England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER COUNTY COURT
HIS HONOUR JUDGE HOLMAN
SE300196

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/07/2004

Lord Justice Wall:

Introduction

1. This appeal, from a decision of His Honour Judge Holman given in the Manchester County Court on 12 December 2003, raises a short but difficult point of construction relating to the combined effect of sections 84 and 85 of the New Roads and Street Works Act 1991 (the Act) and Regulation 2(2) of the Street Works (Sharing of Costs of Works) Regulations 1992 (the Regulations).
2. Also necessary for an understanding of the case, although not part of the primary or secondary legislation, is the Code of Practice dated June 1992 entitled Measures Necessary where Apparatus is affected by Major Works and approved by the Secretaries of State for Transport, Wales and Scotland under sections 84(2) and 143 of the Act (The Code of Practice). We were also referred to the Manual of Contract Documents for Highway Works (the Manual) issued by the Highways Agency, the Scottish Executive Development Department and the National Assembly for Wales dated August 2001, which also provides guidance for the implementation of section 84 of the Act and the Code of Practice.
3. The context in which the appeal arises is a claim by British Telecommunications plc (BT) against Gwynedd Council (Gwynedd) for what the judge described as "the princely sum of £684.14" representing non payment for what is identified in the claim form as "preparation of Detailed Client Estimate for proposed alterations to the Claimant's equipment" arising out of road works undertaken by Gwynedd and in relation to which it was necessary for steps to be taken to protect apparatus belonging to BT which was affected or likely to be affected by the works.
4. Gwynedd denied its liability to make the payment, and a two-day trial, with leading counsel instructed on both sides ensued. As will be apparent, a point of wide application was at stake. The judge gave judgment for BT, although he left the precise amount to be decided at a later date in default of agreement. He also made a declaration in the following terms (the references in brackets to the parties are my additions): -

"… except in a case where, as described in Appendix C1.2 of the Code of Practice, by agreement between the authority (here Gwynedd) and the undertaker (here BT), the procedures set out in Appendix C to the code can be foreshortened and the Draft Scheme and Budget Estimate stage omitted, an authority is required to meet its share of an undertaker's reasonable costs of providing a Detailed Estimate under Appendix C4 of the Code."

5. The judge was told, as indeed we have been, that the point is of considerable importance, not only to these particular parties but also to other highway authorities and utilities. He accordingly gave permission to appeal, and the appeal has been ably argued on both sides in this court by the same leading and junior counsel who appeared before the judge.

The practical question raised by the case

6. As identified by Mr. Stephen Sauvain QC and Ms Ruth Stockley for Gwynedd in their skeleton argument, the practical question raised by the case is whether or not utility undertakers such as BT in the instant case are entitled to charge for the preparation of a detailed estimate and specification relating to measures for the diversion or protection of their apparatus that may be required during major road works carried out by the local highway authority. The answer to this question requires a somewhat tortuous trawl through the Act, the Regulations and the Code of Practice. Like the judge, I start with the Act. It is I think helpful, as with the declaration made by the judge, to bear in mind that wherever the word "undertaker" is used, that is the role fulfilled by BT in the instant case: similarly, the word "authority" describes Gwynedd.

The Act

7. The general statutory scheme for major highway, bridge or transport works, which are likely to affect an undertaker's apparatus, is contained in sections 84 and 85 of the Act. Section 84(1) of the Act imposes on both highway authority and the undertaker a duty to take such steps as are reasonably required –

(a) to identify any measures needing to be taken in relation to the apparatus in consequence of, or in order to facilitate, the execution of the authority's works,

(b) to settle a specification of the necessary measures and determine by whom they are to be taken, and

(c) to co-ordinate the taking of those measures and the execution of the authority's works,

so as to secure the efficient implementation of the necessary work and the avoidance of unnecessary delay.

8. Section 84(2) of the Act empowers the Secretary of State to issue or approve a code of practice "giving practical guidance as to the matters mentioned in subsection (1) and the steps to be taken by the authority and the undertaker". Section 84(3) provides for arbitration in relation to any dispute over the matters identified in section 84(1); and section 84(4) provides for compensation to be payable by either the authority or the undertaker in the event of a failure to comply with an agreement between them or the decision of the arbitrator.
9. Section 85(1) of the Act introduces the concept of "allowable costs". It provides that: -

Where an undertaker's apparatus in a street is affected by major highway works, major bridge works or major transport works, the allowable costs of the measures needing to be taken in relation to the apparatus in consequence of the works, or in order to facilitate their execution, shall be born by the highway, bridge or transport authority concerned and the undertaker in such manner as may be prescribed.

10. Section 85(2) delegates to the Regulations the power to make provision as to the costs allowable for this purpose; section 85(4) provides that the Regulations shall provide for the allowable costs to be borne by the authority and the undertaker in such proportions as may be just, and section 85(6) empowers the Regulations to make provision as to the time and manner of making any payment required under the section. The balance of the section is immaterial for current purposes.

The Regulations

11. Regulation 3 provides that, in broad terms, the authority pays the undertaker 82% of the allowable costs incurred by the undertaker in executing measures which need to be taken in respect of its apparatus because of the works, leaving the undertaker to bear the remaining 18%, provided that the authority pays in advance 75% of the estimate of the 82%. If it does not make such a payment, it meets all the allowable costs. We were told that in practice authorities always make the advance payment.
12. The term "allowable costs" is defined in Regulation 2(2), which provides: -

For the purposes of these Regulations "allowable costs" means all the reasonable costs of the measures needed to be taken for the purpose specified in section 84(1) of the Act except costs incurred –

(a) in preparing the initial set of plans and estimates in relation to those measures (but not in preparing any further plans and estimates which the authority may require);

(b) (does not apply here).

The Code of Practice

13. The Code of Practice, as the judge pointed out, is a lengthy document running to some 91 pages. It is dated June 1992, and pre-dates the Regulations, which were made on 15 July 1992, laid before Parliament the same day and came into force on 1 January 1993. Chapter 9 of the Code of Practice is headed "General Statement of Financial Agreement". Paragraph 9.2 deals with what is called "The Standard Cost Sharing Principle". It identifies the 82% / 18% division of the "allowable costs" and then defines that term in the following way: -

The "allowable costs" are the costs of the works described in Appendix C section 4C and do not include financing charges, nor the costs of either party in respect of that part of the work described in Appendix C section C2, C3 and C4 which consists of preliminary planning and liaison.

14. We therefore go to Appendix C to the Code of Practice, which is headed "Procedures for necessary measures in relation to undertakers' apparatus" and in paragraph C1.1 states its intention to set out "the recommended procedures to be adopted for consultation, planning and the execution of any undertakers' works that may be required as the result of the relevant authority's works". Under the heading "Outline of Procedure", paragraph C1.2 contains an important qualification. It states: -

While the procedures set out in this Appendix represent those, which would normally be followed for larger-scale works, they may, depending on local circumstances and agreement, be foreshortened by the omission of certain of the following stages.

15. With that proviso, Appendix C of the Code of Practice identifies seven basic stages. We are concerned with the first three. The stages are: -

(i) preliminary inquiries

(ii) draft scheme and budget estimates

(iii) detailed scheme and detailed estimates

(iv) formal notices and advance orders

(v) selection of contractor and issue of main orders

(vi) construction

(vii) financial monitoring and payment.

16. The text of the Code of Practice deals with items (i) to (iii) above in section C2, C3 and C4 of Appendix C. Section C2, which deals with preliminary inquiries are short. It reads: -

At this stage the highway authority would seek from the undertakers details of their apparatus within a specific section of the scheme, which is being considered for improvement without making any commitment to the scheme. Undertakers should provide such information as they have available from records and draw attention to any likely special problems, which could arise from the authority's works…. Information should be provided normally within 10 days.

17. Pausing here, it is clear from Regulation 2(2), and common ground between the parties, that the undertaker's response to the authority's preliminary inquiries is not part of the "allowable costs".
18. Similar considerations apply to section C3 of Appendix C, which deals with draft schemes and budget estimates. The Code of Practice envisages the authority submitting details of the proposed scheme to undertakers, and the latter responding with preliminary details of the effects on their apparatus together with budget estimates for the necessary works and an indication of any special requirements involved, a number of examples of which are given. The Code of Practice goes on to state that: -

Budget estimates provided by undertakers should include all costs likely to arise from the necessary measures in consequence of the authority's works as far as can be assessed at the draft design state, including administration and supervision charges, and specifying a base date. These estimates should be provided normally within 20 working days.

Where undertakers are not aware of the general position in line and depth of their apparatus, they should at this stage take any necessary steps to determine this information.

This stage may be followed by discussions between the authority and undertakers, either separately or jointly, to consider any modifications to the scheme which may assist in facilitating the programming of the works and / or reducing the cost of diversionary works.

19. Once again, it is common ground that the draft schemes and budget estimates envisaged by Appendix C3 of the Code of Practice fall within the exception to paragraph 2(2)(a) of the Regulations and are not "allowable costs".
20. Section C4 of Appendix C deals with the final detailed scheme and detailed estimates. It is at this point that the dispute between the parties crystallises. Section C4 begins with these words: -

Following joint discussions, the authority should submit to each undertaker details of the final design with working drawings and an outline programme. The undertaker should respond, normally within 25 working days, by providing details of their requirements (if there is a requirement to provide more than one detailed estimate, the utility may charge for such additional estimates) as follows –

(i) Description of the necessary measures, clearly stating the reason for diversion or protection and giving details of the existing apparatus affected, such as lengths and sizes of pipes / cables / ducts, depths of cover and ages …..

(ii) A detailed specification of the works required as appropriate –

(11 examples are given)

(iii) A detailed estimate with itemised costs also to include –

(four particular items are identified)

(iv) Provisional programmes and timescales for works, including as appropriate

(five particular examples are given)

21. Section C4 concludes with a sub-paragraph (v) suggesting that it may be advantageous for the civil engineering element of the undertaker's works to be undertaken by the authority's contractor as part of the main works, and a suggestion that stage C4 may be followed by further discussions between the authority and undertaker to consider modifications to the works in order to minimise costs.
22. It is common ground that the "Detailed Client Estimate for proposed alterations to the Claimant's equipment" for which BT seeks to charge is what might be called an "Appendix C4" document. In other words, it was produced at the stage envisaged in Appendix C4 to the Code of Practice in response to Gwynedd's submission to BT of the details of its final design with working drawings and an outline programme (see paragraph 20 above). In short, BT's case is that the preparation of this estimate at the C4 stage is part of the allowable costs: Gwynedd says that it is not.
23. The question for judge, accordingly, and for this court is whether or not the cost to BT of preparing an estimate at the C4 stage falls within Regulation 2(2) as part of BT's allowable costs, or whether it is excluded under Regulation 2(2)(a) because it represents costs incurred "in preparing the initial set of plans and estimates in relation to the measures" which Gwynedd intended to carry out.

The Manual

24. The guidance contained in the Manual derived from consultation with the National Joint Utilities Group (NJUG). Paragraph 1.1.3 of the Manual states that NJUG, representing all its membership, has agreed to follow the procedures embodied in the guidance during the implementation of diversionary works.
25. In its commentary on the Code of Practice, the Manual confirms at paragraph 2.1.6 that undertakers should not charge, and that authorities' project sponsors should not pay for Preliminary Inquiry Information (C2). At C3 stage: -

Budget estimates from the undertakers should include all costs likely to arise from the necessary measures in consequence of the (authority's) works as far as can be reasonably assessed at preliminary design stage, including administration and supervision charges and specifying a base date.

26. In relation to C4, the Manual makes the point that when undertaking diversionary works under the terms of the Act, the Act imposes a statutory relationship between the parties. Paragraphs 4.1.4 and 4.1.5 of the Manual read as follows: -

4.1.4. The (Highway Authority) will accept the cost of the preparation of initial C4 estimates. The exception to this rule is smaller–scale works when the preliminary or draft scheme stages could be omitted and the process could commence with the submission of a detailed scheme to the Undertakers. In cases when no C3 budget estimate has been prepared the Undertaker should prepare the C4 estimates free of charge. Payment for C4 estimates should only be made when the estimate has been received in full and all clarifications have been resolved with the Undertaker

The Code of Practice states that Undertakers are entitled to charge for additional C4 estimates requested after the initial C4 estimate. When amendments are required, the (Highway Authority) will only pay for the costs of the necessary revisions to the initial estimate. The (Highway Authority's) agent shall verify when amendments are made, that costs are for 'revisions' only.

27. Mr. Sauvain accepted that the terms of the guidance set out in the Manual supported BT's case. He made the point, however, which was accepted by the judge (see paragraph 40 below) and which is plainly correct, that the Manual, whilst possibly representing how the Act and the Regulations were implemented in practice, could not be any more an aid to statutory construction than the Code of Practice.

The facts as found by the judge

28. Given the issue, which falls for determination, the facts of the case, which are not in issue, recede in importance and I can summarise them, from the judgment, quite shortly. Gwynedd, acting as agent for the National Assembly of Wales, proposed to undertake major bridge works on three bridges on the A494 near Bala – Pont Llafar, Llafar Cattle Creep and Pont Llanfor. These works potentially involved moving part of BT's apparatus.
29. It is plain that in undertaking the procedures for the necessary measures in relation to BT's equipment, the parties followed the Code of Practice. The Preliminary Inquiries (the C2 Stage) were undertaken by what is described as "map by Email". BT allowed Gwynedd to enter its web site in order to obtain the relevant extract from an Ordnance Survey map showing the approximate line of the cables and of the junction boxes.
30. On 10 July 2001 Gwynedd wrote to BT initiating the Appendix C3 stage (to which specific reference is made at the head of the letter). The letter enclosed two copies of the draft scheme plans and sought from BT "preliminary details of the effects on your apparatus together with budget estimates for the necessary works and an indication of any special requirements involved". There followed a lengthy list of information requested. The judge cites two further extracts from this letter namely: -

If you are not confident or aware of the general position in line and depth of your apparatus you would take any necessary steps to determine this information at your own expense…..

Detailed discussions should follow in order to consider any modifications to the scheme which may assist in facilitating the programming of the works and / or reducing the costs of diversionary works. Following the consultation period, the Authority will submit details of the final design scheme with working drawings and an outline programme.

31. BT responded on 24 July 2001. Its engineer, Mr. Hughes, identified the relevant junction boxes and cables. He drew attention to the existence of fibre optic cables, which are particularly sensitive. Mr. Hughes concluded that it would not be necessary for the cables to be diverted, but that they would need to be "slewed", a process involving securing the ducts to a rigid brace and moving them sideways. It was not appropriate, he concluded, to leave the matter of the protection of the apparatus to Gwynedd and its contractors. Mr. Hughes used a computer model to calculate the estimated costs.
32. The judge commented that despite the Code of Practice envisaging discussions at this point, none appears to have taken place before Gwynedd produced its Final Detailed Scheme and Detailed Estimates (FDSDE) on 27 July, stated to be pursuant to Appendix C4 of the Code of Practice.
33. Following receipt of the FDSDE from Gwynedd on 30 July 2001, Mr. Hughes visited the site. On 3 August he acknowledged receipt of Gwynedd's FDSDE and added: -

BT will accept your letter as an order to produce the detailed specification and will invoice you on completion of this work whether or not your scheme progresses to the execution stage.

34. As it happened, the site visit caused Mr Hughes to change his mind about slewing the ducts, which he concluded would not be possible. He also concluded that BT could entrust appropriate protection work to Gwynedd's contractor. Accordingly, when BT's Appendix C4 estimate was sent to Gwynedd under cover of a letter dated 4 August 2001, the figures proposed were much lower, because much less work was involved. The judge found on the facts that Mr. Hughes explained the changed position to his opposite number at Gwynedd before sending the letter of 4 August.
35. BT put in its invoice for the preparation of the C4 estimates in December 2001 Correspondence ensued, but Gwynedd refused to pay.
36. By way of background to the dispute, the judge noted BT's evidence that it received about 30,000 to 33,000 Appendix C3 budget notices each year. Each inquiry took on average 4.5 hours to deal with. BT said it received about 3,500 Appendix C4 requests per year. Each one took on average 16 hours to deal with. In the year ended 31 March 2003, 33,202 Appendix C3 notices were received requiring on average 4.4 hours each: in the same year 3,497 Appendix C4 notices were received, requiring an average of 13 hours each.

The arguments addressed to the judge

37. The judge helpfully summarised the arguments addressed to him in the following way. For BT they were: -

(1) the word "initial" in Regulation 2(2)(a) may embrace more than just a first set of plans / estimates, but it is far removed from "final" and Appendix C4 is concerned with the final detailed scheme and detailed estimates.

(2) The wording in brackets near the start of Appendix C4 "(if there is a requirement to provide more than one detailed estimate the utility may charge for such additional estimates)" does not means that BT may not charge for the first detailed C4 estimate.

(3) The plain meaning of paragraph 9.2 of the Code of Practice is that such costs incurred at Appendix C4 stage as represent preliminary planning and liaison are not recoverable. That stage is at an end once joint discussions have taken place and the final design is submitted. The dividing line comes after the words "following joint discussion" at the start of C4.

(4) The definitions in the Oxford English Dictionary (OED) are of assistance. The primary definition of "initial" is: "of or pertaining to a beginning; existing at, or constituting, the beginning of some action or process; existing at the outset; primary; sometimes = elementary, rudimentary." Of "preliminary" it is "a subordinate step, measure, statement, etc., that precedes another to which it is introductory or preparatory. Chiefly in pl. = preparatory measures or arrangements".

(5) The words "set of plans" are directly analogous with the word "scheme". The initial set is the draft scheme.

(6) There is no valid distinction to be drawn between the cost of implementing measures to safeguard apparatus and the cost of providing plans and estimates. Section 85 is simply the money aspect. Section 84 deals with the taking of the measures. This is in accordance with the title given to each section.

38. The judge summarised the arguments for Gwynedd in the following way:

(1) the Act draws a distinction between (1) the identification and planning of measures which may need to be taken to protect apparatus – addressed in section 84; and (2) the measures themselves and who is to meet the costs of those measures – addressed in section 85 and the Regulations.

(2) The Regulations follow this distinction between, on the one hand, identifying settling and co-ordinating the measures i.e. planning and, on the other hand, the measures themselves. The allowable costs are the costs of the works themselves, not the preparation.

(3) C4 is the final part not of the process but of the planning aspect. By reference to the word "initial" the specification produced at C4 is BT's plan for dealing with their apparatus and is provided at the beginning of the works. By reference to the word "preliminary" the C4 plans are preparatory to the works that are to be carried out.

(4) The words in Regulation 2(2) "but not in preparing any further plans and estimates which the authority may require" (the reasonable cost of which is allowable) are remarkably similar to the words in brackets near the start of C4. Those words in C4 would be unnecessary if the first C4 estimate was chargeable, since it would inevitably follow, if the first was chargeable, that subsequent ones would be as well.

(5) This interpretation is consistent with the objectives set out in section 84. It would be contrary to the purpose, spirit and intent of the legislation if an authority got all the information it needed at C4 stage (for which it had to pay) and then, in the light of that information, had to change its final plans (so that it would have to pay again).

The judge's decision

39. The judge identified the issue succinctly in these terms: "In cases where stages C2 and C3 are used, is the cost of the preparation of the first C4 estimate an allowable cost under section 85(2) and Regulation 2(2)?" He reminded himself, correctly, that his task was to interpret the legislation. Thus whilst it was impossible to understand the workings of the legislation without reference to the Code of Practice, the Code was not legislation, and in the event of a conflict between the two, the legislation must prevail.
40. The judge also directed himself, again correctly, that although the paragraphs from the Manual cited in paragraphs 24 to 26 above supported BT's case, and whilst they represented a considered view of an official nature, it was but a view, and could not absolve the court from its interpretative duty.
41. The judge also pointed out that in a number of places the Code of Practice did not use the same language as the Regulations. He gave as an example the fact that, under the Regulations, BT could not recover the cost incurred in preparing the initial set of plans and estimates (his emphasis) whereas under the Code of Practice at C3 BT was required to respond with preliminary details of the effects on their apparatus together with budget estimates for the necessary works, and section 9.2 of the Code referred to Preliminary planning and liaison (his emphases).
42. Having carefully summarised the submissions made to him in the terms set out at paragraphs 37 and 38 above, the judge reached his conclusion by means of the following process of reasoning: -

40. I do not find my task particularly easy. As is not uncommon, the Regulations and Code of Practice are not a model of clarity. However, applying what I believe to be a common sense, everyday approach to the word "initial", if one looks at the various stages in the process, C3 is the initial stage. C4 may not be the end of the process, but it cannot properly be categorised as initial. I agree also with Mr Mayes QC (for BT) that "set of plans" can properly be equated with "scheme". The draft scheme is the initial step. It is difficult to think of a final scheme being an initial stage, when it has been preceded by a draft scheme, and where it is also plainly contemplated that there will be discussions after the draft, which may result in changes to the scheme. Since the word in the Regulations is "initial", I do not strictly need to address the word "preliminary" but, even if I do, C4 can hardly be described as introductory or preparatory. The process has gone beyond that by this stage. Some assistance can be derived from the wording of the headings to the sections in the Code of Practice. C3 concerns the draft scheme – plainly initial. C4 concerns the final scheme, and consistently with that a detailed specification and estimate is required in contrast with C3, which call only for preliminary details of effects and budget estimates. The word preliminary appears in C3 but not C4.

41. Section 9.2 of the Code of Practice does not undermine this view. It excludes from allowable costs only those parts of the C4, which consist of preliminary planning and liaison. Joint discussions prior to the issuing of the final scheme are an obvious example and self-evidently this preliminary planning and liaison element will be greater, if stages C2 and C3 have been omitted. It may be a small point, but if the detailed estimate is part of the preliminary process, but the specification is part of the works, it seems a little odd that the requirements for the detailed estimate appear as (iii) in C4 after the requirements for the specification which appear as (ii).

42. In the pre-litigation correspondence (Gwynedd) repeatedly based its position on the wording in brackets near the start of C4 – "if there is a requirement for more than one detailed estimate the utility may charge for such additional estimates". This is point 4 in my summary of Mr. Sauvain's submissions (for Gwynedd). Whilst it is certainly a possible interpretation that it means you cannot charge for the first C4 estimate that view is, as I see it, inconsistent with the proper interpretation of regulation 2(2). Where there is inconsistency, the regulation prevails.

The judge accordingly found for BT.

The grounds of appeal

43. The appellant's notice advances eight grounds of appeal. Paragraph 1 repeats the argument that on a correct interpretation of Regulation 2(2) the sum claimed by BT was not an "allowable cost" but fell within the "initial set of plans and estimates" for which BT had to bear its own costs. Paragraph 2 asserts that the judge had erred in law by failing to look at the full wording of Regulation 2(2) and sections 84 and 85 of the Act, with the consequence that he failed to appreciate the distinction drawn between the "measures" required to be taken in relation to undertakers' apparatus (to which the cost sharing regulations generally applied) and the planning of those measures (to which the cost sharing rules did not apply).
44. Paragraph 3 of the grounds asserts that judge erred in his interpretation of the Code of Practice, which similarly distinguished between the preliminary planning and liaison process and the actual measures required to be taken in relation to undertakers' apparatus. Paragraph 9.2 of the Code, properly construed, indicated that the sum claimed by BT was not recoverable.
45. Paragraph 4 of the grounds asserts that the judge also erred in his interpretation of the word "initial" in Regulation 2(2). "Initial" referred to the planning work done at the beginning of the process. It also distinguished between the plans and estimates produced at the C4 stage of the Code of Practice and any further plans or estimates which may later be required, and which both the Regulations and Appendix C4 itself recognised were chargeable.
46. Paragraph 5 of the grounds asserts that the judge failed to take into account that the C4 stage was the first point at which plans and estimates were prepared by BT in response to a committed scheme from Gwynedd. Similarly, paragraph 6 of the grounds asserts that the judge erred in his interpretation of the word "preliminary" in paragraph 9.2 of the Code. The C4 "plans and estimates" were preparatory to the works, which were to be carried out. It did not make any sense to distinguish (in the C2-C4 regime) between planning that was preliminary and planning that was not preliminary. There was no conflict between the use of this word and the proper meaning of "initial set of plans and estimates" in the Regulations.
47. Paragraph 7 of the grounds assert that, in accepting that the reference in the Regulations to "set of plans" could properly be equated with the word "scheme" as used in the Code of Practice, the judge had failed to observe that the word "scheme" when used in the Code related to Gwynedd's scheme, and not to anything produced by BT.
48. Finally, the grounds assert the judge erred by rejecting Gwynedd's argument in relation to the words in the first paragraph of Appendix C4, namely: "if there is a requirement to provide more than one detailed estimate, the utility may charge for such additional estimates". The grounds repeat the argument that these words are otiose if BT could charge for the first detailed estimate.

The argument for the appellant in this court

49. The grounds of appeal were skilfully developed in oral argument before us by Mr. Sauvain, who laid particular emphasis on the point, which he argued the judge had failed properly to grasp, that the Regulations made it clear that the term "allowable costs" meant all the reasonable costs of the "measures" needed to be taken for the purpose specified in section 84(1) of the Act. The "measures" identified in section 84(1) were "any measures needing to be taken in relation to the apparatus in consequence of, or in order to facilitate, the execution of the authority's works"; that is to say the works that the undertaker may require. Section 85, which is the provision that deals with cost sharing specifically relates allowable costs to the "measures" needing to be taken in relation to the apparatus in consequence of the works, or in order to facilitate their execution.
50. Thus, Mr. Sauvain submitted, the Act and the Regulations read together, drew a distinction between the "measures" themselves (i.e. the works which were required) and the identification of those measures, the settling of a specification of those measures and the co-ordinating of those measures (i.e. the preliminary, planning and liaison stages). This meant, he argued, that the detailed estimate to be provided by the undertaker at the Appendix C4 stage in response to the authority's "details of the final design, with drawings and an outline programme" was not an allowable cost, although any additional estimates later required by the authority would be. Thus the Regulations did draw the line at cases where authorities, having put the undertaker to the expense of responding to the scheme and preparing a set of plans and estimates, then require undertakers to carry out further work – for example where the authority changes the scheme after it has commenced, or when it goes beyond what the Code of Practice may require. Mr. Sauvain gave as an example extra trial holing, identified at paragraph C1.4 of the Code, and the additional estimates envisaged at Appendix C4.
51. Mr. Sauvain also submitted that the judge had misinterpreted the somewhat inelegantly expressed paragraph 9.2 of the Code of Practice (set out at paragraph 13 above). That paragraph, he argued, distinguished between "the works described in Appendix C section C4" (which are allowable) and "the costs of either party in respect of that part of the work described in Appendix C2, C3 and C4, which consists of preliminary planning and liaison," (which are not allowable). On any reading of this paragraph, he argued, the view taken in the Code of Practice was that some part of what is contained in C4 was not allowable because it consisted of preliminary planning and liaison.
52. Moreover, Mr. Sauvain argued, the "works" (plural) described in paragraph 9.2 were both the "measures" referred to in C4 (i). and the "works" described in C4 (ii) - i.e. the works that are needed to be undertaken in relation to the apparatus in consequence of the undertaker's works, or in order to facilitate the execution of the highway authority's works - see s.85 and Regulation 2(2). The "work" (singular) involved in determining those measures or in preparing a specification of those measures (i.e. everything done up to and including the C4 stage) was, he argued, preliminary planning and liaison work, and thus not an allowable charge.
53. Mr. Sauvain also criticised the judge's interpretation of the word "initial" in Regulation 2(2). He argued that the word "initial" in the Regulations referred to a "set of plans and estimates", and that there was no reference in the Code of Practice to an undertaker ever being required to produce a "plan" per se, although plans might be prepared and produced at the C2, C3 or C4 stages. Estimates, he accepted, may be produced at both the C3 and C4 stages. C4 contemplated that there may be additional estimates for which the utility may charge. There was, however, he submitted, no common sense reason why the second plan (produced at the C3 stage) should be part of an "initial set of plans" but the second estimate (at the C4 stage) should not be part of an "initial set . . . of estimates". Furthermore, the reference to a "set of plans and estimates" could be related to the planning stage of identifying and specifying the undertakers' required works. All the information contained at C4 stage could be said to be part of such a plan or set of plans - as could the information to be supplied at C2 and C3. Mr. Sauvain saw no difficulty in using the OED definition of "initial" in the Regulations to refer to the specification and other documents produced at the C4 stage. The specification, he submitted, would be BT's "plan" for dealing with their apparatus within Gwynedd's scheme. It would be the plan that had been provided at the beginning or outset of the works themselves. Finally on this point, Mr. Sauvain submitted that the word "initial" also distinguished between the C4 plans and estimates and any further plans or estimates that may later be required and which both the regulations and C4 itself recognised were chargeable.
54. Mr. Sauvain criticised the judge for failing to take into account that the C4 stage was the first point at which plans and estimates were prepared by the undertaker in response to a committed scheme from the highway authority. The C3 stage was in respect of a draft scheme, which may or may not be firmed up into a final scheme. Mr. Sauvain pointed to the evidence given by BT's witness and set out in paragraph 36 above, that BT received many times more C3 requests than they do C4 requests.
55. Mr. Sauvain was similarly critical of the judge's interpretation of the word "preliminary" in paragraph 9.2 of the Code of Practice. He submitted that there was no difficulty with the use of the word "preliminary" in the Code of Practice. Once again he was content to adopt the definition of "preliminary" in the OED. The Appendix C4 "plans and estimates", he argued, were preparatory to the works that are to be carried out. There was, accordingly, no conflict between the use of this word and the proper meaning of "initial set of plans and estimates" in the Regulations.
56. Furthermore, in holding that the reference in the Regulations to "set of plans" could properly be equated with "scheme" as used in the Code of Practice, Mr. Sauvain argued that the judge had failed to observe that the word "scheme" when used in the Code related to the local authority's scheme and not to the "measures needing to be taken in relation to the apparatus in consequence of, or in order to facilitate, the execution of the authority's works" referred to in sections 84 and 85 of the 1991 Act and cross referred to in Regulation 2(2). The word "plans" in the Regulations, he submitted, referred to something being produced by the undertaker.
57. Mr. Sauvain also placed reliance on the wording at the end of the first paragraph in Section C4 namely: "if there is a requirement to provide more than one detailed estimate, the utility may charge for such additional estimates". Those words, Mr. Sauvain argued, were otiose if BT could charge for the first detailed estimate.
58. Mr. Sauvain also pointed out that the reference in the Regulations to "any further plans and estimates which the authority may require" in Regulation 2(2)(a) – for which a charge may be made – was, as he put it "uncannily similar to" (and consistent with) the wording in Appendix C4. This statement in C4, he argued, would have been quite unnecessary if the initial C4 estimate was subject to a charge – in such a case later estimates would necessarily also be chargeable. The need for the reference in the Code of Practice was to point out that the Gwynedd had only one bite at the free estimate cherry once they had produced their final plans.
59. In relation to the argument that C4 is only the initial stage where the Appendix C procedures have been foreshortened and stages C2 and C3 omitted, Mr. Sauvain argued that there was no obvious reason why the preparation of a detailed estimate and specification should fall outside the "allowable costs" where the foreshortened procedure in paragraph C1.2 was adopted if that work was otherwise usually allowable. BT had to accept that in such a case the work was not allowable because on their dictionary interpretation of the word "initial" such an estimate and specification would obviously be the first and only document provided by the undertaker to the authority. Curiously, in such a case they would be required to pay for the higher level of work involved in a detailed estimate specification when in the usual case (as argued by BT) they would only have to pay for the lesser preliminary work.
60. Finally, and for the avoidance of doubt, Mr. Sauvain argued that not only could the provisions of the Manual have no relevance to the interpretation of the statute or regulations: the interpretation therein contained was also incorrect.

The argument for BT

61. For BT, Mr. Ian Mayes QC analysed the position in the following way. The Regulations provided for certain of the costs of work done pursuant to the Act to be borne solely by the highway authority or the utility undertaker and other costs to be shared in prescribed proportions. Among the costs to be borne solely by the utility undertaker were those incurred in preparing the initial set of plans and estimates in relation to measures needed to be taken for the purposes specified in section 84(1) of the Act. The costs of preparing any further plans and estimates which the highway authority may require are "allowable costs" - see Regulation 2(2)(a) - and are to be shared.
62. It followed, Mr. Mayes argued, that where a utility undertaker prepared a Budget Estimate in accordance with Appendix C3 of the Code of Practice, the costs were not allowable costs and were to be borne solely by the utility undertaker because they were costs incurred in preparing the "initial set of plans and estimates". However, he argued, except in a case where, as described in Appendix C1.2 of the Code of Practice, by agreement between the highway authority and the utility undertaker the procedures set out in Appendix C to the Code could be foreshortened and the Draft Scheme and Budget Estimate stage omitted, a Detailed Estimate under Appendix C4 of the Code was a further estimate and the costs of preparing it were "allowable costs" which fell to be shared.
63. Mr. Mayes accepted that if there was no C3 Budget Estimate and, by agreement, the parties proceeded straight to C4, then the C4 Detailed Estimate was the initial estimate and the utility undertaker alone bore the cost of preparation. The Code of Practice envisaged that the C2 and C3 stages could be omitted and the procedure start at the C4 stage in smaller-scale works or where schemes have minimal effect on the utility undertaker's apparatus - see Appendix C 1.2. Thus the passage in brackets towards the end of the first paragraph of Appendix C Section C4, upon which the Appellant had placed great emphasis, namely:

(if there is a requirement to provide more than one detailed estimate, the utility may charge for such additional estimates)…"

was not, on BT's construction, redundant.

64. Mr. Mayes argued that, as the evidence at trial had showed, in most instances, there are just two schemes and estimates: namely (a) the draft scheme and budget estimate (C3); and (b) the final detailed scheme and detailed estimate (C4). However, in the event that the parties did go direct to the Appendix C4 detailed estimate stage but two detailed estimates were required, he accepted that the costs of preparing the initial one of these were not "allowable costs"; but, he argued, the costs of preparing any further estimate(s) were "allowable costs" (as they were not costs of the initial estimate).
65. In BT's submission, upon a proper construction, the Regulations were consistent with the practical guidance contained in the Code of Practice approved by the Secretary of State; but if the Code of Practice could not sensibly be read in conjunction with the Regulations, he agreed that it was the Regulations, which prevailed.
66. On the interpretation of the inelegant sentence in Paragraph 9.2 of the Code of Practice set out at paragraph 13 of this judgment, Mr. Mayes submitted that the part of Appendix C4 "which consists of preliminary planning and liaison" was (1) the "joint discussions" following which the highway authority submitted to the utility undertaker details of the final design with working drawings and an outline programme and (2) in those instances where the parties, by agreement, proceeded direct to C4, the cost of the initial detailed estimates but not any further detailed estimates.
67. Thus, Mr. Mayes argued, the construction of the Regulations for which BT contended accorded both with the Code of Practice and with the guidance given in the Manual which, he pointed out, had been given by the Highways Agency and the National Assembly for Wales in August 2001, after the Act had been in force for eight years.

Discussion and analysis

68. As I indicated at the outset of this judgment, and like the judge, I do not find the construction of the Act and the Regulations easy. I readily acknowledge that my mind vacillated during the course of the able oral arguments presented to us. In particular, and despite Mr. Mayes' reassuring submissions, I detected a possible tension between the strict meaning of the statutory language, and the pragmatic manner in which it had been interpreted in practice on the ground. Having reflected on the matter, however, I have come to the conclusion that the construction proffered by Mr. Mayes is correct, and that the judge reached the right conclusion.
69. I accept Mr. Sauvain's proposition that the "measures needed to be taken for the purpose specified in section 84(1) of the Act" identified in Regulation 2(2) are "the measures needing to be undertaken in relation to the apparatus" of the undertaker. I also accept that section 84 of the Act draws a clear distinction between the "measures" required to be undertaken in relation to the undertaker's apparatus, and "the execution of the authority's works". It is, I think, clear, therefore, that the "allowable costs" identified in Regulation 2(2) relate exclusively to the measures "needing to be taken in relation to the apparatus" of the undertaker.
70. Whilst the Act does not define the word "measures", I also accept that in the context of sections 84 and 85 "measures" mean the works needed to protect the undertaker's apparatus. That this is so seems to me clear both from section 84(1)(b) which enjoins the parties to take such steps as are reasonably required "to settle a specification of the necessary measures", and from section 85(1) which refers to "the allowable costs of the measures needing to be taken in relation to the apparatus in consequence of the works".
71. However, I am unable to accept Mr. Sauvain's arguments (1) that "allowable costs" relate only to the costs of the execution of the physical work required to move or otherwise protect the undertaker's apparatus, and (2) that BT's Appendix C4 estimate in this case is excluded from the concept of allowable costs because it represents costs incurred "in preparing the initial set of plans and estimates". Whilst Mr. Sauvain's construction is plainly arguable – and, indeed, is attractive in its simplicity - I do not think it is what the Act and the Regulations mean or envisage.
72. In my judgment, it is plain from Regulation 2(2) itself that the phrase "all the reasonable costs of the measures" is not limited to the cost of the physical execution of the measures. Self-evidently, measures designed to protect the equipment of an undertaker do not materialise out of thin air, or spring fully armed from the head of the undertaker's engineer. They have to be planned.
73. Section 85(2) and (4) of the Act delegate to the Regulations the power to identify and apportion allowable costs. That is precisely what Regulation 2(2)(a) does. It excludes "costs incurred in preparing the initial set of plans and estimates in relation to those measures (but not in preparing any further plans and estimates which the authority may require)". The crucial question, therefore becomes: what are the initial set of plans in this case?
74. At this point, it seems to me, we have to turn to the Code of Practice, and the first three of the seven stages identified in paragraph C.2, namely, (i) preliminary inquiries (ii) draft scheme and budget estimates and (iii) detailed scheme and detailed estimates. These concepts are, of course, fleshed out at Appendix C2, C3 and C4, and the heading of Appendix C4 adds the word "final" to the phrase "detailed scheme and detailed estimates". It is common ground that these stages were followed in this case. This is not a case in which they were foreshortened, or in which the parties moved straight from C2 to C4.
75. I do not propose to repeat the matters set out in the Code of Practice under the three headings C2, C3 and C4. It is, I think, sufficient for me to say that on the facts of this case I am unable to agree that the C4 plans and estimates prepared by BT are "the initial set of plans and estimates in relation to (the) measures". Mr. Sauvain's submission seems to me, with respect, to be contrary to the structure of the scheme contained in the Act and the Regulations as fleshed out in the Code of Conduct, and inconsistent with the fact that in this case the parties clearly regarded themselves as proceeding from stage Appendix C2 through stage C3 and then to stage C4.
76. In other words, in my judgment, the instant case was plainly not one where the C4 plans prepared by BT were "the initial set of plans and estimates". The initial set of plans and estimates were the C3 document described in paragraph 31 of this judgment. It follows that the "Detailed Client Estimate" for which BT seeks to charge is a "further estimate" and thus an allowable cost within Regulation 2(2).
77. Whilst it is, of course, by no means conclusive, the language of the stages identified in the Code of Practice indicates clearly that Appendix C2 and C3 are preliminary inquiries and draft schemes and budget estimates: C4 is the final detailed scheme and detailed estimates. Although the language is different, this fits conveniently with the wording of paragraph 2(2)(a). In my judgment, therefore, on the facts of this case, the costs excluded by paragraph 2(2)(a) are those at stages C2 and C3: the C4 costs are not excluded and are part of the allowable costs of the measures.
78. This conclusion needs, of course, to be tested against the other objections made by Mr. Sauvain. I see no difficulty, firstly, with the words in brackets in paragraph 2(2)(a) of the Regulations. The C4 plans and estimates in this case are "further plans and estimates" over and above those prepared at stage C3. Moreover, the phrase, "further plans and estimates" in my judgment, is wide enough to cover both the C4 plans prepared following completion of stage C3 and any additional plans which Gwynedd might have required following receipt of the C4 plans. The relationship between BT and Gwynedd, it must be remembered, is statutory not contractual, and it was common ground that in exercising its powers as a statutory authority, Gwynedd had the power to require further plans and estimates from BT.
79. The phrase "further plans and estimates" is also wide enough, in my judgment, to cover the situation in which the parties have moved directly to stage C4 (leaving out stage C3) with the result that the C4 plans represent "the initial set of plans and estimates". In such a case the undertaker could not charge for the first C4 plans, because they would be "the initial set". It could, however, charge for any "further plans and estimates" which the authority required.
80. In this context, therefore, I do not think that the word "initial" causes any difficulty. The "initial set of plans and estimates" are either those produced at stage C3 (in which case they are not chargeable) or those produced at stage C4 where there has been no stage 3. In neither case can the undertaker charge for them.
81. Equally, whilst it would have been preferable if paragraph 9.2 of the Code of Practice had followed the wording of the Regulations, I do not have any difficulty in applying the word "preliminary" to the C3 stage, or to the C4 stage where they has been no stage C3. Whilst there may be some circumstances in, which it is necessary, in relation to a given event, to draw a clear distinction between "initial" and "preliminary", what is here under discussion is a process – a series of stages - and in that context the distinction between the precise meaning of the two words becomes blurred. The initial stages of a football match occur only after the referee has blown his whistle to start the game. Everything prior to that moment is preliminary to the match. However, where a process such as that envisaged by the Act and the Regulations is concerned, it seems to me perfectly possible to describe the C2 and C3 stages (and part of the C4 stage where there has been no C3) as either the initial or the preliminary stages in the process of taking the steps set out in section 84(1) of the Act. I certainly do not see the use of the word "preliminary" in the context of the Code of Practice as inconsistent with the interpretation of Regulation 2(2)(a) which I have reached.
82. If the Code of Practice is inconsistent with the Act and the Regulations it is, of course, the latter, which prevail. The sentence in the second part of paragraph 9.2 of the Code of Practice (and set out at paragraph 13 above) is most unfortunately worded, but, in my judgment, Mr. Mayes' answer to it is the right one. Paragraph 9.2 of the Code envisages the situation in which the parties have proceeded direct to stage C4, with the consequence that the work undertaken by the undertaker represents the work normally undertaken in stages C2 and C3, and with the further consequence that the C4 work represents both the initial set of plans and estimates within paragraph 2(2) of the Regulations, and the "preliminary planning and liaison" within paragraph 9.2.
83. Finally, I do not accept Mr. Sauvain's argument that the phrase in paragraph 2(2)(a) of the Regulations ("but not in preparing any further plans and estimates which the authority may require") and its echo at the start of Appendix C4 necessarily implies that a charge cannot be made for the C4 plans and estimates. As I have already indicated, the Regulations can, in my judgment, properly be read as meaning that whilst the undertaker cannot charge for the Appendix C3 estimate, it can both charge for the first C4 estimate, and is entitled to charge for any additional estimates required. Paragraph 2(2)(a) of the Regulations, as I have already, I hope, made clear, is to be read as excluding the C3 estimates, but not those required at the C4 stage, where C4 follows C3.
84. For all these reasons, and despite the able arguments of Mr. Sauvain, I am satisfied that the judge came to the correct conclusion, and I would dismiss this appeal.

Riders

85. I add two riders. The first is that, as the judge recognised, the interpretation which he preferred involved the obvious danger, as he put it, that: -

…. there is an obvious temptation to (the undertaker) to do as little as possible at C2 and C3, so as to load as much as possible of its costs into C4. This may well be contrary to the spirit and intent of the code of practice. Self-interest must not prevail, as the guiding principles in the code of practice make clear.

86. The judge made these comments in response to a submission from Mr. Mayes voicing BT's concern, if the court found for Gwynedd, that it would become commonplace for authorities to seek to omit stages C2 and C3. The judge went on to say that: -

….. as is stated in the Executive Overview to the Code of Practice, there must be close co-operation and co-ordination and "the need for this underpins all the provisions of the code". I have the clear impression that relationships between the parties have been allowed to deteriorate over a period of time (which period began well before this dispute) to such an extent that the objectives of the code of practice have been undermined. Where the fault lies, I do not know. Each side accuses the other of being intransigent. I rather suspect that, as Mr. Sauvain observed, there has been fault on both sides. They need to start working together again in order "to obtain the optimum solution".

.

87. I respectfully endorse those sentiments. Both Highway Authorities and Utility Undertakers are, in their different ways, servants of the public. No doubt the pressures on budgets provide a powerful incentive for both authorities and undertakers to avoid incurring costs wherever possible. However, both the Act and the Code of Practice require authorities and undertakers to co-operate, and it is to be hoped that the decision of this court will assist in clearing the air.
88. My second rider may well provide one issue on which the parties can unite. If the interpretation I have reached is not that intended by either Parliament or the various Agencies involved, the reason, in my judgment, lies primarily in the fact that the draftsmen of the Code of Practice have, for reasons which I do not understand, expressed themselves in different language from that contained in the Statute and the Regulations. A Code of Practice, which is designed to facilitate the operation of a statutory scheme, should surely follow the language of the Statute and the attendant Regulations. If, for any reason, the draftsmen choose to depart from that language, they should explain clearly what they mean and why they are not using the statutory terminology.
89. The explanation in the instant case may lie in the fact that the Code of Practice, which was approved by the three relevant Secretaries of State in June 1992, appears to pre-date the Regulations, and was the product of a Committee (the Highway Authority & Utilities Committee). Whether or not the cart preceded the horse, the committee ought to have had access to the draft Regulations, which were made on 15 July 1992. The use of different language is unfortunate and appears to demonstrate a lack of sensible co-ordination.

Lord Justice Jacob:

90. I agree.

Lord Justice Auld:

91. I also agree.