Sale of land – Contract – Undertaking – Claimant purchaser obtaining undertaking from defendant solicitor to discharge legal charge on completion – Defendant failing to perform undertaking – Claimants seeking specific performance – Whether performance of undertaking impossible – Application granted
In 2007, the claimants contracted to purchase, for £560,000, one of five new-build properties on a development site owned by G (plot 3). They paid an initial deposit of £1,000 and a further deposit of £27,000 on exchange of contracts. Two charges were secured on the entire site, the first in favour of a bank and the second in favour of K. The bank’s charge had priority over that of K, and it was an express term of that charge that the bank could set off the whole or any part of G’s indebtedness against any credit balance on any account that G might have with the bank.
The claimants’ solicitor sent requisitions of title to the defendant, which was the solicitor acting for G on the sale. The defendant’s replies contained an undertaking that it would discharge both charges on or before completion. On completion, the balance of the purchase price was transferred to the defendant’s client account and then transferred to G’s bank account. The bank subsequently demanded the immediate payment by G of the balance of all sums due to it, being around £2.7m. No payment was made and the bank appointed a fixed charge receiver in respect of the site, excepting plots 1 and 3, and G was placed into administration.
The defendants sent notice of discharge in form DS3 to the claimant’s solicitor in respect of the bank’s charge. No notice in respect of K’s charge was received, despite the defendant knowing that non-production of form DS3 would result in the claimants’ application to register their title to plot 3 having to be cancelled were form DS3 not produced.
The claimants applied for summary judgment under CPR 24 on their claim for specific performance of the undertaking. The defendant admitted a breach of the undertaking and did not resist an order to compensate the claimants. However, it argued that performance of the undertaking was impossible and should not be ordered, since the proceeds of sale had been paid to the bank, which had retained them all to set off against what it was owed and had not paid to K the sums due to him as had been expected.
Held: The application was granted.
In the absence of evidence that it would be impossible to perform the undertaking, it would be usual to require such performance. However, where that was impossible or it was otherwise inappropriate, the court might exercise its discretion to order the solicitor to compensate for the loss caused by the breach of the undertaking. The fact that the undertaking was for a third party to perform an act did not preclude the court from exercising its supervisory jurisdiction, but it was a factor to be considered when determining whether to exercise the discretion and, if so, in what manner: Udall v Capri Lighting Ltd [1988] QB 907 applied.
However, this was not a case concerning impossibility. The undertaking could be performed by the payment of a cheque, albeit a larger one than might have been payable had enquiries been made and an agreement reached at the appropriate time. K’s rights could not be equated with those of a person entitled to an easement who would need to be persuaded to relinquish his right and could legitimately choose not to do so. K would release his charge, if he were paid the sum that he was entitled to demand under the charge and relevant loan agreement. Nor was this a case that would require the defendant to undertake difficult litigation; the undertaking was in standard form to pay off charges on completion. Such a step was within a solicitor’s control. The situation could have been avoided had a redemption figure been obtained and agreement reached before the undertaking was given: John Fox (a firm) v Bannister King & Rigbeys [1988] QB 925 and Wroth v Tyler [1974] Ch 30 distinguished.
The fact that the performance of the undertaking depended on K, the amount demanded was far higher than the value of plot 3 and that there was alleged uncertainty as to the amount due did not dissuade the court from ordering performance of the undertaking. Although clarification had been delayed, there was no evidence of a real dispute as to the sum put forward. K was entitled to demand the full sum due. The remedy available should not turn on the attitude taken by the lender in circumstances where, as in the instant case, the solicitor giving the undertaking should have had in its contemplation that the entire sum due might be demanded in order to obtain the required discharge: L Morgan & Co v Jenkins O’Dowd & Barth [2008] EWHC 3411 (Ch) and Angel Solicitors v Jenkins O’Dowd & Barth [2009] EWHC 46 (Ch); [2009] 1 EGLR 71; [2009] 14 EG 88 applied. Such a demand could not be categorised as being unreasonable or beyond the defendant’s contemplation.
Adrian Pay (instructed by Eversheds LLP) appeared for the claimants; Charles Phipps (instructed by Williams Holden Cooklin Gibbons LLP) appeared for the defendant.
Eileen O’Grady, barrister