Sale of land — Completion — Notice to complete — Compliance — Contract providing for completion by 1pm on completion date failing which purchaser to be treated as having completed on next working day — Whether failure of purchaser to pay purchase moneys by 1pm on last day permissible under notice to complete entitling vendors to rescind— Whether failure to include vendors’ legal costs in sum paid having that effect
The appellant agreed to purchase a freehold property from the respondents for £120,000. Contracts were subsequently exchanged and the appellant paid a deposit of £12,000. The contract incorporated the standard conditions of sale (4th ed), together with various special conditions. Special condition 10 provided that completion was to take place by 1pm on the date “fixed for completion” and that if completion took place after that time “the Buyer shall be treated as having completed on the next following working day”. Special condition 26 required the appellant to pay the respondents’ legal costs of the sale in the sum of £500 plus VAT.
The parties disagreed over the meaning of the contractual provisions fixing the completion date. The respondents served various notices to complete, the last of which was given on 12 February requiring completion by 26 February, with time to be of the essence. At 2.44pm on 26 February, £113,070 was transferred to the respondents’ solicitor. The respondents repaid the money. They maintained that they were entitled to rescind the contract and forfeit the deposit because the purchase moneys had arrived too late and had not included the sum for their legal costs referred to in special condition 26.
In proceedings between the parties, it was held that: (i) 12 February was the correct contractual completion date, so that the last notice to complete was effective; (ii) payment after 1pm on 26 February was not too late to complete in accordance with that notice, but merely meant that an additional day’s interest was to be added to the sum paid; and (iii) the respondents were none the less entitled to rescind owing to the appellant’s failure to pay their legal costs, which were payable on completion. The appellant challenged the third of those findings, and the respondents challenged the second.
Held: The appeal was allowed. (1) Special condition 26 did not make the vendor’s legal costs payable upon completion in the sense of being moneys that the purchaser had to pay as a condition of completion. If that had been intended, it should have been made clear; special condition 26 contained no provision as to when and in what circumstances the sum would be payable. (2) Payment at 2.44pm on 26 February had not been out of time, but for different reasons from those found by the judge below. The date “fixed for completion” within special condition 10 meant one day only, namely the contractual completion date of 12 February. If the purchaser did not complete by 1pm on that day, it would be in breach of contract, but that would not entitle the vendor to rescind or decline to accept completion later in the day, since time was not normally of the essence at that stage. Once that date had passed and a notice to complete had been served, the purchaser had to complete within 10 working days or risk losing the deposit and the contract. However, it could not be said that any one of those days was “fixed for completion”; accordingly, special condition 10 did not apply in that situation. The vendor was entitled to an extra day’s interest under standard condition 6.1.2 but was not entitled to rescind the contract. The appellant was entitled to an order for specific performance.
The following cases are referred to in this report.
Chinnock v Hocaoglu [2007] EWHC 2933 (Ch); [2008] 2 EGLR 77; [2008] 29 EG 92
Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514; [1997] 2 WLR 341; [1997] 2 All ER 215
This was an appeal by the appellant, Raymond Chinnock, from a decision of Blackburne J, sitting in the Chancery Division, upholding the right of the respondents, Mustafa Hocaoglu and Vasfiya Hocaoglu, to rescind a contract for the sale of land and forfeit the appellant’s deposit.
John Bryant (instructed by Gelbergs) appeared for the appellant; Katharine Holland (instructed by DKLM Solicitors) represented the respondents.
Giving judgment, Lloyd LJ said:
[1] In this appeal, the court has to consider the meaning and effect of various provisions in a contract for the sale of land that, although residential in nature, was tenanted and was to be bought as an investment rather than for occupation. Two points arise for decision, one of which turns on a provision agreed specifically for this transaction. The other requires the court to examine the interrelationship between various of the special conditions in the contract, on the one hand, and some of the standard conditions of sale, on the other. The appeal is from an order of Blackburne J made on 9 November 2007, whereby he dismissed a purchaser’s claim for specific performance, having held that the purchaser had failed to comply in one respect with the requirements of a notice to complete.
[2] The contract was made by exchange on 12 December 2006. The purchase price was £120,000 and a deposit of £12,000 was paid on exchange. It is now common ground that the contractual date for completion was 12 February 2007. It was not completed on that day, and the vendors’ licensed conveyancers, Cain Associates, served notice to complete that required completion within 10 working days, namely on or before 26 February 2007. On that day, the purchaser’s solicitor, Gelbergs, caused the sum of £113,070.34 to be transmitted by direct bank transfer to Cain Associates’ account; it arrived at 2.44pm. The latter rejected it on two grounds: (i) it was too late because it should have been paid by 1pm; and (ii) it was too little because it failed to include a sum of £599.50 provided for by a special condition of the contract. The judge upheld the latter but not the former objection. The |page:62| buyer appeals, with permission to appeal granted by Sir John Chadwick; the respondents seek to support the decision by arguing that the judge should have decided the other point in their favour, by a respondent’s notice.
[3] The property that is the subject matter of the contract, 70 Ommaney Road, Lewisham, is registered in the names of the respondents as proprietors as a freehold property subject to and with the benefit of two long leases, of the ground and first floors (99 years from 1985). The basement is, or was, occupied by a tenant at a rack-rent. By virtue of section 5 of the Landlord and Tenant Act 1987 (the Act), the vendors could not sell the freehold without giving the leaseholders under the long leases the option to buy it, by a written notice of not less than two months. The parties had agreed a sale in principle in November 2006, but the need to comply with section 5 then came to light. Optimistic that the qualifying tenants would not wish to exercise their statutory rights, the appellant was willing to exchange contracts without waiting for the notices to expire, but subject to a suitable condition. Cain Associates gave the necessary notices on 24 November 2006, and a suitable condition was then agreed, to be added to the contract. At the last minute, another added condition was agreed, and contracts were exchanged on 12 December.
[4] The contract is subject to a set of special conditions, and it incorporates the standard conditions of sale (4th ed) in so far as those conditions are not varied by, or inconsistent with, the special conditions. At this stage, I need refer only to special conditions 24 to 26, which are all specific to this transaction. Ms Katharine Holland pointed out that condition 24 was typed, and the other two were added in manuscript. It is clear that the latter two were afterthoughts, but nothing turns on that.
24. The purchaser’s Solicitors will pay to the vendor’s Solicitors upon completion the additional sum of £4,497.91 to recoup the Vendor of the losses incurred to date due to the owner of the Ground Floor Flat which is made up as follows
1. Arrears of Service Charges in the sum of £1,308.08
2. Court Fees in relation to the issuing of proceedings and judgement £135.00
3. S20 Notice repair works £2,467.33
4. The vendor’s Solicitors legal fees £587.50.
25. Prior to the date hereof the seller’s solicitors have served notice pursuant to Section 5 Landlord and Tenant Act 1987 upon the qualifying tenants of the Property. This agreement is conditional upon the said tenants not exercising their rights under the 87 Act. If the said tenants do exercise their rights under the Act then this Agreement shall be null and void in all respects and the deposit paid hereunder shall be returned in full with interest. If the said tenants do not exercise their rights under the Act then completion shall take place 10 days after the date upon which the said tenants rights to proceed under the Act have expired which date shall be 24th January 2007.
26. The purchaser will be responsible for the legal costs incurred by the vendor in relation to the sale of the above being £500 plus VAT plus office copies of £12.00.
[5] Despite the terms of condition 25, in fact the notices served under section 5 had specified 1 February 2007 as being the last date by which the qualifying tenants could give notice to exercise their rights. Thus, if the last words of condition 25 were to be taken as a statement of the date upon which the tenants’ rights under the Act would expire, the statement would be inaccurate. Cain Associates, of course, knew the correct position, but Gelbergs did not. It had seen the letters enclosing the notices and had been told that they had been sent on 24 November 2006, but it did not see the actual notices until 18 January 2007.
[6] Before Blackburne J, it was argued for the purchaser that the date of 1 February should be substituted for that of 24 January by rectification. The judge said that he was very far from certain that he could not do so by construction. However, he accepted the invitation of counsel then appearing for the appellant to approach the point by way of rectification. He held that the contract should be rectified in that respect, and made an order accordingly. Initially, the respondents challenged that by their respondent’s notice, but Ms Holland informed us, at the opening of her argument on the respondent’s notice, that this point was not to be pursued. For my part, I think that the judge’s first instincts were correct, and that the result should be achieved by a process of construction, not of rectification. The last seven words of the condition should be read as identifying, inaccurately, what the date would be that was provided for by the earlier words, and the accurate date, ascertainable from the notices under section 5 that are plainly part of the matrix of facts, should be the effective date for the purposes of calculating the date for completion in accordance with the contract. However, since what I regard as the correct end result was achieved and it is not now challenged, I need not take up any more time on that point.
[7] In January, Cain Associates, for the vendors, said that it expected completion on 24 January. It sent a completion statement on that date and a notice to complete on the following day. Ms Holland drew our attention to the fact that the completion statement includes, as payable on completion, the sum of £599.50 that arises under condition 26 and that this attracted no comment at the time. On any basis that notice to complete was premature, and Cain Associates withdrew it when this was pointed out. It then contended that completion was due 10 days after 24 January and served a second notice on 5 February. On further objection, it served a third notice on 12 February, without prejudice to the second notice. It is not now contended that the second notice was valid, although this point was pursued before the judge.
[8] Broadly speaking (I will come to the details later), the effect of the notice to complete was that the buyer had to complete within 10 working days, that is, no later than 26 February, and faced the risk of the vendors rescinding the contract, forfeiting the deposit and possibly claiming damages if he failed to do so. There appears to have been no effective communication between the parties’ representatives during the period of the notice. As I have mentioned, on the 10th day, the purchasers’ solicitor made a payment by way of completion: the question is whether it was in time and sufficient in amount.
[9] I will take first the point, under condition 26, as to the amount payable. The condition is set out above. Mr John Bryant’s argument starts from the noticeable difference between condition 24, which expressly provides that the sums there referred to are payable “upon completion”, and condition 26, which merely says that the purchaser is “responsible” for the vendors’ legal costs in a given amount.
[10] In order to review this point in the relevant context, I must set out some of the other terms of the contract.
Special conditions:
11 If the Sellers Conveyancers serve a Notice to complete the Seller shall not be obliged to complete until the Buyers pay Sellers Conveyancers
a) monies due on completion including interest and
b) the Sellers Conveyancers proper reasonable costs of re-calculating the completion figure and of serving any notice to complete and of all additional correspondence in connection herewith the maximum sum of £100.00 plus VAT and vice versa where the Buyer’s Conveyancers serve notice to complete.
…
14. The Sellers’ Conveyancers may retain possession of the title deeds as long as any monies due under this agreement remain unpaid.
Standard conditions:
6.1.2 If the money due on completion is received after 2.00pm, completion is to be treated, for the purposes only of conditions 6.3 and 7.3, as taking place on the next working day as a result of the buyer’s default.
…
6.3.5 When a sum to be apportioned is not known or easily ascertainable at completion, a provisional apportionment is to be made according to the best estimate available. As soon as the amount is known, a final apportionment is to be made and notified to the other party. Any resulting balance is to be paid no more than ten working days later, and if not then paid the balance is to bear interest at the contract rate from then until payment.
6.4 The amount payable by the buyer on completion is the purchase price and the chattels price (less any deposit already paid to the seller or his agent) adjusted to take account of:
(a) apportionments made under condition 6.3
(b) any compensation to be paid or allowed under condition 7.3.
… |page:63|
6.7 The buyer is to pay the money due on completion by direct credit and, if appropriate, an unconditional release of a deposit held by a stakeholder.
[11] Ms Holland drew attention to the use of the phrase “the money due on completion”, especially in special condition 11(a) and standard conditions 6.1.2 and 6.4. She contended that the modest sum provided for in condition 26 is payable as part of the money due upon completion, since that phrase is used in those conditions. In another context, it might be possible to understand an obligation to pay “on completion” as not arising until after (even if immediately after) completion has taken place, but given the reciprocal nature of the process of completion of a contract for the sale of land, and given that payment of the price by the buyer is integral to that process, she submitted that it was obvious that the sum provided for in condition 26 is to be paid on completion, and is to be paid as part of the money payable upon completion, even though it does not say so expressly.
[12] Mr Bryant had three different submissions on the true construction of condition 26 as to when the amount specified in it should be regarded as falling due for payment: (i) upon submission of a VAT invoice from Cain Associates to show the VAT as being due; (ii) within a reasonable time after the date of completion, which he said might be a few days or perhaps a week; or (iii) upon the date of completion, but only after, and not as a condition of, completion. There is no basis for the first of those submissions, which appears to be new, and I need not refer to it any further. It seems from the terms of the judge’s judgment that the argument before him was along the lines of the third proposition, and the judge took this as a concession that the sum was due “upon completion”. Mr Bryant did not accept that any such concession was made. Since, if it had been made, it was on a point of construction only, it is appropriate to allow the point to be argued without regard to any such concession.
[13] It is fair to say that the implication of a reasonable time after completion would be uncertain and therefore untidy. In standard condition 6.3.5, a time running from an uncertain future event is specified as 10 working days. There is no particular need to allow the purchaser an extra period of days for this particular payment because its amount is known from the start (unlike any balance arising under condition 6.3.5) and it is known that it will be payable in any event. It might seem to be an odd contrast that the £587.50 due for the vendor’s legal fees on another point is payable upon completion, under condition 24, but that these other legal fees are not so payable.
[14] However, the fact remains that different language was used when condition 26 was formulated, and it would have been very easy to have used the same or a similar formula following the precedent of condition 24. It was not alleged that any term was to be implied into condition 26 nor was there any evidential basis for doing so. It is a question of construing the words as they stand. In favour of the vendors’ reading is the fact that the amount is known at the outset and the obligation to pay it does not depend upon anything except completion. On the other side, there is the different language, which does not state when it is payable and, in particular, does not say that this sum is to be part of the money to be paid upon completion, although it would have been easy to make that clear.
[15] It seems to me that the judge may have been misled by the way in which the purchaser’s position was put to him by counsel. With respect to him, it seems to me that the difference in the language and, in particular, the absence from condition 26 of any provision as to when and in what circumstances the sum is payable, is the more cogent factor. I would hold that condition 26 does not have the effect that the sum in question is payable upon completion, in the sense of being money that the buyer must pay as a condition of completion. If the condition was to achieve that effect, it should have done so clearly, rather than leaving the time of payment, and the consequences of non-payment, open to doubt. On that point, therefore, I respectfully disagree with the judge. I do not need to decide whether the sum was payable on the completion date after completion or within a reasonable time after completion. The vendors’ position depends upon it having to be paid as part of the money due on completion; in my judgment, it was not.
[16] I therefore turn to the other point upon which the respondents seek to uphold the judge’s decision for reasons that he rejected. Was it too late for the buyer to complete by 2.44pm on the 10th working day after service of the notice to complete? This turns on other provisions of the contract, although one already quoted, standard condition 6.1.2 (see [10] above) is relevant.
Special conditions:
10. Completion shall take place by 1.00pm on the day fixed for completion at the place reasonably nominated by the Seller’s Conveyancers or by way of credit received by the Seller’s Conveyancers Bankers for immediate credit to their account and if completion shall take place after that time the Buyer shall be treated as having completed on the next following working day not being a Saturday, Sunday or Public Holiday.
…
12. In addition to the compensation provided by Standard Condition 7.3 the following sums will also be due to the Seller if the Buyer (through no fault of the Seller) fails to complete on the date or by the time specified in Special Condition No 10 herein.
Standard conditions:
6.2.1 The buyer’s conveyancer and the seller’s conveyancer are to co-operate in agreeing arrangements for completing the contract.
6.2.2 Completion is to take place in England and Wales, either at the seller’s conveyancer’s office or at some other place which the seller reasonably specifies.
…
6.8.2 The parties are to complete the contract within ten working days of giving a notice to complete, excluding the day on which the notice is given. For this purpose, time is of the essence of the contract.
[17] Ms Holland’s submission on this was that special condition 10 requires that the money due on completion be paid no later than 1pm on the due date, and that this applies whether one is considering the contractual date (that is, 12 February in the present case) or a date relevant by virtue of a notice to complete. She accepted that standard condition 6.1.2 would not have that effect, being concerned only with the effect of delay within the day with regard to such matters as apportionments and interest. However, special condition 10 contains, as standard condition 6.1.2 does not, the opening mandatory words “Completion shall take place by 1.00pm” and therefore, it is argued, has a different effect.
[18] The judge held in favour of the purchaser that special condition 10 has the same effect as standard condition 6.1.2, so that it provides for the consequences of payment only after the stipulated time, without making such payment a breach of contract. He said, in [27] and [28]: see [2007] EWHC 2933 (Ch)*:
27. … Without going in to the question how late in the day on the last day for completion fixed by notice to complete it is open to a purchaser to tender the necessary completion monies, I am of the view that unless prevented by the terms of the contract from doing so after a stated time, it was open to the claimant under this contract to tender the monies at 2.44pm in fulfilment of his obligation to complete within the time stipulated by Standard Condition 6.8.2. I agree with Mr Kremen that Special Condition 10 assumes that completion may lawfully occur after 1.00pm. Its effect, in my judgment, is that if completion is after 1.00pm, the sum to be paid must be calculated as if completion had taken place before 1.00pm on the next working day.
28. This conclusion renders it unnecessary to consider Mr Kremen’s other point, which was that Special Condition 10 does not apply once notice to complete has been served. It is sufficient if I say, in agreement with Mr Weekes, that I do not consider that its operation is confined to completion on the contractual completion date. I see no reason why it should not apply to completion on any day when as a matter of contractual right it is open to the parties to complete.
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* Editor’s note: Reported at [2008] 2 EGLR 77
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[19] I have come to the conclusion that the judge was right not to treat payment at 2.44pm on the 10th day of the notice to complete period as being out of time but, with respect to him, for different reasons. I accept Ms Holland’s submission that special condition 10 is |page:64| different, as a matter of language and therefore objective effect, from standard condition 6.1.2 because of the inclusion of the opening words, to which there is no equivalent in standard condition 6.1.2. In fact, on the contractual date for completion, to specify 1pm as the cut-off time does not enable the seller to decline to accept completion later in the day because at that stage time is not normally of the essence. The buyer would be in breach of contract by not having completed within the stipulated time, but the seller could not call the contract off for that reason. The Privy Council case of Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514, on appeal from Hong Kong, illustrates this by way of contrast. In that case, the seller was entitled to rescind the contract when the buyer was 10 minutes late in tendering the completion money upon the date fixed under the contract, but, in that case, time was expressly made of the essence of the contractual completion date and time: see the opinion of Lord Hoffmann, at p518B-E.
[20] As it seems to me, the difficulty for the vendors in relying upon special condition 10 after service of a notice to complete is the use of the words “on the day fixed for completion”. That fits perfectly well in respect of the contractual date, in the present case 12 February. That is a day that can properly be said to have been “fixed for completion”. Once that has gone by, however, and a notice to complete has been served, what day, if any, is “fixed for completion”? The buyer must complete “within ten working days” under standard condition 6.8.2 or risk loss of the deposit and the contract. Which, if any, of those 10 working days is “fixed for completion”?
[21] Ms Holland submitted that special condition 10 must be read as still applying after service of a notice to complete, not only in order to stipulate a last time for completion but also to entitle the vendor, if late completion were accepted, to an extra day’s interest. She pointed out that the purchaser’s solicitor did in fact include an extra day’s interest in the amount transferred on the 10th day, and suggested that this showed that special condition 10 was regarded as applicable. She also contended that special condition 10 was needed in order to provide for completion to take place, either at the place reasonably nominated by the seller’s licensed conveyancers or, alternatively, by direct bank transfer to the licensed conveyancers’ banker for immediate credit. Mr Bryant, however, was able to point out that direct credit transfer is provided for in the standard conditions by condition 6.7, and nomination of the place for completion, if it takes place by way of a meeting, by condition 6.2.2. He argued that the other function of special condition 10, with regard to compensation for any delay, is covered by condition 6.1.2 and that, whether or not it thought about it, the buyer’s solicitor may either have had this in mind when including the extra day’s interest or it may simply have been acting on the safe side, in case it were held, on whatever basis, that that day’s interest was due.
[22] It seems to me that one way to test Ms Holland’s submission is to consider what the position would have been had the purchaser sought to complete on, say, the fifth working day after service of the notice to complete, by arranging payment to the vendor’s licensed conveyancer’s bank account of the sum that they calculated to be due. That day could not be described as “the day fixed for completion”. It would not have been fixed in any particular sense, nor would it be the only day, and therefore “the day”, upon which completion could take place. For that reason, it seems to me that special condition 10 would not apply to completion on that day. If completion took place before 1pm, no problem would arise, but if the money was not transmitted until after 1pm, that condition would not be available to allow the seller to insist upon an extra day’s interest.
[23] Ms Holland submitted that it was not necessary to consider the position on any day other than the 10th day after the notice to complete, and that even if a problem might arise on an earlier day, the 10th day (if completion has not taken place by then) must be regarded as “the day fixed for completion” because it is by then the only day upon which, consistently with the contract and the notice to complete served under it, the contract can still be completed (otherwise than by separate agreement). It is therefore a day “fixed” for completion by the terms of the contract, by the service of the notice to complete in accordance with the contract and by the events that have happened, namely the fact that the contract has not yet been completed, and it is the only day, and therefore “the” day, which can then satisfy those requirements. She pointed to the language of standard condition 6.8.2, which requires the parties to complete within the 10-working day period, so as to show that it is a matter of obligation under the contract, binding on both parties, that completion should take place no later than that day.
[24] Mr Bryant argued that condition 6.8.2 requires completion within the 10 working days, and submitted that if special condition 10 overrides that the parties would have only nine-and-a-half working days, not the 10 of which condition 6.8.2 speaks. As it seems to me, condition 6.8.2 requires completion to take place within the 10 working days but otherwise in accordance with the contract. Thus, although the definition of working days in standard condition 1.1.1(m) does not prescribe hours within the day, in practice completion can take place (subject to special arrangements between the parties) only at a time when a banking transfer can be made, since the money has to be paid by such a transfer under standard condition 6.7, just as much as by special condition 10. If special condition 10 does apply and if its effect is to require completion by 1pm, that would be one of the terms of the contract governing how completion is to take place, compliance with which would be required in order to satisfy condition 6.8.2.
[25] Despite Ms Holland’s well-presented argument for saying that the 10th working day after the day of service of a notice to complete is to be understood as “the day fixed for completion”, of which the principal feature is set out in [23] above, it seems to me that it has a fatal flaw, which is that the language of the special condition and, in particular, the use of the word “the” to govern “day fixed for completion”, points to one and only one such day, which must be the contractual date for completion. Were the contract to be varied (by a written supplementary agreement) so as to substitute a new date, the new date would become “the day fixed for completion”. I do not accept that “the day” fixed for completion means both the contractual date and, if the question arises, the last date for compliance with a notice to complete. I note that special condition 11 deals expressly with consequences of service of a notice to complete, so the drafter of these special conditions was well aware of the need to deal with the position that would arise after service of such a notice. I also note that special condition 12 refers back to “the date” and “the time specified in” condition 10. That seems to me to support the view that condition 10 refers to one single date, namely the contractual date for completion.
[26] Standard condition 6.1.2 does not attempt to prescribe a time as a cut-off for when completion is to occur. It deals only with the financial consequences of completion late in the day in terms of interest and apportionments. It applies on any day upon which completion takes place. In my judgment, special condition 10 attempts to do more than that, but does not achieve it owing to: (a) the inability of the vendor to rescind for non-compliance with the time limit on the contractual date for completion (unless time has been made of the essence from the start); and (b) the use of the phrase “the day fixed for completion”, which in terms applies only to one day, namely the contractual date.
[27] If I am right in thinking that special condition 10 does not apply after the contractual date for completion, it may be that there is nothing to displace standard condition 6.1.2 in respect of completion thereafter, so that the vendor was entitled, under that provision, to the extra day’s interest that the purchaser in fact paid. If so, there would be no reason why that standard condition should not apply on any date, after the contractual date, upon which completion takes place in fact, including days earlier than the 10th working day after service of a notice to complete, to which it could not be argued that special condition 10 could apply. If standard condition 6.1.2 does apply, completion at 2.44pm on the 10th working day would not be too late.
[28] For those reasons, I would allow this appeal as well as dismissing the respondent’s notice. It follows that the respondents were not entitled to rescind the contract and that the appellant is entitled to an order for specific performance of it. I would remit the case to the Chancery Division for a master to determine (if not agreed) the details of the specific performance order, including any necessary accounts and enquiries. |page:65|
Waller LJ said:
[29] I agree.
Sir Anthony Clarke MR said:
[30] I also agree.
Appeal allowed.
