The Court of Appeal in Morris Homes Ltd v Cheshire West and Chester Council has recently had to grapple with whether an expert’s decision following dispute resolution relating to a s106 agreement was binding. My colleague Nicola Cotton considers the details of the case below.
The development in question was a residential housing scheme comprising 1,200 units for which outline planning permission was granted in 2008. The developer and the local planning authority (“LPA”) had entered into a s.106 Agreement which was varied in 2013 on the basis that the original planning obligations were too onerous for the developer. The varied Agreement provided for the affordable housing contribution to be calculated according to the total sales revenue received by the developer at the end of each phase of the development. A dispute arose at the end of Phase 1 over the extent of that sales revenue. The LPA considered that it should include capitalised ground rents and the developer disagreed. The dispute was referred to an expert for determination under the term of the s106 agreement.
The expert concluded that ground rents should be capitalised and form part of actual sales revenue. The developer then issued a claim in the High Court seeking a declaration that the determination was not binding on the parties on the ground that the expert had made an error of law relating to the interpretation of the term ‘sales revenue’. The High Court, in agreement with the expert, held that the definition of ‘sales revenue’ included ground rent receipts and/or the value of retained freehold reversionary interests and/or the proceeds of subsequent sale of those reversionary interests. The expert was not wrong in law and the determination was therefore binding on the parties. The Court of Appeal has recently upheld this judgment.
This case is a useful reminder to review the scope of expert determination clauses in a s106 agreement which can vary amongst different LPAs and for different obligations, and to carefully consider using them in the event of a dispute arising if the decision is defined as being binding rather than advisory. It also highlights that Section 106(B) is an alternative route where the dispute relates to the reasonableness of the developer obligations rather than the meaning of the undertaking itself.
“There can be many reasons why parties may agree that they will be under an obligation to refer a dispute to an expert rather than going immediately to court. They may consider that it would be in their interests for reasons of cost, timing or convenience. They may also agree that, ultimately, if it is necessary to do so, they should be able to refer a question of law to the ordinary courts for authoritative resolution. There is nothing inconsistent between those two positions being taken by the parties. If that is what they have agreed, the court's duty is to give effect to their agreement, not to rewrite it.”