Sharma and another v Simposh Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLord Justice Toulson,Lady Justice Black,Lord Justice Laws
Judgment Date23 Nov 2011
Neutral Citation[2011] EWCA Civ 1383
Docket NumberCase No: B2/2010/2830

[2011] EWCA Civ 1383

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM LEICESTER COUNTY COURT

MR RECORDER WHITEHURST

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Laws

Lord Justice Toulson

and

Lady Justice Black

Case No: B2/2010/2830

08LE04729

Between:
Mr Rajesh Sharma
Claimant/Respondent
Mrs P N Kuruppu
and
Simposh Limited
Defendant/Appellant

Stephen Taylor (instructed by Frisby & Small LLP) for the Appellant

John Small (instructed by Bond Adams LLP) for the Respondent

Hearing date: 9 November 2011

Lord Justice Toulson

Introduction

1

This case is about a deposit paid in connection with an abortive property transaction. The claimants paid money to the defendant under an oral agreement giving the claimant an option to purchase property then under construction at an agreed valuation. Under the agreement the defendant was to complete the construction within an agreed timescale and in the meantime was not to market the property elsewhere. The agreement was void because it was oral, but the defendant honoured it by proceeding to complete the construction and refraining from attempting to market the property elsewhere. In the event the claimants decided not to proceed because of turmoil in the financial markets and they reclaimed the money paid under the agreement. The judge (Mr Recorder Whitehurst) found that the payments were agreed to be non-refundable, but he held that in law the money was refundable. The defendant appeals against that decision.

Facts

2

The case concerns a block of eight flats at 213 Loughborough Road, Leicester. The defendant company is a property developer. It acquired the Loughborough Road site with a view to its redevelopment in phases. Phase one was to be the conversion of an existing building into the eight flats. The company had two directors, Mr Holland and Mr Postlethwaite. Mr Holland was in charge of the building and construction side and Mr Postlethwaite was responsible for sales and administration. The company's dealings with the claimants were mainly through Mr Postlethwaite.

3

In September 2007 the second claimant had discussions with Mr Postlethwaite about buying the whole of phase one. It had still to be completed but a show flat had been opened to the public. Mr Postlethwaite indicated that the company would be prepared to accept £1.1 million, which was a discount on the asking prices for the individual flats.

4

The second claimant needed to consider how she would raise the finance. On 12 September 2007 she and the defendant agreed that she would pay to the defendant a non-refundable deposit of £1,600 in order to secure a period of two weeks in which to consider how she could carry out the purchase. That sum was paid on 16 September 2007 and there is no dispute about the company's entitlement to retain it. The second claimant then approached the first claimant and they agreed to become joint partners in the purchase.

5

Between 12 and 26 September 2007 the claimants agreed orally with the defendant that if the claimants paid a total of £55,000 (including the initial payment of £1,600) by 26 September, the defendant would complete phase one, would refrain in the meantime from offering it for sale to anyone else and would keep open its offer to sell the completed development to the claimants for £1.1 million.

6

The claimants paid £25,900 to the defendant on 20 September 2007. They were not able to pay the full £55,000 by 26 September, but the balance of £27,500 was paid on 31 October and was accepted by the defendant.

7

The judge found that the defendant honoured the agreement and that finding was not challenged on the appeal.

8

By the end of 2007 there had been a sharp fall in the financial market and the claimants ultimately decided not to proceed with the purchase.

9

The judge characterised the agreement as "an attempt to create an option giving the claimants the right to buy phase one within the period leading to its completion for an agreed price in exchange for a non-refundable payment." There is no challenge to that description.

1989

Act

10

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides:

"(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each."

The section implemented the recommendations of the Law Commission in its report on Transfer of Land (1987) Law Com 164.

11

In Spiro v Glencrown Properties Limited [1991] Ch 537 Hoffmann J held that an option granted by a vendor of land is a "contract for the sale or other disposition of an interest in land, within the meaning of the section". This accorded with the view which the Law Commission had expressed (paragraph 4.3).

12

Section 2 replaced section 40 of the Law of Property Act 1925, under which an oral contract for the sale or other disposition of land was unenforceable by action but was not void. Under section 40, as the Law Commission noted in paragraph 1.3, if a purchaser paid a cash deposit to the vendor under an oral contract but did not proceed with the purchase, the vendor was entitled to keep the deposit.

13

Under the new section, as the Law Commission explained at paragraph 5.2:

"…where an anticipated contract is void because not made in accordance with statutory formalities, it does not follow that the parties will simply be left remediless by the law. Apart altogether from any possibilities there may be of suing for damages in tort (e.g. deceit or negligence), either of the parties would where appropriate be able to seek restitution. Thus if money has been paid as a deposit or part of the price by a prospective purchaser, recovery would generally be permitted because there would be a total failure of consideration."

14

The words "where appropriate" and "generally" are significant. The Law Commission did not suggest that restitution would automatically or always be available to a purchaser who had paid a deposit. It would depend on the proper application of the principles of restitution.

Pleadings

15

The claimants' particulars of claim alleged that the parties agreed that the money paid by the claimants, other than the initial payment of £1,600, should be refundable if the claimants did not proceed with the purchase. The particulars of claim did not plead an alternative case that the money was refundable if, as the judge found, the parties agreed that it should not be refundable.

16

The defence was much amended. It alleged, correctly, that the parties agreed that the money paid by the claimants was not to be refundable if the claimants failed to proceed with the purchase. In anticipation of a possible claim that the money was nevertheless repayable, the defendants advanced a defence of estoppel and other defences.

17

In their written closing submissions the claimants argued that if, contrary to their primary case, the court found that it was agreed between the parties that the deposit was non-refundable, the deposit should still be returned as there was no enforceable contract between the parties. Although their claim had not been put in that way in their pleadings, this did not take the defendants by surprise. It was right in all the circumstances for the judge to entertain the argument. By this time the pleadings were rather confusing.

18

The judge found the facts with admirable clarity. On the law, the ratio of his judgment was that the claimants were entitled to the return of their deposit (less the £1,600 which was not disputed) as money paid under a void contract. In reaching that conclusion he considered and rejected the defence of estoppel and other arguments advanced by the defendant.

Arguments on appeal

19

The defendant's written submissions advanced a number of points. In particular, it was submitted that the agreement, although void as a contract, amounted to a representation by the claimants that the payment of £55,000 was to be non-refundable, that the defendant changed its position and acted to its detriment in reliance on that representation by taking the property off the market and keeping it available for the claimants to purchase, and that in those circumstances the claimants were estopped from claiming repayment. The claimants responded that this was an impermissible way of attempting to circumvent the effect of section 2; the defendant was trying to convert a void promise to regard the payment as non-refundable into an obligation to do so by characterising it as a representation. Mr Small submitted that on the authorities a vendor could not advance a non-contractual right to retain a pre-contract deposit.

20

It appeared to this court that the essential question was not whether the claimants were estopped from advancing a restitutionary claim. It was a more basic question whether there had been a failure of consideration entitling the claimants to restitution on the facts found by the judge.

Discussion and conclusion

21

The agreement between the parties lacked formal validity and so had no contractual effect. It was no more than a mutual declaration of intent. An important part of the law of restitution is concerned with money paid or benefits conferred in respect of legally ineffective transactions. Goff & Jones' text book on the Law of Restitution 7 th ed, 2007, begins its treatment of the subject with this important statement of general principle (para 19–001):

"Transactions may be or become ineffective for a variety of reasons. But the reason why the courts will award restitution is in each...

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16 cases
  • Laditi and another v Marlbray Ltd
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 24 May 2016
    ...such contract was invalid for non-compliance with section 2, then the situation in the present case is analogous with that in Sharma and another v. Simposh Ltd [2011] EWCA Civ 1383; [2013] Ch. 23, another obviously relevant case which was not cited to us by either counsel at the oral heari......
  • Astra Asset Management UK v The Co-operative Bank Plc
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    ...reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself”, for which definition it refers to Sharma v Simposh Ltd [2011] EWCA Civ 1383. It is helpful to cite paragraphs [21]–[25] of that case, where Toulson LJ said: “21. The agreement between the p......
  • Crown Prosecution Service v Eastenders Group
    • United Kingdom
    • Supreme Court
    • 8 May 2014
    ...given by Professor Birks in his An Introduction to the Law of Restitution (1989), p 223 (cited with approval by the Court of Appeal in Sharma v Simposh Ltd [2011] EWCA Civ 1383, [2013] Ch 23, para 24): "Failure of the consideration for a payment … means that the state of affairs cont......
  • Patel v Mirza
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    ...failed to materialise. (See Professor Andrew Burrows' A Restatement of the English Law of Unjust Enrichment, 2012, p 86, para 15). In Sharma v Simposh Ltd [2013] Ch 23, at para 24, the Court of Appeal cited with approval Professor Birks' summary of the meaning of failure of consideration i......
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1 firm's commentaries
  • Deposit Not Repayable Even Though Contract Was Void
    • United Kingdom
    • Mondaq United Kingdom
    • 16 January 2012
    ...and Kuruppu v Simposh Limited [2011] EWCA Civ 1383 S&K paid a deposit to Simposh under an oral agreement giving S&K an option to purchase a block of flats under construction at an agreed valuation. Simposh was to complete the construction within an agreed time and not to market the ......

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