Groveholt Ltd v Alan Hughes and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice David Richards |
| Judgment Date | 26 November 2012 |
| Neutral Citation | [2012] EWHC 3351 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC04C00899 |
| Date | 26 November 2012 |
[2012] EWHC 3351 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building
Royal Courts of Justice
Fetter Lane London.
EC4A 1NL
The Honourable Mr Justice David Richards
Case No: HC04C00899
Mr Neil Kitchener QC and Mr Zachary Bredemear (instructed by Mishcon de Reya) for the Claimant
Mr Pav Korpal represented the First Defendant
On 21 March 2012, I handed down judgment on the claim of Groveholt Limited (Groveholt) against the first defendant, Alan Hughes, in these proceedings: see [2012] EWHC 686 (Ch).
One of the issues still outstanding at that stage was a counterclaim by Mr Hughes. The parties had agreed that consideration of the counterclaim should be deferred until after judgment on Groveholt's claim. I had received written and oral submissions on the counterclaim from Groveholt during and after the trial of the claim. I received further written submissions from Groveholt in May 2012 and written submissions on behalf of Mr Hughes in June 2012.
In order to understand the counterclaim, it is first necessary to summarise the essential relevant features of a complex series of contracts relating to a development site at Cawdor Quarry, Matlock, Derbyshire (the site). These were also central to Groveholt's claim and are dealt with fully in my earlier judgment.
In 1994 Mr Hughes, an experienced property developer, purchased the site. In December 1996 Mr Hughes entered into an agreement with J. Sainsbury pic, subsequently amended by an agreement made in March 1998 (together the Hughes/Sainsbury agreement). Under the terms of this agreement Mr Hughes sold that part of the site closest to the town centre for development as a supermarket. The agreement contained provisions for infrastructure works necessary to enable the supermarket site to be developed and for acquiring adjacent properties (site assembly) required for the infrastructure works. Mr Hughes agreed to indemnify Sainsbury against the costs of site assembly and infrastructure works in excess of £5 million.
By an agreement dated 9 April 1998 (the Hughes/Chelverton agreement), Mr Hughes sold most of the rest of the site to Chelverton Limited, a property development company. The consideration for the sale was the payment of £1.5 million on completion and the payment of further sums on the obtaining of specified planning consents. Sums totalling £3 million became payable on the grant of each of the three planning consents relating to that part of the site defined in the agreement as the Phase One Residential Land. It is common ground that all those consents had been obtained by December 2001.
The rest of the site was defined as the Phase Two Residential Land and the agreement envisaged that it would be the subject of later development. This was reflected in the terms of the agreement which provided a long stop date of 10 years from the date of agreement by which the relevant planning consent had to be obtained for a further payment of £2 million to become due from Chelverton to Mr Hughes. Clause 5.2 provided that if such consent were not obtained by that date:
"then the land in question will be transferred by the Purchaser back to the Vendor for a nominal consideration together with the benefit of all cross rights that are reasonably required by the parties".
It is common ground that such planning consent was not obtained within the 10 year period. Mr Hughes counterclaims for specific performance of the obligation to retransfer the Phase Two Residential Land to him, seeking to enforce such obligations not against Chelverton but against Groveholt in the circumstances outlined below.
The Hughes/Chelverton agreement also contained provisions relating to site assembly and infrastructure works. It referred to Mr Hughes' obligation to indemnify Sainsbury to the extent that the costs exceeded £5 million, and it contained a warranty by Mr Hughes to Chelverton that the site assembly and infrastructure costs would not exceed £4.5 million. If they did exceed that amount, Mr Hughes would pay a sum equal to the excess to Chelverton. To the extent that such costs exceeded the sum of £4.5 million, they would be set-off against the sum otherwise due from Chelverton to Mr Hughes on the grant of the various planning consents. Security for the net sum, if any, due from Chelverton to Mr Hughes was provided by a first charge over the property.
By a novation deed made on 16 September 1998, Mr Hughes, Chelverton and Sainsbury agreed that Chelverton would replace Mr Hughes under the Hughes/S ainsbury agreement.
The property sold to Chelverton by Mr Hughes was registered with absolute title. Mr Hughes did not at any time register his right to a re-transfer of the Phase Two Residential Land as an estate contract under the Land Registration Act 1925.
On 21 December 2000, Chelverton entered into an agreement with Groveholt (the Chelverton/Groveholt agreement). Chelverton agreed to sell the entire property to Groveholt for £3.6 million. Groveholt agreed to use all reasonable endeavours to organise and effect site assembly and the infrastructure works in accordance with the Hughes/S ainsbury and Hughes/Chelverton agreements. The sale was completed on 4 July 2001. Site assembly and infrastructure works proceeded and their total costs far exceeded the sum of £4.5 million warranted by Mr Hughes in the Hughes/Chelverton agreement.
Groveholt's claim against Mr Hughes was essentially a redemption action, in which it sought to establish that, by reason of his warranty and the set-off provisions in the Hughes/Chelverton agreement, no sum was due to Mr Hughes and that accordingly it was entitled to a release of the first charge. A large number of issues was raised by Mr Hughes, who contended that the costs incurred were either outside the terms of the agreement, or were unreasonable in amount or had been increased as a result of breaches of obligations contained in the Hughes/Chelverton agreement. Although Groveholt was not a party to that agreement, the effect of earlier rulings, both at first instance and in the Court of Appeal, was that Mr Hughes was entitled to rely on any matters which would constitute a breach of the Hughes/Chelverton agreement in determining the amount, if any, properly secured by the charge. My judgment handed down in March 2012 was directed to these issues and I concluded that most of the costs of site assembly and infrastructure works had been properly incurred and that Mr Hughes failed to establish breaches of the agreement. Accordingly, no sum was payable to Mr Hughes.
Mr Hughes seeks by his counterclaim to enforce against Groveholt the obligation of Chelverton to re-transfer the Phase Two Residential Land to him, notwithstanding that he has no contractual relations with Groveholt. He submits that in the circumstances which occurred. Groveholt as transferee of the land is obliged to comply with Chelverton's obligation to re-transfer the Phase Two Residential Land to him. On the face of it, any such claim is barred by section 20 of the Land Registration Act 1925 as a result of Mr Hughes' failure to register his rights to a re-transfer. This is the case notwithstanding that, as Groveholt accepts, it had knowledge or notice of Mr Hughes' rights contained in the Hughes/Chelverton agreement. Mr Hughes seeks to overcome this obstacle principally on the basis that, by reference to the terms of the Chelverton/Groveholt agreement, Groveholt is obliged as a constructive trustee to give effect to his rights.
It is well established that in certain circumstances a constructive trust may be imposed on a transferee of registered land to give effect to third party rights notwithstanding their non-registration. Because this clearly cuts across the underlying premise of the land registration system that purchasers should acquire good title free of any interests which do not appear on the register, subject to statutorily defined overriding interests, the circumstances in which a constructive trust will arise have been narrowly confined. In a series of cases, courts at first instance and on appeal have considered the limited circumstances in which a constructive trust may arise in such a case: see Bannister v Bannister [1948] 2 All ER 133, Binions v Evans [1972] Ch 359, Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044, Ashburn Anstalt v Arnold [1989] Ch 1, IDC Group Ltd v Clark [1992] 1 EGLR 187, Lloyd v Dugdale [2001] EWCA Civ 1754. [2002] 2 TCR 167, and Chaudhary v Yavuz [2011] EWCA Civ 1314, [2012] 3 WLR 987.
In Lloyd v Dugdale, the Court of Appeal formulated the relevant legal principles at [52]:
" (1) Even in a case where, on a sale of land, the vendor had stipulated that the sale shall be subject to stated possible encumbrances or prior interests, there is no general rule that the court will impose a constructive trust on a purchaser to give effect to them.
(2) The court will not impose a constructive trust in such circumstances unless it is satisfied that the conscience of the estate owner is affected so that it would be inequitable to allow him to deny the claimant an interest in the property.
(3) In deciding whether or not the conscience of the new estate owner is affected in such circumstances, the crucially important question is whether he has undertaken a new obligation, not otherwise existing, to give effect to the relevant encumbrance or prior interest. If, but only if, he has undertaken such a new obligation will a constructive trust be imposed. "
Mr Hughes relies in particular on the decision of Dillon J in Lyus v Prowsa Developments Ltd. Two points may be noted about that decision. First, Dillon J identified the key question as being whether the purchaser had undertaken in...
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