Sale of land – Stakeholder – Liability – Claimants purchasing units off-plan under fractional residential development scheme – Claimants’ deposits held by defendant solicitors to order of buyer company established to protect buyers’ interests – Site sold without units being built – Claimants losing investments and claiming against defendant for breach of stakeholder contract – Whether defendant liable for wrongly paying out deposits held in stakeholder capacity – Claims dismissed
North Point was a development of 426 residential and live-work units at a brown-field city centre site at 70-90 Pall Mall, Liverpool. The development was sold off-plan, predominantly to overseas investors who intended to let the units out once the development was completed. At the time they contracted to purchase units in the development, all of the claimants were resident in Hong Kong. The development adopted a fractional sales model, whereby significantly larger deposits than usual were paid (typically 50 to 80% of the purchase price). The deposits were then used to fund the development.
The construction of the development started in June 2015 but came to a standstill in about July 2017. LPA receivers were appointed in June 2018; and the site was eventually sold without any of the units having been constructed. The claimants’ deposits were all spent on marketing fees and other costs and the uncompleted works of development. Each of the claimants lost all of their investment. Claims against their own solicitors (the Part 20 defendant) and others were settled.
The defendant solicitors had taken over the role of acting for the developer (and seller) of the units which were being constructed. The claimants alleged that, having received their deposits as stakeholder, the defendant had proceeded to release them to the seller, in breach of the terms on which it was required to hold those deposits.
The claimants brought proceedings against the defendant for breach of the stakeholder contract made when they each entered into their individual, common-form sale agreement with the developer.
Held: The claims were dismissed.
(1) Apart from agreement to the contrary, a contract deposit paid to a stakeholder was not paid to him as trustee, but upon a contractual or quasi-contractual liability with the consequence that the stakeholder was not accountable for profit upon it. There was a right on the part of the contracting parties to require the surrender of the stake from the stakeholder, and to terminate their authority, before either of the events specified in the contract should take place. There had to be implied a term in the contract made between the original parties and the stakeholder that they could, should they so desire, withdraw their authority to hold the deposit and direct the stakeholder to apply the money in the way that both the original parties might agree. The relationship between the stakeholder and the depositors was contractual, not fiduciary. The money was not trust money; the stakeholder was not a trustee or agent; he was a principal who owed contractual obligations to the depositors: The underlying relationship was that of debtor and creditor and was closely analogous to the relationship between a banker and his customer: Potters v Loppert [1973] Ch 399; (1973) 224 EG 1717 and Hastingwood Property Ltd v Saunders Bearman Anselm [1991] Ch 114 applied.
(2) A stakeholder was a person who received a deposit of money from two parties and undertook to repay it to one or other of them in accordance with a specified event. The stakeholder as such had no interest in the outcome and was indifferent as to which of his principals should ultimately become entitled to be paid. As stakeholder his only interest was obtaining a good discharge for the money. Where a stakeholder was involved, there were normally two separate contracts to be considered. There was first the bilateral contract between the two principals which contemplated two possible alternative future events and by which the parties agreed to pay a sum of money to a stakeholder to abide the happening of one or other of them. The second contract was the tripartite contract which resulted from the deposit of the money with the stakeholder on terms that he was to keep it until one or other of the relevant events happened and then paid it to one or other of the parties accordingly. The stakeholder was a party to the second contract but not the first. His rights and obligations were not normally expressly spelled out. They were implicit in the transaction itself, and had to be discovered, not by implying terms, but by analysing the relationship of the parties which arose from the deposit of the money: Manzanilla Ltd v Corton Property & Investments Ltd (13 November 1996 (CA), unreported) applied. Bristol Alliance Nominee No 1 Ltd v Bennett [2013] EWCA Civ 1626, [2014] 1 EGLR 9 and Gribbon v Lutton [2001] EWCA Civ 1956; [2001] PLSCS 281; [2002] QB 902 considered.
(3) In analysing the stakeholder contract, the starting-point was to identify the parties to that contract and, having done so, to identify its terms, express and implied. The defendant was not a party to any of the sale agreements made between the seller and the claimants, as purchasers; but the appropriate inference was that, when the defendant received each of the deposits, it agreed to do so on the terms set out in the relevant agreement for sale. That was a quadripartite agreement, involving the individual buyers as well as the buyer company ostensibly established to protect the purchasers’ interests. The deposits were held to the order of neither the purchaser nor the seller but rather to the order of the buyer company. The individual buyers provided the deposits; and they had a contingent right to their return if they became entitled to exercise the contractual mechanism for terminating the sale agreements should the seller fail to achieve practical completion of the development by the longstop date.
(4) On the evidence in the present case, the court was satisfied that the remedy of each claimant for the loss of its investment in the development properly lay against their own former solicitors, and not the stakeholder, who at all times acted in accordance with the authority of those solicitors. The claimants had compromised their claims against their former solicitors. Accordingly, the defendant was not in breach of its contractual obligations as stakeholder when it paid any of the claimants’ funds.
David McIlroy (instructed by Penningtons Manches Cooper LLP) appeared for the claimants; Michael Bowmer (instructed by DAC Beachcroft LLP) appeared for the defendant; Glenn Campbell (instructed by Caytons Law LLP) appeared for the Part 20 defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Various North Point Pall Mall Purchasers v 174 Law Solicitors Ltd
