Solid Rock Investments Uk Ltd v Kamireddy Reddy and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henry Carr |
| Judgment Date | 12 October 2016 |
| Neutral Citation | [2016] EWHC 3043 (Ch) |
| Court | Chancery Division |
| Date | 12 October 2016 |
| Docket Number | Case No: CH-2016-000134 |
[2016] EWHC 3043 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building
7 Rolls Buildings
Fetter Lane
London
EC4A 1NL
Mr Justice Henry Carr
Case No: CH-2016-000134
Mr C Wilkins (instructed by Larcomes LLP) appeared on behalf of the Appellant
Mr P Sissons (instructed by Taylor Rose) appeared on behalf of the Respondents
(As Approved)
This is an appeal from a decision of Master Teverson whereby he refused to exercise the discretion conferred upon him by section 49(2) of the Law of Property Act 1925, to order the Respondents to repay to the Appellant a deposit of £43,000. This deposit was paid by the Appellant to the Respondents under a contract for sale for development of a plot of land which was purchased in an auction pursuant to a purchase contract. By the contract, the Respondents agreed to sell and the Appellant agreed to buy a property for a purchase price of £430,000. The completion date was 22 June 2015 and the Appellant paid the deposit to which I have already referred.
Referring to Master Teverson's judgment, he set out a comprehensive analysis of the facts from paragraphs 3 to 20 and it is not suggested on this appeal that he erred in his analysis of the facts. For present purposes, paragraph 7 of his judgment is particularly relevant. He said as follows:
"On 15 June 2015, seven days before the contractual completion date, the seller's solicitor received a call from the buyer's solicitor informing him that the buyer might have difficulty in obtaining funds in time. The funds were being sourced from a Nigerian bank account. In response, an offer was made on 15 June on behalf of the seller to push back the completion date by two weeks to 6 July 2015 on terms that the purchase price would be increased by £10,000 to £440,000 and the payment of solicitor's fees of £1,250 plus VAT and reasonable disbursements. On 16 June 2015 the offer of extending the completion date by two weeks was revised on behalf of the seller on the basis that the purchase price would be increased by £5,000 and £1,000 plus VAT and reasonable disbursements would be paid to cover legal fees. No response was made on behalf of the seller to either of these offers."
So, in summary, the Master found that the Appellant was offered two opportunities to purchase an extension of the completion date and did not respond to either of them. Indeed, there was no further contact between the parties before the completion date of 22 June 2015 and the Respondents served a notice to complete requiring the Appellant to complete within five working days, by 29 June 2015. Unfortunately, the Appellant was unable to complete by the deadline set by the notice to complete. The reason for this was that the Appellant encountered a delay in transferring funds from a Nigerian bank account.
There was no agreement between the parties to extend the deadline to complete and the Appellant was still not ready to complete on 30 June 2015 whereupon the Respondents' solicitors sent an email to the Appellant's solicitors rescinding the contract. On 1 July 2015, after the contract had been rescinded and one clear day after the date for completion fixed by the notice to complete, the Appellant's solicitors notified the Respondents' solicitors that the Appellant's had the funds and was ready to complete. The Respondents replied stating that the contract was rescinded and that the deposit would be forfeited.
When considering whether to exercise his discretion under section 49(2) to order return of the deposit, the Master set out the relevant authorities at paragraphs 25 to 26 and 29 of his judgment. At paragraph 25 he referred to the decision of the Court of Appeal in Midill (97 PL Ltd) v Park Lane Estates Limited & another [2008] EWCA Civ 1227; [2009] 1 WLR 2460. He cited a passage from paragraph 52 of the judgment of Carnwarth LJ who said:
"The critical point, on which Arden LJ echoed Lord Nicholls, is that the deposit is "an earnest for the performance of the contract", which can be retained by the seller if the buyer defaults, without any necessary regard to the question of actual loss or its amount. That principle, as the Privy Council made clear, is not "overruled" by section 49(2). There needs to be "something more"; or, as other judges have said, something special or exceptional to justify overriding the ordinary contractual expectations of the parties."
At paragraph 26 the Master referred to the Privy Council decision in Bidaisee v Sampath [1995] 46 WIR 461. In particular, Carnwath L quoted a passage from the speech of Nicholls LJ at pages 467 to 468, the preliminary part of which I shall read:
"Even so and having regard to the price of the resale to the third parties, he did not suffer a loss. This, of itself and without more, is not a sufficient reason for the court to exercise its discretion in favour of the defaulting buyer. The traditional deposit paid by a buyer when he enters a contract is an earnest for the performance of the contract and can be retained by the seller if the buyer defaults. Equity does not regard this as a penalty against which it granted relief."
This emphasises the fact that it is insufficient for the exercise of the discretion under section 49(2) to show that the seller has not made a loss. Indeed, it may well be the case that the seller has made a profit by reason of the default, but that is just one factor which the court should consider in the exercise of its discretion.
At paragraph 1 of his judgment the Master also referred to the decision of Floyd J in Chief Ajibola Anthony Aribisala v St James' Homes (Grosvenor Dock) Limited [2008] EWHC 456 (Ch). He referred to it briefly and recorded that it was cited in supplemental written submissions subsequent to the oral argument. This judgment is relied on by the Appellant in the present case and so I shall cite the relevant passages. At particular 9 of his decision, Floyd J referred to a decision of the Court of Appeal in Omar v El Wakil [2001] EWCA Civ 1090; [2002] 2 P. & C. R. 3. In particular, at paragraph 10 onwards he referred to the judgment of Arden LJ at paragraph 35, where she stated as follows:
"The starting point must be that although section 49(2) is expressed in open-textured terms, leaving it to the courts to determine the organising principles, the court must bear in mind that the payment in question was a "deposit", that is an earnest for performance and that accordingly there should not be relief simply because the [purchase] contract never took place."
Arden LJ stated at paragraph 36 that she would start from the position that the deposit should not normally be ordered to be repaid. She asked whether there were mitigating circumstances and concluded that in the case before her that there were none. In so doing she said that:
"It is also irrelevant that Mr El-Wakil has not sought to establish that he has suffered any loss as a result of the abortive Corringham contract: the parties agreed that the £110,000 was a deposit."
She also concluded that:
"…in a situation where a purchaser could not himself perform, the circumstances which make it appropriate for the court to exercise its discretion under section 49(2) in his favour must be exceptional."
Floyd J, having considered and cited this judgment, went on to state as follows at paragraph 13 of the Aribisala judgment:
"I think that last observation needs to be seen in context. The only real scope for the operation of section...
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