Sale of property – Agreement for sale of shares in company owning commercial property – Contractual term that claimant purchaser not obliged to complete in absence of specified documentation – Notice to complete served by defendant vendor – Defendant rescinding contract and forfeiting deposit – Whether defendant in breach of contract – Whether vendor ready, willing and able to complete – Whether appropriate to order return of deposit – Claim dismissed
The claimant agreed in writing to purchase all the shares in the first defendant company from the second defendant for £4m. The first defendant’s only asset was a commercial property on Park Lane, London W1. The claimant paid a deposit of £400,000 on signing the agreement, followed by a further £800,000. The balance was payable on completion. Conditions 6 and 7 of the Law Society’s standard conditions of sale (4th ed), concerning completion and notices to complete, were to apply, subject to clause 5.9 of the agreement. Clause 5.9 provided that the claimant would not be obliged to complete on the completion date if the second defendant failed to comply with the other provisions of clause 5 regarding the provision of documentation and other matters, including the resignations of the directors and secretary of the first defendant and the appointment of replacements nominated by the claimant.
The claimant was unable to complete on the contractual completion date or within the time specified in a notice to complete served by the second defendant. The second defendant accordingly purported to rescind the agreement, and sold the property to another purchaser for the higher price of £4.3m.
The claimant brought proceedings in which it disputed the second defendant’s right to rescind. It contended that the notice to complete had been invalid since, at the time of giving that notice, the second defendant had not been ready, willing and able to complete because it could not provide all the documentation required by clause 5. It claimed the return of the sums paid to the second defendant, together with interest, as well as damages for breach of contract in the sum of £300,000, which represented the difference between the contractual price and the figure at which the second defendant had sold to the other purchaser. The defendant repaid the £800,000 but disputed its liability for the other sums. Relying upon Aero Properties Ltd v Citycrest Properties Ltd [2002] 2 P&CR 21, it submitted that it had been ready, willing and able to complete in circumstances where it was able to effect the necessary administrative arrangements for completion within a reasonable time.
Held: The claim was dismissed.
(1) The question of whether a party was ready, willing and able to complete was one of fact and it would not necessarily be useful to compare the court’s approach on the facts of past cases, given the shifts in conveyancing practices over time and the changes in technology. However, the guidance in Aero Properties was a helpful yardstick, despite the fact that it was not concerned with the standard conditions of sale. The burden of proof lay on the party seeking to establish that the other was not ready, willing and able to complete.
In the instant case, the second defendant had been ready, willing and able to complete on the day it served the notice to complete, in the light of its evidence that the claimant’s nominated directors had been appointed and the stock transfer form and share certificates had been signed and ready to hand over; all other formalities could have been dealt with on or before that day. The claimant had not discharged the burden of proving otherwise with regard to that date or the date upon which the notice to complete expired. Accordingly, the claimant was not entitled to the relief sought with regard to its damages claim or in respect of the £800,000 payment.
(2) With regard to the £400,000 deposit, although section 49(2) of the Law of Property Act 1925 potentially applied to the case, such that the court had a discretion to order its repayment, there was no justification for doing so where the deposit had been set at the conventional 10%, there had been a failure to complete and the parties were sophisticated professionals. A failure to complete was a classic circumstance in which a deposit was liable to be forfeited, and it should not be recovered in the absence of special reasons. The court would not ordinarily order repayment even if the seller had made a profit on a subsequent sale. No special factor in the instant case justified a departure from the normal approach: Omar v El-Wakil [2001] EWCA Civ 1090; [2002] 2 P&CR 3 and Tennero Ltd v Majorarch Ltd [2003] EWHC 2601 (Ch); [2003] 47 EG 154 (CS) considered.
Peter Crampin QC and Adrian Davies (instructed by Osmond & Osmond) appeared for the claimant; Steven Thompson (instructed by David Wineman) appeared for the defendants.
Sally Dobson, barrister
