Court of Appeal Upholds Foundation's Power to Authorize Development Works Contrary to Restrictive Covenants

Introduction

In the case of Neil John Mackenzie v Sharon Shac-Yin Cheung & Anor: EWCA Civ 13, the Court of Appeal (Civil Division) engages with an appeal arising from covenant interpretation related to property development. The dispute centers around whether a charitable foundation, the Whitgift Foundation (“the Foundation”), could authorise a current landowner, bound by restrictive covenants from a past conveyance, to undertake development works that would otherwise be in breach of these covenants. The case brings to the fore the interpretative nuances of contract language, the principle against derogation from grant, and the scope of powers conferred by historical restrictive covenants.

Key Facts

Mr. Mackenzie (Appellant) and Ms. Cheung (First Respondent), own adjacent properties in Croydon formerly owned by the Whitgift Foundation. The Appellant challenged the decision of the Foundation to authorise Ms. Cheung, via a Deed of Modification, to develop her property in a manner that would conflict with the restrictive covenants. These covenants stemmed from conveyances dating back to 1947, when the Foundation divested the properties, with stipulations spanning the use of the land, building restrictions, and the possibility for the Foundation to allow “a departure” from the stipulations.

Legal Principals

Three legal principles are pivotal in this case:

1. Interpretation of Contractual Language: The case embodies the assessment of the “objective meaning” of contractual language as reiterated by Lord Hodge in Wood v Capita Insurance Services Ltd and Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society. The court’s interpretative exercise considered the lexical content and the purposes that the parties intended the contract to achieve.

2. Principle of Annexation: The principle elucidates how someone apart from the original covenantee may become entitled to the benefit of a restrictive covenant. Discernible are acquisition methods by assignment, annexation, or within a building scheme. It was agreed that the benefit of the original restrictive covenants had been annexed in favour of Mr. Mackenzie’s property, following Section 78 of the Law of Property Act 1925.

3. Derogation from Grant: This legal tenet precludes a grantor from revoking what has been granted, and is espoused in the case of Earl of Plymouth v Rees. The discussion in this case hinged on whether the Foundation’s consent to the redevelopment would contravene the principle by substantially depriving Mr. Mackenzie of enjoyment of his property.

The case also engages with and distinguishes from past case law, particularly Mayner v Payne, which involved a similarly worded covenant. This comparative analysis helps in underlining the court’s rationale for arriving at its conclusion rooted in the specific covenant language of the 1947 Conveyance and the particular context of the present dispute.

Outcomes

The Court of Appeal upheld the judgment from the lower court and determined that the Foundation was indeed empowered, under paragraph 11 of the Third Schedule to the 1947 Conveyance, to authorise departures from the original restrictive covenants. The court concluded that this power of the Foundation did not constitute a derogation from grant and that the Deed of Modification, once executed, would allow redevelopment without breach of covenant.

Conclusion

This case encapsulates the legal intricacies encountered when interpreting historical covenants with enduring effects on the contemporary use of the property. The decision underscores the necessity for clear drafting and comprehension of covenant language, and its potential implications on property rights and development. It reiterates the interpretative principle that the subjective intention of the parties must often yield to the objectively ascertained meaning of the contractual language. This ruling is instructive on how legacy covenants will be read in light of powers reserved by original covenantees or their successors, and it sets a precedent for the interpretation of clauses that allow “a departure” from restrictive covenants, especially within the realm of property development.