Will the Court issue an injunction when a party breaches a restrictive covenant, or will it make an award for damages instead? Solicitor Emma Styles examines a recent High Court case which illustrates the Courts’ current approach.
Where a party applies for an injunction to restrain a breach of restrictive covenant, the Court has the option to award damages (i.e. monetary compensation) as an alternative remedy. Historically, it was for the wrongdoer to demonstrate that there was an exceptional reason for the Court to make such an alternative award.
This was the position following the landmark decision in Shelfer -v– City of London Electric Lighting Co , which set out four principles that the Court should consider when asked to make an award for damages in lieu of an injunction:
(i) is the injury to the claimant’s legal rights small?
(ii) is the injury capable of being estimated in money?
(iii) can the injury be adequately compensated by a small money payment? and
(iv) would it be oppressive to the defendant to grant an injunction?
Much more recently, these principles were tested by the Supreme Court in Coventry v Lawrence . The case concerned the activities carried on at a motor sports stadium, which was used for stock car racing and speedway events. It was so noisy that the claimants sought an injunction to restrain the stadium’s activities on the basis of nuisance.
The Supreme Court considered that each case should turn on its own facts and the application of the four principles, as set out in Shelfer should not “be a fetter on the exercise of the court’s discretion”. Instead of treating damages as an exceptional remedy, it was considered that judges should instead exercise full discretion and consider whether it would be appropriate to compensate the claimant in money.
These two cases were considered in the recent case of Humphrey v Rogers . Here, the claimants had purchased a house and land from the defendants. The property was situated in a rural location and the secluded nature of the area was important to the claimants. As part of the sales transaction they required a restrictive covenant preventing the defendants from building on their retained land without the claimants’ consent.
The defendants wanted to undertake a barn conversion in the vicinity of the claimants’ property and had twice commenced works without their consent.
The claimants applied for an injunction. In the first instance the injunction was granted, on the basis that the restrictive covenant had been a key consideration when deciding to buy the property. The Court made an assessment of the amount of damages it thought the claimants would be entitled to, but went on to find that it would not be an appropriate remedy given the circumstances of the case. The defendants were therefore prevented from carrying out any further works to the barns or selling them.
Unsurprisingly, the defendants appealed, arguing that the trial judge had applied the Shelfer test too stringently, and not fully considered the fact that the claimants could be compensated by damages. They also argued that if the building works could not be completed, then the value of both the claimants’ and defendants’ properties would be diminished.
None of these arguments was successful. The Court found that the judge had not confined himself to the Shelfer test, but had set out the consequences of both remedies. He had used the Shelfer principles as a starting point and had gone on to consider whether there were any factors in favour of damages, including the defendants’ reprehensible behaviour. In Coventry –v- Lawrence, reprehensible and unneighbourly conduct was referred to as being a factor that may sway the court towards an injunction over damages.
The judge had considered the effect that both remedies would have on the parties and concluded that an injunction was more appropriate. He also recognised that living a quiet and undisturbed rural existence was more important to the claimants than money.
Although the trial judge had found that damages could be an alternative remedy, and had made an assessment of those damages as being £195,000, that did not prevent him from granting an injunction.
The injunction was not found to be oppressive to the defendants as they had agreed to the original restrictive covenant and all they would lose was the profit from the development.
This confirms that the Court is no longer limited to considering exceptional circumstances in respect of damages and will carry out an assessment of all of the relevant circumstances of the case. The Court will attach weight to factors that a party can show are more important than money. In this case there were no reasons to make an award for damages, but each case will turn on its facts.