2013 - Keay v Morris Homes and section 2 Law of Property (Miscellaneous Provisions) Act 1989 PDF

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2013 - Keay v Morris Homes and section 2 Law of Property (Miscellaneous Provisions) Act 1989...

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The Conveyancer and Property Lawyer 2013

Case Comment Keay v Morris Homes and section 2 Law of Property (Miscellaneous Provisions) Act 1989 Emma Lees* Subject: Real property. Other related subjects: Contracts. Equity Keywords: Collateral contracts; Conditions of sale; Contracts for sale of land; Estoppel; Oral contracts; Void contracts Legislation: Law of Property (Miscellaneous Provisions) Act 1989 (c.34) s.2 Cases: Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900; [2012] 1 W.L.R. 2855 (CA (Civ Div)) Tootal Clothing Ltd v Guinea Properties Management Ltd (1992) 64 P. & C.R. 452; Times, June 8, 1992 (CA (Civ Div)) *Conv. 68 In Keay v Morris Homes (West Midlands) Ltd 1 the Court of Appeal has analysed the ratio of Tootal Clothing Ltd v Guinea Properties Management Ltd 2 and the relevance of s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 to terms not included in a written contract. The Tootal decision had been interpreted elsewhere as deciding that where the "land" aspects of an agreement had already been performed, the remainder of that agreement would not be void for non-compliance with the requirement of writing. Rimer L.J., giving the judgment of the court, concludes that this interpretation of Tootal, as found in the judgment of Lewison J. (as he then was) in Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd,3 and of Stephen Smith QC in Mirza v Mirza,4 is incorrect. This judgment is significant for three reasons. First, it gives a new interpretation of the ratio of Tootal. Secondly, it rejects the idea of part performance retrospectively validating an otherwise void contract, at the very least in a commercial context. Thirdly, in so-doing it inevitably shifts focus onto the doctrine of estoppel and its role in enforcing promises which cannot be enforced contractually.

Facts The Keays had entered into an agreement with Morris Homes, a developer, in relation to the sale of freehold land in Birmingham. On completion Morris Homes was to grant the Keays a 125-year lease of a medical centre, which Morris Homes was obliged to build. This sale agreement was conditional on the grant of planning permission to Morris Homes. Morris Homes entered into negotiations with Birmingham City Council in relation to the planning permission, but was not happy with the terms on which the planning permission was to be granted. The Keays and Morris Homes therefore entered into a supplemental agreement intended to reduce the price payable for the land to reflect the difficulties with regards to the planning permission. Following this, the conditions of the sale agreement were met and completion became due. The land was transferred to Morris Homes. The lease was not granted at this time as the parties wished to revise some of the terms of the lease and the lease was in fact granted much later. In the meantime the final payments had been made and the securities discharged. The difficulty came in relation to the supplemental agreement purporting to reduce the price. The Keays stated that Morris Homes had orally agreed, in negotiations for the price reduction, to progress with certain building works promptly. The Keays alleged that this had not been done and that they had lost in *Conv. 69 excess of £2 million as a result. Morris Homes argued that any such obligation would be void for want of compliance with s.2. "In retaliation" against this argument, the Keays argued that since the written supplemental agreement did not contain the works obligation, it did not contain all the terms of the agreement and was therefore void in its entirety for want of compliance with s.2, such that the agreement as to price reduction was void. The present proceedings were an appeal from a summary judgment of H.H. Judge Simon Barker QC

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in relation to two points. First, the question was whether or not the supplemental agreement was a variation of the sale agreement such that it was required to be in writing (referred to in the judgment as the Grossman 5 point). The second issue was whether the completion of the sale of the land meant that there was no executory "contract for the sale of land" to which s.2 could apply, relying on the earlier decision in Tootal Clothing, such that the works obligation, which had been orally agreed, could be enforced despite the lack of signed writing. At first instance, the judge had concluded that he did not have sufficient evidence to decide the Grossman point. He did feel able to decide the Tootal Clothing point, however, and concluded that the result of that decision was that there was no prospect of Morris Homes successfully arguing that the works obligation in the supplemental agreement was void, and as such gave judgment in favour of the Keays.6

The Court of Appeal—the Grossman point As with the judge at first instance, the Court of Appeal did not feel able to decide the issue as to the applicability of s.2 to the supplemental agreement on a summary basis. There was no evidence on which to decide that it was a "truly collateral" agreement. It was not possible therefore to interfere with the judge’s finding that more evidence was required at trial before it could be concluded whether or not the works obligation needed to form part of the written agreement.7 The general approach of Rimer L.J. to the question of the applicability of s.2 is, however, of note. He confirmed that it is a question of fact as to whether all the terms of a sale agreement are in fact contained in the written document.8 In doing so he followed the approach of Chadwick L.J. in Grossman. Beyond this he commented that: "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." 9 Instead, when deciding whether s.2 applies, the court ought simply to consider the language of s.2. This section does not cover "the terms upon which the parties have agreed (albeit contemporaneously) that some other transaction should be entered into".10 In short, the relevant issue is the terms on which the sale was agreed. *Conv. 70 11 Rimer L.J. did, however, derive assistance from the decision of Briggs J. in North Eastern Properties Ltd v Coleman & Quinn Conveyancing 12 and he approves the statements of principle set out in that case.13 From the cited sections, the following guidance can be found14:

(1) A term of the sale transaction must be missing from the signed document in order for s.2 to render that agreement void—it is not enough that the land contract formed part of a larger transaction the terms of which are not included in the land contract itself. (2) Section 2 is not designed to prevent parties from structuring a transaction in such a way that the land elements of that transaction are entirely separate from the other elements. They are not, however, free to do so if on a true construction of the agreement the performance of the land elements is indeed conditional upon the performance of the remainder of the agreement.

Briggs J.’s dissatisfaction with these principles, shared by Rimer L.J., was expressed clearly in his suggestion that the principles were more likely to frustrate than to serve the purposes of the 1989 Act. 15 Nonetheless, the invalidation of such incomplete agreements, however "frustrating", must be the result of the terms of s.2. Formality requirements are inherently capable of providing a party with an "escape route" from a bad bargain, but the existence of this escape route is the price paid for the additional certainty provided by formalities.16 We must aim to apply and interpret formality requirements in such a way that such opportunities are minimised, but this should not be achieved by concluding that s.2 does not apply at all where it is clear that the term in question really ought to have

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been in writing. As a result, a strong interpretation of the application of s.2 to oral terms agreed in relation to a sale transaction should be taken. The doctrines discussed below should be used to close off the "escape route" only where fairness, based in expectations or detriment, for example, demand it. Section 2 renders void an agreement where the parties have simply failed to write down a term of that agreement. The inapplicability of s.2, where such a failure is accidental, is equally as fortuitous for the party who did not insist that the agreement be made in writing, as the applicability of s.2 would be for a party seeking to get out of a bad bargain by relying on a strict approach to formality. The judicial dissatisfaction with applying s.2 strictly ought not to prevent us from so doing, as long as we have clear rules as to when the doctrines of part performance (if ever) and proprietary estoppel allow us to enforce a contractual promise that has not been made in writing, despite s.2. Accordingly, here, since the parties had in all probability simply failed to include the works agreement in their written contract, s.2 should apply such that the agreement as a contract is void. It may be that the promise can be enforced through some other means, but it cannot be contractually enforced, as the works obligation *Conv. 71 formed part of the agreement to lower the purchase price, and ought, therefore, to be considered part and parcel of the sale transaction.

The Tootal point If s.2 did apply to the works obligation, the second issue was whether performance of the "land aspects" of the agreement would mean that the works obligation could be enforced despite the lack of writing. This argument, at first glance, is somewhat difficult. If a contract is void, so that it is of no effect whatever, how can performance of some of the terms of that contract transform it retrospectively into a valid contract? The surprising nature of this argument is well presented in Rimer L.J.’s judgment: "Indeed, but for the fact that [counsel for the Keays] claims that the submission is supported by this court’s decision in Tootal, I doubt whether [he] would have had the nerve to advance it." 17 If Tootal did decide this, then the Keays’ argument as to the enforceability of the works obligation would succeed even if s.2 did apply. The key task for Rimer L.J. was to determine the precise ratio of Tootal. Scott L.J. (as he then was) delivered the lead judgment in Tootal. In that case, there was a contract between G and T to grant a lease of commercial premises. In August 1990 G and T signed and exchanged two documents, which contained inconsistent terms. The first was a lease agreement and contained an obligation for T to carry out shop-fitting works. The second was a supplemental agreement stating that G would contribute to the cost of T’s works. G refused to contribute on the grounds that this agreement was void for want of compliance with s.2. The court was thus faced with substantially the same two questions as in Keay —did s.2 apply to the supplemental agreement, and if so, could any of the terms of the supplemental agreement be enforced? The court concluded that the payment obligation contained in the supplemental agreement was enforceable.18 The difficulty that Rimer L.J. experienced, shared by academic commentators on the decision, however, was in determining why this conclusion was reached.19 The judgment of Scott L.J. had been considered by Lewison J. in Kilcarne Holdings. He concluded that: "What Tootal appears to me to decide is 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." 20 Is this an accurate representation of the ratio in Tootal ? It relies on Scott L.J.’s statement that: "Section 2 … has no relevance to contracts which have been completed. If parties choose to complete an oral land contract or a land contract that does *Conv. 72 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." 21 In isolation, the language of this paragraph is highly ambiguous. It suggests that not only need the land elements be completed before the invalidity of the contract becomes irrelevant but in fact all of the terms of the contract. As Rimer L.J. explains it, however, all Scott L.J. was saying here was

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"that the fact that any agreed land transaction may not be section 2 compliant does not prevent the parties proceeding to its practical completion." 22 The ambiguity of this statement in Tootal makes the ratio difficult to determine. Rimer L.J. concludes in Keay that the court came to its decision either on the basis that the supplemental agreement was itself s.2 compliant, or that it was not required to be compliant with s.2 as it was not a land contract. In other words, the performance of some of the terms was irrelevant to the enforcement of the contract, and the above comments, even if they did mean what Lewison J. suggests in Kilcarne Holdings, are obiter. Rimer L.J. goes further than this. He believes that Lewison J.’s interpretation of Scott L.J.’s statement is wrong: "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." 23 In short, Tootal did not decide what either counsel for the Keays, Lewison J. or Briggs J. suggest that it did decide, although Rimer L.J. admits much difficulty in outlining precisely what it did decide.24 The case therefore represents a welcome rejection of the very strange notion that performance of some terms of a void contract can turn it into a valid contract. Whatever Tootal did decide, it is not authority for any such proposition, which is described as "contrary to principle and wrong".25 As Rimer L.J. highlights, if the court in Tootal was going to suggest something as radical as this, it ought to have done so with explanation.26 Wilde had asked in the light of Tootal when the precise moment of transformation into a valid contract took place,27 a question fraught with difficulty, and one that we do not now have to answer. There are, however, problems with simply dismissing Tootal for being unclear, not least because it leaves us in doubt as to the applicability of s.2 to the agreements in Tootal. As Luther argues, there are serious difficulties with just accepting that the court must have meant that the documents were two separate agreements and that both were valid because of how they interact with one another.28 Furthermore, it is not satisfactory to simply leave the meaning of the Tootal decision as a mystery *Conv. 73 never-to-be-solved. Most crucially, there have been cases relying on Tootal that were not addressed in the judgment in Keay. In particular, the ratio of Mirza is that the non-land obligations in a partly performed land contract can be enforced if there is nothing remaining for s.2 to "bite on".29 In that case the terms of an oral loan agreement were enforced after the transfer of the interest in the property had taken place despite non-compliance with s.2. Stephen Smith QC, sitting as a Deputy Judge of the High Court, asked whether "it make[s] a difference if no part of the parties’ agreement was set out in writing, especially when the land elements of the parties’ arrangement have been performed." He concluded that, "following the guidance given by Lewison J. in the Kilcarne Holdings case, it does not."30 We do not know whether this decision can still be considered correct following Keay. In terms of the overall structure of how we deal with land "promises" where there is a lack of formalities such that any promise is not valid contractually, we can see that, as a result of the decision in Keay, the division between "domestic" and "commercial" contexts may be widening.31 There is some debate as to where this division falls, and it is likely that it falls in different places at different times,32 but nonetheless, the commercial context is one where it is becoming increasingly difficult to enforce promises not backed up by a written contract; whereas a more "holistic" approach is being taken to domestic cases.33 There is strong justification for this approach in commercial cases, not least the probative assistance that a written contract provides, and the ensuing certainty. There may, however, be an imbalance in experience between commercial parties posing problems for these justifications. A focus on the existence and quality of legal advice may perhaps be a better approach, which would allow expectations to be fulfilled in cases where promises are made and their effect is not properly understood by either or both of the parties. The reappraisal of the Tootal doctrine in Keay therefore fits well into this picture, since it prevents performance based in misplaced hope and expectation despite legal advice from defeating clear formality requirements. This would, however, leave Mirza, being a "domestic" case, potentially intact, and the scope of the abandonment of Tootal in Keay will therefore require further examination. These remaining uncertainties mean that there is still scope to rely on Mirza as an explanation of Scott L.J.’s comments, at least in a "domestic" context, despite the fact that the principle relied on is, in this author’s view, clearly wrong. Mirza ought

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not to have survived Keay for the very reason that "context" ought not to be determinative as to whether a void contract can magically be resurrected, but we cannot know for sure whether it has been so until it is judicially considered. *Conv. 74 If Mirza too is seen to have been wrong, since part performance will not rescue a void contract (as it should not be able to), the focus will shift onto another "escape route", i.e. proprietary estoppel. Indeed, it is perhaps surprising that estoppel is not discussed on the facts of the present case, although the "commercial context" of the negotiations perhaps dissuaded the Keays from attempting to rely on an argument based on estoppel. In particular, the treatment of Cobbe v Yeoman’s Row Management Ltd 34 in Thorner v Major,35 although not uncritical of Cobbe,36 suggests that there is some weight now to be given to the context of the interactions between the parties (commercial or domestic).37 Estoppel cannot be relied on easily to rescue failed contracts in a commercial setting, although it does seem that proprietary estoppel has "survived" the introduction of s.2 despite the doubts cast in Cobbe.38 Space does not allow a detailed examination of estoppel here, but we can say that in these cases there is a promise, detrimentally relied on. The performance, although not of relevance to the validity of the contractual promise (certainly in commercial contexts, and potentially in domestic situations as well), will, no doubt, now become the focus of the discussion of estoppel. It is obvious that any conclusion as to when s.2 is applicable will have an impact on how significant the narrowing or abandonment of the principle derived from Tootal is. The more situations where s.2 invalidates an agreement, the more crucial it will be to ensure that we are clear as to when performance of some aspects of the agreement will allow others to be enforced, and when proprietary estoppel can intervene. Thus although the decision in Keay is a step in the right direction, it leaves us still unsure as to how and when a lack of formalities will prevent a party to an agreement from enforcing the obligations contained in that agreement. Emma Lees Conv. 2013, 1, 68-74

*.

Department of Land Economy, University of Cambridge.

1.

Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900; [2012] 1 W.L.R. 2855.

2.

Tootal Clothing Ltd v Guinea Properties Management Ltd (1992) 64 P. & C.R. 452; [1992] 41 E.G. 117 CA.

3.

Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2004] EWHC 254...