Deposit Not Repayable Even Though Contract Was Void

Sharma and Kuruppu v Simposh Limited [2011] EWCA Civ 1383

S&K paid a deposit to Simposh under an oral agreement giving S&K an option to purchase a block of flats under construction at an agreed valuation. Simposh was to complete the construction within an agreed time and not to market the property elsewhere. Following a downturn in the market, S&K decided not to exercise the option and reclaimed the deposit, arguing that there was no enforceable contract. The issue for the court was whether there had been a failure of consideration entitling S&K to the return of the deposit under the law of restitution.

The Court of Appeal overturned the High Court's decision and decided that Simposh did not have to return the deposit. The option was of no contractual effect, but the law of restitution was concerned with money paid or benefits conferred in respect of legally ineffective transactions. S&K had got what they paid for – Simposh had taken the property off the market pending completion and kept open its offer to sell it to S&K at a fixed price. That did not amount to a legally binding contract, but was nevertheless highly relevant to the question regarding whether there was a failure in the fulfilment of the parties' expectations such that denial of repayment would leave Simposh unjustly...