Home Information Cases Amble Assets v Longbenton Foods (2011)

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Amble Assets v Longbenton Foods (2011)

Summary

Where there was a provision in an agreement to purchase a property requiring forfeiture of monies already paid by way of part-payment on the occurrence of the forfeiting event, relief from forfeiture might be available in equity as a matter of the court's discretion if, and to the extent that, it would be unconscionable to allow the forfeiture to take effect.

Facts

The respondent company in administration (L) cross-applied for permission to seek recovery of sums paid as deposits, under the Law of Property Act 1925 s.49(2), and for a declaration that it was entitled to an equitable lien in priority to the claims of X's secured or preferential creditors. X owned a processing plant but had gone into administration. There were two potential purchasers of the plant, L and another company (G). L was the preferred bidder and a contract was agreed. L made a payment of £800,000 plus VAT on exchange as a "non-refundable deposit" with the balance of £1,100,000 plus VAT payable on completion. L failed to complete. X successfully applied for delivery up of possession. L made a further payment of £500,000 plus VAT, by way of a non-refundable deposit reducing the price on completion. L again failed to complete on time and X rescinded the agreement. L sought return of the deposits on the basis that they were unlawful penalties. The principal issue to be determined was whether the deposits, which amounted to nearly 60 per cent of the purchase price, were arguably recoverable by L.

Held

(1) The onus was on X to satisfy the court that the deposits were no more than a reasonable earnest to encourage L to perform the agreement. As it was a summary application, the court also had to be satisfied that L's argument had no real prospect of success. The evidence and factors put forward by X in support of their case were considerably stronger than L's, including the fact that the parties were agreeing commercial terms in a commercial context and there was no reason why they should not be held to their bargain. Moreover, had the deposits not been offered, X might well have terminated their negotiations with L and sought to secure a contract on similar or more favourable terms with G, which supported the conclusion that they were reasonable deposits. However, as there was conflicting evidence, L had at least an arguable case that the deposits were not reasonable deposits. It was not an issue on which the instant court could reach a definitive conclusion and the matter would therefore be determined at trial (see paras 53-61 of judgment). (2) Where an innocent party was seeking to retain money transferred to it as part-performance of the other party's obligations under a contract, the correct approach was to look at the position after the breach, when the innocent party was enforcing the forfeiture, and ask whether in all the circumstances it would be unconscionable to allow the forfeiture to take effect, Else (1982) v Parkland Holdings [1994] 1 B.C.L.C. 130 applied. The court was exercising its discretion as to whether to grant equitable relief. There was a clear distinction between claims to payment and forfeiture. An unreasonable deposit was a sum paid over prior to breach, not one payable as a consequence of breach. The two situations were governed by different principles. Where there was a provision requiring forfeiture of monies already paid by way of part-payment on the occurrence of the forfeiting event, relief from forfeiture might be available in equity as a matter of discretion if, and to the extent that, it would be unconscionable to allow the forfeiture to take effect. That involved a consideration of the circumstances prevailing at the date of breach when the right to forfeit had arisen and the extent to which the vendor had suffered loss as a result of the breach, Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] A.C. 573 considered. However, although there was force in X's argument that forfeiture of the deposits was not unconscionable, the instant court was unable to determine the issue on a summary basis as a dispute regarding the valuation of the property was also an issue to be determined at trial (paras 75-82). (3) Even if the deposits were for more than a reasonable earnest, no question of penalty arose. In principle, therefore, X were entitled to forfeit the sums provided to them by way of deposit subject only to the court's discretionary power to grant relief from forfeiture. The statutory jurisdiction conferred by s.49(2) enabling the court to order the repayment of all or part of the deposits did not give rise to any additional considerations to those which applied to the equitable jurisdiction to relieve against forfeiture, Midill (97PL) Ltd v Park Lane Estates Ltd [2008] EWCA Civ 1227, [2009] 1 W.L.R. 2460 considered (paras 83-88). (4) A purchaser's lien was an equitable invention introduced in order to do justice as between vendor and purchaser. On the facts, there was no doubt that L was in default and that X bore no responsibility for L's breach. There were therefore no circumstances in which it would be appropriate for equity to allow L to have the benefit of a purchaser's lien for the return of the deposits, Whitbread & Co Ltd v Watt [1901] 1 Ch. 911 applied. Even if the conclusion that the deposits did not constitute unlawful penalties was wrong, L's unjust enrichment claim had no prospect of success because it had too fragile a foundation. L's claim was an unsecured claim which ranked after any secured creditor (paras 89-103).

Judgment accordingly

Chancery Division (Leeds)
Mr Andrew Sutcliffe QC
Judgment date
21 July 2011
References

LTL 24/11/2011 : [2012] 1 All ER (Comm) 764 : [2011] EWHC 3774 (Ch)

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