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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> City of York v Trinity One (Leeds) Ltd  EWCA Civ 1883 (29 August 2018)
Cite as:  EWCA Civ 1883
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ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
Mr David Halpern, QC
Strand, London, WC2A 2LL
B e f o r e :
SENIOR PRESIDENT OF TRIBUNALS
LORD JUSTICE HENDERSON
| The Council of the City of York
|- and -
|Trinity One (Leeds) Limited
Mr Paul Brown QC (instructed by Walker Morris LLP) for Trinity One (Leeds) Limited
Hearing date: 21 February 2018
Crown Copyright ©
Sir Ernest Ryder, Senior President:
i) Was TOL liable to pay a sum under the Agreement and, if so, how much?
ii) If TOL's appeal under section 106BC is successful, will that take effect retrospectively so as to extinguish TOL's liability (if any)?
Factual and procedural background:
"shall be calculated on the amount of Social Housing Grant necessary to secure affordable rented homes of an equivalent type and size on another site [in a similar residential area in the City of York] which grant for the avoidance of doubt shall be calculated at normal grant levels from regional TCI tables provided on an annual basis by the Housing Corporation or such equivalent grant calculation current at the time and supported by the Housing Corporation"
And "Social Housing Grant" is defined by clause 2.1.23 as:
"the grant that may be provided in respect of affordable housing in the Council's administrative area in accordance with Government and Housing Corporation Guidance."
The sections 106BA and 106BC issue:
The statutory and policy background:
The judge's decision:
i) Mr Paul Landais-Stamp who was the Council's Housing Development Manager in 2003 and had been its Housing Strategy Manager since 2005. He gave evidence of the Council's policy in relation to affordable housing and section 106 agreements. In particular he stated, among other things which were noted in the judgment, that the purpose of requiring a commuted sum was to secure enough funding to provide equivalent affordable housing on another site.
ii) Mr Ian Geoffrey Nixon who is the managing director of TOL and an experienced property developer.
iii) Mr Parker who was TOL's expert. He produced a calculation he made for the purpose of TOL's proceedings under section 106BC using software known as 'Proval'. He accepted that the Proval calculation was not an 'equivalent grant calculation'. Although there are a number of differences between the methodology for the Proval calculation and the TCI tables, his evidence was that anyone familiar with affordable housing would understand 'equivalent type and size' to mean the same mix of houses and flats and the same number of bed spaces.
iv) Mr Watson who was the Council's affordable housing expert. He produced a calculation for the commuted sum of £1,995,589. He did not use the TCI tables to come to his conclusion but instead used a different methodology. Mr Watson accepted that the Proval software produced results consistent with the previous Excel software. He noted, among other things, that size should not be limited to the number of bed spaces, because it includes floor area.
Issue 1 – contractual interpretation:
i) The Owner shall pay a commuted sum to the Council within 28 days of the date of sale of each of the affordable homes on the open market;
ii) The sum shall be a calculation of the amount of SHG necessary to secure affordable homes of an equivalent type and size on another site in a similar residential area in the City of York;
iii) The grant for the avoidance of doubt shall be calculated:
a) At normal grant levels from regional TCI tables provided on an annual basis by the Housing Corporation; or
b) Such equivalent grant calculation current at the time supported by the Housing Corporation.
i) The Council and the original party to the Agreement shared (or must have shared) the understanding that developers were expected either to provide affordable housing on site or a commuted sum in lieu. The Agreement is consistent with that intention.
ii) The Agreement expressly contemplates that the old system might change, but on a literal reading it is only a limited change. Part 3(b) appears to assume that the Housing Corporation would continue in existence. The parties did not expressly address the possibility that the old SHG would be abolished without a direct replacement.
iii) "…there is a tension between this literal reading of Part 3(b) and the underlying purpose of the Agreement. In my judgment, it is clear from the Agreement as a whole that the parties intended payment to be made in accordance with Part 2. This requires Part 3(b) to be read so as to accord with that underlying purpose".
Issue 2 – the section 106BA and 106BC appeal:
Grounds of appeal:
Issue 1 – contractual interpretation:
i) The judge undervalued the language of the provisions to be construed to the extent that he ignored it;
ii) Part 3(b) has a plain meaning just as it is agreed Part 3(a) has a plain meaning: in which case neither method of calculation is applicable;
iii) Given that this is what the parties agreed, it is not for the court to identify what the parties should have agreed, simply because the wording actually used was ill advised or has resulted in an impact that is adverse to one or other of the parties;
iv) What happened is not a circumstance that was not intended or contemplated by the parties. They did contemplate a circumstance in which the TCI tables were not in use. The alternative equivalent grant calculation involved important safeguards which were deliberate and which provided a level of certainty about the owner's liability. The judge's conclusion sets aside the express agreement of the parties.
i) The primary obligation to pay a sum is patent and it has clearly arisen. The uncertainty with which the judge had to grapple went only to quantification;
ii) The judge was faced with a choice between: (i) allowing the primary obligation to pay a commuted sum, and the underlying bargain, to be defeated; or (ii) to give effect to that bargain. The latter course is consistent with well-established contractual principles;
iii) The judge was entitled to do the best he could to give effect to the bargain, and to find a sum which was as close as possible to the figure which would have been payable;
iv) TOL's construction seeks to defeat both business common-sense and the true bargain between the parties. There is no doubt that the parties intended that commuted sums should be payable; indeed absent such provision, TOL would not have been granted planning permission for the development concerned.
Issue 1 - discussion:
i) the first factor is identified by Lord Neuberger at :"First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision."
ii) the sixth factor is identified by Lord Neuberger at :"Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention. An example of such a case is Aberdeen City Council v Stewart Milne Group Ltd  UKSC 56, 2012 SCLR 114, where the court concluded that 'any … approach' other than that which was adopted 'would defeat the parties' clear objectives', but the conclusion was based on what the parties 'had in mind when they entered into' the contract (see paras 17 and 22)."
i) Mr Geoffrey Nixon, the MD of TOL, gave evidence at the trial. At the time TOL bought the property, Mr Nixon estimated the commuted sum would be about £700,000. His planning consultant estimated a figure between £500,000 and £700,000. This is recorded in the judgment at .
ii) The use of the Proval software recommended by TOL's expert was accepted by the Council's expert to produce a result consistent with the TCI tables. This is recorded in the judgment at . The figure produced by the Proval software was £553,508, which is within the range contemplated by Mr Nixon.
iii) The judge used this figure as the basis for his conclusion (see his judgment at ). As he remarked, it was a reasonable attempt to reach a figure equivalent to the SHG which would have been payable before 2006.
Issue 2 – the section 106BA and 106BC appeal:
i) Pre-existing debts are not addressed in sections 106BA and 106BC.
ii) The power which TOL invites the Secretary of State to exercise is contained in section 106BA(5)(c) which provides that the authority may "determine that the planning obligation is to be modified to remove the requirement". They submit that that language contemplates a prospective effect, not an alteration to accrued obligations to pay money.
iii) Section 106BA(10) does not use language that has retrospective effect: it provides that a modified obligation has effect, and is enforceable, from the date of the determination and not earlier.
iv) The language of section 106BA(2) ("to have effect", "to be replaced/removed") and section 106BA(3) ("is not economically viable … so that the development becomes economically viable"; "is to continue to have effect") also points to this conclusion.
v) The duty in section 106BA(3) is to modify the obligation "so that the development becomes economically viable". That language suggests that the development in question must not yet have been carried out or completed.
vi) The provisions of section 106BC(10)-(13) are also entirely consistent with the submission that modifications to affordable housing requirements have effect only as from the date of the modification, and not retrospectively with the consequence that any pre-existing liabilities under the unmodified obligations will be unaffected by the modifications. They submit that the definition of affordable housing requirement in section 106BA(13) relate to the housing which is the subject of the obligation, i.e. planning obligations relating to affordable housing may relate to existing dwellings. The definition merely confirms that the requirement in question may relate to dwellings which already exist and which are already available. It says nothing about debts which have already accrued.
vii) This interpretation is consistent with DCLG Guidance: "Section 106 affordable housing requirements". The purpose of the provisions in sections 106BA and 106BC is identified in that guidance as being to address section 106 agreements which are "an obstacle to house building", and to focus upon "stalled schemes" (see paragraph 2).
viii) The Council submits that to suggest that these provisions could enable a previously accrued liability to pay a commuted sum to be avoided would be plainly contrary to the statutory purpose of encouraging development to take place, and would reward developers for building and selling housing schemes while deliberately choosing not to meet their legal obligations.
ix) In any event, there has at all material times been a statutory provision which can be deployed to modify or discharge obligations in section 106 agreements, namely section 106A (together with section 106B). The difference is that section 106A does not contain the same duty to modify affordable housing obligations in the prescribed circumstances. It is submitted that there is no reason to strain the language of sections 106BA and 106BC where there is a provision capable of securing the same outcome.
x) It is also submitted by the Council that this construction is consistent with the general approach to contractual liability in the cases of rescission and frustration. It is said that in both instances accrued causes of action are generally unaffected by the contract coming to an end.
Issue 2 – discussion:
"the true principle is that Parliament is presumed not to have intended to alter the law applicable to past events and transactions in a manner which is unfair to those concerned in them, unless a contrary intention appears. It is not simply a question of classifying an enactment as retrospective or not retrospective. Rather it may well be a matter of degree—the greater the unfairness, the more it is to be expected that Parliament will make it clear if that is intended."
i) Section 106BA is titled 'Modification or discharge of affordable housing requirement'. It is silent about the effect upon accrued rights of that process: they are neither expressly included nor excluded by the language used.
ii) The Council submits that section 106BA(5)(c), which uses the words 'is to be modified', contemplates a prospective effect not altering accrued obligations. TOL submits that the use of the future tense is a reference to the fact that the modification cannot come into existence until the Secretary of State has made a determination to that effect. I agree with TOL. I do not think that section 106BA(5)(c) assists either party.
iii) The same reasoning applies to section 106BA(10) and the other sections to which the Council points which use the future tense. The modification of the planning obligation is forward looking; this says nothing about accrued rights.
iv) Section 106BA(13) was relied on by the judge, and is relied on by TOL, to support the conclusion that section 106BA can affect accrued rights. In particular, it is said that the words 'is or is to be' imply that the section applies to obligations which have already arisen and obligations which are yet to have arisen. I do not think that these words are decisive of the point. I think the words 'is or is to be' relate to the use of the housing: is it being used as affordable housing or will affordable housing be provided in the future? To read into those words the retrospective effect claimed (without more) may be to place too high a burden on the language. This section is otherwise silent on the question whether accrued rights can be altered.
"if the affordable housing requirement means that the development is not economically viable, the authority must deal with the application in accordance with subsection (5) so that the development becomes economically viable"
Lord Justice Henderson:
Lord Justice Kitchin:
Appendix - legislation
"106A.— Modification and discharge of planning obligations.
(1) A planning obligation may not be modified or discharged except—
(a) by agreement between the appropriate authority (see subsection (11)) and the person or persons against whom the obligation is enforceable; or
(b) in accordance with —
(i) this section and section 106B, or
(ii) sections 106BA and 106BC.
(2) An agreement falling within subsection (1)(a) shall not be entered into except by an instrument executed as a deed.
(3) A person against whom a planning obligation is enforceable may, at any time after the expiry of the relevant period, apply to the appropriate authority for the obligation—
(a) to have effect subject to such modifications as may be specified in the application; or
(b) to be discharged.
(4) In subsection (3) "the relevant period" means —
(a) such period as may be prescribed; or
(b) if no period is prescribed, the period of five years beginning with the date on which the obligation is entered into.
(5) An application under subsection (3) for the modification of a planning obligation may not specify a modification imposing an obligation on any other person against whom the obligation is enforceable.
(6) Where an application is made to an authority under subsection (3), the authority may determine—
(a) that the planning obligation shall continue to have effect without modification;
(b) if the obligation no longer serves a useful purpose, that it shall be discharged; or
(c) if the obligation continues to serve a useful purpose, but would serve that purpose equally well if it had effect subject to the modifications specified in the application, that it shall have effect subject to those modifications.
(7) The authority shall give notice of their determination to the applicant within such period as may be prescribed.
(8) Where an authority determine under this section that a planning obligation shall have effect subject to modifications specified in the application, the obligation as modified shall be enforceable as if it had been entered into on the date on which notice of the determination was given to the applicant.
(9) Regulations may make provision with respect to—
(a) the form and content of applications under subsection (3);
(b) the publication of notices of such applications;
(c) the procedures for considering any representations made with respect to such applications; and
(d) the notices to be given to applicants of determinations under subsection (6).
(10) Section 84 of the Law of Property Act 1925 (power to discharge or modify restrictive covenants affecting land) does not apply to a planning obligation.
(11) In this section "the appropriate authority" means–
(a) the Mayor of London, in the case of any planning obligation enforceable by him;
(aa) the Secretary of State, in the case of any development consent obligation;
(b) in the case of any other planning obligation, the local planning authority by whom it is enforceable.
(12) The Mayor of London must consult the local planning authority before exercising any function under this section."
"106B.— Appeals in relation to applications under section 106A.
(1) Where an authority (other than the Secretary of State) —
(a) fail to give notice as mentioned in section 106A(7); or
(b) determine under section 106A that a planning obligation shall continue to have effect without modification,
the applicant may appeal to the Secretary of State.
(2) For the purposes of an appeal under subsection (1)(a), it shall be assumed that the authority have determined that the planning obligation shall continue to have effect without modification.
(3) An appeal under this section shall be made by notice served within such period and in such manner as may be prescribed.
(4) Subsections (6) to (9) of section 106A apply in relation to appeals to the Secretary of State under this section as they apply in relation to applications to authorities under that section.
(5) Before determining the appeal the Secretary of State shall, if either the applicant or the authority so wish, give each of them an opportunity of appearing before and being heard by a person appointed by the Secretary of State for the purpose.
(6) The determination of an appeal by the Secretary of State under this section shall be final.
(7) Schedule 6 applies to appeals under this section.
(8) In the application of Schedule 6 to an appeal under this section in a case where the authority mentioned in subsection (1) is the Mayor of London, references in that Schedule to the local planning authority are references to the Mayor of London."
"106BA Modification or discharge of affordable housing requirements
(1) This section applies in relation to an English planning obligation that contains an affordable housing requirement.
(2) A person against whom the affordable housing requirement is enforceable may apply to the appropriate authority—
(a) for the requirement to have effect subject to modifications,
(b) for the requirement to be replaced with a different affordable housing requirement,
(c) for the requirement to be removed from the planning obligation, or
(d) in a case where the planning obligation consists solely of one or more affordable housing requirements, for the planning obligation to be discharged.
(3) Where an application is made to an authority under subsection (2) and is the first such application in relation to the planning obligation—
(a) if the affordable housing requirement means that the development is not economically viable, the authority must deal with the application in accordance with subsection (5) so that the development becomes economically viable, or
(b) if paragraph (a) does not apply, the authority must determine that the affordable housing requirement is to continue to have effect without modification or replacement.
(4) Where an application is made to an authority under subsection (2) and is the second or a subsequent such application in relation to the planning obligation, the authority may—
(a) deal with the application in accordance with subsection (5), or
(b) determine that the affordable housing requirement is to continue to have effect without modification or replacement.
(5) The authority may—
(a) determine that the requirement is to have effect subject to modifications,
(b) determine that the requirement is to be replaced with a different affordable housing requirement,
(c) determine that the planning obligation is to be modified to remove the requirement, or
(d) where the planning obligation consists solely of one or more affordable housing requirements, determine that the planning obligation is to be discharged.
(6) A determination under subsection (5)(a), (b) or (c)—
(a) may provide for the planning obligation to be modified in accordance with the application or in some other way,
(b) may not have the effect that the obligation as modified is more onerous in its application to the applicant than in its unmodified form, and
(c) may not have the effect that an obligation is imposed on a person other than the applicant or that the obligation as modified is more onerous in its application to such a person than in its unmodified form.
(7) Subsection (6)(b) does not apply to a determination in response to the second or a subsequent application under this section in relation to the planning obligation; but such a determination may not have the effect that the development becomes economically unviable.
(8) In making a determination under this section the authority must have regard to—
(a) guidance issued by the Secretary of State…
(10) Where an authority determine under this section that a planning obligation is to have effect subject to modifications, the obligation as modified is to be enforceable as if it had been entered into on the date on which notice of the determination was given to the applicant.
(13) In this section and section 106BC—
"affordable housing requirement" means a requirement relating to the provision of housing that is or is to be made available for people whose needs are not adequately served by the commercial housing market (and it is immaterial for this purpose where or by whom the housing is or is to be provided);
"the appropriate authority" has the same meaning as in section 106A;
"the development", in relation to a planning obligation, means the development authorised by the planning permission to which the obligation relates;
"English planning obligation" means a planning obligation that—
(a) identifies a local planning authority in England as an authority by whom the obligation is enforceable, and
(b) does not identify a local planning authority in Wales as such an authority.
"106BC Appeals in relation to applications under section 106BA
(1) Where an authority other than the Secretary of State—
(a) fail to give notice as mentioned in section 106BA(9),
(b) determine under section 106BA that a planning obligation is to continue to have effect without modification, or
(c) determine under that section that a planning obligation is to be modified otherwise than in accordance with an application under that section,
the applicant may appeal to the Secretary of State.
(6) Subsections (3) to (8) , (10) and (11) of section 106BA apply in relation to an appeal under this section as they apply in relation to an application to an authority under that section, subject to subsections (7) to (15) below.
(7) References to the affordable housing requirement or the planning obligation are to the requirement or obligation as it stood immediately before the application under section 106BA to which the appeal relates.
(8) References to the first, the second or a subsequent application in relation to a planning obligation are to an appeal under this section against a determination on the first, the second or a subsequent application in relation to the obligation (whether or not it is the first such appeal).
(9) Section 106BA(5)(d) (discharge of affordable housing requirement) does not apply in relation to an appeal under this section.
(10) Subsection (11) applies if, on an appeal under this section, the Secretary of State—
(a) does not uphold the determination under section 106BA to which the appeal relates (if such a determination has been made), and
(b) determines that the planning obligation is to be modified in accordance with section 106BA(5)(a), (b) or (c).
(11) The Secretary of State must also determine that the planning obligation is to be modified so that it provides that, if the development has not been completed before the end of the relevant period, the obligation is treated as containing the affordable housing requirement or requirements it contained immediately before the first application under section 106BA in relation to the obligation, subject to the modifications within subsection (12).
(12) Those modifications are—
(a) the modifications necessary to ensure that, if the development has been commenced before the end of the relevant period, the requirement or requirements apply only in relation to the part of the development that is not commenced before the end of that period, and
(b) such other modifications as the Secretary of State considers necessary or expedient to ensure the effectiveness of the requirement or requirements at the end of that period.
(13) In subsections (11) and (12) "relevant period" means the period of three years beginning with the date when the applicant is notified of the determination on the appeal.
(14) Section 106BA and this section apply in relation to a planning obligation containing a provision within subsection (11) as if—
(a) the provision were an affordable housing requirement, and
(b) a person against whom the obligation is enforceable were a person against whom that requirement is enforceable.
(15) If subsection (11) applies on an appeal relating to a planning obligation that already contains a provision within that subsection—
(a) the existing provision within subsection (11) ceases to have effect, but
(b) that subsection applies again to the obligation.
(16) The determination of an appeal by the Secretary of State under this section is to be final.
"(3) The amendments made by this section and that Schedule apply in relation to planning obligations within the meaning of section 106 of the Town and Country Planning Act 1990 entered into before (as well as after) the coming into force of this section.
(4) Sections 106BA, 106BB and 106BC of the Town and Country Planning Act 1990, and subsection (5) of this section, are repealed at the end of 30 April 2016.
(5) The Secretary of State may by order amend subsection (4) by substituting a later date for the date for the time being specified in that subsection.
(6) The Secretary of State may by order make transitional or transitory provision or savings relating to any of the repeals made by subsection (4)."
It is to be noted that no order was made under s 7(5), and no transitional or transitory provisions or savings were made under s 7(6).