Highways Act 1980 — Section 38 agreement — Indemnity clause — Town and Country Planning Act 1990 — Section 106 agreement — Indemnity clause — Developers agreeing to construct roads forming bypass — Developers agreeing to indemnify highway authority in respect of all claims — Whether indemnity clause covering claims for compensation under Part I of Land Compensation Act 1973
The appellant highway authority proposed to construct a bypass at Chippenham. The respondent developers, in connection with the grants of planning permission for a development in the area, entered into agreements with the appellants to construct roads that would form the bypass. Two agreements were made under section 38 of the Highways Act 1980, whereby the appellants were required to adopt the constructed roads, and a third was made under section 106 of the Town and Country Planning Act 1990. The two section 38 agreements contained an indemnity clause in the same terms; the respective developer agreed to indemnify the appellants “in respect of all actions, claims, demands, expenses and proceedings arising out of or in connection with or incidental to the carrying out of the works other than those arising out of or in consequence of any act, neglect, default or liability of the council…”. The equivalent clause in the section 106 agreement was in similar terms. The appellants received claims for compensation, under Part I of the Land Compensation Act 1973, in respect of alleged depreciation in the value of the claimants’ properties owing to physical factors resulting from the use of the roads. The appellants’ contention, that, under the indemnity clauses of the three agreements, they were entitled to be indemnified by the respondents in respect of these claims, was dismissed by Judge Iain Hughes QC, sitting as a deputy judge of the High Court. The appellants appealed.
Held: The appeal was dismissed.
Per Clarke and Neuberger LJJ: Although, as a matter of ordinary language, the clause could bear the meaning for which either party contended, the narrower construction advanced by the respondents, which excluded liability to the appellants in respect of the Part I claims, was to be preferred. The words of the clause more aptly applied to claims that arose directly from the execution of the road works, rather than from the consequences of the execution. The agreements limited the liability of the respondents to a period prior to adoption of the roads as highways maintainable at public expense. Since the roads were intended to form part of the bypass, the respondents could not have been expected to assume the appellants’ statutory liability in respect of the Part I claims without clear words. The statutory context of compensation liability, in respect of the execution and use of public works, was one of limited liability, and that context was relevant. If any liability were to arise under the first part of the clause, it would be excluded by the second part.
Per Ward LJ dissenting: Although the parties would have been aware of the statutory context of limited liability for claims for compensation in respect of the execution and use of public works, the indemnity clause used broader language. Construing the clause as a whole, the first part was sufficiently wide to include claims under Part I of the 1973 Act, and the parties could have, but did not, exclude such claims.
The following cases are referred to in this report.
Argyle Motors (Birkenhead) Ltd v Birkenhead Corporation [1975] AC 99; [1974] 2 WLR 71; [1974] 1 All ER 201; (1973) 27 P&CR 122; 72 LGR 147, HL
Hammersmith & City Railway Co v Brand (1869) LR 4 HL 171
Sirius International Insurance Co (Publ) v FAI General Insurance Ltd; sub nom Sirius International Insurance Corp Ltd v FAI General Insurance Co Ltd [2004] UKHL 54; [2004] 1 WLR 3251; [2005] 1 All ER 191; [2005] 1 All ER (Comm) 117; [2005] 1 Lloyd’s Rep 461; [2005] Lloyd’s Rep IR 294
Wildtree Hotels Ltd v Harrow London Borough Council [2001] 1 AC 1; [2000] 3 WLR 165; [2000] 3 All ER 289; (2001) 81 P&CR 9; [2000] 2 EGLR 5; [2000] 31 EG 85; [2000] RVR 235
This was an appeal by the appellants, Wiltshire County Council, from a decision of Judge Iain Hughes QC, sitting as a deputy judge of the High Court, dismissing the appellants’ claim for declaratory and other relief in respect of three agreements made between the appellants and the respondents, Crest Estates Ltd, Crest Nicholson Residential plc and Langtree Property Co Ltd.
Timothy Straker QC (instructed by the legal department of Wiltshire County Council) appeared for the appellants; Jonathan Brock QC (instructed by Davies Arnold Cooper) represented the respondents.
Giving the first judgment, Neuberger LJ said:
[1] This is an appeal, brought with the permission of Jacob LJ, by Wiltshire County Council (the council) against a decision of 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 that related to the construction of parts of the Chippenham West bypass (the bypass), which was built over the period between around 1993 and 2000.
[2] 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 was and is in a substantial way of business in property development, in particular the building of residential properties.
[3] In the 1980s, Crest became interested in carrying out substantial residential development on a number of sites to the west of Chippenham. With a view to obtaining planning permission for such developments, it 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, they had a substantial interest, in their capacity as the local highways |page:20| 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 it was granted planning permission for its proposed developments.
[4] 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 being desirable for the purposes of delivering safe and convenient high-speed links 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.
[5] Under each of the three agreements, Crest agreed to construct a road, or roads, that, 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.
[6] Given that it is common ground that the issue raised in this appeal is to be resolved in 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 are the local highway authority, and that Crest is the owner of land that includes the site of a proposed road, or roads, that it wishes 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 are 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.
[7] By clause 2, Crest covenanted 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.
[8] Clause 6 is the centrally relevant provision for present purposes, and it is in these terms:
[Crest] hereby indemnifies the Council in respect of all actions, claims, demands, expenses and proceedings arising out of or in connection with or incidental to the carrying out of the works other than those arising out of or in consequence of any act, neglect, default or liability of the council.
[9] 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 upon Crest to “maintain the works” for “the maintenance period”, that is, until the expiry of one year from the date upon which the works are certified as being completed by the council (albeit that the council are to be responsible for routine maintenance of lights and traffic signs during that period).
[10] By clause 12, Crest is to make good any defect in the road that is discovered during the maintenance period, and, once that is done (and provided that 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 has been 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”.
[11] The point that divides the parties concerns the construction of clause 6 of the agreement. It is encapsulated in the preliminary issue, which raises the question of whether “the indemnity contained [in clause 6 of the agreement] cover claims for compensation against the [Council] pursuant to Part I of the Land Compensation Act 1973”.
[12] 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:
If any person claims compensation in respect of any land, or any interest in land, which has been… injuriously affected by the execution of works… any dispute arising in relation to the compensation should be referred to and determined by the Lands Tribunal.
[13] 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 that 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 & City Railway Co 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, entitled a claimant to compensation only 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.
[14] Lord Chelmsford said, at p204:
Now, as to the words “by the construction thereof,” it seems to me that it would be doing violence to language… to extend them to any injury which is not the immediate consequence of the construction of the railway…
To argue that, as the injury could not have occurred unless the railway had been previously constructed, therefore it was caused “by the construction thereof,” is certainly a strong example of the illogical reasoning of “post hoc, ergo propter hoc,” and would extend to every accident or injury occurring upon the railway after its construction, which, of course, could not have happened if it had not been constructed.
[15] At p214, to much the same effect, Lord Colonsay said:
[T]he right to compensation given by [section 6 of the Railways etc Act] is limited to compensation for the injury done by the construction of the railway. It contains nothing whatever as to compensation for the use to be made of the railway. That is not alluded to. If compensation had been intended to be given for an injury of this kind incident to the subsequent using of the railway… I should have expected something to be said with reference to it.
[16] More recently, in a speech with which the other members of the House of Lords agreed, Lord Hoffmann said, in Wildtree Hotels Ltd v Harrow London Borough Council [2001] 2 AC 1*, in [7] to [8]:
Section 68 gave compensation for injurious affection caused by the “execution” of the works. In Hammersmith and City Railway Co v Brand LR 4 HL 171 the House of Lords (with Lord Cairns dissenting) decided that this meant that there could be compensation only for the effects of the construction of the railway and not for its operation. If an embankment unreasonably obstructed the claimant’s light or access, he could claim compensation. But he could not claim for what would otherwise have been a nuisance caused by the noise, vibrations or smell of passing trains.
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* Editor’s note: Also reported at [2000] 2 EGLR 5
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[17] 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 |page:21| 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”.
[18] 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 opened 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 three years of the date upon which it is first opened to public traffic.
[19] 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 12 months from the opening of the highway, that is, the first date upon 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”.
[20] With that rather lengthy introduction, I revert to the issue that 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 that is the subject of the agreement, can properly be visited upon Crest pursuant to the provisions of clause 6 of that agreement. That issue raises a short and by no means easy question of interpretation that the judge resolved in favour of Crest, namely by holding that clause 6 did not extend to compensation for which the council were liable under the 1973 Act.
[21] 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 contends 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 reasons for concluding that it should have the narrower meaning is persuasive.
[22] First, at least to me, the words of clause 6, when read on their own, rather more aptly apply to claims that arise directly from the execution of the works, rather than those that arise from the consequences of the execution of the works. Although Mr Timothy Straker QC, who appeared for the council, rightly emphasised 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 that 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 that 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 that fall to be taken into account in construing the agreement.
[23] Second, 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:
all… claims… arising out of or in connection with or incidental to the carrying out of the works specified in the schedule hereto for the making up of the road.
[24] Thus, in the 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.
[25] Third, there is the overall thrust and tenor of the agreement, which is emphasised by Mr Jonathan Brock QC, who appeared 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 the light of the provisions of clause 15 and section 38.
[26] 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 upon 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, that would be responsible for paying compensation under the 1973 Act. It is true, as Mr Straker pointed out, that Crest could find itself liable to pay in respect of events after the road becomes adopted; for instance, if damage were suffered as a result of faulty construction for which Crest was responsible. None the less, I do not believe that that calls into question Mr Brock’s reliance upon the general thrust of the agreement so far as the apportionment of liability between the parties is concerned.
[27] 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 conceded, of itself take 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.
[28] Fourth, 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 that 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 although 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 their 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.
[29] Fifth, as the judge emphasised, one has to construe the agreement in what one might call its statutory context. I do not think that it could be seriously suggested that the council (as the highway authority) or Crest (as an experienced property developer) 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 (summarised, albeit subsequent to the agreement, in Wildtree) 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: see p[D]-0392/1 of vol 1 of the current loose-leaf edition:
Loss caused by the construction of work, as distinct from their use, is not the subject of compensation under these provisions.
[30] 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 |page:22| 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.
[31] 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 entirely undermines it. The fact remains that, under the very type of legislation that gives rise to the “claim” that 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 that has, to all intents and purposes, an identical meaning to “the carrying out of the works” that is found in clause 6 in the present case.
[32] Sixth, 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 upon the actual and projected use of the road, would have been anticipated by the parties to the agreement as being based upon the assumption that the road was, or would be expected to be, part of the bypass. Mr Straker was right to say that one cannot be absolutely certain that the depreciation of neighbouring properties would have been 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.
[33] In those circumstances, as Mr Brock said, 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 were obliged to do under clause 15 of the agreement) to open it to the public (in so far as that had not been done by Crest, which 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.
[34] In those circumstances, it appears to me that there would be a powerful argument for saying that were the council’s case based upon the first part of clause 6 correct, the second part of clause 6 would present difficulties to the council. The very fact that, in order to succeed in their 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 contend.
[35] One argument that impressed the judge, but does not carry any weight with me, is the exclusion from clause 6 of anything that is the “liability” of the council. The judge considered that, since 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 was right in contending that proves too much: if every “liability” of the council were to be excluded from clause 6, 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 that 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 that the council are, whether under the agreement or otherwise, obliged to pay Crest even though such sums appear to fall within the first part of the clause.
[36] 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 not 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 contends as it is of bearing the meaning for which the council contend. (Indeed, as explained above, it seems to me that the meaning for which Crest contends is actually the more natural one.)
[37] Mr Straker suggested that were clause 6 to be given the meaning for which Crest contends, 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 were it to be given the meaning for which Crest argues, I could well see how that could be said to be a powerful point in favour of the council’s construction. However, the fact that a particular provision might have a relatively limited effect upon one reading, compared with the much wider effect that it would have upon another reading, does not appear to me to be a factor that favours the latter, perhaps particularly where the provision in question is an indemnity.
[38] Mr Straker also contended that it might be dangerous to place much weight upon the wording and judicial interpretation of section 10(1) of the 1965 Act and its predecessors, on the basis that although the council can reasonably be taken to be aware, albeit in general terms, of the law relating to compensation for injurious affection, their ratepayers, who would have a right to see the agreement, would not be so aware. I am unimpressed with that argument. Although the ratepayers undoubtedly have a right to know much of what their local authority are doing, including the agreements that they are entering into, I cannot think that that is a factor that 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.
[39] Apart from these points, Mr Straker made a number of criticisms of the reasons given by the judge below for the conclusion that he reached. I do not consider that there is anything to be gained in going through those criticisms, since 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 that he made, my reasons for favouring Crest’s case are, in the main, pretty similar to his reasons.
[40] 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 in the same way in relation to all three agreements. That is inevitable in respect of the second of the two section 38 agreements, which is, for all relevant purposes, in identical terms to the agreement.
[41] 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:
any claim for compensation, damages or otherwise, or costs or charges arising in connection with or incidental to or consequence of the carrying out of the Highway Works provided it will hold the… council fully indemnified from and against all claims, charges, damages, costs and expenses, in connection therewith or arising thereout PROVIDED THAT [Crest] will not be liable for claims arising solely from the negligence of the council its servants or agents generally or specifically in matters of design, construction and supervision…
[42] 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”. None the less, 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 |page:23| 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.
[43] In the event, therefore, I would dismiss this appeal.
Clarke LJ said:
[44] I agree.
Giving the second judgment, Ward LJ said:
[45] It is with regret that I find myself unable to agree with my lords. I can express my reasons for this dissent quite shortly.
[46] 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 1973 Act. Section 1(1) provides that:
Where the value of an interest in land is depreciated by physical factors caused by the use of public works, then… compensation for that depreciation shall… be payable by the responsible authority to the person making the claim.
[47] If the agreement had merely provided for an indemnity in respect of all claims arising out of the carrying out of the works, 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 1965 Act 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 that Lord Wilberforce considered, at p129, in Argyle Motors (Birkenhead) Ltd v Birkenhead Corporation [1975] AC 99, 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 (1869) 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 p204, with emphasis added by me, it would be doing violence to the language (“by the construction thereof”) to extend it to any injury:
which is not the immediate consequence of the construction of the construction of the railway.
To argue that, as the injury could not have occurred unless the railway had been previously constructed, therefore it was caused “by the construction thereof” is certainly a strong example of the illogical reasoning of “post hoc, ergo propter hoc“, and would extend to every accident or injury occurring upon the railway after its construction, which, of course, could not have happened if it had not been constructed.
[48] In Lord Colonsay’s opinion expressed at p214, again with emphasis added by me:
The right to compensation given by it [Section 6] is limited to compensation for the injury done by the construction of the railway. It contains nothing whatever as to compensation for the use to be made of the railway. That is not alluded to. If compensation had been intended to be given for an injury of this kind incident to the subsequent using of the railway, by locomotives or otherwise, I should have expected something to be said with reference to it.
[49] The clauses that 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 [33]:
The “carrying out of the works” involved the building of part of the bypass. That was done so that in due course the bypass would be open for traffic. When that happened the road would be used and the statutory regime for compensation payments in certain circumstances would apply.
Yet “pure linguistics” was not enough for him and he felt obliged to decide the meaning contextually. So do my lords.
[50] I adopt as my test the approach of Lord Steyn in Sirius International Insurance Co (Publ) v FAI General Insurance Ltd [2004] UKHL 54, [2004] 1 WLR 3251, in [18]:
The aim of the inquiry is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language. The inquiry is objective: the question is what a reasonable person, circumstanced as the parties were, would have understood the parties to have meant by use of specific language. The answer to that question is to be gathered from the text under consideration and its relevant contextual scene.
It is always important to remember that the reasonable person, circumstanced as the actual parties were, is not a pedantic lawyer.
[51] What then is the contextual scene? It seems to me to be this:
Scene i: The council had for some time wanted a bypass. The developer wanted to develop. The need to carry out the development was the driving force behind the agreement. The preamble says it all:
The developer… is desirous of making up the road or roads so that the same shall become a highway or highways maintainable at the public expense.
Scene ii: The council’s part is also neatly encapsulated in the preamble:
The Council shall undertake the maintenance of the road or roads as a highway or highways maintainable at the public expense which the Council has agreed to do upon the terms and conditions hereinafter appearing.
Scene iii: The context is, therefore, that the developer will build the road and the council will adopt it upon the grant of the final certificate at the end of the 12-month maintenance period. The council will then become liable for claims under the 1973 Act.
Scene iv: Claims under the 1973 Act arise, as I have set out, for depreciation caused by the use of the public works, language in contradistinction to and enacted, no doubt, to cover more than would be recoverable under, the 1965 Act and its Victorian predecessors. I am prepared to assume that the reasonable man would be aware of the distinctions between claims for injurious affection of land by the execution of the works and depreciation caused by the use of the works.
Scene v: The developers wanted to gain the profit from the development and wanted that sufficiently to agree to pay for a road that they would have known the council were keen to construct in any event. Construction would be followed by use and use would almost invariably be followed by claims under the 1973 Act. A county council seeking to protect their council-tax payers would want the price to be paid by the developers to include cover for those claims: a commercial enterprise would be keen not to have to pay more than it had to. If each is properly to look after its interests, only the bargain properly construed will tell who won and who lost that particular battle.
[52] Against that background, it seems to me that if it were intended to place the same limitation as a century or more of legislation and authority had placed upon the meaning of “carrying out works”, the clause could have merely allowed an indemnity for claims arising out of the construction of the road. The very fact that the clause has been framed in the widest possible terms, to include claims in connection with, or incidental to, the carrying out of the work, suggests to me that the arcane distinctions between construction and use, which must be taken to be part of the factual background, has been borne well in mind by the draftsmen of these agreements.
[53] I cannot believe that the reasonable man would be so linguistically astute as to reason that a 1973 Act claim is too remote because all that is connected with, or incidental to, the construction of the road is its subsequent use, the claim being the consequence of that use and so too far down the causative chain of events to be connected with, or incidental to, the execution of the works. In my judgment, the reasonable man will see the link between the building of the road, its use and the depreciation in value of adjacent properties as a result of |page:24| that use. If the reasonable man is a juryman and he asked the question “Is a claim for compensation following the use of a road a consequence of having built it?”, he would have very little difficulty in answering that of course it was.
[54] I readily accept that the matter could have been put beyond doubt by adding after the words “the carrying out of the works” words like “and their use”, but our task is not to redraft the agreement but to construe it. We have to give a commercially sensible meaning to the words that the parties have chosen to use.
[55] Looking at the structure of clause 6, there is an indemnity in what is, in my judgment, the widest possible terms followed immediately by an exception imposing some limitation upon the breadth of the cover. I cannot accept the argument that if the claim is admitted under the first part, it is excluded by the second part. That would rob the indemnity of any meaning and effect. If that argument is right, a claim brought against the council, after they had adopted the road, for damages arising out of the negligent construction of the road would also have to be excluded. That simply cannot have been the parties’ intention. The exception must be given a commercial meaning. What the parties intended to exclude was a claim seeking an indemnity in circumstances where the council were at fault. “Act, neglect, default or liability” should each be construed in that sense.
[56] Mr Brock QC 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.
[57] 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. Had the parties 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.
[58] 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.
Appeal dismissed.
