Yee Shi Yin and Others v 174 Law Solicitors Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Warby,Sir Christopher Floyd |
| Judgment Date | 13 January 2023 |
| Neutral Citation | [2023] EWCA Civ 13 |
| Docket Number | Case No: CA-2022-000151 |
| Court | Court of Appeal (Civil Division) |
[2023] EWCA Civ 13
Lord Justice Newey
Lord Justice Warby
and
Sir Christopher Floyd
Case No: CA-2022-000151
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BUSINESS AND PROPERTY COURTS IN MANCHESTER
BUSINESS LIST (ChD)
His Honour Judge Hodge KC (sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
David McIlroy and Lloyd Maynard (instructed by Penningtons Manches Cooper LLP) for the Appellants
Jonathan Seitler KC and Michael Bowmer (instructed by DAC Beachcroft LLP) for the Respondents
Hearing dates: 7 & 8 December 2022
Approved Judgment
This judgment was handed down remotely at 10.30am on 13 January 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
This appeal arises from a failed development. The development (“the Development”) was undertaken by North Point (Pall Mall) Limited (“the Developer”) and was to have comprised some 366 residential and live-work units at 70–90 Pall Mall, Liverpool. A fractional sales model was adopted under which buyers would pay larger than usual deposits (typically between 50% and 80% of the purchase price) and these would be used to fund the project. Sales were predominantly to overseas investors who intended to let the properties once they had been completed.
The appellants, who were all resident in Hong Kong at the time, were amongst those who agreed to buy. In accordance with the contracts into which they entered, they paid deposits to the respondents, 174 Law Solicitors Limited (“174”), who were by then the Developer's solicitors, to be held by 174 as stakeholders. The appellants' case in these proceedings is that 174 released the deposits when they should not have done and, hence, are liable for them.
The appellants' solicitors were Amie Tsang and Company Limited (“ATC”) (whose name was changed to Key Manchester Limited in 2018), the principal of which was Ms Amie Tsang, who speaks fluent Cantonese. Other purchasers were represented by Oliver & Co, solicitors, where Mr David Sewell worked.
The contractual arrangements with buyers provided for the involvement of North Point Buyers (Pall Mall) Limited (“the Buyer Company”), a company limited by guarantee which had been set up to protect buyers' interests. From 15 October 2015, its directors included Ms Tsang and Mr Sewell. More surprisingly, Mr David Roberts of Wirral Solicitors Limited, trading as David Roberts & Co (“DRC”), who acted for the Developer, was at first also a director. He was replaced in that role by Mr David Hayhurst, who was a solicitor with 174, which had taken over from DRC as the Developer's solicitors.
The Developer purchased the site with the assistance of a loan from Bridging Finance Limited (“BFL”). The initial borrowing was repaid, but the Developer took out a new loan secured by a legal charge and debenture in favour of BFL dated 18 August 2015.
In an email to BFL of 6 August 2015, Mr Roberts observed that “[w]e need to agree a first legal charge in favour of the Buyers upon completion”, the report to buyers having “advised that upon completion of their contracts they will have a first legal charge”. However, a legal charge in favour of the Buyer Company was not executed until 1 October 2015 and, as was appreciated by all the solicitors involved, always ranked as a second legal charge. On 23 September 2015, Mr Roberts said in an email to the Developer, “we all appear to have dropped the ball here so let us try and get everything back on track”.
It was against this background that Mr Sewell met Mr Peter McInnes of the Developer on 19 October 2015 and devised what became known as the October “work-around”. This was described as follows in an email which Mr Sewell sent that day:
“It is apparent that the release of funds is currently blocked by reason of a mix up over the securitisation of the titles. I am aware of the fact that it is in everybody's interest to resolve this without delay and for this reason I have the following [on] proposals:
1. David Roberts will forthwith make application to the Land Registry to register the Buyer Company Charge
2. Notwithstanding the fact that the Buyer Company Charge will sit on the register as a second charge, the Buyer Company will permit release of funds on the following conditions:
(i) That North Point Buyers (Pall Mall) Limited have confirmation that all funds so far released by Bridging Finance Limited have been used exclusively for purposes set out in Clause 5 of the unit sale agreements
(ii) That North Point Buyers (Pall Mall) Limited receive confirmation from Bridging Finance Limited that:
(a) The securitisation of the Pall Mall titles by North Point (Pall Mall) Limited is, and will continue to be, limited to funds drawn down by North Point (Pall Mall) Limited exclusively for the purposes set out in Clause 5 of the Pall Mall Unit purchase Agreements
(b) That all funds drawn down in the future by reason of such security will be paid into the North Point Buyers (Pall Mall) Limited stakeholder account held by David Roberts & Co
(c) That North Point (Pall Mall) Limited has no guarantee to Bridging Finance Limited nor will Bridging Finance Limited seek such a guarantee in the future for any borrowing relating to any other Development such that their securitisation of the Pall Mall titles is ring fence to such titles.
(iii) That David Roberts and Aimee Tsang in their capacity as a Directors of North Point Buyers (Pall Mall) Limited ratify these proposals.”
Ms Tsang and Mr Roberts, among others, agreed to this “work-around”, which then formed the basis on which buyers' deposits were in future released to the Developer by its solicitors (initially DRC and later 174). For her part, Ms Tsang confirmed her assent in an email timed at 13.58 on 20 October 2015. His Honour Judge Hodge KC (“the Judge”) concluded in paragraph 79 of his judgment that, although Mr Sewell had sought the ratification of his proposals by Ms Tsang and Mr Roberts as the other two directors of the Buyer Company at the time, Ms Tsang and Mr Sewell each acted in a dual capacity and approved what was proposed both as a director of the Buyer Company and as a solicitor acting on behalf of buyers.
It was on about 20 November 2015 that 174 replaced DRC as the Developer's solicitors. At that stage, DRC transferred to 174 the money which they had been holding in respect of deposits paid by buyers.
The first of the appellants to exchange contracts for the purchase of a unit in the Development did so on 17 December 2015. The other appellants exchanged contracts on, respectively, 10 March 2016, 31 March 2016 and 25 April 2016.
Following a meeting attended by, among others, Mr Hayhurst, Ms Tsang and Mr Sewell on 18 December 2015, 174 released some £1.28 million to the Developer. Further sums were released to the Developer by 174 periodically over the next five months or so.
Construction of the Development, which had started in June 2015, came to a standstill in about July 2017. Law of Property Act receivers were appointed in June 2018, and the site was eventually sold without any of the units having been built. The buyers' deposits had all been spent on marketing fees, other costs and the unfinished works. Nothing was repaid to them.
The appellants, among others, brought proceedings against both ATC and 174. The claims against ATC were settled, but those against 174 came on for trial before the Judge, sitting as a Judge of the High Court, in November 2021. In the judgment now under appeal, given on 10 January 2022, the Judge dismissed the claims. The Judge concluded in paragraph 98 of his judgment that “[o]n the true interpretation of the Agreement for Sale [i.e. the agreement by which each appellant agreed to buy a unit in the Development] and the resulting stakeholder contract, … 174 was not in breach of its contractual obligations as stakeholder in paying any of the buyers' funds over to [the Developer]”. In the alternative, the Judge considered that the appellants were estopped by convention from complaining that there had been any breach by 174 of their duties as stakeholders. In that connection, the Judge said in paragraph 107:
“174 and the buyers, acting by Ms Tsang (and Mr Sewell), at all times conducted their mutual dealings on the basis of releasing the deposits against the supervisor's certificates notwithstanding the fact that, on the register of title to the development, BFL had a first-ranking legal charge. It would be grossly unfair for the claimants to be allowed now to go back on that shared and communicated assumption and to sue 174 for releasing their deposits in precisely the way that had been agreed.”
The appellants now challenge the Judge's decision in this Court. They take issue both with his interpretation of the sale agreements and with the finding of estoppel by convention.
Stakeholder contracts
As Millett LJ explained in ( Manzanilla Ltd v Corton Property and Investments Ltd Court of Appeal, unreported, 13 November 1996) (“ Manzanilla”), “Where a stakeholder is involved, there are normally two separate contracts to be considered.” Millett LJ continued:
“There is first the bilateral contract between the two principals which contemplates two possible alternative future events and by which the parties agree to pay a sum of money to a stakeholder to abide the happening of one or other of them. In the present case it consisted of a series of written contracts for the sale of land, and the relevant events were the failure of the contracts by the repudiatory breach of one party or the other. The second contract is the tripartite contract which results from the deposit of the money with the...
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