Law firm did not breach contract by releasing off-plan deposits

Newey: Firm had agreement to release money

A law firm which released nearly £1.3m in deposits for off-plan flats in a failed development in Liverpool did not breach its contract with the buyers, appeal judges have ruled.

Lord Justice Newey said 174 Solicitors had “no need” to obtain the consent of individual buyers to release the money because both the buyer company and the developer had agreed to it.

The group of buyers suing the law firm were all Hong Kong residents who had agreed to pay deposits of between 50% and 80%. Under the “fractional sales model”, the deposits would be used to fund the development.

The claimants alleged that, having received their deposits, 174 Solicitors – acting for the developer (and vendor) – released them to the vendor in breach of the terms of the stakeholder contract.

At first instance, His Honour Judge Hodge KC described the buyers as “potentially many hundreds of mainly offshore-based purchasers, with little or no knowledge of English conveyancing law or procedures, and with limited, if any, command of or fluency in the English language”.

In such a situation, said Newey LJ, there was “obviously a case for substituting the buyer company for the buyers”.

The Court of Appeal heard in Yee Shi Yin and others v 174 Solicitors [2023] EWCA Civ 13 that the North Point Development would have comprised 366 residential and live-work units.

The group of buyers were represented by law firms Amie Tsang & Co (which later became Key Manchester), the principal of which was Ms Tsang, and Oliver & Co, where David Sewell worked.

To protect the buyers’ interests, North Point Buyers Ltd was set up, with Ms Tsang and Mr Sewell as directors. David Roberts, the solicitor acting for the developer North Point (Pall Mall) Ltd through his firm David Roberts & Co, was also a director until he was replaced by David Hayhurst, a solicitor with 174 Solicitors.

The developer bought the site with the help of a loan from Bridging Finance Limited (BFL), secured by a charge in favour of BFL in August 2015.

A legal charge in favour of the buyer company was not executed until October 2015 and so was a second legal charge.

Under the stakeholder contract, not only did 174 Law hold the deposits until the triggering event for their release but there was also a precondition that the claimants’ interests should be protected by the registration of a first legal charge in the name of the buyer company.

Newey LJ said a “work-around” was agreed by Mr Sewell, acting for the buyers, and the developers, so the funds could be released despite the second charge in certain conditions. Ms Tsang also agreed to this.

The developers replaced David Roberts & Co with 174 Solicitors in November 2015. The deposit money was transferred to 174 Solicitors, which released £1.28m to the developers in December 2015, followed by “further sums” over the next five months.

Construction of the flats, which started in June 2015, came to a halt in July 2017, with none of them completed. The buyers’ deposits had all been spent on marketing fees, other costs and the unfinished works. Nothing was repaid.

HHJ Hodge, sitting as a High Court judge in Manchester, held that 174 Law Solicitors acted in accordance with the authority of the buyers’ previous solicitors, David Roberts & Co, and had not breached the agreement with the buyers.

Newey LJ disagreed with HHJ Hodge by holding that the proviso to clause 5.2 of the agreement – which said no payments of deposits should be made without evidence of the registration of a first legal charge in favour of the buyers – was not satisfied.

However, clause 5.1 provided for deposits paid to the seller’s solicitors “to be held as stakeholder to the order of the company”.

This meant that withdrawals outside the terms of clauses 5.1.2 and 5.2 could be authorised “either by the buyer company alone or at any rate by the buyer company and the developer together; there was no need to obtain the consent of individual buyers”.

Newey LJ said: “That being so, the appellants can have no complaint about 174 releasing money to the developer. The buyer company and the developer both agreed to this.”

He dismissed the appeal. Lord Justice Warby and Sir Christopher Floyd agreed.

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