Omar v El-Wakil

A deposit for the sale of land may be paid in money’s worth where linked agreements and the parties’ conduct show that a transfer of value was accepted in discharge of the deposit obligation. A purchaser who was not ready and willing to complete cannot recover the deposit as of right merely because the vendor was also unable to complete.

Under section 49(2) of the Law of Property Act 1925, relief is discretionary. A deposit is an earnest for performance, and its repayment does not follow simply because the sale was not completed. Where the purchaser could not perform, relief will ordinarily require exceptional circumstances. The assessment of fairness must reflect the commercial and conveyancing context and the need for certainty.

The appellant agreed to sell the business operated by his companies to a company controlled by the respondent. On the same day, the respondent agreed to sell the appellant a house for £350,000, with a stated deposit of £110,000. The parties treated the business transfer as satisfying that deposit.

The completion provisions were ineffective because neither party was able to complete. The appellant nevertheless served notices to complete when he was not ready to do so. The Central London County Court held that no deposit had been paid and dismissed his claim for its return, while making a costs order against him.

On appeal, the central issues were whether the business transfer amounted to payment of the deposit, whether the appellant had a legal right to its return, and whether the court should order repayment under section 49(2) of the Law of Property Act 1925.

Decision

The Court of Appeal unanimously dismissed the appeal. Lady Justice Arden gave the principal judgment. Lord Justice Pill and Lord Phillips MR agreed with the result, while adding reasons on the absence of any legal right to recover the deposit.

1. Payment of the deposit. The judge was wrong to analyse the business-transfer agreement and the house-purchase agreement as wholly separate transactions. The agreements were made on the same day, the business price and deposit were both £110,000, and the respondent’s completion statement treated only the balance of the house price as outstanding. The parties therefore treated the transfer of business assets as payment in money’s worth which discharged the appellant’s deposit obligation. Possible breaches of duty owed by the appellant to his companies did not deprive him of a claim against the respondent, though he might have to account to the companies for any recovery.

2. No legal right to return. The completion condition did not cause forfeiture because neither party could validly serve a notice to complete. However, the appellant had himself repudiated the contract by serving notices when he was not ready to complete. He could not claim damages. Nor could he demand the deposit as of right by relying on the respondent’s earlier inability to perform, since that repudiation had not been accepted and the respondent could rely on the appellant’s later repudiation. Per Pill LJ, the deposit was security for the purchaser’s performance, so a purchaser in default could not assert a right to its return on the ground that the vendor was also in default.

3. Statutory discretion. The appellant therefore had to rely on section 49(2) of the Law of Property Act 1925. The court did not need to determine the full breadth of that discretion. A deposit is an earnest for performance, and commercial certainty is important in conveyancing. Although the deposit was unusually large, was paid in assets rather than cash, and the respondent may also have been unable to complete, relief was not justified. The appellant could not perform, had failed to grant the promised business lease and to meet debts, and the risk of inability to complete was precisely that against which the deposit protected. Exceptional circumstances were required and were absent.

4. Costs. The trial judge’s costs discretion disclosed no error of principle. The challenge to the costs order was also dismissed. The appellant was ordered to pay one third of the respondent’s appeal costs.

• Court of Appeal (Civil Division): Appeal dismissed. The court held that the deposit had been paid in money’s worth, but that it was neither recoverable as of right nor repayable under section 49(2) of the Law of Property Act 1925.
• Central London County Court: His Honour Judge Cowell dismissed the appellant’s claim for return of the deposit, holding that no deposit had been paid, and made a costs order against him.