Property – Contract for sale – Common mistake – Claimant paying deposit as part of exclusivity agreement – Deposit being repayable if documentation not forthcoming – Parties discovering fraudulent conduct – Claimant seeking to recover deposit and applying for summary judgment – Whether defendant entitled to rely upon defence of common mistake – Whether defence having real prospect of success – Application dismissed
The defendant was a businessman connected with the parent of a group of companies (LAH), which carried on the business of property investment and development. In July 2006, he was introduced to L, who claimed to be a business associate of the owners of the Ritz hotel, and to be in a position to buy the hotel for £200m. An agreement was entered into whereby, once L had purchased the hotel, he would immediately sell it to LAH for £250m. In order to retain exclusive negotiating rights, LAH agreed to pay to L a deposit of £1m in return for which L would send relevant documentation to the defendant’s solicitor in order for the sale to proceed. The deposit was refundable if L failed to send the documentation.
The defendant then approached the claimant company to obtain outside finance for the purchase and, on 15 December, an exclusivity agreement was entered into, under which the claimant was given exclusive negotiating rights to buy the Ritz from LAH for £258.5m in return for financing the initial phase of the prior purchase of LAH from L, and paying the £1m deposit. By clause 10.2 of the agreement, the defendant gave an undertaking to repay the deposit to the claimant if the relevant documentation had not been received by LAH by 15 February.
The sum of £1m was transferred to L. The parties subsequently became aware that L had no connection with the Ritz owners and that the relevant documentation did not exist. Accordingly, the claimant sought to recover the £1m deposit under clause 10.2 of the exclusivity agreement and applied for summary judgment pursuant to CPR 24.2.
The defendant contended, inter alia, that the exclusivity agreement had been void from the start owing to the common mistake of the parties with regard to the existence of the relevant documentation. The question was whether that argument had a real prospect of success pursuant to CPR 24.2.
Held: The application was dismissed.
In order to defeat an application for summary judgment, it was enough for the defendant to show a real prospect of success in the sense of not being false, fanciful or imaginary. However, the burden on the defendant was at most evidential. The overall burden of proof rested on the claimant to establish the negative proposition that the defendant had no real prospect of success and that there was no reason for a trial. It was also necessary to have regard to the overriding objective of dealing with the case justly.
The court should not hesitate to give summary judgment in a plain case; if the case turned on a pure point of law, it might determine that point.
In the instant case, the defence of common mistake offered a real prospect of success that would turn on a detailed examination of the full facts at trial. There was a real question as to whether the allocation of the risk of non-receipt of the documents in clause 10.2, and the corresponding obligation to pay £1m, was absolute and unqualified, or whether it was dependent upon the truth of the underlying common assumption that the parties were dealing with a real vendor and that the documentation existed and was held by its solicitor.
Andrew Clutterbuck (instructed by Cripps Harries Hall LLP, of Tunbridge Well) appeared for the claimant; Thomas Grant and Thomas Munby (instructed by Beachcroft LLP) appeared for the defendant.
Eileen O’Grady, barrister
