England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CCRTI 96/1430/G

(HIS HONOUR JUDGE D G MORGAN )

Royal Courts of Justice

Strand

London WC2

Wednesday 15 January 1997

B e f o r e:

LORD JUSTICE SIMON BROWN

LORD JUSTICE THORPE

SIR JOHN BALCOMBE

PAUL GODDEN

Plaintiff/Appellant

- v -

MERTHYR TYDFIL HOUSING ASSOCIATION

Defendant/Respondent

(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

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Official Shorthand Writers to the Court)

MR. C GOSLAND (Instructed by Messrs. T S Edwards & Sons, Gwent) appeared on behalf of the Appellant

MR. G JONES (Instructed by Messrs. Hugh James Jones & Jenkins, Merthyr Tydfil) appeared on behalf of the Respondent

J U D G M E N T

(As approved by the Court )

©Crown Copyright

Wednesday 15 January 1997

LORD JUSTICE SIMON BROWN: This is the Plaintiff's appeal by leave of the judge below against the order of Judge Glyn Morgan in the Newport County Court on 26 September 1996 striking out the claim in these proceedings as disclosing no reasonable cause of action. Put shortly - and indeed I think that this whole appeal can be disposed of relatively shortly - the claim is one for damages for breach of contract, and the central issue arising is whether the contract said to be breached falls foul of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. If it does, then prima facie it must be regarded as a nullity and thus unenforceable. It is, of course, trite law that an action is not to be struck out unless it is plain and obvious that it cannot succeed. The issue therefore is whether section 2 plainly and obviously provides a total defence to this claim.

First the facts, which must, of course, be presumed for present purposes to be as pleaded by the Plaintiff, although it is perhaps right to point out that in many important respects they are contested by the Defendants, and it would not be safe to assume that the Defendants have necessarily behaved as shabbily as this judgment might otherwise suggest.

The Plaintiff is a building contractor; the Defendants are a housing association engaged in developing suitable sites for residential accommodation for letting to tenants. Before the contract in question, the parties had successfully completed what has been called the Trelewis Development which followed, it is said, a comparable oral arrangement to that made in the instant case.

Let me now turn to the contract on which the Plaintiff seeks to found his claim for damages in this action. It is pleaded in paragraph 5 of the amended Particulars of Claim as follows:

"On or about 29 May 1991 the Plaintiff entered into an oral agreement with the Defendant by its servant or agent, Mr. Moone, which contained the following terms:-

(a) The Plaintiff would enter into a contract to purchase the said site for a sum not exceeding £35,000;"

(that is to say a site at Merthyr Tydfil which would be suitable for residential development)

"(b) The Plaintiff would obtain Planning Permission for the erection of seven houses on the site;

(c) The Plaintiff would demolish the existing buildings on the site and prepare the same for development.

(d) The Defendant would by about 18th June 1991 reimburse the Plaintiff the costs of acquiring the land, obtaining Planning Permission and carrying out the demolition of the said buildings and site preparation;

(e) The Defendant would enter into a contract with the Plaintiff for the construction of the said houses, construction to start on or about the 18th June 1991 and be completed before the end of January 1992. The terms of the said contract were to be mutatis mutandis the same as those agreed for the Trelewis development."

There is, of course, nothing there about the Plaintiff ever conveying the land to the Defendants - an omission which might be thought intentional - the pleader's way of seeking to disguise this obviously problematic feature of his case. Faced with a request for further and better particulars, however, the Plaintiff said this:

"It is the Plaintiff's case that the agreement referred to in sub-paragraph 5(e) would include a provision that the Plaintiff would transfer the Freehold of the site to the Defendant."

Before turning to the arguments by which Mr. Gosland for the Appellant seeks to escape this difficulty in his path, it is convenient first to set out section 2(1) of the 1989 Act:

"A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each."

For present purposes it is unnecessary to refer to the remaining subsections, although I shall have to refer later to part of subsection (5).

As is stated in Chitty on Contracts, General Principles , paragraph 4039, page 283:

"This change was prompted by a concern to settle the uncertainty surrounding section 40, in particular as regards the status of letters made 'subject to contract' as memoranda for the purposes of that section and the ambit of the doctrine of part performance after the decision of the House of Lords in Steadman v Steadman . Section 2 makes a strict formal requirement whose effect is to preclude the existence of any contract for the sale or other disposition of land unless it is made in writing. Unlike the position under the old law, written evidence by way of a memorandum or note of the contract is clearly not enough. Moreover, the doctrine of part performance at least in its normal form, is abolished."

Goff & Jones on Restitution reiterates the point yet more robustly:

"It would appear from the Report of the Law commission, which led to the enactment of the 1989 Act, that the statutory purpose was the attainment of certainly. If the contract is not in writing, it is void. To compel the vendor to convey the property to, or to declare that he holds the property as a trustee for, the purchaser would appear to frustrate the policy underlying the section."

That, the authors make plain, always was of course always subject to the provisions of section 2(5).

The main argument advanced by Mr. Gosland for the Appellant I understand to be a essentially as follows.

1. Despite the language of section 2(1), requiring as it does the contract to incorporate "all the terms which the parties have expressly agreed in one document," it remains possible to reach what in Tootal Clothing Ltd v Guinea Properties Ltd [1992] 64 P&CR 452 was called a "composite bargain", i.e. to provide in a first contract for a second contract, the first contract amounting to consideration for the second. There are, of course, many other authorities which support the now well-established principle of collateral contracts.

2. If the first contract does not itself involve the sale or other disposition of an interest in land, then it will not be invalidated by section 2.

3. That is what occurred here. The first contract consisted in the Defendants promising that if the Plaintiff purchased the land, obtained planning permission and carried out the works necessary for its development, the Defendants would enter into a second contract under which the Plaintiff would develop the site and transfer the houses to them.

This is, in my judgment, a quite impossible argument. The reality here is that even accepting, as one must, all that the Plaintiff pleads as to the facts, there was in this case but one single unified agreement - an agreement under which the Defendants undertook to purchase from the Plaintiff land which in the first place he was to acquire, prepare and develop to their order. It seems to me entirely unreal to attempt to separate that out into two discrete, or even distinct, agreements - one involving the disposition of land, the other not. Rather, all the obligations between the parties were integral to each other, part and parcel of a single scheme.

If authority were required to support that broad view of the case, it is, in my judgment, to be found in the decision of this Court in Daulia Ltd v Four Millbank Nominees Ltd [1978] 1 Ch 231. That case involved a contract whereby the Defendants promised certain properties to whoever first arrived with the requisite draft contract and bankers drafts. The Plaintiffs did so but nevertheless failed in their claim. The case was, suggests Mr. Gosland, different from the present one, first, in that it involved a unilateral contract and, second, in that the Defendants' oral promises were expressly made subject to contract. No doubt those were indeed distinguishing features of the case, but the Court plainly decided the dispute not by reference to them but rather by reference to the central consideration that the contract concerned the disposition of an interest in land to which section 40 of the Law of Property Act applied. Nor, in my judgment, can the Appellant here find any support in this Court's decision in Tootal Clothing . There, crucially, not only were there indeed two contracts made, but both were in writing. The main issue was whether the fact that the land contract omitted reference to the second contract was fatal to the claim to enforce that second contract, given that both formed part of an overall transaction. However, nothing in that case - not even in Scott LJ's judgment, which went further than those of the other members of the Court, and further indeed than was necessary for the decision - to my mind supports the Appellant's claim here to enforce any aspect of the present transaction, given (a) that no part of it whatsoever was in writing, and (b) central to the entire scheme was the ultimate transference of land from the Plaintiff to the Defendants.

On the face of it, therefore, this claim falls foul of section 2. The agreement on which it is sought to be based does not comply with the basic requirements of that section and is thus a nullity - void. Mr. Gosland nevertheless seeks to advance further arguments, founded in equity, by which he contends that the Plaintiff can escape this central obstacle in his path. These can, I think, be dealt with even more shortly than the central first point although we were taken, I may observe, upon a wide-ranging if, on occasions, lightening tour of many of the principles of equity.

The tour began at section 2(5) which, in its material part, provides that:

"...nothing in this section affects the creation or operation of resulting implied or constructive trusts."

That provision, however, can have no application here. Not only is the Plaintiff's claim solely one for damages and not for a declaration of trust, but there is simply no property here which could conceivably be made subject to any relevant trust. Proprietary estoppel too, although canvassed in argument, is, in my judgment, of no possible application here, given that it is plainly not the landowner (the Plaintiff himself for the purposes of this argument, although as will appear later he has since sold the site to the Defendants) who is seeking unconscionably to enforce his strict legal rights, but rather the Defendants exercising their rights not to buy the land and the Plaintiff seeking to compel, albeit not by any action for specific performance, the Defendants to do so.

Superficially more promising was the argument based on the doctrine of estoppel by convention, and Mr. Gosland has reminded us of several of the well-known passages in the judgments in a number of cases devoted to this broad and flexible principle of equity. Amongst the leading authorities is Amalgamated Property Company v Texas Bank [1982] 1 QB 84, in which Lord Denning MR at page 122 enunciated as "one general principle shorn of limitations" this:

"When the parties to a transaction proceed on the basis of an underlying assumption - either of fact or of law - whether due to misrepresentation or mistake makes no difference - on which they have conducted the dealings between them - neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands."

In the same case, Brandon LJ cited with approval this passage from Spencer Bower & Turner on Estoppel by Representation :

"This form of estoppel is founded, not on a representation of fact by the representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed by the convention of the parties, as the basis of the transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed."

Armed with these and similar passages from other judgments in this field, Mr. Gosland submits baldly that the Defendants here are precluded from denying that there was indeed an agreement reached between the parties as set out in paragraph 5 of the Particulars of Claim. This is a clear enough submission, but it necessarily involves saying that, although Parliament has dictated that a contract involving the disposition of land made otherwise than in compliance with section 2 is void, the Defendants are not allowed to say so. That, to my mind, is an impossible argument. In the first place, if it were soundly made it is difficult to see why it should not operate to escape the intended constraints of section 2 in virtually all cases. All that Mr. Gosland singles out for special mention as to the particular circumstances of this case is that, with regard to the earlier development (that of Trelewis), the Defendants went ahead with the scheme and eventually took possession of the land without there ever having been any initial written agreement. Having implicitly waived the requirement for writing once, the argument runs, they became bound to do so in any and all similar cases in future. The refutation of the point, to my mind, lies in its very enunciation. And insofar as the Appellant seeks also to rely upon the fact that after purchase he expended considerable sums of money in preparing the site for development, that, in my judgment, cannot possibly found an estoppel against a party who, according to section 2, never entered into any contract in the first place.

The central objection to this whole line of argument is to be found neatly stated in a short passage in Halsbury's Laws, to which Sir John Balcombe drew the Court's attention during the course of argument, at paragraph 962 in vol.16 of the fourth edition.

"The doctrine of estoppel may not be invoked to render valid a transaction which the legislature has, on grounds of general public policy, enacted is to be invalid...."

In none of the cases of estoppel by convention will the court be found to have transgressed that cardinal rule. Rather, parties have, in certain circumstances where the justice of the case requires, been precluded from relying upon this, that or the other technicality of a quite different character; not, as here, a specific statutory requirement for writing which is, of course, designed to avoid just such a factual dispute as the Plaintiff's pleaded case would, if allowed, provoke.

Mr. Gosland sought to temper the effect of this rule by reference to the decision of the High Court of Australia in Waltons Stores (Interstate) Ltd v Maher & Anr 164 CLR 387. That, however, was on the facts a very different and very extreme case. Various formulations were adopted by the judges there to enable the Court to, as it was put, "outflank" the operation of the legislation there in question - the equivalent of our section 40. I remain wholly unpersuaded, however, that those judgments cast the least doubt on the absolute nature of the rule to which I have referred, or provide any basis for an argument that somehow section 2 can be outflanked by one of the equitable techniques or types of estoppel sought to be deployed in the present case.

I come finally to Mr. Gosland's submissions heralded in his skeleton argument under the heading "Possibility of restitution". No claim for restitution is, be it noted, advanced in the Particulars of Claim, but, says Mr. Gosland, such a claim now appears in a draft reply put forward for the first time in court today and, he submits, it could properly now be included by amendment in the claim itself. Paragraph 4 of the reply reads:

"Further or in the alternative if which is denied there is no contract between the plaintiff and the defendant, the defendant did work and incurred expense in the reasonable belief that there was such a contract alternatively in the reasonable expectation that a contract would be entered into, and is entitled to be reimbursed therefore by the defendant."

In support of this proposed claim, the Appellant seeks to rely upon Brewer Street Investments Ltd v Barclays Woollen Co Ltd [1954] 1 QB 428. There work was done to property preparatory to a proposed lease for the intended benefit of the tenants. The principle established by the case sufficiently appear from this passage in the judgment of Denning LJ at p.437:

"What, then, is the position when negotiations go off without the default of either? On whom should the risk fall? In my opinion the prospective tenants ought to pay all the costs thrown away. The work was done to meet their special requirements and was prima facie for their benefit and not for the benefit of the landlords. If and in so far as the work is shown to have been of benefit to the landlords, credit should be given in such sum as may be just. Subject to such credit, the prospective tenants ought to pay the cost of the work, because they in the first place agreed to take responsibility for it; and when the matter goes off without the default of either side, they should pay the costs thrown away. There is no finding here that the work was of any benefit to the landlords, and in the circumstances the prospective tenants should, I think, pay the amounts claimed."

I have to say that the circumstances of the present case appear to me very different; not least because the work done here in the way of preparing this site for development was not for the specific advantage of either party; it would advantage whoever ultimately developed the land. What the Plaintiff seeks to rely upon here is the fact that after this dispute arose the Defendants, without prejudice to the rights of either side in the matter, purchased the site from the Plaintiff. They have therefore had, so Mr. Gosland argues, the benefit of the work done on the land by the Plaintiff and should pay for it. That is the point at the heart of the intended restitution claim. Apparently the Defendants paid the Plaintiff the same price for the land as he himself paid and, it is said, it must therefore be inferred that that price cannot have reflected the preparatory work done. That seems to me a difficult argument. There is certainly no reason offered as to why such voluntary sale as here eventually took place should have been other than at open market value and, prima facie, this would include the benefit of whatever useful work had been done. Perhaps the market had fallen. The factual material before us on this issue is sketchy in the extreme, perhaps unsurprisingly given the way the case has hitherto been pleaded.

I come to no final conclusion on any part of this. It is sufficient for the purposes of this appeal to say that, for my part, I regard it as wholly inappropriate to raise so different and difficult an alternative case as restitution by way of amending the pleading during the course of the appeal hearing. If - and to my mind it is a substantial if - there is indeed a worthwhile claim to be advanced along restitutionary lines, then that can and should be done in proper and considered form hereafter. I lend it no encouragement whatever. Of one thing, however, I am certain: it cannot properly be raised upon this appeal.

In my judgment, therefore, the whole action as presently constituted was rightly struck out below, and I would dismiss the appeal.

LORD JUSTICE THORPE: I agree.

SIR JOHN BALCOMBE: Mr. Gosland's first submission was that there were here two separate oral contracts. On the pleaded facts of this case, this is totally unrealistic. The housing association could have no interest in reimbursing the Plaintiff for his expenditure in acquiring the land, obtaining planning permission and demolishing the buildings on the site unless it was part of the one bargain that the Plaintiff would transfer the freehold to the association in due course. That there was a contractual term to this effect is conceded by the further and better particulars of the particulars of claim given, as follows:

"It is the Plaintiffs case that the agreement referred to in sub-paragraph 5(e) would include a provision that the Plaintiff would transfer the Freehold of the site to the Defendant."

Mr. Gosland then attempted to invoke the assistance of equity to get round the difficulty posed by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. At the end of the day it became apparent that he was seeking to rely on estoppel by convention - that is that as both parties contracted in ignorance of the provisions of the Act, the association was estopped from relying on those provisions. This argument, if accepted, would drive a coach and horses through a recent Act of Parliament enacted for very specific reasons of public policy.

Lord Justice Simon Brown has already quoted the passage from paragraph 962 volume 16 of Halsbury's Laws of England, fourth edition re-issue, and I should add that the statement of the law there contained is fully supported by the authorities cited in the footnotes.

If there are any merits in the Plaintiff's case, they are at best for restitution of his expenditure on obtaining planning permission and demolition, his expenditure on the acquisition of the land having already been reimbursed to him. We do not know enough of the facts to say whether such a claim would have any merits. In any event no such claim has been pleaded and it would be wholly inappropriate to grant leave to amend to introduce such a claim at this stage of the proceedings.

For these reasons, as well as those given in more detail by Lord Justice Simon Brown, with which I agree. I would dismiss this appeal.

Appeal dismissed; section 18 order; legal aid taxation