England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE READING COUNTY COURT
HER HONOUR JUDGE ANN CAMPBELL
LOWER COURT CASE NO: 7HW00279

		Royal Courts of Justice Strand, London, WC2A 2LL
		29 July 2008

Mr Justice Lewison :

1. On 24 March 2005 Mr Michael Cantrell went to an auction and bought a house at 155 Bowerdean Road, High Wycombe for £130,000. The vendor was Home Group Ltd, a registered social landlord. Home Group Ltd had in turn acquired the house from Warden Housing Association Ltd, another registered social landlord.
2. Warden Housing Association Ltd's acquisition of another house in Bowerdean Road had been partly funded by Wycombe District Council ("the Council"). In return Warden Housing Association Ltd had agreed to grant the Council nomination rights; and these were recorded in a written agreement between the two of them dated 4 July 1995. The nomination rights applied to six houses, including 155 Bowerdean Road.
3. Warden Housing Association Ltd was described in the agreement as "the Association"; and clause 1.2 extended the meaning of that expression to its successors in title to the freehold of the properties. Clause 3 said that the agreement was made pursuant to section 609 of the Housing Act 1985 and asserted that the Association's covenants would be:

"enforceable without any limit of time against any body or person deriving title from the original covenantor in respect of its interest in the properties and any person deriving title under it in respect of any lesser interest in the properties … as if that body or person had been an original covenanting party …"

4. By clause 4 the Association undertook to carry out essential repairs to the properties with the intention of providing low cost housing accommodation for persons nominated to the Association by the Council pursuant to the agreement. By clause 5 the Association granted to the Council the right to nominate the first tenants of the properties and agreed that:

"the Association will let each of the properties on a periodic tenancy to a nominee of the Council … "

5. The remainder of the agreement set out machinery for carrying these purposes into effect. It is common ground that the Association's obligations are positive rather than negative both in form and in substance.
6. On 8 March 2005 the agreement was registered as a local land charge. Mr Cantrell was provided with the results of a local search on 17 March 2005 which disclosed the existence of the agreement. Following the auction Home Group Ltd transferred the house to Mr Cantrell on 21 April 2005 and he is now its registered proprietor. The description of the property in the auction catalogue said that it was in need of complete refurbishment and redecoration. It seems probable that the repairs that the Association undertook to carry out have not in fact been carried out.
7. The agreement between the Association and the Council was expressed to be made pursuant to section 609 of the Housing Act 1985. It is not suggested that the Council exercised any other statutory power which might have been available to it. Section 609 of the Housing Act 1985 provides:

"Where—

(a) a local housing authority have disposed of land held by them for any of the purposes of this Act and the person to whom the disposal was made has entered into a covenant with the authority concerning the land, or

(b) an owner of any land has entered into a covenant with the local housing authority concerning the land for the purposes of any of the provisions of this Act,

the authority may enforce the covenant against the persons deriving title under the covenantor, notwithstanding that the authority are not in possession of or interested in any land for the benefit of which the covenant was entered into, in like manner and to the like extent as if they had been possessed of or interested in such land."

8. The question raised on this appeal is whether section 609 empowers the Council to enforce against Mr Cantrell the positive obligations contained in the agreement. HH Judge Campbell decided that it did. Her reasoning is contained in paras 40-46 of her judgment. In summary she held that:

i) There was no assistance to be gained from the words of section 609 itself because it did not refer to restrictive covenants; nor did it refer to specific and positive covenants;

ii) There was no authority on the proper interpretation of the section;

iii) The textbooks took different views, but the weight of academic authority was in favour of the conclusion that section 609 allowed positive covenants to be enforced;

iv) The words "in like manner" and "to the same extent" meant "in the same way" and "to the same degree" as if the housing authority had been possessed of or interested in land;

v) The purpose of section 609 was to benefit the public interest and to ensure that if a local housing authority makes an investment in housing stock it can continue to keep some form of control over that stock;

vi) Bearing in mind the purpose of the Act and the majority of academic opinion supported the view that section 609 displaces the common law, section 609 allows positive covenants to run with the land.

9. With the permission of the judge herself, Mr Cantrell now appeals. Mr Robert Craven presented Mr Cantrell's case; and Mr Ashley Underwood QC, leading Mr Richard Moules, presented that of the Council.
10. I begin with some uncontroversial propositions of law. At common law the burden of a covenant affecting freehold land does not bind subsequent purchasers from the original covenantor: Rhone v Stephens [1994] 2 AC 310.
11. The burden of a covenant will bind subsequent purchasers in equity (but not at common law) where:

i) The covenant is negative in substance: Rhone v Stephens;

ii) The covenant is made to protect land retained by the covenantee; and the covenantee continues to retain that land when he seeks to enforce the covenant: LCC v Allen [1914] 3 KB 642;

iii) The burden is intended to run with the land of the covenantor;

iv) The subsequent purchaser is not a bona fide purchaser for value without notice of the covenant.

12. Lord Templeman explained the rationale for the distinction in Rhone v Stephens at 318:

"Restrictive covenants deprive an owner of a right which he could otherwise exercise. Equity cannot compel an owner to comply with a positive covenant entered into by his predecessors in title without flatly contradicting the common law rule that a person cannot be made liable upon a contract unless he was a party to it. Enforcement of a positive covenant lies in contract; a positive covenant compels an owner to exercise his rights. Enforcement of a negative covenant lies in property; a negative covenant deprives the owner of a right over property."

13. Because the burden of a covenant runs only in equity, only equitable remedies are available. This is usually an injunction; although damages may be awarded in lieu. But common law damages for breach of contract are not recoverable.
14. The fourth of the traditional requirements of equity was that the assignee is not a bona fide purchaser for value without notice. Registration of the covenant now takes the place of notice. Where the covenant is a local land charge, it should be registered under the Local Land Charges Act 1975. But non-registration does not invalidate the charge: it entitles a purchaser to compensation: s. 10. However, the fact of registration does not itself confer validity on what has been registered.
15. Thus if one inquires: in what manner and to what extent may a covenantee enforce a covenant against a purchaser of freehold land who is not the original covenantor, the answer is:

i) The manner of enforcement is by injunction or damages in lieu;

ii) No enforcement is possible unless the covenantee retains land which has the benefit of the covenant (i.e. there is no extent to which the covenant may be enforced);

iii) If enforcement is possible at all, the extent of enforcement is:

a) the extent to which the covenants are negative in substance; and

b) the extent to which the covenants were taken to protect the land of the covenantee.

16. Section 609 was part of the consolidation of a number of Housing Acts. The consolidation was preceded by a report of the Law Commission making a number of recommendations for technical changes. The relevant one related to an amendment to what was then section 151 of the Housing Act 1957. The Law Commission said:

"This section displaces the general rule of equity that a person disposing of property subject to a restrictive covenant can enforce it against a subsequent purchaser only if, at the time of the disposal, he retained other land benefited by the restriction. It enables a local authority who on selling or exchanging land held for housing purposes impose a covenant concerning the land (for instance, preventing it from being used for other than residential purposes) to enforce the covenant against subsequent purchasers notwithstanding that general rule. The references to selling or exchanging reflect the language of the old section 105 (1)(b). Under the new section 104 "A disposal … may be effected in any manner". For instance land could (with the Secretary of State's consent) be conveyed gratuitously subject to a covenant restricting its use. There seems no reason to distinguish such a transaction from one involving a sale for a nominal consideration.

We therefore recommend that the provision reproducing section 151 of the 1957 Act should apply to all disposals within the new power. Effect is given to this recommendation in clause 609 of the Housing Bill."

17. This entire discussion is predicated on the assumption that section 151 concerned restrictive covenants. It is plain that the Law Commission's concern was not to limit the manner of disposal of the dwelling which brought the section into play. It recognised that section 151 applied to the enforcement of restrictive covenants only and proposed no change to that. A consolidation Act is subject to a special Parliamentary procedure, and is virtually immune from amendment during its passage through Parliament. As Lord Diplock explained in IRC v Joiner [1975] 1 WLR 1701, 1715:

"The purpose of a consolidation Act is to remove this difficulty by bringing together in a single statute all the existing statute law dealing with the same subject-matter which forms the general context in which the particular provisions of the Act fall to be construed, so that it will no longer be necessary to seek that context in a whole series of amended and re-amended provisions appearing piecemeal in earlier statutes.

This is the only purpose of a consolidation Act; this is the only 'mischief' it is designed to cure. It is true that a consolidation Act is not intended to alter the law as it existed immediately before the Act was passed, but to treat this absence of intention as justifying recourse to the previous legislation repealed by the consolidation Act in order to ascribe to any of the provisions of that Act a meaning different from that which it would naturally bear when read only in the context of the other provisions of the consolidation Act itself, would be to defeat the whole purpose of this type of legislation—to allow the absence of a tail to wag the dog."

18. The question on the appeal, therefore, is what Parliament must be taken to have meant by the concluding part of section 609. Section 609 enables a covenant to be enforced by a housing authority "in like manner" and "to the like extent" as if they had been interested in "such land" (i.e. land for the benefit of which the covenant was entered into). Parliament must be taken to have legislated against the background of the general law. In the absence of contrary authority I would hold that the intention must have been to disapply the requirement that the covenantee retains land, and the requirement that the covenants are enforceable to the extent that they benefit land of the covenantee. This is the limit of what the section actually says. I do not consider that Parliament can be taken to have done more. In particular I do not consider that by the concluding words of section 609 Parliament can have intended to put a local housing authority into a position that no private landowner could achieve, namely to make the burden of positive covenants run with freehold land, without saying so. Had that been the intention of Parliament much clearer words would have been necessary. The Law Commission's pre-consolidation report is a strong indication that that was not Parliament's intention. I would hold, therefore, that the manner of enforcement of a covenant entered into pursuant to section 609 is by injunction or damages in lieu; and the extent of enforcement is the extent to which the covenants are negative in substance.
19. In Gee v National Trust [1966] 1 WLR 170 this court had to consider the effect of section 8 of the National Trust Act 1937. That section provided:

"Where any person is willing to agree with the National Trust that any land or any part thereof shall so far as his interest in the land enables him to bind it be made subject either permanently or for a specified period to conditions restricting the planning development or use thereof in any manner the National Trust may if it thinks fit enter into an agreement with him or accept a covenant from him to that effect and shall have power to enforce such agreement or covenant against persons deriving title under him in the like manner and to the like extent as if the National Trust were possessed of or entitled to or interested in adjacent land and as if the agreement or covenant had been and had been expressed to be entered into for the benefit of that adjacent land."

20. Lord Denning MR said at 174:

"The Lands Tribunal held that the National Trust must be deemed to be the owner of adjacent land; but there is a difficulty about this. There is no land specified. We do not know the area or extent of that adjacent land, nor where it would be situated. In these circumstances I am inclined to think that we do not have to deem any particular land to be in the ownership of the National Trust. Section 8 is simply machinery to give the National Trust a standing to enforce the restriction where they would have no standing at common law. I am prepared to accept the view that the National Trust, when a covenant of this kind is made, are entitled to enforce it so as to protect the interests of which they are the custodians in this country. They are, under the statute, the custodians of the natural beauty of our land, the cliffs and downs, fields and woods, rivers and shores; and of the stately homes, historic buildings, cottages, and barns. In respect of any injury to their interest as custodians of our natural beauty, I think they would be qualified to insist on these covenants."

21. Lord Denning MR interpreted the section as doing no more than giving the National Trust standing to enforce restrictive covenants. Davies and Salmon LJJ were not so sure; but I will assume that Lord Denning MR was correct. The construction of section 609 that I favour is consistent with what Lord Denning MR said in Gee v National Trust [1966] 1 WLR 170 viz. that words of this kind are designed to confer standing on the statutory body. They are not intended to enlarge the extent to which covenants would have been enforceable if the statutory body had had standing under the general law. This point did not arise in Gee v National Trust itself, because the section under consideration was explicitly confined to restrictions on use or development. Gee v National Trust does not, therefore, advance the Council's position. The difficulties that arose over deeming a covenantee to be entitled to adjoining land may, however, explain why the draftsman of section 609 dealt with the problem by including the negative ("notwithstanding that the authority are not in possession of or interested in any land").
22. The Council rely on the mischief as stated in LCC v Allen. Scrutton J described the mischief as follows ([1914] 3 KB 673):

"For I regard it as very regrettable that a public body should be prevented from enforcing a restriction on the use of property imposed for the public benefit against persons who bought the property knowing of the restriction, by the apparently immaterial circumstance that the public body does not own any land in the immediate neighbourhood. But, after a careful consideration of the authorities, I am forced to the view that the later decisions of this Court compel me so to hold."

23. But LCC v Allen also concerned a restrictive covenant, rather than a positive covenant; and Scrutton J's description of the mischief was similarly limited to restrictive covenants. The particular mischief was that the council was not in the same position as a landowner. Scrutton J did not express regret that a landowner could not make the burden of positive covenants run with land. To the extent that the mischief is identified in LCC v Allen, Mr Cantrell's construction overcomes the mischief.
24. The Council's second argument is based on absurdity: i.e. it would be absurd if housing authorities could not enforce positive covenants. There are, in my judgment, a number of answers to this argument. First, it can hardly be suggested that the whole of the law relating to the running of covenants (and in particular the well entrenched rule that the burden of a positive covenant cannot be made to run with freehold land) is absurd. Yet that is necessarily what the Council's argument entails. For if section 609 does no more than assimilate the position of a local housing authority with that of any other landowner who takes a covenant from a purchaser, there is no absurdity unless the general law is itself absurd. Second, there are other statutory provisions pre-dating section 609 that will achieve the result of enabling a local authority to enforce positive covenants against subsequent purchasers of freehold land. Section 33 of the Local Government (Miscellaneous Provisions) Act 1982 is one such example. However, there is a safeguard for purchasers under section 33, because section 33 (2) (c) requires that the covenant must be expressed to be one to which s 33 applies. If Parliament required this safeguard for purchasers under section 33, there is no reason for the court to adopt a strained interpretation of section 609 which does not contain this safeguard. The Council could, if it had chosen to do so, have imposed covenants in reliance on its powers under section 33, with the appropriate safeguard for purchasers. The positive obligations contained in the agreement would then have been enforceable against Mr Cantrell. Similar safeguards for purchasers may be found in other statutes to which we were referred and which allow the enforcement of positive covenants against subsequent purchasers: e.g. section 17 (5) of the Ancient Monuments and Archaeological Areas Act 1979 and section 106 (9) of the Town and Country Planning Act 1990. Third, it cannot be said that if section 609 is construed in the way for which Mr Cantrell contends it has nugatory effect. There are many (negative) obligations to which it could apply. Mr Cantrell's construction simply means that section 609 is not limitless. Fourth, there were drafting techniques available to the draftsman of section 609 in 1985 which would have achieved the result for which the Council contends. One example is found in section 33 of the Local Government (Miscellaneous Provisions) Act 1982, to which I have referred. If the necessary formalities are complied with a covenant is enforceable against a person deriving title from the original covenantor "as if that person had also been an original covenanting party". The draftsman of section 609 did not adopt that technique.
25. The Council also rely on the views of learned commentators. The commentators are in fact divided on the question whether section 609 applies to positive covenants. Those who say that it does include Prof Scammell: Land Covenants, p. 521; Prof Grant: Urban Planning Law, p. 365 (discussing section 52 of the Town and Country Planning Act 1971) and Mr Andrew Arden QC in the Housing Encyclopaedia and in Current Law Statutes. Those who take the opposite view include the editors of Halsbury's Statutes, Megarry and Wade on Real Property 6^th ed. para 16-047 and Cheshire & Burn on Real Property 17^th ed. p. 669. But none of them give reasons for their conclusions. In my judgment, with all respect to them, the conclusions of the commentators do not advance the argument one way or the other.
26. In the end, as Mr Underwood QC for the Council accepted, the real question is whether the concluding part of section 609 means something or nothing. He accepted that unless he could persuade us that an absurdity would result, the words must be assumed to mean something. I am not persuaded that there is any absurdity. In my judgment the words are clear. The concluding part of section 609 puts a local housing authority into the same position as a landowner who has taken a covenant on a disposal of freehold land for the benefit of retained land and who continues to retain that land. The manner and extent to which a covenant is enforceable against a subsequent purchaser of the freehold are as I have described in paragraph [18] above. In my judgment it follows that section 609 does not permit the enforcement of positive covenants against a subsequent purchaser of the freehold. The Council's construction gives no effect to the concluding part of section 609. I would allow the appeal.

Lord Justice Stanley Burnton:

27. I agree that this appeal should be allowed for the reasons given by Lewison J. I add a few words in deference to the judgment of the HH Judge Campbell, who on an issue bereft of judicial authority followed what appeared to be the majority academic opinion.
28. In my judgment the wording of section 609 is clear. The words "notwithstanding that the authority are not in possession of or interested in any land for the benefit of which the covenant was entered into" enable an authority to enforce a covenant even though they do not satisfy what would otherwise be a requirement for enforcement, namely the possession of benefited land; the words "in like manner and to the like extent as if they had been possessed of or interested in such land" qualify the manner and extent of their ability to enforce the covenant. None of these words extend enforcement against a successor-in-title to positive covenants. Under section 609 an authority can enforce a covenant against a successor-in-title to the extent that it is restrictive, but no more. Mr Underwood's submission involves treating all of the words of the section from "notwithstanding" as otiose or, even worse, as inconsistent with Parliament's true intent. To accept this submission would be contrary to every canon of legislative construction.
29. Mr Underwood urged a purposive construction of section 609. Given the clarity of the Parliamentary provision, it is both unnecessary and inappropriate to search for the purpose of the section other than that indicated by section 609 itself, i.e. the enforcement of covenants notwithstanding that the authority has no benefited land.

Lord Justice Moore-Bick:

30. I also agree that the appeal should be allowed for the reasons given by Lewison J.