Perpetuities — Right of repurchase — Validity — Right of repurchase granted without time limit — Whether right constituting an interest in land — Whether right analogous to option to purchase — Whether right void by reason of section 9(2) of Perpetuities and Accumulations Act 1964 — Whether rectification possible to avoid section 9(2) — Whether equity should intervene to prevent reliance upon section 9(2)
In 1974, T Ltd agreed to sell a farm to Mr W and to the claimants, Mrs W and DW, for £20,000, with completion on 16 May. Clause 3 of the agreement provided that, upon the death of the survivor of Mr and Mrs W, DW should give to the defendants (or their survivors) the sole right to repurchase the farm at the price of £20,000 with vacant possession. Mr W died in 1981. The claimants contended that the right to repurchase was void, and the following issues arose for determination, namely whether: (i) the right to repurchase had become void and of no effect by reason of section 9(2) of the Perpetuities and Accumulations Act 1964; (ii) if void, the right should be rectified in terms that would not attract the rule against perpetuities; and (iii) if not, equity should intervene to prevent the claimants from seeking to rely upon section 9(2) of the Act.
Held: (1) The right of repurchase was an interest in land that came into existence at the latest by the date of the 1974 conveyance and was immediately vested in the grantees of the right. The right was not analogous with, or similar to, a conditional option. The right to repurchase became void and of no effect by reason of section 9(2) of the 1964 Act because it was unlimited in time. (2) The right to repurchase should not be rectified; the parties had agreed, in 1974, that the right should be unlimited in time. (3) Equity would not intervene to prevent DW from relying upon section 9(2) of the 1964 Act. There had been no unconscionable behaviour on the part of Mr W and the claimants, nor had they made any representations. No conduct had occurred that could invoke the doctrine of estoppel by convention.
The following cases are referred to in this report.
Actionstrength Ltd v International Glass Engineering SpA [2001] EWCA Civ 1477; [2002] 1 WLR 566; [2002] 4 All ER 468
Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84; [1981] 3 WLR 565; [1981] 3 All ER 577; [1982] 1 Lloyd’s Rep 27, CA
Co-operative Wholesale Society Ltd v Chester-le-Street District Council (1997) 73 P&CR 111; [1996] 2 EGLR 143; [1996] 46 EG 158; [1996] RVR 185
Crabb v Arun District Council [1976] Ch 179; [1975] 3 WLR 847; [1975] 3 All ER 865, CA
Habib Bank Ltd v Habib Bank AG Zurich [1981] 1 WLR 1265; [1981] 2 All ER 650, CA
Jennings v Rice [2002] EWCA Civ 159; [2003] 1 P&CR 8
Keen v Holland [1984] 1 WLR 251; [1984] 1 All ER 75; (1984) 47 P&CR 639; [1984] 1 EGLR 9; (1984) 269 EG 1043, CA
Lillis v North West Water Ltd [1999] RVR 12
London & South Western Railway Co v Gomm (1882) 20 ChD 562
Nippon Yusen Kaisha v Pacifica Navegacion SA (The Ion) [1980] 2 Lloyd’s Rep 245
Shah v Shah [2001] EWCA Civ 527; [2002] QB 35; [2001] 3 WLR 31; [2001] 4 All ER 138
Yaxley v Gotts [2000] Ch 162; [1999] 3 WLR 1217; [2000] 1 All ER 711; (2000) 32 HLR 547; 79 P&CR 91; [1999] 2 EGLR 181
This was a hearing of a claim by the claimants, Edna Cecilia Wilson and David Ellis Wilson, for declaratory relief against the defendants, Michael Edward Truelove and Ruth Margaret Truelove.
Andrew Cosedge (instructed by Toller Hales & Collcutt, of Northampton) appeared for the claimants; Stephen Shaw (instructed by Anthony Collins Solicitors, of Birmingham) represented the defendants.
Giving judgment, Mr Simon Berry QC said:
Introduction
[1] The claimants, who are mother and son (respectively Mrs Edna Wilson and Mr David Wilson), are the freehold owners of Cross Roads Farm, Priors Marston, Warwickshire (the farm). The husband and father of the claimants (Mr Wilson), was also a joint owner of the farm, but he died on 21 October 1981.
[2] The farm was originally part of a larger estate, another part of which was a further farm known as the Grange. Mr Wilson was the tenant of the Grange. A time came when he also became the tenant of the farm, which he sublet to the first defendant (Michael Truelove), who is the husband of the second defendant (Ruth Truelove), she being the daughter of Mr and Mrs Wilson and the sister of David Wilson.
[3] A yet further time came when the freeholds of the farm and the Grange became available for purchase. Mr and Mrs Wilson and David Wilson bought the Grange, and Michael and Ruth Truelove formed ME Truelove (Farms) Ltd (the company), which purchased the farm.
[4] An agreement in writing was made on 22 February 1971 (the 1971 agreement) between Mr and Mrs Wilson and David Wilson and the company. Clause 2 of the 1971 agreement recorded the company’s agreement to sell the farm (or, alternatively, the shares in the company) to Mr and Mrs Wilson and David Wilson for £37,000. It was recorded in clause 3 of the 1971 agreement that £15,000 had already been paid in part payment of that consideration. Clause 7 of the 1971 agreement provided as follows:
On completion of the transfer of the said property or of the said shares as hereinbefore mentioned or any dissolution of their farming partnership occurring after such completion the Wilsons will give to Trueloves or their issue the sole right to re-purchase the said property or the said shares at the price of Thirty Seven Thousand Pounds
No time limit was prescribed for the exercise of the right to purchase.|page:64|
[5] The 1971 agreement was never put into effect. However, a further agreement in writing was made on 7 April 1974 (the 1974 agreement) between: (i) the company (defined as the vendor); (ii) Michael and Ruth Truelove (again referred to as the Trueloves); and (iii) Mr and Mrs Wilson and David Wilson (defined as the purchasers). The 1974 agreement expressed the 1971 agreement to be “null and void” and provided for the vendor to sell the farm for £20,000, with completion on 16 May 1974, which was the date of the conveyance (the conveyance).
[6] Clause 3 of the 1974 agreement provided as follows:
On the death of the survivor of the two first named Purchasers the third named Purchaser shall give to the Trueloves jointly or in the event of either predeceasing to the survivor of them or in the event of both predeceasing to Trueloves issue the right to re-purchase the property at the price of Twenty Thousand Pounds with the benefit of vacant possession.
Again, no time limit was prescribed for the exercise of the right to purchase.
Issues
[7] The following questions arise for determination:
(1) Has the right to repurchase, which was granted by the 1974 agreement, become void and of no effect by reason of section 9(2) of the Perpetuities and Accumulations Act 1964 (the 1964 Act)?
(2) If so, ought such right to repurchase be rectified so as to be in terms that would not attract the rule against perpetuities?
(3) If not, ought equity to intervene so as to prevent Mrs Wilson and David Wilson from seeking to rely upon section 9(2) of the 1964 Act?
I propose to consider these questions in turn, and in the same order.
(1) Rule against perpetuities
[8] Mr Stephen Shaw, counsel for Mr and Mrs Truelove, submitted that, for the purposes of section 9(2) of the 1994 Act, no “option to acquire for valuable consideration any interest in land” came into existence until one of the triggering events specified in clause 3 of the 1974 agreement had occurred that thereby (and only then) required the “issue” of the right to repurchase. Mr Shaw also submitted that the right to repurchase, given the need, first, for a triggering event, was analogous with a conditional option, in respect of which the perpetuity period did not begin until the fulfilment of the condition in question: as to which see generally Maudsley’s The Modern Law of Perpetuities, at p188.
[9] I agree with the submission of Mr Andrew Cosedge, counsel for Mrs Wilson and David Wilson, that the right of repurchase is properly regarded as an interest in land that arose upon the coming into existence of the 1974 agreement or, at the very latest, the conveyance. This is because the fact of the grant of the right of repurchase constituted by the 1974 agreement had the effect that the “right” to “take… away” the estate or interest of the Wilsons in the farm was immediately vested in the grantees of the right to repurchase: see London & South Western Railway Co v Gomm (1882) 20 ChD 562 at p581.
[10] In my judgment, the reference to the right to repurchase being issued later does, at most, amount to no more than a procedural requirement. And, beyond this, the fact that there was a requirement in the 1974 agreement for the right to repurchase to be issued had the effect that there was an immediate requirement for such issue, albeit that the time for issue was later, with the result that, again, the “right” to “take… away” the estate or interest of the Wilsons in the farm was immediately vested in the grantees of the right to repurchase.
[11] As to the submission that the right of repurchase was analogous with, or similar to, a conditional option, it seems to me that this is not correct. In my judgment, the various triggering events are, of their nature, events in respect of which it is to be expected that one will occur. Accordingly, they identify when the right of repurchase will become exercisable. Their purpose is not to specify a condition that may or may not occur and that must first have been fulfilled.
(2) Rectification
[12] I heard oral evidence from David Wilson and also from Mr and Mrs Truelove. In addition, I was taken to written statements by Mrs Wilson and shown correspondence passing between the parties’ respective solicitors. It is quite clear to me that the parties to the 1974 agreement did intend that there should be a right to purchase that was unlimited in terms of time. The mistake that was common to the parties was that such an unlimited right was permissible in law. Notwithstanding the fact that both sides had their own solicitor acting for them in relation to the 1974 agreement, none of the parties were aware of the rule against perpetuities as it affects options.
[13] Accordingly, this is not a case in which the agreement that the parties did reach was not correctly recorded in the 1974 agreement. Nor is this a case in which rectification is being sought by way of the court rectifying the 1974 agreement so that it accurately reproduces what the parties in fact agreed. Rather, the rectification that is sought is the substitution of a right of repurchase in different terms from those agreed, or as a different creature so that it does not offend against the rule.
[14] In my judgment, the claim to rectification that is made does not at all accord with the most elemental principles of rectification. I therefore decline to order rectification of the 1974 agreement.
[15] As to whether rectification should be ordered by way of satisfaction of an equity, this will arise only as a candidate order if a relevant equity has arisen. I now turn to this question.
Intervention of equity
[16] In their defence, Michael and Ruth Truelove rely upon:
an implied, resulting or constructive trust in favour of the Defendants [that the farm is] to be conveyed to the Defendants upon the demise of [Mrs Wilson], and upon payment of the sum of £20,000…
They also rely upon:
the operation of the doctrines of estoppel by convention, equitable or promissory estoppel or equitable forbearance…
The essential submissions of Mr Shaw were that: (i) equity will prevent a person from relying upon his strict legal rights, even such rights as arise under statute, when it would be inequitable for him to do so: see Crabb v Arun District Council [1976] Ch 179 at pp187G-188A; or (ii) the instant case is one within which there is an estoppel by convention that precludes the claimants from relying upon the 1964 Act.
(i) Inequitable to rely upon the 1964 Act
[17] There is an important distinction to be drawn between two matters. First, and I accept the submissions of Mr Shaw in this respect, the mere fact that one is concerned with a statutory right or a statutory requirement does not of itself necessarily prevent equity from providing relief that will override the right or requirement in question: see Crabb, Yaxley v Gotts [2000] Ch 162* at p175B-D, and Shah v Shah [2001] EWCA Civ 527; [2001] 3 WLR 31. Second, however, such relief can be available to the claimants only if there has been some unconscionable behaviour on the part of the defendants that gives rise to an equity: see, for example, Nippon Yusen Kaisha v Pacifica Navegacion SA (The Ion) [1980] 2 Lloyd’s Rep 245, Habib Bank Ltd v Habib Bank AG Zurich [1981] 1 WLR 1265 at p1286, and Jennings v Rice [2002] EWCA Civ 159† at [21].
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* Editor’s note: Also reported at [1999] 2 EGLR 181
† Editor’s note: Reported at [2003] 1 P&CR 8
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[18] As I have mentioned above, I did hear oral evidence from David Wilson and also from Mr and Mrs Truelove. I do find that Mr and Mrs Truelove would not have entered into the 1974 agreement and the conveyance, at any rate with the 1974 agreement containing a right for them to repurchase the farm that would expire in 21 years, had they known that such right would expire within such a time. I also find that, without the right of repurchase, the terms of the 1974 agreement in |page:65| some respects (eg the purchase price and the free living accommodation for Mr and Mrs Wilson in Hardwick Grange) were adverse to the interests of Mr and Mrs Truelove. I further find that, through their failure to appreciate that the right of repurchase was limited in time, Mr and Mrs Truelove failed to take steps that they might otherwise have taken, eg pension arrangements, challenging the will of Mr Wilson and taking steps to secure the future of their mentally disabled son.
[19] However, it does not seem to me that any of these matters can be said to have been occasioned by any unconscionable behaviour on the part of any of the Wilsons. In particular, they did not expressly or impliedly represent to Mr and Mrs Truelove that the right of repurchase had no time limit. Nor did they encourage or allow Mr and Mrs Truelove to make such an assumption about the right to repurchase or to act to their detriment on the basis of such an assumption. This is no more than a case in which both parties entered into an agreement with an erroneous view as to its true effect and Mr and Mrs Truelove thereafter acted unilaterally on the basis of their own assumption about the terms of that agreement. Without more — without some unconscionable conduct — there is no ground for the intervention of equity.
Estoppel by convention
[20] Mr Shaw correctly submitted that there was no requirement as to unconscionability in relation to claims that are founded on estoppel by convention. However, as Lord Denning MR said in Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84, at pp121H-122A:
When the parties to a contract are both under a common mistake as to the meaning or effect of it — and thereafter embark on a course of dealing on the footage of that mistake — thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. The parties are bound by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them.
As I have found above, this has not happened in the instant case. The parties did not embark upon a course of dealing on the footage of the mistake that they had both independently made as to the life of the right to repurchase. Rather, Mr and Mrs Truelove did no more than act independently in a way that they would not otherwise have done in the absence of their mistake.
[21] Mr Shaw submitted that two decisions in the Lands Tribunal on estoppel by convention in relation to limitation periods, namely Co-operative Wholesale Society Ltd v Chester-le-Street District Council (1997) 73 P&CR 111* and Lillis v North West Water Ltd unreported 10 September 1998†, were in a territory that was similar to the instant case and supported his submissions. In my judgment, on the contrary, these are examples of cases that make it clear that the parties must be jointly proceeding on the basis of a shared common assumption: in those cases, the shared common assumption was that the parties could negotiate without the risk of the time thereby taken leading to the expiry of the relevant limitation period.
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* Editor’s note: Also reported at [1996] 2 EGLR 143
† Editor’s note: Reported at [1999] RVR 12
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[22] In the instant case, the parties did not jointly proceed on the basis of a shared common assumption. They did no more than both enter into an agreement in circumstances in which they individually misunderstood the legal effect of one of its terms. They did not thereafter proceed jointly on the basis of that misunderstanding: things were done or not done individually, in particular by Mr and Mrs Truelove on the basis of their own misunderstanding, and not on the basis of any encouragement, still less representations, on the part of the Wilsons.
[23] In my judgment, the following dicta of Oliver LJ in Keen v Holland [1984] 1 WLR 251* at p261F-G are equally applicable to the instant case:
This is not strictly a case of the parties having established, by their construction of their agreement or their apprehension of its legal effect, a conventional basis upon which they have regulated their subsequent dealings as in the Amalgamated Investment case… The dealing alleged to give rise to the estoppel is the entry into the agreement itself in the belief that it would produce a particular legal result. In fact, for reasons which had nothing to do with the defendant, the Plaintiffs got it wrong…
So, too, in the instant case: this is no more than a case in which the parties “got it wrong”.
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* Editor’s note: Also reported at [1984] 1 EGLR 9
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[24] Mr Shaw made a number of submissions in relation to the question that was considered in Shah (and see also Actionstrength Ltd v International Glass Engineering SpA [2001] EWCA Civ 1477; [2002] 1 WLR 566 at p577) as to whether a statute can be rendered “nugatory” by an estoppel. In particular, as was considered in Shah, there is the question as to whether the policy behind the provision made in section 9(2) of the 1964 Act, as revealed by the Law Reform Committee Report, Cmnd 18 (1956), excluded an estoppel from overriding that provision. In this connection, Mr Shaw also took me to the criticisms of the rule against perpetuities that appear in Gray’s Elements of Land Law (2nd ed) at p672.
[25] However, for the reasons that appear above, it does not seem to me to be necessary to reach any conclusions about these questions: there was no unconscionable conduct nor any conduct giving rise to an estoppel. In particular, this is not a case, of a kind that could be considered distinguishable from both Shah and Actionstrength, in which there was some representation by the Wilsons to Mr and Mrs Truelove that they would not rely upon the effect of section 9(2) of the 1964 Act.
[26]. For similar reasons, I do not find it necessary to make findings about some of the factual disputes that were canvassed in the evidence. I refer, in particular, to the questions on whether the payment of £15,000, which was made to Ruth Truelove by her father, was a gift or a loan to fund the then expected later acquisition of the farm, as to the nature of the relationship between Mr Wilson and Michael Truelove and as to the reason why Mr Wilson wanted to come back to the area in which the farm was situated.
Conclusion
[27] Accordingly:
(1) I hold that the right to repurchase that was granted by the 1974 agreement become void and of no effect by reason of section 9(2) of the Perpetuities and Accumulations Act 1964.
(2) I further find that such right to repurchase ought not to be rectified so as to be in terms that would not attract the rule against perpetuities.
(3) I also find that there is no ground for the intervention of equity so as to prevent Mrs Wilson and David Wilson from seeking to rely upon section 9(2) of the Perpetuities and Accumulations Act 1964, nor is there any estoppel by convention that would lead to such an effect.
I also order, pursuant to section 1(6) of the Land Charges Act 1972, that the registration of the Class C(iv) Land Charge, numbered 128751, in respect of the right to repurchase, be vacated.
Claim allowed.
