Centrica Langage Ltd v Langage Energy Park Ltd

MR JUSTICE PATTEN: This is the full interpartes hearing of an application by the claimant, Centrica Langage Limited, for injunctive relief to enable them to enter the defendant’s land at Plympton, Devon, in order to construct the southern section of an access road that is designed to serve both the claimant’s own power station development site and also the defendant’s development of a business park on its adjoining land.

I set out the factual background to this dispute in the judgment that I gave at the first hearing of the application on 4 April when I granted limited relief designed to enable the claimants to complete the remaining stages of what has been described as the northern section of the access, or spine road, as it is referred to in the planning documents and the agreements between the parties. Those remaining works were in the context of the project as a whole de minimis but were necessary in order to enable the claimant to obtain access to its own site from the public highway known as Holland Road. The defendant does not accept that that injunction was rightly granted but the issue on the full hearing has been confined to the question whether the claimant is entitled to enter the defendant’s land in order to complete the southern section of the road.

The defendant says that this has been treated by the parties, in effect, as a separate operation and is of particular concern to it. Unlike the northern section, it will not be adopted as a public highway, and it will be potentially liable for any loss or damage to third parties from any defects in its construction. It has decided, in effect, to take a stand on what it alleges are continuing breaches by the claimant of the co-operation agreement between the parties, the effect of which, it contends, is to suspend the operation of the licence granted to enter its land by clause 14 of the agreement or, on one view, to prevent it ever having come into effect.

The claimant says it is now too late to take that decision and that it has a valid and enforceable licence to enter the defendant’s land. The defendant’s only remedy for any continuing breach of the agreement is one in damages.

It is enough by way of background to say that the claimant and defendant, who were once subsidiary companies in the same group, combined their efforts in about 2004 to seek and obtain planning permission for the developments. The claimant’s land is to become a power station and the defendant’s adjoining land a business park described in the documents as an energy park. The strip of land belonging to the defendant that adjoins the claimant’s land is to be used as the site of the spine road. The northern section from Holland Road up to a bellmouth entrance to the claimant’s site is substantially complete and is not in issue today. But beyond that entrance the site of the remaining section of the proposed road is undeveloped but for certain preparatory works, and, in particular, will require the ground level to be progressively increased up to the level specified in the planning permission. For this purpose, the claimant intends to use spoil from its own development site, which it needs to extract in order to reduce or alter the levels upon that site as part of its own development operations. Its preferred method of operation is to remove the spoil directly from its own site onto the site of the road. As part of this process, a dip or gully, which exists between the claimant’s land and that of the defendant, will be filled in and a stream placed in a culvert. This method of directly transferring the spoil from one site to the other will save the cost of removing it to another location by road, and then re-importing it by road at a later date.

The claimant’s evidence is that this would add as much as £600,000 to the cost of the works and would also necessitate the construction of a temporary retaining wall on or near the boundary between the claimant and defendant’s land in order to contain the spoil while the claimant’s site is being levelled. This alone could cost up to £100,000.

Added to this, the claimant says that the numerous lorry movements involved in moving the spoil by road would be bound to cause nuisance and annoyance to persons living locally, which ought to be avoided.

But, whichever method is adopted, the construction of the road will require the claimant to obtain access to that part of the defendant’s land that is designated as the site of the spine road. Construction of this road was required as part of the planning conditions governing permission to develop the claimant’s and the defendant’s sites. The site of the road was itself the subject of two separate planning applications and grants of permission. The first, in September 2006, was limited to the northern section of the road and the second, in December 2006, covered the whole of the spine road including its southern section. These planning permissions, and in particular the second one, were obtained as part of an agreement entered into between the claimant and defendant on 20 April 2004 to govern the construction of the spine road.

It is this agreement, referred to as the co-operation agreement, which contains the licence for the claimant to enter the defendant’s land in order to construct the road, that is at the heart of the dispute in this litigation.

The claimant’s position is that it has, at this point in time, a licence, which it is entitled to use, to enter the defendant’s land in order to carry out the construction of the southern section of the road. The defendant disputes this, and in March it erected gates and fences at various locations along the boundary and on the site of the spine road, which physically prevented the claimant and its contractors from entering that land in order to carry out the work.

The claimant has applied for a mandatory injunction compelling the defendant to remove these obstacles so as to allow the work to continue.

The obvious point, therefore, at which to begin is the cooperation agreement itself. This agreement, as is evident from its contents, was entered into to govern the whole of the development of the power station and of the defendant’s own business park, together with the spine road.

The agreement begins with various defined terms, including service media, spine road and spine road landscaping. Clause 2.1 of the agreement provides that the deed is intended to establish a framework between the parties to facilitate their respective developments of the energy centre and energy park, and goes on to say that, subject to the specific provisions of this deed, each party shall co-operate with the other and act reasonably at all times to assist and facilitate the other’s development.

The provisions concerning the spine road as opposed to the other parts of the development scheme are contained in clause 14 of the agreement. Clause 14 begins in clause 14.1 with an acknowledgement that, at the date of the agreement, detailed planning permission for the spine road service media, landscaping and the spine road itself had not yet been obtained, and goes on to provide that, subject to complying with clause 14.2 of the agreement, and also with subclauses 14.3 to 14.9, the claimant should submit what is defined as a spine road application, ie, an application for permission to construct the road.

Clause 14.4 of the agreement grants a specific licence to the claimant solely for the purpose of preparing that application, and 14.5 sets out a number of provisions, the gist of which is that the defendant should be kept informed of the progress of the application and consulted in relation to it. There are then detailed provisions dealing with what should take place in the event that the application is either refused or called in or is subject to proceedings for judicial review.

That then brings one to the critical provisions, which are those contained in 14.10 of the agreement. This provides as follows.

It is common ground that the requirement set out in 14.10 that entry on the relevant land of the defendant is necessary in order to carry out and construct the spine road in accordance with the planning conditions and other obligations is satisfied in this case. There is certainly no issue about that. But the provisions governing the method of constructing that road are contained in the separate subclause 14.16 together with the provisions of schedule 5, which are incorporated by reference into that subclause.

Interpretation

In this Schedule unless the context otherwise requires:-

WPL’s Obligations

WPL shall at its own cost and upon the terms of his Deed procure that the Works are carried out in accordance with the Specifications, the Planning Permission the Deemed Permission the Energy Centre S106 all applicable British Standards, in a good and workmanlike manner and in all respects in accordance with the terms of the Building Contract.

WPL shall comply with the Statutory Requirements and shall give all notices required by them.

WPL shall employ the Contractor and the Professional Team in relation to the Works.

WPL shall procure that the Works are completed to the stage necessary to enable the Date of Practical Completion of the Works to occur not later than 12 (twelve) months after commencement of the construction of the Works:-

In relation to insurance:-

Until the date of issue of the Certificate of Practical Completion WPL shall procure that the Contractor shall insure or cause to be insured the Works in accordance with the Building Contract;

WPL shall procure that the Contractor maintains until the Date of Practical Completion insurance cover in respect of injury to persons or property pursuant to the Building Contract;

WPL shall forthwith upon demand supply LEPL with full information as to the performance of its insurance obligations pursuant to this Paragraph 1.5.

Variations

WPL reserves the right, at its cots, to substitute materials and fitments of similar quality to those contained in the Specification in the event that such materials and fitments shall not be procurable within a reasonable time or at reasonable cost and if such right is exercised the Specification shall be deemed to be varied accordingly.

WPL may deviate from the Specification:-

if recommended by the Employer’s Representative and LEPL has given written consent (not to be unreasonably withheld or delayed); or

if required or recommended as a result of any of the Statutory Requirements.

Any variation or deviation referred to in paragraphs 3.1 and 3.2 may only have effect if it complies with the end of Statutory Requirements.

Information

WPL shall provide LEPL with such information as LEPL may reasonably request regarding the Works and the progress thereof and shall provide to LEPL copies of any plans, drawings, documents and other information reasonably requested by LEPL in that connection.

WPL shall procure that LEPL are given adequate notice of and are permitted to attend all meetings between WPL and/or the Employer’s Representative with the Contractor and/or any members of WPL’s professional team in relation to the Works. LEPL through LEPL’s representative may make representations or comments in relation to the Works but any such representations or comments must be addressed only to WPL.

If LEPL notifies WPL of any alleged defects or alleged failure to carry out the Works in accordance with the provisions of this Deed WPL shall use its reasonable endeavours to procure that the Contractor shall (where such allegation is accepted by the Employer’s Representative having regard to this Deed) as soon as reasonably practicable cause the same to be made good to the reasonable satisfaction of LEPL.

Practical Completion

WPL shall give to LEPL at least five Working Days notice of the date and time of the Employer’s Representative proposed inspection of the Works for the purpose of issuing the Certificate of Practical Completion and shall afford LEPL’s representative all reasonable facilities for accompanying the Employer’s Representative on such inspection.

LEPL shall be entitled to make representations and comments in accordance with Paragraph 3.2 of this Schedule.

The Employer’s Representative shall be entitled to issue the Certificate of Practical Completion notwithstanding the existence of any Minor Defects. WPL shall provide to LEPL a copy of the Certificate of Practical Completion as soon as practicable after issue.

WPL shall, immediately after the issue of the Certificate of Practical Completion, procure the clearing away and removal from the Energy Park of all constructional plant, materials, rubbish and temporary works of every kind used for or accumulated by reason of the carrying out of the Works (except such as are needed to make good and Minor Defects) and shall make good any damage caused by such clearance and removal.

Notwithstanding the issue of the Certificate of Practical Completion WPL shall remain liable to LEPL to procure the making good of any Minor Defects as soon as practicable and in doing so shall use every endeavour to minimise interference with the use of the Works for their intended purpose.

WPL’s Liability Following Practical Completion

Collateral Warranties

The defendant says that the claimant is in breach of a number of provisions contained in clause 14.16 and schedule 5. The first complaint relates to the application for planning permission, and it is said that the defendant was not sufficiently consulted in relation to that application. But Mr Underwood has not asked me to concentrate on that particular aspect of the case today, and that dispute, so far is necessary, can be dealt with by the trial judge.

The relevant alleged breaches for purposes of today are as follows. Firstly, it is said that there was no agreed timetable for the carrying out of the works as required by clause 14.16.4; secondly, that there was no scheme and detailed specification that had been prepared and previously agreed in writing by the defendant prior to the commencement of the works as required by clause 14.16.5; thirdly, it is said that the building contract for the spine road with ALSTOM has not been approved by the defendant as required under the provisions of schedule 5, in particular paragraph 1 of that schedule. I interpolate that that is accepted. Similarly, the contractor itself is not one whose identity has been approved prior to the commencement of the works as required by schedule 5 paragraph 1.3.

Next it is said that nomination and prior approval for the employer’s representatives, which is a requirement under the section 106 agreements as incorporated under paragraph 1 schedule 5, has not taken place. Finally, and this is, of course, linked to the approval of the building contract and the contractor, no collateral warranties have been provided by the contractor and other professionals as defined in accordance with schedule 5 paragraph 6 of the agreement.

Some of these breaches, for example, the failure to gain approval of the building contract and contractor and to provide the collateral warranties prior to commencing work, are admitted. Others of the alleged breaches are in dispute. But Ms Jackson’s primary submission is that none of this really matters for the purposes of today’s application. She submits that, on its true construction, clause 14.10 is not conditional in any sense on the proper performance of her client’s obligations under clause 14.16 or any other part of the agreement but is, in effect, a standalone provision that entitles the claimant to enter the defendant’s land according to its terms. She contrasts the drafting of it with, for example, clause 11.17, where a licence to enter the defendant’s land to carry out landscaping works in the event that the defendant fails to do the work itself, is made expressly subject to various conditions such as the giving of notices.

Her case is that a breach, for example, of the obligation to provide warranties, gives rise to a claim in damages, and may, if appropriate, justify an injunction or order for specific performance to compel compliance. But non-compliance does not prevent or delay the commencement of the licence under clause 14.10.

For the defendant, Mr Underwood accepts that if this construction of the agreement is correct then the defendant cannot resist the injunctions that are sought. But he submits that such a construction, which requires the defendant to take its own proceedings for injunctive relief in order to enforce the obligations that ought to be performed prior to the commencement of the works, makes no commercial sense and is not justified by the language of clause 14.10. The licence is, he submits, dependent upon the relevant obligations of the claimant having been complied with. That is what the word “construct” means.

The issue of construction is clearly fundamental on the claimant’s argument to the outcome of this application and determines what issues have to be decided in relation to the enforceability of the licence. If the claimant is right, then the application must succeed. If the defendant is right, then the claimant has no licence to rely on unless it can show that the defendant has in some way waived or otherwise lost the right to insist upon the prior performance of the claimant’s obligations under clause 14.16.

Neither party has suggested that there is significant material not currently available to me that seriously affects the question of construction. I consider that I ought, therefore, to form a view on the point in order properly to determine this application.

The view I take is that the defendant is right in its submission that the licence is dependent upon compliance by the claimant of at least those of the obligations as are expressly required to be performed prior to the commencement of the works. Although not drafted in terms as expressly subject to the provisions of clause 14.16, clause 14.10 grants to the claimant a licence to enter on those parts of the defendant’s land as are necessary to construct, and that is the word used: the spine road. The construction of the road is governed by clause 14.16, which, with schedule 5, contains a number of obligations, some of which have to be carried out prior to the commencement of the works, whereas others are ongoing.

In the case of most of the prior obligations, which are the approval of the building contract and contractor and the agreement of the detailed specification of the works, the defendant is not given a veto and cannot unreasonably withhold or delay its consent. In the case of the warranties, the claimant has to deliver them in advance.

These obligations were considered to be fundamental to the project, and doubtless that is why the parties agreed that they should be attended to before any work began, subject to the proviso about the unreasonable withholding of consent or delay. To suggest that the claimant could simply ride roughshod over the defendant by refusing to negotiate with the defendant about the identity of the contractor, the terms of the contract and the specification for the works and then nonetheless be entitled to enter the defendant’s land in order to carry out those works is not attractive and is not a realistic construction of the agreement.

Unless and until those obligations are complied with, the claimant has no licence available to it. The licence is one to construct the road which must mean in accordance with the other terms of the agreement, nothing else. The claimant’s remedy if the defendant acts unreasonably is either to go to the expert under clause 22 or to the court, or to go ahead on the basis that, by acting unreasonably, the defendant has lost its right to object.

In the light of my judgment about construction, it is therefore necessary to consider the claimant’s alternative case, which is that, even if the licence is conditional on performance of some of the prior obligations, they have either been performed or the defendant has waived its right to insist on that prior performance as a condition of the licence.

Although the defendant relies on a number of breaches of the co-operation agreement by the claimant, the general thrust of the claimant’s case is that the work to the spine road began late last year and has continued in the full knowledge by the defendant of these breaches. The defendant must, therefore, it is said, be taken to have waived its right to insist on prior compliance.

It is not, therefore, necessary to consider each and every alleged breach relied on in order to test this proposition. I propose to concentrate on what seem to me to be the three most important ones: the failure to obtain the defendant’s approval to the building contract or contractor before awarding the contract and commencing the works, the failure to agree a specification, and, thirdly, the failure to provide the collateral warranties.

I deal first of all with the failure to obtain approval of the building contractor and the contract and the failure to provide the warranties. The evidence is that the claimant has been on the defendant’s land since September 2006 although planning permission for the southern section of the road was not granted until December 2006. On 19 July 2006 there was a meeting at which it was agreed that the claimant should go ahead and seek planning permission for the southern section. By that time, ALSTOM had been nominated as the main contractor, and, subsequently, separate subcontracts were awarded for the northern section and the southern section of the road, Balfour Beatty being awarded the contract for the northern section and Kier the contract for the southern section.

On 17 October 2006, Pinsents, the defendant’s solicitors, wrote to Ashurst, the claimant’s solicitors, making it clear that access was only being granted on the basis that clause 14 would be complied with. The letter included a reference to the need to approve the building contract and a complaint that the contract had not even being shown to the defendants, let alone had they been asked to approve its contents. The letter also asks for collateral warranties to be provided in accordance with the agreement. The defendant, Pinsents said, was not prepared to allow the situation to continue and they asked for the work to cease until the position was rectified.

On 24 October, Ashurst replied. Their letter explains that schedule 5 cannot in terms be complied with because of the type of contract that had been awarded. The same position is adopted in relation to the warranties. They make the point that the defendant has been aware of the identity of the contractor for some time, which is true, but the letter does not in terms attempt to acknowledge the breach of contract or to suggest any particular way around this problem. On one view, the defendant was told quite simply that it had to accept the position as it obtained. In fact, the defendant did not then seek to prevent the claimant from entering its land.

At a co-ordination meeting on 17 January 2007, the defendant’s representatives said that they had chosen not to enforce what they described as a statement in Pinsents’ letter of 17 October. There was discussion about the provision of warranties by PB Power, the designers of the northern section of the road. But the defendant’s representatives are recorded as saying that they were looking for a warranty from Centrica’s parent but that this could only be accepted as part of what is referred to as an overall cure.

It is clear from the facts and matters that I have just referred to that the claimant’s earlier entry on the defendant’s land was in no way dependent on the defendant having represented or agreed to waive the provisions of clause 14 or schedule 5 prior to 17 January. But Ms Jackson says that the project has continued and that there have been a number of meetings at which the warranties, for example, have been discussed and attempts have been made to agree an alternative solution. She says that, by a meeting on 28 February 2007, there was agreement on the principle of the warranty from the parent company, and that this amounted to a contractual variation of the co-operation agreement. In any event, it was an acceptance of the position.

Mr Underwood says that there is no material to support a contractual variation of the contract and that throughout January 2007, and perhaps beyond then, there continued to be discussions between the solicitors about the form of warranties and the identity of their giver without anything being finally agreed.

Ms Jackson’s submission is that it is now too late for the defendant to withdraw the temporary consent it gave under cover of Pinsents’ letter of 17 October, and that it has waived its right to be able to approve the contract or the contractor before works begin or to insist on a warranty from a contractor as described in the co-operation agreement. In October 2006 or before that, the defendant was put to its election whether or not to insist on strict performance of the contract, and it decided, she says, to let the claimant go ahead.

The legal consequence of that is that there has been either a unilateral waiver of those rights or a waiver by election to allow the scheme to go ahead. The breach by the claimant of the provisions of schedule 5, for example, in relation to the approval of the contractor and the provision of the warranties, is admitted, but the truth is that the defendant has never been shown the contract, let alone asked to approve it. There is no question, therefore, of it having unreasonably withholding its consent arises, and, as I have already indicated, the claimant’s case is not put on that basis

The issue for the trial judge will be whether, by failing to take immediate legal action in October 2006, and instead, by attempting to find a way round the problem in negotiations, the defendant can be said to have waived its strict legal rights. Clearly, by negotiating, a party is not ipso facto to be taken to have waived its right to insist on performance of the existing contract. Until a variation of the contract is contractually agreed, matters remain at large. But, in this case, there are additional factors, such as what was said at the meeting on 10 January 2007, that the trial judge will, obviously, have to take into account.

The other matter that I need to mention is the alleged failure to provide and to obtain agreement of the scheme and detailed specification. The claimant’s case on this is different. It says that it is not in breach. The drawings and other material were sent to the defendant on 22 February 2007 and again on 1 March. In his letter of 6 March Mr Jarvis of Centrica acknowledged that the design detail of the culvert had not been finalised but said that Centrica felt that the information provided was enough to allow preliminary works to begin, involving, for example, site clearance, place fill and excavation.

On 13 March Mr Shields of the defendant company sent an email to Mr Jarvis saying that there were no problems with most of the aspects of design, including the horizontal and vertical alignment of the road. Details of the kerbing had not been provided but this was subsequently rectified. By then, however, the gates and fences had gone up.

In their letter of 24 March, Pinsents identify a number of issues including the claimant’s failure to provide temporary drainage plans to deal with surface water and run-off. On 29 March Mr Jarvis wrote to Mr Shields and referred him to the method statement of 23 February already supplied, which sets out the contractor’s proposed way of dealing with the drainage problems.

The defendant says it is still considering this and is carrying out its own tests. The claimant says that it has had enough time and is unreasonably withholding its consent. This is also clearly a matter for the trial. It cannot be resolved on this application but it is clearly a serious issue to be tried that the defendant may be dragging its feet.

I turn now to the issue of injunctive relief. The claimant says that it has at least an arguable case that there has been a waiver of the relevant provisions of the contract in relation to the prior approval of the building contract, contractor and the provision of warranties, and also that the defendant is unreasonably refusing to agree the specification. Both issues are obviously seriously arguable but are not capable of being resolved on this application. This is a classic case of where, to use the words of Lord Diplock in the case of American Cyanamid Co v Ethicon Ltd [1975] 2 WLR 316, it is not possible to try the case on the basis of contested allegations in affidavits or witness statements.

The question therefore arises as to whether in these circumstances injunctive relief should be granted pending the trial of the claim. The first issue is whether damages would be an adequate remedy. The evidence indicates that work to the claimant’s site can still proceed although at much greater expense and inconvenience if no injunction is granted. It is also accepted that the defendant is good for any award of damages in the kind of sums described earlier in this judgment.

Although I have been asked to take into account wider issues such as the effect of lorry movements on local residents, I am not, in the end, persuaded that this should alter the view I take on this issue. There is clearly the possibility that local residents may be adversely affected but there is no restriction on movements as such in the planning permission and the precise scale of disruption is currently uncertain. If the licence does exist, then clearly it should be enforced at the trial. The claimant’s right to enter the defendant’s land is at issue, and, without being able to enter it, the claimant cannot construct the road. Without the road, the planning permissions granted in respect of the due developments cannot be complied with. This is not just a question of being able to do the work to the spine road in a more or less expensive way. On the defendant’s case, the position is that the claimant cannot do it at all. If the defendant is wrong about that, then clearly damages would not be an adequate remedy at the trial, and an injunction would have to be granted.

But the additional cost involved in not being able to carry out the development as planned between now and the trial is something that can adequately be compensated for by an award of damages at trial if it turns out that the claimant is correct in its contentions.

Although the extra costs are not insubstantial, the claimant’s loss could be adequately compensated for by an award of damages to cover what should be a limited period until a trial in a few months’ time.

There is no evidence on which it can be safely inferred that the delays and inconvenience that will be involved will have a serious or permanent effect on the scheme for the construction and commission of the power station as a whole. The real disadvantage in not granting an interlocutory injunction at this point in time is the extra cost and inconvenience to the claimant, which I have described.

On the other hand, it is difficult to see how damages are really an adequate remedy for the defendant if the injunction is granted and it subsequently turns out that the claimant is not entitled to it. The defendant will have lost its contractual right to obtain warranties as a condition of the license and so be able to control the development. It must be seriously arguable that damages would not adequately compensate for that.

The other issue that I have to consider, assuming that I am wrong in relation to the adequacy of damages as a remedy, is whether an injunction is an appropriate remedy at all at this stage. The claimant says that I should on Cyanamid principles attempt to preserve the status quo, which Ms Jackson says was the position before the fence was erected, i.e. with the claimant being able to carry on the work.

But the substance of the dispute between the parties is whether the claimant has a relevant licence, and the fence is merely a practical expression of the defendant’s resistance to that argument. It seems to me that this is not a case, like Cyanamid itself, in which the claimant was attempting to prevent an infringement of its existing patent, and the balance of convenience clearly favoured preventing a possible infringement until the matter was resolved at trial.

The substance of this case is a claim by the claimant, in effect, for specific performance of the agreement on the basis that it has a clearly enforceable licence. The defendant has, at the very least, a seriously arguable defence to that claim based on the claimant’s admitted breach of contract. It would not be right to compel the defendant to allow the claimant to enter its land until this dispute is resolved at an early trial. The defendant can pay any damages if wrong, and, if right, the effect of an injunction would be to deprive the defendant permanently of its contractual rights.

I am not, therefore, for these reasons prepared to grant any further injunctive relief today but I will give directions if the parties wish me for a speedy trial.

I will order that the claimant should have the costs of the first application and the defendant shall have the costs of the second application, subject to detailed assessment at the end of the trial.