A farmer who sold lands in Co Donegal at a “remarkable” €204,000 an acre at the height of the property boom is not entitled to an order requiring a property developer to pay some €1m outstanding on a €4m land sale contract, the Supreme Court has ruled.
In a judgment on Friday addressing significant contract law issues, the five- judge court dismissed John Gibbons’s appeal concerning a 2006 land sale contract.
Mr Justice John MacMenamin said he had “some sympathy” for Mr Gibbons but that was mitigated by the fact he has already received a “very substantial” sum of money – some €3 million – for the lands.
Outlining the background, he said Mr Gibbons contracted in late 2006 to sell three lots of lands, comprising 7.93 hectares, which he owned at Woodlands, near Letterkenny.
In the contract, Daniel Doherty, a property developer of Kilderry, Muff, who controlled a number of companies engaged in property development, was described as purchaser of the lands “in trust”. A company, ADT Investments Ltd, (ADT) was formed at the behest of Mr Doherty to acquire the lands.
The contract was to be performed by the sale of three lots, in three stages, over three years to 2009.
The purchase of the first two lots, for €3 million, completed but the third did not, leading to Mr Gibbons initiating proceedings in 2009 against Mr Doherty and ADT seeking specific performance.
He secured a further appeal to the Supreme Court after the Court of Appeal upheld a High Court decision granting specific performance against ADT only. ADT was unable to complete the contract and Mr Gibbons argued he was entitled to specific performance against Mr Doherty personally.
Mr Doherty argued Condition 30 of the Law Society’s General Conditions of Sale 2001 absolved a purchaser who signed a contact in trust from being personally liable to complete a sale once the name of the principal was identified to the seller.
The Supreme Court agreed to hear a further appeal because the case raised points of law of importance to solicitors, developers and purchasers of property. Those issues included the true interpretation of Condition 30 (since replaced by Condition 26 in similar terms in the Law Society’s General Conditions of Sale 2019), the law concerning pre-incorporation contracts and the discretionary nature of the specific performance remedy.
The pre-incorporation point arose because ADT was only registered as a limited company on February 23rd, 2007, two months after Mr Doherty signed the contract of sale but in time for ADT to be named in March 2007 as the purchaser in the transfer deed for the first lot.
Mr Justice McMenamin noted the contract envisaged Mr Gibbons receiving a “remarkable” sum of just over €204,000 per acre and that Mr Gibbons’s neighbours had received even higher figures for their lands around the time.
Mr Gibbons was paid €3 million by April 2008 under transfer deeds for two lots where the purchaser was named as ADT and not Mr Doherty. Mr Doherty told Mr Gibbons in October 2008, due to lack of funding, ADT would be unable to complete the sale of the third lot.
The judge noted Condition 30 provides, inter alia, that a purchaser who “signs” in trust, or with any similar description without specifying the identity of the “principal” or “other party” for whom they sign shall be personally liable to complete the sale unless and until they have disclosed to the seller the name of the principal.
Having analysed the law and the evidence, including the conduct of the parties, the judge ruled, despite Condition 30, Mr Doherty remained a party to the contract and could not rely on Condition 30 to avoid his liability under it.
The use of the words “in trust” did not protect Mr Doherty, he said. The condition required that the “principal” or “other party” be in existence when the contract was made but ADT was not then in existence and could not ratify the contract.
However, because Mr Gibbons had from March 2007 treated ADT as the principal, and continued to acquiesce in this situation up to the time of non-performance of the third part of the contract, Mr Gibbons was debarred by his conduct from obtaining specific performance against Mr Doherty, he ruled. On that basis, he dismissed the appeal.
