Contract – Part performance – Preliminary issue – Respondents selling freehold land to J – J assigning rights under contract of sale to appellant – Appellant retaining part of sale price pending completion of works – Appellant failing to pay balance – Respondents seeking to recover sums due – Court declaring appellant bound by terms of contract – Whether judge erring in law – Appeal allowed
By a written contract dated June 1999, the appellant agreed to purchase certain freehold land and buildings from J. At that time, the greater part of the land was vested in the respondents and the remainder of it in another party. J accordingly contracted to buy the land from them. He then executed a deed of assignment, assigning his right, title and interest in both contracts to the appellant.
The contract with the respondents specified a purchase price of £660,000 for their part of the land but, by clause 18, provided for the purchaser to retain £100,000 of that sum until it had completed certain “Purchaser’s Works”. Thereafter, the purchaser was to be entitled to keep one-half of the proper costs of those works out of the retention and any balance was to be released to the vendor.
The sales were completed in August 2000 by transfers from the respondents and the other vendor direct to the appellant, and the payment by the appellant of the respective sums due to them. The transfers were duly registered at the Land Registry.
The purchaser’s works were completed in June 2001 but the appellant failed to pay any part of the retention to the respondents. The respondents maintained that the proper cost of the purchaser’s works was £30,000, whereas the appellant claimed to have spent more than £200,000 on them.
The respondents instituted proceedings against J and the appellant for the recovery of the retention moneys. The claim against J was summarily dismissed. The court ordered the trial of a preliminary issue as to whether the retention moneys were subject to a trust and/or fiduciary duty to hold them on the terms of clause 18. The respondents contended that the preliminary issue was too narrow and should be extended to include the question of whether the appellant was bound by some other, and if so what, duty to observe the said terms.
The judge allowed the extension. He found that there had been a clear understanding in August 2000 that the benefit of the contract would be given to the appellant, and declared that the appellant was bound by a duty to observe the terms set out in clause 18 as a burden appurtenant to the benefit that it took under that contract. The appellant appealed.
Held: The appeal was allowed.
The benefit and burden had to be conferred in or by the same transaction. In the case of benefits and burdens in respect of land, it was almost inevitable that the transaction would be effected by one or more deeds or other documents. The receipt or enjoyment of the benefit had to be relevant to the imposition of the burden in the sense that the former had to be conditional on or reciprocal to the latter. Whether that requirement was satisfied was a question of construction of the deeds or other documents where the question arose in the case of land or, in other cases, the terms of the transaction, if not reduced to writing. In each case, it would depend on the express terms of the transaction and any implications to be derived therefrom. The party on which the burden was alleged to have been imposed must have had the opportunity of rejecting or disclaiming the benefit, not merely the right to receive it: Rhone v Stephens (Executrix) [1994] 2 EGLR 181; [1994] 37 EG 151 and Thamesmead Town Ltd v Allotey [1998] 3 EGLR 97; [1998] 37 EG 161 applied.
Applying those propositions to the instant case, the judge had reached the wrong conclusion. A clear understanding was an insufficient base from which to start because it could neither confer benefits nor impose burdens. A transaction that had legal effect was required and since, in the instant case, the benefit and burden were alleged to arise from land, the relevant transaction had to be effected by a deed or other document.
The deed of assignment did not imply an undertaking or requirement on the part of the appellant to carry out J’s obligations. Moreover, in the absence of a covenant in the transfer binding the appellant to observe J’s obligations under clause 18, they could not be imposed on the appellant but remained the obligations of J alone.
Per curiam: The judge below should not have exercised his discretion to allow the amendment to the preliminary issue without, at least, insisting on a properly formulated amendment to the particulars of claim.
Jeremy Child (instructed by Clarke Willmott LLP, of Birmingham) appeared for the appellant; Jeffrey Littman (instructed by Charles Crookes, of Cardiff) appeared for the respondents.
Eileen O’Grady, barrister
