Eleftheriou and others v Costi and another

Sale of land – Oral agreement – Purpose trust – Claimants agreeing to sell business and grant lease of property to defendants – Defendants occupying property and trading before formal written agreement reached – Defendants making payment in anticipation of agreement – Negotiations breaking down – Claimants bringing proceedings for payment of rent and outstanding payment for business – Defendants reclaiming sum already paid – Whether defendants liable for use and occupation of property – Whether claimants entitled to retain monies received – Whether first claimant holding monies on trust – Whether claimants entitled to further payment – Whether parties liable for interest – Claim dismissed – Counterclaim allowedIn November 2009, the claimants purchased the freehold title to a property in Leicester which they converted into a fish and chip shop with residential accommodation on the first floor. The conversion had been funded in part by L and his co-investor with the intention of taking a long lease of the property and running the shop. L opened the shop in September 2010. In November 2010, L and his co-investor met the defendants who were looking to purchase a fish and chip shop. The defendants entered into negotiations with L and the claimants and agreed terms on which the defendants would take over the running of the shop and a lease of the property. However, there was no formal written agreement. In January 2011, the defendants paid the first claimant £150,000 in anticipation of acquiring the business and a long lease of the property, with a further £25,000 to follow. They then moved into the property.It was the common intention of the parties that a lease would be granted for rent only, in the sum of £500 per week, and that the entire sum of £175,000 would be attributed to goodwill and fixtures and fittings. The defendants’ trading from the shop was not successful and negotiations broke down. The defendants continued to occupy the property until April 2012, but failed to pay any rent for the entire period of their occupation.The claimants commenced proceedings for payment of the outstanding rent and the further £25,000 for goodwill and fixtures and fittings. The defendants counterclaimed for repayment of the £150,000 already paid. The issues for the court were: (i) whether the defendants were liable to pay a sum for use and occupation of the property; (ii) whether the claimants were entitled to retain the monies received from the defendants; (iii) if not, whether the monies were held by the first claimant on trust for defendants; (iv) whether the claimants were entitled to be paid a further £25,000; and (v) whether any sums were due for interest.Held: The claim was dismissed. The counterclaim was allowed.(1) On the evidence, the defendants had been permitted occupiers of the property in anticipation of the transaction being formally completed and, implicitly, on the basis that such occupation would not be gratuitous, not least because they were to operate a business from the shop and had been able to occupy the flat. That arrangement might be characterised as a tenancy at will but, whatever the characterisation, the circumstances sufficed for a decision that the defendants were liable to pay the claimants the agreed sum of £31,650 for their occupation and use of the property. (2) On the facts, the parties had mutually agreed that they were not to be legally bound to the transaction agreed orally unless and until they had committed themselves to a lease of the property and a contract and assignment for the sale and transfer of the business or the assets, including goodwill, of the business carried on at the shop by signing the same. The defendants had paid £150,000 to the first claimant in anticipation of a contract, strictly a lease and a contract and assignment, which had not been concluded. In general terms, in such circumstances the paying party had a restitutionary right to recover the payment on the ground of total failure of consideration, the consideration being the expected formation of the contract. Without more, such a right would be personal, not proprietary.(3) The money had not been paid to the first claimant subject to a purpose trust. It was significant that at the time that the first claimant received the monies from the defendants they had been aware that there was a risk that some part of that sum would be paid away to L and his co-investor. There had been no express requirement to keep the monies separate or to hold the monies to the defendants’ order. Moreover the defendants were to be taken to have known that the bulk of the monies had been transferred into the first claimant’s current account with the remainder paid in cash. It was also significant that no attempt had been made to impose a fetter on the first claimant’s freedom to use or dispose of the monies for two weeks after payment. In all those circumstances, the court was not satisfied that the arrangements between the parties had been intended to provide for the preservation of the defendants’ rights through the medium of a trust: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 and Twinsectra Ltd v Yardley [2002] 2 AC 164 applied; Bieber v Teathers Ltd (in liquidation) [2012] EWCA Civ 1466 considered.The first claimant’s position was closer to that of the estate agent who received money as a “stakeholder” in Potters (a firm) v Loppert [1973] Ch 399 where the court held that a pre-contract deposit paid by a prospective purchaser was received subject to an obligation to repay the money on request unless and until a contract was concluded, but the recipient was not a trustee. Material considerations included that until the event was known the recipient was to keep the money in his own hands, but if the recipient employed the money he was entitled to any profit and answerable for any loss. In this case, the defendants were entitled to recover the balance of the £150,000 from the claimants on the basis of a total failure of consideration.(4) The claimants were not entitled to any further payment from the defendants. On the evidence, there was nothing to suggest that the sale of the business carried on at the shop and the grant of a lease of the property were independent transactions. The evidence was overwhelming that they were to be inter-dependent aspects of a single transaction between the claimants as vendors/lessors and defendants as purchasers/tenants.(5) In relation to the sum which the first claimant was obliged to repay to the defendants, it was accepted, by reference to the decision in Potters, that if the first claimant was not a trustee but was merely holding money unless and until completion of the transaction, then the first claimant was not liable for interest. As to interest on the claimant’s entitlement to £31,650 pursuant to a tenancy at will or for occupation and use and to £5,000 for stock, the claimant might ordinarily have a claim to interest. However, as he had had the use of that money, and had in fact made use of it and more, he would be doubly compensated if he was also to be awarded interest.Andrew Harper (instructed by Oliver Charles, of Leicester) appeared for the claimants; Ali Tabari (instructed by SGC Solicitors, of Nottingham) appeared for the defendants.Eileen O’Grady, barrister