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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Richards v Wood [2014] EWCA Civ 327 (27 February 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/327.html Cite as: [2014] EWCA Civ 327

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER COUNTY COURT
(DISTRICT JUDGE MATHARU)

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 February 2014

1. LORD JUSTICE LEWISON:

The Issue.

2. When Mr and Mrs Wood decided to exercise their right to buy their council house they did so with the aid of monies provided by their son-in-law, Mr Richards. The three of them entered into a declaration of trust. The main issues raised on this appeal are what its effect was and whether Mr and Mrs Wood were in breach of its terms.

The Facts.

3. Mr and Mrs Wood were the tenants of 61 Park Avenue in Chadderton in Oldham. It was a council house of which Oldham Borough Council were the freeholders. They exercised their statutory right to buy in 1989. That entitled them to buy the freehold at a discount from its market value. Mr and Mrs Wood did not have the funds with which to complete the purchase. They obtained the necessary funds from their son-in-law, Mr Richards.
4. When the purchase was completed the three parties entered into a declaration of trust. The declaration began by reciting the transfer from Oldham Borough Council to Mr and Mrs Wood and the agreement to hold the property on trust for themselves and Mr Richards "as to the shares herein after mentioned" and continued:

"3. At the date of the said transfer the market value of the property agreed with the Oldham Borough Council was £23,500. The agreed discount to which the purchasers were entitled was £14,100 and the purchase price paid by the purchasers to the council was therefore £9,400. Part of the said purchase price of £5,000 has been provided by Mr Richards and the balance of £4,400 by the purchasers."

5. Clause B of the declaration said that on the sale of the property the proceeds would be divided:

"on the basis of the initial respective contributions set out in clause 3 above provided always that if the purchasers or Mr Richards shall expend further monies on the property by way of improvement such monies shall be regarded as an increase in the interest of the person so providing the same and shall be taken into account in any division of the proceeds of sale."

6. Clause C contained a covenant by Mr and Mrs Wood to keep the property in repair. Clause D provided for the property to be sold "at the then full market value "on the happening of certain events. Clause E provided for the destination of the property in the event that it had not been sold before the death of the survivor of Mr and Mrs Wood. In that event the property was to go to Mr Richards' two sons, Mark and Glenn, in equal shares.
7. In fact the whole of the sum of £9,400 came from Mr Richards: £5,000 by cheque and £4,400 in cash.
8. Between August 1989 and October 1990 Mr and Mrs Wood paid for double glazing to be installed at the property. The overall cost was £3,878.
9. In 2006 Mr and Mrs Wood sold the property to their son, Mr Michael Wood, and his wife Janet. The purchase price was £102,000. Before the sale they took advice from a local estate agent called Kirkham. Kirkham said that a reasonable asking price would be £114,950 but that they would be "happy to ask slightly higher if you wish." They proposed a fee of 1.5 per cent of the actual price achieved. However, Mr and Mrs Wood did not place the property for sale on the open market. Instead, as I have said, they sold it to their son and daughter in law for £102,000. Based on their interpretation of the declaration of trust and taking in to account Mr Wood's expenditure on double glazing they calculated that Mr Richards was entitled to £17,484 as his share of the proceeds of sale. Their calculation was set out in a letter dated 9 October 2006. That amount was tendered in May 2007 but refused.
10. In addition to disputing the interpretation of the declaration of trust, Mr Richards also alleged that the sale was a sale at undervalue. He therefore began proceedings. Both sides instructed valuers for the purposes of the litigation, each of whom made an expert report. They also met and in the light of the meeting agreed a joint statement. That agreed statement records that each valuer arrived at a valuation by reference to comparables and that "such sales show relatively wide ranging prices and values."
11. Thus Mr Marshall MRICS for Mr Richards arrived at a value of £111,000 and Mr Morgan FRICS for Mr and Mrs Wood arrived at a value of £105,000. They agreed, however, that:

"It is widely established that valuations prepared by chartered surveyors are subject to a degree of tolerance and agree that the difference between their valuations is within an acceptable range of tolerance."

12. They agreed that a 10 per cent margin of error was acceptable for a valuation of that type and that in the circumstances a valuation of £108,000 was a reasonable compromise. They then compared that with the actual sale price of £102,000. They commented on that as follows:

"Mr Morgan is of the opinion that since the sale did not involve the services of an estate agent and associated deduction of commission charges the agreed price was within a reasonable and normal negotiation range of the market value. Mr Marshall also considers that the price of £102,000 is within an acceptable degree of tolerance from his valuation of £111,000."

The Trial.

13. The trial was heard in the Manchester County Court by District Judge Matharu. She delivered a rather discursive extempore judgment in which she held:

1. The value of the discount to which Mr and Mrs Wood were entitled formed part of their initial contribution.

2. The cost of the double glazing had to be added to that contribution.

3. The sale of the property for £102,000 was not a breach of trust.

4. Mr and Mrs Michael and Janet Wood were not guilty either of knowing receipt of trust property or of dishonest assistance in a breach of trust.

14. On this appeal Mr Anthony Elleray QC appears for Mr Richards. Mr Robert Darbyshire appears for Mr and Mrs Wood senior and Mr David Gilchrist appears for Mr and Mrs Michael and Janet Wood.

The Initial Contributions.

15. Since we are concerned with the interpretation of a written declaration of trust the extent of the parties' initial contribution is a question of interpretation of that document. The principles of interpretation are well established and I need not set them out in detail. In Marley v Rawlings [2014] UKSC 2; [2014] 2 WLR 213 Lord Neuberger PSC gave a short summary at [19]:

"When interpreting a contract the court is concerned to find the intention of the party or parties and it does this by identifying the meaning of the relevant words (a) in the light of (i) the natural and ordinary meaning of those words (ii) the overall purpose of the document (iii) any other provisions of the document (iv) the facts known or assumed by the parties at the time that the document was executed (v) common sense but (b) ignoring subjective evidence of any parties' intentions."

16. In considering how to interpret a declaration of trust in the context of a purchase of property which has been possible as a result of a combination of an entitlement to statutory discount and the provision of cash the court is, I think, entitled to have regard to the legal background and thus to the way in which statutory discount has been treated as a matter of the general law of trusts. As far as the cash contributions are concerned, the declaration of trust is conclusive. Although the whole of the cash was in fact provided by Mr Richards the parties entered into the transaction on the basis that it was to be treated as having been provided as to £5,000 by Mr and Mrs Wood and as to the remaining £4,400 by Mr Richards. All parties are bound by that agreed statement, whether it represented the truth or not. This is the traditional function of recitals which in this respect are part of a sub-species of estoppel known as contractual estoppel. One recent example is the decision of the Privy Council in Prime Sight Limited v Lavarello [2013] UKPC 22. Thus, contrary to Mr Elleray's submissions, the fact that all of the cash was provided by Mr Richards must be ignored in interpreting the deed.
17. If there is no express provision that deals with the way in which an entitlement to statutory discount is to be treated in the acquisition of the property in question the courts have usually held that it is to be treated as a contribution in monies' worth to the purchase price. This is part of the legal background against which the bargain was made. In Springette v Defoe [1992] 2 FLR 388, both Dillon and Steyn LJJ considered that an entitlement to statutory discount ought to be treated as a contribution to the purchase price. That approach was, I think, followed by this court in Evans v Hayward [1995] 2 FLR 511. In Ashe v Mumford [2001] 33 HLR 67, this court held that there was no absolute rule that entitlement to statutory discount should be treated as a contribution to the purchase price. However, the reason that it was not that case was because the whole series of transactions was held to be a sham.
18. Entitlement to statutory discount was treated as a contribution to the purchase price in many other cases. We have not been referred to them but they include Day v Day [2005] EWHC 1455(Ch); McKenzie v McKenzie [2003] 2 PNCR DG 6; Humphreys v Humphreys [2004] EWHC01 (Ch) and [2005] 1 FCR 712. In Jiggins v Brisley [2003] EWHC 841 (Ch) and [2003] WTLR 1141 at [65] and [102] it was so treated by Mr Elleray QC himself when sitting an as deputy judge of the Chancery Division.
19. Most recently in Laskar v Laskar [2008] EWCA Civ 347; [2008] 1 WLR 2695 this court reaffirmed the principle that discount should be treated as a contribution to the purchase price. Lord Neuberger of Abbotsbury, wrongly described in our printout as Neuberger LJ, said at 22:

"When it comes to assessing the contributions to the purchase price the claimant argues either that no account should be taken of the discount of £29,415 or that it should be attributable equally to both parties. I do not agree. In the absence of authority the position seems to me to be this. The reason the property could be bought at a discount, indeed the reason that the property could be bought at all, was that the defendant had been the secure tenant of the property and had resided there in that capacity for a substantial period; see the sections of the Housing Act 1985 to which I have referred. It was therefore the defendant and solely the defendant to whom the discount of £29,415 could be attributed, a fact which she exercised. Her privilege under section 123 of the 1985 Act to share her statutory right to buy with her daughter does not seem to me in any way to alter that conclusion. Sharing with a third party the right to buy in law as against the council is not the same thing as sharing the consequences of the right to buy in equity as against a third party."

20. He then considered some of the earlier cases to which I have referred and said that they "strongly reinforced" his general view. At [25] he said:

"It is true that in Ashe v Mumford this court upheld the trial judge's decision that the discount should not be apportioned in this way between the parties. However, it seems to me from the judgment of Jonathan Parker LJ at 769 to 770 that he accepted that it was the prima facie solution but that the facts of that case were very unusual indeed and justified a different conclusion."

Tuckey and Rimer LJJ agreed.

21. The reason underlying all of these decisions is the recognition that unless there is a secure tenancy the statutory right to buy cannot be exercised. The entitlement to statutory discount which has built up over the years by a secure tenant is valuable. In many cases without the entitlement to discount the property could not be bought at all. It is therefore unlikely that a tenant who is entitled to statutory discount would be prepared simply to give up its monetary value. The default position, as I see it, is that discount will be treated as a contribution to the purchase price. I would expect clear words to signal that the tenant is giving up such a valuable entitlement.
22. Accordingly it is against that background that one must approach the interpretation of the declaration of trust. We are told by clause C that the initial contributions are set out in clause 3. Clause 3 starts by referring to the market value as agreed with Oldham Borough Council. It goes on to describe the discount as something to which Mr and Mrs Wood were "entitled." It was in other words treated as being their legal right. It is only then that clause 3 goes on to deal with the cash contribution.
23. Why, one might ask, was the entitlement to statutory discount mentioned at all in that clause if it was simply irrelevant to assessing the initial contributions? Mr Elleray did indeed submit that that part of clause 3 was irrelevant. But it is a fundamental principle of interpretation that where possible effect should be given to all parts of the contract. It is also notable that clause C does not tie the initial contributions to the" purchase price" as defined by clause 3; it uses more general language. Mr Elleray submitted that it must have been intended to refer to the purchase price as defined and that something had gone wrong with the language.
24. Against the background of the way in which an entitlement to statutory discount has consistently been treated by the courts, I do not agree. In a very real sense the discount, if not a contribution to the purchase price as defined, was a contribution to the acquisition. It reduced the gross purchase price to the net purchase price. Moreover, there is objectively a perfectly rational explanation of the fact that £5,000 in cash provided by Mr Richards was attributed to Mr and Mrs Wood. They had agreed that if the house remained unsold on the death of the survivor of them it was to go to Mr Richards' two sons. Thus Mr and Mrs Wood gave up the right for their estates to participate in the value of the house in that event. I would regard the payment of £5,000 as the price of that right. Of course, the right could be defeated, as it has been, by the sale of the house during Mr and Mrs Wood's life time, but that in my judgment does not detract from the point that the overall bargain was more than a simple agreement to share in the value of the house.
25. Accordingly I see no reason to interpret the declaration of trust in the way for which Mr Elleray contends. In my judgment the judge came to the correct conclusion on this issue.

Cost of Double Glazing.

26. The judge accepted Mr Wood's evidence that the windows in the property had been well looked after with the consequence that the installation of double glazing was an improvement rather than a repair. She deducted the historic cost of the double glazing from the amount that would otherwise have been Mr Richards' share of the proceeds of sale. Clause C said that expenditure on improvements was to be regarded as an increase in the share of the person who made the expenditure. If that expenditure was to be regarded as an increase in Mr and Mrs Wood's share then mathematically the same result would be achieved by deducting it from Mr Richards' share.
27. Mr Elleray's principal argument was that the instruction that the expenditure is "to be taken into account in any division of the proceeds of sale" mean that it is to be taken into account only to the extent that it enhances the value of the property at the time of the sale. But the clause says that it is the monies, not the value, that is to result in the increase of the interest of the person who expends it.
28. In my judgment Mr Elleray's interpretation would amount to rewriting the clause. It would also require professional input to determine the enhancement of value. But there is no trace of such a contemplation in the declaration of trust. What is contemplated is, in my judgment, a mathematical exercise.
29. Mr Elleray also submitted that the deduction of the cost of improvements was to be taken out of the gross proceeds of sale before division between the parties. Although the point seems to have been obliquely mentioned in the skeleton argument before trial I am not satisfied that that was the way in which the case was actually put and it certainly finds no place in the judge's judgment. Moreover, the monies are to be taken into account "in" the division of the proceeds and not before. I reject Mr Elleray's submission. In my judgment the judge was right on this issue too.

Sale at an Undervalue.

30. As noted, both experts agreed that the actual purchase price of £102,000 was within "a reasonable and normal negotiation range" or "an acceptable degree of tolerance" of their respective valuations. Mr Elleray fastens on the letter from Kirkham shortly before the sale which refers to an asking price of £114,500. But there are two important points about that letter. First, the suggested figure is no more than an asking price. It is not a valuation, still less a guarantee that that asking price would be obtained. Second, it would have entailed paying agent's commission of 1.5 per cent which would itself have reduced the net proceeds of sale, as the expert valuers themselves noted.
31. There was evidence before the judge that Mr Richards and his son would have liked to by the property and that they said so to Mr and Mrs Wood. However, the judge was also right to say that the declaration of trust did not require that to be done. She directed herself that Mr and Mrs Wood were required to use the same degree of prudence and diligence as a person of ordinary prudence would have done if he had been conducting his own affairs. That is the traditional test laid down in Speight v Gaunt (1883) 9 App Cas 1 at 19.
32. In my judgment that was a correct self-direction. I do not consider that section 1 of the Trustee Act 2000, which applies to pre-existing trusts and imposes a duty to exercise such skill and care as is reasonable in all of the circumstances, materially altered the test. Having considered the evidence the judge came to the conclusion that Mr and Mrs Wood had attained that standard. In my judgment that was conclusion to which she was entitled to come. The price achieved on the sale was one which neither expert was prepared to say was an undervalue. Without expert evidence to back the allegation that there was a sale at undervalue it is not surprising that the judge concluded that there was not.
33. Mr Elleray sought to say that the judge should have rejected the joint evidence of the experts on the ground that they had assumed wrongly that money would have to be spent on installation of a damp proof course whereas in fact a grant was available. But whether to accept the evidence of the experts was a matter for the trial judge. It would have been a very bold step for her to have rejected the experts' agreement.
34. Mr Elleray also submitted that the experts' view that the actual sale price was within an acceptable degree of tolerance was not relevant to the question of whether a sale at full market value had been achieved. But that submission treats market value as a fact when it is no more than a matter of opinion. It would be extraordinary if a lay person like Mr Wood were to be held to have been at fault in accepting an offer of £102,000 but that a professional valuer would not be at fault in recommending acceptance. Given that the trustee's duty is a duty to exercise such skill and a care as is reasonable in all of the circumstances I do not agree with Mr Elleray that the experts' joint view of what was a reasonable degree of tolerance is irrelevant.
35. Mr Elleray next submits that the market value of the property was diminished because repairs to it needed to be done to the tune of about £8,000. However, the very terms of the submission demonstrate that the market value of the property was diminished; and the obligation relied upon was an obligation to sell at market value. It is in my judgment impossible to interpret the declaration of trust as requiring Mr and Mrs Wood to sell the property for more than its real market value. Whether they were in breach of their obligation to keep the property in repair is a different matter. An allegation of that kind was not advanced and not decided, nor is it a ground of appeal.
36. Accordingly in my judgment the judge was entitled to conclude that no breach of trust had been established.

Knowing Receipt/Dishonest Assistance.

37. In view of my conclusions on the issues I have discussed these issues do not arise.

Result.

38. Mr Richards would, of course, have been entitled to his share of the proceeds of sale as calculated by Mr and Mrs Wood. Unfortunately, however, his entitlement has been swallowed up by the costs of this litigation. Thus, the judge's order for costs set off Mr Richards' entitlement against the costs that she ordered him to pay. On the issues that remained in contention I would uphold the judge's judgment and dismiss the appeal.
39. LORD JUSTICE MCFARLANE: I agree.
40. LORD JUSTICE AIKENS: I also agree.