University of East London Higher Education Corporation v London Borough of Barking & Dagenham & Ors

On the 9^th December 2004 I gave judgment in this case. By my judgment I upheld the first two Defendants’ contentions that the covenants imposed by four conveyances (“the Covenants”) bound the Claimant as owner of the Barking Campus and were enforceable by the first two Defendants as owners of the Becontree Estate. I held that they were not enforceable by the (unrepresented) third defendants. But I went on to hold that the Claimant was entitled to sell the Barking Campus free from the Covenants, that by doing so the Claimant would trigger the entitlement of the first two Defendants to exercise a right of pre-emption and that the price payable on exercise of the right of pre-emption was the full market price. Questions were then raised as to the grant of permission to appeal and as to costs, which were adjourned to the 10^th December 2004 to enable the parties to marshal in the form of skeleton arguments their respective contentions on these issues. Skeleton arguments were prepared and exchanged.

On the 10^th December 2004 the first two Defendants gave me details of the issues on which they requested permission to appeal. It is sufficient to say that I consider that the first two Defendants should have permission to appeal on those issues.

The issue of costs is less straightforward. An immediate reaction to the judgment is to say that as a practical matter the Claimant has succeeded in this litigation for, whatever the position regarding the validity of the Covenants, the Claimant has established its entitlement to sell each, any or all of the four parts of the Barking Campus free of the Covenants at their full market value either on the open market or (on exercise of the right of pre-emption) to the first two Defendants. But I do not think that it would be proper to adopt such a simplistic approach.

The Claimant commenced these proceedings to clear its title to the Barking
Campus. The application is made for declarations of freedom from the Covenants under section 84(2) of the Law of Property Act 1925 which confers upon the Court a jurisdiction to grant declarations to this effect. Section 84(5) provides that such declarations are binding on everyone interested i.e. for practical purposes “in rem” or as to the status of the Barking Campus. Section 203(5) of the Law of Property Act 1925 expressly confers on the Court a discretionary jurisdiction to make orders as to costs on such applications. Guidance as to how the jurisdiction is to be exercised must however be found elsewhere.

In Re Jeffkins Indentures [1965] 1 WLR 375 Cross J stated the rule of practice (“the Rule of Practice”) established since 1937 as follows:

“a plaintiff seeking a declaration that restrictive covenants do not affect his property is expected to pay his own costs. He is also expected to pay the costs of any defendants who enter an appearance down to the point in proceedings at which they have had a full opportunity of considering the matter and deciding whether or not to oppose the application. Any defendant who then decides to continue, and appears unsuccessfully before the judge, does so at his own risk as to his own costs at that stage. Such defendant should not however be ordered to pay the plaintiff’s costs.”

In Re Wembley Park Estate Co Ltd’s Transfer [1968] Ch 491 Goff J confirmed the Rule of Practice and that the costs payable to the defendant should be paid on the common fund basis “since the obtaining of the order is something in the nature of a luxury to the plaintiff for which he ought to pay” (p.507d-508a).

In J Sainsbury plc v. Enfield LBC [1989] 1 WLR 590 Morritt J held that the successful applicant for a declaration under section 84(2) in that case should be paid its costs by the defendants. The law report does not state the reasons for the decision. It is not apparent whether the defendant sought to rely on the Rule of Practice or whether there was some reason why it was not applicable. In the circumstances I do not think that the decision should be treated as negating or qualifying the Rule of Practice.

Mr Ainger, counsel for the Claimant, has questioned whether the rule of practice has survived the CPR. CPR 1.1 lays down that the CPR are a new procedural code with the overriding objective of enabling the Court to deal with cases justly and CPR 1.2 requires the Court to seek to give effect to the overriding objective when exercising any power given by the CPR and when interpreting any rule. CPR 44.3.2 provides that, whilst the Court has a broad discretion as to costs, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but that the Court may make a different order. It is common ground that the terms of CPR 44.3.2 in general reflect the pre-CPR law but the CPR is much more specific as to the matters to which the court should have regard in deciding what order should be made: AEI Ltd v. Phonographic Performance Ltd [1999] 1 WLR 1507 at 1522D per Lord Woolf MR. The question raised however is whether the Rule of Practice should be given effect as a reason for making a different order.

In my judgment the correct approach in answering a question such as this is to start with the terms of the CPR as a new procedural code, and then to examine the underlying rationale for the prior authority or practice and determine how far it is consonant with the terms and the principles of the CPR and how far giving effect to them accords with the overriding objective.

The rationale for the Rule of Practice is that the claimant applying for the declaration is seeking for his own benefit the protection of a court order against the existence of any adverse rights and for this purpose must join as defendants all persons or representatives of all persons who may had adverse rights. The court must for this purpose be satisfied that there are no adverse third party rights whether or not such defendants take part in the proceedings. The policy of the law in these circumstances is to encourage the defendants to contribute to the investigation by the court encouraged by the knowledge that until the full facts are known and an informed decision whether to oppose the application can be reached they will be indemnified against costs incurred, and thereafter (in case their decision to oppose proves erroneous) undeterred by any risk that by doing so they may incur an adverse order as to costs. It is just that, as the price of the exercise of the court’s extraordinary jurisdiction in his favour, the claimant should provide the fullest available information to third parties to enable them to make an informed decision whether to oppose the application and to act on such information and pay for the costs of this exercise; and that after this exercise has been completed the claimant should pay the costs of the defendant if the defendants succeeds in his objection, but should have no right to recover his own costs if the objection fails.

As it seems to me the rationale for the Rule of Practice is equally applicable today as it was prior to the CPR and both the Rule of Practice and the rationale are (subject to three minor glosses) fully consistent with the CPR. The first gloss is that the Rule of Practice is a guideline in the exercise of the discretionary jurisdiction as to costs rather than a rule. It has less rigour than a rule and is more flexible. The second is that there is a need to reflect the emphasis placed by the CPR on pre-action disclosure. The Rule of Practice reflected a time when full disclosure was only to be expected after proceedings had been commenced. The opportunity to obtain such disclosure after the CPR may and indeed generally should, be afforded before proceedings are commenced and the defendant may be able to take an informed decision whether to oppose the application before the proceedings commenced. In either event the claimant should be obliged to pay the costs of the exercise, but the exercise may be completed before the proceedings commenced. The third relates to the level of costs. Under the pre-CPR practice the entitlement of the defendant was to costs on a common fund or solicitor and client base. The equivalent basis today is indemnity costs.

I turn to the application of the relevant legal principles to the facts of this case. The position in a nutshell is that on all the issues argued before me relating to the validity and enforceability of the Covenants the first two Defendants succeeded. More than this on all issues raised before me prior to the 16^th July 2004 the first two Defendants succeeded. The only issue on which they failed was the issue of construction of the pre-emption clause which I raised as late as the 16^th July 2004 very much at the close of oral argument. The success of the Claimant on this issue has very considerable practical significance, but it had no significance until that late stage. It was not an issue raised by either side at any earlier stage and it was an issue which, once raised did not admit elaborate argument.

Whilst success on the construction of the pre-emption clause salvages the case so far as it concerns the Claimant, I do not think that it salvages the case for the purposes of costs. Success on the issue is “bounty”, but in nowise should it cloud the total success of the first two Defendants on all issues raised until the last moment in the action.

After anxious consideration I have concluded that both the Rule of Practice as a guideline, the respective successes and failures of the parties and justice require that the Claimant should pay the Defendants’ costs of this action on an indemnity basis. I make it clear that I have considered whether I should allow the Claimant a discount for success in respect of the right of pre-emption, but I have decided that I should not do so. The Claimant sought a determination of all rights under the Conveyances. The first two Defendants acted totally reasonably in meeting this late raised plea as they did. It is justice enough for the Claimant that the plea was allowed to be raised at all.

I have to decide whether to allow two sets of costs, one for each of the first two Defendants. I have been anxious about their separate representation at the trial. I have however concluded that this was reasonable. The interest of the first two Defendants are in general practically identical. I do no think that it is significant that the First Defendant alone was interested in the issue of unity of seisin: there was no conflict of interest on this issue. But there was a potential conflict of interest as to whether entitlement to enforce the Covenants might be vested in the First Defendant alone, for the great bulk of the Becontree Estate is vested in it. The propriety of separate representation is supported by the fact that the Claimant at no stage objected to it or raised any question in regard to it. Ms Walden-Smith, the Second Defendant’s counsel was careful to avoid duplicating the submissions of Mr Cant, counsel for the First Defendant. Both counsel gave me invaluable assistance. I think I should allow both sets of costs.