Keay & Anor v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900

Case No A3/2011/2309[2012] EWCA Civ 900
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue BIRMINGHAM DISTRICT REGISTRYCase No 0BM30608
His Honour Judge Barker QC
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 11/07/2012
Before
LORD JUSTICE LAWSLORD JUSTICE RIMERLORD JUSTICE PATTEN
Between
(1) DAVID NORMA KEAYClaimants/Respondents(2) LINDA MARY KEAYRespondentMORRIS HOMES (WEST MIDLANDS) LIMITEDDefendant/Appellant
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7404 1424Official Shorthand Writers to the Court)
Mr John Randall QC and Mr Conrad Rumney (instructed by Gateley LLP) for Appellant, Morris Homes (West Midlands) LimitedMr Jeremy Cousins QC and Mr Andrew Charman (instructed by Moran & Co) for Respondents, Mr and Mrs KeayHearing Hearing date: 19 April 2012
Judgment

Introduction

[1]This appeal concerns the impact, if any, of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 upon the validity of an alleged oral agreement. It is against an order made on 12 August 2011 by His Honour Judge Simon Barker QC in the Chancery Division, Birmingham District Registry. The application on which he made it was issued by the claimants, David and Linda Keay (‘the Keays’), in proceedings they had brought against the defendant, Morris Homes (West Midlands) Limited (‘MHL’), a developer. By their proceedings, the Keays claim damages of some £2.7m for MHL’s alleged breach of an oral agreement promptly to progress certain building works.[2]MHL’s pleaded response to the claim in its amended Defence was(a) to deny that any such agreement was made, and(b) to assert, in paragraph 20, that if such an agreement was made, it was a term of the variation of an agreement for the sale of land made in April 2004 between the Keays and MHL. MHL’s further assertion was that because such term was not incorporated into an appropriate signed document, it was ineffective for its intended purpose for want of compliance with section 2 of the 1989 Act and so was void. The Keays’ riposte was to issue an application for summary judgment against MHL on the paragraph 20 issue, alternatively for its striking out as disclosing no reasonable ground of defence. That was the application that came before Judge Barker.[3]The outcome of that application turned on two questions. First, whether the oral agreement upon which the Keays sued was one to which section 2 applied at all. That turned upon the resolution of the type of issue discussed by this court in Grossman v. Hooper [2001] EWCA Civ 615; [2001] 2 EGLR 82 (‘the Grossman point’). Second, if, contrary to the Keays’ case, the oral agreement was one to which section 2 applied, whether, in the events that had happened, it was in fact void for want of incorporation within a document complying with section 2. That turned upon a consideration of the decision of this court in Tootal Clothing Ltd v. Guinea Properties Ltd (1992) 64 P & CR 452 (‘the Tootal point’).[4]The judge held that the Grossman point could not be decided upon a summary judgment application but only at a trial. He therefore declined to decide whether or not the oral agreement was one to which section 2 applied. If, however, it should turn out at trial that it was one to which section 2 applied, he also held that, in the events that had happened, Tootal showed that MHL’s contention that the agreement was void had no real prospect of succeeding at trial; and he made a declaration accordingly in favour of the Keays. The overall effect of his decision was, therefore, to decide the section 2 issue in favour of the Keays: and, subject to any different outcome on appeal, the Grossman point would not need to be decided at the trial.[5]MHL, the appellant, challenges the judge’s decision on the Tootal point. The Keays, the respondents, resist the appeal and contend that the judge correctly applied Tootal. By a respondents’ notice they also seek to affirm the judge’s order by contending that he was wrong not to decide the Grossman point in their favour. He should, they say, have decided that the agreement was one to which section 2 did not apply at all.[6]John Randall QC and Conrad Rumney represented MHL and Jeremy Cousins QC and Andrew Charman represented the Keays. All counsel also appeared before the judge. We heard the argument on the Tootal point first and that on Grossman point second. I consider it logical, however, to deal with the points in the reverse order. That is because if Mr Cousins is correct that the agreement is not one to which section 2 applied at all, the Tootal point does not arise. I shall, however, first(i) set out the material provisions of section 2;(ii) summarise the facts; and(iii) explain the issues in the litigation more fully.

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989

[7]Section 2 of the 1989 Act provides, so far as material:
‘2. Contracts for sale etc of land to be made by signed writing (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 and 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. ….’
[8]As Lord Neuberger MR, in a judgment with which Smith and Elias LJJ agreed, said in Helden v. Strathmore Ltd [2011] EWCA Civ 452; [2011] 2 EGLR 39:
‘27 … Section 2 is concerned with contracts for the creation or sale of legal estates or interests in land, not with documents that actually create or transfer such estates or interests. So a contract to transfer a freehold or a lease in the future, a contract to grant a lease in the future or a contract for a mortgage in the future are all within the reach of the section, provided of course that the ultimate subject matter is land. However, an actual transfer, conveyance or assignment, an actual lease, or an actual mortgage are not within the scope of section 2 at all. 28 … [Section 2] was directed to tightening up the formalities required for contracts for the creation or transfer of interests or estates in land and it was not concerned with documents that actually create or transfer legal estates or interests in land. ….’
[9]Section 2(1) certainly did tighten up the formalities required for contracts for the sale or other disposition of interests in land. Its effect is merciless. An appropriately signed document purporting to amount to a contract for the sale or other disposition of an interest in land will not in fact create a valid contract unless it includes all the expressly agreed terms of the sale or other disposition. If it fails do so it will be void: see Firstpost Homes Ltd. v Johnson [1995] 1 WLR 1567, at 1571, per Peter Gibson LJ, with whose judgment in this respect Hutchison and Balcombe LJJ agreed. As Briggs J observed, however, when delivering the lead judgment of this court in North Eastern Properties Ltd v. Coleman Ltd and another [2010] EWCA Civ 277; [2010] 1 WLR 2715, one, perhaps unintended, result of section 2(1) is that:
‘43. … It enables parties to land contracts who have changed their minds to look around for expressly agreed terms which have not found their way into the final form of land contract which they signed, for the precise purpose of avoiding their obligations, on the ground that the lack of discipline of their counterparty, or even their own lack of discipline, has rendered the contract void.’
[10]Grossman was a case in which a party sought, unsuccessfully, to escape from a purported contract by adducing evidence of what he said was an expressly agreed term that had not been included in the written document. The present case is, however, not quite of that nature. It is not one in which MHL has advanced the case that there was an expressly agreed term that was not included in any written document. It is the Keays who are seeking to enforce an oral agreement, the making of which MHL disputes; but MHL has also advanced the alternative defence that such agreement, if made, is void for section 2 reasons.

The facts

[11]On 2 April 2004 a written agreement for the sale of six parcels of registered freehold land in Hockley, Birmingham was entered into between(1) Imzax Limited (a company wholly owned and controlled by the Keays, but not a claimant),(2) the Keays (Imzax and the Keays being together the sellers) and(3) MHL, the buyer. The agreement incorporated the first edition of the Standard Commercial Property Conditions. Imzax was selling five of the parcels and the Keays the sixth. The price was £4.5m, of which £1.5m was apportioned to Imzax’s land and £3m to the Keays’ land. A deposit of £50,000 was paid on the signing of the agreement and MHL was to pay the balance by instalments of (i) £1.5m to Imzax on completion, (ii) £1.75m to the Keays 12 months later and (iii) a final payment of £1.2m to the Keays 24 months later. As only part of the balance was to be paid on completion, clause 2.4.4 provided that (a) on completion, MHL was to grant the Keays a charge over two identified parts of the land to secure the total unpaid balance of £2.95m and interest; (b) on payment of the £1.75m, the charge over one part was to be released; and (c) on payment of the £1.2m, the charge over the other part was also to be released. Upon completion, MHL and the Keays were also to enter into an agreement for lease substantially in the form of the draft agreement for lease annexed to the sale agreement. That was to provide for the grant to the Keays, in consideration of a premium of £850,000, of a 125-year lease at a peppercorn rent of part of the land comprising what was called the Medical Centre, the shell of which it was to be MHL’s obligation to build.[12]By clause3.1 the sale agreement was conditional upon the grant to MHL of a satisfactory planning permission (being a full permission for the land for use within Classes A1, B2 and/or C3 of the relevant Use Classes Order) and also upon other conditions, together the ‘purchase conditions’ as defined. Clause 3.3 required MHL within three months of the date of the agreement to apply for the planning permission. Clause 2.2 provided for the completion date to be 20 working days after the satisfaction of the purchase conditions. Clause3.2 provided that MHL could, however, at any time during the ‘conditional period’, by written notice ‘waive the purchase conditions in which event this Agreement shall take effect as if the conditions had been satisfied on the date of receipt by the sellers of the said notice’.[13]The events leading to the Keays’ claims by the present proceedings arose out of MHL’s negotiations with the Birmingham City Council (‘BCC’) as to the terms of an agreement under section 106 of the Town and Country Planning Act 1990, the entry into which would be a condition of the planning permission for which MHL was applying. The difficulty was that MHL considered that BCC was requiring it to make an excessive payment. I explain in the next section of this judgment the nature of the Keays’ claims. What is not in dispute is that in March 2005 the parties to the sale agreement entered into a written supplemental agreement the intended effect of which was to reduce to £3.8m the price payable by MHL for the land.[14]The supplemental agreement was made on 14 March 2005. Clause 1 recited that it was supplemental to the sale agreement and clauses 2 to 5 provided for changes to the total purchase price and instalments payable under that agreement. Their effect was that:(a) the purchase price was reduced by £700,000 from £4.5m to £3.8m;(b) £1m of the reduced price was apportioned to Imzax’s land and £2.8m to the Keays’s land;(c) on completion, MHL was to pay £1m to Imzax and £500,000 to the Keays;(d) MHL was to pay £1.4m to the Keays 12 months later; and(e) MHL was to pay the balance of £850,000 to the Keays 24 months later. Clause 6 provided that, as varied, the sale agreement was to continue ‘to be of full effect and binding on the respective parties hereto as if each and every provision was set out herein.’[15]In June 2005 MHL and BCC reached agreement as to the terms of the section 106 agreement and BCC released the agreement to MHL for execution. On 30 September 2005 MHL gave the sellers a waiver notice under clause 3.2 of the sale agreement, the effect of which was that the purchase conditions were thereupon satisfied (clause 3.7.2). Completion thus became due on 28 October 2005. The parties in fact then agreed to defer completion to 11 April 2006, although the time for paying the two deferred instalments was not also deferred, their time for payment still running from 28 October 2005.[16]The section 106 agreement was entered into in February 2006. The planning permission was issued in February 2006. The sale agreement was completed on 11 April 2006, when the land was transferred to MHL against which MHL paid the sellers the instalment of the purchase price then due from it and granted the Keays (Imzax having no continuing interest) a charge over the two identified parts of the land as security for the remaining instalments. The parties ought on completion also to have entered into the agreement for the grant of the lease back to the Keays of the Medical Centre. By express agreement, they did not do so. They instead agreed to a temporary waiver of their respective rights in that regard, apparently because it was likely that there were to be some revisions to the terms of the lease that was ultimately to be granted. Such revisions were agreed and on 20 December 2007 MHL entered into an agreement for lease with the Keays’s sons, Antony and Jeffery. Neither side suggests that the delay in the entry into that agreement, or that it was in favour of the sons, involved any breach of the sale agreement. The lease itself was granted to the sons on 14 January 2011. In the meantime, on 30 October 2006, MHL paid the Keays the first deferred instalment of £1.4m, upon which there was a partial discharge of the security that MHL had given the Keays on completion. By the end of October 2007, the final instalment of £850,000 was also due from MHL. There was some dispute about the interest also due, but that was resolved by December 2007 when the required payment was made and the security wholly discharged.

The issues in the proceedings

[17]I explained in [13] above that MHL’s negotiations with the BCC as to the terms of the section 106 agreement led to the making of the supplemental agreement providing for a reduction of the purchase price agreed to be paid for the land. There was, however, the Keays assert, more to it than that. They claim that at a meeting on or about 10 March 2005 the parties provisionally agreed that the total price to be paid under the sale agreement was to be reduced by £500,000. This was said to be recorded in a letter of 11 March 2005, which also said that a supplemental agreement would need to be entered into in order to record the reduction. There was then a further meeting between representatives of the parties and the BCC on 14 March 2005. The Keays assert that nothing was concluded at this meeting, but their amended Particulars of Claim, served following the issue of their claim form on 17 August 2010, then assert this:
‘23. Following [such] meeting …, and on the same day, there were further discussions between [Mr Keay] and Mr Lambley of [MHL]. [Mr Keay] agreed on behalf of the [Keays] and Imzax that they would reduce the overall price under the Sale Agreement by a further £200,000, making a total price reduction of £700,000, so that the purchase price became £3.8 million. 24. This agreement to reduce further the price was made on the basis that, in return, [MHL] would enter into the section 106 agreement with [BCC] (which would lead to planning consent) and, following completion of the purchase under the sale agreement, promptly get on with the Block A building works so as to enable the shell of the Medical Centre to be completed, and [the Keays] to gain access to deal with the fitting out works (“the Collateral Agreement”). 25. On the 14th March 2005 a supplemental agreement was entered into recording the reduction of the purchase price to £3.8 million.’
[18]I summarised the supplemental agreement at [14] above. It is significant not so much for what it provided for as for what it did not: in particular, it included no reference to the alleged oral agreement pleaded in paragraph 24 by which MHL is said to have assumed a commitment to enter into the section 106 agreement and, following completion of the sale of the land, to progress the Block A building works promptly (I shall call the latter part of this alleged agreement ‘the works obligation’). The Keays’ claim in the proceedings is for damages for breach by MHL of the works obligation. Their loss is pleaded as being £2,702,983. They also advance an alternative claim in case MHL is correct that the works obligation is void for reasons referable to section 2 of the 1989 Act. If so, they claim that, as the works obligation was not incorporated into the supplemental agreement, the supplemental agreement was itself void as a variation of the sale agreement, from which it follows that MHL still owe them the £700,000 by which the supplemental agreement purported to reduce the original purchase price, and the Keays claim such £700,000. MHL does not dispute the alternative claim in principle (it is the logical consequence of its own case), although it disputes that it can owe the Keays more than £200,000. That is because the other £500,000 came off Imzax’s original entitlement. Imzax, however, is not a claimant and the Keays cannot claim its share for themselves.[19]MHL does, however, dispute the primary claim based on the alleged breach of the works obligation. The Keays’ application before the judge was for summary judgment on the issue raised by, alternatively the striking out of, paragraph 20 of MHL’s amended Defence. I must set that paragraph out:
‘20. If (contrary to [MHL’s] denial hereinabove) [MHL] and [Mr Keay] did orally agree on 14 March 2005 a contractual term that [MHL] would (following completion of the purchase under the Sale Agreement) promptly get on with works to enable the shell of the Medical Centre to be completed, then such oral agreement is void and without legal effect. (a) The said oral agreement would be an agreement for the variation of the Sale Agreement, and so would be an agreement for the variation of a contract for the sale of land. Accordingly, by virtue of the provisions of [section 2 of the 1989 Act], the said oral agreement is ineffective to vary the Sale Agreement (not being made in writing signed by or on behalf of [the Keays] and [MHL]). (b) It is denied that the said oral agreement would be a contract separate and distinct from the Sale Agreement and/or the Supplemental Agreement, and it is denied that it was merely collateral to the Supplemental Agreement. The terms of the said oral agreement would (together with the Supplemental Agreement) be part of a composite transaction to vary the Sale Agreement. Accordingly, the said oral agreement is ineffective by virtue of the provisions of [section 2].’
[20]I shall also, for completeness, set out the Keays’ response in paragraph 7 of their amended Reply:
‘7. Paragraph 20, and the relevance of [section 2] is expressly denied: (a) The Collateral Agreement, which was a separate agreement, had no effect upon the efficacy of the Sale Agreement. Self-evidently this was the case since the Collateral Agreement, in terms, imposed an obligation upon [MHL] in relation to matters following completion of the purchase of [sic: under?] the Sale Agreement. (b) Since the sale of the land has been completed, ands [sic: as is?] expressly admitted by [MHL] at paragraph 24, there remains no executory contract for the sale of land to which the section can apply. Further, or in the alternative, it would be a fraud upon [the Keays] for [MHL] to have taken the benefit of the price reduction pleaded at paragraph 24 of the Particulars of Claim, on the basis of the Collateral Agreement, and having done so now to assert that the same is void and/or unenforceable by reason of the section pleaded, and [MHL] is precluded from doing so.’
[21]Paragraph 7(a) reflects the Grossman point; and paragraph 7(b), the Tootal point.

The Grossman point

[22]The Keays acknowledge that the works obligation pleaded in paragraph 24 of the amended Particulars of Claim is denied by MHL’s amended Defence and that they will have to prove at the trial that such an obligation was agreed. If they can, they say that there is no question of their having also to meet the point that the works obligation is void for want of inclusion in a written agreement complying with section 2 of the 1989 Act. That is because the obligation is not one to which section 2 applied. It is described as a ‘collateral agreement’ in the Keays’ pleading. It is not suggested that that description provides an answer to the section 2 point. It is, however, said that the works obligation was truly collateral to the variation of the original sale agreement by the supplemental agreement.Their case is that it was the Keays’ proposed entry into the supplemental agreement that was to provide the consideration for the works obligation. The works obligation was not therefore itself a term of the proposed supplemental agreement, nor was it an agreement for the sale or other disposition of an interest in land. It was not, therefore, an agreement required to be either in writing or incorporated into any document complying with section 2. It was a freestanding, separately enforceable agreement, which had nothing to do with the sale of the land under the April 2004 agreement and which was only destined to take effect once that agreement has been completed. That is the essence of the Keays’ case as regards the so-called Grossman point.[23]I turn to Grossman [2001] 2 EGLR 82. Mr Hooper bought a property in his sole name in 1986. The purchase was funded with the help of a mortgage loan. Miss Grossman also had a beneficial interest in the property. The two had lived together for some 10 years but their relationship then foundered. In December 1996 they signed a document in the nature of an informal written agreement for the transfer of the property by Mr Hooper to Miss Grossman. It recorded that she was to assume responsibility for the two charges and mortgage to which the property was subject. Mr Hooper failed to transfer the property to Miss Grossman, who sued him for specific performance. His defence raised the point that the December agreement did not include all the terms of their agreement so that it was void as a contract for want of compliance with section 2.[24]The circuit judge found that when the December agreement was made, it was also agreed that Miss Grossman would pay off a debt of £10,000 owed to Mr Modi, a sum advanced by way of a loan to enable Mr Hooper and Miss Grossman to discharge some mortgage arrears. The question was whether that obligation was an express term of the agreement for the transfer of the property to Miss Grossman, in which case it had to be incorporated in a document complying with section 2 and its omission to include it in the December document would vitiate that document as a contract; or whether it was a collateral transaction which did not need to be so incorporated. The judge held that the obligation in relation to the loan was of the latter nature and he ordered specific performance of the December agreement. Mr Hooper challenged that conclusion by his appeal to this court.[25]Chadwick LJ, who delivered the lead judgment, expressed his view, at [19], that it was unhelpful in answering the relevant question to ask whether the agreed Modi arrangement was a collateral agreement. He referred to the language of section 2(1) and observed that the phrase ‘the terms which the parties have expressly agreed’ means the terms (so far as they are not to be implied) upon which the parties for the sale or other disposition have agreed that the relevant interest in land shall be sold or otherwise disposed of. They do not refer to the terms upon which the parties have agreed (albeit contemporaneously) that some other transaction should be entered into. The relevant inquiry was, therefore,(i) upon what terms did the parties agree that the land, or interest in land, was to be sold;(ii) are all those terms incorporated in the document they have signed? Or, said Chadwick LJ at [20], to elide the two stages of the inquiry, did the terms upon which the parties agreed that the land was to be sold include a term or terms that had not been incorporated into the signed document? Chadwick LJ explained that such an inquiry raises a question of fact, which he illustrated at [21] and [22] by the example of a case in which A wishes to buy a house from B, negotiates a price for the house and a price for the carpets and curtains, following which a contract is drawn up for the sale of the house that contains no reference to the sale of the carpets and curtains. He said, at [22], that:
‘… It is obvious that (save in most exceptional circumstances) if a contract for the sale of the carpets and curtains has been made in advance of the contract for the sale of the house, it will be conditional upon the sale of the house. The question is whether the contract for the sale of the house is conditional upon the sale of the carpets and curtains.’
[26]Turning to the facts, Chadwick LJ said that the question was whether Miss Grossman’s undertaking to discharge the Modi loan was a term of the sale by Mr Hooper of his interest in the property to her. He held that, for three reasons, the judge was entitled to find it was not. First, there was a doubt as to whether the liability under the Modi loan was Mr Hooper’s at all, Miss Grossman accepting that it had been primarily hers. Second, the evidence showed that Mr Hooper had deliberately omitted a reference to the Modi loan in the December letter, the most obvious explanation for which was that he did not regard it as a term of bargain for the transfer of the property. Third, for Mr Hooper to take that view was consistent with the position that Miss Grossman was always willing to acknowledge her own obligation to discharge the Modi debt in exoneration of Mr Hooper. Chadwick LJ therefore held that, as matter of fact,the judge had been entitled to find that Miss Grossman’s undertaking to discharge the Modi loan was not a term of the agreement for the transfer to her of Mr Hooper’s interest in the property. Sir Christopher Staughton agreed, saying, at [37], that there was no term of any contract that Miss Grossman should pay off Mr Modi:
‘That was simply a matter of concurrence common to them both. They were in agreement that it should happen …. There was no need for any contractual term about it, and no such term was created.’
Schiemann LJ agreed with the reasoning in these respects of both Chadwick LJ and Sir Christopher Staughton.[27]I do not, with respect, derive from Grossman any guidance by way of principle that adds materially to what is to be found in section 2(1) itself. The question to which section 2(1) requires an answer is whether the written document the parties have signed as recording the terms for the sale or other disposition of an interest in land includes all the terms of such sale or disposition that they have expressly agreed. I respectfully agree with Chadwick LJ that that is a question of fact. In any particular case, the answer may be that the disputed term was not a term of the relevant sale or other disposition but was (or was part of) a strictly unrelated transaction; in other cases, it may be clear that it was such a term. Grossman was a case of the former nature.[28]Mr Cousins also referred us to the later decision of this court in North Eastern Properties Ltd v. Coleman and another [2010] EWCA Civ 277; [2010] 1 WLR 2715, to which I referred in [9] above. Briggs J’s judgment included some valuable statements of principle, which I shall set out:
‘46. A party seeking to avoid a land contract under section 2 must identify a term which the parties have expressly agreed, which is not to be found in the single, or exchanged, signed document. It is not sufficient merely to show that the land contract formed part of a larger transaction which was subject to other expressly agreed terms which are absent from the land contract. The expressly agreed term must, if it is required by section 2 to be included in the single document, be a term of the sale of the land, rather than a term of some simultaneous contract (whether for the sale of a chattel or the provision of a service) which happens to take place at the same time as the land contract, and to form part of one commercial transaction. Section 2(1) does not prohibit parties from structuring a transaction, for example, for the sale of the whole of a company’s assets, in such a way that the land sale is dealt with in a different document from the sale of stock, work in progress or goodwill, unless the sale of the land is conditional upon the sale of the other assets. For an illustration of this point, see Grossman v. Hooper [2001] 2 EGLR 82, paras 19-22, per Chadwick LJ. … 54. In my judgment, the apparent disharmony constituted by the dicta on this point may be reconciled as follows: (i) Nothing in section 2 of the 1989 Act is designed to prevent parties to a composite transaction which includes a land contract from structuring their bargain so that the land contract is genuinely separated from the rest of the transaction in the sense that its performance is not made conditional upon the performance of some other expressly agreed part of the bargain. Thus, in Chadwick LJ’s example in Grossman v. Hooper [2001] 2 EGLR 82, parties may agree to the sale and purchase both of a house and of its curtains and carpets in a single composite transaction. None the less it is open to them to agree either (a) that completion of the purchase of the house is dependent upon the sale of the carpets and curtains, or (b) that it is not. They are free to separate the terms of a transaction of type (b) into two separate documents (one for the house and the other for the carpets and curtains) without falling foul of section 2. They may also agree to structure a transaction which includes the sale of two or more parcels of land by way of separate contracts for each, so that none of the land contracts is conditional upon the performance of any of the others. (ii) By contrast, the parties to a composite transaction are not free to separate into a separate document expressly agreed terms, for example as to the sale of chattels or the provision of services, if upon the true construction of the whole of the agreement, performance of the land sale is conditional upon the chattel sale or service provision. That would, albeit for reasons which seem to me to frustrate rather than serve the purposes for which the 1989 Act was passed, fall foul of section 2(1), however purposively construed. So would a series of separate contracts for the sale of separate parcels of land, if each was conditional upon the performance of the other. (iii) Since the splitting into separate contracts of parts of a composite transaction is inherently likely to give rise to uncertainties as to whether performance of the one is conditional upon performance of the other, the parties are free, and in my opinion should be positively encouraged, to make plain by express terms whether or not that conditionality exists. To do so serves rather than evades or frustrates the purposes of section 2, an important part of which is to encourage clarity rather than uncertainty in land transactions.’
[29]The problem in the present case is that the works obligation sued upon is an oral one. This is not, therefore, a case in which the parties have structured their arrangements in separate documents, in one of which they have dealt with the sale of the land and in the other they have dealt with the works obligation. Mr Cousins’ submission was that, despite this, it is self-evident that there is no sense in which the land contract entered into in April 2004 (as varied by the supplemental agreement) can have been conditional or dependent upon the works obligation, which was only to come into force once the land contract had been completed. Nor was the works obligation itself an agreement for the sale of land. He invoked by analogy a case in which, in consideration of a person agreeing with a builder to enter into a land contract to buy a new house, the builder offers such purchaser a holiday. The holiday promise would be a true collateral agreement of the like nature as that in the present case, with the consideration for it being the entry into the agreement to buy the house. By way of support from the authorities, Mr Cousins referred us to Angell v. Duke (1875) LR 10 QB 174, in which it was held that an oral promise by a proposing lessor to a proposing tenant that, if the latter were to become the tenant of his house, he would put the house in repair and furnish it, was not a promise whose enforceability by action depended on the existence of signed writing satisfying the Statute of Frauds 1677. The promise was not an agreement binding the proposing tenant to become a tenant, or therefore for the disposition of an interest in land; it was simply a collateral agreement that, if the proposing tenant became his tenant, the landlord would do the promised works and provide the furniture. The consideration for his promises was the entry by the tenant into the tenancy agreement.[30]I have no difficulty with the theory of Mr Cousins’ submission that the works obligation is, or should be regarded as, a true collateral agreement. Assume, for example, that the parties had, in March 2005, drawn up and consecutively signed two separate documents, with the first document providing that if the Keays entered into an agreement with MHL varying the 2004 sale agreement in the terms of the proposed supplemental agreement, MHL would enter into the section 106 agreement and, upon completion of the sale agreement, ‘get on’ promptly with the building works; and with the second document, signed subsequently, being that supplemental agreement. Had that happened, there might be much to be said for the view that it was only when the supplemental agreement was signed that the works obligation became binding upon MHL, and that it would be no answer to a claim for a breach of that obligation for MHL to assert that its omission from the supplemental agreement rendered it void for section 2 reasons.[31]That, however, is not what happened. I approach the present issue from the standpoint that when, as in March 2005 they did, the parties to the sale agreement reached an agreement as to its variation, their agreement had to be contained in a document satisfying section 2. That is because when the parties to a contract agree to vary it, they are in effect entering into a new contract; and an agreement varying an existing contract for the sale or other disposition of an interest in land will only do so validly if made in a written and signed document that itself contains or incorporates all the expressly agreed terms of the original agreement and so itself complies with section 2: see McCausland and Another v. Duncan Lawrie Ltd and Another [1997] 1 WLR 38, at 44G to 45G, per Neill LJ; and at 49D to F, per Morritt LJ. There is no doubt that the supplemental agreement purported to comply with section 2 in those respects. The critical question is whether it needed also to incorporate the works obligation on the basis that that was an expressly agreed term of the variation of the sale agreement. If it should have done, it did not; and the consequence would be that it would wholly fail, and the works obligation with it.[32]The difficulty that I have with the Keays’ case is that I fail to understand by reference to what evidential considerations the court is invited to hold that the works obligation was a true collateral contract – that is, a promise by MHL to do the works promptly if the Keays entered into the supplemental agreement. I do not read paragraph 24 of the amended Particulars of Claim as asserting unambiguously that it was such a contract. The allegation there is that ‘[t]his agreement to reduce further the price was made on the basis that, in return, [MHL] would enter into the Section 106 agreement … and, following completion …, promptly get on with the Block A building works …’. That appears to me to be equally consistent with the making of a price reduction agreement under which it was to be an express term that MHL would do these two things. If that is the correct analysis of what the parties agreed, it is irrelevant that the works obligation was not itself an agreement for the sale or other disposition of an interest in land, or was only to bite once the sale agreement had been completed: if it was an express term of the variation of the sale agreement, section 2 required it to be included in the supplemental agreement.[33]The judge gave his reasons for being unable, on a summary judgment application, to decide finally whether or not the omission of the inclusion of the works obligation in the supplemental agreement was fatal to its validity. They included the point, of the like kind to that which I have just referred, that that there is no express allegation in the Particulars of Claim as to the words used at the meeting or as to ‘the precise language of the Collateral Agreement’. Nor, I add, has the court even been provided with any evidence from the negotiators of the March 2005 transaction that might assist it in the determination of the point. I intend no discourtesy to the judge by not setting out his further reasoning in full. I say simply that I am not persuaded that, on the limited material before the court, it was possible either for the judge, or for this court now, to decide the Grossman point finally one way or the other. In my judgment, the judge was correct to decline to do so. I would reject the assertion in the Keays’ respondents’ notice that he was in error in deferring its determination to the trial.

The Tootal point

[34]The premise for the Tootal point is that the Keays will fail at the trial on the Grossman point and that, in consequence, the works obligation will be held to have been an express term of the parties’ agreement for the variation of the sale agreement. On that basis the conventional position is that, if the variation of the sale agreement was to be effected validly, section 2 required the works obligation to be included as a term of the supplementary agreement. Looking at it the other way, if it was not so included, the supplementary agreement would be void and the works obligation would fail with it and have no independent life of its own. That is MHL’s argument. It is said to follow inexorably from the effect of a failure to satisfy the requirements of section 2.[35]On the same premise as is referred to in the preceding paragraph, Mr Cousins’ response is that, whilst the omission to include the works obligation as a term of the supplemental agreement means that that agreement was void from the outset, nevertheless once all the land elements of the original sale agreement as purportedly varied by that void agreement were performed on completion on 11 April 2006, all the other obligations under the void agreement that remained outstanding after 11 April 2006 thereupon automatically assumed the status of valid contractual obligations and became fully enforceable; and that included the oral works obligation, even though it was not included in the supplemental agreement.[36]I hope that is a fair summary of Mr Cousins’ submission, which may appear to be a surprising one. Indeed, but for the fact that he claims that the submission is supported by this court’s decision in Tootal, I doubt whether Mr Cousins would have had the nerve to advance it. If the supplemental agreement was, from the outset, a nullity and the works obligation can at best be regarded as part of that nullity, it is not easy to see how the performance of some of the purported terms of the nullity can have had the effect of breathing life into the others sufficient to enable them to be the subject of a claim at law. Mr Cousins submitted, however, that Tootal shows that that is the law and that, once the land elements of the supplemental agreement (or of the sale agreement as varied by it) were completed on 11 April 2006, nothing can stand in the way of the Keays’ claim. The judge accepted that Tootal provided the Keays with the succour they claim to derive from it, as I understand Mr Randall to have conceded before him, although Mr Randall also advanced other defensive points before the judge to which I do not need to refer.Mr Randall also reserved his right to argue otherwise in this court as to the true effect of Tootal, as he has. He submitted to us that Tootal provides no authority for Mr Cousins’ submission.[37]I turn to Tootal (1992) 64 P & CR 452, an extempore decision of this court (Parker and Scott LJJ, and Boreham J) on an appeal against a decision by Douglas Brown J. In 1990 G and T were in negotiations for the grant of a lease of commercial premises by G to T. The agreed terms included that(i) T was to carry out shop-fitting works;(ii) T was to have a three-month rent-free period during which it was expected to carry them out; and(iii) on their satisfactory completion, G would pay T £30,000 towards their cost. On 10 August 1990 G and T signed and exchanged two separate agreements embodying the agreed terms. The first, the lease agreement, was for the grant of a 25-year lease in the form of the draft attached, its terms including T’s obligation to carry out the shop-fitting works. It contained an ‘entire agreement’ clause and included no reference to the second agreement. The second, the supplemental agreement, recited the lease agreement, that it was supplemental to it and that the parties had agreed that G would contribute to the cost of T’s works. It then set out the terms upon which G was to make such contribution. The lease agreement was completed by the grant of a lease to T, which duly carried out the works. T then applied to G for payment, which G refused, contending that section 2 of the 1989 Act barred T’s right of recovery. T sued G for payment under the supplemental agreement. G’s defence was that the terms of the supplemental agreement were not incorporated in the lease agreement and so were void. A preliminary issue was directed as to whether the supplemental agreement was one to which section 2 applied. G’s submission to the judge was that section 2 required all the terms of a contract for the sale or other disposition of land (a land contract) to be incorporated in one document; the bargain between G and T was a land contract; the term as to the payment of the £30,000 was an intrinsic part of the terms of the land contract and so it was required to be, but was not, included in the terms of the lease agreement. The judge accepted the submission.[38]The same argument was advanced by G on T’s appeal to the Court of Appeal. The court allowed T’s appeal. Scott LJ delivered the lead judgment with which Boreham J agreed. Parker LJ added a short concurring judgment. I shall set out the material parts of the judgments. First, Scott LJ said, at 455, 456 (the paragraphs of his judgment are not numbered, but I have numbered them for ease of reference): ‘1. Section 2, superseding and replacing section 40 of the Law of Property Act 1925, is dealing with the circumstances in which a valid and enforceable contract for the sale or other disposition of an interest in land can come into existence. As Hoffmann J put it in Spiro v. Glencown Properties Ltd [1991] 2 WLR 931, at 933; 62 P & CR 402, at 404: “Section 2 was intended to prevent disputes over whether the parties had entered into a binding agreement or over what terms they had agreed.” 2. However, section 2 is of relevance only to executory contracts. It has no relevance to contracts which have been completed. If parties choose to complete an oral land contract or a land contract that does not in some respect or other comply with section 2, they are at liberty to do so. Once they have done so, it becomes irrelevant that the contract they have completed may not have been in accordance with section 2. 3. In the present case, the parties having agreed all the terms under which the new 25 year lease would be granted, including those relating to the shop-fitting works and the contribution by [G] of £30,000 towards the cost incurred by [T] in carrying out the shop-fitting works, chose to incorporate the terms in two documents instead of one, namely the lease agreement and the supplemental agreement. They then completed the lease agreement. The lease agreement thereupon ceased to be an executory contract. The question whether section 2 of the 1989 Act would, because not all the terms of the contractual bargain had been incorporated into the lease agreement, have rendered the lease agreement unenforceable became irrelevant. All that was left was the supplemental agreement. The supplemental agreement was not and is not itself a land contract, or, at least, if it is, by incorporation therein of the terms of the lease agreement, a land contract, then there is no issue in the case that need detain the court. But on the footing that the supplemental agreement by itself is not a land contract, which is the contention of Mr Ritchie for [G], there was no longer, after the completion of the lease agreement, any executory land contract in existence to which section 2 of the 1989 Act could apply. There was simply a contract recorded in writing signed by each party, for the payment of £30,000 in a certain event by one party to the other. 4. I am of the opinion, speaking for myself, that even before completion of the lease agreement on August 31, 1990, section 2 would not have prevented the enforcement of the lease agreement. If parties choose to hive off part of the terms of their composite bargain into a separate contract distinct from the written land contract that incorporates the rest of the terms, I can see nothing in section 2 that provides an answer to an action for enforcement of the land contract, on the one hand, or of the separate contract on the other hand. Each has become, by the contractual choice of the parties, a separate contract. 5. But it is not necessary for us on the present appeal to decide that point. It suffices, in my judgment, to say that once the lease agreement had been executed by completion, section 2 had no relevance to the contractual enforceability of the supplemental agreement, whether or not that supplemental agreement was negotiated as part of one bargain that included the terms of the lease agreement. 6. I would therefore allow this appeal. [G] has, in my opinion no defence to the action.[39]Boreham J agreed, without adding reasons of his own. Parker LJ said, at 456:
‘I also agree. The order under appeal provides as follows: “The contract specified in paragraph 2 of the Statement of Claim [which is the supplemental agreement] is one to which Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 applies. If one looks only at the supplemental agreement it does not appear on its face to be a contract for the sale or other disposition of land at all. The declaration which is made therefore appears to be defective. It can only be made a contract to which section 2 of the Act applies if, by reason of its reference to the agreement for the lease and the terms thereof, the two must be read together. If one reaches the conclusion therefore that the supplemental agreement is a contract for the sale or other disposition of land or purported so to be, it follows that all the terms of section 2 must have been complied with, because all the terms must be in that document. Accordingly, it appears to me that either the matter of the supplemental agreement falls wholly outside section 2, or, if it does fall within section 2, it does not avail the landlords because section 2 would then have been fully complied with. I agree that the appeal should be allowed and that there is no defence.’
[40]Tootal was considered by Lewison J in Kilcarne Holdings Ltd v. Targetfollow (Birmingham) Ltd [2004] EWHC 2547 (Ch); 2005 2 P & CR 8 (the report starts at page 105). Having, at [197], expressed his difficulty in understanding the principle under which something which is not a contract at all can somehow be turned into a legally binding contract, Lewison J continued:
‘198. However, Tootal Clothing Ltd v. Guinea Properties Ltd Management Ltd (1992) 64 P & CR 452 does appear to support Mr Purle’s submission; and although other parts of that decision were doubted in Grossman v. Hooper [2001] EWCA Civ 615; [2001] 3 F.C.R 666 [a reference to Scott LJ’s obiter observations in paragraph 4], this part was not. Tootal binds me; and I must therefore apply it. What Tootal appears to me to decide is that s. 2 applies only to an executory contract for the sale or disposition of an interest in land; and that once all the land elements of an alleged contract have been performed, the remaining parts of the alleged contract can be examined without reference to s.2….’
Mr Randall acknowledged that that encapsulated the so-called Tootal point upon which the Keays rely. He submitted, however, that Lewison J wrongly elevated what Scott LJ had said in paragraph 5 to the status of ratio decidendi and that that was not what Tootal decided.[41]It is important to an understanding of Tootal to recognise that T’s claim was brought solely under the supplemental agreement, which I infer was one that, on its face and subject to T proving the non-payment of the claimed costs, provided T with a reasonable cause of action for their recovery. I also infer that by reciting and being expressed to be supplemental to the lease agreement, it incorporated all the terms of the lease agreement, so that prima facie it independently satisfied the requirements of section 2. All that being so, the appeal could, it seems to me, probably have been decided on the simple ground that the claim was brought under a contract, namely the supplemental agreement, that was section 2 compliant. It was not, however, so decided, although both Scott LJ (at paragraph 3) and Parker LJ recognised that perhaps it could have been. The court, however, arrived at its decision by a different route, although not one that I read as supporting Mr Cousins’ submission. Having said that, I admit to difficulty in identifying the ratio decidendi of Tootal.[42]Although T was suing under the supplemental agreement, G’s case appears to have been that the lease agreement - under which T was not suing - was void for section 2 reasons because it did not incorporate the payment provisions only to be found in the supplemental agreement. Scott LJ dealt with the validity or otherwise of the lease agreement at paragraphs 2 and 3. I preface my comments by noting again that a document purporting to be a contract complying with section 2 will, if it does not include all the expressly agreed terms of the land transaction, not be a contract at all: it will be a nullity (see again the Firstpost Homes case referred to at [9] above). Scott LJ, probably wishing to eschew pedantry, nevertheless referred in paragraph 2 to such a non-complying transaction as being a ‘contract’ which the parties are at liberty to complete. He was, I understand, there saying no more than that the fact that any agreed land transaction may not be section 2 compliant does not prevent the parties proceeding to its practical completion (for example, in the most conventional case, by an assurance of the land interest against payment of the price). I respectfully agree. The only effect of non-compliance with section 2 is that, in default of such an outcome, neither side can sue the other for specific performance or for breach of the transaction purportedly incorporated in the written agreement. That is because there is no contract upon which such a claim can be founded.[43]In paragraph 3, Scott LJ explained how, in the event, the parties did complete the lease agreement. Once they had done so, the question whether that agreement was section 2 compliant became irrelevant. In principle, I again respectfully agree, and note again that T’s payment claim was not brought under the lease agreement but under the supplemental agreement; and, as Scott LJ then observed, once the lease agreement had been completed, the supplemental agreement was all that was left. He then said that either that agreement was itself, by its own incorporation of the terms of the lease agreement, a land contract, in which event it complied with section 2; or it was not a land contract, in which event:
‘... there was no longer, after the completion of the lease agreement, any executory land contract in existence to which section 2 … could apply. There was simply a contract recorded in writing, signed by each party, for the payment of £30,000 in a certain event by one party to the other.’
Scott LJ, after his obiter observations in paragraph 4, then said much the same again in paragraph 5.[44]I set out in [40] above Lewison J’s understanding of the ratio decidendi of Tootal. He deduced from Tootal a principle to the effect that, in a case in which the parties have purportedly made a section 2 contract, but have in fact created a nullity because not all the terms of the sale were included in it, then once the land elements of the purported contract have been completed, either side can then enforce any non-land terms that either were or should have been also included in it, even though, by reason of the non-compliance with section 2, they have no contractual force.[45]With respect, I disagree with that summary of what Tootal decided. Had this court made a decision to that effect in Tootal, it would, I consider, have been fairly remarkable. Moreover, any such decision would have required careful explanation, whereas none is to be found in the judgments. In my view, neither Scott LJ nor Parker LJ reached their respective conclusions on the basis of any such principle. Had T’s claim for payment been brought under the lease agreement, then, if the claim was to succeed, the court would have had to explain why. But T’s claim was brought under the separate supplemental agreement and both Scott and Parker LJJ explained the alternative ways in which it deserved to succeed. If the supplemental agreement was a land contract satisfying section 2, the decision is uncontroversial. If it was not itself a land contract, the decision still appears to me to take Mr Cousins’ submission nowhere, because all that the court appears to have decided was that the supplemental agreement was, and always had been, a valid contract signed by and binding upon both parties that entitled T to recover the costs.[46]In deference to Mr Cousins’ submissions, I acknowledge that that summary of the decision in Tootal may be viewed as an oversimplification. I am not, however, confident that I can provide a fuller summary of it because I admit to some respectful doubt as to precisely what Scott LJ was saying in the crucial parts of paragraphs 3 and 5. The following two points, however, appear to me to be clear. First, even though it was apparently being argued that the reimbursement obligation was a term of the lease agreement that, for want of incorporation in it, rendered the lease agreement, including the reimbursement obligation, wholly void, Scott LJ’s view was that that argument provided no answer to T’s claim. That was because, upon the completion of the lease agreement, T still had the benefit of the contractual rights given to him under the separate supplemental agreement, which Scott LJ regarded as fully enforceable. Secondly, and whether or not that can be regarded as having provided a sufficient answer to G’s argument, I anyway find it impossible to derive from what Scott LJ said that he was subscribing to a principle that, in a case in which a purported land contract is void for want of compliance with section 2, the practical completion of the land elements of the void contract will thereupon cause the hitherto void, non-land, terms of the purported contract to become enforceable. Whilst I regard Tootal as a difficult case, I do not regard it as authority for any such proposition. Whatever it did decide, it did not decide that, and neither Scott LJ nor Parker LJ came even close to the express adoption of any such principle.[47]I conclude, therefore, Tootal is not authority for the principle attributed to it by Lewison J in Kilkarne. The proposition that a void contract can, by acts in the nature of part performance, mature into a valid one is contrary to principle and wrong. I add that in the North Eastern Properties case, [2010] 1 WLR 2715, and after slightly misdescribing the facts of Tootal, Briggs J said, at [49]:
‘The ratio of [Tootal] was that since the land contract had been fully performed by the grant of the lease, there was nothing in section 2 adversely to affect the enforceability of the terms relating to the shop-fitting. …’
. As to that, I say simply that I do not regard it as an accurate explanation of the decision in Tootal.[48]I therefore find nothing in Tootal to support Mr Cousins’ submission that, once the land elements of the sale agreement were completed in April 2006, it was open to the Keays to sue MHL for the alleged breach of the works obligation that should have been, but was not, included in the supplemental agreement. On the premise of the discussion in this part of my judgment, its omission from the supplemental agreement rendered that agreement a nullity. The sale agreement thus remained unvaried by it, although the parties may not have appreciated that. As the supplemental agreement was a nullity, no claim can be brought in respect of the works obligation. The status of that obligation was that it was at most a proposed contractual term that was not, in the event, incorporated into any valid contract. It is not capable of being independently enforced.

Disposition

[49]I would reject the Keays’ argument on the Grossman point and would, like the judge, leave that issue to be decided at the trial. I would allow MHL’s appeal on the Tootal point and, in consequence, set aside the fourth recital to, and the declaration in paragraph 1 of, the judge’s order. I would also dismiss the Keays’ application notice dated 5 January 2011.[50]I agree.[51]I also agree.

Cited in 10 later judgments

and 1 more case