GLN (Copenhagen) Southern Ltd. v Tunbridge Wells Borough Council

LORD JUSTICE NEUBERGER: This is an appeal from a decision of Mr Kevin Garnett QC, sitting as a Deputy High Court Judge, as to the effect of a restricted covenant contained in a transfer of land made on 1st December 2000 ("the Transfer").

By the Transfer ABC Cinemas Ltd transferred property ("the Property"), therein described as "Essoldo Cinema, Mount Pleasant Road, Tunbridge Wells, Kent", to Grange Estates Ltd (therein "the Transferee").

Clause 12.2 of the Transfer contained a covenant in these terms (and I divide up clause 12.2.2 for convenience into subparagraphs (a) and (b), although it is not so subdivided in the Transfer: -

Clause 12.3 of the Transfer contained a covenant by the Transferee in identical terms, save that it was with Odeon Cinemas Ltd and the opening part of the covenant forbade the use of the names "Odeon" and "Odeon Cinemas".

GLN (Copenhagen) Southern Ltd ("GLN") is the freehold owner of a piece of land ("the Land") which includes the Property. It is common ground that GLN is bound by the covenants contained in clause 12.2 and 12.3, and that these covenants are respectively enforceable by the original covenantees, ABC Cinemas Ltd and Odeon Cinemas Ltd ("the Covenantees"), as they retain property capable of benefiting from the covenants, and Odeon Cinemas Ltd is entitled to rely on the Contracts (Rights of Third Parties) Act 1999.

In November 2001 GLN applied to the local planning authority, Tunbridge Wells Borough Council ("the Council"), for planning permission for a substantial and comprehensive development of the Land. Planning permission was refused in April 2003, partly because the local plan review (approved in November 2001) stipulated for a cinema within development proposals relating to the Land.

This refusal is currently the subject of an appeal by GLN, and the hearing of the appeal has been adjourned part heard and will be resumed in some six weeks. That hearing is also concerned with determining the objections of GLN to the local plan review.

One argument being advanced by GLN in the planning appeal is that any development of the Land which involves cinema use would be precluded by the terms of clause 12.2 and 12.3 of the Transfer.

At the hearing of the planning appeal, the Council produced an alternative development scheme which included a multi-screen cinema ("the Cinema"). The plans for this alternative proposed development scheme ("the Scheme") show that the cinema would be built on part of the Land not included in the Property. However, the means of pedestrian access to the proposed cinema would be over the Property.

The Scheme would have seven floors. The basement and lower ground floors would include retail, servicing and car parking spaces. The upper ground floor would have four screens (Screens 2 to 5) of the five screen Cinema, two fairly large retail units and a loading bay. The first floor would have six retail units and a further screen (Screen 1) of the Cinema. The remaining three upper floors would consist of about 35 residential flats and circulation areas. While all five screens would be included in the development of the Land, there is no question of any part of them occupying any part of the Property.

At street level - ie upper ground floor level - there would be access from the public highway to an entrance foyer giving access to the two upper ground floor retail units, and also to an escalator, staircase and lift, all of which would lead to the first floor concourse ("the Concourse") which in turn would give direct access to six retail units and the Cinema entrance on that floor. Three of the first floor retail units would be around 100 sq m in floor area, the fourth would be some 265 sq m, and the fifth and sixth would each have an area in the order of 650 sq m. Screen 1 would have an area of 300 sq m, but the entrance and associated parts of the cinema at first floor level, which appear to include a foyer and a cafe, would extend to another 300 sq m or so. Screens 2 to 5, from which access would be obtained by lift or staircase from the foyer would occupy about 220 sq m on average.

Importantly, the staircase, escalator and most of the Concourse would be on the Property.

In these circumstances, GLN launched the current proceedings against the Council, albeit in collaboration with the Council, primarily for a determination that "the use of any part of the Property ... for access to and egress from a cinema would constitute a breach of the covenants [contained in clause 12.2 and 12.3 of the Transfer]".

The Covenantees were joined as they had an obvious interest in the issue, and they were represented before the deputy judge.

Accordingly, the deputy judge was faced with the rather paradoxical situation of a covenantor contending that a covenant precluded him from using the burdened land for a particular purpose.

The issue before the deputy judge centred on both clauses 12.2 and 12.3, but he only dealt with clause 12.2. This was because the same conclusion would apply to both clauses as they are identically worded, and I will take the same course.

GLN accepted that, under the Scheme, the Property would not be used in breach of clause 12.1 because use of a means of access to the Cinema is not use "as a cinema", a proposition which seems to me to be plainly right as a matter of ordinary language. Indeed, it is supported by the reasoning in the first instance decision in Elliot v Safeways Stores Plc [1999] 1 WLR 1396, and in the decision of this court in Co-operative Retail Services Ltd v Tesco Stores Ltd (1998) 76 P&CR 328. In the latter case a covenant against use of land for "the purpose of food retailing" was not breached by the use of the land for associated landscaping without which immediately adjoining land could not have been used for food retailing.

However, GLN contended, with the support of the Covenantees, that use of the Property, or part of the Property, as a means of access to (and egress from) the Cinema would be an "associated or ancillary ... use" to the "principal purpose of use for image projection for the showing of whole films in an auditorium setting" within clause 12.2.2(a). To make that contention good, GLN had to establish:

I should add that a similar argument was also maintained by GLN in relation to the provision of services over the Property to the Cinema and the use of hoardings on the Concourse and escalator advertising films to be showed at the Cinema.

In a reserved judgment, Mr Garnett concluded:

With Mr Garnett's permission, GLN and the Covenantees appeal the first finding, and the Council appeal the second finding. However, the Council have taken as a preliminary point the contention that GLN's appeal should not be permitted to proceed. This argument was advanced on the ground that, although the Covenantees initially appealed alongside GLN, they have now withdrawn their appeal. In those circumstances it was argued that:

We were initially attracted by that argument, which was clearly and succinctly developed by Mr Peter Crampin QC, who appears with Mr Alistair Craig for the Council. However, having heard from Mr Wayne Clark, who appears on behalf of GLN, we were persuaded that to accede to the argument would not accord with practical reality or fairness.

So far as practical reality is concerned, it is clear that, although the Covenantees no longer maintain their appeal, they support GLN's case on the appeal, and would want to take advantage of a successful appeal. We have seen a letter from their solicitors to that effect.

Although they may, in strict principle, not be able to take advantage of a reversal of the deputy judge's decision by this Court, it would on the present facts be wholly unconscionable for GLN to seek to take advantage against the Council of a decision of this court without at the same time accepting that the Covenantees would be able to take advantage of that decision as against GLN. Indeed, as I understand it, Mr Clark does not suggest otherwise.

As to fairness, these proceedings were something of a joint enterprise between the Council and GLN from the inception, in order to find out whether the implementation of the Council's Scheme would lead to a breach of clause 12.2 and clause 12.3 of the Transfer. If the deputy judge gave the wrong answer to that question it would be unfair on GLN if that wrong was not put right, especially as the deputy judge gave each party permission to appeal and both parties not long ago jointly supported an application to expedite the appeal. In those circumstances, we concluded that it would be right to proceed with the appeal, and therefore, with the cross-appeal.

I turn then to the first question which arises, which is whether use as a cinema falls within clause 12.2.2(a).

So far as normal language is concerned, it seems to me self-evident, and I do not understand it to be seriously disputed, that use as a cinema falls squarely within the words "for the principal purpose of use for image projection for the showing of whole films in an auditorium setting".

The only problem with holding that a cinema use is within 12.2.2(a) is that it renders clause 12.2.1 effectively redundant. Despite that, I am of the view, in disagreement with the deputy judge, that use as a cinema does fall within clause 12.2.2(a).

First, as I have said, the natural meaning of clause 12.2.2(a) covers cinema use fairly and squarely. Indeed if it does not cover a cinema, the covenant has a very narrow ambit indeed. Mr Crampin argues that a cinema may be outside clause 12.2.2(a) because of the word "principal". I am unimpressed with that. Use of a building as a house would plainly be a breach of covenant not to use the property concerned for "the principal purpose of a residence". The word "principal" was included in clause 12.2.2(a) to emphasise that the prohibited use in question must be the principal or main purpose to which the land in question is put, so that if it is merely put to such a use for an ancillary purpose it would not be prohibited.

Secondly, it is not unusual for conveyances to say the same thing twice. In Tea Trade Properties Ltd v CIN Properties Ltd [1990] 1 EGLR 150 at 158A, Hoffmann J said:

Hoffmann J made similar observations in Norwich Union Life Insurance v British Railways Board [1987] 2 EGLR 137 at 138C, where he referred to the "torrential style of drafting which has been traditional for many years" among draftsmen of covenants in leases.

More recently and more generally, Lord Hoffmann said this in Beaufort Developments Ltd Gilbert-Ash Ltd [1999] 1 AC 266 at 274A:

Thirdly, there is the very important factor, touched on at the end of the quotation from Hoffmann J in Tea Trade, namely commercial common sense. It would seem surprising and commercially hard to explain if ancillary etc uses were prevented in connection with the very limited clause 12.2.2(a) uses which the judge's conclusion would require, but not in connection with a cinema use under clause 12.2.1. It makes much better sense if clause 12.2.2(b) applies to cinema use, especially bearing in mind the identity of the original Covenantees, ABC Cinemas Ltd and Odeon Cinemas Ltd.

To quote from Mr Clark's skeleton argument:

Further, Mr Crampin accepts, as he must, that, if he is right as to the effect of the word "principal" in clause 12.2.2(a) it would catch a cinema with an associated cafe available to members of the public. It would seem very surprising if such a cinema was within clause 12.2.2(a) whereas a cinema without any other associated use was not.

Indeed, it seems to me that the deputy judge's conclusion would result in the unappealing notion that where there is a use which falls within the natural meaning of clause 12.2.2(a) on adjoining land, there will almost always be an argument as to whether the use in question in nonetheless within clause 12.2.1.

Fourthly, it is possible to discern some logic in GLN's construction. The Property plainly was used as a cinema at the time of the Transfer. Hence clause 12.2.1. However, in the future, as Keene LJ has pointed out, technological chances or redevelopment of the site might result in a use which, while objectionable to the Covenantees, would fall outside the limited words of that clause. Hence the wider and more flexible words of clause 12.2.2.

Further, contrary to what Mr Crampin says, it seems to me that there is nothing odd about there being no equivalent to clause 12.2.2(b) in clause 12.2.1, if GLN's construction is correct. If a cinema use is within 12.2.2(a), then clause 12.2.2(b) does the job for the covenantees without the need for a similar provision in clause 12.2.1.

That then leads to the second issue, namely whether the use of the staircase, escalator, lift and Concourse ("the common parts", all, at least in the main, within the Property) as a means of access to (and egress from) the Cinema outside the Property would be ancillary use within the meaning of clause 12.2.2(b), bearing in mind they will also be used as a means of access and egress for the six first floor shops to which I have referred.

I accept that land not itself actually used for a particular purpose, but used in connection with the purpose to which adjoining premises are put, can be said to be put to a use ancillary to that purpose.

To hold otherwise would be to fly in the face of the natural meaning of the word "ancillary", as illustrated by the following remarks of Millett LJ in the Co-operative case at 331:

Equally, I accept that the development and subsequent use of property exclusively as and for a means of access to a development would normally result in the use of the property being fairly said to be ancillary to the use of the development.

However, where, as here, the common parts are used as a means of access to a development, or part of a development, with several different uses, it is a potentially much more difficult question whether the use of the common parts concerned is ancillary to the use of one or some of the units in the development or in the relevant part of the development - particularly in the light of the wording of clause 12.2.2(b). Inevitably the resolution of that question must depend in part on the facts and in part on the provision in the document in which the word "ancillary" is to be found.

Thus, in the present case, if there was only two small shops to which the common parts would give access, I would have thought that use of the common parts would be ancillary to the cinema use. On the other hand, if one of the bigger retail units had franchised out an area for use as a perfumery counter I do not think one would describe the use of the common parts as "ancillary" to the use of that counter.

On the present facts I have come to the conclusion that the use of the common parts would not be in breach of clause 12.2.2(b). At least partly because the question is one of degree I do not find it entirely easy to articulate my reasons for reaching that conclusion. In that connection I take some comfort from what Hoffmann J said in the Norwich Union case at 138H-J:

Having said that, like Hoffmann J in that case I must do my best.

The area occupied by Screens 1-5 represents little more than half of the area of the other property served by the Concourse, escalator, staircase and lift, namely the six first floor retail units, and the foyer and cafe in the cinema area.

In those circumstances, I see the force of the argument for saying that use of the common parts would be "ancillary" to the use of the first screen area: the latter represent a substantial proportion of the area (some 35%) served, effectively directly, by the common parts. However, clause 12.2.2(b) is concerned with precluding a use which is "ancillary" to a use within clause 12.2.2(a). In my judgment, this means that clause 12.2.2(b) only precludes something which is "ancillary" to the use of premises, which use, when taken as a whole, is within clause 12.2.2(a) - i.e. a use which can be described as "the principal purpose of use for image protection ..." In other words, one must look at the totality of the premises (and the use of that totality) to which the use of the Property is said to be ancillary.

It is possible to read clause 12.2.2(b) as applying to any case where the use of the Property is ancillary to a use of any premises (in this case the first Screen) whose purpose is image projection. Indeed, such a construction receives some support from the echo of the word "use" in clause 12.2.2(b) from clause 12.2.2(a). However, it appears to me that, particularly if one bears in mind that the conclusion applies equally to the effect of the words "associated" and "similar" in clause 12.2.2(b), that the more natural and commercially reasonable conclusion is that one must look at the "principal purpose" of the totality of the premises to which the use of the Property (or part of the Property) is said to be ancillary.

In that connection, I was struck by the agreement effectively reached between counsel about the use of the Property for advertising films shown the Cinema. Realistically, Mr Crampin was disposed to accept that the use of a hoarding dedicated to advertising films at the Cinema would be a use ancillary to the cinema use, and Mr Clark was equally realistically inclined to accept that a hoarding with six advertisements which are shown sequentially would not be an ancillary use merely because it included one advertisement for a film or the films showing at. Analogies are, I accept, very dangerous but I think the common ground casts a little light on the debate as to whether the use of the common parts would infringe clause 12.2.2(b), and provides a little support for my view.

I also consider that one would expect to find clearer words before being satisfied that the parties to the Transfer intended to prevent the use of part of the Property for an apparently innocuous purpose, namely for access to a significant part of a redevelopment on other land, where that part of the redevelopment happened to include, a cinema. While deprecating the notion that one should construe a covenant in an artificially narrow way simply because it is restrictive of the use to which an owner can put his property, I am of the view that a restrained, rather than a generous, interpretation of such a covenant is normally appropriate.

Having reached that conclusion, it appears to me that, at least by reference to areas, it is clear that the "principal purpose" of the use to which the premises served by the common parts are put would be retail. The retail use on the first floor would occupy some 1850 sq m, but even if one includes the foyer and cafe as part of the area used for "image projection" (which I think would be incorrect), the area used for that purpose would be of the order of 1500 sq m. While it would by no means always be right to assess the principal purpose to which premises are put by reference to the respective areas occupied for various independent uses, it will almost always be a significant factor, and, in the present case, no other relevant factors appear from the evidence or from experience or common sense.

I say no more about the use of the Property for the purposes of advertising. The agreement effectively reached between the parties appears to me to be correct.

Finally, I consider that there is nothing in the contention that the use of the Property for the purpose of connecting up the Cinema for the purpose of services would constitute a breach of clause 12.2.2(b). As Mr Crampin says, the services are provided for the benefit of the building and not for the benefit of the particular use, a telling point bearing in mind the way in which clause 12.2.2(b) is worded.

In these circumstances I would allow both the appeal and the cross-appeal, and thereby, in practice I reach the same conclusion as the deputy judge.

LORD JUSTICE WALL: I agree that this appeal should be dismissed. I was initially attracted to Mr Crampin's submission that paragraph 12.2.2 of the Transfer did not relate to a cinema. However, on reflection, it occurs to me that perhaps the word 'or' at the end of paragraph 12.2.1 cannot bear the weight which such an interpretation would require it to bear, particularly if, as Keene LJ suggested in argument, paragraph 12.2.2 was designed to catch a use of the burdened land which was to all intents and purposes a cinema but which the developer of the land wished to call something else. Accordingly, and assuming for this purpose that paragraph 12.2.2 is referring to a cinema, I am satisfied that the concourse which provides access across the burdened land to the retail units and [Screen 1 of] the cinema in the development proposed by the local authority cannot properly be described as being ancillary to the "principal purpose of use" of the property as a cinema.

The development commissioned by the local authority was described by the judge as "a development scheme which provides amongst other things for a multi-screen cinema, to be located on a part of the property which is situated outside the burdened land but for which access and services would be enjoyed over and through parts of the burdened land". Neuberger LJ has described the development and explained the particular plans which show the cinema and a number of retail units.

I do not therefore think that the use of the burdened land, in particular the concourse which will give access to the first screen cinema and 6 of the retail units, can properly be described as ancillary to the principal purpose of use of the property as a cinema as stated in paragraph 12.2.2. I do not think that the cinema for this purpose is the principal purpose or use of the land. It is one of the uses to which access is provided over the burdened land. For those reasons, in addition to those given by my Lord, I too would dismiss this appeal.

LORD JUSTICE KEENE: I agree that this appeal should be dismissed for the reasons given by both my Lords.