Thames Valley Holdings Ltd v The National Trust

The National Trust, which is the respondent to this appeal, has the benefit of a restrictive covenant over certain land near Maidenhead, imposed and enforceable under Section 8 of the National Trust Act 1937 and created by a deed in 1945. Thames Valley Holdings Limited, the appellant, applied to the Upper Tribunal (Lands Chamber) for the modification of this restrictive covenant under Section 84(1) of the Law of Property Act 1925 relying on paragraphs (aa) and (c) of that subsection. This is not the first time but the third on which application has been made under Section 84 in relation to this same covenant. Applications made and coming on in 1981 and 1992 were both unsuccessful. As on those occasions the National Trust opposes the application.

The National Trust took two preliminary points, one by way of an application to strike out the application as an abuse, and the other, which arose from an observation by the President of the Upper Tribunal (Lands Chamber), Mr George Bartlett QC, made in the course of the hearing, for, in effect, summary dismissal of one of the two grounds of the application, on the basis that it was bound to fail. These were considered at a preliminary hearing under Rule 8(3)(c) of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010. Partly because of the additional point which arose because of the observation made by the President, the matter took two full days of oral submissions which were followed up by written closing submissions. The President decided the applications in favour of the appellants and refused to strike out the application. The appellants then sought an order for the payment of its costs of those preliminary proceedings on an immediate basis by the National Trust. The President refused that application and instead ordered that the costs should be costs in the application. He refused permission to appeal, but Etherton LJ granted that permission. The matter has come on before us today with the appellant, Thames Valley Holdings Limited, represented as it was before the Upper Tribunal by Mr Michael Barnes Q.C. leading Mr Eian Caws and with the objector, the National Trust as respondent to the appeal, represented by Ms Katherine Holland Q.C., whereas below it had been represented by Mr John McGhee Q.C..

The position as regards costs, in relation to the jurisdiction to discharge or modify restrictive covenants under Section 84 of the Law of Property Act 1925, is dealt with in the practice directions of the Upper Tribunal (Lands Chamber), promulgated on 29 November 2010, at paragraph 12.5, as follows:

Before 2009 jurisdiction over applications under Section 84 was exercised by the Lands Tribunal. That Tribunal had a somewhat similar practice direction which was considered by this court in Winter v Traditional and Contemporary Contracts Ltd [2006] EWCA Civ 1740. In the course of his judgment in that case, the details of which do not matter for present purposes save to say that the main issue had been as to the status of an objector which was ultimately established, Carnwath LJ said this at paragraphs 21 and 22, having first set out the then paragraph 22.4 of the applicable practice direction, which was substantially in the same terms as paragraph 12.5.3 that I have read:

At paragraph 24 Carnwath LJ went on to say something which may have led towards the formulation of what is now paragraph 12.5.2, but he starts that paragraph by saying:

In that case Carnwath LJ was sitting with Buxton LJ and Longmore LJ. Longmore LJ dissented. I need not read any part of his judgment. Buxton LJ agreed with Carnwath LJ, and in paragraph 38, having referred to paragraph 22.4 of the Lands Tribunal practice direction which Carnwath LJ had read, he said this:

In the present case, of course, there is and can be no issue as to the status of the objector. The issue is as to the substance of the merits of the application, as to which the National Trust has advanced two issues on a preliminary basis unsuccessfully and will no doubt advance at least one of those, namely the point depending on Section 84(1)(aa), together with other issues, at the trial at some point in the future.

In terms of what Buxton LJ said in the passage that I have just quoted, it is a position in which the National Trust’s right was established and indeed was never in doubt, and therefore the preliminary stage at which, as he said, the costs assumption in favour of the objector did not apply was never pertinent to the present case. From that, and from what Carnwath LJ said at paragraph 21, it is fair to take the inference that the general rule in relation to Section 84 applications does apply as between this applicant (now appellant) on the one hand and the National Trust on the other.

Thames Valley Holdings sought their costs of the preliminary applications on the basis of having succeeded on those issues and by reference to the position as it would be in ordinary litigation, that in general terms a party who seeks to stop litigation in its tracks by a striking out application or summary judgment application and fails is likely to be at risk of having to pay the costs of that unsuccessful attempt. The National Trust, on the other hand, says that this was all part of its opposition to the application to modify or discharge the covenant, and that if it had been successful it would have saved a lot of time and money for the parties and indeed for the tribunal.

In accordance with the normal practice of the Lands Chamber of the Upper Tribunal, the President gave his decision on the preliminary issues, which is dated 16 August 2011, and invited submissions on costs from the parties which were to be put in writing. He received submissions from Mr Barnes and Mr Caws dated 26 August and submissions from Burges Salmon for the National Trust dated 9 September, and he came to his conclusion in the form of an addendum to the ruling on the substantive issues consisting of three paragraphs, dated 14 September 2011. As it happens, before that had reached the parties the applicant put in a reply dated 15 September which the President then considered but decided that it did not call for, or make appropriate, any modification to what he had already said.

As I have said, his ruling on costs consists of three paragraphs. In paragraph 39 he set out what the applicant was contending. It sought its costs, that is to say an order that the National Trust should pay its costs of those applications. It said that it relied on the proposition that the applicant had succeeded on the preliminary matters, that costs should normally follow the event, and there were no exceptional circumstances making it appropriate to depart from the general practice and that the main thrust of the applicant's case had been set out in substantial detail in advance and was well known to the objector before the application was made.

In paragraph 40 he referred briefly to the submissions for the National Trust by reference to the practice direction paragraph 12.5.3 and to the contentions for the National Trust that the application was the direct result of the substantive application, that it was not unreasonable for the objector to seek an early determination of the matter, but the costs would have been saved in the event of the application being successful would have been considerable, and that the premise and purpose of the objector's application was accepted by the tribunal.

The objector's contention was that the costs of the application should be costs of the case, thereby following the general rule for costs in Section 84 cases.

I should say that there is a reference to a time estimate for a full hearing of ten days or more which, in the President's text, is attributed to Mr Barnes, but that is an error and it should have been attributed to Burges Salmon or Mr McGhee, as is apparent from the submissions put in on behalf of the National Trust.

The essence of the decision appears in paragraph 41 which I will read, though substituting and correcting one reference from applicant to respondent to correct the President's error in the respect that I have just mentioned as to the source of the time estimate:

Mr Barnes for the appellant submits that the President's reason is at odds with his order. Costs in the application means that whoever wins in terms of costs at the end of the day will get the costs of the preliminary hearings, or no one will if there is no order as to costs. That will follow automatically according to the order made in respect of the substantive hearing. It will not depend on any future consideration of the incidence of costs. Accordingly, it is submitted that the President's reference to costs being considered in the light of the final result of the originating application is, he says, revealing of a tension and a mistake of some kind. He submits that that sentence indicates that the President envisaged the outcome of the incidence of the costs of the preliminary issues being decided at some future point once the final result of the originating application was known. The means of achieving that, if it had been intended, would have been to reserve the costs; however, neither party was seeking such an order or submitting that it was appropriate.

So he submitted that there is an inconsistency between the two last sentences of paragraph 41 and that the last sentence setting out the order would not follow from the penultimate sentence setting out what the President had said ought to happen. Of course, his submission is that even if the President had said in his final paragraph that the costs should be reserved, that would have been wrong. But, as it seems to me, the President was not referring to a future consideration of the incidence of the costs of the preliminary issues, but rather to the consideration that he was at that moment giving to the incidence of those costs and to his decision that that incidence should depend on the final result of the originating application and the order as to costs that was yet to be made on that application. That final result was of course not yet known, but it was open to the tribunal to determine the incidence of the costs of the preliminary issue by reference to whatever that final result turned out to be in terms of costs. In that way the President could achieve, and did achieve, a given outcome which would depend on the final order as to costs.

As I say, the President refused the appellant's application for permission to appeal against his own order. His refusal was dated 26 October 2011. He said there was no realistic prospect of success. He referred to the practice direction; he referred to the case of Winter; he referred to his conclusion that the objector had not acted unreasonably in seeking to have the issues determined as preliminary issues rather than at the substantive hearing. He then said this:

Mr Barnes did not accept that it was legitimate to have regard to what the President said in refusing permission to appeal, but he did accept that that text shows that, at any rate on 26 October 2011, the President perfectly understood the effect of his order that costs be costs in the application.

Mr Barnes submitted that the order that costs be in the application is inconsistent with the decision of Winter, and more particularly with the practice direction, and with the general rule that on an unsuccessful striking out application the applicant should bear the costs. He submits that the practice direction deals with two separate subject matters: first in subparagraph (2) with a preliminary issue as to the standing of an objector, as to which the normal rule that the unsuccessful party pays the costs will apply to the costs of determining that issue, and secondly, it deals with the substantive hearing of the application, to which he accepts that a special rule applies which favours the objector in the manner set out in subparagraph (3). He does not argue that the preliminary issues that were fought out in the present case are covered by paragraph 12.5.2 as such, but he says that they are also not covered by paragraph 12.5.3 and that they are therefore not taken out of the normal rule under which the unsuccessful party should pay the costs. He concedes that both points could be taken at the substantive hearing. That is plainly correct in relation to the point under Section 84(1) and (aa). Although in some cases a point based on abuse of process might be in its nature preliminary, so as to be not suitable to be taken in the final hearing, in the present case, realistically the nature of the issues that had to be addressed on the abuse application was very close to the issues that would arise on the substantive application because the question was: to what extent had the situation changed between 1981 and 1992 on the one hand, and the present day in terms of relevant circumstances, such as the character of the environment and other such matters. Those would undoubtedly have to be considered at the end of the day in any event.

It is to be noted that for the National Trust to have taken these points by way of a striking out application, or otherwise by way of an application for a preliminary hearing under Rule 8(3)(c) of the 2010 Rules was not the only possible way for these points to be relied on. It would, however, have needed in any event to identify these points as part of its grounds of objection, which Rule 34(1) requires to be sent to the applicant and to the tribunal, and in accordance with Rule 34(2)(d) the notice of objection must state any ground of objection. So the objector would have to say that it objected, if it had not already done so, on grounds of (a) abuse, and (b) Section 84(1)(aa), and whatever other grounds it sought to take. If the National Trust had not taken the initiative and taken the point by way of its striking out application but had waited until its notice of objection to put the point there without taking any such initiative, it would then have been open for each party and, for that matter, for the tribunal in considering how best to manage the case to address the question of whether any of these points ought to be taken at a preliminary stage in the interests of dealing with the matter in the most economic and expeditious manner consistently with the overriding objective.

What Ms Holland submits is that any such point that was taken in the grounds of objection and left to the substantive hearing to be dealt with would be litigated at that hearing subject to the favourable regime for objectors set out under 12.5.3 of the practice direction. She argued, with, as it seemed to me, some force, that if such a point was taken at a preliminary stage, however reasonably or sensibly, but if the situation in that case was that the objector risked having to pay the costs of the unsuccessful determination of such a preliminary issue, because that preliminary hearing was not regarded as falling within paragraph 12.5.3, this would be a significant disincentive to the objector to agreeing to or indeed taking the initiative to have a point, however sensibly, addressed at a preliminary stage. To that Mr Barnes addressed the equal and opposite submission that it would be entirely inappropriate for an objector to be able to take any number of preliminary points rather than leaving them to the substantive hearing, knowing that it did so at no risk as to costs unless it is held to be acting unreasonably.

As it seems to me, Ms Holland's submission on that point carries a great deal more persuasive force than that of Mr Barnes. The concern that Mr Barnes’ submission represents can perfectly satisfactorily be dealt with by the observation that if the objector indulges in excessive or unreasonable or overburdened applications on a preliminary basis or taking unreasonable preliminary points, then the objector risks being made liable in costs as having acted unreasonably, but, as it seems to me, it would be incompatible with the policy set out in paragraph 12.5.3, where a point which fairly and properly belongs as part of the substantive grounds of objection is taken for good reason as a preliminary issue, if the determination of that exposes the objector to a different regime as to costs free from the protective rule resulting from on the policy behind Section 84, which is set out in paragraph 12.5.3.

As it seems to me, Mr Barnes’ submission that applications of a preliminary nature in the context of the section 84 application, other than applications as to the standing of an objector, are simply not covered in the practice direction is not justified. I would agree with Ms Holland's submission that the practice direction discloses a policy, and a soundly based policy, that in terms of the language of Buxton LJ, once the putative objector has established his or her right to be an objector then one is in the favourable regime as to costs which is described in paragraph 12.5.3 of the practice direction, and so the exceptions to that are, first of all, any dispute as to the standing of the objector, which is covered by 12.5.2 and on which the parties are at direct risk as to costs in the ordinary way, and apart from that the exceptions are covered by the words of the practice direction “normally” and the reference to “unreasonably”. The normal rule protects the reasonable objector. The unreasonable objector is not protected, and there may well be cases where that normal rule is found not to apply. I do not say that a preliminary point other than as to the standing of the objector will always be covered by the normal rule set out in 12.5.3. There will no doubt be many procedural points or preliminary points which are basically part of, or close enough to, the substantive issues to be in any event covered by that paragraph. There may be purely procedural issues which are not necessarily subject to that paragraph, or at any rate on which the conduct of one party or the other is held to be unreasonable, or which are held to be outside the range of normality so that the practice direction is not necessarily determinative.

But it seems to me the President's conclusion in the present case is soundly based. I do not accept, for reasons that I have given, that the last two sentences of paragraph 41 of his decision on costs disclose any misunderstanding on his part as to what he was doing or the effect he was achieving. If one looks at paragraph 41 as a whole, it is quite clear that he knew and understood a) what he was being invited to choose between in terms of the range of possible orders, and b) what the effect of those orders would be. One might put forward different language for his penultimate sentence that would make impossible the submission that Mr Barnes put to us, but in any event it seems to me there is no substance in that submission; nor would I accept that there is any injustice in the result that the President's order achieves. Mr Barnes submitted that there was an injustice, but that, as it seems to me, was really no more than a different aspect of his proposition that an objector who took a preliminary point and lost it ought to pay the costs of that in the normal way, whereas if, as the President held, it was a reasonable course for the objector to take and it was reasonably conducted, and leaving aside of course the case where the status of the objector is at issue, then it seems to me that the ordinary rule enunciated in paragraph 12.5.3 should apply and that it was therefore perfectly sensible and reasonable to come to the conclusion to which he did come. For those reasons I would reject Mr Barnes' submission that there was any error of law or misdirection or failure of reasoning or injustice in the President's decision, and I would therefore dismiss this appeal.

I agree.

I also agree and cannot usefully add anything.