Department of Environment determines, shortly before exchange of contracts for sale of Victorian warehouse for £1,710,000, to list building as having special architectural or historic interest, and shortly after exchange does so list it–No question of mistake, nor was contract frustrated–Purchasers held to bargain at redevelopment figure
This was a
claim by Amalgamated Investment & Property Co Ltd against John Walker &
Sons Ltd for rescission of a contract dated September 25 1973 for purchase of
warehouse property at 33 Commercial Road, London E1, by the plaintiffs for
£1,710,000. The defendants counterclaimed specific performance of the contract.
Mr A J
Balcombe QC and Mr B Levy (instructed by Nabarro, Nathanson & Co) appeared
for the plaintiffs, and Mr H E Francis QC and Mr J Chadwick (instructed by
Coward Chance & Co) represented the defendants.
Giving
judgment, PLOWMAN V-C said: This is a consolidated action in which the
plaintiffs, Amalgamated Investment & Property Co Ltd, claim rescission of a
written contract dated September 25 1973 whereby the defendants, John Walker
& Sons Ltd, agreed to sell and the plaintiffs to buy the freehold property
known as 33 Commercial Road, E1, at the price of £1,710,000. The defendants
deny the plaintiffs’ right to rescission, and counterclaim specific
performance. The plaintiffs’ case is that the contract ought to be set aside on
alternative grounds, either on the ground of mistake, or on the ground of
frustration. Mistake is pleaded in this way–and I will read paragraphs 2, 3 and
4 of the statement of claim:
At the time
of the execution of the agreement both the plaintiff and the defendant believed
that the property was suitable for and capable of being redeveloped, and the
said purchase price was determined by the said belief. Unknown to the plaintiff
and to the defendant the Department of the Environment had on or before
September 25 1973 selected the property for inclusion in the statutory list of
buildings of special architectural or historic interest compiled by the Secretary
of State for the Environment. The selection of the property for inclusion in
the said list prevents the property from being suitable for or capable of being
redeveloped, or alternatively substantially reduces the potentiality of the
said property for redevelopment.
Frustration is
pleaded in this way, and I refer to paragraph 5 of the statement of claim:
Alternatively,
the contract created by the agreement was a contract for the sale of the
property for the purposes of redevelopment and the said purposes have become
frustrated by the selection of the property for inclusion in the said list and
by the notification to the defendant of such selection and by the inclusion of
the property in the said list or by one or more of the said events.
Those pleas are
mutually exclusive, for this reason: the property was selected for
inclusion in the list before the date of the contract, but was actually listed
after the date of the contract. The plea of mistake is based upon the former
event, the plea of frustration upon the latter. I shall have to decide which,
if either, was the relevant event. The plaintiffs do not claim that the
contract is void for common law mistake, but they claim that it is voidable for
what I may call ‘equitable mistake.’
They found this on the principle enunciated by Denning LJ (as he then
was) in Solle v Butcher [1950] 1 KB 671 and applied by Goff J in Grist
v Bailey [1967] Ch 532. Denning LJ stated the principle in the following
terms:
A contract is
also liable in equity to be set aside if the parties were under a common
misapprehension either as to facts, or as to
fundamental and that the party seeking to set it aside was not himself at
fault.
The facts of
the present case are these. 33 Commercial Road is a large, multi-storey,
early-Victorian warehouse which until 1968 was used by the defendants for
bottling their whisky and as a bonded warehouse. From 1968 onwards the
warehouse stood empty. The site is within a comprehensive redevelopment area
and is zoned for commerce. In June 1973 the defendants put it on the market. It
was extensively advertised as a property for ‘redevelopment or
occupation.’ The plaintiffs, who are a large
public company, are in the business of office and industrial development. They
were interested in acquiring the property with a view to pulling down the
warehouse and redeveloping the site. Their Mr Galan, an associate director and
a chartered surveyor, had discussions with officials of the London Borough of
Tower Hamlets and of the Greater London Council, who were the authorities
concerned. Encouraged by those conversations, the plaintiffs had a feasibility
study made, based on the criteria which the local authorities had given them,
and, as a result of that study, on July 13 1973 they made an offer of
£1,460,000. A few days later that offer was increased to £1,710,000, and on
July 19 this was accepted subject to contract. That offer was made in the
expectation that the plaintiffs would be able to demolish the warehouse and
erect other buildings, subject only to planning permission, and was related to
the estimated rental value of those buildings. The value of the property with
no redevelopment potential was probably £1.5m less than the contract price, and
it is clear, and indeed not disputed, that the defendants knew at all material
times that the plaintiffs were buying the property for redevelopment. On July
24 1973 the defendants’ solicitors sent to the plaintiffs’ solicitors a draft
contract for approval. On August 1 1973 the plaintiffs’ solicitors sent to the
defendants’ solicitors the usual printed form of preliminary inquiries, which
included, inter alia, the following:
(D) Although the purchaser will be making the
usual searches and inquiries of the local and planning authorities, the vendor
is asked specifically to state whether he is aware of any order, designation or
proposal of any local or other authority or body having compulsory powers
involving any of the following . . . (iv) the designation of the property as a
building of special architectural or historic interest.
And the answer
to that inquiry was ‘No.’ That answer
was the simple truth. Inquiries of the local authority elicited a similar
answer. In due course the draft contract was agreed and contracts were
exchanged on September 25. The contract was in a standard Law Society form. It
is headed, ’33 Commercial Road and land lying to the south of Mountford Street
Stepney in the London Borough of Tower Hamlets.’ It gives the name of the vendor as well as
the purchasers’ solicitors and the local authorities, and the property is
described in the particulars as follows:
The freehold
land shown and edged with red on the plan of title No 42431 together with the
building erected thereon known as 33 Commercial Road referred to in the
property register of the said title as 35 Commercial Road and land lying to the
south of Mountford Street, Stepney in the London Borough of Tower Hamlets of
which the vendor is the registered proprietor with absolute title subject to
and (so far as the vendor can grant the same) with the benefit of . . .
And then there
is a lease and two agreements referred to. The date fixed for completion was
December 28 1973. It is stated in the special conditions that the property was
sold and would be conveyed on transfer ‘subject to the said lease but otherwise
with vacant possession’; and on exchange of contracts, the plaintiffs paid a
deposit of £171,000.
It is to be
noticed that there is nothing in the contract about redevelopment. This is not
a case of misdescription or one about conditions or warranties, but a simple,
straight-forward sale with no strings on either side. Planning permission was a
matter in respect of which the plaintiffs were prepared to back their own
judgment and accept the risk of not getting it. They were satisfied that the
property was available for redevelopment, and they thought that they stood a
good chance with the Tower Hamlets Borough Council and the GLC of getting
planning permission. But while the contract was being negotiated something
happened which has given rise to this action. Unknown to both the plaintiffs
and the defendants, and as the result of a report from one of the Department of
the Environment’s field officers, a decision was taken in the department to
list the warehouse as a building of special architectural or historic interest.
It was, however, not until September 27–two days after the contract–that the
list was signed on behalf of the Secretary of State, with consequences to which
I must refer in a moment. On the previous day, however, September 26, a Miss
Price wrote a letter on behalf of the Department informing the defendants that
the warehouse had been selected for inclusion in the list. So far as I am
aware, the department was under no statutory duty to give any advance
notification of the listing, although under section 54 (7) of the Town and
Country Planning Act 1971 the local authority is under a duty to inform the
owner after his property has been listed. The policy of the department,
however, is to notify the owner of the proposal, but to do so only just before
the list is compiled, so that he shall not have time to do anything to render
the object of the listing nugatory. The plaintiffs, seeing Miss Price’s name on
the letter, subpoenaed her to give evidence before me, and elicited from her
the fact that on August 22 1973 she had decided to put the warehouse forward
for listing. The relevant legislation about listing is contained in the Town
and Country Planning Act 1971, and I refer first to section 54 (1), which says
this:
For the
purposes of this Act and with a view to the guidance of local planning
authorities in the performance of their functions under this Act in relation to
buildings of special architectural or historic interest, the Secretary of State
shall compile lists of such buildings, or approve, with or without
modifications, such lists compiled by other persons or bodies of persons, and
may amend any list so compiled or approved.
Subsection (2)
says:
In
considering whether to include a building in a list compiled or approved under
this section, the Secretary of State may take into account not only the
building itself but also (a) any respect in which its exterior contributes to
the architectural or historic interest of any group of buildings of which it
forms part, and (b) the desirability of preserving, on the ground of its
architectural or historic interest, any feature of the building consisting of a
man-made object or structure fixed to the building or forming part of the land
and comprised within the curtilage of the building.
Subsection (3)
says:
Before
compiling or approving, with or without modifications, any list under this
section, or amending any list thereunder the Secretary of State shall consult
with such persons or bodies of persons as appear to him appropriate as having
special knowledge of, or interest in, buildings of architectural or historic
interest.
Subsection (4)
says:
As soon as
may be after any list has been compiled or approved under this section, or any
amendments of such a list have been made, a copy of so much of the list as
relates to any county borough, London borough or county district, or of so much
of the amendments as relates thereto, as the case may be, certified by or on
behalf of the Secretary of State to be a true copy thereof, shall be deposited
with the clerk of the council of that borough or district, and also, where that
council is not the local planning authority, with the clerk of the local
planning authority.
Subsection (5)
says:
A copy of
anything required by subsection (4) of this section to
the clerk of the Greater London Council.
Subsection (6)
says:
Any copy
deposited under subsection (4) of this section shall be registered in the
register of local land charges in such manner as may be prescribed by rules
made for the purposes of this section under section 15 (6) of the Land Charges
Act 1925 by the proper officer of the council of the county borough, London
borough or county district.
Subsection (7)
says:
As soon as
may be after the inclusion of any building in a list under this section,
whether on the compilation or approval of the list or by the amendment thereof,
or as soon as may be after any such list has been amended by the exclusion of
any building therefrom, the council of the county borough, London borough or
county district in whose area the building is situated, on being informed of
the fact by the Secretary of State, shall serve a notice in the prescribed form
on every owner and occupier of the building, stating that the building has been
included in, or excluded from, the list, as the case may be.
Subsection (8)
says:
The Secretary
of State shall keep available for public inspection, free of charge at
reasonable hours and at a convenient place, copies of all lists and amendments
of lists compiled, approved or made by him under this section; and every
authority with whose clerk copies of any list or amendments are deposited under
this section shall similarly keep available copies of so much of any such list
or amendment as relates to buildings within their area.
Then
subsection (9) says:
In this Act
‘listed building’ means a building which is for the time being included in a list
compiled or approved by the Secretary of State under this section; and, for the
purposes of the provisions of this Act relating to listed buildings and
building preservation notices, any object or structure fixed to a building, or
forming part of the land and comprised within the curtilage of a building,
shall be treated as part of the building.
I then turn to
section 55 (1):
Subject to
this Part of this Act, if a person executes or causes to be executed any works
for the demolition of a listed building or for its alteration or extension in
any manner which would affect its character as a building of special
architectural or historic interest, and the works are not authorised under this
Part of this Act, he shall be guilty of an offence.
Then
subsection (2) says:
Works for the
demolition of a listed building, or for its alteration or extension, are
authorised under this Part of this Act only if (a) the local planning authority
or the Secretary of State have granted written consent (in this Act referred to
as ‘listed building consent’) for the execution of the works and the works are
executed in accordance with the terms of the consent and of any conditions
attached to the consent under section 56 of this Act . . .
And I do not
think there is anything else in section 55 that I need to read. But section 56
(6) says this:
Part I of the
eleventh Schedule to this Act shall have effect with respect to applications to
local planning authorities for listed building consent, the reference of such
applications to the Secretary of State and appeals against decisions on such
applications; and Part II of that Schedule shall have effect with respect to
the revocation of listed building consent by a local planning authority or the
Secretary of State.
I do not want
to refer to the eleventh Schedule in detail, but its effect, in relation to the
warehouse, is that any application for listed building consent must be made to
the Tower Hamlets Borough Council, which, unless it refuses consent, refers it
to the Greater London Council, which then has to refer it to the Secretary of
State. Paragraph 6 of Part I of the Schedule says this:
(1) Subject to the following provisions of this
paragraph, where application for listed building consent is made to a local
planning authority, being a London borough council, and the authority do not
determine to refuse it, they shall notify the Greater London Council of the
application (giving particulars of the works for which the consent is required)
and shall not grant such consent unless authorised or directed to do so under
subparagraph (2) of this paragraph.
(2) On receipt of notification under subparagraph
(1) of this paragraph the Greater London Council may either (a) authorise the
local planning authority to grant or refuse the application, as they think fit,
or (b) give them directions as to how they are to determine it.
(3) The Greater London Council shall not
authorise the local planning authority as mentioned in subparagraph (2) (a) of
this paragraph, nor under subparagraph (2) (b) of this paragraph direct them to
grant listed building consent, unless the council have notified the Secretary
of State of the application made to the local planning authority (giving
particulars of the works for which the consent is required) and either (a) a
period of 28 days has expired, beginning with the date of the notification,
without the Secretary of State having directed the reference of the application
to him, or (b) the Secretary of State has notified the council that he does not
intend to require the reference of the application.
A copy of the
list which included the warehouse was registered as a local land charge on
November 6 1973. On November 30 1973 the plaintiffs gave notice to the
defendants rescinding the contract, and on December 12 1973 they issued their
writ. In April 1974 a company called Gladding Construction Group Ltd, which had
joined forces with the plaintiffs in their proposals for the redevelopment of
the site, made applications, with the plaintiffs’ approval, for listed building
consent and planning permission. Gladdings have an office development permit
for 20,000 sq ft which would have lapsed if an application for planning
permission had not been made before the end of last August. Those applications
are still outstanding, and it is therefore still possible that the proposed
development will be allowed to proceed, subject to the effect of the
plaintiffs’ purported rescission. The warehouse is listed as a Grade II
building, which I understand to mean that it is in the least meritorious class
of listed building, and an apparently cogent case for delisting has been made
out on the merits. But the chances of success are clearly speculative.
I turn now to
the law. The plaintiffs’ case on mistake is this. They submit that the
subject-matter of the contract was a property ripe for development, but that
since at the date of the contract it had already been selected for listing, it
was not such a property. Therefore, it is said, there was a common mistake as
to the nature of what was being bought and sold and in equity the contract is
voidable. In my judgment, however, the issue of mistake does not arise. The
relevant event, in my opinion, was the actual listing of the warehouse, and not
some preliminary step in the process of listing taken within the four walls of
the department which might or might not result in executive action, although no
doubt it probably would. This may be tested by an analogy. Suppose, for
example, that A agrees to sell and B to buy a dwelling-house which A knows B intends
to occupy. Two days before exchange of contracts, and unknown to A or B, an
arsonist decides to burn the house to the ground, and two days after the
exchange of contracts he does so. Can B escape from the contract on the ground
that, in consequence of the arsonist’s decision, there was a common mistake as
to what was being bought and sold? In my
judgment, clearly not. The legal position has to be judged in relation to the
relevant event, which in that case was the fire, not the decision to light it;
and in this case the listing, and not the decision to list.
I pass,
therefore, to the question of frustration, and first I must refer to the
leading case of Davis Contractors Ltd v Fareham Urban District
Council [1956] AC 696. The head-note reads as follows:
On July 9
1946 contractors entered into a building contract to build 78 houses for a
local authority for a fixed sum within a
dated March 18 1946 stating that it was subject to adequate supplies of labour
being available as and when required. Owing to unexpected circumstances, and
without fault of either party, adequate supplies of labour were not available
and the work took 22 months to complete. The contractors contended (1) that the
contract price was subject to there being adequate supplies of labour
available, by reason of the letter of March 18 1946; (2) that the contract was
frustrated; and claimed to be entitled on a quantum meruit to a sum in
excess of the contract price: Held (1) that the letter of March 18 1946
was not incorporated in the contract, and (2) that the contract had not been
frustrated: the fact that, without the fault of either party, there had been an
unexpected turn of events which rendered the contract more onerous than had
been contemplated, was not a ground for relieving the contractors of the
obligation which they had undertaken and allowing them to recover on the basis
of a quantum meruit.
Viscount
Simonds, in his speech, said this at p 714:
The doctrine
of frustration of a contract (for it is that doctrine and nothing else which
must be invoked) has never been applied or, so far as I am aware, been sought
to be applied to such a case unless, indeed, Bush v Whitehaven Port
& Town Trustees (1888) 2 Hudson’s Building Contracts 4th ed 122 was
one. The contract was for completion of certain work in eight months, and the
contractors made their tender in the expectation that they would be able to do
the work in the time, and made a price accordingly. It may then be said that
they made the contract on the ‘basis’ or on the ‘footing’ that their
expectations would be fulfilled. Nor presumably were the expectations, or at
least the hopes, of the respondents in any way different. Let it be said, then,
of them, too, that they contracted upon the same basis or footing. But it by no
means follows that disappointed expectations lead to frustrated contracts.
Then a little
further on, at p 715, he said this:
No case has
been cited in which it has been applied to circumstances in any way comparable
to those of the present case. It is sufficient to ask when in the course of
this 22-month contract that unexpected disruptive event happened which put an
end to it. ‘Rights,’ said Lord Sumner in Bank Line Ltd v Arthur Capel
& Co [1919] AC 435, ‘ought not to be left in suspense or to hang on the
chances of subsequent events.’ It is
wholly inconsistent with this, as I think, fundamental condition that a
building contractor should without intermission work upon his contract over a
period which by much or little exceeds the contract time and at the end of it
say, as the appellants say here, ‘A 22-month project is not an eight-month
project,’ or less formidably, ‘An expenditure of £111,000 is not an expenditure
of £94,000, therefore the original contract must be regarded as frustrated and
for all the work that has been done we must be paid not the contract price but
upon the basis of a quantum meruit.
I turn then to
the speech of Lord Reid at p 720, where he said this:
It appears to
me that frustration depends, at least in most cases, not on adding any implied
term, but on the true construction of the terms which are in the contract read
in light of the nature of the contract and of the relevant surrounding
circumstances when the contract was made. There is much authority for this
view. In British Movietonews Ltd v London and District Cinemas Ltd
[1952] AC 166 Viscount Simon said at 185: ‘If, on the other hand, a
consideration of the terms of the contract, in the light of the circumstances
existing when it was made, shows that they never agreed to be bound in a
fundamentally different situation which has now unexpectedly emerged, the
contract ceases to bind at that point–not because the court in its discretion
thinks it just and reasonable to qualify the terms of the contract, but because
on its true construction it does not apply in that situation.’ In Sir Lindsay Parkinson & Co Ltd
v Commissioners of Works [1949] 2 KB 632 Asquith LJ said at 667: ‘In
each case a delay or interruption was fundamental enough to transmute the job
the contractor had undertaken into a job of a different kind, which the
contract did not contemplate and to which it could not apply, although there
was nothing in the express language of either contract to limit its operation
in this way.’ I need not multiply
citations, but I might note a reference by Lord Cairns so long ago as 1876 to
‘additional or varied work, so peculiar, so unexpected, and so different from
what any person reckoned or calculated upon’ (Thorn v London
Corporation (1876) 1 App Cas 120, 127). On this view there is no need to
consider what the parties thought or how they or reasonable men in their shoes
would have dealt with the new situation if they had foreseen it. The question
is whether the contract which they did make is, on its true construction, wide
enough to apply to the new situation: if it is not, then it is at an end. In my
view, the proper approach to this case is to take from the arbitrator’s award
all facts which throw light on the nature of the contract, or which can
properly be held to be extrinsic evidence relevant to assist in its
construction, and then, as a matter of law, to construe the contract and to
determine whether the ultimate situation, as disclosed by the award, is or is
not within the scope of the contract so construed.
Then Lord
Radcliffe, speaking at p 727 of the doctrine of frustration, says:
I do not
think that there has been a better expression of that general idea than the one
offered by Lord Loreburn in F A Tamplin Steamship Co Ltd v Anglo-Mexican
Petroleum Products Co Ltd [1916] 2 AC 397 at 403. It is shorter to quote
than to try to paraphrase it: ‘A court can and ought to examine the contract
and the circumstances in which it was made, not of course to vary, but only to
explain it, in order to see whether or not from the nature of it the parties
must have made their bargain on the footing that a particular thing or state of
things would continue to exist. And if they must have done so, then a term to
that effect will be implied, though it be not expressed in the contract . . .
No court has an absolving power, but it can infer from the nature of the
contract and the surrounding circumstances that a condition which is not
expressed was a foundation on which the parties contracted.’ So expressed, the principle of frustration,
the origin of which seems to lie in the development of commercial law, is seen
to be a branch of a wider principle which forms part of the English law of contract
as a whole. But, in my opinion, full weight ought to be given to the
requirement that the parties ‘must have made’ their bargain on the particular
footing. Frustration is not to be lightly invoked as the dissolvent of a
contract.
On the next
page Lord Radcliffe said:
So perhaps it
would be simpler to say at the outset that frustration occurs whenever the law
recognises that without default of either party a contractual obligation has
become incapable of being performed because the circumstances in which
performance is called for would render it a thing radically different from that
which was undertaken by the contract. Non haec in foedera veni: it was
not this that I promised to do. There is, however, no uncertainty as to the
materials upon which the court must proceed: ‘The data for decision are, on the
one hand, the terms and construction of the contract, read in the light of the
then existing circumstances, and on the other hand the events which have
occurred’ (Denny, Mott & Dickson Ltd v James B Fraser & Co
Ltd [1944] AC 265 per Lord Wright at 274). In the nature of things there is
often no room for any elaborate inquiry. The court must act upon a general
impression of what its rule requires. It is for that reason that special
importance is necessarily attached to the occurrence of any unexpected event
that, as it were, changes the face of things. But, even so, it is not hardship
or inconvenience or material loss itself which calls the principle of
frustration into play. There must be as well such a change in the significance
of the obligation that the thing undertaken would, if performed, be a different
thing from that contracted for.
Finally, Lord
Somervell of Harrow at p 733 said:
Contracts to
be performed in futuro are based on expectations. If each party is
equally well informed as to the data on which expectations must be based, it
may be said that these expectations are the ‘basis’ or ‘footing’ on which the
contract is made. It would, of course, be absurd to suggest that if such
expectations are not realised the ‘basis’ has gone and the contract is
frustrated.
Then on p 734
he said:
A party
contracting in the light of expectations based on data of that or any other
kind must make up his mind whether he is prepared to take the risk of those
expectations being disappointed. If not, then he will refuse to contract unless
protected by some specific provision. There is no such provision here. The
appellants took the risk under the contract, and it seems to me quite
impossible to maintain that the contract did not apply in the situation as it
remained, the expectations on which the estimate was based not having been
realised.
One therefore
starts with this (and I quote Lord Radcliffe): ‘Frustration is not to be
lightly invoked as the dissolvent of a contract.’ Let me then try to apply some of the tests
proposed by the House of Lords to the facts of this case. Can it be said that
the parties must have made their contract on the footing that the
warehouse would not be listed in the future?
I can see nothing in the contract to suggest that that must be the case.
In my judgment, the plaintiffs took the risk under the contract, and it seems
to me impossible to maintain that the contract ceased to apply when the
property was listed. They could have provided against the risk by an
appropriate provision in the contract, but they did not do so. Again, is the
contract which the parties made, on its true construction, wide enough to apply
to the situation which arose when the property was listed? The answer to that must, in my judgment, be
yes, and I can see nothing in the contract to support the contrary view. Would
the thing undertaken, if performed, be a different thing from that contracted
for? Or, again, can the plaintiffs say,
‘This was not the bargain we made: non haec in foedera veni‘? Not in my judgment. The plaintiffs undertook
to purchase 33 Commercial Road, and if the purchase is completed, they will
have done the very thing which they undertook to do, no more and no less. They
took the risk under the contract of the property being listed, and it has
turned out badly for them, but as Lord Simonds said, ‘It by no means follows
that disappointed expectations lead to frustrated contracts.’ I have not been referred to any case in which
a contract has been held to be frustrated in circumstances comparable with the
present case, and I hold that this contract was not frustrated. It follows that
the action fails and the defendants are entitled, on their counterclaim, to the
usual decree for specific performance in a vendor’s action where title has been
accepted. In these circumstances, I need not consider Mr Francis’s alternative
submissions on behalf of the defendants (1) that in any event the doctrine of
frustration does not apply to a contract for the sale of land, and (2) that
even if the plaintiffs would otherwise have been entitled to succeed, they
affirmed the contract and are not therefore entitled to have it set aside.
