Ezair v Conn & Anor

A purchaser under an uncompleted contract for the sale of land acquires only the equitable rights generated by that contract. Those rights remain subject to its terms, including any contractual notice required before completion.

An intermediate purchaser cannot, merely by entering into a sub-sale, confer on the sub-purchaser a proprietary interest enforceable directly against the original vendor. Equity will not create an assignment or constructive trust where the parties’ enforceable contracts already define their rights and there was no distinct promise, reliance or common intention.

An application under section 234 of the Insolvency Act 1986 is a summary means of placing a company’s apparent property under an office-holder’s control. It does not enlarge the company’s substantive rights and is generally unsuitable for prosecuting a contractual claim for specific performance.

The appellant remained the registered owner of six properties. He had contracted to sell them to Northern Estates Ltd in 1999, which contracted to sell them to Charlotte Street Properties Ltd in 2003. Both contracts required notice before completion, but the properties continued to rest in the appellant’s name.

Charlotte Street Properties Ltd entered administration. Its administrators applied under section 234 of the Insolvency Act 1986 for transfers of the properties, contending that the company was their beneficial owner and could demand the legal estate immediately. HH Judge Halliwell accepted that the appellant held the properties on bare trust for the company and ordered their transfer: [2019] EWHC 1722 (Ch).

The appeal concerned whether the sub-sale created rights enforceable directly against the registered owner, whether any equitable interest displaced the contractual notice requirements, and whether a post-judgment assignment and notice could sustain the order on appeal.

1. Appeal allowed and section 234 application dismissed. Section 234 of the Insolvency Act 1986 is procedural. It enables an office-holder to obtain control of property to which the company appears entitled, but does not enlarge the company’s substantive rights. Although an apparent-entitlement dispute may be resolved within the procedure, the section was not intended as a means of prosecuting a claim for specific performance or damages in lieu. Such a contractual claim should ordinarily be brought in the company’s name: paras [26]–[27], [31].

2. The judge’s finding that the benefit of the 1999 agreement had passed to the company through constructive trust or estoppel was wrong in principle. The parties’ relationships were governed by enforceable contracts. The company financed the purchase and treated the properties as assets in reliance on the 2003 agreement, not on any promise or common intention that the 1999 agreement would be assigned. Equity therefore had no basis for creating an assignment or constructive trust: paras [37]–[40].

3. A vendor’s description as trustee for a contractual purchaser reflects the duties created by the specifically enforceable contract. It does not give the purchaser unqualified beneficial ownership equivalent to an irrevocable declaration of trust. Under Berkley v Poulett and Southern Pacific Mortgages Ltd v Scott, an intermediate purchaser cannot transfer to a sub-purchaser a proprietary interest enforceable directly against the original vendor merely by entering into the sub-sale: paras [47]–[51].

4. Any equitable interest arising from a contract of sale remains governed by the contract. Neither the trust analysis nor payment of the consideration displaced the agreed notice machinery. The 1999 agreement required notice from Northern Estates Ltd, while the 2003 agreement required notice from Charlotte Street Properties Ltd. Neither required notice had been served. The appellant’s statements about beneficial ownership did not alter that conclusion: paras [43], [52]–[55].

5. The Court declined to permit reliance on the assignment and notice executed after judgment. Although the Court possessed jurisdiction and broad powers under the Civil Procedure Rules 1998, introducing that new basis would risk injustice because the appellant had not had a proper opportunity to deploy any available defences. The administrators could commence fresh proceedings founded on the later assignment and notice: paras [58]–[64].

Henderson and Rose LJJ agreed with Patten LJ: paras [65]–[67].

• Court of Appeal (Civil Division): The appeal was allowed unanimously and the section 234 application was dismissed: [2020] EWCA Civ 687.
• High Court, Companies and Insolvency List: HH Judge Halliwell held that the appellant held the properties on bare trust for Charlotte Street Properties Ltd and ordered their transfer to the company: [2019] EWHC 1722 (Ch).
• High Court, preliminary issue: HH Judge Eyre QC held that the administrators’ claim was potentially determinable under sections 234 and 236 of the Insolvency Act 1986. No appeal was brought from that ruling.