3PLR – LAKE V. BAYLISS AND ANOTHER

POLICY, PRACTICE AND PUBLISHING, 3PLR, LAW REPORTS

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LAKE

V.

BAYLISS AND ANOTHER

[CHANCERY DIVISION]

[1972 L. NO. 2613]

[1974] 1 W.L.R. 1073

1974 MARCH 18

3PLR/1974/41  (SC)

 

BEFORE:

Walton J.

REPRESENTATION

Sarah C. Cockburn for the first defendant.

  1. J. Millett Q.C. and C. I. Howells for the second defendant.

MAIN ISSUES

Vendor and Purchaser – Contract – Sale of land – Action for specific performance – Sale to third party – Proceeds paid to vendor’s solicitor – Interpleader summons as to whom money should be paid – Whether vendor a trustee for first intended purchaser

M alleged that B, by a written agreement, had agreed to sell certain land to M in consideration of his withdrawing two writs he had issued against B. M issued a writ for specific performance of that agreement and B then sold the land to another purchaser. On an interpleader originating summons, B’s solicitor who had received the purchase money, applied for directions as to whom he should pay the proceeds of the sale:

Held, that on a contract for the transfer or sale of property the vendor became a qualified trustee for the purchaser and accordingly if, before completion, the vendor wrongfully sold to another purchaser, he was accountable to the first intended transferee for the purchase money as a trust; that in the present case the purchase money should remain in court pending the outcome of the action for specific performance.

Dicta of Lord Eldon L.C. in Daniels v. Davison (1809) 16 Ves.Jun. 249, 254 applied.

The following cases are referred to in the judgment:

Daniels v. Davison (1809) 16 Ves.Jun. 249.

Shaw v. Foster (1872) L.R. 5 H.L. 321, H.L.(E.).

No additional cases were cited in argument.

INTERPLEADER SUMMONS

By summons dated September 5, 1972, the plaintiff, Joel Seth Lake (solicitor to Mervyn Victoria Bayliss, the vendor), applied for directions, his client and the intended purchaser, Henry Andrew Mullen, being defendants to the summons, as to what he should do with the sum of £50,000, approximately, which he had received as the proceeds of the sale of the land by the vendor to a purchaser other than Henry Andrew Mullen. The plaintiff took no part in the hearing.

The facts are stated in the judgment.

MAIN JUDGMENT

WALTON J. In this matter the allegation is that Miss Mervyn Victoria Bayliss on December 27, 1968, entered into a written agreement to sell to Dr. Henry Andrew Mullen a certain parcel of land. The consideration for the transfer of that piece of land was a rather unusual one, and it is, in a sense, the very unusual nature of that consideration which has given  rise to the present proceedings in front of me. The consideration was primarily to withdraw two writs which Dr. Mullen had issued against Miss Bayliss and to assume certain liability in respect of a certain planning application.

 

What happened was that, having entered into that agreement on December 27, 1968, Miss Bayliss proceeded to dispose of the land elsewhere. That happened notwithstanding that Dr. Mullen had issued a writ on June 13, 1969, claiming specific performance of that very agreement. There appears to have been either a muddle in a proper search by the purchaser who is, as far as I am aware, completely blameless in this matter, or alternatively, it may be that the purchaser described the land in a slightly different way from the way it was described in the application for the registration of the estate contract. Be that as it may, Miss Bayliss sold the land for the sum of approximately £50,000. The proceeds were received by her solicitor, Mr. Joel Seth Lake, who immediately he had received the proceeds began to have qualms about accounting to Miss Bayliss for the money. Ultimately, by an interpleader originating summons dated September 5,1972, to which Mr. Lake was plaintiff and Miss Bayliss and Dr. Mullen were defendants – which are the proceedings now in front of me – he applied for directions as to what he ought to do with the money.

 

On January 17, 1973, in those proceedings it was ordered:

 

“the defendants proceed to the trial of an issue in the High Court of Justice in which the defendant Henry Andrew Mullen shall be the plaintiff and the defendant Mervyn Victoria Bayliss shall be the defendant and that the question to be tried shall be whether the funds to be paid into court pursuant to the foregoing provisions of this order should be paid forthwith to the defendant in the issue or should remain in court pending the determination of the action now proceeding in the Cardiff District Registry of the Chancery Division of this court between the parties to the issue the short title and reference to the record of which action is Mullen v. Bayliss . . .”

 

and the number is then given.

 

It is apparent from the fact that the order was made on January 17, 1973, that the matter has not been proceeding exactly with expedition. Now it comes in front of me, and the parties are agreed that I should proceed to the trial of that issue which must in fact arise, namely, what ought to be done with the money?

 

I take first the way it is presented from the point of view of Dr Mullen. On his behalf Mr. Millett has urged that although the relief which he is seeking is unusual, one has to go back to first principles, and if one goes back to first principles there is really no difficulty in the matter. He says that it is one of the standing doctrines of the court that upon a contract for the transfer of property being entered into the vendor or intending transferor becomes a trustee for the purchaser or transferee. Admittedly, it is a qualified trusteeship. It does not have all the usual incidence of a bare trusteeship for a cestui que trust, and of course the most glaring and obvious departure from such normal incidence is that the trustee has his own interest, in the shape of the receipt of the purchase money, to protect. Of course he has a lien on the property until he has been paid his purchase money in the normal course of events. But, says Mr. Millett, as to the basic relationship in regard to the land contracted to be sold or transferred, no matter what may be the case in relation to other collateral matters, such as moneys paid under a contract of insurance or receipts under derequisitioning procedures, there is no doubt at all that the property itself is held as by a trustee. That being the case, he says, if in fact before the contract comes to be completed the vendor wrongfully – as is the allegation here-sells the property then the purchaser is entitled, if he is so minded, to say that what has happened is that the vendor has sold trust property, and he is entitled under those circumstances to follow the trust property and say when it comes to the final performance of the contract that he will take the proceeds of sale instead of the property.

 

There is certainly a dearth of authority in the books on this point, and Mr. Millett points out that the reason is, in his view, that no less than four matters must concur before it is worthwhile for a purchaser to pursue this remedy. The first is that the vendor must have sold the property twice over, and that in itself is rare because most people honourably fulfil their obligations. Secondly, for some reason the registration of an estate contract by the purchaser must either not have taken place, or if it has taken place it must have been for some rare reason, such as an error in searching, of no effect. Thirdly – and of course this is most vital – the purchaser must be in time to intercept the purchase money, to trace the purchase money. Once it has been paid into an overdrawn bank account or something of that nature, which is the only likely occasion on which these prior circumstances would concur, it is too late to follow it. Lastly, for some reason the purchaser must prefer to pursue the tracing of the purchase money rather than to pursue his remedy in damages. Where the vendor is solvent, of course there is really very little in it. Again, where the vendor has a lien on the trust property for a purchase price, which will normally be very roughly the amount of the sale price, there is not much in it, and probably it is hardly worthwhile in these days seeking to trace the proceeds of sale rather than simply taking the remedy in damages. But of course in the present case the consideration to be provided by Dr. Mullen is rather special, and if he cannot in fact trace the purchase money in the way suggested, he will of necessity be forced into a completely different contract from the one which he intended to enter into, because he will be left with the rights which he was going to give up in exchange for the land, and he will get nothing but damages. That will be a very extraordinary result as far as he is concerned.

 

Authority appears to be silent on this save for one case which the industry of Mr. Millett has unearthed, a decision of Lord Eldon L.C. in Daniels v. Davison (1809) 16 Ves.Jun. 249. I can go straight away to the passage in the judgment of Lord Eldon L.C. on this point where he says, at p. 254:

 

“My judgment on that point”-after dealing with other points in the case – “lays out of consideration the question, whether, taking Cole not to be affected with notice, Davison, the vendor, is to be considered in equity as holding the money, derived from the second purchase, viz. the difference between the prices, in trust for the person, to whom he had first agreed to sell the estate. The estate by the first contract becoming the property of the vendee, the effect is, that the vendor was seised as a trustee for him; and the question then would be, whether the vendor should be permitted to sell for his own advantage the estate, of which he was so seised in trust; or should not be considered as selling it for the benefit of that person, for whom by the first agreement he became trustee; and therefore liable to account. It is not however necessary to decide that point; . . .”

 

It is perfectly true that Lord Eldon L.C. there puts it in the form of a query, but I think that it is to be understood in the sense that he would have given, if pressed, the answer to that query that that indeed represented the law.

 

Again, the industry of Mr. Millett has found out that Sir George Jessel, when Solicitor-General, arguing the leading case of Shaw v. Foster (1872) L.R. 5 H.L. 321, 327, stated flatly that ” Daniels v. Davison shews that after a contract for the sale of an estate, if the vendor sells to another person for valuable consideration he is accountable for the money as a trust.”

 

In my opinion that is absolutely in line with authority, and entirely represents the law.

 

Miss Cockburn has taken a number of points on behalf of Miss Bayliss, and really her main point was that in the sort of circumstances where the vendor enters into one contract and then resells the property elsewhere, the purchaser is restricted to damages. The trusteeship, she says, is as if it never had been and the purchaser must accept that accordingly. In my view it would be pessimi exempli if a vendor was entitled to shed the character of a trustee by a wholly wrongful act on his or her part. Once one has undertaken the role of trustee then it is a role which, unless discharged by some external circumstance, one must carry out to the bitter end if so required by the other party to the contract. The vendor cannot be heard to say that because of her wrongful act in reselling the property she never was a trustee. She remained a trustee right down to the moment of resale, and accordingly is bound to hold the purchase price as trust property to transfer to the purchaser upon the purchaser completing the obligations on the purchaser’s part.

 

Miss Cockburn did raise a very good point, that is to say, how far does this concept of trusteeship go? Does it follow, for example, if Mr. Millett was right, that if a vendor obtained better offers for the property after having entered into a contract for sale, he would be under an obligation to pass them on? If so, she said, that would be an extraordinary result. I do not think it is such an extraordinary result, but I do not think that that is the sort of question-good question though it is – that can be asked in vacuo. I think one must have a concrete case in which that sort of thing happens before one knows what the duty of the vendor is. After all, in most cases one will know that the purchaser is purchasing the property for his own occupation. Under those circumstances, quite clearly, unless the subsequent offer was astronomical, there would be no real reason for thinking that it would be of any interest to the purchaser. In other cases it may be that the vendor well knows that the purchaser is merely buying for speculation and, although I do not say that it will necessarily be the case, I can see that under certain circumstances it might very well be the case that the vendor ought to pass the offers on.

 

Another point that Miss Cockburn took was on the pleadings in the action for specific performance – which we have referred to as “the Cardiff action” because it was commenced in the Cardiff District Registry. She says that Dr. Mullen ought not to be allowed, and would not be allowed, to amend the pleadings in that action because the amendment relating to the following of the proceeds of sale would be something entirely new and something entirely different which has happened subsequent to the issue of the writ, and therefore a new writ and a new proceeding would be called.

 

I should be very sorry indeed to think that the Rules of the Supreme Court were so ossified and stylised that it was impossible to pursue the action when it is changed somewhat into a protean shape by reason of some action of the defendant. But it seems to me that, although of course not so stated in so many words, there is the implied term, as it were, in the statement of claim following upon the allegation of the written agreement, “and thereby the defendant became a trustee of the property for the plaintiff”; and if one reads that in – which is implied anyway – the transition, if the defendant has wrongfully disposed of the trust property in exchange for much fine gold which Dr. Mullen seeks to trace, becomes a simple and quite obviously clearly allowable amendment as to which I do not think there would be any difficulty whatsoever.

 

Of course, one must remember that the Cardiff action is still being very bitterly fought, and it may very well turn out at the end of the day that there is no such contract as is alleged by Dr. Mullen. But on the basis that there is, it seems to me quite clear that the money should remain in court to abide the outcome of the Cardiff action. In saying that it is to remain in court to abide the outcome of the Cardiff action, of course one must understand that that means when Dr. Mullen finally obtains in the Cardiff action, as amended, a declaration that he is entitled, on fulfilling his part of the contract, to the moneys now standing in court. There can, as far as I can see, be no grounds for an order, as was suggested in argument, that Miss Bayliss pay the money over to him, because in fact she has not got it. It is a trust fund on the hypothesis that he succeeds in the action; it is a trust fund which is now under the jurisdiction of this court, and all he will require – he personally – is a declaration that he is or has become entitled to it.

 

Order accordingly.

 

Solicitors: Seifert, Sedley & Co.; Field, Fisher & Martineau for Hallinan, Blackburn, Gittings & Hambleton, Cardiff.

 

 

 

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