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Mackenzie V Cheung

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17th January 2024

Carl Fain and Richard Miller, instructed by Jonathan Warner-Reed of Davitt Jones Bould, acted for the successful Respondent in a Court of Appeal case concerning the interpretation of a general release provision in a conveyance.

The claim was brought by the Appellant, the owner of 432 Selsdon Road (“432”), against the Respondents, the owner of 444 Selsdon Road (“444”) and a developer with an option to purchase 444 and planning permission to demolish the house and build a block of nine flats. The conveyance of 444 contained a restrictive covenant, of which the Appellant had the benefit, that no building be erected except one detached dwelling house and outbuildings, but contained a provision at Third Schedule, paragraph 11 that:

“The Governors [i.e., the vendors] reserve the right to deal with any of the plots situated upon this estate or any of their adjoining or neighbouring land without reference to and independently of these stipulations and also reserve the right to allow a departure from them in any one or more cases.”

The Respondents contended that execution of a Deed of Modification by the vendors, held in escrow, which varied the restrictive covenant to allow the erection of the block would result in the development not breaching the covenant. The Appellant denied that the provision could release the covenant and argued in the alternative that exercise of the power would be a derogation from grant.

On the Respondent’s application for summary judgment, Deputy Master Bowles construed the provision to mean only that the vendors had no obligation, when dealing with subsequent conveyances of the retained land, to impose restrictions in the terms of the Third Schedule.

On the Respondent’s appeal, Miles J disagreed, holding that the second part of Third Schedule, paragraph 11 was broad enough to encompass a waiver or release of restrictive covenants entered into in respect of land already sold. He noted the word “also”, the presence of other provisions giving the vendors a continuing role in the management of the land, and the desirability of the vendors having to seek permission from one entity, rather than a large number of parties with the benefit of the covenants.

The Court of Appeal upheld Miles J’s judgment. Newey LJ, giving the lead judgment, decided that the ordinary and natural meaning of the second part of Third Schedule, paragraph 11 had a distinct function conferring an additional right. This was evident from the use of the word “also” and the meaning of “departure” being most obviously that the vendors could allow the purchaser to do something which otherwise they could not.

A significant part of the Court of Appeal’s reasoning was that the conveyance had to be construed from the perspective of the parties (being the vendors and the First Respondent’s predecessor-in-title), and not with reference to the preferences of purchasers of the vendors’ retained land who, at that time, would not have existed or been capable of ascertainment. The vendors could be expected as having intended to retain the ability to manage the estate they were selling, and the purchaser would have had good reason for preferring to deal only with the vendors and not numerous beneficiaries of the covenants when seeking to vary and discharge their obligations.

On derogation from grant, Newey LJ considered that a “fundamental problem” with the Appellant’s analysis was that those with the benefit of the covenant would have always taken subject to the vendors’ right to allow departures. In doing so, he applied the logic of Earl of Plymouth v Rees [2020] EWCA Civ 816, a case on derogation from grant in leases, to freehold covenants.

During the appeal, the Respondent sought to amend their grounds of appeal to argue, in the further alternative, that Third Schedule, paragraph 11 allowed some but not other departures. Newey LJ swiftly rejected this as contrary to construction.

Finally, the obscure case of Mayner v Payne [1914] 2 Ch 555, in which a release provision in substantially the same terms as the second part of Third Schedule, paragraph 11 was construed as allowing variation and discharge of covenants, received greater attention and approbation than it had before Deputy Master Bowles and Miles J.

A copy of the judgment can be found here.

 

If you would like more information on this, please contact Alex Southern.  If you subscribe to LexisNexis, you will also be able to see Carl’s Case Analysis on the LexisPSL website.

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