Joanne Properties Ltd v Moneything Capital Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lady Justice Rose,Lord Justice Stuart-Smith |
| Judgment Date | 19 November 2020 |
| Neutral Citation | [2020] EWCA Civ 1541 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2020/0135 |
| Date | 19 November 2020 |
[2020] EWCA Civ 1541
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr Anthony Metzer QC
Deputy High Court Judge
QB-2018-000668
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lady Justice Rose
and
Lord Justice Stuart Smith
Case No: A2/2020/0135
Mr Robin Kingham (instructed by BDB Pitmans LLP) for the Appellant
Mr Iain MacDonald (instructed by DWF Law LLP) for the Respondents
Hearing date: 11 th November 2020
Approved Judgment
The issue
The issue on this appeal is whether the parties entered into a binding contract of compromise contained in written communications passing between their respective solicitors. In an extempore judgment, Mr Anthony Metzer QC, sitting as a deputy High Court judge, held that they had.
Background to the dispute
Joanne Properties Ltd (“Joanne”) owned a building in Wandsworth. It borrowed money from the Respondents (“Moneything”) secured by a legal charge over the property. Joanne fell into arrears under the charge; and on 3 December 2018 Moneything appointed LPA receivers. Joanne challenged that appointment on the ground that both the loan agreement and the charge had been procured by undue influence. On 20 December 2018 Joanne issued a claim against Moneything seeking to set aside both the loan agreement and the charge. It also claimed an injunction against the receivers preventing them from taking any further steps to realise the security.
On 19 January 2019 the parties compromised the application for an injunction. They agreed that the property should be sold and an order for distribution of the proceeds of sale. After payment of the costs of sale and the capital advanced under the loan agreement:
i) The sum of £140,00 was to be ring-fenced, representing “sums that may be determined to be payable to [either party] subject to the terms on which the claim is resolved”; and
ii) Any balance was to be ring-fenced for the resolution of a dispute relating to another charge over the property in favour of a third party.
That agreement was embodied in a formal written agreement signed by each party.
The issue on this appeal is whether the parties reached a further binding agreement about how the sum of £140,000 was to be shared between them.
The communications
Both parties were represented by solicitors: Mr Irvine for Moneything, and (initially) Mr Goldberg for Joanne.
Mr Irvine introduced the “subject to contract” label as early as his e-mail to Mr Goldberg of 29 May 2019. In the course of a telephone call between himself and Mr Goldberg on 13 June, Mr Irvine put forward a different offer “without prejudice and subject to contract”. Mr Goldberg relayed this offer to his client, expressly referring to the fact that it had been made “subject to contract”.
On 19 June 2019 Mr Irvine made a more formal written offer headed “without prejudice save as to costs”. It was not headed “subject to contract”. Although it is (now) common ground that that offer was not compliant with CPR Part 36, it was interpreted at the time by both Mr Irvine and Mr Goldberg as though it was. It was clearly intended to be capable of acceptance. But it was not accepted; and Mr Goldberg's subsequent proposal of 21 June was again headed “without prejudice and subject to contract”. His improved offer of 26 June was headed in the same way. Mr Irvine and Mr Goldberg spoke on 11 July. In that conversation Mr Goldberg proposed that £72,000 of the ring-fenced sum would be released to Moneything. Mr Irvine's attendance note recorded:
“David [Goldberg] confirmed that this was a firm offer with instructions from [Joanne] to make to [Moneything] and if accepted, that was the matter concluded, save that we still had to work out the mechanics of how the funds got released from the ring fenced sums.”
On 11 July 2019 Mr Irvine emailed Mr Goldberg. The email was headed “without prejudice and subject to contract.” He said that his clients would accept £75,000 from the ring-fenced sum; “mechanics and terms to be agreed.” Since Mr Irvine had proposed the release of £75,000 rather than £72,000, that was clearly a counter-offer rather than an acceptance of Mr Goldberg's proposal. Mr Goldberg replied later in the day. The subject line of the e-mail also read “without prejudice and subject to contract”. The first word of the e-mail was “Agreed.” He said that counsel was away and that he would liaise with counsel and “put a proposal to you to achieve the desired end.”
Later in the month, Joanne changed solicitors. The solicitor now representing it was Mr Smith. On 24 July 2019 Mr Irvine wrote to Mr Smith. His letter was again headed “subject to contract;” this time in upper case bold font. The letter said:
“We trust that your instructions accord with our understanding that the claim has been settled on terms…”
and he enclosed a consent order to dispose of the proceedings. The draft consent order contained a number of terms that had not previously been discussed. He explained that it was in Word format so that tracked changes could be made.
On 9 August Mr Irvine e-mailed Mr Smith to ask if he had any comments on the draft order; and followed it up with a letter on 13 August. The letter said that unless the draft consent order was agreed by 20 August, Moneything would apply to the court for an order in those terms. The application was duly issued and served on 30 September 2019. That prompted the reply from Mr Smith that there had been no binding settlement because the negotiations had been conducted “subject to contract”.
Subject to contract
Whether two persons intend to enter into a legally binding contract is, of course, to be determined objectively. But the context is all-important: Edmonds v Lawson [2000] QB 501. In this case the most important feature of the context is the use of the phrase “subject to contract”.
The phrase “subject to contract” is a well-known phrase in ordinary legal parlance. Statements of its effect are legion. I give a few examples. In Tiverton Estates Ltd v Wearwell [1975] Ch 146, 159 Lord Denning MR said:
“It is everyday practice for a solicitor, who is instructed in a sale of land, to start the correspondence with a letter “subject to contract” setting out the terms or enclosing a draft. He does it in the confidence that it protects his client. It means that the client is not bound by what has taken place in conversation. The reason is that, for over a hundred years, the courts have held that the effect of the words “subject to contract” is that the matter remains in negotiation until a formal contract is executed.”
In Secretary of State for Transport v Christos [2003] EWCA Civ 1073, [2004] 1 P & CR 17 Mummery LJ said at [34]:
“As everybody, including Mr Christos himself, knows, that expression, when used in relation to the sale of land, means that, although the parties have reached an agreement, no legally binding contract comes into existence until the exchange of formal written contracts takes place.”
In Generator Developments Ltd v Lidl UK GmbH [2018] EWCA Civ 396 [2018] 2 P & CR 7, after considering a number of authorities, I put it this way at [79]:
“The meaning of that phrase is well-known. What it means is that (a) neither party intends to be bound either in law or in equity unless and until a formal contract is made; and (b) that each party reserves the right to withdraw until such time as a binding contract is made.”
Males J applied that observation in the context of deciding whether an arbitration claim under a shipbuilding contract had been settled: Goodwood Investments Holdings Inc v Thyssenkrupp Industrial Solutions AG [2018] EWHC 1056 (Comm). In RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14, [2010] 1 WLR 753 the Supreme Court considered its application in the context of an alleged contract for the supply and design of machinery. So the principle is not confined to contracts for the sale of land.
Once negotiations have begun “subject to contract”, in the ordinary way that condition is carried all the way through the negotiations: Sherbrooke v Dipple (1981) 41 P & CR 173. As Lord Denning MR explained:
“But there is this overwhelming point: Everything in the opening letter was “subject to contract.” All the subsequent negotiations were subject to that overriding initial condition.”
In the course of the judgments both Lord Denning MR and Templeman LJ approved the proposition formulated by Brightman J in Tevanan v Norman Brett (Builders)...
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