NG & Anor v Ashley King (Developments) Ltd

A forfeited deposit on a sale of land must generally be credited against damages recoverable for the purchaser’s breach, whether or not the property is resold. The parties may exclude that consequence, but only by clear contractual words. A deposit remains distinct from a penalty and may be forfeited even where the seller suffers little or no loss, subject to the ordinary rules governing deposits and penalties. Contractual compensation for late completion does not apply where the contract is rescinded without completion. However, an unpaid deposit which has become contractually due is a debt, and statutory interest may be awarded on it under section 35A of the Senior Courts Act 1981.

The appellants agreed to sell their house to the respondent following a mediation settlement. They simultaneously contracted to buy an adjoining house. The respondent failed to complete, and the appellants consequently lost their purchase contract and paid a deposit to the other seller. The first-instance judge awarded damages but required the deposit payable by the respondent to be brought into account, and later altered his draft judgment before it was perfected.

The appeal concerned whether the judge was entitled to revise the draft judgment, whether a forfeited deposit had to be credited against damages, and whether the appellants were entitled to contractual or statutory interest.

1. Draft judgment. A judge may recall and alter a draft judgment before it has been handed down. Where the judge concludes that the draft is wrong, the judicial duty is to correct it. The judge was therefore entitled to revise his draft judgment.
2. Deposit and damages. The governing principle in damages is compensation rather than punishment. Loss and gain must be balanced. A deposit may perform several functions, including being earnest of performance and part payment, but there is no intrinsic reason why it cannot also provide compensation. The contractual conditions contained no clear words excluding the ordinary credit for benefits received.
3. The reasoning in Ockenden v Henly supported crediting the deposit where there was a resale. There was no principled distinction where there was no resale: market value supplies the equivalent measure. Daniell v Essex was not followed. Its reasoning depended on particular contractual wording, had not subsequently been followed, and the 20 per cent deposit would probably have been treated as a penalty by a modern court. The approach was supported by later authority, including Damon Cia Naviera SA v Hapag-Lloyd International SA, Carpenter v McGrath and Polyset Ltd v Panhandat Ltd.
4. Interest. Standard Condition 7.3 concerned late completion, not non-completion, and did not permit contractual interest after rescission. However, the unpaid deposit became a debt under the contract. Its accrued character was not removed by acceptance of the respondent’s repudiation. Statutory interest was therefore available under section 35A of the Senior Courts Act 1981.
5. The amount awarded was mathematically correct. The appeal was dismissed.

The judgment itself records that the appeal was brought with permission from the decision of District Judge Wharton in the Chancery Division, Peterborough District Registry. The High Court dismissed the appeal and upheld the amount awarded, although its reasoning confirmed the entitlement to statutory interest on the unpaid deposit.