Stratford on Avon District Council v David Wilson Homes Limited (8 November 2012) (unreported)

The Council entered into a section 106 agreement with the owner of a residential development site which included an obligation on the landowner to pay a sum of money once certain conditions had been satisfied. Part of the site was sold first to S and subsequently to P and the section 106 obligations passed to those parties as successors in title. The transfer from S to P included an indemnity provision whereby S agreed to indemnify P against any outstanding planning obligations. The indemnity also stated that it was for the benefit of P’s successors in title.

P sold the land on to Q, but the transfer did not include an indemnity covenant. A payment to the Council under the section 106 agreement was triggered and the Council approached Q for payment. P and Q then entered into an indemnity agreement whereby P agreed to indemnify Q in respect of the payment and P sought to recover the payment from S under the indemnity in the original transfer. S disputed liability on the basis that P had not given an indemnity to Q on transfer, was therefore under no obligation to make the payment and was accordingly not entitled to recover under its indemnity.

The Court of Appeal agreed with S. P had been under no obligation to indemnify Q and had done so voluntarily. The only reason for P and Q entering into the subsequent indemnity agreement was that they were related companies. Had they not been, there was no reason (absent a claim for rectification) why P would have subsequently agreed to indemnify Q. In those circumstances, P’s liability to Q did not arise out of the planning obligation and therefore S’s indemnity obligations were not triggered.