Before: His Honour Roger Kaye QC
 
 

B E T W E E N

JUDGMENT
 
DATED: 11 November, 1992

ROGER KAYE QC

The Motion

This is a motion by order to vacate cautions registered under section 54 Land Registration Act, 1925. The cautions in question were registered on 26 February 1992 against 30 separate registered freehold titles relating to property in north London at Wembley Plaza and Woburn Walk Land. They were registered to protect the interest of the defendant under a contract dated the 31st January 1992 for the sale of the properties by the first and second plaintiffs to the defendant. The second and third plaintiffs are subsidiaries of the first plaintiff. The third plaintiff remains the registered proprietor of part of the land agreed to be sold to the defendant but entered into an agreement with the first plaintiff on the 1st November 1991 to sell such land to the first plaintiff or to whomsoever the first plaintiff should agree to sell such land. Nothing, however, turns on that.

The background that emerges from the affidavits and exhibits sworn in support of and in opposition to the motion is this. Under the contract of the 31st January 1992 ("the main contract") the purchase prices was £3.25m (defined in the agreement as the "Purchase Money"), the National Conditions of Sale were incorporated (as varied), a deposit of £500,000 was payable, and completion was fixed for the 19th March 1992 with condition 22 of the National Conditions of Sale being varied so as to allow for a 10 working day notice instead of the 16 working days therein provided. In relation to the deposit the main contract provided by clause 5.1:

"By way of satisfaction of a deposit of £500,000 to be paid by the Purchaser to the Vendors herein, the Purchaser shall forthwith instruct ABN Amro Bank NV Rotterdam to transfer to the Vendors' nominated account by way of such deposit 475,000 of 5 guilder ordinary shares in United Dutch Group NV ("the shares") which at the date hereof are valued at £500,000 ..."

I do not think I need read any more of that clause. Under clause 5.3 it was provided:

"The Vendors hereby agree and confirm that the Shares shall be held absolutely by such bank or trustee as the Vendors shall direct pending completion of the purchase of the Properties on the completion date (or such further date as may be agreed in writing between the parties) to the intent that in the event that this contract is not completed due to any reason other than the default of the Vendors then such shares belong absolutely to the Vendors"

By clause 6.5 it was provided:

"On the completion date the Purchaser agrees that:

6.5.1 the shares referred to in clause 5 will henceforth belong to the Vendors absolutely and;

6.5.2 the balance of the Purchase Money amounting to £2,750,000 shall be paid to the Vendors"

On the 3rd March 1992 the parties entered into the first of three supplemental agreements. Nothing material turns on the first such supplemental agreement save to note that the completion date (the 19th March 1992) was preserved and by clause 5 it was provided:

"For the avoidance of doubt the shares referred to in Clause 5 [that is of the main contract] shall be held in the Vendor's nominated account as stakeholder"

The contractual completion date came and went and the purchaser failed to complete. On the 30th March 1992 the vendors, as they were entitled to, served a notice to complete making time of the essence. At the expiration of that notice the purchaser still failed to complete but the parties entered into the second of the supplemental agreements on the 24th April 1992. This second supplemental agreement is important and I must read parts of it in full. I can start, I think, with clause 3:

"3. The Agreement [that was a reference to the contract of 31st January as supplemented by the first supplemental agreement] shall henceforth be read and construed as varied by this second supplemental agreement and save as expressly hereby varied the Agreement and Notice [that was a reference to the notice to complete to which I have referred] shall continue in full force and effect

4. The parties hereto have agreed that

4.1 The deposit shall be increased by the sum of £50,000.00 (FIFTY THOUSAND POUNDS) which sum shall be paid by the Purchaser to the First Vendor [that is the first plaintiff] and the Second Vendor [ie the second plaintiff] on the date hereof and shall be held by the Vendors' Solicitors as stakeholders and otherwise under the terms of the Agreement and the definitions of "Deposit" and "Purchase Money" and the provisions relating thereto in the Agreement shall be amended and henceforth construed accordingly.

4.2 Without prejudice to any accrued rights and remedies of the First Vendor and the Second Vendor under the Agreement or otherwise the date for completion of the Agreement as stipulated and provided for in the Notice shall be extended to Tuesday 12th May 1992 (time being of the essence)"

There then followed a clause amending provisions in the main contract relating to completion but preserving the original completion date of 19th March 1992 and a clause setting out that agreed interest on the completion moneys of £40,421.23 had accrued since the 19th March 1992 and continued to accrue on a daily basis but should be paid by the purchaser on the date of actual completion. There then followed clause 5.2 which I should also read:

"If:-

5.2.1 The Purchaser fails to complete on 12th May 1992; and

5.2.2 The Vendors elect to apply for specific performance of the Agreement (as varied by this second supplemental agreement) by serving on the Purchaser's Solicitors written notice:-

It is hereby agreed that without prejudice to any other rights or remedies available to the Vendors the Deposit shall forthwith on service of such notice as aforesaid be released to the Vendors absolutely."

It is common ground that the main contract did not, in fact, contain any definition of the word "Deposit" but it is equally common ground that nothing turns on that. The meaning and intention is plain. By the 24 April the purchaser had failed to complete on the contractual completion date or comply with the notice to complete. The Vendors were willing to extend time for actual completion to the 12th May 1992 provided time remained of the essence, the deposit was increased by £50,000 to be lodged with their solicitors as stakeholders, interest had accrued and was to continue to accrue and be paid on actual completion and if the purchaser still failed to complete but the vendors elected to sue for specific performance the whole of the deposit (ie the shares and the £50,000) should be released at once to the vendors on service of the requisite notice.

On the 12th May 1992 the purchaser still failed to complete. Notwithstanding, the vendors were prevailed upon to enter the third and final supplemental agreement dated the 27th May 1992. Again I should read the important provisions of that supplemental agreement contained in clause 4.

"The parties have agreed that

4.1 As the Vendors are at the date hereof entitled under the provisions of the Agreement to rescind the Agreement and forfeit the Deposit (without prejudice to the other rights and remedies available to the Vendors) the Purchaser hereby releases the Deposit to the Vendors absolutely to deal with it as if the Deposit had been forfeited at today's date.

4.2 In the second supplemental agreement dated the 24th April 1992 in clause 4.2 thereof [which I have set out above] the date "Tuesday 14th July 1992" shall be substituted for "Tuesday 12th May 1992"

4.3.1 The parties hereto agree that the Purchase Money shall be increased by £146,494.33 pro rata between the Vendors to £3,396,494.30 plus VAT and the Agreement shall be henceforth amended and construed accordingly.

4.3.2 The Vendors and each of them hereby waive their rights to claim interest for late completion from the Purchaser in respect of the period 19th March 1992 to 14th July 1992 both days inclusive"

I do not think I need to read any more than that. I shall have to return to some of these provisions later in this judgment but suffice it to say for the present that, on the fact of it, that looks as if the vendors were again still prepared to extend the time for actual completion, this time, to the 14th July 1992 on terms, namely that the deposit was forfeited, an increased purchase price was payable but the right to interest dealt with by the second supplemental agreement was waived.

On the 14th July 1992 the purchaser again failed to complete. On the 8th September 1992 two letters were written. One by the first plaintiff to the defendant purchaser, and the other by the vendors' solicitors to the purchaser. Both, in essence, indicated in unequivocal terms that as the purchaser had failed to complete the contract was at an end. The purchaser and the purchaser's solicitors replied on the 10th September both contending that the contract remained on foot, the notice to complete having been waived by the subsequent conduct of the vendors. The basis for this contention was and is that after the 14th July 1992 the vendors unequivocally represented that the contract was still on foot, and that, accordingly, they could not terminate the contract without giving a fresh opportunity to the purchaser within a reasonable time: see, for example, Webb v. Hughes (1870) LR 10 Eq 281; Luck v. White 26 P&CR 89 and Prosper Homes Ltd v. Hambros Bank Executor and Trustee Co Ltd 39 P&CR 395. No such opportunity had been given. On the 11th and 14th September the vendors' solicitors wrote to both the purchaser's solicitors and the purchaser, again terminating the contract on the grounds of the purchaser's failure to complete and requesting the removal of the cautions. On the 14th September the purchaser's solicitors wrote treating the letter of the 11th September itself as repudiation of the contract, accepting that repudiation and requesting the return of their deposit. They refused to remove the cautions.

On the 13th October 1992 the vendors issued the writ in this action claiming declarations that the contract had been repudiated by the purchaser's failure to complete, that the deposit represented by the shares and the further deposit of £50,000 was forfeit, orders for vacation of the cautions, damages for breach of contract and under section 56(3) Land Registration Act, 1925, and interest. On the same day the vendors applied by motion for an order under the inherent jurisdiction of the court and, or alternatively, under section 82(1)(b) of the Land Registration Act, 1925 that the cautions be vacated. It is that motion which is before me.

A caution is, of course, essentially a procedural device designed to ensure that the cautioner receives notice of any intended dealing with the land by the proprietor so as to afford him with the opportunity of objecting to that dealing. It is a powerful weapon in the hands of the cautioner. It is, therefore, common ground that whilst the court may exercise a certain robustness of approach when the vacation of the entry of a caution is sought on motion, if there is a fair, arguable case for maintaining the cautions, albeit on different grounds from those supporting the original registrations; the cautions ought not, subject to one matter, to be vacated and the matter should, instead, be stood over to the trial of the action. The one caveat to that is an additional argument advanced on behalf of the vendors to the effect that even if there is an arguable case for maintaining the cautions, the price is a cross undertaking in damages. No such cross undertaking had been offered. Still further, the evidence, it was argued, showed that any cross undertaking, even if offered, would be worthless and no security for such cross undertaking reasonably acceptable to the vendors had been offered. Hence the court, it was submitted, should, even if an arguable case is shown, still order the entries vacated.

So the issues on this motion are: first, is there a fair, arguable case for maintaining the cautions; secondly, even if there is, should they nevertheless be vacated owing to the cross undertaking point?

Mr Nugee QC, who appeared on behalf of the defendant purchaser and respondent to the motion, put his case for maintaining the cautions essentially thus:

(1) A purchaser who has paid a deposit or money on account of the purchase price to a vendor is entitled, if the contract goes off through no fault of his, to a lien on the property for all sums paid including interest on the deposit, the costs of investigating title and of recovering the deposit. He also submitted the lien went wider than that and covered, in effect, all sums arising as a natural result of the contract. A purchaser entitled to such a lien is to be treated as a secured creditor having an equitable charge on the property secured by the amount of the lien and hence the purchaser had an interest in land which it was entitled to protect or maintain by caution under section 54(1) Land Registration Act, 1925. I shall refer to this as "the purchaser's lien point".

(2) There is a triable issue as to how the contract went off. The case here is that the contract went off, not through any fault of the purchaser, but through the fault of the vendors because after the 14 July 1992 the vendors represented that the contract was still on foot and capable of completion by the purchaser. Hence the vendors were not entitled to repudiate the contract as they purported to do. That being so the purchaser was entitled to treat that purported termination as a repudiation, to accept that repudiation and claim the return of the deposit which continued to be protected as a lien in the manner described under point (1). I shall refer to this as "the repudiation point".

(3) True it was that the deposit was initially paid to stakeholders, but the true construction and effect of clause 4.1 of the third supplemental agreement was that the deposit was released from the hands of the stakeholders into the hands of the vendors. It did not thereby lose its quality as a deposit for the purposes of points (1) and (2). Hence the purchaser was entitled to the lien and to maintain the cautions notwithstanding the provisions of clause 4.1. I shall refer to this issue as "the construction point".

(4) Assuming the purchaser was correct on (1) (the lien point) and (2) (the repudiation point), but wrong on (3) (the construction point), then the purchaser was still entitled to the lien (and the cautions) for one or other of two reasons. First, because the vendors had repudiated the contract, put an end to it and had thereby also repudiated the entire contract including, therefore, their right to retain the deposit under the third supplemental agreement. Hence the purchaser was entitled to its return owing to the vendor's wrongful repudiation. Secondly, and in any event, the purchaser was entitled to the lien for interest, costs and expenses because clause 4.1 of the third supplemental agreement only extended to the deposit not to interest, costs and expenses for which the lien could still be maintained. I shall refer to these as "the alternative arguments".

(5) Assuming the purchaser was wrong on the repudiation point, the construction point, and the alternate arguments, the purchaser had a fall back position in its claim to the return of the deposit under section 49(2) of the Law of Property Act, 1925 which afforded the court the widest possible discretion. That is a triable issue, and until that issue is decided the purchaser is entitled to maintain the cautions as protecting a "deposit" thereby entitling the purchaser to say he had a cautionable interest under section 54(1), alternatively as protecting a pending land action under section 59(1) and (2) of the Land Registration Act, 1925. I shall refer to this as "the section 49(2) point".

Mr Berry QC, who appeared for the plaintiff vendors, in support of the motion, submitted on this part of the case that there was nothing to justify the maintenance of the cautions because:

(1) as to the repudiation point, on the evidence there was no triable issue. The purchaser had failed to complete and the vendors were entitled to treat the contract as at an end. There was no unequivocal evidence arising out of the communications both oral and in correspondence between the parties since the 14th July 1992 sufficient to support the defendant's case that the vendors were estopped from asserting, or had waived, their strict contractual right to insist on completion on the 14th July 1992 and their entitlement to treat the contract as at an end owing to the purchaser's failure to complete on that date, time having been, contractually, of the essence.

(2) As to the construction point, even if the contract had gone off through no default of the purchaser, the deposit had, in any event, been released by the provisions of the third supplemental agreement and had thereby lost its quality as a deposit even if credit would have had to have been given for it should the contract have eventually been completed. There was thus nothing for the purchaser to claim, there was no deposit capable of being protected by a lien.

(3) As to the alternative argument, since the contact had been terminated after the deposit had been contractually released by clause 4.1 of the third supplemental agreement the vendors were not bound to return it. In any event the purchaser's lien did not extend to the expenditure claimed.

(4) As to the section 49(2) point, the purchaser was not entitled to a return of its deposit under section 49(2) of the Law of Property Act, 1925 and even if it was, that did not entitle it to maintain the cautions for that would be tantamount to treat them ahead of their claim as a secured creditor which the court will not (by analogy with the Mareva jurisdiction) and should not do. Alternatively that claim was a purely monetary claim and did not constitute a pending land action which could be protected by caution.

These arguments come down, I think, to this: is the purchaser entitled to a lien? If so, what for? It is convenient, I think, to examine first the nature of a purchaser's lien and then deal with the construction point and the alternative arguments for, at least so far as the main part of the arguments on these issues were concerned, if the purchaser had no lien by reason of clause 4.1 of the third supplemental agreement, it had no right to a lien except, if at all, on the independent section 49(2) point.

That a purchaser is entitled to a lien for any deposit paid to a vendor on the property contracted to be sold where the contract has gone off otherwise than through his own fault is well established. The primary purpose of a deposit is that it is an earnest or guarantee that the purchaser means business. It is to prevent him from running off his contract. If he does, the deposit is forfeit and the vendor is entitled to retain it subject only to the possibility of an order for its return to the purchaser under section 49(2) of the Law of Property Act, 1925. If he does not, it goes towards the purchase price. A deposit may be paid to the vendor to to a third party as agent for the vendor or as a stakeholder. If paid to the vendor he can deal with it as he likes but, so long as it is not forfeit it retains its quality as a deposit so that if the contract goes off through no fault of the purchaser it can be recovered. Even if forfeited or notionally forfeited under a power reserved in the contract, the deposit is still recoverable if it turns out that the contract has gone off otherwise than through the purchaser's fault. Moreover the purchaser in such circumstances has a lien on the contract property for his unreturned deposit even though the vendor may have applied the actual money elsewhere, eg towards his own deposit under a different property. These principles are well illustrated by a number of authorities: see, for example, Rose v. Watson (1864) 10 HL Cas 672 and Whitbread & Co Ltd v. Watt [1902] 1 Ch 835 CA; and see also Lee-Parker v. Izzet [1971] 1 WLR 1688 at p 1692C-D per Goff J as he then was.

This lien undoubtedly covers the deposit itself and extends, where appropriate, to sums arising as incidental or ancillary to the deposit or its recovery: interest on the deposit, interest paid on the unpaid balance of the purchase money paid to the vendor (Rose v. Watson), and the costs of any action to recover the deposit: see, for example, Turner v. Marriott (1867) LR 3 Eq Cas 744. Where a lien arises it also seems to cover the purchaser's costs of investigating title: see Yielding v. Westbrook (1886) 31 Ch D 344. Whist the basis of the latter is a little unclear and may be an anomaly based on common sense and justice, decisions covering the sums to which the lien extends can all, I think, be explained on the basis that they are sums advanced to the vendor by way of part-payment of the purchase price (such as the deposit itself and interest paid to the vendor on the outstanding balance of purchase moneys as in Rose v Watson) and sums deriving therefrom (such as interest on the deposit) or ancillary thereto (such as the costs of any action in which the return of the deposit is claimed). What the lien does not cover are sums not paid to the vendor or not truly ancillary thereto. Amongst these, in my judgment are the sums the purchaser claims here by way of expenses. I am not persuaded, either in law or on the evidence on behalf of the purchaser that I have seen, that the purchaser's lien extends to the expenses described in Mr Rhodes' first affidavit for the purchaser as "costs thrown away which to date amount to about £165,170 exclusive of VAT" (and which were only very broadly and generally particularised in an exhibited schedule). Such sums do not seem to me to have been paid to the vendor, and do not fall into any of the categories I have described. In my judgment the purchaser can claim no lien for these even if the purchaser was not in default.

If, on the other hand, the deposit is paid to a stakeholder, the stakeholder must retain it until the deposit is forfeited or the contract completed or otherwise as they both agree and direct the stakeholder. In such instances the purchaser has no lien for his deposit. That was the decision of Wynn-Parry J in Combe v. Swaythling [1947] Ch 625. There a vendor brought an action for specific performance of a contract for the sale of certain property under which the purchaser was required to pay a 10 per cent deposit to the vendor's solicitors as stakeholders. The contract went off through no fault of the purchaser and the action was dismissed, the purchaser being awarded two-thirds of his taxed costs of the action. The purchaser thereupon claimed a lien on the property in suit for those costs. Wynn-Parry J refused. The basis of his decision is clear. The purchaser could not, on his counterclaim, have sued the vendor for the return of his deposit (it appears that the vendor never received it) nor for a declaration of lien in respect of it. The deposit had been paid, pursuant to the contract, to the stakeholders, not to the vendor. Since the purchaser could not sue for the deposit nor declaration, he was not entitled to a lien for the costs of the action. "To hold otherwise [said Wynn-Parry J at p 629] would, in my judgment, be to introduce a new rule to support which the principle which underlines the authorities which have been cited to me [amongst which, I interpolate, were Rose v. Watson and Whitbread & Co Ltd v. Watt referred to above] and relied on by Mr Upjohn for the purchaser could not be prayed in aid." It is also interesting to note that Goff J (as he then was) in Lee-Parker v. Izzet in the passage referred, regarded nothing in Combe v. Swaythling as cutting across the basic principle.

Now what is that basic principle? This was carefully analysed by the Court of Appeal in Whitbread & Co Ltd v. Watt (above). There a contract for the purchase of land empowered the purchaser to rescind if the 300 houses to be built under the contract were not built within 2 years of the date of the agreement. The purchaser paid a deposit. The houses were not built and the purchaser rescinded the contract. Under a term in the contract if either party cancelled the contract no loss or damage could be claimed by either party but the deposit was to be returned. The purchaser claimed the return of his deposit and vendor refused. Farwell J held the purchaser was entitled to his deposit and this decision was affirmed by the Court of Appeal where Vaughan Williams LJ said this at page 838:

"The lien which a purchaser has for his deposit is not the result of any express contract; it is a right which may be said to have been invented for the purpose of doing justice. It is a fiction of a kind which is sometimes resorted to at law as well as in equity. For instance, when an action is brought for money had and received to the use of the plaintiff, it is not true that the money has been so received, but that is the way in which the law states the case in order to do justice. When Lord Westbury in Rose v. Watson speaks of 'a transfer to the purchaser of the ownership of a part of the estate corresponding to the purchase-money paid,' and Lord Cranworth speaks of the purchaser being exactly in the position of a mortgagee of the estate to the extent of the purchase-money which he has paid, those expressions are merely verbal vehicles to carry the right which justice demands that the purchaser should have. Having read the report of Rose v. Watson, I must say that, speaking for myself, I agree with Mr Brinton to this extent, that that decision does not expressly carry the purchaser's lien beyond a case in which the contract has gone off through the default of the vendor. Mr Brinton admits that the purchaser, immediately on paying his money, acquires either a lien or an inchoate right of lien for it -- I do not think it much matters which you call it."

Stirling LJ, agreeing, said at p 840:

"The contract has here been brought to an end, not by any act or default of the vendor, but by reason of the purchaser's exercising a power of rescinding it which is reserved to him by the contract itself. That does not seem to have occurred in any previous case. Nevertheless, in the judgments in the two leading cases on the subject, Wythes v. Lee, 3 Drew 396, and Rose v. Watson, the rule is stated in terms which cover the present case. And, if we look at that which is really the foundation of the doctrine, namely, the desire to do justice as between vendor and purchaser, it appears to me that that reason applies no less forcibly in the present case than in the ordinary case in which the rescission of the contract takes place by reason of some default on the part of the vendor. In a case in which the vendor had rescinded under a power reserved to him, it would, I think, be absolute injustice if the purchaser were not allowed to have a lien for the purchase-money which he had paid, and which was the security on his part for the performance by him of the contract. I think also the justice of the case requires that the purchaser should have alien when the contract reserves to him a power to rescind."

Cozens-Hardy LJ's concurring judgment is quite short. His lordship said (at pages 840-841):

"I think the lien for the deposit exists so long as, and in every case in which, the right to recover the deposit has not been lost by reason of the misconduct of the purchaser. In other words, when the contract goes off either by reason of the default of the vendor, or without any default on the part of the purchaser, the lien becomes operative. It would be shocking injustice if the purchaser's lien were to be lost in the ordinary case of a rescission by the vendor under the common form condition. Such a rescission is not unlawful, is not a breach of the contract, and is not any default on the part of the vendor. It would, I think, be equally unjust that the purchaser's lien should be lost when he rescinds the contract under a power to do so reserved to him by the contract itself."

Thus it seems to me that the principle is founded on justice and the expression of that justice is the right of the innocent purchaser who has paid his deposit to the vendor to a lien on the property in the hands of the vendor just as if (an assumption if not a fact) the vendor had executed an equitable mortgage in favour of the purchaser for the amount of his deposit, interest and costs. The justice is imposed to remedy an obvious injustice. It supplements the gaps in the contract and does not cut across or contradict the parties contractual arrangements. Thus the lien arises or becomes operative when either the vendor or the purchaser has exercised a right of rescission reserved by the contract otherwise than by reason of the purchaser's default. It becomes operative in order to prevent injustice to the purchaser. If the purchaser is at fault there is no need for justice to intervene. The lien does not arise and does not become operative. Since the justice operates for the benefit of the purchaser, there can be no injustice and no need for the intervention of justice if the purchaser chooses to enter into contractual arrangements under which, expressly or by necessary implication, no right to a lien is to arise irrespective of whose fault it is for the contract going off, for example when the parties contractually agree that the deposit should be paid to a third party as a stakeholder. It may be that on completion the stake is released to the vendor and credited against the purchase price, but in the meantime the purchaser acquires no inchoate lien for he has contractually bound himself to pay the deposit not to the vendor but to a third party. If the contract goes off through no fault of the purchaser he still acquires no lien. Thus it is recognised that the parties might exclude the possibility of the lien arising by their contractual arrangements. It is not sufficient to exclude the lien merely by the ordinary reservation of a power to forfeit the deposit or cancel the contract, for in those circumstances the purchaser has not surrendered his lien nor agreed not to exercise any lien if the contract goes off otherwise than through his own default. But if the purchaser expressly agrees he should acquire no lien, that, in my view, is another matter. None of the authorities seem to me either in principle or reasoning to exclude that possibility. Cozens-Hardy LJ's opening sentence of his judgment in Whitbread & Co Ltd v. Watt, whilst in quite general terms, must be read in its context. It remains to be seen whether the lien has been contractually excluded in this case.

What then is the position of a purchaser who has contractually released his deposit, which was previously in the hands of stakeholders (where the purchaser had no lien) into the hands of the vendor? In the ordinary case where there was a mere substitution of the vendor for the stakeholders without more, I would have no hesitation in saying that in such circumstances clearly the purchaser was thereby intended to acquire a lien. That must be right and is fully in conformity with the cases to which I have referred.

Is this case, as Mr Nugee contends, just such a case? This involves a consideration of clause 4.1 of the third supplemental agreement. Mr Nugee accepted that the issue of construction could be decided at this stage. He submitted that the effect of clause 4.1 of the third supplemental agreement was merely to release the deposit (ie the shares and the £50,000) from the stakeholders to the vendor. They could deal with that deposit as they wished. They could sell the shares and spend the £50,000 but it did not cease to be a deposit. It was unthinkable and absurd, he submitted, that had the purchaser completed on the 14th July it should be required to pay the full purchase price of £3,396,494.30 plus VAT without any credit being given for the agreed sum of £500,000. He drew attention to the use of the words "as if the Deposit had been forfeited" in clause 4.1, emphasising the words "as if". That, he submitted, showed that the parties proceeded on an assumption ("as if") which was not, in fact, the truth. Thus the deposit had not, he argued, in fact or in truth, been forfeited; rather it had been merely released to the vendors to be held by them, but as a deposit or advance on the purchase price. In consequence the purchaser thereby acquired a lien on the property for the deposit, interest, costs and expenses amounting to some £165,170.

Mr Berry, for his part, shrank, I think, somewhat from suggesting that no credit would have to be given for the £550,000 if the contract had been completed but did not formally concede that point. (In parenthesis it is to be noticed that the writ claims a declaration that the deposit of £500,000 paid under the main contract "is forfeited" and that the deposit of £50,000 paid under the second supplemental agreement "is forfeited". There is no claim that it has been forfeited by the third supplemental agreement). He confined his main argument to the submission that the intention of the parties, to be drawn from the terms of the agreement including its variations, was that the purchaser had intended to release the deposit to the vendor and that, to all intents and purposes, it thereby lost its quality as a deposit and the purchaser did not thereby acquire a lien.

Here the deposit was, indeed, paid to two separate stakeholders. They, therefore had to retain their respective portions (the shares and the £50,000) until forfeiture or completion or as directed by the parties. In the present instance the purchaser was in default by the date of the third supplemental agreement (the 27th May 1992), not just once (on the 19th March), not just twice (on the expiration of the notice to complete), but a third time on the 12th May when time was expressly of the essence under the second supplemental agreement. By the second and third defaults the vendors could, on general principles, have forfeited the deposit. That the vendors had eyes on the deposit, come what may, was to some extent foreshadowed by the provisions of clauses 5.3 of the main contract and 5.2 of the second supplemental agreement. By the 27th May the purchaser was, through its default, therefore at risk and at the mercy of the vendors. It seems to me that this was clearly recognised and acknowledged by both sides by the terms of clause 4.1 of the third supplemental agreement. Regard must be had to the opening words of clause 4.1, not just the concluding "as if" words: "the Vendors are at the date hereof entitled ... to ... forfeit the deposit". It seems to me perfectly plain that part of the price for allowing the contract to remain on foot for a further period to the 14th July 1992 was that, come what may, the deposit would be forfeited. The third supplemental agreement says nothing about the vendors holding the deposit as a deposit. It simply says "the Purchaser hereby releases the Deposit to the Vendors absolutely to deal with it as if the Deposit had been forfeited at today's date". If the intention was merely to transfer the deposit from the stakeholders to the vendors so that the vendors could have the use of the money in the meantime but it was still to be treated as a deposit it would have been a perfectly simple matter so to provide. But unfortunately the clause does not so provide. It is silent on the matter and I must deal with that silence. Bearing in mind that at the date of the third supplemental agreement it was the purchaser's who were in acknowledged default can it really be said that they were intended to be in a better position than if the deposit had been left with the stakeholders? That if Mr Nugee is correct, is the logical consequence of his submissions.

I think at the end of the day it can. In my judgment the court ought not to deprive the purchaser of his lien arising by operation of law unless there are clear words to that effect. In my judgment the true construction and effect of clause 4.1 of the third supplemental agreement was that the vendor was to have the use of the money and shares constituting the deposit pending completion. Otherwise the deposit would have remained with the stakeholders. The quid pro quo was that the purchaser acquired a lien which would arise if the contract went off otherwise than through its default. The purchaser contractually and expressly released the deposit to the purchaser as if it had been forfeited. Although the purchase price was increased the contract was not varied expressly so as to deprive the purchaser of the credit that would have to be given if the contract was completed. That, after all, was what the parties were then contemplating, namely that the contract would be completed. It seems to me a necessary implication therefore that credit would be given. Hence the purchaser acquired a lien, or a right to a lien, by reason of that release even though the deposit was forfeited out of the hands of the stakeholders into the hands of the purchasers. If credit was to be given on completion it was still a payment by way of advance of the purchase moneys even if forfeited. I see nothing in the authorities negativing this (on the contrary) and I see no injustice in the result to either party. If the contract went off through the vendor's default, the purchaser has its lien. If the purchaser was at fault, the lien does not arise.

Thus on the construction point, in my judgment the purchaser acquired a lien once the deposit was released under clause 4.1 of the third supplemental agreement to the vendors and which arises if the contract goes off through no fault of the purchaser.

I must therefore deal with the repudiation point, but I will first deal, briefly, with Mr Nugee's alternative argument that the effect of the repudiation of the contract by the vendor was to repudiate the whole contract and thus entitle the purchaser to the return of his deposit. This, of course must be on two assumptions: first, the assumption that the vendors were not entitled to repudiate the contract for if they were, the deposit would be forfeit in any event; secondly, the assumption that even if the vendors were not entitled to repudiate the contract, the purchaser acquired no lien by virtue of clause 4.1 of the supplemental agreement contrary to the view expressed above. Obviously it is not strictly necessary for me to decide this point, but out of regard for the arguments addressed to me I will express my views.

For my part, on the assumptions made, I do not think that the purchaser can subsequently acquire a lien if the effect of clause 4.1 was that none should be acquired merely because the entire contract has been terminated. The primary obligation, ie to release the deposit to the vendor absolutely with the consequences assumed (no lien), has already been performed. On the assumptions made, the purchaser may have claims in damages but that, it seems to me, would be all.

I have already dealt, in part, with Mr Nugee's other argument that even if, on the true construction of clause 4.1, he has no lien for his deposit, he still has a lien for costs, interest and expenses. As I have already said, in my judgment the purchaser has no such lien for any of the expenses claimed. Any lien for interest and costs is, in my judgment, merely ancillary to, an incident of, or the fruits of the claim for the lien for the deposit. If the tree has gone, so must the apples fall.

In view of the foregoing, I must now resolve the repudiation point. It was submitted by Mr Nugee that the evidence showed that the plaintiff vendors had, since the 14th July, indicated to the purchaser that the contract was still on foot. I do not think I need to set the evidence out in detail. It is sufficient, I think, merely to record that Mr Mark Rhodes, the defendant's director, deposed in his first affidavit that he was repeatedly assured by Mr Cotter, the plaintiff's chief executive, that the contract remained in force both parties being anxious that the transaction should proceed if possible (see paragraph 5). He indicated that there many telephone conversations between him and Mr Cotter. In his second affidavit he went a little further. He said that on several occasions between the 14th July and the 8th September 1992, Mr Cotter told him that he had a termination letter on his desk ready to send if the purchaser did not complete the contract. Mr Cotter told him that he had other interested purchasers who were "screaming for contracts". Mr Rhodes told him that he needed to know that the purchaser's contract still stood and on each occasion he (Mr Cotter) expressly or impliedly confirmed this. Mr Rhodes then kept Mr Cotter informed of the progress he was making towards completion of the contract (part of the problem seems to have been that the purchasers were trying to set up a deal with the local council to buy in adjoining land so as to form one comprehensive site with the land to be purchased from the plaintiffs). At times, deposed Mr Rhodes, Mr Cotter encouraged him to pursue his efforts (see paragraph 4 of his second affidavit). I appreciate that this evidence and assertions are disputed. I do not see how I can resolve this dispute on what I have seen. I would only say that having seen the evidence and correspondence on this issue I accept Mr Nugee's submissions that I cannot disregard the oral evidence and in consequence I find that there is a triable issue between the parties as to whether the vendors were entitled to treat the contract as at an end.

Hence, in my judgment, there is a fair, triable issue as to whether the purchaser is entitled to a lien on the property. In those circumstances the defendant purchaser is entitled to maintain the cautions subject to the cross-undertaking point. I will deal, however, first with the section 49(2) point even though that too is not strictly necessary for that also was the subject of some debate before me.

If I am wrong on the foregoing and if Mr Nugee's fall back position is right, even if the purchaser is not entitled to maintain his caution on the grounds previously dealt with, he is entitled, he submitted, to maintain it by reason of his claim under section 49(2). That sub-section provides:

"Where the court refuses to grant specific performance of a contract, or in any action for the return of the deposit, the court may, if it thinks fit, order the repayment of any deposit."

As at present the defendant have commenced no action for the return of the deposit, but it is, I suppose, conceivable that they might do so by way of counterclaim in the present action and Mr Nugee assured me that the purchaser had every intention of so doing.

I can deal with this point quite shortly. Mr Nugee submits that the court has the widest discretion under section 49(2). That this is so can no longer be in any doubt: see Universal Corporation v. Five Ways Properties Ltd [1979] 1 All ER 552 CA per Buckley LJ at pages 555-556.

The whole basis of the claim under section 49(2) is of course predicated with an assumption that the purchaser is in default for, if it is not, it has no need to resort to section 49(2): see Dimsdale Developments (South East) Ltd v. De Haan 47 P&CR 1 at 11 per Mr Gerald Godfrey QC sitting as a deputy High Court Judge. That does not mean, however, that the sub-section confers a right which can be protected by caution. The juridical basis of the claim is purely statutory. Unless the court exercises its discretion under that section a purchaser is entitled to nothing. He has already lost his deposit by his misconduct. Section 49(2) says nothing about any lien. It confers on the court merely the right to relieve against the consequences of the forfeiture of the deposit and order its return. The claim is thus revealed as being a monetary claim, not a proprietary claim founding no, or no claim to an, interest in land sufficient to maintain a caution whether as an interest in land under section 54(1) of the Land Registration Act, 1925 or as a pending land action under section 59(1) of that Act. In my judgment, therefore, section 49(2) gives the defendant in this case no independent right to a lien and no independent justification (aside from that previously mentioned) to maintain the cautions.

In the result I must deal finally with Mr Berry's own fall back position. Mr Berry submits that even if the purchaser is entitled to maintain a caution on the register on all or any of the grounds advanced, the price of that should be a cross undertaking in damages. That is the normal practice recognised and approved by the Court of Appeal in Tucker v. Hutchinson 54 P&CR 106 CA. Since none has been offered and any would, in any event, be worthless, he submits I should therefore on that ground order the entries vacated.

Mr Nugee says, in effect, what is sauce for the goose is sauce for the gander. The vendors' own financial position is such that if the purchaser succeeds in its claims the vendors will have been £550,000 better off and the purchaser likely to get nothing. That he says is unfair. Further, submits Mr Nugee, for these purposes it must be assumed that the purchaser has a lien for his deposit which equates him to a secured creditor: see Combe v. Swaythling (above, at p 628). He thus has an interest in the vendor's land which he should not, in effect, be required to surrender. He says the purchaser is perfectly willing for the land to be sold provided their deposit, interest and costs (ie the amount covered by their lien) is set aside to abide the outcome of the action. Thus he distinguishes the authorities which, he submits, only apply to cases where the very existence of a contract was in dispute, not where the contract has gone off and the purchaser is claiming a return of his deposit through the vendors' default or under section 49(2).

Mr Berry's riposte was that requiring the vendors to set aside the amount of the claim would be equally unfair, just as unfair, in effect, as if the cautions remained.

I was referred to the leading cases on this topic which were considered by the Court of Appeal in Tucker v. Hutchinson (above). The principle which emerges is, I think, this: the position of both parties should be preserved. Thus the owner of the property subject to a claim by a purchaser for specific performance which he sought to protect by a caution was not to be subjected to the risk of being out of pocket should the purchaser fail to prove the contract at trial: see Tucker v. Hutchinson (above at p 110 per Balcombe LJ). That principle is reflected in requiring the purchaser to give a cross undertaking in damages as the price of maintaining his cautions. The purchaser is protected because he maintained his caution. The owner or vendor is protected by the cross undertaking in damages. There seems to me to be no difference in principle where the purchaser is claiming a lien on the property as here. The purchaser is protected by a caution on the property, equally the vendors should be protected by a cross undertaking in damages in case it turn out that the contract did go off through the purchaser's default. Test it another way. Suppose the purchaser sought instead an injunction against selling the property without setting aside the amount claimed by the lien to abide the outcome of the action. It would, I have no doubt, be required to give a cross undertaking in damages as the price of that injunction. I see therefore no difficulty in requiring a cross undertaking in damages in this case as a price of maintaining the cautions. It would be equally unjust for the plaintiff vendors to have to set aside what might be much needed money without the protection of an adequate cross-undertaking in damages. None has been offered. Since the purchaser is not willing to pay that price it ought not to subject the vendors to the risk of loss through the maintenance of the cautions or, in my view, the setting aside of the amount claimed to be covered by the lien. On this ground, therefore, I am inclined to order the entries to be vacated. Had the undertaking been offered I should, as presently advised, having regard to the nature and date of the financial evidence before me, been inclined to order security for that cross undertaking as a further condition of maintaining the cautions. The amount and nature of that security would have to be, I think, adjourned for further evidence of the up-to-date financial position of the purchaser and further submissions in the light of this judgment.

Even at this stage it is I suppose possible that a cross-undertaking might be offered and if so, the court ought always to have regard to that. If a cross-undertaking is offered, I propose, subject to submissions, to deal with the matter in the way indicated in the hope that the further application for security can be dealt with speedily. If no cross-undertaking is offered I propose to order the cautions vacated.