Midill (97PL) Ltd. v Park Lane Estates Ltd & Anor

A deposit paid under a contract for the sale of land is an earnest for performance. A seller may ordinarily retain it when the buyer defaults, without regard to the seller’s actual loss or subsequent profit. The discretion under section 49(2) of the Law of Property Act 1925 does not displace that contractual expectation. Repayment requires a special or exceptional circumstance.

A resale at a higher price, without more, is insufficient. This is particularly so where resale occurred months after the contractual completion date and the seller bore the intervening risk and cost of holding the property.

Midill agreed to buy all the shares in Park Lane Estates Ltd from its parent, Gomba, for £4 million. It paid a £400,000 deposit and a further £800,000, but failed to complete. Gomba served a notice to complete, rescinded when completion did not occur, and later caused the property owned by Park Lane to be sold for £4.3 million.

His Honour Judge Mackie QC, in the Chancery Division (HC06C03472), held that Gomba had been ready, willing and able to complete. He refused repayment of the deposit under section 49(2) of the Law of Property Act 1925. Gomba repaid the £800,000, leaving only the deposit in dispute.

Midill appealed. The central live issue was whether Gomba’s later resale profit justified an order returning the deposit.

1. Appeal dismissed unanimously. Carnwath LJ, with whom Maurice Kay and Keene LJJ agreed, upheld the refusal to order repayment of the £400,000 deposit under section 49(2) of the Law of Property Act 1925. The court also refused permission to pursue the challenge to readiness, willingness and ability, and refused Midill’s late application to widen its factual grounds.

2. A deposit on a land-sale contract is an earnest for the buyer’s performance. On the buyer’s default it is ordinarily forfeitable, even if its amount bears no relation to the seller’s actual loss. Section 49(2) does not override that principle. The statutory discretion requires something more than the fact that the contract did not complete; where the buyer could not perform, circumstances justifying relief must be special or exceptional.

3. The court followed the majority guidance in Omar v El-Wakil, [2001] EWCA Civ 1090, and regarded it as consistent with the Privy Council’s approach in Bidaisee. The broader observations in Universal Corporation v Five Ways Properties Ltd, [1979] 1 All ER 552, were not binding and had to be read in response to an unduly narrow requirement of vendor misconduct.

4. The judge was entitled to find that the resale at a higher price did not constitute the required exceptional factor. The resale occurred months after the completion date. There was no evidence of an exceptional market movement, and Gomba had borne the risk and expense of retaining the property. To make repayment depend upon a later resale price would undermine the certainty which a fixed deposit provides.

5. The court respectfully questioned Dimsdale Developments (South East) Ltd v De Haan, (1983) 47 P&CR 1, insofar as it supported repayment on a wide approach. Tennaro Ltd v Majorarch, [2003] EWHC 2601, was distinguishable because its relevant transaction concerned an advantageous alternative offer at about the contractual completion date.

6. On the readiness issue, the alleged allocation of the burden of proof could not affect the result. The judge had independently found that Gomba had made reasonable preparations and could have completed with the co-operation which Midill had failed to provide.

• Court of Appeal (Civil Division): Dismissed Midill’s appeal and upheld the refusal of relief under section 49(2) of the Law of Property Act 1925: [2008] EWCA Civ 1227.
• High Court, Chancery Division: His Honour Judge Mackie QC held that Gomba was ready, willing and able to complete, and declined to order repayment of the deposit under section 49(2): HC06C03472.