Outline planning permission – Section 106 agreement – Construction – Section 106 agreement requiring defendant developer to make financial contributions to works carried out by claimant highway authority in connection with development – Whether terms to be implied that claimants’ expenditure of contributions to be reasonably incurred in common law sense – Whether contributions held on trust – Extent of duty to account for expenditure – Whether “expenditure” including sums not yet paid but in respect of which legal obligation to pay undertaken – Declarations granted
By an agreement under section 106 of the Town and Country Planning Act 1999, to which the claimant highway authority was a party, the defendant developer undertook certain obligations in connection with an outline planning permission that it had obtained for a development of 1,700 homes together with amenities on a site in Fleet, Hampshire.
Under the agreement, the defendant was to make financial contributions towards the cost of highway works that the claimants intended to carry out as a result of the defendant’s development. Clause 4.14 required a contribution of £125,000 towards traffic-[management measures and improvements to a highway close to the development site. Clause 4.16 required contributions towards the construction of a relief road, to be paid in specified instalments. If the relief road had not proceeded by the time the homes were occupied, the defendant’s contributions were, by clause 4.16(2), to be refunded save for any part that had been expended on “alternative schemes” for transportation improvements in Fleet.
The relief road did not proceed and the claimants instead undertook alternative schemes. The final hosue in the development was occupied in November 2006. Thereafter, the defendants requested details of how their contributions under clauses 4.14 and 4.6 had been spent. They demanded substantial refunds, claiming that a number of items of expenditure had not been reasonably or properly incurred or had not been “expended” at the relevant date, in the that they had not been paid at that date notwithstanding that the claimants had made commitments to pay them.
The parties agreed to appoint an expert to resolve the matter under clause 10 of the agreement, but a disagreement arose as to the ambit of the issues for his determination. The claimants sought declarations as to the interpretation of clauses 4.14 and 4.16, in particular: (i) whether there was an implied term that the expenditure of the defendant’s contributions had to be reasonably and properly incurred, in the common law, rather than public law, sense; (ii) whether those contributions were held on a trust; (iii) the extent of the claimants’ duty to account to the defendant for the cost of works; (iv) how the term “expended” in clause 4.16 should be interpreted; and (v) the role of the expert under clause 10.
Held: Declarations were granted.
(1) Where an agreement had been carefully negotiated and drawn up by experts acting for all parties, it would be appropriate to imply additional terms only in limited circumstances. There was a distinction between the common law sense of “reasonably incurred”, namely incurred in accordance with the standards of reasonableness applicable to the industry, and the meaning of Wednesbury reasonableness that was given to it in a public law context. The courts would interfere with a local authority’s exercise of their statutory discretion in expending moneys only to the extent that they had acted unreasonably in the public law sense, or in bad faith and/or in so far as they had applied the relevant funds for an improper purpose: Pickwell v Camden London Borough Council [1983] QB 962 applied. Accordingly, to imply a term that the claimants’ expenditure of the defendant’s contributions should be reasonable in the common law sense would impose duties on the claimants that were significantly wider than the public law duties to which they would in any event be subject, and would require them to comply with standards of reasonableness and propriety imposed by a third party. Moreover, the standards of reasonableness and propriety that the defendant proposed to apply were uncertain and had not been the subject of discussion or negotiation and it was unclear what “industry” standards could appropriately be applied to the activities and expenditure of a highway authority. Had the inclusion of the proposed implied term been suggested to the claimants at the time the section 106 agreement was being negotiated, they would have refused to agree to such a term because of the wider duties that would have been imposed on them. The proposed implied term was not necessary to give business efficacy to clauses 4.14 and 4.16 since the claimants’ discretion was not left entirely unfettered in the absence of the term: the claimants were still expressly required to use the defendant’s contributions only for the purposes specified in those clauses and, further, the exercise of their discretion would be subject to the usual public law requirements of Wednesbury unreasonableness and good faith.
(2) The claimants had entered into the section 106 agreement in their capacity as a public authority acting in the public interest and pursuant to statute; it was not a private agreement. The exercise by a public authority of its powers in the public interest did not give rise to the creation of a private trust: Swain v The Law Society [1983] AC 598 applied. Moreover, the wording of the agreement, requiring the defendant to “pay contributions towards” the relevant works did not suggest an intention to create a trust, and the financial contributions, once made, were not kept in a separate bank account, which was inconsistent with the holding of the contributions on trust: Patel v Brent London Borough Council [2005] EWCA Civ 644; [2005] 2 EGLR 85; [2005] 31 EG 82 distinguished. No trust had been created on the facts of the case. Further, even if a trust had arisen, any fiduciary duties that the claimants might have owed in respect of their expenditure of the defendant’s financial contributions would have extended no further than their public law duties: Pickwell and Luby v Newcastle-under-Lyme Corporation [1964] 2 QB 64 applied.
(3) A duty to account for the cost of certain works included a duty to provide information stating what sums had been spent, for what purpose, when and by whom. The duty did not go further or extend to the provision of information designed to explain and justify to a developer’s satisfaction the various decisions taken as to what work to undertake and how to undertake it. The claimants’ express duty to “account for… the costs” of any alternative schemes under clause 4.16(2) did not oblige them to disclose information designed to explain the reasons why the various decisions underlying the works were taken and to justify those decisions. The provision of information stating what sums had been spent, for what purpose, when and by whom, especially when accompanied by documents evidencing the claimants’ expenditure, would suffice to enable the defendant to satisfy itself that its contributions had been spent for the purposes specified and otherwise in accordance with the claimants’ public law duties. It was not necessary to imply any similar obligation into clause 4.14, which contained no express duty to account for or refund unexpended sums; the works undertaken under that clause had been the subject of discussion and negotiation between the parties.
(4) The word “expended” in the section 106 agreement should be interpreted as including sums relating to the relevant highway works that the claimants already had a legal obligation to pay as at November 2006. Those sums had been committed to funding the works and could not thereafter be used by the claimants for any other purpose. To construe the word “expended” as including only payments that had been physically made at the relevant date would be illogical and could cause serious detriment to the claimants if, for example, they had not paid a contractor’s invoice because of faulty workmanship or the contractor had delayed in delivering an invoice for the work done.
(5) It followed that the appointed expert did not have jurisdiction to determine whether any sums stated to have been expended by the claimants had been reasonably and properly incurred in the common law sense. His role was limited to dealing with disputes as to compliance with the express terms of the agreement.
Peter Village QC and James Strachan (instructed by the legal department of Hampshire County Council) appeared for the claimants; Richard Phillips QC and Jeremy Phillips (instructed by Davies Arnold Cooper LLP) appeared for the defendant.
Sally Dobson, barrister
