Partnership dispute — Settlement under CPR 36 — Terms including disposal of claimant’s interest in freehold property — Settlement held to be unenforceable for failure to comply with formalities applicable to contracts for disposition of an interest in land — Section 2 of Law of Property (Miscellaneous Provisions) Act 1989 — Whether obligations under settlement contractual or sui generis — Appeal allowed
The parties were members of a firm of solicitors. The firm held a lease of office premises, the freehold of which was owned by another partnership consisting of some, but not all, members of the firm. By a 1988 deed, the members of the firm agreed that, in the event of any partner ceasing to be a partner, his or her share in any freehold or leasehold property of the partnership was to be sold at a valuation. The claimant, who was a partner in both partnerships, gave notice purporting to dissolve them both. He brought proceedings for relief, including the winding up of the partnerships and an order that the freehold of the offices be sold. By a Part 36 offer, he offered to settle those proceedings on terms that he would be paid his entitlement in respect of the partnerships in accordance with the 1988 deed; in other words, he would dispose of his interest in the office premises at a valuation.
The defendants purported to accept the offer, but a disagreement subsequently arose over its precise meaning. The claimant then claimed that the settlement agreement was invalid, since the proposed settlement involved the disposition of an interest in land and the Part 36 offer and notice of acceptance did not comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, consisting as they did of two documents and not a single document incorporating all the express terms of the contract, as required by section 2.
The claimant sought, and was granted, a preliminary ruling from a master that the Part 36 settlement was defeated by section 2 for failure to comply with the formalities. In so holding, the master rejected the defendants’ argument that the settlement was valid since the mechanism of Part 36 did not create a contract but gave rise to a sui generis obligations, which the court could enforce, if necessary, by requiring the parties to enter into a contract that did comply with section 2. The defendants appealed.
Held: The appeal was allowed.
Section 2 should not be applied so as to defeat the settlement reached by the parties. The purpose of section 2 was to avoid the various dodges and mistakes that arose under the old law in section 40 of the Law of Property Act 1925 owing to the uncertainties inherent in enforcing oral agreements under the doctrine of part performance, or in enforcing such agreements where they were acknowledged in writing by one party only, leading to a lack of mutuality: Timmins v Moreland Street Property Co Ltd [1958] Ch 110 considered. No such problems arose in connection with the settlement of existing court proceedings under the Part 36 machinery because, undoubtedly, the acceptance should be read together with the offer, the parties knew that they were entering into a binding legal transaction and they had the opportunity to seek legal advice and, indeed, were usually advised by lawyers throughout.
The regime of Part 36 created substantive, sui generis obligations and did not depend upon contract law, even though the acceptance of a Part 36 offer might well result in the creation of a contract, and probably did so in the vast majority of cases. A Part 36 acceptance could therefore be enforced by the court, under its inherent jurisdiction to administer justice, even where, for some reason, it did not create a contract. A party that made a valid Part 36 offer, or one that accepted it, had to be taken to be binding itself to submit to those consequences. Human rights had not been infringed since no one was forced to make or accept a Part 36 offer. It followed that the claimant and the defendants had entered into an enforceable settlement, and the court had the power to order them to sign a single document incorporating the terms of that settlement in order to comply with section 2: Hollingworth v Humphrey unreported 10 December 1987 distinguished.
Geoffrey Zelin (instructed by Blake Lapthorn Tarlo Lyons, of Portsmouth) appeared for the claimant; Paul Marshall (instructed by Shakespeare Putsmans, of Birmingham) appeared for the defendants.
Sally Dobson, barrister
