Restrictive covenants — Enforcement — Successors in title — Covenant made by transferee with transferor — Covenant restricting use and buildings on garden land — Building plans requiring approval from “the Transferor” — Whether “the Transferor” limited to original covenantee — Whether approval for plans required from successor in title to original transferor — Whether approval of plans could be unreasonably withheld
In 1995, Mr and Mrs H transferred an area of garden land to Mr and Mrs M. This was subject to a covenant by the latter not to use the land other than as a private garden, and not to erect on it any building other than a greenhouse, shed or domestic garage in accordance with plans that had previously been approved in writing by “the Transferor”. The appellants, the successors in title to Mr and Mrs M, wanted to erect a double garage and store. Mr and Mrs H had no objections, but their successors in title, the respondents, who had acquired the adjoining dwelling-house from them, did object. The respondents brought proceedings against the appellants claiming declaratory and other relief. At the trial of four preliminary issues, the county court judge decided that: (i) as was conceded, the respondents had the benefit of the covenant; (ii) the appellants required the consent only of the respondents; (iii) there was no implied term that any such consent as might be required could not be unreasonably withheld; and (iv) the construction and use of the proposed garage and store would involve a use of the land that was prohibited by the covenant. The appellants appealed the decisions on issues (ii) and (iii). With regard to issue (ii), they contended that the expression “the Transferor” referred to Mr and Mrs H only.
Held: The appeal was dismissed in relation to issue (ii) and allowed on issue (iii). The appellants required the consent only of the respondents. The expression “the Transferor” included successors in title, such as the respondents. That was the effect of section 78 of the Law of Property Act 1925, and the express words of annexation made it clear that the benefit was intended to run with the retained land. The approval of plans could not be withheld unreasonably. The concept of “approval” of plans implies at least a process of active consideration. Where a covenant obliged a person to consider plans in good faith, he or she could not refuse approval on grounds that were not contemplated by the covenant. Limitations were placed on the grounds of refusal. Whether the test was “not to be capriciously withheld” or “not to be unreasonably withheld” probably made no practical difference. The court could not substitute its own judgment; it could determine only whether a decision was such that no reasonable covenantee would have refused approval in the circumstances.
The following cases are referred to in this report.
Beechwood Homes Ltd’s application, In re [1994] 2 EGLR 178; [1994] 28 EG 128
Bell v Norman C Ashton Ltd (1956) 7 P&CR 359
Braunstein v Accidental Death Insurance Co (1861) 1 B&S 782
Briggs v McCusker [1996] 2 EGLR 197
Clerical Medical & General Life Assurance Society v Fanfare Properties Ltd unreported 2 June 1981
Crest Nicholson Residential (South) Ltd v McAllister [2004] EWCA Civ 410; [2004] 1 WLR 2409; [2004] 2 All ER 991; [2004] 2 P&CR 26; [2004] 2 EGLR 79; [2004] 24 EG 150; [2002] EWHC 2443 (Ch); [2003] 1 All ER 46; [2003] 1 EGLR 165, Ch
Cryer v Scott Brothers (Sunbury) Ltd (1988) 55 P&CR 183
Equitable Life Assurance Society v Hyman [2002] 1 AC 408; [2000] 3 WLR 529; [2000] 3 All ER 961
Jillas’ Application, In [2000] 2 EGLR 99; [2000] 23 EG 147
Mayner v Payne [1914] 2 Ch 557
Price v Bouch (1986) 53 P&CR 257; [1986] 2 EGLR 179; 279 EG 1226, Ch
This was an appeal by the appellants, Robert Sims and Joan Sims, from a decision of Judge Kirkham, sitting in Birmingham County Court, on two preliminary issues that had been ordered to be tried in a claim by the respondents, Christopher Mahon and Rosemary Pietrzykowski, for declaratory and other relief against the appellants.
William Hansen (instructed by Duffield Stunt, of Chelmsford) appeared for the appellants; Conrad Rumney (instructed by Shoosmiths, of Basingstoke) represented the respondents.
Giving judgment, Hart J said:
[1] This is an appeal (pursuant to a permission granted by Gibbs J) from an order dated 19 November 2004 of Judge Kirkham, sitting in Birmingham County Court. The order was made following the hearing of a trial of preliminary issues that had been ordered to be tried in an action brought by the claimants (the respondents to this appeal) against the appellants to enforce the terms of a restrictive covenant contained in a transfer dated 13 January 1995, whereby the respondents’ predecessors in title, as the registered proprietors of property known as 1 Wharf House, Barton Turn, Burton-on-Trent (a Mr and Mrs Houghton), had transferred to the appellants’ predecessors in title, as the registered proprietors of property known as 5 Wharf House (a Mr and Mrs Martin), a piece of garden land.
[2] In the transfer, Mr and Mrs Houghton were defined as “the Transferors” and Mr and Mrs Martin as “the Transferees”. The covenant was in the following terms:
The Transferees hereby jointly and severally covenant with the Transferors to the intent so as to bind the land hereby transferred and each and every part thereof into whosoever hands the same may come and to benefit and protect the Transferors property known as number 1 Wharf House Barton Turns aforesaid and lands held therewith not to use the property hereby transferred for any purpose except that of a private garden and not to erect thereon any building other than a greenhouse garden shed or domestic garage in accordance with plans which have been approved previously by the Transferors in writing. |page:68|
Since part of the debate is as to what is meant by “the Transferors”, I should, for completeness, record that the following words immediately followed that covenant:
It is hereby agreed and declared that the Transferees shall not be or become entitled to any right of light or air or other right or easement which would or might in any way restrict or interfere with the free use of the adjoining premises of the Transferors known as number 1 Wharf House Barton Turns aforesaid and lands held therewith for building or any other purpose.
[3] The action arose out of the appellants’ desire to construct a double garage and store on part of the land transferred. It appears that the Houghtons were content with this, but that the respondents were not.
[4] The preliminary issues decided by the judge were whether:
(i) the respondents had the benefit of the covenant.
She held (as was conceded) that they did, and there is no appeal from that;
(ii) under the terms of the covenant, the appellants required the consent only of Mr and Mrs Houghton in order to proceed with the construction.
She held that the answer to this was that the appellants required only the consent of the respondents. The appellants appeal against this part of her order;
(iii) it was an implied term that any such consent as might be required might not be unreasonably withheld.
She held that there was no such implied term. The appellants appeal against this;
(iv) the construction and use of the appellants’ garage and store would involve use of the land in a way that was prohibited by the covenant’s restriction to use the land transferred only as a garden.
She held that it would. There is no appeal against that.
[5] The first of the two issues before me is, therefore, whether, in the phrase “plans approved previously by the Transferors”, the reference to “the Transferors” is a reference to the persons for the time being entitled to the benefit of the covenant or whether, as the appellants contend, it is merely a reference to the Houghtons.
[6] On behalf of the appellants, Mr William Hansen submitted that the Houghtons, having been defined as “the Transferors”, were, on a literal reading of the provision, the persons being indicated. He acknowledged that, by virtue of the effect of section 78 of the Law of Property Act 1925, the covenant itself was made with the Houghtons and their successors in title, but he submitted that that merely showed that the expression included such successors where it first appeared in the covenant: if one reads in the words “and their successors” after that first appearance, but nowhere else, the position would be crystal clear that the draftsman had intended only the Houghtons to be indicated when it came to approval of plans.
[7] Mr Hansen supported that submission by reference to authority. In Mayner v Payne [1914] 2 Ch 557, the plaintiff had been the purchaser, in 1895, of several lots of a building estate that had been subjected by his vendor (Webb) to 17 scheduled stipulations. In 1898, the plaintiff sold six of those lots to the defendant’s predecessor in title, subject to those 17 scheduled stipulations. In 1910, the defendant acquired one of those lots by a deed to which Webb was a party and whereby Webb purported to release him from one of the relevant stipulations. The relevant stipulation was that a house should be erected in accordance with drawings to be approved by “the vendor’s surveyor”. A further stipulation provided that: “The vendor reserves the right of allowing a departure from these stipulations in any one or more cases.” The question therefore was whether the 1898 conveyance imposed a new obligation in relation to which the plaintiff was “the vendor”, and, if not, whether the references to “the vendor” in the 1895 deed were restricted to Webb. Neville J expressed his conclusion (against the plaintiff) at p565:
What was effected by [the 1898] deed was that the land was conveyed subject to stipulations set forth in the schedule, which were the local law that had been imposed by the original vendor. Then comes the covenant, which was both with the person who conveyed and also with the owners of any land to which the stipulations related, other than the land thereby conveyed, to observe, perform, and comply with the said stipulations. It seem to me that it is merely a covenant to obey the law of the locality as it stood, and when we examine what that law was we find it was a law which could be varied at the option of Mr Webb…
[8] Bell v Norman C Ashton Ltd (1956) 7 P&CR 359 was another building estate case where the original vendors had been trustees for sale. The lots conveyed to them in 1924 had all been subject to stipulations including one providing that:
Except with the written consent of the vendors who shall have the power to authorise the erection of… shops… on Otley Road, no… building… [shall be used for any other purpose than that of a private dwelling and not more than two houses shall be erected on any one plot… and] every dwelling-house or other building erected on the said estate shall be erected according to an elevation and design, to be approved of by the vendors, their heirs and assigns.
(Emphasis added.)
The defendant built in breach of the density restriction, relying upon a waiver obtained from the personal representatives of the original vendors. Harman J held that, on a true construction of the stipulation, the only persons who had the power to waive the restriction were the original vendors themselves. He drew attention to the absence of the words “their heirs and assigns” in the first reference to “vendors”, which I have italicised: ibid at p365.
[9] In In re Beechwood Homes Ltd’s application [1994] 2 EGLR 178, the Court of Appeal had to consider, inter alia, the effect of a restriction on building without approval of plans “by the vendors or the surveyor for the time being of the vendors” and a restriction on using land as a road “without the consent in writing of the vendors”. The case proceeded on the basis that, there being no longer any person who answered that description, the restrictions had become absolute.
[10] Briggs v McCusker [1996] 2 EGLR 197 concerned the 1899 conveyance of a plot with a house on it in which the purchaser covenanted with “the vendor his heirs executors administrators and assigns and other the owner or owners for the time being of all or part of the Camden Park Estate” not to use the property otherwise than as a residence and not to build on the land “without first obtaining the written approval of the vendor and if the vendor so desires the approval of the owners for the time being of the adjoining house… ‘Camden Cottage’”. Judge Rich QC proceeded on the basis that “the vendor” here meant a person defined as such in the 1899 conveyance and that, his approval not being available, the restriction had become absolute.
[11] In Crest Nicholson Residential (South) Ltd v McAllister [2002] EWHC 2443 (Ch)*, land was owned by Percy and Charles Mitchell (the Mitchells) and sold (but not conveyed) by them to their company (the company). The Mitchells and the company thereafter sold off plots of land on the basis that either the purchaser would build on the plot or the company had already done so. Each conveyance off contained covenants in favour of the Mitchells and the company, the material one for present purposes being:
2. The premises shall not be used for any purpose other than those of or in connection with a private dwelling-house or for professional purposes. No dwelling-house or other building shall be erected on the land hereby conveyed unless the plans drawings and elevation thereof shall have been previously submitted to and approved of in writing by the [Company] but such approval shall not be unreasonably or vexatiously withheld.
The company had been dissolved more than 30 years before the case came before Neuberger J. One of the issues before him was whether the effect of that dissolution was, as the defendant contended, that the covenant had become absolute (as in Bell, Beechwood, and Briggs) or whether, as the claimant contended, it was that the covenant had been effectively discharged. Neuberger J upheld the latter contention, preferring to base his conclusion on the construction of the covenant (“the exception of the prohibition is so fundamental to the prohibition that, if the exception is discharged… the prohibition is discharged with |page:69| it”: see [52] and passim), but being prepared, if necessary, to justify his conclusion by the implication of a term (see [54] to [61]) and distinguishing the three authorities mentioned. When the case came before the Court of Appeal ([2004] EWCA Civ 410; [2004] 1 WLR 2409†) it did not have to decide whether the judge had been correct in his analysis, but Chadwick LJ (with whom Arden and Auld LJJ agreed) said that he had been, for the reasons that he had given.
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* Editor’s note: Reported at [2003] 1 EGLR 165
† Editor’s note: Also reported at [2004] 2 EGLR 79
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[12] In my judgment, none of these authorities is decisive of the present case. In each, there were compelling reasons why the references to “the vendor” (or, in the last case, “the company”) had to be read restrictively. I accept Mr Conrad Rumney’s submission that I can approach the construction of the transfer in the present case untrammelled by authority. I agree with Mr Hansen that the literal meaning of “the Transferors” is the Houghtons. It is not, however, itself a defined expression to any greater extent than that it is itself the term used by the transfer to describe the Houghtons. In respect of the covenant itself it is apt, where it is first used, to include their successors in title for two reasons: first, because that is the effect of section 78 of the Law of Property Act 1925, and, second, because express words of annexation are used, making it clear (to the legally informed reader) that the benefit is intended to run with the retained land. That fact, in my judgment, makes it possible to read the second (and for present purposes critical) reference as also including successors in title. If that is a possible reading, it appears to me to be one that makes far better sense of this covenant than the literal meaning, for the reasons that commended themselves to Judge Kirkham. As she put it in her judgment:
16. The court should try to ascertain the true intention of the parties. By taking an objective approach, the court must ascertain the meaning which the covenant would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties to the original deed, in the situation they were in at the time the covenant was given. In my judgment, the parties to the original deed must have intended to use the word Transferors in the same sense throughout the covenant. Further, as the benefit is annexed to the land, it is reasonable to infer that, absent some contrary indication, successors in title were also to have the benefit of the proviso. I see no reason to depart from that inference. There is no apparent reason why Mr and Mrs Houghton would want to maintain control over the land after they themselves had sold the land that witness statement to be benefited. Having sold 1 Wharf House, they had no proprietary interest to protect, which would seem to be the only reason for wanting to maintain control over the Garden. It must have been in the reasonable contemplation of the original parties that Mr and Mrs Houghton might sell 1 Wharf House and then become untraceable so that their consent could not be obtained; the risk would then be that the covenant might be rendered absolute.
17. In the circumstances of this case – a private treaty relating to a single property – it is unlikely that the parties intended that a third party, who had retained no interest in the land benefited, could control development of a site so as to override the interests of a successor in title who does have the proprietary interest to protect. This is not a building or development scheme where a common vendor might wish to retain control. A private sale of a single dwelling is different from the circumstances which obtain in a building or estate scheme. In a private sale, of the sort in this case, it would be unusual for a person who had disposed of his interest in the property to retain the right to give or withhold consent to building.
18. If it had been intended that that unusual situation obtain, namely that Mr and Mrs Houghton, having disposed of their interest in 1 Wharf House, should nevertheless be entitled to give or withhold consent to building, then the covenant would be likely to have made that clear. If the original parties had really intended that this part be treated differently from the earlier parts of the covenant, then they would have made it clear by using different wording, so as to differentiate the word Transferors in its third use in the covenant from the meaning which it bears earlier in the covenant. The covenant did not state in clear terms that Mr and Mrs Houghton alone would be able to give or withhold consent.
[13] I entirely agree with that way of putting the matter. I would only add that the conclusion seems to me to be reinforced by the way in which the expression “the Transferors” has been used in the final agreement and declaration.
Second issue (issue 3 below)
[14] The question here is whether a term should be implied that the approval of plans should not be unreasonably withheld.
[15] This question is one that has been much debated over the years and is the subject of some authority. At the outset, however, it should be emphasised that the answer to the question is governed by the general principles applicable to the implication of terms into contracts, the particular species of contract concerned having the special feature that both its benefit and burden may pass to persons who are not the original contracting parties but whose relationship will share certain essential characteristics with that which subsisted between the original parties.
[16] The purpose served by the contract in the present case is the protection of the land retained by the covenantees. In the instant case, that retained land included an area of orchard immediately adjacent to the garden, and from which structures (and activities) in the garden would be visible and activities would be audible. The covenantees plainly wanted, for themselves and their successors, to be able to limit the type of structures that might be erected in the garden, and even within the potentially permissible categories, to be in a position to withhold approval to particular plans. At the same time, the structure of the covenant is such that it can fairly be said that the erection of a greenhouse, garden shed or domestic garage was contemplated as being permitted by the covenant, provided that written approval of plans was first obtained.
[17] Whether a term of the type contended for here should be implied in similar contexts has been discussed in a number of recent cases. In Price v Bouch (1986) 53 P&CR 257*, Millett J had to consider the question in the context of a system of mutual covenants entered into as part of a co-operative scheme for the acquisition of an estate, and its lotting and subdivision for building purposes, among members of an association. A covenant provided that no dwelling-houses or other buildings were to be erected unless the plans had first been submitted to, and approved by, a majority of the committee of the association. It was conceded that the committee had a duty to inspect and consider any application submitted to it, to reach a decision itself and not to delegate it to others, and to act honestly and in good faith and not for some improper or ulterior purpose. It was further conceded that were the committee to take into account irrelevant considerations or fail to take into account relevant considerations, or reach a perverse decision such that no reasonable committee could possibly reach, its decision could be impugned as ultra vires. Millett J held that, in those circumstances, it would be unnecessary to imply a term that the committee must act reasonably. He said, at p261:
In my judgment, the mutual covenantors are equally bound by the decision of the committee, whether it be a decision to grant or refuse approval, and they are so bound, provided only that it is given honestly and in good faith and not for some improper purposes. Where the required consent is that of an individual who is free to consult his own interests exclusively, a provision that such consent must not be unreasonably refused is often included in order to prevent consent being withheld arbitrarily, or capriciously, or from improper motives. If that is the only effect of including such a provision, its implication in the present case is unnecessary; while, if it goes beyond that, it produces consequences which are unlikely to have been intended by the parties and is an implication which, in my judgment, ought to be made.
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* Editor’s note: Also reported at [1986] 2 EGLR 179
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[18] That case was obviously a special one since the existence of duties on the part of the committee (deriving from its role as such is the affairs of the association rather than from an implication in the terms of the covenant) rendered the claimed implication either otiose or excessive. The case nevertheless usefully illustrates the fact that, in considering whether a term should be implied in the present case, the question might not be so much whether a term should be |page:70| implied but what is the nature of the term to be implied. I return to this question below.
[19] In Cryer v Scott Brothers (Sunbury) Ltd (1988) 55 P&CR 183, a covenant required:
… All building or other plans… to be submitted to the Surveyor of the Transferors for their approval before building work is commenced…
The covenant had been taken in connection with the erection of a dwelling-house. The point arose many years later when the plaintiff, a successor in title of the original covenantor, wished to build an additional bedroom above his garage. He contended that the covenant applied only in relation to the original construction of the house. That contention was rejected by the Court of Appeal. His alternative contention was that the covenant was subject to an implied proviso that approval should not be unreasonably withheld.
[20] The Court of Appeal (Slade LJ and Waite J) accepted that contention. Slade LJ expressed his reasoning on the point in the following passage, at p195:
If the construction of covenant no 4 suggested by counsel on behalf of the defendants were correct, this would mean that the covenantees could have been in a position, by the arbitrary and capricious withholding of approval of building plans, wholly to have prevented a development of the estate by the covenantors. This cannot, in my judgment, have represented the intentions of the parties to the 1955 transfer. The contemplation of both sides was clearly that the land to be transferred would be developed by the transferees. The reservation of a right arbitrarily to withhold approval of the plans would have been liable to defeat the purpose of the grant. If the absence of a provision expressly precluding the covenantees from unreasonably withholding their approval had been pointed out at the time to both parties to the 1955 transfer, I think that, assuming them to have been reasonable persons, they must have agreed without hesitation to its insertion. The implication is, in my opinion, necessary to give business efficacy to covenant no 4.
Waite J, at p202, put the matter thus:
The implication of terms into a legal bargain is a process proverbially dependent upon the particular context, and I agree with Millett J in Price v Bouch that it all depends on the circumstances. The concession made by counsel in Wrotham Park Estate Company Ltd v Parkside Homes Ltd may well have been appropriate to the facts of that case and was doubtless accepted as such by the court: that is not, however, by any means the same thing as saying that a similar concession would be appropriate in different circumstances. I agree with Slade LJ that the question to be asked in all cases is whether the implication of a proviso of reasonable grounds of refusal is necessary to give business efficacy to the transaction of which the covenant to obtain approval forms part. The question, in other words, is whether a capricious or unreasonable withholding of consent would amount to “a destruction of the thing granted” – Dellman v King, per Tindal CJ. It would seem to me to be pointless to impose the requirement to submit plans in the first place if the covenantee had the right to reject them arbitrarily – whether or not on reasonable grounds and regardless of the quality of the proposed extension on its merits. That is particularly true (as Sir Robert Megarry, Vice-Chancellor, observed in Clerical Medical and General Life Assurance Society v Fanfare Properties Ltd) of cases like the present where the court is dealing with a regulatory covenant requiring some specific action on the part of the covenantor. An advance submission of plans is action of the most specific kind.
[21] Of equal interest is the Court of Appeal’s decision on the question of whether approval had been unreasonably withheld on the facts of that case. The defendants had withheld their approval because of a “genuine and conscientious” desire to do what was best in the interests of their building estate as a whole. Slade LJ said, at p200:
Though it is not suggested that the extension proposed by the plaintiff would be objectionable if viewed in isolation, opinions as to the dangers or otherwise of a knock-on effect on the whole estate of this particular project could well have differed. Nevertheless, if the defendants were entitled to take into account the interests of the estate as a whole (as the learned judge thought), I would have agreed with his view that, in light of this point, it was impossible to say that the defendants had been shown to have withheld their consent unreasonably.
[22] He held, however, that the defendants were not entitled to take these matters into account: the only factors that the defendants were entitled to consider were factors relevant to the two particular plots that enjoyed the benefit of the covenant. Since these were unaffected by the plaintiff’s proposals, the defendants could not reasonably withhold approval.
[23] I was taken by Mr Hansen to the dicta of Megarry V-C in Clerical Medical & General Life Assurance Society v Fanfare Properties Ltd unreported 2 June 1981 (referred to by Waite J) and the distinction there suggested between covenants requiring “general and unrestricted consent” and covenants that require approval of a specific matter (described by Waite J as “regulatory”). I was also taken by him to the decision of the president of the Lands Tribunal in In Jillas’ Application [2000] 2 EGLR 99 (which involved similar facts to Cryer), where he said, at p101L:
Mr Radevsky was disposed to accept that some term would need to be imported in order to disable the covenantee from frustrating the purpose of the transaction, which was to enable a house to be built on the land conveyed. He suggested, however, that the implied term would simply require good faith on the part of the covenantee, rather than reasonableness. I cannot accept this suggestion, although, in practice, I suspect that in the present case there would be little difference in the sort of provision that Mr Radevsky suggests and the conventional provision, founded upon the need to give business efficacy to a contract, that approval should not be unreasonably withheld. It is this latter provision that, in my view, should be implied.
[24] Mr Hansen further took me to a number of cases, in disparate commercial contexts, that illustrated a readiness on the part of the courts to qualify, by an implied term, the exercise by one contracting party of an apparently untrammelled unilateral power conferred on it by the contract, including Braunstein v Accidental Death Insurance Co (1861) 1 B&S 782 and Equitable Life Assurance Society v Hyman [2002] 1 AC 408.
[25] The judge below distinguished Cryer and Jillas on the ground that, in those cases, the land had been transferred for the purposes of building, whereas, as she expressed it:
Here, the purpose of the contract was to transfer land to be used as a garden. It was not a contract for the sale of land on which a building was to be erected. It does not destroy the purpose of the covenant if the claimants retain absolute control over the building of a shed, garage or greenhouse. User of the land as a garden would not destroy the purpose of the transfer. This case is different from a purchase with a view to building a house, as in Jillas, or commercial development, as in other cases. Here, the restriction applies only to a part of 5 Wharf House and would not frustrate the user of the house or the garden.
30. Where, as in this case, the areas of land in question are comparatively small, questions of taste can be significant. Accordingly, it would be understandable for the covenantee to have wanted to be able to exercise firm control over any building. Those matters outweigh any risk that a neighbour might act arbitrarily or capriciously.
31. As is made clear in the authorities, there is no rule of law that a term be implied that consent would not be unreasonably withheld. In my judgment, it was not necessary to give business efficacy to the original transfer that such a term be implied.
[26] Before me, Mr Rumney supported that reasoning. He submitted that the purpose of the covenant was to enable the covenantee to control the use of the garden: a refusal of approval would not deprive the transaction of business efficacy since the garden would still be capable of being used as a private garden. Moreover, he submitted, it was far from obvious that the term should be implied: the covenantees had a legitimate interest in reserving the last word on what, if anything, should be built in the garden, rather than potentially exposing themselves to having their judgment questioned, and possibly overruled, by a judge by reference to what the judge might consider reasonable. The issues would be likely to relate to very subjective matters:
such as appearance, matters of taste, how one apprehends it will affect use of the garden now or in the future, how one apprehends it might affect one’s own enjoyment of the benefited land now or in the future. It is not obvious that the covenantees would have been agreeable to this matter ultimately being decided by a judge, but would have considered it in their legitimate interest to have such matter reserved for decision by themselves, based on their own preferences and having regard to their own sensibilities (rather then according to the more |page:71| abstract notion of a “reasonable person” who may or may not share their own preferences or tastes).
(I quote from Mr Rumney’s written submissions.)
[27] In my judgment, one must start in this case with a consideration of what the covenant contemplates. I am unable to share the view of the judge that the covenant contemplates merely the user of the garden as a garden that is unbuilt on. The covenant plainly contemplates that a greenhouse, garden shed or domestic garage may be erected. It is true that such a building is allowed only if plans have first been approved, but this does not mean that such a building is not contemplated. A construction of the covenant that seeks to say that no such building is contemplated robs the words following “building” of any effect. Further, it seems to me clear that the words “plans which have been approved [etc]” as a matter of construction import something more than an untrammelled power in the covenantee to withhold consent. The concept of “approval” of plans implies at least a process of active consideration. If the covenantee has plans submitted to it for its approval, it cannot, in my judgment, be said that the wording of the covenant entitles the covenantee to refuse even to consider those plans. It is at least obliged to look at them and to do so in good faith. If the covenant, by necessary implication, obliges it to consider the plans in good faith with a view to their possible approval, it is implicit that some criteria are to be applied in the course of that process. It cannot have been intended to be a matter of pure whim. The covenantee cannot, for example, then refuse to approve them simply on the ground that it does not wish any of the contemplated types of building to be erected in any circumstances whatsoever. To refuse approval on that ground would, in my judgment, be to do so on a ground not contemplated by the covenant. Nor can the covenantee refuse approval on grounds that are unrelated to the purpose for which the power has been reserved, for example that it simply does not like its neighbour. That, too, would be an obvious misuse of the power. So, also, would a refusal of approval not because there was in fact any objection to the proposals but because the covenantee wished to exact a monetary price for the giving of the approval.
[28] In my judgment, all these limitations on the power to withhold approval are necessary to give the contract business efficacy. The question that I find more difficult is whether the implication of a term that approval be not unreasonably withheld is the right way in which to capture their essence. The cases discussed show a possible hierarchy of implied terms ranging from: (i) an obligation to use the power in good faith; through (ii) an obligation not to use the power arbitrarily or capriciously; to (iii) an obligation not to use the power unreasonably. In argument, Mr Rumney accepted that there might be a difference between (ii) and (iii). In Cryer, however, the Court of Appeal proceeded on the basis that a proviso of the third kind was necessary in order to exclude an arbitrary or capricious exercise of the power. It therefore seems to have regarded (ii) and (iii) as, in practice, amounting to the same thing.
[29] In the present context, I do not think that it does make any practical difference whether the implied proviso is expressed as “not to be arbitrarily or capriciously withheld” or as “not to be unreasonably withheld”. If the implied proviso takes the latter form, it is important to bear in mind that this does not have the consequence that the court can, at the invitation of the covenantor, simply substitute its judgment as to what is reasonable for that of the covenantee. All the proviso means is that refusal of approval will be unreasonable if the court is satisfied that no reasonable covenantee would have refused approval in the circumstances. It is clear that the protection of the sensibilities of the covenantee is one of the purposes of the covenant in this case. The test, which the implied proviso requires in a context such as the present, is one that pays full respect to those sensibilities so far as any particular proposal is concerned. It will be only if satisfied that no reasonable neighbour could object to the proposal that the court will be justified in overriding a decision by the covenantee to refuse approval. If the refusal is on a subjective ground, upon which the opinions of reasonable neighbours might differ, that will, in a context such as the present, be reasonable ground enough. In my judgment, the application of such a test will not therefore deprive the covenantee of what the judge described as the ability “to exercise firm control over any building”. It will however prevent it from acting arbitrarily or capriciously or from improper motives.
[30] For those reasons, I would allow the appeal on this issue.
Appeal allowed in part.
