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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
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Lord Wheatley
Lord Carloway
Lord
Hardie
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[2009] CSIH 7
XA155/07
OPINION OF THE COURT
delivered by LORD WHEATLEY
in the cause
BOYACK HOMES LIMITED
Pursuers and Appellants;
against
FIFE COUNCIL
Defenders and Respondents:
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Act: Francis;
Morton Fraser LLP
Alt: Clark Q.C.; HBJ Gateley Wareing
(Scotland) LLP
10
February 2009
[1] The
pursuers and appellants are a firm of house builders who in 2001 were engaged
in a private housing development adjacent to Holly Road, Leven, Fife. The development required the building of new
roads which at one point linked up with the existing thoroughfare at Holly Road. The defenders and respondents are the
relevant roads authority and the appellants required to obtain a construction
consent from them to build the roads within the development.
[2] Some
time prior to July 2001 the appellants applied to the respondents for the
necessary construction consent. By
letter dated 27 July 2001 the respondents wrote to the design company
which acted for the appellants intimating that one of the conditions of the
construction consent would be that the appellants should provide the street lighting
for the development to the standard required by the respondents. A copy of the respondents' requirements
guidelines and specifications was enclosed with the letter. The respondents also offered at the same time
to provide a design and supervision service for the installation of the
lighting for a fee. The design drawings
would show various details including the position of the lamp standards. The appellants, by letter of 9 October 2001, elected to use the design service
offered by the respondents. The relevant
design drawings were sent by the respondents to the appellants on 19 November 2001.
The design drawings showed that three lamp standards on Holly Road at its junction with the
development required to be removed, and replaced by five new lamp standards. It is agreed that the provision of the
five new lamp standards was entirely a consequence of the appellants'
development; it had become necessary to upgrade the lighting because of safety
and amenity requirements at the junction.
At all material times the respondents had a statutory obligation to
provide and maintain lighting at Holly Road in terms of section 35(1)
of the Roads (Scotland) Act 1984.
[3] By
letter dated 12 June 2002 the respondents told the appellants that they
intended to grant construction consent with a condition that the appellants
install the improved lighting on Holly Road.
The respondents had been aware of this condition since October 2001 as
part of the design contract and had already in fact installed the new lamp
standards by 12 June 2002. The respondents' letter asked the appellants
to advise them if they wished to be heard on the conditions of the consent
within 21 days, but the appellants did not wish to be heard. By fax dated 19 June
2002 the appellants asked the respondents to confirm their agreement or
otherwise to the conditions which were to be applied to the construction
consent. The relevant condition referred
to in the fax dated 19 June 2002 was in the following
terms:
"1. The whole of the work shall be carried out at
the Developer's own expense in a consistent and workman like manner and in
accordance with:- '....
(b) the Council's "Transportation Development Guidelines"
(details of which can be obtained from the Council's Head of Transportation)
and, as regards road lighting, the design provided or approved by the Head of Transportation;'"
It is this condition, which was in fact repeated in
the construction consent issued on 1 July
2002, that is said by the appellants to be ultra vires of the
respondents. By letter dated 20 June 2002 the appellants expressly agreed to
the conditions to be included in the construction consent including
condition 1(b) quoted above and sought a prompt award of the consent. In terms of section 21(6) of the Roads (Scotland) Act 1984, the appellants
had 28 days in which to appeal against any of the conditions to the
Secretary of State but they did not do so.
On 1 July 2002 the respondents issued to
the appellants the relevant construction consent, including the condition that
the respondents should be responsible for installing the upgraded lighting in Holly Road. Parties are agreed that this condition in the
construction consent was in effect preceded in identical terms by a contract
for lighting services between the respondents and the appellants in terms of
the earlier letters and drawings exchanged in October 2001.
[4] It is
accepted that prior to 20 June 2002 all of the works referred
to in condition 1(b) and the associated drawings had in fact been completed by
the appellants. The construction
consent, which incorporates condition 1(b), was granted to the appellants
by the respondents on 1 July 2002. The appellants now maintain that the
incorporation of the condition to provide the improved lighting in Holly Road at the junction which
appears in the construction consent and in the original contract for the
provision of lighting services was ultra
vires of the respondents, and now
seek recompense. Counsel for the
appellants also argued that in terms of the contract for the design of the
improved lighting at Holly Road, there must be an implied term that any specification
in the design drawings to meet the respondents' requirements was a reference to
lawful requirements and would not require the appellants to do anything that
the respondents were in law bound to do.
[5] In his
judgment against which the present appeal is taken, the sheriff at Kirkcaldy
concluded that the pursuers' case rested on the proposition that section 35(1)
of the 1984 Act imposed an absolute duty on the defenders as the road
authority. Section 35(1) provides:
"A local roads authority
shall provide and maintain lighting for roads, or proposed roads, which are, or
will be, maintainable by them and which in their opinion ought to be lit."
The sheriff was of the view that the pursuers'
contention imposed too high a duty on the defenders and he could see no
equitable reason why the pursuers should not be liable for the re-siting of the
lighting in Holly Road, which was caused solely
by the requirements of the pursuers' development. Further, the sheriff thought that the
pursuers' interpretation of section 35 as imposing an absolute duty on the
defenders meant that section 48 of the Act, which allows a roads authority
to enter into an agreement with any person willing to contribute to the
construction or improvement of a road, would have no meaning. Further, the sheriff could find no reason or
basis for concluding that any implied term as argued for by the pursuers should
be incorporated into the contract.
[6] The
principal question in the appeal came to be whether the incorporation of the
condition that the appellant should provide and pay for the improved lighting
on Holly Road was unlawful and improper,
and ultra vires of the respondents.
Both parties relied on passages from Stewart
v Perth & Kinross Council
2004 S.C. (H.L.) 71 for support for their respective positions.
[7] In
that case, a local authority had established a licensing scheme for second hand
car dealers in terms of the Civic Government (Scotland) Act 1982. Section 24 of that Act provides that an
authority may attach conditions to a licence requiring the keeping of records
relating to the dealer's stock in trade.
Paragraph 5 of schedule 1 to the Act allowed the authority to
grant or renew licences subject to "such reasonable conditions as it thinks
fit". The purpose of the scheme was to
deter, and assist in the detection of, stolen cars in the second hand market. The local authority imposed conditions on the
licences issued by them requiring the dealer to provide prospective customers
with a report on each car on display for sale, containing detailed information
about the condition of the car and other matters. It was held (in terms of the rubric of the
report) that the effect of this condition would have a considerable impact on
contracts between the dealer and his customers, that the principal mischief to
which the legislation was directed was the handling of stolen property, and
that the licensing system was not designed for the purpose of consumer
protection, as other legislation existed for that purpose. In these circumstances the particular
conditions imposed on licence holders by the local authority in respect of the
reports were ultra vires.
[8] However,
the reasoning behind the decision in Stewart
v Perth & Kinross Council is more
developed in the speeches delivered in the case, and was variously referred to
by counsel in their submissions. The
passages principally relied on by the appellants are found in the speech of Lord
Hope of Craighead:
"
[27] The opening words of para. (5.2) of
Sched 1 to the 1982 Act give power to the licensing authority to attach
'such reasonable conditions' to the licence as it may think fit. As I said earlier, it is to those words that
one must go if one is to discover whether those parts of condition 2.5(a)
which require information to be given to the purchaser are within the power to
attach conditions that is given by the 1982 Act to the licensing
authority. At first sight they give a
wide discretion to the licensing authority.
It requires a very strong case to interfere with the discretion which
has been vested in a body of that kind, which legislates in the interests of
the community (Nicol v Magistrates of Aberdeen, per Lord President Inglis at p.308;
Da Prato v Magistrates of
Partick, per Lord Loreburn L.C.). As
Lord Russell of Killowen C.J. said in Kruse
v Johnson (p.99), legislation of this
kind ought to be supported if possible, looking to the character of the body
which is legislating, the subject-matter and the nature and extent of the
authority which is given to the body to legislate in matters of this kind.
[28] But it is clear that the discretion which
is vested in the licensing authority is not unlimited. The authority is not at liberty to use it for
an ulterior object, however desirable that object may seem to it to be in the
public interest (Pyx Granite Co Ltd v
Ministry of Housing and Local Government,
per Lord Denning at p.572; Newbury
District Council v Secretary of State
for the Environment, per Viscount Dilhorne at p.599). The scope which is to be given to the words
'such reasonable conditions' must be ascertained from their context."
In a passage relied on by the respondents,
Lord Rodger of Earlsferry said:
"
[55] The critical question is the extent of this
power in the case of dealers carrying on their business as dealers in second
hand motorvehicles. The test is not in
dispute. Guidance can be found in the
approach that Viscount Dilhorne summarised for conditions attached to
planning permissions in Newbury District
Council v Secretary of State for the
Environment (p.599):
'It follows that the
conditions imposed must be for a planning purpose and not for any ulterior one,
and that they must fairly and reasonably relate to the development
permitted. Also they must not be so
unreasonable that no reasonable planning authority could have imposed them.'
That approach was approved
by Lord Keith of Kinkel in Grampian
Regional Council v Secretary of State
and Aberdeen District Council (p.66). Here, therefore, the conditions attached to
the licence must be for a licensing purpose and not for any ulterior
purpose. They must also fairly and
reasonably relate to the business that the licence holder is permitted to carry
on as a dealer in second hand cars. In
addition, they must not be so unreasonable that no reasonable licensing
authority would have imposed them."
Further, in this respect, counsel for the respondents
quoted from Lawrence Building Co. Ltd.
v Lanark County Council 1978 SC 30, where Lord President Emslie (at p.47) quoted with approval
what was said by Lord Selborne L.C. in the Great Eastern Railway Co. case, to the effect that the doctrine of ultra vires:
"... should be reasonably,
and not unreasonably, understood and applied and that whatever may fairly be
regarded as incidental to, or consequential upon, those things which the
legislature has authorised ought not (unless expressly prohibited) to be held,
by judicial construction, to be ultra
vires."
and noted that this proposition had also been cited
with approval in the cases of Glasgow
Corporation v Flint 1966 S.C. 108 at 119, and Graham v Glasgow Corporation 1936
S.C. 108 per Lord Justice Clerk Aitchison at p.125.
[9] Against
that background, counsel for the appellants maintained that the contract
between the parties could not properly ask the appellants to do more than the
respondents could legally require, and this applied both to the contract for
the design services in relation to the improved lighting on Holly Road and to
the construction consent in which the significant condition exactly matched the
one which it was designed to anticipate.
Section 35(1) of the 1984 Act imposed a prima facie duty on the respondents irrespective of the cause or
occasion to provide and maintain lighting on roads within their area as
required. Section 21(3)(a) of the
Act allows the roads authority a wide discretion to impose conditions on any
construction consent, but as Lord Hope said in Stewart v Perth & Kinross
Council, the freedom to impose such conditions is not unlimited and any
conditions sought to be introduced must be examined in the context of the
contract. In the present case the form
and substance of the contract meant that the respondents could only impose
conditions on the appellants in respect of a new road within the development
undertaken by the appellants, and the power to include conditions into the
contract or the consent could not extend to their prima facie duty to maintain and improve the existing road network
lighting for which they had already a statutory responsibility. This approach, counsel argued, was borne out
by the provisions of the 1984 Act (such as sections 16, 21(5), 22, 35(5)
and 151), all of which in effect drew clear distinctions between new and
existing roads. The condition in the
design contract requiring the appellants to provide new lighting was not
related to the new roads within the development, but to the existing road
network, and was therefore ultra vires.
A roads authority could require developers to pay for unrelated matters,
but this was normally achieved by other means and measures, such as section 48
of the 1984 Act and section 75 of the Town and Country Planning (Scotland) Act 1997.
[10] In
reply, counsel for the respondents submitted that the condition introduced into
the design contract to the effect that the appellants should improve the
lighting at Holly Road, and repeated in the
construction consent, was not ultra vires.
Section 23(1)(a) allowed the roads authority to impose conditions
as they saw fit. There were no
restrictions in law on how they set about doing this. The only qualification on the appropriateness
of having such conditions is that the services required of the appellants
should arise reasonably and fairly out of the development and its associated
construction consent. The respondents
have a general responsibility to provide and maintain lighting on roads under
their control in terms of Section 35(1) of the Act, but there was no
qualification or restriction on how they should discharge that
responsibility. There was no
justification for saying that any such conditions incorporated into the
contract or the consent could only relate to the new roads in a development,
and could not extend to cover the existing road network. In terms of section 48 of the Act, the
roads authority has wide powers to enter agreements with anyone to assist with
the provision of lighting.
[11] The
secondary argument for the appellants was that there had to be an implied term
in any contract, having regard to the need for business efficacy, to the effect
that the respondents' requirements referred to must mean the council's lawful
requirements, and as such would not call for the appellants doing work which
the respondents themselves were bound to perform in terms of section 35(1). The contract could not stipulate that the
appellants performed work in excess of what was required for the
development. The appellants were
entitled to expect the design contained in the agreement to be legally correct. The respondents could not, for example, propose
a contract which led to the result that the appellants had to upgrade the existing
road lighting network in Leven. The only
rational conclusion was that the contract had to have an implied term that the
appellants could not be asked to carry out what were the legal requirements
incumbent upon the respondents. Counsel
accepted that if his argument on ultra
vires failed, then this argument
could also not succeed.
[12] In
reply, counsel for the respondents argued that the appellants had come nowhere
near to meeting the test of necessity which has to be met before a condition
can be imported into a contract. This
test meant simply that the contract could not be carried out unless the
conditions were implemented. In the
present case, the work referred to in the condition had been fully completed
before the contract was in place. It
could not therefore be said that the term was necessary for the contract to be
efficacious. Reference was made to Gloag on Contract, 2nd Ed. p.288. Counsel also submitted that because the work
had been completed before the contract was signed, the basis for any claim for
recompense had fallen away. Finally,
counsel for the respondents submitted that even if he was wrong on all of the arguments
he had submitted up to this point, the condition complained of by the
appellants was not truly a condition imposed on the contract by the
respondents, but an agreement between the appellants and respondents as to who
would do the work. The appellants had
not done the work as a condition of the contract but as a separate agreement
between the appellants and the respondents, which they had now completed.
[13] We are
satisfied that the appellants' submissions in the present case must fail. On the assumption that what the appellants
complain of is a condition imposed into the contract at the instance of the
respondents, the appropriate test for deciding whether a particular condition has
been competently included into a contract, and is not ultra vires of the local
authority responsible for introducing it, can most conveniently be found in the
case of Stewart v Perth & Kinross Council. From the speech of Lord Rodger (at
para. 55), it is clear that any such conditions attached to an arrangement
proposed by a local authority must for present purposes have
three attributes. Firstly, the
conditions imposed must be for a purpose connected to the subject matter of the
agreement or proposed agreement in question, and not for any ulterior
purpose. An ulterior purpose, as we
understand it, would be something which went beyond the remit or subject matter
of what was agreed between the parties.
Thus, to use the example cited in argument by counsel for the
appellants, if the roads authority had required as a condition of the
construction consent that the appellants should be responsible for upgrading
the lighting on the existing road network in Leven, then that condition would
have been properly described as having an ulterior purpose, and it would be ultra vires of the authority to require such a condition to be part of
the contract. However, in the present
case, it was a matter of concession that the provision of extra lighting in
Holly Road was a direct consequence of, and indeed necessary for, the purposes
of the appellant's housing development, and although counsel for the appellant
was careful to qualify his concession (so that it did not go to the extent of
allowing the respondents to impose an illegal condition), that does not assist
the appellant's position. As the sheriff
has found, and as the appellants have conceded, the need for extra lighting was
an essential part of both the design contract and the construction consent, and
cannot be described as ulterior to those documents.
[14] The
second requirement is that the condition in question must fairly and reasonably
relate to the subject matter of the agreement.
The considerations in this respect are in many ways broadly similar to
those relating to the first question.
Again, standing the sheriff's findings in the pleadings and the
appellants' concession, it is impossible to maintain that the provision of the
additional lighting on Holly Road was not fairly and
reasonably related to the construction consent required for the development. In respect of these first two grounds the
critical distinction in our view is not whether the consequences of the
condition affect the old road network rather than the new, but whether the
consequences themselves, whatever they are, can properly be said to be for a
purpose connected to the agreement, or which may be fairly regarded as
incidental to or consequential upon the agreement, and which must fairly and
reasonably relate to that agreement. Finally, it cannot be said, and it was not
argued, that the condition was so unreasonable that no reasonable authority
would have imposed it. In these
circumstances, we are not satisfied that it has been shown that the inclusion
of this condition into the contractual arrangements between the parties was ultra vires of the respondents.
[15] We
found equally unconvincing the appellants' submission that there should be a
term necessarily implicit in the contract to the effect that the requirements
therein referred to should be the respondents' lawful requirements. As counsel submitted, such terms are to be
implied necessarily for the business efficacy of the contract. But here the contract was completed by 30 June 2002, before the construction consent was
signed. It could hardly in those circumstances
be described as a term that had to be implied for business efficacy. Further, the appellants would seem to be
arguing that a term should be implied into a contract in terms exactly the opposite
of the condition complained of, and specifically agreed to. It would be a remarkable position if a party
to a contract could argue that, after the work had been successfully completed,
it was a matter of necessity that a condition in the contract specifically
agreed to should be held not to apply, and the converse of that condition
imposed in its place. In these
circumstances we can see no reason for holding that the implied condition
contended for by the appellants should be incorporated into the contract.
[16] Further,
although this is not a matter directly for our decision, we are of the view
that the condition complained of by the appellants is simply part of a straightforward
contract between the parties. There is
no qualification, within the terms of the statute or elsewhere, on the right of
a roads authority to discharge their statutory lighting responsibilities by
delegating performance to someone else.
Section 48 of the 1984 Act seems specifically to allow such a
course.
[17] We
therefore refuse the appeal and sustain the judgment of the sheriff.
