England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE (CHANCERY DIVISION)
HHJ McCAHILL QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		07/12/2016

Sir Terence Etherton MR, Lloyd Jones LJ and Arnold J:

Introduction

1. This is the judgment of the Court.
2. This is a dispute between former friends as to the effect of an oral agreement to purchase property comprising a building plot ("Plot 1") and a 10 acre meadow ("the Meadow"). Following that oral agreement, a written contract was concluded for Plot 1, but no such contract was concluded for the Meadow. His Honour Judge McCahill QC sitting as a Judge of the High Court held in a judgment delivered orally on 19 December 2013 that the agreement to sell the Meadow was enforceable through proprietary estoppel and constructive trust notwithstanding the absence of a written contract. Accordingly, he made an order on 18 February 2014 declaring that the Defendant (Matchmove) held the Meadow on trust for the Claimants (Mr Dowding and Ms Church) and ordering Matchmove to transfer the Meadow to Mr Dowding and Ms Church. Permission to appeal was refused by the judge and by McCombe LJ on paper, but at an oral hearing Vos LJ granted Matchmove permission to appeal on two grounds: first, that the judge was wrong to hold that the case fell within section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989 ("the 1989 Act"); and secondly, that the judge wrongly construed an express term of the contract for Plot 1, Special Condition 6, as not preventing Mr Dowding and Ms Church from relying upon the informal agreement with respect to the Meadow.

The facts in outline

3. There were a substantial number of issues at trial. As a result, the trial lasted 18 days, and the judge's very full and careful judgment (as subsequently perfected by him) runs to 442 paragraphs. Fortunately, the facts which are relevant to the arguments on the appeal can be shortly summarised, although we will need to set out certain of the judge's findings in more detail below.
4. Matchmove's moving spirit is Martin Francis. Mr Francis is a property developer who also dealt intermittently in cars. Mr Dowding is a builder turned car dealer. Ms Church has been Mr Dowding's partner for many years, and they have three children together. Mr Francis and Mr Dowding were friends from 1992 to 2007, when they fell out.
5. In 2002 Mr Francis began negotiations with a Mr Grist for the purchase of a plot of land ("the Land") and the Meadow, which lay to the rear of 49 Court Farm Road, Longwell Green, Bristol. Mr Francis' intention was to divide the Land into two plots, Plot 1 and a second plot ("Plot 2"), and sell them separately. At that stage Mr Grist did not want to sell the Land until he had obtained planning permission to erect a house on it. Planning permission was granted in June 2003.
6. By late 2003, there was what the judge initially described as a "common understanding" and later described as an "agreement", evidently reached orally, between Mr Francis and Mr Dowding and Ms Church that Mr Dowding and Ms Church would purchase Plot 1 and the Meadow from Mr Francis for £200,000. £120,000 was for Plot 1 and £80,000 was for the Meadow. The Meadow was important to Mr Dowding and Ms Church because Ms Church wished to keep horses on it.
7. On 21 April 2004 Matchmove completed the purchase of the Land and the Meadow from Mr Grist. Also in April 2004 Mr Dowding and Ms Church paid Matchmove (in part, by transferring a car) sums totalling £66,600 towards the purchase price for Plot 1 and the Meadow. The judge considered that it was probable that these sums helped to fund Matchmove's purchase of the Land and the Meadow.
8. From at least 2004 until October 2006 there was a dispute between Matchmove and a Mr and Mrs Wiltshire as to whether the latter had the benefit of a right of way over the Meadow. This dispute led to the commencement of legal proceedings, but in October 2006 Mr and Mrs Wiltshire abandoned their claim. In September 2005 Mr Dowding and Ms Church paid Mr Francis £5,000 as a contribution to the legal costs incurred in connection with this dispute.
9. In February 2005 planning permission was granted for the construction of three-bedroomed houses on each of Plot 1 and Plot 2. These permissions were granted in the name of a Mr and Mrs Jukes, who were intending to purchase Plot 2, but Mr Dowding and Ms Church cooperated with Mr and Mrs Jukes in making the applications.
10. In April 2005 the parties instructed solicitors to deal with the conveyancing. The correspondence between the solicitors was headed "subject to contract". On 27 April 2005 Matchmove's solicitors sent Mr Dowding and Ms Church's solicitors a draft contract for the sale of Plot 1 and the Meadow. Unfortunately, this has subsequently been lost.
11. In May 2005 Mr Francis permitted Mr Dowding and Ms Church to start building a house on Plot 1. He also permitted Mr and Mrs Jukes to start building a house on Plot 2.
12. In a letter to Mr Dowding and Ms Church's solicitors dated 24 June 2005 Matchmove's solicitors stated:

"Further to this matter our client is currently involved in a dispute concerning the meadow which was being sold to your client. He has been advised not to proceed with the sale of the meadow until the position has been resolved.

We are therefore instructed that the sale to your clients will be merely of [Plot 1] … Please confirm that you are similarly instructed."

13. Contracts for the sale of Plot 1 were exchanged on 5 September 2005. The purchase price was £120,000 and the deposit (stated to have been received before exchange) was £66,600. Special Condition 6 provided:

"The buyer admits that he has inspected the property and that he enters into this agreement solely as a result of his inspection of the property, and on the basis of the terms hereof, and not in reliance on any warranty, statements, representation otherwise whether oral or implied, and whether made by or on behalf of the seller other than written replies by the seller's solicitors to enquiries made by the buyer's solicitors prior to the date hereof."

14. On the same day Matchmove exchanged contracts with Mr and Mrs Jukes for the sale of Plot 2. Completion of both contracts occurred the next day. Mr Dowding and Ms Church paid the balance of £53,400 due in respect of Plot 1.
15. In June 2005 Mr Dowding and Ms Church sold their existing house at 15 Castle Farm Road, Hanham, Bristol and moved into what the judge described as an "extension" they had had built.
16. Mr Dowding and Ms Church made payments totalling £80,000 for the Meadow between October 2005 and November 2006. By the time the last payments were made, the right of way dispute with Mr and Mrs Wiltshire had been resolved. In the meantime, Mr Dowding and Ms Church had moved into the completed house on Plot 1 (now known as 1 Cleeve Court) in March 2006.
17. The parties fell out in January 2007. In February 2007 Mr Francis wrote to Mr Dowding and Ms Church saying they could only have half the Meadow, and enclosing a cheque for £40,000. Mr Dowding and Ms Church did not cash the cheque. No written contract for sale for the Meadow (or conveyance of the Meadow) was completed.
18. Mr Dowding and Ms Church commenced these proceedings as long ago as June 2008 seeking inter alia a declaration that Matchmove held the Meadow upon trust for them. Matchmove denied that any binding agreement had been concluded with respect to the Meadow and relied upon section 2(5) of the 1989 Act. It also counterclaimed for possession of the Meadow.

The judgment below

19. The judge's findings which are central to the appeal are mainly, although not exclusively, to be found in a section of the judgment headed "'Subject to contract' and Special Condition Six of the contract of purchase of plot 1". In the first part of this section of the judgment, at [102]-[111], the judge set out Special Condition 6 and his reasoning and conclusions with respect to the issues concerning that condition. In the second part, at [112]-[121], he dealt primarily with Matchmove's reliance upon the "subject to contract" legend which appeared in the solicitors' correspondence, but he also touched upon section 2 of the 1989 Act.
20. In the first part the judge said at [103]:

"This is not, and was not, an unusual term in modern contracts, even though it was a special condition in that contract. In my judgment, it was concerned with preventing reliance on any warranty, statement or representation in respect of the property to be purchased, in this case plot 1. I consider that, as a matter of construction, it did not refer to or relate to the meadow."

21. In the second part the judge said:

"112. Similarly, despite the Defendant's counsel's written and oral arguments to the contrary, I am satisfied that, once solicitors became involved with the conveyancing process in April 2005 with all correspondence thereafter headed 'Subject to Contract', that this label had no bearing at all on the Claimants and the Defendants [sic].

113. By the time the solicitors became involved in April 2005, Martin Francis and the Claimants had already concluded what they regarded as their immediately binding agreement and had acted on it.

114. The Claimants had paid a deposit of £66,600 and had co-operated with Mr and Mrs Jukes and the Defendant in making two planning applications, the second of which was successful in February 2005.

115. For Martin Francis at that time, his word was his bond. That was his reputation. It was how he did land deals. He regarded any deal as done and binding on a handshake, the rest was a mere technicality. He expected people to trust his word and to act on it as a done deal, even in the absence of a written agreement. He admitted so much in cross-examination, when he accepted that, in his life and in his way of operation, 'a deal is a deal' and that he is a man of his word which could be absolutely relied upon.

116. This was a case where any concluded agreement relating to the land was intended by the Claimants and Martin Francis to be binding immediately. It was not a case where there was no binding agreement until it was reduced to writing and signed by the parties or where each side was proceeding at its own risk. The same applied to the Claimants, they knew how Martin Francis did deals. He was a good friend. They trusted him to keep his word, as Martin Francis knew they would trust him and they were prepared to be bound every bit as much as Martin Francis and the Defendant were.

117. This was exemplified clearly in this case when the Claimants, having agreed to buy plot 1 and the meadow for £200,000, paid over £66,600 to Martin Francis in April 2004, 18 months before exchange of contracts for the purchase of plot 1. They subsequently put their house on the market, selling it in June 2005 and thereafter moved into an extension which they had built to their property and also housed some of their family there in a caravan. For his part, Martin Francis allowed the Claimants and the Jukes to start working on site four months before the exchange of contracts. Neither aspect was evidenced in writing. The Claimants and Martin Francis trusted each other implicitly and conducted their deals as if Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 did not exist, or had little bearing or relevance to their land transactions, beyond a mere technicality which had to be complied with at the end of the day."

22. Also of relevance to the first ground of appeal are the judge's findings about Mr Dowding's experience with buying and selling property. Having found at [405] that Mr Dowding and Ms Church had "bought and sold many matrimonial homes" and at [406] that Mr Dowding had helped his father "build or convert houses and commercial property", the judge concluded at [408]:

"Nevertheless, he has plenty of experience of buying and selling property, as well as instructing solicitors for that purpose. He knew that he had to instruct a solicitor to deal with the formalities at some stage, when buying and selling land or a house. He also knew that he had to sign contracts at some stage for that purpose, at least when dealing with people who were not close friends."

23. In a section of his judgment headed "The Law", the judge recorded that counsel for the parties were broadly agreed as to the law. Having set out a short extract from Snell's Equity (32^nd edition) concerning proprietary estoppel and section 2(1) and 2(5) of the 1989 Act, the judge observed at [429] that this was one of those cases where there was an overlap between the principles of proprietary estoppel and constructive trust.
24. In the final section of judgment, headed "Conclusions", the judge said:

"431. In my judgment, therefore, the Defendant did make a promise to the Claimants to sell them the meadow and the Claimants agreed to it. Both parties agreed that the agreement would be binding immediately. The terms of the agreement were sufficiently clear as to the extent of the land in question, the interest which the Claimants were to obtain and the price which was payable.

432. There were no conditions to the agreement of the kind alleged by Mr Francis at paragraph 40 of his witness statement. There were no outstanding matters that were cardinal to the agreement that as a matter of fact, would have prevented the agreement from being completed. Any gap in the covenants and easements is to be filled by what a reasonably prudent conveyancing solicitor would have incorporated, measured against the template of the conditions on the transfer of plot 1, with my settling any discrepancy which may arise between the parties.

433. The 'subject to contract' label on the correspondence is not material, as it followed the agreement which the parties had already made and which they regarded as immediately binding. Special clause 6 of the contract for the sale of plot 1 did not negative what had been said and agreed between the parties.

434. I am satisfied that the Claimants did rely on that agreement and that they did act to their detriment by paying the £66,600, by commencing and completing the building at 1 Cleeve Court, by dividing and selling 15 and 15A Castle Farm Road, by completing on plot 1 Cleeve Court and paying the balance of £53, 400 in the confident belief that, although temporarily there would be a severance between the meadow and the plot, the Defendant would be good for his word, and, once the right of way dispute was resolved, that would follow, bearing in mind that they had already paid for it in full. I am satisfied that the Claimants paid the £80,000 for the meadow. The Claimants spent time and money fencing and improving the meadow, erected temporary stables thereon, applied for respective planning permission for the stables thereon, applied for retrospective planning permission for the stables and contributed £5,000 to Mr Wiltshire's costs in September 2005. Why would they not do so, when they and the Defendant considered this was their meadow?

…

437. Accordingly, the Claimants are entitled in equity to the entire meadow, on the basis of proprietary estoppel and constructive trust. It matters not which label is applied, as there is an overlap in this case. …"

The first ground of appeal: section 2(5) of the 1989 Act

Section 2 of the 1989 Act

25. Section 2 of the 1989 Act provides, so far as relevant, 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.

(5) … and nothing in this section affects the creation or operation of resulting, implied or constructive trusts."

26. As Beldam LJ explained in Yaxley v Gotts [2000] Ch 162 at 188-190, the 1989 Act was enacted in order to implement three reports of the Law Commission. The policy underlying section 2(1) was explained by the Commission in the second of those reports, Formalities for Contracts for Sales etc of Land (Law Com. No 164), at paragraphs 2.8 to 2.12. The justifications for requiring such formalities to be complied with included the need for certainty, consumer protection, what the Commission described as the "channelling" function of creating a standardised form of transaction and the uniqueness of land. Nevertheless, the Commission went on to explain in paragraphs 5.1 to 5.3 that it was not intending to exclude the application of equitable doctrines in this field, and in particular the doctrine of proprietary estoppel. It was for this reason that section 2(5) came to be included in the 1989 Act.
27. As Arden LJ put it in Kinane v Mackie-Conteh [2005] EWCA Civ 45, [2005] 1 WTLR 345 at [32]:

"As I see it, the policy of section 2(1) of the 1989 Act is to protect the public by preventing parties from being bound by a contract for the disposition of an interest in land unless it has not been fully documented in writing. However, in section 2(5) Parliament has acknowledged that under section 2(1) there is a risk that one party will seek to take advantage of the sanction provided by that subsection when it is unconscionable for him so to do. To that extent, section 2(5) plays a role similar to that of part performance, although it operates more flexibly than that doctrine. Unconscionability on the part of the party seeking to rely on subsection (1) is the touchstone giving rise to a constructive trust. It will arise where a party led another party to believe that he would obtain an interest in property to another and then stands by while that other party acts to his detriment in reliance on that promise. … "

Constructive trust

28. Although the judge based his decision upon both proprietary estoppel and constructive trust, counsel for Mr Dowding and Ms Church was content to rely solely upon constructive trust, or more specifically a common intention constructive trust. This has the advantage of avoiding the issue of whether section 2(5) of the 1989 Act can apply to claims based on proprietary estoppel as distinct from constructive trust.
29. There was no dispute between the parties that a common intention constructive trust could arise where (i) there was an express agreement between parties as to the ownership of property (ii) which was relied upon by the claimant (iii) to his or her detriment such that (iv) it would be unconscionable for the defendant to deny the claimant's ownership of the property.

In what circumstances does section 2(5) apply?

30. The circumstances in which section 2(5) does or does not apply were considered by this Court in some detail in Herbert v Doyle [2010] EWCA Civ 1095, [2015] WTLR 1573. Having set out passages from the speeches of Lord Scott of Foscote and Lord Walker of Gestingthorpe in Cobbe v Yeoman's Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1252, and various other authorities, Arden LJ, with whom Jackson LJ and Morgan J agreed, said at [57]:

"In my judgment, there is a common thread running through the speeches of Lord Scott and Lord Walker [in Cobbe]. Applying what Lord Walker said in relation to proprietary estoppel also to constructive trust, that common thread is that, if the parties intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property, or, if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified, or if the parties did not expect their agreement to be immediately binding, neither party can rely on constructive trust as a means of enforcing their original agreement. In other words, at least in those situations, if their agreement (which does not comply with section 2(1)) is incomplete, they cannot utilise the doctrine of proprietary estoppel or the doctrine of constructive trust to make their agreement binding on the other party by virtue of section 2(5) of the 1989 Act."

She went on to [58] to express the view that this interpretation of Cobbe was consistent with the observations of Lord Neuberger in the subsequent case of Thorner v Major [2009] UKHL 18, [2009] 1 WLR 776 at [93].

31. In his submissions counsel for Matchmove analysed Arden LJ's judgment as envisaging three different situations where section 2(5) could not be relied on: (1) if the parties intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property; (2) if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified; and (3) if the parties do not expect their agreement to be immediately binding.
32. As counsel for Matchmove accepted, however, it is important not to construe this paragraph of Arden LJ's judgment as if it were a statute. In our judgment, Arden LJ was not intending to describe three different situations in which section 2(5) would not apply, but rather to describe Cobbe in three different ways. That was a case in which the parties reached an agreement in principle, but intended to make a formal agreement setting out the terms of the acquisition, further terms remained to be agreed and the parties did not regard the agreement in principle as immediately legally binding. Accordingly, there was no constructive trust upon which section 2(5) of the 1989 Act could bite. The reason why there was no constructive trust was because, as Lord Scott put it at [37], "Mr Cobbe never expected to acquire an interest in the property otherwise than under a legally enforceable contract" or, as Lord Walker put it at [87], "Mr Cobbe was expecting to get a contract".

The present case

33. Counsel for Matchmove pointed out that, although Herbert v Doyle had been cited to the judge (together with other cases including Cobbe and Thorner v Major), he had not referred to it in his judgment or considered the applicability of Arden LJ's reasoning at [57]. He submitted that, if the case was analysed in that way, the correct conclusion on the judge's findings of fact was that, at the time of the informal agreement in late 2003, the parties had intended to make a formal agreement setting out the terms on which Mr Dowding and Ms Church were to acquire Plot 1 and the Meadow (i.e. the first of the three situations which counsel contended that Arden LJ had envisaged in Herbert v Doyle). Both Mr Francis and Mr Dowding were aware of the need for a written contract, and although they regarded it as a technicality, it was a technicality which in the judge's words at [117] "had to be complied with at the end of the day". Accordingly, no constructive trust arose.
34. Counsel for Matchmove further submitted that this analysis was reinforced by five points. First, this was not a case involving cohabitation or another intimate relationship. Rather, it was an arm's length sale of property, and in that sense a commercial transaction, albeit between parties who at the time were friends. Secondly, the judge's primary focus at [112]-[117] had been on the question of whether the oral agreement was subject to contract, but the fact that it was not subject to contract did not necessarily mean that the parties did not expect a formal written contact to be drafted. Thirdly, the parties had subsequently instructed solicitors to prepare contracts for both Plot 1 and the Meadow, and had gone on to exchange contracts in relation to Plot 1. This confirmed that they considered that written contracts were necessary. Fourthly, the Meadow was subject to the right of way dispute which the parties knew needed to be sorted out. Fifthly, in any event various matters remained to be agreed with respect to the Meadow, such as what covenants should apply to it. As counsel pointed out, the judge dealt with this by saying that the gap could be filled by what a reasonably prudent conveyancing solicitor would have incorporated, with the court settling any dispute.
35. Skilfully though these submissions were presented by counsel for Matchmove, we do not accept them. The gravamen of the judge's findings of fact is that, in late 2003, there was an oral agreement between the parties which both sides intended to be "binding immediately". That agreement was complete as to all its essential terms, namely the land to be included (Plot 1 and the Meadow), the purchase price (£200,000 for all the land) and the deposit (£66,600, about one-third of the total purchase price).
36. Mr Dowding and Ms Church relied upon that agreement to their detriment, in the first place by paying £66,600 for both Plot 1 and the Meadow in April 2004. Furthermore, there were a series of additional subsequent acts of reliance by Mr Dowding and Ms Church which were summarised by the judge at [434], such as contributing £5,000 towards the costs of the right of way dispute concerning the Meadow. Although, as counsel for Mr Dowding and Ms Church accepted, on their case the constructive trust arose as soon as they paid the £66,600, the subsequent acts reinforce the judge's conclusion that the agreement was intended to be immediately binding.
37. It is not clear that the right of way dispute with Mr and Mrs Wiltshire had arisen at the time that Mr Dowding and Ms Church paid the £66,600; but even if it had, there would have been no difficulty in treating Mr Dowding and Ms Church's beneficial interest in the Meadow as being subject to that potential encumbrance. The oral agreement was not conditional upon the resolution of the right of way dispute. It was Matchmove's solicitors who subsequently suggested that the exchange of contracts for the purchase of the Meadow should not proceed until it was resolved.
38. The judge found at [117] that Mr Dowding, Ms Church and Mr Francis knew that there was a "technicality which had to be complied with at the end of the day", but in his oral submissions before us counsel for Matchmove was unable to point to any evidence as to precisely what was the "technicality" that they had in mind. More to the point, the judge's clear finding at [113], [116] and [431] was that the parties regarded the agreement as binding despite the "technicality". The judge also found at [408] that Mr Dowding knew that he had to sign contracts at some stage "at least when dealing with people who were not close friends". At the time of the oral agreement, however, Mr Dowding and Mr Francis were good friends.   
39. Accordingly, in our judgment, the judge was correct to conclude that Mr Dowding and Ms Church had established that the Meadow was held by Matchmove on constructive trust for them and therefore the case was within section 2(5) of the 1989 Act.

The second ground of appeal: Special Condition 6

40. Special Condition 6 provided that Mr Dowding and Ms Church entered into the contract for Plot 1 "solely … on the basis of the terms hereof". It also provided that they entered into the contract "not in reliance on any warranty, statements, representation otherwise whether oral or implied", but counsel for Matchmove disclaimed reliance upon that part of the clause.
41. It is common ground that the oral agreement which the judge found had been concluded between Mr Dowding and Ms Church on the one hand and Mr Francis on the other was a single indivisible agreement in respect of both Plot 1 and the Meadow.
42. The judge held that Special Condition 6 did not operate to exclude any cause of action in respect of the Meadow, because as a matter of construction it only prevented reliance upon pre-contractual representations regarding Plot 1 and not the Meadow.
43. Counsel for Matchmove submitted that the judge had wrongly construed Special Condition 6, and that he ought to have concluded that it excluded any other terms which would otherwise have been part of the bargain. Since there had only been one prior agreement, which was indivisible and related in part to Plot 1, reliance upon that agreement was excluded.
44. We do not accept this argument. Special Condition 6 is only concerned with Plot 1. It excludes other terms relating to that parcel of land. It does not exclude terms relating to a different parcel of land. It is immaterial that the two parcels were previously the subject of one oral agreement. They were always distinct parcels of land.
45. It follows from this conclusion that it is unnecessary for us to consider consequential issues concerning the effect of the Unfair Terms in Consumer Contracts Regulations 1999 which would arise if Matchmove was right about the construction of Special Condition 6.

Conclusion

46. For the reasons given above, the appeal is dismissed.