Clearwater Properties Ltd, Re Land and Buildings on the West side of New Road Burntwood, Re [2013] UKUT 210 (LC) (28 May 2013)

UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2013] UKUT 0210 (LC)

UTLC Case Number: LP/25/2011

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

RESTRICTIVE COVENANT – discharge or modification – Law of Property Act 1925, s.84(1)(b) – preliminary issue – “without prejudice” correspondence – whether agreement between the parties

IN THE MATTER OF AN APPLICATION UNDER SECTION 84 OF THE

LAW OF PROPERTY ACT 1925

CLEARWATER PROPERTIES LIMITED

Re: Land and Buildings on the West side

of New Road

Burntwood

Before: Sir Keith Lindblom, President

Sitting at: 43-45 Bedford Square, London, WC1B 3AS

on 27 March 2013

Jonathan Upton, instructed by Charles Russell LLP, solicitors for the applicant

Tom Weekes, instructed by Adcocks Solicitors, solicitors for the objector

The following cases are referred to in this decision:

Winter v Traditional & Contemporary Contracts Ltd [2007] EWCA Civ 1088

Stockport Metropolitan Borough Council v Alwiyah Developments (1986) 52 P. & C.R. 278

Re University of Westminster’s Application [1998] 3 All ER 1014, C.A.

Re Child Brothers Ltd’s Application (1959) 10 P. & C.R. 71

Re Robinson’s and O’Connor’s Application (1965) 16 P. & C.R. 106

Re Hopcraft’s Application (1993) 66 P. & C.R. 475

Re O’Reilly’s Application (1993) 66 P. & C.R. 485

Re Cornick’s Application (1994) 68 P. & C.R. 372

Re Graham’s Application LP/83/2005 (unreported)

Re Graham’s Application [2008] EWCA Civ 1503

RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG (UK Production) [2010] 1 WLR 753

South Shropshire District Council v Amos [1986] 1 W.L.R. 1271

India Rubber, Gutta Percha and Telegraph Works Co Ltd v Chapman (1926) 20 BWCC 184, C.A.

Rush & Tompkins Ltd v Greater London Council [1989] AC 1280

Tomlin v Standard Telephones and Cables Ltd [1969] 3 All E.R. 201

Framlington Group Ltd v Barnetson [2007] EWCA Civ 502

Unilever Plc v Procter & Gamble Co [2000] 1 WLR 2436

DECISION ON A PRELIMINARY ISSUE

Introduction

1. This case is before the Tribunal for a decision on a preliminary issue. The preliminary issue arises in an application by Clearwater Properties (Cannock) Limited (“the applicant”) under section 84(1)(b) of the Law of Property Act 1925 (“the 1925 Act”) for an order to discharge a restrictive covenant burdening land that it owns in Lichfield. The sole objector to the application is Lichfield District Council (“the District Council”).

2. The applicant is the freehold owner of land on the west, east and south-east sides of New Road, Burntwood, in three parcels, registered under title numbers SF372966, SF517041 and SF168659 (“the restricted land”). The restricted land forms part of the Mount Road Industrial Estate, an industrial area developed in the late 1950s, parts of which are now occupied by various businesses and industries. The industrial estate was originally owned in its entirety by the District Council. As plots on it were sold off, the District Council imposed covenants, both positive and restrictive, in the conveyances.

3. By a deed dated 1 October 2007 made between (1) the District Council, (2) the applicant, (3) D.H. Haden Limited, (4) Burdale Financial Limited and (5) AIB Group (UK) Plc the District Council released the restricted land from certain restrictive covenants imposed by the original conveyances (as subsequently varied), and the applicant entered into a new covenant (“the 2007 covenant”) for the benefit of adjoining land owned by the District Council. The 2007 covenant states:

“[The applicant] hereby covenants with [the District Council] and its successors in title for the benefit of [the adjoining land owned by the District Council] not to use [the restricted land] for any purpose other than one falling within any of Use Classes B1, B2 or B8 of the Town & Country Planning (Use Classes) Order 1987 and for no other purpose whatsoever”.

4. The applicant contends that in 2011 the District Council expressly agreed in correspondence with it that the 2007 covenant would be discharged, and that the compensation should be assessed if it could not be agreed. The District Council rejects that contention. It insists that it has never agreed to the discharge of the 2007 covenant. It denies that its correspondence with the applicant shows such an agreement, because the parties could not agree on the level of compensation.

The preliminary issue

5. By an order dated 8 November 2012 the then President (Mr George Bartlett Q.C.) ordered that the following issue was to be determined as a preliminary issue at a preliminary hearing:

“Whether there has been agreement between the parties for the purposes of section 84(1)(b) of the [Law] of Property Act 1925”.

6. At the hearing of the preliminary issue the applicant was represented by Mr Jonathan Upton, the District Council by Mr Tom Weekes. For the applicant evidence was given in the witness statement of its director, Mr Alvin Lindley, dated 25 September 2012. The District Council’s evidence was given in the witness statement of Mr Andrew Wilkinson, a chartered surveyor employed by the Valuation Office Agency in Stoke-on-Trent, dated 9 August 2012, and the witness statement of John Brown, the District Council’s Land and Property Manager, dated 24 August 2012. The parties agreed that it was not necessary for the Tribunal to hear oral evidence at this stage. I saw no reason to take a different view.

The facts

7. The essential facts are agreed. They are recorded in outline in the agreed statement of facts and issues prepared by the parties for the hearing of the preliminary issue. In the light of that statement and the evidence the parties have produced I find the following facts.

8. In or about July 2009 the applicant began negotiations with the District Council seeking the release of the 2007 covenant so that the restricted land could be developed for housing. The negotiations were conducted throughout on a “without prejudice” basis, in correspondence that the parties have both been content for the Tribunal to see.

9. The negotiations fell into three distinct phases.

10. The first phase continued until March 2011. In this period there were both oral and written negotiations between the applicant and Mr Wilkinson on behalf of the District Council.

11. On 18 July 2009 Mr Wilkinson wrote to Mr Lindley, recalling that in 2007 agreement had been reached between the applicant and the District Council “to amend the covenants” on the land. Mr Wilkinson asked whether the applicant wanted to pursue the negotiation of “terms for the removal of the covenants in their entirety”. On 8 September 2009, in a letter headed “WITHOUT PREJUDICE AND SUBJECT TO CONTRACT”, Mr Wilkinson indicated the terms he was “prepared to recommend” to the District Council, including the release of the covenants on payment to the District Council of the sum he specified (namely £700,000). This was not acceptable to the applicant. On 29 September 2009 Mr Lindley replied to Mr Wilkinson, saying that “[in] the light of the history and circumstances” it was “difficult to understand” Mr Wilkinson’s valuation. Unless Mr Wilkinson had “a significant change of heart” the applicant was likely to have to pursue an application to remove the covenants. Mr Lindley said that, on a without prejudice basis, the applicant would be “prepared to consider a nominal sum to avoid unnecessary delays, time and costs”. Mr Wilkinson wrote again to Mr Lindley on 5 February 2010 and on 11 November 2010 inviting him to discuss a payment for the release of the covenants, on the basis that they were enforceable, on the financial terms set out (£700,000 in the letter of 5 February 2010 and £560,000 in the letter of 11 November 2010). In a letter dated 17 November 2010 Mr Lindley responded to Mr Wilkinson’s letter of 11 November 2010, asking him to substantiate his valuation. He said there were clearly “areas which require clarifying before we are able to come close to agreement”. On 17 March 2011 Mr Wilkinson replied to Mr Lindley’s letter of 17 November 2010, proposing a different figure for the release of the covenants (namely £275,000), in view of the proposed allocation of the site for residential development in the District Council’s Local Development Framework.

12. In parallel with those exchanges there was correspondence between the applicant and the District Council as local planning authority.

13. On 13 July 2009 the District Council’s Principal Development Plans Officer, Ms Elizabeth Boden, wrote to the applicant “[as] an owner of land at Mount Road Industrial Estate”. She explained that in formulating the Local Development Framework for the period to 2026, the District Council was “considering existing and proposed land uses in the District”. Mount Road Industrial Estate was “currently identified as an existing industrial area where business, general industry, storage and distribution uses are protected”. Earlier in 2009, however, the District Council had published the Core Strategy Preferred Options consultation document. This had put forward the District Council’s “suggested broad locations for accommodating our housing requirement of [8,000] new homes in addition to new commercial opportunities”. The Preferred Options document had “identified the good levels of occupancy on the estate but highlighted that further consideration should be given to release of the Mount Road site for alternative uses, particularly if any significant business units on the site become vacant”. Ms Boden’s letter went on to ask questions about the suitability of the restricted land for business activity, and whether the applicant would consider selling it “if an opportunity for housing development were to occur”. The applicant’s response came in a letter from Mr Lindley to Ms Boden dated 16 July 2009, in which he said the buildings on the restricted land were “inefficient and antiquated, in terms of size, design, insulation and occupier requirements” and had been “subject to severe vandalism”. The restricted land would “require re-development whether that be for normal housing, social housing, industrial/warehousing or a general mix thereof”. Residential development had not so far been pursued because of the District Council’s “current policy”.

14. The possibility that the restricted land might be developed for housing was discussed in correspondence between the applicant’s planning consultants, Pegasus Planning Group LLP (“Pegasus”), and the District Council’s planning officers. On 1 April 2010 the District Council’s Principal Planning Officer, Mrs Rosamund Robb, wrote to Pegasus, saying this:

“… [It] would appear that it is no longer essential to protect this land for employment purposes as it would appear that there is sufficient employment land elsewhere to meet the needs of Burntwood. Consequently, whilst the Local Plan Policy Emp2 and Structure Plan Policy E8 seek to retain employment land for industrial uses, and these policies have been ‘saved’, I consider that having regard to the evidence now coming forward, the [District Council] would now support the principle of developing this site for residential purposes.”

15. The second phase of the negotiations took place in June, July and August 2011. Now Mr Lindley negotiated directly with Mr Brown.

16. On 30 June 2011 Mr Brown wrote to Mr Lindley. He said the “District Valuer” had told him he had “not been able to reach agreement with [the applicant] on the proposed release of the covenants …”, and had therefore “closed his file in this case”. Mr Brown added that “no further action” would be taken by the District Council and that “the covenants will remain in place”.

17. In paragraph 14 of his witness statement Mr Lindley refers to a telephone conversation he had with Mr Brown shortly after he had received the letter of 30 June 2011. He says Mr Brown wanted him to put in writing the reasons why the 2007 covenant should be released, “so that the [District Council] could make a decision on whether [to] release [the applicant] from the [2007 covenant]”. It was this, says Mr Lindley, that prompted him to write to Mr Brown to explain why he believed the restriction should be released.

18. In an e-mail to Mr Brown dated 16 July 2011 Mr Lindley said he was now providing his arguments “in order to gain the [District Council’s] support to promptly agree to the lifting of the [restrictive] covenants”. Mr Lindley referred to section 84 of the 1925 Act, which, he said, “gives the Courts a discretionary power to discharge or modify a restrictive covenant in certain circumstances”. These circumstances, he said, “include situations where the restriction has become obsolete, where it impedes a reasonable proposed use of the land (and simultaneously does not serve any particular benefit to others), or where the beneficiaries have agreed to discharge or modify it”. Mr Lindley went on to describe his understanding of the District Council’s position, in this way:

“… The [District Council is] minded to agree to redevelopment of the land together with other adjoining lands including the [District Council’s] for alternative uses. The [District Council is] in agreement with the lifting of the restrictive covenants subject to a financial payment. …”.

At the end of this e-mail Mr Lindley said he now had three options. The first was to “[agree] the removal of the [2007 covenant] with the [District Council] for a nominal sum”. The second was to “[apply] to the [Tribunal]”. And the third was to “[apply] to the courts”. Mr Lindley said he favoured the first option.

19. In response, in an e-mail to Mr Lindley dated 18 July 2011, Mr Brown said this:

“… The position of the District Council is as follows:

1. Solicitors have advised that the covenants are enforceable.

2. The District Council has agreed to release the covenants from the site with the terms being as negotiated by the District Valuer. In order to protect the interests of the Council Tax payers of the District the value of any release must be determined by a qualified valuer and I would not be able to accept the offer of a payment less [than] that determined by the valuer. The District Valuer has informed me that he wrote to you on 17^th March 2011 and did not receive a response. He has also informed me that you have made no offer to him for the release of the [2007 covenant].

3. The District Valuer has closed his file but if you want me to reinstruct him then you should let me have a cheque made payable to the District Council in the sum of £944.00 those being the abortive costs incurred.

4. If you [choose] another course of action then the District Council will react to that accordingly.”

20. Mr Lindley immediately responded in an e-mail, also dated 18 July 2011, saying that if the matter could not be resolved he would be “left in the unfortunate position of having to make an application through the courts”.

21. Further e-mail correspondence followed. The applicant was urging a basis in valuation for resolving the matter that was unacceptable to the District Council. In an e-mail dated 3 August 2011 Mr Brown said the District Council “would not be able to accept an offer lower than that determined by the District Valuer”.

22. In his witness statement Mr Brown explains his understanding of the correspondence between the parties in July and August 2011:

“6. …[On] 16 July 2011 I received an email from Mr Lindley representing [the applicant] asking the [District] Council again to consider lifting the covenants in exchange for a nominal payment of compensation. … I would like to add that all the negotiations took place between the District Valuer and [the applicant] and not with me. I had no direct oral communication with [the applicant] at any time about the case other than on the odd occasion when Mr Lindley called me chasing progress. This was usually when he had not heard from the District Valuer. At no time did I discuss terms with Mr Lindley on the telephone. If he did try to do so I would always say that he would have to refer to the District Valuer. This was because I had no authority to discuss or agree terms without the District Valuer’s advice. All communication with [the applicant] such as it was, was by email or letter ... .

7. On 18 July 2011 … I expressed the [District] Council’s position namely that it was willing to release the covenants on the Land provided acceptable compensation was paid. I had always understood on the advice of the [District] Council’s solicitors that the covenants affecting the Land were and are capable of being enforced.

8. During July and August 2011 I had an exchange of communication with Mr Lindley confirming this. …”.

23. The third and final phase of the negotiations took place between 8 August and 16 November 2011. The applicant had now instructed a firm of solicitors, Charles Russell LLP, to correspond with the District Council. In a letter to Mr Brown dated 8 August 2011 Charles Russell said:

“…

We have seen your e mail dated 18 July [2011] in which you agree to the [2007 covenant] being removed:

“The District Council has agreed to release the covenants from the site with the terms being as negotiated by the District Valuer …”

We consider that the only issue now is the level of compensation. Please confirm that you agree.

…”.

24. In an e-mail dated 22 August 2011 Mr Brown responded to Charles Russell’s letter of 8 August 2011, saying this:

“I refer to your e-mail dated 8^th August 2011 and confirm that the District Council [has] agreed to a request to release the covenants affecting land at Mount Road, Burntwood on terms to be negotiated by the District Valuer. The District Valuer did commence negotiations with your clients however [sic] he was not able to agree terms and closed his file. If you wish for me to instruct the District Valuer to reopen his file then I will need the name and address of the person with whom he should negotiate together with a cheque in the sum of £944.00 that being the abortive costs so far incurred.”

25. Charles Russell replied in a letter dated 26 August 2011, in this way:

“We refer to our letter dated 8 August 2011 in which we asked for confirmation that you agree to the [2007 covenant] being removed and to which you have now responded.

As a result of your confirmation that the [2007 covenant] can be removed, the only issue now to resolve is compensation.

We are prepared to make an application to the Lands Tribunal for the compensation issue to be resolved but we consider that negotiation at this stage is appropriate. We are obviously not prepared to pay for the District Valuer simply to negotiate.

We will be contacting you shortly in relation to an offer for compensation.

…”.

26. On 30 August 2011, in a letter headed “Subject to Contract”, Charles Russell wrote to the District Council’s Chief Executive, referring to their letter of 26 August

2011 and to the District Council’s “agreement to the removal of the [2007 covenant]”. They set out the applicant’s “position in relation to compensation”. They referred to the decisions of the Court of Appeal in Winter v Traditional & Contemporary Contracts Ltd [2007] EWCA Civ 1088 and Stockport Metropolitan Borough Council v Alwiyah Developments (1986) 52 P. & C.R. 278. They said that “[the] appropriate measure of damages … is the loss caused by the diminution in value or enjoyment of [the District Council’s] property”. It was promoting both its own land and the restricted land for residential development. In the circumstances, said Charles Russell, “only nominal compensation is payable for the removal of the [2007 covenant]”, which they considered to be “no more than £1,000”. If this could not be agreed they had been “instructed to make an application to the … [Tribunal] in relation to the level of compensation”.

27. Mr Brown replied in a letter to Charles Russell dated 22 September 2011. He referred to their letters of 26 and 30 August 2011, and said he “would be willing to instruct the District Valuer to reopen his file in this case …”.

28. On 2 November 2011, in a letter to Charles Russell headed “WITHOUT PREJUDICE AND SUBJECT TO CONTRACT”, Mr Wilkinson said he had been “instructed by [the District Council] to agree terms for the release of the restrictive covenants …”. He referred to his “lengthy correspondence” with the applicant, and re-stated his “final position” in that correspondence, which was “that the covenants would be released on payment of £275,000 …”.

29. Mr Brown refers to this final phase of the negotiations in his witness statement:

“9. [In] August 2011 I received a letter from Charles Russell, Solicitors, who said they were acting for [the applicant] and I attach a copy of that letter and a copy of my reply dated 22 August 2011 … . As can be seen, I confirmed that the [District Council was] willing to release the covenants affecting the Land on terms to be negotiated by the District Valuer.

10. Between August 2011 and October 2011 I had communications between [sic] Charles Russell and [the] District Valuer concerning the progression of the negotiations … . On 11 November 2011 I received a letter from Charles Russell confirming that they were proposing to make an [application] to the … [Tribunal] to vary the covenants because no agreement had been reached on the compensation and subsequently I am aware that such an [application] was issued …

11. At no time to the best of my knowledge, information and belief, has the [District Council] ever agreed to the level of the compensation to be paid in exchange for the release of the covenants affecting the land. Whilst I understand that various offers were made by the District Valuer on behalf of the [District Council] to release the covenants, no counter offers were ever received to my knowledge from [the applicant]. No conclusion and no agreement had therefore ever been reached.”

30. The application to the Tribunal was originally made on 16 November 2011. On 25 January 2012 the applicant submitted an amended application, seeking the discharge of covenants in a conveyance of 5 February 1960, as amended by a conveyance of 29 June 1962 and a deed of release dated 4 November 1996. In its amended statement of case it made plain that it was seeking the discharge of the covenants solely under ground (b) in section 84(1). In paragraph 5 of its amended statement of case, under the heading “Express Agreement to Vary” it said this:

“By an email dated 22 August 2011 and by correspondence and conduct prior to and subsequent to that date, [the District Council] agreed to release the Covenants on agreement of an appropriate level of compensation.”

31. The District Council filed a notice of objection on 20 April 2012. In its statement of case it said it did not have the benefit of the covenants referred to in the applicant’s amended statement of case. It acknowledged, however, that it did have the benefit of the 2007 covenant. It therefore treated the applicant’s application as an application to discharge the 2007 covenant. The application has proceeded on that basis.

32. In paragraph 7 of its statement of case the District Council said this:

“…

(i) Between September 2009 and June 2011, the [applicant] and the [District Council] (through the District Valuer) negotiated over a proposed agreement under which the [District Council] would release … the 2007 [covenant] in return for the payment by the [applicant] to the [District Council] of a sum of money (“the Consideration”).

(ii) Those negotiations came to nothing because the parties were unable to agree upon the amount of the Consideration.

(iii) Between July 2011 and August 2011 the [applicant] entered into correspondence directly with the [District Council]. In that correspondence (in essence): (a) the [applicant] stated that the amount of Consideration that the District Valuer had demanded (on behalf of the [District Council]) had been too high; whilst (b) the [District Council] sought to justify the sums that the District Valuer had demanded.

...

(vii) It is disputed that, as is alleged in paragraph 5 of the [applicant’s] Statement of Case, … the [District Council], whether in the 22 August 2011 Email or elsewhere agreed to the release of the [2007 covenant] on agreement of an appropriate level of “compensation”, if, by compensation, is meant statutory compensation (or a payment made in lieu of statutory compensation) upon the discharge of the [2007 covenant] under section 84(1) of the 1925 Act.

(viii) It is admitted … that the [District Council] indicated, in the 22 August 2011 Email and elsewhere, that it would agree to the release of the 2007 [covenant] … if the parties could reach an agreement on the amount of the Consideration.

(ix) For the purposes of paragraph (b) of section 84(1) of the 1925 Act, it is denied that the [District Council], by indicating that it would release the [2007 covenant] if the amount of Consideration could be agreed, “agreed” to the [2007 covenant] being discharged (given that the amount of the Consideration has never been agreed).”

Section 84(1)(b)

33. Section 84(1) of the 1925 Act confers on the Tribunal the power to discharge or modify restrictive covenants in several specified circumstances, including:

“…

(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, whether in respect of estates in fee simple or any lesser estates or interests in the property to which the benefit of the restriction is annexed, have agreed, either expressly or by implication, by their acts or omissions, to the same being discharged or modified …

…”.

34. An order discharging or modifying a restrictive covenant under section 84(1) may direct the payment of “such sum by way of consideration as the Tribunal may think it just to award” under one or other of the statutory heads – a sum to make up for “any loss or disadvantage” consequent upon the discharge or modification (head (i)) or for any effect of the restriction in “reducing the consideration” received for the land at the time when it was imposed (head (ii)).

35. If a covenant is to be discharged or modified under subsection (1)(b) there must be clear evidence of consent to the specific outcome for which the applicant contends. The onus lies on an applicant to satisfy the Tribunal, as a matter of fact, that his application is made out (see Re University of Westminster’s Application [1998] 3 All ER 1014, C.A.).

36. Preston & Newsom’s “Restrictive Covenants Affecting Freehold Land” (ninth edition, 1998) states (at paragraph 12-57):

“Paragraph (b) has been of little importance as a substantive ground in respect of facts existing before the application was made. This is, indeed, what might have been expected. …

If all persons entitled to the benefit of the restrictions are agreed upon a suggested discharge or modification, they can effect the required result by deed without coming to the Tribunal. But, if the only difference between the parties is quantum of compensation, an objector might file a notice of objection stating that he agrees to the proposed modification but does not agree quantum of compensation. More cautiously he could say that he will agree subject to assessment of compensation. However, these courses may be unattractive to him because consent may detract from his case for compensation and is a bargaining counter prior to the substantive hearing.

There will occasionally be cases where the Tribunal must determine whether agreement has occurred and, if so, whether such agreement left open the question of compensation. The meaning of the word “agreement” in the context of paragraph (b) has not yet received definitive analysis, but the references to “implication” and “omissions” clearly indicate that the paragraph does not require a legally binding contract. …”

and (at paragraph 12-58):

“Paragraph (b) has become of practical importance procedurally, because it enables the Tribunal to make an order binding on those persons entitled to the benefit of the restriction who either do not lodge notices of objection to an application based on other provisions of section 84(1), or who lodge such notices and later withdraw them. The applicant is entitled to plead that he will rely on paragraph (b) if such circumstances arise after the application is lodged.

Except for this contingent pleading, an applicant should not state in his application that he relies upon paragraph (b) unless there is ground for supposing that, at the date of the application, there already exists a consensus in favour of the proposed modification. …”

and (at paragraph 12-59):

“…

The Tribunal decides as a matter of fact whether … there has been a consent within paragraph (b): this point need not go to the Court. It is, of course, fundamentally important that parties can negotiate without prejudice to resolve their differences without fear that, if the negotiations fail, something which they have said during the negotiations will prejudice their positions. Accordingly, in the absence of actual agreement or waiver of privilege, without prejudice negotiations remain privileged and a claim that the without prejudice correspondence contains a “consent” under paragraph (b) will fail.”

37. In Re Child Brothers Ltd’s Application (1959) 10 P. & C.R. 71 the Tribunal was able to infer consent from the “general disregard” of the covenants in question.

38. In Re Robinson’s and O’Connor’s Application (1965) 16 P. & C.R. 106, where restrictions had been imposed on the use of shop premises, the Tribunal declined to order a modification despite a history of correspondence, including a solicitor’s letter, in which the objectors had indicated that they might agree to a form of retail activity prohibited by the covenant. The Tribunal held that the objectors had not irrevocably consented to the proposed user.

39. In Re Hopcraft’s Application (1993) 66 P. & C.R. 475 a council had the benefit of a covenant, imposed in an agreement made under section 52 of the Town and Country Planning Act 1971, requiring a farm to be used only for agricultural purposes. As local planning authority the council granted planning permission for the use of the farm for the storage of touring caravans. The owner of the farm, Mr Hopcraft, negotiated with the council over the terms on which it would be prepared to release the covenant. The negotiations came to nothing. Mr Hopcraft therefore applied to the Tribunal under section 84(1). He relied on several grounds, including subsection (1)(b). His application was dismissed. As to the application under subsection (1)(b), the President (H.H.J. Marder Q.C.) said (at p.478):

“… In support of ground (b) in particular [Mr Hopcraft] had produced to the Tribunal the whole of the correspondence constituting the negotiations between himself and the … council relating to a release of the covenant. As I made clear earlier, this correspondence was expressed by each side to be without prejudice. At the start of the hearing, I made plain that I could take no account whatever of the course or content of without prejudice negotiations or discussions. The whole purpose of without prejudice correspondence was to enable parties to litigation to attempt to arrive at a settlement of their differences whilst preserving their position, and preserving their privilege against subsequent disclosure. Mr Hopcraft later accepted that having regard to my ruling on this matter, he could not further pursue ground (b).”

40. In Re O’Reilly’s Application (1993) 66 P. & C.R. 485 (also a decision of H.H.J. Marder Q.C. as President) a council had the benefit of a covenant preventing land from being used other than for car parking. As local planning authority, the council granted planning permission for the erection of houses on the site. Negotiations between the owner of the land and the council followed, with a view to terms being agreed on which the council would be prepared to release the covenant. The negotiations failed. The owner of the site applied to the Tribunal for the discharge of the covenant, relying, inter alia, on subsection (1)(b). The President said (at pp.489 and 490):

“[Counsel for the landowner] argued ground (b) somewhat faintly, and did not finally press it. He relied on the negotiations as to possible terms of release as demonstrating that the council had expressly or impliedly agreed to the proposed discharge or modification. I reject that submission and take the opportunity to repeat what I said recently in Re Hopcraft’s Application. It is of fundamental importance that the privilege extended to without prejudice negotiations be protected. In the context of applications to the Tribunal under section 84(1) it must remain open for parties to negotiate to settle their differences whilst preserving their position, without fear of being held to have agreed thereby to the proposed discharge or modification within the meaning of ground (b).”

41. In Re Cornick’s Application (1994) 68 P. & C.R. 372 (again a decision of H.H.J. Marder Q.C. as President) the land was subject to covenants restricting its use to a jam factory. Planning permission was granted for a residential development. A terrace of three dwelling-houses in this development was to be erected partly on the land. The applicant applied for a discharge or modification of the covenant to allow the three houses to be built. The application was made only on ground (b). It was alleged that one of the original covenantees, a Mr Mann, who had the benefit of the restriction, had agreed to the modification without seeking compensation or other consideration. The President said (at p.373):

“… At the hearing of the application, Mr Mann was prepared to agree to the modification sought subject to his being compensated. Accordingly, the issues before the Tribunal may be summarised as (i) whether the restrictions should be modified in accordance with the application on ground (b); (ii) whether the covenantees had agreed to the modification without payment of compensation; and (iii) if the covenantees had not so agreed, whether they were entitled to be compensated, and if so under what head and in what sum.”

On the first of those three issues the President concluded (at p.381) that because the covenants were imposed expressly and only for the benefit of Mr Mann and his wife as owners of the adjoining land, and they did not object to the modification sought, ground (b) was made out.

42. The fact that a person entitled to the benefit of a restrictive covenant has not opposed an application for planning permission for a development that requires the restriction to be discharged or modified will not necessarily amount to consent. The authority that has itself granted permission for the development may be an objector to an application made under section 84. In Re Graham’s Application (LP/83/2005, an unreported decision of the Tribunal (Mr A.J. Trott F.R.I.C.S.)) a council had the benefit of a covenant prohibiting a site from being used other than as a coach depot. The council, as local planning authority, had granted planning permission for residential development on the site. The owner of the land applied for the discharge of the covenant on several grounds, including subsection (1)(b). He said the council had agreed to the discharge of the covenant by encouraging him to bring forward his development and by granting planning permission for it, and had once been prepared to release the restriction. The council said that was not so. In its conclusions on ground (b) the Tribunal said:

“114. To establish this ground the applicant must show that the objector has agreed, either expressly or by implication, by its acts or omissions, to the restriction being discharged or modified. There was no evidence that the objector had given any such express agreement. The applicant relied instead upon the implications of the objector’s acts and omissions.

115. The applicant relied mainly upon the grant of planning permission by the objector and its willingness to negotiate with the applicant for the sale of its land to the north of the application land. … The objector, as a local authority, fulfils multiple functions and the exercise of such a function by one department of that authority does not imply acceptance of that decision in relation to another such function. In my opinion the grant of planning permission does not imply agreement to the discharge or modification of the restriction. …

116. The evidence shows that the objector negotiated for the sale of its land to the applicant for residential development. Such development depended upon the modification or discharge of the restriction and I am satisfied that the negotiations between the parties were conducted on the basis that the restriction would be released. …

…

118. There was no evidence that the parties had agreed a price for the release of the restriction which Mr Clarke [the council’s Head of Asset and Property Management] could recommend to the council. Negotiations had ended, according to Mr Michael Smith [the council’s Principal Valuer], in August 2005 and, according to the applicant, in October 2005. The application under section 84 of the Act followed in November 2005. On balance I do not believe that these unsuccessful negotiations can be said to be an act on the part of the objector that should be construed as implying its agreement to the release of the restriction. To negotiate on the presumption that the restriction would be released does not imply an agreement that it has been so released. To establish an agreement in the circumstances of this case would depend upon its imputation by the applicant rather than its implication through the actions of the objector. An imputed agreement is not one which satisfies the requirements of section 84(1)(b) of the Act and I therefore conclude that the application fails under this ground.”

There was an unsuccessful appeal to the Court of Appeal in that case, on grounds unrelated to the application to the Tribunal under subsection (1)(b) ([2008] EWCA Civ 1503).

Submissions

43. For the applicant Mr Upton submitted:

(1) The language of section 84(1)(b) does not require the parties to have entered into a binding contract. Something much less will suffice. No consideration or intention to create legal relations is required. However, in deciding whether the parties have reached agreement, the Tribunal should apply the same objective test as is applied by the court when determining disputes as to the formation of a contract (see paragraphs 2-002 and 2-003 of the 31^st edition of Chitty on Contracts). It is enough to show that a reasonable person would have believed that the District Council had agreed to discharge the covenant. What the parties actually intended was not relevant. The Tribunal must consider all of the correspondence, and decide whether an agreement was in fact reached. An agreement may be complete even when significant terms have not been resolved, as the Supreme Court emphasized in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG (UK Production) [2010] 1 WLR 753. In that case Lord Clarke of Stone-cum-Ebony said (at paragraph 45) that an objective appraisal of the parties’ words and conduct may lead to the conclusion that they did not intend agreement of certain terms to be a precondition to a concluded and legally binding agreement.

(2) The critical part of the correspondence in this case is the exchange of e-mails between Mr Lindley and Mr Brown in July 2011 and the correspondence between Charles Russell and Mr Brown in August 2011. What the Tribunal has to do is to decide whether, viewed objectively, that correspondence amounted to an agreement. It patently did. Mr Brown’s e-mail to Mr Lindley dated 18 July 2011 was quite unequivocal. It left no room for dispute that the District Council had agreed to discharge the 2007 covenant, leaving terms to be negotiated by Mr Wilkinson. This was clearly an agreement in principle to release the restriction. The amount of any consideration or compensation to be paid was a separate issue. If it proved impossible to agree how much should be paid, this would not vitiate the parties’ agreement that the 2007 covenant was to be discharged. If Mr Brown’s e-mail of 18 July 2011 was not, on its own, sufficient evidence of this agreement, the later correspondence between Charles Russell and Mr Brown extinguished any doubt. In its letter of 8 August 2011 Charles Russell had specifically invited Mr Brown to confirm that the only issue remaining to be settled was the level of compensation. Mr Brown’s response on 22 August 2011 expressly confirmed that the District Council had “agreed to a request to release the covenants … on terms to be negotiated by the District Valuer”. This can only mean that the District Council was acknowledging its agreement to the discharge of the 2007 covenant. The agreement here is analogous to those cases where a contract for the sale of goods has been held to be binding even though no price had been agreed between the parties. A similar approach had been adopted by the Tribunal in exercising its jurisdiction under section 84(1)(b) – for example, in Re Cornick’s Application. In that case it was quite clear that, if the application on ground (b) had not succeeded, the objector could have held out for whatever sum he wanted rather than leaving the issue of compensation to be decided by the Tribunal. The facts there were not materially different from this case.

(3) The District Council’s attitude as local planning authority to the redevelopment of the Mount Road Industrial Estate is significant. In exercising its planning functions the District Council encouraged the applicant to apply for planning permission for the site’s development for housing. Given that the 2007 covenant prevents such development, the applicant could reasonably infer that the District Council would agree to this restriction being discharged. The applicant’s correspondence with the District Council as local planning authority in 2009 and 2010 was part of the context for what followed in 2011.

44. For the District Council Mr Weekes submitted:

(1) Mr Upton’s argument is ill-founded. It is based on a misinterpretation of section 84(1)(b). The applicant’s contention seems to be that, for the purposes of ground (b), a person with the benefit of a restriction will have agreed to its being discharged if he has said he would release the restriction so long as an agreement could be reached on the consideration to be paid in return, even if, after negotiations, no such agreement has emerged. This cannot be right. The applicant’s understanding of ground (b) does not reflect the true meaning of an agreement for the discharge of a restrictive covenant.

(2) If the applicant’s interpretation of that provision were to be accepted, the general policy of encouraging parties to resolve their disputes by negotiation, and in without prejudice correspondence, would be undermined. Anyone with the benefit of a restrictive covenant would be discouraged from entering into negotiations for its removal, because, if he showed he was willing to release the restriction provided terms for its release could be agreed, he would find himself exposed to an award of statutory compensation. It is as important now as ever it was that parties should not be discouraged from resolving their differences by negotiation. And this point has particular resonance where section 84(1) of the 1925 Act is concerned. The applicant’s construction of subsection (1)(b), if endorsed by the Tribunal, would discourage negotiation, contrary to a central purpose of section 84 – to free land from the burden of restrictions so that socially useful developments may be carried out.

(3) None of the Tribunal’s decisions on ground (b) helps the applicant. On the contrary, those decisions emphasize the importance of without prejudice negotiations, and the reluctance of the Tribunal to investigate what parties have said and written to each other under the protection of privilege. In this case the parties are content for the Tribunal to look at their without prejudice correspondence. But one must not forget that the correspondence was protected by privilege. In without prejudice negotiations parties may reasonably be expected to be less circumspect in the language they use. They are entitled to some latitude in the way they express themselves.

(4) When one looks in that light at the whole of the relevant correspondence in this case, one cannot take from it an agreement of the kind envisaged in section 84(1)(b). This case is comparable to Re Graham’s Application. The applicant is trying to impute agreement to the District Council when this cannot be seen in anything it has said or done. The District Council never said it was prepared to release the restriction in the 2007 covenant if, in doing so, it was to be limited to statutory compensation determined by the Tribunal. It went no further than agreeing to negotiate for the release of the restriction. The negotiations came to nothing. The prerequisite for the District Council’s agreement to the 2007 covenant being discharged was an agreed valuation. But the parties could not agree on valuation, or how much the District Council ought to be paid for the release of the restriction. So the District Council could not and did not consent to the 2007 covenant being discharged. There was no agreement. This case clearly does not fall within section 84(1)(b).

Discussion

45. The Tribunal’s power to discharge or modify a restrictive covenant under section 84(1)(b) is widely drawn. What is required is agreement to the discharge or modification of the restriction by the party or parties for the time being entitled to the benefit of it. The concept of agreement is not statutorily defined. But, as is clear from the provisions of subsection (1)(b), the concept is a broad one. It is not confined to a formal written agreement embodied in a contract or a deed. Agreement by word of mouth is possible. Indeed, words need not be used at all. Agreement may come about either in bilateral conduct or in unilateral action, or by default. In some cases it may be no more than acquiescence. The subsection embraces agreement either express or “by implication”. Agreement by implication can take the form of either “acts or omissions”. This would include a failure to act in such a way as to assert the benefit of a restriction effectively or unequivocally. Agreement may be found in evidence of a restriction being disregarded or left unenforced (see, for example, Re Child Brothers Ltd’s Application).

46. Consent to a discharge or modification need not extend to the parties agreeing as to the amount of compensation or simply that it will be paid. The statutory scheme leaves the question of compensation ultimately in the hands of the Tribunal. The corollary, however, is that if the parties only agree what a mutually acceptable level of compensation would be were the restriction to be lifted or changed, this will not equate to consent to the discharge or modification itself.

47. The essential thing in section 84(1)(b) is that those entitled to the benefit of the covenant have clearly demonstrated their consent to the restriction being removed or varied.

48. To find whether this has been done the Tribunal must examine all the relevant facts.

49. Efforts to persuade the benefited parties to agree, even persistent efforts in the course of a lengthy negotiation, may not result in agreement (see, for example, Re Robinson’s and O’Connor’s Application and Re Cornick’s Application). The question for the Tribunal is not whether the applicant wants to be rid of a restriction that prevents him from dealing with the burdened land in the way he would wish – it being obvious that this is precisely what he wants – but whether the benefited parties have in fact consented to the discharge or modification. The Tribunal should hesitate before accepting what an applicant says about a particular passage in correspondence between himself and the benefited parties, or about a particular act or failure to act on their part. The test is objective. A case in point is Re Graham’s Application, where the line was drawn between agreement being imputed to an objector by an applicant and its being fairly inferred from what the objector had actually done. That distinction is apt.

50. Section 84(1)(b) requires the Tribunal to be “satisfied” that agreement has been reached. This sets the Tribunal a somewhat different task from judging “changes in the character of the property or the neighbourhood …” (under subsection (1)(a)), or whether the restriction, if maintained, would “impede some reasonable user of the land for public or private purposes” (under subsections (1)(aa) and (1A) and (1B)), or whether the proposed discharge or modification would “injure the persons entitled to the benefit of the restriction” (under subsection (1)(c)).

51. Every case of this kind will turn on its own particular facts. The decisions cited in the course of argument here show this to be so. In each case the circumstances were different.

52. With those general thoughts in mind I turn to the facts of this case.

53. The first thing to be said about the parties’ negotiations here is that they were conducted in “without prejudice” correspondence.

54. Generally, of course, such correspondence is not admissible in evidence. It is protected by privilege (see, for example, in a case of a contested reference in the Tribunal, the decision of the Court of Appeal in South Shropshire District Council v Amos [1986] 1 W.L.R. 1271, per Parker L.J. at p.1276D to p.1278A). When the privilege exists, it covers not only the initial letter or letters bearing the words “without prejudice” but the whole chain of communication that follows unless the chain is broken and the ensuing correspondence is open (see India Rubber, Gutta Percha and Telegraph Works Co Ltd v Chapman (1926) 20 BWCC 184, C.A.). The contents of “without prejudice” communications may be admitted when the parties have come to a binding agreement (see Rush & Tompkins Ltd v Greater London Council [1989] AC 1280), or to enable the court to decide whether such an agreement has been reached (see Tomlin v Standard Telephones and Cables Ltd [1969] 3 All E.R. 201). The privilege may be waived, but only with the consent of both sides.

55. In Framlington Group Ltd v Barnetson [2007] EWCA Civ 502 Auld L.J. said (in paragraphs 23 and 24 of his judgment) that the “without prejudice” rule may have two main legal bases, the first being one of public policy, “namely, to encourage those in dispute to settle their differences without recourse to or continuation of litigation”, the second contractual, “where the parties agree expressly or impliedly that it should apply”. Auld L.J. recalled (in paragraph 26) the decision of the House of Lords in Rush & Tompkins, where (at p.1299E-F) Lord Griffiths had described the rationale of the “without prejudice” rule as being “founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to a finish”. The tenor of relevant decision-making in the Tribunal has been consistent with the public policy interest to which Auld L.J referred (see, for example, Re Hopcraft’s Application and Re O’Reilly’s Application).

56. In this case the parties have agreed that the Tribunal should consider their correspondence for the purposes of ascertaining whether an agreement within the meaning of section 84(1)(b) was reached (see Unilever Plc v Procter & Gamble Co [2000] 1 WLR 2436, per Robert Walker L.J., as he then was, at p.2441H to p.2446D). Nevertheless, as Mr Weekes submitted, the Tribunal must remember that statements made in negotiations carried on under the protection of privilege may be less guarded and sometimes, perhaps, less precise than statements made in open correspondence. This is consistent with the overarching public policy to which I have referred: that parties should not be inhibited from settling their differences without fear of prejudice if the dispute between them hardens into litigation.

57. And in any case of this kind, if the Tribunal is considering what the parties have written to each other in the course of negotiation, it must always read the relevant correspondence in its entirety, rather than selected short passages whose true meaning may not be apparent unless the context is grasped. One must take care not to isolate a sentence or phrase from its context, or to fix on particular expressions used in without prejudice correspondence with the exegetical rigour one might have to apply in construing a statute or contract.

58. Did an agreement to the discharge or modification crystallize here? I do not believe it did. I cannot accept Mr Upton’s argument, ably presented though it was. The submissions made by Mr Weekes seem to me sound. I do not discern in the correspondence before me an agreement by the District Council to the restriction in the 2007 covenant being removed or relaxed.

59. The nature of the negotiations in this case, from the outset, was clear. This was a without prejudice discussion of a possible transaction. The transaction would have involved the 2007 covenant being discharged or modified to allow a housing development to go ahead on the restricted land. But this was only going to happen if the parties could first agree how much consideration was to pass from one to the other. In truth, they were negotiating about the amount of money the applicant would have to pay to the District Council to enable it to accede to the restriction being undone. That payment, if it was to be agreed, would have to be based on a valuation. The District Council’s responsibilities as owner of the benefited land were different from its duties as local planning authority. Whatever its view as a planning authority might be, as a landowner it would only have been prepared to dispense with the restriction if satisfactory terms, supported by Mr Wilkinson could be settled with the applicant. This was its position in the correspondence. As Mr Brown made plain in his e-mail of 18 July 2011 to Mr Lindley, “any release” of the restriction was going to have to be “determined by a qualified valuer”. Otherwise the interests of Council Tax payers in the District Council’s area would not be protected. This is why the District Council asked Mr Wilkinson to negotiate with the applicant on its behalf. It hoped for an arrangement that suited both parties. But terms on which it could consent to release the restriction were never agreed. As the correspondence shows, the parties were always divided on the fundamental issue between them – the appropriate valuation basis for an agreement. This impasse was not overcome. The parties remained at odds. No agreement sufficient to satisfy section 84(1)(b) ever came into effect.

60. The reality of these negotiations, in all three phases, was that the District Council was never prepared to consent to the discharge or modification of the 2007 covenant regardless of the amount of money it would receive for agreeing to do so, or on the understanding that, if the parties could not agree terms, the appropriate level of compensation would then have to be decided by the Tribunal under section 84. It is true that, when an application under section 84 comes to the Tribunal, the issue of what “consideration” should be awarded for the discharge or modification of a covenant follows upon a determination that the covenant in question is to be discharged or modified. But this does not mean that before an application is made, or even after it has been, the parties are bound to negotiate in two distinct stages. In this case the District Council did not treat the principle of releasing the 2007 covenant as a matter separate from the question of compensation, to be discussed and resolved on its own. Its stance was that these two questions were, indivisibly, the subject of the negotiations it was willing to have. At no point did it commit itself to letting the restriction go.

61. I acknowledge, of course, that in Mr Brown’s correspondence with Mr Lindley and Charles Russell, and in particular in his e-mails of 18 July 2011 and 22 August 2011, one does not find expressions such as “provided that” or “subject to” in the references to the District Council being prepared to agree to release the restriction. Mr Brown put the District Council’s position in different words – in the two letters I have just mentioned, “with the terms being as negotiated by the District Valuer” and “on terms to be negotiated by the District Valuer”. But, when viewed in the context of the correspondence as a whole, what Mr Brown was saying is clear. I do not accept that in those letters, or anywhere else in the correspondence I have seen, he was articulating the District Council’s consent to the discharge or modification of the 2007 covenant. On the contrary, as he explains in paragraph 7 of his witness statement, he was maintaining the District Council’s willingness to consent only if the applicant agreed to pay “acceptable compensation”. I do not think this evidence shows the District Council resiling from an agreement to release the restriction. It serves only to confirm what is shown by the correspondence the parties have put before the Tribunal, which is that there is, and was, no such agreement.

Conclusion

62. For the reasons I have given, my decision on the preliminary issue is that there has not been agreement between the parties for the purposes of section 84(1)(b) of the Law of Property Act 1925.

63. A letter concerning costs accompanies this decision, which will become final when the question of costs is determined.

Dated 28 May 2013

Sir Keith Lindblom, President

Addendum on costs

64. The District Council has applied for its costs of the preliminary issue. It contends that costs should follow the event. It says it had to do what it did to protect its proprietary rights, and did so as a public authority and custodian of the public interest. It says it has acted reasonably throughout in objecting to the applicant’s application. The applicant has not opposed the application for costs, and indeed I cannot see how it sensibly could. In my view, the District Council should have its costs. I therefore order that the applicant must pay the District Council’s costs of the preliminary issue, such costs, if not agreed, to be the subject of detailed assessment by the Registrar.

Dated: 31 July 2013

Sir Keith Lindblom, President

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You are here: BAILII >> Databases >> United Kingdom Upper Tribunal (Lands Chamber) >> Clearwater Properties Ltd, Re Land and Buildings on the West side of New Road Burntwood, Re [2013] UKUT 210 (LC) (28 May 2013) URL: http://www.bailii.org/uk/cases/UKUT/LC/2013/LP_25_2011.html Cite as: [2013] UKUT 210 (LC)

United Kingdom Upper Tribunal (Lands Chamber)