Restrictive covenant liability and mineral damage assessment turn on notice, privity limits, and proof of loss deductions

A sub-lease created by mortgage by way of sub-demise may bind the sub-lessee to a restrictive covenant protecting the lessor's reversionary interest, even without direct privity, where the sub-lessee has notice. In assessing damages for wrongful working of mineral property, ordinary working expenses such as severance and carriage may be deducted from gross value, but a stricter approach applies to secret depillaring or fraudulent working, permitting only limited deductions consistent with the proof. A separate award for dewatering was not supported without evidence linking flooding to the defendants' acts, so that component falls away.

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Issues: (i) whether the mortgage by way of sub-demise created privity between the lessor and the Daga defendants so as to make them liable for breach of the covenant in the head lease regarding support by pillars and inspection rights; (ii) whether the damages awarded against the Daga defendants required reduction by allowing deductions for the cost of severance and carriage of coal and by deleting the amount awarded for dewatering the mine.

Issue (i): Whether the mortgage by way of sub-demise created privity between the lessor and the Daga defendants so as to make them liable for breach of the covenant in the head lease regarding support by pillars and inspection rights.

Analysis: The mortgage in favour of the Daga defendants was held to be a sub-lease and not an English mortgage. Even so, the covenant to keep proper pillars of coal was treated as a restrictive covenant protecting the lessor's reversionary interest and, possibly, the surface of the property retained by the lessor. The covenant was therefore enforceable against the sub-lessees with notice, notwithstanding the absence of privity of contract or estate. The court held that, on the facts proved, the Daga defendants were bound by the covenant and liable for breach during their occupation.

Conclusion: Liability of the Daga defendants for breach of the covenant was upheld.

Issue (ii): Whether the damages awarded against the Daga defendants required reduction by allowing deductions for the cost of severance and carriage of coal and by deleting the amount awarded for dewatering the mine.

Analysis: In assessing compensation for coal wrongfully worked, the court applied the rule that proper working expenses may be deducted from the gross value, but distinguished between ordinary working and fraudulent, secret depillaring. For coal raised during the relevant period, deductions for severance and bringing coal to bank were allowed in part, resulting in a reduced figure. However, for damages attributable to secret working of pillars contrary to covenant, the harsher rule was applied and only a limited deduction for carriage to bank was allowed. The separate award for dewatering was deleted for want of evidence connecting flooding with the defendants' acts.

Conclusion: The damages were reduced, and the award for dewatering was disallowed.

Final Conclusion: The appeal succeeded only to a limited extent by reducing the decretal amount and deleting one component of damages, while affirming the defendants' substantive liability on the main covenant claim.

Ratio Decidendi: A sub-lessee with notice may be bound by a restrictive covenant protecting the lessor's retained interest, and damages for wrongful working of mineral property must be assessed by allowing only such deductions as the nature of the wrong and the proof permit.

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