Eastleigh Borough Council v Town Quay Developments Ltd

Eastleigh Borough Council, to whom I shall refer as “EBC”, appeal against that part of the order of Etherton J (now Etherton LJ) dated 12 November 2008, which provides that, on the true interpretation of the second part of the proviso to the reservation of rights and the transfer dated 8 March 1990 (“the Transfer”) could be reasonably withheld. I will set out the terms of that reservation of rights shortly.

The respondents are the prospective developers of part of a site known as The Wildern site which abuts the A334, and that part of the land of which they are developers abuts the land which was the subject of the Transfer, which is referred to either as the neck or the transfer land. The respondents are the claimants in this action; they are the successors in title to the Botley Flour Milling Company Limited (“Botley”), which conveyed the neck to EBC by the Transfer.

The Transfer was executed in the following circumstances. Botley owned land south of the A334 and forming part of The Wildern site. Its land was to be used pursuant to planning applications for industrial purposes. For this purpose it had access on to the A334; other parts of The Wildern site were to be redeveloped as residential property by other parties. These parts of the site would be served by a distributor road to be built to the southwest of the site and subsequently called Turnpike Way. There is a history of concerns about the noise pollution and other disturbance caused to residents, or that would be caused to residents, from the industrial user of the Botley site. However, the planning applications for use of the site were put in and, as I understand it, permission was granted.

EBC entered into two Section 52 agreements with Botley in connection with its planning applications for redevelopment of its part of the site, and it appears that Botley owned another site at a place confusingly called Botley Mill some miles away. There are two Section 52 agreements, one dated 6 March 1987 and one dated 8 April 1989. In those agreements the EBC, amongst other things, acquired the right to require Botley to transfer the neck to it. EBC proposed to build the distributor road across the neck. The transfer of the neck was subject to certain reservations, and I will go directly to the transfer agreement.

The relevant reservation of rights is set out in the judge’s judgment at paragraph 27:

“Exceptions and reservations

The right within the period of eighty years from the date hereof which shall be the perpetuity period applicable hereto (‘the perpetuity period’) to enter on the transfer land for the purpose of laying pipes cables sewers drains and other conducting media and the right thereafter to take water electricity and the appropriate services and to the passage of water and soil through the said pipes cables sewers drains and other conducting media and the right within or without vehicles at all times over the road or roads so constructed PROVIDED THAT the exercise of such rights shall be in accordance with the provisions contained in the Wildern Area Development Brief which was adopted by the Council on 24^th July 1986 and shall be subject to the consent of the Director of Planning and Development of the Council (‘the Director of Planning’) and PROVIDED FURTHER THAT the person or persons exercising such rights shall make good any damage caused thereby.”

It will be seen from that reservation of rights that, in addition to transferring the neck pursuant to the transfer, Botley reserved certain rights to itself and its successors, including the right to lay pipes on the neck of land and the right to enter and construct a road on the neck of land but subject in both cases to a proviso that the exercise of rights was to be in accordance with the provisions of the Wilden area development brief dated 24 July 1986 and to be subject to the consent of the director of planning and development of EBC.

It should be noted at the outset that this reservation contains no express requirement of any kind for the consent of the director of planning and development not to be unreasonably withheld. Such a provision might be thought conspicuous by its absence, especially when compared with the terms of the Section 52 agreement.

These contained at least three requirements that the consent of EBC not to be unreasonably withheld or delayed, for instance in relation to change of use from the specified uses, those being the specified uses as defined in the Section 52 agreements to the grant of planning permission and listed building consent and approval to the constitution of a new museum to be established at the other site near Botley Mill. There were also additional obligations on the council to consider matters reasonably. The Section 52 agreements set out the obligation of Botley to transfer the neck on request by EBC and set out the terms of the reservations, including the provisos, but said nothing about whether the director of planning and development had the right to refuse consent in relation to the laying of pipes and building of roads et cetera on the neck transferred to the council if he wished to do so, or whether he was to have an absolute right for that purpose or whether it was one to be reasonably exercised.

The transfer of the neck was pursuant to the Section 52 agreements but was not for a monetary consideration. Its purpose was, as I have said, to facilitate the construction of the new distributor road. It was subject to excepted and reserved rights, and that is a matter to which I need to return.

EBC now owns the land the subject of the transfer in its capacity as landowner. On 31 October 2005 EBC, in its capacity as local planning authority, refused the first claimant’s application for planning permission for the redevelopment of the site formally held by Botley on the Wildern site as 184 residential units. That application contemplated the building of an access road over the transfer land, and we have been informed by Mr Gaunt, who appears for the respondents, that that was in accordance with the planning guidance issued by EBC.

The first claimant appealed against the refusal. A public inquiry was held in June 2006. Prior to the holding of that inquiry EBC wrote, on 26 May 2006, to those acting for the claimants, informing them that EBC was not prepared to grant use of the council’s land to facilitate the construction of the development or access to the development in the event that planning permission was granted. The letter added that this matter might be reviewed once the issue surrounding the development of the land had been clarified.

The inspector who conducted the inquiry recommended that the appeal should be allowed and the Secretary of State accepted that recommendation by letter dated 19 October 2006. On 9 March 2007 Mr Richard Ward, head of legal and democratic services at EBC, wrote to the surveyors acting for the claimants to inform them that their proposed development did not satisfy the first proviso and that the council’s chief executive did not consent to the claimants exercising any rights of access over the transfer land so that the second proviso was not satisfied either. The proceedings now before this Court were instituted on 9 July 2007 to challenge the legality of that position and to seek declarations that the claimants were entitled as of right to construct an access road to the site across the transfer land.

Before the judge there were four issues. The first issue was whether, under the first part of the proviso, the nature of the development had to correspond to that envisaged by the 1986 brief. The judge answered this question in the negative in favour of the claimants. The second issue concerned the identity of the officer who had to give or refuse consent. The judge found that the proper officer of the council to give or refuse consent, following certain reassignments of job titles and job responsibilities, was the chief executive of EBC. The third issue concerned the question whether there were any restrictions on giving the consent. The judge further found that, on the true construction of the second part of the proviso, the proper officer of EBC could not refuse consent arbitrarily or unreasonably.

The fourth issue was whether consent had in fact been refused unreasonably. The judge held that it had. He held it was irrational on the part of EBC to raise issues which had already been fully addressed in the inquiry.

This appeal is against the third issue alone. We are not concerned with any of the other issues.

On the third issue the judge gave five reasons for holding that a requirement that consent should not be unreasonably withheld on the face of the second part of the proviso; it should be implied. Firstly, he pointed out that the reservation concerned the grant of property rights. Secondly he held that the context was commercial. Botley appreciated that it could not develop its part of the land unless it had rights to connect to the distributor road. If it did not retain the rights, it could be held to ransom at some later stage if it required to access via the neck of land when it wanted to develop the Mill site.

Thirdly, the proviso was made in the exercise of rights subject to a specific planning document, then the 1986 brief, which would have been redundant if consent could be refused by the director of planning development arbitrarily.

Fourthly, the consent required was that of a specific known officer of EBC whose functions, expertise and professional knowledge were reflected in his office.

Fifthly, on EBC’s case the reservation was of no commercial or practical value of the transfer, notwithstanding the reservation had given EBC a potential ransom strip.

The judge went on to examine the terms of the Section 52 agreements. He held at paragraph 120 of his judgment that the terms of those agreements did not underline his conclusion. He noted that the requirement in those agreements for consent not to be unreasonably withheld related to other property of Botley, namely the Botley Mill, not the Mill site on Wildern site. Furthermore he pointed out that in all but one of those provisions consent had to be given or refused by EBC rather than a named officer. The one exception was a provision in Clause 27 of the 1989 Section 52 agreement which was to construct, to the reasonable satisfaction of the council’s director of technical services, a footpath within two years in a designated specified place. The judge held that those provisions did not undermine his conclusion as regards the implication of the implied term.

I now turn to the submissions which have been made to us. Firstly, it is common ground between the parties that there is no general principle of law that, whenever a contract requires the consent of one party to be obtained by the other, there must be a term implied that such consent shall not be unreasonably withheld. In this regard we were taken to the well-known decision of the House of Lords in Tredegar v Harwood [1929] AC 72.

Mr David Mattias QC, who appears for EBC, also accepts that there are cases where such a term can be implied in a clause concerning the granting or withholding of consent, and he has taken us to Cryer v Scott Brothers (Sunbury) Limited [1986] 55 P & CR 183. That was a case where the relevant clause in a transfer of land provided that the transferee should not develop the land unless he submitted building plans to the surveyor for the transferor for approval before building work was commenced. The clause also provided that one dwelling house only should be erected on each plot. With reference to that particular clause this court implied an obligation that the consent could only be withheld on reasonable grounds. Slade LJ at page 195 of the report held that:

“If the construction […] suggested by counsel on behalf of the defendants were correct [namely that it was an absolute power to refuse approval], this would mean that the covenantees could have been in a position, by the arbitrary and capricious withholding of consent of approval of building plans, wholly to have prevented a development of the estate by the covenantors. This cannot, in my judgment, have represented the intentions of the parties to the 1955 transfer.”

As Mr Mattias properly accepts, Tredegar an example of the court implying a term that consent should not be unreasonably withheld. But, as Mr Mattias points out, in some clauses the consent that is provided for is in a general terms, let us say, to a development, whereas in other cases there is a particular requirement for consent to plans. An example of such a case is Cryer, Mr Mattias submits, basing himself on the decision of Vice Chancellor Megarry in Clerical Medical v General Life Assurance Society v Fanfare Properties unreported 7 June 1981, and considered by Slade LJ in Cryer that, where there is a general provision for consent, the court should generally not imply a provision that consent could not be unreasonably withheld; per contra where there was a specific consent to a specific matter as in Cryer  itself, and Mr Mattias further submits that, in this particular case, looking at the reservation in the second part of the proviso to the Transfer creates a general right to give a consent to the exercise of the rights in the reservation. It is not a specific right, for instance, to give approval to plans for the building of the road. Therefore, on his admission, no term as to the manner in which consent was to be exercised should be implied.

Next Mr Mattias argues that this was a covenant given by a servient owner of land with respect to the development of his own land. In those circumstances one would expect a landowner to take a clause which was, in wide general terms, giving him full and absolute power to withhold consent. Moreover, Mr Mattias submits that it was open to the parties to provide expressly that consent should not be unreasonably withheld. They failed to do so, and Mr Mattias naturally places considerable reliance on the terms of the Section 52 agreements. I have already referred in summary to those terms; more details can be found in the judge’s judgment. Mr Mattias rightly points out that comparison of clauses in professionally drawn agreements is a tool to interpretation, and he refers us to the observations of Vinelott J in Pearl Assurance v Shaw [1985] 1 EGLR 92 at page 94, and also to the observations of Mervyn-Davies J in Guardian Assurance Co Ltd v Gants Hill Holdings Ltd [1983] 267 EG 678. Moreover, Mr Mattias seeks to make the argument that, if the director can withhold consent on absolute basis, he can defeat any development which is dependent on access via the neck. Mr Mattias rightly points out that it can always be said that, unless consent is restricted and cannot be unreasonably withheld, an agreement can be rendered ineffective. If that argument were right then the logical provision would be that a provision that consent should not be withheld unreasonably could always be implied, and it is well established that there is no general principle to that effect.

Mr Jonathan Gaunt QC, for the respondent, seeks to uphold the judge’s reasoning. He submits, firstly, that the wording of the proviso is significant. It provides that it is “the exercise” of the rights which is to be subject to the two parts of the proviso. Mr Gaunt submits that it is the manner of exercise, and not the fact of exercise, which is to be subject to consent, and Mr Gaunt refers to paragraph 96 of the judge’s judgment, to which I will turn later in this judgment. Furthermore, the consent required was not of the council but of a particular officer.

Mr Gaunt submits that EBC seeks to frustrate a development for which planning permission has been granted by the Secretary of State following an inquiry and an appeal and to refuse its consent on grounds which were held by the judge to be arbitrary and irrational. He submits that a term that consent will not be arbitrarily withheld is implied where the reservation of the right arbitrarily to withhold approval would defeat the purpose of the grant. The question is whether a capricious or unreasonable withholding of consent would amount to the destruction of the thing granted, and there relies on the Cryer case to which I have already referred. In addition to the passage I have already cited from Slade LJ’s judgment, he refers to the judgment of Waite LJ at [202].

Mr Gaunt further submits that, if the director of planning could refuse his consent arbitrarily, that would render the reservation worthless and the situation would be having a situation where there was no provision for consent at all. In principle the proviso should not be construed so as wholly to defeat the purpose of the grant through which it was intended merely as a qualification. For that proposition Mr Gaunt has cited in his written skeleton argument, the decision of this court in William Hill (Southern) Ltd and Cabras Ltd [1986] 54 P & CR 42. He particularly relies on a passage in the judgment of Nourse LJ at page 48 where counsel, Mr Charles Sparrow QC, made a submission that the court should, as a general rule, construe provisions such as clause 3 in the lease then in issue, which excluded easements not specifically mentioned, so as not to derogate from the grant made for the purpose of using the premises as a licensed betting office and for that purpose only. Mr Sparrow had submitted that the court would not construe a general provision in a lease, particularly in exception, most of all an exception couched in very general clauses such as those in clause 3, so as to take away with the other hand that which has already been granted by the one hand in the dispositive provisions of the lease. Nourse LJ went on to accept that proposition in regard to the construction of express rights.

Mr Gaunt submits that the correct approach is to ask what was the purpose of the second part of the proviso and whether the notion that the consent could be arbitrarily withheld was what the parties intended. In response to Mr Mattias’s submission based on Cryer, Mr Gaunt submits that the power to refuse consent is not in this case a general or unrestricted power; it had to be implied in the proviso that consent could only be refused on grounds connected with the manner in which it was proposed to exercise rights, and the grounds had to be such as to fall within the purview of the functions of the director of development and planning. In any event, the relevant question was whether the test for the implication of terms was met. That would apply irrespective of any implication by reference to the functions of the director of development and planning, and it would be borne in mind that the judge implied a term that consent should not be unreasonably withheld and placed no limitation on those grounds. There has been no cross-appeal against that part of the judge’s judgment.

So far as the Section 52 agreements are concerned, Mr Gaunt submits that the covenants which expressly required consent not to be unreasonably withheld related to other land of Botley and the consent was required to be given by EBC and not by a named officer. Furthermore, Mr Gaunt submits that the cases on leases which have been cited, namely in particular the authorities of Pearl Assurance v Shaw and Guardian Assurance v Gants Hill, do not provide helpful guidance for this case as it is well recognised that the parties are free to agree to absolute covenants in a lease and commonly do, and the refusal of consent, for example, to a change of user does not result in a reserved right rendering the lease ineffective as there would still be a right to continue to occupy the leased premises for the purposes of the original user.

I now turn to my conclusions. I have concluded that the judge came to the right conclusion. In my judgment the first point to be made is that, for there to be a requirement that consent should not be refused unreasonably, a high hurdle has to be met. For the implication of terms, it has to be shown that the implied term is necessary as a matter of business efficacy and that the term is obviously required to give effect to the party’s intention.

In the recent decision of the Privy Council in Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988 Lord Hoffmann made it clear that the process of testing necessity for the purposes of an implied term is not an exercise to be carried out in a manner detached from the reasonable expectations of the parties to the particular agreement being interpreted. Therefore, in determining whether a term is to be implied, the court is in fact engaging in the process of interpreting the contract. The relevant paragraphs of Lord Hoffmann’s speech are paragraphs 21 to 26:

“21.

It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer -- the implied term must ‘go without saying’, it must be "necessary to give business efficacy to the contract" and so on -- but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?

22.

There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is "necessary to give business efficacy" to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word "business", is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman [2002] 1 AC 408 was decided. The second, conveyed by the use of the word "necessary", is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.

23.

The danger lies, however, in detaching the phrase "necessary to give business efficacy" from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case (at p. 459) when he said that in that case an implication was necessary "to give effect to the reasonable expectations of the parties."

24.

The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68:

‘In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men’

25.

Likewise, the requirement that the implied term must "go without saying" is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. Any attempt to make more of this requirement runs the risk of diverting attention from the objectivity which informs the whole process of construction into speculation about what the actual parties to the contract or authors (or supposed authors) of the instrument would have thought about the proposed implication. The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 is celebrated throughout the common law world. Like the phrase "necessary to give business efficacy", it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what the contact would reasonably be understood to mean. But it carries the danger of barren argument over how the actual parties would have reacted to the proposed amendment. That, in the Board's opinion, is irrelevant. Likewise, it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander "Could you please explain that again?" does not matter.

26.

In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was "not … necessary to review exhaustively the authorities on the implication of a term in a contract" but that the following conditions ("which may overlap") must be satisfied:

‘(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract’.”

The whole of the speech given by Lord Hoffmann needs careful study, but those are the particular paragraphs which explicate the test for the implication of a contractual term on the grounds of necessity.

In this case there are, in my judgment, a number of significant pointers which assist the appellant. First, there is no provision that consent is not to be unreasonably withheld. This is so even though the agreements were drafted by professional advisers, and this is so even though the Section 52 agreements did deal with withholding consent. Secondly, one could readily expect that in the normal situation an owner of land would want to have the power to withhold consent on an absolute basis, that is, for any reason that he may consider relevant, if a right has been reserved to put a road on his land or indeed to lay pipes. He would normally want to have an absolute right in that situation.

Thirdly, in the present case the two Section 52 agreements contain several requirements in other respects for consent not to be unreasonably withheld. This makes the absence of a provision for consent not to be unreasonably withheld in this case all the more conspicuous by its absence. The transfer was, after all, executed pursuant to the second of the Section 52 agreements and forms part of the suite of documents executed with respect to this site between Botley and EBC. It is all the more surprising that there should be a restricting of the withholding of consent when one considers that there was a new sub-clause 7 added in the second Section 52 agreement of 12 April 1999. That was the provision dealt with by the judge in paragraph 120 of his judgment to which I have already referred.

Fourthly, the second part of the proviso is, on its face, in wholly general terms, providing that EBC can refuse to give its consent to the exercise of the rights, including, that is, the right to build a road. That proviso is put in purely general terms and thus the implication is that that would be a pointer towards there being no restriction on the manner in which the right to withhold consent could be exercised.

However, there are, as I see it, other more powerful reasons for implying the term which the judge implied. First, and to my mind most importantly, the power to give or withhold consent is conferred upon a public servant. It is conferred on him by the name of his office. It is to my mind inconceivable that the parties thought that it was necessary to provide that his power of consent should be limited to situations in which he was acting reasonably. To my mind, it is unlikely that they thought that he would act in an irrational manner. He has given his power as a public servant to act in a particular way and such a person can properly be expected, and in my judgment would have been anticipated by these parties, to exercise his powers on reasonable grounds.

Secondly, one has to look at the whole circumstances of the transfer. That point is borne out by the passage which I have cited from Lord Hoffmann’s speech in the Belize case. I have recited some of the history and more can be found in the judge’s judgment. As I understand it, the EBC had no particular use for this land save that it wanted to put Turnpike Way across it. The land has a footpath on it but otherwise we understand it to be simply open land and to have been in that condition throughout. It was not, therefore, intended to be transferred to EBC for any particular use or reason, but it is clear that Botley considered that it might want to put a road on the neck at some future point in time or that its successors in title might wish to do so. Otherwise it would not have reserved the right. It obviously did reserve the right and must have done so for a purpose. Botley received no monetary consideration for the right; it was clearly contemplated that it might have a need to connect its site, the Botley site, to Turnpike Way. While development of the Mill site might not be frustrated by lack of access to Turnpike Way, the right which the exception reserved would be entirely frustrated if the director could refuse to give that consent on any ground. It seems to me most unlikely that the parties would have contemplated that the reservation should have been capable of being undermined in this way or that could have been what they intended. This approach is supported by the approach of Slade LJ in Cryer.

Lastly, the relevant clauses in the Section 52 agreements related to other property. It is therefore not unreasonable to suppose that the drafter may have forgotten about the need to provide a restriction on the withholding of consent in relation to the use of transfer land. I appreciate that where a general right to refuse consent is taken, that may be an indication that the right is to be exercised on very general grounds at the absolute discretion of the person in whom the right to withhold consent is vested. But in his submissions Mr Gaunt pointed out that the exercise of rights for the purposes of the first part of the proviso was given a narrow interpretation by the judge: see paragraph 96 of the judge’s judgment. The argument on the first part of the proviso was that the 1986 brief contained no relevant restrictions, but the judge held that those parts of the 1986 brief which were concerned with the manner in which roads and services were to be constructed were applicable for the purposes of the first part of the proviso. For instance, paragraph 6.1 and 6.3 of appendix 5 to the brief required that roads be designed on the basis of the standard specified in the County Council’s document “Roads and Residential Areas”. In that way the judge was able to give content to the first part of the proviso. That part of the judgment has not been appealed. Mr Mattias has not sought to answer these points in any way. That must mean that it is accepted that the expression “the exercise of rights” in the first part of the proviso has a relatively narrow meaning as referring to the manner of the exercise of the rights.

On this basis, then, it would appear that the reservation of consent relates to a specific matter, namely the manner of exercise of the rights, and on that basis that would also be an indication that the consent was not to be withheld unreasonably. However, it is not necessary that that should have been so. In my judgment it is sufficient that in this case the right had been conferred on a specific named officer whom the parties would have expected not to have acted unreasonably, and on all the surrounding commercial circumstances relating to the transfer and to the development of the Botley site.

In my judgment this case is not comparable with the cases such as Guardian Assurance v Gants Hill and Pearl Assurance v Shaw, where there are a long series of covenants in a lease where some are subject to consent which is expressed in absolute terms and some not, and in those cases there may be a significant point to be made in relation to the clauses where consent is described without any restriction on it not being unreasonably withheld, and those are different cases from the present case and in my judgment throw no light on the particular problem which we have to deal with. The particular problem arises out of the exception in the Transfer document and it is a quite different context from the case where there are a long series of covenants in a lease.

For all these reasons I consider the judge came to the right conclusion. I therefore would dismiss this appeal.

I agree.

I also agree.