A Planning Court judge has rejected a council's bid to disapply the pure principles of contractual interpretation to s.106 agreements. John Pugh-Smith explains why.
In my initial article “Section 106s and the ‘technical traps’ submission"  I drew attention to the potentially worrying implications on the interpretation of such deeds, of Mrs Justice Thornton’s judgment in Norfolk Homes Limited v North Norfolk District Council & Norfolk County Council  EWHC 504 (QB) in early March 2020. There, she dismissed NHL’s initial application for summary judgment for a declaration that their residential development was not bound by obligations contained in a Section 106 agreement upon the basis that NNDC had sufficiently arguable submissions, based around the Lambeth case , to warrant a full hearing. Now, following that substantive hearing on 21st July 2020 final judgment has been handed down by Mr Justice Holgate  EWHC 2265 (QB) a month later conclusively in favour of NHL.
The reason why the Norfolk Homes case is important, as a matter of fresh planning jurisprudence, is that the High Court has roundly rejected NNDC’s attempt to disapply the pure principles of contractual interpretation to s.106 agreements. Given their public nature, the fact that they run with the land and that they are often intended to secure mitigations for the impact of development which are necessary to make the development acceptable it was argued it was not apposite for the document to be construed by reference only to the contracting parties' intentions and according to the facts and circumstances at the time of the contract. Rather, the approach adopted by the Supreme Court in Lambeth as regards planning conditions should be applied.
However, through his judgment, delivered in distinctly trenchant terms, Mr Justice Holgate has restored the level of reassurance required for these unsettled times within the outworkings of the current development management system.
In August 2011 NHL had submitted an outline application (with all matters reserved apart from means of access) to NNDC for the erection of up to 85 dwellings, access, public open space and associated infrastructure. NNDC resolved to grant planning permission subject to the prior execution of a s106 agreement between the then landowner, NNDC and Norfolk County Council to secure the provision of 45 per cent affordable housing together with a number of financial contributions. On 22nd June 2012 the section 106 obligation was executed ("the Agreement"), following which NNDC issued the decision notice ("the 2012 Permission"). In September 2013 NNDC granted a s.73 permission for the purpose of varying two of the conditions on the 2012 permission ("the 2013 Permission"); and in September 2015 NNDC granted another s.73 permission , in order to remove two conditions of the 2012 Permission and substitute a new condition requiring construction details for reducing energy demand to be submitted for approval ("the 2015 Permission"). The grant of the 2013 and the 2015 Permissions was not made contingent upon the prior execution of any further s.106 obligation, in particular, one imposing the same requirements as those contained in the Agreement. In September 2018 NNDC issued a CLOPUD decision notice under s.192 of the TCPA 1990 refusing a certificate that the 2015 Permission could lawfully be implemented without triggering the landowner's obligations under the Agreement. NHL did not appeal NNDC's refusal because they recognised that it had been "made outside the limited terms of section 192 of the Act, and there would be no jurisdiction to determine the appeal". Accordingly, NHL brought the present proceedings under CPR Part 8 seeking (i) a declaration that the continuing residential development of the land in question pursuant to the 2015 Permission was not subject to any of the owner's obligations contained in the Agreement; and (ii) an order requiring NNDC to remove any reference to the Agreement from the local land charges register within 28 days of the Court's judgment.
Finding wholly in NHL’s favour, the principal point in issue was whether the affordable housing obligations in the Agreement were expressly tied to the implementation of the 2012 Permission, as readily apparent from the definitions of ‘Application’, ‘Development’ and ‘Planning Permission’, whereas the development being implemented was under a separate and independent planning permission, granted through section 73 of the TCPA 1990, as to which the parties chose not to include the increasingly standard clause to the effect that the s.106 obligations were to remain binding. On NNDC’s behalf it was submitted that the Supreme Court decision in Lambeth had made clear that a planning document, which includes a s.106 agreement, must be interpreted according to the natural and ordinary meaning of the words in their surrounding context, which includes the planning context. Accordingly, the 2012 Agreement was to be construed as applying to the 2012 Permission as varied. Failing that, these words were to be implied. The available evidence, namely NNDC’s approval of reserved matters and the payments made under the Agreement were consistent with the Council's understanding that the Agreement continued to apply to the varied planning permissions.
Robustly dismissing that submission Mr Justice Holgate helpfully re-states the, hitherto, golden rules of construction of S106s, forged, after 20 years of consideration both by the House of Lords and the Supreme Court, and articulated most recently in Arnold v Britton  AC 1619 and Wood v. Capita Insurance Services Limited  2 WLR 1095. He also notes, citing R (Robert Hitchins Ltd) v Worcestershire County Council & Worcester City Council  EWCA Civ 1060), that essentially the same principles as those set out above are applicable to section 106 obligations, whether a bilateral agreement or a unilateral undertaking. He further records, having referred to Trump 3] that there is nothing in the Lambeth decision either which alters the standard principles of construction for public documents as set out above.
Turning, specifically, to the “technical traps” argument that had appealed to Mrs Justice Thornton as one of the District Council’s seven “arguable” points, Mr Justice Holgate trenchantly dismissed this First Issue as follows:
89. Lord Carnwath mentioned at  a reference in the decision of the Court of Appeal to a suggestion that s. 73 posed a "technical trap" for a local authority, in that the approval of an application nominally for the variation or discharge of a condition required the grant of a fresh permission. However, that notion of a "technical trap" played no part at all in the reasoning of the Supreme Court. They certainly did not suggest that planning documents should be interpreted so as to avoid or overcome the possible effects of a planning authority falling into any supposed trap.
90. I do not accept in any event that s. 73 creates a technical trap for planning authorities. It is plain from the language of the legislation that (1) although the original permission remains intact whatever the outcome of the application, (2) if the authority decides to impose different conditions from those originally imposed, or no conditions at all, then a fresh permission must be granted. It is also obvious that a s. 106 obligation is a freestanding legal instrument, which does not form part of any s. 70 permission or s. 73 permission, even though it may impose obligations in relation to development carried out under such a permission.
91. The Supreme Court did not lay down any interpretative principle that planning documents, whether a s.106 agreement or a subsequent s.73 permission, should be read so as to prevent landowners and developers from avoiding or side-stepping obligations which they have previously entered into. Ms. Dehon did not point to any authority which supports any anti-avoidance principle or presumption in the construction of planning documents.
92. In my judgment the language of the 2012 agreement is unambiguous and clear. It does not suffer from poor drafting. To the contrary, it has been carefully drafted by lawyers well versed in the preparation of such documents.
Moving to the Second Issue, whether additional words should be implied into the Agreement, the Judge notes that, unlike in Trump, this case concerns a s.106 obligation rather than the conditions in a permission; but that the breach of a s.106 obligation may give rise to injunctive relief, and thereby to criminal sanctions for any contempt of court. Furthermore, a s.106 obligation runs with the land and may affect the interests of parties who were not originally involved many years later, as well as the general public and other public authorities and agencies. Having reviewed the relevant authorities, concluding with Marks and Spencer plc v BNP Paribas Securities Services  AC 742, Mr Justice Holgate then highlights Lord Neuberger’s clarification of the two key points. First, the question whether a term should be implied is to be judged as at the date when the contract is made. Second, the tests that a term must be "so obvious as to go without saying" or "necessary for business efficacy" are important to avoid any suggestion that "reasonableness" is a sufficient ground for the implication of a term.
Next, the Judge turns to discuss the consequences of NNDC’s implied wording into the Agreement. He observes that, despite his findings on the First Issue, would not contradict its express terms. However, he then explains why NNDC’s arguments must be rejected due to their “insuperable problems”. First, he holds that the implied language suggested by NNDC is not essential to give the Agreement practical coherence, or coherence for giving effect to development plan polices and planning control. Secondly, and, in any event, he does not accept that the reasonableness criterion is satisfied for a number of reasons.
Here, the judgment helpfully identifies the “unintended consequences” of the interpretative approach urged by NNDC. These can be summarised as follows:
(a) Even if the parties to an agreement have expressed their obligations so as to apply solely to development under a contemporaneous permission, without any reference to a subsequent s.73 permission, they are to be treated as if they have agreed that the obligation should apply to development under all such consents.
(b) It would be necessary for parties who agree that performance of a s.106 obligation should be conditional upon the carrying out of a particular permission solely, to exclude s.73 permissions expressly in order to avoid the implication of NNDC's type of additional wording. For example, there may be cases where it is in the interests of the planning authority to confine any covenants which they are to perform to the carrying out of one particular permission, or to reserve their position as to what requirements would be appropriate if a further planning permission were to be granted at a later date e.g. there might be a change of policy before the original grant of permission is due to expire. He adds: “The illusory "technical trap" upon which NNDC has sought to rely in this case could actually become a real trap for other authorities, and indeed parties generally. As was stated in Trump, the Court should exercise great restraint and proceed cautiously”.
(c) When an original permission is granted for a large mixed use scheme, it is common practice to use very broad language in the "grant" section of the consent to describe the project and to confine its detailed description to a condition requiring the development to be carried out in accordance with a list of approved drawings. In that way the drawings may be modified quite substantially by a subsequent permission under s. 73, and there may be large changes in, for example, quantum of floorspace, without infringing the Finney principle . This undermines NNDC's argument that the proposed implied language is reasonable because a s. 73 permission cannot involve substantial changes to the development permitted. Even if in the present case the 2013 and 2015 Permissions granted did not in fact involve substantial changes, it has not been shown that, viewing the position as at the time of the Agreement, the development authorised under the 2012 Permission could not have changed quite significantly by the use of the s. 73 procedure. NNDC's implied terms would operate so as to apply the Agreement automatically to any subsequent s. 73 permission, irrespective of the circumstances pertaining at the time of the subsequent planning application. The applicant would need to persuade the local planning authority to vary or discharge the s.106 obligation.
The Judge also highlights the other legal consequences, including the following:-
(i) Going back to the original decision on whether or not to grant planning permission, if the local authority were to be dissatisfied with the terms of the s.106 obligation offered by a developer, they could refuse permission and the developer would be able to test the reasonableness of that stance in a planning appeal;
(ii) If, however, a s.106 obligation is treated as applying to subsequent s.73 permissions, the landowner may seek to persuade the local authority to vary or discharge the s.106 obligation in relation to a particular s.73 application. But the local authority might decide that although there is no reason to refuse to grant the s.73 permission sought, the s.106 obligation should remain unaltered. In that event, s.78 would not give any right of appeal to enable the merits of that issue to be determined independently. The landowner would not be able to apply under s.106A to modify or discharge the s.106 obligation for a period of 5 years from the date on which it was entered into. If, however, the proposed terms are not implied and there is a dispute when a s.73 application is being determined by the local authority as to whether existing s.106 obligations should be re-applied (whether at all or in some amended form) and the application is refused for that reason, the issue can be tested on appeal;
(iii) As pointed out above, similar problems would apply to a local planning authority which has no good reason for refusing a s. 73 application, but which could justify seeking a variation in the terms of a s. 106 obligation only to find itself tied to an existing agreement by virtue of NNDC's implied terms. In these circumstances, it would be unreasonable for an authority to refuse to grant a s. 73 permission simply because the s.106 obligations treated by implication as applying to such a permission were no longer acceptable to the authority. The authority could not seek to "have it both ways". Flexibility to deal with changes of circumstance or evaluation may be just as important to a planning authority as to a landowner or developer;
(iv) The planning merits affecting what conditions if any should be imposed in the determination of a s.73 application are considered as at the date of that decision. The same approach should apply to the need for any s.106 obligation and its terms. There should be a contemporaneous decision on that point unless the parties have expressly agreed otherwise. That point should not go by default. It is a generally intrinsic feature of decision-making under the development control system;
(v) The merits of what should be imposed in a s.73 permission may be connected or intertwined with the issue of whether there should be a related s.106 obligation and, if so, on what terms.
He adds: “Parties to a s.106 agreement (or a developer offering a unilateral undertaking) may choose to agree explicitly that the performance of the obligations created applies not only to the planning permission then being granted but also to any subsequent s.73 permission (or for that matter more broadly still). But if parties reach such an agreement, or a developer offers such an undertaking, they will have had the opportunity to take advice on the statutory framework and the legal implications of the promises they make. Applying the standard principles for the implication of language in legal documents, NNDC has not demonstrated why parties who have entered into an agreement without such explicit language should nevertheless be treated as having tied their hands in the same way in relation to the unknown content and circumstances of future s. 73 applications.”
For all these reasons the Judge allows NHL’s claim and grants the requested relief. In consequence, the 34 affordable housing units required from the development can no longer be secured, a significant loss for any local authority which, in turns, perhaps explains NNDC’s novel and robust defence of these proceedings.
However, NNDC is not known to give up a fight easily, and, as evidenced by R (Champion) v North Norfolk District Council & Anor.  UKSC 52  can even receive the ultimate judicial endorsement for its initial resistance of High Court proceedings. Indeed, yet further and unexpected outcomes in the higher Courts can still happen as, perhaps, occurred in the Lambeth  case. Nevertheless, it is to be hoped that in a post-pandemic world at least the well-established principles of construction and interpretation of s.106s will not now become a casualty of expediency. Otherwise, some of the certainties, as we currently know them, will be forever changed and not necessarily for the better in the overall public interest.
John Pugh-Smith FSA FCIArb practises as a barrister from 39 Essex Chambers. He is a member of the RICS President’s appointment panel. He has acted as an arbitrator, independent expert and dispute facilitator on a variety of references concerning the interpretation of section 106 and development agreements. He and his family have also been long-term residents in North Norfolk.
 Lambeth LBC v SSCLG  UKSC 33
 Trump International Golf Club Limited v Scottish Ministers  1 WLR 85
 Finney v Welsh Ministers  EWCA Civ 1868 highlighting the “operative part” of a planning permission cannot be varied by a s.73 application - see further my article: “Section 73 and all that” in the 39 Essex Chambers PEP newsletter.
 On the discretion of the courts not to quash planning decisions where there had been some defects in the decision-making process when dealing with a challenge based on procedural error.
 See my previous articles footnoted above. In the author’s view on Lambeth : “ …., the scope of the single judgment by Lord Carnwath was specifically upon the question of interpreting planning permissions by the use of implied conditions i.e. implying words into a public document such as a planning permission. Furthermore, it was one of those cases which was highly fact-specific. Indeed, Lambeth’s decision notice had undoubtedly been poorly drafted. It is also notable that the decision of the Supreme Court did not overtly overturn established case law or otherwise break new ground, as had seemingly arisen from Trump and only rejected the approach taken by the lower courts in respect to the interpretation of the actual wording used in the decision notice in question. Accordingly, it determined that a reasonable reader would have read the section 73 consent as being a simple variation of the original permission and, implicitly, subject to the conditions attached to that permission”.