Midill (97pl) Ltd v Park Lane Estates Ltd & Anor

Was the vendor of shares in a company owning a single property, who had served notice to complete on the purchaser, itself ready, able and willing to complete? That, together with an issue about return of the deposit, is the question in this case.

On 24 December 2005 the Claimant (“Midill”) agreed in writing (“the Agreement”) to pay the Second Defendant (“Gomba”) £4,000,000 for all the shares in the First Defendant (“Park Lane”) a company whose only asset was a commercial property at 97 Park Lane, London. The price was to be paid in three tranches, £400,000 (i.e. 10%) as a deposit on signing the Agreement, £800,000 on 8 February 2006 and the balance on 8 April 2006 when completion was due to take place. The deposit of £400,000 and the second tranche of £800,000 were paid by Midill to Gomba. But Midill was unable to complete on 8 April or on the later date of 27 April the date by which a notice to complete, given on 11^th April, expired. On 5 May 2006 Gomba sought to rescind the Agreement by a solicitor’s letter. Midill later responded that it considered the notice to complete to have been invalid. Gomba was still willing to negotiate but only at a higher price. On 14 September 2006 Park Lane sold the property to an unconnected company Wundervoll for £4,300,000. On the day that sale was completed Midill sought and obtained from this court, without notice, an order to freeze £1.2 million of the proceeds of sale.

The action proceeded. After a pleading amendment Gomba repaid the £800,000 but a dispute about interest remains. Although Midill had claimed in its Reply that Gomba had been unable to complete at either relevant date this did not become part of its substantive claim until amendments were made by consent about a month before the trial. Midill claims that the sale to Wundervoll was a breach of the Agreement and that it is entitled to a repayment of the deposit of £400,000 plus interest, to interest on the £800,000 repaid and to damages for breach of contract valued at £300,000, the equivalent of the difference between what it agreed to pay for the property and what Park Lane obtained from Wundervoll. In contrast Gomba denies that it was unable to complete or was in breach of the Agreement and claims that it is entitled to forfeit the deposit of £400,000 irrespective of the profit which it made as a result of the sale to Wundervoll. Justice does not seem to cry out in favour either of Midill which seeks the profit on a resale brought about by its inability to complete its obligations under the agreement or of Gomba which seeks to retain a deposit of £400,000 despite having made a profit of £300,000 as well.

I next refer to the Agreement in more detail. By clause 2 the Seller was to sell the shares with full title free from all liens and so on and the Buyer was to purchase relying on the Seller’s representations and warranties. The purchase price which I have already mentioned was set out in clause 3.1 with the final £2,800,000 to be paid “on the 8^th day of April 2006 or any time before that date (“the completion date”).

Clause 3.2 provided that the initial sums of £400,000 and £800,000 would, when received by the Seller’s solicitors, be held by them as Agents for the Seller to be paid by them to Barclays Bank under a Legal Charge secured on the Property and identified in clause 5.9.

By clause 3.5 conditions 6 and 7 of the Law Society’s Standard Conditions of Sale (Fourth Edition) were to apply “in so far as they are applicable” and “subject to clause 5.9.1 hereof”. The provisions of the Standard Conditions relevant to this dispute are as follows:-

“1.1.3

A party is ready, able and willing to complete:

(a)

if he could be, but for the default of the other party, and

(b)

in the case of the seller, even though the property remains subject to a mortgage, if the amount to be paid on completion enables the property to be transferred freed of all mortgages (except any to which the sale is expressly subject).

6.2

Arrangements and place

6.2.1

The buyer’s conveyancer and the seller’s conveyancer are to co-operate in agreeing arrangements for completing the contract.

6.8

Notice to complete

6.8.1

At any time on or after completion date, a party who is ready, able and willing to complete may give the other a notice to complete.

6.8.2

The parties are to complete the contract within ten working days of giving a notice to complete, excluding the day on which the notice is given. For this purpose, time is of the essence of the contract.

7.5

Buyer’s failure to comply with notice to complete

7.5.1

If the buyer fails to complete in accordance with a notice to complete, the following terms apply.

7.5.2

The seller may rescind the contract, and if he does so:

(a)

he may

(i)

forfeit and keep any deposit and accrued interest

(ii)

resell the property and any chattels included in the contract

(iii)

claim damages

(b)

the buyer is to return any documents he received from the seller and is to cancel any registration of the contract.

7.6

Seller’s failure to comply with notice to complete

7.6.1

If the seller fails to complete in accordance with a notice to complete, the following terms apply.

7.6.2

The buyer may rescind the contract, and if he does so:

(a)

the deposit is to be repaid to the buyer with accrued interest

(b)

the buyer is to return any documents he received from the seller and is, at the seller’s expense, to cancel any registration of the contract.”

Clause 5 is the provision most at issue in this case and I therefore set it out in full:-

“5.

Completion

Completion shall take place on the 8^th day of April 2006 at the offices of the Seller’s solicitors and only when the transactions mentioned in the following sub-clauses shall take place

5.1

The Seller shall deliver to the Buyer Stock Transfer Forms in respect of the Shares in favour of the Buyer or as it shall direct duly executed together with certificates for all the Shares

5.2

The Seller shall deliver to the Buyer the resignations of the Directors and Secretary of the Company from their respective offices together with a written acknowledgement under seal from each of them that he has no outstanding agreement with the Company nor any claim whatsoever against the Company whether actual or contingent including but not limited to compensation for loss of office, damages, pensions, loans or otherwise

5.3

A board meeting of the Company shall then be held at which such persons as the Buyer may nominate shall be appointed additional directors and secretary of the Company. There shall be submitted and accepted and accepted the resignations of the directors referred to in Clause 5.2

5.4

An extraordinary general meeting of the Company shall then be held at which there shall be proposed and passed resolutions adopting new articles of association in such form as the Buyer may require

5.5

The seal, statutory books, certificate of incorporation, books of account and other books (including cheque books), title deeds, documents of record and other documents and papers of the Company shall be handed over to the buyer and

5.6

The Company’s Bankers shall be instructed to honour only the signatures of such persons as the Buyer shall designate and all the Company Bank Mandates shall be altered accordingly

5.7

Against such delivery the Buyer shall deliver a Bankers Draft for the balance of the Purchase Price payable to the Seller’s Solicitors or at the Seller’s option the balance of the purchase price shall be paid by way of direct credit to the Seller’s solicitors’ client account at Completion whose receipt shall be a sufficient discharge for the Buyer.

5.8

There shall be submitted and accepted the resignations of the directors of the directors referred to Clause 5.2

5.9

The Seller shall procure that on completion the Seller’s solicitors will remit to Barclays Bank plc the amount required to discharge the Legal Charge dated 27th August 2004 secured on the Property and will provide to the Buyer a Form DS1/END1 as soon as it is to hand and confirms that this is or will be the only legal charge borrowing or similar on the Property

5.9.1

If in any respect the provisions of Clauses 5.1 to 5.6 inclusive and 5.8 are not complied with on the date of Completion set by this clause the Purchaser may defer Completion to a date (“the Postponed Date”) not more than 28 days after the date set by Clause 5 provided that if Completion does not take place on the Postponed Date by reason of the failure of the Seller to comply with the provisions of Clause 5.1 to 5.6 and 5.8 then either party may by notice in writing rescind this Agreement whereupon the deposit shall be returned to the Buyer together with interest thereon at the rate of 4% above the base rate of Barclays Bank plc whereupon neither party shall have any claim against the other, or

5.9.2

Proceed to completion as far as practicable (without prejudice to its rights under this Agreement).”

I will consider the relevant law first in order to focus only on the relevant facts.

It is common ground that the Vendor must be ready and willing to deliver the instrument of a transfer of property (including shares in a company which holds property) to the Purchaser in exchange for the price and the Purchaser must be ready and willing to pay the price in exchange for the instrument of the transfer. The obligations are concurrent. As the obligations of Vendor and Purchase are concurrent either both parties are in fundamental breach at the appropriate date or neither is. It is common ground that in this event neither party could treat the other as repudiating the agreement entitling it to treat itself as discharged from future performance. Condition 6 requires that the party giving notice to complete must itself be ready, able and willing to complete. Midill asserts that Gomba was not, at any relevant time, in a position to tender the documents and other matters required to be delivered by clauses 5.1, 5.2, 5.5 and 5.8 and had not complied with clauses 5.3 and 5.6. Further Midill submits that whatever the degree of readiness required of the notice giver when he first gives notice he must be completely ready, able and willing to complete on the last day of the period to avoid himself either being in breach or relieving the other party of the need to tender performance.

Gomba submits that what is required of the Vendor at the time of giving the notice to complete is that, to use the words of Blackburne J in Aero Properties Ltd –v– Citycrest Properties [2002] 2 P & C R 21 at 20 he should “be able within the time reasonably required to do so to set up the necessary administrative arrangements to enable completion to take place (at 24)”. . Mr Thompson for Gomba accepts that the Vendor has to remain ready, able and willing throughout the notice period but submits with reference to Quadrangle Development –v– Jenner [1974] 1WLR 68, CA that there is no obligation to carry out every task instantaneously, an impossibly high and unreasonable requirement which no court has ever stipulated. The Vendor is required to be ready to complete the matters of substance and to effect any administrative arrangements within a reasonable time.

Mr Crampin QC and Mr Davies for Midill submit that Aero Properties and the cases on which it depends were not concerned with Condition 6 of the Standard Conditions of Sale. They also submit that the better view is not that of Blackburne J but of the authorities cited by Emmet & Farrand on Title at para 8.032 which is that the party who has given notice must be “poised” to complete at the time when he gives it, that is to say ready, able and willing to complete matters of substance and also to carry out any “administrative arrangements at a moment’s notice”. They say that the language of clause 6 is perfectly clear and that “ready” should not be diluted to mean “substantially ready”. At most the giver is entitled to a short period of time to set up completion. Arrangements must be in hand with anyone who has to supply the necessary documents for these to be made available either immediately they are called for or within a very short time thereafter. Mr Crampin places emphasis on the decision of the Court of Appeal in Quadrangle. Both Lord Justice Russell and Lord Justice Buckley emphasised that the giver of the notice as well as the recipient is required to be ready and willing to fulfil its own obligations not only at the time when the notice was given but at any time during the period of the notice. As Scott J pointed out in Oakdown –v– Bernstein [1985] 49 P. & C R.282inQuadrangle the court was concerned not with a failure by the giver of the completion notice to complete on a specified date within the period but with a failure to complete within that period at all. Midill also relied upon the decision of Mr Mervyn Davies QC in Cole –v– Rose [1978] 3 All E R 1121 where a solicitor had not obtained confirmation that entries in the search certificate related to charges of which he was aware and was not prepared to undertake that they would be discharged on completion. The fact that he was later able to confirm that the entries related to the entries of which he was aware and was therefore, objectively speaking, ready to complete at the time he served the completion notice was irrelevant. The judge identified that as a matter of substance not merely the setting up of necessary administrative arrangements. As regards the particular issue in this case these authorities do not seem inconsistent with my task being essentially one of fact.

While I naturally bear carefully in mind the guidance in these decisions, “ready, able and willing” are ordinary English words and my task is one of fact. Furthermore it is not necessarily useful to compare the court’s approach on the facts of past cases with the present given shifts over time in conveyancing practice and changes in technology. Within that context the guidance of Mr Justice Blackburne is clear and helpful as a yardstick for practitioners and for other judges. I do not accept Midill’s submission that a distinction needs to be drawn between Aero and the authorities considered in it and a case where the wording in issue is Condition 6 of the Standard Conditions of Sale. The fact that Aero was not concerned with Condition 6 does not, as I see it, detract from the weight of that case. It would be unsatisfactory to give different shades of meaning to “ready, able and willing” in what are very similar contexts. I see no reason to do so. It also seems clear from Aeroand from principle that the burden of proof lies on the party seeking to establish that the other was not ready, able and willing to complete.

Midill concedes that it was not ready, able and willing to complete on 8^th or 11th April or on a date within the period expiring on 27 April for which Gomba served a notice to complete on 11 April. The issue is Gomba’s readiness to complete on 11 April and in the period up to 27 April. I now turn to the facts and the question of whether Gomba was in a position to complete when it served a notice on 11 April and when that notice expired on 27 April.

The documents were supplemented by live evidence. Midill called Mr Keith Gregory, an employee of Kingston Smith, Chartered Accountants. Although his evidence was helpful Mr Gregory had little involvement with efforts to complete the transaction. He was not involved with title deeds, company books and records, instructions to the bank or the formalities of the sale. He did not attend any relevant board meeting although of course he had important tasks to do in other aspects of the overall transaction. He did sign consent to appointment as a director of Park Lane dated Wednesday 26 April but he understandably could not recall when he had placed his signature on this document or what had happened to it.

Gomba called four witnesses, Mr Anthony Simmons, a partner in David Wineman, Gomba’s solicitors who was responsible for the conveyancing, Mr Jonathan Lassman, a director of various Gomba subsidiaries who dealt principally with what happened to the £800,000 in the context of reducing indebtedness to the bank, Mr Neil Aspess, at the time a partner in David Wineman, who dealt with the company law and completion side of the transaction and Mr Ian Vieira of Guardian Trust Company in Jersey who had some involvement of which he had understandably limited recollection in the events leading up to 27 April. Mr Vieira gave evidence because a more senior colleague who had been more closely involved, Mr Harry Boxall, was unfortunately too ill to give evidence. All the witnesses were straightforward, honest and doing their best to help the court. As it will not be necessary for me to decide between competing accounts of the events I will refer to the relevant testimony of the witnesses when describing in more detail what happened in April 2006.

Mr Simmons’ evidence was that Gomba was ready, willing and able to complete on 8 April, the contract had been complied with. The directors nominated by the Buyer had been appointed, Mr Simmons had the signed stock transfer form and share certificates ready to hand over. He also around that time saw the seal, statutory books, Memorandum and Articles, share register and share certificate. Mr Aspess said that all the formalities necessary for completion were or could have been dealt with on or before 11 April. Mr Aspess also confirmed what Mr Simmons said and emphasised, as he did with regard to the later period, that completions involving the sale of a company as opposed to the property itself tend to involve attendance by the parties or their representatives, as well as by the solicitors, with the meetings containing more negotiation, activity and interaction. Mr Gregory claims, in the most general terms, that Gomba was unable to complete on 8 April but unsurprisingly had no detailed material to back this up.

The burden is upon Midill to prove that Gomba was not ready, able and willing to complete on 11 April. Midill has failed to discharge that burden.

After Midill’s failure to complete Mr Simmons returned the papers prepared for completion to Park Lane’s Registrars and Mr Vieira confirmed that he had received these back. From that point Mr Simmons had little involvement with the process up to 27 April as Mr Aspess was the solicitor mainly concerned. When looking at the period leading up to 27 April it needs to be borne in mind that as Midill were in no position to go ahead the preparations for completion were made by one side only without the conventional cooperation between solicitors. The picture of readiness or lack of it is not necessarily an accurate snapshot of what would have happened if there had been a sign of Gomba being called on to complete. On 25 April Mr Aspess faxed his opposite number Mr Saunders, who was acting for Midill asking for the names of the proposed new directors of Park Lane. Without those names the existing directors felt unable to resign. Mr Aspess went on leave at the end of 25 April and by a memo, briefed his colleague Mr Vivian Wineman to deal with any completion in his absence. That memo, dated 27^th April but dictated a couple of days before, addressed specifically the completion requirements under Clause 5 of the Agreement. It confirmed that the solicitors held the statutory books and that he had a signed stock transfer form and share certificate. Mr Aspess gave evidence to that effect in his witness statement but was then asked a series of questions in cross-examination about the strength of his recollection. He had no live recollection of seeing any signatures on a stock transfer form and he accepted therefore that it was possible that one had not been signed. No copy of the form has been found. He also accepted that he had no reason to suppose that he ever held a stock transfer form signed by Gomba and that it would have been his responsibility. This exercise revealed more about Mr Crampin’s considerable cross-examination skills than about what happened at the time. It seems to me most unlikely that Mr Aspess did not have the signed stock transfer form, correctly executed, at the time he dictated his 27 April memo. In that memo he also identified the requirements that remained under Clause 5. He pointed out that they should notify the Purchaser that money was to be paid by bank transfer under Clause 5.7 not by banker’s draft. He raised the question of obtaining mandate forms if necessary so that the bank could be instructed on only the signatures of the Buyer’s nomination. He said that the mandate could be altered accordingly. He referred to the need for the minutes of a board meeting so that the Buyer could nominate additional directors and resignations be submitted and accepted, as required by Clauses 5.2 and 5.3.

The memorandum referred to the fact that Mr Aspess might not be in on Wednesday 26 April adding “we will only have one working day to prepare otherwise I think there is a real possibility that we will have a problem”. That problem was in securing the resignation of the directors and Secretary as required by 5.2 where those documents would have to come from Jersey (or perhaps from the directors coming to England, an issue not canvassed in evidence) when they could not resign without the names of new directors nominated by Midill. That was a task which at that point Midill had failed to accomplish. Mr Aspess said that the directors were only a phone call away and if the originals were not available by completion duplicates could have been made available. He said that these could have been obtained in an hour or two from the time when the directors were told that they were required and that Mr Wineman was an extremely experienced lawyer. Other items like the minute would only take ten to fifteen minutes to prepare. Mr Aspess said that faxed copies of the resignations of the directors and Secretary could also, if necessary, have been made available at completion.

Mr Aspess’ secretary sent (by e-mail in Mr Aspess’ name) forms of resignation letter and instructions about how to complete them and then return them “as soon as possible”. Mr Aspess said that he would hold the letters to the order of Guardian Trust. Mr Wineman had apparently prepared a letter of instructions to the company’s bank dealing with the mandate issues. On 26 April Mr Wineman chased Mr Saunders for details of the new directors and Secretary and dealt with other matters. Mr Rowland of Guardian Trust replied to Mr Aspess at 2.18 on 26 April saying that he would “arrange for these to be signed as requested”. He added “I have spoken to Philip Saunders who is going to come back to me to confirm who we are to resign in favour of. I have explained to him my reluctance to resign until I know who I am resigning in favour of and he fully understands”.

At 12.42 on 27 April Mr Lassman sent a fax to “Marcus” asking for the names of the new directors so that the existing ones could resign. In the event no such information was received, it seems, until too late at the beginning of May. At 1.24 on 27 April Mr Rowland e-mailed to Mr Aspess scanned copies of resignation letters together with the “minutes of the meeting we intend to hold tomorrow” once we have confirmation as to who we are to resign in favour of”. That e-mail also attached draft letters to the bank and the company agent. Mr Rowland added:-

“I have arranged for the original letters to be sent to you by courier (under a compliment slip) but please hold these to our order until I receive confirmation of who the new officers of PL will be. Once I have this confirmation I will then complete the letters in 2 and 3 above and hold the meeting to formalise our resignations and give you permission to release the resignation letters”.

Mr Vieira’s view was that those letters would have been with the courier before the end of business that day with the result that they would be in England the following day ( a day late for completion within the period of the notice.)

Gomba have disclosed other documents prepared at the time. There are draft minutes (unsigned and with blanks such as the name of the proposed new directors) of a meeting to be held but on “28^th April”, the day after the last day for completion. There is a letter to Equity Trust also in draft dated 28 April as well as one dated 27 April referring to resignations with effect from the 28^th. There are also signed and witnessed resignations of all three directors with “28^th” written in apparently by Mr Vieira. Mr Vieira’s own evidence about these events was understandably vague and his answers were expressed very much in terms of what would or might have happened.

Mr Crampin submitted that Mr Aspess’ evidence was equivocal particularly about the stock transfer forms. That form should have been available duly executed for completion. It was unsatisfactory that the person giving notice to complete did not know when the transfer would be executed. In the absence of a disclosed copy of the signed stock transfer form there was no reason to believe that it ever existed. All the other indications are that if the documents had been got together this would not have been before 28 April and therefore too late. Furthermore the resignations of the directors and Secretary were not to hand and, while less important than the stock transfer forms, these were still matters of substance vital to a lender. Similarly there was no acknowledgement from those directors that there was no outstanding agreement with the company or a claim against it. He submits that, on the evidence, the Defendants could not have been in a position to proceed to completion on or before 27 April. The contractual duty to co-operate related to performance of the contract as required and could not be invoked to excuse even minor non-compliance. His clients would have been entitled to stand on their rights and have all provisions of Clause 5 strictly complied with at completion.

Mr Thompson submits that the evidence suggests that the stock transfer form was available and it is unsurprising that Mr Aspess has no independent recollection of this, that the solicitors had all the relevant documents and that the only reason for the absence of the resignations was the Claimant’s failure to provide the names of the proposed new directors without which resignation was not possible. This failure by the Claimant was what prevented compliance with Clauses 5.3, 5.4 and 5.5. The outstanding matters were purely administrative and would all have been accomplished had there been any sign of the Claimant being willing to co-operate by completing the transaction. All matters of substance were in hand.

It is for the Claimant to establish these matters and it has wholly failed to do so for 11^th April when the notice was given. The issues are more complex as at 27 April. Nevertheless in my view the Claimant has failed to show that the Defendant was not ready, able and willing. As I see it Gomba would have been able, within the time reasonably required to do so, to set up the necessary administrative arrangements to enable completion to take place. It seems to me likely that all relevant documents were available other than those required from the directors. These would also have been available had the Claimant discharged its obligations to co-operate in agreeing arrangements for completion under Condition 6.2, most obviously by giving details of who the new directors were to be. It is improbable that having carefully considered preparations for completion that Mr Aspess omitted to attend to important matters. I place little weight on his absence of recollection now of such routine matters compared with what he wrote at the time and with what one would assume in the ordinary way would be likely to happen in a solicitor’s practice. In a situation where it seemed very likely that Midill would fail to complete and there were no signs whatever of activity on its part it is unsurprising that steps were not taken by Gomba to ensure that the documents were actually in order on the right day. I have no doubt that, in the real world, should Midill have shown signs of going ahead the minds of Gomba and its advisers would have become more closely focussed and commercial adrenalin would have taken effect. The fact that in this rather unreal atmosphere all documents were not in fact prepared to the right standard does not mean that they would not have been had Gomba been required to complete. As I see it Midill has failed to show that Gomba were not ready, willing and able to complete on either relevant date. It is not enough for Midill to point to what actually happened at the end of April where they had failed to co-operate to bring about completion and showed no signs of proceeding. That is not a true picture of what would probably have happened had Midill shown that it would or might complete on time.

Midill’s claim for damages, which Gomba accepts would have been unanswerable but for the conclusions I have reached about the notice to complete, falls away. So does the claim for £800,000. This leaves Midill’s claim for repayment of the deposit of £400,000 paid on signature of the agreement.

The right to forfeit the deposit arises under Standard Conditions 7.5.1 and 7.5.2 which I set out above. Midill’s position should the court find, as I have done, that Gomba was ready, able and willing to complete at the relevant date is to contest forfeiture on either one of two grounds. First Midill submits that as, strictly, this is a contract for the sale of shares not land, forfeiture amounts to an unlawful penalty against which equity will grant relief. It relies on observations of Lord Browne-Wilkinson in Workers Trust & Merchant Bank Ltd –v– Dojap Investments Ltd [1993] AC 573 (PC). Midill submits that a contract for the sale of shares does not come within the exception identified by Lord Browne-Wilkinson at 578. That exception is an anomalous one which should not be extended beyond the strict confines of a contract for the sale of land. This submission was not much developed once Gomba conceded that the share sale fell within Section 49(3) of the Law of Property Act 1925 as being “a contract for the sale or exchange of any interest in land”. As the point has not apparently been decided by any court I emphasise that I am acting on Gomba’s concession and expressing no view of my own.

It follows that Section 49(2) of the 1925 Act potentially applies to this case. This provides:-

“Where the court refuses to grant specific performance of a contract, or in any action for the return of the deposit, the court may, if it thinks fit, order the repayment of any deposit.”

Mr Crampin makes the following submissions as to why the section should operate in this case, where the Vendor has resold the property elsewhere for a profit, and the deposit be returned. He submits that the provision is expressed in perfectly general terms and was construed by Buckley LJ in Universal Corporation v Five Ways Properties Ltd [1979] 1 All ER 552 at 555a as a provision required “simply to do justice between vendor and purchaser”. While that was a decision of the Court of Appeal, it was only an interlocutory decision and in the more recent case of Omar v El Wakil [2001] EWCA Civ 1090, the meaning of the section was regarded as open to further argument by Arden LJ. In Tennaro Ltd v Majorarch Ltd [2003] EWHC 2601, however, Neuberger J (to whom Omar v El Wakil was cited) found that if (as Arden LJ appears to suggest) special circumstances are needed to justify the return of a deposit where the purchaser is in breach of contract, the fact that the vendor has resold the property elsewhere for a profit constitutes such special circumstances. Dimsdale Developments (South East) Limited v De Haan (1983) 47 P & C R 1 at 12 was to similar effect. He relied also on the discussion in Goff & Jones, The Law of Restitution, 7^th ed, at pp 534 to 546, favouring a broad view of section 49(2).

Mr Thompson submits that there is no justification for ordering repayment of the deposit in a transaction where this is set at the conventional 10%. There has been a failure to complete and the parties are sophisticated professionals. He submits that when one looks at the decided cases in their context it is clear that the court does not, in a situation of this kind, have a broad discretion to do what it thinks just.

I agree. Universal was an interlocutory decision and in Omar Arden LJ, with whom Lord Phillips and Lord Justice Pill agreed, recognised the absence of guidance which had been criticised in text books and expressed views pertinent to this case. In Omar the deposit was not 10% but 31% but the court did not order repayment. Arden LJ said this:-

“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 questions was a “deposit”, that is an earnest for performance and that accordingly there should not be relief simply because the Corringham contract never took place … The context here is of a conveyancing transaction. It is common knowledge that if a purchaser pays a deposit he is likely to forfeit it if he does not fulfil the contract. Moreover deposits are very usual features of conveyancing transactions and conveyancing transactions are common. It is important that there should be certainty attaching to the consequence of paying a deposit … I would start from the position that the deposit should not normally be ordered to be repaid. Are there any mitigating circumstances in the present case? … Moreover Mr El-Wakil has not produced any evidence that he has suffered loss as a result of non-completion of the Corringham contract. He may resell the property at a profit. … It is also relevant that Mr El-Wakil has not sought to establish that he has suffered any loss as a result of the abortive Corringham contract: … Furthermore in my judgment, 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. Inability to complete is exactly the risk the deposit was intended to guard against.

In Tennaro Neuberger J described this as “a slightly stricter, or, at any rate, a more analytical view” and in one of the transactions with which he was concerned in that case identified a failure to complete as being a classic circumstance in which a deposit is liable to be forfeited and unless there are special reasons to the contrary there should be no question of it being recovered by the Buyer. The judge found that there were special reasons in respect of another of the properties with which he was concerned, Flat 32, where the Buyer had before the completion date found an alternative purchaser to purchase the flat for substantially more than the contract price.

The guidance of the Court of Appeal is clear that in the ordinary way the court will not order the payment of the purchase price and that applies even if the Seller makes a profit on the subsequent sale. If the position were otherwise and the liability to repay the deposit depended upon some future sale price there would be considerable uncertainty possibly for a lengthy period. That would create precisely the uncertainty which a fixed deposit is intended to avoid. There is no special factor here which would justify departing from the normal approach. Midill is a sophisticated investor well aware of the risks involved in failing to complete a deal. Of course there is nothing to prevent the parties providing, if they so agree but did not in this case, that liability to repay the deposit, should there be a default, will depend upon the outcome of a further sale. The court will therefore not exercise its jurisdiction under Section 49.

Other matters were canvassed at the hearing, in particular the question of subrogation as regards repayment of the deposit and the law of unliquidated damages and penalties. As I understand the position, and read the pleadings, these and other matters have all fallen away but if I am mistaken about that I shall be grateful if the parties will let me know.

Midill’s claim against Gomba fails because it has not established that Gomba was not ready, able and willing to complete this transaction at the relevant times. Gomba is not obliged to repay the deposit and has now returned the £800,000. There are as I understand it live issues about interest and costs. I shall be grateful if the parties will let me have a note containing corrections of the usual kind, an agreed draft order and list of matters which they wish to raise at the handing down of this judgment.