Sale of land — Contract — Benefit and burden — Land in ownership of third parties — Vendor contracting to buy from third parties and assigning rights under contracts to purchaser — Purchaser retaining part of sale price pending completion of works under terms of assigned contract — Purchaser subsequently failing to pay balance — Whether third party entitled to recover retention moneys — Whether purchaser bound to observe vendor’s obligations under assigned contract as burden appurtenant to benefit received
By a written contract, the second defendant agreed to purchase certain freehold land and buildings from the first defendant, who did not, at the relevant time, own them; the greater part of the land was vested in the claimants, and the remainder of it in another party. Accordingly, the first defendant contracted to buy the land from the owners and assigned his right, title and interest in both contracts to the second defendant. The sales were completed in August 2000 by transfers from the claimants and the other owner direct to the second defendant, and the payment by the second defendant of the respective sums due to them. The transfers were duly registered at the Land Registry.
The sale contract for the claimants’ land had specified a purchase price of £660,000 but, by a retention clause, provided for the purchaser to carry out certain “Purchaser’s Works” and to retain £100,000 of the purchase price until those works were completed. Thereafter, the purchaser was entitled to keep one-half of the proper costs of those works out of the retention, with any balance to be released to the claimants. The purchaser’s works were completed in June 2001, however, the second defendant failed to pay any part of the retention to the claimants. The claimants maintained that the proper cost of the purchaser’s works was £30,000, whereas the second defendant claimed to have spent more than £200,000 on them.
In proceedings against the second defendant for the recovery of the retention moneys, a preliminary issue was tried as to whether those moneys were subject to a trust or fiduciary duty requiring the second defendant to hold or release them on the terms of the retention clause, or, if not, whether the second defendant was bound by some other, and if so what, duty to observe the said terms. The trial judge rejected any finding of a trust or fiduciary duty. However, he held that, in the light of the clear understanding in August 2000 that the benefit of the contract would be given to the second defendant, the latter was bound to observe the terms of the retention clause as a burden appurtenant to the benefit that it took. The second defendant appealed on the latter point.
Held: The appeal was allowed. (1) For a party to be bound under the doctrine of benefit and burden, the benefit and burden must be conferred in or by the same transaction. In the case of benefits and burdens in respect of land, it is almost inevitable that the transaction will be effected by one or more deeds or other documents. Further, the receipt or enjoyment of the benefit must be relevant to the imposition of the burden, in that the former is conditional on, or reciprocal to, the latter. Whether that requirement is satisfied will be a question of construction of the deeds or other documents where the question arises in the case of land, or, in other cases, the terms of the transaction, if not reduced to writing. In each case, it will depend on the express terms of the transaction and any implications to be derived therefrom. Moreover, the party on which the burden is alleged to have been imposed must have had the opportunity of rejecting or disclaiming the benefit. (2) Applying those principles, the second defendant was not bound by the burden of the retention clause. A “clear understanding” can neither confer benefits nor impose burdens; a transaction having legal effect is required. Since the benefit and burden in the instant case were alleged to arise from land, the relevant transaction had to be effected by a deed or other document. Although the deed of assignment, assigning the first defendant’s rights under the contract to the second defendant, was a transaction having legal consequences, the benefit that the second defendant derived from that assignment was not made conditional on it performing and observing the substantial obligations of the first defendant to carry out site works under that contract. Nor did any relevant obligation arise from the completion of the sales in August 2000. Completion of the contract was not dependent on the second defendant undertaking any of the burdens imposed on the first defendant under the retention clause and no stipulation required the second defendant to perform and observe them. The retention clause was contractually binding on the first defendant and, in the absence of a covenant in the transfer binding the second defendant to perform and observe the vendor’s obligations under that clause, those obligations remained the first defendant’s alone.
The following cases are referred to in this report.
Aspden v Seddon (1876) LR 1 Ex D 496, CA
Baybut v Eccle Riggs Country Park Ltd [2006] WL 3206169
Elliston v Reacher [1908] 2 Ch 665, CA
Halsall v Brizell [1957] Ch 169; [1957] 2 WLR 123; [1957] 1 All ER 371
IDC Group Ltd v Clark [1992] 1 EGLR 187; [1992] 08 EG 108
Jenkins v Young Brothers Transport Ltd [2006] EWHC 151 (QB); [2006] 1 WLR 3189; [2006] 2 All ER 798
Lidl UK GmbH v Davies [2008] EWCA Civ 976
Rhone v Stephens (executrix) [1994] 2 AC 310; [1994] Ch 310; [1994] 2 WLR 429; [1994] 2 All ER 65; [1994] 2 EGLR 181; [1994] 37 EG 151, HL
Thamesmead Town Ltd v Allotey (2000) 79 P&CR 557; [1998] 3 EGLR 97; [1998] 37 EG 161; (1998) 30 HLR 1052, CA
Tito v Waddell (No 2) [1977] Ch 106; [1977] 2 WLR 496; [1977] 3 All ER 129
Westhoughton Urban District Council v Wigan Coal & Iron Co Ltd [1919] 1 Ch 159, CA
This was an appeal by the second defendant, Lidl UK GmbH, from a decision of HH Judge Jarman QC, sitting as a High Court judge, deciding a preliminary issue in proceedings by the claimants, David Davies and Rachel Davies, for the recovery of moneys retained from the purchase price under a contract for the sale of land.
Jeffrey Littman (instructed by Charles Crookes, of Cardiff) represented the claimants; Jeremy Child (instructed by Clarke Willmott LLP, of Birmingham) appeared for the second defendant. |page:68|
Giving judgment, Sir Andrew Morritt CVO said:
Introduction
[1] By a contract in writing dated 21 June 1999 (the Jones-Lidl contract), the first defendant, Mr Jones, contracted to sell to the second defendant, Lidl, freehold property, comprising land and buildings to the northwest of Perrotts Road, Haverfordwest, for £795,000 (subsequently increased to £898,743). At the time, the freehold of that land was vested for the most part in the claimants, as trustees of a retirement benefit scheme, and to a lesser extent in a Mr and Mrs Thomas. On the same day, Mr Jones contracted to buy from Mr and Mrs Thomas the part vested in them (the Jones-Thomas contract) for £180,000. Four months later, on 20 October 1999, Mr Jones contracted to buy the major part from the claimants (the Jones-trustees contract) for £660,000. By a deed of assignment dated 3 August 2000 (the deed of assignment), Mr Jones assigned to Lidl his right, title and interest in both the Jones-Thomas contract and the Jones-trustees contract. Both were completed on 4 August 2000 by transfers from Mr and Mrs Thomas and from the claimants direct to Lidl and the payment by Lidl to the claimants, Mr and Mrs Thomas and Mr Jones of the respective sums due to them.
[2] Clause 18 of the Jones-trustees contract related to the “Purchaser’s Works”, which had been defined in clause 14.1 as the ground clearance and site preparation works described in the annexed specification. Clause 18 provided that:
18.1 On completion the Purchaser [Jones] shall retain the sum of £100,000 from the purchase monies (“the Retention”) payable to the Vendor [the claimants] until the outstanding works shall have been completed by the Purchaser [Jones]
18.2 The Purchaser [Jones] will at the joint expense of the Vendor and the Purchaser forthwith following the completion date commence and diligently proceed to complete the outstanding works…. and shall complete the same… in any event within the period of three months following the completion date unless prevented from doing so by matters outside his reasonable anticipation and control.
18.3 Following completion of the outstanding works within the said period the Purchaser shall be entitled to retain one half of the proper costs of so doing from the retention with any balance then being released to the Vendor [the claimants].
[3] Lidl retained the sum of £100,000 from the money due by Mr Jones to the claimants on completion of the Jones-trustees contract. The transfers from Mr and Mrs Thomas and from the claimants to Lidl were duly registered at HM Land Registry on 29 September 2000. The purchaser’s works as defined in the Jones-trustees contract were completed by 30 June 2001 at the latest but Lidl failed to pay any part of the retention to the claimants. The claimants contend that the proper cost of those works was £30,000; Lidl claims to have spent in excess of £200,000 in completing them.
[4] These proceedings were instituted by the claimants on 18 October 2005 against both Mr Jones and Lidl seeking the recovery of £100,000 from one or other of them. As against Mr Jones, they were summarily dismissed by Wyn Williams J on 7 January 2008. He also gave the claimants permission to amend their claim against Lidl in some but not all the respects they wished. His decision was upheld by the Court of Appeal on 10 July 2008. The pleadings were duly amended and the claim was fixed for hearing before HH Judge Jarman on 5 and 6 May 2009. An application to adjourn the trial was made to Judge Jarman QC on 27 April 2009 on the basis that necessary expert evidence could not be ready in time. He acceded to that application but, so that the time set aside for the trial should not be wasted, he directed the trial of the following preliminary issue:
Is the sum of £100,000… subject to a trust and/or fiduciary duty to hold and, as appropriate release, the same on the terms set out in clause 18 of the contract dated 20th October 1999 between the claimants and the first defendant [Jones]?
[5] The trial of that preliminary issue came before Judge Jarman on 5 May 2009. Counsel for the claimants then contended that the preliminary issue was too narrow and should be extended to include the question:
or is [Lidl] bound by some other, and if so what, duty to observe the said terms.
The extension of the preliminary issue was opposed by counsel for Lidl on the grounds that such a question did not reflect an issue raised by the pleadings, such issue would constitute the addition of a new claim by then barred by the Limitation Act 1980 (the 1980 Act), such new issue did not arise from the same or substantially the same facts as the existing claims and, in any event, was raised too late. The judge was conscious of the fact that the extension would raise a new point and adjourned the hearing to the following day to enable counsel for Lidl to prepare his submissions, but he allowed the extension of the preliminary issue sought by counsel for the claimants.
[6] The judge heard argument on the extended preliminary issue on 6 May 2009 and gave judgment the same day. He determined the original preliminary issue in favour of Lidl but the additional issue that he had allowed the day before in favour of the claimants. In that respect, he concluded that:
there was a clear understanding that on the 3rd or 4th August, the rights of Mr Jones under his contract with the trustees would be given to Lidl. There was a clear benefit to them of that operation. It gave them the likelihood of completion without going through the intermediary of Mr Jones and being left perhaps with a worthless judgment in damages. There was a clear practical benefit to them. It seems to me that they did have a choice whether to take that benefit or not. That was the basis of the correspondence between the parties’ solicitors from July. They had a choice to continue the sub purchaser arrangement. They had no need, from a legal point of view, to deal directly with the trustee’s solicitors but that they did. They did so, in my judgment, because they were concerned to have completion sooner rather than later. Having taken the benefit of that arrangement, in respect of the contract in question, in my judgment, they are bound by the burden under it to pay the £100,000 if and in the event it is found the conditions for such payment have been complied with.
The judge declared that:
[Lidl] is bound by a duty to obseve the said terms [sc those set out in clause 18 of the Jones-trustees Contract] as a burden appurtenant to the benefit it took under the same contract.
[7] Lidl now appeals with the permission of Carnwath LJ. It does so on the grounds that the judge was wrong to have:
(1) allowed the extension of the preliminary issue; and
(2) concluded that Lidl was bound by the terms of clause 18.3 of the Jones-Lidl contract.
I propose to deal first with the second of those issues. However, before I do so, I should set out the facts in somewhat greater detail.
Facts
[8] The land that Lidl acquired had been the site of a garage. Lidl proposed to use it as the site for a supermarket. Thus, it was necessary to remove the garage buildings and fittings and clear the site. The garage premises and other buildings were to be removed by the claimants. Site clearance and preparation works were to be effected by Mr Jones. Provision was made in the Jones-Thomas contract for certain fencing and other works. In the Jones-Lidl contract, clause 14 contained provisions comparable to clause 18 of the Jones-trustees contract. Thus, the vendor, Mr Jones, contracted to commence after the completion date and within three months complete the site preparation work indicated in the definition of the vendor’s works. On completion, the purchaser, Lidl, was to be entitled to retain £100,000 from the purchase price until completion of those works to its reasonable satisfaction. If the works were not so completed, the purchaser, Lidl, might carry them out and retain the proper costs of so doing from the retention. Although similar, the provisions of clause 14 of the Jones-Lidl contract were not the same as those of clause 18 of the Jones-trustees contract; under the former, Lidl might reimburse itself for the entirety of the cost of carrying out the works, under the latter, it could retain only one-half of such cost.
[9] On 19 October, namely the day before the conclusion of the Jones-trustees contract, there was an agreement between Mr Jones and |page:69| Lidl (the supplemental agreement) whereby the price payable by the latter was increased to £898,743. In addition, Mr Jones agreed to use his reasonable endeavours to procure that the property was transferred to Lidl direct by way of subsale. As I have already indicated, the Jones-trustees contract was exchanged on 20 October 1999. It provided for a deposit of £30,000 in addition to the retention of the £100,000 on the terms that I have quoted in [2] above. The garage premises and other buildings were excluded from the sale and the claimants were entitled within three months after completion to enter on the land and remove them.
[10] In July 2000, solicitors for all four parties, namely Mr and Mrs Thomas, the claimants, Mr Jones and Lidl corresponded in respect of completion of the various contracts. On 13 July 2000, the solicitor for Mr Jones sent a draft transfer in respect of the land vested in the claimants to their solicitor together with requisitions on title and a completion statement showing that £630,000 was due to the claimants on completion, namely the price less the deposit already paid. It pointed out that the draft transfer was in favour of Lidl and trusted that the claimants would be prepared to transfer the land direct to Lidl. On 19 July 2000, the solicitor for the claimants confirmed to one for Mr Jones that its clients had no objection to transferring the land direct to Lidl. On 2 August 2000, the solicitor for Lidl indicated to the solicitor for the claimants that, as agreed with the solicitor for Mr Jones, it would forward the completion moneys due to the claimants direct to their solicitor against the latter’s undertaking to forward the transfer and deeds direct to the solicitor for Lidl. On 2 August 2000, the solicitor for Lidl wrote to that for the claimants noting that it had not been able to make the necessary arrangements for completion but had transferred the balance of the completion moneys to it on the basis that the latter would hold them to its order.
[11] The deed of assignment, to which I have referred, was made between Mr Jones and Lidl on 3 August 2000. In addition, following the assignment of the benefit of the Jones-Thomas and Jones-trustees contracts by Mr Jones to Lidl, it was agreed between them that the Jones-Lidl contract and the supplemental agreement were thereby determined and ceased to have effect. At 3pm on that day, Lidl paid £660,000 to the claimants’ solicitor, as it had promised the previous day that it would. The claimants duly executed the relevant transfer to Lidl, which was forwarded to its solicitor under cover of a letter dated 7 August. On 4 August, the claimants’ solicitor repaid to the solicitor for Lidl £130,000, being the aggregate of the deposit and the retention. Comparable arrangements were made with the solicitor for Mr and Mrs Thomas, but they are not relevant to anything that we have to decide. Thus, the claimants and Mr and Mrs Thomas received the money due to them respectively by Mr Jones and the difference between what Mr Jones was liable to pay to them and entitled to receive from Lidl, namely £58,743, was paid or accounted for by Lidl to Mr Jones.
[12] On 25 September 2000, Lidl was registered as the proprietor of the freehold of the land acquired from the claimants and Mr and Mrs Thomas respectively under two different title numbers. Whether Mr Jones ever attempted to execute the works for which both the Jones-trustees contract and the Jones-Lidl contract provided is unclear. They were completed by contractors engaged by Lidl on or before 30 June 2001. Lidl kept the entirety of the £100,000 retention. The claimants deny that they are entitled to retain any part of it. In any event, they contend, the proper cost of the works was only £30,000.
Proceedings
[13] The claim form was issued on 18 October 2005, one or two days short of six years from the date of the supplemental agreement and the Jones-trustees contract. In their particulars of claim served on 13 February 2006, the claimants relied on the provisions of clause 18 of the Jones-trustees contract. They asserted that Mr Jones had entered into it as agent for Lidl. They claimed against Lidl, alternatively, Mr Jones, £100,000 being the retention sum or that sum less one half of the proper cost of the outstanding works or damages for breach of contract. In its defence served on 12 March 2006, Lidl denied that Mr Jones was its agent. It asserted that it was not a party to the Jones-trustees contract and was not liable to the claimants thereunder.
[14] In the light of that defence, and a comparable one from Mr Jones, the claimants sought permission to amend so as, among other things, to add claims against Lidl for breach of trust, knowing receipt of trust property, namely the £100,000 retention, and knowing assistance in a breach of trust. By then, more than six years had elapsed since the outstanding works had been completed so that section 21 of the 1980 Act applied and CPR 17.4(2) was engaged. Wyn Williams J gave permission to amend in respect of the trust claims and his decision in that respect was upheld by the Court of Appeal in July 2008, see Lidl UK GmbH v Davies [2008] EWCA Civ 976.
[15] The particulars of claim were duly amended and reserved on 7 January 2008 to reflect the trust claims for which permission had been granted. They did not include any claim to the effect that Lidl was bound by the terms of the Jones-trustees contract because it had taken a benefit thereunder. In para 14, it was contended that even if, which was denied, Lidl could lawfully have held the retention moneys, it had unlawfully continued to retain them both in breach of the terms of clause 18.3 and in breach of trust. In paras 17 and 19, the claimants denied that Lidl was bound by the Jones-trustees contract. In paras 25 and 27 of its amended defence, Lidl admitted and averred that it was not liable on the Jones-trustees contract. In para 2 of their reply dated 4 December 2008, the claimants admitted that Lidl was not party to the Jones-trustees contract and relied on the fact that the claimants were not parties to the deed of assignment.
[16] I have already noted in [4] above that the trust claims raised by the amendments for which Wyn Williams J gave permission were reflected in the original preliminary issue ordered to be tried by HH Judge Jarman QC on 27 April 2009. He concluded on 6 May 2009 that the sum of £100,000 was not subject to a trust or fiduciary duty and so declared. The claimants have not sought to appeal against that declaration. It is in those circumstances that the claim made by the claimants in the extended preliminary issue is the only remaining cause of action. I will, in due course, consider whether the judge was right to allow the preliminary issue to have been extended in the manner that I have described, but, first, I will consider whether the judge gave the correct answer to it.
Is Lidl bound by the terms of clause 18 of the Jones-trustees contract because it took a benefit under that contract?
[17] Having set out the facts and having dealt with the trust issues Judge Jarman QC dealt with this issue in [20] to [23] of his judgment. In his consideration of it, he referred to the speech of Lord Templeman in Rhone v Stephens (executrix) [1994] 2 AC 310*, and thereby indirectly to Halsall v Brizell [1957] Ch 169 and Tito v Waddell (No 2) [1977] Ch 106. He also referred to the judgment of HH Judge Pelling QC in Baybut v Eccle Riggs Country Park Ltd 2 November 2006 [2006] WL 3206169 but not to the judgment of Peter Gibson LJ in Thamesmead Town Ltd v Allotey (1998) 30 HLR 1052† or Sir Nicolas Browne-Wilkinson V-C in IDC Group Ltd v Clark [1992] 1 EGLR 187.
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* Editor’s note: Also reported at [1994] 2 EGLR 181
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† Editor’s note: Also reported at [1998] 3 EGLR 97
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[18] I have quoted the judge’s conclusion in [7] above. It is criticised by counsel for Lidl on the following grounds:
(1) the “clear understanding” to which the judge referred is an insufficient basis for conferring a benefit or imposing a burden;
(2) the benefit that Lidl did obtain under either the deed of assignment or the transfer of the land was, in each case, unconditional;
(3) its benefit having been obtained on the execution of the deed of assignment and transfer, thereafter Lidl had no choice whether to accept it;
(4) in any event, the corresponding burden cannot be enforced by action on the contract.
[19] I did not understand counsel for the claimants to place much, if any, emphasis on the “clear understanding” to which the judge referred. Rather, he pointed to the deed of assignment as the source of Lidl’s |page:70| rights. Not only did it contain an assignment by Mr Jones to Lidl of the benefit of the Jones-Thomas and Jones-trustees contracts but it provided for the discharge of the Jones-Lidl contract. Accordingly, this case is not a conventional subpurchase. I would accept that submission. Thus, the rights of Lidl were derived successively from the deed of assignment and the transfers executed on completion by the claimants and Mr and Mrs Thomas. The receipt of the benefit of the assignment by the subsequent transfers was conditional on Lidl’s performance of the obligations of Mr Jones under the Jones-Thomas and Jones-trustees contracts. Counsel for the claimants then contended that such conditionality was sufficient to impose on Lidl the burden of complying with the provisions of clause 18 of the Jones-trustees contract. In addition, he submitted that if the conditions for the imposition of the burden on Lidl existed, it must be open to the claimants to enforce that burden by action, if only by way of a claim for unjust enrichment.
[20] I turn then to the decided cases. The origin, in modern times, for the application of the doctrine of benefit and burden is the judgment of Upjohn J in Halsall. That case concerned the enforceability of a deed of covenant entered into by the owners of building plots in a development in Liverpool against the successors in title of the original covenantors. The owners of the plots for the time being enjoyed the benefit of the roads and sewers constructed as part of the development and, on behalf of themselves and their successors in title, had covenanted with the trustees to pay part of the cost. Some houseowners, being successors in title to the original covenantors, refused to pay an increased contribution and the trustees and other houseowners applied to the court to determine whether on the true construction of the deed and in the events that had happened the trustees were entitled to require the houseowners to pay the contributions that they claimed.
[21] It was conceded in argument in response to a question from the judge that there was a rule that one who accepts the benefit of a deed must also accept the burden of it: see p180. At p182, Upjohn J observed that it was plain that the defendants could not be sued on the covenants contained in the deed because the covenant to pay was positive, aspects of it infringed the rule against perpetuities and because the parties before him were not parties to the original contract. He then considered the foundation of the doctrine of benefit and burden, as formulated in Coke on Littleton, at p230b, and applied in Elliston v Reacher [1908] 2 Ch 665, at p669, and concluded, at pp182-183:
If the defendants did not desire to take the benefit of this deed, for the reasons I have given, they could not be under any liability to pay the obligations thereunder. But, of course, they do desire to take the benefit of this deed. They have no right to use the sewers which are vested in the plaintiffs, and I cannot see that they have any right, apart from the deed, to use the roads of the park which lead to their particular house, No 22, Salisbury Road. The defendants cannot rely on any way of necessity or on any right by prescription, for the simple reason that when the house was originally sold in 1931 to their predecessor in title he took the house on the terms of the deed of 1851 which contractually bound him to contribute a proper proportion of the expenses of maintaining the roads and sewers, and so forth, as a condition of being entitled to make use of those roads and sewers. Therefore, it seems to me that the defendants here cannot, if they desire to use this house, as they do, take advantage of the trusts concerning the user of the roads contained in the deed and the other benefits created by it without undertaking the obligations thereunder. Upon that principle it seems to me that they are bound by this deed, if they desire to take its benefits.
[22] In Tito, Sir Robert Megarry V-C considered the principle applied by Upjohn J in Halsall, at pp299-303. He concluded, at p302, that the “pure principle” of benefit and burden was distinct from a conditional benefit or the annexation of a burden to property. In Rhone, the House of Lords disapproved of the pure principle as enunciated by Sir Robert Megarry but cast no doubt on his comment, at p302, that whether an instrument or transaction has created a conditional benefit or a burden annexed to property depends on the proper construction of the instrument or transaction in question.
[23] In Rhone, a successor in title to the original covenantee sought to enforce a covenant to repair a roof against the successor in title to the original covenantor. Lord Templeman, with whom the other four members of the appellate committee agreed, noted that equity cannot, any more than the law, compel an owner to comply with a positive covenant entered into by his predecessor in title. He then referred to the “pure principle of benefit and burden” enunciated by Sir Robert Megarry V-C and continued, at pp322E-323A:
I am not prepared to recognise the “pure principle” that any party deriving any benefit from a conveyance must accept any burden in the same conveyance. Sir Robert Megarry V-C relied on the decision of Upjohn J in Halsall v Brizell [1957] Ch 169. In that case the defendant’s predecessor in title had been granted the right to use the estate roads and sewers and had covenanted to pay a due proportion for the maintenance of these facilities. It was held that the defendant could not exercise the rights without paying his costs of ensuring that they could be exercised. Conditions can be attached to the exercise of a power in express terms or by implication. Halsall v Brizell was just such a case and I have no difficulty in wholeheartedly agreeing with the decision. It does not follow that any condition can be rendered enforceable by attaching it to a right nor does it follow that every burden imposed by a conveyance may be enforced by depriving the covenantor’s successor in title of every benefit which he enjoyed thereunder. The condition must be relevant to the exercise of the right. In Halsall v Brizell there were reciprocal benefits and burdens enjoyed by the users of the roads and sewers. In the present case clause 2 of the 1960 conveyance imposes reciprocal benefits and burdens of support but clause 3 which imposed an obligation to repair the roof is an independent provision. In Halsall v Brizell the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up the right and saving his money. In the present case the owners of Walford House could not in theory or in practice be deprived of the benefit of the mutual rights of support if they failed to repair the roof.
Thus, Lord Templeman stressed that conditions may be attached to the exercise of a right or power by express terms or by implication, thereby recognising that, as Sir Robert Megarry had considered, the question is one of construction of the relevant instrument or transaction. Even so, as Lord Templeman pointed out, the condition must be relevant or reciprocal to the exercise of the right.
[24] The principle was considered again by the Court of Appeal in Thamesmead. In that case, the successor in title to the original covenantor refused to pay his share of the costs of repairing and maintaining sewers that he had the right to use as appurtenant to his house. The covenantee in which the relevant housing estate was vested sued for their recovery. The defence was that as the defendant had not been a party to the original covenant he could not be liable for the sums claimed. That defence succeeded at first instance and on appeal. Peter Gibson LJ, with whom Hobhouse and Butler-Sloss LJJ agreed, noted that there was an exception to the rule that the burden of a positive covenant does not run with the land in cases where the covenantor may not take the benefit of a transaction without undertaking the burden imposed by it. He referred to Halsall and Rhone. He noted that Lord Templeman had suggested that there were two requirements for that exception to apply, namely: (i) relevance of the burden or its discharge to the exercise of the rights that enable the benefit to be obtained; and (ii) the opportunity to choose whether to exercise the right or, having taken the right, whether to renounce its benefit, as opposed to a choice as to whether to acquire the rights. In respect of those requirements, he concluded, at p1060:
Similarly, it is not possible to enforce every burden in a conveyance by depriving the covenantor’s successors in title of every benefit which he enjoyed under the conveyance. There must be a correlation between the burden and the benefit which the successor has chosen to take. Lord Templeman plainly rejected the notion that taking a benefit under a conveyance was sufficient to make every burden of the conveyance enforceable. Further, there is no authority to suggest that any benefit obtained by a successor in title, once the property has been transferred to him, to enable the enforcement of a burden under the conveyance is sufficient, even if that benefit was not conferred as of right by the conveyance. In my judgment, it cannot be sufficient that the taking of an incidental benefit should enable the enforcement of a burden against a person who has not himself covenanted to undertake the particular burden. Lord Templeman’s reference to rights and power suggests that the successor in title must be able as of right to obtain the relevant benefit. I have already pointed out that not only is there no right conferred on the defendant by the 1988 transfer to use the communal areas but also the plaintiff has no obligation to maintain those areas. |page:71|
[Counsel]’s second argument was that the judge erred in holding that the burden of a positive covenant is enforceable only if and to the extent that a successor in title chooses to exercise the corresponding right. That overstates what in fact the judge did say. He did not use the words “to the extent that”. [Counsel] submits that once a successor in title enters into the transaction by which he takes title he is liable regardless of whether he has actually chosen to enjoy a benefit. He submits that the judge has confused the acquisition of the right with the exercise of the right. He suggests that any other construction would lead to an impractical result requiring the plaintiff to monitor the exercise of rights by persons living in Thamesmead. For my part, I see considerable force in the common sense of that argument, but in the light of the authorities the argument seems to me impossible. As I have already pointed out, in Halsall v Brizell, at 182, Upjohn J was expressing the relevant principle in terms that the successors in title could choose whether or not to take the benefit of the deed. Similarly, in Rhone v Stephens, Lord Templeman in distinguishing Halsall v Brizell, expressed himself in terms which indicated that the successors in title had to have a choice whether to exercise the right or, having taken the right, whether to renounce the benefit. Lord Templeman was not expressing himself in terms that the successors in title had to have a choice whether to acquire the rights at all. Accordingly, I must reject this second argument also.
Thus, Peter Gibson LJ also stressed the need for a correlation between the burden and the benefit the successor in title has chosen to take and his ability to choose whether to take the benefit.
[25] The principle was applied in 2006 in two cases on which counsel for the claimants relied. The first was Jenkins v Young Brothers Transport Ltd [2006] EWHC 151 (QB); [2006] 1 WLR 3189 and the second Baybut. In the former, a solicitor had, in the name of his then firm, entered into a conditional fee agreement with a client. While the litigation proceeded, he moved firms twice. On each occasion, the benefit of the CFA was assigned by the former firm to the subsequent firm. The client was successful and his costs, to be paid by the defendant, were then assessed. The defendant in the action contended that he should not be made to pay the costs due under the CFA after its first assignment because the claimant was not liable to pay them. That contention failed before the costs judge and Rafferty J sitting with assessors. The latter concluded, at p3198C, that the benefit and burden of the CFA might be assigned because:
the benefit of being paid was conditional upon and inextricably linked to the meeting by Girlings of its burden of ensuring to the best of its ability that [the claimant] succeeded.
Plainly an inextricable link between benefit and burden would satisfy the tests formulated in all the earlier cases. That is sufficient for present purposes, although I have some doubt whether the relevant benefit and burden were correctly described.
[26] In Baybut, the purchaser of a caravan park purported to terminate the 10-year licences under which the owners of the various caravans occupied their respective pitches. HH Judge Pelling QC concluded, in [59], that the new owner of the caravan park was subject to the burden of the licences not only because they had been novated but also because:
[he, the purchaser] deliberately chose to take the benefit of the caravan site… and the income stream it represented…. it could not have done so without accepting the burden of the licences entered into as between the claimants and [the former owner].
However, this was said in the context that the sale agreement of the caravan site had contained a covenant by the purchaser with the vendor to perform and observe the future obligations imposed by the licences. Thus, under the sale agreement, the purchaser took the benefit of the licences conditionally on accepting the burdens thereunder. In addition, the principle that one who takes the benefit of a licence to occupy the land granted to another in the form of an income stream, presumably by receiving periodical payments, will be bound by the burden to permit the licence-holder to occupy his pitch is also well known. Both grounds are in accordance with the principles formulated by Lord Templeman and Peter Gibson LJ.
[27] Rhone and Thamesmead are binding on us. They establish a number of propositions the application of which are exemplified in the other cases to which I have referred, namely Halsall, that part of Tito that was not disapproved in Rhone, Jenkins and Baybut. In my view, those propositions are:
(1) The benefit and burden must be conferred in or by the same transaction. In the case of benefits and burdens in respect of land, it is almost inevitable that the transaction in question will be effected by one or more deeds or other documents.
(2) The receipt or enjoyment of the benefit must be relevant to the imposition of the burden in the sense that the former must be conditional on or reciprocal to the latter. Whether that requirement is satisfied is a question of construction of the deeds or other documents where the question arises in the case of land or the terms of the transaction, if not reduced to writing, in other cases. In each case, it will depend on the express terms of the transaction and any implications to be derived from them.
(3) The person on whom the burden is alleged to have been imposed must have or have had the opportunity of rejecting or disclaiming the benefit, not merely the right to receive the benefit.
[28] Applying those propositions to the facts of this case, I conclude that the judge reached the wrong conclusion. First, a “clear understanding”, such as he referred to in the passage from his judgment that I have quoted in [6] above, is an insufficient base from which to start. An understanding such as he described can neither confer benefits nor impose burdens. What is required is a transaction having legal effect. In this case, the benefit and burden is alleged to arise from land. Accordingly, the relevant transaction must be effected by a deed or other document.
[29] In his respondent’s notice and in argument before us, counsel for the claimants placed principal reliance on the deed of assignment. That deed effected a transaction having legal consequences, namely the assignment of the benefit of the Jones-Thomas and Jones-trustees contracts by the claimants to Lidl. However, the benefit derived by Lidl from that assignment was not thereby made conditional, as it might have been, on Lidl performing and observing the obligations of Mr Jones under those contracts. In the absence of a covenant to that effect contained in the deed of assignment, the transaction did not purport to impose any burden on Lidl. Both contracts imposed on Mr Jones substantial obligations to carry out various site works. There is nothing in the deed of assignment from which it would be possible to find by implication an undertaking or requirement imposed on Lidl to carry out Mr Jones’s obligations. Accordingly, the questions of whether acceptance of the benefit was conditional on performance of the burden and whether Lidl had sufficient opportunity to disclaim or reject the benefit do not arise.
[30] The benefit to Lidl might have been realised by assigning the benefit of the contracts to some third-party purchaser. In that event, there could have been no question of Lidl undertaking any burden. However, in all probability, the benefit of the deed of assignment would be realised, as it was, by completing the contracts the benefit of which Lidl had thereby acquired. Completion took place on 4 August and some reliance was put on that transaction by counsel for the claimants. However, in my view, that transaction cannot avail the claimants either. Completion of those contracts was not dependent on Lidl undertaking any of the burdens imposed on Mr Jones by clause 18 of the Jones-trustees contract, indeed, they did not arise until after completion. The relevant transfers did not contain any stipulation requiring Lidl to perform and observe the obligations of Mr Jones under the contracts thereby completed. Accordingly, as with the deed of assignment so with the transfers there is nothing that could be regarded as either expressly or by implication imposing any relevant obligation on Lidl. Again the questions whether receipt of the benefit is sufficiently relevant to or conditional on the imposition of the burden and whether Lidl had sufficient opportunity to disclaim or reject the benefit do not arise.
[31] The fact is that clause 18 of the Jones-trustees contract was contractually binding on Mr Jones. The obligations thereby imposed arose after completion of the contracts. There was no subsequent transaction by which benefits were conferred and burdens imposed capable of attracting the principle relied on. In the absence of a covenant in the transfer binding Lidl to perform and observe Mr Jones’ obligations |page:72| under clause 18 of the Jones-trustees contract they could not be imposed on Lidl but remained the obligations of Mr Jones alone. Mr Jones was originally a party to these proceedings. Why the claim against him was made only on the basis that he was the agent of Lidl is not for us to speculate. For these reasons, I would allow the appeal and, subject to our conclusion on the other issue, set aside the judge’s answer to that part of the preliminary issue and make a declaration in the opposite sense.
[32] In those circumstances, it is unnecessary to consider whether if the burden had been imposed on Lidl it was capable of being enforced by action at the suit of the claimants. However, in the light of counsel’s submissions, I wish to add a few words in respect of it. Counsel for Lidl submitted that the burden could be enforced only by withholding the relative benefit, not by action. He relied on the statement of Upjohn J in Halsall to the effect that it was plain that the trustees could not sue on the covenant. Counsel also relied on the dictum of Sir Nicolas Browne-Wilkinson in IDC, at p190G, that:
The only means of enforcement in a Halsall v Brizell type of case is to prevent the person from enjoying the rights which they seek to enjoy under the document, save upon the terms that they give effect to the positive obligations imposed on them.
[33] It is not hard to envisage situations in which the failure of the person benefitted to perform the associated obligations could satisfy the conditions for a claim in unjust enrichment. Further, I am unclear how that statement can be reconciled with cases dealing with compensation for letting down the surface of land in performance of a right to do so subject to paying the surface owner compensation. In such a case, it seems that the landowner may sue the mineworker for compensation see, for example, the decision of the Exchequer Division in Aspden v Seddon (1876) LR 1 Ex D 496 and of the Court of Appeal in Westhoughton Urban District Council v Wigan Coal & Iron Co Ltd [1919] 1 Ch 159. Further, alternative means of enforcement have been allowed in both Jenkins and Baybut although this point does not appear to have been raised in either of them. It is not, if, as I understand it to be the case, the other members of the court agree with my conclusion so far, necessary to resolve this issue in this case.
Should the judge have allowed the amendment to the preliminary issue so as to raise the benefit and burden issue?
[34] Given, as I understand it to be the case, the other members of the court agree with my conclusions so far, it is unnecessary to deal with this issue. However, in deference to the argument of counsel, I wish to add a few words in respect of it. In [5] and [12] to [15] above, I have described the state of the proceedings at the time the application was made to the judge on 5 May 2009 to enlarge the preliminary issue. Given that it was common ground that Lidl was not bound by clause 18 of the Jones-trustees contract, it plainly required some amendment to the pleadings to raise an issue capable of being formulated into a preliminary issue that Lidl was bound by clause 18 on the grounds sought to be alleged. Since the transfers had been executed on 4 August 2000 and the works completed by 30 June 2001 any such amendment would have been made outside the period permitted by the 1980 Act for any such new claim. Accordingly, the requisite amendment could not be made unless it satisfied the requirements of CPR 17.4(2).
[35] Although counsel for Lidl told us that he had addressed the judge on both the Act and the rule, neither is referred to in the judge’s short judgment given on 5 May. He said:
In my opinion, neither the particulars of claim nor the rather short response to it in the defence properly clarifies the precise issues between the parties. Although the phrase is not happily worded, in my judgment there is just about enough reference in the amended particulars of claim to the second defendants holding monies in breach of the terms of clause 18.2 of the agreement. This, as everyone accepts, is not a matter which raises any new fact. The question is one of law. I do have sympathy with Mr Child who says that after formulation of preliminary issues last week, he has not come prepared to argue that particular point today. But we have two days for hearing of the preliminary issues, it does seem to me having regard to the overriding objective that all outstanding legal points should be addressed by this court during these two days if that can be done without prejudice to the second defendants. In my judgment by dealing with this point tomorrow that should give a reasonable amount of time for Mr Child to address the legal points now raised. That is the course of action I propose to adopt.
[36] The judge was concerned, and rightly so, to avoid a waste of the court’s resources if it was possible to do so. However, in my view, he did not deal adequately with the submissions that counsel told us had been made to him. There were serious points to be considered and determined. First, was an amendment to the particulars of claim needed to justify an enlarged preliminary issue authorised by CPR 17.4(2)? That rule provides that:
The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.
[37] There can be no doubt that the effect of the requisite amendment would be to add a new claim; nor was it in issue that the period of limitation in respect of that claim had expired. Accordingly, the amendment could not be allowed unless the new claim arose out of the same or substantially the same facts as the existing claim. In the passage that I have quoted, the judge considered that no new fact was involved but no proposed amendment had been formulated and, in his judgment the following day, the judge relied on a “clear understanding” that had not been pleaded and was not relevant to any existing claim.
[38] Second, even if the judge had been satisfied that the reamendment to the particulars of claim necessitated by the proposed extension of the preliminary issue was permitted by CPR 17.4(2), he still had a discretion whether to allow it. The claimants had sought to amend their particulars of claim on three previous occasions. On the most recent, in January 2008, Wyn Williams J had refused to allow them to raise other new claims. The judge did not appear to take account of this relevant consideration at all.
[39] Although the judge was right to try to avoid any waste of the court’s resources, I am bound to say that I cannot accept his conclusion. At the very least, he should have insisted on a properly formulated amendment to the particulars of claim. Only then could he have satisfied himself that the amendment to the pleadings, and thereby to the preliminary issue, was permissible under CPR 17.4(2). He was entitled to refuse the application on account of the absence of any properly formulated amendment, the lateness of the application and the fact that earlier similar amendments had been sought and refused.
[40] For these reasons, I consider that the judge’s exercise of his discretion was plainly wrong. However, counsel for Lidl, understandably, did not ask for an adjournment so as immediately to raise the matter with the Court of Appeal. The preliminary issue was extended, argued and determined in the manner that I have described. In my view, the proper answer to the preliminary issue so extended is that for which counsel for Lidl contends. In those circumstances, I see no reason to set aside his order extending the preliminary issue if the alternative is to set aside the declaration that he made and substitute the declaration that Lidl seeks.
Summary of conclusions
[41] In my view, the judge was wrong to have:
(1) allowed the amendment to the preliminary issue; and
(2) made the declaration in answer to that part of the amended preliminary issue that he did.
I would set aside the judge’s declaration that Lidl is bound by a duty to observe the terms set out in clause 18 of the Jones-trustees contract as a burden appurtenant to the benefit that it took under that contract. Instead, I would grant a declaration that Lidl is not bound to observe those terms.
Scott Baker LJ said:
[42] I agree.
Lewison J said:
[43] I also agree.
Appeal allowed.
