LVM succeeds in resisting claim by purchaser of property for late completion interest

Earlier this year, our Qabir Sandhu and Clara Lim successfully resisted a claim by a purchaser of property for late completion interest under somewhat novel circumstances.

A purchaser (“P”) had agreed to purchase a semi-detached house from two sellers (“K and S”). The sale and purchase agreement was subject to the Law Society’s standard conditions of sale. After the sale and purchase agreement was signed, but before the purchase was completed, K and S applied for bankruptcy. Our client was the largest creditor of K and S. There was no dispute that K and S were unable to pay their debts.

Given K and S’s impending bankruptcies, P refused to complete the purchase without Court sanction. As a result, the purchase was not completed as scheduled, despite K and S being ready to complete the purchase.

P’s refusal to complete was due to Section 328 of the Insolvency, Restructuring and Dissolution Act (“IRDA”), which voids any disposition of property made by bankrupts after the filing of their bankruptcy application till the date of the bankruptcy order, save to the extent the Court sanctions or subsequently ratifies that disposition. The transfer of the property upon completion would likely have counted as a disposition under Section 328 IRDA.

P applied to the High Court to sanction the property purchase. In the same application, P claimed late completion interest from K and S given the delays caused by the sanction application.

Our client agreed to the sanction application, but disagreed that P was entitled to late completion interest. We argued that there were no contractual provisions in the sale and purchase agreement or the Law Society’s standard conditions of sale entitling P to late completion interest in circumstances where K and S had been prepared to complete the purchase, but P had refused to do so.

We further argued that while P’s decision to refuse may have been reasonable in the circumstances, this did not shift the blame solely to K and S, nor entitle P to claim late completion interest as though K and S had caused the non-completion.

The High Court accepted our arguments and denied P’s claim for late completion interest.

This case arose in somewhat novel circumstances and highlights the difficulty that may arise when the interests of two arguably blameless parties – in this case, our client and P – clash. It presents a reminder to property buyers to ensure that sellers remain financially healthy, and if need be, to safeguard themselves by including appropriate contractual clauses in their sale and purchase agreements.