Sale of land – Contract – Deposit – Respondent purchaser paying deposit to remove property from live auction – Respondent deciding not to proceed with purchase and seeking repayment of deposit – Recorder concluding consideration for payment of deposit failed and respondent entitled to recover deposit – Appellant applying for permission to appeal – Whether deposit refundable – Whether failure of consideration entitling purchaser to restitution – Application dismissed
The appellant company entered a property it owned at 33 High Street, Chipping Sodbury, into a public auction to be held on 15 April 2021. The respondent became aware that the property was for sale. Prior to the public auction, he contacted the vendor’s agent and made an offer to purchase the property. His offer of £275,000 was accepted.
By email on 14 April 2021, the vendor’s agent sent the contract to purchase, and said: “to remove the property from tomorrow’s auction I will need your authority to exchange contracts and balance of deposit before 6pm this evening”. The respondent provided the requested authority.
The respondent subsequently sought to withdraw from the agreement. The appellant served a notice to complete, which the respondent rejected on the grounds that the contract was invalid as it did not comply with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. The auctioneers sent the respondent a notice purporting to rescind the contract, although in fact the property had already been sold at another auction.
When the respondent sought the return of his deposit, the county court concluded, amongst other things, that the consideration for the payment of the deposit had wholly failed, so that the respondent’s claim in restitution to recover the deposit succeeded. The appellant sought permission to appeal.
Held: The application was dismissed.
(1) In order for a claim in restitution to succeed on the grounds of a “failure of basis”, the failure had to be total. In the context of a deposit paid in respect of a transaction which was ineffective (as in the present case), the failure to confer enforceable legal rights on the payer did not automatically amount to a failure of consideration. The fundamental question was whether the agreed basis of the transfer had failed. It was common ground that the identification of the basis for the deposit was to be ascertained on an objective basis: see Goff & Jones, the Law of Unjust Enrichment, 10th Ed, at §12-16, 13-02, 14-09.
(2) The appellant contended that the Recorder was wrong in law to find that there was a total failure of consideration; the basis on which the deposit was paid was to have the property taken out of the live auction and for it to be purchased on terms. That was a portmanteau purpose because the two elements were inextricably linked and, since the first element was fulfilled (the property was taken out of the live auction), the consideration had not wholly failed.
There was no real prospect of establishing that the respondent received any benefit independent from and additional to the transfer of legal rights in the property. On a proper analysis, the benefits the appellant relied on were benefits which simply flowed from entering into the agreement to purchase the property. The email of 14 April 2021 made clear that the property would be removed from auction because, on signing the contracts pursuant to the authority requested in her email, the respondent would have secured the property prior to the auction.
(3) This was not a case where a purchaser had bargained, in return for a deposit, for a period of exclusivity prior to entering into a contract of purchase. While the appellant was precluded from selling the property elsewhere, because it had (or at least it believed it had) already contracted to sell it to the respondent, withdrawing the property from the auction would be an inevitable consequence of legal rights in the property being transferred to the purchaser on entry into the contract of purchase. This was not a case where the respondent acquired, in return for the deposit, an additional benefit of an exclusivity period within which to consider whether to proceed with the purchase: Sharma v Simposh [2011] EWCA Civ 1383; [2011] PLSCS 276 and Rabiu v Marlbury [2016] EWCA Civ 476; [2016] EGLR 44; [2016] 1 WLR 5147 distinguished.
Nor did the respondent receive any independent or additional benefit arising from the special features of a live auction. There was no material difference in principle between a seller who, having agreed to sell a property to a buyer, agreed to discontinue negotiations with an existing alternative buyer and to take the property off the market, and a seller such as the appellant who agreed to withdraw the property from a live auction. In each case, the seller was doing no more than what was required once a contract for the sale of the property had been entered into.
(4) The appellant also contended that the Recorder’s finding that the only basis for the transfer of the deposit was the transfer of legal rights in the property was irrational, in light of the respondent’s admission that one of the reasons he paid the deposit was to have the property taken out of the live auction.
Although the threshold for obtaining permission to appeal was relatively low (whether there was a real prospect of success), it was well-established that an appeal against a finding of fact faced a high hurdle. An appeal would succeed only where the finding of fact was unsupported by the evidence or where the decision was one which no reasonable judge could have reached: Haringey London Borough Council v Ahmed [2017] EWCA Civ 1861; [2017] PLSCS 208 considered.
(5) The key conclusion of the Recorder was that the basis for the transfer of the deposit was the transfer of legal rights in the property, as the respondent received no independent benefit from having the property withdrawn from the public auction. Read in context, there was no inconsistency between the respondent’s admission in cross-examination that he had paid the deposit to have the property taken out of the live auction and the Recorder’s conclusion. Having the property withdrawn from the auction was not an independent benefit in itself but was a benefit which flowed from the fact of the agreement to sell having been reached.
There was no real prospect of success on the appeal and permission to appeal would be refused.
Daniel Black (instructed by Hacking Trust Legal Services) appeared for the appellant; Charlie Newington-Bridges (instructed by BPE Solicitors LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Rarity Holdings Ltd v Parkhill
