Francis v F Berndes Ltd & Ors

This is an appeal by the claimant, Mr Patrick Francis, from the decision and order of Master Teverson on 3 November 2010 whereby he acceded to an application for summary judgment by the first defendant, F. Berndes Limited (“FBL”), and dismissed the claim. Permission to appeal was granted by Briggs J at an oral hearing on 4 May 2011.

On 21 December 2009 Mr Francis began the present action by issuing a claim form in the Chancery Division of the High Court. The particulars of claim, which were settled on his behalf by junior counsel (Mr David Guy), claimed damages for breach of an alleged written agreement dated 7 January 2004 (“the Agreement”), made between FBL (as vendor) and the claimant and a Mr Desmond Hughes (as purchasers), for the sale of freehold premises comprising a club, a flat and a workshop at 807 High Road, Tottenham, London (“the Property”) for the price of £50,000. It was alleged that, in breach of the Agreement, FBL refused to complete the sale of the Property to the claimant and Mr Hughes, and conveyed it instead to a third party in or about March 2004. It was further alleged that the market value of the Property in January 2004 was at least £300,000, and that its market value at the date of the claim was at least £1 million. The damages claimed, on the most favourable basis to the claimant, were £950,000 plus interest at 8% per annum from 27 January 2004, making a total of approximately £1.4 million at the date of issue of the claim form.

FBL is the first defendant. It is a company registered in England and Wales, of which Mr Ross Berndes has at all material times been a director. The six remaining defendants are the children (and nearest known next of kin) of Mr Hughes, who died, apparently intestate, on 2 November 2007. No grant of representation has been taken out to his estate. The reason for their joinder is that the Agreement was apparently made with the claimant and Mr Hughes jointly, and if the claim succeeds Mr Hughes’ estate would prima facie be entitled to relief on the same basis as the claimant. Earlier efforts by the claimant himself to take out a grant of letters of administration to Mr Hughes’ estate had failed, and he was evidently unable to enlist the support of Mr Hughes’ next of kin for the claim. It was therefore necessary to join them as defendants, so that they would be bound by whatever order the court saw fit to make. They have played no part in the action, and for present purposes the only effective defendant is FBL.

There is a complex, and hotly disputed, factual background to the claim, some of which is pleaded in FBL’s defence (dated 22 January 2010, and settled by Mr Tom Leech QC) and in a relatively lengthy reply served by the claimant on 17 April 2010. Among other things, it is alleged by FBL that the Agreement is a forgery; that FBL never entered into an agreement of any kind with the claimant and Mr Hughes in January 2004; and that, although Mr Berndes orally agreed to sell the Property to them in December 2003 for £50,000, he did so only as a result of intimidation, threats and duress. Most of this background material, however, is of no relevance to the short point of law which was debated before the Master and on which his decision turned, namely whether the Agreement complied with the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.

So far as material, section 2 of the 1989 Act provides as follows:

“2 (1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.

(2)

The terms may be incorporated in a document either by being set out in it or by reference to some other document.

(3)

The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.

(4)

Where a contract for the sale or other disposition of an interest in land satisfies the conditions of this section by reason only of the rectification of one or more documents in pursuance of an order of a court, the contract shall come into being, or be deemed to have come into being, at such time as may be specified in the order.

(5)

… nothing in this section affects the creation or operation of resulting, implied or constructive trusts.”

It is convenient at this point to describe the document upon which the claimant relies as incorporating all the express terms of the contract for sale of the Property which he says he and Mr Hughes concluded with FBL on 7 January 2004. The document is typed on the headed notepaper of FBL, and bears the date “7^th January 2004”. It then reads as follows:

“807 HIGH ROAD, TOTTENHAM

Following our discussions with Mr D. Hughes and Mr P. Francis, I can confirm that we are prepared to sell the freehold of the Coolbury Club, workshop and flat for a purchase consideration of £50,000 under the provisions [sic] that certain conditions are met.

As you are aware we believe this to [be] below the market value that we put in excess of £300,000. However, we have taken into consideration the losses suffered and the ongoing dispute. Our desire for this is to be amicably resolved.

The conditions are as follows:

1.

The six car park spaces allocated to the Coolbury Club are to be released.

2.

An undertaking is given that no objections will be raised in the event of planning permission being sought for new workshops at the rear of the yard.

Yours Sincerely

Ross Berndes

Director”

In the gap between the words “Yours Sincerely” and the words “Ross Berndes Director” there is an illegible manuscript signature, and to the right of it what appear to be manuscript signatures of “P. E Francis” and “D. Hughes”. I will refer to this document as “the 7 January letter”.

On 29 April 2010 FBL made an application for summary judgment against the claimant pursuant to CPR Rule 24.2, or alternatively for an order that the claim be struck out pursuant to CPR Rule 3.4 as disclosing no reasonable grounds for bringing the claim. The application was supported by a witness statement from FBL’s solicitor, Mr Clive Ince, which gave a brief explanation of the procedural background and then identified four grounds on which it was alleged that the 7 January letter did not comply with section 2 of the 1989 Act:

Evidence in answer was then filed by the claimant’s solicitor, Mr Christopher Rodda of Royds LLP, and by Mr Francis himself, to which Mr Ince replied on 28 July 2010. The evidence in reply prompted two further statements from Mr Rodda and Mr Francis in September 2010.

Much of this evidence was devoted to exploring the detailed background to the case, and the circumstances in which the 7 January letter came to exist in at least two different versions. For present purposes, however, most of this evidence can be disregarded, because it was common ground before the Master, as it was before me, that the application for summary judgment must be approached on the footing that Mr Francis’ evidence about the circumstances in which the 7 January letter came to be signed is correct, and that the version of it annexed to the particulars of claim (which I have quoted in paragraph 6 above) was signed on that day by Mr Francis, Mr Hughes and Mr Berndes. I should add that there are no differences between the texts of the different versions of the 7 January letter: the differences relate only to the signatures.

The claimant’s case about the circumstances in which the 7 January letter came to be signed is most clearly set out in his reply to the defence, which is verified both by a statement of truth signed by him and by his first witness statement. So far as material, paragraph 2 of the reply reads as follows:

“(a)

It is admitted that Ross Berndes for [FBL] told the Claimant and Mr Hughes that he might be prepared to sell [the Property] for £50,000. He did this on or about Friday 12 December 2003 and further stated that he would think about it over the weekend and discuss it with his brother Howard. That statement was made during a telephone conversation between him and Mr Hughes when Mr Hughes had made the offer to purchase for £50,000 on behalf of himself and the Claimant. In turn that offer was made after a meeting had been held between the Claimant, Mr Hughes, Ross Berndes, John Bays (solicitor for [FBL]) and Jonathan Roberts of Ronald Fletcher Baker (“RFB”), solicitor for the Claimant and Mr Hughes) … at the offices of RFB on or about Thursday 11 December 2003. …

(b)

… on or about Monday 15 December 2003 Ross Berndes informed Mr Hughes and the Claimant by telephone that he had considered the offer and would sell the premises for the sum of £50,000. On the same day and/or on the following day … Ross Berndes told Howard Green, principal of his then managing agent, Duncan Philips, that he had reached an agreement with the Claimant and Mr Hughes and asked Howard Green to waive certain fees in order for the agreement to proceed. On the 16^th December 2003 Howard Green sent written confirmation to Ross Berndes that he had agreed to waive fees “on the understanding you are reaching a settlement with Night-Time today.” Night-Time was a reference to the trading name of the Claimant and Mr Hughes which they had used to run the Coolbury Club at the premises from 2000 to 2001.

(c)

From a date unknown to the Claimant between Tuesday 16^th December and Friday 19^th December 2003 Ross Berndes went on holiday to the Caribbean and returned in early January 2004 …

(d)

On or about Monday or Tuesday, the 5^th or 6^th January 2004, Ross Berndes informed the Claimant and Mr Hughes by telephone that he had a written agreement for them and it was arranged they would call at his garage premises at Ross Motors 145 Hertford Road, Edmonton on Wednesday 7^th January 2004.

(e)

On the 7^th January 2004 in the office of his garage Ross Berndes handed the original of the document (“the original”) relied on in this case to the Claimant and Mr Hughes. He had already signed the same. The Claimant and Mr Hughes took that document to a nearby newsagent and made one photocopy. They returned to Ross Berndes’ garage and signed both the original and the photocopy in Ross Berndes’ presence with the intention that they would be bound by the agreement. They took away the original and left Ross Berndes with the photocopy signed by them.

(f)

On the same day the Claimant and Mr Hughes showed the original agreement to Howard Green at his office and then gave the original to the solicitor then acting for them, Jonathan Roberts of RFB, retaining a (further) photocopy of the original for themselves. Exhibit A to the Particulars of Claim is a copy of that further copy of the original.

(g)

RFB’s files were among many later destroyed by a fire at the premises of Iron Mountain and to date the original has not been traced.

…

(i)… there had been discussions about the identity of the purchaser during 2003 and it was immaterial to [FBL] whether the agreement was with the Claimant and Mr Hughes or the company which ran the club from 2000 to 2001, Night-time Ltd or some other entity in which the Claimant and Mr Hughes had an interest. On or about the 10^th January 2003 the Claimant and Mr Hughes and [FBL] had agreed and signed an earlier contract … for the purchase of [the Property] by the Claimant and Mr Hughes for the sum of £300,000 subject to a condition that the dispute between the Claimant and Mr Hughes and Dennis Coombes was resolved amicably. Since that dispute could not be and never was resolved amicably that condition of the agreement of the 10^th January 2003 was never satisfied.”

The earlier agreement of 10 January 2003 is of some relevance, because it was clearly used as a blueprint for the 7 January letter. Like the 7 January letter, it was typed on the headed notepaper of FBL, and much of the wording is identical. Apart from the difference in price, the main differences are:

It is also material to refer to two letters which Mr Hughes and Mr Francis apparently wrote to Mr Berndes on 8 January 2004, the day after the 7 January letter. The first letter reads as follows:

“Dear Ross Berndes,

Following our discussions with you and your letter dated 7^th January 2004, we confirm that we except [sic] your offer of £50,000 to purchase [the Property]. We also except [sic] your conditions.”

In the second letter, Mr Francis and Mr Hughes said they were taking steps to obtain funding of £50,000, and that they had given the agreement letter to their solicitors. On the reverse of the second letter there is a manuscript note:

“P.S. Please ignore first letter dated 8^th January.”

In his second statement, Mr Francis confirmed that both letters were sent, and added:

“The writing on the reverse of the second letter is mine. The reason for asking Mr Berndes to ignore the first letter was that after a discussion between Desmond Hughes and myself we had decided that the first letter had not been necessary as a complete and binding agreement had already been reached, accordingly, all we wanted to do was to explain that funding was being put in hand.”

The hearing before Master Teverson took place on 3 November 2010, with Mr Leech QC appearing for FBL and Mr Guy for the claimant. The oral submissions lasted for about two hours, and as the whole day had been allocated for the hearing the Master was able to prepare and deliver an unreserved oral judgment in the afternoon.

In his judgment, the Master began his discussion of the question by referring to the policy underlying section 2 of the 1989 Act as described by Peter Gibson LJ in Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 at 1571E-H. The Master summarised the passage, but in view of the significance attached to it by Mr Leech QC in his submissions I will quote it in full:

“Section 2 brought about a markedly different regime from that which obtained hitherto. Whereas under section 40 [of the Law of Property Act 1925] contracts which did not comply with its requirements were not void but were merely unenforceable by action, contracts which do not comply with section 2 are ineffective: a contract for the sale of an interest in land can only be made in writing and in conformity with the other provisions of section 2. Whereas an oral contract was allowed and enforceable provided that it was evidenced in writing and the memorandum or note thereof was signed by or on behalf of the party against whom it was sought to be enforced, oral contracts are now of no effect and all contracts must be signed by or on behalf of all the parties. Whereas the contract or the memorandum or note evidencing the contract previously could be contained in more than one document, only one document is now allowed, save where contracts are exchanged, although reference to another document may be permitted in the circumstances laid down in subsections (2) and (3). Whereas the memorandum or note needed for section 40 did not have to contain every term of the contract, all the terms must now be contained in the document in question. Whereas the doctrine of part performance allowed certain contracts otherwise unenforceable to be enforced, that doctrine now has no application. It is to my mind plain that the Act of 1989, which, as its long title indicates, was to make new provision with respect to contracts for the sale or other disposition of interests in land, was intended to make radical changes to such contracts in a way that was intended to simplify the law and to avoid disputes, the contract now being in a single document containing all the terms and signed by all the parties. Thereby it has been sought to avoid the need to have extrinsic evidence as to that contract.”

The Master then recorded that Mr Leech’s main point in support of the application was that the 7 January letter did not comply with section 2(1), because it did not contain mutual obligations to buy and sell the Property. The authorities relied on by Mr Leech in support of this submission were the decision of the Court of Appeal in Firstpost Homes Ltd and the decision of Patten J (as he then was) in Ruddick v Ormston [2005] EWHC 2547 (Ch). I will return to those cases later in this judgment. After discussing them, and the possible grounds of distinction relied upon by Mr Guy, the Master continued:

“19.

Mr Guy submits and relies upon the well known principle of contractual interpretation that [the 7 January letter] will fall to be interpreted against the relevant factual matrix by which is meant the background knowledge of the parties. He submits further that the requirement of section 2 is for the contract to incorporate “all the terms which the parties have expressly agreed” in one document and that there is no requirement in the section for the contract to incorporate implied terms. Mr Guy relies on the position under an open contract and says, for example, that there is no requirement for the document relied on as a contract to set out or incorporate a term that the property is to be sold free from encumbrances and with good title.

20.

The question then is whether it is sufficient in this case for Mr Francis and Mr Hughes to have signed or countersigned [the 7 January letter] in order to make it compliant with section 2. As it seems to me [the 7 January letter] is on its face a unilateral offer to sell subject to certain conditions being met. The signing of the document by Mr Francis and Mr Hughes may have been intended either as an acceptance of the conditions or of the price or both, but it is not apparent on the face of the document which of those was intended.

21.

The document is not specifically addressed to anybody and the signing of the document by Mr Francis and by Mr Hughes is not by itself in my view sufficient to identify the intended purchaser or other party to the contract. It does not incorporate an express obligation on the part of Mr Francis and Mr Hughes to purchase the property themselves and I agree with Mr Leech that there is no scope for implication on the issue of parties in circumstances where it has to be assumed that there must have been an express agreement on that issue on the claimant’s case in order for an agreement to have been reached.”

The Master then commented that the point was a real one, because the proposal made on 11 December 2003 by the solicitors then acting for Mr Francis and Mr Hughes, in a letter of that date, had been made on behalf of their company Night-time Ltd. The Master also relied on the two letters of 8 January 2004, and the explanation of them in Mr Francis’ second statement, as showing the “inadequacy” of the 7 January letter.

The Master then stated his conclusions, as follows:

“26.

The point raised by the application is a short one and in my view at the end of the day the key point is that of the policy that underlies section 2 of the 1989 Act. As I have already stated Peter Gibson LJ said in his judgment that the provisions of the 1989 Act, with respect to contracts, were intended to make radical changes and were intended to avoid disputes and to avoid the need to have extrinsic evidence as to the contract.

27.

In this case I do not think that the difficulties faced by the claimant in relation to section 2 are capable of being cured at trial, specifically I do not consider that the admission of extrinsic evidence, for example, to determine the question whether Mr Francis and Mr Hughes intended to contract as individuals or on behalf of their company, of which it appears they were not the sole shareholders, is the determinative matter. Here we are concerned not with what was in fact expressly agreed but with a separate issue of whether what was expressly agreed has been incorporated satisfactorily and sufficiently in [the 7 January letter] for the purposes of section 2 of the 1989 Act.

28.

If it was expressly agreed prior to 7 January 2004 that Mr Francis and Mr Hughes were going to purchase [the Property] then, in my view, that has not been expressly recorded in a document as an obligation on their part. They are not referred to or defined in the document as the buyer and they have not in the document expressly undertaken the buyer’s obligation. I do not accept that an implication to that effect can be drawn merely from the signature on the documents nor do I accept that this is a case where the section 2 defect, as I have referred to it, can be cured in that way.

29.

I think one way of looking at the matter, although I do not regard it as determinative of the issue, is whether [FBL] could have sued Mr Francis and Mr Hughes on the document relying on the fact that they had signed it alone. It seems to me that the answer following the implementation of section 2 of the 1989 Act would be no. For those reasons I propose to accede to the application.”

It seems to me that the core of the Master’s reasoning may be reduced to the following propositions, all of which he accepted:

In the light of his decision, the Master dismissed the claim and ordered the claimant to pay FBL’s costs, with a payment on account of £25,000 to be made by 1 December 2010. The claimant was by this stage unemployed, and without financial resources. He had been represented by solicitors and counsel before the Master under a conditional fee agreement, which did not cover the costs of an appeal. There was accordingly some delay while the claimant raised money to instruct fresh counsel to advise him on the merits of an appeal, and his appellant’s notice was not issued until 11 January 2011. He was subsequently granted permission to appeal out of time, and as I have already said permission to appeal was granted by Briggs J on 4 May 2011, together with a stay of execution of the interim costs order until after the hearing of the appeal.

The grounds of appeal settled on the claimant’s behalf by Mr Richard Wilson QC are in summary as follows:

(1)

As a matter of construction of the 7 January letter, the claimant’s signature must be treated as an unqualified assent to every material provision contained in it, including the price and the stated conditions.

(2)

It is also clear as a matter of construction that the purchasers of the Property were to be the claimant and Mr Hughes, and the contract would in any event have been enforceable against them personally even if they were in fact acting as agents for Night-time Ltd or some other third party.

(3)

All the express terms agreed between the parties on 7 January 2004 were sufficiently recorded on the face of the 7 January letter, and the formal requirements of section 2 of the 1989 Act were therefore satisfied.

(4)

Further or alternatively, there are “other compelling reasons” within the meaning of CPR Rule 24.2(b) why the case should be disposed of at trial. If it is held that the contract is void for non-compliance with section 2, the claimant is entitled to claim:

(a)

rectification of the 7 January letter “so as to make it conform to the contract for sale of the Property actually agreed between the parties”; and

(b)

restitution of the benefit of £250,000 transferred by the claimant and Mr Hughes “under … an ineffective contract for sale of the Property where the entire consideration has failed”.

The grounds of appeal recognised that it would be necessary for the claimant to seek permission to amend his particulars of claim in order to rely on either of the alternative claims. In this respect, the grounds said:

“Draft Amended Particulars of Claim will be provided hereafter setting out the Claimant’s alternative claims in full together with a Notice of Application for permission to amend.”

I was informed that Briggs J made it clear to Mr Francis and his counsel at the permission hearing that he would have to put forward his proposed amendments promptly. However, no draft amendments or application for permission to amend had been produced before the hearing of the appeal, which took place before me on 20 October 2011.

I can take this issue quite shortly, because in my judgment there is no answer to the simple point that, assuming the claimant’s evidence to be correct, there must have been an express agreement for him and Mr Hughes to purchase the Property from FBL, but no written record of that term is contained in the 7 January letter.

As to the existence of an express agreement, it is the claimant’s pleaded case that on or about 12 December 2003, in the course of a telephone conversation between Mr Hughes and Mr Berndes, Mr Hughes made an offer on behalf of himself and the claimant to purchase the Property for £50,000; and that this offer was then accepted by Mr Berndes on or about 15 December, when he informed them by telephone that he had considered their offer and would sell the Property to them for £50,000. An express oral agreement was thus concluded, whereby (at the very least) Mr Berndes for FBL agreed to sell the Property, and the claimant and Mr Hughes agreed to buy it, for £50,000. There is no suggestion that this basic agreement was altered in any way during the interval between 15 December and 7 January 2004, and the purpose of the 7 January letter can only have been to reduce it to writing in a legally binding form.

Given the existence of an express term that the claimant and Mr Hughes were to purchase the Property, the next question is whether that term was successfully incorporated in the 7 January letter. There is no question of the term being incorporated by reference to some other document, so by virtue of section 2(2) of the 1989 Act the term had to be “set out” in the letter. “Set out”, in this context, must in my judgment mean “set out in writing”, because by virtue of subsection (1) a contract for the sale of an interest in land can only be made in writing. The insuperable difficulty, from the claimant’s point of view, is that the 7 January letter nowhere says that he and Mr Hughes are to be the purchasers. It may well be the case, and I am prepared to assume in the claimant’s favour, that construed in the light of the surrounding circumstances, this is clearly what the parties agreed, and the purpose of the counter-signatures by the claimant and Mr Hughes was to signify their acceptance of it. None of this, however, alters the fact that no written record of this critical term can be found in the letter.

The method that the parties chose to achieve their purpose, apparently without the advice or involvement of their solicitors, was to adapt the form of offer letter which had been used in January 2003, and to have it signed, by Mr Berndes on behalf of FBL, and by the claimant and Mr Hughes in their personal capacities. The problem about proceeding in this way, however, was that the document was in form no more than a counter-signed offer, and it did not set out in writing the obligation to purchase the Property which was undertaken by the claimant and Mr Hughes. The fallacy in the claimant’s submissions, attractively though they were advanced by Mr Wilson QC on his behalf, is that it confuses the question of what the parties actually agreed (which is to be ascertained, in the usual way, by a process of construction of the 7 January letter in the light of the surrounding circumstances and admissible extrinsic evidence), on the one hand, and the question whether the letter sets out in writing all the express terms of that agreement, on the other hand.

It may be thought that this is a highly technical distinction, and one which may be productive of injustice in cases where the nature of the “missing” term is obvious once the document in question is construed in its factual context. However, one of the main purposes of the 1989 Act was to produce certainty in relation to contracts for the sale of land, and to reduce as far as possible the need for extrinsic evidence in order to establish the terms of the contract. Furthermore, in the present case the parties on both sides were represented by solicitors, and detailed negotiations to resolve their differences had been in progress for at least a year. In those circumstances, it is difficult to understand why they should have left something as important as the drawing up of a formal agreement for the sale of the Property to be dealt with in such an informal manner, and without the benefit of legal advice.

The conclusion which I have reached does not in my view need authority to support it, because it follows from a straightforward application of the statutory language of the 1989 Act and the policy considerations referred to by Peter Gibson LJ in the Firstpost Homes case. However, I agree with Mr Leech QC that support for this conclusion, if it is needed, may be found in the two cases which he cited to the Master.

The first case was Firstpost Homes itself, the salient facts of which are helpfully summarised in the headnote at [1995] 1WLR 1567:

“A director of the plaintiff company reached an oral agreement with a vendor for the sale of land. He prepared a letter for her to sign, addressed to him, stating that she agreed to sell the land, extending to 15.64 acres, shown on the enclosed plan for £1,000 an acre. A copy of an Ordnance Survey plan was attached with the boundary of the land marked. The director later delivered the letter to the vendor and was present when she signed and dated it. The vendor also signed and dated the plan. The director did not sign the letter, but he signed the plan. The vendor died shortly afterwards. The plaintiffs brought an action against the defendant personal representatives of the vendor’s estate seeking specific performance of the contract for the sale of the land. The defendants applied to strike out the action on the ground that there was no contract satisfying section 2 of the [1989 Act].”

The critical point was that the director of the purchaser company did not himself sign the letter which he prepared for the vendor to sign, although he did sign the accompanying plan. The vendor signed both the letter and the plan.

The district judge refused the application, but the defendants’ appeal was allowed by Judge Farrer QC and his decision was upheld by the Court of Appeal. The primary ground of decision was that the letter and the plan had to be treated as separate documents for the purposes of section 2, with the result that the signature of the director on the plan alone was insufficient. Peter Gibson LJ went on, however, to consider, and accept, an alternative argument advanced by the defendants to the effect that the letter was anyway not a valid contract for the sale of an interest in land because it contained no obligation by the director or his company to purchase the land and pay the consideration. As Peter Gibson LJ said at 1573H:

“A contract must contain mutual obligations and a commitment by each party. If one reads the wording of the letter dated 9 April it is, to my mind, plain that there is no commitment by Mr Hale or the plaintiffs. The letter simply indicates what Mrs Fletcher is agreeing to sell, that is to say it is committing her to a sale but the letter does not contain any corresponding obligation by Mr Hale or the plaintiffs to purchase the land and pay the consideration.”

He went on to say that in certain circumstances it might be appropriate to imply into a document that there is a commitment to buy, for example if the document was headed “contract for sale” and there were obligations expressly undertaken by the purchaser; but the letter in question was not of that character. See too the judgment of Balcombe LJ at 1577 B-C.

It is true, as the Master noted in paragraph 15 of his judgment, that Firstpost Homes is distinguishable on the basis that, unlike the letter in that case, the 7 January letter was signed by the purchasers. However, the question still remains whether their signatures were sufficient to make the letter compliant with section 2; and, for the reasons which I have already given, I consider that they were not.

The second case, Ruddick v Ormston, loc.cit., concerned a homemade agreement for the sale of a flat in the Gateshead area. The claimant, Mr Ruddick, was a plumber who in 2003 decided to invest in property to take advantage of the rise in local property values. He solicited sales through leaflets which he delivered through a number of house doors in promising locations, and in due course was contacted by Mr Ruddick who told him that he was interested in selling his property. Following a meeting between them, a sale of the flat was agreed for £25,000, which Mr Ruddick realised was a very good price. He then wrote out on two opposite pages of his diary what he subsequently alleged to constitute a binding contract for the sale of the flat. The left hand page said: “I Mr Paul Ormston of [address] Hereby agree to sell to Mr Raymond Ruddick for the sum of £25,000 my flat and acknowledge receipt of £240 deposit”. This page was signed by Mr Ormston as the seller and Mr Ruddick as the buyer. On the opposite page, Mr Ruddick wrote: “I Raymond Ruddick of [address] Hereby agree with Mr Paul Ormston of [address] to purchase the flat for the sum of £25,000 and hereby give a deposit of £240 to secure the purchase pending legal searches”. Again, this page was signed by Mr Ruddick as buyer and Mr Ormston as seller.

It was found by Patten J, following the trial of the action, that the parties intended to reach a binding agreement which came into force when they each signed the diary pages. He held, however, for two separate reasons that the requirements of section 2 of the 1989 Act had not been complied with. For present purposes, it is the first reason which matters. In paragraph 25 of his judgment, Patten J said this:

“I was initially attracted to a submission made by [counsel for Mr Ruddick] that the two diary pages should be treated for the purposes of s.2(1) as a single document. But that is difficult to square with Mr Ruddick’s own description of them as two contracts and with the fact that each page is signed by both parties. It seems to me that although there was not a formal exchange of contracts, the documents were prepared on the basis that they should stand as separate self-contained agreements. As such, they do not comply with s.2(1) even if one treats their execution as equivalent to an exchange of contracts, because neither page contains mutual obligations to buy and to sell.”

It is clear, therefore, that Patten J held each document to be non-compliant with section 2 because it contained only an obligation to buy or sell the flat, and omitted the corresponding obligation on the other party. Patten J reached this conclusion, as the Master noted in paragraph 25 of his judgment, even though each document was signed by both parties; there was no doubt that they had signed in their capacities as individual seller and buyer; and there was equally no doubt that they thereby intended to reach a binding agreement. Furthermore, if the claimant’s argument in the present case is correct, it must I think follow that this part of Patten J’s decision in Ruddick v Ormston was wrong, because the signatures of Mr Ruddick as buyer on the first page, and of Mr Ormston as seller on the second page, would have made it obvious, as a matter of construction, that they intended to undertake the corresponding obligations as buyer and seller respectively.

I am not, of course, bound by the decision of Patten J in Ruddick v Ormston, but I respectfully think it was correct on this point, and that the present case is materially indistinguishable.

In all the circumstances, I consider that the Master came to the correct conclusion on this issue, and to a large extent I agree with his reasoning. In particular, I agree with his propositions (b) and (d) in paragraph 19 above. If and in so far as he held that the signatures of the claimant and Mr Hughes on the 7 January letter were insufficient to identify them as the purchasers of the Property, with or without the admission of extrinsic evidence, I would respectfully disagree with him. But, as I have sought to explain, identification of them as the purchasers does not get round the critical difficulty that there is no written record in the letter of the obligations which they undertook in that capacity, including in particular the obligation to purchase the Property.

The alternative claims canvassed by Mr Wilson QC in the grounds of appeal, and developed in his skeleton argument (which was not served, as it should have been, within 14 days of filing the appellant’s notice – see PD 52 para 5.9(2) – but only on the eve of the hearing of the appeal), were not argued before the Master. They are therefore new points, which may be raised only with the permission of the court. Further, they are still unsupported by any draft amendments to the particulars of claim, despite the clear warning given by Briggs J on 4 May 2011. In these circumstances I would be reluctant to grant permission for the points to be raised unless it were clear (a) that they had a real prospect of success, (b) that they could be argued without any risk of unfairness to FBL, and (c) that the interests of justice made it desirable for the claimant to have the opportunity to pursue them by way of amendment to the present claim rather than by the institution of fresh proceedings. Furthermore, as Mr Wilson realistically accepted in the course of his oral submissions, the most that the court could be expected to do at this stage would be to permit the claimant to make a formal application to amend, supported by evidence, to which FBL would have the right to respond: compare Islington London Borough Council v Uckac [2006] EWCA Civ 340, [2006] 1 WLR 1303, at [36] to [39] per Dyson LJ (with whom Sir Charles Mantell and Mummery LJ agreed), noted in the White Book (2011 edition, vol. 1) at para 52.8.2 on page 1654.

I begin with the proposed rectification claim. In his skeleton argument, Mr Wilson puts the point in two slightly different ways. First, he submits that if the court were to find at trial that the parties had orally agreed on 7 January 2004 that the Property would be sold to the claimant and Mr Hughes, but had overlooked stating this in writing in the 7 January letter, then the claimant would be entitled to rectification of that document so that it conformed to the agreement actually made between the parties. Secondly, he submits that the claimant should in any event be permitted to adduce evidence at trial that an oral agreement was made on 7 January 2004, which the parties by mistake failed fully to record in writing. Were the trial judge to make such a finding of fact, the claimant would again be entitled to have the document rectified.

In my judgment these submissions betray a fundamental misunderstanding of the nature of the remedy of rectification. The function of rectification is to correct a common mistake (or, in limited circumstances, a unilateral mistake) in the way in which a transaction has been reduced to writing: see Snells’s Equity, 32^nd edition, para 16-001. The essence of the doctrine (leaving aside cases of unilateral mistake, which are conceptually rather different) lies, broadly speaking, in the existence of a discrepancy between what the parties have actually agreed, or between an outwardly manifested common intention which they continue to share, and the terms of a written document by which they intended to record or implement their common agreement or accord. The mistake will usually be one of fact, but may also be a mistake about the legal effect of the language used (see Snell at para 16-016).

None of this, however, has any direct relevance to the present case, where the summary judgment application has proceeded on the assumption that the Agreement was indeed concluded on 7 January 2004, between the parties and in the terms alleged in the particulars of claim. There is no dispute, on this hypothesis, about who the parties to the agreement were, or about the obligation undertaken by the claimant and Mr Hughes to purchase the Property, or about the construction of the 7 January letter. The problem is, rather, about the failure of the 7 January letter to comply with the formal requirements of section 2 of the 1989 Act, with the statutory consequence that the agreement is ineffective. This cannot, in my judgment, be characterised as a mistake about the legal effect of the language used in the letter (such as, to use a once familiar example, the effect of a covenant to pay an annuity “free of tax”). There is nothing in the language of the 7 January letter which needs correcting, and no mistake about the factual or legal nature of the bargain which the parties intended to record.

The question whether rectification could be used to cure a failure to comply with section 2 was carefully considered by Morgan J in Oun v Ahmad [2008] EWHC 545 (Ch) at [24] to [55]. The passage is too long to quote in full, but it repays study, and I respectfully agree with it. In short, Morgan J distinguished between cases where rectification is sought on conventional grounds, to correct a mistake in the drafting of a document, and cases where it is sought in order to make a document compliant with section 2 by inserting an express term which the parties agreed to exclude from the document. He held that rectification of the first kind is contemplated by the 1989 Act, and section 2(4) caters for it with some modifications of the general law which would otherwise apply: see his judgment at [35] to [38]. On the other hand, he held that rectification of the second kind is not available, because to allow it would make an unjustifiable inroad into the policy of the 1989 Act.

Thus at [39] Morgan J said this:

“However if, in every case [his emphasis] where the written document did not incorporate all of the terms expressly agreed, it was open to the court to investigate the detail of the terms orally agreed (but not recorded in the written document) and then write into the written document the terms which were omitted, that seems to me to go much further to undermine the legislative objective.”

Having considered the question in more detail, Morgan J then concluded at [55]:

“In my judgment, this express agreement to omit the term means that there is no defect or mistake in the recording of, or the expression of, the arrangement and it is beyond the ambit of rectification to write into the written agreement a term which the parties expressly agreed should not be so recorded. I reach this conclusion applying what I understand to be conventional principles as to the availability of rectification and not some special set of rules as to rectification for the purposes of section 2(4) of the 1989 Act. In my judgment, this approach serves the legislative objective of section 2 of the 1989 Act.”

It is true that the case considered by Morgan J was in one respect more extreme than the present case, because it concerned a term which the parties had expressly agreed to exclude from the written agreement. It seems to me, however, that the same result should follow whatever the explanation for the omission of an express term may be, unless of course the circumstances are such that rectification on conventional grounds is available. Ignorance of the 1989 Act, or a misapprehension about its operation, cannot in my view suffice, because the policy which underpins section 2 is the need for certainty in contracts for the sale of land and the avoidance of disputes about what the parties have agreed which can be resolved only by recourse to extrinsic evidence. The general law of rectification makes a limited inroad into this policy, which Parliament clearly regarded as acceptable; but to allow rectification of the second kind would in my judgment subvert the statutory purpose in a way that Parliament could never have intended.

For these reasons I consider that the proposed rectification claim is misconceived, and that any application for permission to amend the claim so as to raise it would have to be dismissed.

I now turn to the proposed restitution claim. As clarified by Mr Wilson in his skeleton argument and oral submissions, the essence of the claim is along the following lines. Assuming the Agreement to be unenforceable by virtue of section 2, FBL will have been enriched at the expense of the claimant and Mr Hughes by approximately £250,000, that being the difference between the market value of the Property in 2004 and the price of £50,000 for which they agreed to buy it. The argument would be that this sum represented the value placed by the parties on the disputed claim which the claimant and Mr Hughes had against FBL for work carried out and expenditure incurred in the earlier refurbishment of the Property, and that by entering into the Agreement they forbore to sue on that claim and instead agreed to buy the Property at a corresponding undervalue. It is thus at least arguable, submits Mr Wilson, that FBL was indirectly enriched at their expense, and that the enrichment was unjust because it was caused by the mistaken failure of the agreement to comply with section 2, leading to a total failure of consideration. If the purchase price of £50,000 had been paid over, it is obvious that the claimant and Mr Hughes would have been entitled to recover it on the ground of failure of consideration. The position should be no different, says Mr Wilson, where FBL has had the benefit of the forbearance to sue which was in effect part of the purchase price.

Unless and until such a claim is properly formulated, it would in my judgment be premature to express any concluded view about its merits, whether in law or on the facts. It is enough to say that Mr Wilson frankly recognised that the claim would be far from straightforward, but on the other hand I did not understand Mr Leech to argue that it could safely be dismissed at this stage as obviously unsustainable. He took his principal stand instead on a limitation point, which I will now explain.

Mr Wilson accepted that the claim would be subject to a six year limitation period, and that the cause of action accrued when the benefit was transferred, that is to say on 7 January 2004 when the forbearance to sue was given by way of consideration for the Agreement. The limitation period for bringing the claim therefore expired on 7 January 2010. The present action was started, however, on 21 December 2009, shortly before the end of the period (which was, of course, also the limitation period which applied to the pleaded breach of contract claim). In those circumstances, Mr Wilson seeks to take advantage of section 35 of the Limitation Act 1980 and CPR rule 17.4, and argues that the court would have jurisdiction to allow the new claim to be made by way of amendment to the present action, despite the expiry of the limitation period, provided that it arises out of the same facts, or substantially the same facts, as those already in issue on any claim already made in the action: see section 35(1)(b), (2)(a), (3), (4) and (5), and CPR 17.4(1) and (2). Mr Wilson submitted that the restitution claim would arise out of the same facts or substantially the same facts as those already pleaded by the parties, and that permission to amend should therefore be granted.

Mr Leech’s answer to this, if I understood it correctly, was that there is bound to be room for argument on the question whether the new restitution claim arises out of the same or substantially the same facts as those already in issue, and for that reason alone it would be wrong to grant permission to amend and the claimant should be left to start a fresh action if he wishes to pursue the claim. But I do not think this can be correct. That approach would be the appropriate one to adopt if the issue were whether the relevant limitation period had expired, and where the grant of permission to amend would pre-empt that issue because of the rule in section 35(1)(b) that any new claim made in the course of an action shall be deemed to be a separate action which commenced on the same date as the original action. In the present case, however, there is no dispute that the limitation period has expired, and the issue is a different one, namely whether the new claim arises out of the same or substantially the same facts as the original claim. If it does, the court has jurisdiction to allow it to be pursued by way of amendment to the original claim, notwithstanding the expiry of the limitation period. If it does not, the court has no jurisdiction to allow the amendment. Thus if the court were to accede to Mr Leech’s submission, and refuse permission to apply to amend because the answer to the question is doubtful, the result would be to pre-empt decision of that question in FBL’s favour, because any new action founded on the restitution claim would inevitably be time barred.

In my judgment, therefore, the relevant question at this stage is whether the claimant should be permitted to make an application to amend so as to raise the restitution claim, despite the fact that this is a new point which was not relied upon before the Master, and despite the fact that no draft amended pleading has yet been produced, even though Briggs J drew attention more than six months ago to the need to do so promptly. I have not found this an easy question, but on balance I have come to the conclusion that I should allow the claimant an opportunity to apply for permission to amend. If I were to refuse permission to make the application, the effect would be to shut out the claimant from pursuing a potentially meritorious claim before the limitation point has been tested. The general approach of the court is to allow amendments to be made, so that the real dispute between the parties can be adjudicated upon, so long as any prejudice to the other party caused by the amendment can be compensated for in costs, and the public interest in the administration of justice is not significantly harmed: see the well-known statement to that effect of Peter Gibson LJ in Cobbold v Greenwich LBC [1999] EWCA Civ 2074. I emphasise, however, that in granting permission to make the application, I am not expressing any view on whether it should succeed. It will still be necessary for the claimant to satisfy the court, by reference to properly pleaded draft amendments, that the restitution claim has reasonable prospects of success, that it arises out of the same or substantially the same facts as the existing claim, and that it would not be unfair to FBL to allow it to be pursued.

For the reasons which I have given, I consider that the Master reached the correct conclusion in relation to section 2 of the 1989 Act, and subject to the amendment point I would have dismissed the appeal. In the event, however, I will allow the appeal to the limited extent of permitting the claimant to make an application for permission to amend so as to raise the restitution claim. Subject to the views of the parties, it seems to me that the application should be made to the Master, with a fairly tight timetable for evidence. The parties should do their best to agree appropriate directions before this judgment is handed down.