Breaches of Contract

Introduction

The recent decision of H.H. Judge Keyser Q.C. sitting as a Judge of the High Court in the case of Conway v Prince Arthur Eze [2018] EWHC 29 (Ch) was both interesting and thought provoking for a variety of reasons. For a start it involved a buyer of a house who had exchanged contracts and then refused to complete, the seller then bringing proceedings for damages for breach of contract. How often, out of all the thousands of conveyancing transactions each year, does that happen? Buyers pull out just before exchange, yes but not after exchange.  And this, of course, naturally leads on to thoughts of what the measure of damages is for such a breach, which was an issue in the case – and yes, it is still Hadley v Baxendale and all that. But the case also started me thinking about other things. At one stage Judge Keyser refers to the “normal two-month interval between exchange and completion”. Is it me? Has it ever been two months? These days the gap between exchange and completion is more often measured in days rather than weeks! Anyway, back to the facts of the case.

The Case

The case involved the breach of a contract for the sale and purchase of a house in Mill Hill London at the price of £5 million and the activities of a ‘Property Introduction Agent’. By 2015 the Conways had had the house on the market for some years without achieving the original asking price of £7 million.  The house was then viewed by the agent who told them that he was acting for an overseas buyer who was prepared to buy the house for £5 million, rather than the £5.5 million asking price. It was made clear that he would want a finder’s fee of £75,000. In fact, the agent did not have a buyer but then set about finding one. He approached Prince Eze and in a brief telephone conversation told him about the house and that he had negotiated the price down to £5 million. The Prince agreed to buy the property and pay a finder’s fee of £150,000. Prince Eze was not told that the agent was also receiving a fee from the sellers.

The agent approached Prince Eze in April 2015. There was then a lengthy period of emails and discussion as to which of Prince Eze’s companies would be the purchaser and as to source of funds – the Prince was based in Nigeria. The Conway’s were to use the proceeds of sale to purchase another property in Cambridge. Eventually, the Prince signed the contract and Transfer and gave the agent written authority to deal with the purchase on his behalf. The agent procured a written agreement from the seller’s to pay his finder’s fee. The Prince also paid the agent his £150,000 fee. Contracts were exchanged on 7th August for the sale and the Conway’s purchase of their new property. Completion was agreed as being on or before 30th November.

But Prince Eze then cooled towards the property. He had not yet seen it and was apparently having trouble finding the funds. For unclear reasons, he refused to complete.

This, of course, caused the Conways big problems. They had a dependant purchase which they did not want to lose. After several abortive attempts they eventually sourced bridging finance to proceed with this purchase. Eventually, in July 2016 they re-sold the house for a price of £4.2 million.  They sued Prince Eze for breach of contract. Their losses were large; even taking into account the deposit of £500,000 which had been paid.

The Decision

Prince Eze defended the claim on the principal basis that the contract was concluded following the Conways’ promise to pay a bribe or secret commission to the agent. This, he claimed, rendered the contract void or at least voidable and unenforceable by them. He counterclaimed for a declaration to that effect and the repayment of his deposit. Alternatively, if the contract was enforceable by the Conways, he took issue with the amount of damages claimed.

The judge held that there was a valid contract.

“In my judgment, the relationship between Mr Obahor [the agent] and Prince Eze was not such as to engage the law on bribes.

…The starting point is that initially Mr Obahor was nobody’s agent. Though pretending to act for a confidential principal, he was acting on his own behalf. When he was negotiating to purchase the Property, he was not doing so on behalf of Prince Eze or, for that matter, of anyone else. As I have mentioned, there were occasions when Mr Obahor did business by agreeing to source a property for a client. But this was not such a case.

The judge did refuse to allow some minor losses claimed by the sellers, but the interestingly from the point of view of conveyancers, the judge did allow the following heads of damage as being ‘foreseeable’ as a result of the breach of contract:

  • The interest on the bridging loan obtained to purchase the Conway’s dependant purchase;
  • The cost of obtaining such loan and the costs of the abortive applications for finance; this together with the actual interest amounted to about £1 million!
  • The difference in the resale price and the price agreed with Prince Eze;
  • Wasted removal costs;
  • Extra solicitor’s and estate agency fees on the re-sale; (the estate agency fees were £72,000);
  • The costs of maintaining and insuring the property until the re-sale;
  • Interest paid to the sellers of the new property for the period of delay whilst bridging finance was arranged.

Conclusion

So an interesting case what with allegations of bribery etc, but of general use to conveyancers to show how a refusal to complete can cause immense problems for the seller and how the courts will attempt to compensate for such losses. But of course the stress and worry caused to the sellers in such a case can never be compensated for in financial terms.

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