England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LAMBETH COUNTY COURT
(HIS HONOUR JUDGE COX)

		Royal Courts of Justice Strand London WC2 Wednesday, 11th April 2001

Wednesday, 11th April 2001

1. LORD JUSTICE SCHIEMANN: Lord Justice Chadwick will deliver the first judgment.
2. LORD JUSTICE CHADWICK: This is an appeal against an order made on 6th March 2000 by His Honour Judge Cox, sitting at Lambeth County Court, in proceedings brought by Miss Carol Grossman against the appellant, Mr Simon Hooper, to enforce an agreement made in December 1996 for the transfer to Miss Grossman of the appellant's interest in a property known as 77d Nightingale Lane, London SW12. The issue on the appeal is whether the agreement satisfied the requirements of section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. The section is in these terms:

"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."

3. The underlying facts may be stated shortly. The parties had lived together as man and wife for a number of years. The property, 77d Nightingale Lane, was purchased in or about February 1986 in the sole name of the appellant, Mr Hooper. The purchase was funded with the assistance of a mortgage loan. The respondent, Miss Grossman, was jointly liable as borrower under the mortgage; and, it is said, she made some further contribution to the purchase price. It has not been disputed that she became beneficially entitled to a share in the property.
4. The parties lived together at the property for ten years or more. But, in or about July 1996, their relationship foundered. The appellant moved out of the property and went to live elsewhere. The respondent continued to occupy 77d Nightingale Lane. After some months they reached agreement as to what was to be done with that property. The agreement is set out in a document which they both signed, in the presence of a witness, on 23rd December 1996. That document takes the form of a letter from the appellant to the respondent. The letter bears the date of earlier drafts, 21st December 1996, and is in these terms:

"Dear Carol

Re 77d Nightingale Lane, London SW 12 8LY

Further to our discussions, I confirm that I agree to the transfer of the above mentioned property from my name into your name.

In consideration of this agreement, we have agreed that you, Carol, will be responsible for payments of the two charges secured against the property and for the mortgage.

I confirm that I will do all that is necessary to effect the transfer of the property into your sole name including co-operating in the deed of transfer.

I understand that you may need the consent of Bank of Ireland Home Mortgages Ltd and Barclays Bank plc to this transaction. I confirm that I will use my best endeavours to secure their agreement.

By this letter I give my authority to the bank of Ireland to send the title deeds to your solicitors [naming them], in order for them to prepare the necessary paperwork.

I confirm that upon the transfer this will represent full and final settlement of all claims that we may have as against each other now or in the future."

5. The appellant has done nothing to transfer the property to the respondent. It appears that he has had second thoughts about the bargain which they had made in December 1996.
6. These proceedings were commenced on 19th March 1998 by the issue of a writ in the Chancery Division of the High Court. In the statement of claim endorsed on the writ, Miss Grossman sought specific performance of the appellant's undertaking, contained in the letter dated 21st December 1996 to which I have just referred, to transfer the property, 77d Nightingale Lane, into her name.
7. A defence to that claim was served on or about 28th April 1998. It contains the assertions that if (which was not admitted) the letter of 21st December 1996 constituted or evidenced a contract between the parties, the appellant entered into that contract as a result of duress or undue influence exercised by the respondent; alternatively, as a result of misrepresentations as to the respondent's future intentions which were false. Those allegations were dismissed by the judge; they are not pursued on this appeal; and it is unnecessary to say any more about them.
8. The proceedings were transferred to the Lambeth County Court. An amended defence was served on or about 3rd August 1999. That raised a new point, pleaded by amendment as paragraph 7A:

"The letter dated 21 December 1996 purports to constitute an agreement in the form of a contract for the disposition of an interest in land, namely the Defendant's interest in the property. In the premises of paragraph 10 below, the said agreement contained further express terms which were not incorporated into the said letter. In the premises of the foregoing, the letter does not incorporate all of the terms expressly agreed by the parties in the form required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 and any contract contained or purported to be contained therein is unenforceable."

9. Paragraph 10 of the amended defence (to which reference is made in paragraph 7A) contains the alleged representations as to the respondent's future intentions. There were said to be three representations: (a) that the respondent would pay off a debt owed to Mr V K Modi, in the sum of £10,000; (b) that the respondent would help the appellant to fund the purchase of a freehold flat by the appellant's brother, by providing £36,000 towards the purchase price; and (c) that the respondent would look after the appellant's elderly mother and, in particular, would be responsible for her private medical expenses.
10. The judge rejected the appellant's case as to the second and third of those alleged representations. There is no appeal against his findings of fact on those issues. There was never any dispute, in substance, that the respondent was to pay off the debt to Mr Modi. In her reply, served on 12th May 1998, the respondent had pleaded, in response to paragraph 10(a) of the defence:

"It is admitted that the Plaintiff told the Defendant that if he signed the letter [of 21st December 1996] she would pay off the sum of £10,000 to Mr Modi, but it was further agreed that the said debt would be paid by the Plaintiff out of the proceeds of sale of the property when she sold it."

11. The judge made the following findings of fact as to the arrangements for repayment of the loan from Mr Modi, at pages 15 and 16 in the transcript of his judgment:

"At the time of Mr Hooper's acute financial embarrassment in the early 1990s the mortgage on the property fell seriously into arrears. On any account of it, a large sum of money, some £10,000 or thereabouts was advanced - whether to Miss Grossman, or to Mr Hooper or to both of them I shall have more to say in a moment - by a Mr Modai. That money was not charged on the property. It was a loan of funds designed specifically to enable Mr Hooper and Miss Grossman to discharge a debt in respect of mortgage arrears on the property.

It was never in doubt that that money would have to be repaid. At the time that the agreement was made, on the 21st December, the parties were, I am quite convinced, in agreement that the discharge of that obligation was to be affected by Miss Grossman."

12. The judge observed that the question which he had to decide was whether the obligation to discharge the debt was a term of the agreement for the transfer of the appellant's interest in the property – in which case it should have been incorporated in the document signed by the parties, in order to comply with section 2 of the 1989 Act - or whether it was some collateral arrangement. He went on:

"Mr Hooper asserts that the money was advanced essentially to him. It was advanced to him because he was the legal owner of the property. He it was who was therefore in default under the terms of the mortgage. He it was who was the beneficiary of the advance made by Mr Modai. Against this Miss Grossman asserts that Mr Modai was her friend, rather than Mr Hooper's; that the advance was made out of concern for her situation on the part of Mr Modai, and that, when the money was paid, it was paid into her bank account."

13. The judge pointed out that the signed letter of 21 December 1996 followed two earlier drafts. The second of those earlier drafts, also in the form of a letter dated 21 December 1996 from the appellant to the respondent, contained two further paragraphs in addition to those in the letter as signed. The first of those paragraphs was in these terms:

"Since this transfer represents the assigning to you of in excess of £30,000 of equity, I confirm that I understand that courtesy of this transaction, you will assume responsibility for our loan from V K Modi and that you will advise him of this accordingly in due course."

14. A paragraph to the same effect – although in a different form – had appeared in the first draft, which had been prepared as a letter from the respondent to the appellant. As the judge said:

"One also needs to look at the fact that reference to this particular advance is made in at least the second of the three documents which form part of the final agreement. However, it was specifically excluded from the final agreement.... I must assume that it was dispensed with by consent."

15. The judge reminded himself of the observations of Scott LJ, in this court, in Tootal Clothing Ltd v Guinea Properties Ltd [1992] 2 EGLR 80 at page 81J-K:

"If parties choose to hive off part of their composite bargain into a separate contract distinct from the written land contract that incorporates the rest of the terms, I can see nothing in section 2 that provides an answer to an action for the enforcement of the land contract, on the one hand, or of the separate contact, on the other hand. Each has become, by the contractual choice of the parties, a separate contract."

16. The judge expressed his conclusion in the following terms:

"It seems to me there are lots of indications as to why it should be that the Modai transaction, if I may so describe it, was a separate contract, not the least that it was not a charge or encumbrance on the property, which was the subject matter of the agreement, but was a wholly different transaction which consisted of the loan of money, the effect of which was to make the holding of the property at that time marginally more secure. It was an obligation which Miss Grossman always accepted was primarily hers. In my judgment, the omission of reference to that particular transaction in the [signed] contract... is not such as to vitiate that contract under the terms of section 2 of the Act. In my judgment it was a wholly collateral transaction."

17. In the light of the findings which he had made, the judge held that the respondent's claim, based as it was on the signed letter of 21 December 1996, was entitled to succeed. He ordered the appellant to transfer the property to the respondent forthwith; but stayed that order for 28 days. He refused permission to appeal. Permission to appeal, and a further stay of the order pending appeal, was granted by this Court (Sir Anthony McCowan) on 17 May 2000.
18. The only ground advanced in the notice of appeal is that the judge was wrong to hold that what is described as the admitted agreement between the parties that the loan to the appellant from Mr Modi would be repaid by the respondent upon transfer of the property to her was a collateral agreement rather than a term of the principal agreement between the parties. If he were wrong in that finding of fact, then it is, I think, not seriously disputed that he would have been wrong, also, to hold that the requirements of section 2 of the 1989 Act were satisfied in respect of the agreement for the transfer of the property which the respondent was seeking to enforce.
19. I do not, myself, find it helpful to ask whether the arrangement between the appellant and the respondent in relation to the discharge of the Modi loan was to be described as a collateral agreement. The correct starting point, as it seems to me, is to examine the words used in section 2 of the 1989 Act. Subsection (1) requires that "all the terms which the parties have expressly agreed" must be incorporated in one document - or, where contracts are exchanged, in each of the documents exchanged. In that context, "the terms which the parties have expressly agreed" means the terms (so far as they are not to be implied) upon which the parties to the sale or other disposition have agreed that the relevant interest in land shall be sold or otherwise disposed of. The words do not refer to terms upon which the parties have agreed (albeit contemporaneously) that some other transaction should be entered. Subsection (2) provides that a term may be incorporated in a document either by being set out in it or by reference to some other document. That has no relevance to the present case. Subsection (3) requires that the document incorporating the terms – or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) – must be signed by or on behalf of each party to the contract. In the present case both parties signed the letter of 21 December 1996.
20. The relevant inquiry, therefore, is (i) upon what terms did the parties agree that the land (or interest in land) was to be sold, and (ii) are all those terms incorporated in the document which the parties have signed. Or, to elide the two stages of the enquiry: did the terms upon which the parties agreed that the land was to be sold include a term (or terms) which have not been incorporated in the document which they have signed?
21. The point can be illustrated by an example. Suppose that A wishes to purchase a house from B; and wishes, also, to purchase the carpets and curtains that are in the house. Before anything is put in writing A and B negotiate a price for the house, say £500,000, and a separate price for the carpets and curtains, say £50,000. But the negotiation for the sale of the house is made subject to contract; and it is implicit neither A nor B intends to become bound to a purchase and sale of the carpets and curtains (if at all) until after the terms for the sale of the house have been put in writing and signed. A contract for the sale of the house at a price of £500,000 is drawn up and is signed by both A and B. The document contains no reference to the sale of carpets or curtains. The question, in such a case, in the context of section 2(1) of the 1989 Act, is whether it was a term of the contract for the sale of the house that A would purchase and B would sell the carpets and curtains. That is a question of fact in each case. It would have been open to A and B to agree that the sale of the house was independent of any sale of the carpets and curtains; so that A was to buy the house whether or not he bought the carpets and curtains as well. It would, equally, have been open to A and B to agree that the sale of the house was conditional upon a sale of the carpets and curtains; so that A would not be obliged to buy the house, nor B to sell it, unless the carpets and curtains were sold also. In the first case, the requirements of section 2(1) of the 1989 Act would be satisfied; in the second case those requirements would not be satisfied. The requirements would not be satisfied in the second case because, upon a true understanding of the bargain between the parties, it was a term of the contract for the sale of the house that A would purchase and B would sell the carpets and curtains; and that term was not incorporated in the document signed by the parties.
22. The question of fact, in such a case, is not answered by asking whether the agreement to sell the carpets and curtains was "a collateral contract"; unless, by that term, it is intended to refer only to a contract the existence, or nonexistence of which has no effect upon the efficacy of the principal contract. Nor, it may be noted, is that question answered by asking whether or not the contract for the sale of the carpets and curtains is conditional upon the sale of the house. It is obvious that (save in the most exceptional circumstances) if a contract for the sale of the carpets and curtains has been made in advance of the contract for the sale of the house, it will be conditional upon the sale of the house. The question is whether the contract for the sale of the house is conditional upon the sale of the carpets and curtains.
23. In the present case, therefore, the relevant question is whether the respondent's undertaking to discharge the Modi loan was a term of the sale by the appellant to the respondent of his interest in 77d Nightingale Lane. The judge held that it was not. In my view he was entitled to reach that conclusion. There are three factors which lead me to take that view.
24. First, it seems to me that there was always a real doubt between the parties as to whether the liability to Mr Modi was a liability for which, as between the appellant and the respondent, the appellant was responsible at all. The judge found (in the passage to which I have already referred) that the obligation to repay Mr Modi was an obligation which the respondent had always accepted was primarily hers. That understanding was consistent with an arrangement that, whether or not the appellant and the respondent were jointly liable to Mr Modi, it would be the respondent and not the appellant who would actually bear the responsibility for the discharge of the loan. That that was the appellant's understanding also, from an early stage, appears from material which was before the judge but upon which he made no finding.
25. The material is contained in proposals put by Mr Hooper to his creditors in the context of an individual voluntary arrangement at a meeting on 13 September 1990. The judge refers to the point obliquely by his reference to Mr Hooper's "acute financial embarrassment in the early 1990s." In his proposals to creditors the appellant confirmed (as would be usual):

"I have no other creditors which are to be excluded from the arrangement."

26. The creditors which are to be excluded, as appears from the proposals, are P Hooper, S Grossman and C Grossman. They do not include Mr Modi. On the face of the proposals, therefore, Mr Hooper was either telling his creditors that Mr Modi's debt was included in the arrangement which he was proposing – in which case, once the arrangements had been accepted the debt would not be enforceable against him by Mr Modi for so long as the arrangement continued - or he was asserting, in effect, that Mr Modi was not a creditor of his. In either case, a contention that in and after 1996 he was primarily responsible himself for the discharge of Mr Modi's debt, subject to the undertaking by the respondent on 21st December 1996, cannot be maintained. The true position, as it seems to me, is that, throughout, both parties thought that the respondent was the person primarily responsible for that debt.
27. Secondly, the obligation to Mr Modi was deliberately left out of the text of the letter of 21 December 1996 as signed on 23 December 1996. This is not a case where a term has been omitted by accident. The appellant, who himself prepared the document in the form in which it was actually signed, chose to leave out a paragraph which had been in an earlier draft. Some explanation for the deliberate omission of the paragraph is required. The most obvious explanation is that Mr Hooper took the view that the discharge of Mr Modi's loan was not a term of the bargain upon which the property was to be transferred by Mr Hooper to Miss Grossman.
28. Thirdly, for Mr Hooper to take that view seems to me wholly consistent with the position that Miss Grossman was always willing to acknowledge the obligation on herself to discharge that debt to the exoneration of Mr Hooper. Her primary liability to discharge that debt was not an issue between the parties; and there was no need to make it a term of the bargain. Her pleaded case, to which I have referred, seems to me to be no more than an acknowledgement that the parties discussed the machinery by which the debt would be paid; namely that in the circumstances that neither party had £10,000 in hand, the debt would be paid out of the proceeds of the sale of the property which was to be transferred to her and which (at that stage) it was contemplated that she would sell.
29. For those reasons, if not for the reasons which the judge himself gave, I am satisfied that he was entitled to reach the conclusion which he did reach; namely that, as a matter of fact, the undertaking of the respondent to discharge the Modi debt was not a term of the agreement under which the appellant was to transfer to the respondent his interest in 77d Nightingale Lane.
30. I would dismiss this appeal.
31. SIR CHRISTOPHER STAUGHTON: The judge said of the Modi loan:

"It was never in doubt that that money would have to be repaid. At the time that the agreement was made, on the 21st December, the parties were, I am quite convinced, in agreement that the discharge of that obligation was to be effected by Miss Grossman."

32. It may be that he was finding that there were two contracts. He said:

"It seems to me there are lots of indications as to why it should be that the Modai transaction, if I may so describe it, was a separate contract, not the least that it was not a charge or encumbrance on the property, which was the subject matter of the agreement, but was a wholly different transaction... In my judgment, it was a wholly collateral transaction."

33. So he may have been finding a collateral contract for the payment to Mr Modi. I do not find that reasoning too plausible. The notion of a collateral contract is elusive, since there is no means ready to hand for ascertaining its existence as opposed to a composite contract.
34. Scott LJ said in the case of Tootal Clothing Ltd v Guinea Properties Management Ltd [1992] 2 EGLR at page 81:

"If parties choose to hive off part of the terms of their composite value into a separate contract distinct from the written land contract that incorporates the rest of the terms I could see nothing in section 2 that provides an answer to an action for enforcement to the land contract on the one hand, or of the separate contract on the other hand. Each has become by the contractual choice of the parties a separate contract."

35. I am by no means sure of that. If the parties are allowed by a simple device to avoid the effects of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, what was the point of Parliament enacting it? Simon Brown LJ evidently took a different view in the case of Godden v Merthyr Tydfil Housing Association [1997] 74 P&CR page D1. He said at D2:

"... 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."

36. So if there was a term in the contractual agreement that Miss Grossman would pay off Mr Modi, and if that was part and parcel of an agreement for the transfer of property, I am by no means sure that it can be hived off, as Scott LJ put it, into a separate contract.
37. But in the event it is unnecessary in this case for Miss Grossman to establish a collateral contract. There was in my judgment no term of any contract whether integral or collateral, that she should pay off Mr Modi. That was simply a matter of concurrence common to them both. They were in agreement that it would happen, as appears from the passage in the judgment which I first cited. There was no need for any contractual term about it and no such term was created.
38. For that reason I would dismiss the appeal.
39. LORD JUSTICE SCHIEMANN:I also agree that this appeal should be dismissed for the reasons set out in Chadwick LJ's judgment and in Sir Christopher's judgment. I have not found it necessary to reach a concluded view on the other matters discussed in Sir Christopher's judgment, which he describes as ones we do not need to resolve.
(Appeal dismissed; costs in favour of the respondent to be subject to detailed legal aid assessment).