In 1995, Mr. and Mrs. Johnson Bought a House Which Was Part of a Residential Development

In 1995, Mr. and Mrs. Johnson bought a house which was part of a residential development containing several lots. The development was subject to a restrictive covenant binding on successive owners not to use any part of the un-built land other than a private garden.

In 1998, Michael, one of the other lot owners in the development, bought an adjacent lot in order to improve the access to his original lot. Michael proposed that access would be provided by means of a driveway to be constructed over part of the garden of the newly acquired lot.

In 1999, with the construction at an advanced stage, Mr. and Mrs. Johnson consult you for advice on the basis and scope and any remedies that may be available to them.

Advise Mr. and Mrs. Johnson.

[NPR: Read Mortimer v Bailey [2004] EWCA Civ 1514. It is short and exactly on point.]

Restrictive Covenants

In inventing special rules about restrictive covenants, equity added a new chapter to the law of property, and created a new interest in land.

A restrictive covenant is a type of obligation imposed by deed by the seller upon the buyer of real estate to do or not to do something. Examples are a covenant to use the land in certain ways, or not to carry on a type of business. Such restrictions frequently "run with the land" and are enforceable on subsequent buyers of the property. The land which benefits is called the dominant tenement (usually this is the vendor’s land), and the land which carries the burden is the servient tenement (usually this is the purchaser’s land). The doctrine got its start in Tulk v Moxhay (1848) 2 Ph 774.

Because the burden of the covenant runs only in equity, only equitable remedies are available. In practice, this means injunctions. The covenant is not intended to provide for monetary compensation but to preserve the value of adjoining land. In Wakeham v Wood (1981) 43 P. & CR 40, the CA held that a mandatory injunction was the normal remedy for infringement of a covenant to preserve the view. Damages in lieu of injunction may be granted only in circumstances where an injunction would have been granted. The amount is the amount which the claimant could have obtained for the release of the covenant: Wrotham Park Estate v Parkside Homes Ltd[1974] 1 WLR 798.

The Courts presume that the covenant confers benefit on the dominant tenement unless it can be shown that such a view cannot reasonably be held: Wrotham Park Estate. As Brightman J indicated in that case, the covenants tend to be upheld “so long as an estate owner may reasonably take the view that the restriction remains of value to his estate”. The restriction will not be discarded “merely because others may reasonably argue that the restriction is spent”.

In the present case, the Johnsons are advised to seek an injunction restraining the breach of covenant. Even though Michael may argue that the covenant has not been breached, and that he is making reasonable use of the land, the restriction is likely to be upheld so long as the Johnsons feel that it remains of value to their estate. Only if the case for the injunction has been made out will the Court consider whether to award equitable damages instead.

Types of Injunction

An injunction is a court order which directs a party to do or refrain from doing an action. An interlocutory injunction is an injunction intended to preserve the status quo between the parties until the full trial. A perpetual injunction is one which is permanent so long as the conditions which led to them remain. Injunctions may be prohibitive or mandatory.

To stop the building from going any further before the trial, the Johnsons may apply for an interlocutory injunction. They will then apply for a perpetual injunction as their final remedy in order to force Michael to remove the driveway. The final injunction is mandatory in nature, because not only must Michael stop building, but he must also tear down what he has already built.

Interlocutory injunction

Generally when deciding whether to grant an interlocutory injunction, the Court will follow the guidelines laid down in American Cyanamid v Ethicon [1975] AC 396. However, the Court confirmed in De Falco v Crawley BC [1980] QB 460 that American Cyanamid did not apply to mandatory injunctions. At an interlocutory stage, ‘the court is far more reluctant to grant a mandatory injunction than it would be to grant a comparable prohibitory injunction. In a normal case, the court must, inter alia, feel a high degree of assurance that at the trial it will appear that the injunction is rightly granted; and this is a higher standard than is required for a prohibitory injunction’ (per Megarry J in Shepherd Homes Ltd v Sandham [1971] Ch 340, approved by the Court of Appeal in Locabail International Finance Ltd v Agro-export [1986] 1 WLR 657. Megarry J added that the ‘case has to be unusually strong and clear before a mandatory injunction will be granted, even if it is sought to enforce a contractual obligation.’ In Shepherd Homes, the injunction was for the demolition of a fence. There is an element of flexibility, and in Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 671, HoffmanJ held Locabail did not mean that the ‘high degree of assurance’ test had to be satisfied in all cases. He stated that the fundamental principle on interlocutory injunctions whether prohibitory or mandatory is that the court should take whichever course appears to carry the lower risk of injustice if it should turn out at trial to have been wrong. As for prohibitory interlocutory injunctions, the plaintiff must give an undertaking in damages to compensate the defendant if it turns out that the injunction was wrongly granted.

There are two recent cases where the plaintiff sought a perpetual injunction without seeking an interlocutory injunction. In both cases, the plaintiffs did not seek the interlocutory injunction because the undertaking in damages would have been too high. In Blue Town Investments v Higgs and Hill [1990] 1 WLR 696, the injunction claimed was for the demolition of buildings which supposedly infringed the plaintiff’s right to light. Given that the cost of demolishing the buildings would have been up to $1 million, while the right to light had been valued at $7,500, the Court felt that the chances of winning at trial were small, and refused to let the plaintiffs go ahead unless they applied for an interlocutory injunction and gave a satisfactory undertaking for damages. On the other hand, in Oxy Electric v Zainuddin [1991] 1 WLR 115, the court felt that the plaintiffs had a good chance at succeeding at trial, and allowed them to apply for the perpetual injunction without first applying for the interlocutory injunction.

[NPR: In legal parlance, what happened was that the defendants applied to strike out the application for the perpetual injunction on the grounds that the plaintiffs had not given an undertaking for damages. When an application is struck out (you will study this in your Civil Procedures Class at Law School), the Court refuses to hear the case. In the first case, the application was struck out. In the second case, it was not struck out.]

However, if the plaintiff is applying merely to stop something from happening until the trial, this is a prohibitory injunction and American Cyanamid will be used. The plaintiff will have to show that there is a serious question to be tried and that the balance of convenience lies in his favour, namely, that damages will not be an adequate remedy, that there are no special factors and that the status quo should be preserved. In Mortimer v Bailey [2004] EWCA Civ 1514, the plaintiff waited until the building was at an advanced stage before applying for the interlocutory injunction. The court refused to grant it, saying that damages would compensate.

In the present case, the Johnsons are unlikely to make their case for a mandatory interlocutory injunction. The court will not force Michael to demolish the driveway only to have it turn out at trial that the Johnsons were wrong.

Nor are the Johnsons likely to obtain a prohibitive interlocutory injunction to prevent Michael from completing the work. Given that the building is at an advanced stage, the court is unlikely to find that they will suffer any kind of irreparable loss due to the Michael’s finishing the remainder.

Perpetual injunction

As with any other equitable remedy, the injunction will be refused where it is inequitable to grant it. The court will consider delay, eg, where the claimant has known of the breach for five years and taken no action as in Gaskin v Balls (1879) 13 ChD 324. The court will also consider acquiescence, such as where the claimant has exhibited such inactivity in the face of open breaches so as to justify a reasonable belief that he no longer intends to enforce the covenant (e.g., Chatsworth Estates v Fewell [1931] 1 Ch 224).

Although more than a year has passed before the Johnsons seek their injunction, and the construction has reached an advanced stage, yet there is no evidence that this was due to any acquiescence on their part. The fact that they waited will be a factor to be weighed, but will not necessarily be fatal to their case. Given that covenants tend to be upheld, as stated above (Wrotham), it is likely that the Johnsons will be able to make their case for an injunction.

Damages

The court has the discretion to order damages instead of forcing Michael to demolish the driveway. In Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798

Parkside built houses on its own land in breach of a restrictive covenant with Wrotham Park Estate in Wrotham Park, Hertfordshire. Wrotham Park sued for breach of the covenant Brightman J awarded £2500 damages, or 5% of the anticipated profits of Parkside under the Lord Cairn’s Act jurisdiction. It refused to make an order, for social and economic grounds, to demolish the houses built. The houses’ existence did not diminish the property’s value at all. But a nominal sum would not be enough to achieve justice.

On the other hand, in Mortimer v Bailey, the court found that the extension to the house which the defendants had built severely impacted the value of the plaintiff’s land, and ordered that it be demolished.

In Shelfer v City of London Electric Lighting Co Ltd [1895] 1 ChD 287. Lindley LJ at page 315 said that:

"... the Court has always protested against the notion that it ought to allow a wrong to continue simply because the wrongdoer is able and willing to pay for the injury he may inflict."

At pages 322 and 323 AL Smith LJ stated as a good working rule that:

"(1) If the injury to the [claimant's] legal rights is small,

(2) And is one which is capable of being estimated in money,

(3) And is one which can be adequately compensated by a small money payment,

(4) And the case is one in which it would be oppressive to the defendant to grant an injunction --

then damages in substitution for an injunction may be given."

In the present case, it is unclear that the Johnson’s land will suffer any diminution in value as a result of Michael’s actions. The court will likely order damages. In calculating the damages, the court will consider how much the Johnsons would have been likely to have charged if Michael had applied to be released from the covenant.

[NPR: Note that for exam purposes, you would not want to go into all of the discussion about mandatory interlocutory injunctions. The Johnsons would probably only be seeking a prohibitive injunction at the interlocutory stage.]