Regalian Properties Plc v London Dockland Development Corpn 02 Nov 1994 [1995] 1 WLR 212, Ch D

A property developer incurred substantial costs during 'subject to contract' negotiations for a development project. When the other party withdrew, they sought restitution for these expenses. The court held that such pre-contractual costs are a normal commercial risk and not recoverable.

Facts

The London Dockland Development Corporation (LDDC), the defendant, invited tenders for a licence to develop a valuable site in Wapping. Regalian Properties Plc, the plaintiff, submitted a proposal and was selected as the preferred bidder. All subsequent negotiations for the final building agreement were conducted explicitly on a ‘subject to contract’ basis. During this period, and as a necessary part of the tendering process to prove its capability, Regalian prepared detailed architectural designs and specifications. This work was substantial, costing the plaintiff approximately £2,886,000. Before any contract was concluded, LDDC decided to withdraw from the negotiations and proceed with a different infrastructure project on the site.

Issues

The central legal issue was whether Regalian could recover its pre-contractual expenditure from LDDC under the law of restitution. The plaintiff argued that LDDC had been unjustly enriched at their expense. They contended that LDDC had received the benefit of their substantial design work and professional services, which were provided in the shared expectation of a contract materialising, and it would be unjust for LDDC to retain this benefit without compensating Regalian.

Judgment

The High Court, with judgment delivered by Rattee J., dismissed the plaintiff’s claim. The court’s reasoning was fundamentally based on the ‘subject to contract’ nature of the negotiations. This stipulation made it clear to both parties that no legally binding relationship existed until a formal contract was executed.

Rattee J. held that expenditure incurred during such negotiations is undertaken at the party’s own commercial risk. The potential reward of securing the final contract is the commercial motivation for incurring such costs. The risk that the contract may not be concluded for any reason is an inherent part of the process.

The court distinguished this situation from cases involving a ‘quantum meruit’ claim, where services are provided at the defendant’s request in anticipation of a contract which then fails to materialise through no fault of the parties. Here, Regalian’s work was not directly requested by LDDC but was undertaken voluntarily as part of their bid to secure the contract.

In his judgment, Rattee J. critically analysed the basis of a restitutionary claim in this context:

The plaintiffs in the present case made their expenditure and provided their services… in the hope that they would be awarded the building contract. They were not asked to do so by the defendants, but they did so of their own volition as a gamble on the contract being awarded to them… In my judgment the law of restitution does not entitle them to be relieved of the consequences of that gamble proving to be a losing one.

He further concluded that even if LDDC had received a ‘benefit’ from Regalian’s work, it was not ‘unjust’ for them to retain it. The framework of ‘subject to contract’ negotiations meant that the defendant was entitled to withdraw, and the plaintiff implicitly accepted the risk of losing their investment if no deal was reached.

In my judgment a restitutionary claim for the value of services rendered in anticipation of a contract which does not materialise cannot succeed, where the services were rendered, as in the present case, during and as an inherent part of a negotiating process which the parties have agreed is to be ‘subject to contract.’

Implications

The decision in Regalian Properties is a significant authority on the risks of pre-contractual expenditure. It robustly affirms the principle that the phrase ‘subject to contract’ creates a strong presumption that parties are not bound, and any costs incurred are at their own risk. The judgment clearly delineates the boundary between a recoverable claim in restitution and the ordinary commercial risks of negotiation. It establishes that, absent a specific request for the work or other exceptional circumstances, a party cannot use the doctrine of unjust enrichment to recover costs voluntarily incurred to improve their chances in a competitive commercial negotiation that ultimately fails.

Verdict: The plaintiff’s claim was dismissed.

Source: Regalian Properties Plc v London Dockland Development Corpn 02 Nov 1994 [1995] 1 WLR 212, Ch D