England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/02/2010

Sir Edward Evans-Lombe:

1. I have before me for determination certain preliminary issues in proceedings between the Claimant trustees ("the Lessors"), the proprietors of certain land at Stewponey Stourton in Staffordshire, comprising a largely worked out gravel pit ("the site"), which was let by the Lessors to the First Defendant, Biffa Waste Services Limited ("Biffa") pursuant to a lease dated 22^nd November 1993 ("the Lease") for the purpose of enabling Biffa to dispose of waste in the course of its business by depositing that waste in the cavity created by previous gravel workings on the site. The issues to be determined arise from the provisions of clause 8(6)(d) of the Lease.
2. The relevant law governing the process of contractual interpretation is not in issue between the parties. It is summarised in a passage in the speech of Lord Hoffmann in Chartbrook Limited v Persimmon [2009] UKHL 38 where he says at paragraph 14:

"There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensations Scheme Limited v West Bromwich Building Society [1998] 1WLR 896, 912-913. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean."

3. The words of the sub-clause must be construed in accordance with their ordinary meaning when read in the context of the whole of the lease itself and all the background knowledge to be imputed to the parties to it from the matrix of fact of which they would have been aware at the time the lease was made. In the present case the relevant matrix of fact is to be found in an agreed statement of facts attached to the order of Deputy Master Smith of 5^th June 2009 directing the preliminary issues. A copy of that statement is appended to this judgment. The preliminary issues to be decided are set out at paragraphs 17 and 18 of it.

Background facts at the date of entry into the Lease

4. At the date of entry into the Lease the site had the benefit of a conditional planning permission of 27^th October 1987 for both extraction and landfill operations and a waste disposal licence granted on 18^th February 1981 and modified on 7^th October 1982. At this time landfill activities were regulated by the Control of Pollution Act 1974 ("COPA"). The landfill provisions were about to be replaced by the provisions of Part 2 of the Environmental Protection Act 1990 ("EPA"). Though the EPA was on the statute book its relevant provisions relating to landfill had not been brought into force at the date the Lease was entered into. They were brought into force in May 1994, but their imminence was recognised by certain provisions of the Lease. The basic pattern of regulation remained the same under EPA as it had been under COPA, namely that a waste disposal operator like Biffa was only able to dispose of relevant waste on land if that land had the benefit of planning permission for that purpose and the operator held a waste disposal licence issued under COPA and later EPA covering its operations. Waste disposal licences issued under COPA continued in force under EPA until they expired.
5. At the time the Lease was entered into the waste disposal licence in respect of the site, issued under COPA on 18^th February 1981 to the previous occupier of the site, was transferred to Biffa. The site had the benefit of planning permission subject to conditions granted by Staffordshire County Council on 27^th October 1987. The general effect of the planning permission is set out in paragraph 8 of the attached statement of agreed facts. Condition 20 of the planning permission provided for restoration of the excavated gravel pit to forestry use by 31^st December 2003 by filling the cavity, referred to in the Lease as the "Void Space" and there defined in Clause 1, created by the gravel extraction with imported inert waste in phases so that in the result the contours of the site would coincide with an approved plan. The site was to be filled in five phases appearing on the plan starting at its northern end.
6. As described in paragraphs 9 and 10 of the statement of agreed facts, at the time the Lease was entered into the parties contemplated that Biffa might apply for a variation of the plans for restoration of the site after the gravel had been extracted prescribed by the Planning Permission to correct what appeared to be an anomaly and which would have the effect of enlarging the Void Space. It is the Defendants' case that clause 8(6)(d) was inserted into the Lease to enable this to happen.

The Lease

7. The Lease was for a term of 99 years from 1^st October 1993 subject to a tenant's option to determine the Lease in the event that "waste disposal operations" and "landfill activities" have ceased and the site has been restored and a period of aftercare has elapsed. The payment of rent is governed by the provisions of clauses 6 and 7. By clause 6(2) of the Lease a "certain rent" of £150,000 per annum was payable during the first 18 years of the term. By clause 6(3), during such time as the site is used for "landfill activities" a yearly rent equal to 25% of the "Gross Landfill Revenue" was payable. By clause 6(5), in the event that the tenant [Biffa] obtained a site licence permitting disposal of certain types of waste not covered by the existing site licence, the "certain rent" would be increased to £250,000 per annum and the percentage of the Gross Landfill Revenue payable would be increased from 25% to 32%. By clause 7(6) of the lease the "certain rents" ceased to be payable from such date as the "Void Space" on the site had been filled and no further Void Space had become available. Upon clause 7(6) operating, a much smaller "surface rent" became payable under clause 6(7) for the remainder of the term reflecting any agricultural or forestry use of the site thereafter. It will be seen, therefore, that the operation of clause 7(6) would deprive the Lessor of all the substantial benefits to the Lessor which the Lease provided for.
8. The provisions of the Lease which I have to construe to dispose of the preliminary issues in this case are contained in sub-clause 8(6)(d) of the Lease. Clause 8 sets out in 26 sub-clauses the tenant's covenants under the Lease.
9. Sub-clause 8(5)(a) requires Biffa:-

"(5)(a) Within the period of 12 months from the date hereof at its cost to apply for and use all reasonable endeavours to obtain a Planning Permission and a Site Licence in respect of the Demised Land and the Severn Trent land [a parcel of land that did not originally belong to the Lessors] in its discretion acceptable to the tenant in accordance with clause 6(5)… "

10. Clause 6(5) contains the provisions under which the "certain rents" are increased to £250,000 per annum if the types of waste licensed to be deposited on the site are extended to cover certain further types which were not at the grant of the Lease permitted to be so deposited.
11. It is important, in my view, to set out the other sub-clauses of sub-clause (6) as well as sub-clause (d) so that sub-clause (d) can be seen in the context of its following sub-clauses. The whole of sub-clause (6) reads as follows:-

"(6)(a) To use all reasonable endeavours to procure the carrying-out of the Extraction Operations as quickly as is economically viable and feasible and to do so in such a way as to create the maximum practicable Void Space in the Demised Land.

(b) To compact the Waste Materials in such a way as to make the best practicable use of the Void Space.

(c) Subject to sub-clause (d) next following to carry out the landfill activities within the term so as to achieve restoration in accordance with the Site Licence and the Planning Permission.

(d) At the Tenant's cost to apply for and use all reasonable endeavours to obtain a Planning Permission and Site Licence to enable the Tenant to carry out the Landfill Activities to the highest practicable contours.

(e) Not to deposit or permit to be deposited any radioactive waste on the Demised Land."

12. The preliminary issues with which I have to deal and which arise from sub-clause 8(6)(d) are as follows:-

"Preliminary issues

17. In the light of the above facts, and considering the matters pleaded in the Amended Particulars of Claim dated 28 November 2008 at paragraphs 29 and 29A thereof and in the Amended Defence dated 15 May 2009 at paragraphs 21 to 25, and on a proper construction of the Lease, is clause 8(6)(d) of the Lease capable of obliging the First Defendant:

(a) to apply to modify the 1994 site licence so as to extend the area for disposal into Phases 3, 4 and 5?

(b) to apply to modify the 1994 site licence so as to limit wastes therein permitted to (i) strictly inert wastes; alternatively (ii) the range of wastes permitted by the 1977 site licence as modified in 1982 or 1994; alternatively (iii) for such other range or types of waste and at such daily infilling rate as would not have amounted to a "substantial change" pursuant to the Pollution Prevention and Control Regulations 2000, such that the resultant site licence (if granted) would have permitted the importation of waste until at least November 2004 under the transitional provisions set out in the said Regulations?

(c) to apply for a landfill permit under the Pollution Prevention and Control Regulations 2000 and the Landfill Regulations 2002? In particular, is a landfill permit a "Site Licence" within the meaning of clause 1 of the Lease?

(d) to apply for planning permission to permit use of the site for the depositing of waste beyond 31 December 2003, namely the date provided for in condition 20 to the 1987 permission?

18. If the answer to any part of 17 is "yes" are the facts (if proved) that:

(a) such a licence as so limited was not financially viable for the First Defendant (paragraph 28(a) of the Amended Defence); and/or

(b) such a licence as so limited would yield such modest inputs as would threaten the First Defendant's abilities to achieve restoration within the timescales set out in the 1987 planning permission and/or the site licence (paragraph 28(b) of the Amended Defence)

relevant to whether the First Defendant had used all reasonable endeavours within the meaning of clause 8(6)(d) of the Lease?"

13. It seems to me that the specific questions under paragraph 17(a) – (d) are really subsumed in one overall question, namely whether, as the Lessor contends, the sub-clauses are to be construed as containing a broad obligation on Biffa to make such applications for planning permission and site licence or variations of existing planning permission and site licence, as may from time to time become necessary in order to ensure that landfill activities on the site continue for as long as possible, or whether, as Biffa contends, it contains a much narrower requirement that Biffa obtain a variation of its planning permission and site licence in respect of the site so that the cavity to be filled is enlarged to enable landfill to continue upwards to the highest practicable contours of the land comprising the site.

Events post 22^nd November 1993

14. On 30^th June 1994, Biffa applied for and was granted a modification of the restoration contours of the site by Staffordshire County Council acting in its planning capacity. Biffa contends that by doing so it discharged entirely the requirement of sub-clause 8(6)(d).
15. Up to August 1994 Biffa had been working on disposing of waste by filling the spaces comprising stages 1 and 2 of the intended landfill operation which comprised the northern end of the site and filling those spaces was still incomplete. On 19^th August 1994 the County Council, acting in its waste regulatory capacity, modified Biffa's site licence so as to restrict the landfill operation to the land comprising phases 1 and 2. At the same time they increased the daily limit on waste to 2,000 tons from 400 tons which was the previous limit in force when the Lease was granted. Thus, in order to be able to deposit waste in the areas comprising phases 3, 4 and 5, Biffa would have to apply for the grant of a fresh site licence. As paragraph 12 of the statement of facts describes, to obtain such a fresh licence Biffa were required to undertake engineering works on phases 3, 4 and 5 to line those parts of the site against seepage.
16. In November 1996 Biffa applied for a fresh site licence in respect of phases 3, 4 and 5 also seeking to extend the range of waste permitted to be deposited to include inter alia "Difficult Wastes". The determination of this application was much delayed and was only finally made, granting Biffa's request, on 13^th July 2001. By this date Biffa's application was governed by new rules, the Pollution Prevention and Control (England and Wales) Regulations 2000 ("the PPCRs"). These rules were made under section 2 of the Pollution Prevention and Control Act 1999 which was legislated to give effect to a European Directive on integrated pollution prevention and control (96/61/EC). The PPCRs did not directly apply to existing landfill sites until 2007. However, new sites and sites which were proposing a "substantial change in operation" were to be regulated from an earlier date. Critically it became unlawful to extend the operations on an existing licensed site after January 2001 so as to bring about a "substantial change" in those operations without a permit granted under the PPCRs (PPC permit). By this stage also the waste regulator had ceased to be the County Council and had become the Environment Agency. Biffa's application involving a widening of the ranges of wastes to be deposited in phases 3, 4 and 5 was considered by the Environment Agency to involve a "substantial change". Thus Biffa required a PPC permit to be able to deposit wastes of the type it wished to deposit.
17. To complete the legislative picture, the PPCRs themselves were substantially amended and replaced by the Landfill (England and Wales) Regulations 2002 which carried into effect a further European Directive adopted in 1999, Council Directive 99/31/EC, which imposed a series of new technical requirements and prohibitions on landfill sites. To operate the site as it wished it was still necessary for Biffa to obtain a fresh site licence.
18. The Void Space on phases 1 and 2 of the Site has now been filled and restoration works to the surface have been completed. No fresh licence in respect of the site has been applied for by Biffa under the 2002 Regulations which now apply. Accordingly, backfilling phases 3, 4 and 5 with waste has not been and cannot now be undertaken. Biffa have operated clauses 6(3) and 7(6) and ceased to pay the "certain rent" and percentage of gross landfill revenue which they were bound to pay had they continued to operate the site with effect from 25 December 2000. Thereafter, the Claimants commenced these proceedings claiming damages for breach of contract, being breach of the provisions of clause 8(6)(d) of the Lease. The burden of the Claimants' complaint is set out in paragraph 29 of the Amended Particulars of Claim in which the Claimants contend that:-

"By this clause the First Defendant [Biffa] was and remains under a continuing duty to use all reasonable endeavours to obtain planning permission and/or site licences to continue Landfill Activities to the highest practicable contours at the Demised Premises. This duty arose at the commencement of the Lease and continues for such period as the tenant is permitted to use the Demised Premises for Landfill Activities in accordance with the user covenant in clause 8(3) of the Lease."

Discussion

19. I propose to approach my decision of the preliminary issues in this case by examining what is, in effect, a pre-preliminary issue, namely whether clause 8(6)(d) is capable of having the effect contended for in paragraph 29 of the Amended Particulars of Claim which I have set out above. If it is capable of giving rise to the broad duty described in that paragraph, then it seems to me to follow that the issues in paragraph 17 must be answered in the affirmative. Each of those four issues is an example of carrying into effect the "continuing duty" which this paragraph describes. If the sub-clause in question is not capable of creating such a continuing duty, then the answer to each of the four paragraph 17 issues must be in the negative.
20. In the course of his oral submissions, Mr Mould QC for the Claimants submitted that the words of the sub-clause were plainly capable of creating such a broad duty. I find that submission impossible to accept. In the first place, the sub-clause places on Biffa a duty "to obtain a Planning Permission and Site Licence…". Paragraph 29 of the Particulars of Claim refers to a continuing duty to obtain "planning permission and/or site licences to continue landfill activities". It is fundamental to the Claimants' case, as illustrated by paragraph 29, that the duty sought to be created out of the sub-clause by the Claimants is a continuing duty, against a background of changing regulatory measures, to do everything possible so that the site remains subject to planning permission and site licenses from the appropriate regulatory authorities enabling Landfill Activities to continue on the site for the periods contemplated by the Lease.
21. Secondly, the concluding five words of the sub-clause "to the highest practicable contours" are unnecessary for the creation of such a broad duty. It seems to me to be unlikely that the draftsman of the Lease, seeking to create such a broad duty, would include in his clause a reference to the restoration plans for the site contained in the relevant planning permission. It is, in my view, equally unlikely that he would wish to make such an important clause in the Lease serve two purposes, namely, to create the broad duty pleaded in paragraph 29 and to deal, simultaneously, with the parties' joint desire to increase the holding capacity of the site.
22. Thirdly, it is odd that such an important and wide-ranging provision in the Lease is to be found in a sub-clause whose other sub-clauses deal exclusively with practical "nuts and bolts" issues, in (6)(a) making as much Void Space available to be filled as quickly as possible, in (b) compacting waste so as to make the best use of that space, (c) requiring operations to be such that the planned restoration of the site can be achieved and (e) banning the deposit of radio active waste.
23. Before leaving this aspect, it is certainly fair to say that the wording of the sub-clause does not perfectly fit the submissions of the Defendants as to its construction because it contemplates the obtaining of a site licence which would not be required to deal with the problem of the contours of the proposed restoration plan, since all that would be necessary to do so would be to obtain from the planning authorities a variation of their plan.
24. Mr Mould drew my attention to the contrast between the provisions of this sub-clause and those of sub-clause 8(5)(a) which I have set out above and the fact that that sub-clause, by contrast with the sub-clause in question, imposes a time-limited obligation on Biffa to obtain "a Planning Permission and a Site Licence in respect of the Demised Land in its discretion acceptable to the tenant…." This was a provision in the Lease designed to assist Biffa to expand the types of waste which they could deposit on the site so that they could deposit waste whose disposal commanded a higher price than the inert waste covered by the existing site licence. It does not seem to me that the wording and existence of sub-clause 8(5)(a) assists the Claimants' case; rather it is an indication against the Claimants' submissions. If clause 8(6)(d) imposes the wide duty for which the Claimants argue, then the duty imposed by clause 8(5)(a) might be said to be a duplication of part at least of the duty imposed by the former sub-clause, though I must accept that the presence of a time limitation in sub-clause (5)(a) may neutralise the point. In any event, I respectfully fail to see the logic behind the suggestion that the presence of sub-clause (5)(a) supports the construction of sub-clause (6)(d) as imposing on Biffa the broad duty contended for.
25. I can well imagine that a site owner, negotiating the provisions of a lease to a waste disposal contractor, might wish to include in that lease a provision having the effect of paragraph 29 of the Particulars of Claim. Against a background of continually changing regulation, there would be real commercial advantage in obtaining from the site operator tenant a covenant so to arrange his operations and/or to apply for or vary licences so as to enable "Landfill Activities" to continue on the site for as long as they profitably might. I do not detect from the matrix of fact, existing at the date this Lease was made, any compelling reason why I should give the words of sub-clause 8(6)(d) the stretched meaning which the Claimants' submissions require having regard to the words used and their place in the provisions of the Lease: – contrast the background facts in the ICS case ibid. This is particularly so where there exists on Biffa's case based on accepted facts (see para. 6 above), an explanation for the presence of this sub-clause where it appears in the Lease and using the terms which it does. In my judgment, Biffa's explanation for the provisions of sub-clause (d) and their position in the Lease is to be preferred to that of the Lessors.
26. For these reasons I would answer the preliminary issues in paragraph 17 by declaring that on a proper construction of the Lease, clause 8(6)(d) was incapable of obliging the First Defendant to carry out any of the actions specified in sub-paragraphs (a) – (d) of that paragraph.
27. This conclusion makes it unnecessary for me to deal with issues 18(a) and (b) which I need only answer if my response to any of the issues in paragraph 17 is in the affirmative. Suffice it to say at this stage that had I found that Biffa was under some sort of continuing duty to apply for site licences to make it possible to keep the site open for waste disposal, I would have construed the words "reasonable endeavours" in sub-clause 8(6)(d) so as not to impose upon Biffa an obligation to pursue an application for a site licence where it was reasonable for Biffa to suppose that the conditions or other limitations attached to the grant of such licence would make any operations covered by the licence unprofitable.