England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM High Court of Justice, Chancery Division
His Honour Judge Kaye QC
[2010] EWHC 2806 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/07/2011

The Chancellor :

Introduction
1. Kathleen Joan Freeman was the freehold owner of what became Farne House and Court Barn at Birdham, West Sussex. On 19th November 1957 she sold and conveyed Farne House to the predecessors in title of the appellants. In addition to restrictive covenants given by the purchasers in favour of the vendor the conveyance ("the 1957 Conveyance") contained, in clause 6, covenants by the vendor in favour of the purchasers restrictive of the use of part of the land she retained. So far as material, clause 6 is in the following terms:

"The Vendor hereby covenants with the Purchasers and their successors in title in manner following, that is to say …

[(i)…]

(ii) for the benefit of the property hereby conveyed, or the part thereof for the time being remaining unsold and every part thereof

(a) not without the consent of the purchasers in writing to use the land which the vendor now owns to the north of the property hereby conveyed, and coloured green on the said Plan B, for any other purpose than that of grass land or grazing nor to erect or place thereon any building or movable structure without the consent of the purchasers

[(b)..]"

The land coloured green on Plan B is a meadow lying between Farne House to the south and Birdham Pool, a coastal inlet to the north. The covenants contained in clause 6(ii) were duly registered in the Land Charges Registry as land charges class D(ii) on 20th November 1957 against the name of the vendor, Kathleen Joan Freeman. By means of three conveyances on sale dated 15th October 1980, 23rd July 1985 and 31st March 1987 Farne Court was conveyed to the appellants, Mr and Mrs Rees. In each of those conveyances the benefit of the covenant contained in clause 6(ii) of the 1957 Conveyance was assigned by the respective vendors to the respective purchasers. On 23rd June 2003 Mr and Mrs Rees were registered as the proprietors of Farne Court with title absolute together with the rights granted by the 1957 Conveyance.

2. By a transfer dated 20th June 1990 the personal representatives of Kathleen Joan Freeman sold Court Barn, including the meadow, to the respondent Brian Anthony Peters for £1.1m. Clause 5 of that transfer stated that Court Barn was sold subject to, amongst many other incumbrances, the covenants contained in the 1957 Conveyance. On 17th July 1990 Mr Peters was registered, on first registration, as the proprietor of Court Barn with title absolute. The Charges Register noted that part of Court Barn was subject to a right of way granted in the 1957 Conveyance but made no reference to the covenants contained in clause 6(ii) thereof. In his witness statement made on 18th January 2010 Mr Peters explained that his company, B.A.Peters plc, provided £400,000 towards the total purchase price for Court Barn on the understanding that the meadow would be owned beneficially by that company. The company went into administration in 2007 and by an assignment dated 18th October 2007 the administrators sold the company's equitable interest in the meadow to Mr Peters for £280,000.
3. On 18th December 2009 these proceedings were commenced by a Part 8 claim issued by Mr and Mrs Rees seeking a declaration that the restrictive covenant contained in clause 6(ii) of the 1957 Conveyance is valid and binding on Mr Peters and for an order to rectify the Charges Register of the registered title to Court Barn so as to note the burden imposed by that covenant. The evidence consisted of witness statements of Mr Rees made on 16th December 2009 and 22nd February 2010 and of Mr Peters made on 18th January 2010 and the various documents exhibited to them. The matter came before HH Judge Kaye QC. There was no cross examination of any witness. For the reasons explained in his judgment given on 22nd October 2010, to which I shall refer in some detail later, Judge Kaye concluded, in paragraph 41, that:

"…on the wording of this covenant…since the property which they now own was indeed sold off subsequent to the 1957 conveyance, albeit that it was the whole of the land that was sold, the covenant was and is in consequence no longer enforceable."

Mr and Mrs Rees now appeal with the permission of Etherton LJ.

The judgment of HH Judge Kaye QC
4. The judge set out the facts and correctly summarised the position in paragraph 13 in these terms:

"The position then is that Court Barn is vested in the defendant and Farne House is now vested in the claimants. Neither property, although carved out of one single property previously vested in Kathleen Freeman, has been further subsequently subdivided or sold off, other than, in the case of Farne House, by the sale of 15^th October 1980 and subsequent transactions."

5. In paragraphs 14 to 17 he summarised the arguments of counsel then appearing for the appellants. They were as follows:

(1) the words at the end of clause 6(ii) "the part thereof for the time being remaining unsold" are inconsistent with the words which follow "every part thereof" and should be corrected as a matter of construction;

(2) if the inconsistency cannot be corrected by a process of construction then there should be rectification;

(3) if all else fails then the reference to "successors in title" justifies a construction which extends the benefit of the restrictive covenant to successors in title to the whole of Farne House.

The judge then referred to the argument of counsel for Mr Peters and to the well known decisions in Marquess of Zetland v Driver [1939]Ch.1; Crest Nicholson Residential (South) Ltd v McAllister [2004] 1 WLR 2409 and Federated Homes Ltd v Mill Lodge Properties Ltd [1981] 1 WLR 594.

6. The reasons for the judge's conclusion, quoted in paragraph 3 above, appear from the following passages in paragraphs 32 and 34 of his judgment, namely:

"…it is up to the parties whether they wish to limit the scope of the restrictive covenant. The only question is a question of construction of the relevant clause as to whether they have succeeded in limiting it or not. Secondly, the words in clause 6(ii) of the 1957 conveyance "the part thereof for the time being remaining unsold" are, in my judgment, apposite to limit the scope of the restrictive covenant to benefit so much (in the case of the 1957 conveyance) of the property conveyed as was not sold off, for example, to a stranger. Once sold off the covenants would no longer bite, but otherwise it would continue to apply so long as an unsold part of the land was retained. But if there was a gift of the whole or a part or a settlement or a bequest – in other words, something which did not amount to a sale as ordinarily understood – then the covenants would continue to apply. But once there was a sale, so far as the property sold was concerned, the covenant would not be enforceable. It seems to me that what the parties were attempting to do, at least in 1957, was to put some temporal limit or scope on the purpose of the covenant to preserve the amenity of the view over the meadow, certainly for the purchasers and no doubt for the benefit of the trust or the persons who might occupy the house in right of the trust, but once, for example, the land was sold off, either as a whole or in parts, to a complete stranger then the covenants would not continue to bite and would no longer be enforceable." [32]

…

"But, as it seems to me, the plain purpose of the covenant, and the plain purpose of clause 6(ii), was to annex the covenant to, first of all, the property conveyed; secondly, to any part of the property for the time being remaining unsold, the words "for the time being" meaning exactly as held by Chadwick LJ in the Crest case as "from time to time"; and, thirdly, and every part thereof, the word "thereof" meaning and referring to every part of the property thereby conveyed or thereby remaining unsold as the case may be." [34]

7. In the light of those conclusions the judge did not need to consider whether the title to Court Barn should be rectified. Thus the questions for our determination are:

(1) Whether on the true construction of clause 6(ii) of the 1957 Conveyance the benefit of the covenants therein contained continued and was annexed to Farne House notwithstanding its sale by the original purchasers in 1980; and if so

(2) Whether the Charges Register of the registered title to Court Barn should be rectified by the addition of such covenants as an incumbrance.

Construction
8. Counsel appearing for Mr and Mrs Rees on this appeal did not appear for them before HH Judge Kaye QC. The emphasis of his arguments, in marked contrast to those of his predecessor, is to focus on the opening words of clause 6(ii) "for the benefit of the property hereby conveyed". He submits that they make a clear contrast between the whole and the part unsold. Further the covenant was expressly made with the successors in title to the original covenantee. He submits that the judge's construction failed adequately to recognize the contrast and effectively robbed the reference to successors in title of any real effect. In support of his submissions he referred us to well known passages in Marquess of Zetland v Driver [1939] Ch. 1 and Crest Nicholson Residential (South) Ltd v McAllister [2004] 1 WLR 2409.
9. Counsel for Mr Peters sought to support the reasoning of the judge and his conclusion. He pointed out, correctly, that the parties may restrict the ambit of the benefit of a restrictive covenant to the original covenantee and whether or not they have done so is a question of construction of the instrument as a whole. He too referred to passages in Crest Nicholson Residential (South) Ltd v McAllister [2004] 1 WLR 2409 and also in Norwich City College of Further and Higher Education v McQuillin [2009] EWHC 1496 (Ch).
10. For my part I prefer the submissions of counsel for Mr and Mrs Rees. The issue is, as is common ground, one of construction of clause 6(ii) in the context of the 1957 Conveyance and in the light of the surrounding circumstances then prevailing. In carrying out that exercise I derive no help from any of the cases cited to us and to which I have referred. Similar phrases in other contexts may bear different meanings.
11. The starting point is the opening part of clause 6. It is on its face a covenant with "the purchasers and their successors in title". Plainly this would include successors in title to the whole of Farne House. It is true that the opening words also govern the covenant contained in sub-clause (i) but as that covenant is to brick up a gateway within three months of the sale which the 1957 Conveyance completed that sub-clause is not sufficient to account for the inclusion of successors in title in the opening part of clause 6. Accordingly the question then arises whether the express reference to successors in title in the opening part of clause 6 is cut down by the opening part of sub-clause (ii).
12. Sub-clause (ii) contains two covenants (a) and (b). Both are restrictive in form. To ensure that the benefit of those covenants runs with the land without the need for a chain of assignments it is necessary that it should be 'annexed' to the land. That, in conventional form, is what the opening words of sub-clause (ii) seek to do. I do not doubt that words of annexation may also limit the identity of the covenantee or the duration of the covenant but that is not their primary purpose. Thus, in accordance with the intention those words disclose, the benefit of the covenant is annexed to "the property hereby conveyed, or the part thereof for the time being remaining unsold and every part thereof". The word "or" points a clear contrast between the whole and a part. The words "remaining unsold" qualify the part not the whole. On this basis successors in title to the whole are entitled to the benefit of the covenants.
13. Not only is this construction in accordance with the words used but it produces a more sensible result than the alternative in that the covenant will continue to protect Farne House so long as it is sold on as a whole. The judge's construction limits the benefit of the restrictive covenant to the original purchasers and persons claiming under them otherwise than by purchase. This gives but minimal effect to the opening words of clause 6. Why include successors in title generally if only donees are intended? Counsel for Mr Peters sought to make something of the fact that the original purchasers were trustees of a declaration of trust made by James Ivory registered in the books of the Lords of the Council and Session of Scotland. For my part I am not prepared to speculate on the nature of that trust or for what purpose the purchasers acquired Farne House. Indeed it is not without significance that clause 3 of the 1957 Conveyance contains an express trust for sale. Would the purchasers have intended that the protection of the property they had just bought should be lost the moment they executed their trust?
14. It is, of course, also necessary to accord a sensible construction to the second alternative, namely "the part thereof for the time being remaining unsold". Plainly, if a part of Farne House is sold off, then the benefit of the covenant is not annexed to the part sold, but it remains annexed to the part retained. The effect of a later sale of the whole of the part which remains is, strictly, a future question. On one view the benefit of the covenant ceases to run with the land on any such sale. On another view, the benefit remains annexed to the remainder so long as it is recognizably still the property known as Farne House originally sold in 1957. The latter construction gives more effect to the reference to successors in title in the opening part of clause 6 and would be my preferred view if the point arose.
15. The concluding words "and every part thereof" go some way to support that view. Some such words are conventionally used to demonstrate that the sale of part of the land to which the benefit of the covenant was originally annexed does not determine the annexation of the benefit to the remainder, cf Miles v Easter [1933] Ch. 611, 628 per Romer LJ. Similar words appear in s.78 Law of Property Act 1925. Whatever their effect they do not affect the position in respect of a sale of the whole.
16. Finally, some reliance was placed on the fact that both sub-paragraphs (a) and (b) of clause 6(ii) refer to "the consent of the Purchasers" without any reference to their successors in title. By contrast other covenants which contain such references expressly include successors in title. The judge concluded in paragraph 40 that:

"…the draftsman of this conveyance and the parties, as I have said, did intend some temporal and class restriction on clause 6 (ii). In the latter case, by "class" I mean the class of persons who might be capable of enforcing the benefit of the covenant, namely those persons who were not persons deriving title under a sale such as, in this case, the claimants."

17. I can well understand the judge's view that this point supported his conclusion derived from what I have described as the second part of the words of annexation. But in relation to the first part, namely "the property hereby conveyed..", it does not appear to me to have the same force. Given the reference to successors in title in the opening to clause 6 as a whole it would not be hard to interpolate those words after the references to the Purchasers in the provisions for consent contained in sub-paragraphs (a) and (b). By contrast their omission from those sub-paragraphs cannot, in my view, justify the limitation on the express reference to successors in title in the opening to clause 6 to, in effect, donees of the original purchasers.
18. For all these reasons I respectfully disagree with the judge's conclusion. In my view the benefit of the restrictive covenant contained in clause 6(ii)(a) of the 1957 Conveyance remains annexed to Farne House and, subject to rectification of the title to Court Barn, is enforceable by Mr and Mrs Rees against Mr Peters.
Rectification of Title
19. Given the conclusion of this court, if the other members agree with me on the issue of construction, the Charges Register in section C of the title registration of Court Barn WSX155728 should have contained a reference to the covenant contained in clause 6(ii) of the 1957 Conveyance, in addition to the reference to the right of way granted by clause 2. The failure to do so gives rise to an entitlement of Mr and Mrs Rees to compensation. They are not concerned so much with compensation as with rectification of the Charges Register and enforcement of the covenant against Mr Peters.
20. Schedule 4 to the Land Registration Act 2002 provides, so far as relevant to this appeal:

"1 In this Schedule, references to rectification, in relation to alteration of the register, are to alteration which–

(a) involves the correction of a mistake, and

(b) prejudicially affects the title of a registered proprietor.

2 (1) The court may make an order for alteration of the register for the purpose of–

(a) correcting a mistake,

[(b)..

(c)..]

[(2)..]

3 (1) This paragraph applies to the power under paragraph 2, so far as relating to rectification.

(2) If alteration affects the title of the proprietor of a registered estate in land, no order may be made under paragraph 2 without the proprietor´s consent in relation to land in his possession unless–

[(a)…], or

(b) it would for any other reason be unjust for the alteration not to be made.

(3) If in any proceedings the court has power to make an order under paragraph 2, it must do so, unless there are exceptional circumstances which justify its not doing so.

[(4)…]."

21. Mr and Mrs Rees contend that the omission of the necessary reference to the covenant is a mistake within paragraph 1(a) which the court is entitled to correct under paragraph 2(1)(a). They submit that it would not be just not to exercise the power of rectification so that the terms of paragraph 3(2)(b) are satisfied. In that context they point out that Mr Peters had clear notice of the covenant in clause 6(ii)(a) of the 1957 Conveyance because it was referred to in the particulars of sale of Court Barn when he bought it in 1990. In addition it had been registered against the name of Kathleen Joan Freeman, the then owner of Court Barn, under the Land Charges Act 1925, such registration constituting actual notice to Mr Peters at the time of the transfer of Court Barn to him made on 20th June 1990, see s.198(1) Law of Property Act 1925. Further, the transfer was expressly subject to, amongst other things, the covenants contained in the 1957 Conveyance. Indeed in a letter Mr Peters wrote to Mr and Mrs Rees on 10th October 1990 three months after the title to Court Barn had been registered he stated:

"I am fully aware of the covenant regarding my land…"

22. Mr Peters opposes the claim for rectification on the grounds that Mr and Mrs Rees are entitled to compensation so that no injustice would be caused by refusing rectification. Second, he points out that the title to Court Barn has been registered since 1990 without any reference to the covenant in clause 6(ii). He submits that such status quo should be maintained. In that connection he points out that the title to Farne House has been registered since 2003 but no reference to the benefit of the covenant is mentioned in the property register of that title. Third, he relies on his purchase from the administrators of the equitable interest of his company in the meadow in 2007. He suggests that if the covenant had been shown in the charges register of Court Barn at that time then he would have been able to buy the meadow for less than he paid for it.
23. It is common ground that the onus is on Mr and Mrs Rees to satisfy the court that an order for rectification should be made. In my view they have discharged that onus. The award of compensation is of little value in this context when compared with specific enforcement of the covenant. It is quite clear that Mr Peters, and through him his company, had at all times actual notice of the covenant contained in clause 6(ii) of the 1957 Conveyance. This was not merely a statutory fiction as the letter from Mr Peters to Mr and Mrs Rees dated 10th October 1990 shows. Nor do I understand what event had occurred which might require the status quo ante that event to be preserved. The fact that a similar mistake may have been made in relation to the registration of the title to Farne House is not relevant.
24. The purchase Mr Peters made from the administrators of his company in 2007 was of the equitable interest. In accordance with normal equitable principles that purchase was subject to the burden of the restrictive covenant contained in clause 6(ii) of the 1957 Conveyance. Mr Peters was acquiring an equitable interest, not the legal estate, had notice of the covenant and, in any event, was bound by it as he had acquired the legal estate in 1990 with actual notice of the covenant. If in truth he might have been able to negotiate a lower price for the meadow had the burden of the covenant been revealed then he had at least himself to blame. In my view it would be unjust not to order the alteration necessary to add the burden of the covenant to the charges register of the title to Court Barn. It follows that all the conditions necessary for such an order are satisfied. I would order the necessary alteration to be made.
Summary of conclusions
25. For all these reasons I conclude that:

(1) on the proper construction of the 1957 Conveyance and in the events which have happened Mr and Mrs Rees are entitled to the benefit of the covenant contained in clause 6(ii) thereof; and

(2) the Charges Register of Title WSX155728 should be altered pursuant to schedule 4 to the Land Registration Act 2002 so as to add a reference to that covenant.

Lord Justice Aikens

26. I agree.

Sir Stephen Sedley

27. I respectfully agree with the entirety of the Chancellor's judgment. I add what follows only because of the tension which can arise between the use of conventional expressions in the belief that they have a fixed meaning and the governing principle of construction that every legal document be read and understood on its own terms and in its own context.
28. While the latter of these is a true principle of law, the former in my view is not: it is an assumption which it may well be legitimate to make but, precisely because of the governing principle of construction, is unsafe to depend upon.
29. The reason why was spelt out long ago by Sir George Jessel MR in Aspden v Seddon (1875) 10 Ch.App. 394, 397, n.1:

"I think it is the duty of a judge to ascertain the construction of the instrument before him, and not to refer to the construction put by another judge upon an instrument perhaps similar but not the same. The only result of referring to authorities for that purpose is confusion and error, in this way, that if you look at a similar instrument and say that a certain construction was put upon it, and that it differs only to such a slight degree from the document before you that you do not think the difference sufficient to alter the construction, you miss the real point of the case, which is to ascertain the meaning of the instrument before you."

The Master of the Rolls went on to point out that it was possible if one construed documents by dint of similarity eventually to find a document "which no human being would think of construing in the same manner, but which has by this process come to be construed in the same manner" as an earlier one.

30. The present case offers a good illustration of why, despite the usefulness of standard phraseology in conveyancing, the instrument which contains it must still be read and understood as a unique text directed to a specific transaction with its own parties and purposes.