Smith Brothers Farms Ltd v The Canwell Estate Company Ltd

Perpetual rentcharges on freehold land are quite common in certain parts of the country, mainly in the areas of Manchester and of Avon, including Bristol. The Rentcharges Act 1977 (the 1977 Act) prohibited the creation of new rentcharges. This appeal is about the legal status and effect of a registered rentcharge created in 1990 on land near Lichfield.

The parties to this appeal are (1) the owner of a registered rentcharge, the Canwell Estate Company Limited (Canwell), and (2) the owner of freehold agricultural land on the Canwell Estate (the Estate) in Staffordshire, Smith Brothers Farms Limited (the defendant).

In December 2008 Canwell began proceedings against the defendant for the recovery of arrears of service charge contributions under its registered rentcharge. It succeeded in its arguments on the construction of the 1977 Act and on the validity and scope of the rent charge created by a transfer of registered land dated 7 August 1990 (the 1990 Transfer). Canwell ran an alternative claim for rectification of the 1990 Transfer, in case it failed on construction. The judge’s acceptance of Canwell’s contentions on construction meant that, although the judge held that the case for rectification was made out in fact and law, the court made no order for rectification.

On the defendant’s appeal, the principal issue is the construction of the 1977 Act. With certain exceptions, the creation of new rentcharges after 21 August 1977 is prohibited. Prohibited rentcharges are void. The key question is whether this case falls within a special exception from the general prohibition made for “estate rentcharges” in s.2 of the 1977 Act. They may still be validly created for limited purposes. The relevant purpose is contribution towards the cost of the performance by the rent owner of covenants for the provision of services for the benefit of the land affected, or for the benefit of that land and other land: see s.2(4)(b) of the 1977 Act, which is set out below.

Canwell provides services to the Estate. At one time the Estate covered 2,500 acres. It is now split up into areas of separate ownership. The services once included sewerage services and water supplies, but that is no longer the case. This dispute is about unpaid contributions to the cost of Canwell’s upkeep of all the roads on the Estate. Canwell says that the rentcharge, on which it relies to recover the arrears of contributions, is for the purpose of contributing towards the cost of the performance of its covenant to use its best endeavours to maintain and repair all the roads on the Estate. It also says that the performance of its covenant is for the benefit of the defendant’s land and other land on the Estate.

Other issues arise on the construction of the scope of the rentcharge provisions in the 1990 Transfer and on a renewed application by the defendant for permission to appeal against the judge’s conclusion on Canwell’s rectification claim.

The arrears, which total £14,653.09 for the last 7 years, seem modest in comparison with the cost of the complicated proceedings for their recovery. On the defendant’s case, £800 a year would be a more reasonable service charge than over £2,000 a year claimed by Canwell. However, the judge did not have to decide whether the actual amounts of Canwell’s charges were reasonable. The issues before him were solely about the construction of the rentcharge provisions in the 1990 Transfer and in the 1977 Act.

The size of the sums does not tell the whole story. A perpetual rentcharge on the defendant’s freehold land is in itself of considerable practical importance to both parties. It may affect the value of the defendant’s land. The defendant’s legal objections may indirectly affect the contribution liabilities of other owners of freehold land on the Estate. The outcome of the appeal could also affect Canwell’s modus operandi in its provision of services, its method of recovering contributions to the costs of provision and its reliance on rentcharges to enforce the scheme of contribution by the various owners of land on the Estate. There are around 40 of them.

At the end of all the arguments the question on this appeal is whether the order for payment of the arrears made by HHJ Simon Barker QC against the defendant on 27 June 2011 in the Birmingham County Court was wrong.

Canwell’s case is that the defendant is liable under the 1990 Transfer for arrears of contributions due from it as a debt under the registered rentcharge affecting that part of the Estate called the Golf Club Site. The defendant is successor in title to part of that affected land. Canwell, which was incorporated in 1980, owns all the roads and other amenity areas (collectively called “the Service Areas”) on the Estate.

Turning to the 1990 Transfer, the consideration paid was £2.25m. The parties were (1) the West Midlands Residuary Body (WMRB), transferor of the Golf Club Site; (2) Canwell, owner of the Service Areas and service provider; and (3) Elidor Limited (Elidor), transferee. The defendant was not a party to the 1990 Transfer. There is no contract between the defendant and Canwell. The defendant is sued as a successor in title of Elidor to a substantial part of the Golf Club Site affected by the rentcharge.

Alternatively to the rentcharge, Canwell invoked the benefit and burden principle recognised in Halsall v. Brizell [1957] 1 Ch 169 as entitling it to recover from the defendant a reasonable contribution to the costs incurred in providing services. That principle does not assist Canwell’s rentcharge claim and forms no part of this appeal.

The 1990 Transfer contemplated that the land transferred would be used as a golf club and country club, but that project has not materialised. The land use is still agricultural. As a result of further transfers of a part of the Golf Club Site in 1995 and 1997, the defendant is now the largest single land owner on the Estate.

Clause 3 of the 1990 Transfer contained a perpetual yearly rentcharge of £1. It also provided that a sum computed annually to be equal to the amount payable under clause 6(b) and the sums payable under clause 6(k) be for ever charged upon and issuing out of the transferred property.

Clause 6(b) of the 1990 Transfer contained a covenant by Elidor. The covenant was to contribute and pay such proportion of the costs, expenses, outgoings and matters mentioned in Parts I and II of the Fourth Schedule as the area of the property bears to such part of the Estate as are included in the scheme of contribution as mentioned in paragraph (k) of Part II of the Fourth Schedule, such proportion being at the date of the 1990 Transfer 18.262%.

Clause 6(k) provided that, in addition, there should be paid to Canwell a sum equal to 90% the cost of repairing, resurfacing and generally maintaining that part of Brockhurst/ Brick Kiln Lane to which the transferred property has a frontage. Elidor was granted a right of way over and along part of that lane. The defendant says that the 90% service charge is not reasonable in relation to Canwell’s performance of its covenant and that there is no rentcharge on the defendant’s land in respect of that % .

The defendant was also granted a right to the passage of electricity, gas and telephone communication through all pipes, conduits, wires and cables now in, under or over the Estate or “the Estate Roads” and, subject to compliance with statutory requirements, the right to connect to such pipes, conduits, wires and cables, which are now in, under or over the Estate: see paragraph (g) of Part I of the Second Schedule. There is an issue whether “the Estate Roads”, which is not a defined expression in the 1990 Transfer, include all the roads on the Estate, or only those roads over which the defendant was granted a right of way.

Part I of the Fourth Schedule included an obligation on the part of Canwell:-

“(a)

To cleanse repair maintain and as often as may be reasonably necessary renew the said water mains reservoirs and roads so that the same shall be adequate for the use of the Transferred Property on the conditions referred to.”

A water company has now taken over the water supplies. As for the roads, the directors of Canwell gave a written undertaking in a letter dated 24 November 2010 not to enforce the defendant’s obligation to pay 90% of the cost of repairing the relevant part of the lane over which the defendant has a right of way, while the defendant’s land is still used for agricultural purposes.

With the acquiescence of the other landowners on the Estate, service charges have in practice been assessed not by reference to % contributions of a total service charge bill mentioned in the 1990 Transfer, but by reference to a fixed sum and to a charge per acre. In the case of the defendant, this would result in liability to pay a smaller sum than the requirement to pay 18.262% of the total costs.

The 1990 Transfer did not contain an express covenant by Canwell to provide services to the Estate. The defendant took the point that the absence of an express covenant to provide services meant there was no valid rentcharge within s. 2 of the 1977 Act. Canwell’s case at trial was that the 1990 Transfer should either be rectified to include an express covenant or construed as imposing on it an implied qualified covenant to use its best endeavours to perform the obligations in Part I of the Fourth Schedule.

The court order dated 27 June 2011 contained a declaration that the 1990 Transfer:

“ …is to be construed so as to include a covenant by[Canwell] to use its best endeavours to perform its obligations as set forth in Part I of the Fourth Schedule hereto, and for the avoidance of doubt the reference to “roads” in paragraph (a) of Part I of the Fourth Schedule includes all the roads on the Estate.”

The defendant sought to appeal on the ground (ground 1) that there was no such covenant. Lord Neuberger MR refused to grant the defendant permission to appeal on that ground. The defendant has not renewed its application for permission on that ground. That has a knock-on effect on the defendant’s proposed appeal against the judge’s decision on ground 2, namely, that, if Canwell lost on the covenant/ construction point, the judge was wrong to hold that Canwell would have been entitled to an order for rectification of the 1990 Transfer to include an express covenant to provide the services. Lord Neuberger refused permission to appeal on ground 2 on the basis that, in those circumstances, the rectification claim would be academic. However, at the hearing of this appeal, the defendant renewed its application for permission to appeal on ground 2, so that it could argue in this court that Canwell should be ordered to pay the costs of the rectification claim below.

Lord Neuberger granted permission to appeal on two grounds only: ground 3, which relates to the construction of the “estate rentcharge” provisions in s.2 of the 1977 Act; and ground 4, which relates to the construction of the references to “roads” and “the Estate Roads” in the 1990 Transfer.

The judge held that the 1990 Transfer created in favour of Canwell a valid “estate rentcharge” that affected the defendant’s land within the meaning of s.2(4)(b) and (5) of the 1977 Act.

In a supplemental judgment the judge decided that, on its proper construction, the reference to “roads” in paragraph (a) of Part I of the Fourth Schedule to the 1990 Transfer, in which the services Canwell is obliged to provide are identified, includes all the roads on the Estate. He rejected the defendant’s contention that the “roads” were confined to those roads on the Estate over which the defendant had been granted rights of way.

Judgment was given for Canwell in the total sum of £19,317.15 inclusive of interest, together with an order that the defendant pay 75% of Canwell’s costs, excluding costs of and caused by amendments to Canwell’s statement of case. An order was made for payment of £21,000 on account. The defendant’s application for permission to appeal was refused by the judge, but granted on grounds 3 and 4 by Lord Neuberger.

I shall deal first with the 1977 Act, then with the 1990 Transfer and finally with the renewed application for permission to appeal on ground 2.

Construction of 1977 Act (ground 3)

The 1977 Act was passed following the Law Commission’s recommendations in its 1975 Report on Rentcharges (Law Com. No 68). Appendix II of the Report contained a draft Rentcharges Bill with explanatory notes on draft clauses. The 1977 Act enacted the draft Bill.

In its Report the Law Commission concluded that, with certain exceptions, it should no longer be possible to create rentcharges. They had, in general, become inconvenient in the investigation of title and unpopular with freehold rent payers. A limited exception to the general ban on rentcharges was made for “covenant-supporting” or “service charge” rentcharges. They were described in paragraph 48 of the Report as “rentcharges forming an integral part of schemes beneficial, directly orindirectly, to the land charged” [my emphasis]:-

“48.

…The need for this exception arises mainly in cases where a property development has produced a distinct group of separate freehold houses or where a single building is divided into separate freehold parts. In such a situation the preservation, value and enjoyment of each unit may well depend upon the observance of certain covenants by the owners of the other units. These covenants may be negative in form (such as a covenant not to carry on a trade), or they may be positive (for example, a covenant essential in a block of flats, that each unit owner will keep his own unit in repair)…”

Having noted legal difficulties in the enforcement of positive covenants, the use of rentcharges to make them directly enforceable against successors in title, and variations in the kind of service charge schemes used in practice, the Law Commission added that service charge rentcharges were clearly distinguishable from the “ordinary vendor’s rentcharge” :-

“ 50. …their rationale is plain to see and they are not imposed to provide a source of pure income profit to the rent owner.”

Section 2 of the 1977 Act (“Creation of rentcharges prohibited”) provided that

“(1)

Subject to this section, no rentcharge may be created whether at law or in equity after the coming into force of this section.

(2)

Any instrument made after the coming into force of this section shall, to the extent that it purports to create a rentcharge the creation of which is prohibited by this section, be void.

(3)

This section does not prohibit the creation of a rentcharge –

(a)…

(b)…

(c)

which is an estate rentcharge;

(d)…

(e)…

(4)

For the purposes of this section ‘estate rentcharge’ means (subject to subsection (5) below) a rentcharge created for the purpose –

(a)

of making covenants to be performed by the owner of the land affected by the rentcharge enforceable by the rent owner against the owner for the time being of the land; or

(b)

of meeting, or contributing towards, the cost of the performance by the rent owner of covenants for the provision of services, the carrying out of maintenance or repairs, the effecting of insurance or the making of any payment by him for the benefit of the land affected by the rentcharge or for the benefit of that and other land.

(5)

A rentcharge of more than a nominal amount shall not be treated as an estate rentcharge for the purposes of this section unless it represents a payment for the performance by the rent owner of any such covenant as is mentioned in subsection (4)(b) above which is reasonable in relation to that covenant.”

Section 4 (“Application for apportionment”) contains provisions under which the owner of any land affected by a rentcharge, which also affects land which is not in his ownership, may, subject to that section, apply to the Secretary of State for an order apportioning the rentcharge between that land and the remaining land affected by the rentcharge.

In the only authority on the interpretation of s. 2, Orchard Trading Estate Management Ltd v. Johnson Security Ltd [2002] EWCA Civ 406 at [29], sub-section (5) was described as “an anti-avoidance provision” aimed at preventing a requirement by the rent owner that the owner of the land charged should make a payment unrelated to, or disproportionate to, the performance of the covenants within s.2(4)(b), so that one measures the price of the rentcharge against the promise of the performance of the covenants. In that case the dispute was about the validity of a variable rentcharge limited to expenditure on the performance of covenants rather than about whether costs were unreasonable because they should not have been incurred at all, or because they were excessive.

The court has also been provided with copies of a thoughtful Case Comment on Orchard by Susan Bright in the Conveyancer and Property Lawyer (2002) (plus an earlier article by her in the same Journal in 1988 on “Estate rentcharges and the enforcement of positive covenants.”) The Case Comment discusses the degree of protection which subsection (5) may offer to rentcharge payers, when there are rentcharge disputes about the reasonableness of payments, such as whether it was reasonable to have incurred the costs at all, or whether the amounts spent were reasonable.

Much has been said on the defendant’s behalf about the lack of benefit that it derives from the contributions it is asked to make towards the upkeep of all the roads on the Estate. I note, however, that the emphasis in sub-section (4)(b) is not on the kind or quantum of benefit actually obtained by the particular land affected by the rentcharge in return for contributions to the cost of performing the covenants: the emphasis is on the performance of the covenants for the provision of services etc and whether that performance is for the benefit of the land affected, or of that land and other land [my emphasis].

Similarly, I note that the emphasis in sub-section (5) on what represents a “reasonable” payment is not on the kind or quantum of benefit actually obtained by the particular land owner in return for contribution to the cost of the services provided: the emphasis is on whether the payment of more than a nominal amount under the rent charge represents what is reasonable for the performance of the covenants by the rent owner.

The Law Commission’s explanatory comment on its draft of subsection (5) is helpful:-

“Subsection (5) is designed to ensure that the amount of any ‘estate rentcharge’ created in the future shall not exceed an amount reasonably necessary for the purpose for which the rentcharge is created. If the sole purpose falls within subsection (4)(a), a rentcharge of nominal amount only is required. If the rentcharge is created wholly or partly for the purpose set out in subsection (4)(b), it will fail if the amount is unreasonably large in relation to the anticipated expenditure on the part of the rent owner.”

As indicated in that note and in the draftsman’s careful choice of words in subsection (4)(b) and (5), it is necessary, in deciding whether the requirements for the creation of an estate rentcharge are satisfied, to consider the reasonableness of the amount of the contribution sought to be recovered from the landowner in the context of the purpose for which the rentcharge was created.

On behalf of the defendant it is argued that the judge misinterpreted the 1977 Act and that, on its proper construction, the 1990 Transfer did not create a valid “estate rentcharge” enforceable by Canwell against the defendant.

There is some common ground on this point. It is agreed that the date of the purported creation of the estate rentcharge is the correct date for determining whether it is validly created in compliance with the requirements of s.2(4)(b) and (5). If it does not meet those requirements at that date, then its creation is prohibited under sub-section (2) and it is void ab initio.

The first objection to the rentcharge is a “no benefit” point taken by the defendant under s. 2(4)(b). The objection is that the services covenanted to be provided by Canwell are not “for the benefit of” the defendant’s land as required by that part of s.2. The services include, and therefore the costs cover, maintaining and repairing roads on the Estate over which the defendant has no right of way. They are not therefore “for the benefit of” the defendant’s land. The defendant has rights of way over Brockhurst/Brick Kiln Lane, as to which there is separate provision for contribution and a different objection.

It is argued that the judge misinterpreted the 1977 Act in holding that the rentcharge complied with s. 2, because it was designed and operated to recover no more that Canwell’s costs in providing the services. The real point is that the services provided, and for which contribution sought, have to be “for the benefit of” the affected land, though they may also benefit other land. In this case the covenant extends to the provision of, and payment for, road upkeep services that confer no benefit on the defendant’s affected land.

A further related objection is a “not reasonable” contribution point based on sub-section (5). It is submitted that the requirement that the defendant contributes 90% of the cost of maintenance and repair of the lane over which it has a shared right of way is irrecoverable under an estate rentcharge, because it represents a payment of more than a nominal amount that is not reasonable in relation to the performance of Canwell’s covenant. No costs were incurred by Canwell in repairing the lane in the contribution periods in question. The position is that the defendant is being required to pay an unreasonable service charge. It is not reasonable, because it does not represent costs incurred in Canwell’s performance of covenants for the benefit of the defendant’s land.

In short, the defendant’s complaint is that Canwell seeks to make it liable for 18.262% of the charge relating to roads, which it has no right to use, and for 90% of the charge for the only road it has a shared right to use. The costs on which the contribution is based cannot be described either as being “for the benefit of” the defendant’s land or as “reasonable” in relation to the performance of the covenant. The estate rentcharge relied upon therefore falls foul of sub-sections (4)(b) and (5). The judge’s basic error was in concluding that the requirements of an estate rentcharge were met as long as the charge for the services does not exceed the cost of providing them. As for the jurisdiction to apportion under s.4, that is irrelevant, because the exercise of that power would not meet the fundamental legal objections to the estate rentcharge claimed under s.2.

Against those submissions Canwell says that the rentcharge in the 1990 Transfer is not prohibited or void, as it is for a purpose permitted by the 1977 Act.

In the first place, the rentcharge was not imposed for the purpose of providing Canwell with pure income profit. The rentcharge is variable in amount, being linked to, and limited by, the costs actually incurred by Canwell in the performance of its covenant for the upkeep of the roads.

In the second place, the requirements of an estate rentcharge can be satisfied without having to show that the defendant’s land benefits directly from each item of expenditure. Indirect benefit to land forming part of the Estate is sufficient under subsection (4)(b), if the purpose of the performance of the covenants is for the benefit of that land and other land. The feature of indirect benefit to parts of a whole estate is inherent in the nature of a scheme of contribution towards costs incurred in the performance of a covenant for services for the general benefit of a whole estate.

Thirdly, there is no objection to the validity of the rentcharge on a “not reasonable” ground under sub-section (5). The judge said:-

“ 114. The Charge is not designed to yield a profit to C [Canwell]. It is designed to recover costs to C of providing the Services and of the upkeep of the Service Areas. In my judgment, that does not offend s. 2(5) of the 1977 Act.”

On sub-section (5), the starting point, as with subsection (4)(b), is the common ground that the validity of the rentcharge must be determined once and for all at the date of its creation. Canwell submits that an estate rentcharge is not prohibited and does not become void under s.2(2) on the ground that the costs incurred in rendering the services were not reasonable in relation to the covenant within sub-section (5). It is contended that it remains a valid estate rentcharge and that the defendant’s remedy is to apply to the Secretary of State under s.4 for an order apportioning the rentcharge between the defendant’s land affected and the other land affected by the rentcharge.

In my judgment, different considerations apply to the construction of s.2(4)(b) and of s. 2(5).

Sub-section (4) is a definition of an “estate rentcharge”, being a form of rentcharge which is not prohibited and avoided under sub-section (2). The definition is by reference to a legitimate purpose, which is not caught by the rationale of the general prohibition of pure income profit rentcharges.

Subsection (5) is an anti-avoidance provision, not a definition section: it provides that, in the specified circumstances, a rentcharge of more than a nominal amount is “not to be treated as” an estate rentcharge for the purposes of s.2. Those circumstances relate to whether a more than nominal amount represents a payment for the performance of the covenant which is reasonable in relation to the covenant. Consideration of sub-section (5) may arise when an attempt is made to enforce payment of the contribution and the objection is taken that the amount is not reasonable, because it relates to costs that have not in fact been incurred, or the costs should not have been incurred at all, or that the costs actually incurred are excessive.

Taking s.4(2)(b) first, the error in the defendant’s approach is, in my view, in its undue emphasis on the words “for the benefit of the land affected by the rentcharge” which leads to a wrongly formulated question in this case: what benefit does the defendant’s land obtain from costs incurred in maintaining and repairing roads over the defendant has no right of way? It is natural for the defendant to ask what it is being asked to pay for, but the question must properly reflect the purpose, structure and language of the contribution scheme for the Estate underlying the payment claimed.

First, the opening words of s.2(4) require attention to be paid to the purpose for which the rentcharge was created. The requirement is that the rentcharge was created “for the purpose…of contributing towards, the cost of the performance of covenants by the rent owner for the provision of services [etc] for the benefit of the land affected by the rentcharge or for the benefit of that and other land” In my view, the rentcharge in the 1990 Transfer was created for that permitted service-charge purpose, as distinct from the pure income profit purpose, which is prohibited and nullified by the 1977 Act.

Secondly, the focus is on the overall beneficial purpose of the rentcharge for the Estate, not on specific, direct benefit for particular pieces of land affected. It is sufficient that the purpose of the rentcharge is the performance of a covenant that will benefit the land affected directly or indirectly.

Thirdly, the concluding words of s.2(4)(b) are important. The beneficial purpose of the covenant does not have to be directed solely to the defendant’s land. It is sufficient for the beneficial purpose of the covenant to be for that “and other land” [my emphasis] That is the case here, the other land being other parts of the Estate that benefit from the performance of the covenant.

In brief, the rentcharge created by the 1990 transfer qualifies as an “estate rentcharge” within the meaning of s.2(4)(b) of the 1977 Act. It was for the performance of a covenant for a permitted beneficial purpose, having regard to other land on the Estate, as well as to the defendant’s land. An estate rentcharge may be validly created for the purposes of subsection (4)(b), even if it is not specifically for, or solely for, or directly for, the benefit of the defendant’s land.

I turn to sub-section (5). As was indicated in Orchard, its aim is to prevent the circumvention of the general prohibition on the creation of rentcharges for pure income profit by means of rentcharges for more than nominal amounts that are not reasonable, having regard to the rent owner’s performance of the covenant.

In my judgment, it does not follow that the validity of a rentcharge depends on the reasonableness of the amount calculated from time to time for the service charges. If the rent charge is created for the legitimate purpose of contributing to the cost of the performance of a covenant for the benefit of the defendant’s land, it is valid from the outset once and for all and it stays valid as a registered estate rentcharge. However, at the point when the rent owner seeks to recover payment of a contribution to the costs from an owner of the land affected, the rentcharge cannot be relied on (“shall not betreated as a rentcharge”) and “will fail” (using the words of the explanatory note of the Law Commission), if the payment sought by the rent owner against the landowner is not reasonable in relation to the performance of the covenant. In those circumstances the registered estate rentcharge does not automatically cease to be an estate rentcharge or cease to be valid: it simply becomes unavailable to the rent owner as a means of recovering a particular contribution to costs that are not reasonable in relation to the performance of the covenant.

To conclude, the decision of the judge to reject the construction of the 1977 Act advanced by the defendant and his order giving judgment for Canwell in the sum claimed were not wrong. The rentcharge on the defendant’s land is a valid registered estate rentcharge, even though the contribution by the defendant would be towards the cost of upkeep of roads on the Estate over which the defendant has no right of way and is said to be unreasonable in the sense that the defendant’s land does not directly benefit from the costs incurred by Canwell in the upkeep of such roads.

Construction of 1990 Transfer: “roads” point (ground 4)

This issue is a short question of construction that arose at a late stage in the course of the trial. It concerns the scope of the service charge obligation under clause 6(b) of the 1990 Transfer and whether it covers the cost of maintaining and repairing all the roads on the Estate. The precise question is whether “roads” in paragraph (a) of Part I of the Fourth Schedule should be construed so as to mean, as Canwell contends and as the judge held in judgment (2), all the roads on the Estate or, as the defendant contends, only those roads over which the defendant has a right of way (i.e. Brockhurst/Brick Kiln Lane to which the defendant’s land had a frontage).

The defendant says that it was granted only a right of way to use one road on the Estate, Brockhurst/Brick KilnLane. No costs were incurred by Canwell in repairing that lane. The defendant had no rights of way over other roads on the Canwell Estate on which costs were incurred.

The defendant relies on the terms of Canwell’s obligation in the Fourth Schedule, which refers to “the said….roads so that the same shall be adequate for the use of the Transferred Property on the conditions referred to.” It is submitted that the reference to the “use” and “the conditions” require reference to be made to the agricultural use of the defendant’s land and to the fact that the defendant only had a right of way over the lane. It is contended that the judge failed to give proper effect to the reference to “use” and “the conditions” and wrongly held that the scope of contribution covers all roads, without regard to whether they could be used by Elidor or the defendant as its successor in title. He had mischaracterised the arrangements as constituting a single scheme designed to meet Canwell’s costs of all the services stipulated in the Fourth Schedule and not as accommodating particular services to particular landowners. The result of the judge’s approach made no commercial sense: the defendant was required to pay a service charge relating to all roads, when it can share the use of only one of them and the other rights granted would not justify saddling the defendant with liability for the upkeep of the surface of the roads under or over which the services pass.

Canwell supports the judge’s construction contending that it is necessary to construe the 1990 Transfer as a whole. It was recited that Canwell owned the roads and other service areas “all of which are used for the common benefit of the Estate” to enable it to provide services “for the benefit of the Estate.” It is pointed out that the word “roads” is used in the plural and that the defendant also has rights of passage through all pipes, conduits etc under or over all Estate Roads and that was more consistent with the position that the defendant should be liable to contribute to the upkeep of all estate roads.

In my judgment, the judge’s construction is clearly the correct one. The services are not supplied by Canwell on an individual basis to particular landowners of separate areas of land. They are supplied for the benefit of the Estate as a whole, on which many different landowners own land and from which they all stand to derive some benefit via the Estate . Under the scheme of contribution affecting them all, Canwell renders the services and owns the Service Areas. They include all the roads on the Estate, which they covenant to maintain and repair. The defendant is bound to contribute a share of that total cost, as provided in the 1990 Transfer.

Rectification point(Ground 2)

Canwell raised rectification as an initial response to the defendant’s objection that the Transfer did not contain any express positive covenant by Canwell to provide the services for which contribution was sought and that it did not meet the requirements of s.2 of the 1977 Act for an estate rentcharge. Canwell’s case was later amended, so that its primary case at trial was that, as a matter of construction, there was an implied covenant in the 1990 Transfer, but, if that contention failed, this was a case for rectification on the ground that the positive covenant to be found in the transfers of other parts of the Estate had been omitted from the 1990 Transfer by oversight or mistake.

As Canwell succeeded on its primary case, it did not need an order for rectification, although the judge had found that, if he was wrong on the construction point, Canwell had made out a case for rectification of the 1990 Transfer: see [108].

In those circumstances Canwell opposes the defendant’s renewed application for permission to appeal. It says, first, that Lord Neuberger was right to refuse permission on the papers, as the issue was academic in the absence of a permission to appeal against the judge’s ruling on the implied covenant as a matter of construction. A decision by this court on the question of rectification would not alter the disposition of the appeal. There was no point in granting permission to argue a point which would not affect the outcome of the appeal, whichever way the point was decided.

A second objection is that, in the absence of an order for rectification by the judge, there is nothing against which Canwell is able to appeal. It is well established that an appeal can only be brought against an order, not simply against the reasoning or a finding in the course of a judgment that does not lead to the making of an order: see notes in Vol 1 of Civil Procedure to CPR Part 52.13 at page 1629.

The defendant accepts that the substantive outcome of the appeal could not be altered by its success on the rectification ground. Its reason for renewing its application for permission to appeal is not to alter the outcome, but because that ground is said to have a significant bearing on the costs below, which the defendant was ordered to pay.

The defendant says that the construction argument was first relied on by Canwell at the start of the trial. Up to then it had been relying on rectification, which became an alternative claim at the trial. It is argued that the judge’s decision in favour of rectification was wrong, because there was no outward expression of accord relating to a covenant by Canwell to perform services. The defendant should have its costs of the action, at least up to the introduction of the construction argument on which it succeeded.

In my judgment, the renewed application for permission to appeal on this ground should be refused.

First, there is no error in the judge’s order for costs, which reflects Canwell’s success before him on both construction and rectification.

Secondly, it is irrelevant on the appeal whether the judge was right or wrong on the rectification issue. For the reasons given above, the orders of the judge on the construction of the 1990 Transfer and the order for payment made on the basis of that and of the 1977 Act were not wrong. The appeal will therefore be dismissed, whatever view the court may form of the judge’s conclusion on the rectification claim. This is an attempt to appeal from judicial reasoning on a point that will not lead to any alternative or additional order in this court.

Thirdly, the costs in question were incurred as a result of the defendant taking the point that Canwell has no valid estate rentcharge. The rectification issue only arose as a response to the defendant’s objection that the rentcharge could not comply with the requirements in the 1977 Act for an estate rentcharge in the absence of an express covenant to provide the services for which it sought contribution. That objection caused costs to be incurred, whether the case was argued as one of construction or as one of rectification. The defendant disputed both ways of putting the case for an estate rentcharge.

The judge concluded that the rentcharge, on its proper construction, did comply with the statutory requirements. On the essential point of the construction of the 1977 Act Canwell never changed its case, which was that there was an estate rentcharge. As appears in Canwell’s case summary dated 27 April 2009, it always was Canwell’s case that the rentcharge in the 1990 Transfer was not invalidated by the 1977 Act by reason of the absence of an express covenant to provide services.

I would dismiss the defendant’s appeal on both grounds 3 and 4.

I would not grant the defendant permission to appeal on ground 2.

I agree.

I also agree.