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Hardy v Griffiths [2014] EWHC 3947

Published May 2015

A Salutary Tale about Deposits: Hardy v Griffiths [2014] EWHC 3947

Jonathan Seitler QC acted for the successful claimant

Hardy v Griffiths [2014] EWHC 3947 is a reminder about the unique treatment of a 10% deposit in land transactions and the difficulties for a purchaser who seeks return of a deposit, which the vendor seeks to forfeit.

As was said by Carnwath J in Midill (97PL) Ltd v Park Lane Estates Ltd [2008] EWCA Civ 1227, a contractual provision for a deposit on the sale of land is a long-established – albeit anomalous – exception to the ordinary principles governing penalties in contract.

The position was set out by Lord Browne-Wilkinson in Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573:

“Ancient law has established that the forfeiture of such a deposit (customarily 10% of the contract price) does not fall within the general rule and can be validly forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract … Even in the absence of express contractual provision, it is an earnest for the performance of the contract: in the event of completion of the contract the deposit is applicable towards payment of the purchase price; in the event of the purchaser’s failure to complete in accordance with the terms of the contract, the deposit is forfeit, equity having no power to relieve against such forfeiture”.

A deposit, in other words, has all the characteristics of a penalty, in particular, if a purchaser in breach is forced to forfeit its deposit, its quantum may well – indeed in a rising market is likely to – outstrip the vendor’s loss as a result of that breach.

Correcting that apparent injustice was what s.49 Law of Property Act 1925 was meant to address, as appears from Sir Benjamin Cherry’s commentary (in Wolstenholme & Cherry’s Conveyancing Statutes, 12th ed (1932)).

However, in practice establishing ground rules s.49 is often an uphill struggle for a purchaser, especially one in breach of contract for failing to complete.

In Hardy v Griffiths, the vendor could not prove any loss as a result of the purchaser’s failure to complete yet sued the purchaser both to retain the sum already paid by way of deposit and to top it up to 10%.

Both claims succeeded. The contract incorporated the Standard Conditions of Sale (Fourth Edition). Standard Condition 6.8.3(b) meant that because the buyers had paid a deposit of less than 10%, they were under an obligation to pay a further deposit, equal to the balance of 10%, on receipt of a notice to complete. The further deposit was held not to be a further instalment of the purchase price, even though the claim to it arose at the end of the process, rather than the beginning.

And the Judge was unimpressed with reliance on s.49, particularly as it was not pleaded. She held that the purchasers could not rely on s.49 as they had not pleaded a claim for the return of the deposit but said that even if it had been pleaded, there was nothing special or exceptional in the case which would have justified its return. That is now the test following Midill.