Jones v Lipman [1962] 1 W.L.R. 832

Company law – Property – Sale of land

Facts

Lipman agreed to sell a property to Jones for £5,250, but subsequently changed his mind. He then formed his own company, which had £100 in capital, and made himself the director and owner. He then transferred the land, which he had agreed to sell to Jones, to this sham company for £3,000. To enable such a transaction, Lipman had borrowed over half the money needed by way of a bank loan, and the remainder was owed to other sources. Under the Rules of the Supreme Court Order 14A, the purchaser applied for specific performance to be carried out against the vendor and the vendor’s company for the transfer of the property in question.

Issues

The court was required to decide if an order of specific performance could be enforced in the circumstances. Specifically, it was important for the court to assess the company that Lipman had created and the transaction of the sale of the property to see if it was equitable. The court also had to establish whether it was appropriate for the Rules of the Supreme Court to be applied to the circumstances.

Decision/Outcome

Firstly, the court held that the Rules of the Supreme Court could apply to the circumstances. Further to this, it was found that the defendant’s company was created by the defendant as ‘a mask to avoid recognition by the eye of equity’ (at p.836) and on this basis, a requirement of specific performance could not be avoided. It was clear that the defendant had control of the sham company which held the property, and therefore Lipman was the only individual who could perform the agreement.