Partner of defendant firm of solicitors taking option to purchase land as client’s nominee – Plaintiffs buying option for more than sum required to keep option alive – Excess used to discharge client’s liabilities to defendant – Whether excess held on trust by defendant – Whether defendant made fraudulent misrepresentations – Plaintiffs’ claim dismissed
In 1989 Lionhope Ltd (the company) purchased options over land on the Isle of Sheppey in connection with an extensive development project. The options were granted for a nominal consideration of £2 with a further sum payable within 21 days to keep them alive. S, a partner in the defendant firm of solicitors, acted for the company. When the company experienced cash flow difficulties S and G, the senior partner of the defendant firm, purchased the options from the company at the price needed to keep the options alive. Subsequently, S was granted directly from a grantor, inter alia, an option over land at Tadwell Farm for a nominal consideration of £2, with the sum of £48,450 to be paid within 21 days to keep the option alive. S took the option as nominee for the company. The plaintiffs agreed to purchase the Tadwell Farm option for £70,000 on the basis that the company would buy back the option before it was due to be exercised. The plaintiffs transferred £70,000 to the defendant’s client account and S assigned the option to the plaintiffs. The defendant had acted for the plaintiffs on previous occasions and it transferred £48,450 of the £70,000 to the grantor using the balance to reduce the liabilities of the company, or of the managing director of the company, C, to the defendant. Subsequently, the company went into receivership and was unable to buy back the option.
In 1993 the plaintiffs learnt of the true nature of the transaction and issued proceedings. The plaintiffs claimed they had regarded the defendant as acting for them and that they would not have entered into the transaction if they had thought it was S, and not the company or C, selling the option. It was contended that the defendant had held the £70,000 on trust to apply it solely to the option and by retaining the balance the defendant had acted in breach of trust, since it had misled the plaintiffs and profited from the transaction. It was also contended that the defendant had fraudulently misrepresented the position when offering the option by stating its cost as £70,000 and the opportunity to purchase the option was being made by C or the company.
Held The plaintiffs’ claim was dismissed.
1. The plaintiffs had agreed to pay £70,000 for the assignment of the option from C or the company. The transaction was similar to a subsale and therefore what C or the company did with that money apart from assuring the option was kept alive was a matter for them. Accordingly, there had been no breach of trust.
2. The representation that C or the company was the seller of the option was not false, even though S had been the legal owner, because it had been for C or the company to conclude the agreement for its sale. There had been no misrepresentation in the statement that the price for the assignment was £70,000 since it had not been stated that the price was linked to the sum required to keep the option alive. In any event, if S had made such a representation, he did not know of the sum required to keep the option alive and therefore any representation could not have been made fraudulently.
Nigel Burroughs (instructed by Hartley Linfoot & Whitlam, of Sheffield) appeared for the plaintiffs; Andrew Stafford (instructed by Wansbroughs Willey Hargrave, of Leeds) appeared for the defendant.
