Aribisala v St James Homes (Grosvenor Dock) Ltd.

What comes before me for hearing today is an application by the defendant company, St James' Homes (Grosvenor Dock) Limited ("the Vendor"), against the claimant, one Chief Ajibola Anthony Aribisala, a Nigerian businessman ("the Purchaser"), for summary dismissal of the Purchaser's claims in this action pursuant to CPR Part 24.

The application raises an important issue of law which has never, so far as the researches of counsel go, been the subject of any reported decision. The issue is whether it is open to the parties to a contract for the sale and purchase of land to agree, by a provision in that contract, to exclude the application of section 49(2) of the Law of Property Act 1925 which reads as follows:

The claims in the action arise from two contracts, each dated 14 July 2006, by which two leasehold properties were agreed to be sold by the Vendor to the Purchaser for an aggregate purchase price of £2.16 million. The aggregate deposit, which was payable in two instalments of 50 per cent each under the terms of the two contracts, was £216,000. The contracts were in each case in identical terms. The completion date was 9 September 2006 and the contracts incorporated the Standard Conditions of Sale (4th edition). However, by clause 1.2 of each contract, condition 7.5.2 of those Standard Conditions, which provides that the vendor is entitled to rescind the contract and forfeit any deposit if the purchaser fails to comply with a notice to complete, was amended so as to add the words "(c) section 49(2) of the Law of Property Act 1925 shall not apply".

The Purchaser did not complete the contracts by 9 September 2006. Accordingly the Vendor, by a letter dated 12 September 2006 gave to the Purchaser notice to complete the two contracts under Standard Condition 6.8. The effect of service of that notice was to require the Purchaser to complete each contract within ten working days of service of the notice, as to which time was to be of the essence. The Purchaser did not complete the contracts within that time, owing, it is said in its Particulars of Claim, which have been verified by a statement of truth, to the fact that it had been let down by the bank that had promised to provide the finance to enable it to complete. The Vendor then elected to rescind the contracts and forfeit the deposits under Standard Condition 7.5(2).

On 12 October 2006, the Purchaser issued the claim form in this action. By it, in essence, he sought specific performance of the two contracts, or alternatively an order for the repayment of the aggregate deposit of £216,000 pursuant to the court's jurisdiction under section 49(2) to which I have already referred. Specific performance was sought on the ground that the Vendor was not entitled to serve the notice to complete because, so it was alleged, it had omitted to supply to the Purchaser certain documentation which was required to be supplied to him under the terms of the contract prior to completion taking place.

On 7 December 2006, the Vendor issued the application notice which comes before me seeking summary dismissal of the whole of the Purchaser's claims. The application is made pursuant to CPR Part 24.4 on the basis that there is no realistic prospect of either of the claims referred to in the claim form succeeding. The witness statements served in support of the application identified two aspects which, so it was asserted, were fatal to the claim.

The first hearing of this application was before the Master on 26 January 2007. At that hearing, the Purchaser abandoned altogether his specific performance claim, accepting, as he had to on the basis of the evidence that had been adduced, that the missing documentation upon which he had relied had in fact been duly supplied to his solicitors. Accordingly, the Vendor was entitled to serve the notice to complete.

The Master understandably was reluctant to deal with the application so far as it related to section 49(2) and referred the application in that respect for the decision of a judge. It is that which accordingly comes before me.

In his skeleton argument in support of his application, Mr Hanham, who appears for the Vendor, argued that the claim under section 49(2) was hopeless for two reasons:

At the outset of this hearing, Mr Umezuruike, who appears for the Purchaser, objected to the Vendor being allowed to take the second of these two points on the ground that no notice to take it as an issue to be determined on this application had been given to the Purchaser as required by CPR rule 24.4(3). That rule provides that :

I accepted this objection and accordingly ruled that I would only deal today with the first of the two points taken on behalf of the Vendor, that is to say whether section 49(2) has been validly excluded by the contracts, leaving over for a further hearing the second point, namely whether, assuming that it has not been excluded, the Purchaser has any realistic possibility of being able to obtain relief under that section. At the same time as I so ruled, I expressed some doubt as to whether, on the material presently before the court, it would be possible for the court to conclude that, if section 49(2) did apply, there was no realistic prospect of the Purchaser obtaining relief under that section.

In the event, therefore, the only issue before me is whether clause 1.2 of the contracts is effective to disenable the Purchaser from applying for relief under section 49(2).

The Purchaser takes three points:

In the event I have heard argument only in relation to the first point, that is to say the point that the clause is void on the ground of public policy, on the basis that, should I determine that point in favour of the Purchaser, the other two points fall away and become redundant.

I turn then to consider the issue raised by that point, that is to say: is it open to the parties to a contract for the sale of land by agreement between them to oust the application of section 49(2) of the Law of Property Act 1925? This is an issue which, as it seems to me and obviously seemed to the Master, is one of significant importance in relation to contracts for the sale of land. It is, however, somewhat surprising that, given the fact that the section was enacted over 80 years ago, there has been no decided authority on the point. That may in part be because, until relatively recently, it was thought that the section was of limited application.

The section itself was new to the Law of Property Act 1925. The chief draftsman of the 1925 Act was, as is well known, Sir Benjamin Cherry. In his well known work with Mr Wolstenholme which was published shortly after the Act came into effect and the notes of which appear in the last, albeit 1972 edition, the section is described in the following terms:

The words, "or in any action for the return of the deposit", had to be inserted because, if the section had been confined to giving the court jurisdiction to order the repayment of any deposit only where the court had refused to grant specific performance, there would be no jurisdiction to order the return of the deposit to a purchaser in circumstances where, had the vendor sought specific performance, it is likely that the order would have been refused on equitable grounds, and, perhaps in realisation of that, the vendor had not sought any such order. It was accordingly thought by most practitioners that the section only applied where either a claim for specific performance was refused on equitable grounds or the circumstances were such that such a claim would have been refused on equitable grounds had it been made.

However, that rather limited view of the operation and application of the section was questioned by Megarry VC in Schindler v Pigault [1975] 30 P&CR 328. That was also a case where the purchaser had not completed the purchase of the property and claimed the return of the deposit on the basis that the reason for non completion was the default of the vendor. He claimed alternatively, as in this case, under section 49(2). He was held entitled to the repayment of the deposit on the first ground but the learned judge went further and held that, even if the purchaser had been at fault, section 49(2) was wide enough to enable the court to grant relief.

As regards that section, the learned judge said this:

He also expressed the view that it was a jurisdiction which was analogous to the jurisdiction to grant equitable relief against forfeiture. That is a jurisdiction which, in a number of different forms, has been inherent in the development of equity since the earliest times. The earliest example of equity intervening to mitigate the rigours of the common law in this way was equity’s intervention in relation to mortgages. Equity allowed the mortgagor to redeem, notwithstanding that the legal date for redemption had passed. That is why the right is still commonly described as the mortgagor’s “equity of redemption” Applying, as it were, that analogy to the statutory jurisdiction under s.49(2), one can immediately see some difficulty in there being an ability by contract to exclude it. It is well established that it is not possible for a mortgagor and mortgagee to enter into an arrangement between them that has the effect of preventing the mortgagor from redeeming. That is regarded in equity as void and of no effect as constituting, as it is put in the authorities, a “clog” upon the equity of redemption.

The Schindler case itself was followed by the Court of Appeal in Universal Corporation v Five Ways Properties Ltd [1979] 1 All ER 552. That was a case not dissimilar to the present where the purchaser had failed to complete, notwithstanding the service of a notice to complete. Coincidentally the purchaser in that case was a company controlled by persons in Nigeria and the reason why completion did not take place was that there was, as here, a delay in the requisite funds becoming available to the purchaser to enable it to complete. There was no attempt to exclude section 49(2) and the purchaser applied under that section for the repayment of the deposit. Its application came before Walton J who was dismissive of it on the ground that there was no basis upon which the court could or would exercise its discretion in favour of the purchaser under that section, but the Court of Appeal disagreed with that view.

Having referred to the judgment below, Buckley LJ, giving a judgment with which Everleigh LJ sitting with him agreed, said this at page 555:

The result of those two cases was to make the circumstances in which the court has jurisdiction to direct the return of the deposit to a purchaser a very much wider jurisdiction than had previously been thought. That may explain why there had not been in the past attempts to exclude the section by contractual provision and why, therefore, there has not been up to now any reported case actually dealing with the point.

The nearest that one comes to a case which actually deals with this point, is the decision of Mr Timothy Lloyd QC (as he then was), sitting as a Deputy High Court Judge, some 11 years ago in a case called Country and Metropolitan Homes Surrey Ltd v Topclaim Limited [1996] Ch 307. The issue in that case was a very different one from the one that comes before me now. There was in the contract in that case a provision like the provision in this contract which purported to exclude the operation of section 49(2). However, it was not because of purchaser's fault that completion had not taken place, but rather it was the fault of the vendor. The vendor, in reliance upon that provision, submitted that, by reason of it, the purchaser was not entitled to the return of its deposit, even though it had been it, the vendor, which had defaulted in completing the contract.

The learned Deputy Judge dealt with this point in his judgment at page 315. After referring to the terms of section 49(2) he said this:

Mr Hanham for the Vendor relies upon that as amounting to a clear indication by the learned Deputy Judge that it was possible, by a contractual stipulation, to exclude the jurisdiction conferred on the court by section 49(2). He further submits to me that, even if that is not part of the finding of the learned Deputy Judge, it is his obiter dictum which I ought to follow.

It does not seem to me, with respect to these submissions, that the learned Deputy Judge was addressing at all the issue which comes before me. The issue with which he was dealing was whether a contractual exclusion of section 49(2), assuming that it was effective, would have the effect of excluding the purchaser's entitlement to recover the deposit in circumstances where it was the vendor and not the purchaser who was in default. The question of whether or not the clause was effective to exclude section 49(2) in a case where it was the purchaser who was in default did not arise for determination by the learned Deputy Judge. It is doubtful whether it was a matter that was even argued before him. Certainly the learned Deputy Judge makes no reference to any argument on the point. It was not necessary for him to deal with that point because what he held was that the jurisdiction under section 49(2) was not engaged in the case at all and therefore its exclusion by the terms of the contract was irrelevant. On that basis it seems to me that the words "it is that jurisdiction which it seems to me is excluded by the special condition in this contract" must mean in the context of the judgment the jurisdiction under section 49(2) which was expressed to be excluded. Accordingly, it does not seem to me that the judgment in County Metropolitan Homes v Topclaim comes anywhere near to being a judgment deciding the point that comes before me, nor do I believe that there is anything it that judgment, the contents of which I of course treat with the utmost of respect, which comes anywhere near to being even an obiter comment by the learned Deputy Judge as to whether or not it was possible by contract to exclude the operation of the section.

Mr Umezuruike has also very properly referred me to a passage from the current edition of Emmet & Farrand on Title at paragraph 7.019 in which the following somewhat cryptic words appear:

Having come to that conclusion as a matter of construction of the conditions, the learned judge did not have to consider the question of whether, even assuming there had been an implicit exclusion of section 49(2) by the Law Society's conditions, that implicit exclusive would have been effected. However the author of the article said, "But, and this is what may be significant, he did not say that to contract out of that provision is impossible. All he said was that the wording of the current Law Society's conditions does not have that effect." It seems to me with great respect to the current editors of Emett, that to deduce from that article the proposition that “It appears that contracting out of section 49(2) is possible”, is simply, in my view, quite wrong.

As against that article, there is an article by the very distinguished property lawyer, Charles Harpum, entitled "Relief against forfeiture and the Purchaser of land” (Cambridge Law Journal 43 (1) April 1984, pp. 134-176) in which the learned author closely examines section 49(2), its origins and its application. At page 175 he deals with the question of whether it is possible to exclude the operation of the section and says the following:

The words quoted by Mr Harpum are from the judgment of Danckwerts J in Re Wynn (deceased) [1952] Ch 271 at page 276 where the judge held that a provision in a will which purported to make the decision of the trustees final on any matter in dispute between them and the beneficiaries was a provision calculated to oust the jurisdiction of the court and so was void as being contrary to public policy. That decision followed the decision of the House of Lords in Hyman v Hyman [1929] AC 601 on which Mr Umezuruike for the Purchaser relies. In that case their Lordships had to consider the validity of a covenant by a wife in a deed of separation not to take proceedings against her husband to claim maintenance beyond the provision made for her by the deed. The House of Lords held unanimously that such a covenant was of no effect. Lord Hailsham, Lord Chancellor, expressed his view in the following terms at page 614:

Coming back to the issue here, is it possible for parties by their contract to exclude, as they purported to have done in this case, section 49(2) of the Law of Property Act 1925? In my judgment, it is not possible for the parties so to do. Section 49(2) in terms confers a jurisdiction upon the court. It reads, as I have already pointed out, as follows (and for this purpose I quote only the relevant part:

The section is not in terms conferring a right upon either party to the contract. What it is doing is conferring jurisdiction on the court exercisable at its discretion to order the repayment of any deposit, obviously necessarily paid by the purchaser. On its face, it seems to me, that a provision in a contract which purports to exclude the section, as clause 1.2 of the Conditions of Sale of the contracts in this case purports to do, is a provision which is purporting to oust the jurisdiction of the court under that section and which is accordingly on well established authority void and of no effect on the ground of public policy.

Mr Hanham seeks to overcome that problem in a number of different ways. First of all, he relies on an extract from Bennion on Statutory Interpretation, 4th Edition, at section 11, which states that:

It seems to me that the short answer to that point is that section 49(2) does not purport to confer a benefit on the purchaser. What it does is to confer a particular jurisdiction on the court which, admittedly, if exercisable would be exercised in favour of the purchaser. In essence it seems to me that this case is no different from the sort of case which was considered by the House of Lords in the Hyman case, or indeed by Danckwerts J in Re Wynn. In the Hyman case statute had conferred upon the court a power to award maintenance in favour of a spouse on the occasion of the dissolution by divorce of the marriage. The statute had expressly conferred upon the spouse the entitlement to apply to the court for that relief. It was held that that jurisdiction of the court to grant relief on the application of a spouse was not something that it was open to the spouse by contract to waive.

So it seems to me here. Parliament by section 49(2) has conferred jurisdiction on the court, in any action for the return of the deposit, to order the repayment of that deposit. That is a jurisdiction, it seems to me, which it is not open to a purchaser to waive. Indeed, bearing in mind the context of the section and how it has been interpreted, as akin to a power of the court to grant equitable relief against forfeiture, by necessity the jurisdiction, when exercised, will always interfere with the contractual rights agreed between the parties. It seems to me it would be inconsistent, if the legislature has conferred upon the court the entitlement to interfere with the contractual rights of the parties, for the legislature at the same time to allow for the parties to contract out of that interference. Of course, Parliament could do that expressly, but it has not done so in section 49(2).

Secondly, Mr Hanham relies upon another section of the Law of Property Act 1925, namely section 146, dealing essentially with the rights of a lessee to obtain relief against forfeiture of the lease, subsection (12) of which contains an express provision that the "section has effect notwithstanding any stipulation to the contrary". He argues that, bearing in mind that this is also a new section in the same Act, this shows that if Parliament wished to stipulate that it was not possible for the parties to contract out of it, it does so in express terms.

That argument, as it seems to me, is somewhat dubious. It does not necessarily follow that, because in one particular section Parliament has thought it right to stipulate that there can be no contracting out, it follows that in another section, because those words are omitted, it is possible for the parties to contract out of it. The argument is even more dubious when applied to a lengthy Act (the Law of Property Act 1925) running to a large number of sections which contains a large number of Parts each dealing with different aspects of property law. Section 146 comes from a Part dealing with leases and the rights and obligations as between landlord and tenant. Section 49 is in an entirely separate Part dealing with contracts and conveyances and rights and obligations as between vendors and purchases. It would, in my judgment, be dangerous to make deductions from a section later in the Act in a completely different Part dealing with a completely different subject matter..

Quite apart from that, as Mr Umezuruike has pointed out to me and I accept, section 146 is itself a somewhat lengthy section. It contains within it two subsections, namely subsections (2) and (4) which, rather like section 49(2), contain provisions which enable a lessee to apply to the court for relief. But it also contains certain sections, in particular subsection (1), which do not provide for a lessee to apply to the court but which interfere with the contractual entitlement of a landlord under the lease (by providing that the landlord is not entitled to exercise a right of re-entry or forfeiture in the lease unless he has first given to the tenant a notice as there provided). Without a provision such as subsection (12) it might have been arguable that it was open to the landlord and tenant to agree between themselves to exclude subsection (1). Accordingly, it was necessary to have a provision to make it clear that that was not a provision that could be excluded by agreement between the parties. If that provision was confined to subsection (1), you would have one subsection the contracting out of which was expressly excluded leaving it open to argument that the other sub-sections of the same section (because they did not have that same stipulation) were ones where it was open to the parties to contract out. Accordingly, it was, it seems to me, logical to have a provision excluding the ability to contract out which applies to the whole section.

Mr Hanham further relies on section 110 of the Land Registration Act 1925. Mr Hanham points to the sub-sections which each contain a provision “notwithstanding any stipulation to the contrary” and which shows, he submits, that where Parliament desires to prohibit contracting out it does so by express words. There are, however, two difficulties in the way of this argument. In the first place the section is contained in an entirely different Act. If, as I have observed, it is dubious to what extent one can make deductions from the different wording of entirely separate sections in a lengthy Act, it is even more dubious to seek to make deductions from the different wording of an entirely separate Act, even if enacted at the same time. Secondly one sub-section (sub-section (2)) contains the words “subject to any stipulation to the contrary”. So all one can derive from the section is that, where contracting out is intended to be excluded, that is made clear by express words. But equally where contracting out is intended to be permitted, that is likewise made clear by express words. The fact is that the section contains provisions some of which were and some of which were not to be capable of exclusion by agreement between the parties. It was thus necessary for the section to stipulate in each case which was which.

Mr Hanham further submits that cases such as Hyman are explicable on the basis that (a) it is considered by the Courts to be undesirable for wives to be able to contract away their rights to maintenance and/or (b) that these are cases where the effect of the provision held to be void was wholly to prevent the parties' access to the Court in all circumstances. The first point is, in my judgment, not the explanation for the decision in the Hyman case. As to the second point, if section 49(2) is expressly excluded, then it does have the effect of wholly preventing, in all circumstances, the court exercising its discretion under the jurisdiction conferred upon the court by that section. It is to that extent, in Mr Hanham's own words, a provision that the parties' access to the court should be wholly prevented in all circumstances, that is to say in all the circumstances to which section 49(2) applies.

For all those reasons, it seems to me clear that it is not possible for parties to a contract for the sale of land to agree between themselves to exclude the court's jurisdiction under section 49(2). Accordingly, it seems to me that for that reason alone it is not possible to say that the Purchaser's application for relief under that section has no realistic possibility of succeeding. As I have said, that conclusion makes it unnecessary for me to consider the other two grounds upon which Mr Umezuruike would have relied had I been against him on this ground.

In the event, I accordingly hold that clause 1.2 of the Conditions of Sale of each of these contracts is ineffective for the purpose of excluding the Purchaser's right to apply to the court under section 49(2). Accordingly on that particular point taken in the application notice I would dismiss the application notice.

That leaves the second point, namely whether assuming, as I have held, that the court has jurisdiction under section 49(2), the facts of this case are such that there is no realistic possibility of the Purchaser obtaining relieve under that section. At the outset of this judgment I indicated that that was a matter which would either have to go to trial or, if Mr Hanham for the Vendor wished, to go over for a further hearing. I will hear counsel on what order to make in the light of the judgment that I have just delivered.