Defendant agreeing to sell property to claimant – Deposit to be paid by claimant with balance on completion – Claimant issuing notice to complete – Defendant failing to complete – Claimant seeking to recover deposit – Whether deposit paid – Whether court should order return of any deposit – Claim dismissed – Appeal dismissed
The parties entered into two agreements both dated 22 January 1992. By the first agreement, the claimant and two companies owned by him, sold a £110,000 business to a company controlled by the defendant. The first agreement was silent as to the method of payment, but contained a covenant to enter into a second agreement. The first agreement also provided that the claimant as the owner should grant the defendant’s company a lease of 87 Bell Street, London NW1, and that the parties should indemnify each other against pre-and-post completion date debts respectively. By the second agreement the defendant sold to the claimant a property known as 11 Corringham Road, London NW11. The price was £350,000 of which £110,000 was to be paid upon signing the contract, with the balance to be paid upon completion. The contract stated that completion should take place on 22 April 1992, or 14 days after the date on which the defendant notified the vendor that he was ready to complete, “whichever shall be later”. In due course the claimant served notices to complete. The defendant failed to complete and the claimant issued proceedings to recover damages in the amount of the deposit of £110,000, alternatively repayment of the deposit.
The judge held that the claimant could not say he had paid £110,000 to the defendant, and that in any event, the claimant had at all stages in 1992 been unable to complete as he had not been in a position to pay the balance of the purchase price to the defendant. Furthermore, it was difficult to determine whether the defendant could have completed the transfer, since the amount of the proceeds from the sale of the property were less than the amount the defendant required to redeem his mortgage. Accordingly, the judge dismissed the claim. The claimant appealed contending that the judge should have found that the deposit of £110,000 had been paid and that he should have ordered that amount to be repaid. The claimant relied, inter alia, upon section 49(2) of the Law of Property Act 1925, which provided that: “Where the court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of the deposit.”
Held: The appeal was dismissed.
1. The first question was whether any deposit had been paid. The judge had considered the transactions separately when it was clear that the parties themselves had regarded them as interconnected and part of a single transaction. It was to be remembered that the deposit did not have to be paid in cash and was clear that the parties had considered that the deposit had been paid by the transfer under the first agreement. Accordingly, the judge should have concluded that the obligation to pay the deposit had been discharged.
2. On the judge’s findings, the contractual provision for forfeiture of the deposit provided for by clause 2 of the National Conditions of Sale (20th ed) did not operate, as neither of the parties had been in a position to complete. Accordingly, the court could exercise its discretion under section 49(2) of the Act, bearing in mind that a deposit should not normally be ordered to be repaid. On the facts, it could be concluded that the courts’ discretion was not to be exercised in the claimant’s favour not least because of the claimant’s conduct; he could not himself complete and it would be wrong for the defendant to be ordered to pay cash when the deposit had not been paid in cash.
Alexander Hill-Smith (instructed by The Sethi Partnership) appeared for the claimant; Martin Russell (instructed by Moss Beachley Mullen & Coleman) appeared for the defendant.
Thomas Elliott, barrister
