Coles and others (Trustees of the Ward Green Working Men’s Club) Samuel Smith Old Brewery (Tadcaster) (an unlimited company) and another
Pill, Sedley and Rimer LJJ
Sale of land – Option to purchase freehold – Option unregistered – Appellants attempting to exercise option – Freeholder selling to wholly owned subsidiary for sole purpose of avoiding obligation to sell to appellants – Specific performance refused against freeholder and subsidiary – Whether transaction a sham – Whether possible to order specific performance – Appeal allowed
The appellants were the trustees of a working men’s club. In that capacity, they held a tenancy of the club premises and a long-standing option to purchase the freehold from the first respondent landlord. The option had not been registered under either the Land Charges Act 1972 or the Land Charges Act 1925. In 2002, the appellants sought to exercise the option. The first respondent did not wish to sell to them and, instead, sold the property to the second respondent, its wholly owned subsidiary, for £7,996, on the basis that the option would be void against a purchaser of the legal estate for money or money’s worth.
The appellants brought proceedings against the respondents, seeking specific performance of the contract for sale that had been created by the exercise of the option. Refusing that relief, the judge held that the sale to the second respondent was not a sham, notwithstanding that the purchase price was below the value of the property and that the sale had taken place for the sole purpose of avoiding the obligations under the option. The judge accepted the respondents’ arguments that the specific performance could not be ordered against either the first respondent, which no longer owned the property, or the second respondent, against which the option was not binding. He instead awarded damages for breach of contract.
Sale of land – Option to purchase freehold – Option unregistered – Appellants attempting to exercise option – Freeholder selling to wholly owned subsidiary for sole purpose of avoiding obligation to sell to appellants – Specific performance refused against freeholder and subsidiary – Whether transaction a sham – Whether possible to order specific performance – Appeal allowedThe appellants were the trustees of a working men’s club. In that capacity, they held a tenancy of the club premises and a long-standing option to purchase the freehold from the first respondent landlord. The option had not been registered under either the Land Charges Act 1972 or the Land Charges Act 1925. In 2002, the appellants sought to exercise the option. The first respondent did not wish to sell to them and, instead, sold the property to the second respondent, its wholly owned subsidiary, for £7,996, on the basis that the option would be void against a purchaser of the legal estate for money or money’s worth.The appellants brought proceedings against the respondents, seeking specific performance of the contract for sale that had been created by the exercise of the option. Refusing that relief, the judge held that the sale to the second respondent was not a sham, notwithstanding that the purchase price was below the value of the property and that the sale had taken place for the sole purpose of avoiding the obligations under the option. The judge accepted the respondents’ arguments that the specific performance could not be ordered against either the first respondent, which no longer owned the property, or the second respondent, against which the option was not binding. He instead awarded damages for breach of contract.On appeal, the appellants submitted that, inter alia, the judge could have made an order under which the first respondent was required to direct the second respondent to transfer the property to the appellants.Held: The appeal was allowed. The judge had correctly refused to order specific performance against the second respondent: Midland Bank Trust Co Ltd v Green [1981] AC 513 applied. The transaction with the second respondent had been a genuine sale to a genuine company, albeit at a low price, and could not be regarded as a sham: Jones v Lipman [1962] 1 WLR 832 considered. However, specific performance could have been ordered against the first respondent. It would have been possible to order the first respondent to procure a transfer by the second respondent to the appellants; the first respondent could, if necessary, have changed the directors of the second respondent to overcome any objection from their side: Jones considered.Godfrey Jarand (instructed by Bailey & Haigh, of Goole) appeared for the appellants; Gary Cowen (instructed by Bromet & Sons, of Tadcaster) appeared for the respondents.Sally Dobson, barrister
