Lee et Al v Affif
| Jurisdiction | Belize |
| Judge | Meerabux, J. |
| Judgment Date | 06 April 2000 |
| Court | High Court (Belize) |
| Docket Number | 402 of 1997 |
| Date | 06 April 2000 |
High Court
Meerabux, J.
402 of 1997
Mr. R. Williams S.C. for the plaintiffs.
Mr. E. Flowers S.C. for the defendant.
Contract - Agreement for the sale of land — Deposit paid by purchaser — Agreement contained clause stipulating that the deposit was to be forfeited as liquidated damages for breach of contract — Failure of deceased to pay balance of purchase price — Deposit forfeited by defendant — Whether the deposit of US$ 100,000 was a penalty or liquidated damages — Whether the plaintiffs could recover the deposit — Finding that there were special circumstances in the case which existed when the equity of restitution was invoked which justified the forfeiture of the deposit and the vendor's conduct was not unconscionable.
By this summons the plaintiffs claim the following reliefs, namely:
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(1) A declaration that the sum of $100,000.00 currency of the United States of America paid by the purchaser to the vendor is a penalty.
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(2) A declaration that the purchaser is entitled to relief from forfeiture.
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(3) An order that the vendor return the sum of $100,000.00 currency of the United States of America to the purchaser with interest.
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(4) That the cost of this application be for the plaintiffs.
The undisputed facts in this case are as follows:–
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(a) The plaintiffs are the personal representatives of Ching Hsien Chiu, deceased.
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(b) By an agreement in writing dated April 11, 1995 between Jabbour Affif and the deceased, the deceased agreed to purchase premises at No.22 Gabourel Lane, Belize City for US$300,000.00.
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(c) It was a term of the agreement that a deposit of US$100,000.00 be paid on signing the agreement and the balance of US$200,000.00 be paid on or before May 11, 1995. The deposit was duly paid to the defendant.
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(d) It was also a term of the agreement that, should the deceased fail to perform or observe the stipulations on his part in the agreement, his deposit shall be forfeited to the defendant as liquidated damages for breach of contract.
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(e) The deceased did not pay the balance of US$200,000.00 and the defendant forfeited the deposit of US$100,000.00.
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(f) The deceased was let into possession of a portion of the premises.
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(g) It was a term of the agreement that the defendant was to repair and paint the roof of the premises and paint the interior and exterior before May 11, 1995. There is dispute as to whether this was done in time or at all.
The attorney for the plaintiffs' written submissions may be summarised as follows:
- O.61, r.1 of the Supreme Court Rules permits this application to be commenced by Originating Summons. 2. The sum of US$100,000.00 is a penalty which should not be forfeited but returned to the deceased with interest. 3. Section 59 of the Law of Property Act, Chapter 154 gives the court a discretion to order the repayment of the deposit and referred to the case of Universal Corporation v. Five Ways Properties Ltd.[1979] 1 All E.R. 352 which gives the court this power to be exercised when the justice of the case requires it. 4. At Common Law the general rule is that a sum deposited for breach of contract is to be forfeited.
In equity, the agreed sum is recoverable only if it constitutes liquidated damages — a genuine pre— estimate of the damage which arises from the breach of contract, but not if it is a penalty which is in the nature of a threat fixed in terrorem of the other party.
The following cases were referred to in support of these submissions –
Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co. [1915] A.C. 79 .
John H. Kilmer v. British Columbia Orchard Lands Ltd. [1912] A.C. 319 .
Commissioner of Public Works v. Hills [1906] A.C. 368 .
Steedman v. Drinkle [1916] 1 A.C. 275 .
Smith v. Jessef 1950 V.L.R. 230 .
The attorney for the defendant's written submissions may be summarised as follows:
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(1) The plaintiff was let into full possession of the premises;
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(2) The defendant complied fully with his undertaking to repair, paint the roof, the interior and exterior of the premises and further installed security grills to the premises at the plaintiffs request;
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(3) The plaintiff's family remained in possession of the premises after default in the payment of the balance of the purchase price vacating the premises in January, 1996;
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(4) At the request of the deceased plaintiffs widow, the defendant agreed to an extension of seven months after the balance of the purchase price was due;
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(5) Due to the depressed state of the real estate business in Belize the defendant was –
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(a) unable to sell the property, and
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(b) unable to rent the premises until May 1997, then for only six months, and the property has since remained vacant. The rental value for the upper floor is $2,500.00 and $1,500.00 for the lower floor.
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(6) By the plaintiffs failure to complete the sale, the defendant has incurred $48,000.00 expenses and at least $96,000.00 in lost rental.
The following cases were referred to as setting out the legal position as follows: Stockloser v. Johnson [1954] 1 Q.B. 476 and also in Mayne & McGregor on Damages 12th Ed. p.238.
Wallis v. Smith (1882) 21 Ch. D. 243 .
Hinton v. Sparks (1886) and Lock v. Bell (1931).
The cases of Public Works Commissioner v. Hills [1906] A.C. 368; Barton v. Capewell (1893) and Workers Trust & Merchant Bank v. Dujap Investment Ltd. (1993) 42 W.I.R. 253, are to be distinguished from the instant case.
Before dealing with the issue before me I must be satisfied this application can be dealt with by Originating Summons.
O. 61, r.1 of the Supreme Court Rules provide that: “Any person claiming to be interested under a deed, will, or other written instrument, may apply by Originating Summons for the determination of any question of construction arising under the instrument, and for a declaration of the rights of the persons interested.”
Furthermore, sec. 59 of the Law of Property Act provide that:
“(1) A vendor or purchaser of any legal estate or interest in land, or their representatives respectively, may apply in a summary way to court in respect of any question arising out of or connected with the contract (not being a question affecting the existence or validity of the contract), and the court may make such order upon the application as it thinks fit, and may order how and by whom all or any of the costs of and incidental to the application are to be borne and paid.
(2) Where the court refuses to grant specific performance of a contract, or in any Action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit.
(3) This section shall apply to contract for the sale or exchange of any interest in land.”
I am therefore satisfied that this application by Originating Summons is properly before the court and that by sec. 59 of the Law of Property Act the court has jurisdiction to deal with this issue.
B. I must deal with the issue before the court which is whether the purchaser may recover the deposit of US$100,000.00 which was forfeited by the defendant on the ground of non-payment of the balance of the purchase price.
In dealing with this issue, I must address my mind to the further issue of liquidated damages and penalties.
The learned author Ogus on the Law of Damages 1973 expressed this further issue on p.41 as follows:
“In the ordinary case where a sum of money is expressed to be payable on the breach of one or more obligations, the crucial question is whether such sum is to be regarded as “liquidated damages” or as “a penalty”. In the former case, the plaintiff can recover the sum; irrespective of his actual loss, while in the latter, he may recover only so much as will compensate him for his actual loss.”
In Dunlop Pneumatic Tyre Co. Ltd. v. New Garage & Motor Co. Ltd. [1915] A.C. 79 Lord Dunedin gave this classic distinction at p.86 as follows:
“The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage… The question whether a sum stipulated is penalty or liquidated damages are a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract.”
A modern view on the contractual provision of forfeiture for non-payment of the balance of the purchase price was set out by the learned law Lords in the Privy Council in the case of Workers Trust & Merchant Bank Ltd. v. Dujap Investments Ltd. (1993) 42 W.I.R. 253 at pages 256–257 as follows:
“In general, a contractual provision which requires one party in the event of his breach of the contract to pay or forfeit a sum of money to the other party is unlawful as being a penalty, unless such provision can be justified as being a payment of liquidated damages being a genuine pre-estimate of the loss which the innocent party will incur by reason of the breach. One exception to this general rule is the provision for the payment of a deposit by the purchaser on a contract for the sale of land. Ancient law has established that the forfeiture of such a deposit (customarily 10 per cent 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.”
This exception is anomalous and at least one textbook writer has been surprised that the courts of Equity ever countenanced it: see Farrand Contract and Conveyancing (4th Edn.)...
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