It has now been 30 years since the Law Commission first proposed the abolition of the law of forfeiture. Since then successive consultation papers published by the Commission have criticised the doctrine of waiver as artificial, and called for its abolition.
Given parliament’s failure to implement such reform, can the concept of “continuing repudiation” be relied on to mitigate against some of the problems inherent in the current law?
What is waiver?
As Lord Diplock made clear in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1970] EGD 761, waiver of the right to forfeit is to be treated as an aspect of the wider doctrine of election:
“This [type of waiver] arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did. He is sometimes said to have ‘waived’ the alternative right, as for instance a right to forfeit a lease or to rescind a contract of sale for wrongful repudiation or breach of condition…”
Despite this, waiver of the right to forfeit has been applied in a far harsher way than it has in different areas of law. By way of illustration, a landlord faced with a “once and for all” breach of a lease is forced to make his election immediately, while the innocent party to a contract where the other party has committed a repudiatory breach is given time to reflect before having to make a decision. As Rix LJ put it in Stocznia Gdanska SA v Latvian Shipping Co and others (No 3) [2002] EWCA Civ 889:
“…there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do.”
Evolution of the law of waiver
The leading case is the decision of the House of Lords in Johnson and another v Agnew [1979] 2 EGLR 146, where Lord Wilberforce set out the following “uncontroversial propositions of law” applicable to sale and purchase contracts:
(i) If a purchaser fails to complete after time has been made of the essence, the vendor can either treat the contract as repudiated, and proceed to claim damages, or treat the contract as ongoing and claim specific performance, with damages for any losses flowing from the delay.
(ii) Alternatively, the vendor can claim in the proceedings in the alternative and elect at trial which remedy he wishes to pursue.
(iii) If, however, the purchaser makes his election for damages ahead of issuing proceedings, then he cannot thereafter sue for specific performance since, by his election, both parties are irrevocably discharged from further performance under the contract.
(iv) If the order for specific performance is not complied with by the purchaser, the vendor may either apply to enforce the order, or ask the court for an order putting the contract at an end.
Lord Wilberforce then proceeded to decide whether, having applied to the court – after the making of an order for specific performance – for an order putting the contract to an end, the vendor could then claim damages against the defaulting purchaser. Not surprisingly, he decided that the vendor could.
The argument advanced by the purchaser was that, by deciding to seek the remedy of specific performance, the vendor had made an election which either is irrevocable or which becomes so when an order for specific performance is made.
However, Lord Wilberforce said that this argument based on irrevocable election was “unsound”, as election is a doctrine “based on simple considerations of common sense and equity”. He continued:
“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’.”
However, Johnson did not deal with the situation where the initial affirmation of the contract by the innocent party was made outside of court proceedings. This position was considered in Safe Haven Investments Inc v Springbok Ltd [1995] EGCS 96 where deputy judge Jonathan Sumption QC (as he then was) had to decide whether a vendor, who initially did not accept the purchaser’s repudiatory breach but continued to press for completion, could change his mind and accept the purchaser’s earlier repudiation and so forfeit the deposit. The purchaser asserted the vendor’s actions in so doing were themselves repudiatory given the vendor’s earlier election to affirm.
The judge found that it did not follow from Lord Wilberforce’s analysis that the innocent party may in all cases change his mind after affirming the contract, offering the example that, if, following affirmation, the repudiating party’s conduct suggested that he proposed to perform after all, then that party’s previous repudiation is “spent” and has no further significance. However, he went on:
“If on the other hand, the repudiating party persists in his refusal to perform, the innocent party may later treat the contract as being at an end. The correct analysis in this case is not that the innocent party is terminating on account of the original repudiation and going back on his election to affirm. It is that he is treating the contract as being at an end on account of the continuing repudiation reflected in the other party’s behaviour after the affirmation.”
This passage appears to introduce into English law for the first time the concept of “continuing repudiation”; so long as the defaulting party, by his continuing actions, evinces an intention not to satisfy his obligations under the contract, it appears that the innocent party may change tack and, rather than trying to complete, instead terminate the contract and sue for damages.
While Safe Haven was only a first-instance decision (albeit one made by the now Lord Sumption) any doubt as to the applicability of the doctrine of “continuing repudiation” was later laid to rest by the Court of Appeal in Stocznia, where it was endorsed by Rix LJ.
Leases as contracts
While there are obvious differences between leases and other contracts (privity of estate, to name but one), the contractual nature of a lease has been emphasised by the courts on a number of occasions, including the landmark case of Hussein and others v Mehlman [1992] 2 EGLR 87 when assistant recorder Stephen Sedley QC (later Sedley LJ) held that a lease, like any other form of contract, could in the right circumstances be brought to an end by a tenant’s acceptance of a repudiatory breach by the landlord.
Since then other courts in England have held or assumed this to be the case. It would seem strange that different principles should apply in deciding whether a tenant had waived its right to accept a repudiatory breach by a landlord, compared with a landlord waiving his right to forfeit based on a tenant’s breach of covenant. Perhaps an answer lies in applying the doctrine of continuing repudiation to the law of forfeiture.
What lies ahead?
The potential unfairness of the current law is highlighted by the facts of Central Estates (Belgravia) Ltd v Woolgar (No 2) [1972] EGD 648, where the landlord’s managing agents circulated an internal memorandum informing their staff of their client’s decision to forfeit the lease, and instructing them not to demand or accept rent accordingly. The memorandum failed to reach one of the staff, who duly demanded rent. Notwithstanding the fact that the tenant knew that the landlord’s intention to forfeit remained unaltered, the court held that the clerk’s inadvertent actions amounted to waiver.
That case was more than 40 years ago and, since the introduction of computer-generated invoices, the risk of such errors occurring has increased significantly.
The Law Commission’s solution to cure such injustices was the introduction of “termination orders”. Under this procedure, a lease would only terminate at trial on the making of such an order, negating the need for a landlord to make an election. The court could still take account of the landlord’s conduct both before and during the proceedings, but inadvertent acts of waiver would be ignored and the court would only take into account conduct that might have led the tenant to reasonably believe that the landlord would not act on such breach.
This would therefore result in landlords being able to demand and accept ongoing rent and service charge while disputed questions of tenant default were being determined by the courts.
But it is, incredibly, now three decades since that proposal was first put forward by the Law Commission. So perhaps it is time for a landlord to believe that such law reform will be implemented in the foreseeable future, perhaps it is time for a landlord with the right set of facts to now challenge the settled position of the law.
Jonathan Levinson is a partner in the real estate litigation team at Howard Kennedy, and Carl Fain is a barrister at Tanfield Chambers
