A PROBLEM WITH SECTION 278 AGREEMENTS


When is a Section 278 Agreement not a Section 278 Agreement?

The short answer to this question is when it has nothing to do with Section 278 of the Highways Act 1980 at all.

Truth be told, many agreements relating to the carrying out of works on the highway are labelled as being “Section 278 Agreements” when an examination of their terms would show that Section 278 is not relevant to the transaction and should not have been cited.

This is not just a matter of incorrect labelling because, when it comes to drafting legal documents, it is of the utmost important that one understands the words one is using.

The need for a highways agreement

If a developer needs to carry out works to the highway[1], then he will need to enter into an agreement with the highway authority to enable him to do so. It will often be the case that the developer’s planning permission is subject to a ‘Grampian’ type condition which precludes the commencement of the development unless and until the highway works have been completed.
If the highway authority is going to execute the works, then the agreement should cite Section 278. It is, therefore, important that those involved in drafting and settling such agreements are familiar with the wording of this statutory provision and its intended purpose. Otherwise, fundamental mistakes can be made.

Section 278 of the Highways Act 1980

Section 278 provides as follows:

"278 (1) A highway authority may, if they are satisfied it will be of benefit to the public, enter into an agreement with any person -

  (a) for the execution by the authority of any works which the authority are or may be authorised to execute, or
  (b) for the execution by the authority of such works incorporating particular modifications additions or features, or at a particular time or in a particular manner on terms that that person pays the whole or such part of the cost of the works as may be specified in or determined in accordance with the agreement.(Emphasis added)

It will be noted that Section 278 is limited to works executed “by the authority” and does not mention works carried out by the developer. So far as the developer is concerned, his role is, simply, to pay for those works. There is nothing in Section 278 which gives him any role other than as a person to whom a bill can be rendered.

Section 278(2) goes on to provide that:

“Without prejudice to the generality of the reference in subsection (1) to the cost of the works, that reference shall be taken to include -

(a)the whole of the costs incurred by the highway authority, in or in connection with -

(i) the making of the agreement,
(ii) the making or confirmation of any scheme or order required for the purposes of the works,
(iii) the granting of any authorisation, permission or consent required for the purposes of the works, and
(iv) the acquisition by the authority of any land required for the purposes of the works; and

(b) all relevant administrative expenses of the highway authority, including an appropriate sum in respect of general staff costs and overheads.

(3)The agreement may also provide for the making to the highway authority of payments in respect of the maintenance of the works to which the agreement relates and may contain such incidental and consequential provisions as appear to the highway authority to be necessary or expedient for the purposes of the agreement.

(4) The fact that works are to be executed in pursuance of an agreement under this section does not affect the power of the authority to acquire land, by agreement or compulsorily, for the purposes of the works.

Again, these provisions are limited to actions undertaken by the authority and the developer’s role is, simply, to pay for them.

It is, also, important to stress that Section 278 is not a provision which deals with the making of highway works per se. Not only does the provision does not authorise the carrying out of highway works but also it does not mention highway works at all. That is to say that the provision refers “any works which the authority are or may be authorised to execute” without using the word “highway” to limit the word “works”. In fact, Section 24 of the 1980 Act is a provision that allows a local highway authority to carry out highway works and Section 278 then goes on to allow the authority to recover the costs of doing so from another person. Section 278 is, thus, a financial provision only.

It is, in order to understand the concepts underlying Section 278, necessary to study a mixture of constitutional law and history because the roots to Section 278 and all similar charging provisions lie there.

“No taxation without legislation”

The background to Section 278 can be traced back to the struggles between the Crown and Parliament which culminated in historical supremacy of Parliament over the monarchy in the 19th Century. This was reflected in the Bill of Rights 1869. The Bill of Rights established the principles of frequent parliaments, free elections, and freedom of speech within Parliament and the principle that the executive could no longer levy money without the approval of Parliament. It declared, among many other things, that “ . . levying money for or to the use of the Crown by pretence of prerogative, without grant of Parliament, for longer time, or in other manner than the same is or shall be granted, is illegal . .” This principle of “no taxation without legislation” still forms one of the United Kingdom’s fundamental constitutional principles.

In Attorney General v Wilts United Dairies Ltd (1921) 37 TLR 884 the Food Controller had, purportedly under the Defence of the Realm Acts, imposed a charge of two pence per gallon as a condition of the grant of a licence to purchase milk in certain areas for which no authority had been given by Parliament. The case proceeded on the basis that the sums were to be paid into the National Exchequer. The Court of Appeal and the House of Lords held that he had no power to do so. In the Court of Appeal, Atkins L.J. referred the Bill of Rights and said (@ p 886):
"Though the attention of our ancestors was directed especially to abuses of the prerogative, there can be no doubt that this statute declares the law that no money shall be levied for or to the use of the Crown except by grant of Parliament. We know how strictly Parliament has maintained this right - and, in particular, how jealously the House of Commons has asserted its predominance in the power of raising money.... In these circumstances, if an officer of the executive seeks to justify a charge upon the subject made for the use of the Crown (which includes all the purposes of the public revenue), he must show, in clear terms, that Parliament has authorized the particular charge."
He added, (@ p 887):
"It makes no difference that the obligation to pay the money is expressed in the form of an agreement. It was illegal for the Food Controller to require such an agreement as a condition of any licence. It was illegal for him to enter into such an agreement. The agreement itself is not enforceable against the other contracting party; and if he had paid under it he could, having paid under protest, recover back the sums paid, as money had and received to his use."
Scrutton L.J.said, (@ p. 885):
"It is conceivable that Parliament, which may pass legislation requiring the subject to pay money to the Crown, may also delegate its powers of imposing such payments to the executive, but in my view the clearest words should be required before the courts hold that such an unusual delegation has taken place. As Wilde C.J. said in Gosling v.Veley, 12 Q.B., at p. 407: 'The rule of law that no pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether tax, due, rate or toll, except under clear and distinct legal authority, established by those who seek to impose the burden, has been so often the subject of legal decision that it may be deemed a legal axiom, and requires no authority to be cited in support of it."
In the House of Lords, Lord Buckmaster said that the imposition could only be properly described as a tax, which could not be levied except by direct statutory means: (1922) 38 TLR 781.

‘Agency Arrangements’

Developers and highway authorities often find it expedient to provide that the developer shall carry out the relevant highway works as the agent of the highway authority.

The problem comes when they then purport to consolidate the arrangement in what they then describe as a “Section 278 Agreement”. That this is a misdescription should be evident from the foregoing discussion.

The reality of the situation came into prominence in the Court of Appeal decision in O'Connor v Wiltshire County Council (2007).[2]

O'Connor v Wiltshire County Council (2007)

The O’Connor Case shows that:
  • A road constructed by or on behalf of a local highway authority pursuant to an agreement which is purported to be made under Section 278 of the Highways Act 1980 may become maintainable at the public expense once it is opened to the public for passage and without the need for any act of dedication.
  • In consequence, there is a potential pitfall in the commonly adopted arrangement whereby the developer is deemed to be acting as the agent of the Highway Authority in the construction of a new highway pursuant to a Section 278 agreement.
As noted above, the somewhat contrived ‘agency’ device is often used, purportedly, to avoid the strictures of Section 278(1) which make it clear that the highway authority may enter into an agreement with any person for the execution by the authority of any works which the authority are or may be authorised to execute on terms that that person pays the whole or such part of the cost of the works. Section 278(1) does not allow for the carrying out of the highway works by the developer, presumably for the simple reason that the developer will be carrying out the works at its own cost in any event.

The O’Connor Case was an appeal to the Court of Appeal in respect of a decision of the Lands Tribunal. The Claimants were the owners and occupiers of a house affected by noise from a new distributor road. They made a claim under Part 1 of the Land Compensation Act 1973 for compensation for the diminution in the value of their house due to the noise impact. The Council maintained that C's claim for compensation was barred because the road, having been constructed by the developers, was not a highway maintainable at the public expense at the date when it was opened to traffic and had not become so maintainable within three years[3]The road was the subject of an agreement which required developers to build the road and the Council to adopt it when complete.

The Council appointed the developers to act as its agents to let and manage the construction contract for the road and the developers agreed to pay the Council the sums they would have been obliged to pay to construct the road had been opened but not adopted by the Council. The Council submitted that the road had been built by the developers and not by the Council despite the labelling of the developers as agents of the Council in the agreement. The Lands Tribunal held that the claim was barred by Section 19(3), as contended by the Council.

The Court of Appeal held that the road was a highway maintainable at public expense. The road fell within Section 36(2)(a)[4] of the Highways Act 1980 because it had been constructed by the Council otherwise than on behalf of some person who was not a highway authority. Although the developers were to enter into the road contract as principals, so that, as between the developers and the contractor, the developers would be liable as principals and not as agents, the position as between the Council and the developers was defined by the agreement which provided for the road to be constructed by the Council through the agency of the developers.

Section 278 does not empower a highway authority to construct new highways. This is the function of Section 24(2) of the 1980 Act which provides, simply, that a local highway authority may construct new highways. It should follow that if a highway authority engages a developer as its agent in the construction of a highway, then the highway is constructed on behalf of the highway authority and pursuant to Section 24(2).

Not only may the highway authority construct new highways but also those new highways will become highways maintainable at the public expense without the need for any dedication from the landowner. Once constructed, pursuant to Section 24(2), such a way will become a highway maintainable at the public expense by the operation of Section 36(2) without the need for any further documentation. Arguably, the highway authority must open the way for public passage before the provisions of Section 36(2) come into effect; however, there is no requirement that the way should be dedicated as a highway by the landowner.

Lord Justice Chadwick referred to a statement from the Lands Tribunal to the effect that the question therefore appeared to resolve itself into an inquiry as to whether the Council was exercising its powers to construct a highway under s.24(2) of the Act or under s.278. He then said:
“ In my view the Tribunal was wrong to think that there is some dichotomy between section 24(2) and section 278 of the Highways Act 1980. It is section 24(2) – in Part III of the Act ("Creation of Highways") – which confers on a local highway authority power to construct a new highway. Section 278 – in Part XIII ("Financial Provisions") – confers no independent power to construct a highway: the section is concerned with the funding of works "which the authority are or may be authorised to execute". Section 278(1)(a) enables the local highway authority to enter into an agreement with someone else under which the authority agrees to construct a highway (under the power conferred by section 24(2) of the Act) upon terms that the other party to the agreement will pay the whole or a part of the cost of those works. In the present case it was section 278(1)(a) of the 1980 Act which enabled the County Council to enter into the acceleration agreement; but it was section 24(2) of that Act which authorised the County Council to perform the obligation – that is to say, to construct the NDR – which it assumed under that agreement.”
NOTES
[1] As will be discussed below, please note that the use of Section 278 agreements is not, as a matter of law, confined to works on the highway only.
[2] [2007] EWCA Civ 426; [2008] J.P.L. 833; [2007]
[3] As required by Section 19(3) of the 1973 Act.
[4] Section 36(2): “ . . . the following highways . . . shall for the purposes of this Act be highways maintainable at the public expense - (a) a highway constructed by a highway authority, otherwise than on behalf of some other person who is not a highway authority; …”

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