England and Wales Court of Appeal (Civil Division) Decisions

IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM NEWCASTLE UPON TYNE DISTRICT REGISTRY
HIS HONOUR JUDGE BEHRENS
8NE 09088

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/03/2010

Mr Justice Briggs:

INTRODUCTION

1. This is an appeal from an Order for specific performance made by HH Judge Behrens sitting as a Deputy Judge of the Chancery Division in the Newcastle upon Tyne District Registry on 20^th August 2009, at the conclusion of the trial of a vendor and purchaser dispute. The Appellants Damien Coleman and Patrick Quinn were the purchasers under eleven contracts in substantially identical terms (save as to price) dated 24^th October 2007 for the sale of eleven flats in a development then under construction at Elmfield Court, Bedlington, Northumberland. The successful claimant North Eastern Properties Ltd was the vendor under each of those contracts and is the Respondent to this appeal.
2. The Appellants resisted the claim for specific performance upon two main grounds. The first was that each of the written contracts failed to include an agreed term of the sale, namely that the Respondent would pay the Appellants upon exchange a sum equal to 2% of the advertised list price for the flat in question, so that the contracts fell foul of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 ("the 1989 Act"). The second was that, in any event, the Appellants had rescinded each of the contracts by accepting a repudiatory breach of each of them, constituted by the Respondent's failure to complete the property development within the time specified in a completion notice given by letter dated 23^rd May 2008. I shall refer to those defences respectively as raising the section 2 issue and the rescission issue. Judge Behrens rejected both of them and by this appeal the Appellants argue that he was wrong to do so.
3. This appeal therefore falls into two self-contained parts. Each of them involves points of substance which do not appear to be the subject of any decisive authority. The section 2 issue concerns, in part, the effect of the inclusion in a contract for the sale of land of an entire agreement clause, following the earlier negotiation of a term not included in the contract. The second raises (at least potentially) the question whether an election to accept a repudiatory breach of contract may be contained in a 'time of the essence' notice which, necessarily, precedes the occurrence of the relevant repudiatory breach.

THE FACTS

4. The relevant facts are set out with admirable brevity and precision in the Judge's reserved judgment, and this appeal includes no challenge to his findings.
5. The Appellants are two businessmen from Northern Ireland, each of whom had a portfolio of properties both in Northern Ireland and the Northeast of England. They wished to acquire flats in the Respondent's development at Elmfield Court, not for their own use, but for on-sale or letting.
6. Negotiations between the parties began in about July 2007. At that time Elmfield Court was in the course of construction, pursuant to a building contract made in 2006 between the Respondent and Deansfield Developments Ltd. At a site meeting attended by the Respondent, the Appellants and others in late July 2007 the Respondent by its director Mr Brian McCartney told those present that the development was expected to be completed at the end of 2007.
7. Initial negotiations took place between the parties' respective agents, Ms Edington of Rook Matthews Sayer for the Respondent and Ms Luhr of Sarah Luhr Property Search for the Appellants. Flats at Elmfield Court were advertised for sale by reference to a list which included prices ranging between £106,000 and £115,000. The Appellants' opening bid consisted of an offer to buy twelve specific flats with a discount of 12% off the list price, contained in an email from Ms Luhr to Ms Edington on 2^nd August 2007.
8. In the course of telephone discussions the parties then agreed upon a sale of the twelve flats at a discount of 10% off the list price, subject to a reservation fee of £500 per flat (i.e. £6,000) payable to the Respondent, and to exchange of contracts within 28 days. This subject to contract oral agreement was recorded in an email dated 4^th August from Ms Edington to Mr McCartney and Ms Luhr.
9. On the following day Mr Coleman sent an email to Ms Luhr containing the following passage:

"Contracts must be assignable and 8% disclosed on the contract as a builder's incentive.

The 2% will be invoiced to the builder as a finder's fee at exchange of contracts and then paid to ourselves. Will have to be a separate contract or agreement for this."

Ms Luhr forwarded that email to Ms Edington, with a copy to Mr McCartney.

10. Later on the same day Mr McCartney responded by email to Ms Luhr, copied to Ms Edington, including the following passage:

"In line with your e-mail we would agree to set out the purchase contracts as you have detailed it i.e; An assignable contract with our company offering an 8% discount off the published price list and a further 2% paid to your company by cheque or bank transfer on production of an invoice totalling 10%.

We would agree on a 28 day period to exchange of contracts from the day your reservation which is £500 per apartment (12 x £500 = £6000) this amount is deducted from your final balance."

Plainly, this agreement to split the 10% discount into 8% and 2% was subject to contract.

11. Both parties then instructed solicitors. The Respondent retained Sintons of Newcastle and the Appellants retained Wholley Goodings of Morpeth. The pre-contract reservation deposit of £6,000 for the twelve flats was duly paid to the Respondent by 13^th August.
12. On 21^st August Sintons sent twelve draft contracts to Wholley Goodings each of which specified a price 8% less than the list price, and made no reference to the 2% finders fee. Nor did the draft contracts provide expressly for them to be assignable.
13. On 28^th August Wholley Goodings returned the draft contracts to Sintons under cover of a letter in the following terms:

"Unfortunately we must return the agreements to you for each of the 12 units as our clients have instructed us that all the agreements must be assignable. We also understand that on exchange of contracts, our clients will be paid a "Finders Fee" of 2% of the purchase price for each of the units. We therefore look forward to receiving amended agreements together with confirmation that the Finders Fee" of 2% for each of the units is agreed by your client company."

14. On the following day Sintons sent Wholley Goodings twelve amended contracts including in each of them an express right to assign. The covering letter stated that:

"Our client has instructed us that the "Finders Fee" which you mention will be dealt with direct and will not form part of the Contract."

15. By 26^th September it had become apparent to the Respondent that the December 2007 estimate for the completion of the development no longer held good, and that completion of the development was unlikely to take place earlier than late February 2008. The Respondent did not inform the Appellants about this change.
16. In the meantime the Appellants found a buyer (a Mr Anderson) for one of the flats (Unit 22) and on 11^th October Wholley Goodings informed Sintons that a fresh contract should be issued for Unit 22 direct to him, in place of the draft contract for the sale of Unit 22 to their clients. This was duly done, with the result that contracts for the sale of the 11 remaining flats were duly exchanged between the parties on 24^th October 2007. Although the 2% finders fee was, pursuant to the exchange of emails which I have described, due upon exchange, it was not paid then, nor has it ever been paid. Each of the contracts, as exchanged, conferred on the Appellants an express right of assignment and made no mention of the 2% finders fee.
17. It is important to identify, as an aspect of the relevant facts, the reasons why the Appellants requested, and the Respondent agreed, both to include an express right of assignment in each contract, and to exclude any reference to the 2% finders fee. This is touched upon in paragraph 10 of the Judgment, and was explained in more detail (pursuant to enquiries from the bench) by counsel appearing on the appeal, there being no dispute between the parties about the reasoning. I have mentioned that the Appellants wished to on-sell some of the flats, I infer to residential sub-purchasers. They wished to be able to do so by a simple assignment to their intending sub-purchaser of a contract for the purchase of a flat, thereby giving to the sub-purchaser the benefit of the 8% price reduction below the list price reflected in the agreed purchase price in the contract. The 2% finders fee was to be the Appellants' profit from participating in the chain of sales. Thus, their sub-purchasers were not to be permitted to rely upon the 2% finders fee as an additional deduction from the purchase price payable on completion.
18. Nor was the finders fee only to be payable on completion. It was payable on exchange, as consideration for providing contracting purchasers for the twelve flats, rather than for procuring completed sales. The Respondent stipulated for no right to repayment of the finders fee if for some reason the contracts for the purchase of one or more flats did not proceed to completion. Furthermore, it was and remained a finders fee for the provision for contracting purchasers for all twelve flats, even though in the event only eleven of them became the subject matter of contracts between the parties. The finders fee agreement did not stipulate that the contracting purchasers had to be the Appellants themselves, although that may have been the parties' initial assumption. As will appear, the Appellants did not interpret it as imposing any such requirement, and nor do I.
19. Counsel were at pains to emphasise that the agreement to exclude any reference to the finders fee from each of the contracts had nothing to do with any wish to conceal it from sub-purchasers. It was done simply to avoid the benefit of the finders fee passing by the intended assignment of the contracts to those sub-purchasers, as it would do if included as a term of the contract. Each contract had to provide an independent bundle of rights and obligations for the sub-purchaser of each flat. It was I infer for that reason that the transaction was structured as separate contracts for the sale of each flat, rather than as a single contract for the sale of all of them.
20. I must now describe the terms of the eleven contracts in a little more detail. They were, in all respects save for identifying the relevant flat and the price, identical. Necessarily, they provided both for the completion of the building of Elmfield Court (described in each contract as "the Property") of which each flat formed only a part, and for the sale of the specified flat, once ready for occupation after completion of the Property.
21. Clause 10 of each contract required the Respondent (described as "the Seller") to construct or cause to be constructed the Property, in accordance with the planning permission obtained, the building regulations and the plans and specifications disclosed to the Appellants (described as "the Buyer"). Clause 12 required that:

"The erection and completion of the Property shall be carried out by the Seller with all due despatch …."

It included protection for the Seller against liability to the Buyer for losses occasioned by delay in certain specified circumstances of a force majeure type, none of which applied in the event.

22. Each contract made detailed provision for completion of the sale, which was to be by way of the grant of a long lease at a premium constituted by the purchase price. Clause 3.1 provided that:

"… the purchase shall be completed at the offices of the Seller's Solicitors within the Period for Completion."

Clause 3.2 made similar provision for the completion of the Lease and the payment of the balance of the Purchase Price. Clause 1.12 provided that:

" "The Period for Completion" means not more than ten working days after the Buyer or the Buyer's Solicitors have been sent notice that the Property has been completed in accordance with this Agreement and is ready for occupation."

By clause 3.4:

"Buyer shall not be entitled to delay completion by reason of minor defects or outstanding works of a minor nature which can reasonably be dealt with after completion (including in particular any landscaping, erection of fences and final surfacing of driveways) and the Seller undertakes to complete such outstanding works (if any) as soon as practicable after completion."

23. Each contract made specific provision for the giving by either party of Notice to Complete, by the express incorporation, subject to certain exclusions and amendments, of Condition 6 of the Standard Conditions of Sale (4^th edition): see clauses 1.9 and 17 of each contract. The detail of these provisions, and in particular the bespoke amendments to the Standard Conditions contained in each contract, formed the subject of considerable debate at trial. Save in one limited respect, they are of no materiality to the appeal, because they relate to Notice to Complete the sale, rather than to a notice making time for the completion of the construction of the Property of the essence. No express provision is made in the contract for a notice of that kind, which depends for its efficacy upon the general law. The marginally relevant provision of the specific terms as to Completion Notices in the contracts is that, pursuant to Standard Condition 6.8.2, the giving of a Completion Notice makes a ten working day time limit for the completion of the sale of the essence of the contract.
24. Finally, and importantly, each contract contained, at clause 16.3, an entire agreement clause in the following concise terms:

"This Agreement contains the entire agreement between the parties;"

25. Practical completion of the construction of Elmfield Court was not achieved by the end of 2007. In fact, for reasons which appear largely to have been attributable to the financial predicament of the building contractor, which entered into a CVA in April 2008, practical completion was achieved only by the end of June 2008. The appeal in relation to the rescission issue makes it necessary to describe the communications between the parties about that delay in a little detail.
26. In November 2007 Mr McCartney told Ms Luhr at a site meeting that practical completion had been estimated by the Contractor as likely to occur by 31^st January 2008. On 29^th January Mr McCartney told Ms Luhr on the telephone that the estimate had moved forward to the end of February 2008. In response to an enquiry from Wholley Goodings by letter on 1^st February, Sintons replied on 22^nd February that their client's non-binding estimate for practical completion was mid to late April 2008.
27. At a site meeting on 21^st May 2008 Mr McCartney told the Appellants that there had been contractor problems, that the development was three weeks away from practical completion, and that commissioning of the units was due to be underway shortly with mid/end June completion. At paragraph 69 of the Judgment, the Judge summarised the combined requirement of practical completion and commissioning of the flats as meaning that a further month was needed for the completion of Elmfield Court (i.e. completion of the Property in accordance with the Agreement, within the meaning of clause 1.12 of each contract).
28. Mr Holland who appeared for the Appellants drew attention to the apparent inconsistency between this finding and paragraph 30 of the Judgment, in which Mr McCartney is described as having said that "the development was 3 weeks from practical completion". I am satisfied that there is in fact no such inconsistency. The clear meaning and intent of each contract was the construction of the Property should, before the Period for Completion (as defined) started to run, have reached a stage at which the flat specified in the contract was ready for occupation, a stage which, in addition to practical completion, would be likely to require commissioning and may have required the obtaining of building regulations consent. As will appear, that is what the Appellants assumed.
29. In the meantime, on 21^st February 2008, Mr Coleman sent to the Respondent an invoice, in the name of his company Coleman Property Leasing Limited, for the 2% finders fee. The aggregate amount demanded, prior to the addition of VAT, was £28,800, and the invoice set out a calculation of that amount by reference to the list prices for all twelve flats which had been the subject of the finders fee agreement in the emails to which I have referred, including Unit 22, which for the reasons which I have explained had not in the event become the subject matter of a sale contract between the parties. Of course, the Appellants had found a contracting purchaser for Unit 22 before exchange of contracts for the purchase of the other eleven flats. On both the Appellants' and my interpretation of the finders fee agreement, the Appellants had therefore earned that part of their fee represented by 2% of the list price of Unit 22.
30. Delivery of that invoice met with a silence from the vendor until, on 25^th April 2008, Mr McCartney informed Mr Coleman by email that:

"All invoices of this nature are paid on completion of the sale relating to each Invoice."

While that response (wrongly in my judgment) sought to postpone liability for payment of the finders fees from exchange until completion, it did not suggest that, in relation to Unit 22, no fee would be due, merely because the sale had been contracted with a person found by the Appellants (namely Mr Anderson), rather than pursuant to a contract of sale with the Appellants themselves. In the event, as I have said, no part of the finders fee has in fact been paid. Completion of the sale of the eleven flats to the Appellants has yet to occur. In their counterclaim in these proceedings, dated 28^th February 2009, the Appellants included a specific claim for the whole of the finders fee of £28,800 (i.e. including a fee in relation to Unit 22). For a reason which does not emerge clearly from the Judgment, the whole of the counterclaim, including the claim for the finders fee, was dismissed.

31. On 23^rd May 2008, two days after the site meeting at which their clients had been told that completion of the construction of the Property would probably take another month, Wholley Goodings wrote to Sintons enclosing Notices to Complete (expressed to be pursuant to Standard Condition 6) in relation to all eleven contracts. The outcome of the rescission issue turns not on the content of those Notices to Complete, but upon the final part of the letter quoted below. After referring to the Respondent's obligation to complete the construction of the Property with all due despatch, and to the history of delay which had in fact attended that process, the letter continued:

"Accordingly would you please treat this letter as notice to your client that time for completing the properties so that they are ready for occupation should now be of the essence. Accordingly unless the properties are ready for occupation with final building regulation certificate and premier guarantee certificate within no later than 10 working days of the date of this letter then our clients will deem your clients in breach of the contract and will consider themselves discharged from the contract and entitled to the return of the deposit with interest.

For the sake of completeness we enclose a formal Notice to Complete."

That letter having been sent by fax, it is common ground that the period of ten working days specified in the letter expired on 9^th June 2008. By contrast, the Judge found that the construction process was not complete by then, but was complete, within the meaning of clause 1.12 of each contract, by the end of June. The Judge made no specific finding whether, under the stimulus of the letter faxed on 23^rd May 2008, the Respondent could have achieved the requisite degree of completion of the Property by 9^th June. Nonetheless, I infer from paragraph 69 of the Judgment, in which he concluded that ten working days from 23^rd May was not a reasonable time to specify in that letter, that he probably thought not.

32. On 1^st July 2008 Sintons served notice pursuant to clause 1.12 of each contract that the construction of the Property had been completed in accordance with each agreement, thereby triggering the period of ten working days thereafter as the Period for Completion (as defined). The Appellants failed to complete within that ten day period. Accordingly on 16^th July 2008 Sintons gave the Appellants Notices to Complete in respect of each of the eleven contracts in accordance with condition 6 of the Standard Conditions, with which the Appellants also failed to comply. Following a letter before action dated 8^th August 2008, these proceedings for specific performance were commenced on 14^th October.

THE SECTION 2 ISSUE

33. Section 2(1) of the 1989 Act provides:

"A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each."

It is not suggested that any other provision of the Act is relevant to the section 2 issue. I shall refer to contracts to which section 2 applies as 'land contracts'.

34. The parties' submissions may be shortly summarised. For the Appellants, Mr Holland submitted that the 2% finders fee was a term of each of the eleven contracts of sale which the parties had expressly agreed, being a part of the terms as to price. Since it had not been included in any of the eleven contracts, they all fell foul of section 2(1) of the 1989 Act. The contracts were therefore all void, and could not be saved by the device (as he put it) of including an entire agreement clause, since that would be to defeat the plain intention of Parliament.
35. For the Respondent vendor, Mr Rodger submitted that the finders fee agreement was separate and distinct from any of the sale contracts. Although expressly agreed, it did not constitute a term of any of them. In any event, the entire agreement clause by which the parties contracted (rather than merely represented) that each contract contained the whole of the terms of the sale of the flat to which it related, was sufficient to resolve any doubt about the matter. As he memorably put it, an entire agreement clause "does what it says on the tin".
36. The Judge's conclusion (expressed with his customary brevity) was that the 2% finders fee did not form part of any of the eleven contracts, and that this was "consistent" with the entire agreement clause in each of them: see paragraph 57 of the Judgment.
37. I have come to the conclusion that the Judge was correct. I have however reached that conclusion with more difficulty than he appears to have encountered, and by a materially different process of analysis, which I now describe.
38. The starting point, as with all questions of statutory construction, is to interpret section 2(1) in accordance with its purpose. Section 2 was designed to replace section 40 of the Law of Property Act 1925 which, while requiring a land contract to be in writing, or supported by a written memorandum or note, signed by or on behalf of the party to be charged, expressly preserved the law relating to part performance as an alternative basis for enforcement. In the Law Commission's Report entitled "Transfer of Land – Formalities for Contracts for Sale etc of Land" (Law Com.164 published in June 1987) section 40 was described as giving rise to such uncertainties as to make it:

"Virtually impossible to discover with acceptable certainty, prior to proceedings, whether a contract will be found to be enforceable under the statutory requirements." (paragraph 1.8).

39. After rejecting various possible reforms, including a simple repeal of section 40, the Law Commission proposed a scheme which, if adopted in accordance with the draft Bill annexed to the Report, would in its view remedy both the uncertainty and the occasional injustices caused by the then state of the law under section 40. The injustices identified by the Law Commission included not merely uncertainty (with the consequential need for expensive litigation) but also lack of mutuality (inherent in the concept of enforceability by one, but not both parties to the contract) and also the tendency of the then law to allow contracts to become enforceable inadvertently, or to allow people who had genuinely contracted to escape their contractual obligations: see in particular paragraphs 4.2 and 1.4 of the Report, and the reference to Tiverton Estates Ltd v. Wearwell Ltd [1975] Ch 146, which the Law Commission clearly regarded as a paradigm example of that last kind of injustice.
40. The Law Commission considered that the imposition as a condition of the validity (rather than merely enforceability) of a land contract of a requirement that all its express terms be incorporated in one or more documents, signed by or on behalf of each party, would remedy all those injustices.
41. There is a difficulty in attributing to Parliament precisely the intention enunciated in the Law Commission's Report, because unfortunately Parliament chose to enact in section 2(1) of the 1989 Act a regime which differs materially from that proposed by the Law Commission in its draft Bill. For a detailed analysis of that difficulty in a different context, see Commission for the New Towns v. Cooper (Great Britain) Ltd [1995] Ch 259, per Stuart-Smith LJ at 283C to 289F, and per Evans LJ at 289B.
42. Nonetheless, it does not seem to me that anything in the differences between section 2(1) of the 1989 Act and its ancestor in the Bill proposed by the Law Commission comes anywhere near to making it inappropriate to conclude, as I do, that it was no part of Parliament's intention by enacting section 2 of the 1989 Act to make it easier for people who have genuinely contracted to escape their contractual obligations.
43. Even more unfortunately, the reported cases in which the courts have sought to interpret and apply section 2(1) of the 1989 Act demonstrate that, because of the rigorous discipline which it imposes upon parties to land contracts, it does indeed enable persons who have genuinely contracted to do just that. It enables parties to land contracts who have changed their minds to look around for expressly agreed terms which have not found their way into the final form of land contract which they signed, for the precise purpose of avoiding their obligations, on the ground that the lack of discipline of their counterparty, or even their own lack of discipline, has rendered the contract void. As Judge Behrens noted in the present case, the exclusion of the 2% finders fee from each of the eleven contracts occurred at the express request, and to serve the commercial purposes of, the Appellant purchasers. Mr Holland did not on their behalf attempt to suggest that a successful outcome for his clients on the section 2 issue would do otherwise than to provide a wholly unmerited escape from genuine obligations deliberately entered into.
44. It is not uncommon to find a statutory provision which, in seeking to remedy one mischief, unexpectedly creates another, which cannot be undone by any purposive approach to construction. In the present case, the undeserved escape route which, on Mr Holland's submissions, would be afforded to his clients by succeeding on the section 2 issue would give rise to an injustice of a type which it was an express purpose of the 1989 Act to mitigate or prevent.
45. Although I am mindful of the need to avoid treating an apparent Parliamentary purpose as the basis simply for disapplying a statutory provision in a case in which its application would otherwise give rise to injustice, I consider it legitimate to approach the interpretation and application to the unusual facts of this case of section 2(1) of the 1989 Act upon the basis that if it can be construed so as to prevent or mitigate the injustice of enabling genuine contracting parties to escape from their obligations, it ought to be.
46. A party seeking to avoid a land contract under section 2 must identify a term which the parties have expressly agreed, which is not to be found in the single, or exchanged, signed document. It is not sufficient merely to show that the land contract formed part of a larger transaction which was subject to other expressly agreed terms which are absent from the land contract. The expressly agreed term must, if it is required by section 2 to be included in the single document, be a term of the sale of the land, rather than a term of some simultaneous contract (whether for the sale of a chattel or the provision of a service) which happens to take place at the same time as the land contract, and to form part of one commercial transaction. Section 2(1) does not prohibit parties from structuring a transaction, for example, for the sale of the whole of a company's assets, in such a way that the land sale is dealt with in a different document from the sale of stock, work in progress or goodwill, unless the sale of the land is conditional upon the sale of the other assets. For an illustration of this point, see Grossman v. Hooper [2001] EWCA Civ 615; (2001) 2 EGLR 82, per Chadwick LJ at paragraphs 19 to 22.
47. A more difficult problem, to which the authorities do not provide a harmonious response, is the question whether a deliberate choice by the parties to exclude expressly agreed terms from the signed document (as occurred in the present case) affects the issue whether those excluded terms actually form part of the land contract. In Tootal Clothing v. Guinea Properties Management Ltd (1992) 41 EG 117 Scott LJ said this, at page 7 of the transcript:

"If parties choose to hive off part of the terms of their composite bargain into a separate contract distinct from the written land contract that incorporates the rest of the terms, I can see nothing in section 2 that provides an answer to an action for enforcement of the land contract, on the one hand, or of the separate contract on the other hand. Each has become, by the contractual choice of the parties, a separate contract."

48. That was a case in which by a single commercial transaction the parties agreed to the grant of a lease, on terms that Tootal (the intending lessee), would carry out shop-fitting works, have the benefit of a three months rent-free period during the which the works were to be carried out, and on the satisfactory completion of the works, receive £30,000 towards their cost from the intending landlord, Guinea Properties. The provisions as to shop-fitting works, rent-free period and the landlord's contribution to the works were all contained in a document separate and distinct from the contract for lease.
49. The ratio of the case was that since the land contract had been fully performed by the grant of the lease, there was nothing in section 2 adversely to affect the enforceability of the terms relating to the shop-fitting. The passage from Scott LJ's judgment was, expressly, obiter, and addressed to the question whether section 2 would have applied if the lease had not yet been granted.
50. In Grossman v. Hooper (supra), at paragraphs 34 to 35, Sir Christopher Staughton expressed doubt about Scott LJ's reasoning in the Tootal Clothing case, observing:

"I am by no means sure of that. If the parties are allowed by a simple device to avoid the effects of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, what was the point of Parliament enacting it?"

51. He preferred the analysis of Simon Brown LJ in Godden v. Merthyr Tydfil Housing Association [1997] 74 P&CR that where all the obligations between the parties were integral to each other, part and parcel of a single scheme, section 2 applied to the transaction.
52. Examination of Simon Brown LJ's judgment in the Godden case shows however that he did not regard his decision as inconsistent even with the obiter part of Scott LJ's judgment in Tootal Clothing. In Godden, the plaintiff relied upon a purely oral agreement. Referring to Tootal Clothing, he said:

"However, nothing in that case – not even in Scott LJ's judgment, which went further than those of the other members of the Court and further indeed than was necessary to the decision- to my mind support the Appellant's claim to enforce any aspect of the present transaction, given (a) that no part of it whatsoever was in writing, and (b) central to the entire scheme was the ultimate transference of land from the Plaintiff to the Defendants."

53. Some support to Mr Holland's submission that the deliberate choice of the parties to separate the terms of a single transaction into two different documents is irrelevant, if not indeed positively harmful, to a contracting party's ability to escape from the clutches of section 2 is provided by the decision of Morgan J in Oun v. Ahmed [2008] EWHC 545 (Ch), in which a party sought to put right the omission of an expressly agreed term from the single document by a claim for rectification. The claim failed because the term had been deliberately omitted. By contrast, it is evident from paragraphs 52 to 57 of the Judgment under appeal that Judge Behrens did regard the parties' deliberate choice to exclude the 2% finders fee from any of the eleven contracts as assisting him in his conclusion that section 2 did not render them void.
54. In my judgment, the apparent disharmony constituted by the dicta on this point may be reconciled as follows:

i) Nothing in section 2 of the 1989 Act is designed to prevent parties to a composite transaction which includes a land contract from structuring their bargain so that the land contract is genuinely separated from the rest of the transaction in the sense that its performance is not made conditional upon the performance of some other expressly agreed part of the bargain. Thus, in Chadwick LJ's example in Grossman v. Hooper, parties may agree to the sale and purchase both of a house and of its curtains and carpets in a single composite transaction. Nonetheless it is open to them to agree either (a) that completion of the purchase of the house is dependent upon the sale of the carpets and curtains or (b) that it is not. They are free to separate the terms of a transaction of type (b) into two separate documents (one for the house and the other for the carpets and curtains) without falling foul of section 2. They may also agree to structure a transaction which includes the sale of two or more parcels of land by way of separate contracts for each, so that none of the land contracts is conditional upon the performance of any of the others.

ii) By contrast, the parties to a composite transaction are not free to separate into a separate document expressly agreed terms, for example as to the sale of chattels or the provision of services, if upon the true construction of the whole of the agreement, performance of the land sale is conditional upon the chattel sale or service provision. That would, albeit for reasons which seem to me to frustrate rather than serve the purposes for which the 1989 Act was passed, fall foul of section 2(1), however purposively construed. So would a series of separate contracts for the sale of separate parcels of land, if each was conditional upon the performance of the other.

iii) Since the splitting into separate contracts of parts of a composite transaction is inherently likely to give rise to uncertainties as to whether performance of the one is conditional upon performance of the other, the parties are free, and in my opinion should positively be encouraged, to make plain by express terms whether or not that conditionality exists. To do so serves rather than evades or frustrates the purposes of section 2, an important part of which is to encourage clarity rather than uncertainty in land transactions.

55. An obvious way of providing expressly that performance of the terms of a separate contract are not to operate as a condition for the performance of the land contract where they form parts of a composite transaction, is for the parties to insert an appropriately worded entire agreement clause in the land contract. In the Inntrepreneur Pub Company (GL) v East Crown Ltd [2000] 2 Lloyd's Rep 11, at paragraph 7, Lightman J said this:

"The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark of statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence as is suggested in Chitty on Contract 28^th ed. Vol 1 para 12-102: it is to denude what would otherwise constitute a collateral warranty of legal effect."

56. In Business Environment Bow Lane Ltd v. Deanwater Estates Ltd [2007] EWCA Civ 622 (2007) 32 EG 90 the Chancellor said this, at paragraph 43:

"Counsel for the Lessor did not rely on s.2 Law of Property (Miscellaneous Provisions) Act 1989 but he did emphasise the need for certainty in conveyancing transactions generally. I agree with him. I would go further. In a normal conveyancing transaction in a commercial context with both parties represented by experienced solicitors the usual course of dealing is to ensure that all agreed terms are put into the contract and conveyance, transfer or lease. Accordingly those who assert a collateral contract in relation to a term not so contained must show that it was intended to have contractual effect separate from the normal conveyancing documents. Otherwise it will be invalidated by s.2 Law of Property (Miscellaneous Provisions) Act 1989 even if evidence as to its existence is admitted."

57. While I agree with Lightman J that the normal reason for the inclusion of an entire agreement clause is to dispose of the risk that some collateral contract or additional terms may be discovered in the undergrowth of the parties' negotiations, I see no reason why such a clause should not also serve the valuable purpose, (in a composite transaction which includes, but does not entirely consist of, a land contract), of ensuring that the land contract will not accidentally be construed as conditional upon the other expressly agreed terms, so as to render the land contract void under section 2. In the context of a case, such as the present, where it was acknowledged on all sides that the 2% finders fee was intended to be contractually binding, the entire agreement clauses in each of the eleven land contracts cannot be construed so as to produce the contrary result. It must yield, like any written provision in a contract, to the dictates of commercial common sense. But there is nothing contrary to common sense in construing such a clause as having the alternative meaning that the parties have agreed that the terms of some other part of the composite transaction are not to be conditions for the performance of the land contract.
58. I turn therefore to the application of section 2, thus interpreted, to the unusual facts of the present case. It is in my judgment clear that the 2% finders fee agreement was part of a composite transaction which also included originally twelve land contracts, but which had been altered so as to include only eleven land contracts by the time of exchange. It is equally clear in my judgment that performance of the land contracts was not conditional upon performance of the finders fee agreement. If there had been any doubt about that, it is in my view laid firmly to rest by the entire agreement clause in each of the eleven contracts. My reasons follow.
59. First, the 2% finders fee was, genuinely, a reward payable by the Respondent for the Appellants' finding of persons prepared to contract to purchase the twelve flats. For that purpose, it did not matter that, in the event, the willing purchaser prepared to contract to buy one of the flats (Unit 22) was not the Appellants but Mr Anderson. The finders fee was payable in respect of Unit 22 in any event. That is what, in due course, the Appellants themselves demanded by the submission of an invoice, and what they sought to obtain by their counterclaim in these proceedings.
60. Secondly, the 2% finders fee formed part of a reward to the Appellants for finding willing purchasers of twelve flats, rather than for any single flat, viewed individually. This court was told that this "bulk" aspect of the reward was specifically put to, and acknowledged by, one of the Appellants' witnesses (I infer Mr Coleman) in cross-examination.
61. Thirdly, the 2% finders fee was not part of the consideration for the performance of any one or more or even all, of the eleven sale contracts ultimately entered into by the defendants. Although it looks at a superficial level like a discount off the purchase price, it was in truth nothing of the kind. For a start, it was payable on exchange rather than on completion. Secondly, since the contemplation of the parties was that the Appellants as purchasers would assign the contracts to sub-purchasers, but not with the benefit of the finders fee, no sub-purchaser enforcing the contract by assignment could either claim the part of the finders fee calculated by reference to the list price of the flat which was the subject matter of that contract, or seek to set it off (even if by then unpaid to the Appellants) in reduction in the amount payable on completion. Indeed, the central purpose of providing for the contracts to be freely assignable while keeping the finders fee out of them was to ensure that the benefit of the finders fee would accrue to the Appellants, rather than to the sub-purchasers whom, it was contemplated, would in due course rely upon the contracts as conferring their right to acquire the relevant flats.
62. The purchaser's rights under a land contract are in principle assignable (in the absence of any relevant prohibition) and they also constitute, if properly protected by registration, an interest in the subject land binding upon any successor in title of the vendor. It seems to me that it was necessary for the parties to exclude the 2% finders fee from each of the land contracts if those normal consequences of its inclusion as a term of those contracts were to be avoided. The finders fee was to be a purely personal obligation of the Respondent, and a purely personal right of the Appellants, for finding, rather than necessarily being, the willing purchaser.
63. Fourthly, performance of the land contracts was plainly not to be conditional upon payment of the finders fees. If the land contracts were to be freely assignable to sub-purchasers it would in my view be perverse to regard any issue about payment or otherwise of the finders fee, arising between the Respondent and the Appellants as having anything to do with the ability or the obligation of sub-purchasers to perform them. It is noteworthy in the present case that nowhere in the defence to the Respondent's specific performance claim is it pleaded that by reason of any breach of its obligation to pay the finders fee upon exchange (or invoice) the Respondent's Completion Notices were defective. The only claims arising out of the finders fee are that, first, its exclusion from the contracts rendered them void and secondly, a counterclaim for payment.
64. Fifthly, I consider that the entire agreement provision in clause 16.3 of each of the contracts is to be construed as meaning, not that the parties had not made a 2% finders fee agreement, (which they clearly had), but that the finders fee agreement did not form part of any of those contracts, in the sense that, although part of a composite transaction, performance of each of the land contracts was not in any sense conditional upon it. In my judgment the primary meaning of an entire agreement clause (namely that there are no other contractual provisions at all between the parties) must yield to the commercial reality in the present case that there was a finders fee agreement. But that merely reinforces the need to find some rational secondary meaning to clause 16.3, rather than simply to blue pencil it. I would have concluded, even in the absence of clause 16.3, that the 2% finders fee agreement did not form part of the terms of any of the land contracts, in the sense that they were not in any sense conditional upon it, for the reasons already given. Nonetheless the express inclusion of clause 16.3 puts the matter beyond doubt.
65. A section 2 analysis of the eleven contracts needs to be conducted separately in relation to each contract. Just as the entire agreement clause prevented the finders fee agreement from operating as a condition of any of them, so it also prevented any one or more of the eleven from being conditional upon the performance of any of the others. Each was silent about the other ten, and plainly they could not be commercially assignable to separate sub-purchasers if there was any such conditionality. This demonstrates the complete fallacy of any suggestion that all the terms of a composite transaction are necessarily conditions of a land contract forming part of it.
66. Standing back, I consider that the structure adopted by the parties to this composite transaction was a sensible, commercially rational and legally appropriate means of ensuring that the finders fee, agreed as the bulk reward to the Appellants for finding willing purchasers for all twelve flats, was rigorously excluded from the ensuing eleven land contracts, since it entirely properly formed no part of the terms of the sale of each flat thereby agreed. Of course, the fee was calculated by reference to the aggregate list price for each of the twelve (rather than eleven) flats, and that potential recipe for confusion only emphasised the need to separate the finders fee agreement from the land contracts. It would in my judgment be a travesty of justice, and involve a misconstruction and misapplication of section 2, if it were concluded that by taking that sensible course, the parties rendered all eleven contracts void.
67. By way of postscript to the section 2 issue, it appears that Judge Behrens may have thought, without thinking that he needed to decide, that the effect of the entire agreement provision in clause 16.3 of the contracts was to deprive the 2% finders fee agreement of any contractual force. At paragraph 57 of the Judgment he said:

"It is not necessary for me to express any view as to whether the arrangement (by which he meant the 2% finders fee) is as a matter of law enforceable. It is, however, plain from the authorities that the Purchasers could face considerable difficulties in an attempt to enforce it."

In fact, the Appellants were seeking to enforce it, albeit only by way of alternative, in paragraph 43 of the Defence and Counterclaim, and it was in my view therefore wrong for the Judge to have dismissed that counterclaim in its entirety. In fairness to him, counsel readily acknowledged in their submissions on this appeal that this particular point may have fallen by the wayside at the trial, so that it was accidentally forgotten by all concerned. Nonetheless, having identified the finders fee agreement as an independently enforceable contract pursuant to which the Appellants earned their reward by finding willing contracting purchasers for each of the twelve flats, it seems to me that, regardless of the question whether the land contracts themselves are ever completed, the Respondent ought to be ordered to pay the amount counterclaimed, with interest. In fairness to him, Mr Rodger for the Respondent did not suggest otherwise. Having concluded that the 2% finders fee was deliberately and legitimately kept separate from the land contracts, it would be wrong in my view to treat that claim as subject to any set-off arising from the terms of the land contracts themselves.

68. Subject only to that point, I consider that the appeal against Judge Behrens' Order fails, to the extent that it depends on section 2.

THE RESCISSION ISSUE

69. Judge Behrens decided that the Appellants had not been entitled to rescind, and had not in any event actually rescinded, any of the contracts. His analysis was, in outline, as follows:

i) The Notices to Complete served under cover of Wholley Goodings' letter of 23^rd May 2008, pursuant to Special Condition 6, being notices to complete the sale of each flat, rather than the completion of the construction of the Property, were inevitably bad, because the date for completion of each sale had not then arrived: see paragraph 64 of the Judgment.

ii) Nonetheless, the Respondent was in breach (albeit not repudiatory breach) of the contracts by failing to complete the construction of the Property with all due despatch. Thus the concluding part of the letter of 23^rd May (which I have quoted in full above) could be construed as a time of the essence notice permitted by the general law in relation to that particular obligation under the contracts, provided that it imposed a reasonable time for performance.

iii) Nonetheless ten days was not a reasonable time for performance, so that the letter did not constitute a valid means of making time for completion of the construction of the Property of the essence.

iv) In any event, the Appellants did nothing after the expiry of that purported notice to accept the Respondent's failure to complete the construction of the Property as putting an end to the contracts, the statement that they would treat the contracts at an end in those circumstances, contained in the letter of 23^rd May, being of no effect for that purpose, because it was premature.

70. Mr Holland on behalf of the Appellants did not with any vigour pursue an argument that stage one in Judge Behrens' analysis was wrong. On the contrary, it was plainly right. Time for completion of the sale under each of the eleven contracts did not begin to run until the "Period for Completion" provided in clause 1.12 of each of them, which was itself dependent upon the completion of the construction of the Property.
71. Nor did Mr Rodger for the Respondent challenge the proposition that the final part of the letter of 23^rd May was, if it specified a reasonable time, in principle capable of amounting to a time of the essence notice under the general law. It was common ground that, by then, the Respondent was in non-repudiatory breach of clauses 10 and 12 of each of the contracts.
72. The debate between counsel concentrated upon the question whether ten working days was a reasonable time for completion of the construction of the Property. In this respect, the leading case is Stickney v. Keeble [1915] AC 387, and the time honoured principles by which the reasonableness of a time specified in such a notice appear in the following passage from the speech of Lord Parker of Waddington at pages 418-9:

"The time limited by such a notice is sometimes referred to as having become, by virtue of the notice, of the essence of the contract. In considering whether the time so limited is a reasonable time the Court will consider all the circumstances of the case. No doubt what remains to be done at the date of the notice is of importance, but it is by no means the only relevant fact. The fact that the purchaser has continually been pressing for completion, or has before given similar notices which he has waived, or that it is specially important to him to obtain early completion, are equally relevant facts: Macbryde v Weekes (1856) 22 Beav 533. Indeed, the dominant principle has always been that equity will only grant specific performance if, under all the circumstances, it is just and equitable to do so. It would be unjust and inequitable to allow the vendor to put forward his own unnecessary delay in the face of the purchaser's frequent requests for expedition as a ground for allowing him further time or as rendering the time limited by such a notice as that to which I have referred an unreasonable time."

73. Subsequent cases, such as British Commonwealth Holdings plc v. Quadrex Holdings Inc [1989] 1 QB 842, show that it is not always a prerequisite that the time specified in the notice should be sufficient to enable the party in default to comply in full with any outstanding obligations. As Lord Parker put it, it is an important, but not the only relevant, fact.
74. In the present case I have concluded that no basis has been shown for challenging the Judge's finding that, at the meeting on 21^st May, the Respondent's representative Mr McCartney said that a further month was needed to enable the vendor to complete the construction of the Property. Bearing in mind the terms of the Appellants' solicitors' letter of 23^rd May, which referred to the properties as being, upon recent inspection, "not served by water, heating or electricity, the car park … not finished, the perimeter fence … not finished together with a large number of internal works," and to the assertion that there was "still no tangible end date in sight", I am satisfied that the necessary works could not have been completed within the specified ten working days even though the period in question included a bank holiday.
75. Judge Behrens expressed his conclusion that the time specified was unreasonable with his usual brevity, and without any detailed review of the relevant facts. For this he may readily be excused, since reliance upon the 23^rd May letter as a time of the essence notice under the general law was by no means in the forefront of the Appellants' case at trial. Nonetheless, he was plainly influenced by the fact that there had been no complaints about delay before 21^st May 2008, a conclusion which suggests that he had well in mind the principles derived from Stickney v. Keeble (supra), a case in which the repeated complaints about the delay formed a principal ground for justification of the specified notice period. The Appellants did not in their solicitors' letter of 23^rd May 2008, at trial, or on appeal, offer any reasoned justification for their choice of a ten working day period. It may be that they simply lifted that period from General Condition 6, without regard to the fact that it is the generally appropriate period for completion of a sale, rather than completion of the construction of a building.
76. I consider that the relevant facts to be taken into account for present purposes are as follows:

i) The chosen period of ten working days was insufficient, and known by both parties to be insufficient, for completion of the construction of the Property.

ii) There had indeed been no complaint by the Appellants about the delay until two days previously, at the site meeting on 21^st May.

iii) The delay was, nonetheless, long and potentially serious in commercial terms. It was a breach of each of the contracts, but (as is common ground), not a repudiatory breach.

iv) The Appellants had available to them as a result of the site meeting an estimate of the time required, provided by the Respondent, which called only for a month. The specification of that period was therefore an available means of galvanising the Respondent into complying with its construction obligations, to which the Respondent could hardly have objected. By contrast the specified ten working day period was more likely to amount to a trap from which the Respondent would be unable to escape.

77. In those circumstances, but upon a fairly narrow balance of the relevant factors, I have concluded that it would not be right to depart from Judge Behrens' view, upon what is primarily a factual matter, that ten working days was an unreasonable period to specify.
78. It follows that the Appellants also fail on the rescission issue, without the necessity for a decision whether Judge Behrens was also correct to conclude that they had not, in any event, actually elected to rescind the contracts. As to that, I was surprised that there appears to be no authority upon the question whether a party seeking to make time of the essence by notice may, in the same notice, elect in advance to treat non-compliance with it as discharging the contract, rather than (as the Judge assumed was necessary) reiterate an election to rescind once the notice period had expired. While I can envisage no obvious reason or principle why such a prospective election should not be possible, if expressed in sufficiently definite terms (as it was in the present case) I am apprehensive that the issue may have potentially broad ramifications, going way beyond the field of contracts for the development and sale of land, so that an unnecessary decision upon it, in the absence of any authoritative guidance, may have unintended consequences. Accordingly I would not for my part be disposed to decide that question unless it had been necessary to do so.
79. For the above reasons, which accord largely although not precisely with those given by Judge Behrens, I would dismiss this appeal.

Lady Justice Smith:

80. I agree.

Lord Justice Longmore:


 


81. I agree and add a few words on the construction of section 2 of the 1989 Act. This section is not intended to be a charter for those wishing to disown apparent contracts for the sale of property to go behind the document and search for statements made in pre-contract negotiations, then to claim that they were intended to be terms of the contract and thus bring the whole contractual edifice crashing to the ground. If parties want to have a separate arrangement recorded in a side exchange of letters or e-mails, the court should not be too astute to say that it is an unincorporated part of the contract for the sale or other disposition of land with the result that no contract comes into existence at all. It must, as Chadwick LJ said in Grossmann v Hooper, be clear that the contract is dependent on the existence of the unincorporated term before the contract can be said to be partly contained in the written contractual document and partly contained in some other document or exchange of documents. In the present case the individual contracts of sale were not dependent on the 2% finder's fee being payable by the vendor to the purchaser.
82. The matter is put beyond all doubt, however, by the presence of clause 16.3 – the entire contract clause. If the parties agree that the written contract is to be the entire contract, it is no business of the courts to tell them that they do not mean what they have said. As John Chadwick QC said when sitting as a deputy judge of the Chancery Division, albeit in a case that preceded the enactment of section 2 of the 1989 Act:-

"One can see why such a provision is included in a contract for the sale and purchase of land. All material terms of a contract for the sale of land must be evidenced by some memorandum in writing signed by the party to be charged – see section 40 of the Law of Property Act 1925. Accordingly it is highly undesirable to have any scope for argument whether the written terms of a contract for sale of land do, in fact, constitute the entire contract."

See McGrath v Shah (1987) 57 P & CR 452, 459.

83. It may well not be right to say, as Lightman J did in Inntrepreneur, that the effect of the clause is to denude what would otherwise constitute a collateral warranty of legal effect unless one confines the concept of collateral warranty to a warranty in which the existence of the main contract does indeed depend on the collateral agreement; if (as in the present case) there is a collateral agreement supported by its own consideration and the contract sued upon is not conditional on compliance with the collateral agreement, that agreement will be enforceable in its own right.