Restrictive covenant: application to discharge: impede reasonable user of land contrary to public interest: cynical breach

Supreme Court Case:  Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45:  https://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKSC/2020/45.html&query=(alexander)+AND+(devine)

The power to discharge or modify restrictive covenants in section 84 of the Law of Property Act 1925:

84.     Power to discharge or modify restrictive covenants affecting land

(1)       The Upper Tribunal shall … have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction … on being satisfied –

(a)       that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case which the Upper Tribunal may deem material, the restriction ought to be deemed obsolete; or

(aa)     that in a case falling within subsection (1A) below the continued existence thereof would impede some reasonable user of the land for public or private purposes … or, as the case may be, would unless modified so impede such user; or

(b)       that the persons of full age and capacity for the time being or from time to time entitled to the benefit of the restriction … have agreed, either expressly or by implication, by their acts or omissions, to the same being discharged or modified; or

(c)       that the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction:

and an order discharging or modifying a restriction under this subsection may direct the applicant to pay to any person entitled to the benefit of the restriction such sum by way of consideration as the Tribunal may think it just to award under one, but not both, of the following heads, that is to say, either –

(i)        a sum to make up for any loss or disadvantage suffered by that person in consequence of the discharge or modification; or

(ii)       a sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it.

(1A)    Subsection (1)(aa) above authorises the discharge or modification of a restriction by reference to its impeding some reasonable user of land in any case in which the Upper Tribunal is satisfied that the restriction, in impeding that user, either –

(a)       does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or

(b)       is contrary to the public interest;

and that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the discharge or modification.

(1B)    In determining whether a case is one falling within subsection (1A) above, and in determining whether (in any such case or otherwise) a restriction ought to be discharged or modified, the Upper Tribunal shall take into account the development plan and any declared or ascertainable pattern for the grant or refusal of planning permissions in the relevant areas, as well as the period at which and context in which the restriction was created or imposed and any other material circumstances.”

The application was made on the reasonable user ground contained in sub-section 84(1)(aa) as qualified by sub-section 84(1A).

The Supreme Court identified 2 stages of the exercise of the Upper Tribunal and appeal courts powers:

33.             It is well-established (see, for example, Driscoll v Church Comrs for England [1957] 1 QB 330) that, if satisfied that one of the prescribed grounds has been made out, the Upper Tribunal has a discretion whether or not to make an order for modification or discharge of the restrictive covenant. The important statutory words to this effect are in section 84(1): the Upper Tribunal “shall … have power”. The five grounds are therefore concerned with establishing the Upper Tribunal’s jurisdiction and can be helpfully labelled the “jurisdictional grounds”: at least one of those jurisdictional grounds must be established by the applicant before the Upper Tribunal can go on to make what is ultimately a discretionary decision.”

The court decided that the developer’s conducting in cynically building out the development which it knew was in breach of the restrictive development was not relevant to the issue of whether one of the grounds for discharge existed:

1)       Did the Upper Tribunal, at the jurisdictional stage, make an error of law by ignoring Millgate’s cynical breach while regarding as highly relevant the fact that, by the time of the application, 13 housing units had been built?

  1. The essential elements of section 84 in relation to the “contrary to public interest” jurisdictional ground are sections 84(1)(aa) and (1A)(b). These have been set out in para 31 above. Reduced to their core, they read as follows:

“(1)     [The Upper Tribunal shall have the power to discharge or modify a restrictive covenant on being satisfied] –

(aa)     that in a case falling within subsection (1A) below the continued existence [of the restriction under the covenant] would impede some reasonable user of the land …;

(1A)    Subsection (1)(aa) above authorises the discharge or modification of a restriction by reference to its impeding some reasonable user of land in any case in which the Upper Tribunal is satisfied that the restriction, in impeding that user …

(b)       is contrary to the public interest;

and that money will be an adequate compensation for the loss or disadvantage (if any) which any … person will suffer from the discharge or modification.”

  1. Mr Hutchings submitted that the statute requires a narrow interpretation of what is meant by “contrary to the public interest”. I agree. It is clear from the statutory words that one must ask whether the impeding of the reasonable user of the land by the continuation of the restrictive covenant is contrary to the public interest. If one is satisfied that the proposed use of the land is reasonable (and it was common ground that that was satisfied in this case) one must ask whether the impediment of that use by the continuation of the restrictive covenant is contrary to the public interest. It is of central importance that the question that has to be asked is not the wider one of whether in all the circumstances of the case it would be contrary to the public interest to maintain the restrictive covenant. Rather the wording requires one to focus more narrowly on the impeding of the reasonable user of the land and to ask whether that impediment, by continuation of the restrictive covenant, is contrary to the public interest.
  2. On the facts of this case, therefore, that narrow wording required the Upper Tribunal to determine whether it was contrary to the public interest for the 13 housing units not to be able to be used. The waste involved would be a very strong factor indicating that that would indeed be contrary to the public interest. To be weighed against that would be the public interest in the hospice providing a sanctuary for children dying of cancer which would be protected by the continuation of the restrictive covenant. Two competing uses of the land are therefore pitted against each other. It is the resolution of a land-use conflict that we are here dealing with. That was the approach taken by the Upper Tribunal and there was no error of law in its deciding that the “contrary to public interest” jurisdictional ground was made out on these facts.
  3. Once one appreciates that the relevant wording requires a narrow enquiry and does not involve asking the wide question of whether in all the circumstances it is contrary to the public interest to maintain the restrictive covenant, it is clear that the good or bad conduct of the applicant is irrelevant at this jurisdictional stage. The manner of the breach of the restrictive covenant (ie whether the breach was cynical or not) is irrelevant because that tells us nothing about the merits of what the burdened land is being used for or will be used for. This, of course, is not to deny that the manner of breach – the cynical breach by the applicant – is a highly relevant consideration when it comes to the discretionary stage of the decision. But it is irrelevant at the jurisdictional stage.”

On the issue of the developer’s conduct and how it affected the discretionary stage:

57.             Nevertheless, like the Court of Appeal, I am satisfied that, even though it took into account Millgate’s cynical conduct, something has gone fundamentally wrong with the Upper Tribunal’s exercise of discretion on the particular facts of this case such that one can say that there has been an error of law. In my view, the correct way of pinpointing this is to recognise that the Upper Tribunal failed to take into account in the exercise of its discretion two particular factors, concerned with the effect of Millgate’s conduct, that should have been taken into account. I shall refer to these factors as the “two omitted factors”. Taken separately, and certainly taken together, they make the facts of this case exceptional. Neither was referred to by Ms Windsor in her closing submissions and neither was mentioned in the judgment of the Upper Tribunal. Both relate to the important recognition by the Upper Tribunal (see para 14 above) that, had Millgate initially applied for planning permission to build all the required affordable housing on the unencumbered land, the local planning authority indicated that permission would have been granted.”

 

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