Winter & Anor v Traditional & Contemporary Contracts Ltd [2007] EWCA Civ 1088

[2007] EWCA Civ 1088Case No C3/2006/2488
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LANDS TRIBUNAL
N J ROSE FRICS
LP/49/2005
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 07/11/2007
Before
LORD JUSTICE WARDLORD JUSTICE RIXLORD JUSTICE CARNWATH
Between
WINTER & ANRAppellantsTRADITIONAL & CONTEMPORARY CONTRACTS LTDRespondent
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Laura Collignon (instructed by Messrs. Royds) for AppellantsRichard Colbey (instructed by Traditional & Contemporary Contracts Ltd) for RespondentHearing Hearing date : Tuesday 17th July, 2007
JudgementLord Justice Carnwath :
[1]This is the judgment of the court.

Introduction

[2]This is an appeal by Mr and Mrs Winter against a decision of the Lands Tribunal (Mr N J Rose FRICS) on an application by the respondent company (“the company”) for the modification of a restrictive covenant. The issues before us concern the tribunal’s approach to the assessment of compensation.[3]The Winters own and live in a house at 99 Ravensbourne Avenue, Shortlands, Bromley. The covenants related to the adjoining land, now known as Nos 95/97 (“the application site”). It was formerly occupied by a single house, and was subject to a covenant, limiting its use to one dwelling-house. The application sought its modification to permit the construction of two houses.[4]The company was aware of the covenant, but not of the Winters’ interest. It understood that it was enforceable by the Cator Estate (Beckenham) Limited, with whom it was able to negotiate a suitable variation for a payment of £1,600. The Winters themselves did not become aware that they were entitled to the benefit of the covenant until late 2004, by which time the main structure of the two new houses had been effectively completed. The company’s application seeking a modification was made in June 2005. The Winters lodged an objection, dated 5th September 2005. There was an initial dispute about their entitlement to enforce the covenant, but that was conceded in January 2006. (The procedural history is described in the decision of this court on the costs of the preliminary proceedings: [2006] EWCA Civ 1740.)[5]By the time of the tribunal hearing, the only issue was compensation. As the tribunal recorded:
“Although the objectors are concerned about the effects of the new buildings on their amenities, they accept that it would be unrealistic to expect the Courts to order their demolition.

(i) ”

[6]Section 84 gives the tribunal power to modify such restrictions, on a number of grounds. The tribunal rejected the argument that the covenant was “obsolete” (under ground (c)), in which case a claim for compensation would not have arisen. Accordingly the relevant ground was ground (1)(aa):
“(aa) that (in a case falling within subsection (1A) below) the continued existence thereof would impede some reasonable user of the land for public or private purposes or, as the case may be, would unless modified so impede such user…”
Subsection (1A) provides:
“(1A) Subsection (1)(aa) above authorises the discharge or modification of a restriction by reference to its impeding some reasonable user of land in any case in which the Lands Tribunal is satisfied that the restriction, in impeding that user, either— (a) does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or (b) is contrary to the public interest; and that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the discharge or modification.”
Since the modification order was not opposed, the tribunal did not find it necessary to make any express finding whether the modification was being allowed under (a) or (b). However, it may be inferred from his findings on the compensation issue that he would have done so under (a). (a) does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or (b) is contrary to the public interest; [We note in passing that the layout of the amended provisions makes reference to the different parts somewhat awkward. We shall refer to what are in effect the two sub-grounds of ground (aa) stated in subsection (1A) as respectively the “limited benefit” and “public interest” grounds.][7]The section provides further that an order modifying a restriction under this subsection – “may direct the applicant to pay to any person entitled to the benefit of the restriction such sum by way of consideration as the Tribunal may think it just to award under one, but not both, of the following heads, that is to say, either—(i) a sum to make up for any loss or disadvantage suffered by that person in consequence of the discharge or modification; or(ii) a sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it.” As already noted, the claim before the tribunal was based on (i). (i) a sum to make up for any loss or disadvantage suffered by that person in consequence of the discharge or modification; or (ii) a sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it.”

The tribunal’s decision

[8]The immediate area contained, in the tribunal’s words – “a variety of Victorian, Edwardian, inter-war and modern housing, comprising bungalows, detached, semi-detached and terraced houses”. The Winters’ property was - “one of a pair of two storey semi-detached houses erected in the 1930s. It has a net internal area of approximately 80m2…, it is approximately 5 feet above pavement level. It has a garage and an attractive rear garden.”[9]As to the application site, he said:
“Until recently, the applicant’s property contained a single detached house, arranged on two storeys and with a net internal area of approximately 206m2. The site sloped upwards from street level towards the rear and the front of the house was approximately 5 feet above pavement level. To the front of the house was a single garage and a carport capable of receiving two cars. Otherwise, the front garden contained a variety of bushes and shrubs. There was a large rear garden, containing a large amount of vegetation. The two detached houses which have recently been erected on the application property have been designed in a similar style to the Edwardian houses on the opposite side of the road. That style is different from the immediately adjoining properties, Nos 93 and 99. The new houses are effectively arranged on three storeys and, in order to retain some consistency with the surrounding properties, the sloping site has been excavated at the front. The ground floors of the new houses are now at pavement level and the height to the tops of their ridges is not much greater than to the tops of the adjoining houses. The floor areas of the new houses, however, (212m2 and 179m2 net internal for 97 and 95 respectively) are significantly larger than those of 93 and 99.”
[10]Both parties were represented before the tribunal by counsel. Evidence was given by Mr L Simner, a director of the applicant, and by Mr Winter; and by surveyor experts on each side, Mr P L Coling for the company, and Mr D P Connolly for the Winters. The member visited the site with the parties.[11]At paragraph 19, the tribunal summarised the Winters’ case as to the impact of the development on their property:
“The objectors say that the retrospective modification of the restriction adversely affects their amenities. They no longer enjoy the benefit of a 60 feet tall Scots pine tree, formerly within their ownership at the front of their house. It was felled at the applicant’s expense in order to prevent damage to the flank wall of the new house, 97, which was to be sited one metre from the boundary with 99; the original house was two metres from the boundary. The outlook from the front drive of 99 towards 97 and the new paved parking area in front of it is less attractive than the view of saplings which the objectors previously enjoyed as they walked up their front driveway. Moreover, the original house at 95/97 was partly concealed by a privet hedge. The house was long and low and painted white. The objectors were barely conscious of its presence. Its rear elevation was 3.6m in front of the rear elevation of 99. Consequently, when the objectors went into their rear garden and looked directly towards the left, they simply saw saplings; the adjoining house was some distance behind them. The rear elevation of 97 is now 5.1m further back than it was before. This means that the view towards 97 on entering the rear garden of 99 is now one of an overpowering brick wall. It also means that the rear garden of 99 is overlooked by 97 much more than it was by the original house, particularly from the window at second floor (or roof) level. The objectors make good use of their garden for gardening, relaxing beneath an attractive pear tree and from time to time playing games with their grandchildren.”
[12]In considering these claims the tribunal was guided principally by two previous decisions of the President, George Bartlett QC: Re Fairclough Homes Ltd (LP/30/2001, unreported) (approved by this court in Shepherd v Turner [2006] 20 EG 294); and Re Skupinski’s Application [2005] RVR 269. The latter was relevant to whether the tribunal should assess compensation by reference to the development value of the application site. On this the tribunal said: “26. The objectors claim compensation on the basis of the consideration they say they would have received if they had been approached by the applicant before construction of the two new houses had commenced. The appropriateness of this approach was considered by the President in Skupinski. He reviewed earlier judgments by the Court of Appeal and concluded: ‘On the basis of this authority I have no doubt that it would be open to me to assess compensation by reference to the increase in value that the playroom has given to Mrs Skupinski's land if I were to conclude that Mrs Hignett would suffer loss or disadvantage by reason of the modification of the covenant. Since, however, Mrs Hignett’s entitlement to enforce the covenant derives from the covenant’s ability to protect her land rather than from any reservation to her of the power to extract a share of the development value of the applicant’s land, I would for my part seek if possible to assess compensation for any ‘loss or disadvantage’ she has suffered by reference to the effect on her enjoyment of her own land rather to the applicant’s gain. Of course the assessment of compensation for loss of amenity, where such loss is not, or is not wholly, reflected in a reduction in the value of the land, must inevitably be extremely judgmental, but I would not regard the applicant’s gain as a useful determinant of the objector’s loss.’ (para 22) I respectfully adopt the President’s approach in… Skupinski to the award of compensation in this case”. ‘On the basis of this authority I have no doubt that it would be open to me to assess compensation by reference to the increase in value that the playroom has given to Mrs Skupinski's land if I were to conclude that Mrs Hignett would suffer loss or disadvantage by reason of the modification of the covenant. Since, however, Mrs Hignett’s entitlement to enforce the covenant derives from the covenant’s ability to protect her land rather than from any reservation to her of the power to extract a share of the development value of the applicant’s land, I would for my part seek if possible to assess compensation for any ‘loss or disadvantage’ she has suffered by reference to the effect on her enjoyment of her own land rather to the applicant’s gain. Of course the assessment of compensation for loss of amenity, where such loss is not, or is not wholly, reflected in a reduction in the value of the land, must inevitably be extremely judgmental, but I would not regard the applicant’s gain as a useful determinant of the objector’s loss.’ (para 22)[13]He relied on Re Fairclough Homes Ltd, as showing that the assessment of the impact of the proposed development involved comparison with other possible forms of developments. Again he quoted the President in that case: “... how the character of the area and the amenities would be affected by the modification of the restriction is not in my view to be judged by envisaging the worst that could be done without breaching the restriction and comparing it with what the proposed modification is intended to permit... In such a case as this, the provision, it seems to me, operates in this way. By preventing development that would have an adverse effect on the persons entitled to its benefit, the restriction may be said to secure practical benefits to them but if other developments having adverse effects could be carried out without breaching the covenant, these practical benefits may not be of substantial value or advantage. Whether they are of substantial value or advantage is likely to depend on the degree of probability of such other development being carried out and how bad, in comparison to the appellant’s scheme, the effects of that development would be.” (Paras 29-30, emphasis added)[14]On that issue, the present tribunal concluded: “In the light of the evidence and my site inspection, I have come to the conclusion that the previous house on the application land would not have been demolished if the use of the site had been permanently restricted to one house. It is very possible that the house would have been refurbished and extended. Any such extension is likely to have been to the rear, but the northern flank wall would almost certainly have remained in its previous position, namely 2m from the objectors’ boundary. In view of the sloping nature of the site, the construction of a rear extension would have involved an element of excavation, albeit less than that which has been undertaken to the front of 95/97.” [We have added italics in this passage and the quotations below, to indicate the various phrases used to describe the probability of the alternative. This is relevant to the 4th issue in the appeal.][15]Against that background he considered the various matters relied on by the Winters: i) The view of the flank wall of 97 The tribunal thought this was, not because of the position or height of the wall, but because the trees and other vegetation within the application land, which formerly masked the wall, had been removed. They could have been removed without breaching the restriction, and “may well have been so removed at some stage”. The removal of the privet hedge at the front of 99 was within the Winters’ control and not dependent upon the erection of two houses on the adjoining plot. Accordingly, the increased view of the flank wall was not the result of modification of the covenant. ii) Disturbance during construction The temporary disturbance during construction was not “likely to have been very much greater than that which would have resulted from the construction of a large extension to the previous building”. iii) The removal of the large pine tree Of this the tribunal said:
“Similar considerations apply to the removal of the large pine tree in the objectors’ front garden. Mr Winter said that, when representatives of the applicant asked him to agree to its removal in order to avoid damaging the proposed new house at 97 he was aware that, if he refused, the applicant would cut off a large number of the branches overhanging the application land. This would have resulted in the tree becoming dangerous as well as unsightly. He therefore felt that he had no alternative but to agree to the applicant’s request. I accept that evidence. Nevertheless, it seems to me that there is a real likelihood that the overhanging branches would at some stage have been lopped by the owner of the application property, even if the former house had remained. Since the objectors are likely to have lost their tree even if the restriction had continued to be observed, its loss is not something for which they are entitled to be compensated.” iv) Overlooking Again the tribunal compared the position if a rear extension had been built to the existing house: “As I have found, there is a real possibility that, if the restriction had remained in place, the previous house on the application land would have been extended to the rear. If so, the rear elevation may well have been sited as far back as it is now, and possibly even further back. In addition, there may well have been a rear window in the roof of the extension; no photographs of the rear of the previous house were produced, but it is clear that the property had a small window to the front elevation at roof level. It follows that the objectors might well have suffered increased overlooking of their rear garden without any breach of the restriction occurring. They are therefore not entitled to be compensated on this account.”
[16]Thus in each case the tribunal found that any detriment to amenity was not attributable to the modification of the covenant. He agreed with Mr Coling that the Winters’ house had not been reduced in value as a result of the erection of the two houses on the application property.[17]Back-filling The tribunal also considered the Winters’ concern that their property had been exposed to risk as a result of the manner in which the excavated area between 97 and 99 had been back-filled. The background was that Party Wall Act proceedings taken by the Winters, together with the owner of the property on the other side of the development (Professor Jowitt at 93), had resulted in certain recommendations, but they were not complied with. The contractors had failed to observe minimum distances from the excavation to adjoining boundaries, and the specified backfill compacting procedures were not carried out at all. The backfill on the boundary with 93 was later strengthened by pressure cement grouting, but this procedure was not carried out on the Winters’ side.[18]Having set out the background, the tribunal said:
“It is most unlikely that the backfill problems would have arisen if the application property had continued to be restricted to one residential unit. Had the covenant been modified before the commencement of construction, there is no doubt that the compensation payable would have reflected the manner in which the works were proposed to be carried out. Now that the works have been carried out, it is appropriate for compensation to be assessed by reference to the loss or disadvantage which has in fact been suffered by the objectors. I am satisfied that the applicant’s failure to deal with the backfill close to 99 in the same way as was done close to 93 has been the cause of significant apprehension to the objectors. In my judgment, the sum which would be required to compensate for this concern is £10,000. This sum shall be paid by the applicant, unless it provides the objectors with adequate assurance that the necessary strengthening works will be carried out.”
[19]The tribunal’s order was as follows:
“I order that the applicant shall pay the objectors compensation totalling £10,000. This figure will be reduced to nil if, within 28 days of the date of this decision, the applicant shall have executed a deed, undertaking to carry out pressure cement grouting to the backfilled area on the boundary with 99 Ravensbourne Avenue within six months from the date of this decision, such work to be carried out to the reasonable satisfaction of the objectors’ consulting engineer, whose reasonable fees are to be borne by the applicant. An order modifying the restrictions to permit the construction of the two houses presently on the application land will be made by the Tribunal provided, within three months of the date of this decision, the applicant shall have paid the appropriate sum to the objectors.”

The appeal

[20]As we understand Miss Collignon’s submissions, she raises in summary five issues by way of appeal; i) Reasons The tribunal’s reasoning was inadequate. ii) Share of development value The tribunal should have assessed compensation by reference to the additional development value released by the modification. iii) Loss of influence The tribunal failed to take account of the fact that, by starting the works before the modification of the covenant, the company had deprived the Winters of the possibility of influencing the form of the development. (This was presented by Miss Collignon as one aspect of issue (ii), and we shall deal with it under that head.) iv) Alternative development The tribunal gave undue weight to the prospect of alternative development on the application site. v) Backfill problems The tribunal failed to compensate the Winters for the “significant apprehension” caused by the company’s failure to address the backfill problems at an earlier stage.[21]Ground (i) in our view adds nothing to the others. There is no doubt as to why the tribunal reached its decision to order no compensation. That is apparent from the summary we have given. In particular, there was nothing obscure, or indeed surprising, about the member’s decision to follow what he took to be the guidance of the President on the development value issue. Whether he was legally correct to do so is a different issue, to which the second ground of appeal is properly directed. Share of development value and loss of influence The Winters’ case

Share of development value and loss of influence

[22]The principal issue in the appeal concerns the Winters’ claim to compensation based on a hypothetically negotiated share of the enhanced development value of the application site. We shall refer to that as “the negotiated share approach”.[23]This aspect of the claim seems to have emerged relatively late in the procedural run-up to the hearing. The Winters’ original objection to the company’s application (in September 2005) had proposed, under “approximate amount of compensation claimed”, a figure of “£5,000 plus Solicitors’ costs”. This was on the standard form of objection, which contains the qualification “(This figure is provisional and not binding)”. As far as appears from the papers before us, that remained the position until 6th June 2006, less than a month before the hearing, when Mr Connolly’s report appeared, proposing a figure of £50,000.[24]Mr Connolly thought that most people would not consider the modification “seriously detrimental”, but would “require some financial payment”, and “more importantly” would seek some input on the design and size of the development to reduce its impact. He thought that the likely diminution in value of the Winters’ house (of which the agreed value was £375,000) was “only nominal between £5,000 or £10,000”. Instead, he proposed a figure based on “a proportionate element of the profits of the development”, which he thought would have been obtained in negotiations for release of the restriction, but against the background that the Winters had lost the opportunity to influence the development. He calculated the developer’s profit as £290,000 overall (on a completed development worth £1.25m), of which half was attributable to the extra house. Following what he called “the Stokes percentage” he thought the Winters’ share should be about one third, or £50,000. This would have been reduced to £25,000, if they had been able to negotiate an amendment of the plans for the development “to make it less imposing”.[25]As has been seen, the tribunal rejected this approach by reference simply to the President’s decision in Skupinski.

The authorities

[26]The negotiated share approach is well recognised in civil proceedings for breach of restrictive covenants. A classic example is Wrotham Park Estate Co v Parkside Homes Ltd [1974] 1 WLR 798. In that case a developer had built a number of houses in breach of a covenant. Brightman J refused to grant a mandatory injunction requiring the demolition of the houses and instead awarded damages of 5% of the developer's anticipated profits. He had not found helpful evidence of the common use by valuers of “a half or a third of the development value”, bearing mind in particular that the benefit of the covenant was not an asset which the estate owner “ever contemplated that he would have either the opportunity or the desire to turn to account” (p 341h).[27]That general approach has been confirmed and applied in many cases since then, although the percentages applied have varied widely (see Francis: Restrictive Covenants and Freehold Land 2nd Ed p 139-40, which refers to “high and low water-marks” of 50% and 5% respectively). In Jaggard v Sawyer [1995] 1 WLR 269, Lord Bingham MR confirmed that this approach involved no departure from “compensatory principles”:
“The defendants had committed a breach of covenant, the effects of which continued. The judge was not willing to order the defendants to undo the continuing effects of that breach. He had therefore to assess the damages necessary to compensate the plaintiffs for this continuing invasion of their right. He paid attention to the profits earned by the defendants, as it seems to me, not in order to strip the defendants of their unjust gains, but because of the obvious relationship between the profits earned by the defendants and the sum which the defendants would reasonably have been willing to pay to secure release from the covenant.”
(p 281H-282A)[28]Had we been starting from a blank page, such cases might have provided a useful parallel for damages under section 84. However, rightly or wrongly, that is not how the law has developed Arguably, the statutory scheme, which allows for modification of a covenant (inter alia) in the public interest or where it is of limited benefit, is distinguishable from the common law position. In the statutory context it cannot be assumed in any negotiations that the covenant will be upheld without modification. The supposed loss of negotiating position which is the basis of the development value approach has to be looked at in that context. Since what has to be valued is the loss of the objector’s amenities, it is prima facie not helpful to approach that question obliquely by asking what a modification to the covenant adds to the value of the applicant’s development and then taking some indeterminate percentage of it. . As we think Miss Collignon accepts, authorities binding on us establish that compensation under section 84 is based on the impact of the development on the objectors, not on the loss of the opportunity to extract a share of the development value. Short of intervention by the House of Lords, or the legislature, it is too late to turn the clock back. The cases which establish that position are Re SJC Construction Company Ltd’s Application [1976] RVR 219; and Stockport M.B.C v Alwiyah Developments (1983) 52 P&CR 278. The only issue is the extent to which those cases leave open the possibility that the developer’s profit may in some way be relevant to the assessment of that impact, and if so whether the tribunal in the present case erred in not taking that possibility into account.[29]To understand the present state of the law, it is necessary to start from the decision of the tribunal (Douglas Frank QC) in SJC itself.That concerned the development of six flats on land subject to a restrictive covenant. The development had begun without a modification being sought. The benefit of the covenant was attached to adjoining land owned by the local authority, which they intended for a development of accommodation for the aged. The tribunal refused the application under the limited benefit ground (regarding the impact as less than “serious” but “of real importance”: p 205), but allowed it under the public interest ground. He awarded compensation of £9,500. He mentioned the Wrotham Park case, and also Stokes v Cambridge Corp (1962) 13 P&CR 77 (“the well-known compensation case”, which provided support for a percentage of 50%). He saw – “no logical reason why the basis of compensation awarded by the Lands Tribunal should be less favourable than that awarded by the Court by way of compensation although called damages” He assessed the development value at £19,000, and fixed the compensation at £9,500, on the basis that “the most likely outcome of friendly negotiations would have been an agreement to split the development value equally” ( p 206-7).[30]The award in SJC was upheld in the Court of Appeal, but on somewhat different grounds. Lord Denning MR with whom Stephenson and Geoffrey Lane LJJ agreed, said (at 220): "So, we come back to the question: what is the basis or proper basis of compensation? It is simply to make up 'for [the] loss or disadvantage suffered' by the borough council. There is no method prescribed by the Act by which it is to be assessed; it is essentially a question of quantum. It is however, to be assessed for loss of amenities, loss of view and so forth, which are things which it is hard to assess in terms of money… It is similar to compensation for pain and suffering.” (emphasis added) Lord Denning mentioned the President’s reference to the Wrotham Park Estate case, in which a percentage of 5% had been used: “The President looked at it in much the same way. He took a higher percentage. Instead of 5% he took 50%. He took the realisable development value and split it equally. That was, he said, fair to the parties. It was a method by which he was getting at the loss or disadvantage. I see no error of law in it. The loss or disadvantage is an intangible matter which is incapable of exact calculation in money, and he took a fair and sensible way of assessing it….” Stephenson LJ said that the method for assessing compensation was not contrary to the Act or to authority. The modification had resulted in the council losing a benefit of “substantial value or advantage” for which they were entitled to “substantial compensation”.[31]The binding effect of SJC was confirmed and clarified in the second case, Stockport MBC. In that case also the objector was a local authority, as owner of a housing estate. The adjoining land of the developer was limited by a restrictive covenant to agricultural use. A modification was allowed under the limited benefit part of ground (aa), so as to permit the development of 42 houses. The compensation awarded by the tribunal was £2,250, assessed on the basis that the only detriment to the council was the likely diminution in the price it would obtain on the “right to buy” sale of 11 houses on its estate. The council appealed on the grounds that the power to bargain for a share of the development value was a “benefit of substantial value”, which should have been either taken into account in deciding whether to allow the modification, or reflected in the compensation. Their claim on this basis was put at £75,000. The appeal failed on both points. Dillon LJ, giving the majority judgment, said that, in the context of section 84(1A):
“I do not think that that sort of possibility of financial advantage is to be regarded as a “practical benefit” to the person entitled to the benefit of the restriction at all…. The subsection is concerned with practical benefits on the land in the nature of amenities and not with merely financial bargaining position which the person entitled to the benefit of the covenant could have used to extract money for his consent to a release or modification of the restriction even if the section had never been enacted.”
(p 284)[32]As to compensation, he accepted that, on the tribunal’s findings there was “a loss of amenity to be valued”, and that a possible method of assessment might have been by reference to “some share, probably small, of the development value…” However, there was “no hard and fast formula”. He contrasted the 50% share adopted in SJC with the 5% share used in Wrotham Park. In the light of SJC, he rejected the suggestion that there was any rule of law, either that compensation under section 84 must include compensation for the loss of the opportunity of extracting money as the price of removing the restriction, or that:
“in assessing compensation for loss of amenities, however slight, a substantial proportion of the development value should be awarded as compensation wherever the modification allows valuable commercial development to take place.”
(p 285)[33]Certain points can, in our view, be extracted from those cases taken together. First, the basis of compensation under section 84 is the loss caused by diminution in the value or enjoyment of the objector’s property, not the loss of his financial bargaining position. There is no “hard and fast rule” as to how that loss is to be assessed, but the negotiated share approach is a permissible tool for the tribunal. Where that approach is taken, the percentage must bear a reasonable relationship to the actual loss suffered by the objector. The 50% percentage used by the tribunal in SJC establishes no precedent, even in respect of the public interest ground (under which it was decided). It is of no relevance to modifications allowed under the limited benefits ground, such as this case. In such cases, if a percentage is to be used, it is likely to be at or around the Wrotham Park (5%) end of the scale.[34]Returning to the tribunal itself, Miss Collignon has referred us to a series of cases, over some 25 years, in which the tribunal has made awards under these provisions, which as she says show a wide diversity of approach. We take three examples, in all of which (unlike the two Court of Appeal cases) the objectors were neighbouring residents of the proposed development: i) Re Kershaw’s Application (1975) 31 P&CR 187. In this case (before the Court of Appeal decision in SJC)the modification was allowed under the limited benefit ground, subject to conditions. The tribunal (Douglas Frank QC) awarded compensation in sums between £250 and £1,500, to four neighbouring resident-owners affected by the development of a bungalow. He accepted that loss of market value would not be an appropriate measure, because it would fail to take into account what he called “consumer surplus”, that is “the loss peculiar to the occupier of a house, for example, the mere alteration in the local environment”. He assessed that by asking himself “what would the owners, being reasonable persons, have accepted in friendly negotiation” ( p 190). ii) Re Fisher & Gimson (Builders) Ltd’s Application (1992) 65 P&CR 312. (This was the decision relied on by the Winters before the tribunal.) A new house was built in contravention of a covenant, which the builder thought to be unenforceable. The objector, who was a neighbouring resident, was held to have the benefit of the covenant. Other potential objectors had received negotiated payments to agree to release the covenant. The objector claimed 100% of the developer’s, which he assessed at £290,000. The tribunal (Victor Wellings QC, President) allowed the modification on the limited benefit ground, and indicated that he was willing to award compensation based on “a share in the development value… released”. However, he rejected the objector’s calculations as “misconceived”, and awarded £6,000, based on a comparison with the sums paid to the other potential objectors. iii) Re Kennet Properties’ Application (1996) 72 P&CR 353. A covenant was modified under ground (a) (obsolete covenant) to enable the erection of 42 houses. The tribunal (HH Judge Michael Rich QC) awarded compensation of sums ranging from £5,000 to £10,000 to four objectors. Although he did not in terms take account of the released development value, he observed that compensation was awarded “to make up for any loss or disadvantage” suffered by the objector, and said:
“Such loss in the case of a long-standing resident with no intention of selling is not best measured by the diminution in the value of his property. His primary loss is the loss in the enjoyment of his property and the extent of it will depend at least in part on his own assessment of what it is that he enjoys… ”
(p 363-4)[35]These cases are of value, not as precedents as such, but as indications of the flexible approach adopted by three very experienced legal members when assessing compensation for neighbours in a residential area. They do not support the suggestion that there is any established practice of awarding a share of development value. But they show that it is a possible approach in circumstances where a simple estimate of the diminution in value of the objectors’ properties is unlikely to be a fair reflection of their subjective loss.[36]Miss Collignon says that it is necessary for this court to provide clearer guidance. We agree that consistency is desirable, both in its own right, and because it makes it easier for those advising applicants and objectors to give a realistic assessment of their prospects before the tribunal, and thus promote early settlement of disputes. However, it is the job of the tribunal, not this court, to provide further guidance if necessary. As Carnwath LJ said in Shephard v Turner (para 57):
“57…. it is important to keep in mind that tribunal decisions are not to be regarded normally as setting any precedent in relation to what must be essentially a question of fact and degree. However, one of the functions of a specialist tribunal such as the Lands Tribunal (made explicit by s 4(1)(b) of the Land Tribunal Act 1949) is to promote consistent practice in the application of the law to its specialist field. Unexplained inconsistency of approach may in certain circumstances amount to an error of law.”
[37]We are not convinced that the problem is as great as she claims. SJC is undoubtedly a difficult decision, because the Court of Appeal seems, with respect, to have re-interpreted the tribunal’s award to fit its own different view of the law. However, it was clarified and set in context by the Stockport case. That should have dispelled any idea that objectors in cases of this kind have any expectation of a windfall “Stokes percentage” of the released development value, or anything like it. Even if the reasoning of Stockport was not sufficiently clear, the figures spoke for themselves. The award of £2,250 was upheld, in the face of an apparently credible Stokes claim of £75,000. Against that background, we find it surprising that, almost a quarter of a century later, this basis of claim is still being advanced by valuers and advocates (as in Skupinski and this case). This can only create unrealistic hopes in objectors, thus delaying settlement and aggravating the loss and anxiety which the section seeks to compensate.[38]Even on the more limited basis, it is perhaps difficult, as a matter of logic, to see why impact on the amenity of one property can in any way be related to the enhanced profitability of another. One rationalisation, at least in neighbour cases, may be a subjective one. An owner’s perception of the impact of an adjoining development may be aggravated by the perception of the profit being made by his neighbour. The same physical development carried out, say, for purely charitable purposes might not attract the same emotional response. Such ordinary human reactions may not find a place in the ordinary law of damages, but that is no reason to exclude them from the proper scope of section 84. To do so accords with the purpose of ground (aa), taken with the compensation provisions, which is to provide a proper balance between the public interest in facilitating development, and the protection of private contractual rights.[39]Another factor which may bear on the relationship is the potential ability of the covenantee to influence the form of the development. There is little doubt that in practice such a person is in a good position to seek variations in the developer’s plans, so as to mitigate the effects of the development on his own property. Such changes may be achieved by negotiations or by conditions imposed by the tribunal. There is usually sufficient incentive for the developer to compromise, in order to avoid the delay and uncertainty of a contested tribunal application. We see no reason why the ability to protect amenity in that way should not be regarded as part of the “practical benefits of substantial value or advantage” secured by the covenant. The developer’s willingness in practice to offer such mitigation is likely to depend in part on the profitability of his development.

Skupinski and the present case

[40]Against the background, we return to the validity of the tribunal’s reliance on the decision in Skupinski. As has been seen, the tribunal simply “adopted” the President’s approach, and made no further reference to the possibility of an award based on a negotiated share.[41]There are always dangers in assuming too readily that the approach of one case can be applied without further analysis to another. The facts in Skupinski were somewhat different. In that case, the covenant prevented new building other than for a garage. The development was a three-car garage extension, but with a play-room above, for the applicant’s own use. The relevant property of the objector was not her own house, but consisted of a driveway, and a plot of land on which she hoped to be allowed to build a house. The development had proceeded without obtaining a modification. High Court proceedings for breach of the covenant were adjourned, at the appeal stage, to allow an application to the tribunal under section 84. The principle of modification was agreed, so that the only issue was compensation. The main issues were, first, the impact of the development on the objector’s property, and, secondly, whether she was entitled to compensation assessed, as she claimed, on the negotiated share basis. The President described the impact on her plot as “minimal”, and concluded that there should be no compensation.[42]The decision and the reasoning in Skupinski seem, with respect, unimpeachable on its own facts, and consistent with Stockport, even though it was not apparently cited. Arguably, the issue arose in a slightly different context from the present. The roles were in a sense reversed. As far as one can judge, there was no commercial purpose to the applicant’s development, whereas the objector’s interest was in a potential development site. Here the development was commercially driven and the objectors were simply seeking to protect their home. We have a note of the closing argument of Mr Lewsley, who appeared for the objectors, which shows that he argued that the “negotiated price of release basis” could be applied “where a covenant had been breached by a developer carrying out a development for profit”.[43]With hindsight it is possible to criticise the tribunal for treating Skupinski as a sufficient answer to the Winters’ case without further discussion. However, the possible differences between the two cases do not appear to have figured as an important part of the argument. The main thrust of the Winters’ case before the tribunal, supported by Mr Connolly’s evidence, was to argue for a substantial share of development value, as a matter of principle. That has been also the emphasis of the argument before us. The tribunal was entitled to treat the President’s analysis of the authorities in Skupinski as directly relevant to that issue, and to adopt his reasoning. In our view, that approach discloses no error of law. We would dismiss the appeal on this ground.

Alternative development

[44]As already noted, in assessing the damage to the Winters, the tribunal made a comparison with possible alternative development complying with the covenant. We have already referred to the passage quoted by him from Fairclough. In Shephard v Turner Carnwath LJ cited that passage with approval, as following the approach of the Privy Council in Stannard v Issa [1987] AC 175, and as illustrating the point that: “… in judging the effectiveness of the protection provided by the covenants, one is concerned with practicality, not theory.” (para 40) It is important to note, however, that these comments were made in the context of decisions whether to allow modifications, not on the amount of compensation. In Fairclough the modification was refused, on the basis that the impact of the proposed development was “much worse” than the assumed alternative. Accordingly, the question of compensation did not arise.[45]In the present case, the tribunal posed the question:
“what alternative forms of development, not involving a breach of the restriction, might reasonably have been anticipated on the application land?”
He answered it by assuming for comparison purposes the refurbishment and extension of the original house, which he regarded as “very possible”. As has been seen, various other terms were used to describe the degree of possibility or probability of various aspects of the alternative.[46]We are a little troubled by the various ways in which the tribunal expressed what was in essence a single question (see the emphasised phrases in the parts quoted at paras 13-14 above). It would have been preferable in our view to have adopted a consistent formulation of the test. There is in any event a danger of applying the Fairclough test without sufficient regard to its different context. As that case confirmed, in deciding (for the purposes of subsection (1A)(a)) how “substantial” is the value of the benefit secured by the covenant, it is relevant to consider “the degree of probability” of an alternative compliant development causing similar damage. That is not necessarily the same as saying that, for the purposes of compensation, the prospect of such an alternative development is to be treated as eliminating the damage altogether. The difference between the certainty of the proposed development, and the possibility of a hypothetical alternative, may in an appropriate case be a proper subject for compensation.[47]However, as we understand her argument, Miss Collignon does not criticise the tribunal’s formulation of the test as such. Nor does she rely on the differences in the wording as in themselves suggesting that he applied the wrong test. But she submits that the evidence did not support the weight which the tribunal gave to his assumed alternative. As she says, he himself does not accord it a high probability, as indicated by his use of terms such as “conceivable” or “very possible”. She submits:
“There was no evidence that there was any prospective purchaser interested in remodelling and extending the existing property. The evidence from both parties was that the existence of a purchaser wishing to carry out this sort of work was unlikely, not that it was real possibility, very possible, or likely. The Tribunal erred in finding that the loss of amenity would have occurred even if works had been done within the scope of the covenant.”
[48]We are unpersuaded by this submission. Once it is accepted that the tribunal applied the correct test, then his conclusion becomes one of fact which could only be challenged in this court if were shown to be based on no evidence, or otherwise irrational. On the material before us, and without a transcript, it is not possible to assess the overall effect of the expert evidence. But, in any event, it has to be remembered that the surveyor member of the tribunal was an expert in his own right. He was entitled to form his own conclusion, based on the evidence and on his own view of the site. From the Winters’ point of view, he may be thought to have underestimated the practical impact of a development of this kind so close to their home. However, that was a judgment of fact not law, and in our view was within the bounds of rationality.

Backfill problems

[49]The tribunal accepted that the company’s failure to address the backfill problems had caused “significant apprehension” to the Winters, and assessed the sum “required to compensate for this concern” as £10,000. However, the award was reduced to nil if the company committed itself to carry out the necessary work. Miss Collignon submits that this is irrational, since it leaves the Winters uncompensated for the admitted distress and apprehension which they had suffered in the meantime.[50]We have some sympathy with this argument, since the belated acceptance by the company of its backfill obligation, under pressure, does not remove all the sting of what had gone before. A more generous tribunal might have recognised this by a small monetary award. However, we are unable to see how, taken on its own, it gives rise to an error of law. As Carnwath LJ said in Shepherd v Turner the primary consideration in a case of this kind is - “the value of the covenant in providing protection from the effects of the ultimate use, rather than from the short-term disturbance which is inherent in any ordinary construction project” (para 58). Although the boundary problems in this case may have gone beyond the ordinary, it was for the tribunal to decide how best to deal with them as a practical matter, and whether in the circumstances any additional sum was necessary.

Conclusion

[51]For these reasons we have come to the conclusion that the appeal must fail.[52]We have expressed concerns about certain aspects of what was otherwise a careful and closely reasoned decision. The conclusion that the Winters suffered no compensatable loss of any kind seems somewhat harsh. Undoubtedly they pitched their compensation claim much too high, but another tribunal might have seen an award closer to their original claim as more realistic. However, that judgment was one for the tribunal not the court. The tribunal’s decision discloses no error of law. Accordingly, we would dismiss this appeal.

Cited in 14 later judgments

and 5 more of the most senior