England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (THE VICE CHANCELLOR)

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 29th March 2001

LORD JUSTICE LATHAM:

1. In these proceedings, JA Pye (Oxford) Ltd ("Pye") seeks a declaration that it is not liable to pay, or if liable only liable to pay a proportion of, £428,000 and interest to South Gloucestershire District Council ("SGDC") and Bristol City Council, North Somerset District Council and Bath and North East Somerset District Council ("the Councils"), as successors to the Avon County Council ("Avon"). The councils counterclaim for the payment of that sum. On the 19th October 2000, the Vice-Chancellor gave judgment for the Councils; Pye now appeals against that judgment.
2. The dispute centres on two agreements made between Pye and Avon, one dated the 26th October 1979 ("the October 1979 Agreement"), the second contained in letters dated the 8th April and 10th July 1987 ("the 1987 agreement"), relating to the construction of a road. The 1979 agreement was expressed as having been made in pursuance in particular of Avon's powers under s. 52 of the Town and Country Planning Act, 1971 and was conditional upon the grant of planning permission to Pye for a proposed industrial and residential development. On the affidavits there is a dispute of fact as to whether there was any connection between the construction of the road, the cost of which was, by the 1979 agreement, to be borne by Pye, and the proposed development. Amongst other issues of law, Pye contend that in the absence of such a connection the purported exercise of Avon's powers under s. 52 to make the agreement was unlawful. The Councils as successors to Avon, contend that no such connection was required. As a result the matter came before the Vice-Chancellor for trial of the issue:

"Whether on the hypothesis that there was no connection between the development permitted on Pye's land and the construction of the link road to the west of the land (as contended in the affidavit of Ian Southgate sworn on the 1st March 1999) [the Councils] are nevertheless entitled to succeed on their counterclaim."

3. The Vice-Chancellor held, inter alia, that no such connection was required for the valid exercise of Avon's powers under s. 52 of the Town and Country Planning Act 1971. The appeal comes before us on the sole ground that:

"In reaching that decision the Learned Judge failed to apply the principles established by the House of Lords in Tesco Stores -v- Secretary of State [1995] 1WLR 759 to the effect that a planning obligation offered in such circumstances was no more than an attempt to buy planning permission and was ultra vires because it was Wednesbury unreasonable"

4. Pye carries on the business of a builder and developer. For some years prior to 1979 Pye had been seeking to develop land at Bridge Yate, Bristol. The land in question was bounded on the east by a road known as the Bath Road, and on the west by a disused railway line. Its southern end was defined by a road known as Victoria Road running diagonally in a south easterly direction between the railway line and the Bath Road. The northern edge was defined by existing residential development. Bisecting the land is a road known as Poplar Road running in a north easterly direction again running from the disused railway line to the Bath Road. Pye proposed development for industrial purposes south of Poplar Road and for residential purposes north of Poplar Road. The road with which we are concerned was intended to divert Victoria Road so that it crossed the proposed development in an east/west direction emerging onto the Bath Road at a right angle T-junction. For this link road to be built, a section of the disused railway would have to be crossed, which was at that time in the ownership of the British Railways Board.
5. Applications were made by Pye for planning permission in April 1973 (SG 11180), January 1977 (K 448/3) and November 1977 (K448/11). These applications were made to the then planning authority, Kingswood District Council ("Kingswood"). Avon was the highway authority and also the relevant County planning authority. In its capacity as highway authority, it had pointed out serious deficiencies in the highway system in the vicinity of the appeal site. As part of its negotiations with the relevant authorities, Pye had sought to remedy some of these deficiencies by proposing an agreement under s. 52 of the Town and Country Planning Act, 1971 in similar terms to the October 1979 agreement. The applications were nonetheless refused.
6. Pye appealed against these refusals of planning permission. A public inquiry was held in May and September 1978. In December 1978 the Inspector recommended that all three appeals should be dismissed. But in dealing with the highway issues, having noted the deficiencies in particular of the stretch of Victoria Road in question, and considered the draft agreement proposed by Pye, the inspector stated that this draft met the requirements of Avon, and expressed his satisfaction that it provided an acceptable solution to the road and access problems and should be a pre-requisite of any planning permission. The Secretary of State, despite the inspector's recommendations, allowed Pye's appeal in respect of application K448/11 on the 23rd July 1979. The permission granted was subject to a number of conditions, including one precluding the development of more than 40% of the industrial land or any of the residential land until the proposed link road had been provided to the satisfaction of Kingswood.
7. In anticipation of the Secretary of State's decision, an agreement was made between Pye, Avon and Kingswood on the 19th July 1979 which was intended to give effect to the draft which had received the approval of the inspector. In the event, this agreement was overtaken by events. In December 1978, Pye had submitted a further application in relation to the industrial development, K448/12. Kingswood remitted this application to Avon which resolved to grant permission subject to the satisfactory conclusion of a further agreement in like terms, which resulted in the making of the October 1979 agreement between Pye and Avon.
8. The relevant provisions of the agreement are as follows:

"1. This agreement and undertaking is conditional upon the grant of planning permission on Planning Application K448/12 and shall be binding on the parties in the event of such planning permission being granted.

........

3. If it appears to the company and the County Council either that the company is unlikely to be able to acquire such of the land shown edged green on the first plan as is required for the works in accordance with clause 4 hereof or that such acquisition is unlikely to proceed in sufficient time for the timetable outlined below to be fulfilled the County Council shall use its best endeavours to acquire the said land to that end and the company shall repay to the County Council such reasonable expenses including the purchase price thereof as the County Council shall actually have incurred in those endeavours irrespective of whether the said land has been acquired by the County Council.

4. Within three years after the grant of planning permission in accordance with Clause I hereof the company shall construct and dedicate to the public the Link Road being a vehicular highway with associated footways and ancillary works from Victoria Road to Bath Road .......

6. The company shall neither cause nor permit to be developed and brought into use more than 40 per centum by area of the land (designated for industrial use) prior to the dedication to public vehicular traffic of the Link Road ......"

9. Pye in the first instance sought to purchase the land itself. It withdrew its offer to the British Railways Board at Kingswood's request. On the 22nd January 1982, Kingswood bought a six mile stretch of the disused railway, including the land necessary to complete the link road for £5. Pye was unsuccessful in its attempts to purchase this land from Kingswood, and accordingly in February 1983 requested under clause 3 of the agreement that Avon use its best endeavours to obtain the land on the basis that Pye would repay Avon such reasonable expenses including the purchase price as Avon should actually incur. After protracted negotiations, it was agreed that Kingswood should sell the land to Avon at a price to be assessed in default of agreement by the Lands Tribunal acting as arbitrators on the assumption that Avon had made an unopposed compulsory purchase order to acquire the land for highway purposes. It was ultimately agreed between Pye and Avon that Pye, rather than providing an indemnity to Avon for the purposes of any such proceedings before the Lands Tribunal, should take over those negotiations and if necessary any proceedings on behalf of Avon (the 1987 agreement) The parties were unable to agree a price and proceedings were accordingly commenced; in the result the figure assessed in accordance with the agreed criterion was £428,000. In the meantime, the relevant land was conveyed to Pye on the 15th March 1988; and the link road was duly constructed.
10. It is perhaps surprising that against that background Pye now seek to submit that the 1979 agreement was unlawful, although one can understand that they might feel a sense of grievance that land bought for £5 should have to be purchased for £428,000. The issue before us is a stark question of law. On behalf of Pye, Mr Barnes QC submits that on the assumption that the 1979 agreement is not connected with the development, it was nothing more than an agreement whereby Pye purchased its planning permission; he submits that on a proper analysis of the decision of the House of Lords in Tesco Stores -v- Environment Secretary [1995] 1 WLR 759 an agreement entered into for such a purpose is one in respect of which Avon must have taken into account an irrelevant or immaterial consideration and is accordingly Wednesbury unreasonable. Mr Howell, on behalf of the councils submits that that is to misunderstand that decision, and to fail to make a proper distinction between what is relevant for the purposes of the grant of planning permission, and any conditions that might be attached to such planning permission, and an agreement made under s. 52 of the Town and Country Planning Act 1971.
11. It is, it seems to me, essential to bear in mind that we are concerned in this case not with the validity either of the grant of planning permission, or of any conditions attached to that permission, but with the vires of the agreement under s. 52. The differences in the wording of the sections which give to local authorities their respective powers are of fundamental importance. At the time they were contained in the Town and Country Planning Act 1971, although they have now been superseded by the provisions of the Town and Country Planning Act 1990. Section 29 of the Town and Country Planning Act 1971 (now s. 70 of the 1990 Act) required a local planning authority when dealing with an application for planning permission to have regard to the provisions of the development plan so far as material "and to any other material considerations" and gave the planning authority power to grant planning permission, either unconditionally or subject to such conditions as it thought fit or to refuse permission.
12. It is trite law that the power to impose conditions is not unlimited. Lord Denning said in Pyx Granite -v- Ministry of Housing [1958] 1 QB 554 at 572:

"Although the planning authorities are given very wide powers to impose "such conditions as they think fit", nevertheless the law says that those conditions, to be valid, must fairly and reasonably relate to the permitted development. The planning authority are not at liberty to use their powers for an ulterior object, however desirable that object may seem to them to be in the public interest."

13. In Newbury Council -v- The Environment Secretary [1981] AC 578 at page 599, Viscount Dilhorne said:

"It follows that the conditions imposed must be for a planning purpose and not for any ulterior one, that they must fairly relate to the development permitted. Also they must not be so unreasonable that no reasonable planning authority could have imposed them."

14. Lord Scarman accepted a similar formulation at page 619.
15. It follows, therefore, that on the assumption that we have to make, the terms of the agreement could not have been made conditions of the planning permission. Further, as will be seen from the decision in Tesco Stores -v- Environment Secretary [supra] to which I shall return, the agreement would not be a material consideration for the purposes of granting planning permission.
16. Section 52 of the Town and Country Planning Act 1971 (now s. 106 of the 1990 Act) however, provided a power to enter into an agreement with the owner of land "for the purpose of restricting or regulating the development or use of the land ".
17. In Good -v- Epping Forest District Council [1994] 1WLR 376, this court was asked to consider whether a s. 52 agreement was valid even though its terms were not capable of being conditions attached to the grant of planning permission. Ralph Gibson LJ concluded:

"For my part I accept the submission of Mr Gray that, upon the true construction of s. 52 of the Town and County Planning Act 1971, the powers of a planning authority under that section are not controlled by the nature or extent of its powers under s. 29 of the Act of 1971; and I reject the submission advanced for the plaintiffs that those powers are so controlled. The extent of the s. 52 powers is to be determined by reference to the words there used having regard to the context. In particular they give power to a planning authority to enter into an agreement with the owner of the land "for the purpose of restricting or regulating the development or use of land." If such an agreement is required by a planning authority, and the requirement is made for such a purpose, with due regard to relevant considerations, and is not unreasonable (see the first and third requirements stated in Newbury District Council -v- Secretary of State for the Environment [1981] AC 578 at 618), such requirement is not ultra vires merely because the purpose could not be validly achieved by the imposition of a condition under s. 29 of the Act of 1971. The two statutory powers are distinct and the exercise of either of these distinct powers has separate consequences and is subject to different procedures.

If such an agreement is required, and the land owner agrees to enter into it, the validity of the agreement depends upon the same primary test, namely whether it was made "for the purpose of restricting or regulating the development or use of the land"."

18. In Tesco Stores -v- Environment Secretary [supra] the House of Lords was asked to consider how the court should approach a case where it was suggested that a developer had sought to buy permission by the offer of a s. 106 agreement. In that case the appellant had offered to provide by way of such an agreement full funding for a link road as part of its application for permission for an out of town superstore. The inspector had found that the need for the link road was not created by the proposal for the superstore, although there would be an increase in traffic generated by the store. The inspector recommended that permission be granted to the appellant, and that a rival proposal, which was not accompanied by the offer of funding for the link road, should be rejected. The Secretary of State rejected the inspector's recommendations and refused the appellant's application, stating that the relationship between the funding of the link road and the proposed food store was tenuous and could not be treated as a reason for granting the appellant planning permission. In dismissing the appellant's ultimate appeal, the House of Lords held that the offer of funding for the link road was sufficiently related to the proposed development to constitute a material consideration for planning purposes but that the Secretary of State had been entitled to consider that it was of insufficient weight to justify the grant of permission.
19. At page 769, Lord Keith of Kinkel having cited the passage in the speech of Viscount Dilhorne in the Newbury case to which I have already referred, said at page 769:

"The same test, so it is claimed, falls to be applied to a planning obligation for the purpose of deciding whether it amounts to a material consideration in connection with an application for planning permission. The parallel, however, cannot be exact. No doubt if a condition is completely unrelated to the development for which planning permission is sought it will not be lawful. But this case is not concerned with the lawfulness of Tesco's planning obligation, and there may be planning obligations which have no connection with any particular proposed development. Further in Good -v- Epping Forest District Council [1994] 1 WLR 376 the Court of Appeal held that an agreement under s. 52 of the Town and Country Planning Act 1971, the predecessor of s. 106 of the Act of 1990, might be valid notwithstanding that it did not satisfy the second of the Newbury tests. So I do not think that reference to the Newbury case is particularly helpful for the purpose of deciding whether a particular planning obligation is material to the determination of a planning application with which the obligation is associated."

20. At page 770, he said:

"An offered planning obligation which has nothing to do with the proposed development, apart from the fact that it is offered by the developer, will plainly not be a material consideration and could be regarded only as an attempt to buy planning permission. If it has some connection with the proposed development which is not de minimis, then regard must be had to it. But the extent, if any, to which it should affect the decision is a matter entirely within the discretion of the decision maker and in exercising that discretion he is entitled to have regard to his established policy."

21. Lord Ackner and Lord Browne-Wilkinson and Lord Lloyd of Berwick agreed with the reasons given by Lord Keith. Lord Hoffmann also agreed; in his speech at page 779, he dealt with the same topic. He said:

"But the use of the Newbury tests in relation to planning obligations can cause confusion unless certain points are borne clearly in mind.

First, the Newbury case was concerned with the validity of a condition and there is a temptation to regard a planning obligation as analogous to a condition. But s. 70(2) does not apply to planning obligations. The vires of planning obligations depends entirely upon the terms of s. 106. This does not require that the planning obligation should relate to any particular development. As the Court of Appeal held in Good -v- Epping Forest District Council [1994] 1WLR 376 the only tests for the validity of a planning obligation outside the express terms of s. 106 are that it must be for a planning purpose and not Wednesbury unreasonable. Of course it is normal for a planning obligation to be undertaken or offered in connection with an application for planning permission and to be expressed as conditional upon the grant of that permission. Once the condition has been satisfied, the planning obligation become binding and cannot be challenged by the developer or his successor in title on the ground that it lacked a sufficient nexus with the proposed development."

22. It is therefore clear that it is not a pre-condition for the validity of a s. 52 agreement that it should relate to any proposed development. The vires of any such agreement depends simply and solely upon whether or not it was entered into "for the purpose of restricting or regulating the development or the use of the land". The October 1979 agreement was clearly entered into for the relevant purpose. Indeed there is, in effect, no dispute about Avon's powers to enter into it. The question is whether or not, in doing so, it acted unreasonably in a Wednesbury sense.
23. The basis of the argument is that, on the assumption that we have to make for the purpose of these proceedings, the conditional obligation to be undertaken by Pye by the October 1979 agreement could not have been a material consideration for the purposes of considering the planning application. It is submitted that the only conclusion that we can properly reach on the material before us is that it was taken into account. The planning application was accordingly not lawfully granted. In those circumstances, the agreement, dependent as it is on the grant of planning permission, must itself be vitiated, on the basis that no reasonable planning authority could decide to enter into such an agreement or alternatively that in determining to enter into the agreement, it must have taken into account immaterial considerations.
24. In support of this submission, we have been referred not only to the passages from Lord Keith's speech to which I have already referred, but also a further passage from Lord Hoffmann's speech, at page 781:

"It is I suppose theoretically possible that a Secretary of State or Local Planning Authority may say in terms that he or it thought that a proposed development was perfectly acceptable on its merits but nevertheless thought that it was a good idea to insist that the developer should be required to undertake a planning obligation as the price of obtaining his permission. If that should ever happen, I should think that the courts would have no difficulty in saying that it disclosed a state of mind which was Wednesbury unreasonable."

25. In my judgment, these arguments do precisely what Lord Keith and Lord Hoffmann warned against. They confuse the tests to be applied to the validity of the planning permission on the one hand, and the agreement on the other. I accept that if Avon, as planning authority, took into consideration the agreement when determining to grant planning permission, the grant of planning permission could properly have been challenged. That is because Avon would have taken into account the matter which it was not entitled to take into account under s. 29 of the Town and Country Planning Act 1971. But it does not follow that the agreement is in any way infected. There is nothing to suggest that the considerations which were taken into account by Avon when deciding to enter into the agreement were anything other than proper highway or planning considerations. The underlying planning application provided an opportunity to obtain a perfectly proper benefit for the locality. If there was any vice, it was in granting the planning permission, not in determining to enter into the agreement. The passage in Lord Hoffmann's speech upon which reliance has been placed is dealing with the question of materiality in relation to the grant of the planning permission, and is not concerned with the lawfulness of entering into the agreement. In any event, it is to be noted that the state of mind of the decision maker described by Lord Hoffmann is not the necessary consequence of assuming that there is no connection between the agreement and the proposed development. And it is not a state of mind that we are required to assume for the purposes of the issue before us.
26. I confess that I have been troubled about the way in which this case has ultimately come before the court. The nature of the preliminary issue has created an artificiality about the way in which the case has proceeded. Further, we were not asked to deal with the question of whether or not Pye should be entitled at this late stage to deny the validity of the 1979 agreement. The consequence of its argument is that it has obtained an invalid planning permission which has been treated as valid and has been implemented to Pye's benefit, on the basis of the 1979 agreement. Whilst no one can now challenge the planning permission, Pye submits that it is entitled to challenge the making of the agreement. It seems to me that this is precisely what Lord Hoffmann was saying was impermissible in the passage at page 779 which I have already cited.
27. We have also heard argument on the councils' respondent's notice, in which the councils submit that whatever may be the position as to the 1979 agreement, they are nonetheless entitled to the sum which they counterclaim under the 1987 agreement. For myself, I would doubt whether an agreement which was essentially providing a practical method of giving effect to the 1979 agreement could survive a finding that the 1979 agreement was unlawful. At the time of the 1987 agreement, both parties were assuming the 1979 agreement was valid. In the event, it is unnecessary to decide the question.
28. I would dismiss this appeal.

LORD JUSTICE PETER GIBSON: I agree.

LORD PHILLIPS MR: I also agree

ORDER:
29. Appeal Dismissed with costs summarily assesses in the sum of £24,899.73.
30. Judgment debt in the sum of £1,098.074.01 to be paid within 8 weeks.
31. Leave to appeal to the House of Lords refused
(Order does not form part of approved Judgment)