England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HIS HONOUR JUDGE FREELAND Q.C.

		Royal Courts of Justice Strand, London, WC2A 2LL
		16 March 2012

Lord Justice Lloyd:

Introduction

1. This appeal is brought against the dismissal by His Honour Judge Freeland Q.C. of the Claimants' claim, as leaseholders of Flat 6 Eaton Mansions, Cliveden Place, London SW1, to enforce a covenant in the lease of the flat immediately above theirs, Flat 8, of which the Defendant is the leaseholder. In the county court the claim was based both on breach of covenant and on the tort of nuisance. The judge rejected both and his finding is not challenged as regards the claim in tort. Permission to appeal was granted by Aikens LJ. The respondent served a Respondent's Notice raising a more fundamental point, though one which had not been taken before the judge. Having heard argument on the appeal itself, the court concluded that the appeal should fail, and we therefore did not hear argument on the issues arising on the Respondent's Notice.
2. Junior Counsel who had, I am sure, conducted the proceedings skilfully before the judge, Mr Barklem for the Claimants and Mr Otwal for the Defendant, had only non-speaking roles before this court, Mr Robert Pearce Q.C. presenting the arguments for the Claimants on the appeal and Mr Timothy Fancourt Q.C. resisting them for the Defendant. I am grateful to all Counsel for their helpful and economical submissions which enabled the argument to be completed within the morning.

The facts

3. Eaton Mansions is a prestigious block of flats of which the freeholder is the Grosvenor Estate and the reversioner is Eaton Mansions (Westminster) Ltd (EMW), a company owned by the leaseholders for the time being. Flat 6 is on the second floor, Flat 8 above it on the third and Flat 10 above that on the fourth floor. Relevantly, flat 6 is the subject of a lease dated 23 June 1978 granted by EMW for 75½ years less 5 days, from 24 June 1978 to 19 December 2053. The Claimants are assignees of the lease. Flat 8 is the subject of a lease for the same term granted on the same date. The Defendant, a company incorporated under the laws of the Marshall Islands, is the assignee of that lease. The leases of these flats are in identical terms other than as regards the demised premises, the individual lessees and other such variables.
4. Clause 3 of each lease sets out covenants by the tenant with the landlord. Clause 4 sets out covenants made by the tenant with the landlord "and with and for the benefit of the Flat Owners". Of these, clause 4(5) is a covenant that the tenant will:

"observe and perform the regulations in the Fourth Schedule hereto or any future regulations imposed by the Lessors for the better management of the Building Provided that the Lessors reserve the right to modify or waive such regulations in their absolute discretion"

5. Clause 5 sets out covenants by the landlord with the tenant. These include an obligation at clause 5(2) to set out in every lease or tenancy agreement of a flat in the building regulations to be observed by the relevant tenant in similar terms to those in the Fourth Schedule and covenants similar to those in clauses 3 and 4 of the Lease. Clause 5(4) provides for the landlord, at the request of the tenant and subject to payment by the tenant of the landlord's costs, to enforce any covenants entered into with the landlord by a tenant of any flat in the Building of a similar nature to those in clause 4 of the lease.
6. The Fourth Schedule sets out the regulations, which are of a conventional kind. Paragraph 3 prohibits doing, permitting or suffering, in or upon the demised premises, any act or thing which may be or become a nuisance or annoyance to the lessors or the tenants of the lessors or the occupiers of any part of the building or of any adjoining or neighbouring premises. The paragraph directly in issue in this case is paragraph 15 as follows:

"At all times to cover and keep covered with carpet and underlay the floors of the Demised Premises other than those of the kitchen and bathrooms and at all times suitably and properly to cover and keep covered the floors of the kitchen and bathrooms in the Demised Premises"

7. The Defendant acquired the lease of Flat 8 from Stinger Compania de Inversion SA (Stinger), which also owned the lease of flat 10, and had, with permission, created an internal connection so that the two flats were used and occupied as one. It then decided to demerge the two with a view to selling them separately. For that purpose it needed the consent of EMW (and of the Grosvenor Estate). EMW's consent was given by a Licence to Alter dated 13 February 2007. For this purpose the Tenant's Works were described by reference to a letter dated 8 September 2006 from Murray Birrell, acting on behalf of the Grosvenor Estate, which referred to specified drawings. That letter required compliance with a number of general conditions, including one which provided that an appropriate sound resisting/absorbent material must be laid between the floor structure and the new floor finish, achieving the minimum requirement for sound insulation between flats laid down by the relevant Approved Document under the Building Regulations.
8. The particular reason for including that requirement was that, as can be seen from the drawings, the floor finish in most of Flat 8 (all rooms except the kitchen, bathrooms, laundry room and lavatory) was to be timber. The evidence of the architect who worked on the conversion works, Julia Heansel, was that the new wooden floors in each of flats 8 and 10 were constructed and built above the concrete floor with battens and with underfloor heating, and that in the void space between the wooden floor and the concrete approved noise insulation material was installed as well as the underfloor heating. Her evidence was that the material used exceeded the minimum standard required by the licence to alter, and that because of the floating nature of the wooden floors and of the use of large quantities of modern sound resistant material the noise insulation properties of the floor as altered were considerably improved as compared with the previous situation with a concrete floor with carpet laid directly on it.
9. Clause 4.1 of the Licence was as follows:

"The Landlord [EMW] grants consent to the Tenant to carry out the Tenant's Works upon the terms of this licence."

10. It required the work to be begun within 28 days of the grant of the licence. The licence could be brought to an end upon a breach of the terms of the licence unremedied within a period after notice specifying the breach, but otherwise the licence would last until the determination of the Term. At that stage, by clause 5.10, if called upon to do so, the tenant would have to reinstate the premises and restore them to their previous condition. Clause 7.3 of the Licence featured prominently in argument:

"It is agreed and declared that the obligations on the part of the Tenant and the conditions contained in the Lease which are now applicable to the Premises shall continue to be applicable to the same when and as altered as permitted by this licence and shall extend to all additions made to the Premises in the course of the Tenant's Works."

11. The Claimants have owned Flat 6 since 1996. Currently their son occupies the flat. Once Flat 8 had been converted back to being a single flat, Stinger let it to an occupying tenant in July 2009, who left in July 2010. Meanwhile the Defendant had taken an assignment of the lease. The Defendant let it in August 2010 to occupying tenants, a couple with three daughters aged (at the time of the trial) 14, 12 and 5. (The occupation has changed since then, and no doubt will again. The details do not matter for present purposes.)
12. The Claimants' complaint is that the activities of the occupiers of flat 8 – activities of a normal kind, not exceptional ones which might amount to a nuisance – disturb them in the flat below because of the noise, and that they would not suffer this disturbance if only the floors of flat 8 were still fully covered with underlay and carpet. Accordingly their claim is that the Defendant is in breach of clause 4 of the lease of flat 8, by not having the floors so covered. The Particulars of Claim sought an injunction to require the Defendant to comply with paragraph 15 of the Fourth Schedule to the lease.
13. The most important part of the Defence, for present purposes, is paragraph 8, by which it was asserted that EMW had waived or modified regulation 15. No details of that are given, but it is clear that the case made is that the waiver occurred because of the grant of the licence to alter, by which works were approved which included laying a new timber floor in most of the rooms, with underfloor heating. It is said that it would be altogether inconsistent with this for EMW later to insist that the floors be covered with carpet and underlay. Not only would the attraction of the timber floor be invisible, but the efficacy of the underfloor heating (the only form of heating that there was, the former radiators having been removed as part of the works) would be severely impaired by such carpeting.

The parties' contentions

14. The Defendant's case was that, by agreeing to the work being done as proposed by Stinger, EMW had waived the obligation to carpet those rooms to which otherwise the obligation to lay carpet and underlay would have applied under paragraph 15 of the Fourth Schedule. That is because it would have been inconsistent with the giving of consent to the installation of the new timber floor in general, and in particular also with the installation of underfloor heating as the primary source of room heating. It was open to EMW to waive that obligation under clause 4(5), and that is what they did.
15. The Claimants opposed this on two different bases. First it was said to be inconsistent with clause 7.3 of the licence, which preserved the application of the lease. Secondly, it was said that the conduct of EMW was not clear enough to amount to an irrevocable waiver, especially having regard to the effect of the waiver not only on EMW itself but on the lessees of other flats. It was said that, if Stinger had wanted a dispensation from the terms of paragraph 15 of the Fourth Schedule, it should have sought it in express terms as a provision of the licence.

The judgment

16. In his reserved judgment following a two day trial (in the course of which he visited the premises), the judge reviewed the evidence. At paragraph 14 he referred to that of Ms Heansel to whom I have referred. Later, at paragraph 21.6(f), he accepted her evidence expressly. This included the following propositions, which I take from his paragraph 14. There is underfloor heating and a wooden floor, the wooden floor being designed for underfloor heating. If you were to lay carpet over the wooden floor the performance of the underfloor heating would not be sufficient to heat up the space – the floor would be warm but the heat in the room would not be raised. It was a very expensive floor, the flooring and heating having cost about £100,000. The underfloor heating was the primary source of heating, all radiators having been removed, because the client wanted a clean finish. There was also expert evidence before the judge on a strictly limited basis, which established that the noise insulation installed between flats 6 and 8 in the new floor of flat 8 well exceeded the minimum required by the Building Regulations.
17. The judge held that there had been a waiver of paragraph 15. He did so on the basis that the licence gave consent to Stinger to carry out the specified works, which included the installation of a new floor finish in timber, in fact in oak, with underfloor heating, together with the installation of appropriate sound resisting or absorbing material, which was installed. The work was carried out in accordance with the licence and at substantial expense. To enforce paragraph 15 of the Fourth Schedule so as to require the new oak floors to be covered with underlay and carpet would have been inconsistent with permitting the installation of the new timber floor, and the underfloor heating. There was not, and there could not have been, a request by EMW, after completion of the works, to lay carpet and underlay on the new flooring. It would have been inequitable to make such a requirement: see paragraphs 21.5 to 21.7 of the judge's judgment.

Discussion

18. There is not, and there could not be, a challenge to the judge's conclusion that to require the laying of carpet and underlay across the entire floors of all the rooms which have been equipped with new timber floors would be incompatible with the manifest and plain objective of Stinger in doing the work. To lay wooden floors, especially of oak, would be futile and absurd if the whole floor had to be covered by carpet. No-one would go to the expense of using such timber if the floor was not to be visible, because of wall to wall carpeting.
19. Likewise, and perhaps even more cogently, the evidence satisfied the judge that to require a carpet and underlay covering of the whole floor would render altogether inefficacious the underfloor heating, which was (as was known) to be to the primary form of heating. It would be necessary to install additional heating in order to heat the relevant rooms properly.
20. Mr Pearce pointed to the fact that, as is apparent from some photographs which had been before the judge, there are some rugs in some of the rooms in flat 8. He argued that it need not be a case of all or nothing. If paragraph 15 had not been irrevocably waived, it could be enforced against the Defendant by an injunction as to which the court would, as always, have a discretion. The court could accept and adopt an intermediate solution if it was one which would afford the occupier of flat 6 the intended protection from disturbance by noise, while not thwarting the purpose, for flat 8, of installing the new timber flooring and the underfloor heating.
21. Mr Pearce's point is subtle but not, to me, convincing. Clause 4(5), as applying to paragraph 15, is either effective or it is not. If it is effective it requires the entire floor surface of the relevant rooms to be covered with carpet and underlay. If it is not effective, it does not require carpeting at all. An intermediate solution might have a great deal to be said for it as an agreed or mediated solution to this sort of issue, arising as it does between neighbours who may have to live with the situation over a long period. It does not seem to me that an arrangement for agreed partial carpeting is one which the court could achieve, whether under its discretion as to the grant of, and the terms of, an injunction, or in any other way.
22. His primary point, however, was that the position is clear by virtue of clause 7.3 of the licence. This clause, as he pointed out, has two purposes. One is that the terms of the lease will apply to the premises as altered, including, as there might be, to any new structures within the demised premises (i.e. additions to the premises). The other is to avoid any incidental or inadvertent effect whereby the grant of the licence and the execution of the permitted works could be said to displace any provision of the lease as regards the existing structure. This provision, like the others in clause 7, is a general provision designed to safeguard the position of the landlord and the tenant respectively.
23. The obligations of the tenant "now applicable" – that is to say at the date of the licence – to the premises include the obligation in clause 4(5) by reference to paragraph 15 of the Fourth Schedule to keep the floors covered by carpet and underlay. Under clause 7.3 that obligation, and all others, are to continue to be applicable to the premises when and as altered as permitted by the licence, that is to say after the installation of the new timber floors and underfloor heating. So, asked Mr Pearce, where is the scope for a conclusion that paragraph 15 no longer applies as it had before?
24. As to that, while I accept that it would have been better if the parties had dealt expressly with the inconsistency between paragraph 15 and the nature of the intended and approved works, it seems to me that this general provision cannot override the conclusion which results from the specific circumstances of the incompatibility between the performance of the paragraph 15 obligation and the execution of the works permitted by the licence.
25. It seems to me that the judge was plainly right to hold that, by giving its consent to the particular works, EMW precluded itself from insisting on carpeting of the floors under paragraph 15, once the work had been carried out. The carpeting requirement would frustrate so much of the point of the permitted works that it has to be seen as altogether incompatible with the permitted works.
26. Mr Pearce's alternative submission was that there was nothing in what EMW did, by way of the approval of the work and the granting of permission, which precluded it later, if it turned out that there remained problems of sound disturbance to flat 6, from requiring compliance, at any rate to some extent, with paragraph 15. He pointed out that EMW as landlord was, in practice, acting on behalf of not only itself as covenantee in the lease but also for all other lessees who might be affected, who are, expressly, also beneficiaries of the tenant's covenant. There was no indication that EMW had consulted other lessees or had informed them of the position in this respect. (That seems a somewhat unreal point, given that EMW consists of the lessees for the time being, but since it is not a party to these proceedings, I do not say anything more about its position in the matter.) He argued that a waiver which might affect the rights of other lessees should not be found except on the basis of very clear evidence that it was intended to have permanent and irrevocable effect on that basis. In his submission EMW's position was not that it would never seek to enforce the paragraph 15 obligation, but that it would not do so except for good cause.
27. Except by agreement there would not be a question of anything less than full compliance with the covenant. It seems to me that, if EMW's position as regards paragraph 15 was affected at all by its agreement to the works being carried out, it cannot have been only to the extent that Mr Pearce submits, namely that the obligation might be enforced, but only for good reason. In whatever circumstances it might be enforced, the possibility of such enforcement would be entirely at odds with Stinger having undertaken the particular works and incurred that expense. The aesthetic attraction and the adoption of the particular style of using wooden floors would be lost, and the choice of underfloor heating, to the exclusion of all else, would be rendered not merely futile but positively disadvantageous, since additional or replacement heating would have to be installed, at yet further expense.
28. In those circumstances, it seems to me clear that the general provision in clause 7.3 which preserves the terms of the lease in their application to the premises as altered cannot prevail over the specific effect of the agreement on the part of EMW that Stinger could carry out these works which were incompatible with the continued enforceability of paragraph 15.
29. Accordingly, it seems to me that the judge was right to decide that EMW had waived compliance with paragraph 15, so far as concerns those rooms in flat 8 which were to have timber floors and underfloor heating. Paragraph 15 does of course also apply, distinctly, to kitchens and bathrooms. These have not been in issue in the proceedings. Nothing in my decision affects the question, if it were to be raised, whether the permitted works had any effect as regards the application of paragraph 15 to rooms other than those which were to have timber floors and underfloor heating.

Conclusion and disposition

30. The Respondent's Notice sought to raise an interesting point, not taken below, namely that the clause 4(5) covenant is not enforceable as between the parties in relation to any positive obligation, such as paragraph 15 is said to be, the Defendant being the assignee of the original covenantor and not in either privity of contract or privity of estate with the Claimants who are assignees of the original covenantee, the Flat Owner at the time of the grant of the original leases. The direct enforceability of the covenant had been accepted in the county court. Since the appeal fails on the basis on which it had been argued, for the reasons given above, it is not necessary for us to embark on the point taken in the Respondent's Notice, and on the preliminary question whether it should be allowed to be taken despite having been conceded below. I will leave the substantive point, which may be of some general interest, to be resolved by another court in a case in which it is necessary for the decision.
31. For the reasons given above, it seems to me that the appeal should be dismissed.
32. I have read, and agree with, the judgment of Jackson LJ as to the very great desirability of resort to methods short of litigation to resolve disputes of this kind between neighbours. Of course, once Stinger had carried out the conversion works, it was too late to embark on a negotiation about the content of those works and ways in which their effect, whether short-term or lasting, on neighbours including the Claimants might be alleviated by steps taken during the carrying out of the works. Nevertheless if, as Mr Pearce submitted, there could be a satisfactory solution short of full carpeting, the right context in which to explore and discuss that would have been either direct discussion between the parties (possibly through EMW) or by way of mediation, rather than by the issue and pursuit of litigation.

Lord Justice Jackson

33. I agree that this appeal should be dismissed for the reasons stated by Lloyd LJ. I wish to add a comment about the manner in which the litigation has been conducted.
34. This case concerns a dispute between neighbours, which should have been capable of sensible resolution without recourse to the courts. During the course of his submissions in the Court of Appeal Mr Pearce for the claimants observed that this may not be an "all or nothing" case. A moderate degree of carpeting in flat 8 might (a) reduce the noise penetrating into flat 6 and (b) still enable the occupants of flat 8 to enjoy their new wooden floor. This is precisely the sort of outcome which a skilled mediator could achieve, but which the court will not impose.
35. Of course there are many cases where a strict determination of rights and liabilities is what the parties require. The courts stand ready to deliver such a service to litigants and must do so as expeditiously and economically as practicable. But before embarking upon full blooded adversarial litigation parties should first explore the possibility of settlement. In neighbour disputes of the kind now before the court (and of which I have seen many similar examples) if negotiation fails, mediation is the obvious and constructive way forward.
36. In the present case a mediator would not have been concerned about the interaction between the various leases and the licence to carry out works. Nor would he have been concerned about the other interesting points of construction, which first the county court judge and now this court have been called upon to decide. Instead he would have been helping the parties to find a sensible resolution of the practical problem which had arisen. I have little doubt that such a mediation would have been successful. The points of law upon which the litigation has turned are not easy ones and at the time of the hypothetical mediation neither party could have been confident of victory.
37. As it is, neither side wrote to the other proposing mediation until shortly before the hearing in the Court of Appeal. By then huge costs had been incurred. The claimants' costs up to the end of trial were £23,195. The claimants incurred a further £34,609 costs on the appeal. The defendant's costs up to the end of trial were £32,798. The defendant incurred a further £49,532 costs on the appeal. Thus the total costs thrown away amount to £140,134. If the parties were driven by concern for the well being of lawyers, they could have given half that sum to the Solicitors Benevolent Association and then resolved their dispute for a modest fraction of the monies left over.

Lord Justice Ward

38. I also agree that this appeal should be dismissed for the reasons given by Lloyd LJ.
39. I wish enthusiastically to associate myself with the observations of my Lords on the desirability of mediation in neighbourhood disputes. To repeat what I recently said in Oliver v Symons, a boundary dispute:

"I wish particularly to associate myself with Elias L.J.'s pointing out that this is a case crying out for mediation. All disputes between neighbours arouse deep passions and entrenched positions are taken as the parties stand upon their rights seemingly blissfully unaware or unconcerned that they are committing themselves to unremitting litigation which will leave them bruised by the experience and very much the poorer, win or lose. It depresses me that solicitors cannot at the very first interview persuade their clients to put their faith in the hands of an experienced mediator, a dispassionate third party, to guide them to a fair and sensible compromise of an unseemly battle which will otherwise blight their lives for months and months to come."

40. Not all neighbours are from hell. They may simply occupy the land of bigotry. There may be no escape from hell but the boundaries of bigotry can with tact be changed by the cutting edge of reasonableness skilfully applied by a trained mediator. Give and take is often better than all or nothing.