Interlocutory appeal from order of judge striking out writ and statement of claim–Contract for the sale of property–Purchaser, a foreign company, unable to finance completion after time made essence–Vendor gave notice rescinding contract and forfeiting deposit–Purchaser claimed return of deposit in action which the judge considered was bound to fail–Construction of section 49(2) of Law of Property Act 1925 and Condition 22 of National Conditions of Sale–Jurisdiction under section 49(2) to be exercised when justice of the case requires it–Trial of action should not be prejudged–It might be just to order repayment of deposit, leaving vendor to remedy in damages–Judge’s order set aside
This was an
appeal from an order of Walton J striking out the plaintiff’s writ and
statement of claim under Order 18, rule 19 or under the court’s inherent
jurisdiction in an action for the repayment of a deposit. Walton J held that
the statement of claim disclosed no reasonable cause of action. The facts giving
rise to the action are explained in the judgment of Buckley LJ.
Terence Cullen
QC and Anthony Thompson (instructed by Heald & Nickinson) appeared on
behalf of the appellants; Gerald Godfrey QC and J C Harper (instructed by
Linklaters & Paines) represented the respondents.
Giving
judgment, BUCKLEY LJ said: This is an appeal from an order of Walton J, whereby
he struck out the writ and statement of claim in this action under Order 18,
rule 19, or under the inherent jurisdiction of the court, on the ground that
the plaintiff was bound to fail–that the action was one which could not
possibly succeed.
The case
arises on a contract for the sale of a piece of property in London to the
plaintiff company at the price of £885,000, a deposit of £88,500 being paid on
exchange of contracts. The facts, and statement of claim which has been served,
are set out carefully by the learned judge in his judgment in the court below
and I do not propose to recapitulate that material.
The
plaintiff’s case for the repayment of the deposit is founded upon two
contentions: first, that the contract was frustrated, and secondly a claim
under the Law of Property Act 1925, section 49(2). The plaintiff company is a
Liberian company; it proposed to finance the purchase out of funds in Nigeria.
It has no place of business in this country and apparently it has no funds at
its disposal in this country.
Unhappily for
the plaintiff company, owing to complications arising out of a change in the
Nigerian exchange control law, the plaintiff was unable to have the necessary
moneys at its disposal in London by the date fixed for completion after time
had been made of the essence of the contract. Consequently, the defendant
vendor gave notice under Condition 22 of the National Conditions of Sale, 19th
ed, which were incorporated in the contract, rescinding the contract and
forfeiting the deposit; that was on February 22 1978.
The money
became available to the plaintiff company in London on March 6 1978, 12 days
after the notice of rescission. On March 12 the plaintiff issued its writ, and
on March 29 the defendants moved to strike out the writ and statement of claim.
On April 28 the judge made the order appealed from.
The judge
dealt with the topic of frustration quite shortly; he said: ‘But quite
emphatically the doctrine of frustration cannot be brought into play merely
because the purchaser finds, for whatever reason, he has not got the money to
complete the contract.’ That seems to me
to be an accurate and proper statement. Certainly the plaintiff was unable, by
reason of matters beyond its control, to complete the contract when it should
have done so, but this is something quite different from the contract having
become incapable of performance; nor, in my view, can it be suggested that
anything had happened to make the performance of the contract, in the
circumstances existing at the date for completion, significantly different from
what was contracted for: see Davis Contractors Ltd v Fareham Urban
District Council [1956] AC 696 at p 729. On the material before the court,
in my judgment, no frustration is shown to have occurred.
The
alternative claim is put forward under section 49(2) of
to grant specific performance of a contract, or in any action for the return of
a deposit, the court may, if it thinks fit, order the repayment of any
deposit.’ The judge thought that it
would be surprising if Parliament had, by that provision, conferred upon the
courts an absolute unfettered jurisdiction to interfere in a bargain between
vendor and purchaser whenever it thought fit to do so, without the remotest
hint of any guidelines as to how what he described as ‘that quite extraordinary
jurisdiction’ should be exercised.
He reached a
preferred view on the construction of the subsection, that the jurisdiction
exists only where the vendor could, but has not, sued for specific performance,
upon which basis the learned judge said that the subsection was simply not
applicable to a case of the present nature, which is one in which the vendor,
had he issued in time the writ for specific performance, must have been granted
such a decree beyond all question. With deference to Walton J, this seems to me
to confuse the question in what circumstances the jurisdiction exists with the
question in what circumstances the court will exercise it in favour of the
purchaser.
The judge,
however, went on to say that if he were wrong in his preferred view as being
too narrow, it was obvious that there must be severe limits on the operation of
the subsection. It is not, he said, designed simply to do justice between
vendor and purchaser. Looking at the subsection in its terms, having regard to
the language used in it and without regard to extraneous considerations, this
seems to be precisely what the section in fact is. By way of supporting, or
establishing, his view, the learned judge asked: ‘When can it be just and
equitable to deprive the vendor of the whole of the moneys to which he is at
law entitled?’ It seems to me that this
is, or may be, precisely the problem which the section presents to the court,
for it confers upon the judge a discretion which is unqualified by any language
of the subsection, to order or refuse repayment of the deposit–a discretion which
must, of course, be exercised judicially, and with regard to all relevant
considerations, including the very important consideration of the terms of the
contract into which the parties have chosen to enter.
With respect
to the learned judge, it does not seem to me to follow, as he thought, that a
purchaser can only succeed in a claim to repayment of the deposit if the
vendor’s conduct has been open to criticism in some way, which Walton J
described as having some mark of equitable disfavour attached to it.
In the course
of argument, we have been referred to the principle of construction which is
stated in Maxwell on the Interpretation of Statutes at p 86, where it is
said that ‘it is a canon of interpretation that all words, if they be general
and not precise, are to be restricted to the fitness of the matter; that is, to
be construed as particular if the intention be particular.’ That, as I understand it, is a reference to
the well-known doctrine of having regard to the mischief which the enactment is
intended to deal with; but that doctrine, as I understand it, does not entitle
the court to disregard the plain and natural meaning of wide general terms in a
statute. If the language is equivocal and requires construction, then the
doctrine is a proper one to refer to; but if the language is quite plain, then
the duty of the court is to give effect to what Parliament has said, and it
seems to me that in the present case Parliament has conferred a wide and
general discretion.
I prefer to
the learned judge’s approach to the construction of this subsection the
approach of Megarry VC, who has expressed the view that the jurisdiction is one
to be exercised where the justice of the case requires: see what he said in Schindler
v Pigault (1975) 30 P&CR 328 at p 336. In this connection I take the
word ‘justice’ to be used in a wide sense, indicating that repayment must be
ordered in any circumstances which make this the fairest course between the two
parties. It is, I think, relevant in the present case that Condition 22 of the
National Conditions does not confer on the vendor an unqualified right to
forfeit a deposit. The words in paragraph 3 of the condition are: ‘. . . the
purchaser’s deposit may be forfeited (unless the court otherwise directs).’ This formula may well have been adopted with
the terms of section 42(2) in mind. However that may be, in my view the
language makes clear that the vendor has not an absolute right to retain a
deposit paid by a purchaser who is in default under the condition.
Walton J
properly drew attention to the fact that the statement of claim contains no
suggestion that the defendant knew that the plaintiff was going to obtain its
finance for the purchase from Nigeria. That position has changed since the
matter was before the learned judge, for counsel for the plaintiff has now
stated that he is instructed that the plaintiff is in a position to allege that
the defendant was at all relevant times aware that the plaintiff needed to
bring funds from abroad in order to complete the purchase, and he has sought
leave to amend the statement of claim accordingly. It is not for us, on this
appeal, to attempt to prejudge the issues in the action, but we must remember
that the statement of claim should be struck out only if it is clear that the
claim cannot succeed, or that it is in some other way an abuse of the process
of the court. It is not clear to me that when the circumstances are
investigated at the trial, the trial judge might not justifiably reach the
conclusion that, having regard to all the relevant circumstances, including
those in which the notice of rescission and forfeiture were given, it would not
be more just to order repayment of the deposit, leaving the defendant such
remedy in damages as may be available to it, than to allow it to retain the
very substantial deposit which was paid in this case.
I would allow
this appeal.
Agreeing that
the appeal should be allowed, EVELEIGH LJ said: I am not wholly confident of
the extent of the jurisdiction of the judge under section 49(2) of the Law of
Property Act 1925. But I am confident that the limit contended for by the
respondent is not plain and obvious. That being so, in my judgment the
procedure adopted was wrong. If there is an arguable point of law, which there
clearly is in this case, then the matter should more appropriately be set down
under Order 33, rule 3.
This case
raises not only the question of construction of section 49, but also the effect
of para 22 of the National Conditions of Sale, with the important words in that
paragraph: ‘. . . the purchaser’s deposit may be forfeited (unless the court
otherwise directs).’ The precise effect
of those words, either standing alone in a contract, or perhaps read in
conjunction with section 49(2), will give rise, I have little doubt, to a great
deal of argument on either side.
It has been
submitted in this case that section 49(2), although it has general words, has a
specific intent, and consequently those words should be read in a narrow sense.
That submission, as I see it, begs the whole question of what the intent of
section 49(2) is. For those reasons, therefore, I would allow this appeal.
In so far as
the question of frustration is concerned, I agree with all that has been said
on that matter by my Lord.
The appeal was allowed and the order of the judge
striking out the writ and statement of claim set aside. Certain consequential
directions were given as to the statement of claim, and the costs in the Court
of Appeal and below were reserved to the trial judge.
