Auction of farm–Agreement by purchaser with potential bidder restraining competition, if it could be established, would not invalidate the contract or bar a suit for specific performance–Summary judgment awarded–Further point on sale of house–Triable issue held to arise whether purchaser bought as nominee for trustee vendor
This was an
order 86 summons by Mr Ronald Harrop seeking summary judgment in a suit against
Mr George Roper Thompson and Mr Malcolm Thompson, personal representatives of
the late George Atkinson Thompson, for specific performance of (1) a contract
dated March 15 1973 for sale by the defendants to the plaintiff of Dyke Nook
Farm and High House Farm, Consett, Co Durham, for £106,000, and (2) a further
contract for sale on the same date by the defendants to the plaintiff of
Heatherlea, Consett, Co Durham for £10,000.
Mr J F Parker
(instructed by Crossman, Block & Keith, agents for Richmonds, of Consett)
appeared for the plaintiff; Mr S Goldblatt QC and Mr D G A Jackson (instructed
by Robinson & Co, agents for Hewitt, Brown-Humes & Hare, of Bishop
Auckland) for the first defendant; and Mr A G Boyle (instructed by Snowball,
Tucker & Bibby, of Consett) for the second defendant.
Giving
judgment, TEMPLEMAN J said: The question is whether an agreement not to compete
invalidates an auction contract. The plaintiff purchased a farm at an auction
for £106,000 and now seeks summary judgment under order 86 for specific
performance. The vendor defendants resist specific performance on the grounds
that prior to the auction the purchaser entered into an agreement with another
potential bidder whereby the potential bidder stayed away from the auction and
the purchaser acquired the farm cheaply. The purchaser can obtain summary
judgment only if there is no triable issue. Although, therefore, the purchaser
denies that there was any agreement with a potential bidder, his counsel
submits that even if there were such an agreement the vendors cannot resist
specific performance.
The point is
not devoid of authority. In Galton v Emuss (1844) 1 Coll 243, a
potential bidder absented himself from the auction on the promise of the
successful purchaser to give the potential bidder a right of pre-emption. (A
similar promise is alleged in the present case to give an option.) That promise was enforced by Knight Bruce
V-C, who said at p 246:
‘Two men,
severally desirous of effecting a purchase of an estate, become acquainted with
each other’s intentions, and, with a view to their own benefit, enter into an
engagement together that one shall retire leaving the field open to the other.
It is not suggested that this arrangement involved any matter of fraud or
misrepresentation; it was merely that one should not bid while the other was a
competitor. No authority has been cited to show that a contract founded on such
a consideration is illegal, and, as the defendants have not in consequence of
my intimation, or otherwise, asked an opportunity of bringing the question
before a court of law, I assume that it is not their wish to do so.’
In Re
Carew’s Estate (1858) 26 Beav 187 on a sale under the court two persons
agreed not to bid against each other, but that one should bid up to £1,500 and
divide the lot between them. They bought for £650, and Romilly MR refused to
avoid the sale, saying at p 189:
‘I am not
aware of any case, or any principle which establishes that such an agreement is
inequitable.’
And at p 190:
‘All that is
proved is that the persons who have sold the estate were not aware of the real
value of this lot, and it is to be inferred that if they had known what the
court now knows, they would have fixed a much higher reserved price, but this
is no reason for opening the sale.’
In Heffer
v Martyn (1867) 36 LJNS Eq 372 the purchaser agreed to pay £500 to a
potential bidder if the bidder stayed away and if the purchaser was able to
purchase for not more than 6,000 guineas. The purchaser also tried to make
arrangements with other persons not to bid. At the auction the purchaser
succeeded in a bid of £3,000, and the vendors, discovering the purchaser’s
artifices, resisted specific performance. Lord Romilly found in favour of the
purchaser, and said at p 373:
‘This is no
doubt very hard upon a vendor that if he combines with others to keep up the
price it should be illegal and the sale void but that the purchaser may combine
together with others to get the property at less than its value; but the real
remedy in such a case as this is in fixing the reserved bidding.’
And later:
‘It is no
doubt extremely irritating to find that the property is sold for one-half of
its real value, or less; but still it is the fact that according to the
decisions of this court such an agreement is not illegal and the plaintiff is
entitled to a decree for specific performance.’
These
authorities appear to be indistinguishable and to decide the present case in
favour of the purchaser. In Rawlings v General Trading Co [1920]
3 KB 30 at a sale by public auction of surplus stores belonging to the Ministry
of Munitions the plaintiff and the defendant agreed that in order to avoid competition
the defendant would bid and then divide the goods with the plaintiff. The
defendant bought the goods and was sued by the plaintiff for his share.
Shearman J held that the agreement between the plaintiff and the defendant to
divide the goods was unenforceable, saying at p 35:
‘I am of the
opinion that, at any rate in such a case as this where the goods sold are the
property of the public, it is against public policy that people should combine
at an auction to procure the goods to be sold at a price considerably below the
fair value, with the necessary result that the public are defrauded.’
This decision
was reversed by the Court of Appeal [1921] 1 KB 635. Bankes LJ reviewed the
authorities and said at p 641:
‘Having
regard to the state of the authorities in the Chancery courts for over 70 years
I do not think it was open to the learned
lapse of time overrule those authorities even if this court considered they
were wrong, which I am far from suggesting that they are. If there was any
conflict between the rules of law and the rules of equity on the point (which I
do not consider that there was) the latter must prevail.’
Another 50 years
has elapsed since the words of Bankes LJ. In the same case, however, Scrutton
LJ dissented on the ground that the agreement between the plaintiff and the
defendant which was sought to be enforced was, as he says at p 647, ‘contrary
to public policy, as a restraint of trade contrary to the interests of the
public.’ Atkin LJ agreed with Bankes LJ
in reversing the decision of Shearman J, and at p 632 he said:
‘I can see no
reason for saying that this contract is ex facie illegal. It would
probably be sufficient to say that for nearly a century courts of equity have
held similar agreements legal and enforceable by suit for specific performance.
But apart from decided cases as between the parties it appears to be plainly
reasonable, and if the defendant wished to establish that the public interest
suffered he should have so pleaded as to give the plaintiff notice.’
Mr Goldblatt
submits that in the light of the observations of Shearman J and Scrutton LJ, it
is open to a judge of first instance to hold that a knock-out or similar
agreement is against public policy, being in restraint of trade, and that a
vendor who complains of such an agreement is not bound by his contract with the
purchaser. There is nothing in the Rawlings case which overrules the
earlier authorities, or enables me to ignore them. Mr Goldblatt relies on the
observations in the Rawlings case as pointing in the direction in which
he submits the law should develop. I am not at liberty to twist the wheel in
the direction he wishes. In Cohen v Roche [1927] 1 KB 169 at 173,
it was accepted by McCardie J that it seems reasonably clear in law that the
existence of a knock-out agreement does not of itself afford any answer to this
action by the plaintiff. And in Pallant v Morgan [1953] Ch 43
there was a formidable array of distinguished counsel. It did not occur to them
or to Harman J, who decided the case, that there was anything wrong with an
agreement between two bidders not to compete at an auction.
Mr Goldblatt,
in the course of an interesting argument, invited me to follow the path
indicated by Shearman J and Scrutton LJ. A knock-out or similar agreement, he
says, if not proved to be reasonable, is unenforceable and relieves the vendor
from his contract. He referred me to Neugebauer & Co Ltd v Hermann
[1923] App D 564, a South African case, which illustrates that the law of South
Africa and the law of some states of America is not always the same as the law
of England. He also relied on Esso Petroleum Co Ltd v Harper’s Garage
(Stourport) Ltd [1968] AC 269 for the proposition that the courts of this
country are now astute in applying the doctrine of restraint of trade to strike
down any interference with individual liberty. A knock-out agreement, he
submitted, is an interference with the liberty of the potential bidder to bid
at the auction and ought not to be enforceable if the sole or primary object of
the agreement between the potential bidders is to buy the property cheaply.
This submission brings most contracts within the grasp of restraint of trade,
and therefore unenforceable unless proved to be reasonable, because most
contracts interfere with liberty of action one way or another. I am not
convinced that the agreement alleged in the present case was in restraint of
trade. If it was in restraint of trade, I am not convinced that it invalidated
or affected the contract between the vendors and the purchaser. But for the
earlier cases which bind me, it might be argued that there was a kind of fraud
on the vendors, but restraint of trade in the circumstances I do not
understand. Mr Goldblatt’s remedy may be worse than any disease, If potential
bidders, or a syndicate, enter into some form of agreement which results in
some of them keeping quiet at the auction, there is no method open to a judge
of first instance of sorting out a good agreement from a bad agreement. The
present case may open up a vista of litigation. It is said that an obliging
potential bidder confided to the vendors at one stage that he might have bid
£130,000, but in the meantime he had confided to the purchaser that he would
not bid for a consideration, and then later on confided the whole plot to the
vendors. If such allegations and conversations must be investigated before a
purchaser is allowed to complete, then only the lawyers may benefit. It may be
better that the property should fall with the hammer. A vendor can protect
himself by conditions under which he imposes a reserve and keeps the right to
bid and to withdraw. A timid vendor need not sell by auction. But these matters
can be pursued with the Law Commission, and restraint of trade or fraud may be
pursued in the appellate courts. As the law now stands, I am bound by authority
to ignore the agreement between the purchaser and the potential bidder which is
alleged in the evidence in this case. That being so, there is no triable issue,
and the purchaser is entitled to specific performance.
The present
application also concerns a second contract comprising the sale of a house by
the vendors to the plaintiff. The first defendant has given affidavit evidence
that the plaintiff purchased this property as nominee for the first defendant.
A sale to the first defendant is void because he is a vendor trustee and cannot
purchase trust property. These allegations, if true, debar the purchaser
plaintiff from specific performance. Mr Parker, who appeared for the purchaser,
submitted that the allegations are inconsistent with the correspondence, but
this may not prove to be so at the trial. There is a triable issue, namely
whether the plaintiff bought the house for himself or as nominee for the first
defendant, and so far as this second contract is concerned, the plaintiff is
not in my judgment entitled to summary judgment.
