Munton v Newham London Borough Council

Compulsory purchase–Notice to treat followed by negotiation of price subject to contract–Completion delayed, value of property increases–‘Subject to contract’ qualification effective, council bound to buy at enhanced value This was an appeal by Newham London Borough Council from a decision of the Lands Tribunal on July 22 1974 determining on a reference by the respondent, Mr Thomas Munton, that the compensation payable to him on the compulsory acquisition of his house at 9 Winton Road, Stratford, London E16, was £5,100. The Lands Tribunal’s decision was reported at (1974) 232 EG 1396. Mr L Swift QC (instructed by the solicitor to the council) appeared for the appellants, and Mr J M Sullivan (instructed by Preston & Kerlys) represented the respondent. Giving judgment, LORD DENNING said: In 1969 there were 1,000 houses in the London Borough of Newham which were slums. The borough made a compulsory purchase order which was confirmed by the Minister. It entitled the borough to acquire the houses, paying the owners the value. One of the houses, no 9 Winton Road, London E16, was owned by a lorry driver, Thomas Munton. He lived there with his wife and three children. On September 12 1969 the borough served notice to treat, but they did no more at that time because they had not made arrangements to rehouse the occupants. Meanwhile the district valuer set to work valuing the houses. In the spring of 1971 he assessed the value of Mr Munton’s house at £3,400. In addition there would be expected to be added about £100 compensation for disturbance. Even then, however, the borough were not ready to occupy. They did not enter into occupation until December 1972. By then the value had increased so much that the district valuer put the value of the house at the time at £5,100 including disturbance. So in 18 months the value had nearly doubled. But in the next few months the property market collapsed. We have no valuation for this house, but I should not be surprised if in the middle of 1973 the value of the house was only £3,000. The question has arisen as to what is the proper compensation to be paid to Mr Munton. The borough say that it is only the £3,400 assessed by the district valuer in 1971, whereas Mr Munton claims that it is the £5,100 which was the value when the borough went into occupation. The borough defended the claim before the Lands Tribunal and lost, the President holding that the compensation payable was £5,100. Before I deal with the facts of the case, I will consider two points of law which were discussed before us. The first is whether, in order to be binding, there must be a memorandum in writing sufficient to satisfy section 40 of the Law of Property Act 1925. Now on this point, a compulsory purchase differs from an ordinary contract of sale and purchase. Two propositions are settled. First, when a notice to treat is given, it binds the local authority to purchase, and the owner to sell, at a price to be ascertained: see Mercer v Liverpool Railway [1903] 1 KB 652 at p 664, approved [1904] AC at p 461. Second, when there is an unconditional agreement fixing the price–whether in writing or by word of mouth–it is the equivalent of a binding contract between the parties: see Harding v Metropolitan Railway Co (1871-72) LR 7 Ch 154. Lord Hatherley LC at p 158 said: ‘When the price is ascertained, you have then all the elements of a complete agreement, and, in truth, it becomes a bargain made under legislative enactment between the railway company and those over whom they were authorised to exercise their power.’  In Dart on Vendors and Purchasers 8th ed pp 255-6 it is said: ‘Where, however, the price is ascertained . . . the contract is complete, and may be specifically enforced by or against the company.’  Similar statements will be found in Re Cary-Elwes’ Contract [1906] 2 Ch 143 and Halsbury’s Laws of England 4th ed vol 8 para 136. Once, therefore, a notice to treat has been served and there is an agreement on the price, a binding obligation is enacted which is equivalent to a contract between the parties. But I do not think this obligation is a contract such as to require the observance of section 40 of the Law of Property Act 1925. It is not a binding contract but a statutory contract, which is not within the 1925 Act. That appears from Pollard v Middlesex County Council (1906) 95 LT 871, where Parker J said: ‘It is quite true that statutory agreements arising out of notices to treat are not within the statute of frauds, and that oral evidence of them may therefore be admitted.’  This is followed in practice. Very rarely do the parties enter into an actual contract in writing. The local authority serves a notice to treat; there is agreement on the price; then the matter is completed by the conveyance and payment of the money. The second point of law is whether, in order to be binding, there has to be one entire sum agreed that comprises not only the value of the property itself but also the compensation for disturbance. It was decided in 1845 that the inquiry was only as to the ‘value of the land,’ as it was held that in this sum there was to be included the compensation for disturbance; so that only one sum was to be awarded. That seems to be the effect of Commissioners of Inland Revenue v Glasgow & South-Western Railway Co (1887) 12 App Cas 315 and Horn v Sunderland Corporation [1941] 2 KB 26. But although only one sum is awarded, it is very proper, in assessing it, to divide it into two parts, (1) the land itself, and (2) disturbance. Starting with the Acquisition of Land Act 1919 and repeated in the Land Compensation Act 1961, Parliament itself has made a division between the two. In section 5 (6) it says: ‘The provisions of rule (2)’–that is, about the value of the land–‘shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.’  Since those Acts, the practice always has been for the compensation for disturbance to be assessed separately from the value of the land. That is as it should be. The value of the land can be assessed while the6 owner is still in occupation, but the compensation for disturbance cannot be properly assessed until he goes out. It is only then that he can tell how much it has cost him to move, such as to get extra premises or to move his furniture. The practice is warranted by two cases in this court: Harvey v Crawley Development Corporation [1957] 1 QB 485 and Judge Lee v Minister of Transport [1966] 1 QB 111. In my opinion that is a quite proper view, for the local authority to agree in the first place with the owner on the value of the house itself and to leave till later the compensation for disturbance. That can be assessed later, when the local authority go into occupation and the house-owner moves. There is one other point I must mention. It is the effect of West Midland Baptist (Trust) Association v Birmingham Corporation [1970] AC 874. Previously for over 100 years the value was taken at the date of the notice to treat. But when inflation came upon us, the House of Lords altered that old rule. They held that in the absence of agreement, the valuation was to be taken at the date when the acquiring authority entered into possession of the property. But if there has been a binding agreement beforehand as to the value, that would no doubt prevail. The borough say that there was firm agreement on the price of £3,400; whereas for Mr Munton it is said that there was no firm agreement, because it was ‘subject to contract.’  It depends on the correspondence. The borough served notice to treat in 1969. In February 1971 the surveyors for Mr Munton put in a claim for £3,500 subject to contract and with vacant possession on completion, plus surveyors’ fees, legal costs and disbursements. It was referred to the district valuer. On May 19 1971 he wrote to Mr Munton’s surveyors: ‘I have considered the matter and I am prepared to recommend for the approval of the acquiring authority and government departments concerned payment of £3,400 . . . in settlement of compensation.’  He added that costs would be paid. Also: ‘Any claim for disturbance, if admissible, will be dealt with when removal takes place. On hearing that your client is willing to accept this sum, I will make my recommendation to the acquiring authority concerned.’  In reply, Mr Munton’s surveyors wrote on December 8 1971: ‘. . . we understand that this offer is now acceptable to the vendor subject to contract.’  On December 14 1971 his solicitors wrote to the town clerk: ‘We understand that the price agreed, subject to contract, is £3,400.’  In a letter of January 5 1972 his surveyors say that the price has been agreed ‘subject to contract.’  The London Borough of Newham replied, saying that the price was agreed and that the conveyancing work was ready to be started. Nevertheless it was not started then, because the arrangements for rehousing were not completed. On March 28 1972 Mr Munton’s solicitors wrote to the town clerk: ‘Our client now tells us that he has found alternative accommodation for his wife and family and that the sale of the property to the council can proceed at the price of £3,400 subject to contract. Vacant possession will be given on completion. We understand that there is a disturbance claim pending and completion will of course be subject to this. Will you please let us know when you will be able to complete so that we can ask our client to arrange his removals.’  The town clerk replied: ‘I acknowledge receipt of your letter of March 28 and await hearing from you with a full 10 days’ notice of the appointment to complete, which should if possible take place on a Monday or a Thursday.’  The solicitors replied on April 12: ‘Thank you for your letter of April 6. We enclose a statement for completion on April 27 and we trust that this will be a convenient date so far as the council is concerned.’  They enclosed a completion statement which gives the figures based on the purchase price of £3,400. That proposal was not fulfilled, because the alternative accommodation did not materialise. Seven months later, on November 17 1972, the council served a notice of entry saying that they would enter into possession in December 1972. In reply Mr Munton’s solicitors wrote: ‘Our client now tells us that he is not prepared to accept the price originally negotiated with the council, and the estate agents are renegotiating with the district valuer.’  They did in fact renegotiate. The district valuer then said that the figure should be £5,100 for the property including disturbance. There the position rests. Mr Munton says that he is not bound by the figure of £3,400 set out in the earlier correspondence, and that he is entitled to £5,100 as from the date of entering into possession. The one question is, was there a firm agreement on the price before the borough entered into possession?  Throughout this correspondence the solicitors and surveyors for the house-owner put into their letters the words ‘subject to contract.’  In my opinion those words have a decisive effect. They mean: ‘Although this figure is there and we agree it, it is not to be regarded as binding. It is only a provisional figure subject to further negotiation. It is not binding.’  The principle was discussed recently in Tiverton Estates Ltd v Wearwell Ltd [1974] 2 WLR 176. It is of the greatest importance that no doubt should be thrown on the effect of those words. We were referred to the case of Michael Richards Properties v St Saviour’s Parish, Southwark [1975] 3 All ER 416, which was decided by Goff LJ. He will deal with it. It is to my mind a very special case on its own facts. I know that in these cases of compulsory purchase there is no contract prepared or signed, but only a conveyance. So the words ‘subject to contract’ have no final application. But nevertheless they have admittedly the effect of preventing there being any firm agreement on the price. In my view the words used so constantly, ‘subject to contract,’ mean that the figure of £3,400 was not agreed so as to be binding. It was only a provisional figure. Apart from this, there are letters of February 28 and May 6 1972 in which the house-owner was saying, ‘Please rehouse me quickly before other people,’ and the corporation were saying to him, ‘If we are going to rehouse you prematurely there will have to be some reduction in the figure which we were going to pay, and it will have to be renegotiated.’  Those letters show me that the figure was not regarded as fixed and binding. In this respect, therefore, on the effect of the words ‘subject to contract’ I agree with the President of the Lands Tribunal. There was nothing equivalent to a contract for a price binding on the parties before the local authority entered into possession. So the ordinary law applies. The value is to be taken as at the date of entering into possession, £5,100. I think the President was right, and I would dismiss the appeal accordingly. SCARMAN LJ: I would agree with the judgment delivered by the Master of the Rolls. GOFF LJ: I agree with the judgment of the learned Master of the Rolls and would myself add nothing but for the fact that I think I ought to say a few words about my own decision in the case of Michael Richards Properties v St Saviour’s Parish, Southwark [1975] 3 All ER 416. That case superficially bears a somewhat attractive similarity to the present case, and Mr Swift relied strongly upon it, particularly the passage at p 424 where I said: ‘This was a sale by tender. Nothing remained to be negotiated, there was no need or scope for any further formal contract, and it is difficult to see how it would be drawn. Nobody ever thought there was. The vendors did not submit a draft contract, nor were they asked to do so, and the matter proceeded with the steps necessary not to negotiate or finalise a contract, or even put it into further form or shape, but with the steps required for completion. In the context of a tender document which sets out all the terms of the contract, and which is required to be annexed to the tender offer, it seems to me that the words ‘subject to contract’ in the acceptance are meaningless, and that I ought to apply the principle of Nicolene Ltd v Simmonds [1953] 1 QB 543.’  I pointed out in that judgment that the case turned on the particular facts. I said: ‘I hope this judgment will not ring warning bells in solicitors’ offices. My decision is on the particular facts of this case’ — and I desire to emphasise that that was the position. In Chillingworth v Esche [1924] 1 Ch 97 at 114 Sargant LJ said: ‘The phrase is a perfectly familiar one in the mouths of estate agents and other persons accustomed to deal with land; and I can quite understand a solicitor saying to a client about to negotiate for the sale of his land: ‘Be sure that to protect yourself you introduce into any preliminary contract you may think of making the words ‘subject to contract.”  I do not say that the phrase makes the contract containing it necessarily and whatever the context a conditional contract. But they are words appropriate for introducing a condition, and it would require a very strong and exceptional case for this clear prima facie meaning to be displaced.’ In my view the facts of the Michael Richards case were very strong and exceptional. There may be other cases–I do not know — in which the facts might again be so strong and exceptional as to require the court to treat the words ‘subject to contract’ as meaningless. If there be any such other cases, they must indeed be rare; and, although I see no reason to think on the facts of that particular case that I decided it wrongly, I would like to make it clear, as I thought I had made it clear at the time, that the case did not throw any doubt upon the well-established and well-settled sanctity of the words ‘subject to contract.’  The peculiarity of the facts in that case was that the plaintiffs by their tender made an unqualified offer to purchase the property, and the conditions upon which it was put up for tender required the tender documents to be annexed to that offer, and they were. Those documents contained all the terms of a fully workedout formal contract, including the incorporation of the National Conditions of Sale, and thereby fixed the time for completion; and they specifically provided that the person whose tender was accepted should be the purchaser. The tender was accepted, and that, in my judgment, was the end of the matter. The wholly inapposite condition under the signature of the letter informing the plaintiffs that their tender had been accepted did not affect the position at all. In the present case, of course, the facts are entirely different. There there was a mistake; here there was none. Here the respondent’s surveyors and solicitors made it clear from the start that the agreement was subject to contract, and they reiterated that in the critical letter of March 28 1972. The appellants did not object to those words, or in any way maintain that there was to be a final agreement. The price agreed was closely bound up with the date of completion, and although the parties were contemplating a certain time for completion, there was in fact no agreement in the present case as to the time for completion of the alleged final agreement. I say, therefore, simply this, that my case must be regarded, as I always considered it to be, as a very special case, and that it should not be applied to any other case without very mature thought as to whether the facts of it do come within the running of a strong and exceptional case sufficient to oust the well-established protection of the words ‘subject to contract.’ The appeal was dismissed with costs.