in connection with the project, alleging that by failing to disclose the deposit of the hazardous waste, the council breached its obligations of good faith, and “negligently misrepresented” the position.

The council accepted that the alternative ground of action was relevant and should be remitted to a proof before answer, but submitted that the breach of contract case was “irrelevant”.

It was argued that the council was “entitled” to rescind in the circumstances that occurred and that on the basis of PIP3’s pleadings, it would not have carried out the development due to the presence of the hazardous waste material.

As it was a “no transaction” case, PIP3 was not entitled to seek damages based on the projected profit of the completed development.

It was further contended that the summons was “fundamentally lacking in specification”, as PIP3 had not responded to averments made by the council about emails that it claimed demonstrated earlier knowledge on the part of PIP3.

PIP3 sought a proof before answer, arguing that the issues could only properly be determined after evidence has been heard and that the proper construction of the agreement depended on looking at the “whole circumstances”.

However, the judge agreed with the council that the whole thrust of PIP3’s pleadings indicated that this was a “no transaction case”, adding that it was “not compatible with substantial justice” to allow it to proceed to proof based on one sentence in the condescendence which contradicted the rest of the pleadings.

In a written opinion, Lord Woolman said: “The council is entitled to know the case it faces. The corollary is that PIP3 is not entitled to embark on an expedition based on hope. In my view, the circumstances justify the conclusion that PIP3 can only claim for abortive costs. I propose to sustain the council’s first plea‑in‑law to the extent of holding that PIP3’s claim for breach of contract is irrelevant and falls to be dismissed.”

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