Englewood Properties Ltd v Patel & Anor

A vendor under a specifically enforceable contract is a qualified trustee for the purchaser. The vendor’s equitable duties arise from the contract and protect the interest which the purchaser has acquired. They ordinarily require reasonable care to preserve the property’s physical and legal state pending completion.

Absent agreement, those duties do not require the vendor to impose restrictive covenants when separately selling adjoining property. Such an obligation does not preserve the subject matter of the purchaser’s contract merely because its omission might affect value or expose the purchaser to a collateral contractual risk.

An auction bidder remains personally liable where the auction conditions clearly impose liability even on a disclosed agent. Knowledge of the agency and subsequent dealings with the principal do not, without an inconsistent common assumption or waiver, establish an estoppel.

Englewood sold a freehold and leasehold investment at auction to Cornberry Ltd through Mr Patel. The auction conditions provided that a successful bidder was personally liable even when acting as agent. The property was subject to a lease containing arrangements intended to protect Woolworths from competition by fixed-price stores in adjoining units.

Englewood sold the adjoining units without requiring their purchasers to give the protective covenants contemplated by the lease. The defendants refused to complete and asserted that Englewood, as vendor and constructive trustee pending completion, had diminished the value of the property. Mr Patel also denied personal liability and relied on estoppel by convention.

Master Moncaster granted Englewood summary judgment for specific performance. The defendants appealed. The central questions were whether the vendor’s interim equitable duties extended to dealings with adjoining properties and whether Mr Patel had a realistic prospect of avoiding personal liability.

1. Appeal dismissed. Neither defendant had a realistic prospect of establishing the asserted breach of the vendor’s equitable duty. Mr Patel also had no realistic prospect of avoiding the personal liability imposed by the auction conditions.

2. The description of a vendor as trustee for the purchaser expresses a qualified relationship. The duties arise because the vendor has agreed to sell property under a specifically enforceable contract. They do not arise from the full incidents of an ordinary trust. Equity protects the interest acquired by the purchaser and ordinarily requires the vendor to preserve the property, including its physical and legal state, pending completion.

   The established duties include taking reasonable care of the property, avoiding conduct which could forfeit a leasehold title, and consulting the purchaser before conduct such as reletting which would materially alter the legal state of the property. The ratio of Dowson v Solomon was that a leasehold vendor must give good title and, subject to the contract, must avoid steps capable of producing forfeiture.

3. Those principles did not arguably require Englewood to impose restrictive covenants upon purchasers of adjoining lots. The omission concerned a lessor’s covenant and could not forfeit or otherwise alter the interest which was the subject of the sale. In the absence of an express contractual obligation, the vendor’s duty to preserve the property did not extend to controlling the terms on which adjoining properties were sold.

   Sinclair-Hill v Southcott, which prohibited withdrawal of a pending planning application, lay at the limit of the principle. It was supportable, if at all, only because the application formed part of the property’s existing state.

4. The Notices to Prospective Buyers and Common Auction Conditions imposed personal liability upon Mr Patel in clear terms, notwithstanding that he acted as an agent. The auctioneer’s knowledge of the agency and subsequent dealings with Cornberry Ltd were consistent with those conditions. There was no evidence of waiver, variation or a common assumption capable of founding an estoppel by convention.

1. High Court (Chancery Division): Lawrence Collins J dismissed the defendants’ appeal from Master Moncaster’s order.

2. High Court (Chancery Division), Master Moncaster: On 20 August 2004 the Master granted summary judgment against both defendants for specific performance and gave permission to appeal.