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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 15
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A687/04
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OPINION OF LORD GLENNIE
in the cause
BRUCE HAMILTON
Pursuer;
against
(FIRST) WILLIAM
GARY FORD and (SECOND) BRYAN WEBB and MRS IONA WEBB
Defenders:
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Pursuer:
Party
First Defender: McNeill;
Anderson Strathern
Second Defenders: Barne;
Warners
30 January 2007
Introduction
[1] This
action came before me on the Procedure Roll on certain of the first and second
defenders' pleas-in-law. Those pleas
included a general plea to relevancy and specification as well as specific
pleas relating to the constitution of the alleged contract and/or trust. Both defenders moved the court to dismiss the
action.
[2] The
pursuer resides at Leitholm, near Coldstream, in Berwickshire. He avers that by missives dated in March and
April 1994 he contracted for the transfer to him of the interest of the tenant
in the lease of subjects known as Knowehead, Leitholm, a property adjacent to
his own house. The price of г25,000 was
met by a loan of г20,250 secured against the property, with the balance being
supplied mainly by him. He avers that he
determined not to take title to the subjects in his own name. Instead, title would be taken in the name of
the first defender, who was the nephew of his then wife and was, at that time,
close to him and his wife. He says that
he explained to the first defender that although the beneficial interest in the
property would remain with him (the pursuer), there were advantages to the
first defender in title being taken in his name. In particular, the first defender would
establish himself as a borrower with a good record, which would assist him when
he came to apply for a mortgage for the purchase of a house for himself. The pursuer explained that while he would
meet the whole costs involved in the arrangement, including the cost of
purchase, the periodical payments in respect of the loan and endowment insurance,
the whole costs of maintenance and other costs related to occupation of the
subjects and the whole costs associated with the transfer of the subjects into his
name in due course, the first defender would have the benefit of the endowment
insurance which was to be taken out in support of the loan, so that when the
loan was repaid, the first defender could keep any benefit in the policy or
transfer it to support a loan taken out by him.
The averments on both sides proceed on a basis that the purchase of the
property went ahead and title was put into the name of the first defender.
[3] The
pursuer avers that the arrangement was to "continue until the first defender
did need a mortgage for his own purposes or until the pursuer wished to obtain
the title in his own name." The pursuer's
case is that this, as well as the matters to which I have already referred, was
discussed and agreed between him and the first defender in the course of the
few days leading up to 20 May 1994.
[4] The
pursuer makes averments that after the purchase was complete he, rather than
the first defender, acted as proprietor in relation to Knowehead. He sought and obtained estimates for
renovation works to the house. He
decided not to carry out those works but instructed and carried out works to
remedy the structural inadequacies in the property at the cost of about г2,000
met by him. He used Knowehead in
conjunction with his own home (whilst the first defender never had a key to the
property). He made regular payments into
an account in the first defender's name, from which payments in respect of the
loan and the endowment insurance were made (whilst the first defender himself
made no payments at all in connection with the property). He met all council tax payments in respect of
the property until after his divorce in February 2002.
[5] In
negotiations between the pursuer and his wife in relation to their impending
divorce, the pursuer avers that he and his wife included in their calculations
of assets the value of Knowehead and the pursuer's liability in relation to the
loan. Part of the agreement between them
was that the pursuer's wife would pay to the pursuer the sum of г25,000 of
which г20,000 was to be used by the pursuer "to repay the outstanding mortgage
in the sum of г20,000 over the neighbouring property in Leitholm in the name
of" the first defender. That is the
property known as Knowehead. That money
was paid to the pursuer.
[6] The
pursuer says that he intended to have the title to Knowehead reconveyed to him
and pay off the loan. He avers that both
his then wife and the first defender were aware of this intention and they
pressed the pursuer for it to be done.
In August 2002, so the pursuer avers, the first defender stressed his
need to progress with the reconveyance, since he wanted to purchase a house for
himself and would require a loan of his own.
Accordingly, he required the loan in his name secured over Knowehead to
be discharged.
[7] From
that point matters took a turn for the worse.
The pursuer avers that the first defender altered his position. In September 2002, the first defender's
solicitors wrote asking that the titles of Knowehead be forwarded to them. In reply, the pursuer's agents explained the
terms of the agreement and asked if the first defender was prepared to proceed,
i.e. with the conveyance to the pursuer.
The first defender's agents, so it is averred, denied the existence of
any such agreement. The pursuer avers
that the first defender told him that he was changing his mind as a result of
pressure from the pursuer's (by then) ex-wife.
In April 2003 the pursuer was told that the first defender intended to
take occupation of Knowehead. Shortly
thereafter, he learnt through the police that the first defender had sold his
interest in Knowehead, with entry on or about 2 May 2003. On
15 May 2003 he
received a note from the second defenders informing him that Knowehead had been
acquired by them. He says, that the
first defender has told him that, after meeting the existing loan and settling
agents' fees, there is little left in the way of free proceeds. He avers that the second defenders were aware
of his claim to have Knowehead transferred to him. Reference is made to various letters passing
between the first and second defenders. He
also alleges that the property was sold to the second defenders at an
undervalue.
[8] The
pursuer wishes to have the title to Knowehead conveyed to him. He remains willing to meet the cost of
repaying the loan and to meet the costs of the discharge of the security over
the property. In the Summons, he concludes
(1) for declarator of the agreement entered into between him and the first
defender on or about 20 May 1994, (2) for declarator that the assignation of
the lease in favour of the first defender dated 20 May 1994 was "truly granted
in trust for the pursuer" under and in terms of that agreement, (3) for
production and reduction of the assignation in favour of the second defenders
and (4) following thereon, for decree ordaining the first defender to grant the
pursuer an assignation of the subjects.
[9] It
is a curious feature of this litigation that the first defender admits, or at
least does not dispute, a large part of the pursuer's case against him. His defence to the action is, essentially, that
the pursuer delayed unreasonably in taking title back into his own name; and that, in some way, this entitled him to
sell the property to a third party without giving any prior notification to the
pursuer. The legal basis for such a
defence was not explained. I am not,
however, concerned on this Procedure Roll discussion with the lack of merit in
the first defender's case. That can be
investigated at proof or, if an appropriate motion is enrolled, on the hearing
of an application for summary decree.
The
first defender's submissions
[10] On behalf of the first
defender, Mr McNeill made submissions under two broad headings, relating
to (a) the contractual obligations pled by the pursuer against the first
defender and (b) whether this was really a "trust" situation as averred by the
pursuer. I propose to deal with these
submissions separately.
[11] Mr McNeill's submissions concerning the case pled in
contract against the first defender fell into two parts. First, he challenged the sufficiency of the
pleadings regarding the terms of the contract.
Secondly, he pointed out that what was alleged was an oral contract
relating to heritable property, and that such contracts required to be in writing,
failing which it was necessary for the pursuer to plead rei interventus or homologation.
[12] Dealing first with the attack on the sufficiency of the
pleadings, I have already noted the pursuer's averment that the arrangement
whereby the title would be taken in the name of the first defender
"would continue
until the first defender did not need a mortgage for his own purposes or until
the pursuer wished to obtain the title in his own name."
Mr McNeill pointed out that,
in his answers, the first defender avers that
"no express
agreement was reached as to what would happen when the first defender needed a
mortgage for his own purposes, other than that the arrangement would come to an
end. The first defender assumed, as he
was entitled to do, that on that event occurring, the pursuer would make
arrangements for the title to be transferred to his own name or that he would
make such other arrangement as suited his circumstances at the time. The only agreement in this regard was that
the title would be taken out of the first defender's name to allow him to
obtain his own mortgage."
In answer to those averments, the
pursuer admitted
"that no express
agreement was reached as to what would happen when the first defender needed a
mortgage for his own purposes other than that the arrangement would come to an
end [and] that the title would be taken out of the first defender's name to
allow him to obtain his own mortgage [and] that the assumption made by the
first defender was an assumption he was entitled to make [and that] it was
accurately made."
Mr McNeill said that the
question was: what is the obligation in
terms of title which rests with the first defender upon termination of the
arrangement by reason of his needing his own mortgage? He submitted that the pursuer did not set up
any implied agreement but simply concluded that there was an obligation on the
first defender to convey the property to the pursuer. He analysed the position in this way. The first defender agreed to take title to
the property. He was under an obligation
to retain title in the property until one of the "trigger events"
occurred. But he did not agree any
obligation as to what would happen when one or other of those events
occurred. He accepted that the pursuer
would probably arrange to put the property into his own name and that, in that
event, the first defender would co-operate in any conveyancing that was
necessary. But he drew a distinction
between an expectation that that was what would happen and a legally binding
obligation to do that. I asked him,
during the course of his submissions, why it would not be possible to imply a
term to cover this. He answered by
saying that if there was an implied term, in terms of which the first defender
was under an obligation to convey the property to the pursuer in the event of
his requiring his own mortgage, a number of questions arose on which the
pursuer required to make averments. What
precisely was the implied term? Within
what time would the conveyancing be required to be done? If it was to be done within a reasonable
time, what was that reasonable time?
When did that reasonable time begin to run? He put it in this way: the pursuer would have to aver that the
trigger event happened on a particular date; that by reason of the implied term the
conveyance should have been affected by some specified later date; and that before then, whilst he was still
under an obligation to convey the property to the pursuer, the defender sold to
a third party.
[13] I reject these submissions.
The question which I have to consider is whether the pursuer has given
fair notice of a case which is relevant in law.
In my opinion he has done that.
He avers, in short, that the arrangement (whereby title would rest with
the first defender) would continue until either the first defender wished to
alter that arrangement (for example because he needed a mortgage for his own
purposes) or until the pursuer wished to alter it. It is obvious, so it seems to me, that in
either case the party wishing to bring the arrangement to an end would require
to give notice to the other party. In
the circumstances in which the arrangements were made, where the pursuer and
the first defender enjoyed a cordial relationship, it is doubtful whether any
formal notice was envisaged. But clearly
one or other party would have to make it clear that the arrangement was to
end. A conveyance from the first
defender to the pursuer would require the co-operation of both parties. Absent agreement about timing, the law would
require each party to perform that which was required of him within a
reasonable time. There is no need to
aver precisely what such a reasonable time is.
Indeed, it is axiomatic that a reasonable time may take into account a
number of factors, including the circumstances prevailing when the parties are
required to perform their part of the transaction. The pursuer makes averments about the reasons
why he did not proceed with the conveyance to him in the period between
February and October 2002. That is a
satisfactory manner of dealing with the question of reasonable time. Whether the averments themselves would, if
established at proof, show that the pursuer had not delayed unreasonably was
not a matter raised in argument before me.
[14] On a broader level, however, it seems to me that the attack on
this part of the pursuer's case misses the point, as does the question
formulated by Mr McNeill. The
pursuer does not complain that the defender did not convey the property to him
within a particular time. His complaint
is that the defender has not transferred the property to him at all; and, indeed, that by selling it to a third
party (the second defenders) has put it out of his power to do so. Such a case is plain and
straightforward. It does not depend at
all upon an analysis of the time within which the first defender should have
taken steps to convey the property to the pursuer. If the question of reasonable time arises at
all, it arises on the first defender's case that the pursuer failed timeously to
take steps to effect the transfer of the property to him. I say "if the question arises at all" because
I do not see how, even if this were established, it would not, of itself, give
the first defender the right to sell to someone other than the pursuer. The first defender does not aver that he gave
the pursuer notice making time of the essence, for example by telling him that
if he did not get a move on, he would sell to someone else. In those circumstances, the precise terms
governing the mechanics of the transfer from the first defender to the pursuer upon
the happening of a trigger event, and the time within which that transfer
should have taken place, seem to me to be neither here nor there.
[15] The second point taken by Mr McNeill, under reference to the
pursuer's averment of a contract, was that any obligation created in 1994 to
convey heritable property to the pursuer would be one of the obligationes literis and as such would
require to be constituted in writing.
There are no averments that the contract was made in writing. Indeed it is accepted by the pursuer that it
was not. There are no averments of rei interventus or homologation.
[16] The contract was made in 1994.
The Requirements of Writing (Scotland)
Act 1995 does not apply to it. I accept
that in those circumstances it is for the pursuer to aver facts amounting to rei interventus or homologation. But it is not necessary for him to use
particular words to do so. He must aver
the facts. The facts averred by the
pursuer in the present case include the following: that he spent money to remedy structural
inadequacies of the property; that he
made payments to the first defender from which the loan was repaid and the
endowment insurance was paid; that he
met all council tax payments in respect of the property; that, in his divorce negotiations in 2002,
the financial arrangements took account of the fact that he would repay the
outstanding mortgage over the property;
and that in August 2002 the first defender himself was pressing for the
agreement to be implemented by the conveyance of the property to the pursuer. All such acts are referable to the alleged agreement
(and indeed not disputed). In my opinion
they are capable, if proved, of supporting a case of homologation. Though the word homologation is missing from
the pursuer's pleading, the facts are set out to instruct such a case. I do not think that the first defender can
complain about lack of fair notice.
[17] Turning to the pursuer's "trust" case,, Mr McNeill pointed
out that the pursuer contended that the transfer of 20 May 1994 was "truly granted in trust for the
pursuer under and in terms of the agreement reached between the pursuer and the
first defender". This meant that his
submissions concerning the inadequacy of the averments of the terms of the
contract applied equally to the trust argument.
But he accepted, under reference to Denvir
v Denvir 1969 S.L.T. 301 and Accountant in Bankruptcy v Mackay 2004 S.L.T. 777, that he could
not argue that the constitution of a trust involving heritage required to be in
writing. Instead, he submitted that the
averments made by the pursuer on record were insufficient to give rise to a
trust. He pointed out that arrangement
made between the pursuer and the first defender were to the advantage of both
parties. The mutuality of advantage was resonant
of contract and not of trust.
[18] I do not agree. The
arrangements undertaken in terms of the agreement between the parties may have
been of advantage to both parties. But
the result of the arrangement, at least according to the pursuer's averments,
was that the first defender held property in his name, knowing that it was held
for the benefit of the pursuer and knowing further that, at some point in time,
he would be required to transfer it to the pursuer. Such an arrangement seems to me to be a
classic case of the first defender holding on trust for the pursuer. At the very least, such a case is arguable.
[19] I should add that, in these circumstances, I would have thought
it appropriate to allow the claim in contract also to go to proof even if I had
had more doubts about whether homologation had been properly pled. A proof on the trust case would inevitably
give rise to exactly the same evidence as would be relevant to the case in
contract, and it would avail neither party to allow the one claim to go to
proof while deleting the other.
The
second defenders' submissions
[20] For the second defenders,
Mr Barne advanced five propositions:
(i) that the averments on Record did not relevantly disclose the
existence of a trust; (ii) that they at
best disclosed some form of arrangement between the pursuer and the first
defender; (iii) that such arrangement,
to be validly constituted, required to be in writing; (iv) that if there were no prior obligation
on the first defender to convey the property to the pursuer, there could be no
"offside goal" (see Rodger (Builders) Ltd
v Fawdry 1950 SC 483); and, in any event, (v) the averments anent
bad faith were irrelevant and lacking in specification. The last two propositions specifically
addressed the validity of the transfer of the property from the first defender
to the second defenders.
[21] In support of his first two propositions, Mr Barne
submitted that the pursuer averred an arrangement whereby either he or the
first defender could trigger the conveyance back to the pursuer. He submitted that that was not resonant of
trust. He referred me to Govan New Bowling-Green Club v Geddes (1898) 25 R. 485 and to Trusts, Trustees and Executors by the
late Professor Wilson and Mr Duncan at para.1-07. Mr Barne emphasised the distinction to be
drawn between, on the one hand, a bare trustee and, on the other, an owner of
land who had come under some contractual obligation. He submitted that the law was reluctant to
impose a trust. Where the obligation to
sell could be triggered by the defender, it was an indication that it was not a
trust situation.
[22] I do not accept this argument.
In my opinion the Govan case
is clearly distinguishable. In that case
the purchasers of a plot of ground, who were all members of the Govan Bowling
Club, raised the money and purchased the plot of land because the Club had no
funds available to it at that time. It
was agreed between the Club and those members, that the Club should have the
right at any time to pay to the members the price paid by them, with interest,
and upon doing so should have the sole beneficial interest in the subjects,
with the right to demand a conveyance of the subjects to it. The Lord President analysed the position in
this way (at p.490):
"...the theory of
the record is that the twenty-two [members of the club] bought the property
with their own money, and became owners of the bowling-green, for themselves
beneficially, and all the right ascribed to the club is a right to demand a
conveyance of the property if and when the club raised the money and tendered
it. Unless and until this happened, the twenty-two
were owners of the property, and their right was only qualified by this
obligation to sell in a certain event.
In the present case, therefore, the land was not the club's, nor was the
money that bought it the club's, and the only right relating to the
bowling-green which the club is said to have had was an obligation granted by
the twenty-two to sell to the club if and when they tendered the price."
Lord Adam and Lord M'Laren each
advanced a similar analysis. In that
case, therefore, it is easy to see why the pursuer's averments did not
relevantly instruct a case based on trust.
The present case, on the pursuer's averments, differs in this respect,
that it was the pursuer who purchased the interest in Knowehead and made all
relevant payments. It was recognised
from the beginning that the first defender held title for the pursuer. The occurrence of the "trigger events"
dictated not whether the first defender should transfer title to the
pursuer but when. It was a
question of timing. The first defender
was at no time free to deal with the property as if it were his own. On that analysis I am satisfied that the
pursuer has made sufficient averments to allow the case based on trust to go to
proof.
[23] In relation to his third submission, Mr Barne adopted what
had been said by Mr McNeill. He
developed his fourth and fifth submissions under reference not only to the Rodger (Builders) case but also by
reference to various passages in the Law
of Property in Scotland by Professor Reid, and in particular the passages
at paras.690 - 699 concerning the so-called rule against "offside goals". That rule is summarised in para.695 in this
way:
"A real right
granted in breach of a pre-existing contract or other obligation is voidable at
the instance of the creditor in that obligation if the grantee knew of the
obligation or if the grant was not of value."
The rule finds its most recent
authoritative expression in the Rodger
(Builders) case and it is from the Opinion of the Lord Justice-Clerk
(Thomson) that its popular name derives.
Mr Barne's fourth submission was that if there was no prior
obligation on the first defender to convey property to the pursuer - and he
accepted that it would make no difference whether the obligation was in trust
or based simply on a contract - then his clients were not caught by this
rule. Since I have found that there is a
relevant case pled that there was such an obligation, this part of his argument
fails. However, his fifth submission was
that the pursuer had not set out any sufficient averments of knowledge or bad
faith to bring the rule into play.
[24] In the summary quoted above, the rule is said to come into play
"if the grantee knew of the [pre-existing] obligation." The question of knowledge is developed at
para.699 where this is said:
"So far as bad
faith is concerned, Stair required of
the grantee 'certain knowledge, by intimation, citation, or the like, inducing malam fidem, whereby any prior
disposition or assignation made to another party is certainly known'. It is thought that this is still the law, and
that a grantee is in bad faith only where he has clear knowledge, at least in general
terms, of the antecedent prohibition of the grant... Once a party knows of an antecedent
prohibition, he is not entitled to assume without enquiry that it is no longer
in force nor is he entitled to rely on the assurances of the grantor."
The authors go on to say in that
paragraph that a failure to take for value has the same effect as taking in bad
faith; and that this may also apply
where, despite the payment of some consideration, the price paid by the grantee
is materially below the true value of the property.
[25] It seems to me that whenever a party is put on notice of an
antecedent obligation, the existence of which would prohibit the grant to him,
then he is at risk if he does not make reasonable enquiries before proceeding
with the transaction. The formulation
is, to my mind, a necessary result of the decision in Rodger (Builders), unless that case is to be treated as limited to
the specific set of circumstances with which the court was there dealing. What enquiries are reasonably required will
depend on the circumstances of each particular case. In the present case the pursuer makes reference
to correspondence between the first and second defenders, through their agents,
in which the first defender gave notice that his right to sell might be challenged. The first defender referred to "some kind of
obligation" under which a third party was entitled to a conveyance of the
property from him. The pursuer avers
that no enquiry was made by the second defenders about that obligation. In their answers, the second defenders quote
some of this correspondence. It is not
appropriate to set it out in full in this Opinion, but to my mind that
correspondence puts the second defenders on notice that there is a potential
impediment to the sale to them, which impediment arises out of an historic
family situation which the first defender hopes, or is confident, will be
resolved. The first defender refers to
the fact that a member of the first defender's family "has the view that [the
first defender was] under some kind of obligation to dispone the property" to
him. In those circumstances it seems to
me that the case falls full square within the principle enunciated in Rodger (Builders). The pursuer avers a case that the second
defenders were put on notice of the existence of an antecedent obligation and
that they took no steps to make enquiries.
He also avers that they bought at an undervalue. For both these reasons it seems to me that
the case against the second defenders is relevantly averred.
[26] I should add two points.
First, in their fifth plea-in-law, the second defenders make averments
that esto the first defender held
title in Knowehead in trust for the pursuer, the pursuer was barred from
challenging the sale to the second defenders by reason of section 2 of the
Trusts (Scotland)
Act 1961. Mr Barne candidly accepted
that section 2 of the 1961 Act would not apply in this case and he invited
me to repel that plea-in-law for the second defenders. I shall do so. Secondly, both Mr McNeill and
Mr Barne made submissions to the effect that the conclusions in the Summons
were defective in that the first conclusion did not set out completely the full
terms of the agreement in respect of which declarator was sought; and that the fourth conclusion (for decree
ordaining the first defender to grant the pursuer an assignation of the
subjects) did not include any reference to the obligation on the first defender
to pay off the loan and other expenses as a condition precedent. As to the first of these points, I do not see
any reason why a conclusion seeking declarator of the existence of a contract
should set out each and every detail. As
to the second point, Mr McNeill accepted that he would not have taken the
case to Procedure Roll on this alone. If
the pursuer is successful, I see no reason why the interlocutor pronounced in
his favour should not deal with the question of payment of the loan and other
expenses as a condition precedent without there being any need to amend the
conclusions.
Conclusion
[27] I shall dismiss the fifth
plea-in-law for the second defenders. Quoad ultra I shall allow the parties a
proof before answer of their averments on Record. Standing the admissions on Record, and the
limited nature of the defences, it is not clear to me what, if any, matters
require probation. I shall therefore put
the case out By Order for parties to consider further procedure.
