Contract — Entire agreement clause — Trust — Application for leave to bring proceedings under Insolvency Act 1986 — Whether respondent holding property on trust for applicant by virtue of letter written in course of negotiations for share sale agreement — Whether entire agreement clause in completed agreement rendering side letter ineffective — Application dismissed
Following the appointment of administrators over the respondent company, the applicant claimed that the respondent held a property on trust on its behalf. It relied upon heads of agreement and a side letter that had been written in 1995, during negotiations for a share sale agreement. The side letter stated that, on any sale of the property, “the proceeds shall be divided 50:50 between our companies respectively”. The subsequent share sale agreement contained an entire agreement clause, and did not repeat the statement referring to the sale of the property.
The administrators did not admit the applicant’s claim, nor did they give permission for it to bring proceedings in respect of that claim. Accordingly, the applicant applied to the court, under section 11(3)(d) of the Insolvency Act 1986, for leave to commence proceedings for declaratory and other relief. It contended that the side letter had given rise to a trust under section 53(1)(b) of the Law of Property Act 1925, or, alternatively, that the respondent was estopped from denying the existence of a trust.
Held: The application was dismissed.
In the side letter, the parties were merely agreeing that, when the property was sold, the proceeds of sale were to be divided between them. No trust of the property was thereby created, and the respondent was not estopped from relying upon that point. Moreover, the entire agreement clause in the share sale agreement prevented the applicant from maintaining any claim against the property. The heads of agreement could not survive the express terms of the share sale agreement: see Inntrepreneur Pub Co v East Crown Ltd [2000] 3 EGLR 31. Applying the guidance in Re Atlantic Computer Systems plc [1992] Ch 505, the applicant had no seriously arguable case, and it would not constitute a proper exercise of the court’s discretion to grant permission for it to pursue its claim.
John McCarroll (instructed by Hill Dickinson, of Chester) appeared for the applicant; Katharine Holland (instructed by Pinsent Curtis Biddle, of Leeds) appeared for the respondent.
Sally Dobson, barrister