Neil John Mackenzie v Sharon Shac-Yin Cheung & Anor

The Court of Appeal considered the construction of a 1947 conveyance by which the Whitgift Educational Foundation (the Governors) sold plots on the Fox Farm Estate and reserved certain stipulations in a Third Schedule. The central question was whether paragraph 11 of that schedule empowered the Governors to permit departures from the stipulations so as to release or waive restrictive covenants given by an earlier purchaser (Number 444) and thereby allow redevelopment. The court applied ordinary objective principles of contractual construction and context, treating textual meaning of the words "reserve the right to allow a departure from them" as referring to the stipulations in the Third Schedule. The court held that paragraph 11 did confer power on the Governors to allow departures, that the benefit of the covenants had been annexed to adjoining estate land under section 78 of the Law of Property Act 1925, and that exercise of the reserved power would not amount to derogation from grant. The appeal was dismissed.

The appellant, the owner of 432 Selsdon Road, challenged a proposed redevelopment at 444 Selsdon Road which had been sold earlier by the Whitgift Educational Foundation. The 1947 Conveyance to the earlier purchaser contained restrictive covenants in a Third Schedule (including provisions about use, one detached dwelling, approval of plans by the Governors' surveyor and maintenance of boundary stumps) and a paragraph 11 stating that the Governors "reserve the right to deal with any of the plots... and also reserve the right to allow a departure from them in any one or more cases".

Nature of the claim: declarations that Number 444 was subject to enforceable restrictive covenants and an injunction to restrain demolition and redevelopment; the defendants counterclaimed that, if a deed of modification (to be executed by the Foundation) were effective, redevelopment would not breach covenant.

Procedural history: Deputy Master Bowles (6 July 2022) treated paragraph 11 as not allowing the Governors to release earlier purchasers and dismissed the defendants' summary judgment application; Miles J ([2023] EWHC 220 (Ch)) allowed an appeal and held that if the Deed of Modification were executed development in accordance with it would not breach covenant. The appellant appealed to the Court of Appeal.

Issues framed: (i) the proper construction of paragraph 11 of the Third Schedule to the 1947 Conveyance; (ii) whether that provision allowed the Governors to permit departures (including waivers or releases) from covenants given by earlier purchasers; (iii) whether exercise of any such power would amount to impermissible derogation from grant; and (iv) whether the Deed of Modification would, if executed, remove any breach.

Court's reasoning: the court applied objective contractual interpretation, considering both text and context. The natural reading of paragraph 11 (including the use of "also" and the phrase "allow a departure from them") pointed to a discrete reservation enabling the Governors to permit a departure from the stipulations contained in the Third Schedule themselves, not merely to vary stipulations in future sales. Practical considerations supported this: it was sensible for the seller to retain control to grant or withhold consent without needing every successor in title to concur. The court observed that the benefit of the covenants had been annexed to the retained estate (section 78, Law of Property Act 1925), but that annexation operated subject to the Governors' reserved power. Precedents such as Mayner v Payne and Crest Nicholson were cited as supportive of a construction permitting the developer/vendor to retain a power to allow departures. The court rejected the appellant's argument that allowing the Deed of Modification would derogate from grant, reasoning that any power to permit a departure was part of the original grant and so could not amount to derogation. The appellant's application to amend grounds to contend for a limited scope of the power was refused because paragraph 11 employed broad language and there was no principled limiting criterion advanced.

Result: the Court of Appeal dismissed the appeal, upholding Miles J's construction that paragraph 11 allows the Foundation to permit departures and concluding that execution of the Deed of Modification would, if made, avoid a breach of covenant.

Appeal dismissed. The Court of Appeal held that paragraph 11 of the Third Schedule to the 1947 Conveyance, read in its natural language and context, reserved to the Governors a power to allow departures from the stipulations in that schedule (including waivers or releases of covenants given by earlier purchasers). The benefit of the covenants had been annexed under section 78 of the Law of Property Act 1925 but was always subject to that reserved power; accordingly, execution of the Deed of Modification would not constitute a breach of covenant or a derogation from grant.

Appeal to the Court of Appeal from the decision of Mr Justice Miles in the High Court (Chancery Division), [2023] EWHC 220 (Ch). At first instance, Deputy Master Bowles (6 July 2022) dismissed the defendants' summary judgment application and concluded the proposed development would be a breach; Miles J allowed the defendants' appeal and declared that, if the Deed of Modification were executed, development in accordance with it would not be a breach. The Court of Appeal dismissed the appellant's appeal.