Davies & Ors v Jones & Anor

The benefit-and-burden principle does not make every burden in a transaction enforceable against a person who obtains a benefit from it. The same legally effective transaction must confer both benefit and burden. The burden must be conditional on, or reciprocal to, the benefit, and the person concerned must have had an opportunity to reject or disclaim that benefit.

A shared understanding cannot itself confer rights or impose obligations. Where an assignment and subsequent transfers contain no express or implied covenant requiring the assignee to perform the original contracting party’s obligations, the assignee does not assume those obligations.

The claimants had contracted to sell land to Mr Jones. The contract allowed him to retain £100,000 pending site works. Mr Jones assigned the benefit of that contract to Lidl, and the claimants then transferred the land directly to Lidl. Lidl retained the £100,000 after arranging the works itself.

The High Court rejected the claimants’ trust claim but, after enlarging a preliminary issue at trial, declared that Lidl was bound to observe the retention provisions because it had taken the contractual benefit. Lidl appealed. An earlier decision permitting trust-related amendments had been upheld in [2008] EWCA Civ 976. The central issue was whether Lidl had assumed the burden of clause 18 through the benefit-and-burden principle.

1. Appeal allowed. The judge’s declaration was set aside and replaced with a declaration that Lidl was not bound to observe clause 18 of the Jones-Trustees Contract.

2. The benefit-and-burden principle requires a legally effective transaction which confers both the alleged benefit and the alleged burden. The burden must be relevant to, and conditional on or reciprocal to, the benefit. The person said to bear it must have had an opportunity to reject or disclaim the benefit. These requirements follow from Halsall v Brizell [1956] 1 Ch 169, Rhone v Stephens [1994] 2 AC 310 and Thamesmead Town Ltd v Allotey (1998) 30 HLR 1052.

3. A clear understanding between the parties was insufficient. It could neither confer a benefit nor impose a burden. The relevant transactions were the deed of assignment and the transfers on completion. Although the deed assigned contractual benefits to Lidl, it did not make those benefits conditional on Lidl undertaking Mr Jones’s obligations. It contained no covenant, express or implied, requiring Lidl to perform the site works. The transfers likewise imposed no such obligation, and completion was not conditional upon it.

4. Clause 18 therefore remained contractually binding on Mr Jones alone. Since no transaction imposed a corresponding burden on Lidl, questions of reciprocity and Lidl’s opportunity to disclaim the benefit did not arise.

5. The Chancellor also considered the procedural point unnecessary to the result. He nevertheless concluded that the judge had been plainly wrong to enlarge the preliminary issue without a properly formulated amendment and without adequately addressing the limitation consequences under Limitation Act 1980 and CPR rule 17.4(2). The court did not decide whether a valid benefit-and-burden obligation could be enforced by an action rather than only by withholding the associated benefit.

• Court of Appeal (Civil Division) Allowed Lidl’s appeal, set aside the declaration imposing a duty on Lidl, and substituted a declaration that Lidl was not bound by clause 18: [2009] EWCA Civ 1164.
• High Court HH Judge Jarman QC, sitting as a High Court judge, rejected the trust and fiduciary-duty preliminary issue but held that Lidl was bound by clause 18 as a burden appurtenant to the contractual benefit it had taken.
• Earlier procedural appeal The Court of Appeal upheld permission to amend in respect of trust claims: Lidl UK GmbH v Davies [2008] EWCA Civ 976.