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Enforcing covenants

This page deals with injunctions (interim and final) and damages in cases where one party is seeking to enforce a restrictive covenant. See also damages in lieu of an injunction.


Injunction

Interim injunction

Gregory v Court Royal Ltd
[2002] EWHC 936 (Ch).

The claimants failed to obtain an interim injunction to prevent building works that were allegedly in breach of a restrictive covenant. Principles in American Cyanamid applied. The balance of convenience lay in favour of refusing the injunction. C's did not discover the existence of the covenant until Ds had spent £2m on the development and the works were substantially well advanced.


Final injunction - damages in lieu

Bailey v Mortimer
[2004] EWCA Civ 1514

Final injunction granted to remove an extension built in breach of a restrictive covenant even though an interim injunction had been refused. The key dates were as follows:
  • Work on the extension started at the beginning of June 2003
  • 5 June - Neighbours wrote to the land owners demanding that the work cease and threatening legal action
  • End of July - proceedings commenced
  • 7 August - interim injunction hearing - works nearly finished
  • 14 November - trial of main action
The judge rejected an argument by the owners (based on Gafford v Graham [1999] 41 EG 159) that the final injunction should be refused because the neighbours (who had the benefit of the covenant) had stood by and allowed the works to continue. It was true that the neighbours had delayed in seeking an interim injunction until the works were well under way. However, they had warned at a very early stage that proceedings might be taken. Nevertheless the owners took the risk and carried on building the extension. Damages in lieu would not be an adequate remedy because the damage was not small. The judge had estimated them at £40,000. Jacob LJ at para 41:
    "Where there is doubt as to whether a restrictive covenant applies or whether consent under a restrictive covenant is being unreasonably withheld, the prudent party will get the matter sorted out before starting building, as could have been done in this case. If he takes a chance, then it will require very strong circumstances where, if the chance having been taken and lost, an injunction will be withheld".
(As stated above, see also damages in lieu of an injunction.)


Damages

Harris v Williams-Wynne
[2006] EWCA Civ 104

Summary: Delay may well prevent a party from obtaining an injunction to enforce a restrictive covenant but it will not necessarily mean that he is not entitled to damages at all. He will only be refused any damages if on the facts of the particular case it would be unconscionable for him to enforce his rights. The principle in Gafford v Graham [1999] 41 EG 159 was applied but distinguished on the facts.

Facts: In 1988 WW agreed to sell a plot of land to H. The agreement contained a covenanted by H:
    "for the benefit of the Vendor's retained land not to erect any buildings on the land..".
Notwithstanding the covenant H started to build on the land in 1991. The work was carried out piecemeal over a number of years with the foundations being installed in summer 1997. They were completed by December 2002. The judge found that it must have been quite apparent to WW that building works, in breach of covenant, were being carried out by the end of 1999 or early 2000. However, the (counter)claim in respect of the breach of covenant was not brought until 2003. There was therefore a long period of delay. No injunction was ordered (or even sought) because of the delay but damages were awarded. H appealed against the award of damages.

Held: The appeal was dismissed. It was not unconscionable on the facts to award damages.

Discussion: As WW suffered no loss by reason of the building works there could no award of damages at common law. WW would only be entitled to damages if they could be awarded in lieu of the injunction pursuant to "Lord Cairn's Act". These would be based upon the price that WW could properly have demanded as the price for releasing the covenant. It is possible for the court to award damages in lieu of an injunction even if, as was the case here, no injunction was actually sought. This is because the right to damages in lieu arises so long as the court has jurisdiction to grant an injunction at the date of the claim. The fact that it might not be appropriate to exercise the discretion in favour of an injunction does not prevent an award of damages in lieu being made. It is only if the defendant's behaviour is such that it would be an absolute bar to an injunction that damages cannot be awarded in lieu (see generally Jaggard v Sawyer [1995] 1 WLR 269 which is now the leading case on this area of the law; discussed in the context of a recent case).

In seeking to oppose the award for damages in this case H relied upon Gafford v Graham where damages were refused. However, in Gafford court had come to the conclusion that it was unconscionable for the plaintiff to enforce the covenant. Thus, there was no jurisdiction to order an injunction; and thus no power to award damage in lieu. Chadwick LJ at para 36:
    "The test as formulated in Gafford v Graham is clear enough. Would it be unconscionable in all the circumstances for a party to continue to seek to enforce rights which he undoubtedly had at the date of the breach?"
In this case the judge (and the CA) did not consider it unconscionable for WW to enforce his rights. In making a distinction between the two cases the court had regard to the different covenants in each case. In Gafford the covenant prevented the building being erected without the covenantee first approving the plans. In the present case no building should have been erected at all. Chadwick LJ at para 44:
    "There is plainly a distinction between a case where the person entitled to the benefit of the covenant knows that he can prevent building works before they have commenced by withholding the approval to plans and a case where the person entitled to the benefit of the covenant does not become aware that there has been a breach of covenant until the buildings have reached first floor level. In the latter it is much less obvious what the person having the benefit of the covenant can do to enforce it. It may well be unrealistic to think that the court will order the buildings to be demolished or order that they not be completed. An action for damages is likely to be the only available remedy."
Another factor in deciding whether or not it would be unconscionable to award damages is detriment to the covenantor by reason of the delay. It is usually a feature of the case and if present will usually lead the court to conclude that it would be unconscionable for the party whose decision it was not enforce his rights, at the time when he first became aware of them, subsequently to reverse that decision and seek to enforce his rights. However, absence of detriment would not necessarily be conclusive. There might be other reasons why it would be unconscionable for the person seeking to enforce his right to change his mind. (See Chadwick LJ at p39).

On the facts of this case the court in fact concluded that if WW had raised the issue at an earlier stage H would have negotiated a deal with WW and then would have carried on with the building works. Thus, there was no detriment and there was no other reason why it was unconscionable to prevent WW from enforcing his rights. Chadwick LJ at p48:
    "It is plain that, had Mr Williams-Wynne raised the question of breach of covenant in 1997, the parties would have negotiated a figure which would have been acceptable to each; and which would have allowed the building works to continue to completion. That is the result that is achieved by awarding damages in a sum equal to the figure that, as the judge assessed, the parties would have agreed if they had negotiated in 1997."


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