Property Contract – Specific performance including assessment of damages and interest in respect of a contract for the purchase of a commercial property

In the recent Court of Appeal case Donegan & Ors (the Respondents) v Kenny (the Appellant) [2020] IECA 90, Haughton J considers the order and judgement of High Court specific performance proceedings wherein the Appellant failed to complete a purchase of a commercial property.

Background

The Appellant (orse the Purchaser) failed to complete the purchase of Block 20A, Beckett Way, Park West Business Park, Gallanstown Dublin 12 (the Property) from the Respondents (orse Vendors) at an agreed price of €1,450,000.00. The property was ultimately sold to a third party at a lower purchase price of €1,300,000.00.

The High Court awarded damages including interest against the Appellant in the sum of €248,871.00.

Court of Appeal

While a number of issues were raised on appeal, the two issues of importance were as follows;
a. whether the Respondents had taken considerable steps to mitigate their loss; and

b. whether the original trial judge erred in using the 10% interest rate stipulated in the contract as the appropriate benchmark to assess damages.

1. Decision on mitigation

Haughton J. (“HJ”) highlighted that there was a duty on the Respondents to take reasonable steps to mitigate their losses when the Appellant failed to complete the contract.

The onus lies with the Appellant to establish based on credible evidence that the Respondents failed to mitigate their losses. The Appellant claimed that the shortfall of €150,000.00 could have been avoided had the Respondents remarketed the Property,

HJ acknowledged that the Respondents had engaged in negotiations with the third party for several months before concluding the sale of the Property for the price of €1,300,000.00. HJ also took into consideration the fact that the Respondents were coming under significant pressure from their lender AIB who held a charge over the Property.

HJ held that the original trial judge had not applied a standard that was “unduly harsh” and noted that the Appellants failed to produce any expert valuation evidence to suggest €1,300,000.00 was in fact an undervalue. There was no scope for the trial judge to reach a different conclusion. HJ found that the trial judge had applied the law correctly and this ground of appeal failed.

2. Decision in respect of Damages

HJ held that the trial judge erred in applying General Condition 25(a) as the appropriate measure to assess damages. Under 25(a) when a purchaser delays the completion of sale, the interest rate stipulated in the contract is added to the balance of the proceeds payable on closing. In circumstances where the purchaser fails to complete the purchase however General Condition 41(a) applies and entitles a vendor to forfeit the deposit.

HJ followed with approval, Clarke J in Kelleher v O’Connor [2010] IEHC 313 that the Vendor is entitled to claim sufficient damages to put him/her “back into the position they would have been in had the relevant wrongdoing not occurred”. The process is to ascertain the Respondents’ actual loss arising from the Appellant’s failure to complete the purchase. HJ noted that this process was not adopted by the High Court but instead the case proceeded on the assumption that damages were to be addressed by an award of interest.

HJ stated that the actual loss suffered by the Respondents was the additional interest owed to AIB in respect of the Respondents’ loan, which interest began accruing from original the ‘closing date’ and ending on the actual closing date of the property when it was resold and this amounted to 454 days (€54,321.10). This amount is substantially lower than original award in the High Court.

For that reason, HJ held that the trial judge was wrong in his assessment of damages and allowed the appeal in part.

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