United Kingdom Supreme Court

2.         The facts

“1.       No building structure or other erection of whatsoever nature shall be built erected or placed on [the application land].

2.         The [application land] shall not be used for any purposes whatsoever other than as an open space for the parking of motor vehicles.”

“In 2012 I donated land worth £500,000 to the charity to build the hospice as a peaceful place for children with terminal cancer to end their days in calm and dignity with access to private country gardens. Now your client seeks to build multiple units with windows and open areas facing directly into hospice land. That is regrettable.”

3.         Section 84 of the Law of Property Act 1925, jurisdiction and discretion

“84.     Power to discharge or modify restrictive covenants affecting land

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

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

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

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

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

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

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

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

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

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

(b)       is contrary to the public interest;

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

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

…

(9)       Where any proceedings by action or otherwise are taken to enforce a restrictive covenant, any person against whom the proceedings are taken, may in such proceedings apply to the court for an order giving leave to apply to the [Upper Tribunal] under this section, and staying the proceedings in the meantime. …”

4.         The proceedings below and the appeal to this court

(i)        It was common ground that the proposed use of the application land to provide 13 units of affordable housing was a “reasonable user of the land”.

(ii)       Impeding that reasonable user was contrary to the public interest because “it is not in the public interest for these houses to remain empty and the covenants are the only obstacle to them being used” (para 106 of the decision). That public interest was so important and immediate that, even assuming that the cautious approach to the public interest ground put forward in In re Collins’ Application (1975) 30 P & CR 527, 531, remains good law, the public interest here justified the serious interference with private rights and with the sanctity of contract (para 107).

(iii)     Although the provision of significant additional boundary planting would not insulate the hospice land from all the adverse consequences of the use of the application land for housing, an award of money to allow for such additional planting was capable of providing adequate compensation to the Trust (para 110).

5.         The central issue: the relevance of Millgate’s cynical breach

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

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

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

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

(b)       is contrary to the public interest;

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

(i)        There is plainly no room for a consideration of the manner of breach - the applicant’s cynical breach - under any of the other four jurisdictional grounds. Yet at least in relation to the first limb of section 84(1)(aa) - the jurisdictional ground concerned with where the restriction was impeding the reasonable user of the land without securing substantial practical benefits - it must be relevant to the ultimate decision to take into account at the discretionary stage the applicant’s cynical breach. There is no other stage at which to consider it. And that is borne out by, for example, In re Trustees of the Green Masjid and Madrasah’s Application where the applicant’s conduct was considered at the discretionary stage in a case in which jurisdiction arose under the first limb of section 84(1)(aa). It undermines the coherence of section 84 if the same conduct is taken into account at the jurisdictional stage in relation to one jurisdictional ground and at the discretionary stage in relation to other jurisdictional grounds.

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

The main body of this emphasises, as one would expect for the resolution of a land-use conflict, that the development plan and patterns of planning permission in the area are relevant considerations. The last phrase “any other material circumstances” means that the circumstance must be material to the question one is asking; and I have clarified in para 42 above that the question one should be asking in relation to the “contrary to public interest” jurisdictional ground is whether the impeding of the reasonable user of the land by the continuation of the restrictive covenant is contrary to the public interest. What the phrase does not mean is that one should be taking into account all circumstances that may be said to be relevant to deciding the incorrect and wider question of whether it would be contrary to the public interest to maintain the restrictive covenant.

“56.     … There is a public interest in having private contractual and property rights respected in dealings between private persons. Further, if private contractual/property rights under a restrictive covenant are to be overridden in the public interest, the Upper Tribunal should be astute to see that the public interest reasons for discharge or modification of the covenant are clearly made out.

57.       In my judgment, this means that at the stage of application of the ‘contrary to the public interest’ test in section 84(1A)(b) the Upper Tribunal should have regard to whether the applicant has made fair use of opportunities available to it to try to negotiate a waiver of a restrictive covenant or, if necessary, to test the public interest arguments in an application made under section 84 in advance of acting in breach of that covenant. … In general, if the applicant has not made fair use of opportunities available to it to test the position in a way which affords proper recognition to the contractual/property rights of the beneficiary of the restrictive covenant, it will not be contrary to the public interest for the restriction (ie the restrictive covenant) to be allowed to continue to impede the applicant’s proposed user of the restricted land. The ‘contrary to the public interest’ test has an important dimension which is concerned with such procedural matters and the process followed by the applicant before making its application under section 84.

58.       I note in that regard that the then President of the Lands Tribunal, Douglas Frank QC, also took the view (rightly, in my opinion) that the way in which the applicant had behaved in bringing about a state of affairs in which building had taken place on the restricted land was relevant to the question whether the test in section 84(1A)(b) was satisfied, in In re SJC Construction Co Ltd’s Application (1974) 28 P & CR 200, 205. The case went on appeal on a different point: SJC Construction Co Ltd v Sutton London Borough Council (1975) 29 P & CR 322. On the appeal, the Lands Tribunal judgment on the other aspects of section 84, including section 84(1)(b), was noted by Lord Denning MR at pp 324-325 without him suggesting any doubt about the tribunal’s reasoning in respect of them.

59.       As I have said, enforcement of contractual and property rights is generally in the public interest, so it is relevant when assessing under section 84(1A)(b) whether ‘the restriction, in impeding [some reasonable user of land], is contrary to the public interest’ to see whether an applicant has behaved appropriately in seeking to respect and give due weight to such rights in the course of its dealings with the holder of such rights, so that the question of the public interest has been tested in an appropriate way. If the property developer has bargained for a waiver of the restrictive covenant and it is found that there is a price acceptable to both parties, it could not be said (at any rate, in ordinary circumstances) to be contrary to the public interest that the covenant should be maintained in place unless and until that price is paid. Similarly, if an application under section 84 is made in advance of any conduct by the developer in breach of the covenant, that will allow the public interest to be tested in the context of due weight being given to upholding the public interest as regards respect for property and contract rights, rather than in a context where the developer has unilaterally and unlawfully violated those rights.

…

61.       In my view, in the circumstances of this case, in which Millgate had deliberately circumvented the proper procedures for testing and respecting the Trust’s rights under the restrictive covenants, the Upper Tribunal could not properly be ‘satisfied’ that it was contrary to the public interest for the restrictive covenants to be maintained in place. Millgate has acted in an unlawful and precipitate manner by building in breach of the restrictive covenants. It has acted with its eyes open and completely at its own risk. As a result it is appropriate and in conformity with the public interest that it should bear the risk that it may have wasted its own resources in building the 13 housing units on the application land.

…

64.       … in general terms it is in the public interest that contracts should be honoured and not breached and that property rights should be upheld and protected. A property developer which knows of a restrictive covenant which impedes its development of land has a fair opportunity before building either to negotiate a release of the covenant or to make an application under section 84 to see if it can be modified or discharged. That is how the developer ought to proceed. It is contrary to the public interest in ensuring that proper respect is given to contractual or property rights for a property developer to proceed without any good excuse to build in violation of such rights, as contained in an enforceable restrictive covenant, in an attempt to improve its position on a subsequent application under section 84. Put another way, it is contrary to the public interest for the usual protections for a person with the benefit of a restrictive covenant to be circumvented by a developer seeking to obtain an advantage for itself by presenting the tribunal with a fait accompli in terms of having constructed buildings on the affected land without following the proper procedure, and then in effect daring the tribunal to make a ruling which might have the result that those buildings have to be taken down. If the presence on the affected land of a building constructed in breach of the relevant covenant is to be regarded as capable of being relevant to the public interest question under subsection (1A)(b) - as in principle it is … - I consider that the issue of how that situation arose is also highly relevant to that question.

65.       It should be noted that the discussion in relation to these grounds is directed to the issue whether the condition in section 84(1A)(b) has been satisfied, which is a precondition for the Upper Tribunal to have any discretionary power under section 84(1) to discharge or modify a restrictive covenant. That is different in important respects from the distinct issue … of how such a discretionary power should be exercised, once it is found to have arisen. In this case, the Upper Tribunal wrongly postponed consideration of the conduct of Millgate to the discretionary stage (paras 113-121), and at para 117 treated the decision of the Lands Tribunal (Douglas Frank QC, President) in In re SJC Construction Co Ltd’s Application (1974) 28 P & CR 200 as relevant to that stage, even though in the relevant passage (at p 205) referred to by the Upper Tribunal the President in fact referred to the conduct of the applicant in the context of addressing the question whether the precondition in section 84(1A)(b) had been satisfied.

66.       In my view, it is appropriate to bring into account the rights-based and procedural dimension of the public interest in the interpretation of section 84(1A)(b), as in the SJC Construction Co case, in order to secure fuller protection and due respect for the contractual rights with property characteristics which are sought to be overridden on an application under section 84. I do not consider that Parliament intended that section 84 should operate so as to allow those rights to be deliberately ignored by an applicant, with it then being left as a purely discretionary matter for the Upper Tribunal to decide whether to override them.”

(2)       Did the Upper Tribunal make an error of law by failing properly to take account of Millgate’s cynical conduct in the exercise of its discretion?

“77.     On the assumption that the relevant discretion under section 84(1) had arisen, … I consider that the Upper Tribunal fell into error … I reach the view I have notwithstanding the discretionary nature of the exercise which the Upper Tribunal had to conduct at this stage in the analysis and even though the Upper Tribunal correctly referred in this part of its decision to relevant authority and reminded itself at paras 114-115 of factors which pointed against the exercise of discretion in favour of Millgate. In my view, the Upper Tribunal still arrived at a conclusion which was ‘wrong’ within the meaning of CPR rule 52.21(3)(a) (ex rule 52.11(3)(a)), in that it failed to attach sufficient weight to the deliberately unlawful and opportunistic conduct of Millgate in the circumstances of this case, which was directed to subverting the proper application of section 84 without good reason.

…

82.       … Millgate acted in a high-handed manner by proceeding to breach the restrictive covenants without any justification or excuse. Millgate had attempted to steal a march on the Trust and had sought to evade the jurisdiction of the Upper Tribunal at the appropriate stage, by failing to make its section 84 application before building. In my judgment, the appropriate course for the Upper Tribunal in the present case, having regard to the need for due protection of the Trust’s rights and to the general public interest in having the section 84 procedure invoked at the proper time and in the proper manner, was to exercise its discretion to refuse Millgate’s application. It is highly desirable that there should be consistency and predictability as regards the exercise of discretion under section 84(1), and I consider that those values are best promoted by the exercise of discretion against acceding to Millgate’s application in the present case.

…

84.       … the application should have been refused in the exercise of discretion by the Upper Tribunal because Millgate had acted without proper regard to the rights of the Trust and with a view to circumventing the proper consideration of the public interest under section 84. Clearly, such an exercise of discretion is called for in part to deter others; and from a certain perspective it might be thought to have a punitive character; but the true reason for the exercise of discretion in this way in the present case is wider than that.”

“Ms Windsor emphasised that, unlike the applicants in Green Masjid, Millgate had acted with professional advice and suggested that its behaviour was so egregious and unconscionable that relief should be refused. We have taken into account all of the matters of conduct which she relied on in reaching our conclusion.”

We were supplied with Ms Windsor’s expanded closing submissions (for the objectors) at the Upper Tribunal hearing. Those submissions replaced previous skeleton arguments. Under the heading of “Conduct”, they set out over ten paragraphs (paras 41-50) Ms Windsor’s submissions regarding Millgate’s conduct. The details of the alleged “egregious” and “unconscionable” conduct are particularised at paragraph 46(a)-(k).

“106.  It is no answer to the current wasteful state of affairs to say, as Ms Windsor did, that Millgate could have built their allocation of affordable housing on other land, or that it could now buy its way out of the problem by making a payment towards the provision of social housing elsewhere. Whether those would have been sufficient answers to Millgate’s case on public interest if we had been dealing with an application before any housing had been built on the site is not a question which arises. The question for the Tribunal is whether in impeding the occupation of the houses which now stand on the application land, and which are otherwise immediately available to meet a pressing social need, the covenants operate in a way which is contrary to the public interest. We are satisfied that they clearly do because it is not in the public interest for these houses to remain empty and the covenants are the only obstacle to them being used.”

This makes clear that at the jurisdictional stage the UT was, correctly, looking at matters as they then stood at the date of the hearing and not as they stood prior to the breach of covenant. But at the discretionary stage the importance of that change having been brought about by the developer’s cynical breach should have come back into the reasoning and should have been highly relevant. But that step in the reasoning - taking into account, in the exercise of its discretion, the second of the two omitted factors - was simply never taken by the Upper Tribunal.

“If it was thought to be easier to secure a modification in favour of a completed development than for one which had not yet commenced the contract breaker would have a real incentive to press on even in face of strong objections by the beneficiaries of a covenant. Any developer who thinks in that way should think again or risk [a] rude awakening …”

However, even if the second factor was here being referred to, it clearly cannot have been taken into account in reaching the decision because the decision directly contradicted the reasoning in that paragraph. The decision of the Upper Tribunal precisely would encourage developers to ignore covenants and to press on with a development even in the face of strong objections. If the Upper Tribunal had been taking that factor into account, an explanation for that contradiction would have been required. Mr Jourdan submitted that the Upper Tribunal was paying lip service to the warning it was giving in para 115. I agree. In truth, the Upper Tribunal ignored that factor in reaching its decision.

6.         The other two issues

(1)       Applying Lawrence v Fen Tigers Ltd by analogy

“The fact that planning permission has been granted does not mean that private rights can necessarily be overridden, but it does reflect an objective assessment of appropriate land use which fully takes into account the public interest.”

Sales LJ, in the Court of Appeal, thought that that was an incorrect statement because one also needed to take into account the cynical conduct of the defendant in assessing the public interest at the jurisdictional stage. I have made clear earlier that I do not agree with Sales LJ’s wide interpretation of the “contrary to public interest” jurisdictional ground and I need say no more about that here.

“Whether that restrictive gloss remains the correct approach may require reconsideration in light of Carnwath LJ’s explanation of the policy underlying ground (aa) in Shephard v Turner and Lord Sumption’s observations on the reconciliation of public and private rights in Lawrence v Fen Tigers Ltd, but it is not necessary to pursue that thought further at this time. We are satisfied that the public interest in play in this case is sufficiently important and immediate to justify the exercise of the Tribunal’s power under section 84(aa) to override the objector’s private rights.” (Emphasis added)

The emphasised words make clear that the Upper Tribunal was not here applying Lord Sumption’s wider comments.

“The development plan placed the application land in the Green Belt, thereby indicating that there was the usual strong presumption against its residential development as proposed by Millgate. The Upper Tribunal did not identify any declared or ascertainable pattern for the grant or refusal of planning permissions in the relevant area, let alone one which supported Millgate’s arguments regarding the public interest.”

(2)       Ignoring (including in the exercise of the Upper Tribunal’s discretion) Millgate’s ability to satisfy its planning obligation by making alternative provision of equivalent affordable housing elsewhere

“106.  It is no answer to the current wasteful state of affairs to say, as Ms Windsor did, that Millgate … could now buy its way out of the problem by making a payment towards the provision of social housing elsewhere. Whether those would have been sufficient answers to Millgate’s case on public interest if we had been dealing with an application before any housing had been built on the site is not a question which arises. The question for the Tribunal is whether in impeding the occupation of the houses which now stand on the application land, and which are otherwise immediately available to meet a pressing social need, the covenants operate in a way which is contrary to the public interest. We are satisfied that they clearly do because it is not in the public interest for these houses to remain empty and the covenants are the only obstacle to them being used.” (Emphasis added)

7.         Conclusions and re-making the decision

(i)        The Court of Appeal was correct to overturn the decision of the Upper Tribunal for its failure properly to take account of Millgate’s cynical breach in the exercise of its discretion (ground four of the grounds of appeal). But my reasoning in relation to that ground differs from the reasoning of the Court of Appeal: I have held that the Upper Tribunal erred in law by failing to take into account, as it should have done, the two relevant factors, concerned with the effect of Millgate’s cynical conduct, that I have termed the two omitted factors (see paras 58-59 above).

(ii)       The Court of Appeal was incorrect, as a matter of law, in overturning the Upper Tribunal on the other three grounds of appeal. That is, applying Lawrence v Fen Tigers Ltd by analogy (ground one); ignoring, at the jurisdictional stage, Millgate’s cynical breach while regarding as highly relevant the fact that, by the time of the application, 13 housing units had been built (ground two); and ignoring (including in the exercise of the Upper Tribunal’s discretion) Millgate’s ability to satisfy its planning obligation by making alternative provision of equivalent affordable housing elsewhere (ground three).

(iii)     Overall, because of my conclusion on (i), the appeal should be dismissed.

“(1)     Subsection (2) applies if the relevant appellate court … finds that the making of the decision concerned involved the making of an error on a point of law.

(2)       The relevant appellate court -

(a)       may (but need not) set aside the decision of the Upper Tribunal, and

(b)       if it does, must either -

(i)        remit the case to the Upper Tribunal …, or

(ii)       re-make the decision.

(4)       In acting under subsection (2)(b)(ii), the relevant appellate court -

(a)       may make any decision which the Upper Tribunal could make if the Upper Tribunal were re-making the decision … and

(b)       may make such findings of fact as it considers appropriate.”