Contract for sale – Parties aware of adverse claim by X – Vendor delivering executed transfer to claimant buyer – Vendor undertaking to remove caution lodged by X – Vendor going into liquidation – Liquidator disclaiming liabilities under contract – Liquidator relying on disclaimer to deny buyer’s claim to beneficial interest – Judgment for buyer
On 15 March 1993 the first defendant (Worthgate) contracted to buy for £230,000 a property in London SW3 from Barclays Bank, which sold as mortgagee. Three days later, Worthgate contracted to sell the property for £320,000 to Eagleview Ltd (Eagleview), which, on 30 April 1993, caused a caution (the Eagleview caution) to be entered against the title to the property. On 14 May 1993 Worthgate purported to rescind the contract with Eagleview, and on the same day entered into a contract to sell the property for £305,000 to the claimant (Capital). Under the terms of the Capital contract, Worthgate undertook to use its best endeavours to procure the removal of the Eagleview caution, and further agreed to pay to Capital the sum of £305,000 in the event of the property being transferred to Eagleview, which insisted that the Eagleview contract was still on foot. Simultaneously with the Capital contract, Worthgate executed a deed of trust declaring that it held the property on trust for Capital absolutely. Again on the same day, Barclays executed a transfer in favour of Worthgate, which paid the balance of the £230,000 purchase price out of funds furnished by Capital. On 16 May 1993 Capital’s solicitors received a transfer executed by Worthgate together with all other documents necessary to obtain registered proprietorship if and when the Eagleview caution was removed.
On 19 May 1993 Eagleview commenced an action (the Eagleview action) against Worthgate for specific performance. On 2 October 1995 Worthgate went into liquidation and the second defendant was appointed liquidator. In or about June 1997 the second defendant concluded that it would be difficult to defend the Eagleview action and that, in consequence, the obligations assumed by Worthgate under the Capital contract and trust deed had become onerous. On 31 July 1997 the second defendant served a notice purporting to disclaim “all my interest” in the contract and trust deed of 14 May 1993. On 3 October 1997 Capital, which had actively managed the property since May 1993, was joined as second defendant to the Eagleview action. In the same month, Worthgate, which had ceased to take part in the Eagleview action, registered a caution (the Worthgate caution) against the title to the property. On 14 May 1999 the Eagleview action was disposed of on terms that Eagleview, in return for Capital’s undertaking to pay £475,000 on becoming registered proprietor, would remove the Eagleview caution and acknowledge Capital’s right to be so registered.
In the present action, Capital sought summary judgment for a declaration that it was the beneficial owner of the property and for an order that the Worthgate caution be removed. The liquidator contended that the effect of the disclaimer was to terminate such rights as Capital had obtained under its contract of purchase and the trust deed (the 1993 transactions) and to render Capital an unsecured creditor in the liquidation for any loss suffered.
Held: Summary judgment for the claimant.
1. Although Capital could not acquire legal title before registration, it did acquire absolute ownership in equity as soon as Worthgate had done everything in its power to enable Capital to apply for registration as proprietor. That outcome, as confirmed by the terms of the trust deed, was unaffected by the express acknowledgement of an adverse claim by Eagleview, as equity, which acted in personam was solely concerned with the position of Capital vis à vis Worthgate.
2. By section 178(4) of the Insolvency Act 1986, the disclaimer could not affect the rights and liabilities of a person other than Worthgate, except so far as necessary for the purpose of releasing that company from any liability. Since the obligation to transfer to Capital had been performed, it would be neither fair nor necessary to allow Worthgate to scoop the pool and recover the equitable interest that had arisen in Capital’s favour: see Pearce v Bastable’s Trustee in Bankruptcy [1901] 2 Ch 122; Re Bastable [1901] 2 KB 518. Moreover, to accept the liquidator’s argument would run counter to the reasoning of Lord Nicholls in Hindcastle Ltd v Barbara Attenborough Associates Ltd [1996] 1 EGLR 94.
Robin Hollington QC (instructed by Stitt &Co) appeared for the claimant; Patrick Talbot QC (instructed by Stockler Charity) appeared for the defendants.
Alan Cooklin, barrister
