Chain reaction

The doctrine of 'benefit and burden', where it applies, requires a person deriving a benefit from a transaction to shoulder a pre-existing burden affecting the subject-matter of the transaction even where he has not expressly contracted to do so. It seems a straightforward principle, but it is clear from the differing treatments in the relevant textbooks that clarification has been required.

In Davies & Ors v Jones & Anor [2009] EWCA Civ 1164, the Court of Appeal confirmed, once again, that the 'pure principle' of benefit and burden, identified by Megarry V.C. in Tito v Waddell [1977] 1 Ch 106, did not survive Rhone v Stephens [1994] 2 AC 310.

The only surviving doctrine of 'benefit and burden' is that of 'conditional benefits'. Some of the textbooks have been slow to recognise this and it may be that Davies will finally convince them to lay the 'pure principle' to rest. However, the extent to which the surviving doctrine can be relied upon remains unclear.

Davies involved a sub-purchase of land. Two agreements were originally entered into, one between vendor and purchaser and another between purchaser and sub-purchaser. A deed of assignment between purchaser and sub-purchaser then assigned the benefit of the agreement between purchaser and vendor to the sub-purchaser, and determined the agreement between purchaser and sub-purchaser.

On completion, a transfer was made directly from vendor to sub-purchaser. After completion, the sub-purchaser carried out works which were the responsibility of the purchaser under his agreement with the vendor and also under his agreement with the sub-purchaser. Following completion of the works, the vendor brought proceedings against the sub-purchaser for payment of all or part of a sum which the purchaser had been allowed (by his agreement with the vendor) only to retain pending completion of the works.

The vendor argued that the sub-purchaser had had the benefit of the agreement between vendor and purchaser and so should take the burden of that agreement. At first instance, the court found an understanding between the parties that the rights of the purchaser would be given to the sub-purchaser. This was said to benefit the sub-purchaser because it gave him the likelihood of completion without going through an intermediary.

The judge found the sub-purchaser, having taken advantage of that arrangement, was bound by the burden in the contract between the vendor and the purchaser to pay that part of the retained sum to the vendor that the purchaser would otherwise have been obliged to pay.

Construction of terms

The Court of Appeal overturned the lower court's judgment. The chancellor, giving the judgment of the court, stated that a 'clear understanding' is insufficient. A transaction having legal effect is required for the doctrine of benefit and burden to be called into play. He emphasised that in cases relating to land, it is 'almost inevitable' that the transaction in question will be effected by one or more deeds or other documents.

Further, the receipt or enjoyment of the benefit must be relevant to the imposition of the burden in the sense that the former must be conditional on or reciprocal to the latter. Whether it is relevant is a matter of construction of the terms of the transaction. Further, the person on whom the burden is alleged to have been imposed must have or have had the opportunity of rejecting or disclaiming the benefit, not merely the opportunity of rejecting or disclaiming the right to receive the benefit.

For conveyancers, this judgment is reassuring. If the trial judge had been upheld, there would have been the constant danger that unrecorded 'understandings' between parties might have serious legal effects. The main practical point to be drawn from the case is that it is essential, where a vendor agrees to transfer property to a sub-purchaser directly, that any terms of the agreement between the vendor and the purchaser which the vendor may later seek to rely on as against the sub-purchaser are included in the transfer as personal covenants to be taken on by the sub-purchaser directly.

Unanswered questions

A fundamental question remains open. In a case where a burden is properly imposed upon a party by the doctrine of conditional benefits, can that burden be enforced by legal action? '“ i.e. as opposed merely to forfeiting the benefit. Upjohn J in Halsall v Brizell [1956] 1 Ch 169 and Sir Nicolas Browne-Wilkinson in IDC Group Ltd v Clark [1992] 1 EGLR 186 thought not, but their comments were obiter.

The chancellor noted that means of enforcement have been allowed in Jenkins v Young Bros Transport Limited [2006] EWHC 151 (QB) and Baybut v Eccle Riggs Country Park Limited [2006] WL 3206169, but that the question had not been raised in either case.

The Court of Appeal refused to decide the question, but the chancellor noted that it was not hard to envisage situations where the failure of the person benefitted to perform the associated obligations could satisfy the conditions for a claim in unjust enrichment.

In Jenkins, the court found that both the benefit and the burden of a conditional fee agreement had been successfully transferred from one firm of solicitors to another. The chancellor's judgment does not overrule this case, but he does note that the description of benefit and burden therein may not have been correct. In this case, the court found that because the transferee solicitors had carried out the burden of the CFA, they should be entitled to the benefit of it (i.e. payment). The doctrine of conditional benefits operates to insist that a party who has taken a benefit should also take a linked burden.

Jenkins appears to reverse the equation and may be wrongly decided. This could cause some difficulties as it has been widely understood, as a result of this case, that conditional fee agreements are capable of assignment in their entirety.

The chancellor's judgment indicates that the ultimate result of this case may be justifiable, but that the definition of 'the benefit' and of 'the burden' may have to be reconsidered.