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Commercial Litigation : Sharma v Simposh Ltd [2011]

February 6, 2012

Sharma v Simposh Ltd [2011] EWCA Civ 1383

A recent commercial Litigation case is that of Sharma v Simposh Ltd [2011]. The claimants paid a deposit to the defendant of £55,000 which was non refundable in exchange for a promise that the defendant would complete construction of a development and an option to purchase the flats at an agreed valuation. The defendants to complete the development within an agreed time and not to market the property elsewhere.

There was a downturn in the market and the claimants decided not to exercise the option and sought to reclaim the deposit arguing that there was no enforceable contract.

The claimant succeeded at trial at first instance on the basis that the payments made under void contracts are generally recoverable. They relied on Section 2 Law of Property (Miscellaneous Provisions) Act 1989 which provides that land contracts must be in writing.

The matter went before the Court of Appeal.

The Court of Appeal considered the question to be asked was whether there had been a failure of consideration entitling the claimants to restitution on the facts found by the judge.

It is usually the case that the deposit paid under an oral agreement for land would be recoverable if the sale doesn’t proceed as the expected transaction has not take place.

In this case however the court held that the claimants had received what they paid for namely Simposh had taken the property off the market pending completion and kept open his offer to sell to the claimant at a fixed price.

The fact that agreement was void for not complying with the law of property act didn’t mean that the property in the deposit could not pass to the defendant.

It was said by the Court of Appeal,

‘The fact that property was intended to pass and did pass does not, of course, exclude the possibility of a claim for restitution, but such a claim depends on the claimant being able to establish a recognised ground of restitution. In this case the only suggested ground is failure of consideration. Since the claimants obtained the benefit for which the payment was made, there is no merit in their claim and no injustice in the defendant retaining the money. The justice of the matter is entirely on the defendant’s side.’

Wherever there is an agreement under which a deposit is paid it is important to make clear in a document the precise circumstances in which the deposit is repayable. The absence of such will often lead to disputes both as to the basis upon which a deposit was paid and those circumstance in which it might be repayable.

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