England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MS SARAH ASPLIN QC (sitting as a Deputy High Court Judge)
HC05C02617

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/01/2009

Lord Justice Mummery :

Introductory

1. This case of specific performance is rather unusual. Both sides want the court to make an order compelling performance of a contract made in 1999. Both sides assert and accept that there is a binding contract. It is a one page "Heads of Agreement" dated 29 September 1999 (the September Agreement) in which the parties agreed to be bound by annexed documents. They consisted of amended typed notes of a meeting between the parties on 13 September 1999, a page explaining the "equitable division" of land into 3 plots and a plan showing the location of the three plots. The Heads of Agreement recorded payment of two sums of £3,500 as consideration for the agreement. Although the vendors had applied on 12 April 1999, through their architect Mr Jeffrey Howard, for planning permission for a housing development on the 3 plots (1 house on each plot), no permission has ever been obtained by either side.
2. On 26 September 2005 the purchasers started proceedings for specific performance of the September Agreement with an abatement of the total purchase price of £300,000 to compensate for the vendors' inability to make good title to all the land and inability to grant drainage easements for the benefit of the land. The vendors' registered title does not include all the land agreed to be sold. The September Agreement was silent on title, easements, such as for the foul and surface water drainage from the plots, and much else besides. The purchasers' case for abatement necessarily rests on an implication of a legal obligation on the part of the vendors to make good title.
3. About a month before the September Agreement a solicitor (Mr Ramsay of Landons), from whom the purchasers sought legal advice, warned them in no uncertain terms against signing or exchanging a contract, pointing out that, without seeing the Land Registry entries affecting the property, they did not know what they were binding themselves to buy and whether there was good title to the whole of the site and that, as the site was landlocked, it was important that they received rights for access and other services. Further documents were obtained, including Land Registry entries and plans. There were meetings. There was some correspondence. The purchasers went ahead and entered into the September Agreement.
4. The vendors' response to the purchasers' proceedings included a counterclaim for specific performance at the contract price. This appeal is from an order made on 8 April 2008 granting a decree of specific performance to the vendors on their counterclaim. Ms Sarah Asplin QC (sitting as a Deputy High Court Judge) made the order after an 8 day trial in July 2007 and February 2008. As the trial was limited to liability, there has not been any decision whether the land is in fact worth less than the contract price. If it is, nobody was able to give the court any idea of how much less. That issue is to be determined in another instalment of these proceedings, if the purchasers succeed in their appeal and obtain a decree for specific performance with an abatement in the purchase price.
5. On 22 May 2008 Sir John Chadwick granted permission to appeal. He referred to the inherent improbability that the purchasers, as experienced property developers, agreed to purchase land which they knew the vendors did not own. I granted permission for a cross appeal by the first respondent on issues of constructive knowledge and payment of equitable interest on the contract price. The cross appeal would not lengthen the hearing estimated at one day.
6. By now the legal costs of the litigation have probably topped the contract price. The vendors' inability to make title to small bits of the land to which they do not have a registered title stems from problems which are, in practice, often dealt with, not by expensive High Court litigation, but by defective title indemnity insurance for a modest premium, lower than the escalating costs of litigation involving 3 counsel and 3 firms of solicitors. There was evidence of a quotation for a single premium of £3,500 obtained in January 2000 by the purchasers' solicitors from Countrywide Legal Indemnities Limited. The cover offered was in explicably conditional on the grant of planning permission and was not taken further as no planning permission has been obtained.

Further facts

7. The September Agreement was for the sale of 2 adjoining plots of undeveloped back land in Hendon (Plot A and Plot C, together called the Plots) to the rear of Alexandra Road (to the west), and Hillview Gardens (to the east). To the south the back land lies behind the public highway at Albert Road/Nora Gardens. Between the properties at 52 Albert Road and 1 Nora Gardens NW4 there runs a strip of land with walls and garden fences on each side. It is a potential means of access from the back land to the public road at the point where Albert Road and Nora Gardens meet. The strip is 3.9 metres wide at its widest point and 3.5 metres wide at its narrowest point. It has been called "the Access Strip" (or "the Access Road") in this litigation and appears to be marked on the contract plan as part of Plot A. The whole of the back land, the greater part of which is made up of three Plots Plot A, Plot B (which was not included in the sale) and Plot C, has been referred to in this action as "the Site."
8. The purchasers are Freddy and Mark Ezekiel. They are father and son. They are the claimants in the action and the appellants in this court. The vendors are David and Haim Kohali. They are brothers. They are the defendants in the action and the respondents in this court. Mr Alexander Marks was their solicitor.
9. The Kohalis have registered title (MX 478503, 163531 and 359542) to the greater part of the Site. The judgment below makes no reference to anyone else either being in occupation of or asserting a competing title to any other part of the Site. There is no reference to what, if any, inquiries have been made about the ownership of the bits of the back land which are not included in the Kohalis' registered title.
10. The total contract price was £300,000. Freddy Ezekiel agreed to buy Plot C for £140,000. Mark Ezekiel agreed to buy Plot A for £160,000.
11. The main issue at trial and on this appeal was whether, before entering the September Agreement, the Ezekiels knew the extent of the Kohalis' title to the Plots. The Deputy Judge found as a fact that the Ezekiels had actual knowledge of the extent of the Kohalis' title. She held that this rebutted an implied legal obligation to make good title on the sale of the Plots. The Ezeliels had no defence to a claim for specific performance at the agreed price and their claims for damages for oral misrepresentations as to title were dismissed, as there had been no reliance on such misrepresentations.
12. The Deputy Judge rejected the Kohalis' alternative contentions that constructive knowledge by the Ezekiels of the extent of their title was sufficient to excuse their implied vendors' obligation to make good title. The Deputy Judge did not find it necessary to decide the further question whether the Ezekiels had imputed knowledge via the solicitor, Mr Ramsay, from whom they had taken advice and through whom they had obtained the Land Registry entries and plans.
13. Other issues raised either in the Appeal Notice or by the first respondent's notice and in the second respondent's skeleton argument are whether there was an implied agreement for the grant of easements for services, whether the doctrine of clean hands bars the Ezekiels from claiming specific performance and whether the Kohalis are entitled to claim equitable interest on the balance of the purchase price payable under the September Agreement. As with most other things the September Agreement was silent on the payment of interest on the balance of the contract price.

Judgment

14. On particular issues the Deputy Judge said this:

(1) The Kohalis agreed to sell to Mark Ezekiel the whole of Plot A, which included the entirety of the Access Strip. The Kohalis do not have registered title to the entirety of Plot A.

(2) The Kohalis agreed to sell Plot C to Freddy Ezekiel with a vehicular right of way over the Access Strip for the benefit of Plot C. Although the Kohalis believed that they owned the entirety of the Access Strip, Plot C has no rights of way over the Access Strip or otherwise. The Kohalis were unable to grant such rights, as they did not own the whole width. What they did own was not wide enough for a car. As to easements for services, such as drainage, the September Agreement was silent. It was unnecessary to imply such an easement over the Access Strip from Albert Road in favour of Plot C. A further access was in the process of being acquired. The Ezekiels had obtained an option to purchase land to the north of the Site for alternative access. If it were necessary to imply a grant, the Kohalis' lack of title to land immediately north of the Access Strip would have prevented them from granting such easements.

(3) The Kohalis orally represented to the Ezekiels in the course of negotiations prior to the September Agreement that they owned all of the Site, including the whole of the Access Strip.

(4) The Ezekiels did not, however, rely on the Kohalis' representations when entering into the September Agreement. In view of the Ezekiels' actual knowledge of the extent of the Kohalis' title, there was no reliance by them on the representations of title.

(5) The Kohalis' implied obligation to show good title to all the land contracted to be sold was not negated by an express oral agreement alleged by the Kohalis to have been made between the parties in about July 1999 at Frognal that all that the Kohalis were able to sell was comprised in the three registered titles. The Deputy Judge found that no such agreement was made.

(6) That implied obligation was, however, negated by the Ezekiels' actual knowledge of the extent of the Kohalis' title before they entered into the September Agreement.

(7) That obligation would not be negated by the Ezekiels constructive knowledge of those matters, as constructive knowledge is insufficient in law to rebut the implied obligation to show good title.

(8) Specific performance should be ordered of the September Agreement without an abatement in the purchase price.

(9) The Deputy Judge declined to award any interest. There was no contractual provision for interest on the contract price. There was no judgment for damages on which statutory interest could be awarded. The claim for equitable interest was not pleaded, was discretionary and was rejected.

15. In the course of her careful judgment the Deputy Judge made detailed findings about the credibility of the witnesses. By reference to her findings of fact, the documentary evidence and the relevant legal principles she set out the reasons for her conclusions. The appellants' main challenge is to the finding that the Ezekiels had actual knowledge of the extent of the Kohalis' title to the Plots before the September Agreement.

Outline appellants' submissions

16. The central plank of the Ezekiels' case advanced by Mr Michell is quite simple. The registered title of the Kohalis did not include the entirety of the Plots which they had orally represented they had title to sell and which they contracted to sell. That breach of their implied obligation to make good title was both a ground for refusing specific performance at the contract price and for ordering it at a reduced price. The extent of the abatement should be determined on a separate inquiry. The Deputy Judge wrongly found what was inherently unlikely: that they had agreed to buy land which they actually knew was not owned by the sellers. Although it was also submitted that the Deputy Judge was wrong in refusing to imply an agreement for the grant of easements for drainage services over the Access Strip, this point was not included in the grounds of appeal for which permission was granted.
17. The Deputy Judge was, he said, right in law to reject constructive knowledge on the part of the Ezekiels as sufficient in law to negate the Kohalis' implied obligation to make good title to the Plots that they had agreed to sell.

Outline respondents' submissions

18. Mr Blaker, appearing for David Kohali, submitted that the Deputy Judge correctly refused to imply an obligation to grant easements for services over the Access Strip and that there was both direct and circumstantial evidence entitling the Deputy Judge to infer that the Ezekiels had actual knowledge of the extent of the Kohalis' title to the Site. He also argued that, in any event, the Ezekiels had constructive knowledge of the extent of the Kohalis title, which was sufficient in law to rebut the sellers' implied obligation to make good title.
19. Mr Lee, appearing for Haim Kohali, had additional points that the Ezekiels were disentitled to equitable relief by reason of unclean hands, having failed to disclose judgments in which they were parties, most of them involving the Royal Bank of Scotland and allegedly relevant to their ability to meet their obligations under the September Agreement. This was only discovered a week before the resumption of the trial in February 2008.The Ezekiels had also been guilty of delay in issuing the proceedings and had failed to disclose documents adverse to their case. It was, he said, a case for indemnity costs.

Discussion and conclusions

Actual knowledge

20. There is no dispute about the legal principles governing the case of a purchaser who has actual knowledge of the vendor's title before entering into an open contract. In the context of adducing evidence on an inquiry as to the vendor's title in a specific performance case Lord Finlay LC said in Mc Grory v. Alderdale Estate Co [1918] AC 503 at 508

" …if the contract is open, the obligation which the law would import into it to make a good title in every respect may be rebutted by proving that the purchaser entered into the contract with knowledge of certain defects in the title. The inference in such a case is that he was content to take a title less complete than that which the law would otherwise have given him by implication."

21. As Viscount Haldane explained at p 511, where the bargain for title is implied and not expressed, evidence can be

"…admitted to show that, in view of the knowledge of the parties prior to the contract, the usual implication to show a full title ought not to be made."

22. The position is different where the contract expressly provides for the vendor to make a good title. It is not then open for the vendor to prove that, at the time of the contract, the purchaser knew that the vendor had a defective title and that therefore a good title did not have to be shown by the vendor. That would go against the parol evidence rule that a written contract cannot be varied by oral evidence.
23. The Deputy Judge held that

"116. Overall, therefore, I am satisfied that it is more likely than not that Freddy and Mark were aware of the extent of the Kohalis' title before the September Agreement was executed."

24. In arriving at this conclusion the Deputy Judge made firm findings of fact about the Ezekiels, their experience in property matters, their credibility as witnesses, their pre-contract communications with the Kohalis and others, their pre-contract conduct and the evidence of the professional men - Mr Ramsay and Mr Marks (the solicitors) and Mr Howard (the architect)- about the part played by them in the transaction.
25. The findings in the judgment were criticised in detail by Mr Michell as being against the weight of the documentary and oral evidence. The starting point was naturally the strong proposition that it was inherently improbable that the Ezekiels would contract to buy land which they actually knew was not owned by the Kohalis.
26. Mr Michell referred to particular passages in the transcripts of his clients' oral evidence and to contemporaneous correspondence in order to make the point that the Deputy Judge, in relying on them to support her conclusions, had not correctly stated or understood the evidence. This was so, for example, with the Ezekiels' evidence about the detail in which and the purpose for which they had considered and looked at plans obtained from the Land Registry by Mr Ramsay. The Deputy Judge had wrongly criticised the Ezekiels for having given contradictory evidence without identifying what the evidence was and she was wrong in her reliance on demeanour as a guide to the reliability of their evidence.
27. Other matters had not been taken into account by her, in particular the Kohalis' continuing oral representations to the Ezekiels that they had registered title to the Plots. The Ezekiels had not challenged the misrepresentations, but would have done so had they known that the registered title did not cover both Plots. Mr Michell also pointed out that, after receiving Mr Ramsay's warning letter in August 1999, the Ezekiels had heeded his advice before entering into the September Agreement by obtaining Land Registry Entries and making inquiries. They gave evidence of their belief that, after the September Agreement, the solicitors would deal with title matters in the usual way before preparing a formal contract.
28. I must bear these criticisms in mind when considering the findings made by the Deputy Judge, who had the advantage, which this court does not have, of seeing and hearing the witnesses give their evidence in the course of an 8 day trial.
29. The Deputy Judge found that the Ezekiels were intelligent and astute men of business with experience in the purchase and development of land; that Freddy Ezekiel considered himself able to conclude any deal without the need for advice from solicitors; that he was the driving force in the Ezekiel family property business; that he took the leading role in relation to the purchase of the Plots; that he was the dominant personality to whom Mark Ezekiel deferred; that he was no stranger to litigation and that, in some respects, his evidence was evasive and unreliable and that, in some respects, the evidence of Mark Ezekiel was also unsatisfactory. It is true that the Deputy Judge also found that some aspects of the evidence of the Kohalis was unsatisfactory. Not surprisingly greater weight was given to the evidence of the professionals- Mr Ramsay, Mr Marks and Mr Howard- about the events leading up to the September Agreement.
30. Mr Ramsay had given a strong warning in his letter of 20 August 1999 to the Ezekiels against proceeding and advising them to check that the Kohalis were able to show good title to all the land they were selling. Mr Ramsay obtained the Land Registry entries for the three titles on behalf of the Ezekiels and faxed or posted them to them at the beginning of September. Mark said that he had seen the office copies. Freddy, who acknowledged that he had a marked plan from early on in the negotiations, said he may have seen them, but had taken them straight to Mr Howard, the architect involved in the application for planning permission.
31. The Deputy Judge did not accept the Ezekiels' evidence that they did not consider the plans in any detail. She thought that it was implausible and unreliable and noted that Mark had instructed Mr Ramsay to make further detailed inquiries of the Land Registry. She concluded that it was "very unlikely" that property developers with their experience would not have given due attention to the extent of the registered titles over the Access Strip, as revealed in the plans attached to the office copy entries. She found support for this conclusion in letters written by Freddy on 3 and 9 September 1999 to Mr Howard and to Mr Miller. The Deputy Judge also accepted the evidence of Mr Marks (the Kohalis' solicitor) that, at the meeting on 29 September 1999, his reply to the request to confirm the extent of the Kohalis' ownership was that they owned the three registered titles.
32. Although there is, in general, much to be said for the proposition that it was inherently improbable that the Ezekiels knowingly agreed to buy land to which the Kohalis were unable to make good title, the Deputy Judge tested the proposition against the oral and documentary evidence and was satisfied that they did actually know the extent of the Kohalis title to the Plots and proceeded to enter into the September Agreement. It must be borne in mind that the Kohalis could make good registered title to the majority of the Plots and that there was no documentary or oral evidence to indicate that anyone else was claiming, or disputing title to, the parts of the Plots that were not included in the registered titles.
33. The Deputy Judge had to reach a conclusion on the Ezekiels' state of knowledge in the light of the probabilities of the situation, and the conflicting oral and documentary evidence on the point. Although the Ezekiels made no relevant admission of actual knowledge, it was open to the Deputy Judge to make inferences of actual knowledge if such inferences were justified by all the relevant circumstances.
34. In my judgment, Mr Michell has not demonstrated to the court that the Deputy Judge's conclusion on the Ezekiels' actual state of knowledge as to the extent of the Kohalis title was wrong. There was ample evidence from which the Judge could reasonably and properly infer that, on the balance of probabilities, they actually knew of the extent of the Kohalis' registered title to the Plots, that the titles did not cover the entirety of the Plots and that there was no other documentary evidence to prove their title.
35. Although it was not directly put to the Ezekiels that they knew of the defect in the Kohalis' title, it was clearly put to Freddy Ezekiel that he could not care less about the plans or about title to the land because he saw a good deal. He insisted that he had the assurances of the Kohalis to title and it was for them to produce title. He was in fact more concerned to see whether there were any third party rights. He assumed that such parts of the Plots as were not within the registered title were acquired by the Kohalis in another manner.
36. In my judgment the Deputy Judge was entitled to reject the Ezekiels' evidence on this point and was justified in making the inference the they entered into the September Agreement knowing that the Kohalis' registered title did not include the entirety of either Plot A (with the Access Strip) or of Plot B.

Implied grant of easements for services

37. The September Agreement was silent on the issue. The Deputy Judge held that it was not an implied term of the September Agreement that Plot C would be conveyed with the benefit of easements of drainage through the Access Strip. This was not challenged in the grounds of appeal for which permission to appeal was granted. Even if it had been, I would have upheld the judge on this point. Although (a) it was stated in the Notes of Meeting annexed to the Heads of Agreement that there must be adequate rights of way and other easements in the deeds of Plots A and B to include necessary services, such as water and sewage; and (b) the 1999 planning application stated that drainage of the Site would be connected to the existing sewer at Albert Road, there were insufficient materials on which to make an implication in the September Agreement of the grant of services easements over the Access Strip.

Other points: constructive and imputed knowledge, clean hands and delay

38. It is unnecessary to deal with constructive and imputed knowledge, as we are upholding the Deputy Judge's finding of actual knowledge. The same applies to the points raised by Mr Lee for the second respondent on lack of clean hands and delay on the part of the Ezekiels.

Equitable interest

39. The pleaded counterclaim was for interest pursuant to section 35A of the Supreme Act. There was no pleading of a claim for equitable interest or interest pursuant to the inherent jurisdiction of the court. The claim should have been pleaded under CPR 16.4(2). Equitable interest was only claimed after the judgment had been handed down. The interest sought by the Kohalis is 8% pa on the balance of the purchase price from 1 January 2000 until judgment.
40. It was argued that the claim does not have to be specifically pleaded. If it did, permission should have been given to amend the pleading to claim interest of damages. Interest could be awarded when it was equitable to do so. It was equitable to award it in this case.
41. The Deputy Judge held that, had she given permission to plead equitable interest, she would not have exercised her discretion to award it. The Kohalis had been in possession of the land since the September Agreement and any interest would have been set off against their liability to pay an occupation rent or to give an account of rents and profits.
42. In my judgment, there was no error of principle in the Deputy Judge's exercise of her discretion. It cannot be said that it was plainly wrong to reject the claim for equitable interest to vendors who remained in occupation of the Plots and only sought specific performance of the September Agreement when it was sought to be enforced against them 6 years later.

Result

43. I would dismiss both the appeal and the cross appeal.

Lord Justice Wall:

44. I entirely agree, and cannot usefully add anything.

Lord Justice Stanley Burnton:

45. I agree. On the principal issue, namely the implied obligation of the Kohalis to confer a good marketable title to the land they agreed to sell, on the basis of the Deputy Judge's judgment, all parties to the contract of sale knew of the vendors' lack of title. The purchasers were expressly told by Mr Marks, the Kohalis' solicitor, at the meeting on 29 September 1999, that they only had the three registered titles, and the Deputy Judge held that the Ezekiels knew that the Kohalis' title was so restricted when they entered into the contract. This common knowledge is inconsistent with the implication of an obligation on the part of the vendors to confer a good title to what, as all parties knew, they did not own.