Sale of land – Rescission – Each party to sale contract entitled to rescind for non-fulfilment of certain conditions by specified date – Appellant vendor not fulfilling a condition by that date – Respondent purchaser giving notice to rescind several months later – Whether respondent entitled to return of deposit – Whether precluded from relying on non-fulfilment of condition where this partly caused by own breach of contract – Whether right to rescind lost by election or waiver – Appeal dismissed
In February 2008, contracts were exchanged on the sale of commercial premises in Watford by the appellant to the respondent for £1.8m. By clause 6.2 of the sale agreement, the respondent was not obliged to complete until certain conditions had been satisfied. The condition in clause 6.2(vi) related to the termination of an existing lease of part of the premises and required confirmation to be given of the payment of compensation to the tenant as provided by the terms of that lease. Either party was entitled to rescind the contract if the provisions of clause 6.2 had not been fulfilled by July 2008, “save where the party purporting to serve such notice is in default of its obligations under this clause 6.2”.
Although the clause 6.2 provisions had not been fulfilled by July 2008, the parties continued to work towards their fulfilment and the completion of the sale. However, in November 2008, in the light of the difficult economic situation at that time, the respondent served notice to rescind the contract, relying on the non-fulfilment of clause 6.2(vi). It then brought proceedings for the return of its deposit.
The appellant contended that, inter alia, the respondent had lost any right to rescind because, in July 2008, it had been put to an election whether to rely on the breach of clause 6.2(vi) or to continue with the contract, and had chosen the latter course. That argument was rejected in the High Court and the respondent’s claim was allowed. The judge held that the non-fulfilment of clause 6.2 was not a “breach” of contract calling for an election but merely gave rise to an option to determine, which the respondent had been entitled to exercise since it had not breached any requirement of clause 6.2 and had not waived its right to determine: see [2010] EWHC 1987 (Ch); [2010] PLSCS 225.
On appeal from that decision, the appellant further contended that the respondent should not be permitted to rely on its own wrong in circumstances where any non-fulfilment of clause 6.2(vi) was partly due to the respondent’s breaches of other contractual provisions.
Held: The appeal was dismissed.
(1) The right to rescind conferred by clause 6.2 was prima facie exercisable once it was established that one or more of the clause 6.2 provisions remained unfulfilled at the relevant date. Rescission was not precluded under the principle that a party could not rely on its own wrong. The application of that principle could be excluded or modified by the terms of the contract and its scope in any particular case would depend on the construction of the relevant agreement: Cheall v Association of Professional, Executive, Clerical and Computer Staff [1983] 2 AC 180 considered. A clear contractual intention to limit the application of the principle could be gathered from the express provisions of the contract in the instant case: Richco International Ltd v Alfred C Toepfer International GmbH (The Bonde) [1991] 1 Lloyd’s Rep 136 and Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 WLR 1988 applied. Since clause 6.2 was expressly subject to the proviso that notice of rescission could not be served when the party in question had defaulted on its own obligations under that clause, it was not possible to infer any wider disability on rescission in the event of a breach of other contractual provisions. The parties had, in clause 6.2, positively selected the breaches of contract that would debar them from rescinding the contract and had indicated in the language used that the qualification was exhaustive. The contract was a commercial agreement negotiated and drafted with the benefit of legal advice and the reasonable man, reading it with a knowledge and understanding of the transaction to which it related, would regard the proviso to clause 6.2 as comprising the only circumstances in which either party could be precluded from exercising its right to rescind based on its own breach. Had any wider qualification been intended, it would have been spelt out expressly. In any event, the appellants could not show the necessary causal link between the respondent’s breaches and the non-satisfaction of clause 6.2(vi).
(2) Not all rights to terminate a contract involved a repudiatory breach by the other party and they did not all have the effect of putting the party with the right to rescind to an immediate election. Whether a party with a contractual right to rescind had waived that right by electing to affirm the contract would depend on an analysis of the terms of the particular contract and the circumstances in which the right had arisen: Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd (No 1) [1971] AC 850 considered. The right to rescind under clause 6.2 was not the same as a right exercisable in the event of a breach of contract by the appellant. It was an option given to the parties to terminate their contractual relationship on the non-fulfilment of certain conditions by a specified date. It conferred on the respondent the right to rescind the contract by the service of a notice at any time following the non-satisfaction of any of the specified conditions, save where it was in default of its own obligations under clause 6.2. If a right to rescind arose and was not exercised, the contract would continue to be enforceable according to its terms. The respondent had been entitled to wait until after July 2008 before serving its notice and, in the meantime, it had been obliged to continue to attempt to fulfil the clause 6.2 conditions. Its performance of that obligation in those circumstances was not inconsistent with its right to rescind given that it was, under the contract, a necessary precondition to the exercise of that right. The respondent had made no election before November 2008, when it served its notice to rescind, and nothing it had done before then amounted to a waiver of its rights. It had not indicated in clear and unequivocal terms any intention to abandon its right: Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391 applied.
Michael Barnes QC and Jonathan Davey (instructed by Pitmans LLP, of Reading) appeared for the appellant; Nigel Jones QC and Michelle Stevens–Hoare (instructed by Owen White Solicitors, of Slough) appeared for the respondent.
Sally Dobson, barrister
