Millett LJ set out the principles applicable to a deposit paid on a land transaction being held by a stakeholder: ”Where a stakeholder is involved, there are normally two separate contracts to be considered. There is first the bilateral contract between the two principals which contemplates two possible alternative future events and by which the parties agree to pay a sum of money to a stakeholder to abide the happening of one or other of them . . The second contract is the tripartite contract which results from the deposit of the money with the stakeholder on terms that he is to keep it until one or other of the relevant events happens and then pay it to one or other the parties accordingly. The stakeholder is a party to the second contract but not the first. His rights and obligations are not normally expressly spelled out. They are implicit in the transaction itself, and must be discovered not by implying terms, but by analysing the relationship of the parties which arises from the deposit of the money.
The following propositions emerge from the authorities:
(1) The relationship between the stakeholder and the depositors is contractual, not fiduciary. The money is not trust money; the stakeholder is not a trustee or agent; he is a principal who owes contractual obligations to the depositors: Potters v Loppert [1973] Ch. 399, 406; Hastingwood Ltd v Saunders Bearman [1991] Ch. 114, 123. The underlying relationship is that of debtor and creditor, and is closely analogous to the relationship between a banker and his customer.
(2) Until the specified event occurs, the stakeholder is entitled to retain the interest on the money. This is usually as his reward for holding the money: see Harington v Hoggart (1830), I BandAd 577. The right may be excluded by special arrangement, and was excluded in the present case.
(3) Until the event happens the stakeholder holds the money to the order of both depositors and is bound to pay it (strictly speaking an equivalent sum) to them or as they may jointly direct: Rockeagle v Alsop Wilkinson [1992] Ch. 47.
(4) Subject to the above, the stakeholder is bound to await the happening of the event and then to pay the money to one or other of the parties according to the event. The money is payable to the party entitled on demand, and if the stakeholder fails to pay in accordance with a proper demand he is liable for interest from the date of the demand: Lee v Munn [1817] EngR 769; (1817) 8 Taunt. 45; Gaby v Driver (1828) 2 YandJ 549.
(5) If the occurrence of the event is disputed, the stakeholder cannot safely pay either party, for if he mistakenly pays the party not entitled the payment will not discharge his liability to the other. In these circumstances he may (i) interplead and pay the money into Court; (ii) retain the money pending the resolution of the dispute; or (iii) take the risk of paying one party. The choice is entirely his.
(6) If he takes the second course, he may notify the parties that he is content to abide the outcome of the dispute. There is then no need to join him in any proceedings which are taken to resolve it. If he is not joined, the Court cannot order the money to be paid to the successful party. All it can do is to declare that the successful party is entitled to give a good receipt for the money: see Smith v Hamilton [1951] Ch. 175.
(7) If the stakeholder is not content to abide the outcome of the proceedings, he may be joined in order to bind him. This was done in the present case, albeit on the application of the stakeholder.’
Judges:
Millett LJ
Citations:
[1996] EWCA Civ 942
Jurisdiction:
England and Wales
Citing:
Cited – Rockeagle Ltd v Alsop Wilkinson CA 1991
The position of a stakeholder and the two potential claimants to a stake is the subject of a tripartite contract. The relationship between the stakeholder and the two potential claimants is contractual, not fiduciary. The money is not trust money. . .
Cited – Potters v Loppert ChD 1973
The court was asked as to the liability of an estate agent to account for interest earned upon a pre-contract deposit paid to him expressly as a stakeholder. No contract was made.
Held: A stakeholder is not a trustee or agent; he is a . .
Cited by:
Cited – Lumsdon and Others, Regina (on The Application of) v Legal Services Board SC 24-Jun-2015
The appellant, barristers and solicitors, challenged the respondent’s approval of alterations to their regulatory arrangements, under Part 3 of Schedule 4 to the 2007 Act. The alterations gave effect to the Quality Assurance Scheme for Advocates . .
See Also – Manzanilla Limited v Corton Property and Investments Limited John Maciver (Southport) Limited Rootbrights Limited Halliwell Landau (a Firm) CA 23-Apr-1997
. .
See Also – Manzanilla Limited v Corton Property and Investments Limited; John Mciver (Southampton) Limited; Rootbrights Limited and Halliwell Landau (a Firm) CA 7-Jul-1997
After settlement between parties of a wasted costs application, a note may be put to the judge where this was needed in order to clear the reputation of lawyer involved. . .
Lists of cited by and citing cases may be incomplete.
Contract, Legal Professions
Updated: 18 June 2022; Ref: scu.140809