Keay & Anor v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900 (11 July 2012)

Introduction 

We welcome again solicitor Mr Anis Waiz who continues his critical review of recent case law. This case raised again the provisions of section 2 of the Law of Property (Miscellaneous Provisions)  Act  1989 (“the Act”).  A section which has certainly troubled the Courts on a number of occasions. 

 By the proceedings the Keays sought damages for an alleged breach of an oral agreement to progress certain building works.  By its defence, the defendant (“MHL”) raised two issues. First they denied any agreement was made. Secondly, if such an agreement was made, it was not incorporated into an appropriate signed document, and ineffective by reason of non   compliance with section 2 of the Act and thus void. 

The Act 

Section 2 provides;  

2  Contracts for sale etc. of land to be made by signed writing 

(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed and in one document or, where contracts are exchanged, in each. 

(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document. 

(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract. 

Background 

The reader is referred to the Judgment for the full facts.  However   briefly the following facts arose; 

1 In April 2004 a written agreement for the sale of six parcels of land was entered into between a company wholly owned and controlled by the Keays (1), and MHL as buyer (2).  

2 The agreement incorporated the first edition of the Standard Commercial Property Conditions and was conditional upon the grant to MHL of satisfactory planning permission. The agreement required MHL within three months of the date of the agreement to apply for planning permission.  

3 However, MHL’S considered   the local authority required excessive payments as a condition of an agreement under section 106 of the Town and Country Planning Act 1990, Accordingly in March 2005 the parties to the sale agreement entered into a written supplemental agreement (“the Supplemental Agreement”)    the intended effect of which was to reduce the purchase price payable by MHL for the land.  Clause 6 provided that, as varied, the sale agreement was to continue ‘to be of full effect and binding on the respective parties hereto as if each and every provision was set out herein.’  

4 The Supplemental Agreement made no reference to an alleged oral agreement said to have been made between the parties whereby MHL was to have assumed a commitment to enter into the section 106 agreement and, following completion of the sale of the land, to progress certain building works. 

5 The Keays’ sought damages for breach by MHL of the alleged building works obligation. 

The  Issues 

At first instance, the Keays had obtained summary judgment against MHL on the issue as to whether section 2 of the Act applied. That decision turned on two questions;

1. First, whether the oral agreement was subject to section 2.  In turn that depended on the decision  in Grossman v. Hooper [2001] EWCA Civ 615; [2001] 2 EGLR 82  

2. Second, if the oral agreement was subject to  section 2 whether, it was void for want of incorporation within a document complying with section 2. That turned upon a consideration of the decision  in Tootal Clothing Ltd v. Guinea Properties Ltd (1992) 64 P & CR 452.

At first instance the judge held that the Grossman point could not be decided upon a summary judgment application but only at a trial. He declined to decide whether or not the oral agreement was one to which section 2 applied. However, it should turn out at trial that it was one to which section 2 applied, he also held that, in the events that had happened, Tootal showed that MHL’s contention that the agreement was void had no real prospect of succeeding at trial.  

MHL, appealed the judge’s decision on the Tootal point. 

The Appeal 

The Court of Appeal considered section 2 of the Act upon the validity of the alleged oral agreement.  The following are the germane points:

1 First it considered the decision in Grossman v. Hooper [2001] EWCA Civ 615; [2001] 2 EGLR 82 .  The reader is referred to the facts in that case for brevity.  Chadwick LJ, who delivered the lead judgment, in that case noted it was unhelpful in answering the relevant question to ask whether the agreement in that case was a collateral agreement. Referring  to  section 2(1) of the Act  the phrase ‘the terms which the parties have expressly agreed’ means the terms (so far as they are not to be implied) upon which the parties for the sale or other disposition have agreed that the relevant interest in land shall be sold or otherwise disposed of. They do not refer to the terms upon which the parties have agreed (albeit contemporaneously) that some other transaction should be entered into. 

 The relevant inquiry was, therefore, (1) upon what terms did the parties agree that the land, or interest in land, was to be sold; (2)) are all those terms incorporated in the document they have signed?  Chadwick LJ noted the two stages of the inquiry, did the terms upon which the parties agreed that the land was to be sold include a term or terms that had not been incorporated into the signed document. 

2 Lord Justice Rimer in Keay stated that he did not derive from Grossman any guidance by way of principle that added materially to what is to be found in section 2(1). 

3 The question to which section 2(1) requires an answer is whether the written document the parties have signed as recording the terms for the sale or other disposition of an interest in land includes all the terms of such sale or disposition that they have expressly agreed.   It is a question of fact. 

4 The answer may be that the disputed term was not a term of the relevant sale or other disposition but was (or was part of) a strictly unrelated transaction.  In other cases, it may be clear that it was such a term. Grossman was a case of the former. 

5 Lord Justice Rimer noted that by the Supplemental Agreement the parties to the sale agreement reached an agreement as to its variation. Such agreement had to be contained in a document satisfying section 2. That is because when the parties to a contract agree to vary it, they are in effect entering into a new contract. An agreement varying an existing contract for the sale or other disposition of an interest in land will only do so validly if made in a written and signed document that itself contains or incorporates all the expressly agreed terms of the original agreement and so itself complies with section 2 ( McCausland and Another v. Duncan Lawrie Ltd and Another [1997] 1 WLR 38).  

The Supplemental agreement purported to comply with section 2. However, the critical question is whether it needed also to incorporate the works obligation on the basis that that was an expressly agreed term of the variation of the sale agreement.  

6 As to Tootal Clothing Ltd v. Guinea Properties Ltd (1992) 64 P & CR 452  (the facts of  which the reader is referred to in the judgment) Lord  Justice Rimer noted that in that case he inferred  that by reciting and being expressed to be supplemental to a lease agreement, an agreement in that case incorporated all the terms of the lease agreement, so that prima facie it independently satisfied the requirements of section 2. Thus that case could probably have been decided on the simple ground that the claim was brought under a contract, and was section 2 compliant. However, it was not decided on that ground.  The court considered its decision by a different route, which Lord Justice Rimer had difficulty in identifying the reason for the decision.
The decision
Giving the lead Judgment Lord  Justice Rimmer held;

1 The decision in  Tootal did not support counsel for the Keays  submissions that, once the land elements of the sale agreement were completed in April 2006, it was open to the Keays to sue MHL for the alleged breach of the works obligation that should have been, but was not, included in the supplemental agreement. 

2 Its omission from the Supplemental Agreement rendered that agreement a nullity.  

3 The sale agreement remained unvaried by it, although the parties may not have appreciated that.  

4 As the Supplemental Agreement was a nullity, no claim can be brought in respect of the works obligation.  

5 The status of that obligation was that it was at most a proposed contractual term that was not, in the event, incorporated into any valid contract. It is not capable of being independently enforced. 

Conclusion 

This case serves as a timely reminder of the pitfalls in drafting and the intricacy of Section 2 of the Act. Ultimately as noted above it is a question of fact.

It is worth remembering the test laid out in  Grossman v. Hooper [2001] EWCA Civ 615; [2001] 2 EGLR 82. The relevant inquiry should be (1) upon what terms did the parties agree that the land, or interest in land, was to be sold; (2)) are all those terms incorporated in the document they have signed?   

  It is also worth repeating Lord Neuberger MR, in Helden v. Strathmore Ltd [2011] EWCA Civ 452; [2011] 2 EGLR 39:  

 “Section 2 is concerned with contracts for the creation or sale of legal estates or interests in land, not with documents that actually create or transfer such estates or interests. So a contract to transfer a freehold or a lease in the future, a contract to grant a lease in the future or a contract for a mortgage in the future are all within the reach of the section, provided of course that the ultimate subject matter is land. However, an actual transfer, conveyance or assignment, an actual lease, or an actual mortgage are not within the scope of section 2 at all”. 

A timely reminder.  

Kind regards 
Today's Conveyancer