IN THE HIGH COURT OF
JOHN MARTIN QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
24 May 2001
Jonathan Marks QC (instructed
by Flint Bishop & Barnett, Derby) for the claimant.
Mark West (instructed by Ashley Bean & Co, Ilford) for the defendant.
1. This judgment relates to the one question left outstanding following two judgments given by me on 16 May 2001. That question is whether or not the claimant is entitled to retain sums totalling £47,000 paid under clause 4 of the contract prior to termination of the contract consequent on the defendant’s breach. I have already held that a further sum of £13,000, properly described as a deposit, is to be returned to the defendant under section 49(2) of the Law of Property Act 1925.
2. The contract contains no express provision stipulating what is to happen to payments already made when the contract is terminated by breach. The position is accordingly governed by the general law.
3. The most recent authorities, notably the decisions of the House of Lords in Hyundai Heavy Industries v Papadopoulos  1 WLR 1129 and Stocznia Gdanska v Latvian Shipping  1 All ER 883, indicate that such payments will be recoverable only if there has been a total failure of consideration. Both cases concerned contracts for the construction and sale of ships, with stage payments due at various stages of the construction process. In the latter case, Lord Goff (with whom three of the other Lords of Appeal agreed, the fourth delivering a concurring judgment) said this (at p 896b-g):
I start from the position that failure of consideration does not depend upon the question whether the promisee has or has not received anything under the contract like, for example, the property in the ships being built under contracts 1 and 2 in the present case. Indeed, if that were so, in cases in which the promisor undertakes to do work or render services which confer no direct benefit on the promisee, for example where he undertakes to paint the promisee’s daughter’s house, no consideration would ever be furnished for the promisee’s payment. In truth, the test is not whether the promisee has received a specific benefit, but rather whether the promisor has performed any part of the contractual duties in respect of which the payment is due. The present case cannot, therefore, be approached by asking the simple question whether the property in the vessel or any part of it has passed to the buyers. That test would be apposite if the contract in question was a contract for the sale of goods (or indeed a contract for the sale of land) simpliciter, under which the consideration for the price would be the passing of the property in the goods (or land). However before that test can be regarded as appropriate, the anterior question has to be asked: is the contract in question simply a contract for the sale of a ship? or is it rather a contract under which the design and construction of the vessel formed part of the yard’s contractual duties, as w ell as the duty to transfer the finished object to the buyers? If it is the latter, the design and construction of the vessel form part of the consideration for which the price is to be paid, and the fact that the contract has been brought to an end before the property in the vessel or any part of it has passed to the buyers does not prevent the yard from asserting that there has been no total failure of consideration in respect of an instalment of the price which has been paid before the contract was terminated, or that an instalment which has then accrued due could not, if paid, be recoverable on that ground.
4. It is always a question of construction whether a contract is one simply of sale, or one for works as well as sale of the finished article. Examples of cases which fell into the former category are Dies v British and International Mining and Finance Corp  1 KB 724 and Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd  AC 32. In the Fibrosa case the contract was for the supply of special machinery to be manufactured by the supplier, demonstrating - as Lord Goff pointed out in the Latvian Shipping case at  1 All ER 898g - that “the fact that the relevant contract involves the manufacture of the goods by the supplier does not necessarily mean that the manufacture constitutes part of the contract consideration”.
5. The only advance instalment of the purchase price in the Fibrosa case was payable with the order. In the present case, by contrast, the second and third instalments were payable at defined stages of the building process, and all three instalments were clearly intended to provide advance funding for the works of construction which the claimant was obliged to carry out by clause 2 of the contract. Moreover, that clause directly relates the consideration to the works of construction. These factors seem to me to lead inexorably to the conclusion that the contract was not one simply for sale of the land, but was also one for the carrying out of the works of construction. The only provision in the contract which might be said to militate against such a conclusion is the attribution (in the opening words of clause 4) of the purchase price to the “completed dwelling”; but the remainder of the clause makes clear that, whilst the full payment is indeed to be made on completion of the house, the interim instalments are in respect of work done before then. Accordingly, I do not consider that the effect of termination of the contract was to bring about a total failure of consideration. It follows that the instalments are not recoverable at law.
6. It was suggested on behalf of the defendant that they were nevertheless recoverable in equity. I am prepared to assume that there is jurisdiction to relieve the defendant from what is in substance a forfeiture of the instalment payments he has made; but the jurisdiction is not to be exercised unless the money already paid exceeded to an unconscionable extent the value of any consideration that had been given for it: see The Scaptrade  2 AC 694 per Lord Diplock at p702. Since the consideration included the works of construction on the dwellinghouse, it seems to me impossible to say that the money paid exceeded the value of the works at all, let alone to an unconscionable extent. Accordingly no case for the intervention of equity arises.
7. The claim for repayment of the instalments accordingly fails. That means that no alteration is necessary to the order made by me on 16 May 2001 declaring that the contract came to an end on 30 August 1996, ordering in principle the return of the £13,000 deposit and dealing with costs. That order may accordingly now be drawn up.