NATIONWIDE BUILDING SOCIETY v JAMES BEAUCHAMP (A FIRM) [2001] EWCA Civ 275

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
Grigson J.
[2001] EWCA Civ 275Case No Case No: CHANF/2000/2291/A3Venue Royal Courts of Justice, Strand, London, WC2A 2LL, Friday 2nd March 2001
Between
NATIONWIDE BUILDING SOCIETYRespondentJAMES BEAUCHAMP (A FIRM)Appellant
Before
Lord Justice Peter GibsonLord Justice MummeryLord Justice RixMiss Caroline Hutton (instructed by Messrs Howes Percival of Milton Keynes for the Respondent)Mr. David Hodge Q.C. (instructed by Messrs Pinsent Curtis Biddle of Birmingham for the Appellant)Date 2 March 2001
[1]PETER GIBSON L.J.: The Defendant, James Beauchamp, a firm of solicitors, appeals from the order of Grigson J. on 26 May 2000 and with his permission. The judge, sitting in the Chancery Division, determined a preliminary issue in a solicitors' negligence action brought against the Defendant by Nationwide Building Society ("Nationwide").[2]The facts in summary are these.(1) In March 1990 10 separate mortgage applications were made to Nationwide by the intending purchasers ("the Borrowers") of the freehold interest in 10 building plots created from part of the property known as Hunter's Lodge, Stoke Hammond, Buckinghamshire.(2) The Borrowers were together engaged in a self-build project, under which each Borrower intended to purchase one plot and to build a dwelling-house on the plot with the assistance of a mortgage advance from Nationwide.(3) The Borrowers formed a company registered under the Industrial and Provident Societies Act 1965, Willen Homesmiths Ltd. ("Willen"), to hold the freehold land ("the road land") over which the estate road leading to the 10 plots was to be built.(4) The vendor of the plots and the road land was Amberdown plc ("Amberdown") which retained part of Hunter's Lodge ("the retained land") for a development of up to 5 dwelling-houses.(5) The estate road was intended to be made up and adopted as a public highway offering access to the 10 plots and to the retained land from the public highway known as Leighton Road.(6) Nationwide on or about 19 April 1990 retained the Defendant to act as solicitors for it in relation to the mortgage advances which it proposed to make to the Borrowers on the security of the plots.(7) By a contract dated 30 April 1990 between Amberdown and Willen - (a) Amberdown agreed to sell to Willen the 10 plots and the road land for £1 million; (b) Amberdown agreed that if requested by Willen it would execute conveyances by way of subsale of the 10 plots with the estate road land; (c) Willen agreed that in the transfer to it it would covenant with Amberdown for the benefit of the retained land to build the estate road to a sufficient standard and specification to serve the 10 dwelling-houses to be erected on the plots and to procure the adoption of the road by the highway authority; (d) Amberdown agreed to pay on completion a contribution of £20,000 towards the cost of the construction of the road.(8) The Defendant was retained by Willen and the Borrowers (in addition to Nationwide) to facilitate the scheme whereby the 10 plots would be sold to the Borrowers. The Defendant drafted the Transfers by which Willen completed the purchase of the 10 plots and the road land and the Borrowers completed their sub-purchases of the plots.(9) By the Transfer ("the Road Transfer") dated 11 July 1990 between Amberdown and Willen - (a) Amberdown transferred to Willen the road land but excepted and reserved a right of way over the estate road until taken over by the local authority (clause 1); and (b) Willen covenanted with Amberdown for the benefit and protection of the retained land- (i) within 3 months from 11 July 1990 to lay the estate road on the road land to base course stage and within one year from 11 July 1990 to complete and procure the adoption of the road by the highway authority (clause 4(b)); (ii) as soon as reasonably possible to enter into agreements pursuant to s. 38 Highways Act 1980 in respect of the construction, completion and adoption of the estate road and to provide a bond or bonds for the completion of the works to the adopting authority's satisfaction (clause 4(d)); and (iii) that if Willen failed to comply with any of its obligations in clause 4, Amberdown should have the right to enter on the road land to carry out those obligations, and that all costs which Amberdown incurred should be recoverable as a debt due from Willen (clause 4(f)).(10) By each Transfer ("the Building Plot Transfer") dated 11 July 1990 between Amberdown and Willen and one of the Borrowers - (a) Amberdown by direction of Willen transferred for £100,000 a plot to the Borrower together with (i) a right of way at all times and for all purposes over the estate road constructed or to be constructed on the road land until taken over by the local authority, (ii) a right to the free passage of services, and (iii) a right to enter upon adjoining land to construct, inspect, connect with and repair the conducting media (clause 1); (b) the plot was transferred with the benefit of the rights, liabilities and easements but subject to the exceptions, reservations, covenants and wayleaves contained or referred to in the Property and Charges Registers of the title to the plot including those contained or referred to in three transfers, one being the Road Transfer (clause 3); (c) Willen covenanted with Amberdown for the benefit and protection of the retained land - (i) to develop the estate as a private residential estate of 10 dwelling-houses (clause 4(a)), and (ii) on or before 31 March 1991 to lay the estate road on the road land to a sufficient standard and specification to serve the 10 dwelling-houses to be constructed on the 10 plots and up to 5 dwelling-houses to be constructed on the retained land and to procure the adoption of the estate road by the highway authority (clause 4(b)); and (d) the Borrowers covenanted with Willen and Amberdown by way of indemnity only to perform and observe all the restrictive and other covenants and conditions contained in the Charges Register of the title to the plot and in the Road Transfer in so far as the same affect the plot (clause 5).(11) On completion on 11 July 1990 of the purchase of a plot by each Borrower, Nationwide paid the first instalment of a mortgage advance. This was secured by a First Legal Charge also dated 11 July 1990 over the plot on mortgage conditions whereby (a) the Borrower covenanted so long as the mortgage was outstanding to observe and perform all covenants, restrictions and obligations to which the plot or the owner or occupier thereof was or might become subject and to indemnify Nationwide against the same (condition 7(d)); (b) if default should be made by the Borrower in the performance of any of the covenants of the mortgage, it should be lawful but not obligatory upon Nationwide to perform the same and to pay all sums and damages occasioned by such default (condition 10(d)); and (c) all moneys expended by Nationwide under condition 10(e) and all other costs and expenses properly paid or incurred by Nationwide under the mortgage or in relation to the plot should on demand be repaid to Nationwide by the Borrower on a basis of full indemnity (condition 10(e)).(12) Nationwide made mortgage advances totalling £212,000 in respect of one plot and £184,000 in respect of each of the 9 other plots.(13) The estate road was built to base course standard only and was never adopted.(14) By July 1991 all the Borrowers had defaulted on their loans from Nationwide and thereafter Willen went into insolvent liquidation and Amberdown into administrative receivership.(15) The Administrative Receivers of Amberdown, which had a charge over the road land, sold it (but not the retained land) to another company, which in turn sold the road land to Genesis Homes Ltd. ("Genesis").(16) Nationwide took possession of the 10 plots with a view to selling them. But because of what it perceived to be the difficulties over its rights in respect of the estate road, it only obtained £555,000 from the sale of the plots to Genesis.[3]On 4 July 1994 Nationwide commenced proceedings against the Defendant. It claimed that the security which it obtained on completion of the purchase of the plots by the Borrowers was defective in that it did not include the road land, nor any right enforceable by Nationwide on recovering possession of the plots to construct or to require the construction of the estate road or to procure the road's adoption by the highway authority or to recover the costs thereof, and Willen was the only person obliged to construct the estate road and procure its adoption as a highway, but had no assets or other means to comply with its obligations in the event that the Borrowers were unable or unwilling to complete the development of the plots. Nationwide sought compensation from the Defendant for breach of fiduciary duty and damages for breach of contract and negligence. Those claims for relief were denied by the Defendant.[4]On 22 September 1999 Deputy Master Mark directed the trial of a preliminary issue, raising the questions(1) what were the rights and obligations of Nationwide under specified documents in relation to the construction of the estate road and its adoption by the highway authority and(2) whether Nationwide had any actual or contingent right to recover from or procure payment of £20,000 by Amberdown. The specified documents were the contract dated 30 April 1990, the Road Transfer, the 10 Building Plot Transfers and the First Legal Charge entered into by each Borrower.[5]The second question was not pursued because of Amberdown's impecuniosity. The first question was the issue tried by the judge.[6]The judge considered a contention by the Defendant that by reason of Nationwide's right under the mortgage conditions to perform any obligation which the Borrowers failed to perform, Nationwide could perform the Borrowers' obligation under clause 5 of the Building Plot Transfer to perform any covenant of the Road Transfer which affected the plots, and that such a covenant was Willen's covenant to build the estate road. The judge accepted, on the basis of the decision of this court in TRW Steering Systems Ltd. v North Cape [1993] 69 P & CR 265, that the construction of the estate road would benefit the plot and so affect it. But he said that only Amberdown could seek an indemnity under clause 5 against the Borrowers, who could in turn seek to recover from Willen, that the obligation to construct the estate road was Willen's, and that Willen was distinct from the Borrowers although they were its sole members. He held that there was no contractual mechanism whereby the Borrowers could control Willen or Amberdown so as to enforce the construction of the estate road.[7]The judge then considered an argument on behalf of the Defendant that the Borrowers, as grantees of a right of way over the road, had the right at common law to enter upon the servient tenement and construct the estate road for themselves. The judge referred to Halsbury's Laws 4th ed. (1975) Vol 14 para. 162 where it is stated:
"The grantee of a right of way has a right to enter upon the grantor's land over which the way extends for the purpose of making the grant effective. Thus, if a right of way for carriages is granted over a field to the grantee's house, the grantee may enter the field and make over it a formed roadway suitable for supporting the ordinary traffic of a carriageway, but the grantee may only construct such a way as is suitable to the right granted him."
He also referred to Newcomen v Coulson (1877) 5 Ch D 133 , on which the statement in Halsbury was based.

The judge said:

"In my judgment there is a clear distinction between the common law right of a grantee of a right of way to enter land and construct a way suitable to its ordinary usage and a right arising from an indemnity arising from a contractual obligation. The distinction is crucial in two aspects. First, when a grantee constructs a way so that he may exercise his right of way, he does so at his own expense. There is no right at common law for him to recover the cost against the grantor. Second, whereas a contract may and usually will specify the standard to which the carriageway must be built, the right of the grantee at common law is to make a carriage-way "such that it can be used for the purpose for which it is granted."
It is a right to make an effective carriage way and no more. Mr. Smith [counsel then appearing for the Defendant] seeks to persuade the Court that the common law "effective carriage-way" is to be equated with the contractual undertaking given by Willen Homesmiths. That is to create estate roads to adoption standard. In my judgment there is no basis for such a submission. What is 'an effective carriage-way' would be a matter [of] expert evidence but on the face of it, what was actually done, that is to sub-base level, would appear to provide 'effective carriage-way'.

The judge summarised his conclusions as follows:

[8](1) The Borrowers had a right to enter onto the road land but only to achieve an effective carriage way, and did not have the right to complete the construction of the road to adoption standard;(2) the Borrowers had an obligation to indemnify Amberdown against Willen's failure to complete the estate road, but that obligation could only be triggered by Amberdown;(3) Nationwide had no greater rights than the Borrowers;(4) In the circumstances that (a) neither Willen nor Amberdown constructed the estate road to adoption standard, and (b) Amberdown sought an indemnity from the Borrowers in respect of the cost of the construction of the estate road to that standard, the Borrowers had the right to recover that cost from Willen; Willen's only asset was the road land and once adoption had taken place Willen would have no assets. If Nationwide chose to exercise its rights under condition 10(d) of the mortgage conditions it could either exercise its rights against the Borrowers under condition 10(e) or claim against Willen.(5) On completion of the purchase of the plots by the Borrowers Nationwide's security did not include the road land.(6) Nationwide's security did not include any right enforceable by it upon recovery of possession of the plots to construct or require the construction of the estate road.(7) Willen was the only person obliged to construct the estate road and had no assets or other means to comply with its obligations in the event that the Borrowers were unable or unwilling to complete the development of the plot.[9]The Defendant now appeals on two grounds: first, the judge was wrong to hold that Nationwide had no right at common law to construct the estate road to adoption standard; second, the judge was wrong to hold that there was no obligation on the Borrowers under clause 5 of the Building Plot Transfer to construct the road in the event of default by Willen, and that Nationwide could not enforce this obligation by the Borrowers. The Defendant further complains that the judge failed to deal with an argument that clause 3 of the Building Plot Transfer when coupled with clause 4 of the Road Transfer gave the Borrowers the right to construct the estate road. Common law right[10]Mr. David Hodge Q.C., who did not appear before the judge, argued for the Defendant that as the grantee under clause 1(a) of the Building Plot Transfer of a right of way "at all times and for all purposes" over the road land until the estate road was adopted, each Borrower had the right at common law to enter upon the servient tenement, the road land, to construct or repair the estate road. Thus far the judge appears to have been in agreement with the Defendant. Mr. Hodge submitted that the judge erred in holding that the Borrowers did not have the right to construct the road beyond base course standard, given that the parties contracted that the road would be built by Willen to the adoption standard.[11]For my part I do not think that it assists to refer to a common law right as though the common law recognised some independent right regardless of the particular circumstances of the grant of a right of way. As I understand the authorities, the grant of a right of way is to be taken to carry with it such ancillary and incidental rights as are necessary to make the grant fully effective. This is so whether the right of way is obtained by prescription or by express grant. The law presumes this to have been the intention of the parties.[12]In Newcomen v Coulson by an award under an Inclosure Act allottees were given a right of way on foot and on horseback and with their carts and carriages and with horses, oxen and cattle, doing as little damage to the soil or the corn, grass or herbage as may be. The award expressly contemplated that the allottees might "street out" the way, and in such event a particular width was specified. Pursuant to the award, a road of the specified width was made. The Defendants, who owned part of an allotment, commenced forming a solid granite road in place of the previous cart road. The Plaintiff lord of the manor sought to restrain the improvement of the road and the erection of the bridge. Malins V.-C. refused the application saying (at p. 140):
"I mean [the Defendants] to have the fullest right of metalling the road and making it the best road they can to meet the circumstances."
[13]This court dismissed the Plaintiff's appeal. Sir George Jessel M.R. (with whom James L.J. agreed) said at pp. 143-4:
"Then it was said, admitting the owner of each house to have a right of way, still the grantees have no right to enter upon the allotments over which the right of way is granted for the purpose of laying down a metalled road. Now it was conceded to be the principle of law that the grantee of a right of way has a right to enter upon the land of the grantor over which the way extends for the purpose of making the grant effective, that is, to enable him to exercise the right granted to him. That includes not only keeping the road in repair but the right of making a road. If you grant to me over a field a right of carriage-way to my house, I may enter upon your field and make over it a carriage-way sufficient to support the ordinary traffic of a carriage-way, otherwise the grant is of no use to me, because my carriage would sink up to the naves of the wheels in a week or two of wet weather. It cannot be contended that the word "repair" in such a case is limited to making good the defects in the original soil by subsidence or washing away, it must include the right of making the road such that it can be used for the purpose for which it is granted. Therefore I think the Defendants have a right to make an effective carriage-way going, as they are going, by the shortest route, and not interfering with the land to a greater extent in width that the width of the street pointed out by the deed itself."
[14]Unlike the judge, who appears to have derived from Newcomen the proposition that only the bare minimum could be done by the grantee of a right of way to make the way effective, I do not read the words of the Master of the Rolls as indicating some limit on the standard of "streeting out". There is no indication that this court disapproved what Malins V.-C. had said in the sentence which I have cited. The only restriction on what could be done was the prescribing of the maximum width of the way if "streeted out".[15]In Mills v Silver [1991] Ch 271 this court considered what a prescriptive right of way entailed. Dillon L.J. (with whom Parker and Stocker L.JJ. agreed) thought it clear that grantees of such a right of way were entitled to repair, as opposed to improve, the road. But he went on to contrast that with the position if there had been an express grant of a right of way. He said, at pp. 286 - 7: "In the second place if the first and second defendants or their predecessors had been expressly granted a right of way for all purposes with or without vehicles over the disputed track that would have entitled them not merely to repair the disputed track but to improve it to make it suitable for the accommodation of the dominant tenement even if the dominant tenement was to be used for some purpose not in contemplation at the time of the grant: see Newcomen v Coulson (1878) 7 Ch. D. 764. This is founded on the presumed intention of the grant. In the simplest case, if a general right of way is granted with or without vehicles, which is to be the principal access to a house, it is permissible for the grantee to improve it by making it up as a carriageway: see for instance Gerrard v Cooke (1806) 2 Bos. & Pul. 109" (The reference given for Newcomen is an obvious error for (1877) 5 Ch D 133 , being a reference to a report on another point in subsequent proceedings in the same action.)[16]Mr. Hodge submitted that the grant of the right of way "at all times and for all purposes" entitled the Borrowers to enter the road land to construct a way to the extent reasonably necessary or convenient for the enjoyment of the easement granted. He said that in the present case the standard of roadway to be constructed was specified in the transfer as the adoption standard. He accordingly argued that Willen could not have objected to the Borrowers or Nationwide entering upon the road land and constructing an estate road to that standard, that being reasonably necessary or convenient for access to the plots and to the dwelling-houses to be constructed on them. He argued that there was nothing in the Building Plot Transfer to negate such right. When pressed as to whether the right was exercisable immediately on the grant of the right of way, he submitted that the grant was immediate but the right to go on the land to construct the road was only to be exercised if necessary given that it was expressly contemplated that Willen would construct the road, being under an obligation to do so, and given that Amberdown had the express right to go on the road land and construct the road if Willen failed in its obligations. He said, no doubt rightly, that the draftsman of the Building Plot Transfer and the Road Transfer never contemplated that not only would Willen fail but also that Amberdown would become insolvent before the road was completed.[17]Miss Hutton for Nationwide did not dispute that in the absence of contrary indications in the terms or circumstances of the grant, the grantee of a legal right of way has an ancillary right to enter the servient land and to make up the way so as to render it usable for the purpose of the grant. She said that the basis for the ancillary right is a grant by implication to avoid derogation from grant by the grantor and that the test of the extent of the ancillary grant must therefore be a consideration of the defence of derogation from grant to a claim by the servient tenement owner in trespass on grounds of the grantee's entry and works. She accepted that it was always possible from the outset that the close connection between the owners of the plots and the owner of the road land might be severed.[18]Miss Hutton took two points in answer to Mr. Hodge's submissions under this head. First, she said that the grant was ambiguous as to whether the right of way commenced immediately on the grant, or only contingently on the construction of the road. She argued for the latter and for the standard of that construction to be the adoption standard. If that is right, no ancillary right had arisen by the time Nationwide sold the plots. Second, she said that if the grant was immediate, it only carried with it the ancillary right to make the grant effective, which she said was to construct the road to base course standard. If that is right, there was nothing that needed to be done to the road during the period of Nationwide's ownership of the plots. I shall consider these points in turn.[19]The correct starting point must be to consider what right of way was granted by the Building Plot Transfer construed against the background of the transaction as a whole. Clause 1(a) is not expressed as a right of way over the road land, as Miss Hutton pointed out, but as a right of way "over and along the roads footpaths and accesses constructed or to be constructed and shown coloured blue on the Plan until taken over by the Local Authority". The plan shows the road land coloured blue. In my judgment, however, the effect of the grant must be taken to be one of an immediate grant of a right of way over the road land for two reasons. First, the roads, footpaths and accesses over which the right of way is granted are described as "constructed or to be constructed", thereby suggesting that even before construction the roads, footpaths and accesses which are shown on the plan are to be the subject of the right of way. Second, it makes little commercial sense for the Borrowers to be purchasing plots costing £100,000 each to which they have no right of access until some time in the future when the road is constructed by Willen or Amberdown. Miss Hutton pointed out that Willen was under an obligation to Amberdown in clause 4(a) of the Building Plot Transfer to develop the estate and said that it can be inferred that the Borrowers themselves would not be carrying out the construction work on their plots. That inference does not necessarily follow, and it was an agreed fact that this was a self-build project, each Borrower intending to build a dwelling-house on his plot. But even if that were wrong, it would be astonishing if the Borrowers were left without the right to have access to their plots, whether to protect them against intruders or to monitor progress or for any other reason, until the road was completed. Nor can I see any commercial reason why the grantor would want the Borrowers not to have an immediate right of way. I therefore would hold that on its true construction clause 1(a) confers on the Borrowers an immediate right of way, not contingent on the construction of the road.[20]The extent of the ancillary right must be determined in the light of the particular circumstances of the right of way. In the present case what seems to me determinative is that the parties themselves have specified to what standard the road should be constructed. Indeed it is implicitly referred to in the grant of the right of way itself where it is expressly stated that the right of way is granted until the roads, footpaths and accesses are taken over by the local authority. The local authority would want completion to adoption standard before it took them over. Willen's obligation under clause 4(b) of each of the Road Transfer and of the Building Plot Transfer is to construct the roads, footpaths and accesses and to procure their adoption. It is therefore plain that the parties envisaged that the construction of the roads, footpaths and accesses would not be completed until the construction had been carried out to adoption standard. Moreover it is impossible to see why Willen or Amberdown would object to the ancillary right being exercised by the Borrowers to complete the construction to that standard. That was Willen's obligation and the Borrowers by doing that work would save Willen or Amberdown from having to do it. It is not as though the road land could have some other use to which the owners of the road land might wish to put it. I can see no good reason why the ancillary right to construct the road should be limited to a standard lower than that to which everyone contemplated the road would be completed.[21]Miss Hutton accepted that if she failed on her two points, she failed on this issue. There is nothing in the Building Plot Transfer which expressly or implicitly negates the ancillary right which Mr. Hodge claims. The fact that the Borrowers did not own the road land and so could not procure the adoption of the road does not detract from finding that they had the right to construct the road to adoption standard. It seems to me to make good sense that in circumstances where Willen has failed to perform its obligations to construct the road and Amberdown is unwilling or unable to do so, each of the Borrowers should have the right to make the grant to that Borrower of the right of way fully effective by entering on the road land to construct the road to the standard agreed by Amberdown, Willen and the Borrowers. For those reasons, therefore, I would respectfully disagree with the conclusion of the judge on this issue. It is not in dispute that if the Borrowers had the right to complete the road to adoption standard, Nationwide on taking possession of the plots had the like right. Contractual right[22]In the light of my conclusion on the primary argument of Mr. Hodge it is not necessary to decide whether the Borrowers had express contractual rights to enter on the road land, as Mr. Hodge contended. It is sufficient to say that I would have had difficulty in accepting either of the two ways in which Mr. Hodge put the Defendant's case. He had sought to rely on the covenant in clause 5 of the Building Plot Transfer whereby the Borrowers covenanted, by way of indemnity only, to perform and observe all of the restrictions and other covenants and conditions contained in the Road Transfer in so far as the same affect the plots. But as Mr. Hodge frankly acknowledged, the decisions of Warrington J. in Harris v Boots Cash Chemists (Southern) [1904] 2 Ch 376 and of Eve J. in Reckitt v Cody [1920] 2 Ch. 452 coupled with the presence in clause 5 of the limiting words "by way of indemnity only" make that a difficult argument in the circumstance that there had been no demand made that the underlying obligation be performed. He had also sought to rely on the combined effect of clause 3 of the Building Plot Transfer and clause 4(f) of the Road Transfer as giving the Borrowers the right to enter on the road land to construct the road. I am doubtful whether the general words of clause 3 are, in the context of the detailed provisions of the Building Plot Transfer when read with the Road Transfer, sufficient to confer on the Borrowers the right expressly given to Amberdown in clause 4(f) in the event there stated.[23]But for the reasons given under the heading "Common law right", I would allow this appeal, set aside the order of the judge and declare that the Borrowers had a right, if necessary, to enter on the road land to construct the roads, footpaths and accesses to adoption standard, and that Nationwide on taking possession of the plots had the like right. MUMMERY L.J.[24]I agree. RIX L.J.[25]I also agree.

ORDER

Appeal allowed with costs. (Order does not form part of approved Judgment)

Cited in 1 later judgment