Remedies in property disputes
30/06/2011
By Mark Steggles, Senior Associate in Dispute Resolution.
This article looks at the options open to a landowner when an adjoining landowner breaches a covenant. We concentrate on remedies in the context of restrictive covenants concerning freehold property but the principles are capable of broad application to most property disputes.
Injunctions
Injunctions can be prohibitory, requiring a party to stop a particular act (such as preventing a breach of covenant). They can also be mandatory, requiring a party to perform a specified act (such as erecting a fence).
The grant of an injunction by the court is a discretionary remedy. Assuming the applicant is successful, they are not entitled to an injunction as a right, unlike a damages claim. An injunction is unlikely to be granted if the applicant has delayed issuing the proceedings. For example, if a landowner has the benefit of a covenant preventing development of adjoining land and a developer seeks to build on that adjoining land, the benefiting landowner is unlikely to succeed in an application for an injunction if they stand by and wait until the development has been completed before making an application to court.
Interim injunctions
A landowner may seek an interim injunction to prevent the breach of a restrictive covenant which is in progress or is threatened. An interim injunction prevents the developer from taking any further relevant steps in connection with the development until the issue has finally been decided at trial.
A landowner may typically seek an interim injunction if the current status of the land in question must be preserved until trial. In certain circumstances, the interference may be substantial and/or permanent in nature meaning that unless immediate steps are taken, by the time the matter reaches trial, the damage caused by the act in question could be irreversible.
Applications for interim injunctions carry serious financial risk for an applicant who will usually be required to give undertakings to the court. These vary but are likely to include:
- an undertaking to compensate the developer if
- the benefiting person is unsuccessful in obtaining an injunction at trial and
- the delay between obtaining the interim injunction and trial has caused the developer loss
- an undertaking to pay the reasonable costs and expenses of anyone other than the developer incurred as a result of the order of the court.
A typical example would be a development that is held up until an issue concerning the interpretation of a restrictive covenant has been decided at trial. If the developer has already engaged the services of contractors, placing the developer in potential breach of contract, the compensation figure may be substantial and the level of compensation figure is likely to reflect this.
The court may require some form of security for payment of any sums due under an undertaking. This can either be by a financial guarantee from a related third party (such as a director of a company) or by a payment into court. This will depend on the financial means of the applicant and the court may require full details of an applicant's financial position.
Interim injunctions are extremely costly as a prudent applicant will first need to be satisfied that the developer has little realistic prospect of avoiding defeat at trial. This requires a comprehensive evaluation of the case before an applicant is in position to formally seek an interim injunction.
For example, if an applicant is prepared to provide an undertaking where houses are being built in alleged breach of covenant, the applicant will first need to be satisfied that the covenant is enforceable against the developer by investigating title documents and considering whether there are any reasons why an injunction may be refused at trial (such as a change in the character of the neighbourhood which renders the covenant redundant and/or of no value). If the applicant does not take these steps, the they are gambling substantial resources on a case which has not been properly investigated.
There are clear risks to an applicant seeking an interim injunction, but equally a failure to apply for an interim injunction may count against the person with the benefit of the covenant when the court considers whether or not to grant a final injunction at trial. If no interim injunction is sought, it is vital that the benefiting person at least registers a formal complaint with the developer as soon as the breach comes to the benefiting person's attention. If the developer proceeds regardless, assuming the benefiting person is ultimately successful at trial, the court may still impose an injunction despite the fact that no interim application was made.
Damages in lieu of an injunction
As outlined above, an injunction is a discretionary remedy only and even if an applicant can satisfy the court that he is legally correct, he may still not obtain an injunction. In particular the court may award damages in lieu of an injunction if the injury to the applicant's legal rights:
- is small
- is capable of being estimated in money
- can be adequately compensated by a small money payment and
- it would be oppressive to the developer to award an injunction.
The court will assess the level of damages by taking into account the value of the future rights lost. That value will usually be the price that might reasonably have been negotiated by the parties on a hypothetical negotiation for the permanent release of the covenant before the breach occurred.
In these situations, the benefiting person with such a bargaining position will generally expect to receive some part of the likely profit from the development. The size of the award should not be so large that the development would not have taken place had such a sum been payable at the outset.
In addition, the court may only award damages in lieu of an injunction if an applicant would have obtained an injunction but for the four stage test above. This means that if an applicant has unreasonably delayed bringing proceedings seeking the injunction, he may have lost the opportunity to claim an injunction and by extension, damages in lieu of an injunction.
Applications to the Upper Tribunal
If a developer is faced with a problematic restrictive covenant, they should consider an application to the Upper Tribunal (previously the Lands Tribunal) for a release or modification of the covenant before the development starts. Whilst the Tribunal is has the ability to make a compensatory award as a result of the relaxation or modification of the covenant, this is assessed differently to damages in lieu of an injunction. Damages assessed by the Upper Tribunal are generally based on the impact of the development on the objector, not on the loss of the opportunity to claim a share of the development value. Costs assessed in this manner are likely to be lower than damages in lieu of an injunction.
Settlement
A prudent developer will also look to engage the benefiting person in financial settlement discussions at an early stage. Leaving aside the commercial benefits of attempting settlement as an alternative to litigation, if the benefiting person indicates a willingness to accept a financial sum, this may suggest to the court that the right in question is capable of being estimated in money. This increases the prospects of a developer satisfying the four stage test and paying damages in lieu of an injunction, instead of the development being defeated by an injunction.