England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Claim No HC08C02104 Royal Courts of Justice Strand, London WC2A 2LL
		22nd October 2009

Introduction

1. Close to the new Olympic Park in Stratford, East London, there is a development site ("the Site"). Apparently at an earlier point in Stratford's history the Site was owned at least in part by L&D Toys. In a major development of the Site, some 298 flats are now being built in a tower which will have commercial space at ground floor level. This dispute concerns the question of who will be entitled to enjoy long leasehold interests in the ground floor commercial space.

The Agreement

2. By an agreement dated 4 March 2005 ("the Agreement") Quest Advisors Limited ("Quest") agreed to sell the Site to Mr Thomas McFeely (the first Defendant). Delays followed in relation to funding, and a number of other parties were variously involved. Not inconsiderable commercial drama followed when the value of the Site was suddenly and dramatically affected by the decision on 6 July 2005 to award the Olympic Games for 2012 to London, and thus to the United Kingdom.
3. The specific location of the Site is 160-188 (even) High Street, Stratford, London E5 2NE. To acquire the Site Mr Thomas McFeely agreed to pay £12,745,000 to Quest and also to grant to Quest long leases of the ground floor commercial space.
4. Clauses 17 and 18 of the Agreement are in these terms:

"17. COMMERCIAL LEASES

Subject to the payment of the sums referred to in clause 18 below on or before completion of the Development to be constructed by [Mr Thomas McFeely] or its successor in title at [the Site] [Mr Thomas McFeely] shall grant no more than eight leases of the ground floor commercial space being

(a) for the property FIRSTLY described approximately 815 square metres of commercial space

and

(b) for the property SECONDLY described approximately 387 square metres of commercial space

Such leases to be granted to the Seller or as it directs for a term of 999 years at a peppercorn rental for no premium substantially in the form of the draft lease annexed hereto and set out in Schedule 4

5. CAPITAL PAYMENT
6. 1 In this clause the following words shall have the following meaning:-

(a) "Development" means the actual development which receives Planning Permission to be constructed on the Site being part residential and part commercial

(b) "Site" means the whole of the land edged red on the Plan

(c) "Plan" means the Plan annexed to this Agreement

18.2 [Mr Thomas McFeely] or its successor hereby agrees to include within its building contract for the Development provision of a commercial element within the Site as shown on the Plan and to the level of the Outline Specification annexed to this Agreement.

18.3 [Quest] hereby agrees to pay or procure to be paid by the appropriate lessee to [Mr Thomas McFeely] on the grant of the said lease or leases (and as a condition precedent to the grant of such lease or leases) a contribution towards the building costs of the Development equating to … (£850) per square metre (plus VAT where applicable) of the cost of construction of the commercial element of the Development specified above in accordance with the Outline Specification together with such sum as represents the cost of any variations to the Outline Specification agreed by the parties to the Agreement (plus VAT where applicable).

18.4 The contribution shall be paid in three stages by or on behalf of [Quest] as follows:

(a) on completion of the shell and superstructure to the second floor: one third of the total cost plus VAT

(b) on completion of the construction of the shop front and the envelope of the Building: one third of the total cost plus VAT

(c) on Practical Completion of the whole Development AND on the grant of the lease or leases: one third of the total cost plus VAT

[18.5] [Mr Thomas McFeely] agrees to allow [Quest] or those authorised by or behalf of it to have access to the said commercial element at all reasonable times for the purposes of carrying out fitting out works and all other related matters to the commercial accommodation."

"Quest"

7. An initial point taken by the Defendants is that the first Claimant is not the same person as Quest (the party to the Agreement). The first Claimant is a limited company incorporated in the British Virgin Islands ("BVI"), with its registered office in Tortola and with the name Quest Advisors Limited. The recitals to the Agreement refer to Quest as having its registered office in St Helier, Jersey. Other documents give a Jersey address for Quest, including an agreement dated 22 October 2004 which also describes that address as its registered office.
8. There is opacity in relation to Quest, and the burden on this issue is on the Claimants. No officer, owner or employee has given evidence. The documentation available in connection with Quest is very limited, and one document that there is, an electronically produced letter apparently on its letterhead, contains no reference to BVI. I understand an application by the Defendants for specific disclosure to have been refused by a Master, and that that decision was not appealed. I bear in mind however that that episode does not take away the continuing obligation of the Claimants to give disclosure of documents properly disclosable. Further I was told by Counsel, and accept, that at the hearing before the Master the right on the part of the Defendant to ask the Court to draw any appropriate inference from the comparative absence of documents was reserved.
9. However there is direct, unchallenged, evidence that there was and is no Jersey registered company named Quest Advisors Limited. Nor is there evidence to suggest that there are two companies named Quest Advisors Limited, one registered in BVI and one registered elsewhere than Jersey or the BVI.
10. Mr Bramley, from whom I did hear evidence, was the person who first "found" the Site and interested Quest Advisors Limited in it. His experience was that "Jersey ran" the company in question, but that it was a BVI company. Mr Thomas McFeely's evidence, when it came down to it, was simply that Quest had been portayed as "a company in Jersey", which is consistent with it being a BVI company administered from Jersey. It was clear from his evidence that it did not matter to him whether the company was a BVI company or a Jersey company. In that light it was unsurprising that he did not feel able to answer for his (then) lawyer who had raised a requisition in relation to the transaction seeking an opinion letter issued by a firm of lawyers practising in the BVI - not Jersey or elsewhere - confirming that Quest had power to sell the Site.
11. On the balance of probabilities I conclude that the first Claimant is the same corporate person as the party to the Agreement. The Agreement was simply wrong in its reference to Jersey and in its failure to mention BVI.

Alleged assignment of benefit by the Deed

12. As first Claimant, Quest claims to have assigned the benefit of the Agreement to Sharriba Limited ("Sharriba", the second Claimant), by a Deed dated 3 October 2006 ("the Deed"). The Defendants challenge that claim.
13. The Defendants argument is as follows: (a) the Agreement is (so far as material on this point) an agreement to grant new leases, (b) by clause 4 of the Agreement, the Standard Conditions of Sale (4^th edition) are incorporated into the Agreement, so far as not inconsistent with the terms of the Agreement, (c) by clause 1.5, 8.2.1 and 8.2.2 of the Standard Conditions Quest is not entitled to transfer the benefit of the Agreement, (d) the benefit of the Agreement includes the right under Clause 17 of the Agreement to require the leases to be granted to someone other than Quest if Quest so directs, (e) the Deed purports to assign the benefit just summarised, ie to grant to Sharriba the right to require the leases to be granted to someone other than Quest (or itself).
14. In the event this issue may be commercially immaterial. If the right in question cannot be assigned the Deed will be ineffective at least in that respect. The result would be that Quest retains the right. I understand from Counsel for the Claimants that Quest and Sharriba are content whichever is held to enjoy the right.
15. Conditions 1.5, 8.2.1 and 8.2.2 of the Standard Conditions provide:

"1.5 Assignment

The buyer is not entitled to transfer the benefit of the contract.

8.2 New leases

8.2.1 The following provisions apply to a contract to grant a new lease

8.2.2 The conditions apply so that:

"seller" means the proposed landlord

"buyer" means the proposed tenant."

16. The "contract" referred to in Condition 1.5 is the Agreement, but the Agreement is both a contract to sell the Site and a contract to grant new leases. For the purpose of the contract to grant a new lease, Conditions 8.2.1 and 8.2.2 apply Condition 1.5, and apply the Condition so that it is Quest (the proposed tenant) who is "not entitled to transfer the benefit of the contract". The "contract" in this prohibition is however only the contract to grant a new lease, and not the whole Agreement.
17. Thus applying the Standard Conditions, Quest was not entitled to assign to Sharriba the right to require the leases to be granted to someone other than Quest. I cannot see that that outcome is inconsistent with the Agreement, so as to disapply the Standard Conditions. For the avoidance of doubt, the outcome does not affect the ability of Quest to assign the benefit of the Agreement so far as it comprised the contract to sell the Site. Nor does the outcome affect the right of Quest to require the leases to be granted to someone other than itself, and to exercise that right in whatever way Sharriba might wish.

Alleged repudiatory breach of the Agreement

18. There is however a further issue in relation to the Deed, that the Defendants pursue as a main point. The terms of the Deed provided that Quest "assigned absolutely" not only the benefit of the Agreement but "all obligations and liabilities pertaining thereto and contained therein". The Deed was followed by what was called a Notice of Assignment ("the Notice") stating that "all … obligations and liabilities" had been assigned.
19. In law the transfer of the obligations owed under a contract cannot be achieved by the act of the party who owes those obligations "assigning" them to another. The agreement of the party to whom the obligations are owed is required, as well as of the party taking on the obligations. The process, requiring all three parties, is one of novation. Thus the Deed and the Notice did not "assign" "all obligations and liabilities" from Quest, and Quest remained under the obligations it had assumed in the Agreement and retained the liabilities it had incurred and would incur.
20. Yet of course the Notice asserted the contrary. This has caused the Defendants to say that the Deed and the Notice showed that the intention of Quest was that it was no longer bound by the Agreement. This, say the Defendants, was a repudiation of the Agreement by Quest, and that repudiation was accepted by the Defendants some near two years later by letter on 8^th September 2008 or by the Defence of the same day. The result, on the Defendants argument, is that the Agreement is at an end.
21. What the Defendants said, by their solicitors letter of 8^th September 2008, was this:

"1. The attempt by Quest … to transfer their payment obligations pursuant to the conditions contained in clauses 17 and 18 of the Agreement and evidenced both by the purported assignment itself and your letter dated 30 April 2008 is a repudiation of the Agreement which our client accepts; and/or

2. If, which is denied, the purported assignment dated 3 October 2006 is effective then the imposition of additional conditions by Sharriba … before any payment is made pursuant to the conditions contained in clause 17 and 18 of the Agreement is a repudiation of the Agreement which our client accepts; and/or

3. The failure by Quest … and/or Sharriba … to make any payment pursuant to the conditions contained in clauses 17 and 18 of the Agreement is a repudiation of the Agreement which our client accepts."

22. It is the first of these three positions that is pursued.
23. If the Defendants were correct in this submission the consequences for commercial life would be far-reaching. It is plain that Quest did not think it was acting contrary to the Agreement. It sent the Notice because it considered the Deed was effective to transfer its obligations and liabilities.
24. The authorities support the following propositions:

(1) "[T]he real matter for consideration is whether the acts or conduct of … one do or do not amount to an intimation of an intention to abandon and altogether refuse performance of the contract": Freeth v Burr LR 9 CP 208 at 213 (per Lord Coleridge CJ); Woodar Investment Development Limited v Wimpey Construction (UK) Limited [1980] 1 WLR 277 at 294F (per Lord Keith) and 298B (per Lord Scarman).

(2) "Repudiation is a drastic conclusion which should only be held to arise in clear [or "plain"] cases of refusal, in a manner going to the root of the contract, to perform contractual obligations": Woodar v Wimpey (above) at 283E (per Lord Wilberforce) and 298B and G (per Lord Scarman).

(3) "[S]ubjective intention is not decisive … there remains the question whether, objectively regarded, [the] conduct showed an intention to abandon the contract": Woodar v Wimpey (above) at 281D (per Lord Wilberforce) and 294G (per Lord Keith).

(4) "Where one party, honestly but erroneously, intimates to the other reliance upon a term of the contract which, if properly applicable, would entitle him lawfully to rescind the contract, in circumstances which do not and are not reasonably understood to infer that he will refuse to perform his obligations even if it should be established that he is not so entitled, proceedings to decide that issue being in contemplation," the other party will not be allowed to treat such conduct as a repudiation: Woodar v Wimpey (above) at 297B-C (per Lord Keith), 280G-H (per Lord Wilberforce) and 299E-G (per Lord Scarman).

25. Mr Mark Warwick, for the Claimants, submitted that in the present case there was "not a hint of a rejection". This means rejection of the Agreement and its obligations. In my judgment that is right. Instead there was the contention that the Agreement and its obligations had been transferred to another and that other would perform them. Far from rejecting the Agreement and the obligations under them Quest's position was one of believing that the Agreement was on foot and that the obligations lay with Sharriba. By letter dated 19 June 2008 the Claimants' solicitors, writing on behalf of Sharriba, said that they had been asked to make clear that funds with which the discharge the stage payment under Clause 18.4 were immediately to hand.
26. I have no doubt at all that the Defendants fully realised that if the validity of the attempt to transfer obligations were successfully challenged, Quest's position would be that it followed that the Agreement bound it and that it was and had been under the obligations imposed by the Agreement.
27. Mr David Mayall, for the Defendants, submits that (a) the present case is quite different from the situation in Woodar v Wimpey where reliance was placed on a provision in the agreement itself, rather than as here on the effectiveness of some other transaction, namely the Deed; (b) it does not help Quest to be able to say that it held an honest but wrong view; and (c) moreover it has not in fact tendered evidence of an honest belief that the Agreement entitled it to take the position it did.
28. I do not accept these points. As to (a) there are differences on the facts with Woodar v Wimpey but I cannot accept that they found a difference of principle, or qualify the principles to be applied. In any event, in a sense reliance was placed on a view of what the Agreement allowed and did not allow as regards transfer of benefit; the Deed was the implementation of that view. As to (b) I can see that it may not be enough for Quest to say it held an honest but wrong view, but it is not without relevance if the view was honest but wrong: see proposition (4) above. And as to (c) evidence of honest belief need not come from a witness asking for his evidence to that effect to be accepted, it can – as in the present case – come from looking at how the matter developed over time, including in correspondence.
29. Reading the documents touching on the development of this point it is plain to me that what was involved was an honest but wrong view taken by Quest and Sharriba, and followed through by their solicitors. The present case is not a case of one contracting party saying to another "You are not entitled to your money". Rather it is a case of one contracting party saying to another "You are entitled to your money, but from X not Y, I think.".
30. True it is that Quest persisted in its position, including at trial. True it is that Quest could have made plainer its willingness to abide by the Court's decision on the point. But on the facts on this case, in my judgment there is not the necessary intention not to be bound. On the facts of this case the circumstances are such that it was not to be reasonably understood that Quest would refuse to perform its obligations if it should be established that they had not been transferred. Indeed Quest is a Claimant in the proceedings, in the alternative to Sharriba.
31. If, following a final decision in these proceedings Quest persisted in arguing that the obligations had transferred, Quest may face greater risk of a successful argument that its conduct is repudiatory. But on the facts as they are today and up to today, the Defendants' argument on repudiation fails.

Alleged prematurity of relief sought

32. Quest and Sharriba seek declarations that "on or before completion of the Development the Defendants are obliged to grant" the leases of the ground floor commercial space to Sharriba or as it may direct, or to Quest or as it may direct. The Claimants also seek "such further or other relief as is appropriate to give effect to the aforegoing declarations and to enforce the Claimants' right to the grant of the Leases."
33. The Defendants point to the requirement under Clause 17 for payment of the sums referred to in clause 18. They say that the first stage payment has fallen due but has not been tendered, with the result that there is, as things stand, no obligation to grant the leases of the ground floor commercial space.
34. It is useful to go immediately to the reason why the first stage payment has not been tendered. The contribution towards the building costs of the Development is, by Clause 18 of the Agreement, calculated on the number of square metres involved. There is no Outline Specification that gives a reliable guide. An indication is given as at 28 February 2007 that it would be of the order of 1130 square metres. It is a fact that the Defendants have at several points resisted the Claimants requests to come onto the Site to measure (as well as to check on quantity and quality of progress). Even at trial I did not feel that the Defendants, who are in a position to know, could give a reliable precise figure for the actual number of square metres.
35. Quest will not enjoy the grant of the leases without paying for the contribution. Its concern in this litigation is that even if it pays, or tenders payment, it will be met with a refusal to grant the leases. I understand that concern, and am of the view that it is a genuine concern with some objective evidential foundation. The correct approach, subject to my conclusions on the other issues in the case, is for me to consider granting relief in a way that will declare the obligation to grant leases but make clear in so declaring that the obligation is conditional on payment.

Availability of relief against Mr Conal McFeely, the Second Defendant

36. Mr Thomas McFeely alone was party to the Agreement, and originally the Site was conveyed into his name alone. However in due course the Site was further conveyed into the joint names of Mr Thomas McFeely and his brother Mr Conal McFeely, the Second Defendant.
37. Mr Conal McFeely did not give evidence. Mr Thomas McFeely outlined, in response to questions from me, what he described as a "loose structure" towards decisions between himself and his brother about how ownership of particular development properties should be dealt with. His brother, Mr Thomas McFeely recalled, would have been the one actively looking after the Agreement, from their office in County Derry, although they would both meet up each month and Mr Thomas McFeely visits the Site regularly.
38. However this development in the ownership of the Site has given rise to a further issue. The Defendants contend that the obligation in the Agreement to grant the leases of the ground floor commercial space is not an obligation that Mr Conal McFeely owes. He was not a party to the Agreement, and the obligation does not bind him as an owner of the Site.
39. Of course if this contention is sound, and as a result the obligation is not performed, Mr Thomas McFeely may face a claim for damages for breach of the Agreement. However the commercial context is such, as I am led to understand, that the Claimants want the leases rather than money instead.
40. The Agreement included a contract to grant leases of the ground floor commercial space. On the evidence there has been a disposition of the superior interest from Mr Thomas McFeely to himself and his brother Mr Conal McFeely. The superior interest is freehold and the land is registered land. The register shows a unilateral notice in respect of the Deed, described as an "Assignment" of the Agreement, the Agreement in turn stated as "containing leaseback provisions". Consistently with the unilateral notice being in respect of the Deed the register shows the beneficiary to be Sharriba not Quest. I have concluded above that Quest could not assign to Sharriba the right to require the leases to be granted to someone other than Quest. The same reasoning applies to the right to the grant of the leases.
41. Section 28 of the Land Registration Act 2002 provides what is termed a "basic rule" to the effect that disposition of a registered estate prior does not affect an interest affecting that estate except as provided by sections 29 and 30. By section 29(1) if the disposition of the freehold estate was made for valuable consideration, completion of the disposition by registration would have the effect "of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration".
42. On the evidence at trial I find that the disposition of the freehold estate from Mr Thomas McFeely to himself and his brother Mr Conal McFeely was not made for valuable consideration. It is simply not the way in which they worked. There is no document to which my attention has been drawn demonstrating any movement of funds or other form of consideration from one to the other or both. The proprietorship register contains no reference to a price. I add that I have heard nothing that would cause me to conclude that the disposition in any way affected the beneficial ownership of the Site as between Mr Thomas McFeely and Mr Conal McFeely.
43. Mr Mayall, for the Defendants, submitted in closing that the issue whether the disposition was or was not for valuable consideration was not raised before trial and was not put to Mr Thomas McFeely by Mr Warwick as Counsel for the Claimants. In my judgment the issue was always inherent in the question whether the Claimant was entitled as against Mr Conal McFeely to the particular relief claimed. Moreover it was as much a matter for Mr Conal McFeely to advance if he wished to contend that the disposition of the freehold fell within the exception to section 28. I do not think it was incumbent on Mr Warwick to put the proposition that there was no consideration to Mr Thomas McFeely when there was nothing from the Defendants to suggest that value entered into the disposition from Mr Thomas McFeely to himself and his brother.
44. Mr Mayall further made a submission to the effect that the contract to grant leases of the ground floor commercial space was not "an interest affecting the estate" within section 28. Where the obligation to grant leases is contingent on payment, his submission continued, until payment is made there is not an equitable lease. In the same connection it was urged by Mr Mayall that on its true construction the Agreement itself does not purport to bind successors in title.
45. For my part, I should say first that I cannot see why the contract to grant leases in the present case was not an estate contract with a "proprietary dimension" (see Gray, Elements of Land Law, 5^th edn at 8.1.47- 8.1.72, esp at 8.1.57; and see also Megarry & Wade, The Law of Real Property, 7^th edn at 5-025), capable of supporting the entry of a notice on the register and bringing the matter into the regime comprising sections 28 to 39 of the Land Registration Act 2002. (Indeed it is relevant to note again that the Deed was the subject of a notice.)
46. In any event on the evidence Mr Thomas McFeely and Mr Conal McFeely have at all material times (including, as a matter of fact, from the terms of the unilateral notice) known of the agreement to grant leases of the commercial space. I am further, as indicated above, not prepared to conclude that the beneficial ownership of the Site as between Mr Thomas McFeely and Mr Conal McFeely was affected when the names in which the freehold estate was held were changed. I have already held that Mr Conal McFeely gave no valuable consideration.
47. As to construction, Clause 17 sometimes refers to Mr Thomas McFeely "or his successor" but sometimes does not. However, I am of the view that this is simply poor drafting. As a matter of construction it seems to me that the parties to the Agreement in expressly contemplating that the construction of the Site and of the commercial element might be by Mr Thomas McFeely or his successor in title, must impliedly have contemplated that in that situation it would be Mr McFeely or his successor in title who would grant the lease, receive the contribution towards building costs, and allow access to carry out fitting-out works. I so construe the agreement. I note further that clause 2(ii) of the Agreement expressly contemplated that two or more persons might be included in the expression "the Buyer".
48. In the result, I have been shown no good reason why both Mr Thomas McFeely and Mr Conor McFeely should not both be held, to the extent of the relief in question, to the bargain struck by the Agreement in relation to the grant of leases of the ground floor commercial space.

Conclusion

49. For the reasons given, in my judgment Quest is entitled to a declaration to the effect that on or before completion of the development of the Site the Defendants are obliged to grant the leases of the ground floor commercial space to Quest or as it may direct, provided that on or before the grant of each lease the lessee has paid to the Defendants the required contribution towards the building costs of the development of the Site.
50. I will hear Counsel on the precise terms of the declaration and on the question of what further or other relief may be appropriate to give effect to the declaration and to enforce Quest's right to have the leases granted. I am grateful to both Counsel for their assistance.