Beach Club Enterprises Ltd v Horizon Management Ltd

• Jurisdiction: Cayman Islands
• Judge: (Robinson, P., Carberry and Carey, JJ.A.)
• Judgment Date: 07 June 1982
• Court: Court of Appeal (Cayman Islands)
• Date: 07 June 1982

Court of Appeal

(Robinson, P., Carberry and Carey, JJ.A.)

BEACH CLUB ENTERPRISES LIMITED

and

HORIZON MANAGEMENT LIMITED

R. Mahfood, Q.C. and J. Miller for the appellant;

R.D. Alberga, Q.C. and P. Dougherty for the respondent.

Cases cited:

(1) Brickies v. Snelt, [1916] 2 A.C. 599.

(2) Buckland v. Farmar & Moody, [1979] 1 W.L.R. 221; [1978] 3 All E.R. 929.

(3) Cooden Engr. Co. Ltd. v. Stanford, [1953] 1 Q.B. 86; [1952] 2 All E.R. 915.

(4) Cornwall v. Henson, [1900] 2 Ch. 298.

(5) Dagenham (Thames) Dock Co., In re., ex p. Hulse(1873), 8 Ch. App. 1022.

(6) Dies v. British & Intl. Mining & Fin. Corp. Ltd., [1939] 1 K.B. 724.

(7) Frost v. Knight(1871), L.R. 7 Ex. Ill; [1861–73] All E.R. Rep. 221, dictum of Cockburn, C.J. applied.

(8) Galbraith v. Mitchenall Estates Ltd., [1965] 2 Q.B. 473; [1964] 2 All E.R. 653.

(9) Heyman v. Darwins Ltd., [1942] 1 All E.R. 337.

(10) Hochster v. De La TourENR(1853), 2 E. & B. 678; 118 E.R. 922; [1843–60] All E.R. Rep. 12, followed.

(11) Howe v. SmithELR(1884), 27 Ch. D. 89; [1881–5] All E.R. Rep. 201.

(12) Johnson v. Agnew, [1980] A.C. 367; [1979] 1 All E.R. 883, dictum of Lord Wilberforce applied.

(13) Kilmer v. British Columbia Orchard Lands Ltd., [1913] A.C. 319.

(14) McDonald v. Dennys Lascelles Ltd.UNK(1933), 48 C.L.R. 457, dictum of Dixon J. applied.

(15) Mayson v. Clouet, [1924] A.C. 980.

(16) Moschi v. Lep Air Services Ltd., [1973] A.C. 331; [1972] 2 All E.R. 393.

(17) Mussen v. Van Diemen”s Land Co., [1938] Ch. 253; [1938] 1 All E.R. 210.

(18) Smith v. Hamilton, [1951] Ch. 179; [19501 2 All E.R. 928.

(19) Soper v. ArnoldELR(1889), 14 App. Cas. 429.

(20) Sprague v. Booth, [1909] A.C. 576.

(21) Steedman v. Drinkle, [1916] 1 A.C. 275; [1914–15] All E.R. Rep. 298

(22) Stickney v. Keeble, [1915] A.C. 386; [1914–15] All E.R. Rep. 73.

(23) Stockloser v. Johnson, [1954] 1 Q.B. 476; [1954] 1 All E.R. 630, dicta of Lord Denning, M.R. applied.

Contract-payment-part-payment-part-payment not changed into deposit by change of name in subsequent contract variations-partpayment forfeited on breach by purchaser if express forfeiture clause

Documents-interpretation-interrelated documents to be interpreted together-clauses in separate contract documents expressly made subject to each other to be construed together provided no violence to natural meaning

Contract-repudiation-effect of repudiation-failure to pay balance of purchase-price by date specified and introduction of alternative purchaser is breach by repudiation-acceptance by other party relieves of obligation of further performance but forfeiture clause operative on breach remains valid

Land Law-contract of sale-part-payment-no equitable relief against forfeiture of part-payment equivalent to 10% of purchase price-relief only where sum forfeited excessive in relation to loss and retention unconscionable

The plaintiff-respondent brought an action in the Grand Court to recover from the defendant-appellant a part-payment of the purchase price paid under an unperformed contract for the sale of property.

The parties entered into a contract for the sale of a hotel, initially for the sum of $2.6m. which was subsequently increased to $2.7m. The original agreement of April 11th, 1979 referred to a ‘deposit of $25,000’ which had already been paid, specified that $235,000 of the purchase price was to be paid on or before April 20th and stated that completion was to take place on or before June 1st, with the balance of the purchase price payable on such completion. It also stated that time was of the essence.

The $235,000 was duly paid but on April 26th, certain variations were made to the contract, one of which extended the completion date to 14 days after the purchaser had obtained all necessary licences for running the hotel, provided that this did not extend beyond September 1st at the latest. By a later variation, the completion date was changed to July 1st subject to the 14-day stipulation in the previous variation and a new cl. 10 also specified that if all licences were granted by ‘not later than Sep-

tember 1st’ and the purchaser still failed to complete by then, the vendor would be entitled to forfeit and retain ‘the deposit of $260,000,’ the total of the initial $25,000 deposit and the part-payment of $235,000.

All the licences had already been obtained when, on July 3rd (July 1st being a holiday), the purchaser indicated to the vendor that he would be unable to pay the balance of the purchase price in the foreseeable future, and, by introducing a new prospective purchaser, made it clear that he was no longer pursuing the contract. On August 1st the vendor then informed the purchaser by letter that he considered the contract at an end and was therefore forfeiting the ‘deposit of $260,000.’ The purchaser agreed that the contract had been terminated but demandea the return of $235,000. When the vendor refused to comply, the purchaser brought the present proceedings to recover it.

The Grand Court (Summerfield, C.J.) gave judgment for the purchaser, holding that the part-payment was not forfeitable since (a) there was no provision in the contract or any of its variations expressly converting the part-payment into a true deposit and the parties had therefore never intended it to be treated as one; and (b) cl. 10 did not provide for the events which had occurred, as it was the vendor and not the purchaser who had rescinded the agreement after learning of the purchaser”s inability to pay-an act on the part of the vendor which had put an end to the contract and any rights he had under it and had given the purchaser the right to recover the money he had already paid under the contract.

On appeal, the vendor submitted that (a) although in the original contract the $235,000 had been a part-payment, it was clear from the subsequent variations of the terms and the references to this sum as a ‘deposit’ that the parties intended to change its status to that of a deposit, which would make it forfeitable on breach by the purchaser; and (b) in any event cl. 10 was an express forfeiture provision which was specifically designed to protect him in the event of such a breach by the purchaser as had in fact occurred.

The purchaser submitted in reply that (a) he was entitled to a refund of the part-payment of $235,000 as the contract had terminated not on breach by him but on the vendor”s rescission; (b) the rescission before the final date for completion, i.e. September 1st, had in effect put an end to the future operation of the forfeiture provision; and (c) the court should grant equitable relief against forfeiture, since the amount forfeited was in the nature of a penalty, no loss having in fact been suffered by the vendor.

Held, allowing the appeal:

(1) The parties had not specifically provided for a 10% deposit in their contract of sale. Although in later variations to the contract, incidental references were made to the initial deposit together with the more substantial instalment as a ‘deposit,’ even though the two sums together made up 10% of the purchase price, this circumstance did not suffice to convert the instalment into a true deposit (per Carey, J.A. page 241, line 18 – page 242, line 2; Robinson, P. concurring; Carberry, J.A. dis-

senting, page 231, line 39 – page 232, line 15). In any event cl. 10 expressly provided for forfeiture of both and effect had to be given to it since it was clear from the history of the dealings between the parties that it was designed for precisely the situation which had occurred, namely, the repudiation by the purchaser (page 245, lines 26–32).

(2) The Grand Court should have considered the contract documents as a whole and read the variations, which were dependent upon each other, together, in such a way as to harmonise them, if that were possible, without doing violence to their natural meaning. The court had failed to do so and had therefore been wrong in concluding that cl. 10 did not apply in the circumstances that had arisen (page 242, lines 3–15; page 246, lines 1–6).

(3) Clause 10 did apply. The purchaser did not have the right to wait until September 1st for completion since the licences had been granted before the end of June. In accordance with the second variation of the contract, he was therefore obliged to complete by July 1st. The only significance of the September 1st deadline was to give the purchaser time to obtain the necessary licences if they had not been granted before July 1st. Thus, when on July 3rd the purchaser had indicated unequivocally that he was withdrawing from the contract, this amounted to a breach by repudiation which the vendor was entitled to accept and upon which cl. 10 became immediately operational. Although at that stage the parties had rescinded the contract, this did not put an end to the operation of cl. 10, its function being to prescribe the measure of the purchaser”s liability for damages for the breach. He could not, therefore, rely on his own breach to nullify the effect of this clause (page 236, lines 11–17; page 244, line 29 – page 245, line 20; page 245, lines 32–41).

(4) Equitable relief against forfeiture was not warranted, as a deposit of 10% and its forfeiture on breach of contract was normal and reasonable in sale of land transactions and therefore neither cl. 10 nor the retention of the part-payment by the vendor on the basis of it could be regarded as penal. A forfeiture clause such as the one in the present case was not governed by the same principles as a penalty clause; to obtain relief against the effects of a clause such as cl. 10, the purchaser would have to show not only that the amount forfeited was out of proportion to the loss sustained but also that it would be unconscionable for the vendor to retain the money. He had established neither of these propositions and the court would therefore hold that the $235,000 claimed had been properly forfeited (page 246...