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Cayman Islands Court of Appeal resolves judicial and academic conflict on restitutionary claims

In a recent decision of the Cayman Islands Court of Appeal delivered on 14 November 2019, the Court has resolved an important and long-standing debate over restitutionary claims. Specifically, the Court has given clarification on the question of how and by what means it determines the issue of restitution between a seller and a buyer, in circumstances where a contract is terminated by breach and repudiation of the contract by the buyer, who has been in possession of the subject matter of the sale and who has paid the seller instalments of the purchase price with interest, pending transfer of title at a later date. 

 

H.E.B Enterprises Ltd and Anor v Richards [CICA Civ No 20 of 2018] involved a dispute concerning the sale of two shops in a shopping complex in Grand Cayman by the Appellants (Seller) to the Respondent, Anthony Richards (Buyer). Both contracts, signed during the pre-construction phase of the project, were made pursuant to an ‘owner-financed’ arrangement whereby each purchaser took possession of the shop upon payment of a small deposit and made subsequent instalments of principal and interest over a period of 20 years. The Buyer subsequently defaulted and the Court at first instance held that the Seller had exercised an option to rescind. This, the Court held, meant that title had never passed to the Buyer and there had been a total failure of consideration which entitled the Buyer to the return of all monies paid under the contracts, less only deposits and interest thereon, as well as an entitlement of the Sellers to set off strata fees and mesne profits. The Seller appealed the decision.
 
The Cayman Islands Court of Appeal referred to the three principal English authorities of Mayson v Clouet [1924] AC 980, Dies v British and International Mining and Finance Corporation Limited [1939] 1 KB 724 and Stockloser v Johnson [1954] QB 476 (CA), as well as the more extensive Australian authorities when considering the competing arguments, namely: on the one hand, should a buyer be entitled to full restitution of all payments made towards the purchase price (minus any forfeited deposit), because there is no longer any basis for payment? Or should the seller be entitled to retain interest payments, reflecting the use by a buyer of the subject matter of the contract? Rix JA considered both to be unsatisfactory, in that each failed to achieve fairness between the parties. Instead, the Court concluded that the fairest way of achieving the right balance lay in the concept of mesne profits (payment for occupation, not constituting rent), such that, subject to the terms of a particular contract, the buyer should recover all payment towards the price (minus any forfeited deposit), both principal and interest, less deduction for the fair value of his use of the property.
 
This decision provides important clarification in the area and showcases the Cayman Islands court’s involvement at the forefront of the development of the law. 
Cayman Islands Court of Appeal resolves judicial and academic conflict on restitutionary claims

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