QUEEN''S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
(sitting as a Deputy High Court Judge)
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PERENCO UK LIMITED SOUTHERN GAS NETWORKS PLC |
Appellants |
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- and - |
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MR WILLIAM HENRY BOND |
Respondent |
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Mr Patrick Robinson (instructed by Burges Salmon LLP) for the Respondent
Hearing date: 23 May 2016
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Crown Copyright ©
Miss Nerys Jefford QC:
The nature of the dispute
The BG Deed
Statutory background
(i) Part 1, paragraph 1 permits the Secretary of State to authorise a gas transporter to purchase compulsorily any land which includes a right over land. Part II, Paragraph 4 incorporates the provisions of the Acquisition of Land Act 1981.
(ii) Schedule 2, Part I, paragraphs 1(1) of the Acquisition of Land Act 1981 Act in turn provides that a compulsory purchase order may provide for the incorporation of Parts II and III of the Schedule which together re-enact sections 77 to 85 of the Railways Clauses Consolidation Act 1845, also referred to in these proceedings as the “"Mining Code”", which were themselves substituted by the Mines (Working Facilities and Support Act) 1923. Parts II and III are not in identical terms to the Mining Code but neither party has attached any significance to the difference in wording.
“"(1) If the mine owner of minerals lying under an area of protection as hereinafter defined is desirous of working any such minerals, he shall give to the company and also to the royalty owner (if any) notice of his intention so to do at least thirty days before the commencement of the works …..
(2) If it appears to the company that the working of any of the minerals to which such notice relates will be likely to damage the railway or works or any part thereof, the company may, at any time after the receipt of such notice, give a counter-notice to the mine owner requiring him to leave unworked all or any part of such minerals, …
.
(4) Where any such counter-notice has been served on the mine owner, the specified minerals shall not be worked or got after the service of the counter-notice, and the company shall pay compensation to the mine owner and the royalty owner (if any) for the loss caused by the specified minerals being left unworked.”"
“"If within thirty days from the service by a mine owner on the company of a notice of intention to work any minerals no counter-notice is served by the company, the mine owner may, after the expiration of those thirty days, and until a counter-notice is served, work any minerals to which the notice relates, so, nevertheless, that the same be done in the manner proper and necessary for the beneficial working thereof, and according to the usual manner of working such minerals in the district where the same shall be situated.”"
“"Notwithstanding anything contained in this Act, as mine owner, a royalty owner and the company or any two of them may, by agreement, alter, extend, or otherwise vary their respective rights under the provisions of this Act with regard to any minerals to which this Act applies …..”"
The terms of the BG Deed
“"(c) the principal amount of compensation which would have been payable in respect of a compulsory acquisition by British Gas of the easements hereby granted in pursuance of a notice to treat served on the date hereof if such permission had previously been granted exceeds the sum set out in Clause 1 hereof [the payment for the easement] …..
then subject to the provisions of this clause British Gas will pay to the Grantor a sum equal to the excess.”"
“"(ii) Subject to the provisions of this Clause the provisions (in this Clause called “"the said provisions”") substituted by Part II of and the First Second and Third Schedules to the Mines (Working Facilities and Support Act) 1923 for sections 78 to 85 of the Railways Clauses Consolidation Act 1845 shall be deemed to be incorporated herein.
(iii) The said provisions shall be construed as if references to the Mine Owner were references to the Grantor references to the Company were references to British Gas references to any railway or works of the Company were references to the Works defined in Clause 1 hereof …..”"
The effect was to incorporate the terms of the Mining Code with appropriate changes in terminology. Clause 6(iv) also made an express change to the provisions of the Code in that it provided for the appointment of an arbitrator, in default of agreement, by the Lands Tribunal and that s. 85D(3) should therefore be of no effect.
The BP Lease
“"If following such consultations:-
(a) the Grantor obtains planning permission for the development but the same is prevented solely by reason of the position of the pipe-lines or solely by such position and the position of BGC’'s [ie British Gas’'] pipe-line as referred to in Clause 7 of this Deed or
(b) planning permission for the development is refused solely by reason of the position of the pipe-lines or solely by such position and the position of BGC’'s pipe-line as referred to in Clause 7 of this deed the Grantor shall give written notice to the Grantee stating whether or not the Grantor requires the diversion of the pipe-lines or part thereof whereupon the Grantee may in its unfettered discretion elect by notice in writing to be delivered within three months of the Grantor’'s notice either:
(i) to divert the pipe-lines or part thereof along the diversion route or
(ii) to pay to the Grantor compensation for the loss of the value of any part of the land of the Owner by reason of the restriction of development due to the existence of the pipe-lines such compensation to be based on the value if the development were able to be carried out to be determined in default of agreement by an arbitrator to be agreed between the Grantor and the Grantee ….”"
It is not in dispute that the words starting “"the Grantor shall give written notice to the Grantee ….”" apply to both limbs (a) and (b). On the express terms of the clause, therefore, in circumstances where the development is prevented either solely by reason of the position of the BP pipeline or solely by reason of both the BP pipeline and the BG pipeline, BP has three months from the giving of notice by the Grantor to elect to divert the pipeline or pay compensation. It can be seen that the BP Lease reflected the statutory background in that the compensation payable was to be assessed on the basis of the diminution in value of the land.
The double compensation provisions
“"INASMUCH as the Grantor has prior to the date hereof agreed to grant to BP Petroleum Development Limited (which Company and its successors and assigns are hereafter in this Clause referred to as “"BP”") a Lease of land and rights (which Lease is hereinafter in this Clause referred to as “"the BP Deed”") in respect of a pipeline intended to be laid approximately at the same time as and along a route parallel with that of the said works
NOW IT IS HEREBY AGREED AND DECLARED as follows:
….
(3) In relation to any such development as would be the subject of a payment of compensation by British Gas under Clause 5(i)(c) of this Deed and would also be the subject of a payment of compensation by BP in accordance with the Diversion Provisions as contained in the Third Schedule to the BP Deed (hereinafter in this sub-clause called “"common building development”") there shall be ascertained by agreement or determination in the respective manners provided in the said clause 5(i)(c) and in the said Diversion Provisions the amounts of the compensation which would be payable in respect of the common building development by respectively British Gas under the said Clause 5(i)(c) (hereinafter called “"the BG amount”") and by BP under the said Diversion Provisions (hereinafter called “"the BP amount”"). The amount payable by British Gas in respect of the common building development shall be the amount (if any) by which the BG amount exceeds the BP amount as actually paid by BP.
(4) In relation to any such development as would be the subject of a payment of compensation by British Gas in accordance with Clause 6 hereof and as would also be the subject of a payment of compensation by BP under the Third Schedule to the BP Deed (hereinafter in this sub-clause called “"common mining development”") there shall be ascertained by agreement or determination in the respective manners provided in Clause 6 hereof and the said Third Schedule the amounts (hereinafter called “"the two amounts”") of the compensation which would be payable in respect of the common mining development by respectively British Gas under the said Clause 6 and by BP under the said Third Schedule and the amount actually payable by British Gas under the said Clause 6 in respect of the common mining development shall be equal to one half of the greater of the two amounts.”"
“"In relation to any such development as would be the subject of a payment of compensation by the Grantee in accordance with the Diversion Provisions and as would also be the subject of a payment of compensation by BGC under Clause 6 of the BGC Deed (hereinafter in this sub-clause called “"common mining development”") there shall be ascertained by agreement or determination in the respective manner provisioned in the Diversion Provision and Clause 6 of the BGC Deed the amounts (hereinafter called “"the two amounts”") of the compensation which would be payable in respect of the common mining development by respectively the Grantee under the Diversion Provisions and by BGC under the said Clause 6 and the amount actually payable by the Grantee under the Diversion Provisions in respect of the common mining development shall be equal to one half of the greater of the two amounts.”"
What has happened
The present dispute
(i) The parties agreed a Brief on Preliminary Issues dated 3 December 2014. The Brief recited the BP Lease and the BG Deed; that at the time they were entered into the Grantees had available to them powers of compulsory acquisition; and that two agreements were entered into “"in contemplation of such powers of compulsory acquisition”".
(ii) The parties agreed the terms of 5 preliminary issues to be considered by the Legal Adviser.
(iii) The parties made written submissions on the preliminary issues.
(iv) The Legal Adviser produced a draft Advice.
(v) Both parties commented on that draft Advice; the Legal Adviser considered those comments and produced a Final Advice.
(vi) The Arbitrator’'s Award adopts the conclusions in the Legal Adviser’'s Final Advice.
“"(a) Should a term be implied into the BG Deed that the owner of the pipeline is obliged to serve a Mining Code counter-notice if the landowner wishes to do works which would interfere with the pipeline (Claimants’' Statement of Case: paragraph 3.4(ii))?
(b) Can no such term be implied (SGN’'s Statement of Case: paragraph 23)?”"
That formulation, therefore, reflected in terms the way the implied term contended for had been formulated in Mr Bond’'s Statement of Case.
“"The Claimants contend that a term should be implied into the BG Deed to the effect that in circumstances in which a notice has been served under s.78(1) and the proposed mineral workings will cause damage to both the gas pipeline under the BG Deed and the oil pipeline under the BP Lease, and an election has been made under paragraph 2(2)(b)(ii) of the BP Lease to pay compensation, then the grantee under the BG Deed shall be deemed to have also served a counter-notice in order to engage the compensation provisions of the “"mining code”"….. The Claimants also contend that the implied term would deem a counter-notice to have been served (as opposed to require), as this would represent a more commercial approach and avoid the need to require specific performance.”"
The particular circumstances to which the term was alleged to relate were thus more specifically defined and the nature of the term was put somewhat differently.
(i) Clause 6 of the BG Deed is a compensation provision. The date on which compensation is valued is “"prima facie the date at which loss occurs”".
(ii) “"On the hypothesis (which is, in this case the fact) that the BP pipeline(s) will not be moved and if the planning permission cannot be implemented for that reason, without more, then that is the source of the inevitability of loss through inability to implement the planning permission and Mr Bond knows whether or not BP will move their pipeline(s) within 3 months after service of his notice putting them to their election so British Gas under the BG Deed can sit and wait for 3 months but then it will be clear whether or not the planning permission can be implemented and it must make up its mind otherwise clause 6 is unworkable as an agreement for compensation to be paid in such circumstances because the dominant owner cannot ever divert or abandon more than its own pipeline(s) and clause 7 of the BG Deed precludes the argument that as Perenco is paying compensation under the BP Lease, there is no need for SGN to do so.”"
(iii) The only reason for SGN to refuse or fail to give a counter-notice would be to defeat an otherwise proper compensation claim. “"It would be astonishing if the parties, very experienced commercial operators, had so intended.”"
(iv) “"Given that the obvious and inevitable consequence of implementation of the grant of the easement to lay the BG pipeline in the same land as was contemporaneously intended to be let to BP and parallel with the BP pipeline to be laid under the BP Lease was that any further mining development requiring diversion of one would be prevented were there to be no simultaneous diversion of the other (assuming both to be desired to be maintained) it is my opinion that clause 6 of the BG Deed cannot be construed as entitling SGN to avoid payment of compensation altogether by sturdily refusing to send a piece of paper acknowledging the undoubted fact that the reason why Mr Bond (and his lessee) cannot take advantage of the right to commence development and put BG’'s purported insouciance as to the safety of its own pipeline to the test because the deeming provision of the BP Lease was not expressly included in the BG Deed. The draftsman of the BG Deed must be taken to have known of the provisions of the BP Lease in this respect and therefore to have assumed that prevention of development by reason of the maintenance of the BP pipeline should be deemed to be prevention by BG for the purposes of the implementation of the compensation provisions in clause 6 unless the BG pipeline was no longer to be maintained in any event.”"
If it appears to British Gas that the working of any of the minerals to which such notice relates will be likely to damage the said works or any part thereof being works which British Gas wishes for any reason to retain, British Gas may at any time after receipt of the notice give a counter-notice to the Grantor requiring him to leave unworked all or any part of such minerals, and the counter-notice shall specify the minerals (hereinafter referred to as the specified minerals) so required to be left unworked and the particular portion of the said works (hereinafter referred to as the protected works) for the support of which the specified minerals are required to be left unworked PROVIDED THAT (i) if the Grantor would be prevented from working any minerals to which such notice relates by reason of the location of any pipeline or other works laid or maintained in the protected areas pursuant to the lease dated 23 September 1994 made between the Grantor (1) and BP Exploration Operation Company Limited hereinafter referred to as the BP Lease and (ii) if it would appear to a reasonable owner of the said works that the working of any of the minerals to which the notice relates would be likely to damage the said works or any part thereof then British Gas shall be deemed to have given a counter-notice as aforesaid in respect of the whole of the said works on the same date as counter-notice shall have been given electing not to divert the said pipeline or pipelines pursuant to clause 2(5) and paragraph 2(1)(a) of the BP Lease by the lessee thereunder.
It can be seen that the first part of this sub-clause is taken from s.78 but the words from “"provided that”" to the end of the sub-clause are the implied term. It is this implied term that is the subject of the appeal.
The law
“"First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was “"not critically dependent on proof of an actual intention of the parties”" when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties but with that of notional reasonable people in the position of the parties at the time at which they were contracting.
Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it is it had been suggested to them. Those are necessary but not sufficient grounds for including a term.
However, and thirdly, it is questionable whether Lord Simon’'s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard o think that it would not be reasonable and equitable.
Fourthly, as Lord Hoffman I think suggested in Attorney General of Belize v Belize Telecom Ltd. [2009] 1 WLR 1988, para. 27, although Lord Simon’'s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied.
Fifthly, if one approaches the issue by reference to the officious bystander, it is “"vital to formulate the questions to be posed by [him] with the utmost care, to quote from Lewison, The Interpretation of Contracts, 5th ed. (2011), p 300, para. 6.09.
Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of “"absolute necessity”", not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’'s second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”"
The Appellants’' case
(i) The BG Deed has incorporated the Mining Code and it would neither make commercial sense nor be at all obvious that BG had agreed or would have agreed to something more onerous.
(ii) The implied term contradicts the express terms of the contract which, in incorporating the Mining Code, give BG the power and the right to serve a counter-notice at any time.
(iii) The implied term is not necessary and the BG Deed and BP Lease work perfectly well without it. The two agreements provide for the situation in which neither SGN or Perenco serves a counter-notice; only SGN serves a counter-notice; only Perenco serves a counter-notice; and both SGN and Perenco serve a counter-notice. Clause 7(4) caters for the last of these situations but it does not follow that both parties have to serve a counter-notice in any particular circumstances.
(iv) Clause 7(3) which deals expressly with development on the surface, called common building development, demonstrates that there is no underlying assumption in the BG Deed and BP Lease that SGN and Perenco will share the burden of compensation. Under clause 5(i)(c), if the presence of the BG pipeline prevented the carrying out of building works, SGN would become liable to pay compensation (without the need for the service of any notices) but, if both SGN and Perenco were liable to pay compensation (because the relevant notices had been served under the Diversion Provisions), SGN would only be liable to pay the excess over the amount payable by Perenco.
(v) The BG Deed was drafted by professionals. Its heading recites that it is in a form agreed with the National Farmers’' Union and the Country Landowners’' Association for the Gas Pipeline between Wytch Farm in Dorset and Sopley, Hampshire. The draftsman can be taken to have been aware of the provisions of the Mining Code and, if he had intended changes to be made, he would have said so.
(vi) Mr Wonnacott QC also identified what he called the “"unworkable corollary”". Here his argument is that clause 7(3)(iii) of the BP Lease is a mirror image of clause 7(4) of the BG Deed and, therefore, if the term contended for is to be implied into one, it must be implied into the other. But the term cannot be implied into the BP Lease because a notice under the BG Deed can be served “"at any time”" and, if that were after the 3 month period from Mr Bond’'s notice, the deemed service of a counter-notice under the BP Lease would contradict the time limit on the service of that counter-notice.
(vii) Mr Wonnacott also relies on the extensive and detailed re-write of clause 6(ii) and the implied term. He says simply that if it takes skilled lawyers so many goes to formulate the implied term, then it cannot be said that it goes without saying.
The Respondent’'s case
(i) the BG Deed must have contemplated that, in circumstances where the minerals were, for practical purposes sterilised by the pipeline, that compensation under that Deed would be payable and valued at the date of that loss. That date would be at latest if and when Perenco gave notice that it would pay compensation because the exploitation of the minerals could not then go ahead. Therefore, a counter-notice would also have to be served or be deemed to have been served under the BG Deed.
(ii) Further or alternatively, it must have been intended that, if compensation were payable under the BP Lease, it would also be payable under the BG Deed so that there would be a cost sharing between BG and BP. If that were not the case, clause 7(4) would serve no purpose.
Consideration of the implied term
(1) The Appellants shall file and serve their written submissions on costs and the form of the order to be made by no later than 5.00pm on Wednesday 6 July 2016.
(2) The Respondents shall file and serve their written submissions in reply on costs and the form of the order to be made, together with any application seeking leave to appeal together with any submissions, by no later than 5.00pm on Wednesday 13 July 2016.
(3) The Appellants shall file and serve any written submissions in reply to an application for leave to appeal by no later than 5.00pm on Wednesday 20 July 2016.
(4) The application for leave to appeal (if any) shall thereafter be determined on the papers together with the Court’'s decision as to costs.
(5) Should any application for leave to appeal be refused, the Appellant shall file any renewed application for permission with the Court of Appeal within 21 days of the Order refusing leave.