The recent Court of Appeal case of Wiltshire County Council v (1) Crest Estates Ltd (2) Crest Nicholson Residential Plc (3) Langtree Property Co [2005] highlights the importance of drafting indemnity clauses clearly and fully.

The facts

During the 1980s certain companies in the Crest Nicholson Group wanted to obtain planning permission for residential development on a number of sites to the west of Chippenham. Planning permission was granted on the basis that Crest entered into two agreements pursuant to s38 of the Highways Act 1980 and a further agreement pursuant to s106 of the Town and Country Planning Act 1990.

Under the terms of each of the three agreements, Crest agreed to construct roads that would eventually form part of the Chippenham West bypass, built between 1993 and 2000. Other sections of the bypass were constructed by Wiltshire County Council as local highway authority or other developers.

The terms of the agreements

The agreements required Crest to carry out works specified in the schedule to the agreements for the making of the road. These included kerbing, drainage, footway works, street lighting and road markings. When construction of the road was finished, the Council would issue a certificate confirming that it was complete. Crest then agreed to maintain the works and make good any defects in the road for 12 months from the date of the completion certificate. The agreement provided that at the end of this maintenance period, provided Crest had paid to the Council everything that was due under the agreement and the road had been connected to a public highway maintainable at the public expense, the Council had to issue a final certificate. The effect of this certificate was that the road became a highway maintainable at the public expense.

Under the terms of the section 38 agreements, Crest gave an indemnity to the Council in the following 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.

The indemnity in the section 106 agreement was similarly worded.

The dispute

The bypass was constructed and certain householders in the vicinity of the bypass submitted claims to the Council under Part I of the Land Compensation Act 1973 for alleged loss suffered as a result of the use of the bypass. Crest made five payments in 1997 and 1998 to the Council for a total of £23,645.75 by way of indemnity for the moneys paid by the Council to the householders. Crest then sought to argue that, as the indemnity clause in the agreements did not cover such claims, the Council should return the money to Crest. The Court had therefore to decide whether the indemnity clause did in fact cover claims under Part I of the Land Compensation Act 1973.

Provided certain tests are satisfied, a claim can be brought under Part I of the Land Compensation Act 1973 if the value of a piece of land is reduced by the impact of physical factors, such as noise or vibration, which are caused by the use of public works such as roads. Claims can therefore arise when new roads are built or when works are done to alter the layout of existing roads and these changes lead to, for example, increased traffic noise that reduces land values for the properties affected. If a claim is successful, then compensation for the depreciation in value of the land is payable by the responsible authority, which in this case would be the Council as highway authority.

A claim for compensation can only be made once the highway has been open to the public for 12 months in order that the effect of the use of the road on the property can be ascertained.

The decision

The Court of Appeal found that the wording of the indemnity did not cover claims under Part I of the Land Compensation Act 1973 and gave its reasons as follows:

(1) When the definition of the works to be done under the agreements was read into the indemnity clause, it would read: ‘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’. The natural meaning of these words would suggest that the parties intended the indemnity to cover claims arising out of the works to construct the road, rather than claims that arose from the use of the road once it had been constructed.

(2) The overall thrust of the agreement was that Crest would be liable for the road during its construction up to the end of the maintenance period. Once the maintenance period ended, the Council would issue the final certificate and from then on it would be responsible for the road. A claim for compensation under the Land Compensation Act 1973 could not be brought until the road had been available for public use for 12 months, at which point the Council would have adopted the road. The assessment of any compensation would be based on both the use of the road at the time the claim was brought and also any future projected use of the road. It would have been possible to draft the agreement in such a way that Crest’s liability for the road continued past the date of the final certificate, but this had not been done.

(3) The Council had wanted to construct the bypass for a considerable time and it had been mentioned in successive versions of the Council’s Transport Policy and Programme. While the Court accepted that the residential developments built by Crest would have benefited from the construction of the new road, it held that the major function of the road was as part of the bypass. In the absence of express agreement to the contrary, therefore, Crest would not be expected to reimburse the Council for moneys paid under its statutory duty to pay compensation to people whose property values were diminished by the use of the bypass.

(4) There are fundamental and well-established principles that determine liability for compensation for injurious affection. When interpreting other legislation that deals with land injuriously affected by the execution of works, the courts have consistently taken a narrow interpretation of ‘execution of the works’ such that only loss that is caused by the actual construction of works rather than by their use is covered. As the phrase ‘carrying out the works’ has the same meaning as ‘execution of the works’ the same principles should apply.

(5) The second part of the wording of the indemnity clause provides that it will not apply to claims ‘arising out of or in consequence of any act, neglect, default or liability of the Council’. No claim can be made under the Land Compensation Act 1973 until the road has been made available to the public for 12 months. It is therefore the act of the Council in adopting the road that makes a claim under the Land Compensation Act 1973 possible, but in adopting the road the Council falls within the second part of the indemnity that prevents it from recovering the moneys from Crest.

The Office of the Deputy Prime Minister (ODPM) has announced that on 24 August 2005 further sections of the Planning and Compulsory Purchase Act 2004 are to come into force through the new Planning and Compulsory Purchase Act 2004 (Commencement No 5 and Savings) Order 2005. These sections are intended to give local planning authorities more powers to speed up the planning system.

Major infrastructure projects

Under s44 of the Act, the Secretary of State will have the power to direct that planning applications for major infrastructure projects (ie projects of regional and national importance) should be referred to them instead of being dealt with by local planning authorities. If the Secretary of State calls in an application for a major infrastructure project for their own determination, then it will have to be accompanied by an economic impact report. The intention is that this will ensure that more comprehensive information about schemes is provided much earlier in the planning process, which should help to reduce delays later on. This section also allows concurrent inquiry sessions to be held so that all related applications can be heard together. Again, this should speed up the inquiry process.

Duration of permission and consent

Currently, planning permissions and listed building consents last for five years, unless otherwise specified. They must either be implemented within that time or an application must be made (under s73 of the Town and Country Planning Act 1990 or s19 of the Listed Buildings and Conservation Areas Act 1990) to extend the time limit for implementation, otherwise the permission will expire.

Section 51 of the Act is now being brought in to reduce the default period for the life of a planning permission and a listed building consent to three years. This section will also remove the ability to extend the life of a planning permission. The reasoning behind these changes is to try to focus developers’ minds on actually starting development faster once planning permission is granted for a scheme. The ODPM wants to discourage speculators who obtain planning permission for a scheme in order to in`rease the value of their land, but have no intention of actually implementing the permission.

When this change was first proposed, the property industry expressed serious concern about whether it would be possible for larger projects to get everything lined up ready to start development on site within this time frame, particularly as extensions of time are no longer permitted. In response to these concerns the ODPM said that for the next 12 months applications for extensions of time will still be permitted to allow developers to adjust to the new regime. It should be noted that while the default period for permissions will be changed to three years, in reality, if more time is required to commence development for a particular project, the applicant and the local planning authority are still able to agree a longer period if necessary.

Power to decline to determine applications

Section 43 of the Act extends the powers of local planning authorities to decline to determine planning applications where:

• The council has refused more than one similar application previously and there has been no appeal to the Secretary of State in the two-year period preceding the submission of the new application; and
• there has been no significant change in the application.

The ODPM is aiming to stop the repeated submission of identical applications, which is a tactic sometimes used by developers to try to wear down opposition to undesirable development, taking up both local authority and public time and resources and slowing the planning system. In fact, given the recent increases in planning application fees, the financial implications of making repeat applications are likely to prove more of a deterrent than this legislative change.

The provisions in the Act that relate to overlapping applications are not yet being brought into force. For the time being at least, the tactic of twin tracking, submitting two identical applications, one of which is appealed for non-determination while the other remains with the local planning authority for negotiation, remains legitimate.

Duty to respond to consultation

Section 54 introduces a duty for statutory consultees that are consulted about a planning application to have to respond within 21 days. To monitor this, statutory consultees will have to report to the Secretary of State on their performance in this respect. While this is a welcome move, it remains to be seen how much of a difference it will actually make. It would be a brave local authority that continued to progress a planning application where a statutory consultee had failed to respond within the 21-day period. © Property Law Journal