The recent judgment in Walter Lilly & Co Ltd v Clin [2016] EWHC 357 will remind employers of their duties in relation to planning permission. If an employer does not comply with these duties and planning permission is not received, the employer may be on the hook for the costs of any resultant delay.

The background

Walter Lilly is a building contractor. Mr Jean-François Clin owned two connected properties in the Royal Borough of Kensington and Chelsea (“RBKC”).

In September 2012, the parties entered into a JCT Building Contract with Quantities, 2005 Edition, incorporating Revision 2 (2009), with Contractor's Designed Portion incorporating bespoke amendments. Under the terms of the contract, Walter Lilly was to carry out demolition, refurbishment and reconstruction works to form a single residence.

In July 2013, whilst the works were underway, RBKC wrote to Walter Lilly and to Mr Clin’s Architect stating that it considered the extent of proposed demolition to amount to “substantial demolition” and that as a result, conservation area consent was required. Accordingly, the critical demolition works were suspended by Walter Lilly for one year.

Mr Clin asserted that conservation area consent was not required on the basis that the Works did not involve “substantial demolition”. Eventually, however, Mr Clin decided to revise the design of the development and so a further planning application was submitted on 19 December 2013. Planning permission was eventually granted in June 2014.

Walter Lilly then claimed an extension of time in respect of the delay to the works.

The dispute

The hearing before Mr Justice Edwards-Stuart was in relation to several preliminary issues. The key issue however was a simple one. In the absence of an express provision in the JCT contract which served to allocate the risk for a failure to obtain planning permission, would the contract include an implied term that either the employer or contractor was responsible for the risk, or was there no implied term with the loss resulting from such failures lying where it fell?

It should be noted that there was considerable uncertainty as to whether the letter from RBKC was correct in stating that the demolition works amounted to “substantial demolition” and thus the point might have been moot; nevertheless the legal principle needed to be considered.

The law

Edwards-Stuart J referred to the leading cases of Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988, where Lord Hoffmann said:

In every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.

This approach was considered in the judgments of the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72, which sought to differentiate between the practices of construction and implication, noting that it is "only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term."

Edwards-Stuart J went on to state that the "overriding point" which must be borne in mind before implying any term is that "the implication of that term is necessary in order to give business efficacy to the contract or, to put it another way, it is necessary to imply the term in order to make the contract work as the parties must have intended".

The findings

Absent specific contractual provisions, Edwards-Stuart J stated that a "reasonable man" would "know either that he is likely to need planning permission or, in the case of a residential development, that he must satisfy himself that the development proposed is exempt from the requirement for planning permission." The same applies to conservation area consent (although as of October 2013 conservation area consent is no longer a separate category of permission).

Edwards-Stuart J went on to say that it was obvious that the parties must have intended that someone should have the responsibility for applying for planning permission; it was necessary for the development to go ahead. An "informed bystander" would be likely to say that the party best placed to obtain planning permission was the employer, given that he knows in advance what he intends the project to be. By the time a contractor is invited to tender, it may be too late for planning permission or conservation area consent to be obtained in time. Further, any reasonable person would know that a failure to apply for permission or consent might well result in delay to the project.

A further question followed: Once primary responsibility for applying for planning permission rests with the employer, should a term be implied to the effect that the employer will ensure that planning permission is obtained, or should there be a more limited obligation - for example, to exercise reasonable diligence to obtain the necessary planning permission?

Edwards-Stuart J concluded that, in order to make the contract work effectively, there must be an obligation (and therefore a term was to be implied) that the employer will provide to the local authority in good time the information that its planning officers reasonably require in order to grant the necessary consents. This is a wider duty than simply taking reasonable steps to obtain planning permission, but does not mean that the employer undertakes the entire risk of the vagaries of obtaining planning permission. At the same time, the contractor was under a duty to provide to the employer in due time any necessary information which only it was in a position to provide in order to enable the employer to make any applications for conservation area consent.

Conclusions

This is a common sense judgment. It will not be controversial to suggest that the primary burden of achieving planning permission falls on the employer, but that the obligation cannot extend to warranting that planning permission will be achieved. The contractor assumes an analogous responsibility to provide the employer with that information of which only it is aware which is necessary to achieve planning permission. Once both the employer and the contractor have provided the information which they are required to provide, they have complied with their implied contractual duties and thus any losses arising from other failures (for example a frolic of the local authority) would lie where they fell; there was nothing inherently inequitable about this.

It might however be suggested that the Court could have gone further to determine or at least explain in more detail the scope of the obligation on the employer; whilst it is clear that it is not merely an obligation to use reasonable diligence and care, it is also not absolute - it falls somewhere between these two stalls. It is possible to see future disputes revolving around the extent to which a local authority's requests are reasonable, or what amounts to "in good time". These may be questions for another day and one would not want to put a burden on the court to answer every question conclusively.

One lesson which can be learned, however, from the perspective of a contractor or indeed an employer, is that it will be preferable to apportion planning risk expressly in the building contract, rather than to leave it to the vagaries of implied contractual terms.