Clin v Walter Lilly & Co Ltd

Building contract – Construction – Implied term – Respondent undertaking to demolish, reconstruct and refurbish buildings owned by appellant – Dispute arising concerning construction of contract – Whether judge rightly implying term regarding employer’s obligations as to planning permission or conservation area consent – Whether judge framing implied term correctly – What consequences resulting for allocation of risk between parties under contract – Appeal allowed in part – Cross-appeal allowed in part The appellant was the owner of two adjoining mid-Victorian terraced houses at 48 and 50 Palace Gardens Terrace in Kensington, London, which were unlisted buildings in a conservation area. The respondent was a contractor specialising in the refurbishment, alteration and extension of such buildings. In 2012, the appellant as “employer” and the respondent as “contractor” entered into a JCT Building Contract with Quantities, 2005 edition, incorporating Revision 2 (2009), with “Contractor’s Designed Portion”, and various bespoke amendments. Under the contract the respondent was to carry out works of demolition, reconstruction and refurbishment to create a single dwelling-house. A dispute arose between the parties after the local planning authority wrote to the respondent on 17 July 2013 asserting that the intended work to the rear wall of the buildings would amount to “substantial demolition” requiring conservation area consent. Activity on site was suspended for more than a year. Planning permission was granted for a revised proposal in June 2014. Work began again in August 2014. The respondent sought declarations that a “relevant event” and “relevant matters”, as defined in the contract, had occurred, and that it was entitled to an extension of time of 53.2 weeks. The appellant defended the claim and the judge ordered certain preliminary issues to be determined. The judge found that the local authority’s communication of July 2013 did not amount to a requirement to halt the works within the meaning of “requisite consents” and/or “statutory requirements” under the contract. The contract contained an implied term that the owner, as employer, would provide the local authority with the information required to grant the necessary consents in good time but the owner was not under an absolute obligation to secure planning permission, as that was beyond his control. There was no justification for imposing on either party sole responsibility for capricious conduct by the local authority, as the contract could work just as well if that risk was left to lie where it fell. The judge later amplified his judgment to say that the words “capricious conduct” referred to conduct that was Wednesbury unreasonable and the reference to loss or risk laying where it fell meant that in the event of delay caused by the local authority’s unreasonable conduct, neither party was to have any claim against the other in respect of such delay. The appellant appealed and the respondent cross-appealed. Held: The appeal was allowed in part. The cross-appeal was allowed in part. (1) In the context of building contracts, the employer would generally bear the responsibility of obtaining the necessary planning permission, given that the execution of the work would otherwise be unlawful. The judge’s conclusion that an implied term was necessary to establish whose responsibility it was, under the contract, to seek any requisite planning permission was sound. In the circumstances of this case and having regard to the express terms of the contract, the judge was right to attribute responsibility for the seeking of planning permission to the appellant as “employer”. (2) The appropriate implied term as to planning permission was: “The employer will use all due diligence to obtain in respect of the works any permission, consent, approval or certificate as is required under, or in accordance with, the provisions of any statute or statutory instrument for the time being in force pertaining to town and country planning”. That would extend to an obligation on the appellant to make a timely application for any such permission or other approval, or ensure an application was made on his behalf, to ensure sufficient information was provided to the local planning authority in support of the application and to co-operate with the authority in the statutory process. A timely application would assist each party in the performance of its obligations under the contract, with a view to avoiding any delay to the works. There was no need to introduce any qualification or exemption for “unlawful”, “unreasonable” or “capricious” behaviour on the part of the local planning authority. The obligation on the “employer” was to do no more and no less than the statutory planning scheme required of an applicant for planning permission, or other planning approval, without undue delay. However, he could not be obliged to ensure that the local planning authority acted lawfully in accordance with its powers and duties under the statutory scheme, or that its decision on the planning merits of a proposal would be favourable to the project. That was outside his control as employer and his responsibility went only to what he could control. (3) The implied term as to planning permission reflected commercial common sense, was enough to make the contract work as the parties must have intended and required no further terms to be implied to adjust the present allocation of risk between “employer” and “contractor”. The parties had to be taken to have contemplated the consequences of the employer failing to comply with it. To the extent that they safeguarded themselves against their own or a third party’s default, the relevant provisions of the contract would continue to protect each of them against potential liability to the other. Taken together with the express terms of the contract, the requirement in the implied term that the “employer” use “all due diligence” to obtain planning permission served to protect both parties. Whether the council’s conduct was unlawful, or that of the “employer” amounted to a relevant “impediment”, “prevention” or “default” could only be established once all the relevant facts were known and not in an evidential vacuum. It followed that the judge’s amplification of his judgment was inappropriate and should not have been added to his order. (4) The question whether the council’s July 2013 letter fell within the ambit of the words in the contractual definition of “statutory requirements” could only be answered conclusively once the letter had been considered in its full factual context. Those words normally meant something more than a request or warning issued in a letter that, in itself, lacked any effect under statute, even if the request or warning, should it go unheeded, was likely to be followed by some formal, statutory action being taken against the recipient. Where the enforcement of planning control was concerned, the “requirements” of a local planning authority would harden, with legal effects, in the form of an enforcement notice or stop notice issued under the relevant statutory provisions. But the definition of “statutory requirements” in the contract was broadly framed, and did not necessarily prescribe, in every case, a formal status of that kind, with all the statutory consequences entailed. Vincent Moran QC and Tom Coulson (instructed by DLA Piper UK LLP) appeared for the appellant; Sean Branningan QC and Thomas Crangle (instructed by Pinsent Masons LLP) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Clin v Walter Lilly & Co Ltd.