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Cite as: [2017] Ch 109, [2016] WLR(D) 678, [2016] EWCA Civ 1291, [2017] 2 WLR 870, [2017] 1 P &CR 14

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		Neutral Citation Number: [2016] EWCA Civ 1291
		Case No: A3/2015/2036

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT (CHANCERY DIVISION)
Robert Englehart QC (Sitting as a Deputy High Court Judge)
HC-2014-000297

Royal Courts of Justice
Strand, London, WC2A 2LL

16/12/2016

B e f o r e :

LORD JUSTICE TOMLINSON
LORD JUSTICE DAVID RICHARDS
and
LORD JUSTICE HENDERSON
____________________

Between:

	(1) ROLLERTEAM LIMITED (2) JOHN AIDINIANTZ	First Claimant Second Claimant/Appellant
	- and -
	(1) LINDA RILEY	Defendant/Respondent
	(2) JENNIFER DECOTEAU	Third Party/Respondent

____________________

Mr Hugh Sims QC and Mr Matthew Brown (instructed by Gordon Dadds LLP) for the Appellant
Mr Neil Hext QC and Mr Joshua Folkard (instructed by Smithfield Partners Limited) for the Respondents
Hearing date: 2 November 2016
____________________

HTML VERSION OF JUDGMENT
____________________

Lord Justice Henderson:

Introduction

The sole issue on this appeal is whether an agreement intended to settle bitter family litigation was void for failure to comply with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 ("the 1989 Act"). As is well known, section 2(1) of the 1989 Act provides that:

"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."

The agreement in question was made on 11 April 2013. The parties to the agreement included the appellant, John Aidiniantz, his wholly-owned company Rollerteam Limited ("Rollerteam"), and his half-sisters, Linda Riley and Jennifer Decoteau, who are the respondents to the appeal. Among other things, the agreement provided for Ms Riley to execute two declarations of trust (one in favour of Mr Aidiniantz, and the other in favour of Rollerteam) over two London properties of which she was the sole registered proprietor. In return, Mr Aidiniantz was to make payments of £1 million to each of Ms Riley and Ms Decoteau, and undertake various other financial obligations. The overall purpose of the agreement was to settle four separate sets of legal proceedings in which the family had sadly become embroiled.

It is no longer in dispute that Ms Riley duly executed the two declarations of trust in favour of Mr Aidiniantz and Rollerteam on 11 April 2013. Mr Aidiniantz, however, paid only £300,000 to Ms Decoteau out of the £2 million which, under the terms of the agreement if it was valid, he was obliged to pay his half-sisters. Having apparently obtained the benefit of the declarations of trust, Mr Aidiniantz contended for the first time in or around August 2013 that no concluded settlement agreement had ever been reached, with the result that he was under no enforceable obligation to pay the remaining £1.7 million. Mr Aidiniantz then maintained this contention down to the trial of the present action.

If section 2 of the 1989 Act applied to the settlement agreement, it is now common ground that the formal requirements of the section were not satisfied and that the agreement was void. The judge below (Mr Robert Englehart QC, sitting as a Deputy Judge of the Chancery Division) held that the agreement did not fall within the scope of section 2, and therefore gave judgment in favour of Ms Riley and Ms Decoteau for the outstanding £1.7 million owed to them by Mr Aidiniantz. The judgment was given on their counterclaim, because the present action had been started by Mr Aidiniantz and Rollerteam in January 2014, seeking declarations that the two declarations of trust were valid and binding on Ms Riley. Following a 7 day trial in April 2015, the deputy judge handed down his judgment on 4 June 2015. By his order of the same date, he granted the declarations sought by the claimants, ordered Mr Aidiniantz to pay £1 million to Ms Riley and £700,000 to Ms Decoteau together with interest, and also ordered him to pay them 75% of their costs of the proceedings on the standard basis, with a payment on account of those costs in the sum of £250,000. The judge also made various consequential orders to which it is unnecessary to refer.

Mr Aidiniantz now appeals to this court, with permission granted by Lewison LJ on 24 July 2015. The three grounds of appeal for which permission was granted all relate in different ways to the judge's conclusion that section 2 did not apply to the agreement. Lewison LJ refused permission to appeal on a further ground which sought to challenge some of the judge's findings of fact. This refusal was upheld by Simon LJ at an oral hearing on 13 April 2016.

The parties have been represented on the appeal, as they were below, by Mr Hugh Sims QC appearing with Mr Matthew Brown for Mr Aidiniantz, and Mr Neil Hext QC (appearing with Mr Joshua Folkard in this court, and with Mr Hamid Khanbhai below) for the respondents.

Background facts

For the purposes of this appeal, the relevant background facts may be briefly stated. The following account is largely taken from the judgment below, of which the neutral citation reference is [2015] EWHC 1545 (Ch).

Rollerteam was originally incorporated by Mr Aidiniantz in 1984, to effect leaflet distribution on roller skates, but in 1989 he used it as a vehicle for the purchase of 239 Baker Street in central London. His plan was to use the property to found a Sherlock Holmes museum, the fictional detective having lived at 221B Baker Street. The property was acquired with deposit money provided by Mr Aidiniantz's mother, Mrs Grace Aidiniantz.

The museum was then founded, and over the years it developed into a successful business. The judge found that, to an extent, the museum business "seems to have been informally regarded as something of a family enterprise, albeit with Mr Aidiniantz being in control of operations through Rollerteam". The family members involved were Grace Aidiniantz, her son John (the appellant), and her three children by a different marriage, namely Ms Riley, Ms Decoteau and Mr Stephen Riley.

In 2004, a company called Sherlock Holmes International Society Limited ("SHIS") was founded as a not-for-profit company in order to take advantage of the value added tax exemption on ticket sales for cultural bodies. At various times, Grace Aidiniantz, Ms Riley, Ms Decoteau and Mr Stephen Riley served as directors of SHIS.

The breakdown in family relations dates back to September 2012. Until then, the cash takings from admission receipts to the museum had been taken each evening to Mrs Aidiniantz's home at 1 Parkgate Road in Battersea. Mr Aidiniantz would then decide whether the money was to be placed in one or other of the business bank accounts or retained as cash. In September 2012 Mr Aidiniantz formed the view that the cash takings were not being properly accounted for, and cut off access to funds for the other family members. This led to Ms Riley withdrawing £175,000 from Rollerteam's bank account. She gave part of this money to Ms Decoteau, and part to her brother Stephen Riley. Mr Aidiniantz then commenced legal proceedings and obtained a freezing order against Ms Riley. Ms Decoteau and Stephen Riley were also joined to the action. In October 2012, Ms Riley secured the release of the freezing order by paying £175,000 into a solicitors' joint account. I will call this action "the Rollerteam action".

Mr Aidiniantz's resort to litigation led to the institution of further legal proceedings by other members of the family. First, Ms Riley commenced proceedings for the possession of a property at 1 Albion Mews, London W2, of which she was the registered owner, although Mr Aidiniantz lived there ("the possession action"). In the possession action, Mr Aidiniantz claimed that the house was held by Ms Riley on trust for him. Secondly, SHIS (at the instigation of Ms Riley and Ms Decoteau) commenced proceedings against Mr Aidiniantz and Rollerteam (as well as two other subsidiaries of Rollerteam), alleging that Mr Aidiniantz had been misappropriating the funds of SHIS. In December 2012, a freezing order was granted in favour of SHIS, and Mr Aidiniantz was ordered to pay into court a cash sum of £535,000 which he was holding at his home. A subsequent attempt by Mr Aidiniantz to have this order set aside was largely unsuccessful. I will call this action "the SHIS action". Finally, Grace Aidiniantz started an action against her son, Mr Aidiniantz, and Rollerteam, in which she claimed to be the sole beneficial owner of the entire share capital of Rollerteam and the museum business.

Accordingly, there were four sets of proceedings on foot in April 2013:

(1) the Rollerteam action;

(2) the possession action;

(3) the SHIS action; and

(4) Mrs Aidiniantz's claim.

I will follow the judge in referring compendiously to these four sets of proceedings as "the litigation". The judge added that "relations within the family were understandably in an appalling state". It was against this background that, on 7 April 2013, Ms Riley came to have a tentative discussion about possible settlement of the litigation with Mr Aidiniantz.

The judge then described how an unexpected meeting between the two of them on that date led to a reconciliation, and an agreement to meet for lunch on the following day in order to explore further the possibility of compromise. Meanwhile, Ms Riley and Ms Decoteau spoke on the telephone about what might be an acceptable settlement.

Over lunch on 8 April 2013, there were what the judge called "wide ranging and apparently harmonious discussions over how to resolve all points of contention". Immediately after the lunch, Mr Aidiniantz sent an email to his solicitors, copied to Ms Riley, recording the basis of the proposed settlement. This email is important, because the points covered in it formed the basis of all future communications. The judge said that, whether or not (as Ms Riley believed) a concluded binding settlement agreement was reached on 8 April 2013, there is no doubt that she and Mr Aidiniantz were "broadly in agreement". The email was headed "Without Prejudice", and began with a request for "this proposed agreement" to be kept confidential.

The email proceeded:

"Further to my meeting with Linda Riley this afternoon, the basis of the settlement was agreed as follows:

There will be a stay of all proceedings for one month to enable the legal paper work to be completed.

1) £1 million will be paid to Linda,

2) £1 million will [be] paid to Jennifer Decoteau

Jennifer will be paid from the proceeds of the monies paid into court - £535,000 plus £175,000 held by Edwin Coe + £290,000 cash. So the sooner the settlement and legal paper work is signed the better.

Linda Riley to be paid £1 million by Rollerteam Ltd, spread over 12 months from the date of settlement – but payable by the summer of 2014 if not before."

The email then provided that Rollerteam would be granted "the beneficial ownership over 1 Parkgate Road … in order to justify the payment to Linda Riley of £1 million", and that in relation to 1 Albion Mews a "Trust document" would be executed by Ms Riley in favour of Mr Aidiniantz, who would pay all payments due on the mortgage and arrears of mortgage interest. It was further provided that:

(a) the directors of SHIS would resign, and Mr Aidiniantz would be appointed sole director of the company;

(b) Grace Aidiniantz would disclaim any interest in the shares of Rollerteam; and

(c) Rollerteam would pay the legal costs of SHIS and Ms Riley in the respective proceedings.

Mr Aidiniantz then recorded his understanding that the foregoing was "the gist of the agreement" reached by him and Ms Riley. He explained how the "first tranche of £1 million" would be paid, once the funds paid into court and held by Edwin Coe were unlocked. He expressed a desire to work out the tax implications, but said that "in principle [Linda and Jennifer] should receive the above amounts". The email ended with Mr Aidiniantz's name and address, and was stated to be sent also on behalf of Rollerteam and its two Sherlock Holmes subsidiaries.

Following this, on 11 April 2013, there was a formal document signing meeting at 1 Parkgate Road, attended by Mr Aidiniantz, Ms Riley, Ms Decoteau, Grace Aidiniantz and a Mr Suleman (a solicitor whom the family had previously used, and whose role was to advise Mrs Aidiniantz). At the meeting, Mr Aidiniantz handed over £300,000 to Ms Decoteau, in part payment of the £1 million which was to be paid to her. The following documents were executed:

(1) A receipt for the £300,000, which for some unexplained reason Mr Aidiniantz had made out in Ms Riley's name. The document also contained an acknowledgment signed by Mr Aidiniantz on behalf of Rollerteam which recorded that a further £700,000 was due to be paid as soon as possible, with a further £1 million to be paid by the summer of 2014 "in full and final settlement of all claims between all the parties".

(2) A company resolution for SHIS whereby Mrs Aidiniantz and Ms Decoteau agreed to be replaced as directors by Mr Aidiniantz and for their resignation to take effect upon Mr Aidiniantz filing the relevant forms at Companies House.

(3) A consent order in Tomlin form in the action brought by Mrs Aidiniantz by which she abandoned her claim, but with Mr Aidiniantz and Rollerteam paying her costs. Ms Riley, Ms Decoteau and Stephen Riley were also joined to the consent order for the purpose of agreeing the scheduled terms, which included an acknowledgment that the entire share capital of Rollerteam had at all times been owned legally and beneficially by Mr Aidiniantz. The formal consent order was subsequently made by the court on 19 April 2013.

(4) A deed made between Ms Riley and Mr Aidiniantz, which recited that 1 Albion Mews had been purchased to provide a home for Mr Aidiniantz, and in which Ms Riley declared that she held the property on trust for him beneficially.

(5) A further deed in similar form, made between Ms Riley and Rollerteam, whereby Ms Riley declared that she held 1 Parkgate Road on trust for Rollerteam beneficially.

In due course, formal consent orders in Tomlin form were also made in the Rollerteam action and the SHIS action. No consent order was made in the possession action, presumably because everybody assumed that it had lapsed upon Mr Aidiniantz becoming the beneficial owner of 1 Albion Mews.

The formation of the settlement agreement on 11 April 2013

The judge heard oral evidence from Mr Aidiniantz, Ms Riley and Ms Decoteau, each of whom was extensively cross-examined. He did not, however, examine their evidence in detail, because in his view resolution of the factual issues in the case largely depended on what would have been reasonably understood from what the parties communicated to each other and what they did, rather than on what they may individually have thought at the time: see the judgment at [17]. The judge therefore focused his attention on the email traffic and other communications passing between the parties at the material time. After doing that, and summarising the rival contentions on each side, the judge first addressed Mr Aidiniantz's claim. He said he had no doubt that the trust documents which Ms Riley had admittedly executed on 11 April 2013 were indeed the declarations of trust in evidence before him. The signatures were undoubtedly hers, and no other trust documents had been produced. He thought it probable that Ms Riley's deep mistrust for Mr Aidiniantz had coloured her recollection of what she signed, and he rejected her evidence that she had signed some other unidentified agreements to create trusts: see the judgment at [36].

Turning to the counterclaim, the judge found on balance that no concluded agreement had been made on 8 April 2013. The outline of an acceptable settlement had been negotiated over lunch, but it was no more than "a proposed agreement" with all parties envisaging that further steps would be taken before they would be bound. The judge said at [37]:

"There was a common desire to progress matters as quickly as possible. Final conclusion of a settlement agreement in accordance with the terms of Mr Aidiniantz's email of 8 April 2013 was to take place with the signature of formal documents and the payment of £300,000 by Mr Aidiniantz – something which in the event, of course, happened on 11 April 2013."

The judge added that, in coming to this conclusion, he had placed no reliance on the inter-solicitor communications, which were clearly inconsistent with a finding of a concluded agreement, because the settlement negotiations were being conducted directly between Mr Aidiniantz and Ms Riley, with the solicitors on each side in the background.

The judge then continued:

"38. Whilst I am not prepared to find that there was a concluded settlement of the litigation on 8 April 2013, I am satisfied that a concluded contract came into existence on 11 April 2013. The terms of the contract were those which had been set out in Mr Aidiniantz's email of 8 April 2013 to his solicitor and copied to Ms Riley as amplified by the provisions of the formal documents signed on 11 April 2013. It is in my view quite clear from the subsequent email correspondence that from this point both Mr Aidiniantz and Ms Riley considered that a settlement had been reached on these terms. It was not until August 2013 that Mr Aidiniantz first suggested otherwise. Unsurprisingly, given the volume of the email communications, it is possible to latch onto the occasional word or phrase in an email in order to found an argument that there was no agreement. Nevertheless, I am entirely satisfied that the general tenor of the emails is only consistent with both Mr Aidiniantz and Ms Riley considering that they had from 11 April 2013 settled the litigation."

The judge then set out the factors which had led him to this conclusion, and rejected Mr Aidiniantz's submission that the family context pointed towards the parties not intending to create legal relations. As the judge said, at [41]:

"This is not a case of trusting family relations and informal arrangements. On the contrary, the background here is one of bitter commercial disputes and arms length litigation."

Having dealt briefly with certain other submissions, the judge then turned to Mr Aidiniantz's argument based on section 2 of the 1989 Act. He accepted the submission of Mr Hext QC for the respondents that "the section affects contracts. It cannot invalidate an actual disposition of an interest in land": see the judgment at [43].

The judge then gave his reasons for rejecting the section 2 argument, as follows:

"44. The initial understanding had been the wholly general intention (i) to grant "beneficial ownership over 1 Parkgate Road" to Rollerteam and (2) for Ms Riley to execute "a Trust document" in respect of 1 Albion Mews in favour of Mr Aidiniantz. It was not until Mr Aidiniantz produced the actual declarations of trust for signature by Ms Riley on 11 April 2013 that content was given to the general understanding. I have already found that there was no concluded contract prior to 11 April 2013. In my view, the proper contractual analysis of what occurred on 11 April 2013 was that a contract was formed on the terms set out in the 8 April 2013 email for which part of the consideration was the actual execution of the declarations of trust. I agree with Mr Sims that it would not be right for me artificially to devise some collateral contract simply for the purpose of evading the 1989 Act. Nevertheless, on the present facts it seems to me that execution of the declarations of trust rather than a mere promise by Ms Riley was indeed what Mr Aidiniantz was bargaining for. Mr Aidiniantz wrote on 9 April 2013: "Once mum signs her document in front of her solicitors then the first million can be paid over". To this Ms Riley responded on the same day: "Yes I agree, well mum is ready to sign and I am ready to sign trust documents for Parkgate and Albion Mews so can we get this moving asap?"

45. A contract where the consideration, or part of it, is the actual disposition of an interest in land rather than an agreement to dispose of the interest is not within section 2: see Keay cited above, especially at [8] and [27-8]. Accordingly, I do not accept that section 2 precludes enforcement of the settlement agreement in this case."

It can be seen, therefore, that the judge found in favour of the respondents on this issue on the grounds that:

(a) section 2 affects contracts, but does not invalidate actual dispositions of an interest in land; and

(b) on a proper analysis of what happened on 11 April 2013, part of the consideration for the contract formed on that day was the actual execution by Ms Riley of the two declarations of trust, rather than an agreement by her to execute them in the future.

The law

I have already quoted section 2(1) of the 1989 Act. To place it in context, the relevant provisions of section 2 are as follows:

"2. Contracts for sale etc of land to be made by signed writing

(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) …

(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);

…

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 in the Law of Property Act 1925;

"interest in land" means any estate, interest or charge in or over land …

…

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

The general purpose and effect of section 2 were explained by Peter Gibson LJ in Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 at 1571E, in a passage which has frequently been cited in later cases:

"Section 2 brought about a markedly different regime from that which obtained hitherto. Whereas under section 40 contracts which did not comply with its requirements were not void but were merely unenforceable by action, contracts which do not comply with section 2 are ineffective: a contract for the sale of an interest in land can only be made in writing and in conformity with the other provisions of section 2. Whereas an oral contract was allowed and enforceable provided that it was evidenced in writing and the memorandum or note thereof was signed by or on behalf of the party against whom it was sought to be enforced, oral contracts are now of no effect and all contracts must be signed by or on behalf of all the parties. Whereas the contract or the memorandum or note evidencing the contract previously could be contained in more than one document, only one document is now allowed, save where contracts are exchanged, although reference to another document may be permitted in the circumstances laid down in subsections (2) and (3). Whereas the memorandum or note needed for section 40 did not have to contain every term of the contract, all the terms must now be contained in the document in question. Whereas the doctrine of part performance allowed certain contracts otherwise unenforceable to be enforced, that doctrine now has no application. It is to my mind plain that the Act of 1989, which, as its long title indicates, was to make new provision with respect to contracts for the sale or other disposition of interests in land, was intended to make radical changes to such contracts in a way that was intended to simplify the law and to avoid disputes, the contract now being in a single document containing all the terms and signed by all the parties. Thereby it has been sought to avoid the need to have extrinsic evidence as to that contract."

Section 40 of the Law of Property Act 1925 applied to "any contract for the sale or other disposition of land or any interest in land". This language, which had its origin in section 4 of the Statute of Frauds 1677, was repeated with immaterial variations in section 2(1) of the 1989 Act. Moreover, by virtue of section 2(6), "disposition" has the same meaning as in the 1925 Act, and therefore includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein: see section 205(1)(ii). It is clear, therefore, that section 2 of the 1989 Act was intended by Parliament to apply to the same types of contract as section 40 had done. In particular, it was not intended to apply to actual dispositions of land or interests in land, the formalities for which continued to be governed by sections 51 to 55 of the 1925 Act.

Of those formalities, it is relevant to note the following:

(a) by virtue of section 52(1), "All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed", subject to the exceptions set out in subsection (2) which include "(d) leases or tenancies or other assurances not required by law to be made in writing";

(b) section 53(1) requires dispositions of an interest in land, or a declaration of trust respecting any land or any interest therein, to be made in writing, or in the case of a declaration of trust "manifested and proved by some writing signed by some person who is able to declare such trust": see paragraphs (a) and (b) of subsection (1). Section 53(2) contains a saving for "the creation or operation of resulting, implied or constructive trusts", which is repeated at the end of section 2(5) of the 1989 Act.

(c) section 54(2) enables certain short leases to be granted orally, as follows:

"Nothing in the foregoing provisions of this Part of this Act shall affect the creation by parol of leases taking effect in possession for a term not exceeding three years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without taking a fine."

A corresponding exclusion is contained in section 2(5)(a) of the 1989 Act.

The distinction between contracts for the sale or other disposition of an interest in land, to which the 1989 Act applies, and documents which actually create or transfer legal estates or interests in land, to which the 1989 Act does not apply, was clearly stated by Lord Neuberger of Abbotsbury MR (with whom Smith and Elias LJJ agreed) in Helden v Strathmore Ltd [2011] EWCA Civ 542, [2011] Bus LR 1592, at [27] and [28]:

"27. … Section 2 is concerned with contracts for the creation or sale of legal estates or interests in land, not with documents which actually create or transfer such estates or interests. So a contract to transfer a freehold or a lease in the future, a contract to grant a lease in the future, or a contract for a mortgage in the future, are all within the reach of the section, provided of course the ultimate subject matter is land. However, an actual transfer, conveyance or assignment, an actual lease, or an actual mortgage are not within the scope of section 2 at all.

28. As is spelt out in its opening words, section 2 is concerned with "a contract for the sale or other disposition of an interest in land". Its purpose is also clear from the fact that it replaced section 40 of the Law of Property Act 1925, and from the contents (and indeed the title) of the interesting and full Law Commission Report which initiated it – Transfer of land: formalities for contracts for sale etc of land (Law Com No. 164) (29 June 1987). The section was directed to tightening up the formalities required for contracts for the creation or transfer of interests or estates in land, and it was not concerned with documents which actually create or transfer legal estates or interests in land. This conclusion is consistent with the view expressed by Sir Andrew Morritt C in McLaughlin v Duffill [2010] Ch 1, paras 20-21, approving the reasoning of Judge Hicks QC in Target Holdings Ltd v Priestley (1999) 79 P & CR 305, para 51."

It is instructive to refer to the two cases which were cited by Lord Neuberger MR at the end of [28].

In the Target Holdings case, the relevant issue was whether an oral agreement to vary a mortgage fell within the scope of section 2 of the 1989 Act. At paragraph 51 of his judgment, Judge Hicks QC identified the "question of principle" before him as being:

"whether section 2 (and before it section 40 – for there is no ground of distinction in this regard) applies to dispositions of interests in land themselves as well as to (executory) contracts for such dispositions."

The judge continued:

"52. That is of course a question of construction, but it is not one which readily yields to a simple examination of the words used. Without bringing to bear some understanding of the history and structure of English land law and conveyancing practice it is not immediately obvious whether "A contract for the … disposition of an interest in land" should be understood to mean "A contract for the [future] … disposition of an interest in land" or "A contract for [,including one effecting,] the … disposition of an interest in land". "

Having identified the relevant question in this way, Judge Hicks said (in paragraph 53) that he was "satisfied that contracts of disposition, as distinct from executory contracts for disposition, are not caught, for two main reasons". His first reason was that there are separate formal requirements for dispositions themselves, "which have a different historical origin and are properly to be regarded as self-contained and exhaustive". Those requirements are now contained in sections 51 to 55 of the 1925 Act.

The judge then expressed his second main reason in paragraph 57, which I will quote from the approved transcript which was supplied to us after the hearing, because the report of this paragraph in the online version of the Property & Compensation Reports is garbled by the repetition of a passage of some five lines:

"57. My second main reason for that conclusion is that if the opposite construction were accepted at least two consequences would necessarily follow which are, in my understanding, simply not the case. The first is that between 1677 and 1989 all oral tenancies for up to three years (of which there must have been millions, affecting a substantial proportion of the households in the country) would have been unenforceable. The reason for that consequence is that section 4 of the Statute of Frauds and section 40 of the 1925 Act had no provision corresponding to section 2(5)(a) of the 1989 Act, so that (executory) contracts for short tenancies of that kind were indeed subject to their requirements (Vaughan v Hancock (1846) 3 C.B. 766), and if the Plaintiff's submissions were correct that would have been equally true of the tenancies themselves, contractual in nature as they undoubtedly were. That, however, was not the position; parol grants of such tenancies were effective by virtue of section 54(2) of the 1925 Act and its predecessor, section 2 of the Statute of Frauds (Rollason v Leon (1861) 7 H & N 73).

58. The second consequence is that since 1989 all conveyances, transfers and mortgages not executed by the grantees or mortgagees would have been void …"

This reasoning, as Lord Neuberger MR indicated, was approved by Sir Andrew Morritt C (with whom Smith and Aikens LJJ agreed) in McLaughlin v Duffill [2008] EWCA Civ 1627, [2010] Ch 1, at [20] to [21]. The issue in that case was whether the vendor under a written contract for the sale of land made in 2006 was bound by the contract, which had been signed on her behalf by an agent who had her oral (but not written) authority to do so. The vendor argued that the contract was invalidated by section 53(1)(a) of the 1925 Act, as having been entered into by an agent without written authority. This argument was rejected by the Court of Appeal, affirming the court below, on the basis that the contract was one to which section 2 of the 1989 Act applied, and did not itself effect a disposition of an interest in land to which section 53(1)(a) of the 1925 Act applied.

Sir Andrew Morritt's reasoning on this question began at [15], where he pointed out that if the vendor's argument were a good one, one might expect it to have been recognised as such in the period between 1925 and 1989, when section 53(1)(a) co-existed with section 40 of the 1925 Act, but the opposite was the case. After referring to various authorities, the Chancellor continued at [20]:

"20. There is a distinction to be drawn, I think, between a contract for the disposition of an interest in land to which section 40 applies, and a disposition of an interest in land to which section 53(1)(a) applies. This was pointed out by Judge Hicks QC in Target Holdings Ltd v Priestley 79 P & CR 305, to which counsel for the claimant referred us …

21. The distinction pointed out by Judge Hicks QC was picked up by the editors of Chitty on Contracts, 29^th ed, vol I, para 4-055. I do not think I need quote it. Accordingly an historical approach to section 2 of the [1989 Act] would suggest that the contract could be signed by an agent whose authority was conferred only orally."

This line of authority makes it clear, in my judgment, that section 2 of the 1989 Act applies only to executory contracts for the future sale or other disposition of an interest in land, and does not apply to a contract which itself effects such a disposition. The issue was expressly formulated by Judge Hicks in those terms in Target Holdings at paragraph 52, and the reasoning which led him to conclude as he did has since been endorsed in two decisions of this Court, namely McLaughlin v Duffill and Helden v Strathmore.

The concept of a contract of disposition, as opposed to an executory contract for disposition, may at first sight seem an elusive one. The simplest example of a contract of the former type, as Mr Hext submitted, is probably the grant of a lease, which will normally contain contractual obligations undertaken by the parties (such as the tenant's covenants to pay the rent, or to keep the demised premises in repair, or the landlord's covenant for quiet enjoyment), as well as creating an interest in land. Contracts which create mortgages or charges provide another example, as there will normally be a covenant by the borrower to repay the loan which is being secured. A less obvious example is furnished by the type of boundary agreement which is not deliberately intended by the parties to constitute an exchange of land, but rather has the purpose of demarcating an unclear boundary which is referred to or delineated in the title documents. In Neilson v Poole (1969) 20 P & CR 909, Megarry J held that a boundary agreement of this type relating to unregistered land was not registrable as a Class C (iv) land charge under section 10(1) of the Land Charges Act 1925, because it could not be said to constitute a contract to convey land. As the judge said at 919, "[a] contract merely to demarcate and confirm is not a contract to convey".

In Joyce v Rigolli [2004] EWCA Civ 79, [2004] 1 P & CR D 55, this Court applied the reasoning of Megarry J in Neilson v Poole so as to hold that a demarcating boundary agreement does not fall within section 2 of the 1989 Act. It was in this context that Arden LJ, delivering the leading judgment, said at [31]:

"Similar reasoning in my judgment applies to the words "contract for the sale or other disposition of an interest in land" in section 2 of the 1989 Act. As a matter of ordinary English usage, for a contract to be one "for" selling or disposing of land, it must have been part of the parties' purposes, or the purposes to be attributed to them, in entering into such a contract that the contract should achieve a sale or other disposition of land. The fact that the effect of their contract is that land or an interest in land is actually conveyed, when that effect was neither foreseen nor intended nor was it something which ought to have been foreseen or intended, is not the acid test."

If this passage is read in isolation, it might appear to be authority for the proposition that a contract falls within section 2 if, on an objective analysis, the parties intended the contract to effect an immediate sale or other disposition of land or an interest in land. In other words, there would be no requirement that the contract needs to be executory in order to be caught by section 2. On behalf of Mr Aidiniantz, Mr Sims QC argued that this is indeed what Arden LJ meant to say, and that section 2 should be construed accordingly.

For a number of reasons, however, I am unable to accept this submission. First, it cannot be reconciled with the line of authority stemming from Target Holdings v Priestley which I have examined above, and which makes it clear that section 2 applies only to contracts which are executory. Secondly, there is nothing to indicate that this particular point was argued in Joyce v Rigolli, or that the relevant authorities were cited to the court. Thirdly, the point was not in any way necessary to the court's decision, which turned on the distinction between contracts intended to achieve a sale or other disposition of land on the one hand, and contracts intended to demarcate an uncertain boundary on the other hand. The question whether a contract of the former type has to be executory in order to fall within section 2 was simply not in issue. Finally, in his concurring judgment Sir Martin Nourse, while agreeing with the reasons given by Arden LJ, founded his additional remarks in [42] to [45] squarely on the distinction drawn by Megarry J in Neilson v Poole. As Sir Martin Nourse said, at [43]:

"In my judgment the reasoning of Megarry J … applies equally to section 2(1) of the 1989 Act. A demarcation agreement as described by him is no more a "contract for the disposition of an interest in land" than it is a "contract to convey land"."

For completeness, I should also mention the decision of Mr Kevin Prosser QC, sitting as a Deputy Judge of the High Court, in Yeates v Line [2012] EWHC 3085 (Ch), [2013] Ch 363. The issue in that case was whether an oral agreement to compromise a boundary dispute was invalidated for failure to comply with section 2. The judge held that it was not, because the agreement did not have a disposing purpose, even if it had a disposing effect: see his judgment at [33] to [36]. In reaching this conclusion, the judge followed and applied the reasoning of Arden LJ in Joyce v Rigolli, holding that it was not confined to boundary agreements but extended to a wider category of agreements without a disposing purpose which it exemplified. I see no reason to doubt that this case was correctly decided, but for present purposes it takes the debate no further, because the focus, as in Joyce v Rigolli itself, was on the lack of dispositive intention, not on whether the agreement in question was executory.

Discussion and conclusions

If these principles are applied to the present case, it is reasonably clear to my mind that the judge reached the right conclusion on the basis of the unusual facts which he found. Although the settlement agreement was based on the terms of the email of 8 April 2013, the judge found explicitly that no contract was concluded until 11 April. On the latter date, the execution of the two declarations of trust by Ms Riley was itself an integral part of the formation of the contract. The deeds were not executed by her pursuant to any prior binding obligation to do so, but rather they formed part of the consideration provided by Ms Riley for the obligations undertaken by Mr Aidiniantz. The contract was only formed once the deeds were signed by her. As a matter of legal analysis, the contract was formed by an exchange of promises made by Mr Aidiniantz for performance by Ms Riley in the shape of her execution of the two documents.

I would accept the submission for the respondents that there is no conceptual or legal reason why a contract may not be formed by the exchange of a promise for a performance. Indeed, this is the essence of so-called unilateral contracts, under which (for example) a reward is offered for the return of lost property. The contract is formed (at the latest) on the return of the property, which constitutes both the acceptance by the offeree of the offer and the furnishing of consideration for the creation of the contract: see Chitty on Contracts, 32^nd edition (2015), para 1-107. According to the judge's analysis, as I understand it, Mr Aidiniantz was in effect saying to Ms Riley on 11 April 2013:

"If you execute the two declarations of trust, I will regard myself as bound to make the payments, and fulfil the other obligations, set out in my email of 8 April."

Thus there was no point at which Ms Riley undertook an executory, or future, obligation to execute the two deeds. Their execution constituted both her acceptance of Mr Aidiniantz's offer, and the consideration moving from her for his promises. As such, the agreement was one which itself included an immediate disposition of interests in land; it was not a contract for the disposition of those interests at any future time.

The arguments advanced by Mr Sims in support of the first two grounds of appeal depended partly on an analysis of the judgment, and partly on the authorities. In relation to the judgment, he emphasised the judge's findings in [44] that on 11 April 2013 "a contract was formed on the terms set out in the 8 April 2013 email for which part of the consideration was the actual execution of the declarations of trust". If the contract was formed on the terms of the email of 8 April, says Mr Sims, it must have included an obligation by Ms Riley to execute the two declarations of trust and was therefore a contract "for" disposition. Nor does it cease to be a contract "for" disposition merely because part of the consideration for the contract consisted of the actual execution of the declarations of trust. This submission, however, seems to me to break down on the facts, because it fails to take account of the judge's clear finding that no contract was concluded until 11 April 2013. There was never an executory contract on the terms of the email of 8 April. Accordingly, when the contract was formed on 11 April, the execution of the declarations of trust constituted both the performance of the contract by Ms Riley and the consideration which she provided. The contract was therefore one "of" disposition.

In relation to the law, Mr Sims criticised the judge's reliance in [45] on the decision of this Court in Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900, [2012] 1 WLR 2855, particularly at [8] where Rimer LJ (with whom Patten and Laws LJJ agreed) cited with approval the observations of Lord Neuberger MR in Helden v Strathmore to the effect that section 2 of the 1989 Act is not concerned with documents which actually create or transfer estates or interests in land: see [31] above. Mr Sims submitted that the scope of section 2 is not confined to executory contracts, and if an immediate actual disposition forms part of the contract, that is enough to engage the section. In oral argument, Mr Sims buttressed this submission with particular reference to the passage in Arden LJ's judgment in Joyce v Rigolli at [31] which I have already discussed.

This submission seems to me to lie at the heart of the case. If it were well founded, it would be difficult to resist the conclusion that section 2 applied to the entirety of the settlement agreement, unless possibly a collateral contract could legitimately be found to exist. As Rimer LJ said in Keay at [9], the effect of section 2(1) of the 1989 Act "is merciless". As I have already explained, however, I do not consider that the principle formulated by Arden LJ in Joyce v Rigolli can bear the weight which Mr Sims invites us to place on it. For the reasons which I have given, I am satisfied that section 2 on its true construction applies only to contracts for the future disposition of an interest in land. This key point, coupled with the judge's careful findings of fact, is in my judgment determinative of the appeal.

In view of the conclusion which I have reached, I do not consider it necessary to review various other arguments of a subsidiary nature which Mr Sims advanced in support of the first and second grounds of appeal. It is also unnecessary for me to say anything about the fourth ground of appeal, which seeks to challenge any finding the judge may have made about the existence of a collateral contract distinct from the land elements of the settlement agreement. I do not think this is what the judge intended to do, and since I would anyway uphold his decision on the basis that all the obligations of the parties were contained in a single agreement, the question does not arise.

If the other members of the court agree, I would therefore dismiss the appeal.

Lord Justice David Richards:

I agree.

Lord Justice Tomlinson:

I also agree.