Inglorest Investments Ltd v Campbell & Anor [2004] EWCA Civ 408

Case No A3/2003/1708[2004] EWCA Civ 408
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION MR DAVID MACKIE QC
SITTING AS A DEPUTY HIGH COURT JUDGE
Venue Royal Courts of JusticeDate Friday 2 nd April 2004
Strand,
London, WC2A 2LL
Before
LORD JUSTICE MUMMERYLORD JUSTICE MAURICE KAYSIR MARTIN NOURSE
Between
INGLOREST INVESTMENTS LTDAppellantROBERT CAMPBELL & ANRRespondent
(Transcript of the Handed Down Judgment ofSmith Bernal Wordwave Limited, 190 Fleet StreetLondon EC4A 2AGTel No: 020 7421 4040, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
MR ISAAC JACOB & MISS SHEILA FOLEY (instructed by Morgan Cole) for AppellantMR RODNEY STEWART SMITH (instructed by Cumberland Ellis Peirs) for Respondent
JudgmentLord Justice Mummery :The Dispute
[1]This is an appeal (with permission granted by Aldous LJ) from an order made by Mr David Mackie QC, sitting as a Deputy High Court Judge in the Chancery Division. On 15 July 2003 he made a declaration that the freehold interest in 18 Queensgate Place, London SW7, registered at HM Land Registry under Title No NGL 84280, (the Property) was part of the estate of the late Mr Stephen Dean. The respondents, Mr Robert Campbell and Mr Dennis Winckless, for whom Mr R Stewart Smith appears, are Mr Dean’s personal representatives. The deputy judge dismissed a counterclaim by the appellant, Inglorest Investments Limited (Inglorest), for whom Mr I Jacob appears, for an order transferring the freehold interest in the Property to it and he ordered the cancellation of a caution entered by Inglorest against the freehold title on 12 August 1997.[2]The dispute between the estate and Inglorest, a company once owned by Mr Dean, about the beneficial ownership of the freehold interest in the Property is part of a long running struggle between rival groups of beneficiaries in Mr Dean’s family. This case turns on the circumstances in which the freehold reversion of the Property was acquired in the name of Mr Dean as long ago as September 1968. At that time, although Mr Dean was still the beneficial owner of all the shares in Inglorest, he had put the company into members’ voluntary liquidation over four years earlier on 25 March 1964. Long before the decision was made to wind up the company Inglorest had acquired the beneficial interest in a long lease of the Property. In March 1960 Inglorest had entered into a formal contract with Mr Dean to buy the lease from him and had paid him the contract price.[3]In these proceedings Inglorest’s claim to the freehold title is put in two mutually inconsistent ways: (a). Contract for sale According to this claim, which has always been and remains the primary case, Mr Dean purchased the freehold interest himself from a third party for £6,500 in September 1968. He then orally agreed to sell it for £9,550 to his company Inglorest, which was by then in the 4th year of being wound up. It is claimed that the agreement was made just a few days later, on about 29 September 1968. Nine years earlier, and well before the liquidation of Inglorest began, Mr Dean had himself acquired and then agreed to assign the residue of a long lease of the Property to Inglorest, although the leasehold interest remained registered in his name for many years after the transaction. The freehold interest was registered in Mr Dean’s name on 28 October 1968, a month after the alleged agreement. No written memorandum of any contract has been found. Inglorest’s case is that it is entitled to an order against Mr Dean’s personal representatives for the transfer of the freehold to it on the basis that there has been part performance of the claimed contract, alternatively that equity requires that a constructive trust should be imposed in its favour to give effect to the common understanding of the parties. (b). Resulting Trust According to this alternative claim, which was first advanced several years after the initial assertion of a contract claim and has never been at the forefront of Inglorest’s case, Mr Dean bought the freehold interest in the Property from a third party with Inglorest’s money. If that was so, Inglorest was the true purchaser and it became beneficially entitled to the freehold under a resulting trust. The estate stands in the same position as Mr Dean did.[4]Mr Dean died over 20 years ago. With the passage of time there are inevitably evidential problems in establishing the facts and in discovering exactly how Mr Dean financed the purchase, why a company in liquidation would have agreed to purchase the freehold title from him and why, if he had agreed to sell the freehold to Inglorest, he registered the freehold title in his name. The Facts: chronological.[5]Mr Dean was a solicitor in the firm of Randolph & Dean. He was also a wealthy property dealer. In August 1959 he acquired a long lease of the Property at a premium of £4,257. The term of the lease was 60 years from 24 June 1956. The annual ground rent was £50.[6]On 31 March 1960 Mr Dean agreed to assign the residue of the term to Inglorest (then called English & Scottish Properties Ltd). The parties entered into a formal written contract. The purchase price of £15,950 was paid by Inglorest, but the sale was not completed until many years later. The lease remained registered in the name of Mr Dean under Title No. NGL 185286 until 1987, when it was registered in the name of Inglorest. Initially the lease was more valuable than the freehold reversion, but the relative values were reversed as the lease ran out.[7]On 25 March 1964 Inglorest went into members’ voluntary liquidation. 40 years later it is still in liquidation. During the course of the winding up Inglorest has always been substantially in surplus and the liquidator made capital distributions on a regular basis to Mr Dean as the sole beneficial shareholder. The evidence does not explain the reason for the liquidation in the first place nor why it has dragged on for so long. There have been a succession of liquidators. Two of the earlier liquidators, Mr Spence and Mr Quick, who might have been able to give relevant evidence, have died. The present liquidator is Mr Knight.[8]On 27 September 1968 Mr Dean acquired the freehold reversion of the Property from Crown Lodge (Surbiton) Properties Ltd. The purchase price was £6,500. That sum and a sum for legal costs (£86.11) were recorded in the documents kept by Mr Dean’s legal firm as debited to a current account maintained by him with Inglorest. The freehold was transferred to Mr Dean on 27 September 1968. It was registered in his name under Title No.NGL 84280 on 24 October 1968, subject to the long lease also registered in his name. Both titles were still registered in his name at the time of his death in 1983. For three years or so after Mr Dean’s death the personal representatives and the liquidator of Inglorest proceeded on the basis that the freehold belonged to Inglorest. Views changed, however, in 1986. There was correspondence between the liquidator of Inglorest and the personal representatives of Mr Dean in 1987 on the footing that the estate would sell the freehold of the Property to Inglorest. The then liquidator, Mr Spence, had come to the view that, although Inglorest was entitled to the lease, the freehold was part of Mr Dean’s estate. Mr Edwards also concluded that Inglorest had not purchased the freehold, though without, Mr Jacob commented, explaining why he had changed his mind on the question. The liquidator’s half yearly statements for 1987 were filed on the basis that the lease, but not the freehold, was included in Inglorest’s assets. Since 10 March 1989 the freehold has been registered in the name of Mr Dean’s personal representatives.[9]Inglorest relies on contemporaneous documents, referred to below, to support its claim that either the initial purchase price of £6,500 and the legal costs were paid out of its money or that it paid £9,550 to Mr Dean under an agreement for the purchase of the freehold reversion from him. According to the documents the sum of £9,550 became available to Inglorest on the sale on 29 September 1968 of another its leasehold properties, 9 Queensgate Place.[10]In the admitted absence of a written memorandum evidencing an agreement for the sale of an interest in land, part performance is relied on in support of the claim that the contract is enforceable or that the freehold interest in the Property is held on a constructive trust for Inglorest.[11]I should also mention other dealings by Mr Dean with his assets. Between 1970 and 1972 Mr Dean transferred assets to Gibraltar, where he had already made family settlements. On 5 August 1981 Mr Dean sold his shares in Inglorest to Valaton Property Co Ltd (Valaton), a company registered in Gibraltar. The shares in Valaton were owned by the trustees of three discretionary settlements made by Mr Dean. The beneficiaries under those trusts include Mr Dean’s common law wife, Elizabeth, and his daughter Margaret, but not his daughter Bernadette.[12]On 17 March 1983 Mr Dean died at the age of 83. The beneficiaries of his estate were his daughters Margaret and Bernadette by his wife Jill. Probate of his will was granted on 9 September 1983. Litigation about the estate broke out and was not resolved until a compromise was reached in 2001.[13]On 28 April 1987 Inglorest was registered as proprietor of the leasehold interest in the Property. On 8 March 1997 Inglorest sold the leasehold interest in the Property to Valaton. At about that time Inglorest, through its liquidator, first made a claim to the beneficial interest in the freehold.

The Judgment

[14]At the trial oral evidence was given by two witnesses on behalf of the estate: Mr Colin Edwards, a chartered accountant, and Mr David Davies, a solicitor with Randolph & Dean. At various times each of them had acted for Mr Dean, Inglorest and the estate. Understandably each of them found it difficult to remember events that had occurred over thirty years ago. No oral evidence was given on behalf of Inglorest. Its case was mainly argued on the documents.[15]The Deputy Judge reached the following conclusions. (1). The evidence The evidence of a sale contract or other transfer of the beneficial interest in the freehold to Inglorest in September 1968 was “thin and equivocal.” He was not satisfied that Inglorest acquired any right to the freehold in September 1968. That finding disposed of the claims based on contract and resulting trust. (2). Part Performance He rejected Inglorest’s contention that there was part performance of a contract in the form of(a) the payment by Inglorest to Mr Dean of the sum of £9,550; and(b) the fact that in September 1968 Inglorest ceased to pay the £50 annual ground rent under the lease. He was not satisfied by the evidence that the sum of £9,550 was in fact paid to Mr Dean. Even if it was paid to him, the payment was not an act of part performance nor was the cessation of the ground rent. Any contract that was made between Mr Dean and Inglorest was rendered unenforceable by s 40 of the Law of Property Act 1925. (3). Constructive Trust He rejected the unpleaded case that a constructive trust arose from a common understanding or belief that Inglorest was the owner of the freehold by virtue of the 1968 transaction and that it was unconscionable for Mr Dean’s estate to renege on it. No common understanding was established on the evidence and, in any event, the imposition of a trust in the circumstances of this case would render pointless the statutory requirements of writing or part performance, which were not satisfied. (4). Laches He was not satisfied that there was the requisite inequity to bring into play the doctrine of laches invoked by the personal representatives. They relied on the substantial delay and on the fact that in 1986 the then liquidator of Inglorest, Mr Spence, had admitted that the estate was entitled to the freehold and had even offered to purchase it. Thereafter no contrary claim was asserted until 14 August 1997. The delay resulted in the loss of evidence: Mr Spence had died; the recollection of other witnesses would have been less firm and precise; and documents had been lost e.g the client account ledgers of Randolph & Dean.

The Issues on the Appeal

[16]Inglorest appeals against the rulings that there was no resulting or constructive trust, no contract and no part performance. There is a respondent’s notice against the rejection of the plea of laches. A. Source of Purchase Price and Resulting Trust[17]The logical starting point is to ascertain the source of the £6,500 paid for the acquisition of the freehold reversion in September 1968. If Mr Dean used money belonging to Inglorest, then that company was the purchaser of the freehold. On well established principles, a resulting trust would arise in favour of Inglorest and it would be binding on his estate.[18]Although a resulting trust was pleaded and was referred to in the judgment (paragraph 31) the deputy judge did not specifically deal with it as a separate point, apparently because Inglorest’s claim was narrowed at the trial to an agreement to transfer the legal title or to a transfer of the beneficial interest (see paragraph 32). The resulting trust point was, however, expressly taken by Inglorest on the appeal in the form of an unopposed amendment adding an additional ground of appeal (allowed on the usual terms as to costs). The personal representatives did not oppose the amendment, though they commented that it was of no substance and was contradictory to Inglorest’s main case :
“6. In the further alternative by reason of the fact that the Defendant’s monies were used for the purchase of the Freehold and Mr Dean’s clear and frequent statements that the Defendant was the owner of the Freehold and that he was not, the Claimants held the Freehold on trust for the Defendant.”
[19]The difficulty with this ground of appeal is that, in accordance with Inglorest’s primary case of a contract for sale by Mr Dean to Inglorest, the judge found as a fact that Mr Dean paid the sum of £6,500 for the freehold (paragraphs 9 and 10). He was able to pay the price from money available to him because, in the course of the liquidation of Inglorest, its properties were sold from time to time by the liquidator, who made capital distributions to Mr Dean, as the sole beneficial owner of the shares. The judge found that- “ The company operated what was in effect a current bank account with Mr Dean making distributions to him through the books and bank account of Randolph & Dean. Transactions by Inglorest were recorded as entries in its client account at the solicitors Randolph & Dean. As and when properties were sold distributions were credited to Mr Dean’s account with the Company and payments made to him or debited on his behalf. Among the extracts on one ledger “SR Dean Current Account” there are journal entries including a debit to him of £6,500 “Freehold 18 Queensgate” dated 25th September 1968. On the same day there is “Randolph & Dean £34,250” and “ditto” for shares. There is a further debit of £86.11 six months later, on 25th March 1969 for the purchase costs of the freehold.”[20]The deputy judge accepted the submission of the personal representatives that, in his current account with Inglorest, Mr Dean was debited with the purchase price of the Property and the purchase costs. The journal entries were consistent with a purchase by Mr Dean himself. If the freehold had been bought by Inglorest, Mr Dean would not have been charged the purchase cost. The deputy judge also referred to the half yearly statements of the liquidator to 25 September 1968 and 25 March 1969. He noted that they made no reference to a purchase of freehold property by Inglorest, acting by its liquidator, or to payment of legal costs. I regard that omission as particularly significant. Mr Edwards gave evidence that he inspected Inglorest’s ledgers in 1998 and found no evidence of any purchase of the freehold by Inglorest.[21]This much is clear: Inglorest cannot have it both ways. Its primary pleaded case was that it agreed to purchase the freehold from Mr Dean. That presupposed that Mr Dean was the beneficial owner of the freehold to be sold. Its secondary case of resulting trust presupposed that Mr Dean was not the beneficial owner of the freehold and that Inglorest was, as it had been allegedly purchased in his name with Inglorest’s money. If that was the case, Mr Dean would have had no beneficial interest to sell to Inglorest, which would have already been entitled to the beneficial interest under a resulting trust. Inglorest cannot credibly complain on this appeal that the judge has found as a fact that Mr Dean was entitled to the beneficial interest, which, according to Inglorest itself, it agreed to buy from him. Inglorest’s appeal on this point must fail. B. Contract for sale[22]The deputy judge held that the title registration reflected the true ownership of the freehold and that the evidence did not warrant a finding that there was an agreement or common intention in 1968 to vest that interest in Inglorest. It was submitted on behalf of Inglorest that the judge drew the wrong inferences from the primary facts and came to the wrong conclusion. The right conclusion was that the sum of £9,550 available to Inglorest on the sale of 9 Queensgate Place, which was sold on the same day for £10,500, was used by Inglorest to purchase the freehold from Mr Dean.[23]Inglorest relied strongly on a spreadsheet prepared in 1968 by Mr Wilkinson, who worked for Mr Edwards. It contained entries showing that on 29 September 1968 Inglorest sold 9 Queensgate Place for £10,500; that under “sundries” Inglorest had purchased the freehold Property for £9,550; that Inglorest had only received the balance of £1,019-1-0 from the sale of No 9, as evidenced in the half yearly statement of the accounts for Inglorest’s properties, and that £9550 of the sale price had been used for another purpose. Mr Dean had taken the sum, which was due to Inglorest, for himself, as the purchase price of the Property. Contrary to the mistaken understanding of the judge the spreadsheet was drawn up in 1968 (not in 1973, as the judge said in paragraph 15 of his judgment) showing receipts and payments drawn from journal entries. The details were carried forward and repeated without amendment or correction in the ensuing half yearly spread sheets produced by Mr Wilkinson. Mr Jacob submitted that the deputy judge had failed to give the spreadsheets, which had been relied on later by Mr Edwards to make capital gains tax calculations, the weight that they deserved. His mistake about the date of the spreadsheet deprived this part of his judgment of any validity.[24]Inglorest relied heavily on other documentary evidence from 1969 onwards, indicating that Mr Dean himself, those advising him, in particular Mr Edwards, the personal representatives and the liquidator of Inglorest all believed that the entirety of the Property belonged to Inglorest, not to Mr Dean or to his estate. It was argued that there was ample material in various documents, taken together with the spreadsheets, from which the judge ought to have inferred that Mr Dean had made a contract with Inglorest in September 1968 to sell the freehold to it for £9,550. Mr Jacob took the court in detail through all the documents relied on. They fall into the following main categories.(1) At various times Mr Dean made manuscript lists and notes showing the Property as an asset of Inglorest, or not showing the Property as his own asset. (It was accepted, however, that in 1977 he had used the deeds of the leasehold and freehold titles to secure a personal loan from Barclay’s Bank.)(2) In 1982 Mr Edwards, together with Mr Dean and Mr Spence (the then liquidator of Inglorest), produced for the Inland Revenue a capital gains tax valuation of the shares in Inglorest. The calculation, which must have been based on the spread sheets, showed Inglorest as having purchased the freehold of the Property for £9,550 on 29 September 1968 and 9 Queensgate as having been sold for £10,500 on the same day. The shares in Inglorest were valued on the basis that Inglorest was entitled to the Property.(3) Shortly before his death Mr Dean attended a conference with tax counsel, his solicitor and Mr Edwards. Mr Dean’s tax affairs, in the context of mitigating estate duty, were discussed on the basis described in the Instructions to Counsel, that the freehold interest in the Property did not belong to Mr Dean.(4) The freehold was not treated as part of Mr Dean’s estate for the purposes of capital transfer tax. Until the change of view in 1986 described above the administration of the estate had proceeded on the basis that the freehold belonged to Inglorest and not to the estate. Capital transfer tax has been paid since the change of view in 1986 on the basis that the freehold was beneficially owned by Mr Dean.[25]Mr Jacob also contended that the judge had wrongly applied the burden of proof. He argued that the burden was on the personal representatives and not on Inglorest, in whose favour the presumption of regularity and legality applied. As it was accepted for a long time by all those concerned that Inglorest was the freehold owner of the Property and it was only much later in 1986 that a volte face occurred, it should be presumed that there was a lawful origin to Inglorest’s title and it was for the personal representatives, who were asserting a different state of affairs, to discharge the burden of proof. Mr Jacob cited Davis v. Whitby [1974] 1 Ch 186 at 196 and Halsbury’s Laws Vol 17(1) at paragraph 583.[26]In my judgment, the judge reached the right conclusion on the contract point. He applied the correct burden of proof and he was entitled to find the facts that he did. The authority cited was far removed from the situation in the present case. The burden was clearly on Inglorest to establish what it was asserting, namely that, although the freehold was registered in Mr Dean’s name,(a) Mr Dean orally agreed to sell the freehold to Inglorest and(b) Inglorest paid him £9,550 for it.[27]As for the documents, other than the Land Registry entries, it is true that they are evidence that Mr Dean, Mr Dean’s advisers, the liquidator of Inglorest and the personal representatives thought that the entirety of the Property was with Inglorest rather than with Mr Dean. It is also the case that the deputy judge was mistaken in his treatment of the spreadsheet as a 1973 document when it was a 1968 document. Nevertheless I have reached the conclusion that the documents relied on by Inglorest do not give rise to a compelling inference that what Mr Dean and others thought, after the event, was the case about the beneficial ownership of the freehold was in fact the case, either in fact or in law. The contents of the documents have to be considered against the background fact that, throughout the relevant period, Inglorest was indisputably entitled to what was then the valuable beneficial interest in the Property, namely the lease. The deputy judge was entitled to decline to draw the inference contended for by Mr Jacob that the documents were proof of an oral agreement by Mr Dean to sell the freehold reversion to Inglorest.[28]Against the inference which Mr Jacob invited the court to draw from the documents are the facts that(a) after the alleged making of an oral contract the freehold was nevertheless registered and remained registered in the name of Mr Dean;(b) the half yearly statements filed by the liquidator of Inglorest under s 342 of the Companies Act 1948 did not show any expenditure by the liquidator on the acquisition of the freehold of the Property; and(c) perhaps most telling of all, it is inherently improbable that, in the absence of a satisfactory explanation for it, Inglorest would have agreed to purchase the freehold from Mr Dean at a time when the company was being wound up and when capital distributions were being credited to him through his firm, in the manner described, as the sole shareholder in Inglorest. C. S 40 Law of Property Act 1925[29]It was common ground that s 40 applied in this case and that there was no written memorandum of the alleged contract satisfying the statutory requirements. The personal representatives naturally relied on s 40. The burden was on Inglorest to establish part performance. The deputy judge held that Inglorest was not entitled to rely on the doctrine of part performance in the form of the cessation of ground rent and the payment of the sum of £9,550 on 29 September 1968.[30]Mr Jacob submitted that the deputy judge wrongly held that there was insufficient evidence of part performance to satisfy s 40 of the Law of Property Act 1925. He cited Steadman v. Steadman [1976] AC 536 at 541, 565 and 570 for the proposition that there was no general rule against the payment of a sum of money constituting an act of part performance for the purposes of s 40. It was necessary to look at the surrounding circumstances, including payments of money, to see if they pointed to some oral contract consistent with the alleged contract.[31]The part performance point fails on the facts. The judge found, and was entitled to find, that the evidence did not establish that Inglorest had in fact paid the sum of £9,950 to Mr Dean for the freehold of the Property. As for the cessation of the payment of the ground rent he correctly concluded that that fact did not evidence a contract by Inglorest to buy the freehold from Mr Dean. D. Satisfaction of equity by constructive trust[32]The contention of Inglorest, rejected by the judge, was that, if there was no part performance, an equity had been raised in Valaton and Inglorest should be treated as the owner of the Property in accordance with Valaton’s belief. That belief was based on Mr Dean’s “clear and frequent statements” that Inglorest was the owner of the freehold and that he was not. Equity should impose in its favour a constructive trust of the freehold interest. That submission also fails on the facts. The evidence did not establish that there was a common intention that the freehold interest should vest in Inglorest. In the absence of proof of payment of the purchase price by Inglorest, it is difficult to see how a constructive trust could be established in its favour. The judge was also right to be cautious in allowing the doctrine of constructive trust to be used to circumvent the statutory requirements for either a written memorandum or acts of part performance

E.Laches, acquiescence and delay as bar to Inglorest’s claims

[33]The deputy judge was unconvinced “that there is the requisite inequity for laches to come into play.” According to the Respondents’ notice the deputy judge should have dismissed Inglorest’s claim by reason of laches, acquiescence and delay.[34]Mr Stewart-Smith submitted that there had been a substantial lapse of time before the proceedings were issued, coupled with circumstances which made it unconscionable for Inglorest to be permitted to assert its rights to the Property. He pointed out that the plea of laches is available to a person against whom it is alleged that he holds the disputed asset as a bare trustee under an uncompleted contract: Joyce v. Joyce [1978] 1 WLR 1170 at 1174F-1175G. In this case, he submitted, it would be unconscionable to allow Inglorest to assert its claims, as it had conceded ownership to the estate in 1986 and had not then challenged it until 1997. In the meantime the estate, in reliance on the concession, had paid capital transfer tax on the basis that the freehold was part of Mr Dean’s estate and evidence had been lost, which might otherwise have been available to rebut the claim by Inglorest. Mr Spence, who might have been able to explain why he was satisfied in 1986 of the estate’s ownership, had died. Other witnesses, who had survived, had difficulty in recalling events of over 30 years ago. Relevant documents, such as the Randolph & Dean client account ledgers for the critical period, had been lost.[35]As I have reached the conclusion that there is neither an enforceable contract for the sale of the freehold to Inglorest nor a resulting trust in its favour, it is unnecessary to decide the laches point. I can say, however, that, if Inglorest had established an enforceable contract to buy the freehold, I would have been slow to allow a defence of laches so as to deprive it of the benefit for which it had paid. There was certainly delay and there was possibly prejudice caused by it, but the delay was all mixed up with the complications caused by the way in which Mr Dean chose to conduct his personal affairs and the affairs of Inglorest.

Result

[36]I would dismiss the appeal. Lord Justice Maurice Kay[37]I agree.

Sir Martin Nourse

[38]I also agree.

Order

Appeal dismissed; Appellant do pay Respondent’s costs of appeal to be subject to detailed assessment if not agreed. (Order does not form part of the approved judgment)