Wiltshire County Council v Crest Estates Ltd & Ors

This is an appeal, brought with the permission of Jacob LJ, by Wiltshire County Council (“the Council”) against a decision of His Honour Judge Iain Hughes QC, sitting as a deputy Judge of the High Court. In a reserved judgment, he decided, as a preliminary point, an issue as to the effect of indemnities given to the Council in three agreements which related to the construction of parts of the Chippenham West bypass (“the bypass”) which was built over the period between about 1993 and 2000.

The three agreements were entered into between July 1993 and March 1994, and were made between companies in the Crest Nicholson Group (“Crest”), the Council, and the National House Building Council (“NHBC”). Crest are and were in a substantial way of business in property development, in particular the building of residential properties.

During the 1980s, Crest became interested in carrying out substantial residential development on number of sites to the west of Chippenham. With a view to obtaining planning permission for such developments, they entered into discussions with the planning authority, North Wiltshire District Council (“the planning authority”). The Council had no power to grant or refuse planning permission for such development. However, it had a substantial interest, in its capacity as the local highways authority, in the nature of any such proposed development, and the planning authority would have been bound to take into account any representations the Council might have made in connection with any proposed development. There were negotiations between the planning authority, the Council, and Crest, and they resulted in Crest entering into the three agreements as part of the overall arrangement whereby they were granted planning permission for their proposed developments.

The intention to construct the bypass had been mentioned in successive versions of the Council’s Transport Policy and Programme. The Council regarded the bypass as desirable for the purposes of delivering safe and convenient high speed linkages between towns and other centres in West Wiltshire, and for enabling strategic traffic to be separated from local traffic, with the concomitant benefit of reducing congestion in Chippenham.

Under each of the three agreements, Crest agreed to construct road or roads which in due course would form part of the bypass. (It is right to mention that other sections of the bypass were constructed by the Council or by other developers). Two of the three agreements were entered into pursuant to section 38 of the Highways Act 1980 (“section 38”), and the third pursuant to section 106 of the Town and Country Planning Act 1990 (“section 106”). Section 38 is the statutory provision by which public highways can become “adopted”, that is whereby they become maintainable by the local highway authority (or, in the case of trunk roads, by the Secretary of State) at public expense.

Given that it is common ground that the issue raised in this appeal is to be resolved the same way under each of the three agreements, I shall concentrate on one of the two agreements entered into pursuant to section 38. That agreement (“the Agreement”) is dated 17 July 1993. It recites the fact that the Council is the local highway authority, and that Crest are the owners of land which includes the site of a proposed road or roads which they wish to make up so as to become adopted. Clause 1 identifies certain detailed plans and includes certain definitions. One of the definitions is of the “road or roads” which are identified by reference to certain plans. As already mentioned, the road in question was intended to be a section of the bypass, as indeed it now is. The other relevant definition is of the “works” which is defined as meaning “the works specified in the schedule hereto for the making up of the road”. The schedule contains various items such as drainage, kerbing, footway works, street lighting and road markings.

By clause 2, Crest covenant to carry out and complete the works in an appropriate manner and within a specified period. Clauses 4 and 5 are concerned with aspects of the works, including connections to existing services and works to any existing public highway.

Clause 6 is the centrally relevant provision for present purposes, and it is in these terms:

Clause 7 requires Crest to give access to the site to representatives of the Council “during the carrying out of the works”. Clauses 8, 9 and 10 are also concerned with the carrying out of the works. Clause 11 imposes an obligation on Crest to “maintain the works” for “the maintenance period”, i.e. until the expiry of one year from the date at which the works are certified as completed by the Council (albeit that the Council is to be responsible for routine maintenance of lights and traffic signs during that period).

By clause 12, Crest is to make good any defect in the road which is discovered during the maintenance period, and, once that is done (and provided Crest has paid the Council everything due under the Agreement and the road has been connected to a public highway maintainable at public expense) the Council must issue a “Final Certificate”. By clause 15, the road “shall become a highway or highways maintainable at the public expense” once the Final Certificate is issued. Clauses 17 and 18 are concerned with the Council’s rights in the event of Crest being in default. Clause 19 is an indemnity in favour of the Council from NHBC in respect of Crest’s liabilities under the Agreement, and contains a provision that NHBC should be released “on the issue of the Final Certificate”.

The point which divides the parties concerns the construction of clause 6 of the Agreement, and it is encapsulated in the preliminary issue, which raises the question of whether “the indemnity[y] contained [in clause 6 of the Agreement] cover claims for compensation against the [Council] pursuant to Part I of the Land Compensation Act 1973”.

In order to explain that issue, it is necessary to refer not merely to the Land Compensation Act 1973 (“the 1973 Act”) but also to section 10 of the Compulsory Purchase Act 1965 (“the 1965 Act”). Section 10(1) of the 1965 Act provides, so far as relevant:

The statutory predecessor of section 10(1) of the 1965 Act was section 68 of the Lands Clauses Consolidation Act 1845, which was expressed in very similar terms, and in particular referred to land which was “injuriously affected by… the execution of the works”. That section, and section 6 of the Railways Clauses Consolidation Act 1845 (which referred to “any lands taken or used for the purposes of the railway, or injurious affected by the construction thereof”) were considered in Hammersmith and City Railway Company –v- Brand (1869) LR 4 HL 171. In that case, by a majority, the House of Lords held that the wording of the two sections, and in particular section 6 of the Railways etc Act, only entitled a claimant to compensation for damage suffered as a result of the actual carrying out of, or existence of, the works to construct the railway, and not to compensation for any damage suffered as a result of the consequent use of the railway.

Lord Chelmsford said this at 204:

At 214, to much the same effect, Lord Colonsay said:

More recently, in a speech, with which the other members of the House of Lords agreed, Lord Hoffmann said this in Wildtree Hotels Ltd –v- Harrow LBC [2001] 2 A.C. 1 at 7 to 8:

By the 1973 Act, the right to compensation was prospectively extended. Section 1(1) of that Act provides that “where the value of an interest in land is depreciated by physical factors caused by the use of public works”, then, subject to certain conditions being satisfied, “compensation for that depreciation shall… be payable by the responsible authority to the person making the claim”. “Physical factors” are defined in subsection (2) as including noise, vibration, smell and lighting. “Public works” are identified in subsection (3) as including “any highway”, in which case the responsible authority is the appropriate highway authority”.

A claim for compensation under the 1973 Act arising from the construction of a new highway cannot be made until 12 months after the highway was first open to public traffic: see sections 1(9) and 3(2). However, if, at the time it is first open, the highway is not maintainable at public expense, the effect of section 19(3) is that no claim can be brought under the 1973 Act unless (and, presumably, until) it becomes publicly maintainable within 3 years of the date on which it is first opened to public traffic.

By section 4 of the 1973 Act, compensation is calculated by reference to the diminution in value of the claimant’s property interest as at the date twelve months from the opening of the highway, i.e. the first date on which a claim can be made, subject to the provision of section 19(3). Compensation is calculated by reference to the effect of the use of the highway as at that date, albeit taking into account “any intensification which may then be reasonably expected”.

With that rather lengthy introduction, I revert to the issue which divides the parties, namely whether the liability of the Council, as the local highway authority, to pay compensation to claimants under the 1973 Act, as a result of the use of that section of the bypass which is the subject of the Agreement, can properly be visited on Crest pursuant to the provisions of clause 6 of that Agreement. That issue raises a short, and by no means easy question of interpretation which the Judge resolved in favour of Crest, namely by holding that clause 6 did not extend to compensation for which the Council was liable under the 1973 Act.

I have reached the same conclusion. As a matter of ordinary language, it seems to me that clause 6 is fairly easily capable of bearing the meaning for which either party contends, but, for a number of reasons, I consider that the narrower construction for which Crest contend is to be preferred. I cannot pretend that any of these reasons is particularly strong, but, when one bears in mind that clause 6 is capable of having either meaning it appears to me that the combination of reason for concluding that it should have the narrower meaning is persuasive.

First, at least to me, the words of clause 6, when read on their own, rather more aptly apply to claims which arise directly from the execution of the works, rather than those which arise from the consequences of the execution of the works. Although Mr Straker QC, who appears for the Council, rightly emphasises that the words “arising out of or in connection with or incidental to” have a very wide ambit, they are, of course, limited by the words “the carrying out of the works”. As a matter of language, it is at least a fair point, and to my mind an appropriate analysis, to say that a claim for compensation under the 1973 Act is not something which itself arises out of or in connection with, or is itself incidental to, the “carrying out of the works”. Rather, such a claim arises out of the use of the road which itself can be said to arise out of the carrying out of the works. The distinction is a fine, almost semantic, one, and, as already mentioned, I accept that it could easily be displaced by other considerations which fall to be taken into account in construing the Agreement.

Secondly, it appears to me that this point is rather reinforced if one reads in the definition in clause 1 of “the works” into the wording of clause 6. The indemnity thereby becomes one in respect of:

Thus, in light of the definition of the “works”, the constructing of the road is already referred to in clause 6 (through use of the words “the making up of”). Consequently, the inclusion of the words “the carrying out of” can be said to emphasise that what the parties were concerned with was an indemnity in relation to the constructing of the road, and not in relation to its subsequent use.

Thirdly, there is the overall thrust and tenor of the Agreement, which is emphasised by Mr Brock QC, who appears on behalf of Crest. The parties appear to have had in mind that Crest would be liable for all liabilities connected with the road for the period from the inception of its construction to the end of the maintenance period, during which it would be constructed and maintained, and by the end of which period it might (but apparently was not required to) be used as a road, whether as a private access or for public use. However, once the maintenance period came to an end, the parties envisaged that the Council, as the highway authority, would be responsible for all future liabilities connected with the road in light of the provisions of Clause 15 and section 38.

As explained above, no compensation claim could be made under the 1973 Act until the Council had adopted the road, and the assessment of any such compensation would be based on the then-present and projected future use of the road. Accordingly, it appears to me that the way in which the Agreement envisages the allocation of responsibilities between the parties suggests that it was more likely that it would be the Council, rather than Crest, who would be responsible for paying compensation under the 1973 Act. It is true, as Mr Straker points out, that Crest could find itself liable to pay in respect of events after the road becomes adopted; for instance, if damage was suffered as a result of faulty construction for which Crest were responsible. Nonetheless, I do not believe that that calls into question Mr Brock’s reliance on the general thrust of the Agreement so far as the apportionment of liability between the parties is concerned.

The fact that NHBC’s liability as surety under the Agreement lapses as soon as the road is adopted under clause 15 does not, as Mr Brock concedes, of itself, takes matters any further. However, I accept his point that it is all of a piece with the notion that the parties envisaged (albeit in general terms) that Crest’s liability in respect of the road would cease, and the liability of the Council would effectively commence, with the provision of the Final Certificate and the adoption of the road as a public highway under section 38.

Fourthly, there is the fact that the road was expected to become part of the bypass, the construction and use of which had been a long term aim of the Council as the highway authority. I accept that the existence of the road would have been perceived to be of benefit to one or more of the developments which Crest had constructed, or was contemplating constructing, at the time of the Agreement. However, it appears to me that the major function of the road was as part of the bypass. In those circumstances, it appears to me that, while it would have been perfectly possible for the parties to have agreed otherwise, one would not have expected Crest to agree to reimburse the Council in respect of its statutory liability to pay compensation under the 1973 Act to those whose property interests were diminished as a result of the use (as opposed to the construction) of the road. Of course, very different considerations would apply to any liability of the Council for compensation or damages arising out of the construction of the road, given that Crest had agreed to carry out that work.

Fifthly, as the Judge emphasised, one has to construe the Agreement in what one might call its statutory context. I do not think it could be seriously suggested that the Council (as the highway authority) or Crest (as experienced property developers) could have been unaware of fundamental and well-established principles relating to liability for compensation for injurious affection and the like. In my opinion, the principle laid down in Hammersmith –v- Brand (summarised, albeit subsequent to the Agreement, in Wildtree’s case) was very well known and can fairly be attributed to the parties. The principle is, indeed, very well summarised in the Encyclopaedia of Compulsory Purchase in the notes to section 1 of the 1965 Act:

It is inherent in the Council’s case that statutory compensation for injurious affection (to use the expression in the 1965 Act) is within the ambit of clause 6 of the Agreement, at least in principle. It therefore seems to me unrealistic not to take into account well-established and fundamental principles relating to the right to such compensation when construing the provisions of the Agreement.

It is true, of course, that section 10(1) of the 1965 Act is differently worded from clause 6 of the Agreement, and that that can be said to weaken the force of the point. However, I am quite unpersuaded that it wholly undermines it. The fact remains that, under the very type of legislation which gives rise to the “claim” which is said by the Council to fall within clause 6, the courts have consistently given a narrow meaning, of the sort argued for by Crest in the present case, to the ambit of the right to compensation for injurious affection attributable to “the execution of the work”, an expression which has to all intents and purposes an identical meaning to “the carrying out of the works” as is found in clause 6 in the present case.

Sixthly, there is the effect of the closing words of clause 6, which exclude from its ambit any claims etc “arising out of or inconsequence of any act… of the Council”. Compensation under the 1973 Act based on the actual and projected use of the road would have been anticipated by the parties to the Agreement as being based on the assumption that the road was, or would be expected to be, part of the bypass. Mr Straker is right to say that one cannot be absolutely certain that the depreciation of neighbouring properties would be greater by virtue of the road being part of the bypass than if it were merely used as a local, effectively self-contained, highway. However, common sense suggests that that is overwhelmingly likely.

In those circumstances, as Mr Brock says, even on the Council’s case, it would be very likely that a substantial part of any compensation under the 1973 Act, payable in respect of the use of the road, would have been expected to be attributable not merely to its construction by Crest, but to its subsequent availability as a public highway, which would require the Council to adopt it (as the Council was obliged to do under clause 15 of the Agreement) to open it to the public (insofar as that had not been done by Crest, who had no obligation to do so under the Agreement), and to connect it with other sections of the bypass to be built by, or pursuant to other section 38 agreements with, the Council.

In those circumstances, it appears to me that there undoubtedly would be a powerful argument for saying that, if the Council’s case based on the first part of clause 6 was correct, the second part of clause 6 would present difficulties to the Council. The very fact that, in order to succeed in its case on the first part of clause 6, the Council would be giving a wide meaning to the words “arising out of or in connection with or incidental to” would suggest that a similarly wide meaning should be given to the words “arising out of or inconsequence of” in the second part of clause 6. Accordingly, the use of the road as a highway, and, especially as part of the bypass, would, in any event, be taken out of the ambit of clause 6, even if it fell within the first part of the clause as the Council contends.

One argument which impressed the Judge, but does not carry any weight with me, is the exclusion from clause 6 of anything which is the “liability” of the Council. The Judge considered that, as the responsibility of paying compensation under the 1973 Act was a “liability” of the Council (as it undoubtedly would be), it was thus in any event excluded from the ambit of clause 6. In my view, Mr. Straker is right in contending then that proves too much: if every “liability” of the Council is excluded from clause 6, then the clause has no meaning. In my judgment the best sense that can be made of the reference to “liability” at the end of that clause is that it is referring to a liability which the Council may have to Crest. Clearly, it would be unrealistic for the clause to be construed so as to entitle the Council to recover from Crest sums which the Council is, whether under the Agreement or otherwise, obliged to pay Crest even though such sums appear to fall within the first part of the clause.

However, with that exception, it seems to me that the various points set out above do, when taken together, make out a fairly formidable basis for supporting Crest’s construction of clause 6, and, therefore, the conclusion arrived at by the Judge. The arguments on the other side, although attractively presented by Mr Straker, do not appear to me to amount to very much, at least once one concludes, as I do, that clause 6, according to its natural meaning, is at least as naturally capable of bearing the meaning for which Crest contend as it is bearing the meaning for which the Council contends. (Indeed, as explained above, it seems to me that the meaning for which Crest contend is actually the more natural one).

Mr Straker suggests that, if clause 6 is given the meaning for which Crest contend, then it has a pretty limited ambit. I accept that, but it does not seem to me to be of any assistance to the Council’s case. If he could show that clause 6 could never have any effect if it were given the meaning for which Crest argue, then I could well see how that could be said to be a powerful point in favour of Council’s construction. However, the fact that a particular provision may have a relatively limited effect on one reading, compared with the much wider effect which it would have on another reading, does not appear to me to be a factor which favours the latter, perhaps particularly where the provision in question is an indemnity.

Mr Straker also contends that it may be dangerous to place much weight on the wording and judicial interpretation of section 10(1) of the 1965 Act and its predecessors, on the basis that, while the Council may reasonably be taken to be aware, albeit in general terms, of the law relating to compensation for injurious affection, its ratepayers, who would have a right to see the Agreement would not be so aware. I am unimpressed with that argument. While the ratepayers undoubtedly have a right to know much of what their local authority is doing, including the agreements it is entering into, I cannot think that that is a factor which can properly be taken into account when one is seeking to construe an agreement entered into by a local authority. The point seems to me to be wrong in principle, and difficult if not impossible, to apply in practice.

Apart from these points, Mr Straker makes a number of criticisms of the reasons given by the Judge below for the conclusion he reached. I do not consider that there is anything to be gained in going through those criticisms, as I have given my reasons for reaching the same conclusion as the Judge. However, it is fair to Mr Straker to acknowledge that some of his points in this connection have force, but, equally, it is fair to the Judge to mention that, although I do not agree with all the points he made, my reasons for favouring Crest’s case are, in the main, pretty similar to his reasons.

As indicated above, I have confined my reasoned discussion to one of the three agreements the subject of this appeal. As also indicated above, it is common ground that the preliminary point of construction should be decided the same way in relation to all three agreements. That is inevitable in relation to the second of the two section 38 agreements, which is, for all relevant purposes, in identical terms to the Agreement.

However, the equivalent provision of the section 106 agreement, which is clause 20, is in slightly different terms. It contains a covenant by Crest to indemnify the council in the event of:

A comparison between the two clauses shows a number of differences. Clause 20 is longer and more detailed; the words “out of” are missing after the word “arising”; there are the additional words “or in consequence”; there is an express reference to “compensation”; there are the additional words “in connection therewith or arising thereout”; the proviso relates to negligence, and specifically refers to “design, construction and supervision”. Nonetheless, it seems to me that the parties are right to regard the essential point as centring around the words “the carrying out of”. The reference to “compensation” takes matters very little if any, further and can be said to cut both ways; the differences in, and additions to, the adjectival phrases cannot take matters any further. As to the proviso, the exclusion being limited to negligence could be said to make it slightly more favourable to the Council, but the express reference to “design, construction and supervision” can be said to be slightly more favourable to Crest.

In the event, therefore, I would dismiss this appeal.

I agree.

It is with regret that I find myself unable to agree with my Lords. I can express my reasons for this dissent quite shortly.

The judge had to decide a preliminary issue as to whether the indemnities contained in the agreements between the parties covered claims for compensation against the Council pursuant to Part I of the Land Compensation Act 1973 (“the 1978 Act”). Section 1(1) provides that:-

If the agreement had simply provided for an indemnity in respect of all claims arising out of the carrying out of the works, then I would be bound to hold that a claim under the 1973 Act was not covered. That is because of the perhaps arcane way in which claims for compensation for major public works have been confined by the courts under the relevant statutory provisions. Section 10(1) of the Compulsory Purchase Act 1965 is a modernised version of Section 68 of the Land Clauses Consolidation Act 1845, itself not dissimilar from Section 6 of the Railways Clauses Consolidation Act 1845. Under those Acts compensation was payable in respect of any interest in land “injuriously affected by the execution of the works”, and execution was given a very narrow meaning which Lord Wilberforce considered in Argyle Motors (Birkenhead) Ltd. v Birkenhead Corpn [1975] AC 99, 129 was not always easy to justify on normal rules of statutory construction. Thus it was held by the majority in Hammersmith & City Railway Co. v Brand LR 4 HL 171 that there could be compensation only for the effects of the construction of the railway and not for its operation. In Lord Chelmsford’s opinion at p. 204, with emphasis added by me, it would be doing violence to the language (“by the construction thereof”) to extend it to any injury:-

In Lord Colonsay’s opinion expressed at p. 214, again with emphasis added by me:-

The clauses we have to construe are, however, couched in language wider than the statutory language under consideration in the line of authority to which I have been referring. This clause allows for an indemnity “in respect of all … claims … in connection with or incidental to the carrying out of the works. The 1973 Act claim arises directly out of the use of the works and the use of the road is an incident of its having been built. It is connected with the carrying out of the work. These are the widest possible words. The judge seemed to accept that saying in paragraph 33:-

I adopt as my test the approach of Lord Steyn in Sirius International Ins. v FAI General Ins. [2004] UK HL 54, [2004] 1 WLR 3251 at paragraph 18:-

What then is the contextual scene? It seems to me to be this:-

Mr Brock Q.C. submitted that the purpose to be served by this indemnity is to cover the Council for the tortious acts of the developer arising from the carrying out of the work. I reject that submission. There would be no need for a contractual indemnity: it is already provided by the Civil Liability (Contribution) Act 1978. The purpose must be wider than that.

In my view construing the clause as a whole the first part is wide enough to include the 1973 Act claim and the second part does not exclude it. The natural order chosen by the parties necessitates the first question to be: “is the 1973 Act within the wide words of the first part?” to which the answer is yes. The fact that it could have been made more plain by including “and use of” is neither here nor there: the claim is within the embrace of the connection with the carrying out of the work. Question 2 follows: “has that wide claim been excluded when it could have been and should have been if that was the parties’ intention?” The answer to that is no. If the parties had wished to exclude claims under the 1973 Act they would have needed an express reference to such claims to bring them within the exclusion clause and those words are not there.

It follows that I would conclude that the 1973 Act claim is within the cover of the agreements and I would have allowed the appeal.