Braymist Ltd v The Wise Finance Company Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Latham,Lord Justice Judge |
| Judgment Date | 20 February 2002 |
| Neutral Citation | [2002] EWCA Civ 127 |
| Docket Number | Case No: A3/2001/0704 CHANF |
| Court | Court of Appeal (Civil Division) |
| Date | 20 February 2002 |
Lord Justice Judge
Lord Justice Latham and
Lady Justice Arden
Case No: A3/2001/0704 CHANF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF
JUSTICE, CHANCERY DIVISION
(THE HON MR JUSTICE ETHERTON)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr M Blackett-Ord (instructed by Tarran Jones & Co) for the Appellant
Miss B Rich (instructed by William Sturges & Co) for the Respondent
This is an appeal with the permission of the judge from the order of Etherton J dated 2 March 2001. By this order the Court declared that the appellant, William Sturges & Co ("Sturges"), had effectively rescinded an agreement dated 28 January 1993 made between (1) Braymist Limited ("Braymist") and (2) The Wise Finance Company Limited ("Wise"), the respondent to this appeal, for the purchase by Wise of a parcel of land adjoining the A380, part of Harcombe Wood, Chudleigh, Devon ("the Property"). The order also declared that Wise's deposit of £5,000 was forfeit to Sturges. The order dismissed the counterclaim of Wise and ordered Wise within 28 days to pay to Sturges the sum of £67,700.58 representing damages for breach of contract and interest.
The relevant facts can be briefly stated. At the time of the relevant contract, Braymist was in process of incorporation. Its solicitors, Sturges, signed the agreement as agents and solicitors for it. The Property comprised a piece of land next to a corner site ("the Adjoining Land") where a minor road joined the A380. On part of the Adjoining Land there stood a filling station. Wise hoped to obtain planning permission to facilitate the removal of the filling station to the Property, thus freeing the Adjoining Land for development. However, the contract was not conditional on this planning permission. The principal point in issue flows from the fact that Braymist, the vendor, was not in existence at the time the agreement was signed. Wise was not aware of this at the time the agreement was made. Sturges now seek to enforce the contract against the purchaser by virtue of section 36C(1) of the Companies Act 1985. Accordingly, the first question is whether an agent is not only liable on the contract where his principal is a company in course of formation but entitled to sue on it. Section 36C(1) provides:—
"36C(1) A contract which purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly."
I will refer to the concluding clause of this subsection, i.e. the words "and he is personally liable on the contract accordingly", as 'the tailpiece'.
Wise made an application for planning permission for the property to be purchased on 11 May 1993. On 21 September 1993, that application was refused. The reason given for the refusal was that the property was situated in an area designated as being of great landscape value and that it would be detrimental to the character and appearance of the area and contrary to local policies and planning guidelines. Notice to complete was served on 2 February 1994 pursuant to condition 22 of the National Conditions of Sale (20 th edition) which were incorporated into the contract. The notice to complete expired on the 21 February 1994. Wise failed to complete on that day. On 4 March 1994 Sturges notified Wise's solicitor that Braymist had rescinded the agreement and forfeited the deposit.
The judgment of Etherton J
Not all of the issues with which the judge dealt arise on this appeal and accordingly I need not summarise them.
The first issue was whether Sturges were entitled to enforce the agreement by virtue of section 36C. The judge pointed out that section 36C(1) was first enacted in section 9(2) of the European Communities Act 1972 and was intended to give effect to article 7 of the First EC Company Law Directive (68/151/CEE OJ No. 1968 L6) ("the Directive"). He referred to the French and English texts of article 7:—
"If, before a company being formed has acquired legal personality, action has been carried out in its name and the company does not assume the obligations arising from such action, the person who acted shall, without limit, be jointly and severally liable therefore, unless otherwise agreed."
"Si des actes ont été accomplis au nom d'une société en formation, avant l'acquisition par celle-ci de la personalité morale, et si la société ne reprend pas les engagements résultant de ces actes, les personnes qui les ont accompli en sont solidairement et indefiniment responsables, sauf convention contraire."
The judge held that section 36C(1) enabled the agent for the unformed company to enforce the contract. His reasons were as follows. First he held that this was the literal effect of the following words in section 36C:
"[the] contract …… has effect …… as one made with the person purporting to act for the company or as agent for it ….."
He held that section 36C did not reflect the Directive as it could have done if it had provided merely that a person who purported to enter into a contract for and on behalf of an unformed company was liable to the same extent as if he had contracted personally.
Second, he referred to Phonogram Ltd v Lane [1982] QB 938, the first case to come before the Court of Appeal on construction of section 9(2) of the 1972 Act. In it the Court of Appeal expressly rejected the argument that section 9(2) should be construed solely by reference to the Directive. Lord Denning MR said
"Section 9(2) is in accordance with the spirit and intent of the directive. We should go by our own statute and not by the directive……"
The judge observed that the correctness of that approach was emphasised by the fact that section 36C failed to implement that part of article 7 which provides for a company to assume obligations arising from the contract.
The judge's third reason was that the Directive did not preclude a provision of national law imposing liability and conferring rights on agents.
The judge's fourth reason was that his interpretation of section 36C resulted in both parties being mutually able to enforce the contract and in his judgment this was neither unworkable nor unfair. The judge considered that the concluding words of section 36C(1) would include specific performance and that supported his conclusion on mutuality.
The judge's fifth reason was that the concluding words abolished the previous distinction made at common law between agents who made pre-incorporation contracts and on the true interpretation incurred personal liability and those who made such contracts but incurred no personal liability: see Phonogram Ltd v Lane, above, at page 946 in which Oliver LJ held that section 9(2) of the European Communities Act 1972, from which section 36C(1) is derived, made these subtle distinctions irrelevant.
The third issue before the judge (and the second on this appeal) was whether the execution of the agreement by Sturges "as solicitors and agents" for Braymist satisfied section 2(1) and (3) of the Law of Property ( Miscellaneous Provisions) 1989. Section 2(1) and (3) provides:—
"2(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.
(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 and on behalf of each party to the contract."
The judge held that it did not matter that Sturges signed as agents for Braymist. The effect of section 36C(1) was that they were deemed to be vendors even though they had signed as agents. Otherwise, section 36C(1) would be useless in the case of all contracts for the sale or other disposition of land. The statutory purpose of section 2 of the 1989 Act would not be served by that construction. Accordingly, the provisions of section 2(1) and (3) of the 1989 Act were satisfied.
The fifth issue before the judge (and the third arising on this appeal) is whether Sturges were able to complete and thus able to serve a valid notice to complete under condition 22. Condition 22(1) provides:—
"(1) At any time on or after the completion date, either party being ready and willing to fulfil his own outstanding obligations under the contract, may (without prejudice to any other right or remedy available to him) give to the other party or his solicitors notice in writing requiring completion of the contract in conformity with this condition."
At the time notice to complete was served, Sturges were not the owners of the property nor were they directors or shareholders of Braymist or of Plumtree Ltd ("Plumtree"), the registered owner of the property, or its parent company Pique Holdings plc ("Pique"). The judge held that condition 22 was satisfied. The agreement provided for title to be deduced by production of a transfer from Plumtree to Braymist. Before notice to complete was served, Sturges held a transfer executed by Plumtree and Braymist in favour of Wise, being the form required by Wise's solicitor. In addition, as solicitors for Plumtree and instructed to act in the sale of the property, Sturges were entitled by virtue of their right against Plumtree and its parent company's majority shareholder, Mr Pool, to compel the transfer of the...
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