Vendor and Purchaser Act 1874 s.9: Change in company status does not constitute defective title if title can be passed.

Neutral Citation Number: [2008] IEHC 233

THE HIGH COURT

2007 No. 402SP

IN THE MATTER OF THE VENDOR AND PURCHASER ACT, 1874 AND

SECTION 9 THEREOF AND IN THE MATTER OF A CONTRACT FOR THE SALE OF 12, AMIENS SQUARE, DUBLIN, 1, EXECUTED ON

OR ABOUT 21st FEBRUARY, 2007

BETWEEN

MAHMOUD ZAHEDI AND NOUJ S ZAHEDI

PLAINTIFFS

AND

EAMON McCANN AND PAULA McCANN

DEFENDANTS

Judgment of Ms. Justice Laffoy delivered on the 9th day of July, 2008.

Factual Background

1. In these proceedings, which were initiated by special summons which issued on 21st May, 2007, the plaintiffs have invoked s. 9 of

the Vendor and Purchaser Act, 1874 (the Act of 1874) and seek the determination of certain questions which arise out of a contract,

which, for present purposes, it can be accepted came into existence on 21st February, 2007, whereby the defendants agreed to sell

to the plaintiffs at the price of €317,500.00 Apartment No. 12, Amiens Square, Amiens Street, in the City of Dublin (the Premises).

The Premises were held by the defendants under a lease dated 19th September, 1997 (the Lease) made between Cruson

Developments Limited of the first part, Amiens Square Management Company Limited (the Management Company) of the second part,

Irish Intercontinental Bank Limited of the third part and the defendants of the fourth part, which created a term of 500 years from

31st May, 1997 at a nominal rent and subject to the covenants on the part of the lessee, including the covenant for payment of

service charges, and conditions therein contained.

2. The history of the transaction, insofar as it is relevant for present purposes, is as follows:-

· On 7th November, 2006, the defendants’ solicitors furnished, on a “subject to contract” basis, the contracts to the

plaintiffs’ solicitors, together with copies of the title. The contracts were in the standard form General Conditions of Sale

(2001 Revised Edition) published by the Law Society.

· On 13th November, 2006, the plaintiffs’ solicitors raised certain queries. What is relevant for present purposes is that

the plaintiffs’ solicitors furnished what I understand to be requisition 37 (but was described as requisition 36) of the Law

Society’s standard Requisitions on Title (2001 Edition) headed “Second hand flats/second hand managed properties” and

requested replies.

· On 22nd November, 2006, the defendants’ solicitors informed the plaintiffs’ solicitors that they had asked the “Managing

Agents” to reply to requisition 37 and would revert as soon as they heard from the Management Company.

· On 29th January, 2007, the plaintiffs’ solicitors returned the executed contracts together with the balance of the

deposit to the defendants’ solicitors on a “subject to contract” basis.

· Although the defendants had not executed the contracts, on 1st February, 2007, the defendants’ solicitors requested

the plaintiffs’ solicitors to furnish requisitions on title and a draft deed for approval. The plaintiffs’ solicitors obliged. The

defendants’ solicitors returned one part of the contract duly executed by the defendants together with the replies to the

requisitions on title with a letter dated 21st February, 2007. The closing date which appeared in the contract predated

the coming into existence of the contract. As I understand it, it is agreed that the closing date was 16th March, 2007.

· By letter dated 22nd February, 2007, the defendants’ solicitors returned requisition 37 with replies, together with an

invoice and copy documentation received from the Management Company, to the plaintiffs’ solicitors. I will consider these

documents in detail later. Of particular significance is that the accompanying documentation included a Companies

Registration Office (CRO) print-out dated 16th February, 2007, which showed the status of the Management Company as

“normal”. It is accepted for the purpose of these proceedings that prior to returning the contracts and the contractual

relationship coming into existence, the plaintiffs’ solicitors had done a Companies Office Search and had ascertained that

the status of the Company was “normal”.

· The plaintiffs contend that on or before the 16th March, 2007 it was agreed between the solicitors for the parties that

there would be a closing by post. In truth, it was more a closing by courier and fax, but, in any event, what happened is

consistent with an arrangement that the plaintiffs’ solicitor would not attend in person at the defendants’ solicitor offices

with the balance of the purchase money. The following steps were taken by the parties on 16th March, 2007:

The defendants’ solicitors sent the original documents of title and the executed assignment in

favour of the plaintiffs to the plaintiffs’ solicitors and requested them to hold the same on trust

“pending receipt of the balance of the funds”.

The plaintiffs’ solicitors sent bank drafts which aggregated the balance of the purchase monies to

the defendants’ solicitors by courier on the basis that the monies would be held in trust and to

the plaintiffs’ solicitors order “pending our receipt and satisfaction with all closing documents and

explanation of searches”.

The plaintiffs’ solicitors submitted their searches by fax to the defendants’ solicitors and sought

explanations. The only issue which arose on the searches of relevance in these proceedings arose

on the CRO search in relation to the Management Company. The designation of the Management

Company was given as “Strike Off Listed” and the date of that designation was given as 18th

February, 2007.

The defendants’ solicitors’ explanation of that designation which was furnished to the plaintiffs’

solicitors was: “not our client”.

The plaintiffs’ solicitors’ immediate response was that that explanation would not suffice, that the

defendants’ solicitors’ client was a member of the Management Company and was selling the

premises with all easements and rights contained in the Lease, and that they would not accept

the stated position of the Management Company “without satisfactory explanation and proposed

resolution from the managing agent”. They also requested the defendants’ solicitors to confirm

that they continued to hold the purchase money in trust and to their order. That letter was sent

by fax.

3. A controversy arises on the affidavits as to whether the keys of the premises were furnished to the plaintiffs’ solicitors, so as to

enable the plaintiffs to get possession of the Premises. The Court can not resolve that controversy.

· On 20th March, 2007, the plaintiffs’ solicitors served a notice to complete in accordance with General Condition 40 of

the contract on the defendants’ solicitors.

· The defendants’ solicitors responded by letter of 22nd March, 2007. The essence of the response was that the plaintiffs’

solicitors should take the matter up with the Management Company; they did not act for the Management Company and

had no knowledge of its affairs. It was their understanding that the Management Company had not yet been struck off

and, in the circumstances, it was for the plaintiffs’ solicitors to deal with the matter and to make enquiries in the CRO.

· The plaintiffs’ solicitors were not happy with that response and, by letter dated 27th March, 2007, sought an

explanation as to why the Management Company was listed for strike off, an undertaking from the Management Company

that a strike off would be avoided, and an indemnity from the Management Company that the plaintiffs would not be

responsible for any levies which might be incurred in relation to reinstatement of the Management Company in the

register. They sought return of the purchase monies if the defendants’ solicitors were not in a position to comply because

the plaintiffs were incurring interest on a daily basis on the purchase monies.

· The defendants’ solicitors responded by letter dated 29th March, 2007, in which they contended that the contract had

been complied with in full by the defendants. They made the point that the Management Company had not been struck

off. It was a matter for the plaintiffs to contact the CRO or the Management Company to ascertain the position and take

such action as might be required. As far as the defendants were concerned the matter was completed and they would be

releasing the purchase monies to the defendants forthwith.

· The correspondence between the solicitors continued in a similar vein. The parties accept that the Court can not

resolve the issues as to the basis on which the purchase monies were paid and whether the plaintiffs got the keys of the

Premises and possession. The final letter from the plaintiffs’ solicitors which has been exhibited prior to the initiation of the

proceedings, a letter dated 17th April, 2007, made the point that the status of the Management Company was integral to

title and ultimately to the certificate of title which they would be required to furnish to the plaintiffs’ mortgagees. In the

final letter from the defendants’ solicitors, a letter dated 18th April, 2007, the position adopted by the defendants’

solicitors was that the fact that the Management Company had been listed for strike off was not a matter which entitled

the plaintiffs to refuse to close the sale.

4. Before these proceedings were initiated, the Management Company was dissolved for failure to file annual returns, the date of

dissolution being 11th May, 2007. The Court was informed that the Management Company was restored to the register within twelve

months of its dissolution by the Registrar of Companies.

Replies to Requisition 37

5. As I have stated, the replies to requisition 37, which had been submitted by the plaintiffs’ solicitors as a pre-contract enquiry,

were furnished by the defendants’ solicitors with their letter of 22nd February, 2007, after the contract came into existence. In

fairness to the defendants’ solicitors, it took six letters and numerous phone calls over a period from 10th November, 2006 to 22nd

February, 2007, to get the information necessary to reply to requisition 37 from the Management Company.

6. The replies to requisition 37 furnished by the defendants’ solicitors were the replies written in manuscript by the agent of the

Management Company. The information furnished in the replies was as follows:-

(a) Evidence was enclosed to show by way of the search in the CRO that the Management Company was still registered.

As I understand it, that evidence was the CRO search of 16th February, 2007, which showed the Management Company

status as “normal”. However, it also disclosed that the last annual return filed was in respect of 31st December, 2004 and

that the return for 31st December, 2005 was outstanding.

(b) It was stated that the common areas were still vested in the name of the developer, presumably Cruson

Developments Limited, and that the deed of assurance of the reversionary interest to the Management Company was

“currently in the process of transfer”.

(c) Details of the “Block Insurance” were given and the replies were accompanied by a letter dated 21st February, 2007

from the insurers which confirmed that the interest of the plaintiffs and their mortgagee was noted on the policy, the

insured being the Management Company.

(d) Copies of the certificate of incorporation and memorandum and articles of association of the Management Company

were furnished.

(e) It was stated that the service charge in respect of the Premises was in arrears and an invoice was enclosed setting

out the service charge for the years ended 31st July, 2006 and 31st July, 2007. No issue arises in relation to the service

charge because the defendants’ solicitors gave to the plaintiffs a letter dated 16th March, 2007 in which they undertook

to discharge the service charge up to and including that date and to furnish a receipt as soon as practicable after

closing.

7. In summary, the information given in the replies was that the Management Company was still registered in the CRO, that the

common areas had not yet been transferred by the developer to the Management Company, but the Management Company was

managing the Estate. Requisition 37 presupposed that the Premises were the subject of a scheme of disposal of the type usually

utilised for residential or mixed commercial and residential developments. That supposition was correct as the provisions of the lease

disclosed.

The Lease

8. The lease recited in a general way how the scheme of disposal would operate in relation to the Estate, as defined, of which the

Premises form part. The leases of the apartments on the Estate would all be in the same form as the Lease of the Premises, to the

intent that the restrictions and stipulations would be mutually enforceable. Each lessee would be a member of the Management

Company. It is clear from the articles of association of the Management Company that only the lessees of the units in the Estate

would ultimately be members of the Management Company. It was further recited in the Lease that the lessor, Cruson Developments

Limited, had agreed to assure its interest in the Estate to the Management Company subject to and with the benefits of all leases in

the Estate, the effect being that the Management Company would become the owner of the Estate in the sense of they would be

owner of the reversions on the leases of units and the owner of the external common areas, the structural elements of the block and

the internal common areas.

9. The Management Company joined in the lease to confirm the demise, including the demise of easements and way-leaves over the

common areas and structural elements, and to covenant to perform the lessor’s covenants from completion of the assurance of the

Estate to it.

The Issue

10. While a number of questions were set out on the endorsement of claim on the special summons for determination by the Court, it

was agreed at the hearing that the issue for the Court is whether the defendants were ready, willing and able to complete the sale on

16th March, 2007, and, in particular, whether they were in a position to give good title to the plaintiffs in accordance with the

contract, given the status of the Management Company, which, on the closing date, was designated as listed for strike off in the

CRO. My understanding is that the parties will deal inter se with the consequences of the Court’s finding on that point.

The Submissions

11. Counsel for the plaintiffs submitted that the status of the Management Company could not be other than an issue of title and

that it was an issue which required to be resolved before the plaintiffs could be required to take on the obligations of the Lease and

their financial consequences. He submitted that, having regard to the terms of the Lease, the Management Company was on the title

and it was integral to the successful management and viability of the development. Its status impacted on the operation of the

scheme of management. The plaintiffs’ mortgagee might not accept the title and it was intolerable that the title should be foisted on

the plaintiffs. As regards the use and enjoyment of the Premises, the status of the Management Company was crucial in terms of the

repair, maintenance, upgrading and such like of the common areas. Counsel for the plaintiffs pointed to the possibility of the plaintiffs,

as the owner of the Premises, incurring costs in connection with the restoration of the Management Company to the register if it was

struck off. The nub of the case advanced by counsel for the plaintiffs was that the defendants’ title was defective on the closing

date, that the defect had arisen between the contract coming into existence and the closing date, and that the defendants were not

in a position to fulfil their contractual obligations until the defect was removed, meaning until the status of the Management Company

reverted to “normal”.

12. The position adopted by counsel for the defendants was that, as of 16th March, 2007, the Management Company was still in

being. By reference to s. 12 of the Companies (Amendment) Act, 1982, he submitted that the outstanding annual returns could have

been filed and the company could have been saved from dissolution. Apart from that, he submitted that the question for the Court is

whether the status of the Management Company is a matter of title, urging that it is not. He identified the functions of the

Management Company as twofold: to be the owner of the reversions; and to provide services to the unit lessees. In relation to the

first function, he pointed out that, as things stood, the lessees of units still had their rights vis à vis the lessor, Cruson Developments

Limited, and were safeguarded irrespective of the status of the Management Company. As regards the provision of services function,

he submitted that the services could be provided by anybody, for example, the unit lessees could get together to resolve any

difficulty which arose in the provision of services.

13. In reliance on the decision In Re Flynn and Newman’s Contract [1948] I.R. 104, counsel for the defendants submitted that the

change in the designated status of the Management Company in the CRO did not affect the defendants’ title, in that, notwithstanding

that change, they were no less entitled to occupy the Premises and enjoy the easements over the common areas and to give title to

a third party. On the closing date they were in a position to give to the plaintiffs what they had contracted to give.

14. Counsel for both parties informed the Court that they could not find any authority either in this jurisdiction or in the United

Kingdom which dealt with the type of issue which has arisen in this case, involving a second or subsequent sale of a unit in a multi-

unit development.

Conclusions

15. As I have stated, the core issue for determination is whether, given the status of the Management Company as listed for strike

off on the agreed closing date, the defendants were in a position on that date to furnish title to the Premises to the plaintiffs in

accordance with the contract. It seems to me that that issue falls to be determined by the application of first principles to the

particular facts of this case. Kingsmill Moore J. in his judgment In Re Flynn and Newman’s Contract set out (at p. 112) the relevant

principles governing contracts for the sale of land as follows:-

“In the absence of any express provision to the contrary, the vendor undertakes and is bound, in law, to show a good

title to the property to be sold and to convey land corresponding substantially, in all respects, with the description

contained in the contract. If he fails to do these things, the purchaser may rescind and recover his deposit. The vendor

may, of course, limit his obligation to show good title by suitable special conditions but, if he does so, he must fairly

indicate what is the defect in his title to which the purchaser must submit, and must take care that he is not guilty of

any misrepresentation. A liability to ejectment for forfeiture, crystallised by service of a repairing notice by the landlord, is

clearly a defect in title to which the vendor must call attention. Mere disrepair which may involve an action for breach of

covenant, but which, in the absence of a proviso for re-entry, cannot be a ground for forfeiture, is not a defect of title,

but a defect in subject matter. Provided that the terms of the lease were known to the purchaser before signing the

contract, and inspection of the property was open to him if he so desired, it seems to me that no breach of any legal

obligation would be involved in failure to disclose the state of repair or the letter from the landlord …”.

16. The letter from the landlord referred to was, in effect, a schedule of dilapidations which the lessor had served and of which the

vendor lessee was aware before signing the contract but had not been disclosed to the purchaser. The Lease was for a term of one

hundred and fifty years of which about seventy years were left to run. Although the Lease contained a covenant to keep and yield up

and repair, there was no proviso for re-entry in the event of breach of the covenant to repair. Kingsmill Moore J. held that the state

of disrepair which, in the absence of a proviso for re-entry, could not be a ground for forfeiture, was not a defect in title but a defect

in subject matter. The vendor was not under any legal obligation to disclose the defective state of repair or the schedule of

dilapidations.

17. Although the affidavits filed on behalf of each side in these proceedings have sought to highlight perceived shortcomings of the

other side, there are a number of facts which are not in dispute on the basis of which deductions can be made which are crucial to

the determination of the core issue. First, on the evidence of the two copies thereof exhibited, it would appear that there were no

special conditions whatsoever in the contract presented by the defendants’ solicitor for execution and as ultimately executed by both

sides, so that the defendants’ obligation to show good title was neither specifically limited nor expanded. Secondly, while the

plaintiffs’ solicitors raised the pre-contract requisitions in the form of requisition 37, they were not replied to prior to the coming into

existence of the contract, so that the replies thereto neither induced the plaintiffs to enter into the contract nor did they become

terms of the contract. Thirdly, while I am of the view that the replies furnished on 22nd February, 2007 must be regarded as the

replies of the defendants’ solicitors and must be stood over by them, there was no incorrect or misleading information or

misrepresentation contained in the replies, because the Management Company was still registered in the CRO and the CRO printout

furnished, although a few days out of date, correctly showed the status of the Management Company on 16th February, 2007.

Fourthly, at all times prior to the closing date the status of the company in the CRO and its position in relation to filing of annual

returns was a matter of public record. It follows that there was no material nondisclosure on the part of the defendants. There was

no obligation on them, either at common law or under condition 15 of the General Conditions of the contract to disclose the change in

the status of the Management Company in the CRO prior to the plaintiffs assuming contractual liability. Finally, and most significantly,

the Management Company was still registered in the CRO as of the closing date, and, although it was under the threat of strike off,

strike off was not inevitable.

18. That the change in the status of the company recorded in the CRO on 18th February, 2007 did not constitute a defect of title is

obvious when one analyses the defendants’ position on the closing date. On the closing date the defendants were in a position to

give to the plaintiffs the title to the Premises they had contracted to give. They were in a position to assign to the plaintiffs the

leasehold interest created by the Lease in the Premises. The defendants, in fact, executed such an assignment and it was delivered

to the plaintiffs. Such assignment passed the right of possession to the Premises to the plaintiffs for the residue unexpired of the term

created by the Lease and the benefit of all of the appurtenant easements and of the lessor’s covenants contained in the Lease. As

things stood, the obligation to perform the lessor’s covenants was still vested in the lessor, Cruson Developments Limited. Moreover,

the Management Company was still in being as a corporate entity. The assignment also passed to the plaintiffs the entitlement to

membership of the Management Company. Accordingly, the defendants were in a position to pass, and they did pass, to the plaintiffs

everything they were contractually bound to pass.

19. It is true that, with the benefit of hindsight, we know that, as regards the Management Company, as counsel for the plaintiffs put

it, “the path was already mapped out” to dissolution, which occurred approximately two months later. It is also true that dissolution

of a Management Company in a multi-unit development may, and frequently does, give rise to adverse consequences for individual

unit owners, in that they may incur accountancy fees, penalties and legal fees in having the Management Company restored. Some

prospective purchasers may be wary of purchasing a unit in such circumstances. However, as a matter of contract, in this case the

defendants, as vendors, were under no obligation to ensure that the status of the Management Company was designated as “normal”

at the closing date. Its designation as listed for strike off did not render the defendants’ title defective.

Order

20. While I will hear the parties on the precise form of order which will be made, it seems to me that, having regard to the manner in

which the proceedings were conducted at hearing, there should be a declaration that, notwithstanding the designation of the status

of the Management Company in the CRO as “Strike Off Listed” on 18th February, 2007, on the closing date the defendants were in a

position to furnish title to the Premises to the plaintiffs in accordance with the contract.