HEB Enterprises Ltd and another v Bernice Richards (Cayman Islands)

In a long-term land purchase agreement giving the buyer possession before title passes, the basis for interest payments may include the buyer’s right to possess and enjoy the property, as well as the eventual transfer of title. Recovery for failure of basis requires a total failure. If a material part of the bargained-for benefit has been received, payments cannot be recovered merely because another part of the bargain failed. The analysis depends on the entire agreement and its circumstances. It is not controlled by labels such as interest or rent. A defaulting buyer who enjoyed possession rent-free therefore has no implied right to recover interest paid before the agreement was discharged.

HEB Enterprises Ltd and Mr Henry Bodden agreed to sell two commercial lots to Anthony Richards. The price was payable by a deposit followed by 20 years of principal and interest instalments, with title passing on final payment. Mr Richards took possession, used the lots for business purposes, and later repudiated after falling into arrears. The Sellers accepted the repudiation and treated the agreements as discharged.

The Grand Court ordered repayment of principal and interest, subject to set-off. The Court of Appeal held that interest had to be accounted for through a restitutionary adjustment reflecting the value of possession. The central issue before the Board was whether the interest payments were recoverable, having regard to the entire agreements, failure of basis, and clause 6.

The appeal was dismissed. The Board reached the same broad result as the Court of Appeal, but for different reasons.

1. The written contracts did not comprise the whole agreement. Their structure, the parties’ conduct and the commencement of the payment schedules showed that the Buyer was to take possession when the shops were ready for occupation, pay the strata fees, and make the principal and interest payments over 20 years. The Buyer’s rent-free possession and business use were a fundamental part of the transaction.
2. The Sellers’ acceptance of the repudiation discharged the parties’ primary obligations and substituted secondary obligations relating to loss, subject to any contractual restriction, exclusion or additional remedy. The contractual reference to rescission did not amount to rescission ab initio.
3. Clause 6 did not confer on the defaulting Buyer a contractual right to recover interest paid before discharge. Nor did it provide that the basis for those payments had totally failed. Subject to a separately established total failure of basis, such interest payments were irrecoverable.
4. Recovery for failure of basis requires total failure. If a divisible part of a contract has wholly failed and consideration can be attributed to it, that part may be recovered. A partial failure relating to a particular payment does not permit recovery of part of that payment. The relevant question is whether any part of the benefit for which the claimant bargained was received.
5. The Board applied that analysis to the entire agreements. Although title had not passed, the Buyer had received and enjoyed the right to possess and use both lots for many years. That right formed an important part of the basis for the interest payments, so the basis for them had not wholly failed. The principal payments were returnable, as the Sellers did not dispute, but the interest payments were not.

The authorities on failure of basis, including Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, Barnes v Eastenders Cash & Carry plc [2015] AC 1 and the hire-purchase cases, did not require a different conclusion. Mayson v Clouet [1924] AC 980 depended on the particular contract and circumstances and was distinguishable because possession had not been given before final payment. The Board advised that the appeal should be dismissed.

• Privy Council. The Board dismissed the Buyer’s further appeal: [2023] UKPC 7.
• Court of Appeal of the Cayman Islands. The Sellers’ appeal was allowed to the extent that the Buyer’s recovery was reduced by a restitutionary credit for possession, limited by concession to the interest paid.
• Grand Court of the Cayman Islands. Williams J ordered repayment of the principal and interest paid, subject to forfeiture of the deposits and set-off for strata fees and mesne profits.