Section 84(1) of the Law of Property Act 1925: Jurisdiction and Discretion: Millgate Developments Ltd v Alexander Devine Children’s Cancer Trust

Edward Denehan, a barrister at Tanfield Chambers, discusses the Supreme Court’s ruling in Millgate Developments Ltd v Alexander Devine Children’s Cancer Trust, which clarified the distinction between jurisdictional and discretionary power within the Tribunal’s decision-making process under section 84 of the Law of Property Act 1925.

The opening words of section 84(1) of the Law of Property Act 1925 (LPA 1925) provide:

“The Upper Tribunal shall … have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under a covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction on being satisfied:– …”

What the Tribunal must be satisfied of are one or more of the following grounds:

• Ground (a) (restriction ought to be deemed obsolete)
• Ground (aa) (restriction impedes reasonable user)
• Ground (b) (agreement that the restriction be discharged or modified), and
• Ground (c) (proposed discharge or modification will cause no injury) (together the Grounds).

As long ago as 1956, the Court of Appeal rejected the argument that the permissive words “…shall …have power” are to be construed as creating a mandatory obligation, namely that if an applicant satisfies one of the Grounds, the Tribunal must make an order discharging or modifying the restriction (see Driscoll v Church Commissioners for England [1957] 1 Q.B. 330, 342 and 350). According to the Court of Appeal, the Tribunal has a discretion whether or not to make an order even if one or more of the Grounds are satisfied.

The importance of the distinction contained within section 84(1) between the Tribunal’s jurisdiction and discretion was affirmed and highlighted by the Supreme Court in Millgate Developments Ltd v Alexander Devine Children’s Cancer Trust ([2020] 1 W.L.R. 4783), the first case under section 84(1) to reach the House of Lords or the Supreme Court.

In the Millgate case, the restriction prohibited building on the application land and limited its use to that of an open space for parking. The applicant relied on the second limb of Ground (aa) asserting that the user of the application land (affordable housing) was reasonable, and it was contrary to the public interest for the restriction to impede that reasonable user (see section 84(1A)(b)). Specifically, the applicant contended the continued impediment of the reasonable user was contrary to the public interest because much needed affordable housing (which had been built at the date of the application) could not be used and occupied if the restriction continued to apply and was at risk of being demolished if the person with the benefit of the restriction sought mandatory injunctive relief.

The Tribunal ([2016] UKUT 515 (LC)) held Ground (aa) had been satisfied, as it was contrary to the public interest to waste much needed affordable housing, and as a matter of discretion it would make an order notwithstanding the applicant’s cynical breach of the restriction; the applicant had known of the restriction but nevertheless pressed ahead with the construction of the affordable housing with a view to making a profit.

An appeal to the Court of Appeal ([2019] 1 W.L.R. 2729 by the owner of the benefiting land succeeded. The Court of Appeal was of the view the Tribunal had been wrong to ignore the applicant’s cynical breach of the restriction at the jurisdictional stage as it was in the public interest to ensure the enforcement of contractual and property rights, and contrary to the public interest to sanction the behaviour of a developer who sought to present the Tribunal with a fait accompli by building in breach of a restriction and then applying for an order under section 84(1).

The Supreme Court disagreed with the Court of Appeal’s reasoning and agreed with the Tribunal that at the jurisdictional stage, namely when considering whether one or more of the Grounds has been satisfied, it was wrong as a matter of law to consider the cynical behaviour of an applicant. The point was made that such behaviour would never be relevant to the satisfaction or not, as the case may be, of any of the other Grounds, including the first limb of Ground (aa), and therefore the cohesion of section 84(1) would be undermined if such conduct was relevant to the application of the second limb of Ground (aa) only.

Therefore, at the jurisdictional stage, the conduct of the applicant is irrelevant. The sole issue is whether the elements of each of the Grounds are satisfied.

The Tribunal’s survey at the discretion stage is far wider, and as the Millgate case itself establishes, the conduct of an applicant may well be relevant to the Tribunal’s exercise of its discretion.

Whilst authority supports the proposition that the Tribunal should exercise cautiously its discretion to refuse an order where one or more of the Grounds have been made out (Re Trustees of the Green Masjid and Madrasah’s Application [2013] UKUT 355 (LC) and the Millgate case at paragraph 52), the discretion is real and practitioners acting for those opposing an application under section 84(1) should consider carefully whether there is material available to persuade the Tribunal to exercise its discretion negatively and refuse to make an order.

What other factors might be relevant? The recency of the restriction is clearly relevant (Cresswell v Proctor [1968] 1 W.L.R. 906). Whilst it is established an original covenantor may apply under section 84(1) (Shepherd Homes Limited v Sandham (No.2) [1971] 1 W.L.R. 1062), that is a factor relevant to the exercise of the discretion. Changes in the land benefiting from the restriction is relevant to the exercise of the discretion if the changes undermine the original purpose of the restriction. The well- known “thin edge of the wedge” argument is often in play at the discretionary stage of the Tribunal’s deliberations.

A consequence of the decision in the Millgate case is not only to draw a clear line between the jurisdictional and discretionary components of section 84(1), but to remind practitioners that the discretionary component is substantive, can be decisive and therefore demands careful consideration in every application under section 84(1).

The Supreme Court held the Tribunal had erred in the exercise of its discretion and therefore agreed with the decision of the Court of Appeal and refused the application. Decisive was the fact that the public interest point relied upon arose solely as a result of the applicant’s cynical behaviour. Put simply, the applicant was relying upon its own wrong to satisfy the second limb in Ground (aa) and as a matter of discretion that should not be permitted.

This article was first published in Practical Law here.