Firm that released £1.28m for failed off-plan development did not breach contract

A law firm that released buyers’ deposits of £1.28m to an off-plan property developer which failed to complete the promised work did not breach its obligations to the buyers, the Court of Appeal has ruled. 

In Yee & Ors v 174 Law Solicitors Limited, investors from Hong Kong challenged the interpretation of the sale agreements and the finding of estoppel by convention by His Honour Judge Hodge KC in a High Court judgment last year. The case concerned a development of 366 residential units in Pall Mall, Liverpool. The developer's solicitors, Birkenhead firm 174 Law Solicitors Ltd, held the buyers' deposits; the appellants Yee & others claimed that 174 had released the deposits when it should not have done.

Construction on the project began in 2015 and came to a standstill after two years. The site was sold last year without any units being built.

The would-be buyers’ deposits were all spent on ‘marketing fees, other costs, and the unfinished work’. Nothing was repaid. The High Court found last year that 174 was not in breach of its contractual obligations as stakeholder.

Clause 5 of the Pall Mall Unit purchase agreements was the focus of the appeal, heard by Lord Justice Newey, Lord Justice Warby and Sir Christopher Floyd, last month. The clause stated that the deposit would be released by a company set up to protect buyers' interests for a variety of purposes including to enable the developer to purchase the estate, and to pay commissions, professional fees and other payments ‘reasonably ancillary to the marketing and sale of the properties’ and all commissions fees and payments ‘incidental to the programme of works to develop the estate.’

Giving lead judgment, Newey noted the High Court's finding that, as the depositors included 'potentially many hundreds of mainly offshore-based purchasers, with little or no knowledge of English conveyancing law or procedures, and with limited, if any, command of or fluency in the English language', it made contractual sense for decisions on the release of funds to be made by the company rather than individual buyers. 

Dismissing the appeal, he said: ‘I agree with the judge that 174 did not commit any breach of contract, from which it follows that the judge was right to dismiss the claims.’ The two other judges agreed.