Indemnity covenant — Costs arising in connection with or incidental to construction of bypass — Whether indemnity agreement covering compensation payments for loss owing to use of bypass — Part I of Land Compensation Act 1973
The respondent developers carried out substantial residential and commercial infill development near Chippenham, Wiltshire. These were facilitated by the construction of a new bypass. The appellant council paid compensation to householders, under Part I of the Land Compensation Act 1973, in respect of diminution in the value of their property resulting from the use of the bypass. The appellants sought to recover those sums from the respondents under the terms of indemnity covenants in three agreements, made under sections 38 and 106 of the Town and Country Planning Act 1990, that related to the funding of different stretches of the bypass. The covenants provided that the respondents would indemnify the appellants in respect of claims arising “in connection with or incidental to” the carrying out of the works.
A preliminary issue was tried as to whether the wording of the covenants was sufficiently wide to include not only claims arising from the carrying out of the works themselves but also compensation that had been paid to third parties under Part I of the 1973 Act in relation to the use of the completed road. The judge considered that the parties must be taken to have had in mind the legal background against which the agreements were to be construed, and the distinction that was made in law between claims for compensation for loss caused by the execution of the works and loss caused by their subsequent use. He held that only the former was covered by the indemnity agreements.
The appellants appealed.
Held: The appeal was dismissed.
As a matter of ordinary language, the indemnity agreements could bear the meaning for which either party contended. However, the respondent’s narrower construction was to be preferred. A claim for compensation under the 1973 Act did not arise out of, and was not incidental to, the carrying out of the works, but rather arose from the use of the road, which itself arose from the carrying out of the works. Although that distinction was fine, it was supported by the overall thrust and tenor of the agreements: the parties had envisaged that the respondents’ liability in respect of the road would cease, and that the appellants’ the liability would effectively arise, when the road was adopted as a public highway under section 38 of the 1990 Act. No compensation claim could be made under the 1973 Act until the appellants had adopted the road, and the assessment of any such compensation would be based upon the then-present and the projected future use of the road.
Timothy Straker QC (instructed by the legal department of Wiltshire County Council) appeared for the appellants; Jonathan Brock QC (instructed by Davies Arnold Cooper) appeared for the first and second respondents; the third and fourth respondents did not appear and were not represented.
Sally Dobson, barrister
