MODERN STUDIES IN PROPERTY LAW
This volume is published under the auspices of THE CENTRE FOR PROPERTY LAW THE UNIVERSITY OF READING
Patron Lord Nicholls of Birkenhead Board of Advisers Lord Millett Mr Justice Neuberger Judge Paul Baker, QC G Abbott (Clifford Chance) Professor W Cornish Dr S Cretney S Fogel (Dechert) Professor M Grant C Harpum PD Orchard Lisle, CBE TD T Symes (Mills Group) CJ West (The Solicitor to HM Land Registry) D Wright (Nabarro Nathanson) Emeritus Director Professor Paul Jackson Executive Committee Mrs EJ Cooke (Director) Ms BSL Crabb Mrs SE Murdoch
Modern Studies in Property Law Volume II
Property 2002
Edited by
ELIZABETH COOKE Reader in Law University of Reading
OXFORD – PORTLAND OREGON 2003
Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 5804 NE Hassalo Street Portland, Oregon 97213-3644 USA © The Contributors severally 2003 The contributors severally have asserted their rights under the Copyright, Designs and Patents Act 1988, to be identified as the authors of this work Hart Publishing is a specialist legal publisher based in Oxford, England. To order further copies of this book or to request a list of other publications please write to: Hart Publishing, Salter’s Boatyard, Folly Bridge, Abingdon Road, Oxford OX1 4LB Telephone: +44 (0)1865 245533 or Fax: +44 (0)1865 794882 e-mail:
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Preface 2002 the fourth biennial conference of the Centre for Property Law was held at the Centre’s home, the University of Reading. As ever, the proceedings were both enjoyable and instructive, and most of the papers given are published in this second volume of Modern Studies in Property Law. We should like to thank Hart Publishing Ltd for all their help and expertise, and for their sponsorship of the conference reception; and a great debt of gratitude is owed to the panel of anonymous referees who have given their time and attention. Their comments and advice have been immensely helpful and they have made a significant contribution to this volume. The executive committee of the Centre has a difficult biennial choice: to suggest a theme, and risk deterring contributions, or to invite contributions across the whole range of property law, and to risk a very disparate collection of papers. Invariably we have chosen not to restrict papers to a theme, and have been rewarded by a wide range of papers which nevertheless have grouped themselves into several topics, and which link with each other in a number of different ways. This collection begins with some of the international papers given at the conference; first, two papers from South Africa, where the law must meet the challenge of a whole society seeking justice and reconciliation. How can the law of property serve those who have been marginalised and excluded for generations? Hanri Mostert and Andre Van der Walt look at this problem from two different perspectives, the one a doctrinal analysis of legal developments and the other more theoretical. Both explore the possibilities of a way forward through fragmentation, moving away from the inherited hierarchical system where ownership is all, towards a framework which gives a greater value to other property rights. Both present an exciting picture, and we hope to hear more about developments in South Africa at future Reading conferences. From far overseas we move to Europe. Piotr Stec’s paper is an introduction to the law of fiducia in Poland; it provoked intense discussion at the conference as participants examined the similarities and differences between fiducia and the trust. Tom Allen’s paper on the meaning of “possessions” under the European Convention on Human Rights reminds us of the increasingly European flavour of the law of England and Wales. Pamela O’Connor’s paper could very properly be grouped with the South African papers, because both raised issues about land registration. One of the challenges for the law in South Africa is to find a way of adapting the deeds registration system to the new democracy, since its very success is a source of difficulty and even of oppression in a climate where change is essential.
I
N MARCH
vi Preface O’Connor’s paper on land registration, by contrast, examines and compares the registration systems in the much more stable context of England and Australia. Her global perspective is followed by the microcosm of Graham Ferris’ examination of the meaning of one section of the Land Registration Act 2002. Back home, then, in England and Wales, we focus on equity in the next group of papers. Mark Thompson looks at the law of undue influence in the context of mortgages, following the House of Lords’ decision in Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449. Two papers follow on the law of estoppel, by Nicholas Hopkins and Martin Dixon; they belong together as papers on estoppel, but Martin Dixon’s paper is closely concerned with the new Land Registration Act 2002, and so has close links with the two papers on land registration by O’Connor and Ferris. Paul Eden looks at the equitable ownership of shares, and provides us with a welcome reminder that the Centre for Property Law is not concerned solely with real property. Finally in this group is Heather Conway and Sheena Grattan’s paper on aspects of the law in Northern Ireland, in many ways so close to and yet so far removed from the law of England and Wales and certainly a matter upon which many English lawyers are lamentably ignorant. Their topics link naturally with those that immediately precede them; yet they could equally have been grouped with Stuart Bridge’s paper as their discussion of the ownership of the family home is relevant to the Law Commission’s project on of the rights of those who are home-sharers. There follows a group of papers on the law of landlord and tenant. Warren Barr addresses the vexed question of whether a change in the terms of a lease effects a variation or a new lease; and Jill Morgan looks at the rights and responsibilities of the child as tenant. Nicholas Roberts examines those groups of homeowners who have been left out by the leasehold reform legislation. David Clarke’s conference paper on commonhold can be found at [2002] The Conveyancer 349. The final group of papers is headed rather loosely ‘Environment and neighbours’; the papers examine different aspects of the way that the use of land affects others. Christine Willmore considers the role of publicly owned land within National Parks, while Sarah Nield looks at the legal structure of one very famous National Park, the New Forest. Roger Gibbard examines an issue in planning law, the Crichel Down rules. Finally Scott Grattan considers legislation authorising access to neighbouring land. Last of all comes Stuart Bridge’s paper; his address was the keynote session of the conference, but his paper appears here in amended form following the very recently published Law Commission discussion paper, Sharing Homes. It has been a joy to be involved in the planning and execution of this conference; the next biennial event in 2004 is anticipated with pleasure.
Contents Notes on Contributors Table of Cases Table of Statutes Table of Foreign Enactments Table of International Legislation
ix xi xxv xxxix xlvii
I. International developments 1. The Diversification of Land Rights and its Implications for a New Land Law in South Africa Hanri Mostert 2. Protecting Social Participation Rights Within The Property Paradigm: A Critical Reappraisal Andre Van der Walt 3. Fiducia in an Emerging Economy Piotr Stec 4. The Autonomous Meaning of ‘Possessions’ under the European Convention on Human Rights Tom Allen
3
27 43
57
II. Land registration 5. Registration of Title in England and Australia: A Theoretical and Comparative Analysis Pamela O’Connor 6. Making Sense of Section 26 of the Land Registration Act 2002 Graham Ferris
81 101
III. Equity 7. Mortgages and Undue Influence Mark Thompson
123
8. Estoppel and Restitution: Drawing a Divide Nicholas Hopkins
145
9. Proprietary Estoppel and Formalities in Land Law and the Land Registration Act 2002 Martin Dixon
165
viii Contents 10. The Equitable Ownership of Shares Paul Eden 11. Northern Ireland: A Forgotten Jurisdiction. Falling Behind or Forging Ahead? Heather Conway and Sheena Grattan
183
203
IV. Landlord and tenant 12. New Terms or New Lease: Principles of Leasehold Variation Warren Barr
229
13. The Child as Tenant: Rights and Responsibilities Jill Morgan
249
14. The ‘Widows and Orphans’ of Leasehold Reform Nicholas Roberts
267
V. Environment and neighbours 15. The New Forest: Ancient Forest and Modern Playground Sarah Nield
287
16. Protected Area Values: National Parks and Public Land Ownership Christine Willmore
307
17. The Crichel Down Rules: Conduct or Misconduct in the Disposal of Public Lands? 329 Roger Gibbard 18. Proprietarian Conceptions of Statutory Access Rights Scott Grattan
353
VI. Keynote address 19. Sharing Homes: Property or Status? Stuart Bridge
377
Notes on Contributors Tom Allen is a Professor in the Faculty of Law at the University of Leeds. Warren Barr is a Lecturer in the Law School, and Director of the Charity Law Unit, at the University of Liverpool. Stuart Bridge is a Law Commissioner for England and Wales. Heather Conway is a Lecturer in the School of Law at the Queen’s University of Belfast. Martin Dixon is a University Lecturer at Cambridge University and a fellow of Robinson College, Cambridge. Paul Eden is a Lecturer in International Commercial Law at the University of Sussex. Graham Ferris is a Lecturer in the Department of Law at Nottingham Trent University. Roger Gibbard is Director of Rural Studies in the Department of Land Management and Development at the University of Reading. Scott Grattan is a Lecturer in the Faculty of Law, and a member of the Legal Intersections Research Centre, at the University of Wollongong in Australia. Sheena Grattan is a Senior Lecturer in the School of Law at the Queen’s University of Belfast. Nicholas Hopkins is a Senior Lecturer at the University of Southampton. Jill Morgan is a Senior Lecturer in the School of Law, University of East Anglia Hanri Mostert is a Senior Lecturer in the Department of Private and Roman Law at the University of Stellenbosch. Sarah Nield is a Lecturer in the Faculty of Law at the University of Southampton. Pamela O’Connor is a Senior Lecturer in Law, Monash University, Victoria, Australia. Nicholas Roberts is a Lecturer in law at Oxford Brookes University and is also Legal Adviser to the Federation of Private Residents’ Associations Ltd. Piotr Stec is a Lecturer in Law at the Silesian University of Technology, Poland. Mark Thompson is a Professor in the Faculty of Law at the University of Leicester. Andre Van der Walt is a Professor in the Department of Public Law at the University of Stellenbosch. Christine Willmore is a Lecturer in the Department of Law at the University of Bristol.
Table of Cases AUSTRALIA Attorney-General (NSW) v Quin (1990) 170 CLR 1 ......................................34 Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 ............................................................148 Bahr v Nicolay (No 2) (1988) 164 CLR 604 ...................................................94 Biggs v McElister (1880) 14 SALR 86 ............................................................90 Blulock Pty Ltd v Majic [2001] NSWSC 1063 ..............................................360 Bogdanovich v Koteff (1988) 12 NSWLR 472................................................90 Breskvar v Wall (1971) 126 CLR 376; [1972] ALR 205...................................91 Commonwealth of Australia v Verwayen [1990] 170 CLR 394 ....................157 Conlan v Registrar of Titles (2001) 24 WAR 299...........................................91 Edward Street Properties Pty Ltd, Ex parte [1977] Qd R 86 .........................360 Garcia v National Australia Bank Ltd (1998) 72 AJLR 1243 ........................127 Goodwin v Yee Holdings Pty Ltd (1997) 8 BPR 15,795 ................................359 Hanny v Lewis (1998) 9 BPR 16,205............................................................359 Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 ................95 Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 (FCA)..................................................................................200 J & JH Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 ............................................................................................95 Katakouzinos v Roufir Pty Ltd (1999) 9 BPR 17,303 ....................................359 Kevin, In re (2001) 28 Fam LR 158..............................................................222 Kindervater, Re, unreported, 2 August 1995 ..........................................359–60 King v Smail [1958] VR 273..........................................................................90 Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 342..............93 Leros Pty Ltd v Terara Pty Ltd (1991) 174 CLR 407 ......................................95 Marshall v Council of the City of Wollongong (2000) 10 BPR 18,163 ..........360 Mitchell v Boutagy [2001] NSWSC 1045 .....................................................359 Official Receiver v Klau (1987) 74 ALR 67 ....................................................90 117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504 ...........................................................................................359 Permanent Trustee Australia Ltd, Re (1997) 8 BPR 15,551 ..........................359 Rasmussen v Rasmussen [1995] 1 VR 613 ...............................................90–91 Registrar-General v Harris and Another (1998) 45 NSWLR 404 ....................96 Seaforth Land Sales Pty Ltd’s Land (No 2), Re [1977] Qd R 317 ..................359 Tregoyd Gardens Pty Ltd v Jervis (1997) 8 BPR 15,845................................359 Waltons Stores (Interstate) Ltd v Maher (1987) 164 CLR 387 .................157–58
xii Table of Cases Washington Constructions v Ashcroft (1982) Q Conv R paras 54–6 ..............90 Wengarin v Byron Shire Council (1999) 9 BPR 16,985 .................................363 Worthston Pty Ltd, Re [1987] Qd R 400 .....................................................360 Yerkey v Jones (1939) 63 CLR 64..............................................................1277
EUROPEAN COMMISSION AND COURT OF HUMAN RIGHTS Beyeler v Italy (2001) 33 EHRR 62 .....................................................67–70, 76 Brumărescu v Romania (2001) 33 EHRR 35 .................................................61 Darby v Sweden Series A No 187, (1991) 13 EHRR 774.................................58 Deumeland v Federal Republic of Germany Series A No 100, (1986) 8 EHRR 448.............................................................................................74 Engel v Netherlands (No 1) Series A No 22, (1979–80) 1 EHRR 647 ..............59 Feldbrugge v Netherlands Series A No 99, (1986) 8 EHRR 425......................74 Former King of Greece v Greece (2001) 33 EHRR 21..........................69–70, 76 Gasus Dosier- und Fördertechnik GmbH v Netherlands Series A No 306–B, (1995) 20 EHRR 403 ..................................59–61, 69–70 Gaygusuz v Austria (1997) 23 EHRR 364 ................................................75–76 Hentrich v France Series A No 296–A, (1995) 18 EHRR 440..........................58 Iatridis v Greece (2000) 30 EHRR 97..................................................69–70, 76 Inze v Austria Series A No 126, (1988) 10 EHRR 394 .........................59, 75–76 James v UK Series A No 98, (1986) 8 EHRR 123 ...........................................59 König v Germany (No 1) Series A No 27 (1976), (1979–80) 2 EHRR 170.............................................................................................61 Louzidou v Turkey ...........................................................................65–66, 75 Malhous v Czech Republic (Application 33071/96) 13 December 2000, ECHR 2000–XII .................................................................................64–66 Marckx v Belgium Series A No 31, (1979) 2 EHRR 330 ......................59, 75–76 Matos e Silva Ida v Portugal (1997) 24 EHRR 573..............................68, 70, 76 Müller v Austria [1976] 3 DR 25 .............................................................30, 74 National & Provincial Building Society and others v UK (1998) 25 EHRR 127......................................................................................63–65 Neumeister Series A No 8 (1968), (1979–80) 1 EHRR 91 ...............................59 Öztürk v Germany Series A No 73, (1984) 6 EHRR 409 ................................61 Pressos Compania Naviera SA v Belgium Series A No 332, (1996) 21 EHRR 301 ................................................................................63–65, 75 Prince Hans-Adam II of Liechtenstein v Germany.........................................66 Ringeisen v Austria Series A No 13 (1971), (1979–80) 1 EHRR 455................59 S v UK (Application 11716/85)....................................................................223 Salesi v Italy Series A No 257–E, (1998) 26 EHRR 187 ..................................74 Schuler-Zgraggen v Switzerland Series A No 263, (1993) 16 EHRR 405 .........74 Sheffield and Horsham v UK (1998) 27 EHRR 163 ......................................223 ˇ cek, s.r.o. v The Czech Republic (2000) 30 EHRR 1010............................58 Spaˇ
Table of Cases xiii Sporrong and Lönnroth v Sweden Series A No 52 (1982)...............................58 Tre Tractörer AB v Sweden Series A No 159 (1989), (1991) 13 EHRR 309......................................................................................30, 60 Wemhoff v Germany Series A No 7 (1979–80) 1 EHRR 55 ............................59 X v FRG (1956) 1 YB 202 ...........................................................................254 X v Italy [1977] 11 DR 114 ...........................................................................30 X v The Netherlands [1971] 14 YB 224....................................................30, 74 X v UK [1970] 13 YB 892 ........................................................................30, 74 X and Y v UK (Application 9369/81)...........................................................223
GERMANY BGHZ 83 (1982) ..........................................................................................29 BVerfGE 28 (1970) .......................................................................................29 BVerfGE 45 (1977) .......................................................................................29 BVerfGE 69 (1985) (Eigenleistung) ..........................................................29, 31 24 BVerfGE 367 (Hamburg Flood Control Case) ..........................................71 53 BVerfGE 257 (1980) (Equalisation of Pensions upon Dissolutioin of Marriage Case) ...................................................................................73–74 58 BVerfGE 300 (1981) (Groundwater Case).................................................72
HONG KONG CA Pacific Finance Ltd (in Liquidation), Re [2000] 1 BCLC 494 (HK CFI)................................................................................................201
INDIA Deokinandan Prasad v The State of Bihar and Others AIR (58) 1971 SC 1409............................................................................................30 Madan Mohan Patak and Another v Union of India and Others AIR (65) 1978 SC 803.......................................................................................30
IRELAND Blake v Concannon (1870) IR 4 CL 323.......................................................260 Hand and Others v City of Dublin and Others [1991] 1 IR 409......................30 Hempenstall and Others v Minister for the Environment [1994] 2 IR 20........30 Keegan v National Bank [1931] IR 344 .......................................................207 Kelaghan v Daly [1913] 2 IR 328.................................................................207
xiv Table of Cases Lawlor v Minister of Agriculture and Others [1988] ILRM 400; [1990] 1 IR 356 .........................................................................................30 Lord Inchquin v Lyons (1887) 20 LR Ir 474 .................................................239 National Bank v Keegan [1931] IR 344 .......................................................207 Shanahan, Re [1919] 1 IR 131 .....................................................................207
MALAYSIA Adorna Properties Sdn Bhd v Boonsom Boonyanit @Sun Yon Eng [2001] 1 MLJ 241................................................................................................92 Bhagwan Singh & Co Sdn Bhd v Hock Hin Bros Sdn Bhd [1987] 1 MLJ 324................................................................................................83
NEW ZEALAND Liggett v Kensington [1993] 1 NZLR 257 ....................................................189
PAPUA NEW GUINEA Administration of the Territory of Papua New Guinea v Blasius Tirupia [1971–72] PNGLR 229..............................................................................92
POLAND Judgment of the Supreme Court of 3 February 1960, OSPiKA 1961 entry 75..............................................................................51 Judgment of the Supreme Court of 24 April 1964, OSPiKA 1965 entry 229 ............................................................................51 Judgment of the Supreme Court of 28 December 1976, OSNCP 1977 entry 121.............................................................................52 Judgment of the Supreme Court of 29 May 2000, OSN 11 entry 213.....................................................................................51
SOUTH AFRICA Administrator, Transvaal and others v Traub and others 1989 (4) SA 731 (A) ...............................................................................................34 Barnard v Liquidators of S Seligmann & Co (Pty) Ltd 1964 (3) SA 692 (E) ................................................................................................23
Table of Cases xv Britz v Sniegocki 1989 (4) SA 372 (D)............................................................23 Chief Nchabeleng v Chief Phasha 1998 (3) SA 578 (LLC) ................................8 Commissioner of Customs & Excise v Randles Brothers & Hudson Ltd (1941) AD 369 ..........................................................................................19 Diepsloot Residents’ and Landowners’ Association v Administrator, Transvaal 1993 (1) SA 577 (T); 1993 (3) SA 49 (T).....................................10 Dulabh and Another v Department of Land Affairs 1997 (4) SA 1108 (LCC) ........................................................................................................8 Geldenhuys, Ex parte 1926 OPD 155 ..............................................................5 Government of the Republic of South Africa v Grootboom 2001 (1) SA 46 (CC)..........................................................................................36 Karabo v Kok 1998 (4) SA 1014 (LCC) .........................................................16 Lorentz v Melle 1978 (3) SA 1004 (T) .............................................................5 Minister of Public Works and others v Kyalami Ridge Environmental Association and others 2001 (7) BCLR 652 (CC) .......................................36 Mnisi v Chauke 1994 (4) SA 715 (T) .............................................................13 Odendaalsrus Gold, General Investments & Extensions Ltd v Registrar of Deeds 1953 (1) SA 600 (O)..........................................................................5 Pearly Beach Trust v Registrar of Deeds 1990 (4) SA 614 (C)...........................5 Standard Bank of SA Ltd v Ocean Commodities Inc 1983 (1) SA 276 (A) .......23
SWITZERLAND BGE 106 Ia 163 (Graf) (1980)........................................................................29
TRINIDAD AND TOBAGO Bahadur v Attorney General [1989] LRC (Const) 632 ...................................30
UNITED KINGDOM Abigail v Lapin (1934) AC 491......................................................................95 Akiens v Salomon (1993) 65 P & CR 364 ....................................................178 Allcard v Skinner (1887) 36 Ch D 145 .........................................................126 Allen & Unwin Case (1980)........................................................................333 Alliance and Leicester Building Society v Carlisle High Court (NI), unreported, 8 September 1995.................................................................211 Amalgamated Property Company v Texas Bank [1982] 1 QB 84..................174 Argyle Building Society v Hammond (1984) 49 P & CR 148 ..........................93 Ashburn Anstalt v Arnold [1988] 2 All ER 147 ............................................239 Ashfeild v Ashfeild (1628) W Jo 157............................................................262
xvi Table of Cases Assets Company Ltd v Mere Roihi [1905] AC 176 ........................................92 Attorney-General v Blake [2001] 1 AC 268..................................................153 Attorney-General of Hong Kong v Humphrey’s Estate (Queen’s Gardens) Ltd [1987] 1 AC 114................................................................................178 Attorney-General for Hong Kong v Reid [1994] 1 AC 324 ...........................107 Austerberry v Oldham Corporation (1885) 29 Ch D 750.............................271 Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 ....................................124 Aylesbond Estates Ltd v McMillan and Garg (2000) 32 HLR 1 ..............278–79 Aylwen v Takla, 6 April 2000 (CA).............................................................176 Bainbrigge v Browne (1881) 18 Ch D 188 ....................................................137 Baker v Baker [1993] 2 FLR 247...........................................................151, 153 Ballie, Re [1972] Ch 698 .............................................................................172 Banco Exterior Internacional v Mann [1995] 1 All ER 936 .....................134–35 Bandar Property Holdings Ltd v JS Darwen (Successors) Ltd [1968] 2 All ER 305 ...........................................................................................277 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923....................................................................................124–27, 132 Bank of Montreal v Stuart [1911] AC 120 ...................................................128 Bank of Scotland v Bennett [1991] FLR 730.................................................134 Bannister v Bannister [1948] 2 All ER 133 ...................................................207 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567...................192 Barclays Bank Ltd v Stasek [1957] Ch 28.....................................................235 Barclays Bank Ltd v Taylor [1974] Ch 137 ....................................................95 Barclays Bank plc v Boulter [1999] 4 All ER 513..........................................132 Barclays Bank plc v Coleman [2000] 1 All ER 385 ................................132, 134 Barclays Bank plc v O’Brien [1994] 1 AC 180 ........126–27, 130–31, 134–41, 143 Barclays Bank plc v Rivett [1999] 1 FLR 730 ...............................................130 Barclays Bank plc v Thomson [1997] 4 All ER 816 ......................................135 Barclays Bank plc v Zaroovabili [1997] 2 All ER 19.....................................123 Barker v Merckel [1960] 1 QB 657 ..............................................................238 Baroness Llandover’s Will Trusts, Re [1902] 2 Ch 679.................................207 Beegas Nominees Ltd v BHP Petroleum Ltd [1998] 2 EGLR 57 ....................229 Bellinger v Bellinger [2001] 1 All ER 311 .....................................................222 Berry v Berry [1929] 2 KB 316 .....................................................................230 Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd [1997] 1 EGLR 47 ........................................................277 Billage v Southee (1852) 9 Hare 534 ............................................................126 Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883 .........................................................................................212 Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenberg AG [1975] AC 591 ..................................................................................104 Borland’s Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279............................183 Bowes v East London Water Works Co (1820) Jacob 324; 37 ER 873...........110 Bowring v Shepard (1871) LR 6 QB 309 ......................................................185
Table of Cases xvii Bray v Ford [1896] AC 44 ...........................................................................257 Bristol and West BS v Henning [1995] 1 WLR 778.......................................124 Britannia BS v Earl [1990] 1 WLR 427.........................................................123 Britannia BS v Pugh [1997] 2 FLR 7 ............................................................134 British Benningtons Ltd v NW Cachar Tea Co [1923] AC 48 .................230–32 British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758...................................................................................194 Bryan v Shoultz, 21 April 1999 (CA) ...........................................................176 Bull v Bull [1955] 1 QB 234.........................................................................380 Burns v Burns [1984] 1 Ch 317 ................................................219, 380–81, 384 Bushell v Secretary of State for the Environment [1981] AC 75 ....................339 Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578 .............................................................................................194 Campbell v Griffin [2001] EWCA Civ 990........................165, 167–68, 182, 383 Canty v Broad, 25 May 1995 (CA) ..............................................................178 Carl-Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276...............193 Carlos Federspeil & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 ...................................................................................195 Carlton v Goodman [2002] EWCA Civ 545; [2002] 2 FLR 259.....................378 Carne, Re [1899] 1 Ch 324..........................................................................207 Carnell v Harrison [1916] 1 Ch 328.............................................................262 Caunce v Caunce [1969] 1 WLR 286 ...........................................................123 Chalmers v Pardoe [1963] 1 WLR 677 ...................................................156–57 Chaplin & Co Ltd v Brammall [1908] 1 KB 233 ..........................................124 Chapple v Cooper (1844) 13 M & W 252 ....................................................259 Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 .........................................................................................189 Cheltenham & Gloucester Building Society v Norgan [1996] 1 All ER 449 ..............................................................................123, 210–15 Chun v Ho (In the Matter of Melodious Corporation), 30 November 2001..................................................................................165 CIBC Mortgages Ltd v Pitt [1994] 1 AC 200 ...................................125, 129–32 City of London BS v Flegg [1988] AC 54 .....................................................123 Clark v Chief Land Registrar [1993] Ch 294 .................................................95 Cloutte v Storey [1911] 1 Ch 18 ..................................................................110 Colchester Borough Council v Smith [1992] Ch 421 ....................................169 Coldunell Ltd v Gallon [1986] QB 1184 ......................................................124 Collings v Lee [2001] 2 All ER 332 ..............................................................119 Collins v Claughton [1959] 1 WLR 145 .......................................................241 Colonial Bank v Hepworth (1887) 36 Ch D 36 ............................................185 Colonial Bank v Whinney (1886) 11 App Cas 426........................................183 Commissioner of Stamp Duties v Bone [1977] AC 511.................................230 Compton Bassett Case (1969) ..............................................................333, 338 Cook v Norlands Ltd [2001] 1 All ER (D) 24 .........................................166–67
xviii Table of Cases Cooke v Head [1972] 1 WLR 518................................................................380 Corbett v Corbett [1970] 2 All ER 33 ..........................................................222 Cowan v Department of Economic Development [2001] NI 122 ..................345 Crabb v Arun DC (No 1) [1976] 1 Ch 179............................................150, 166 Craig, Re [1971] Ch 95 ...............................................................................126 Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 ..............................................................................128, 134–35 Crisp v Churchill (1794) 1 Bos & Pul 340; 126 ER 939 .................................259 Critchel Down Case ...................................................................................331 Cruse v Paine (1868) LR 6 Eq 641 ...............................................................193 Cundy v Lindsay (1878) 3 App Cas 459.......................................................190 Daejan Properties Ltd v London Leasehold Valuation Tribunal [2001] EWCA Civ 1095...........................................................................279 Davies v Beynon-Harris (1931) 47 TLR 424 ................................................260 De Falco v Crawley [1980] QB 460 .............................................................253 Dean v Walker (1996) 73 P & CR 366.........................................................354 Delaforce v Evans and Evans (1971) 22 P & CR 770....................................280 Derby & Co Ltd v ItC Pension Trust Ltd [1977] 2 All ER 890 .....................178 Donoghue v Poplar Housing and Regeneration Community Association Ltd [2001] 3 WLR 183 ............................................................................263 Donoghue v Stevenson [1932] AC 562.........................................................367 Drake v Whipp [1996] 1 FLR 826................................................................382 Duke of Westminster v Birrane [1995] QB 263 .....................................280, 282 Duncuft v Albrecht (1841) Sim 189 .............................................................186 Edwin Shirley Productions Ltd v Workspace Management Ltd [2001] 23 ER 158 ....................................................................................178 Evans v James, 20 July 2000 (CA) ...............................................................178 Eves v Eves [1975] 1 WLR 1338 ...........................................................219, 379 Fenner v Blake [1900] 1 QB 426 ..................................................................239 Finchbourne v Rodriques [1976] 1 All ER 591........................................277–78 First Middlesbrough Trading Co Ltd v Cunningham (1974) 28 P & CR 69 .........................................................................................212 Fitzpatrick v Sterling Housing Association [1999] 4 All ER 705 ...................222 Flight v Bolland (1828) 4 Russ 298 ..............................................................264 Flowermix Ltd v Site Development (Ferndown) Ltd, 11 April 2000 ......167, 178 Foskett v McKeown [2001] 1 AC 102..........................................................107 Frazer v Walker [1967] 1 AC 569; [1967] 1 All ER 649 .............................91, 94 Freedman v British Railways Board (1995) 69 P & CR 13............................342 Freeguard v Royal Bank of Scotland (1998) 95/13 LS Gaz 29 .........................95 Friends Provident Life Office v British Railways Board [1996] 1 All ER 336...........................................................229–30, 235–36, 238, 243 Fry, Re [1946] Ch 312 ...........................................................................196–97 Gallagher v Abbey National Building Society, unreported, 14 December 1999 (CA) ..........................................................................215
Table of Cases xix Gibbons, Re [1920] 1 Ch 372 ......................................................................207 Gibson v Bell, High Court (NI), unreported, 29 October 1999.....................221 Gilje v Charlegrove Estates Ltd [2000] 3 EGLR 89 ......................................279 Gillespie v Scott, High Court (NI), unreported, 1997...................................206 Gillett v Holt [2000] 2 All ER 289; [2000] 3 WLR 815; [2001] Ch 210 .................................148, 150, 161, 168, 175–76, 179, 181, 384 Gillick v West Norfolk and Wisbech Health Authority [1986] AC 112 ..........................................................................249, 258, 265 Gissing v Gissing [1971] AC 886 .................................................................378 Godden v Merthyr Tydfil Housing Association, 15 January 1997 (CA)........174 Goldcorp Exchange Ltd, Re [1995] 1 AC 74..................................185, 189, 200 Goode Durrant Administration v Biddulph [1994] 2 FLR 551......................134 Grant v Cigman [1996] 2 BCLC 24 .............................................................186 Grant v Edwards [1986] 2 All ER 426; [1986] Ch 638 ...........................219, 381 Grey v IRC [1960] AC 1 .............................................................................116 Griss v Trust Laboratories Ltd & Patrick Cattle, 16 February 2000 (CA).....165 Halifax Building Society v Clark [1973] 2 All ER 33 ....................................212 Hall v Hall [1982] 3 FLR 379 ......................................................................380 Halsall v Brizell [1957] Ch 169 .......................................................271–73, 275 Hammond v Mitchell [1991] 1 WLR 1127...................................................382 Harris v Tremenhere (1808) 15 Ves 34 ........................................................126 Harrogate BC v Simpson (1986) 16 Fam Law 359........................................222 Harvard Securities, Re [1997] 2 BCLC 369 .......................................192, 200–1 Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207 ........................................................................................186 Havenridge Ltd v Boston Dyers Ltd [1994] 2 EGLR 73................................277 Hawks v McArthur [1951] 1 All ER 22 ................................................195, 198 Hodgson v Marks [1971] 1 Ch 892 ...............................................................90 Holme v Brunskill (1878) 3 QBD 495 ..........................................................237 Holroyd v Marshall (1862) 10 HLC 191; (1863) 33 LJ Ch 193.................186–87 Horn v Sunderland Corporation [1957] 1 QB 485........................................329 Hounslow London Borough Council v Hare (1990) 24 HLR 9.....................105 Howes v Bennett [1909] 2 KB 390 ...............................................................128 Huguenin v Baseley (1807) 14 Ves Jun 272 ..................................................126 Hunter v Moss [1994] 1 WLR 452 .........................................192, 195, 199–201 Hussey v Palmer [1972] 1 WLR 1286 ..........................................................146 Hypo-Mortgage Services Ltd v Robinson [1997] 2 FCR 442 ........................249 Inwards v Baker [1965] 2 QB 29 ............................................................159–60 IRC v Crossman [1937] AC 26....................................................................183 IRC v Gibbs [1944] AC 402 ........................................................................234 Ive’s Case (1597) 5 Co Rep 11a ...................................................................239 Jenkins R Lewis & Son Ltd v Kerman [1970] 3 All ER 414..............236, 238–39 Jennings v Rice [2002] EWCA Civ 159 .............................166–68, 172, 182, 383 John Trenberth Ltd v National Westminster Bank (1979) 39 P & CR 104....353
xx Table of Cases Jones v Bridgman (1878) 39 LT 500 ............................................................237 Jones v Jones [2001] NI 244 ...................................................................207–9 Jones v Lipman [1962] 1 WLR 832 ...............................................................93 Jones v Lock (1865) LR 1 Ch App Cas 25....................................................196 Jones v Stones [1999] 1 WLR 1739..............................................................176 JS Bloor (Measham) Ltd v Calcott [2002] 9 EG 222.......................165, 169, 173 JT Developments v Quinn (1990) P & CR 33..............................................158 Kayford Ltd, Re [1975] 1 WLR 279 .....................................................192, 195 Kelly v Monklands DC 1986 SLT 165 .........................................................255 Ketsey’s Case (1613) Cro Jac 320 aka Keteley‘s Case (1613) 1 Brown 120.....260 Kings North Trust Ltd v Bell [1986] 1 WLR 119..........................................124 Kingston BC v Prince (1999) 31 HLR 794 ................................250, 262–63, 266 Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349....................130 Laker Airways v Department of Trade [1977] 2 All ER 182 .........................339 Le Foe v Le Foe [2001] 2 FLR 970 ..........................................................387–88 League Against Cruel Sports Ltd v Scott [1986] QB 240...............................322 Lee-Parker v Izzet (No 2) [1972] 1 WLR 775 ..........................................156–58 Leighton’s Conveyance, Re [1936] 1 All ER 667 ............................................93 Lewis v Avery [1972] 1 QB 198 ...................................................................190 Lim Teng Huan v Ang Swee Chuan [1992] 1 WLR 113................................175 Liverpool City Council v Walton, 25 July 2001 ...........................................168 Lloyd v Dugdale [2001] EWCA Civ 1754; (2002) 2 P & CR 167 ..................................................165, 168, 171, 181, 383 Lloyds Bank v Carrick [1996] 4 All ER 630 ..........................................150, 153 Lloyds Bank plc v Rosset [1991] 1 AC 107...............................219, 379, 381–82 Locabail (UK) Ltd v Bayfield Properties Ltd, 9 March 1999 .........................165 London, Hamburg and Continental Exchange Bank, Ward and Henry’s Case, Re (1867) 2 Ch App 431.................................................................185 London and South Western Railway Co v Gomm (1882) 20 Ch D 562.........257 London Wine Co Ltd, Re [1986] PCC 121 ...............................185, 188–89, 193 Lowe v Griffith (1835) 4 LJCP 94................................................................259 Lumley v Ravenscroft [1895] 1 QB 683 .......................................................264 Lyon v Reed (1844) 13 M & W 285 .......................................................234–35 Lysaght v Edwards (1876) 2 Ch D 499.........................................................185 Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044 ...........................94, 119 McCarthy & Stone Ltd v Julian S Hodge & Co Ltd [1971] 1 WLR 1547........95 McFarlane v McFarlane [1972] NI 59 .........................................................219 McIntyre v Merthyr Tydfil District Council (1989) 21 HLR 320 ..................262 Mac-Jordan Construction Ltd v Brookmount Erostin Ltd (in receivership) [1992] BCLC 350 ....................................................................................201 Malekshad v Howard de Walden Estates Ltd [2001] EWCA Civ 761; [2001] 3 WLR 824...................................................................................282 Marriot v Oxford Co-operative Society [1969] 1 All ER 471........................232 Mascall v Mascall (1984) 50 P & CR 119 ....................................................197
Table of Cases xxi Massey v Midland Bank plc [1995] 1 All ER 925 .........................................128 Maunsell v Olins [1975] AC 373 .................................................................102 Midland Bank plc v Cooke [1995] 4 All ER 562...........................................381 Milroy v Lord (1862) 4 De G F & J 264 ...............................................196–200 Minster Chalets Ltd v Irwin Park Residents Association, 27 April 2001..........................................................................................274 Mobil Oil Company v Birmingham City Council [2001] EWCA Civ 1608 .....................................................................................168 Moloo v Standish Hotels, 6 March 2002.......................................166, 172, 182 Morris v Barron & Co [1918] AC 1 .....................................................231, 243 Mortgage Corporation Ltd v Leslie, unreported, 1 February 1996 (CA) ........................................................................214–15 Mortgage Corporation Ltd v Nationwide Credit Corporation Ltd [1994] Ch 49.............................................................................................95 Mortgage Corporation Ltd v Shaire [2001] Ch 743......................................385 Mukesh Shah v Panachand Shah [2002] QB 35............................................168 National Carriers Ltd v Panalpina [1981] 2 AC 45 ......................................244 National & Provincial Building Society v Lynd [1996] NI 47 ..................................................................206, 210–11, 213–15 National Westminster Bank plc v Morgan [1995] AC 686 ....................128, 132 North Western Railway Co v M’Michael (1850) 5 Ex 114 ...........................260 Northern Rock BS v Archer (1998) 78 P & CR 65 .........................128, 135, 140 Norwich & Peterborough Building Society v Steed [1993] Ch 116 .................93 Oakley v Airclear Environmental Ltd, 4 October 2001 .........................168, 176 Oceanic Steam Navigation Co v Sutherberry (1880) 16 Ch D 236 ...............108 Old Grovesbury Farm Ltd v Seymour Plant Hire (No 2) [1979] 1 WLR 1397.................................................................................241 Orgee v Orgee (1997) EGCS 152 .................................................................176 Ottaway v Norman [1972] Ch 698..............................................................172 Oughtred v IRC [1960] AC 206...................................................................185 Paddington BS v Mendelsohn (1995) 50 P & CR 244 ...................................124 Paine v Hutchinson (1866) LR 3 Eq 257; (1868) 3 LR Ch App 388................193 Pascoe v Turner [1979] 1 WLR 431.............................................................383 Pennington v Waine [2002] ECWA Civ 227 ...........................................197–98 Pettitt v Pettitt [1970] AC 777 .....................................................................378 Pfeffer v Rigg [1977] 1 WLR 285 .............................................................88, 94 Phillips v Brooks [1919] 2 KB 243 ...............................................................190 Polly Peck International plc (in administration) (No 2), Re [1998] 3 All ER 812............................................................................194 Pounder v London Underground [1995] PIQR 217 ......................................221 Preston, Re [1985] 2 All ER 327 ..................................................................345 Pridedean Ltd v Forest Taverns Ltd [1996] PLSCS 66 ..................................178 Property Discount Corporation v Lyon Group [1980] 1 All ER 334; [1981] 1 WLR 300...................................................................................257
xxii Table of Cases R v Bexley LBC, ex parte Bentum [1993] 2 WLR 609...................................254 R v Camden LBC, ex parte Pereira (1999) 31 HLR 317................................255 R v East Sussex County Council, ex parte Reprotech [2002] UKHL 8 ..........168 R v North & East Devon Health Authority, ex parte Coughlan [2000] 3 All ER 850.................................................................................345 R v Northavon DC, ex parte Smith (1994) 26 HLR 659 ...............................252 R v Oldham MBC, ex parte Garlick [1993] 2 WLR 609 ...............................254 R v Somerset County Council, ex parte Fewings [1995] 1 WLR 1037 ...........322 R v Tower Hamlets LBC, ex parte Begum (Ferdous) [1993] 2 WLR 609.......254 R v Tower Hamlets LBC, ex parte Von Goetz [1999] QB 1019 ....................256 R (On the application of Holding & Barnes plc) v Secretary of State for the Environment, Trade and the Regions [2001] UKHL 23............................340 Ramsden v Dyson (1866) LR 1HL 129 ........................................................161 Rashburn v JCL Marine [1977] 1 Lloyd’s Rep 645.......................................234 Ravenocean Ltd v Gardner [2001] All ER (D) 116 .......................................168 Rhodes v Bate (1865) 4 Giff 670 ..................................................................126 Rhone v Stephens [1994] 2 AC 310 ........................................................271–73 Richards v Delbridge (1874) LR 18 Eq 11....................................................196 Richards v Dove [1974] 1 All ER 888 ..........................................................380 Rose, Re [1949] Ch 78 ................................................................................197 Rose (decd), Re, Rose v IRC [1952] Ch 499 ....................................196–98, 200 Rowe v Matthews (2001) 33 HLR 81 ..........................................................240 Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449 ....................................................vi, 132, 134, 136, 139–41, 143 Royal Brunei Airlines Snd Bhd v Tan [1995] 2 AC 378 ................................107 Saga Properties Ltd v Palmeira Square Nos 2–6 Ltd [1995] 1 EGLR 199.......282 Salvation Army Trustee Co Ltd v West Yorkshire MCC (1981) 41 P & CR 179...........................................................................161–62, 179 Saunders (Francis Perceval) Dec’d) v Ralph [1993] 2 EGLR 1; (1993) 28 EG 127 .............................................................................234, 241 Schmidt and another v Secretary of State for Home Affairs [1969] 2 Ch 149; [1969] 1 All ER 904.........................................................33 Shropshire Union Railways & Canal Company v R (1875) LR 7 HL 496 .....185 Singh v Khan [1988] EGCS 92 .............................................................168, 176 Skipton BS v Clayton (1993) 25 HLR 596 ....................................................124 Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 WLR 576 .........................193 Sledmore v Dalby (1996) 72 P & CR 196..........................145, 155–56, 167, 383 Smirk v Lyndale Developments Ltd [1975] Ch 317 ......................................242 Société Générale de Paris v Walker (1885) 11 App Cas 20 ............................185 Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 1 WLR 1072 (PC)..................................................190 Stait v Fenner [1912] 2 Ch 504 ....................................................................261 Stapylton Fletcher Ltd, Re [1994] 1 WLR 1181............................................188 State Bank of India v Sood [1997] Ch 276....................................................101
Table of Cases xxiii Steel v Dauber (1839) 10 A & R 57 .............................................................230 Steinberg v Scala (Leeds) Ltd [1929] 2 KB 310 .............................................260 Stoeckert v Geddes (2000) 80 P & CR D11..................................................176 T Choithram International SA v Pagarini [2001] 1 WLR 1 (PC)...................198 Tailby v Official Receiver (1888) 13 App Cas 523 ......................186–87, 192–93 Taylor v Dickens [1998] 1 FLR 806......................................................166, 176 Taylor v Inntrepreneur Estates, Transcript, No 1997 T No 76.....................178 Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] 1 QB 133 .......................................................................148, 175, 177 Tett v Phoenix [1984] BCLC 599 ................................................................195 Thamesmead Town Ltd v Allotey 79 P & CR 557; [1998] 3 EGLR 97; 30 HLR 1052 ................................................272–73, 275 Thomas v Thomas (1842) 2 QB 851............................................................230 Tito v Waddell (No 2) [1977] Ch 106 ..........................................................272 Tomkins v Commissioner for New Towns (1989) 12 EG 59 ........................333 Trustees of JW Childers Will Trust v Anker [1996] 1 EGLR 1 .....................240 TSB Bank Ltd v Camfield [1995] 1 WLR 430...............................................127 Turnbull & Co v Duvall [1902] AC 429 ......................................................124 Valentini v Canali (1889) 24 QBD 166 ........................................................260 Vestey v IRC (Nos 1 and 2) [1979] 3 WLR 915 ............................................224 Waimiha Sawmilling Co v Waione Timber Co [1926] AC 101.......................94 Wait, Re [1927] 1 Ch 606 ..................................................185–90, 192–94, 200 Walker v Hall [1984] 5 FLR 126..................................................................378 Walker’s Application for Judicial Review, Re [1999] NI 84......................208–9 Wallis v Hands [1893] 2 Ch 75....................................................................240 Walsh v Lonsdale (1882) 21 Ch D 9 ............................................................257 Walsingham’s Case (1573) 2 Plowden 547...................................................235 Ward Ltd v Bignal [1967] 1 QB 534.............................................................195 Watson (Deceased), Re [1999] 1 FLR 878....................................................221 Wayling v Jones [1995] 2 FLR 1029 ............................................................161 Webb v Secretary of State for the Environment and Ipswich Borough Council (1990) 22 HLR 274.....................................................................339 Wednesbury...............................................................................................254 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 ....................................................................194, 197 Western Bank Ltd v Schindler [1976] 2 All ER 393 ......................................212 White v White [2001] AC 596 .....................................................................384 William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932..........................158 Williams v Moss Empires Ltd [1915] KB 242...............................................231 Williams & Glyn’s Bank Ltd v Boland [1980] 2 All ER 408; [1981] AC 487 ....................90, 99, 106, 110, 112, 123, 143, 217, 221, 223, 380 Willies-Williams v National Trust (1993) 65 P & CR 359..............................95 Woolwich BS v Dickman [1996] 3 All ER 704 .............................................123 Yaxley v Gotts [2000] Ch 162 ............................................166–68, 171–74, 181
xxiv Table of Cases Yeo v Wilson, 27 July 1998 ..........................................................167, 176, 182
UNITED STATES OF AMERICA Arnett v Kennedy 416 US 134 (1974).............................................................32 Bishop v Wood 426 US 341 (1976) ................................................................32 Board of Regents of State Colleges v Roth 408 US 564 (1972)...................31–32 Busch v Truitt 160 P 2d 925; 163 P 2d 734 (1945) .........................................200 Cleveland Board of Education v Loudermill 470 US 532 (1985) .....................31 Coppage v Kansas 236 US 1 (1915) ...............................................................32 Dandridge v Williams 397 US 471 (1970) ......................................................32 DeShaney v Winnebago County Department of Social Services 489 US 189 (1989) ......................................................................................................31 Elrod v Burns 427 US 347 (1976)...................................................................31 Flemming v Nestor 363 US 603 (1960) ..........................................................29 Goldberg v Kelly 397 US 254 (1970) ........................................................30–32 James v Valtierra 402 US 137 (1971) .............................................................32 Keyishan v Board of Regents 385 US 589 (1967) ............................................31 Lochner v New York 198 US 45 (1905) .........................................................32 Lynch v Household Finance Corp 405 US 538 (1972) ....................................32 Mathews v Eldridge 424 US 319 (1976) .........................................................31 Penn Central Transportation Co v City of New York 438 US 104 (1978) .......30 Perry v Sindermann 408 US 593 (1972)..........................................................31 Rollestone v National Bank of Commerce in St Louis 252 SW 394 (1923) ....200 San Antonio Independent School District v Rodriquez 411 US 1 (1973) .........32 Sinclair v US 279 US 263.............................................................................326 State of Alabahama v State of Texas 347 US 272 .........................................326 US v Carolene Products Co 304 US 144 (1938) ..............................................32 Utah Power Co v US (CA8 Utah) 230 F 328.................................................326 West Coast Hotel Co v Parrish 300 US 379 (1937).........................................32
ZIMBABWE Chairman, Public Service Commission, and Others v Zimbabwe Teachers’ Association and Others 1997 (1) SA 209....................................................30
Table of Statutes Access to Neighbouring Land Act 1992 (E&W Act)..................................................354, 361–63, 366, 368, 372–74 s 1(1)...............................................................................................361, 367 (2)(a)–(b)............................................................................................361 (3)......................................................................................................362 (4)......................................................................................................361 (a)..................................................................................................361 (5) ......................................................................................................361 s 2(1)(c) ..................................................................................................354 (2)(a)–(b)............................................................................................362 (3) ......................................................................................................362 (4)(a)(i) ..............................................................................................362 (ii) .............................................................................................363 (b) .................................................................................................362 (5)...............................................................................................363, 373 (6) ......................................................................................................363 s 3(1)–(2) ................................................................................................363 (3)–(5) ................................................................................................362 (7) ......................................................................................................363 s 4(1) ......................................................................................................363 s 6(2) ......................................................................................................363 s 7(2)...............................................................................................354, 361 (3) ......................................................................................................361 s 8(3)...............................................................................................354, 361 s 9(3) ......................................................................................................354 Accumulations Act 1800.............................................................................224 Act for the Increase and Preservation of Timber 1689 ............................295–96 Act of 1542 ................................................................................................295 Act of Union ..............................................................................................224 Administration of Estates Act 1925.............................................................204 Administration of Estates Act (NI) 1955 .....................................................204 Administration of Justice Act 1970 s 36.....................................................................................123, 205, 210–15 Administration of Justice Act 1973 s 8............................................................................................123, 210, 212 Administration of Justice Act 1977 s 24 ..........................................................................................................99 Agricultural Holdings Act 1986 ...........................................................165, 245
xxvi Table of Statutes Pt IV ..........................................................................................................241 Agricultural Holdings Act 1996 ..................................................................169 Agricultural Tenancies Act 1995..........................................................238, 245 s 1(4) ......................................................................................................238 s 3 ..........................................................................................................238 s 4(1)(f) ..................................................................................................245 Agriculture Act 1947 ..................................................................................319 Agriculture Act 1986 .................................................................................3171 Charter of the Forest 1217 ..........................................................................294 Charter of the Forest 1225 ..........................................................................294 Children Act 1989..........................................................................249, 251–52 s 1(3)(a) ..................................................................................................249 s 17 ........................................................................................................252 (1).....................................................................................................251 (10)...................................................................................................251 (a)–(c).........................................................................................251 s 20(1) ....................................................................................................251 (3) ....................................................................................................251 s 23B(8)(b)..............................................................................................252 s 27 ...................................................................................................251–52 Sched 1, para 1 .......................................................................................251 Children (Leaving Care) Act 2000 .........................................................251–52 Commonhold and Leasehold Reform Act 2002 (CLRA).........................................................268, 275–76, 278–79, 281–83 s 121.......................................................................................................280 s 138 .................................................................................................275–76 s 151 .................................................................................................278–79 s 155.......................................................................................................279 ss 159–60 ................................................................................................279 s 169.......................................................................................................279 Pt 2 ........................................................................................................268 Commons Agreement 1964.........................................................................290 Companies Act 1985 ..................................................................................184 s 182(1) ..................................................................................................183 s 183(1) ..................................................................................................183 s 184.......................................................................................................185 s 185(1) ..................................................................................................184 s 186(1)(a) ..............................................................................................184 s 188(1)–(2).............................................................................................183 s 212.......................................................................................................184 Companies Act 1989 s 207 .................................................................................................183–84 Compulsory Purchase Act 1965 ..................................................................342 Contract (Rights of Third Parties) Act 1999 ................................................233
Table of Statutes xxvii s 1 ..........................................................................................................234 Countryside Act 1968.................................................................................314 s 13 ........................................................................................................314 s 23 ........................................................................................................303 s 28 ........................................................................................................299 s 37 ........................................................................................................314 s 38 ........................................................................................................314 Countryside and Rights of Way Act 2000....................................................315 Crown Estate Act 1961 s 1(3) ......................................................................................................323 Dartmoor Commons Act 1986....................................................................324 Deer Removal Act 1851.......................................................................289, 296 Electronic Communications Act 2000 .........................................................169 s 8 ..........................................................................................................169 Environment Act 1995 ................................................................312, 314, 3172 s 5 ..........................................................................................................313 s 62 ..........................................................................................312, 318, 321 ss 63–64..................................................................................................312 s 66 ........................................................................................................314 s 69(2)(a) ................................................................................................317 Pt III.......................................................................................................315 Sched 9...................................................................................................315 Factors Act 1889 s 2 ............................................................................................................86 Family Law Reform Act 1969 s 1 ..........................................................................................................249 Family Law (Scotland) Act 1985 s 9(1)(b)..................................................................................................390 Fatal Accidents Act 1976 s 1(3) ......................................................................................................220 Finance Act 1985..........................................................................................64 Finance Act 1991 ....................................................................................64–65 Finance Act (No 2) Act 1992 ........................................................................64 Forestry Act 1945 s 4(5) ......................................................................................................288 Forestry Act 1967 s 1(2) ......................................................................................................325 (3A) .......................................................................................................325 s 47(3) ....................................................................................................304 Forestry (Transfer of Woods) Act 1923.......................................................288 Homelessness Act 2002 ..................................................................251, 253–54 Housing Act 1974.......................................................................................270 s 118(2) ..................................................................................................270 Housing Act 1985 ........................................................................256, 261, 272
xxviii Table of Statutes Ground 16 .................................................................................................261 s 79 ........................................................................................................261 s 81 .................................................................................................256, 262 s 83 ........................................................................................................261 s 87 ........................................................................................................256 s 89 ........................................................................................................261 (2) ....................................................................................................256 s 91 .................................................................................................251, 262 ss 92–93..................................................................................................262 ss 102–3..................................................................................................261 s 105.......................................................................................................263 s 106A ....................................................................................................263 ss 118–19 ................................................................................................262 s 136.......................................................................................................262 s 157(1) ..................................................................................................315 Sched 2...................................................................................................261 Housing Act 1988.......................................................................................261 s 34(1) ....................................................................................................240 s 36 ........................................................................................................240 (2) ....................................................................................................240 (b) ................................................................................................240 (3) ....................................................................................................240 Housing Act 1996 (HA 1996) ..................................................252–53, 267, 271 s 83 ........................................................................................................278 s 106.......................................................................................................271 s 124.......................................................................................................260 s 125(2) ..................................................................................................260 s 128.......................................................................................................260 s 161.......................................................................................................253 s 182(1) ..................................................................................................253 s 184.......................................................................................................254 s 189(1) ..................................................................................................254 Pt VI .................................................................................................251–52 Pt VII ..............................................................................................251, 254 Housing Grants, Construction and Regeneration Act 1996 s 107.......................................................................................................168 Housing (Scotland) Act 1987 ......................................................................255 s 19(1) ....................................................................................................254 Housing (Scotland) Act 2001 ......................................................................254 s 9 ..........................................................................................................254 Human Fertilisation and Embryology Act 1990 ss 27–28..................................................................................................221 Human Rights Act 1998 ......................................................................263, 340 s 6(1) ......................................................................................................263
Table of Statutes xxix (3) ...................................................................................................263 Inclosure Act 1808......................................................................................295 Inheritance (Family Provision) Act 1938 .....................................................204 Inheritance (Family Provision) Act (NI) 1960 ..............................................204 Inheritance (Provision for Family and Dependants) Act 1975 s 1(ba) ....................................................................................................220 (1A) ...................................................................................................220 Inheritance (Provision for Family and Dependants) Act (NI) 1979 ...............225 Insolvency Act 1986 s 239.......................................................................................................194 (4)(b) ..............................................................................................195 s 284.......................................................................................................115 (1)...................................................................................................115 Judicature Act 1873....................................................................................230 Land Charges Act 1972 .........................................................................87, 115 Land Clauses Consolidation Act 1845.........................................................331 ss 127–32 ................................................................................................331 Land Compensation Act 1961.....................................................................342 Land Compensation Act 1973.....................................................................342 Land Registration Act 1925 (LRA 1925)..................................81–82, 88, 90, 95 s 20(1).................................................................................................88, 90 (4) ......................................................................................................90 s 23(1).................................................................................................88, 90 (5) ......................................................................................................90 s 54(1) ......................................................................................................94 s 56(4) ......................................................................................................95 s 70(1)(f) ..................................................................................................89 (g) .......................................................................89, 99, 165, 171, 249 s 82(3)(a) ............................................................................................93, 99 (b)..................................................................................................99 s 102(2) ....................................................................................................95 s 144A .............................................................................................169, 172 Land Registration Act 2002 (LRA 2002).......................vi, 81, 89, 96, 98, 101–2, 106–7, 110, 112–17, 165–67, 169, 171, 174, 180–81 ss 11–12 ...................................................................................................88 s 23............................................................................103–4, 106, 108–9, 113 (1) ....................................................................................................103 (a) ................................................................................................103 (b) ................................................................................................104 (2) ....................................................................................................104 (a)–(b) ..........................................................................................104 (3) ....................................................................................................104 (a)–(b) ..........................................................................................104 s 24 ..........................................................................................103–4, 108–9
xxx Table of Statutes (1) ....................................................................................................104 (a)–(b) ..........................................................................................104 s 25..............................................................................................103–4, 114 (1)–(2) ..............................................................................................104 s 26...................................................................................90, 101–8, 110–18 (1)........................................................................................103, 107–19 (2)........................................................................103, 105, 107, 113, 115 (a) ................................................................................................113 (b) ...................................................................................104, 114–15 (3) ................................................................103, 107–8, 110–11, 115–19 s 27 ......................................................................................94, 115–16, 118 (1) .............................................................................................114, 169 (2) ....................................................................................................114 (5) ....................................................................................................116 s 28 .................................................................................88, 90, 96, 105, 118 s 29 ....................................................................88, 90, 105, 114–15, 117–18 (1) ....................................................................................................116 (2)(a)(i) .......................................................................................96, 114 (iii)...........................................................................................106 (4) .............................................................................................114, 116 s 30..........................................................................88, 90, 105, 114–15, 118 (1) ....................................................................................................116 (2)(a)(i)...............................................................................................96 s 31 .................................................................................................105, 118 s 32 ........................................................................................................114 (3) ......................................................................................................96 s 38 ........................................................................................................116 s 40 ..........................................................................................................94 s 41 ...................................................................................................94, 114 s 42 ..........................................................................................................94 (1)(a) ................................................................................................114 (b) ................................................................................................106 s 43 ..........................................................................................................94 (1) ....................................................................................................114 (3)(c) ................................................................................................114 s 44 ..........................................................................................................94 s 45 ..........................................................................................................94 (3) ....................................................................................................114 (c) ................................................................................................114 s 46 ..........................................................................................................94 s 52..........................................................................103–4, 106, 108, 117–18 (1)–(2) ..............................................................................................103 s 58 ...................................................................................................88, 118 (2) ....................................................................................................116
Table of Statutes xxxi s 71(b) ....................................................................................................116 s 86 ........................................................................................................115 (4) ....................................................................................................115 (5) ...............................................................................................115–16 (a)–(b) ..........................................................................................115 (c) ................................................................................................115 (i)–(ii) .......................................................................................115 (7) ....................................................................................................116 s 91............................................................................................169, 171–75 (3) ....................................................................................................169 s 93...........................................................................................114, 169–753 (2) ....................................................................................................169 s 96(3) ....................................................................................................116 s 103 ........................................................................................................92 s 106(3)(a) ..............................................................................................116 s 116 ..........................................................................106, 165, 171, 174, 383 s 129 .................................................................................................115–17 (1)...................................................................................................116 s 131 ........................................................................................................92 (2)(b) ................................................................................................92 Pt 3 .................................................................................................103, 105 Pt 4 ...................................................................................................113–14 Sched 1 ........................................................................................88, 170–71 Sched 2...................................................................................................116 Sched 3 ........................................................................................88, 170–71 cl 2...........................................................................................................89 para 2 .................................................................................................105–7 Sched 4 cl 2 .......................................................................................................92 cl 3 .......................................................................................................92 (2)(a) ..............................................................................................93 Sched 8 cl 1(a) ...................................................................................................92 Sched 12 para 7 ...................................................................................................89 para 11 .................................................................................................89 Land Registration Act (NI) Act 1970 s 47 ........................................................................................................207 Sched 5, Pt 1, para 15 ...................................................................................89 Land Registry Act 1862 ................................................................................84 Preamble .....................................................................................................84 Landlord and Tenant Act 1927 ...................................................................268 s 19(1)(a) ................................................................................................241 Landlord and Tenant Act 1954 ...................................................................245
xxxii Table of Statutes s 38(1) ....................................................................................................245 Pt I .........................................................................................................268 Pt II........................................................................................................245 Landlord and Tenant Act 1985 (LTA 1985)....................................267, 277–78 s 11 ........................................................................................................263 s 18 ........................................................................................................268 s 19............................................................................................268, 277–79 (2B) ..................................................................................................278 s 20............................................................................................268, 278–79 (1)(b)................................................................................................278 ss 21–24 ..........................................................................................268, 277 ss 25–27..................................................................................................268 s 27A......................................................................................................279 (1)–(2) ............................................................................................279 ss 28–30..................................................................................................268 s 31C......................................................................................................278 Landlord and Tenant Act 1987 (LTA 1987) ................................................267 s 42 ........................................................................................................267 Pt II........................................................................................................279 Pts III–IV................................................................................................267 Pt VI ......................................................................................................267 Landlord and Tenant (Covenants) Act 1995 ...................................244–45, 268 s 3 ..........................................................................................................245 s 5 ..........................................................................................................245 s 16 ........................................................................................................245 Law of Property Act 1925 (LPA)..........................................................116, 256 s 1(6) ......................................................................................................256 s 2 ...................................................................................................106, 117 (1)(iii) ................................................................................................111 s 27 ........................................................................................................106 s 52 ........................................................................................................170 (1) ....................................................................................................257 s 53 ..........................................................................................168, 172, 175 (2) ....................................................................................................172 s 54(2) .............................................................................................170, 257 s 104(2) ..................................................................................................118 s 205(1)(ii) ..............................................................................................116 Law of Property (Miscellaneous Provisions) Act 1989 (LPA 1989) ......................................................................166, 168, 174–75 s 1 ..........................................................................................................168 s 2 ...............................................................................166, 168, 171–75, 179 (5) ..............................................................................................172, 174 s 2A ...........................................................................................169, 171–73 Law Reform (Succession) Act 1995 .............................................................204
Table of Statutes xxxiii Leasehold Property (Repairs) Act 1938 .......................................................268 Leasehold Reform Act 1967 (LRA) .......................267, 269–70, 273–77, 280–83 s 1(1)(b)..................................................................................................274 ss 1A–1B ................................................................................................271 s 2 ..........................................................................................................274 s 8 ..........................................................................................................271 (3) ......................................................................................................271 s 10(2)(d) ................................................................................................271 (i) .............................................................................................271 (3) ....................................................................................................271 (a) ................................................................................................271 (4) ....................................................................................................269 s 19 ........................................................................................................270 (1) ....................................................................................................270 Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA)..............................267, 270–71, 276, 279–80, 282–83 s 3 ..........................................................................................................282 s 69 ........................................................................................................271 s 70 ........................................................................................................271 (1)....................................................................................................276 (3)....................................................................................................276 s 71 ........................................................................................................271 s 72 ........................................................................................................271 (3)(a) ...............................................................................................276 ss 73–75..................................................................................................271 s 101.......................................................................................................274 Limitation Act 1980 ...................................................................................169 Local Government and Housing Act 1989 s 104.......................................................................................................256 Local Government Planning and Land Act 1980..........................................323 Matrimonial Causes Act 1973 ......................................................220, 381, 388 s 24 ........................................................................................................251 Matrimonial Proceedings and Property Act 1984 s 17 ........................................................................................................251 National Health Service Act 1977 s 87 ........................................................................................................323 National Parks and Access to the Countryside Act 1949......................287, 307, 314–15, 318–19, 321, 325 s 1 ..........................................................................................................313 s 5 ..........................................................................................................312 s 11A......................................................................................................312 (2)...........................................................................................318, 324 s 12 ........................................................................................................314 s 14 ........................................................................................................319
xxxiv Table of Statutes s 16 ........................................................................................................317 s 39 ........................................................................................................317 s 64 ........................................................................................................317 ss 76–77..................................................................................................320 s 101 ...............................................................................................318, 323 (3)...................................................................................................323 s 103.......................................................................................................320 National Parks (Scotland) Act 2000 ............................................................312 s 1 ..........................................................................................................313 ss 9–10 ...................................................................................................312 s 11 ........................................................................................................314 s 14 ........................................................................................................318 s 15 ........................................................................................................317 Scheds 2–3..............................................................................................312 National Trust Act 1907 s 4(1) ......................................................................................................320 (2) ......................................................................................................321 Negotiable Instruments Act 1881..................................................................86 New Forest Act 1877 ..........................................287, 290, 293, 296, 301, 303–4 s 1 ..........................................................................................................297 (2) ......................................................................................................304 ss 2–3 .....................................................................................................297 ss 5–7 .....................................................................................................296 s 8 ..........................................................................................................297 s 9..............................................................................................290, 297–98 s 10(3) ....................................................................................................298 s 13 ........................................................................................................298 s 14 ........................................................................................................297 s 15 .................................................................................................297, 301 s 16 ...................................................................................................297–98 s 17 .................................................................................................297, 301 s 18 ...................................................................................................297–98 ss 19–22..................................................................................................297 s 23 .................................................................................................297, 302 (4)–(5) ..............................................................................................304 s 24 ........................................................................................................297 s 25 .................................................................................................297, 302 ss 33–36..................................................................................................304 New Forest Act 1879 ..................................................................................287 s 2 ..........................................................................................................289 New Forest Act 1949 ..........................................287, 289–90, 297–99, 301, 304 ss 1–3 .....................................................................................................301 s 4 ..........................................................................................................289 s 5 ..........................................................................................................301
Table of Statutes xxxv s 7 ..........................................................................................................301 s 8 ..........................................................................................................304 s 9(1)(b)..................................................................................................290 (3)–(4)................................................................................................290 s 11 ........................................................................................................303 s 13 ........................................................................................................303 ss 14–15..................................................................................................302 ss 16–18..................................................................................................303 s 29 ........................................................................................................302 s 33(1) ....................................................................................................301 New Forest Act 1964 ..............................................................287–88, 290, 298 s 1 ..........................................................................................................288 s 2 ..........................................................................................................289 s 3 ..........................................................................................................288 s 5 ..........................................................................................................288 s 6 ...................................................................................................298, 303 s 7 ..........................................................................................................291 s 8 ..........................................................................................................302 s 10 ........................................................................................................303 s 15 ........................................................................................................303 s 19 ........................................................................................................303 New Forest Act 1970 ..............................................................287, 298–99, 303 s 1 ..........................................................................................................299 s 3 ..........................................................................................................302 s 11 ........................................................................................................298 s 14 ........................................................................................................298 New Forest (Sale of Land and Public Purposes) Act 1902 ............................303 Norfolk and Suffolk Broads Act 1988 .........................................................312 Northern Ireland Act 1998 s 75 .................................................................................................220, 223 Ordinance of 1305......................................................................................294 Ordinance of 1306......................................................................................294 Planning and Compensation Act 1991 ........................................................342 s 66 ........................................................................................................348 Rent Act 1968 s 18(5) ....................................................................................................102 Rent Act 1977 ............................................................................................240 Rent Acts............................................................................................240, 261 Rentcharges Act 1977 ...........................................................................273–74 s 2 ..........................................................................................................279 (4).................................................................................................273–74 (a)–(b) ............................................................................................273 (5) ......................................................................................................273 Sale of Goods Act 1979...........................................................86, 188, 193, 200
xxxvi Table of Statutes s 3(3) ......................................................................................................259 s 16 .................................................................................................190, 195 s 18 rule 5 ...............................................................................................195 s 61(1) ....................................................................................................193 Sale of Goods (Amendment) Act 1995 ..........................................194–195, 200 Settled Land Acts 1882–1890 ......................................................................207 Settled Land Act 1925.................................................................................207 s 27 ........................................................................................................257 (1) ....................................................................................................256 Statute of 1293 ...........................................................................................294 Statute of 1327 ...........................................................................................294 Statute of 1383 ...........................................................................................294 Statute of Purveyors 1350 ...........................................................................294 Stock Transfer Act 1963........................................................................183–84 s 1(1) ......................................................................................................183 Sched 1...................................................................................................183 Stock Transfer Act 1982 .............................................................................183 Telecommunications Act 1984....................................................................316 Town and Country Planning Act 1947.................................................316, 326 Town and Country Planning Act 1990........................................................334 Trustee Act 2000 (TA 2000) .........................................................101, 110, 113 s 8 ..........................................................................................................109 Trusts of Land and Appointment of Trustees Act 1996 (TLATA/TOLATA)......................101, 109–11, 113, 123, 207, 256–58, 385 s 8 ..........................................................................................................111 ss 9–11 ...................................................................................................258 s 14 ........................................................................................................258 s 15(1) ....................................................................................................258 s 16 .................................................................................................101, 118 ss 19–20..................................................................................................258 Wild Creatures and Forest Laws Act 1971 ....................................290, 294, 304 s 1(2) ......................................................................................................301 (3)......................................................................................................290 Wildlife and Countryside Act 1981 (WLCA 1981) .......................................287 s 42 ........................................................................................................315 s 43 ........................................................................................................314 Wildlife and Countryside Act 1985 .............................................................287 Wildlife and Countryside (Amendment) Act 19854 s 4 ..........................................................................................................325 Wills Act 1837 ....................................................................................168, 173
Table of Statutes xxxvii
STATUTORY INSTRUMENTS Allocation of Housing Regulations 1996, SI 1996/2753 ................................253 Conservation (Natural Habitats) Regulations 1994, SI 1994/2716 ................300 Environmental Impact Assessment Regulations 2002 ..................................315 Homelessness Persons (Priority Need) (Wales) Order 2001, SI 607(W.30) ....255 Homelessness (Priority Need for Accommodation) (England) Order 2001 ...255 Housing Benefit (General) Amendment Regulations 1996, SI 1996/965 ........264 Land Registration Rules 1925 r 19(1) ....................................................................................................378 r 98 ........................................................................................................378 Sched 1...................................................................................................378 Land Registration Rules 1997 r 2(2) ......................................................................................................378 Matrimonial Causes (NI) Order 1978 .........................................................220 New Forest (Confirmation of the Verderers of the New Forest) Order 1999 .........................................................................................290 Order and Rules of the Forest 1537.............................................................294 Property (NI) Order 1978 ...........................................................................215 Property (NI) Order 1997 ...........................................................................215 Art 34 ...............................................................................................215–16 (4) ................................................................................................216 (a)–(d) ......................................................................................216 (e).............................................................................................216 (i)–(iv)...................................................................................216 (6) ................................................................................................216 Succession (NI) Order 1996 ........................................................................204 Town and Country Planning (Agriculture and Forestry Development in National Parks etc) Special Development Order 1986, SI 1986/1176.............316 Uncertificated Securities Regulations 1995, SI 1995/3272 .............................184 Uncertificated Securities Regulations 2001, SI 2001/3755 .............................184 Reg 23(4)................................................................................................184 Reg 24(7)................................................................................................184 Sched 4...................................................................................................184
Table of Foreign Enactments AUSTRALIA Access to Neighbouring Land Act 1992 (Tasmanian Act).....................354, 361 s 3 ..........................................................................................................354 s 5(2)(a) ..................................................................................................361 s 6(1)(b)..................................................................................................354 Access to Neighbouring Land Act 2000 (NSW Act) ..................................................354, 361–63, 366, 368, 372–74 s 3 ..........................................................................................................361 s 7 ...................................................................................................354, 361 (1) ......................................................................................................367 s 8 ..........................................................................................................361 s 11(1) ....................................................................................................361 s 12(1)(a) .........................................................................................361, 366 (2) ....................................................................................................361 s 13 ........................................................................................................361 (1) ....................................................................................................354 s 15(a) ....................................................................................................361 (b) ....................................................................................................362 s 16(2)(a)–(f)...........................................................................................362 s 18 ........................................................................................................363 s 20 ........................................................................................................363 (a) ....................................................................................................363 s 21 ........................................................................................................362 ss 22–23..................................................................................................363 s 26(1)–(2) ..............................................................................................362 s 27(c) ....................................................................................................354 s 28(1) ....................................................................................................363 (3) ....................................................................................................363 Conveyancing Act 1919 (NSW) ..................................................................358 s 88K ................................................................................353, 358, 360, 363 (1) .............................................................................................353, 358 (2)(a) ................................................................................................360 (4) ....................................................................................................363 Conveyancing and Law of Property Act 1884 (Tas).....................................358 s 84J................................................................................................353, 358 (2) ....................................................................................................353
xl Table of Foreign Enactments Conveyancing and Law of Property Act (No 2) 1978 s 3 ..........................................................................................................358 English Act 1925 ...............................................................................89–90, 95 Land Titles Act 1994 (Qld) .........................................................................265 s 165 ........................................................................................................91 New South Wales Act ..................................................................................96 s 126 ........................................................................................................96 Property Law Act 1974 (Qld) s 180 ...............................................................................................353, 358 (1)..................................................................................................358 (3)(a)..............................................................................................359 (4)..................................................................................................363 (7)..................................................................................................353 Property Legislation Amendment (Easements) Act 1995 (NSW) ..................358 Residential Tenancies Act 1994 (Qld) s 19 ........................................................................................................265 Transfer of Land Act 1958 (Vic) ss 42–43 ...................................................................................................88
AUSTRIA Civil Code ...................................................................................................45 Unemployment Insurance Act.................................................................75–76
CANADA Model Land Recording and Registration Act s 5.3(1) .....................................................................................................91 Pt 4 ..........................................................................................................96
EUROPEAN COMMUNITY EEC Directive on the Conservation of Wild Birds 1979 ...............................300 EU Directive 92/43/EC on the Conservation of Natural Habitats and of Wild Fauna and Flora 1992 (Habitats Directive) .......................300, 325
GERMANY Basic Law...............................................................................................29, 72 Art 14 .................................................................................................71–73
Table of Foreign Enactments xli (1)–(3) ............................................................................................71 (I)(1) ..............................................................................................71 (2) ..................................................................................................71 Civil Code..............................................................................................45, 73 s 905 ...................................................................................................72–73 Constitution ................................................................................................72 Federal Water Resources Act .......................................................................72
IRELAND Registration of Title Act 1964 s 72(1)(j)...................................................................................................89
ITALY Civil Code ...................................................................................................67 Law No 1089 of 1939 ...................................................................................67
NEW ZEALAND Age of Majority Act 1970 s 4 ..........................................................................................................265 Minors’ Contracts Act 1969 s 9(1) ......................................................................................................265 Property (Relationships) Act 2002 ..............................................................390 Residential Tenancies Act 1986 s 14(1) ....................................................................................................265 (3) ....................................................................................................265
POLAND Banking Law 1997 .......................................................................................49 Art 59 ......................................................................................................53 Art 101.....................................................................................................49 Art 740.....................................................................................................52 Civil Procedure Code ...................................................................................52 Art 393.....................................................................................................51 Art 895.....................................................................................................54 Investment Funds Act 1997 ..........................................................................48
xlii Table of Foreign Enactments Land Registers and Mortgages Act Art 17 ......................................................................................................53 Law on the Agency of Agricultural Property of the State...............................47 Law on the Agency of Army Property...........................................................47 Law on Public Trading of Securities and Investment Funds 1991...................48 Notaries Act 1991 Art 108.....................................................................................................50
SOUTH AFRICA Act 26 of 1998................................................................................................9 Black Administration Act 38 of 1927 ..............................................................6 Communal Property Associations Act 28 of 1996 (CPA).................9, 13, 15, 17 s 2..............................................................................................................9 ss 10–13 ...................................................................................................16 Constitution 1996 ........................................................................................10 s 25 ............................................................................................................7 (5)–(7)..................................................................................................7 s 26.....................................................................................................11, 36 s 28 ............................................................................................................7 s 33 ..........................................................................................................34 Conversion of Certain Rights into Leasehold or Ownership Act 81 of 1988 (CLOA)................................................................................................13 Deeds Registries Act 47 of 1937 (DRA) ............................................4–6, 14, 20 reg 44A ....................................................................................................20 s 3(1)(b) ...................................................................................................20 (o) .....................................................................................................5 (r)......................................................................................................5 s 4 ............................................................................................................20 s 6 ............................................................................................................14 s 13(1) ......................................................................................................20 s 14 ..........................................................................................................20 s 15A........................................................................................................20 s 16 ............................................................................................................4 s 18(1) ......................................................................................................20 s 63(1)........................................................................................................5 s 70(4) ......................................................................................................19 s 102 ........................................................................................................14 Development Facilitation Act 67 of 1995 (DFA) ........................9–10, 13–14, 18 s 1 ............................................................................................................14 s 2 ............................................................................................................10 s 3 ............................................................................................................10 (c)(viii) ................................................................................................10
Table of Foreign Enactments xliii (g)(iv) ..................................................................................................10 ss 4–37 .....................................................................................................10 s 38.....................................................................................................10, 14 ss 39–60 ...................................................................................................10 s 61 ..........................................................................................................10 (7) ......................................................................................................14 s 62.....................................................................................................10, 14 (4) ......................................................................................................14 (5)(b)..................................................................................................14 (7) ......................................................................................................14 ss 63–66 ...................................................................................................10 s 68 ..........................................................................................................10 Chs I–VII .................................................................................................10 Extension of Security of Tenure Act 62 of 1997 (ESTA) ............9, 11, 13, 16–18 s 2 ............................................................................................................16 s 4(1)–(2)..................................................................................................16 Ch II............................................................................................................16 Group Areas Act 36 of 1966 ...........................................................................6 Housing Act 107 of 1997 (HA) .......................................................9–10, 17–18 s 2(1)(c)(i) ................................................................................................10 (d)....................................................................................................11 Interim Constitution 1994..............................................................................7 s 121–3.......................................................................................................7 Interim Protection of Informal Land Rights Act 31 of 1996 (IPILRA).......13, 16 Preamble .....................................................................................................16 Land Reform (Labour Tenants) Act 3 of 1996 (LTA) ................9, 11–13, 15–16 s 3(2)(a)–(d) .............................................................................................15 ss 5–8 .......................................................................................................15 s 9 ............................................................................................................15 (1)........................................................................................................15 ss 10–15 ...................................................................................................15 s 16 ..........................................................................................................12 (1)(a)–(d)............................................................................................12 ss 18–21 ...................................................................................................12 s 22 ..........................................................................................................12 (5) ......................................................................................................12 ss 23–24 ...................................................................................................12 Chs 2–3....................................................................................................15 Land Rights Act...........................................................................................21 Less Formal Township Establishment Act 112 of 1991 (LFTEA) .....................9 Chs 1–3......................................................................................................9 Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (PIE).........................................................................13, 16 s 4 ............................................................................................................16
xliv Table of Foreign Enactments s 6 ............................................................................................................17 Proclamation succeeding the Regulations for the Administration and Control of Townships in Black Areas R293 Government Gazette 373 of 1962–11–16 ........................................................................................6 Promotion of Administrative Justice Act 3 of 2000 s 1 ............................................................................................................34 s 3 ............................................................................................................34 (1)........................................................................................................34 Provision of Certain Land and Assistance Act 126 of 1993 (PCLAA)..........9–10 s 2 ............................................................................................................10 Restitution of Land Rights Act 22 of 1994 (RLRA) .....................................7–9 Preamble .......................................................................................................7 s 1..............................................................................................................8 s 35(2)(c)....................................................................................................8 (3)–(4) ..................................................................................................8 Share Blocks Control Act 59 of 1980 (SBCA) ...........................................23–24 s 7(1)–(2)..................................................................................................23 s 9(1)........................................................................................................23 Transformation of Certain Rural Areas Act (House of Representatives) 9 of 1987 (TCRAA)....................................................................11, 13, 18 s 1 ............................................................................................................11 s 3(4)(b) ...................................................................................................11 (5)–(7)..................................................................................................11 s 4(1)(a)–(g)..............................................................................................11 (2)........................................................................................................11 s 9(1)(a)....................................................................................................11 Upgrading of Land Tenure Rights Act 112 of 1991 (ULTRA)........................13 s 3 ............................................................................................................13
SWITZERLAND Banking Law 1997 .......................................................................................54
UNITED STATES OF AMERICA Bill of Rights................................................................................................32 Constitution ................................................................................................30 Art IV, §3, cl 2 ........................................................................................326 Fifth Amendment ...................................................................................31–33 Fourteenth Amendment..........................................................................31–33 Due Process Clause ......................................................................................29 Immigration and Nationality Act .................................................................29
Table of Foreign Enactments xlv National Parks Omnibus Management Act 1998.........................................308 16 USCA §1 ............................................................................................308 43 USCA §1701.......................................................................................326 (8) ..........................................................................................................326 43 USCA §1702.......................................................................................326
Table of International Legislation Convention on the Settlement of Matters Arising out of the War and the Occupation 1954 (Settlement Convention) ............................................66 Ch 6 ............................................................................................................66 Art 3(1) ....................................................................................................66 (3) ....................................................................................................66 Convention on Wetlands of International Importance 1971.........................300 European Convention on Human Rights .........v, 57, 59, 61–63, 75–76, 218, 263 Art 6 ...........................................................................61, 63, 69, 74–75, 254 (1)....................................................................................59, 64, 69, 74 Art 7 ........................................................................................................61 Art 8.................................................................................220, 223, 254, 263 (1)–(2) ............................................................................................263 Art 12.....................................................................................................223 Art 14 ........................................................................................75, 220, 223 First Protocol ................................................................................30, 57, 59 Art 1 ......................................................................57–62, 63–71, 73–76, 336 Statute of the Council of Europe Art 1(a) ....................................................................................................61 UN Convention on the Rights of the Child .................................................263 Art 12.....................................................................................................263
Part I
International developments
1
The Diversification of Land Rights and its Implications for a New Land Law in South Africa An Appraisal Concentrating on the Transformation of the South African System of Land Registration HANRI MOSTERT*
INTRODUCTION
The backlog in the delivery of affordable land and housing to disadvantaged, poor South Africans casts doubt upon the government’s ability to give effect to the constitutional ideal of a more equitable dispensation of access to land and security of tenure. The delays in and long waiting periods for actual restitution and redistribution of land, and for ensuring secure land tenure, increasingly lead to frustration and friction between government and relevant interest groups and communities.1 The present inquiry explores the reasons for the slow delivery on promises to reverse the unjust land regime in South Africa, upon the premise that the delivery problem originates within the legal framework. It involves a discussion of theoretical difficulties with the position of ownership within a system of diverse land rights on the one hand, and practical difficulties posed by the present system of land transfer and title registration in South Africa on the other. * BA LLB LLM LLD (University of Stellenbosch). Paper presented at the Fourth Biennial Conference of the Centre for Property Law at the University of Reading, 25–6 March 2002. The financial assistance of the National Research Foundation at the University of Stellenbosch is hereby gratefully acknowledged. The opinions expressed in this paper should, however, not be attributed to either of these institutions. Thank you to Juanita Pienaar, André van der Walt, Gerrit Pienaar, Anne Pope and David Butler for discussing and criticising the ideas expressed here, and Melanie Fourie, Chantal Steenkamp and Agatha Atkins for excellent research and technical assistance. 1 Cf Daily Mail & Guardian, eg samaYende, and Arenstein, ‘Rural Revolt Threat’ (15.02.2002); Moore, ‘Space for Rural Development’ (08.02.2002); TAC Model for Land Campaign (14.12.2001); Forrest, ‘Conflicts Triggered by Land Transfer to Chiefs’ (23.11.2001).
4 Hanri Mostert
THE REGISTRATION SYSTEM AND THE TRANSFORMATION OF SOUTH AFRICAN LAND LAW
The records of the South African deeds registry are renowned for their accuracy, but are not regarded as absolutely correct or comprehensive. As such, South African land registration can be classified neither as an out-and-out system of title registration nor as an out-an-out system of deeds registration. Certain real rights in land can come about without registration. For present purposes, the important point is that registration brings to fruition the principle of publicity underlying the law of property by providing some holders of land rights with the necessary security of title to enable them to enforce and protect their rights against the public at large. In South Africa, registration serves a dual function: (i) it indicates the act of delivery in respect of derivative acquisition of immovables; and (ii) it provides a public record of real rights in land. Conveyancing embodies the legal-procedural aspect of registration and is probably one of the most technical fields of law. This practical side of registration overshadows the policy choices underlying the existing system to such an extent that the latter do not enjoy much attention in legal literature. However, these policy choices are important for establishing a just land regime, and for delivering upon political promises. The following paragraphs indicate the importance of choices concerning models of property rights within which the registration system functions. The need for reform, and the possible directions of land law development will become apparent from the discussion. Security of Title within a Hierarchy Model of Land Control Rights to immovable property are usually divided into registrable real rights, on the one hand, and non-registrable forms of land tenure, such as personal rights or statutory grants, on the other. Real rights in land comprise two broad categories in traditional private law theory in South Africa, namely ownership and limited real rights. Other forms of land tenure include rights based on contract or tribal affiliations and rights emanating from statutory concessions or permits granted by the state. The law secures the different land rights to varying extents. Traditionally, ownership is described as the most complete right, and the only real right that a person can hold with regard to her own property.1a Other rights in property are usually limited in scope and/or time. The South African system of registration endorses this categorisation. The Deeds Registries Act provides that ownership in land must be conveyed from one person to another by a process of publicising and recording the transfer at the deeds registry.2 The most commonly used method of conveyancing is the execution of a deed of 1a 2
Van der Merwe, Sakereg (Butterworths, Durban, 1989) at 170–73. Deeds Registries Act 47 of 1937 (abbreviated: DRA), s 16.
Diversification of Land Rights 5 transfer and attestation thereof by the registrar of deeds.3 The few existing alternatives4 to this method serve a whole range of exceptions to the norm, but are, nevertheless, based on the idea that landownership, and some of the rights deduced from it, deserve special protection in terms of the publicity principle underlying property law. Limited real rights are defined as rights to specified uses of property belonging to another,5 which restrict the exercise of the ownership entitlements by the owner thereof. These rights are, in terms of the existing system, the only other kinds of rights capable of being registered. In very broad terms, the courts interpret the statutory criteria6 for the registrability of rights as permitting registration if the right at stake constitutes a ‘subtraction from the dominium,’ in the sense that the obligation correlative to the right binds not only the present landowner, but also all her successors-in-title.7 Rights other than ownership are not registrable if they merely place an obligation on a specific person,8 without burdening the landowner in her capacity as landowner.9 The Deeds Registries Act’s registrability and transfer requirements clearly support a so-called ‘hierarchy of rights’ within the South African legal framework for land. The registrar of deeds is statutorily required to register servitudes and real rights,10 but restrained from registering any personal right in respect of immovable property or any condition that does not restrict the exercise of a right of ownership.11 This exclusionary approach indicates support for the notion that ownership is the pinnacle of—or the most important right within— a hierarchy of rights. Other rights are understood as being in stages of inferiority to ownership.12 For purposes of publicity of land use and control, ownership and limited real rights rank higher than other rights, because they are registrable. Therefore, they represent better, more secure forms of title, because they can be protected by real remedies. Moreover, because of their publication through registration, they are enforceable in many situations, against a multitude of persons. Within 3
Jones, Conveyancing in South Africa 4th ed by Nel (Juta, Kenwyn, 1991) at 91. Eg transfer by operation of law, endorsement of the existing title deed, issuing of a substituted deed of grant, or revival of an earlier deed. Jones, ibid at 92–4. 5 Van der Walt & Pienaar, Inleiding tot die Sakereg (Juta, Kenwyn, 1996) at 29. 6 See n 8 and 10 below. 7 Eg Odendaalsrus Gold, General Investments & Extensions Ltd v Registrar of Deeds 1953 (1) SA 600 (O) at 609H–612A; Pearly Beach Trust v Registrar of Deeds 1990 (4) SA 614 (C) at 616A–618E. 8 DRA, s 63(1) does, however, provide for the registration of personal rights that are incidental to real rights to be registered against the same title deed. Ex Parte Geldenhuys 1926 OPD 155 at 163–4. 9 The exact meaning of ‘subtraction from the dominium’ is still contentious in South African law. See Lorentz v Melle 1978 (3) SA 1044 (T); Pearly Beach Trust v Registrar of Deeds, above n 7; Van der Walt & Pienaar, above n 5, at 36–9. 10 DRA, ss 3(1)(o), (r). 11 DRA, s 63(1). See, however, n 8 above. 12 Pienaar, ‘The Registration of Fragmented Use—Rights as a Development Tool in Rural Areas’ Seminar Report 6 (2001) Constitution and Law IV (Konrad Adenauer Stiftung, Johannesburg, 2001) at 109. 4
6 Hanri Mostert this hierarchy model of landownership, rights other than ownership and registrable limited real rights rank low, and accordingly do not enjoy the same kind of publicity or protection. The disadvantages of the hierarchy approach were aggravated by the land control system under Apartheid. Black South Africans were precluded from obtaining and holding rights in land, which were protected by the acclaimed common law system of property and backed by the sophisticated and effective registration system. Instead, a host of legislative and administrative measures forced blacks to resort to forms of land control that were not recognised or effectively protected. These included tribal land rights13 and statutory land rights based on a variety of permits.14 The lack of effective protection and publicity of these ‘lesser’ rights had some serious consequences: when placed in opposition to the secure rights within the protective ambit of property law, these insecure rights were not competitive and did not provide their holders with any significant benefits. Even more importantly, these insecure rights could not be used as collateral security to procure bonds or loans. In effect, these so-called ‘black’ land rights were ostracised from the markets and invisible within the economic infrastructure.15 The Deeds Registries Act’s support of the supremacy of ownership within a system of land rights (wittingly or unwittingly) perpetuated the differentiation between ‘black’ and ‘white’ land control mechanisms. Moreover, structural inequalities inherent in the hierarchical system of land rights were strengthened. This renders a reconsideration of the policy choices underlying reform initiatives all the more urgent. The following section entails an analysis of the land reform aspects influencing the significance of the existing registration system. Land Reform and Law Reform The legacy of the hierarchy model of property under apartheid leaves a number of problems to be resolved. These include: (i) vulnerability to interference with or confiscation of rights; (ii) difficulty in securing housing subsidies and development finance; (iii) lack of administrative support for the operating system of land rights in practice; and (iv) unscrupulous individuals exploiting the lack of enforceable rights to bring others on land in exchange for money, thereby bolstering their own personal and economic power.16 Summarised, these issues all result from a lack of legal enforceability of certain land rights. 13 Van der Walt, ‘Property Rights and Hierarchies of Power: A Critical Evaluation of LandReform Policy in South Africa’ Koers (Vol. 64, No. 2 & 3, 1999) 259 at 262. 14 Eg Group Areas Act 36 of 1966; Black Administration Act 38 of 1927; Proclamation succeeding the Regulations for the Administration and Control of Townships in Black Areas R293 Government Gazette 373 of 1962–11–16. 15 Van der Walt, above n 13 at 262–3. 16 Pienaar, above n 12 at 108.
Diversification of Land Rights 7 Section 25 of the 1996 Constitution provides the mandate for reform. The constitutional property clause protects not only landownership, but also other rights in property. The state is furthermore obliged to secure other forms of land tenure. Section 25 of the 1996 Constitution thus gives new momentum to the land reform programme, which was launched even before the coming into force of the Interim Constitution17 in 1994. Sections 25(5)–(7) of the 1996 Constitution oblige the national legislature to provide redress through legislative means for the discrimination of the past and to transform insecure tenure into legally protected tenure. As such, the constitutional property guarantee embodies an attempt to reverse the systematic process of erosion to which most ‘black’ land rights were subject during apartheid.18 In addition, the Department of Land Affairs, whose policy is set out in the White Paper of 1997,19 has made the eradication of the distinction between ‘black’ and ‘white’ land rights one of their main objectives. The land reform programme consists of three separate, but interconnected elements: (i) land restitution; (ii) redistribution of land; and (iii) tenure reform. Each of these elements influences the development of South African property law, but for present purposes the redistribution and tenure reform aspects are most important. By enabling the provision of land on the one hand, and the upgrading of existing, but insecure land rights on the other, these two elements will determine the state’s ability to deliver on promises of access to land. The success of the land reform programme will depend on the extent to which a departure from the hierarchy-of-rights model of landownership can be effected. It is already clear that a break with the hierarchy model is more easily achieved in some parts of the reform programme than in others.20 The continued hegemony of the hierarchy model must be evaluated according to the three main elements of the land reform programme. This is the purpose of the following paragraphs. Land Restitution The restitution part of the programme aims at redressing the wrongs caused by forced removals, which occurred after 1913. It is therefore restricted in scope21 and duration.22 The Restitution of Land Rights Act23 is the legislative centrepiece of the process. The Land Claims Court and Commission on the Restitution of Land Rights operate to give effect to the provisions of this act. The preamble of the act confirms the legislative aim to promote and protect the 17
Interim Constitution Act 200 of 1993, s 121–3, read with s 28. Van der Walt, The Constitutional Property Clause (Juta, Kenwyn, 1997) at 69. 19 Department of Land Affairs White Paper on South African Land Policy (1997) at para 2.3. See Van der Merwe/Pienaar ‘Land Reform in South Africa’ in Jackson/Wilde (eds), Reform of Property Law (Ashgate-Dartmouth, Hants, 1997) at 359. 20 Van der Walt, above n 13 at 259–94. 21 See Carey-Miller & Pope, Land Title in South Africa (Juta & Co, Kenwyn, 2000) at 320–6. 22 See Van der Walt, above n 13 at 270–1 n 16. 23 Act 22 of 1994 (abbreviated: RLRA). 18
8 Hanri Mostert advancement of persons or groups disadvantaged by unfair discrimination, to ensure full and equal enjoyment of rights in land. The act’s wide definition of rights in land24 is significant for present purposes. It includes the interests of labour tenants and sharecroppers, customary law interests, the interests of trust beneficiaries and beneficial occupation for a continuous period of not less than 10 years prior to dispossession. This definition quite clearly includes ‘lesser’ rights, without contemplating a numerus clausus of rights in land.25 Accordingly, the Land Claims Court has interpreted rights in land to include the ‘right to inherit and take transfer of property’26 and ‘rights derived from occupation (in certain circumstances) or from customary law’.27 The definition of rights in land therefore supports the argument for an extended category of rights, which complies neither with the categorisation of rights in private law as either real or personal, nor with the distinction between limited real rights and ownership.28 In fact, rights in land go far beyond real rights, whether properly registered, or ‘embryonic’ (ie susceptible of registration, but not as such duly registered). The express inclusion of labour tenancy and sharecropping in the definition supports the view that the term rights in land is not determined based on the traditional notion of registrable real rights alone. The inclusion of customary law interests further indicates that the definition is very wide, and does not support a categorisation of rights in traditional private-law terms. The incorporation of ‘beneficial occupation’ as a right in land indicates the intention to acknowledge even forms of possession not otherwise protected and possibly of dubious standing in traditional private law.29 This, together with the incorporation of benefits under trust agreements indicates that the definition is aimed primarily at eliminating all possible forms of racial discrimination based on land segregation. Another important point for present purposes is the Land Claims Court’s power30 to adjust the nature of the right previously held by the claimant, and to determine the form of title under which the right may be held in future. Hereby the court is enabled to rectify possible insecurity of title inherent in the land right being reclaimed, and thus to prevent a situation where the restitution award is followed by an eviction or a conflict with other rights.31 The Restitution Act further provides for equitable access to land of all the members within a community, in case of community awards.32 The Restitution Act thus enables equitable access to land, and securing of previously precarious rights. Nevertheless, it is silent as to the nature or content of 24 25 26 27 28 29 30 31 32
RLRA, s 1. Carey-Miller & Pope, above n 21 at 320. Dulabh and Another v Department of Land Affairs 1997 (4) SA 1108 (LCC) par 25–31. Chief Nchabeleng v Chief Phasha 1998 (3) SA 578 (LLC), par 27. Carey-Miller & Pope, above n 21 at 323. Ibid at 323–5. RLRA, s 35(4). Van der Walt, above n 13 at 273. RLRA, s 35(2)(c) read with s 35(3).
Diversification of Land Rights 9 new rights to be awarded, and ways in which to ensure that new rights form the basis of legally protected access to and enjoyment of land. These issues are left to the wider processes of redistribution and tenure reform.33 Moreover, the conventional method of registration still represents the only34 manner in which rights may be transferred back to successful claimants. Awards of rights not qualifying for transfer by registration remain problematic. The Restitution Act therefore does not explicitly break with the hierarchy model of rights and it is difficult to envisage a system developing from the act that would place the rights encompassed by it on equal footing with ownership. The negative implications for security of title arising as a result are not always satisfactorily equalled out by the other two elements of the reform programme. Land Redistribution Land redistribution is aimed at the needs of the poorest urban and rural residents, labour tenants, farm workers as well as new entrants to agriculture, by providing access to land for residential and agricultural purposes,35 thereby rectifying some of the inequalities in the existing land distribution patterns.36 Legislative measures falling within the purview of land redistribution37 are present in the Less Formal Township Establishment Act,38 the Provision of Certain Land and Assistance Act,39 the Development Facilitation Act,40 the Housing Act,41 the Land Reform (Labour Tenants) Act,42 and the Extension of Security of Tenure Act.43 This aspect of the reform programme involves both agricultural and urban residential land. The Less Formal Township Establishment Act was introduced in 1991 to alleviate the housing shortage by expediting settlement in and establishment of ‘less formal’ urban settlements,44 and by providing for settlement of ‘indigenous tribes’ in ‘less formal’ rural settlements.45 ‘Less formal’ settlements are supposed to be somewhat more formalised than ‘squatter camps’, without complying with normal development requirements and building regulations. The act dealt with land and land rights in ‘less formal settlements’ on the basis of the existing 33
Confirmed by Communal Property Associations Act, s 2. Van der Walt, above n 13 at 274. See, however, mechanisms for dealing with community awards in terms of the Community Property Associations Act. 35 Pienaar, ‘Land Reform’ in Badenhorst, Pienaar et. al. Silberberg & Schoeman’s Law of Property (Butterworths, Durban, forthcoming 2003) at 11. 36 Van der Walt, above n 13 at 275. 37 Sometimes the programmes and different statutes have overlapping objectives and goals. 38 Act 112 of 1991 (abbreviated: LFTEA). 39 Act 126 of 1993 (abbreviated: PCLAA). Renamed by Act 26 of 1998. 40 Act 67 of 1995 (abbreviated: DFA). 41 Act 107 of 1997 (abbreviated: HA). 42 Act 3 of 1996 (abbreviated: LTA). 43 Act 62 of 1997 (abbreviated: ESTA). 44 LFTEA, ch 1 and ch 2. 45 LFTEA, ch 3. 34
10 Hanri Mostert private law of landownership.46 Litigation that ensued soon after its enactment indicated the problems contained in attempting to pursue policies of land law reform from within the existing land law framework, where the hegemony of landownership continued to exist, uncontested.47 The Provision of Land and Assistance Act48 provides for the settlement of people on land designated, developed and subdivided for that purpose. Read in conjunction with the Development Facilitation Act,49 the Provision of Land Act makes radical provision for registration, and eliminates most of the usual controls over subdivision and planning.50 In principle, therefore, the act is aimed at bringing landownership within the reach of a wider part of the general public,51 and perpetuates the existing hierarchy model of land control as espoused by private law. It nevertheless indicates that the existing framework can be adapted to some extent, especially as far as registration is concerned, to expedite access to land. The Development Facilitation Act is, inter alia, aimed at facilitating, simplifying and expediting the delivery of housing to the rural and urban poor.52 The act aims to integrate all development planning approaches and physical planning and to adopt a policy-driven approach, supported by the implementation of procedural measures, to decision-making in the context of land reform and development.53 Therefore, the act is described as a ‘uniform template’ designed to achieve the constitutional objective of expediting delivery of land rights.54 Provisions relating to the act’s general principles and objectives indicate that it does not promote alternative land rights, although much more infringements— and also more severe infringements—on landownership are envisaged. The act relies heavily on the process of registration to realise its objectives. The Housing Act55 supports a wide choice of housing and tenure options. In this context, security of tenure is important in view of the fundamental right to 46
Van der Walt, above n 13 at 276. See Van der Walt, ‘Marginal Notes on Powerful(l) Legends: Critical Perspectives on Property Theory’ (1995) THRHR 396 for a discussion of Diepsloot Residents’ and Landowners’ Association v Administrator, Transvaal (1993) 1 SA 577 (T) per De Villiers J; (1993) 3 SA 49 (T) per McCreath J; (1994) 3 SA 366 (A) per Smalberger JA. 48 PLAA, s 2. 49 DFA, s 68. 50 Carey-Miller & Pope, above n 21 at 408. 51 Ibid at 405–11 and Van der Walt, above n 13 at 276–7. 52 DFA, ch IV. Carey-Miller & Pope, above n 21 at 411–49 and Van der Walt, above n 13 at 277–8; Latsky ‘Development and Facilitation Act’ in Budlender, Latsky & Roux (eds) New Land Law (Juta, Kenwyn, 1996), ch 2A. 53 Latsky, ibid at 2A–3. The DFA deals with the general principles relating to all land development (ch I, ss 2–4) and land development objectives (ch IV, ss 27–9). It also provides for the establishment of a new infrastructure in the form of a commission (ch II, ss 5–14) and certain tribunals (ch III, ss 15–26). It deals with land development procedures, sometimes excluding (ch V, ss 30–47) and sometimes including, small-scale farming (ch V, ss 30–47; ch VI, ss 48–60) and land tenure matters (ch VII, ss 61–6). It contains conservation measures (s 3(c)(viii)) and a commitment to the fundamental rights set out in the Constitution (s 3 (g)(iv)). The continued operation of this act is currently uncertain. 54 Carey-Miller & Pope, above n 21 at 413. 55 HA, s 2(1)(c)(i). 47
Diversification of Land Rights 11 access to housing in section 26 of the Constitution, which places a duty on the state to take reasonable legislative and other measures within its available resources to achieve the progressive realisation of this right, and which ensures due process in eviction procedures. The act itself requires the state to assist individuals and communities to meet housing needs by enabling easy access to land, and providing service and technical assistance.56 Nevertheless, the act does not expressly create new land or housing rights, and thus the hierarchy-model of land control still prevails. The Transformation of Certain Rural Areas Act is described as an example of a measure to deal with the dismantling of an existing particular rural land tenure regime and the substitution of a system which gives effect to the principles of land reform while simultaneously dealing with the reality of the particular needs and aspirations of existing communities.57 The act applies only to land in 23 specific areas (regarded as ‘rural coloured areas’ in terms of the apartheid legislation),58 which was held in trust by the Minister of Land Affairs or an assignee. Land held by such trusts now vests in the municipalities of the areas where the land is situated, and land used by these ‘rural coloured’ communities for agricultural purposes can now be transferred to certain entities,59 upon recommendations of the respective municipalities, or elected committees representative of the communities involved.60 These municipalities or other entities must administer the land according to certain prescribed principles,61 which amount to participatory and accountable management, non-discrimination within the communities, and preferential treatment of residents in issues of access to the land.62 Although limited in its application, the Transformation of Certain Rural Areas Act exemplifies a form of land holding and land control that breaks with the traditional hierarchical landownership model. The accountability of the landowner/municipality to the community living on and using the land is a principle that could serve to transform the existing land regime if applied more widely. The Land Reform (Labour Tenants) Act63 and the Extension of Security of Tenure Act are both aimed at providing protection against unfair eviction on the one hand and at the acquisition of rights in land on the other. They thus comprise elements of redistribution and tenure reform. The Labour Tenants Act relates to the more restricted category of disadvantaged people, labour tenants; whereas the Extension of Security of Tenure Act concerns all persons occupying
56
HA, s 2(1)(d). Carey-Miller & Pope, above n 21 at 449. 58 Rural Areas Act (House of Representatives) 9 of 1987. 59 TCRAA, s 9(1)(a). 60 TCRAA, s 3(4)(b) read with TCRAA, ss 1, 3(5), 3(6) and 3(7). 61 TCRAA, s 4(1)(a)–(g). 62 TCRAA, s 4(2). 63 See differing classifications of Carey-Miller & Pope, above n 21 at 525; Van der Walt, above n 35 at 279 and Pienaar, above n 35, at 12. 57
12 Hanri Mostert land of which they are not the registered owners. The latter will be discussed under the heading of tenure reform. The redistributory aspect of the Labour Tenants Act appears mainly from the provisions for acquisition of landownership64 or other rights in land65 by labour tenants, and for financial assistance in this regard.66 It enables labour tenants to purchase land, with the subsidy of the state,67 from the landowners for whom they work, and extensively regulates the conditions in terms of which such a forced sale by the landowner will be necessary,68 and the circumstances under which the Land Claims Court may be requested to interfere in negotiations between the parties.69 In the final analysis, most of the redistribution laws aim to expedite delivery of land and access to land in residential and agricultural sectors, whilst keeping the costs involved as low as possible. State intervention in the market process is meant to alter the unequal distribution of land,70 and to introduce a flexible system of land rights. In reality, however, most of the redistribution laws still ultimately aim at providing new entrants into the land market with common-law landownership, and at promoting the aspiration of these people to acquire landownership as opposed to other secure rights in land.71 In as far as these laws enable delivery on promises of access to land, they tend to maintain existing hierarchies and structures of private law. Even in cases where ‘other’ rights in land are mentioned (eg in the Labour Tenants Act), there is no real departure from the classifications of private law. In spite of policies stated to the contrary, the hierarchy model of land control is perpetuated. As far as publicity is concerned, registration is still the most important method of obtaining land and enforcing land rights. Protection of land rights still relies on the existence of a trustworthy and accurate record of such rights in the deeds registry. Ultimately, the publicising and recording of rights in this manner still ensure that they can be used as security to obtain financial assistance, thus fully exploiting the economic value of the land to generate more wealth. This inability to break with the hierarchy model of land control, as supported by the existing registration system, in effect stunts the successful implementation of the redistribution programme.72
64
LTA, s 16(1)(a) and (b). Eg servitudes of water, way or any other servitude reasonably necessary or reasonably consistent with the rights previously enjoyed by the labour tenant. LTA, s 16(1)(c) and (d). 66 LTA, s 16. Advances and subsidies are made available under LTA, s 26. 67 White Paper above n 19 at par 4.5.9 and 4.7. 68 LTA, ss 18–24. 69 LTA, s 22(5). 70 Van der Walt, above n 13 at 281. 71 Ibid. 72 See Daily Mail & Guardian, Majola, ‘Highs and Lows of States Delivery’ (08.02.2002); Smith, ‘Civil Resistance is Building Again in South Africa’ (01.02.2002); Cousins, ‘A Return to the Apartheid Era?’ (23.11.2001). 65
Diversification of Land Rights 13 Tenure Reform Many forms of tenure do not provide sufficient security of title or are unsuitable for the purpose they are supposed to serve because they do not provide access to financing, or because they feature within a problematic tribal or group structures, possibly disadvantaging women or other land users.73 Land tenure reform represents that particularly complex part of the reform process by which these insecure tenure forms are strengthened and secured. It also concerns the procurement of loans upon secure land rights, or any aspect of the tenure under which land rights are held or exercised. In the context of tenure reform, the Department of Land Affairs aims74 to move away from a permits-based system to a rights-oriented system, to develop a unitary, non-racial system of land rights, to accommodate individuals in tenure systems according to their circumstances and preferences, to adhere to the constitutional commitment to human rights and equality, to adopt a rights-based approach to deliver security of tenure, and to upgrade the land registration system to facilitate new forms of tenure. Legislative measures falling within the purview of land tenure reform are found in the Conversion of Certain Rights into Leasehold or Ownership Act,75 the Upgrading of Land Tenure Rights Act,76 the Development Facilitation Act, the Land Reform (Labour Tenants) Act, the Extension of Security of Tenure Act, the Communal Property Associations Act,77 the Interim Protection of Informal Land Rights Act78 and the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act.79 The outgoing National Party government promulgated laws serving a tenurereform purpose by increasing the security of certain tenure arrangements through a process of ‘upgrading’ insecure rights. The Conversion of Certain Rights into Leasehold or Ownership Act provided for conversion of land permits into leasehold and for the conversion of leasehold into ownership.80 Likewise, the Upgrading of Land Tenure Rights Act provided for the upgrading of precarious rights (granted to non-whites during the apartheid regime)81 to ownership.82 The policy behind these early tenure-reform laws still supports the idea that accessing landownership is the ultimate goal of reform.
73
Van der Walt, above n 13 at 281–2. White Paper above n 19, par 4.16. 75 Act 81 of 1988 (abbreviated: CLOA). 76 Act 112 of 1991 (abbreviated: ULTRA). 77 Act 28 of 1996 (abbreviated: CPA). 78 Act 31 of 1996 (abbreviated: IPILRA). 79 Act 19 of 1998 (abbreviated: PIE). 80 Du Plessis, Olivier & Pienaar ‘Land Reform Continues during 1997’ (1997) SAPR/PL 263; Van der Walt, above n 13 at 282. 81 Eg permission to occupy and the right of occupation in terms of the Rural Areas Act 9 of 1987 (House of Representatives); ULTRA, s 3. 82 Mnisi v Chauke (1994) (4) SA 715 (T). 74
14 Hanri Mostert The Development Facilitation Act enables the acquisition of landownership in a number of steps.83 ‘Initial ownership’, created by the act84 and recorded and publicised by the deeds registry,85 enables a person to use and occupy land as if she were the registered owner thereof under normal circumstances. The ‘initial’ owner therefore has almost all the entitlements usually afforded to the commonlaw owner.86 As soon as all the requirements for actual registration of the land are met,87 ‘initial ownership’ is automatically converted into ordinary ownership.88 The Deeds Registries Act89 incorporates the registered right of initial ownership into the definition of immovable property. Through this legislative innovation and expansion of the deeds registry, security of land tenure is guaranteed at a much earlier stage in the process of acquiring rights in land, thus diminishing the holding and selling costs thereof.90 Prima facie, initial ownership is a real right, because it is eligible for registration. However, it is difficult to classify initial ownership in existing private-law terms. It would not qualify as a limited real right, because it does not constitute a ius in re aliena.91 Moreover, unlike other real rights,92 a registrar of deeds can cancel initial ownership.93 Therefore, initial ownership is not reversionary by nature, because ownership can in principle only be terminated by the owner herself (or a state authority in accordance with the provisions of the constitutional property guarantee). As such, the idea of ‘initial ownership’ does not really support the hierarchy model of land control.94 It is in fact a land right created for a specific land-reform purpose. The introduction of initial ownership constitutes a far-reaching theoretical deviation from the ‘traditional’ private law definition of ownership, that it calls for a redefinition of the scope and content of privatelaw ownership. On a technical level, however, the Deeds Registries Act simply deals with ‘initial ownership’ as an exception to the norm, and provides special forms and procedures for its establishment and transfer. The Development Facilitation Act furthermore defines ‘beneficial occupation’95 of land as an interest in land worthy of protection. Precarious occupation is not excluded. The main intention here is to give legal recognition to the 83
Latsky, above n 52 at ch 2A, 73. DFA, s 62. 85 DFA, s 61(7) read with s 62. 86 DFA, s 62(4), provides that the holder of ‘initial ownership’ is vested with: the right to occupy and use land as owner; to acquire landownership under the Act; to encumber the initial ownership by means of a mortgage or a personal servitude (but not the right otherwise to encumber or deal with the initial ownership); and to sell the right of initial ownership. 87 DFA, s 38. 88 DFA, s 62(7). 89 DRA, s 102. 90 Van der Merwe & Pienaar, above n 19 at 370. 91 Contra Carey-Miller, ‘A New Property?’ (1999) SALJ 749 at 754. 92 All other real rights except mortgage bonds must be cancelled by a court order. DRA, s 6. 93 DFA, s 62(5)(b). 94 See Van der Walt, above n 13 at 283. 95 Ie peaceful and undisturbed occupation of land for a continuous period of not less than five years. DFA, s 1. 84
Diversification of Land Rights 15 factual circumstance of established peaceful occupation in the context of land reform. The land tribunal is empowered to impose conditions of establishment regarding the manner in which the interests of any ‘beneficial occupier’ will be provided for in the upgrading of an existing settlement.96 The tenure reform dimension of the Land Reform (Labour Tenants) Act lies in the protection and securing of the occupation rights of labour tenants. The act grants labour tenants statutory right to occupation and use of the land, which can only be terminated in accordance with the act’s provisions.97 Labour tenants are also protected against arbitrary eviction, in that eviction should take place under certain circumstances, in accordance with prescribed procedures.98 Labour tenants who had to vacate the land or who were evicted between 2 June 1995 and the commencement of the act on 22 March 1996, have extensive rights of reinstatement.99 The act also strictly controls the relocation of labour tenants in the case where the land is needed for agricultural purposes or development for the public benefit.100 Chapter 2 of the act thus establishes security of tenure and protects land rights without upgrading it or transforming it into landownership,101 as is the case with chapter 3 of the act. These procedures exemplify an alternative to the registration-based system of protecting land rights. Security of tenure and protection of rights created for specific purposes rely completely on legislative measures, set out extensively in the act itself. Here it becomes apparent how the hierarchy model of land control falls short of protecting certain valuable rights, and why it is necessary to rethink the private-law framework for protecting rights through registration. The Communal Property Associations Act creates a statutory framework for communal land holding and control. The members of a communal property association, ie the new kind of juristic person that may be created under the act, can exercise their rights to land communally, but with the advantage of security of tenure and open, democratic control. The act stipulates principles according to which land-holding through a communal property association should function. These include fair access to the land for the association’s members; and fair access to and use of any part of the land allocated for the member’s exclusive use or for common use, within the parameters of the constitution. It is possible for the association to create and acquire rights, and to determine the content and nature thereof on a case-by-case basis. The act regulates the association’s decision-making procedures, availability of information,
96
Carey-Miller, above n 91 at 757. LTA mentions four possible circumstances under which the right of use and occupation is terminated: (i) waiver, s 3(2)(a); (ii) death, s 3(2)(b); (iii) eviction in accordance with the act, s 3(2)(c); or (iv) acquisition of ownership or compensation, s 3(2)(d). Eviction may only take place according to the provisions of the act. 98 LTA, ss 5–15. Sometimes eviction is not possible at all. See LTA, s 9(1). 99 LTA, s 12. 100 LTA, s 8. 101 Van der Walt, above n 13 at 284. 97
16 Hanri Mostert approval of certain transactions with land, administration, etc.102 Security of tenure is therefore ensured by extensive legislative provisions. The act is committed to ensure non-discrimination, equity and democracy in management of communal property,103 and therefore significant for the development of a new land regime. Currently it is still of limited application in practice, due to lack of co-operation by traditional leaders in rural areas and too much red tape on local government level in urban areas. The Interim Protection of Informal Land Rights Act is targeted at protecting insecure tenure rights to ‘black’ land, which exist de facto, but are still not legally recognised (for example unregistered communal tenure, or rights of beneficiaries to land held under statutory trusts).104 The act identifies some ‘lesser’ rights that enjoy interim protection, pending permanent reform, against otherwise dominant rights.105 The act reflects a departure from traditional private law, by curbing the landowner’s power of vindication, which is traditionally regarded as a natural consequence of the supremacy of ownership over other rights. This depletes the absolute enforceability of landownership, while strengthening ‘lesser’ rights. The Extension of Security of Tenure Act provides security of tenure nationwide for occupiers of rural land not protected by the Land Reform (Labour Tenants) Act.106 The act’s strategy is to bolster insecure rights through statutory anti-eviction and due-process provisions.107 Chapter II of the act, although somewhat vague and generally formulated,108 contains measures facilitating long-term security of tenure for occupiers. Security of tenure can be effected by way of either on-site or off-site development.109 The act in general does not change the nature of land rights already held by occupiers. It merely secures those rights against arbitrary, unfair evictions. The occupiers’ rights are retained, but reinforced statutorily. This enables a variety of land control forms in respect of a single piece of land.110 The Prevention of Illegal Eviction from and Unlawful Occupation of Land Act prohibits illegal eviction and establishes procedures for eviction of unlawful occupiers.111 The act covers evictions at the instance of private persons112 102
CPA, ss 10, 11, 12, 13. Van der Walt, above n 13 at 284–5. Preamble, IPILRA. 104 Land that formed part of national states or self-governing territories, or belonged to the South African Development Trust. 105 ‘Informal’ rights pertain mostly to interests in state-owned land, but special provision is made for ‘beneficial occupation’ of any land. 106 ESTA, s 2. In Karabo v Kok 1998 4 SA 1014 (LCC), at 1019B it was found that this provision does not relate to agricultural land only. Pienaar, above n 35 at 22; Carey-Miller & Pope, above n 21 at 493–5. 107 Van der Walt, above n 13 at 286. 108 Pienaar, above n 35 at 23. 109 ESTA, s 4(1) and (2). 110 Van der Walt, above n 13 at 287. 111 Carey-Miller & Pope, above n 21 at 516 ff discuss the relationship between the Prevention of Illegal Eviction Act and the Extension of Security of Tenure Act. 112 PIE, s 4. 103
Diversification of Land Rights 17 and state organs.113 The intention of the act is apparently not to create any new land rights. It simply provides fair procedures for the eviction of unlawful occupants.114 However, a court order in terms of the act that entrenches the position of unlawful occupiers of land indirectly creates new, enforceable rights. It is problematic that unlawful occupation of the land can become lawful through a court order protecting unlawful occupiers against eviction, and the status of unlawful occupiers protected in this manner will have to be clarified by the legislature and/or the judiciary. In conclusion, tenure reform is probably the most interesting aspect of land reform as far as the establishment of more secure forms of tenure and the transformation of land control framework are concerned. The most recent legislative measures (i.e. the Extension of Security of Tenure Act and Communal Property Associations Act) contain strong indications of a policy break with the hierarchy model of land control.115 These laws establish security of tenure where rights or interests were precarious, by providing a minimum level of protection through statutory anti-eviction, due-process and accountability provisions. Of necessity, rights that ranked high in protection in terms of the hierarchy model thereby are now more restricted than in the past, whilst ‘lesser’ rights and/or interests are now better protected. Van der Walt116 indicates that laws providing substantive protection for the occupation rights of children, elderly persons and weaker members of society bring about the most significant changes in this regard.
Security of Title within a New Model of Diversified Land Rights Land reform laws increasingly tend to move away from a hierarchy-based model of rights, towards a more diversified system of land control. The legislature seems to realise increasingly that reform attempts remaining within the paradigm of the hierarchy model of land control cannot effectively break down the structures within which existing imbalances in the land regime were created and upheld.117 The following paragraphs identify the main characteristics of the emerging model of land control and explore the implications thereof for the land registration system. Diversified Land Rights in an Improved Land Regime The development of a new model of land use and control through reform legislation is apparent to varying extents in different laws. Some (like the Housing 113 114 115 116 117
PIE, s 6. Van der Walt, above n 13 at 288. Ibid. Ibid. Ibid at 289.
18 Hanri Mostert Act) contain policy statements for promotion of greater varieties of land rights, without actual implementation thereof. Other laws create alternative frameworks for land control, like where restitution of land rights were coupled with the creation of communal property associations, or the new form of land control espoused by the Transformation of Certain Rural Areas Act. Further, some laws create altogether new land rights or provide new kinds of protection for existing, precarious ‘rights’, with the aim of addressing reform-driven needs not fitting into the classical hierarchy model of land control. The Development Facilitation Act’s mechanism of ‘initial ownership’, and the statutory protection of insecure rights in the Extension Act are examples. The emerging model of land control may be categorised as a more open approach to diversification of control and use relations (fragmented use)118 with regard to land. The imminent question now is whether the current registration system can cater effectively for the variety of needs addressed in the emerging framework of land law. The new model of diversified land use assumes that land-use rights deserve strong protection because they address real needs, not because they happen to be in privileged positions within a hierarchy of rights.119 Van der Walt,120 whose contribution to the coining of the emerging fragmented land rights model cannot pass unnoticed, explains that the ideal land regime would satisfy both a threshold and a ceiling requirement in securing tenure and providing access to land. The threshold represents the minimum level of protection for any useright, through statutory recognition and provision of security, which need not be registered title. The ceiling entails acceptance of the inherent restriction of all rights in land by existing social structures and responsibilities, eg the public interest. Hence, the diversified–rights model supports separation of land use and title; and security of title established mainly by legislation, which will furthermore absorb regulation and restrictions imposed by the public interest.121 Diversified Land Rights and Registration The hierarchy model might be more easily eradicated from the legal landscape than from the societal structures within which development and creation of wealth must take place. The state cannot fund development initiatives all by itself. The beneficiaries of the development process themselves must ensure the success of development endeavours by their co-operation. However, in order to incorporate these beneficiaries, they need to be placed in a position from which they can procure funds against security of their land rights. Inability to procure 118 This characterisation is used by Pienaar, above n 12 at 110 ff., in reliance on Van der Walt, ‘The Fragmentation of Land Rights’ (1992) SAJHR 431 and Van der Walt, above n 13. 119 Pienaar, above n 12 at 110. 120 Van der Walt, above n 118 at 431–50; Van der Walt, ‘Unity & Pluralism in Property Theory’, (1995) TSAR 15–42; Van der Walt, above n 13 at 266; Cowen, ‘New Patterns of Landownership: The Transformation of the Concept of Ownership as Plena in re Potestas’ Trust Bank Series of Continuing Legal Education Lectures, WITS (Unpublished 1984). 121 Pienaar, above n 12 at 110.
Diversification of Land Rights 19 such funds, would mean that their rights de facto remain second-class. The biggest possible drawback of the apparent lack of proper publicity in the diversified-rights model therefore lies in probable reluctance of financial institutions and private development agencies to advance loans against legislatively secured rights. The main criticism against diversification of land rights is rooted in the principle of publicity: If security of tenure is to be afforded merely by legislation, it can only be protected by means of a court order, arbitration or mediation. Thus, legislative security of tenure would only be effective once a possible dispute has been resolved. Hence, the principle of publicity is served only once the rights conferred in terms of legislation are confirmed by court order, arbitration, mediation or agreement. Security of use or occupation therefore needs further individualisation, in order to make rights a practical reality.122 Continued reliance on registration in a new land regime is one possible way to ensure security of title in protecting rights, generating wealth and supporting development. Another possibility is extensive legislative regulation of new rights, coupled with the creation of structures outside the registration system, ensuring sufficient publicity. Individualisation through Registration Pienaar’s criticism123 of the diversified-rights model of land control is a plea for the maintenance and continued importance of registration within a new land regime, by incorporation of the new forms of land control. Thus, individualisation of legislatively protected use rights would be effected through registration. In effect, therefore, the argument supports the idea that ‘title’ to land is infinitely more diverse than ‘ownership’ of land,124 and that land use and land title need not be separated.125 The correctness of information in the South African land register is not absolutely guaranteed by the state or the deeds registry staff. The distinction between derivative126 and original acquisition127 of rights accounts for 122
Ibid. Ibid. 124 Ibid at 111, in reliance on Van der Walt, above n 118; Van der Walt, above n 120; Cowen, above n 120. Mineral rights can for instance be permanently separated from ownership of the land, and that the holder of mineral rights enjoys preferential protection in the event of an irreconcilable clash of interests with the owner. Badenhorst, ‘The revesting of state-held entitlements to exploit minerals in South Africa’, (1991) TSAR 124. DRA, s 70(4). Thus, in cases where more than one title exist simultaneously over the same land, ownership does not always confer preferential title. See Van der Merwe, Sakereg, 2nd edn, (Butterworths, Durban, 1989) at 562–4; Kleyn, Boraine & Du Plessis, Silberberg & Schoeman’s Law of Property, 3rd edn, (Butterworths, Durban, 1992) at 412–15. 125 Pienaar, above n 12 at 110. 126 Ie transfer is effected by registration plus the subjective intention of the transferor embodied in the real agreement, whilst the underlying causa as such is irrelevant. Carey-Miller & Pope, above n 21 at 51. Commissioner of Customs & Excise v Randles Brothers & Hudson Ltd (1941) AD 369 at 411. 127 Ie passing of rights to one party without the co-operation of the other party. Registration is not compulsory, and the register is not always rectified immediately. Kleyn, Boraine & Du Plessis, 123
20 Hanri Mostert inaccuracies in the system, for which the deeds registry personnel are not liable. Nevertheless, the Deeds Registries Act contains several requirements ensuring the reliability of information recorded in the register,128 and the responsibility of private conveyancers for the correctness of the information in the register.129 It is still easy to maintain a registration system based on thorough examination of documents, thereby maintaining the system’s accuracy and reliability,130 because so many rights are still excluded from the system. At present, a large part of the population is excluded from the deeds registry system either because the land in respect of which they hold rights has not been surveyed, or because individualisation of the land-use rights in communal property is still impossible. In order for registration to be of continued significance in the emerging land law landscape, the protection under the publicity principle should be extended to other forms of land use and control. The White Paper of 1997 already contained some suggestions in this regard.131 With the law as it stands now, security of tenure in urban areas can only be effected by way of a form of registered title, even within the ambit of reform laws. The best example is the mechanism of ‘initial ownership’ of land capable of being developed, but not yet complying with the deeds registry’s requirements for development. However, many urban settlements are on land incapable of being developed to comply with requirements for incorporation in the deeds registry. In these cases, existing legislation by itself does not provide adequate protection or security of tenure. Individualisation through registration in urban areas therefore requires an expansion of the registration system to record and publicise more ‘informal’ land use relations. Suggestions to this effect include (i) the recording of land use relations by local government or even on municipal level;132 (ii) more innovative applications of the communal property association system;133 or (iii) relocation of people, whose land use is unprotected and insecure, to areas where it is possible to effect security of tenure through recording and publicising their land use relations.134 However, at present it is still unlikely that adaptations of this kind will be made to the registraabove n 124 at 105, Pienaar, ‘Die Suid-Afrikaanse Akteregistrasiestels—Waarheen Vorentoe’, (1996) TSAR 205 at 219–20. 128 Eg the duty of the deeds registry officials to examine documents and ensure compliance with the DRA (DRA, s 3(1)(b)); passing of ownership on compliance with the statutory requirements (DRA, s 4); cadastral requirements (DRA, s 18(1)); the principle of sequence of transactions (DRA, s 14); and the principle of linking and simultaneous registration of related transactions (DRA, s 13(1)). 129 DRA, s 15A and reg 44A. 130 Pienaar, above n 12 at 111. 131 White Paper, above n 19, par 6.15. 132 Barry, ‘Secure Land Tenure for Informal Settlement Communities: The effectiveness of the Cadastral System in Cape Town’; Fourie, ‘Property in Post-Apartheid South Africa’, Proceedings of Conference on Land Tenure Issues (27–29 January 1998, UCT, Cape Town), online at http://www. gtz.de/ [2002.03.06]. 133 Pienaar, above n 12 at 114. 134 Ibid at 115.
Diversification of Land Rights 21 tion system, even though it could resolve issues of insecure tenure in urban areas.135 Moreover, mere adaptations of this kind would probably not address the existing inadequacies of the registration system. Successful expansion and adaptation of the registration system to incorporate land use relations will be more probable pertaining to rural areas. Most of the informal rural land rights are still insecure because of the apartheid legacy concerning land policy and administration, coupled with the vast array of legislative reform measures lacking an express policy break with the underlying structure of apartheid land law.136 The unclear status of these rights inhibits development of and investment in land. The task of undertaking full audits of all existing land use relations, negotiating settlements and incorporating these rights in the existing registration system is daunting. The New Communal Land Rights Bill (GN 1453 in GG 23740, 14-08-2002) which was published for comments during the second part of 2002, is expected to bring some relief in this regard, although the Department of Land Affairs remains evasive about its eagerly awaited date of promulgation.137 Some of the use-rights created under the diversified-rights model can already be incorporated into the registration system.138 Labour tenants’ use rights can, for example, be registered as real rights, even though it may be too expensive, or the landowner could refuse to co-operate. Amended legislation could, however, enable the court to compel a difficult landowner to co-operate; and the maintenance of a separate register of these rights within the central deeds registry system could enable issuance of a one-page certificate of title instead of a deed of transfer. The land-information system could also incorporate a separate computerised and comprehensive record of communal land rights accessible within the central registration system. An affordable, accessible register of statutorily diversified use rights would require: (i) computerised recording of persons and rights within cadastrally defined areas; (ii) registration of these rights only on demand; (iii) brevity of documents, containing only relevant information; (iv) extensive recording of information about the duration, conditions for use and transferability of land rights, and about the right holders themselves; (v) incorporation of the land information system into the central registration system, although maintenance thereof could take place outside the deeds registry; (vi) clear definition of partial land rights with reference to natural beacons or features; (vii) inclusion of information about limitations on communal rights by group members or the administrative system wherein they are exercised, and about secondary or more distant holders of rights; (viii) availability of information about encumbrances by real security rights; (ix) accessibility of the information system as part of the 135
Ibid. Ibid at 115–18. 137 See Daily Mail & Guardian, Forrest, ‘Uproar over Land Bill’ (23.11.2001); Cousins, ‘New Land Laws Could Disempower the Poor’ (23.11.2001). 138 Pienaar, above n 12 at 116–17. 136
22 Hanri Mostert land register; (x) continued support of a negative system of land registration; and (xi) incorporation of rights into the main land register upon complete individualisation thereof, on demand, according to existing procedures. The need for a land information system seems plausible as far as rural land use patterns are concerned. The introduction of such a system is predicated on the assumption that land title (whether in a hierarchy or diversified-rights model) is vital for improved productivity, stimulation of the economy and the creation of wealth. However, these considerations do not dictate the shape that tenure reform and the establishment of security of title should take, and the legislature and administration should remain sensitive to the needs of the population. In 1992, Cross139 indicated that the indigenous land ethic, which structures rural as well as urban South African society, must be heeded if tenure reform is to be successful. It is, however, not easy to determine the dictates of the land ethic, because of the far-reaching influence of the overall transition and reform processes. Nevertheless, it was possible to identify a tendential move away from universal land use and control patterns to a more individualised paradigm of land use and control. In a study conducted five years later by the same author, it was indicated that the individualisation of tenures did not always serve to secure patterns of use and control. In particular, lack of proper control over communal tenure can give rise to abuse by local land authorities, chiefs and committees who can sell off commonage land to outsiders, thereby alienating themselves from their constituencies and depriving communities from an important source of wealth creation.140 It seems, therefore, that the solution to problems of access to land and security of title does not lie solely within the ambit of an improved registration-andinformation system. The protection of land rights and use relations requires more activism on the part of the state and the legislative authorities, in redesigning a less costly, more efficient, more encompassing but equally accurate property system, when compared with the status quo. Individualisation through Legislation As an alternative to individualisation through registration, property relations could be protected by legislation itself. An example of this approach of affording real protection to holders of unregistered rights is found in the context of share block schemes. The following paragraphs contain an overview. Share block schemes are characterised by the fact that single entities have title to the immovable property concerned, and the members of those entities have rights to occupy parts of the property.141 The issued share capital of the share block company is divided into blocks, and each block is linked to a right of exclusive use of a particular part of the property. A use agreement between the developer and the company sets out the rights and obligations with respect to 139
Cross, ‘An Alternate Legality’, (1992) SAJHR 305–31 at 306 ff. Cross, ‘Reforming Land in South Africa: Who owns the land?’, Proceedings of Conference on Land Tenure, above n 132. 141 Carey-Miller & Pope, above n 21 at 225. 140
Diversification of Land Rights 23 each part of the property linked to a particular block of shares. Upon purchasing the shares, the purchaser acquires the rights and duties to a specific share block in terms of the use agreement. The purchaser thus acquires the right to use and occupy a specific part of the building and land in her capacity as shareholder in the company. Of particular interest for present purposes is the manner in which title in terms of share blocks is protected and publicised. After the property has been registered in the name of the company, no further action in the deeds registry is necessary. The Share Blocks Control Act142 sets certain requirements to ensure security of title to the land and/or buildings comprised in the scheme.143 The main object and business of the share block company must be the operation of a share block scheme.144 The company’s memorandum and articles of association must be lodged with the Registrar of Companies.145 The name of the company must advertise the fact that it is a share block company.146 The articles of association must provide for the right of occupation and use of a specified part of the company’s immovable property in accordance with the use agreement.147 Block shareholders are therefore placed in the virtual position of owners.148 Even though common-law ownership of part of the building is impossible, tenure of block shareholders is secure enough to enable them to gain access to loans and private development funds. The rights in terms of the use agreement,149 the shares150 and the rights to the paid-up portion of the allocated loan can be employed as collateral security.151 142
Act 59 of 1980 (abbreviated: SBCA). Kleyn, Boraine & Du Plessis, above n 124 at 356. SBCA, s 7(1). 145 Carey-Miller & Pope, above n 21 at 230. 146 SBCA, s 9(1). 147 SBCA, s 7(2). 148 Carey-Miller & Pope, above n 21 at 225. 149 The ability of a member of a share block company to cede her rights under the use agreement as security is subject to restrictions on cession in the use agreement. Usually the rights may only be ceded either if the shares are transferred simultaneously, or if they are transferred separately from the shares as security. In both instances, the company’s consent is necessary. However, such a cession would imply that the member would be unable to exercise occupation of the land and/or buildings. Therefore, this kind of cession is usually made subject to a suspensive condition in terms of which the cession takes effect only once the debtor fails to perform in terms of the loan or credit agreement. Butler ‘Shareblocks’ in LAWSA Vol. 25 Part 1, Joubert, Faris, Harms (eds) (Butterworths, Durban, 2001) at par 35. 150 The legal position regarding the effect of a cession of shares as security is uncertain to some extent. The consent of the directors may be required in terms of the company’s articles for a valid cession or pledge of shares. See Britz v Sniegocki 1989 (4) SA 372 (D) at 380I. The cession of the shares in securitatem debiti will not affect the cedent’s status as a member between her and the share block company, as she remains the registered holder of the shares. See Standard Bank of SA Ltd v Ocean Commodities Inc 1983 (1) SA 276 (A) 289A–B. A shareholder’s ability to procure credit upon the strength of her shares is subject to any lien, which the company may have over the shares. Barnard v Liquidators of S Seligmann & Co (Pty) Ltd 1964 (3) SA 692 (E) at 697. It may, however, be determined in the company’s articles that the company’s lien will rank below a cession or pledge to secure the purchase price of the shares. Butler, above n 149 at par 34. 151 Butler, ibid at par 33. 143 144
24 Hanri Mostert The promulgation of the Share Blocks Control Act resolved many of the problems surrounding the relative ‘insecurity’ of the personal rights conferred in terms of share blocks when compared with traditional forms of registrable title like ownership or limited real rights. The introduction of the sectional title concept into South African law, which enabled acquisition of real rights to parts of buildings, did not detract from the significance of share block schemes.152 These two mechanisms now co-exist in South African law, and can even supplement each other.
CONCLUSION : SECURE TITLE , ACCESS TO LAND AND PUBLICITY
Regardless of how many assets people accumulate or how hard they work, most will not be able to prosper in economic terms if their property relations are not formalised to some extent.153 Property relations remaining out of reach of official records and outside the scope of policy-makers are economically invisible. Access and secure title to land are only meaningful if they receive sufficient publicity so as to render full exploitation of the land and title thereto possible and sensible for economic purposes. Secure forms of land tenure are important because they may function as collateral security to obtain private development funds and loans, with which wealth can be generated. In this context, the publicity espoused by the system of registration seems to be the most basic principle underlying a successful regime of land use and control. Some authors have already pointed out that the registration will be of increased importance for the South African land regime in the transition period, because of the policy in emerging land law to move away from a system dominated by a hierarchy of rights to a much greater incidence of various forms of land title.154 The South African registration system is generally perceived as an accurate and reliable guarantee of security of title.155 However, the registration process is at present slow, cumbersome, expensive156 and exclusionary, because it does not provide for the registration of all rights of land tenure recognised by statute or envisaged within the land reform programme. Currently, the registration system still perpetuates the outdated hierarchical approach to rights. The increasing diversification of land rights because of reform legislation necessitates a reconsideration of the operation of the existing system in an improved land regime. It has therefore become necessary either to reconcile new theoretical perspectives with existing registration practices, or to redefine the significance of 152 153 154 155 156
Carey-Miller & Pope, above n 21 at 225. De Soto, The Mystery of Capital, (Black Swan, London, 2000) at 167. Carey-Miller & Pope, above n 21 at 48. Pienaar, above n 12 at 120. Van der Merwe, above n 124 at 344–5. Pienaar, above n 127 at 223.
Diversification of Land Rights 25 registration in an improved and broadened system of land title in South Africa. The poverty of existing mechanisms in dealing effectively with the changing face of land law can be addressed by expanding the registration system to incorporate a greater variety of land titles and a higher incidence of registration. However, opening up the registration system to incorporate the rights created and protected in these laws will result in even higher frequencies of registration, which might compromise the accuracy and certainty that characterises the process. Registration is perhaps not the only—or even most effective—means of publicising land use and control to ensure security of title. The registration system can be adapted to cater for the needs of the developing property law, as was done in the past,157 but alternative methods of ensuring publicity and security of title can also be incorporated into the emerging land regime. In case of share block schemes, secure title is ensured mainly by legislative regulation and publicity outside the system of deeds registration. These alternative forms of publicity are not without problems, as the complexity of the share block framework indicates. However, they do provide a viable alternative in cases where registration is impossible or ineffective. To conclude, the most important realisation is that successful implementation of a new land regime does not depend on politics as much as on the law. The recognition that land is an element of human survival and/or prosperity must compel lawyers—whether they are academically or technically minded— to eradicate those obstacles in the land regime and registration system that keep the majority of the people from creating wealth for themselves and for others.
157 The eminent example of such an adaptation is the introduction of a sophisticated system of sectional title into South African law from 1971 onwards. This entailed a reform and adaptation not only of some of the basic principles of South African property law (eg the superficies solo cedit rule), but also of the registration system itself, to render it capable to cater for the specific needs of sectional ownership.
2
Protecting Social Participation Rights Within The Property Paradigm: A Critical Reappraisal AJ VAN DER WALT
1 REICH ’ S THEORY OF NEW PROPERTY 1
Overview of Reich’s Theory In The New Property,2 Charles Reich famously argued that claims to participate in state wealth (the ‘new property’)3 have come to serve the same social purpose in postwar American society that was traditionally served by property ownership, namely to secure individual autonomy against state interference. 1 This essay is based upon work supported by the National Research Foundation under Grant number GUN 2050532. Any opinion, findings and conclusions or recommendations expressed are those of the author and do not necessarily reflect the views of the NRF.This section is based on part of the author’s inaugural lecture, University of Stellenbosch, 8 May 2001, ‘Sosiale Geregtigheid, Prosedurele Billikheid, en Eiendom: Alternatiewe Perspektiewe op Grondwetlike Waarborge’ (Social Justice, Procedural Fairness, and Property: Alternative Perspectives on Constitutional Guarantees), (2002) 13 Stellenbosch LR59–82, 206–29. 2 Reich ‘The New Property’ (1964) 73 Yale LJ 733–87; see also Reich ‘Individual Rights and Social Welfare: The Emerging Legal Issues’ (1965) 74 Yale LJ 1245–57; Reich ‘Beyond the New Property: An Ecological View of Due Process’ (1990) 56 Brooklyn LR 731–45. Reich was not the first person to use the notion of ‘new property’ with reference to social welfare rights; see Lynn ‘Legal and Economic Implications of the Emergence of Quasi-Public Wealth’ (1956) 65 Yale LJ 786–805. For commentaries on Reich’s article see Van Alstyne ‘Cracks in ‘The New Property’: Adjudicative Due Process in the Administrative State’ (1977) 62 Cornell LR 445–93; Sackville ‘Property, Rights and Social Security’ (1978) 2 Univ NSW LJ 246–66; Williams ‘Liberty and Property: The Problem of Government Benefits’ (1983) 12 J Leg Studies 3–40; Epstein ‘No New Property’ (1990) 56 Brooklyn LR 747–5; Verkuil ‘Revisiting the New Property after Twenty-Five Years’ (1990) 31 William & Mary LR 365–73. 3 Reich discussed the following claims on state wealth (734–7): direct income and benefits (social security benefits, unemployment compensation, aid to dependent children, veteran benefits, welfare benefits), state jobs; occupational licences administered by the state; state grants and concessions (taxi and other licences, television and radio frequencies, public transport permits, air transport routes, liquor licences); state contracts; state subsidies; access to and use of state resources (airports and harbours, public land, and other resources used free of charge); use of state facilities and services (postal services, insurance, state subsidised research information). Reich’s notion of new property includes but extends beyond what is commonly referred to as socio-economic rights; see the discussion in s 2 below. In this paper, I refer to ‘social rights’ when discussing the more restricted category of social support and assistance benefits associated with state welfare, pension, medical aid and housing schemes, and to ‘commercial benefits’ when discussing state-granted licences, quotas and similar benefits associated with commercial exploitation.
28 AJ van der Walt Accordingly, Reich proposed that these participation claims should enjoy the same strong constitutional protection traditionally granted to property owners4 to secure an enclave of individual independence against state regulation.5 Traditionally, claims to participate in state wealth6 are regarded as conditional gratuities that can be withheld or revoked in the public interest,7 and Reich argued that increasing dependence on the public interest state8 therefore creates a new feudalism:9 participants depend on the state for their survival, but enjoy no security because the state can unilaterally terminate their participation.10 Reich’s aim was to create a new zone of privacy,11 where the individual is free from state regulation,12 by erecting a barrier of new property guarantees that secures the individual’s status as participant in state wealth, just like the traditional barrier of property ownership used to protect personal freedom.13 For that purpose it is necessary that new property interests should not be treated as conditional gratuities, but as vested rights similar to traditional property ownership, which enjoys constitutional protection against state regulation.14 Reich stated the following principles upon which the protection of new property interests should depend.15 Firstly, the state should not be allowed to abuse 4 Reich does not simply classify participation claims as property, but proposes equal protection for claims that serve the same social purpose as property. The effect is accurately described as ‘propertizing welfare benefits’: Alexander Commodity & Propriety: Competing Visions of Property in American Legal Thought 1776–1970 (1997) 363. 5 Reich 733: ‘The institution called property guards the troubled boundary between individual man and the state. It is not the only guardian; many other institutions, laws, and practices serve as well. But in a society that chiefly values material well-being, the power to control a particular portion of that well-being is the very foundation of individuality’. 6 Reich 733: ‘One of the most important developments in the United States during the past decade has been the emergence of government as a major source of wealth. . . . Government has always had this function. But while in early times it was minor, today’s distribution of largess is on a vast, imperial scale. . . . The valuables dispensed by government take many forms, but they all share one characteristic: They are steadily taking the place of traditional forms of wealth—forms which are held as private property. . . . The wealth of more and more Americans depends on a relationship to government’. 7 Reich 774. 8 Reich 778. 9 Reich 768. 10 Reich 733. 11 Reich 778. 12 Reich 785. 13 Reich 785. 14 Reich points out that property ownership was also initially granted conditionally and subject to state cancellation and regulation, only sedimenting into the secure and constitutionally protected rights they are over time—the fact that new property interests in state wealth are granted conditionally and subject to regulation does not prevent these rights from also developing into strong, secure rights. The current strong guarantee enjoyed by property ownership is based on the social and political value of private ownership and not on the inherent value of the property involved, and since participation claims in state wealth are also social constructs that fulfill a similar function, the acceptability and scope of state regulation of these claims should also be determined with reference to their function rather than their origin. Participation claims that serve important social and political functions such as personal independence should consequently enjoy strong constitutional protection. 15 Reich 779–86.
Protecting Social Participation Rights Within The Property Paradigm 29 its control over participation in state wealth to ‘buy out’ other constitutional rights or claims by way of trade-offs or sacrifices.16 Secondly, legislative powers to interfere with new property rights should be restricted substantively17 and state regulation of new property should increasingly be subjected to procedural controls.18 Finally, at least some participation claims19 that are currently regarded as unenforceable gratuities should be transformed into vested or acquired (and therefore constitutionally protected) rights so that the new property can indeed safeguard personal independence.20
Impact of Reich’s Theory on US Law Reich’s article was provoked by the Supreme Court decision in Flemming v Nestor,21 where it was held that, when a statute reserves the power to amend or terminate payments, statutory amendment or cancellation of federal social security benefits would be subject to review only if the action was arbitrary and incapable of rational justification,22 because these payments are regarded as conditional gratuities and not as accrued property rights.23 Reich criticised the 16 Reich 779. When the claims of an individual participant and the public interest are weighed against each other in court, no weight should attach to the perception that claims for state support are mere gratuities: Reich 781. 17 Reich 782–3 mentions three examples: a sensible notion of relevance to prevent all kinds of other matters from being regulated through the regulation of new property; restriction of discretions in the granting, withdrawal and cancellation of welfare support; and a complete ban on privatisation of the power to formulate policy regarding welfare rights. 18 Reich 783. 19 Namely the rights directly relating to individual autonomy and independence. 20 Reich 785. 21 363 US 603 (1960). Nestor immigrated to the US in 1913 and qualified for a pension in 1955. He was deported in 1956 and further payment of his pension was terminated shortly thereafter, because of his membership of the Communist Party between 1933 and 1939. The Immigration and Nationality Act was adopted after 1939 and rendered membership of the Party illegal with retrospective effect (Flemming v Nestor at 613). Qualification for pension payments under the Act was not based on contributions to the fund but on the recipient’s record as earner of an income over a specified period (at 608–9). The pension fund was financed through a tax on earners who qualified for the programme and their employers. The Court described the programme as a social insurance (at 609), which is distinguished from an annuity by the fact that the recipient’s claim is eventually not determined by contributions (at 610). 22 Flemming v Nestor 611: ‘Particularly when we deal with a withholding of a noncontractual benefit under a social welfare program such as this, we must recognize that the Due Process Clause can be thought to interpose a bar only if the statute manifests a patently arbitrary classification, utterly lacking in rational justification’. 23 Flemming v Nestor 608, 610, 611. Pension benefits proper will probably qualify as property rights. This distinction is not unique to US law; compare in German law BVerfGE 28, 119 (1970); BVerfGE 45, 142 (1977); BGHZ 83, 1 (1982) (only vested rights are protected by the property guarantee in the German Basic Law); Van der Walt Constitutional Property Clauses: A Comparative Analysis (1999) 173; BVerfGE 69, 272 (Eigenleistung) (1985) 300 (public-law interests in statecontrolled benefits are only protected if they have vested in the recipient and if they are based on substantial own effort and does not amount to a mere gratuity); Van der Walt (1999) 156–7. Compare in Swiss law BGE 106 Ia 163 (Graf ) (1980); Van der Walt (1999) 373 (only vested rights are protected). A similar principle applies in the case law of the European Court of Human Rights
30 AJ van der Walt decision because no effort was made to balance the conflicting interests—on the basis of the Court’s conception of a social security interest as a gratuity, public interest and public policy automatically trumped an individual interest that deserved better protection.24 However, the Court’s decision reflected the established position, according to which interests that are recognised as rights by the common law are protected by due process principles, while gratuitous benefits granted by the state are not.25 What Reich proposed was an amendment of the traditional position, arguing that benefits granted by the state should be recognised and protected as vested rights because of their social function of securing individual autonomy. The impact of this proposal on US law was mixed. In Goldberg v Kelly26 the Supreme Court adopted Reich’s argument that recipients of statutory welfare benefits have a right to receive those benefits and not a mere privilege or gratuity,27 and that they accordingly have a right to be
regarding the First Protocol to the European Convention: X v United Kingdom [1970] YB 13 892; X v The Netherlands [1971] YB 14 224; Müller v Austria [1976] 3 DR 25; X v Italy [1977] 11 DR 114 (a pension claim can be protected property under the property guarantee if there is a direct link between the compulsory payment of contributions and the pension); Van der Walt (1999) 117. A similar position has been adopted in India regarding a pension claim (Deokinandan Prasad v The State of Bihar and Others AIR (58) 1971 SC 1409; Van der Walt (1999) 225) and a public service bonus (Madan Mohan Patak and Another v Union of India and Others AIR (65) 1978 SC 803; Van der Walt (1999) 226); compare for Zimbabwe Chairman, Public Service Commission, and Others v Zimbabwe Teachers’ Association and Others 1997 1 SA 209 (ZSC) (public service bonus; Van der Walt (1999) 494). See regarding licences Tre Traktörer AB v Sweden [1989] ECHR Ser A vol 159 (European Court); Hand and Others v City of Dublin and Others [1991] 1 IR 409 (Ireland); Bahadur v Attorney General [1989] LRC (Const) 632 (CA) (Trinidad & Tobago); Lawlor v Minister of Agriculture and Others [1988] ILRM 400 [1990] 1 IR 356 (Ireland); Hempenstall and Others v Minister for the Environment [1994] 2 IR 20 (Ireland); as well as Van der Walt ‘The Constitutional Property Clause and Police Power Regulation of Intangible Commercial Property—A Comparative Analysis of Case Law’ in Jackson & Wilde (eds) Property Law: Current Issues and Debates (1999) 208–80. 24 Reich 769: participation in state wealth is important in the case of old age pensions, because recipients of these pensions are usually vulnerable and dependent on payments for their survival. Secondly, contributions to the fund are compulsory, and therefore recipients who have contributed for years regard the pensions as their property, which is not reflected by the legal position. Thirdly, recipients who lose their pension lose much more than just their contributions, because if they had not been forced to make the contributions they could have invested their money in property that could not be taken away from them so easily. 25 Compare Massey ‘Justice Rehnquist’s Theory of Property’ (1984) 93 Yale LJ 541–60, 543 (expectations are not recognised or protected as property by US courts, and are therefore subject to (especially economic) regulation without a right to compensation); Anderson ‘Takings and Expectations: Toward a ‘Broader Vision’ of Property Rights’ (1989) 37 Kansas LR 529–62, 529 (referring to Penn Central Transportation Co v City of New York 438 US 104 (1978) 124). The same applies to regulation of new property: Anderson, 549. 26 397 US 254 (1970). Provision was made for a fair hearing where the beneficiary could appear in person to hear and cross-examine witnesses, as well as for judicial review, but in both cases this was restricted to the period after cancellation: 259–60. See Alexander ‘The Concept of Property in Private and Constitutional Law: The Ideology of the Scientific Turn in Legal Analysis’ (1982) 82 Col LR 1545–99; Epstein (1990) 56 Brooklyn LR 747–75; compare Barrie ‘Administrative Due Process and the United States Supreme Court’ (1996) TSAR 133–44. 27 Goldberg v Kelly 261–2. The Constitution does not grant the right—it is granted by an independent source such as legislation or the common law; compare Barrie (1996) TSAR 133, 139.
Protecting Social Participation Rights Within The Property Paradigm 31 heard before those benefits are cancelled,28 especially when cancellation would have a disastrous effect for economically vulnerable recipients.29 Welfare assistance limits financial dependency and uncertainty to help people maintain their dignity,30 and therefore it is not just a gratuity or charity, but a contribution to individual independence and social welfare, which in turn requires that payment of state welfare benefits should proceed without interruption as far as possible. To ensure that benefits are not cancelled by mistake, it is preferable to grant the beneficiaries a right to be heard prior to cancellation.31 The decision in Goldberg v Kelly made arbitrary cancellations of benefits more unlikely, and the Supreme Court also adopted Reich’s argument that nobody should be prevented or discouraged indirectly—through the granting or cancellation of state-granted benefits32—from exercising their other fundamental rights. However, the change of direction initiated in Goldberg v Kelly was shortlived, and in later decisions the protection that was given to recipients of state benefits was eroded.33 In Mathews v Eldridge34 it was decided that a full 28 Goldberg v Kelly 261. The exact form that procedural justice should assume in a particular case depends on an investigation of the nature of the state function involved and the private interest at stake: Goldberg v Kelly 262–3. 29 Possibilities for appeal and review subsequent to cancellation are described as insufficient considering the precarious situation of the recipients of state welfare payments. Summary cancellation of payments can deprive recipients of vital support while they wait for the position to be rectified. They receive support because they have no independent means, and therefore their position becomes desperate immediately upon cancellation: Goldberg v Kelly 264. 30 A similar view of welfare benefits appears in the case law of the German Federal Constitutional Court: the purpose of constitutional protection of property (including public-law property interests in certain social security benefits) is to create and secure a protected sphere of independence for the individual where he or she can take responsibility for the development of his or her own life, in order to make an independent contribution to society: see Van der Walt (1999) above n 23 151, 156–7, compare BVerfGE 69, 272 (Eigenleistung) (1985) 300. 31 Goldberg v Kelly 265. The decision in Goldberg v Kelly resulted in new property decisions in various other fields: see Rendleman ‘The New Due Process: Rights and Remedies’ (1974–1975) 63 Kentucky LJ 531–674. An important example is the position of employees with vested rights in state jobs: Board of Regents of State Colleges v Roth 408 US 564 (1972); Cleveland Board of Education v Loudermill 470 US 532 (1985). 32 In Keyishan v Board of Regents 385 US 589 (1967); Perry v Sindermann 408 US 593 (1972); Elrod v Burns 427 US 347 (1976) it was decided that continuation or cancellation of non-tenured state jobs could not depend on the employee’s exercise of fundamental rights such as freedom of speech, even though the employee did not have any vested right in re-employment. 33 As indicated by Reich himself in a later publication: (1990) 56 Brooklyn LR 731–45 731: ‘Twenty years later, we must confront the fact that the road opened by Goldberg v Kelly has not been taken. Instead there has been retreat’. At 733 Reich criticises the watered-down application of his theory since Goldberg v Kelly, and defends the even stronger claim that the right to procedural due process in the Fifth and Fourteenth Amendments provides every citizen with a constitutional right to minimum provision of life support, housing, child care, education, job opportunities, medical insurance, a pension and a clean and healthy natural environment. This claim is in conflict with the established tradition, confirmed shortly before Reich’s 1990 article by the Supreme Court in DeShaney v Winnebago County Department of Social Services 489 US 189 (1989) (the due process provision does not support positive claims against the state). 34 424 US 319 (1976) 335. The test formulated in this case for the regulation of welfare and similar benefits is still the standard: in every case it must be decided which procedure would be suitable for the specific situation, with reference to three factors, namely the private interest affected by the action, the risk that the holder would be deprived of this interest erroneously because of an improper procedure, and the state’s interest in cheap and effective administration of the system.
32 AJ van der Walt evidentiary hearing was not required before disability benefits are terminated, and in later decisions it was suggested that the right to procedural fairness might be subject to statutory conditions under which the benefit was granted.35 By giving the legislature the opportunity to avoid administrative review procedures by subjecting the grant of welfare benefits to statutory conditions and qualifications, the courts effectively turned the clock back to the position prior to Goldberg v Kelly.36 Reich’s impact was also limited in the sense that welfare claims were never treated as property in the context of the takings clause. Reich’s theory goes much further than prevention of gross unreasonableness and arbitrary state action, as he construed a strong theoretical link between the protection of state grants, procedural fairness, and property—Alexander describes the theoretical rhetoric used by Reich as ‘propertizing welfare benefits’37 to underline the fact 35
Arnett v Kennedy 416 US 134 (1974); Bishop v Wood 426 US 341 (1976). The US Bill of Rights does not protect socio-economic rights or procedural fairness directly— the due process provision in the Fifth and Fourteenth Amendments protects specific rights (‘No state shall deprive any person of life, liberty, or property without due process of law . . .’) and not due process in general (Board of Regents of State Colleges v Roth 408 US 564 (1972) 569–71; Van Alstyne (1977) 62 Cornell LR 445–93 451–2). State interference with political and personal liberties is traditionally subjected to a stricter procedural due process test. The distinction originated in the famous Footnote 4 in Stone J’s opinion for the Supreme Court in United States v Carolene Products Co 304 US 144 (1938) 152 n 4: alleged interferences with economic rights are subjected to minimal scrutiny, but state action that interferes with individual or political liberties is subjected to strict scrutiny. State regulation of economic and commercial interests is therefore largely left in the discretion of the legislature. The Supreme Court never explicitly subscribed to this dichotomy, but it did influence subsequent decisions. See Funston ‘The Double Standard of Constitutional Protection in the Era of the Welfare State’ (1975) Pol Science Q 261–87. The double standard of review was criticised in Lynch v Household Finance Corp 405 US 538 (1972). The tendency to leave state regulation of economic and commercial interests in the discretion of the legislature results from reaction against the anti-regulation effect of laissez faire economic policy in the substantive due process decisions dating from the Lochner court of the 1930s—see Tribe American Constitutional Law 2nd ed (1988) 567–86, 685–753, 769–84; Alexander (1997) 264ff, 275, 311ff, 315, 317, 331–4, 340–9 for an overview; Lochner v New York 198 US 45 (1905); Coppage v Kansas 236 US 1 (1915). During the Lochner era the Supreme Court subjected the Roosevelt government’s New Deal legislation to substantive review and declared a whole range of social welfare legislation invalid, resulting in serious questions about judicial activism and the separation of powers (the countermajoritarian difficulty; see Botha ‘Democracy and Rights: Constitutional Interpretation in a Postrealist World’ (2000) 63 THRHR 561–81). In the 1930s the Supreme Court abandoned the substantive due process approach in West Coast Hotel Co v Parrish 300 US 379 (1937) and switched to a so-called ‘objective approach’, in terms of which the courts would not interfere with statutory regulation of economic interests unless other fundamental rights were interfered with in the process. Since then the procedural due process guarantee has been interpreted as a formal guarantee that leaves the regulation of economic matters to the legislative and administrative branches of government (deference). The courts’ lack of enthusiasm for the development in Goldberg v Kelly should probably be seen as fear for the impression of a return to the substantive due process review of the Lochner era. Funston (1975) Pol Science Q 261 266: ‘. . . the Court more than lowered its sights; it gave up the hunt altogether’. Funston 270 refers to a case decided only 14 days after Kelly and that already reverted to deference: Dandridge v Williams 397 US 471 (1970) 485; see further James v Valtierra 402 US 137 (1971); San Antonio Independent School District v Rodriquez 411 US 1 (1973). 37 Alexander (1997) 363. Commentators objected against the notion that state employees could have property interests in their jobs, while the real purpose was simply to protect them against arbitrary regulation: Van Alstyne (1977) 62 Cornell LR 445–93, 484; Chandler ‘A Reconsideration of the 36
Protecting Social Participation Rights Within The Property Paradigm 33 that Reich considered it necessary to upgrade participation rights conceptually and institutionally to property rights in order to obtain the strong protection he was aiming for. The link in Reich’s theory between the protection of participation rights and property was therefore not incidental—his purpose was indeed that new property should be regarded and protected as vested or acquired rights in the same manner and for the same reasons, in other words in the same conceptual and institutional framework, as property. However, in US case law participation rights never enjoyed anything more than due process protection— substantive protection as property in the sense of compensation on the basis of takings doctrine was never provided or even seriously considered.38 In as far as new property is recognised in case law, it therefore differs from traditional property in the sense that cancellation of a state granted benefit recognised as new property is subject to due process control, but it cannot result in a claim for compensation based on the constitutional takings clause.39 This qualifies the value of the new property theory as a theory of property rights, because due process control over regulation of new property falls short of full constitutional protection of property in the traditional sense.40
2 IMPLICATIONS FOR A THEORY OF SOCIAL PARTICIPATION RIGHTS
The result Reich was aiming for, namely to restrict the insecurity of stategranted benefits by subjecting their regulation to some sort of procedural control, was obtained in South African law and elsewhere by way of the doctrine of legitimate expectation,41 which relies on an extensive interpretation of the Concept of Property’ 1977 Archiv für Rechts- und Sozialphilosophie (Beihefte Neue Folge 10) 147–61, 160; Sackville (1978) 2 Univ NSW LJ 246–66; Epstein (1990) 56 Brooklyn LR 747, 769–75; but compare Tushnet ‘The Newer Property: Suggestion for the Revival of Substantive Due Process’ (1975) Sup Ct Rev 261–88 (argues in favour of an extension of Reich’s theory on the basis of a revised doctrine of substantive due process which will result in providing public sector jobs with constitutional protection.) 38 Traditionally the protection of property in terms of the Fifth and Fourteenth Amendments to the US Constitution includes two aspects, i e procedural fairness protection or due process and compensation for takings; see Van der Walt (1999) 398–9. Compare Epstein (1990) 56 Brooklyn LR 747, 761. Massey (1984) 93 Yale LJ 541–60, 544 refers to the interest in participation cases as due process property because they are not protected in terms of the takings guarantee. Massey (541 n 5) argues that the distinction was never clarified, but apparently the Supreme Courts accepts (Massey 544 n 20) that property created by legislation (and not recognised in common law) cannot be taken away without due process. 39 It may appear senseless to allow a compensation claim for expropriation of benefits sounding in money, but in fact the value of such a claim is that it presents a basis for having the action declared invalid rather than actually obtaining compensation: Van der Walt ‘Compensation for Excessive or Unfair Regulation: A Comparative Overview of Constitutional Practice Relating to Regulatory Takings’ (1999) 14 SAPL 273–331, 289. 40 The potential threat of an expanded application of this protection on the basis of a theory of regulatory takings or inverse condemnation is particularly effective; see Van der Walt (1999) 14 SAPL 273–331. 41 This doctrine originated in the UK in the decision of Schmidt and another v Secretary of State for Home Affairs [1969] 2 Ch 149, [1969] 1 All ER 904. This development was followed in
34 AJ van der Walt notion of ‘vested rights’ to ensure that certain claims or benefits that do not qualify as vested or acquired rights in terms of normal rights theory can nevertheless enjoy the protection of due process or procedural fairness principles.42 Stated simply, the doctrine of legitimate expectation amounts to expansion of the normal reach of the due process principle—a solution that would have been problematic in US law because of negative sentiment towards the notion of substantive due process.43 Reich’s solution was to redefine new property benefits in such a way that they qualify as vested or acquired (and therefore protected) rights that can benefit from due process control over state regulation—at the risk of oversimplification one can say that Reich approached the matter from the direction of an expansion of the property guarantee (which includes the kind of due process protection he was looking for) rather than from an expansion of the due process principle (which would have looked like a revival of substantive due process and met with considerable resistance). In this sense, Reich’s choice of the property paradigm as a theoretical framework was strategic rather than purely philosophical.44 If one accepts, for the sake of argument, that Reich was not necessarily set on devising a theory of property rights as such, and that he settled on the property paradigm more or less by default or largely for strategic reasons, the question is whether the theory of new property has any intrinsic value or interest as a theory of social participation rights. Reich did not intend specifically to promote the protection of socio-economic rights—the new property includes but extends beyond the range of socio-economic rights as it is usually understood.45 In effect Reich’s theory combines two groups of participation claims, namely social or welfare benefits46 and state-granted comCommonwealth countries, see e g the recent Australian decision in Attorney-General (NSW) v Quin (1990) 170 CLR 1 (FC) for a discussion of the doctrine of legitimate expectation and criticism against it. In South Africa the doctrine was adopted in Administrator, Transvaal and others v Traub and others 1989 4 SA 731 (A) and followed in a number of later cases. However, the extending effect of the doctrine in common law review is uncertain in the new constitutional context; see n 42 below. 42 In current South African law, both s 33 of the 1996 Constitution and the definition clause in s 1 of the Promotion of Administrative Justice Act 3 of 2000 refer simply to ‘rights’, but s 3 of the Act (entitled ‘Procedurally fair administrative action affecting any person’) provides that ‘(1) administrative action which materially and adversely affects the rights or legitimate expectations of any person must be procedurally fair’, thereby incorporating the effect of the doctrine of legitimate expectation in the new statutory framework. For commentary on the similarities and differences between the common law doctrine and the statutory provision see Cora Hoexter (with Rosemary Lyster) The New Constitutional and Administrative Law (ed I Currie) vol II: Administrative Law (2002) 215, 236. 43 See nn 36–7 above and surrounding text. 44 Although he offered a philosophical argument in support of his theoretical explanation—the philosophical argument is that the new property safeguards personal independence and autonomy, which is an important social value that deserves strong constitutional protection. 45 Eg the commercial participation rights (licences, quotas, etc) discussed by Reich are not usually regarded as socio-economic rights, while the welfare rights he mentions (medical aid, pension funds etc) are. Other socio-economic rights such as housing and education can be classified under Reich’s categories of new property rights, but are not discussed by name. 46 Old-age pensions, medical aid, welfare assistance proper, unemployment assistance, etc. This category may also include state housing.
Protecting Social Participation Rights Within The Property Paradigm 35 mercial benefits.47 The common denominator between these two groups is that both originate in state grants, as a consequence of which neither is recognised as vested or acquired rights, and both are vulnerable to state regulation. In this sense, the only link between the two groups is the common threat of uncontrolled state regulation and the common quest for procedural safeguards. The differences between the two groups of state-granted benefits included in Reich’s theory are significant: welfare benefits are typically needs-based and aimed at the eradication or alleviation of poverty, whereas commercial benefits are very often rights-based in principle48 and aimed at development and accumulation of wealth. Even though the due process concern in both cases is to escape the uncertainty of uncontrolled state regulation, the consequences of regulation are very different in these two situations—in commercial situations, cancellation of a trading licence or production quota might cause financial loss and even ruin, but the cancellation of a state pension affects a socially and economically vulnerable person’s very livelihood and security on a directly personal level. Similarly, the purpose of protecting a commercial state-granted benefit against arbitrary regulation is to ensure and promote commercial stability and growth, to stabilise and protect existing wealth in a forward-looking frame of mind; whereas the purpose of protecting a state-granted welfare benefit is to prevent personal suffering and destitution and to alleviate poverty on a very personal, non-commercial level and with a specifically present-time purpose. At least in the conceptual and logical framework of Reich’s own theory it seems unjustified to ignore these differences, as it is unlikely that the protection of both categories would serve personal independence and autonomy in exactly the same manner and to the same degree.49 Theoretical discourse also reveals a quest for a theory of social and welfare rights that reflects the difference in focus appearing from the discussion above. Frank Michelman developed a theory of constitutional minimum welfare entitlements,50 based on the liberal and republican pillars of his vision of society, in 47 State jobs, licences, quotas, radio frequencies, road and air traffic permissions and other permissions or grants that enable one to practice a trade or sell goods or services commercially. 48 In the sense that the acquisition of a vested right in the benefit is often possible and preferable. Once they are recognised and protected as vested rights, these commercial benefits often become commercially valuable and commodified. See n 23 above for comparative examples. 49 See Margaret Jane Radin ‘Property and Personhood’ (1982) 34 Stan LR 957–1015; ‘Marketinalienability’ (1987) 100 Harv LR 1849–1937 for a similar distinction between ‘fungible’ and ‘personal’ property, based on the question whether the property in question is directly important for personhood and therefore market-inalienable or imperfectly commodifiable, i e whether the protection of property interests in the property is premised on considerations of personal autonomy and independence or on commercial interests. 50 Worked out in a series of law review articles, see Michelman FI ‘The Supreme Court 1968 Term—Foreword: On Protecting the Poor through the Fourteenth Amendment’ (1969) 83 Harv LR 7–59; ‘In Pursuit of Constitutional Welfare Rights: One View of Rawls’ Theory of Justice’ (1973) 121 Univ Penn LR 962–1019; ‘Formal and Associational Aims in Procedural Due Process’ in Pennock J (ed) Due Process (Nomos XVIII) (1977) 126–71; ‘Welfare Rights in a Constitutional Democracy’ (1979) 3 Wash Univ LQ 659–93; Michelman FI ‘Human Rights and the Limits of Constitutional Theory’ (2000) 13 Ratio Juris 63–76.
36 AJ van der Walt which he set out a strong and eloquent argument for distinguishing between rights-based and needs-based models of constitutional welfare rights. The heart of the Michelman welfare thesis is that a minimum of welfare benefits have to be provided to needy persons by the state, as a constitutional right, and on the basis of extreme need, and that claims to this minimum welfare benefit are not and need not be justified by any traditional notion of desert or vested rights. Instead, the constitutional recognition of these benefits as rights is based on a strong notion of self-government, political participation and civic responsibility. In the same vein, William Simon argued that social security and welfare practice around the middle of the twentieth century favoured participatory over exclusionary arguments in favour of the protection of welfare benefits against state regulation.51 On the basis of these indications from social welfare theory it seems justified to argue that at least some welfare participation benefits are not adequately explained by exclusionary and desert-based theories (like Reich’s new property theory) that rely on the traditional property paradigm. Of course some state-granted participation benefits—such as the commercial benefits, and perhaps even some of the welfare benefits—could and should be protected against state regulation in a way that can be explained in a desert-based, exclusionary, property paradigm,52 but at the same time an important category of welfare benefits seems to be more closely related to notions of need, participation and civic responsibility. At least in this sense, Reich’s theory of new property falls short of a fully satisfactory explanation of social participation rights. This shortfall in the theoretical value of the theory of new property highlights an important theoretical limitation in the property paradigm as such.
3 THEORETICAL LIMITATIONS OF THE PROPERTY PARADIGM
By using a desert-based, exclusionary property model as the basis of his theory of new property, Reich paradoxically confirmed (rather than unsettled) the traditional hierarchy of rights, according to which the protection of interests depends on their recognition as vested rights in terms of established legal principles.53 Instead of improving the current unequal division of wealth, this approach actu51 Simon WH ‘The Invention and Reinvention of Welfare Rights’ (1985) 44 Maryland LR 1–37; ‘Rights and Redistribution in the Welfare System’ (1986) 38 Stanford LR 1431–516; ‘SocialRepublican Property’ (1991) 38 UCLA LR 1335–413. 52 Because the nature of the entitlement created by the benefit and the relationship between the beneficiary and the benefit resemble property rights closely. This is probably true of most of the commercial benefits such as licences and quotas once awarded, and it may apply to some welfare benefits in a developmental setting, eg state-granted land or housing for the poorest of the poor. See in this regard the South African example in the decision of Government of the Republic of South Africa v Grootboom 2001 1 SA 46 (CC) and Minister of Public Works and others v Kyalami Ridge Environmental Association and others 2001 7 BCLR 652 (CC) (emergency housing for individuals and communities in extreme need, in terms of s 26 of the 1996 Constitution). 53 This criticism against Reich’s theory was worked out by Verkuil PR ‘Revisiting the New Property after Twenty-Five Years’ (1990) 31 William & Mary LR 365–73 at 365–7, 369.
Protecting Social Participation Rights Within The Property Paradigm 37 ally exacerbates the situation, because it reduces the debate about wealth and poverty in a constitutional democracy to a mechanical process in which everything depends on the classification of recognised and protected versus unrecognised and unprotected interests, inside versus outside the circle of advantage, while more difficult questions about the reasons and motivation for inclusion and exclusion remain unasked and unanswered. This criticism against Reich’s theory echoes similar concerns that have been voiced with regard to property theory and the traditional property paradigm in general. The distinction between propriety and participation or between entitlement and rights has been illuminated and debated over the last decades in the property theories of authors such as Frank Michelman,54 Margaret Jane Radin,55 Gregory Alexander56 and Joseph William Singer.57 In fact, quite a number of property theorists have recently questioned the strong exclusionary assumptions in the traditional model of property and suggested participatory or relational qualifications.58 Concerns about the traditional property paradigm address at least two problems that can be described as the threshold and the ceiling issue respectively. The ceiling issue concerns the traditional notion that property rights are unlimited, and are mostly aimed at establishing or explaining the point—which is more or less universally accepted nowadays—that the imposition of regulatory ceilings on the rights or entitlements of property owners is theoretically acceptable.59 The traditional assumption that property ownership is characteristically exclusive, and therefore fundamentally protected against state interference and regulation, has to be qualified in view of the ceiling debate. The threshold issue concerns the problem of property maldistribution and focuses on redistributive efforts, including efforts to safeguard certain minimum property entitlements, in an effort to improve the balance of distribution. Even theorists who accept exclusivity assumptions in the traditional property paradigm nowadays qualify those assumptions with reference to various aspects of both ceiling and threshold issues.60 However, the more radical theorists, especially those who work in 54
‘Possession vs. Distribution in the Constitutional Idea of Property’ (1987) 72 Iowa LR 1319–50. ‘The Liberal Conception of Property: Cross Currents in the Jurisprudence of Takings’ (1988) 88 Col LR 1667–96. 56 (1982) 82 Col LR 1545–99; Commodity and Propriety: Competing Visions of Property in American Legal Thought 1776–1970 (1997). 57 The Edges of the Field: Lessons on the Obligations of Ownership (2000); Entitlement: The Paradoxes of Property (2000). 58 Carol Rose ‘Property as the Keystone Right’ (1996) 71 Notre Dame LR 329–65 (especially 345–8, where Rose discusses the role of property in supporting and protecting independence); Martha Minow ‘Interpreting Rights: An Essay for Robert Cover’ (1987) 96 Yale LJ 1860–915; Jennifer Nedelsky ‘Reconceiving Rights as Relationship’ (1993) Rev Const Studies 1–26. 59 Much of US regulatory takings doctrine is concerned with the distinction between situations where such regulation is justified per se and situations where it is justified only when accompanied by compensation; see Van der Walt AJ ‘Compensation for Excessive or Unfair Regulation: A Comparative Overview of Constitutional Practice Relating to Regulatory Takings’ (1999) 14 SA Public Law 273–331 for a comparative discussion. 60 See Laura S Underkuffler ‘On Property: An Essay’ (1990) 100 Yale LJ 127–48; Laura S Underkuffler-Freund ‘Takings and the Nature of Property’ (1996) 9 Can J Law & Jur 161–205; Gray K 55
38 AJ van der Walt the theoretical paradigm of rights as relation rather than rights as zones of exclusivity and autonomy, reject the exclusivity and autonomy assumptions in the traditional property paradigm altogether and accommodate ceiling and threshold concerns in a completely different set of theoretical assumptions and values based on the notion that rights relate people rather than separating them.61 In this theoretical framework, rights do not create zones of exclusivity and autonomy that separate people—they establish relations between people, in which it is possible to recognise and protect both entitlements and responsibilities, rights as well as duties. In highlighting the fact that traditional property theories tend to bolster existing inequalities in the distribution of property, wealth and power, relational theories provide cogent arguments to the effect that theories of social participation cannot be located exclusively within the traditional property paradigm. In this area, as in property theory itself, innovation and expansion is clearly required.
4 TOWARDS A THEORY OF SOCIAL PARTICIPATION RIGHTS
The foregoing brief and superficial discussion cannot and does not pretend to offer a conclusive or authoritative analysis of theories of property or of theories of social participation rights, but it does signal a useful set of considerations for theoretical work in either or both fields. Firstly, it appears from the work of Frank Michelman that the provision and regulation of certain welfare benefits—intended to provide immediate, emergency-type relief for people in dire social and economic straits, the poorest of the poor and the weakest of the weak—cannot and should not be construed and discussed in terms of the traditional property paradigm, in other words in terms of desert or vested rights. At the same time, the protection of these people against arbitrary or heavy-handed regulation is of the utmost importance, because the effect of such regulation on them is so immediately devastating for chances of survival and for human dignity on a personal level. In this context, it seems necessary to devise a theory of social participation in state wealth and of due-process protection for welfare entitlements that reflects and accommodates notions of human dignity, social and political participation and civic responsibility rather than notions of individual desert or vested and acquired rights. The work already done by Michelman looks like a good starting point for further theoretical development in this area. ‘Property in Thin Air’ (1991) 50 Cam LJ 252–307 for examples of theoretical analyses that accept certain exclusivity assumptions, but nevertheless accommodate explanation of ceiling and threshold issues. Gray attempts to construct a moral (and therefore moderating) perspective on exclusivity as the key characteristic of property. 61 The most important examples of rights as relation theories in the property context are probably Jennifer Nedelsky ‘Reconceiving Rights as Relationship’ (1993) Rev Const Studies 1–26; Joseph William Singer The Edges of the Field: Lessons on the Obligations of Ownership (2000); Entitlement: The Paradoxes of Property (2000).
Protecting Social Participation Rights Within The Property Paradigm 39 Secondly, it appears that property theories and social participation theories based on notions of individual desert or vested and acquired rights—in other words theories like Reich’s theory of the new property—can provide a useful theoretical framework for further development in situations where the substantive or due process protection of state-granted commercial benefits is at stake. Commercial benefits resemble traditional property rights in several important respects, and therefore it makes sense to take note of established tradition regarding the protection of property rights when discussing and developing the protection of state-granted benefits with commercial potential such as licences, quotas and permissions. For theoretical purposes, these rights and benefits should be distinguished clearly from true welfare benefits, taking into account the differences in context and purpose of the state grants and the effect of regulation on each category. In the context of due process protection against state regulation, supplementary doctrines such as the doctrine of legitimate expectation or the theory of new property can be used to devise suitable protection for state-granted benefits that have not yet sedimented into the kind of vested or acquired rights that would normally enjoy protection, but that nevertheless deserve protection against state regulation. In this area, reliance on the constitutional guarantee of property rights or administrative justice, bolstered by the notion of legitimate expectation, will probably provide sufficient protection, albeit that common law and constitutional principles will have to be developed for the purpose. Ceiling and threshold concerns raised in property theory should be taken into account when developing protective measures against state regulation in this area. Thirdly, it seems possible that at least some state-granted benefits will not fit comfortably into either category. Examples that spring to mind are instances where an individual or even a community enjoys a state-granted participation benefit such as housing or participation in a work scheme or a development programme that does not qualify as either emergency assistance or a commercial benefit. In the South African context, the ongoing provision of state housing in ‘normal’ housing programmes and special assistance under various social programmes for households headed by women are examples of state-granted participation benefits that suit a kind of middle ground between true emergency relief for the utterly destitute and proper development relief for emerging entrepreneurs. Typical of state activity in this field is an effort to go beyond emergency relief by redressing historical imbalances in social, political and economic wealth and power, in other words what has become known in post-apartheid South African legal discourse as transformative or restorative redistribution of and participation in state wealth. In this area of state welfare activity, neither the needs-based emergency-type theoretical model nor the rights-based property-type model will serve the purpose of context-sensitive theoretical analysis, and a third theoretical model might be required. Clearly this is not the time or the place to develop such a theoretical model, but a few hesitant exploratory thoughts on the topic might provide some
40 AJ van der Walt impetus for later developments. If it is correct that neither needs-based nor property- or rights-based theoretical models provide the right framework for the development of an acceptable explanation of the protection of social participation benefits in this middle category, it could be useful to consider the implications of the suggestion that the importance of the benefits in this middle category emerge most clearly from a transformation-oriented or reformist situation such as now prevails in South Africa. This raises the thought that a theoretical approach informed by notions of reform and transformation might provide the explanatory framework required, and it becomes theoretically interesting to look at trends and issues emerging from the South African land reform process. Obviously this is a vast topic, but one promising thought immediately presents itself for consideration as a theoretical impulse that could suit the development of the required theory of social participation benefits very well. The example, emerging from land reform law, is the notion that a nonhierarchical system of fragmented land rights needs to be developed to counter the conceptual and institutional hegemony of the traditional hierarchical, ownership-dominated system embedded in apartheid land law.62 The fragmentation model of land rights suggests that a non-hierarchical system of land rights, developed on the basis of concrete needs and requirements and bolstered by suitable legislation,63 can assist the reformist programme of redistribution of land through the reinforcement of existing, weak land rights and the creation of secure and strong new rights that serve the actual needs of the landless, without being restricted to physical expropriation and redistribution processes, and without subscribing to or adapting to the expensive and often unsuitable traditional model of land rights. In the context of social participation benefits, this model suggests that a diverse and fragmented rather than a unified range of participation rights should be the aim; that weak or insecure rights could be supported ad hoc through legislative innovation; and that the architecture of the individual rights and benefits and of the system as a whole should be predicated on the needs and requirements of beneficiaries and not on the theoretical or statutory integrity of the system as such. Use of trends and ideas emerging from the land reform process is attractive on a different theoretical level too. As a process, land reform in South Africa is immediately necessary and therefore time-bound, but in another sense it is also something that could, in one form or another, drag on for ever or for a long time. This double character of being both temporary and permanent means that the land reform process remains unsettled, which in turn means that its impact on existing common law and on the development of a new constitutional law 62 See in this regard AJ Van der Walt ‘The Fragmentation of Land Rights’ (1992) 8 SAJHR 431–50; ‘Property Rights and Hierarchies of Power: An Evaluation of Land Reform Policy in South Africa’ (1999) Koers 259–94. 63 Including creative and innovative legislative exceptions and special arrangements to support the commercial value and security of title of the rights, eg with regard to deeds registration requirements.
Protecting Social Participation Rights Within The Property Paradigm 41 remains unsettling. As long as land reform thinking remains in place, with its contextual focus and pragmatic attitude, it remains difficult or impossible to construct a neatly closing overall legal aesthetic,64 and it remains necessary (and possible) to construe endless exceptions, qualifications and inconsistencies that are unexplained by the overall theoretical framework. For a legal theorist looking for closure within enclosed conceptual structures this unsettled condition of fragmentation and disarray is unsatisfactory, but for those who are free from theory guilt it is liberating,65 as it remains possible to keep on searching amongst the messy fragments of theory for different ways to explain the need for and the possibilities of assisting and protecting those who are still excluded from the benefits of state wealth.
64 As the term is used by Pierre Schlag ‘Rights in the Postmodern Condition’ in Sarat & Kearns (eds) Legal Rights: Historical and Philosophical Perspectives (1997) 263–304. 65 Joseph William Singer ‘Property and Coercion in Federal Indian Law: The Conflict Between Critical and Complacent Pragmatism’ (1990) S Cal LR 1821–41 explains the notions of theory guilt, complacent and critical pragmatism.
3
Fiducia in an Emerging Economy PIOTR STEC
on trust-like devices started almost a century ago with Pierre Lepaulle’s studies in this area.1 This research has so far been focused on the common law trust, and trust-like devices or fiducia in continental Europe.2 Virtually no attention has been given to fiduciary devices in the laws of post-socialist states. The purpose of this paper is to present, briefly, fiducia in Polish law. I will start with a short historical introduction, then I will try to present a classification and the most common applications of fiduciary devices in contemporary business practice. Finally I shall deal with the contractual framework of fiduciary contracts and the protection of assets against a disloyal fiduciary and his creditors. Since the Polish law of fiducia has been at least partially influenced by German and Swiss laws, brief reference to these legal systems will be made where appropriate. Fiducia is not a ‘civil law trust’, although it may sometimes serve similar purposes.3 Moreover it is rooted rather in contract than in property law. I am therefore going to use Roman-based terminology while speaking about parties to a fiduciary contract, not the English one relating to trusts, simply to stress that fiducia is a separate creation of continental law.
C
ONTEMPORARY RESEARCH
HISTORY
Civil law lawyers usually try to trace roots of any legal institution back to Roman times. And in fact fiduciary devices did originate in that epoch. Romans knew three types of such institution: fiducia cum amico contracta, fiducia cum creditore and fideicomissum. The very word ‘fiducia’ comes from the Latin fides meaning faith or trust.4 1 P Lepaulle, Traité théorique et pratique des trusts en droit interne, en droit fiscal et en droit international (Paris, Rousseau & Co, 1932), passim. 2 Cf eg D Hayton, SCJJ Kortmann, HLE Verhagen (eds): Principles of European Trust Law (Kluwer Law International, The Hague, 1999), passim. 3 For a detailed account of differences between trust and fiducia cf JP Béraudo, Les trusts anglosaxons et le droit français (LGDJ, Paris, 1992) at 28–32. 4 W Wołodkiewicz, M Zabłocka, Prawo rzymskie. Instytucje (C H Beck, Warsaw 1996) at 171–72.
44 Piotr Stec Fiducia cum amico contracta was a simple agreement concluded between fiduciant (settlor) and fiduciarius (amicus—friend acting as a ‘trustee’). A fiduciant transferred his estate to the fiduciarius who was obliged to use it according to the terms of the agreement and subsequently to give it back to the fiduciant. Fiducia cum amico was used generally to ensure proper management of the property of a Roman citizen travelling abroad (willingly or not); it could also serve the purposes of a hire or loan. Another group of persons benefiting from this type of contract were insolvent debtors who could hide part of their estate from creditors.5 Finally, fiducia was applied in matrimonial law. Any woman who wanted to free herself from the unwanted tutorship of her relatives could marry fiduciae causa which allowed her to take control over her estate.6 The fiducia cum amico was later replaced by a set of other contracts like commodatum (gratuitous loan) and locatio or conductio rei (hire).7 Another type of fiducia—fiducia cum creditore (fiducia with the creditor)— was used to secure a loan. Its framework was relatively simple: the fiduciant. transferred ownership of chattels to the fiduciary on condition that he would transfer them back again when the debt was paid. This type of fiducia was replaced by other instruments of security such as the pignus (pledge) and hypotheka (mortgage).8 The fiduciary was the legal owner of the property entrusted to him. Initially the settlor had no remedies against the trustee, who was not even legally obliged to act according to the contract. Later Roman law gave some degree of protection to the settlor, who could also reacquire ownership of his estate by a peculiar form of usucapio called usureceptio fiduciae causa.9 The third trust-like device, briefly, was the fideicommissum. A testator in his will could oblige his heir to keep the estate intact and to leave it to his heirs. This testamentary condition was enforceable by law.10 Since fideicommissum is not permitted in Polish law it will not be discussed further here. Throughout the Middle Ages trust-like devices not influenced by the Roman fiducia were present in Germanic law. Some fiduciary devices existed also in Canon Law,11 and were distant precursors of modern succession law. The concept of fiducia reappeared in civilian legal systems in 19th century with the rediscovery of Roman law. At that time in German speaking countries Roman law was reintroduced as if it were a part of the national legal system and could be 5 J Kolańczyk, above n 5 at 365; W Wołodkiewicz, M Zabłocka, ibid at 56; H Coing, Die Treuhand kraft privaten Rechtsgeschäfts (CH Beck, Mnchen 1973) at 11–12. D Johnston, ‘Trusts and Trust-like Devices in Roman Law’ in R Helmholz, R Zimmermann, Itineria Fiduciae (Duncker & Humblot, Berlin 1999) 53–3. 6 W Wołodkiewicz, M Zabłocka, above n 4 at 110. 7 J Kolańczyk, above n 5 at 367; H Coing above n 5 at 12–13. 8 J Kolańczyk, above n 5 at 326–7; W Wołodkiewicz, M Zabłocka, above n 4 at 172. 9 Ibid at 148. 10 D Johnston, ‘Trusts and Trust-like Devices in Roman Law’ above n 5 at 45 et seq.; F Longchamps de Brier, Il fedecommesso universale nel dritto romano classico (Liber, Warsaw 1997), passim. 11 H Coing, above n 5 at 14–15.
Fiducia in an Emerging Economy 45 applied almost unchanged. The introduction of fiducia (‘Treuhand’ in German) was accompanied by a long-lasting discussion on its legality. It was submitted that fiduciary devices are either simulated and therefore ineffective legal acts or contra bonos mores.12 Eventually, fiduciary devices were recognised both by courts and by academic writers, although some countries, eg France still remain sceptical about applying fiducia in their legal systems.13 Fiducia ( powiernictwo in Polish) appeared in Poland in the late eighteenth century. The Polish fiducia of that time took the form of a fideicomissum.14 From the end of the eighteenth century to 1918 Polish territories were under German, Austrian and Russian administration. Fiduciary devices existed in the areas where German and Austrian civil codes were in force. Both forms of fiducia were recognized by Polish law in the inter-war era (1918–1939).15 In the Socialist times fiduciary devices were of lesser importance although the concept of fiducia prevailed. This type of transaction was used e.g. to ease restrictions on the purchase of agricultural property by individuals who according to the laws of that time had to be qualified farmers. Surprising as it may seem, some Polish academic writers scholars tried, unsuccessfully, to apply the concept of fiducia or even that of a common law trust to management of State property by State enterprises.16 After the fall of communism Poland faces a unique renaissance of this type of transaction, with fiducia being widely employed particularly as a form of security.
THE CONCEPT
The concept of fiducia in German, Swiss and Polish law seems to stem from the common Roman core, although there are some local variations.
Germany There are numerous classifications of fiducia in German legal writing. I am going to deal here briefly with the most widespread one. In Germany four types 12
Ibid at 28 et seq. Cf Ph Rémy, ‘National Report for France’ in D Hayton, SCJJ Kortmann, HLE Verhagen (eds)above n 2 at 131. 14 F Longchamps de Bérier, ‘Podstawienie powiernicze’ [1999] Kwartalnik Prawa Prywatnego 2 at 333–4. 15 J Gołaczyński, Przewłaszczenie na zabezpieczenie (Wydawnictwo Stowarzyszenia Notariuszy RP, Kluczbork 1998) at 37. 16 A Kędzierska—Cieślak, ‘Powiernictwo (próba określenia konstrukcji prawnej)’ [1977] Państwo i Prawo 7–8 at 44; T Dybowski, ‘Zasada jedności władzy państwowej a stosunek powiernictwa’ [1984] Państwo i Prawo 10 at 17. 13
46 Piotr Stec of Treuhand are recognised: Treuhand in Rechtssinne (Treuhand in the strict sense), Deutchrechtliches Treuhand (Germanic Treuhand), Wirtschaftliches Treuhand (economic Treuhand) and Offentliches Treuhand (public law Treuhand). The first of these—Treuhand in its strict meaning—is a ‘classical’ variation of the Roman fiducia requiring transfer of ownership from a fiduciant (Treugeber) to a fiduciary (Treuhaender). It can be used either as an instrument of property management or to secure a loan. The Germanic Treuhand was created as an alternative to the first type, and is based not on Roman law but on the Germanic law of Saalmann. This type of fiducia requires the transfer of ownership from the fiduciant to the fiduciary. The transfer is made on condition that the property will return to its former owner under specified circumstances. This concept has rather limited application in contemporary German law. Under the name of economic Treuhand some German authors understand contractual relationships where a fiduciary who is not an owner of the estate has powers to use it as if he were. This can be achieved, for example, by granting the fiduciary an irrevocable power of attorney.17 This variation of Treuhand is not strictly speaking fiducia, although from an economic point of view the two are indistinguishable. Finally the notion of a public law Treuhand relates to various fiduciary institutions created by statute.18
Switzerland In Switzerland three types of fiducia are recognized: a) The Fiducie-liberalité denotes certain institutions serving purposes similar to those of the common law trust (eg for the executor of a will, or the administrator of an insolvent estate). b) The Fiducie-gestion is simply the fiduciary management of assets, the counterpart of a fiducia cum amico. The fiduciary acquires full ownership of the estate, but is contractually bound to act according to fiduciant’s instructions. c) Finally, the Fiducie-sureté is a variation of fiducia cum creditore. It is of limited use since Swiss law generally makes its application impracticable in the case of movables and real property.19
17 H Coing, above n 5 at 90; G Walter Das Unmittelbarkeitsprinzip bei der fiduziarischen Treuhand (JCB Mohr (Paul Siebeck), Tübingen 1974) at 12 et seq. 18 H Coing, above n 5 at 26 et seq. 19 Cf L Thevenoz, ‘La fiducie cendrillon du droit suisse’ [1995] Revue de droit suisse 3 at 284–310.
Fiducia in an Emerging Economy 47 Poland Amongst many definitions of fiducia in Polish law the most comprehensive one seems to be the one proposed by Z Radwa ński. In his opinion the fiduciary legal act (czynność prawna powiernicza) is composed of two elements. The first one is that the fiduciant (powierzający) transfers some rights to a fiduciary (powiernik). The second one relates to the powers of the fiduciary, who in relationships with third parties acts as an absolute master of the acquired rights. He is however contractually bound to exercise these rights within the limits set out by the fiduciant.20 Polish authors usually recognize three types of fiducia fulfilling more or less the above definition: powiernictwo (fiducia) stricto sensu, powiernictwo largo sensu and powiernictwo ex lege. In the classical form the fiduciant transfers the ownership of assets to a fiduciary. This can take a form of fiducia cum amico or cum creditore. In each case the fiduciary is a legal owner of the estate. His duty is to act according to the contract.21 Sometimes another construct, the fiducia sensu largo, is recognized. This type of fiducia is often called authority-based (powiernictwo z upoważnienia). Contemporary legal writing tends to treat as fiduciary relationships those where one person (the fiduciary) acts on behalf of another (the fiduciant) but without revealing the identity or even the existence of the fiduciant.22 This is even wider than the German economic Treuhand. Again, as in its German counterpart there is no transfer of ownership, so this construction can be classed as fiducia only from an economic point of view. Finally Polish law recognises two cases where a fiduciary relationship arises by virtue of a statute. The Law on the Agency of Agricultural Property of the State23 and the Law on the Agency of Army Property24 provide that both agencies being separate legal persons are empowered to manage and to sell agricultural and army property. Their powers are virtually identical with that of a legal owner. The legal status of these bodies is rather difficult to assess. It is usually considered to be either a fiducia in its pure form25 or fiducia largo sensu.26 It has 20 Z Radwański, Prawo cywilne-część ogólna (C H Beck, Warsaw 1997) at 195. For a detailed account of other definitions see M Pazdan, ‘Przelew wierzytelności na zabezpieczenie’ [2002] Kwartalnik Prawa Prywatnego 1 at 116–17. 21 G Tracz, F Zoll, ‘Przydatność pojęcia powiernictwa dla prawa prywatnego’ [1998] Przegląd Prawa Handlowego 4 at 24. 22 Ibid at 24; J. Trzebiński, ‘Czynności powiernicze’, [1997] Przegląd Prawa Handlowego 2 at 27. 23 [1995] Journal of Laws of the Republic of Poland 57 entry 299 with amendments 24 [1990] Journal of Laws of the Republic of Poland 90 entry 405 with amendments. 25 J Szachułowicz, Własność publiczna (Wydawnictwo Prawnicze, Warsaw 2000) at 153. 26 A Bieranowski, ‘Polemika na temat statusu prawnego Agencji Własnośći Rolnej Skarbu Państwa’ in R Sztychmiller (ed.), Nauki prawne wobec przemian (Wydawnictwo UW-M, Olsztyn 2000) at 54.
48 Piotr Stec even been suggested by one author that this is the only type of fiducia recognized by Polish law,27 but this idea is not commonly approved.
SELECTED APPLICATIONS OF FIDUCIA IN POLISH LAW
Let me now deal briefly with selected commercial applications of fiducia. In company law fiducia sometimes takes the form of shareholder pools. Minority shareholders transfer their shares or stocks to a fiduciary who is bound to exercise shareholder rights vested in him according to the fiduciantshareholders’ instructions.28 Another field of application is investment companies (Kapitalanlagegesselschaften, fundusze powiernicze). The fiduciary character of such companies is stressed particularly in German law.29 The Polish Law on Public Trading of Securities and Investment Funds of 199130 contained provisions comparable with that of German law, but the better view is that the assets of investment companies were simply co-owned by investors.31 Currently the Investment Funds Act of 199732 provides that investment funds are legal persons and investors are provided with certificates of participation in an investment company (sui generis bonds). The fiducia can also be applied as a tool of enterprise management. The owner of an enterprise transfers its assets to a fiduciary who manages it in his own name but in the interest of the owner.33 It can take form of a fiducia cum amico requiring transfer of ownership on the fiduciary. Alternatively it may be construed as powiernictwo sense largo or Wirtschaftstreuhand. The most important field of application of fiduciary devices in banking and financial law is the modern fiducia cum creditore. The general framework for the fiducia cum creditore does not differ significantly from its Roman predecessor. The fiduciant transfers ownership of moveables or—although it is highly disputable—immovables to a fiduciary (usually a bank). In the case of chattels the transfer can be made on condition that ownership will automatically return to the fiduciant upon repayment of a debt. Alternatively the contract may be construed as unconditional. In such case the ownership will not return automatically to the fiduciant. When he pays a debt, the fiduciary will be contractu27
J Szachułowicz, above n 25 at 152. R Rykowski, ‘Powiernicze przeniesienie udziału w spółce z o.o.’, [1997] Przegl ąd Prawa Handlowego 6 at 10. 29 H Kötz, ‘National Report for Germany’, in D Hayton, SCJJ Kortmann, HLE Verhagen (eds) above n 2 at 91–2. 30 [1994] Journal of Laws of the Republic of Poland 121 entry 591 with amendments. 31 A Chłopecki, ‘Współwłasność czy powiernictwo?’ [1993] Przegląd Podatkowy 3 at 21; for a contrary view see M Michalski, L Sobolewski, Prawo o funduszach inwestycyjnych. Komentarz (CH Beck, Warsaw 1999) at 64–5. 32 [1997] Journal of Laws of the Republic of Poland 139 entry 933. 33 A Kidyba, Prawo handlowe (CH Beck, Warsaw 2002) at 118 28
Fiducia in an Emerging Economy 49 ally bound to re-transfer ownership to a fiduciant. This will require a separate legal act of a fiduciary. This version of fiducia cum creditore is more popular. This type of fiducia is widely applied in Poland, and is recognized in Germany, while Swiss law limits its application to the extent which makes it use relatively impracticable. The fiduciary transfer of ownership for securing credit has found at least partial recognition in the Polish Banking Law of 1997.34 Article 101 of the Banking Law provides that a bank may enter into a fiduciary contract with its client. The creditor can transfer ownership of chattels or securities to secure his debt. The chattels remain the property of the bank until the debts have been repaid. If the contract concerns things capable of mutual substitution or a collection of things with a variable inventory the debtor has to separate them from his personal assets. These provisions are generally believed to be a lex imperfecta simply confirming that banks can conclude such contracts.35 They do not constitute a new form of contract, so its actual shape reflects solely the will of the parties. Undoubtedly this form of security has its advantages. It is cheap and requires virtually no formalities. This makes it more effective than a registered pledge or mortgage. In commercial relationships it has advantages over a simple pledge since the chattels can remain in the fiduciant’s possession. The contract can be construed so as to meet the needs of the parties. Moreover the creditor’s rights have priority over those of other creditors.36 There are however some risks involved since the fiduciary takes full ownership of the property and can dispose of it at will.37 I would like to deal briefly with some other commercial applications of the fiducia. Let us begin with a fiduciary purchase of real property. This type of fiduciary transaction was developed in Poland in the 1970s. The fiduciary, acting upon the instructions of a fiduciant, buys real property from a third party. He is then obliged to transfer ownership of this property to the fiduciant. The fiduciary purchase of immovables is usually used to conceal identity of the real buyer.38 Another important field of application of Fiducia is the management of author’s rights. Continental laws often contain provisions on the collective management of author’s rights by independent bodies. This can be either
34
[1997] Journal of laws of the Republic of Poland 140 entry 939. G Tracz F Zoll, ‘Przewłaszczenie na zabezpieczenie rzeczy ruchomych po wejściu w życie ustawy o zastawie rejestrowym i rejestrze zastawów oraz nowego prawa bankowego’ [1996] Przegląd Prawa Handlowego 1 at 14–15; J Gołaczyński Przewłaszczenie na zabezpieczenie (Wydawnictwo Stowarzyszenia Notariuszy RP, Kluczbork 1998) at 45. 36 J Gołaczyński ibid at 278–79; A Szpunar, ‘O powierniczych czynnoœciach prawnych’ [1993] Rejent 11 at 25–26. 37 J Gołaczyński at 280–1. 38 A Szpunar, above n 36 at 24–5. 35
50 Piotr Stec obligatory (Germany)39 or optional (Switzerland,40 Poland).41 German and Swiss collective management societies acquire the full ownership of the author’s rights, while in Poland they act simply as representatives (agents) for the author. Swiss and German societies act then as fiduciaries while their Polish counterparts generally do not, although it would be possible to construe this relationship as fiduciary one.42 Fiduciary transactions can also be used to create fiduciary bank accounts. Sometimes a trusted person—usually a notary or an attorney—receives money from a fiduciant. The fiduciary opens a bank account in his own name and holds the entrusted money.43 Some authors suggest that it is possible to use fiduciary contracts to manage insolvent estates. The insolvent debtor transfers his assets to a fiduciary who is obliged to manage them and pay the fiduciant’s debts. This option is used if the parties decide not to initiate insolvency proceedings.44 Finally, it has been submitted by some Polish authors that a building contractor may also act as a fiduciary for his clients. This may take a form of a fiducia largo sensu with the contractor acting in his own name for the benefit of the fiduciant. His duty will be to conclude contracts with architects, suppliers, construction workers etc. The fiduciary, not the fiduciant, is a party to such contracts and it is he who can sue or be sued.45 This type of contract has become quite popular with construction companies, which are often advertising as rendering ‘fiduciary services’.46
THE CONTRACTUAL FRAMEWORK
Let us deal now with the contractual framework of fiduciary legal acts. Legality Generally, the legality of fiduciary transactions as such is not questioned in contemporary legal writing. Courts and legal scholars however treat with some
39
H Coing, above n 5 at 83–4. L Thevenoz, ‘La fiducie cendrillon du droit suisse’ [1995] Revue de droit suisse 3 at 292. 41 M Czajkowska—Dąbrowska, in J Barta, R Markiewicz (eds) Komentarz do ustawy o prawie autorskim i prawach pokrewnych (ABC, Warsaw 1995) at 450. 42 H Coing, above n 5 at 83–4; L Thevenoz, above n 19 at 292. 43 H Kötz, ‘National Report for Germany’, in D Hayton, SCJJ Kortmann, HLE Verhagen (eds) above n 2 at 92; H Coing, above n 5 at 60; Article 108 of the Polish Notaries Act of 1991, [1991] Journal of Laws of the Republic of Poland, 22, entry 91, contains provisions on such accounts opened by notaries on behalf of their clients; Cf J Florkowski, B Tymecki, Prawo o notariacie z komentarzem (Wydawnictwo Prawnicze, Warsaw 1993) at 99. 44 H Coing, above n 5 at 82. 45 JA Strzepka, ‘Umowy powiernicze w procesie budowlanym’ [2001] Prawo Spó łek 4 at 34–5. 46 An internet search for Polish websites containing the word ‘powiernictwo’ produced a list containing only websites of construction companies. 40
Fiducia in an Emerging Economy 51 degree of suspicion fiduciary transactions concerning real property.47 Initially Polish courts regarded the fiduciary transfer of immovables as invalid.48 At present the contrary view seems to be gaining popularity. In one of its recent judgments the Supreme Court of the Republic of Poland held that the fiduciary transfer of real property for the purpose of security is valid.49 Undoubtedly, though, a fiduciary contract concluded to circumvent existing laws will be held invalid,50 for example, when a Polish citizen buys land and then holds it as a fiduciary for a foreigner who did not obtain a government licence for the acquisition of real property. Fiducia cum amico In the case of fiduciary management (fiducia cum amico), the rights and duties of parties to the contract are generally governed by the rules of a contract of mandate, or agency.51 The fiduciary has to act according to the agreement. He is bound to act with loyalty towards the fiduciant and (eventually) a beneficiary.52 This agreement may be concluded for the benefit of the fiduciant who himself does not want to manage his property. It is also possible to construe it for the benefit of a third party. The contract can than take form of a pactum in favore tertii. This is a contractual clause obliging the debtor to render performance to a person who is not a party to a contract. The beneficiary may, if he declares himself willing to benefit from the contract, sue the debtor for performance.53 In Polish contractual practice this version of fiducia cum amico is relatively rare. Usually the fiduciant himself benefits from the contract. Fiducia cum creditore In the case of fiduciary transfer of ownership, a special innominate contract (contractus innominatus) is concluded.54 Generally in Polish law when a sale or other contract for the transfer of ownership is concluded, the title passes 47 For a summary of opinions on admissibility of fiduciary transfer of real property cf G Tracz F Zoll, Przewłaszczenie na zabezpieczenie (Zakamycze, Kraków 1996) at 63 et seq. 48 Judgment of the Supreme Court of 3 February 1960, OSPiKA 1961 entry 75; Judgment of the Supreme Court of 24 April 1964 OSPiKA 1965 entry 229. 49 Judgment of the Supreme Court of 29 May 2000, OSN 11 entry 213. 50 A Szpunar, ‘O powierniczych czynnościach prawnych’ [1993] Rejent 11 at 26. 51 S Włodyka, ‘Umowy dotyczące przedsiębiorstwa’, in S W łodyka (ed) Prawo umów w obrocie gospodarczym (IPSiIZ, Kraków 1995) at 100; A Szpunar, ‘O powierniczych czynnościach prawnych [1993] Rejent 11 at 24; R Rykowski, ‘Powiernicze przeniesienie udziału w spółce z o.o.’ [1997] Przegląd Prawa Handlowego 6 at 20. 52 R Rykowski, ‘Powiernicze przeniesienie udziału w spółce z o.o.’ [1997] Przegląd Prawa Handlowego 6 at 20. 53 Article 393 of the Polish Civil Code [1964] Journal of Laws of the Republic of Poland 16 entry 93 with numerous amendments. 54 J Gołaczyński, Przewłaszczenie na zabezpieczenie (Wydawnictwo Stowarzyszenia Notariuszy RP, Kluczbork 1998) at 139 et seq.
52 Piotr Stec automatically. However if the contract involves the sale of chattels in genus (eg. one tonne of flour) possession has also to be transferred. So in fact in this case two agreements have to be concluded—a contract for the transfer of the property and an obligational one.55 Another essential element of the modern fiducia cum creditore is that contrary to the simple pledge the fiduciant can use the objects owned by the creditor. The rights and duties of the parties are then comparable of those of the parties of the commodatum or a gratuitous loan.56 The contract should also include provisions relating to the rights of the fiduciary in the case when the fiduciant–debtor fails to pay the debt. It is possible to grant to the fiduciary the right to sell or rent the entrusted property in order to cover the debts. Alternatively the fiduciary may simply remain its owner. Unless otherwise stated in the contract the fiduciary can choose what to do with the property.57
PROTECTION OF ASSETS
While it is relatively easy to construe a fiduciary contract and to identify the rights and duties of the parties, another problem arises—how to protect the assets against the disloyal fiduciary and his creditors.
Against the fiduciary Problems may arise if a fiduciary acting contrary to a pactum fiduciae transfers the ownership of fiduciary property to a third party. One may ask if a fiduciant has any remedies against a disloyal party? The fiduciary is in breach of contract, so the fiduciant has a claim for compensation.58 Furthermore, as has been stressed by a Swiss court hearing a case of this kind, the rules of agency state that the agent has to give up all he has gained while acting for the benefit of the fiduciary. This would include gains from any sale of fiduciary property.59 The same would apply in Polish law, since similar provisions can be found in the Polish Civil Code,60 although authorities on the subject are relatively old.61 It should however be noted that this rule does not apply to the fiduciary transfer of ownership to secure a loan. Here the claim 55 S Rudnicki, Komentarz do kodeksu cywilnego. Księga druga—w łasność i inne prawa rzeczowe (Wydawnictwo Prawnicze, Warsaw 1996) at 95. 56 J Gołaczyński, Przewłaszczenie na zabezpieczenie (Wydawnictwo Stowarzyszenia Notariuszy RP, Kluczbork 1998) at 169. 57 Ibid at 241 et seq. 58 Z Radwański, Prawo cywilne-część ogólna (CH Beck, Warsaw 1997) at 196. 59 A E von Overbeck, ‘National Report for Switzerland’, in D Hayton, SCJJ Kortmann, HLE Verhagen (eds)above n 2 at 111. 60 Article 740 of the Civil Code. 61 Eg Judgment of the Supreme Court of 28 December 1976, OSNCP 1977 entry 121.
Fiducia in an Emerging Economy 53 could be based simply on the grounds of breach of contract. It would also be possible to base it solely on delictual grounds. This does not lead to a full protection of the fiduciant’s rights since he would usually be more interested in getting his property back then in obtaining compensation. Rules on acquisition a non domino will generally not find application in such cases. These rules apply if a person acquires property from someone who is not an owner. Generally if purchaser acts in good faith such acquisition will be valid.62 It should be noted that the fiduciary is a legal owner of a fiduciary estate so he can alienate it. Therefore the transfer of such property will usually be valid even if the purchaser acts in bad faith. Polish law provides at least a partial solution to this problem. Article 59 of the Polish Civil Code provides that any legal act which may infringe the rights of another person may be held by a court to be ineffective in respect of that person. This can be applied eg in the case of a sale of entrusted property by a fiduciary, but this rule can only be used if the buyer knew that the fiduciary was contractually bound not to sell.63 Furthermore Article 17 of the Land Registers and Mortgages Act64 gives an even more effective tool of protection of real property held by a fiduciary. A notice revealing the existence of a fiduciary agreement concerning real property can be entered into the land register, making it public.65 In effect the fiduciant will have a claim against anyone who becomes an owner of such property.
Against personal creditors of the fiduciary Although fiduciary assets do not form a patrimony separated from the personal assets of a fiduciary, it would sometimes be possible to protect these assets from the personal creditors of a fiduciary. It has been suggested in Polish legal writing that in the case of transfer of ownership as a security for a debt the fiduciant has an expectancy that the property will be returned to him.66 Polish courts recognise a right of a future enjoyment of property as a personal right. This right allows the fiduciant to apply for the exclusion of the fiduciary assets from the enforcement levied against the fiduciary.67 The assets will probably not be protected if the contract does not oblige the fiduciary to retransfer ownership upon its termination. 62 H Kötz, ‘National Report for Germany’, in D Hayton, SCJJ Kortmann, HLE Verhagen (eds)above n 2 at 96; the position of Polish law on this subject will be identical. 63 Z Radwański, Prawo cywilne-część ogólna (CH Beck, Warsaw 1997) at 289 in relation to fiduciary transfer of ownershipas security. 64 [1982] Journal of Laws of the Republic of Poland 19 entry 147 with amendments. 65 S Rudnicki, Komentarz do ustawy o ksiêgach wieczystych i hipotece (Wydawnictwo Prawnicze, Warsaw 1996) at 66. 66 J Gołaczyński, Przewłaszczenie na zabezpieczenie (Wydawnictwo Stowarzyszenia Notariuszy RP, Kluczbork 1998) at 262–3. 67 Ibid at 264.
54 Piotr Stec Insolvency of a fiduciary A fiduciant may sometimes claim for the return of property held by the fiduciary. The level of protection differs from country to country. The Swiss Banking Law of 1997 allows it in the case of bankruptcy of a bank. The fiduciant may also withdraw value received by a fiduciary acting on his behalf, but cannot retrieve assets given by him to a fiduciary.68 Withdrawal of assets is also admissible in German law upon the condition that the property passed directly from hands of the fiduciant to the fiduciary.69 In Polish legal writing it has been suggested that since the fiduciary has only a formal right to the property, the fiduciant has a right to claim for the exclusion of such property from the bankrupt’s estate.70 Another view is that in the case of a fiduciary transfer of ownership for the purpose of security the administrator of the insolvent estate should simply perform according to the terms of the contract and subsequently transfer property back to the fiduciant.71
Against creditors of a fiduciant The problem of protecting fiduciary assets against the personal creditors of the fiduciant does not arouse much interest in legal writing. Generally authors discussing this problem state that since the fiduciary is the legal owner of the property, the creditors of the fiduciant cannot seize it.72 That does not lead, of course, to full protection of the assets. Article 895 et seq. of the Polish Code of the Civil Procedure73 allows the creditor to seize the personal rights of the debtor. This could include the rights of a fiduciant. Therefore if the fiduciary is obliged to perform for the fiduciant or a third party (beneficiary), their creditor may seize the assets the fiduciant is entitled to. The procedure in such cases is relatively simple: the court enforcement officer informs the fiduciant that he can not profit from performance and orders the fiduciary to render performance to the court deposit or to the court enforcement officer.74
68 AE von Overbeck, ‘National Report for Switzerland’, in D Hayton, SCJJ Kortmann, HLE Verhagen (eds)above n 2 at 113. 69 H Kötz, ‘National Report for Germany’, in D Hayton, SCJJ Kortmann, HLE Verhagen (eds)above n 2 at 94. 70 M Allerhand, Prawo Upadłościowe. Komentarz (Elinex, Waarsaw 1991) [reprint of the 1939 edition] at 81. 71 J Gołaczyński, Przewłaszczenie na zabezpieczenie (Wydawnictwo Stowarzyszenia Notariuszy RP, Kluczbork 1998) at 259–60. 72 Ibid at 267; H Coing, above n 5 at 180. 73 [1964] Journal of Laws of the Republic of Poland 43 entry 296 with amendments. 74 See also Z Świeboda, Postępowanie zabezpieczające i egzekucyjne (Wydawnictwo Prawnicze, Warsaw 1994) at 192–3.
Fiducia in an Emerging Economy 55
CONCLUSIONS
There is a common Roman core of fiduciary devices present in Polish, German and Swiss law. The scope of the application of fiducia in these countries differs. In Germany and Switzerland it seems to raise interest mainly as a tool of property management while in Poland it is used mostly as a special form of collateral. The protection of fiduciary assets is usually limited to the case of insolvency of a fiduciary. Polish law however gives a limited level of protection in the event of an unauthorised sale of the entrusted property. So far, fiducia remains the creation of contractual practice which allows it to develop rapidly, free of statutory limitations. In Poland fiduciary contracts are the creation of business practice rather than a practical application of a theoretical concept. Their development is backed by the opinions of legal scholars and judgments of the Supreme Court. So far there have been no serious proposals aimed at statutory regulation of fiducia in Poland. This lack of legislative interest in fiducia is commendable since this concept is still developing and any attempt to regulate it could tame this process. It has become almost a custom to refer to fairy tales while describing fiduciary devices in civilian legal systems. A French author compared it to a Sleeping Beauty,75 a Swiss one to Cinderella.76 I hope I will be forgiven if I conclude with a reference to another fairy tale. Contemporary fiducia is an ugly duckling of the civil law. And currently we are at this stage of the story when one cannot tell whether it will stay ugly or transform into a beautiful swan.
75 C Champaud, ‘La fiducie ou l’histoire d’une belle juridique au bois dormant du droit français’ [1991] RAI/IBLJ 5 at 689. 76 Cf L Thevenoz, above n 19 at 257.
4
The Autonomous Meaning of ‘Possessions’ under the European Convention on Human Rights TOM ALLEN
INTRODUCTION
One of the more interesting developments in the jurisprudence of the European Court of Human Rights is the ‘autonomous meaning’ doctrine. Many of the terms which define Convention rights have a specific meaning in national legal systems. Since the meaning of terms used to define Convention rights may vary from one national system to another, it has been necessary for the European Court to decide whether its interpretation of these terms should be governed solely by the relevant national law or whether it should develop and apply an autonomous meaning for these terms. This paper therefore attempts to shed some light on the purpose and use of the autonomous meaning doctrine in relation to the right to property in Article 1 of the First Protocol (‘P1–1’) and, in particular, on the interpretation of ‘possessions’. Although the Court first advanced the ‘autonomous meaning’ doctrine over thirty years ago, it did not apply the doctrine to P1–1 until 1995. Since ‘possessions’ defines the interest protected by P1–1, it is plainly important to know what the Court thinks ‘possessions’ are. The Court has said that it interprets the Convention purposively and that the autonomous meaning doctrine is necessary to make the Convention effective. However, this does not take us very far, as the Court has not attempted to say what the purpose of P1–1 is, or why the Convention would be ineffective if national law determined the meaning of ‘possessions’. It will show that, in the majority of the cases, the Court has used the doctrine as a means of ensuring a reasonable level of stability in relation to claims over resources. As such, P1–1 is a very conservative element in the protection of human rights. This is not surprising: the inclusion of the right to property in the Protocol was hardly a call for a radical restructuring of the capitalist systems of the member States.
58 Tom Allen
ARTICLE 1 OF THE FIRST PROTOCOL
Article 1 of the First Protocol states that: Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.
The wording of P1–1 raises two points. The first concerns the limitations on the right to property. The travaux préparatoires show that the second sentence was intended to describe the conditions on which the State could expropriate property, and that the third sentence was intended to preserve the State’s power to regulate and seize property in satisfaction of debts owing to it.1 Subsequently, the Court recognised that treating the second and third sentences as a complete statement of the limitations on the right to property might impose excessive restrictions on a State’s power to regulate private property. To some extent, it avoided this by reading the second and third sentences quite broadly. For example, it has held that the second sentence covers both de jure and de facto expropriations of property2 and that the third sentence covers both the imposition and enforcement of tax laws.3 It has also given the first sentence an important role, by describing it as an overarching provision.4 The effect is that any interference with possessions which does not come within the second or third sentences is therefore subject to the general limitations of the first sentence. While the first sentence does not contain express limitations, the Court has stated that it reflects the principle that there must be a ‘fair balance’ between ‘the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights’.5 This applies to all forms of interference, including those covered by the second and third sentences. One of the implications of this approach is that the shift from ‘possessions’ in its first and second sentences to ‘property’ in the third sentence is not particularly important. Since the rule expressed in the first sentence encompasses the other two sentences, it is the interpretation of ‘possessions’ which determines the scope of P1–1. In addition, the emphasis on the ‘fair balance’ principle means that taking a broad 1 See, for example, Commentary by the Secretariat-General on the Draft Protocol, Doc AS/JA (3) 13; A. 5904 (Sept. 18, 1951) reprinted in the Council of Europe, Collected edition of the travaux préparatoires of the European Convention on Human Rights (Nijhoff/Kluwer, 1975), vol 8, p 4. 2 Sporrong and Lönnroth v Sweden Series A No 52 (1982), §61. 3 See: Darby v Sweden Series A No 187, (1991) 13 EHRR 774, Špaček, s.r.o. v The Czech Republic (2000) 30 EHRR 1010, Hentrich v France Series A No 296–A, (1995) 18 EHRR 440. 4 Sporrong and Lönnroth, above, §61. 5 Ibid, §69.
The Autonomous Meaning of ‘Possessions’ under the ECHR 59 interpretation of ‘possessions’ does not necessarily restrict State power more than a narrow interpretation. It merely makes it possible to measure a greater number of State actions against the requirements of the fair balance. The second point concerns the use of the term ‘possessions’. Although it may appear narrower than ‘property’, ‘rights in property’ or the other expressions used in the constitutional rights to property of common law countries,6 P1–1 uses ‘possessions’ as the general term for all types of proprietary interests. In addition, the references to the ‘enjoyment of possessions’ in the first sentence and the ‘use of property’ in the third sentence are not particularly important, as the Court has held that the Protocol applies to other property rights, such as the rights to acquire and dispose of property.7 In any case, the Court has been left with the task of describing what possessions are. In most cases, it has been content to accept the position under the relevant national law; that is, if national law classifies an interest as a property interest, the Court has acceped that classification at face value. In some cases, however, there has been a dispute between the applicant and his or her government over the existence of possessions under national law. Where this occurs, the ‘autonomous meaning’ doctrine has sometimes been invoked.
THE IDEA OF AN AUTONOMOUS MEANING
The idea of an ‘autonomous’ or Convention meaning first arose in relation to the Article 6–1 right to a fair trial in respect of criminal charges and civil rights and obligations. In several cases decided in 1968, the Court stated that the meaning of ‘criminal charge’ in Article 6–1 was not determined solely by the national law of the State, but should be interpreted ‘within the meaning of the Convention’.8 In Ringeisen v Austria (1971), the Court extended the doctrine to the interpretation of ‘civil rights and obligations’.9 It was not until 1995, however, that the Court applied the doctrine to the interpretation of ‘possessions’. In Gasus Dosier-Und Fördertechnik GmbH v Netherlands,10 the applicant 6 See T Allen, The Right to Property in Commonwealth Constitutions (Cambridge CUP, 2000), ch 5; see also the comments of Mr Roberts, a UK member of the Consultative Assembly of the Council of Europe, on proposed drafts of P1–1: ‘The word “possessions”, used in the English text, is not a really satisfactory word. . . . It is a word that would not be found in a British Act of Parliament or any other legal document’ (Council of Europe, Collected Edition of the travaux préparatoires of the European Convention on Human Rights (Nijhoff/Kluwer, 1975), vol 6, p 88). 7 See Inze v Austria Series A No 126, (1988) 10 EHRR 394 and Marckx v. Belgium Series A No 31, (1979) 2 EHRR 330, §63. 8 See Neumeister, Series A no 8 (1968), (1979–80) 1 EHRR 91, §18 as compared with the second sub-paragraph on p 28 and the first sub-paragraph on p. 35; see also Wemhoff v Germany Series A No 7, (1979–80) 1 EHRR 55, pp 26–7, para 19; Ringeisen v Austria (No.1) Series A No 13 (1971), (1979–80) 1 EHRR 455 p 45 para 110; Engel v Netherlands (No1) Series A No 22, (1979–80) 1 EHRR 647, §81. 9 Series A No 13, 1 EHRR 455. 10 Series A No 306–B, (1995) 20 EHRR 403. Although Gasus is the first case to refer explicitly to the autonomous meaning doctrine in relation to ‘possessions’, in James v UK Series A No 98, (1986)
60 Tom Allen claimed that the Dutch tax authorities had infringed P1–1 by seizing goods belonging to him. He had delivered the goods to a Dutch buyer under a contract which provided that property would not pass until payment. Before the buyer made the payment, the tax authorities seized the goods to satisfy the buyer’s tax debts. The applicant argued that the seizure amounted to a deprivation of his possessions that did not comply with the conditions of the second sentence of P1–1.11 The autonomous meaning doctrine arose; both the applicant and the Dutch government seem to have assumed that it was essential to determine whether the retention of title did give the applicant the ownership of the goods. In fact, the Court concluded that the third sentence of P1–1 applied, and that ‘possessions’ includes interests short of ownership. In any case, the Government argued that the retention of title clause only gave the applicant a ‘security right in rem’ rather than ‘true’ ownership under Dutch law, as only the purchaser held ‘true’ or ‘economic’ ownership; hence, it claimed that there had been no interference with ‘possessions’.12 The majority in the Commission acknowledged that the domestic laws of different countries may classify the interest held by the seller under a retention of title differently; however, it also stated that ‘[n]ormally, both the seller and the buyer will in such cases be holders of a limited property right which is protected under Article 1 of Protocol No 1’. It is not clear whether this point was in fact disputed by either party; the real issue seems to have been whether these facts amounted to a ‘deprivation of possessions’ under the second sentence. On this point, the Commission stated that the second sentence did apply with almost no discussion. The Court also rejected the Government’s argument, but it raised the idea of the autonomous meaning. It stated that ‘possessions’ has an autonomous meaning which is certainly not limited to ownership of physical goods: certain other rights and interests constituting assets can also be regarded as ‘property rights’, and thus as ‘possessions’, for the purposes of this provision P1–1.13
It was therefore not conclusive that the rights held under the retention of title clause would not be classified as an ownership interest under Dutch law.14 In Gasus, the autonomous meaning doctrine had a narrow role to play, as the Dutch Government accepted that the retention of title clause did give the 8 EHRR 123, §42, the Court stated that the phrase ‘in the public interest’ in the second sentence of P1–1 as a concept with autonomous meaning, and in Tre Traktörer Aktiebolag v Sweden Series A No 159 (1989), (1991) 13 EHRR 309, §53, the Court concluded that a licence to sell alcohol was a P1–1 possession, although it appears that it would not have been classified as a property interest under national (Swedish) law. 11 The applicant might have argued that the seizure fell under the first or third sentences, but in practice it is more difficult to establish that the compensation should have been paid for the types of interference covered by the first and third sentences. In fact, the Court found that the third sentence applied to this case, and concluded that no compensation was necessary to satisfy P1–1. 12 Series A No 306–B (1995), §52. 13 Ibid, §53. 14 The Court held that, although there was an interference with the applicant’s possessions, the interference did not infringe the ‘fair balance’ principle: see ibid, §§60–74.
The Autonomous Meaning of ‘Possessions’ under the ECHR 61 applicant a kind of limited property over the goods. There was no dispute as to the existence of the rights or their character as proprietary rights. Hence, while Gasus shows that the Court believes that the autonomous meaning doctrine is necessary to make the Convention effective, it does not tell us why the Court believes the Convention would not be effective without the doctrine. In the Article 6 cases, the Court has been concerned that a State might limit its Convention obligations by exploiting the differences in the legal systems of the member States. In particular, the Court would not allow States to avoid their Article 6 obligations by claiming that a criminal process is only an administrative or regulatory process. In König, the Court stated that ‘civil rights’ should be given an autonomous meaning because ‘any other solution might lead to results incompatible with the object and purpose of the Convention’15 and in the Öztürk case, the Court stated that, in relation to ‘criminal charges’, if the Contracting States were able at their discretion, by classifying an offence as ‘regulatory’ instead of criminal, to exclude the operation of the fundamental clauses of Articles 6 and 7, the application of these provisions would be subordinated to their sovereign will. A latitude extending thus far might lead to results incompatible with the object and purpose of the Convention.16
This leads to the question: how does the Court determine the scope of ‘the operation of the fundamental clauses of Articles 6 and 7’ (and, for that matter, P1–1)? On this point, the Court has said that the meaning of ‘criminal charge’ under Article 6 should reflect the common standards of the Contracting States. Accordingly, it does not rely solely on an abstract conception of criminality or the criminal process to define ‘criminal charge’, but acts partly on its observations of the practice of other Contracting States.17 The Court does not pass judgement on the justifiability of the common practice, in the sense that it does not state whether certain kinds of conduct should or should not be decriminalised, but merely observes whether the processes by which States deal with the case resemble the criminal process. As such, ‘criminal charge’ reflects a common, minimum standard. This is consistent with one of the original purposes of the European Convention: to safeguard the minimum standards of the European States, rather than to raise the standards of all States.18 With P1–1, the corresponding issue would arise if a State sought to reclassify an established property interest as some non-property interest, without providing the property holder with the basic guarantees of P1–1. The Court has not yet faced a case of this nature. In any case, one would expect that such a declaration would itself be treated as an interference with possessions.19 The autonomous 15
Konig v Germany (No.1) Series A No 27 (1976), (1979–80) 2 EHRR 170, §88. Öztürk v Germany Series A No 73, (1984) 6 EHRR 409, §49. Ibid, §50 and §53. 18 Statute of the Council of Europe, Article 1(a). 19 This is confirmed by Brumărescu v Romania (2001) 33 EHRR 35 where a declaration by the Romanian court that reversed earlier judicial declarations that the applicant held certain property was treated as interference with possessions. 16 17
62 Tom Allen meaning doctrine therefore seems to serve a different function in relation to P1–1. Two possibilities can be suggested. The first is a relatively conservative view of the role of the Court and the Convention. It holds that ‘possessions’ are created by national law, but that the Court is free to reach its own conclusion on the application of national law to the specific facts of the case. This represents a pragmatic solution to the problem which arises when the parties cannot agree on whether the applicant has a proprietary interest under national law. That is, the Court has stated that it does not act as an appellate tribunal: disputes concerning the content and application of national law must be resolved by national tribunals. However, if the Court strictly adhered to this position, it would not be in a position to decide cases where the relevant State claimed the applicant did not have property under national law. Arguably, the Court could say that, in such cases, it would wait for the national courts to determine whether the applicant did have a proprietary right under national law. Plainly, this would add to an already lengthy process. In such cases, the autonomous meaning doctrine allows Court to arrive at its own opinion on the content of national law, while appearing not to act as an appellate tribunal. The first approach might be described as a textual approach to interpretation, but it is probably more accurate to say that it is a purposive approach, where the purpose to preserve an element of stability in the national legal system. The second approach is more radical. It reflects the view that the Court should develop a Convention meaning for ‘possessions’. As such, the autonomous meaning doctrine is not used simply to allow the Court to reach a conclusion on the content of national law. Put differently, the purpose of P1–1 is to guarantee certain interests, whether or not those interests are protected as property interests in the national systems. The nature of these interests would depend on the view of the Court and the individual judges: for example, some might use P1–1 to guarantee minimum levels of subsistence; others might use it to provide some sort of enhanced protection for the family home or other objects with which personal identity is closely linked; still others might see it as a protection for all types of wealth, including those that do not take the form of a traditionally recognised proprietary interest. The point that links all of them is their willingness to regard P1–1 as something other than a moderating, conservative influence on the law. In general, the Court tends to take the first approach when it applies the autonomous meaning doctrine to P1–1. The right to property has come to reflect an aspiration for stability and security or, to use Laurence Tribe’s expression, a ‘norm of repose’.20 By this view, it is not so important how the applicant came to acquire property, or why the applicant’s interests should be protected as 20 Laurence H Tribe, American Constitutional Law (2nd ed.) (Mineola, New York, 1988), at 587. Tribe describes this as “the idea that the government must respect ‘vested rights’ in property and contract—that certain settled expectations of a focused and crystallized sort should be secure against governmental disruption, at least without appropriate compensation.”
The Autonomous Meaning of ‘Possessions’ under the ECHR 63 property, but simply that the national legal system has given the applicant the expectation of security which should not be disappointed. This is apparent from a series of cases where a State has imposed a settlement of a civil dispute between itself and a private person. Since the private party is denied the opportunity to have their claim heard before the national courts, Article 6 should apply, but the Court has also indicated that the claims may constitute possessions under P1–1. The Court has taken this view even where national law does not classify the claims as proprietary interests. One example is Pressos Compania Naviera S.A. and Others v Belgium.21 In 1983, a decision of the Belgian Court of Cassation extended the State’s liability in tort for shipping casualties. Since the decision unexpectedly opened the door to many new claims, the Belgian legislature passed an Act in 1988 that retrospectively extinguished all pending and potential claims. Only cases that had been finally resolved by the courts were unaffected. The applicants had already filed their tort claims with the Belgian courts when the legislation took effect, but had not yet received final decisions from the Belgian courts on their claims. In Strasbourg, they maintained that the legislation deprived them of their possessions contrary to P1–1; Belgium responded that P1–1 did not apply because none of the tort claims ‘had been recognised and determined by a judicial decision having final effect’.22 Belgium argued that a pending claim was no more than a right to property, rather than a right of property,23 and therefore neither property under Belgian law nor ‘possessions’ under the Convention. The Commission agreed; however, the Court held that the pending tort claims were possessions. The Court’s position on Belgian law was somewhat ambiguous. It did say that, to determine if there is a ‘possession’, ‘the Court may have regard to the domestic law in force at the time of the alleged interference’.24 In this sense, the meaning of ‘possession’ depends on national law. The Court noted that, under Belgian law, a victim of a tort acquires a claim for compensation as soon as the damage occurs. Although Belgian law does not classify a pending action as property, this was not conclusive; it was more important that the claim ‘constituted an asset’ and that the Court of Cassation judgment gave the applicants a ‘ “legitimate expectation that claims deriving from the accidents in question would be determined in accordance with the general law of tort” ’.25 The existence of this ‘legitimate expectation’ was enough to persuade the European Court that the applicants had ‘possessions’ under P1–1. The reasoning in the Pressos case contrasts with the Court’s reasoning in National & Provincial Building Society and others v UK.26 The National & 21 22 23 24 25 26
Pressos Compania Naviera SA v Belgium Series A No 332, (1996) 21 EHRR 301. Ibid, §29. Ibid, §29. Ibid, §31. Ibid, §31. (1998) 25 EHRR 127.
64 Tom Allen Provincial Building Society concerned the application of transitional provisions of the Finance Act 1985 and associated regulations to the taxation of interest earned in building society accounts. These provisions created a ‘gap period’ in which interest was not taxable. The Treasury had not intended to allow the gap period and, pending a decision from the courts, it collected the tax during that period. The Woolwich Building Society successfully obtained a declaration that the legislation did not require the tax to be paid during the gap period; subsequently, it was also successful in obtaining an order for restitution of the amounts that it had paid. Other building societies then commenced claims for restitution of the amounts they had paid, but Parliament then extinguished their claims by the Finance Act 1991 and the Finance (No. 2) Act 1992. These building societies then proceeded to Strasbourg, where they argued, inter alia, that their restitution claims were P1–1 ‘possessions’ that had been interfered with contrary to P1–1. The Court held that any interference with the possessions of the building societies did not violate P1–1 and hence it was not necessary to give a concluded view as to whether any of the claims asserted by the building societies were P1–1 possessions. However, it did suggest that it would have found that the claims were not possessions, had it been necessary to do so. The Court observed that the restitution claims had not yet resulted in final and enforceable judgments against the State; moreover, it also stated that the building societies did not have a legitimate expectation that the legislation would retroactively impose the tax for the ‘gap period’.27 There was no discussion of the Pressos case.28 While National & Provincial Building Society seems to create some confusion regarding the status of pending civil claims, the admissibility decision in Malhous v Czech Republic has clarified matters somewhat.29 Land belonging to the applicant’s father had been expropriated by the Czechoslovakian government in 1949. The expropriation was lawful under 1948 legislation, although no compensation was paid. In 1957, the authorities transferred some of the land to natural persons under procedures provided for by law. In 1991, after the fall of the communist regime, new legislation provided that specified lands which had been taken without compensation could be returned to the original owners, but only if the land was still in the possession of the State or a legal person. Where land had been transferred to natural persons, the original owners would only have a claim for financial compensation or equivalent land. Since the land in this case had been assigned to natural persons, the applicant had no claim under the 1991 law for its return. There were some exceptions to this rule, but in restitution proceedings before Czech tribunals, the applicant failed to establish that his case fell within those exceptions. Before the European Court of Human Rights, the applicant claimed that the conduct of the restitution proceedings violated P1–1 and Article 6–1. 27 28 29
(1998) 25 EHRR 127, §§62–70. It was referred to briefly in the summary of the applicants’ argument (Ibid, §62). No 33071/96, 13 December 2000, ECHR 2000–XII.
The Autonomous Meaning of ‘Possessions’ under the ECHR 65 In relation to the P1–1 claim, the Government argued that the applicant’s right to bring restitution proceedings did not amount to ‘possessions’. The Court began by saying that, in effect, the 1949 expropriation had extinguished the father’s ownership in the land. Hence, the only rights which could constitute ‘possessions’ were those granted under the 1991 legislation. As in Pressos and National & Provincial Building Society, the issue was whether the right to bring proceedings was indeed a possession. The Court stated that ‘possessions’ can include ‘assets, including claims, in respect of which the applicant can argue that he has at least a “legitimate expectation” of obtaining effective enjoyment of a property right’. A claim with only a remote chance of success would not qualify: ‘the hope of recognition of the survival of an old property right which it has long been impossible to exercise effectively cannot be considered as a “possession” . . . nor can a conditional claim which lapses as a result of the non-fulfilment of the condition’.
In this case, it could be said that this ‘hope of recognition’ had been crystallised by the 1991 legislation, as it did provide a means of claiming restitution; however, the applicant had failed to satisfy the conditions for the restitution of the land itself. In that sense, the likelihood of success in any claim for return of the land was remote before the 1991 legislation, and the legislation did not increase that likelihood. However, although it was not necessary to its decision, the Court did observe that the 1991 Act gave stronger claims for compensation in the form of a monetary settlement or equivalent land, and hence these claims might well constitute ‘possessions’. Accordingly, Malhous suggests that deciding whether the holder has a ‘legitimate expectation’ focuses on the likelihood of success in litigating a claim before the national courts. In this sense, the European Court of Human Rights does not seek to resolve disputes concerning the meaning of national law, but it does seem willing to predict the strength of the applicant’s case under national law. As long as there is a strong case under national law for the existence of a property right, the Court will say that there is a possession, even if the dispute has not been finally determined by the national tribunals. While Malhous suggests that stability is the only value underlying P1–1, there are cases where the Court has given other values greater weight. A leading example is Louzidou v Turkey, where the Court found a breach of P1–1 arising from the prolonged denial of the exercise of proprietary rights by Turkish Cypriot authorities, for which the Turkish government could be held responsible. The Turkish Government argued that the applicant’s title had been expropriated by a constitutional declaration of the ‘Turkish Republic of Northern Cyprus’ (the ‘TRNC’) of 7 May 1985, by which all ‘abandoned’ property was deemed to belong to the new government. Since Turkey accepts the jurisdiction of the Court only with respect to its acts from 1990, it argued that it could not be held responsible for any alleged breach of P1–1. However, the Court refused to recognise the validity of the declaration at international law and therefore concluded that the applicant still held a P1–1 possession in 1990. It also found
66 Tom Allen that the acts of the Turkish Cypriot authorities could be imputed to Turkey, with the result that Turkey could be held responsible for the fact that the applicant was denied access to her land from 1990 and thereafter. It was clear that the chances that the applicant could have recovered her property in 1990 were very remote and had been for many years; moreover, there was no suggestion that that either Turkey or the Turkish Cypriot authorites would make it less remote in future. Plainly, the likelihood that the applicant could have been successful before the relevant national courts was not relevant. In this sense, stability was not the central value in the case. Louzidou is an important case, but it represents an exception to the general trend. Indeed, it can be compared with the recent case of Prince Hans-Adam II of Liechtenstein v Germany. A painting belonging to the applicant’s father was confiscated by Czechoslovakia in 1946 under laws authorising the confiscation of property belonging to German persons. The applicant’s father disputed the confiscation, but his claims were dismissed by the Bratislava Administrative Court in 1951. Neither the applicant nor his father accepted the lawfulness of the confiscation, but Czechoslovakia and its successor States had refused to discuss the possibility of restitution. In 1991, the painting was loaned to a German art gallery. The applicant then brought proceedings in the German courts to recover the painting. He was unsuccessful, as the German courts held that the Convention on the Settlement of Matters Arising out of the War and the Occupation (the ‘Settlement Convention’)30 excluded German jurisdiction regarding the applicant’s case. Prince Hans-Adam II differs from Malhous, as the Prince claimed that the painting still belonged to his family. In effect, he claimed that his P1–1 possession was the painting itself, rather than a statutory right to the return of the painting. However, the Court found that the likelihood of establishing continued ownership before the Czech courts was so remote that the painting could not qualify as a P1–1 possession; hence, the likelihood of establishing a similar claim before the German courts would have been equally unlikely. This seems to have been enough to dispose of his claim before the European Court. Plainly, there are significant differences between Prince Hans-Adam II and Louzidou; in particular, the Turkish Government plainly had a higher degree of responsibility for the initial taking and subsequent retention of the property in Louzidou than the German government in Prince Hans-Adam II. Nevertheless, it is noteworthy that the examination of such considerations in Louzidou is the exception rather than the rule. 30 23 October 1954 between the United States of America, the United Kingdom of Great Britain and Northern Ireland, the French Republic and the Federal Republic of Germany. The German courts relied on Chapter 6, Article 3 § 3 of the Settlement Convention, in conjunction with § 1: claims or actions against persons having acquired or transferred title to property on the basis of measures carried out with regard to German external assets or other property, seized for the purpose of reparation or restitution, or as a result of the state of war, or on the basis of specific agreements, were not admissible. These provisions were confirmed on German unification.
The Autonomous Meaning of ‘Possessions’ under the ECHR 67 Stability as the central value of P1–1 The importance of stability shows that the European Court is likely to say that at least two types of interest should be treated as P1–1 possessions: (i) those interests already classified as property under national law, and (ii) interests in the form of claims to property which would have a reasonable chance of success before national courts. There is also a third type of interest, where the applicant holds neither a recognised form of property nor a strong claim to a property. A good example is the Beyeler case, which concerned the exercise of a right of pre-emption by the Italian Government over a Van Gogh painting which the applicant had agreed to buy. The applicant claimed that the pre-emption infringed his rights under P1–1, where his possession consisted of the rights which he claimed he had acquired under the contract. However, Italy claimed that the applicant did not have any form of property in the painting, because his ‘contract’ had never come into existence. Under Italian law, sales involving certain works of art must be declared to the appropriate authorities; if the declaration is not made, the sale is automatically void. A full declaration should have been made for the sale of the painting, but it was not. Accordingly, Italy argued that the applicant never acquired a proprietary interest in the painting, and hence he did not have a ‘possession’ under P1–1. The European Court found that the applicant did have a P1–1 possession, although the basis for its decision is not entirely clear. It made the point that ‘possessions’ has an autonomous meaning, and then considered the relevant provisions of the Italian Civil Code and statutory law. It acknowledged that transfers and other legal transactions effected in breach of the rules laid down by the statute or without complying with the prescribed terms and conditions shall be null and void’;31 however, it ultimately concluded that the applicant had held ‘a proprietary interest recognised under Italian law—even if it was revocable in certain circumstances—from the time the work was purchased until the right of preemption was exercised’.32
In this sense, it could be said that the Court did make its own determination on the application of Italian statutory law to the specific facts. However, the Court also emphasised the conduct of the Italian authorities; in particular, it observed that the authorities had treated the applicant as the owner of the painting for at least some purposes, and hence it did not ‘need to give an opinion on the Italian courts’ view that under the relevant domestic provisions the 1977 sale should be considered as null and void’.33 In effect, the Court held that, even if the initial sale was void, subsequent events demonstrated that the Italian authorities regarded the applicant as holding a proprietary interest in the painting.34 That 31
Beyeler v Italy (2001) 33 EHRR 52, §101; the statute referred to is Law No 1089 of 1939. Ibid, §105 33 Ibid, §106. 34 It did not find it necessary to state whether the interest was a full ownership interest or some other lesser interest. 32
68 Tom Allen interest may not have been full ownership, as only a valid sale could have conferred ownership on the applicant; nevertheless, the Court still regarded that the applicant’s interest as a proprietary interest of some kind and therefore as a ‘possession’ under P1–1. The crucial point is that the Court was willing to find that a proprietary interest existed, even where the applicable national laws would have led to the opposite conclusion. Beyeler was not a case where expectations were destroyed by the extinction of a claim to property, although one could still say that the conduct of the Italian authorities did create expectations which should have been respected. While it might be argued that the European Court applied a kind of estoppel against the Italian authorities, it did not identify any positive representation by the authorities regarding the future treatment of the applicant’s interests. Indeed, the authorities did not make any specific representations to the applicant regarding the likelihood that the right of pre-emption would be exercised. At the most, the Italian authorities had treated the applicant as owner in some circumstances for some purposes. In particular, between 1985 and 1987, officials of the Ministry of Cultural Heritage communicated with the applicant’s lawyer and the applicant, to request information on the painting’s location and to give permission for it to be moved to the Guggenheim museum in Venice, and then to make arrangements to inspect the painting and to inform him that the State was interested in purchasing the painting.35 None of these communications involved any statement of intention regarding the applicant’s claim to ownership; arguably, they merely indicated that the authorities had not been fully apprised of the legal situation at the time of the communications. A further example of this approach can be seen in Matos e Silva,36 where the applicants claimed that Portuguese procedures for expropriation of land infringed its rights under P1–1. The Portuguese Government claimed that the applicants did not have P1–1 possessions because their legal position as owner of the land in question was debatable under domestic law.37 It appears that the Government claimed that the applicants derived their title to part of the land from an 1884 concession which provided that the land could be expropriated without any right to compensation for the grantees. The applicants bought the land in 1899 from the original grantee and registered the purchase. They remained in occupation, paid taxes on the land and were treated as the full owner by public officials and others until the dispute over the expropriation arose. Both the Commission and the Court concluded, with very little discussion, that the applicants held a P1–1 possession with respect to the land. The Court stated that it was not its function to determine the applicants’ rights of property under domestic law, since ‘possessions’ has an ‘autonomous meaning’.38 In this case, 35 36 37 38
Beyeler, §104. Matos e Silva lda v Portugal (1997) 24 EHRR 573. Ibid, §72. Ibid, §75.
The Autonomous Meaning of ‘Possessions’ under the ECHR 69 the applicants’ unchallenged rights over the disputed land for almost a century and the revenue they derive from working it may qualify as “possessions” for the purposes of Article 1 (P1–1).39
It is not entirely clear what the Court meant by the ‘unchallenged rights’ of the applicants, but the fact that the public officials had acted as though the applicants held full ownership seems to have been relevant. Again, none of the official communications with the applicant related to the issues in the case at hand; as in Beyeler, it could have been argued that the authorities had not fully researched the applicant’s title claims and should not be held to statements made in ignorance of the true situation. Finally, two Greek cases reflect similar views on the importance of stability. Iatridis concerned a lengthy dispute over title to a cinema.40 The applicant held it on a lease from a private person, whose title was disputed by the Greek officials. The State claimed ownership of the cinema and evicted the applicant. The Court did not resolve the title issue, but still held that the applicant had a P1–1 possession. It noted that, before the eviction, the applicant ‘had operated the cinema for eleven years under a formally valid lease without any interference by the authorities, as a result of which he had built up a clientèle that constituted an asset’.41 The fact that he was treated as having a proprietary interest was just as important as any legal rights that he could establish. Finally, The Former King of Greece v Greece42 also illustrates this point. The former King of Greece claimed to own certain assets in his private capacity; Greece argued that he held the assets in his public capacity. The Court held that the assets were held in the former King’s private capacity, and hence were P1–1 possessions, largely on the basis that his family had been permitted to deal with the assets in a private capacity.
Comparative law and the autonomous meaning doctrine At this point, we may compare the derivation of the autonomous meanings of ‘possessions’ under P1–1 and ‘criminal charge’ under Article 6–1. As explained above, the Court does not wish to allow States to avoid their Article 6 obligations by claiming that a criminal process is only an administrative or regulatory process, and it has therefore said that the meaning of ‘criminal charge’ under Article 6 should reflect the common standards of the member States of the Council of Europe. In some cases, the autonomous meaning of ‘possessions’ seems to be derived in a similar way. In Gasus, for example, the Court looked at the rights held by the applicant and decided that those rights constituted ‘possessions’. However, it did not provide a general description of rights which constitute ‘possessions’; for example, it did not say that there are certain core 39 40 41 42
Ibid, §75. Iatridis v Greece (2000) 30 EHRR 97 Ibid, §54. (2001) 33 EHRR 21.
70 Tom Allen rights which must be found in the bundle of rights before it will treat it as a P1–1 possession. Nevertheless, it is likely that the real source of its conception of possessions in Gasus was derived from the shared conception of the European judges of what a property bundle of rights looks like in their own legal systems. In this way, the derivation of an autonomous meaning for ‘possessions’ was similar to that of ‘criminal charge’. By contrast, in Beyeler, Matos e Silva, Iatridis and Former King of Greece, the Court it did not ask whether similar conduct by public authorities in other States would give rise to a property interest under national law. Indeed, it is more likely that the analysis under other national systems would say that executive branch cannot create property rights simply by acting as though a party had property. So, for example, if we transpose the facts of Beyeler to the English context, it is doubtful that an English court would conclude that a ‘buyer’ under a void ‘contract’ has acquired property on the basis that some public officials assumed and acted as though the ‘buyer’ had acquired property. Such a decision would deprive the judiciary of its jurisdiction to determine property disputes; moreover, it could affect the rights of the ‘seller’ under the void ‘contract’. Hence, the European Court’s emphasis on national law seems to be more a matter of observing of local conduct than comparing its effects with the effects of similar conduct in other Contracting States. Where the Court relies on evidence of State conduct to establish whether the applicant has possessions, it demonstrates its belief that the stability of relationships concerning access, use and disposition of resources is the underlying purpose of P1–1. How those relationships came to exist is less important than the fact of their existence. While these relations are not immutable or absolute, modifications brought about by the exercise of State power cannot be too abrupt or arbitrary. The importance of this kind of stability to the political and economic systems of Europe would have been obvious in the immediate postwar period, where there was a strong desire to re-establish the rule of law and to protect social democracy against the communist threat. The recent jurisprudence of the Court suggests that it is still considered important to the rule of law and social democracy.
Other values and autonomous meanings As stated above, an alternative view of P1–1 would put less emphasis on stability; instead of asking whether the applicant is treated as a property owner within the national system, it would ask whether the applicant should be treated as property owner. This, for example, appears to be the view of at least some of the Irish members of the Constituent Assembly, as they argued that property is a human right antecedent to any positive law.43 However, the impact of this 43 See: Council of Europe, Collected edition of the travaux préparatoires of the European Convention on Human Rights (Nijhoff/Kluwer, 1975), vol. 2, p 88 (Mr MacEntee) and pp 102–3 (Mr de Valera).
The Autonomous Meaning of ‘Possessions’ under the ECHR 71 type of thinking has been greater on the judicial development of property conceptions in European constitutional courts than in the European Court of Human Rights. Nevertheless, it has had an indirect influence on Court, not merely by shaping the national conceptions of property which the European Court then seeks to protect through P1–1. To examine this point further, it is worth investigating how some national courts apply ethical theories of property in their case law. A clear example from the European States is provided by the interpretation of Article 14 of Germany’s Basic Law by its Federal Constitutional Court. Article 14 provides as follows: 14(1) Property and the right of inheritance shall be guaranteed. Their substance and limits shall be determined by law. (2) Property entails obligations. Its use should also serve the public interest. (3) Expropriation shall only be permissible in the public interest. It may only be ordered by or pursuant to a law which determines the nature and extent of compensation. Compensation shall reflect a fair balance between the public interest and the interests of those affected. In case of dispute regarding the amount of compensation recourse may be had to the ordinary courts.44
The Federal Constitutional Court has said that the overarching purpose of the protecting fundamental rights in the Basic Law is the protection of personal liberty and autonomy. The leading case on the purpose of Article 14 is the Hamburg Flood Control Case. In 1964, after severe flooding, Hamburg enacted legislation which provided that all land classified as ‘dikeland’ would be converted in the land register to public property. All private rights to the land were terminated. Owners were compensated, but several claimed that the Act infringed their rights under Article 14. Their ownership of the land was not disputed; hence, although the case is not specifically about the meaning or scope of Article 14 ‘property’, it is important because it sets out the Court’s view of the purpose of Article 14: Article 14(I)(I) of the Basic Law guarantees property both as a legal institution and as a concrete right held by the individual owner. To hold property is an elementary constitutional right which must be seen in close context with the protection of personal liberty. Within the general system of constitutional rights, its function is to secure its holder a sphere of liberty in the economic field and thereby enable him [258] to lead a self-governing life.45 . . . [T]he property guarantee under Article 14(I)(2) must be seen in relationship to the personhood of the owner—i.e., to the realm of freedom within which persons engage in self-defining, responsible activity. The property right is not primarily a material but rather a personal guarantee.46
44 Basic Law for the Federal Republic of Germany (1995) 18 Official translation, Press and Information Service, Federal Government, Bonn. 45 24 BVerfGE 367 (trans. by DP Kommers, The Constitutional Jurisprudence of the Federal Republic of Germany 2nd edition (1997), at 251). 46 Ibid, at 252.
72 Tom Allen Since the purpose of Article 14 is connected to personhood, it cannot be assumed that Article 14 ‘property’ is the same as ‘property’ in civil law. Property in Article 14 is an ‘autonomous legal institution, or, to use the standard alternative formulation, an objective constitutional value that the state is affirmatively obliged to preserve and foster’.47 The idea of property as an autonomous legal institution plainly bears a resemblance to the autonomous meaning doctrine of the European Court of Human Rights. However, the German court relates the autonomous meaning of Article 14 property to the overarching purpose of the Basic Law, rather than the common or even national conceptions of property and possessions or a conservative notion of stability. In later cases, the Court stated that the source of Article 14 property is found partly in constitutional and public law. That is, Article 14 property is not limited to property recognised or created under private law. An application of this principle can be seen in The Groundwater Case (1981),48 which concerned the claimant’s right to use the groundwater beneath his land to extract gravel from the surface. In 1976, the Federal Water Resources Act was enacted to protect public water supplies from contamination, by providing that a licence was needed to use the groundwater in designated areas. Since the claimant’s gravel pit was in a designated area, he applied for a licence to continue using the groundwater; however, his application was refused. He then claimed that the Act infringed Article 14. The Federal High Court of Justice stated that the claimant’s property rights in the land included the right to dispose of the groundwater beneath the surface, on the basis that section 905 of the Civil Code provides that ‘[t]he right of the owner to a piece of land extends to the space above the surface and to the terrestial body under the surface’. The constitutional issue was referred to the Federal Constitutional Court, which came to the opposite view. The Constitutional Court seemed to reject the High Court’s reasoning on two grounds. The first was not concerned with the meaning of property, as the Court found that any legislation served a legitimate purpose and the impact on the claimant was proportionate to that purpose. The second ground is more interesting for our purposes, as the Constitutional Court questioned whether private law was the sole source of property under Article 14: The concept of property as guaranteed by the Constitution must be derived from the Constitution itself. This concept of property in the constitutional sense cannot be derived from legal norms [ordinary statutes] lower in rank than the Constitution, nor can the scope of the concrete property guarantee be determined on the basis of privatelaw regulations. . . . Both private and public law contribute equally to the determination of the constitutional legal position of the property owner. The corpus of property
47
The Constitutional Jurisprudence of the Federal Republic of Germany 2nd edition (1997), at
253. 48
58 BVerfGE 300 (trans. Ibid, at 257).
The Autonomous Meaning of ‘Possessions’ under the ECHR 73 law represented in the Civil Code does not exclusively define the content and limits of property.49
Subsequently, the Federal Constitutional Court indicated that Article 14 property includes rights that have their source in public law. In the Equalisation of Pensions upon Dissolution of Marriage Case,50 the Court held that pension rights created under social welfare schemes are not excluded from Article 14 protection merely because the rights arise solely from public law. Social welfare rights should be treated as Article 14 property ‘if the situation on which the public law right in question is based gives the individual a legal position which corresponds with that of an owner’.51 The statutory social pension insurance scheme was therefore Article 14 property, because ‘[r]ights under the pension insurance fulfil purposes which the property guarantee aims to protect’52 and [I]n modern society, the vast majority of citizens achieve the protection of their economic existence less by private property, and more through an employment contract and the provision for basic necessities linked with it and based on the idea of solidarity.53
This brief summary shows that Article 14 property is not based simply on private law; nor is it expanded only to the extent necessary to secure expectations based on the conduct of State officials. While it overlaps with private law property, in difficult cases its extent is determined by the need to protect personal autonomy. The ‘realm of freedom within which persons engage in self-defining, responsible activity’ includes the ‘protection of economic existence’, because economic measures can restrict the individual’s capacity to engage in the ‘selfdefining, responsible activity’ necessary to develop the personality. In constitutional terms, this interest is best described as property, and the justification for measures that interfere with this interest must be justified according to the principles of Article 14.
Property as determined by the purpose of P1–1 As stated above, the European Court of Human Rights’ attitude to ‘possessions’ does not concentrate on principles of personhood or some other primary value that might be associated with property as a human rights; the emphasis is generally placed on stability of existing relations concerning resources. However, 49 Ibid (trans, by Kommers, 258, 259). The FCC also indicated that s 905 of the Civil Code did not give an accurate picture of the private law of property, since the exploitation of the suburface of land had long been subject to a variety of restrictions; hence, it could not be said that an owner necessarily had a proprietary right to use the groundwater beneath the land. 50 53 BverfGE 257 (1980) (trans by Sabine Michalowski and Lorna Woods, German Constitutional Law: The Protection of Civil Liberties (Aldershot: Ashgate, 1999), at 320. 51 Ibid (trans. Michalowski and Woods at 321). 52 Ibid. 53 Ibid.
74 Tom Allen several early Commission decisions link the idea of possessions with personhood and autonomy, in the sense that basic subsistence requires a minimum level of wealth and, if this wealth is not secured by property, life becomes too precarious for an autonomous existence. In these decisions, the Commission stated that social security claims may be treated as possessions, but only if there is a direct link between contributions made by the claimant and the entitlement to the claim.54 The emphasis on the link between contributions and possessions reflects the jurisprudence on Article 6, where a claim to social welfare may be regarded as a ‘civil right’. Although civil rights generally arise only under private law, the Court has indicated that statutory claims to social insurance may also qualify as civil rights. In Feldbrugge v Netherlands, the Court observed that social insurance schemes have both public and private features; where the private features dominate, the claim is a ‘civil right’.55 It found that the private features dominated the social insurance scheme in that case, because (1) the right in question was ‘a personal, economic and individual right’56 and the interference with it affected the applicant’s means of subsistence, (2) the right was a positive statutory right, and not merely a possibility of benefiting from the exercise of a discretionary power (3) it was ‘closely linked’ with a private contract of employment57 because the applicant contributed directly to the statutory scheme by salary deductions.58 Subsequently, the Court relaxed its approach. In Salesi v Italy,59 the applicant argued that a statutory right to social assistance for those unfit to work was a civil right under Article 6(1). There was no link with a private law contract, and the applicant had not contributed to the statutory scheme; nevertheless, the Court found that the applicant held a ‘civil right’, because ‘she suffered an interference with her means of subsistence and was claiming an individual, economic right flowing from specific rules laid down in a statute’.60 The emphasis on the importance of the economic means of subsistence has clear parallels with the reasoning of the Federal Constitutional Court in the Equalisation of Pensions upon Dissolution of Marriage Case and, in particular, the emphasis on autonomy and the protection of economic existence. Feldbrugge v Netherlands and Salesi v Italy dealt with Article 6 but, to an extent, the Court has taken a similar view on the characterisation of social security rights under P1–1. There are important differences between ‘civil rights’ and ‘possessions’; in particular, while possessions are civil rights, civil rights are not 54 See: X v UK (1970) 13 Yearbook 892; X v The Netherlands (1971) 14 Yearbook 224; Müller v Austria [1976] 3 DR 25. 55 Feldbrugge v Netherlands Series A No 99, (1986) 8 EHRR 425, §§ 36–40; see also Deumeland v Federal Republic of Germany, Series A vol 100, (1986) 8 EHRR 448, §§ 70–4. 56 Ibid, §37. 57 Ibid, §38. 58 Ibid, §39. 59 Salesi v Italy Series A No 257–E, (1998) 26 EHRR 187 60 Ibid, para 19. See also Schuler-Zgraggen v Switzerland Series A. No 263, (1993) 16 EHRR 405, §46, where the Court stated that “the principle of equality of treatment warrant[s] taking the view that today the general is that Article 6(1) does apply in the field of social insurance, including even welfare assistance”.
The Autonomous Meaning of ‘Possessions’ under the ECHR 75 necessarily possessions. Article 6 is only concerned with the right to a fair hearing; its focus is on procedural fairness rather than substantive fairness. It therefore applies to a wider range of rights than P1–1, but the protection given to those rights is narrower. In a number of cases, such Marckx and Inze, Court has stressed the difference between a right to property and a right of property. The distinction may have been partly dissolved by the Pressos case, but in social welfare cases the Court still seems to lay greater stress on the form of the rights in question. In particular, in Gaygusuz v Austria, it appears that it is sufficient to establish that a claim has the characteristics of a vested right under the relevant statute, as opposed to a purely discretionary allowance. Gaygusuz v Austria dealt with the claim of a Turkish national to emergency assistance under Austria’s Unemployment Insurance Act. He had worked in Austria for over ten years and met all the statutory conditions for entitlement, except a condition which limited assistance to Austrian citizens. The Court held that Austria violated Article 14 in combination with P1–1. While the Court observed that only those who had made contributions to the scheme were entitled to assistance under the statute, it also stated that a statutory right to emergency assistance is a pecuniary right for the purposes of Article 1 of Protocol No. 1 (P1–1). That provision (P1–1) is therefore applicable without it being necessary to rely solely on a link between entitlement to emergency assistance and an obligation to pay ‘taxes or other contributions.61
It therefore seems that the existence of a pecuniary right, as opposed to a discretionary allowance, is sufficient to establish ‘possessions’. If so, the connection with the applicant’s means of subsistence seems to be lost. Instead, the sole question seems merely to be whether the statutory provision created a clear and fixed right to a payment of money, absent the discriminatory element. The discriminatory element of Gaygusuz is important, since it could have been argued that the right to emergency assistance had not vested because the applicant did not satisfy one of the conditions for assistance. It echoes some of the concerns which seem to underpin the Louzidou decision: discrimination on the basis of race or nationality must not be removed from review under the Convention by resort to a formal argument on the nature or origin of the rights in question. Gaygusuz suggests that, if State excluded a persons of a particular race or nationality from owning certain kinds of property on a purely discriminatory basis, the Court might well decide that an infringement of P1–1 had occurred, even if those individuals had not been dispossessed of their property. Against this, however, stands the Marckx case, where the Court stated that P1–1 only applied to existing possessions; hence, the Court found that Belgian rules that discriminated against illegitimate children in matters of succession did not violate P1–1 because the children never acquired a vested interest in their parents’ 61
Gaygusuz v Austria (1997) 23 EHRR 364, §41.
76 Tom Allen estates. By contrast, in Inze, Austrian rules on illegitimacy and inheritance infringed P1–1 because all children, illegitimate or otherwise, held a vested interest in his parent’s estate although in different shares. Plainly, there are many distinctions between Gaygusuz and Marckx: Gaygusuz concerned discrimination on basis of nationality, as opposed to birth status; in addition, the claim to emergency assistance derived from a contractual employment relationship rather than a familial relationship; finally, the claim to assistance related to basic economic subsistence (it was available only when ordinary benefits ran out), but the succession claims did not necessarily relate to subsistence. Arguably, there was a formal difference as well: in Gaygusuz, the applicant held other vested rights under the Unemployment Insurance Act, and so the right to emergency assistance could therefore be seen as one aspect of his existing possessions under the Act. However, the Court in Gaygusuz did not explain which of these points was material (or whether any of them were material). If it is the formal distinction—that Gaygusuz had at least some vested rights under the Act, just as Marckx held some vested interest in the parent’s estate—then Gaygusuz suggests that States can avoid having social welfare benefits qualify as ‘possessions’ by making benefits subject to withdrawal, at any time before actual payment, at the discretion of State officials. The relationship between benefits and subsistence and the quality of life seems to be less important that the formal characterisation of those benefits. There is plainly very little stability in a system of welfare benefits where the State both reserves the power to modify or withdraw benefits and it frequently exercises that power. In such circumstances, it seems unlikely that the Court would require stability where there is none; in terms of P1–1, it would be unlikely to find that benefits are possessions. On the other hand, it might take a different view of a system where the State has either foregone the power to change benefits, or where it has a power to change benefits but has never actually exercised it. Where powers exist but lie dormant for long periods, the Court might take the view that the situation is similar to that in Beyeler, Matos e Silva, Iatridis and Former King of Greece. Stability that arises as a matter of practice may, in the Court’s view, create expectations which should be protected under the Convention. To date, however, this idea has not been tested in relation to social welfare benefits.
CONCLUSION
This paper has attempted to describe the autonomous meaning doctrine and offer an explanation for why it has developed. It is worth mentioning two important qualifications on its analysis of the Court’s jurisprudence. The first is the Court’s own analysis of the autonomous meaning doctrine tends to be brief. The reasoning discloses very little in the way of explaining, distinguishing and applying earlier judgments in order to justify a result or lay down principles for
The Autonomous Meaning of ‘Possessions’ under the ECHR 77 application in subsequent cases. Hence, the analysis is tentative. This leads to the second qualification: since the constraints that precedent imposes on common law judges do not restrain the European Court in the same way, the analysis in this paper represents more of a set of observations on the current position of the Court than a prediction of its future positions.
Part II
Land registration
5
Registration of Title in England and Australia: A Theoretical and Comparative Analysis PAMELA O’CONNOR*
E HOGG,
the finest comparative scholar of land title registration systems in the common law world, once observed that, as well as the Australian Torrens system, ‘there is now an English Torrens system, a Canadian Torrens system and an American Torrens system’.1 Hogg was using the term ‘Torrens system’ to mean a system of land registration in which it is the title itself, and not just the documentary evidence of title, that is registered. The title is authoritatively established by the government’s warranty that the person named in the register is the owner of the interest specified, subject only to stated encumbrances and qualifications. In this generic sense, the Land Registration Act 2002 (UK)2 and its predecessors are a fine example of the Torrens system. English lawyers usually do not apply the term ‘Torrens system’ to their own systems. They use the term in a genealogical sense, to refer to a family of land title registration systems that derive, directly or indirectly, from statutes enacted in South Australia in 1858-60 at the instigation of Sir Robert Torrens.3 This includes most of the statutes of the rest of the Commonwealth4 and the United States,5 and many other jurisdictions.6 Although the influence of the English and
J
* The author acknowledges the valuable advice and comments of Elizabeth Cooke of the University of Reading, Dr Elise Histed of Monash University and Dr John Mee of Cork University. 1 JE Hogg, The Australian Torrens System (William Clowes & Sons, London, 1905), at 1–2. 2 Hereafter the LRA 2002. The Act, which replaces the Land Registration Act 1925, does not apply in Scotland and Northern Ireland. 3 Sir Robert Torrens was granted, by letters patent from the Crown, the right to link his name with the system he initiated: V Di Castri, Registration of Title to Land (loose-leaf, orig. Carswell, Canada, 1987) Vol 1, para [13], (citing Smith (1901), 54 Cent. L J 285). 4 JE Hogg, Registration of Title to Land Throughout the Empire (Sydney, Law Book Co, 1920) discussed the origins of registration of title statutes in 22 jurisdictions of what was then the British Empire. 5 Twenty US states enacted Torrens legislation between 1895 and 1915, all on the Australasian model. In most states, the system failed to attract voluntary registrations: BC Schick and IH Plotkin, Torrens in the United States (DC Heath & Co, Lexington, MA, 1978). 6 Listed in AM Garro, The Lousiana Public Records Doctrine and the Civil Law Tradition (Paul M Herbert Law Centre Publications Institute, Baton Rouge, La, 1989) at 75–6, fn 5.
82 Pamela O’Connor Torrens systems upon each other is sometimes acknowledged,7 English texts generally regard their system as home-grown, a parallel but independent development.8 The term ‘Torrens system’ is therefore an ambiguous one. In several countries, including the United States, Malaysia, New Zealand and Australia, it is most often used generically to mean a system that registers land titles as opposed to a system that registers deeds or instruments of title.9 In Canada, which has title registration systems of both English and Australian origin,10 the term is used in both its generic and its genealogical sense, according to the context. For the sake of clarity, I propose in this paper to use the term only in its genealogical sense, consistently with English usage, and to employ the term ‘registration of title’or cognate forms where the generic meaning is intended. This accords with the usage in the land administration literature.11
THE VALUE OF COMPARATIVE STUDY OF REGISTRATION LAW
The inconsistent terminology has unfortunate consequences. The English practice of applying the term ‘Torrens system’ to foreign registration of title systems, but not to their own, has contributed to a perception that the English system is fundamentally distinct. Based on his research in the early 1950s, a former Chief Land Registrar, TBF Ruoff remarked that, while the Torrens system was very well known to lawyers in Australia, Canada, New Zealand and other Commonwealth countries, ‘here in London . . . I should have the greatest difficulty hunting down a round dozen of my professional brethren who have ever heard of Robert Torrens’.12 He added that the ignorance of English lawyers about the Torrens system was matched by the ignorance of legal practitioners in 7 Eg, K and SF Gray, Land Law (Butterworths, London, 1999) at para 9.7 states that the Torrens legislation ‘was in many ways, the inspirational force behind the LRA 1925’; see also SR Simpson, Land Law and Registration (Cambridge, CUP, 1976) at 78. 8 Eg, TB Ruoff, An Englishman Looks at the Torrens System (Sydney, Law Book Co, 1957), at 6: ‘Modern land registration was invented almost simultaneously and quite independently in both England and South Australia’. Anderson states that ‘what emerged [in England] was an indigenous scheme’: JS Anderson, Lawyers and the Making of English Land Law 1832–1940 (Oxford, Clarendon Press, 1992)., at 171. See also Ontario Law Reform Commission Report on Land Registration (Department of Justice, Ontario, 1971), at 15. 9 Simpson, above n 7, at 78; Garro, above n 6, at 76 and fn 6 10 The registration of title legislation of Alberta, Saskatchewan, Manitoba and the Northwest Territories and Yukon is based closely on the Australasian model, British Columbia has a modified form of the Torrens system. Ontario and Nova Scotia followed English legislation: Hogg, above n 4, at 14; V Di Castri, above n 3, at paras [12]–[16]. 11 For example, the United Nations Economic Commission for Europe defines ‘registration of title’ as ‘a system whereby a register of ownership is maintained based upon the parcel rather than the owner or the deeds of transfer’. ‘Land registration’ is used as a broader term to mean ‘the process of recording rights in land either in the form of registration of deeds or else through the registration of title to land’: Land Administration Guidelines (UN, New York and Geneva, 1996), glossary, at 91. 12 Ruoff, above n 8 at 1
Registration of Title in England and Australia 83 ‘the great dominions’ that England had a system of registered title comparable in its aims to that of the Torrens system.13 The mutual ignorance that Ruoff perceived has persisted. Believing the English system to be unique, Torrens jurisdictions pay insufficient notice to English legislative innovation and the outstanding law reform work of the UK Law Commission. For their part, English practitioners, legal commentators and law reformers apparently assume that Torrens cases, scholarship and law reform are of little relevance to them. RJ Smith has remarked on the failure of the UK Law Commission to consider the Torrens cases with respect to the meaning of good faith and the registration of forged transfers,14 while Jackson criticized English courts for ignoring relevant Torrens case law.15 The failure to pool ideas and experience impoverishes both systems. It also discourages the comparative study that can deepen our understanding of our own system. The problem lies partly in over-generalisation about foreign registration systems. Some commentators speak of ‘the Torrens system’ as if it were a monolithic institution that operates uniformly in all the jurisdictions of the Torrens ‘family’. We should be wary of generalisations about ‘the Torrens system’ that refer to more than one country or legislative unit. While they may have a common ancestor, today’s much-amended ‘Torrens’ statutes draw inspiration from multiple sources, and are modified by reference to local needs and experience. The six Australian states and two territories each have their own registration of title statutes, by no means uniform. The statutes, and the judicial interpretations of them are, however, sufficiently similar that it is feasible to group them together as one system for purposes of an international comparative study.16 The statutes of Australia, New Zealand, and the prairie provinces and territories of Canada share a number of similar provisions, a factor which has enabled them to develop, to some extent, a common jurisprudence. This case law has also influenced the development of registration law in other Torrens jurisdictions such as Malaysia and Singapore.17 The aim of this paper is to provide a foundation for the comparative study of English and ‘Torrens’ systems of title registration. The paper offers a theoretical framework for comparative analysis, highlighting those rules that have a substantive effect on the rights of individuals. While many of the observations relating to the Australian system can be applied to other Torrens jurisdictions, I have selected a single comparator from the Torrens group to avoid the risk of over-generalisation. In the latter part of the paper, I will explore the reasons for the misconception that the systems are fundamentally and originally distinct, and advance my own theory of the essential differences between them. 13
Ibid. RJ Smith, ‘Forgeries and Land Registration’ (1985) 101 LQR 79 at 95. 15 D Jackson, ‘Security of Title in Registration Land’ (1978) 94 LQR 239 at 241, 247–54. 16 JE Hogg, The Australian Torrens System above n 1, at 2. 17 Bhagwan Singh & Co Sdn Bhd v Hock Hin Bros Sdn Bhd [1987] 1 MLJ 324 at 326 (Penang High Court). 14
84 Pamela O’Connor As both the English and Australian are mature systems that have virtually completed the registration of eligible land parcels, the focus of this comparison will be on dealings following first registration.
THE OBJECTS OF REGISTRATION OF TITLE
While lawyers tend to view registration of title as a law reform project to overcome problems in common law conveyancing, governments and economists regard it as a market-supporting mechanism operated as a government program.18 The system is, as Mapp said, ‘overwhelmingly administrative in operation’,19 with economic objects, namely, to improve security of title and to facilitate the transfer of interests in land.20 These two objects are found in the preamble to the very first English registration of title statute, the Land Registry Act 1862, which began: ‘Whereas it is expedient to give certainty to the title of real estates and to facilitate the proof thereof and also to render the dealing with land more simple and economical’. Economists have long recognised that secure property rights are a precondition for investment and economic growth.21 Puzzled by the difficulty of replicating the economic success of Western capitalism in the Third World, economists have in the past decade turned their attention to examining the nature of the legal institutions and property laws that underpin capitalism in developed countries.22 The new ‘institutional economics’ has rediscovered a long-overlooked connection between property laws and prosperity.23 Laws that ensure the security and transferability of property establish the framework of incentives that enable the creation of new wealth from existing assets. Secure titles have been found to contribute to economic growth in a multiplicity of ways.24 They provide owners with an incentive to invest in improving and developing their land, for they are assured of reaping the benefits for them18 World Bank Development Report, 2002: Building Institutions for Markets; Economic Commission for Europe, above n 11, at 11. 19 TW Mapp, Torrens’ Elusive Title: Basic Principles of an Efficient Torrens System (Alberta Law Reform Institute, Edmonton, 1978), at 63. 20 Hogg, above n 4, at 100 and fn 32 (citing numerous case authorities); Mapp, Ibid, at 59–60; Di Castri, above n 3, Vol 2, at para [756]. 21 See generally, H Demsetz, ‘Towards a Theory of Property Rights’ (1967) 57 American Economic Review 347–59. 22 Eg, T Bethell, The Noblest Triumph: Property and Prosperity Through the Ages (New York, St Martin’s Press, 1998), esp ch 1; H De Soto, The Mystery of Capital (Bantam Press, London, 2000); TJ Miceli, CF Sirmans and J Kieyah, ‘The Demand for Land Title Registration: Theory with Evidence from Kenya’ (2001) 3 American Law and Economics Review 275–87. 23 Bethell, Ibid chs 1, 2, 20. 24 An economic consultant to the World Bank has developed an analytical and conceptual model to explain the various ways in which land ownership security contributes to financial development and economic growth: FK Byamugisha, ‘The Effects of Land Registration on Financial Development and Economic Growth: A Theoretical and Conceptual Framework’, Policy Research Working Paper N 2240 (World Bank, November 1999) .
Registration of Title in England and Australia 85 selves. Owners who wish to invest are better able to obtain the development capital they need on favourable terms if they can offer a good title as collateral for a loan. If purchasers can easily satisfy themselves that the title they are acquiring is clear, the costs of transacting in land will fall. Lower transaction costs assist the market to allocate land assets to their most productive uses, by allowing them to pass to those who value them most highly.25 A title to land is secure if it is at no risk, or no significant risk, of being found to be defective or subordinate to another interest. While economists assume that security of title is a good that property laws can bestow, it is, as Mapp said, ‘an elusive ideal’,26 for it incorporates contradictory elements. There are two competing aspects of security of title, that Demogue called ‘static’ and ‘dynamic’ security.27
Static security The law of private conveyancing was based on the principle of static security, which protects the rights of existing owners at the expense, if necessary, of purchasers.28 This was achieved through rules such as nemo dat quod non habet,29 the preference of both law and equity for the interest first in time when adjudicating the priority of competing interests, and the doctrines of notice and equitable fraud. Equity’s preference for the ‘bona fide purchaser for value without notice’, was an attempt to balance static security against the reasonable expectations of purchasers in good faith, but the standard of inquiry required of purchasers under the extended doctrine of notice was onerous. Conveyancing rules based on static security suited a society emerging from feudalism, where land ownership was confined to the privileged few, and was rarely traded. By the mid nineteenth century, England and Australia were developing market economies, in which value is captured through exchange. The old conveyancing rules inhibited exchange of land by imposing high transaction costs upon purchasers, and exposing them to the risk of acquiring defective or subordinate titles.
Dynamic security The enactment of registration of title legislation in mid-nineteenth century England and Australia decisively shifted the conveyancing law towards the 25
R Cooter and T Ulen, Law and Economics, (Illinois, Scott, Foresman and Co, 1988), at 100–06. Mapp, above n 19 at 63. R Demogue, ‘Security’ in A Fouilleé, J Charmont, L Duguit and R Demogue (eds), Modern French Legal Philosophy (Boston, The Boston Book Co, 1916 (republished by AM Kelley, New York, 1968)), Ch XIII. 28 Demogue calls this concept of security ‘static’ because it maintains the status quo of the title. 29 One may not give a better title than one has. 26 27
86 Pamela O’Connor opposing principle of dynamic security.30 Dynamic security is provided by legal rules that protect the reasonable expectations of those who purchase in good faith.31 It facilitates exchange by reducing or eliminating the risk that the purchaser’s title will be subject to unknown prior claims and title defects. This lowers transaction costs by limiting the inquiries that purchasers need to make. By relieving against risk, it also restores value to clouded titles. The transition from the old conveyancing system to registration of title parallels the rise of ‘dynamic security’ in the law of personal property, as exceptions to nemo dat were incorporated into the Negotiable Instruments Act 1881, the Factors Act 1889, section 2, and provisions of the Sale of Goods Act relating to sales by non-owners.32 The shift to dynamic security in the law of real and personal transactions was an essential condition for the operation of market capitalism. De Soto explains that, while the law in Western countries seeks to promote both types of security, dynamic security is favoured because of its greater economic importance: Although they are established to protect both the security of ownership and that of transactions, it is obvious that Western systems emphasize the latter. Security is principally focused on producing trust in transactions so that people can more easily make their assets lead a parallel life as capital33
It is natural to equate dynamic security with protection for purchasers, but this is too simple. While dynamic security reduces purchasers’ costs and risks in transactions, it also benefits owners. Without it, owner’s titles can be disturbed years after purchase if a defect in their title or a prior interest comes to light within the relevant limitation period. The ‘security of title’ object of registration of title refers to both static and dynamic security. The dilemma for the law is that the two stand in an inverse relationship.34 Measures that improve dynamic security tend to diminish static security to some extent, and vice versa. The law must determine how to balance dynamic and static security in the formulation of the rules, taking into account a range of policy considerations. Different evaluation of the considerations accounts for much of the variation and instability in the rules of registration of title systems.
HOW REGISTRATION OF TITLE IMPROVES DYNAMIC SECURITY
The key elements of a system of registered title are designed to relieve purchasers of the risks of unwittingly acquiring a defective or subordinate title. 30
Di Castri, above n 3, vol 1, [6]. So called because the need for dynamic security arises from change in the ownership of land. 32 GW Paton and DP Derham (eds), A Textbook of Jurisprudence 4th edn (Clarendon Press, Oxford, 1972) at 447; PS Atiyah, The Sale of Goods (Pitman, London, 1957). 33 De Soto, above n 22, at 61. 34 Demogue, above n 27, at 429–30. 31
Registration of Title in England and Australia 87 These ‘dynamic risks’35 created by the old law of private conveyancing left purchasers with the following problems:36 (1) determining the validity of all the instruments through which the grantor derived title; (2) determining the validity of the immediate conveyance from the grantor to the grantee; (3) the possible existence of unknown legal interests granted by the grantor or a former owner; and (4) the possible existence of unknown prior equitable interests or equities that are enforceable against a grantee, unless he or she is a bona fide purchaser for value without notice.
Dynamic risks (3) and (4) relate to the priority of competing interests in land,37 and can be solved by deeds registration or interest recording schemes.38 These are schemes that establish a public register of instruments or interests and rules for determining priority between them, usually by reference to the date of registration. The English Land Charges Act 1972 incorporates such a scheme. The system of registered title relieves against risks (3) and (4) by providing that, except in case of fraud or acquisition by a volunteer,39 the priority of registered interests inter se is determined by their date of registration (or lodgment for registration). Dynamic risks (1) and (2) do not raise a question of priority but arise from the operation of the common law principle nemo dat quod non habet. Under this principle, a purchaser does not obtain a good title if the transfer from seller to purchaser is void, or if any of the instruments through which the seller’s title devolves are void. Interest recording statutes alone cannot eliminate risks (1) and (2), although the American solution is to insure privately against the risks that flow from them. The principal technique that registration of title systems use to address all four dynamic risks is the concept of State-guaranteed title. This has, as Hogg explained, a dual operation: 35 Willett uses the term ‘dynamic losses’ to mean the losses arising from change of ownership, and ‘dynamic risks’ to mean the risk of such losses: AH Willett, The Economic Theory of Risk and Insurance, (Richard Irwin, Illinois, 1951), at 13–22. 36 This exposition of the problems is based on the analysis of Mapp, as simplified in the report of Canada’s Joint Land Titles Committee: Mapp, above n 19, Ch 2 and summary at 41–2; Canada. Joint Land Titles Committee, Renovating the foundation: proposals for a model land recording and registration act for the provinces and territories of Canada (The Committee, Edmonton, 1990), at 6. 37 With respect to problem (3), there is a debate as to whether the law’s preference for first in time is a priority rule or an application of nemo dat quod non habet. The latter view is supported by AJ Bradbrook, SV McCallum and AP Moore, Australian Real Property Law 2nd edn (Law Book Co, Sydney, 1997), at para [3.06]; M Neave, CJ Rossiter and MA Stone, Sackville & Neave’s Property Law: Cases and Materials 6th edn (Butterworths, Sydney, 1999), at para [5.2.6]. 38 Mapp, above n 19, at 56. 39 Not all jurisdictions make an exception for volunteers, as explained below under the heading ‘registered volunteers’.
88 Pamela O’Connor The warranty of title given by the statutory conclusiveness of the register operates in two ways, and the register has two functions—affirmative and negative respectively. Affirmatively, the register warrants that the title of the owner is as stated on the register; and negatively, the warranty is that the owner’s title is not affected by anything that is not stated on the register. This is equivalent for many purposes to a warranty that the owner’s legal title is as it appears to be on the register, and that there are no equitable interests enforceable against the owner, other than any actually notified on the register.40
The conclusiveness of the register finds its counterpart in the concept of the ‘indefeasibility’ of registered title, as it is called in the Torrens jurisdictions. The term should not be taken literally.41 Torrens titles are no more absolute than the English concept of ‘absolute title’. The affirmative aspect of the conclusive register overcomes dynamic risk (1) by curing prior title defects. It substitutes for the chain of title a single status indicator—a registered title, affirmed by the state. Except as allowed by statute, it cannot be challenged by reason of a defect in the chain of instruments and transactions through which the previous owner derived title. The affirmative operation of the register can also overcome dynamic risk (2), which is the risk that the immediate conveyance from the previous registered owner to the purchaser is void or voidable. The extent to which the system should relieve against this risk is perhaps the most important policy question in registration law. As I will explain below, the Australian system goes further to eliminate dynamic risk (2) than the English. The negative aspect of the conclusive register reduces dynamic risks (3) and (4). By protecting registered owners from being affected by notice of prior interests, it reinforces the rule that interests rank in priority by their date of registration. In both the English and Australian systems, even actual notice of a prior unregistered interest does not per se make it enforceable against a purchaser who registers.42 All the Australian statutes have a ‘notice’ provision that states that a transferee is not affected by actual or constructive notice of any unregistered interests and is not required to inquire into the circumstances under which the transferor or the previous proprietor was registered.43 As in England, difficult questions have arisen concerning the dividing line between ‘mere notice’ and conduct amounting to fraud or lack of good faith on the part of the transferee.44 40 Above n 4, at 96. All Australian statutes embody this principle in the ‘indefeasibility’ provision, eg Transfer of Land Act 1958 (Vic), s 42. The LRA 1925 followed a similar format: ss 20(1) and 23(1), cf the LRA 2002, s 58 (affirmative operation of registration) and negative operation: (ss 11, 12 and Sched 1; ss 28–30 and Sched 3). 41 Mapp says that the epithet ‘indefeasible’ is deceptive, and notes that Torrens statutes generally do not use the term: Mapp, above n 19, at 66–7. 42 C Harpum, Megarry & Wade Law of Real Property, 6th edn (Sweet & Maxwell, London, 2000) at [6–105] and authorities cited at fns 26–32. 43 Eg, Transfer of Land Act 1958 (Vic), s 43; The various provisions are discussed in Bradbrook, McCallum & Moore, above n 37, at para [4.22]. 44 The controversy over Peffer v Rigg [1977] 1 WLR 285 finds its parallels in Australia; Harpum, above n 42, at para [6–105]; (2001) UK Law Com. No 271, at paras 3.39–3.50; Bradbrook,
Registration of Title in England and Australia 89 The combined negative and affirmative operation of the title register gives registered owners a degree of dynamic security that could not be achieved under the law of unregistered conveyancing. It facilitates the transfer of land by reducing dynamic risks and transaction costs. It is, however, subject to various qualifications and exclusions, as detailed below.
QUALIFICATIONS TO THE NEGATIVE CONCLUSIVENESS OF THE REGISTER
Overriding interests As in England and Wales, all the Australian registration of title statutes provide for a list of ‘overriding interests’ that bind the registered owner whether shown on the register or not. The list varies from one jurisdiction to another, commonly including short term occupation tenancies, rates and taxes, public rights and certain easements.45 The term ‘overriding interest’ does not designate a homogenous group of interests. It is best understood as a legislative device for subjecting registered titles to interests that are deemed worthy of ‘passive’ protection, in circumstances where the persons entitled to the benefit of the interests cannot reasonably be expected to enter them on the register. Some of the Australian statutes, like the 1925 English Act,46 treat the interests of squatters as an overriding interest.47 While recognition of squatters’ rights detracts from the completeness of the register as a mirror of title, there is a practical need to reconcile the register with the change of possession on the ground.48 In an attempt to resolve the dilemma, legislatures have experimented with various measures for dealing with possessory rights in a system of title by registration. This has produced some instability and variation in the rules of the various jurisdictions. None of the Australian statutes provide a wide exception for the interests of a person in actual occupation of land, like that found in the English legislation.49 The English provision protects the static security of persons occupying land
McCallum & Moore, above n 37, at paras [4.40]–[4.46]; P; MP Thompson, ‘Registration, Fraud and Notice’ (1985) 44(2) Cambridge Law Journal 280. 45 For a summary of the exceptions to the indefeasibility of registered titles in each of the Australian jurisdictions, presented in tabular form, see Neave, Rossiter & Stone, above n 37, at 494–5. 46 LRA 1925 (UK), s 70(1)(f). The provision has not been replicated in the 2002 Act, but squatters’ rights will be protected as overriding interests for three years under the transitional provisions: Sched 12, paras 7, 11. 47 Victoria, Queensland, Western Australian and Tasmania: see generally Bradbrook, McCallum & Moore, above n 37, at paras [16.82]–[16.85]. 48 The United Nations Economic Commission for Europe recommends that the law should ‘permit flexibility in reconciling the possession of land with its ownership’: above n 11, at, 21. 49 LRA 2002, Sched 3, cl 2 (cf s 70(1)(g) of the 1925 Act) and similar provisions in the Registration of Title Act 1964 (Ir), s 72(1)(j) and the Land Registration Act (NI) 1970, Sched 5, pt 1, para 15).
90 Pamela O’Connor under informal agreements, who may be unlikely to appreciate the need to protect their interests by an entry in the register.50 As interpreted by the House of Lords in Williams & Glyn’s Bank Ltd v Boland,51 the provision in the 1925 Act has been criticised for the dynamic risks (or burden of inquiry and risk) that it places on purchasers and mortgagees.52 In Australia, such interests would be destroyed by registration of a later interest, unless the unregistered claimants took timely action to enter a caveat or to assert their rights in court. Neither the English nor the Australian approach is entirely satisfactory, but there seems to be no middle course. Either the unregistered interests are extinguished by a purchaser’s registration, or they override it. Faced with this invidious choice, the 1925 English Act prefers the static security of the occupying owners,53 while Australia opts to maximise dynamic security.
Voluntary transfers The negative operation of registration of title enables purchasers to take free of prior unregistered interests, even if they have notice of them. In England and Wales, this operation benefits only purchasers for value.54 In Australia there are two views about whether the same protection should be extended to a registered volunteer (a transferee who did not give valuable consideration). On one view, the dynamic security provided by the registration system should benefit only those who have acquired their titles for value in the market. A registered volunteer should take subject to earlier interests that affected his or her predecessor in title, but can confer a good title on a purchaser for value. This is the solution adopted in the 1925 English Act,55 and in a line of Australian cases represented by the Victorian Supreme Court decision in King v Smail.56 The contrary view, represented by the decision of the New South Wales Court of Appeal in Bogdanovich v Koteff,57 holds that a registered volunteer takes free of prior equities that affected his or her predecessor in title.58 The latter approach 50
(1998) Law Com. No 254, at para 4.17. See, eg Hodgson v Marks [1971] 1 Ch 892. [1981] AC 487. 52 Property Law: The implications of Williams & Glyn’s Bank Ltd. v Boland (‘the Boland report’) (1982) Law Com, No 115, esp at para 28; but see (1987) Law Com. No 158, at para 1.3 as to subsequent developments. The Commission resiled from its recommendations in the Boland report, and found that practitioners had come to terms with the implications of the court’s decision: para 2.7. 53 As to whether the LRA 2002, s 26 diminishes the protection for beneficial interests, see Ferris, ch 6. 54 LRA 2002, ss 29–30 (cf LRA 1925, s 20(1),(4); s 23(1), (5)). 55 Ibid. 56 [1958] VR 273. See also Biggs v McEllister (1880) 14 SALR 86; Washington Constructions v Ashcroft (1982) Q Conv R paras [54–056]; Official Receiver v Klau (1987) 74 ALR 67; Rasmussen v Rasmussen [1995] 1 VR 613. 57 (1988) 12 NSWLR 472. 58 A registered owner who had taken under a will was held to have an indefeasible title and was not subject to an equitable interest created by the previous registered owner. In Rasmussen v 51
Registration of Title in England and Australia 91 has found favour in Western Australia,59 and has been legislatively adopted in Queensland and the Northern Territory.60 The conflict in the Australian authorities is partly due to equivocation in the statutes, but also to competing policy arguments. In Australia and Canada, all law reform bodies who have examined the question in recent years have concluded that registration should afford volunteers the same protection from prior equities as it does to purchasers for value.61 The principal argument for extending dynamic security to registered volunteers, is that it enables the owner to use his or her land assets to generate new wealth.62 It is not in the interests of general economic welfare to allow the titles of volunteers to remain clouded.
QUALIFICATIONS TO THE AFFIRMATIVE CONCLUSIVENESS OF THE REGISTER
Rectification of titles Dynamic risk (2) is the risk that a purchaser will not get a good title if the immediate conveyance from the previous owner is void or voidable for any reason, eg, forgery, fraudulent misrepresentation, illegality or breach of mandatory statutory procedures. The extent of protection from this risk depends on whether the statute allows rectification of the register adversely to the purchaser’s registered title. The original Torrens statutes gave conflicting indications on whether rectification could be ordered against a registered title obtained without fraud on the basis of a void instrument.63 As a result, this important question was left to the judges to decide. After decades of conflict in the judicial authorities, the High Court of Australia decided in 1971 that a title obtained by registration of a void instrument was not liable to rectification in the absence of fraud.64 Rasmussen [1995] 1 VR 613 (Supreme Court of Victoria), Coldrey J doubted the correctness of this decision. 59 Conlan v Registrar of Titles (2001) 24 WAR 299. 60 Land Title Act 1994 (Qld), s 180; Land Title Act 2000 (NT), s 183. 61 Victorian Law Reform Commission, Discussion Paper No 6: Priorities, (1988) at para 10, p 5; and Report No 22: Priorities (1989), at paras 7–8 and recommendation 3; Canada, Joint Land Titles Committee, above n 36 at 36–7, and s 5.3(1) of the Model Act; Alberta Law Reform Institute. and Canada. Joint Land Titles Committee, Towards a new Alberta Land Titles Act (Alberta Law Reform Institute, Edmonton, 1990), at 64. 62 RF Atherton, ‘Donees, Devisees and Torrens Title: The Problem of the Volunteer Under the Real Property Acts’. (1998) 4(2) Australian Journal of Legal History 121, at 157–9; Mapp, above n 19, 124–8; and see Law Reform reports, ibid. 63 Neave, Rossiter & Stone, above n 37, at paras [6.3.27]–[6.3.32]. Whalan says that no distinction has been made in the cases between void and voidable instruments, since the central question is whether it is registration or the instrument that confers title: D Whalan, The Torrens System in Australia (Sydney, Law Book Co, 1982), at 319–20; P Butt, Land Law 4th ed (Law Book Co, Sydney, 2001), at 298, fn 25. 64 Breskvar v Wall (1971) 126 CLR 376: [1972] ALR 205, following Frazer v Walker [1967] 1 AC 569; [1967] 1 All ER 649, on appeal to the Privy Council from New Zealand. Ziff says that ‘the preponderant view in Torrens jurisdictions today favours indefeasibility: B Ziff, Principles of Property
92 Pamela O’Connor ‘Fraud’ means actual fraud by the applicant for registration or his or her agent.65 The adoption of this principle of ‘immediate indefeasibility’ dramatically reduced dynamic risk (2), but this came at a cost to static security. As Mapp observed: To whatever extent C [a purchaser] can acquire an interest from a predecessor through error, he is vulnerable to losing that interest to a successor through the same error repeated after his registration.66
The English system devised a compromise that substantially protects registered ‘proprietors in possession’, but not mortgagees, against dynamic risk (2). The register may be rectified, without the consent of a registered owner, to correct a mistake, to bring the register up to date or to give effect to an estate, right or interest excepted from the effect of registration.67 There is, however, a milewide immunity from rectification for a ‘proprietor who is in possession’.68 Proprietors in possession who have not been fraudulent or careless are at little risk of losing their land through rectification. It is mortgagees who bear the brunt of the wide rectification provisions. Even a mortgagee who is actually in possession is not a ‘proprietor in possession’ for the purposes of the Act.69 The mortgagee will, however, be entitled to payment of indemnity in the event of rectification.70 The rationale for the different treatment of mortgagees and proprietors in possession seems to be that mortgagees, as capital investors, are more likely to regard full monetary indemnity as an adequate substitute for their interest in land. Di Castri suggests that the State guarantee of title may have a different meaning for registered mortgagees and encumbrancers: It may be that [they] conceive their statutory protection, not in terms of indefeasibility, but in terms of guaranteed titles ensuring pecuniary compensation. Perhaps this is all that is required with respect to these interests’.71
In Australia, actual fraud on the part of the registered owner or his or her agent is the only ground upon which the register may be rectified adversely to a registered owner who took bona fide and for value.
Law 3rd edn (Carswell, Ontario, 2000), at 426. See, eg, Adorna Properties Sdn Bhd v Boonsom Boonyanit @Sun Yon Eng [2001] 1 MLJ 241 at 246 (Malaysia) and Administration of the Territory of Papua New Guinea v Blasius Tirupia [1971–72] PNGLR 229 (Papua New Guinea). However, Di Castri says that the majority of Canadian decisions on the subject of forged instruments do not accept the principle: Di Castri, above n 3, vol 2, at para [758]. 65 Assets Company Ltd v Mere Roihi [1905] AC 176. 66 Mapp, above n 19, at 68; W Taylor, ‘Scotching Frazer v Walker’ (1970) 44 Australian Law Journal 248–60. 67 LRA 2002, Sched 4, cl 2(1). 68 LRA 2002, Sched 4, cl 3 and s 131. 69 LRA 2002, s 131(2)(b). 70 LRA 2002, s 103 and Sched 8, cl 1(a). 71 Di Castri, above n 3, vol 2, at para [980], commenting on another statute.
Registration of Title in England and Australia 93 Fraud may have a narrower scope under the English rectification provisions,72 where it has been held to mean a fraud practised on the registry in order to obtain registration.73 In the more usual case where the fraud is practised on the former registered owner, the remedy in England might be an in personam action.74
Rectification of boundaries It is sometimes assumed that boundaries are guaranteed in Australia,75 but this requires qualification. All the Australian statutes provide that the registered owner does not obtain indefeasible title to any portion of land that may have been included in the certificate by wrong description of parcels or boundaries.76 This exception allows rectification of surveying mistakes,77 but not (except in Queensland) where the proprietor is a purchaser or mortgagee for value.78 This means that, except in Queensland, registered owners or mortgagees may resist rectification of their title with respect to boundaries, so long as they obtained the title bona fide, but they may be liable to compensate the person who suffered loss by reason of the error.79 Where they obtained the title bona fide from an owner already on the register, they will escape both rectification and personal liability. For transferees in this category, boundaries are guaranteed subject to the rights (if any) of a person in adverse possession or entitled to relief under encroachment of buildings legislation.80
72
LRA 2002, Sched 4, cl 3(2)(a) (cf LRA 1925, s 82(3)(a)). Norwich & Peterborough Building Society v Steed [1993] Ch 116. This case is inconsistent with earlier authorities that took it to include a registration obtained by fraud or forgery: Re Leighton’s Conveyance [1936] 1 All ER 667; Argyle Building Society v Hammond (1984) 49 P & C R 148: see RJ Smith, ‘Rectification of Registered Titles’ (1993) 109 LQR at 188–9. 74 Compare Jones v Lipman [1962] 1 WLR 832 with Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 342. 75 Harpum, above n 42, at para [6–003] and fn 20, (citing Ruoff & Roper, Registered Conveyancing, (Sweet & Maxwell, London, loose-leaf orig. 1991) at para 2–04). 76 For a list of the Australian provisions, see Bradbrook, McCallum & Moore, above n 37, at para [4.52]; D Whalan, above n 63, at 319–20. 77 As opposed to cases of double or conflicting registrations, or registration of a person who in fact has no title to the property. 78 Bradbrook, McCallum & Moore, above n 37, at para [4.52]; Butt, above n 63, at para [2074]. 79 The general scheme of the Australian statutes is that claimants must first avail themselves of their statutory remedies against the person responsible for the loss; the statutory indemnity being a last resort: see generally, Bradbrook, McCallum & Moore, above n 37, at para [4.131]; Whalan, above n 63, at 362. 80 Some Australian jurisdictions have enacted special legislative schemes for dealing with encroachment of buildings by neighbours, while others rely on the general law of adverse possession. See further, Bradbrook, McCallum & Moore, above n 37, at para [15.37]. 73
94 Pamela O’Connor In personam remedies The English and Australian systems recognise that the conclusive effect of registration does not prevent the assertion of claims against the registered owner personally (eg, arising from mistake, breach of contract or a trust obligation incurred by the proprietor).81 These claims can lead to an order against the registered owner in personam for the transfer of a title.82 Courts have occasionally used the device of a constructive trust to deem the registered owner to take subject to a prior interest in cases where the registered owner had expressly or impliedly agreed to do so.83 In England and in Australia, commentators have cautioned that ‘the trusteeship concept must be very carefully and sparingly used in the context of indefeasibility’ lest it undermine the objects of the registration system.84
PROTECTION OF UNREGISTERED INTERESTS
The general scheme of the English and Australian statutes is to allow registration only of estates and interests that existed as ‘legal’ interests under the general law.85 Trusts and other equitable interests are excluded from the register in the interests of simplicity and ease of transfer. In England, trusts are protected by the entry of a restriction,86 a device broadly similar in function to the registrar’s caveat used in some Australian jurisdictions.87 In both systems, unregistered interests take effect in equity, and are liable to be destroyed by the registration of another disposition unless they are protected under the provisions of the Act. In Australia, protection is available through the entry of a caveat against dealings. The function and operation of the caveat is similar to that of the caution against dealings under the Land Registration Act 1925 (UK), s 54(1).88 It halts the registration of a subsequent adverse dealing until the person who lodged the caveat has been notified and has been given the 81
Frazer v Walker [1967] 1 AC 569 at 582; Harpum, above n 42, at para [6–195]. Ziff suggests that claims for proprietary relief should be termed inter se rather than in personam: Ziff, above n 64 at 431. 83 Eg Waimiha Sawmilling Co v Waione Timber Co [1926] AC 101; Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044; Bahr v Nicolay (No 2) (1988) 164 CLR 604. 84 Whalan, above n 76, 335; M-A Hughson, M Neave and P O’Connor. ‘Reflections on the Mirror of Title: Resolving the Conflict Between Purchasers and Prior Interest Holders’ (1997) 21 Melbourne University Law Review 96., at 490–3. See criticism of this device when imposed solely on the basis of notice, as in Peffer v Rigg [1977] 1 WLR 285: RJ Smith ‘Registered Land: Purchasers with Actual Notice’ (1977) 93 LQR 341., at 343–4; MP Thompson, above n 44, at 287–302. 85 LRA 2002, s 27. 86 LRA 2002, ss 40–6. 87 Eg, in New South Wales, the caveat forbids the registration of an instrument not in accordance with the terms of the trust: S Colbran and SM Jackson, Caveats (FT Law & Tax, Melbourne, 1996), at [3.2.2]. 88 Stein, above n 85 at 618. 82
Registration of Title in England and Australia 95 statutory interval in which to commence court proceedings before the caveat lapses.89
Priority between unregistered interests Like the caution under the 1925 English Act, the Australian caveat does not confirm or affect the validity of the interest claimed by the person who lodged it.90 For so long as it remains on title, the caveat prevents the registration of a dealing that affects the interest of the caveator.91 If the caveator chooses to assert his or her claim in court, the matter is disposed of as a priority contest between the caveator and the person whose application for registration has been stopped. Priority disputes involving unregistered interests in registered land have produced more litigation in Australia than in England,92 although the rules for their adjudication are the same as under the 1925 English Act. The disputes are resolved under the rules that determine the priority of equitable interests in unregistered land.93 The interest created first in time prevails, unless its holder’s conduct warrants postponement to the later interest.94 The Australian courts tend to the same view that the English courts took under the LRA 1925, namely that failure to protect a minor interest by registration of a caveat/caution is not per se conduct justifying loss of priority to a later interest.95
89 Leros Pty Ltd v Terara Pty Ltd (1991) 174 CLR 407 at 419; cf LRA 1925, s 56(4); Ruoff & Roper, above n 75, at para [7–03]. 90 Clark v Chief Land Registrar [1993] Ch 294; LRA 1925, ss 56(4), 102(2); Harpum, above n 42, at para [6–090]; Ruoff & Roper, above n 75, at 824 91 The statutes do authorise the registrar to register certain dealings adverse to the caveator’s interest. See generally, Bradbrook, McCallum & Moore, above n 37, at paras [4.88], [4.89]. The effect of the caveat in interdicting registration is the same as that of the caution under the LRA 1925: Willies-Williams v National Trust (1993) 65 P & CR 359 at 362; Harpum, above n 42, at para [6–083]. 92 While it is beyond the scope of this paper to evaluate the reasons for this difference, factors contributing to the lower rate of litigation in England, including different conveyancing practices, the protection for persons in actual occupation, and the role of the Chief Land Registrar in settling disputes. 93 Bradbrook, above n 37, at para [4.80]; Colbran, above n 87 at [11.6], R Sackville, ‘Competing Equitable Interests in Land under the Torrens System’ (1971) 45 Australian Law Journal 396. 94 Abigail v Lapin (1934) AC 491; Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326; cf McArthy & Stone Ltd v Julian S Hodge & Co Ltd [1971] 1 WLR 1547; Barclays Bank Ltd v Taylor [1974] Ch 137 at 146–7; Mortgage Corporation Ltd v Nationwide Credit Corporation Ltd [1994] Ch 49 at 56; Ruoff & Roper, above n 75, at para [36–03]; Harpum, above n 42, at para [6–095]. 95 J & JH Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 554 per Barwick CJ; cf Mortgage Corporation Ltd v Nationwide Credit Corporation Ltd [1994] Ch 49 at 56; Freeguard v Royal Bank of Scotland (1998) 95/13 LS Gaz 29; P Stubbs, ‘Equitable Priorities and the Failure to Caveat’ (1989) 6(2) Auckland University Law Review 199; TD Castle, ‘Caveats and priorities: the ‘mere failure to caveat’ (1994) 68 Australian Law Journal 143.
96 Pamela O’Connor Introduction of interest recording Reformers in Australia and Canada have called for the caveat to be refashioned or replaced by interest recording, a system under which the entry of an interest on the register confers priority, but no warranty of title.96 Notices under the LRA 1925 are a form of interest recording, re-ordering priorities as agreed by the parties or decreed by a court.97 The LRA 2002 section 34(2) extends this protection to disputed interests by allowing claimants to enter a notice unilaterally. An interest protected by a notice will take priority over a subsequent registered disposition.98 The equitable priority rules will continue to apply as between unregistered interests, but when electronic conveyancing is fully implemented, it will no longer be possible to create interests in land formally without either registering them or entering a notice.99 When the creation of an interest becomes simultaneous with the entry of a notice, the date of entry of a notice will determine its priority, except against interests created by informal means.100 This is an important reform that will be closely studied in overseas jurisdictions like Australia, where an increased role for interest recording has been mooted.
THE INDEMNITY SCHEME
The English and Australian registration of title statutes provide for payment of an indemnity to persons who suffer loss caused by certain prescribed events. The list of losses for which indemnity is payable in Australia usually include the following seven categories: loss in consequence of fraud, loss through the first registration of the land, loss through the registration of another as owner, loss sustained by reliance on the register, loss of documents in the registry or from an error in an official search, loss arising from the exercise of the registrar’s powers and loss in consequence of any error, omission or misdescription.101 Notwithstanding that the indemnity provisions are entitled to a beneficial interpretation, the courts and the Registrars have generally interpreted these grounds restrictively.
96 Canada, Joint Land Titles Committee, above n 36, at 13–18, and Part 4 of the Model Act; Victorian Law Reform Commission, Report No 22 priorities (1989), Rec 10; S Colbran and SM Jackson, Caveats (FR Law & Tax, Melbourne 1996) at 536–7; Hughson, above n 84, at 487–9. 97 LRA 1925, s 48(1), (2), s 52. 98 LRA 2002, ss 29, 30. 99 LRA 2002, s 28; Lord Chancellor’s Dept, Explanatory Notes to Land Registration Act 2002 (HMSO, 2002) at para 68. LRA 2002, s 93 authorises the making of rules prescribing dispositions to which the requirement of simultaneous registration will apply. 100 Explanatory Notes, ibid. 101 LA McCrimmon, ‘Compensation Provisions in Torrens Statutes: The Existing Structure and Proposals for Change’ (1993) 67 Australian Law Journal 904–22 at 907.
Registration of Title in England and Australia 97
THE ORIGIN OF THE PERCEPTION OF DIFFERENCE
This comparative overview of the English and Australian registration of title systems has demonstrated that they are quite similar in their essential features and operation. Why then has the misconception persisted that they are fundamentally distinct and unrelated? Simpson suggests that it arose from the early success of the Australian statutes and the contemporary failure of voluntary registration of title schemes in England.102 During the latter half of the nineteenth century and most of the twentieth century, the Torrens system as practised in Australia and New Zealand was the preferred model for other jurisdictions proposing to adopt registration of title. Proponents of registration of title statutes promoted their measures as based upon the successful Australian or ‘Torrens’ model rather than the failed English one.103 From this pragmatic distinction developed a popular conception that there were two fundamentally distinct species of registration of title in common law countries, the English and the Torrens system.104 The theory of difference is reinforced by the general belief that the two systems were invented quite independently in Australia and England. The claim of spontaneous local invention has been questioned, so far as Australia is concerned, by recent findings that Sir Robert Torrens’ Bills were strongly influenced by the centuries-old Hanseatic system of registration of title, and the Hamburg system in particular.105 Raff has identified the common elements as including the parcel-based register, the concept of the conclusive register, priority by date of registration,106 the exclusion of notice as an exception to the conclusiveness of registered title, the hypothecary mortgage by registered charge107 and the caveat to protect unregistered claims.108 The resemblance of Torrens’ scheme to German registration of title schemes was noted long ago,109 but the agency for this influence was long overlooked. 102 Simpson, above n 7, at 76–7. For an explanation of the different experience of the two countries, see D Whalan, ‘Immediate Success of Registration of Title to Land in Australasia and Early Failures in England’ (1967) 2 NZULR 416. 103 Simpson, ibid, at 77. 104 Simpson, ibid, at 76–7; SE Dowson and VLO Sheppard, Land Registration 2nd edn (HMSO Colonial Research Publications No 13, London, 1956), 73. 105 M Raff, German Real Property Law and the Conclusive Land Title Register, PhD Thesis, University of Melbourne, (1999) at 14 and passim, S Robinson, Transfer of Land in Victoria (Law Book Co, Sydney, 1979) at 11–25; D St L Kelly, ‘Huebbe, Ulrich (1805–1892)’ in D Pike (ed), Australian Dictionary of Biography (Melbourne University Press, Melbourne, 1972), at 1851. 106 Although this idea was not entirely new, being an aspect of deeds and other instrument registration schemes. 107 Because of its Roman law origins, Raff argues that the Torrens mortgage is the clearest evidence of a transplant from Germany: Raff, above n 105, at 116. 108 M Raff, ‘The True Meaning of the Torrens System and Environmental Responsibility’ (paper delivered at the Real Property Teachers’ Conference, Melbourne, February 2001), at 7. 109 J Dumas, Registering Title to Land: A Series of Lectures Delivered at Yale (FB Rothman & Co., Littleton, 1985), at 76; Hogg, above n 1, at 5.
98 Pamela O’Connor Research has revealed the crucial contribution of Torrens’ colleague, Dr Ulrich Hübbe, a German immigrant who was an authority on the Hamburg registration of title system.110 Although English scholars have yet to examine the influence of German models on their scheme, we do know that English reformers studied the German registration of title systems.111 Coincidence is an unlikely explanation for the similarity of the elements common to the English, Torrens and German systems. It would not be surprising if English researchers were to find that the English and Torrens systems, far from being independent inventions, are the offspring of a common but unacknowledged German parent.
CONCLUSION
Despite their striking similarity, the English and Australian systems differ in the way they balance dynamic and static security. English law protects the static security of occupying owners by giving overriding status to the rights of holders of unregistered interests who are in actual occupation of land.112 Australia allows the interest of a non-fraudulent purchaser to prevail over such unregistered interests unless they are protected on the register, or there are additional circumstances that place the purchaser in the position of a constructive trustee for the prior interest holder. The English concession to static security is also evident in the wider grounds for rectification allowed by the English statute, although the difference narrows significantly where the registered owner is a ‘proprietor in possession’. Australia pursues dynamic security more unequivocally, through its rule of immediate indefeasibility. Under this rule, the registered interest of a purchaser for value, including that of a mortgagee, cannot be adversely affected by rectification of the register unless the registered owner is personally or vicariously guilty of actual fraud. Some Australian jurisdictions even extend immediate indefeasibility to registered volunteers, provided that they are not party to fraud. The Australian approach recognises the economic function of law in providing security for transactions, but economics provides no clear guidance as to how much dynamic security is actually required to ensure an efficient land market. English law has probed these limits empirically through ongoing review and 110
Raff, above n 105, at Part I; Robinson, above n 105, at Ch 1; Kelly, above n 105. Raff, above n 108, at 1, fn 1; Hogg, above n 1 at 5 and fn 19, referring to information about the continental systems in the Appendices to the Second Report of the Real Property Commissioners, 1830, Appendix to the First Report of the Registration and Conveyancing Commissioners in 1850, and to JW Probyn (ed), Systems of Land Tenure in Various Countries (London, Cassell, 1881). Charles Fortescue-Brickdale, a Chief Land Registrar who influenced the design of the English legislation, studied and wrote on the Prussian schemes: C Fortescue-Brickdale, Methods of Land Transfer—Eight Lectures (Stevens & Sons, London, 1914), at 129–30. 112 The LRA 2002 has abolished the protection for owners of interests in receipt of rents and profits; Sched 3 cl 2, subject to transition provision Sched 12 cl 8. 111
Registration of Title in England and Australia 99 reform, and has discovered that it can preserve some elements of static security without appreciable adverse impact on the market.113 The result is a more finely-tuned balance of dynamic and static than the Australian system. On the other hand, the long-term trend of the English system appears to be in the direction of more dynamic security. The English rectification provisions were amended in 1977 to protect proprietors in possession from losing their titles simply on the ground of an innocent error, omission or mistake.114 The amending Act also repealed a provision that allowed rectification where the immediate disposition to the proprietor was void.115 Roger Smith noted that these legislative reforms paralleled the 1971 shift in the Australian case law towards the principle of immediate indefeasibility, and offered the following comment on the direction of the changes: It may be that as registration systems develop, so one becomes more ready to accept the current state of the register as conclusive, one becomes more registrationminded.116
It is beyond the scope of this chapter to evaluate the English and Australian systems in detail, or to propose methods for resolving the conflicts between interests and policies. What I have sought to show is that the distinctive way in which each system seeks to balance dynamic and static security provides the key parameter for comparing English, Australian and other ‘Torrens’ systems of registration of title.
113 See, eg, how the Law Commission initially rejected the wide interpretation of LRA 1925, s 70(1)(g) in Boland, but changed its mind after finding minimal market effects: (1987) Law Com No 158, at para 2.7, above n 52. 114 Amendments to the LRA 1925, s 82(3)(a), as amended by the Administration of Justice Act, 1977, s 24. 115 LRA, 1925, s 82(3)(b). 116 Smith, above n 14, at 188.
6
Making Sense of Section 26 of the Land Registration Act 2002 GRAHAM FERRIS
INTRODUCTION
The Land Registration Act 2002 (‘LRA 2002’) is the latest in a series of statutes that, taken together, constitute the largest programme of reform in the field of property law since 1925. The reform process began with the Trusts of Land and Appointment of Trustees Act 1996 (‘TLATA’), which was followed by the Trustee Act 2000 (‘TA 2000’). All three pieces of legislation followed reports by the Law Commission, and were intended to give effect to the recommendations contained in these reports. This paper is an attempt to construe a single section, section 26 of the LRA 2002, which was enacted, at least in part, to remedy a problem caused by the provisions of the TLATA. The problem caused by the TLATA derives from the relationship between trustees’ powers and overreaching.1 Overreaching occurs when trustees make a disposition they are empowered to make by the general law, statute, or their trust instrument. Therefore, when the TLATA changed the statutory regime governing trustees powers it also affected the operation of overreaching. Although purchasers of unregistered land were given protection against the novel hazards this created in the TLATA purchasers of registered land were excluded from this protection.2 Section 26 of the LRA 2002 was drafted with the intention of extending to purchasers of registered land protection analogous to the protection the TLATA extended to purchasers of unregistered land. This intention is clearly apparent from a consideration of the report that preceded the LRA 2002, Land Registration for the Twenty-First Century: A Conveyancing Revolution (‘the Report’).3 It is also apparent from the Report that section 26 was intended to cure defects of legal capacity.4 Therefore, the challenge to any 1 See C Harpum, ‘Overreaching, Trustees’ Powers and the Reform of the 1925 Legislation [1990] Cambridge Law Journal 277; State Bank of India v Sood [1997] Ch. 276; Ferris and Battersby, ‘The General Principles of Overreaching and the Reforms of 1925’ (2002) 118 Law Quarterly Review 270. 2 See s 16 TLATA; G Ferris and G Battersby, ‘The Impact of the Trusts of Land and Appointment of Trustees Act 1996 on Purchasers of Registered Land’ [1998] Conveyances168. 3 Law Com No 271 at 4.10 and 4.11. 4 Ibid at 2.15 and 4.3.
102 Graham Ferris attempted construction is to derive these effects from the words of section 26 without violating the principles that underlie the general law or the scheme of the LRA 2002. This paper starts with an orthodox statement of principle on the judicial task in statutory construction. Then the relevant materials needed for a construction of section 26 are gathered. Possible constructions of the section are considered, and an attempt is made to identify the construction which most adequately effects the intention of the drafters of the LRA 2002 without violating the canons of statutory construction or causing damaging distortions to the law.
STATUTORY INTERPRETATION
Section 26 of the LRA 2002 was originally clause 26 of the draft bill annexed to the Report. The Report identified eleven ‘key features’ or ‘striking changes’ contained in the annexed bill. Among these eleven striking changes was:5 in favour of those dealing with them, owners of registered land will be presumed to have unrestricted powers of disposition in the absence of any entry on the register.
This change was effected by section 26, which is intended to remove any possibility of a registered proprietor, or a person entitled to be registered as a proprietor,6 making a disposition that would be invalid due to any limitation upon their powers of disposition not imposed by the LRA 2002 or apparent upon the face of the Register. The task of construing section 26 has been undertaken in the manner advocated by Lord Diplock and Lord Simon of Glaisdale in their joint dissenting speech in Maunsell v Olins:7 What Maxwell on Interpretation of Statutes, 12 ed (1969), p 28, calls ‘the first and most elementary rule of construction’ ‘is that it is to be assumed that the words and phrases of technical legislation are used in their technical meaning if they have acquired one, and otherwise in their ordinary meaning’. This ‘golden’ canon of construction has been so frequently and authoritatively stated that further citation would be otiose.8 Statutory language, like all language, is capable of an almost infinite gradation of ‘register’—ie, it will be used at the semantic level appropriate to the subject matter and to the audience addressed (the man in the street, lawyers, merchants, etc). It is the duty of a court of construction to tune in to such register and so to interpret the statutory language as to give to it the primary meaning which is appropriate in that register (unless it is clear that some other meaning must be given in order to carry out the statu5
Ibid at 1.11–1.14. In the text below the possibility of a person entitled to exercise the powers of a registered proprietor, but not a registered proprietor, is usually ignored in order to avoid tedious repetition, unless the possible existence of such a person is relevant to any issue being considered. 7 [1975] AC 373. The case concerned the construction of s 18(5) of the Rent Act 1968. 8 [1975] AC 373 at 390H–391A. 6
Making Sense of Section 26 of the Land Registration Act 2002 103 tory purpose or to avoid injustice, anomaly, absurdity or contradiction). In other words, statutory language must always be given presumptively the most natural and ordinary meaning which is appropriate in the circumstances.9
It is essential that this ‘golden rule’ is adhered to. An English court of construction must put itself in the place of the draftsman, and ascertain the meaning of the words used in the light of all the circumstances known by the draftsmanespecially the ‘mischief’ which is the subject matter of the statutory remedy.10
SECTION 26
Section 26 of the LRA 2002, which is headed ‘Protection of disponees’, provides: (1) Subject to subsection (2), a person’s right to exercise owner’s powers in relation to a registered estate or charge is to be taken to be free from any limitation affecting the validity of a disposition. (2) Subsection (1) does not apply to a limitation—(a) reflected by an entry in the register, or (b) imposed by, or under, this Act. (3) This section has effect only for the purpose of preventing the title of a disponee being questioned (and so does not affect the lawfulness of a disposition).
Section 26 has a sister provision in section 52 of the LRA 2002.11
Part 3 of the LRA 2002 Section 26 falls into Part 3 of the LRA 2002, which is headed ‘Dispositions of Registered Land’. Part 3 is divided into three ‘sub-parts’, headed: ‘Powers of disposition’; ‘Registrable dispositions’; and ‘Effect of dispositions on priority’. Section 26 falls into the first of these sub-parts. Obviously section 26 must be construed as an integral element of Part 3. In particular section 26 should be read with the other provisions included in the sub-part headed ‘Powers of disposition’, sections 23, 24, and 25. Section 23(1), which is headed ‘Owner’s powers’, provides: (1) Owner’s powers in relation to a registered estate consist of– (a) power to make a disposition of any kind permitted by the general law in relation to an interest of that description, other than a mortgage by demise or sub-demise, and
9
Ibid at 391E. Ibid at 391G. S 52 LRA 2002, which is also headed ‘Protection of disponees’, provides: ‘(1) Subject to any entry in the register to the contrary, the proprietor of a registered charge is to be taken to have, in relation to the property subject to the charge, the powers of disposition conferred by law on the owner of a legal mortgage. (2) Subsection (1) has effect only for the purpose of preventing the title of a disponee being questioned (and so does not affect the lawfulness of a disposition)’. 10 11
104 Graham Ferris (b) power to charge the estate at law with the payment of money.12
Section 24, which is headed ‘Right to exercise owner’s powers’, provides: (1) A person is entitled to exercise owner’s powers in relation to a registered estate or charge if he is(a) the registered proprietor, or (b) entitled to be registered as the proprietor.
Section 25, which is headed ‘Mode of exercise’, provides: (1) A registrable disposition of a registered estate or charge only has effect if it complies with such requirements as to form and content as rules may provide. (2) Rules may apply subsection (1) to any kind of disposition which depends for its effect on registration.
Clearly, section 26 uses the expression ‘a person’s right to exercise owner’s powers in relation to a registered estate [or charge]’ in the context of the sections 23 and 24. Similarly, the reference in section 26(2)(b) must be understood to include any limitations on the mode of exercise of owner’s powers imposed under section 25.
The Report The Report refers to the provisions of clause 26 of the draft bill, which became section 26 of the LRA 2002, in Part II (summary of the main changes made by the bill),13 and Part IV (dispositions of registered land).14 Clause 52, which became section 52, is referred to in Part VII (charges).15 Finally, there is a brief reference to clauses 26 and 52 in Part IX (the register and registration).16 The Report should help us to identify the purpose that lay behind section 26, or as Lords Diplock and Simon of Glaisdale expressed it: ‘the “mischief” which is the subject matter of the statutory remedy’.17 The Report informs us that the mischief sections 26 and 52 were intended to remedy was the risk to a disponee of registered land (or an interest therein) taking an invalid title to the land (or interest therein) because the disposition was 12 The remaining sub-sections of s. 23 provide: ‘(2) Owner’s powers in relation to a registered charge consist of—(a) power to make a disposition of any kind permitted by the general law in relation to an interest of that description, other than a legal sub-mortgage, and (b) power to charge at law with the payment of money indebtedness secured by the registered charge. (3) In subsection 2(a), “legal sub-mortgage” means—(a) a transfer by way of mortgage, (b) a sub-mortgage by sub-demise, and (c) a charge by way of legal mortgage’. 13 Law Com No 271 at 2.15 and 2.20. 14 Ibid at 4.3, 4.10, and 4.11. 15 Ibid at 7.7 and 7.8. 16 Ibid at 9.30(2), n 80. 17 [1975] AC 373 at 391G. On the permissible uses of Law Commission Reports in construction of statutes, see Black-Clawson International Ltd v Papierweke Waldhof-Aschaffenborg A.G. [1975] AC 591.
Making Sense of Section 26 of the Land Registration Act 2002 105 made ultra vires the disponor.18 The Report uses the expression ultra vires,19 and does not distinguish between ultra vires at law and ultra vires in equity.20 Consonant with this absence of discrimination the Report does not distinguish between validity at law and validity in equity. The Report gives examples of the intended operation of clauses 26 and 52, and these include both dispositions ultra vires at law,21 and dispositions ultra vires in equity.22 This conflation creates peculiar problems in construing section 26. One problem that requires immediate notice is the absence from section 26 of any express reference to a disposition being ultra vires, and the use of the expression ‘any limitation affecting the validity of a disposition’ in preference. Consideration of the Report suggests that the statutory phrase is intended to indicate potential applications of the ultra vires doctrine.23 However, the decision to use the language actually employed in section 26, rather than the available technical term, suggests that there is some difference in meaning that led to the choice of the words used.
The Scheme of the LRA 2002 Section 26 is one element of the statutory scheme laid down by the LRA 2002. Section 26(2) provides that any limitations upon an owner’s powers imposed by the LRA 2002 are unaffected by the operation of the section. Therefore, if there proves to be a conflict between section 26 and some other provision of the LRA 2002 then the presumption must be that section 26 would give way. Part 3 of the LRA 2002 proceeds to establish a scheme for the priority of both legal and equitable interests in registered land which recognises, inter alia, the overriding nature of the rights of those in actual occupation of registered land.24 The LRA 2002 recognises the possibility of equitable rights, rights that lack the definition 18
Law Com No 271 at 2.15, 2.20, 4.3, 7.7, 9.3. Ibid at 2.15 n 28, 9.30(2). 20 Ibid at 2.15 n 28 (legal) and n 33(equitable), 4.3, 7.8. 21 Ibid at 2.15: ‘One ground on which a disposition of land might be challenged is that the party who made it was acting outside his or her powers in some way, as for example, where a statutory body such as a local authority made a disposition that it was not permitted to make’. The footnote to this sentence cites Hounslow London Borough Council v Hare (1990) 24 HLR 9, and refers to the case as one involving an ultra vires disposition. At 4.3: ‘A registered proprietor’s powers of disposition may be limited, for example, by statute (perhaps because it is a statutory body), if it is a corporation, by its public documents,’ and n 7. At 7.7: ‘The purpose of the Clause is to protect any disponee in the case where, for example, the chargee purports to exercise a power of disposition (typically a sale or the grant of a lease) in circumstances where either it had no such power at all or that power had not become exercisable’. At 7.8(2). 22 Ibid at 2.15 n 33: ‘If, for example, trustees sell land without obtaining the consent of a beneficiary that is required by the trust instrument’. At 4.3: ‘A registered proprietor’s powers may be limited . . . or where the proprietors are trustees, by the terms of the trust upon which they hold the land’. At 4.10, 4.11, and 7.8(1). 23 Ibid most clearly at 2.15, and n 28. If not for n 33 the Report would clearly be directing itself to the classic doctrine of legal ultra vires applied to artificial personality. 24 Ss 28–31 and Sch 3 para 2. 19
106 Graham Ferris and status as equitable interests that beneficial interests under a trust undoubtedly possess, surviving registered dispositions of registered land.25 The LRA 2002 recognises the continuing relevance of the general law, as regards the nature of interests in land, and dispositions thereof26 and the continuing operation of the law of overreaching upon dispositions of registered land.27 There was no intention to upset the law as established by Williams & Glyn’s Bank v Boland28 that a disposition by a single trustee of land in breach of trust would not pass a title free of an occupying beneficiary’s interest under the trust.29 The rights of an occupying beneficiary are protected by the provisions of section 29(2)(a)(iii) and paragraph 2 of Schedule 3 of the LRA 2002. The Report informs us that section 26 is intended to allow a title to be transferred free of equitable interests in some circumstances. An example of the operation of section 26 is given by the Report at 4.10. The example supposes a disposition without consent made by two trustees, W and X, holding land on trust for a beneficiary in actual occupation of the trust land whose consent is required before any disposition can rightfully be made by the trustees. In this situation the Report states the actual occupation of the wronged beneficiary would have no effect, and the beneficiary’s interest would not be overriding. In the context of the example this result can be explained as the combined effects of section 26 and sections 2 and 27 of the Law of Property Act 1925 (subsequently the LPA). If this supposition is correct then it provides an insight into the intended operation of section 26. The section is intended to facilitate overreaching by trustees of land by deeming the trustees to be empowered to make any disposition. A beneficiary’s occupation is irrelevant: ‘because W and X’s right to exercise owner’s powers is taken to be free of limitation’.30 The section would effectively render all dispositions by trustees of land overreaching and, where the requirements of sections 2 and 27 of the LPA are met, actual occupation by a beneficiary would be irrelevant. However, this leaves the intended effect of section 26 wholly obscure when the requirements of sections 2 and 27 of the LPA are not met. What must be avoided is giving section 26 a construction which facilitates overreaching when the requirements of sections 2 and 27 of the LPA are not met, as otherwise the section could be used to undermine the law as laid down in Boland, which the Report makes clear is not intended. When section 26 is operating to allow a corporation to effect an ultra vires transaction it must be assumed that a disponee from a single corporate registered proprietor could shelter behind its provisions. The challenge posed by the 25
Section 116. For example s 23 grants those entitled: ‘power to make a disposition of the kind permitted by the general law’, and s 52 in similar fashion grants a proprietor of a registered charge: ‘the powers of disposition conferred by law on the owner of a legal mortgage’. 27 Evidenced by s 42(1)(b). 28 [1981] AC 487. 29 Law Com No 271 at 2.27(2)(b)(i); 8.14–8.22; 8.53–8.64, especially 8.53. For relevant restrictive changes to the former law see 8.61, 8.54–8.58, 8.18 and 8.64. 30 Ibid at 4.10. 26
Making Sense of Section 26 of the Land Registration Act 2002 107 section, as explained in the Report, is to identify some restriction on the operation of section 26 precluding a disponee from a single trustee (not being a trust corporation) from relying on the section which would not also prevent a disponee from a single corporate proprietor taking advantage of the section. Section 26 is intended to operate upon a disposition by a single registered proprietor. The example of the operation of section 26 given by the Report at 4.10 makes it clear that in some circumstances section 26 is not intended to operate subject to paragraph 2 of Schedule 3 by force of section 26(2). Our conclusion must be that the intention is that sometimes section 26 requires only one registered proprietor and at other times it requires two registered proprietors before it operates. The difficulty stems from the fact that neither section 26 nor the Report, make any distinction between the operation of section 26 upon a disposition that is ultra vires at law (where one registered proprietor should suffice), and upon a disposition that is ultra vires in equity (where normally two registered proprietors should be required). The Report is not helpful on the question of the relationship between section 26 and other provisions of the LRA 2002, and no other provisions of the LRA 2002 expressly operate to oust the operation of section 26.
The General Law As explained in the Report section 26 protects the title of disponees, whilst leaving them liable to such personal remedies as follow from the knowing receipt of trust property in breach of trust (and presumably from dishonest assistance in a breach of trust).31 Two observations are apposite. First, the blocking of any proprietal claim would frustrate any attempt to follow misappropriated property into the hands of a disponee.32 Secondly, the liability to account as a constructive trustee following the receipt of trust property would support a constructive trust of any property retained by a disponee.33 Both of these observations suggest that there will be judicial reluctance to recognise the clear distinction between personal and proprietary remedies that the Report’s explanation of section 26 rests upon.
THE CONSTRUCTION OF SECTION 26
Section 26(1) operates by disregarding any limitations upon the right of a registered proprietor to make dispositions that would affect the validity of those dispositions. Section 26(3) is a limiting provision as is shown by its words: ‘This 31
Royal Brunei Airlines Snd Bhd v Tan [1995] 2 AC 378. Adopting the distinction between following and tracing explained by Lord Millett in Foskett v McKeown [2001] 1 AC 102 at 127B–D. 33 A-G for Hong Kong v Reid [1994] 1 AC 324. 32
108 Graham Ferris section has effect only . . . (and so does not . . .)’. Section 26(1) is the operative part of the clause, and 26(3) restricts its operation. It follows that any flaws in the title of a disponee not derived from an invalidity due to a limitaton of the disponor’s right to exercise her dispositive powers are not cured by section 26. However, if a registered proprietor whose right to exercise her dispositive powers is limited purports to effect a disposition that disregards the limitation then her disponee’s title to the interest disposed of is unquestionable.
The construction of section 26(1) Section 26(1) operates when a person has the ‘right to exercise owner’s powers’. This phrase echoes the heading to section 24. As the section only operates when the statutory grant of powers has been made the potential mischief must be the possibility that a person entitled under section 24 to the owner’s powers granted by section 23 might exercise them wrongfully. The wrong would be to make a disposition in disregard of some limitation of her powers, thereby invalidating the disposition. The most obvious source of a limitation upon powers of disposition capable of invalidating a disposition would be a want of capacity. The Report confirms that section 26 is concerned with legal capacity to effect dispositions,34 as is section 52.35 In this connection clause 26(1) is clearly concerned with capacity, and reading ‘right’ as synonymous with ‘ability’ would accurately express this statutory intention. Section 26(1) deems a registered proprietor’s capacity to effect dispositions unlimited. Thus, an ultra vires disposition will not be void because of the effect of section 26(1). The Report makes it quite clear that clause 26(1) is also intended to have an effect upon some unauthorised dispositions by owners with legal capacity.36 Trustees of registered (or unregistered) land have legal capacity to dispose of the land, but are limited in the use of these legal powers of disposition by the terms of their trust, and the general law governing trustees. The improper use of their legal powers of disposition by trustees is sometimes described as an ultra vires disposition.37 We have already noted the example of the operation of section 26 given at 4.10 of the Report. The sole other example of the section’s operation given by the Report also involves a wrongful disposition by trustees of land.38 34 Law Com No 271 at 2.15 (quoted at n 21 above) and at 2.20, which is concerned with restrictions that prevent dispositions: “where a corporation or other body has limited powers, to indicate this limitation”, 2.20 (3) n 47 which refers to 2.15; and 4.3 (quoted at n 21 above). 35 Ibid at 7.7: “The purpose of the Clause [52] is to protect any disponee in the case where, for example, the chargee purports to exercise a power of disposition (typically a sale or the grant of a lease) in circumstances where either it had no such power at all or that power had not become exercisable”, and at 7.8: “even if a chargee’s power of disposition has not arisen at all . . . a disponee will obtain a good title”. 36 See text to n 22 above. 37 Oceanic steam Navigation Co. v Sutherberry (1880) 16 Ch D 236, per Little VC at 240. 38 Law Com No 271 at 4.11.
Making Sense of Section 26 of the Land Registration Act 2002 109 The word ‘right’ in section 26(1) cannot be read as synonymous with ‘ability’ in connection with trustees’ ultra vires use of their powers of disposition. Trustees have full legal capacity, when making an ultra vires disposition they act without authority. An ultra vires disposition by trustees is not null and void, it is legally effective. However, due to the wrong committed equity may hold the trustees,39 or the disponee,40 or both, liable to action by the beneficiaries. Thus, in connection with trustees of land the word ‘right’ in section 26(1) imports rectitude to what would otherwise be a breach of trust. This construction of the word is supportable in the light of the remaining words of section 26(1). If trustees’ of registered land ‘right to exercise owner’s powers’ is ‘to be taken to be free from any limitation’ then trustees of registered land must be taken to have unlimited authority to make dispositions. Section 26(1) deems trustees to be always acting within the limits of their authority, by deeming that no relevant limits exist. The expression ‘any limitation affecting the validity of a disposition’ defines the phrase ‘any limitation’ in terms of the phrase ‘affecting the validity of a disposition’. The limitations reached are those that are capable of ‘affecting . . . validity’, therefore, the key term is ‘validity’ and the construction of this word will determine the extent of the expression: ‘any limitation affecting the validity of a disposition’. Given the explanation in the Report ‘any limitation’ applies both to any limitation on the powers of a registered proprietor, as registered proprietor (ie capacity), and to any limitation upon the powers of a trustee, as trustee, of registered land. The removal of any limitations upon the powers of a registered proprietor as registered proprietor (ie capacity) will validate a disposition at law. The removal of any limitations upon the powers of trustees of registered land will validate a disposition in equity. However, the word ‘powers’ is being used in reference to two different grants of powers, and to grants of two different types of power in these two statements. The powers of a registered proprietor are granted by sections 23 and 24 of the LRA 2002. These powers are incidents of the registered proprietor’s property rights in the registered land, and are granted to the legal owner to allow her to dispose of her property. The powers of a trustee are granted by her trust instrument, or by the TLATA, or by section 8 of the TA 2000. These powers authorise the trustee to deal with the trust property, and any disposition made by the trustee within the powers they enjoy has the potential to overreach the equitable interests under the trust. The attributes and incidence of legal invalidity are fairly well defined. Legal invalidity of a disposition results in no legal interest being created or transferred. What is meant by equitable invalidity is less easily discerned. Courts of 39 The trustees’ liability may be personal or proprietary in nature. Equity can impress the consideration obtained for the wrongful disposition with the trust. 40 Again the liability may be personal or proprietary. Personal liability will not usually follow unless the disponee’s conscience is affected. Equity may impose proprietary liability by holding that the property disposed of is still subject to the trust in the disponee’s hands.
110 Graham Ferris equity have tended to view the difference between void and voidable dispositions as one of form rather than substance.41 The expression void in equity has been used to signify ineffective to pass a legal estate free of prior equitable interests.42 The Report makes it clear that section 26(1) was intended by the draftsman to validate a disposition in equity in the sense that a disposition validated by the section will transfer an equitably unencumbered interest.43 In order to properly understand the manner in which clause 26 must operate when it makes a disposition valid in equity it is necessary to reflect upon the nature of the limitations placed upon trustees by equity. In order to give effect to the rights of the beneficiaries under a trust equity controls the use made of the trustee’s undoubted legal powers of disposition. Equity imposes duties of good faith and due care upon trustees, and prohibits trustees from acting beyond their authority. A trustee who acts in breach of these duties breaches her trust, and may incur personal liability. Anyone that receives trust property from a trustee transferred in breach of trust will take the property subject to the rights of the beneficiaries, unless they are bona fide purchasers for value of a legal estate without notice. Statutory provisions have extensively modified the operation of the bona fide purchaser defence, especially in respect of trustees of land. Indeed it is probably safer when dealing with registered land to speak of the analogue of the bona fide purchaser defence, as the defence proper is wholly excluded by the statutory provisions governing land registration.44 Section 26(1) does not purport to extend the registered land analogue of the bona fide purchaser defence to new categories of disponees. Nor does section 26(1) purport to operate by deferring the priority of one interest to another. Section 26(1) deems unauthorised dispositions authorised, and thereby renders them valid in equity. The section does not use words of grant to effect this end, section 26 does not grant to trustees unlimited powers of disposition as trustees. If this were the effect of the section it would replace the relevant provisions of the TLATA 1996 and the TA 2000 for trustees of registered land. The section treats the situation as if it were other than it is, it deems trustees are acting legitimately: ‘a person’s right . . . is to be taken to be free from any limitation affecting the validity of a disposition’. The limitations still exist, they are not abrogated, however, when section 26(1) operates the limitations are disregarded, and their potential effect upon the validity of a disposition is nullified. This construction of section 26(1) as operating by suspending some of the equitable duties of trustees of registered land derives strong support from the provisions of section 26(3). Section 26(3) restricts the operation of section 26(1) by providing that only the title of a disponee is protected by section 26(1). This 41
Cloutte v Storey [1911] 1 Ch 18, per Farwell LJ at 30. Bowes v East London Water Works Co. (1820) Jacob 324; 37 ER 873. 43 Law Com No 271 at 4.10. 44 The authority usually given to demonstrate the exclusion of the bona fide purchaser defence from registered land is William’s & Glyns Bank v Boland [1981] AC 487 per Lord Wilberforce at 504C. For notice and registered land under the LRA 2002 see Law Com No 271 at 5.16–.21. 42
Making Sense of Section 26 of the Land Registration Act 2002 111 implies that if section 26(3) did not restrict the operation of section 26(1) then it could have effects beyond the protection of a disponee’s title. Section 26(3) is needed to prevent the deemed authority of trustees from affecting their personal liability to the beneficiaries of the trust. The bracketed words of section 26(3) clearly imply that in the absence of any restriction on the operation of section 26(1) to questions of title, the lawfulness (or more accurately the unlawfulness) of a disposition by a trustee would be affected by section 26(1). Section 26(1) prevents the unlawful nature of a disposition (being in breach of trust) from affecting the equitable validity of the disposition, by deeming the disposition authorised. Section 26(1) read together with section 26(3) deems unlawful dispositions lawful whenever the illegality would threaten the equitable validity of the disposition. The effect of this is to suspend equitable duties to the extent necessary to validate dispositions. No personal liability follows from a lawful disposition, and thus the necessity for section 26(3) to preserve the personal liability of both trustee and disponee. In order to establish which equitable duties are suspended by the operation of section 26(1) we need to return to the key word in section 26(1) for determining which limitations are intended to be suspended: ‘validity’. The Report identifies one mischief section 26 is designed to remedy as ultra vires dispositions that would be invalid in equity. The examples of the operation of section 26 given in the Report both concern the validity of dispositions by two trustees of registered land. In both of these examples the trustees’ powers of disposition are limited by the trust instrument in a manner provided for by the TLATA. In the first example a beneficiary is in actual occupation of the trust land, in the second example the question of actual occupation is not addressed.45 When trustees of land make a disposition without obtaining a consent they have a duty to obtain before making such a disposition;46 or, when trustees of land whose powers of disposition have been cut down by the trust instrument, pursuant to section 8 of the TLATA, make a disposition they do not have the power to make;47 then they act outside their authority, or ultra vires. It is submitted that the equitable ‘validity’ section 26(1) operates to secure is whatever is necessary to make the disposition capable of overreaching equitable interests, and thus bring the disposition within the operation of section 2(1)(iii) of the LPA 1925, and no more than this. The failure of section 26 to discriminate between legal powers of disposition and equitable powers of disposition, and as a necessary corollary of this lack of distinction between legal validity of a disposition and equitable validity of a disposition, creates a tension in any construction of the section. The Report does not resolve this tension, rather it increases it by making the draftsman’s intention to reach both types of invalidity plain beyond a peradventure. The normal rules of construction can take us no further. We must resort to clearly 45 46 47
Law Com No 271 at 4.10 and 4.11. Ibid at 4.10. Ibid at 4.11.
112 Graham Ferris identifying the choices between different possible readings of section 26(1), none of which can satisfy all of our requirements for a satisfactory construction of the section.
Four Possible Constructions of Section 26(1) A first, and the most natural, construction of the section is to treat section 26(1) as solely concerned with the legal powers of disposition granted by the LRA 2002 and limitations that affect the legal validity of dispositions. In the absence of the references in the Report to invalidity due to limitations upon trustees powers of disposition imposed by other statutes or trust instruments this construction would be almost unavoidable. However, the indications in the Report as to the intended effects of the section undermine this construction, as it fails to meet one of the mischiefs the section was drafted to remedy. A second, and the widest, construction of the section would make any limitation imposed by law or equity upon a registered proprietor exercising the powers of disposition granted by the LRA 2002 incapable of preventing a fully valid disposition at law and in equity. This construction gives the words ‘any limitation affecting the validity of a disposition’ the fullest operation possible. This enables the section to operate when a trustee of registered land disposes of the land in breach of trust. Therefore, this construction cannot be supported, as it would mean that section 26(1) would have a further reaching effect than could have been intended. A single trustee of registered land could effect a disposition that would pass clean title to a volunteer disponee.48 The failure of the first two constructions leads to the need to put forward a third construction of section 26(1). This third construction relies upon the propriety of ascribing an unique meaning to the word ‘validity’ as used in section 26(1). It has been established above that when dealing with ultra vires dispositions by trustees of registered land the intended meaning of ‘valid’ is ‘capable of overreaching the interests under a trust’. Thus, the section suspends any limitation on trustees’ authority that could prevent a disposition being capable of overreaching the interests under the trust of land. This reading of validity is defensible on the ground that it is a technical word used within the context of the law concerning ultra vires dispositions by trustees of land. Although this third construction meets the Report’s concern that section 26 should operate upon ultra vires dispositions by trustees of land it is ill suited to deal with problems of legal validity. If the first and third constructions could be combined this would give full effect to the intention of the Law Commission as expressed in the Report, which leads to the need to consider a fourth construction. If the expression: ‘a person’s right to 48 See discussion above at ‘The Scheme of the LRA 2002’. This construction would fatally undermine Williams & Glyn’s Bank v Boland [1981] AC 487.
Making Sense of Section 26 of the Land Registration Act 2002 113 exercise owner’s powers’ refers to the ‘right’ to exercise the powers granted by section 23 (first construction), then it does not refer to the ‘right’ to exercise the powers granted by a trust instrument, the TLATA, or the TA 2000 (third construction). In order to achieve a marrying of the two constructions the word ‘right’ would have to be read as a reference to the grant of powers to trustees of land, ie ‘right’ is read as meaning ‘authority granted by the trust instrument, the TLATA, or TA 2000, or by any other source, such as the public documents of a company’. This possibility has been considered above.49 Whilst unnatural it does allow the possibility of section 26 being concerned with both legal and equitable powers of disposition. If the expression ‘free from any limitation affecting the validity of a disposition’ refers to the legal validity of a disposition (first construction), then it does not entail the disposition being capable of overreaching the interests under a trust (third construction), as legal validity would be only a necessary, and not a sufficient requirement. It is possible to read ‘validity’ as requiring legal and equitable validity, but this would bring us back to the rejected second construction. Therefore, to combine the first and third construction the meaning of ‘validity’ would have to be ‘capable of overreaching the interests under a trust’ as this would entail legal validity. Thus, in order to achieve both of the intended effects section 26(1) must be read as meaning: ‘. . . a person’s [ability and authority, however bestowed] to exercise owner’s powers . . . is to be taken to be free of any limitation affecting the [capacity to overreach the interests of beneficiaries under any trust of land that could exist] of a disposition’.
This must be the preferred construction, unless it violates the ‘golden rule’ of statutory construction referred to above.50 The construction of section 26(2) Section 26(2)(a) prevents section 26(1) operating to suspend any limitation protected by an entry on the register. The Report informs us that in the future the reference to a limitation being ‘reflected by an entry in the register’ in section 26(2) indicates the entry of a restriction.51 However, during a transitional period it also refers to cautions and inhibitions.52 Clearly this restricts the operation of section 26(1), and it might be hoped that the provisions of the LRA 2002 that deal with those entries on the register that reflect limitations on owner’s powers can be consulted with a view to illuminating section 26. There are, however, few clues in Part 4 of the LRA 2002 (Notices and Restrictions) as to the ambit of section 26. The effect of a restriction is not expressed as a limitation on, or as reflecting a limitation on, the powers of a registered proprietor. Rather it is described as preventing registration of a 49 50 51 52
Text following n 40 above. Text to n 10 above. Law Com No 271 at 2.15 n 31, 2.20, 4.10, 4.11, and generally at 6.33–6.61, for s 52 see 7.8. Ibid.
114 Graham Ferris disposition.53 However, given that many registrable dispositions can only be valid at law if completed by registration (sections 27(1) and 27(2)) we can conclude that all restrictions do act as limitations on the legal powers of disposition of a registered proprietor. The only express reference in Part 4 of the LRA 2002 to invalidity of dispositions is section 42(1)(a) which grants the registrar power to enter a restriction in the register to prevent invalid or unlawful dispositions taking place.54 It is difficult to imagine how, in the light of section 26(1), a disposition might be invalid against a disponee, therefore, the prevention of invalidity must be a reference to some person other than a disponee, or otiose. The section is probably intended to allow the registrar to act when the absence of a restriction would allow an unlawful disposition to be validated by section 26(1). The only reference in Part 4 of the LRA 2002 to a limitation of a registered proprietor’s right to exercise her powers of disposition is at section 45(3)(c) which provides: (3) for the purposes of this section, an application under section 43(1) is notifiable unless it is—(c) an application for the entry of a restriction reflecting a limitation under an order of the court or registrar, or an undertaking given in place of such an order.
Section 45(3)(c) is concerned with the notification to registered proprietors of applications to enter restrictions. The ‘limitation’ in 43(3)(c) must refer to a limitation upon a registered proprietor’s right to make dispositions. Neither section 42(1)(a) nor section 45(3)(c) throw any light on the operation of section 26. The effect of a notice is to preserve the priority of an interest upon a registrable disposition for value.55 There is no aid to the construction of section 26 in the provisions of the LRA 2002 dealing with notices. Section 26(2)(b) prevents section 26(1) operating to suspend any limitation imposed by, or under, the LRA 2002. It is not immediately obvious what the intended range of section 26(2)(b) is, although it must include the provisions of section 25.56 Any provision of the LRA 2002 which imposes a formality requirement for valid dispositions could be described as being a limitation imposed by, or under, the LRA 2002. When they come into operation rules made pursuant to section 93 will, presumably, take effect as limitations on powers of disposition that are not affected by section 26(1), as they will be limitations imposed under the LRA 2002.
53
Section 41. Section 42(1)(a) provides: ‘The registrar may enter a restriction in the register if it appears to him that it is necessary or desirable to do so for the purpose of—(a) preventing invalidity or unlawfulness in relation to dispositions of a registered estate or charge’. 55 Or a disposition under s 29(4), which takes effect as if it were registrable, see ss 29, 29(2)(a)(i), 30, and 32. 56 Law Com No 271 at 4.8 n 17 refers to cl 25 which became s 25, and cl 24(2) which did not survive the bill’s passage through Parliament. 54
Making Sense of Section 26 of the Land Registration Act 2002 115 Section 27 prevents some dispositions from being registrable, and sections 29 and 30 limit the effects of a disposition made by a registered proprietor, thereby preserving the priority of interests. There is less clarity on the relationship between these provisions and section 26(2)(b). The Report makes no comment on any potential interaction between these sections and section 26. However, if there is any conflict between these provisions and section 26(1) section 26(2) will presumably operate to give effect to any provision potentially in conflict with section 26(1). The only other reference, in the body of the LRA 2002, to limitations on the right to exercise the statutory powers of disposition of a registered proprietor is in section 86. Section 86(4) obliges the registrar to enter a restriction in the register which reflects the limitations on a bankrupt’s powers of disposition imposed by section 284 of the Insolvency Act 1986.57 Section 86(5) operates where section 26(1) would, presumably, otherwise apply.58 Section 86 makes no provision for unregistrable dispositions (ie those section 27 does not require to be completed by registration), and dispositions by a bankrupt not being the registered proprietor, but being a person with the right to exercise owner’s powers. If section 26(1) operates to validate all dispositions made by a bankrupt entitled to be registered as proprietor, and unregistrable dispositions made by a bankrupt registered proprietor, the effect of the section appears capricious. Section 26(2) does not save any limitations imposed by, or under, earlier Acts, and there is no indication of the intended relationship between sections 26 and 86 in the LRA 2002 or the Report.
The construction of section 26(3) Section 26(3) restricts the operation of section 26(1) to the extent necessary to protect the title of a disponee, and expressly preserves the unlawful character of a disposition made in excess of a registered proprietor’s powers of disposition. The word ‘disponee’ is not a term of art, nor is it defined in the LRA 2002.59 57 Section 284 Insolvency Act 1986 provides: ‘(1)Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it was made with the consent of the court, or is or was subsequently ratified by the court’. S 86(4) provides: ‘As soon as practicable after registration of a bankruptcy order under the Land Charges Act 1972 (c 61), the registrar must, in relation to any registered estate or charge which appears to him to be affected by the order, enter on the register a restriction reflecting the limitation under section 284 of the Insolvency Act 1986 (c 45) (disposition by bankrupt void unless made with the consent of, or subsequently ratified by, the court)’. 58 Section 86(5) provides: ‘Where the proprietor of a registered estate or charge is adjudged bankrupt, the title of his trustee in bankruptcy is void as against a person to whom a registrable disposition of the estate or charge is made if—(a) the disposition is made for valuable consideration, (b) the person to whom the disposition is made acts in good faith, and (c) at the time of the disposition— (i) no notice or restriction is entered under this section in relation to the registered estate or charge, and (ii) the person to whom the disposition is made has no notice of the bankruptcy petition or the adjudication’. 59 Section 129 does not define the word.
116 Graham Ferris However, the word is obviously derived from ‘disposition’, which is a term of art defined in the Law of Property Act 1925.60 The word has also received judicial scrutiny, which has confirmed the width of the concept of disposition.61 Three features of the word ‘disposition’ are of interest here. First, the word can be used to describe the creation or transfer of either a legal or an equitable interest in land. Secondly, the word can be applied to transactions in which consideration plays no part. Thirdly, the word can be applied to dispositions that take place by operation of law. Presumably these features of ‘disposition’ are shared by its derivative ‘disponee’. The LRA 2002 does offer some confirmatory indication that the words ‘disposition’ and ‘disponee’ in section 26 should be given a wide reading. The expression ‘registrable disposition’62 is clearly intended to be narrower than the expression ‘disposition’, and ‘registrable disposition’ is wide enough to reach dispositions by operation of law.63 In section 96(3), although presumably not generally, ‘disposition’ includes the postponement in priority of a registered charge. These provisions indicate that ‘disposition’ is not generally given any restricted meaning within the LRA 2002. When dealing with the priority of interests in registered land the LRA 2002 expressly limits the protection given disponees to those taking under ‘a registrable disposition of a registered estate . . . made for valuable consideration’,64 thus excluding volunteer disponees from protection. Thus, when the legislative intention was to exclude some types of disposition by operation of law from ‘registrable dispositions’ the exclusion was expressly enacted, and when the legislative intention was to exclude volunteers from protection consideration was expressly required. Therefore, the protection offered by section 26, on ordinary principles of construction, should be taken to include dispositions by operation of law and voluntary dispositions. However, section 26(3) only limits the operation of section 26(1), and therefore can only operate on dispositions that have been validated by the governing section. The wording of section 26(1) suggests the section is concerned with deliberate dispositions by a registered proprietor, rather than dispositions automatically imposed by law. Dispositions that arise by operation of law following the deliberate acts of a registered proprietor might be appropriately treated as falling within the ambit of section 26(1), eg the equitable interest created upon the execution of a contract for the disposition of an interest in registered land. 60 Section 205 (1)(ii) provides: ‘ “Conveyance” includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will; “convey” has a corresponding meaning; and “disposition” includes a conveyance and also a devise, bequest, or an apportionment of property contained in a will; and “dispose of” has a corresponding meaning;’ 61 Grey v IRC [1960] AC 1. 62 The expression is used in the title of s 27, in ss 29(1), 29(4), 30(1), in the heading of s 38, in ss 58(2), 71(b), 86(5), 86(7), 106(3)(a), in the title of Schedule 2, and is defined at s 129(1). 63 Section 27(5). 64 Section 29(1). See to like effect s 30(1). ‘Valuable consideration’ is defined at s 129 as: ‘does not include marriage consideration or a nominal consideration in money’.
Making Sense of Section 26 of the Land Registration Act 2002 117 However, dispositions by operation of law that occur without any deliberate action on the part of a registered proprietor, eg the transfer of legal title to personal representatives upon death, are probably outside the ambit of section 26(1). Therefore, a person taking an interest through operation of law that was not the consequence of a deliberate action by the registered proprietor will not be protected by the section. The effects of section 26(3) can only be identified after settling upon a construction or section 26(1). If the first construction of section 26(1) were adopted the extension to volunteers and those taking an equitable interest would not present many problems. If the policy of the LRA 2002 is to abrogate those laws that deny legal capacity to registered proprietors then the possibility of equitable proprietary remedies will usually suffice to safeguard those protected by the denial of legal capacity by the law. The second construction has been rejected already for other reasons, but the combined effects of the second construction with the width of section 26(3) provide another reason to reject this construction. If the third or fourth construction of section 26(1) is adopted then volunteer disponees should be excluded from protection by the restricted operation of section 26(1). A gratuitous disposition of trust property, to anyone other than a beneficiary, strikes at the essential core of the trustee and beneficiary relationship. Certainly a volunteer disponee could not rely upon section 2 of the LPA, nor section 29 of the LRA 2002. The third construction limits the operation of section 26(1) to the minimum necessary to enable dispositions to be potentially overreaching. Dispositions that suffer equitable invalidity for reasons other than a lack of vires are therefore not validated by the operation of section 26(1). As section 26(3) operates upon dispositions already validated by section 26(1) there should never be an occasion when it validates a gratuitous disposition made by a trustee. The Report offers little guidance on whether section 26 is intended to operate upon a voluntary disposition, an equitable disposition, or dispositions by operation of law. The Report refers to the protection offered by section 26 as applying to ‘any’ disponee,65 but the examples of the section operating all use express dispositions of a legal estate for value.66 The word ‘title’ is not defined by the LRA 2002,67 however, it is a term of art and a working definition can be offered:68 Title: the evidence of a person’s right to property, or the right itself.
In the context of section 26 ‘title’ must surely refer to the right itself, as the evidence of the right would be the Land Register, and section 26 cannot be 65
Law Com No 271 at 4.4, and at 7.7 in reference to s 52. Ibid at 2.15 n 32, 4.10, and 4.11. 67 Section 129. 68 Taken from Meggary & Wade, ‘The Law of Real Property’, 5th edn (Sweet and Maxwell London, 1984), Glossary at cxxviii. 66
118 Graham Ferris necessary for the protection of the register as a valid record of dispositions. Therefore, section 26 prevents the questioning of a person’s right, as created or transferred by a disposition by a registered proprietor, to an interest in registered land. As a term of art ‘title’ is sometimes limited to ‘legal title’, to distinguish it from ‘title’ unlimited by the word ‘legal’ when it includes questions of legal and equitable title. The expression ‘preventing the title of the disponee being questioned’ is novel terminology, but it seems to be intended to effect a similar purpose as the expression ‘the title of the purchaser shall not be impeachable’ which is used by section 104(2) of the LPA. The Report indirectly confirms that the prevention of questioning means the same as forbidding impeachment, by the use of the word ‘impeachable’ as a synonym for ‘capable of being questioned’.69 If section 26(1) operates by suspending any duty the breach of which would invalidate a disposition then the bracketed words in section 26(3) are necessary to preserve the personal liability of trustees of land. The Report confirms that the bracketed words in clause 26(3) are intended to preserve any personal remedies against trustees, and emphasises the preservation of personal liabilities against a disponee.70 As noted above there are difficulties with the distinction in clause 26(3) between proprietary and personal remedies.
CONCLUSION
The major difficulty encountered in construing section 26 has been the need to respect the dual operation of the section, preventing invalidity both at law and in equity, that the Report informs us was intended by the draftsman. Of these two functions it is the prevention of equitable invalidity that must be considered the most important. The problem of legal invalidity is minimised by the vesting effect of registration.71 The problems caused by the failure of section 16 of the TLATA to provide protection for purchasers of registered land are limited by the provisions of sections 27–31 of the LRA 2002. However, where a beneficiary of a trust, under which the trustees have limited powers of disposition, is in actual occupation of the trust land there is a lacunae in purchaser protection in registered land. If section 26 is construed in such a way that this lacunae is closed then this would be a useful function for the section. This would also reflect the emphasis of this role of section 26 in the Report. The failure to limit the protection of section 26 to those that take a legal interest for consideration remains problematic, although the adoption of any construction of section 26(1) identified above other than the second, would alleviate the problems. The courts have already shown a willingness to analyse dispositions of land subject to equitable interests as if the statutory machinery 69 70 71
Law Com No 271 at 2.15 n 32, 4.11, and 7.7. Ibid at 2.15, 4.11, and at 7.7 for s 52. Section 58.
Making Sense of Section 26 of the Land Registration Act 2002 119 of priority protection can be ignored when deciding whether a transferee should take subject to a proprietary remedy.72 There seems to be no benefit in preventing the survival of an equitable interest upon a disposition, and then imposing an identical equitable interest under a constructive trust. As noted above the extension of title protection to mere disponees is unlikely to deter the courts from pursuing trust property into the hands of disponees, either by way of tracing or following, or by means of a constructive trust. There is no obvious policy reason to extend protection to volunteers, as by definition they do not derive their title from the operation of the market. It is to be regretted that section 26(3) did not restrict the operation of section 26(1) further, so as to expressly exclude the protection of volunteer disponees.
72
Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044; Collings v Lee [2001] 2 All ER 332.
Part III
Equity
7
Mortgages and Undue Influence MARK THOMPSON
V E R T H E past thirty years, there can be little doubt that one of the dominating themes of English Land Law has been the law relating to mortgage repossessions. Over that period, there has been legislation seeking to improve the lot of the borrower, personally,1 that legislation being the progenitor of a good deal of litigation prior to the satisfactory exposition of the manner in which judicial discretion afforded by the Acts is to be exercised in Cheltenham and Gloucester Building Society v Norgan.2 Other issues which came to the fore concerned the enforceability of the rights of tenants against the mortgagee,3 and, of course, the question of the ability of beneficial co-owners of a house to resist possession proceedings by asserting that that beneficial interest is binding upon the mortgagee. This issue first attracted attention in Caunce v Caunce,4 and then led to the change in judicial attitude to this matter in Williams and Glyn’s Bank v Boland,5 a decision which spawned its own cottage industry and led to two Law Commission Reports6 and an ongoing debate as to whether the rights of beneficial co-owners will be overreached if the mortgage is created by two co-owners.7 Related to that issue is the question of the right of one of the legal co-owners to argue that a mortgage is not binding upon him or her because the consent to that mortgage has been secured by the exercise of misrepresentation or undue influence. It is with this matter with that paper is concerned. It
O
1
Administration of Justice Act 1970, s 36 and Administration of Justice Act 1973, s 8. [1998] 1 All ER 449. For a valuable discussion of the types of mortgage to which the Acts applied, see Stephen Tromans [1984] Conveyancer 91. For discussions of the manner in which the court’s discretion has been exercised, see MP Thompson [1998] Conveyancer 125; Michael Haley (1997) 17 Legal Studies 483. 3 See, for example, Britannia BS v Earl [1990] 1 WLR 427; Woolwich BS v Dickman [1996] 3 All ER 704; Barclays Bank plc v Zaroovabili [1997] 2 All ER 19. 4 [1969] 1 WLR 286. 5 [1981] AC 487. 6 See (1982) Law Com No 115; (1989) Law Com No188. For a discussion of these Reports see MP Thompson in F Meisel and P Cook (eds) Property and Protection, (Hart Publishing, Oxford, 2000) 157 at 167–72. 7 For the view that this does not happen, see Graham Ferris and Graham Battersby [1998] Conveyances168 and [2001] Conveyancer 221, responding to the opposite view of Martin Dixon [2000] Conveyancer 227; a debate which centres on whether the decision in City of London BS v Flegg [1988] AC.54 was inadvertently reversed by the Trusts of Land and Appointment of Trustees Act 1996. See also Mark P Thompson, Modern Land Law (OUP, Oxford, 2001), 209–11. 2
124 Mark Thompson involves a fascinating chapter in the judicial development of the law which has involved an adaptation of old principles of law to a modern setting, in order to achieve a proper balance between the competing pressures of the protection of occupation rights on the one hand, and the ability of lending institutions to be able to have confidence in the securities that they have taken to underpin their lending on the other.
EARLY DEVELOPMENTS
The essential problem with which the law had to grapple was when a mortgage was created to secure lending unconnected with the acquisition of the house itself 8 and one of the signatories to the mortgage subsequently argued that, as against him or her, the mortgage should be regarded as void. Initially, the manner in which this issue was resolved was to employ the law of agency and this approach had a long pedigree. Early examples of this angle are to be found in Turnbull &. Co. v Duvall,9 where a husband had persuaded his wife to sign a security and had pressured her to do so. It was held that the security was void because, in the words of Lord Lindley, ‘It is impossible to hold that . . . Turnbull &. Co. are unaffected by such pressure and ignorance. They left everything to Duvall, and must abide by the consequences.’10 More modern authority took a similar line. In Avon Finance Co. Ltd v Bridger,11 a son got his elderly parents to mortgage their house to provide funds for him and, when doing so, misrepresented to them what it was that they were signing. Because the finance company had entrusted the son to obtain their signatures, the vitiating effect of the misrepresentation was attributed to the company: ‘The company left everything to the son to arrange for their benefit. The son was fraudulent and they must abide by the consequences’.12 In cases where the lending institution had not entrusted the borrower to obtain the requisite signature then, save for one important exception to be discussed shortly, the mortgage would be held to be valid, even if undue influence or misrepresentation had been employed to obtain the requisite signature or signatures.13 The exception referred to above was if the lender had notice that undue influence had been used. In Bank of Credit and Commerce International SA v 8 For the resolution of the worries of mortgagees that they might not be able to enforce acquisition mortgages, see Bristol and West BS v Henning [1995] 1 WLR778 and Paddington BS v Mendelsohn (1995) 50 P & CR 244. See MP Thompson (1986) 49 Modern Law Review 245 and [1986] Conveyancer 57. For a better rationale of those decisions than that which was actually employed, see Skipton BS v Clayton (1993) 25 HLR 596 at 602 per Slade LJ. 9 [1902] AC 429. See also Chaplin &. Co. Ltd v Brammall [1908] 1 KB 233 at 238 per Vaughan Williams LJ. 10 Ibid at p 435. 11 [1985] 2 All ER 281. 12 Ibid at p 288 per Brandon LJ See also Kings North Trust Ltd v Bell [1986] 1 WLR 119 at 124 per Dillon LJ 13 See Coldunell Ltd v Gallon [1986] QB 1184.
Mortgages and Undue Influence 125 Aboody,14 a case which was to exert considerable influence on the future development of the law, the defendants were a husband and wife. In order to secure finance for a family company, mortgages were created over the matrimonial home, title to which was in the sole name of Mrs Aboody. She was in a room with a solicitor who was advising her when her husband burst into the room and a shouting match ensued before she would sign the mortgage. In a distressed condition, she signed it and the issue was whether it was valid. The Court of Appeal held that it was, but on the now discredited basis that, even if the existence of actual undue influence had been proved, which it had been in the present case, the transaction would not be set aside unless it could also be shown that it was to the manifest disadvantage of the person seeking to set it aside. On the facts, it was held that this was not the case, in that the Court of Appeal perceived that is was, in any event, in her interest to sign the mortgage in order to keep the business afloat and, consequently, the mortgage was held to be binding upon her. The requirement that the victim of actual undue influence must establish that the transaction was to her manifest disadvantage was subsequently overruled in CIBC Mortgages Ltd v Pitt,15 but the general tenor of the reasoning was to prove to be highly influential. The Court of Appeal held that there were two distinct grounds on which the bank could be affected by the actual undue influence exerted by Mr Aboody on his wife: agency and notice. The first issue did not arise. As to the second, Slade LJ, giving the judgment of the Court said that If a creditor has actual or constructive notice, at the time of the execution of the charge or guarantee in question, that the guarantee or charge on which it relies has been procured by the exercise of undue influence, it cannot enforce the transaction; an equity is raised against the creditor irrespective of any question of agency.16
On the facts of Aboody, it was clear that there was actual undue influence exerted by the husband upon his wife and that the bank had notice of that undue influence because the solicitor, who was acting for the bank, had observed what had happened. The opportunity was taken, however, to analyse the nature of undue influence. Slade LJ in a passage which was, for some time afterwards to exert considerable influence on the law, expounded a classification of undue influence. Class 1 concerned situations where the complainant established that she had entered into a particular transaction as a result of actual undue influence. Class 2, which was to be come much the more important category, was subdivided into two sub-classes. Class 2A involves a situation where the relationship between the parties is such that the law will presume that one party exercised undue influence upon the other. Such relationships include solicitor
14 15 16
[1990] 1 QB 923. [1984] 1 AC 200. Ibid at 973. Italics supplied.
126 Mark Thompson client,17 and priest and penitent.18 Class 2B involves a relationship which does not, of itself, gives rise to a presumption of undue influence but, on the establishment that the relationship is of a particularly trusting nature, can give rise to that presumption.19
BARCLAYS BANK PLC V O ’ BRIEN
Before the landmark decision in Barclays Bank Plc v O’Brien,20 it was probably true to say that rather greater emphasis in the present context was placed on agency arguments, as outlined above, than a more general role for the application of the doctrine of undue influence. All this changed as a result of the O’Brien litigation. Mr and Mrs O’Brien were legal co-owners of their matrimonial home. He was closely involved with a company, Heathrow Fabrications Ltd, which was in financial difficulty. The company exceeded its original overdraft limit and it was agreed that the company could have a £60,000 overdraft for a period of one month, that overdraft to be secured against the O’Briens’ matrimonial home. At a subsequent meeting between Mr O’Brien and a bank official, it was agreed to extend the facility to £135,000, again to be secured by a mortgage over the matrimonial home. The mortgage document which Mrs O’Brien signed gave the bank security for the total indebtedness of the company. When she signed the mortgage and a side letter, which included a recommendation that she take legal advice before signing the mortgage, she had read neither document. Neither had the bank official, who was present when she signed, made any attempt to explain the full nature of the transaction to her, despite it being the policy of the bank that he should do so. When the company’s indebtedness exceeded £154,000, the bank brought possession proceedings and this was resisted by Mrs O’Brien. In the Court of Appeal,21 an extensive review of the authorities was undertaken and a hitherto undetected principle of equity was unearthed to afford some relief to Mrs O’Brien. According to Scott LJ, the cases referred to earlier, based upon the agency principle, were suspect in that it was not accepted that the principal borrower could really be said to be the agent of the bank.22 Instead, he discerned a wider equitable principle. In his view, the authorities led to the conclusion that there was a special principle of equity. This principle was to afford ‘a treatment of wives who have given security to support their husband’s 17 Harris v Tremenhere (1808) 15 Ves.34; Rhodes v Bate (1865) 4 Giff 670, although in this latter case this was not necessary for the decision: see at 680 per Sir John Leach VC. 18 See Huguenin v Baseley (1807) 14 Ves Jun 272; Billage v Southee (1852) 9 Hare 534; Allcard v Skinner (1887) 36 ChD 145. 19 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 at 953 per Slade LJ. See also Re Craig [1971] Ch 95 at 100 per Ungoed-Thomas J. 20 [1994] 1 AC 180. 21 [1993] QB 109. 22 Ibid at 123.
Mortgages and Undue Influence 127 debts more tender than that which would have applied to other third party sureties’.23 The effect of this tenderness of treatment was that it was incumbent upon the creditor when, as in the instant case, a wife is acting as a surety for her husband’s debts to ensure that she understands the full import of the transaction. As in the instant case, owing to a misrepresentation by her husband, Mrs O’Brien thought herself to be signing a short-term mortgage to secure a debt of £60,000, whereas she was actually signing a mortgage to secure all the liability of the company. As the bank had not fully explained this to her, the mortgage was held to be enforceable only to the extent of her understanding of it. The bank could, therefore, as against her, only secure the mortgage to the extent of her understanding: £60,000.
O ’ BRIEN IN THE LORDS
Unsurprisingly, the bank appealed against this judgment.24 Doubtless to its considerable chagrin, the House of Lords held that the mortgage was not even valid to the extent of her understanding of it; it was held, as against her, to be void.25 The opportunity was taken to lay down general principles to be applied to this type of problem although, as will be seen, these principles occasioned considerable difficulty in their application and, subsequently, have had to be considerably modified. Lord Browne-Wilkinson, giving the only reasoned speech, disapproved of the agency principle. He also declined to accept the existence of the special principle of equity protective of wives who stood surety for their husband’s debts, a conclusion to be welcomed, resting, as it did, on a somewhat tendentious view of the earlier authorities.26 Instead, he sought to provide a solution to problems of the type exemplified in the case before him by an application of general principles, these general principles being based upon the law relating to undue influence and the application of the doctrine of notice, although the running of the two together did much to add obscurity to the law. At the outset of his discussion of the principles of undue influence. Lord Browne-Wilkinson accepted the tripartite classification expounded in Aboody and then proceeded to explain its application to a situation involving only two parties: the complainant and the wrongdoer. If a transaction had been brought about by the actual exercise of undue influence, Class 1, then the complainant is entitled to have that transaction set aside. Secondly, if the transaction is between 23
Ibid at p127. [1994] 1 AC 180. See also TSB Bank Ltd v Camfield [1995] 1 WLR 430 and commentary by Alison Dunn [1995] Conveyancer 325 and Patricia Ferguson (1995) 111 Law Quarterly Review 555. 26 See MP Thompson [1992] Conveyancer 443. The main authority in support consisted of dicta in Yerkey v Jones (1939) 63 CLR 64. The special equity theory is still followed in Australia: see Garcia v National Australia bank Ltd (1998) 72 AJLR 1243; PJ Clarke [1998] All E. Rev 276. 24 25
128 Mark Thompson two people such as lawyer-client or priest-penitent, Class 2A, then there is a presumption that undue influence was used and, in the absence of evidence to the contrary, the transaction will be set aside at the instigation of the complainant. Thirdly, he came to Class 2B. Here, the particular relationship involved does not, of itself, give rise to a presumption that a transaction between them was brought about by the use of undue influence. What the complainant must do is to establish that the relationship was one where she did, in fact reside trust and confidence in the wrongdoer. This was explained in the following terms: In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned.27
Central to this is that it is the proof of a de facto relationship of trust between the two parties which gives rise to the presumption of undue influence. This led to two questions. First, is the relationship between husband and wife within Class 2A or Class 2B? Secondly, if the latter was the case, the question arises as to the position of the mortgagee as, between the lender and the complainant, there is not usually any relationship of trust and confidence such as to give rise to any presumption of undue influence.28 With regard to the first matter, Lord Browne-Wilkinson was clear that the fact that the two parties are married does not mean that, in any transaction between them, there is automatically a presumption that it was brought about by undue influence: the relationship does not come within Class 2A.29 This finding, incidentally, led to the death blow being given to Scott LJ’s special equity theory, as the existence of a positive duty on a creditor to ensure that a wife fully understands a surety transaction is simply another way of saying that there is a presumption of undue influence between husband and wife. By the back door, therefore, this would admit the husband and wife relationship into the Class 2A category.30 Finding that there was not a Class 2A presumption between husband and wife led Lord Browne-Wilkinson to focus on the nature of the relationship. The important thing was to establish the existence of a relationship where one reposed trust and confidence in the other. He recognised, of course, that, within a marriage, such a relationship could be established. Equally, however, the requisite degree of trust and confidence could, he accepted, be established in other non-marital relationships, be they heterosexual or homosexual.31 27
Ibid at pp189–90. Italics supplied. See National Westminster Bank plc v Morgan [1995] AC 686. 29 See Howes v Bennett [1909] 2 KB 390; Bank of Montreal v Stuart [1911] AC 120. 30 [1994] 1 AC180 at 195 per Lord Browne-Wilkinson. 31 Ibid at 198. For other examples, see Massey v Midland Bank plc [1995] 1 All ER 925; Credit Lyonnais Bank Nederland N v Burch [1997] 1 All ER 144; Northern Rock BS v Archer (1998) 78 P & CR 65. 28
Mortgages and Undue Influence 129 This then led to the next issue: the circumstances necessary for the transaction, the mortgage, to be set aside as between the complainant and the mortgagee. Here, as noted, above, there is usually no question of there being a relationship of trust and confidence between these two parties and so something else is necessary before the complainant can set aside the mortgage. That something else was the misguided introduction of the doctrine of notice. For Lord Browne-Wilkinson, if the complainant established the existence of a Class 2B relationship then, as between her and the wrongdoer, there existed an equity to set aside the impugned transaction. The effect of this equity upon third parties, such as the mortgagee, would depend upon the doctrine of notice; a doctrine he regarded as being ‘at the heart of equity’.32 He explained this in the following terms: A wife who has been induced to stand as a surety for her husband’s debts by his undue influence, or some other legal wrong has an equity as against him to set aside that transaction. Under the ordinary principles of equity, her right to set aside that transaction will be enforceable against third parties (eg against a creditor) if either the husband was acting as the third party’s agent or the third party had actual or constructive notice of the facts giving rise to her equity.33
The impact of this assertion of the role of the doctrine of notice will be considered shortly. First, attention will be turned to the circumstances when a mortgagee will be considered to have constructive notice of the complainant’s equity. As Lord Browne-Wilkinson was not prepared to accept that every transaction involving a husband and wife gave rise to a presumption of undue influence he took care to identify, from the perspective of the mortgagee, when it would have notice of the complainant’s equity. As to this, he said: . . . a creditor is put on inquiry when a wife offers to stand surety for her husband’s debts by the combination of two factors: (a) the transaction is not on its face to the financial advantage of the wife; and (b) there is a substantial risk that, in procuring the wife to act as surety, the husband has committed a legal wrong that entitles the wife to set aside the transaction. It follows that unless the creditor who is put on notice takes reasonable steps to satisfy himself that the wife’s agreement to stand surety had been properly obtained, the creditor will have constructive notice of the wife’s rights.34
This important passage highlights two key parts to the decision. The first is that it is the nature of the transaction, itself, which is the triggering element in putting the creditor on notice of the possibility of the use of undue influence or misrepresentation. Secondly, it makes clear that the existence of this triggering element does not preclude the mortgagee from going ahead with the mortgage 32
[1994] 1 AC180 at 195. Ibid Italics supplied. For an equally explicit assertion of the traditional role of the doctrine of notice, see CIBC Mortgages Ltd v Pitt [1994] 1 AC 200 at 210 per Lord Browne-Wilkinson. 34 [1994] 1 AC 180 at 196. 33
130 Mark Thompson transaction. What then becomes an issue is the steps which must be taken to ensure that the wife’s agreement to the transaction has been properly obtained. Taking the second issue first, Lord Browne-Wilkinson spelled out what he considered reasonable steps to be. Somewhat unusually, in that judicial statements are normally taken to operate retrospectively, the theory being that the judges are stating what the law has always been rather than what it is to be for the future,35 he laid down a procedure to be followed in transactions taking place after the instant decision. He said: As to past transactions it will depend upon the facts of each case whether the steps taken by the creditor satisfy this test. However for the future in my judgment a creditor will have satisfied these requirements if it insists that the wife attends a prior meeting (in the absence of the husband) with a representative of the creditor at which she is told of the extent of her liability as a surety, warned of the risk she is running and urged to take legal advice.36
THE EFFECT OF O ’ BRIEN
A number of key elements emerged from the decision in O’Brien, all of which, it can be said, gave rise to difficulties in the future.37 The starting point was that, in transactions between husband and wife, or other people in a relationship of trust and confidence, one of the parties, usually, but not inevitably, the husband,38 may use undue influence or misrepresentation to secure the other party’s agreement to it. Then, if that transaction is to the manifest disadvantage of the complainant, it can, as against the wrongdoer, be set aside. This equity to set the transaction aside will be binding upon a mortgagee who has notice of the relationship giving rise to that equity. A bank will be regarded as being put on notice if the transaction in question is, on its face, not to the financial advantage of the wife. If the transaction, at least as presented to the mortgagee, appears genuinely to be a joint venture, such as where the stated purpose of the loan is to buy a holiday home, then, even if undue influence was exerted by the husband upon the wife, the mortgage will not be set aside as it was not put on notice that the relationship was such that undue influence might have been in play.39 If the transaction is of a nature to put the mortgagee on notice then, in order for the validity of the mortgage to be immune from subsequent attack, the mortgagee should follow the precautions outlined in the judgment. 35 For an extreme example of this, see Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, criticised on this issue by MP Thompson [1999] Conveyancer 40. For a general discussion of this issue in property law, see MP Thompson [1984] Conveyancer 302. 36 [1994] 1 AC 180 at 196. 37 See Belinda Fehlberg (1996) 59 Modern Law Review 675; Mika Oldham (1995) 7 Child and Family Law Quarterly 104. For the most comprehensive discussion of the issues involved, see Fehlberg, Sexually Transmitted Debt (Oxford, Clarendon Press 1997). 38 For the reverse situation, see Barclays Bank plc v Rivett [1999] 1 FLR 730. 39 CIBC Mortgages Ltd v Pitt [1994] 1 AC 200.
Mortgages and Undue Influence 131
UNDUE INFLUENCE , NOTICE AND MANIFEST DISADVANTAGE
Central to the decision in O’Brien is the acceptance that it is not every occasion when a family home is used as security for a loan that the mortgage is open to attack on the ground that the wife’s consent to it has been secured by the use of undue influence.40 Such an absolutist view would, it was considered, swing the balance too much in favour of mortgagors and provide an unacceptable impediment to mortgagees and consequently have a deleterious effect on people’s ability to unlock the capital in their homes by borrowing money against the security of their equities of redemption. For the mortgage to be open to attack, it was necessary for the lender to be put on notice of the possible existence of a vitiating factor, and the source of notice was the reason given to the lender for the loan. This reasoning, however, while, superficially attractive, was problematic, the problems being both conceptual and practical. On a conceptual level, it is quite clear from the speech in O’Brien and also in CIBC Mortgages Ltd v Pitt,41 that Lord Browne-Wilkinson saw the resolution of disputes of this nature as being dependent upon the application of orthodox principles of property law: the question was whether the mortgagee was to be regarded as having notice of a wife’s equity to set aside a transaction as against her husband. This reasoning, however, is flawed, it being predicated on a false analysis of the nature of the transaction. Inherent in the reasoning is that there are two transactions. The first is the transaction between the husband and wife where, because of the surrounding circumstances, the wife has an equity to set it aside. There then follows the mortgage transaction between the husband and wife on the one hand and the mortgagee on the other. The issue is then, according to the House of Lords, whether the mortgagee has notice, actual or constructive, of the wife’s equity. This, however, does not present an accurate picture of the reality of the situation.42 In a case such as O’Brien, it is simply not true that there are two separate transactions. There is but one, which is the mortgage created by the couple. Consequently, there is no prior equity of which the bank can be affected. Any equity to set the mortgage aside arises because the mortgagee is regarded as being privy to the impropriety of the husband.43 The reasoning employed in O’Brien obscures this fact and it soon became clear that notice in this context
40 For an argument in favour of such a position see Belinda Fehlberg (1996) 59 Modern Law Review 675 at 682. 41 [1994] 1 AC 200. 42 For a debate as to the correct role of notice, see MP Thompson [1994] Conveyancer 140; Charles Harpum and Martin Dixon [1994] Conveyancer 421; Peter Sparkes [1995] Conveyancer 250; Graham Battersby (1995) 15 Legal Studies 35. It has become apparent that, although the words actually used by Lord Browne-Wilkinson support the view taken by Thompson and Sparkes, substantively, the correct analysis is that by Harpum and Dixon. 43 See Harpum and Dixon at 423.
132 Mark Thompson was not being used in the sense in which this concept is ordinarily used in property law.44 A related issue concerned the need for the complainant to show that the transaction that had been secured by the use of undue influence was also to her manifest disadvantage. This additional requirement appeared to have its genesis in National Westminster Bank plc v Morgan,45 where it was said that, in cases of presumed undue influence, in order for the claimant to succeed in having the transaction set aside, it had to be shown that it was to her manifest disadvantage. This was subsequently applied in a case of actual undue influence, so that in Bank of Credit and Commerce International SA v Aboody,46 Mrs Aboody failed to have the mortgage which she had signed set aside on the basis that, although she had signed it as a consequence of her husband’s undue influence, she could not establish the further requirement that the transaction was to her manifest disadvantage. In cases where undue influence was actually used, it was made clear in CIBC Mortgages plc v Pitt47 that the complainant did not need, additionally, to show that the transaction was manifestly to her disadvantage. As Lord BrowneWilkinson, again giving the only reasoned speech, explained: Actual undue influence is a species of fraud. Like any other victim of fraud, a person who has been induced by undue influence to carry out a transaction which he did not knowingly or freely enter is entitled to have the transaction set aside as of right.48
Aboody was therefore overruled and it was made clear that if the complainant established that undue influence had been used, the transaction would, without more, be set aside. What, however, was left open was the position when rather than establishing a case of actual undue influence, the complainant relied, instead, on presumed undue influence. This point was considered in Barclays Bank plc v Coleman,49 where the Court of Appeal came to the reluctant conclusion that it was bound to hold that the establishment that the transaction was manifestly to the complainant’s disadvantage was an additional hurdle which had to be surmounted if the mortgage was to be set aside. At the time when this was decided, the distinction being made between Class 1 and Class 2 cases of undue influence could be said to be incoherent.50 This is because in both Class 2A and 2B it was the establishment of a particular relationship which, of itself, gave rise to a presumption of undue influence. Once that relationship was established, undue influence was presumed to have 44 See Barclays Bank plc v Boulter [1999] 4 All ER 513 at 518 per Lord Hoffmann. See MP Thompson [2000] Conveyancer 43 at 47–8. 45 [1985] AC 686 at 704 per Lord Scarman. For criticism, see David Tiplady (1983) 48 Modern Law Review 579. 46 [1990] 1 QB 925. 47 [1994] 1 AC 200. 48 Ibid at p 209. 49 [2000] 1 All ER 385 affirmed in the compendious litigation Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449. 50 See M P Thompson [2000] Conveyancer 444 at 454.
Mortgages and Undue Influence 133 occurred; it was unnecessary for the complainant actually to prove that it had.51 Consequently, as between the parties themselves, it should make no difference whether undue influence was actually proved or was presumed. In both cases, the transaction would have been procured by fraud with the result that the complainant should be able to set it aside. A good deal of the force of this criticism has since been dispelled, however, owing to the restatement of the basis of presumed undue influence52 to be considered shortly. In the present context, however, when the issue is whether a mortgage should be set aside on the ground of undue influence, the point was largely academic. This is because, before the mortgagee was put on notice that the relationship between the two mortgagors was within Class 2B, it was made clear that the mere fact that the two were married to each other would not suffice to do this. Before the bank was put on notice, it had to be shown that the intended transaction was not, on its face, to the financial advantage of the wife.53 If the complainant could satisfy this condition then, of itself, this should also enable her to surmount the hurdle of showing that the transaction was to her manifest disadvantage. This left, however, the task of showing that the transaction was not to her financial advantage. PUTTING THE MORTGAGEE ON NOTICE
As has been seen, before a mortgagee was put on notice of the danger that the complainant’s consent to the mortgage had been obtained by undue influence, it had to be the case that the transaction was not, on its face, to her financial advantage. This requirement was the source of considerable practical difficulty. In some cases, it is true, the satisfaction of this criterion was straightforward. So, when an employee was prepared to mortgage her flat to provide security for the total indebtedness of her employer, the court found that this was patently not to her financial advantage.54 Such facts are obviously unusual. A more common situation where the creditor would be put on notice was when the mortgage was not created to secure an agreed sum but was to secure unlimited borrowing: an ‘all monies’ clause. The view taken of such a clause was that, as it enabled the alleged wrongdoer ‘without recourse to the [complainant] to subject the house to much greater financial risks than she could have ever known’,55 the bank would be regarded as being put on notice. Rather greater difficulty was occasioned by the situation, which was quite common, where the purpose of the loan was to support a business in which the husband was involved, and in which the wife might or might not be involved. 51
Barclays Bank plc v O’Brien [1994] 1 AC180 at 189–90 per Lord Browne-Wilkinson. See Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449 at 461 per Lord Nicholls of Birkenhead. 53 Barclays Bank plc v O’Brien [1994] 1 AC180 at 196 per Lord Browne-Wilkinson. 54 Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144. 55 Barclays Bank plc v Coleman [2000] 1 All ER 385 at 401 per Nourse LJ See also the comments in Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449 at 485–6 per Lord Hobhouse of Woodborough. 52
134 Mark Thompson The real difficulty in such cases was that the success of the business was likely to benefit the claimant.56 If, as is likely, this was the case then it could easily be argued that the loan was for their mutual benefit so that the bank should not be regarded as having been put on notice with the resulting need to take precautions to ensure that the signature was freely given. While in some cases the courts would seek to assess the involvement of the claimant in the business,57 this exercise has an air of artificiality to it and it may not be at all obvious if the potential complainant is an enthusiastic participant in an attempt to secure funding for the family business or a reluctant signatory to a mortgage the purpose of which is to secure borrowing for the purposes of the other party.
PRECAUTIONS
Assuming the facts to be such that a mortgagee is put on notice that some vitiating factor may have been present in obtaining a requisite signature to the mortgage, Lord Browne-Wilkinson laid down what, in the future, mortgagees should do to avoid being fixed with constructive notice of the complainant’s equity. He envisaged that a representative of the bank should have a private interview with the wife, in the absence of the husband, and that, during the course of that interview, the official should explain to her the extent of her liability as a surety, the risk that she was running and also counsel her to obtain legal advice.58 While he also made clear that when cases came before the courts where the facts giving rise to the litigation had occurred prior to the decision in O’Brien, the court must then judge on the facts whether or not adequate steps had been taken to ensure that the wife had received proper advice prior to signing the mortgage, it became evident that, in subsequent litigation, the courts appeared to be willing to whittle down the guidelines laid down by Lord Browne-Wilkinson.59 In the post-O’Brien litigation, it became plain that banks were not conducting a private interview with the potential complainant. Instead, the issues which came to be litigated concerned the independence of the legal advisor and the quality of advice given. From the outset, it became apparent that, in virtually all cases, if the complainant had seen a solicitor in connection with the disputed mortgage, then arguments that it should subsequently be set aside would fail. In terms of the identity of the advisor, the courts did not seem to be unduly concerned about potential conflicts of interest. Thus in Banco Exterior 56 See the comments of Anthony Mann QC speaking to the Chancery Bar Association, reported at [1994] Conveyances 349. 57 Britannia BS v Pugh [1997] 2 FLR 7; Bank of Scotland v Bennett [1991] F.L.R.730; Goode Durrant Administration v Biddulph [1994] 2 FLR 551. 58 Barclays Bank plc v O’Brien [1994] 1 AC 180 at 196. 59 Simone Wong [1998] Conveyancer 457 at 458. See also the comments in Royal Bank of Scotland v Etridge (No.2) [2001] 4 All ER 449 at 480 and 486 per Lord Hobhouse.
Mortgages and Undue Influence 135 Internacional v Mann,60 a solicitor certified to the bank that he had advised the wife prior to her signing a mortgage against the matrimonial home. The mortgage was to secure a loan of £175,000 to a company owned and controlled by her husband. Notwithstanding the fact that the solicitor who had advised the wife was also the company’s solicitor, and had not seen her separately from her husband, the majority of the Court of Appeal held that the bank was entitled to rely on a certificate from him that he had advised her and so upheld the validity of the mortgage. This decision proved to be the start of a trend whereby the courts were prepared to accept that mortgagees were not to be fixed with constructive notice of a complainant’s equity if a solicitor had certified that the transaction had been explained to her. Provided that the bank had supplied the solicitor with relevant information which it held concerning the loan,61 or, in extreme situations, where the transaction is so disadvantageous to one party that no solicitor could do otherwise than to advise against proceeding with it and, indeed, should refuse to act rather than facilitate the transaction,62 a bank would be safe to rely on confirmation from a solicitor that he had advised the wife, it seeming not to matter in what other capacity the solicitor was acting.63 Neither did it matter if the advice was inadequate, as, indeed, was frequently the case.64 A bank is entitled to assume that a solicitor has done his or her job properly and, if that is not so, the claimant’s remedy is against the solicitor. The mortgage will not be set aside.
RECASTING THE LAW
It is evident that Barclays Bank plc v O’Brien was a landmark decision which sought to strike a balance between affording protection to a legal co-owner of property, frequently a wife, who is prepared to mortgage the family home to secure debts of the other co-owner on the one hand and the commercial interest of banks who, subsequently, seek to enforce their securities. In so doing, the House of Lords sought to adapt and apply the law relating to undue influence to these situations. The methodology was to employ property law concepts and, in particular, to embark upon the exploration of when a complainant would be able to establish that the lender had notice of an equity to set aside the impugned transaction. Unfortunately, the speech of Lord Browne–Wilkinson generated problems. The conceptual basis of the speech was highly questionable. The analysis relied 60
[1995] 1 All ER 936, criticised by Alison Dunn [1995] Conveyancer 325 at 330–2. See Northern Rock BS v Archer (1998) 78 P & CR 65; MP Thompson [1999] Conveyancer 510. Credit Lyonnais Bank Nederland SA v Burch [1997] 1 All ER 144. 63 See for example Barclays Bank plc v Thomson [1997] 4 All ER 816, criticised by MP Thompson [1997] Conveyancer 216. 64 See Belinda Fehlberg (1996) 59 Modern Law Review 675 at 683; Sir Peter Millett (1998) 114 Law Quarterly Review 214 at 220. 61 62
136 Mark Thompson upon the law relating to undue influence, which is principally relevant to two party transactions, where one party seeks, as against the other, to set a transaction aside. To superimpose this onto a three party situation where one of the parties, the mortgagee, does not usually exert any undue influence on the complainant led to a misuse of the doctrine of notice. That doctrine is based upon working out when a third party takes subject to a pre-existing equity; not something which was actually true in the present context. The conceptual problem led also to the practical one: to determine when a mortgagee would be put on notice of the fact that some vitiating factor might be present in the obtaining of the complainant’s signature to the impugned mortgage. Finally, an issue which had, as a result of litigation spawned by O’Brien, become unclear was what precautions a mortgagee should take to ensure that the mortgage would not later be vulnerable to attack on the basis of some wrongdoing having occurred when it was created. For these reasons, a review of this area by the House of Lords became essential and this occurred in Royal Bank of Scotland v Etridge (No 2).65
FROM PROPERTY TO CONTRACT
Etridge involved eight conjoined appeals which raised similar issues. In all of the cases, a matrimonial home had been mortgaged to secure the indebtedness of either a husband or the husband’s business and the essential issue in them all was the circumstances in which the mortgages were created. In seven of the appeals, the wives argued that the mortgages should be set aside on the ground of undue influence; in the eighth, the action was one in negligence against the solicitor who had advised the wife. Perhaps unusually, the importance of the case lies much less in the application of the law to the facts. Instead the case contains an extensive restatement of the applicable principles and involved substantial modifications to the principles enunciated in O’Brien. In O’Brien, a pivotal part of the reasoning was based upon the presumption of undue influence. This then led to a consideration of the circumstances when a mortgagee would be fixed with notice of the vitiating factor. In Etridge, the House of Lords took a rather different tack. The leading speech was given by Lord Nicholls of Birkenhead. He turned first to a discussion of the doctrine of undue influence and then to the role of notice. He first observed that the doctrine of undue influence was developed by equity to supplement the common law doctrine of duress. In equity this took the form of one of two types. These were cases where improper coercion was established and the second, and for present purposes the most important, situations where the undue influence arises from
65 [2001] 4 All ER 449. For the fullest commentary on this decision, see MP Thompson [2002] Conveyancer 174. See also Michael Haley (2002) 14 Child and Family Law Quarterly 93; Mika Oldham [2002] Cambridge Law Journal 29.
Mortgages and Undue Influence 137 a particular relationship: what, he accepted, generations of lawyers had referred to as presumed undue influence.66 Lord Nicholls referred to situations where the existence of a particular relationship led to a presumption of undue influence. He addressed, first, the situation where it was established that a relationship of trust and confidence between two parties existed. If it could then be shown that there had been a transaction which called for some explanation,67 then the burden of proof would switch to the person seeking to uphold the transaction. This he regarded as an equitable form of the common law doctrine of res ipsa loquitur:68 an evidential presumption of undue influence. He then moved on to what he perceived to be a different situation. In his view cases of an evidential presumption are: to be distinguished sharply from a different type of presumption which arises in some cases. The law has adopted a sternly protective attitude towards certain types of relationship in which one party acquires influence over another who is vulnerable and dependent and where, moreover, substantial gifts by the influenced or vulnerable are not normally to be expected. Examples of relationships within this special class are parent and child, guardian and ward, trustee and beneficiary, and medical advisor and patient. In these cases the law presumes irrebuttably, that one party had influence over the other. The complainant need not prove he actually reposed trust and confidence in the other party. It is sufficient for him to prove the existence of the type of relationship.69
The husband and wife relationship, it was made emphatically clear, did not fall into this category. The reasoning at this stage is a little difficult to follow. The distinction drawn by Lord Nicholls seems to be akin to the Class 2A and 2B categorisation adopted in O’Brien. This, however, would not appear to be the case as this categorisation was rejected, it being variously described as adding mystery rather than illumination, as not being a useful forensic tool and as having set the law on the wrong track.70 What seems to be meant is this. In the case of the very close type of relationship adverted to by Lord Nicholls, the law will presume that one party has influence over the other. That is not to say, however, that the influence was either used or undue. As was made clear, certain transactions within that relationship are unexceptionable and will not be set aside. Examples of this would be a situation where a patient gave a birthday present to his doctor. The law would, rightly, be regarded as being absurd if such a transaction was regarded as suspect. Something more is needed to raise the presumption of undue influence, that something being that the nature of the transaction calls for
66 67 68 69 70
[2001] 4 All ER 449 at 459. See Bainbrigge v Browne (1881) 18 ChD 188. [2001] 4 All ER 449 at 459. Ibid at 460. Italics supplied. Ibid at p 477 per Lord Clyde; at 483 per Lord Hobhouse and at p 502 per Lord Scott of Foscote.
138 Mark Thompson an explanation.71 In cases falling outside this class of relationships, different considerations apply. In cases where a wife is party to a mortgage of the matrimonial home for the benefit of her husband or her husband’s business, to establish the possibility of undue influence or misrepresentation, one has to work backwards from the nature of the transaction in order to establish the requisite relationship of trust and confidence. As Lord Nicholls put it, In recent years judge after judge has grappled with the baffling question whether a wife’s guarantee of her husband’s overdraft, together with a charge on her share of the matrimonial home, was a transaction manifestly to her disadvantage.72
In other words, in cases of this type, one has to deduce from the transaction whether the relationship is one where one party reposed faith and confidence in the other. Yet this is an almost impossible task. As Lord Nicholls pointed out, the wife may be a willing and, indeed, enthusiastic participant in the proposal. Alternatively, she might not be and may have been subject to undue pressure and misrepresentation.73 Accordingly, to attempt to resolve disputes of this kind by reference to presumptions of undue influence of the type identified as Class 2B was not seen as the best way forward.
NOTICE
An integral part of the reasoning in O’Brien was the role to be played by the doctrine of notice. Perhaps charitably, Lord Nicholls said that Lord BrowneWilkinson would have been the first to have recognised that the doctrine of notice was not being used in its conventional sense, that sense being to determine whether a third party had notice of, and was therefore bound by, a preexisting equitable right.74 The point, addressed earlier in this paper, was made that there is no equity in existence prior to the creation of the mortgage; the issue is whether the mortgagee is privy to the misconduct which induced the wife to sign the mortgage with the consequence that it is liable to be set aside. He then made a further, telling, criticism of the use of the doctrine of notice. The central idea of notice is to ascertain what information should be acquired by a purchaser of property by the making of reasonable enquiries prior to the purchase. As Lord Nicholls pointed out, however, the precautions which mortgagees should take to ensure that the wife’s concurrence in the mortgage are not designed to fulfil this role. The steps suggested in O’Brien are not designed to discover the existence of a wrong; they are designed to prevent the wrong occur-
71 72 73 74
[2001] 4 All ER 449 at p 461 per Nicholls LJ. Ibid at 462. Ibid at 462–3. Ibid at 464.
Mortgages and Undue Influence 139 ring in the first place.75 Accordingly, the purported application of the doctrine of notice was rejected; as Lord Scott of Foscote put it, the references to the doctrine of notice ‘were contractual questions, not questions relating to competing property interests’.76
THE RESTATEMENT OF LIABILITY
The House of Lords in Etridge rejected much of the reasoning in O’Brien. It was not, however, prepared to jettison the underlying policy approach adopted in that case. As Lord Bingham of Cornhill observed, it is important that a wife (or person in a like position) should not charge her interest in the matrimonial home without understanding the nature and effect of it and her ability to agree or not to agree to go ahead with it. Conversely, it is also important that lenders should be able to advance money against the security of the matrimonial home confident in the knowledge that they can, if necessary, enforce that security by possession and sale.77 What the House was concerned to do was to devise a scheme which protected both competing interests and to do so by putting them on a sounder conceptual footing than had previously been the case. To this end, the presumption of undue influence of Class 2B and the role of the doctrine of notice was abandoned. Instead, what was done was to alter the law of contract insofar as it related to mortgage and surety contracts. The type of contract involved in a case such as O’Brien is a tripartite one, involving the debtor, the lender, and the guarantor. In such cases, so far as the guarantor is concerned, he or she usually derives no benefit from it. As such, these contracts are one-sided. To reflect that, what the House of Lords did was to lay down that in contracts of this type, for the contract to be valid vis-à-vis the surety, the lender must take certain steps prior to the entry into the contract. In establishing this principle, two important points were made. First, one of the difficulties with O’Brien, as noted previously, was to establish when a particular transaction which involved the creation of a charge over the matrimonial home was not to the wife’s financial advantage. Difficulties arise with this test, for example, where the purpose of the loan is to provide finance for a company in which the wife is a director or employee and so might be expected to benefit from the success of the company. To avoid such difficulties it was made clear that in every case when a wife is asked to take on the role of surety in respect of her husband’s debts then the precautionary measures spelled out later must be taken. This is so regardless of whether the borrowing is in respect of a company in which she has an interest. The only mortgage transactions in respect of the matrimonial home where no particular precautions need be taken prior to their 75 76 77
Ibid at 464–5. Ibid at 498. Ibid at 456.
140 Mark Thompson creation is where the purpose of the borrowing appears to be a joint enterprise, such as the financing of a holiday home or an improvement to the house.78 The second point is that, underpinning the reasoning in O’Brien, was the establishment of a relationship of trust and confidence. It was accepted in that case that this was not confined to marital relationships but could also include non-marital ones. Subsequently, it became clear that the general issue as to the validity of mortgages could arise when non-sexual relationships were involved.79 Lord Nicholls recognised that all sorts of relationships could arise where one party is in a position to exert undue influence on the other. He saw no rational cutting-off point and, instead, preferred to adopt a rule of general application. This rule was that in every case where the relationship between the surety and the debtor is non-commercial, the bank must take steps to ensure that the individual guarantor is made aware of the risks which are being run.80
PRECAUTIONS AND LEGAL ADVICE
The House of Lords in Etridge laid down that, in every case where a property is being mortgaged and the purpose of that mortgage is to secure the debts of one co-owner or the business of one of the co-owners, then the lender must take certain precautions if the mortgage is not successfully to be challenged by the other co-owner. Although in O’Brien, Lord Browne-Wilkinson had laid down his own guidelines to be followed by mortgagees, it was felt necessary, for a number of reasons, to revisit this area. First, Lord Browne-Wilkinson had said that a representative of the mortgagee should conduct a private interview with the potential complainant. This, however, was not happening and the question arose as to whether this aspect of the guidelines should be reasserted or dropped. Various matters which then needed consideration related to the legal advice which should be given. Issues which were not addressed in O’Brien related to the independence of the legal advisor and, more particularly, as to whether he or she could act for more that one party to the transaction, and then what was expected of the advisor. In addressing the various issues, Lord Nicholls went into some detail as to the precautions which the lender should take. In doing so, he made clear that the steps which he was laying down were applicable to future transactions. In respect of past transactions, the bank will be regarded as having fulfilled its obligations if it receives confirmation from a solicitor that he has brought home to the wife the risks she was running by agreeing to act as a surety.81
78
Ibid at 465–6 per Lord Nicholls. See, for example, Northern Rock BS v Archer (1998) 78 P & CR 65 (brother and sister). 80 [2001] 4 All ER 449 at 476. 81 Ibid at 474. The view of Lord Hobhouse, at 480, that the guidelines issued by Lord Nicholls apply only to future transactions must be regarded as a minority opinion. 79
Mortgages and Undue Influence 141
PRIVATE INTERVIEW
The previous guidelines laid down by Lord Browne-Wilkinson envisaged that a representative of the mortgagee would have a private meeting with the potential complainant. Increasingly it became evident that lenders were not doing this but were content simply to leave matters to a legal adviser. Lord Nicholls appreciated why banks were reluctant to do this and considered that, if such an interview took place, then, in subsequent litigation, the content of that interview may, itself, become the subject of dispute. He accepted, therefore, that there is no need for any such interview to take place, provided that a solicitor has informed the bank that he or she has advised the complainant.
THE INDEPENDENCE OF THE ADVICE
The role of the solicitor in transactions of this type is clearly crucial. Before considering what the role of the solicitor is, the anterior question arises as to whether it is permissible for the solicitor to act for both debtor and surety in respect of the mortgage. It was accepted that there were arguments on both sides. On one side is the perception that the solicitor’s advice to her may be less robust if he is also acting for her husband; on the other is the increased cost which would be incurred if it were necessary to employ two solicitors. It was felt, on balance, that the latter consideration had more weight but it was stressed that, when advising the wife, the solicitor must be clear that her interests are then paramount and, if there is perceived to be a conflict of interest between the two roles, then he or she should cease to act for her.82
THE NATURE OF THE ADVICE AND THE ROLE OF THE LENDER
In much of the litigation which has occurred since O’Brien was decided, the complainant has actually seen a solicitor but it was evident that the advice received was of a perfunctory and inadequate nature. The House in Etridge was concerned to institute a regime which would maximise the chances of her being properly advised, so that, if she agrees to sign the mortgage, her agreement should be free and informed. To achieve this outcome, the lenders are required to follow certain procedures. Lord Nicholls commented on the fact that, in a number of post-O’Brien cases, the involvement of the solicitor has been at a late stage in the proceedings, with the wife not having a clear idea of what the purpose of the advice was or given any choice in who that solicitor should be. To avoid this, and to prevent the process of taking advice from being a charade, he said that the bank should do 82
Ibid at 472. See also at 479 per Lord Clyde.
142 Mark Thompson certain things. First, the bank must communicate directly with her. It is not clear whether this involves an actual meeting with her but it is probable that written communication is adequate, given the reluctance of lenders to engage in a direct dialogue with the wives of borrowers, a reluctance which had earlier been considered to be quite understandable.83 The lender should inform the wife that, for its protection, it will require written confirmation from a solicitor, acting for her, that the solicitor has fully explained to her the nature of the transaction and the practical consequences of it. She should be told that when this written confirmation is received, this will preclude her, subsequently, from disputing the validity of the mortgage. She should be asked to nominate a solicitor to act for her, it being pointed out that this can be the solicitor who is also acting for her husband or, alternatively, she can nominate a different solicitor. The bank should not proceed further until it receives an appropriate reply directly from her. The bank knows best the financial position of the husband and, as it is not willing to conduct a private interview concerning the transaction with her, the bank is also required to supply the nominated solicitor with certain financial information. Normally this will include the purpose of the mortgage, the current amount of his indebtedness, the amount of his current overdraft facility and the amount to be borrowed and the terms of the loan. If he has already submitted a mortgage application, a copy of that application should also be provided. Such information is, of course, confidential to the husband and the bank cannot, without his consent, release that information to his wife’s solicitor. Unless such consent is forthcoming, however, the transaction cannot be allowed to proceed. If the bank complies with these guidelines then the mortgage will, save for very unusual situations, be immune from subsequent attack.84 The solicitor’s role is crucial but, provided that the lender has followed the procedure outlined above, should the advice be defective, then this is a matter between the solicitor and the wife; the inadequacy of the advice will not affect the validity of the mortgage. The solicitor should in all cases see the wife alone. The nature of the transaction should be explained to her and the consequences of a failure to repay the loan—the potential loss of her home and possible bankruptcy—explained. The terms of the loan should be explained including, if this is the case, that the amount of the loan may be increased without reference to her.85 The financial position of both parties should be explored and it should be made clear to her that the decision as to whether or not to proceed is hers and hers alone and she should be asked if she wishes the solicitor to negotiate on her behalf with the lender as to the terms of the proposed transaction.86 83 For a different view, see Michael Haley [2002] Conveyancer 499 at 502, commenting on National Westminster Bank plc v Amin [2002] 1 FLR 735. 84 [2001] 4 All ER 449 at 473. 85 For a different view of what appears to be an ‘all monies’ clause, see ibid at p 486 per Lord Hobhouse. 86 Ibid at p 470.
Mortgages and Undue Influence 143
CONCLUSIONS
As was pointed out at the beginning of this paper, the law relating to possession actions has seen an immense amount of development over the past thirty years. This development has sought to strike a balance between the interests of occupiers of the property being able to maintain their homes and the ability of lenders to enforce their securities over family property. If the balance is tilted too much in favour of the occupiers then the unwelcome consequence would tend to be a drying up of a valuable source of finance, which is a significant source of capital for small businesses.87 If tilted too far in favour of the banks, then unacceptable decisions will ensue with co-owners who have either not been consulted at all,88 or who have been the victims of undue influence or misrepresentation, losing their homes. The House of Lords in Barclays Bank plc v O’Brien sought to strike an appropriate balance between these competing tensions but, in doing so, used an inappropriate conceptual basis for so doing, placing as it did the emphasis on presumptions of undue influence and the doctrine of notice. Because of the artificiality of the reasoning, various difficulties surfaced in the welter of litigation which ensued when co-owners of properties sought to use the ‘O’Brien defence’ to resist possession proceedings. By concentrating on the law of contract, rather than the law of property, the House of Lords in Royal Bank of Scotland v Etridge (No 2) has succeeded in placing the law on a much clearer footing and, at the same time, struck a reasonable balance between the competing interests referred to above. While it has placed quite a significant burden on solicitors who are called upon to advise in these transactions, it has also, it is suggested, restored a good deal of certainty to an increasingly important area of law.
87 88
Ibid at 463 per Lord Nicholls. Williams &. Glyns’ Bank Ltd v Boland [1981] AC 487.
8
Estoppel and Restitution: Drawing a Divide NICHOLAS HOPKINS
INTRODUCTION
The integration of equitable principles and restitution has been described as, ‘still the greatest challenge in the law of restitution’.1 One aspect of this integration is the relationship between restitution and equitable estoppel; particularly proprietary estoppel. It is clear that to some extent these principles overlap. This is acknowledged, for example, by Hobhouse LJ in Sledmore v Dalby. He notes: One element which is often present in proprietary estoppel . . . is restitution. In many of its applications the equitable doctrine of proprietary estoppel bears a close relationship to restitutionary principles where one party has acquiesced in or encouraged another in conduct whereby that other at his own expense would have, if no remedy were granted, unjustly enriched the former.2
The purpose of this paper is to explore the overlap between proprietary estoppel and restitution and to consider a possible dividing line between them. Most of the paper is concerned with the overlap between estoppel and subtractive unjust enrichment; that is, claims to restitution based on the reversal of an unjust enrichment obtained at the claimant’s expense. The relationship between estoppel and claims to restitution based on wrongdoing is also discussed though this seems to raise separate issues. In the majority of cases it may be felt that the dual existence of claims to estoppel and restitution is not problematic. Parties will make claims and courts will decide cases by invoking the principle that appears most suitable to the facts or most appropriate in respect of the remedy sought. This paper argues however that in one type of case this choice should be removed and, in the interests of remedial certainty and the achievement of 1 J Beatson The Use and Abuse of Unjust Enrichment—Essays on the Law of Restitution (Clarendon, Oxford, 1991), 245. 2 (1996) 72 P & CR 196, 208. See also, eg, Sarah Worthington (1999) 26 Journal of Malaysian and Comparative Law 226, 242. She notes that there are proprietary estoppel cases which, ‘stripped of the equitable estoppel tag, seem to provide simple illustrations of the law of unjust enrichment in action’.
146 Nicholas Hopkins greater cohesion in the integration of equity and restitution, claimants should be confined to restitution.
IDENTIFYING THE OVERLAP
Consideration of the relationship between estoppel and restitution often does not go beyond an acknowledgement that the principles are related. On further analysis, it is apparent that the overlap between the principles operates at different levels. In the more usual case the same facts reveal the separate and distinct elements of a claim to restitution based on unjust enrichment and a claim to estoppel. However, the reasoning for each claim differs. These may be described as parallel claims. In a minority of cases the overlap between restitution and estoppel extends further, and it is found that the reasoning underlying a claim for restitution is substantively the same as the reasoning in estoppel. In such cases, the claims to estoppel and restitution may be described as coinciding. The remedial flexibility in proprietary estoppel adds a further dimension to the relationship between that principle and estoppel and four separate scenarios in which the principles overlap can be identified. The first two scenarios concern parallel claims. The first is where the facts of a case in which estoppel is awarded also reveal an unjust enrichment, but the remedy awarded for the estoppel differs from restitution. This scenario does not appear to create any difficulties.3 While the claimant may be assured of the availability of restitution for the unjust enrichment, he may elect to seek an alternative remedy (typically based on his expectations) through estoppel.4 Estoppel may usually be thought to provide the potential for the greater remedy, but exceptionally restitution may exceed the estoppel remedy.5 Secondly, in the same type of case, the remedy awarded for estoppel may be restitution. It has previously been suggested that this form of overlap arises where, in the context of estoppel, the court awards a remedy based on the claimant’s reliance interest.6 The reasoning underlying the award of reliance in an estoppel claim is however different from that underlying restitution.7 Hence it is more accurate to define this overlap as one in which the remedy awarded for estoppel coincides in quantum with restitution. The effect of this overlap is therefore that the same quantum of relief may be obtained, on the same set of facts, by two different processes of reasoning (that underlying a claim to restitution and that underlying a claim to estoppel). The existence of this overlap evokes differing responses. 3 Peter Birks An Introduction to the Law of Restitution (revised edn, Clarendon, Oxford, 1989), 292 suggests there is no reason why estoppel and unjust enrichment should not exist concurrently. 4 Contrast Hussey v Palmer [1972] 1 WLR 1286 where the claimant chose to seek only restitution. 5 Below n 31 and text. 6 See the discussion of estoppel remedies by Elizabeth Cooke ‘Estoppel and the Protection of Expectations’ (1997) Legal Studies 258, 281–2 and Andrew Robertson ‘Reliance and Expectation in Estoppel Remedies’ (1998) 18 Legal Studies 360, 364. 7 Below n 30 and text.
Estoppel and Restitution: Drawing a Divide 147 There may be nothing inherently objectionable in different causes of action occasionally leading to the same result.8 However, Cooke argues: There is no point in having the courts granting restitution in some cases on the basis of an explicit claim in restitution and in others on the basis of unconscionability arising from estoppel.9
The combined effect of these first two scenarios is that where the facts giving rise to an estoppel also reveal an unjust enrichment, a claim to estoppel may or may not produce the same outcome as restitution. This may be criticised in terms of remedial certainty. At the least, it ought to be considered whether it is possible to identify the type of case in which the same result is achieved (that is, the type of case falling within the second scenario) and, if so, whether it would be advantageous for such claims to be explicitly recognised as giving rise only to restitution. The third and fourth scenarios relate to the minority of cases in which claims to estoppel and restitution coincide: that is, those cases in which the overlap between the principles extends to the reasoning of the case. The third scenario arises where, in such a case, an estoppel claim leads to the award of a remedy equivalent to restitution. As regards this scenario similar considerations arise as in relation to the second scenario above: that is, whether it is desirable for the same outcome to be achieved through different principles. The fact that the reasoning underlying the principles is the same makes a case for explicitly recognising the facts as giving rise to restitution more compelling. The fourth, and perhaps the most problematic scenario is where, in the context of a case in which estoppel and restitution are based on the same reasoning, a remedy is awarded for estoppel which differs from restitution. It is submitted that this scenario ought to be prevented. It seems unsatisfactory, not least in terms of remedial certainty, to retain a situation whereby on the same set of facts the same reasoning could lead to a different outcome, depending on whether the case is decided on the basis of restitution or estoppel. To appreciate the respective likelihood of these scenarios arising, it is helpful to consider the relationship between the elements of claims to estoppel and those to restitution.
8
Cf Robertson above n 6, at 364. Cooke above n 6, at 282. This point is made in the context of arguing against the award of reliance loss in estoppel cases. However as is noted below n 30 and text, there is no necessary equivalence between reliance and restitution. See further Robertson above n 6. 9
148 Nicholas Hopkins
EXPLAINING THE OVERLAP
Unconscionability and the notion of an ‘unjust’ enrichment Following the judgment in Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd10 it is established that proprietary estoppel arises where, following a claimant’s detrimental reliance, it is unconscionable for the representor to renege on an assurance. More recently, the significance of unconscionable conduct in a claim has been emphasised by the Court of Appeal in Gillett v Holt.11 There, Robert Walker LJ emphasised the need to take an holistic approach to estoppel, in which claims are considered ‘in the round’ and the separate requirements are not to be treated as ‘watertight compartments’.12 Further, ‘the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine’.13 The emphasis placed on unconscionable conduct in estoppel claims is significant in terms of the overlap with restitution because it is apparent that the notion of unconscionability that is applied is different from the concept of an ‘unjust’ enrichment. This difference is not apparent from the language used. At a high level of abstraction ‘unjust’ and ‘unconscionable’ may carry the same connotations. The High Court of Australia has noted that, ‘contemporary legal principles of restitution or unjust enrichment can be equated with seminal equitable notions of good conscience’.14 Mason links both the notion of unconscionability in estoppel and the notion of an unjust enrichment as illustrations of unfair dealing.15 However, differences arise once it is considered how the concepts of unconscionability and of an unjust enrichment are applied in their respective principles. In the context of estoppel the requirement of unconscionability suggests an element of culpability on the part of the representor. The representor is not permitted to renege on the assurance of rights if, in so doing, his conduct would fall below the standard required by good conscience. In essence, estoppel can be described as a fault based concept requiring an assessment of the claim from the perspective of the representor: the essential question being, would it be unconscionable for the representor to renege on the assurance? In the context of unjust enrichment, however, ‘unjust’ is generally recognised as being unrelated to any concept of fault. An enrichment is considered unjust if it is marked by the 10
[1982] 1 QB 133. [2000] 2 All ER 289. 12 Ibid, 301. 13 Ibid. 14 Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662, 673, 15 AF Mason ‘Contract, Good Faith and Equitable Standards in Fair Dealing’ (2000) 116 Law Quarterly Review 66, 90–4. See further Joshua Getzler ‘Unconscionable Conduct and Unjust Enrichment as Grounds for Judicial Intervention’ (1990) 16 Monash University Law Review 282. 11
Estoppel and Restitution: Drawing a Divide 149 existence of a number of factors, such as mistake, a failure of consideration or incapacity, which call for an enrichment to be reversed.16 Further, the majority of these factors are claimant-oriented: that is, establishing the unjust nature of the enrichment is determined by considering the circumstances from the point of view of the claimant to restitution. This general difference in reasoning alone suggests that in most situations where an overlap exists, it will involve parallel claims: situations in which the same set of facts reveal in the alternative the elements of a claim to estoppel or restitution, each claim based on different reasoning. For an overlap in reasoning to arise between estoppel and restitution it is necessary to establish those exceptional cases where a claim to restitution requires an assessment of the defendant’s conduct (the defendant being the representor in the estoppel analysis) and includes an element of fault. Most defendantoriented claims are concerned with forms of conduct by a defendant which operate to vitiate consent to a transaction. For example, claims based on duress, actual and presumed undue influence17 and (if accepted as a ground of restitution) situations where, through inequality of bargaining power, the transaction is unconscionable.18 The factual context of such claims to restitution is unlikely to reveal the elements of a claim to estoppel. The remaining defendant-oriented ground of restitution is the controversial concept of free acceptance. This is a ground of restitution applied where a benefit is accepted (despite an opportunity to reject) in the knowledge that the claimant is not acting gratuitously. Restitution is awarded as it is considered unconscionable for the defendant to refuse to pay for the benefit. Hence, this is a ground of restitution that is both directed at the defendant’s conduct and incorporates an element of fault, insofar as the defendant’s conduct is classified as unconscionable.19 Factually, an overlap with proprietary estoppel arises where the benefit received relates to the defendant’s land, and the defendant’s conduct in acquiescing in the provision of the benefit is construed as constituting an assurance of rights. This link between free acceptance and estoppel is well established.20 It is in this category of case that claims to estoppel and restitution coincide: the reasoning underlying the respective claims to estoppel and restitution are substantively the same as both focus on the defendant’s fault in unconscionably receiving or retaining the benefit.
16 Birks above n 3, at 19. See also Getzler ibid, 324. Getzler comments that ‘[a] finding of unjust enrichment logically seems to be the conclusion of a process of reasoning whereby the acquisition or retention of wealth is judged to be unwarranted by some principle of law or morality’ (emphasis included). 17 Graham Virgo, in The Principles of the Law of Restitution (Oxford, Clarendon, 1999), at 121 notes that these grounds are both claimant and defendant-oriented. 18 See the discussion in support of this by Virgo ibid, 286–97. 19 Virgo ibid, 122. 20 See, eg, Birks above n 3, at 277–9 and Goff & Jones The Law of Restitution (Sweet and Maxwell, London, 1998), 241–2.
150 Nicholas Hopkins Restitution and the remedial discretion in estoppel As is well known, a finding of estoppel confers on the court a remedial discretion exercised through the guiding principle that the court seeks to confer the ‘minimum equity to do justice’.21 The approach adopted by the court in granting estoppel remedies is subject to debate between those who view the prevailing principle as the protection of expectations,22 or reliance,23 or emphasise the discretionary nature of the remedy.24 Most commentators, however, acknowledge the importance in practice of the claimant’s expectations in determining the remedy. Hence, although supporting a reliance-based approach, Robertson notes that expectations are likely to be awarded, as this is often the only way to prevent the claimant suffering a detriment.25 Gardner rejects as a thesis that an estoppel claim requires the award of expectations, though his review of the authorities leads to the suggestion that expectations are in fact awarded unless it is impracticable to do so, or on the occurrence of specific factors (such as misconduct by either party).26 In Lloyds Bank v Carrick the Court of Appeal considered the claimant’s expectation to be the maximum remedy available.27 However, on occasion it seems that the remedy awarded has in fact exceed the expectation, either in quantum28 or in time.29 The existence of remedial discretion is a further factor affecting the nature of the overlap between estoppel and restitution. The concern of restitution is to provide the return of the unjust gain received by the defendant. Hence the focus of restitution is on identifying the defendant’s gain. The existence of remedial discretion makes a gain based remedy possible in an estoppel claim. However, the remedy appears more likely to be assessed by focusing on the claimant. This is the case, for example, when the court awards a remedy based on the claimant’s reliance or on the claimant’s expectations.30 Despite this difference in focus it is possible that the remedy awarded in estoppel will coincide with the 21
Crabb v Arun DC (No 1) [1976] 1 Ch 179, 198 per Scarman LJ. Cooke above n 6. See also Elizabeth Cooke The Modern Law of Estoppel (OUP, Oxford, 2000), 150–8. 23 Robertson above n 6. 24 The discretionary nature of the remedy is emphasised by Nicholas Hopkins The Informal Acquisition of Rights in Land (Sweet and Maxwell, London, 2000), 156–8 and by Simon Gardner ‘The Remedial Discretion in Proprietary Estoppel’ (1999) 115 Law Quarterly Review 438. 25 Above n 6, at 366. See further Andrew Robertson ‘Satisfying the Minimum Equity: Equitable Estoppel Remedies After Verwayen’ (1996) 20 Melbourne University Law Review 805. 26 Above n 24, at 452–60 and 466. 27 [1996] 4 All ER 630, 641. 28 Gardner above n 24, at 453 argues that where expectation is not awarded because it would be wrong in principle to do so (eg, because of misconduct by the defendant), there is no reason why the award should be capped at the measure of expectation. 29 Eg, Gillett v Holt above n 11. There, the award of immediate relief by the court inherently exceeded that claimant’s expectation of a future inheritance. 30 The difference between restitution, reliance and expectation is considered by LL Fuller & William R Perdue ‘The Reliance Interest in Contract Damages: 1’ (1936) 46 Yale Law Journal 52, 53–4. 22
Estoppel and Restitution: Drawing a Divide 151 defendant’s gain. Hence the quantum of the remedy awarded under each principle may be the same. In this regard, the quantum of restitution is more likely to coincide with that of the claimant’s reliance than the claimant’s expectation. This is significant as to the extent that the claimant’s expectation is seen as the paradigm estoppel remedy, the likelihood of the quantum of the remedy awarded in estoppel and restitution being the same is reduced. The potential link between the quantum of restitution with the claimant’s reliance or expectation can be illustrated through an example. Assume that a claimant pays the defendant £x for improvements to the defendant’s house, following an assurance that the defendant can live in the house rent-free for life. Here the claimant’s reliance (payment of £x) coincides with the unjust gain that will be obtained by the defendant should he renege on the assurance. In contrast, it may usually be anticipated that the claimant’s expectations will exceed the amount of the defendant’s enrichment. That is, the value of the claimant’s rentfree accommodation is likely to exceed the sum of £x paid. Exceptionally, however, it is possible that the quantum of restitution will equate with or exceed the claimant’s expectation. This would be the case if the value of the claimant’s rent-free accommodation is in fact assessed as being commensurate with or less than the sum paid to the defendant. Baker v Baker31 assists in illustrating this point. There the claimant, who was elderly and in poor health, provided a large sum of money (approximately £34,000) to the defendant (his son) to enable the defendant to purchase a home for his own family, in which the claimant would also live rent free for the rest of his life. Within the first year of occupation relations between the parties irrevocably broke down and the claimant left the home. The claimant successfully established an estoppel but the remedy granted at first instance, of the repayment of the full sum paid, was reduced by the Court of Appeal to a sum representing the value of the rent-free occupation. The Court considered that this represented the claimant’s expectation interest. Dillon LJ explained: . . . the greatest interest in the property that the parties envisaged [the claimant] having was the right . . . to occupy the granny room rent-free for the rest of his life . . ..32
In light of the claimant’s age and health, the value of his occupation would clearly be substantially less than the sum he had paid:33 the difference reflecting the fact that the claimant’s occupation was only one of two purposes for which he had assisted in the purchase of the house. However it is at least arguable that without the assurance of occupation the claimant would not have paid any money. Hence, although he was prepared to pay a sum far in excess of the financial value of the benefit he would receive (his expectation) he was prepared to do so only because of that benefit. Therefore, on a restitutionary analysis, the unjust gain received by the defendant in light of the breakdown of relations and 31 32 33
[1993] 2 FLR 247. Ibid, 250. The Court of Appeal directed an inquiry to determine the amount of the compensation.
152 Nicholas Hopkins the claimant’s loss of his occupation could be quantified as being the full sum paid. On this analysis, the award of the claimant’s expectation loss fell below that available in a possible claim for restitution.34 A further aspect of the courts’ remedial discretion is that, in all cases, proprietary estoppel may lead to a personal or a proprietary remedy. In contrast, in restitution, proprietary remedies are available only to vindicate a proprietary right. The claimant to restitution must establish a ‘proprietary base’35 by showing either that legal title did not pass or that the circumstances surrounding the transfer of legal title give rise to an equitable interest in the claimant’s favour (that is, the existence of a trust). For the purpose of this paper, it is sufficient to note that a failure of consideration does not prevent title from passing while, in the context of mistake, only a fundamental mistake will do so.36 Hence the ready availability of a proprietary remedy in estoppel further reduces the possibility of the quantum of the outcome under each claim being the same.
Estoppel and restitution for wrongs As has been noted, the current trend of the courts is to emphasise the role of unconscionability in estoppel.37 In the context of restitution for wrongs, unconscionability may be a form of equitable wrongdoing giving rise to a claim for restitution. As a general proposition this is controversial, as unlike the other forms of equitable wrongdoing (for example, breach of fiduciary duties and breach of confidence) unconscionability does not involve the breach of a primary duty. Partly as a consequence of this, a ground of restitution founded on unconscionability would be of uncertain scope.38 If unconscionability is accepted as a ground of restitution, then establishing estoppel inherently reveals a ground of restitution because it necessarily involves a finding of unconscionable conduct. Linking restitution with estoppel also overcomes the latter objection, as the other elements of an estoppel claim would impose some limitation on the circumstances in which unconscionable conduct leads to restitution.39 If unconscionability is accepted as a ground of restitution, then a remedy based on restitution for wrongs may necessarily be available in an estoppel claim. 34 On the facts of the case a claim to restitution would not have been unproblematic. The most likely basis of the claim would be a failure of consideration and as the claimant had occupied for a period of time the failure was not total. However it is possible that restitution could have been awarded subject to a claim for counter restitution in relation to the period of occupation. 35 A phrase coined by Birks above n 3, at 378–85. 36 These examples are given as failure of consideration and mistake appear to be the most likely grounds of restitution to overlap with estoppel. For a full discussion of establishing a proprietary base see Virgo above n 3, at 601–41. 37 Above n 11 and text. 38 Virgo above n 17, at 549. 39 See the discussion of estoppel by Virgo ibid, 549–53.
Estoppel and Restitution: Drawing a Divide 153 The potential advantage to an estoppel claimant of obtaining a restitutionary remedy based on the defendant’s wrongdoing can be illustrated by a continuation of the example discussed above.40 Assume that the sum paid by the claimant in reliance on the assurance of rent-free accommodation is £10,000 and the value of the rent-free accommodation is £5,000. Further, as a direct result of the improvements made to the representor’s house using the £10,000 its value is increased by £15,000. The discussion above illustrates that a claim based on estoppel may be limited to £5,000 as representing the claimant’s expectation interest. A claim to restitution based on subtractive unjust enrichment (eg, failure of consideration) may enable the claimant to receive repayment of the £10,000.41 However, this leaves the representor with a “windfall” of £5,000 based on the increased value of the house. In the context of restitution for wrongs, a restitutionary remedy strips the defendant (representor) of the gain obtained as a result of the wrongdoing. Unlike a claim based on subtractive unjust enrichment the claim to restitution is not limited to the sum by which the defendant has been enriched at the claimant’s expense. In principle therefore, it may be argued that a claim to restitution based on the defendant’s unconscionable conduct should enable the claimant to receive the full £15,000. To provide restitution for the defendant’s wrong the claimant may be awarded either a proprietary remedy (through constructive trust) or a personal remedy (account of profits). In the context of restitution for wrongs there are objections to the award of proprietary remedies. Such remedies are seen as involving an erosion of the defendant’s assets, which may be to the detriment of third parties (in particular creditors).42 In relation to a personal remedy, the court’s remedial discretion in estoppel should already enable the award of an account of profits where this is considered appropriate. It is suggested that this will rarely be the case. In Attorney General v Blake43 the House of Lords held that restitution may be awarded for breach of contract in exceptional circumstances when existing remedies are inadequate. In an estoppel claim the parties’ actions, by definition, fall short of a binding contract.44 Arguably, therefore, the case for such a remedy is less persuasive. The claimant may have no greater a claim to the windfall than the representor.45 Further, it 40
Above n 31 and text. This is on the basis that the remedy awarded in restitution will be personal. Property in the £10,000 passed to the representor on payment and demonstrating the unjust factor is not sufficient to hold that the claimant retained title to the money. For the claimant to obtain the windfall it would be necessary to establish a proprietary restitutionary claim. 42 Roy Goode ‘Proprietary Restitutionary Claims’ in Cornish, Nolan, O’Sullivan and Virgo (eds) Restitution Past, Present and Future (Oxford, Hart, 1998), 68–9. In essence, the objection is that the claimant does not have a true proprietary base. 43 [2001] 1 AC 268. 44 In Lloyds Bank plc v Carrick above n 27 the court considered the existence of a valid contract for sale of land to preclude a claim to estoppel. 45 Eg, if the issue had arisen in relation to Baker v Baker above n 31. There, the arrangement enabling the claimant to occupy the representor’s home came to an end following an ultimately unsubstantiated allegation that the claimant had abused the representor’s daughter. Although 41
154 Nicholas Hopkins may be difficult to argue that the award of an expectation interest is ‘inadequate’.
SUMMARY
The difference in the nature of unconscionability and the notion of an unjust enrichment means that in most cases where an overlap between estoppel and restitution arises the reasoning underlying the claim under each principle will differ. Claims are more likely to arise in parallel than to coincide. Moreover, the tendency of estoppel remedies to focus on the claimant’s expectation, and the ready availability of proprietary remedies, reduces the possibility of the quantum of the remedy under each claim being the same. As a result, the most likely overlap is one that does not appear to cause difficulties: that where alternative claims to estoppel and restitution arising from the same facts lead to different results. An overlap relating to the reasoning underlying claims is most likely to be confined to claims to restitution based on free acceptance. In the context of the overlap between estoppel and free acceptance, the focus of estoppel on expectations may perhaps be thought more likely to lead to the most problematic scenario: that arising where the same reasoning could be used to produce different outcomes. In fact however, as will be seen, the circumstances in which such an overlap arises appear to be confined to a situation in which restitution may in any event be the preferred remedy. In light of this analysis a possible response to the different types of overlap will now be discussed.
RESPONDING TO PARALLEL CLAIMS
As noted, the effect of parallel claims is to provide remedial uncertainty insofar as the outcome of the estoppel claim may or may not produce the same result (in terms of the quantum of the remedy) as restitution.46 There are, however, a number of difficulties in seeking to identify cases in which the quantum of relief will coincide, to confine such claimants to restitution. If the elements of a claim to estoppel are present, then a compelling reason must be given to confine the claimant to restitution. Two possible reasons may be forwarded. The first, which is inherent in the comments made regarding the existence of parallel claims, is remedial certainty. The strength of this argument alone must be placed in some doubt when dealing with proprietary estoppel, in which it is established that the court has remedial discretion. A second factor may be the desirability of providing greater cohesion by dealing with all claims unsubstantiated, the sharing agreement had irrevocably broken down. In the context of such a breakdown of relations, it is difficult to argue that the claimant has any greater claim to a windfall resulting from the reliance. 46 Above n 9 and text.
Estoppel and Restitution: Drawing a Divide 155 leading to restitution under that branch of law. The provision of greater cohesion may be particularly persuasive in the context of restitution as it has been acknowledged that that branch of law is often a ‘latecomer’ in legal systems. It cuts across other principles (including established principles of estoppel) and must ‘struggle for a place in the legal firmament’.47 As has been noted, the possibility of the same quantum of relief being awarded under estoppel and restitution is reduced by the tendency of estoppel remedies to focus on expectations and by the greater availability of proprietary remedies. With this in mind, a starting point in identifying where the quantum of relief will be the same under both principles may be to consider those estoppel cases in which the court deviates from expectations. However, judged against the suggested criteria of remedial certainty and greater cohesion at least three difficulties arise. First, the parallel existence of an unjust enrichment may often be coincidental. It is dependent, in particular, on whether the claimant’s acts constituting detrimental reliance are such as to confer a benefit (enrichment) on the defendant. It is questionable whether cohesion is achieved by carving cases out of an established estoppel principle because of the coincidental existence of an unjust enrichment. Secondly, focusing on cases in which expectations are not awarded would not identify all situations in which an estoppel remedy provides the same quantum as restitution since, as has been seen, expectations may exceptionally coincide with restitution. As a result, any claim to greater cohesion is necessarily weakened, as it must be acknowledged that in some cases estoppel will still lead to an award equivalent to restitution. Thirdly, while it is possible to identify factors indicating that the award of expectations is not appropriate, such factors do not necessarily lead to the suggestion that an approach based on restitution would be appropriate. With these factors in mind, the award of estoppel remedies other than expectations can be considered. Estoppel and non-expectation remedies In the context of an estoppel claim, when expectations are not awarded this is generally either because the courts do not consider it appropriate to do so or because it is not possible to do so.48 Examples of situations falling within the former are provided by Sledmore v Dalby.49 There, Hobhouse LJ appeared to express concerns regarding the proportionality of the award of expectations50 while Roch LJ (with whom Butler-Sloss LJ expressed agreement) emphasised the need to balance the competing needs of the claimant and representor.51 In 47
Beatson above n 1, at 244. This working summary of the courts’ approach is sufficient for the purposes of this paper. For a full analysis see Gardner above n 24. 49 Above n 2. 50 Ibid, 207 and 209. See Gardner above n 24, at 457. 51 Ibid, 204–5. See Gardner ibid, 458–9. 48
156 Nicholas Hopkins such circumstances, a logical remedial response is one that does ensure proportionality or that provides an appropriate balance between the competing needs of the parties. The advantage of the remedial discretion in estoppel is that it enables such a remedy to be determined.52 Chalmers v Pardoe53 and Lee-Parker v Izzet (No 2)54 provide examples of situations in which the award of expectations was not possible. In the former case, but not the latter, unjust enrichment was coincidentally present. In Chalmers v Pardoe the claimant had erected buildings on the representor’s land in the expectation that he would be granted an interest in the land. The Privy Council was unable to fulfil this expectation as prior consent to any alienation or other dealing with the land was required from the Native Land Trust Board.55 On the facts, the claimant was left without a remedy. This seems to leave the representor unjustly enriched. A modern approach would perhaps be to provide a remedy other than expectations or allow a claim to restitution.56 In Lee-Parker v Izzet (No 2), a claim to estoppel was made by the defendant in the action, who had moved into possession of property on the basis of a contract for sale which was held to be void for uncertainty. The defendant had paid ‘rent’ and effected improvements and repairs. The court considered that in principle the defendant was entitled to ‘compensation’57 against the claimant in the action, who was an equitable mortgagee of the representor. Here, the award of expectations (an opportunity to complete the purchase) was not possible as the defendant was unable to raise the necessary funds.58 The court looked instead at a remedy based on the defendant’s expenditure (reliance) but considered that the value of her possession exceeded her expenditure and therefore no award was made. As the claim was against the mortgagee rather than the representor there was no question of an unjust enrichment.
Estoppel and mispredictions The parties seeking relief through estoppel in Chalmers and Lee-Parker may both be described as risk-takers: in the events that transpired the parties had 52 In Sledmore v Dalby ibid the majority considered that in light of the respective needs of the parties it was no longer inequitable for the representor to defeat the claimant’s expectations. His equity had ‘expired’ (at 205 per Roch LJ) by his previous use of the property. Hobhouse LJ considered that no relevant expectation had been reneged upon. 53 [1963] 1 WLR 677. 54 [1972] 1 WLR 775. 55 The representor had initially been willing to apply for such consent and the dispute arose when, following an argument between the parties, he refused to do so. 56 As the case involved a misprediction by the claimant, acting with the defendant’s active encouragement, the appropriate ground of restitution would seem to be failure of consideration. See below n 82 and text. 57 Above n 54, at 780. 58 An opportunity to complete the purchase had been offered in light of the possibility that the contract was in fact valid with the offending term removed.
Estoppel and Restitution: Drawing a Divide 157 mispredicted the grant to them of rights in the land. In Chalmers, the claimant ran the risk, perhaps slight, that the Native Land Trust Board would not approve the assignment or grant of a lease to him.59 (Though not the risk, that transpired, that the representor would not make the requisite application.) In Lee-Parker the defendant in the action had expended money on the basis of a contract that remained subject to her obtaining a satisfactory mortgage. Insofar as the defendant acted on the basis of a conditional contract the case may be seen as related to a particular category of risk: that undertaken by a person who acts on the basis of pre-contractual negotiations. The appropriate basis of claims arising from pre-contractual expenditure remains subject to debate, though both estoppel and restitution are considered to be possible sources of claims. This area of overlap is particularly notable as it is possible for the claims to estoppel and restitution to arise only in parallel or to coincide.60 There is a body of academic opinion in favour of using estoppel rather than restitution.61 Spence, for example, argues that the doctrine of equitable estoppel derived from the Australian cases of Waltons Stores (Interstate) Ltd v Maher 62 and Commonwealth of Australia v Verwayen63 offer a more convincing rationale for claims than a number of other possible grounds.64 Hence in this context where estoppel and restitution overlap the response of some commentators has been to encourage estoppel reasoning. Spence’s argument is particularly notable in this respect insofar as he considers that the purpose of estoppel is to compensate reliance.65 Expectations should be awarded as a ‘last resort’ where this is the only satisfactory way to protect reliance.66 Spence provides an analysis of pre-contractual expenditure cases in which he demonstrates how estoppel could explain reliance-based relief. Hence, he supports the use of estoppel to provide a form of relief which has a greater likelihood of matching the quantum of a restitution claim. In part the support afforded to estoppel reflects perceived difficulties in the nature of a restitution claim. This is especially the case insofar as the restitution claim is based on free acceptance. However, the need to rely on free acceptance may arise only where the defendant has done no more than acquiesce in the 59
The court noted above n 53, at 681 that it was ‘probable’ consent would be given. To the extent that free acceptance is used as the ground of restitution in such cases estoppel and restitution coincide. Where a different ground of restitution exists, the claims arise in parallel. 61 See in particular Michael Spence Protecting Reliance—The Emergent Doctrine of Equitable Estoppel (Hart, Oxford, 1999), 87–106. The application of estoppel also receives some support from M P Thompson ‘Compensation for Pre-Contractual Expenditure’ [1995] Conveyancer 135 and Paul Key ‘Detrimental Reliance in Anticipation of a Contract’ (1995) 111 Law Quarterly Review 576. In contrast, see Ewan McKendrick ‘Work Done in Anticipation of a Contract which does not Materialise’ in Restitution Past, Present and Future above n 42, at 188–94. He doubts the usefulness of estoppel in such cases and suggests, at 194 that unless there is a contract or unjust enrichment the case for imposing liability on the defendant is less secure. 62 (1987) 164 CLR 387. 63 (1990) 170 CLR 394. 64 Spence above n 61, at 87–106. 65 Ibid, 67. 66 Ibid, 69. 60
158 Nicholas Hopkins claimant’s expenditure.67 To some extent the support for estoppel also reflects advantages inherent in the nature of the claim. Further, in this context again there would be no advantage in terms of remedial certainty or cohesion by precluding estoppel. Spence’s discussion of estoppel leading to the award of reliance-based remedies in pre-contractual cases is convincing, but ultimately the same approach to remedies is adopted here as in any other estoppel case. In practice, as has been seen, it may be anticipated that expectations will be awarded unless it is not possible to do so, or the court does not consider such an award to be appropriate. The mere fact a case arises from pre-contractual negotiations does not seem to be a factor barring expectation–based relief. For example, expectations were awarded in Waltons Stores itself and in the proprietary estoppel case of JT Developments v Quinn.68 Factually there may be more likelihood of precontractual claims arising in situations in which the award of expectations is not possible. This would be the case where, for example, following negotiations with the claimant for the redevelopment of land, the owner instead sells the land.69 Lee-Parker may also fall within this category. There, as has been seen,70 the award of expectations was not possible due to the inability of the defendant to raise money to complete the purchase. In terms of cohesion, not every case concerning pre-contractual expenditure involves an unjust enrichment. For example in Lee-Parker, as has been noted, no question of unjust enrichment arose as the claim was against the representor’s equitable mortgagee. There is one type of pre-contractual case, however, in which the claims to estoppel and restitution coincide. This is where the defendant merely acquiesces in the claimant’s acts. In this type of case the only possible claim to restitution is based on free acceptance which, as has been seen, is based on the same underlying reasoning as an estoppel claim. This type of overlap will now be discussed.
RESPONDING TO COINCIDING CLAIMS
Where a claim to estoppel and restitution are based on the same underlying reasoning it seems undesirable for that reasoning to be capable of producing different outcomes, depending on whether the language of estoppel or restitution is adopted. In such situations, the argument for providing remedial certainty seems particularly compelling. In terms of cohesion, the advantage in focusing on an overlap with free acceptance is that where this principle is used as a 67 This suggestion reflects the discussion of the scope of free acceptance below n 73 and text. For a full discussion of the possible unjust factors in this situation see McKendrick above n 61, at 181–6. 68 (1990) P & CR 33. The claim to estoppel arose from negotiations carried out expressly ‘subject to contract’. 69 This example is based on William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932. On Spence’s analysis of that case above n 61, at 104 an estoppel claim would lead to the award of reliance loss amounting to compensation for the actual cost of providing the service. 70 Above n 58 and text.
Estoppel and Restitution: Drawing a Divide 159 ground of restitution it establishes both that there is an enrichment and that the enrichment is unjust. Hence where estoppel coincides with free acceptance the existence of an unjust enrichment is not merely coincidental but is inherent in the claim. The extent to which estoppel does coincide with free acceptance has been reduced significantly as the scope of free acceptance has been refined. The effect of this is that the dual existence of these claims is now restricted to situations in which the defendant has acquiesced in the claimant’s misprediction as to the (future) grant of rights. The application of estoppel by acquiescence in the context of a misprediction is not beyond doubt.71 On the basis that it does apply, Birks has suggested that restitution is, in any event, the appropriate remedy.72 Hence estoppel and restitution appear to coincide only in a context in which it has already been suggested that restitution is the appropriate remedy (that is, claims that would fall within the third scenario identified above). If this is the case, then restricting claimants to restitution should prove relatively uncontroversial.
The scope of the overlap between estoppel and free acceptance In Birks’ original schema, free acceptance was considered to be required as a ground of restitution in cases involving a misprediction rather than a mistake.73 That is, free acceptance was considered to be the ground of restitution applicable to risk-takers who mispredict the future acquisition of rights, rather than those who act on the basis of a mistake of (present or future) fact.74 Hence, for example, free acceptance was perceived as being the ground of restitution for those acting on the basis of pre-contractual negotiations. In terms of the overlap between estoppel and restitution, the most significant change in the scope of free acceptance lies in its application where the defendant has done more than merely acquiesce in the misprediction. This change is reflected in the changing perceptions of Inwards v Baker.75 There, a father encouraged his son to build a bungalow on his (the father’s) land. The son did so, but the father died without granting his son any rights in the land, which passed in his will for the benefit of other parties. The case thus involved a misprediction (the son built on the land in the knowledge it did not belong to him, but with the expectation rights would be granted) generated by a positive assurance by the representor. Birks initially classified the case as giving rise either to a claim to estoppel or to restitution based on free acceptance.76 The difficulty with this analysis is that both claims, 71
A point raised by the current author above n 24, at 163–5. Birks above n 3, at 290–3. 73 Birks ibid, ch VIII. 74 The presence of a mistake provides a claimant–oriented ground of restitution as a factor negativing voluntariness. An overlap between restitution based on mistake and estoppel therefore involves parallel claims. 75 [1965] 2 QB 29. 76 Above n 3, at 279 and 292. 72
160 Nicholas Hopkins while based in essence on the same reasoning, produce different results. On this classification, Inwards v Baker would fall within the fourth, and most problematic scenario, identified above. Both claims are based on the unconscionable conduct of the father. In the language of restitution, it is unconscionable for the father to refuse to pay for a benefit he has freely accepted, despite having the opportunity to reject; he is therefore unjustly enriched. In the language of estoppel, the father has unconscionably reneged on an assurance of rights.77 Adopting the language of restitution leads to the return of the unjust enrichment, while estoppel enables the son to receive his expectations.78 In refining the scope of free acceptance,79 Birks has removed this broad overlap. Where, as in Inwards v Baker, there is active encouragement of a misprediction (in Birks’ terms, where a benefit is requested)80 free acceptance is no longer considered to be the ground of restitution in the majority of cases. Free acceptance is required as a ground of restitution only in those cases in which there is mere acquiescence in the misprediction. This limitation arises because free acceptance is based on unconsionability existing at the time the benefit is received, as it focuses on the defendant’s conduct in the acceptance of the benefit.81 In Inwards v Baker, and generally where a positive assurance of rights is made, the unconscionable conduct occurs at the later stage when the representor reneges on the assurance. Hence in Inwards v Baker the father did not receive the benefit unconscionably as he intended to grant his son rights in the land. The unconscionable conduct arose only at the later stage when, following the son’s detrimental reliance, his father did not give effect to the assurance of rights. This refinement of free acceptance does not mean that cases based on a misprediction following a positive assurance do not involve an overlap between estoppel and restitution. However, the ground of restitution in such cases is now seen as being the claimant-oriented ground of failure of consideration.82 Hence Inwards v Baker now falls within the first scenario, where the different remedies available through estoppel and restitution are based on different reasoning.
77 The timing of the unconscionable conduct differs under the two claims. In restitution, the unconscionability lies in the free acceptance of the benefit while in estoppel it lies in reneging on the assurance. 78 Commenting on the remedial uncertainty in estoppel claims, Birks above n 3, at 290–3 suggested a division whereby the existence of a positive assurance would lead to the award of expectations while in cases of acquiescence the claimant should be confined to restitution. The current author does not endorse this broad distinction above n 24, at 163–5. See further Getzler above n 15, at 310–14. 79 Peter Birks ‘In Defence of Free Acceptance’ in Andrew Burrows (ed) Essays on the Law of Restitution (Clarendon, Oxford, 1991). 80 Ibid, 109. 81 Ibid, 111. 82 Birks ibid, 111 accepting an argument by AS Burrows ‘Free Acceptance and the Law of Restitution’ (1988) 104 Law Quarterly Review 576.
Estoppel and Restitution: Drawing a Divide 161 Estoppel by acquiescence in a misprediction As acquiescence in a misprediction is the only situation in which it is possible for restitution and estoppel to coincide, it may be questioned whether, in any event, estoppel applies in such cases. For the application of restitution it is necessary only to establish that the defendant acts unconscionably in such circumstances by freely accepting the enrichment. For estoppel to apply, it is necessary to interpret the acquiescence as giving rise to an assurance of rights. Further, the claimant’s detriment is required to be in reliance on the assurance.83 As regards establishing an assurance, the courts are cautious in deriving an assurance from a person who fails to inform a claimant of their mistake. Such caution may be expected to be greater in the case of a failure to inform a risk-taker that the risk is miscalculated.84 However, a claimant’s argument appears strengthened by the holistic approach to proprietary estoppel emphasised in Gillett v Holt.85 Adopting that approach, accepting that it would be unconscionable for the defendant to retain the benefit itself is a factor to consider in determining whether an assurance has been made. It is difficult to establish the extent to which the need for reliance will defeat a claim to estoppel by acquiescence. It may be sufficient (and consistent with the nature of the risk) that the claimant would have ceased to benefit the defendant if the defendant had informed him that the risk was miscalculated.86 In terms of authorities, Birks considers that Ramsden v Dyson,87 which is the basis of estoppel by acquiescence, itself concerned a misprediction88 though his analysis has been doubted.89 Estoppel by acquiescence was applied in the context of a misprediction by the High Court in Salvation Army Trustee Co Ltd v West Yorkshire MCC.90 That case concerned interlinked transactions for the compulsory purchase of the site of the claimants’ meeting hall and the sale to the claimants of the site of their new hall. An assurance by the defendant authority’s predecessors seems to have arisen principally because the authority did not speak up while the claimants made arrangements for a new hall to be built.91 The defendants themselves had acted in ‘conscious silence . . . capable of creating a proprietary estoppel’92 by failing to indicate to the claimants that they were no longer committed to the purchase of the old site, knowing of the claimants’ continuing expenditure. 83
Cf Virgo above n 17, at 86. Hopkins above n 24, at 139–41. Above n 11 and text. 86 Cf the approach adopted in Wayling v Jones [1995] 2 FLR 1029 in the context of rebutting a presumption of reliance. 87 (1866) LR 1 HL 129. 88 Birks above n 3, at 277–9. 89 Burrows above n 82, at 585. 90 (1981) 41 P & CR 179. 91 Ibid, 195. 92 Ibid, 196 per Woolf J. 84 85
162 Nicholas Hopkins Conclusion on coinciding claims It is established therefore that claims to estoppel and restitution coincide only in the context of a defendant who acquiesces in a claimant’s misprediction. Not every case of acquiescence in a misprediction establishes a claim for restitution. In the Salvation Army93 case, estoppel succeeded on facts that did not reveal a claim to restitution. There, the defendant authority that had become responsible (following a reorganisation of local government) for the acquisition of the old site did not own the new site towards which the claimants’ activities were directed. The sale of the new site to the Salvation Army had in fact been completed. The court looked at the activities of the parties in relation to both sites, to determine the application of estoppel to the purchase of the old site, as the transactions were considered to be interlinked. Equally, there may be cases where restitution is established but a claim to estoppel fails, for example, through the absence of establishing that the claimant had relied on an assurance generated by the defendant’s acquiescence. However, where the claims do coincide, the ground of restitution is necessarily free acceptance. It is submitted that all such claims should be recognised as being based on restitution. This produces remedial certainty and by recognising the claim as explicitly involving restitution, greater cohesion.
CONCLUSION
Judged against the criteria of legal certainty and achieving greater cohesion the conclusion reached is that where claims to estoppel and restitution exist in parallel no advantage is obtained by seeking to identify a type of case in which the claimant should be restricted to restitution. In relation to coinciding claims, which arise only where estoppel overlaps with a claim to restitution based on free acceptance, the same criteria appear to justify restricting claimants to restitution. In this way, a division between estoppel and restitution can be drawn based on the existence of the twin elements of a misprediction, rather than a mistake, and acquiescence, rather than a positive assurance. So drawn, the circumstances in which a claimant is restricted to restitution are admittedly narrow. Further, it is a division operating on the margins of both estoppel and restitution. Estoppel claims arising from acquiescence in a misprediction are relatively rare. The use of free acceptance as a ground of restitution is based more on academic theory than judicial authority and even in the view of Birks, as one of its strongest advocates, it is a ‘long-stop’ to be used only where no other ground of restitution is available.94 Despite this, however, the division is a significant one as it touches on the basis of claims which remain 93 94
(1981) 41 P & CR 179. Above n 79, at 145.
Estoppel and Restitution: Drawing a Divide 163 subject to debate; for example, claims arising from pre-contractual acts. This can be used briefly to illustrate the effect of the division. Claims arising from pre-contractual expenditure are necessarily concerned with claimants who have mispredicted the grant of rights. The suggested division indicates that where the claimant acts on a positive assurance (in Birks’ terms, where the service is requested) estoppel is a suitable basis for a claim. Where the defendant does no more than acquiesce in the claimant’s acts any action by the defendant should be confined to the award of restitution.
9
Proprietary Estoppel and Formalities in Land Law and the Land Registration Act 2002: A Theory of Unconscionability MARTIN DIXON 1
G R I S S v Trust Laboratories Ltd & Patrick Cattle, Sir Christopher Staughton said of proprietary estoppel that ‘[t]his is not a subject too familiar to many of us. I dare say that there are few lawyers who are constantly concerned with it’.2 Unfortunately, nothing could be further from the truth, at least in so far as it suggests that this branch of property law is obscure and marginal. Such is the apparent vitality of the doctrine of proprietary estoppel that one can hardly open a law report concerning the alleged creation, transfer or enforcement of a proprietary right without at least one of the parties pleading estoppel in aid. In the recent past, Lloyd v Dugdale3 has decided that a right generated by estoppel qualifies as a property interest capable of binding a successor in title as an overriding interest under section 70(1)(g) Land Registration Act 1925;4 Chun v Ho (In the Matter of Melodious Corporation)5 finds evidence of reliance despite ties of love and affection between the disputants that might otherwise have explained the detriment; JS Bloor (Measham) Ltd v Calcott6 finds that a landlord can rely on proprietary estoppel to prevent a tenant from asserting his rights under the Agricultural Holdings Act 1986; Campbell v Griffin7 sees the
I
N
1 Responsibility for this essay is mine, but I am grateful for the comments of Professor John Adams, and Gerwyn Griffiths. 2 Court of Appeal Transcript, 16 February 2000. 3 [2001] EWCA Civ 1754. See [2002] Conv 584. 4 There is little reference to authority, although see the similar approach of Lawrence Collins QC (Deputy High Court Judge) in Locabail (UK) Ltd v Bayfield Properties Ltd, Transcript, 9 March 1999. See Megarry & Wade, Law of Real Property (6th edn. 2001) at 745 et seq where a majority of the relevant authorities are collected. In any event, section 116 of the Land Registration Act 2002 settles the matter for land of registered title: see below n 39. In Lloyd, it was held that Mr Dugdale was not in ‘actual occupation’ and so had no overriding interest. 5 Transcript, 30 November 2001. 6 [2002] 09 EG 222. 7 [2001] EWCA Civ 2001.
166 Martin Dixon equity of estoppel satisfied by a money award, secured by a charge over the land;8 Jennings v Rice9 establishes without doubt that the concrete remedy arising from a successful claim of estoppel may be ‘expectation’ or ‘reliance’ based, or somewhere in between, depending on the facts of each case; and Moloo v Standish Hotels10 determines ‘from Yaxley v Gotts11 that the precise relationship between proprietary estoppel and section 2 of the 1989 Act has yet to be definitively stated’.12 This paper is concerned with a number of these issues, but in particular the relationship between estoppel claims, formality requirements (such as those currently found in section 2 LPA 1989 and those impending under the Land Registration Act 2002) and unconscionability. The immediate point is, however, that the law of proprietary estoppel appears to be fast becoming a panacea for all ills. Perhaps this conclusion is only intuitive, based on a snap-shot of recently decided cases, but it is suggested below that whatever the current position, estoppel is going to become central to the resolution of property disputes once the Land Registration Act 2002 takes full effect. It hardly needs stating that it would be beneficial in these circumstances for there to be a reasonable degree of certainty about the conditions for a successful claim as well as an understanding of the role the doctrine plays in the scheme of modern land law. Of course, many commentators would argue that this already exists, or at least that it exists in enough measure to prevent the type of ‘palm tree justice’ that judges declare they do not want to exercise.13 The current author is less convinced and has doubts that a principled approach to proprietary estoppel has developed sufficiently to enable the courts to deal appropriately with even the current level of estoppel pleas, let alone with what might become an ‘estoppel boom’. It will be argued below that this principled approach can be developed through a clearer idea of the role that ‘unconscionability’ plays in a successful claim to proprietary estoppel and, in consequence, that unconscionability should not be viewed as a rather elusive notion stalking estoppel claims but as the manifestation of a clear policy goal.
8 £35,000. This was not the ‘expectation loss’ of the claimant (who had been encouraged to believe he would have a home for life), but the court’s interpretation of the ‘minimum equity necessary to do justice to the plaintiff’ per Scarman LJ in Crabb v Arun District Council [1976] Ch 179 at 198. See also Cook v Norlands Ltd., [2001] 1 All ER (D) 24 (Dec), on appeal from the Isle of Man, where the estoppel was satisfied by an award of £25,000 ‘in compensation’. 9 [2002] EWCA Civ 159. 10 Transcript, 6 March 2002. 11 [2000] Ch 162. 12 Above n 10 para 69 per L Henderson QC, dismissing an application for summary judgement and referring to the Law of Property (Miscellaneous Provisions) Act 1989. 13 See, for example, Judge Weekes in Taylor v Dickens [1998] 1 FLR 806 at 820 who does not want ‘a portable palm tree’. In relation to remedies, Robert Walker LJ in Jennings, above n 9 at para 43, rejects the suggestion made by Gardner in The Remedial Discretion in Proprietary Estoppel (1999) 115 Law Quarterly Review 438 that ‘the approach is for the court to adopt whatever style and measure of relief it thinks fit, for whatever reason it thinks fit’.
A Theory of Unconscionability 167
A : AN ESTOPPEL BOOM ?
In one sense it is not important to the central argument of this paper about the proper confines of the law of proprietary estoppel that there will be an estoppel boom. For the present writer, the rather haphazard way in which unconscionability (and hence estoppel) is currently approached is reason enough to provoke a re-examination. Nevertheless, if there is an estoppel boom, particularly if that is a consequence of the application of the radical provisions of the Land Registration Act 2002, those charged with deciding issues or advising clients will have need of guidance, however imperfect.14 Furthermore, there is the very real risk that the central provisions of the new Act concerning electronic conveyancing could be undermined by the application of proprietary estoppel in cases where, on a proper understanding of the role of unconscionability, that would be wholly unwarranted. It is, of course, trite law that proprietary estoppel can be either a sword for the claimant or a shield for the defendant. In either case, a successful plea can result in the award of something concrete for the ‘victim’, although this need not be an immediate proprietary right nor, indeed, any property right at all.15 The types of factual situations in which estoppel may arise have been thoroughly researched with considerable skill by others and in this respect there is little that may be usefully added here.16 Of particular interest for the purposes of this paper, however, are those cases where proprietary estoppel has been used to establish a claim by a person who is unable to rely on the normal rules concerning the creation or transfer (and sometimes enforcement) of interests in land. These are what might be called the ‘formality cases’, being instances where the parties could have, should have or nearly did use the proper formality, but where estoppel is pleaded to fill the void. As the judge said in Yeo v Wilson, [p]roprietary estoppel is one of the oldest devices of equity for giving effect to apparent understandings about the disposition of property, which for one reason or another are not enforceable at law.17
So, proprietary estoppel has been used to support some sort of remedy where a contract for the transfer of land was void for uncertainty of subject matter (Flowermix Ltd v Site Development (Ferndown) Ltd18); where there was no contract at all despite the prospect of one (Yaxley v Gotts); where there was no will 14 As Megarry & Wade indicates, ‘[t]he flexibility of proprietary estoppel . . . is its strength and its weakness—this is not conducive to the settlement of disputes and leads to costly litigation’, above n 4 at 728 15 Money awards were made in Jennings, Campbell and Norlands. In Sledmore v Dalby, [1996] 72 P & CR 196, the claim to a life interest was denied because, even if there had been the necessary assurances, the claimant had received all that he could have expected. 16 See generally Pawlowski, The Doctrine of Proprietary Estoppel (1996) and Cooke, The Modern Law of Estoppel (Clarendon Oxford, 2000). 17 Transcript, 27 July 1998, per Jonathan Sumption QC (Deputy Judge). 18 Transcript, 11 April 2000, Arden J.
168 Martin Dixon in favour of the claimant or anybody else (Jennings v Rice); where there was a will in favour of someone other than the claimant (Gillett v Holt19); where an intended devise in a will had lapsed (Campbell v Griffin); where a deed was defective as to witnessing (Mukesh Shah v Panachand Shah20); where an intended lease (the terms of which were settled) was never executed (Lloyd v Dugdale); and where a lease may have been uncertain as to its commencement (Liverpool City Council v Walton21). The essence of the issue in these formality cases is that one party claims to be entitled to some proprietary right (or its monetary equivalent22) even though in the normal course such a right should not exist because of the absence of required formality. Estoppel is seen in such cases as an antidote for the formality defect. Typically, the requirement of formality arises because of some statutory rule.23 These may be statutory provisions of general import, such as sections 1 and 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LPA 1989), the Wills Act 1837 and section 53 of the Law of Property Act 1925, or less commonly statutory provisions designed to deal with some specific mischief, as in Oakley v Airclear Environmental Ltd and the need for a written contract under section 107 of the Housing Grants, Construction and Regeneration Act 1996.24 In either type of case, there is always the problem that the use of estoppel appears to contradict the policy behind the legislation by attaching an element of validity to an arrangement that the legislation requires to be in a certain form but which the parties have failed to observe.25 This is what Robert Walker LJ in Yaxley v Gotts calls the ‘public policy principle’26 and it is considered more fully below for it lies at the heart of the debate about the proper reach of estoppel. For the moment, the simple point is that such concerns (ie the public policy principle) do not appear to have unduly hindered the use and development of estoppel. If anything, estoppel claims appear to have increased in frequency as formality rules have been tightened. The abolition of the doctrine of part performance and the insistence on written formality under the LPA 1989 perhaps being the chief reason for the current level of estoppel claims. Importantly, however, the 1989 Act is not to be the last change that will be made 19
[2000] 3 WLR 815. [2002] QB 35. 21 Transcript, 25 July 2001, Neuberger J. Presumably, the local authority is acting in its ‘private capacity’ (see Mobil Oil Company v Birmingham City Council, [2001] EWCA Civ 1608) and estoppel is not being used to fetter the discretion of a public authority. For this ongoing debate see lately R v East Sussex County Council ex p Reprotech [2002] UKHL 8. 22 Not ‘merely’ recovery of the costs incurred as a result of the reliance, for such recovery lies in restitution rather than in estoppel, as in Ravenocean Ltd v Gardner, [2001] All ER (D) 116 (Jan) and Singh v Khan [1988] EGCS 92. 23 Though not exclusively, see Walton above n 21, where there is non-compliance with the common law rule requiring certainty at the commencement of a lease. 24 Transcript, 4 October 2001, Etherton J. 25 Importantly, it is not the unenforceable agreement that is being validated, but an estoppel arising out of the circumstances in which the agreement was attempted. Hence, the remedy may not be, indeed often is not, equivalent to that which would have occurred had the agreement been valid. 26 Above n 11 at 172. 20
A Theory of Unconscionability 169 to the formality rules for land transactions. Indeed, its importance will diminish when the Act of 2002 fully enters force.27 The Land Registration Act 2002 has much to say about the way proprietary rights affect land of registered title. As is well known, its primary purpose is to facilitate the introduction of electronic conveyancing and thereby the compilation of a register that is a near perfect mirror of the title to the land and all the proprietary rights affecting it.28 Many strategies are employed to this end and not all are relevant here.29 However, there are a number provisions concerning the circumstances in which proprietary rights may be granted, transferred or enforced and, in consequence, a potential impact on the law of estoppel. First, under the provisions of the LRA 2002 and the Electronic Communications Act 2000, it will be possible in due course to create or transfer proprietary rights either by means of a paper (‘material’) deed or written contract (as now) or by an ‘electronic’ (‘non-material’) deed or written contract.30 Of itself, this raises no fundamental concerns because it is clear that the electronic deed or contract will be treated as having the same effect as its paper counterpart. Presumably, however, some defect in the execution of the electronic deed or contract will be curable by proprietary estoppel, at least to the extent that a defect in a paper deed or written contract is curable. So, for example, a failure to meet one of the four conditions specified in section 91(3) LRA 2002 for the validity of an electronic disposition would render the disposition itself ineffective but, we might suppose, a claim in proprietary estoppel could still succeed.31 Secondly, it is the ultimate aim of the LRA 2002 that the act of creation or transfer of most proprietary rights will occur simultaneously with their electronic entry on the register. Or, to put the matter the other way round, the attempted creation or transfer of most proprietary rights will be completely ineffective to create or transfer a right at law or in equity unless an appropriate entry is made on the register. This is the effect of section 93(2) LRA 2002 when it stipulates that a 27 Note also that proprietary estoppel can be used to circumvent the general policy behind an Act of Parliament, as in JS Bloor (Measham) Ltd v Calcott above n 6 regarding the Agricultural Holdings Act 1996 and in Colchester Borough Council v Smith [1992] Ch 421 regarding the Limitation Act 1980. 28 The fundamental objective of the Bill is that, under the system of electronic dealing with land that it seeks to create, the register should be a complete and accurate reflection of the state of the title of the land at any given time, so that it is possible to investigate title to land on line, with the absolute minimum of additional enquiries and inspections’, Law Commission Report No 271, Land Registration for the Twenty-first Century, para 1.5. 29 See Cooke, The Land Registration Bill [2002] Conv 11. 30 An Order may be made under s 8 of the Electronic Communications Act 2000 permitting the use of electronic deeds by inserting a new s 144A in the LRA 1925 and permitting electronic contracts by inserting a new s 2A into the LPA 1989. Section 144A will be superseded by the entry into force of s 91 of the LRA 2002. See generally, LCD Consultation Paper 05/2001, March 2001 and LCD Consultation Response, December 2001. 31 Pending the introduction of full electronic conveyancing, failure to register a valid electronic deed where that is required will result (as now) in a failure to transfer an estate at law (s 27(1) LRA 2002), but the valid electronic deed will be effective to create or transfer an interest in equity. Section 27(1) will be disapplied in relation to those estates and interests required to be completed by registration under s 93 LRA 2002 for such a failure will render the transaction completely ineffective.
170 Martin Dixon disposition or a contract to make a disposition to which the section applies ‘only has effect’ when made in electronic form and entered on the register. Of course, what this means in practice is that for those estates and interests specified in the Rules as requiring to be electronically entered on the register in order to be effective,32 compliance with the ‘old’ formality requirements of a deed or written contract will be futile. The parties who deliberately set out to create or transfer a proprietary right by paper deed or contract will find that have created or transferred nothing. There is no ‘default position’ such as that the interest will subsist in equity and so there is no property right which might nevertheless take effect as an ‘interest that overrides’ a first registration or registrable disposition within Schedules 1 or 3 of the LRA 2002. It even seems that the original parties will not be bound in contract under such a document because failure to meet the electronic requirements renders the transaction without effect and thus does not create ‘mere’ rights in personam sufficient to found a claim for breach.33 Although it seems strange that a statute about land registration should invalidate contracts between the original parties, this seems to be the effect of section 93 LRA 2002 which says that a disposition falling within the section ‘or a contract to make such a disposition, only has effect’ if the electronic formalities are complied with (emphasis added).34 It seems inevitable, at least to this author, that the imposition of such a system—undoubtedly necessary if electronic conveyancing is to become a reality35—will generate an estoppel boom. First, it is anticipated that the great majority of proprietary rights will be subject to section 93 LRA 2002 in due course. The creation or transfer of a registrable estate or disposition will fall within its ambit, as will the creation or transfer of many third party rights that are required to be protected by the entry of a unilateral or consensual notice against the registered title. The latter will include expressly created easements, options, covenants and possibly even leases not required to be entered as a registered estate and that are not within the short lease exception of sections 52 & 54(2) LPA 1925. Of course, the point is precisely to ensure that virtually all expressly created rights appear on the register. Thus, if they do not appear, they do not exist and resort to estoppel may be the only hope for a disappointed claimant. Secondly, we cannot assume that all property professionals immediately will understand that material deeds and contracts are to be completely ineffective, and a remedy in negligence will not secure the proprietary right 32 It is envisaged that in due course all registrable dispositions and the great majority of third party rights (eg expressly created easements, covenants, options etc) will fall within the section. 33 I am grateful to the delegates at the Property Law Conference 2002, particularly Susan Bright, for their advice on this point. 34 The alternate view, that contracts falling outside s 93 LRA 2002 but within the current formality rules could nevertheless be valid between the original parties, would generate uncertainty about the nature of such contracts, especially when they were coupled with ‘actual occupation’. The potential for easy circumvention of s 93 by a willing judiciary perhaps explains the unrelenting terms of s 93. 35 ‘A culture change often requires a culture shock’. I am indebted to Dr P McHugh, Sydney Sussex College, Cambridge for this rejoinder during a seminar on e-conveyancing.
A Theory of Unconscionability 171 denied by section 93 LPA 2002.36 Thirdly, registration (ie the act of creation or transfer) will be electronic, and only authorised persons will be able to transact. Thus, not only is it likely that individuals will continue to deal with each other without the benefit of legal advice and hence without understanding the relevant formality rules (as in Yaxley v Gotts), even if they did comprehend section 93 LRA 2002, how would they ensure the registration of their right? While it may be true that less than 1 per cent of all transactions are DIY conveyances,37 the Act will apply to much more than conveyances: as already noted, it will extend to the creation or transfer of most third party rights in land. DIY conveyances may be relatively rare, but the DIY attempted creation or transfer of other rights in property is far more common.38 Fourthly, and perhaps most importantly, it is now clear from Lloyd v Dugdale that an ‘estoppel’ is a proprietary right capable of binding a third party as an overriding interest under the current section 70(1)(g) LRA 1925 and hence will be an ‘interest that overrides’ within Schedules 1 and 3 LRA 2002. Indeed, even if Lloyd had said otherwise, section 116 LRA 2002 puts the matter beyond doubt.39 Thus, whereas the failed creation or transfer of a proprietary right under the rubric of electronic conveyancing will be of no effect at all (s 93 LRA 2002), and so cannot trigger an ‘interest that overrides’ within the Schedules, a successful estoppel can do just this—the Act itself makes that clear even without Dugdale. How tempting then to use estoppel both to acquire the right despite the absence of compliance with sections 91 or 93 LRA 2002 (or the intended section 2A LPA 1989) and then when the estoppel is established to ally it with actual occupation to make it binding against a third party. In other words, estoppel may well come to be the single most effective way of creating, transferring and enforcing property rights outside of electronic formalities. The greater the injunction to use electronic measures, the greater the scope for claims in estoppel. Of course, this analysis rather assumes that estoppel actually can save a transaction that fails to comply with the relevant formalities relating to creation and registration as required by the LRA 2002. We might think, for example, that such is the conveyancing revolution and so clear is the Act that the above analysis overestimates the role for estoppel in land registration. However, in reality, 36 Carefully drafted Land Registration Rules and appropriate training will minimise the risk, but it is all too clear that clients are not always advised at present to adhere to the requirements of s 2 LPA 1989. How likely then that compliance with s 93 LRA 2002 will proceed with ease? 37 Law Commission Report No. 271 para 13.72. 38 It is clear that private individuals often feel the need for writing when dealing with land, irrespective of any knowledge of formality requirements and thus there is often ‘accidental’ compliance with s 2 LPA 1989. No doubt this will continue, but will they feel the same way about electronic registration/creation and so visit the District Land Registry for help? 39 ‘It is hereby declared for the avoidance of doubt that, in relation to registered land, each of the following— (a) an equity by estoppel, and (b) a mere equity, has effect from the time the equity arises as an interest capable of binding successors in title (subject to the rules about the effect of dispositions on priority)’.
172 Martin Dixon this is no new dilemma but merely a version of an old problem: viz. when can proprietary estoppel protect a claimant who has not used the degree of formality or followed the correct process required by statute. Whether it be noncompliance with sections 2 or (the intended) 2A of the LPA 1989, (the possible) section144A Land Registration Act 1925, section 53 of the LPA 1925, or sections 91 or 93 of the LRA 2002, can estoppel come to the claimant’s aid, and why?
B : THE PUBLIC POLICY ISSUE : ESTOPPEL AND FORMALITY .
The revelation that there is a tension between the strict requirements of formality (including registration issues) and the court’s desire to achieve a measure of equitable justice between the parties surprises no-one. This is the ancient equitable jurisdiction and the maxim that ‘equity will not permit a statute to be an instrument of fraud’ is no mere mantra. Yet, when it comes to land, there is a greater reluctance to side-step formality rules. For example, there is still uncertainty about the justification for secret trusts of land40 and the courts find great comfort in the fact that there are statutory exemptions in favour of constructive trusts of land, so providing a ready answer that avoids the need for an enquiry in to the fundamental reasons why such transactions are enforceable despite the absence of the appropriate formality.41 In particular, there is great concern about the relationship between section 2 of the LPA 1989 and the law of estoppel, as witness the argument in Yaxley and the dictum in Moloo v Standish Hotels that ‘the precise relationship between proprietary estoppel and section 2 of the 1989 Act has yet to be definitively stated’.42 The point is made succinctly (indeed dogmatically) in Halsbury’s Laws, that the ‘doctrine of estoppel may not be invoked to render valid a transaction which the legislature has, on grounds of general public policy, enacted is to be invalid’.43 Consequently, this suggests that intended dispositions of interests in land that the law requires to take a certain form—for example, in writing or by deed—may not be enforced by estoppel for that would be to undermine the legislative purpose and policy.44 In fact, however, the position is more complex. The available evidence suggests that courts will use estoppel to circumvent ‘secondary’ statutory formality rules or to bar reliance on protective provisions in legislation where this sup40
See Re Ballie and Ottaway v Norman [1972] Ch 698. See s 53(2) LPA 1925 and s 2(5) LP (MP) A 1989. Perhaps this is why Robert Walker LJ prefers the constructive trust solution in Yaxley. In Jennings above n 9 at para 45 he says that when proprietary estoppel has ‘a consensual character falling not far short of an enforceable contract, if the only bar to the formation of a contract is non-compliance with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, the proprietary estoppel may become indistinguishable from a constructive trust’. Quare whether it is distinguishable if these conditions do not obtain. 42 Above n 10. 43 4th edn Reissue, vol 16 (1992) para 962, cited in Yaxley, above n 11 at 172. 44 For the classic analysis see Fuller, Consideration and form (1941) 41 Columbia Law Review 799. 41
A Theory of Unconscionability 173 ports (or at least does not contradict) the underlying purpose of the legislation.45 Consequently, if this underlying statutory purpose can be supported (or not evaded) through the use of estoppel, it is taken for granted that its application is appropriate without proof of special facts over and above those commonly required to establish the estoppel. However, with section 2 of the LPA 1989 the position is quite different and this may explain why its particular relationship with proprietary estoppel generates such uncertainty. The whole point of section 2 of the 1989 Act is to invalidate transactions that do not comply with its formality rules: it is a “primary” formality rule. The use of formality is the policy of the statute and so to use estoppel to circumvent it needs a convincing explanation. As Robert Walker LJ made clear in Yaxley, [p]arliament’s requirement that any contract for the disposition of an interest in land must be made in a particular documentary form, and will otherwise be void . . . can be seen as embodying Parliament’s conclusion, in the general interest, that the need for certainty as to the formation of contracts of this type must in general outweigh the disappointment of those who make informal bargains in ignorance of the statutory requirement.46
The same is true, mutatis mutandis, of the relevant provisions of the Wills Act and, it is submitted, of the intended section 2A of the LPA 1989 and sections 91 and 93 of the LRA 2002. The whole point of the latter, as made clear in Law Commission Report No 271, is to force the use of electronic dealings with land by invalidating those dealings that do not comply. Again, the very purpose of the provisions is to force the use of this electronic formality and its circumvention by estoppel will need some justification. In one sense, of course, this might be a matter of degree. If it is true that certain types of statutory formality (in its broadest sense to include registration requirements) can be circumvented by proprietary estoppel when this furthers the policy of the relevant statute (or at least does not undermine it), then surely proprietary estoppel can be used to circumvent ‘primary’ formality rules providing there is a similar policy justification? This is not uncontroversial, as it is now well known that at least one major academic authority suggests that a proprietary remedy by way of estoppel would be inappropriate, even in the face of unconscionable conduct, if the effect would be to circumvent section 2 of the LPA 1989.47 Nevertheless, despite these reservations, it is submitted that is now beyond reasonable doubt that proprietary estoppel can be used to save a transaction which falls foul of section 2 of the LPA 1989. There is no absolute incompatibility between section of the 2 LPA 1989 and proprietary estoppel. First, there is no suggestion in the Law Commission’s 1987 Report on The Transfer of Land: 45
For example, JS Bloor (Measham) Ltd v Calcott, above n 6. Above n 11 at 175. 47 Goff & Jones, The Law of Restitution, 5th edn (Sweet and Maxwell, London, 1998), 580. Note, however, it is the form of remedy that is disputed, not the possibility that the claimant may be successful. This is in line with the authors’ general position that the restitutionary base of many established remedies should be recognised. 46
174 Martin Dixon Formalities for Contracts of Sale etc. of Land (No. 164) (which led to the 1989 Act) that section 2 should have such an uncompromising effect. In fact, the view of the Commission in the earlier Working Paper No. 92 was that it ‘appears to us obviously out of the question to exclude the application of these general judicial doctrines (restitution as well as equitable estoppel) in this particular area of sales etc. of land’.48 Of course, we might be tempted to dispute the relevance of Law Commission Reports when determining the effect of primary legislation—as noted in Yaxley itself—but it cannot be denied that the raising of the formality threshold was not intended to prevent a claim by proprietary estoppel. As for other ‘formality rules’, it is submitted that likewise there is no absolute prohibition on the use of proprietary estoppel to save an otherwise void transaction—providing of course that the paramount test of unconscionability is passed. In respect of sections 91 and 93 LRA 2002 in particular, it is not surprising that the role of proprietary estoppel is not canvassed directly in the relevant preparatory material published by the Law Commission. Given that the point of the LRA 2002 is to ensure that many more proprietary rights become registered, it would be a surprise to see the Commission flagging up a ready device by which the fundamental provisions could be avoided. In fact, it may well be significant that the new legislation establishes conclusively the ‘proprietary effect’ of estoppel within the new world of electronic conveyancing: see section 116 LRA 2002. After all, it is not critical to the success of the new scheme that the true nature of estoppel should be spelt out, not, that is, unless it is anticipated or suspected that many more cases of estoppel will arise when the new provisions take effect. Secondly, while Robert Walker LJ concludes in Yaxley, following on from Godden v Merthyr Tydfil Housing Association 49 that ‘estoppel by convention’ has not survived the enactment of section 2 of the LPA 1989,50 he has ‘no hesitation in agreeing—that the doctrine of estoppel may operate to modify (and sometimes even counteract) the effect of section 2 of the Act of 1989’.51 Once again, it is submitted that what is good for section 2 of the LPA 1989 is also good for other formality requirements. Thirdly, this author has found no case where the alleged incompatibility of proprietary estoppel with the requirements of section 2 (or its equivalents) has been raised successfully as a complete defence to an estoppel claim. It is not always wise to speculate, but perhaps 48
Working Paper No 92 at 35 and see Report No 164 at 19–20. Court of Appeal Transcript, 15 January 1997. 50 ‘Estoppel by convention’ is founded on the existence of an agreed state of affairs between the parties as the basis of their transaction. If this shared assumption proves to be false, neither may resile from it: Amalgamated Property Company v Texas Bank [1982] 1 QB 84. Clearly, a shared assumption that a contract concerning land is valid, when in fact it is void due to the absence of the required formality, cannot of itself justify the court in enforcing it. This would, to use Sir John Balcombe’s words in Godden ‘drive a coach and horses through a recent Act of Parliament [the 1989 Act] enacted for very specific reasons of public policy’, above n 49. That is not to say, however, that a claim that once fell within ‘estoppel by convention’ could not fall within proprietary estoppel, provided of course that the unconscionability test was met. 51 Above n 49 at para 174. On one view, Robert Walker LJ preserves proprietary estoppel because it falls within the saving of constructive trusts under s 2(5) LPA 1989, the doctrines being synonymous in these types of cases: see above n 11. This is not the current author’s reading of Yaxley. 49
A Theory of Unconscionability 175 this is because it is commonly assumed that the requirements of the section do not ipso facto bar a claim in proprietary estoppel. If, instead, it is thought that the relative absence of discussion about the relationship of proprietary estoppel and formality requirements (especially section 2) can be explained because not all cases involve failed contracts, it must be remembered that the great majority of proprietary rights can exist only through some degree of formality and this has not hampered the steady march of estoppel claims. Fourthly, and most importantly, there is a reason why section 2 and its equivalents (including sections 91 and 93 LRA 2002) do not ipso facto prevent a claim in proprietary estoppel. Put simply, reliance on the lack of normally required formality will not defeat a claim to a proprietary right where this would unconscionable. Put positively, the reason why it is possible to use proprietary estoppel to generate a property interest despite the absence of formality—be this required by the LPA 1989, section 53 of the LPA 1925 or sections 91or 93 of the LRA 2002—is because of the need to prevent unconscionable conduct. This is why unconscionability is the foundation of estoppel52 and why estoppel is the antidote to an otherwise fatal absence of formality. Consequently, as argued below, a coherent understanding of the role of unconscionability can be achieved only by relating it to these formality rules. The requirements of the latter are the key to understanding the former. C : ANALYSING UNCONSCIONANBILITY
(i) Unconscionability as a function of assurance, reliance and detriment The central role that unconscionability plays in the law of estoppel seems, at least to the present writer, to be in inverse proportion to the analysis devoted to it in the cases. All judges are agreed that unconscionability is vital, but few seem willing to share their understanding of the concept. There is a denial that the court is engaged in ‘palm tree justice’, but little to tell us where the beach has ended. The implication is, of course, that unconscionability must mean something reasonably definable, but the identification of its essential elements seems to be unimportant provided that in the case before the judge it is clear that in all the circumstances, it is unconscionable for the representor to go back on the assumption which he permitted the representee to make.53 52 See Oliver Js dictum in Taylor Fashions Ltd. v Liverpool Victoria Trustees Co. Ltd. [1982] QB 133n at 151 that what is required is a ‘broader approach which is directed rather at ascertaining whether, in particular individual circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment than to enquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick of unconscionable behaviour’. Or, in the words of Robert Walker J in Gillett, ‘the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine’, above n 19. See also Thompson [1998] Conv 210 at 216 and Dixon [1999] Conv 46 at 47. 53 Per Lord Brown–Wilkinson in Lim Teng Huan v Ang Swee Chuan [1992] 1 WLR 113 at 117.
176 Martin Dixon Academically, the seam is deeper and richer, but apart from the robust analysis of those commentators who for policy reasons favour a broad and largely undefined concept of unconscionability, there is little that helps in the search for a firmer concept if one does not accept that unconscionability should be left shapeless.54 The present author is not content with a shapeless concept of unconscionability, but instead sees both good reason and good need to define unconscionability more tightly. The reason is that, as will be argued below, the concept actually fulfils more than one function in the law of estoppel, one of which is vital to the very existence of a successful claim. The need is, as argued above, that if there is to be an estoppel boom, it is better to have a clearer idea of when an estoppel plea can be successful before the boom arrives. It is well known that a court will search for some form of assurance issuing from the person alleged to be estopped in favour of the claimant, on which the claimant has detrimentally relied. Although, as Gillett says, the court should take an holistic approach to proof of the estoppel, it is clear that many claimants fail because they cannot establish one of these three elements.55 What is less frequent is the rejection of an estoppel plea on the simple ground that there is no unconscionability, at least in terms of disallowing the claim ab initio rather than modifying the remedy.56 Such cases are rare, and we must wonder why. For the present writer, there are two possibilities. Possibly, the concept of unconscionability is so poorly understood that judges prefer (or are forced by the paucity of analysis) to deny an estoppel on the ground of the absence of either assurance, reliance or detriment rather than venturing into the murky waters of unconscionability. If we have no clear concept of unconscionability, it is difficult to deny a claimant on the basis that it is absent. Alternately, we could argue that unconscionability is so bound up with ‘assurance, reliance and detriment’ that it has ceased to have a meaning independent of these criteria and hence the denial of a claim proceeds most easily by denying the existence of one of these three elements for lack of unconscionability adds nothing. In fact, although the present writer is of the view that first alternative is very near the mark, it is this second approach that now seems to be gaining ground. In Gillett v Holt, Robert Walker LJ endorses the view that it is the detrimental reliance by the claimant on the representor’s assurance that makes any subsequent attempt to revoke the assurance unconscionable.57 This echoes Carnwath Js views 54 See Thompson above n 52 and [2001] Conv 78; Cooke above n 16 at 85; Dixon, [2000] Cambridge Law Journal 453. 55 For example, in Bryan v Shoultz, Court of Appeal, 21 April 1999, there was no reliance, the assurance having been withdrawn before it was acted on (see also Stoeckert v Geddes, (2000) 80 P & CR D11 and Aylwen v Takla, Court of Appeal, 6 April 2000). In Jones v Stones [1999] 1 WLR 1739 there was no assurance (see also Yeo v Wilson, above n 17). In Orgee v Orgee (1997) EGCS 152 there was no detriment (and see also Singh v Khan, above n 23 and Takla). In Gillett itself, the holistic approach did not prevent the court identifying with some precision the relevant assurance, reliance and detriment. 56 For example, Oakley v Airclear, above n 24. 57 Above n 19, approving Swadling’s comments on Dickens at [1998] Restitution Law Review 220. See also Gillett at 229 where Robert Walker LJ says that ‘it is the other party’s detrimental reliance on the promise which makes it irrevocable’.
A Theory of Unconscionability 177 in the High Court in that case that it is unconscionable to withdraw an assurance once it is, with the representor’s knowledge, relied on to detriment.58 Clearly, this assessment of what ‘unconscionability’ means has important consequences. In essence, it sees unconscionability simply as a function of assurance, reliance and detriment. Once there has been detrimental reliance on an assurance, it is unconscionable to withdraw it. Hence, ‘unconscionability’ has no independent existence for it is defined purely in terms of the three factual requirements. The corollary is, of course, that unconscionability exists by definition whenever there is an assurance, reliance and detriment, because non-performance of the assurance after detriment will always be unconscionable.59 Such a view is at odds with those who view unconscionability as at the heart of the doctrine—in the sense of providing its underlying rationale—because, quite simply it denies the concept of any discernible meaning. It is a non-definition. If it is true that unconscionability is now to be regarded as no more than a function of assurance, reliance and detriment, this author submits that the approach is flawed and unprincipled. There are a number of reasons. First, and formally, this ‘definition’ of unconscionability is not supported by Taylor Fashions itself. A straightforward reading of Oliver Js judgment suggests that before an estoppel can be established there must be an assurance, reliance and detriment (albeit holistically examined), but that this must occur in circumstances where the court is satisfied that it would be unconscionable to allow the party making the assurance to go back on it. Or, put shortly, Taylor Fashions suggests that assurance, reliance and detriment are necessary but not sufficient. Secondly, if unconscionability is simply the reflection of a withdrawn assurance after detrimental reliance, how does it justify the grant of an estoppel remedy in the formality cases, bearing in mind that estoppel is an exception to the normal formality rules? The whole point of the formality rules is to ensure that a representation about a property right shall be capable of enforcement only if it is in a proper form. If the proper form can be ignored simply because the representee has relied on the representation to detriment, that is tantamount to saying that the formality rules invalidate only ‘voluntary’ promises, being those where there is no detriment issuing from the promisee. In fact, the role of such formality rules is to ensure that even if a person detrimentally relies on an ‘unformalised’ promise, it cannot be enforced because that is the very point of the formality rule: viz. to invalidate clearly intended and acted on transactions because they do not comply with the overriding formality requirements. These requirements are, in their turn, the manifestation of a legislative policy about certainty and predictability. The exception is, of course, where there is unconscionability, but if we then ‘define’ unconscionability purely in terms of the provable, factual criteria of assurance, reliance and detriment, we have no external reference point 58
[1998] 3 All ER 917 at 929. This would not necessarily mean that the claimant must succeed, for estoppel is within the discretionary equitable jurisdiction. It would mean, however, that a party cannot dispute unconscionability once the three factual elements have been established. 59
178 Martin Dixon by which to justify the application of proprietary estoppel and are close to ignoring the formality rules completely (and hence subverting the statutory will) or effectively returning to the days of part performance.60 Consequently it is submitted that unconscionability cannot reside solely in the fact that the representation is withdrawn after detriment, for the invalidity of agreements made in such circumstances is exactly what the rules of formality require. The public policy principle which requires invalidity can be displaced by proprietary estoppel only if the doctrine incorporates a concept of unconscionability that is ‘externally defined’ without reference to the three elements required to prove the factual basis of the estoppel. A third reason why unconscionability is not merely a function of the three factual criteria is that there are at least two types of case that cannot be explained by such an analysis. It is an established principle of the law of proprietary estoppel that a court will not come to the aid of a party relying on an assurance, even if supported by detrimental reliance if the parties have proceeded on the basis that their dealings are ‘subject to contract’. The primary authority is the well known Privy Council decision in Attorney-General of Hong Kong v Humphrey’s Estate (Queen’s Gardens) Ltd,61 but it does not stand alone. A clutch of decisions have followed and confirmed the principle. So, in Evans v James,62 Edwin Shirely Productions Ltd v Workspace Management Ltd,63 and Taylor v Inntrepreneur Estates64 no estoppel could exist because it was not unconscionable for the representor to rely on the lack of formality.65 Importantly, the point in these cases is not that there is no assurance, reliance or detriment, but that even assuming their existence, it is not unconscionable to rely on the formality rules that the ‘subject to contract’ statement indicates will be required. In other words, ‘unconscionability’ in these cases is seen to be independent of the three familiar elements. Of course, it is not surprising that the courts should find that there is no estoppel in these cases for it is hard to see how it could be unconscionable to rely on the absence of formal requirements when you have indicated that their presence is essential to the conclusion of a valid agreement. Importantly, however, it is not there cannot be an estoppel in such cases. It is, rather, that it is difficult to prove. As Lord Templeman noted in Humphrey’s 60 It is submitted that this is precisely what occurred in Flowermix, above n 18, where Arden J effectively enforced a contract that was void for uncertainty, apparently on the ground that the failed contract constituted an assurance relied on to detriment. There is no indication of where the unconscionability resides. 61 [1987] 1 AC 114. 62 Court of Appeal Transcript, 20 July 2000. 63 [2001] 23 EG 158. 64 Transcript, No 1997 T No 76. 65 A claim of estoppel was also denied in Canty v Broad, Court of Appeal Transcript, 25 May 1995 (expressly subject to contract); Akiens v Salomon (1993) 65 P & CR 364 (occupation expressly “subject to lease”); Derby & Co Ltd v ItC Pension Trust Ltd [1977] 2 All ER 890 (expressly subject to contract) and Pridedean Ltd v Forest Taverns Ltd [1996] PLSCS 66 (where the whole basis of dealings was that a formal contract would be concluded).
A Theory of Unconscionability 179 it is possible but unlikely that in circumstances at present unforeseeable, a party to negotiations set out in a document ‘subject to contract’ would be able to satisfy the court that . . . some form of estoppel had arisen to prevent both parties from refusing to proceed with the transaction envisaged by the document.66
Although it might be thought unwise to supply that which Lord Templeman thought ‘unforeseeable’, it is submitted that these ‘unlikely’ circumstances would exist if, despite the ‘subject to contract’ dealings between the parties, the representor had led the claimant to believe that the right or advantage promised would accrue in any event. That is, whether or not the formalities apparently insisted on ever came to pass. This argument is developed more fully below but is essentially that the withdrawal of an assurance relied on to detriment is only unconscionable when the assurance also expressly or impliedly confirms that the proprietary right will be granted without the normally required formality. The second set of circumstances that is not explained by the ‘non-definition’ approach to unconscionability is the everyday sale and purchase of residential property. It is well known that a seller is not obliged to proceed with the sale unless the parties proceed to an exchange of written contracts within section 2 of the LPA 1989. This is despite the fact that the seller has assured the purchaser that the house will be sold and, almost certainly, the purchaser will have acted in detrimental reliance. So, if the seller withdraws after detrimental reliance, even to sell to another person at a higher price, estoppel cannot assist the original purchaser. It simply is not unconscionable for the seller to behave in this way. This tells us two things. First, that the ‘unconscionability’ required to trigger an estoppel does not exist simply because the representor behaves ‘badly’. It is not a moral concept when used to first found a claim. Secondly, that once again the simple proof of an assurance withdrawn after detriment does not equate to unconscionability. The reason is that in these types of case, the normal expectation of ‘buyer’ and ‘seller’ is that there must be compliance with formality rules (ie a written contract) before they are bound. Consequently, insistence on these notorious formalities cannot be unconscionable irrespective of the detrimental reliance of the other party.67
(ii) A different definition of unconscionability in the law of proprietary estoppel The burden of the above analysis does not deny that unconscionability is central to a successful claim in proprietary estoppel. However, the contention is 66 Above n 61 at 127. See Salvation Army Trustee Co. Ltd. v West Yorkshire M.C.C 1981 41 P & CR 179 where the agreement from which the estoppel successfully arose appears not to have been made ‘subject to contract’, despite an intention to do so. 67 This is not to suggest that the ‘revocability’ of such an assurance is the litmus test of unconscionability: see Gillett for rejection of this. But, it does suggest that the common understanding that ‘house contracts’ must be in writing, and that wills can be changed, means that the representor’s subsequent withdrawal of the assurance cannot be unconscionable in most cases precisely because no party could reasonably expect to acquire an interest without the required formality.
180 Martin Dixon that this core concept has largely escaped the attention paid to the other ‘elements’ of estoppel and that, in consequence, there is a degree of uncertainty and inconsistency in the case law that should not continue in the new world of the LRA 2002. The argument also has suggested that there is an intimate connection between estoppel and the statutorily imposed requirements of form required for the valid creation, transfer or enforcement of a proprietary right. In turn, it has been argued that ‘unconscionability’ is the key concept in explaining this link and that, in consequence, the definition of the latter is bound up with the requirements of the former. However, it is also clear that in apparent contradiction to this view, a very broad approach to ‘unconscionability’ has been adopted in some cases and in turn this has been greeted with academic approval. Yet, for the present author this does not destroy the central argument of this essay because it is submitted that ‘unconscionability’ fulfils more than one role in the law of proprietary estoppel. First, it is the defining feature of a successful estoppel and is a narrow concept, related to formality. Without it, a claimant cannot win. Secondly, it is used broadly to describe the background merits of a claim and will affect the court’s response to an estoppel that is already established under the first, narrow concept of unconscionability. It does not establish a claim, but concerns its consequences. Unconscionability as a defining feature of estoppel. The double assurance In so far as the general law requires the creation, transfer or enforcement of proprietary rights to be undertaken in a certain form, estoppel can be used to sidestep these requirements only when there is a clear justification. That it would be ‘unconscionable’ for one of the parties to rely on the absence of the required formality is that justification. This means that unconscionability cannot be merely a function of an assurance, reliance and detriment (the factual elements of estoppel) for otherwise it is devoid of meaning. Such a view does not explain why it is justifiable to validate an arrangement without compliance with the formality rules. Despite judicial affirmation of such an approach, it is entirely circular and, in any event, cannot explain how estoppel works (or rather does not work) in a number of situations. However, ‘unconscionability’ can explain why the absence of formality may be ignored—in the sense that a right still ensues for the claimant—if the concept is tied to the formality rules. Hence, it will be unconscionable for a representor to withdraw an assurance, relied on to detriment, if the assurance of the right carries with it (expressly or impliedly) a further assurance that the right will indeed be granted despite the absence of the formality that is normally required to create, transfer or enforce it. Thus a successful estoppel can be triggered only by a ‘double assurance’: an assurance that the claimant will have some right over the representor’s land combined with an assurance that the right will ensue even if the formalities necessary to convey the right are not complied with. It is the withdrawal of the promise of the right after the second assurance (assuming detrimental reliance) that constitutes the
A Theory of Unconscionability 181 unconscionability required for a successful claim in estoppel. Necessarily, therefore, if the representation is ‘subject to contract’ or is given in circumstances where the need for formality is notorious, there needs to be strong evidence of a ‘second’ assurance before an estoppel can arise. Mere detrimental reliance in these cases cannot generate an estoppel because it is not unconscionable to insist on the formality that is either expressly or notoriously required. This ‘second’ assurance about formality can in all cases be express or implied. In Yaxley, the fact that the defendant indicated that a ‘gentleman’s agreement’ was perfectly sufficient to safeguard each party’s rights was an express second assurance that formality would not be needed: hence estoppel could run because it was unconscionable to insist on formality after the second assurance.68 In fact, in many cases—possibly most—the second assurance will be readily implied from the facts. In Gillett for example, the repeated assurances that Mr Gillett would inherit under the will, made over the previous forty years, can readily imply an assurance that the right would be forthcoming irrespective of any formal requirements that the law might impose.69 Note, also then that even in ‘subject to’ cases, or cases where the formality requirements are notorious, an estoppel is still possible provided that, in the former, there is a second assurance that the insistence on an enforceable contract will not be maintained and, in the latter, that there is something to suggest that the anticipated and notorious formality requirements can be dispensed with. The same reasoning can be applied to the registration requirements of the LRA 2002: viz. that an estoppel could arise, but only if the claimant can establish some express or implied assurance that the right promised (the first assurance) would be granted irrespective of compliance with the new electronic registration formalities (the second assurance). If this might be difficult to do, perhaps that is just as well given that a paramount aim of the LRA 2002 is to ensure fuller registration of property rights while at the same time confirming the proprietary effect of estoppel. Clearly, this is a narrow view of unconscionability and hence a narrow view of estoppel. However, it is not suggested that there should be some mechanical search for a double assurance. Rather that it should be recognised that it is this duality in the assurance that constitutes the estoppel and that a court should be sure that it exists before finding for the claimant. As indicated, in many cases, the requirement can be implied readily from the facts. In others, it will be harder to establish, especially if there is some overt reference to, or notoriety about, the formality that is usually required. The key is to recognise what is being looked for because and hence avoid undermining the formality requirements imposed by statute in pursuit of clear policy goals. 68
Above n 11. See also the discussions in Lloyd v Dugdale above n 3. It might be thought that the forgoing analysis does not explain Gillett for it appears that the relevant second assurance was that Mr Holt would actually use a will to grant rights to Mr Gillett, rather than that Mr Gillett could have the grant without any formality. However, the real point is that the repeated assurance over 40 years was actually an assurance that the land would so devolve ‘come what may’. It was in effect an assurance that the land would be Gillett’s, with or without formality, (ie a double assurance) rather than an assurance that Gillett could only have the land by will. 69
182 Martin Dixon Unconscionability as the manifestation of a broad equitable jurisdiction It is not always the case with a principle of equity that proof of certain ‘conditions’ necessarily leads to a remedy for a claimant. So it is with proprietary estoppel. Although it is submitted that unconscionability in the narrow sense just discussed must be present before a claim can succeed, that does not mean that the claim must then succeed. The ‘double assurance’, withdrawn after detrimental reliance is necessary but not sufficient. There still remains the broad equitable jurisdiction either to deny the remedy or to modify the remedy because of the background circumstances of the case. This, it is submitted, is what is meant by many authorities when they refer to a broad principle of unconscionability. For example, it is clear from the judgment in Yeo v Wilson that the claimant would not have gained a remedy even if he had been able to prove the required elements for proprietary estoppel. As the judge said, the claim would be denied on the additional ground70 that in the unusual circumstances of this case it could not have been unconscionable for Mr Ellis to bequeath his estate elsewhere [because] the history of his relationship with Mr Yeo is an appalling story of deliberate persistent and oppressive manipulation of a vulnerable old man by a greedy and self-obsessed lover who had established a powerful psychological hold over him.71
Likewise, it seems that the courts do consider wider principles of justice and fairness when seeking to satisfy the equity of an established estoppel. In Campbell v Griffin, a monetary remedy was granted in order to be even-handed between the claimant and the persons benefiting under the deceased’s will as the court did not want a property claim clogging the title and keeping the other beneficiaries out of their money.72 Of course, this is not the unfettered and unprincipled discretion rejected by Robert Walker LJ in Jennings v Rice73 but it is in keeping with the use of estoppel as a remedy protecting those who cannot rely on formality and who instead must plead the favour of the court.
70 71 72 73
The relevant elements of estoppel were not in fact made out. Above n 17. See also the reference to the plaintiff’s character in Moloo, above n 10. Above n 7. Above n 9.
10
The Equitable Ownership of Shares PAUL EDEN
INTRODUCTION
Although there is no comprehensive legal definition of a share,1 a share is a chose in action and is capable of being transferred.2 The mechanisms used for the transfer of the legal interest in a share vary according to whether the shares have been issued in registered or bearer form. With respect to registered shares, it is unlawful for a company to register a transfer of shares unless a proper instrument of transfer has been delivered to it, or the transfer is an exempt transfer within the Stock Transfer Act 1982.3 Bearer shares,4 which are very rare in the United Kingdom, may be transferred by delivery.5 Unless a share has been admitted to the electronic dealing system, CREST, an instrument of transfer is required. Section 1(1) of the Stock Transfer Act 1963 provides that registered securities to which the section applies may be transferred by means of an instrument under hand, which need not be attested, in the form set out in Schedule 1 to the 1963 Act and referred to as a stock transfer.6 Share certificates must be issued to a shareholder within two months of 1 The most commonly quoted judicial definition of the legal nature of a share is the statement of Farwell J in Borland’s Trustee v Steel Bros and Co Ltd [1901] 1 Ch 279 at 288 that a share ‘is the interest of the shareholder in the company measured in a sum of money’ cited with approval by Lord Russell of Killowen in IRC v Crossman [1937] AC 26 (HL) at 66. See also R Pennington, ‘Can shares in companies be defined?’ (1989) 10 Company Lawyer 140 and G Barton, ‘The legal nature of a share’ in N Palmer and E McKendrick (eds), Interests in Goods (2nd edn, LLP, London, 1998) 111. 2 Colonial Bank v Whinney (1886) 11 App Cas 426 (HL). Section 182(1) of the Companies Act 1985 states that shares are personal estate or, in Scotland, movable property and are transferable in a manner provided by the company’s articles but subject to the Stock Transfer Act 1963 and to regulations made under s 207 of the Companies Act 1989. 3 Section 183(1) of the Companies Act 1985. 4 Section 188(1) of the Companies Act 1985 provides that, if so authorised by its articles, a company limited by shares may issue a ‘share warrant’ stating that the bearer of the warrant is entitled to the shares specified in it. 5 Section 188(2) Companies Act 1985. The holder of the share warrant, although entitled to the shares specified in the warrant, is not a member of the company until s/he presents the warrant to the company in order to obtain registration as a member. Thus the holder of a share warrant, although the legal owner of the shares, does not enjoy all the rights of the shareholder vis-à-vis the company. 6 Where the Stock Transfer Act 1963 is not applicable the form of transfer must be in accordance with the articles. See Gore-Browne on Companies (44th edn, Jordans, Bristol, 2001) §16.3.1.
184 Paul Eden allotment or transfer7 and a share certificate, executed under the common seal of the company is, in England and Wales, prima facie evidence of title.8 Transfer restrictions are permitted in the articles of association and the articles of private companies often contain a right of pre-emption in favour of the remaining shareholders or a power for the directors to refuse to register a transfer to a person of whom they do not approve. With regard to shares that are listed on the London Stock Exchange, The Listing Rules require that fully paid up shares are not subject to any restrictions on transfer (apart from any restrictions imposed on a shareholder who is in default in complying with a notice under section 212 of the Companies Act 1985).9 The shares of companies registered on the London Stock Exchange are usually transferable by means of the electronic share dealing system CREST.10 The object of the CREST system is to replace the paper based stock transfer system prescribed by the Stock Transfer Act 1963 with a paperless electronic settlement system.11 Section 207 of the Companies Act 1989 gives the Secretary of State wide powers to make provision by regulations for title to securities to be to be evidenced and transferred without written instrument and the legal aspects of CREST are now governed by the Uncertificated Securities Regulations 200112 that revoked the Uncertificated Securities Regulations 199513 with effect from 26 November 2001. A company participating in the CREST system must enter on its register of members, in respect of any class of shares that is a participating security, how many shares each member holds in uncertificated form and certificated form respectively.14 An entry on the register (where the units are capable of being held in certificated form) is, in England and Wales, prima facie evidence that the person to whom the entry relates has such title to the shares as would be evidenced by the entry related to shares held in the certificated form.15 Although it is not possible to find a categorical statement to this effect in the Companies Act 1985, it would appear that whether registered shares are held in certificated or uncertificated form, the legal title is only transferred by the registration of the 7
Section 185(1) of the Companies Act 1985. Section 186(1)(a) of the Companies Act 1985. 9 The Listing Rules, ch 13, app 1 para 6 as quoted by E Ferran, Company Law and Corporate Finance (University Press, Oxford, 1999) 319. 10 According to S Gleeson, Personal Property Law (London, FT Law and Tax, 1997) 201 fn 20, ‘[t]here is an unverifiable legend that the Bank of England director responsible for naming the system selected the name because he liked it and because it would be many years before anyone worked out that it was not in fact an acronym for anything’. 11 For a description of the operation of the CREST system see Gore-Browne on Companies (44th edn, Bristol, Jordans, 2001) §16.15. See also E Micheler ‘Farewell Quasi-Negotiability? Legal Title and Transfer of Shares in a Paperless World’ [2002] Journal of Business Law 358. 12 SI 2001/3755. 13 SI 1995/3272. For a discussion of the background to the reform see E Micheler, ‘Modernising securities settlement in the UK’ (2002) 23 Company Lawyer 9–14. 14 Regulation 23(4) read together with Schedule 4 of the Uncertificated Securities Regulations 2001 SI 2001/3755. 15 Regulation 24(7). 8
The Equitable Ownership of Shares 185 new holder’s name in the company’s register of members.16 A significant proportion of investors, both individuals and institutions, no longer request paper share certificates issued in their own names but hold their shares via a nominee company in order to enjoy the benefits of electronic shareholding. It should however be noted that is also possible for investors to become personal members of CREST and thus gain all the benefits of electronic shareholding whilst preserving full legal ownership.17 This paper considers the circumstances in which the equitable interest in shares may be transferred notwithstanding the failure to comply with the requirements for the transfer of the legal interest. As the legal position may vary according to the nature of the transfer, ie whether it was a sale or a gift, each of these transactions will be considered separately. SALES OF SHARES
A contract for the sale of shares need not be in writing.18 When shares are sold through a stock exchange, the seller and buyer will usually be brought together by negotiations carried out on their behalf by brokers on the exchange but the brokers are not ordinarily regarded as parties to the contract of sale.19 If the shares to be sold are not specified in the contract eg where the seller is only parting with a portion of a holding in a particular company, appropriation will not occur until the transfer form is processed by the company.20 A constructive trust can deliver equitable ownership to an intending purchaser in advance of the transfer of legal ownership—as contracts for the sale of land demonstrate21—but there is strong legal authority for the proposition that a trust can only be created if the asset that is the subject matter of the sale is appropriated to the beneficiary.22 Although the rule requiring appropriation was developed in relation to sales of tangible goods, there is arguably some attraction in applying a single principle to transfers of all types of property including shares. According to Sarah Worthington the general rule should be that the purchaser will only be regarded as 16 Shropshire Union Railways and Canal Company v R (1875) LR 7 HL 496, Société Générale de Paris v Walker (1885) 11 App Cas 20 at 28 and Colonial Bank v Hepworth (1887) 36 ChD 36 at 54. See also s 22(2) of the Companies Act 1985. 17 See http://www.londonstockexchange.com/electronicshareholding/ for information about the London Stock Exchange’s electronic shareholding service. 18 See Oughtred v Inland Revenue Commissioners [1960] AC 206 (HL). 19 Bowring v Shepard (1871) LR 6 QB 309. 20 See Re London, Hamburg and Continental Exchange Bank, Ward and Henry’s Case (1867) 2 Ch App 431 at 438. Where a transferor is only selling a part of the holding to which the share certificate relates, a procedure known as ‘certification of transfer’ is followed whereby the transferor sends the share certificate and the instrument of transfer to the company to be endorsed by the company secretary. This procedure is used to avoid the risk of a fraudulent transfer of the entire holding to which the share certificate relates. See s 184 of the Companies Act 1985. 21 See, eg, Lysaght v Edwards (1876) 2 ChD 499 at 506–07. 22 Re Wait [1927] 1 Ch 606 (CA), Re London Wine Company Limited [1986] PCC 121 and Re Goldcorp Exchange Ltd [1995] 1 AC 74 (PC).
186 Paul Eden the equitable owner of sale property, with that ownership interest arising by operation of law, ‘if the vendor is under a specifically enforceable and unconditional personal obligation to transfer identified property to the purchaser’.23 The difficulty with imposing a requirement that the obligation must be specifically enforceable is that a contract for the sale of shares in a private company will only be enforceable by specific performance once the shares have been specified and contracts to acquire shares that are listed on a stock exchange are not generally regarded as being specifically enforceable under any circumstances.24 Although the Court of Appeal’s decision in Re Wait is generally regarded as authority for the proposition that specific enforceability is an essential pre-condition for a contract of sale to give rise to a constructive trust of the sale property, this aspect of the decision has been criticised by Sir Frederick Pollock on the grounds that Atkin LJ overstated the effect of Lord Westbury’s ‘not wholly felicitous language in Holroyd v Marshall25 about specific performance’.26 In Tailby v Official Receiver27 Lord Watson made a similar criticism to the reference made to specific performance by Lord Westbury in Holroyd v Marshall.28 The House of Lords’ decisions in both Holroyd v Marshall and Tailby v Official Receiver have been read as denying a general requirement for specific performance29 but this reading of the cases has been criticised.30 In his preface to volume 138 of The Revised Reports Sir Frederick Pollock stated: Holroyd v Marshall is a first rate authority on equitable assignments and the creation of equitable charges to take effect on the debtor’s after acquired property. Lord Westbury, however, exposed himself to misunderstanding (if it was a misunderstanding) by the concise and dogmatic form of his opinion. When even the most learned persons undertake to overrule the Court of Appeal, and convert some of their own colleagues, ‘by the application of a few elementary principles’ (p 111), the cautious reader will keep his eyes pretty wide open. Those who are new to the subject may be 23 S Worthington, Proprietary Interests in Commercial Transactions (Clarendon, Oxford, 1996) 196 (emphasis in original). See also S Worthington, ‘Proprietary Remedies: The Nexus between Specific Performance and Constructive Trusts’ (1996–97) 10 Journal of Contract Law 1 at 2. 24 See Duncuft v Albrecht (1841) Sim 189, Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207 (HL) and Grant v Cigman [1996] 2 BCLC 24. See also G Jones and W Goodhart, Specific Performance (2nd edn, Butterworths, London, 1996) 161–6. 25 (1862) 10 HLC 191. 26 F Pollock, ‘Re Wait’ (1927) 43 LQR 293. 27 (1888) 13 App Cas 523. 28 At 547. 29 See R Meagher, W Gummow and J Lehane, Equity: Doctrines and Remedies (3rd edn, Butterworths, Sydney, 1992) paras 647–53. ‘It is suggested, therefore, that it is preferable to regard the principle in Holroyd v Marshall as an application, quite independent of specific performance, of the maxim that equity regards as done that which ought to be done’. [At para 653] 30 See S Worthington, Proprietary Interests in Commercial Transactions (Clarendon, Oxford, 1996) 200–1 and reproduced in S Worthington, ‘Proprietary Remedies: The Nexus between Specific Performance and Constructive Trusts’ (1996–1997) 10 Journal of Contract Law 1 at 6–7. See also J Keeler, ‘Some Reflections on Holroyd v Marshall’ (1969) 3 Adelaide Law Review 360.
The Equitable Ownership of Shares 187 well advised if they begin with Lord Macnaghton’s judgment in Tailby v Official Receiver 13 App Cas at p 541 and then read Holroyd v Marshall with an enlightened mind.31
In Holroyd v Marshall Lord Westbury stated that ‘[a] contract for valuable consideration, by which it is agreed to make a present transfer of property, passes at once the beneficial interest, provided the contract is one of which a court of equity will decree specific performance’.32 In Tailby v Official Receiver Lord Macnaghton sought to distinguish the operation of the doctrine of specific performance from cases of equitable assignment on the grounds that the considerations applicable to suits for specific performance were distinct from cases involving equitable assignment where the basis of the decision was the real meaning of the agreement between the parties. It had been conceded in argument in Holroyd v Marshall that the obligation was one for which specific performance could be decreed, so it is legitimate to regard Lord Westbury’s comments about specific performance as obiter and to speculate that Lord Westbury did not intend to base the whole doctrine of equitable assignment on the availability of specific performance. This is certainly the view that Lord Macnaghton took of Lord Westbury’s judgment in Holyroyd v Marshall but even supporters of Lord Macnaghten’s judgment in Tailby v Official Receiver (such as Sir Frederick Pollock) concede that it is also possible that Lord Westbury, by referring no less than three times to specific performance in the oftquoted paragraph, fully intended to lay down a generally applicable rule that equitable assignments and specific performance were inseparably connected. In Re Wait33 the Master of the Rolls, Lord Hanworth, although willing to reject the test of the right to specific performance (as a pre-requisite for an equitable assignment) held that there was insufficient identification of the subject matter of the contract for an equitable assignment to have occurred.34 Lord Hanworth’s ‘identification’ test was based on the judgment of Lord Watson in Tailby v Official Receiver.35 Sargant LJ (dissenting) found that on the facts there had been an equitable assignment and, relying on the judgment of Lord Macnaghton in Tailby v Official Receiver, based his decision on a distinction between the doctrine of specific performance and equitable assignments and held that the prior cases established that ‘equitable assignments were enforced even where specific performance was impossible’.36 Atkin LJ conceded that the authority of Lord Westbury’s dictum regarding specific performance in Holyrod v Marshall was weakened, first, by a discrepancy in the reporting of the crucial passage between the House of Lords cases 31
The Revised Reports, Volume CXXXVIII, 1862–1864 (Sweet and Maxwell, London, 1913)
v–vi. 32 33 34 35 36
(1862) 10 HLC 191 at 209. [1927] 1 Ch 606 (CA). At 622. (1888) 13 App Cas 523 at 533. [1927] 1 Ch 606 (CA) at 647–9.
188 Paul Eden and the report in the Law Journal37 and, secondly, by the criticism of Fry LJ in his book on Specific Performance38 but, in spite of this, Atkin LJ was not only prepared to apply the words of Lord Westbury but to go even further by holding that even where a Court of equity would decree specific performance, it was not logically true nor was it the law that the beneficial interest would have passed.39 In response to the question whether common honesty demanded that a beneficial interest should be created on the facts of the case, Atkin LJ stated that the test of honesty was inadequate and that the recognition of equitable interests in business transactions would throw the business world into confusion and restrict the willingness of banks and financial houses to finance sales transactions.40 The basis of Atkin LJ’s decision in Re Wait is that in a contract for the sale of goods governed by the Sale of Goods Act specific performance is only possible if the goods are specific or ascertained and that an equitable assignment was only possible if the contract was one for which a Court of equity would decree specific performance. Atkin LJ was also of the view that the codification of the law relating to the sale of goods in the Sale of Goods Act meant that an equitable assignment could only occur outside the contract of sale ie the parties to the contract of sale would have to expressly agree for this to occur.41 In Re London Wine (Shippers) Ltd 42 Oliver J regarded the judgment of Atkin LJ as conclusive of the arguments relating to the creation of a trust on the facts before him.43 With regard to the case where a single purchaser of a particular wine of generic description had purchased what was in fact the total stock of that wine at the date of purchase (the first category),44 Oliver J declined to find that that the sale was for specific or ascertained goods on the grounds that the company was not contractually bound to fulfil the order from the wine it already owned but was at liberty to deliver to the purchaser any bottles of wine which tallied with the description.45 Where a number of purchasers of a particular wine of a particular description whose purchases together exhausted the whole of the company’s stocks of wine of that description (the second category), Oliver J declined to find that a proprietary interest had passed to the buyers. By contrast, in Re Stapylton Fletcher Ltd,46 a case with rather similar facts, Judge Baker QC held that the physical segregation of the wine coupled with the fact 37
(1863) 33 LJ Ch 193 at 196. [1927] 1 Ch 606 (CA) at 634. 39 At 637. 40 At 639–40. 41 At 635–6. 42 [1986] PCC 121 (ChD). The case was originally decided in 1975 and, although a summary of the judgment was published in the New Law Journal at the time (see (1975) 126 NLJ 977), the importance of the case was only recognised when it was published as an appendix in R Goode, Proprietary Rights in Insolvency and Sales Transactions (Sweet and Maxwell, London, 1985). 43 [1986] PCC 121 at 149. 44 See [1986] PCC 121 at 131. 45 At 152. 46 [1994] 1 WLR 1181 (ChD). 38
The Equitable Ownership of Shares 189 that the sellers made it clear in their annual accounts that the segregated wine was not their property supported the inference that the property in the segregated wine had passed to the purchasers and that purchasers who were in a similar position to the second category in Re London Wine (Shippers) Ltd case were to be regarded as tenants in common in the proportion that their goods bore to the entire stock.47 Judge Baker QC accepted, on the basis of Atkin LJs judgment in Re Wait that ‘normally a contract for the sale of goods takes effect at law, and gives rise to no equitable interest in favour of the buyer’48 and he also stated that: The court must be very cautious in devising equitable interests and remedies which erode the statutory scheme statutory scheme for distribution on insolvency. It cannot do it because of some perceived injustice arising as a consequence only of the insolvency.49
In Re Goldcorp Exchange Ltd50 the Privy Council had to deal with the insolvency of a company that dealt in gold and other precious metals. The company had sold ingots and coins on either an allocated or non-allocated basis. Although the promotional literature promised that metal stocks would be audited on a monthly basis to ensure that there were sufficient stocks to meet all commitments, when the company went into receivership it became apparent that not only was there a considerable shortfall in available bullion but also that the stock of bullion had not been managed in the manner promised by the promotional literature (i.e. there was generally no earmarking of gold stocks for ‘allocated’ customers). When the company got into difficulties, the Bank of New Zealand appointed receivers under the terms of a debenture issued by the company, whereupon the bank’s floating charge over the company’s assets crystallised. As the amount owed to the secured creditors exceeded total assets including the bullion stocks, the non-allocated claimants sought to establish a proprietary interest in the bullion stocks. In the course of his judgment in the New Zealand Court of Appeal, Cooke P noted that more than a quarter of the money raised by the sale of the bullion stocks (NZ $3.7 million) had already gone on legal fees.51 The New Zealand Court of Appeal (McKay J dissenting) held that the nonallocated customers enjoyed a proprietary interest in the proceeds of the moneys paid to the company. Cooke P, relying on the judgment of Goulding J in Chase Manhattan Bank NA v Israel-British Bank (London) Ltd,52 held that the non-allocated customers retained a property interest in the monies paid to the company giving rise to a constructive trust on orthodox lines and a right to trace 47 There are interesting similarities between the facts in Re Stapylton Fletcher and the Walker & Hall claimants in Re Goldcorp Exchange Ltd, see [1995] 1 AC 74 (PC) at 107–10. 48 At 1197. 49 At 1203. 50 [1995] 1 AC 74 (PC). 51 Liggett v Kensington [1993] 1 NZLR 257 (CA) at 260 line 15. 52 [1981] Ch 105.
190 Paul Eden the proceeds. It is submitted with respect that, in finding that the payments were made by mistake,53 Cooke P failed to pay due regard to the vital proprietary distinction that has been drawn between a void and a voidable contract.54 Although it may be possible to describe the customers as ‘mistaken’ in a colloquial sense, the company obtained the moneys by misrepresentation.55 Cooke P sought to distinguish the Privy Council’s decision in Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd 56 and stated that the bank as debenture holder had taken the risk of insolvency in relation to the assets over which they had no fixed charge but that the non-allocated purchasers did not understand that they were taking any risk of insolvency.57 Gault J agreed with the conclusions reached by Cooke P and the consequences58 but in Gault Js view the remedy was best classified as a remedial constructive trust. With regard to the non-allocated customers, McKay J held that the contract between the company and its customers was a commercial contract for the purchase and storage of bullion that did not give rise to a fiduciary relationship per se and that any representations made by the company were no different in character from the normal advertising of any trader selling goods to the public and thus they did not give rise to a fiduciary relationship.59 Rejecting the arguments that the non-allocated claimants were to be regarded as the beneficiaries of either an express or a constructive trust, McKay J held that their remedy was an action in damages for breach of contract and that they were not entitled to priority against other creditors whether secured or unsecured. The Privy Council, per Lord Mustill, relying on the New Zealand equivalent of section 16 of the Sale of Goods Act 1979 held that, as the contract was for the sale of unascertained generic goods that were not sold ‘ex-bulk’, no property in the goods could be transferred to the buyers unless and until the goods were ascertained. Although Lord Mustill declined to examine in detail the decision of the Court of Appeal in Re Wait on the grounds that the sale in that case was exbulk, he stated: Nevertheless, the reasoning contained in the judgment of Atkin LJ, at pp 625–641, which their Lordships venture to find irresistible, points unequivocally to the conclusion that under a simple contract for the sale of unascertained goods no equitable title can pass merely by virtue of the sale.60 53 [1993] 1 NZLR 257 at 271 line 24 ‘in any commonsense use of words, the payments here were undoubtedly made by mistake’. 54 See, for example, Cundy v Lindsay (1878) 3 App Cas 459 (HL), Phillips v Brooks [1919] 2 KB 243 and Lewis v Avery [1972] 1 QB 198 (CA). But see also S Worthington, ‘The Proprietary Consequences of Contract Failure’ in F Rose (ed), Failure of Contracts: Contractual, Restitutionary and Proprietary Consequences (Hart, Oxford, 1997) 80 and especially fn 59. 55 [1993] 1 NZLR 257 at 270 line 45 ‘Exchange obtained the money by misrepresentation’. 56 [1986] 1 WLR 1072 (PC). 57 At 274. 58 [1993] 1 NZLR 257 at 281 line 25. 59 At 299–300. 60 [1995] 1 AC 74 (PC) at 91B.
The Equitable Ownership of Shares 191 Lord Mustill acknowledged the statement by Atkin LJ that it was possible for a seller or a purchaser to create an equitable assignment ‘as one of the terms expressed in the contract of sale’61 and turned to consider whether there was anything in the collateral promises that would effect an immediate transfer of title to the customers. Although Lord Mustill rejected the proposition that the collateral promises could be treated as a declaration of trust by the company in favour of the customer on the grounds that the company could not have intended to create a trust of its general stock of gold that would have inhibited its dealings with what it regarded as its stock-in-trade, Lord Mustill stated that [t]heir Lordships do not doubt that the vendor of goods sold ex-bulk can effectively declare himself trustee of the bulk in favour of the buyer, so as to confer pro-tanto an equitable title.62
Lord Mustill also rejected the argument that the collateral promises gave rise to an estoppel on the grounds that there was no existing bulk from which a title could be carved out by a deemed appropriation and, in any event, the bank was not a party to the collateral promises.63 Lord Mustill rejected the argument that there was a fiduciary relationship between the company and its customers that entitled the customers to a proprietary interest in the stocks on the grounds that ‘the essence of a fiduciary relationship is that creates obligations of a different character from the contract itself’ and their Lordships had not heard in argument any submission that would transform the basic commercial nature of the transaction.64 Even if their Lordships had been willing to hold that the company could properly be described as a fiduciary, Lord Mustill held that there was never an identifiable stock of bullion over which a proprietary interest could be created.65 The failure to find the breach of a fiduciary relationship between the company and its customers was also fatal to the argument that the court should declare in favour of the claimants a remedial constructive trust66 over the bullion in the company’s vaults. In response to the argument that a proprietary interest should be imposed retrospectively not to the bullion but to the moneys originally paid by the customers, Lord Mustill held67 that this was not a situation where the customer engaged the company as agent to purchase bullion on his or her behalf, nor could it be shown that there was a mutual intention that the moneys paid should
61 62 63 64 65 66 67
[1927] 1 Ch 606 (CA) at 636. [1995] 1 AC 74 (PC) at 91E–F. At 91–4. At 98. Ibid. Also described (at 99B) as a restitutionary proprietary interest by another name. At 100–1.
192 Paul Eden not fall within the general fund of the companies assets but should be applied for a specially designated purpose.68 In Re Harvard Securities69 Neuberger J, relying on the Court of Appeal’s decision in Hunter v Moss70 (a case involving a gift of shares), held that the parcels of shares governed by English law71 and held by Harvard Securities Ltd on behalf of their clients, although not registered in the name of the individual clients,72 were beneficially owned by the clients notwithstanding the fact that the precise shares were never identified or appropriated. Worthington has criticised the decision in Re Harvard Securities on the grounds that [w]here the intended transaction is . . . a sale of specifically identified property, the general rule is that the purchaser will acquire equitable ownership of the property in advance of the legal title only if the contract is unconditional and specifically enforceable.73
Taking these requirements in reverse order, it is submitted that the requirement that the contract be specifically enforceable depends on the assertion that the principle stated by Atkin LJ in Re Wait is of general application. The difficulties with this proposition are threefold. First, as noted above, the judgment of Atkin LJ is premised on Lord Westbury’s dictum that the right to specific performance is a pre-requisite for an equitable assignment. Both of Atkin LJs fellow judges (Lord Hanworth and Sargant LJ) rejected Lord Westbury’s dictum preferring to rely on the views of the members of the House of Lords—in particular the judgments of Lord Watson and Lord Macnaghton—in Tailby v Official Receiver. It is submitted that, for the reasons given by Lord Macnaghton in Tailby v Official Receiver74, assignment and specific performance are discrete concepts (albeit overlapping) and that a general rule requiring specific enforceability as an essential pre-requisite for an equitable ownership interest to arise by operation of law whenever shares are sold would be over-restrictive and would operate as a quasi-technicality that might tend to frustrate a court when deciding
68 See Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567(HL) and Re Kayford Ltd [1975] 1 WLR 279 (ChD) and S Worthington, Proprietary Interests in Commercial Transactions (Clarendon, Oxford, 1996) ch 3. 69 [1997] 2 BCLC 369 (ChD). 70 [1994] 1 WLR 452 (CA). See further below page 199–200. 71 Neuberger J concluded that the former clients of Harvard Securities Ltd would not have a beneficial interest in any of the shares governed by Australian Law. For a critique of this aspect of Neuberger J’s judgement see P Eden, ‘Beneficial ownership of shares: the implications of Re Harvard Securities’ (2000) 16 Insolvency Law and Practice 134–7 and 175–8 at 177. 72 Due to the cost of, and delay in, registration, the inconvenience in having stock registered in smaller quantities, and the fact that the smaller quantities of registered stock would obtain lower prices on resale. 73 S Worthington, ‘Sorting Out Ownership Interests in a Bulk: Gifts, Sales, and Trusts’ [1999] Journal of Business Law 7–8. 74 (1888) 13 App Cas 523 (HL) at 545–8. But see also J Keeler, ‘Some Reflections on Holroyd v. Marshall’ (1969) 3 Adelaide Law Review 360 and 468.
The Equitable Ownership of Shares 193 what the justice of a particular case demanded75 unless the courts were prepared to extend greatly their discretion to order specific performance for fungibles.76 If, notwithstanding the arguments made above, specific performance is to be regarded as a pre-requisite for the equitable assignment of shares, it is possible to find a few reported cases where specific performance was ordered for a contract to sell shares quoted on the London Stock Exchange77 Although the cases where specific performance for public quoted shares was ordered involved partially paid up shares in companies that subsequently failed and the vendors were anxious to ensure that the purchasers were liable, there is no reason why the same principle cannot also be applied to the sale of fully paid up shares.78 The second difficulty with regarding Atkin LJs judgment in Re Wait as providing authority for a principle of general application is that Atkin LJ was at pains to emphasise that his decision was based on his view that the effect of the codification of the law relating to the sale of goods in the Sale of Goods Act meant that an equitable assignment could only occur if the parties to a contract for the sale of goods expressly agreed to the application of equitable principles.79 Not only does the Sale of Goods Act not apply to sales of shares,80 the reference to registration ‘in the name of a trust corporation or in the name of an authorised depository’ contained in condition 5 of the standard terms and conditions published by Harvard Securities Ltd indicates that there was a mutual intention to create an equitable assignment as one of the terms of the contract of sale. The third difficulty with regarding Atkin LJs judgment in Re Wait as providing authority for a principle of general application is that Atkin LJ was of the view that the recognition of equitable interests in business transactions such as c.i.f. contracts ‘would throw the business world into confusion’.81 Sir Frederick Pollock however was of the opinion that the decision of the majority in Re Wait would ‘be as inconvenient to many merchants as it is surprising to the Equity Bar’.82 Subsequent events favour Sir Frederick Pollock on this point. The 75 See, for example, the statement of Edmund–Davies LJ in Carl-Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276 (CA) at 300 that ‘English law provides no clear and all-embracing definition of a constructive trust. Its boundaries have been left perhaps deliberately vague, so as not to restrict the court by technicalities in deciding what the justice of a particular case may demand’. 76 As Goulding J was prepared to do in Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 WLR 576 (ChD). But see also the remarks of Oliver J in Re London Wine Co Ltd [1986] PCC 121 (ChD) at 149. 77 See, for example, Paine v Hutchinson (1866) LR 3 Eq 257 affirmed by (1868) 3 LR Ch App 388. For further litigation on the same facts see also Cruse v Paine (1868) LR 6 Eq 641. 78 See also M Cope Constructive Trusts (Law Book Co, Sydney, 1992) 993 who asserts that the effect of the House of Lords decision in Tailby v Official Receiver is that equity will specifically enforce all agreements to assign future property where the assignee has provided consideration and if property which can be identified as fitting the description of the property assigned comes into the hands of the assignor. If Cope’s assertion is correct, then a contract to sell shares which the seller does not own—known as a ‘short’ sale—would ipso facto be specifically enforceable when shares fitting the description came into the hands of the seller. 79 [1927] 1 Ch 606 (ChD) at 635–6. 80 The definition of ‘goods’ in s 61(1) of the Sale of Goods Act 1979 excludes ‘things in action’. 81 [1927] 1 Ch 606 (CA) at 640. 82 F Pollock, ‘Re Wait’ (1927) 43 LQR 293.
194 Paul Eden difficulties posed by the decision in Re Wait to commercial practice in relation to bulk shipments of commodities83 led the Law Commission to recommend in 1993 that: [T]here should be a new rule on sales of goods in a bulk which would enable property in an undivided share in a bulk to pass before ascertainment of goods relating to specific sale contracts.84
The Law Commission’s proposals were implemented by the Sale of Goods (Amendment) Act 1995 effectively over-ruling the result in Re Wait albeit on the basis of a tenancy in common of the bulk for pre-paying buyers rather than on the basis of an equitable assignment.85 It might be thought that the statutory over-ruling of the effect of the decision in Re Wait by the Sale of Goods (Amendment) Act 1995 could be regarded as conclusive proof of the commercial utility of recognising equitable interests in the sphere of commercial transactions but a constant theme of both judicial pronouncements86 and academic writings87 on the topic is the need to preserve the statutory scheme for distribution on insolvency—in effect the rights of the holders of floating charges—and the dangers posed by recognising equitable interests and remedies that erode the statutory scheme.88 It is noteworthy that the statutory scheme appears to possess an adequate self-defence mechanism. Section 239 of the Insolvency Act 1986 that empowers the court to nullify the effect of a preference given by an insol83 84
See B Davenport, ‘Ownership of Bulk Cargoes (The Gosforth)’ [1986] LMCLQ 4. The Law Commission, Sale of Goods forming Part of a Bulk (Law Com No 215, 1993) para
6.1. 85 For a discussion of the effect of the Sale of Goods (Amendment) Act 1995 see inter alia R Bradgate and F White, ‘Sale of Goods forming Part of a Bulk: Proposals for Reform’ [1994] LMCLQ 315; T Burns, ‘Better Late than Never: The Reform of the Law on the Sale of Goods Forming Part of a Bulk’ (1996) 59 MLR 260; J Ulph, ‘The Sale of Goods (Amendment) Act 1995: Coownership and the Rogue Seller’ [1996] LMCLQ 93; M Bridge, The Sale of Goods (Clarendon, Oxford, 1997) 86–90; E McKendrick ‘The Passing of Property in Part of a Bulk’ in N Palmer and E McKendrick (eds), Interests in Goods (2nd edn, LLP, London, 1998) chapter 16; L Gullifer, ‘Constructive Possession after the Sale of Goods (Amendment) Act 1995’ [1999] LMCLQ 93 and S Worthington, ‘Passing of Property’ in E McKendrick (ed) Sale of Goods (LLP, London, 2000) ch 2 para 2–057 et seq. 86 See, for example, British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758 (HL) where the House of Lords held (by a majority of three to two) that a clearing house arrangement that amounted to a ‘contracting out’ of the statutory scheme for distribution on insolvency was contrary to public policy. See also the views expressed by Lord Goff and Lord BrowneWilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL) and the judgment of Mummary LJ in Re Polly Peck International plc (in administration) (No 2) [1998] 3 All ER 812 (CA). 87 See, inter alia, R Goode, ‘The Right to Trace and Its Impact in Commercial Transactions—II’ (1976) 92 LQR 528 at 565; D Paciocco, ‘The Remedial Constructive Trust: A Principled Basis for Priorities over Creditors’(1989) 68 Canadian Bar Review 315; J Ulph ‘Equitable Property Rights on Insolvency: The Ebbing Tide?’ [1996] Journal of Business Law 482 and R Goode, ‘Proprietary Restitutionary Claims’ in W Cornish et al (eds) Restitution Past, Present and Future (Hart, Oxford, 1998) 63 at 64–7. 88 But see also the remarks of Templeman J (as he then was) in Business Computers Ltd v AngloAfrican Leasing Ltd [1977] 1 WLR 578 (ChD) at 580 and S Wheeler, Reservation of Title Clauses: Impact and Implications (Clarendon, Oxford, 1992).
The Equitable Ownership of Shares 195 vent company. A preference is defined in s 239(4)(b) as anything that the insolvent company has done that has the effect of putting a person, in the event of the company going into insolvent liquidation, in a better position than if the thing had not been done. At the time that Re Kayford Ltd 89 was decided the law as it then stood required proof of a dishonest intention on the part of the company that the creditor or creditors concerned would have an advantage in a subsequent liquidation. The concept of a ‘fraudulent preference’ has now been replaced by the notion of a ‘preference’ and the requirement to show dishonesty has now been eliminated. The requirement that the contract must be unconditional is generally no more than a requirement that the purchase price has been paid for the shares. Although with respect to contracts for the sale of land the vendor is regarded as a trustee from the date of the contract (ie before the purchaser has paid the price),90 there is a general presumption with regard to sales of goods that very little is needed to give rise to the inference that the property in specific goods will only pass on delivery or payment.91 It is submitted that this presumption should apply with equal force to sales of shares and, in Hawks v McArthur,92 Vaisey J held that the equitable ownership of shares in a private company passed to the purchasers on payment of the purchase price notwithstanding the failure to comply with the rights of preemption in favour of existing members contained in the articles of association.93 It is submitted that the requirement that there can only be an equitable assignment if the vendor is under an obligation to transfer identified property should not be confused with the rule94 that the legal interest in unascertained or future goods cannot pass until goods contracted for are unconditionally appropriated to the contract.95 What constitutes identified property when the subject matter is shares is considered in greater detail in the next section as the leading case, Hunter v Moss,96 involved a gift of shares.97
GIFTS OF SHARES
Where shares are transferred by way of gift, the legal rule has traditionally been that the beneficial ownership in shares does not pass to the donee until the donor 89
[1975] 1 WLR 279 (ChD). See S Worthington, Proprietary Interests in Commercial Transactions (Clarendon, Oxford, 1996) 207 and the authorities cited in fn 113. 91 See RV Ward Ltd v Bignall [1967] 1 QB 534 (CA) per Diplock LJ at 545. 92 [1951] 1 All ER 22 (ChD). 93 At 27. See also A Borrowdale, ‘The Effect of Breach of Share Transfer Restrictions’ [1988] Journal of Business Law 307 and P Luxton ‘Share Transfer Restrictions and the Relative Nature of Property Rights’ [1989] Journal of Business Law 14. 94 Section 18 rule 5 of the Sale of Goods Act 1979 read together with s 16 of the same Act. 95 See Carlos Federspeil & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 (QBD) for an example of the deleterious effects of the strict application of the rule whose effects have now been tempered by the coming into force of the Sale of Goods (Amendment) Act 1995. 96 [1994] 1 WLR 452 (CA). 97 See below p 199. 90
196 Paul Eden has done everything within his or her power to implement the registration of the shares in the donee’s name. The basis of this rule is the principle that equity does not assist volunteers and the leading authority is the Court of Appeal’s decision in Milroy v Lord98 and, in particular, the judgement of Turner LJ. In a passage that has become regarded as the classic statement of the perfect gift rule, Turner LJ stated: I take the law of this Court to be well settled, that, in order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him. He may of course do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes; and if the property be personal, the trust may, as I apprehend, be declared either in writing or by parol; but, in order to render the settlement binding, one or other of these modes must, as I understand the law of this Court, be resorted to, for there is no equity in this Court to perfect an imperfect gift. The cases I think go further to this extent, that if the settlement is intended to be effectuated by one of the modes to which I have referred, the Court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer, the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust.99
This oft-quoted passage lays down two separate principles. First, that the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him, and secondly, that the modes of conferring a benefit are mutually exclusive i.e. equity will not treat the intention of the donor to make an outright gift that fails for one reason or another as a self declaration of a trust.100 As noted in the introduction, the transfer of the legal title to a share is a complex process involving a number of discrete steps101 and the penultimate step is the delivery—by the transferor or the transferee—of the completed instrument of transfer and the share certificate to the company.102 Subsequent cases have sought to modify the application of the perfect gift rule as laid down by Turner LJ in Milroy v Lord to avoid harsh and paradoxical results. In Re Rose, Rose v 98
(1862) 4 De G F & J 264. At 274. 100 See, for example, Jones v Lock (1865) LR 1 Ch App Cas 25 and Richards v Delbridge (1874) LR 18 Eq 11. 101 See also R Meagher, W Gummow and J Lehane, Equity: Doctrines and Remedies (3rd edn, Butterworths, Sydney, 1992) para 619. 102 If there are transfer restrictions in the articles of association (or a consent from a third party is required for the transfer), then the delivery of the completed instrument of transfer and the share certificate would only be the penultimate step if the provisions in the articles regarding transfers had been complied with (or the relevant consent has been obtained—see Re Fry [1946] Ch 312). 99
The Equitable Ownership of Shares 197 IRC103 the Court of Appeal (per Evershed MR) adopted the decision of Jenkins J in Re Rose104—the facts of the two cases are unconnected—and held that where donors have done everything in their power to divest themselves of the shares in question, the gift is valid notwithstanding the fact that further steps are required to transfer the legal title. The Court of Appeal’s decision in Re Rose, Rose v IRC is not without its difficulties105 but the principle it lays down has been applied by the Court of Appeal subsequently.106 In Pennington v Waine107 the Court of Appeal had to decide whether there had been a valid gift of shares in a private company. The donor had signed the stock transfer form and handed it to a partner in the company’s auditors, who placed it ‘on the company’s file’ but took no further action prior to the donor’s death shortly thereafter. The company’s articles of association contained a right of pre-emption in favour of existing members. This provision of the articles was not complied with. Lady Justice Arden, after summarising the views of opposing counsel on the effect of Milroy v Lord and its progeny, stated that the cases did not reveal any, or any consistent single policy consideration behind the rule that the court will not perfect an imperfect gift.108 After considering the ambit of the rule laid down by the Court of Appeal in Re Rose, Rose v IRC, Arden LJ held that the delivery of the share transfer forms to the donee or the company can in some circumstances be dispensed with and that, on the facts of the case, the point had been reached where it would have been unconscionable for the donor to recall the gift before her death and it would also have been unconscionable for the donor’s personal representatives to refuse to hand over the share transfer to the donee after the donor’s death.109 Arden LJ further held that, even if she was wrong to dispense with the requirement that the share transfers must be delivered to the donee or the company, then the words of the letter written by the partner in the company’s auditors to the donee informing him of the donor’s gift and informing the donee that there was no action he needed to take, could be construed as meaning that the donor and, through her, the partner in the company’s auditors became agents for the donee for the purpose of submitting the share transfer to the company.110
103
[1952] Ch 499 (CA). [1949] Ch 78. The similarity of the names is pure coincidence. 105 See L McKay, ‘Share Transfers and the Complete and Perfect Rule’ (1976) 40 The Conveyancer and Property Lawyer 139 who favours the approach adopted by Romer J in Re Fry [1946] Ch 312. See also E Tyler and N Palmer, Crossley Vaines’ Personal Property (5th edn, London, Butterworths, 1973) 315 and S Lowrie (now Wilson) and P Todd, ‘Re Rose Revisited’ (1998) 57 Cambridge Law Journal 46 for an analysis of the rule in Re Rose, Rose v IRC in the light of the House of Lords decision in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL). 106 See Mascall v Mascall (1984) 50 P & CR 119 (CA). 107 Pennington v Waine [2002] EWCA Civ 227, [2002] I WLR 2075. 108 At para 62. 109 At para 66. 110 At para 67. 104
198 Paul Eden Schiemann LJ concurred with the judgment of Arden LJ111 but Clarke LJ, while concurring with the result, added a separate judgement that dealt more sympathetically with the reasoning in the prior cases. Clarke LJ would have preferred to have left the authorities undisturbed by holding that the executed transfer form came into the possession of the company but this was not the conclusion of the judge at first instance and this finding was not challenged on appeal.112 It is difficult to reconcile the decision in Pennington v Waine with the requirement laid down in Re Rose, Rose v IRC that a gift will only be effective when the donor has done everything s/he is obliged to do to make the gift valid. On the facts of the case the donor was required by the articles of association to offer the shares to the existing members of the company. Counsel for the donee had submitted that a transfer of the equitable interest in shares in breach of the articles of association would nonetheless be effective.113 Counsel cited Hawks v McArthur114 as authority for this proposition but this case involved a sale of shares and in his judgment Vaisey J was at pains to stress the significance of the payment of full consideration: The one thing, however, that seems to me to be important is that [the transferees] paid [the transferor] the money, and I cannot bring myself to suppose that they got nothing in the bargain and that the whole property in the shares remained in [the transferor], notwithstanding the transfers that had been executed and the money that he had received. I should however have been content to come to the opposite conclusion because I think that there is almost something scandalous in the way in which [the transferees and the transferor] all seem to have disregarded the articles of association by which they and the other members of the company were bound.115
Although Arden LJ refers briefly to Hawks v McArthur in her judgment,116 it is submitted, with respect, that the Court of Appeal did not fully comprehend the significance of the donor’s failure to comply with the rights of pre-emption contained in the company’s articles of association. At the date of the donor’s death, the donor was still required to comply with the right of pre-emption contained in the company’s articles in order for the transfer of the legal interest in the shares to become possible and thus, it is submitted, that the gift remained incomplete and failed.117 The second principle laid down by Turner LJ in Milroy v Lord was recently considered by the Privy Council in T Choithram International SA v Pagarini.118 111
At para 118. See para 75. 113 See para 42. 114 [1951] 1 All ER 22 (ChD). 115 At 27F–G. 116 [2002] EWCA Civ 227, [2002] I WLR 2075 at para 51. 117 For related later proceedings on the other shareholders’ right to pre-empt see Hurst v Crampton Bros (Coopers) Ltd & Ors [2002] EWHC 1375 (Ch) where Jacob J held (at para 38) that the donor was in breach of the articles of association when she, by executing the transfer form, transferred the shares to the donee and, thus, what the donee got was not an entitlement to the shares but only to the price paid if a right of pre-emption were exercised. 118 [2001] 1 WLR 1 (PC). 112
The Equitable Ownership of Shares 199 The donor wished to set up a charitable foundation and it was his intention that the foundation would receive most of his assets when he died. Terminally ill, the donor executed the foundation trust deed and made a declaration of gift of his shares and wealth to the foundation.119 Although the words used by the donor were normally appropriate to an outright gift, Lord Browne-Wilkinson held that as the foundation had no legal existence, apart from the trust declared by the foundation trust deed, the words ‘I give to the foundation’ can only mean ‘I give to the trustees of the foundation trust deed’ and thus the donor, as one of the trustees of the foundation, was in fact declaring himself to be a trustee of the gifted property for the donee. Lord Browne-Wilkinson’s benevolent interpretation of the words used by the donor—that some might regard as reminiscent of the exchange between Alice and Humpty Dumpty in Lewis Carroll’s Through the Looking Glass120—is difficult to reconcile with the second principle laid down by Turner LJ in Milroy v Lord, namely that the modes of conferring a benefit are mutually exclusive and that equity will not treat the intention of the donor to make an outright gift that fails for one reason or another as a self declaration of a trust. Lord Browne-Wilkinson’s ingenious response to the difficulty was to hold that the modes of conferring a benefit mentioned by Turner LJ in Milroy v Lord should not be regarded as an exclusive list and that the donor’s mode of conferring a benefit, although appearing to fall between the two common form situations, was to be regarded as novel and thus it did not breach the principle in Milroy v Lord because ‘[a]lthough equity will not aid a volunteer, it will not strive officiously to defeat a gift’.121 In Hunter v Moss122 the Court of Appeal held that the donor’s oral declaration of a trust of 50 shares was not void for uncertainty of subject matter due to the donor’s failure to specify to which 50 of the 950 shares owned by the donor the trust applied. The academic response to the decision in Hunter v Moss has been largely,123 but not universally,124 hostile and much of the criticism has 119 There were pre-emption rights in favour of existing shareholders in the memorandum and articles of association of the companies but all the shareholders waived their rights within a week of the declaration of gift—see [2001] 1 WLR 1 at 6. 120 L Carroll, Through the Looking Glass and What Alice Found There (1872) chapter VI. 121 [2001] 1 WLR 1 at 11. 122 [1994] 1 WLR 452 (CA). 123 For academic criticism of the Court of Appeal’s decision in Hunter v Moss see, inter alia, D Hayton, ‘Uncertainty and subject matter of trusts’ (1994) LQR 335; M Ockelton, ‘Share and share alike?’ (1994) 53 Cambridge Law Journal 448; P Clarke, ‘Land Law and Trusts’ [1994] All ER Annual Review 250; H Pigott, ‘Hunter v Moss revisited’ (1999) Butterworths Journal of International Banking and Financial Law 363; G Moffat, Trust Law: Text and Materials (3rd edn, Butterworths, London, 1999) 134–5 and J Benjamin, Interests in Securities (University Press, Oxford, 2000) 55–9. 124 For academic support for the Court of Appeal’s decision in Hunter v Moss see, inter alia, A Jones, ‘Creating a trust over an unascertained part of a homogenous whole’ [1993] The Conveyancer and Property Lawyer 460; A Clarke, ‘Identifiability and choses in action: Hunter v Moss’ (1995) 48 Current Legal Problems: Part I 117–20; J Martin, ‘Certainty of subject Matter: A Defence of Hunter v Moss’ [1996] The Conveyancer and Property Lawyer 223; R Goode, Commercial Law in the Next Millennium (Sweet and Maxwell, London, 1998) 73 and P Eden ‘Beneficial ownership of shares: the implications of Re Harvard Securities’ (2000) 16 Insolvency Law and Practice 134–7 and 175–8.
200 Paul Eden sought to argue that the decision cannot be reconciled with the Privy Council’s decision in Re Goldcorp Exchange Ltd.125 It is submitted that the basis of this criticism is the proposition that the judgment of Atkin LJ in Re Wait126 is authority for a principle of general application. For the reasons stated above, it is submitted that this proposition is untenable.127 In particular, it is submitted that the need for certainty of the subject matter of an express trust should not be confused with the rule that the transfer of the legal interest in a contract for sale governed by the Sale of Goods an unconditional appropriation is required (unless the provisions of the Sale of Goods (Amendment) Act 1995 apply). Worthington criticises the Court of Appeal’s decision in Hunter v Moss on the grounds that, if a donor intends to make a gift of specifically identified legal property, the decision in Re Rose128 is authority for the proposition that equity will only view the donee as obtaining equitable ownership once the donor has done everything in his or her power to transfer title in the property to the donee. In Worthington’s view, this means that equity will never assist with the gift of part of an identified bulk unless the donor, either personally or via an agent, has physically segregated the portion to be given away.129 It is submitted that there is nothing in judgment of Turner LJ Milroy v Lord or the subsequent cases that mandates physical separation. There is, for example, no need for appropriation for the equitable assignment of an unascertained part of a debt or fund.130 In Re Harvard Securities, Neuberger J stated that the effect of the decision in Hunter v Moss was that, in this context, shares fall to be treated in the same way as a debt or a fund rather than chattels.131 In the United States it has long been accepted as trite that an undivided interest in fungible property is a sufficiently definite subject matter for a trust to be created without the need for segregation.132 In Herdegen v Federal Commissioner of Taxation,133 the point was deliberately left open but Gummow J was prepared to assume without deciding that a trust of shares could be created without the need for specific identification to establish certainty of subject matter.134 In Herdegen v Federal Commissioner of Taxation Gummow J seems to have adopted the view that a failure to segregate or appropriate may lead a court to conclude that the evidence fails to show an intention 125
[1995] 1 AC 74 (PC). [1927] 1 Ch 606 (CA). 127 See above pages 192–94. 128 Re Rose (decd), Rose v IRC [1952] Ch 499 (CA). 129 S Worthington, ‘Sorting Out Ownership Interests in a Bulk: Gifts, Sales, and Trusts’ [1999] Journal of Business Law 7. 130 See R Meagher, W Gummow and J Lehane, Equity: Doctrines and Remedies (3rd edn, Butterworths, Sydney, 1992) para 634–5 and the cases cited therein. 131 [1997] 2 BCLC 369 at 383. 132 See Rollestone v National Bank of Commerce in St Louis 252 SW 394 (1923) and Busch v Truitt 160 P 2d 925 (1945) affirmed by 163 P 2d 734. See also G Bogert Trusts and Trustees (Revised 2nd edn, Wests, St Paul, 1984) § 111. 133 (1988) 84 ALR 271 (FCA). 134 At 279 lines 20–30. 126
The Equitable Ownership of Shares 201 to create a present trust but merely a promise to make a gift ie a failure of certainty of intention to create a binding trust obligation rather than a failure to clearly identify the property intended to form the subject matter of the trust obligation. Halsbury’s Laws of England states, in relation for the necessity for certainty of subject matter in order to create a valid trust that: In the case of a trust of intangible assets, such as a purported trust of a specific sum of money forming part of a larger credit balance in a particular bank account, the question of certainty depends not on any immutable principle based on the requirements of a need for segregation or appropriation, but rather on whether immediately after the purported declaration of the trust, the court could, if asked, make an order for the execution of the purported trust.135
It is submitted that some caution should be exercised when applying this principle to trusts of money which present special problems136 and a requirement to keep moneys separate is normally an indicator that they are the subject of a trust.137
CONCLUSION
Given the economic importance of public confidence in the markets and the increasing dematerialisation of and immobilisation of securities, it is rather worrying that the proprietary rights of investors—who do not request paper share certificates or who are not personal members of CREST—rest entirely on the authority of the much criticised Court of Appeal decision in Hunter v Moss138 that was only reluctantly applied to sales of shares by Neuberger J in Re Harvard Securities Ltd.139 It is noteworthy that to date an English court has not had to decide a case where the rights of ‘owners’ of non-allocated dematerialised shares are contested by the holders of a floating charge over the assets of the depository and it is hoped that this paper will provide some assistance to investors in the event of the insolvency of a nominee.
135 P Pettit, ‘Trusts’ Volume 48 Halsbury’s Laws of England (4th edn (2000 reissue)) para 553 (footnotes omitted). 136 For example, the legal problems associated with tracing and overdrafts. 137 See Mac-Jordan Construction Ltd v Brookmount Erostin Ltd (in receivership) [1992] BCLC 350 (CA). 138 [1994] 1 WLR 453. 139 [1997] 2 BCLC 369 (ChD). See also Re CA Pacific Finance Ltd (in Liquidation) [2000] 1 BCLC 494 (HK CFI).
11
Northern Ireland: A Forgotten Jurisdiction. Falling Behind or Forging Ahead? HEATHER CONWAY and SHEENA GRATTAN
INTRODUCTION
Of Poor Relations The seeds of this paper were sown at the Third Biennial Conference hosted by the Centre for Property Law at Reading University in March 2000. Conversation after conversation with fellow delegates left the authors in no doubt that the knowledge of Northern Ireland property law among their counterparts in English universities could invariably be summed up in the mantra ‘but you don’t have the 1925 legislation there, do you’? The tenor varied in its level of disinterest but in all cases the implication was clear. A jurisdiction that had fallen behind so fundamentally was unworthy even of comparative study. This last observation has probably struck a chord with property law scholars from Commonwealth institutions who themselves have more than a little cause to retort ‘so what’s new, then’? It remains a fact that the revered ‘1925 reforms’ were the one major development that the home of the common law failed to persuade the rest of the Dominions to embrace, yet their continued absence from other jurisdictions has rarely provoked English lawyers to ponder why this might be the case. On the contrary, they have tended to regard it as axiomatic that the 1925 reforms set them apart from the rest of the world and as a result eschewed comparative study. Indeed, the theme that English property law has much to learn from the differences—but also the similarities—found in Australia, New Zealand, Canada and both Irish jurisdictions is developed elsewhere in this book in the context of land registration.1 The present paper is rather narrower in focus. Its modest objective is to raise awareness among nonIrish lawyers of contemporary issues in Northern Ireland property law and, more particularly, to make the case that this small and for too long forgotten 1
See, for example, ch 5 of this volume.
204 Heather Conway and Sheena Grattan jurisdiction increasingly deserves to be considered as a producer as well as a consumer of law.
The Legal Landscape To define Northern Ireland property law exclusively with reference to the absence of the 1925 reforms obscures the fact that in a number of areas it is essentially the same as that in England with the governing legislation often being identical in substance. Indeed, mindful of the obvious difficulties facing a small common law jurisdiction—a small population (1.5 million people) generating a small volume of case law resulting in a small pool of judicial authority—successive legislatures for Northern Ireland have endeavoured to adopt a policy of parity unless divergence has been justified by the cultural or socio-economic factors. Numerous examples of this unashamedly ‘consumer’ mindset could be cited; the observations reproduced here made by the Committee on Family Provision in its report which preceded the enactment of the Inheritance (Family Provision) Act (NI) 1960 are typical: —owing to the size of the community of Northern Ireland there are never likely to be any Northern Ireland textbooks on the subject and very few reported cases—[so] we recommend that if legislation is introduced—it should follow the Inheritance (Family Provision) Act 1938—2
Indeed the landscape of succession law is typical also on a more general level of those primarily statute-based areas of property law where conformity with England has been the aim. In most respects the basic provisions are precisely the same; England leads and Northern Ireland eventually follows. In the context of succession this time lag has ranged from thirty years (as with the Administration of Estates Act (NI) 1955 which broadly corresponds to the Administration of Estates Act 1925) to less than two years (as with the enactment of the Succession (NI) Order 1996, the counterpart of the Law Reform (Succession) Act 1995). Yet, as in virtually all other areas, the provisions are not a mirror image of those in England. A number of small but significant differences still exist, most notably in relation to intestate distribution but not exclusively so. This pattern —broad parity with occasional differences implemented by a legislative programme which drags behind—is replicated in many branches of property law, including housing law, planning law and the law of mortgages. On a daily basis, therefore, the Northern Ireland judiciary is called upon to interpret statutory provisions that are in identical terms to English legislation and, in the absence of ‘home-grown’ authorities, will automatically look to the English jurisprudence for illumination. In theory, the courts in Northern
2
Report of the Family Provision Committee, Cmd (NI) 330 (1953) at para 37.
Northern Ireland: Falling Behind or Forging Ahead? 205 Ireland3 are not bound by decisions of the English courts and even a House of Lords decision is strictly binding only if it originated in Northern Ireland.4 In practice, however, all decisions of the appellate courts are treated as effectively binding while decisions of the English High Court are regarded as being of the strongest persuasive authority. Indeed so heavy is the reliance of Northern Ireland lawyers—both academic and practising—on English case law that it is often cited and reported as if it had emanated from the Northern Ireland courts. It is rare to find reference to the rules of precedent or to have a differentiation made between the two types of authority. In short, Northern Ireland has essentially integrated English jurisprudence fully into its legally separate jurisdiction, perhaps the ultimate act of consumerism. Of late, however, as shall be seen below, there has been some evidence that our courts are increasingly prepared not to follow English decisions, invoking the rules of precedent as a flexible and imaginative tool. While we have outlined the rules of precedent as they apply in Northern Ireland in relation to English decisions, nothing has yet been said of the converse arrangement—that decisions of the Northern Ireland courts are of persuasive authority in England. The unfortunate truth is that very little has been said anywhere. A perusal of the standard textbooks and journal articles in the property field establishes very quickly that Northern Ireland jurisprudence is a source of persuasive authority which has yet to excite much interest beyond its own shores, a state of affairs which contributes to the sense of jurisdictional isolation experienced by its lawyers.
Selected Snapshots Within the space constraints of a single paper our approach can only be highly selective. We have chosen to highlight four topics which we feel best illustrate the full spectrum of ways in which Northern Ireland law is most likely to be of interest to comparative property lawyers, not only in England but farther afield. We start with an example of what may be described as an ‘exclusively Irish phenomenon’—a legal animal which has been shaped by the peculiar socioeconomic context of a ‘country of small farmers’.5 The classic case, perhaps, of a jurisdiction falling behind? A propos the claims made in the preceding paragraph about persuasive authority, we then focus on a decision of the Northern Ireland High Court on section 36 of the Administration of Justice Act 1970, a statutory provision which extends both to England and Northern
3 The basic structure in terms of hierarchy is High Court, Northern Ireland Court of Appeal and the House of Lords (in London). 4 See B Dickson, The Legal System of Northern Ireland (4th edn, Belfast, SLS, 2001) at 87–9. 5 This was the traditional rallying cry of the Ulster Farmers’ Union, an organisation with very strong lobbying power at the former Stormont Parliament.
206 Heather Conway and Sheena Grattan Ireland. The decision in National and Provincial Building Society v Lynd6 has rarely been cited in English texts, yet in our view it demonstrates a more insightful and pragmatic judicial approach than that taken by the English courts. Thirdly, we examine a pioneering statutory provision that has recently swept away the cumbersome rules for the enforceability of freehold covenants and which, inter alia, provides for the benefit of positive covenants to run. Finally, we look to the future with an assessment of the recent radical proposals of the Law Reform Advisory Committee of Northern Ireland in relation to the family home.
RIGHTS OF RESIDENCE — A PECULIARLY IRISH PHENOMENON
The Concept Introduced a right to reside in the dwelling-house . . . and be kept maintained and fed by my son as she has hitherto been accustomed to but not clothed, and have the use of the pony and trap when going to mass or on other necessary business7 I give my wife the right to reside in my house for her life but my wife will lose all interest in this will if she allows any man (including any relative of mine) to stay overnight in the house (will proved in Belfast in 1967)
The ‘right of residence’ is a phenomenon which has appeared (and continues to appear) with great frequency in both parts of Ireland, most commonly in farmer’s wills. Of course there is nothing peculiar in men making testamentary provision for widows, daughters and sisters which is of an ‘income’ rather than a capital nature; on the contrary, it has been a virtually universal pattern. While, however, English testators have preferred to give a straight life estate (or a life interest upon trust), Irish testators have favoured the formula whereby the recipient is given the right to reside in the residence during her life (or ‘for her day’—a not uncommon expression in such wills). Indeed research conducted by one of the authors suggests that one in ten wills made by testators in rural areas contain such a right of residence. A couple of the more colourful examples have been reproduced above8 but although such rights can be of almost infinite variety, they generally fall into two broad categories. First, specific rights of residence, which reserve the right to the exclusive use of a specified room(s) in a dwelling-house, and secondly general rights of residence, say, in a farmhouse 6
[1996] NI 47. B Harvey, ‘Irish Rights of Residence—The Anatomy of an Hermaphrodite’ in [1970] NILQ 389 at 390. 8 It should be noted that where the donee is a surviving spouse and she makes a family provision claim under the relevant Northern Ireland provisions, she will be likely to succeed to a larger award, perhaps a full life estate together with a capital sum—see Gillespie v Scott, High Court (NI), unrep, 12 October 1997. 7
Northern Ireland: Falling Behind or Forging Ahead? 207 which has been left to a son, coupled with a right to maintenance out of the profits of the farm itself.
A Chequered History In legal terms, however, the history of the right of residence has been one of inactivity, uncertainty and confusion, and notwithstanding how often such rights have arisen judicial analysis of them has been scant. Prior to 1999 they had never been considered by the Northern Ireland courts and what little authority that existed was either decisions of pre-Partition Irish courts or those of the Republic, but they were far from clear. For example, National Bank v Keegan9 suggested that an exclusive right of residence conferred a life estate on the donee, an approach in line with that of the English courts on the few occasions when similarly drafted interests had been before them.10 However, such an analysis presents an obvious problem in the context of the small family farm, namely that the donee immediately acquires the extensive powers conferred on the tenant for life by the Settled Land Acts 1882–1890,11 with the consequence that she could lease, or even sell, the farm from under other members of the family. While few judges have expressly referred to this legislation there can be little doubt that it influenced their decisions to avoid a life estate. Kelaghan v Daly12 is often cited as authority that a non-exclusive right of residence is a right ‘in the nature of a lien for money’s worth’,13 and Re Shanahan14 for the proposition that it is an ‘annuity or money charge’. On closer examination, however, it is questionable whether either case is authority for such general principles.15 Since 1970 there has been a modicum of protection for the donee of rights of residence granted on registered land, for section 47 of the Land Registration Act (NI) 1970 provides that, while a right of residence is personal to the donee and incapable of assignment, any such right registered as a burden against the land will bind the landowner’s successors in title. However, notwithstanding this legislative intervention the precise scope of the right remained ill-defined, and of course not all rights of residence were granted on registered land. 9
[1931] IR 344. Re Carne [1899] 1 Ch 324; Re Baroness Llandover’s Will Trusts [1902] 2 Ch 679; Re Gibbons [1920] 1 Ch 372 and Bannister v Bannister [1948] 2 All ER 133. 11 This legislation is still in force in Northern Ireland. The Settled Land Act 1925 did not extend to Northern Ireland and the jurisdiction has no equivalent of the Trusts of Land and Appointment of Trustees Act 1996. 12 [1913] 2 IR 328. 13 Ibid, per Boyd J at 330. 14 [1919] 1 IR 131. See also Johnston J at first instance in National Bank v Keegan [1931] IR 344 at 346. 15 See the discussion in B Harvey, ‘Irish Rights of Residence: The Anatomy of an Hermaphrodite’ [1970] NILQ 389 and in Jones v Jones [2001] NI 244 at 254. 10
208 Heather Conway and Sheena Grattan The most thorough academic study of the Irish right of residence remains an article written by Professor Brian Harvey over thirty years ago.16 At the time of publication there was virtually no judicial support for his thesis that rights of residence are a type of irrevocable licence. In the last three years, however, there have been two decisions of Girvan J of the Northern Ireland High Court,17 Re Walker’s Application for Judicial Review18 and Jones v Jones,19 both of which adopt this licence analysis.
Jones v Jones—Timely Clarification The issue before the court in Jones20 was the precise scope of a right of residence which had been reserved for the plaintiff by her late husband when he had transferred the family farm to their son. Due to deteriorating health the plaintiff had spent some time in a nursing home but now wished to return to exercise her right of residence. The defendants, her son and grandson (to whom the son had agreed to transfer the house and who was now living in it with his wife) prevented her doing so on the ground that it would not be in her best long-term interests and the plaintiff sought to enforce the right. In a very thorough judgment, Girvan J provided a full and systematic review of the existing jurisprudence, observing that the development of the law had been characterised by ‘statements of principle arrived at by a flawed generalised interpretation of specific cases turning on their own terms and clauses in particular instruments’.21 The learned judge expressly rejected both the life estate and lien analogy. Neither, he opined, reflected the donor’s true intention: Where a person grants or reserves an exclusive right of residence the right by definition is intended to be restricted to the very purpose of the grant or reservation. The grantee will fully appreciate that the right of residence does not, for example, envisage a right to use the premises for some non-residential purpose. Nor would the parties envisage the sale, letting or exchange of the property.22
The proper analysis of a right of residence, Girvan J concluded, was that of a licence. In Jones, where monetary consideration had been given, it was a con16
Ibid. In Northern Ireland one of the High Court judges is assigned to the Chancery Division and known as the Chancery Judge. Since 1995 the Chancery Judge has been Girvan J. While all judges must take a certain allocation of criminal work each year, the Chancery Judge will hear about 90 per cent of the cases in the Chancery Court. 18 [1999] NI 84. 19 [2001] NI 244. 20 Re Walker was not a ‘classic’ right of residence dispute but rather the issue for the court was whether the donee of a right of residence has sufficient interest in the property to apply for an improvement grant under the governing legislation. 21 [2001] NI 244 at 256. 22 [2001] NI 244 at 254, comments which the learned judge first made in Re Walker [1999] 84 at 99. 17
Northern Ireland: Falling Behind or Forging Ahead? 209 tractual licence but in each case the precise proprietary context varied with the category of licence concerned. In the case before him the plaintiff had been granted an irrevocable contractual licence to reside in the premises during her lifetime, which the court would protect by an injunction or specific performance if appropriate. The precise scope of the licence was a matter of construction of the agreement set in its proper context as to what contractual rights it conferred on the plaintiff. On the facts, the learned judge held that the plaintiff enjoyed an exclusive right to reside in the premises (together with persons to provide care and supervision if required) and that her grandson and his wife could only reside in the house with her consent.
What Does the Future Hold? Unfortunately it has not been possible in the space restraints to engage in a fuller critique of the decision in Jones. Suffice to say that the clarification which it provides is to be welcomed. The analysis of the right of residence as a type of irrevocable licence has borrowed heavily from the evolving principles of equitable licences during the last thirty years in England23 and it is interesting that even in this very culture-specific context Northern Ireland again finds itself in its traditional role of a consumer of law. More pertinent to the themes which are being developed in this paper, the experience in relation to rights of residence illustrates how a couple of enigmatic and poorly reasoned decisions can heavily influence legal development (or non-development) in a small common law jurisdiction. It almost beggars belief that there was no case before the Northern Ireland courts between Partition and 1999 concerning a phenomenon which still occurs in one-tenth of rural wills. It is almost as remarkable that, in the face of such uncertainty, members of the legal profession have continued to proliferate such rights in wills and deeds without seeking to define the precise scope of the interest intended. In Jones the learned judge rejected the submission made on behalf of the defendants that ‘right of residence’ was a legal term of art, holding that in all cases the terms of the licence had to be interpreted in the light of the factual context and in light of the agreement as a whole or the drafting of the instrument which created it. However, the vast majority of Northern Irish wills (professionally drafted as well as home-made)24 create a right of residence by using the phrase ‘right to reside’ without further elaboration. In both Walker and Jones Girvan J counselled against this practice, giving a salutary warning to those responsible for drafting wills of the need to address their minds to the precise nature of the interests that they wished to create. Time will tell if these 23
Although the learned judge did not engage in an analysis of the relevant English jurisprudence. It is relevant to this point that in Northern Ireland the legal profession is dominated by small non-specialist firms—more than 80 per cent of the firms of solicitors in Northern Ireland have two partners or less. 24
210 Heather Conway and Sheena Grattan age-old drafting practices, so long a feature of Northern Ireland’s legal landscape, will change.
MORTGAGES , DWELLING HOUSES AND POSTPONING POSSESSION
The decision in National and Provincial Building Society v Lynd25 provides an illustration of Northern Ireland sharing the same legislation as England and Wales, yet taking what is arguably a more pragmatic approach in applying the relevant provisions.
Shifting the Balance: Cheltenham and Gloucester Building Society v Norgan Section 36 of the Administration of Justice Act 1970, in conjunction with s 8 of the Administration of Justice Act 1973, confers a discretionary power on courts to adjourn proceedings or to stay execution or postpone an order for possession of a dwelling house if satisfied that the mortgagor is likely to be able to make good his arrears within a ‘reasonable period’. Prior to the decision in Cheltenham and Gloucester Building Society v Norgan,26 a working practice had developed of postponing possession for two to four years. However, the Court of Appeal in Norgan proposed a longer period based on the remaining term of the mortgage. In determining what constitutes a ‘reasonable period’ for the purposes of section 36, Waite LJ remarked: —it does seem to me that the logic and spirit of the legislation require—that the court should take as its starting point the full term of the mortgage and pose at the outset the question: would it be possible for the mortgagor to maintain payment off of the arrears by instalments over that period?27
This would give borrowers the maximum possible opportunity to make good their default, while avoiding multiple applications to court under s 36 with all the attendant expense. Any further exercise of the s 36 powers would, however, be unlikely in the event of any subsequent default.28 The decision in Norgan prompted mixed reactions. On the one hand, it was welcomed as dispensing with the former ‘broad brush’29 approach under section 36 and providing a more cohesive set of principles for determining such applications, while preventing ‘serial litigation’30 by giving the borrower a ‘once and for all opportunity’31 to make good his default. However, concern was 25 26 27 28 29 30 31
[1996] NI 47. [1996] 1 All ER 449. [1996] 1 All ER 449 at 458. [1996] 4 All ER 449 at 459–60. M Haley, “Mortgage Default: Possession, Relief and Judicial Discretion” (1997) 17 LS 483 at 493. MP Thompson, Modern Land Law (Oxford University Press, Oxford, 2001) at 366. J Morgan, ‘Mortgage Arrears and the Family Home’ (1996) 112 LQR 553 at 556.
Northern Ireland: Falling Behind or Forging Ahead? 211 expressed that the Court of Appeal had effectively reversed the burden of proof in repossession cases, while placing lenders at the mercy of a ‘drip feed repayment system’ and the unpredictability of the property market at the end of the mortgage term.32 The decision also attracted interest in Northern Ireland in view of the shared legislative provisions.33 Speculation as to whether courts in this jurisdiction would follow Norgan was brought to an end some six months later in National and Provincial Building Society v. Lynd.34
Declining to Follow Suit: National and Provincial Building Society v Lynd Mr and Mrs Lynd had purchased a dwelling house in 1988 with a mortgage from the plaintiff for the sum of £24,800. The mortgage was payable in monthly instalments for a term of just under 17 years. By 1991, the defendants had fallen into serious arrears. The plaintiff obtained orders for possession in January and October 1994, but these were suspended following assurances from the defendants that they would be able to discharge the arrears. The defendants continued to default. In November 1995, with the arrears totalling £9,400, the building society sought leave to execute the possession order granted in October 1994. The master felt that he was bound by the ruling in Norgan to take the remaining term of the mortgage as the ‘reasonable period’ for the purposes of section 36. On that basis, he made an order suspending possession on condition that the defendants paid £100 per month towards the arrears. The building society appealed to the High Court where Girvan J suggested a different approach when determining the ‘reasonable period’ for postponing possession under section 36. Girvan J reviewed the decision in Norgan and pointed out that courts in Northern Ireland had previously followed the practice of English courts in postponing possession for two to four years in most cases.35 He agreed with the decision insofar as it ‘stresse[d] the duty of the court to take all the circumstances of the case into account’36 and envisaged that, in appropriate cases, a reasonable period might be the remaining term of the mortgage. In this respect, the Court of Appeal was ‘correcting an established practice which had in effect fettered the court’s discretion under section 36’.37 However, insofar as Norgan suggested that courts should start with the strong presumption in favour of the remaining term of the mortgage being taken as the ‘reasonable period’ for the purposes of 32
HW Wilkinson, ‘Mortgage Repayments—In Your Own Time?’ (1996) 146 NLJ 252 at 253. See A Dowling and H Wallace, ‘Land Law’ in S Grattan (ed), Third Annual Review of Property Law (SLS, Belfast, 1996) 1 at 7. 34 [1996] NI 47. 35 See Alliance and Leicester Building Society v Carlisle, High Court (NI), unrep, 8 September 1995. 36 [1997] NI 47 at 56. 37 [1997] NI 47 at 56. 33
212 Heather Conway and Sheena Grattan section 36, Girvan J felt obliged to part company with the Court of Appeal. The reasons behind this departure merit closer analysis.
Legislative and Judicial History Prior to 1970, courts had a limited power to grant defaulting borrowers relief against the lender’s contractual claim to possession.38 The Report of the Payne Committee39 considered this restriction to be too severe, thus paving the way for section 36 of the 1970 Act. However, Girvan J noted that the Committee had contemplated a postponement of 6 months as the norm in most cases, while the General Council of the Bar and the Law Society had recommended periods of one to six months and three months respectively. In this context, a presumption in favour of the remaining term of the mortgage was not a ‘logical or justifiable inference to be drawn from the inherent context of the legislation’.40 So far as the relevant case law was concerned, Girvan J suggested that the decision in Halifax Building Society v Clark41 had only presented a problem because a ‘reasonable period’ was taken as being far shorter than remaining term of the mortgage.42 The Court of Appeal in Norgan had relied upon dicta in First Middlesbrough Trading Co Ltd v Cunningham43 and Western Bank Ltd v Schindler44 as supporting postponement of possession for the remaining term of the mortgage. However, both cases were distinguished by Girvan J as being decided in different factual contexts which did little to support the interpretation placed on them by the Court of Appeal.45
The Need for an ‘Open-Minded’ Approach By presuming that the court should take the remaining term of the mortgage as the ‘reasonable period’ under section 36, Girvan J suggested that Norgan directs the court to begin its inquiry from the wrong starting point. Instead: What the court must do under s 36 is to consider all the circumstances of the case, approaching the matter with an open mind seeking to do justice between the mortgagor and the mortgagee—A determination of the facts set out by Evans LJ [in
38
See Birmingham Citizens Permanent Building Society v Caunt [1962] Ch 883. Cmd 3909 (1969). 40 [1996] NI 47 at 58. 41 [1973] 2 All ER 33. 42 The case held that the reference in s 36 to ‘any sums due under the mortgage’ meant the entire mortgage debt, and led to enactment of s 8 of the 1973 Act. 43 (1974) 28 P & CR 69. 44 [1976] 2 All ER 393. 45 See the discussion at [1996] NI 47 at 59–60. 39
Northern Ireland: Falling Behind or Forging Ahead? 213 Norgan46]—without any pre-disposition for or against the relevant period being the balance of the term of the mortgage is in my respectful view the proper approach.47
The court should focus on the amount which the borrower could afford to pay and calculate the length of time which it would take to discharge the arrears at that rate. It could then ask itself, applying the checklist devised by Evans LJ, whether that period was reasonable in all the circumstances of the case.
Position of the Mortgagor The decision in Norgan attracted criticism as effectively reversing the burden of proof in mortgage repossession cases.48 Echoing these sentiments in Lynd, Girvan J asserted that borrowers must put forward some ‘justifiable basis’49 for the court to exercise its discretion under section 36, and could not simply demand what was effectively relief against the consequences of breach of contract. A defaulting mortgagor would be expected to provide the court with the best possible scheme of repayment, not argue that he should be entitled to pay less over a longer period because it would suit him to do so. That aside, Girvan J suggested that the Norgan approach would not automatically benefit borrowers. A presumption in favour of the remaining term of the mortgage and the resultant smaller payments would not always take account of what the borrower could afford to repay. Moreover, a lengthy postponement would not always be financially advantageous for borrowers, the accumulation of interest over a longer period creating extra expense.50
Mortgagees and the Policy Element In substantially rejecting the Norgan decision, Girvan J was also influenced by the Court of Appeal’s apparent lack of regard to the problems facing lenders. A presumption in favour of the remaining term of the mortgage as the starting point under section 36 would result in considerably smaller payments being made to the lender than originally agreed between the parties,51 with important policy implications. Moreover, the Court of Appeal had failed to take adequate
46 [1996] 1 All ER 449 at 463. Various factors were suggested, including the amount which the borrower could reasonably afford to pay both now and in the future, the reason for the arrears, and how much remained of the original term. 47 [1996] NI 47 at 60. 48 See above. 49 [1996] NI 47 at 60. 50 [1996] NI 47 at 60–1. 51 Although it has been suggested that the lender nevertheless gets ‘substantially what he bargained for, albeit at a later date’—J Morgan, ‘Mortgage Arrears and the Family Home’ (1996) 112 LQR 553 at 556.
214 Heather Conway and Sheena Grattan account of the fact that lenders do not resort to court lightly. By that stage there will usually have been a ‘serious history of default and broken promises’.52
Norgan in the Northern Ireland Context It has already been noted that, while Northern Ireland courts will usually follow decisions of the English Court of Appeal, such decisions are not strictly binding on them. Thus in Lynd, the decision in Norgan was rejected insofar as it suggested that courts should start with the presumption in favour of the remaining mortgage term representing the ‘reasonable period’ for the purposes of section 36. Girvan J also distinguished Norgan on the basis that the lender’s security was not at risk. It was significant that the Court of Appeal in Mortgage Corporation Ltd v Leslie53 had declined to apply Norgan because the mortgage debt in that case was on the point of exceeding the value of the security. In the present case, the mortgage debt owed by Mr and Mrs Lynd was also close to exceeding the value of the property.54
A More Balanced Approach? It is suggested that the decision in Lynd presents a more pragmatic and balanced approach than that of the Court of Appeal in Norgan. While not disputing the rationale behind Norgan and the need to protect borrowers against the loss of the family home in cases of financial hardship, Lynd posits this protection on a more equilibristic basis. The Court of Appeal in Norgan stressed the importance of the court weighing up the interests of both borrowers and lenders when exercising the delaying powers under section 36 of the 1970 Act. The court’s objective was to be ‘evenhanded’ in its approach to the competing claims, allowing the borrower an opportunity to make good his default while ensuring that the lender was not forced to wait for repayment through an ‘enforced capitalisation of arrears’.55 However, in suggesting the remaining term of the mortgage as the presumed ‘reasonable period’ for the purposes of section 36, it is arguable that Norgan pushed the balance too far in favour of the borrower. By proposing that the remaining term of the mortgage should only be assessed as a relevant factor in weighing up all the circumstances of an application under section 36, the decision in Lynd perhaps achieves a fairer balance between both borrower and lender. Moreover, it addresses some of the concerns expressed in relation to Norgan and recognises that, while section 36 performs an important social 52 53 54 55
[1996] NI 47 at 62. Court of Appeal, unrep, 1 February 1996. [1996] NI 47 at 63. [1996] 1 All ER 449 at 458.
Northern Ireland: Falling Behind or Forging Ahead? 215 function, so do lenders. While it could be argued that Norgan simply accords with the original intention of both borrower and lender that payment would be over the remaining term of mortgage,56 this intent is premised on the borrower honouring the terms of the agreement, as opposed to serial default and multiple applications to court in an attempt to secure repayment. It is also significant that Norgan has not been slavishly adhered to by English courts, with several cases declining to follow the presumption in favour of the remaining mortgage term as the ‘reasonable period’ for the purposes of section 36.57 The decision in Lynd suggests a structured approach for determining section 36 applications based on the factors proposed by Evans LJ in Norgan without any prior disposition towards the length of the postponement period, while attempting to balance the interests of both borrower and lender. However, the decision in Lynd has attracted little academic or judicial interest outside Northern Ireland.58 In view of the number of applications under section 36 and their social and economic significance, the fact that Lynd has been overlooked is regrettable indeed.
BENEFIT AND BURDEN OF FREEHOLD COVENANTS
Had the newly created Northern Ireland not been troubled by more pressing constitutional concerns in the mid-1920s, her law reformers may have been in a position to give their attention to matters of property law. Attempts at modernisation were sporadic and piecemeal and it was not until the 1960s that the land law and conveyancing system came under the microscope of the Northern Ireland Land Law Working Group. Its findings were published in 1971 but only a few of the recommendations were implemented.59 During the 1980s the Land Law Working Group undertook a more comprehensive study. Some of the recommendations made in its Final Report, published in 1991, have recently been enacted in the Property (NI) Order 1997. In this next section we examine the feature of this legislation which is likely to be of most interest outside the jurisdiction. Article 34 of the 1997 Order, which only became effective on 12 January 2000, replaces the old common law and equitable rules for the running of the benefit and the burden of freehold covenants that have been so beloved of generations of law students. Its major claim to novelty, however, lies in the fact that it provides for the burden of certain positive covenants to run, a development 56 See M Haley, ‘Mortgage Default: Possession, Relief and Judicial Discretion’ (1997) 17 LS 483 at 496. 57 See Mortgage Corporation Ltd v Leslie, Court of Appeal, unrep, 1 February 1996 noted above, as well as Gallagher v Abbey National Building Society, Court of Appeal, unrep, 14 December 1999. 58 The decision does merit a passing reference in K Gray and SF Gray, Elements of Land Law (3rd edn, Butterworths, London, 2001) at 1423, but is notably absent from other leading property law texts and does not appear to have been cited in any English case on the point. 59 For example, the Property (NI) Order 1978 which makes provision for the extinction or modification of obsolete covenants.
216 Heather Conway and Sheena Grattan which has Northern Ireland forging ahead not only of England but most of the common law world.60 In addition to the enforcement of positive covenants, the other main change is that prior registration of the covenant will not be required to secure its enforcement. However, Article 34 is limited in its application to specific types of covenant. Article 34(4) provides: The following kinds of covenant (and only covenants of those kinds) are enforceable (as appropriate to the nature of the covenant and the circumstances of the breach of the anticipated or threatened breach) by the owner for the time being of the land benefited by the covenant against the owner for the time being of the land burdened by it— (a) covenants in respect of the maintenance, repair or renewal of party walls or fences or the preservation of boundaries; (b) covenants to do, or to pay for or contribute to the cost of, works on, or to permit works to be done on, or for access to be had to, or for any activity to be pursued on, the land of the covenantor for the benefit of land of the covenantee or other land; (c) covenants to do, or to pay for or contribute to the cost of, works on the land of the covenantee or other land where the works benefit the land of the covenantor; (d) covenants to reinstate in the event of damage or destruction; (e) covenants for the protection of amenities or services or for compliance with a statutory provision (or a requirement under it), including(i) covenants (however expressed) not to use the land of the covenantor for specified purposes or otherwise than for the purposes of a private dwelling; (ii) covenants against causing nuisance, annoyance, damage or inconvenience; (iii) covenants against interfering with facilities; (iv) covenants prohibiting, regulating or restricting building works or the erection of any structure, or the planting, cutting or removal of vegetation (including grass, trees and shrubs) or requiring the tending of such vegetation—
Estate schemes also come within the remit of the new provision. Article 34(6) provides: Where there is a development, [paragraph (4) applies]—as if (if it is not the case) the covenants made by parcel owners with the developer had been made also with other parcel owners to the extent that those covenants are capable of reciprocally benefiting and burdening the parcels of the various parcel owners and as if references in those paragraphs to the land benefited by a covenant, the land burdened by a covenant and the land of the covenantee and the covenantor included (to that extent) references to parcels.
Article 34 is not retrospective, so the former rules will always remain relevant. As yet the new provision has generated no case law, or even, so far as the authors are aware, significant teething problems. Indeed it will not be until land has been transferred to successors in title that an effective assessment can be made of its operation. Such developments will deserve to provoke interest in many quarters. 60 The burden of positive covenants runs in Trinidad and Tobago. See Bell, ‘Enforcement of Positive Covenants in Trinidad and Tobago’ [1983] Conv 211.
Northern Ireland: Falling Behind or Forging Ahead? 217
CO - OWNERSHIP AND THE FAMILY HOME : TOWARDS A COMMUNITY OF PROPERTY ?
Judicial and legislative attempts to deal with the vexed issue of property rights in the family home have often been hindered by two competing aims: balancing the interests of couples vis-à-vis each other, and protecting the interests of third parties engaged in dealings with the family home.61 While the focus in the postBoland62 era was firmly on the latter objective, the emphasis has once again shifted to the property entitlements of persons living in the family home. This movement has been reflected in a number of recent policy initiatives, culminating in the Law Commission’s consultation paper on Sharing Homes which is stimulating renewed interest in the subject in England and Wales.63 The Law Reform Advisory Committee for Northern Ireland (hereinafter the ‘LRAC’) has recommended its own changes to the law regarding ownership of the family home which may result in the two jurisdictions taking different approaches.64 Although some of the LRAC proposals can trace their genealogy to measures put forward by the Law Commission in the past,65 it is significant that the Northern Ireland recommendations preceded the current Law Commission report. In addition, the LRAC proposals go much further than those suggested by Law Commission in the past.66
The LRAC Proposals: ‘What’s Mine is Yours’ The LRAC proposed a scheme of statutory co-ownership to apply to the joint residence of spouses. Where one spouse transfers property to the other, or one transfers property to both jointly, or where one purchases property or both purchase property jointly, the LRAC recommended that the beneficial interest in the property should vest in the spouses as joint tenants, unless the parties agree otherwise in writing.67 In other words, an automatic presumption of joint beneficial ownership of the family home, with an opt-out mechanism for
61 For an overview see J Dewar, ‘Land, Law and the Family Home’ in S Bright and J Dewar (eds) Land Law: Themes and Perspectives (Oxford University Press, Oxford, 1998) ch 13. 62 Williams and Glyn’s Bank Ltd v Boland [1980] 2 All ER 408. 63 Other recent developments in England and Wales include the Relationships (Civil Registration) Bill introduced by Jane Griffiths MP in October 2001, and the Civil Partnerships Bill introduced by Lord Lester of Herne Hill QC in January 2002. 64 Law Reform Advisory Committee for Northern Ireland Report No 10, Matrimonial Property (2000) (hereinafter the ‘Final Report’). 65 See Law Com No 52 (1973), Law Com No 86 (1978) and the subsequent Matrimonial Homes (Co-Ownership) Bill 1980, as well as Law Com No 175 (1988). 66 Most notably as regards the inclusion of cohabitants—see below. 67 Final Report, p 36.
218 Heather Conway and Sheena Grattan spouses who did not wish to subscribe to the proposed regime.68 However, the LRAC also recommended that the same scheme of statutory co-ownership should apply to ‘qualifying cohabitants’.69 These were defined as persons who: (a) have been living together in the same household for at least a total of two years within the period of the three years preceding the property transaction effectively as husband and wife though not married; or (b) have had a child by the relationship and have been living together in the same household effectively as husband and wife though not married.70
Thus, an appropriate conveyance or transfer would trigger joint beneficial ownership of the family home where cohabitants have been living together for at least two years, or have had a child by their relationship and are living together irrespective of the duration of cohabitation. As with spouses, the presumption would be rebutted by a written agreement to the contrary.71 The LRAC further recommended that, in the event of these proposals taking effect, they should only apply to property transactions taking place after the relevant legislation came into force.72 This led the LRAC to consider how best to deal with completed property transactions and various other situations which would fall outside the proposed scheme of statutory co-ownership—for example, spouses and cohabitants who availed of the opt-out clause, or situations in which a couple living together did not satisfy the definition of ‘qualifying cohabitants’. Rejecting the current trusts-based approach, the LRAC proposed a specific statutory framework for determining such interests. Courts would be directed to consider a number of factors in determining the parties’ beneficial entitlements, thus paving the way for a more flexible approach.73 The constraints of space preclude an in-depth analysis of all aspects of the LRAC proposals. Instead, the focus here will be on what are arguably the two most radical features of the proposals: the fundamental shift in ideology which underpins them, and the inclusion of cohabitants within the proposed scheme.
68 The presumption of statutory co-ownership would also apply to property acquired or transferred in contemplation of marriage and intended to be the parties’ joint residence—Final Report, p 36. 69 Final Report, p 36. 70 Final Report, p 37. 71 Similar recommendations were made in respect of housekeeping money and household goods acquired by spouses or qualifying cohabitants—Final Report, pp 37–8. The LRAC also recommended that the presumption of advancement between husbands and wives be abolished—Final Report, p 39. 72 Since a retrospective effect would be ‘intrinsically unfair’ in the absence of an opportunity to contract out of the scheme, and might constitute a disproportionate interference with existing property rights contrary to the ECHR—Final Report, pp 29–30. 73 For example, the contribution in money and money’s worth towards the cost of acquiring, maintaining, repairing and improving the premises or towards discharging any debt secured on the premises; any agreement, understanding or arrangement, express or implied, made in respect of the parties’ beneficial interests—see Final Report, p 32 for a full list.
Northern Ireland: Falling Behind or Forging Ahead? 219 A Shift in Ideology The presumption of equal sharing from the outset as proposed by the LRAC is in stark contrast to the current law in Northern Ireland and in England and Wales which is premised upon the doctrine of separate ownership of the family home.74 At present, legal ownership of the family home is determined by the names on the title documents. Where title is not in joint names, courts have developed a trusts-based approach for determining beneficial interests in the family home on the basis of financial contributions. In these circumstances, a non-legal title holder can assert an equitable interest in the property by means of a resulting or constructive trust where he/she has made a direct contribution to the purchase price, or has made indirect contributions premised on an agreement or understanding that these would give rise to a beneficial interest.75 However, judicial efforts at superimposing trust principles on informal domestic arrangements have caused problems in practice, most notably in the context of indirect contributions with courts struggling to find a discernible common intention76 or to quantify domestic labour when calculating the resultant beneficial entitlement.77 The LRAC proposals indicate a fundamental shift in ideology by quantifying property rights in the family home on the basis of status as opposed to financial contributions. The proposals recognise marriage and cohabiting relationships of sufficient standing as a partnership of equals which should be reflected in equal sharing of the family home. In this respect, they also recognise the unique status of the property and the unique nature of the relationships which arise in the spousal or quasi-matrimonial context, while implicitly rejecting the doctrine of separate ownership and its attendant theory that ownership of the family home should be determined as if the parties were strangers. Moreover, by shifting the emphasis from contributions to status, the proposals arguably promote equality between the sexes. Despite increased economic power and status for women, the current law may still work against the female spouse or cohabitant, most often in the case of indirect financial contributions, and in this respect may ‘help to perpetuate . . . [an] inherently discriminatory system’.78 An automatic 74 However, this automatic presumption of equal sharing has not received universal support— see R Deech, ‘Williams and Glyn’s and Family Law’ (1980) 130 NLJ 896 and MT Murphy and RW Rawlings, ‘The Matrimonial Homes (Co-ownership) Bill: The Right Way Forward’ (1980) 40 Fam Law 136. 75 See, for example, the decision of the Northern Ireland Court of Appeal in McFarlane v McFarlane [1972] NI 59, as endorsed by the House of Lords in Lloyds Bank plc v Rosset [1991] 1 AC 107. The same principles apply irrespective of whether the parties concerned are spouses or cohabitants—see Grant v Edwards [1986] 2 All ER 426. 76 The absence of which lead to ostensibly meritorious claims being rejected in McFarlane v McFarlane [1972] NI 59 and Burns v Burns [1984] Ch 317. 77 See Eves v Eves [1975] 1 WLR 1338. 78 Final Report, p 28.
220 Heather Conway and Sheena Grattan presumption of joint and equal ownership of the family home would go some way towards redressing these perceived inequalities.79 Statutory Co-ownership for Cohabitants The inclusion of cohabitants within the LRAC proposals is a significant measure, not least because of Northern Ireland’s reputation as a socially and politically conservative jurisdiction. Similar proposals by the Law Commission in the past have been confined to spouses.80 In extending the proposed scheme of statutory co-ownership to cohabitants, the LRAC was influenced by the fact that cohabiting couples in many instances have the same structural, emotional and financial arrangements as married couples, yet suffer the additional burden of not having the protection of the Matrimonial Causes (NI) Order 1978.81 The LRAC was also conscious of falling foul of Article 8 and Article 14 of the ECHR, as well as section 75 of the Northern Ireland Act 1998 which places a statutory duty on public authorities in Northern Ireland to take account of the need to promote equality of opportunity between persons of different ‘marital status or sexual orientation,—and between men and women generally’ when carrying out their functions.82 The LRAC recommended that the scheme of statutory co-ownership should apply to cohabitants in a ‘committed and stable relationship’,83 the key to which is living together for a minimum of two years or having had a child. While this proposal is superficially attractive, it is not unproblematic. There are a number of conceptual difficulties in the definition of ‘qualifying cohabitants’ put forward by the LRAC which merit further consideration. The Marriage Yardstick The emphasis throughout the LRAC recommendations is firmly on marriage and ‘marriage like’ relationships.84 The inclusion of cohabitants by the yardstick of ‘living together—as husband and wife’ is consistent with other legislative provisions conferring rights on cohabitants.85 Yet, it immediately raises the 79 Although open to criticism as ‘paternalistic protection under a scheme designed for a stereotype housewife’—R Deech, ‘Williams and Glyn’s and Family Law’ (1980) 130 NLJ 896 at 899. It has also been suggested that assumptions about the role of women in society and their contributions (both domestic and financial) within relationships are often underestimated and not reflective of their true positions—see R Probert, ‘Cohabitants and The Law’ (2000) 30 Fam Law 925 at 928. 80 See the Law Commission Reports at n 65 above. 81 Equivalent to the Matrimonial Causes Act 1973. 82 See generally Final Report, ch 4. 83 Final Report, p 20. 84 Other homesharing relationships are outside the scheme and would require a more substantive inquiry, such as that conducted by the Law Commission in its report on Sharing Homes. 85 See, for example, ss 1(ba) and (1A) of the Inheritance (Provision for Family and Dependants) Act 1975 and s 1(3) of the Fatal Accidents Act 1976.
Northern Ireland: Falling Behind or Forging Ahead? 221 question of what constitutes such an arrangement. Unlike marriage, cohabitation does not confer automatic legal status on the parties and there are a wide range of factual circumstances which might amount to cohabitation. Moreover, the LRAC has followed a well-trodden legislative and judicial path in failing to provide any formal definition of what constitutes ‘living together—as husband and wife’ in these circumstances. In the absence of any such definition being introduced at a later stage, it is likely that guidance would be derived from case law decided in other contexts such as family provision claims86 and claims under the fatal accidents legislation.87 Where there are no children of the relationship, a two year cohabiting period would trigger the statutory presumption of joint beneficial ownership of the family home. In the absence of a formal registration requirement,88 knowledge of the factual circumstances in which cohabitants are legally recognised as living together as husband and wife becomes essential not only for the couple themselves but for third parties such as lenders. In the post–Boland era, banks and building societies will routinely make a series of inquiries into equitable interests in the family home which might take priority over their security. Under the LRAC proposals where the exact parameters of the quasi-matrimonial relationship are undefined, lenders may have to resort to more detailed and intimate inquiries as to the state of the parties’ living arrangements in order to safeguard their security.
The Child Born for a Silver Spoon Where the parties are living together as husband and wife, and have had a child, the two year qualifying period does not apply. The birth of the child operates as a magic talisman which presumptively elevates the relationship from casual to committed and stable, and attracts the conferral of substantive property rights upon a subsequent acquisition or transfer of the family home. Although not specifically addressed by the LRAC, it is assumed that the reference to having ‘had a child by the relationship’ denotes a child of both cohabitants,89 and would presumably include a child born by assisted conception.90 The definition almost certainly assumes a birth process, so that conception and miscarriage would not suffice, although more problematic issues arise in the context of stillbirths. The outcome depends on whether birth or parenthood is regarded as the 86 See, for example, Re Watson (Deceased) [1999] 1 FLR 878 which held that a sexual relationship is not essential. For a Northern Ireland perspective, see Gibson v Bell, High Court (NI), unrep, 29 October 1999. 87 See Pounder v London Underground [1995] PIQR 217. 88 Such as that proposed under Part I of the Civil Partnerships Bill where cohabitants could apply to register their relationship in certain circumstances. 89 As opposed to a child of one cohabitant for which the other party has assumed responsibility. 90 With parenthood being determined by the principles laid down by ss 27 and 28 of the Human Fertilisation and Embryology Act 1990.
222 Heather Conway and Sheena Grattan cornerstone of the cohabiting relationship. If parenthood is indicative of the deemed stability, this would assume that the child must have been capable of independent existence and nurtured for some time after birth. Yet, if the policy behind this aspect of the LRAC proposals is to confer rights on cohabitants as opposed to providing for the child, it is arguable that the child would not have to be born alive—the mere fact of birth would suffice. Again, the circumstances in which cohabitants are regarded as having had a child so as to qualify under the LRAC proposals must be factually certain. As suggested above, third parties such as lenders would have to review the nature and extent of their standard inquiries to avoid the possibility of their security being subverted to the interests of a qualifying cohabitant.
Same-Sex Couples: A Bridge Too Far? The reference to living together ‘effectively as husband and wife’ would seem to restrict the LRAC proposals to heterosexual couples. The use of the word ‘effectively’ in this context may be a matter of semantic debate. One possible line of argument is that effectively living together in a spousal context merely points to a set of circumstances—a couple who are to all intents and purposes living together in a quasi-matrimonial structure, whether they are of the opposite sex or not. However, the House of Lords in Fitzpatrick v Sterling Housing Association91 held that the words ‘husband and wife’ are gender specific and connote a relationship between a man and a woman.92 This might suggest that the marriage yardstick assumes a heterosexual definition of qualifying cohabitants under the LRAC proposals.93 When addressing the issue of qualifying cohabitants, it is clear that the LRAC only contemplated heterosexual couples.94 Neither the Final Report nor the Discussion Paper which preceded it95 makes any reference to same-sex cohabitants, and no explanation is given as to why the proposals should not extend to them.96 In applying the scheme of statutory co-ownership to heterosexual cohabitants, the 91
[1999] 4 All ER 705. See however the decision in Mendoza v Ghaidan [2002] 4 All ER 1162 discussed below. 93 Transsexuals who are cohabiting with a member of their original sex would probably be regarded as a same-sex couple, since the definition of ‘living together—as husband and wife’ is gender-specific, and the sex of a transsexual is determined by the chromosomal, gonadal and genital criteria assigned at birth—see Bellinger v Bellinger [2001] 1 All ER 311 applying Corbett v Corbett [1970] 2 All ER 33. The decision in Corbett has recently been rejected in Australia—In Re Kevin (2001) 28 Fam LR 158. 94 Final Report, p 21. 95 Law Reform Advisory Committee for Northern Ireland Discussion Paper No 5, Matrimonial Property (1999). 96 While the reasons behind the exclusion of homosexual cohabitants are at best speculative, it may have been a tactical gamble to ensure that the proposals progress to a further stage. This would depend on public and political support, and same-sex couples do not as yet have widespread social acceptance in Northern Ireland. Perhaps the LRAC was of the opinion that it would encounter less risk of the entire proposals being lost by avoiding the type of adverse reaction which would almost certainly arise from the inclusion of same-sex couples. 92
Northern Ireland: Falling Behind or Forging Ahead? 223 LRAC was conscious of the possible implications of Article 8 and Article 14 of the ECHR, as well as section 75 of the Northern Ireland Act 1998.97 However, these provisions could be invoked by homosexual cohabitants seeking to challenge their exclusion from the LRAC proposals. The early Strasbourg jurisprudence suggests that cohabiting same-sex couples do not have a right to family life for the purposes of Article 8.98 Likewise, the fact that such persons do not qualify as ‘living together as husband and wife’ does not fall foul of Article 14.99 However the Court of Appeal in Mendoza v Ghaidan100 recently held that the exclusion of homosexual cohabitants from the definition of living together as husband and wife for the purposes of succeeding to a statutory tenancy under the Rent Act 1977 (which engages Article 8) amounts to discrimination under Article 14. Accordingly, the reference in the relevant legislation101 to living together ‘as his or her wife or husband’ should be construed as meaning ‘as if they were his or her wife or husband’ thus including same-sex couples.102 In this respect, the use of the word ‘effectively’ in the LRAC proposals might achieve a similar result. Closer to home, section 75 of the Northern Ireland Act 1998 makes specific reference to public authorities promoting equality of opportunity on the grounds of sexual orientation. However, the definition of ‘public authority’ does not expressly include a court, and the extent to which the Northern Ireland judiciary will allow the spirit of this provision to develop in keeping with the emerging human rights culture remains to be seen. A Problem Solved? The recommendations put forward by the LRAC are at this stage embryonic, and are likely to undergo a lengthy gestation period. However, the aims of the proposals are laudable and they have much to commend them. The proposals reflect the social ideology of marriage and cohabiting relationships as partnerships, and shift the emphasis on ownership of the family home from economics to status. In more general policy terms, the prevailing ethos has shifted to protecting the ‘shelter aspect’ of the family home, as opposed to the Boland-driven ‘security aspect’, and LRAC proposals are reflective of this. If implemented, the proposals would alleviate the need to resort to cumbersome trust principles for determining property rights in the family home. Instead, property rights would be allocated on the basis of inferred joint and equal beneficial ownership, or according to a specific legislative framework in cases falling outside the proposed scheme of statutory co-ownership. In this respect, the proposals would significantly improve the position of non-legal title spouses and qualifying 97
See above. X and Y v UK (Application 9369/81). 99 S v UK (Application 11716/85). The prohibition on same-sex marriage does not violate Article 12 of the ECHR—Sheffield and Horsham v UK (1998) 27 EHHR 163. 100 [2002] 4 All ER 1161. 101 1977 Act, Sch 1, para 2. 102 Not following Sterling v Fitzpatrick Housing Association [1999] 4 All ER 705 in light of the incorporation of the Convention into domestic law. 98
224 Heather Conway and Sheena Grattan cohabitants, in particular economically dependent partners, and would also go some towards redressing the economic inequalities which have traditionally existed between men and women. More generally, the extension of the proposals to cohabitants represents a significant departure from the traditional piecemeal property law concessions made towards couples living together outside marriage. However, various aspects of the proposals may need to be considered further. In particular, the definition of ‘qualifying cohabitants’ will have to be clarified. It does not require a supernatural degree of foresight to envisage the type of problems which may arise in this context, especially in the context of third parties and external dealings with the family home. More generally, the fact that joint beneficial ownership takes effect immediately the conveyance is executed has implications for third parties. While offering more protection for non-owning spouses and qualifying cohabitants in these circumstances, third parties would have to be alert to the possibility of their interests being displaced by the spouse or cohabitant’s interest. Although the point is not specifically addressed by the LRAC, it is assumed that courts will retain power to adjust property rights of spouses on divorce or judicial separation notwithstanding the proposals. If so, cohabitants could end up in a better position than spouses upon the breakdown of a relationship, since the court could not interfere with the presumption of equal sharing between cohabitants in the absence of any power to adjust their property rights in these circumstances. Such observations aside, it is suggested that the LRAC proposals have much to offer in terms of improving the position of spouses and qualifying cohabitants in relation to the family home. At this stage, however, one can only speculate as to whether the LRACs labours will ultimately bear fruit. CONCLUSION
In legal terms Northern Ireland has hardly been inconspicuous from the world stage during the last three decades. However, during a period when Diplock Courts, Human Rights violations, post-conflict resolution processes or some other aspect of our unfortunate recent history have generated volumes of scholarly ink from the pens of the international academy, one of the few aspects of our property laws to merit outside attention was the very generous rule against accumulations,103 resulting in the claim to fame that a number of up-market trusts (most famously those of the Vesteys)104 were expressly governed by the law of Northern Ireland. Property lawyers came late to comparative study, but an increasing number have become persuaded of the value of such work. With the wider availability of case law through electronic databases this trend is set to continue. Some texts 103 The Accumulations Act 1800 was enacted just before the Act of Union and did not extend to Ireland. Neither Irish jurisdiction has since been persuaded to restrict the accumulation of income. 104 The fact that some of the Vestey trusts were governed by Northern Ireland law is commented on by Lord Wilberforce in Vestey v IRC (Nos 1 and 2) [1979] 3 WLR 915 at 920.
Northern Ireland: Falling Behind or Forging Ahead? 225 now quote Commonwealth authorities and perspectives105 but, as yet, there has been scant evidence of English lawyers looking to Northern Ireland either to provide persuasive authority relating to matters which are the same, or food for thought in matters which are different.106 This paper has sought to show that, in both respects, Northern Ireland now has much to offer. There is a sense in which Northern Ireland has been legally stigmatised in the absence of the 1925 reforms. Moreover, the failure of English property lawyers to embrace the rich vein of Northern Ireland jurisprudence has done little to counter this sense of jurisdictional isolation. It is unquestionably the case that during ‘the Troubles’ property law stagnated in the face of more pressing concerns. Now the jurisdiction has emerged to enjoy an exciting phase of its legal development and a burgeoning self-confidence, no better evidenced than by the LRACs proposals for matrimonial property. Whatever the shortcomings of these proposals, they represent a quantum-leap in the thinking of what has been traditionally one of the most socially and politically conservative societies in western Europe. No one would suggest that a jurisdiction of 1.5 million people could ever lose its characteristic as a consumer of law. However, to date the relationship which Northern Ireland has enjoyed with its larger neighbour has been entirely parasitic. In the light of some interesting products, the time has surely come for that larger neighbour to explore the possibility of transmuting that relationship into a more symbiotic one.
105 The best example being K Gray and SF Gray, Elements of Land Law (3rd edn, Butterworths, London, 2001). 106 The odd exception does exist. For example, the most recent editions of both of the standard practitioner works on the law of family provision, R Oughton, Tyler’s Family Provision (Butterworths, 1997, 3rd ed) and S Ross, Inheritance Act Claims (Sweet & Maxwell, 2000, 2nd edn) make liberal use of Northern Ireland decisions on the Inheritance (Provision for Family and Dependants)(NI) 1979. Richard Oughton commends the approach of the Northern Ireland judiciary to applications by spouses and infant children as ‘exemplary and in some cases [they] have shown a better approach than that adopted by the English judiciary’.
Part IV
Landlord and tenant
12
New Terms or New Lease: Principles of Leasehold Variation WARREN BARR 1
INTRODUCTION
The main issue under discussion in this paper is at what point an alteration of the terms of the lease bargain will result in the destruction of the existing lease at law, and the substitution of a completely new lease agreement. It is clearly desirable that the law should allow for the alteration of leasehold terms in the light of changing circumstances, without this having to be accomplished in all respects by the execution (deemed or actual) of a fresh tenancy agreement. Nevertheless, there must come a point when the original lease can be said to have been varied out of all existence; when it is no longer sensible to talk of the continuance of the old, amended lease. Following the important decision in Friends Provident Life Office v British Railways Board,2 it appears that the variation of the terms of a lease need not result in the destruction and substitution of the lease unless either the parcels demised or the length of the term are increased. In all other cases, whether the old lease stands as amended or is replaced by the execution of a new lease is a matter for the intentions of the lessor and lessee. However, the intellectual basis of this decision, and the practical problems which can result, have drawn sharp academic criticism.3 Moreover, there remain outstanding practical questions, such as whether a decrease in either the term or the parcels should have the same effect as an increase.4 The purpose of this paper is to consider the principles applicable to leasehold variation. This necessarily involves revisiting the reasoning in Friends 1 The author wishes to acknowledge the comments made at the conference by Susan Bright, Sandi Murdoch and Elizabeth Cooke, which have helped to add depth to the discussion. The views expressed herein, and any errors or omissions, are, of course, the author’s alone. 2 [1996] 1 All ER 336; approved in Beegas Nominees Ltd v BHP Petroleum Ltd [1998] 2 EGLR 57. 3 See S Bright, ‘Variation of Leases and Tenant Liability’ in P Jackson and D Wilde (eds), The Reform of Property Law (Ashgate Publishing, Dartmouth, 1997) 73–9 ; L Crabb, ‘Contracts and Leases: Variation of Terms’ in R Buckley (ed) Legal Structures: Boundary Issues Between Legal Categories (Chancery Wiley Law Publications, 1996); A Dowling, ‘Variation of Lease or New Tenancy’ [1995] Conv 124. 4 See PJG Williams, ‘Regrant Revisited’ (2001) 110 EG 152.
230 Warren Barr Provident, which, it is suggested, can be explained on a more principled basis than has hitherto been put forward by considering the relationship of contract and property law within the lease. It will also consider whether there is any benefit in importing contractual principles into this area of law, in favour of the existing proprietary approach. It will be suggested that while neither branch of the law produces wholly satisfactory results, the property law approach does at least have the benefit of certainty. To give structure to the discussion, it is proposed to consider contractual principles first, before examining the proprietary rules and comparing the approaches.
CONTRACTUAL PRINCIPLES OF VARIATION : RESCISSION AND SUBSTITUTION
Formal Requirements In order for an amending agreement to be effective as either a variation of the original contract or a rescission and substitution of it, it must be supported by consideration,5 and it must be in the same form as the contract it seeks to amend.6 This would not normally prove problematic in leasehold situations, as the amending agreement would be a deed of variation, which itself furnishes consideration.7 However, an attempt to vary the terms of lease without using the appropriate form may effect a rescission of the original lease, provided consideration is present. This is because in equity a rescission of a contract could be effected without the need for any formalities and this rule now prevails following the Judicature Act 1873.8 This result, like most of the contractual tests, is dependent on the intention of the parties.
5 See, generally, Chapter 3 Chitty on Contracts (28th edn, Sweet & Maxwell, London, 1999). Briefly stated, in order to furnish consideration, the promisee (the recipient of the promise) must either confer a benefit on the promisor, or suffer a detriment for which the promisor’s promise compensates him, which has ‘value in the eye of the law’—Thomas v Thomas (1842) 2 QB 851 at 859. 6 British Benningtons Ltd v N.W. Cachar Tea Co. [1923] AC 48. 7 Where the lease is parole, there would be consideration for the variation of the leasehold contract, because in a bilateral contract each party gives up his rights against the other under the original contract and ‘[t]he same consideration which existed for the old agreement is imported into the new agreement, which is substituted for it’—Steel v Dauber (1839) 10 A & R 57 at 66. 8 See Berry v Berry [1929] 2 KB 316. It is also accepted that there will be no consideration for a rescission where a contract has been wholly executed by one party, in the sense that he has performed all his obligations thereunder, because he derives no benefit from his promise to the other party, and the other suffers no detriment—Commissioner of Stamp Duties v Bone [1977] AC 511 at 519. Leases were traditionally viewed as wholly executory on the lessor’s part when the conveyance of the legal estate had been completed; but modern cases and thinking suggest that the lessor’s obligations continue by virtue of any covenants he may have entered into in the lease—see, for example, Quinn & Phillips, ‘The Law of Landlord—Tenant: A Critical Evaluation of the Past with Guidelines for the Future’ (1969) 38 Fordham L Rev 225 at 234. Therefore, if contractual rules were imported to leases, under a contractual analysis consideration would not be problematic.
New Terms or New Lease: Principles of Leasehold Variation 231 Variation or Substitution: A Matter Of Intention Earlier this century, the contractual approach to variation of terms was a strict one which ignored the distinction between alterations which merely amend the contractual bargain and those which result in its destruction. In Williams v Moss Empires Ltd,9 Sankey J applied a purely logical approach and expressed the view that ‘the result of varying the terms of an existing contract is to produce, not the original contract with a variation, but a new and different contract’.10 This view was soon to fall out of favour, and in British Benningtons Ltd v N.W. Cachar Tea Co,11 Lord Sumner, while he accepted the validity of the reasoning of Sankey J ‘as a matter of formal logic’,12 preferred to approach the issue of whether a variation of a contract led to its discharge and replacement in terms of the intention test expressed by their Lordships in Morris v Barron & Co.13 In the absence of an express indication of intention, their Lordships applied an objective test. In the words of Lord Atkinson, an intention to rescind: will be implied legitimately, where the parties have entered a new contract entirely or to an extent going to the very root of the first and inconsistent with it.14
The distinction between a simple variation and a rescission and substitution is therefore generally accepted to be a question of intention, which is discovered by looking at the extent of the changes wrought to the original contract. There is no list of terms the variation of which is considered fundamental. It is a question of fact and degree in each individual case.
Operation of the Intention Test How does this test actually work in practice? How do the courts consider whether a change is fundamental or not? What happens if the stated intentions of the parties and the fundamental nature of the changes made to the existing contract conflict? How easy is it to, say, add a party to a contract? It is suggested that the answers to these questions are not at all straightforward, and reveal some conceptual and practical weaknesses in the contractual test. 9
[1915] KB 242 Ibid at 247. 11 [1923] AC 48. 12 Ibid at 68. His Lordship explained Sankey J’s reasoning: ‘a varied contract is not the old contract, and as you cannot have a new and varied contract and an old and unvaried contract regulating the same thing at the same time, the old contract, like other old things, must be disregarded’. 13 [1918] AC 1. 14 Ibid at 31; this particular statement approved in British Bennigtons Ltd v N.W. Cachar Tea Co, above n 6, per Lord Sumner. 10
232 Warren Barr Nature of the Analysis In considering the effect of amendments to an existing contract, the court should look to the substantive effect of the alterations to determine whether the original contract stays or goes. It should not be sufficient to hold that an amending agreement must occasion a rescission and substitution simply because, in numerical terms, the clauses which have been altered outnumber those which remain unaffected. What the test requires is essentially a value judgement, based primarily on common and good commercial sense, focused on the question of the fundamentality of the alteration. However, in Marriot v Oxford Co-operative Society15 Lord Porter CJ seems to have treated the issue of the degree of change as a quantitative one. In that case, a foreman was demoted to supervisor and his wages were reduced by a demotion agreement. This was said to vary the contract, rather than to rescind it and substitute a new contract in its place on the amended terms, because all the other terms of the employee’s employment remained the same. It is submitted that the loss of position, with the resulting loss of authority and responsibility, and the wages payable, were fundamental qualitative alterations to the contract of employment, which should have resulted in its rescission and substitution, despite being minor in quantitative terms. It is suggested that his Lordship was concerned that a rescission and substitution would be classed as a termination of his contract of employment, which would have entitled the employee to redundancy payments under the then current employment legislation, and it was for this reason that he adopted a quantitative approach.16 This is a poor justification for a subversion of principle. The decision in Marriot is therefore regrettable and illustrative of the vagaries of the contractual test in everyday operation. The reliance upon a question of fact in every case opens up the possibility of unjust decisions and the injustices of the old ‘formal logic’ approach may not have completely disappeared but simply have taken on a different form. Limits To Intention: Fundamental Alterations? A conflict has never arisen in a decided case between an express statement of intention that a contract should continue, as against fundamental alterations to the nature of the contractual bargain. It is suggested that the result must be a new contract. Dicta of Lord Dunedin in British Benningtons Ltd17 support this proposition. His Lordship considered that whether an amending agreement 15
[1969] 1 All ER 471 See also the dicta of Ashworth J at 478–9, where he tried to classify the alterations as temporary to avoid this result. 17 Above n 6. 16
New Terms or New Lease: Principles of Leasehold Variation 233 would amount to a variation or rescission (and substitution) depended upon the following investigation: In the first case [variation] there are no such executory clauses in the second arrangement as would enable you to sue upon that alone if the first did not exist, in the second [rescission] you could sue on the second arrangement alone, and the first contract is got rid of either by express words to that effect, or because, the second dealing with the same subject matter as the first but in a different way, it is impossible to say that the two should both be performed. When I say you could sue on the second alone, that does not exclude cases where the first is used for mere reference in the same way as you may fix a price by a price list, but where contractual force is to be found in the second by itself. [emphasis added]18
The import of these dicta is clear. Where the amending agreement in fact regulates the essence of the bargain entered into between the two parties, there is a rescission and substitution. This is far off saying that there must be rescission and substitution in this situation. The answer must lie in the fact that the dividing line has to be drawn somewhere, for the purposes of the certainty of the parties. After all, can it reasonably be maintained that if a contract for the sale of a quantity of tea at a set price due on one delivery date becomes a contract for the sale of a quantity of coffee at a higher price on a different delivery date, that the parties are dealing under one and the same contract, simply because they expressed it to be so? There must come a point, no matter what parties to a contract may themselves be said to intend, when the fact of what they have agreed undermines what they have said. Determining the parties’ intentions is a useful evolution of a previously absolute rule; it would be a logical absurdity if it were to be an absolute rule in itself. Yet, the possibility remains. Adding Parties To A Contract: Conceptual Problems It was trite law that only parties who were privy to the contractual arrangement could enforce it; a contract which was entered into for the benefit of a third party did not entitle that party to sue or be sued on it. From May 2000, this familiar picture has been altered by the Contracts (Rights Of Third Parties) Act 1999, which allows a third party to enforce a benefit conferred by a contract to which he is not a party, and puts limits on the powers of contracting parties to vary the nature of those benefits.19 The Act allows the third party to enforce benefits without a contractual nexus, but it does not allow for the imposition of contractual burdens. It is well established that the substitution of one party for another can only be occasioned by a novation. The whole nature of novation is rescission and 18
Ibid at 26. For a succinct statement of the operation of the Act see Andrews, ‘Strangers to justice no longer: the reversal of the privity rule under the Contracts (Rights of Third Parties) Act 1999’ [2001] CLJ 353. 19
234 Warren Barr substitution, as it completely extinguishes the obligations of the departing party and replaces them with new obligations between the substitute and the remaining party on the same terms. 20 In relation to the addition of a party to the contractual arrangement, Jowitt J in Saunders (Francis Perceval) Dec’d v Ralph21 stated that this could be achieved as a mere variation of the original contract without the need for a novation, if that was the intention of the parties. He opined that ‘[t]he proposition that a new party can be added only by novation—seems to me to smack of artificiality rather than principle’.22 The strongest existing authority was in the law of partnership, in which Lord Wright had stated in Inland Revenue Commissioners v Gibbs23 that the addition of a new partner led to the dissolution of the partnership and its replacement by a new partnership “because five parties carrying on business jointly are different from four”. This did not impress Jowitt J, who felt disinclined to give the rule a general application. Jowitt J was discussing the position under an agricultural lease, where there was a relationship of privity of estate between the parties, which means that the position may be inapplicable to contract law generally. While, under section 1 of the Contracts (Rights Of Third Parties) Act 1999, it might be possible for a new party to enforce benefits accrued under the new contract, this would not allow the existing parties to enforce burdens against him. If there is only a variation which amends the existing contract, and the third party is only a party to that agreement to vary, how does it allow him to be substituted into the existing contract without a novation?
PROPERTY PRINCIPLES — SURRENDER AND REGRANT
Basis of rules A new lease may only be granted if the original lease is surrendered; otherwise the lessor will be in derogation of grant. Therefore, where a new lease is substituted for the old on the basis of a variation of the lease terms by the parties, it is done so through a surrender by operation of law of the original lease, and a regrant of the new lease. The basis of this deemed surrender lies in estoppel: Thus where a lessee for years accepts a new lease for [sic] his lessor, he is estopped from saying that his lessor had not the power to make the new lease; and, as the lessor could not do this until the prior lease had been surrendered, the law says that the acceptance of such new lease is of itself a surrender of the former.24 20 Rashburn v JCL Marine [1977] 1 Lloyd’s Rep. 645. This distinguishes novation from an assignment, as nothing is actually transferred. 21 [1993] 2 EGLR 1. This case actually concerned the alteration of a lease, though it is suggested that some of the statements contained herein are of importance in the field of contract law also. 22 Ibid at 4J. 23 [1944] AC 402 at 429. 24 Lyon v Reed (1844) 13 M & W 285 per Parke CB.
New Terms or New Lease: Principles of Leasehold Variation 235 In contrast to contract law which allows for rescission if the new contract is void for want of formality, there can be no surrender of the existing lease by operation of law if the new lease is ineffective, as it will not be inconsistent with the existing lease to found the estoppel.25 This surrender is also said to take place independently and even in spite of intention,26 since by its very nature what the parties have intended to do by keeping the original lease on foot can only be achieved by a deemed surrender. Explaining the property rules: the reasoning in Friends Provident In the leading case of Friends Provident Life Office v British Railways Board,27 an underlease had been varied by deed between an assignee and the then landlord. The deed was expressed to be subject to the continuation of the original lease and effected three main changes to the lease: a covenant restricting alienation was widened to allow easier sub-letting or licensing of the demised premises, the user clause was widened and the rent was increased from £12,000 per annum payable in quarterly arrears to £35,000 per annum payable in advance. The present tenant went into liquidation owing almost £40,000 which the landlord was now trying to recover from the original tenant. The original tenant claimed that the alterations to the lease in the deed of variation were so substantial as to bring about a surrender and regrant. Bedlam LJ, delivering the leading judgment, reviewed existing authority and concluded that: In the absence of an increase in the extent of the premises demised or of the term for which they are to be held, both of which would change the legal estate, I can see no reason why the lessor and assignee could not achieve the changes they desired in the terms of the lease without the law implying a surrender and a regrant for the remainder of the term of the lease.28
There is no question of the substantiality of the variation in the property approach; a lease will only be surrendered and regranted by necessity where the estate itself is altered by an addition to the term or the parcels demised.29 Where this occurs, the intention of the parties is irrelevant. If the proposed alterations do not affect the estate in land, the parties are free to agree to keep the original lease as varied in existence, or to surrender the existing lease and create a new one if they so choose, either expressly or by operation of law.30 25
See Barclays Bank Ltd v Stasek [1957] Ch 28. Lyon v Reed above n 24. 27 [1996] 1 All ER 336. 28 Ibid. 29 It is clear that these elements comprise the estate, which is described as ‘a time in the land, or a land for a time’—Walsingham’s Case (1573) 2 Plowden 547 at 555. 30 It is admitted that the situations in which a surrender by operation of law will be intended are likely to be rare, as if the parties actually intend to surrender and regrant the lease, they will do so expressly. 26
236 Warren Barr This approach does seem unduly restrictive when set beside the apparent freedom afforded by the contractual test of intention, in which no particular variations of necessity produce a rescission and substitution of the original agreement. It is suggested that the property test is explicable on sensible and strong conceptual grounds. It accords with the reality that a lease is more than a simple contract to occupy, like a contractual licence, because it also grants an estate in land. The estate is the definitional element in the dual relationship of the lease and governs it, whereas the contract is a subsidiary which works within the discipline of the estate and whose existence is co-extensive with it, even though on the surface it contains clauses which are sometimes thought to be more important to the parties than the fact that they have been given an estate in land. If this were not so, the distinction between a lease and a licence as distinct forms of occupying land would be rendered illusory. On this analysis, the test gives enviable certainty and freedom to the parties beyond the defining element of variations to the estate, and, contrary to first impressions, is really no more restrictive than the general contractual approach. The question must then be raised whether the position outlined is an accurate statement of the law, which can best be discovered by considering the existing cases on particular alterations of terms. (a) Alteration to the parcels demised It is clear that an addition to the parcels demised of necessity requires a surrender and regrant. What, however, of a reduction in the parcels? There are no conclusive decisions on the question, which led Peter JG Williams to suggest that ‘a court might say that there is a surrender and regrant in such circumstances’.31 However, there are dicta to suggest that a reduction will not have this effect. In Jenkins R Lewis & Son Ltd v Kerman,32 which was cited and relied on in Friends Provident, the question before the court was as to the validity of a notice to quit served upon an agricultural tenant. This notice was valid if it was served on the death of the tenant with whom the contract of tenancy, current at the time of death, was made. It was served upon the assignee on the death of the original tenant but the assignee argued that as a result of subsequent dealings there had been a surrender and regrant and that therefore he was the tenant with whom the contract of tenancy had been made and he was not dead. The subsequent dealings relied on included the surrender of parts of the demised holding and reductions in rent corresponding to those surrenders. Russell LJ, holding that there had been no surrender and regrant, said: But if the [parties] wish there to be a single lease of all the land at an aggregate rent, the transaction may well amount in law to the granting of a new lease preceded by surrender by operation of law of the old. However they express themselves, it may well
31 32
‘Regrant Revisited’ (2001) 110 EG 152. [1970] 3 All ER 414.
New Terms or New Lease: Principles of Leasehold Variation 237 be that they cannot convert a rent of £X issuing out of land into a rent of £X and £Y issuing out of the aggregate land.33
The reduction in the parcels had not been enough to bring about the surrender. His Lordship noted that a surrender and regrant could be avoided where there was an addition to the parcels by means of a reversionary lease of the fresh land at a separate rent. It is suggested that the hesitance of Russell LJ to commit himself to saying that an increase in the premises must lead to a surrender and regrant, preferring to say that it may, is due to the fact that the question of an increase did not arise before him on the facts and should not be taken as indicative of anything more. Again, in Jones v Bridgman,34 the suggestion that a reduction in the parcels demised did not require a surrender and regrant by operation of law receives passive support. Here, the landlord had distrained for rent and the tenant brought an action for trespass and conversion on the basis of unlawful distress. He pleaded that an oral agreement, under which he had relinquished two rooms in consideration of a reduction in rent, caused a surrender and regrant. Denman J found that there was ample evidence upon which the jury had concluded that there was a fresh letting of the remaining rooms. It is submitted that the intention was to destroy the lease, which, as outlined, is the proper role for intention in this area. Effect could be given to the intention because the law did not require a surrender and regrant for a reduction in the parcels.35 Finally, in Holme v Brunskill,36 an agreement was entered into that the tenant, inter alia, should surrender a field from his demised farm holding to the landlord and the rent should be reduced. A surety of the tenant argued that this surrender occasioned a surrender and regrant of the premises and his consequent release from any liability. Cotton LJ dismissed this plea because ‘notwithstanding the surrender to a landlord of part of the land demised, the former tenancy of the remainder of the farm still continues’.37 Why should the surrender of a part of the demised parcels not bring about the destruction and recreation of a lease when a subsequent of further parcels will do so? How can this be explained with regard to alterations of the estate? It is submitted that the key to understanding lies in the realisation that the estate is an interest limited in time subject to a right of reservation in the landlord. In creating an estate in the tenant, the landlord gives him exclusive possession of the demised premises for a limited time in a unitary block, and reserves to himself a right to rent as compensation and a right to have the parcels demised returned 33
Ibid at 419h. (1878) 39 LT 500. 35 PJG Williams (above n 31) asserts that, in considering a reduction of the term ‘the intentions of the parties are irrelevant’. If this was meant otherwise than in the sense that intention is irrelevant where a deemed surrender and regrant is considered necessary, then, with respect, this is not an accurate statement of the law. 36 (1878) 3 QBD 495. 37 Ibid at 504. 34
238 Warren Barr to him when the lease comes to an end. Indeed, it is the existence of the reversion which separates leasehold ownership from ownership of the freehold (fee simple absolute). Accordingly, since it is inherent in the nature of the legal relationship that what has been granted will be returned, the surrender of part of the parcels demised does not alter what is granted, since the landlord retains a reversionary interest in the rest of the demised premises and an estate remains vested in the tenant. One part of the parcels has simply come back to the landlord at an earlier date than expected. In contrast, where the landlord demises additional parcels, unless he does so by means of a separate lease which will create a separate estate and reversion over those parcels, the estate of the tenant is actually altered. It is worth noting that the common law position does not apply to all leases. A fixed term farm business tenancy, as regulated by the Agricultural Tenancies Act 1995, allows for variation of the land comprised in the tenancy without a new tenancy being created, provided that the alterations are ‘small in relation to the size of the holding and do not affect the character of the holding’.38 This can be either through subtraction or addition to the demised parcels, and therefore applies irrespective of whether the estate is changed. This does not provide any intellectual quandary, as an addition would still technically be classed as an alteration to the estate; statute has simply modified the effect of the common law position. (b) Alteration to the term demised Support for the proposition set down by Bedlam LJ in Friends Provident that any increase in the term demised must take effect as a surrender and regrant was derived, in part, from Jenkins R Lewis v Kerman,39 where Russel LJ made it clear why any extension of the term would result in a surrender and regrant: If, for example, a tenant holds a lease of land for 20 years and he and his landlord wish the period of his right to hold the land to be extended by a further 20 years, their object can be achieved by the landlord granting the tenant a reversionary lease to take effect on the expiry of the existing lease, but if they wish a single term for the extended period to come into being, the result can only be achieved if the existing term is surrendered and a new term is created. It is not possible simply to convert the existing estate into a different estate by adding more years to it, and even if the parties use words which indicate that this is what they wished to achieve the law will achieve the result at which they are aiming in the only way in which it can, namely by implying a fresh lease for the longer period and a surrender of the old lease.40
38 Agricultural Tenancies Act 1995, s 3. This obviates the need for the parties to serve fresh notices as required under s 1(4) of the Act to preserve the advantages of allowing diversification out of farming activities, which would otherwise be necessary if the existing lease had been surrendered and a new tenancy re-granted. For a succinct account of the operation of the Act, see P Smith (ed), Evans & Smith The Law of Landlord and Tenant (5th edn, Butterworths, London, 1995) ch 33. 39 Above n.32. His Lordship also relied on dicta in Barker v Merckel [1960] 1 QB 657. 40 Ibid at 419g–j.
New Terms or New Lease: Principles of Leasehold Variation 239 The key element is that the estate has been altered. A reduction in the term would not have the effect of altering the estate demised, since it is inherent in the nature of the estate as an interest limited in time that it will come to an end and the concept of the estate is wide enough to encompass both the maximum fixed term and any other. Hence, if the landlord agrees, the tenant can give back what was granted at any time by means of an express surrender. The shortening of the term is therefore only doing what it is expected at the time of the original grant and would not have to take place by a surrender and regrant. One case stands in opposition to this line of reasoning and authority, which is Fenner v Blake.41 Here, a yearly tenant holding from Lady Day agreed with his landlord to quit earlier. It was held that the agreement did result in a surrender of the yearly tenancy because the defendant accepted a new tenancy for six months terminable in June in lieu of the existing tenancy. And if so, then all the authorities agree that the acceptance of a new tenancy works a surrender of the old by operation of law.42
It is submitted that here the new tenancy was based on an intention to bring about a new lease, not on any requirement that any reduction in the term must bring about this result. The spectral authorities on which the court relied can also be explained as evidence of intention. This line of reasoning also explains Ive’s Case,43 where a reduction actually took the form of a new lease, so that a surrender and regrant was necessary.44 The position is clear, not ‘unresolved’.45 (c) Rent On a strict proprietary analysis,46 rent is an incident of the estate, not the estate itself and may be varied either upwards or downwards without actually affecting the nature of the estate at all. The authorities support this view. In Lord Inchquin v Lyons,47 for example, it was held that there was no authority that an increase in rent would of itself operate to terminate a tenancy, such an alteration was on a similar footing to an alteration of obligation to pay local rates. Russell LJ in Kerman also said: it is difficult to see why the fiction of a new lease and a surrender by operation of law should be necessary in this case, for by simply increasing the amount of rent, and
41
[1900] 1 QB 426. Ibid per Channell J at 428. 43 (1597) 5 Co Rep 11a. 44 Ibid ‘—[B]y acceptance of a future lease to begin divers years after, the said lease of the wood for 62 years was presently surrendered, because the lessee by acceptance thereof had affirmed the lessor to have ability to make the new lease, which he had not, if the first lease shall stand’. 45 See PJG Williams, ‘Regrant Revisited’ (2001) EG 152. 46 It is considered trite law that rent is now considered as a purely contractual payment, although the practice of reserving rent in the reddendum of a lease continues to this day. It is also well established that the absence of rent is not fatal to a finding of a lease rather than licence, though the absence may require explanation—Ashburn Anstalt v Arnold [1988] 2 All ER 147. 47 (1887) 20 LR Ir 474. 42
240 Warren Barr providing that the additional rent shall be annexed to the reversion, one is not altering the nature of a pre-existing item of property.48
This line of reasoning was also evident in the more recent case of Trustees of JW Childers Will Trust v Anker,49 where the combination of two rents over two adjacent agricultural holdings into a single rental payment for the purpose of rent review did not effect a surrender and regrant, as the estate granted was not affected. The parties had not sought to create a single lease at an aggregate rent. It should be noted that a variation of the rental obligation may result in the creation of a new tenancy under statutory codes of protection, even though it does not operate a surrender and regrant at common law. Under the Housing Act 1988, section 36, a variation of the rental obligation is statutorily deemed to create a new contract.50 The chief import is to change the protected status of the agreement from a restricted contract under the Rent Act 1977 and bring it within the assured tenancy scheme of the new legislation.51 While practically significant, this statutory alteration of the common law is really part of a series of transitional provisions to phase out Rent Act protection, and should not be interpreted in any wider context. Indeed, the exception is limited to variations of rent, as the Housing Act 1988, section 36(2)(b) also provides that any change in the terms of the contract other than rent may trigger a loss of restricted contract status, but only if the variation is such as to give rise to a new contract. In other words, a new contract of tenancy will arise where there is either an addition to the term or the parcels demised, preserving the common law approach. (d) Parties The position under consideration here is where the parties vary the terms of the lease so as to either substitute or add parties to the tenancy. In general terms, where there is a substitution of a new tenant for the original tenant, this will normally take the form of a new lease to the new tenant. This can only occur with the consent of the original tenant and his relinquishing of possession, in which case the original lease will be surrendered by operation of law.52 Substitution of the parties is, of course, also possible through an assignment of the term by the party wishing to be substituted, which may have influenced 48
Above n 32. [1996] 1 EGLR 1. 50 Any alteration in the rent as a result of a rent tribunal determination, or through an agreement between the parties to make the rent payable the same as the registered rent is not to be treated as a ‘variation’ for the purposes of this section—Housing Act 1988, s 36(3). Such an alteration will not, therefore, necessitate a surrender and regrant of the existing tenancy. 51 See further Rowe v Matthews (2001) 33 HLR 81, which illustrates that s 36(2) also has the effect of treating the new contract as ‘entered into’ for the purposes of the Housing Act 1988, s 34(1), so that the new contract is prevented from conferring any other type of protective status previously afforded by the Rent Acts. 52 Wallis v Hands [1893] 2 Ch 75. 49
New Terms or New Lease: Principles of Leasehold Variation 241 the thinking in Collins v Claughton. However, in many leases, the right to assign the remainder of the term is restricted, either by express covenant or statutory implication, so that assignment is not possible without the consent of the landlord.53 If the landlord is unwilling to consent, in practice this method is not open to the tenant.54 Where the parties decide to vary the lease to substitute a party by consensual agreement, it is unclear whether this necessitates a surrender and regrant by operation of law. In Collins v Claughton,55 for example, the landlord and tenant agreed that the wife would in future be responsible for the rent and the rent book would be put in her name. It was held that there was a new lease and therefore a surrender by operation of law, though whether through intention or necessity is not clear from the reasoning. In relation to the addition of a party, it is clear that this need not cause a surrender and regrant by necessity. Given this, it would be anomalous if the position were different for the substitution of a party. In Saunders (Francis Perceval) Dec’d v Ralph,56 some years after taking a lease of an agricultural holding, the landlords, the original tenant and the original tenant’s son agreed by memorandum that henceforward the original tenant and his son should be viewed as joint tenants of the agricultural holding. Both joint tenants had died, and had been succeeded by the claimant. It became necessary for the purposes of succession under Part IV of the Agricultural Holdings Act 1986 to know whether the claimant held under a first successor tenancy or a second successor tenancy, as, if it were the latter, there could be no further succession within the Act. It was contended that variation of the terms in creating a joint tenancy had led to a surrender and regrant of the lease. Jowitt J said that to hold that the addition necessitated a surrender and regrant ‘smacked of artificiality rather than principle’ and he held that in accordance with the intention of the parties, the memorandum took effect by way of a simple variation of the lease, and that the tenancy was therefore a first successor tenancy. This position accords with an estate based approach. While it is true that the estate is vested in the tenant for the term, it is suggested that it can also survive 53 For an exhaustive list of statutorily impied covenants restricting assignment, see Woodfall’s Law of Landlord and Tenant (2002, Sweet & Maxwell) 11.115. Express covenants restricting assignment come in two main forms, absolute and fully qualified. In the former, the tenant covenants not to assign the term, in the latter, not to assign the term without the consent of the landlord, such consent not to be unreasonably withheld. In theory, qualified restrictive covenants (not to assign without the consent of the landlord) are possible in leases, but s 19(1)(a) Landlord and Tenant Act 1927 intervenes in most leases and transforms a qualified covenant into a fully qualified covenant. See further L Crabb, Leases: Covenants and Consents, (Sweet & Maxwell, London, 1991) ch 2 passim. 54 In theory, the tenant retains the power to validly assign the lease, but the assignment will be in breach of covenant, which means that it may trigger forfeiture proceedings by the landlord—see Old Grovesbury Farm Ltd v Seymour Plant Hire (No 2) Ltd [1979] 1 W.L.R. 1397. For further details of forfeiture generally, see M Pawlowski, The Forfeiture Of Leases (Sweet & Maxwell, 1993). 55 [1959] 1 WLR 145 CA. 56 (1993) 28 EG 127.
242 Warren Barr a transfer from one party to another, as on an assignment,57 so that a variation of the persons entitled to the estate does not actually effect the estate itself. Similarly, the addition of another party, so that the tenancy is now co-owned, does not affect the estate itself, merely how and by whom the contractual elements of the leasehold arrangement will be performed. (e) Other Contractual Covenants Under the current analysis, it follows that any variation of contractual covenants need not bring about a surrender and regrant since they relate only to the estate and are subject to it, so that they may be varied with impunity. Authority supports this line of reasoning, particularly Smirk v Lyndale Developments Ltd,58 where the tenant was, in a new rent book, given an extended period for the landlords notice to quit and was for the first time prohibited from keeping animals on the demised premises. In holding that there had only been a mere variation of the lease, Walton LJ said: Even giving literal affect to every single one of the terms set out in the rent book, the three basic essentials of the lease remain the same. The term was a weekly term before and it is still a weekly term, the rent . . . has not been changed, the premises . . . remain unchanged. In other words the skeleton of the lease remains exactly the same as it always has been. There may be a few more clothes put on it, a cap here or a handkerchief tucked into the pocket there, but it is the same.59
This is so even though in fact such contractual covenants may subjectively describe the nature and very essence of the bargain between the lessor and lessee, and are likely to be the result and focus of most commercial dealings. They do not, however, define the legal basis of the relationship of tenancy as opposed to licence, and this explains an otherwise curious distinction.
COMPARISONS AND CONCLUSIONS
Under both property law and contract law, there is no longer any support for the view that any variation of the existing agreement will always result in the destruction of that agreement and its replacement by another. Beyond that there are important differences: (i) Under the current property system, any variation of the estate in the sense of an addition to the parcels or an extension of the term will result of necessity in the end of the old lease and the creation of a new lease between landlord and tenant. Under contract law, there are no specific terms which when altered must result in rescission and substitution. Instead, when considering the intention 57 On an assignment, the original tenant ceases to have privity of estate with the landlord which passes to the assignee who holds the estate as owner. 58 [1975] Ch 317. 59 Ibid at 341f.
New Terms or New Lease: Principles of Leasehold Variation 243 manifested by the parties, the variation of ‘fundamental’ terms would seemingly result in rescission and substitution. The limits of intention, are, however, unclear, and it may be possible to keep the contract afoot if that is the expressed intention of the parties. Similarly, the question of the fundamentality of the change may, in exceptional circumstances, be considered in quantitative, rather than qualitative terms, so that numerically significant changes might result in rescission and substitution, even though the character of the changes is less than fundamental. (ii) The law of landlord and tenant allows the addition of a party to a lease without a surrender and regrant with conceptual certainty. It might be possible to add a party to a tenancy through contractual principles also, without resorting to a novation, but the conceptual basis upon which this may occur needs some explanation, given the need for both burdens and benefits to be enforceable by and against the new party. (iii) Since the doctrine of surrender and regrant by operation of law is based on an estoppel, there can be no such surrender where the new lease is void for want of formality, whereas under contract law, there can be a rescission where the substituted agreement is void for want of formality if a rescission is found to be the intention of the parties. Is there any benefit, therefore, in applying the contractual test as opposed to the current property rules?
Criticisms of the Property Approach Letitia Crabb, writing before the decision was delivered in Friends Provident, argued that the necessity of deemed surrender on alterations to the estate was unduly restrictive and unprincipled, and that contract provided a more agreeable solution: Why cannot a lessor and a lessee agree that a lease for seven years be deemed to have been granted for eleven? Can it not be topped up while remaining vested in the tenant? Why does the fact that a change is fundamental preclude the parties from making it? In the absence of an answer to these questions, it would seem to be appropriate to suggest that the law of landlord and tenant—takes a long draught at the fountain of Morris v Barron.60
The suggested analysis of property law, under the outlined principle of estate supremacy in the leasehold relationship, answers Crabb’s criticisms. The estate is the definitional element of the lease which separates it from the contractual licence or from ownership in fee simple absolute. Variation of the estate is not a question of fundamentality, it is the fact that in changing the very nature of the legal relationship of tenancy what results can not on any reasonable basis be 60 ‘Contracts and Leases: Variation of Terms’ in R Buckley (ed), Legal Structures: Boundary Issues Between Legal Categories (Chancery Wiley Law Publications, 1996) at 170.
244 Warren Barr said to be the same as what was there before, and a new leasehold tenancy is needed to represent this alteration. Alteration of all other terms is possible, because they do not alter the nature of what has been granted, only the way in which that legal relationship operates. Similarly, this answers Susan Bright’s concern that: If the law is to encompass the notion that certain leasehold variations will cause a deemed surrender this must rest on a more satisfactory intellectual foundation.61
The estate–supremacy approach, while intellectually defensible, is unlikely to draw universal support. There has been an increasing tendency in landlordtenant law to introduce contractual principles to regulate various aspects of the relationship, on the basis that the commercial covenants in the lease are of at least equal if not greater importance than the legal fact that an estate is granted.62 Bright herself, with this in mind, opined that the test should be altered at property law: Instead, whether the alterations effect the estate or the obligations imprinted on the estate, there should be a new lease when, and only when, the changes radically alter the nature of the bargain in that it can no longer be said to be the same lease. The lease is a package of property and contract. Neither property nor contract is dominant; deemed surrender will occur when the old package has gone and a new package has been substituted for it.63
There is much force in this argument, especially as the parties themselves will doubtless be surprised to find that adding to either the premises or the length of term, simply because it alters the estate, results in law in the surrender and regrant of the existing tenancy. This will almost certainly not be what the parties intended, and minor changes such as the tacking on of additional storage space, or the lengthening of the duration of the lease are something which happen often in practice. The regrant of a new tenancy also has very real practical consequences for both the lessor and the lessee.64 The lessor might, on assignment of the new lease, lose the benefit of original tenant liability throughout the term of the lease, due to the regrant qualifying as a new tenancy under the Landlord and Tenant 61 ‘Variation of Leases and Tenant Liability’ in P Jackson and D Wilde (eds), The Reform of Property Law (Dartmouth, Ashgate Publishing, 1997) at 79. In her analysis, Bright suggested that the basis of deemed surrender lay in impossibility, in the sense that the agreed variation could not take effect unless the earlier lease is deemed to be surrendered and a new lease granted. The postulated estate-based approach provides a more compelling justification. 62 Hence, repudiatory breach and the doctrine of frustration are said to be available to terminate leases, on the basis that: “[h]owever much weight one may give to the fact that the lease creates an estate in land. . . In many cases [the lessee] is interested only in the accompanying contractual right to use that which is demised to him—and the estate in land which he acquires has little or no meaning for him’— National Carriers Ltd v Panalpina [1981] 2 AC 45 at 76C per Lord Roskill. For a brief but balanced discussion of this so-called ‘contractualisation’ of leasehold law, see Bright & Gilbert, The Nature of Tenancies (Clarendon Press, Oxford, 1995) ch 3. 63 Above n 61 at 86. 64 See PJG Williams, ‘Accidents will happen’ (2001) 111 EG 168.
New Terms or New Lease: Principles of Leasehold Variation 245 (Covenants) Act 1995.65 Similarly, where the original lease is a business tenancy which has been successfully contracted out of the Landlord and Tenant Act 1954, Part II, the new lease would not be so protected, and the lessee would acquire security of tenure.66 The lessee would be liable to pay stamp duty on the deed of variation, as it will have to be stamped as if it were a new lease, and, if the new lease falls within the category of interests which require substantive registration, an application will need to be made to register it, even if the existing lease was already registered.67 It is possible to increase either the length of the term or the extent of the premises by the grant of an additional lease, without having to vary the original estate at all. Tacking on a reversionary lease, for example, to take effect at the end of the current term is a well recognised method of adding time to an existing lease. Nevertheless, these methods are open to the same problems, in that they will be ‘new’ leases with any attendant statutory consequences, and stamp duty will be payable on them.68
Benefits of Contract? The wholesale importation of contractual principles appears to carry with it the benefit that it allows for the nature and character of the change to the existing lease to be considered, before any determination of the leasehold bargain occurs. This accords more with the perceived reality between the parties that individual leasehold covenants might have a greater value than the fact that they own an estate in the land. The unfortunate practical consequences of the grant of a new lease would, in theory, be kept to a minimum and minor changes to the length of term or the extent of the premises would be permissible without difficulty. Alan Dowling adds support to this argument, suggesting that while the estate is fundamental to the dual conception of the lease, it is not a fundamental term within contractual thinking as contract law must ‘recognise that the term under 65 Ibid. Under the statutory scheme, an assignor (and any guarantor of the assignor) is released from continuing liability once the estate passes to the assignee, and the landlord does not have an automatic entitlement under a regranted lease to require the assignor to enter into an Authorised Guarantee Agreement—Landlord and Tenant (Covenants) Act 1995, ss 3, 5 and 16. 66 Above n 64. Landlord and Tenant Act 1954, s 38(1). 67 Above n 64. 68 Note, however, that the problems associated with the Landlord and Tenant Act 1954 could be overcome by expressly contracting out this new lease. The position in relation to continuing tenant liability can not be answered in this way, but is there really a good reason to allow a lessor to avoid the will of Parliament by extending his old lease ad infinitum to escape alterations in the law for the benefit of the lessee? Indeed, Parliament has not always been silent on the issue of continuing protection where it is considered warranted—see, for example, the Agricultural Tenancies Act 1995, s 4(1)(f) which provides that where a tenancy of an agricultural holding to which the Agricultural Holdings Act 1986 applied is varied, any new tenancy created will be granted subject to the 1986 Act, unless the parties expressly agree in the instrument of variation to create a farm business tenancy under the 1995 Act.
246 Warren Barr which the tenant is to enjoy the premises is merely one of the provisions of the contract which can be varied like any other’.69 There are, however, problems with the operation of the contractual test, as already illustrated, and it should not be viewed as a panacea for the ills of the current situation. The loss of predictability, which the property law approach allows, would be lamentable. Moreover, the delineation between the lease and licence as separate forms of property holding would, in a very real sense, be lost. Is it really objectionable to suggest that a change to the fundamental legal basis of a relationship must result in the destruction of the old, and replacement by a new agreement? Is this not an entirely sensible place in which to draw the dividing line, rather than depend upon the vagaries of each individual change and the court’s interpretation of the parties’ intentions in making those changes?
Modified property approach Bright suggests that the weakness of the property law approach lies in the inability to assess the extent of the alteration to the leasehold bargain as a whole, incorporating both the contractual and proprietary elements of the relationship. Rather than resort to the vagaries of the contractual test, she argues that what is needed is the introduction of a test of fundamentality: Changes to executory obligations within a lease will be capable of causing a deemed surrender, but only where the changes are extensive and fundamentally change the nature of the landlord and tenant relationship. . . . If these changes can be sufficient to end a lease by frustration or by repudiatory breach, surely it must follow that some variations to the bargain may be sufficiently fundamental to cause a deemed surrender.70
This, in a sense, would balance the positive contributions of the contractual test, in that minor alterations to the estate need not take effect by a surrender and regrant unless that was the express intention of the parties, against the negative contributions caused by the way the contractual test can operate in practice. The conceptual basis is, however, flawed, as the introduction of both repudiatory breach and frustration to landlord-tenant law has not been adequately explained.71 Nevertheless, the concept remains an attractive one if it is felt that the current rules are too restrictive.
69
‘Variation of Lease or New Tenancy?’ [1995] Conv 124. Above n 61 at p 79. 71 See W Barr, ‘Repudiation of Leases—A Fool’s Paradise?’ in P Jackson and D Wilde (eds), Contemporary Property Law (Dartmouth Publishing, Ashgate, 1999); W Barr, ‘Frustration of Leases—The Hazards of Contractualisation’ [2001] 52 NILQ 82. 70
New Terms or New Lease: Principles of Leasehold Variation 247 Conclusion Clearly, the current rules on variation of leasehold obligations are wanting in some respects. Nevertheless, the importation of contractual principles would not bring a definite improvement to the current law of landlord and tenant. Instead, they would subvert the very definitional element of the lease and cloud an area of law which currently has the benefit of certainty. If the question of the fundamentality of an alteration is required at all, it is better done so within the proprietary rules on the basis suggested by Susan Bright. The current property law approach, which only requires a surrender and regrant where the estate is altered and otherwise leaves the result to the intentions of the parties, has the benefit of doctrinal consistency and clarity. Ultimately, the attraction of the explanation of the rules put forward is tied to the mast of estate supremacy, which may not prove easy to swallow for lessors, lessees and their legal advisors given the current penchant for considering the covenants in the lease to be more important than the nature of the relationship. In reality, however, suggesting that there are certain elements of a relationship which cannot be altered without changing the very nature of that relationship is no more burdensome than requiring statutory formalities for the transfer or creation of a leasehold interest. Once parties are aware of the requirements, they can simply work around them. It is important to remember that the current law provides alternative methods for topping up the length of term or parcels demised by means of a separate lease, without harming the original leasehold bargain. This is not a situation where doctrinal consistency or neatness is to be preferred over the freedom of parties to alter what they please. There is a very real benefit in the parties being able to predict the outcome of a case, and understand, on a principled basis, why certain changes have to take effect by a surrender of the old and the regrant of the new. It is drawing a dividing line on a definite and understandable basis, and one which will not cause undue injustice to the parties. Education is the answer, rather than any proposed alteration of the law.
13
The Child as Tenant: Rights and Responsibilities JILL MORGAN
INTRODUCTION
Increasingly children are regarded as capable of both bearing and exercising rights. They are, as one American academic has neatly put it, ‘the newest kids on the human rights block’.1 In England, the right of older children to take their own decisions—or at least to have their views taken into account—has been recognised by the House of Lords in Gillick v West Norfolk and Wisbech Health Authority2 and by a number of provisions in the Children Act 1989.3 As regards housing, however, the rights of minor children4 and those of their parents are generally seen as coinciding,5 and parents are perceived as bearing the primary responsibility for providing their children with a home. This is generally a valid and responsible view—borne out, perhaps, by the fact that the age at which young people leave home has been rising6—but it assumes a narrow, sometimes 1 Barbara Bennett Woodhouse, The Constitutionalization of Children’s Rights: Incorporating Human Rights into Constitutional Doctrine (http://www.law.upenn.edu/conlaw/issues/vol2/ num1/woodhouse.htm). 2 [1986] AC 112. It was held that, inter alia, a girl under the age of 16 had the legal capacity to consent to medical examination and treatment, including contraceptive treatment, if she had sufficient maturity and intelligence to understand the nature and implications of the treatment. 3 See, eg, s 1(3)(a) of the 1989 Act which requires the court in certain circumstances to have regard to “the ascertainable wishes and feelings of the child concerned considered in the light of his age and understanding”. 4 The age of majority in England is 18: s 1 Family Law Reform Act 1969. 5 In Hypo-Mortgage Services Ltd v Robinson [1997] 2 FCR 422 (CA) it was held that two minors with beneficial interests in the family home could not have an overriding interest under s 70(1)(g) of the Land Registration Act 1925. The children were regarded as having ‘no right of occupation of their own’ but were there because their parent was there, as ‘shadows of occupation of their parent’. Secondly, no enquiry could be made of minor children or consent obtained from them in the manner contemplated by s 70(1)(g), especially when they were of ‘tender years’ at the material date. See too K Gray and S Gray, Elements of Land Law (London, Butterworths, 2000) 1030, 1032, n 3. For a criticism of the decision in Hypo-Mortgage Services Ltd v Robinson, see PH Kenny, ‘Children are spare ribs’ (1997) 61 Conveyancer 84–5. 6 Among men born between 1940 and 1954, 73% had left home by age 25. Among those born between 1965 and 1969, only 61% had left home by the age of 25: Department of the Environment, Transport and the Regions, Housing Research Summary, Housing in England 1995/96 (No 69) (DETR, London: 1997). This growth in the incidence of ‘extended transitions’ is attributable to a
250 Jill Morgan unrealistic, vision of the child-parent relationship and supports the common perception of children as appendages of their parents. It also fails to recognise the fact that the parental or family home (or lack thereof) is often the source of a child’s problems.7 The ability of young people to secure and sustain settled housing in the social rented sector has received far less attention than other issues. Research into young people and housing—mainly by social scientists—has tended to focus on homelessness,8 special initiatives such as foyers,9 private sector access schemes,10 and Rough Sleepers’ Initiatives.11 Politicians and the media have been more concerned with what they have seen as the exploitation of the social welfare system by young single mothers12 and anti-social behaviour by groups of youths on housing estates.13 In contrast, housing practitioners have been grappling for some time with the question of rights to secure and settled housing—a trend which has been given significant impetus by the Court of Appeal judgment in Kingston BC v Prince14 in which the Court of Appeal decided that a thirteen-year-old child could succeed to a secure tenancy of a council house. The recent extension of the priority need categories under the homelessness legislation to include 16 and 17-year olds suggests that, in the future, an increasing number of minors will be granted tenancies. This chapter begins by giving a brief outline of the routes into social housing which are available to ‘independent’ children under the age of 18 (that is, those aged 16 and 17) and then proceeds to explore some of the theoretical and practical issues to which the decision in Prince gives rise. For a number of reasons, the focus is on local number of factors including an increase in the number of young people entering further and higher education, the decline of the private rented sector, and the withdrawal of welfare benefits from young people. 7 ‘Many parents of homeless young people have multiple problems including physical and sometimes sexual abuse of their children, alcohol and drug problems, mental health problems, poor parenting, new partners and step-parents leading to disputes with children, and poverty’, Department for Transport, Local Government and the Regions, Homeless Strategies: A Good Practice Handbook (DTLR, London, 2002), para 6.33. See too G Jones, Leaving Home (Open University Press, Buckingham, 1995). 8 S Hutson and M Liddiard, Youth Homelessness: The Construction of a Social Issue (MacMillan, Basingstoke, 1994); S Fitzpatrick and D Clapham, ‘Homelessness and Young People’in S Hutson and D Clapham (eds), Homelessness: Public Policies and Private Troubles (Cassell, London, 1999). 9 D Quilgars and I Anderson, ‘Addressing the problem of youth homelessness and unemployment’ in R Burrows, N Pleace, and D Quilgars (eds), Homelessness and Social Policy (Routledge, London, 1997). 10 J Rugg, Opening Doors: Helping People on Low Income Secure Private Rented Accommodation (Centre for Housing Policy, York, 1996); Closing Doors? Access Schemes and the Recent Housing Changes (Centre for Housing Policy, York, 1997). 11 G Randall and S Brown, The Rough Sleepers’ Initiative: An Evaluation, (HMSO, London, 1993). 12 D Cowan and J Fionda, ‘Back to Basics: The Government’s Homelessness Consultation Paper’ (1994) 57 MLR 610. 13 See, eg, ‘Curfew won’t stop teenagers’ rule of terror’, Evening Standard, 5 February 2002; ‘Last man standing’, Daily Mail, 11 December 2001, p 32. 14 (1999) 31 HLR 794.
The Child as Tenant: Rights and Responsibilities 251 authority housing. First, local authorities are still responsible for the lion’s share of social housing. Secondly, access to local authority housing has been (and, to some extent, still is) largely regulated by statute. By contrast, registered social landlords (RSLs)15 are left very much to their own devices in allocating their housing, although the majority of their new tenants are taken from waiting lists maintained by local authorities.
ACCESS TO THE SOCIAL RENTED SECTOR
The social rented sector comprises the housing stock owned and managed by local authorities (and certain other public bodies), and that of registered social landlords and other housing associations. Together, their housing accounts for about 20 per cent of all housing in England.16 As far as ‘independent’ minor children are concerned, there are three principal access routes17 into social housing: the Children Act 1989, as amended by the Children (Leaving Care) Act 2000, Part VI of the Housing Act 1996 (the housing register), and Part VII of the Housing Act 1996, as amended by the Homelessness Act 2002 (the homelessness legislation). The Children Act 1989 Section 20(1), Children Act 1989 requires social services authorities to provide accommodation for ‘children in need’ within their areas who appear to require accommodation because no-one has parental responsibility for them, or they are lost or have been abandoned, or whoever has been caring from them (whether or not permanently and for whatever reason) is prevented from providing suitable accommodation and care. Subsection (3) obliges them to house children over the age of 16 whose welfare will otherwise be ‘seriously prejudiced’.18 Under section 15 RSLs are housing associations registered with the Housing Corporation. Approximately 2,200 of the 4,000 or so housing associations in Great Britain are registered with the Housing Corporation as RSLs. 16 DTLR Housing Statistics Postcard January 2002. 17 By s 91, Housing Act 1985 property (including a tenancy owned by one parent or spouse) can also be transferred by order of the court directly to a minor child without loss of any security if it is assigned in accordance with an order made under s 24 of the Matrimonial Causes Act 1973, s 17 of the Matrimonial Proceedings and Property Act 1984, or Sch 1, para1 to the Children Act 1989. 18 In addition, s 17(1) of the 1989 Act imposes a general duty on every local authority (a) to safeguard and promote the welfare of children within their area who are in need; and (b) so far as is consistent with that duty, to promote the upbringing of such children by their families, by providing a range and level of services appropriate to those children’s needs. By s 17(10) ‘a child shall be taken to be in need if—(a) he is unlikely to achieve or maintain, or to have the opportunity of achieving or maintaining, a reasonable standard of health or development without the provision for him of services by a local authority under this Part; (b) his health or development is likely to be significantly impaired, or further impaired, without the provision for him of such services; or (c) he is disabled’. The definition may, therefore, include an unaccompanied asylum-seeking child. See http://www. doh.gov.uk/pub/docs/doh/lac20002.pdf.
252 Jill Morgan 27 of the 1989 Act, a local social services authority can request a local housing authority to help in delivering services for children in need, and the housing authority must comply with such a request to the extent that it is compatible with its own statutory duties and other obligations, and does not unduly prejudice the discharge of any of its own functions. 19 The Children (Leaving Care) Act 2000 (which came into force on 1 October 2001) amends the Children Act 1989 by, inter alia, requiring that 16 and 17-year old care leavers are provided with, or maintained in, suitable accommodation unless social services are satisfied that their welfare does not require it.20 The authority responsible for meeting the duties under the 2000 Act is the one which last looked after the child. This applies regardless of where the child may now be living in England and Wales. If a relevant or eligible child presents him or herself in the area of another local authority, the second authority should provide short-term assistance under section 17 Children Act 1989.21 The two authorities should then agree on how the young person should continue to be assisted, although the responsibility remains with the last local authority which looked after the young person. Local authorities are likely to make use of a range of options, such as supported lodgings, foyers, hostels, and specialist accommodation for young people with particular support needs22 (in which cases licences are likely to be granted) as well as self-contained accommodation (in respect of which a tenancy may well exist).
Housing register Until Part VI, Housing Act 1996 came into force, local housing authorities had no duty to operate housing registers (more commonly known as ‘waiting lists’). However, those authorities which retained a stock of housing invariably did keep such registers on which general applicants for council housing could register, and from which the authorities made their allocations in accordance with their individual selection schemes. Research carried out soon before the 1996 Act was implemented revealed that only half of authorities in England and Wales allowed 16-year-olds to register on their housing registers, and nearly a third denied access to households with children where the parent was less than 18 years old.23 Additional restrictions were placed upon young people as regards the allocation of properties. In some areas, while young people could join the waiting list at 16 or 17, they did not normally become eligible for a tenancy until 19 Section 27 cannot be used to obtain permanent accommodation for an applicant and his or her children when a housing authority has already determined that the applicant was intentionally homeless: R v Northavon DC, ex p Smith (1994) 26 HLR 659. 20 Section 23B(8)(b), Children Act 1989. 21 Above n 18. 22 T Benjamin, ‘Housing rights of 16- and 17-year olds’ (2002) 183 Childright 18–20. 23 I Anderson, ‘Young single people and access to housing’ in J Rugg (ed), Young People, Housing and Social Policy (Routledge, London, 1999) 39.
The Child as Tenant: Rights and Responsibilities 253 they reached 18. Single people and couples were eligible for re-housing at 16 in only one third of authorities. Sixteen and 17-year-olds with children were eligible for re-housing in just over two fifths of authorities. Where local authorities did allocate tenancies to applicants under 18, over three fifths said they would require a guarantor for rent or other tenancy matters, reflecting their legal status as minors.24 In its 1995 White Paper the Government expressed its commitment to maintaining a safety net (in the form of the homelessness legislation) ‘for families and vulnerable people’ but asserted that this should be separate from a fair system of allocating long-term accommodation in a house or flat owned by a local authority or housing association. Achieving that separation would be by reforming the homelessness legislation and the introduction of new arrangements for the allocation of social housing. It stated that allocation schemes should reflect ‘the underlying values of our society’, balancing ‘specific housing needs’ against ‘the need to support married couples who take a responsible approach to family life, so that tomorrow’s generation grows up in a stable home environment’.25 The emphasis was clearly placed upon families, with no acknowledgement that ‘vulnerable people’ might include young people who could not turn to a family to provide them with housing. The Housing Act 1996 obliged each local authority to maintain a housing register of qualifying persons with details of the members of the person’s household and the circumstances in which s/he lived.26 The Allocation of Housing Regulations 199627 prescribed who must be allowed on the list and this included those over the age of 18 who were homeless or threatened with homelessness and not intentionally so. Apart from the Regulations authorities were free to decide their own criteria for qualification although the Department of Employment’s Code of Guidance28 (which supports the legislation on homelessness and allocations) suggested that authorities might wish to consider including vulnerable young persons within a class of qualifying persons, for example, where there was a referral by a social services authority, or where an adult was prepared to act as a guarantor.29 The Homelessness Act 2002 (which received the Royal Assent on 26 February 2002) abolishes the duty of local authorities to maintain a housing register, thereby paving the way for the development of ‘choice-based letting systems’. However, in those areas where 24
Ibid, 40. See too S Butler, Access Denied (London, Shelter, 1998) 20. Department of the Environment, Our Future Homes: Opportunity, Choice, Responsibility, Cmnd 2901, (HMSO, London, 1995), 36. 26 Section 161, Housing Act 1996. 27 SI 1996/2753 28 DoE, Code of Guidance on Allocation of Housing and Homelessness (DETR, London, 1996). Authorities must ‘have regard’ to the Code of Guidance (s 182(1), Housing Act 1996) but need not follow it slavishly: De Falco v Crawley [1980] QB 460. 29 Ibid para 3.16. The Code also states that where accommodation is allocated to a minor (ie a person under 18 years of age), authorities should ensure that there is proper support from social services or voluntary organisations to sustain the tenancy. 25
254 Jill Morgan demand exceeds supply, some system of rationing is obviously necessary and it is possible that childless 16 and 17-year-olds will fare badly when competing for social housing with families and older people. It is interesting to note that local housing authorities in Scotland are legally obliged to maintain housing registers, section 19(1) of the Housing (Scotland) Act 1987 providing that ‘an applicant for housing held by a local authority or a registered social landlord is entitled to be admitted to a housing list unless the applicant is under 16 years of age’.30
Homelessness Homelessness is governed by Part VII of the Housing Act 1996, as amended by the Homelessness Act 2002. A person who is homeless may apply to a local housing authority which is then obliged (under section 184 of the 1996 Act) to inquire as to the applicant’s eligibility for assistance and establish what duty— if any—is owed under the Act. While a child is entitled to apply under Part VII, the House of Lords has held that the duty to make an offer of accommodation is owed only to those who are capable of understanding and responding to such an offer. Whether a person has sufficient mental capacity to be an ‘applicant’ is a matter for the authority’s discretion, challengeable by judicial review on grounds of Wednesbury unreasonableness.31 As the duty of the local authority is to secure that ‘suitable’ accommodation becomes available to the applicant, it is not necessarily the case that a tenancy of a local authority property would— or should—be made available. In practice, however, it seems that when an application is made by a young person, the housing authority will only consider the application in its own right if it considers that the applicant is able to lead an independent existence, albeit in supported housing or with assistance from social services.32 Fundamental to the decision about what duties are owed to the applicant under Part VII is an assessment of priority need. The priority need categories, as defined by section 189(1) of the Housing Act 1996, include anyone with whom dependent children reside, or might reasonably be expected to reside, pregnant women,33 and those who are ‘vulnerable as a result of old age, mental illness or handicap or physical disability or other special reason’. While people aged 60 years and over are awarded priority on account of their age alone, this has never 30 This provision was inserted by s 9 of the Housing (Scotland) Act 2001. The 2001 Act received royal assent in July 2001 and will be brought into effect progressively. 31 R v Oldham MBC, ex p Garlick; R v Bexley LBC, ex p Bentum; R v Tower Hamlets LBC, ex p Begum (Ferdous) [1993] 2 WLR 609 (HL). For a critical analysis see I Loveland, ‘The status of children as applicants under the homelessness legislation—judicial subversion or legislative intent?’ (1996) 8 CFLQ 89–104. It is also worth noting the apparently insuperable hurdle for any applicant seeking recourse to the ECHR in this regard, insofar as Article 8 establishes no right to a home: X v FRG (1956) 1 YB 202. 32 Above n 23 at 15. 33 Young people who have children or are pregnant, therefore, are in priority need.
The Child as Tenant: Rights and Responsibilities 255 been the case for young people despite their much higher probability of experiencing homelessness. The test of vulnerability is whether the applicant is, when homeless, less able to fend for him- or herself, so that injury or detriment will result when a less vulnerable person would be able to cope without harmful effects.34 Thus in Kelly v Monklands DC35 a homeless girl of 16 with no assets or income who had left home because of violence was held to be vulnerable because of some ‘other special reason’. Research by Shelter, however, has revealed that the quality of service provided to young homeless applicants has varied greatly, and that that ‘they are often turned away without being properly interviewed or are not considered to be vulnerable’.36 An important recent development, therefore, is the extension of the priority need categories to include 16- and 17-year-olds by the Homelessness (Priority Need for Accommodation) (England) Order 2001.37 This effectively removes the discretion which local authorities have to decide whether a homeless 16- or 17-yearold is vulnerable and therefore in priority need. In Scotland, the Homelessness Task Force has expressed the view that, over time, the rights possessed by those assessed as being in priority need under the Housing (Scotland) Act 1987 should gradually be extended to all those assessed as homeless. The target should be to eliminate the priority need distinction within a decade (ie by 2012).38 This radical proposal accords with the aims of those who originally framed the homelessness legislation as a rights-based measure which would assist all homeless people.39 It can be argued, however, that the extension of priority need to homeless 16- and 17-year-olds has recognised the needs (and legitimated the rights) of independent children as regards housing, and that such recognition could be lost with the elimination of the priority need groups.
THE CHILD AS TENANT : RESPONSIBILITIES
Until the decision of the Court of Appeal in Prince, it was generally accepted that children could not be tenants because of their inability to hold a legal estate in land.40 The issue in Prince was whether, on the death of a secure tenant, his 34
R v Camden LBC, ex p Pereira (1999) 31 HLR 317 (CA)). (1986) SLT 165. 36 Above n 22. 37 The National Assembly for Wales extended the priority need groups by the Homeless Persons (Priority Need) (Wales) Order 2001 (SI No.607(W.30)) which came into effect on 1 March 2001. 38 Scottish Executive, Homelessness: An Action Plan for Prevention and Effective Response. Report from the Homelessness Task Force to Scottish Ministers (Scottish Executive, Edinburgh, 2002). 39 The transformation of the Housing (Homeless Persons) bill in its passage through Parliament in 1977 into ‘a series of obstacles to be negotiated before the right to housing could be claimed’ is well-documented by P Robson and M Poustie, Homeless People and the Law (Butterworths, London, 1996). 40 N Goss, ‘Can children be tenants of their own homes?’ (1996) May Childright 5. 35
256 Jill Morgan 13-year-old grand-daughter (who had been living with him for three years and thereby satisfied the 12 month residence requirement of section 87 of the Housing Act 1985) was ‘a person qualified to succeed the tenant’ so that ‘the tenancy’ vested in her.41 Counsel for the local authority argued that the 1985 Act did not allow for the separation of the legal and equitable interests: by ‘tenancy’, it referred only to the legal estate and excluded an equitable tenancy, and by ‘person’, it referred to an adult person and excluded a minor. The argument ran that because the minor lacks the capacity to hold the legal estate, he or she cannot be ‘the tenant’ and cannot, therefore, fulfil the tenant condition in section 81 (ie that ‘the tenant’ is an individual and occupies the dwelling-house as his or her only or principal home). Hale J disagreed. She had no doubt that a minor is quite capable of becoming a tenant (albeit only in equity) of any property, including a council house, and that ‘housing legislation may include an equitable tenancy without catering for it expressly’.42 She pointed out that a wouldbe lessor is perfectly free to grant an equitable tenancy to a minor. It followed, therefore, that a minor could succeed to the actual tenancy held by a deceased secure tenant. The deceased’s estate would continue to hold the legal estate on trust for the minor until he or she reached the age of 18 when a conveyance of the legal estate could be called for. The decision produced a practical solution to an unusual set of circumstances and has moved forward the debate on childrens’ rights. However, it raises a number of conceptual issues which will now be addressed. First, what happens to the legal estate when the equitable tenancy vests in a minor? Until the enactment of the Law of Property Act 1925 a minor was capable of holding both legal estates and equitable interests in land although the minor’s powers to deal with his or her property—by way of its alienation or letting, for example—were subject to a number of limitations. Now however, as already indicated, section 1(6) of the Law of Property Act 1925 provides that a minor is not competent to hold a legal estate in land. Before 1997 a conveyance of a legal estate to a minor operated only as an agreement for valuable consideration to execute a settlement in favour of the minor.43 In the meantime, the grantor held the legal estate on trust for the minor. It would pass when the minor attained majority (although he or she could then disclaim the interest). The situation is now governed by the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA), the effect of which is that an existing or future conveyance of a legal estate to a minor will operate to create a trust of land. The legal estate remains with the grantor, unless one of the grantees is over 18 (in which case, that person takes as trustee) or another adult, such as a parent or 41
Section 89(2), Housing Act 1985. R v Tower Hamlets LBC ex p Von Goetz [1999] QB 1019 in which it was held that a ten-year assured shorthold tenancy made in writing but not by deed was a valid equitable lease. The tenant had, therefore, an ‘owner’s interest’ for the purposes of s104 Local Government and Housing Act 1989, and was entitled to apply for a renovation grant. 43 Section 27(1), Settled Land Act 1925. 42
The Child as Tenant: Rights and Responsibilities 257 social worker, accepts the role of trustee. Pre-existing trusts subject to section 27 of the Settled Land Act 1925 have also become trusts of land. Thus, the grant of a legal tenancy to a minor operates as a contract by the landlord/grantor of the tenancy to hold the legal estate in trust for the minor. Instead of granting a legal tenancy, a social landlord may simply grant an equitable tenancy to the minor. The usual situation in which an equitable tenancy comes into existence is where there is an agreement for the creation of a legal lease but the requisite formalities have not been complied with.44 Provided that there is a specifically enforceable contract, the doctrine of Walsh v Lonsdale45 results in the immediate acquisition by the prospective tenant of an equitable interest in the land, consisting of an equitable right to call for a future grant of a legal estate.46 This suggests that an equitable tenancy may exist independently of a legal estate, and that the grant of an equitable tenancy to a minor need not involve a legal estate which must be vested in an adult (or retained by the grantor). Nonetheless, social landlords will generally wish to see a responsible adult placed in the position of trustee of the legal estate, thus bringing TOLATA into play. In Prince, the original tenant had been granted a legal tenancy. On the succession by his grand-daughter to the equitable tenancy, the legal estate was left in limbo. The Court of Appeal held (without giving reasons) that the granddaughter’s mother could succeed to the legal tenancy even though she did not qualify to succeed to the secure tenancy herself as she failed to fulfil the 12 month residence requirement, Hale J simply stating that ‘Marie’s mother was declared trustee because she was willing to act and no-one objected’.47 The second conceptual issue to which the decision in Prince gives rise concerns the obligations owed by the trustee. As indicated above, the grant of a legal tenancy to a minor will take effect as a contract by the landlord/grantor of the tenancy to hold the legal estate in trust for the minor and, unless a trustee is expressly appointed, will leave the legal estate vested in the landlord. Moreover, as has already been mentioned, social landlords will generally wish to appoint an adult as trustee of the legal estate. It has been argued 48 that the fiduciary relationship—which forbids the trustee from putting him- or herself in a position in which interest and duty conflict49—does not affect the landlord’s ‘broader housing management responsibilities, nor its public law responsibilities to the wider 44 In order to be legal, a lease for more than three years must be made by deed (s 52(1), Law of Property Act 1925). However, there is no such requirement in respect of a lease for less than three years provided that it takes effect in possession, it is for the best rent which can reasonably be obtained, and no fine (ie, premium or lump sum) is paid to the landlord (s 54(2) LPA 1925). An equitable lease may also come into being where the grantor has only equitable title him- or herself. 45 (1882) 21 Ch D 9. 46 London and South Western Railway Co v Gomm (1882) 20 ChD 562; Property Discount Corporation v Lyon Group [1980] 1 All ER 334, affirmed [1981] 1 WLR 300. 47 Above n 14 at 802. 48 D Cowan and N Deardon, ‘The minor as (a) subject: the case of housing law’ in J Fionda (ed), Legal Concepts of Childhood (Hart Publishing, Oxford, 2001). 49 See Bray v Ford [1896] AC 44, at 51.
258 Jill Morgan community’ and that where there is a breach of the tenancy agreement by the minor sufficient to justify a possession order, the fiduciary relationship must concede to the minor’s breach of obligation. In other words, ‘the fiduciary relationship refers to the grant and continuation of the property interest, but not to its end through legal processes’.50 It is doubtful, however, that the situation is quite as clear cut as this argument suggests. For example, as Mills and Joss51 point out, there is considerable scope for conflict of interest where, for example, possession is sought because of rent arrears and the tenant wishes to counterclaim in respect of damages for disrepair.52 They suggest, therefore, that housing authorities should take steps to divest themselves of the legal estate to an independent trustee, preferably the person who has parental responsibility for the child. Such a person may also be persuaded to guarantee the child’s performance of his or her obligations under the lease. If there is no alternative, the Director of Social Services should be appointed trustee although there will still be potential for the conflict of interest discussed in the previous paragraph in relation to unitary housing and social services authorities. As stated earlier, the arrangement may be subject to TOLATA which contains a number of provisions whereby minor beneficiaries are treated differently from their adult counterparts. By section 9 the trustees may delegate their functions to a beneficiary only if s/he is an adult. Where the consent of a beneficiary is needed for the exercise of the trustees’ functions (eg because the trust deed so provides), and the beneficiary is a minor, section 10 provides that the trustees must obtain instead the consent of a person who has parental responsibility or a guardian. Section 11 imposes a duty on the trustees to consult the beneficiaries in the exercise of their functions—but this is so only in respect of adult beneficiaries. By sections 19 and 20 only adult beneficiaries may appoint and retire trustees. There is, therefore, as Cooke points out, ‘no Gillick competence for children as beneficiaries of trusts of land—they are excluded from any decisionmaking role’.53 However, section 14 of the 1996 Act provides that ‘any person who . . . has an interest in property subject to a trust of land’ may make an application to the court. The court may make any order it thinks fit in relation to the exercise by the trustees of any of their functions, or declare the ‘nature or extent’ of any person’s interest in the trust property. Here, there is no requirement that the person who makes the application is of full age.54 50
Above n 48. S Mills and N Joss, ‘Children and secure tenancies’ (2001) 5 L& T Rev 53–6. 52 Mills and Joss also state that there is potential for conflict where the landlord seeks possession because the minor tenant is in arrears with rent caused by problems relating to housing benefit. It is highly unlikely, however, that a social landlord would ever seek to recover possession in such circumstances. Even if it were to do so, the court would not deem it reasonable to make an order for possession. 53 E Cooke, ‘Children and Real Property—Trusts, Interests and Considerations’ (1998) 28 Family Law 349. 54 In determining these questions, s 15(1) of the 1996 Act directs the court to have regard, inter alia, to ‘the welfare of any minor who occupies or might reasonably be expected to occupy the trust land as his home’. 51
The Child as Tenant: Rights and Responsibilities 259 Thirdly, what are the consequences of the arrangement as regards the minor’s contractual rights and obligations? The general rule is that a contract is not enforceable against a minor though it is enforceable by the minor. The rationale for this rule is that because the minor is ‘young and inexperienced’ he or she requires protection, not only from ‘unscrupulous adults’ but also from him- or herself.55 The minor’s lack of experience may mean that he or she is less likely than an adult to appreciate the significance of his or her actions, and may be more easily led to enter into obligations which he or she cannot perform, or which have consequences which he or she cannot foresee.56 On the other hand, it is recognised that the greater the protection which is afforded to the minor, the greater will be the potential prejudice to an adult who contracts with a minor, as the adult ‘must himself bear any loss which he may sustain if the minor breaks the contract’.57 There is also the risk that adults may be deterred from contracting with minors for fear that they might be disadvantaged by doing so.58 To the general rule, therefore, there are two exceptions. First, contracts for ‘necessaries’ are binding on a minor and may be enforced against him. Secondly, there is a group of other contracts which are binding unless and until repudiated by the minor before or within a reasonable time after s/he reaches the age of 18. Section 3(3) of the Sale of Goods Act 1979 defines a contract for ‘necessaries’ as a contract for the provision of a good which is ‘suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery’. The section does not apply to services, but these may be necessary under the common law which would define them similarly. The common law regards such contracts as for the minor’s benefit and (if he or she is married) for the benefit of his or her family. Goods and services which have been held to be necessary include lodging.59 It follows that accommodation provided for occupation by a minor is almost certain to be regarded as a necessary if it is appropriate in size and allocated on the basis of the minor’s housing need. There is some authority that during his or her minority a minor is liable to pay for the use and occupation of premises only if they can be said to be necessary.60 Generally, however, a contract under which the minor agrees to take or grant a lease of land is an example of a contract which is binding unless repudiated before or within a reasonable time after attaining majority.61 The minor is regarded as having acquired an interest in some subject-matter of a permanent nature, ie, to which continuing obligations are attached, so that it would be 55 Law Commission, Working Paper No 81 Law of Contract: Minors Contracts (HMSO, London, 1982) para 2.1. 56 Ibid, para 3.2. 57 Ibid, para 3.3. 58 Ibid, para 3.4. 59 Crisp v Churchill (1794) cited in 1 Bos and Pul at p 340, 126 ER 939. See also Chapple v Cooper (1844) 13 M & W 252 at 258. 60 Lowe v Griffith (1835) 4 LJCP 94. 61 See GH Treitel, The Law of Contract (Sweet & Maxwell, London, 1995), 501.
260 Jill Morgan unjust if he or she were allowed to retain the interest without fulfilling the obligations it entails. While in possession the minor is subject to the liabilities imposed by the contract and may, for instance, be successfully sued for nonpayment of rent.62 The effect of repudiation is to allow the minor to escape liability for future obligations. However, there are conflicting dicta as to whether he is also released from obligations which have already accrued at the date of repudiation. For example, is the minor who repudiates the lease nonetheless liable for rent already due? One view is that repudiation is the equivalent of rescission and therefore retrospective in its effect.63 However, according to Blake v Concannon64, an Irish case, repudiation has no retrospective effect so that a minor tenant is still liable for his past use and occupation of the premises. On a separate point, repudiation of the contract will not enable him to recover rent which he has already paid unless there has been a total failure of consideration and he has received no part of what he bargained for.65 Where the landlord intentionally creates a trust, granting the equitable tenancy to a minor but appointing an adult (such as a parent or social worker) as trustee, the adult may be made personally liable for rent and for the other covenants in the lease or tenancy agreement. The landlord may be able, therefore, to sue the adult for arrears of rent and for damages for any other breach of covenant.
THE CHILD AS TENANT : RIGHTS
The decision in Prince means that whether the minor succeeds to or has been granted a secure tenancy66 by a local authority landlord, the tenancy will take 62 Davies v Beynon-Harris (1931) 47 TLR 424. It should be noted, however, that application must be made for the minor to be represented by a guardian at litem. 63 North Western Railway Co v M’Michael (1850) 5 Ex 114 at 128. Ketsey’s Case (1613) Cro Jac 320 aka Keteley’s Case (1613) 1 Brown 120. 64 (1870) IR 4 CL 323. 65 Valentini v Canali (1889) 24 QBD 166; Steinberg v Scala (Leeds) Ltd [1929] 2 KB 310. Compare the views taken by Treitel (1957) 73 LQR 194, 202–5, and Atiyah (1958) 74 LQR 97, 101–3. 66 A useful alternative to a secure tenancy in the case of minors might be an introductory tenancy (which would also take effect in equity). Local authorities may elect to operate an introductory tenancy regime under which new periodic tenants are granted introductory tenancies instead of secure tenancies (s 124, Housing Act 1996). An introductory tenancy lasts for a trial period of one year beginning with the date the tenancy is entered into or, if later, the date when the tenant is first entitled to possession (s 125(2)). At the end of the trial period, the tenancy automatically becomes a secure tenancy unless the landlord has already begun possession proceedings and obtains possession during or after the first year of the tenancy. The court cannot entertain proceedings for possession unless a notice has been served which, inter alia, sets out the landlord’s reasons for seeking possession (s 128) but there is no need for the landlord to prove that a ground for possession exists. Although the 1995 White Paper described the scheme as one for ‘tenancies on a probationary basis’ to allow landlords at any time during the probationary period to be able to terminate the tenancies of ‘the minority of tenants who do not behave responsibly’ (above n 25, p 44), the landlord can recover possession for reasons other than anti-social behaviour.
The Child as Tenant: Rights and Responsibilities 261 effect in equity.67 Having considered the obligations which arise under tenancies vesting in minors generally, this section explores the extent to which a minor enjoys the rights of a secure tenant. Four issues arise for consideration, namely security of tenure, the right to exchange, the right to buy, and the right to be consulted. First, the minor tenant is in exactly the same position as an adult when it comes to security of tenure and the landlord may obtain possession under any of the discretionary grounds set out in Schedule 2 to the Housing Act 1985. The grounds cover situations where, for example, the tenant fails to pay the rent or otherwise discharge the obligations of the tenancy, or is guilty of nuisance and annoyance. If the minor becoming the tenant by way of succession leads to under-occupation of the dwelling-house, Ground 16 of the 1985 Act provides that a possession order may be granted by the court if the accommodation afforded by the dwelling-house is more extensive than is reasonably required by the tenant who, as a member of the previous tenant’s family, succeeded to a periodic tenancy by virtue of section 89. In determining whether it is reasonable to make an order on this ground, the court must take into account the tenant’s age, the period during which the tenant has occupied the dwelling-house as his or her only or principal home, and any financial or other support given by the tenant to the previous tenant. The general rule is that notices given by a landlord or a tenant should ordinarily be given by the person for the time being legally entitled to the immediate reversion or leasehold estate respectively,68 ie, to or by trustees of a lease, rather than by or to the beneficiaries. This suggests that the local authority landlord which grants an (equitable) tenancy to a minor and retains the legal estate can terminate the tenancy by serving notice upon itself. However, even where the landlord or an adult is holding the legal estate, it would appear that the Notice of Seeking Possession under section 83 should be served on the minor who holds the secure tenancy for the purpose of section 79.69 There are two other indicators that any notices should also be served on minor tenant. As has already been mentioned, an equitable tenant enjoys the protection conferred by the Rent Acts and the Housing Act 1988, and it would be a nonsense if an adult equitable tenant were not to be the recipient of any notices served in relation to such statutes. Further, all the grounds for possession under the Housing Act 1985 are discretionary and a failure to warn the minor tenant would doubtless affect the issue 67 This will also be the case as regards an assured or assured shorthold tenancy granted by a private landlord or registered social landlord. Circular R3–05/96 issued by the Housing Corporation states that RSLs ‘should normally grant assured shorthold tenancies . . . to young persons aged 16/17 until they have reached their 18th birthday when they should normally be granted an assured periodic tenancy—’ (para 5.2). The Corporation’s Code of Practice on Tenure, published in July 1999, notes that ‘some [RSLs] are granting equitable tenancies to 16 and 17 year olds living in supported housing’. 68 Stait v Fenner [1912] 2 Ch 504. 69 Above n 51. The authors point out that whenever an authority is obliged to communicate with the tenant, eg, when seeking to vary the terms of the lease under ss 102 and 103 of the 1985 Act, it must communicate with the minor.
262 Jill Morgan of reasonableness. Housing authorities would be best advised, perhaps, to serve of all formal notices on both the minor and the family member or guardian ad litem who is responsible for him or her. Secondly, can a minor seek an assignment or an exchange or sublet under sections 91 to 93 of the Housing Act 1985? If an adult seeks to assign a secure tenancy to a minor (for example, where an adult tenant leaves the matrimonial home on the breakdown of the marriage, assigning the tenancy to a 17-year old spouse), the assignment will automatically create a trust of land under which the adult remains the owner of the legal estate. It has been suggested that the departure of the adult, leaving the minor in the property, will give rise to the loss of security which can never be regained.70 It will be recalled, however, that the effect of Prince is to separate the legal estate and equitable interest, and that so long as the equitable tenancy is held by a person who satisfies the ‘tenant condition’ of section 81, the tenancy held by the minor will be secure. Any disposition by a minor of an interest in land is voidable at the option of the minor when he attains his majority71 or within a reasonable time thereafter.72 Further, the principle of nemo dat quod non habet means that the minor can only transfer his or her equitable interest. This does not deal with the ownership of the legal estate. If, therefore, the minor is to assign his or her equitable tenancy, the legal estate should be assigned to the new tenant at the same time by whoever is acting as trustee. Thirdly, can a minor exercise the right to buy? By section 118 of the Housing Act 1985 ‘a secure tenant has the right to buy [being the right] to acquire the freehold . . . [or] to be granted a lease . . .’ of the premises. However, the tenant must satisfy the ‘qualifying period’ which means that he or she must have held a public sector tenancy (ie one where the ‘landlord condition’ and the ‘tenant condition’ are satisfied) for at least two years.73 This condition will preclude most minor tenants from being able to exercise the right to buy. If, however, a minor tenant succeeds to a secure tenancy at an age which gives sufficient leeway for the two-year qualification period, and then decides to exercise the right to buy, he or she may be eligible for the deceased tenant’s discount. This is by virtue of section 136 which provides that where, before completion of the sale, another person become the secure tenant other than by way of exchange under section 92, ‘the new tenant shall be in the same position as if the notice had been given by him and he had been the secure tenant at the time it was given’. In McIntyre v Merthyr Tydfil District Council,74 the Court of Appeal held that the new tenant is in the same position as if he or she had been the secure tenant, with all the secure tenant’s qualities and characteristics. The 70 J Henderson, Children and Housing: Law and Practice in the Management of Social Housing (London, Lemos & Crane, 2000) 109 71 Ashfeild v Ashfeild (1628) WJo 157. 72 Carnell v Harrison [1916] 1 Ch 328. 73 Section 119. 74 (1989) 21 HLR 320.
The Child as Tenant: Rights and Responsibilities 263 secure tenant’s (adult) daughter (who succeeded to the tenancy on her mother’s death) was thus entitled to the same discount as her mother, rather than a lesser one based on her own period of residence. Fourthly, does the landlord have to consult with a minor tenant on matters of ‘housing management’75 or where it seeks to dispose of dwelling-houses by way of a large-scale voluntary transfer?76 If tenants are being balloted, can a vote be cast by a secure tenant who is a minor? ‘It simply cannot be assumed,’ said Hale J in Prince ‘that [children] are omitted from legislation unless the contrary is expressly stated’.77 Her statement lends support to the argument that minor tenants should be consulted, and have their views taken into account, in relation to matters of housing management etc. Such a view also accords with the United Nations Convention on the Rights of the Child,78 Article 12 of which states that a child who is capable of forming his or her own views has ‘the right to express those views freely in all matters affecting the child, the views of the child being given due weight in accordance with the age and maturity of the child’. Although there is no individual enforcement mechanism for alleged breaches of the Convention, it is arguable that it could to be used as an aid to interpretation of Article 879 of the European Convention on Human Rights which is enforceable via the Human Rights Act 1998. This argument would appear to be unavailable where the minor is a tenant of a registered social landlord.80 To conclude this section, there is little doubt that the decision in Prince will impact upon other statutory codes. If the independent child has sufficient understanding and intelligence to be capable of entering into a contract, he or she takes the benefit of all its terms, and can usually sue for damages for breach of contract. A child can sue in his or her name by a next friend who will be responsible for costs. An important source of protection for tenants with leases of less than seven years (and therefore with periodic tenancies) exists in the form of section 11 of the Landlord and Tenant Act 1985 which imposes repairing obligations upon landlords. Where there is continuing disrepair, a claim normally includes an injunction ordering the landlord to carry out repairs. In other 75
Section 105, Housing Act 1985. Section 106A, Housing Act 1985. 77 Above n 14 at 804. 78 The Convention was ratified by the United Kingdom on 16 December 1991. 79 By Article 8(1), ‘Everyone has the right to respect for his private and family life, his home and his correspondence.’ (2) There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others. 80 The Human Rights Act 1998 makes it unlawful for a public authority to act in a way which is incompatible with a Convention right (s 6(1)). ‘Public authority’ is defined to include ‘a court or tribunal, and . . . any person certain of whose functions are functions of a public nature’ (s 6(3)). The status of RSLs in this regard is deeply uncertain. See, eg, Donoghue v Poplar Housing and Regeneration Community Association Ltd [2001] 3 WLR 183. 76
264 Jill Morgan contexts it has been held that because the court will not force one party to carry out an agreement if the responsibilities are not mutual, minors cannot claim specific performance81 and that ‘if it would be wrong to grant specific performance . . . it would be wrong to grant an injunction’.82 If the legal tenancy is held by an adult other than the landlord it would presumably be possible, however, for the action to be brought by, and an equitable remedy made in favour of, such adult (and therefore satisfy mutuality).
CONCLUSION
Consideration of questions concerning autonomy of minors must extend to the availability of settled, long-term accommodation. Yet an arguably rather conservative view of children traditionally adopted by property lawyers is at odds with the stance taken in other areas of the law which recognise the loosening of the parental hold on children as they grow older or, to put it another way, the child’s increasing independence. The conservatism of property lawyers is not surprising perhaps, given the emphasis which successive governments have placed on the responsibility of the state towards families. Such an emphasis gives rise to questions about the legitimacy of young people wishing to form independent households, and to obtain secure housing in the social sector if they cannot afford to buy or rent in the private market. As Anderson explains, ‘Young single people seem to be viewed as “individuals who are not yet families” who do not require the same security and independence in their housing as family households’.83 Such an attitude, she says, results in the assumption that young people who do not live with their parents are adequately housed in temporary, shared accommodation. Anderson also points out that if young people on low incomes are to achieve independent living as part of their transition to adulthood, access to secure, affordable accommodation must be a realistic prospect. She explains that ‘transitional’ accommodation such as foyers and other supported housing can play a valuable role in times of crisis and in preparing young people for independent housing but eventually many young people will look to social rented housing as a long-term option, increasingly so as access to the private rented sector is curtailed through housing benefit restrictions.84 Nevertheless, the granting of tenancies to people under the age of 18 does give rise to a number of unresolved legal issues. These uncertainties stem primarily from the principle that a minor cannot hold a legal estate. Perhaps, in order to 81
Flight v Bolland (1828) 4 Russ 298. Lumley v Ravenscroft [1895] 1 QB 683. 83 Above n 23 at 38. 84 Ibid at 47. Since October 1996, the amount of housing benefit payable to many single people under the age of 25 living in private sector accommodation has been severely restricted and covers only the ‘average’ cost of a non self-contained room (with only shared use of a kitchen or bathroom) in the locality: Housing Benefit (General) Amendment Regulations 1996, SI 1996/965. 82
The Child as Tenant: Rights and Responsibilities 265 achieve certainty in the law and in recognition of the competence of many ‘independent’ children to be able to make sensible, informed life choices, it is time to revise that rule (and to reduce the age of full contractual capacity). In other jurisdictions, special provision exists as regards minors and residential tenancies. In New Zealand, for instance, (where the age of majority is 2085), section 9(1) of the Minors’ Contracts Act 1969 provides that: Every contract entered into by a minor shall have effect as if the minor were of full age if, before the contract is entered into by the minor, it is approved . . . by a Magistrate’s Court.
An application can be made, therefore, by a landlord and a prospective minor tenant for approval to enter into a tenancy agreement. In addition, by section 14(1) of the Residential Tenancies Act 1986, a person who has attained the age of 18 years or is or has been married under that age has the same capacity in respect of tenancy agreements as persons of full age. By section 14(3), however, the minor tenant may, within 10 working days after the date on which s/he attains the age of 18 years or marries, apply to the Residential Tenancies Tribunal for an order relieving the tenant of all or any of the obligations imposed on the tenant by the agreement. In Australia, section 19 of the Residential Tenancies Act 1994 (Queensland) provides that ‘a minor has the capacity to enter into residential tenancy agreements’ and that such an agreement is ‘enforceable in the same way as if the agreement had been entered into by an adult’. A minor can hold a legal estate in land under the Land Title Act 1994 (Queensland) and the problems which might arise as regards transfer of the tenancy are thereby avoided. The right of children of sufficient understanding to make decisions for themselves was enhanced by the House of Lords decision in Gillick in which Lord Scarman pointed out that: parental right yields to the child’s right to make his own decisions when he reaches a sufficient understanding and intelligence to be capable of making up his own mind on the matter requiring decision.86
In 1987 the Law Commission took a similar view87 setting out a number of justifications for its proposal that the age of full contractual capacity be reduced to 16. It pointed out that in practice young people of 16 exercise ‘a high degree of responsibility for their own lives’88 and that the law recognises this in a number of ways: compulsory schooling ends and a minor is judged fit to enter the labour market in search of his own living; the parental obligation to maintain the child ceases; a person becomes eligible to claim social security benefits; a person may legally marry (albeit with parental consent), and may legally consent to sexual relations.89 The fact that a minor is unable to hold a legal estate is used, 85 86 87 88 89
Section 4 Age of Majority Act 1970. Above n 2 at 189. Above n 4. Ibid para 3.15. Ibid para 12.5.
266 Jill Morgan it is claimed,90 ‘in an unconvincing fashion, to justify the exclusion from accessing social and other types of housing’.91 Yet, provided that the minor is able to pay the rent and discharge the other obligations of the tenancy, ‘perhaps because she is the 17-year-old surviving spouse of the deceased, or because she is otherwise well provided for’,92 then there is no obvious reason why a minor tenant should be any worse protected than a person of full age. As Hale J explained in Prince: . . . [T]here is ample reason to conclude that minor children are not ‘non-persons’ in the law of landlord and tenant let alone the law of property generally. The modern tendency of the law is to recognise that children are indeed people.93
English law has something to learn from those jurisdictions which make special provision in relation to the contractual capacity of 16 and 17-year-olds and their ability to hold a legal estate in land. There is no evidence that such measures lead to an increased incidence of young people becoming tenants, but it does mean that when they are tenants, there is greater certainty in the law to which they are subject.
90
Above n 48 at 165. Indeed this was a reason advanced by a number of those who responded to the proposal contained in the Housing Green Paper, Quality and Choice: A Decent Home for All to extend priority status to 16 and 17-year-olds. 92 Above n 14 at 804. 93 Above n 12 at 603. 91
14
The ‘Widows and Orphans’ of Leasehold Reform NICHOLAS ROBERTS 1
‘Leasehold Reform’ is a potentially wide term, so it will be convenient to begin with a definition, or rather a description, of what it is meant by it. This chapter will deal with the reform of the law relating to residential long leaseholds: leases where a premium has been paid, and the rent payable (if any) is a ground rent. In accordance with the usual practice of writers2 on this subject—though not the drafters of statutes—lessees holding such leases will be referred to as ‘leaseholders’ rather than as ‘tenants’. The principal statutes to be considered will be:3 Leasehold Reform Act 1967 (‘the LRA’): this gave leaseholders of individual houses the right to ‘enfranchise’ (acquire their own freehold); or to obtain an extended lease of their property Landlord and Tenant Act 1985 (‘the LTA 1985’): especially sections 18 to 30 which regulate service charges and may render them partly unenforceable Landlord and Tenant Act 1987 (‘the LTA 1987’): this act—which implemented many of the recommendations of the Nugee Committee4—gave leaseholders collectively a right of first refusal on the sale of the freehold of a block of flats, and gave them the right to apply to the court to have a receiver and manager appointed if a block was being badly managed.5 Leasehold Reform, Housing and Urban Development Act 1993 (‘the LRHUDA’): Part I of this act allowed leaseholders of flats collectively to acquire the freehold of their block; and for an individual leaseholder of a flat to acquire an extended lease. Housing Act 1996 (‘the HA 1996’): besides substantially amending the preceding acts, this transferred jurisdiction over disputes involving the reasonableness of service 1 The author wishes to acknowledge the helpful comments made at the conference by Prof JE Adams and Prof David Clarke. 2 See, for example, David Clarke, ‘Occupying “Cheek by Jowl”: Property Issues Arising from Communal Living’ in S Bright and J Dewar (eds), Land Law: Themes and Perspectives (OUP, Oxford, 1998) 380, n 21. 3 For a more detailed account, ibid 391–401. 4 Report of the Committee of Inquiry on the Management of Privately Owned Blocks of Flats (Department of the Environment, London, 1985). 5 The act also allows leaseholders collectively to acquire the freehold if their block is being badly managed (Part III); allows courts to vary defective leases (part IV); provides for service charges to be held on trust (s 42); and requires that certain information be supplied to tenants (Part VI); but no further reference will be made to these provisions.
268 Nicholas Roberts charges and applications for the appointment of a receiver and manager of a block of flats to the Leasehold Valuation Tribunal.6 Commonhold and Leasehold Reform Act 2002 (‘the CLRA’): besides introducing commonhold, Part 2 of this act also amends the acts mentioned above.7
Essentially, therefore, one is dealing with those measures which have (a) enabled leaseholders to acquire their freehold; (b) dealt with management problems, especially service charges, by preventing ground landlords from abusing their position in various ways. To speak of ‘Widows and Orphans’ is to borrow a term of printing jargon— it is the term used in typesetting when lines get left out from the main body of the text and stranded on a page of their own.8 Having acted as a legal adviser in this field over a number of years, it is the author’s view that a number of subgroups of homeowners have been left out by the various reforms. In some cases reforms have not included them; in others they have been included, but have been treated in an inappropriate manner. In both cases their special requirements have been overlooked. Some of the groups who have been left out include: (a) The enfranchising owners of leasehold houses where there is a real need for contributions to be levied for common services. (b) The owners of holiday chalets on leasehold estates who to date have not been able to enfranchise either individually or collectively. Their position has been altered by the CLRA, but they have been treated inappropriately. (c) Owners of freehold houses whose position corresponds with those at (a) and (b) above, but who are paying an estate rentcharge and then find that the provisions of sections 18 to 30 of the LTA 1985 do not apply to them. (d) The owners of maisonettes, and possibly owners of very small blocks of flats, whose position is arguably made worse by the CLRA.
It is proposed to examine these categories in turn, and then to look at the question of whether these are just odd residual categories, or whether some common threads can be found running through them. If there are, then any lessons may be useful in considering the future course of residential leasehold reform.
6 Ie the Rent Assessment Committee, constituted as a Leasehold Valuation Tribunal. This has arguably become an embryonic ‘Housing Court’ for this area of law. See further a series of four articles by S Gallagher ‘The new powers of Leasehold Valuation Tribunals’ [1999] JHL 41, 58, 79 and 95; M Biles ‘Leasehold Valuation Tribunals and managers of flats’ [1999] Conv 472; and N Roberts ‘The Leasehold Valuation Tribunals and service charges—some problems of jurisdiction’ [2001] Conv 61. 7 No further reference is made to certain other statutes which may be relevant to residential leasehold law such as the Landlord and Tenant Act 1927; the Leasehold Property (Repairs) Act 1938; the Landlord and Tenant Act 1954, Part I; and the Landlord and Tenant (Covenants) Act 1995. Further, some provisions may also apply to ‘renting tenants’ eg LTA 1985, ss 18–30. 8 Strictly speaking a ‘widow’ is the last line of a paragraph printed by itself on the top of a page, and an ‘orphan’ is the first line of a paragraph printed by itself on the bottom of a page. Wordprocessing programs have given the term wider currency.
The ‘Widows and Orphans’ of Leasehold Reform 269
THE ‘ WIDOWS AND ORPHANS ’
Leasehold houses where there are common services The pressure for leasehold enfranchisement came from the older industrial areas of England and Wales, especially south9 Wales, and London. In most cases houses had originally been sold on the long leasehold system solely because it was financially advantageous to the original landowners to continue to receive the annual rental value of the land, but with the prospect of receiving the added value of the houses at the end of the term.10 Although the houses concerned were often terraced houses there were seldom any common facilities requiring contributions to be made for their upkeep.11 The White Paper Leasehold Reform in England and Wales12 did acknowledge that something would need to be done: Most of the covenants under the existing lease concern the relations between the landlord and the leaseholder and will automatically and rightly disappear when the lease is enfranchised. But where there is more than one leasehold property in the same freehold ownership it is common to provide by way of leasehold covenants for matters of mutual advantage as between the leaseholders themselves affecting essential services and amenity. Neither the leaseholder who enfranchises nor his neighbour will want to lose these mutual advantages; and the Bill will ensure that, where they are important, they will be preserved.13
Although the White Paper mentioned ‘mutual advantage’ the scope of this was not considered in detail. Although the LRA provided for restrictive covenants that had been contained in the lease to be re-imposed in conveyances of the freehold,14 it did not deal adequately with positive covenants, except in the limited context of ‘estate management schemes’. The White Paper did give some consideration to these: There are some comprehensively managed leasehold estates where enlightened management contributes greatly to the well-being of the residents by maintaining the character of the estate. It would not be fair to deny to leaseholders on such estates the right of enfranchisement, but it would be equally unfair to other residents on the estate if the exercise of this right prevented the benefits of comprehensive management from 9 In deference to the strictures of Jan Morris, the author will refer to ‘south Wales’ and ‘north Wales’ and not to ‘South Wales’ and ‘North Wales’, as if (in her words) ‘they were separate countries, like North Korea and South Korea’. 10 The author has seen it suggested that land was sold leasehold to facilitate the retention of mineral rights by the original landowners, which would be particularly advantageous in mining areas, but this seems unlikely as many freehold conveyances ‘reserve mines and minerals’. 11 At least in south Wales, rear accessways were seldom maintained by the freeholder; if they were maintained then it was by local authorities, following adoption. 12 Cmnd 2916 (HMSO, London, 1966). 13 Ibid, para 21. 14 Section 10(4).
270 Nicholas Roberts being any longer effective. The Government propose that, if the estate is recognised by the appropriate Minister as a well managed estate, enfranchisement will be subject to an agreed scheme for continued estate management, with suitable provision for determination in the event of disagreement.15
The Government was thinking here of some ‘garden city’ developments— Bournville, Letchworth, and so on—some Central London estates such as the Duke of Westminster’s Belgravia estates, and estates such as the Dulwich College estates in south London. A case could be made that the LRA took a wrong turn by focussing on what one might term the ‘twin poles’ of residential leasehold tenure of houses:16 at one end on the enfranchisement of the individual house with no shared services, and at the other end on the problems posed by the enfranchisement of houses on a comprehensively managed estate. It failed, however, to make proper provision for cases falling between these, where there were shared services, but the properties did not satisfy the requirements for a comprehensive estate management scheme. The estate management scheme provided for by section 19 of the LRA was indeed a heavyweight procedure, involving two stages. It required first a certificate from the relevant Minister to the effect that ‘in order to maintain adequate standards of appearance and amenity . . . it is likely . . . to be in the general interest that the landlord retain power of management’, and then an order of the High Court approving the precise terms of the scheme.17 It seems to provide an effective legal mechanism to enforce positive covenants within the scheme, for example, duties to keep a property in a good state of repair and decoration, and to make contributions towards common services. But it was made difficult to obtain a scheme, and no more may now be obtained.18 Applications to the Minister for a certificate had originally to be made within two years of the coming into force of the LRA ie by 1 January 1970.19 When the rateable value limits were extended by the Housing Act 1974,20 a further two years were allowed for applications, ie by 31 July 1976. Thereafter no new applications were possible under LRA, section 19. The collective enfranchisement provisions 15
Leasehold Reform in England and Wales, above n 12, at para 22. The White Paper (see para 8) made no attempt to consider the enfranchisement of long leasehold flats: these were comparatively rare, though certainly not unknown in 1966. 17 The most detailed account is in NT Hague, Leasehold Enfranchisement (2nd edn, Sweet & Maxwell, London, 1987), ch 10; the matter is dealt with more briefly in the 3rd edn (1999) at 36–01 to 36–04. 18 Few schemes were made under the LRA. 258 applications to the Minister were made, of which 105 were granted, 78 refused and 75 withdrawn. (Public Record Office, HLG 118/747). They are listed in CC Hubbard and DW Williams, Handbook of Leasehold Reform (Sweet & Maxwell, London, 1988), at 607. A further five made following the Housing Act 1974 are noted there. It is believed that in the overwhelming majority of cases schemes were approved by the High Court. Hague (eds A Radevsky and D Greenish), Leasehold Enfranchisement (3rd edn, Sweet & Maxwell, London, 1999), ch 36, refers to at least a dozen schemes under the 1993 Act. 19 LRA, s 19(1) 20 Section 118(2). 16
The ‘Widows and Orphans’ of Leasehold Reform 271 of LRHUDA raised the possibility of estate management schemes being required for areas including leasehold flats (or for houses newly eligible to enfranchise),21 and so LRHUDA,22 made provision for further applications for estate management schemes, by a single-stage application to the Leasehold Valuation Tribunal within two years, ie by 1 November 1995. The abolition of the ‘low rent test’ (for both houses and flats) by HA 199623 necessitated that a further two-year period be allowed for applications for a scheme ie by 1 April 1999. The test for such a scheme was a high level of common management, not just the provision of a few common services. In simpler cases, what was supposed to suffice? Section 8 of the LRA provided that the enfranchising tenant should, with certain exceptions, acquire the freehold free from incumbrances. No specific provision was made for positive covenants to be given by enfranchising leaseholders. There is a difference of opinion among writers on this. K Gray and SF Gray suggest that section 8(3) allows for the burden of positive covenants to run with the land.24 The editors of Leasehold Enfranchisement by Hague state that section 8(3) ‘is dealing only with existing obligations already affecting the freehold, and not with obligations arising solely under the tenancy’.25 The latter interpretation would seem correct. Unless section 8(3) has the effect contended for by K Gray and SF Gray, under the general law the burden could not of course run.26 The first edition of Leasehold Enfranchisement by Hague in 1967 seemed to assume that one could rely on the rule in Halsall v Brizell27 to require financial contributions for most common services.28 The current, third edition (1999) has moved away from that viewpoint, interpreting the act in the light of later case law. It is now suggested that, on a statutory enfranchisement, one could make the use of an easement conditional on payment if, and only if, the easement under the lease was expressly conditional upon the making of financial contributions towards it.29 This interpretation of section 10(3)30 and 10(2)(d)31 would seem correct. 21
By virtue of the new ss 1A or 1B inserted in LRA. Sections 69–75. Section 106. 24 In Elements of Land Law (3rd edn, Butterworths, London, 2001) (n 19 at 1156). 25 3rd edn, (above, n 18) n 19 at 128. 26 Austerberry v Oldham Corporation, (1885) 29 Ch D 750 (CA) (affirmed by Rhone v Stephens [1994] 2 AC 310 (HL)). 27 [1957] Ch 169. 28 See para 6–09, pp 30–1. 29 Hague, (above, n 18) n 17, at 128. 30 (Which deals with rights of way): ‘As regards rights of way, a conveyance executed to give effect to section 8 above shall include— (a) such provisions (if any) as the tenant may require for the purpose of securing to him rights of way over property not conveyed, so far as the landlord is capable of granting them, being rights of way which are necessary for the reasonable enjoyment of the house and premises as they have been enjoyed during the tenancy and in accordance with its provisions’(italics added). 31 (Which deals with all other easements): ‘a conveyance executed to give effect to section 8 above shall by virtue of this subsection . . . have effect— (i) to grant with the house and premises all such easements and rights over other property, so far 22 23
272 Nicholas Roberts Halsall v Brizell has sometimes been seen as a way of introducing positive covenants through the back door. Even if the lease were worded so as to make the exercise of easements conditional on the payment of contributions, it is clear from the decision of the House of Lords in Rhone v Stephens32 that Halsall v Brizell is not as wide in its application as had sometimes previously been thought. Relying on Tito v Waddell (No 2)33, the plaintiff in Rhone v Stephens had tried to argue that the fact that a party enjoyed any benefit under a deed made all the burdens of the deed enforceable—the ‘pure principle of benefit and burden’. That argument was rejected, and the House of Lords held that the burden had to be referable to the benefit—the ‘principle of conditional benefit’. That had been the case in Halsall v Brizell, as the financial contributions towards the upkeep of drains and roads were referable to their use—but not in Rhone v Stephens, where the purported obligation under the 1960 conveyance of the owner of the house to repair the common roof was not referable to the rights of mutual support enjoyed under the same conveyance. The problems of relying on Halsall v Brizell in practice are well-illustrated by the Court of Appeal decision in Thamesmead Town Ltd v Allotey.34 Thamesmead was developed by the former London County Council and Greater London Council as a large council development. On the dissolution of the GLC it passed to the London Residuary Body, who in turn in 1987 disposed of it to a company called Thamesmead Town Limited (‘TTL’). Mr Allotey’s immediate predecessors in title had originally been tenants of the property, and then in 1988 bought the property from TTL under their preserved ‘Right to Buy’.35 The property was transferred to them with a right to use the roads and drains on the estate, subject to positive covenants to contribute to the cost of keeping up the road and of maintaining the landscaped areas. The original purchasers were given no right to use the landscaped areas and TTL did not covenant to maintain them, but the purchasers did covenant to contribute to the cost. The original transfer deed also included a covenant on the part of the original purchasers to require subsequent purchasers to enter into a similar covenant with TTL. As so often happens in practice, the original purchasers neglected to require Mr Allotey to enter into a positive covenant with TTL. The company billed Mr Allotey for service charge contributions. He refused to pay, claiming that he was not liable, and TTL commenced legal proceedings in the Dartford County Court. It was held in the County Court, and affirmed in the Court of Appeal, that the only contributions which Mr Allotey could be required to make under the rule in Halsall v Brizell were those relating to the ‘janitorial services’ and the upkeep of the roads and drains—although the Court as the landlord is capable of granting them, as are necessary to secure to the tenant as nearly as may be the same rights as at the relevant time were available to him under or by virtue of the tenancy or any agreement collateral thereto’ (italics again added). 32 Above, n 26. 33 [1977] Ch 106. 34 79 P & CR 557; [1998] 3 EGLR 97; 30 HLR 1052. 35 Under the Housing Act 1985.
The ‘Widows and Orphans’ of Leasehold Reform 273 of Appeal was unclear why the judge in the county court had rejected the defendant’s unchallenged evidence that he used only an adopted road to gain access to his property and that the sewers were the responsibility of a company other than the plaintiff. But as there was no cross-appeal the Court of Appeal could not upset the findings of fact on this point. The case thus re-iterates that two conditions are necessary for the rule in Halsall v Brizell to apply: first, the condition of discharging the burden must be relevant to the exercise of the rights that enable the benefit to be obtained; and second, the successors in title of the original covenantor must have, at least in theory, the right to renounce the benefit of the right granted by the deed and so escape the burden of the covenant. Peter Gibson LJ acknowledged36 that whilst Halsall v Brizell was clearly correct in requiring the defendant to contribute to the use of estate roads and sewers, so much of that decision as related to the maintenance of the sea-wall was likely to be inconsistent with Rhone v Stephens and thus overruled by it. It is difficult fully to square the judgment in Thamesmead Town with the outcome of the case. The amount claimed was £211.10 and judgment was entered for £41.65.37 It is easy to see why the cost of maintaining the common areas was not enforceable. One can accept that the defendant would be liable, on the facts as found, to pay for roads and sewers. It is not clear from the report of the case how the payments for the ‘janitorial services’ fit into the picture or precisely what facilities they relate to. The second condition—that it is essential that one can, at least in theory, renounce the benefit granted by a deed—is one that can be difficult to analyse properly, and, if one does succeed in doing so, the results can seem capricious. On the one hand, one has benefits which one can in theory not use, such as drains and roads, and therefore one must pay for them if one does. On the other hand, the maintenance of a sea-wall (such as in Halsall v Brizell) seems to be a benefit that one cannot renounce, and so it is analogous to the rights of support in Rhone v Stephens: a right where one has no choice but to take the benefit, so one cannot be forced to contribute towards the cost of providing it. Further reference will be made to this.38 A simple solution to the problem would be the power, in appropriate cases, to impose an estate rentcharge under the Rentcharges Act 1977 on the enfranchisement of leasehold properties. It is of course hardly surprising that no reference was made to them in the LRA, as they did not exist as a separate category until the Rentcharges Act 1977.39 It must be admitted that they have 36
EGLR at 99M. Surely one of the smallest claims to be litigated in the Court of Appeal in recent years, although it would of course have had potential repercussions for thousands of other properties on the estate. 38 Below, pp 275–6. 39 See s 2(4): ‘For the purposes of this section “estate rentcharge” means (subject to subsection (5) below) a rentcharge created for the purpose— (a) of making covenants to be performed by the owner of the land affected by the rentcharge enforceable by the rent owner against the owner for the time being of the land; or (b) of meeting, or contributing towards, the cost of the performance by the rent owner of covenants 37
274 Nicholas Roberts never become as widespread and thus as familiar as some hoped.40 However, 25 years have passed since they were introduced, and the LRA has been amended on several occasions, so one might have expected some amendment to be made to the LRA to enable them to be imposed as part of the enfranchisement process—though of course in most cases it would now be too late to impose them as part of a comprehensive estate rentcharge scheme. Estates of holiday chalets We are considering here estates of permanent chalets or bungalows,41 typically built as part of a leisure complex with communal facilities such as a clubhouse, swimming pool, and other recreational facilities. Often they have been built on the sites of former seaside holiday camps, the existing use facilitating the grant of planning permission for them, though several have been built more recently in the countryside, especially in lakeside settings. As the individual units are often smaller and closer together than would be allowed for permanent homes, and as the planning authority is anxious that the estate does not degenerate into a ‘rural slum’, typically the planning permission will require that all of the chalets should remain unoccupied for two or more stated months of the year. They have generally been sold on long leases, which also contain covenants to impose the ‘closed season’.42 Such developments have, to date, been generally unable to enfranchise because of the residential qualification for the enfranchisement of houses43—that the property should have been the leaseholder’s principal or only residence for the past three years, or for three out of the last ten years. Some developers have, however, been wary of relying on this so as to exclude absolutely the possibility of enfranchisement, as leaseholders could comply with the lease and planning permission and satisfy the ‘principal or only residence’ test if they lived in the property for (say) ten months of the year and lived with relatives or went on holiday for the remaining two.44 for the provision of services, the carrying out of maintenance or repairs, the effecting of insurance or the making of any payment by him for the benefit of the land affected by the rentcharge or for the benefit of that and other land’. 40 For a detailed discussion of estate rentcharges under the Rentcharges Act 1977, see S Bright ‘Estate Rentcharges and the Enforcement of Positive Covenants’ [1988] Conv 99. If her doubts as to the scope of s 2(4) to cover (a) the building up of a reserve fund and (b) contributions for the maintenance of eg communal landscaped areas retained by the rentowner are correct, then estate rentcharges may not cover all the circumstances that a service charge ideally should. 41 For convenience they will be referred to as ‘chalets’. Nothing turns on whether they consist of one storey or two or more storeys: the crucial distinction is that they are treated as ‘houses’ under LRA, s 2, rather than as ‘flats’ under LRHUDA, s 101. 42 For an example of litigation involving such an estate (though not immediately relevant to the present discussion) see Minster Chalets Ltd v Irwin Park Residents Association (27 April 2001) (Lawtel 09/07/01) and in full as LRX/53/1999 on the Lands Tribunal Website: http://www.courtservice.gov.uk/ tribunals/lands/decisions/dec-index.htm. It is understood that an appeal has been made to the Court of Appeal. 43 LRA, s 1(1)(b). 44 The author is grateful to Prof David Clarke for pointing out this possibility.
The ‘Widows and Orphans’ of Leasehold Reform 275 It is not clear how many such developments there may be, and whether these problems are commonplace. The writer is aware of at least three such developments in the Isle of Wight, and has come across one in north Wales, as well as another in the Isle of Sheppey which has resulted in litigation in the Lands Tribunal.45 To date they have in general been unable to enfranchise46 under the LRA. Under the CLRA,47 the residence qualification for owners of leasehold houses has been dropped, but that will present its own problems both for owners of these leasehold chalets and for the reversioners.48 Owners of holiday chalets are now able to enfranchise but (a) they will have no right to acquire the common parts of their development; (b) the owners of the reversion (who will probably be running the estate) will have no right to impose a positive covenant or an estate rentcharge to ensure that contributions are made for the upkeep of common facilities; and (c) even if the exercise of easements or other rights were made conditional in the lease upon financial contributions, and so the condition could be included in the freehold transfer,49 Halsall v Brizell and Thamesmead Town will cause particular problems where contributions are required for rights which may not even be easements and may be eminently à la carte. Attempting to apply Halsall v Brizell and Thamesmead Town to the circumstances of the typical estate of holiday chalets reveals the depth of the problem: (1) The right to benefit from certain facilities will not be optional, and so charges for them cannot be recovered under Halsall v Brizell. Examples would be the maintenance of any sea-defences, site security, and the provision of exterior lighting. (2) The right to benefit from some facilities50 will in theory be optional, but in practice the chalet-owner will have no choice. The charges for these will therefore be recoverable from both the original covenantors and their successors. Examples of these would be the right to use accessways to the chalet, mains services, and drainage.51 (3) The right to use other facilities will be optional both in theory and in practice. Owners of individual chalets will be liable to pay only for those that they actually use. These may include the right to park a car, to use communal gardens, or to use clubhouses, swimming pools and other recreational facilities. Some of these rights are personal rights rather than easements, but there is no suggestion in Thamesmead Town that the reasoning in Halsall v Brizell is confined to easements in the accepted sense. Rights in this class are eminently à la carte and covering their cost by a service charge 45
Above, n 42. Except in the case outlined above. 47 Section 138. 48 Dropping the residence requirement for owners of leasehold houses was floated in the August 2000 Discussion Paper Commonhold and Leasehold Reform: Draft Bill and Consultation Paper (Cm 4843) (HMSO, London, 2000), did not then appear in the December 2000 Bill, but did appear when the Bill was re-introduced after the June 2001 General Election. 49 Assuming the editors of Hague, above, n 18 are correct and that the exercise of easements or other rights can be made conditional upon the making of financial contributions only if the lease itself contained such a condition. If they are not—or the enfranchising purchaser does not take the point—then the other problems still remain. 50 It would seem inevitable that these will always be easements. 51 Unless the owners choose to provide their own septic tanks or even earth closets! 46
276 Nicholas Roberts will simply be unworkable if chalet-owners can ‘cherry-pick’ which facilities they want to use.
Furthermore, the owners of the freehold reversions of such holiday estates will not be eligible to apply for an estate management scheme. Hitherto, as leasehold enfranchisement has been successively extended to cover various classes of property, amenity societies and the ‘property lobby’ of the large estates have ensured that ground landlords have been given an opportunity to apply for an estate management scheme,52 but the CLRA gave no such opportunity when, with the abolition of the residence qualification, holiday chalets became potentially enfranchisable. Estate Management Schemes have generally been approved for neighbourhoods of some architectural merit53 but there seems no reason in principle why they should not be applied to meet the special needs of holiday chalet estates.54 It seems unlikely that an extension of time could now be granted by the Secretary of State as one could not say that ‘the proposed application could not have been made before the relevant expiry dates’55—it could have been made, although no one would have thought of doing so until individual chalets became enfranchisable! When enfranchisement was seen as a privilege restricted to owner-occupying leaseholders, it would have been difficult to justify that leaseholders who were56 second-home owners should have the right to enfranchise either individually or collectively. Now that enfranchisement is to be extended to all residential leaseholders,57 it would be difficult to justify excluding leaseholders of second homes, although within the context of developments such as these, with provision of elaborate leisure facilities, enfranchisement does seem tantamount to rewriting commercial contracts. It seems self-evident that, if an estate of this kind is to be enfranchised, then it should be enfranchised collectively, along with its common parts, under the scheme of the LRHUDA and not under the LRA. There is no evidence that Parliament gave any thought to these problems.
Estate rentcharge payers Assume, then, that with a new development of freehold houses, there are services which are covered by an estate rentcharge. Or assume that on the enfranchisement of a leasehold house, or a leasehold holiday chalet, both parties agree 52
Above, pp 269–71 for further details and relevant references. Which cannot usually be said of estates of holiday chalets. 54 Such estates would seem to fall within LRHUDA, s 70(1), a scheme being required ‘in order to maintain adequate standards of appearance and amenity and to regulate redevelopment within the area in the event of tenants acquiring the interest of the landlord in any property’—the ‘architectural or historical associations’ mentioned in subsection (3) seem relevant but not obligatory. In any event, some amendment could have been made to the criteria to meet these circumstances. 55 LRHUDA, s 72(3)(a). 56 Or were intended to be—see text to n 44, above. 57 Section 138 CLRA. 53
The ‘Widows and Orphans’ of Leasehold Reform 277 to the imposition of an estate rentcharge. There is no jurisdiction under the LRA to impose one, but the parties and their advisers may agree that it is the best legal mechanism to adopt. On the current analysis it probably is, but in certain respects it may in fact weaken the position of the former leaseholders. For when paying a leasehold service charge, the service charge would have been covered by the provisions of the LTA1985: chiefly, the provisions as to reasonableness (s 19), estimates and consultation (s 20) and accounting (ss 21–24). The payment of an estate rentcharge, however, is outside the scope of the service charge provisions of the LTA 1985. One can argue that one would not expect a Landlord and Tenant Act to deal with estate rentcharges, which relate to freehold properties, but as estate rentcharges were intended to plug a gap caused by leasehold enfranchisement58—namely that it was no longer safe to use leasehold for houses with common services—one might have expected the Government to include them when it intervened to regulate service charges. So here we have another example of leasehold reform leaving its ‘widows and orphans’. It is possible that there may be some jurisdiction at common law for courts to adjudicate upon the reasonableness of service charges in a way analogous to section 19 of the LTA 1985. The argument for this relies upon the Court of Appeal decision in Finchbourne v Rodrigues.59 This concerned a service charge dispute such as now would be brought before the LVT under section 19 of the LTA 1985. It came to court before the predecessors of section 19 were in force. The authority of the case is, however, not without doubt. First, there are alternative rationes to the case. The narrow ratio is that the service charge was irrecoverable as the lease required that the service charge should be certified by the lessor’s managing agent, and it had been certified, in effect, by the lessor himself. The broader ratio, however, was that it should be implied into the lease to give it business efficacy that the costs claimed should be ‘fair and reasonable’. If this is the case then there would seem to be no reason why this ratio should not apply equally to variable estate rentcharges as well as to service charges. Second, the decision itself has been distinguished on several occasions. Two are relevant here. In Havenridge Ltd v Boston Dyers Ltd60 the Court of Appeal declined to follow it in a dispute over the reasonableness of an insurance premium under a commercial lease, where the landlord was required to insure at the expense of the tenant. Evans LJ did not, however,61 doubt the decision or feel that it was inconsistent with the earlier decision of Roskill J on a similar commercial insurance dispute in Bandar 58 See Bright, above n 40 at 99. The existence of abuse was noted in Residential Leasehold Reform in England and Wales: A Consultation Paper (para 11 of ch 5) (DETR, Nov 1998), but the point was not raised in the 2000 Consultation Paper or the subsequent Bills (above, n 48). 59 [1976] 1 All ER 591. Since this paper was originally given, the first decision on the estate rentcharge provisions of the Rentcharges Act 1977 has been reported: Orchard Trading Estate Management Ltd v Johnson Securities Ltd [2002] EWCA Civ 406; [2002] 18 EG 155 (CA). As the appeal was on narrow preliminary issues it does not shed a great deal of light upon the present issue. For comment on the case, see S Bright ‘Estate Rentcharges and Reasonableness’ at [2002] Conv 507. 60 [1994] 2 EGLR 73. 61 At 75K.
278 Nicholas Roberts Property Holdings Ltd v JS Darwen (Successors) Ltd.62 The Court of Appeal also did not follow Finchbourne in Berrycroft Management Co Ltd v Sinclair Gardens Investments (Kensington) Ltd,63 although, rather intriguingly, the court thought it relevant64 that in Finchbourne the insurance premium made up only 4 per cent of the total service charge, so implying that the court’s ability to intervene over insurance premiums may be more restricted than its jurisdiction over service charges in general.65 However, even if the court does have power under Finchbourne to rule on the reasonableness of a variable estate rentcharge,66 there is another ‘orphan’ lurking here, as such jurisdiction would have to be exercised by the court and not, as is usually the case with service charges, by an LVT.67 This would be a particular problem if all or part of what was intended to be the same service charge was payable both by owners of leasehold flats and, via a variable estate rentcharge, by owners of freehold houses. Such mixed developments are by no means uncommon. In some cases they may be purpose-built developments of flats and townhouses around a courtyard. In other cases a large old property is converted into apartments and its outbuildings are converted into ‘mews cottages’ and/or new houses are built in the grounds. Presumably if a dispute involving the reasonableness of a service charge which was levied on some properties as an ordinary leasehold service charge and on others as a variable estate rentcharge, that might be a reason to reserve the dispute to the county court.68 This area of law continues to throw up yet further anomalies. If the dispute also involved the notice provisions of section 20—these can, ex hypothesi, relate only to the leasehold service charge and not to the variable estate rentcharge—this aspect could at present be dealt with by the County Court,69 but, for the future, the CLRA has created its own ‘orphan’ here: under subsection (1)(b) of the new section 20 of the LTA 1985,70 a dispute involving section 20 would in future have 62
[1968] 2 All ER 305. [1997] 1 EGLR 47. The present author has previously criticised the reasoning of Beldam LJ in this case in ‘Berrycroft Management Revisited—or Sidelined?’ at [2000] Conv 307. 64 At 50E. 65 The present author would maintain his stance in the article cited at n 63 to the effect that, without having to rely on Finchbourne, LTA 1985, s 19 provides the necessary authority for the court or the LVT to rule on the reasonableness of an insurance premium paid by the landlord and which has to be reimbursed by the leaseholders. 66 If there is jurisdiction, it is less clear how the court could exercise the jurisdiction it enjoys under s 19(2B) to rule prospectively on the reasonableness of expenditure which may be incurred in the future—though possibly the declaratory jurisdiction of the court would be wide enough. 67 Following the transfer of jurisdiction over s 19 disputes to the LVT by HA 1996, s 83. 68 Aylesbond Estates Ltd v McMillan and Garg (2000) 32 HLR 1 sets out the principles upon which it may be appropriate for the county court to retain s 19 disputes itself and not to transfer them to the LVT (under LTA 1985, s 31C). Although this scenario was not specifically mentioned, it is clearly arguable that it would be a reason not to transfer the service charge dispute involving the leasehold properties to the LVT. (If the application were made directly to the LVT, on the other hand, the LVT would appear to have no power to transfer the dispute to the County Court, and its power to stay its own proceedings—except, under the existing law, to obtain an interpretation of a lease—would seem debatable). 69 Applying Aylesbond Estates Ltd v McMillan and Garg (ibid) this would be a good reason to retain the dispute in the county court and not to transfer it to the LVT. 70 Inserted in the LTA 1985 by CLRA, s 151 . 63
The ‘Widows and Orphans’ of Leasehold Reform 279 to go only to the LVT. Parliament has overlooked that, as illustrated by Aylesbond Estates Ltd v McMillan and Garg71 it may occasionally be appropriate for the county court to retain section 19 disputes. It should, in fairness, be said that this should be necessary less frequently as the new section 27A of the LTA 198572 will allow LVTs to rule on the interpretation of leases.73 Aylesbond Estates does, however, make it clear that there may still be cases (eg those involving allegations of fraud) where it will remain appropriate for the county court rather than the LVT to adjudicate on section 19 disputes. Finally in this section, one must record another example of Parliament creating further anomalies by plugging one loophole and creating another. Amendments made to the Commonhold and Leasehold Reform Bill at Report Stage74 mean that the Leasehold Valuation Tribunals have been given jurisdiction to rule on the reasonableness of charges75 under estate management schemes, but not over variable estate rentcharges falling within the scope of section 2 of the Rentcharges Act 1977. Owners of maisonettes and flats in small blocks By and large, owners of maisonettes76 have not faced the worst of the problems encountered by leaseholders of flats. Usually there will be no service charge,77 with all the problems that that brings. There are many defective leases of maisonettes around, particularly of conversions, but variation of defective leases is considerably easier when there are only two or three parties involved, and if the ground landlord will not be involved it is also possible for the leasehold owners to make arrangements between themselves by a deed of mutual covenants. If leaseholders of maisonettes wish to enfranchise then they can if necessary obtain their collective freehold compulsorily from their ground landlord under the LRHUDA. Although, in all fairness, it must be said that the CLRA has plugged more loopholes than it has created,78 the Act does treat the leaseholders of maisonettes inappropriately in requiring them to enfranchise using the medium of a ‘Right to 71
Above, n 68. Inserted by CLRA, s 155. 73 So in effect statutorily overruling the unfortunate decision of the Lands Tribunal in Gilje v Charlegrove Estates Ltd [2000] 3 EGLR 89. 74 Now CLRA, s 159. 75 Which are not estate rentcharges. 76 This is not a legal term of art, but most writers and practitioners reserve the term for where there are only two units in a building, with few or no internal common parts. Some (eg EF George and A George The Sale of Flats (5th edn, Sweet & Maxwell, London, 1984) at 29) would go further and restrict the use of the term to cases where each unit has an external door, and there are no internal common parts at all. 77 Though not always. Some developments comprising a group of maisonettes have a service charge to cover the upkeep of communal grounds. 78 Eg the abolition of the residence qualification for collective enfranchisement; the remedying of the anomaly over dispensation from the notice requirements of LTA 1985, s 20 (CLRA, s 151— though creating the further anomaly noted at n 70 above and text thereto); the statutory overruling of Gilje v Charlegrove Estates Ltd (above, n 57) (LVT has no jurisdiction to interpret a lease where 72
280 Nicholas Roberts Enfranchise’ (RTE) company.79 There seems little point in requiring the leaseholders of only two units to set up an RTE company solely in order to acquire their freehold. It must be very doubtful as to whether they will retain the corporate vehicle or whether they will in the longer term dissolve the company and own the maisonettes in some simpler way, for example, jointly owning the freehold, subject to a declaration of trust, or setting up mutual leases, so that each becomes the reversioner of the other. The result of this misconceived idea can hardly have been intended—it is surely likely to increase the price that owners of maisonettes will be required to pay for their freehold, on the basis that when setting the price on a voluntary enfranchisement, the figure sought by the landlord will be influenced by the greater costs that the leaseholders would incur on a statutory enfranchisement.80 Although the case is not so strong, the same could also be said for owners of blocks comprising only three or four flats. They might well have preferred jointly to own their freehold, with a suitable declaration of trust, rather than to have to go to the trouble and expense of setting up and running an RTE company. Blocks of under five flats should have been exempted. It may also be noted in passing that, because of the problems with ‘flying freeholds,’ any material element of undershot or overhang between adjacent properties will mean that the owners of what might appear at first sight to be adjacent houses will have to enfranchise collectively under the LRHUDA rather than under the LRA.81 Of course, one can say that if the owners of two maisonettes are at loggerheads, it will be no easier to resolve their differences under a trust deed or mutual leases than under an RTE company. But if their disagreement is going to end up in court,82 there would seem to be no good reason to encumber them with the additional trouble and expense of a corporate vehicle to provide the context for their dispute.
COMMON THEMES
Is it possible to extract any common themes from these examples, or do these anomalies amount to a ‘wilderness of single instances’? If we can detect any common themes, then the lessons learned may help us the better to formulate measures of leasehold reform in the future. incidental to a dispute under LTA 1985, s 19) (s 27A(1) of LTA 1985, inserted by CLRA, s 155); the statutory overruling of Daejan Properties Ltd v London Leasehold Valuation Tribunal ([2001] EWCA Civ 1095) (no jurisdiction to challenge service charge once paid) (s 27A(2) of LTA 1985, inserted by CLRA, s 155); the bringing of tripartite leases within the management provisions of Part II of the LTA 1987 (CLRA, s 160); the bringing of leases with arbitration clauses within the jurisdiction of the LVT under LTA 1985, s 19 (CLRA, s 169). 79 CLRA, s 121. 80 An aspect of the ‘Delaforce effect’ (Delaforce v Evans and Evans (1971) 22 P & CR 770). 81 For the meaning of ‘material’ see now Malekshad v Howard de Walden Estates Ltd [2002] UKHL 49, [2002] 3 WLR 1881, disapproving Duke of Westminster v Birrane, [1995] QB 263. 82 Assuming that ADR is inappropriate or unsuccessful.
The ‘Widows and Orphans’ of Leasehold Reform 281 The failure to provide properly for positive covenants The continued failure to implement a proper regime for positive covenants, such as that proposed in 1984 by the Law Commission83 is clearly an underlying cause of some of these problems. Some of these problems would have been avoided, or at least lessened, if it had been possible to ensure the passing of the burden of positive covenants. But that does not address all the problems. Positive covenants do not necessarily cope with problems such as who has to arrange repairs or insurance, or the problems caused by widely differing documentation. These are the reasons why the Building Societies Association in 198484 preferred to see the implementation of a comprehensive strata-titles regime rather than the more limited objectives of the Law Commission Report. It is noteworthy that the CLRA, like its predecessor Bills in July 1996 and December 2000, implements commonhold but not positive covenants; the Aldridge Report,85 on the other hand, and the draft bill appended to the 1990 Consultation Paper,86 would have implemented commonhold as part of a scheme for positive covenants generally. The matter is still under review by the Law Commission.87
Wrong turns at the outset In the author’s view, leasehold reform took two wrong turns at the outset: (1) The focus on owner-occupying leaseholders It is understandable why the then Government wanted to make it as easy as possible for leaseholders of houses to acquire their freeholds, but allowing leaseholders to purchase on such financially attractive terms inevitably meant that enfranchisement could be granted in restricted circumstances and only to owner occupiers, as a specially deserving species. It is as if under the LRA a leaseholder was allowed one windfall only. One can see that the 1967 Labour Government was unlikely to be particularly sympathetic to the investor landlord, who owned leasehold properties and let them out, or to the second home owner, but when the principle of restricting the eligibility to enfranchise to owner-occupiers was continued over into collective enfranchisement, this restriction has caused problems, because of difficulties with blocks where owners are non-resident, or let 83
Transfer of Land: The Law of Positive and Restrictive Covenants (Law Com No 127) (1984). In its report Leaseholds—Time for a Change? (BSA, London, 1984). Commonhold, Freehold Flats and freehold ownership of interdependent buildings, Cm 179, (HMSO, London, 1987). 86 Commonhold: A Consultation Paper, Cm 1345 (HMSO, London, 1990). 87 Ms Sally Keeble, Parliamentary Under-Secretary of State for Transport, Local Government and the Regions, HC Deb, vol 377, 510 (8 January 2002). 84 85
282 Nicholas Roberts their flat out, or there is a rapid turnover of leaseholders. It is noteworthy that, to date, leasehold enfranchisement, of both houses and flats, has been for the benefit of the owner-occupying leaseholder rather than the residential leaseholder per se. Only now does the CLRA give rights to leaseholders in general, rather than the owner-occupying leaseholder. (2) The focus on buildings rather than the degree of interdependency The LRA also attempted to define eligibility for enfranchisement by reference to a ‘house’ without fully thinking through the implications of this. The substantial case law which has developed on the meaning of the term88 shows how difficult a concept this is to define. One needs to treat terraced houses as individual buildings, but not units with a greater degree of interdependency than was exemplified in Duke of Westminster v Birrane and Malekshad v Howard de Walden Estates Ltd.89 On the other hand, one could argue that the root cause of the need to make the distinction is the law’s inability to enforce positive covenants, thus raising the possibility of the owners of overlapping buildings having to enfranchise via the LRHUDA rather than the LRA.90 Added to this, the concept of the estate management scheme was too restricted. Cases where there was a need for some service charge for common services but where a full estate management scheme was not justified were inadequately catered for. The emphasis on trying to define buildings, rather than ascertaining the appropriate unit for collective enfranchisement, was carried over into the enfranchisement of flats by section 3 of the LRHUDA.91 The result is that if there is an estate comprising several blocks of flats, perhaps with shared grounds or car-parking, which has been managed with a single service charge, each block will be considered as a separate entity under the LRHUDA; and that, even if it does enfranchise collectively as a single unit,92 the Residents’ Management Company forever runs the risk that the leaseholders within a single block may seek a second collective enfranchisement and thus, in effect, ‘declare UDI’ from the rest. The law needs to allow individual houses to enfranchise separately if a variable estate rentcharge will adequately deal with shared services, but to insist that the holiday chalets or the blocks of flats with shared facilities enfranchise collectively at a level which enables the RTE company to control the shared facilities. 88 Now considered by the House of Lords in Malekshad v Howard de Walden Estates Ltd (above, n 81) and see also Hague, above n 18 at 2–02 to 2–09, pp 39–45. 89 Above n 81. 90 The CLRA will mean that in future the owners of overlapping buildings who have to enfranchise collectively (because their problem cannot be resolved under LRA, s 2(5)) will have to set up an RTE company to do so. 91 The only reported decision on the meaning of a ‘building’ is apparently that of the Lands Tribunal in Saga Properties Ltd v Palmeira Square Nos 2–6 Ltd [1995] 1 EGLR 199, commented upon by P Dollar and S Thompson-Copsey in ‘Mixed use buildings and Part I of the Landlord and Tenant Act 1987’ (1999) 3 L&T Rev 96. 92 Or if the freehold had been transferred to a Residents’ Management Company at the outset.
The ‘Widows and Orphans’ of Leasehold Reform 283 The effect of pressure groups Finally, one can observe that leasehold reform has dealt adequately with the properties that are closest to what one may term the two archetypes: the individual leasehold house, usually with few or no shared services, and the detached block of flats in its own grounds. One should perhaps add a third: the leasehold house (or block of flats) within the comprehensively managed estate management scheme. Inevitably legislation is framed to cover the most common situations, and seems no coincidence that the owners of these properties have the most political clout, and are an important element in a number of constituencies. They are also the property owners who are most likely to have associated themselves with one of the many pressure groups campaigning in the area of leasehold reform.93 The LRA was a response to pressure from leasehold houseowners in industrial areas; estate management schemes were conceded in response to pressure from the large estates and amenity societies. Others fell between the two stools. In the two decades before 1993 the owners of leasehold flats lobbied and organised themselves. The further one gets away from these three models, the less well the law seems to deal with the problems that arise. The fact that owners of maisonettes have been treated inappropriately under the CLRA may well be because they are less likely than flat owners to be members of leaseholders’ associations.
FUTURE REFORMS ?
The long-delayed implementation of land obligations, or some other vehicle for positive covenants, would allow this area of law to develop on a more rational basis. It would still be possible to allow variable estate rentcharges94 to be imposed under the LRA and where appropriate on individual blocks under the LRHUDA. It would be an easy matter to give the LVT jurisdiction to rule on the reasonableness of variable estate rentcharges. Blocks of four or fewer units could be exempted from the requirement of the CLRA to enfranchise via the medium of an RTE company. Trying to ensure that the unit for collective enfranchisement accurately reflects the appropriate level for the provision of shared services will be more difficult, though the present author suspects that, if legislation were framed so as to offer appropriate guidelines, the LVTs would in practice have little difficulty in deciding the issue.
93 Eg, the Leasehold Reform Association, the Campaign Against Residential Leasehold Abuse, the Freehold Flats Campaign, and the Federation of Private Residents’ Associations. 94 Possibly subject to their eventual replacement by some form of land obligation.
Part V
Environment and neighbours
15
The New Forest: Ancient Forest And Modern Playground SARAH NIELD
INTRODUCTION
Extending to 37,900 hectares, the New Forest is the largest area of forest in lowland Britain. It lies tucked into the southwest corner of Hampshire between Southampton and Bournemouth and is bounded on the south by the Solent and to the north by the lower reaches of Salisbury Plain. Although called a forest, it is in fact an area of very mixed habitats comprising enclosed forest,1 open pasture woodlands,2 heath land,3 lawns4 and bogs.5 It is a naturalists haven6 and was designated a Site of Special Scientific Interest in 1971 under National Parks and Access to the Countryside Act 1949.7 The forest has developed a fascinating legal framework which displays vestiges of its origins as a royal hunting ground and which, particularly over the past one hundred and fifty years, has been shaped to meet the changing and often competing demands of those with a stake in the forest. The latest development is the proposed designation of the New Forest as a National Park. The forest did not become a National Park in the 1950s because of the view that it was amply protected by existing legislation that related specifically to the New Forest.8 Since the beginning of the 1990’s the question of National Park status for the forest has been mooted. The process was finally set in motion in 1999 and the Designation Order was made on the 24 January 2002. Whilst there is little objection to National Park status, there are objections from 1 Approximately 23% of the forest is enclosed woodland, just over half is conifer plantations and the remainder broadleaf woodland. 2 Approximately 11% of the forest is unenclosed woodland. It is referred to as ‘the ancient and ornamental woodland’. 3 Approximately 30% is open heath land. 4 Approximately 1.0% is grass lawns, which provides the richest grazing. 5 Approximately 8% is bog and mire. 6 For a detailed study of the ecology of the New Forest see C Tubbs, The New Forest (2nd edn, New Forest Ninth Century Trust, Lyndhurst, 2001). 7 It was renotified in 1986 under the Wildlife and Countryside Acts 1981 and 1985. 8 At that time the relevant legislation was the New Forest Acts 1877, 1879 and 1949, which have since been joined by further New Forest Acts in 1964 and 1970.
288 Sarah Nield those with influential voices9 to the proposed legal framework for the park and a public inquiry is to be held so that the issue can be fully aired. The purposes of this paper is to examine the current legal framework of the New Forest in the light of its evolution over nine hundred years. Without a sound appreciation of the legal status and institutions of the forest it is impossible to decide how this unique portion of Britain may best be protected.
OWNERSHIP
The physical extent of the forest is defined by the perambulation of the forest that has waxed and waned over its nine hundred-year history.10 It is currently defined by the perambulation undertaken under the New Forest Act 1964. This act brought the adjacent commons to the north and west of the forest within the perambulation11 and resulted in the griding and fencing of the forest perambulation to prevent the straying of stock onto adjoining roads, towns and villages.12 Almost three quarters of the New Forest is vested in the Secretary of State for the Environment, Food and Rural Affairs13 and thus, although often referred to as Crown land, it is more accurately a state forest. The management of the forest passed to the Forestry Commission in 1923.14 Following a review of the Forestry Commission’s operations in 1992 its responsibility for the management of national forests, including the New Forest, was assigned to one of its agencies, Forest Enterprise. The remaining quarter of the forest is made up of privately owned land comprising the towns and villages of the forest, privately owned estates, farms and dwellings as well as the adjacent commons, which are owned by a number of private land-owners including the National Trust and local parish councils. The open forest15 and adjacent commons are subject to appurtenant profits in the form of common rights that are attached to a number of properties both within and outside the forest perambulation. These common rights are thought 9 The Hampshire County Council, the New Forest District Council and the Verderers have all objected to the proposed administrative arrangements. 10 The earliest known perambulation was conducted in 1217–18 by Henry III, although records of changes to forest boundaries include those made by William 1, Henry II, Richard I and John. Subsequent perambulations were undertaken by Edward 1 in 1278–9, 1297 and 1300–1 and by Charles II in 1681. The 1681 perambulation largely defined the forest boundaries up to 1964. 11 Section 1. The adjacent commons are Cadnam, Penn, West Wellow, Hyde, Ibsley, Plaitford, Half Moon with Black Hill, Gorley, Hightown, Furzley, Hale Purlieu, Rockford and Kingston Great. 12 Sections 3 and 5. 13 Section 4(5) Forestry Act 1945. Previously Minister of Agriculture, Fisheries and Food. 14 By the Forestry (Transfer of Woods) Act 1923. 15 Excludes the statutorily inclosed woodland and privately owned land within the forest, including the Crown freeholds. The Crown freeholds are the privately owned estates of the Crown, often the sites of the old forest lodges.
The New Forest: Ancient Forest And Modern Playground 289 to date back to the establishment of the forest. Under forest law claimants were required to make periodic claims before the highest of the forest courts, the Forest Eyre. An Act of 1689 gave statutory recognition to the claims made before the last Forest Eyre of 1670. Present claims stem from the registration process set in motion by the Deer Removal Act 1851. This Act together with supplemental legislation passed in 1853 and 1854 provided for the proving of claims before specially appointed commissioners. In all just over 1300 claims were submitted of which 850 were approved and published in the New Forest Register of Decisions on Claims to Forest Rights 1858. To deal with rights that were not included in this registration process because no claim was submitted, the Verderers have power to allow those who have no registered right to pasture their stock on the forest.16 The 1858 register was entirely descriptive and contained no illuminating map and so as time went by it became difficult to trace claims easily. The problem was addressed by the preparation of two Atlases of Forest Rights.17 The first came into force in 1953 as a result of the New Forest Act 1949.18 This Atlas comprises seven large volumes of Ordinance Survey maps upon which the tithe areas of the parishes in and around the forest have been transcribed. Against each tithe area there is a record of the registered rights.19 A second Atlas was prepared in 1964 to record the rights of pasture over the adjacent commons.20 The Forestry Commission was charged with the task of preparing this Atlas and, as there was no pre-existing register to guide them, they merely invited those who thought they had a right of pasture to put in a claim. A check was made on these claims by examining the relevant title deeds but there was no rigorous process of proof. The result was the publication of a further eight volumes of Ordinance Survey maps, showing the area of each claim outlined in colour.
COMMON RIGHTS
There are six different types of common rights although only four of these rights are of any significance today. There are also a number of privileges that the Crown has customarily allowed over the open forest.
16
Section 2 New Forest Act 1879. For a detailed explanation of the Atlases of Forest Claims see A Pasmore, The New Forest Brand Book and A Guide to the Forest Atlases (New Forest Research and Publications Trusts, Lyndhurst, 1996). 18 Section 4. 19 The rights are designated by the following key: P—right of pasture for commonable animals, S—common of pasture of sheep, M—common of mast, E—common of estovers, T—common of turbary, O—common of marl. 20 Section 2 New Forest Act 1964. 17
290 Sarah Nield Right to Pasture Commonable Animals21 The right of pasture is the most important right that is exercised today. Currently there are about five thousand animals grazing on the forest, about three thousand of which are ponies and the remainder mostly cattle with a few donkeys. The right is thought to have its origins in forest law, which prohibited the fencing and cultivation of land within the forest. As a result the forest inhabitants were allowed to let their stock roam the forest. Even so stock had to be removed during the winter months, known as winter heyning,22 when grazing was scarce and during fence month,23 when the deer fawned. As the importance of the forest as a royal hunting reserve declined these restrictions were converted to money payments, which in turn became uneconomic for the Crown to collect. In an attempt to reduce the value of common rights as a prelude to enclosure the Crown did seek to reassert these restrictions at the beginning of the nineteenth century but they failed when winter heyning and fence month were rendered nominal by the New Forest Act 1877.24 These restrictions were finally abolished by the Wild Creatures and Forest Laws Act 1971.25 The numbers of stock that can be turned out are not currently restricted. The numbers could be controlled through the common law rules of levancy and couchancy.26 These rules provide that a commoner should not turn out more stock than can be accommodated on his or her holding during the winter months, with the assistance of fodder produced on the holding during the summer. The Verderers could also restrict stock numbers through their byelaws.27 The right is subject to the observance of the Verderers’ byelaws.28 These byelaws regulate the rights of common, including the common of pasture. For instance they require the commoners to mark their stock with a recognised brand and to pay marking fees to the Verderers29 and empower the Verderers to order the removal of stock from the forest by reason of their poor health or condition or their dangerous temperament. The marking fees are used to defray the Verderers’ expenses, in particular the wages of the Agisters, who are employed to oversee the day to day management of the stock. Drifts are conducted in different areas of the forest towards the end of the summer when stock are rounded up and corralled so that the foals and calves can be branded. To show that 21
Commonable animals include ponies, horned cattle and donkeys. Michelmas to Hocktide or 22 November to 4 May from the seventeenth century. 23 Two weeks either side of midsummer’s day. 24 Section 9. 25 Section 1(3). 26 Literally the animals that can get up and lie down on the holding. 27 Section 9(1)b New Forest Act 1949. 28 The byelaws are made under the New Forest Acts 1877 and 1949. The current byelaws were made by New Forest (Confirmation of the Verderers of the New Forest) Order 1999. 29 The Verderers may vary the level of marking fees for animals that are pastured by commoners, non-commoners and Crown tenants—ss 9(3) & (4) New Forest Act 1949. Also under The Commons Agreement 1964, the commoners of the adjacent common withdrew their opposition to the New Forest Act 1964 in return for reduce marking fees until 2025. 22
The New Forest: Ancient Forest And Modern Playground 291 marking fees have been paid the ponies tails are cut in a distinctive design, according to which area of the forest they roam, and the cattle’s ears are tagged. These drifts also provide an opportunity to check on the condition of the stock and to worm and inoculate as necessary. Owners who wish to sell their stock can also identify their stock and take them off the forest. A series of pony and cattle sales are held to coincide with the drifts.
Right of Pasture of Sheep There are a few rights to graze sheep that are mostly attached to the old monastic lands of Beaulieu and Godshill or over some of the adjacent commons.30
Right of Mast The right to turn out pigs during the pannage season serves a dual purpose. The commoners can fatten their pigs on the autumn harvest of acorns and beech mast while removing these crops, which can be fatal if consumed by ponies or cattle. The pannage season historically ran from 25 September until 22 November but is now a period of not less than 60 days set by the Forestry Commission in consultation with the Verderers.31 The right is subject to the common law rules of levancy and couchancy and the Verderers’ byelaws, which provide that the pigs must be ringed to prevent routing. There is also a recognised privilege to turn out breeding sows throughout the year, providing that they can return to the commoner’s holding each night.
Right to Estovers The old forest laws prevented the felling of trees or the removal of cover but the right to estovers allows the collection of dead wood for fuel that can be burnt in the hearth of the holding to which the right is attached. The right can only be exercised with ‘the view and allowance of the foresters’ and is now controlled by the Forestry Commission, who meet it largely from the felling of trees from the inclosures. The entitlement is measured in cords, being a stack of wood measuring eight foot long by four feet wide and high. As the Crown became increasingly concerned with timber production during the nineteenth century they sought to reduce the number of commoners holding estovers by buying in the right whenever possible. Recent records show that less than one hundred properties still enjoy the right. 30 31
Eg Penn Common. Section 7 New Forest Act 1964.
292 Sarah Nield Right of Turbary The right of turbary, being the right to cut turves, could also satisfy a commoner’s fuel requirements in the days before an effective national fuel distribution system, although it is no longer exercised today. The right could only be exercised with ‘the view and allowance of the foresters’. Commoners had to apply to the Crown for a ticket authorising the cutting of a certain number of turves for a small fee. The rule was that for every turf cut two should be left to allow for natural regeneration. There was also an established privilege for commoners to cut and collect gorse and holly for winter feed and bracken for bedding for their stock. The privilege is rarely exercised nowadays. Right of Marl The right to dig clay from designated marl pits in the south of the forest is also no longer practised. The clay was used both as a fertiliser and as a building material for the traditional cob cottages of the area. The exercise of these rights and privileges formed the basis of an economic system of farming that only declined after the Second World War.32 Commoners could keep a much larger head of stock than their farms or smallholdings could otherwise sustain by taking advantage of their right to pasture their stock on the forest. They could also keep overheads low by capitalising on the forest produce to supplement their own fuel requirements and feed and bedding for their stock. Beef and dairy cattle were grazed on the forest and their produce sold to the local market. The ponies could be profitably sold in the days before motorised transport while pigs could be bought cheap to be fattened on the autumn harvest. Commoning no longer remains economic by any yardstick. Its economic value lies more in the picturesque draw that ponies grazing on the forest hold for the many visitors to the forest. But the commoning community remains a strong and vibrant part of forest life. Stock levels on the forest remain robust as the commoners staunchly maintain their traditions and social ties. Newcomers to the forest who find their properties enjoy rights to pasture stock on the forest sometimes take to the tradition with as much enthusiasm as those whose families have done so for generations. Some measures have been taken to try and support commoning including the schemes to improve the quality and marketability of New Forest ponies, to subsidise marking fees33 and to providing assistance to commoners priced out of the local property market.34 32
For a more detailed account of commoning see Tubbs, above n 6, Ch 7. A local premium scheme for ponies and cattle was established by the Countryside Commission in 1983, it is now administered by the Verderers. 34 New Forest Commoners’ Housing Trust. 33
The New Forest: Ancient Forest And Modern Playground 293 Commoning is not just of social and economic significance, it also plays a pivotal role in the conservation of the forest as a unique habitat. The New Forest ponies have been called the architects of the forest for it is the grazing of stock on the open forest that has shaped and now maintain its ecology.
HISTORICAL OVERVIEW
The New Forest has a long and fascinating history but there is only scope in this paper to provide an overview.35 For this purpose the history of the forest falls into three broad periods. Firstly, its importance as a royal hunting forest dating from the Norman conquest until the Stuart period when the forest was subject to the separate jurisdiction of the forest law for the protection of the vert and the venison. Secondly its importance as a source of timber, mainly for the navy. This period saw the first enclosures to promote the growth of timber, protected from damage caused by grazing stock and browsing deer. Finally there is the history of the modern forest dating from the passing of the New Forest Act 1877 when the Crown’s wish to partition and enclosure the forest was finally defeated. This period has seen the often fine balancing of the interests of the Crown and the commoners. Over recent decades there has also been the need to accommodate the growing number of visitors to the forest, who wish to take advantage of its recreational opportunities, whilst continuing to conserve its unique landscape and ecology.
The Royal Hunting Forest William the Conqueror established the New Forest some time between 1066 and 1086. It is likely that the area was a royal hunting preserve even before that time but what is clear is that William enforced the forest law with greater rigour than any of his predecessors. The forest laws applied to both Crown and private land within the perambulation of the royal forests and were administered by a distinct hierarchy of forest officials and enforced through a separate system of forest courts. The aim of the forest law was to protect the deer, or venison, and the woods and cover, or vert, upon which they depended. The significance of the royal hunting forests lay beyond the mere enjoyment of sport, they were an important source of provisions to the royal court at a time of low agricultural production. The penalties for breach of forest laws imposed by the Norman kings could be 35 For more detailed accounts of the forest’s history see D Stagg, A Calendar of New Forest Documents 1244–1334, Hampshire Record Series Vol 3 (Hampshire County Council, 1979) and A Calendar of New Forest Documents 15th–17th Centuries Hampshire Record Series Vol 5 (Hampshire County Council 1983), A Pasmore, Verderers of the New Forest (Pioneer Publications Ltd 1977), Tubbs, above n 6, Chs 5 & 6.
294 Sarah Nield severe including mutilation and even death but later medieval kings preferred to use the forest laws as an opportunity to raise revenue. Our knowledge of forest law is gleaned from a number of forest statutes36 and sources,37 none of which give a comprehensive view but tantalising insights into a system of law that was finally only abolished with the passing of the Wild Creatures and Forest Laws Act 1971. The main aspects of forest law prevented the killing and chasing of deer and other wild beast of the forest, the felling of trees or the clearance of cover, the keeping of hounds within the forest and the lamming of other dogs, which might worry the deer. Agriculture was also restricted. Stock had to be removed during winter heyning and fence month so that they did not compete with the deer and prohibitions on the enclosure (purpastures) and cultivation (assarts) of land within the forest limited cultivation. When the Crown’s interest shifted towards the raising of revenue, encroachments were tolerated with the imposition of an initial fine and the subsequent collection of yearly rents. By the seventeenth century these rents were no longer systematically collected, although the foresters would still declare the Crown’s rights by entering the land to fire a ritual shot once a year. The exercise of common rights also provided another opportunity to collect revenue. The forest law was administered by a panoply of officials headed by the Lord Warden down to the Foresters, who maintained the forest, and the Agisters or Riders, who monitored the exercise of common rights. Private land within the forest and even land that had been part of the forest but had been disafforested did not escape regulation. Woodwards had to be appointed over private land and Rangers over the disafforested land or purlieus. The lowest forest court was the Court of Attachment at which offences against the vert were brought by the Foresters to be heard before the Verderers. There were four elected Verderers who appear to have played a role similar to that of coroners. They settled the issue and the facts, with the assistance of local witnesses and later juries, and attached the offender for later judgement and sentencing by the forest justices. Attachment could be of the person, ie imprisonment, but only for the most serious offences or for repeated offenders. Usually attachment took the form of seizure of goods or the taking pledges or sureties to ensure the offender’s attendance before the forest justices. The Forest Eyre was the highest court and was held periodically to pass judgement and sentence and to collect the resulting fines. It also had administrative functions. Under its auspices Regarders were appointed to conduct a regard, or survey, of the forest and report to the justices on the condition of the forest. No doubt this survey itself would have revealed a number of forest offences that had escaped the notice, whether innocent or deliberate, of the Foresters. 36 Charter of the Forest 1217 reissued 1225, Statute of 1293, Ordinances of 1305 and 1306, and the Statute of 1327, Statute of Purveyors 1350, Statute of 1383, Order and Rules of the Forest 1537. 37 Dialogus de Scaccoria of 1175 by Richard FitzNigel, Assize of Woodstock 1184, Leges Henrici Primi, J Manwood, Treatise and Discourse on the Lawes of the Forest (1598).
The New Forest: Ancient Forest And Modern Playground 295 Between these two courts the court structure is a little obscure. The sources refer to a Court of Swainmote, which was to be held three times a year to coincide with the pannage season, fence month and Michelmas, when the payment of grazing dues was made. The Verderers and Agisters attended the pannage and Michelmas courts, but the Verderers alone attended the fence month court.38 In time the Court of Swainmote may have been held at the same time or even became part of the Verderers’ Court of Attachment. There is also evidence of the holding of special inquests or inquisitions to enquire into the events surrounding a serious venison offence and to general inquests to enquire into any offences that may have been committed during a certain time period within a particular area. These inquests appear to have been held before the forest justices or their deputies.
The Forest Timber Yard During the medieval period the trees of the forest provided building materials and the underwood was cut to provide firewood, wattle fencing and other domestic products. Underwood was encouraged through natural regeneration in coppices from which the deer were excluded but it was not until the Tudor and Stuart periods that the Crown’s interest began to turn to the timber producing potential of the forest. Greater agricultural efficiency coupled with the increase in trade, which called for more ships, underpinned this change of focus. There was a decline in the enforcement of forest law39 and an overhaul of the administration of timber resources in the forest. An Act of 1542 created a new administrative structure for the Crown forests headed by the Surveyor General of the King’s Woods with a Deputy Surveyor responsible for the New Forest. The Lord Wardens establishment remained so there was a dual administrative structure within the forest, the one concerned with the vert and the venison and the other responsible for timber production. Coppicing was abolished and early enclosure sanctioned by An Act for the Increase and Preservation of Timber in 1689, which provided for the planting and enclosure of two thousand acres with two hundred acres to be added annually for twenty years. In fact progress was slow and only 3296 acres was ever enclosed under this statute. A survey that was ordered by George III at the end of the eighteenth century40 concluded that the forest was in a sorry economic state. It was highly critical of the dual administrative structure whose aims more often competed than coincided. They also were critical of the now uneconomic preservation of the forest deer and the open abuse of common rights. Their report eventually resulted in a further inclosure act in 1808, which confirmed the 38
There may have been a fourth court held at winter heyning. The last Forest Eyre was held in 1670. 40 Fifth Report of Commissioners to Enquire into Woods Forests and Land Revenues of the Crown 1789. 39
296 Sarah Nield 1689 Act and provided for an additional six thousand acres of inclosures. There was also some reform of the administrative structure with the appointment of the Commissioner for Woods in 1810. However it was with the Deer Removal Act 1851 that the Crown finally made a concerted effort to capitalise on the timber potential of its estate in the New Forest. The act provided for the removal of all deer from the forest within a period of three years. The Crown was compensated for their loss with the grant of power to enclosure a further ten thousand acres, making a total of sixteen thousand acres that could be enclosed at any one time. Forest administration was overhauled with the Lord Warden establishment dismantled and absorbed into Office of Woods, which become solely responsible for protecting and promoting the Crown’s interests in the forest. The act also provided for the registration of common rights and rather surprisingly, given the removal of the deer, restated the fence month and winter heyning restrictions. These provisions are perhaps only explicable in the light of the Crown’s wider agenda that became evident in the years following the act, which was to reduce the value of the commoners’ rights as a prelude to partition and enclosure of the forest. This agenda was to be frustrated however by the battle that developed between the Crown and the commoners over the exercise and extent of the Crown’s enclosure powers. A powerful lobby of large landowners, who were as keen as the smaller commoners to preserve the common rights attached to their estates, drove the opposition to partition. They did not stand to benefit from partition because of the higher rents that they could derive from their farms that enjoyed common rights. Valuable support was also derived from the emergent conservation lobby. The new railways were bringing visitors to the forest in ever-increasing numbers and the general enclosure movement had roused those keen to protect what common land remained. Matters came to a head with the outcry that resulted when a bill for disafforestation was introduced in 1871. The bill was abandoned following a House of Commons resolution that no more trees should be felled or inclosures made until further legislation. The legislation that emerged was the New Forest Act 1877, which followed the recommendations of a Select Committee of the House of Commons that reported in 1875.
The Modern Forest The New Forest Act 1877 put pay to the Crown’s hopes of partitioning the forest. It balanced the interests of the Crown and the commoners by limiting the Crown’s powers of enclosure to that sanctioned by previous acts and limited the total area that could be enclosed to sixteen thousand acres.41 The winter heyning and fence month restrictions were commuted to nominal payments so the 41
Ss 5, 6 and 7.
The New Forest: Ancient Forest And Modern Playground 297 commoners were free to pasture their stock throughout the year.42 The Court of Verderers was reconstituted to represent the interests of the commoners and control the exercise of commoners’ rights.43 The act also recognised the need to preserve the ancient and ornamental woodlands and to maintain the open forest.44 The act was dubbed ‘The Commoners Charter’ but it did not immediately put pay to the bitter conflict between the Crown and the commoners. Skirmishes continued between the Crown, represented by the Office of Woods and the commoners, represented by the Court of Verderers. Every real or imagined attempt to limit or infringe the commoners’ rights was taken up by the Verderers. Relations between the Verderers and the Crown, represented by the Forestry Commission after 1923, only entered an era of more constructive partnership in the late 1920s. The forest was not immune from the significant changes to social and economic life witnessed during the twentieth century nor from the military impact of the two world wars. Indeed its open spaces proved most useful for military manoeuvres and for the siting of various military establishments. It became clear at the end of the Second World War that a major review was required. This was undertaken and resulted in the Baker Report,45 named after its chairman, whose recommendations formed the basis of the New Forest Act 1949. The Act sought to resolve the conflicts that had dogged the relations between the Verderers and the Forestry Commission. One of it the main thrusts was to overhaul the Verderers’ Court to reflect a wider constituency of those with interests in the forest.46 This was achieved by increasing the number of Verderers by the addition of appointed members representing the Ministry of Agriculture, Fisheries and Foods, the Forestry Commission, the local planning authority and conservation interests. The commoners continued to be represented by Verderers elected from within their number. The Act sought to satisfy the Forestry Commission’s desire for greater timber production and the commoners’ growing concern with the toll taken on their stock by road accidents with what became known as the Verderers’ Inclosures.47 It authorised the enclosure of a further five thousand acres of open forest on terms to be agreed between the Forestry Commission and the Verderers.48 These inclosures were to be sited so as to try and prevent stock roaming onto the major roads and to screen the growing towns fringing the east and west of the forest but they have proved controversial and only two thousand five hundred acres have been enclosed. 42
Section 9. Ss 14–25. 44 Section 8. 45 Cmnd 7245. 46 Sections 1, 2 & 3. 47 Section 2. 48 The terms agreed were for periods of 150 years subject to the inclosures being thrown open to stock by at least 2015 and compensation for loss of grazing being paid to the Verderers. 43
298 Sarah Nield The Act also made the first proposals for the fencing of the forest’s main roads to prevent stock deaths through accidents.49 This development was more successful and has been taken further by the New Forest Acts 1964 and 1970 so that all the main roads through the forest as well as the forest perambulation are now fenced.50 The Act also regulated the Forestry Commission’s power to grant licences allowing the use of the forest for various public purposes, including utility and recreational facilities as well as car parks, by requiring the consent of the Verderers and the payment of compensation to reflect the loss to common rights.51 In 1964 these provisions were extended to allow for the provision of campsites on the open forest.52 The poor quality of some of the grazing within the forest was addressed by giving the Forestry Commission responsibility for the drainage and the clearance of seedlings and coarse herbage and by incorporating provisions intended to try and improve the grazing.53 The act also widened the powers of the Verderers to make byelaws for the control of stock.54 Finally the Act granted the Forestry Commission power to enclose parts of the ancient and ornamental woodlands to encourage their regeneration.55 The New Forest Act 1964 built on this power by authorising the Forestry Commission to carry out maintenance works within these woodlands.56 Innocuous as these provisions first appeared they proved most controversial. The 1949 Act set the scene for the major issues that have dominated forest politics during the rest of the twentieth century, namely the Forestry Commissions’ concern with commercial silviculture and amenity development within the forest. The Forestry Commission has relinquished their commercial forestry aspirations only gradually and reluctantly. They adopted a policy of reducing the area of broadleaf woodlands and increasing the conifer plantations, which reached a head in the woodland crisis of the late 1960s and early 1970s. The Forestry Commission under their statutory regeneration powers clear felled significant areas of the ancient and ornamental woodlands. A public outcry resulted which was only quelled by a mandate issued in 1971 by the then Minister, James Prior, which directed that commercial timber production and conifer planting within the forest was to cease, with a restoration of the broadleaf woodland traditional to the forest. The Mandate, the essence of which has subsequently been 49
Section 16. The roads presently fenced are the A 31, A35 and A337. 51 Section 18. 52 Sections 6 New Forest Act 1964. 53 Sections 11 and 14. Section 3 of the New Forest Act 1970 conferred upon the Verderers a general power to undertake grazing improvements, subject to the agreement of the Forestry Commission. 54 Section 9. The byelaws are subject to confirmation by the Minister. 55 Section 13. 56 Section 10(3). 50
The New Forest: Ancient Forest And Modern Playground 299 confirmed mostly recently in 1999, recognised the national and international importance of the forest and the priority to be afforded to retaining its traditional character. The forest had proved a magnet to visitors. The 1949 Act set the balance between the ability of the Forestry Commission to provide recreational facilities and car parks to cater for these visitors subject to the consent of the Verderers and the payment of compensation for the infringement to common rights. Section 28 of the Countryside Act 1968 expanded the ability of the Forestry Commission to provide amenity facilities however the Act omitted to subject these powers to the consent of the Verderers, an omission that was hastily corrected by the New Forest Act 1970.57 There was a need not just to provide amenity facilities but to ensure that they did not impact adversely on the forest itself. In the 1960s it was possible to park or camp anywhere but such freedom was placing an unacceptable strain on the forest. By the end of 1976 the open forest became a car free zone with cars confined to car parks and campers restricted to approved sites.
FOREST ADMINISTRATION
The Forestry Commission, through Forest Enterprise, the Verderers and local planning authorities today shares responsibility for the administration of the forest with growing input from a number of conservation bodies.
The Forestry Commission The Forestry Commission has the ultimate authority to manage the forest but subject to the common rights. They can operate within the statutory inclosures and their Crown freeholds without interference by the Verderers or the local planning authority but they must do so in accordance with the directions of their master, the government. Their management of other parts of the forest is subject to varying degrees of control by the Verderers.
The Local Planning Authority The control of development of private land within the forest is subject to the control of the local planning authority, the New Forest District Council. The council has identified for planning purposes a New Forest Heritage Area, which embraces not only the forest but also a broad peripheral zone around the forest perambulation, which in historical and socio-economic terms is essentially part 57
Section 1.
300 Sarah Nield of the forest. Within this heritage area particularly restrictive planning policy guidelines apply, akin to those affecting National Parks.58
The New Forest Committee The Verderers deserve more detailed consideration but before doing so it is important to note the current co-ordinating function provided by the New Forest Committee and the input of other organisations. The New Forest Committee is an independent non-statutory body formed in 1990. It coordinates the work of the key forest organisations namely the Forestry Commission, the Verderers, English Nature, the Countryside Agency, The Hampshire County Council, The New Forest and Salisbury District Councils and the Test Valley Borough Council. A number of other organisations are represented at its meeting as observers.59 Other important forest organisations are represented on the New Forest Consultative Panel, which has a large and wide-ranging membership including the New Forest Association, The Commoner’s Defence Association and the New Forest Pony Breeding and Cattle Society.
Conservation The conservation organisations have a key role to play in the forest administrations. By virtue of its SSSI designation the Forestry Commission and the Verderers have a duty to consult English Nature in the exercise of their management functions and a formal Declaration of Intent has been entered into between the three organisations. Three international designations are significant for the forest. The first is its designation as a Special Protection Area (SPA) in accordance with the EEC directive on the Conservation of Wild Birds 1979. The second is its designation as a ‘Ramsar Site’ under the Convention on Wetlands of International Importance adopted at Ramsar, Iran in 1971 and ratified by the government in 1976.60 The third arises as its likely designation as a Special Area of Conservation under the EU Directive on the Conservation of Natural Habitats and of Wild Fauna and Flora 1992.61The directive has been implemented in this country through the Conservation (Natural Habitats) Regulations 1994,62 which call for the primary objective of management to be nature conservation. 58
The proposed National Park boundary is even larger than this heritage area. For instance the Wiltshire County Council, National Farmers Union and the Country Landowners Association. 60 Cmnd 6465, Treaty series No 34, 1976. 61 92/43/EEC. 62 SI No 2716, 1994. 59
The New Forest: Ancient Forest And Modern Playground 301
THE VERDERERS
The Verderers of today take their name from their medieval forbears, who as elected judicial officers of the Crown, presided over the Courts of Attachments and Swainmote, hearing offences against the vert. The Verderers are still concerned with the preservation of the open forest but their primary interest is to protect the common rights rather than those of the Crown. Although the power and functions of the Verderers under the forest law has been preserved,63 the Verderers of today are constituted and derive their powers and functions from statute. Constitution The Verderers as constituted under the New Forest Act 1877 were more closely allied to the commoners than today. Under this Act there was one Official Verderer, nominated by Her Majesty and six elected Verderers elected by open ballot by the parliamentary electors within forest and the registered commoners.64 The qualification to stand as a Verderer was the holding of not less than seventy five acres of land subject to common rights.65 The Baker Committee concluded that the composition of the court was in need of amendment. They felt it inadequately reflected an appropriate balance between all those with a legitimate interest in the forest, the Verderers’ property qualification was unduly restrictive,66 and the open voting procedures were undemocratic. The New Forest Act 1949 addressed these failings by increasing the number of Verderers to ten comprising the Official Verderer, five elected verderers and five appointed verderers representing the Government, the Forestry Commission, the local planning authority and such body as may be designated as having special responsibility for amenity within the countryside.67 The property qualification for elected Verderers was reduced to the occupation of not less than one acre to which the right of pasture is attached.68 The franchise for elected Verderers was reduced to persons over the age of twenty one years in occupation of not less than one acre to which rights of common are attached.69 Lastly voting was to be by secret ballot.70 These provisions continue to govern the constitution of the Verderers today. The Verderers of the New Forest have the status of a body corporate.71 63 64 65 66 67 68 69 70 71
Sections 1(2) Wild Creatures and Forest Law Act 1971. Section 17. Section 15. By 1949 only 16 persons were eligible to stand for election. Sections 1 & 7. Section 2. Section 3. Section 5. Section 33(1).
302 Sarah Nield Powers and Functions of the Verderers The Verderers are primarily concerned with the regulation of the rights of common and the maintenance and preservation of the open forest over which those rights are exercised. The rights of common are regulated through the Verderers’ Byelaws that the Verderers are empowered to draft at a court comprising not less than five Verderers for confirmation of the Minister. The byelaws apply to all stock pastured within the forest perambulation, including the adjacent commons.72 Regulation of Common Rights Section 25 of the 1877 Act and section 29 of the 1949 Act define the matters over which the Verderers can make byelaws, these include: —the control of disease and measures for maintaining the health of stock; —the conditions regulating the running of stallions, bulls or other entire male stock; —the removal of animals not belonging to commoners; —fixing the number and type of stock; —varying payments due in respect of marking fees and for pannage; —the ringing of pigs; —removal of dangerous animals; and —the regulation of rights of common.
The current byelaws came into force on 9 August 1999. Section 23 of the New Forest Act 1877 supplements the general power to make bye-laws by conferring on the Verderers power to make drifts and to levy marking fees to defray their expenses. There are also a number of statutory provisions, which empower the Verderers to make grazing improvements73 and temporary enclosures over the forest to impound stock.74 The Verderers employ Agisters to monitor day to day compliance with the byelaws and the condition of stock. It is the Agisters that organise the drifts and mark the animals of commoners that have paid the appropriate marking fee. A major concern of the Verderers over the last fifty years has been to reduce the number of stock deaths due to traffic accidents. This concern led to the fencing and gridding of the forest perambulation and main roads despite the interference with the freedom of stock to roam as they wished and the loss of potential grazing. The problem remains on the unfenced roads despite a speed limit of forty miles per hour.
72 73 74
By a legislative oversight the byelaws do not extend to the Manor of Minstead. Section 14 New Forest Act 1949 and s 3 New Forest Act 1970. Section 15 New Forest Act 1949 as amended by s 8 New Forest Act 1964.
The New Forest: Ancient Forest And Modern Playground 303 Preservation of the Open Forest The Verderers elected following the 1877 Act took their new responsibilities to protect common rights conscientiously. In a series of disputes with the Crown the Verderers vigorously argued that any exploitation of the forest beyond the Crown’s statutory inclosures was an unlawful interference with common rights and thus required their consent. This question has never been judicially resolved although several disputes resulted in litigation. Early legislation concerning the use of the forest did however acknowledge the role of the Verderers both in terms of seeking their consent and in the payment of compensation for interference.75 Current legislation continues to acknowledge this role by requiring the involvement of the Verderers in almost all development affecting the forest. For instance, the Forestry Commission must consult the Verderers in carrying out drainage work and the clearance of coarse herbage,76 licences for the running of public utilities across the forest requires the consent of the Verderers,77 the creation of any new roads or the widening of any existing roads also involves the Verderers78 and the exchange of forest land again requires Verderers’ consent.79 The Verderers do not have a role to play within the statutory inclosures, which are free of common rights, but their approval is required to any work within the unenclosed woodlands.80 In the early years the Verderers’ energies were focussed on restraining the commercial aspiration of the Crown and Forestry Commission but since the Forestry Commission has abandoned overt commercial silviculture, their focus has shifted towards trying to achieve an acceptable balance between the interests of commoning, amenity and conservation. By section 23 of the Countryside Act 1968 as amended by the New Forest Act 1970 the Verderers’ consent is required and compensation payable for any tourist, recreational or sporting facilities developed over the open forest.81 While section 15 of the New Forest Act 1964 provides that in the performance of their statutory duties the Verderers, along with the Forestry Commission, are to have due regard to the preservation of the ecology of the forest. The forest’s national and international designations also require the Verderers and the Forestry Commission to consult English Nature and have regard to conservation in the discharge of their functions, a duty which can conflict with their interests to maintain and improve the available grazing.
75 76 77 78 79 80 81
See for instance New Forest (Sale of Land and Public Purposes) Act 1902. Section 11 New Forest Act 1949. Section 18 New Forest Act 1949. Sections 16 & 17 New Forest Act 1949. Section 19 New Forest Act 1964. Section 13 New Forest Act 1949 and s 10 New Forest Act 1964. See also s 18 New Forest Act 1949 as amended by s 6 New Forest Act 1964.
304 Sarah Nield Judicial Functions Although the Verderers rarely resort to the exercise of their judicial functions, they do have power to enforce their own and the Forestry Commission’s byelaws82 and to inquire into all unlawful inclosures, encroachments and trespasses to the forest.83 Following the abolition of forest law and repeal of associated statutes by the Wild Creatures and Forest Laws Act 1971, the Verderers’ powers under the old forest law remain obscure and of little practical value.84 The 1949 Act provides that the when exercising their judicial functions the court should comprise the Official Verderer and four other Verderers appointed by the Lord Chancellor, of whom not less than three should be elected.85 By the 1877 Act each Verderer is granted the same powers as a justice of the peace and the court, when transacting judicial business, the same powers as a Magistrates’ Court, including the same powers to recover any fines that the Verderers may impose.86 A right of appeal lies to the Crown Court.87
Conduct of Verderers’ Responsibilities The nature of the Verderers’ business is legislative, administrative and judicial —the separation of powers is not a principle adhered to by the architects of the Verderers’ Court. Much of their administrative business is conducted in committee but monthly open courts are held for both administrative and judicial business. The court is held in a portion of King’s House in Lyndhurst, which is adorned with relics of the old Courts of Attachment and Swainmote, most notably an old oak dock. The court is opened by the Head Agister calling: Oyez, Oyez, Oyez. All manner of persons who have any presentments to make or matter or thing to do at this Court of Verderers let them come forward and they shall be heard. God save the Queen
The presentments have their origin in the presentments of forest offences made by the Foresters to the Verderers’ Court but now presentments may be made by anyone provided they are relevant to some aspect of the forest or its management. Certain matters are also required by statute to be dealt with by presentment for instance most statutory powers authorising enclosure require the matter to be initiated by presentment. The Verderers do not make a decision on a presentment immediately but will wait until the next court to allow interested parties an opportunity to make their views known. 82 83 84 85 86 87
Sections 47(3) Forestry Act 1967. Section 23(4) New Forest Act 1877. Though it saves the functions of the Verderers see s 1(2) and s 23(5) New Forest Act 1877. Section 8. Sections 33–5. Section 36 New Forest Act 1877.
The New Forest: Ancient Forest And Modern Playground 305 The Verderers’ open courts and the method of making presentments provides an interesting example of local democracy and consultation. The court is always well attended and provides an effective forum for debate on forest matters and a sensitive barometer of forest opinion.
CONCLUSION
How does the proposed National Park fit in with this administrative structure? The Countryside Commission is recommending a standard appointed National Park Authority, which will overlay the existing structures, for there are no proposals to amend the New Forest legislation or to significantly reduce the development control input of the local planning authority. They suggest that a joint committee co-ordinate the work of the authority, the Forestry Commission and the Verderers, presumably in a similar manner to the existing New Forest Committee. The hope in many circles is that the Countryside Commission would have recognised the unique features of the current administration of the New Forest and recommended a structure that would have supported and reinforced that administration and not merely have added another layer of bureaucracy.88 There is a deep seated suspicion, based upon past bitter and long experience amongst the commoners, of any shift of authority away from those who are deeply connected with the day to day life of the forest to faceless government departments or statutory authorities. They know the Verderers, both appointed and elected, and their Agisters and feel comfortable with the openness of their court that provides a venue for all and sundry to air their concerns and to receive a considered and public response. Whatever administrative changes the National Park will bring there is no doubt that there are significant challenges to be met. The most difficult is to establish a balance between all the competing demands and expectations that are made upon the forest. Conservation of this unique area must be the highest priority but how does that balance with the public’s growing expectation to free access and recreational freedom? The proximity of the forest to large centres of population means it is particularly accessible.89 Tramping feet often with accompanying dog(s), relentless cycle wheels and pounding hooves take their toll not only on the ground over which they pass but the wildlife they disturb. Forest Enterprise may have been forced to abandon commercial timber production but they have not been relieved of profit objectives by their masters; thus exploitation of the forest, whether through the sale of fallen timber or the accommodation of visitors, remains on their agenda. Tourism and recreation based upon the forest or the adjoining coastline also provide vital sources of income for the local economy. The commoners and their stock may shape and 88 89
The Countryside Commission in 1991 had recommended a tailor-made constitution. Eg Southampton, Portsmouth, Bournemouth, Poole and even London is only 90 minutes away.
306 Sarah Nield preserve the forest but how can a viable future be secured in such a bleak agricultural environment? If it can, the pasture demands of their stock may cease to be overriding in the face of the need to conserve rare mire or other habitats. The forest’s location also makes it susceptible to both commercial and residential development. Being pinched between Southampton and Bournemouth the forest is in danger of being nibbled from either side. The latest proposed bite comes from plans to expanded the port facilities on Southampton Water to Dibden Bay to the east of the forest and within the proposed National Park. It is presently the subject of an inquiry. On the residential front house prices have soared as commuters to as far away as London seek to make their home, or to acquire a second home, within the forest or its environs. Local house buyers with lower earnings potential find themselves unable to compete. In response and in common with other areas of outstanding natural beauty, the local planning authority is contemplating policies that will restrict future house building to meet the demands of local people. With these challenges to meet the life of the forest will continue to be as interesting as the past nine hundred years.
16
Protected Area Values: National Parks and Public Land Ownership CHRISTINE WILLMORE
many examples of statutory efforts to determine the relationship between conflicting policy objectives in relation to land held by public bodies—this paper considers the relationship of National Park objectives to other public land ownership objectives. National Parks exist to deliver ecosystem conservation and recreation in areas which have a significant aesthetic, ecological or cultural value. In England and Wales this protection is delivered through the National Parks and Access to the Countryside Act 1949. A significant percentage of the land within National Parks is owned by public bodies, yet much of this land is managed for purposes not directly linked to the aims of National Park designation. This paper considers the role such land holdings currently play in delivering National Park objectives and the opportunities for land owned by public bodies to play a greater role in delivering conservation and recreation in National Parks. The delivery of National Park objectives relies largely upon persuasion, backed by differential application of general regulatory controls and financial incentives. The emphasis is upon persuading landowners to adopt National Park objectives as their own, but this emphasis is focussed upon the behaviour of private landowners. The significance of landowners in influencing the rural agenda makes the approach to publicly owned lands particularly significant if reliance is to be placed upon creating a climate of opinion to promote National Park objectives. At present there is little discernable coherence in the way public bodies approach the relationship between National Park objectives and their own statutory or other functions. The ad hoc nature of the solutions reached when seeking to reconcile different objectives creates a risk of inconsistency and makes conservation vulnerable to other government purposes. This paper does not address the question of whether public ownership of land should be increased within National Parks: indeed there would be little point in doing so, until there is a more concerted approach to the use of already publicly owned lands. Instead it puts the case for a review of the use made of land already held by public bodies within National Parks, to ensure at least that consistent
T
HERE ARE
308 Christine Willmore decisions are taken about the relationship between National Park and other objectives. The lack of an articulated strategy for the role of land owned by public bodies—or even a debate about the role of such lands—affects the ability to deliver National Park objectives, not least because of the influence of landowners in rural communities. Marsden et al have argued that the critical resource in a rural area is land— and that access to property rights is critical in any group’s ability to influence the local agenda.1 The precise significance of property rights in shaping the agenda depends upon the other tools deployed, and in particular the role of regulatory action that tempers the choices of landowners. In a period of movement from state regulation to civil/self-regulation, control of property rights within a community can play an enhanced role in determining outcomes. If the state fails to deploy its own property rights in pursuit of the full range of public policy goals, it is failing to play an equal role in shaping the rural agenda alongside private landowners.
INTRODUCTION
Property concepts have been recognised as having significant potential to address environmental issues—from use of the global genetic base to the commodification of greenhouse emissions—yet when it comes to the question of who should be in a position to exercise those property rights, there is a certain coyness. Thus, Davey recognises that however much the World Conservation Union2 sees public property ownership as a useful tool to protect landscapes, Only a limited percentage of the land area of most countries (in some cases very little) is held directly by the government, so it is not likely to be effective for a protected areas programme to be based exclusively on government land.3
Significant effort is being expended upon constructing agreements to pay people to use private land in particular ways to deliver conservation objectives, yet little attention is being paid to altering the way currently publicly owned property is used in relation to those same objectives. One conservation issue for which public ownership of land has a major role in many countries in relation to protected landscapes is the American rather than the British model of a ‘national park’.4 The US model combines extensive public ownership of land within parks with additional regulatory controls, in contrast to British reliance upon persuasion of private landowners. 1 See T Marsden, J Murdoch, P Lowe, R Munton, A Flynn, Constructing the Countryside (UCL Press, London, 1993)—a line pursued in different terms by M Shoard, This Land is Our Land: Struggle for Britain’s Countryside (Grafton Books, London, 1987). 2 A body known internationally by the initials IUCN. 3 A Davey, National System Planning for Protected Areas, World Commission on Protected Areas. (WCPA) Best Practice Protected Area Guidelines Series No 1, (IUCN, 1998). 4 16 USCA §1, National Parks Omnibus Management Act 1998.
Protected Area Values: National Parks and Public Land Ownership 309 It is easy to dismiss this difference as an inevitable product of differing geographical and historic contexts, resulting in differing densities of occupation/use, and differing attitudes to people living in the areas affected. Above all, people point to to the differing levels of state ownership of land in the USA compared to Britain. The argument which says that the USA is bound to make more use of public land ownership to deliver National Park objectives because it owns more land in relevant areas begs many questions. Of course public land ownership in National Parks will never be as great in England and Wales as in the USA; but in both the Dartmoor and Northumberland National Parks, ownership by public bodies covers over 40 per cent of the land.5 But however limited public ownership of land is, the existence of any public ownership of land provides an opportunity. History may account for the relatively low level of public ownership of land in Britain, but cannot entirely account for attitudes to the role of such land as is in public ownership in delivering policy goals, which may also reflect a difference in understanding of the purposes of public ownership of land in the USA.
WHAT IS A ‘ NATIONAL PARK ’?
The IUCN has established a typology for protected sites. The classification can be used both normatively and descriptively to outline the way in which sites in each class should be managed, and to provide a descriptive classification for sites already managed in a particular way. However there is no requirement for countries to re-name domestic classifications to fit these categories or their descriptors.
IUCN Protected Area Management Categories6 I. Strict protection: Nature Reserve/Wilderness Area. II. Ecosystem conservation and recreation (National Park). III. Conservation of natural features (Natural Monument). IV. Conservation through active management (Habitat/Species Management Area). V. Landscape/seascape conservation and recreation (Protected Landscape/Seascape.) VI. Sustainable use of natural ecosystems (Managed Resource Protected Area).
5 6
For land occupation see http://www.cnp.org.uk/facts_&_figures.htm. Guidelines for Protected Area Management Categories ( IUCN, Gland, Cambridge, UK, 1994).
310 Christine Willmore In total nearly nine and a half percent of the landmass of the planet is within one of these protected areas,7 including over twelve per cent of the land area of Europe.8 Despite the typology, ‘national park’ may not mean the same thing everywhere,9 and even where a country affixes an IUCN descriptor, this can be as much an aspirational statement as a description of protection actually in place.10 Both the Countryside Agency and Scottish Executive stress the international significance of the ‘National Park’ descriptor.11 Yet, whilst carrying the name of a Category II site, British use of ‘National Park’ reflects neither the definition, nor organisational approaches for Category II.
IUCN ‘Guidelines for Protected Area Management Categories’ CATEGORY II National Park Definition Natural area of land and/or sea, designated to (a) protect the ecological integrity of one or more ecosystems for present and future generations, (b) exclude exploitation or occupation inimical to the purposes of designation of the area and (c) provide a foundation for spiritual, scientific, educational, recreational and visitor opportunities, all of which must be environmentally and culturally compatible. Organizational Responsibility Ownership and management should normally be by the highest competent authority of the nation having jurisdiction over it. However, they may also be vested in another level of government, council of indigenous people, foundation or other legally established body which has dedicated the area to long-term conservation.
7 12.8 million km2 . M Green and J Paine, ‘State of the World’s Protected Areas at the End of the Twentieth Century’ IUCN World Commission on Protected Areas Symposium on ‘Protected Areas for the 21st Century: From Islands to Networks’ Albany, Australia, 24–9 November, 1997. 8 Including 30% of the world’s Category V areas. 9 The World Commission on Protected Areas web site uses a Scottish landscape to illustrate a section on ‘National Parks’: http://ecpa.iucn.org/region/europe/. 10 WCPA Key Issues—2002: http://ecpa.iucn.org/region/europe/. 1994, Parks for Life: Action for Protected Areas in Europe. A Waycott, National Parks of Western Europe (Southampton Inklon, 1983). 11 New Forest National Park, Countryside Agency ‘Questions and Answers’ paper, Question 1 http://www.countryside.gov.uk.; Consultation on National Park for Scotland http://www.scotland. gov.uk/nationalparksscotland.
Protected Area Values: National Parks and Public Land Ownership 311 The objectives of Category V are those which most closely fit domestic uses of ‘National Park’.12 IUCN ‘Guidelines for Protected Area Management Categories’ CATEGORY V Protected Landscape Definition Area of land, with coast and sea as appropriate, where the interaction of people and nature over time has produced an area of distinct character with significant aesthetic, ecological and/or cultural value, and often with high biological diversity. Safeguarding the integrity of this traditional interaction is vital to the protection, maintenance and evolution of such an area. Organisational Responsibility The area may be owned by a public authority, but is more likely to comprise a mosaic of private and public ownerships operating a variety of management regimes. These regimes should be subject to a degree of planning or other control and supported, where appropriate, by public funding and other incentives, to ensure that the quality of the landscape/seascape and the relevant local customs and beliefs arc maintained in the long term.
This suggests that a mosaic of public and private ownership is the most likely mode of management for these areas, in contrast to the high level of state ownership envisaged for true ‘National Parks’. For Category V sites, public ownership is seen as having a role, it is just not the main organizational tool. The emphasis is upon developing partnerships with local people, including private landowners: Thinking on protected areas is undergoing a fundamental shift. Whereas protected areas were once planned against people, now it is recognized that they need to be planned with local people, and often for and by them as well.13
Aims of National Parks in England, Wales and Scotland This organisational shift can be seen in the operation of British National Park policy. The key to English and Welsh National Park designation is ‘the striking 12 See A New Forest National Park Authority, proposed special arrangements, http://www. countryside.gov.uk, 2001, p 8 for Countryside Agency attitudes. 13 IUCN Task Force on Protected Landscapes Report (IUCN, 2001).
312 Christine Willmore quality and remoteness of much of their scenery, the harmony between man and nature it displays, and the opportunities it offers for suitable forms of recreation’.14 National Parks are those extensive tracts of country where ‘by reason of (a) their natural beauty and (b) the opportunities they afford for open air recreation, having regard both to their character and to their position in relation to centers of population’
the Countryside Agency consider it especially desirable for . . . conserving and enhancing the natural beauty, wildlife and cultural heritage of the areas . . . and . . . promoting opportunities for the understanding and enjoyment of the special qualities of those areas by the public.15
In addition, although not part of the designation criteria, National Park Authorities16 have a duty to promote the social and economic well being of communities within the park.17 Application of those objectives is also subject to the Sandford Principle18 of seeking to ensure that uses today do not prejudice the ability of future generations to enjoy the same beauty. The focus is upon areas which can combine beauty and recreation, but which are sufficiently close to centres of population to be subject to pressures for access. Over seven and a half percent of England19 lies within a National Park20—a figure that rises to twenty one percent in the Yorkshire and Humber region and over eighteen percent in the North West Region.21 In such regions, far from being a special designation, it covers a significant percentage of the area. In Scotland the National Park concept proceeded separately from that in England and Wales,22 leaving Scotland without any national park legislation until the National Parks (Scotland) Act 2000.23 The designation in Scotland is concerned more with tourism than with day trip recreation; it integrates sustainability, and, most significantly, seeks to integrate economic development 14 15
‘Fit for the Future’, Report of the National Parks Review Panel (HMSO, London, 1991). National Parks and Access to the Countryside Act, s 5 as amended by the Environment Act
1995. 16 Environment Act 1995, s 63 (s 64 for Wales), (National Parks (Scotland) Act 2000, ss 9, 10 and Schs 2, 3 for Scotland). 17 National Parks and Access to the Countryside Act 1949, s 11A—inserted by Environment Act 1995, s 62. 18 Sandford Committee Report of the National Parks policy review committee, HMSO 1974. 19 ONS 1999. 20 Peak District, Lake District, Snowdonia, Dartmoor (1951), Pembrokeshire and the North York Moors (1952), Yorkshire Dates and Exmoor (1954), Northumberland (1956), Brecon Beacons (1957). Norfolk and Suffolk Broads (1989) are protected by parallel legislation: Norfolk and Suffolk Broads Act 1988. The New Forest is part way through its statutory process for designation. The South Downs are also under consideration. 21 Countryside Agency Regional Annual Reports, 2001. 22 Cmd 6631. 23 See C Reid, ‘National Parks (Scotland) Act 2000’ [2000] SPEL 81, 112.
Protected Area Values: National Parks and Public Land Ownership 313 with conservation.24 These differences reflect both the changing IUCN emphasis and experience south of the border, but in a manner differing from the English response.25 Whilst the Scottish Executive sees social and economic development and conservation as mutually supportive, with the balance of interest favouring long-term protection of natural resources,26 in practice, the aspirations of people living in the National Parks are being given headline billing.27 Despite these differences of emphasis, on the critical question of the role of publicly owned lands there is little difference.
DELIVERY OF NATIONAL PARK OBJECTIVES
There has been no significant move from private to public ownership since the conception of National Parks in 1949. The same patchwork of ownership has continued, with National Park objectives pursued through regulation, economic incentives and persuasion. Designation itself results in —labelling: national and international status, recognition and influence —oversight by a regulatory body with statutory remit to consult that body before other bodies use some statutory powers —focus upon the park as a geographical unit —opportunities for stronger planning protection. And there we have it: the primary difference between a National Park and any other area of countryside is status and oversight backed by planning and financial incentives. National Park Authorities are very much left to themselves to devise how best to pursue their statutory objectives—a deliberate approach within the 1949 legislation, which continues to form the basis of government policy: The Government believes that individual National Park Authorities are best placed to identify the nature of the special qualities of their Parks.28
Central agendas are deployed at arm’s length through advice, guidance and financial incentives.29 Their success depends upon the extent to which institutional representation can promote those aims. 24 National Parks (Scotland) Act 2000, s 1. Juxtaposition to urban areas has gone, and an emphasis upon the benefits to be had from a co-ordinated approach has been added. 25 Sandford Report 1974; National Parks in Focus, Countryside Commission 1991. A similar approach was recommended for England and Wales but was rejected in favour of an exhortation to ‘take full account of such needs: Fit for the Future, Report of the National Park Review Panel 1991; s 5 Environment Act 1995, DOE Circular 12/96. 26 Consultation on the National Parks (Scotland) Bill 2000. 27 See SE1378/2001 press release, 11 June 2001. 28 See paragraphs 10–15. DoE Circular 12/96. 29 The Countryside Agency (in Wales the Countryside Council) advises government and National Park Authorities National Parks and Access to the Countryside Act, s 1.
314 Christine Willmore This in turn relies upon the articulation of plans for the area, making concrete the statutory aspirations. Much emphasis internationally is now placed upon positive planning for Category V areas—working with local communities to identify how conservation, access and economic needs can be reconciled and promoted.30 Initially seen as a Town and Country Planning issue in Britain,31 a wider approach analogous to the local government ‘community plan’ is now adopted. This five yearly National Park Management Plan32 comes closest to the concept of a Management Plan envisaged by the IUCN, but need only be a plan for the authority on how it will carry out its functions. In practice National Park Management Plans go beyond consideration of the authority’s own role, and take the form of community plans exploring issues such as the future of farming and housing, providing a practical and more detailed exposition of the Park purposes, as applied to their area. As such they are a guide to landowners and public agencies about strategies for the area. Public landownership plays, at most, a minimal role. Before moving on to consider the role of this, it is necessary to consider the other powers available and their limitations.
Regulatory powers Public perceptions of National Park status reveal33 fears of a dramatic growth in tourism, with tourism given priority over the preservation of traditional lifestyles, bureaucracy, and a fear that National Park status brings substantial additional regulatory control over landowners, commoners and users. Reality is different. With the exception of a few powers to provide tourist facilities such as toilets,34 the 1949 Act conferred no greater powers to control major land use issues in relation to national parks than in other areas—the assumption was that general powers would be used differently. Indeed until 1995 National Park authorities had fewer powers than local authorities even in relation to their core purposes.35 National Park Authorities now have a selection of relevant local
30
Above. A requirement to map areas of ‘mountain, moor, heath, woodland, down, cliff or foreshore’ in National Parks whose natural beauty is particularly important to conserve was added (s 43 WLCA 1981), but this lacks any linked powers to protect those areas. 32 Environment Act 1995, s 66, See DoE Circular 12/96 paragraphs 51–2; compare the National Parks (Scotland) Act 2000, s 11, which requires a plan to also set out and co-ordinate ‘the functions of other public bodies and office-holders so far as affecting the National Park’. 33 Most recently in consultation upon New Forest National Park status: Consultants’ Report on the public consultation on a New Forest National Park Authority 2001. 34 Accommodation, camping sites, parking places, toilets, litter bin provision (National Parks and Access to the Countryside Act, s 12 as amended by Countryside Act 1968) and waterways (s 13). 35 Most significantly in planning, but also see ss 37/38 Countryside Act 1968: transferred to National Park Authorities by the Environment Act 1995. National Parks still have a different function from the local authorities within their area eg in relation to education. 31
Protected Area Values: National Parks and Public Land Ownership 315 authority powers,36 including planning powers. Other powers, designed to protect rural areas may also apply, but not exclusively, in National Parks.37 Rather than extending regulatory control, the focus has been upon the transfer of powers from local authorities to National Park Authorities,38 with a resulting focus upon the question of who can exercise the powers, not the nature or scope of the powers. It is hoped that transfer of a power to a body with statutory focus upon the Park and its objectives will alter both the use made of existing powers and landowner responses. Such additional controls as have been created to protect National Parks, rather than other areas, have increasingly been subsumed within, and sometimes overtaken by, a tighter general approach to regulation of countryside management.39 For example, in 1981 in what was seen at the time as a major step to protect moors and heaths in National Parks,40 Ministers were given power to designate non-agricultural moor and heath which had not lawfully been used for agriculture for at least twenty years.41 Once land is designated, the Minister must be notified of agricultural or forestry operations which appear to ministers likely to affect the character/appearance of the land. The Minister cannot prohibit the works, notice requirements serving only to provide an opportunity in which to negotiate a management agreement or purchase.42 At a time when agriculture was largely outside regulatory control this seemed significant, but it is now far weaker than general Environmental Impact Assessment Regulations introduced in 2002 governing all proposals to turn uncultivated land or semi-natural areas into intensive agricultural use, irrespective of location. These cover a wider range of agricultural changes and prohibit work without consent.43 The National Park power is historically obsolete; this is just one example of National Park powers not keeping ahead of more general countryside controls.44
36
Part III Environment Act 1995 and Schedule 9. Eg Housing Act 1985 s 157(1). 38 National Parks in Focus, Countryside Commission 1991, Government Response, see [1992] JPEL 229. 39 Compare the provisions of 1949 Act on access with the nationwide provisions of the Countryside and Rights of Way Act 2000. 40 M Shoard, The Theft of the Countryside, (London, Temple Smith, 1980) argued that this power alone was an important reason to extend National Park status to lowland Britain. 41 Wildlife and Countryside Act 1981, s 42. 42 Three months notice is required. Even if the Minister objects work can proceed after twelve months, and failure to give notice is subject only to a £5,000 fine. 43 Environmental Impact Assessment for use of uncultivated land or semi-natural areas for intensive agricultural purposes Regulations 2002, covering ploughing, fertilizing/liming, drainage, modification of water courses, clearing of vegetation, and increase of stocking rates. See also Department for Environment, Food and Rural Affairs, Codes of Good Agricultural Practice. 44 See CCP531, Countryside Agency, 1998 in which the Agency puts the case for enhanced protection for National Parks. 37
316 Christine Willmore Planning powers The Dower Report45 and the 1949 legislation assumed that Town and Country Planning Act powers would play a central role in the delivery of National Park aims. Until very recently agriculture was largely unregulated by the Planning Acts, making any additional planning controls in National Parks a significant benefit. Whilst the legislation differs only in relation to permitted development rights, the assumption and practice have been of different nationally imposed policy criteria within those schemes, differently applied locally. This anticipated difference is delivered now (although not initially) by making National Park Authorities the planning authority for their area. The policy framework is largely locally derived, albeit in the light of Countryside Agency guidance,46 so a diversity of approach to planning policies and development control can be found within National Parks, but sharing the common feature of exerting stronger environmental and aesthetic controls than would be permitted elsewhere.47 There is no Planning Policy Guidance Note devoted to National Parks—indeed National Parks are not even mentioned in PPG9 on nature conservation or PPG15 the historic environment.48 It is anticipated in government policy that local policies within National Parks will ‘give greater priority to restraint’.49 This is expanded upon in PPG7,50 where the Department states that ‘conservation of the natural beauty of the countryside, and of its wildlife and cultural heritage, should be given great weight in planning policies and development control decisions’. ‘Major development should not take place in the National Parks . . . save in exceptional circumstances . . .’51 where they are demonstrated to be in the public interest. One has only to look at Trawsfyndd Nuclear Power Station and Fylingdales to see the weakness of preservation based upon policy in this way. These policy commitments are backed up not by extra planning controls as such, but by lower levels of exemption from planning control: permitted development rights are less in National Parks,52 with increased control over items such as telephone masts,53 fish farming, and agricultural buildings,54 adding up 45
Cmd 6628 (1945). Section 9. See G Castorina & A Piatt, ‘Don’t park that scheme here’ [2000] EG 0005, 129, 131. 47 For case studies see Development Planning and Control in National Parks in England and Wales, Report to the Scottish Executive, 2001. 48 National Parks only feature in PPG21 on tourism, PPG17 sport and recreation and PPG7 on the countryside. 49 PPG1, para 28. 50 The Countryside: Environmental Quality and Economic and social development, see paras 4.2–4.6. 51 Paragraph 4.5 ibid See DoE Circular 12/96 paragraph 49. 52 Eg control over roof extensions to dwelling houses. 53 Telecommunications Act 1984. 54 See Town and Country Planning (Agriculture and Forestry Development in National Parks etc) Special Development Order 1986, /1176; Brand C, ‘Planning control in national parks: the new Special Development Order’ (1987) EG 281 (6322) 762. 46
Protected Area Values: National Parks and Public Land Ownership 317 to a touching of the tiller, rather than a radically different level of state control over land use.
Economic Instruments A second critical set of tools to influence land use are economic instruments. Throughout the countryside, not specifically linked to National Parks, powers exist55 to establish Management Agreements in relation to countryside to conserve or enhance the natural beauty of land,56 with similar powers specifically linked to conservation and access.57 National Park Authorities have been able to enter Management Agreements since 1995, but only in the new Scottish legislation is there a power specifically designed to deliver National Park objectives.58 Subject to the availability of funds, these confer power to reach agreements to secure the statutory purposes of the National Park, which bind successors in title, and may therefore exist as long as the National Park authority considers them to be useful. Economic tools are also deployed through an ever more complex web of countryside incentives, grants, agreements and subsidies. Whilst the willingness of national agencies to enter such agreements may be greater within a National Park than elsewhere,59 each scheme has its own criteria for funding, none explicitly linked to the delivery of National Park objectives.
Public bodies operating in National Parks Even after the 1995 reforms, the key difference in terms of protection of land within a national park as opposed to land outside is the way in which statutory powers are exercised, not the nature of the powers: this is particularly important in relation to bodies other than the National Parks Authority. Until 1995 public bodies other than the National Parks Authority had no particular obligations in relation to National Parks—unless expressly included in the particular statutory power—so the Ministry of Defence had no particular obligation to have regard to National Park status when deciding how to act within a National Park. That changed, to some extent, with the Environmental Act 1995, which requires any public body, in exercising any function affecting 55
Extended to National Park Authorities by s 69(2)(a) Environment Act 1995. National Parks and Access to the Countryside Act, s 39. 57 National Parks and Access to the Countryside Act, s 16 (nature reserves), s 64 (access). Grant schemes with agricultural, environmental or rural objectives, run through Department for Environment, Food and Rural Affairs. 58 National Parks (Scotland) Act 2000, s 15. 59 Currently £40million plus of public funds goes into National Parks each year from government and EU sources by these routes. Association of National Parks http://www.anpa.gov.uk/. See for example Agriculture Act 1986. 56
318 Christine Willmore land in a National Park to “have regard” to the purposes of National Park designation.60 This applies to Ministers, public bodies, statutory undertakers and any persons holding public office. The duty is only to “have regard”, an obligation that creates little more than a procedural or evidential burden to show the matters have been considered. Reference to the Scottish position again underlines the limited nature of the English and Welsh position: in Scotland, in addition to having regard to the general statutory purposes of the National Park, public bodies must also have regard to the National Park Management Plan—a far more detailed and specific agenda.61
Public body ownership of land Acquisition of land Rather than seeking to persuade others another major tool available is to use the property rights available to the state as a landowner. The 1949 Act set its face against public ownership of land as a tool to deliver national park objectives. Indeed the starting point is altogether different. At that time the Crown was immune from statutory regulatory controls unless expressly bought within the statutory regime. It was felt necessary in the 1949 Act in England and Wales to state that National Park controls could extend to Crown land.62 Similarly, planning and regulatory controls, which control private landowners, did not necessarily apply to Crown lands. Whilst these particular limitations did not apply to other lands in public ownership, they reflect an important attitude towards one major potential owner. The roots of this British failure to address landownership as a tool are to be found in the Dower Report,63 which formed the starting point of the manoeuvrings in the run up to the National Parks and Access to the Countryside Act 1949. The report recognized the impracticality of widespread state ownership of land on the US model, but saw public acquisition as an indispensable last resort. The emergent planning system—rather than state ownership of land—was the principle instrument to deliver the objectives. No attention was given to the role of existing Crown, local authority, or other public body lands in potential National Park areas. Whilst the Treasury was willing to use the National Land Fund to support the compulsory acquisition of land for National Parks, should this prove necessary, concerns in the Ministry of Agriculture about a loss of influence should the Ministry of Town and Country Planning become a major rural 60
Section 62 inserted National Parks and Access to the Countryside Act, s 11A(2). National Parks (Scotland) Act 2000, s 14. 62 National Parks and Access to the Countryside Act, s 101. 63 Cmd 6628 (1945); for the equivalent Scottish report see Cmd 6631. Hobhouse Report, Report of the National Parks Committee Cmd 7121 (1947). 61
Protected Area Values: National Parks and Public Land Ownership 319 landowner, and concern, particularly in County Councils, about undermining the new Town and Country Planning legislation, prevented this. By the time of the 1949 Act the Agriculture Act 1947 had put in place a new deal with farmers. Private landowners were seen as being trusted to deliver conservation, or at least conservation consistent with the demand for food.64 The end result was an emasculated Act, which created National Park authorities with few powers, reliant at that point upon County and District councils to use Town and Country Planning Act powers to deliver National Park objectives.65 Thus the British National Park model owes as much to historic tensions as to a principled decision to depart from the US model. In the 1949 National Parks and Access to the Countryside Act , which finally put in place National Parks, there is not even a general power for the state, whether central government, local government or English Nature, to acquire land within National Parks for the specific statutory purposes of the Park except under section 14 National Parks and Access to the Countryside Act. That confers a power on Ministers to acquire land by agreement for National Park purposes, but the Minister must not hold onto the land.66 The Minister must transfer the land to other persons on such trusts and conditions as appear to Minister expedient ‘for securing that the land will be managed in a suitable manner for accomplishing the purposes of a National Park’. Behind that lies both the concern to prevent the new Ministry of Town and Country Planning becoming an over-powerful rural landowner and a desire to pursue a local approach to National Parks with ownership held locally not nationally. In practice, little use has been made of this power for the Ministry to acquire and hand on land—public body ownership has been seen as a last resort, or essential only for the provision of visitor services, demonstration schemes or the protection of sensitive sites. Cost is deployed as much as principle to explain this. However, negotiation of agreements to alter land use as part of Environmentally Sensitive Area agreements can be as time consuming and costly as acquisition of the property rights.67 In some cases the levels of control now being achieved through management and other agreements are at least as burdensome on those using the lands as anything that might be achieved through 64
See Scott Committee on Land Utilisation in Rural Areas (1942) . For a discussion of the gestation of the National Parks and Access to the Countryside Act, see J Blunden and N Curry, (eds) A People’s Charter? (Countryside Commission, Cheltenham, 1989); A and M MacEwan, National parks: conservation or cosmetics, (Allen & Unwin, London, 1982); G Cherry, Peacetime history: environment planning—national parks and recreation in the countryside (HMSO, London, 1975). 66 The Minister (with treasury consent) may acquire land by agreement, whether through purchase, lease or exchange, where the Minister considers it expedient to do so but, unless the Minister decides otherwise in a particular case it must be transferred to another person on terms which may or may not include payment. 67 It took three years to negotiation a scheme with the 34 commoners of Brendon Common in Exmoor to reduce grazing and remove some drainage ditches, to restore it to heath moor and blanket bog at a cost of £100k a year. In 2002 Department for Environment, Food and Rural Affairs has more than 630 ESA agreements within the Exmoor National Park—at a cost of nearly £1.5m a year. 65
320 Christine Willmore acquisition and leaseback. Particularly at a time of low land prices in many of the National Parks acquisition may be a relatively cheap option. Certainly it is unlikely ever to be cheaper. Nonetheless, land acquisition by the state is unlikely to play a major role in the delivery of National Park objectives in the immediate future, not least because of ideological and administrative hurdles. Other generally applicable powers may assist in acquiring ownership of land for National Park purposes, for example in relation to recreation,68 but these are incidental to National Park designation. The most interesting feature here is the nature of the Minister’s powers to acquire land whether compulsorily or by agreement. The Minister is given compulsory purchase powers in relation to recreation,69 but not in relation to conservation70—and the latter are the ones which are of particular international significance. Crown acquisition to protect environmental values must be by agreement or carried out via English Nature.71 However, in either case, the Minister is not allowed to hold the land—only to acquire it and then to transfer it to others. It is as if it is a particularly hot item; the Minister cannot hold onto it for too long, for fear of scalding. This might be unsurprising in a modern context, but this structure dates from 1949—hardly an age in which state ownership more generally was unacceptable. However the nationalisation agenda of that government was driven by concerns about common ownership of the means of industrial production,72 rather than rural production (and associated rural landownership). Whilst state acquisition has been little used, acquisition by the National Trust has proven attractive: a policy of fiscally assisted voluntarism, as opposed to direct public purchase. The National Trust owns a quarter of a million hectares of countryside and almost six hundred miles of outstanding coast, much of it in National Parks. Whether state encouragement of donation to the National Trust suffices as an alternative to public ownership for National Park purposes depends upon the relationship between the statutory purposes of the National Trust and National Parks. The Trust purpose emphasises permanent preservation of land and buildings of beauty and historic interest and their natural features, flora and fauna.73 The Trust can own and manage land for these purposes 68 National Parks and Access to the Countryside Act, s 76 (local authority), s 77 (Minister) powers of compulsory acquisition for public access for open air recreation. 69 National Parks and Access to the Countryside Act, s 77. 70 National Parks and Access to the Countryside Act, s 103. Here whilst the Minister’s consent is required the acquisition is by a local authority or English Nature, not the Department. 71 The Quango with the statutory remit of protecting and promoting biodiversity and conservation. 72 Clause 4(4) of the Labour Party Constitution prior to amendment by the 1995 conference: ‘to secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production distribution and exchange and, the best obtainable system of popular administration and control of each industry or service’. 73 National Trust Act 1907, s 4(1) ‘for the purposes of promoting the permanent preservation for the benefit of the nation of lands and tenements (including buildings) of beauty or historic interest and as regards lands for the preservation (so far as practicable) of their natural aspect features and animal and plant life’.
Protected Area Values: National Parks and Public Land Ownership 321 and for public access and recreation, with the full rights of ownership, enabling it to do anything not incompatible with its express purpose.74 This can secure one key aspect of property ownership—durability of protection—as the Trust has the unique statutory power to declare land inalienable.75 This special power means that where the Trust and National Park aims are the consistent, ownership by the Trust can be a particularly powerful tool to deliver National Park aims in the long term. However, the Trust’s statutory purposes are not synonymous with those of National Parks, and even where there is overlap, the emphases or priorities can differ. The National Trust is not obliged to follow National Park objectives any more than other landowners—it merely has a power to do so. The Trust is subject to the views of its current leadership and, at least notionally, to the wider membership voting at the AGM. Whilst, therefore, acquisition of land by the National Trust can assist in the delivery of National Park objectives, this does not necessarily follow. In any event, reliance upon a private trust places delivery of National Park objectives within the control of the Trust’s members or management rather than making them subject to democratic accountability to the public at large. Use of existing publicly owned lands Having jettisoned consideration of public acquisition of land, except as a reserve power, there seems to be no evidence of any concerted approach at the time of the 1949 Act to the role of land already owned by the public bodies in the proposed National Park areas—possibly because this would have reopened the tensions between different government departments, each seemingly anxious to maintain control over the rural agenda. The continuing silence about the role of land ownership is deafening. Despite the otherwise thorough review of National Park issues, the Scottish consultation did not revisit the question of the role of land ownership—either in terms of public acquisition of land, or the use of land already owned by public bodies. The only move has been the creation of a duty to have regard to National Park objectives when exercising any functions in a National Park under section 62 Environment Act 1995—which must include exercise of land ownership powers, but this is not linked to land ownership per se. Whilst the IUCN does not see public ownership of land as a central tool in Category V landscapes,76 that is not to say that where there is public ownership, ownership itself cannot or should not be deployed to further the designated aims. The USA use of existing federal land ownership to deliver National Park objectives and to control activities such as hunting illustrate the potential of 74
Section 4(2). Such land cannot be voluntarily sold, mortgaged or compulsorily purchased without special parliamentary procedure. 76 See Box 3 above. 75
322 Christine Willmore landownership powers when coherently and strategically deployed—to the extent that this is a central part of US efforts to deliver international wildlife conservation obligations. Efforts have been made in Britain to deploy landownership in a similar way, but they have been sporadic and in the case of public bodies limited by the procedural and substantive rules surrounding the use of land held by public bodies for statutory purposes.77 The potential role of land ownership, based upon current ownership by public bodies without any question of acquisition of ownership, varies from park to park. In the proposed New Forest, 70 per cent of the land is owned by the Crown, of which over half is vested in the Department for Environment, Food and Rural Affairs and managed by the Forestry Commission. A targeted use of landownership powers in that area could have a significant impact upon the achievement of National Park objectives. The need to integrate Crown land into the wider framework of National Park objectives was an issue raised by the public during the New Forest consultation, because of concerns about the manner in which land was being used by the Forestry Commission, both in terms of public access and changes in the species mix affecting the ecology of the forest.78 In their response to the consultation, the Countryside Agency did not see the Crown lands as a tool to deliver National Park objectives, rather they were seen as a major landowner with its own agenda, and therefore a key player whose engagement needed to be procured, in much the same way as other key landowners. At best, the ownership of significant areas of land for purposes other than National Park purposes is seen in the New Forest process as a problem rather than an opportunity. This suggestion of problematic relations is mirrored in a series of disputes over many years between conservation / recreation groups and government departments using land within National Parks, most notably defence and forestry lands. This stems from the extent to which there is no one concept of ‘publicly owned land’ in Britain, or even a unform definition of what amounts to publicly owned or Crown land. Rather, there are a series of possible bases of ownership by bodies that are in some way part of the state: —Demesne land —Private crown lands—whether held by the Monarch as such or in her private capacity, which carry the full range of ownership powers, constrained only to the extent that regulatory or other measures are stated to apply thereto; —Duchies of Cornwall and Lancaster—which carry specific powers and exemptions; —Land held by the Crown Estate not appropriated to specific departmental purposes—which is subject to a duty to: ‘maintain and enhance value with 77 R v Somerset County Council ex parte Fewings [1995] 1 WLR 1037; League Against Cruel Sports Ltd v Scott [1986] QB 240. 78 See para 36, Consultants’ report on consultations about special powers, Countryside Agency.
Protected Area Values: National Parks and Public Land Ownership 323 due regard to good management’.79 Other statutory objectives only apply to the extent the Crown estate is specifically included within the statutory scheme; —Crown lands held by government departments for their purposes which are to be used for the department’s purposes without regard to other government aims or legislation save insofar as those measures are explicitly applied thereto; —Land acquired by government departments for statutory purposes, to be held for the purposes of the statute, for example s 87, National Health Service Act 1977 confers a power on the NHS to acquire land by agreement or compulsory for health use; —Land held by other public bodies, including local authorities for their statutory purposes. These may be held for specific purposes (eg if acquired as open space) or more generally for whichever of their purposes the local authority from time to time appropriates them. Such holdings are subject to the Local Government Planning and Land Act 1980, imposing an obligation to use them efficiently and to dispose of land at best value when surplus to requirements. They are also subject to the same regulatory controls as privately owned lands Land owned by a public body in a National Park may fall within any of these. Far from being subject to special rules, which require these landowners to be more attentive to the needs of conservation or recreation, they are only subject to conservation and recreation obligations to the extent this is provided for in particular statutes. Section 101 National Parks and Access to the Countryside Act, which deals with the consequences of land owned by the Crown within a National Park, exemplifies this. There is no overriding duty to use the land consistently with National Park designation: Where a National Park includes any Crown land, the appropriate authority and the local planning authority in whose area the land is situated may enter into an agreement for securing that, so far as any interest held by or on behalf of the Crown is concerned and so far as may be provided by the agreement, the land will be managed in a manner consistent with the accomplishment of—National Park objectives.80
This imposes no particular duty on Crown lands to be used for the purposes of the National Park, it merely removes any barrier to such conduct which might otherwise be held to flow from the particular statutory purpose on which the land is held by the Crown. Thus, land held by the Ministry of Defence can be used for military purposes in a manner which is inconsistent with the National Park designation: whether the scars of tank runs or defence structures such as Fylingdales. Without section 101, if the Ministry decided to use defence land in a less intensive manner than they might otherwise do, in order to support the 79 80
Crown Estate Act 1961, s 1(3). National Parks and Access to the Countryside Act, s 101(3).
324 Christine Willmore work of the National Park, this might be seen as a breach of their obligation to make efficient use of land for the purpose held. With this provision the MoD can agree to limit its uses to those compatible with National Park status—although they need not do so.81 The requirement on all public bodies82 in exercising any function affecting land in a National Park to ‘have regard’ to the objectives of National Park designation has an only slightly stronger effect.83 This does not require landowners to use their ownership powers to deliver National Park objectives, but does require them to demonstrate they have taken the objectives into account. Local authority land ownership is subject to this, as well as at least Crown lands held by government departments. How the public body reacts to this obligation as a landowner varies. The Ministry of Defence continues to give little weight to such matters, arguing that access and defence are inconsistent and taking its own view of what amounts to conservation rather than acting with National Park authorities to integrate its approach to conservation into wider strategies. More positively, the Duchy of Lancaster, whilst giving emphasis to economic management of resources, will respond to good proposals. The Duchy of Cornwall, an extensive landowner in the Dartmoor National Park, contributed positively to the introduction of enhanced access and conservation provisions under the Dartmoor Commons Act 1986. Defence use of National Parks was already extensive before the National Parks were designated. Restraint of these uses depends solely upon government policy from time to time, which at present, whilst not seeking to reduce current defence use subjects new, renewed or intensified use to consultation, environmental impact assessment and testing against planning policies.84 Planners have no power to refuse and the Ministry conducts the test: there is no promise not to do it, just a promise to check the impact first. The only solution proffered to conflicts between MoD use and National Park objectives is to suggest cooperation. This is not to say that state uses are always inconsistent (some conservation work has been delivered indirectly at Fylingdales for example) but progress is incidental and ad hoc. The Forestry Commission Crown land holding illustrates the problems of seeking to reconcile specific statutory purposes with other statutory policy objectives. As managers of 40 per cent of the New Forest,85 the Forestry Commission could play a central role in delivery of National Park objectives. However, the Forestry Commission’s statutory role is to: 81 In practice the Ministry of Defence and National Park Authorities have a working memorandum within which discussions take place. 82 This applies to Ministers, public bodies, statutory undertakers and any persons holding public office. 83 National Parks and Access to the Countryside Act s 11A(2). 84 Currently to be found in DoE Circular 12/96 paragraphs 56–7. 85 A New Forest National Park Authority, proposed special arrangements, Countryside Agency, 2001.
Protected Area Values: National Parks and Public Land Ownership 325 promote the interests of forestry, the development of afforestation and production and supply of timber and other forest products.86
Only in 1995 was any wider agenda incorporated into the statutory role of the Commission, and then as a response to the Habitats Directive87 as opposed to being part of any wider rethink of the role of Crown lands in delivering underlying government objectives. Even then, the provision only requires the Commission to: so far as may be consistent with the proper discharge of those functions, endeavour to achieve a reasonable balance between the development of afforestation, the management of forests and the production and supply of timber, and the conservation and enhancement of natural beauty and the conservation of flora, fauna and geological or physiographical features of special interest88
This falls well short of the National Park aims, in particular excluding reference to recreation,89 and subjects any balance to the primary duty of the proper discharge of the forestry function. How far the Forestry Commission actually delivers recreation or conservation therefore depends on its national policy approach to their primary duty and upon local working relationships and management decisions. This can lead to patchy outcomes. In contrast to public concerns voiced in the New Forest about the Forestry Commission, in the North York Moors the Parks Authority and Forestry have developed a range of access opportunities. This is by no means an isolated example. In many cases no such ‘balance’ clause exists, but even where they exist, such clauses are subject to a primary purpose. Indeed Crown lands are potentially less subject to National Park objectives than other lands within the park because of the differential application of restrictions available in relation to Crown lands through planning and other regulatory provisions. The Crown is seen as being subject to fewer obligations to deliver otherwise universal policy objectives in a whole host of areas: the starting point being that the Crown is not subject to regulatory measures, unless the authorising statute expressly extends that control to include the Crown. The status of the Sandringham Estate in Norfolk, whilst not in a National Park, exemplifies the complexity of the current position—and the complete lack of any principled overview of the role of Crown lands. The estate was purchased by the Prince of Wales in the nineteenth century, but is currently held by the Monarch in her personal capacity. In 1949 the Agents took the view that the land was not subject to the Definitive Map provisions of National Parks and Access to the Countryside Act. As a result, no public rights of way appear on the 86
Forestry Act 1967, s 1(2). 92/43. 88 Forestry Act 1967, s 1(3A), inserted by Wildlife and Countryside (Amendment) Act 1985, s 4. 89 The attitude of the Forestry Commission to recreation was subject to serious concerns including many Parliamentary Questions in the 1980s, but has improved in recent years. 87
326 Christine Willmore Definitive Map covering the Sandringham Estate. This is not to say that public rights of way do not exist—only that the statutory duty to map was perceived as not applying. Whether the estate was entitled to do this depends not on an overarching principle of Crown lands, but upon the complex question of the precise nature of the Queen’s title to this land. What emerges is a fragmentary view of Crown and other public ownership of land, with a series of ad hoc statutory efforts to reconcile conflicting policy objectives in relation to the use of land. This is in contrast to the US approach at least in relation to unappropriated land owned by the federal government. Congress regulates the use and disposal of public lands.90 Congress has all the powers of ownership91 and may deal with public lands as a private individual would deal with their property, which may include putting the environmental above economic considerations92 as long as it protects and preserves the land for the public,93 with disposal at a fair market rent limited to disposals which will ‘serve the national interest’.94 A coherent, published, scheme of public policy objectives are applied when taking land use decisions.95 The US approach has not had to cope with the fragmentation and historical complexities of Crown land holdings, and it is not possible even to begin to articulate an equivalent approach to Crown lands in Britain in general. It is only possible to do so in relation to particular parcels of land, where the particular statute authorizing the land holding has set out the criteria upon which management decisions are to be taken. Where such criteria exist, for example in relation to unappropriated Crown Estate, they are found to be purely economic: good management to maintain value.
CONCLUSION
This lack of an articulated strategy for the role of lands held by public bodies— and even of a debate about their role—affects the ability to deliver National Park objectives, not least because of the influence of landowners in rural communities. Ultimately, the 1949 legislators did not see property ownership as necessary in the light of the anticipated power of the Town and Country Planning Act 1947, but in a time of deregulation it may be wise to review the role of landownership in achieving National Park (and other) goals. 90
US Const. Art IV. §3, cl 2. Public lands see 43 USCA, §1702. State of Alabama v State of Texas 347 US 272. 92 Sinclair v US 279 US 263. 93 Utah Power Co v United States (CA8 Utah) 230 F 328. 94 43 USCA, §1701. 95 §1701(8): ‘the public lands be managed in a manner that will protect the quality of scientific, scenic, historical, ecological, environmental, air and atmospheric, water resource, and archeological values; that, where appropriate, will preserve and protect certain public lands in their natural condition; that will provide food and habitat for fish and wildlife and domestic animals; and that will provide for outdoor recreation and human occupancy and use’. 91
Protected Area Values: National Parks and Public Land Ownership 327 In relation to the National Park objectives there has never been a commitment to place those objectives above the freedoms of landowners, except on a caseby-case approach through planning and other regulatory schemes. This is as true for the public bodies as landowners as for any other landowners. Use of public body ownership of land to deliver National Park objectives would require those bodies to articulate a strategy for use of its land, with an explicit and overarching understanding of the interplay between different public policy objectives. By failing to articulate a strategy, those statutory aims which require land ownership for their implementation, such as defence training lands which requires land to train on, or forestry which requires land upon which to grow the trees, are inevitably placed above those which are not seen as requiring land ownership such as conservation: these can be delivered on privately owned land. Instead of a concerted approach to Crown ownership of land, there are a series of skirmishes: between horse riders and the Forestry Commission about public recreation on Crown Estate; between environmentalists and the Ministry of Defence; between the Council for the Protection of Rural England and the Property Services Agency concerning land disposals for development. Is this fragmented approach to Crown ownership still appropriate?
17
The Crichel Down Rules: Conduct or Misconduct in the Disposal of Public Lands? ROGER GIBBARD
INTRODUCTION
The guiding principle of compulsory purchase of interests in land in England and Wales is that of fairness, best stated in the words of Lord Justice Scott in Horn v Sunderland Corporation1 when he said that the owner has ‘the right to be put, so far as money can do it, in the same position as if his land had not been taken from him’. In many instances, land acquired by compulsion subsequently becomes surplus to the requirements of the acquiring authority. This may be because the intended development scheme was scrapped, or substantially modified, or that after the passage of time the use of the land for which the purchase took place is no longer required. More controversially it may be that for ‘operational reasons’ the acquiring authority knowingly purchased more land than was required for the scheme.2 Under these circumstances, the Crichel Down Rules3 (‘the Rules’) require government departments and other statutory bodies to offer back to the former owners or their successors, any land previously so acquired by, or under the threat of, compulsory purchase. Such an offer is to be at current market value, as assessed by the District Valuation Office. The Rules are non-statutory guidance given to government bodies and others on the disposal of surplus land. The term ‘rules’ is itself something of a misnomer, as the guidance is in the form of advice rather than as a set of statutory regulations, and is not universally applicable. This paper seeks to explore the extent to which the procedure allowing former owners of such land to buy it back operates in a transparent and fair nature. Drawing on recent research, and on existing literature, the paper will firstly examine the development of the 1
[1957] 1 QB 485. As, for instance, was the situation with the Channel Tunnel Rail Link land purchase. 3 Department of the Environment—Disposal of surplus government land: Obligation to offer land back to former owners or their successors—The Crichel Down Rules (October 1992) (HMSO). 2
330 Roger Gibbard Rules, itself a controversial process, and will proceed to examine the operation of the current rules from the perspective of justice. Research was conducted on behalf of the former Department of the Environment, Transport and the Regions (DETR),4 as part of the review of compulsory purchase and compensation.5 Many of the recommendations of the report have been included in the Government’s Planning Green Paper6 published at the end of 2001 and will be referred to in this paper.
THE CRICHEL DOWN RULES : ORIGIN AND DEVELOPMENT
In the history of modern parliament, the Crichel Down affair takes on momentous significance, and has been described as a ‘political bombshell’.7 The public inquiry8 established in April 1954 into the Crichel Down events revealed a catalogue of ineptitude and maladministration and resulted directly in the resignation of the Secretary of State for Agriculture (Sir Thomas Dugdale) in July 1954. The post was at that time a senior cabinet position, and was the first case of Ministerial resignation since 1917. Whilst the underlying case was, in the scale of things, trivial, involving the transfer of some seven hundred acres of mediocre agricultural land in Dorset, the ramifications for subsequent government procedure have been enormous. One of the accepted rules of Ministerial Responsibility to Parliament, whereby a Minister accepts responsibility for the actions of his officers, was laid down in the aftermath of the affair, and Crichel Down is regarded as one of the key events leading to the creation of the post of Ombudsman.9 Crichel Down was probably the first instance of close and very public scrutiny being directed at a Minister of the Crown in the execution of his duties. The significance today of the events of fifty years ago is two-fold. Firstly, and the main topic for this paper, are the Rules themselves, and the way in which they impact on the management of public sector estates. Secondly, the profound effect that the events had on the principle of ministerial responsibility10 and on the relationship between Government and the Civil Service11 is not to be under4 Department of the Environment, Transport and the Regions: The operation of the Crichel Down rules [2000]. 5 Published as: Department for Transport, Local Government and the Regions [2001] Compulsory Purchase and Compensation—the Government’s proposals for Change, Chapter 5. This forms part of the Government’s Green Paper on Planning below n 6. 6 Department of Local Government, Transport and the Regions Planning: Delivering a fundamental change [2001] 7 J Rimington, ‘Episodes in civil Service history VIII: Crichel Down’ [2001] The Source Public Service Journal http:/www.sourceuk/net/articles 8 The Clark Inquiry, Cmnd 9176, June 1954. 9 FF Ridley, ‘Studies in Politics: essays to mark the 25th anniversary of the Political Studies Association’ [1975] http:/www.psa.ac.uk/awards/brochure 10 The Times, Editorial 6 June 1980. 11 C Jeffery, ‘50 years of the Political Studies Association’ [1999] htpp:/www.psa.ac.uk/awards/ brochure
The Crichel Down Rules 331 estimated. This assumes relevance today in the light of this Government’s penchant for ‘joined up’ government, and is behind much of the ethos surrounding the current application of the Rules, and of the wider functioning of Government departments. In terms of land disposals, the Rules are of ever-increasing importance. Most notable are the disposals of Ministry of Defence (MoD) lands under the MoD Strategic Defence Review,12 under which the Defence Estate are targeting disposals of £700m by March 2002. It has been estimated that approximately five hundred sites are sold each year in the South East alone13 and listed on the Defence Estates website as current disposals include for example land at Chelsea, Millbank, Woolwich, Didcot, Thatcham and Farnborough. Some take on national importance, such as the disposals of former RAF sites at Bentwaters and Upper Heyford. At the time of the research, there were over two hundred and forty MoD sites on the market, all of which were being considered under the Rules. Similar examples can be drawn from the National Health Service (NHS), challenged with making disposals of £1.2bn over the next five years. Other significant disposing authorities include the Highways Agency, the former British Rail,14 and the privatised water authorities, all of whom have developed their own disposal strategies. The Crichel Down Rules relate to the disposal of land formerly acquired by, or under the threat of, compulsory purchase. They set out the procedures for offering former owners the opportunity to repurchase land that was acquired from them and which has since become surplus to the purpose for which it was acquired. The Rules themselves are complex, having been developed piecemeal over a number of years,15 their applicability is uncertain (for some bodies they are mandatory, for others, merely discretionary), and their precise authority far from clear. Moreover, they exist only as non-statutory guidance. The principle of offering to former owners surplus land acquired under compulsory powers dates back to the Lands Clauses Consolidation Act 1845.16 The Rules themselves however were first published as a Treasury Circular in 195417 in response to the recommendations of the Clark Report, above n 8. The Crichel Down ‘case’18 concerned land acquired by the Air Ministry from the Crichel Estate and others, and used during the Second World War as a bombing range. After the war, the land became surplus to requirements, and the former owners, particularly one Commander Marten, sought to repurchase. 12 Ministry of Defence, The Strategic Defence Review White Paper: Modern forces for a modern World. Cmnd 3999. (NSO, London, 1998). 13 J Doak, ‘Planning for the reuse of redundant Defence estate: disposal Processes, policy Frameworks and development impacts’ [1999] Planning Practice and Research Vol 14 (2) 211–4. 14 Through the property division, Rail Property Ltd. 15 I Smith, ‘Managing Defence Estates’ [2001] htpp:/www.publicservice.co.uk/pdf/central-gov 16 Sections 127–32. These actually went further than the current rules in many respects, including the right of neighbours to be considered in the offer-back procedure where former owners declined to purchase. 17 No.6/54. 18 Not a ‘case’ in strict legal terms, as no judicial proceedings were involved.
332 Roger Gibbard Despite early representations made by Marten and others, the Air Ministry decided to transfer the land to the Commissioners of Crown Lands (one of whom was the Minister of Agriculture), on the grounds of maximising production, and subsequently to let to one pre-selected tenant. Further representations, and the ensuing and protracted public disquiet, with accusations of civil service cover-up, ministerial corruption and departmental maladministration,19 led to the establishment of a public inquiry20 in April 1954. In reporting on the inquiry findings to the House of Commons, full ministerial responsibility for the affair was accepted by Dugdale, who promptly resigned from the Government,21 effectively ending his political career and those of a number of civil servants. In his resignation speech, the Minister set out the main principles on which future disposals of surplus land would be based, adding that the procedure would be applied retrospectively to Crichel Down. The Clark Inquiry itself has been subject to considerable criticism,22 Clark himself being accused of incompetence and arrogance.23 The detail of the events is beyond the scope of this paper, and is well-documented elsewhere.24 In the ensuing years, the Rules developed in a piecemeal fashion, in response to changing economic and political imperatives, and as a result of several key decisions of the courts. The 1954 Rules placed a duty on some government bodies to consider whether the offer-back procedure should apply, and if so, the procedure that should be followed. Significantly there was no statutory right granted to former owners. The offer-back procedure only applied to land which was agricultural at the time of the acquisition. There were a number of exceptions,25 where the offer back procedure would not apply; the most important being where the land had been so substantially altered in character that it could not be returned satisfactorily to agricultural use, and a pre-emptive right to transfer land to another government department who would themselves have been able to justify the use of compulsory purchase. Where the Rules did apply, the repurchase was to be at the current market price as assessed by the District Valuer, not at the historic price at which the original compulsory purchase took place. Replacement Rules were published in 1957,26 substantially modifying the 1954 set. Certain ‘special procedures’ were introduced which more formally recognised that the land, if still predominantly agricultural, could be transferred without offer-back to other departments or public bodies as long as they had 19 W Woodhouse, ‘The reconstruction of constitutional accountancy’ [2000] Newcastle Law School. Working Paper 2000/10. 20 Above n 8. 21 530 Hansard, HC Debs, 1178–297, 20 July 1954. 22 IF Nicolson, The Mystery of Crichel Down (Clarendon, Oxford, 1986). 23 Rimington, above n 7. 24 See RD Brown, The Battle of Crichel Down (London, Bodley Head, 1955); and Nicolson, above n 22. 25 Now contained in Rule 14. 26 Treasury Circular No.5/57 and No.5/57(Addendum).
The Crichel Down Rules 333 compulsory purchase powers. If the land had acquired development value, it could be transferred to other department or public bodies irrespective of their compulsory purchase powers. In both instances however, consultation with former owners was to take place, though it is hard to see what it was hoped to achieve by this process. Local authorities were given pre-emptive rights to take over surplus land, although such transfers were subject to the right of former owners to have their interests heard at public inquiry. The test requiring suitability for satisfactory agricultural use was replaced by a new supplementary test which excluded land unless ‘—it was still predominantly agricultural in character or could still be used at least partly for agriculture, even though it had become more valuable for other purposes.’ In 1967 a further review was carried out in an attempt to clarify the Rules, principally by adopting a clearer format.27 A number of further exceptions and amendments to the offer back procedure were also introduced. These included land with planning permission or approval, land within a designated New Town or Town Development Area, land which had been offered for sale immediately before the original acquisition, very small areas of land with no satisfactory agricultural use, and ‘public interest’ cases. Further lengthy discussions on the Rules, and a review by the Land Transactions Committee in 1970 was prompted by the Compton Bassett ‘case’ of 1969,28 particularly on the controversial exemption from the Rules of surplus land which had acquired planning permission. Despite widespread concern over the applicability and complexity of the Rules, the 1967 Circular was left unaltered. In 1981, a further consultation and review took place, largely as a result of the controversial Allen & Unwin ‘case’ of 1980, concerning the disposal of land formerly acquired for the proposed extension to the British Library and subsequently deemed surplus. Significantly, the Rules were extended to apply to non-agricultural land. However, despite this major development, they were apparently deemed no longer important enough to warrant an explicit document. The 1981 Rules were set out in Part III of the Memorandum accompanying Department of the Environment (DoE) Circular 18/84 ‘Crown Land and Crown Development’ and were published in full in the Journal of Planning and Environment Law.29 The application to non-agricultural land was however subject to a time limit: the offer-back would only be made if the disposal was no more than 25 years from the date of the original acquisition. Finally, and partly as a reaction to the case of Tomkins v Commissioner for New Towns,30 a further review in 1992 led to the publication of the current rules.31 27
Treasury Circular No.1/67. The ‘case’ concerned Ministry of Defence land which had acquired planning permission for the extraction of sand and gravel. 29 Journal of Planning and Environment Law (1982): 66–71. 30 (1989) 12 EG 59. 31 DoE, above n 3. 28
334 Roger Gibbard
THE CURRENT RULES
The current Rules were published by the DoE and the Welsh Office on 30 October 1992. Strictly they apply to government departments including executive agencies and non-departmental public bodies but additionally are commended to, but are not binding on, Local Authorities and bodies in the private sector to which public sector land holdings have been transferred eg the privatised utilities. This, and the fact that statutory development bodies are exempt, is a source of much confusion and conflict32 Where a government body falls under the Rules, freehold disposals of the following will be covered; land acquired by or under the threat of compulsion or by voluntary sale, if the power to acquire the land compulsorily had existed at the time of acquisition, and land acquired under the blight conditions in the Town and Country Planning Act 1990. The presumption in the Rules is that former owners or their successors will be given a first opportunity of purchasing the land previously in their ownership, providing it has not been materially changed in character. The Rules identify examples of such changes as being: where houses have been erected on agricultural land; where mainly open land has been afforested; where offices have been built on urban sites; and where substantial works to an existing building have effectively altered its character. Where only part of the land has been materially changed, the general obligation to offer back will apply only to the parts that have not been changed. The 1992 Rules also extended the twenty-fiveyear cut-off rule to agricultural land, although this did not operate retrospectively: only land purchased after 1992 would be subject to the cut off period. When the twenty-five-year rule was first introduced in 1981, it had operated retrospectively, applying to all non-agricultural land, irrespective of the date of purchase. The exceptions, contained in Rule 14, are largely unchanged from previous versions of the Rules and include: —where the land is needed by another Department (on specific ministerial authority), —where there are strong and urgent reasons of public interest for the land to be disposed of to a local authority as a body with compulsory powers, —small areas of agricultural land which would have no satisfactory agricultural use even if used with other adjoining land; —where it is advantageous to the Department and the adjoining owners to adjust boundaries through a land exchange; —where the land was originally acquired for development purposes; —where the disposal accords with Government policies of transfer of functions to the private sector providing particular services; 32
Civic Trust (2000) Commentary on the Defence Estates consultation March 2000.
The Crichel Down Rules 335 —where a disposal is in respect of either: a site for development or redevelopment which comprises two or more previous landholdings; or a site which consists partly of land which has been materially changed in character and part which has not and there is a risk of fragmented sale of the site realising substantially less than the market value of the whole site. —Where the market value of the land is so uncertain that clawback provisions would be insufficient to safeguard the public purse and where competitive sale is advised by the department’s valuer and agreed by the responsible minister. In the case of sites for development or redevelopment comprising two or more previous land holdings special consideration will be given to a consortium of former owners. The Rules are not the only formal guidance that government and other bodies have to take account of when considering disposing of surplus land. Primary legislation including Local Government legislation on the disposal of property, governmental policy statements and regulations on disposal are deemed to override the Rules. Complexity to the offer-back procedure is compounded by the separate obligation placed on departments to follow the Treasury Guidance (National Audit Office) on the disposal of assets.33 Whilst this makes rather obtuse reference to the Crichel Down Rules, it conflicts with them in several respects, particularly in the definition of ‘value’, adding confusion to the pricing of repurchases. Reference to the Rules is also to be found in internal guidance of the Civil Service34 and the Valuation and Lands Agency.35 Often strict adherence to these supplementary rules and guidance notes takes precedence over the Crichel Down Rules and creates pressures which conceivably lead to conflict with them. The National Audit Office scrutiny for instance, imposes ‘best value’ consideration on disposals, posing a dilemma, particularly on those bodies to which the Rules are ‘commended’ rather than binding. Where the Rules are deemed to apply, the department concerned has to consult with former owners or their successors to establish whether they wish to repurchase. Retracing former owners can be a lengthy, difficult, and often fruitless process, adding significantly to the costs of disposal and delaying the sales of surplus land. There has developed a real and strong tension between meeting the requirements of the Rules and achieving disposal targets, and conflict between Treasury and other guidance material and the Rules themselves, which may lead to the rights of former owners being overlooked, particularly in situations where doubt as to the applicability of the Rules already exists.36 33 Contained in the Government Accounting Guidelines 3/1998 Annex 32.1 Disposal of land and buildings and other land transactions. [1998] NAO. 34 Civil Service IN 26/96—Disposal of land to former owners—the Crichel Down Rules [1996] Civil Service Central Administrative Unit. 35 Valuation and Lands Agency. Disposal of surplus land and buildings by public sector bodies [2000] www.vla.nics.gov.uk/au/disposalguide4). 36 DETR, above n 4.
336 Roger Gibbard THE QUESTION OF FAIRNESS
Essentially then, the Crichel Down Rules are about the public right of private individuals to be given the opportunity to buy back property that was taken from them under compulsory powers. As such, they should not only be operated fairly, but be seen to be operated fairly. Failure to apply them consistently or indeed properly, may now leave the disposing department open to a claim that it has contravened Article 1 of Protocol 1 of the European Convention on Human Rights.37 The question of equity or fairness of the Rules can be examined from three perspectives: firstly, is the principle underlying the Rules intrinsically one of fairness? Secondly, are the Rules, as they are written, ‘fair’? And thirdly, are the Rules being applied in an equitable manner? Ultimately a consideration of these will lead to a fourth question needing to be addressed, namely whether there are any changes which need to be implemented in order to make the Rules more equitable. Throughout this paper, the examination of ‘fairness’ will be made on the principles of natural justice, and the two underlying principles, that no man is to be judge and jury in his own case, and that no man should be condemned without the opportunity of a hearing. Such ethics are binding not only on the courts, but on all tribunals, arbitrators and all persons and bodies having the duty to act judicially, including government departments. It will be argued that the attitude towards Crichel Down breaches the rules of natural justice, and at times can be seen further to operate in a manifestly unreasonable and irrational manner.
THE EQUITABLE PRINCIPLE
The DETR (2000) research examined whether the original philosophy behind having an offer-back procedure was one of equity, and if so, whether this has changed over time, and whether it is still valid. Most of those organisations dealing with the Rules claimed not to know on what moral, ethical, financial or legal principles the Rules are based. The interpretation of, and any changes to, the Rules will depend to a significant degree on whether their overriding raison d’etre is to give a right of pre-emption to a landowner dispossessed of his property, or to appease former owners whilst principally having regard to the public purse by enabling surplus land to be disposed of as quickly as possible and at the 37 C Sturge, ‘Surplus to requirement’ [1999] EG 9929 pp 109–11. See also M Redman, ‘Compulsory purchase and compensation and Human Rights’ Journal of Planning and Environment Law [1999] 315–26 and G Parker, ‘Planning and Rights. Some repercussions of the Human Rights Act 1998’ [2001] Planning Practice and Research 16(1) pp 5–8. For a discussion of ‘fairness’ in the context of compensation for land, see Human Rights Practice (Sweet and Maxwell, London, 2000) ch 15.
The Crichel Down Rules 337 best possible price. The adherence to the Rules undoubtedly has a negative effect on cost control and on the time taken to dispose, neither of which are beneficial to government or the taxpayer. Indeed earlier research conducted for the DETR in 1998 concluded that ‘—the rules are a significant complication to the disposal process for the Ministry of Defence’.38 The presence of the Rules seems to imply that the taxpayer in some way ‘owes’ the claimant something. Landowners might argue that the Rules are a recognition that former owners have suffered an injustice or that a right to be offered land back exists. Conversely it could be argued that owners are fully compensated at the point of sale. Could it be that the Rules represent a tacit acceptance of the existence of an ‘emotional tie’ between the owner and his land? If this tie gives rise to an element of value which is not compensated at the point of compulsory purchase then it would seem reasonable to contend that the former owner should have some right of redress should the land cease to be held in the public interest. The most appropriate right would seem to be a ‘first refusal’ to buy the land back. This would appear to be the underlying moral principle on which the Rules are based. However, it has been argued39 that the lack of an explicit philosophy undermines the understanding and application of the Rules. The closest to an explicit philosophy was put by Maxwell Fyfe, the Home Secretary, in the 1954 House of Commons debate on the Rules: When that purpose is exhausted, when that need is past, what is wrong, on any consideration of morality or justice, in allowing the person from whom the land was taken the chance of getting it back.40
The precise nature of the redress is more complex to assess, and will ultimately depend on how the owner was originally compensated. This is quite a separate, and indeed subordinate, question as to whether there should be a right of repurchase. The fairness of the Rules with regard to pricing will be investigated below. One example of the underlying philosophy is given by the exception to the Rules where the land has seen a material change in character. The rationale for this provision needs examination. Firstly, the arbiter of what constitutes a material change is the disposing authority themselves. If they deem that the character of the land is significantly altered, then the Rules do not come into operation, and former owners will not be notified. Ignorance of the impending disposal will consequently rule out the opportunity for any legal challenge on the part of former owners. Why should material change in the character of property preclude the right to buy it back? The valuation principle (whether best price or current market value) will dictate that the purchase price reflects such change in 38 Department of the Environment Transport and the Regions Review of the Redundant Defence Estate [1998] (HMSO London). 39 Ibid. 40 530 Hansard, HC Debs, 1292, 20 July 1954.
338 Roger Gibbard character, so is it fair to deprive a former owner of the right to make a preemptive bid purely on the grounds that he is getting back something materially different from what was taken from him? Clearly if there have additionally been substantive boundary changes, then it might not be feasible or reasonably practicable for former owners to repurchase, unless some form of consortium is created—a scenario which the Rules accommodate. The question of whether there is an underlying philosophy of fairness can also be examined by closer scrutiny of the issue of development values. Whether owners should be entitled to buy back land that has since gained planning permission, and if so at what price, is an issue that has troubled government since the Compton Bassett case (above n 28). When land is compulsorily purchased, any increase in value due to the scheme underlying the purchase is ignored, and owners can only claim (since 1992, below n 65) for any planning permission which would have accrued during the ensuing ten year period. Briefly, on acquisition, a disposed owner’s claim for land taken will consist of current use value + existing development value + hope value (eg developer’s landbank value’). To this will be added any value due to development not foreseen at the time of the purchase nor attributable to the scheme which arises in the following ten year period. There is a compelling argument that increases in value due to the accrual of development rights owe their existence to decisions made by society rather than by actions of the landowner concerned, and that hence any such value should belong to society and rightly devolve to the public purse. With this principle in mind, landowners may find themselves either paying a price which reflects the existence of planning permission or development value, or buying back their original land subject to clawback clauses, or minus certain ‘ransom strips’, thereby enabling the department concerned to safeguard any future development values. There are two compelling counter-arguments which suggest that landowners and not the public purse should benefit from existing or future planning permissions. Firstly, the UK does not operate a distinct development land tax, implying an acceptance of the principle that private gains on the realisation of hope value do not reflect any public entitlement. Secondly, since the wholesale privatisation of the public utilities in the 1980s, where land is being sold off by former state-owned utilities the subsequent gains are passed to private shareholders rather than to the public purse. The main criterion would appear to be that former owners should not benefit unduly at the expense of the taxpayer or the public interest generally.41 The specific exceptions to the Rules are designed to protect the taxpayer, and in allowing land to be passed between departments the Rules provide for the public interest to be put before that of the individual’s right to property. The question of the balance of fairness between the rights of an individual and those 41 Ministry of Agriculture Fisheries and Food (1992) Untitled internal document. Land and Property Unit. MAFF.
The Crichel Down Rules 339 of the public purse was considered in Laker Airways v Department of Trade42 where it was held that an authority misuses its powers if it exercises them in circumstances which work injustice or unfairness to the individual without any countervailing benefit for the public. Clearly, that is the balance which the interpretation and operation of the Crichel Down Rules must attempt to achieve. On balance, and in the absence of any express intent being recorded, it seems reasonable that the underlying rationale behind the Rules is one of fairness and justice. A secondary reason may well be one of political expedience—failing to be seen to be acting fairly is increasingly subject to media exposure and intense public criticism. The lack of a clear procedure led to the downfall of the Minister concerned in 1954, and it is evident that political sensitivity about the Rules still remains. Indeed most Hansard references to the Rules concern the principle of ministerial responsibility rather than land disposal issues.43 Equally of the three hundred and sixty or so web references to ‘Crichel Down’, at least as many refer to the political consequences of the affair as do to the operation and interpretation of the Rules themselves.
ARE THE RULES , AS THEY ARE WRITTEN , FAIR ?
The drafting of the Rules will here be examined against the standards of natural justice as apply to public bodies in the execution of quasi-judicial functions. It is further contended that in order to satisfy the requirements of ‘justice’44 the Crichel Down Rules need to enable such bodies to act without irrationality, unreasonableness, manifest unreasonableness or irrelevant considerations.45 It is argued that the Rules have been poorly drafted and lack clarity. The original draft and subsequent changes were often knee-jerk policy reactions to the rulings in hard cases, with the consequence that they have developed in a haphazard way without reference to the original Crichel Down ruling or the reasoning behind their introduction. Consequently the guidance is often poor, and the wording is vague and open to wide interpretation. This may be perceived as a failing by former owners but conversely it may be seen by disposing organisations as conferring a degree of flexibility on the process. The DETR research confirmed earlier findings46 that ‘. . . there was a clear lack of understanding amongst property practitioners, local planning authorities and even within government departments as to the precise status of the Rules and which set currently apply’. 42
[1977] 2 All ER 182. For example, see 238 Hansard, HL Debs, 1050, Nov 1996. 44 Defined in Duhaimes’ Law Dictionary as ‘ a state of affairs in which conduct or action is both fair and right, given the circumstances’. www.duhaime.org/dict-jt 45 For a further discussion of the courts’ interpretation of fairness’ see Webb v Secretary of State for the Environment and Ipswich Borough Council (1990) 22 HLR 274 and Bushell v Secretary of State for the Environment [1981] AC 75. 46 DETR above n 38. 43
340 Roger Gibbard It is not clear from the Rules themselves which organisations they cover. Certainly they apply to all government departments but they are only discretionary on local authorities. It is less clear whether they apply to disposals made by successor organisations, by privatised utilities and by other privatised bodies. The new forms of public—private partnership arrangements arising over the past twenty years have added to the confusion. It would seem to be inequitable, and to run counter to the spirit in which the Rules were intended, for the Government to have transferred land to which the Rules applied, and from departments on which they are binding, to private utilities and the like for which the Rules are only discretionary. Further, the transfer of land to bodies that would not necessarily have had the powers to purchase the land themselves gives rise to disquiet, particularly as subsequent disposals may not be subject to the application of the Rules. The perception arises of a climate of ‘backdoor’ avoidance of the Rules, an observation which was apparent in a number of representations made to the DETR research.47 For privatised utilities there remains the unanswered question as to whether the courts will hold them to be ‘exercising public functions’ and therefore under the remit of the Human Rights Act 1998.48 If the underlying principle of former owners being offered-back surplus property is accepted as being desirable, then there is a compelling argument for such a right to be enshrined in legislation, rather than to be contained in departmental circulars and guidance notes. As currently set out, the Rules do not constitute a legal right: they have no statutory force nor are they principles of law. They are policy guidance to be taken into account, where relevant, by the bodies to which the Rules are addressed, and any decision on whether or not to apply them will be made by the body in question. This must raise questions of natural justice—with the disposing organisation acting as both judge and jury. Perhaps surprisingly, Crichel Down ‘decisions’ have not been explicitly challenged on these grounds in the courts.49 Dispossessed owners are not given the opportunity of making representations that Crichel Down should apply: they need not even be aware that the organisation has considered their relevance. Aggrieved private owners, without any right of appeal, may subsequently find that they do have recourse to the Human Rights legislation for satisfaction. There is no clear definition of what constitutes a ‘disposal’. Freehold transactions are expressly included, but it is less clear whether or not the Rules also apply to other disposals such as the granting of long leases or disposals under the Private Finance Initiative and Public/ Private Partnership schemes. Some departments do issue guidance (Department of Health 2000), but often this is hidden away in circulars and memoranda. ‘Fairness’ would imply that the Rules should apply no matter what the status of the disposing (or acquiring) body. 47
Above n 4. D Hart, ‘The impact of the European Convention on Human Rights on Planning and Environmental Law’ [2000] JPEL: 117–34. 49 But see R (on the application of Holding & Barnes plc) v Secretary of State for the Environment, Trade and the Regions [2001] UKHL 23. 48
The Crichel Down Rules 341 Similarly there is no guidance as to when a property is truly ‘surplus’. The procedures for declaring land surplus are at variance with the original intentions of the Rules, formers owners now not being contacted until wider negotiations have been conducted and even after planning permissions have been obtained. This is perceived as being inequitable and contrary to the original intention of the Rules. No longer is land offered back when it is first declared surplus and at the same time that it is offered for transfer to other departments and agencies. There are indeed no explicit procedures for considering the Rules at the time when surplus land is offered between departments. Neither is there any guidance on what constitutes a ‘material change’ to land which remains one of the key exceptions. The illustrative examples contained within the Rules would seem to imply that there must be a physical change in character. Less importance is attributed to ‘change of use’, perhaps because formerly the Rules applied only to agricultural land, where material changes were easier to define and, by the very nature of the land, required physical changes, although change of use clearly has an important impact on the valuation principle. Determining whether or not there has been a material change of character has thus proved problematic, particularly where urban property is concerned. In this respect the Rules would appear to be at variance with planning legislation where changes of use take on an importance equal to physical changes to a property. The loose drafting of the exceptions to the Rules means that different authorities can take differing views as to whether situations should be dealt with under them or not. There is concomitant lack of consistency both between and within government departments, who are interpreting them in a variety of ways in order to better meet organisational imperatives such as land disposal targets. The combination of poor drafting and loose interpretation allows similar cases to have different outcomes, an inconsistency which cannot be compatible with ‘fairness’ as it is both unreasonable and irrational. The Planning Minister, Lord Falconer, speaking at the 2001 conference of the Confederation of British Industry outlined his vision of a ‘good planning system’ as one which is ‘predictable’.50 As part of the wider planning system, the operation of the Rules would appear to fall well short of this erstwhile requirement. Much confusion arises over the principles of valuation contained within the Rules. Former owners are required to pay ‘current market value’, although this is not defined nor is it covered by the Appraisals and Valuation Manual of the Royal Institution of Chartered Surveyors (RICS), ‘the Red Book’51 This terminology is at variance with the Treasury Guidance on Disposals, which requires departments to obtain ‘best price’. The Valuation Office advice is that ‘best price’ equates with the RICS definition of ‘open market value’. From the Treasury and National Audit Office standpoint, the best evidence of open 50 51
Reported in Plans, Plots and Talking shops. Daily Telegraph, 17th November 2001. (1996) RICS, London.
342 Roger Gibbard market value is an open market sale. Sales off the market to former owners, even where they may be backed up by a professional valuation, do not provide the same reassurance of value for money. Most compulsory purchase compensation is determined by statute52 as interpreted by subsequent case law. Two overriding principles are that there is no allowance for the acquisition being compulsory and furthermore that compensation for the land taken is assessed at current market value. It is contended that were the original purchase to have occurred at a premium reflecting the compulsory nature of the purchase, the argument in favour of re-purchase rights would be weaker. That the option to repurchase should be at market value in current use seems reasonable (and would appear to justify offerback even where material changes have occurred), and the counter-argument that repurchase should proceed at a price equating to the original compensation price would appear to convey too great an element of gain back to the owner, potentially giving rise to ‘windfalls of vast proportion’.53 It is the position of the former owner as a ‘special purchaser’ which potentially exposes the weaknesses of the definitions. Where former owners still retain adjacent land, there is a compelling argument for regarding them as special purchasers. Where no such retention is present, special status is open to question. However, in the case of agricultural land, landowners do often retain adjacent land, and in addition to receiving compensation for land taken, they can claim considerable sums for severance, injurious affection and disturbance in respect of damage to land retained.54 The Crichel Down Rules make no explicit allowance for these sums and the question needs to be asked whether former owners should be required to repay or make some allowance for these items when they get land back. In reality, the re-amalgamation of parcels of land is likely to result in the creation of marriage value of benefit to the former owner. The loss of marriage value on the original purchase would to some extent have been compensated through a severance claim. Such additional severance payments were really intended to compensate the owner for the loss in perpetuity of value in his retained land and the business he operates on it. Clearly only if the resale to him occurs significantly soon after the original appropriation will the owner stand to make any substantial gain, and it is argued that only in those circumstances should they be regarded as ‘special purchasers’ and reasonably be required to pay a price reflecting marriage value. The rules do not clarify the mechanism of the offer back procedure in respect to how price is agreed. Is it sufficient to have the property externally valued and then offer it at that price on a ‘take it or leave it basis’, or does the disposing 52 Most notably the Compulsory Purchase Act 1965, the Land Compensation Acts 1961 and 1973 and the Planning and Compensation Act 1991. 53 Freedman v British Railways Board (1995) 69 P & CR 13. 54 R Gibbard, ‘The compulsory purchase of farmland: identifying severance and injurious Affection claims’ [2001]. Working Papers in Land Management O3/01. Department of Land Management and Development, The University of Reading.
The Crichel Down Rules 343 authority have to go further and negotiate around the valuation as a starting point? Additionally there is no mechanism for the resolution of disputes over the question of price. The offer-back procedure is governed by strict limits set out in the Rules. Former owners are given two months to indicate an intention to purchase, a further two months to agree terms, and a final six weeks to negotiate and agree the price. In practice these arbitrary limits are too short, given the need to undertake legal searches and surveys. Certainly time limits need to be imposed, to prevent open-ended negotiations, and to apply a sensible cut-off in order to protect the public interest. It would appear that very tight timetables are being imposed in order to surmount delays in disposals caused by the difficulties of tracing former owners in the first place. The introduction, in 1992, of a twenty-five year cut-off period, after which time disposals will cease to be covered by the Rules, would appear to be arbitrary, and a source of unfairness. The argument for a cut-off period would appear reasonable on the face of it, in that it limits the cost to the disposing body of having to undertake long and difficult searches to ascertain former owners. For agricultural property however, the length of ownership is usually greater than for other types of property, and a longer time limit, or even the abandonment of any time limit might be more appropriate. It is more likely that former agricultural owners might still be occupying the adjoining property, and would justifiably be aggrieved not to be offered back surplus land. Of particular effect on agricultural property is the limitation of the offer-back to former owners or their successor in title.55 ‘Successor’ is defined as ‘the person on whom the property, had it not been acquired, would clearly have devolved under the former owner’s will or intestacy; . . .’56 thereby excluding subsequent purchasers of adjoining land held by the former owner. With rural estates, intra-family sales are not uncommon, particularly in the reorganisation of family trusts. Where such sales have occurred, the Rules do not apply, and offerback rights are lost. The question arises of whether there may be circumstances in which the rules should require that the land be offered back to a successor or even to a third party who purchased remaining land from the original owner.
ARE THE RULES BEING IMPLEMENTED FAIRLY ?
Perhaps not surprisingly, in view of the lack of clarity of the Rules, the research (DETR, 2000) suggests that the total number of cases covered by the Rules and which have resulted in a return to the original ownership since 1992 may be small; almost certainly less than one hundred, and in all probability less than fifty. 55 56
As defined in Rule 12. Ibid.
344 Roger Gibbard The research confirmed the existence of significant misunderstanding as to the applicability of the Rules. Forty per cent of government departments and agencies wrongly believed that they were discretionary, and forty-four per cent of local authorities wrongly thought them mandatory. Twelve per cent of agencies contacted claimed never to have heard of the Rules. See Table 1. Table 1. The understanding as to the applicability of the Rules by organisation type Organisation Type:
Government agency Government Dept Local authority NHS authority NHS Trust Transport Utilities Valuation Office
% of res
Rules considered mandatory
17 4 34 14 0 1 5 5
49 56 44 45 56 100 91 0
Rules Rules considered considered discretionary not applicable 40 44 3 45 32 0 9 30
6 0 10 0 2 0 0 0
Not heard of Rules
6 0 10 10 0 0 0
Source: Department of the Environment, Transport and the Regions: the Operation of the Crichel Down Rules (2000)
Of the post–1992 disposals where the Rules were known to apply, at least fifty-four per cent of sites were not offered back. Of those that were, fifteen per cent were purchased by their former owner. Of these, sixty-eight per cent were single houses, ten per cent were development sites, and eight per cent were agricultural land. The research discovered a number of public sector schemes being prepared which include land, which, under more normal circumstances, would have been offered back to the former owner, suggesting that the applicability of the Rules to the privatised utilities needs clarification. These bodies claim that they possess little evidence on the details of land acquisitions, which occurred prior to privatisation, leading to the almost universal presumption that such land had been acquired without threat of compulsion, or that a material change had taken place, rendering the Rules inappropriate to most disposals from this sector. A number of representations to the DETR research were made concerning whether it is equitable that the offer back procedures cease to apply once land is transferred from an organisation for whom the consideration of the Rules is mandatory to one where they are discretionary. This can lead to the inconsistent application of the Rules by the same type of organisation. Departments should be seen to act in a procedurally fair manner, and in such a way as to fulfil
The Crichel Down Rules 345 the legitimate expectations of the former owners.57 Not operating the Rules properly or consistently could be regarded as an abuse of power. In defence, it is not clear from the Rules themselves which private utility and other companies they apply to. It would be more equitable if they were mandatory on all bodies with compulsory powers or which have been assigned land to which the Rules would otherwise have applied. Indeed, the problem of accessing former records was cited as the main practical difficulty, preventing offer back in forty-three per cent of cases. This is perhaps evidence of a lack of rigour in the process of privatisation rather than deliberate maladministration, but nonetheless raises serious questions of morality and justice. Lack of adequate records is a particular concern for successor organisations, which casts doubt on their ability to operate fairly under the Rules. This is particularly so where transfers between departments have already taken place, and is exacerbated where transfers to non-governmental department bodies and others have occurred with the result that few organisations are proactive in seeking to identify former owners. Given the low proportion of sites actually sold back, this may be a rational strategy, although it stands outside the spirit of the Rules if not their actual provisions. The fact that decisions on the applicability of Crichel Down are made in the absence of public scrutiny by the body seeking to dispose of property, and that they can approach other government departments or even non-governmental bodies (effectively third parties) in an attempt to pre-empt the rights of former owners is unfair, and is clearly manifestly unreasonable. A decision that the Rules do not apply or that the particular circumstances justify a departure from them can only be challenged on public law grounds by way of a judicial review, on the basis that they have been misinterpreted or irrationally applied. It follows that the Rules give former owners no rights, as such, which can be asserted and protected by law. The most that a former owner has is a right to challenge by way of judicial review any decision by a disposing organisation in relation to the applicability of the Rules. The failure of judicial review to provide an adequate remedy was discussed in Cowan v Department of Economic Development58 where a government department was held to be in breach of the interests of procedural fairness where they were acting as both applicant and decision-maker. Even a successful judicial review will not inevitably result in the land being offered back to the former owner, but only in the disposing organisation being required to remake the decision in accordance with the Rules. In all such instances the former owner firstly needs to be aware that a transfer has occurred, and this will probably only be immediately apparent where the sale is conducted on the open market, and only then if it comes to the owner’s attention. It is this difficulty of evidence that creates the real issue for former owners. A disposing body which deems the Rules to be inapplicable is under no obligation to inform 57 See Re Preston [1985] 2 All ER 327, and R v North & East Devon Health Authority ex parte Coughlan [2000] 3 All ER 850. 58 [2001] NI.122.
346 Roger Gibbard former owners that any such consideration has been made. It is contended that this breaches the code of natural justice requiring the opportunity of individuals to have their case heard, and as such is manifestly unfair. Even where authorities do adopt the Crichel Down procedures, the nature of the searches involved (often needing to establish title over long periods and through poor quality records) means that often the presumption to ignore is strongly evident. As a last resort, where searches prove fruitless, some agencies do resort59 to placing public notices in for instance, The Farmers’ Weekly, the Estates Gazette and the London or Edinburgh Gazette, with a two-month period for owners to come forward. The public have no way of knowing whether this process has been conducted fairly or arbitrarily if at all. There is an understandable if regrettable lack of understanding amongst practitioners in both the public and private sector and in government departments as to the precise status of the Rules and which set (if any) currently applies. It may be that this is somewhat overstated in the public sector in order to preserve flexibility in whether to apply the Rules or not—better to assume that they do not apply, than to assume that they do. There is a legitimate expectation from members of the public that the Rules will be considered and followed where they apply, but the public have no way of knowing whether a department has made this consideration, unless they do decide to apply the Rules and offer back is deemed appropriate. Further confusion exists because the Crichel Down Rules are not the only formal guidance that government and other bodies have to take account of when considering disposing of surplus land. Eighty-six per cent of organisations responding to the DETR research had some form of written guidance on disposals, (see Table 2) sixty per cent of which made some reference to the Rules. However, organisations’ awareness of their own procedures was not always thorough—for instance over half of the health-related organisations incorrectly said that their particular guidance made no reference to Crichel Down procedures. The complexity of the offer-back procedure is further added to by the separate obligation placed on departments to follow the ‘Treasury Guidance on the Disposal of Assets’.60 Whilst this makes rather obtuse reference to the Crichel Down Rules, it conflicts with them in several respects, particularly in the definition of ‘value’, adding confusion to the pricing of repurchases. Often strict adherence to these supplementary rules and guidance notes takes precedence over the Crichel Down Rules and creates pressures which conceivably lead to conflict with them. From the perspective of the public purse, application of the Rules adds delay to the disposal process, increasing the time between declaration of a site as surplus and its final disposal by an average of seventeen months,61 with obvious public policy implications. Consequently 59 60 61
As is obligatory under Rule 20. NAO, above n 33. DETR, above n 4.
The Crichel Down Rules 347 Table 2. Disposals Guidance Organisation
Published Guidance
Ministry of Defence
Circular 38/1992: The disposal of surplus government land for the Defence Estates; Ministry of Defence—identifying and selling surplus property 1997/8; Defence Estates Guide for MoD- Stages and procedures in disposal.
Environment Agency
Estates Manual Volume 15
National Health service
Estate Management in the National Health Service 1988; Estate code 1995
Department of Transport
Acquisition, management and disposal of land and property purchased for road construction NAO 1994;
Commission for New Towns
Guidance note on disposal of land and built assets, disposal of land and assets NAO 1994-5;
Forest Enterprise
Disposal of property-rules and procedures for offer-back to former owners and lessors
Highways Agency Procedures manuals on land disposal Local Authorities
Local Government Ombudsman (Disposal of land-guidance on good practice 5).
Source: Department of the Environment, Transport and the Regions: the Operation of the Crichel Down Rules (2000)
there has developed a real and strong tension between meeting the requirements of the Rules, Treasury Guidance on disposal and the disposal targets of individual departments. This prompted previous research to conclude that the Rules are ‘outmoded and counter-productive’.62 In the light of previous comments, it is perhaps not surprising that an analysis of information on disposals revealed that there are a significant number of disposals where the land should have been offered back to former owners but was not. Of the three thousand two hundred disposals since 1954 where the Rules were known to apply, over half proceeded without any offer back.63 The DETR research64 identified a ‘significant number’ of recent cases where surplus land has been sold under the Rules with the authority retaining a ‘ransom strip’, thereby protecting future development values. Such a practice is 62 63 64
DETR, above n 38. DETR, above n 4. Ibid.
348 Roger Gibbard liable to question on the grounds of ethics and equity. Similarly, the inclusion of clawback provisions, although it is specifically provided for under the Rules,65 would appear equally unjust. The original land purchase at market value would have included hope value not attributable to the scheme, but not any development value arising at a later date.66 It would seem inequitable therefore that clawback should be included at the time of repurchase by the former owner. Rather the purchase price should reflect any latent development value, as would a true open market transaction67 It could be argued that these schemes reflect a lack of confidence in the external valuation. The Rules make provision for the effect on valuation of site fragmentation,68 that is the devolution of a site into its original separate ownership entities. The obligation to offer land back does not apply where disposal is in respect of a site for development which comprises two or more previous land holdings and where there is a risk that the fragmented sale would realise substantially less than the best price that could be obtained for the site as a whole. However, there is no guidance on how the risk of achieving a lower aggregate sale price is to be assessed nor what degree of risk leads to exemption under the Rules. The preparation of fragmentation valuations is difficult, complex and open to question. Former owners can form consortia, to legitimately thwart such a fragmentation argument under the Rules, and many departments have argued that this is being abused by developers, with consequent delays and frustrations and with the result that best price has not always been obtained. Many of the organisations questioned found the Rules to be an irritation rather than a central concern. Some organisations do have them firmly embedded in their disposal procedures (eg highways departments), others clearly do not actively consider their application unless and until contacted by a claimant, which from the public perspective is surely unacceptable.
IMPROVEMENTS
The DETR (2000) research recognised and explored a number of possible solutions to the identified problems surrounding the applicability and implementation, and overall fairness, of the current Rules. These varied from abandoning the rules altogether, through maintaining the status quo, to primary legislation. Abandoning them altogether would run counter to the principle of fairness which currently underlies the Rules. There is a recognition that compulsory purchase is somehow ‘unfair’—that unwillingly dispossessed owners do not get compensated for the compulsory nature of the acquisition, and that corre65
Rule 25. Unless due under the Planning and Compensation Act 1991, s 66. 67 G Sams, ‘Compensation in compulsory purchase: Revisions to procedures and miscellaneous matters’ [1987] Journal of Valuation 5(4) 420–6. 68 Rule 14(7). 66
The Crichel Down Rules 349 spondingly they should be entitled to repurchase if the land ever becomes surplus. Any changes to the underlying ethos of no extra compensation being paid due to the purchase being compulsory would, it is argued, compromise the Crichel Down philosophy. A number of organisations and individuals consulted in the research suggested a major shift in the operation of the Rules, whereby the emphasis is placed onto former owners, who would be required to register an intent to purchase at a future date should the circumstance arise. Such a move would require nationwide publicity in order to ensure fair implementation, and this would bring with it additional cost implications. However, non-awareness of the Rules is a huge issue even under the current regime. Both the National Farmers’ Union and the Country Land and Business Association (CLA) recognise the need to make landowners aware of the existence of the offerback rules, whether or not they are changed. If the Rules are therefore going to be retained in some form, there is an outstanding desire for them to be encapsulated in a single document, for example— ‘Treasury Regulations on the disposal of surplus property—the Crichel Down Rules’. This would expressly supersede all previous guidance, so that there could be no confusion over which set of rules was currently in force. Primary legislation may be required to alert bodies to the applicability of the Rules. This would clearly confirm the bodies to which the Rules would apply. It is argued that the only equitable solution is for the Rules to apply to all organisations and for all land acquired by or under threat of compulsion. In essence they should apply to the land rather than the disposing body, and would be mandatory for all land acquired by bodies with compulsory purchase powers. Government should consider accompanying the legislation with a Practice Manual to guide departments on procedural matters. The Rules (or Regulations, as they would be likely to become) should more carefully define the offerback procedure, and the exceptions to it. Terminology currently causing confusion, particularly in the area of exceptions, such as ‘material change’, ‘surplus’ and ‘disposal’ should be defined clearly and unambiguously, so that the Rules can be applied consistently. The debate over ‘value’ should be settled: a definition should be adopted with wider professional currency and in accordance with accepted convention. The practice of the retention of ransom strips or clawback clauses to protect future development values should be abandoned, except where it can clearly be shown that the former owner has already received compensation for subsequent development value, or that these are the last–resort methods of safeguarding development value. A simplification of the Rules could be based on the principle that all land sales should be conducted by public auction (or by tender). It would be adequate under the new Rules for the disposing authority to take steps to trace former owners and notify them of the impending sale, and to advertise locally and nationally. Former owners would then be required to bid in order to secure the property, and the marketplace would in theory, find its own level. This
350 Roger Gibbard procedure would not be without valuation problems however; where the former owner was a special purchaser, and no other third parties were interested, they could conceivably repurchase at a very low price at auction. This would necessitate setting a reserve market valuation price, determined in advance by the District Valuer or by an appointed external valuer. There is compelling argument for the application of a disputes procedure, by way of the Lands Tribunal with an attendant right to appeal. This may lead to yet more delay in the disposals process, and cost implications, but may be necessary to ensure that ‘safe’ decisions are made. The Lands Tribunal already deal with land price disputes, and it would seem logical to extend their jurisdiction to offer–back disputes. The Department for Local Government, Transport and the Regions (DLTR) should explore the possibility of cheaper, less timeconsuming methods of dispute resolution, with arbitration, or arbitration by written submission as alternative means. In the recently published Green Paper.69 the DLTR make a number of recommendations for the procedures for the disposal of compulsorily acquired land Most importantly, in recognition that the Rules should be retained, but as a universally mandatory form, that there should be primary legislation defining the main principles, and secondary legislation incorporating the detailed rules. The Green Paper proposes new legislation to introduce an appeals/arbitration mechanism, to be used additionally to settle disputes as to whether the Rules should apply to a particular disposal. Additionally the DLTR recognises that property negotiations are often lengthy, and recommend increasing the time limits to eight months. The DLTR proposes to retain the concept of applying the rules only where there has been no material change in character, retain the time horizon of 25 years along with the list of exceptions, and the continuance of clawback as a legitimate tool in the protection of the public purse.
CONCLUSIONS
The Crichel Down Rules were introduced hastily by a resigning Minister, as the result of a parliamentary scandal, and were based on the findings of a public inquiry which has itself been the target of criticism. The rules have never been widely publicised, and have been the subject of numerous reviews and revisions, confusing their underlying philosophy and making their application increasingly uncertain. Running parallel to the Rules, and often overriding them or directly conflicting with them are guidance materials published by the Treasury and others. Additionally, many of the organisations to which the Rules apply have their own guidance on disposals which may or may not deal explicitly with how they are to interact with the Crichel Down Rules. 69
DETR, above n 5.
The Crichel Down Rules 351 Consequently, there is much misunderstanding surrounding the issue of the offer-back procedures in practice, leading to inconsistent and often inappropriate application of the Rules. The transfer of powers and rights, and the ownership of acquired interests in land, from public to private organisations has highlighted the shortcomings of the procedures, and has increased the opportunities for, at worst, outright abuse of the Rules, and at best, their application in a piecemeal and unaccounted manner. Examples of best practice do exist, as evidenced by Highways Authority disposals, but even here it is acknowledged that the procedure imposes costs and delays with the implication that the use of resources is sub-optimal. The underlying philosophy remains relatively unchallenged, that there is a moral obligation, consequent on the compulsory nature of the original acquisition, to give former owners the pre-emptive right to re-acquire what was taken from them. The precise mechanics under which this principle operates, and the determination of the price at which the sale occurs are details which require a consistency of application and regulatory guidance in order to function fairly and predictably. The current review of town and country planning and associated matters proposes a number of changes, in effect to the applicability and presentation of the Crichel Down Rules, rather than to their substance, proposals which implicitly acknowledge that the Rules are currently not operating fairly or justly. Moreover it recommends that they should be made mandatory and that their status as non-statutory guidance be enlarged and made subject to primary legislation.
Author’s note: Since the conference delivery of this paper, (January 2002) the Town & Country planning functions of the DLTR have passed to the Office of the Deputy Prime Minister. This new department has assumed responsibility for the review of planning under the 2001 Green paper.
18
Proprietarian Conceptions of Statutory Access Rights SCOTT GRATTAN*
INTRODUCTION
At common law, a person who wished to enter a neighbour’s land for the purpose of carrying out work on her or his own land required the consent of the neighbour. If that consent was not forthcoming, the person who nevertheless entered the neighbour’s land left himself or herself open to an action in trespass.1 In England and Wales and in various Australian States the common law position has been varied by legislation empowering the relevant court to make an order authorising the applicant to enter land (‘servient land’) for the purpose of carrying out work on other land (‘dominant land’) without the consent of the owner of the servient land. The legislation that creates compulsory rights of access can be divided into two categories, which can be designated ‘firstgeneration’ and ‘second-generation’. First-generation access legislation has been enacted in Queensland,2 Tasmania3 and New South Wales.4 The origins of the legislation can be found in the recommendations of the Law Commission for England and Wales (‘Law Commission’).5 Despite this, England and Wales does not have first-generation access legislation. The hallmarks of the first-generation legislation are as follows. Firstly, it allows the creation of easements over the servient land, rather than simply temporary rights of access.6 Secondly, the power of the court to impose the easement is not limited to the doing of some type of work on the land. Thirdly, the power has been enacted in the form of a section inserted into the general property law statute of the jurisdiction. Fourthly, it is the Supreme Court of each jurisdiction that has been given the power to compulsorily impose 1
The classic case is John Trenberth Ltd v National Westminster Bank Ltd (1979) 39 P & CR 104. Property Law Act 1974, s 180. Conveyancing and Law of Property Act 1884, s 84J. 4 Conveyancing Act 1919, s 88K. 5 The Law Commission, Appurtenant Rights (Working Paper No 36, 1971). 6 Property Law Act 1974 (Queensland), s 180(7); Conveyancing and Law of Property Act 1884 (Tasmania), s 84J(2); Conveyancing Act 1919 (New South Wales), s 88K(1). 2 3
354 Scott Grattan the easement. This has meant that the cases in which the power has been invoked have usually been reported. Second-generation access legislation has been enacted in the last decade, in the England and Wales,7 Tasmania8 and New South Wales,9 and has certain characteristics that distinguish it from the first-generation legislation. Firstly, as will be discussed, it permits the imposition of access rights only for the purpose of facilitating certain types of work on the dominant land. Secondly, those rights subsist for only a limited period of time.10 Thirdly, in each jurisdiction the second-generation legislation takes the form of a stand-alone Act that was the result of an extensive law reform review process.11 Fourthly, the secondgeneration legislation is administered by lower courts,12 the decisions of which are not routinely reported. This means that there is a dearth of available case law in which the legislation has been considered.13 Because of this, heavy reliance will be placed on the published work of the law reform bodies in the relevant jurisdictions. One way of interpreting both the first–generation and second-generation access legislation is through the lens of economic efficiency. The legislation can be seen as a means of ensuring the efficient allocation of resources in the context of market failure. The owner of the putative dominant land might value the right to access more highly than the owner of the putative servient land values the right to refuse access, so that the possibility of mutually beneficial exchange exists. This exchange would take the form of the servient owner granting access to the dominant owner in return for a money payment. However, such an exchange may not take place because the situation in which bargaining occurs is a bilateral monopoly,14 with neither party having an alternate source of supply because of 7 Access to Neighbouring Land Act 1992 (UK), which extends only to England and Wales (s 9(3)), and which will be referred to below as the ‘E&W Act’). 8 Access to Neighbouring Land Act 1992, (referred to below as the ‘Tasmanian Act’). 9 Access to Neighbouring Land Act 2000 (referred to below as the ‘NSW Act’). 10 E&W Act, s 2(1)(c); Tasmanian Act, s 6(1)(b); NSW Act, s 17(c). 11 The E&W Act was preceded by the Law Commission, Rights of Access to Neighbouring Land (Working Paper No 78, 1980), referred to below as the ‘E&W Working Paper’, and the Law Commission, Rights of Access to Neighbouring Land (Report No 151, 1985), referred to below as the ‘E&W Report’. The Tasmanian Act was preceded by the Law Reform Commission of Tasmania, On Private Rights of Access to Neighbouring Land (Report No 42, 1985), referred to below as the ‘Tasmanian Report’. The NSW Act was preceded by the New South Wales Law Reform Commission, Neighbour and Neighbour Relations (Discussion Paper 22, 1991), referred to infra as the ‘NSW Discussion Paper’ and the New South Wales Law Reform Commission, Right of Access to Neighbouring Land (Report No 71, 1994), referred to below as the ‘NSW Report’. 12 In England and Wales, the High Court or a county court, although applications are to be commenced in the county court: ss 7(2), 8(3); in Tasmania, a magistrate or the small claims division of the Magistrates Court: s 3; in New South Wales, the Local Court: ss 7, 13(1). 13 The only fully reported case, dealing with the E&W Act, is Dean v Walker (1996) 73 P & CR 366, in which a two-member Court of Appeal upheld the judgments of the lower courts that the definition of land in the E&W Act was wide enough to include a party wall between the dominant and the servient land. 14 SE Sterk, ‘Neighbors in American Land Law’ (1987) 87 Col L Rev 55 at 57–8, 70.
Proprietarian Conceptions of Statutory Access Rights 355 the geophysical relationship between the relevant parcels of land. The only person from whom the dominant owner can buy access is the putative servient owner, and the only person to whom the servient owner can sell access is the putative dominant owner. This situation means that each of the parties has ample opportunity for strategic bargaining by trying force up or down the price paid for access. This may result in an inefficient allocation of resources due to the unreasonable attitude of the parties. The legislation can be seen as addressing this inefficient outcome by allowing the court to grant access rights over the servient land when it is efficient to do so. In reading the first–generation and second–generation legislation in these economic terms, one holds the view that the legislation is ultimately designed to satisfy individual preferences: the right to access has gone to the person who values it the most. In this way, one is subscribing to what Gregory Alexander calls the ‘property-as-commodity’ view. As Alexander says: Property satisfies individual preferences most effectively through the process of market exchange, or what lawyers call market alienability. The exchange function of property is so important—that property is often thought to be synonymous with the idea of market commodity.15
Of course, the imposition of access rights by the courts under the legislation is the antithesis of free exchange. The granting of access constitutes an exchange nonetheless, as a valuable resource—access—has moved from a person who values it less to a person who values it more. This movement has not taken place through the market, but by a process which mimics the market. However, for Alexander, the economic view of property as a commodity constitutes only ‘one-half of a dialectic’. The other half is the concept of ‘property as propriety’, which conceives of property as ‘the material foundation for creating and maintaining the proper social order’.16 Alexander describes the ‘proprietarian conception of property’ in this way. At its core, however, is the idea that the proper society is more than just whatever emerges from market relations. The properly ordered society may coincide with the market society, but the two are not identical. The market view of society is essentially empty.—The proprietarian, by contrast, is always committed to some particular substantive view of how society should be ordered.17
The proprietarian conception of property that most interests Alexander is that of civic republicanism, with its tenet of the appropriate subordination of private interests to ‘the common welfare of the polity’.18 In order for this ideal to be realised, the ‘citizenry’ of the Republic has to maintain a particular moral character associated with ‘virtue’, which enabled the subordination of the self to the common good. Such virtue was constantly threatened by the possibility 15 16 17 18
GS Alexander, Commodity & Propriety (University of Chicago Press, Chicago, 1997), 1. Ibid. Ibid, 2. Ibid, 29.
356 Scott Grattan of ‘corruption’. The institution of property had a central place is sustaining virtue and holding corruption at bay.19 [R]epublicans conceived of property as necessary to facilitate a publicly active, selfgoverning citizenry. Republicans believed that ownership of property provides the necessary foundations of virtue, enabling citizens to pursue the common welfare.20
In this paper I will argue that the second-generation, but not the firstgeneration, access legislation can be viewed as having an explicit proprietarian function. The proper social order that the legislation seeks to secure is of course not the one envisioned by the civic republicans of revolutionary America, namely a natural social and political order dominated by the citizenfreeholder.21 Rather, it is my contention that the second-generation legislation is built on a normative vision of a proper relationship between neighbours, where, in certain circumstances, the interests of an individual landowner have to be subordinated to the interests of her or his neighbour. This subordination is required in order to maintain a harmonious relationship between them. Such a harmonious relationship is the proper—natural—state of affairs that will flourish from the virtue of right-thinking and right-acting neighbours. However, it is always possible that this virtue will be subject to corruption, where one neighbour will put her or his own narrow interests first. It is the role of the second-generation legislation to defeat corruption and restore virtue by bringing about the proper state of affairs by forcing access where appropriate. The next section of this paper will outline the first-generation access legislation. It will argue that despite the references to public policy and public interest in the justifications given for the legislation, the first-generation can seen as manifesting only an economic, and not a proprietarian, spirit. Next, the paper will examine the second-generation legislation and will identify its explicit proprietarian purpose. In each of these sections I will examine not only the legislation itself, but also the law reform preceding its enactment. The final section of this paper will evaluate the proprietarian credentials of the second-generation legislation by comparing the core provisions of the legislation with material that articulates the meaning of being a ‘good neighbour’.
FIRST GENERATION LEGISLATION
English origins and the ‘public interest’ The genesis of the first-generation access legislation was a Law Commission Working Paper.22 The paper made wide-ranging suggestions for the rationali19 20 21 22
GS Alexander, Commodity & Propriety (University of Chicago Press, Chicago, 1997), 29–30. Ibid, 30–1 (reference omitted). Ibid, 4. Law Commission, above n 5.
Proprietarian Conceptions of Statutory Access Rights 357 sation of the law of easements, restrictive covenants and other rights appurtenant to land through the introduction of the concept of ‘Land Obligations’. One of the recommendations was to give the Lands Tribunal the power to compulsorily impose a Land Obligation over servient land. This could be done in order to make ‘effective’ a desired ‘specific development’ or ‘specific change of the use’ of dominant land. For the Land Tribunal to impose such a Land Obligation, it must be satisfied that: (i) it is in ‘the public interest’ for the dominant land to be developed in the desired manner; (ii) the owner of the servient land can be ‘adequately compensated’ for any ‘loss or disadvantage’ caused by the imposition; and (iii) the refusal of the servient owner to agree to the imposition is ‘unreasonable’ in ‘all the circumstances’.23 The Law Commission gave this example of where the compulsory imposition of a Land Obligation might be necessary. Let it be supposed that in a particular case it would be in the public interest that a housing estate should be built on a particular site, and, further, that such a development would require the acquisition of drainage rights over neighbouring land. It is always to be hoped that the developer will obtain those rights from his neighbour by agreement; but what if he cannot? The probable consequence will be that the developer’s land will not be put to optimum use, unless the development is carried out by some body having compulsory powers.24
Perhaps the most interesting aspect of this statement is the nexus that is drawn between the optimum use of land and the public interest. The same nexus is drawn in another passage. The Law Commission stated that the proposal ‘is, essentially, an instrument of public policy’, and that the time may have come for the law, in the public interest, to go some way towards helping an owner to acquire such rights as are essential to enable him to put his land to better use.25
At first blush it might be thought that the linkage between the increased development of land and the public interest is consistent with a proprietarian view of property rights. The linkage seems to require the subordination of individual interests (the ability of the servient owner to exclude others) to a particular vision of the wider social good. However, a moment’s reflection shows that this argument is firmly within the tradition of property as commodity: it is all about how resource ownership satisfies individual preferences. Identifying a nexus between increasing the value of resources and the public good brings us very close to Posner’s ‘ethical’ system of wealth maximisation.26 Posner argues that the value of a resource is simply a function of the value that a person places on that resource.27 When a resource is transferred from 23
Ibid, 118. Ibid, 59 (emphasis added). 25 Ibid, 119 (emphasis added). 26 See RA Posner, Economics of Justice (Harvard University Press, Cambridge, Mass, 1981), 60–103. 27 Ibid, 60–1, 64–5. 24
358 Scott Grattan someone who values it less, to someone who values it more, then society as a whole is wealthier. Central to this view is that the public interest (or greater good) is simply an aggregate of the extent to which individuals’ preferences are satisfied.28 The Law Commission adopted the position that access rights should be compulsorily imposed because more intensive development of land is desirable. The only reason for this must be that such development is what people (individuals) want. The ‘netting off’ of what people want is then equated with the public interest. The view that the public good is simply an aggregation of individual preferences can be described as a ‘thin’ view of the public interest. Support for the assertion that the Law Commission takes a ‘thin’ view of the public interest can be found in the Commission’s statement that ‘[w]e do not think that it would be necessary or desirable to define “the public interest” ’.29 In my view, such a definition would only be unnecessary if the term had no independent content. What we can conclude from this discussion is that the rationale given by the Law Commission for its recommendation is consistent only with the view that property rights should be shaped to bring about the efficient use of resources. The Law Commission has no other vision as to what constitutes a proper social ordering. The proposed access regime had no proprietarian function. Australian legislation The Law Commission’s proposal to allow the Lands Tribunal to have the power to impose a Land Obligation on servient land in these circumstances has not been taken up in the England and Wales. However, first-generation access legislation has been enacted in various Australian jurisdictions in a form that is generally faithful to the Law Commission’s proposal. The first jurisdiction to do so was Queensland, in the form of section 180 of the Property Law Act 1974. Section 180 allows the Supreme Court to impose ‘a statutory right of user’ over servient land where this is ‘reasonably necessary in the interests of effective use in any reasonable manner’30 of dominant land. A similar provision was inserted into Tasmania’s Conveyancing and Law of Property Act 1884 as section 84J in 197831 In New South Wales, section 88K was added to the Conveyancing Act 1919 in 1995.32 This section allows the Supreme Court to impose an easement over land ‘if the easement is reasonably necessary for the effective use or development of other land’.33 28 29 30 31 32 33
See RA Posner, Economics of Justice (Harvard University Press, Cambridge, Mass; 1981), 61. Law Commission, above n 5, 60 (reference omitted). Section 180(1). Conveyancing and Law of Property Act (No 2) 1978, s 3. Property Legislation Amendment (Easements) Act 1995. Section 88K (1).
Proprietarian Conceptions of Statutory Access Rights 359 There has been a common approach by the Queensland and New South Wales courts in addressing the requirement that the right of access be ‘reasonably necessary’.34 The courts have said that although possession of the right need not be absolutely necessary for the use or development of the dominant land, having the right must be more than merely desirable or preferable. Put another way, use or development with the right must be substantially preferable to use or development without the right.35 The Queensland and the New South Wales provisions have been used in three factual contexts. Firstly, to impose permanent rights of way over servient land where the dominant land was landlocked36 or where there was no practical vehicular access to the dominant land.37 Secondly, to impose easements over servient land in order to satisfy planning approval requirements for a proposed development of the dominant land.38 Thirdly, to impose easements that would facilitate some form of construction or building work on the dominant land, such as easements to allow a crane39 or scaffolding40 to encroach into the airspace above the servient land. There are various conditions that need to be satisfied before a right of access can be imposed under the first-generation legislation. As the concern of this paper is the proprietarian aspect to statutory access rights, I will consider only the condition prescribing a particular relationship between the proposed easement and the ‘public interest’. We have seen that the concept of public interest as used by the Law Commission is essentially an empty one, being simply tied to the satisfaction of individual preferences through the efficient use of resources. We now examine whether the case law that has considered the ‘public interest’ requirement of the first-generation Queensland and New South Wales legislation has given proprietarian substance to this concept.
Australian case law and the ‘public interest’ Section 180(3)(a) of the Property Law Act requires that in order for a statutory right of user to be imposed, the proposed use of the dominant land must be ‘consistent with the public interest’. When one looks at the specific findings of consistency with the public interest in the majority of the Queensland cases, one discovers that the public interest is conceived of as being a function of the 34 Eg Tregoyd Gardens Pty Ltd v Jervis (1997) 8 BPR 15,845 at 15,853–4, and Re Kindervater (unreported, Supreme Court of Queensland, Derrington J, 2 August 1995). 35 Eg Goodwin v Yee Holdings Pty Ltd (1997) 8 BPR 15,795 at 15,799 and Hanny v Lewis (1998) 9 BPR 16,205 at 16,209. 36 Re Seaforth Land Sales Pty Ltd’s Land (No 2) [1977] Qd R 317. 37 Eg Re Permanent Trustee Australia Ltd (1997) 8 BPR 15,551. 38 Eg Mitchell v Boutagy [2001] NSWSC 1045 (drainage easement). 39 117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504. 40 Eg Katakouzinos v Roufir Pty Ltd (1999) 9 BPR 17,303.
360 Scott Grattan productive, or efficient, use of resources. So in Ex parte Edward Street Properties Pty Ltd, Andrews J stated the public interest requirement was satisfied because ‘I am of the view that it is against the public interest that there be dead land, or landlocked land’.41 In Re Worthston Pty Ltd, Carter J found that the subdivision of the dominant land into suburban allotments would be consistent with the public interest ‘since there is a demand for such allotments’. More generally, his Honour thought that it was in the public interest for land to be used for the purpose for which it is zoned or for which it may be appropriately reasoned.42 In Re Kindervater, Derrington J said: It is generally of public benefit that the whole allotment of land be used for residential purposes—Further, the public interest in the avoidance of waste of the existing building structure is also a valid feature.43
Whereas the Queensland provision required consistency with the public interest, the first-generation access provision in New South Wales—s 88K, Conveyancing Act—provides that ‘use of the land in accordance with the easement’ must not be ‘inconsistent with the public interest’.44 This appears to mute even further the possibility of a role for a substantive content over and above the individual preferences of the concerned parties. The public interest issue frequently does not arise in s 88K litigation.45 One of the few New South Wales cases to deal with the issue has adopted the same position as the Queensland courts: the efficient use of resources is in the public interest. In Marshall v Council of the City of Wollongong, Bryson J said: Other public interest considerations—strongly support the grant of the easement, as without one the continued use and redevelopment of the plaintiff’s land as a dwelling house, for which it has long been used, would be difficult to the point of being impracticable, and the value of [the plaintiff’s land] and the dwelling would be neutralised. No public interest would be served by neutralising the worth of [the plaintiff’s land] or by substantially impeding its use or development.46
The construction of ‘the public interest’ by the Australian courts in the context of the first-generation access legislation does not support a proprietarian vision of the contour of property rights in this context. The reference to the public interest does not involve a substantive vision of how the preferences of individuals should be subordinated to a conception of a proper social ordering. Echoing the approach of the Law Commission, the Australian courts conceive of the public interest as a function of the efficient or productive use of resources. As both Alexander and Posner explain, this conception of property-as-commodity is based upon giving effect to individual preferences. 41 42 43 44 45 46
[1977] Qd R 86 at 90. [1987] Qd R 400 at 404. Above n 34 (emphasis has been added). Section 88K(2)(a). Eg Blulock Pty Ltd v Majic [2001] NSWSC 1063 (unreported) at para 12. (2000) 10 BPR 18,163 at 18,168.
Proprietarian Conceptions of Statutory Access Rights 361
SECOND - GENERATION LEGISLATION
Outline of the legislation In this section, the E&W Act and the NSW Act will be considered in some detail. For reasons of space, the Tasmanian Act will not be dealt with, other than to say that it constitutes a half-way house between the E&W Act and the NSW Act. Like the E&W Act, the Tasmanian Act only allows compulsory access in respect of preservation work;47 in other respects it is very similar to the NSW Act. The starting point for understanding the second-generation legislation is the provision enabling a person to apply for an ‘access order’.48 A person who desires entry to adjoining or adjacent land for the purpose of carrying out work on other land may apply to the relevant court for an access order. The applicant for the order need not be the owner of the dominant land, but the NSW Act requires the applicant to obtain the consent of the owner of the dominant land in such a case, unless this requirement is waived by the court.49 Under the E&W Act an access order can only be granted in respect of work that is reasonably necessary for the ‘preservation’ of the dominant land.50 A number of activities are expressly included within the concept of works of preservation.51 These activities include the repair, maintenance or renewal of buildings52 and, where this is reasonably necessary for the preservation of the land, the alteration, adjustment, improvement or demolition of a building.53 The NSW Act does not limit the types of work for which an access order can be granted,54 and the non-exhaustive list of work includes ‘construction’ of buildings and other structures.55 Although somewhat different in form, the second-generation access legislation provides for a common approach to be taken by the court in determining whether an access order should be granted. This approach is essentially a costbenefit analysis. The court must examine the benefit that would flow to the applicant if access were granted. This involves assessing whether the work ‘cannot be carried out, or would be substantially more difficult to carry out’ without entry to the servient land.56 The court is then to consider the cost to the owner of the servient land of granting access. This requires the court to assess 47
Section 5(2)(a). E&W Act, ss 1(1), 8(3); NSW Act, ss 3, 7, 11(1). A reference in this paper to an ‘access order’ under the NSW Act will refer to a ‘neighbouring land access order’ and not a “utility service access order”. For this latter type of order, see ss 8, 13. 49 Section 7(2) and (3). 50 Section 1(2)(a). 51 Section 1(4). 52 Section 1(4)(a). 53 Section 1(5). 54 Section 12(2). 55 Section 12(1)(a). 56 E&W Act, s 1(2)(b); NSW Act, s 15(a). 48
362 Scott Grattan whether entry under an access order would cause unreasonable hardship to the owner of the servient land.57 A finding that (i) the work would be substantially more difficult to carry out if there were no right of access; and (ii) the owner of the servient land would not suffer unreasonable hardship would mean that an access order would be granted, as the benefit would outweigh the cost. However, if either (i) the work would not be substantially more difficult to undertake without access to the servient land than with it; or (ii) access would cause unreasonable hardship to the owner of the servient land, then the cost would outweigh the benefit and the order could not be granted. Interpreted this way, the Acts are consistent with the view that property rights have the purpose of securing an efficient use of resources. Our task is to ascertain whether they can also be seen as undertaking a proprietarian function, but we must postpone that question for a little longer while we continue to outline the mechanics of the second-generation legislation. Both the E&W Act and the NSW Act give the court wide discretion in including in the access order conditions that are designed to avoid or minimise loss, damage or injury any person,58 and to minimise ‘inconvenience or loss of privacy’ to the owner of the servient land or any other person.59 Such conditions might include the manner in which the work is to be carried out, the days and hours during which the work may be carried out, precautions and safeguards and the taking out of insurance.60 In addition, unless varied by the court, the access order automatically requires the applicant to: (i) ensure that the servient land is made good so far as is reasonably practicable; and (ii) indemnify the owner of the servient land against damage to the servient land or goods.61 An important aspect of the second-generation legislation is the regime for the payment of compensation by the applicant to the owner of the servient land. Both Acts provide for the payment of compensation in respect of any ‘loss, damage or injury’ to the owner of the servient land arising from the access.62 Under the NSW Act, compensation is not payable for loss of privacy or inconvenience suffered by the owner of the servient land that is solely caused by the access authorised by the order.63 This prohibition follows the recommendation of the Law Commission in denying compensation for inconvenience caused by the authorised access.64 By contrast, the E&W Act does allow for the awarding of compensation ‘for substantial loss of privacy or other substantial inconve57 58 59 60 61 62 63 64
E&W Act, s 1(3); NSW Act, s 15(b). E&W Act, s 2(2)(a); NSW Act, s 16(2)(a). E&W Act, s 2(2)(b); NSW Act, s 16(2)(b). E&W Act, s 2(3), (4)(b); NSW Act, s 16(2)(c), (d) and (f). E&W Act, s 3(3)-(5); NSW Act, ss 16(2)(e), 21. E&W Act, ss 2(4)(a)(i); NSW Act, s 26(1). Section 26(2). E&W Report, para 4.54. Also see NSW Report, para 4.9.
Proprietarian Conceptions of Statutory Access Rights 363 nience’ caused by reason of the authorised access.65 It should be noted that the first-generation access legislation requires the payment of compensation that is ‘just’66 or ‘appropriate’67 for the granting of the easement. This has been held to include compensation for loss of amenities such as peace and quiet.68 The E&W Act is also more generous than the NSW Act in that it allows for the payment to the owner of the servient land of an amount ‘by way of consideration for the privilege of entering’ the servient land. Such a payment can only be made where the dominant land is not residential in nature. The quantum payable is that ‘as appears to the court to be fair and reasonable having regard to all the circumstances of the case’. In particular, the court is to have regard to the degree of inconvenience suffered by the servient owner and, more significantly, the financial advantage of the access order to the applicant.69 By providing for the payment of ‘compensation’ by the applicant for the privilege of access, and for the financial benefit flowing from such access, the E&W Act directly goes against the recommendations of the Law Commission.70 An access order authorises the applicant and others71 to enter72 the servient land for the purpose of carrying out work on the dominant land. The owner of the servient land who was a party to the proceedings, or a successor in title to a party to the proceedings,73 is required to allow the applicant access to the servient land in accordance with the order.74 In addition to any other applicable remedy, the applicant has a statutory right to damages against the owner of the servient land if that person does not allow the applicant access as required by the order.75 Under the NSW Act, failure to comply with an access order is a criminal offence subject to the imposition of a fine.76
65 Section 2(4)(a)(ii). This is consistent with the provisional view of the Law Commission in the E&W Working Paper (para 5.15), that compensation should be payable for actual, but not trivial inconvenience. 66 Property Law Act 1974 (Queensland), s 180(4). 67 Conveyancing Act 1919 (NSW), s 88K(4). On the difference between the compensation payable under s 88K and the NSW Act, see RG Stokes, ‘Thy Neighbour’s House: Quiet Enjoyment versus the Access to Neighbouring Land Act’ (2001)7 LGLJ 106 at 108–09. 68 Wengarin v Byron Shire Council (1999) 9 BPR 16,985 at 16,989. 69 Section 2(5). The method of assessing the financial benefit of the access order is set out in s 2(6). 70 E&W Report, paras 4.55, 4.59. The rationale for this view is that the servient owner should not be given an incentive to litigate rather than negotiate. Also see NSW Report, para 4.19. 71 Such other persons authorised by the applicant as are ‘reasonably necessary’ to undertake the work: E&W Act, s 3(1), (2), (7); NSW Act, s 20(a). 72 An access order also authorises the applicant to bring onto and leave on the servient land ‘such materials, plant and equipment as are reasonably necessary’ for carrying out the work. See E&W Act, s 3(2); NSW Act, ss 18, 20. 73 E&W Act, 4(1), but subject to the conditions relating to registration; NSW Act, s 23. 74 E&W Act, s 3(1); NSW Act, s 22. 75 E&W Act, s 6(2); NSW Act, s 28(3). 76 Section 28(1).
364 Scott Grattan Proprietarian justification for the second-generation legislation The main contention of this paper is that the second-generation access legislation is based upon a proprietarian vision of property rights. However, it must be noted that as the second-generation legislation uses a form of cost-benefit analysis to determine whether access should be granted, it, like the firstgeneration legislation, can be seen as promoting the satisfaction of private preferences through facilitating the productive use of resources. This view of the second-generation legislation certainly comes through in the work of the law reform authorities that preceded its enactment. And just as with the firstgeneration legislation, this is often equated with the public interest. This statement of the Law Commission is representative: there is also to be borne in mind the argument based on the public’s interest in maintaining the country’s stock of buildings in good repair. Inability to do this through denial of necessary access must result in a waste of resources.77
Yet side by side with statements that link the satisfaction of individual preferences (through the productive use of resources) with the public interest are justifications which Alexander would call truly proprietarian. These justifications do envision the subordination of individual preferences to a substantive vision of a proper social order. The social ordering that is envisioned is one of a harmonious relationship between neighbours: a relationship where one neighbour voluntarily puts his or her own interest behind that of the other. This view is consistent with Alexander’s notion of property rights being shaped so as to promote virtue, rather than wealth. Neighbours interact not merely as quasi–buyers and quasi–sellers in a quasi–market, (in which rights of access are the quasi–commodities), but as people in continuing relationships of mutual dependence. The second-generation access legislation is designed to ensure that the natural order of things is maintained. The following is one example of the Law Commission employing this form of proprietarian justification for the enactment of access legislation: reasonable neighbours do not in practice object to access for repairs on the ground that such access would be a major erosion of their rights. The facts that most people do not object to temporary incursions by their neighbours at times of need shows that such incursions are not generally considered to be objectionable. . . . It appeared from the consultation that when access was refused, the immediate cause of the refusal was often some existing ill-feeling between neighbours, the origins of which lay in some incident unconnected with the request for access. In these cases, the purpose of the refusal was to spite [the applicant] rather than to protect [the servient owner’s] rights.78
77 78
E&W Report, para 3.15 (emphasis added). Also see NSW Report, paras 1.7, 2.19. Ibid, 3.24 (emphasis added).
Proprietarian Conceptions of Statutory Access Rights 365 What emerges very strongly from this passage is that it is natural that a spirit of goodwill exists between neighbours and that one neighbour should not unreasonably refuse access to another. However, these passages suggest that it is also quite common for reality to depart from the ideal. A spirit of ill-will may exist between neighbours. This state of affairs is regarded as a perversion of the proper order, however. The access legislation is designed to provide a corrective mechanism and, as Alexander might say, to protect virtue against corruption. The concept of ‘neighbourliness’ as an axiom strongly permeates the arguments of the New South Wales Law Reform Commission (‘NSWLRC’) for the enactment of access legislation. One of the reasons for this is that the NSWLRC’s examination of the need for reform in this area initially grew out of a general reference on neighbour and neighbour relations in the context of residential land, rather than the discrete issue of access to neighbouring land. In its initial examination, the issue of access was bundled together with areas of concern such as problems caused by trees and noise.79 The primary concern of the NSWLRC was to consider ‘the issues of dispute resolution and the availability of appropriate remedies and forums to deal with conflicts between neighbours’.80 The NSWRLC identified disputes between neighbours as frequently having their origin in the ‘continuous’ and ‘broadly based’ relationship between the parties which arises out of their close proximity and frequent interaction.81 As a consequence of this: a dispute which ends up in court is often simply a by-product or symptom of a more wide-ranging problem in the relationship. Disputes about personalities, interest, manners and lifestyles and values are transformed into disputes about issues which are recognised at law when legal action is taken.82
This passage suggests a view that disputes against neighbours is something akin to an illness, and certainly a deviation from the proper order. The focus is on how the parties relate to each other, rather than on the productive use of resources, as is the dominant perspective of the first-generation legislation. After its initial analysis of access issues as part as a global examination of the relationship between residential neighbours, the NSWLRC next dealt with the issue of access in a separate report. However, in narrowing its enquiry in this manner, the NSWLRC simultaneously broadened it in another aspect; it extended its consideration from issues involving residential neighbours to issues involving neighbours of all types. The NSWLRC thus intended its recommendations to apply to ‘commercial neighbours’ and their attendant problems of oversailing cranes used in large-scale development.83 The legitimacy of applying arguments developed in the context of the resolution of disputes between 79 80 81 82 83
NSW Discussion Paper, paras 1.1, 1.3–1.4. Ibid, para 1.2. Ibid, paras 7.2–7.3. Ibid, para 7.3 (emphasis added). NSW Report, para 1.4.
366 Scott Grattan residential neighbours, to the disputes involving one or more commercial ‘entities’ will be discussed later in this paper. The NSWLRC utilised the ideal of neighbourliness to justify its recommendation for a compulsory access scheme in this way: In practical terms, the number of occasions on which the lack of access to a neighbouring property actually causes problems may not be great. Neighbours may be able to negotiate a solution themselves, perhaps involving the payment of money by the landowner seeking access. Unfortunately, the spirit of compromise will not exist between all neighbours and a refusal of access may . . . lead to a deterioration of the relationship between the neighbours . . .84
The above discussion has shown how the concept of neighbourliness has been used to justify the enactment of the second–generation access legislation: legal redress is seen as needed when actual behaviour does not measure up to the ideal of how good neighbours should act. The central role of the concept of neighbourliness in justifying the contours of the legislation is encapsulated in the divergence of opinion regarding the scope of work for which access may be ordered. As previously noted, the E&W Act allows access for preservation work only, whereas the NSW Act allows access for preservation work and new building work. Both sides of the debate invoked the concept of neighbourliness to support its position. The Law Commission justified its recommendation to limit the type of work for which access could be compulsorily ordered in this way: although the line between new building work and preservation work may be difficult to draw with precision, the difference between the two is in principle a difference in kind and not merely in degree. To see this one has only to ask whether good neighbourly relations would normally be enough at present to ensure that access was given. In relation to preservation work, we think the answer is, Yes. In relation to new building work, we think it is more probably, No.85
The position adopted in New South Wales reflects a recommendation of the Law Reform Commission of Tasmania.86 In arguing that the inclusion of new building work in an access regime was perfectly consistent with the concept of neighbourliness, the Tasmanian Commission said: It is submitted that there is not sufficient reason to exclude new building work from the scheme. It has even been argued that an extension of a right of access to new building work may be instrumental in encouraging a more co-operative attitude on the part of adjoining property owners.87
Given the heavy reliance placed upon the concept of ‘neighbourliness’ in the work of the law reform authorities that gave birth to the second-generation legislation, it might seem strange that the second-generation legislation does not 84 85 86 87
NSW Report, par 1.8 (emphasis added). E&W Working Paper, para 5.3 (emphasis added). Also see E&W Report, para 4.6. NSW Report, para 4.5; NSW Act, s 12(1)(a). Tasmanian Report, 12 (emphasis added).
Proprietarian Conceptions of Statutory Access Rights 367 use the term ‘neighbour’ at all, and only uses the term ‘neighbouring’ in their respective titles. Instead, the legislation refers to ‘adjoining or adjacent land’.88 We must assume that ‘neighbour’ and ‘neighbouring’ are not sufficiently precise to employ in the language by which rights, duties, privileges and immunities are created. The question thus arises: why is the term ‘neighbouring’ used in the title of the legislation? The answer must be that the term is intended to give the legislation an aura of ‘naturalness’ by providing a link to the ‘rhetorically charged’ concept of neighbourliness so readily utilised by the relevant law reform authorities. We now proceed to ‘unpack’ the concept of ‘neighbour’ to see to what extent the second-generation legislation is faithful to it.
‘ NEIGHBOURS ’
IN LAW AND IN THEORY
In attempting to give content to the concept of ‘neighbour’, we turn firstly, and briefly, to the law of torts. We turn next to the field of law-and-society scholarship.
Neighbours and the law of torts The moral force carried by the concept of ‘neighbour’ is demonstrated by Lord Atkin’s use of it in Donoghue v Stevenson89 to justify the imposition of a general duty to take reasonable care to avoid injury to others. According to the extra-judicial writing of one Canadian judge—Mr Justice Linden—the ‘neighbour principle’ transformed the law of torts ‘into a moral force, as well as a tool for compensation and deterrence’.90 His Honour said: For me, [the neighbour principle] (or at least its spirit) plays a role in the law not unlike the role the Bible plays for Christians, or the Torah plays for Jews, or the Koran for Moslems. It inspires those noble thoughts and deeds of which we need more in the modern world, not less. It challenges us to dream of a beautiful world where people care about one another, feel responsible for one another, and even—dare I say it—love one another.91
Yet other commentators have questioned the utility of trying to deduce particular legal rules from the neighbour principle outside the ‘legitimate realm of 88 E&W Act, 1(1); NSW Act, s 7(1). The Law Commission, which uses ‘adjoining or adjacent’ in cl 1(a) of its draft bill, states (E&W Report, para 4.14) that ‘neighbouring’ does not mean contiguous, but means ‘any land access to which is required by [the applicant] in order to carry out the work’. 89 [1932] AC 562. 90 AM Linden, ‘Viva Donoghue v Stevenson!’ in PT Burns (ed), Donoghue v Stevenson and the Modern Law of Negligence (The Continuing Legal Education Society of British Columbia, Vancouver, 1991), 230. 91 Ibid, 228.
368 Scott Grattan preventing physical harm’.92 In particular, JC Smith points out that the neighbour principle does not, and should not, impose a ‘prima facie duty to prevent foreseeable harm that you are in no way responsible for causing’.93 Perhaps inspired by Linden’s religious theme, Smith says Saintly acts and behaviour must remain voluntary. The price of enforced saintly conduct is the paralytic loss of freedom of action. . . . If we recognise a duty to prevent foreseeable harm and to compensate what we do not prevent, then our lives will not be our own, nor can any of us retain any property or resources.94
This point is particularly apposite to the question of court-ordered access to neighbouring land. After all, where a building on dominant land is falling into disrepair, the owner of servient land cannot be said to be causing the loss by refusing access where access is needed, any more than a bystander who fails to throw a lifeline to a drowning person can be said to have caused the outcome. Certainly, like the bystander, the owner of the servient land is able to assist in the prevention of the loss: by providing access. Yet, by compelling the owner of the servient land to grant access to allow the repair of a building on the dominant land, the owner of the servient land is being compelled to act, as she or he is being forced to make resources available to another. This abandons the longstanding distinction in tort between misfeasance and nonfeasance.95 The result of this is that the concept of neighbourliness is being used to justify the secondgeneration access legislation in a manner that goes beyond the way it is used in tort. Of course, it must be recognised that as a foundational concept in the law of torts, the idea of being a ‘neighbour’ is being employed metaphorically, as close physical proximity is not required in order to impose a duty of care.96 In the context of the second-generation access legislation, however, we are referring to people who live in close proximity. It may be that this makes a difference when one tries to define the content of a duty to be a good neighbour. So, we must turn to a body of material that sheds some light on what it means to be a good physical, as opposed to metaphorical, neighbour. The material to be used is taken from law and society scholarship, with its heavy emphasis on empirical fieldwork and detailed reading of historical documentary evidence. A central part of this task will be to examine the important differences between the E&W Act and the NSW Act.
92 JC Smith, ‘The Good Neighbour Still on Trial: Is Paisley’s Decayed Snail the Pilgrim’s Holy Grail?” in Burns, above n 90, 259. 93 Ibid, 258. 94 Ibid, 258–9. 95 Ibid, 258. 96 Linden, above n 90, 229–30.
Proprietarian Conceptions of Statutory Access Rights 369 Theories of Neighbourliness The first of these ‘law and society’ pieces to be used is Bruce Mann’s Neighbors and Strangers,97 which examines the transformation of the ways in which disputes were resolved in seventeenth and eighteenth century Connecticut. Mann argues that in the seventeenth century the model of dispute resolution that was employed was fundamentally ‘communal’ or ‘neighborly’ in nature.98 The methods of adjudication—arbitration proceedings, church tribunals and even the legal system itself—had the goal of acknowledging the individuality of disputes by fully airing the grievances of the parties. What was sought was a solution that allowed the parties to ‘reconcile their differences in a manner that allowed them to resume their sometimes quarrelsome, but mutually dependent neighborly relations’.99 By contrast, the eighteenth century saw the rise of a hegemonic legal system based on a paradigm of ‘generalizable, predictable rules and results’.100 Such a system subordinated the analysis of the specific facts of disputes to a process designed to yield predictable outcomes. This was a system that treated neighbors as strangers in an effort to achieve uniformity and certainty through the application of universal, abstract rules.101 The transformation noted by Mann can be seen to mirror a transformation from the common law to the statutory regimes governing access to land, except that (as is appropriate for a ‘mirrored’ phenomenon) the transformation has been in the opposite direction. The common law rules governing trespass to land are inflexible and unforgiving. The motivation, extent and even effect of the incursion are irrelevant to the outcome of the dispute: liability is strict and the outcome is certain. The second-generation access statutes are fundamentally different from the common law rule of trespass. This difference is not just in outcome—at times permitting access without consent—but also in technique. The statutes are receptive to the richness of the particular facts of the dispute. In this respect we must recall the test of ‘reasonable necessity,’ which is fundamental to the question of whether access should be granted, as well as the myriad of conditions that can be imposed to minimise the adverse impact upon the servient owner. Both of these mechanisms have the aim of balancing the interests of the parties and reaching a result that will allow them to live, in Mann’s words, ‘if not in peace, then at least in a truce’.102 The second of the law and society pieces is one of the most famous recent works in the area. In his Order Without Law,103 Robert Ellickson conducted a 97 98 99 100 101 102 103
(The University of North Carolina Press, Chapel Hill, 1987). Ibid, 9–10. Ibid, 163. Ibid, 168. Ibid, 9–10, 167. Ibid, 164. RC Ellickson, Order Without Law (Harvard University Press, Cambridge, Mass, 1991).
370 Scott Grattan detailed study of how the residents of rural Shasta County in California resolved disputes concerning straying cattle. Ellickson found that in the vast majority of cases, disputes were resolved by the parties concerned, not only without recourse to legal processes, but without regard to the underlying formal legal rules that supposedly ‘governed’ the dispute. Instead, the parties involved applied informal norms to regulate their relationships in situations of potential conflict.104 The various informal norms that were applied in specific situations were found to be a function of the ‘overarching substantive norm . . . that one should be a “good neighbor” ’. This is ‘a general call for cooperative behavior’105 and above all meant ‘no law suits’.106 A major aspect of Ellickson’s study was how the rural residents of Shasta County dealt with the common problem of cattle trespass. What makes the study of the resolution of cattle trespass in Shasta County such an interesting subject from the law and society perspective is that different legal regimes applied in different areas of the county. In ‘open range’ areas the owner of livestock is generally not liable for damage caused by straying cattle to unfenced land, even when the event was caused by the negligence of the owner. In ‘closed range’ areas the owner is strictly liable for damage caused by straying cattle.107 What Ellickson found, however, was that the owner of the straying cattle and the owner of the damaged crops typically dealt with the event in the same way, irrespective of whether it occurred on an open or closed range. Most rural residents are consciously committed to an overarching norm of cooperation among neighbors. In trespass situations, their applicable particularized norm, adhered to by all but a few deviants, is that an owner of livestock is responsible for the acts of his animals. Allegiance to this norm seems wholly independent of formal legal entitlements. Most cattlemen believe that a rancher should keep his animals from eating his neighbor’s grass, regardless of whether the range is open or closed.108
The application of the norm of neighbourly co-operation would work this way. The owner of the damaged crops, on discovering the situation, would telephone the owner of the trespassing cattle. The owner of the cattle would retrieve the straying cattle and apologise for the occurrence. At this stage another subsidiary norm would commonly come into play. Instead of insisting on monetary or in kind compensation, the owner of the damaged crops would frequently ‘put up with (‘lump’) minor damage’ resulting from the event.109 Further, if it were inconvenient or impractical for the cattle owner to retrieve the cattle speedily, the crop owner would board the cattle at his or her own cost, ‘even for months at a time’.110 104 105 106 107 108 109 110
RC Ellickson, Order Without Law (Harvard University Press, Cambridge, Mass, 1991), 1. Ibid, 185. Ibid, 251. Ibid, 3, 44. Ibid, 52–3. Ibid, 53. Ibid, 54.
Proprietarian Conceptions of Statutory Access Rights 371 Ellickson claims that this practice of ‘reciprocal restraint’ arises out of the fact that, over time, most residents will be both the ‘perpetrators’ and victims of cattle trespass. Because the risks associated with cattle trespass are symmetrical, a practice under which the victims routinely bear losses means that, in the long run, losses will even themselves out without the need to waste time and spend money in the resolution of disputes.111 From this study, and others, Ellickson formulates the following general hypothesis: members of a close-knit group develop and maintain norms whose content serves to maximise the aggregate welfare that members obtain in their workaday affairs with one another. [S]tated more simply, the hypothesis predicts that members of tight social groups will informally encourage each other to engage in cooperative behaviour.112
Central to Ellickson’s hypothesis are the concepts of ‘close-knit groups’ and ‘workaday affairs’. The latter concept refers to ‘ordinary matters conducted on the stage that the ground rules have set’.113 Ellickson defines a close-knit group as a social network in which people have continuing relationships, have a credible supply of information about other members’ past behaviour, and the ability to impose sanctions on another member for a breach of the norm of cooperative behaviour.114 Such sanctions may be as mild as spreading negative gossip about the wrongdoer, but may extend to physical, and even violent, self-help.115 Having outlined Ellickson’s thesis, we now need to ‘apply it’ to the justification for the second-generation access legislation based upon good neighbourliness. That is, to what extent is the argument put forward by law reform authorities that there is a naturalness about one neighbour allowing access to another consistent with Ellickson’s empirically-derived hypothesis? As a starting point, we can note that like the (real) neighbours in rural Shasta County, the neighbours envisioned by the various law reform bodies are loathe to rely on their legal rights, or what at common law were their legal rights, to deny access. To rely on those rights where granting access would not be burdensome, is seen as unreasonable, and poor form. Additionally, the provisions of the legislation precluding or limiting the payment of compensation for inconvenience and loss of privacy can be seen as requiring an absorbing or ‘lumping’ of losses in a way analogous to the practice in Shasta County. The law reform authorities state that a ‘measure of inconvenience is something that simply must be endured’116 as an ‘inevitable consequence of modern social and 111 112 113 114 115 116
Ibid. Ibid, 167 (emphasis in original; references omitted). Ibid, 176. Ibid, 177, 181, 284. Ibid, 130, 143. E&W Report, para 4.54.
372 Scott Grattan physical proximity’.117 This echoes the justification given by the ranchers of Shasta County for the practice: the principle of ‘live and let live’.118 Yet, for the operation of the second–generation legislation to be consistent with Ellickson’s hypothesis, we must also show that: —for a landowner to allow access to a neighbour is part of a pattern of mutually beneficial behaviour; —allowing access will form part of the ‘workaday’ affairs of the landowner and the neighbour; and —the landowner and the neighbour form part of a close-knit group. In the context of routine maintenance of residential dwellings (and perhaps owner-occupied commercial buildings, too), it appears that Ellickson’s three criteria are met. Even if the requirement of access is not reciprocal—where A needs access to B’s land in order to effect repairs but B can effect repairs without needing access to A’s land—the neighbours will still have ample scope for mutually beneficial co-operation in other matters. These include the mutually-dependent issues of ‘fencing, trees, drainage, security, noise and street parking’.119 Allowing access would simply be one piece of the puzzle. With respect to Ellickson’s other criteria, routine maintenance of buildings and preservation of land can fairly be described as a workaday affair, and the neighbours constitute a close-knit group, as their physical proximity ensures the flow of information and allows for retaliation for un-neighbourly acts. This means that the E&W Act can lay claim to underscoring a ‘natural’ neighbourliness in accordance with Ellickson’s hypothesis. It only allows access for the purpose of the workaday activity of preservation works. Its limiting the payment of compensation to cases of substantial inconvenience and substantial loss of privacy can be seen as being useful in circumstances in which the preservation work is of such a nature that it goes somewhat beyond the commonplace. In such circumstances, being a good neighbour may not reasonably require that the adverse effects of the work be lumped. The NSW Act is in a different position. As the Act allows access for the purpose of undertaking new work, such as the construction of an additional building, the activities of the owner of the dominant land cannot be described as workaday. The extended time that this construction is likely to take, and the measure of inconvenience to the owner of the servient land that is likely to result, means that this activity cannot be described as an ordinary day-to-day activity in respect of which it is natural for neighbours to co-operate. An equally important fact is that, commonly, such new construction work will be undertaken by a property developer, rather than an owner-occupier. This means that there will not be the potential for long-term interaction between the owners of 117
NSW Report, para 419. Ellickson, above n 103, 154. 119 Ibid, 271. This is one of the reasons why Ellickson concludes that his hypothesis applies to neighbours even in urban settings: Ibid, 270–1. 118
Proprietarian Conceptions of Statutory Access Rights 373 the dominant and the servient land so as to give them common membership of Ellickson’s close-knit group. Put another way, there is simply too much ‘social distance’120 between the parties for them to be regarded as neighbours in anything other than the physical sense. This extended reach of the NSW Act cannot be justified on the basis of preventing a departure from a natural spirit of neighbourliness. If the secondgeneration access legislation is to extend to this situation, then one must rely on an economic, rather than a proprietarian, justification. In that case it would be appropriate to include in the NSW Act a provision that allows for the payment of compensation to the servient owner to reflect the financial value of the access rights to the dominant owner. It will be recalled that such a provision exists in the E&W Act in relation to non-residential dominant land.121 This would result in a fair amount of compensation to be paid in circumstances where there is no natural ‘neighbourliness’ that would otherwise require the granting of access.
CONCLUSION
In one of her many stimulating pieces about property, Carol Rose identifies the role of storytelling in the classical justifications for the institution of private property.122 Rose argues that a gap exists in the theories of Locke and Blackstone between the self-interested individuals who need private property to provide them with the incentive to labour, and the kind of individual needed to create and maintain the very same property system. In order to ‘slide smoothly’ over this gap, ‘property needs a tale, a story, a post hoc explanation’.123 There is a similar gap with regard to justifications for legislation that creates access rights. How do we reconcile our endorsement of the freedom that private property affords to self-interested individuals with our desire to avoid such property rights being exercised unreasonably? The answer is that the justifications given by the law reform authorities responsible for the enactment of access legislation have a narrative quality which glosses over the irreconcilable nature of the problem. We have seen that the first-generation legislation, though couched in the discourse of public interest, is simply based on the efficient use of resources. This boils down to setting-off the respective private preferences of different individuals. By contrast, the dominant narrative adopted for the justification of the second-generation legislation is bona fide proprietarian. The narrative involves the subordination of the private preferences of the servient owner to a vision of a proper social ordering: the co-operative and harmonious relations between 120 121 122 123
Ibid, 256. Section 2(5). CM Rose, Property and Persuasion (Boulder, Westview Press, 1994), 37. Ibid, 38.
374 Scott Grattan neighbours. We are told that it is unnatural for neighbours to rely on their strict legal rights with respect to access issues. The work of Ellickson has been examined in order to flesh out the concept of what is involved in good neighbourly behaviour. We have noted that the E&W Act can be seen as conforming to Ellickson’s theoretical model of mutually beneficial co-operative behaviour among members of a close knit group with respect to their everyday affairs. However, the NSW Act, in allowing access for major new building projects, is something akin to a Trojan Horse. Hidden inside the harmless looking vehicle of neighbourly behaviour, is the harsh iron of compulsory access for commercial development. Some might even regard this as the triumph of corruption over virtue.
Part VI
Keynote address
19
Sharing Homes: Property or Status? STUART BRIDGE
A PROBLEM OF PROPERTY
Two or more people live together in a house or flat the title to which is vested in at least one, possibly both or all, of them. They share occupation. Their respective rights to beneficial ownership, determined by reference to the law of trusts, will in turn impact on many vital issues, four of which can be detailed here: (a) The division of the property, or its proceeds of sale, when the persons cease to share the home, possibly on the breakdown of a relationship between them, possibly when one leaves to take up employment elsewhere. Not only may it be necessary to determine the parties’ respective interests in the property to effect an appropriate allocation, it may also be necessary to decide whether a sale of the property should be ordered to realise the capital represented by the home. (b) The effect on the property, and on the rights of those continuing to live there, of the death of one of the persons sharing the home. Before the rules of succession (as set out in the deceased’s will, or as statutorily imposed in the event of intestacy) can be applied, it must be established what rights the deceased had in the home (and, indeed, whether death may have extinguished any interest by virtue of survivorship). (c) The rights of creditors who have security over the shared home, by way of mortgage, in the event of default by the debtor. The question arises whether those who are living in the home (and who may not be personally indebted to the creditor) can assert an interest against the mortgagee, and whether they can defend proceedings for repossession. (d) The rights of unsecured creditors over the home, where one of the persons living there is indebted to them.
In 1980, Dr Stephen Cretney, then a Law Commissioner for England and Wales, published a paper entitled The Law Relating to Unmarried Partners From the Perspective of a Law Reform Agency.1 The principal problem he discussed was that experienced on the separation of unmarried couples who wished to claim rights in the home they had been sharing but who could not seek relief pursuant to the statutory jurisdiction which had been available on divorce since 1971: 1 In Marriage and Cohabitation in Contemporary Societies, ed. JM Eekelaar & SN Katz (Butterworths, Toronto, 1980), 357 et seq.
378 Stuart Bridge There are many reasons why the outcome of this kind of litigation is difficult to predict. In practice the most important is, perhaps, that so much depends on inferences as to the parties’ intentions drawn from their behaviour; different tribunals will inevitably reach different conclusions. But a more fundamental reason is that the precise juristic basis underlying a successful claim to entitlement is uncertain. Not only is it unclear from what facts the court should be prepared to infer the necessary agreement, it is also far from clear what terms the notional agreement must contain.2
Over the last twenty years, developing case-law has done little to clarify the principles on which the courts are to act in determining beneficial entitlement, while at the same time the circumstances in which those principles are called upon have multiplied. Not only has there been a further increase in owneroccupation such that seven out of ten English homes are now owned by their occupiers, but the number of persons sharing homes outside marriage, or indeed a marriage-like relationship, is greater than ever before.3 In an ideal world, all those sharing a home would come to an amicable agreement before they begin to share, detailing their respective beneficial entitlements, which agreement would be perfected by an express declaration of trust. This is good practice, and on more than one occasion the Court of Appeal has warned solicitors of the necessity to advise clients to make express provision when they are purchasing property which they intend to share as a home.4 The Land Registry has promoted this practice by requiring a declaration of trust to be made where title is vested in persons as joint registered proprietors.5 Unfortunately, as the cases demonstrate, this degree of organisation is not universal. In particular, when a registered proprietor of a house invites another to come and share the home with them, and they move in, there is often no discussion of their respective rights, and no legal advice is taken. As no property is being purchased, there is no obvious reason to have recourse to a solicitor. Dr Cretney, highlighting the uncertainty of the principles applicable where no express declaration of trust had been made, was doing so at a time when the common law was already showing signs of inability to cope. In the two watershed cases of Pettitt v Pettitt6 and Gissing v Gissing,7 the House of Lords had addressed the problem of informality by reference to the doctrines of implied, resulting and constructive trust. There can be little doubt that Lord Diplock’s famous speech in Gissing was intended to restrict, not to expand, the circumstances in which a beneficial interest could be claimed. But certain dicta, taken 2 In Marriage and Cohabitation in Contemporary Societies, ed. JM Eekelaar & SN Katz (Butterworths, Toronto, 1980), at 361. 3 DTLR Housing in England 1999–2000 (2001), Shaw & Haskey (1999) 95 Population Trends 7, ONS. 4 Walker v Hall [1984] 5 FLR 126, 129, per Dillon LJ, Carlton v Goodman [2002] EWCA Civ 545, [2002] 2 FLR 259, 273, per Ward LJ. 5 Land Registration Rules 1925, rr 19(1), 98, Sch 1 (inserted by Land Registration Rules 1997, r 2(2)). 6 [1970] AC 777. 7 [1971] AC 886.
Sharing Homes: Property or Status? 379 out of context, proved to be the germ of a much more generous view adopted by divisions of the Court of Appeal over the following decade. The salient passage is well-known: A resulting, implied or constructive trust—and it is unnecessary for present purposes to distinguish between these three classes of trust—is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in the land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired. And he will be held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.8
The relatively expansive first sentence, inferring that a trust would be imposed whenever the legal owner had acted in such a way that it would be inequitable (unfair, unjust) to deny the claimant a beneficial interest, became frequently cited. In isolation, it appears to provide the court with the power to do as it sees fit in response to the behaviour of the legal owner, and to award a beneficial share of whatever size it thought appropriate in the circumstances of the individual case. This invocation was enthusiastically accepted by Lord Denning who proclaimed the birth of equity’s ‘latest progeny’, the ‘new model’ constructive trust, brought into the world by Lord Diplock and nourished by the Court of Appeal.9 It is doubtful that Lord Diplock would have recognised his own offspring, and it is notable that in nurturing the child, the second sentence of Lord Diplock’s dictum, which was clearly intended to qualify the first, was given little emphasis. Take Eves v Eves,10 later to be cited as an example of a party acting in reliance on an express agreement to share beneficially.11 The male legal owner tricked his female partner into believing that she would be added to the legal title when she became 21. The property was conveyed into his sole name. They had two children, and she carried out extensive works to the house and garden. When the relationship broke down, she claimed a share in the house. The language of Lord Denning, holding that she was entitled to one-quarter of the equity in the home, is redolent of discretion: It seems to me that this conduct of Mr Eves amounted to a recognition by him that, in all fairness, she was entitled to a share in the house, equivalent in some way to a declaration of trust; not for a particular share, but for such share as was fair in view of all she had done and was doing for him and the children and would thereafter do.12
Throughout the 1970s, the Court of Appeal adopted a flexible approach towards those living together outside marriage, and applied broad notions of 8
[1971] AC 886, 905. ‘. . . a few years ago even equity would not have helped her. But things have altered now. Equity is not past the age of child bearing’. per Lord Denning MR in Eves v Eves [1975] 1 WLR 1338, 1341. 10 [1975] 1 WLR 1338. 11 Lloyds Bank v Rosset [1991] 1 AC 107. 12 [1975] 1 WLR 1338, 1342. 9
380 Stuart Bridge fairness and justice in deciding their respective shares in the property on the breakdown of the relationship.13 The retreat from this attractively malleable, albeit conceptually arid, position was probably heralded by the decision of the House of Lords in Williams & Glyns Bank Ltd v Boland14 at the end of the decade. It was implicit in Boland that where two persons had jointly contributed towards the acquisition of a home the title to which was vested in one only, it followed that the implied trust to which that arrangement gave rise would take effect as a trust for sale with the potential to bind third parties, most significantly mortgagees. This constituted a tacit acceptance of the reasoning of Lord Denning in the seminal decision in Bull v Bull15 twenty-five years previously. As Boland went on to hold that mortgagees could be bound by persons ‘in actual occupation’ whose interests were hidden behind the legal title even though those interests were not appropriately recorded in the land register, concern gripped the lending institutions.16 As time went on, banks found practical means of dealing with the problems to which Boland gave rise,17 but the clear acceptance of the proprietary effect of the beneficial interest behind the trust led the courts to reassess the principles on which such interests were being claimed. Burns v Burns18 was decided two years after Lord Denning’s retirement as Master of the Rolls. It would have been difficult to conceive of a claimant more likely to obtain a beneficial interest in the home pursuant to a ‘new model’ constructive trust. She and her male partner had lived together from 1961 until 1979. A house was purchased, with the assistance of mortgage finance, for their joint occupation in 1963 and conveyed into his sole name. He paid the deposit and the mortgage instalments. She stayed at home, looking after their two children, and did not take up any paid work until 1975, after which she paid the rates, the telephone bills, and provided some fixtures and fittings. However, as these payments were not referable to the acquisition of the house, and she could not establish, by proof of discussions or conversations, that they had a ‘common intention’ to share the property beneficially, the Court of Appeal rejected her claim to a beneficial interest: The mere fact that parties live together and do the ordinary domestic tasks is, in my view, no indication at all that they thereby intended to alter the existing property rights of either of them.19
May LJ, sympathising with Mrs Burns, considered the only solution to the problem facing those like her was by way of legislation: 13 Eg Cooke v Head [1972] 1 WLR 518, Richards v Dove [1974] 1 All ER 888, Hall v Hall [1982] 3 FLR 379. 14 [1981] AC 487. 15 [1955] 1 QB 234. 16 This led to a reference to the Law Commission: see Law Com No 115 Property Law: The Implications of Williams & Glyns’ Bank v Bolard (1982). 17 In particular by seeking the express waiver of rights by occupying beneficiaries. 18 [1984] Ch 317. 19 Ibid, at p 331, per Fox LJ.
Sharing Homes: Property or Status? 381 When one compares this ultimate result with what it would have been had she been married to the defendant, and taken appropriate steps under the Matrimonial Causes Act 1973, I think that she can justifiably say that fate has not been kind to her. In my opinion, however, the remedy for any inequity she may have sustained is a matter for Parliament and not for this court.20
Burns v Burns and the later Court of Appeal decision in Grant v Edwards21 cleared the decks for the House of Lords in Lloyds Bank v Rosset22 to re-state the orthodox view of the ‘common intention’ constructive trust. Lord Bridge set out two possible routes to the establishment of a beneficial interest in the absence of an express declaration of trust. First, where prior to the acquisition of the home (or, exceptionally, at some later date), there has been an agreement, arrangement or understanding reached between those sharing occupation that the property is to be shared beneficially. This must be proved by evidence of express discussions between the partners, however imperfectly remembered or however imprecise the terms might have been. The claimant must also show that they acted to their detriment or significantly altered their position in reliance on the agreement so as to give rise ‘to a constructive trust or a proprietary estoppel’. Secondly, although there is no evidence of an agreement or arrangement to share beneficially, an interest may be claimed on the basis of conduct alone. However, that conduct is apparently limited to direct financial contributions to the purchase price of the property by means of an initial capital payment or payment of mortgage instalments: ‘it is at least extremely doubtful whether anything less will do’.23 This dimension of the ‘common intention’ constructive trust bears the hall-marks of the resulting trust. It must be acknowledged that the re-statement of principle in Rosset did not ultimately lead to a greater clarity of reasoning in the decision-making process. In particular, it did not solve the problems which the courts were experiencing with the quantification of beneficial entitlement. Two subsequent decisions of the Court of Appeal illustrate the inconsistency of approach. In Midland Bank Plc v Cooke,24 the parties married in 1971 and moved into a house which had been conveyed into the sole name of the husband. The purchase price of £8,500 had been provided as to £6,540 by way of a mortgage, as to £1,000 out of the husband’s savings, and as to the remainder by gift from the husband’s parents. This gift was crucial. Although no express common intention could be found by the court, the gift, construed as a gift to both spouses jointly, conferred on the wife a beneficial interest in the home. Moreover, the court was then obliged, in quantifying the wife’s share, to take account of all conduct which threw light on
20 21 22 23 24
Ibid, at 345. [1986] Ch 638. [1991] 1 AC 107. Ibid, at 133. [1995] 4 All ER 562.
382 Stuart Bridge the shares which were intended.25 In other words, the court was not bound to deal with the matter on the strict basis of the trust which resulted from the cash contribution to the purchase price, but was free to attribute to the parties an intention to share the equity in different proportions. The Court of Appeal held that the wife was entitled to a half-share in the equity to give effect to the parties’ common intention, although she had made a financial contribution of less than one twelfth to the acquisition of the home. In Drake v Whipp,26 an unmarried couple joined in the purchase of a barn which they intended to convert into a dwelling-house for their joint occupation, the property being conveyed into the sole name of Mr Whipp. The purchase price of £61,254 was met as to £25,000 by Mrs Drake, and as to the remainder by Mr Whipp. Conversion works totalling £129,536 were then carried out, only £13,000 of which were contributed by Mrs Drake, although both parties put in many hours of their own labour into the property. The Court of Appeal considered that there was a clear common intention that the property be shared beneficially. It accordingly applied constructive trust principles to quantify the parties’ respective shares, approached the matter broadly, looking at the parties’ entire course of conduct together, and held that Mrs Drake had obtained a onethird share of the equity. It may be that these two authorities, indicating that the size of the contribution may bear little relation to the quantum of the beneficial interest, can be reconciled by reference only to the elusive factor of common intention.27 But this is an element which requires considerable ingenuity, if not inventiveness, to ‘discover’ and leads inevitably to a lack of consistency in the decided cases.28 The invocation of common intention requires in many cases that the court examine in great detail the parties’ conversation and correspondence over many years, as well as their financial dealings. This is a time-consuming and costly exercise, which has rightly been criticised by the courts.29 Much depends on findings of fact, as oral statements of intent and entitlement are bound to be contested in the climate of acrimony and incrimination which pervades these disputes. In consequence, it is extremely difficult for those advising clients of what they can reasonably expect to obtain from litigation and for those seeking to mediate disputes under what is a continually shifting shadow of the law. Some have argued that proprietary estoppel, mentioned in the same breath as constructive trust by Lord Bridge in Rosset, may be of greater utility in ascertaining the rights of those who live together without having made any formal arrangements.30 Estoppel does have an attractive flexibility, based upon its broad view of unconscionability and its readiness to tailor the remedy to the 25 26 27 28 29 30
[1995] 4 All ER 562, 574, per Waite LJ. [1996] 1 FLR 826. See, for example, Megarry & Wade, The Law of Real Property, 6th edn, 2000, 10–029, n 78. Gardner (1993) 109 LQR 263. Hammond v Mitchell [1991] 1 WLR 1127. Hayton [1990] Conv 369.
Sharing Homes: Property or Status? 383 individual case. However, there remain difficulties which have yet to be addressed satisfactorily. First, orthodox property rights are not conferred until the court has intervened. The inchoate equity which exists prior to judicial decree is of uncertain scope and it has yet to be definitively settled whether it binds a third party acquiring the land in question.31 Secondly, the relationship between estoppel and constructive trust is far from clear. While there are clearly some common traits (notably the requirement of detrimental reliance), there are also significant differences. Thirdly, the exercise of equitable discretion to give effect to the expectation which has been generated leads to further inconsistency and unpredictability.32 This final point is probably the most telling. In so far as proprietary estoppel may respond with subtlety and sophistication to the demands of informal living arrangements, it does not, indeed cannot, do so with consistency. As a result, the predictability of outcome which is a reasonable expectation of those seeking to bring claims for beneficial entitlement is not necessarily assisted by the operation of estoppel. In Pascoe v Turner,33 the plaintiff and defendant lived together for the best part of ten years as husband and wife. Although the house was legally owned by the plaintiff, following the breakdown of their relationship he assured her that the house (and everything in it) was hers. In reliance on this assurance, she spent money on redecorations, improvements and repairs, reducing her life-time savings to £300. Although the sum expended was relatively small when compared to the value of the property, the duty of the court was to give effect to the equity which had arisen in her favour, and that equity could not be satisfied without granting a remedy which assured to her security of tenure, quiet enjoyment and freedom of action in respect of repairs and improvements without interference from the plaintiff. The Court of Appeal concluded that the plaintiff had to be compelled to give effect to his promise and her expectations, and upheld the order of the court below that the plaintiff execute a conveyance of the freehold interest in the property into the defendant’s name. Twice in the last year the Court of Appeal has considered a claim, founded on proprietary estoppel, made by a claimant carer.34 In each case, the carer was assured by an elderly person that if he continued living with them and caring for them, he would have a home for life. In each case, he was disappointed when that person died and he discovered that no provision to such effect had been made. There is no doubt that each of these claimants could establish unconscionability—the central element of proprietary estoppel according to recent 31 Megarry & Wade, 6th ed, 13–028 et seq. Land Registration Act 2002, s 116, Lloyd v Dugdale (2002) 2 P & CR 167. 32 Cooke (1997) LS 258, Gardner (1999) 115 LQR 438. Note also Sledmore v Dalby (1996) 72 P & CR 196, Jennings v Rice [2002] EWCA Civ 159, CA 22 February 2002. 33 [1979] 1 WLR 431. 34 Campbell v Griffin [2001] EWCA Civ 990; Jennings v Rice [2002] EWCA Civ 159, CA 22 February 2002.
384 Stuart Bridge authority35—but the difficulty then comes with the exercise of discretion. In each case the ‘fair solution’ was imposed: a lump sum payment assessed by reference to no clear principles. The very flexibility of proprietary estoppel is its weakness—the results of its application are inconsistent and therefore unpredictable. There is another important respect in which the principles for ascertaining proprietary entitlement are open to criticism. As illustrated memorably by the result in Burns v Burns, our current law discriminates against those who contribute to the home in other ways than by the injection of earned income. In White v White, Lord Nicholls remarked, in the context of ancillary relief on divorce, that there ‘should be no bias in favour of the money-earner and against the home-maker and the child-carer’.36 It can be argued that this ‘bias’ affects unmarried couples (who do not have recourse to a system of discretionary reallocation) even more seriously than married couples and that those who have made substantial non-financial contributions to the up-keep of a shared home, the up-bringing of a family, and the care of a friend or relative should be able to have them recognised in terms of proprietary entitlement. THE LAW COMMISSION PROJECT
The work of the Law Commission has concentrated on the beneficial ownership of the shared home, in all its manifestations. As described in its Eighth Programme36a the scope of its project was to review the law: as it relates to the property rights of those who share a home, in relation to that shared home, except—for example—where a person’s occupancy is attributable to a tenancy, contractual licence or his or her employment. Our review therefore covers a broad range of people, including friends and relatives who share a home as well as unmarried couples and married couples (other than on the breakdown of the marriage).
The Sharing Homes project was not therefore limited by reference to any relationship between individuals, but by reference to the property being shared. The Law Commission was very keen to ensure that any proposals were not restricted to particular kinds of relationship- that they cover married as well as unmarried couples, and also those who live together as friends or companions, as relatives, or where one person cares for another. However, the project was narrower in its ambit than other reform exercises which have concentrated on the rights and obligations of ‘cohabiting couples’ in many areas of the law. In this sense, the project focused on property rather than status. It comprised an attempt to introduce certainty, consistency and predictability in the ascertainment and quantification of beneficial entitlement to the shared home. 35 ‘The fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine. In the end the court must look at the matter in the round’. Gillett v Holt [2001] Ch 210, 225, per Robert Walker LJ. 36 [2001] 1 AC 596, 605. 36a Law Com No 274.
Sharing Homes: Property or Status? 385 The question of beneficial entitlement inevitably involves an application of trust law. There is little wrong with the use of trust law machinery in this area. The Trusts of Land and Appointment of Trustees Act 1996, itself enacted following recommendations of the Law Commission,37 provides a means for balancing, where necessary, the respective claims and interests of trustees and beneficiaries, and deals in a practical manner with important issues such as rights of occupation and their effect on secured and unsecured creditors. The imposition of a trust of land in cases where homes are being shared allows the court to invoke the statutory machinery in an attempt to achieve its desired objectives.38 The central problem which the Law Commission identified was the problem of ‘informality’. Persons who are sharing homes together frequently do not address the legal consequences of their occupation until it is too late. While they are likely to have made a declaration of trust where the property has been jointly purchased—not only will they have been advised to such effect by their solicitors, the Land Registry will have also prompted them—it is of course much less likely where the parties share a property which had been purchased by one of them before they commenced living together. It is unusual for legal advice to be sought at such a time. Where parties have stipulated their respective entitlements in the property by means of a declaration of trust, then that should remain binding upon the parties, save where participation can be impugned on the basis of fraud, undue influence, misrepresentation or other factors vitiating consent. But what should happen where no such express provision has been made? What conduct should give rise to beneficial entitlement in the person who is not vested with legal title? In its Discussion Paper Sharing Homes,38a the Law Commission considered whether it was possible to replace the current reliance on intention-based doctrines such as resulting and constructive trust and proprietary estoppel with a more satisfactory and consistent approach. One possibility would be to provide for statutory co-ownership of the shared home in certain prescribed circumstances.39 However, the Law Commission had made such a recommendation in relation to the matrimonial home some twenty years ago.40 As that recommendation was rejected by government, it was therefore decided that an alternative approach should be considered. The scheme which was ultimately devised was contribution-based, requiring an assessment of the economic value of certain contributions made to the shared home, with additional reference to the activities taking place there. It was felt that this could provide the element of certainty lacking where application of current doctrines was concerned: the emphasis was on property values: 37
Law Com No 181, Transfer of Land: Trusts of Land (1989). See, for a recent example of the flexibility available to the courts pursuant to the 1996 Act, Mortgage Corpn v Shaire [2001] Ch 743. 38a Law Com No 278. 39 See, eg, Barlow & Lind, (1999) 19 Legal Studies 468. 40 Law Com No 86, Third Report on Family Property: the Matrimonial Home (Co-ownership and Occupation Rights) and Household Goods (1978). 38
386 Stuart Bridge Central to this property law model based on contributions to the shared homes was the notion that a party would not get ‘something for nothing’. Save where the parties had come to an express arrangement concerning their shares in the home, a beneficial interest was to be earned.41 An elaborate scheme was therefore devised. It was intended to apply wherever a property was occupied by two or more persons as a home, at least one of whom should have a legal or beneficial interest42 in the property. Certain sharers would be excluded- in particular where their relationship to the legal owner could be described as essentially ‘commercial’—such as landlord/tenant, landlord/lodger or employer/employee. But otherwise, the nature of the relationship between the sharers was to be irrelevant. Contributions which would qualify as relevant contributions were to include both financial contributions and non-financial contributions. The assessment of the economic value of such contributions was of varying degrees of difficulty. Where the contribution was by means of injection of capital (such as part payment of the purchase price of the house) or payment of mortgage instalments, it would be relatively easy to carry out an objective valuation. Where a financial contribution was less direct (typically where the parties arranged their affairs so that one paid the mortgage while the other met items of household expenditure), greater difficulties were encountered, difficulties which were amplified where payments were made towards purchase of other high value chattels such as cars or computer equipment. Where a person made non-financial contributions (so-called ‘home-making services’ such as taking responsibility for the shopping, the cleaning, looking after children), the case for recognition by means of an enhanced beneficial entitlement to the home would be extremely strong, but the valuation of services provided would be not only difficult but also somewhat demeaning. Assuming that it was possible to effect fair and reasonable valuation of the parties’ respective contributions during the time they shared a home, the idea was that they would receive a pro rata share in the equity of the house commensurate to the value of those contributions. However, once attempts were made to translate the relatively clear principles into practical reality (by worked examples), the scheme seemed to give rise to more problems than it was seeking to answer. The two examples set out in the Discussion Paper concern the grown-up child (C) of relatively elderly parents who have paid off their mortgage and the female partner (G) of a man who purchased the house prior to the commencement of the relationship. Both claimants make significant ‘contributions’—C by paying for home improvements and other items of the household budget and G by 41
Para 3.22. It would be sufficient to assert a property interest that one of the parties had a beneficial interest in the home. However, in the vast majority of cases the claim would be brought against a legal owner. For the purposes of this discussion, that shall be assumed. 42
Sharing Homes: Property or Status? 387 bringing up her partner’s child and working in the home. G’s claim is of course similar in kind to that of Mrs Burns. These examples were deliberately chosen in an attempt to see how a contribution-based scheme could apply neutrally to circumstances which would tend to give rise to different responses: There can be little doubt that a court would instinctively have greater sympathy for the unmarried mother (G) . . . than for the child of elderly parents (C) . . . But when it comes to characterising their respective claims, it is not really possible to articulate the differences without reference either to the probable intentions of the parties or to the nature of the relationship from which the claim has arisen.43
Ultimately, it became clear that it was impractical to devise a single scheme which could deal fairly and objectively with these different needs—one size could not fit all. The underlying problem is that neither claim should really be dependent on the putative value of their contribution to the domestic arrangements. The response of the current law to C, centred as it would be on whether he had been induced by his parents to incur expenditure on the house by their words or conduct, is eminently justifiable. While the failure of the current law to respond to G is open to criticism, nevertheless her true complaint does not concern a failure to compensate for services provided but more the financial loss sustained as a result of the breakdown of her relationship with the legal owner of the home. There remained the possibility of seeking to introduce certainty and consistency by means of a codification of the principles of implied trusts and proprietary estoppel. However, even assuming that agreement could be reached on a satisfactory statement of those principles, it is doubtful that subsequent courts could resist the temptation to gloss and to modify even codified principles in an attempt to do justice in the circumstances of an individual case. Moreover, would, or should, codification be limited to the operation of these principles in relation to the shared home, or should it extend across all the areas in which they may currently be applied? A more flexible response could be made by the courts- and it is this which the Law Commission ultimately invited, highlighting two respects in which the courts had made it too difficult to bring a claim for beneficial entitlement in the shared home.44 The requirement that a financial contribution be ‘direct’ (in the absence of proof of a common intention to share) is sometimes very difficult to satisfy, and it can lead to unfairness. A good example is the recent case of Le Foe v Le Foe.45 A husband and wife arranged their financial affairs so that the husband (who had a higher income) paid the mortgage, the service charge and the outgoings on their house while the wife dealt with the day-to-day domestic expenditure. The family economy depended on the wife’s earnings. Although 43 44 45
Para 3.71. Para 4.25 et seq. [2001] 2 FLR 970.
388 Stuart Bridge the wife had made no initial cash contribution to the purchase of the house and her contribution to the mortgage was at best ‘indirect’, the court held that she should nevertheless be able to establish a beneficial interest. As Nicholas Mostyn QC, sitting as a deputy High Court judge, stated: Otherwise these cases would be decided by reference to mere accidents of fortune, being the arbitrary allocation of financial responsibility as between the parties.46
Secondly, the quantification of beneficial entitlement can tend to be effected too rigidly. A broad, ‘holistic’, approach to quantification is therefore desirable, allowing the courts to undertake a survey of the whole course of dealing (or relationship) between the parties and to take account of all conduct which throws light on the question what shares were intended.47 In rejecting both the statutory promulgation of a property-based scheme, and the codification of the existing principles of trust law, it should be realised that no common law jurisdiction has adopted such reforms. Instead, the emphasis has been on status—in other words identifying certain types of relationship which should qualify for the conferment of particular rights and obligations, and then making appropriate legislative provision. Of greatest significance in property terms is the vesting of a discretion in the court to re-adjust and to reallocate proprietary entitlements. It is to this that we should now turn. STATUS AS SOLUTION
In the Sharing Homes Discussion Paper, the Law Commission identified a wider need for the law to recognise and to respond to the increasing diversity of living arrangements in this country. We believe that further consideration should be given to the adoption, necessarily by legislation, of new legal approaches to personal relationships outside marriage, following the lead given by other jurisdictions (such as France, Australia and New Zealand).48
These ‘new legal approaches’ all involve the deployment of ‘status’. A status may be ‘voluntary’ in that its legal consequences are applied only to those who have given their consent (and who, one hopes, are aware of those consequences). Many would argue that it is more acceptable to accord a status to persons who agree to its application than to impose a status on persons who have not so agreed and who, if asked, may well have been fiercely opposed to the legal consequences which it carries. Marriage is of course a voluntary status. While it does not have significant consequences for the spouses’ property entitlements during its subsistence,49 on breakdown and divorce the reallocative 46
[2001] 2 FLR 970, 982. See further Le Foe v Le Foe above at 982 et seq. 48 See Part VI, Conclusion (7). 49 English law does not impose statutory co-ownership of the matrimonial home (despite the proposals to such effect contained in Law Com No 86 (1978)). 47
Sharing Homes: Property or Status? 389 jurisdiction contained in the Matrimonial Causes Act can be invoked and the parties’ resources redistributed according to the statutory criteria. In particular, the court is to have regard to the future needs of the spouses as much as their strict property entitlements. The existence of the statutory jurisdiction means that when spouses separate there is rarely any need to invoke the principles of implied trust or proprietary estoppel to determine their respective interests in the matrimonial home. The district judge, concentrating on financial reallocation to accommodate the spouses’ future needs, simply will not want to know. A detailed proposal to create a new form of voluntary status was made in the Civil Partnerships Bill introduced into the House of Lords in January 2002 by Lord Lester of Herne Hill.50 Unrelated couples of the same or opposite sex who had been living together in the same household for a minimum period of six months were to be entitled to register their partnership with the RegistrarGeneral of Births, Deaths and Marriages. The effect of registration would be to equate the partners with spouses in many, although not all, respects. The impact of the proposals would be felt in areas as diverse as mental health, certain social benefits, protection from domestic violence, life assurance, death registration, succession to residential tenancies, intestacy, family provision, pension schemes and rights of action in respect of fatal accidents. The Bill made provision for a divorce equivalent, terminating the civil partnership, known as a ‘cessation order’, and—of greatest significance to the current discussion—for a form of ancillary relief, an ‘intervention order’, whereby on cessation the court would have power to transfer property from one party to another or to make orders for financial provision or to require the sharing of pension rights.51 Although warmly received in its Second Reading debate,52 the Lester Bill was withdrawn from the House of Lords in February 2002 as the government considered the cost implications of a civil partnership scheme. In the following December, Barbara Roche, the Minister for Social Exclusion and Equalities, reported the conclusion of a review by the Cabinet Office that there was a ‘strong and clear’ case for allowing same-sex couples to register their relationships and that a consultation paper would be published in due course.53 It was not, however, intended to offer the benefits of a registration scheme to unmarried couples of the opposite sex, on the basis that they are not prevented from marrying. In that respect, the government’s plans are narrower in their scope 50 Hereafter ‘the Lester Bill’. A Bill to similar effect was also introduced into the House of Commons by Jane Griffiths MP pursuant to the private member’s bill procedure. 51 The Lester Bill also proposed to create a regime of statutory co-ownership which would be applicable to the home and certain major items of property. Having acknowledged the right of the partners to negotiate their proprietary entitlements themselves, and to make an express ‘property agreement’ which was noted on the register—it then provided that in the absence of such a formalised property agreement, the communal property was to be treated for all purposes as held jointly by the partners in equal shares. In this single respect, civil partnership, as here proposed, would have greater impact than marriage. 52 Hansard (HL), 25 January 2002, col 1691 et seq. 53 The Independent, 6 December 2002.
390 Stuart Bridge than the provisions of the Lester Bill, but its acceptance in principle that samesex couples should obtain rights broadly analogous to those currently enjoyed by married couples is a highly significant development. We shall of course have to await the outcome of the consultation exercise for details of the scheme ultimately to be adopted. One thing is clear. The impact of a civil partnership scheme is inevitably restricted, in that it can only apply to those couples who duly register their partnership. It confers, like marriage, a status based upon the consent of the participants. It cannot, and does not purport to, deal with the problems of informality affecting those who have not sought to regulate their relationship or their property affairs. The reluctance of parties to accord formal recognition to their relationship and to make adequate express arrangements governing their property entitlements has led some jurisdictions to ‘fill in the gap’ by resort to an adjustive discretion based on the imposition of status. This has been particularly prevalent in Australia, where the majority of states have enacted ‘de facto’ legislation making provision for those (of the same or opposite sex) who live together outside marriage.54 New Zealand has gone even further, its Property (Relationships) Act (which came into force on 1 February 2002) effecting an assimilation of the rights of married and unmarried couples on separation or death. The Scottish Law Commission considered the financial consequences of breakdown of relationships outside marriage in its 1992 Report on Family Law.55 It did not favour a comprehensive system of financial provision on termination of cohabitation similar to that applicable on divorce, in part because it was felt that the imposition of a property-sharing regime (and also the recognition of continuing financial support) was inappropriate for couples who may well have opted not to marry in order to avoid such consequences. However, the Commission did consider that there was some unfairness in allowing economic gains and losses arising out of the contributions and sacrifices made during a relationship of cohabitation to lie where they fell on its breakdown. It accordingly recommended that where a cohabitation terminated otherwise than by death, either party should be able to apply to court, within one year of the termination, for financial provision on the basis of the statutory principle enshrined in section 9(1)(b) of the Family Law (Scotland) Act 1985. In making this proposal (which has not yet been acted upon), the Scottish Law Commission argued that it would give cohabitants the benefit of a principle designed to redress imbalances arising out of the circumstances of a noncommercial relationship where a party is likely to have made contributions or sacrifices without counting the cost or bargaining for a return. 54 Certain states (eg New South Wales) also make provision for the regulation of other ‘domestic relationships’. As well as vesting a discretion in the court to adjust the parties’ property rights, the legislation renders enforceable any cohabitation contracts which the parties may have entered on condition that each party has obtained prior independent legal advice. 55 (1992) Scot Law Com No 135.
Sharing Homes: Property or Status? 391 The Law Society has for some time argued that legislation making provision for cohabiting couples should be introduced in England and Wales alongside a system of civil partnership recognition.56 The approach it advocates involves the imposition of a status on ‘cohabitants’, who would be defined so as to include both opposite sex and same sex couples.57 Claims would only be possible once the parties had shown commitment by living together for two years, or by having a child.58 If that threshhold condition were met, each would have the right on separation to apply for capital provision from the other, taking account of ‘any economic advantage derived by either party from contributions by the other, and of any economic disadvantage suffered by either party in the interests of the other party or of the family’.59 This formula, borrowed from the Scots law of ancillary relief on divorce, would allow the court to take account of contributions made towards the upbringing of children and the upkeep of any shared property. Although the Law Society considers the case for capital provision orders is strong, to protect those who have been disadvantaged by the relationship which has broken down, it does not consider that maintenance orders should be available to the courts save in exceptional circumstances. They should be neither automatic nor permanent, and should be designed merely to provide resources for training (or re-training) or to reflect the economic disadvantage suffered which cannot be compensated through capital provision.60 In no cases should maintenance orders extend beyond four years after separation. The Law Society is clearly at pains to make a very clear distinction between the rights of married couples and those of unmarried couples. The latter have not evinced the commitment of the former, and so it is justifiable to apply more restrictive principles where an unmarried couple part. It appears extremely likely that civil partnerships between same-sex couples will soon obtain legal recognition in England and Wales at least, and that one of the most important consequences of registration will be entitlement to apply to the court for property adjustment orders on breakdown of the relationship. But while such reform will be welcomed by those who are currently denied the right to marry, it is important that its limitations are acknowledged, in particular that it does not offer any solution to the problem of informality identified by the Law Commission. Sooner or later, it is to be hoped sooner, it will be necessary to consider again the desirability of the imposition of a status on those couples, of the same or opposite sex, who neither marry nor register their relationship, with the vesting in the court of an adjustive discretion enabling it to 56 Cohabitation: the case for clear law (July 2002) contains the most recent statement of Law Society policy in this area. 57 Two persons (either opposite or same sex) living together in the same household in a relationship analogous to that of husband and wife, ibid., para 55. 58 Ibid, paras 57–62. 59 Ibid, paras 94–105. 60 Ibid, para 111.
392 Stuart Bridge reallocate the parties’ property in the event of relationship breakdown. This will require an assessment of the extent to which the autonomy of the parties to come to their own arrangements should be compromised by the necessity for paternalistic intervention—in short whether it is now necessary to impose on parties to a particular kind of relationship a legal status irrespective of their wishes.
