Doberman & Anor v Watson & Ors [2017] EWHC 1708 (Ch) (19 May 2017): A Second Bite of the Cherry

What was the background to this case?

1. This was an interim application by the Defendants to strike out the Claimants’ claim for a declaration under section 84(2) of the Law of Property Act 1925 that a restrictive covenant (“the Covenant”) burdening the Claimants’ land “not to erect on the piece of land hereby conveyed any buildings whatsoever other than one private dwellinghouse …” was not enforceable by the Defendants.

Facts

2. The Claimants were the owners of land to the south side of Centurion Way, Heddon on the Wall, Newcastle upon Tyne (“the Property”), and the Defendants were the owners of various adjoining or neighbouring residential properties, all of which were sold off in plots by a common owner, Mr Shield, between the 1930s and 1950s from a larger parcel of land he had acquired in 1929.

3. In 1978, the then owner of the Property, Mr Donald Gilbert, applied to the Lands Tribunal for a modification or discharge the Covenant under s.84(1)(a), (aa) and (c) of the Act for discharge or modification of the Covenant to allow a proposed development of residential houses to take place (“the 1978 Application”). Objections were received from a number of owners of adjoining or neighbouring residential properties and no objection was made by Mr Gilbert to the standing of those objectors, and they were admitted.

4. The Tribunal rejected the 1978 Application. The basis of the decision was that the proposed development would have obscured a view of the Tyne valley which the Tribunal called “resplendent”. That however was not a view from any of the objectors’ properties, but from two benches to the north of the Property. The Tribunal nonetheless held that this view constituted a practical benefit of substantial value to those entitled to the benefit of the Covenant.

5. At the time, that was a novel decision, and the matter was appealed to the Court of Appeal. The case stated explained that:

“By consent of all parties the hearing had proceeded upon the footing that the Respondents were entitled to the benefit of the said covenants by virtue of a Scheme of Local Law”.

6. The hearing in the Court of Appeal also proceeded on the basis that a building scheme existed and, for broadly the same reasons given by the Tribunal, the appeal was dismissed. Importantly, Waller LJ recorded in his judgment that:

“… it was agreed at the Bar that the restriction has to be treated as a covenant within a building scheme or, as is sometimes said, as local law.”

7. The Claimants in the present action were successors in title to Mr Gilbert – he was their father. By their claim, issued in July 2015, the Claimants sought a declaration pursuant to section 84(2) that the Property is no longer affected by the Covenant so as to allow a (revised) development of residential houses to be implemented.

11. The Defendants referred to a distinction drawn between res judicata in the narrow sense of a doctrine of estoppel, and a wider sense which encompasses abuse of process: Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581, 589-590. The narrow sense of estoppel (whether cause of action or issue estoppel) requires there to be:

11.1. a pronounced judicial decision by a tribunal with jurisdiction over the parties and subject matter;

11.2. which decision was final and on the merits;

11.3 that it determined a question raised in later litigation; and

11.4 that the parties are the same or their privies, or the earlier decision was in rem.[1]

12. The Defendants also referred to the distinction between cause of action and issue estoppel as explained by Lord Keith of Kinkel in Arnold v National Westminster Bank plc [1991] 2 AC 93, 104-105:

Cause of action estoppel arises where the cause of action in the later proceedings is identical to that in the earlier proceedings, the latter having been between the same parties or their privies and having involved the same subject matter. In such a case the bar is absolute in relation to all points decided unless fraud or collusion is alleged, such as to justify setting aside the earlier judgment. The discovery of new factual matter which could not have been found out by reasonable diligence for use in the earlier proceedings does not, according to the law of England, permit the latter to be reopened…

Issue estoppel may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to reopen that issue.

13. Thus, the Defendants argued, whether a previous judicial decision raises a cause of action or issue estoppel depends on whether there is identity of the cause of action in the subsequent proceedings. If there is, cause of action estoppel applies, and the bar is absolute (barring fraud or collusion). A limited exception applies only for a new point going to the existence or non-existence of the cause of action, which could not reasonably have been taken on the earlier occasion. If there is no identity of cause of action, but a particular issue is common to both causes of action, issue estoppel applies. In Arnold v National Westminster Bank plc [1991] 2 AC 93, 108-109, the House of Lords stated:

“in the special circumstance that there has become available to a party material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings”

14. Further, if an earlier decision falls short of establishing either a cause of action estoppel, or an issue estoppel, it may nevertheless be an abuse of the process in the Henderson v Henderson sense for a party to seek to litigate a claim/defence or issue which could and should have been raised in earlier proceedings if it was to be raised at all. In Johnson v Gore-Wood & Co [2002] 2 AC 1, 31 Lord Bingham identified the following propositions for whether the raising of such an issue would constitute an abuse of process:

14.1. abuse of process is a separate and distinct doctrine from res judicata estoppel but has much in common with them;

14.2. the underlying public interest is finality in litigation, and that a party should not be vexed twice over in the same matter;

14.3 the court must be satisfied that the claim or defence (or issue) should have been raised in the earlier proceedings;

14.4. it is not necessary for abuse to be found to identify any additional element such as a collateral attack on a previous decision, but where such an element is present the later proceedings will be more obviously abusive;

14.5. there will rarely be a finding of abuse unless the later proceedings involve some unjustified harassment of a party; and

14.6 in deciding whether an issue should have been raised in earlier proceedings the court adopts a broad, merits-based judgment which takes account of the public and private interests involved focusing on the crucial question whether a party is misusing or abusing the process of the court.

15. Additionally, that broad merits-based approach does not mean the court should consider the prospects of success of the claim which is said to be abusive (save perhaps in an extreme case): Stuart v Goldberg Linde [2008] 1 WLR 823, per Lloyd LJ at [57].

16. Applying their understanding of the law to the facts of this case, the Defendants made the following arguments:

Cause of action estoppel

17. The Defendants’ primary argument was that the 1978 Application raised a cause of action estoppel which binds the Claimants, being the successors in title to Mr Gilbert. There could be no real dispute that the Tribunal and Court of Appeal decisions in the 1978 Application were pronounced, and final judicial decisions on the merits, within those Tribunals’ jurisdictions. Nor can it be disputed that the parties to those decisions are the same, or their privies, or are bound in rem. One of the Defendants was a party to the 1978 Application and the other Defendants, insofar as they are not privies, are bound by the judgments pursuant to section 84(5) of the Act. The Claimants are the successors in title to Mr Gilbert, and so are his privies.

18. The Defendants continued their analysis by asking the question: Do the Claimants in this action seek to re-litigate a cause of action which was the subject of the litigation in the 1978 Application? To the Defendants the answer, on a proper understanding of the Act and the decisions, must be yes.

19. Section 84 of the Act at the material time, and so far as relevant, read:

(1)The Lands Tribunal shall… have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction on being satisfied…

(aa) that in a case falling with subsection (1A) below the continued existence thereof would impede some reasonable user of the land for public or private purposes…

(1A) Subsection (1)(aa) above authorises the discharge or modification of a restriction by reference to its impeding some reasonable user of land in any case in which the Lands Tribunal is satisfied that the restriction, in impeding that user, either

(a) does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them…

20. The 1978 Application, by the time it came on for hearing, proceeded as an application solely under ground (aa). Mr Gilbert therefore had to show (i) that the restriction would impede some reasonable user of the Property, and (ii) that the persons entitled to the benefit of it did not obtain any practical benefits of substantial value or advantage from the Covenant.

21. The objectors opposed the application. But the Tribunal would not have heard them without being satisfied, on evidence, that they were entitled to the benefit of the Covenant. In order to be heard, and in support of their objections, the objectors filed Objections which specifically averred that they were entitled to the benefit of the Covenant on the basis that there was a building estate or scheme and, as it happened, Mr Gilbert had admitted within his originating application that persons owning all or part of the building estate of Mr Shield were entitled to the benefit of the Covenant.

22. The objectors were therefore alleging a claim in the nature of a cause of action that they were entitled to the benefit of the Covenant. That claim had to be made in order to obtain standing; and it was a precursor to the Tribunal considering whether the Covenant secured practical benefits which could justify a refusal of the 1978 Application under section 84(1)(aa).

23. It followed that there was identity of cause of action between the 1978 Application and this action. In the 1978 Application, the objectors claimed to be entitled to the benefit of the Covenant. That claim was admitted, and then formed the basis of the Tribunal’s and the Court of Appeal’s dismissal. In this action, the Claimants ask for a declaration that the Defendants are not entitled to the benefit of the Covenant. That cause of action was finally determined in the 1978 Application and the Claimants are not at liberty to re-litigate that decision.

Issue estoppel

24. The Defendants secondary argument was that the 1978 Application gave rise to an issue estoppel. Following the analysis above, Mr Gilbert needed to persuade the Court that, in light of section 84(1A), there were no persons entitled to the benefit of the restriction that derived practical benefits from it.

25. Accordingly, the question whether the benefit of the Covenant had passed to the objectors and others deriving title from Mr Shield was a necessary ingredient for Mr Gilbert’s cause of action, namely for a discharge or modification. The Tribunal could only reject the 1978 Application on this basis if there were, in fact, persons entitled to the benefit of the Covenant. It was so satisfied on Mr Gilbert’s admission and the objectors’ evidence. The issue was, of course, also relevant to whether the objectors had standing to oppose the application at all. And the issue whether the Defendants are entitled to the benefit of the Covenant is at the very heart of this action. As the issue is common to both the 1978 Application and this action, an estoppel arises.

26. Importantly, the Defendants argued that it made no difference that Mr Gilbert admitted the objectors’ entitlement. The issue went to the Tribunal’s jurisdiction, which had required evidence of that entitlement before hearing the objectors. An admission of a matter which is fundamental to the question decided, not merely incidental or collateral, founds a res judicata estoppel: see Hoystead v Commissioner of Taxation [1926] AC 155. Nor can the Claimants contend that either (i) the running of the benefit of the Covenant is a new point which was not or could not reasonably have been taken on the earlier occasion, or (ii) that the issue should now be reargued because of materially altered circumstances such as the availability of new evidence. The point in issue actually arose and was admitted in the 1978 Application. And as the material which the Claimants seek to rely on is the very same material which would have been available to Mr Gilbert, the ‘special circumstances’ exception to issue estoppel simply does not apply on the facts.

Abuse of process

27. The Defendants’ tertiary argument was that the circumstances are such that it would be an abuse of process for the Claimants to question, in this action, the Defendants’ entitlement to the benefit of the restrictive covenant, when that issue could and should have been raised in the 1978 Application.

28. The public interest in finality in litigation is engaged to exactly the same extent as in relation to res judicata estoppel. The Claimants’ predecessor admitted an issue in earlier litigation. They now seek to resile from that issue, and upset the legal order which has held good for over 37 years. And the effect would be to vex the Defendants, and in particular the one Defendant who was a party to the 1978 Application. He, in particular, had reasonably expected that after 37 years, his entitlement to the benefit of the Covenant could not be called into question and this action amounted to an unjustified harassment.

29. Moreover, the objectors’ entitlement to the benefit of the Covenant could, and should, have been raised in the 1978 Application. By admitting the issue, Mr Gilbert obtained the Tribunal’s approval and his neighbours’ consent to the proposition that a building scheme existed, from which they all benefited. The estate as a whole has no doubt been regulated by that understanding for the best part of four decades. If there was now to be a challenge to the Covenant, and the building scheme as a whole, it should have been brought then. The Claimants and their predecessor should not be allowed to blow hot and cold.

30. Further it is obvious that if this action were to succeed, the result would constitute a collateral attack on the decisions in the 1978 Application, which decided that the Property could not be built on other than in conformity with the Covenant.

What did the court decide?

Cause of action and issue estoppel

The Court considered that, to determine whether the law on res judicata applied, it was necessary first to analyse the statutory scheme. The material provisions of section 84(1) have been set out above. The other provisions of the section, so far as they are relevant, are as follows:

(2) The court shall have power on the application of any person interested—

(a)To declare whether or not in any particular case any freehold land is or would in any given event be affected by a restriction imposed by any instrument; or

(b) To declare what, upon the true construction of any instrument purporting to impose a restriction, is the nature and extent of the restriction thereby imposed and whether the same is or would in any given event be enforceable and if so by whom.

….

(3) The [Upper Tribunal shall, before making any order under this section, direct such enquiries, if any, to be made of any government department or local authority, and such notices, if any, whether by way of advertisement or otherwise, to be given to such of the persons who appear to be entitled to the benefit of the restriction intended to be discharged, modified, or dealt with as, having regard to any enquiries notices or other proceedings previously made, given or taken, the Upper Tribunal may think fit.

(3A) On an application to the Upper Tribunal under this section the Upper Tribunal shall give any necessary directions as to the persons who are or are not to be admitted (as appearing to be entitled to the benefit of the restriction) to oppose the application, and no appeal shall lie against any such direction; but Tribunal Procedure Rules shall make provision whereby, in cases in which there arises on such an application (whether or not in connection with the admission of persons to oppose) any such question as is referred to in subsection (2)(a) or (b) of this section, the proceedings on the application can and, if the rules so provide, shall be suspended to enable the decision of the court to be obtained on that question by an application under that subsection, or otherwise, as may be provided by those rules or by rules of court.

(5) Any order made under this section shall be binding on all persons, whether ascertained or of full age or capacity or not, then entitled or thereafter capable of becoming entitled to the benefit of any restriction, which is thereby discharged, modified, or dealt with, and whether such persons are parties to the proceedings or have been served with notice or not.

32. In the Court’s analysis, the statutory scheme provided a procedure under section 84(1) for the discharge or modification of covenants and a separate procedure under section 84(2) for declarations as to, among other things, the construction and enforceability of covenants. The statutory scheme indicated a clear distinction between the functions of the Tribunal and the Court. Commenting specifically on section 84(1)(3A) (inserted by the Law of Property Act 1969) the Court thought that sub-section (3A) was intended, by giving the Tribunal power to make procedural directions, to facilitate (i) the resolution of disputes as to who may oppose any application for a discharge or modification under section 84(1), and (ii) the suspension of any such application pending determination by the Court of questions of construction and enforceability under section 84(2). The Court was sure that sub-section (3A) was not intended to confer on the Tribunal substantive power to rule on the construction and enforceability of covenants. It was designed simply to enable the Tribunal to give directions as to persons who may be admitted to appear as objectors, that is to say “those appearing to be entitled to the benefit of the restriction”. Such a direction could not amount to a decision as to whether or not (particular) objectors were entitled to the benefit of the restriction.

33. The Court considered that its analysis drew support from two authorities: the Court of Appeal’s decision In re Purkiss’ Application [1962] 1 WLR 902 and the first instance decision of Megarry J (as he then was) in Shepherd Homes Ltd v Sandham (No 2) [1971] 1 WLR 1062. Of particular relevance was the following passage in Shepherd Homes at 1071-1073:

If the Lands Tribunal is confronted by some difficult point of law upon which its jurisdiction depends, such as whether an ancient building scheme exists which entitles objectors to the benefit of the covenant, it seems to me clear from the judgments of Upjohn and Diplock L.JJ. [In re Purkiss’ Application] that the Lands Tribunal should proceed to hear and determine the application on its merits after either assuming or deciding that the objectors are entitled to the benefit of the covenant.

Such an assumption or decision, being on a matter for the court under section 84(2), will not be binding on those concerned, and may subsequently be questioned in the courts. Like any other tribunal of limited jurisdiction, the Lands Tribunal must have power to determine whether or not the case falls within the limits of its jurisdiction: but as with other inferior tribunals, that power does not enable it to expand or contract the jurisdiction that Parliament has conferred upon it, and so no party who is minded to challenge that decision upon jurisdiction will be bound by it in the courts. As a matter of convenience and prudence, the Lands Tribunal will no doubt decide the matter in most cases where the legal complexities are not over-burdensome, and assume the point where they are … The dicta in In re Purkiss’ Application give a valuable warning as to the extent to which decisions of the Lands Tribunal are binding on the parties, and offer a counsel of prudence to the Lands Tribunal: but I do not think that the case is authority for any general rule that the Lands Tribunal is bound to abstain from resolving points of law merely because they are said to be difficult.”

(Emphasis added)

34. The Court also noted that a passage in the 7th, 8th, 9th and 10th editions of Preston & Newsom’s Restrictive Covenants (at para 16-15 in 10th edition), states (albeit without referring to Shepherd Homes or Purkiss):

“If an application admits the title of a given objector for the purposes of one set of proceedings, he is not thereby precluded from challenging it in later section 84 proceedings.”

35. From its analysis of the statutory scheme, the Court concluded that the Defendants’ application to strike out, in so far as it was founded upon cause of action or issue estoppel, must fail. The Tribunal, when determining the 1978 Application, did not have jurisdiction to “decide” matters which fell within the ambit of section 84(2). Even if, which was doubtful, the Tribunal did decide that the objectors to the 1978 Application were entitled to the benefit of the Covenant, such a decision was not final. And it made no difference that Mr Gilbert may have conceded or admitted that the Defendants’ predecessors in title were entitled to enforce the Covenant under a building scheme. The correct view was that the Tribunal and the Court of Appeal had proceeded on a footing which bound no-one.

Abuse of process

36. For closely related reasons, the Court found that there was no abuse on the part of the Claimants in bringing the present action. The public interest that there should be finality in litigation, and that a party should not be vexed twice with the same matter, identified by Lord Bingham in Johnson v Gore-Wood [p.31], was not infringed here. None of the Defendants has been vexed twice because the 1978 Application concerned the discharge or modification of the Covenant (under the section 84(1)) whereas, the claim now before the Court concerns whether the Property was affected by the Covenant (under section 84(2)). If there had been any attempt on the part of Mr Gilbert to dispute the objectors’ entitlement to the benefit of the Covenant, the Tribunal would have had to suspend the 1978 Application whilst the dispute as to entitlement went off to the Court for determination. In the Court’s view, therefore, there had been no “harassment” of any Defendant, nor a collateral attack on the correctness of any decision made by the Tribunal or Court of Appeal.

37. In reaching this conclusion, the Court was also anxious to keep in mind Lord Bingham’s exhortation in Johnson v Gore-Wood [p.31] to focus attention on the crucial question of whether, in all the circumstances one party is misusing or abusing the process of the Court by seeking to raise before it an issue which could have been raised before. The Court’s view, in this case, was plainly no.

38. There was one further point which the Court referred to as to why “it would be a remarkable, and most unjust result, for any contrary conclusion to be reached in this case” [42]. The learned authors of the leading textbook (Preston & Newson) had, over many years expressed the view, without criticism from within the legal profession, that where the Tribunal determined an application to modify or discharge a restriction, having assumed or decided that objectors are entitled to the benefit of the restriction, such an assumption or decision will not be binding, and may subsequently be challenged in the Courts. And it would be unjust, and unfair, to characterise as abusive of a practice which accorded with the learned authors’ view (even if it transpired that their view had been wrong in law).

Andrew Olins, partner in IBB Solicitors, who acted for the successful Claimants.

16 June 2017

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References

[1] See Spencer Bower & Handley’s Res Judicata (4th edn 2009) para 1.02.