England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION))
ON APPEAL FROM MANCHESTER COUNTY COURT
MR RECORDER KHAN

		Royal Courts of Justice Strand, London, WC2A 2LL
		26th November 2010

Lord Justice Thomas:

1. This appeal raises a short point as to whether a seller of property who had purported to give a premature notice of rescission under the Law Society's 2003 Standard Conditions of Sale was in repudiatory breach of contract.

The factual background

2. By a contract dated 8 February 2008, the respondents, Mr and Mrs Hooper, (the sellers) agreed to sell to the appellant, Mr Oates, (the buyer) a property known as Monkstone, Whitegate in Northwich (the "property") for a consideration of £605,000 (the "contract"). The Contract was subject to the 24^th Edition of the Law Society's Conditions of Sale 2003 (the "2003 conditions"). The deposit was 5% of the price, but by special condition 6, 10% became payable if the buyer did not complete. Completion was fixed for 30 June 2008. Provision was made for earlier completion; if the sale was not completed by 30 April 2008, a further £20,000 became payable by way of deposit.
3. On or about 8 February 2008, the buyer paid a 5% deposit of £30,250.
4. The sellers instructed County and Provincial Conveyancing ("County and Provincial") through Ms Brenda Oakes, to deal with the conveyancing aspects of the transaction while the buyer instructed Carol Swankie of Albinson Napier, solicitors.
5. Completion did not take place by 30 April 2008; the further sum of £20,000 was not paid by the buyer. Nor did completion take place on 30 June 2008. That same day County and Provincial, on behalf of the sellers, served under clause 6.8 of the 2003 conditions a notice to complete by fax on Miss Swankie on behalf of the buyer. The fax was sent at 4.02 p.m.; by clause 1.3.7(a) of the 2003 conditions, it was deemed to have been received one hour thereafter. It followed that under clause 1.3.5(b) of the 2003 conditions, it was deemed effective the following day, 1 July 2008. By the operation of clause 6.8.2 of the 2003 conditions the notice gave the buyer ten working days to complete the purchase. That period expired on 15 July 2008.
6. At the time of the notice to complete, it appears from the evidence heard by the Recorder that the buyer was undecided whether he would proceed with the transaction; it appears that he was waiting to find out more about his medical condition and wanted to make the decision at the last possible moment.
7. In case the buyer decided not to proceed with the transaction, on 11 July 2008 Miss Swankie prepared form UN2 to remove the buyer's unilateral notice registered at the Land Registry over the property at the time he had entered into the contract.
8. At 11.37 a.m. on 14 July 2008, County and Provincial served a formal notice on Miss Swankie on behalf of the buyer stating that:

"As completion has not taken place in accordance with the terms of the contract dated 8 February 2008 and the subsequent notice to complete a copy of which we enclose, we now give you formal notice that the sellers hereby rescind the contract. In accordance with the standard conditions we now wait the following by return: (1) Balance of the 10% deposit with interest at the contract rate. (2) Completed application form UN2 (we enclose form herewith for signature and return)."

9. The notice purported to have been given under clause 7.5 of the 2003 conditions which provided:

"7.5.1 If the buyer fails to complete in accordance with a notice to complete, the following terms apply.

7.5.2 The seller may rescind the contract, and if he does so:

a) he may

i) forfeit and keep any deposit and accrued interest

ii) resell the property and any chattels included in the contract

iii) claim damages

b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract.

7.5.3 The seller retains his other rights and remedies."

10. It was common ground on the hearing of the appeal that:

i) The sellers were not entitled to give notice until 15 July 2008.

ii) The sellers could not give notice until after 2 p.m. on that day, as the 2003 conditions gave the buyer until that time to complete.

11. On 14 July 2008 County and Provincial sent, on behalf of the sellers, a completed UN2 to the Land Registry applying to cancel the unilateral notice over the property which had been registered on behalf of the buyer.
12. The evidence before the Recorder was that when the buyer received the notice of 14 July 2008 and a letter from the Land Registry stating that the sellers had applied to cancel the buyer's unilateral notice over the property, he spoke to Miss Swankie. He expressed concern about agreeing to remove the notice. She explained to the buyer that, as the contract had been rescinded by the sellers, he was no longer entitled to maintain that unilateral notice. He agreed to her sending the UN2 form she had prepared to the Land Registry. She sent it on 16 July 2008.
13. On 15 July 2008 the sellers instructed Harold G Walker solicitors who wrote a letter of claim to the buyer in relation to what was described as the "abortive purchase" of the property.
14. On 23 July 2008 Miss Swankie wrote to County and Provincial thanking them for the letter of 14 July 2008 and informing them that she had already sent the buyer's UN2 form to the Land Registry. She further stated that the buyer had only agreed to pay a 5% deposit and no further sum was to be paid to comply with the notice to complete. County and Provincial replied that same day informing Miss Swankie that the balance of the 10% deposit was immediately payable.
15. On 24 July 2008 Albinson Napier, acting for the buyer, wrote to Harold G Walker and County and Provincial asserting for the first time that the July notice was "unlawful and a repudiation of the contract". The letter stated that it accepted that repudiation and treated the contract as discharged. The return of the deposit was claimed.
16. At the end of July or beginning of August 2008, the sellers began re-marketing the property.
17. On 21 October 2008, Harold G Walker wrote to Albinson Napier, stating that without prejudice to their contention that the contract had already been rescinded, they were giving a further notice that the contract was rescinded on the basis of the failure to complete.

The proceedings

18. On 20 May 2009, the sellers issued in the Bournemouth County Court a claim against the buyer, on the basis that the notice of 14 July 2008 was valid, for a declaration that the 5% deposit held by them be forfeited to them and that the outstanding 5% deposit and compensation arising out of the buyer's failure to complete the contract (including the expenses of sale and the diminution in value in the property in the market downturn) be paid to them. In the event that the sellers' claim against the buyer failed because the notice of 14 July 2008 was found to have repudiated the contract, they also made a Part 20 Claim against County and Provincial for the relief claimed from the buyer and further costs.
19. On 8 September 2009, an order was made that all issues of liability between the sellers and the buyer be tried before all other issues, with permission to County and Provincial to take part in the trial.

The decision of the Recorder

20. At the trial before Mr Recorder Khan on 2 and 3 March 2010, Mr Hooper and the buyer were cross examined on their witness statements. Mrs Hooper provided a witness statement, but was not cross examined. The witness statements of Miss Swankie and Ms Oakes were agreed. The Recorder decided he did not need to resolve any of the matters on which the evidence conflicted, as none was material to his decision.
21. The Recorder gave judgment in favour of the sellers on 3 March 2010. He asked himself the question whether the notice of 14 July 2008 which was accepted to be premature was an abandonment or refusal to perform the contract. He considered it was not. It was an attempt to get the buyer to perform his obligations under the contract by:

"bringing it to an end and by seeking the buyer's performance of his obligations under clause 7.5, in particular payment of the balance of the deposit and the filing of the UN2 at the registry."

The Recorder also held that the giving of notice prematurely on 14 July 2008, objectively considered, did not affect the buyer; he did not state on receipt that he was ready willing and able to perform or that the notice was premature. On the contrary, his reaction was consistent with the contract having not been repudiated in that the UN2 was sent to the Land Registry by his solicitor on 16 July 2008 and he was disputing his obligation to pay more under the contract. He was therefore not entitled to accept the premature service of the notice as repudiating the contract.

22. The Recorder also found that if he was wrong in his view as to whether the sellers were in repudiatory breach by the giving of the notice of 14 July 2008, the buyer had affirmed the contract by returning UN2 to the Land Registry. He also held that the notice given on 21 October 2008 took effect and that the "contract was lawfully determined on 21 October 2008".
23. We turn to the issue on the appeal.

Were the sellers in repudiatory breach of the contract by service of the notice of 14 July 2010?

24. In the light of the judgment of this court given shortly before the hearing of this appeal in Eminence Property Developments Ltd v Kevin Christopher Heaney [2010] EWCA Civ 1168, it was accepted that it was not necessary to review the authorities. Etherton LJ after reviewing the authorities (including Woodar Investment Limited v Wimpey Construction UK Ltd [1980] 1 WLR 227 (HL) and Alfred C Toepfer v Peter Cremer [1975] 2 Lloyds Rep. 118 (CA)) concluded at paragraph 61 that the question for the court in a case such as this was:

"Whether looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether to refuse to perform the contract."

25. It was accepted by Mr Berkley QC who appeared for the buyer that this question correctly represented the law binding on us. In the light of an application to the Supreme Court for leave to appeal in Eminence, he formally reserved his position in the event of leave being granted and the appeal being allowed. We therefore proceed to consider the issue on the basis that the question for the court is as set out by Etherton LJ.
26. It was contended by Mr Berkley QC for Mr Oates that on an examination of all the circumstances, the sellers had clearly shown an intention not to perform the contract at all and thereby repudiated it. He relied on a number of matters:

i) The sellers' application to the Land Registry for the cancellation of the buyer's unilateral notice; the making of this application was only consistent with the intention of the sellers that they would not perform the contract.

ii) The demand within the notice of rescission of 14 July 2008 for the cancellation of the buyer's unilateral notice; that demand was consistent only with the sellers being determined they would not perform the contract.

iii) The letter of claim sent on behalf of the sellers on 15 July 2008 by making reference to the buyer's "abortive purchase" of the property and to the contract having been rescinded was again consistent only with the sellers making it clear that they would not perform the contract.

iv) The sellers' letter of 30 July 2008 denying the buyer's well-founded claims that the notice of rescission was premature and unlawful.

v) The fact that at about the end of July or beginning of August 2008 the sellers placed the property back onto the market for sale.

vi) A letter sent by the sellers on 11 September 2008 asserting the contract was at an end because the buyer had accepted the rescission, any such acceptance only being possible if the sellers had intended by the notice of 14 July 2008 to make it clear they would not perform the contract.

vii) The sellers' letter of 21 October 2008 asserting that the buyer had no interest in the property because, on the sellers' interpretation of events, the contract had been terminated.

viii) The fact that at no time after the giving of the notice of rescission on 14 July 2008 was there ever any indication by the sellers that they would perform the contract should it subsequently be determined that the notice of rescission of 14 July was unlawful.

ix) The fact that at all times until the trial the sellers sought to maintain the notice of rescission was lawful and effective to determine the contract on 14 July 2008.

It was contended that on the basis of all of those matters it was clear from the perspective of a reasonable person in the position of the buyer that the sellers had on 14 July 2008 clearly shown an intention to refuse to perform the contract at all.

27. In approaching this matter, a court has to look at the situation as it would have faced a reasonable person in the position of the buyer on 14 and 15 July 2008 who had received the notice of 14 July 2008 and understood the terms of the contract including the 2003 conditions. A number of matters have to be taken into account:

i) First and foremost are the terms of the notice itself. In certain circumstances a statement by one of the parties to the contract that he is seeking to perform the contract at the same time as he gives notice claiming to be entitled to determine it under its provisions will not be treated as a statement that he is intending to perform the contract. For example, if he is putting forward an interpretation of the contract that is simply wrong and offering to perform it only on that basis, the fact that he states he intends to perform the contract may mean he is in fact objectively refusing to perform it. It is necessary to look at all the circumstances.

ii) In the circumstances of this case, however, it must have been clear to a reasonable person in the position of a buyer that two mistakes had been made. A reasonable person in the position of the buyer would have known of the technical rules relating to the point from which time ran and the time on the particular day for the buyer to complete. It must have been obvious that this was a case where a mistake had been made, as the notice referred to completion not taking place "in accordance with the terms of the contract". It then spelt out the consequences "in accordance with the standard conditions". This was not a case where the seller was sticking to his interpretation of the contract that was wrong and offering to perform it on that basis.

iii) It was obvious that the sellers intended to perform the contract by invoking the contractual machinery to terminate it but had simply made two mistakes in interpreting its provision.

iv) The position can be tested by asking the question whether, if the error had been pointed out, the sellers would have refused to perform the contract by conveying the house to the buyer if he was in turn willing and able to pay the balance of the price.

v) If the error had been pointed out it is clear, unlike the position in other cases, that the sellers would not have stuck to their position that they were entitled to give the notice at that time. They had genuinely made a mistake.

vi) On the objective evidence, it is clear that the sellers would in those circumstances have been willing to perform the contract if the buyer was willing, ready and able to perform.

28. I have reached this conclusion without examining or taking account of the conduct of the sellers and of the buyer subsequent to those dates. Such conduct would only be relevant if and insofar as it cast light on the understanding or perspective of a reasonable person in the position of the buyer on the 14/15 July 2008. There is, in my view, nothing that significantly assists. It cannot be permissible to have regard to the advice given by Miss Swankie (as set out in paragraph 12 above) as that is to have regard to subjective matters and not to the objective position. The sending of the letter by the buyer's solicitor to the Land Registry enclosing the UN2 is objectively consistent with both alternatives; it is only consistent with the buyers not treating the conduct as repudiatory if the subjective factors relating to the solicitor's advice is taken into account.
29. I therefore conclude that it is clear that a reasonable person in the position of the buyer cannot have regarded the notice of 14 July 2008 as showing an intention not to perform the contract. The decision of the Recorder was correct and the appeal must fail.
30. I should add, for the sake of completeness, that during the course of argument there was some consideration of the finding of the Recorder that the contract was discharged only on 21 October 2008. There must be some doubt as to the correctness of that decision, as both parties had by the end of July 2008 clearly accepted that the contract was at an end. However, it was not necessary to examine this issue as it was agreed that it made no difference to the quantum of the claim being made by the sellers.

Lord Justice Toulson:

31. I agree with the judgment of Thomas LJ. Permission to appeal was given prior the decision in Eminence Property Developments Ltd v Kevin Christopher Healey. That decision removed any real prospect of success which this appeal might otherwise have had. Since Mr Berkley QC wished to reserve his position to argue that Eminence Property was wrongly decided, I would only add that this case illustrates the justice of the approach adumbrated by Etherton LJ.
32. Having stated the test which Thomas LJ has quoted (at para 24 above), Etherton LJ went on to say (at para 62) that the test is "highly fact sensitive". In this case the recorder rightly described as opportunistic the appellant's attempt to treat the respondents' miscalculated notice of rescission as amounting to a repudiation of their contractual obligation. The respondents' obligation was to complete the transaction if the appellant fulfilled his reciprocal obligation to tender the balance of the purchase price by 15 July 2008. The opening words of the notice "As completion has not taken place in accordance with the terms of the contract dated 8 February 2008 and the subsequent notice to complete…" disclosed a patent miscalculation. The question is what effect the notice would have had on the mind of a reasonable person in the position of the appellant.
33. Mr Berkley QC argued that a reasonable person in the appellant's position would have concluded from the terms of the notice that it would therefore be pointless to attempt to complete the purchase within the time that the contract allowed, i.e. by 15 July 2008, because County and Provincial had evinced a clear intention on the respondents' part to refuse to complete within the prescribed period, even if the appellant had tendered the purchase money and pointed out that County and Provincial had miscalculated the end of the period. I agree that if that were the right way to read the notice, the conduct of the respondents through their agent would have been repudiatory; but I do not agree that this is how any reasonable person in the appellant's position would have read it. No reasonable person in his position would have doubted that the respondents would have been willing to complete if he had pointed out the error and tendered the balance of the purchase money within the time that the contract allowed. In reality, it was because of the appellant's conduct, not the respondents' conduct, that completion of the contract did not take place within the time allowed.

Lord Justice Moses:

34. I agree with both judgments.