ALEXEY SAMARENKO v DAWN HILL HOUSE LIMITED

In an ordinary contract for the sale of land, an obligation to pay a deposit by a stipulated date is a condition. Time is of the essence, and failure to pay on time is a repudiatory breach entitling the seller to terminate. A deposit payable later in the contractual relationship retains its character as an earnest and security unless the contractual context indicates otherwise.

If equity would otherwise relieve against strict compliance, a reasonable notice may make time of the essence. Where the underlying obligation is a condition, failure to meet the notice deadline is repudiatory. A unilateral notice does not necessarily have that effect where the underlying term is truly innominate.

The buyer contracted to purchase land for development. Following a supplemental agreement, a £450,000 deposit became payable on 3 March 2011 and the balance on 13 April 2011. The buyer failed to pay the deposit. The seller gave five working days' notice requiring payment and stating that time was of the essence, then terminated when payment remained outstanding.

The High Court, His Honour Judge Purle QC sitting as a High Court judge, gave the seller summary judgment declaring the termination valid and permitting removal of the buyer's unilateral notices. The buyer appealed. The issues were whether failure to pay a deposit on time was necessarily repudiatory and, alternatively, whether the seller had effectively made time of the essence by giving a reasonable deadline.

1. Appeal dismissed. Clause 2 of the supplemental agreement required payment of the deposit on a fixed date. Properly construed in the context of the contract as a whole, it was a condition and rebutted any equitable presumption that time was not of the essence. Failure to pay on 3 March 2011 was therefore a repudiatory breach which entitled the seller to terminate.
2. Lewison LJ held that a deposit is not merely a part-payment. It is an earnest of performance and security for completion. Without payment, the seller lacks both that security and freedom to deal with the property. In the ordinary contract for the sale of land, the requirement to pay a deposit on time is consequently a condition. A special contractual context might produce a different conclusion, but none existed here.
3. Etherton LJ agreed. A deposit payable considerably after contracting may require examination of all legally admissible circumstances. The usual rule nevertheless applies where the deposit retains its commercial and legal importance. The stipulation of the specific payment date supported strict compliance in this case.
4. Rix LJ agreed that the clause was a condition. He held that Millichamp v Jones [1982] 1 WLR 1422 and John Willmott Homes Ltd v Read (1985) 51 P & CR 90 should be regarded as overruled insofar as they treated the time for payment of a deposit as inessential.
5. Alternatively, the notice allowed a reasonable five-working-day period and successfully made time of the essence. Where the common law regards the underlying obligation as a condition, failure to comply with such a notice amounts to a repudiatory refusal to perform that obligation. The court left open the precise effect of such a notice upon a truly innominate term.
6. The refusal to permit a valuation inspection neither prevented nor caused the buyer's non-payment. The buyer intended to fund the deposit from its director's own resources. Its willingness to continue only without paying the agreed deposit was not willingness to perform the contract actually made.

1. Court of Appeal (Civil Division): Dismissed the buyer's appeal and upheld the summary judgment and conclusion that the seller had validly terminated the contract.
2. High Court, Chancery Division: His Honour Judge Purle QC, sitting as a High Court judge, granted the seller summary judgment concerning removal of the unilateral notices and declared that the contract had been validly terminated. No neutral citation is stated.