Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45

A property developer, Millgate, built 13 affordable housing units in cynical breach of a restrictive covenant benefiting a children's cancer hospice. The Supreme Court refused modification of the covenant under section 84 of the Law of Property Act 1925, dismissing the appeal.

Facts

The application land, near Maidenhead and in the Green Belt, was subject to restrictive covenants contained in a 1972 conveyance preventing any building and restricting use to an open space for parking. Mr Barty Smith inherited land benefiting from these covenants and in 2012 gifted adjoining land to the Alexander Devine Children’s Cancer Trust for the construction of a hospice for terminally ill children.

Millgate Developments Ltd acquired the Exchange House site in 2013, knowing of the restrictive covenants. It obtained planning permission to build 23 affordable housing units, 13 of which were to sit on the application land in clear breach of the covenants. The Upper Tribunal found that Millgate could have built all 23 units on the unencumbered part of the site, and the local planning authority would have approved such a proposal.

Despite Mr Barty Smith’s objections in September 2014, Millgate continued building. The nine two-storey houses directly overlook the hospice grounds. Millgate sold the site to Housing Solutions Ltd and then applied to the Upper Tribunal under section 84 of the Law of Property Act 1925 to modify the covenants.

The Upper Tribunal modified the covenants on payment of £150,000 compensation. The Court of Appeal overturned that decision on four grounds of law and refused the application. Housing Solutions appealed to the Supreme Court.

Issues

The central issue was whether the Upper Tribunal erred in law in its approach to Millgate’s deliberate breach (described as a ‘cynical breach’). Specifically:

• Whether conduct is relevant at the jurisdictional stage under the ‘contrary to the public interest’ ground in section 84(1)(aa) and (1A)(b);
• Whether the Upper Tribunal erred in law in exercising its discretion despite taking into account Millgate’s conduct;
• Whether the Upper Tribunal erred in applying Lawrence v Fen Tigers Ltd by analogy;
• Whether it erred in failing to consider Millgate’s ability to discharge its planning obligation by alternative payment.

Arguments

Appellant (Housing Solutions)

Mr Hutchings QC submitted that section 84(1A)(b) requires a narrow question: whether the impediment of reasonable user by the covenant is contrary to the public interest. The manner of breach is irrelevant at the jurisdictional stage and falls for consideration only at the discretionary stage. The Upper Tribunal had properly considered the cynical conduct and its conclusion could not be disturbed as an error of law.

Respondent (the Trust)

Mr Jourdan QC supported the Court of Appeal’s reasoning, submitting that a developer who deliberately breaches a restrictive covenant should not be permitted to rely on a state of affairs produced by its own unlawful conduct to satisfy the public interest ground.

Judgment

Section 84 structure

Lord Burrows (with whom Lords Kerr, Lloyd-Jones, Kitchin and Hamblen agreed) confirmed that section 84 involves two stages: jurisdictional grounds, at least one of which must be satisfied, and the discretion whether to discharge or modify.

Jurisdictional stage: ground two

The Supreme Court disagreed with the Court of Appeal and held that the ‘contrary to public interest’ ground requires a narrow enquiry. The statutory question is whether the impediment of reasonable user by the continued restriction is contrary to public interest, not the wider question of whether maintaining the covenant is contrary to public interest in all the circumstances. The applicant’s conduct is therefore irrelevant at the jurisdictional stage, since it says nothing about the merits of the land use. The Upper Tribunal made no error of law on this ground.

Discretionary stage: ground four

The Supreme Court nevertheless agreed with the Court of Appeal that the Upper Tribunal had erred in law at the discretionary stage, but for different reasons. Lord Burrows identified two ‘omitted factors’:

• First, had Millgate respected the Trust’s rights by seeking planning permission only on the unencumbered land, there would have been no need to apply under section 84 and the hospice would have been unaffected.
• Second, had Millgate applied under section 84 before building, it is likely that the public interest ground would not have been satisfied, because an alternative development on the unencumbered land was available. Millgate’s cynical breach thus transformed its prospects of success by presenting the tribunal with a fait accompli.

These two factors made the case exceptional, and the Upper Tribunal’s failure to consider them constituted an error of law. Lord Burrows was cautious about adopting a rigid principle that any cynical breach must defeat an application, preferring to ground his reasoning in these specific omitted considerations.

Grounds one and three

The Supreme Court held the Court of Appeal was wrong on grounds one and three. On ground one, the Upper Tribunal had not in fact adopted Lord Sumption’s wider observations in Lawrence v Fen Tigers Ltd [2014] UKSC 13. On ground three, the Upper Tribunal had expressly addressed, at paragraph 106 of its decision, Millgate’s alternative means of fulfilling its planning obligation but regarded it as outweighed by the waste of empty housing.

Re-making the decision

Given the five-year delay and the uncertainty for all concerned, the Supreme Court exercised its power under section 14 of the Tribunals, Courts and Enforcement Act 2007 to re-make the decision rather than remit. The application to modify the covenants was refused.

Implications

This is the first occasion on which the highest court has decided an appeal under section 84. The judgment clarifies the two-stage structure:

• The ‘contrary to public interest’ jurisdictional ground requires a narrow enquiry focused on land use. The applicant’s conduct is not relevant at this stage.
• At the discretionary stage, the applicant’s conduct, including any cynical breach, is a highly relevant consideration and should be ‘cautiously exercised’ only after a jurisdictional ground is established.

Though the Court declined to establish a rigid rule that any cynical breach defeats an application, developers are put on clear notice that deliberate circumvention of the statutory process, particularly where an alternative lawful development was available, is likely to result in refusal. The decision provides important protection for beneficiaries of restrictive covenants against developers who attempt to present tribunals with a fait accompli.

The Court expressly left open the question of what remedies the Trust may now pursue, including prohibitory or mandatory injunctions, negotiating damages (Morris-Garner v One Step (Support) Ltd [2018] UKSC 20), or an account of profits (Attorney General v Blake [2001] 1 AC 268), recognising that the decision strengthens the Trust’s position in any financial settlement.

Verdict: The appeal was dismissed. The Supreme Court upheld the Court of Appeal’s refusal of the section 84 application to modify the restrictive covenants, re-making the decision itself rather than remitting the matter to the Upper Tribunal.

Source: Alexander Devine Children's Cancer Trust v Housing Solutions Ltd [2020] UKSC 45