(Jamaica) The purchaser at an auction had been obliged under the terms of the auction contract to pay a deposit of 25%. He failed to complete, and the vendor took the deposit by way of forfeit. The standard deposit payable would be 10%. The Court of Appeal of Jamaica ordered the return of the excess above 15%.
Held: A penalty was ‘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 (customarily 10% of the contract price) on the sale of land. ‘ A deposit in excess of 10% of the purchase price (25%) was not properly described as ‘earnest money’ and may be treated rather as a penalty. As such, the whole deposit taken was repayable to the defaulting purchaser.
Lords Keith, Jauncey, Donaldson, Browne-Wilkinson, Sir Christopher Slade
Gazette 07-Apr-1993,  2 WLR 702,  2 All ER 370,  AC 573,  UKPC 7
England and Wales
Cited – Commissioner of Public Works v Hills PC 24-May-1906
(Cape of Good Hope) A railway construction contract provided that in the event of a breach by the contractor he should forfeit ‘as and for liquidated damages’ certain percentages retained by the Government of the Cape of Good Hope of money payable . .
Considered – Stockloser v Johnson CA 1954
Romer LJ said that, in the absence of pressure or duress, or other vitiating elements, there was no jurisdiction to provide for relief against forfeiture in the event of the purchaser’s default in contracts other than those relating to land.
Cited – Linggi Plantations v Jagatheesan 1972
( Hong Kong Final Court of Appeal – from Malaysia) Lord Hailsham suggested that where, on investigation, the real nature of an initial payment, which was termed a deposit, was shown to be the imposition of a penalty, it might be recovered by the . .
Cited – Cine Bes Filmcilik Ve Yapimcilik and Another v United International Pictures and Others CA 21-Nov-2003
The parties entered into agreements licensing the exclusive distribution of encrypted television channels within Turkey. A clause provided a calculation of damages for a breach amounting to the balance of licence fees due, and other penalties, . .
Cited – MIDILL (97Pl) Ltd v Park Lane Estates Ltd and Another CA 11-Nov-2008
Refusal to return Land Contract Deposit
The court was asked as to whether a seller could retain a deposit paid by the claimant on a sale where contracts had been exchanged but the buyer had proved unable to go ahead.
Held: The appeal against refusal of return of the deposit failed. . .
Cited – Bidaisee v Dorinsa Yusidai Sampath and Others PC 1993
(Trinidad and Tobago) The parties contracted for the sale of a half share of land to the co-owner for TT$2 million. A 10% deposit was paid. A notice to complete was not met. The vendor sold the share to others for more. Arguments as to the validity . .
Cited – Union Eagle Limited v Golden Achievement Limited PC 3-Feb-1997
(Hong Kong) The parties had contracted with each other for the sale of land. Completion was to take place on the appointed day at 5:00pm. A ten per cent deposit had been paid, and time had been made of the essence. The seller sought to rescind the . .
Lists of cited by and citing cases may be incomplete.
Updated: 10 April 2022; Ref: scu.90608