Yee Shi Yin v 174 Law Solicitors Limited

The agreements for the sale of units in the Development were in standard form. The key provision of each agreement for the purposes of this appeal is clause 5. That stated as follows:

“5.0

DEPOSIT RELEASE

5.1

The Deposit together with the Instalment Payments shall be paid to the Seller’s Solicitor to be held as Stakeholder to the order of the Company and released by the Seller’s Solicitor in the manner and on the terms;

5.1.2

to pay the following items:

5.1.2.1 all sums as are required:

to enable the Seller to purchase the Estate, and to repay any money loaned to the Seller to enable the Seller to purchase the Estate as they fall due for payment, and

to pay professional fees incidental to the purchase of the Estate and exchange of this Agreement, and

pay all costs and professional fees incidental to the incorporation and registration of the Company and the management Company, preparation and filing of accounts, returns and all Companies House and HMRC requirements.

5.1.2.2 all commissions professional fees and other payments reasonably ancillary to the marketing and sale of the properties on the Estate

5.1.2.3 all commissions fees and payments incidental to the program of works to develop the Estate and the buildings thereon including the building in which the Property forms part and certified in certificates issued by the Supervisor such payments to be made within 5 working days of receipt of a copy of the Supervisor’s Certificate

5.2

Save for payments certified under clause 5.1.2.3 the payments shall be made on the production of the relevant invoice, account, fee note or voucher and the Buyer acknowledges that the Seller’s Solicitor shall not be required to enquire into or verify the accuracy appropriateness or authenticity of same or the certificates issued by the supervisor SAVE and it is agreed that any payment pursuant to this Clause shall not be made until the transfer of the Property to the Seller has been completed and evidence of the registration of such transaction and 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

5.3

The Buyer hereby irrevocably authorises the making of the payments referred to in Clause 5 on the terms herein set

5.4

If during the course of the construction of the Development the Seller requires additional funds to enable the continuation of the Sellers Works and being unable to raise such funds from Buyers but is able to finance those costs from a third party lender then in such case the Company will consent to the creation of a prior legal charge with priority limited to the monies thereby secured in favour of such lender upon the following terms:

5.4.1

Such funds as are raised are paid direct to the Sellers Solicitors and retained and released in accordance with the provisions of this Agreement

5.4.2

the terms of such loan are approved by the Company

5.4.3

such loan does not delay restrict or prevent the completion of the sale of the Property to the Buyer in accordance with the terms of this Agreement”

The “Seller” was the Developer, the “Company” was the Buyer Company and the “Legal Charge” was “a legal charge made between the Seller and the Company over the Development to secure the rights of the Company over the Development and the obligations of the Seller to the Buyer in this Agreement”. By the time the appellants agreed to buy units in the Development, the “Seller’s Solicitor” was identified as 174. In earlier contracts, the “Seller’s Solicitor” had been given as DRC.

The Judge concluded in paragraph 51 of his judgment that the reference in clause 5.3 of the sale agreements to “the terms herein set” “must refer to the terms of clause 5 as a whole because sub-clause 5.3 does not set out any terms”, and there was no dispute about that before us.

It is also relevant to note clause 24.1, which reads:

“This Agreement and any documents annexed to it constitute the entire agreement and understanding of the parties and supersede any previous agreement between them relating to the subject matter of this Agreement.”

Echoing Waller LJ in Manzanilla, the Judge proceeded on the basis that it is to be inferred that, “when 174 received each of the deposits, it agreed to do so on the terms set out in the relevant agreement for sale”: see paragraph 43 of the judgment.

While stakeholder contracts are usually, as Millett LJ noted, tripartite, the Judge concluded that in the present case there was a quadripartite contract. The parties to the stakeholder contracts, the Judge held, included the individual buyers as well as the Buyer Company, the Developer and the Developer’s solicitors. The Judge said in paragraph 47 of his judgment:

“True it is that the buyers’ deposits are paid to, and held by, the seller’s solicitors, as stakeholder, to the order of the buyer company, in accordance with the terms of clause 5 of the sale agreements; but the individual buyers have an interest in seeing that those terms are properly observed. They must therefore have the necessary entitlement, and standing, as parties to the stakeholder contract, to enforce its terms.”

There is no challenge to the Judge’s conclusions in this respect.

Interpretation of a contract involves assessment of “the objective meaning of the language which the parties have chosen to express their agreement” (to quote Lord Hodge in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173, at paragraph 10) or, in the words of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912, “ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.

The interpretation of the sale agreements at issue in the present case is made harder by the fact that they cannot be said to be well drafted. As was observed by Mr Jonathan Seitler KC, who appeared for the respondents with Mr Michael Bowmer, the Judge was faced with a difficult task.

The Judge dealt with the interpretation of clause 5 of the sale agreements in paragraph 61 of his judgment. He said there:

“Although 174 held the purchasers’ deposits to the order of the buyer company, the clear wording of clause 5 was to impose constraints upon the stakeholder’s entitlement to release those deposits, even if authorised to do so by the buyer company. They could only be released to pay the items set out in sub-clause 5.1.2, and then only after: (1) the transfer of the property to the seller has been completed, and (2) evidence of the registration (a) of such transfer and (b) of the Legal Charge in favour of the buyer company as a first legal charge (or that such registrations were pending) had been produced to the buyer or his solicitor or agent. So far as the purpose for which 174 might release the buyers’ deposits is concerned, clause 5 makes it clear that payments under sub-clauses 5.1.2.1 and 5.1.2.2 were to be made on the production of the relevant invoice, etc whilst those under sub-clause 5.1.2.3 were to made against receipt of a copy of the supervisor’s certificate, and 174 was not required to enquire into or verify the accuracy, etc of the same. In my judgment, on the clear wording of the saving provision at the end of clause 5.2, it was ATC, as the buyers’ solicitor, which had the express authority to determine whether sufficient evidence of the registration of the transfer of North Point to [the Developer] and of a first legal charge in favour of the buyer company (or that such registrations were pending) had been produced. This was not a matter about which 174 had independently to satisfy itself.”

Expanding on the last of these points, the Judge said this in paragraph 62:

“[Counsel for the claimants] was quite right to point out that it was 174, and not the buyer company, that was authorised to release the deposits; but I do not agree that it was for 174 to satisfy itself as to the registration of the first legal charge. In my judgment, on the wording of the saving provision in clause 5.2, it was sufficient for ATC, as the buyers’ solicitor, to do so. Once ATC was satisfied with the registration of the Legal Charge in favour of the buyer company as a first legal charge, in my judgment 174 was authorised to release the buyers’ deposits against appropriate invoices and supervisors’ certificates, etc.”

The Judge thus considered that:

Approaching matters on that basis, the Judge found that the “work-around” “amounted to, and operated as, an expression of the satisfaction of both the buyer company and ATC (and also of Oliver & Co, through Mr Sewell) as to the propriety of the prior legal charge in favour of BFL for the purposes of satisfying the pre-conditions set out in clause 5 of the agreements for sale for the release of the buyers’ funds to the seller, [the Developer]”: see paragraph 94. “So far as 174 was concerned,” the Judge said, “the buyer company (by its directors) and the buyers’ solicitors (with the actual authority of their clients, express or implied) were indicating their understanding to the seller’s solicitors (first DRC and then 174) that they were authorised to release the buyers’ funds against the appropriate certificates on the basis that this was in conformity with the terms of clause 5 of the agreements for sale and their agreement to such release”, and “it was not for the stakeholder to gainsay that understanding and agreement”. 174 had not, accordingly, acted in breach of contract when they released sums to the Developer.

Mr David McIlroy, who appeared for the appellants with Mr Lloyd Maynard, took issue with the Judge’s interpretation of clause 5 of the sale agreements. Construed properly, Mr McIlroy submitted, clause 5.2 of the sale agreements made it a pre-condition of any release of money that the legal charge in favour of the Buyer Company had been registered as a first legal charge (or an application for such registration was pending) and that evidence of that had been produced to the buyer or his solicitor or agent. None of that happened, Mr McIlroy said. To the contrary, the solicitors involved all understood that the Buyer Company’s legal charge ranked behind the legal charge in favour of BFL and so was only a second charge. 174’s release of money to the Developer was thus, Mr McIlroy argued, in breach of contract.

For his part, Mr Seitler supported the Judge’s approach. In the alternative, he relied on the words “to the order of the Company” early in clause 5.1 of the sale agreements. These, he said, meant that (contrary to the Judge’s view) the Buyer Company could authorise 174 to release funds otherwise than “in the manner and on the terms” specified in the remainder of clause 5.1 and clause 5.2. The normal position is that joint depositors can give instructions to a stakeholder to change the way in which the stake is held, by whom it is held or even to release it. In the present case, so Mr Seitler submitted, the buyers appointed the Buyer Company to perform that role and, the Buyer Company having sanctioned the “work-around”, 174 were entitled (not to say, bound) to release money as they did.

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 to any solicitor or agent of any of them. There could not be since the “Legal Charge” (i.e. 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”. The appellants’ solicitor (namely, Ms Tsang), like Mr Sewell and Mr Roberts, was well aware that the Buyer Company’s legal charge had not been, and was not being, registered as a first legal charge, and Mr Hayhurst did not think otherwise. In paragraph 127 of his judgment, the Judge found that 174 “effected the several releases of the buyers’ funds … knowing that the pre-condition of a first legal charge in favour of the buyer company had never been satisfied” and “continued to proffer standard-form agreements for sale on behalf of the seller knowing that the pre-condition in [clause] 5.2 was strictly incapable of attainment (although the purchasers’ solicitors, with the same knowledge, continued to approve such contracts on behalf of their clients)”.

In the circumstances, I do not, with respect, agree with the Judge that the proviso to clause 5.2 was satisfied or that 174 were entitled to take it to have been. 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 174 to consider that the buyers’ solicitors had so determined. On its face, clause 5.2 required evidence of the registration of the Buyer Company’s legal charge as a first legal charge (or that such registration was pending) to be produced, and the simple fact is that none was (or could be). In any event, it is 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 174 considered them to have done so. The buyers’ solicitors agreed to go ahead without registration of the Buyer Company’s legal charge as a first legal charge, not that there was sufficient evidence of such registration, and there was no reason for 174 to think that the buyers’ solicitors believed there to be any, let alone sufficient, evidence of registration as a first legal charge. Like Ms Tsang and Mr Sewell, Mr Hayhurst of 174 knew that there was no such evidence.

Clause 5.1 of the sale agreements provided for deposits to “be paid to the Seller’s Solicitor to be held as Stakeholder to the order of the Company” before going on “and released by the Seller’s Solicitor in the manner and on the terms …”. Does the reference to deposits being held “to the order of the Company” imply that the Buyer Company could authorise 174 to release funds without the terms set out in clauses 5.1.2 and 5.2 being satisfied?

Mr McIlroy said not. For the reference to the stakeholder holding “to the order of the Company” to be seen as providing an alternative to release “in the manner and on the terms” set out later in clause 5, the word “also” would have to be read into clause 5.1 between “to the order of the Company and” and “released by the Seller’s Solicitor in the manner and on the terms”, and no such interpolation is warranted, Mr McIlroy argued. Further, deeming the Buyer Company to be able to authorise the release of money unilaterally, without regard to the detailed requirements laid down in clauses 5.1.2 and 5.2, would, Mr McIlroy submitted, flout business common sense: the Buyer Company could demand that 174 release funds as it might direct even though they were needed for the Development, and that in circumstances where the buyers had, by clause 5.3, “irrevocably” authorised the making of the payments “referred to in Clause 5 on the terms herein set out”. Clause 5 should rather, Mr McIlroy contended, be interpreted as meaning that 174 were entitled to release money only as laid down in clauses 5.1.2 and 5.2.

On the other hand, Mr McIlroy’s construction of clause 5.1 might be said to ignore some of “the language which the parties [chose] to express their agreement” (to quote Lord Hodge in Wood v Capita Insurance Services Ltd). Clause 5.1 specifically stated that 174 were to hold “to the order of the Company”, suggesting that the Buyer Company was to be able to give 174 instructions in relation to the funds. On Mr McIlroy’s interpretation of the provision, however, the words “to the order of the Company” appear to be without significance.

Mr McIlroy’s construction could, moreover, have occasioned considerable difficulty. Suppose, for example, that the Developer had once again wished to change its solicitors and, hence, the stakeholders. It would seem that 174 could not have passed to their successors the deposits that they held unless this was agreed by all the other parties to the material quadripartite stakeholder contracts: by not only the Developer and the Buyer Company but by every relevant individual buyer. Clause 5 would have been of no assistance since (a) the requirements of clauses 5.1.2 and 5.2 would not have been met and (b) authorisation by the Buyer Company, on the basis that clause 5.1 provided for the money to be held to its order, would not have sufficed. Of course, 174 had previously taken over from DRC both as the Developer’s solicitors and as stakeholders. Since up to that point sale agreements which otherwise corresponded to those into which the appellants entered provided for deposits to be held by DRC, it is hard to see how, consistently with Mr McIlroy’s submissions, it was possible for 174 to replace DRC as the stakeholders.

More generally, Mr Seitler’s interpretation of clause 5.1 can be said to have commercial logic. In broad terms, clause 5 would have established circumstances in which the Developer could insist on money being paid out to it while catering for other, potentially unforeseen, circumstances in which it might be appropriate for funds to be withdrawn without obtaining the consent of every buyer. Viewed in this way, the buyer’s irrevocable authorisation in clause 5.3 of “the payments referred to in Clause 5 on the terms herein set” confirmed the Developer’s ability to require deposits to be released to it where the conditions set in clauses 5.1.2 and 5.2 were fulfilled. In other situations, money could be released on the instructions of the Buyer Company.

As for Mr McIlroy’s submission that an arrangement under which the Buyer Company could unilaterally have demanded that funds be released would have offended business common sense, the likelihood is, I think, that the Buyer Company’s ability to direct withdrawals was not untrammelled. In the first place, it may be that, if the requirements of clauses 5.1.2 and 5.2 were not met, withdrawals had to have the assent of the Developer as well as that of the Buyer Company. As mentioned in paragraph 16 above, a stakeholder usually “holds the money to the order of both depositors and is bound to pay it (strictly speaking an equivalent sum) to them or as they may jointly direct”. In the present case, the depositors included “potentially many hundreds of mainly offshore-based purchasers, with little or no knowledge of English conveyancing law or procedures, and with limited, if any, command of or fluency in the English language”: see paragraph 64 of the judgment. In the circumstances, there was obviously a case for substituting the Buyer Company for the buyers, and the words “to the order of the Company” may have been intended to do no more than that: 174 were to hold for the Developer and the Buyer Company rather than for the Developer and the many purchasers. If that is right, withdrawals outside the terms of clauses 5.1.2 and 5.2 would have needed the consent of both the Developer and the Buyer Company. Alternatively, there may have been an implied constraint on the Buyer Company’s power to authorise withdrawals. It might, perhaps, be inferred that the Buyer Company was not to be able to sanction the release of funds otherwise than in accordance with clauses 5.1.2 and 5.2 without the consent of the Developer unless and until it could be seen that the money would not be needed for items listed in clause 5.1.2. That would accord with the buyers having “irrevocably” authorised such payments in clause 5.3.

In all the circumstances, the better view, I think, is 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. That being so, the appellants can have no complaint about 174 releasing money to the Developer. The Buyer Company and the Developer both agreed to this.

I agree with the Judge that 174 did not commit any breach of contract, from which it follows that the Judge was right to dismiss the claims.

Given my conclusions on the contractual issue, I do not need to address estoppel by convention.

I would dismiss the appeal, albeit for reasons which differ somewhat from those of the Judge.