Patel & Ors v London Borough of Brent

The appellants are trustees of a religious charity, the Swaminarayan Hindu Mission who, in 1990, purchased from the respondent the site of the former Neasden High School (“The Site”) with a view to developing it as a temple, for the purpose of which they obtained planning permission. They subsequently changed their minds and entered into an agreement for the sale of the site to Fairclough Homes Ltd (“Fairclough”) who had obtained planning permission for a housing development on the site on the 17^th December 1992. A condition of that permission was that the appellants should enter into an agreement pursuant to Section 106 of the Town and County Planning Act 1990 (“the Act”). The agreement, also dated the 17^th December 1992, provided by Clause 5 for what was described as a “Highway Improvements Payment”. I will return to the detail of the clause later. But essentially this required the appellants to deposit with the respondent the sum of £550,000 which was to be held by the respondent in a designated interest bearing account from which it would be entitled to draw down the sums necessary to carry out certain highway improvements. The unexpended balance in the account was to be returned to the appellants.

The appellants duly deposited £550,000 with the respondent. Fairclough proceeded to implement the planning permission; and the development was completed in or about September 1994. The respondent provided a certificate on the 21^st October 1994 that the highway works on the site itself had been substantially completed. These were not the highway works envisaged in Clause 5 of the agreement; but the certificate was important for the purposes of identifying the respondent’s obligations under Clause 5. No highway improvements as envisaged by that Clause had been commenced by August 1999. The lamentable history is fully set out in the judgment of Hart J [2004] EWHC 763(Ch) from whose order this appeal is brought. By letter dated the 17^th August 1999, solicitors acting on behalf of the appellants accordingly wrote requesting the return of the deposited sum and the interest that had accrued upon it. There was no response. It was only when these proceedings were threatened in 2000 and the respondent was confronted with the proposed claim that any steps were taken to carry out works envisaged by that Clause.

In the first instance the draft claim, and the claim as issued and served simply asked for the return of the money, plus interest. Events, however, overtook the litigation. The respondent carried out works which it asserted were covered by the provisions of the Clause, and drew down from the account the monies necessary to complete them; the relatively small balance has been returned to the appellants. The claim was accordingly amended to reflect the changed position.

In its amended form it essentially claimed relief under three heads.

It claimed a declaration that the appellants were entitled to the return of the whole of the deposited sum, together with interest, on the grounds that the delay in the carrying out of the works amounted to a repudiation of the respondent’s contractual obligations which had been accepted by the letter of the 17^th August 1999, thereby bringing the agreement to an end;

a declaration that none or only part of the work carried out was work for which, pursuant to the agreement, the respondent was entitled to payment out of the deposited sum, and if only part, an inquiry into the extent of the work which did qualify and its cost and a consequential order for the repayment of such sums as the inquiry showed had been wrongly appropriated by the respondent, and interest; and

in any event, damages for the delay.

The judge concluded that the appellants were not entitled to the return of the deposited sum on the grounds of repudiation; he held that the statutory scheme under which the agreement had been entered into was one which provided its own mechanism for the variation or discharge of obligations under the agreement, which had not been invoked by the appellants. He further held that all the work which the respondent had carried out was work the cost of which it was entitled to recover from the deposited sum. But he held that the respondent was in breach of contract in relation to the delay which entitled the appellants to damages. The appellants appeal against the first two findings of the judge; there is no cross-appeal by the respondent against the award of damages.

The statutory scheme pursuant to which the agreement was made is contained in Part III of the Town and Country Planning Act 1990. Sections 106, 106A and 106B, which were substituted for the original section 106 by the Planning and Compensation Act 1991, provide, so far as relevant, as follows:

The effect of these provisions is that any agreement which is a planning obligation entered into pursuant to these provisions is a covenant which runs with the land, by virtue of section 106(3); but unlike ordinary restrictive covenants, it is excluded from the regime of discharge or modification by the Lands Tribunal pursuant to the provisions of the Law of Property Act, by virtue of Section 106A(10). Instead, those powers are to be exercised in the same way as any other form of planning control by the relevant authority, subject to appeal to the Secretary of State. And by section 106A(1) that is the only method by which a planning obligation may be modified or discharged.

The agreement of the 17^th December 1992 dealt not only with the payment with which we are concerned, but also with highway works within the development and the access from the development onto existing roads, open space works, and other matters of detail. Clause 2.5, referring to the whole of the agreement, provided:

Clause 5 provides as follows:

For the purposes of this agreement, the “Mission” was the appellants; and the “Owner” was either the appellants or any successors in title.

The appellants’ argument in relation to their first claim is that the respondent was in breach of the covenant contained in Clause 5.1. The Certificate referred to was issued on the 21^st October 1994. Not only had no reasonable endeavours been made by the respondent to complete the alterations envisaged by then, but no effective steps had been taken to that end before the 17^th August 1999. The appellants’ submissions are, accordingly, that they were entitled to treat that as amounting to repudiation of the respondent’s obligations under this Clause which they accepted by virtue of the letter of the 17^th August 1999 to which I have already referred. Accordingly the appellants maintain that they are entitled to the return of the whole of the sum which they had deposited pursuant to that clause, and the interest which had accrued on it.

The first and critical question which this raises is whether or not the appellants are seeking in effect a modification or discharge of a planning obligation within the meaning of section 106. If they are, they accept that the only method by which they could have achieved that objective would have been by using the statutory procedure set out in section 106A, and if necessary section 106B. Their submission is a clear and simple one. Their only obligation was to pay £550,000 to the respondent. They have done so. They are not asking for any modification or discharge of that obligation. They have discharged it already. All they are seeking is a declaration from the court in relation to the respondent’s contractual obligations. And if they are right, they submit that the consequence is that the respondent was, from 17^th August 1999, no longer entitled to draw down from the deposited sum, so that the whole sum, plus interest, became immediately repayable.

The judge dealt with this argument in the following passage in his judgment:

In my view, the judge was right. The appellants’ argument is far too simplistic. If they are right, the only planning obligation under Clause 5 was their obligation to pay £550,00 to the respondent. As I have said, it is submitted that the payment of that sum “discharged” their obligations. In so far as that is intended to support the submission that sections 106A and 106B were accordingly of no effect, this seems to me to be flawed in two respects. First, it confuses the contractual concept of a discharge of an obligation by performance with the sort of “discharge” envisaged in section 106A. In the latter sense, it means, in effect, relieving a party of an extant obligation under an agreement made under section 106. Second, it would mean that whatever changes may have taken place in the planning justification for the original requirement to pay the money to the respondent, the appellants would have been unable to obtain any relief under sections 106A or 106B. That would not, in my view, make any sense in planning terms.

The reality is that the planning obligation created by Clause 5 of the agreement was more complex. It involved, as it says, the “deposit” of a sum of money with the respondent to be held by the respondent for certain purposes. As the appellants themselves recognised, indeed argued, this creates a form of trust. The appellants remained the beneficial owners of the money unless and until it was drawn down, but were precluded from exercising their rights of ownership so long as the trust remained in place. It follows that their obligation was not merely to deposit the money, but to permit the respondent to use it for the purposes of the trust. It was, accordingly, an extant planning obligation at all relevant times. That being so, section 106A(1) precludes the appellants from seeking the discharge of that obligation, in the sense envisaged by the Act, under the guise of their claim that the respondent has repudiated the agreement.

Turning to the second basis upon which this appeal is brought, this arises out of the nature of the junction referred to in Clause 5.1. Neasden Lane North is the main road, which Quainton Street, which is the street onto which the traffic from the development emerges, meets at right angles. In 1992, this was an uncontrolled junction. Opposite the mouth of the junction, but off-set to the right is the mouth of the junction between Neasden Lane North and Braemar Avenue. Because of the position of the mouth of the latter junction, the two junctions do not form a true cross-roads; and the judge concluded that they were two separate junctions for the purposes of the agreement. The relevance of that point is that the highway improvement in fact put in place and in respect to which the respondent drew down from the deposited monies was a scheme involving traffic lights controlling traffic movements into and out of both Quainton Street and Braemar Avenue. The appellants submit that the respondent was only entitled under the agreement to draw down money in respect of works to the junction with Quainton Street; the respondent submits that the whole scheme properly falls within the terms of Clause 5.

At the trial the judge heard evidence from two expert highway engineers, Mr Walker on behalf of the appellants, and Mr Bird on behalf of the respondent. Mr Walker, in his evidence, divided up the various works that were in fact carried out into those which could properly be described as relating to the junction with Quainton Street, and those relating to the junction with Braemar Avenue. He agreed, however, that the scheme as a whole, including the work which he considered related solely to Braemar Avenue, was an application of best practice once it was decided to improve the junction at Quainton Street. The judge said:

In order to determine whether or not the judge was correct in coming to this conclusion, it is necessary to look with some care at clause 5.1. It is not happily worded. The works in respect of which the respondent was entitled to draw down the money are described in two separate phrases:

“highway improvements and/or traffic management measures necessary to improve access arrangement to/from the site comprising alterations to the junction of Neasden Lane North and Quainton Street”, and

“which in the opinion of the engineer are necessary in the interests of highway safety and the free flow of traffic…”

The effect of these two phrases is, in my view, to require the work for which the respondents were entitled to draw down to meet two separate criteria. The first is one which requires the works to be “necessary to improve access arrangements,” and “necessary in the interest of highway safety and the free-flow of traffic”. These are clearly matters to be determined by reference to highway engineering standards. The second is descriptive, in that the works must properly be described as “alterations to the junction of Neasden Lane North and Quainton Street”. The word “comprising” seems to me to be a word of limitation; and accordingly the work must be work done to and for the junction of Quainton Street and not work done to and for the junction with Braemar Avenue.

It is said on behalf of the respondent, that the appellants accepted before the judge that this did not mean that the work had to be physically on the junction but could extend beyond its physical confines. It is pointed out that the appellants accepted that the respondent was entitled to draw down in respect of the cost of moving a bus stop which was situated on Neasden Lane North opposite the mouth of the junction with Quainton Street further up Neasden Lane North. It follows, says the respondent, that provided the work is connected in some way with that which was necessary to improve the junction with Quainton Street, that is sufficient to entitle the respondent to draw down in respect of that work.

In my view, this argument goes too far. Clearly there may be parts of the work with a dual function, and in so far as it does have a function in relation to the junction with Quainton Street, then it would fall within the ambit of the clause. But other work, which was identified in Mr Walker’s evidence, was said to be work relating solely to the Braemar Avenue Junction. That work cannot, in my view, be covered by the wording of the Clause, merely, as the judge concluded, by the fact there was a highway engineering justification for making that work part of the overall scheme. That seems to me to confuse the two separate criteria which I have identified as being necessary for the work to be work to which the clause applies.

In these circumstances, I consider that the judge was wrong to conclude that all the work in fact done was work as to which the respondent was entitled to draw down out of the deposited sum. We, however, have not heard either Mr Walker or Mr Bird. This issue was not the subject matter of any findings by the judge, because of the view that he took as to the proper meaning of the Clause. Whilst there is material in Mr Walker’s report which indicates what he considered to be work which fell within the ambit of the clause, that has not been the subject of forensic examination, as I understand it. In my judgment the only sensible course is for the appeal to be allowed on the basis that there be an inquiry by a Master as to the extent of the work which qualifies on my interpretation of the clause and for the Master to make such consequential orders as arise as a result of his findings.

I agree

I also agree