Vendor and purchaser of land–Position when order of specific performance is not implemented by purchaser–Whether, if vendor then accepts this failure as a repudiation of the contract of sale, applies to the court for the order of specific performance to be discharged and the contract to be ‘rescinded,’ he can claim damages for breach of contract–Cases reviewed by Lord Wilberforce in a speech likely to become a ‘locus classicus’–A textbook for students on aspects of the contract of sale of land–Distinction between discharge by accepted repudiation and rescission ‘ab initio’–Devastating criticism of the state of English authorities–True doctrine in judgments from the Australian ‘bastion of the common law’–Henty v Schroder finally buried–Capital & Suburban Properties Ltd v Swycher overruled in part–Vendor entitled to contractual damages–Damages at common law and under Lord Cairn’s Act compared–Date for assessment–Court of Appeal’s order varied as to date
This was an
appeal by the purchaser, Miss Adeline Agnew, of Lochnaw Castle, Stranraer, against
a decision of the Court of Appeal discharging an order for specific performance
and making an order for an inquiry as to damages under Lord Cairns’ Act (the
Chancery Amendment Act 1858). The proceedings arose from a contract for the
sale of Sheepcote Grange, Wooburn Common, Bucks. The vendors, Michael Johnson
and Renee Johnson, his wife, obtained an order against the purchaser for
specific performance on the latter’s failure to complete. As a result of action
by the vendors’ mortgagees specific performance became impossible and the
vendors subsequently issued a notice of motion seeking other relief. The
results of the proceedings, first before Megarry VC and subsequently before the
Court of Appeal, are explained in the speech of Lord Wilberforce.
J H Hames QC
and J K Denniston (instructed by Bircham & Co) appeared on behalf of the
appellant; P J Millett QC and D Jackson (instructed by Ward Bowie) represented
the respondents.
In his speech,
LORD WILBFRFORCE said: This appeal arises in a vendors’ action for specific
performance of a contract for the sale of land, the appellant being the
purchaser and the vendors respondents. The factual situation is common-place,
indeed routine. An owner of land contracts to sell it a purchaser; the
purchaser fails to complete the contract; the vendor goes to the court and
obtains an order that the contract be specifically performed; the purchaser
still does not complete; the vendor goes back to the court and asks for the
order for specific performance to be dissolved, for the contract to be
terminated or ‘rescinded,’ and for an order for damages. One would think that
the law as to so typical a set of facts would be both simple and clear. It is
no credit to our law that it is neither. Learned judges in the Chancery Division
and in the Court of Appeal have had great difficulty in formulating a rule and
have been obliged to reach differing conclusions. That this is so is due partly
to the mystification which has been allowed to characterise contracts for the
sale of land, as contrasted with other contracts, partly to an accumulated
debris of decisions and textbook pronouncements which has brought semantic
confusion and misunderstandings into an area capable of being governed by
principle. I hope that this may be an opportunity for a little simplification.
I must state
the facts in some detail because the sequence of events may be important. I
repeat, however, that such additional elements as appear in the relevant
history do not take the present case away from the normal. Many sellers of one
property commit themselves concurrently to buying another: indeed to do so is
often the main reason for the sale. Many sellers of property have incumbrances
on that property. The law should be able to accommodate such matters without
indigestion.
The contract
for sale was dated November 1 1973. The property sold was called Sheepcote
Grange, Wooburn Common, Bucks; it consisted of the Grange itself and some
grazing land. On the Grange there was a first legal charge to a building
society for £15,600 and two other charges. On the grazing land there was a
first legal charge to a finance company for £6,000 and a second legal charge to
a bank. The purchase price under the contract was £117,000 and so was ample to
pay off the charges and to leave the vendors with money to buy another
property. In fact, on November 1 1973, they contracted to buy one for £34,000,
and raised the purchase money by loan from a bank. If the first contract had
been completed according to its terms, no difficulty would have arisen: the
bank loan would have been discharged from the purchase price.
The contract
was made by reference to the Law Society’s General Conditions of Sale (1973)
and provided for completion on December 6 1973. A deposit of 10 per cent was to
be paid but the purchaser only paid £3,000. Before December 6 1973 the
purchaser had accepted the vendors’ title (this of course disclosed the
existence of the mortgages) and a form of conveyance was agreed. However, the
purchaser did not complete on that date. On December 21 1973 the vendors’
solicitors served a notice, under condition 19, making time of the essence of
the contract and fixing January 21 1974 as the final date by which completion
was to take place. The purchaser failed to complete on that date. On March 8
1974 the vendors issued a writ claiming specific performance and damages in
lieu of or in addition thereto and alternatively a declaration that the vendors
were no longer bound to perform the contract and further relief. On May 20 1974
the vendors issued a summons under RSC Order 86 for summary judgment for
specific performance, and the order sought was made in the usual form on June
27 1974. It was not, however, drawn up and entered until November 26 1974.
Meanwhile
action was taken by the vendors’ mortgagees. The building society obtained an
order for possession of the Grange on August 22 1974, they sold it on June 20
1975 and completion took place on July 18 1975. The finance company obtained an
order for possession of the grazing land on March
Thus by April 3 1975 specific performance of the contract for sale had become
impossible. The vendors took no action upon the order for specific performance
until November 5 1976, when they issued a notice of motion seeking (a)
an order that the purchaser should pay the balance of the purchase price and an
inquiry as to damages or (b) alternatively a declaration that they were
entitled to treat the contract as repudiated by the purchaser and to forfeit
the deposit and an inquiry as to damages.
On February 25
1977 Megarry VC dismissed the motion. He rejected the first claim on the ground
that, as specific performance was no longer possible, it would be unjust to
order payment of the full purchase price. The second claim was not pressed, on
the ground that it was precluded by authority: Capital and Suburban
Properties Ltd v Swycher [1976] Ch 319 (CA).
The vendors
appealed to the Court of Appeal who again rejected each alternative: they followed
the previous decision in Swycher’s case. However, they held that the
vendors could recover damages under the Chancery Amendment Act 1858 (Lord
Cairns’ Act), which enables the court to award damages in addition to or in
substitution for specific performance. They accordingly made an order
discharging the order for specific performance and an order for an inquiry as
to damages. They fixed the date on which damages should be assessed as November
26 1974, being the date of entry of the order for specific performance. The
purchaser is now appealing against this order.
In this
situation it is possible to state at least some uncontroversial propositions of
law.
First, in a
contract for the sale of land, after time has been made, or has become, of the
essence of the contract, if the purchaser fails to complete, the vendor can either
treat the purchaser as having repudiated the contract, accept the repudiation,
and proceed to claim damages for breach of the contract, both parties being
discharged from further performance of the contract; or he may seek from
the court an order for specific performance with damages for any loss arising
from delay in performance. (Similar remedies are of course available to
purchasers against vendors.) This is
simply the ordinary law of contract applied to contracts capable of specific
performance.
Secondly, the
vendor may proceed by action for the above remedies (viz specific performance
or damages) in the alternative. At the trial he will however have to elect
which remedy to pursue.
Thirdly, if
the vendor treats the purchaser as having repudiated the contract and accepts
the repudiation, he cannot thereafter seek specific performance. This follows
from the fact that, the purchaser having repudiated the contract and his
repudiation having been accepted, both parties are discharged from further
performance.
At this point
it is important to dissipate a fertile source of confusion and to make clear
that although the vendor is sometimes referred to in the above situation as
‘rescinding’ the contract, this so-called ‘rescission’ is quite different from
rescission ab intio, such as may arise, for example, in cases of
mistake, fraud or lack of consent. In those cases, the contract is treated in
law as never having come into existence. (Cases of a contractual right to
rescind may fall under this principle but are not relevant to the present
discussion.) In the case of an accepted
repudiatory breach the contract has come into existence but has been put an end
to or discharged. Whatever contrary indications may be disinterred from old
authorities, it is now quite clear, under the general law of contract, that
acceptance of a repudiatory breach does not bring about ‘rescission ab
initio.‘ I need only quote one
passage to establish these propositions.
In Heyman
v Darwins Ltd [1942] AC 356 at p 399 Lord Porter said:
. . . To say
that the contract is rescinded or has come to an end or has ceased to exist may
in individual cases convey the truth with sufficient accuracy, but the fuller
expression that the injured party is thereby absolved from future performance
of his obligations under the contract is a more exact description of the
position. Strictly speaking, to say that on acceptance of the renunciation of a
contract the contract is rescinded is incorrect. In such a case the injured
party may accept the renunciation as a breach going to the root of the whole of
the consideration. By that acceptance he is discharged from further performance
and may bring an action for damages, but the contract itself is not rescinded.
See also Boston
Deep Sea Fishing & Ice Co v Ansell (1888) 39 ChD 339 at p 365
per Bowen LJ; Mayson v Clouet [1924] AC 980 at p 985 per Lord
Dunedin; and Lep Air Services v Rolloswin Investment Ltd [1973]
AC 331 at p 345 (per Lord Reid), and at p 350 (per Lord Diplock). I can see no
reason, and no logical reason has ever been given, why any different result
should follow as regards contracts for the sale of land, but a doctrine to this
effect has infiltrated into that part of the law with unfortunate results. I
shall return to this point when considering Henty v Schroder
(1879) 12 ChD 666 and cases which have followed it down to Barber v Wolfe
[1945] Ch 187 and Horsler v Zorro [1975] Ch 302.
Fourthly, if
an order for specific performance is sought and is made, the contract remains
in effect and is not merged in the judgment for specific performance. This is
clear law, best illustrated by the judgment of Sir Wilfrid Greene MR in Austins
of East Ham Ltd v Macey [1941] Ch 338 at p 341 in a passage which
deals both with this point and with that next following. It repays quotation in
full.
The contract
is still there. Until it is got rid of, it remains as a blot on the title, and
the position of the vendor, where the purchaser has made default, is that he is
entitled, not to annul the contract by aid of the court, but to obtain the
normal remedy of a party to a contract which the other party has repudiated. He
cannot, in the circumstances, treat it as repudiated except by order of the
court and the effect of obtaining such an order is that the contract, which
until then existed, is brought to an end. The real position, in my judgment, is
that, so far from proceeding to the enforcement of an order for specific
performance, the vendor, in such circumstances is choosing a remedy which is
alternative to the remedy of proceeding under the order for specific
performance. He could attempt to enforce that order and could levy an execution
which might prove completely fruitless. Instead of doing that, he elects to ask
the court to put an end to the contract, and that is an alternative to an order
for enforcing specific performance.
Fifthly, if
the order for specific performance is not complied with by the purchaser, the
vendor may either apply to the court for enforcement of the order or
apply to the court to dissolve the order and ask the court to put an end to the
contract. This proposition is as stated in Austins of East Ham Ltd v Macey
(loc cit) (and see Sudagar Singh v Nazeer [1978] 3 All ER 817
at p 821 per Megarry VC) and is in my opinion undoubted law, both on principle
and authority. It follows, indeed, automatically from the facts that the
contract remains in force after the order for specific performance and that the
purchaser has committed a breach of it of a repudiatory character which he has
not remedied, or as Megarry VC puts it (loc cit) that he is refusing to
complete.
These
propositions being, as I think they are, uncontrovertible, there only remains
the question whether, if the vendor takes the latter course, ie of applying to
the court to put an end to the contract, he is entitled to recover damages for
breach of the contract. On principle one may ask ‘Why ever not?’ If, as is clear, the vendor is entitled,
after, and notwithstanding that an order for specific performance has been
made, if the purchaser still does not complete the contract, to ask the court
to permit him to accept the purchaser’s repudiation and to declare the contract
to be terminated, why, if the court accedes to this, should there not follow
the ordinary consequences, undoubted under the general law of contract, that on
such acceptance and termination the vendor may recover damages for breach of
contract?
I now consider
the arguments which are said to support the negative answer.
(1) The principal authority lies in the case of Henty
v Schroder (1879) 12 ChD 666 in which Sir George Jessel MR is briefly
reported as having laid down that a vendor ‘could not at the same time obtain
an order to have the agreement rescinded and claim damages against the
defendant for breach of the agreement.’
The unsatisfactory nature of this statement has often been remarked
upon. It is unsupported by reasons and is only reported in oratio obliqua. It
is in direct conflict with previous authorities–Sweet v Meredith
(1863) 4 Giff 207, Watson v Cox (1873) LR 15 Eq 219–(more fully
in 42 LJCh 279)–yet no reason is given why these authorities are not followed,
nor is it said that they are overruled. If it were not for the great authority
of the Master of the Rolls, I can hardly believe that so fragile and insecure a
foundation for the law would ever have survived. Explanations have been
canvassed–that Sir George Jessel was confusing discharge of a contract by
accepted repudiation with rescission ab initio, a desperate hypothesis;
that (much more plausibly) the statement was procedural in character, the
emphasis being on ‘at the same time’; there was indeed authority that, at that
time, in order to obtain damages a separate bill had to be filed (see Corporation
of Hythe v East (1866) LR 1 Eq 620). But it is not profitable to
pursue these: the authority, weak as it is, is there and has been followed: it
is necessary to see what strength it has gained in the process.
At first
instance, it has been followed usually uncritically. In Hutchins v Humphreys
(1885) 54 LJCh 650 it was followed by North J but upon a misapprehension as to
what was ordered in Watson v Cox. In Jackson v De
Kadich [1904] WN 168–if contrary to sound practice this report is citable
at all–Farwell J (logically enough, if Henty v Schroder was
right) appears to have decided that a vendor who did not proceed with an order
for specific performance could not forfeit the purchaser’s deposit, but in Hall
v Burnell [1911] 2 Ch 551 Eve J took a different view. In Harold Wood
Brick Co Ltd v Ferris [1935] 1 KB 613 (on appeal [1935] 2 KB 198)
Swift J treated Henty v Schroder as depending on Chancery
procedure at the time (1879). In recent times it has been treated as good law
in Barber v Wolfe [1945] Ch 187 and Horsler v Zorro
[1975] Ch 302, but in each of these cases the judgment is discoloured by the
erroneous conception of rescission ab initio (see [1945] Ch 189, [1975]
Ch 309 at p 311) as a remedy for breach of contract. Horsler v Zorro
was itself firmly doubted, for this reason, by Goff LJ in Buckland v Farmer
& Moody [1978] 3 All ER 929 at p 943 in a passage with which I
respectfully agree. Finally, Henty v Schroder was endorsed by the
Court of Appeal in Capital v Suburban Properties Ltd v Swycher
(‘Swycher’s case‘) [1976] Ch 319, but on a new basis which I shall
shortly consider, and in the present case.
Textbook
authority in general supports the decision. Fry on Specific Performance
(6th ed, 1921 p 548) mentions the proposition with lack of enthusiasm, but the
main pillars in this case are Mr Cyprian Williams’ books on The Contract of
Sale of Land and on Vendor & Purchaser. In the former work (p
121) he firmly commits himself to the theory of rescission plus restitutio
in integrum as remedies for breach of the contract. In the latter, a
well-known book of reference on conveyancing matters, he equally firmly denies
a right to damages. I refer to the 4th ed (1936). At p 1025 the learned author writes
And if he
obtains an order for specific performance of the contract, that will be a bar
to his recovering damages for the breach; for in equity the plaintiff suing on
a breach of contract was required, as a rule, to elect which remedy he would
pursue; and a man entitled to alternative remedies is barred, after judgment on
the one, from asserting the other.
See also p
1004.
My Lords, this
passage is almost a perfect illustration of the dangers, well perceived by our
predecessors but tending to be neglected in modern times, of placing reliance
on textbook authority for an analysis of judicial decisions. It is on the face
of it a jumble of unclear propositions not logically related to each other. It
is ‘supported’ by footnote references to cases (two of this House and one of
the Privy Council) which are not explained or analysed. It would be tedious to
go through them in detail, but I am satisfied that, with the exception of the
reference to Henty v Schroder, they fail to support the text: it
is enough to mention that the decisions cited of this House are Scarf v Jardine
(1882) 7 App Cas 345–a case of choosing between two inconsistent rights
(see United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at p 30
per Lord Atkin) and Morel Brothers & Co Ltd v Earl of Westmorland
[1904] AC 11, an instance of the rule that after suing an agent, and obtaining
judgment, you cannot sue the principal. Neither of these cases in any way bears
upon such as the present.
The state of
authority then, so far as English law is concerned, is that, starting from a
judgment in which no reasons are given, and which may rest upon any one of
several foundations, of which one is unsound and another obsolete, a wavering
chain of precedent has been built up, relying upon that foundation, which is
itself unsound. Systems based upon precedent unfortunately often develop in
this way and it is sometimes the case that the resultant doctrine becomes too
firmly cemented to be dislodged.
This is,
however, the first time that this House has had to consider the right of an
innocent party to a contract for the sale of land to damages on the contract
being put an end to by accepted repudiation, and I think that we have the duty
to take a fresh look. I should certainly be reluctant to invite your Lordships
to endorse a line of authority so weak and unconvincing in principle.
Fortunately there is support for a more attractive and logical approach from
another bastion of the common law whose courts have adopted a robuster
attitude. I quote first from a judgment of Dixon J in McDonald v Dennys
Lascelles Ltd (1933) 48 CLR 457 which with typical clarity sets out the
principle–this, be it observed, in a case concerned with a contract for the
sale of land:
When a party
to a simple contract, upon a breach by the other contracting party of a
condition of the contract, elects to treat the contract as no longer binding
upon him, the contract is not rescinded as from the beginning. Both parties are
discharged from the further performance of the contract, but rights are not
divested or discharged which have already been unconditionally acquired. Rights
and obligations which arise from the partial execution of the contract and
causes of action which have accrued from its breach alike continue unaffected.
When a contract is rescinded because of matters which affect its formation, as
in the case of fraud, the parties are to be rehabilitated and restored, so far
as may be, to the position they occupied before the contract was made. But when
a contract, which is not void or voidable at law, or liable to be set aside in
equity, is dissolved at the election of one party because the other has not
observed an essential condition or has committed a breach going to its root,
the contract is determined so far as it is executory only and the party in
default is liable for damages for its breach.
Closer to the
present case, in Holland v Wiltshire (1954) 90 CLR 409 the High
Court of Australia was directly concerned with a question of damages for breach
of contract for the sale of land. The purchaser having failed to complete, the
vendor claimed damages. Dixon CJ said:
The proper
conclusion is that the vendor proceeded not under the contractual provision but
on the footing that the purchasers had discharged him from the obligations of
the contract. It follows that he is entitled to sue for unliquidated damages.
Some suggestion was made for the defendant’s appellants that once the contract
was treated by the vendor as discharged he could not recover for breach. This
notion, however, is based on a confusion with rescission for some invalidating
cause. It is quite inconsistent with principle and has long since been
dissipated. It is enough to refer to the note upon the subject in Mr Voumard’s Sale
of Land in Victoria (1939), at page 499.
Voumard’s Sale
of Land–judicially approved p 508–is explicit that damages can be
recovered.
Then, in a
case very similar to the present, McKenna v Richey [1950] VLR 360
it was decided by O’Bryan J in the Supreme Court of Victoria that after an
order for specific performance had been made, which in the events could not be
carried into effect, even though this was by reason of delay on the part of the
plaintiff, the plaintiff could still come to the court and ask for damages on
the basis of an accepted repudiation. The following passage is illuminating:
The apparent
inconsistency of a plaintiff suing for specific performance and for common law
damages in the alternative arises from the fact that, in order to avoid
circuitry of action, there is vested in one court jurisdiction to grant either
form of relief. The plaintiff, in effect, is saying:
‘I don’t
accept your repudiation of the contract but am willing to perform any part of
the contract and insist upon your performing your part–but if I cannot
successfully insist on your performing your part, I will accept the repudiation
and ask for damages.’
Until the
defendant’s repudiation is accepted the contract remains on foot, with all the
possible consequences of that fact. But if, from first to last, the defendant
continues unwilling to perform her part of the contract, then, if for any
reason the contract cannot be specifically enforced, the plaintiff may, in my
opinion, turn round and say:
‘Very well, I
cannot have specific performance; I will now ask for my alternative remedy of
damages at common law.’
This, in my
opinion, is equally applicable both before and after decree whether the reason
for the refusal or the failure of the decree of specific performance is due to
inability of the defendant to give any title to the property sold, or to the
conduct of the plaintiff which makes it inequitable for the contract to be
specifically enforced.
and later the
learned judge said of the case
It is an
appropriate case for a Court of Equity to say:
‘As a matter
of discretion, this contract should not now be enforced specifically, but, in
lieu of the decree for specific performance, the court will award the plaintiff
such damages as have been suffered by her in consequence of the defendant’s
breach. That is the best justice that can be done in this case.’
The learned
judge in his judgment fully discusses and analyses the English cases but
nevertheless reaches this view.
My Lords, I am
happy to follow the latter case. In my opinion Henty v Schroder
cannot stand against the powerful tide of logical objection and judicial
reasoning. It should no longer be regarded as of authority: the cases following
it should be overruled. In particular Barber v Wolfe (ubi supra)
and Horsler v Zorro (ubi supra) cannot stand so far as they are
based on the theory of ‘rescission ab initio,’ which has no application
to the termination of a contract on accepted repudiation
The second
basis for denying damages in such cases as the present is that which underlines
the judgment of the Court of Appeal in Swycher’s case. This is really a
rationalisation of Henty v Schroder, the weakness of which case
the court well perceived. The main argument there accepted was that by deciding
to seek the remedy of specific performance the vendor (or purchaser) has made
an election which either is irrevocable or becomes so when the order for
specific performance is made. A second limb of this argument (but in reality a
different argument) is that the vendor (or purchaser) has adequate remedies
under the order for specific performance, so that there is no need, or
equitable ground, for allowing him to change his ground and ask for damages.
In my opinion,
the argument based on irrevocable election, strongly pressed by the appellant’s
counsel in the present appeal, is unsound. Election, though the subject of much
learning and refinement, is in the end a doctrine based on simple
considerations of commonsense and equity. It is easy to see that a party who
has chosen to put an end to a contract by accepting the other party’s
repudiation cannot afterwards seek specific performance. This is simply because
the contract has gone–what is dead is dead. But it is no more difficult to
agree that a party, who has chosen to seek specific performance, may quite well
thereafter, if specific performance fails to be realised, say, ‘Very well,
then, the contract should be regarded as terminated.’ It is quite consistent with a decision
provisionally to keep alive, to say, ‘Well, this is no use–let us now end the
contract’s life.’ A vendor who seeks
(and gets) specific performance is merely electing for a course which may or
may not lead to implementation of the contract–what he elects for is not
eternal and unconditional affirmation, but a continuance of the contract under
control of the court, which control involves the power, in certain events, to
terminate it. If he makes an election at all, he does so when he decides not to
proceed under the order for specific performance, but to ask the court to
terminate the contract (see the judgment of Sir Wilfrid Greene in Austins of
East Ham Ltd v Macey quoted above). The fact is that the election
argument proves too much. If it were correct it would deny the vendor not just
the right to damages, but the right to ‘rescind’ the contract, but there is no
doubt that this right exists: what is in question is only the right, on
‘rescission,’ to claim damages.
The authority
most relied on to support this argument is in the end the passage already
quoted from Williams on Vendor and Purchaser–I have commented on this.
The case cited relate to different situations where an election might well be
regarded as creating a new situation from which subsequent departure would be
impossible. Cases relating to acceptance of defective goods, or to waiver or
enforcement of forfeiture, or to a decision to sue one set of parties rather
than another (Scarf v Jardine) or to a case of fraud, to be
asserted or waived (Clough v LNWR (1871) LR7 Ex 26), are
examples, and there are many others, where an election creates, or recognises,
a situation from which consequences flow and when the election is irrevocable.
But this is clearly not such a case, or the right to ‘rescind’ after an order
for specific performance would not have been recognised.
So far as
regards the subsidiary argument, it is equally the case that it proves too
much, for if correct it would result in a denial of the undoubted power to
‘rescind.’ Moreover the argument is
itself refuted by the action taken by the Court of Appeal itself, for after
allowing the vendors to rescind they awarded damages under Lord Cairns’ Act. So
clearly there was nothing inappropriate or unnecessary in granting the vendors
‘rescission’ and damages. As Goff LJ pointed out, it was not possible to leave
the vendors to ‘work out’ the decree for specific performance–their only remedy
(if any) must lie in an award of damages.
In my
respectful opinion, therefore, Swycher’s case, whether it should be
regarded as resting upon Henty v Schroder or upon an independent
argument based on election, was wrongly decided in so far as it denied a right
to contractual damages and should so far be overruled. The vendors should have
been entitled, upon discharge of the contract, on grounds of normal and
accepted principle, to damages appropriate for a breach of contract.
There is one
final point, on this part of the case, on which I should make a brief
observation. Once the matter has been placed in the hands of a court of equity,
or one exercising equity jurisdiction, the subsequent control of the matter
will be exercised according to equitable principles. The court would not make
an order dissolving the decree of specific performance and terminating the
contract (with recovery of damages) if to do so would be unjust, in the circumstances
then existing, to the other party, in this case to the purchaser. (To this
extent, in describing the [vendors’] right to an order as ‘ex debito
justitiae’ Clauson LJ may have put the case rather too strongly: John
Barker & Co Ltd v Littman [1941] Ch 405 at p 412). This is why
there was, in the Court of Appeal, rightly, a relevant and substantial
argument, repeated in this House, that the non-completion of the contract was
due to the default of the vendors: if this had been made good, the court could properly
have refused them the relief
non-completion, and the ultimate impossibility of completion, was the fault of
the purchaser. I agree with their conclusion and their reasons on this point
and shall not repeat or add to them.
It is now
necessary to deal with questions relating to the measure of damages. The Court
of Appeal, while denying the vendors’ right to damages at common law, granted
damages under Lord Cairns’ Act. Since, on the view which I take, damages can be
recovered at common law, two relevant questions now arise. (1) Whether Lord
Cairns’ Act provides a different measure of damages from the common law: if so,
the respondents would be in a position to claim the more favourable basis to
them. (2) If the measure of damages is the same, on what basis they should be
calculated.
Since the
decision of this House, by majority, in Leeds Industrial Co-operative
Society Ltd v Slack [1924] AC 851, it is clear that the jurisdiction
to award damages in accordance with section 2 of Lord Cairns’ Act (accepted by
the House as surviving the repeal of the Act) may arise in some cases in which
damages could not be recovered at common law: examples of this would be damages
in lieu of a quia timet injunction and damages for breach of a
restrictive covenant to which the plaintiff was not a party. To this extent the
Act created a power to award damages which did not exist before at common law.
But apart from these, and similar cases where damages could not be claimed at
all at common law, there is sound authority for the proposition that the Act
does not provide for the assessment of damages on any new basis. The wording of
section 2, ‘may be assessed in such manner as the court shall direct,’ does not
so suggest, but clearly refers only to procedure.
In Ferguson
v Wilson (1866) LR 2 Ch 77 at p 88 Turner LJ, sitting in a court which
included Sir H Cairns himself, expressed the clear opinion that the purpose of
the Act was to enable a court of equity to grant those damages which another
court might give; a similar opinion was strongly expressed by Kay J in Rock
Portland Cement Co v Wilson (1882) 48 LT 386, and Fry on Specific
Performance (6th ed p 602) is of the same opinion. In Wroth v Tyler,
however, [1974] Ch 30 Megarry J, relying on the words ‘in lieu of specific
performance,’ reached the view that damages under the Act should be assessed as
on the date when specific performance could have been ordered, in that case as
at the date of the judgment of the court. This case was followed in Grant
v Dawkins [1973] 1 WLR 1406. If this establishes a different basis from
that applicable at common law, I could not agree with it, but in Horsler
v Zorro [1975] Ch 302 at p 316 Megarry J went so far as to indicate his
view that there is no inflexible rule that common law damages must be assessed
as at the date of the breach. Furthermore, in Malhotra v Choudhury
[1979] 1 All ER 186 the Court of Appeal expressly decided that, in a case where
damages are given in substitution for an order for specific performance, both
equity and the common law would award damages on the same basis–in that case as
on the date of judgment. On the balance of these authorities and also on
principle, I find in the Act no warrant for the court awarding damages
differently from common law damages, but the question is left open on what date
such damages, however awarded, ought to be assessed.
(2) The general principle for the assessment of
damages is compensatory, ie that the innocent party is to be placed, so far as
money can do so, in the same position as if the contract had been performed.
Where the contract is one of sale, this principle normally leads to assessment
of damages as at the date of the breach–a principle recognised and embodied in
section 51 of the Sale of Goods Act 1893. But this is not an absolute rule: if
to follow it would give rise to injustice, the court has poer to fix such other
date as may be appropriate in the circumstances.
In cases where
a breach of a contract for sale has occurred, and the innocent party reasonably
continues to try to have the contract completed, it would to me appear more
logical and just, rather than tie him to the date of the original breach, to
assess damages as at the date when (otherwise than by his default) the contract
is lost. Support for this approach is to be found in the cases. In Ogle
v Vane (1867) LR 2 QB 275; LR 3 QB 272 the date was fixed by reference
to the time when the innocent party, acting reasonably, went into the market;
in Hickman v Haynes (1875) LR 10 CP 598 at a reasonable time
after the last request of the defendants (buyers) to withhold delivery. In Radford
v de Froberville [1977] 1 WLR 1262, where the defendant had covenanted
to build a wall, damages were held measurable as at the date of the hearing
rather than at the date of the defendant’s breach, unless the plaintiff ought
reasonably to have mitigated the breach at an earlier date.
In the present
case if it is accepted, as I would accept, that the vendors acted reasonably in
pursuing the remedy of specific performance, the date on which that remedy
became aborted (not by the vendors’ fault) should logically be fixed as the
date on which damages should be assessed. Choice of this date would be in
accordance both with common law principle, as indicated in the authorities I
have mentioned, and with the wording of the Act ‘in substitution for . . .
specific performance.’ The date which
emerges from this is April 3 1975–the first date on which mortgagees contracted
to sell a portion of the property. I would vary the order of the Court of
Appeal by substituting this date for that fixed by them–viz November 26 1974.
The same date (April 3 1975) should be used for the purpose of limiting the
appellants’ right to interest on damages. Subject to these modifications I
would dismiss the appeal.
LORDS SALMON,
FRASER OF TULLYBELTON, KEITH OF KINKEL and SCARMAN expressed agreement with the
speech of Lord Wilberforce.
The appeal was dismissed subject to the variation
proposed by Lord Wilberforce in the order of the Court of Appeal.
