ON APPEAL FROM THE LINCOLN COUNTY COURT
Mr Recorder Maw
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LLOYD
LORD JUSTICE KITCHIN
| Paul Martin Foster Howard-Jones
|- and -
|Dennis Eaton Tate
Jonathan Price (instructed by McKinnells Solicitors) for the Defendant/Appellant
Hearing date: 31 October 2011
Crown Copyright ©
Lord Justice Kitchin
Background and proceedings
"The seller [Mr Tate] shall at his own expense and no later than six months from the Completion Date:
(a) provide a new directly metered single phase electricity supply to the building [the warehouse] forming part of the Property;
(b) provide a separately metered water supply (mains) to the building forming part of the Property."
The appeal and cross-appeal
"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 initio, 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  A.C. 356 Lord Porter said, at p. 399:
"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.""
"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."
"Where such an election is made (a) there is substituted by implication of law for the primary obligations of the party in default which remain unperformed a secondary obligation to pay monetary compensation to the other party for the loss sustained by him in consequence of their non-performance in the future and (b) the unperformed primary obligations of that other party are discharged."
"The question whether the refusal or failure to perform part of the contract amounts to a repudiation of the whole depends on the construction of the contract and all the circumstances of the case. As Mr Buckhaven [counsel for the defendants] submitted, there must be a refusal or failure to perform something which goes to the root of the contract, before the innocent party can regard himself as discharged from further performance of the contract and entitled to rescind. Mr Buckhaven submitted that, on the facts of the present case, the failure to give vacant possession did not go to the root of the contract. In his submission, the purchase by the plaintiff was simply a commercial venture. It was essentially the purchase of a business with living accommodation above. In his submission, the failure to give vacant possession of merely one of three residential rooms above the business could not be said to frustrate the commercial purpose of the venture. Diplock LJ in Hong Kong Fir Shipping Company v Kawasaki Kisen Kaisha Ltd  2 QB 26 at page 66 stated the test thus:
Does the occurrence of the event deprive the party who has further undertakings to perform, of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?
Mr Buckhaven submitted that here the breach clearly did not deprive the plaintiff or substantially the whole benefit of her contract.
In my judgment however, in the particular circumstances of this case, the defendants' failure to give vacant possession on August 30, clearly did go to the root of the contract. This purchase was not, in my view, just a commercial venture. By the time that contracts were exchanged, it had been made clear to the defendants that the plaintiff was embarking on the purchase with the intention of moving into the flat above the business, for the convenient running of the business, and that she and her husband were going to use it as their home. Though Mr Ahmed's tenancy extended to only one of the living rooms in the flat, it would have been quite unrealistic to expect the plaintiff and her husband to share the occupation of the amenities of the flat with the Ahmeds. In my judgment, as at August 30, 1991, the plaintiff was plainly entitled to rescind the contract."
"In my judgment, Mr Buckhaven's well-sustained submissions were unable to circumvent a fatal weakness in the defendants' case, which was not canvassed before the learned judge, namely that the defendants' failure to give vacant possession on August 30, 1991 gave rise to a new and separate right to rescind the contract which was in due course duly exercised by the plaintiff.
Though I reach this conclusion by rather a different route, I think that, for the reasons which I have given, the judge was right to make the order for repayment which he did make, on the basis that the contract had been rescinded. I would accordingly dismiss this appeal."
The appropriate measure of damages
Lord Justice Lloyd:
Lord Justice Ward: