Planning agreement – Indemnity – Owners of land entering into planning agreement with council under section 106 of Town and Country Planning Act 1990 – Successive owners taking indemnity covenant from previous owner in respect of liability under section 106 agreement – Appellant acquiring land from respondent on such terms but selling on to purchaser without giving indemnity – Appellant giving indemnity at later date when council seeking to enforce obligations against purchaser – Whether respondent obliged to indemnify appellant in respect of liability to purchaser – Claim for indemnity dismissed – Appeal dismissed
In October 2001, the owners of certain land undertook planning obligations to the district council under a planning agreement executed pursuant to section 106 of the Town and Country Act 1990. One obligation required the payment of a given amount to the council in certain events. The deed was expressed to bind both the current owners and their successors in title, so reflecting the statutory position under section 106(3); it further stated that no person was to be liable for any breach after they had parted with all interest in the relevant land.
The respondent later acquired part of the land by a transfer from the owners, who covenanted to comply with the planning agreement. The respondent, in turn, transferred the land to the appellant in 2007 and covenanted to indemnify it against any claims for breaches of the planning agreement prior to the transfer and “all actions claims demands and liabilities arising directly or indirectly in respect of… any outstanding planning… obligations… or any agreements made pursuant to the [1990 Act]”.
The appellant then transferred the land to an associated company, as purchaser, in 2007 for a large consideration, without giving any covenant in respect of the section 106 agreement. The obligation to pay the council was triggered in February 2009 and the council brought proceedings to enforce it against the purchaser. In light of those proceedings, the appellant and the purchaser belatedly entered into an indemnity covenant, under which the appellant became liable to indemnify the purchaser in respect of its liability to the council.
The appellant in turn claimed an indemnity from the respondent, contending that it had incurred a liability arising, albeit indirectly, in respect of the section 106 agreement, so as to fall within the relevant indemnity covenant. Dismissing that claim in the court below, the judge held that the respondent was not liable since there had been a break in the chain of covenants. He held that the appellant had been released from any liability in respect of the section 106 agreement when it sold the land without giving an indemnity covenant, and that the covenant given voluntarily at a later date, under no obligation, was not an “outstanding obligation” within the terms of the covenant given by the respondent. The appellant appealed.
Held: The appeal was dismissed.
Whether the respondent was required to indemnify the appellant in respect of its liability to the purchaser turned on the proper construction of the covenant given by the respondent in relation to the facts that had occurred. The critical words, namely “claims arising directly or indirectly in respect of” an agreement under the 1990 Act, should be construed as including only claims arising against the appellant directly, as the owner of the land, or indirectly under an indemnity covenant that it had given as part of the transaction by which it parted with and ceased to own the land and thereby ceased to be at risk of direct liability. It would not be consistent with commercial common sense to extend those words to cover liability under an indemnity agreement given after the appellant had parted with all interest in the land without giving an indemnity covenant as part of the deal: Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 applied.
In that regard, the timing and circumstances of the covenant given by the appellant were critical. Had it been given in the transfer to the purchaser as part of that transaction, it would have been bound up with the appellant’s position as owner of the land and would have formed part of the terms by which it ceased to be owner and thereby ceased to be directly at risk under section 106, on passing that liability on to its successor in title as envisaged by the agreement itself and by section 106. That would properly be described as opening the appellant to a claim arising indirectly in respect of the section 106 agreement. As it was, the claim by the purchaser against the appellant, although clearly relating in a sense to the section 106 agreement, arose in respect of the self-imposed 2010 deed of indemnity given after the appellant had ceased to own the land; it was not a claim arising directly or indirectly in respect of the planning agreement within the terms of the indemnity covenant given by the respondent. It was probably irrelevant whether the later covenant was given gratuitously or for consideration.
Saira Kabir Sheikh (instructed by Dutton Gregory LLP, of Winchester) appeared for the appellant; Conrad Rumney (instructed by Gately LLP, of Birmingham) appeared for the defendant.
Sally Dobson, barrister
