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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Selby District Council v Samuel Smith Old Brewery (Tadcaster) [2000] EWCA Civ 182 (26 May 2000)
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Cite as: [2000] EWCA Civ 182
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Case No: CHANF/1998/1656/A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
Blackburne J.
Royal Courts of Justice
Strand, London, WC2A 2LL
Friday 26 May 2000
LORD JUSTICE PETER GIBSON
LORD JUSTICE CHADWICK
and
LORD JUSTICE TUCKEY
SELBY DISTRICT COUNCIL |
Respondent | |
- and - |
||
SAMUEL SMITH OLD BREWERY (TADCASTER) |
Appellant |
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
__________________________________
Mr. Michael Briggs Q.C. and Mr. John Machell (instructed by Messrs Walker Morris of Leeds for the Respondent)
Mr. Jonathan Gaunt Q.C. (instructed by Messrs Dickinson Dees for the Appellant)
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE PETER GIBSON:
1. The central issue on this appeal is a question arising from the incorporation into a contract , created by the exercise of an option to repurchase, of General Condition 5(3) of the Law Society's General Conditions of Sale (1984 edition). By that Condition a vendor of part of his land is entitled to have expressly reserved out of the conveyance such rights as would be implied in favour of a purchaser of the retained land if the vendor had conveyed the land to be sold and the land to be retained by simultaneous conveyances to different purchasers. Without that Condition the vendor would not be entitled to any implied easements (not being easements of necessity or those required to carry out the common intentions of the parties) and s. 62 Law of Property Act 1925, which causes certain rights to pass with a conveyance, does not operate in favour of retained land. The issue between the parties is as to the application of the condition in the circumstances of the case to determine the rights reserved to the vendor over the land to be repurchased. Are they only those rights which were established easements at the date of the grant of the option or do they include all quasi-easements enjoyed by the retained land over the land to be repurchased as at the date of the exercise of the option? The Claimant, Selby District Council ("the Council"), argued for the former. The Defendant, Samuel Smith Old Brewery (Tadcaster) ("Samuel Smith"), argued for the latter. On 5 November 1998 Blackburne J. decided that question in favour of the Council. Samuel Smith now appeals against that decision. The judge also made an order requiring Samuel Smith to pay the Council two thirds of their costs of the trial to that date and one half of the Council's other costs of the action to that date. Samuel Smith also appeals against the latter part of that order in any event.
2. The background to this case can be summarised like this. In the centre of Tadcaster Kirkgate and Chapel Street are parallel streets running roughly north-south. At their southern ends they meet High Street running roughly east-west. In 1972 the Council compulsorily acquired just over an acre of land at the rear of the commercial buildings fronting Kirkgate, High Street and Chapel Street. Like the judge I will call that land "the Centre Site". I will call those buildings "the shops". The Council cleared the buildings on the Centre Site and in 1974 laid out a public car park with vehicular access from Chapel Street. New retaining walls were built by the Council on the rear boundaries of the shops and a hard standing strip delineated by kerbstones was laid down behind those properties, with the words "No Parking" and "Keep clear - rear access" painted on it. Following the laying out of the car park the Council permitted and encouraged the use of the car park as a means of obtaining access to the rear of the shops. The planning permission which had been obtained on 12 March 1968 for the car park had included the provision of loading and unloading areas for the shops. Openings on the rear boundary walls were made to facilitate such rear access. But no rights were ever granted by the Council over the car park for that purpose. Almost all of the property surrounding the Centre Site, including the property on its northern side, is owned by Samuel Smith.
3. Towards the end of the 1970s the Council became concerned about the deteriorating state of the town centre and its lack of a supermarket. In 1984 the Council prepared a planning brief for the redevelopment of the Centre Site, the focal point of which was to be a supermarket. The brief sought to secure the provision of rear service facilities for the shops and stated expressly that individual points of access from the new development to existing premises should be agreed by the developer with the Council and with the owners of the existing premises. The Council proposed to grant themselves planning permission for such a development. Then and thereafter the Council envisaged a development of the Centre Site which provided rear access for servicing the shops. That was necessary because parking restrictions had been introduced at the front of the shops.
4. In April 1986 the Council and Samuel Smith reached agreement that Samuel Smith would pursue a more ambitious scheme known as "the Vision of Tadcaster", including the comprehensive redevelopment of the Centre Site and Samuel Smith's property to the north, together with associated pedestrianisation and traffic re-routing schemes. Samuel Smith would itself be the developer and would purchase the Centre Site. Planning permission for the Vision of Tadcaster was granted by the Council. There then followed protracted negotiations about the price to be paid for the Centre Site. Samuel Smith wanted the Centre Site to be transferred to it for no monetary consideration, the price to be Samuel Smith's covenants in a proposed agreement pursuant to s. 33 Local Government (Miscellaneous Provisions) Act 1982 to carry out the development. The Council insisted on a monetary purchase price. Heads of terms were finally agreed in principle in November 1987 under which the Council were to receive £90,000 for the Centre Site plus the benefit of a watered down s. 33 agreement requiring Samuel Smith to use its best endeavours to complete the Vision of Tadcaster within 5 years.
5. Although the expectation was that the development work would start early in 1988, negotiations on the details dragged on throughout 1988 and 1989. Samuel Smith experienced difficulties in negotiating the surrender of a lease of a narrow strip of land called the bowling club strip needed for a road widening which was an essential part of the Vision of Tadcaster and it was also facing opposition over the pedestrianisation proposals. On 30 January 1990 the Council's policy and finance committee passed a motion to the effect that the Council should withdraw from the agreement in principle unless the sale of the Centre Site was completed and the price paid within 28 days.
6. This ultimatum led to a meeting the next day at which an accord was reached. The Council would sell the Centre Site to Samuel Smith for £90,000 to be completed before 31 March 1990 but the Council would have an option to repurchase the Centre Site "at cost" if Samuel Smith did not within 18 months enter into a s. 33 agreement committing itself to the development. In correspondence in early February the meaning of "at cost" was agreed to be £90,000 indexed by reference to the retail price index ("the RPI").
7. On 30 March 1990 8 documents were executed to give effect to the new bargain. Among the documents was an agreement for the sale by the Council to Samuel Smith of the Centre Site and the bowling club strip for £90,000. The property agreed to be sold included the residue of a term of 21 years, which commenced on 1 January 1975 and was granted by Samuel Smith to the Council on 12 September 1975, of a strip of land ("the yellow strip") no more than 12 or so feet in width running along the backs of 12-22 High Street. It also included the 5 years unexpired residue of a term of 21 years which commenced on 1 April 1974 and was granted by Courage Brewery Ltd. to the Council on 22 August 1977 of two strips of land ("the purple strips") on either side of, and in effect being a continuation of, the yellow strip. The purple strips adjoined the backs of 10, 24 and 26 High Street.
8. Clause 4 of the agreement also provided that on completion Samuel Smith should grant the Council a 21-month lease of the car park at a peppercorn rent from 30 March 1990. The lease was to contain a covenant by the Council to keep the area thereby demised available for its existing purposes as a market, as a public car park and as public conveniences. Clause 5 provided for a similar lease by Samuel Smith to the Council of 43 Kirkgate, where the Council had their office premises. The Council covenanted to use those premises as offices.
9. The crucial document entered into on 30 March 1990 was an option agreement. By it Samuel Smith granted the Council the option, conditional on Samuel Smith failing to enter into a s. 33 agreement by 31 October 1991 or such other date as the parties might agree, to repurchase the Centre Site (but not the bowling club strip) and to take leases of the yellow and purple strips in identical form to the leases of 12 September 1975 and 22 August 1977 respectively and to expire on the expiry dates of the original leases. Clause 5 of the option agreement provided that the proper service of the option notice should create a contract which would be subject to the 1984 edition of the Law Society's General Conditions of Sale so far as the same were not varied by or inconsistent with the option agreement. Para. (1) of clause 5 contained a number of variations including a variation to Condition 5 (1), but Condition 5 (3) was left unvaried. It was in these terms:
"(a) In this subsection "the retained land" means land retained by the vendor -
(i) adjoining the property, or
(ii) near to the property and designated as retained land in a special condition.
(b) The conveyance of the property shall contain such reservations in favour of the retained land and the grant of such rights over the retained land as would have been implied had the vendor conveyed both the property and the material land by simultaneous conveyances to different purchasers."
The price for the property to be repurchased on exercise of the option was to be £90,000 plus the RPI increase.
10. Completion took place on the same day. With the conveyance of the Centre Site to Samuel Smith the leasehold interests merged in the reversions owned by Samuel Smith and all cross-boundary rights between the Centre Site and the shops were extinguished. Thereafter a more attractive development outside the centre of Tadcaster presented itself to Samuel Smith, the Vision of Tadcaster was never carried out and Samuel Smith never entered into a s. 33 agreement to do so. By letter dated 1 November 1991 the Council exercised its option by serving the option notice.
11. Following that service, there was correspondence between the parties concerning the terms of the reconveyance of the Centre Site. The parties were unable to reach agreement as to what rights should be reserved in favour of the shops retained by Samuel Smith. On 19 June 1992 the Council served on Samuel Smith a notice to complete on 13 July 1992 and, when that did not take place, on 10 August 1992 issued a writ seeking specific performance.
12. The pleadings underwent numerous changes over a period of some four years and included a Re-amended Reply and an Amended Rejoinder. Until shortly before the trial, three main issues were raised by the pleadings. (1) Had the Council properly authorised the commencement of the proceedings? (2) Had the Council validly exercised the option? (3) Was the Council entitled to specific performance? In the week before the trial began on 12 October 1998 Samuel Smith conceded those issues. The issue between the parties then became whether Samuel Smith was entitled to have certain rights over the car park reserved for the benefit of the shops. Those rights were said to be (a) easements of necessity, (b) intended easements, (c) easements arising under the rule in Wheeldon v Burrows (1879) 12 Ch D 31, and (d) those rights and privileges which are deemed to be conveyed under s. 62 Law of Property Act 1925. A number of rights claimed by Samuel Smith in favour of specific shops were conceded by the Council. The rights remaining in issue were access and car parking rights and rights of light.
13. At the trial the judge was only asked to determine the limited question whether Samuel Smith was entitled by virtue of Condition 5 (3)
(i) only to those rights which were established easements either by reason of express grant or by prescription at 30 March 1990, when the option was granted, as the Council contended, or
(ii) to all quasi-easements enjoyed by the shops at 1 November 1991, when the option was exercised, as Samuel Smith contended.
14. The significance of the difference between the two does not lie in the dates, because none of the rights claimed by Samuel Smith first began to be exercised after 30 March 1990. In all cases the use relied on has been carried on at least since the car park was laid out and it makes no difference whether the relevant date is 30 March 1990 or 1 November 1991. In either case the use has been for less than the prescription period. The significance of the difference lies in the applicability (claimed by Samuel Smith but denied by the Council) of (a) the rule in Wheeldon v Burrows and (b) s. 62 Law of Property Act 1925. By that rule the rights to be implied in favour of the grantee of part of a holding against the owner of the remainder are those rights which are needed for the proper enjoyment of the land granted but which could not have been easements because of the common ownership prior to the grant (and so are called quasi-easements). They are in the words of Thesiger L.J. in Wheeldon v Burrows (12 Ch. D. at p. 49) "all those continuous and apparent easements (by which, of course, I mean quasi easements) or, in other words, all those easements which are necessary to the reasonable enjoyment of the property granted, and which have been and are at the time of the grant used by the owners of the property for the benefit of the part granted." By s. 62 every conveyance, in the absence of a contrary intention in the conveyance, passes with it "all .... liberties, privileges, easements, rights, and advantages whatsoever, appertaining or reputed to appertain to the land or any part thereof, or, at the time of conveyance, .... enjoyed with .... the land or any part thereof".
15. It was common ground before the judge that by virtue of Condition 5 (3) Samuel Smith was entitled to have reserved out of the reconveyance to the Council such rights as would be implied in favour of a fictitious purchaser of the shops if Samuel Smith had conveyed the Centre Site and the shops by simultaneous conveyances to different purchasers. The judge accepted that where Condition 5 (3) applies the rights to be implied and to which the conveyances should give effect would ordinarily depend on the circumstances at the date of the contract. But the judge said of that condition that it did not define by what process the implied rights and reservations were to be ascertained, much less did it require the application, as at the contract date, of the rule in Wheeldon v Burrows or s. 62 to determine what those rights were, the matter being left at large. He pointed out that the principle of non-derogation from grant which underlay the implication of rights on a conveyance of land was based upon the presumed intention of the parties to the conveyance, and that the grant of rights under the rule in Wheeldon v Burrows no less than the grant of rights under s. 62 yielded to the parties' intentions. He regarded the obvious purpose of the option as being to enable the Council to restore the landholding position and the position of the parties to what it had been on 30 March 1990 immediately before the transaction was entered into. He treated as de minimis two differences between what had been conveyed on 30 March 1990 and what was to be reconveyed on the exercise of the option (the fact that the new lease of the purple strips included an area of land not demised by the lease of 22 August 1977 and the fact that the bowling club strip was not included in the property to be reconveyed). He said that no consideration was given in March 1990 to the pattern of cross-boundary rights and liabilities if and when the option was exercised and that in the option agreement the need to recreate a pattern of cross-boundary rights was not addressed. He expressed the view that there was nothing in the language of Condition 5 (3) which required that the matter be looked at by reference to the pattern of use as at the date of exercise of the option rather than as at the date of the option itself. He therefore rejected Samuel Smith's contention and accepted the Council's submission that Samuel Smith was entitled only to easements which were established at 30 March 1990.
16. In a separate judgment on costs the judge referred to the course of the proceedings and made the order that the Council should recover two thirds of their costs of the trial. He then said that he ought to make some order as to the general costs of the action so far incurred. He bore in mind that Samuel Smith had abandoned its defence based on specific performance and that costs had been incurred in relation to issues on which the Council had succeeded. He ordered that the Council should have half of their costs up to the date of the trial.
17. The effect of the judge's ruling on the question of construction was that there remained, and still remains, for decision what established easements should be expressly reserved in the reconveyance, the position to be assessed as at 30 March 1990. Samuel Smith had not even pleaded what its case was on this. That question awaits the outcome of this appeal and, if the appeal is dismissed, in default of agreement between the parties that issue will have to be tried.
18. On this appeal we have had the benefit of excellent argument from Mr. Gaunt Q.C. for Samuel Smith and Mr. Briggs Q.C. for the Council.
19. On the main issue Mr. Gaunt submitted that, giving Condition 5 (3) its ordinary and natural meaning, Samuel Smith was entitled to the reservation as easements of those rights existing at 1 November 1991 which are to be implied under the rule in Wheeldon v Burrows and which pass under s. 62. He accepted that in relation to an actual transaction the rule in Wheeldon v Burrows may be held not to apply to particular easements which the parties did not intend to be granted. He also accepted that s. 62 applied only if and in so far as a contrary intention was not expressed in the conveyance and had effect subject to the conveyance. But he submitted that those limitations could not apply to the fictional conveyance of the retained land to a fictional purchaser. The intention attributed to the parties to a different transaction, between Samuel Smith and the Council, can hardly be attributed, he said, to the parties to the fictional conveyance, nor can a contrary intention be found in the fictional conveyance to exclude s. 62. He pointed to the fact that Condition 5 (3) had not been modified. He stressed that the effect of the Council's submissions was to leave Samuel Smith in a worse position, because as of 31 March 1990 it had 16 years or so of prescriptive user, which was lost when it took the conveyance of the car park, and on reconveyance to the Council the prescription period started from scratch. Whilst he accepted that prior to 31 March 1990 Samuel Smith's use was precarious, he submitted that it was quite likely to have ripened into easements acquired by prescription but for the conveyance in 1990. He said that it was most unlikely that the parties' common intention would have been for Samuel Smith to be left worse off on the exercise of the option. He contended that if, contrary to his submissions, the parties to the fictional conveyance had the knowledge of the Council and Samuel Smith at 30 March 1990 the inference to be drawn was that they intended that the retained properties should have the rights of access and parking over the Centre Site.
20. Mr. Briggs submitted that the judge was right for the reasons which he gave. He said that rights will only be implied to the extent that they are consistent with the actual or presumed intentions of the parties and that the general rules as to what implied rights pass on a conveyance are no more than presumptions based upon the principle of non-derogation from grant. The exercise, he argued, was to ascertain the actual or presumed intentions of the parties, having regard to the terms of the transaction and the relevant surrounding circumstances. He emphasised that the present case was one involving a repurchase, unlike the ordinary case to which Condition 5 (3) applies of a purchase of part of a single holding. The land to be repurchased had been in separate ownership prior to 1990 and was then sold to the neighbouring owner solely to facilitate a proposed development which had then entirely failed. He said that the obvious commercial purpose of the option, viewed as part of the transaction entered into in March 1990, was to enable the Council to restore the parties to the status quo ante 30 March 1990, including the pre-March 1990 pattern of rights and liabilities, benefits and burdens across the re-established ownership boundary between the Centre Site and the shops. To convert the quasi-easements into easements by express reservation ran counter to the obvious intention that the Centre Site, once recovered by the Council, should be no more heavily encumbered than it had been in March 1990.
21. I start with Condition 5 (3). By including that Condition in the option agreement the Council and Samuel Smith did address the question of what rights over the Centre Site should be reserved in favour of the retained properties (as well as the rights over the retained properties in favour of the Centre Site). The obvious purpose of Condition 5 (3) is, as the judge put it, to level the playing field as between the grant and the reservation of implied rights by supposing simultaneous grants of the land which the vendor has agreed to convey and the land which he is retaining. It is well-established that where there are simultaneous grants by the grantor of different parts of a single piece of land, each grantee obtains the same easements over the land of the other as he would have obtained if the grantor had retained it (Swansborough v Coventry (1832) 2 Moo. & Sc. 362, Megarry & Wade The Law of Real Property, 6th ed. (2000) para. 18 - 106). Thus I do not think that the judge was right to say that Condition 5 (3) did not define how the implied rights and reservations were to be ascertained. They were to be ascertained by the mechanism provided for in the Condition, that is to say by reference to the general law on the deemed footing of simultaneous grants.
22. In the ordinary case of a conveyance of part of the land of the vendor not involving a repurchase, in the absence of evidence of a different intention, the ascertainment of the rights and reservations would be by reference to the position at the date of the contract for sale. But this is not the ordinary case of a sale of part of a previous entire holding, but one of repurchase pursuant to the terms of the agreement in March 1990, of land which prior to March 1990 had already been in separate ownership and which had then been sold to facilitate a development that subsequently failed. Further, although Condition 5 (3) requires a fictional conveyance of the retained properties, the Condition is a term of the actual agreement between the Council and Samuel Smith and its meaning must be what the parties intended it to mean. The knowledge to be attributed to the hypothetical purchaser cannot sensibly be different from the actual knowledge of Samuel and the Council, as the parties to the option agreement and the actual conveyance, simultaneously with which the fictional conveyance is deemed to occur. Further, Samuel Smith is the vendor in the hypothetical conveyance. For the purpose of determining the rights over the retained properties in favour of the Centre Site the actual knowledge and intentions of the actual parties at 30 March 1990 when the conditions for the repurchase were laid down must be considered. It would be anomalous if Condition 5 (3) were to be interpreted as requiring a different state of knowledge to be attributed to the fictional purchaser in the simultaneous fictional conveyance. As Mr. Briggs said, it cannot be right that if there was a clear understanding between Samuel Smith and the Council inconsistent with the reservation of a right in favour of the shops over the Centre Site, Condition 5 (3) would require that reservation merely because of the presence of a hypothetical purchaser in the hypothetical conveyance of the shops.
23. The rule in Wheeldon v Burrows only operates to the extent that it is not inconsistent with the intention of the parties which may be inferred from the circumstances. Similarly s. 62 will not apply where a contrary intention is apparent from the conveyance or contract. Mr. Gaunt accepted that it is appropriate to look at the actual contract between the Council and Samuel Smith for this purpose even though the conveyance envisaged by Condition 5 (3) is a fiction. In applying the Condition by reference to the general law, it is appropriate to take account of how the parties' intentions may affect the implication of rights. In Birmingham, Dudley and District Banking Co. v Ross (1888) 38 Ch. D. 295 the lessee of a new building was held not entitled to a right of light to an extent inconsistent with the grantor's intention to be implied from the circumstances existing at the time of the lease and known to the grantee. As Cotton L.J. said at pp. 308-9:
"But when the question is as to an implied obligation we must have regard to all the circumstances which existed at the time when the conveyance was executed which brought the parties into that relation from which the implied obligation results."
From the circumstances an intention inconsistent with what otherwise would be implied rights may be deemed inferred. But to exclude the right that intention must be clearly inconsistent. For example to exclude a grantee's right to light it is not sufficient that the retained land should be shown in the conveyance to the grantee as "building land" (Broomfield v Williams [1897] 1 Ch 602). Each case must turn on its own particular circumstances.
24. The circumstances of the present case clearly demonstrate the intention of the parties by the transaction of 30 March 1990 that if Samuel Smith did not enter into the s. 33 agreement within the period allowed, the Council, should they exercise the option, would restore the position to what it was prior to that date. There are several pointers to this being the mutual intention. First, the short leases granted to the Council by Samuel Smith of the car park and 43 Kirkgate on 30 March 1990 were plainly intended to preserve the status quo during the period of the option agreement. Second, there is the exact correspondence (save for the minor variations which on the judge's unchallenged view were de minimis) between the property which was conveyed and the property which was repurchased. Third, there is the repurchase price "at cost", the agreement on indexation indicating that the parties intended that Samuel Smith would be repaid on the repurchase in real terms precisely what it had paid on 30 March 1990, regardless of any changes in the market value of the property between the sale and the repurchase. Fourth, there is the recreation of the exact terms of the leases of the yellow and purple strips in the new leases for what would have been the residues of the terms of the original leases if they had not merged on 30 March 1990 in the reversions belonging to Samuel Smith.
25. To treat Condition 5 (3) as requiring the conversion of precarious quasi-easements, dependent on whatever happened to be the user which could be established at the date of the exercise of the option, would be to alter the property from that which was sold on 30 March 1990 through the conferring of valuable rights in perpetuity on Samuel Smith. This change is not reflected in, and would be inconsistent with, the repurchase price exactly matching the purchase price. It would go far beyond the mere restoration of the position of the parties as it was at 30 March 1990 and would permanently encumber the Centre Site with easements over it.
26. Further, the position of the Council as owing a duty of care to its ratepayers is in my view to be borne in mind. True it is that on the unchallenged findings of the judge, there was no discussion between the Council and Samuel Smith at the meeting on 31 January 1990 of what the Council would do with the Centre Site if the Council exercised the option and nobody gave any consideration to identifying what established easements existed over the car park in favour of the shops or whether any development of the car park would be inhibited by any easements that were found to exist. It cannot be said that there was a common understanding that the Council would be free to develop the car park and that for that reason the quasi-easements would not become easements. But the wide rights claimed as easements by Samuel Smith, such as the right for itself and its authorised visitors to the shops to have not only access over the car park but also the right to park anywhere in the car park free would, in effect, prevent the use of the site other than for its existing use in perpetuity. That is a result hardly likely to have been intended by the Council on entering into the option agreement on 30 March 1990, conditionally giving the Council the right to restore the landholding position as at that date.
27. I accept that on the Council's argument the position at 30 March 1990 would not be restored precisely on the repurchase because the 16 years' user by Samuel Smith would be lost and time would have to start running again. But there can be no doubt which of the two rival approaches would more closely implement the intention of a restoration to the status quo ante. That user gave Samuel Smith no rights at 30 March 1990 and was truly precarious, liable to be interrupted at any time by the Council, even by notice without necessarily stopping the user. By contrast, if Samuel Smith's contentions were correct it will have acquired easements in perpetuity.
28. On the Council's argument, the restoration of the position at 30 March 1990 requires the reservation of rights which existed as fully constituted easements at that date. Condition 5 (3) is apt to achieve that purpose, and we have heard no argument to the contrary.
29. For these reasons I prefer the arguments made on behalf of the Council. I would dismiss the appeal on the main issue.
30. I turn next to the appeal on costs. Mr. Gaunt submitted that the judge was wrong to have made any order as to the costs of the action as distinct from the costs of the trial. He said that it was still possible that on the construction favoured by the judge Samuel Smith would prove to be successful. He argued that the judge's order was premature.
31. I cannot accept that submission. In my judgment the judge was well within the proper scope of the exercise of his discretion to make the order which he did. At the time when he made his order Samuel Smith had conceded the three main issues on which it had resisted the Council's claim and had no pleaded case in respect of the rights which it had on the construction favoured by the judge. In these circumstances it was entirely proper for the judge to make an order in respect of the costs incurred thus far. It might be thought that the judge was somewhat generous to Samuel Smith in requiring it to pay the Council only half their costs of the action. However the Council took no point on that. I would therefore dismiss the appeal on costs also.
LORD JUSTICE CHADWICK:
32. I agree that this appeal should be dismissed for the reasons given by Lord Justice Peter Gibson. I add some observations of my own out of deference to the careful and helpful submissions addressed to us by counsel for both parties.
33. The issue for decision by the judge turned on the effect to be given to condition 5(3)(b) in the 1984 edition of the Law Society's General Conditions of Sale on a re-conveyance by Samuel Smith to the Council of what has been called the Centre Site, Tadcaster. The circumstances in which it had been agreed, in March 1990, that the Centre Site would be reconveyed to the Council in the event that Samuel Smith did not proceed with development under the Vision of Tadcaster proposals were set out fully by the judge. They have been described by Lord Justice Peter Gibson in his judgment. It is unnecessary for me to rehearse them in any detail.
34. Those circumstances demonstrate, as clearly as may be, that the intention of the parties was that, if Samuel Smith did not enter into an agreement with the Council pursuant to section 33 of the Local Government (Miscellaneous Provisions) Act 1982 by 31 October 1991 - the position should be restored to the status quo ante. The property which was to be conveyed by the Council to Samuel Smith on 30 March 1990 would be reconveyed by Samuel Smith to the Council without variation (save to some very minor extent which, as was accepted, was de minimis). The payment to be made by the Council to Samuel Smith in consideration for the reconveyance would be the same (subject to indexation) as the payment which Samuel Smith was to make on 30 March 1990 in consideration for the conveyance.
35. It was in that context that the parties needed to make provision, in the option agreement of 30 March 1990, for the grant and reservation of easements in the event that there were a reconveyance of the Centre Site by Samuel Smith to the Council following the exercise of the option. The need for provision is self evident. The easements enjoyed by Samuel Smith over the Centre Site and the easements enjoyed by the Council over Samuel Smith's adjoining land immediately before the conveyance of the Centre Site by the Council to Samuel Smith on 30 March 1990, whatever those easements might be, would merge and be extinguished on that conveyance. So there was a need to address the position which would arise if and when the Centre Site was reconveyed by Samuel Smith.
36. In the absence of some provision in the option agreement (or in any subsequent agreement or in the reconveyance itself) the position on a reconveyance of the Centre Site to the Council would be that the Council, as purchaser of the land conveyed by the reconveyance, would, as a matter of law, become the grantee of easements over the adjoining land retained by Samuel Smith. Those easements would not be limited to easements of necessity and intended easements; they would include easements arising under the rule in Wheeldon v Burrows (1879) 12 ChD 31 and rights and privileges deemed to be conveyed under section 62 of the Law of Property Act 1925. But Samuel Smith, as vendor of the land conveyed by the reconveyance, would not become entitled by way of reservation to any easements over the Centre Site other than easements of necessity and intended easements; in particular, it would not enjoy easements arising under the rule in Wheeldon v Burrows or the benefit of section 62. The position is explained at pages 1105-1115 in Megarry & Wade: The Law of Real Property (sixth edition, 2000, paras 18-097 to 18-115).
37. The purpose of condition 5(3)(b) in the Law Society's General Conditions of Sale (1984 edition) is to redress the imbalance as between vendor and purchaser that would otherwise exist under the general law. The condition seeks to achieve that object by putting the vendor, in the relation to the adjoining land which he retains, in the position of a purchaser of that retained land under a conveyance of the retained land executed at the same time as the actual conveyance of the land transferred. The condition is in these terms:
The conveyance of the property shall contain such reservations in favour of the retained land and the grant of such rights over the retained land as would have been implied had the vendor conveyed both the property and the retained land by simultaneous conveyances to different purchasers.
38. The effect may be illustrated by an example. Suppose A to be the owner of adjoining plots, Blackacre and Whiteacre. If A, by conveyances executed at the same time, were to convey Blackacre to B and Whiteacre to C, then each of B and C would obtain the same easements over the land conveyed to the other as they would have obtained if the land conveyed to the other had been retained by A - see Swansborough v Coventry (1832) 2 Moo & Sc 362, cited in Megarry & Wade: the Law of Real Property at page 1110 (para 18-106). In particular, C will obtain the same easements over Blackacre as he would have obtained under the rule in Wheeldon v Burrows and section 62 if A had retained Blackacre. But suppose that, instead of conveying Whiteacre to C, A retains Whiteacre. He conveys Blackacre to B, as in the previous example, but under a contract which contains condition 5(3). B obtains easements over Whiteacre under the rule in Wheeldon v Burrows and section 62 in the usual way. A obtains the easements over Blackacre which C would have obtained if Whiteacre had been conveyed to C - because that is what condition 5(3) requires.
39. In the example which I have just given, the easements over Whiteacre which are the subject of an implied grant to B, as purchaser of Blackacre, under the rule in Wheeldon v Burrows and section 62, will be determined by the circumstances which actually exist at the time of the conveyance of Blackacre by A to B - or, in a case such as the present, at the time of the agreement, or option, under which B becomes the purchaser of Blackacre. So, relating the example to the facts in the present case, the easements to which the Council will become entitled on the reconveyance of the Centre Site over the adjoining land retained by Samuel Smith are determined by the circumstances in which the parties entered into the transaction on 30 March 1990. Those circumstances point, plainly, to an intention that the easements which were to be granted to the Council on a reconveyance of the Centre Site were to be the easements which had been enjoyed by the Council as owner of the Centre Site before the conveyance to Samuel Smith on 30 March 1990. Any other conclusion would be contrary to the underlying purpose of the option arrangement. I did not understand Mr Gaunt QC, counsel for Samuel Smith, to suggest otherwise. In particular, I did not understand him to suggest that the Council should be entitled to any easements over the land retained by Samuel Smith which went beyond those which had been enjoyed by the Council before 30 March 1990.
40. Condition 5(3) of the Law Society's Conditions of Sale (1984 edition) requires that the easements over Blackacre reserved to A as owner of Whiteacre - to return to the example - are ascertained by reference to a hypothetical, and simultaneous, conveyance of Whiteacre by A to C. What easements over Blackacre would be the subject of an implied grant to C, as purchaser of Whiteacre, on such a conveyance? As Lord Justice Peter Gibson has pointed out, the grant of implied easements under the rule in Wheeldon v Burrows and the operation of section 62 of the Law of Property Act 1925 are limited by the circumstances which exist at the time of the contract or the conveyance. Those circumstances may show that the intention which would otherwise be implied on a conveyance of land by one party to another is inconsistent with the true intention of the parties; in which case the effect of the rule and the operation of the section will be cut down. The question is what further hypothesis (if any) is required as to the circumstances in which A is deemed to convey Whiteacre to C in order to ascertain what easements over Blackacre would be the subject of an implied grant by A to C in such a conveyance. Relating the example to the facts of the present case, the question is what further hypothesis (if any) is required as to the circumstances in which Samuel Smith (as owner of the Centre Site) is deemed to convey its adjoining land to the fictional purchaser.
41. Mr Gaunt's answer to that question is, in effect, that no further hypothesis is required as to the circumstances in which Samuel Smith is deemed to convey its adjoining land to the fictional purchaser. All that condition 5(3) requires is that it be assumed that there is a conveyance by Samuel Smith of its adjoining land - that is to say, of the land which it is, in fact, going to retain - to a fictional purchaser at the same time as the actual reconveyance of the Centre Site to the Council. Nothing else is to be assumed. In particular, it is not to be assumed that there is any connection between the conveyance of the adjoining land to the fictional purchaser and the circumstances which have given rise to the reconveyance of the Centre site to the Council. It is said that that is the effect of the bargain which was made when the parties agreed to the inclusion of condition 5(3) in the option agreement.
42. I reject that submission. The effect of the bargain made when the parties agreed to the inclusion of condition 5(3) in the option agreement has to be determined by construing condition 5(3) in the context of the option agreement itself; and, for that purpose, it is necessary to have regard to the fact that the option agreement was part of a larger transaction effected on 30 March 1990. In the circumstances of the present case it would, to my mind, be wholly inconsistent with the intention of the parties in March 1990 to hold that they had agreed that condition 5(3) was to have effect on the basis that it was not to be assumed that there was any connection between the conveyance of the adjoining land to the fictional purchaser and the circumstances which had given rise to the reconveyance of the Centre site to the Council. The obvious purpose of condition 5(3) was to assist in restoring the position of Samuel Smith and the Council to the status quo ante in circumstances which had, in fact, given rise to the need for a reconveyance of the Centre Site.
43. To return to the example. The question is what further hypothesis (if any) is required as to the circumstances in which A is deemed to convey Whiteacre to C in a case where that is, notionally, part of a larger transaction giving effect to a bargain under which A has agreed to reconvey Blackacre to B in order to restore the status quo ante. In my view, the answer is not open to doubt. The hypothesis required is that A's obligation to convey Whiteacre to C arose under the original bargain between A and B. On that basis, A is deemed to have agreed with B (and, if necessary, with C) at the time of the original bargain that, if circumstances arose under which A were required to reconvey Blackacre to B, then A would, at the same time, convey Whiteacre to C. I have already pointed out that the easements over Whiteacre which would be the subject of an implied grant to B, as purchaser of Blackacre, would be determined by the circumstances existing at the time of the original bargain. So, also, the easements over Blackacre which would be the subject of an implied grant to C, as purchaser of Whiteacre, would be determined by the circumstances existing at the time of the original bargain. In both cases, the easements to be subject of implied grant and reservation are such easements as would, as between Blackacre and Whiteacre, restore the position to that which existed before those easements merged and were extinguished by the conveyance which had brought Blackacre and Whiteacre into the same ownership.
44. It follows that the hypothesis to be made in the present case is that the fictional conveyance of the adjoining land - that is to say, of the land which Samuel Smith is to retain - is a conveyance to a purchaser pursuant to an obligation arising as part of the bargain made between Samuel Smith and the Council on 30 March 1990; and that, in the light of that bargain, the intention to be attributed to Samuel Smith and the fictional purchaser - for the purpose of ascertaining the implied easements and other rights which are to be granted to the fictional purchaser under the rule in Wheeldon Burrows and section 62 of the Law of Property Act 1925 - is that the position as between the Centre Site and the adjoining land is to be as it was immediately before the conveyance of the Centre Site on 30 March 1990.
45. There is nothing that I wish to add to the observations of Lord Justice Peter Gibson in relation to the judge's order as to costs. I agree that the judge was entitled to make the order which he did.
LORD JUSTICE TUCKEY:
46. I agree that this appeal should be dismissed for the reasons given in both judgments.
(Order does not form part of the approved judgment)