Question
As a matter of law, a deposit is not normally recoverable, even if the payee has not suffered any loss as a result of the breach. However, in [ case ], the Privy Council imposed a limitation on this general rule. The general rule only applies if the deposit was given in earnest of performance. A deposit of 25 per cent had been demanded when the prevailing local rate was 10 per cent. The Privy Council advised that the deposit should be repaid subject to a set-off for any loss actually sustained. The court will not re-write the contract by inserting a reasonable figure and allowing the payee to retain the sum. So, the courts are willing to regulate contracts which specify unreasonable deposits.