The means does not always justify the end – The Supreme Court decision in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd
[2020] UKSC 45
This article is dedicated to the writer’s colleague, Gerald Moran, who retired as a solicitor on 31st December 2020. One of the many facets of property law of which Gerald was an undoubted master was the law on enforcement of restrictive covenants. We wish Gerald a happy and long retirement.
S.84 of the Law of Property Act 1925
S.84(1) of the Law of Property Act 1925 (“s.84”), enables the Upper Tribunal (Lands Chamber) (“UT”) to make an order discharging or modifying a restrictive covenant over land on one of four “jurisdictional grounds”. S.84(1) (aa) provides that an order may be made if the UT is satisfied
“that in a case falling within subsection (1A) the continued existence [of the covenant] would impede some reasonable user of land for public or private purposes…or, as the case may be, would unless modified so impede such user”
S.84(1A) then goes on to provide that ss.84(1)(aa) applies only where the UT is further satisfied that the covenant, in impeding reasonable user of land, either :
(a) does not secure to persons entitled to the benefit of [the covenant] 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) such person will suffer from the discharge or modification.
S.84(1B) then provides that in determining whether a case is one falling within ss.(1A), and in determining whether a restriction ought to be discharged or modified, the UT 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 or any other material circumstances”
The facts of the case
Millgate Developments Limited (“Millgate”) obtained planning permission to develop a site for the construction and sale of residential property. The full implementation of that planning permission was conditional upon Millgate building a number of affordable housing units (“Social Housing”) on another site (“the Exchange House site”). Subsequently the planning agreement linking the development of the two sites was varied to enable it to obviate the need to build the social housing on the Exchange House site on payment to the local planning authority (“LPA”) of £1,639,904.
Part of the Exchange House site was, however, subject to covenants which prevented Millgate from building thereon (part of that site (the “unencumbered land”) was not subject to any covenants). The covenant benefitted an adjoining children’s cancer hospice owned by the Alexander Devine Children’s Cancer Trust (“the Charity”).
Knowing that the Exchange House site was subject to the covenant and that the Charity had the benefit of it, Millgate built the Social Housing on the site (thereby choosing not to make the payment provided for in the varied planning agreement). Having done so, Millgate then made an application under s.84(1)(aa) and, another of the Jurisdictional Grounds, to have the covenant modified so as to allow the Social Housing to remain without being in breach of the covenant.
The decision of the UT
The UT held that upholding the covenants would impeded the reasonable use of the application land for the occupation of the Social Housing and would, therefore, be contrary to the public interest and that money would be adequate compensation for the modification of the covenants. The jurisdictional ground to s.84(1)(aa) was, therefore, satisfied.
The UT considered the provision of the Social Housing to be a highly material circumstance under s.84(1B). The public interest outweighed all other factors in the case, sufficiently important and immediate to justify the making of the order. That was notwithstanding that Millgate had not acted in good faith and with intent to force the hand of the Charity. On that basis the UT exercised its discretion under s.84 to grant the application and to modify the covenants.
The subsequent appeals
The Charity appealed the decision of the UT to the Court of Appeal (“CA”) where the appeal was upheld by the CA re-making the original decision, thus overturning the UT’s modification of the covenants (the leading judgement being given by Sales LJ). Housing Solutions (by then the owner of the Exchange House site) appealed to the Supreme Court.
The two ground of appeal that were key to the final decision of the Supreme Court were :
- Did the Upper Tribunal make an error of law, in considering the jurisdictional grounds of the application, by ignoring Millgate’s cynical breach while regarding as highly relevant that, by the time of the application, 13 housing affordable housing units had been built (which was “Ground Two” of the appeal to the CA) ; and
- Did the UT, in the exercise of its discretion to make the order, err in error law by failing properly to take account of Millgate’s cynical conduct (which was “Ground Four” of the appeal to the CA)
The Supreme Court decision
Lord Burrows, in his first judgement as the first academic non-practising lawyer to sit in the Supreme Court, held (with the concurrence of the other four law lords) :
- That the UT had not erred in law on Ground Two, thus reversing the CA decision on that point ; and
- That the UT had erred in law on Ground Four, thus upholding the CA decision on that point, although Lord Burrows differed with some of Sales LJ’s conclusions on that part of the appeal.
As a consequence the decision of the CA to re-make the order refusing Millgate’s application was upheld.
The material issue the UT and in both appellate decisions was the effect of Millgate’s conduct in building the Social Housing in clear breach of the covenants. The UT, the CA and the Supreme Court categorised that conduct, variously, as “high-handed”, ”opportunistic” and “cynical” but differed in their views as to the effect that conduct had on the subsequent s.84(1) application.
The first element of the jurisdictional grounds of the application, that the proposed use was reasonable, was by and large accepted throughout the proceedings. The difference between the UT and the CA decisions was, therefore, the extent to which the conduct of Millgate should outweigh the public interest of the provision of the Social Housing.
On Ground Two, Lord Burrows favoured the view of the UT, that the applicant’s behaviour was irrelevant at the jurisdictional grounds stage, to the view of the CA that it was relevant. In reaching that conclusion, Lord Burrows differentiated between deciding whether impeding the reasonable user of the land was contrary to the public interest, which was the correct approach, and deciding whether maintaining the covenant was contrary to the public interest, which was the incorrect approach adopted by Sales LJ.
In deciding Ground Four of the appeal, Lord Burrows agreed with the conclusion of Sales LJ that, in exercising its discretion to grant the application notwithstanding the conduct of Millgate, the UT had erred in law.
However, Lord Burrows then went on to say that he disagreed with Sales LJ’s reasoning in reaching his decision. What Sales LJ seemed to be saying was that an applicant who had committed a cynical breach of the type identified in this case should have its application under s.84 refused as a matter of principle. Lord Burrows disagreed ; it was necessary to let in discretionary qualifications to temper any such principle. The UT had done that in this case, in deciding that the public interest in allowing the Social Housing to be used outweighed all other considerations, Millgate’s cynical conduct included. In so doing the UT had legitimately exercised its discretion, albeit that it had erred in law in so doing.
The UT’s errors were to omit from its considerations two very material factors
- That, had Millgate respected the rights of the Charity in applying for planning permission on the unencumbered land (which the LPA had indicated would be granted) there would have been no need to apply to discharge under s84 ; and
- That by going ahead and building the Social Housing without first applying under s.84(1), Millgate put itself in the position of being able to present to the UT, in effect, a fait accompli. The provision of the Social Housing meaning that it could (and did) satisfy the contrary to public interest ground. Because the UT will look at the public interest position at the data of the hearing, that general conduct directly rewarded Millgate by transforming forming its prospect of success under the contrary to public interest jurisdictional grounds.
Commentary
In refusing Millgate’s application the CA and the Supreme Court reinforced the general point that obtaining an order under s.84(1)(aa) is very difficult. The evidential burden of proving the ground is weighted against an applicant and the bar set very high. In particular, it is very difficult to see how an application relating (however loosely) to a commercial development can be made successfully.
“Public interest” is, however, an elastic and evolving concept. One might ponder whether the result of Millgate’s application would have been different if it had built a medical testing centre on the application land rather than the Social Housing.
For land owners the decision is good news. It upholds the concept that the law should only set aside a private contract in exceptional circumstances ; in this context, largely only where the purpose of the contract has been overtaken by societal changes and, even then, only where the beneficiary can adequately financially compensated for the loss of its rights.
In distinguishing his approach to Ground Four from that of Sales LJ, Lord Burrows did not adopt the principal that cynical conduct will, of itself, prevent an application under s.84(1)(aa) being successful. However, both the CA and Supreme Court decisions did find that the end of providing the Social Housing did not justify the means of the cynical behaviour of the applicant. The words of Lord Burrows that “it is only realistic to recognise that the impact of this decision will be to strengthen the [Charity’s] hand in relation to any financial settlement of this dispute” should, therefore, resound with any developer considering building out a development in breach of covenant in the hope of legitimising that breach by way of a successful s.84(1)(aa) application.
