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 defendant developers carried out substantial residential and commercial infill development near Chippenham, Wiltshire, that was facilitated by the construction of a new bypass. The claimant council paid compensation to householders, under Part I of the Land Compensation Act 1973, for losses caused by the use of the bypass. They sought to recover those sums from the defendants 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 defendants would indemnify the council 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 but also compensation that had been paid to third parties under Part I of the 1973 Act.
Held: The covenants did not include compensation that was paid under Part I of the 1973 Act.
In terms of pure linguistics, the compensation claims under the 1973 Act might be regarded as being either “in connection with” or “incidental to” the building of the bypass. However, the legal background against which the agreements were to be construed contained a clear distinction between claims for compensation for loss caused by the construction or execution of works and those for loss caused by the works’ subsequent use. When the parties agreed that the defendants should indemnify the council against claims arising “in connection with or incidental to the carrying out of the works”, they must be taken to have had that distinction in mind. Each of the defendants was a large, well-advised organisation experienced in planning matters, and it was reasonable to proceed on the basis that the words in the agreements had been carefully chosen. If the parties had intended the result contended for by the council, they could and would have referred in terms to the operation or use of the bypass. The interpretation advanced by the council would have had the effect of making the defendants liable to indemnify the council in respect of all claims arising out of the construction of the highway, whenever and however they were made, unless they could properly be described as arising out of a breach of duty on the part of the council. That was a significant potential liability, both in terms of duration and amount, and express words would be expected if that was what the parties had intended.
Gary Cowen (instructed by the solicitor to Wiltshire County Council) appeared for the claimants; Jonathan Brock QC (instructed by Davies Arnold Cooper) appeared for the first and second defendants; the third and fourth defendants did not appear and were not represented.
Sally Dobson, barrister
