Morrells of Oxford Ltd v Oxford United Football Club Ltd

Section 79 of the Law of Property Act 1925 creates a rebuttable presumption that a covenant relating to land is made on behalf of successors in title. A contrary intention need not be stated expressly. It may appear from the wording and context of the instrument where reading in the statutory words would be inconsistent with its purport. The court should consider the document as a whole, including the contrast between adjacent covenants, while giving limited weight to commercial improbability alone. The court further indicated, obiter, that section 79 may extend the persons whose conduct attracts equitable relief without making successors liable in damages or creating a statutory agency.

Morrells appealed from an order made by Lloyd J on 9 June 2000 on a Part 24 application. The order dismissed claims against Oxford United, the Firoka companies and Oxford City Council.

Morrells sought injunctions to enforce a covenant in a 1962 conveyance. Clause 3(a) restricted the use of nearby land for breweries, clubs or licensed premises. The purchasers argued that the covenant did not bind them and that the proposed disposal by the City Council would not breach it. The appeal principally concerned the construction of clause 3(a) and the effect of section 79 of the Law of Property Act 1925.

The Court of Appeal unanimously dismissed the appeal. Robert Walker LJ delivered the principal judgment. Waterhouse and Schiemann LJJ agreed.

1. Section 79. Section 79 of the Law of Property Act 1925 creates a rebuttable presumption that a covenant relating to land is made on behalf of successors in title. The decision in Rhone v Stephens [1994] 2 AC 310 showed that the provision did not have the far-reaching effects attributed to section 78. The words unless a contrary intention is expressed do not require an express exclusion of successors. An indication may arise from the wording and context of the instrument, as explained in Re Royal Victoria Pavilion Ramsgate [1961] Ch 581.

2. The ultimate question is whether the statutory words can usefully supplement the covenant in its commercial context, or whether their extended meaning would be inconsistent with the purport of the instrument. Commercial realities may be considered, but commercial improbability alone carries little weight. Differences in drafting may also be significant, although ordinary drafting inconsistencies should not automatically control.

3. Clause 3(a), apart from section 79, was personal in effect. Clause 2 expressly referred to successors in title, whereas clause 3(a) did not. The contrast was too stark and immediate to ignore. Reading the statutory words into clause 3(a) would be inconsistent with the purport of the conveyance. Section 79 was therefore excluded by a contrary intention, and the covenant did not bind the purchasers.

4. Robert Walker LJ made further observations, expressly unnecessary to the decision, about the operation of section 79. Where it applies to an active restrictive covenant, it may extend the persons whose acts or omissions are within the covenant's reach for equitable purposes. It does not create statutory agency or make successors liable in damages. A successor may nevertheless be restrained by injunction where responsible for the breach and the other equitable requirements are satisfied. Schiemann LJ had some hesitation about the precise words to be inserted, but considered the statutory modification manifestly at variance with the executed conveyance on either approach.

5. As to the City Council, the judge was entitled to dismiss the claim as formulated because it had no real prospect of success. In view of later disclosure and the need for a fair opportunity to reformulate the claim, the order was left undisturbed, but the Court expressed the clear view that fresh proceedings against the City Council would not be an abuse of process. The appellant was ordered to pay each respondent's costs. Leave to appeal to the House of Lords was granted.

• Court of Appeal: On 21 July 2000, dismissed Morrells' appeal and left the order undisturbed. It stated that fresh proceedings against the City Council would not be an abuse of process.
• High Court, Chancery Division (Lloyd J): On 9 June 2000, granted the Part 24 application and dismissed the claims against the purchasers and the City Council.