H.E.B. Enterprises Ltd and H.E. Bodden Jr v Richards

• Jurisdiction: Cayman Islands
• Judge: (Rix, Martin and Moses, JJ.A.)
• Judgment Date: 14 November 2019
• Court: Court of Appeal (Cayman Islands)
• Date: 14 November 2019

H.E.B. ENTERPRISES LIMITED and H.E. BODDEN JR

and

RICHARDS

(Rix, Martin and Moses, JJ.A.)

Court of Appeal (Cayman Islands)

Land Law — contract of sale — repudiation — if contract for sale of land by instalments terminated for purchaser’s repudiatory breach, purchaser entitled to recover money paid in part performance (including interest payments) other than deposit — if purchaser had enjoyed possession of property, vendor entitled to mesne profits to reflect that benefit up to date of termination

Held, allowing the appeal in part:

(1) A full recovery of an advance payment in restitution was not compatible with a situation where in the meantime the plaintiff had enjoyed a real benefit under the contract while it existed. The modern law of unjust enrichment was sufficiently flexible to take account of such situations. The buyer of property who paid in advance for a title which was never completed could recover the price paid (other than a deposit) but, if he had enjoyed possession in the meantime, he should not be entitled to recover more than would eliminate unjust enrichment on the part of the seller. There was no reason why, in the pursuit of avoiding unjust enrichment on the part of the seller, the buyer should on his side be left unjustly enriched by his possession. Possession would be valued in the absence of contract in the form of mesne profits, of which the judge had evidence. The court would therefore be inclined, as a matter of principle, to limit the respondent’s recovery in restitution by the easily assessed value of his possession (paras. 49–53).

(2) Such a solution was compatible with the parties’ contracts. There was nothing in cl. 6 to exclude the effect of the principles of restitution. There were express provisions for the forfeiture of “the deposit and all and any interest accrued thereon” and also for the retention (out of further sums paid by the buyer) of sufficient to compensate the sellers for work done on the property at the buyer’s request. There was no express provision for the return to the buyer of part payments other than the deposit. That was left to the general principles of law. The provision did not stand in the way of the buyer’s right to recover what the law permitted by way of restitution (paras. 54–56).

(3) The appellants’ appeal would therefore be allowed in part. From the sum of CI$593,430.37 awarded on the buyer’s claim, the court would deduct mesne profits during the period of the buyer’s possession in the sum of CI$386,526.56. The buyer’s total recovery in restitution was therefore limited to CI$206,903.87. Because of the sellers’ successful counterclaim in the sum of CI$135,896.29, judgment in favour of the buyer would be reduced on appeal to CI$71,007.58 (para. 63).

Cases cited:

(1)Blackburn v. Smith (1848), 2 Ex 783, considered.

(2)Dies v. British & Intl. Mining & Finance Corp. Ltd., [1939] 1 K.B. 724, considered.

(3)Hunt v. Silk (1804), 5 East 449; 102 E.R. 1142, considered.

(4)Hyundai Industries v. Papadopoulos, [1980] 1 W.L.R. 1129, referred to.

(5)Johnson v. Agnew, [1980] A.C. 367; [1979] 2 W.L.R. 487; [1979] 1 All E.R. 883; (1979), 38 P. & C.R. 424, referred to.

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

(7)Palmer v. Temple (1839), 9 Ad & E 508, referred to.

(8)Rowland v. Divall, [1923] 2 K.B. 500, considered.

(9)Stockloser v. Johnson, [1954] Q.B. 476; [1954] 1 All E.R. 630, considered.

(10)Stocznia Gdanska SA v. Latvian Shipping Co., [1998] 1 W.L.R. 574; [1998] 1 All E.R. 883, referred to.

The respondent sought a declaration that agreements had been rescinded.

The appellants (“the sellers”) had developed a shopping complex in Grand Cayman. The complex was developed as a strata development comprising 22 shops, each with its own strata title. Two shops were sold to the respondent (“the buyer”). In 1994, the buyer entered into an agreement for sale with the sellers for shop 10. The purchase price was CI$120,000, with a deposit of CI$3,000 and the balance of CI$117,000 payable in monthly instalments over 20 years with interest at 12% per annum. Title was to pass to the buyer once the final payment was made. In 1997, the buyer entered into an agreement for sale for shop 11. Pursuant to cl. 3, the purchase price for shop 11 was CI$150,000, with a deposit of CI$7,500 and the balance in monthly instalments over 20 years with interest at 12% per annum. Title would pass to the buyer once the final payment was made. The buyer was responsible for paying the strata fees during the owner-financed period.

Clause 6 in each agreement, under the heading “Default,” provided that the sellers “may at its option rescind” the agreement by written notice if the buyer failed to complete the agreement as provided in cl. 3 and at the specified times. Clause 6 went on to provide that the sellers might then—

“forfeit and keep absolutely as liquidated damages the deposit hereof and all or any interest accrued thereon and may in addition keep absolutely out of any further sum paid by the [buyer] such amount as is sufficient to compensate the [sellers] for any work done to the Strata Lot by the [sellers] at the request of the [buyer] . . . and no further right of action shall arise in respect thereof nor shall any party hereto have any further rights, demands, actions, claims for damagesthe one against the other and the [sellers] may resell the Strata Lot and keep the full price absolutely.”

The buyer paid the deposits and made some contracted payments, including strata fees. He subsequently failed to make payments. In April 2016, the buyer sent the sellers a cheque for CI$1,321, saying it was all he could afford at the time. The sellers returned the cheque, stating that the buyer was in breach or default of the sale agreements and that they would not accept any further payments.

The buyer contended that the sellers had rescinded the sale agreements under cl. 6. The buyer sought repayment of the principal and interest paid under the agreements, less the deposits and certain other sums. By their defence and counterclaim the sellers pleaded oral agreements with the buyer to pay the strata fees; referred to their email of April 2016 as an acceptance of the buyer’s repudiation of both contracts; denied rescission under cl. 6; denied the buyer’s claim for an account; and counterclaimed for outstanding instalments and strata fees and mesne profits at CI$2,400 per month for each of the shops throughout the period of the buyer’s possession and until possession was delivered up.

The Grand Court (Williams, J.) found that the buyer had made principal payments of CI$110,747.47 and CI$96,156.35 on the shops and interest payments of CI$191,996.17 and CI$194,530.39. The judge allowed the buyer’s claim in the amount of CI$593,430.37 and the sellers’ counterclaim in the amount of CI$135,896.29 to be set off against the claim. The judge held that the buyer was entitled to the return of all principal and interest, less only the deposits and any interest thereon. The judge held that cl. 6 of the agreements was the definitive disposition of the consequences of termination for the buyer’s default; the rescission mentioned in cl. 6 referred to the sellers’ acceptance of a repudiation by the buyer, not rescission ab initio; the sellers’ email of April 2016 was an exercise of the cl. 6 option to rescind; upon such termination and since title never passed to the buyer, there was a total failure of consideration which entitled the buyer to the return of all moneys paid under the contracts save for “the deposit hereof and all and any interest accrued thereon” which was referred to in cl. 6 as forfeit to the sellers; no distinction was to be made between principal and interest for the purposes of the buyer’s recovery of the price paid; and cl. 6 excluded any other claims.

On appeal, the sellers submitted that (a) it would be remarkable if the defaulting buyer who had enjoyed possession of the shops for nearly twenty years nevertheless was entitled to the return of almost everything he had paid; (b) the option to rescind in cl. 6 referred to an acceptance of a repudiation but the April 2016 email amounted to a common law acceptance of repudiation for prolonged and persistent failure to pay, rather than the exercise of cl. 6’s option based on time for payment of any instalment being of the essence, therefore cl. 6 did not apply and the position was governed by common law; (c) at common law, a distinction should be made between the return of principal, to reflect the failure of any passing title, and the non-return of interest to reflect the use that thebuyer had enjoyed during the almost twenty year period; and (d) alternatively, the failure of the contracts required the application of restitutionary principles on which basis the buyer was required to give credit for the enrichment he had received from use of the shops, by reference if not to interest payable during the period of his possession then to the mesne profit value of that possession.

The buyer submitted in reply that the judgment of the Grand Court had been correct for the reasons it had given.

H. Robinson, Q.C. and A. McLoughlin for the appellants;

J. Watson and J. Kennedy for the respondent.

1 RIX, J.A.: The issue in this appeal is concerned with the restitutionary accounting between a seller and a buyer of land when their contract fails because of the default and repudiation of the buyer in possession under a long-term contract for the purchase of the land. The contract involves instalments of principal and interest pending completion and transfer of title at the end of the instalment period. When the seller accepts the repudiation of the buyer in default so that title never passes, is there a total failure of consideration, despite the possession over many years by the buyer? If there is a total failure of consideration, does that entail the recovery by the buyer of all principal and interest, even though in some sense the interest...