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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Kavanagh v. Caulfield [2002] IEHC 67 (19 June 2002) URL: http://www.bailii.org/ie/cases/IEHC/2002/67.html Cite as: [2002] IEHC 67

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THE HIGH COURT

1999 NO. 9769P

BETWEEN

ELIZABETH KAVANAGH

PLAINTIFF

AND

MICHAEL CAULFIELD

DEFENDANT

JUDGMENT of Mr. Justice Roderick Murphy dated the 19th day of June, 2002.

1. PLAINTIFF’S CLAIM

1. 1 The Plaintiff seeks an Order for specific performance for an agreement in writing entered into on the 3rd of November, 1998 between herself as purchaser and the Defendant as vendor for the sale of premises known as 59, Clonliffe Road, Dublin 3 for an agreed consideration of £145,000 less the deposit already paid by her of £14,500 to the Plaintiff.
She also seeks an injunction restraining the Defendant from disposing of the said dwelling house and an Order directing the Defendant to reply to requisitions arising from the said agreement and to give all proper replies in respect of statutory notices.
2. 2 In her statement of claim delivered the 10th of August, 2000 she says that on or before the date of the said contract the Defendant required by way of inducement to enter into the contract that the Plaintiff pay over £7,500 to a charity nominated by the vendor known as “The Marion Work of Atonement”. The Plaintiff claims that she did so and that the Memorandum of Agreement dated the 3rd of November, 1998 was duly entered into by the parties.
3. 3 By Notice of Motion dated the 11th of December, 2000 the Plaintiff sought judgment in default of defence pursuant to Order 27 Rule 9.
The grounding Affidavit was that of Lorna Shannon sworn the 7th of November, 2000 in which Ms. Shannon, a Solicitor in the firm of Gaffney Halligan, acting for the Plaintiff, referred to the Memorandum of Agreement and the payment of the deposit aforesaid. An appearance was entered into on behalf of the Defendant on the 19th of October, 1999. A twenty one day warning letter was sent on the 2nd of October, 2000 consenting to late filing of defence which was exhibited.

2. DEFENCE

4. 1 A defence was delivered on the 20th of November, 2000 denying the agreement and the deposit of £14,500 and claimed that, without prejudice, if an agreement was made, the same was an illegal and unenforceable contract by reason of the fact that did not reflect the true purchase price paid by the Plaintiff in respect of the premises. In particular, it was agreed between the parties that the additional sum of £7,500 would be paid to a charity by the Plaintiff with the intention of not being disclosed to the Revenue Commissioners.
5. 2 Moreover, the defence continued, the Plaintiff through her Solicitors by letter dated the 8th of June, 1999 expressly denied the existence of any contract. Consequently the Plaintiff is now estopped from seeking to enforce the contract.

3. PARTICULARS

6. 1 Notice of Particulars dated the 7th of February, 2001 requested particulars of the Defendant’s connection with the charity and whether it received the £7,500 paid on the nomination of the Defendant. Following an order of the Court, the Defendant replied on the 29th of May that the charity is known as “The Association of the Order of Saint Charbel” of which the Defendant is a founding member. The Plaintiff’s son, Mr. Alan Kavanagh, gave the sum of £7,500 to the Defendant who gave those moneys to the treasurer of the association who lodged it in the bank account of the Association.
7. 2 The Court was furnished with three statements in respect of the Bank of Ireland account 24982168 which would appear to have been opened in November, 1997 under the name of “Marion Work of Atonement” - Carmel Biddulp. The fourth statement dated the 10th of March, 1998 disclosed a credit balance of £471.16.
The fifth statement dated the 9th of April, 1998 with a slightly larger balance, was in the name of “The Order of Saint Charbel”.
Significantly, statements number two and three covering the period in which the payment of £7,500 was alleged to have been made, were not available.

4. CONTRACT FOR SALE

8. 1 Eventually a contract was signed on the 3rd of November, 1998 whereby the Defendant agreed to sell to the Plaintiff alone the premises for the sum of £145,000 less the deposit referred to. Reference to a closing date of the 24th of November, 1997 was crossed out.
9. 2 One year previously the Plaintiff and her son, Alan Kavanagh, had arranged a commercial loan in the amount of £125,000 from ACC Bank in respect of the residential property at 59, Clonliffe Road, Dublin 3.
10. 3 The contract contained the following special condition:

“6 The purchasers are furnished with statutory declarations of Bernard Kavanagh dated the 7th of July, 1983 and the 15th of July, 1983 in respect of the division of the property into a number of self contained units. The vendor shall not be obliged to furnish any other evidence that the premises was divided into a number of units prior to the operative date of the Planning Act, 1963 and in this regard general condition number 36 shall be deleted in respect of the division of the property into several units. No other evidence, declarations, planning permissions or certificates in respect of the division of the property into several units will be furnished.”

11. 4 On the same date the 3rd of November, 1998 a cheque withdrawal form in the amount of £7,500 from the Plaintiff’s account was made payable to “The Marion Work of Atonement.”

5. POST CONTRACTUAL ISSUES

12. 1 Difficulty arose relating to the service of notice by the local authority and the costs of remedying the same.
13. 2 Considerable difficulty arose with regard to the works dividing the property, the subject matter of Condition 6 of the special conditions and the inclusion or otherwise of a shed to the rear. These matters, in themselves, raise a doubt with regard to the premises the subject matter of the contract. Reference in the Auctioneers sheet referred to a double garage at the rear with a potential income of £80 (per month). A dispute arose in relation to whether this was included and that vacant possession would be given.
14. 3 Correspondence between the party’s Solicitors proceeded on an open basis in relation to Fire Safety Notices and copy planning permission. A Fire Services Act, Section 20(2)(b) notice had been served on the 26th of August, 1986 and was enclosed by the Defendant’s Solicitor on the 28th of May, 1999. That notice referred to the premises being a potentially dangerous building. The schedule to the notice prohibited the use of the premises as flats, bedsitters or multiple dwelling until the precautions specified in Part 2 of the Schedule were taken to the satisfaction of the Corporation of Dublin.
15. 4 On receipt of that letter, Solicitors for the Plaintiff wrote “subject to contract/contract denied” on the 8th of June, 1999 requesting a reduction in the purchase price of approximately £10,000 in respect of the carrying out of works as indicated in the Fire Safety Notice. In reply, on the 14th of June, 1999 the Defendant’s Solicitor’s, subject to contract/contract denied, returned the deposit cheque and indicated that the property would be placed on the market once more.
16. 5 The Defendant’s Solicitor wrote on the 16th of June, 1999 an open letter returning the cheque noting that it was the purchaser’s prerogative to elect whether or not to rescind and that no such election had taken place.
A completion notice was served on the 21st July, 1999. A lis pendens was registered as notified to the Defendant’s Solicitor on the 7th of October, 1999.
17. 6 General condition number 35 relating to the disclosure of notices provides as follows:

“35 Where prior to the sale

(a) Any closing, demolition or clearance Order

or

(b) Any notice (not being of the contents of the Development Plan other than an actual or proposed designation of all or any part of the subject property for compulsory acquisition) made or issued by or at the behest of a Competent Authority in respect of the subject property and affecting same at the date of sale has been notified or given to the Vendor (whether personally or by advertisement of posting on the subject property or in any other manner) or is otherwise known to the Vendor or where the subject property is at the date of the sale affected by any award or grant which is or may be repayable by the Vendor’s successor and title then if the Vendor fails to show

(i) that, before the sale, the Purchaser received notice or was aware of the matter in question

or

(ii) that same is no longer applicable or material

or

(iii) that the same does not prejudicially affect the value of the subject property

or

(iv) that the subject thereof can and will be dealt with fully in the Apportionment Account

The Purchaser may by notice given to the Vendor rescind the sale.”

18. 7 This general condition was referred to in the purchaser/Plaintiff’s letter of the 8th of June, 1999 as follows:

“ As you are aware general condition number 35 of the contract executed by our respective clients deals specifically with notices serviced by Local Authorities in respect of premises. As your client is not prepared or not in a position to furnish an Architect’s certificate of compliance in relation to the notice furnished our instructions are to request a reduction in the purchase price of approximately £10,000 noting our client’s Architect’s estimate it will cost approximately that amount to carry out the works as indicated in the notice of the 26th of August, 1986. We have written to our clients lending institution in order to ascertain their requirements in relation to the matter and as soon as we receive a response we will revert.

In the meanwhile, we would be obliged if you would take your clients’ instructions regarding a reduced purchase price in this instance noting that our clients reserves the right to rescind the contract pursuant to general condition number 35 in this instance.

In the meantime please not (sic) we have no authority expressed or implied to bind our clients to contracts in this instant and no contract should be deemed to exist between our mutual clients until all matters pertaining to the contract, in particular general condition 35, have been dealt with.

Yours faithfully”.

19. 9 The Defendant’s Solicitors replied on the 14th of June, 1999 in relation to the last paragraph states as follows:

“ ... We are instructed to inform you that our client takes the view that since you contend that there is no contract in existence he does not intend to proceed with the sale of the property to your clients and we are instructed therefore to return your clients deposit. Please find enclosed our clients account cheque in the sum of the deposit paid to us.”

20. 10 Miscellaneous receipts totalling some £1,600 were claimed by the Defendant to have been paid in respect of the property which relate to furnishings and carpets. Some do not have the customers name.
Almost all relate to purchases made after the 8th of June, 1999, the alleged date of the Plaintiff allegedly denying the existence of the contract.
21. 11 In the circumstances an issue arises in relation to the entitlement of the plaintiff/purchaser to enforce the contract.
22. CASE LAW
23. 1 In Starling Securities Limited -v- Woods and Others, unreported judgment of the 24th of May, 1977, McWilliams J. refused an application for a specific performance on the basis of what the trial judge held to be an incomplete contract. The only interpretation he could put on the peculiar method adopted to conduct the transactions was that both parties were trying to conceal from the Revenue Authorities the true nature of the transactions. On the basis of Millar -v- Klinski (1945) TLR 85 and Alexander -v- Rayson (1936) 1 KB 169 he found he was not entitled to countenance such attempted frauds on the Revenue by enforcing the performance of contracts at the instance of either party.
24. 2 In Whitecross Potatoes (International) Limited -v- Raymond Coyle (1978) ILRM 31 at 33 Finlay P said as follows:

“I am satisfied that the legal principles applicable to this conflict of evidence are relatively straightforward. If there was a contract which, on the apparent intention of the parties at the time of its formation, could be and would be carried out in a legal fashion even though one of the parties, namely the Defendant, in reality intended to carry it out in an illegal fashion it is enforceable. If, on the other hand, the acknowledged and accepted intention of both the parties at the time of the formation of the contract was that in the event of this export or import control being imposed the contract would be carried out by a smuggling operation, it is unenforceable and is contrary to public policy and cannot be upheld by the Court.”

Judgment was given against the Defendant for breach of contract on the basis that the onus of proving the illegality of the contract is on the party alleging it and that the Defendant had not proved an illegal intention on the part of the Plaintiffs.
25. 3 In Curust Financial Services Limited and Another -v- Lowe - Lackwerk (1994) 1 IR 450 at 467 Finlay C.J. with whom O’Flaherty and Egan J.J. agreed held:

“I accept that, the granting of an injunction being an equitable remedy, the Court has a discretion, where it is satisfied that a person has come to the Court, as is so frequently expressed, otherwise than “with clean hands”, by that fact alone to refuse the equitable relief of an injunction. It seems to me, however, that this phrase must of necessity involved an element of turpitude and cannot necessarily be equated with a mere breach of contract.”

This reasoning echoes that of the House of Lords in Tinsley -v- Milligan (1994) 1 AC 340 at 353 F, 354 F and 359 B per Lord Goff of Chieveley. The underlying principle is the so called public conscience test. The Court must weigh, or balance, the adverse consequences of granting relief against the adverse consequences of refusing relief. The ultimate decision calls for value judgment (see Nicholas L. J. in Tinker -v- Tinker (1970) 1 All ER 540.
Lord Goff referred to the basic principle of Lord Mansfield C. J. in Holman -v- Johnson (1775) 1 COWP 341, 343:

“The objection, that a contract is immoral or illegal as between Plaintiff and Defendant, sounds at all times very ill in the mouth of the Defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the Defendant has the advantage of, contrary to real justice, as between him and the Plaintiff, by accident, if I may say so. The principle of public policy is this: ex dolo malo non oritur actio. No Court will then give aid to a man who founds his cause of action upon an immoral or an illegal act.”

26. THE DECISION
27. 1 The Court must look at the quality of the illegality relied upon by the Defendant. The Court must also look at all the surrounding circumstances.
Three questions need to be answered:. First, whether there has been an illegality of which the Court should take notice and, second, whether in the circumstances it would be an affront to the public conscience if by affording him the relief sought the Court were seen to be indirectly assisting or encouraging a criminal act. Thirdly, the Court must be satisfied that the contract has not been otherwise rendered ineffective.
It is clear that the onus of proving illegality of a contract is, in this case, on the Defendant. The Defendant must prove an illegal intention on the part of the Plaintiff.
It seems to me from the agreed facts of the case that the request to pay money to an alleged charity did, indeed, induce the contract. It does not follow that that, in itself, rendered the contract illegal or unenforceable. It was the Defendant who described the payee as a charity. While the cheque was given by the Plaintiff’s son to the Defendant it was in the name of the charity. There is no evidence of an intention of the Plaintiff to defraud.
This was a contract which, on the apparent intention of the parties at the time of its formation, could be and would be carried out in a legal fashion. There does not seem to me to be evidence sufficient to prove that the Plaintiff intended to carry it out in an illegal fashion. This is so despite the plea in defence by the Defendant. Accordingly, I find that there is no illegality such as to render the contract unenforceable. Moreover, no conveyance resulted for an undervalued consideration such as would defraud the revenue in relation to stamp duty.
28. 2 If I am wrong in this finding it does not seem to me whatever unintentional irregularity there might have been is not such as to deprive the Plaintiff of the right to enforce the contract if the contract still subsisted.
29. 3 In relation to the relief of specific performance sought, which is an equitable remedy, the Court has a discretion to refuse such relief where the applicant comes otherwise than “with clean hands”. That phrase must, of necessity, involve an element of turpitude. I can find no turpitude on the part of the Plaintiff.
However that does not dispose of the matter.
30. 4 The issue which remains is whether the closing paragraph of the Plaintiff’s Solicitors letter of 8th June, 1999 at 5.7 above amounts to a recision of the contract. Their letter refers to general condition 35 that is to notices served by the local authorities and to an abatement of the price in respect of compliance with such notices.
The closing paragraph states that

(a) the Solicitors have no authority to bind the purchaser, and

(b) no contract should be deemed to exist between “our mutual clients” until all matters pertaining to the contract, in particular general conditions 35 have been complied with.

31. 5 It would seem that this closing paragraph is not an exercise of the option to rescind but rather an attempt to protect the purchaser. The reply of 14th June, 1999: “we are instructed to inform you that our client takes the view that since you contend that there is no contract in existence he does not intend to proceed with the sale ....” to my mind is to ignore the context of the letter from the Plaintiff’s Solicitor. A contract existed. The Plaintiff had the option of rescinding under condition 35. Negotiations were in being to resolve the issue of notices. The option of the Plaintiff was not exercised.
32. 6 Accordingly, the Court will allow the Plaintiff’s application and hear Counsel as to necessary orders required.