Property – Development – Joint venture – Claimant alleging contract with first defendant for purchase, development and sale of property – Claimant alleging first defendant selling property in breach of contract — Claimant alleging second defendant knowingly procuring, counselling and assisting in breach – Claimant alleging third defendant knowingly receiving moneys out of proceeds of breach — Whether claimant establishing breach of contract – Claim allowed
The claimant contended that she had entered into an oral agreement with the first defendant for the purchase, development and sale of a property that was to be converted into two flats. The parties had allegedly agreed that the first defendant would raise the finance for the purchase, arrange for the services of a solicitor and, after the works had been completed, would market and sell the flats. The claimant was to undertake all the administrative steps required to obtain permission for the development from the local authority and service providers. The claimant’s partner (T), who was a builder, would carry out the works on an “at cost” basis and she would fund the development costs. The claimant and the first defendant were to share any profit arising from the sale of the flats. The property was eventually transferred into the first defendant’s sole name since the bank was prepared to make a loan only to him but the claimant, a fact of which was not aware.
The claimant subsequently claimed damages against the first defendant for breach of contract. She claimed to be entitled to a beneficial interest in the property and that the first defendant held the property on trust for them both and had sold it in breach of contract and/or trust. She claimed that the second defendant had knowingly procured, counselled and assisted the first defendant in his breach and that the third defendant, a limited company in which the first and second defendants were directors and shareholders, had knowingly received £69,972 out of the proceeds of the breach of trust and should repay it.
The first defendant agreed that a contract had been made, but not with the claimant. He contended that at all material times the claimant had acted only as a nominee of a building company (GTBC) and not as a contracting party in her own right. The joint venture had been agreed between himself and GTBC, of which T was the main proprietor. GTBC had provided £42,500 towards the purchase price in respect of the acquisition of a long lease of the ground-floor flat at the property with the claimant acting as nominee.
The second and third defendants accepted that, out of the proceeds of sale of the lower flat, £69,972 had been paid into the third defendant’s bank account, but denied knowing that the claimant had contributed £42,500.
Held: The claim was allowed.
On the evidence, the claimant was not a principal in the joint venture since the agreement had been made between the first defendant and T. GTBC had advanced £42,500 towards the purchase of the property and had performed building works to the value of £30,000. The property had been held by the first defendant on trust for himself and GTBC to reflect their contribution towards the cost of its purchase and improvement. After the top flat had been sold and it had been agreed that GTBC would take whatever benefit was due to it in the ground floor flat, the freehold and the trust had affixed to the ground-floor flat.
However, it was incontrovertible that the first and second defendants had carried out a subsequent venture under the umbrella of the third defendant. The problem was that the first defendant had tried to deduct, by way of set-off against the property that he had been holding in trust for GTBC, a liability that the third defendant had claimed was owed by GTBC. It was not legitimate for him to have done that.
The first defendant could have set off a liability that GTBC had owed to him personally, but the third defendant was a separate person or entity from the first defendant. It had nothing to do with the property and was not entitled to participate in any arrangement by way of set-off in respect of the equity that was held in the property. Since the first defendant had been improperly withholding from GTBC property held in trust for it, he had been acting in breach of trust and contract. Although the claimant had issued proceedings as a principal, she was in fact acting as nominee for GTBC. She was therefore entitled to succeed in the claim but would receive the benefit of that judgment as a nominee for GTBC and would hold it on trust for GTBC.
The money had been trust money. Since the first defendant had been one of the executive directors of the third defendant, it was clear that it had been fixed with the knowledge of the relevant facts that he possessed. It had in any event been acknowledged that the funds received by the third defendant had been received for no consideration. It followed that it was under an obligation to repay it.
Robin Howard (instructed by Judge & Priestly, of Bromley) appeared for the claimant; the first defendant appeared in person; Andre Jumabhoy (instructed by Saracens) appeared for the second and third defendants.
Eileen O’Grady, barrister