England and Wales High Court (Chancery Division) Decisions

"The amount currently secured by way of second mortgage to the bank on the property is in the region of £500,000, but this is working capital and can fluctuate fairly widely".

"It appears from the proposal that the Bank will agree that other payments should be made from the proceeds of sale of Holcombe Court, before any indebtedness to them is discharged. Is that correct? In summary, am I right in thinking that Mr and Mrs Sumption are free to decide what should happen to the whole of the £1,350,000 that will be available on sale of Holcombe Court after the AMC has been repaid?."

"9. Final terms remain to be agreed with the bank but it is certainly understood that the bank will not simply require repayment of the £500,000 on the sale of the property. The intention is that the final balance of £400,000 referred to in my letter of yesterday should be utilised to strengthen the trading position of the two companies by injecting further money, partly by increasing my clients equity share in the business and partly by reducing borrowings.

In summary Mr and Mrs Sumption are free to decide what should or should not happen to the following sums mentioned in my letter of yesterdays date:

(a) To buy or not to buy Bradleigh Down £600,000.

(b) To repay or not to repay the mortgage on Spypost £100,000

(c) To fund or not to fund school fees £250,000

TOTAL                     £950,000"

"Broadly I see the figures as follows:

Net proceeds £1,950,000.00

LESS

AMC mortgage £ 500,000.00

£1,450,000.00

LESS

Barclays Bank (probable minimum

repayment required) £ 375,000.00

£1,075,000.00

LESS

Fund for school fees £ 275,000.00

£ 800,000.00

Our suggestion is that as an interim measure, and subject to the points noted below, this sum should be divided half and half on completion, so that each of our respective clients would receive approximately £400,000 from the purchase money.

This would enable my client to bid for Bradleigh Down on the basis of a payment of £400,000 plus up to another £200,000 by way of mortgage from the bank.

The qualifications mentioned above are as follows:

1) This would be an interim arrangement only.

2) A timetable would be set for a full mutual disclosure of financial information.

3) The parties, and their respective advisers, would seek to agree terms for a final financial settlement on the basis of a permanent separation or divorce.

4) This would all be done before completion at the end of January or early February 2001 and the actual amount payable to each party on completion adjusted accordingly."

"to confirm that they can get the bank loan down to £275,000 and he confirmed that the contract could be got to them tomorrow and there would be time."

Mr Pugsley denies having said that the husband could get the bank loan down to £275,000.

"Dear Mr Pugsley

Mr and Mrs Sumption: Without Prejudice

We have spoken by telephone, but I now write to confirm the terms on which Mrs Sumption would be willing to sign and release the contract for sale of Holcombe Court. I believe that the terms set out below are agreed by Mr Sumption.

1. Mrs Sumption would sign and release the contract for the sale of Holcombe Court at £1,975,000, and would otherwise co-operate with the sale provided that I had received from you an undertaking to make payments on completion as follows.

2. The first £25,000 of the proceeds of sale will applied towards the estate agents’ and solicitors’ costs in respect of the sale; I understand that negotiations are continuing in relation to the sale of fixtures and fittings, and it is expected that the balance of the sale costs will be met from that source. It would be helpful if you could confirm the amount that is agreed for fixtures and fittings, but I am assuming that there will be no surplus from them over and above the costs of sale.

3. From the balance of £1,950,000, the AMC mortgage of £500,000 will be discharged. I am assuming that the redemption figure will not exceed £500,000.

4. The next £275,000 will be paid to Barclays Bank, and it is assumed that the Bank have agreed to release their Charge upon payment of this sum on completion.

5. The next deduction will be to redeem the mortgage of around £100,000 presently secured against the property in Mrs Sumption’s name at Exeter Road, Rockwell Green, Wellington (referred to in our correspondence as “Spy Post”). Clearly we will need an up-to-date redemption figure. It may be that Mr Sumption has this information.

6. The next deduction from the proceeds of the sale will be £275,000, which will be held pending further agreement in an account in the joint names of Mr and Mrs Sumption, and will be applied by them only for payment of the childrens’ school invoices, unless they agree otherwise.

7. The balance of the proceeds of sale, estimated at £800,000, will be divided equally between Mr and Mrs Sumption. I am assuming that there is no need for a retention of CGT, since I understand that there is not expected to be a chargeable gain on the sale, but would be grateful if you would confirm this.

8. I am assuming that the deposit will be held by your firm pending completion.

It is agreed that the arrangements set out above would not constitute a final settlement between Mr and Mrs Sumption in relation to any future separation or divorce proceedings. Instead, there would be an exchange of financial information and efforts would be made on both sides to attempt to agree final terms. In the event that a different agreement was reached before completion, it would be possible to vary the arrangements set out above by agreement. In default of agreement, the funds would be divided as set out above.

Since Mrs Sumption has no control over the arrangements with the Bank, I think it would be appropriate for Mrs Sumption’s share of the residue of the proceeds of sale (estimated at £400,000) to be calculated on the assumption that only £275,000 will be payable to Barclays Bank, whatever final figure they may require. Alternatively, it may be possible for you to give me documentary evidence that the Bank will agree to release their charge on payment of the £275,000 in any event.

Assuming that these terms are agreed, I look forward to hearing from you with a draft undertaking for approval.

Yours sincerely"

"Dear Miss Hallam

Mr and Mrs Sumption

Thank you for your faxed letter of this morning which I have been able to discuss with my client.

I am pleased to be able to confirm that the terms set out in your faxed letter are agreed in full.

Please therefore accept this letter as my firms undertaking, on receipt of the signed contract from Mrs Sumption, and on completion of the sale of Holcombe Court for £1,975,000, to make the payments listed in the numbered paragraphs 2,3,4,5,6 and 7 of your fax.

As to the payment of £275,000 to Barclays bank, we have not yet obtained written confirmation from the bank that they will release their charge upon receipt of that sum on completion. If the bank should require more, then the excess would be a charge against my clients half share of the final net proceeds.

I confirm that this does not constitute a final settlement between the parties and that if a different agreement can be reached before completion the arrangements set out above would be varied by such subsequent agreement.

You have asked for a draft undertaking for your approval but I hope that you will find the undertaking incorporated in this letter acceptable. If you would like any alterations would you please let me know by telephone as soon as you can.

My client has arranged for a messenger to attend at your clients surgery at 11am this morning to collect the contract signed by your client and I hope that you will find it possible to report to her before that time."

"Thank you very much for your fax of 16 November.

I write to confirm on an open basis that the terms of your undertaking are accepted.

I have therefore authorised Mrs Sumption to release the contract for the sale of Holcombe Court, and I look forward to hearing from you with confirmation that contracts have been exchanged."

1) £25,000 costs of sale (Deduction A);

2) £500,000 AMC mortgage (Deduction B);

3) £275,000 to the bank (Deduction C)

4) £100,000 approx. To redeem the Spypost mortgage (Deduction D);

5) £275,000 in a school fees fund (Deduction E)

leaving a balance “estimated at £800,000” to be divided equally between the husband and the defendant. The balance could only be estimated because the exact redemption figure in respect of the Spypost mortgage was not known.

1) Deduction A £62,487,56. This was made up of agent’s fees of £52,214.06 and the claimants’ own costs of £10,273.50 The defendant contends that only £25,000 should have been deducted.

2) Deduction B £507,285.39. This was made up of the £500,000 due to the AMC together with interest. The defendant accepts that this deduction was properly made.

3) Deduction C £1,105,093.98 in respect of the bank’s second mortgage. Herein lies the heart of the present dispute. The defendant’s contention is that only £275,000 should have been deducted;

4) Deduction D £94,031.91. This in respect of the SpyPost mortgage, was less than had been contemplated. The defendant accepts that this deduction was properly made.

These deductions left a balance of £206,101.16 which was applied in creating the school feels fund.

The Construction Point

In relation to the £25,000 deduction it was submitted (correctly) that there was a factual dispute, incapable of resolution on a summary determination, as to the extent to which the defendant had failed to co-operate in achieving a sale of the chattels. Resolution of that dispute is, however, unnecessary for the purposes of construing the undertaking. In relation to the discharge of the bank’s second charge, it was submitted that further elaboration of the matrix was necessary and desirable before the court could come to a firm conclusion. The only pleaded fact relevant to the question was the fact that the indebtedness to the bank was, and was recognised to be, subject to the possibility of wide fluctuation. That fact is, however, plain on the face of the correspondence and I am unable to see how oral testimony would add to its effect. In addition, reference was made to several points at which Mr Pugsley in his witness statement took issue with what Miss Hallam had said (or had been taken as saying) in her witness statement concerning the oral communications between herself and Mr Pugsley. Again, however, resolution of these issues appears to me to be irrelevant to the questions of construction raised by the exchange of correspondence. I do not consider that the determination of those questions requires a trial.

Change of Circumstances

"From our own point of view the most important thing is a variation in my firms undertaking contained in our open letter of the 16 November, so that we may pay the net proceeds to the bank, without which we cannot get the Banks second mortgages discharged, which in turn would prevent the completion of the sale of Holcombe Court."

"Where, after the undertaking has been given, circumstances change so that the undertaking is no longer possible of fulfilment either wholly or in part, the recipient of the undertaking must be informed of the changed circumstances at the earliest opportunity. If the giver fails to notify the recipient of the change in circumstances the giver will be bound to honour the undertaking as originally given. Where, for example, an undertaking has been given to discharge a mortgage on the client’s behalf and it subsequently becomes clear that insufficient funds are available to discharge the debt, the recipient of the undertaking must immediately be informed of the changed circumstances, failure to disclose the change will result in the solicitor who gave the undertaking being liable to discharge the whole of the mortgage debt, even if this means that he has to use his personal funds to do so."

"The example envisaged by Cordery is somewhat different from the subject in this case, but the guidance seems, if I may say so, to be eminently proper and sensible as to what a solicitor should do if he finds that he cannot undertake what he has undertaken to do. Mr Thompson never, as far as we can see, did any of that, nor does he appear to have given any information to the recipient of the undertaking, until the argument before Wright J, that the position had changed. I would not base my judgment on that failure alone, but I do consider that the fact that that precaution was not taken by Mr Thompson further underlines the unsoundness of the ground on which he now seeks to avoid or set aside the order for committal made by Rougier J on the basis of Mr Thompson’s own admissions and assurances."

Appropriateness of relief claimed

"....even where it has been established that an undertaking has been given but not performed, the court still retains a residual discretion about the order which is appropriate in the circumstances. In cases where enforcement of an undertaking by an order for its performance is still possible and practicable, such an order will no doubt be made more or less as a matter of course. The reason is that the failure to perform an undertaking which is still capable of being performed will generally amount to professional misconduct or a serious dereliction of professional duty, to use the expressions mentioned in the judgments. But these passages also show, to use the language of Nicholls LJ post, p. 930F-G, that “a solicitor is not necessarily to be regarded as having misconducted himself by failing to honour an undertaking”. One of the examples which he gives is the situation “where there was real scope for genuine misunderstanding on what was said or meant by a solicitor on a particular occasion.”