McCarthy v Jones & Anor [2023] EWCA Civ 589 is an appeal from Jones & Anor v McCarthy [2022] EWHC 2186 (Ch) which I had not reported on the blog probably because I had not seen it (it happens to the best of us).
Jarman J in the first instance judgment summarised the facts [1 ff] as follows:
first claimant Mr Jones and the defendant Mr McCarthy orally agreed (the 2008 agreement) to exchange assets, whereby Mr McCarthy would obtain beneficial ownership of a yacht known as Biggest Buzz (the yacht) and registered in the British Virgin Islands (BVI), in exchange for Mr Jones acquiring a villa near Palma, Mallorca (the villa) and a mooring (the mooring) situated on mainland Spain. The yacht was registered in the name of the second claimant, a company owned and controlled by Mr Jones. The legal title to the villa was in the name of Mr McCarthy. The mooring was in the name of Mr McCarthy’s father. There was at the time, a substantial mortgage on the yacht and another on the villa. It was envisaged by Mr Jones and McCarthy at the time that after the swap the yacht and the villa would be sold to third parties. It is also not in dispute that part of the reason for the swap was to enable Mr Jones to buy a bigger boat.
In the autumn of 2008, Mr McCarthy sold the yacht to a third party for around £1 million, having had the use of it since the 2008 agreement was made. The second claimant had cleared the outstanding mortgage on the yacht. Mr McCarthy retained the proceeds of this sale, as was envisaged by the parties. The villa was not sold until 2016, at a price of €1.1 million. The proceeds of that sale were also retained by Mr McCarthy, which was something not envisaged at the time.
The primary remedy sought by the claimants is damages for breach of the 2008 agreement on the part of Mr McCarthy, to put them in the position they would have been in if Mr McCarthy had complied with his obligations thereunder by selling the villa at the direction of Mr Jones at its market value of €1.58 million or at least the value for which it was sold at €1.1million.
Alternatively, the claimants say that they are entitled to an account of profits and a constructive trust over the proceeds of sale of the villa, if this provides a more advantageous remedy to the claimants than that available in contract. Mr McCarthy was paid €150,000 by a Brian Proctor in December 2014 under an agreement between them which related to the villa and the mooring, and then bought it back for €950,000. Mr McCarthy then sold the villa to a third party in November 2016 for €1.1 million, so the wrongful proceeds of sale amount to €1.25 million.
The interest to the blog lies in the applicable law issues for the equitable relief. The first instance judge reported the procedural interest as follows [101]
It is not in dispute that matters of contract concerning the villa are governed by the law of England and Wales. Several weeks before the hearing was due to start, the claimants applied to amend their claims to include equitable remedies in respect of the villa. This gave Mr McCarthy little time to seek a report from an expert in Spanish law as to such remedies, as it was contended on his behalf, somewhat unusually, that despite the position regarding contractual remedies as set out above, any equitable remedies would be governed by Spanish law. This was not accepted by Mr Campbell, but he indicated that if the amendments were allowed, and if it was eventually determined that equitable remedies were governed by Spanish law, the claimants would rely solely on their claims in contract. This concession was referred to in the order made allowing the amendments, and repeated in Mr Campbell’s skeleton argument for the substantive hearing.
In other words claimant wanted to amend their claim so as to include equitable relief, a move which defendant opposed but was happy to forgive only if the judge held that that relief was subject to Spanish law, in contrast with the remainder of the claim which parties agreed was subject to English law as the lex contractus. Claimant OK-ed this route, committing to dropping the claim for equitable relief should the judge indeed find this was subject to Spanish law.
The judge duly [102] ff determined lex causae for equitable relief in the case and despite parties’ agreement that English law is the lex contractus, held it to indeed be Spanish law under the ‘most closely connected’ formula of the Rome Convention (the contract not being subject to the Rome I Regulation).
In so doing, he clearly (but without being specific about it) echoed the antediluvian (or is it?; authority and scholarship seem confused about the issue) distinction between rights, subject to the lex contractus, and remedies, subject to the lex fori – although it is odd to then subject those remedies to Spanish law. Unlike Rome I and Rome II, the Rome Convention does not have an Article specifying the ‘scope of the law applicable’, which includes in Rome I (A12(2) “within the limits of the powers conferred on the court by its procedural law, the consequences of a total or partial breach of obligations, including the assessment of damages in so far as it is governed by rules of law;”: itself of course courting controversy by referring to the limits of the lex fori’s procedural rules (see ia here for some of the discussions) and in Rome II Article 15(c) “the existence, the nature and the assessment of damage or the remedy claimed”, each with the complication of the ‘evidence and procedure’ carve-out from the scope of application of the Regulation.
On appeal, the applicable law issue was not revisited, albeit Lewison LJ [3] notes viz an issue different than the remedies issue
It is common ground that the result of the 2008 agreement was that (looking at the matter through the eyes of the law of England and Wales) Mr Jones became entitled to the beneficial interest in the villa despite Mr McCarthy’s retention of the legal title. Whether the existence of such an interest would be recognised as a matter of Spanish law was not explored either at trial or on this appeal. We were asked (rather unsatisfactorily) to assume that the law of England and Wales applied. What was in issue at the trial was whether Mr Jones had ceased to be entitled to that beneficial interest; or was estopped from denying that he had. The judge found against Mr McCarthy on both issues; and, with the permission of Asplin LJ, Mr McCarthy appeals.
E&W authority does not usually make a fuss when parties are in agreement that a specific law applies to the claim, so why such concession here would be ‘unsatisfactory’ is not entirely clear to me.
I am not finding it easy to get my head round the issues here. Perhaps the hot European summer is getting to me.
Geert.
gavc law - geert van calster 