Injunctions and restrictive covenants: enforceable and/or avoidable covenants?

That is a slightly clumsy title, but it is impossible pithily to summarise the wide-ranging discussion in Signature of St Albans (Property) Guernsey Ltd v Wragg & ors [2017] EWHC 2352 (Ch).

In Wragg, the applicants had brought an application under s 84(2) Law of Property Act 1925 (and under CPR Part 8), which allows the Court to make declarations as to the effect and construction of any restrictions affecting freehold land. The land in question had originally formed part of a large estate; around the turn of the 20th Century it had been sold off in five parcels, each subject to a variety of restrictive covenants (“the 1910 covenants”). The claimant in the action was the owner of one of those parcels, together with some parts of other parcels. It had obtained planning permission to construct a residential care home on the intact parcel. This, it was agreed, would be in breach of the 1910 covenants, but the claimant sought to argue that those covenants did not continue to affect the property and were not enforceable against them as owners of the property.

The claimant ran two separate arguments (c.f. para 25 of the judgment). Firstly it argued that there had been breaches of the vendor covenants which deprived the defendants of the right to enforce the purchaser covenants. Secondly it said that those entitled to the benefit of the purchaser covenants had made or permitted such changes in the character of the neighbourhood that those covenants had ceased to have some practical effect, and that it was not necessary to show that the change in character meant that there was no longer any value left in the covenant at all.

The Court in Wragg applied the general principle regarding the grant of an injunction from Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] WLR 425

“. . . where the agreement is one which involves continuing or future acts to be performed by the plaintiff, he must fail unless he can show that he is ready and willing on his part to carry out those obligations, which are, in fact, part of the consideration for the undertaking of the defendant that the plaintiff seeks to have enforced.”

The relevant (alleged) breach on which the claimant sought to rely was the building of houses elsewhere on the estate, which exceeded (it was argued) a density limitation. The Court’s factual observations in Wragg were that there had not been much (if anything) in the way of breach here. But the more interesting point is that the breach (if any) had been performed by the defendants’ predecessor in title. At para 68 the Court noted that:

. . . [t]he covenant in the present case not to build more than a certain number of houses is broken when the supernumerary house is built. It is not broken at every moment thereafter that the owner for the time being fails to remove it . . .

So the historic breach of the vendor covenant did not disentitle the vendor’s successors in title from enforcing the purchaser covenants.

The claimant then argued that, since there are cases where a person can become disentitled to seek an injunction because of the behaviour of a third party through whom he claims, then a breach of a covenant by a successor in title to one of the parcels of land would disentitle all successors in title to the other parcels of land from enforcing the vendor covenant by injunction (and if that isn’t sufficiently clear, the actual judgment text is at paras 69 – 70).

In response, the Court  emphasised the difference between personal and property rights. At para 79:

In English law, the burden of a positive covenant is not transmissible to (is not binding on) a successor in title, either at common law or in equity. On the other hand, in equity, the burden of a negative covenant which regulates the user or enjoyment of land is so transmissible (or binding). The hallmark of a property right, as opposed to a personal right, is that it is a right relating to a thing which is binding not only as between the parties but also against third parties. That is exactly what covenants restrictive of the user of land are.

So, even if an individual successor in title might debar him or herself from seeking an injunction by reason of their own behaviour, that would not prevent other collateral successors in title, not so disabled, from doing so.

The rest of the judgment is, I think, similarly helpful. For instance, the Court emphasises at [79] that, in the context of property law (e.g. a sale of real property), the consideration given and received is the property rights which have been transferred ([78]: “. . . the totality of the stipulations and benefits on the one side (including the covenant and the conveyance of land) against the totality of the stipulations and benefits on the other (including the covenant and the purchase price)” – and not simply one set of covenants against another set of covenants.

The second argument – based on change of character – was dealt with much more shortly, and I cite only the critical paragraph here. The discussion, however, I think worth reading in full: it is interesting.

[96] In my judgment the answer is not that there are two standards, one for judging changes in the character of the neighbourhood when caused by the applicant for an injunction or his predecessors in title, and the other for judging such changes when caused by other people.Instead, there is one standard only, which applies to everyone, except to an applicant who has (or whose predecessors have) in effect represented that the covenants are no longer enforceable, and others have relied on that representation to their detriment. In other words, the only exception is where an estoppel argument can be raised against the applicant for an injunction. That is quite different from saying that in the case of acts or omissions of the applicant or his predecessors it is enough if the covenants have lost some practical effect. In my judgment, that would be an entirely unprincipled distinction to draw, whereas a general rule for everyone subject to an estoppel defence against a particular applicant is consistent with principle.

“It is quite impossible” (the Court concluded, citing Chatsworth Estates Co v Fewell [1930] 2 Ch 224, 230) “here to say that there has been so complete a change in the character of this neighbourhood as to render the covenants valueless to the plaintiffs.” The purpose of the covenants had not, therefore, failed, and so the covenants were still available to be relied upon by the defendants.

I’d reiterate that the judgment is, I think, worth reading in full; although only a decision of the High Court, it is intrinsically interesting and a useful rehearsal of key principles.

No mercy for missed deadlines

In the fairly-recent case of Lakhani and anor v Mahmud [2017] EWHC 1713 (available via BAILII here), the freeholders of land in a London suburb had brought an action seeking an injunction. They wanted the defendants to restore car parking spaces to a condition in which they were available to the claimants.

As part of case management, D J Jackson made an order requiring the parties to file and serve updated costs budgets 21 days before the CCMC. The claimants served their costs budget on time. The defendants served theirs one day later – and, unfortunately, one day too late. Nonetheless, the parties’ solicitors carried on with the process of commenting on one another’s proposals.

At the CCMC, the court heard the defendants’ application for relief from sanctions. It did not succeed, and they appealed this decision.

In the High Court, Daniel Alexander QC noted that

[t]he application for relief from sanctions was not advanced in a manner calculated to optimise the chances of success . . . it was made at the last minute before the hearing . . . the circumstances in which the application was made and the late service of evidence precluded the claimants form serving evidence in response . . . [t]hird, the 45 minute hearing . . . was turned into a 1/2 day hearing, dominated by the issue of relief from sanctions. Fourth, the late service . . . and the consequential dispute . . . had potential to disrupt agreement over costs budgets.

The appellate decision then goes on to deal with the first instance decision in some detail. It is potentially helpful for anyone faced with a relief-from-sanctions application (although there is, of course, higher authority). The High Court in Lahkhani upheld the first instance decision; it was a decision “open to [the judge] in the exercise of his discretion and is of a kind which the Court of Appeal has recommended should normally be upheld”, although it was (para 59)

“perhaps, on the tougher end of the spectrum as to substance and the leaner end of the spectrum as to analysis. But the defendants have not been deprived of a trial altogether. Had that been the consequence, the situation would have merited more detailed scrutiny than the judge gave it . . .”

 

Nothing new here, some might say, but is a salutory reminder of the strict approach which the Court will often take, and of the uphill struggle with which any appeal against a case management decision will be faced.

 

 

Postponing the sale of a bankrupt’s (family) home

When a bankrupt shares a home with his spouse and/or family, there is an inevitable conflict between the family’s interests and those of the bankrupt’s creditors.

In (1) Grant (2) Cork (as joint trustees in bankruptcy of Ronald Charles Henry Baker) v Ronald Charles Henry Baker [2016] EWHC 1782 (Ch), the Court’s approach is neatly illustrated.

Mr Baker was a self-employed taxi-driver, married for some 30 years to Mrs Baker, who was – until shortly before the hearing – working as a carer for elderly people (on an income of c. £15K, gross). Mr Baker employed an accountant to deal with his tax affairs. Unfortunately, the accountant failed to take into account the private use by Mr Baker of his taxi and fuel. HMRC then reopened his accounts going back some five years, and issued a bill for £25,000. Unsurprisingly, Mr Baker did not have this money to hand, particularly given the downturn in business brought about by Uber.

In due course, Mr Baker was made bankrupt. A year later, the Trustees noted a shortfall in the sum which was by then owed to HMRC (c. £51K); the Official Receiver recorded an estimated deficiency of c. £26K; the Trustees (unsurprisingly) sought to recover the shortfall by applying for sale of Mr & Mrs Baker’s home. By this time Mr Baker had been discharged from bankruptcy; he had co-operated fully throughout. Sale of the home was expected to yield around £30K for Mrs Baker, the remainder being used to discharge Mr Baker’s debt to HMRC.

Mr & Mrs Baker had an adult daughter who lived with them; she suffered from global developmental delay and dyxpraxia, together with OCD. Her needs were (I paraphrase) best met by the family home. The application for an order for sale was opposed.

However, the Court noted the impact of s 335(A) Insolvency Act 1986:

“(3)Where [an application for an order for sale] is made after the end of the period of one year beginning with the first vesting . . . of the bankrupt’s estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.”

The question of whether the circumstances are “exceptional” are, in case you are interested, set out in Dean v Stout [2005] EWHC 3315 (Ch). Of particular significance are the principles set out by Lawrence Collins J at [9] – “exceptional or special circumstances [must be] outside the usual ‘melancholy consequences of debt and improvidence’ . . .” and at [11] ” . . . the creditors have an interest in the order for sale being made, even if the whole or the net proceeds will go towards the expenses of the bankruptcy, and the fact that they will be swallowed up in paying those expenses is not an exceptional circumstances justifying the displacement of the presumption that the interests of the creditors outweigh all other considerations.”

The first instance decision in Grant was to postpone the order for sale indefinitely, until the daughter was “no longer residing in [the] property or no longer requires that property as a home”. But that, said the High Court, was an impermissible exercise of the judge’s discretion: the District Judge had been “unduly influenced” by the perceived lack of security for the daughter if she had to move into private rented accommodation; was wrong to dismiss as “quite short term thinking” the suggestion that MRs Baker’s share of equity could be used to make up a shortfall in paying rent for suitable replacement accommodation; was wrong to dismiss as unreasonable the prospect of inflicting a further move on the daughter; and was wrong not to consider any alternative to indefinite postponement. The High Court, exercising its discretion afresh, thought that the appropriate further period of postponement would be one of approximately 12 months, allowing time for a replacement property to be found and for the move to be prepared, and to contemplate bringing a claim against the accountant (who, you will recall, was clearly in the picture in relation to the Bakers’ unfortunate predicament).

It is important to note that the overall postponement ran from the date of the first instance hearing – 8 October 2015 – until the end of July 2017 (see para [52] of the High Court decision). That is almost two years. But the relevant period, properly understood, is still only 12 months: until the High Court decision, Mr & Mrs Baker would not have been preparing for sale. The 12 month period is the period of grace afforded to the Bakers to prepare for sale, and to find alternative accommodation. So in a case where the relevant interests include those of a bankrupt’s family who need to care for an adult (largely, it would seem, dependant) daughter, we are still only looking at a postponement of sale of 12 months.

Further, the reminder that the creditors’ interest in an order for sale will dominate even when the proceeds go towards the expenses of the bankruptcy is salutory, and should be borne in mind. The statutory scheme is, in this respect, very clear.