Bridging loan – Discharge – Contract of compromise – Enforceability – Solicitors holding undated Land Registry Form DS1s relating to charges over property – Dispute arising as to retention of DS1s following payment of agreed sum – Whether claimants being entitled to possession of DS1s – Whether claimants’ acceptance of offers made by defendant giving rise to enforceable contracts of compromise – Ruling in favour of defendant
The claimants were companies incorporated in the British Virgin Islands and part of a group of companies which invested in ground rent portfolios. That involved acquiring freehold sites in the United Kingdom, which were usually subject to long residential leasehold interests. The income from the sites derived principally from ground rents payable under the long leases. The defendant was a company incorporated in Gibraltar. It carried on business as an unregulated lender specialising in bridging finance.
Two undated Land Registry Form DS1s were executed by the defendant and in the custody of a firm of solicitors (Olswang). They related to charges over two properties, known as Phase 2, Bramley Court, Dunstable and Cable House, Liverpool, granted to the defendant as security pursuant to bridging loan agreements with the claimants. They declared that the defendant, as lender, “acknowledges that the property identified… is no longer charged as security for the payment of sums due under the charge” and thus permitted the cancellation of any entries from the registers of the properties in respect of the charges. Olswang gave the defendant a number of undertakings, including “upon receipt of funds from Barclays Bank plc, to redeem the loan from proceeds of a drawdown which the borrower has requested from Barclays Bank plc”.
The DS1s were sent to Olswang by the defendant upon terms that they were to be held pending release in writing, which had the effect of preventing them from being delivered as deeds until released. The defendant subsequently served statutory demands on the claimants in respect of the two properties. The defendant made offers in writing regarding settlements on the properties. Time was stated to be of the essence and the offers might be withdrawn unless they were accepted by 28 August 2015. Following discussions, on 3 September, the defendant sent an email to Olswang, stating that, if it received £450,000 on that day, Olswang would be released from its undertakings. However, the defendant did not release the DS1s.
Olswang made a stakeholder application under CPR rule 86.2(1) in respect of the DS1s. Master Teverson directed that there should be a trial of the issue, pursuant to CPR rule 86.3(1)(b), whether the claimants had become entitled to possession of the DS1s. The claimants contended, among other things, that, on the true construction of the defendant’s communications, Olswang had been released from its obligation to hold the DS1s to the defendant’s order. Moreover, their acceptance of the offers had given rise to enforceable contracts of compromise. The defendant contended that there had been no compromise of a bone fide dispute, and that any contract was unenforceable by virtue of section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989.
Held: A ruling was made in favour of the defendant.
(1) The interpretation of a contract was an objective exercise. The court’s task was to ascertain the meaning that the document would convey to a reasonable person having all the background knowledge reasonably available to the parties in the situation in which they were at the time of the contract. On the evidence, the defendant had made it clear that the claimants had to ensure that they complied with the terms of the offers before Olswang was released from its obligations to the defendant. It had not referred to the DS1s, nor had it been necessary to do so. On its true construction, the email amounted to a statement that the defendant would release Olswang from any obligations it owed the defendant. The reasonable reader of the email would not have understood that that included release of the DS1s which had always been distinct from release of the undertakings. The release of the DS1s was not a release of an obligation of Olswang but amounted to delivery by the defendant of the DS1s as deeds: Investors’ Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, Sigma Finance Corporation, Re [2010] UKSC 2, Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56; [2011] PLSCS 29, Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and Arnold v Britton [2015] UKSC 36; [2015] EGLR 53 considered.
(2) A contract was “for the disposition of an interest in land” if it was a contract to do something which had the effect that a disposition in land was made. That included an agreement under which there was created an option for the disposition of an interest in land. On the other hand, a contract which itself amounted to a disposition of an interest in land was not a contract for the disposition of such an interest. A “disposition” for the purposes of section 2(1) of the 1989 Act was defined as having the same meaning as in section 201(1)(ii) of the Law of Property Act 1925 and thus included a charge, a release and “every other assurance of property or of and interest therein by any instrument. “Interest in land” was defined by section 2(6) to mean “any estate, interest or charge in or over land”: Dalia Ltd v Four Milbank Nominees Ltd [1978] 1 Ch 231, Spiro v Glencrown Properties Ltd [1991] 1 EGLR 185, Nweze v Nwoko [2004] EWCA Civ 379; [2004] PLSCS 74, McLaughlin v Duffill [2009] 2 EGLR 71 and Helden v Strathmore Ltd [2011] EWCA Civ 542; [2011] 2 EGLR 39 considered.
In the present case, the claimants’ acceptance of the offers had not given rise to enforceable contracts of compromise of a bona fide dispute between the claimants and the defendant. Nor had there been a compromise of a three-way dispute between the claimants, the defendant and Olswang. If any contracts had been concluded by the claimants’ acceptance of the offers, they had been contracts for the disposition of interests in land, namely for the discharge of the charges. As such, they were caught by section 2(1) of the 1989 Act. It was immaterial that time had not been of the essence in relation to acceptance of the offers themselves since the terms of settlement had provided for withdrawal of the offers unless accepted by 28 August 2015. Accordingly, the claimants’ acceptance of the offers did not give rise to enforceable contracts.
(3) In all the circumstances, the claimants had not become entitled to possession of the DS1s.
Martin Hutchings QC (instructed by Collyer Bristow LLP) appeared for the claimants; Adam Smith (instructed by Ashteds Solicitors) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read the transcript of Tuscola (110) Ltd and another v The Y2K Company Ltd.
