The High Court was faced with a breach of contract for the unpaid purchase price of a property and fraudulent transaction claims.
Background:
Peter Savva and Marios Stylianides were friends. Mr. Stylianides was in the business of property development. In early 2014, Mr. Savva decided to sell his property and permanently relocate to Cyprus. They discussed the possibility of Mr. Stylianides purchasing the property and developing it.
On the 10th of June 2014, Cuckoo Hill Ltd., the first defendant, was incorporated, with Mr. Stylianides as sole director and shareholder. The company and Mr. Savva entered into a written sale agreement on the 20th of June 2014 for the purchase of the property for £600,000 alongside an interest agreement. The contractual completion date was the 20th of June 2014. There was a clause that the full payment would not be payable on completion, but rather on the sale of the second of the two dwellinghouses to be constructed at the property by the buyer. The defendants constructed two houses, the first selling in August 2015 for £795,000 and the second in December 2015 for £823,000, for a grand total of £1,618,000.
The sale proceeds had been disbursed before Cuckoo Hill Ltd. was dissolved in December 2016. Mr. Savva only discovered that sales had occurred after his brother had driven past the property and reported that the two houses were finally occupied.
He brought proceedings by Part 7 claim form which was sealed in November 2022. He sought the payment of £600,000 in breach of the sale agreement, unpaid sums under the interest agreement, damages under Section 423 of the Insolvency Act 1986, plus interest. Mr. Stylianides argued that there had been an oral agreement that he would invest Mr. Savva’s money in another development project, which was unsuccessful, although this was denied by Mr. Savva.
Decision:
The High Court held in favour of the claimant and found no evidence of an oral agreement superseding the written contracts. Master McQuail noted that there was quite little documentary evidence and that “where a party has failed to provide proper disclosure, it is open to the Court to draw adverse inferences at trial in relation to the absence of documents.” In this case, the lack of documents seems consistent with Mr. Savva’s argument that he was awaiting payment under the sale agreement once the second house was sold.
The Court noted that, under Section 424 of the Insolvency Act 1986, the test is whether any purpose of the transaction was either of the two prohibited ones, as established in JSC BTA Bank v Ablyazov [2019]. Section 424 provides that a victim of the transaction can apply for an order under Section 423. Section 423(5) deems the victim to be any person prejudiced or capable of being prejudiced by the transaction. A director can be held personally liable if deemed to have acted dishonestly.
The Judge ruled that “The variation of any material term in a contract for the sale or other disposition of an interest in land must comply with the formalities prescribed by Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.”
The Court awarded the claimant £600,000 for breach of contract, plus interest, and an additional £11,170 plus interest against the second defendant for the fraudulent dissipation of funds.
Implications:
This decision highlights the need to document carefully any agreement in property transactions. It also underscores the potential liability under Section 423 when a transaction defrauds a creditor. The judgement also demonstrates the need to close transactions; indeed, Mr. Savva was patiently awaiting his payment and could have lost everything had his brother not passed in front of the property to discover that it was occupied.