Questions between owners of land and property developers as to construction and effect of agreements relating to the land and, in particular, as to the effect of the words ‘subject to contract’ in the circumstances of the case — Differences between the parties had given rise to an originating summons issued by the owners and to a writ issued by the property developers seeking specific performance of an alleged agreement constituted by letters and, alternatively, damages for breach of contract — The present motion before the court sought, on behalf of the owners, the vacation of certain cautions registered under the Land Registration Acts in favour of the developers against dealings with the owners’ registered land — The owners’ entitlement to an order for the vacation of the cautions depended on the court’s acceptance of their contention that the words ‘subject to contract’ in the relevant agreement had the well-understood prima facie meaning which prevented the agreement from having binding effect — After deciding, on a review of authorities, the procedural point that an order vacating a caution (or an estate contract in the case of unregistered land) could be made by the court on motion if there was no fair arguable case in support of the registration the judge considered the true construction of the relevant letters against the factual background known to the parties, including an earlier agreement which had been cancelled — There was authority for the principle that, although the prima facie meaning of ‘subject to contract’ was that the agreement in question was merely conditional, there might be a very strong and exceptional context which would induce the court to depart from that meaning in a particular case — Nourse J held that such an exceptional context existed in the present case — Here the words ‘subject to contract’ merely referred to the contract which the owners’ solicitors were bound to submit to the developers’ solicitors for approval; which the latter were bound to approve subject only to any amendments that might reasonably be required; and which the parties were bound to exchange within 7 days after such approval — Motion by owners dismissed, but subject to a continuation until judgment in the action of undertakings given by the developers to pay for any damage sustained by reason of the continued subsistence of the cautions
This was a
motion by the plaintiffs, Alpenstow Ltd and Keith Francis Carter, to vacate
cautions registered in favour of the defendants, Regalian Properties plc,
against dealings with registered land owned by the plaintiffs at 326 to 394 The
Highway, Tower Hamlets, generally known as the Free Trade Wharf. As the judge
explained in his judgment, the present proceedings were brought by the
plaintiff owners by originating summons, but it had been agreed that the judge
could look at the pleadings in the action for specific performance, which
Regalian Properties had commenced by writ, in order to define the issues
between the parties.
Nigel Hague QC
and Charles S Fay (instructed by Denton Hall & Burgin) appeared on behalf
of the plaintiffs; E C Evans-Lombe QC and Andrew G Walker (instructed by
Clifford-Turner) represented the defendants.
Giving
judgment, NOURSE J said: This is a motion to vacate certain cautions registered
in favour of the defendant, Regalian Properties plc (Regalian), against
dealings with registered land owned by the plaintiffs, Alpenstow Ltd and Keith
Francis Carter (the owners), situated at 326 to 394 (even nos) The Highway,
Tower Hamlets, and generally known as the Free Trade Wharf. The primary
question is what is the effect of the words ‘subject to contract’ in the
particular circumstances of this case?
The material
facts can for present purposes be stated comparatively briefly. The owners have
been the registered proprietor of the property since February 1982. They hold
it as trustees for sale, those entitled to the proceeds and the rents and
profits until sale being as to 25% Alpenstow Ltd itself and as to the remaining
75% a Panamanian company called Perne Investments Corporation. The property was
acquired for development, partly residential and partly as offices. The owners
employed a company called Gablecross Ltd as managers of the project. It appears
that a well-known building company was engaged on a provisional basis and that
at the end of 1982 that company introduced Regalian to Gablecross as a company
which would be able to provide the owners with both expertise and financial
backing in the proposed development. I should state here that the managing
director of Regalian is Mr D J Goldstone, a practising solicitor. On the
owners’ side Mr Carter is also a practising solicitor. The two of them appear
to have been responsible or mainly responsible for the legal aspects of the
negotiations and arrangements between the two sides.
From the end
of February 1983 there were serious negotiations between the parties.
Application for planning permission had been made to the local planning
authority, London Docklands Development Corporation, in the usual way, but at
the end of April the Secretary of State directed it to be referred to him under
section 35 of the Town and Country Planning Act 1971. On May 25 Mr Carter on
behalf of the owners wrote Mr Goldstone a letter offering Regalian an
appointment as development consultants in the event (which happened) of the
application for planning permission being referred to a public inquiry. A fee
of £100,000 and certain other terms were proposed. The owners also undertook,
upon the granting of planning permission, that in the event of their desiring
to dispose of their interest in the whole or any part of the property they
would either grant Regalian at the then current market value or £3m, whichever
was the lower, the right to purchase such interest or, if such right of
pre-emption was not granted, then to pay £500,000 to Regalian’s order. On the
same day Mr Goldstone wrote to Mr Carter confirming that the terms set out in
the latter’s letter were acceptable to Regalian.
It seems clear
to me, and the contrary has not been suggested, that the two letters of May 25
constituted a binding agreement between the parties. However, by a further
exchange of letters dated July 12 and 13 1983 that agreement was cancelled and
further arrangements, to use a neutral word, were made. Those arrangements were
set out in the letter dated July 12, which was written by Gablecross on behalf
of the owners to Mr Goldstone acting for Regalian. They were set out in five
numbered paragraphs. I need not read the first three, which cancelled the
previous agreement of May 25 and made consequential
that very day.
Para 4 of the
letter of July 12, which is the most crucial paragraph for today’s purposes,
was in the following terms:
Our clients
undertake that should they, following the grant of planning permission, desire
to dispose of any interest in their land or any part thereof, excluding that
proposed for office development, then it is agreed as follows:
(a) Within 28 days of the receipt by my clients
of a planning approval notice, my clients will serve notice on your company of
their willingness to sell a 51 per cent stake in the freehold at a
consideration of £1,530,000. Should my clients fail to serve such a notice,
they will make payment to your company of the sum of £500,000, such payment to
be made within 56 days of the receipt of the planning approval notice.
(b) Within 28 days of serving the notice, your
company will accept this notice, subject to contract, and within 7 days thereafter,
our clients’ solicitors will submit a draft contract to your company’s
solicitors for approval.
(c) Within 28 days after receipt of the draft
documents for approval, your company will approve these documents, subject to
any amendment that may reasonably be required and will within 7 days thereafter
exchange contracts. Should it not be possible for our clients to make a
material start on development by the date of the exchange of contracts, then by
mutual agreement, this date will be extended until such time as a material
start on development has been achieved.
(d) Completion of the purchase will take place
within 28 days after the date of exchange of contracts.
I must also
read para 5, which was in these terms:
In the event
of notice having been served by my clients and your company failing to accept
as required in paragraph 4(b) above, then the before-mentioned sum of £500,000
shall no longer be due and payable to your company unless there shall be a
failure on behalf of our clients to fulfil the remaining terms set out in
paragraph 4(b) 4(c) and (d) above, but otherwise the obligation to make payment
to your company and all obligations created hereunder would be deemed to have
lapsed.
Then the body
of the letter ended as follows:
I trust that
the above proposals are acceptable to you and await to hear your confirmation
of the acceptance of this agreement.
The letter was
signed on behalf of Gablecross. Underneath, the two individuals who are the
moving spirits in Perne Investments Corporation and Alpenstow Ltd respectively
signed a guarantee of the obligations set out in the letter. The agreement was
duly accepted by Regalian.
It will have
been noted that the part of the property which was proposed to be used for
office development was excluded from the letter of July 12. However, that was
brought in by a further letter dated December 21 1983, also written by
Gablecross on behalf of the owners to Mr Goldstone, and also agreed by
Regalian. Para (1) of that letter was in all material respects to the same
effect mutatis mutandis as para 4 of the letter of July 12. The
consideration in this case was to be £1,020,000. Para (2), which was not the
same as para 5 of the letter of July 12, was in these terms:
In the event
of notices having been served by our clients as set out in clause 1(a) above,
and your company failing to accept as required in paragraph 1(b) above, then
any liability by our clients which may be contained in clause 1(a) above shall
be deemed to have lapsed.
Para (3)
provided that the agreement was not valid unless completion of the purchase
under the agreement of July 12 1983 took place.
The body of
the letter then ended with a request for confirmation of Regalian’s agreement
and acceptance of the terms above. That was subsequently given. The letter was
signed on behalf of Gablecross, and again the two individuals guaranteed the
obligations set out in the letter. For the sake of convenience I will
henceforth refer only to para 4 of the letter of July 12, but references to that
apply equally to para 1 of the letter of December 21.
Between July
26 and August 22 Mr Goldstone wrote Mr Carter three letters asking for details
of the title number of the property so that cautions could be entered on the
register in respect of the letter of July 12 1983. He appears to have received
no answer to those letters. In any event, he took the necessary steps himself
and the caution was registered on September 8. A further caution in respect of
the letter of December 21 was registered on January 16 1984.
I can now move
forward to May 1984. On the 18th of that month the Secretary of State granted
what are agreed to have been satisfactory planning permissions for the purposes
of the letters of July 12 and December 21 1983. On May 24 the owners, through
Gablecross, served notice on Regalian of their willingness to sell a 51% stake
in the freehold pursuant to the first part of paragraph 4(a) of the letter of
July 12 1983. On June 1 the London Borough of Tower Hamlets commenced
proceedings to challenge the grant of the planning permissions. This appears to
have been quite unexpected, and not surprisingly it caused considerable
consternation, at any rate to Regalian. I interrupt the narrative to say that
those proceedings were dismissed by Lloyd J in the Queen’s Bench Division on
November 7 1984, but notice of appeal by Tower Hamlets has now been given.
On June 8 1984
Mr Goldstone wrote to Gablecross requesting the owners to agree to an extension
of the 28-day period limited by para 4(b) until after the question of the
validity of the Secretary of State’s decision to grant the permissions had been
resolved. However, that request was refused and on June 20, within the 28-day
period, Regalian duly accepted, subject to contract, the owners’ notice of May
24. A request was also made for the submission of a draft contract to
Regalian’s solicitors Clifford-Turner, in accordance with the second part of
para 4(b). On June 25, within the requisite 7-day period, Denton Hall &
Burgin, acting for the first time on behalf of the owners in relation to this
matter, wrote to Clifford-Turner a long letter headed ‘Subject to contract’, in
which they said this in relation to the letters of July 12 and December 21
1983:
We have
advised our clients that these letters as they stand can amount to no more than
a gentleman’s agreement or an agreement to agree. It seems to us clear that the
parties did not have any intention to enter into legal relations, and that
these letters cannot constitute a binding contract to convey a legal estate or
beneficial interest in land.
Earlier they
had said that they had had considerable difficulty in trying to understand the
scope and effect of the two letters. Draft contracts and draft deeds of
variation relating to the beneficial interest were enclosed with that letter,
although it was stressed that this was done in relation to negotiations which
were strictly subject to contract, and that only if the parties could negotiate
appropriate terms could a binding legal contract come into existence. Again, not
surprisingly, this caused further consternation on Regalian’s side and it led
to further communications between the solicitors. On July 4, within the 28-day
period limited by para 4(c), Clifford-Turner sent Denton Hall & Burgin a
fresh draft contract ‘by way of amendment to’ the draft agreements enclosed
with the latter firm’s letter of June 25. The two principal differences were
that the Clifford-Turner draft provided, first, for the purchase of the
property by a newly formed company whose shares would be owned as to 51% by
Regalian and as to 49% by the owners and, secondly, for the agreement being in
effect conditional on the planning permissions becoming indisputably valid. By
the end of July the owners had rejected these proposals and broken off negotiations.
Meanwhile, on July 13, Clifford-Turner had lodged a further caution in order,
as they put it, to protect Regalian’s crystallised interest under the two
letter agreements.
On August 1
the owners issued the originating summons in these proceedings. On August 3
Regalian issued a writ in proceedings, 1984 R No 3769, seeking specific
performance of the two letter agreements, alternatively damages for breach of
contract. The owners issued and served a notice of motion in these proceedings
which is effectively the motion now before the court. The matter came before me
for a partially effective hearing in the Vacation Court on September 14 when,
following the practice sanctioned by the Court of Appeal in Tiverton Estates
Ltd v Wearwell Ltd [1975] Ch 146, at pp 161 and 172, I required
Regalian, as the price which it had to pay for the cautions not being vacated
at that stage, to give a cross-undertaking to pay the owners any damages
sustained by them by reason of the continued subsistence of the cautions, in
case it should later be held that they were wrongly registered.
These being
proceedings commenced by originating summons, no pleadings have been served.
However, a statement of claim and a defence have been served in Regalian’s
specific performance action. Those motions are not contested, and it is agreed
that I should, so far as necessary, take into account the proposed amendments
to the statement of claim in the specific performance action for the purposes
of dealing with this motion.
Until 1963 it
was generally thought that the court would not order a caution, or an estate
contract in the case of unregistered land, to be vacated on motion. But in Heywood
v BDC Properties Ltd [1963] 1 WLR 634 Pennycuick J did make such an
order and his decision was
which has now become a commonplace in a certain class of case, has proved
extremely beneficial. The test which has to be passed before such an order can
be made has been expressed by different judges in differing terms. Thus, in Heywood
v BDC Properties Ltd Pennycuick J described the correspondence relied on
as quite plainly not supporting the existence of the alleged contract and said
that on the correspondence and the affidavits there was no prima facie
case of any kind for saying that any contract had ever been entered into; see
[1963] 1 WLR 634 at p 636. In the Court of Appeal in that case Danckwerts LJ
was of the view that if there was really an arguable point the matter should go
to trial; see [1963] 1 WLR 975 at p 979. In The Rawlplug Co Ltd v Kamvale
Properties Ltd (1968) 20 P & CR 32 at p 40, Megarry J said this:
Accordingly,
it seems to me that the speedy form of remedy by way of a motion ought to be
available to a landowner in all cases where there are no substantial grounds
for supporting the registration. I would thus favour a certain robustness of
approach in these motions of the type to be found in the administration of RSC
Order 14. If there is a fair, arguable case in support of the registration,
then the matter must stand over until the trial. But if, though not cloudless,
the sky has in it no more than a cloud the size of a man’s hand, I would clear
the register and leave the purchaser to seek such remedy by way of specific
performance or damages as he may be advised. Judged by this standard I have no
doubt about this case. If I am wrong, and the right approach is less robust, I
think (though with a little hesitation) that there is not ‘really an arguable
point’ within the phrase of Danckwerts LJ, and so the result is the same.
The learned
judge evidently thought that his approach was more robust than that of
Danckwerts LJ and, I would think, than that of Pennycuick J. In Clearbrook
Property Holdings Ltd v Verrier [1974] 1 WLR 243, at p 244,
Templeman J said that an order can only be made on motion if there is no
triable issue or arguable point to go to trial in the normal way. In Tiverton
Estates Ltd v Wearwell Ltd, supra, in which The Rawlplug Co Ltd
v Kamvale Properties Ltd does not appear to have been cited in argument,
Lord Denning MR said this [1975] Ch 146 at p 156:
If it is
drawn to the attention of the court, by affidavit or otherwise, that a caution
has been entered when it ought not to be, then the court can order it to be
vacated forthwith. In particular, if the cautioner does not adduce any writing
sufficient to satisfy the Statute of Frauds (now section 40 of the Law of
Property Act 1925), the court can order the entry to be vacated. If the point
depends on the correct interpretation of correspondence, then the court can
decide the matter then and there without sending it for trial. There is no
point in going formally to trial when the discussion at the trial would be
merely a repetition of the discussion on the summary procedure. We have often
decided cases under Order 14 when the only point is one of construction, even
though it is a difficult and arguable point.
From these
authorities I take the test to be this. An order vacating a caution or an
estate contract can and ought to be made on motion if there is no fair arguable
case in support of the registration which ought to go to trial. In this respect
a certain robustness of approach is permissible. If the issues are defined and
their resolution depends only on ascertained documents and affidavit evidence,
they can and ought to be decided, even if they involve difficult questions of
construction or law. At my instigation there has been some discussion as to
whether the general principles later stated by the House of Lords in American
Cyanamid Co v Ethicon Ltd [1975] AC 396 in regard to the grant of
interlocutory injunctions have any application to orders vacating the register
on motion. Since neither side displayed any great interest in that point, I
certainly do not propose to examine it in this case. One significant difference
of approach may be the court’s willingness in the latter instance to decide
difficult questions of law which call for detailed argument and mature
considerations, an exercise which the House of Lords said was no part of the
court’s function in the former; see [1975] AC at p 407. In this respect I
regard myself as bound by the views of the Court of Appeal as expressed by Lord
Denning MR in Tiverton Estates Ltd v Wearwell Ltd, for which in
this type of case I respectfully think that there is everything to be said.
The first
matter to be determined in the present case is the true construction of the
letters of July 12 and December 21 1983 against the factual background known to
the parties at or before those dates, which is agreed to include the earlier
agreement of May 25. Although that matter gives rise to difficult questions,
they can and ought to be decided now. If they are all decided in favour of
Regalian, it is I think agreed, and I would so hold, that for a reason which
will become clear the case will have to go to trial. If those questions, or
enough of them, are decided in favour of the owners, then it will become
necessary to consider Regalian’s further contention that it also has fair, arguable
cases on rectification, alternatively estoppel, which ought to go to trial.
However, that question would involve reading all the affidavits, none of which
have so far been read. Accordingly, with a view to saving time and expense, the
questions of construction have been argued first. I now give judgment on them.
While Mr
Hague, for the owners, reserves the right, for what it may be worth, to argue
for the contrary at trial, he accepts for the purposes of this motion that the
provisions down to and including para 4(a) of the letter of July 12 and those
of para 1(a) of the letter of December 21 did create binding contracts between
the parties. In other words, he accepts that a fresh agreement was substituted
for that of May 25, the latter being cancelled, and that the owners became
bound, if they failed to serve a notice of willingness to sell, to pay Regalian
£500,000. Mr Hague then advances the simple argument that the words ‘subject to
contract’ in para 4(a) are decisive. He relies on the fact that the agreements
were professionally drawn and submits that those words are used in their
conventional modern sense, signifying that a contract is not to come into
existence until there has been an exchange of contracts in accordance with
ordinary conveyancing practice, before which either party can withdraw.
Therefore he says that these were at best agreements to agree on unspecified
terms and thus unenforceable. If Mr Hague is correct in his premises, his
conclusion undoubtedly follows.
The effect of
the words ‘subject to contract’ or the like has been much discussed in cases in
the last century and this. For present purposes I can start with two passages
from judgments in the Court of Appeal in Chillingworth v Esche
[1924] 1 Ch 97. First, Warrington LJ said this at pp 110-111:
It has been
undoubted ever since the decision of Sir George Jessel in Winn v Bull
(1877) 7 Ch D 29 that the words ‘subject to the preparation and approval of a
formal contract’ in a document prevented the document from being held to be a
final agreement of which specific performance could be enforced, and it has
been the practice of estate agents to insert these words to prevent parties
being imposed upon. In many cases it is important to avoid the disastrous
results of entering into open contracts, and I think it would be most
mischievous to throw any doubt on the effect and meaning of such expressions. I
do not overlook what was said by Lord Sterndale in Rossdale v Denny
[1921] 1 Ch 57 at p 66 in this court: ‘I am far from saying that there may not
be an unconditional offer and acceptance of a binding contract although the
letters may contain the words ‘subject to a formal contract’, but certainly
those words do point in the direction of the offer or the acceptance being
conditional. I do not think it can be put higher than that; I think he is well
founded in saying that the general trend of the decisions has been, where those
words occurred, to hold that the offer or acceptance was conditional’. But it
seems to me that too much importance has been attributed to those expressions
of Lord Sterndale, and I think what he meant to say was that the words in
question indicate in themselves no binding bargain and are merely conditional,
but that there might be other circumstances which would induce the court not to
give them that meaning in a particular case.
Secondly,
Sargant LJ said this, at p 114:
To my mind
the words ‘subject to contract’ or ‘subject to formal contract’ have by this
time acquired a definite ascertained legal meaning — not quite so definite a
meaning perhaps as such expressions as fob or cif in mercantile transactions,
but approaching that degree of definiteness. The phrase is a perfectly familiar
one in the mouths of estate agents and other persons accustomed to deal with
land; and I can quite understand a solicitor saying to a client about to
negotiate for the sale of his land: ‘Be sure that to protect yourself you
introduce into any preliminary contract you may think of making the words
‘subject to contract”. I do not say that the phrase makes the contract
containing it necessarily and whatever the context a conditional contract. But
they are words appropriate for introducing a condition, and it would require a
very strong and exceptional case for this clear prima facie meaning to
be displaced.
Thus the
position is that the words ‘subject to contract’ have a clear prima facie
meaning, being in themselves merely conditional. But there might be a very
strong and exceptional context which would induce the court not to give them that
meaning in a particular case. The precise nature of the condition precedent to
the coming into existence of a contract which these words import was spelled
out by the Court of Appeal in Eccles v Bryant and Pollock [1948]
Ch 93. It is, as Mr Hague submits, that there shall be an exchange of contracts
in accordance with ordinary conveyancing practice. Before that either party can
withdraw.
Although the
test above propounded admits of the possibility of a very strong and
exceptional context which would induce the court not to give the words ‘subject
to contract’ their clear prima facie meaning in a particular case, Mr
Evans-Lombe, who appears for Regalian, has told me that he has been unable to
find a case
result. There have been cases where the effect of the words has been held to be
displaced by a subsequent unconditional offer and acceptance, but that is
rather different territory. Mr Hague makes much of the absence of any relevant authority,
but I am very doubtful whether that in itself is a point of significance.
Speaking generally, you would expect to find the words ‘subject to contract’ at
the preliminary stage of a negotiation not, as here, some four to five months
on. You would not expect to find them, as you do here, in a detailed and
conscientiously drawn document which admittedly cancelled and replaced a
previous binding agreement. I can well see that the question may not previously
have arisen in circumstances such as these.
I now return
to para 4 of the letter of July 12. Subpara (a) gives the owners the choice of
serving notice of willingness to sell or paying Regalian £500,000. If, as
happened, they choose the former alternative, subclause (b) gives Regalian the
choice of accepting their notice or doing nothing. Although subclause (b) in
terms provides that Regalian will accept the notice, Mr Evans-Lombe
submits, Mr Hague I think accepts, and I certainly hold that Regalian has a
choice. In other words, ‘will’ here means ‘may’.
Now we
approach the area of controversy. Like Mr Evans-Lombe, I start from the
position that if subclause (b) had merely permitted Regalian to accept the
owners’ notice, so that the words ‘subject to contract’ and all that follows
had been omitted, Regalian’s acceptance would have constituted an open contract
on the terms of the first sentence of subclause (a). Nobody would have wanted
that. Why then were the words included? So that Regalian’s acceptance should be
conditional on the coming into existence of some other contract. What is that
contract to be? Mr Hague answers that it is to be a contract drawn up in
duplicate, each party signing one part, not to be perfected until there has
been an exchange, before which either party can withdraw. Mr Evans-Lombe
answers that it is the contract contemplated by the second part of subpara (b)
and the first part of subpara (c), that is to say a contract which, on
acceptance by Regalian, the owners’ solicitors are bound to submit in draft to
Regalian’s solicitors for approval, which Regalian is bound to approve, subject
to any amendment that may reasonably be required by it, and which the parties
are bound to exchange within seven days after such approval.
Which of these
answers is to be preferred? On a superficial level I admit to seeing an
attractive force in Mr Hague’s, backed as it is by weighty authorities and the
instinctive assumptions of several generations of conveyancers. But can it
withstand a more profound examination?
I think that
an answer to that question is best sought by starting with a number of
particular considerations. First, I repeat that the letters of July 12 and
December 21 are neither preliminary nor primitive documents. Secondly, although
Mr Evans-Lombe’s answer necessarily involves reading ‘will’ where it appears in
the second part of subclause (b) and the first part of subclause (c) in its
proper, mandatory sense, I see no difficulty on that score. It is true that
there is a contrast here with its permissive meaning in the first part of
subclause (b). But I agree with Mr Evans-Lombe that is justified not only by
commonsense but also by the first limb of para 5, which recognises that
Regalian may fail to accept the owners’ notice, and also by the sanction which
appears to be attached by the third limb of para 5 to a failure on behalf of
the owners to fulfil their duties under subparas (b), (c) and (d) of para 4. No
sanction is attached to Regalian’s failure to accept the owners’ notice.
Thirdly, I can see no objection to the proposition necessarily involved in Mr
Evans-Lombe’s answer that Regalian’s acceptance binds the owners to cause their
solicitors to submit a draft contract to Regalian’s solicitors for approval. On
this point I derive assistance from Smith v Morgan [1971] 1 WLR
803, where Brightman J held that an agreement by an owner of land that should
she wish to sell it she would give another the first option of purchasing it
‘at a price to be agreed upon’ imposed an obligation on the owner to offer it
first to that other at a price, and at no more than the price, at which she was
in fact prepared to sell. What is the objection to the owners being likewise
bound to submit a draft contract containing the terms, other than those already
in subparas (a) and (d), on which they are in fact prepared to sell? Mr Hague
says that there might be many points on which the owners would not be able or
willing to commit themselves to a firm offer at that stage, but with all due
respect commitment to something has to come sooner or later, and why, when the
owners have a free choice subject only to reasonable amendments required by
Regalian, should it not be sooner? I myself can see no objection to this
proposition of Mr Evans-Lombe’s. Fourthly, Mr Evans-Lombe’s answer necessarily
accepts that Regalian is bound under subclause (c) to approve the owners’ draft
contract, its only freedom in the matter being to make any amendment that may
reasonably be required by it. I cannot see any objection to that. Fifthly, and
perhaps most important of all, I agree with Mr Evans-Lombe that Mr Hague’s
answer, with the liberty which it confers on either party to withdraw at
any time before exchange of contracts, is quite simply not compatible with the duty
imposed on both of them by subpara (c) to exchange within seven days after
Regalian’s approval of the owners’ draft. That leads me to a more general
consideration, which is that Mr Hague’s answer would result in all the
carefully drawn provisions contained in the second part of subpara (b) and in
subparas (c) and (d) being of no effect. Mr Evans-Lombe’s answer, on the other
hand, results in all the provisions of para 4 having effect as drawn, subject
only to the innocuous requirement of reading ‘will’ as ‘may’ in the first part
of subpara (b).
These
particular and general considerations leave me in no doubt that the answer of
Mr Evans-Lombe is to be preferred to that of Mr Hague. In my judgment this is a
case where there is a very strong and exceptional context which must induce the
court not to give the words ‘subject to contract’ their clear prima facie
meaning, and I so hold. The fact that the agreements were professionally drawn
is ultimately seen to be in favour of this view. You cannot credit the
draftsman with an adherence to the conventional meaning of ‘subject to
contract’ without accusing him of lax and superfluous drafting. I think that he
has shown himself to be worth more than that. Why write so much so well to so
small effect?
Next, Mr Hague
submits that the two variations proposed in the fresh draft contract which was
submitted on behalf of Regalian on July 4 1984 are so fundamental and radical
that they are incapable of being ‘amendments’ to the owners’ draft within para
4(c). I do not think that he takes any point on the fact that they were, as a
matter of form, included in a fresh draft and not in fact made by way of
amendment to the old. In my view there could be nothing in that point. Mr Hague
relies on the substance of the proposed variations. In their defence in the
specific performance action the owners claim that Regalian has, by proposing
these variations, repudiated the agreements, but that is a point which I do not
have to consider. In my view Mr Hague’s submission fails in both respects as a
matter of construction. I think that the expression ‘a 51% stake in the
freehold’ in subpara (a) is well capable of including 51% of the shares of a
company formed to acquire the freehold. As for the proposal that the agreement
should in effect be conditional on the planning permissions becoming
indisputably valid, I do not think that that variation involves the
substitution of a fresh contract for the old. I think that it is only an
amendment to make an unconditional contract conditional upon the happening of
an event relating to a matter which was clearly of great importance to both
parties. I should record here that Mr Evans-Lombe would if necessary rely on
implied terms to get him home in either or both of these respects. Having
decided both points on the express terms of the agreements, I make no comment
on that.
The next
question is were the amendments proposed on behalf of Regalian amendments
reasonably required by it? Mr Hague submits that I can take the view here and
now that they could not have been of that nature. I do not accept that
submission. I cannot know the answer to that question. I agree with Mr
Evans-Lombe that it depends on the evidence at large. On that footing, and
unless the final question of construction is decided in favour of the owners,
the case must go to trial.
The final
question of construction arises on para 5 of the letter of July 12. Mr Hague
submits that the third limb of that paragraph, ie the words ‘unless there shall
be a failure on behalf of our clients to fulfil the remaining terms set out in
paragraph 4(b), (c) and (d) above’, restore the owners’ obligation under para
4(a) to pay Regalian £500,000 in the event of a default on their part and,
moreover, that receipt of the £500,000 becomes Regalian’s only remedy for breach.
And so, he says, Regalian has no interest in the land which is capable of
protection by a caution. Although this question does not arise on para (2) of
the letter of December 21, the effect of para (3) of that letter is that if Mr
Hague’s submission is a good one then neither agreement can be specifically
enforceable.
At this stage
it is no longer possible to applaud the draftsman. Para
piecemeal and unconsidered growth. For one thing, if the requirements of the
first limb, being the condition on which the whole is expressed to operate, are
satisfied, then Regalian having failed to accept the owners’ notice, there can
be no remaining terms for the owners to fulfil. Further, as Mr Evans-Lombe
pointed out, Mr Hague’s construction would require not only the insertion of
quite a few words which are not there, but also the substitution for the words
‘but otherwise’ of words such as ‘and in that event’ which mean exactly the
opposite. Even then, there would be nothing to make it clear that receipt of
the £500,000 was to be Regalian’s only remedy. And it would in any event be
very odd if the owners, having chosen to go past subpara (a) and to commit
themselves to a sale, could then get out of it merely on the old terms. On the
footing that some effect must be given to para 5, I would think that it could
at the most give Regalian a right, in the event of the owners’ default, to take
the £500,000 if it wished to do so. I do not decide that today. What I do
decide is that para 5 is incapable of depriving Regalian of the equitable
interest in the property which it may otherwise have.
That leads me
to say that I do not think that there can be any doubt about the legal basis on
which, subject to the question of reasonableness, the agreements can be
specifically enforced. Mr Evans-Lombe referred me to the decision of the Court
of Appeal in Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch
231 and the judgment of Templeman LJ in Pritchard v Briggs [1980]
Ch 338 at p 418. The agreements of July 12 and December 21 were not agreements
for the sale of interests in land. They were agreements which might lead to
such agreements. They became such upon Regalian’s acceptances of the owners’
notices of willingness to sell. Regalian then took equitable interests in the
land. Further, I agree with Mr Evans-Lombe that an agreement to sell land on
certain terms, subject to any amendment that may reasonably be required by one
party or the other is specifically enforceable; see the decision of the Court
of Appeal in Sweet & Maxwell Ltd v Universal News Services Ltd
[1964] 2 QB 699.
Upon
Regalian’s continuing the cross-undertaking which I required of it on September
14 until judgment in the action or further order in the meantime, I propose to
dismiss this motion.
