Eleftheriou& Ors v Costi & Anor

A transaction involving the grant of a lease and the sale of a business may remain wholly subject to contract where the parties intend legal obligations to arise only on execution of formal documents. An oral agreement for the disposition of an interest in land is ineffective unless it satisfies section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. Where anticipated contracts are never concluded, money paid in expectation of completion is generally recoverable personally for total failure of consideration, subject to proper allowances. A Quistclose-type trust requires sufficiently certain terms restricting the recipient’s use of the money. The absence of any requirement to keep the money separate was fatal to the trust claim on the facts.

The claimants owned premises intended to operate as a fish and chip shop with residential accommodation. The defendants negotiated with the first claimant concerning the business, fixtures, goodwill and a proposed long lease. They paid £150,000 and took possession, but no lease, business sale agreement or assignment was executed.

The claimants sought sums for occupation and further payment. The defendants sought repayment, contending that the anticipated transaction had failed and that the money was held on trust pending completion. The court determined the parties’ contractual intentions, the effect of section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989, the restitutionary consequences of total failure of consideration, and whether a purpose trust arose.

1. Nature of the transaction. The parties intended the sale of the existing business and the grant of a long lease to be inter-dependent aspects of one transaction. Their correspondence was consistently expressed to be subject to lease and contract. They mutually intended not to be legally bound unless and until the lease and the business sale and assignment documents were signed.
2. Effect of section 2(1). The proposed lease transaction was ineffective because no written contract satisfying section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 was concluded. The alleged separate oral business agreement could not be separated from the intended lease transaction on the evidence.
3. Restitution. The defendants paid £150,000 in anticipation of contracts which were never concluded. That constituted a total failure of consideration and gave them a personal restitutionary claim. The repayment was reduced by £31,650 for use and occupation and £5,000 for stock appropriated by the defendants, leaving £113,350 recoverable from the first claimant.
4. Purpose trust. The principles in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 and Twinsectra Ltd v Yardley [2002] 2 AC 164 concerned express stipulations restricting the use of money. A purpose trust might arise after payment if the three certainties were established and the recipient appreciated, or objectively ought to have appreciated, that new terms applied. Here, there was no express or objectively ascertainable restriction on the first claimant’s free use of the money and no requirement to keep it separate. The trust claim therefore failed.
5. The first claimant’s position was analogous to that of the stakeholder in Potters (a firm) v Loppert [1973] Ch 399. He was obliged to repay the money if the transaction failed but was not a trustee and was not liable for interest on the repayment.
6. The defendants were permitted occupiers, in circumstances properly characterised as a tenancy at will or equivalent non-gratuitous occupation, and owed £31,650 for use and occupation. The claim for a further £25,000 or £30,000 failed. Interest was not awarded on the sums payable to the claimants because that would have produced double compensation.

First-instance decision. No prior appellate decision is stated in the judgment.