Contract for sale – Claimant agreeing to purchase property from defendant – Claimant paying deposit but failing to complete by specified date – Defendant purporting to rescind contract and retain deposit – Parties negotiating new contract subject to conditions – Defendant selling to third party – Claimant seeking specific performance of new contract or return of deposit – Whether claimant entitled to specific performance – Whether ready, willing and able to complete – Application to strike out defence dismissed – Cross-application to strike out claim allowed.
The claimant had entered into an agreement with the defendant to purchase a property. It paid a deposit, as required under the contract, but failed to complete by the specified date. The defendant served a notice of completion on the claimant. The claimant failed to complete and the defendant notified it that it intended to rescind the contract and keep the deposit. The parties entered into written negotiations that were expressly stated to be without prejudice and headed “subject to contract”.
The defendant agreed that the original contract should be dissolved. It consented to sell the property to the claimant on condition that the latter agreed, inter alia, to sign a new contract and an agreement settling any claim for consequential damages and costs arising out of the aborted contract. The deposit retained by the defendant was to be used against the purchase price of the property. The claimant agreed to those terms; however, the sale did not proceed because the defendant took the view that the claimant was not in a position to deal with the sale immediately. The defendant kept the deposit from the original contract and sold the property to a third party.
The claimant brought an action for specific performance of the new contract, claiming that an enforceable agreement had been concluded; alternatively, it contended that the defendant was estopped from denying that it was entitled to the return of its original deposit. The defendant argued that a new contract had not been made because the parties had proceeded on the basis that all negotiations were “subject to contract”. It had therefore been entitled to withdraw from the negotiations at any stage and to sell the property to a third party.
The claimant applied to strike out the defendant’s defence. The defendant cross-applied to strike out the claimant’s claim.
Held: The application was dismissed; the cross-application was allowed.
(1) The parties had not entered into an enforceable agreement. Once the original contract had been dissolved, the subsequent chain of correspondence indicated that the defendant was offering the claimant a second chance to complete and an opportunity to settle any consequential claim arising out of the contract, including what should happen to the deposit. The defendant had made it clear that the entire arrangement had to go ahead, including the contract and the settlement. There was no express intention to create an enforceable, independent arrangement in the form of the settlement agreement. All negotiations had been described as being subject to contract and it would be absurd if the parties were deemed to have concluded a final agreement at that stage.
(2) The defendant was entitled to strike out the claim against it. There was no evidence that the transaction was to proceed unless and until contracts had been exchanged. Further, there was no indication that the claimant had acted to its detriment on representations made by the defendant.
(3) A deposit paid in the context of an interest in land was an earnest for the performance of the contract and something exceptional would be required to justify its release. In the instant case, nothing in the pleadings or the evidence justified the release of the deposit on the ground of exceptionality. The fact that the property might have been sold to a third party for a higher price was not sufficient to bring the case within the exceptionality test: Midill (97PL) Ltd v Park Lane Estates Ltd [2008] EWCA Civ 1227; [2009] 1 EGLR 65; [2009] 07 EG 92 and Omar v El–Wakil [2001] EWCA Civ 1090; [2002] 2 P&CR 3 applied.
Bruce Tattersall (instructed by Helmbridge Solicitors) appeared for the claimant; Guy Fetherstonhaugh QC (instructed by Herbert Smith) appeared for the defendant.
Eileen O’Grady, barrister
