Restrictive covenants – Discharge or modification – Costs – Applicant under section 84 of Law of Property Act 1925 to modify restrictive covenants to permit proposed development – Respondents objecting – Respondents relying on their status as original covenantee against second applicant as original covenantor – Objection withdrawn after second applicant conveying legal estate to first applicant – Whether applicants entitled to costs order against respondents – Rule 10(3) and (6) of Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 – Application dismissed
The applicants were a married couple who owned a residential property in Oxshott, Surrey. The property was affected by restrictive covenants, contained in a 1983 conveyance of the property by the respondents to the second applicant and her then husband, binding the purchasers not to erect any further building on the land without the consent of the respondents and prohibiting use other than as a single private dwelling house.
In 2014, the applicants obtained planning permission to construct an additional dwelling on the property. By that time, the property was owned by the two applicants jointly. They applied to the Upper Tribunal to modify the restrictive covenant, under section 84 of the Law of Property Act 1925, so as to permit the construction of the additional dwelling.
The respondents submitted an objection to the application. Their notice of objection specified that their legal entitlement to the benefit of the restrictive covenants derived from their status as original covenantees. They did not assert that the covenants were created to benefit land which they owned. The applicants did not admit the respondents’ entitlement to the benefit of the covenants and they applied to the tribunal to have the notice of objection struck out.
The applicants then executed a transfer of the property to the first applicant alone, subject to a declaration that he was to hold the property on trust for himself and the second applicant as joint tenants in equity. The respondents subsequently gave notice that they were withdrawing their objection to the modification application. As a result, a hearing which had been scheduled to determine the respondent’s entitlement to object did not go ahead.
The applicants applied to the tribunal for an order, under r 10 of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010, that the respondents pay the applicants’ costs of the proceedings.
Held: The application was dismissed.
(1) The tribunal’s power to make orders in respect of costs derived from section 29 of the Tribunals, Courts and Enforcement Act 2007. The effect of r 10 of the 2010 Rules was to limit the circumstances in which an order for costs could be made to those referred to in r 10(3) to (6). While r 10(3) dealt with wasted costs and costs incurred where a party and its representatives had acted unreasonably, r 10(6) conferred a more general power to make orders for costs in proceedings under section 84 of the 1925 Act. The tribunal therefore had full power to make an order for costs in such a case of that type, with that power to be exercised in accordance with the tribunal’s Practice Directions made under the authority conferred by the 2007 Act.
(2) In cases where an objector’s entitlement to object to the application had been successfully challenged, the successful applicant would normally be entitled to an order that the objector pay the applicant’s costs incurred in dealing with the objection: see para 12.5(2) of the Practice Directions. However, the position was different where the objector withdrew the objection before the tribunal adjudicated on it. In a case where the objection had been withdrawn, rather than being dismissed on grounds of standing, the express provisions of para 12.5 of the Practice Direction were not engaged and the exercise of the tribunal’s discretion had to be considered in the round.
(3) The tribunal’s normal approach to applications of all types was to encourage parties to make sensible concessions and, where appropriate, to abandon less important points of contention or even their entire case if they concluded that it was unlikely to succeed. Such behaviour was to be encouraged, not discouraged by the fear that it would be treated as an admission that the abandoned issues were unsustainable and ought never to have been raised, and as a justification for a claim for costs. That factor was a relevant, although not an overriding, consideration when considering an award of costs under r 10(6): Willow Court Management Co (1985) Ltd v Alexander [2016] UKUT 290 (LC); [2016] EGLR 48 considered.
The more readily the withdrawal of the objection could be interpreted as an acceptance that the objector did not have the benefit of the covenant, and so ought not to have objected, the more inclined the tribunal might be to equate the withdrawal with an adverse determination, especially where the withdrawal occurred close to the date of a hearing or after significant expense had been incurred in meeting the objection.
(4) The most significant feature of the instant case was that the objection was made by the original covenantee in response to an application by one of the original covenantors. In principle, the original covenantee was entitled to enforce its contractual rights against the original covenantor, although, if the original covenantee no longer retained land intended to benefit from the covenant, the only remedy available might be an award of nominal damages. Where the applicants had themselves taken steps to remove the grounds on which the objectors claimed to be entitled to the right to be heard, it was not necessary to determine the issue of standing solely for the purpose of determining the applicants’ claim against the same objectors for an order for costs. Fairness and justice did not require the tribunal to proceed as if that issue had been determined in the applicants’ favour. In all the circumstances, it was not appropriate to make an order for costs against the respondents under r 10(6) purely on the basis that they withdrew their objection. There was no presumption that an order for costs would follow the withdrawal by a party of its case.
(5) Nor were there any grounds for making a costs order under r 10(3)(a) on the grounds of any unreasonable conduct by the respondents or their solicitors. The discontinuance of the objection was made in the light of the significant change of circumstances that arose when the applicants transferred the title to the property from their joint names into the sole name of the first applicant, so that the legal title was no longer held by an original covenantor. The mere making of the objection in the first place did not amount to unreasonable conduct. A covenantee did not obviously act in an unreasonable manner by seeking to maintain the status quo for which it had originally contracted. While the respondents’ objection might have had little chance of success if, as the applicants contended, they had not retained any land with the benefit of the covenant, it was still the case that, if the respondents had been admitted as an objector, they would at least have been in a position to invite the tribunal to refuse to exercise its discretion in favour of modification of the covenants.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
Click here to read a transcript of Munday and another v Crown Estate Commissioners
