Rollerteam Ltd & Anor v Riley & Anor

The sole issue on this appeal is whether an agreement intended to settle bitter family litigation was void for failure to comply with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”). As is well known, section 2(1) of the 1989 Act provides that:

The agreement in question was made on 11 April 2013. The parties to the agreement included the appellant, John Aidiniantz, his wholly-owned company Rollerteam Limited (“Rollerteam”), and his half-sisters, Linda Riley and Jennifer Decoteau, who are the respondents to the appeal. Among other things, the agreement provided for Ms Riley to execute two declarations of trust (one in favour of Mr Aidiniantz, and the other in favour of Rollerteam) over two London properties of which she was the sole registered proprietor. In return, Mr Aidiniantz was to make payments of £1 million to each of Ms Riley and Ms Decoteau, and undertake various other financial obligations. The overall purpose of the agreement was to settle four separate sets of legal proceedings in which the family had sadly become embroiled.

It is no longer in dispute that Ms Riley duly executed the two declarations of trust in favour of Mr Aidiniantz and Rollerteam on 11 April 2013. Mr Aidiniantz, however, paid only £300,000 to Ms Decoteau out of the £2 million which, under the terms of the agreement if it was valid, he was obliged to pay his half-sisters. Having apparently obtained the benefit of the declarations of trust, Mr Aidiniantz contended for the first time in or around August 2013 that no concluded settlement agreement had ever been reached, with the result that he was under no enforceable obligation to pay the remaining £1.7 million. Mr Aidiniantz then maintained this contention down to the trial of the present action.

If section 2 of the 1989 Act applied to the settlement agreement, it is now common ground that the formal requirements of the section were not satisfied and that the agreement was void. The judge below (Mr Robert Englehart QC, sitting as a Deputy Judge of the Chancery Division) held that the agreement did not fall within the scope of section 2, and therefore gave judgment in favour of Ms Riley and Ms Decoteau for the outstanding £1.7 million owed to them by Mr Aidiniantz. The judgment was given on their counterclaim, because the present action had been started by Mr Aidiniantz and Rollerteam in January 2014, seeking declarations that the two declarations of trust were valid and binding on Ms Riley. Following a 7 day trial in April 2015, the deputy judge handed down his judgment on 4 June 2015. By his order of the same date, he granted the declarations sought by the claimants, ordered Mr Aidiniantz to pay £1 million to Ms Riley and £700,000 to Ms Decoteau together with interest, and also ordered him to pay them 75% of their costs of the proceedings on the standard basis, with a payment on account of those costs in the sum of £250,000. The judge also made various consequential orders to which it is unnecessary to refer.

Mr Aidiniantz now appeals to this court, with permission granted by Lewison LJ on 24 July 2015. The three grounds of appeal for which permission was granted all relate in different ways to the judge’s conclusion that section 2 did not apply to the agreement. Lewison LJ refused permission to appeal on a further ground which sought to challenge some of the judge’s findings of fact. This refusal was upheld by Simon LJ at an oral hearing on 13 April 2016.

The parties have been represented on the appeal, as they were below, by Mr Hugh Sims QC appearing with Mr Matthew Brown for Mr Aidiniantz, and Mr Neil Hext QC (appearing with Mr Joshua Folkard in this court, and with Mr Hamid Khanbhai below) for the respondents.

For the purposes of this appeal, the relevant background facts may be briefly stated. The following account is largely taken from the judgment below, of which the neutral citation reference is [2015] EWHC 1545 (Ch).

Rollerteam was originally incorporated by Mr Aidiniantz in 1984, to effect leaflet distribution on roller skates, but in 1989 he used it as a vehicle for the purchase of 239 Baker Street in central London. His plan was to use the property to found a Sherlock Holmes museum, the fictional detective having lived at 221B Baker Street. The property was acquired with deposit money provided by Mr Aidiniantz’s mother, Mrs Grace Aidiniantz.

The museum was then founded, and over the years it developed into a successful business. The judge found that, to an extent, the museum business “seems to have been informally regarded as something of a family enterprise, albeit with Mr Aidiniantz being in control of operations through Rollerteam”. The family members involved were Grace Aidiniantz, her son John (the appellant), and her three children by a different marriage, namely Ms Riley, Ms Decoteau and Mr Stephen Riley.

In 2004, a company called Sherlock Holmes International Society Limited (“SHIS”) was founded as a not-for-profit company in order to take advantage of the value added tax exemption on ticket sales for cultural bodies. At various times, Grace Aidiniantz, Ms Riley, Ms Decoteau and Mr Stephen Riley served as directors of SHIS.

The breakdown in family relations dates back to September 2012. Until then, the cash takings from admission receipts to the museum had been taken each evening to Mrs Aidiniantz’s home at 1 Parkgate Road in Battersea. Mr Aidiniantz would then decide whether the money was to be placed in one or other of the business bank accounts or retained as cash. In September 2012 Mr Aidiniantz formed the view that the cash takings were not being properly accounted for, and cut off access to funds for the other family members. This led to Ms Riley withdrawing £175,000 from Rollerteam’s bank account. She gave part of this money to Ms Decoteau, and part to her brother Stephen Riley. Mr Aidiniantz then commenced legal proceedings and obtained a freezing order against Ms Riley. Ms Decoteau and Stephen Riley were also joined to the action. In October 2012, Ms Riley secured the release of the freezing order by paying £175,000 into a solicitors’ joint account. I will call this action “the Rollerteam action”.

Mr Aidiniantz’s resort to litigation led to the institution of further legal proceedings by other members of the family. First, Ms Riley commenced proceedings for the possession of a property at 1 Albion Mews, London W2, of which she was the registered owner, although Mr Aidiniantz lived there (“the possession action”). In the possession action, Mr Aidiniantz claimed that the house was held by Ms Riley on trust for him. Secondly, SHIS (at the instigation of Ms Riley and Ms Decoteau) commenced proceedings against Mr Aidiniantz and Rollerteam (as well as two other subsidiaries of Rollerteam), alleging that Mr Aidiniantz had been misappropriating the funds of SHIS. In December 2012, a freezing order was granted in favour of SHIS, and Mr Aidiniantz was ordered to pay into court a cash sum of £535,000 which he was holding at his home. A subsequent attempt by Mr Aidiniantz to have this order set aside was largely unsuccessful. I will call this action “the SHIS action”. Finally, Grace Aidiniantz started an action against her son, Mr Aidiniantz, and Rollerteam, in which she claimed to be the sole beneficial owner of the entire share capital of Rollerteam and the museum business.

Accordingly, there were four sets of proceedings on foot in April 2013:

The judge then described how an unexpected meeting between the two of them on that date led to a reconciliation, and an agreement to meet for lunch on the following day in order to explore further the possibility of compromise. Meanwhile, Ms Riley and Ms Decoteau spoke on the telephone about what might be an acceptable settlement.

Over lunch on 8 April 2013, there were what the judge called “wide ranging and apparently harmonious discussions over how to resolve all points of contention”. Immediately after the lunch, Mr Aidiniantz sent an email to his solicitors, copied to Ms Riley, recording the basis of the proposed settlement. This email is important, because the points covered in it formed the basis of all future communications. The judge said that, whether or not (as Ms Riley believed) a concluded binding settlement agreement was reached on 8 April 2013, there is no doubt that she and Mr Aidiniantz were “broadly in agreement”. The email was headed “Without Prejudice”, and began with a request for “this proposed agreement” to be kept confidential.

The email proceeded:

The email then provided that Rollerteam would be granted “the beneficial ownership over 1 Parkgate Road … in order to justify the payment to Linda Riley of £1 million”, and that in relation to 1 Albion Mews a “Trust document” would be executed by Ms Riley in favour of Mr Aidiniantz, who would pay all payments due on the mortgage and arrears of mortgage interest. It was further provided that:

Mr Aidiniantz then recorded his understanding that the foregoing was “the gist of the agreement” reached by him and Ms Riley. He explained how the “first tranche of £1 million” would be paid, once the funds paid into court and held by Edwin Coe were unlocked. He expressed a desire to work out the tax implications, but said that “in principle [Linda and Jennifer] should receive the above amounts”. The email ended with Mr Aidiniantz’s name and address, and was stated to be sent also on behalf of Rollerteam and its two Sherlock Holmes subsidiaries.

Following this, on 11 April 2013, there was a formal document signing meeting at 1 Parkgate Road, attended by Mr Aidiniantz, Ms Riley, Ms Decoteau, Grace Aidiniantz and a Mr Suleman (a solicitor whom the family had previously used, and whose role was to advise Mrs Aidiniantz). At the meeting, Mr Aidiniantz handed over £300,000 to Ms Decoteau, in part payment of the £1 million which was to be paid to her. The following documents were executed:

In due course, formal consent orders in Tomlin form were also made in the Rollerteam action and the SHIS action. No consent order was made in the possession action, presumably because everybody assumed that it had lapsed upon Mr Aidiniantz becoming the beneficial owner of 1 Albion Mews.

The judge heard oral evidence from Mr Aidiniantz, Ms Riley and Ms Decoteau, each of whom was extensively cross-examined. He did not, however, examine their evidence in detail, because in his view resolution of the factual issues in the case largely depended on what would have been reasonably understood from what the parties communicated to each other and what they did, rather than on what they may individually have thought at the time: see the judgment at [17]. The judge therefore focused his attention on the email traffic and other communications passing between the parties at the material time. After doing that, and summarising the rival contentions on each side, the judge first addressed Mr Aidiniantz’s claim. He said he had no doubt that the trust documents which Ms Riley had admittedly executed on 11 April 2013 were indeed the declarations of trust in evidence before him. The signatures were undoubtedly hers, and no other trust documents had been produced. He thought it probable that Ms Riley’s deep mistrust for Mr Aidiniantz had coloured her recollection of what she signed, and he rejected her evidence that she had signed some other unidentified agreements to create trusts: see the judgment at [36].

Turning to the counterclaim, the judge found on balance that no concluded agreement had been made on 8 April 2013. The outline of an acceptable settlement had been negotiated over lunch, but it was no more than “a proposed agreement” with all parties envisaging that further steps would be taken before they would be bound. The judge said at [37]:

The judge then continued:

The judge then set out the factors which had led him to this conclusion, and rejected Mr Aidiniantz’s submission that the family context pointed towards the parties not intending to create legal relations. As the judge said, at [41]:

The judge then gave his reasons for rejecting the section 2 argument, as follows:

It can be seen, therefore, that the judge found in favour of the respondents on this issue on the grounds that:

I have already quoted section 2(1) of the 1989 Act. To place it in context, the relevant provisions of section 2 are as follows:

The general purpose and effect of section 2 were explained by Peter Gibson LJ in Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 at 1571E, in a passage which has frequently been cited in later cases:

Section 40 of the Law of Property Act 1925 applied to “any contract for the sale or other disposition of land or any interest in land”. This language, which had its origin in section 4 of the Statute of Frauds 1677, was repeated with immaterial variations in section 2(1) of the 1989 Act. Moreover, by virtue of section 2(6), “disposition” has the same meaning as in the 1925 Act, and therefore includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein: see section 205(1)(ii). It is clear, therefore, that section 2 of the 1989 Act was intended by Parliament to apply to the same types of contract as section 40 had done. In particular, it was not intended to apply to actual dispositions of land or interests in land, the formalities for which continued to be governed by sections 51 to 55 of the 1925 Act.

Of those formalities, it is relevant to note the following:

The distinction between contracts for the sale or other disposition of an interest in land, to which the 1989 Act applies, and documents which actually create or transfer legal estates or interests in land, to which the 1989 Act does not apply, was clearly stated by Lord Neuberger of Abbotsbury MR (with whom Smith and Elias LJJ agreed) in Helden v Strathmore Ltd [2011] EWCA Civ 542, [2011] Bus LR 1592, at [27] and [28]:

It is instructive to refer to the two cases which were cited by Lord Neuberger MR at the end of [28].

In the Target Holdings case, the relevant issue was whether an oral agreement to vary a mortgage fell within the scope of section 2 of the 1989 Act. At paragraph 51 of his judgment, Judge Hicks QC identified the “question of principle” before him as being:

Having identified the relevant question in this way, Judge Hicks said (in paragraph 53) that he was “satisfied that contracts of disposition, as distinct from executory contracts for disposition, are not caught, for two main reasons”. His first reason was that there are separate formal requirements for dispositions themselves, “which have a different historical origin and are properly to be regarded as self-contained and exhaustive”. Those requirements are now contained in sections 51 to 55 of the 1925 Act.

The judge then expressed his second main reason in paragraph 57, which I will quote from the approved transcript which was supplied to us after the hearing, because the report of this paragraph in the online version of the Property & Compensation Reports is garbled by the repetition of a passage of some five lines:

This reasoning, as Lord Neuberger MR indicated, was approved by Sir Andrew Morritt C (with whom Smith and Aikens LJJ agreed) in McLaughlin v Duffill [2008] EWCA Civ 1627, [2010] Ch 1, at [20] to [21]. The issue in that case was whether the vendor under a written contract for the sale of land made in 2006 was bound by the contract, which had been signed on her behalf by an agent who had her oral (but not written) authority to do so. The vendor argued that the contract was invalidated by section 53(1)(a) of the 1925 Act, as having been entered into by an agent without written authority. This argument was rejected by the Court of Appeal, affirming the court below, on the basis that the contract was one to which section 2 of the 1989 Act applied, and did not itself effect a disposition of an interest in land to which section 53(1)(a) of the 1925 Act applied.

Sir Andrew Morritt’s reasoning on this question began at [15], where he pointed out that if the vendor’s argument were a good one, one might expect it to have been recognised as such in the period between 1925 and 1989, when section 53(1)(a) co-existed with section 40 of the 1925 Act, but the opposite was the case. After referring to various authorities, the Chancellor continued at [20]:

This line of authority makes it clear, in my judgment, that section 2 of the 1989 Act applies only to executory contracts for the future sale or other disposition of an interest in land, and does not apply to a contract which itself effects such a disposition. The issue was expressly formulated by Judge Hicks in those terms in Target Holdings at paragraph 52, and the reasoning which led him to conclude as he did has since been endorsed in two decisions of this Court, namely McLaughlin v Duffill and Helden v Strathmore.

The concept of a contract of disposition, as opposed to an executory contract for disposition, may at first sight seem an elusive one. The simplest example of a contract of the former type, as Mr Hext submitted, is probably the grant of a lease, which will normally contain contractual obligations undertaken by the parties (such as the tenant’s covenants to pay the rent, or to keep the demised premises in repair, or the landlord’s covenant for quiet enjoyment), as well as creating an interest in land. Contracts which create mortgages or charges provide another example, as there will normally be a covenant by the borrower to repay the loan which is being secured. A less obvious example is furnished by the type of boundary agreement which is not deliberately intended by the parties to constitute an exchange of land, but rather has the purpose of demarcating an unclear boundary which is referred to or delineated in the title documents. In Neilson v Poole (1969) 20 P & CR 909, Megarry J held that a boundary agreement of this type relating to unregistered land was not registrable as a Class C (iv) land charge under section 10(1) of the Land Charges Act 1925, because it could not be said to constitute a contract to convey land. As the judge said at 919, “[a] contract merely to demarcate and confirm is not a contract to convey”.

In Joyce v Rigolli [2004] EWCA Civ 79, [2004] 1 P & CR D 55, this Court applied the reasoning of Megarry J in Neilson v Poole so as to hold that a demarcating boundary agreement does not fall within section 2 of the 1989 Act. It was in this context that Arden LJ, delivering the leading judgment, said at [31]:

If this passage is read in isolation, it might appear to be authority for the proposition that a contract falls within section 2 if, on an objective analysis, the parties intended the contract to effect an immediate sale or other disposition of land or an interest in land. In other words, there would be no requirement that the contract needs to be executory in order to be caught by section 2. On behalf of Mr Aidiniantz, Mr Sims QC argued that this is indeed what Arden LJ meant to say, and that section 2 should be construed accordingly.

For a number of reasons, however, I am unable to accept this submission. First, it cannot be reconciled with the line of authority stemming from Target Holdings v Priestley which I have examined above, and which makes it clear that section 2 applies only to contracts which are executory. Secondly, there is nothing to indicate that this particular point was argued in Joyce v Rigolli, or that the relevant authorities were cited to the court. Thirdly, the point was not in any way necessary to the court’s decision, which turned on the distinction between contracts intended to achieve a sale or other disposition of land on the one hand, and contracts intended to demarcate an uncertain boundary on the other hand. The question whether a contract of the former type has to be executory in order to fall within section 2 was simply not in issue. Finally, in his concurring judgment Sir Martin Nourse, while agreeing with the reasons given by Arden LJ, founded his additional remarks in [42] to [45] squarely on the distinction drawn by Megarry J in Neilson v Poole. As Sir Martin Nourse said, at [43]:

For completeness, I should also mention the decision of Mr Kevin Prosser QC, sitting as a Deputy Judge of the High Court, in Yeates v Line [2012] EWHC 3085 (Ch), [2013] Ch 363. The issue in that case was whether an oral agreement to compromise a boundary dispute was invalidated for failure to comply with section 2. The judge held that it was not, because the agreement did not have a disposing purpose, even if it had a disposing effect: see his judgment at [33] to [36]. In reaching this conclusion, the judge followed and applied the reasoning of Arden LJ in Joyce v Rigolli, holding that it was not confined to boundary agreements but extended to a wider category of agreements without a disposing purpose which it exemplified. I see no reason to doubt that this case was correctly decided, but for present purposes it takes the debate no further, because the focus, as in Joyce v Rigolli itself, was on the lack of dispositive intention, not on whether the agreement in question was executory.

If these principles are applied to the present case, it is reasonably clear to my mind that the judge reached the right conclusion on the basis of the unusual facts which he found. Although the settlement agreement was based on the terms of the email of 8 April 2013, the judge found explicitly that no contract was concluded until 11 April. On the latter date, the execution of the two declarations of trust by Ms Riley was itself an integral part of the formation of the contract. The deeds were not executed by her pursuant to any prior binding obligation to do so, but rather they formed part of the consideration provided by Ms Riley for the obligations undertaken by Mr Aidiniantz. The contract was only formed once the deeds were signed by her. As a matter of legal analysis, the contract was formed by an exchange of promises made by Mr Aidiniantz for performance by Ms Riley in the shape of her execution of the two documents.

I would accept the submission for the respondents that there is no conceptual or legal reason why a contract may not be formed by the exchange of a promise for a performance. Indeed, this is the essence of so-called unilateral contracts, under which (for example) a reward is offered for the return of lost property. The contract is formed (at the latest) on the return of the property, which constitutes both the acceptance by the offeree of the offer and the furnishing of consideration for the creation of the contract: see Chitty on Contracts, 32^nd edition (2015), para 1-107. According to the judge’s analysis, as I understand it, Mr Aidiniantz was in effect saying to Ms Riley on 11 April 2013:

The arguments advanced by Mr Sims in support of the first two grounds of appeal depended partly on an analysis of the judgment, and partly on the authorities. In relation to the judgment, he emphasised the judge’s findings in [44] that on 11 April 2013 “a contract was formed on the terms set out in the 8 April 2013 email for which part of the consideration was the actual execution of the declarations of trust”. If the contract was formed on the terms of the email of 8 April, says Mr Sims, it must have included an obligation by Ms Riley to execute the two declarations of trust and was therefore a contract “for” disposition. Nor does it cease to be a contract “for” disposition merely because part of the consideration for the contract consisted of the actual execution of the declarations of trust. This submission, however, seems to me to break down on the facts, because it fails to take account of the judge’s clear finding that no contract was concluded until 11 April 2013. There was never an executory contract on the terms of the email of 8 April. Accordingly, when the contract was formed on 11 April, the execution of the declarations of trust constituted both the performance of the contract by Ms Riley and the consideration which she provided. The contract was therefore one “of” disposition.

In relation to the law, Mr Sims criticised the judge’s reliance in [45] on the decision of this Court in Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900, [2012] 1 WLR 2855, particularly at [8] where Rimer LJ (with whom Patten and Laws LJJ agreed) cited with approval the observations of Lord Neuberger MR in Helden v Strathmore to the effect that section 2 of the 1989 Act is not concerned with documents which actually create or transfer estates or interests in land: see [31] above. Mr Sims submitted that the scope of section 2 is not confined to executory contracts, and if an immediate actual disposition forms part of the contract, that is enough to engage the section. In oral argument, Mr Sims buttressed this submission with particular reference to the passage in Arden LJ’s judgment in Joyce v Rigolli at [31] which I have already discussed.

This submission seems to me to lie at the heart of the case. If it were well founded, it would be difficult to resist the conclusion that section 2 applied to the entirety of the settlement agreement, unless possibly a collateral contract could legitimately be found to exist. As Rimer LJ said in Keay at [9], the effect of section 2(1) of the 1989 Act “is merciless”. As I have already explained, however, I do not consider that the principle formulated by Arden LJ in Joyce v Rigolli can bear the weight which Mr Sims invites us to place on it. For the reasons which I have given, I am satisfied that section 2 on its true construction applies only to contracts for the future disposition of an interest in land. This key point, coupled with the judge’s careful findings of fact, is in my judgment determinative of the appeal.

In view of the conclusion which I have reached, I do not consider it necessary to review various other arguments of a subsidiary nature which Mr Sims advanced in support of the first and second grounds of appeal. It is also unnecessary for me to say anything about the fourth ground of appeal, which seeks to challenge any finding the judge may have made about the existence of a collateral contract distinct from the land elements of the settlement agreement. I do not think this is what the judge intended to do, and since I would anyway uphold his decision on the basis that all the obligations of the parties were contained in a single agreement, the question does not arise.

If the other members of the court agree, I would therefore dismiss the appeal.

I agree.

I also agree.