Agreement between developers and owners relating to development of site in accordance with planning permission — Development to be completed within a four-year period — Question as to whether the four-year time-limit was of the essence of the contract — Development not completed within the four-year period — Difficulties had been experienced in letting warehouse units owing to depressed market and developers suspended operations until a substantial proportion of those already let had been sold — Owners refused to extend time-limit — Developers contended that time was not of essence and that they should be allowed to continue to carry on and complete the construction and the letting of remaining units — Owners argued that, although the time provision was not prima facie a condition in which time was made of the essence, it was one of those ‘intermediate’ or ‘innominate’ terms the breach of which
In these
proceedings the plaintiffs, Anglia Commercial Properties Ltd, claimed a
declaration that on the true construction of a development agreement between
themselves, the developers, and North East Essex Building Co Ltd, the owners,
time was not of the essence of the contract, that the agreement continued to
subsist, and that the plaintiffs had a reasonable time to comply with its
obligations. The defendants, North East Essex Building Co Ltd, counterclaimed
that the agreement no longer subsisted. The action concerned an area of some 7
acres at Brightlingsea, in Essex. By the agreement the plaintiffs were to build
industrial warehouses on the land and arrange for them to be let.
John Stuart
Colyer QC and Christopher Priday (instructed by Hunt & Hunt, of Shenfield,
Essex) appeared on behalf of the plaintiffs; M Miller QC and R G Bamford
(instructed by Butt & Bowyer) represented the defendants.
Giving
judgment, LORD GRANTCHESTER QC said: This action concerns a plot of land of
approximately 7 acres at Morses Lane, Brightlingsea, in Essex, which I shall
refer to as ‘the site’. The action has been brought by a company called Anglia
Commercial Properties Ltd, which I shall refer to as ‘the developer’, against
another company called North East Essex Building Co Ltd, which I shall call
‘the owner’.
The developer
is a wholly-owned subsidiary of Finance For Industry plc, whose shares are held
by the Bank of England and clearing banks in England and Scotland. The aim of
Finance For Industry and its subsidiaries is to help industry, and the
developer considers that it furthers that aim by developing and speculating in
land, so as to create space for industry to operate.
The story in
these proceedings begins in the year 1973. In June of that year the Essex
County Council, as the local planning authority, granted permission to the
developer to develop the site by the erection thereon of 28 warehouse units,
totalling 129,000 sq ft approximately, and two light-industrial units totalling
a further 9,950 sq ft, subject to compliance with a schedule of some nine
specific conditions. The planning permission was granted under application
BRI/13/73. The development involved the construction of an L-shaped spine road
on the site, commencing at Morses Lane, and the erection of 18 warehouse units,
being the units numbered 1-18, on the left-hand side of that road and the
remaining 10 warehouse units, numbered 19-28, and the two light-industrial
units, numbered 29 and 30, on the right-hand side of that road. By an
agreement, dated December 19 1973, made between the owner on the one part and
the developer on the other part, arrangements were made between the two parties
to carry out the development of the site in accordance with such planning
permission. I must now refer to this agreement in some detail and I read the
relevant provisions.
1. The Owner
is seised of the property described in the Schedule hereto (hereinafter called
‘the site’) for an estate in fee simple in possession subject to the matters
mentioned in the said Schedule but otherwise free from incumbrances and has
agreed that the Developer shall develop the property in manner hereinafter
appearing.
2. (a) The Developer shall (subject as hereinafter
mentioned) at its own expense develop the Site (including the provision of
roads and services) in accordance with the Planning Permission already granted
under application No BRI/13/73 and shall comply with and give all notices
required by any Act of Parliament any instrument rule or order made under any
Act of Parliament or any regulation or byelaw of any local authority or of any
statutory undertaking which has any jurisdiction with regard to the works being
carried out on the Morses Lane Site in accordance with the said Planning
Permission and the Developer will pay all fees penalties and other sums legally
demandable by any such authority or undertaking.
(b) The Developer shall commence as soon as
practicable to carry out and complete the building and other works comprising
the development in a thorough and workmanlike manner to the reasonable
satisfaction of the Owner (who shall be afforded all reasonable opportunity for
inspecting the said work at all stages with or without professional advisers) within
four years from the date of entry by the Developer its employees or
subcontractors on to the Site.
(c) The Developer shall also (at its own expense)
obtain such consents approvals licences and authorities of what ever nature as
may be required to complete the said development of the Site.
3.(a) This Agreement shall not operate or be deemed
to operate as a demise of the Site nor shall the Developer be entitled to any
right title or interest in the Site or in the building or other works to be
erected thereon but shall occupy the Site as Licensee of the Owner only. The
Developer shall be entitled to bring on to the Site its Agents workmen and
others together with all necessary plant machinery materials and equipment
requisite or necessary for the proper carrying out of the development.
(b) So long as the Developer shall perform the
obligations on its part and conditions herein contained then the Owner shall
not revoke the said Licence until twenty-one days after the date upon which the
Lease of the last of the units comprised in the development shall have been
legally completed.
4. It is
agreed between the parties hereto:
(a) That the present value of the Site is
£85,000.
(b) That when the Lease of a unit forming part of
the development is legally completed (or when such unit is occupied by the
tenant whichever is the earlier) the Owner will on demand by the Developer pay
the Developer a sum equivalent to the initial annual rental of that unit
(exclusive of any insurance rents or services charges) multiplied by a factor
of 9.524 Less a sum representing the square footage of that unit being leased
multiplied by a factor of 24 pence (representing the value of the Site) such
deduction to continue only until such time as the deductions total £85,000,
after which there shall be no further deductions (on account of the Site value)
from the payments made by the Owner to the Developer PROVIDED THAT the
Developer shall not permit or allow a prospective tenant to occupy any unit on
the development before legal completion of the Lease of that unit without the
written consent of the Owner.
(c) In the event of any unit being unlet within
two years of the date of completion of such unit (such date in case of dispute
to be conclusively determined by the Surveyor for the time being of the
Developer) the Developer shall itself be at liberty subject to the Owner giving
it prior written approval as provided by Clause 5(a) hereof to take a Lease of
such unlet unit for a term of twenty-one years such Lease to be in the form and
to contain the provisions hereinafter mentioned and upon the grant of such
Lease the Owner will pay to the Developer on demand a sum of money calculated
in accordance with the provisions of Clause 4(b) hereof.
(d) If no payment under the preceding paragraph
has been made within seven days of a demand in that behalf by the Developer
then the sum due to the Developer shall bear interest at the rate of one per
cent per month and so in proportion for any lesser period until paid.
(e) The Developer will be responsible for the
expenses of letting the said units including all Agents and legal fees and
advertising charges in connection therewith.
(f) deals with an obligation of the developer to
insure and it is in a fairly usual form and I need not read that. I go on to
Clause 5(a):
The Developer
will take all necessary steps to advertise the units on the development as
being available for letting and shall be solely responsible for obtaining
tenants therefor. The proposed tenants and the proposed user of each unit shall
first be approved in writing by the Owner (such approval in each case not to be
unreasonably withheld and as to user it shall be reasonable to refuse any user
which could be obnoxious or unneighbourly to any of the other units on the
development or the Owner) and subject to such approval the Developer shall be
at liberty to negotiate Agreements for Lease or Leases of the several units and
provided such units conform with and contain the provisions set out in the next
succeeding subclause hereof the Owner will at the request of the developer
forthwith execute and enter into the same.
(b) The Leases of each of the units shall be in
the form and shall contain the several reservations exceptions covenants conditions
and stipulations set forth in the draft-Lease annexed hereto (and initialled by
or on behalf of the parties hereto). Each Lease shall be for a term of
twenty-one years which shall commence from the quarter day immediately
preceding the grant of the Lease and shall be at such initial annual rental as
shall be determined by the Developer to be the full current market rack rent
for that unit at the time that the Lease is granted PROVIDED THAT if any
proposed tenant shall be a private limited company then no more than two of its
directors of satisfactory standing shall join in such Lease as Sureties for
such company in order jointly and severally to covenant with the Owner in the
terms set forth in Clause 3 of the draft Lease annexed hereto.
I can now pass
over provision for agreed variations of the leases and go to Clause 6 which
states as follows:
6. Upon
exchange of this Agreement the Owner will deposit with the Developer the Deeds
and documents of title relating to the Site and will execute and hand to the
Developer a Memorandum of Deposit to secure to the Developer payment of all
moneys due to it under the foregoing provisions.
The draft lease
annexed to the agreement was for a term of 21 years at a yearly rent to be
inserted therein with additional rents payable after the 6th, 11th and 16th
years in accordance with rent review provisions therein contained, based upon
current annual market rack rental at the end of each such year of the term.
By a
memorandum of deposit, also dated December 19 1973, the owner declared that it
had deposited the title deeds of the site with the developer to secure the
repayment to the developer of all moneys which may be or become due to the
developer under the terms of the agreement.
In the course
of the negotiations which led up to the execution of the agreement the owner
had initially sought to provide that the developer should have a period of
three years to construct, carry out and complete the building and other works
comprised in the development, but at the request of the developer the period
was eventually agreed at the four-year period set out in clause 2(b) of the
agreement. In pursuance of the agreement, the date of entry by the developer,
its employees and subcontractors on to the site for the purposes of clause 2(b)
took place on September 16 1974, so that the four-year period referred to in
that subclause expired at midnight on September 15 1978. The development of the
site under the agreement was phased by the developer and the building works
which have been carried out on the site were carried out by building
subcontractors of the developer. By June 18 1976 the first two phases of the
development, referred to as phases I and II, had been completed involving an
expenditure by the developer of a sum of £88,908.97 towards the highway and
drainage costs referable to the developer. Phase I consisted of the erection of
the warehouse unit on the site numbered 25, 26, 27, 28 and the two
light-industrial units numbered 29 and 30. Phase II consisted of the erection
of the warehouse unit, numbered 19 to 24, both inclusive. Phases I and II
together amounted to approximately 44,000 sq ft out of the total proposed
development of some 130,000 sq ft.
However, when
it came to find tenants for units erected on the site the developer found the
letting market in Brightlingsea extremely poor. In 1973 and 1974 there was a
collapse in the property market. The evidence before me is to the effect that
there was an absence of prospective tenants for the units and that the failure
by the developer to find tenants for completed units was not occasioned by the
developer insisting on too high a rental. Indeed a brochure in evidence before
me, to which I have been referred, indicates that the developer was offering
cash payments to prospective tenants towards fitting-out costs or alternatively
rent-free periods of up to six months to attract industry to the site. As a
result of such poor letting conditions negotiations were opened between the
developer and the owner with the view to a possible variation of the terms of
the agreement. Such negotiations were initially conducted on behalf of the
developer by a Mr Janes, its development manager, and later by a Mr Willcock,
its managing director. Both Mr Janes and Mr Willcock have given oral evidence
during the hearing of these proceedings. The negotiations were conducted on
behalf of the owner by a Mr Raymond.
In the course
of such negotiations a meeting between Mr Janes and Mr Raymond took place in
April 1977. At that meeting three alternatives were put to Mr Janes, these
alternatives being as follows: (1) The developer could walk away from the
agreement, but the owner would fulfil its obligations to make payments to the
developer in respect of the completed units of phases I and II, as and when such
units could be let; (2) The developer would purchase the freehold of the site
from the owner; or (3) the developer would complete the construction of all the
remaining units under the agreement and, if unable to let them, could call on
the owner to make payments in respect thereof under the agreement on the
developer taking leases of those units. None of these three alternatives
appealed to the developer, to whose board Mr Janes reported. At the meeting Mr
Janes requested Mr Raymond to obtain an extension of the four-year period under
the agreement for the construction of the units on the site thereunder, but Mr
Raymond, on behalf of the owner, refused that request.
Following that
meeting in April 1977, the developer did not agree to either of the first two
alternatives to which I have referred. Instead its subcontractors who had
erected the phase I and phase II units, having left the site on completion of
such units, the developer deliberately decided that, notwithstanding the
provisions of the agreement as to the construction of the units within the
four-year period, it would not proceed with the erection of any further unit or
units until a substantial proportion of the units which had been erected under
phases I and II had been let. The officers of the developer took the view that
the first two alternatives would have been greatly to the disadvantage of the
developer and would have benefited the owner. They took the view that a
variation of the agreement in some manner other than by means of such two suggestions
therein could benefit both the developer and the owner and that it was
unreasonable in the circumstances for the owner to refuse an extension of the
four-year period. Accordingly, Mr Janes (and later Mr Willcock) continued to
try to persuade Mr Raymond, on behalf of the owner, to agree to some other
variation of the agreement and in the course of such approaches from time to
time they requested Mr Raymond to agree to an extension of the four-year
period. No variation of the agreement was ever agreed between the parties and
Mr Raymond consistently refused any extension of time so sought.
In the
meantime the developer persisted in its failure to proceed with the erection of
any further unit or units under the agreement. The four-year period under
clause 2(b) of the agreement expired on September 15 1978. By then still only
the 12 units of phases I and II had been built, but the developer was achieving
some success in its attempts to find tenants at the current market rental of
those units which had been so built. However, on September 28 1978 Mr Raymond
on behalf of the owner wrote to Mr Janes for the developer in the following
terms:
Dear Mr Janes,
Re: Morses
Land Industrial Estate Brightlingsea
Your letter of
September 21 1978, in respect of Units 21 and 22, has reminded me of the
overall unsatisfactory position concerning this site and the total lack of
ability by your Company to make any positive proposals despite our numerous
meetings. I had always hoped that your Board would ratify the agreement we reached
for your Company to purchase the freehold of the remaining land.
I have,
therefore, decided in the best interests of both companies to proceed with the
Contract in its original form and will be making the appropriate Capital
payments for Units 21 and 22, 24 and later Units 23 and 19.
The Contract
automatically lapses in the next few days and as you have not indicated any
further development plans, I should appreciate your confirmation that you have
vacated the site and arranged for the release of the Title Deeds.
The developer
disputed the assertion that the agreement had lapsed through effluxion of time.
This claim, however, that the agreement had so lapsed was repeated by Mr
Raymond in a further letter, this time to Mr Willcock, dated January 25 1979.
The letter reads as follows:
Dear Mr
Willcock,
Re:
Brightlingsea Industrial Estate
Thank you for
your letter of January 23.
My opinion
remains the same — the Agreement between our respective companies has lapsed
and you should now have fully vacated the site. There were, however, a number
of Leases exchanged prior to the expiry of the Agreement, all of which are in
my Company’s name. None of the Capital payments in respect of these particular
units has been made, and I think it is proper for my Company to make these
payments without prejudice to the outstanding matters.
On June 7 1979
the developer took out an originating summons to determine whether or not the
agreement had lapsed through effluxion of time or, putting it in lawyers’
language, whether or not the four-year time period was of the essence in the
contract in that clause 2(b). In the meantime the owner fenced off a part of
the undeveloped part of the site and placed building and other material on that
site.
I now turn to
the pleadings. By the amended statement of claim in these proceedings, the
developer pleads in clause 6 as follows:
Upon a true
construction of the Agreement time was not of the essence as respects the
provision in the said Clause 2(b) for completion of the Development but the Defendants
by letter dated January 25 1979 to the Plaintiffs have wrongfully contended
that the Agreement determined on September 16 1978.
Then in 8 and
9 the developer pleads:
8. Served
herewith is a plan (‘the Plan’) which is a copy of the plan annexed to the
Agreement and referred to in the said Schedule as identifying the Site.
9. In about
1979 the Defendants erected a 6-ft chain-link fence along the green line on the
Plan between the points marked A-B B-C and C-D respectively and thereafter
commenced to use that part of the Site hatched green on the Plan for the
storage of builders and other materials. By such actions the Defendants have
wrongfully impeded the completion of the Development by the Plaintiffs.
AND THE
PLAINTIFFS CLAIM:
(1) A declaration that upon the true construction
of Clause 2(b) of the Agreement time is not of the essence as respects the
obligation of the Plaintiffs therein contained.
(2) Alternatively, if upon true construction of
the said Clause 2(b) time was of the essence as respects the said obligation a
declaration that, in the events that have happened, time has ceased to be of
the essence as respects the said obligation;
(3) In any event, a declaration that the
Agreement still subsists and the Plaintiff has a reasonable time to comply with
its obligations;
(4) An order that the Defendants do forthwith
demolish and remove the said fence and remove all materials from the area
hatched green on the Plan.
By the
amended defence and counterclaim the owner pleads as follows:
2. Save that
the Defendant admits sending the letter dated January 25 1979 to the Plaintiff,
paragraph 6 is denied.
5. Save that
the Defendant admits erecting the said fence paragraph 9 is denied.
Counterclaim
7. The Plaintiff
wrongfully and in breach of the Agreement failed to complete the Development by
September 16 1978 or at any time since.
8. Pursuant to
Clause 6 of the Agreement the Defendant by a Memorandum of Deposit in favour of
the Plaintiff handed the title deeds relating to the site to the Plaintiff.
9. On October
11 1974 the Plaintiff registered against the Defendant a Class C(iv) Charge at
HM Land Charges Registry in respect of the Agreement.
AND the
Defendant counterclaims:
(1) Damages
(2) A declaration that the Agreement no longer
subsists or in the alternative an Order that the Plaintiff completes the
Development in pursuance of the Agreement within such time as the Court thinks
fit.
(3) An Order that the Plaintiff releases to the
Defendant the title deeds to the site held by the Plaintiff and that the
Memorandum of Deposit be cancelled.
(4) An Order that the Charge registered by the
Plaintiff at HM Land Charges Registry be cancelled.
Having regard
to the provisions in these proceedings I would now indicate further parts of
the evidence given orally during the proceedings. Mr Willcock stated — and I
accept his statement — that the developer could complete the erection of the
remaining units on the site within a period of one year. However, he indicated
that in his opinion such a course of action would not be a sensible commercial
thing to do. His view was that it would be more beneficial from a commercial
point of view for the development of the site to be continued in phases under
which the building of some units would not be started until a substantial part
of the units for the time being built had been let. In relation to these
opinions, I accept the point of view of the developer that such a deferred
construction by stages would be beneficial to the developer from a commercial
point of view. I further accept the estimate made by Mr Willcock that if the
developer were so to proceed in phases the last units to be constructed could
be expected to be completed some four years or so after work recommences on the
site.
There is
another aspect of the oral evidence to which I must also refer at this stage.
Mr Willcock in cross-examination accepted that the position of the owner, if
the development of the site were to proceed now, would be as follows: (1) It
would be impossible to determine now the amount of money which would be
required to be found by the owner to discharge the owner’s obligation to make
payments under the agreement on the granting of leases.
(2) That it would be impossible now to determine
the date when such payments would be called upon to be made by the owner to the
developer and (3) that it is impossible to determine now what the value of the
reversion of the leases would be at the time when such payment of indeterminate
amounts are made because the value then of the freehold reversion, subject to
and with the benefit of the leases to be granted, will depend on the letting
values at the time that the leases are taken up and the rate of interest on
moneys in the market at that time.
Mr Janes
accepted under cross-examination that in such circumstances there was a risk to
the owner, where the owner had to keep an unquantifiable sum ready for an
unquantifiable time ‘to buy’ an asset which ‘at the time of purchase’ would
have an unknown value. I accept the evidence to the effect that if the
agreement should now continue to subsist and the developer continue thereunder,
the owner cannot now determine how much money he would be called upon to pay
thereunder to the developer or when he would be called upon to make payments
thereunder or the values of the various reversionary interests, subject to and
with the benefit of the leases, which will arise in the future.
I further
accept evidence given by Mr Willcock to the effect that while the letting
values for units on the site were estimated in 1973 to be within the range of
80p to 90p per sq ft, those letting values have now substantially increased and
could now be in the region of 175p per sq ft. Accordingly, I am satisfied that
the sums which would now be payable by the owner on the letting of a unit would
be substantially more than would have been payable by the owner on a letting of
that unit effective during the four-year period under clause 2(b) of the
agreement.
In these
proceedings Mr Colyer appears for the developer and contends first that in
general time is not of the essence of the contract. Secondly, in relation to a
building contract again time is not generally of the essence and in those
circumstances, going to the provisions of the agreement itself, time was not of
the essence in relation to the four-year period set out in clause 2(b). In
relation to these submissions he referred me first to the general rule as set
out in Halsbury’s Laws of England and he referred me to two cases in the
House of Lords in which that provision had been approved, the first of these
being United Scientific Holdings Ltd v Burnley Borough Council [1978]
AC 904 and the second being Bunge Corporation, New York v Tradax
Export SA [1981] 1 WLR 711. In relation to the position under building
contracts Mr Colyer referred me to Hudson’s Building & Engineering
Contracts 10th ed pp 608 and 609.
On those
submissions, which I shall have to go into in detail, he submits that I should
hold that time was not of the essence in relation to clause 2(b) of the
agreement but that the agreement continued and that the developer should now be
allowed to carry on and complete the construction and letting of the remaining
units on the site. In relation to this he submits that I should allow and indicate
that that construction and letting should proceed according to sound commercial
principles, so as to allow the developer to continue to carry out the
development in phases in order not to have to build all the units at one time,
but to build some initially and then, when those are let, to proceed to the
remaining ones.
Mr Miller
appears for the owner and contends that although time was not a condition of
the agreement the provisions of clause 2(b) of the agreement are what are
referred to as an ‘innominate’ or ‘intermediate’ term, that is to say, a
provision which is neither to be regarded for all purposes as a condition nor
to be regarded for all purposes as a warranty sounding only in damages.
Accordingly, with a breach of an innominate term, where this occurs, the court
must consider the nature and effect of the breach and if it is a serious and
deliberate breach of the provision, then the party affected thereby is entitled
to determine the agreement altogether. But if, however, the breach is not serious,
ie it is not a serious and deliberate conduct of one party occasioning a
serious consequence for the other, then it is not a provision the breach of
which entitles the other party to rescind the agreement but only one to obtain
damages. In support of that Mr Miller has referred me to the provisions of the Bunge
Corporation case to which I must now refer in detail because the question
of whether time is not or is of the essence is the crucial first question to be
determined.
The Bunge
Corporation case concerned a mercantile contract. The contract with which
their lordships were dealing was a contract for the purchase and sale of:
15,000 tons,
5 per cent more or less at buyers’ option, of US soya bean meal, with shipment
of 5,000 tons in each of the months May, June, July 1975, at US $199.50 a
metric ton, fob, one US Gulf port at sellers’ option. The contract incorporated
the terms of the Grain and Feed Trade Association Ltd’s (GAFTA) standard form
of contract 119, clause 7 of which in respect of the May shipment provided,
‘Period of delivery — during [May 1975] at buyers’ call. Buyers shall give at
least [15] days’ notice of probable readiness of vessel(s) . . .’ By notice given by the buyers under clause 8
of GAFTA form 119 the period of delivery was extended for one calendar month.
In consequence the last day upon which the sellers could ship goods in
performance of the contract was June 30 1975, and the last day for the buyers
to give the requisite notice under clause 7 was June 12. In the event notice
was not given until June 17. Subsequently, the sellers declared the buyers in
default and claimed damages for repudiation of the contract on the ground that
the term as to notice was a condition.
It is on that
basis that the House of Lords considered the position between the parties. The
main decision was as to the construction of the provisions to determine whether
or not the provision should be regarded as a condition, ie that time was of the
essence, or a warranty or, possibly, a provision of some intermediate type,
that is to say, an innominate or intermediate term. The leading judgment
relating to the question of construction was that given by Lord Roskill. He
goes into the construction of the contract. At p 729 of the report he refers
to a passage in Halsbury’s Laws of England, 4th ed, vol 9, paras 481 and
482, and he says:
The passage in
question reads —
‘The modern
law, in the case of contracts of all types, may be summarised as follows. Time
will not be considered to be of the essence unless: (1) the parties expressly
stipulate that conditions as to time must be strictly complied with; or (2) the
nature of the subject matter of the contract or the surrounding circumstances
show that time should be considered to be of the essence; or (3) a party who
has been subjected to unreasonable delay gives notice to the party in default
making time of the essence.’
The relevant
passage in para 482 reads:
‘Apart from
express agreement or notice making time of the essence, the court will require
precise compliance with stipulations as to time wherever the circumstances of
the case indicate that this would fulfil the intention of the parties. Broadly
speaking, time will be considered of the essence in ‘mercantile’ contracts and
in other cases where the nature of the contract or of the subject matter or the
circumstances of the case require precise compliance.’
. . . My
Lords, I venture to doubt whether much help is necessarily to be derived in
determining whether a particular term is to be construed as a condition or as
an innominate term by attaching a particular label to the contract. Plainly
there are terms in a mercantile contract, as your Lordships’ House pointed out
in Bremer Handels — gesellschaft mbH v Vanden Avenne-Izegem PVBA [1978]
2 Lloyd’s Rep 109, which are not to be considered as conditions. But the need
for certainty in mercantile contracts is often of great importance and
sometimes may well be a determining factor in deciding the true construction of
a particular term in such a contract.
To my mind
the most important single factor in favour of Mr Staughton’s submission is that
until the requirement of the 15-day consecutive notice was fulfilled, the
respondents could not nominate the ‘one Gulf port’ as the loading port, which
under the instant contract it was their sole right to do. I agree with Mr
Staughton that in a mercantile contract when a term has to be performed by one
party as a condition precedent to the ability of the other party to perform
another term, especially an essential term such as the nomination of a single
loading port, the term as to time for the performance of the former obligation
will in general fall to be treated as a condition. Until the 15 consecutive
days’ notice had been given, the respondents could not know for certain which
loading port they should nominate so as to ensure that the contract goods would
be available for loading on the ship’s arrival at that port before the end of
the shipment period.
So, as I
understand that speech, Lord Roskill is stating that on the construction of the
contract in that case, it being a mercantile contract, the provision as to time
was a condition in which time was of the essence.
I turn now to
Lord Wilberforce’s speech at the beginning of p 714, where he starts off:
My Lords, I
have had the advantage of reading in advance the speech to be delivered by my
noble and learned friend, Lord Roskill. I agree entirely with it and desire
only to add a few observations on some general aspects of the case.
The appeal
depends upon the construction to be placed upon clause 7 of GAFTA form 119 as
completed by the special contract. It is not expressed as a ‘condition’ and the
question is whether in its context and in the circumstances it should be read
as such.
That was quite
clearly the issue before their lordships.
Apart from
arguments on construction which have been fully dealt with by my noble and
learned friend, the main contention of Mr Buckley for the appellant was based
on the decision of the Court of Appeal in Hongkong Fir Shipping Co Ltd v
Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, as it might be applied to
clause 7. Diplock LJ in his seminal judgment illuminated the existence in
contracts of terms which were neither, necessarily, conditions nor warranties,
but, in terminology which has since been applied to them, intermediate or
innominate terms capable of operating according to the gravity of the breach,
as either conditions or warranties. Relying on this, Mr Buckley’s submission
was that the buyer’s obligation under the clause, to ‘give at least [15]
consecutive days’ notice of probable readiness of vessel(s) and of the
approximate quantity required to be loaded’, is of this character. A breach of
it, both generally and in relation to this particular case, might be, to use Mr
Buckley’s expression, ‘inconsequential’, ie not such as to make performance of
the seller’s obligation impossible. If this were so it would be wrong to treat
it as a breach of condition: Hongkong Fir would require it to be treated
as a warranty.
This
argument, in my opinion, is based upon a dangerous misunderstanding, or
misapplication, of what was decided and said in Hongkong Fir. That case
was concerned with an obligation of seaworthiness, breaches of which had
occurred during the course of the voyage. The decision of the Court of Appeal
was that this obligation was not a condition a breach of which entitled the
charterer to repudiate. It was pointed out that, as could be seen in advance,
the breaches which might occur of it were various. They might be extremely
trivial, the omission of a nail; they might be extremely grave, a serious
defect in the hull or in the machinery; they might be of serious but not fatal
gravity, incompetence or incapacity of the crew. The decision, and the
judgments of the Court of Appeal, drew from these facts the inescapable
conclusion that it was impossible to ascribe to the obligation, in advance, the
character of a condition.
Diplock LJ
then generalised this particular consequence into the analysis which has since
become classical. The fundamental fallacy of the appellants’ argument lies in
attempting to apply this analysis to a time clause such as the present in a
mercantile contract, which is totally different in character. As to such a
clause there is only one kind of breach possible, namely, to be late, and the
questions which have to be asked are, first, what importance have the parties
expressly ascribed to this consequence, and secondly, in the absence of
expressed agreement, what consequence ought to be attached to it having regard
to the contract as a whole.
Later on at
the top of p 716 Lord Wilberforce says:
But I do not
doubt that in suitable cases the courts would not be reluctant, if the
intentions of the parties as shown by the contract so indicate, to hold that an
obligation has the force of a condition, and that indeed they should usually do
so in the case of time clauses in mercantile contracts. To such cases the
‘gravity of the breach’ approach of the Hongkong Fir case [1962] 2 QB 26
would be unsuitable.
This case is
not clearly on all fours with the case of Bunge Corporation v Tradax.
First of all, that case dealt with a mercantile contract and this deals with a
development contract. Secondly, in that case their lordships held that, on the
construction of the contract in the surrounding circumstances, the relevant
provision was a condition, ie time was of the essence, and, therefore, the
further observations in relation to Hongkong Fir were, strictly
speaking, unnecessary to the decision. But in the case that I have before me,
as I understand the position taken by Mr Miller, looking at the agreement
before me, clause 2(b) is not a provision which could be construed as a
condition in which time is made of the essence. Instead, as I understand it, he
is saying that here we have a provision which, on looking at the provision, is prima
facie a warranty in the terms used by Bunge Corporation, but, having
regard to the breach consisting of the deliberate failure and neglect by the
plaintiff to proceed with the development and the serious effect that that has
or might have upon the owner, then he is entitled, although prima facie a
warranty, to treat the term as an innominate or intermediate provision and to
repudiate the agreement as the result of the breach, which he has done, as I
understand the argument, by the two letters which I have read.
It seems to me
that the approach that the House of Lords has directed in relation to time
clauses in the Bunge Corporation case is, first, to construe the
contract and see whether under the terms of the contract the provision as to
time is a condition, the breach of which involves the doctrine of time being of
the essence, or is purely a warranty, that is to say, sounds only in damages.
But as I read the judgment of Lord Wilberforce, it seems to me to follow that,
if you cannot downgrade a breach of condition to a provision sounding only in
damages because the breach of the time provision is trivial, he is also saying
that where the provision is a warranty and there is a breach of warranty, you
should not then upgrade it to a condition because the effect of the breach is
serious so far as the other side is concerned. This is how I apply the remarks
about Hongkong Fir by Lord Wilberforce and the others in this case. I go
back to the words that I have read:
The
fundamental fallacy of the appellants’ argument lies in attempting to apply
this analysis (of Hongkong Fir) to a time clause such as the present in
a mercantile contract which is totally different in character. As to such a
clause there is only one kind of breach possible, namely, to be late.
I apply those
considerations to this case. If, therefore, this provision in clause 2(b) of
the agreement is purely a warranty, breach of which sounds in damages, then the
only possible breach of it is to be late and it matters not how, for these
purposes, that lateness occurred or what the effect was on the other party.
I pass to the
agreement again to construe it. I do so against the background, of course, of
Mr Miller’s acceptance that under clause 2(b) time was initially, as he
described it, not of the essence. It seems to me that that concession was
rightly made because the way the agreement operates is that the developer shall
erect, construct and complete the units for which purpose the four-year period
is imposed, but thereafter he proceeds to attempt to let and that provision and
the eventual letting of the units may take place considerably later, depending
entirely on the market. Therefore, it seems to me that a breach of the
condition is prima facie not a breach of a provision of which time is of
the essence, because the liability of the other party arises not in relation to
the act of completion of the units but on the letting of the units which may
take place some time
period up to June 1976 were only completed in September 1978. Therefore, it
seems to me on the question of construction that Mr Colyer is correct, and Mr
Miller’s concession is correct, that time is not of the essence of the
contract. Therefore, on the authority of the Bunge case, that being the
case, the provision cannot be upgraded to a condition and cannot be made so as
to make time of the essence, by reason of the manner in which one party overran
the time-limit or by virtue of the gravity to the other party which resulted or
may have resulted therefrom.
I would here
comment that argument as to gravity seemed to me to be apposite in considering
the question whether or not time should be regarded as of the essence on the
construction of the agreement. But once you have decided that question then
those questions disappear and you cannot decide what the result of a breach of
a time provision is by reference to the effect of the breach of time that has
been committed.
Therefore, on
the main point of this case I am in agreement with Mr Colyer that time was not
of the essence and I therefore hold that the owner was not entitled by the
letters that I have read, dated September 28 1978 and January 25 1979, to treat
the contract as having lapsed. It follows from that finding that on the
counterclaim, there having been a breach of clause 2(b) sounding in damages, as
part of the counterclaim the owner is entitled to an inquiry as to damages. But
having decided those two fundamental points, the matter now arises very acutely
as to what else, if anything, should be done.
As to this I
am positively of the opinion that the court will not spell out a new contract
or a variation of the existing contract for the parties. They are in the
position of being midway through a joint enterprise. Midway through a joint
enterprise one party has said wrongly that by virtue of a time provision the
whole thing has come to an end, but that party is in the position of the owner
of the site and, as owner of the site, has erected thereon the fence around
part of the land remaining to be developed, to which I have referred. He has
decided that the development by the developer cannot proceed because the
contract has automatically lapsed and I read the letter dated September 28 1978
where Mr Raymond is saying:
The contract
automatically lapses in the next few days . . .
and by virtue
of that everything has come to an end.
I will
indicate what I consider to be the position. Now, it having been determined
that time was not of the essence, the developer can apply to the owner to be
permitted to go back on the site and complete the development. The owner may
allow that to happen or he may say ‘no’. If he says ‘no’ then, in my opinion,
the developer can sue for damages that he has suffered. These damages, I would
merely comment, would not be purely nominal in that there is the £89,000 of
highway development costs that has to be taken into consideration by the owner.
That then will decide whether the owner carries on with the development or the
contract is determined and he is then entitled to damages.
So far as the
owner is concerned, in my view, time not having been of the essence, he is now
entitled to make time of the essence, so that if he allows the developer to go
back in by his subcontractors and carry on with the development, he can also
serve a notice making time of the essence. Now, in my view, having regard to
the statement made by Mr Willcock in evidence, a reasonable time which the
owner could impose on completion of the units is one year. We are here
considering a reasonable time under clause 2(b) relating to completion of the
construction of the units. In my judgment, there is no reason why the owner
should allow anything further than such a reasonable time for the construction
of the building. Of course, having done so, the lettings may take longer, but
so far as the ‘reasonable time’ is concerned we are looking at a reasonable
time under clause 2(b) for such construction. Such a notice is something that
the owner is entitled to give, if he is called upon to allow the developer to
continue and he does allow the developer so to continue. This is a commercial
decision that the owner should, in my view, be allowed to take.
Having
indicated what I think ought to be done, it would be most inconsiderate to Mr
Miller not to refer to clause 3 of the agreement, on which he based argument
that, because the developer had left the site, he was under no obligation to
allow him back again. As I read clause 3(b), the obligation on the owner was to
allow the licence to continue until 21 days after the date upon which the lease
of the last of the units comprised in the development shall have been legally completed.
The date when the letter was written is September 28 1978. It seems to me that
it is not established that, on that date, the 21 days had expired following the
grant of the last of the leases of the units which had been built. In my view,
therefore, I am not satisfied in these proceedings that the mere stopping of
building work entitled the owner to revoke the licence. However, be that as it
may, I consider that the position is now that if the developer wishes to enter
himself, or send in subcontractors, it should indicate that desire to the
owner, and the owner can then decide whether or not it will allow the
development to continue and whether or not to serve a notice making time of the
essence, as I have indicated, or to refuse such permission.
Alternatively,
of course, the owner can call upon the developer to proceed with the
construction of the remaining units and give a making-time-of-the-essence
notice. If the developer does not then proceed to do so, in my view, the owner
can give notice saying that the failure of the developer now to proceed will be
treated by the owner as repudiation of the contract by the developer.
I am
accordingly not going to order either party to do anything. It seems to me that
this matter rests in contract between the developer and the owner and it is,
therefore, up to the two of them to exercise their rights in accordance with
the law which I have attempted to outline. It seems to me that the correct
course for me is to make a declaration to the effect that the agreement (I am
speaking now, not drafting) continued in full force and effect, notwithstanding
the completion of the four-year period in clause 2(b) and was not determined by
the owner by the letters dated September 28 1978 or January 25 1979. Subject to
making that declaration, it is then for the parties, in my view, to exercise
their rights and to fulfil their obligations on that basis.
The
plaintiffs were awarded four-fifths of their costs on the action and
counterclaim other than in relation to any inquiry as to damages for which
costs were to be the defendants’.
