Saunders & Anor v Himaly & Ors

This is the hearing of the Defendants’ appeal against a possession order of Her Honour Judge Melissa Clarke dated 9 March 2016. That order was made pursuant to a judgment giving summary judgment to the Claimants.

At an oral hearing on 26 October 2016, Nugee J gave permission to appeal on the following grounds. First, whether it was wrong to proceed with the application for summary judgment on 9 March 2016. Second, whether the facts of this case are materially indistinguishable from Cobbe v. Yeoman's Row Management Ltd [2008] UKHL 55, as the judge found, and third, whether the judge was right to grant summary judgment on the pleaded case as it stood, after paragraphs had been struck out pursuant to an unless order.

As Mr Upton, who appeared for the Claimants/respondents, pointed out, it does not follow that if the Defendants are successful on ground 2 and this case is distinguishable from the Cobbe case that the appeal must be allowed. He says that the Defendants must also succeed on grounds 1 or 3.

The procedural history of this matter is somewhat complex and I shall do my best to recite it concisely. The Claimants are the legal owners of a property at The Dell, Hockett Lane, Cookham, SL6 9UF (“the property”). In 2015 the Claimants issued a claim for possession of the property on the ground that, following expiry of the Claimants’ notice terminating a licence asserted by the Defendants, the Defendants were trespassers. The Claimants also claimed damages arising out of conversion of a swimming pool into a separate residential dwelling house which they claim was in breach of planning control or building regulations.

The Defendants defended the claim and by way of counterclaim sought a declaration that they had acquired an equity in the property by reason of proprietary estoppel and/or constructive trust and also claimed damages for unjust enrichment. The defence, which was settled by Counsel, claimed that they had carried out works to the property pursuant to an amended joint venture agreement, as well as taking other actions to their detriment, to which I shall return.

The case management directions including permission for both parties to rely on expert evidence in relation to the works allegedly carried out by the Defendants concerning the effect, if any, that such works had had on the value of the property. On17 December 2015, District Judge Parker made an order that unless the Defendants allowed the Claimants’ experts access to the property for the purpose of producing expert reports: (1) at 10am on Tuesday, 5 January 2016 or; (2) if either expert was unavailable on 5 January at a time specified between 9am and 5pm, giving five clear days notice; then paragraphs 34(b) and (d), the second sentence of paragraph 34(c) and paragraphs 60, 61 and 62 of the Amended Defence and Counterclaim would be struck out and the Defendants would be debarred from denying that all works to the property did not comply with building regulations. The order was not complied with and a further unless order was made by the judge on 9 February 2016 which was also not complied with. Again, the Defendants refused to allow the Claimants’ experts access to the property. For that reason, parts of the Defence were struck out.

This morning I received an application from the Defendants for relief from sanctions. This was far too late, given that there had already been an unsuccessful attempt to appeal the Unless Order. The Defendants made a great mistake in considering that they were entitled to refuse the Claimants’ experts access to the property, in spite of the fact that they had been ordered to do so by no less than two court orders. Even if the application had been in time, I would not have granted relief from sanctions.

The trial was fixed to be heard on 9 March 2016 with a trial estimate of three days. On 4 March 2016 the Claimants’ main witness suffered an acute inferior myocardial infarction in Saudi Arabia. He was unable to travel to the UK to give evidence at the trial. On the following Monday, 7 March 2016, the Claimants applied for summary judgment and an abridgement of time for the application be heard on the first day of the trial. Alternatively, they sought an adjournment of the trial. The application was supported by medical evidence of the condition of the relevant witness.

On 9 March 2016 HHJ Clarke accepted that the trial could not proceed. She decided to hear the application for summary judgment even though it had not been served within the relevant time provided by the rules and even though the Defendants were not legally represented.

The matter was then adjourned for about 50 minutes to enable Counsel for the Claimants, at the judge’s request and with the Defendants’ agreement, to explain the meaning and purpose of the summary judgment application, which the judge had already done very carefully herself. After that short adjournment the judge heard submissions from Counsel for the Claimants and from the first and second Defendants in person. The judge then gave a detailed ex tempore judgment on the same day.

In respect of the first issue, whether it was wrong to proceed with the application for summary judgment on 9 March 2016, I shall summarise briefly the arguments that have been presented to me. First, Mr Upton says that the judge was quite right to take that course, because this was the first day of the trial and so the Defendants needed to be fully prepared for a trial. It did not therefore prejudice them to receive an application for summary judgment when all facts which were in dispute needed to be assumed in their favour. On the contrary, they were more likely to win an application for summary judgment than they were to win the trial. Secondly, the judge was extremely careful to explain the effect of a summary judgment and what the Defendants did and did not need to address. Thirdly, this is a case management decision in respect of which the judge has a wide discretion and an appeal court will be very slow to interfere with the exercise of any such discretion. Mr Upton referred me to the case of Abdulle v. Commissioner of Police of the Metropolis [2015] EWCA 1260 [2016] 1 WLR 898, which makes this well-known point. He also said that the judge informed the Defendants that she would listen to an application to adjourn if the Defendants wanted to obtain legal representation and that no such application was made, the Defendants having made it clear that they could not afford such legal representation. Therefore ,there was little point in an adjournment.

On the other hand, the Defendants submit that they were ambushed by this application which did not comply with the rules and by documents, including case-law, which were served just a few days before the trial. Mr Saunders submits that he did not have time to research the cases which he would otherwise have done. There is some evidence in his various submissions that he is capable of researching and finding legal precedents. Furthermore, he says that he did not understand the effect of summary judgment or what needed to be argued on a summary judgment application. He argues that he did not have a fair hearing because he was not given an opportunity to consider properly the matters in issue.

There is undoubtedly some force in Mr Saunders’ submissions. Had the trial proceeded he would not have had to make submissions about case-law on the first day and he would have had more time to think about the law before any closing speech. Furthermore, the Claimants themselves applied, in the alternative, for an adjournment of the trial because of the absence of their main witness. Therefore, as Mr Upton readily acknowledges, there would have been no prejudice to the Claimants by an adjournment of a few weeks.

Furthermore, it may be said the Defendants were entitled to see whether they could obtain free representation. If the application had been before me, even if the Defendants had not specifically articulated that they wanted an adjournment, I would have granted an adjournment. The application for summary judgment was made very late. The parts of the Defence which gave rise to the application for summary judgment were struck out on 9 February and there was still a month before the trial. The application for summary judgment should plainly have been made beforehand. My own conclusion would have been that the reason why this late application was made was the absence of the Claimants’ main witness, which gave rise to a concern that they could not prove their case at trial.

However, I remind myself that this is not an exercise by me of this discretion. I am reviewing the judge’s exercise of discretion, and given that there was material to support it, I do not think this is a case where it would be appropriate for me to interfere. Furthermore, I do not consider that the issue is material to this appeal in any event. The judge gave judgment over a year ago and by now the Defendants have had ample opportunity either to seek legal representation or to review the case-law. I am now hearing the appeal, which includes the question of whether the judge was right to give summary judgment on the merits. Therefore, any prejudice which has been caused by a refusal of an adjournment has long since disappeared.

The second issue is more significant and it requires me to set out in more detail what the judge found. She rightly reminded herself of the need to exercise caution in deciding issues of law on the basis of assumed facts. She said at paragraph 6 of her judgment that for the purposes of the summary judgment application, the court would consider the Defendants’ case at its highest. She assumed that the Defendants would be able to prove all the facts stated in the Defence, the Counterclaim and the witness statements.

She then described the background to the case, including the following at [9]:

“… it is common ground the Claimants formed the intention of selling the property back in 2006 and it was put on the market but did not sell. The Claimants on the one hand and the Defendants on the other then entered into a joint venture agreement which I will call the original JV, that: the Defendants could occupy the property; that they would pay no rent; that they could renovate the property at their own expense; that upon selling the property the Claimants would retain £1,025,000 if completion took place on or before January 1, 2008 or £1,055,750, which is apparently 3 per cent higher (I have not done the maths), if completion took place on or before 1 January 2009; and the Defendants would retain the rest of the sale price.”

The judge then recorded that the factual dispute related to the agreed mechanisms of the sale. The Claimants’ case was that the agreement was for the Claimants to sell the property and account to the Defendants for the sums due. The Defendants’ case was that the Claimants would sell the property to them for the lower figure if the property was sold before 1 January 2008, or the higher one if it was sold before 1 January 2009 and the Defendants would sell the property on and keep the profit. The judge said that she would assume that the Defendants’ case was correct for the purposes of the application.

She noted that some of the terms of the original joint venture were to be found in a letter written by the Defendants’ solicitors on 9 January 2007, which all of the Claimants signed and returned. She explained that she had explored this carefully with the Defendants and was satisfied that both the Claimants and the Defendants accepted that this document was not legally binding or enforceable, because it does not contain all of the terms of the original joint venture, including, but not limited to the terms relating to the duration of the proposed joint venture and how it would be terminated. It also did not contain terms relating to the proposed renovation of the property and the occupation of the property by the Defendants. The Claimants further submitted that it was not legally binding or enforceable as a matter of law, because it does not comply with the requirements of s.21 of the Law of Property (Miscellaneous Provisions) Act 1989, which the judge accepted.

The judge accepted at [13] for the purposes of the summary judgment application that although there was a dispute about the termination and term of the joint venture there was no long-stop date and the original joint venture would continue until the property was sold.

She also accepted, as was common ground, that the parties entered into another, or alternatively a variation of the terms, of the original joint venture. On the Defendants’ case it was a variation, which she accepted for the purposes of the application. The main terms of the amended joint venture were that the Defendants could rent out the rest of the property to third parties for up to two years. They could carry out further works to the property at their own expense using the rental income for that purpose and, that upon sale of the property, the Claimants would retain sums which would go up by three per cent per annum from the figures provided in the original joint venture. That would amount to 3% the property was sold before 1 January 2009 and a further 3% if completion took place before each of 2010, 2011 and 2012.

She recorded that the amended joint venture was partly evidenced in writing by an undated document which was signed by all parties. The judge noted that this was a very bare document. There was some dispute about when it was signed, but nothing turned on that. There was dispute about the term of the amended joint venture, and she accepted the Defendants’ case, for the purpose of the summary judgment application, that it continued irrevocably forever until such time as the property was sold.

She noted that both Claimants and Defendants accepted that this document was not legally binding and enforceable, in that it does not contain all of the terms of the amended joint venture or the terms of the licence to occupy and did not comply with s.21 of the Law of Property Act.

She then recorded at [19], in a passage which I consider to be important, the following:

“The Defendants’ amended defence and counterclaim does contain a few additional facts which I will accept as assumed facts for the purposes of this application to the extent that they are relevant: the first one being that the Defendants say that it was the intention of the parties at the time of the joint venture that the Defendants would not attempt to sell the property until after 1 January 2012. I will assume that is true. I do not think it is relevant.”

She further stated that:

“Since that date, renovations and marketing the property for sale continued through 2013 and into 2014 and an offer was received in October 2014 for purchase of the main house but not the Cottage for just shy of £1.3 million. The Claimants refused to sell the property at that price, in breach of the parties’ agreement in the amended joint venture, which on the assumed facts continues in force and I accept those facts, as I say.”

Accordingly, at this stage of the judgment, the judge had concluded that there had been a breach of the amended joint venture agreement by the Claimants, which continued in force.

At [23] she referred to the Claimants’ submission that the Defendants’ counterclaim and their defence, must fail in the light of the Cobbe case on the basis that it was essentially indistinguishable. She set out various aspects of the Cobbe case and at [26] explained that Cobbe was authority for two main principles of relevance to this case. The first was that a proprietary estoppel cannot be found in unconscionable behaviour and that it requires an underlying proprietary claim that the defendant could not be estopped from asserting; and second, that a constructive trust can only arise where as a result of a promise made in this case to the defendant, the claimant has acquired a right. Therefore, it is only relevant where the defendants’ reliance contributed to the claimant acquiring a right in a property, for example. It cannot apply where the promise that has been relied on, by the Defendants in this case, was made after the person making the assurance already owned the property.

She cited [14] and [15] of the judgment of Lord Scott in the Cobbe case which made the point that where there was an agreement in principle, but terms still remained for negotiation, that was a contractually incomplete agreement which the parties knew was not legally binding. She referred to the judgment of Lord Scott at [25] where he said:

“The reason why, in a 'subject to contract' case, a proprietary estoppel cannot ordinarily arise is that the would-be purchaser's expectation of acquiring an interest in the property in question is subject to a contingency that is entirely under the control of the other party to the negotiations... The expectation is therefore speculative.”

She concluded at [31] that:

“So those are the two main points that come out of Cobbe and those are the points upon which the Claimants rely. The case that is relied on by the Claimants is specifically that the case on proprietary estoppel must fail because the joint venture was not legally binding and both the Claimants and the Defendants knew it was not legally binding and accordingly the Defendants’ cannot have acted in the belief that they had a legal right to obtain an interest in the property and a legally enforceable claim; Rather, they acted in the belief that the Claimants would share the proceeds of eventual sale of the property with them in the terms agreed. The Claimants’ position is that even if that is the case and the agreement continued as the Defendants claim it did, and a buyer was found and the Claimants did not agree to sell in breach of the oral agreement between the Claimants and the Defendants, the court may consider that to be unconscionable behaviour but following the case of Cobbe the Claimants submit that is not enough. The Claimants cannot be estopped from denying something, namely the unenforceability of the joint venture, which is (i) true as a matter of law and, (ii) not something the Defendants themselves either believed or now assert.”

So the essence of the judgment is that the amended joint venture relied upon by the Defendants was not legally enforceable and that the deficiency could not be answered by a claim either for proprietary estoppel or constructive trust in the light of Cobbe v. Yeoman. In reaching this conclusion the judge did not refer to the Particulars of Claim, which, of course, is the foundation for any application for summary judgment.

The amended Particulars of Claim at paragraph 8 positively assert that by a series of conversations, emails and letters between the Second Claimant on behalf of the Claimants and the Defendants between October 2006 and November 2006, the Claimants and Defendants reached an agreement. Various express and implied terms are relied upon. It is pleaded at paragraph 10 that the agreement is evidenced in part by a letter dated 9 December 2006 from the Second Claimant to the Second Defendant and by a letter dated 19 January 2007 drafted by the Defendants’ solicitors, Messrs Clifton Owen, copies of which were attached to the Particulars of Claim.

It is then pleaded that in around 2008 or early 2009 the Second Defendant told the Second Claimant that because of the recession it was unlikely the property would be sold at a price that would be acceptable to either party and the Defendants did not have any funds to renovate the property. The Second Defendants asked the Second Claimant to extend the date by which the property must be sold and suggested that the property be let to raise funds to renovate the property. Paragraph 12 claims that the Second Claimant on behalf of the Claimants and the Defendants expressly orally agreed to vary the agreement. Paragraph 13 recorded that the amended agreement was evidenced in a document drafted by Messrs Frances Lindsay & Co, a copy of which was signed by both parties. It is then alleged that, in breach of the agreement and the amended agreement, the Defendants converted the swimming pool into a separate residential address and as a result of the Defendants’ breach, the Claimants suffered loss and damage. In addition to possession of the property, damages were claimed, and HHJ Clarke granted the Claimants an enquiry as to damages.

I do not consider that it was open to the judge to conclude that the Claimants and the Defendants both agreed that the agreement was unenforceable when the Particulars of Claim positively alleged that it was an enforceable contract. She should not, in my judgment, have granted a summary judgment which was contrary to the basis upon which the claim was pleaded by the Claimants. It would have needed a significant amendment to the pleadings before the Claimants could claim summary judgment Mr Upton accepted, in his frank and fair submissions, that the order for damages against the Defendants cannot be supported on this appeal.

However, the issue has further implications. The judge decided, based on assumed facts, that there had been a breach by the Claimants of the amended joint venture agreement. That is inconsistent with her finding that there was no enforceable agreement because the terms were incomplete. An unenforceable agreement cannot be breached. Therefore, there is an error of law and an error of principle in the judgment. Mr Upton submits that it is immaterial and is based on over-analysis of an unreserved judgment. I do not agree, for the reasons that I have already indicated. Given that both sides had pleaded that there was an enforceable agreement, the judge to conclude, on assumed facts, that there had been a breach of it by the Claimant in refusing the relevant offer.

I now turn to the question of whether the facts of the instant case are materially distinguishable from the Cobbe case. I believe that they are for the following reasons, which Mr Upton very fairly pointed out to me. First, in Cobbe there were terms that were fundamental to the performance of the agreement, which had not yet been agreed. Here there were no such terms. The parties had their different versions of the mechanics as to how the agreement should work. The judge accepted t for the purposes of the summary judgment application that the Defendants’ case on the facts should be accepted. This meant that there was a workable agreement.

Secondly, in Cobbe the parties were much more sophisticated and more experienced, than the Defendants in the present case and had legal advisors to advise them about the effects of agreement at a much earlier stage. Thirdly, whilst the judge referred to one of the documents which bore the heading “subject to contract” it was arguable that the agreement had been made before that document had come into existence.

Mr Upton, in accordance with his duty to present to the court authorities which did not favour his clients’ case, drew my attention to the case of Dowding and Anr v. Matchmove Limited [2017] 1 WLR 749. This was decided after HHJ Clarke gave her judgment. In Dowding the Court of Appeal considered the Cobbe case and held this distinguishable from the facts before them. The headnote points out that s.21 of the Law of Property (Miscellaneous Provisions) Act 1989 required a contract of sale other dispositions of interest in land and all its express terms would be in writing, but s.25 provided that that should not affect the creation or operation of resulting implied or constructive trusts.

In Dowding, both parties agreed that the agreement would be binding immediately. The terms of the agreement were sufficiently clear as to the extent of the land in question, the interest which the Claimants were to obtain and the price which was to be payable. The judge at first instance had concluded that the ‘subject to contract’ label on the correspondence was not material as it followed the agreement which the parties had already made and which they regarded as immediately binding.

The Court of Appeal considered the Cobbe case at [30] and decided that the judge was right in his conclusion that the case before him was distinguishable on the basis that there was a workable agreement, which was intended to be immediately legally binding.

In my judgment, and for the reasons which I have set out, the present case is distinguishable from the Cobbe case and, arguably at least, there is a defence that there was an immediate legally enforceable contract on the basis of both sides’ pleadings.

The next issue which I must consider is the question raised by Nugee J when granting permission to appeal, namely whether it is arguable, in the alternative, that the Defendants mistakenly believed that there was a binding contract and therefore, they had an arguable defence on that basis of either estoppel or constructive trust.

Mr Upton made the point that this is a new point which was not argued in the court below which the Defendants should not be permitted to raise on appeal. I would have had some sympathy for this argument, except for the fact that the summary judgment application was brought on without proper notice, as a result a change of position by the Claimants when they found that they could not call their main witness. Therefore, In my judgment it is fair to allow this point to be argued, in the circumstances of this case.

Mr Upton questions whether there was any evidence to support the proposition that the Defendants had the mistaken belief that the contract was enforceable, if it was indeed a mistake. This was the first day of the trial, and so the evidence was complete. Having examined the witness statement of Mr Saunders, which was prepared for the trial, I consider that there was evidence which supported the proposition that the Defendants did have this belief. I do not say that it is anything more than arguable, on the basis that cross-examination might well have elucidated that this was not the case. However, Mr Saunders said at paragraph 10 of his statement that: “the nature of the relationship between the two parties left me in no doubt that the Claimants would honour the agreement so much so that it was not even a consideration when studying the agreement.” That evidences a belief that the original joint venture was legally binding.

Furthermore, in relation to the amended joint venture, Mr Saunders said in his witness statement:

“As far as I am concerned the agreement was drawn up to outline the financial side of the joint venture. The agreement goes much further than that. The agreement goes back to the relationship between the two families and the trust that existed and I would not have entered into this agreement if I had any doubt about the integrity of [the Claimants] and put at risk the equity that I received from my previous home.”

Mr Upton submits that on cross-examination, that passage might turn out to be a point against any argument of the mistaken belief. However on its face the final sentence which claims that but for the relationship between the two families the Defendants would not have entered into the agreement, supports a belief that the agreement was legally binding.

However, that is not an end of the matter, because Mr Upton points out that it is not sufficient for a claim, either for proprietary estoppel or constructive trust, merely to hold a mistaken belief that an agreement is binding. In addition, must be reliance upon a representation and some substantial detriment. The judge felt it unnecessary to decide this question, because she considered that given her findings that there was no legally enforceable agreement it did not arise, although it is fair to say she was somewhat sceptical about the possibility of establishing such detriment.

I must also consider whether, if there was substantial detriment, any countervailing benefit acquired by the Defendants as a result of their reliance outweighs any such detriment.

Because of the Defendants’ failure to comply with the Unless Order, passages which, in my judgment, plainly supported detriment were struck out and the Defendants were debarred from denying that the works at the property did not comply with building regulations. That is extremely unfortunate, but as I have said, it was caused by the Defendants failure to comply with court orders, as to which there is no excuse.

The Defendants were therefore only entitled to rely on the following matters in support of a claim of detriment. First that the Defendants had relied on their entitlement to occupy the property in order to provide themselves with a home and secondly, that the Defendants have not sought alternative employment.

Mr Upton submitted that the first proposition concerning entitlement to occupy the property was a benefit and not a detriment. Having looked at the case in the round, it seems to me that the underlying facts are as follows: the Defendants sold their house which they had previously owned before moving in to the property and had, after payment of the mortgage and other expenses, capital of about £100,000. Had it not been for their belief that the contract was binding, they would have spent that money elsewhere, probably in acquiring their own property. The fact that they did not do so and instead occupied the property, is, in my judgment, arguably substantial detriment. Secondly, the fact that the Defendants spent several years occupying the property rather than moving elsewhere and finding other employment, believing that the agreement was binding, is arguably substantial detriment. I do not suggest that these claims will necessarily succeed at trial, but that is not what I am considering. I am considering whether the case is arguable on assumed facts.

In my view this appeal succeeds and summary judgment should not have been granted. I believe that the correct course is to allow both parties to consider amendments to their existing pleadings. First, if the Claimant wishes to argue that the agreement is unenforceable it must make that clear rather than positively relying upon breaches of an enforceable agreement. Secondly, if the Defendants wish to allege that, if the agreement is unenforceable they had a mistaken belief as to its enforceability, that must also be pleaded.

So, for all those reasons I intend to allow this appeal and will hear both parties on the form of order.