FRANZ JOSEF ADICK v. GROSVENOR INTERNATIONAL HOLDINGS LTD

HCA 1347/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1347 OF 2012

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J U D G M E N T

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Introduction

1.  In these proceedings, the plaintiff (“Mr Adick”) sues to recover two sums described as “deposits” totaling £350,000 paid to the 1^st defendant (“Grosvenor”) in 2007 in relation to the purchase of three residential units in a development in East London known as “Frances Wharf”. The deposits were paid under two “Purchase Agreements” which were in identical terms, save as to the identification of the relevant residential units and the prices and the deposit to be paid in respect thereof.

2.  The first “Purchase Agreement” (“the May Purchase Agreement”) bears the date of 15 May 2007.  It was signed on behalf of Grosvenor on the date it bears and by Mr Adick on 18 May 2007.  The “deposit” paid under this agreement was in respect of unit no 3.07 and was in the sum of £100,000. The second “Purchase Agreement” (“the September Purchase Agreement”) bears the date of 18 September 2007.  It was signed on behalf of Grosvenor on the date it bears and by Mr Adick on 6 December 2007.  The “deposit” paid under this agreement was £250,000 and was in respect of units 1.08 and 4.04.

The factual background

3.  Grosvenor is a company incorporated in Hong Kong which carries on the business of developing and marketing residential properties, mainly in London.  The marketing of the properties is undertaken by Grosvenor through its offices and associate offices in Hong Kong, Dubai and London.

4.  Where the properties are new properties in the course of construction by a developer, Grosvenor uses a wholly owned BVI special purpose vehicle (“BVI Co”) to buy from the developer the units it proposes to market and it then sells those units to investment purchasers who purchase the unit or units in question by way of an assignment of BVI Co’s rights under its purchase contract with the developer.  This assignment is called a “Sale and Purchase Agreement”.  At the same time, the ultimate purchaser enters into a deed of covenant under which it covenants to BVI Co to perform BVI Co’s obligations under its contract with the developer.  The Sale and Purchase Agreement contemplates completion of the assignment by way of a deed in prescribed form separately executed by BVI Co and the purchaser.  The price paid by the purchaser exceeds that paid to the developer by BVI Co; so it is that Grosvenor makes its turn from the sale of the properties.

5.  On occasion, Grosvenor agrees that firms that introduce purchasers can use a nominated company (“A Co”) to be party to an intervening Sale and Purchase Agreement between the agreement concluded by the developer and BVI Co and the Sale and Purchase Agreement concluded with the ultimate purchaser.  In this case the deed of covenant entered into by the ultimate purchaser is in favour of BVI Co and A Co.

6.  The developer building the Frances Wharf development was London and Limehouse Developments Ltd (“LLDL”).  The BVI Co used by Grosvenor for selling the units was Corragin Group Ltd (“Corragin”). This company was wholly owned by Grosvenor and had issued capital of US$1.00.  On 25 February 2011, Corrigan was removed from the BVI register of companies for non‑payment of fees.

7.  Mr Adick was introduced to the Frances Wharf development by his then financial advisers, Allied International Ltd (“Allied”), a company incorporated in Hong Kong.  The two individuals he dealt with at Allied were Mr Barry Scott and Mr Geraint Facey‑Richards.  Mr Scott and Mr Facey‑Richards advised Mr Adick that the units for sale at Frances Wharf would be a good investment.

8.  In 2005 and 2006, on the recommendation of Mr Scott, Mr Adick had previously agreed to purchase a flat in each of those years as an investment in two developments marketed and promoted by Grosvenor.  The flat purchased in 2005 was in a development called “Norway Wharf”; the flat purchased in 2006 was in a development called “Central Apartments”.  In each case, Grosvenor permitted Mr Scott to insert a company he owned and controlled respectively, Taekman Group Ltd (“Taekman”) and Fine Sight Ltd (“Fine Sight”), into the contractual chain extending from the head contract of purchase and sale made between the developer and BVI Co, with the result that it was through assignment contracts with Taekman and Fine Sight that Mr Adick acquired the flats in question.

9.  Mr Adick’s solicitors for these two purchases were Farrer & Co (“Farrers”).  Purchasers of flats in Norway Wharf and Central Apartments were offered the opportunity of appointing Farrer & Co to act for them for an agreed fee.  Prior to completing each of the purchases, Mr Adick was sent by Farrers a Report on Title, following which Mr Adick signed a document that stated that he had received and was satisfied with Farrers’ letters of 27 July 2005 and authorized Farrers to countersign the Sale and Purchase Agreement and proceed to an immediate exchange of contracts.

10.  Mr Adick testified that he thought he was buying the flats in Norway Wharf and Central Apartments from Grosvenor and that he was not told of Mr Scott’s interest in the investments he was making.  I found Mr Adick to be an honest and for the most part reliable witness and I accept his evidence as to the first of these matters.  I also found his evidence as to the second matter to be credible but I make no finding as to this because I did not hear from Mr Scott and this issue is not germane to the question to be decided in this trial.[1]

11.  On 3 May 2007 and thus prior to signing the May Purchase Agreement, Mr Adick signed a Reservation Agreement (Subject to Contract) in respect of unit 3.07 in the Frances Wharf development that was expressed to be between himself and Villiera Group Ltd (“VGL”).  This document was created by Mr Scott.  At the top of the document appear the words “GROSVENOR INTERNATIONAL HOLDINGS Ltd” in bold type.  The agreement provided that VGL wished to grant to Mr Adick (“the Purchaser”) the right to contract to buy unit 3.07 for £475,000 and was signed by Mr Scott on behalf of VGL.  In fact, unknown to Mr Adick, Mr Scott inserted the name Villiera Group Ltd by mistake.  His true intention was to specify Bladen Group Limited (“Bladen”) as Mr Adick’s counterparty, Bladen being a BVI company Mr Scott owned and controlled.

12.  I accept Mr Adick’s evidence that he thought the vendor under the sale and purchase contract contemplated by this Reservation Agreement would in fact be Grosvenor.

13.  Also on 3 May 2007, Mr Adick signed a document appointing Farrers to act as his solicitors in respect of his purchase of unit 3.07. Again, it was part of Grosvenor’s marketing strategy to persuade purchasers to appoint a particular firm of solicitors with whom Grosvenor had a prior arrangement under which purchasers would be charged a fixed fee.

14.  The next contractual document Mr Adick signed was the May Purchase Agreement dated 15 May 2007.  The wording of this document was as follows:

“GROSVENOR
International Holdings Ltd.

PURCHASE AGREEMENT

Date: 15^th May, 2007

This agreement is between:

Mr. Franz Josef Adick

AND

2. GROSVENOR INTERNATIONAL HOLDINGS LIMITED(G.I.H.L.) of 2001–3 Centre Point, 181–185 Gloucester Road, Wanchai, Hong Kong.

NOW IT IS HEREBY AGREED AS FOLLOWS:

1. Agreement

1.1 Client agrees to purchase unit no. 3.07 in the development known as 303 Burdett Road, London EC14 7EL for the price of £475,000.00.

1.2 Mr. Franz Josef Adick agrees to provide a deposit, in the sum of GBP100,000.00 (One Hundred Thousand Pounds Sterling), to purchase the above unit in a development known as 303 Burdett Road, London EC14 7EL, United Kingdom.

1.3 Interest on his deposit at the rate of 15 per centum per annum or part thereof for the first eighteen months from the date of receipt of monies and then 5% for the remainder of the term (pro rata for any part year). The interest is payable on the completion of the development.

2. Miscellaneous

2.1 This agreement shall be binding upon the parties hereto, their assigns, successors in title and personal representatives respectively.

2.2 No variation to this agreement shall be effective unless made in writing and agreed by all the parties hereto.

2.3 Mr. Franz Josef Adick will pay by telegraphically transfer the amount of GBP100,000.00 to Grosvenor International Holdings Limited bank account with the Bank of Scotland on signing this agreement, or on whatever date is mutually agreed.

2.4 This agreement is governed and construed by Hong Kong law.

 

I HEREBY AGREE TO THE ABOVE IN WITNESS WHEREOF
the parties hereto have hereunto set their hands the day and years first above written.

Signed: Franz Josef Adick      Signed: Grosvenor International Holdings ”

15.  Sometime after he had signed this document, Mr Adick saw a brochure produced by Grosvenor that described the development and included, inter alia, a picture of what the development would look like on completion.  Grosvenor’s name appeared prominently on the front page which announced that 62 residential units with different numbers of bedrooms ranging from 1 to 3 were for sale at prices between £335,000 and £750,000, the tenure being 999 leaseholds.

16.  As of the dates on which the May Purchase Agreement was signed by Grosvenor and Mr Adick, respectively 15 May and 18 September 2007, none of the contracts by which Grosvenor and Allied contemplated Mr Adick would become the owner of unit 3.07 had been signed.  I accept Mr Adick’s evidence that when he signed the May Purchase Agreement he thought that he was agreeing to buy unit 3.07 from Grosvenor.

17.  As stated in paragraph 6 above, the BVI Co used by Grosvenor to sell the Frances Wharf units was Corragin.  On 8 June 2007, Corragin contracted to purchase from LLDL 999 year leases of 62 units in the FrancesWharf development which were to be on the terms and conditions previously agreed between the parties and signed in May 2007, with completion to take place 10 days after the Inspection Date specified in a notice to be givenafter 15 November 2008.  Clause 2.8 of the agreement (“the LLDL/Corragin agreement”) provided that:

“...If completion of the unit had not been completed for any reason by 31 December 2009, the Buyer [Corragin] only may then serve at any time thereafter seven days prior written notice upon the Seller to rescind this Contract whereupon the provisions of Standard Condition 7.2 shall apply but the Seller shall not be required to pay interest to the Buyer. ...”

Clause 17 stated that the Buyer had the right to assign the agreement provided that all deposits due to be paid by the Buyer to LLDL had been paid.

18.  Previously, on 4 June 2007, Mr Adick had transferred to Grosvenor’s bank account £100,000 in payment of the “deposit” due under the May Purchase Agreement and on 6 June 2007 Grosvenor transferred £100,000 to the account of Corragin’s solicitors (“Riseam Sharples”).

19.  On 26 July 2007, Bladen, acting by Mr Scott, entered into a Sale and Purchase Agreement with Corrigan by which Bladen agreed to purchaseby way of assignment to be completed by the execution of a deed in prescribed form Corrigan’s rights in respect of unit 3.07 under the LLDL/Corrigan agreement (called “the Contract” in the agreement).  The price payable by Mr Adick was £425,850, of which £84,170 was to be paid by way of a deposit.  By clause 10.1, Bladen (the Buyer) acknowledged that it took the benefit and the burden of the contract and agreed to complete the Corrigan/LLDL contract simultaneously with completion of the Sale and Purchase Agreement on the completion date. Clauses 18.1 and 18.2 provided that the Buyer was entitled to assign the Sale and Purchase Agreement, in which event it was to procure the further assignee to enter into a Deed of Covenant direct with the Seller (Corrigan).

20.  Also on 26 July 2007, Bladen, again acting by Mr Scott, entered into two further Sale and Purchase Agreements with Corrigan by which respectively Bladen agreed to purchase by way of assignment Corrigan’s rights under the LLDL/Corrigan agreement in respect of units 4.04 and 1.08.  Save for the specification of the units involved and the prices and deposits payable, these agreements were on the same terms as the unit 3.07 Sale and Purchase Agreement.  The deposit payable by Bladen in respect of unit 1.08 was £77,968 and in respect of unit 4.04, £85,056.

21.  On 13 August 2007, Mr Adick signed two Reservation Agreements, one for unit 1.08 at a price of £440,000, and the other for unit 4.04 at a price £480,000.  Save for the specification of the units and the prices, these documents were identical to the Reservation Agreement Mr Adick signed on 3 May 2007 in respect of unit 3.07.  I accept Mr Adick’s evidence that when he signed these documents he believed that Grosvenor would be his vendor.

22.  Also on 13 August 2007, Mr Adick appointed Ian Brand Solicitors (“Ian Brand”) in place of Farrers to act for him on his purchases of the three units.

23.  Sometime around 14 September 2007, Ian Brand sent Mr Adick a letter bearing that date containing a report on his proposed purchase of unit 4.04. This report explained, inter alia, that Mr Adick was to acquire the unit by taking an assignment from Bladen of the latter’s rights under its contract with LLDL.  The report also stated that the estimated completion date was late 2008 / early 2009 and that the term was 999 years from 25 December 2006.

24.  On or shortly after 18 September 2007, Allied presented to Mr Adick for his signature the September Purchase Agreement which had already been signed on that date on behalf of Grosvenor.  As stated above, the wording of this document was identical to that of the May Purchase Agreement save that: (i) the units and prices referred to in clause 1.1 were nos 1.08 and 4.04 and £440,000 and £480,000 respectively; and (ii) the “deposit” referred in clause 1.2 was £250,000.

25.  Mr Adick was at first reluctant to sign the September Purchase Agreement and did not do so until 6 December 2007.  Prior to that date, he received two letters from Ian Brand dated respectively 14 and 24 October 2007 that reported on the proposed Sale and Purchase assignment agreements with Bladen for the purchase of units 1.08 and 4.04.  The wording of these reports was substantially identical to that of the Ian Brand report on unit 3.07 dated 14 September 2007.  On 2 December 2007, Mr Adick signed three documents addressed to Ian Brand which respectively referred to the reports he had received on units 1.08, 3.07 and 4.04 and in which he stated that he was satisfied with those reports and authorized Ian Brand to countersign the applicable Sale and Purchase Agreement for each of the three units and proceed to an immediate exchange of contracts.

26.  Mr Adick finally signed the September Purchase Agreement on 6 December 2007 having been persuaded to do so by Messrs Scott and/or Facey‑Richards.  He said in cross‑examination that he had finally been persuaded to sign this document at a meeting he had on 3 December 2007 with Mr Scott, Mr Facey‑Richards and a Mr Stuart Billing of Grosvenor.  He told the court on the second day of his evidence that overnighthe had looked at his files and found a reference to a diary entry for 3 December 2007.  No mention was made of this meeting in either of his two witness statements and his diary was not produced to the court.  In these circumstances, I am unable to conclude that Mr Adick’s evidence about this meeting, although honestly given, is sufficiently reliable for it to be accepted.

27.  On 6 December 2007, Mr Scott and or Mr Facey‑Richards presented Mr Adick with three sets of documents relating to each of his purchases of the three Frances Wharf units.  Each of the sets of documents consisted of: (i) a Sale and Purchase Agreement between Mr Adick and Bladen by way of an assignment (to be completed by a notice in a prescribedform) of Bladen’s rights under its Sale and Purchase Agreement with Corrigan; and (ii) a deed of covenant in favour of Bladen and Corrigan obliging Mr Adick to perform the obligations owed by Bladen to Corrigan under the Bladen/Corrigan Sale and Purchase Agreement (referred to in the deed as “the Contract”).

28.  Under the Bladen/Adick Sale and Purchase Agreements, a deposit of £1 was payable and there was provision for the payment of such further deposits as were agreed.  Clause 7 provided that if the Assignee (Mr Adick) did not complete the purchase of the property from the Developer(LLDL), the Assignor (Bladen) shall have the right to terminate the Agreementand thereupon be entitled to retain the deposit paid thereunder.  Clause 8.2 provided that the Assignor will act on the written instructions of the Assignee in relation to matters on which the Assignor has a discretion referred to in the Agreement between Bladen and Corrigan.

29.  Under clause 3 of the Deed of Covenant, the Assignee (Mr Adick) contracted, if he failed to complete the purchase of the property, to pay all costs and expenses incurred by the Seller (Corrigan) in connection with completing the purchase of the property from the Developer under the Contract including any penalty interest and legal fees incurred which the Assignor (Bladen) does not pay to the Seller.

30.  I accept Mr Adick’s evidence that, with the exception of the September Purchase Agreement, he gave these documents only scant attention and signed them in reliance on the assurance of one or both of Mr Scott and Facey‑Richards that the documents were “standard documents”, had been checked by the lawyers and he could safely sign them.

31.  On the same day that he signed all the above documents (6 December 2007), Mr Adick paid the £250,000 “deposit” due under the September Purchase Agreement by remitting that sum to Grosvenor’s bank account.  On 11 December 2007, Grosvenor transferred £250,000 to Corrigan’s solicitors, Riseam Sharples.

32.  Mr Adick testified that it was only after he was advised by new lawyers appointed in 2010 that he came to know that Grosvenor had been paid the deposits in circumstances where Bladen was the vendor, not Grosvenor, and the deposits had been paid by Grosvenor to Corrigan.  In my judgment, it is likely (and I so find) that he saw that he was party to contracts with Bladen when he was presented with the three sets of documents on 6 December 2007 and when he received the Ian Brand reports on his purchases of the three units.  However, I accept his evidence that throughout he thought that his true vendor was the party to whom he paid the deposits under the May and September Purchase Agreements, namely, Grosvenor.

33.  In about April 2009, LLDL went into Administration and construction work on the Frances Wharf development was suspended.  At about this time, it had become clear that Mr Adick was very unlikely to be able to find financing to complete on his three Sale and Purchase Agreements with Bladen.  This was the time of the UK credit crunch and Mr Adick’s age (63 years) counted heavily against him.

34.  By mid‑December 2009, it appeared to Mr Adick that possession of the three units he had agreed to purchase would not be delivered by the end of December 2009, the date Allied had told him to expect completion.  He had also come to the view that the Frances Wharf development was not the attractive investment he had thought it was; in his opinion it was located in a poor area surrounded by factories and public housing blocks.  Allied had also failed to find financing to fund the three purchases.  With these considerations in mind, Mr Adick decided not to proceed with the Sale and Purchase Agreements with Bladen and instructed Ian Brand to issue notices of rescission of all three of these agreements.  The notices were served by Ian Brand on 6 January 2010 on Bladen, Corrigan and LLDL rescinding the three Sale and Purchase Agreements between Mr Adick and Bladen.  They were served in contemplation of clause 2.8 of the LLDL/Corrigan agreement but they made no reference to this provision. All of the parties on which they were served rejected the notices. The reason given for this response by Riseam Sharples, Corrigan’s solicitors, was that there was no contract between Corrigan and Mr Adick and there was no right to rescind by sub‑purchasers under Corrigan’s contracts.  In an email dated 26 January 2010 Ian Brand stated to Mr Adick:

“The contract between the developer and the original buyer does not place an obligation on it to complete the building within a specific time. It does however give the buyer the right to rescind if completion does not take place by the 31 December 2009. The contract between you and Bladen provides for the assignment of their contract with London & Limehouse to take place immediately prior to completion of the lease of the flat. Accordingly, at this stage only Bladen [sic] [Corrigan] can serve notice canceling the contract and, in view of the sub‑sale contract, they are unlikely to do so.”

35.  In or around July 2010, Mr Facey‑Richards informed Mr Adick that a notice of completion of all three Sale and Purchase Agreements would be served soon, whereupon Mr Adick would have to pay the balance of the total purchase price.  Given Mr Adick’s difficulty in obtaining finance, Mr Facey‑Richards said he would attempt to reach an agreement with Grosvenor that the May Purchase Agreement would be rescinded, relieving Mr Adick of his obligation to complete the purchase of unit 3.07.

36.  On or around 31 August 2010, Mr Facey‑Richards informed Mr Adick by email that the Frances Wharf Development would be completed within 15 working days and Grosvenor would agree to release him from the purchase of unit 3.07 only if the deposit of GBP100,000 were forfeited as compensation for the resulting financial loss.  The next day, Ian Brand emailed Mr Adick telling him that notice of completion had been served with a completion date of 20 September 2010.

37.  By letter dated 15 September 2010, Grosvenor, acting by Mr Derek Smith, informed Mr Adick that it had “now credited Corrigan Group Ltd the amount of £250,000 plus interest earned of £78,898 up to 14^th September 2010, totaling £328,898 as per our contract dated 15^th May 2007 and 18^th September 2007 respectively for completion on Monday, the 20^th of September.”

38.  On 15 September 2010, a meeting took place at Mr Adick’s office in Tsim Sha Tsui attended by Mr Adick and his wife Monita, Mr Richards of Allied, and Mr Derek Smith and Mr Andrew Cameron of Grosvenor.  The meeting had been organised by Mr Richards in the hope that an agreement could be reached whereby Mr Adick completed on the units.  Mr Smith testified that Mr Adick’s wife dominated the meeting and, having angrily criticized Messrs Richards, Cameron and Smith, abruptly brought the meeting to an end without giving them a chance to outline any proposal they might have had.  In all, the meeting lasted only about 10 minutes.  In cross‑examination, Mr Adick maintained that the meeting was not dominated by his wife and that it was he who closed the meeting when it was clear the deposits were not going to be returned to him.  I found Mr Smith to be an impressive and reliable witness and I prefer his version of what happened at the meeting to that narrated by Mr Adick, whose evidence on this matter I find to have been tainted by a gallant desire to deflect criticism away from his wife.

39.  By a faxed letter to Riseam Sharples dated 17 September 2010, newly appointed solicitors (“AJLO”) acting for Mr Adick wrote to re‑affirm the rescission notices dated 6 January 2010 sent out by Ian Brand.  The letter went on to state that by those notices the agreements between Mr Adick and Bladen were rescinded on the basis that Bladen did not ensure that Mr Adick obtained the full benefit of the provisions detailed in the Head Agreement between Corrigan and LLDL and by failing to ensure that a rescission notice was served on LLDL.

40.  Either shortly before or on 20 September 2010, Riseam Sharples issued three completion statements to Bladen’s solicitors (Cripps Harries Hall) with regard to units 1.08, 3.07 and 4.04 which respectively gave credit for deposits in the sums of £164,583, £134,953 and £164,583.

41.  On 22 September 2010, Mr Smith informed Mr Adick by letter that Grosvenor had postponed the completion date of purchase of the three units from 20 September 2010 to 27 September 2010 and the two deposits totaling £350,000.00 would not be refunded to him since these moneys had already been transferred away to be used as deposits for the purchases of thethree units paid pursuant to the May and September Purchase Agreements.

42.  Also on 22 September 2010, AJLO wrote again to Riseam Sharples, this time stating that, by clause 8.2 in the Bladen/Adick Sale and Purchase Agreements, Mr Adick was entitled to and hereby did direct Bladen and all other authorised persons immediately to serve notice of rescission by reason of a breach of clause 2.8 of the LLDL/Corrigan Sale and Purchase Agreement.  AJLO also demanded on Mr Adick’s behalf the return of all the deposits he had paid.

43.  Finally, on 27 September 2010, Cripps Harries Hall on behalf of Bladen wrote to AJLO giving notice of termination of the Sale and Purchase Agreements between Bladen and Mr Adick and forfeiting the deposits “paid under the contracts”.  It was also stated in this letter that clause 8.2 in the Bladen/Adick Sale and Purchase Agreements did not extend to service of a notice of rescission and that clause 2.8 in the LLDL/Corrigan Sale and Purchase Agreement was personal to Corragin who choose not to exercise the right to rescind.

44.  In my judgment, the rescission notices served on 6 December 2009 and on 22 September 2010, were ineffective.  This is for at least two reasons.  First, the effect of the word “only” in clause 2.8 of the LLDL/Corrigan agreement is that the right to rescind thereby conferred is exercisable only by Corrigan and cannot be assigned.  Second, the effect of the Bladen/AdickSale and Purchase agreements is that no interest (not even an equitable interest)in Bladen’s contractual rights under its agreements with Corrigan could passto Mr Adick unless and until the prescribed Assignment Deed were executed, which was never the case.

The case advanced on behalf Mr Adick

45.  Mr Adick’s Amended Statement of Claim pleads that the deposits were recoverable in restitution, alternatively under a Quistclose trust, alternatively by way of a constructive trust.

46.  The pleaded restitutionary claim is advanced on the grounds that: (1) the basis and/or the condition upon which the deposits were paid had failed because (a) Grosvenor had never acquired title to the three units; alternatively (b) the May and September Purchase Agreements were void for uncertainty and incapable of having any legal effect; and (2) the deposits were paid under a mistake of fact, namely that Grosvenor was the vendor and/or the owner of the three units, when this was not the case.

47.  The pleaded grounds for the Quistclose trust claim are that the deposits were paid to Grosvenor for the purpose of advancing and/or settling payments in respect of the acquisition by completion of the three units, which purpose failed because Mr Adick did not complete his agreements to purchase the units.

48.  The pleaded ground of the constructive trust claim is that Grosvenor, not being the vendor of the three units, was not entitled to receive,retain or deal with the £350,000 as Grosvenor knew or ought to have known.

49.  At trial, the restitutionary claim based on an alleged mistake of fact and the constructive trust claim were abandoned.  Further, Mr Mok SC made clear his primary case was that the failure of consideration relied on for the restitutionary claim was the non‑materialisation of the contemplated basis of, or reason for, the payment of the deposits, namely, the completion by Mr Adick of his three Sale and Purchase Agreements with Bladen.

50.  Mr Mok cited paragraph 106 of Lord Toulson’s judgment in Barnes v Eastenders Cash and Carry plc [2015] AC 1 at p 42. In paragraphs 104 and 105 Lord Toulson noted that confusion is sometimes caused by the term “consideration” when used in the phrase “failure of consideration” as a reason for a restitutionary claim and noted the suggestion in The Law of Unjust Enrichment 8^th ed by Goff and Jones that “failure of basis” is preferable to “failure of consideration” because it accurately identifies the essence of the claim being pursued.  In paragraph 106 cited by Mr Mok, Lord Toulson said:

“ Failure of basis, or failure of consideration as it has been generally called, does not necessarily require failure of a promised counter‑performance; it may consist of the failure of a state of affairs on which the agreement was premised.”

51.  Citing Lord Wright’s speech in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at pp 64 – 65; Rover International Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912; and Ribeiro PJ’sjudgment in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234 at para 57,Mr Mok argued that a payment made under a contract concluded on the basis of the coming into existence of a certain state of affairs is conditional on the eventuation of that state of affairs and if that condition fails, the paymentis recoverable, even if the claimant has breached the contract, else the payee would be unjustly enriched to the extent that the payment exceeds any recoverable loss suffered by the payee arising from the payor’s breach.

52.  Mr Adick’s Quistclose trust case was founded on the principle articulated in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, namely, that where A advances money to B on the understanding that B is only to apply the money for a specific purpose, B holds the money in trust for A subject to a power to apply the money for the specific purpose, at whichpoint A’s beneficial interest in the money will cease, but otherwise B continues to hold the money on trust for A.  Applying that principle to the facts, Mr Mok submitted that the £350,000 was paid to Grosvenor for the specific purpose of the money going towards the purchase price of the three units upon completion of purchase agreements by Mr Adick and since Mr Adick did not complete any of the relevant purchase transactions, Grosvenor is bound to pay the sum back to Mr Adick under a resulting trust.

53.  At the invitation of the court, both parties were asked to set out their respective cases on the true meaning and effect of the May and September Purchase Agreements. In responding to this request, Mr Mok argued that clause 1.1 in the agreements created no binding obligation on Mr Adick to purchase the units in question because essential terms remained still to be agreed.  Further, there was no property being taken off the market.  It followed that the intention of the parties cannot have been that the “deposit” was an earnest of performance of a contractual obligation but should be seen only as an advance payment and as such it was not forfeitable on Mr Adick’s failureto complete, but was returnable to Mr Adick by way of a restitutionary remedy.

The case advanced on behalf of Grosvenor

54.  It was submitted by leading counsel for Grosvenor, Mr Joffe, that properly construed against the relevant factual background in accordance with the principles of construction propounded by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 – 913, the meaning and effect of the May Purchase Agreement was as follows:

(i) By clause 1.1 Mr Adick was under a binding contractual obligation to purchase unit 3.07 as a 999 year leasehold, notwithstanding that the vendor was not specified and other terms usually appearing in real property sale and purchase agreements such as completion date and freedom from encumbrances were not provided for.

(ii) Also by clause 1.1, Grosvenor was bound to procure a third party to sell unit 3.07 to Mr Adick; alternatively, Grosvenor was bound to sell unit 3.07 to Mr Adick or to procure a third party to sell the unit to Mr Adick.

(iii) By clause 1.2, Mr Adick was contractually bound to pay a deposit of £100,000 to purchase unit 3.07 which was in the nature of an earnest payment and therefore forfeitable in the event that Mr Adick failed to purchase the unit.

(iv) By clause 1.3, on completion of the Frances Wharf development, Grosvenor was obliged to pay interest on the £100,000 at the rate of 15% for the first 18 months from receipt of the monies and then 5% for the remainder of the term (pro rata for any part of the year).

(v) Grosvenor was free to transfer the deposit to the actual vendor of unit 3.07 or, if Grosvenor were the vendor, to use the deposit for itself.

(vi) In the event that Mr Adick’s purchase of unit 3.07 from a third party vendor could not proceed for reasons which were not Mr Adick’s fault, Grosvenor would not be obliged to refund the deposit nor have any residual liability in respect thereof because the agreement contemplated that Mr Adick would, on the primary construction, purchase from a third party, and that in those circumstances it was permissible and likely (if not inevitable) that the deposit would be paid to that party as the party requiring an earnest of performance.  On the other hand, on the alternative construction, if (additionally) Grosvenor were to be the vendor of unit 3.07, Grosvenor would be under an implied obligation to repay the deposit in these circumstances.

55.  Mr Joffe submitted that the relevant factual background included: (a) the prior purchases of the Norway Wharf and Central Apartments units that were part of developments marketed and promoted by Grosvenor; (b) the Deeds of Covenant, Deeds of Assignment and Sale and Purchase Assignments by which the Norway Wharf and Central Apartment purchaseswere made; (c) the Farrers’ reports on these purchases; and (d) the Reservation Agreement in respect of unit 3.07 signed by Mr Scott and Mr Adick on 3 May 2007.

56.  Mr Joffe further submitted that in light of this background a reasonable person in the shoes of Mr Adick would have known that (a) Mr Adick had not purchased the Norway Wharf and Central Apartments units from Grosvenor but from Taekman and Fine Sight respectively which were intermediate parties; (b) Mr Adick was not purchasing unit 3.07 from Grosvenor but from a party represented by Mr Scott; (c) since Grosvenor was marketing and promoting the Frances Wharf development, unit 3.07 was going to be sold to Mr Adick in the same overall way as the Norway Wharf and Central Apartments units had been sold, namely by way of an assignment of the rights to purchase involving two intermediate parties between him and the developer.

57.  As for the true construction of the September Purchase Agreement, Mr Joffe submitted that: (i) the factual matrix would be that applicable to the May Purchase Agreement, plus the steps taken towards the purchase of the three units that occurred after 18 May 2007 down to and including 6 December; (ii) by reason of these matters, a reasonable person in the position of Mr Adick would have understood that Grosvenor was not the vendor of the three units and would not be able to make good title to the units because Mr Adick was purchasing the units at the end of a contractual chain consisting of the head Sale and Purchase agreement between LLDL and Corrigan, the assignment agreement between Corrigan and Bladen and the assignment agreement between Bladen and Mr Adick.

58.  Construed against this background, the meaning and effect of the September Purchase Agreement was the same as that of the May Purchase Agreement, save that Grosvenor had no obligation itself to sell units 1.08 and 4.04 to Mr Adick but instead  was solely obliged to procure a third party to sell the units to Mr Adick

59.  Mr Joffe further submitted that since it was Bladen (by their solicitors) that forfeited the deposits paid by Mr Adick, it was Bladen against which any claim for repayment of the deposit made under the May and September Purchase Agreements should have been made if Mr Adick had any claim in that regard.

60.  In reply to Mr Adick’s restitutionary claim, Mr Joffe argued, relying on Shanghai Tongji Science & Technology Industrial Co Ltd v CasilClearing Ltd (2004) 7 HKCFA 79 at para 73, that Mr Adick could not show the necessary enrichment for his restitutionary claim to succeed because Grosvenor was merely an intermediate recipient or “mere conduit pipe” because the deposits were transferred by Grosvenor to Corrigan which gave credit for them to Bladen which in turn gave credit for them to Mr Adick.

61.  Mr Joffe further contended that Mr Adick’s claim must fail because the May and September Purchase Agreements had not been terminated but were still subsisting.  He cited para 3‒13 of Goff and Jones The Law of Unjust Enrichment:

“Where there is a contract between the parties relating to the benefit transferred, no claim in unjust enrichment will generally lie whilst the contract is subsisting.”

62.  The learned authors go on to say that the justification for this principle proceeds on the basis that the law should give effect to the parties’own allocations of risk and valuations, as expressed in the contract (para 3‒16).

63.  It followed, argued Mr Joffe, that any remedy which Mr Adick might have against Grosvenor (assuming he has one which he does not) would be in contract, not unjust enrichment.

64.  Mr Joffe’s short point in response to the Quistclose trust claim was that on the true construction of the May and September Purchase Agreements, Grosvenor had the power to pay the deposits away to Corrigan and upon Mr Adick’s failure to complete the purchases of the three units, the deposits were forfeitable by the contracting party under those purchases (Bladen).

Discussion

65.  The determination of Mr Adick’s claims depends principally on the true meaning and effect of the May and September Purchase Agreements.

66.  It is common ground that these agreements must be construed in accordance with the basic approach articulated by Lord Hoffmann in the West Bromwich Building Society case, namely, that the court must ascertain the meaning which the agreements would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.  As Lord Neuberger observed in Arnold v Britton [2015] UKSC 36, that meaning has to be assessed in the light of the following considerations applying them in the order in which they are stated: (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the [contract], (iii) the overall purpose of the clause and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions (para 9).

67.  In addition, careful attention has to be given in my view to the first and  second of the seven factors Lord Neuberger sought to emphasise in Arnold v Britton, namely:

“First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, paras16 – 26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously tobe gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.” [17]

“Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicitiesin order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.” [18]

68.  The facts relevant to deciding what was the background knowledge reasonably available to the parties at the time the May Purchase Agreement incepted on 18 May 2007 include those set out in paragraph 53 above.

69.  It is also an irresistible inference, in my judgment, that: (i) the basic details of how the Frances Wharf development was to be marketed and sold, including the basic factual information contained in the brochure referred to in paragraph 15 above, were known by Mr Scott and/or Mr Facey‑Richards prior to 3 May when the first Reservation Agreement was entered into; and (ii) Mr Scott and/or Mr Facey‑Richards passed this information on when discussing with Mr Adick whether he should purchaseunit 3.07.  It follows that, in addition to the matters identified in paragraph 53, the facts relevant to background knowledge also include: (i) unit 3.07 was one of many units to be built as part of the Frances Wharf development; (ii) the Frances Wharf development was being marketed and promoted by Grosvenor and the units for sale consisted of apartments with one, two or three bedrooms at prices between £335,000 and £750,000, the tenure being 999 leaseholds with leases on identical terms and conditions with a ground rent of £250 per year; (iii) the development was expected to complete towards the end of 2008.

70.  Given all of these facts, I conclude that the relevant knowledge that was reasonably available to both parties when the May Purchase Agreement incepted was: (i) Grosvenor and Allied had been involved in marketing the Norway Wharf and Central Apartments developments and Mr Adick’s purchase of the units in those developments were made under contracts of assignment with Taekman and Fine Sight Ltd which were represented by Mr Scott and which had acquired by contracts of assignment the right to purchase the units contained in a head sale and purchase agreement made between the developer and another company which was not Grosvenor; (ii) unit 3.07 was a unit in the Frances Wharf development which was being marketed and promoted by Grosvenor with some involvement by Allied; (iii) the vendor of unit 3.07 specified in the 3 May 2007 Reservation Agreement (Subject to Contract) was not Grosvenor but VGL; (iv) the Frances Wharf development was being marketed and promoted by Grosvenor and the units for sale consisted of apartments with one, two or three bedrooms at prices between £335,000 and £750,000, the tenure being 999 leaseholds all containing the same terms and conditions (v) completion of the development was expected to be towards the end of 2008.

71.  It is important to note that the Frances Wharf development was a quite separate development from the earlier Norway Wharf and Central Apartments developments.  In particular, in respect of those latter developments,there were no agreements between Grosvenor and Mr Adick under which Mr Adick bound himself to pay a deposit to Grosvenor.  Instead, Mr Adick paid a deposit to Taekman and Fine Sight which deposits, unknown to Mr Adick, were transferred up the contractual chain to the BVI Cos.  Also, there was nothing in the first Reservation Agreement to suggest that the contemplated sale and purchase contract between VGN and Mr Adick would be one of a series of contracts cascading down from a head sale and purchase agreement under which the developer agreed to sell the units on offer.

72.  Accordingly, I do not think that a reasonable person in the shoes of Mr Adick on 18 May 2007 would have expected or contemplated that the contract by which he was to purchase unit 3.07 would be at the end of a contractual chain starting with a head sale and purchase agreement to be followed by a series of contracts by which the purchaser’s rights thereunderwere to be assigned, contract by contract, down to Mr Adick as the ultimate purchaser.

73.  The facts and circumstances known to the parties at the inception of the September Purchase Agreement were those known at the time of the May Purchase Agreement, plus the following: (1) units 1.08 and 4.04 were to be purchased by Mr Adick under the Sale and Purchase Agreements he concluded with Bladen and the Deeds of Covenant he signed in favour of Bladen and Corrigan; and (2) there was a chain of contracts by which Corrigan’s rights under the LLDL/Corrigan agreements in respect of units 1.08, 3.07 and 4.04 were assigned to Bladen and then on to Mr Adick.

74.  In construing the two Purchase Agreements, it is important to note that they say nothing about Grosvenor promising to sell units 1.08, 3.07 and 4.04 to Mr Adick in exchange for his promises to purchase the units and pay the stipulated “deposits”.  Nor is anything said about Grosvenor acting as agent, whether for the vendor of the units, or otherwise. Putting for the moment on one side the construction of the word “deposit”, the meaning and effect of the two Purchase Agreements in my opinion is the same and is as follows.  In exchange for Grosvenor’s promise to pay interest at the stipulatedrates for the stipulated periods and a promise by Grosvenor to pay at completion of the purchase of the units a sum equivalent to the deposits towards the purchase prices due from Mr Adick, Mr Adick promises to pay the deposits to Grosvenor in the stipulated sums of £100,000 and £350,000.

75.  In my judgment, Mr Adick’s promises to purchase the units were enforceable promises, subject only to an implied term that the Frances Wharf development would be completed and within a reasonable time.  The units in question and their prices are identified and both sides knew and must be taken to have agreed that the tenure was to be a 999 year leasehold at a ground rent of £250.  No vendor is identified but both sides knew at the time of the May Purchase Agreement that unit 3.07 was available for sale and had been reserved for Mr Adick in contemplation of a purchase from VGL; and at the time of the September Purchase Agreement, both sides knew that Mr Adick had contracted, or was about to contract, to purchase units 1.08 and 4.04 from Bladen and that those contracts were at the end of a chain of contracts beginning with the head sale and purchase agreement under which Corriganwas the purchaser.  As to the terms and conditions of the lease to be acquired in respect of the units, in the case of unit 3.07, these were to be the terms and conditions contemplated for all the units being marketed by Grosvenor from Corrigan; and in the case of units 1.08 and 4.04, these were to be the terms and conditions agreed between LLDL and Corragin as stated in the LLDL/‌Corrigan agreement.  As to the completion date, this would be held tobe following the passage of a reasonable period of time taking into account that the development was still in the course of construction with a projected completion date towards the latter end of 2008.

76.  I reject Mr Mok’s submission founded on the decision of the Court of Final Appeal in Kwan Siu Man Joshua v Yaacov Ozer (1997–98) 1 HKCFAR 343 that there were too many outstanding terms to be agreed for Mr Adick’s promises to purchase the units to be enforceable obligations.  In my view, Yaacov is readily distinguishable. There, a very important reason for the decision was the volatility of the Hong Kong property market; it was also held that the trial judge should have found on the facts that the alleged “open contract” was not a final agreement because the parties were only ever at the negotiation stage and never reached a final agreement.  By contrast, in the instant case there is a written agreement signed by both parties headed “Purchase Agreement” and the property in question is not in Hong Kong but in London where the property market at the material time could not justifiably have been called volatile.

77.  I also reject Mr Joffe’s submission that there is to be implied into the May Purchase Agreement an obligation on Grosvenor to procure a third party to sell unit 3.07 to Mr Adick, or that Grosvenor is under an obligation either to procure a third party to sell the unit or itself to sell the property.  In my judgment, a reasonable reader of the contract, knowing all its provisions and the surrounding circumstances at the time the contract was made, would not consider these postulated terms to be so obvious as to go without saying or to be necessary for business efficacy; (see the approach adopted by the majority of the Supreme Court in Marks & Spencer plc vBNP Paribas Securities Services Trust Co (Jersey) Ltd and another [2015] UKSC 72 glossing Lord Hoffmann’s “construction” approach in AG of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 (PC)).

78.  In my judgment, Grosvenor was free under both Purchase Agreements to make such use of the “deposits” it received as it wished whilst at the same time remaining under an obligation at completion of the purchases by Mr Adick to pay equivalent sums towards the payment of the purchase prices.

79.  I reject Mr Joffe’s submission that under the two Purchase Agreements Grosvenor was not only free to pay away the deposits so that they fed the deposit requirements up the contractual chain to Corrigan but also, if Grosvenor took this step, Grosvenor would cease to have any obligation to Mr Adick should it turn out that the deposits were returnable.  In my judgment, the two Purchase Agreements stand quite separately from the chains of contracts cascading down to the Bladen/Adick sale contracts and, having been paid the deposits it had stipulated for under the two Purchase Agreements, Grosvenor, which contracted as principal and not qua agent, has a residual obligation to reimburse Mr Adick if it be established that the “deposits” were not forfeitable.

80.  I turn now to the meaning that is to be given to the word “deposit”.  The nature of deposits in real property transactions, including their forfeitability, was considered by the Court of Final Appeal in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234 where the issue was whether a vendor could forfeit a deposit that was 35% of the purchase price.  At paragraphs 56 to 61, Justice Ribeiro PJ dealt with the distinction between part payments made in advance of completion, which are returnable shouldthe purchaser fail to complete, subject to a set‑off in respect of any damagesdue to the vendor, and deposit payments, which in this situation are forfeitable, regardless of the fact that they may exceed the loss suffered by the vendor:

“ 57. ... The character of the payment depends on the parties’ intentions to be ascertained by construing their agreement: Mayson v Clouet [1924] AC 980 at p.985. If they are found to have merely been intended as advance payments on account of what is due under the contract, they are in principle recoverable by the payer, subject to the innocent party’s right to set off his claim for damages: Dies v British & International Mining and Finance Corp Ltd [1939] 1 KB 724 at pp.743, 745–746.

58. Such recoverability has been explained on the basis that such advance payments are impliedly conditional on the contract being completed. In McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, Dixon J put it in these terms:

When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor’s promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract. (p.477)

59. His Honour added:

The right so to recover it is legal and not equitable. It arises out of the nature of the contract itself. (p.479)

60. The general recoverability of advance payments has also been explained on the basis that the payer acquires a restitutionary claim upon a total failure of consideration where the contract is terminated before the other party has performed any part of the contractual duties in respect of which payment was made: Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at p.588.

61. The explanations overlap.  Where the contractual intention is that advance payments are conditional on completion of the contract, it will commonly be the case that failure to complete results in a total failure of consideration.”

81.  Justice Ribeiro then considered the nature of a deposit, citing the following passages in the judgments of Cotton and Fry LJJ in Howe v Smith (1884) LR 27 Ch D 89:

“... What is the deposit? The deposit, as I understand it, ... is a guarantee that the contract shall be performed. If the sale goes on, of course, not only in accordance with the words of the contract, but in accordance with the intention of the parties in making the contract, it goes in part payment of the purchase‑money for which it is deposited; but if on the default of the purchaser the contract goes off, that is to say, if he repudiates the contract, then ... he can have no right to recover the deposit.” (Cotton LJ at p 95)

“ Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract.” ‌(Fry LJ at p 101)

82.  In paragraph 69, Justice Ribeiro said:

“ The focus of a deposit’s operation is on the period elapsing between its payment and completion of the contract’s performance. In entering into the contract, the vendor agrees to take his property off the market and to commit himself to the purchaser on the latter’s promise that the acquisition will duly be completed and the vendor duly paid at the completion date. The forfeitable deposit is tendered to encourage the vendor to make the necessarycommercial act of faith. It is, as the authorities show, an ‘earnest’, that is, a thing of value given to signify serious intent on the purchaser’s part. It is also the quid pro quo for the vendor depriving himself of the ability to deal commercially with the property, and so of making any potentially greater profits, while awaiting completion. Unlike the vendor, the purchaser is able to profit by re‑selling the property during this period, in reliance on the contract. If, at the end of the period, completion does take place, the purpose of the deposit is spent and it becomes absorbed as part of the purchase monies. If, on the other hand, completion does not occur as promised, the deposit's forfeiture follows, whether or not the vendor has suffered any loss in consequence.”

83.  Justice Ribeiro next dealt with the court’s jurisdiction to grant relief against forfeiture where a “deposit” is in an amount that exceeds “anything which may reasonably be required by way of an earnest or guarantee of performance or as compensation for the vendor’s removal of the property from the market pending completion.” (para 81)  In common with the majority of the other members of the court,[2] he adopted the reasoning of the Privy Council in Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, a Jamaican appeal, where it was held that a deposit could only be forfeited if it was reasonable as earnest money, which it would not be if it exceeded the customary level of 10% of the purchase price and the vendor could not show special circumstances justifying the size of the deposit.  In line with the approach taken by the majority, Justice Ribeiro proceeded on the basis that the customary level of deposits in contracts for the purchase of land in Hong Kong was also 10% of the purchase price and held that there being no justification for the 35% deposit paid by the purchaser, the deposit was to be treated as an advance payment towards the purchase price payable and as such was recoverable, subject to the vendor being entitled to deduct from it the damages it had suffered by reason of the purchaser’s failure to complete.

84.  In light of the reasoning of the majority in Polyset,are the sums paid by Mr Adick under the May and September Purchase Agreements to be characterized as an earnest of his promises to purchase the three units, and thus subject to forfeiture upon his failure to complete, or are they to be treated as repayable advance payments subject to any cross‑claim in damages contended for by Grosvenor?

85.  No claim based on the total size of the “deposits” paid to Grosvenor which was slightly in excess of 25% of the total purchase price was advanced by Mr Adick at the trial.  Such a claim was pursued in Mr Mok’s written opening submissions but it had not been pleaded and in the face of an objection from Mr Joffe, Mr Mok told the court that he would not be pursuing this claim.

86.  In my judgment, quite apart from any argument based on the size of the “deposits”, the payments are to be treated as advance payments and not as forfeitable deposits. I say this having regard to this already quoted passage in Justice Ribeiro’s judgment in Polyset:

“The focus of a deposit’s operation is on the period elapsing between its payment and completion of the contract’s performance. In entering into the contract, the vendor agrees to take his property off the market and to commit himself to the purchaser on the latter’s promise that the acquisition will duly be completed and the vendor duly paid at the completion date. The forfeitable depositis tendered to encourage the vendor to make the necessary commercial act of faith. It is, as the authorities show, an ‘earnest’,that is, a thing of value given to signify serious intent on the purchaser’s part. It is also the quid pro quofor the vendor deprivinghimself of the ability to deal commercially with the property, and soof making any potentially greater profits, while awaiting completion.”

87.  In my view, it follows from this authoritative reasoning that for a payment made by a real estate purchaser in advance of completion to be characterised as a forfeitable deposit, the payee must owe a reciprocal obligation to ensure that title will be conveyed to the purchaser and/or, the payee must be seen, viewed through the lens of the contract properly construed, as being the party that will suffer the direct consequences of the property being taken off the market.

88.  As I have already held, Grosvenor owed no reciprocal obligation under either of the two Sale and Purchase Agreements to ensure that Mr Adickacquired title to the units.  Further, at the time that the May Purchase Agreementincepted, it would have appeared to a reasonable person in Mr Adick’s position that he was agreeing to purchase unit 3.07 from VGL which would be seen as the entity that would suffer the direct consequences of unit 3.07 being taken off the market.  The “deposit” paid under this agreement must therefore be characterized as an advance payment.

89.  Turning to the deposit paid under the September Purchase Agreement, as I have said above, at the time Mr Adick signed this contract, a reasonable person standing in his shoes would have known that the purchase of the units was to be through a series of assignment agreements culminating in an assignment agreement between Mr Adick and Bladen.  He would also have known the names of the parties to all the upstream contracts.  He would not have known, however, that Corrigan was a wholly owned subsidiary of Grosvenor, nor, for that matter, that Corrigan was a BVI Co with an issued capital of US$1.00.  Thus under the September Purchase Agreement, the entity that would have appeared to suffer the direct loss of units 1.08 and 4.04 coming off the market would have been Bladen, not Grosevnor, and even if the entities further up the chain would have appeared all to suffer a direct loss, none of them was or would have appeared to be Grosvenor.  The “deposit” paid under the September Purchase Agreement must therefore also be characterised as an advance payment and not a forfeitable deposit.

90.  As we have seen, Mr Adick’s first claim for re‑payment of the deposits is advanced as a restitutionary claim arising out of the non‑materialisation of the contemplated basis of, or reason for, the payment of the deposits, namely the completion by Mr Adick of his three Sale and Purchase Agreements with Bladen.  This claim is inevitably predicated on the true meaning and effect of the May and September Purchase Agreements but it was only at trial, particularly in closing, that Mr Mok advanced a sustained construction argument, in the course of which he cited the passage in Justice Ribeiro’s judgment in Polyset quoted above in paragraph 86.  Mr Joffe was at pains to point out when making his closing submissions that Mr Mok’s construction of the two Purchase Agreements had not been pleaded but he nonetheless replied to them and I am satisfied that Grosvenor had an adequate opportunity to answer Mr Mok’s submissions.

91.  A claim for the return of advance payments where the contract is not completed can be made both in contract or as a claim for unjust enrichment, see paragraphs 59 and 60 of Justice Ribeiro’s judgment in Polyset quoted in paragraph 80 above.  However the claim is brought, in substance it is based on the actionable failure of a condition, whether in the form of a contractual term, express or implied, or as the result of an objective assessment of the circumstances in which the payment was made.  In my view, it is open to the court to order payment of the deposits to Mr Adick as sums due in contract under the May and September Agreements and on such an approach, Mr Joffe’s arguments based on the contention that the subject agreements are subsisting agreements and the absence of unjust enrichment on Grosvenor’s part, fall away.  Even if the claim could only be brought in restitution, I would hold that in substance the May and September Agreements are  not subsisting but are at end, since Grosvenor is not seeking to enforce them nor could it now do so from a limitation point of view.  I would also reject the contention that Grosvenor had not been enriched but had acted only as an intermediate recipient or conduit pipe in receiving the deposits.  On the contrary, Grosvenor received the “deposits” in its own right and although it was free to deal with the money as it wished, it was under a residual obligation to Mr Adick should the “deposits’ come to be characterised as advance payments.

92.  The purchaser’s entitlement to be re‑paid an advance payment where the transaction is not completed is subject to a right in the vendor to set‑off against the sum due any recoverable damages he is entitled to by reason of the purchaser’s failure to complete.  However, consistent with its case that any claim Mr Adick had to be repaid the deposits should have been brought against Bladen[3], Grosvenor has not advanced an alternative a set-off claim for recoverable loss resulting from Mr Adick’s failure to complete should Grosvenor be ordered to be repay the deposits.

93.  Given my conclusion that Mr Adick’s claim for repayment of the “deposits” succeeds in contract or in restitution, it is strictly unnecessary for me to deal with the alternative Quistclose trust claim.  Suffice it to say that in the light of my finding that Grosvenor was entitled under the May and September Purchase Agreements to make such use of the “deposits” as it wished, subject to a residual liability to Mr Adick to repay the sums involved should they turn out to be returnable, the Quistclose trust would have been bound to fail.

Conclusion

94.  Mr Adick’s claim in respect of the deposits is for £350,000.  As Mr Mok accepted during his closing submissions, no claim is advanced that the recoverable sum should include the interest payable under clause 1.3 of the May and September Purchase Agreements.  Nor was any freestanding claim for interest pleaded by Mr Adick, despite the fact that the interest provided for in clause 1.3 was payable on the completion of the development, not completion of the purchase of the unit, and the deposits agreed to be paid were respectively £100,000 and £250,000.  In the result therefore, I award Mr Adick the sum of £350,000 and I will hear submissions as to the claim for discretionary interest that is pleaded in the prayer in the claim against Grosvenor.