Shah & Anor v Greening & Anor

A contract for the sale of land is not unenforceable merely because its structure or related agreements are alleged to have been designed to avoid stamp duty. Illegality must be established on the facts. If an illegal purpose had been proved, a claim for specific performance or damages relying on the contract would generally be barred. Specific performance may be refused for hardship arising after contract, but only in extraordinary and persuasive circumstances. The court must assess hardship case by case, while recognising that contracting parties ordinarily assume the risk of supervening hardship between exchange and completion.

The claimants contracted to purchase a freehold property from the defendants for £500,000, with separate payments concerning chattels and additional agreements. The defendants failed to complete after the first defendant’s husband died. The claimants sought specific performance and damages.

The defendants alleged that the contractual arrangements disguised a true price of £510,000 in order to avoid enhanced stamp duty, and that the agreements were therefore unenforceable for illegality. They also relied on exceptional hardship arising from bereavement and changed personal and financial circumstances. The court had to determine whether the arrangements were illegal, whether the claimants remained ready, willing and able to complete, whether specific performance should be refused for hardship, and what damages were recoverable.

1. Illegality. The court found that the contract and the two additional agreements were genuine arrangements intended to secure the sale and were not entered into to evade stamp duty. The defence of illegality therefore failed. The claimants’ alternative argument based on Tinsley v Milligan was consequently unnecessary.
2. Obiter illegality analysis. Had an illegal purpose been established, the claimants’ claim for specific performance or damages would have relied directly on enforcement of the illegal contract. The court considered that such relief would have been barred under the principles identified in Tinsley v Milligan and consistently with the relevant dicta in Saunders v Edwards. The court distinguished title-based recovery independent of an illegal transaction from enforcement of the transaction itself. It also noted, without deciding, possible arguments concerning locus poenitentiae and recovery of stakeholder-held deposit monies.
3. Readiness to complete. The claimants had demonstrated that they were ready, willing and able to complete at the original completion date, when the summary judgment application was heard, and at the date of judgment.
4. Hardship and specific performance. Applying the principles discussed in Patel v Ali, hardship may be personal, may arise after contract, and need not be caused by the claimant. Nevertheless, refusal of specific performance requires extraordinary and persuasive circumstances. The first defendant’s bereavement, financial difficulties and attachment to the property did not meet that threshold, particularly in light of her available assets, income and ability to secure alternative accommodation.
5. Relief. Specific performance was ordered. Recoverable damages included the net additional rent paid until completion, mortgage brokerage fees, wasted insurance and mortgage expenses, removal costs and bridging-finance fees. Legal fees incurred to achieve the existing exchange were not wasted, and the claim for loss of earnings was not proved.