Contract for sale of land — Deposit – Time of the essence – Whether failure of appellant buyer to make timely payment of deposit constituting repudiatory breach of contract – Whether respondent validly terminating contract — Appeal dismissed
In June 2010, the respondent seller and the appellant buyer entered into a written contract for the sale of a property for £5m. A deposit of £500,000 was to be paid in accordance with clause 16 of the contract, which incorporated the Standard Conditions of Sale (4th ed). Clause 15 of the special conditions provided that the contract was conditional on the buyer obtaining, inter alia, planning permission as set out in planning applications attached to the contract.
The appellant obtained planning permission but it was not the permission envisaged by clause 15 so the parties renegotiated. The price was reduced to £4.5m with a reduced deposit of £450,000 to be paid by 3 March 2011. The amended terms were embodied in a supplemental agreement.
When no payment was made, the respondent’s solicitor wrote to the appellant, terminating the contract. The appellant’s interest under the contract had been protected by unilateral notices at HM Land Registry. The respondent brought proceedings for the removal of the notices and for a declaration that the contract had been validly terminated. He obtained summary judgment.
The appellant appealed. The issues for the court were whether: (i) a failure to pay a deposit on time under a contract for the sale of land was necessarily a repudiatory breach of contract entitling the seller to terminate the contract; and, if not, (ii) time was successfully made of the essence of payment in the present case with the consequence that, on the facts, the respondent was entitled to terminate the contract.
Held: The appeal was dismissed.
In the ordinary case, the requirement to pay a deposit, including the time of payment, was a condition precedent of the contract so that time was of the essence of the date for payment and failure to make at timely payment of a deposit amounted to a repudiatory breach of contract.
Since the payment of a deposit at the executory stage of the contract was a guarantee of further performance, it was no surprise that a failure to pay the deposit on time was taken to demonstrate that the buyer was unwilling to perform the contract as a whole. In addition without actual receipt of the deposit the seller did not know where he stood. A right to call off the contract for failure to pay the deposit on time restored to the seller his freedom to market the property. In the case of late completion, the seller at least had the deposit in his hands as part compensation for any loss. If the deposit itself was not paid, he had nothing except a fetter on his freedom to deal with his property. Any presumption that time was not of the essence was rebutted: Stickney v Keeble [1915] AC 386 and United Scientific Holdings Ltd v Burnley Borough Council [1977] 2 EGLR 61; (1977) 243 EG 43 and 127 applied; Damon Compania Naviera SA v Hapag-Lloyd Int SA [1985] 1 WLR 435 considered; John Willmott Homes Ltd v Read [1986] 51 P&CR 90 overruled in part.
The question was whether the effect of equity’s rule not to insist in all cases on strict time limits precluded the vendor from treating the contract as at an end as soon as there had been non-compliance by the purchaser with the contractual term for payment of the deposit. As a general rule, the obvious commercial and legal importance of a deposit at the inception of a contract would preclude the intervention of equity in cases where the contract required the purchaser to pay the deposit on or within some specified short period of time after the contract had been entered into and the purchaser failed to do so. In such a case, subject to exceptional circumstances, the time for compliance was strict.
The position was not so clear cut in the unusual situation when the contractual obligation was to pay a deposit some considerable time after the contract had been entered into. If there was nothing to indicate that the deposit was any less commercially and legally important at that stage than if it had been required at or within a short time after the contract was made, then the usual rule would apply that the time for compliance was strict. In the present case, the judge had been entitled to conclude that the deposit, albeit payable some considerable time after the original contract and the revised contract were made, was just as important as if had been contractually required at the outset.
(Per Lewison LJ obiter) If the conclusions on that issue were wrong, the court had to consider the effect of making time of the essence for payment of the deposit. Where, as here, the term in question would have been regarded by the common law as a condition of the contract, a failure to comply with a notice making time of the essence was tantamount to a refusal to perform that obligation. The appellant was in the position of a buyer who either refused to pay the full price or refused to pay it in two parts. That demonstrated a refusal to perform the contract. At its highest, it demonstrated a willingness to proceed with a contract; but not with the contract that the parties entered into: Eminence Property Developments Ltd v Heaney [2010] EWCA Civ 1168; [2010] 3 EGLR 165 and Multi Veste 226 BV v NI Summer Row Unitholder BV [2011] EWHC 2026 (Ch); [2011] 233 EG 63 (CS) considered.
Jonathan Small QC and Greville Healey (instructed by Boardmans) appeared for the appellant; Kirk Reynolds QC (instructed by Sherrards) appeared for the respondent.
Eileen O’Grady, barrister
