NORFOLK AND NORWICH UNIVERSITY HOSPITAL NHS TRUST LP/41/2001

UPPER TRIBUNAL

LANDS CHAMBER

LP/41/2001

Case No LP/41/2001

Between

NORFOLK AND NORWICH UNIVERSITY HOSPITAL NHS TRUSTApplicant

Before

The President

Guy Fetherstonehaugh (instructed by Eversheds, solicitors of Norwich) for Applicant

Mark Lowe QC (instructed by Stockler Brunton) for Objector

Venue 48/49 Chancery Lane, London WC2A 1JR

Date 21 October 2002

Hearing 10 October 2002

Property: Land off Colney Lane, Norwich

Catchwords: RESTRICTIVE COVENANT – costs – modification agreed between applicant and covenantee objector immediately before hearing – whether agreement could have been reached earlier – objector to pay applicant’s costs from date when agreement should reasonably have been reached

[1]The applicant in this case is a National Health Service Trust, established by the Secretary of State for Health in 1994 to own and manage hospital accommodation at the Norfolk Hospital and associated hospitals. The application land was sold to the Secretary of State for Health by the objector on 28 April 1989 subject to the restriction that is the subject of this application. The objector retains land adjoining and in the vicinity of the subject land. The restriction is in these terms:

“Not within a period of thirty years commencing on the 1st day of January 1989 and expiring on the 31st day of December 2018 to use the [application land] other than for agricultural purposes and/or for the purposes of a National Health Service Hospital and uses ancillary thereto.”

[2]The applicant obtained planning permission for the development of the application land by the construction of a hospital. Construction was completed in 2001, and the hospital, which has about 950 hospital beds and serves the Norwich area, commenced operations in November 2001. On 3 December 1998 the applicant obtained outline planning permission from South Norfolk District Council, for, among other things, the construction on the application land of a Daycare Child Nursery (or crèche). No application for reserved matters was made within the three years limited in the permission, and an application for a fresh permission was granted on 10 May 2002. The objector had objected to the application on the ground that unrestricted use of the facility by the general public would have a detrimental effect on the local road network.

[3]The applicant wishes to have a crèche facility in order to attract and retain staff with children. The only means of financing the construction and operation of such a facility that the applicant has been able to devise is by entering into an agreement with a commercial nursery provider. The proposed agreement will offer 85% of the places at subsidised rates to NHS staff, with the non-NHS quotient being taken up by the general public. The applicant accepts, for the purposes of this application, that the covenant is binding on it; that the benefit of the covenant is vested in the objector; that the use of the application land for the purposes of a crèche for the children of NHS staff and visitors to the hospital would not breach the covenant; but that, if the crèche admits children who have no connection with staff or visitors, there will be a breach of the covenant.

[4]The application, which was dated 30 October 2001, sought the modification of the covenant to read as follows:

“Not within a period of thirty years commencing on the 1st day of January 1989 and expiring on the 31st December 2018 to use the property other than for: i) agricultural purposes and/or 3 ii) for the purposes of a National Health Service Hospital and/or iii) a children’s nursery and crèche which may be available for use both by employees and visitors connected to the hospital and by the general public together with (and in each case) uses ancillary thereto.”

[5]On the morning of the hearing, or possibly the evening before, the parties reached agreement on the terms on which the covenant should be modified. The terms agreed added to the modification sought in the application the words ‘(“the Hospital”)’ after “Hospital” in (ii), ‘(“the Nursery”)’ after “crèche” in (iii), and the following proviso:

“Provided always: (a) that the maximum number of nursery spaces at the Nursery shall not exceed 100 places (b) that the spaces in the Nursery may be available for use both by persons working at the Hospital and by the general public (c) that the Purchaser shall seek to procure that the Nursery is operated primarily for the benefit of the persons working at the Hospital (d) that the Purchaser undertakes and shall procure that its successors in title shall undertake in favour of the Vendor and its successors in title that any provider of facilities at the Nursery shall: (1) give priority to persons working at the Hospital in respect of not less than 85 per cent of the total places at the Nursery and (2) offer subsidised rates in respect of places offered to persons working at the Hospital subject to an upper limit of 85 per cent of the total places.”

[6]Since the objector is the only person with the benefit of the covenant, I can see no reason why the covenant should not be modified in the terms agreed, and I will so order.

[7]The only outstanding question is costs, and I heard argument on this. The applicant seeks the costs of the application. Mr Guy Fetherstonehaugh says that the principal ingredients of the compromise between the parties should have been acceded to by the objector at the earliest opportunity, indeed prior to the making of the application. He refers to an exchange of correspondence in 1998 between the Trust and Mr Kemp of the objector company. On 6 July 1998 the Project Director, Mr Rob Smith, wrote to Mr Kemp following an on-site meeting. In that letter he said: 4 “When we were walking the site I mentioned to you the desire of the Trust to have developed a crèche/nursery to help us recruit and retain staff at the hospital. In order to do this, and provide affordable childcare, it would be helpful if the covenant which restricts use of the site to NHS and associated uses could be lifted. The reason for this is that a crèche/nursery serving a wider catchment would have to charge a lower cost to our staff and would not require guarantees which the Trust would find difficult, if not impossible, to give. I imagine that the primary objective of the covenant is now fulfilled as the NHS is committed to a 30-60 year contract with Octagon for the new hospital.”

[8]Mr Kemp wrote back on 23 September 1998, and in this letter he said:

“To turn now to the crèche. I apologise for the delay in replying but I now confirm that I have no objection in principle (and subject to contract) to providing a specific consent to the Trust to operate the crèche not just for the use of the hospital staff but also available to others working locally, in order to help subsidise the cost of the provision of crèche facilities to staff working at the hospital, subject to what I say below. We all know NHS nurses and ancillary staff are not particularly well paid, and if ‘widening the net’ a little would enable these facilities to be offered to hospital staff more cheaply than would otherwise be the case, then, in principle, I can that this could be of benefit to the hospital. I have of course been advised, and as you accept, without my consent the provision of such a crèche would amount to a breach of the covenant. Whilst what you suggest seems to me a sensible idea, I would appreciate your assurance that, as indeed you say in your letter, it is not intended that such a crèche would be operated primarily as a profit making venture, but to provide a service for the benefit of the NHS hospital staff as economically as possible.”

[9]Mr Smith replied on 7 October 1998 saying that the Trust would like to hear how Mr Kemp wished to proceed and suggesting a meeting to agree the way forward. Mr Kemp put the matter in the hands of his then solicitors, Hewitson, Becke and Shaw, and in March or April 1999 they sent to the Trust’s solicitors, Mills and Reeve, a draft deed, the principal clause of which provided: “MPK hereby permits the Trust to construct and use the part of the Property shown edged in red on the plan annexed hereto for the purposes of a crèche and/or day nursery for the children not only of employees of the Trust at the hospital to be opened upon the Property but also for the children of others.” 5

[10]Mills and Reeve suggested some minor amendments, and it appears that these were sent to Mr Kemp for his approval. On 22 May 2001, nothing having been heard from Hewitson, Becke and Shaw, Eversheds (who by now were the solicitors acting for the Trust) wrote to them to say that consideration was being given to a section 84 application on ground (aa). Eversheds asked how Mr Kemp would be injured by the modification and what practical benefit of substantial advantage could be secured by the covenant not being modified. Hewitson, Becke and Shaw replied on 14 June 201 that they had no instructions in the matter, and they gave the same reply on 29 August 2001 in response to a further inquiry.

[11]In October 2001, therefore, after no substantive response from Mr Kemp to the letter of 22 May 2001, the present application was made. Mr Fetherstonehaugh said that the modification sought was effectively the same as that put forward by Mr Kemp’s solicitors in the draft deed of March/April 1998. The application was made on grounds (c) and (aa) (in that order). Objection was made by Mr Kemp’s company. The objection was on road traffic grounds. It said that there was no available road capacity to accommodate the additional traffic that would arise from use of the crèche by persons not employed at or visiting the hospital. It said that the covenant should not be modified until a suitable second access to the hospital and associated development had been provided.

[12]Gotelee and Goldsmith were now the solicitors acting for the objector, and in February 2002 there was lodged with the Tribunal an expert report prepared by a highway engineer, Mr David Boswell on behalf of the objector. The report had in fact been prepared for the South Norfolk District Council Second Local Plan inquiry. It related to the transportation issues associated with the expansion of the nearby Norwich Research Park and environs. An accompanying letter said that it was “highly pertinent” to the crèche proposal and that the use of the crèche for purposes outside the hospital use would have an impact on the use and development potential of the objector’s land because of the extra traffic movements that would be generated. It made no assessment in numerical terms of the likely generation or its impact.

[13]On behalf of the applicant there was lodged a witness statement from Melissa Jane Blakeley, the Deputy Project Director, describing the need for the crèche, the arrangement with the nursery provider and its likely operation. Also lodged was an expert report by Mr R J Childs, a highway engineer, dealing with road traffic generation and its impact.

[14]On 15 July 2002 Eversheds wrote to Gotelee and Goldsmith making an open offer, which was not limited in time. The subject of the offer was a draft deed of variation, substituting the following for (iii) in the proviso in the modification sought in the application:

“(iii) a children’s nursery and crèche (“the Nursery”) (provided the maximum number of nursery spaces at the Nursery shall not 6 exceed 100 places without the consent of MPK such consent not to be unreasonably withheld or delayed) which may be located on that part of the Property shown edged red on the Plan or such other part of the Property as MPK may from time to time approve, (such approval not to be unreasonably withheld or delayed) and which may be available for use both by employees and visitors connected to the hospital and by the general public (but the Trust shall use its reasonable endeavours to procure that, in allocating places at the Nursery, any provider of the facilities at the Nursery shall give priority to persons employed at the hospital now constructed on the Property in respect of not less than 85 per cent of the total places at the Nursery).”

[15]On 12 August 2002 Gotelee and Goldsmith replied saying that they had received no instructions from their client, and on 23 August 2002 they wrote to the Tribunal to say that they were no longer instructed. On 3 September 2002, with the date fixed for the hearing just over 5 weeks away, Stockler Charity wrote to the Tribunal to say that they had just been instructed by the objector, that they estimated that the hearing would last for at least five days and that several expert witnesses would need to be called. They asked for an adjournment of the hearing fixed for 10 October 2002 until February 2003 at the earliest. On 19 September 2002 I refused this application and I gave further directions.

[16]On 26 September 2002 Stockler Charity wrote to Eversheds suggesting a modification restricting use of the crèche to staff and visitors to the hospital. On 7 October 2002 Stockler Brunton (as they had by then become) wrote to Eversheds suggesting a modification incorporating the following words:

“a children’s nursery and crèche which may be available for use both by employees and visitors connected to the hospital and of which no more than 25 places shall be available for use by the general public.”

[17]This was rejected by Eversheds on 8 October 2002. They said that the District Valuer had refused to sanction the funding by the Trust of any shortfall in the take-up of places “beyond, say 2 years.” Following further discussion between solicitors and counsel agreement was reach in the terms that I have set out above.

[18]Mr Featherstonehaugh said that throughout the Trust had sought to negotiate a modification that would enable the proceedings to be withdrawn, but against the background of the DV’s stance. Throughout, until the day before the hearing, the objector’s response was that no more than 15 (later changed to 25) places were to be available to the general public. Other matters he relied on in support of his contention that the objector should pay the applicant’s costs were the objector’s failure to complete the variation negotiated and prepared by Hewitson Becke and Shaw in 1999; its failure to 7 respond to the letter of 22 May 2001; its conduct in objecting to the planning application in April 2002; its failure to accept or acknowledge the Trust’s open offer of 15 July 2002; its failed application for an adjournment; its insistence that documents relating to whether the operation of the hospital itself was in breach of the covenant should be placed before the Tribunal; its failure to agree the draft statement of facts and issues until the afternoon before the hearing; and finally the objector’s failure to instruct its expert to meet the applicant’s expert to discuss and narrow the issues despite the attempts by the applicant’s expert to arrange a meeting.

[19]For the objector Mr Mark Lowe QC said that in 1998 there had been goodwill and trust between the parties, but that, when the nature of the hospital changed, so that it became a commercial development under the private finance initiative instead of the publicly-funded hospital for which the objector had provided the land, negotiations became clouded.

[20]The terms of the modification proposed in the application, which would have permitted a wholly commercial operation with 100% use by the general public, was, said Mr Lowe, in contrast to the terms agreed. It was clear from the traffic figures produced that such usage would generate a substantial volume of traffic. The modification agreed was moreover substantially different from what was offered on 15 July 2002 because there was now a strict obligation to procure an undertaking that the provider would give priority to hospital staff in respect of at least 85% of the places and offer subsidised rates to them. Both parties had moved from their earlier adopted positions. There should be no order for costs, or alternatively the objector should only pay the claimant’s costs after 15 July 2002.

[21]In any application for costs in a contested section 84 case it is important to bear in mind the nature of the proceedings. In such proceedings the applicant is seeking to have removed or reduced rights which were conferred on the objector or his predecessors by force of contract. If an objector successfully resists such an application he will usually be awarded his costs. The converse, that a successful applicant should normally receive his costs, does not, however, apply. An unsuccessful objector may be ordered to pay part or all of the applicant’s costs; or there may be no order as to costs; or he may receive part or all of his costs where, although the covenant is ordered to be discharged or modified, compensation is awarded to him. Which of these courses is followed by the Tribunal will depend principally on the nature and degree of the applicant’s success and the conduct of the parties. In exercising its power to award costs the Tribunal will always bear in mind the nature of the proceedings, which must ordinarily put an objector in a more favourable position in relation to costs than the unsuccessful party in ordinary civil litigation.

[22]In the present case the applicant sought the modification of a restriction that had only recently been agreed (1989) and the parties eventually reached agreement on a modification in substantially different terms to the modification sought in the application. These bare circumstances would usually suggest an award of costs in the objector’s 8 favour. No application for costs is, however, made on its behalf and the only question is instead whether it should pay all or part of the applicant’s costs. The following particular matters appear to me to be important, in addition to the bare circumstances that count in favour of the objector.

[23]Firstly, the objector’s willingness in 1998 to accept a modification in terms wider than those eventually agreed does not, in my view, establish that his conduct after that in resisting the modification was unreasonable. In indicating his willingness he was not committing himself to the modification. He was entitled to change his mind. I see no reason to question the genuineness of his reasons for changing his mind – his concern that, having made his land available to the NHS Trust for a hospital, the development was now being carried out on a profit-making basis; and the inhibition to the development of his other land in the area that arose from the inadequate road capacity. On the latter point it is to be noted that Mr Childs’s report for the applicant only took as the worst case for traffic generation by the crèche that arising from the use of 25 spaces by the general public, whereas under the terms of the modification applied for all the spaces could be so used. It does not seem to me that the objection to the application was unreasonable. Similarly I do not think that the objector’s action in objecting to the planning application is to be held against it.

[24]Secondly, however, there is the offer of 15 July 2002. It is true that the terms of the modification as finally agreed just before the hearing differed from those in the offer, but the essence of what was in due course agreed was the same, and the alterations made to the text of the offer were no more than the sort of fine tuning that can be expected to take place once agreement in principle has been reached. In my view agreement on the detailed terms could have been reached much longer before the hearing than it was, certainly by the end of August 2002, and the objector is to blame for the fact that it was not. In my judgment, there is no justification for an award of costs against the objector up to the time at which the agreement should reasonably have been concluded. The failure to reach agreement at that time, however, was due to the objector’s failure to respond to the offer, and it is right that the objector should pay the applicant’s costs that were incurred after that time. The other features of the objector’s conduct after then, to which Mr Featherstonehaugh refers (see paragraph 18 above), are additional reasons for an award of costs against the objector.

[25]Accordingly there will be an order that the restriction be modified in the terms agreed and that the objector should pay the applicant’s costs after 31 August 2002. Dated 21 October 2002 George Bartlett QC, President 9