Sale of land – Stakeholder – Liability – Appellants purchasing units off-plan under fractional residential development scheme – Appellants’ deposits held by respondent solicitors to order of buyer company established to protect buyers’ interests – Site sold without units being built – Appellants losing investments and claiming against respondent for breach of stakeholder contract – High court dismissing claim – Appellants appealing – Whether respondent liable for wrongly paying out deposits held in stakeholder capacity – Appeal 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 resident in Hong Kong, who intended to let the units out once the development was completed. 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 used to fund the development.
The contractual arrangements with buyers provided for the involvement of a company limited by guarantee which had been set up to protect buyers’ interests (the buyer company).
The construction of the development started in June 2015 but ceased in about July 2017. LPA receivers were appointed in June 2018 and the site was eventually sold without any of the units being constructed. The appellants’ deposits were all spent on marketing fees and other costs and the uncompleted development works. The appellants lost all of their investments.
The respondent solicitors had taken over the role of acting for the developer (and seller) of the units. The appellants alleged that, having received their deposits as stakeholder, the respondent had proceeded to release them to the seller, in breach of the terms on which it was required to hold those deposits.
The appellants’ claim against the respondent for breach of the stakeholder contract made when they each entered into their individual, common-form sale agreement with the developer was dismissed: [2022] EWHC 4 (Ch); [2022] PLSCS 6. The appellants appealed.
Held: The appeal was dismissed.
(1) Where a stakeholder was involved, there were normally two separate contracts to consider: (i) 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; and (ii) 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 by analysing the relationship of the parties which arose from the deposit of the money. The proper inference appeared to be that the vendors’ solicitors agreed to act as stakeholders on the terms set out in the contracts of sale. In the present case, the judge concluded that there was a quadripartite contract. The parties to the stakeholder contracts included the individual buyers, the buyer company, the developer and the developer’s solicitors. There was no challenge to that conclusion: Manzanilla Ltd v Corton Property and Investments Ltd (Court of Appeal, unreported, 13 November 1996) applied.
(2) Interpretation of a contract involved assessment of the objective meaning of the language which the parties had chosen to express their agreement or in the ascertainment of the meaning which the document would convey to a reasonable person with all the background knowledge which would reasonably have been available to the parties at the time of the contract. The interpretation of the sale agreements at issue in the present case was made harder by the fact that they were not well drafted: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173 considered.
The proviso to clause 5.2 of the sale agreements provided that “any payment … shall not be made until … evidence of the registration … of the legal charge as a first legal charge (or that such registrations are pending) is produced to the buyer or his solicitor or agent”. In the event, no such evidence was produced to any of the appellants or their solicitors or agents. There could not be since the legal charge in favour of the buyer company was never registered as a first legal charge and no such registration was ever pending. In fact, the “work-around” expressly provided for money to be released “[n]otwithstanding the fact that the buyer company charge will sit on the register as a second charge”.
(3) The appellants’ solicitor was well aware that the buyer company’s legal charge had not been, and was not being, registered as a first legal charge. The proviso was not couched in terms of the buyers’ solicitors determining that there was sufficient evidence of the buyer company’s legal charge being registered as a first legal charge. Still less did clause 5.2 state that it was good enough for the respondent to consider that the buyers’ solicitors had so determined. On its face, clause 5.2 required evidence of the registration, or pending registration, of the buyer company’s legal charge as a first legal charge to be produced and there was no such evidence.
In any event, it was not the case that the buyers’ solicitors determined there to be sufficient evidence of the buyer company’s legal charge being registered as a first legal charge or that the respondent considered them to have done so. The buyers’ solicitors agreed to go ahead without such registration; and there was no reason for the respondent to think that they believed there to be any, let alone sufficient, evidence of registration as a first legal charge.
(4) The judge had concluded that the clear wording of clause 5 was to impose constraints upon the stakeholder’s entitlement to release the deposits, even if authorised to do so by the buyer company The better view was that withdrawals outside the terms of clauses 5.1.2 and 5.2 could be authorised either by the buyer company alone or at any rate by the buyer company and the developer together; there was no need to obtain the consent of individual buyers. The appellants could have no complaint about the respondent releasing money to the developer. The buyer company and the developer both agreed to that.
David McIlroy and Lloyd Maynard (instructed by Penningtons Manches Cooper LLP) appeared for the appellants; Jonathan Seitler KC and Michael Bowmer (instructed by DAC Beachcroft LLP) appeared for the respondents.
Eileen O’Grady, barrister
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