England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ROMFORD COUNTY COURT
MR RECORDER SALTER QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		29th March 2004

Lord Justice Waller:

Introduction

1. This appeal from a decision of Mr Recorder Salter QC, dated 14^th August 2003, raises a point on Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Is an oral compromise of disputes between the appellant and the respondents, a term of which required the appellant to "sell" a property at the best price available, a contract for the sale or other disposition of an interest in land? If so, (as the appellant contends) contrary to the view of the Recorder, it would be unenforceable.

The Facts

2. The Recorder resolved many issues of fact in a case in which it was difficult to trust the evidence of either side. His findings of fact are not however the subject of appeal and can be set out quite shortly. In December 2000 the respondents (the Nwezes) agreed to sell 31 Benares Road, Plumstead, London SE18 to their cousin the appellant (Mr Nwoko). The price agreed orally was £135,000, but the contract in writing showed £105,000. On 5^th April 2001 the Nwezes wrote to Mr Nwoko accepting that he should pay on completion £100,000, borrowed by virtue of a mortgage with the Halifax Building Society, and the balance, plus certain expenses within 6 months. The Nwezes also offered to lend the 5% deposit.
3. Contracts were exchanged on 25^th April 2001 showing £105,000 as the purchase price, that price being shown as the Recorder found, falsely and almost certainly to deceive those responsible for collecting stamp duty. £5,250 was paid as a deposit, that sum being borrowed from the Nwezes.
4. Completion took place on 1^st May, at which time £99,750 borrowed from Halifax Plc (the Halifax) was paid by Mr Nwoko, which, together with the £5,250 made £105,000. The Nwezes then pressed for the balance of £30,000 plus repayment of the deposit lent and other expenses all totalling £37,091.26.
5. Mr Nwoko paid on 15^th March 2002 £15,000, again borrowed from the Halifax. He paid a further £10,000 on 7^th May 2002, and on the same day provided two post-dated cheques totalling £5,000.
6. This was not satisfactory to the Nwezes, and a meeting was held on 19^th May 2002 to resolve the dispute between the parties as to payment for the property. That resulted in a further agreement being reached orally in full and final settlement that:

i) the property would be sold with vacant possession at the best price available;

ii) after the discharge of the mortgage to the Halifax, the net proceeds would be paid to the Nwezes;

iii) the sum of £10,000 paid by Mr Nwoko on 5^th May 2002 would be repaid to Mr Nwoko;

iv) The two post-dated cheques would be returned.

7. On 21^st June 2002 the £10,000 was repaid to Mr Nwoko, and the post-dated cheques were also returned. The Nwezes instructed estate agents to put the property on the market.
8. In July 2002 Mr Nwoko made clear he was not going to proceed with the sale of the property and withdrew authority from the estate agents.
9. On 13^th September 2002 proceedings were launched by the Nwezes. Those proceedings sought to enforce the original sale agreement to Mr Nwoko by reference to the orally agreed price of £135,000. It was not until the second day of the trial that the Nwezes sought in the alternative to enforce the compromise agreement.
10. The Recorder held that the Nwezes could not enforce the original oral agreement by virtue of Section 2, but held that the oral compromise agreement was not caught by Section 2. He so held in these terms:

"However, the May compromise is not a contract for the sale or other disposition of an interest in land. Its terms are sufficiently certain to be enforceable, and the parties' compromise of their differences and surrender of their pre-existing rights and obligations means that the compromise is supported by consideration. Although, in one sense, it was a family arrangement, I have no doubt that the parties intended it to be binding and to affect their legal rights. Mr Mathias-Nwalune, who appeared for the defendant, has not sought to argue that if, contrary to his submissions, I found as a fact that the May compromise had been made, I should not enforce it by an order for specific performance. Although the property is tenanted, it is tenanted under an assured shorthold tenancy that can be brought to an end by service of a notice within a very short period. In my judgment therefore, the claimants are entitled to an order for specific performance of the May compromise."

11. The order for specific performance of the compromise reflecting the Recorder's ruling was made in these terms:

"The oral agreement made on 19 May 2002 referred to in the Amended Particulars of Claim (whereby, in compromise of the dispute between the parties, the Defendant agreed to sell the property situate at and known as 31 Benares Road, Plumstead, London SE18 1HZ with vacant possession for the best price reasonable obtainable and to pay the net proceeds of sale, after discharge of the legal charge in favour of Halifax Plc and the reasonable costs and expenses of such sale, to the Claimants) shall be specifically performed and carried into execution.

The hearing of all further issues as to the implementation of this Order (including any issues as to the mechanics of the sale and all questions of damages) shall be adjourned generally, with permission to either party to apply, in order to permit the parties to mediate or otherwise to settle their disputes. The Claimants' solicitors shall inform the Court promptly of any settlement. If no settlement has been achieved by 14 November 2003, the Claimants solicitors shall in any event forthwith take steps to restore this action for further hearing on notice to the Defendant."

12. Jonathan Parker LJ gave permission to appeal, limited to the question whether the oral compromise was a contract for the sale of land or other disposition of an interest in land within Section 2.
13. The Nwezes, through Miss Asplin QC, sought to uphold the Recorder's ruling on Section 2 but in the alternative submitted that having regard to the fact that £10,000 was repaid and the post-dated cheques returned, either a constructive trust had been imposed over the equity in the property, or an order for restitution of the £10,000 and the £5,000 should be made. During the hearing Mr Harper QC for Mr Nwoko accepted that if his appeal succeeded, Mr Nwoko would be bound to return the £10,000 and pay the £5,000, the subject of the post-dated cheques. On that basis, Miss Asplin accepted that if the Nwezes lost the appeal, since her case for restitution had been accepted, her arguments on constructive trust would not run. That, accordingly, left as the only point whether the Recorder was right to hold that the oral compromise was not within Section 2.

The Law

14. Section 2 provides as follows:

"(1) 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.

(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.

(3) 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.

(4) Where a contract for the sale or other disposition of an interest in land satisfies the conditions of this section by reason only of the rectification of one or more documents in pursuance of an order of a court, the contract shall come into being, or be deemed to have come into being, at such time as may be specified in the order.

(5) This section does not apply in relation to -

(a) a contract to grant such a lease as is mentioned in section 54(2) of the Law of property Act 1925 (short leases);

(b) a contract made in the course of a public auction; or

[(c) a contract regulated under the Financial Services and Markets Act 2000, other than a regulated mortgage contract;]

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

(6) In this section -

"disposition" has the same meaning as the Law of Property Act 1925; "interest in land" means any estate, interest or charge in or over land …..

(7) Nothing in this section shall apply in relation to contracts made before this section comes into force.

(8) Section 40 of the Law of Property Act 1925 (which is superseded by this section) shall cease to have effect."

15. By Section 205(ii) of the Law of Property Act 1925 "disposition" includes a conveyance and also a devise, bequest, or an appointment of property contained in a will.

The Issue

16. What is the true nature of the compromise agreement? Is it a contract for the sale or other disposition of an interest in land? Without assistance for the moment from authority and simply on the language of Section 2 and the nature of the compromise, I would take the following view:

i) Section 2 would appear to be concerned with a contract under which an interest in land is actually sold or an actual disposition of land i.e. with a contract under which there is a vendor on the one side and a purchaser on the other, and with the terms of that sale or a disposition under which A disposes of the land or interest in favour of B, and with the terms of that disposition.

ii) The true nature of the compromise as found by the Recorder seems to be one under which (1) certain moneys were returned to Mr Nwoko; (2) it was a condition that he was obliged to put the property on the market; (3) a condition that if a buyer was found, he was obliged then to enter into a contract to sell the property; and (4) that he should account for the proceeds of sale to the Nwezes after payment off of the sums borrowed from the Halifax Building Society.

iii) Such an agreement accordingly seems not to be a contract for the sale of the property nor a contract for the disposition of any interest in the property between Mr Nwoko and the Nwezes.

iv) Furthermore (if it be relevant) it was not a contract for the sale of the property or perhaps more relevantly, for the disposition of any interest in the property to any third party; it was simply a contract under which Mr Nwoko was obliged to enter into such a contract if a buyer was found.

17. Mr Harper on behalf of Mr Nwoko would attack various aspects of the above. He submitted first that it was not right that the language of the Section demonstrates that it is only concerned with contracts under which land is actually sold by A to B, or interests in land are actually disposed of by A to B. He submits that a contract under which A agrees with B to sell to C (a third party) or to dispose of an interest in land to C (a third party) is just as much within the language of the Section. Even if an agreement between A and B that B should sell to C might arguably not be a contract "for the sale" of land, he would say that it is difficult to see why it is not a contract for the disposition of an interest in land.
18. He would further rely on the terms of the order made following the Recorder's judgment by which an order for specific performance was made for the performance of Mr Nwoko's agreement "to sell the property … with vacant possession for the best price reasonably obtainable and to pay the net proceeds of sale etc…". What he submitted, could be a clearer indication that what the Court was concerned with was a contract for sale of land or for the disposition of an interest in land?
19. He furthermore relied on the reasoning of a decision of Mr David Mackie QC sitting as a Deputy High Court Judge in Jelson Ltd v Derby County Council [1999] 39 EG 149. That case was concerned with the application of Section 2(3) and the absence of a signature. The Deputy Judge described the relevant term of a Section 106 agreement in the following way:

"By clause 9, headed "affordable housing", Jelson agrees with Derby that no development will commence until it has allocated on a plan 0.4ha for an affordable-housing site. Clause 9.3 permits the owner to require the size and area to be reduced, where the requirements for clause 12.1.1 have been met. By 9.5, the owner is obliged to transfer the affordable-housing site to a housing association nominated by the council, and to do so at a discounted price to be calculated on the basis set out in the Fourth Schedule and on the other terms and conditions set out in the First Schedule, which is headed "General Terms and Conditions for Sale of affordable housing Site." If the discounted price in the Fourth Schedule cannot be agreed, there is a valuation provision in the Fifth Schedule. Under clause 10, the council must nominate the housing association not before the end of one year but within four years of the date on which development starts, and the transfer notice must be given within two years of the housing association being nominated."

20. The contract was signed by Jelson and the local authority, the contracting parties, but not by any housing association. The point taken was that by virtue of Section 2(3) the absence of that signature rendered the contract unenforceable. The Deputy Judge reasoned as follows:

"Parliament intended to introduce new and strict requirements as to the formalities to be observed for the creation of a valid disposition of an interest in land: see the observations of Neill LJ in McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 at p44G. In my judgment, clauses 9-12 contain, in effect, an option for the council to nominate a housing association to which Jelson is required to convey land at a price and on conditions, based on the Standard Conditions of Sale (3^rd ed), to be set by the schedules to the agreement. Upon nomination, Jelson can be required, without more, to sell an interest in land to another party. That is an obligation that the section requires to be in writing and signed by the parties if it is to have legal effect. Section 2 must bite at the point where a party can be compelled, in certain circumstances, which may or may not come about, to sell or dispose of an interest in land.

It is true that the Jelson agreement is not a contract for the disposition of an interest in land made between seller and eventual purchaser, and it is therefore unsurprising that there is, and can be, no purchaser's signature. In that sense, there is an absence of agreement between identified parties, which Mr Howlett suggests is a prerequisite for a contract for the sale of land. But, if Jelson starts to develop the land and Derby nominate an association, there will be, on the face of it, a binding obligation on Jelson to dispose of an interest in land to the association. In view of the intention of parliament, it would be odd if Jelson could be compelled to dispose of an interest in land without the signature of a purchaser who has not yet been identified, but not obliged to dispose of land if the purchaser had been identified and joined as a party but also had not signed. The test seems to me to be this. Are there conditions under which Jelson can be compelled to dispose of an interest in land under this agreement? If the answer is yes, then section 2 must be complied with. Here, once Jelson starts to develop it may be required by Derby to transfer this interest in land to an association on the terms set out in the schedules. Since the relevant parts of the Jelson agreement do , but for the section, commit Jelson to convey the property, they are of no effect, as they lack the signature of the purchaser."

21. On that reasoning the Deputy Judge held that the absence of the Housing Association's signature rendered the contract unenforceable by virtue of Section 2(3). In Emmet and Farrand on Title 19^th edition, paragraph 2.047 it is pointed out that, so far as signature is concerned, it is only the signature of the contracting parties that is required, and that seems to be a valid criticism of the actual decision, but the reasoning of the Deputy Judge could be said to go some way to supporting Mr Harper's submissions.
22. If the applicability of Section 2 is to be tested simply by posing the question whether Mr Nwoko could be compelled under the compromise agreement to sell the property and dispose of an interest in the property, Mr Harper would appear to have support for his argument, having regard to the form of order that the Recorder made following his judgment.
23. Mr Harper also drew our attention to the Law Commission Report "Formalities for Contracts for Sale etc of Land" No 164 which provides the background against which Section 2 was enacted. He particularly drew our attention to the paragraphs identifying the mischief at which a provision requiring writing for contracts relating to land was aimed. Those paragraphs, 2.7-2.9, justify the requirement for writing by the need (1) for certainty; (2) to prevent fraud; and (3) the need to protect the consumer, providing him with the time to reflect and take advice. Mr Harper submitted that the circumstances of the instant case, where a family dispute leads to an oral agreement under which one member agrees to sell a property, were precisely those at which the Section was aimed. These are powerful submissions and I will deal with them separately.
24. First, as to the reasoning in Jelson, I do not think that the question posed in the Jelson case can be adapted, as Mr Harper would like, to the facts of the instant case. It may be that in a situation such as existed in the Jelson case where A and B (the local authority) made a contract under which, B can call for property to be transferred to a nominated buyer C (its housing association) on terms provided for in the schedule to the contract, that would be a contract to which Section 2 would apply, because it is a contract for the sale or disposition of an interest in land rather as an option to purchase is such a contract. (See Halsbury's Laws 4^th edition, reissue, Vol 42, paragraph 30). But the important point is that the "interest in land" is the actual subject of the contract or disposition.
25. As regards the Law Commission Report, it seems to me that a full reading of the report provides more support for the submissions of Miss Asplin, than for those of Mr Harper. The report is clearly concerned with contracts or dispositions under which land or an interest in land is actually sold or disposed of.
26. Under the oral compromise, without the marketing of the property there can be no sale of disposition, and it would simply be a misuse of language in my view to say that the compromise is a contract for sale or disposition of an interest in land. There were moments during his argument when Mr Harper came close to suggesting that the compromise provided the Nwezes with an interest in the land, because Mr Nwoko, by the compromise, effectively handed over to them the power to put the property on the market. That is to use the word "interest" in a loose sense, and not in the sense of a legal or equitable interest the subject of Section 2(1). But for Mr Nwoko to succeed on this appeal he would, in my judgment, have to demonstrate that under the compromise the Nwezes were intended to gain an interest in the legal or equitable sense. So far as the order of the Recorder is concerned, the word "sell" is used loosely, but in any event it cannot alter the effect of the compromise agreement.
27. I would dismiss the appeal.

Lord Justice Sedley

28. I agree that this appeal fails.
29. The word 'for' in the expression "a contract for the sale … of an interest in land" is capable, as a matter of language, of meaning one of at least two things. It may mean a contract which is to result in such a sale; or it may mean a contract by which such a sale is effected. Mr Harper contends for the first meaning, Miss Asplin for the second.
30. The words have been on the statute book since the enactment of s.40 of the Law of Property Act 1925. Until then, provision to the same end was made by the Statute of Frauds 1677, which by s.4 provided that

"no action shall be brought … upon any contract or sale of lands, tenements or hereditaments, or any interest in or concerning them … unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith …"

31. The statute, with its heterogeneous list of contracts which were to be unenforceable if not in writing, itself became a proverbial engine of fraud. There is no authority that we have been shown to suggest that it governed contracts which did not effect but were only to result in one of the listed transactions, and good reason to think that Parliament is unlikely in 1925 to have intended to enlarge its ambit in relation to sales and other dispositions of land. Both the contemporary and the historical evidence points to the narrower meaning as the correct one. A requirement for writing in a legal system which ordinarily recognises parol contracts as valid and enforceable is an exception to a rule and as such should be construed no more widely than is necessary.
32. I would not want to part from this case without expressing my appreciation of the recorder's judgment, in particular his carefully explained fact-finding, which has made our task much easier than it might have been.

Lord Justice Carnwath :

33. I agree that the appeal should be dismissed for the reasons given by Waller LJ. I am reinforced in that view by the fact that Mr Harper, in spite of his great experience in this field, has not been able to refer us to any authority under the 1989 Act or its predecessors, in which an arrangement in any way analogous to the present has been treated as a "contract for the sale of land".
34. I bear in mind the warning of Robert Walker LJ in (Yaxley v Gotts [2000] Ch 162, 171B) that s 2 of the 1989 Act represents "a radical change in the law". However the change relates to the substance of the law rather than its scope. The expression "a contract for the sale or other disposition of an interest in land" is clearly modelled on s 40 (1) of the Law of Property Act 1925. "any contract for the sale or disposition of land, or any interest in land...". There is nothing in the 1989 Act, or in the Law Commission report which preceded it (to which Waller LJ has referred), which suggests any intention to widen the category of transactions to which the special law was applicable. Furthermore, as Robert Walker LJ observed, s 40 of the 1925 Act "largely re-enacted" the relevant provisions of s 4 of the Statute of Frauds Act 1677.
35. If Mr Harper's proposition is correct, I would have expected to find at least some support for it over that 300-year history. The nearest case is the recent decision of David Mackie QC in Jelson Ltd v Derby County Council [1999] 39 EG 149. I agree with Waller LJ that the decision itself is open to question for the reasons he gives, but like him I think that the transaction is distinguishable on the facts.
36. I also agree with the judgment of Sedley LJ, including his comments on the judgment below.
Order: Appeal dismissed; permission to appeal to House of Lords refused; costs summarily assessed at £19,000 to be paid within 28 days. (Order does not form part of the approved judgment)