[2010] CSOH 141



in the cause







Pursuers: McLean, Q.C., MacColl; Shepherd & Wedderburn LLP

Defenders: Clark Q.C., Simpson; Harper Macleod LLP

27 October 2010


[1] The pursuers, EDI Central Limited, are a wholly owned subsidiary of the EDI Group Limited ("the EDI Group"). The EDI Group was established in the mid to late 1980s by the then Edinburgh District Council, the predecessor of the City of Edinburgh Council, to carry out the development of Edinburgh Park. Although originally run from within the Council, the EDI Group became fully independent from it in 1991. Since then it has been involved in residential and commercial developments in Edinburgh, West Lothian and North Ayrshire. All the shares in the EDI Group are owned by the City of Edinburgh Council ("the Council"). Its board of directors is composed of Councillors, in rough proportion to the political balance within the Council, together with the Chief Executive of the Council, the Director of Property and Development and the Director of Finance. Nonetheless, it operates independently of the Council as a private limited company, earning profits and paying taxes. The Chief Executive of the EDI Group from 2001 until April 2008 was Ian Wall. He was succeeded as Acting Chief Executive from April 2008 until July 2009 by John Mark Di Ciacca who, until then, had been Director of Property and Development. The pursuers were set up as a wholly owned subsidiary of the EDI Group to run the proposed Castle Terrace development with which this action is concerned. According to the evidence, the EDI Group is given no preferential treatment by the Council in respect of any development opportunities.

[2] The defenders are National Car Parks Limited ("NCP"), a company traditionally associated with the running of car parks. Amongst the car parks which it runs in Edinburgh is the Castle Terrace Car Park, on Castle Terrace ("the subjects"), which is owned by the Council and leased to NCP. A copy of the Lease between the Council and NCP was lodged in process. It ran for 25 years from the end of March 1995, and by 2005 had a further 15 years to run. The annual rent payable by NCP was the greater of (a) a cash sum fixed in the Lease as adjusted in accordance with a rent review clause and (b) a sum equivalent to 52.5% of the figure representing NCP's total receipts from their operation of the car park less the VAT collected on such receipts and less the amount of general, sewage and water rates exigible on the subjects. Clause FIFTH of the Lease provided that, subject to an exception which is not material for present purposes, the subjects were to be used by NCP "solely as a car park for private cars and light vans".

[3] It is clear from the unchallenged evidence given by Stephen Litherland, one of NCP's regional directors until 2006, that the Castle Street Car Park is highly successful and very profitable. For about 20 weeks a year it operates at about 80% capacity, which, he explained, is virtually as full as a car park can be, and for the remainder of the year it operates at about 60% capacity.

[4] Mr Litherland explained that in recent years NCP has moved on from just running car parks to become "a more profit-focused development business". A disposal and development strategy was implemented, with employees being encouraged to look for every development opportunity at NCP sites. Its surveyors would approach developers to explore development opportunities wherever they arose. The Castle Street Car Park was identified as such a development opportunity. Its prime location marked it out as a prominent development site. NCP had received expressions of interest from a number of developers. However, it had no right under the lease to redevelop the site and, as a result, quite apart from any question of planning permission, NCP was aware that any development proposal would need the support of the Council.

[5] NCP was introduced to EDI through an intermediary, Peter Grant of Montagu Evans. Mr Grant was not called to give evidence. In about 2002 NCP made an initial approach to EDI to discuss the development potential of the site. At about this time, Mr Litherland, together with Mr McNaughton (the then Chief Executive of NCP), met Mr Grant and Mr Di Ciacca, who was then the Head of Property and Development at EDI Group.

[6] It appears that there was considerable interest from a number of developers. However, Mr Litherland explained that from the outset EDI represented that, because of its close links with the Council, it was uniquely well placed to deliver the development of the Castle Terrace site and unlock its full development potential. NCP therefore entered into detailed discussions with EDI. The idea put forward, in broad terms, was that, in exchange for NCP getting a cash payment from EDI and a share in the profits, EDI would be interposed into the lease of the Castle Terrace Car Park. In other words, with the consent of the Council, NCP would assign its lease of the car park to EDI and EDI would in turn grant a sub-lease to NCP. Such an arrangement would enable EDI to pursue the development by negotiating directly with the Council and obtaining the necessary consents. From NCP's point of view, the arrangement would generate immediate capital, which, as Mr Litherland explained, was important because NCP was winning contracts for on-street car parking and had to put up bonds of up to £1 million each time in favour of the relevant local authority. Also of importance to them, however, was their expectation that the site would be developed and that they would have a commercial share in it.

The Agreement

[7] Discussions between NCP and EDI came to fruition in 2005. Missives were concluded between April and November 2005. Annexed to the missives was a draft Agreement. That Agreement was never, in fact, executed by the parties but it is not in dispute that they were bound by it by virtue of a term in the missives. The parties to the Agreement were (1) NCP, (2) the pursuers, EDI Central Limited, who are referred to in the Agreement as "the Developer", and (3) the EDI Group, referred to in the Agreement as "EDI".

[8] The basic structure of the Agreement was that, in exchange for a capital payment to NCP of £5 million, the pursuers would take an assignation of NCP's interest under the lease, and would then grant a sub-lease back to NCP. This is reflected in the Recitals to the Agreement, which provided in para.(b) that

"In order to procure the development of the Leased Subjects, NCP has agreed (i) to grant an assignation of the Existing Lease of the Leased Subjects to the Developer, who wishes to procure construction thereon of a commercial (or commercial and residential) building together with related services, car parking (if any) landscaping and others and (ii) to take the CT Sub-Lease (as hereinafter defined) of the Leased Subjects on the terms and conditions hereinafter mentioned"

The CT Sub-Lease is the term used for the sub-lease of the subjects to NCP. Other paragraphs of the Recitals should be noted. Para.(d) stated that the Developer had agreed to grant certain rights of first refusal to NCP in respect of the Development Area, an area within certain postcodes in central Edinburgh; and para.(e) recorded that the Developer and NCP had agreed to share Profit (a defined term) on the terms and conditions thereafter mentioned. The Agreement was conditional upon certain matters, in particular NCP obtaining on terms acceptable to the Developer and NCP (both acting reasonably) the prior written consent of the landlords (i.e. the Council) both to the assignation and to the sub-lease: clause 2. NCP was to give to the Developer a written notice ("an NCP Clearance Notice") when those conditions had been satisfied: clause 2.2. Clause 3 of the Agreement dealt with the up-front cash payment, and provided that the Assignation of the Lease should be granted by NCP in exchange for a payment by the Developer of £5 million, described as the "Assignation Consideration".

[9] I have referred to the fact that Recital (e) records that the parties had agreed to share Profit. This is one of the matters that Mr Litherland regarded as important. The provisions concerning Profit Share are complex and it is unnecessary to set them out in any detail. Clause 9 of the Agreement provided for the Profit Share to be calculated as soon as reasonably practicable after the CT Trigger Date. Clause 9.3, however, provided that once outline or detailed planning permission for the CT Project (i.e. the whole development including the design and construction of the works and the letting of the lettable units on the market) had been obtained in terms acceptable to the Developer, NCP should have the opportunity to negotiate terms with the Developer to be an equal joint partner in it. If this share in the potential profit was to be of value to NCP, it clearly required some assurance that the Developer would pursue the development to the best of its ability. Clauses 6 and 13 of the Agreement reflect this intention.

[10] Clauses 6 and 13 are at the heart of the present dispute between the parties. They provide, so far as is material, as follows:


6.1 The Developer shall procure that the CT Project is pursued with all reasonable endeavours and as would be expected of a normal prudent commercial developer experienced in developments of that nature and in accordance with the Main Objectives. Save insofar as they are precluded from doing so by any confidentiality undertakings or the like, the Developer shall deliver to NCP, prior to the Developer entering into any Agreement for Lease for the same, an executive summary of such Agreement for Lease (and of such relevant Lease) (disclosing all material details of the same).

6.2 The Developer shall keep NCP advised as to the progress of all negotiations for the grant of Leases and shall as soon as reasonably practicable intimate to NCP the dates of completion of the Agreement(s) before Lease for the same and of the projected date of entry under such Agreement(s) for Lease, save insofar as they are precluded from doing so by any confidentiality undertakings or the like.



The Developer and NCP shall use all reasonable endeavours to achieve the Main Objectives and shall act in good faith in respect of the same and in accordance with this Agreement."

The term "Main Objectives" is defined in clause 1. The Main Objectives were: (a) to carry out the CT Project in a manner commensurate with a prudent commercial developer; (b) so far as reasonably practicable to minimise the period required in order to obtain the CT Required Permissions; and (c) to use reasonable endeavours to incorporate proposals for a commercially viable public car park within the CT Project for which planning permission could be obtained free from unduly onerous conditions. It was not in dispute that that referred to proposals for a car park within the Castle Terrace site. As I have already noted, the "CT Project", which is also defined in Clause 1, comprised the whole development of the site, including the design and construction of the works and the letting of the lettable units on the market. The term "CT Required Permissions" encompassed "every permission, consent, permit, licence, approval and agreement" which was required, whether by statute, contract or otherwise, for the complete implementation of the CT Project.

[11] As I have already indicated, it was agreed that the Developer would sub-lease the subjects back to NCP. Clause 4 of the Agreement provided that the Developer should grant, and NCP should accept, the CT Sub-Lease in the form of the agreed draft with effect from the Assignation Settlement Date. The annual rent payable by NCP under the Sub-Lease was fixed at a sum which was £397,500 in excess of the annual rent payable by the Developer to the Council under the Lease assigned by NCP. The evidence as to why the rent under the Sub-Lease was fixed at this amount was not altogether clear. Mr Litherland's explanation was that the pursuers had needed to raise a short-term loan to pay the £5 million to NCP under the Agreement, and that the rent to be paid by NCP under the Sub-Lease was calculated so that it not only reimbursed the pursuers for the amount of rent payable under the Lease but also included the sum of £397,500 - Mr Litherland said £395,000, but I do not think the difference is significant - to cover the cost to the pursuers of that short-term loan, including interest, legal fees and arrangement costs. Mr Di Ciacca said that the surplus was not intended to contribute to fees, design or feasibility costs. It was simply a modest profit for EDI. I do not need to resolve this difference.

[12] The Agreement included provision for the assignation and the payment to be reversed. These provisions are also of great importance, but I do not need to quote them in full. In summary, Clause 12 provided that, during the period of not less than 3 and not more than 51/2 years after the assignation of the Lease to the pursuers, the pursuers could serve written notice requiring NCP to buy back its interest as tenant under the lease. Upon such notice being served by the pursuers, they were required to apply in writing to the landlords to obtain their written consent to the re-assignation; and, upon that having been done, NCP were required to give the pursuers written notice, referred to as "an NCP Re-Assignation Clearance Notice", in effect confirming that they would proceed with the re-assignation.

[13] It is generally unnecessary for the purposes of this Opinion to differentiate between the pursuers and the EDI Group. Accordingly, I shall to refer to the pursuers and the EDI Group, whether separately or together, simply as EDI.

The issue

[14] On 27 May 2009 EDI served a notice on NCP requiring them to buy-back EDI's interest as tenant under the lease. The next day they applied to the Council for their consent under the lease to the re-assignation of the tenant's interest to NCP. By letters dated 3 and 4 June 2009, the Council expressed their willingness to grant consent and executed a formal letter consenting to the assignation ("the consent letter"). That consent letter was sent to NCP on 9 June 2009. EDI called upon NCP to deliver the NCP Re-Assignation Clearance Notice. NCP have failed to do so and, indeed, continue to refuse to do so.

[15] In this action EDI seek decree ordaining NCP to implement their contractual obligations by delivery to EDI without delay of the NCP Re-Assignation Clearance Notice.

[16] The machinery of the notice provisions is not in issue in this case. Instead, NCP say that they are not obliged to serve an NCP Re-Assignation Clearance Notice because EDI themselves are in material breach of the Agreement. They rely on the doctrine of mutuality and retention recently considered by the Supreme Court in Inveresk plc v. Tullis Russell Papermakers Ltd. 2010 SLT 941. They say, in effect, that EDI have failed to pursue the proposed development with "all reasonable endeavours and as would be expected of a normal prudent commercial developer experienced in developments of that nature". EDI dispute this. That is the issue between the parties in this proof. It is accepted by NCP that if they cannot establish that EDI are in breach in this respect, they can have no defence to EDI's claim for implement of the obligation to serve an NCP Re-Assignation Clearance Notice and proceed with the re-assignation.

[17] NCP accepted that the burden was on them to establish that EDI were in breach of their obligations under the Agreement. In those circumstances it was agreed that NCP should lead at proof.

The obligations to use "all reasonable endeavours" and to act in "good faith"

[18] It is convenient at this point to consider the extent of the obligations placed upon EDI by the provisions of clauses 6 and 13. The obligation under clause 6 is placed only on EDI whereas that under clause 13 is placed on both parties. In each case it is to "use all reasonable endeavours" to pursue the Main Objective or the CT Project (there is no material difference for these purposes), though in one, clause 13, it is linked to the obligation to act "in good faith" while in the other, clause 6, it is qualified (or explained) by reference to what would be expected of "a normal prudent commercial developer experienced in developments of that nature".

[19] There was some discussion before me as to the nature of an obligation to use "all reasonable endeavours". Relying upon the decision of Deputy Judge Flaux Q.C. in Rhodia International Holdings Limited v Huntsman International LLC [2007] 2 Lloyds Rep. 325 at paras. 30-35, Mr Clark Q.C., for NCP, submitted that an obligation to use "all reasonable endeavours" was a more stringent obligation, or imported a higher test, than an obligation simply to use "reasonable endeavours". That submission was supported by McBryde, The Law of Contract in Scotland, 3rd Ed. at para.8-57. Under reference to Sheffield District Railway Company v Great Central Railway Company (1911) 27 TLR 451, he submitted that, broadly speaking, it meant that the person on whom the obligation was placed must "leave no stone unturned". Mr McLean Q.C., for EDI, did not, I think, dissent from the proposition that the word "all" in "all reasonable endeavours" was sufficient to raise the bar. But he emphasised, under reference to the same paragraph in McBryde, that a party is not required under such a provision to act beyond his own commercial interests. That submission finds some support in Rhodia at para.35, citing the judgment of Lewison J in Yewbelle Limited v London Green Developments Limited [2006] EWHC 3166 (Ch), with the caveat, which is not in point here, that in some cases the contract may specify steps which have to be taken regardless of the commercial interest of the party required to take them. In Stephen v Scottish Boat Owners Mutual Insurance Association 1989 S.C. (H.L.) 24 at 61, a case concerned with whether the skipper of a fishing boat had used all reasonable endeavours to save his vessel, Lord Keith of Kinkel, at p.61, said that the test was an objective one directed to ascertaining "what an ordinarily competent fishing boat skipper might reasonably be expected to do in the same circumstances." Mr McLean submitted that this test should be applied mutatis mutandis in the present case. Equating "all reasonable endeavours" with "best endeavours", which was the analysis adopted in Rhodia, Mr McLean referred me to a number of other statements from other cases. In IBM United Kingdom Limited v Rockware Glass Limited [1980] FSR 335, the Court of Appeal held that a person under an obligation to use best endeavours was obliged to take steps "which a prudent, determined and reasonable owner, acting in his own interests and designed to achieve that result would take". He also referred to the decision of the Court of Appeal in Yewbelle [2007] EWCA Civ. 475. Though the appeal from Lewison J was allowed, his decision on the meaning of all reasonable endeavours was expressly approved on this point in the Court of Appeal: see per Lloyd LJ at paras.29-33. Further, at paras.103 and 127, the Court of Appeal emphasised, in agreement with the judge, that the obligation to use all reasonable endeavours does not require a party to go on trying when it is clear that in one respect at least he must fail. Thus, if there were two or three obstacles to be overcome, and it became clear that one of those obstacles was in fact insuperable, there would be no obligation on the party to continue using all reasonable endeavours to overcome the other two. That would be a fruitless exercise.

[20] There was little between the parties on this point. I accept the submission that the obligation to use "all reasonable endeavours" is a more onerous obligation than one simply to use "reasonable endeavours". I do not have to consider whether or not it is the same as one to use "best endeavours", though I would have thought that any difference is likely to be metaphysical rather than practical. It is difficult to conceive that an obligation to use "best endeavours" requires a party to take steps which are ex hypothesi unreasonable. I base my conclusion that an obligation to use "all reasonable endeavours" is more onerous than one merely to use "reasonable endeavours" on the analysis adopted in Rhodia, under reference to other authorities; but I am fortified in that conclusion by the recent opinion of Lord Hodge in MacTaggart & Mickel Homes Limited v Hunter & Hunter [2010] CSOH 130 at para.[63]. It is not, I think, helpful to attempt to define more precisely what is encompassed by that obligation. It will, as Lord Hodge suggests, require the Court to consider whether there were reasonable steps which could have been taken but were not taken. The party on whom the obligation is placed will be expected to explore all avenues reasonably open to him, and to explore them all to the extent reasonable. But unless the contract otherwise stipulates, he is not required to act against his own commercial interests: see Yewbelle, and see also the recent decision of Vos J in CPC Group v Qatari Diar Real Estate Investment Co. [2010] EWHC 1535 (Ch) at para.252, a decision which came to my attention after the conclusion of the proof. That point is, in any event, made clear here by the reference in clause 6 to the standards of "a normal prudent commercial developer experienced in developments of that nature". The word "prudent" points to a legitimate consideration of his own financial and commercial interests. Nor is he required to persist where it is clear that further efforts will be fruitless. The reference to the developer being "experienced in developments of that nature", shows that he is entitled to rely upon his judgement, informed by his experience, of what is and is not likely to bear fruit. If it is clear that he cannot succeed whatever further avenues he may take, he cannot be expected to continue wasting time, effort and expense. So also, if it becomes clear that one necessary hurdle cannot be overcome, he will not be expected to waste his time seeking to overcome other problems, since overcoming them would achieve nothing.

[21] I would add only two points. The first is a point of detail which emerges from para.105 of the judgment of the Court of Appeal in Yewbelle. Lloyd LJ there emphasises that it may well be part of the obligation to use all reasonable endeavours for the party on whom the obligation is placed to inform the other party of any difficulties he is encountering and, in an appropriate case, to see whether that party has a possible solution to the problem. That must be right. A party cannot just sit back and say that he could not reasonably have done more when, if it had had asked the other party to the transaction, it might have discovered that there were other steps which could reasonably have been taken. But all will depend upon the circumstances.

[22] The other point concerns the onus of proof. As I said earlier, NCP led at proof. This was because they accepted that the burden was on them to show that EDI were in breach, so as to give a basis for the mutuality argument. But it does not seem to me that the burden necessarily remains throughout on NCP. My tentative view is that if NCP can point to steps which could have been taken, by evidence (or possibly by pleading), the evidential burden may shift to EDI to show, as the case may be, that they took those steps, that they could not reasonably have been expected to take them or that such steps would have been bound to fail. It is EDI who are likely to have the evidence on these points and, once a sufficient case has been raised by NCP, the burden must ultimately be on EDI to establish that they used all reasonable endeavours as required by the Agreement: c.f. MacTaggart & Mickel Homes Limited at para.58 in which Lord Hodge refers to the onus of proof being on the party asserting that he has used reasonable endeavours. However, the point was not argued before me and, in the conclusions I have reached, it makes no difference to the outcome.

[23] Clause 13 of the Agreement also requires the parties to "act in good faith" in respect of the use of all reasonable endeavours to achieve the Main Objectives. I was referred in this connection to Berkeley Community Villages Limited v Pullen [2007] 3 EGLR 101 at 112-114. It is, of course, no part of Scots law that, in the absence of agreement, parties to a contract should act in good faith in carrying out their obligations to each other. In Berkeley the parties expressly agreed that they would act towards each other in relation to the Agreement "with the utmost good faith". The facts were of course somewhat different from those with which I am concerned but the case is of interest for the discussion by Morgan J at paras. [86]-[97] as to the meaning to be attributed to such an expression. He referred to certain English and Australian cases where the obligation to act in good faith arose otherwise than under a contractual term. He also referred to the US Second Restatement of Contracts at para.205. The Restatement points out that the phrase "good faith" is used in a variety of contexts and with varying meanings, and goes on to say that it connotes

"faithfulness to an agreed common purpose and consistency with the justified expectations of the other party"

while, perhaps not surprisingly, excluding conduct which would be characterised as involving "bad faith". On the basis of these materials Morgan J considered, at para.[97], that he could construe the relevant clause

"as imposing upon the defendants a contractual obligation to observe reasonable commercial standards of fair dealing in accordance with their actions that related to the agreement and also requiring faithfulness to the agreed common purpose and consistency with the justified expectations of the first claimant."

I am content to adopt this as a sufficient description of the character of the conduct to be expected from the party upon whom the obligation is placed. Read in conjunction with the obligation in Clause 13 to use "all reasonable endeavours", it seems to me to emphasise the requirement on EDI, subject to the qualifications which I have already mentioned, genuinely to do their best to achieve the desired result and not merely to go through the motions.

The King's Stables Road site

[24] There was much discussion in the evidence about the possibility of developing other property owned by the Council at 18-20 King's Stables Road and the incorporation into such development of car parking space. I should therefore say something about this site and its relation to the Castle Terrace Car Park.

[25] King's Stables Road and Castle Terrace both run approximately south-east from their beginnings at their respective junctions with Lothian Road. They are both situated below the Castle Rock. At their western ends, they join Lothian Road within yards of each other, albeit by separate junctions. From there they run almost in parallel in a south easterly direction. From above, and looking at them on a map or town plan, they appear to run very close together. They are in fact, however, on different levels. Castle Terrace runs at the upper level. After about 400 metres it turns sharply north east, crossing above King's Stables Road, to join the bottom of Johnson Terrace, which leads up to the High Street. King's Stables Road runs at the lower level, passes under the junction between Castle Terrace and Johnson Terrace, and continues to run east or south east until it meets the western end of the Grassmarket.

[26] The Castle Terrace car park is a multi-storey car park. It is entered from street level at Castle Terrace. There are several levels for vehicles to park within the car park, the bottom one being at the level of King's Stables Road. Though the main entrance and exit is at the top level, from and into Castle Terrace, there is another exit from the car park into King's Stables Road.

[27] The property at 18-20 King's Stables Road stands further along King's Stables Road, nearer the Grassmarket end, perhaps 200 metres from where King's Stables Road passes under Castle Terrace/Johnston Terrace, and 300-400 metres east of the exit from the Castle Terrace Car Park into King's Stables Road.

[28] In connection with any possible development at King's Stables Road, there was discussion of a larger development in that area to include Argyll House, a building on the corner of Castle Terrace and Lady Lawson Street, close to the property at 18-20 King's Stables Road. Argyll House was owned not by the Council but by another potential developer, Fordgate. A problem with them to be incorporated in any master plan for the development of that area was that it had a sitting tenant who was, it seems, unwilling to remove. However, the prospect of a larger development to include both the property at 18-20 King's Stables Road and Argyll House operated against any attempt by EDI to develop 18-20 King's Stables Road in isolation as a means of providing alternative car parking space and thereby unlocking the possibilities of developing the Castle Terrace site.

[29] The Agreement makes some reference to the site at King's Stables Road and the possibility of constructing a multi-storey car park on it. The principal reference is in clause 11. Clause 11.1, read short, gives NCP a right of first refusal over any interest which EDI or associate companies may have in any permanent or temporary car park space within the Development Area. Specific mention is made of the King's Stables site (referred to as the "KS Site"). Clause 11.5, again read short, requires EDI to use all reasonable endeavours to obtain ownership of or a leasehold interest in the KS site and thereafter to develop inter alia a multi-storey car park there in accordance with NCP's required specification or Performance Brief. Mr Litherland explained in his evidence that these provisions were not intended to link the Castle Terrace development to that at King's Stables Road. Rather they were designed to give NCP a first option over any car parking provision in any development at King's Stables Road, so that they did not have other car park operators operating in competition to them in close proximity to whatever parking remained in the Castle Street site. I accept that evidence.

Other possible car parking sites

[30] In the course of the evidence, other car parks were mentioned as possible sites for the provision of alternative car parking space either on a temporary basis while the Castle Terrace Car Park was under development or on a more permanent basis to compensate for any permanent reduction in car parking provision at Castle Terrace. One such car park was Morrison Street Goods Yard (better known as Haymarket car park). Others included the Skypark facility, within Edinburgh International Conference Centre ("EICC"), Greenside Place car park, Near the Vue Cinema, at the top of Leith Walk, near the St James Centre, and the Princes Exchange car park in Riego Street, at Tollcross, near the junction between East Fountainbridge and Earl Grey Street.

The parties' contentions in outline

[31] It is useful at this point to summarise briefly the parties' main contentions so as to provide a narrative against which to understand the evidence led in the case.

[32] The defenders' case can be summarised quite shortly. They say that EDI, in effect, approached the Castle Terrace project as if the Agreement merely gave them an option to pursue it but did not compel them to undertake any development. They did not take any material steps to seek to secure greater rights over the site than were given to them under the Lease, for example by seeking to purchase the subjects or to extend the term of the Lease, even though the Council was not unwilling to consider these possibilities. They did not obtain a feasibility study or exploratory report for the project until May 2006, whereas any prudent commercial developer would have obtained one prior to the conclusion of the Agreement. They corresponded with the Council in relation to development of the site at King's Stables Road and the Castle Terrace project, but not in relation to the Castle Terrace project by itself. They did not consider any strategy for pursuing the Castle Terrace project other than that of linking it to a development at King's Stables Road. The Council was the ultimate parent of EDI, and EDI's general approach to the Castle Terrace project was on the footing that the decision as to whether it should proceed would be taken by the Council, both as a commercial decision and as planning authority. They did not submit any plans, drawings, specifications and other documents for approval by the Council, did not obtain or secure any of the Required Permissions, and did not take any steps towards carrying out or completing the design for or the construction of the Works. Further, after September 2007 they did not take any steps at all to pursue the Castle Terrace project. And they did not disclose to NCP either that they had ceased to take any steps in relation to it, or that they were not going to consider the possibility of any other strategy.

[33] The pursuers' case requires to be set out a little more fully. They admit that they corresponded with the Council in relation to the development of the site at King's Stables Road as well as the Castle Terrace project, but they say that in so doing they were seeking to take steps which would enable the Castle Terrace project to be taken forward. They used all reasonable endeavours and acted in good faith in accordance with the provisions of the Agreement. Acting in accordance with the standard of a normal prudent commercial developer, they considered the nature and location of the Castle Terrace site as a potential development site, the attitudes of other parties with an interest in the subjects (including the Council in its capacity as landlord and owner), and the likely attitude of the Council as planning authority. Because of its location, the Castle Terrace site was a sensitive site for development. Coupled with that, there was a recognised shortage of car parking in the west side of Edinburgh city centre. Any development of the site would be sensitive from a planning and architectural perspective and from the perspective of the need for commercial car park spaces. It was necessary to secure the support of the Council both in its role as owner/landlord and in its role as planning authority. In October 2005 they appointed Bennetts Associates, architects who were known to and approved by the Council, to carry out an exploratory report. Bennetts' reported in May 2006 and their report was discussed with the Council. Thereafter, the pursuers continued to meet with the Council with a view to progressing the project until about the autumn of 2007. They were familiar with the Council's structures and personnel and sought to make use of this familiarity to guide their approach to pursuing the project with the Council. They had discussions with representatives of the World Heritage Trust and other bodies whose views might be important. The Council made it clear that if the Castle Street site was to be redeveloped, it would be necessary for there to be alternative car parking to replace that which would be lost, both on a short-term basis, during the development, and on a permanent basis thereafter. Accordingly, the pursuers put forward proposals for the acquisition and redevelopment of the King's Stables Road site, to include some car parking, which, to unlock the possibility of development at the Castle Terrace site. That was the only viable solution. No other practical opportunities existed for replacement car parking in that area. NCP never suggested any. The proposed development at Castle Terrace was therefore intimately connected with the development at King's Stables Road. The Council ultimately did not support the pursuers' proposal for the development of the King's Stables Road site. The pursuers took the view that there was no commercial merit in pursuing a formal application for permission to develop the Castle Terrace site until they had reached an agreement with the Council, as owners and landlords, which would give them an increased tenure over the subjects. The pursuers explored with the Council the possibility of securing an enhanced tenure but no agreement could be reached. By autumn 2007, there was still no prospect of securing alternative car parking provision, nor any agreement on enhancing the tenure. The Council did not view the Castle Terrace project as essential or even as a priority, in particular because the car park there provided them with a significant cash flow in the form of rent. The Council was also strongly aware of the political sensitivity of any development of the site and approached the proposal cautiously. Further, from about February 2007 the commercial property market entered a significant downturn, which would have made it impossible to obtain funding for any development. In those circumstances no normal prudent commercial developer would have proceeded with the project.

The evidence

[34] Both parties called a number of witnesses of fact. Their evidence in chief was set out in witness statements lodged in process, supplemented by brief oral examination. It was subject to cross-examination. I consider some aspects of the evidence in detail under reference to particular issues that arise for decision. At this stage it is sufficient to identify the witnesses and the extent of their involvement in the proposed development, and to summarise the aspects of the case on which they were able to comment and the main points which they sought to make. In what follows I do not refer to every point made in cross-examination, but I have taken the whole of their evidence into account in coming to my decision. I should add at this point that I considered that all of the witnesses were straightforward and honest, clearly very capable in their particular positions, whether as Council officers or commercial developers, and authoritative in their assessments of the practicalities in so far as the question fell within their areas of responsibility. They were all, in my judgement, doing their best to assist the court. Where I have had to choose between them in terms of their evidence on a particular point, and the differences are not great, I have been guided in the main by the position they held in relation to the particular question to be decided, and the knowledge they would have had and the judgements they could properly make from that position.

(i) NCP's witnesses

Stephen Litherland

[35] Stephen Litherland was one of NCP's regional directors until 2006. I have already referred to him in para.[3] above. He reported to the Board of NCP in relation to the Castle Terrace project. He was the main point of contact with EDI. He spoke to the commercial purpose of the Agreement. He emphasised that NCP were not simply granting EDI an option to develop the Castle Terrace site. That would have made no commercial sense for NCP. Although NCP were aware that Kings Stables Road had, for a long time, been mooted as a possible site for a multi-storey car park, and that EDI were interested in the possibility of development there, it was never suggested that the proposed development at Castle Terrace was in any way dependent upon the site at King's Stables Road being developed. Nor was it ever suggested that the provision of alternative parking at Kings Stables Road or anywhere else in the locality was necessary to secure political "buy-in" to the scheme. If alternative car parking was required, King's Stables Road was obviously a sensible solution (if it could be delivered), but there were other options available to EDI for alternative car parking spaces, for example at Morrison Street Goods Yard or the Skypark or Greenside. The reference in the Agreement to Kings Stables Road did not indicate any linkage between the projects - it was simply to prevent any future parking spaces there falling into the hands of a competitor to NCP and competing with whatever car parking spaces were left once Castle Terrace was redeveloped. In cross-examination, Mr Litherland accepted that there would need to be some replacement parking spaces, but insisted that these need not be provided before the Castle Terrace development went ahead. Much would depend upon how many car park spaces would be retained in the new development on the Castle Terrace site. He recognised that there would have to be at least some temporary replacement of car parking spaces during the re-development of Castle Terrace, but some of this could be found at Morrison Street Goods Yard which would provide medium to long stay parking within about 400 metres of Castle Terrace. Morrison Street Goods Yard was under-utilised, and in any case they had considered putting a deck into the space there to create extra parking. Alternatively, Greenside could be used with the provision of buses to the centre. They had not put these ideas to EDI because EDI had never told them that this was the problem.

[36] Mr Litherland always understood that EDI, having taken an assignation of the remaining period of the lease of the Castle Terrace site, would require to negotiate a longer term interest in the site before any development could proceed. However, since the Agreement between NCP and EDI was concluded, he had never seen evidence of any discussions between EDI and the Council seeking to promote the Castle Terrace development. He had seen no visibility or desktop assessments which may have been prepared. Neither he nor anyone else at NCP had received any updates from EDI advising on progress. It was not obvious to NCP at the time that progress was not being made. They had assumed that there would have to be 12 to 18 months of discrete "softly, softly" talks with the Council before real progress was made. He had been assured from time to time by Peter Grant that discussions between the Council and EDI were making progress and that EDI were meeting architects. Mr Litherland and Mr McNaughton also had a number of meetings over dinner with John Mark Di Ciacca at which various opportunities would be discussed, including but not exclusively that at Castle Terrace. Mr Di Ciacca would give assurances that they were continuing to meet with the Council and that matters were progressing. Mr Litherland never received any communication from EDI to suggest that they were having difficulties either in securing Council approval to the Castle Terrace project or in relation to their proposed acquisition of King's Stables Road. He was shown a number of documents showing that EDI were encountering difficulties, but confirmed that they had never been told any of that. Nor did he have any idea that EDI were facing competition from others in the acquisition of the King's Stables Road site, or that the difficulties might be prejudicial or even fatal to the CT Project. Had NCP been told there was a problem, they would have tried to assist, but since they were never told he could not say whether any such assistance would have been effective.

[37] Mr Litherland accepted that by 2007 the credit crunch was affecting the ability of developers to get funding, particularly for residential development, but he did not know to what extent this was a factor in preventing EDI going ahead then. He recognised the need to get "buy-in" not only from the Council but also from bodies such as Historic Scotland and the World Heritage Trust. He accepted also that is was a very challenging site to develop, but he said that that was why they had looked to EDI as partners in the development. He accepted that EDI had spent a lot of time looking at the project, but he thought that their efforts had focused on King's Stables Road rather than, as other developers might have done, looking at Castle Terrace in isolation and trying to persuade the Council of the attractions of the development there. Overall, he did not believe that EDI did everything that a normally prudent developer would or should have done.

William Ness

[38] William Ness is currently employed by the Council as Head of Service of Corporate Property and Contingency Planning. From about October 2002 onwards he was responsible for the creation of a new headquarters building for the Council, known as Waverley Court Headquarters. The creation of this new headquarters freed up some 20 or so buildings previously occupied by the Council. Mr Ness was responsible for taking steps to dispose of them. One of the buildings to be disposed of was the property at 18-20 King's Stables Road. At some time before June 2005, he became aware (through his director Andrew Holmes, who had been contacted by Ian Walls, a director of EDI) of proposals by EDI to create a multi-storey car park at King's Stables Road and also to develop the Castle Terrace Car Park site. His understanding was that any reduction in the capacity for car parking in the new development at Castle Terrace would be offset by a new multi-storey car park. King's Stables Road was identified as a possible site for such alternative car parking. However, he was not directly involved in proposals relating to Castle Terrace; his concern was in the disposal of the buildings previously occupied by the Council. Bill Miller, who was an estates surveyor working for Mr Ness and reporting to him, dealt with the assignation of the lease for the Castle Terrace site.

[39] Sometime before 25 July 2005, Mr Ness met Ian Spence, then Planning Development Quality Manager within the Council, and Mr Di Ciacca. They discussed the likelihood of EDI obtaining planning permission to develop the Castle Terrace site. Mr Di Ciacca was advised that the proposal, though achievable, would be challenging because of the team need to restrict the height of construction above ground level in order to protect the views from Castle Terrace of Princes Street Gardens and the Castle. Mr Spence gave advice on the height of the buildings and the type of development that might be considered favourably by the planning committee, but the advice was of a general nature at this stage. Mr Ness was clear that Mr Di Ciacca was not told that a proposal to redevelop the Castle Terrace site would be unacceptable or a waste of time. His view was that it was technically possible to do a commercial development there which would include car parking, but he had concerns about its financial viability and the level of planning risk.

[40] Mr Ness explained that he was not involved in meetings with EDI concerning King's Stables Road. His role was to ensure that the Council obtained best value for any disposal of that site. It had not been earmarked specifically for redevelopment as a car park. By 2006, the Council had received three distinct proposals for the King's Stables Road site. The development from EDI included proposals for a public car park there but Mr Ness took the view that that did not represent the best return for the site. Although he was aware of a possible link between the proposals for King's Stables Road and Castle Terrace, Mr Ness was not concerned with that aspect of it. He was only concerned to achieve best value for King's Stables Road, not only in terms of the price paid for the site but also in terms of added value. Each proposal was therefore examined in detail. On 4 April 2007 he wrote to Mr Di Ciacca and to the two other interested parties asking them each to set out details of their proposals for King's Stables Road. Mr Di Ciacca responded on 27 April 2007. That response and those of the other interested parties were passed on by Mr Ness to Ian McNicoll, an outside consultant assisting with the disposal of the properties. Subsequently the Council decided to pursue, in the first instance at least, a proposal by Fordgate, which include it within it a proposal to redevelop Argyll House. Although EDI came back subsequently to increase the value of their offer, the Council did not take this up. The King's Stables Road site has not yet been developed.

[41] Mr Ness said that he was not approached by EDI at any time to seek a continuation of the lease for Castle Terrace beyond 2020. Had such an approach being made to the Council it would probably have been intimated to him in the first instance, albeit that he would have passed it on to Bill Miller on receipt.

[42] In cross examination Mr Ness was asked about a letter dated 9 June 2005 from the Council to Messrs Dundas & Wilson, solicitors acting for NCP. That letter was signed by him, though it would have been written by Bill Miller. Nonetheless, he confirmed that the fourth paragraph represented his view of the matter at that time. That read:

"I would point out that the [Castle Terrace] Car Park is one which the Council requires to retain for strategic car parking purposes and no reduction in the number of spaces could currently be considered. Its location underneath the Castle Rock is also of strategic importance from a Planning point of view and achieving a Planning Approval for any redevelopment will prove extremely difficult."

Under reference to correspondence in 2006 and 2007, the said that he was aware of the link between the proposed developments at Castle Terrace and King's Stables Road. Their preferred option at the Council was always to put a property on the open market. However, if a developer had an interest in a property and could give added value, they could consider proposals to sell the property off the market. Initially the Council had been very keen to dispose of the King's Stables Road site, and they saw some advantage in the linkage to Castle Terrace, in that a development at King's Stables Road might give the opportunity to provide the replacement parking which would free up the possibility of development at Castle Terrace. Later, however, in 2007 they received other interest in King's Stables Road and they decided not to pursue the EDI proposal. Their preferred course by mid-2007 was to speak to Fordgate, who owned Argyll House. If that had gone ahead it did not, of course, preclude EDI from reaching agreement with Fordgate to incorporate some car park spaces in their proposals. It was never made clear to EDI that their prospects of success at King's Stables Road were at an end, since the Council never received any formal proposals from Fordgate and it was happy to keep its options open. Mr Ness confirmed that he was not aware of any other sites owned by the Council which would be suitable for development as multi-storey car parks.

Andrew Sikes

[43] Andrew Sikes is the Principal Planner within Development Planning at the Council. During the period in question he was a principal planner within a team involved in providing planning policy advice on applications by commercial developers and corporate projects for the Council. He became aware of proposals to develop Kings Stables Road in October 2002. The intention then was to offer the building for sale on the open market. He prepared a planning and strategy memorandum in relation to that site in October 2005. He confirmed in that memorandum that the site would be suitable for mixed commercial and residential use.

[44] There was a meeting on 12 May 2006 with Roger McGaffan of EDI to discuss car park and office proposals for Kings Stables Road. Some sketch drawings by Elder & Cannon Architects, architects engaged by EDI, were presented showing a 370 space multi-storey car park fronted by a four or five storey office building. No drawings were left with him at the end of their meeting. There was no discussion at that meeting about the Castle Terrace site. Mr Sikes took advice from the Council's transport department concerning parking policy and development control in relation to the proposals for Kings Stables Road. He also discussed the matter with colleagues within the planning department. He prepared a memorandum on 2 June 2006 which he sent to a number of people within the Council, including people in Transport and in Conservation and Design. The covering letter suggested that the car park at King's Stables Road would be in addition to the parking facilities at Castle Terrace, although Mr Sikes said in his witness statement that he did not know whether it was proposed to be in addition to it or as an alternative.

[45] The response from Will Garrett (Conservation and Design) dated 6 June 2006 made it clear that his comments were on the basis that the suggested car park at Kings Stables Road would be in addition to the Castle Terrace Car Park and not as a replacement. He explained that the public realm enhancement scheme for the Grassmarket would involve a net loss of some pay and display car park spaces there. On that basis, he could not see the benefit of providing additional parking in the area given that the Castle Terrace Car Park was well placed to serve Lothian Road, Princes Street and the Grassmarket. He was also concerned about the prospect of large numbers of vehicles accessing a new car park from the west end of the Grassmarket, a prospect which would run counter to the new pedestrian dominated environment being created there. Commenting upon the suggestion that Castle Terrace site should be given a better use given its spectacular location, he commented that it served an important sector of the city and he would not support its relocation further into the historic centre. He supported a broader study into the potential use of the Kings Stables Road site and Argyll House so as to re-energise the area, and did not see a car park playing a positive role in this. He suspected that the proposed car park at Kings Stables Road was "more about the Castle Terrace site than the Kings Stables Road site".

[46] Despite being pressed by Mr Sikes on a number of occasions, Transport did not respond until 13 October 2006. That was in a short e-mail from Philip Noble, a Senior Professional Officer in the Strategic Planning Team within the Transport Planning Section of the Council. He said that if the Kings Stables Road proposal was for additional parking in addition to the Castle Terrace Car Park, it would appear to be consistent with the parking strategy to increase the supply of short to medium stay public off-street parking close to the western/north-western end of the city centre retail core, and it might also give the opportunity to reduce on-street parking nearby. If, on the other hand, the idea was to replace the Castle Terrace Car Park, it would be absolutely imperative that the new car park was completed before the old was shut. He also thought that the smaller size of the new car park proposed for Kings Stables Road would be a significant issue.

[47] Mr Sikes had a further meeting on 25 June 2007 with Mr Di Ciacca and Dick Cannon (of Elder & Cannon) to discuss in more detail EDI's proposals for Kings Stables Road. The proposals at that stage envisaged approximately 400 car parking spaces in there. Barbara Cummins, a principal planner representing Development Control, was also in attendance at the meeting. She expressed reservations about the scheme but offered qualified support. They agreed to seek further comments from the Head of Transport, but were still not clear whether the proposal was for car parking in addition to Castle Terrace or as a replacement for it. That was the last meaningful meeting in which Mr Sikes was involved with EDI regarding the Kings Stables Road site. He was involved in subsequent meetings in relation to the site, but those were with representatives of Fordgate, who were also the owners of Argyll House. He had discussions with them in August and November 2007 and April 2008. The Council's preferred solution by that time involved Argyll House, but there were difficulties because the tenant there did not want to move. The Council's interest in a development which would include Argyll House effectively sidelined EDI so far as the Kings Stables Road project was concerned.

[48] Mr Sikes explained that until the procedure for planning applications changed under the Planning etc (Scotland) Act 2006, his department operated an open pre-application advice service. He was never asked to provide any pre-application planning policy advice to EDI regarding the proposed development of the Castle Terrace site and did not believe that any of the other principal planners were asked to give such advice. Nor was he asked to comment on whether the redevelopment of Castle Terrace would be considered favourably from a planning perspective, either as a stand alone site or in conjunction with a development of Kings Stables Road. No formal planning applications were made by EDI for Castle Terrace or Kings Stables Road.

[49] Although Mr Sikes was not directly involved in assessing parking policy during the period 2006-2008, he was aware that any proposed development which sought to succeed only on the basis of on street parking would not have been encouraged. In cross-examination he confirmed that unless and until alternative car parking space was provided, it was difficult to see what could be done in terms of developing the Castle Terrace site. He thought that the Morrison Street Goods Yard was too far away to be regarded as capable of providing the replacement car parking needed for that development.

Will Garrett

[50] Will Garrett was at the material time the Group Leader within Planning at the Council, responsible for the built and natural heritage. His interest in the Kings Stables Road project was through his involvement in the public realm enhancement of the Grassmarket. The aim of that was to address the balance of vehicle and pedestrian use of the Grassmarket area. It involved looking at moving on-street parking away from the Grassmarket. One possible alternative location for some of the on-street parking was Kings Stables Road. There was no consideration so far as he was concerned of the provision of a multi-storey car park in Kings Stables Road. There had recently been some consideration given to the use of a "trevi" car park system, in effect a cylinder dug into the ground which can hold up to 110 cars. However, this was not pursued because of the difficulty of drilling into rock. Mr Garrett was not involved in the Castle Terrace proposal, though he was aware of it from discussions within the office, and he did not know whether it was proposed as an independent development or as part of a package with a development at Kings Stables Road. If the parking at Castle Terrace was to go altogether, it would need to be replaced. If it was to be shrunk, the shortfall would need to be made up. That would require some assessment of the current use of the car park and what the parking requirements were. Mr Garrett spoke to his response on 6 June 2006 to which I have referred earlier. He was not keen on moving the car parking from Castle Terrace to Kings Stables Road. He was concerned that if the car parking was moved to Kings Stables Road, that would bring the Lothian Road traffic into the historic heart of the city. However, if there had been an application for planning permission for a multi-storey car park at Kings Stables Road, it would have been for one of his colleagues within the Transport Team to comment formally about it in terms of the Council's transport and parking strategy.

Philip Noble

[51] Philip Noble also gave evidence. As I have said, he was a Senior Professional Officer in the Strategic Planning Team within the Transport Planning Section of the Council. He spoke to his response to Mr Sikes' memorandum to which I have referred. That was his main involvement in the matter. He confirmed his view that if the development at Kings Stables Road and Castle Terrace led to a significant reduction in the total number of off-street car parking spaces in the vicinity, this would be likely to be in conflict with the aim (as set out in the Council's Local Transport Strategy) of seeking to increase the supply of short to medium stay public off-street parking in that area. The consistency or otherwise of any proposal with that policy would, however, depend on management of the new car parking as well as overall numbers. He said that a reduced overall number of spaces could be acceptable if the reduction was at the expense of long stay and contract parking spaces rather than short to medium stay spaces. Further, he thought that it was quite possible that other advantages of a proposed development - judged by reference to other Council policies and aspirations for the city centre - might outweigh any concerns arising as a result of a reduction in the number of short and medium stay car parking spaces.

[52] In cross-examination, Mr Noble confirmed that he was the lead author of the Review of Council Parking Policy in November 2005. That policy was approved in May 2006. One of the proposals was to increase the supply of off-street parking in the city centre, with the possibility of an underground car park in the vicinity of George Street. There was perceived to be a shortage of off-street parking in the city centre. The aim should be to reverse that shortage, particularly in the western part of the central retail core. Castle Terrace was a resource for that area. He was not sure that the lack of replacement parking would have been a deal breaker so far as concerns the proposals for redevelopment at Castle Terrace, the buses would certainly have been a big issue. He did not make any assessment of whether King's Stables Road would have been suitable for the provision of off-street parking for the same area, though he commented that it was slightly further away. Quite apart from the loss of permanent spaces if the Castle Terrace site was developed, one concern would be what was to happen during the period of the work whilst the Castle Terrace Car Park was closed.

Barbara Cummins

[53] Barbara Cummins, is now with Historic Scotland but, at the time, was a Group Leader within the Development Management section (then known as development quality) of Planning and Strategy within the Council. Her Head of Department was Ian Spence. She spoke to her involvement in the matter.

[54] Her involvement with the proposals to develop at King's Stables Road and at Castle Terrace was limited. She was involved in a larger exercise concerning the potential redevelopment of the area around Argyll House and Kings Stables Road. She was aware that the Council wished to dispose of their ownership of the property at 18-20 Kings Stables Road, but the proposed development at Argyll House meant that there was potential for a larger area to be developed. The Council was preparing a master plan for that area, though it was only completed in August 2009, after she had left the Council. Castle Terrace was outside the proposed master plan redevelopment area. She did not have much contact with EDI. She commented that because of its connections with the Council, EDI had a habit of going straight to the top. They would drop ideas into other conversations. She was, however, aware that EDI had put forward proposals for developing Castle Terrace, the proposals to include a car park and/or a cinema development. One of the restricting factors about the site at Castle Terrace was the lack of natural light. This made it suitable for that kind of development rather than residential development. She was not aware of any detailed plans being put forward. She attended a meeting with EDI and Mr Sikes at which drawings and diagrams had been produced, but they were not of a standard suitable for use in a planning application. She was not sure whether EDI's proposals for car parking at King's Stables Road might be in addition to the existing car park at Castle Terrace or as an alternative to it. The Council did not have a policy in favour of any additional large scale multi-storey car park in the west end of the city, but if there was a proposal for off-street parking in the King's Stables Road area, short-term parking - i.e. parking priced at a level to encourage use by shoppers and other city centre or local area uses for a short period of less than a full working day and to discourage all day parking by commuters - would have been more acceptable than long-term parking.

[55] Although she was never asked to give her opinion on the proposed redevelopment of the Castle Terrace site as a stand alone project, her evidence was that a mixed use development there "would be challenging but not impossible". Because of its position, there would have to be careful consideration of the type of building above ground level. It would be an understatement to say that it was difficult to put something above ground on site. They would be concerned about the reaction of the Edinburgh public. But she did not think that the loss of off-street parking would necessarily have been fatal to any application for planning permission. This was not a part of the city in which it had been made clear that the loss of car parking spaces could not be tolerated. There would not necessarily have had to be short-term provision for parking during the period of the redevelopment. Planning was not all about one thing. All the competing factors and interests would have been taken into account. She thought that the car park on Lothian Road, which I took to be a reference to the Morrison Street Goods Yard site, was underused.

[56] Ms Cummings said that had there been serious proposals to redevelop the Castle Terrace site, she would have expected to have been involved in detailed pre-application discussions. They might have commenced with Ian Spence, her Head of Department, but he would have asked her to take the proposal forward and advise on the specifics. This did not occur. She did not feel any momentum building up in the project for the development of the Castle Terrace site.

[57] On 14 June 2007 Ms Cummins was sent two brochures illustrating outline proposals for the Kings Stables Road site, to be discussed at a meeting on 25 June 2007 with EDI and their architects. After that meeting, she sent an e-mail on 28 June 2007 summarising the discussions. In that summary she said this:

"The principal of a redevelopment of the site is acceptable - uses such as parking and offices are considered acceptable. Residential use is not likely to be acceptable due to the poor level of amenities afforded at this site."

It appears that the proposals at that time included parking for 325-480 cars. She said in her e-mail that there was a need to establish the need for this level of parking in this part of the city. In evidence she commented that that was an unusually large number of car park spaces for a single site. She was not sure whether this was the first time that she had been sent detailed proposals relating to the Kings Stables Road site. They were also considering proposals for the redevelopment of Argyll house, and were encouraging a master plan approach so as to tie the two sites together. By June 2007, that was their favoured solution. Her comments about the number of spaces assumed that they still had the Castle Terrace Car Park.

Graham Tully

[58] Graham Tully is an Estates Manager within the Council. He has held that position from about 2007. He was involved in the disposal of the 20 or so properties (including the property at18-20 King's Stables Road) which were made surplus to requirements by the creation of the Waverley Court Headquarters. He was aware of EDI's interest in Kings Stables Road and also of their interest in the Castle Terrace site. He was also aware that EDI saw the two possible developments as linked. He met Mr Di Ciacca in February 2005 and discussed the possibility of redevelopment at Castle Terrace with or without the development of car parking facilities at King's Stables Road. EDI were interested in acquiring King's Stables Road off market. He asked Mr Di Ciacca to submit a proposal to demonstrate a clear level of added value which would not be available to the Council should it pursue an open market sale. He responded in a letter of 24 March 2005 setting out EDI's proposals for Kings Stables Road both as a standalone project and as a project linked to the redevelopment of Castle Terrace. Mr Tully confirmed that that letter contemplated EDI being allowed to explore an off-market approach. Mr Tully's clear instructions were that EDI were not to be given any preferential treatment, despite their close corporate links to the Council. He had to satisfy himself that the disposal of King's Stables Road to EDI would constitute market value and demonstrate added value not otherwise available from an open market disposal. He passed EDI's proposal to Cushman and Wakefield, who had been engaged by the county council to assist with the marketing of the surplus properties. They reported back to him that the package proposed by EDI was "light" in that it did not represent a market value and did not have sufficient added value to justify an off market disposal. He confirmed this to EDI in June 2005. He noted in that letter of 17 June 2005, as was the case, that EDI had indicated in their proposal

"that any proposals that EDI have for Castle Terrace would not in any way be dependent on King's Stables Road and clearly therefore there is no physical inter dependence."

He was given drawings prepared by Elder and Cannon. He did not think that the sketches did the site justice. He did not think that the scheme made the best use of the site given its proximity to the Castle. He did not think that there was anything to set EDI's proposal apart from a run of the mill development by any other developer. At this time the Council had been approached by other prospective developers, Applecross and Fordgate. Fordgate's proposals provided added value in that they combined it with a redevelopment of Argyll House, thereby allowing for a larger scheme of development and potential regeneration of that part of the city

[59] Mr Tully said that he was not contacted separately by EDI in respect of proposals to develop Castle Terrace as a stand alone project. Nor were they approached by EDI in respect of any other site as a potential for a new car parking development within the west end of Edinburgh. As regards Kings Stables Road, he discussed EDI's proposals with Mr Sikes. As far as he was aware, if the capital price offered by EDI had been acceptable, their proposal might have been achievable in planning terms subject to discussions about the sensitivity of the site given its location and proximity to the Castle. There was no particular objection from a planning perspective to the use of the Kings Stables Road site as a car park.

(ii) EDI's witnesses

Ian Wall

[60] Ian Wall was the Chief Executive of the EDI Group from 2001 until April 2008. He had previously worked in the Economic and Development Department of the Council and had been instrumental in setting up the EDI Group in connection with the Edinburgh Park project. He had reacted positively when the prospect of developing the Castle Terrace site had been mentioned to him by Mr Di Ciacca. He had in the past developed contacts with the Filmhouse in connection with a possible re-location and also with the RIAS who were looking to move into a new headquarters building. A redevelopment of Castle Terrace would re-open these possibilities. Further, the Cockburn Society had given some indication that they would not necessarily be opposed to redevelopment there. Given the sensitivities of the position of the site, it was necessary to try to win support from planners within the Council. The idea of a design competition with input from the Cockburn Society and the Edinburgh World Heritage Trust was considered as a way of overcoming possible opposition to the project. This was never in fact launched - it was thought premature to do it before obtaining the Council's interest in the project as landlord. He discussed the matter too with Ian Spence in the Council's Planning Department, who thought that the site could be developed. He felt that Mr Spence was quite enthusiastic - he came away thinking that the project "had legs" - but he did not sense the same enthusiasm higher up within the Council.

[61] EDI instructed Bennetts Associates ("Bennetts"), architects based in Edinburgh but with a nation wide reputation, to carry out some site analysis and produce a brief for the project. They produced a Report in May 2006. Although called a Feasibility Study, Mr Wall said it was really meant to be just an initial exploration of the potential scope for such a project, including carrying out some initial technical work to see how available space might be used, sketching out some physical ideas for its use and looking particularly at massing, with a view to developing a brief further down the line. He thought that

"there was no point spending significant sums of money on a full feasibility study at that point in time, which would require detailed design input, and cost analysis from a quantity surveyor, it EDI did not yet know if this was a project that we were going to be able to take forward."

There was little by way of commercial analysis in the Report.

[62] Day to day progress on the possibility of developing the Castle Terrace site was left to Mr Di Ciacca. Mr Wall's role was one of oversight. He regarded this as a development which EDI should be involved in. It was the sort of project they were skilled in. The existing car park was an inefficient use of the site; and redevelopment would provide an opportunity to improve that part of the city centre. He remained in touch with the Filmhouse and with the Royal Incorporation of Architects in Scotland ("RIAS") about the possibility of them re-locating to the Castle Terrace site. And he sought to engage informally with the Council, with World Heritage Trust and with the Cockburn Association. Because of the sensitivity of the development site, it being within a World Heritage site, overlooked by the Castle and visible from Princes Street, he thought the project would take 4-5 years to get going. He saw it as a "slow burner". That was not unusual for developments for which the Council was responsible. Trying to push it too fast might well be counterproductive. Mr Wall was not aware of NCP constantly pressing for updates on progress.

[63] On the question of replacement car parking spaces, Mr Wall thought that, for the Castle Terrace project to go forward,

"it would be sensible also to address the issue of alternative/ replacement car parking on the King's Stables Road site".

He added:

"... this was an obvious connection to make. In any event, it was a connection which CEC had made clear would be essential in order for the Castle Terrace project to be taken forward."

He explained that the Council

"... had made clear their position that in the context of any development of Castle Terrace Car Park, in the short term the car parking spaces lost as a result would need to be substituted ...",

though he accepted that the words which followed in his witness statement "by a new development at King's Stables Road" were a gloss on their position - the Council was simply concerned that the spaces lost should be replaced. It would not be acceptable to take the car parking spaces at Castle Terrace out of commission for 18-24 months without providing some alternative replacement spaces during that period. In the long term too, it was clear that there could be no overall reduction in the availability of off-street car parking spaces in the area. In his oral evidence he emphasised that the Council had made in clear regularly in discussions that provision for alternative car parking was an essential requirement of the Castle Terrace project. EDI were looking to unlock the Castle Terrace site by negotiating with the Council about the proposed development at King's Stables Road. It was true that EDI had been interested in the King's Stables Road site for a number of years, but it linked in with the Castle Terrace proposals. However, the Council put King's Stables Road on the market in early 2007 and neither accepted nor rejected EDI's offer.

[64] Under reference to certain items of correspondence suggesting that the two projects could be pursued independently, he said that he thought that King's Stables Road had a chance of being redeveloped to include car park spaces in addition to the existing spaces at Castle Terrace, but he was not sure it was true that the Castle Terrace project could happen independently of a development at King's Stables Road.

[65] As to the complaint by NCP that EDI took no steps to procure an enhanced tenure of the Castle Terrace site, Mr Wall said that a number of things would have to be done before there was any point in even having discussions with the Council about this. For a start,

"... you need to have a credible concept, and to have identified a scheme that has a prospect of securing ... planning permission. There would also need to be a realistic, achievable commercial proposal to [the] redevelopment ... You also need to identify social, economic, environmental and other factors which will support the development of the site."

These matters needed to be addressed before negotiating for an enhanced tenure. But he agreed that an enhanced tenure was necessary; without an enhanced tenure there would be no point in proceeding with the development. He understood there to have been informal discussions with the Council about acquiring its interest in the site, but no conclusion was reached.

[66] Mr Wall emphasised in his evidence that EDI was not simply an agency of the Council. EDI was a private company and subject to market factors. The Council was structurally different, much larger and politically accountable for its decisions. Mr Wall would meet Andrew Holmes of the Council on a regular basis, at board meetings as well as socially, perhaps two or three times a month, and would have discussions about general issues, including aspects of the Castle Terrace proposals. But detailed discussions would be between Mr Holmes and Mr Di Ciacca. On the question of the possible development at Argyll House, Mr Wall said that in his opinion there was virtually no prospect of developing there because there were sitting tenants there who would take a lot of persuasion to agree to move. He was, therefore, irritated that CEC backed off their discussions with EDI about King's Stables Road in favour of a proposal for a bigger development linking King's Stables Road and Argyll House which had no real prospect of going ahead. By early to mid 2007, their interest in King's Stables Road had "hit the buffers" and the Council was talking to others - "they certainly weren't talking to us".

[67] Mr Wall was asked why EDI did not talk to NCP about other possibilities for alternative car park spaces. He said he could not think of any other site which was suitable. Morrison Street Goods Yard, which Mr Litherland had mentioned, was not in fact suitable as a site for alternative parking provision. It was some distance from Castle Terrace and was earmarked for commercial development. Nor was it suitable as a short term replacement during redevelopment works because it was already in use as a car park. No-one at the time had suggested putting another deck in. The Skypark at the EICC was not an alternative either. It was developed for its own particular purpose and had been closed for about 5 years for technical reasons. The problems appeared to be deeper than a mere mechanical breakdown. Riego Street at Tollcross was already functioning as a car park and was therefore not a replacement. And Greenside had been there for a long time and in any case was too far away from the west end. King's Stables Road, if deliverable, was a good solution and he considered that there were not any other possibilities. He accepted that there came a time when that possibility went into limbo. When pressed that the obvious thing to do in that situation would have been to ask NCP if they had any ideas, he answered: "I am not saying they could not have helped, but we were the ones who knew the sites in Edinburgh". On another occasion he said: "we do really know Edinburgh".

John Mark Di Ciacca

[68] John Mark Di Ciacca was Head of Property and Development at EDI from June 2001 until January 2004, L Rector of Property and Development until April 2008 and Acting Chief Executive from then until July 2009. Before that he had worked in the Estates Department of the Edinburgh District Council, as it then was, from 1985 to 1990. As Director of Property and Development, his main responsibility was to identify new opportunities and deliver development projects in tune with EDI's business strategy. He continued to carry out these responsibilities in his role as Acting Chief Executive.

[69] Mr Di Ciacca confirmed that the introduction to NCP in respect of the potential opportunity at Castle Terrace came through Peter Grant of Montagu Evans. The first task was to secure for EDI an interest in the site. This was achieved through the interposed lease. EDI had already been involved for some three or four years in scooping out a potential development towards the Grassmarket end of King's Stables Road, but those discussions did not go anywhere. The matter arose again when Bill Ness was attempting to consolidate the Council's offices at Waverly Court and to dispose of surplus properties including 18- 20 King's Stables Road. Discussions about the King's Stables Road site had involved consideration of the need for public parking provision on the west side of the city centre, and some element of car parking had been included in EDI's plans for that project. When the Castle Terrace project came to be explored, it seemed obvious to try to link that project to the one at King's Stables Road. The Castle Terrace Car Park was known to have shortcomings and it was thought that its redevelopment would offer an opportunity to improve its contribution to the city. EDI recognised early on that additional or replacement car parking would be required if the support of the Council for the Castle Terrace development were to be obtained. This was critical. The Council would not be interested in the Castle Terrace project proceeding unless a suitable alternative short term car park could be provided both while the development was under construction and subsequently. They thought that the alternative car parking which was needed could be provided through the Kings Stables Road project. That was the only solution he saw as being practical. Mr Di Ciacca said that NCP were fully aware of this strategy. He discussed it with Mr Litherland and explained how it would be a potential way of unlocking potential objections to the Castle Terrace development. According to his evidence, the idea of NCP seeking to secure some exclusivity in respect of any car park built as part of the development at King's Stables Road, and the provision in the Agreement dealing with this, arose from these discussions. He instructed a firm of engineers, Hill Cannon, who attended a meeting with EDI's architects for the King's Stables Road project, Elder & Cannon, to discuss some ideas for the project.

[70] Mr Di Ciacca was pressed as to what alternative parking was needed. He thought that a temporary solution while the work was being carried out at Castle Terrace might not have been the biggest issue. That could possibly have been solved. But the Council, both politicians and Transport officials, would not have supported a substantial reduction in the number of spaces in the longer term. They might not need to find 700 new spaces, but they could not bring the number down by hundreds of spaces. However, the bigger problem from his point of view was in getting the landowner to engage with the project. Without that engagement, or feedback, you do not even get to discuss what compromises there could be about the number of parking spaces. Andrew Holmes novated to Bill Ness the responsibility for handling the response of the Council's as landowner. He did not seem able to engage. So EDI went back higher up to Andrew Holmes and other senior officials. They never got anywhere in their attempts to buy the Castle Street Car Park.

[71] In advance of the Agreement with NCP being concluded, EDI provided Andrew Holmes and others within the Council with a detailed briefing on EDI's ambitions for the Castle Terrace project. The Council's position was that they were willing to listen to EDI's proposals but were not committing themselves to supporting them. They would not withhold their consent to the interposition of a lease between themselves as landlords and NCP as tenants, but there would be significant challenges in respect of planning and other issues if a development was to be realised.

[72] Mr Di Ciacca explained that the development of the Castle Terrace Car Park was likely to be contentious regardless of the question of its impact on the availability of car parking in the vicinity. It was visible both from the Castle Rock and from Princes Street. In his view, the visual aspect of the site could not be underestimated. They had to bear in mind the proposals set out in the Waverley Valley Redevelopment Strategy ("WVRS") and, in particular, a Council Planning Policy paper, produced from Andrew Holmes' office only about 12 months previously, which introduced the concept of a desire to protect key and important view corridors across the city centre. He was also mindful of the public debate in the press regarding the visual impact of the Quartermile Project at Lauriston Place and the Meadows. In addition, any redevelopment of the car park at Castle Terrace would require to be of a certain mass and size to ensure an adequate return both to the developer and to the Council, which would want to replace the existing income stream from the car park. That would have required a full feasibility study to be carried out, but that stage was never reached.

[73] In order to gain the support of the Council, EDI were keen to explore the "civic gain" aspect of the development. There were discussions with the Filmhouse about the possibility of them relocating to the Castle Terrace site once it had been developed. There were also discussions with the RIAS. After the Agreement with NCP had been concluded, EDI instructed Bennetts as architects to assist with the exercise of assessing what might be achieved by a redevelopment of the Castle Terrace site. According to Mr Di Ciacca, they were the best firm to carry out the exercise. They have a good track record and Mr Spence, in the Planning Department, appeared to be happy with that choice. Bennetts had recently won the Stirling prize for the design of a library as part of a mixed use development in Brighton and had been engaged in a number of important and high profile projects in Edinburgh.

[74] Mr Di Ciacca was at pains to emphasise that there were two aspects to its relationship with the Council: its relationship with them as landlord in terms of the lease of the site; and its relationship with them as the planning authority. In that latter connection, Mr Di Ciacca originally discussed the matter with Andrew Holmes and Ian Spence, but after the Agreement was signed and architects commissioned, he spoke mainly with Bill Ness who had taken on responsibility for the Development activities of the Council. From the perspective of the Council as landlords, they appeared to want to see what the planners thought of the development proposals. And all the planners were saying was that they were happy with the selection of Bennetts to carry out the initial study. Even at this early stage, Mr Di Ciacca felt that the project was becoming "something of a hot potato". There was no particular opposition from within the Council about no positive support either.

[75] The document produced by Bennetts in May 2006, although described as a feasibility study, might more accurately be called a "detailed site analysis and massing exercise". At that stage neither Mr Di Ciacca nor the planners within the Council thought it sensible to carry out a full feasibility study, which involves full investigations, a measured survey and detailed analysis of potential project costs and values. The study by Bennetts was essentially to consider as a first step what could be accommodated on the site in terms of massing. This would inform the brief to the team when and if a feasibility study was commissioned. A feasibility study might have been justified once EDI received a positive and engaged response from the Council. Mr Di Ciacca noted that the Defences included an averment that "a prudent commercial developer would have obtained a feasibility study prior to completion of the Agreement". He rejected this. Why should any developer do that before entry into the Agreement? Having entered into the Agreement, the next stage was to develop a strategy for trying to bring the project to fruition and then, if they got to that stage, to carry out the development of the project itself. It was unrealistic to go straight to a feasibility study. There was genuine uncertainty about the prospects for securing planning consent. A prudent developer would not commit to the high cost of commissioning a feasibility study without first securing a legal right.

[76] As regards the question of an enhanced tenure, Mr Di Ciacca noted that the unexpired term of NCP's tenure ended in 2020. A lease only until that date would be insufficient to enable EDI to secure financial support from institutions, banks and potential occupiers. Nor was it sufficient to justify EDI committing itself to the significant expenditure required to obtain planning permission, which might be in the region of £250,000. With Ian Wall, he explored the options for securing an enhanced tenure. He discussed it with a number of people within the Council, including Andrew Holmes. He instructed a valuation of the landlord's leasehold interest in the site. This identified a value of something in the region of £13-14 million. The discussions with Andrew Holmes took place just before the Agreement with NCP was signed. There is no written record of those discussions but they were referred to at EDI board meetings. Another proposal was made when the Council was looking for funds to finance an equal pay dispute. The matter arose again in connection with a bid to purchase the Kings Stables Road site which was lodged in April/May 2007. However, these proposals "fell into a black hole".

[77] Mr Di Ciacca was asked about contact with NCP throughout the process. He liaised with Stephen Litherland at the beginning. Then he found out that Mr Litherland had stepped back from management. He was then out of touch. There was never a replacement at NCP for him to deal with. It was quite difficult to get NCP to liaise with EDI.

[78] It was Mr Di Ciacca's position that the Council were not engaging positively in discussions and that in those circumstances it would not have been prudent to move towards a full stage planning application. As he put it:

"We were receiving no coherent feedback from [the Council], and no coherent expression of a view from them on the issues that would require to be addressed to enable the Castle Terrace project to be taken forward."

He commented that they had made some progress with Mr Spence, but he was dealing only with planning matters and could not take decisions which committed the Council one way or another to the project. His strategy was designed to get to a position where the Council would support the proposals, but they never got that far. The Council, as the landlord as well as the planning authority, effectively had a right of veto over the project. Their "buy-in" was essential, and EDI were not getting it. In addition, the Kings Stables Road proposals were essential to unlocking the potential for redevelopment at Castle Terrace, and EDI were getting nowhere with the Council in respect of that site. Mr Di Ciacca agreed that there was little correspondence about the Castle Terrace project between the autumn of 2007 and the decision in May 2009 to seek a re-assignation of the lease to NCP and repayment by NCP of the £5 million index linked. He acknowledged to that the decision not to proceed with the Castle Terrace project coincided with the credit crunch, but that was not the main reason for deciding not to proceed. It had become clear by the autumn of 2007 that it was unlikely that the Castle Terrace project could be realised within the timeframe available under the agreement to exercise the option to re-sign the lease and seek repayment of the £5 million. That period was not less than three years and not more than 51/2 years after the assignation. In other words it had to be exercised by May 2011 at latest. EDI did not have to exercise the option immediately upon them deciding that the project could not proceed, and it was to their advantage to wait whilst the RPI was at a relatively high level. When the RPI dipped, however, there was then little incentive for EDI to refrain from exercising that option. With the downturn in the economy at that time, EDI were looking to bring in cash. That was another reason for EDI exercising the option at that point, but they would not have done so had there been a realistic prospect of the Castle Terrace development proceeding.

Ian Spence

[79] Ian Spence had the role of Planning Development Quality Manager in the Planning Department at the Council from 1999 until January 2007, when he was appointed Development and Design Co-ordinator. He left employment with the Council in October 2007. As Planning Development Quality Manager he was the initial contact within the Council regarding many development enquiries and it was his job to advise on the generals prospects for proposed developments and on the relevant procedures in the planning process.

[80] He was contacted about the potential development at Castle Terrace in about May 2005. At that stage he did not involve anyone else from his team. That would have come later if a formal application for planning permission had been made. He had a meeting with Mr Di Ciacca on 16 May 2005 at which the main issues relevant to any proposed development were discussed. He followed it up with a letter of 25 May 2005. He was open-minded about a potential development there, but he emphasised the sensitivities of the site. He thought that the present car park was not doing any harm, but there was clearly scope for improvement. He was happy with the choice of Bennetts as architects to conduct a feasibility study to consider land use (what uses could be contained within the building), massing (what could be built on the site) and commercial viability. The decision by EDI to commission a feasibility study was the correct thing to do because it would be difficult to deal with a development proposal which had not been through that process. He had a meeting with EDI (Mr Di Ciacca) and Bennetts (John Miller) on 9 February 2006. He produced a note of the meeting. One point in the note states that the Council is "supportive of building at South end", but he thought that that put the position too strongly. The proposed development was certainly a possibility, but until it went into the formal planning process you could not say whether or not it would be supported by the Council. He described his response after the meeting as "a mixture of positive and cautious". Positive because of the opportunity of making better use of the site and enhance the whole area; cautious because of the sensitivities of the site and the likelihood of opposition. The main question in terms of design was whether there should be any development above ground level, but there were many issues to consider. There was always the need for caution with such a site, but caution does not always mean: No. He thought understood the issues well. He was aware of their contact with the Filmhouse.

[81] Mr Spence thought that one of the key factors in making progress would be the possibility of "a synergic development" between the Castle Terrace site, King's Stables Road and, with luck, Argyll House, though the problem with the latter was that it was in private ownership. He thought the successful development of Castle Terrace would be dependent to some extent on the development of King's Stables Road, though maybe not in the immediate future. Some car parking could be relocated at the bottom level of King's Stables Road. He said that "it would be very difficult to develop Castle Terrace without a thorough understanding of some future, or even concurrent, redevelopment of the other sites." In particular, the question of replacing and maintaining levels of car parking would require extensive negotiations with the Council as the transport and highways authority, even with the benefit of planning permission. Concerns about the loss of car parking space would not necessarily have been fatal to the project - some reduction could well have been accepted. However, other factors in favour of the scheme would have had to be "quite substantial" to outweigh the loss of spaces.

[82] Mr Spence said that most development in Edinburgh city centre evolves over a number of years, particularly in sensitive sites. Accordingly he was not surprised that no development around this area had yet taken place.

John Miller

[83] John Miller is a Director of Bennetts. He described it as

"an award-winning architectural practice with a diverse portfolio of projects, ranging from major urban developments to educational, cultural and public buildings," infrastructure, and refurbishments."

He said that it had significant experience of major city centre proposals, including those on sensitive sites. A recent example had been the Potterrow development in Edinburgh adjacent to George Square which had won an award in 2008 for "Best Building in Scotland".

[84] He referred to his initial contact with Mr Di Ciacca in September 2005 leading to a meeting in early October 2005 and his firm being instructed a few days later to undertake a feasibility study. He described what was involved in a feasibility study. It was normally done right at the start; an optimistic report would then normally lead to more detailed investigations and studies. They were given a reasonably open brief, which was unusual but reflected the size, sensitivity and complexity of the site. They presented their preliminary study at a meeting on 6 November 2005. Mr Di Ciacca came back with a positive response around December 2005, with suggestions as to what they should concentrate on. They were looking to put forward a proposal that EDI could discuss with the Planning Department. There was a meeting with Mr Di Ciacca and Mr Spence on 9 February 2006. Mr Spence was supportive, or "reasonably positive" as he put it later, because the existing car park gives nothing to Castle Terrace. He encouraged discussions with bodies such as Architecture and Design Scotland and the Cockburn Association. This reaction encouraged EDI. He and Mr Di Ciacca discussed matters the next day over the telephone. Mr Di Ciacca said that he would approach Andrew Holmes. After further contact with Mr Di Ciacca, Bennetts produced the final version of their feasibility study on 23 May 2006. He was not aware of what else EDI were doing to progress the development - that was not surprising, since developers like to keep their cards close to their chest. One question would be whether the proposed redevelopment would be financially viable. Mr Miller thought that that was debatable. The next step would have been for EDI to discuss their approach to the site with bodies such as Architecture and Design Scotland and with other members of the Planning Department. It might take several months before an application could be made.

Andrew Holmes

[85] Andrew Holmes was employed by the Director of City Development from 1999 until his retirement in April 2008. In that capacity he had an overview of and was responsible for considering, at a high level, all aspects of development proposals for the city of Edinburgh which were presented to him, including issues relating to income stream, planning issues, property issues and transport issues. He had ultimate responsibility for assessing all such factors affecting a proposal in order to form a view as to whether a particular project would or would not be viable. He was also the officer ultimately responsible for reporting to the Council on the affairs of EDI, though latterly he delegated the responsibility for this role to Peter Watton, who was in charge of property management issues within the Council.

[86] Mr Holmes emphasised that the Council and EDI were completely separate legal entities. Over the years the relationship between them had not always been easy, though he and Mr Wall had a good working relationship and had worked together on a number of projects. They were in contact on a regular, though often informal, basis and this was reflected also in the way in which discussions took place between them in relation to the Castle Terrace proposals. In his view, EDI has a long-term involvement with and knowledge of the issues surrounding any development project in Edinburgh. This helped the working relationship between them and the Council. However, Mr Holmes was at pains to point out that EDI did not get an easy ride through the planning process. Both sides were aware of the line to be drawn between the Council's role as a shareholder and its role as the planning authority. Ultimately, the success or otherwise of the Castle Terrace project would turn on planning issues and on the Council's assessment of the likely commercial return which the development might bring to it instead of the existing income stream from the car park.

[87] He recalled, though not in detail, informal discussions with Mr Wall prior to 2005 in connection with the possibility of redeveloping the Castle Terrace site. He did not recall any significant direct discussions with Mr Di Ciacca specifically about the site. At that time, the Council were not actively seeking proposals for redeveloping the site. The existing car park was structurally sound and fit for purpose. The existing lease between the Council and NCP provided a good source of income for the Council - it generated an annual income of about £1.2 million per year - which any development proposal would have to match. There was a lack of car parking spaces in Edinburgh generally, including the west side of the city centre. Accordingly any development proposal would have to address the issue of maintaining the level of off-street parking spaces available, both in the long term and temporarily whilst the redevelopment was being carried out. And the existing lease expired in 2020, which did not appear to give an adequate timeframe for a development to achieve any substantial benefit.

[88] The Council consented to the interposition of EDI into the lease arrangements between it and NCP. But that was far from saying that the Council would give the green light to proceed with the redevelopment. Because of the factors mentioned above, any proposal to develop the Castle Terrace Car Park would have to be a very strong one. There was the additional point that the car park was in a World Heritage site. Any development which involves building above the existing ground level at Castle Terrace would give rise to problems. Further, Mr Holmes thought that the Castle Terrace redevelopment could not be considered in isolation. There was a question of provision having to be made for replacement car parking facilities, and there was the need to demonstrate some element of "civic gain". He believed that EDI were well aware of these difficulties when they interposed themselves into the lease and began to try to take the project forward.

[89] Mr Holmes said that the Council and EDI did not reach the stage of considering the financial side of the proposed development. His understanding was that when it became clear to EDI that they would not be able to realise a development at Castle Terrace without resolving the issue of replacement car parking through a development at King's Stables Road, they were reluctant to put their financial proposals to the Council until they received a clear view from the Council on the prospects of them being able to take forward the King's Stables Road development. And he said that the Council would have rejected any financial offer from EDI which did not address the car parking problem. Had it not been for the prospect of including Argyll House in any development, the Council might have been more open to giving a formal view on the King's Stables Road site. That would have made EDI's position much easier.

[90] There were different views within the Council about how to deal with the property at 18-20 King's Stables Road. Some were in favour of an open market sale. Others, including Mr Holmes, felt that wider considerations required to be taken into account, such as the impact of any development at King's Stables Road on the strategic objectives of the Council such as the redevelopment of that whole area including Argyll House. In Mr Holmes' view, redevelopment of Argyll House, which he described as the second ugliest building in Edinburgh, was a much more important objective for the Council than redevelopment of the Castle Terrace Car Park. His aim had been to reach a decision about what to do about Argyll House and King's Stables Road about the time of his retiral, but this did not prove possible. The Council's failure to sign up to EDI's plans for King's Stables Road was clearly causing frustration to EDI, but just as EDI wanted King's Stables Road to help in unlocking Castle Terrace Car Park, so the Council wanted it to help in unlocking the redevelopment of Argyll House. Discussions in relation to Argyll House were complex.

[91] Mr Holmes was aware that EDI has sought the opinions of certain organisations including the World Heritage Trust and the Cockburn Association. From the point of view of the Council, the views of the World Heritage Trust would be of importance. Of more importance for the success of the Castle Terrace project would have been for EDI to secure the support of people within the Council and in particular within the Planning Department. Day to day responsibility within the department lay with people such as Ian Spence. His own concerns were the potential loss of significant car parking capacity, the need for some strong element of "civic gain" (such as the inclusion within the redeveloped site of a new venue for the Filmhouse), and an assessment of the commercial return for the Council as compared with the already significant income stream which it received from the car park. However, because it was "absolutely crystal clear" that the redevelopment at Castle Terrace could not proceed without replacement car parking already being available, and because the only potential location nearby was at King's Stables Road, the redevelopment of the Castle Terrace site and of King's Stables Road became inextricably linked. Mr Holmes discussed the other potential sites such as the Skypark and Morrison Street Goods Yard. Each presented difficulties.

[92] As to the question of enhanced tenure, Mr Holmes did not recall any particular discussions with EDI in relation to them acquiring the landlord's interest in Castle Terrace. He told Mr Wall that he would not expect to stand in the way of an extension of the lease. But again, that did not necessarily mean that the Council would approve the development. A revenue producing asset such as the car park was of greater value to the Council than any lump sum payment that a sale of the site would produce.

[93] Mr Holmes retired in April 2008, at about the same time as Ian Wall. Although he felt that Mr Wall's departure had some effect on the momentum behind the project from EDI's point of view, he was aware that Mr Di Ciacca continued to push the project pro-actively after Mr Wall left. He was constantly in touch with both Mr Wall and Mr Di Ciacca up to the time of his retirement about this and other spheres of activity. He had the impression that changes to the economic climate generally, and in particular to the commercial property market, were having an impact on the prospects of realising the Castle Street redevelopment.

Peter Watton

[94] Peter Watton joined the Council in June 1999 as a senior surveyor. Since April 2009 he has been Head of Physical Development Support within the Economic Development Division of the Council. He was also a member of the EDI Board from 25 April 2007 until 11 June 2009. His involvement with EDI began in early 2006 and related to the King's Stables Road site rather than the proposals for developing Castle Terrace. He was, however, aware of EDI's intention to try to develop Castle Terrace. He confirmed that the King's Stables Road site was one of the properties identified by the being surplus to requirements and which would be sold to generate capital for the Council. The possibility of developing that site had been identified some time before 2003 and it was a sight which the Council intended to sell irrespective of the building of the new Council Headquarters. It was a wholly owned and occupied by the Council. Within the Council, Bill Ness and others favoured a traditional open market sale of the King's Stables Road property. Mr Watton and Andrew Holmes thought that a more strategic approach was required, involving the possibility of redeveloping that site as part of a plan to achieve some wider objectives for improvements within the city, such as a redevelopment of Argyll House. Before EDI expressed interest in the King's Stables Road site, they had not considered its use to include a car park. They had considered a hotel, residential units, offices and retail units. In about June 2006, it was only EDI who were trying to link the proposed developments at King's Stables Road with those at Castle Terrace. Other parties began to indicate interest in developing King's Stables Road alongside proposals for the redevelopment of Argyll House. Among these was Fordgate, who owned Argyll House, but they wanted to acquire and develop the King's Stables Road site before redeveloping Argyll House and were unable to provide a guarantee that they would in fact redevelop Argyll House. The tenants of Argyll House had a favourable lease with a low rental and would have to be paid a very considerable sum to surrender the lease. The offer made by Fordgate fell through. No deal has yet been struck for the development of King's Stables Road.

[95] It was always made clear to EDI that the provision of replacement car parking was an essential prerequisite to redevelopment of the Castle Terrace Car Park. However, the Council were not going to rush into any deal to redevelop King's Stables Road simply to facilitate the development at Castle Terrace. They saw the King's Stables Road site as something that could help them realise some of their strategic objectives, such as the development of Argyll House. Although he was not directly involved in discussions relating to the Castle Terrace project, Mr Watton emphasised the fact that the redevelopment of Castle Terrace Car Park was always going to be "a hugely contentious issue" because of the sensitivity of the site, planning issues such as height restrictions, the income stream generated for the Council and the potential loss of car parking in that area of the city. As regards the potential loss of car parking, he thought it was obvious that EDI should plan to link the development of Castle Terrace and King's Stables Road. The Council were never going to allow the closure of the Castle Terrace Car Park without a replacement car parking being made available. There was a straightforward link between the two projects. Ultimately, however, he thought that the biggest stumbling block to EDI redeveloping the Castle Terrace Car Park would have been the need to achieve a sensible commercial deal, but they never got as far as a detailed discussion on the commercial aspects because they were never able to resolve the issues that needed to be addressed before such a discussion could take place.

Eric Adair

[96] Eric Adair joined the EDI Group as Finance Director in September 2006 and, following a restructuring in mid-2009, was appointed Operations and Finance Director. He gave a financial overview of EDI's position from September 2007. He explained that late in 2007 EDI refinanced by putting in place a loan facility with Lloyds Bank to provide the funding necessary to take forward major projects. Not all of that was drawn down immediately. In January 2008 EDI successfully hedged its existing borrowing. It did not hedge future borrowing and effectively, therefore, any borrowing for new developments would have to have been at the then market rates, which increased sharply shortly after the hedge was taken out. Existing development appraisals were rerun with higher interest rates and showed reduced profitability. In April 2008 he reported that the sub-prime crash had caused a correction to values across the sector and had reduced their own investment base by nearly £4 million. He also noted the impact of the economic climate in reducing demand for residential properties and the availability of project finance. In June 2008 he reported that the EDI management team did not feel that it was the right time to build speculative offices. In December 2008 he warned that investment values had dropped and were continuing to drop and that in consequence EDI's gearing was increasing and thus reducing their capacity to fund future developments. The position at the beginning of 2009, after a meeting with their bankers, was that the bank was unwilling to lend any further sums of money. EDI borrowed no further funds between January and December 2009 when a refinancing was finally agreed. No new developments were allowed to go forward during that period. Apart from one existing development, development effectively came to a standstill as that of January 2009.

[97] The impact of the credit crunch on EDI by late 2007/early 2008 was such that a number of live projects were beginning to break down because of the global financial crisis and the refusal of banks to lend. It would not have made sense to revisit potential projects which had not yet started. By late 2008 EDI's financial situation was such that they could not have contemplated trying to acquire the Castle Terrace site as a stand alone purchase. But they did try during early 2009 as part of an overall refinancing initiative. He could not remember who had had the relevant conversation, but his understanding was that EDI had approached the Council to ask if they were prepared to sell the Castle Terrace site but the Council said: No. There were two reasons for this. First, they were not sure about their long-term intentions for the site. And secondly, they were concerned about putting an asset of this type into a company which was in a fragile position financially.

(iii) Expert evidence

[98] In addition, both parties called expert evidence. The defenders called Kenneth Ross, Chairman and Chief Executive of the Elphinstone Group of Companies. He has been involved in the development industry for over 40 years, and for the last 17 years has been principal of a commercial development company operating in Scotland. The pursuers called David Robinson, MRICS, who has some 25 years of experience in the field of property development, both in personal projects and from his time as a director of a number of development companies, and who now runs a consultancy business, DKL Capital Consulting, providing property investment and development advice to retain clients. Both Mr Ross and Mr Robinson provided expert reports and gave their evidence by reference to them. Both, I think, proceeded upon the assumption, articulated by Mr Ross in para.8 of his Report, that the obligation to use "all reasonable endeavours" required a party "to consider a range of options and to pursue those that were reasonable or sensible", and "to take a wide view with regard to the development potential, content, or strategy. That approach is not different in effect from that which I have sought to identify in para.[20] above. It is convenient to consider the relevant parts of their evidence in the next section of this Opinion.

The evidence - detailed consideration

[99] Mr Ross, in his expert evidence for the defenders, criticised EDI's approach on a number of grounds. First, he said, they "opted to use an extremely light touch", though he recognised that such an approach was not, in itself, unreasonable. Secondly, their discussions with officers of the Council appeared to have been "very informal and tentative in nature". He would have expected meetings to have been arranged with the relevant officers of the Council specifically for the purpose of advancing the Castle Terrace project, rather than there being informal discussions on various occasions, including at the end of meetings arranged for other purposes. Third, they focused too much on planning considerations rather than pursuing, at the same time, other issues, such as securing an enhanced tenure and attracting interest from end-users for the proposed development.

[100] Nonetheless, although he thought that there was room for improvement in the early years, he did not consider that EDI had failed to use all reasonable endeavours in the period up to September 2007.

[101] Despite this apparent concession by Mr Ross, Mr Clarke sought to argue that EDI were in breach during this period up to September 2007. He submitted that the question of whether all reasonable endeavours had been used was one for the court. In part, of course, he is correct. I accept that the meaning to be attributed to that expression is a legal question for the court. I also accept that ultimately the decision on the facts is also for the court. However, the factual question to be decided is one which involves an assessment of how particular people in a particular field ought to have acted so as to pursue a particular goal. In answering the question, the court requires to be given some understanding of, or insight into, a world of which, in its judicial capacity, it has no first hand experience. Some of this understanding or insight may be gleaned from the evidence given by the witnesses of fact. They, after all, were the participants in what went on. But where experts are called for both parties, and where, as here, they both come to the same considered view that EDI cannot be criticised for failing to take particular steps in a certain period, it is difficult for the court to set up its own view (assuming it is otherwise minded to reach a different view) in opposition to that consensus. There may be circumstances where this is possible, but they are likely to be rare. For the reasons set out below, I do not regard this as such a case.

[102] In para.22 of his Report, Mr Ross said that "it is quite clear that from September 2007 onwards, EDI failed to use all reasonable endeavours" to pursue the Castle Terrace project. His main criticism was that they devised a strategy (Plan A) which depended upon their ability to acquire and redevelop the site at 18-20 King's Stables Road, that redevelopment to include some car parking space so as to unlock the development potential of Castle Terrace; but when it became clear that was not going to succeed, they had no Plan B, and took no steps to find one.

[103] It is clear, and this is relied on by Mr Ross in his Report, that by 11 September 2007, as recorded in an Issues Paper of that date, the view had been taken within EDI that, without the replacement car parking spaces offered by a redevelopment of King's Stables Road, it was doubtful whether there would be any political buy-in to the Castle Terrace Project. The King's Stables Road project had been "the principal hook" on which to progress Castle Terrace. There was concern that the Castle Terrace redevelopment might "no longer be viable". There was thereafter no progress by EDI on King's Stables Road. It may be that in fact this position was reached somewhat earlier in 2007, but the precise date does not matter for present purposes. Mr Ross points out, and this is broadly correct, that there are no documented meetings or discussions thereafter about Castle Terrace, nor is the credit crunch put forward in EDI's internal documents as a reason for not going ahead with it. His point is that, once it became clear that the King's Stables Road solution had run into the sand, EDI should have explored an alternative strategy for taking forward the proposals to redevelop Castle Terrace, but they did not. They did not explore alternative replacement car parking sites. They did not explain the problem to NCP, or ask NCP whether they had any ideas for replacement parking. They did not seek to persuade the Council that the Castle Terrace project could proceed without the provision of replacement car parking spaces. They simply "downed tools". Mr Ross makes the point that the development process is a dynamic one. Strategies and tactics are always subject to change. But EDI did not review their strategy at all. Mr Clark adopted these criticisms, formulating them in a number of propositions for the purpose of his submissions.

[104] I do not accept these arguments, cogently though they were advanced. My reasons, in summary, are as follows.

[105] I consider first the question whether the proposed redevelopment of Castle Terrace Car Park had any realistic prospect of success in the absence of some provision of alternative car parking space to replace that which would be lost during and after the re-development. This is not a question of whether the Agreement between the parties made the redevelopment of Castle Terrace conditional upon the provision of alternative spaces. Clearly it did not, and the contrary was not argued. Nor is it a question of whether it was ever suggested in the negotiations leading up to the Agreement that the proposed development at Castle Terrace Car Park was in some way dependent upon what might be done at King's Stables Road. It was not, and again the contrary was not suggested. Rather, the question is one of practicalities. In the circumstances of this case, could anything have been done to progress the proposed redevelopment of the Castle Terrace site in the absence of any realistic proposal for the provision of alternative car parking space to replace that which would be lost in the re-development?

[106] A number of different considerations have to be borne in mind. It is necessary to recognise the existence of two separate problems: (a) the loss of all car parking at Castle Terrace Car Park during the course of any re-development works, with the possible need for temporary or short term provision of alternative spaces during that period; and (b) the permanent loss of some car parking spaces at Castle Terrace once the re-development was complete, the exact number depending on what provision was to be made for car parking within the proposed development in its final shape. That distinction was not always drawn in the evidence, but I am satisfied that both problems required to be addressed. That raises the question of what alternative parking might have been available, and in what location. Further, it is important to have regard to the fact that consent or agreement would have to be obtained from different bodies within the Council exercising different functions, in particular (a) from the Council as landlord and (b) from the Council as planning authority.

[107] I am satisfied that there was no prospect of getting the go ahead from the Council unless some alternative off-street car parking provision was identified, certainly in the long term. To my mind, the evidence in support of that conclusion is overwhelming. I have summarised the evidence earlier in this opinion, but see, in particular, the evidence of Council officers such as Mr Ness (see para.[38] above), Mr Sikes (para.[49]), Mr Holmes (para.[87]) and Mr Watton (para.[95]), and the evidence given by Mr Wall (para.[63]) and Mr Di Ciacca (para.[69]). Indeed, I did not understand this part of EDI's case to be seriously challenged. There were different views as to whether it was absolutely essential for there to be short term replacement parking during the period of the redevelopment at Castle Terrace if it went ahead. Mr Wall understood from the Council that short term replacement during the construction works was essential (para.[63]). Mr Di Ciacca was less clear: see para.[69], but c.f. para.[70]. Mr Spence thought that replacement parking might not have been absolutely necessary in the immediate short term (para.[81]). I do not need to decide this, but if it were crucial to my decision I would prefer the evidence that some provision for replacement off-street parking during the period of construction would have been necessary. The long term replacement of the spaces which would be lost was a more significant factor. What alternative provision was required in the long term would depend on the number of spaces for which provision was made in the new Castle Terrace development. There might not have been the need for like for like replacement. There was scope for argument as to the number of spaces required: see e.g. Mr Spence at para.[81] and Mr Di Ciacca at para.[70]. But I have no doubt that some substantial provision for alternative car parking in the long term was essential if the Castle Street proposal was to get the go ahead from the Council. The primary concern, of course, was from the point of view of planning. Transport considerations played an important role. But in terms also of securing the "buy-in" of the Council as landlord - a concept which Mr Clark challenged root and branch - it was never going to be possible to get the Council positively to support the Castle Street proposals unless it could be shown that they had a real prospect of success. That in turn depended on the provision of alternative car parking spaces.

[108] I am also satisfied on the evidence that the requirement for the provision of replacement car parking spaces pointed clearly to the need to try to pursue a development at King's Stables Road. There was simply no other realistic possibility on offer at the time. The only suggestion put forward at the time was the car park at Morrison Street Good's Yard, but I accept the evidence that it was unsuitable. It was too far away from the West End to be a genuine replacement for Castle Terrace: see Mr Sikes at para.[49], Mr Wall at para.[67]. Further, it was already in use: see Mr Wall at para.[67]. It may have been underused, as Ms Cummings suggested (at para.[55]), but no analysis was put forward either then or at the proof as to the number of additional (unused) spaces which could be made available to replace those lost in any redevelopment of Castle Terrace. The idea of putting in a deck to create additional spaces was never suggested at the time. Nor was any suggestion made at the time of using the other sites mentioned in evidence, such as the Skypark, Greenside or Riego Street. It became clear in evidence that the Skypark suffered from serious mechanical difficulties. Greenside was in the wrong part of the City. And Riego Street, which was mentioned for the first time in cross-examination, was too far away from the area served by the Castle Terrace Car Park. In any case, apart from the Skypark, they were all in use. No evidence was put before the court as to precisely how many additional spaces would have been available to take up the need caused by the closure of Castle Terrace. Had any of these been considered genuine alternatives to King's Stables Road, I would have expected to have been provided with a detailed analysis, supported by someone with expertise in transport planning and car park provision, showing exactly what was the existing use of these car parks, what spare capacity they had, what additional spaces (if any) could have been created, how in terms of location they fitted in with what was needed, and so on. In the absence of such evidence, I am unable to find that any of them provided a realistic prospect of providing an alternative to the off-street car parking spaces which would be lost in a development of the Castle Terrace Car Park and of thereby unlocking the development of the Castle Terrace site.

[109] It is clear that by early to mid 2007 EDI's efforts to get the go-ahead to develop King's Stables Road were not going to succeed. The reason for this is plain from the evidence - it emerged in particular from the evidence of those officers of the Council who were involved in the disposal of this property amongst other properties made surplus to requirements by the creation of a new Council headquarters - and I do not think that any criticism was levelled at EDI for this. The Council as landowner wanted the best deal available. It had an ambition to use the redevelopment of King's Stables Road as a means of improving the whole area to the west of the Grassmarket, an area including Argyll House which it did not own. While there was a prospect of this coming to fruition, the Council was not going to let EDI buy and develop King's Stables Road by itself. It was certainly not going to rush into committing itself to EDI's proposal. The idea of developing Castle Terrace was not high on the Council's list of priorities. It ranked below the ambition to develop the wider area including Argyll House. Accordingly, the idea of allowing EDI to redevelop King's Stables Road as a means of unlocking the potential Castle Terrace development would always take second place to the possibility of that wider development.

[110] Mr Clark submitted that EDI should have asked NCP for help in finding alternative car parking provision. I accept that there appears to have been little communication between EDI and NCP, particularly after Mr Litherland left NCP in 2006. I found this puzzling. Mr Di Ciacca said that he was not told of any one else to contact at NCP. I would have thought that he could have asked Mr Litherland who his successor was. And there would have been other ways to find out, for example by contacting NCP and asking who was now dealing with the Castle Terrace project. On the other hand, had NCP been sufficiently interested they would surely have put someone else forward as a point of contact. It appears that no initiative was taken from either side. In circumstances where the parties were working closely together, I would have expected a constructive dialogue to have taken place, in which difficulties of the sort which EDI were encountering could have been discussed. But where there was no dialogue, and no apparent interest from NCP, I am not sure that EDI can be expected to have gone to NCP seeking their advice. In any event, even at the proof nothing was forthcoming from NCP to suggest that there was in fact any realistic alternative to King's Stables Road to provide the alternative parking. I conclude from that that even if EDI had approached NCP for help, nothing would have come of it.

[111] Mr Clark submitted that that was not the point. NCP were not claiming damages. They were simply seeking to resist EDI's claim to reverse the assignation of the lease and to claim repayment of the £5 million index linked in terms of the contract. It was enough for NCP to show that EDI were in breach of their obligation to use all reasonable endeavours to pursue the development. It was not necessary to establish causation, i.e. to show that that failure caused any loss or damage. I do not accept this submission. In Inveresk v. Tullis Russell it was confirmed, if confirmation were needed, that the breach founded upon in order to justify retention must be material, though possibly not so material as to justify rescission: see per Lord Hope at para.[43]. In most cases, the materiality of a breach cannot be assessed without looking at the consequences of it. Causation is, therefore, very much in issue in considering whether or not a right of retention has arisen. Unless it can be shown that the breach has had, or is having, a materially adverse effect on the other party, retention will not be justified. The position is a fortiori in my opinion if one focuses on the equitable nature of retention: see per Lord Rodger at paras.[83]-[84]. Mr McLean suggested that the relevant test was this, that NCP must show that the breach by EDI, assuming there is a breach, is so material that it would be equitable that they (NCP) should be relieved of their obligation to perform. I agree. After all, where is the equity in refusing EDI their contractual entitlement where EDI's own (non-repudiatory) breach has in fact caused NCP no loss?

[112] It was argued that the obligation to act in good faith gave some extra push for EDI to contact NCP, to inform it of the progress being made and the problems being encountered, and to seek help in overcoming the problem about the provision of alternative off-street parking. I do not think it goes that far. Either there is such an obligation as part of the reasonable endeavours provision or there is not. But in any event I do not think this adds anything to the above discussion. If there was a breach, but it was not causative of any result adverse to NCP, it cannot be sufficient to entitle NCP to withhold performance of its obligations.

[113] I conclude, therefore, that EDI were not in breach by concentrating their efforts on pursuing the King's Stables Road development as a means of unlocking the potential for redeveloping Castle Terrace. And even if they ought to have contacted NCP for help, or for ideas, about other car parking alternatives when it became clear that their efforts to develop King's Stables Road were running into the ground, I do not find that breach of the "all reasonable endeavours" obligation, assuming it was a breach, to be a material breach, since it is not shown to have adversely affected NCP. Indeed, it is shown not to have affected NCP adversely.

[114] These considerations explain why, in my opinion, NCP were not in material breach prior to September 2007, the date picked upon by Mr Ross. But they also explain why I am not persuaded by his evidence that EDI were in breach thereafter. Without provision for alternative parking, the Castle Terrace project was not going to get the green light, whatever other efforts EDI had made.

[115] Nonetheless, I should deal briefly with some of the other issues raised. I accept the evidence by Mr Walls and Mr Di Ciacca that they pursued the project with the Council by informal meetings and discussions. They adopted a light touch approach and, as Mr Ross accepted, there was nothing intrinsically wrong with that. They commissioned a preliminary study from Bennetts. They entered into some dialogue with some other interested parties, including the Filmhouse. But I accept their evidence that there was no point in arranging formal meetings with the Council before they had identified a realistic solution to the problem of finding replacement off-street car parking. They took the view, which on the evidence I accept, that such steps might have been counterproductive. They had a number of problems to overcome. They needed the support of the Council if the Castle Street project was to go ahead. The Council, as landlord, needed to be persuaded to grant some form of enhanced tenure of the site. It was not going to do so, or even consider doing so, unless it could be satisfied that the project was viable. The Council, again as landlord, was getting a healthy income stream from the existing car park at Castle Terrace. Why would it give this up unless and until a viable proposition could be put forward for a development of the site which increased that income stream? EDI needed the Council to be on board. There is no magic in the expression "buy-in" used in the evidence. They needed the Council to show the degree of support for the project which was necessary to make it worthwhile to try to proceed to the next stage. That was not going to happen without some solution to the parking question. I consider that EDI were correct in their assessment of the way to proceed and the problems to be overcome.


[116] Ultimately the question is whether EDI failed to pursue the development with all reasonable endeavours as would be expected of a normal prudent commercial developer experienced in developments of this nature. That assessment has to be made in the round, having regard to the totality of the evidence. I am not persuaded that the assessments made by EDI were significantly different from those to be expected of a normal experienced prudent developer in the circumstances. They used all reasonable endeavours in pursuing the route which they viewed, and in my opinion other normal prudent developers would have viewed, as offering the only realistic prospect of success. I do not consider that they can properly be criticised for not pursuing the other necessary steps in any particular way, since they would all have been futile unless the problem of finding alternative car parking spaces could be overcome. I am satisfied that even if they had pressed harder in other areas, they would not have succeeded. Even if there were any breach by them of their obligations, and I do not think there was, I am not satisfied that it adversely affected the chances of success. Indeed, I am satisfied that it did not. In those circumstances, any breach was not material; and, further, was not such as to make it equitable to allow NCP to withhold performance of its obligations to take a re-assignation of the lease and pay the required sum to EDI.


[117] The consequence of my decision would be to sustain the first plea-in-law for the pursuers, repel the defenders' pleas-in-law, and grant Decree in terms of the first Conclusion of the Summons. Some mention was made of putting the case out for a By Order hearing before pronouncing any Decree, possibly to discuss matters of detail in the terms of the Decree. I am happy to accede to that. I shall therefore put the case out By Order, but if parties can agree that there is no need for such a hearing, it can be discharged and I will pronounce Decree in the terms indicated.