Interference with contractual rights — Action by firm of surveyors and architects against bank mortgagees alleging that mortgagees had procured a breach of contract between surveyors and a property development company — Appeal by surveyors from decision of Rose J dismissing their action — Appellant surveyors had for some years provided architectural services for a solicitor-property developer who operated through various companies including the particular company concerned in these proceedings — It had been agreed between the appellants and the solicitor and company that if a particular development went ahead the appellants would be the architects who would see the development through to a conclusion — Various events caused delays but eventually an office development permit and planning permission were obtained — Extra finance became necessary, but the difficulty was that the property was already fully mortgaged to the respondent bank — The respondents were faced with the choice of calling in the loan and, on failure to pay, exercising their power of sale (with consequential loss), or agreeing to finance being raised elsewhere, or making further advances to the company with the prospect of eventually recouping their
which followed, Rose J decided that four out of the five ingredients of the
tort of wrongful interference with contract had been established, namely,
direct interference with the appellants’ contract; knowledge by the respondents
of the appellants’ contract and that the respondents’ action would interfere
with that contract; intention to bring the contract to an end; and damage to
the appellants — The judge held, however, that the fifth ingredient had not
been established, namely, that the respondents’ conduct lacked justification —
As the onus was on the respondents to show justification, this meant that in the
judge’s opinion they had done so — They had done so by showing that the
respondents had an equal or superior right to that of the appellants — Hence
the appellants failed
considering a number of authorities and analysing the grounds on which it had
been held that justification had or had not been established, the court decided
that Rose J had come to the correct conclusion — The respondents had shown an
equal or superior right — By virtue of their legal charge the respondents had
the right to demand repayment of principal and interest and, on default, to
exercise their power of sale; that would have put an end to the appellants’
contract — Alternatively, the respondents could have appointed a receiver, who
would have had power to appoint new architects — Instead, the respondents took
a course which was more beneficial to the protection of their rights as secured
creditors and to the borrowers, but which had the same result of putting an end
to the appellants’ contract — The superior right of the respondents, to which
the remedies of a secured creditor were merely ancillary, was to receive
payment from the debtor company of principal and interest — Appeal dismissed
The following
cases are referred to in this report.
De Jetley
Marks v Greenwood (Lord) [1936] 1 All ER 863
Glamorgan
Coal Co v South Wales Miners Federation
[1903] 2 KB 545
Merkur
Island Shipping Corporation v Laughton
[1983] 2 AC 570; [1983] 2 WLR 778; [1983] 2 All ER 189; [1983] 2 Lloyd’s Rep 1,
HL
Pratt v BMA [1919] 1 KB 244
Read v Friendly Society of Operative Stonemasons of England, Ireland
and Wales [1902] 2 KB 88; [1902] 2 KB 732
Smithies v National Association of Operative Plasterers [1909] 1 KB
310, CA
Thomson
(DC) & Co Ltd v Deakin [1952] Ch 646;
[1952] 2 All ER 361; [1952] 2 TLR 105, CA
Winters v University District Building Loan Association (1932) 268
III App 147
This was an
appeal by Edwin Hill & Partners from the dismissal by Rose J of their claim
as plaintiffs for damages against First National Finance Corporation plc,
defendants and present respondents, for procuring a breach of contract between
the appellants and Leakcliff Properties Ltd in relation to architectural
services for the development of Wellington House in Waterloo Road, London SE1.
The decision of Rose J is reported at [1988] 1 EGLR 15.
Igor Judge QC
and Richard Davies (instructed by Rowe & Maw) appeared on behalf of the
appellants; Colin Smith QC and Andrew Onslow (instructed by Titmuss Sainer
& Webb) represented the respondents.
Giving the
first judgment at the invitation of Sir Nicolas Browne-Wilkinson V-C,
STUART-SMITH LJ said: This is an appeal from the judgment of Rose J in which he
dismissed the plaintiffs’/appellants’ claim for damages against the
defendants/respondents for procuring breach of a contract between the
appellants on the one hand and Leakcliff Properties Ltd (‘Leakcliff’) and Mr
Alan Pulver on the other.
The appellants
are a firm of surveyors who for several years before 1973 had provided
architectural services for their clients. Among such clients was Mr Pulver, a
solicitor and property developer. Mr Pulver’s property developments were
carried out through various companies, of which Leakcliff was one. The finance
for these developments was raised from the respondents, who are bankers.
In November
1973 the respondents provided an on-demand overdraft facility to enable Mr
Pulver to purchase freehold and leasehold property in Waterloo Road, which
became known as Wellington House. The facility was originally made available to
another of Mr Pulver’s companies, but it was switched to Leakcliff. Repayment
was guaranted by Mr Pulver. At about the same time Mr Pulver agreed with the
appellants that if the development of Wellington House went ahead they would be
the architects who would see the development through to a conclusion; and when
it was decided that Leakcliff were to be the developers, the appellants’
contract was with them, as well as with Mr Pulver.
Shortly after
the purchase of the property, the market collapsed and the Government imposed
the need for office development permits (ODPs). These two events effectively
put an end to the immediate prospects of developing the site. Over the next
five and a half years Mr Pulver and the appellants struggled to put together
schemes that would enable the development to go ahead. They did so against the
inexorable increase in the interest due to the respondents. It is necessary to
recite only a few of the events in the history.
As a term of
the loan agreement the respondents were entitled to a charge on the properties;
initially there were two such charges, one for the freeholds and one for the
leaseholds. In due course the freehold reversion was purchased, the overdraft
being extended to cover this and one legal charge on all the property was executed
on August 21 1976. Meanwhile an ODP had been obtained. In March 1977 planning
permission for the redevelopment of the site was granted, based on the
appellants’ drawings. The original loan was for a sum not exceeding £5m, but
from time to time it was extended. Mr Pulver’s attempts to raise finance from
other sources to finance the development were unsuccessful. The reason for this
was that since the property was already mortgaged up to the hilt and beyond, to
secure the overdraft with the respondents, no security could be offered to
another financier unless the respondents would give up their first mortgage,
which understandably they were unwilling to do. Suggestions by Mr Pulver to the
respondents that they themselves should finance the development, or ‘build out’
to use the jargon, were rejected.
By 1979 the
overdraft had reached about £9m, mostly in accumulated interest. But the market
in office property had considerably improved. The respondents were faced with
three alternatives. First, they could call in the loan, which neither Leakcliff
nor Mr Pulver could begin to pay, and exercise their power of sale under the
charge; this would result in a substantial loss. Second, they could agree to
finance being raised elsewhere. By about February 1979 a deal was very close
with Manufacturers Hanover Trust which would have enabled the development to go
ahead. Third, the respondents could finance the build-out themselves out of
their own cash flow. In effect, this would involve further advances to
Leakcliff with the prospect that at the end of the day all their outlay
together with interest would be recouped. In the event the respondents chose
the third alternative, but in so doing they insisted that the appellants should
be replaced as architects by a prestigious firm. The respondents considered
that this was necessary if the development was to be successfully marketed.
They insisted therefore that Mr Pulver should dismiss the appellants; he was
reluctant to do so; but he had no alternative. Their contract was terminated
about March 6 1979. It is important to emphasise that there has never been any
complaint or criticism of the appellants’ competence or skill.
In the course
of an admirably clear and concise judgment the judge made the following
important findings and in so doing held that four of the five necessary
ingredients of the tort of wrongful inteference with contract were established.
1 That there was direct interference by the
respondents with the appellants’ contract with Leakcliff. There was inducement,
pressure and procuration. Mr Pulver dispensed with their services only because
the respondents insisted that he did so.
2 That the respondents knew that the appellants
were employed by Leakcliff under a binding contract to the end of the
development and had sufficient knowledge that their conduct would interfere
with that contract.
3 That the respondents intended to bring the
appellants’ contract to an end. This conclusion is challenged by the
respondents in their cross-notice. In this connection the judge found: (a) that
the respondents had decided to finance the ‘build-out’ by about February 20
1979 and that it was an integral part of the decision that
Mr Pulver had no effective choice but to dismiss the appellants; it was not
just foreseeable, but an inevitable consequence of their decision.
4 That the respondents’ interference had caused
damage to the appellants. This was not in issue; if liability is established
the extent of the damage remains to be determined by an official referee.
But he held
that the appellants failed on the last ingredient, namely that the respondents’
conduct must not have been justified. It is in relation to this conclusion that
the appellants appeal.
The judge held
that the onus of proving justification was upon the respondents. There is no
dispute before us that this is correct; but nothing turns upon it.
I propose to
set out in full the judgment in this matter. Rose J said:
As I have
indicated, the question here is: Did the defendants have an equal or superior
right? This, in my judgment, is an
entirely separate matter from intention. It is clear from the evidence of Mr
Rutter, to which I have just referred, that the defendants deliberately chose,
for commercial reasons, not to exercise their rights under the legal charge. Mr
Dyer, too, said, ‘I wouldn’t have been very keen on building out with a
receiver under the mortgage because we, like Mr Pulver, liked people working
alongside us.’
Mr Rutter and
Mr Dyer were both acting for the respondents.
And it cannot,
in my judgment, be said that the defendants believed they were, or indeed gave
any thought to the possibility that they might be, exercising rights equivalent
to those under the legal charge. But that is not the end of the matter, for the
defendants’ belief about their rights does not provide the proper test.
What is, in my
judgment, material in the present case is not just that the defendants had a
legal charge at the time they interfered with the plaintiffs’ contract, but
that they had agreed to provide Mr Pulver with finance, subject to a first
legal charge, at the very outset in November 1973. It is common ground that
such a charge would give the defendants the right to sell the property and
appoint a receiver and therefore that such rights were implicit in the
defendants’ provision of finance from the beginning. Had the defendants not
provided finance, Mr Pulver would not have been in a position to retain the
plaintiffs’ services for this project. He required financial backing in order
to purchase the property; and the defendants’ backing came at or about the time
when the property market started to collapse and only a month before the
government’s embargo on office development. If the defendants had not provided
finance at the time they did, it is inconceivable that others would have done
so shortly afterwards. In my view this timetable of events points at least to
priority in the defendants’ rights. Furthermore, both as envisaged in November
1973 and as ultimately executed, this charge was not for a specific sum. It
secured all the moneys due to the defendants on the overdraft. It is not
therefore apt to describe the defendants as entering into a new contract when
they financed the development. They were making further advances on the basis
of a security which already existed.
In these
circumstances, I am satisified that the defendants did have equal or superior
rights to those of the plaintiffs and that (to the extent that this is
material) they acted reasonably to protect their interests in accordance with
those rights.
It follows
that, in my judgment, the defendants were legally justified in acting as they
did. Accordingly, the plaintiffs’ claim fails.
Mr Judge
submits that although the judge posed the correct test, namely whether the
respondents had an equal or superior right to that of the plaintiffs, he
reached the wrong conclusion in law, because he confused the respondents’
commercial interests with the required legal right sustainable under the civil
law deriving from their contract. He accepted that if the respondents had
exercised their rights under the legal charge, such exercise might have had the
effect of interfering with the appellants’ contract and had that been the case
the respondents would have been justified. For example, if they had called in
the loan and exercised their power of sale, this would have had the inevitable
consequence of putting an end to the appellants’ contract; but such action
would have been justified. But, he submits, if for their own commercial
advantage they elect not to exercise any of their legal rights but instead
adopt a course of conduct which intentionally interferes with the appellants’
contract, they are not justified and must pay.
Mr Smith, on
behalf of the respondents, submitted that the learned judge’s approach was
correct. He contended that where the interferers’ conduct is within the ambit
or compass of his legal rights he is justified. By this phrase he means that if
the respondents, instead of exercising their full legal rights of calling for
repayment of the loan and exercising their powers of sale or appointment of a
receiver, reach some accommodation with the mortgagor, which is more beneficial
both to themselves and the mortgagor, they should not be held to lose the
justification which they would have had if they had exercised the remedies
available to them in the strict sense.
Alternatively,
he submits that the question of justification should be approached by what he
called the ‘broad brush’ approach adumbrated by Romer LJ in Glamorgan Coal
Co Ltd v South Wales Miners’ Federation [1903] 2 KB 545. This is a
convenient starting point for a consideration of the authorities. At p 574 the
learned lord justice said:
I
respectfully agreed with what Bowen LJ said in the Mogul Case, when
considering the difficulty that might arise whether there was sufficient
justification or not: ‘The good sense of the tribunal which had to decide would
have to analyse the circumstances and to discover on which side of the line
each case fell.’ I will only add that,
in analysing or considering the circumstances, I think that regard might be had
to the nature of the contract broken; the position of the parties to the
contract; the grounds for the breach; the means employed to procure the breach;
the relation of the person procuring the breach to the person who breaks the
contract; and I think also to the object of the person in procuring the breach.
But, though I deprecate the attempt to define justification, I think it right
to express my opinion on certain points in connection with breaches of contract
procured where the contract is one of master and servant. In my opinion, a
defendant sued for knowingly procuring such a breach is not justified of
necessity merely by his shewing that he had no personal animus against the
employer, or that it was to the advantage or interest of both the defendant and
the workman that the contract should be broken.
Stirling LJ’s
judgment is to the same effect. See p 577.
When the case
reached the House of Lords, [1905] AC 239, nothing was said by any members of
the House to suggest that this was the wrong approach. Lord Lindley at p 252
expressed entire agreement with the judgments of Romer and Stirling LJJ. The
other members of the House contented themselves with saying that the alleged
justification did not amount to such in law. In my judgment it matters not that
some of their lordships treated the case both as conspiracy and wrongful
interference with contracts; see, for example, Lord Halsbury at p 244.
Mr Judge
submitted that in the Glamorgan case the supposed justification was a
duty to act in what was conceived to be the interests of both parties to the
contract and that accordingly Romer LJ’s test or approach should be confined to
such cases and should not extend to cases where the interferer’s conduct is
sought to be justified by reference to some equal or superior legal right. But
I cannot see that the proposition should be so limited; in my judgment the
courts have over the years worked on this principle, holding that some cases
fall on one side of the line, others on the other.
Thus the
following matters have been held not to amount to justification.
1 Absence of malice or ill will or intention to
injure the person whose contract is broken: Smithies v National
Association of Operative Plasterers [1909] 1 KB 310 and the Glamorgan case.
2 The commercial or other best interests of the
interferer or the contract breaker: Read v Friendly Society of
Operative Stonemasons of England, Ireland and Wales [1902] 2 KB 88 per
Darling J at p 97 and per Collins MR at p 737. The Glamorgan case [1905]
AC 239 per Lord James at p 252. Pratt v British Medical Association
[1919] 1 KB 244 per McCardie J at p 266. De Jetley Marks v Greenwood
(Lord) [1936] 1 All ER 863 per Porter J at p 873.
3 The fact that A has broken his contract with
X does not of itself justify X in revenge procuring a breach of an independent
contract between A and B: Smithies v National Association of
Operative Plasterers [1909] 1 KB 310 and particularly per Buckley LJ
at p 337.
On the other
side of the line justification has been said to exist where:
1 There is a moral duty to intervene, as for
example in Brimelow v Casson [1924] 1 Ch 302, where it was held
that the defendants were justified in their actions, since they owed a duty to
their calling and its members to take all necessary steps to compel the
plaintiff to pay his chorus girls a living wage so that they were not driven to
supplement their earnings through prostitution.
2 Where the contract interfered with is
inconsistent with a previous contract with the interferer. See per
Buckley LJ in Smithies case at p 337:
No doubt
there are circumstances in which A is entitled to induce B to break a contract
entered into by B with C. Thus, for instance, if the contract between B and C
is one which B could not make consistently with his preceding contractual
obligations towards A, A may not only induce him to break it but may invoke the
assistance of a court of justice to make him break it. If B, having agreed to
sell a property to A, subsequently agrees to sell it to C, A of course may
restrain B by injunction from carrying out B’s contract with C, and the
consequence may ensue that B will be liable to C in damages for breaking it.
This leads one
to a consideration of the important case of Read v Friendly Society
of Operative Stonemasons [1902] 2 KB 88. At p 96 Darling J said:
I think their
sufficient justification for interference with plaintiff’s right must be an
equal or superior right in themselves, and that no one can legally excuse
himself to a man, of whose contract he has procured the breach, on the grounds
that he acted on a wrong understanding of his own rights, or without malice, or
bona fide, or in the best interests of himself, nor even that he acted as an
altruist, seeking only the good of another and careless of his own advantage.
Rose J adopted
this test, namely whether the respondents had an equal or superior right in
themselves. And much of the argument before us has been directed to the
question whether he was right to hold that they did.
It is
important to appreciate some of the salient facts in Read’s case and the course
which was taken in the courts. The plaintiff was 25 years old and the son of a
mason. He entered into a contract with Wigg & Wright under which he agreed
to work for three years at 15 shillings a week, which were ordinary labourer’s
wages; in return Wigg & Wright were to instruct and teach him in the trade
and business of a mason. Wigg & Wright were members of the defendant
society. One of the rules of the society provided that ‘Boys entering the trade
shall not work more than three months without being legally bound apprentices,
and in no case to be more than 16 years of age, except mason’s sons and
stepsons. Employers to have an apprentice to every four masons on an
average.’ On learning of the plaintiff’s
contract the defendants threatened that their members employed by Wigg &
Wright would strike if the plaintiff started work on the terms of his contract.
As a result Wigg & Wright terminated the plaintiff’s contract.
The county
court judge held that the defendants were justified because they had acted in
the best interests of their society. The majority of the Divisional Court,
consisting of Darling and Channell JJ, ordered a retrial on the basis that it
could not be determined whether the contract between Wigg & Wright and the
defendants were a valid enforceable contract or was in restraint of trade or
affected by the Trade Union Act 1871. It is clear, however, that they
considered that if it was a valid contract it might have afforded justification
for what the defendants did. Lord Alverstone CJ would have allowed the appeal.
At p 97 he said:
In my
opinion, the evidence establishes that in this case the defendants, instead of
taking action against Messrs Wigg & Wright for a supposed breach by them of
the contract (if any) embodied in the rules of the Association, did for their
own ends procure and induce Messrs Wigg & Wright to commit an actionable
wrong — that is to say, to break the terms of a special contract made with the
plaintiff.
He doubted
whether the first part of the rule had any application; but held that if there
were a breach of the second part, as to there being one apprentice to every
four masons, the defendants were confined to taking action to enforce this and
were not justified in procuring a breach of the plaintiff’s contract.
In the Court
of Appeal, Collins MR, with whom Cozens-Hardy LJ agreed, considered the case to
be one of conspiracy and that even if the defendants had an enforceable
contract with Wigg & Wright and the latter were in breach of its terms,
which he doubted, that could not justify both the illegal act and the illegal
means adopted, ie the coercion of Wigg & Wright by the threat of strike
action.
Stirling LJ
held that on the true construction of the rule it did not apply to the
plaintiff and therefore Wigg & Wright were not in breach. Consequently a
mistaken, albeit honest, belief that Wigg & Wright were in breach was no
justification. He specifically reserved his opinion on the question whether, if
the contract had been such as the defendants believed it to be, they would have
been justified in point of law in doing what they did.
Mr Judge’s
submission to us is to the effect that the words ‘sufficient justification for
interference with the plaintiff’s right must be an equal or superior right in
themselves’ must be confined to the exercise of that right by the defendant.
But I can find no warrant for this proposition and in my judgment it confuses
right with the remedies available to protect the right. The respondents had the
rights of a secured creditor, that is to say the right to be repaid their loan
together with interest; in support of that right they had the remedies or
rights granted by the legal charge and the law, namely to sell the land or
appoint a receiver. They were not bound to exercise these remedies in defence
of their rights, but they could do so. Had they done so, it is common ground,
at least in so far as concerns the power of sale and I think probably also on
the appointment of a receiver, that the appellants’ contract would have come to
an end. If, instead of exercising these remedies in their full rigour, they
reach an accommodation with the mortgagor in defence and protection of their
right as secured creditor, which has the same result of putting an end to the
appellants’ contract, it would in my judgment be anomalous and illogical if
they were justified in the one case but not in the other. Nor can it make any
difference that the accommodation reached is one that is more beneficial to the
respondents and Mr Pulver than the straightforward exercise of the right of
sale or appointment of a receiver.
Why, it may be
asked, should the respondents be justified in interfering with the appellants’
contract if they exercise their power of sale as mortgagee in possession, but
not if by agreement they permit the mortgagor to conduct the sale in the hope
of achieving a better deal for both? Why
should they be justified if they appoint a receiver, who has power to build-out
the development and appoint architects, but not if they agree to finance the
mortgagor to perform this task? I cannot
find any logical answer to these questions.
Moreover I
think it would be undesirable if the law were to insist that a mortgagee in
such a position should exercise his strict legal rights if he is to be
justified in interference with contracts between the mortgagor and third
parties; and could not be justified if he reached some sensible and reasonable
accommodation which may be to the benefit of both himself and the mortgagor,
but which has the same effect on the third parties’ contract. The accommodation
is designed to protect or defend the mortgagee’s equal or superior right as a
secured creditor, who had in this case financed the entire purchase and
development of the site so far. And the accommodation was reached against the
background of the remedy of sale or the appointment of a receiver. There can be
no doubt that these rights existed once a formal demand for payment was made, a
demand which could not have been met.
We have been
referred to a number of cases in foreign jurisdictions. In my judgment, none
are of any assistance save the case of Winters v University District
Building Loan Association (1932) 268 III App 147. The plaintiff entered
into a written contract with S to convey his land in Champaign County,
Illinois, to S subject to a mortgage indebtedness to the defendants in the sum
of $9,500 (which may well have exceeded the value of the property) in
consideration of S conveying land in Bond County to the plaintiff, subject to
an indebtedness of $1,500. The defendants, by their secretary B, procured a
breach of this contract by telling S that the land at Champaign had depreciated
in value and that the defendants would require double security, which
apparently meant that payment was to be made a year in advance. Shurtleff J,
giving the judgment of the Illinois Court of Appeal, said at p 159:
The ‘gist’ of
all these cases is that the defendant in error has the right to look after all
of its interests in the property in question and protect its rights wilfully
and conclusively, and if the defendant in error, while engaged lawfully and
legally within its legal rights, even with malice interferes with the contracts
and combinations of others, it is not actionable.
This case
appears to me to be the nearest case on the facts to the present.
Justification
for interference with the plaintiffs’ contractual right based upon an equal or
superior right in the defendant must clearly be a legal right. Such right may
derive from property real or personal or from contractual rights. Property
rights may simply involve the use and enjoyment of land or personal property.
To give an example put in argument by the Vice-Chancellor, if X carries on
building operations on his land, they may to the knowledge of X interfere with
a contract between A and B to carry out recording work on adjoining land
occupied by A. But unless X’s activity amounts to a nuisance, he is justified
in doing what he did. Alternatively, the law may grant legal remedies to the
owner of property to act in defence or protection of his property; if in the
exercise of these remedies he interferes with a contract between A and B of
which he knows, he will be justified. If instead of exercising those remedies
he reaches an accommodation with A, which has a similar effect of interfering
with A’s contract with B, he is still justified notwithstanding that the
accommodation may be to the commercial advantage of himself or A or both. The
position is the same if the defendants’ right is to a contractual as opposed to
a property right, provided it is equal or superior to the plaintiffs’ rights.
In my
judgment, that is the position in this case; I therefore agree with the learned
judge’s conclusion and would dismiss the appeal.
In these
circumstances it is not necessary to deal with the cross-
this matter, in deference to counsel’s argument I propose to state it shortly.
Mr Smith’s submission was that the necessary intention to interfere with the
plaintiffs’ contract is not established unless the defendants’ conduct is aimed
at the plaintiffs and there is a desire to injure them. In support of this
proposition he relied upon the dictum of Evershed MR in Thomson (DC) &
Co Ltd v Deakin [1952] Ch 646 at pp 676-677.
I cannot
accept this submission. It plays no part in the formulation of the tort
propounded by Jenkins LJ at pp 696-7 or Morris LJ at p 702. Jenkins LJ’s
statement of the tort was endorsed by the House of Lords in Merkur Island
Shipping Corporation v Laughton [1983] 2 AC 570 per Lord
Diplock at p 608 F-G. Moreover, it seems to me to be directly contrary to the
binding authority of the Court of Appeal in Smithies v National
Association of Operative Plasterers [1909] 1 KB 310, where there was an
express finding of fact that the defendants did not intend to injure the
plaintiff or the dismissed workman Gibbs, see p 316; yet nevertheless the claim
succeeded.
Agreeing,
NOURSE LJ said: The principal question is whether the respondents’ interference
with the appellants’ contract with Leakcliff was justified by an equal or
superior right in themselves. Immediately before the interference the
respondents were at liberty to demand from Leakcliff the principal moneys then
owing on the overdraft, plus interest to date. If a demand had been made, the
respondents’ right to payment would have been perfected. If payment had not
been made, they could either have sued on the personal covenant or, as legal
mortgagees, exercised one or other of the statutory powers to sell the property
or appoint a receiver under section 101(1)(i) and (iii) of the Law of Property
Act 1925 as supplemented by the terms of the legal charge dated August 31 1976.
If the power of sale had been exercised, the appellants’ contract with Leakcliff
would necessarily have come to an end, and it was accepted by Mr Igor Judge QC,
on behalf of the appellants, that that interference would have been justified
by the superior right vested in the respondents by virtue of the legal charge.
Equally, I am of the opinion that on the true construction of clause 4(A)(i)
and (ix) and (D) of the legal charge, the terms of which need not be recited, a
receiver appointed by the respondents would have had power to employ new
architects and that that form of interference would likewise have been
justified.
The
respondents did not demand payment from Leakcliff and they did not seek to sell
the property or appoint a receiver. Instead they agreed to make further
advances to Leakcliff, but on terms that Leakcliff’s contract with the
appellants was terminated and new architects appointed in their place.
Was that
interference justified by an equal or superior right in the respondents? To my mind, the most formidable of the
appellants’ arguments were, first, that the respondents had entered into a new
contract with Leakcliff and, second, that they had done so in their own
commercial interests. No doubt it is correct to say that there was a new
contract. But any variation of an existing contract has that result and I cannot
think that the defence or justification is so circumscribed as to apply only
where the pre-existing contract has not been varied in any respect. Here the
more important consideration is not the variation in the amount of the advances
but the existence of the relationship between Leakcliff and the respondents of
mortgagor and mortgagees. It was that relationship which enabled the
respondents reasonably to request the dismissal of the appellants. It was that
relationship which, if the request had been refused, would have enabled them to
take some other course leading, albeit incidentally, to the same result. The
superior right in the respondents, to which the remedies of a secured creditor
were merely ancillary, was to receive payment from Leakcliff of principal and
interest. The new contract, no less than the alternative steps which could have
been taken under the old, was solely intended to support and assist that right.
The interference was therefore justified.
As for the
second objection, no doubt it is again correct to say that the new contract was
entered into in the respondents’ own commercial interests, in the sense that
they had an interest in getting their money back plus interest. But that was an
interest under the pre-existing contract and not the extraneous kind of general
commercial interest which was under consideration in the authorities to which
Stuart-Smith LJ has referred. Had the purpose of the new contract been to give
the respondents a profit over and above that which would have come to them
through a return of principal plus interest at a normal rate, the position
might have been different. But that was not what happened in the present case
and this objection therefore fails.
For these
reasons, as well as for those stated by Stuart-Smith LJ, I think that the
conclusion at which Rose J arrived was entirely correct and I have nothing to
add on the issue of intent. Accordingly, I, too, would dismiss this appeal.
SIR NICOLAS
BROWNE-WILKINSON V-C also agreed and did not add anything.
The appeal
was dismissed with costs and leave to appeal was refused.
