Ashfield Land Ltd v Mallan Ltd & Anor

For a contractual deposit to be forfeited under a clause requiring the buyer to have failed to enter into a specified contract, the relevant contract must exist in a sufficiently final form and be available for entry into at the contractual date. It is insufficient that negotiations are at an advanced stage, or that the proposed seller is merely ready, willing and able to contract on terms substantially corresponding to earlier heads of terms. The court must construe the contractual conditions as a whole, giving effect to the requirement that the buyer failed to enter into such contract.

The claimant agreed to purchase commercial property from the defendants and paid a deposit of £600,000. Completion depended on the claimant entering into a legally binding agreement with Coventry City Council for the acquisition and disposal of adjoining land. The contract provided for repayment of the deposit if that agreement was not entered into by the relevant long-stop date, subject to a forfeiture clause.

The Master gave summary judgment for the claimant, holding that the forfeiture condition was not satisfied because no final form of the council contract existed by 28 May 2003. The defendants appealed. The central issue was whether the forfeiture clause required an existing contract in substantial accordance with the heads of terms, or merely the council’s readiness, willingness and ability to proceed to an agreement on substantially corresponding terms.

1. Appeal dismissed. The claimant was entitled to repayment of the deposit.
2. The contractual scheme provided for repayment unless the forfeiture condition in clause 11.5 operated. That condition required the council to have been ready, willing and able to exchange a council contract in substantial accordance with the heads of terms, and the claimant nevertheless to have failed to enter into such contract.
3. On its proper construction, clause 11.5 required an existing form of council contract, substantially complying with the heads of terms, which the council was ready, willing and able to exchange. The wording went beyond a mere readiness to contract in the future on substantially similar terms.
4. The reference to the claimant having failed to enter into “such Council Contract” also required a contract to exist in a form which had been proffered to the claimant and which the claimant had the opportunity to enter into. Advanced negotiations, even where their conclusion appeared imminent, did not satisfy that requirement.
5. The Master was correct to reject the defendants’ construction. It would make the parties’ rights depend on an uncertain assessment of whether matters of substance remained outstanding, rather than on the objective fact of whether a compliant contractual document existed at the relevant date.

• High Court (Chancery Division): On appeal from the Master’s decision dated 24 May 2004, the court upheld summary judgment for the claimant and dismissed the defendants’ appeal.