England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MANCHESTER COUNTY COURT
HHJ PLATTS
9 MA 15477

		Royal Courts of Justice Strand, London, WC2A 2LL
		13/03/2012

Lord Justice Mummery :

Introduction

1. This appeal is about the validity of completion notices served by vendors, Oakglade Investments Limited and Greyline Estates Limited (together called "the defendants"), of three residential properties in Ellesmere Port. The notices required the purchaser, Mr Anil Dhand, to complete contracts to buy those properties. He neither completed the purchases on the agreed completion date nor did he comply with the notices to complete.
2. Each side claims that the failure to complete was due to the other side's breach of contract. Mr Dhand says that when the defendants served the notices they were not themselves ready, willing and able to complete the contracts in accordance with the agreed terms. After a very long delay Mr Dhand brought these proceedings for repayment of the deposits that he had paid under the contracts. The claim was upheld and the defendants' counterclaim for forfeiture of the deposits and for damages for breach of contract was dismissed.
3. The defendants appeal from the orders made against them by HHJ Platts dated 7 January 2011 and 23 February 2011. The only contracts relevant to the appeal were for the sale of three residential properties - Nos 48, 49 and 50 Whitby Road, Ellesmere Port (the Properties)- out of five properties that were originally put up for sale and were the subject of dealings between the parties. The judge held that the notices to complete were of no effect, as, at the time of the service of the notices, the defendants were not "ready to complete" in accordance with the applicable conditions of sale.
4. The main point in the dispute is characterised in the defendants' written submissions in this way. The defendants claimed that an agreed sum (£x) was due under each contract. Mr Dhand said that a lesser agreed sum (£y) was due under each contract. The judge found that £y was the correct sum. He held that the defendants' intention to complete the contracts only at £x meant that they were not "ready to complete" at the agreed price of £y.
5. The defendants' main case on appeal is that the judge's decision was wrong in law, as the notices to complete were valid, even though it turned out that their belief that £x was the amount due on completion of the contracts was erroneous and that in fact only £y was due to them.
6. Tomlinson LJ granted permission to appeal on 10 May 2011.

Background

7. The arrangements for the sale of the Properties were out of the ordinary. The contractual documents were called "Underwriting Agreements.". By them the parties entered into contracts for the sale and purchase of the Properties in conjunction with a subsequent auction of the Properties. The terms of the documents, the disputed circumstances of their variation and the course of events at the auction all required careful consideration at trial. In response to judicial questions during the hearing of the appeal, the parties developed their original written submissions.
8. The defendants entered the Properties, along with other houses irrelevant to this appeal, for sale by auction on Monday, 24 May 2004. On the previous Friday (21 May) Mr Dhand signed contracts with the defendants in the form of "Underwriting Agreements." Mr Dhand was described as "The Underwriter." He paid agreed sums by way of deposit. The general conditions applicable to the sale of the Properties were based on the RICS Common Auction Conditions (2002). It is not disputed that the Underwriting Agreements were valid contracts for the sale of land.
9. The essence of each contract was that Mr Dhand agreed to underwrite the sale of each property at an agreed "Settled/reserve" price. Thus, Oakglade Investments agreed to sell and Mr Dhand agreed to buy No 48 at a settled/reserve price of £70,000 (5% deposit £3,500 paid); Grey Line Estates agreed to sell and Mr Dhand agreed to buy No 49 at a settled/reserve price of £85,000 (10% deposit £8,500 paid) and No 50 at a settled/reserve price of £115,000 (5% deposit £5,750 paid). Mr Dhand paid the deposits to the defendants on 21 May. The Properties remained entered in the auction for 24 May 2004.
10. It was agreed in Condition 7 that, if the reserve price was not reached at auction in respect of a particular property, Mr Dhand would buy at the settled price agreed for that property, which, in these instances, was the same as the reserve price.
11. If, however, a property at auction fetched more than the reserve price, the defendants would sell that property to the highest bidder. Mr Dhand would receive his deposit back and he and the defendants would split equally between them the difference between the settled price and the bid price accepted at auction (the overage).
12. On the defendants' version of the facts, which was contested by Mr Dhand, it was also orally agreed on 21 May that the settled/reserve price for each property should be increased by £10,000. The defendants alleged that Mr Dhand made successful bids at the auction on 24 May in respect of each of the Properties up to the reserve prices, as allegedly increased by oral agreement on 21 May.
13. Contrary to the evidence given by Mr Ahmed, who was "the guiding force" behind the defendants, the judge found that there was no oral agreement between the parties to increase the settled/reserve price in the Underwriting Agreements. The judge also found that, although Mr Dhand attended the auction, he did not make bids up to the level of the alleged altered reserve suggested by the defendants. The consequences of the judge's findings of fact were that Mr Dhand was entitled and bound to purchase each property at the settled price specified in each unaltered Underwriting Agreement.
14. The contractual date for completion was 21 June 2004. Completion statements for Nos 49 and 50 were sent by the defendants' solicitors on 25 June indicating the increased sale prices alleged by the defendants, the purchase price being £90,000 in the case of No 49 and £120,000 in the case of No 50. Mr Dhand did not respond to the statements. 2 July was agreed as the completion date. Completion did not take place on that date. Notices to complete pursuant to General Condition 7.1 applicable to the Underwriting Agreements dated 21 May were given on 5 August 2004 in respect of all the Properties. Mr Dhand did not complete or respond in any way. Mr Ahmed's evidence was that Mr Dhand had not got the money to pay, so he needed more time. Only later did Mr Dhand say that the prices required by the defendants were wrong.
15. On 26 August 2004 the defendants purported to rescind the contracts and to forfeit the deposits under condition 7(3). The General Conditions also provided in Condition 8 that, if the contract was brought to an end and the seller was not entitled to forfeit, the seller must return the deposit and any interest on it to the buyer.
16. Five years on (20 August 2009) Mr Dhand began proceedings against the defendants for repayment of the deposits.
17. The judge found as a fact that, when the completion notices were served on 5 August 2004, the defendants' intention was that completion would only be at prices higher than those which the judge found had been agreed between the parties on 21 May: the higher prices claimed by the defendants, allowing for the equal split of overage, being £75,000 for No 48; £90,000 for No 49; and £120,000 for No 50 (para 48). For instance, in the case of No 48, the defendants' pleaded case was that Mr Dhand personally bid for the purchase of it up to £80,000 and the property was knocked down to him at that price, thereby entering into a binding contract to purchase it for £80,000. Under the terms of the Underwriting Agreement he was entitled to be repaid the sum of £5,000, being 50% of the overage. That, according to the defendants, made the price payable for No 48 £75,000, whereas the settled/reserve price stated in the Underwriting Agreement was agreed to be £70,000.
18. On the judge's unchallenged findings the completion statements therefore showed incorrect amounts as due to the defendants. Mr Ahmed clearly accepted in his evidence for the defendants that they did not intend to complete at the lower prices which the judge found had in fact been agreed (paragraph 44). "Why should I accept less?" encapsulated his evidence on this point. The defendants pointed to Mr Dhand's total lack of response to the completion statements and to the notices to complete and his failure to tender payment of the amounts that he said were due under the contracts. Mr Ahmed said in evidence that Mr Dhand "didn't have the money to complete, full stop...Never had the money."

Judgment

19. The basis of the judge's decision in favour of Mr Dhand was that the notices to complete served under Condition 7 on 5 August 2004 were of no effect. Under General Condition 7.2 the person giving notice to complete "must be ready to complete." That was defined in the Glossary as meaning "Ready, willing and able to complete…" The judge concluded:

"49. …I am quite satisfied that at that time the defendants were not ready to complete. The term 'ready to complete' must, in my judgment, refer to a readiness to complete the contract in accordance with its terms. It is clear, in my judgment, that although the defendant purported to be ready to complete, it was only ready to do so on different terms. It was not ready to complete the contract as I have found it to be. Therefore, it follows, in my judgment, that the notice to complete was of no effect. I cannot see how a party can give notice to complete a contract that did not exist. It, therefore, in my judgment follows that the defendant was not entitled to rescind the contract under clause seven of the conditions.

52. …it seems to me that it would be wrong in this case to hold that a vendor is entitled to rely upon a completion notice when he himself is not ready, willing or able to complete in accordance with the contract.

53. In the circumstances, I find that the notices of completion served on 5^th August 2004 were of no effect. Consequently, the defendants were not entitled to rescind the contracts under clause 7.3 as they purported to do. Further, given that the defendant was indicating that it would only complete at a price higher than that agreed, it seems to me that the service of the notice of completion amounted to a repudiation of the contract by the defendant."

20. The judge went on to find that it was not seriously disputed that the contracts had come to an end. The defendants had sold two of the properties to another purchaser, thus making performance of those contracts impossible. The judge concluded that the defendants were not entitled to forfeit the deposits and that Mr Dhand was entitled to have them repaid to him under clause 8 of the contracts.

Defendants' submissions

21. The defendants' case on appeal could not be simpler, addressed to one question only: were the notices to complete the Underwriting Agreements dated 21 May 2004 valid? They say that they were. At the time of the service of the respective notices to complete on 5 August 2004, the defendants say that they had done everything which the contracts required of them as vendors; that they were in a position to carry out their one remaining obligation under the contracts, namely to transfer the properties to Mr Dhand; and that they were therefore "ready to complete" within the meaning of General Condition 7.2 applicable to each contract.
22. The defendants assert that they were not disentitled from serving valid notices to complete by their erroneous belief that the amounts due under the contracts were higher than the judge held were in fact due. Mr Dhand was bound to pay the settled/reserve prices stated in the contracts, even if the reserve prices were not reached at the subsequent auction of the Properties. The settled/reserve prices in the contracts were only avoided if higher bids were accepted at the auction. The judge found that that had not happened. The defendants were ready to complete the Underwriting Agreements as they stood.
23. The judge was wrong, the defendants say, in holding that the fact that they had claimed more than was found due from Mr Dhand by way of purchase price meant that they were not "ready to complete" the contracts and that the service of the notices was a repudiation of the contracts. It was not a repudiation of a contract for a vendor erroneously to ask for more in a completion statement than he was entitled to be paid under that contract. A purchaser who received an erroneous completion statement was nevertheless under a duty, if he wished to avoid being in breach of contract, to attend at the time and place fixed for completion and to tender what he says is the correct amount due: Carne v Debono [1988] 1 WLR 1107 at 1112D-1113C per Browne-Wilkinson LJ. A vendor who believes that more is due on completion than is actually due is not thereby disentitled from serving a valid notice to complete showing that he is ready, willing and able to execute the requisite transfers.
24. The judge should have held that the notices to complete were valid; that it was Mr Dhand's duty, as purchaser, to tender the correct amounts of the purchase monies; and that Mr Dhand was in breach of contract in failing to take any steps to complete.

Discussion and conclusions

25. In the course of his submissions for the defendants Mr Christopher Nugee QC, who did not appear in the court below, was asked by both Richards LJ and Rimer LJ for assistance on a fundamental point: what contracts did the notices served by the defendants require Mr Dhand to complete? The question calls for an exact legal answer based on a correct analysis of the nature of the unusual contractual arrangements for the sale of the Properties. If that analysis demonstrates that the notices to complete served by the defendants required Mr Dhand to complete contracts different from the contracts that he was bound to complete, the notices cannot have had any legal effect.
26. The point is that Mr Dhand could not, in failing to complete contracts by which he was not bound, be in repudiatory breach of the contracts by which he was bound. On that analysis it might not be necessary to embark on inquiries into such matters as whether, for example, the defendants were "ready to complete" if they were acting under a mistaken belief about the amounts due under the contracts arising from their account of price variations orally agreed on 21 May and of bids at the auction on 24 May.
27. Mr Nugee QC submits that, on the facts found by the judge, there was only one contract in respect of each property and that was to be found in each relevant Underwriting Agreement dated 21 May 2004. The sales to Mr Dhand were under those contracts and were subject to the same conditions, regardless of what later happened, or did not happen, in the auction room on 24 May. Those contracts continued to apply to the sale of the Properties, even if what happened in the auction meant that the prices for the Properties required upward adjustment. The only possible difference was one of the prices payable by Mr Dhand depending on what had happened at the auction.
28. It was submitted that what happened, or did not happen, at auction made no difference to what the defendants had to do as vendors. They were at all times ready, willing and able to do everything that they were bound to do under the Underwriting Agreements, namely to transfer the Properties to Mr Dhand against payment of the purchase price. There was no obstacle to completion. There was no default on the part of the defendants. In the absence of any response by Mr Dhand to the completion statements saying what he considered were the prices due, what else could the defendants have done other than serve the notices to complete that they did? The judge had placed too high a hurdle for the defendants when it was Mr Dhand who was in default. He took no steps to complete the purchase, or to come up with any money for completion, or object to payment of the amounts sought by the defendants, or to make known to the defendants what he said were the correct amounts due on completion.
29. I am not persuaded by Mr Nugee's submissions that the decision of HHJ Platts was wrong. The focus of the question whether the notices to complete were valid must turn on the object and terms of those notices construed in their contractual setting. The notices required Mr Dhand to complete contracts different from the contracts that he had in fact entered into with the defendants. That is because the prices that the defendants were requiring him to pay for the Properties according to the completion statements, which were followed by the notices, were different from the prices that he had in fact agreed to pay. The prices were based on what the defendants wrongly alleged were successful bids by him at the auction on 24 May to buy the Properties at increased reserve prices rather than on what were stated to be the settled prices in the Underwriting Agreements of 21 May.
30. Mr Nugee QC fairly accepted that, if, for instance, Mr Dhand had turned up with a payment of £70,000 to the defendants for No 48, the defendants would have refused to complete the sale of that property by execution of a transfer, unless they were paid the sum of £75,000 as the purchase price and that, on the findings of the judge, would have been a repudiation of that contract by the defendants.
31. Mr Nugee's approach was that responsibility for what had happened with regard to completion was with Mr Dhand. He pointed out that Mr Dhand had not come up with any money at all, or with any response as to what was the correct amount payable by him for the Properties. If, for example, he had come up with £70,000 for No 48, there would be no repudiatory breach by the defendants, if they were willing to accept the lower sum and to execute the transfer without prejudice to their rights to sue for the difference alleged to be due from him. In those circumstances the defendants would be "ready to complete" and the dispute about the balance alleged to be due could be resolved by subsequent agreement or judicial determination.
32. In my judgment, that submission is not a satisfactory answer to the fundamental difficulty in the defendants' case that Mr Dhand was in breach of contract by reason of his failure to comply with the notices to complete. The defendants' case was based on the proposition, which turned out to have no foundation in fact, that Mr Dhand was legally bound to pay a price higher than the settled/reserve price by reason of the oral increase in the contractual prices for the Properties and of his successful bids at auction. The terms of the contracts by which Mr Dhand was in fact bound were different. The prices payable to the defendants were different. The notices were nullities for the simple reason that, on the facts found by the judge, the defendants were not legally entitled to rely on failure to comply with notices to complete contracts on terms different from those by which Mr Dhand was in fact bound.
33. Mr Gilchrist appearing for Mr Dhand applied for permission to amend his respondent's notice to challenge the validity of the notices to complete on the "identity of contract" point raised by the judicial questions. Mr Nugee QC did not consent to the amendment. He rightly pointed out that it was a last minute application. No-one could, he said, be sure whether the evidence at trial might have been different, if the point had been raised earlier instead of late in the hearing of the appeal. He reserved his position on costs.
34. I agree with Mr Gilchrist that the point that the notices to complete were invalid because they related to contracts different from those in fact binding on Mr Dhand is not a wholly new way of putting Mr Dhand's case. The dispute has always turned on the validity of the notices to complete. The emphasis of Mr Dhand's case at trial was, as appears from paragraph 44 of the judgment, that the notices were ineffective because the defendants were asking for a higher price than had been agreed between the parties and were not therefore "ready to complete." As a result, the giving of the notices amounted to repudiation of the contracts which Mr Dhand accepted.
35. At the hearing of the appeal questions from the Bench shifted the emphasis of the argument on the validity of the notices from the "ready to complete" point to the identity of the contracts to which the notices related. As well as contending that the defendants were not "ready to complete" the contracts, Mr Gilchrist wished to argue that a notice to complete a contract could not be a valid notice to complete, if it related to a contract different from the one which Mr Dhand was in fact bound to complete.
36. In my view, both the "identity of the contract" point and the "ready to complete" point argued at trial are based on the same facts. Both arise from the defendants' allegations, which were rejected by the judge, that the settled/ reserve price was increased by oral agreement on 21 May and that Mr Dhand bid up to those altered amounts at the auction on 24 May. No new facts are now alleged. Whichever way the case is put on appeal, in the end it comes down to Mr Gilchrist seeking to uphold the judge's conclusions (paragraph 49) that the Defendants could neither give a valid notice to complete a contract that did not exist nor claim that they were "ready to complete" the contract. In those circumstances I doubt whether any amendment to the respondent's notice is strictly necessary, but, in case it is, I would grant permission to amend as asked.
37. Mr Nugee's response to the "identity of the contract" point is that the notices to complete were legally correct notices with which Mr Dhand was bound to comply: they were in respect of the right contracts, those made on 21 May and expressly referred to in the notices to complete. The judge's findings of fact did not affect the terms of those contracts. They remained as they were. The notices were in respect of the right obligation to pay under those contracts. They were not invalidated by the defendants' reliance on the disputed later events at the auction of the Properties. Nor could it be said that the notices were in respect of the wrong amounts, as no amounts were specified in the notices to complete. What mattered for the validity of the notices was not the differences between the parties about the correct prices for the Properties, but the crucial fact that they were ad idem on the contracts in which the prices were specified.
38. In my view, there is no convincing answer from the defendants to the fundamental question of the identity of the contracts of which they required completion by service of the notices. It was clear from the notices, read, of course, with the completion statements upon which they followed, that the defendants were requiring Mr Dhand to complete on terms that he paid to the defendants larger amounts than he was contractually bound to pay to them. They were relying on what they said he had agreed to pay at the auction on acceptance of bids alleged to have been made by him at higher reserve prices. In fact, there were no such bids and there was no agreement binding him to pay larger amounts than the settled prices for the Properties. The notices served by them were invalid. They were not notices to complete the original Underwriting Agreements dated 21 May at the settled prices. They were not notices to complete those identical contracts: they were notices to complete those contracts, as alleged to have been varied by oral agreement for the increase in the reserve prices taken in conjunction with successful bids for the Properties at auction. The notices related to non-existent contract terms, as none of the material facts relied on for the varied contract terms were established.
39. In those circumstances I also agree with the judge below that the defendants cannot say that, at the time of the service of the notices, they were "ready to complete" the contracts that had actually been agreed and were legally binding. The party giving notice to complete must be ready and willing at the time of giving the notice to fulfil his own outstanding obligations under the contract: Quadrangle Development and Construction Co Ltd v. Jenner [1974] 1 WLR 68 at 71 per Russell LJ. The defendants were not ready and willing to fulfil their obligations to complete, unless Mr Dhand paid over to them more on completion then he was legally bound to pay for the Properties.

Result

40. I would dismiss the appeal. The notices requiring Mr Dhand to complete on payment of more than he had agreed to pay were not effective to put him in breach of contact. They amounted to repudiation by the defendants of the contracts that had been agreed. The defendants were not entitled to forfeit the deposits. On the contrary, Mr Dhand was entitled to repayment of them.

Lord Justice Richards:

41. I agree.

Lord Justice Rimer:

42. I also agree.