Sale of land – Termination of contract – Summary judgment – Parties entering contract for sale and purchase of penthouse and apartments – Defendant purchasers agreeing to pay purchase price in three stages – Defendants failing to make third stage payment in time – Claimant purporting to terminate contract – Claimant seeking summary judgment – Whether claimant validly terminating contract – Whether defendants entitled to relief from forfeiture of contract – Whether claimant entitled to leave unilateral notices on register – Claim allowed
The claimant was developing the former Canadian High Commission in Grosvenor Square, London; the gross development value was around £950m. It included a penthouse, suites and studios. The defendants were special purpose vehicles (SPVs) ultimately controlled by Z, a citizen of Ukraine.
By an agreement dated 1 June 2018, Z agreed to purchase the penthouse apartment and five other units for a total price of £106m. The agreement provided for a deposit of £10.6m and two further payments of £10.6m each.
The deposit and second stage payment were paid in accordance with the contract but Z sought to defer the third stage payment. Negotiations for a variation of the contract commenced and Z said that he believed that the claimant was content for the third stage payment to be deferred. In that belief, he continued to spend money on the property, legal fees, progressing plans for the fit-out with interior designers, and electrical and mechanical engineers.
However, since the contract was never formally varied, the claimant purported to terminate the agreement and forfeit the monies paid to it when Z failed to make the third stage payment on time.
The claimant applied for summary judgment for: (i) a declaration that the sale and purchase agreement had been validly terminated; and (ii) an order for the removal of unilateral notices entered by the defendants on the claimant’s title in respect of the parties’ agreement in respect of the property.
Held: The claim was allowed.
(1) Under CPR 24.2 the court might give summary judgment against a defendant on a claim or a particular issue if it considered that the defendant had no real prospect of successfully defending the claim or issue and there was no other compelling reason that the claim or issue should be disposed of at a trial.
By clause 9.3 of the agreement, if the net sellable area (NSA) of any of the apartments was less than 90% of the agreed square footage, the defendants were entitled to terminate the contract without risk and recover the payments it had made. The defendants argued that, as the claimant was in breach of that clause, it was not entitled to serve a notice requiring payment of the third stage payment.
The difficulty for the defendants was that there was no nexus between the obligation on the defendants to make the stage payments under clause 3 and the claimant’s compliance with clause 9 such as to make the latter a condition precedent to the former, whether as a matter of construction or as an implied term. Accordingly, the defendants had no real prospect of success on that issue.
(2) The question for the court was whether the defendants had a real prospect of showing that the court could and should grant specific performance of the contract at the suit of the defendants, notwithstanding their failure to pay the third stage payment by the specified date and given that the claimant had exercised its contractual rights to treat the contract as discharged. Although in this case the sums of money involved were very large for a residential property, and involved a purchase off-plan with stage payments, the contract was in essence an ordinary contract for the sale of land, negotiated at length between solicitors for the parties. If the high value of the transaction had any relevance at all, it was to make all the more important the need for commercial certainty: Steedman v Drinkle [1916] 1 AC 275, Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514, Vauxhall Motors Ltd v Manchester Ship Canal Co Ltd [2019] EGLR 51, Shiloh Spinners Ltd v Harding [1973] AC 691 and Starside Properties v Mustapha [1974] 1 WLR 816; (1974) 232 EG 79 considered.
The court was not persuaded by the defendants’ argument that time was not of the essence in respect of the stage payments. Although those precise words could have been but were not used, the right of the claimant to treat the contract as discharged if the third stage payment was not received in due time was spelt out in clauses 3 and 25 of the contract. It was significant that in both clauses a period of grace was built in, so the seller’s right of termination was triggered not simply by the buyer’s failure to make the payment on or before the due date but also during the further period permitted.
Accordingly, the defendants did not have a real prospect of successfully defending that issue. It was unfortunate for Z that the difficulties he was already facing in Ukraine were exacerbated by the impact of Covid 19, but that could not affect the contractual rights of the parties. It was also irrelevant to consider why the claimant had elected to bring the contract to an end. Since that was its right under the contract, its motive was irrelevant.
(3) Even though a purchaser in default might be entitled to recover all or part of the monies paid under the contract, there was no reason that the purchaser should be elevated to the rank of a secured creditor. For a lien to arise on the failure of a contract for the sale of land, the failure must have been the fault of the vendor. A purchaser could only assert a lien where a purchase went off by reason of some default on the part of the vendor. Therefore, the defendants were not entitled to maintain the unilateral notices on the basis of their claim for a lien.
Joanne Wicks QC and Jonathan Chew (instructed by Bryan Cave Leighton Paisner LLP) appeared for the claimant; John McGhee QC and James McCreath (instructed by BDB Pitmans LLP) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of Lodha Developers 1 GSQ Ltd v 1 GSQ1 Ltd and another
