Sale of property – Agreement for sale of shares in company owning commercial property – Contractual term that appellant purchaser not obliged to complete in absence of specified documentation – Notice to complete served by respondent vendor – Vendor rescinding contract and forfeiting deposit – Whether vendor ready, willing and able to complete – Whether appropriate to order return of deposit – Appeal dismissed
The appellant agreed to purchase from the second respondent (the vendor) all the shares in the first respondent company, the only asset of which was a commercial property on Park Lane, London W1. The appellant paid a 10% deposit of £400,000 on signing the agreement, followed by a further £800,000; the balance of the £4m purchase price 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. However, by clause 5.9 of the agreement, the appellant was not obliged to complete until the vendor had complied with the other provisions of clause 5 concerning documentation and the replacement of the directors with the appellant’s nominations.
The appellant failed to complete on the contractual completion date or within the period of a notice to complete served by the vendor. The latter purported to rescind the agreement and sold the property to another purchaser for the higher price of £4.3m. It repaid £800,000 to the appellant, but refused to repay the £400,000 deposit.
The appellant disputed the vendor’s right to rescind and claimed the return of its deposit. The judge found that the vendor had been ready, willing and able to complete when it served the notice to complete and had been entitled to rescind following the appellant’s non-compliance. He refused to order the repayment of the deposit under section 49(2) of the Law of Property Act 1925. Applying the Court of Appeal decision in Omar v El-Wakil [2001] EWCA Civ 1090; [2002] 2 P&CR 3, he held that to do so would require special reasons and that the court should not ordinarily order repayment, even if the vendor had made a profit on a subsequent sale. On appeal, the appellant contended that the judge had erred in: (i) placing the burden of proof on the appellant to show that the vendor was not ready, willing and able to complete; and (ii) taking too narrow a view of the section 49(2) discretion to order the repayment of a deposit, which was wide and could be exercised wherever it was the fairest course between the parties.
Held: The appeal was dismissed.
(1) Since, under the relevant condition of sale, the right to serve a notice to complete was given to a party that was “ready, willing and able” to complete, the service of such a notice carried with it an implicit assertion to that effect. Where the truth of that assertion was put in issue, it was not unreasonable to expect the server of the notice to be able to justify it. Accordingly, the server carried some obligation in subsequent proceedings to call evidence to support its position. However, it was unhelpful to separate the burden of proof from its context, and there was no basis for challenging the judge’s decision in that regard. It had been sufficient for him to find on the evidence that the vendor would have been able to set up the necessary administrative arrangements to enable completion to take place within the time reasonably required to do so, and that all the relevant documents were available other than those for which the appellant’s co-operation was necessary: Aero Properties Ltd v Citycrest Properties Ltd [2002] 2 P&CR 21 considered.
(2) The deposit was an earnest for the performance of the contract. It could be retained by the vendor if the purchaser defaulted without any necessary regard to the question of loss or the amount of the deposit. That principle was not overruled by section 49(2) of the 1925 Act and something more was needed, in the nature of special or exceptional circumstances, to justify overriding the ordinary contractual expectations of the parties: Omar applied. Cases at first instance should be seen not as altering the principle but as illustrations of how it had been applied in particular circumstances: Universal Corporation v Five Ways Properties Ltd [1979] 1 EGLR 163; (1978) 250 EG 447, Dimsdale Developments (South East) Ltd v De Haan (1983) 47 P&CR 1 and Tennero Ltd v Majorarch [2003] EWHC 2601 (Ch); [2003] 47 EG 154 (CS) considered.
The judge had therefore been entitled to find that it was insufficient that the vendor had sold at a higher price some months after the date for completion. There was nothing to suggest that the increase was exceptional in the light of to movements in the market generally. There was no obvious reason why the purchaser should benefit from any such price rise, when the vendor who had borne the risk and cost of holding the property during the intervening period.
Peter Crampin QC and Adrian Davies (instructed by Fisher Meredith) appeared for the appellant; Alan Steinfeld QC and Steven Thompson (instructed by DFWM Beckman) appeared for the respondents.
Sally Dobson, barrister
