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

On an application under section 84 of the Law of Property Act 1925, the established practice that the applicant pays the costs of investigating restrictive covenants remains consistent with the CPR. It is a flexible guideline within the court’s costs discretion, not an inflexible rule. The applicant should pay the participating defendants’ reasonable costs of investigating and deciding whether to oppose the application. If a defendant unsuccessfully contests the application after that opportunity, the defendant normally bears its own costs and should not pay the applicant’s costs. The modern equivalent of the former common-fund or solicitor-and-client basis is indemnity costs. The guideline must be adapted to account for pre-action disclosure and the overriding objective.

The claimant sought declarations concerning restrictive covenants affecting the Barking Campus under section 84(2) of the Law of Property Act 1925. In an earlier judgment, the court held that the covenants bound the claimant and were enforceable by the first two defendants, but that the claimant could sell free of them, triggering a right of pre-emption at full market value.

The first two defendants obtained permission to appeal. The court then determined costs. The central issue was whether the pre-CPR practice concerning costs on applications to discharge or declare freedom from restrictive covenants remained applicable, and what costs order was just in light of the parties’ respective successes.

1. Applicable approach. The court must begin with the CPR as a new procedural code, then examine the rationale of the earlier practice and determine whether it is consonant with the CPR and its overriding objective.
2. Rule of Practice. The practice stated in Re Jeffkins Indentures [1965] 1 WLR 375 remained applicable. Its rationale was that an applicant seeking protection against adverse rights must join those who may possess them and provide them with the fullest available information. Those defendants should be indemnified while investigating the application and deciding whether to oppose it. The guideline is flexible rather than rigid, and applies to costs incurred before proceedings where pre-action disclosure permits an informed decision at that stage.
3. The former entitlement to costs on a common-fund or solicitor-and-client basis is now reflected by indemnity costs. Re Wembley Park Estate Co Ltd’s Transfer [1968] Ch 491 confirmed the practice and the common-fund basis. J Sainsbury plc v Enfield LBC [1989] 1 WLR 590 did not negate or qualify it. The CPR’s more specific costs provisions did not displace the practice.
4. The first two defendants succeeded on all issues raised before 16 July 2004. The claimant’s success on the construction of the pre-emption clause was practically significant, but that issue was raised only at the close of argument and did not outweigh the defendants’ overall success. The claimant therefore had to pay the defendants’ costs of the action on an indemnity basis, without a discount for the pre-emption issue.
5. Separate representation by the first two defendants was reasonable. The court therefore allowed two sets of costs.

The judgment concerned permission to appeal and costs following the court’s earlier judgment in the same proceedings. Permission to appeal was granted to the first two defendants on the issues they identified. The costs decision ordered the claimant to pay both defendants’ costs on an indemnity basis.