England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
NEWCASTLE UPON TYNE DISTRICT REGISTRY

		Thursday 20 August 2009

1. Introduction

1. This is a vendor and purchaser dispute. It arises out of 11 contracts dated 24^th October 2007 for the sale of 11 flats in a development at Elmfield Court, Bedlington, Northumberland. Under those contracts the Claimant ("the Vendor") agreed to sell to the Defendants ("the Purchasers") the 11 flats then in the course of construction for a total sum of approximately £1.21 million.
2. It will be necessary to refer to the contract in some detail later in this judgment. For the purpose of this introduction it is sufficient to note that the date for completion was defined as

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

3. On 1st July 2008 the Vendor's solicitors – Sintons – gave notices to the Purchasers' solicitors – Wholley Goodings – that each of the flats was complete. The Purchasers failed to complete within 10 days (by 15^th July 2008). Accordingly on 16^th July 2008 Sintons served on Wholley Goodings notices to complete under Condition 6 of the Standard Conditions of Sale (which were incorporated into the contract). The Purchasers still failed to complete and on 14^th October 2008 the Vendor commenced these proceedings claiming specific performance of the 11 contracts.
4. The Purchasers defend the proceedings on 2 separate grounds. They contend that the Vendor was bound to complete the construction of the 11 flats within a reasonable time of the date of the contract. They contend that a reasonable time had expired by 23^rd May 2008 when Wholley Goodings served notices to complete on Sintons requiring completion within 10 working days (by 9^th June 2008). It is common ground that the flats were not completed by 9^th June 2008 with the result that they were entitled to and did rescind the contract. In the result the Vendor was not in a position to seek to enforce the contract on 1^st July 2008.
5. Second the Purchasers contend that the contracts are void and unenforceable as a result of non-compliance with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 ("LP(MP)A 1989"). The development at Elmfield Court comprised some 38 flats which were advertised for sale at prices between £106,000 and £115,000. During the course of the pre-contract negotiations the Purchasers sought and obtained a discount from these prices because of the number of flats they were purchasing. It will be necessary to look at the documents in a little detail but, after some negotiation the Vendor agreed a discount of 10%. 8% of the discount was to be recorded in the contract as a "builder's incentive". The remaining 2% would be invoiced as a builder's finder's fee. This 2% discount was not referred to in the contract. Accordingly the Purchasers contend that the contract does not contain all of the terms that were agreed and thus falls foul of section 2.
6. The Vendor seeks to answer these allegations in a number of ways. It is convenient to deal with the answers when considering the Purchasers' arguments later in the judgment.

2. Representation

7. The Vendor was represented by Jonathan Rodger instructed by Sintons of Newcastle. The Purchasers were represented by Charles Holland instructed by Wholley Goodings of Morpeth. Both Counsel produced full and helpful skeleton arguments in a by no means straightforward case. I am most grateful to them.

3. Witnesses

8. There was very little dispute as to the primary facts. Although there were a number of witnesses who provided statements the only witnesses to give live evidence were Mr Brian McCartney, a Director of the Vendor and Mr Damian Coleman, one of the Purchasers.

4. The Facts

4.1 Contract with Deansfield Developments Ltd

9. Sometime in 2006 the Vendor entered into a contract with Deansfield Developments Ltd ("the Contractor") for the construction of 38 flats at Elmfield Court. The contract is not in evidence. It is, however, clear from a number of progress reports that are in evidence that the work was to commence in November 2006 and be completed by 17^th December 2007. In evidence Mr McCartney said that he regarded the 13 month period for construction of the flats as being reasonable. He also said that the contract contained a liquidated damages clause in the event that the construction overran.

4.2 Negotiations between the Vendor and the Purchasers.

10. The Purchasers are two businessmen from Northern Ireland. According to Mr Coleman they each have a portfolio of properties in Northern Ireland and the North East of England. If this transaction had been successful it was their intention to sell some of the flats and to retain others for letting purposes. According to Mr Coleman the intention was that the sale price of those they sold would have been the same as that contained in their purchase contract leaving them with the 2% finder's fee already referred to as profit. However if that arrangement was not possible they would have had to charge their purchasers a fee.
11. Both the Vendor and the Purchasers utilised agents. Adele Edington, the Branch Manager of the Bedlington office of Rook Matthews Sayer acted for the Vendor; Sarah Luhr of Sarah Luhr Property Search acted for the Purchasers.
12. Shortly after 16^th July 2007 Mr McCartney received a progress report which confirmed that the development at Elmfield Court was proceeding in accordance with the contract and that the anticipated completion date was 17^th December 2007 – that is to say the contractual completion date. Thus at that stage Mr McCartney had no reason to believe that completion would be delayed.
13. On 26^th July 2007 there was a meeting on site between Mr McCartney the Purchasers and a number of other people. It is common ground that no agreement was reached at this meeting. It is, however, also common ground that at the meeting Mr McCartney was asked about the completion date. According to Mr McCartney he did not commit to a fixed date. He said that there was a building contract between the Vendor and the Contractor with a completion date in December 2007. He agreed in cross-examination that he wanted to give the impression that the building would be complete at the end of 2007.
14. On 2^nd August 2007 Ms Luhr sent an e-mail to Ms Edington containing an offer by Mr Coleman to buy 12 flats with a discount of 12% off the list price and subject to a number of other terms not relevant to any issues before me. This offer was not acceptable and there were telephone calls between Ms Luhr, Ms Edington and Mr McCartney which resulted in an agreement which was summarised in an e-mail dated 3^rd August 2007. The main points of the agreement were:

1. the purchase of 12 specific units at a discount of 10% off list price

2. exchange of contracts within 28 days with a deposit of 10%

3. a £500 reservation fee payable immediately

15. On 4^th August 2007 Mr Coleman sent an e-mail to Ms Luhr which included:

Contracts must be assignable and 8% disclosed on the contracts as a builders 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.

16. The e-mail was forwarded to Ms Edington. Mr McCartney responded the same day. The relevant part reads:

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

17. On 7^th August 2007 Ms Luhr sent a letter to Wholley Goodings setting out the terms of the contracts and the prices (before discount) of each of the properties that Mr Coleman had agreed to purchase. The letter repeated the terms set out in Mr Coleman's e-mail of 4^th August 2007. She also wrote to Mr Coleman asking for the £6,000 (12 x £500) reservation fee to be paid to the Vendor immediately. On 13^th August 2007 Mr McCartney confirmed receipt of the £6,000 reservation deposit.
18. On 21^st August 2007 Sintons sent 12 draft contracts to Wholley Goodings. The contracts showed the purchase price to be 92% of the sale list price. The letter made it clear that the Purchasers were required to exchange contracts by 18^th September 2007
19. On 28^th August 2007 Wholley Goodings returned the contracts. One reason related to the ability of the Purchasers to assign the contracts. The other related to the 2% finder's fee:

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.

20. On 29^th August 2007 Sintons sent to Wholley Goodings amended contracts including a right to assign. The covering letter included:

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

21. By 26^th September 2007 it had become apparent that the Contractor would not complete the works by 17^th December 2007. In a progress report dated 26^th September 2007 the anticipated completion date was 22^nd February 2008. Mr McCartney did not inform Mr Coleman of the delay.
22. On 11^th October 2007 Wholley Goodings informed Sintons that one of the units (Unit 22) was now being purchased by a Mr Barry Anderson and that a fresh contract should be issued for him.
23. On 24^th October 2007 contracts for the sale of the 11 remaining flats were duly exchanged. A deposit of £121,072 was duly paid by the Purchasers. It is common ground that the Finder's fee of 2% was not paid at that stage. The contract contains a number of terms to which it will be necessary to refer later in this judgment.

4.3 Delays in completion of the Flats

24. In a progress report dated 16^th October 2007 the Contractor gave an estimated completion date of 31^st January 2008. Ms Luhr met with Mr McCartney and Ms Edington on site on 8^th November 2007. There was a discussion about completion. There is a slight difference between Mr McCartney's recollection and that of Ms Luhr. According to Mr McCartney he told Ms Luhr that the Contractor had estimated 31^st January 2008 as the completion date. According to Ms Luhr Mr McCartney said that the new date for completion would be the end of January 2008. In my view nothing turns on this difference in recollection. In any event Ms Luhr did not in fact attend to give evidence and, if necessary, I prefer Mr McCartney's evidence on the point.
25. On 29^th January 2008 Ms Luhr spoke to Mr McCartney on the telephone. According to Ms Luhr he indicated that Elmfield Court would be completed by the end of February 2008. According to Mr McCartney he gave the date as an estimate.
26. On 1^st February 2008 Wholley Goodings sent a letter to Sintons stating their understanding that the units might be ready at the end of February and asking whether the Vendor might be agreeable to completion on or around 25^th March 2008
27. On 21^st February 2008 Mr Coleman sent an invoice for the 2% Finder's Fee in respect of Elmfield Court. The invoice is dated 21^st February 2008 and seeks the sum of £28,800 plus VAT being 2% in respect of all 12 of the units that were the subject of the original discussions. Mr Coleman believes he sent a similar invoice in December. Mr McCartney has no recollection of seeing the earlier invoice and there is no documentary evidence supporting it. Nothing turns on whether it was sent. In any event I am not satisfied on balance of probabilities that any earlier invoice was sent.
28. Sintons did not reply to the letter of 1^st February 2008 until 22^nd February 2008. In that letter they give as a non-binding estimate an anticipated completion date of mid- to late-April 2008.
29. On 25^th April 2008 the Contractor entered into a CVA. On the same day Mr McCartney e-mailed Mr Coleman in part in response to the invoice of 21^st February 2008. He said that invoices of that nature would be paid on completion of the sale relating to each invoice.
30. On 12^th May 2008 Ms Luhr carried out a drive-by inspection of the site at Mr Coleman's request. As a result there was a site meeting on 21^st May 2008 attended by Mr McCartney, the Purchasers, Ms Luhr, Ms Edington and Peter Debenham. There are a number of versions of what was said at the site meeting. There is no significant difference between them. Mr Debenham summarised them in a letter dated 24^th June 2008. In summary Mr McCartney said that there had been contractor problems, that the development was 3 weeks away from practical completion, commissioning of the units was due to be underway shortly with mid/end June completion.

4.4 Notices to Complete

31. On 23^rd May 2008 Wholley Goodings sent a letter to Sintons enclosing formal Notices to Complete in respect of all 11 contracts.
32. The letter draws attention to the delays that have occurred refers to clause 12 of the contract and continues:

Accordingly …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 from the date of this letter then our clients will deem your clients in breach of contract and will consider themselves discharged from the contract and entitled to the return of their deposit with interest.

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

33. The formal notices to complete asserted that the flats were not complete, gave notice under condition 6.8 of the Standard Conditions of Sale, required the Vendor to make good the breach before the expiration of 10 working days from the service of the notice and drew attention to the consequences as set out in condition 7.6 of the Standard Conditions of Sale a failure to complete within 10 working days.
34. The Notices were served by fax on 23^rd May 2008. It is common ground that the 10 day period expired on 9^th June 2008. On 27^th May 2008 Wholley Goodings sought to protect its interest in the flats by registering unilateral notices at HM Land Registry.
35. On 2^nd June 2008 Sintons wrote to Wholley Goodings setting out arguments as to why the Notices to Complete were invalid. It is not necessary to refer to them in detail. On the same day Wholley Goodings wrote to Sintons setting out a list of some 18 items needing to be completed.
36. On 13^th June 2008 Sintons wrote a further letter setting out substantially the same arguments as were contained in the letter of 2^nd June 2008. They also sent a second letter dealing in detail with the list of items required to be completed. It was their view that almost of the items were dealt with and that the construction was almost 100% complete.
37. It is, I think, common ground that the construction process was complete by the end of June 2008. On 1^st July 2008 Sintons served on Wholley Goodings various documents including completion notices and completion statements showing the amount due on completion.
38. The purchasers failed to complete within 10 days of the Notices. Accordingly on 16^th July 2008 Sintons on behalf of the Vendor gave Notice to Complete in respect of each of the 11 contracts in accordance with condition 6 of the Standard Conditions of Sale.
39. On 8^th August 2008 Sintons sent a letter before action to Wholley Goodings inviting the Purchasers to complete by 26^th August 2008. No such completion having taken place these proceedings were commenced on 14^th October 2008. Somewhat surprisingly they were commenced in the County Court. In the light of the substantial sums involved and with the consent of the parties I directed that they be transferred to the High Court.

5. The contracts

40. The 11 contracts were separate but substantially identical. Under them the Vendor agreed to sell and the Purchasers agreed to purchase leasehold title to 11 of the flats as set out in the table below. In respect of each flat, the Purchasers agreed to pay the price set out in the table (aggregate £1.21million). Further, as already noted in respect of each flat, the Purchasers agreed to pay and in fact paid a deposit of 10 per cent of the purchase price as set out in the table (aggregate £121,000) and a reservation Fee of £500 (aggregate £5,500).
Table

Property	Purchase Price	Reservation	Deposit	Balance
Unit 1	108,100.00	500.00	10,810.00	96,790.00
Unit 9	108,100.00	500.00	10,810.00	96,790.00
Unit 10	109,940.00	500.00	10,994.00	98,446.00
Unit 11	106,260.00	500.00	10,626.00	95,134.00
Unit 21	111,780.00	500.00	11,178.00	100,102.00
Unit 23	108,100.00	500.00	10,810.00	96,790.00
Unit 24	106,720.00	500.00	10,672.00	95,548.00
Unit 25	109,480.00	500.00	10,948.00	98,032.00
Unit 32	114,540.00	500.00	11,454.00	102,586.00
Unit 33	115,000.00	500.00	11,500.00	103,000.00
Unit 34	112,700.00	500.00	11,270.00	100,930.00
Total	£1,210,720.00	£5,500.00	£121,072.00	£1,084,148.00

Terms of the Agreement.

41. Each agreement contained the following express terms:

Under clause 1.12:

"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

Under clause 3: Deposit and Completion

3.1 The Buyer shall pay to the Seller's Solicitors as agents for the Seller on the signing of this Agreement a deposit of 10% of the purchase Price and the balance shall be paid and the purchase shall be completed at the offices of the Seller's Solicitors within the Period for Completion

3.2 The Lease will be completed and the balance of the Purchase Price paid within the Period for Completion and if the balance of the Purchase Price has not been paid within the Period for Completion it shall bear interest at the Contract Rate [being 5% per annum above the base rate of Allied Irish Bank (GB) for the time being in force] as and from the first day following the expiry of the Period for Completion

10. Seller to construct the Property

10.1 The Seller shall construct or cause to be constructed the Property together with all necessary works in a thorough and workmanlike manner and with materials of suitable quality in accordance with: …

12. Delays beyond the Seller's control

The erection and completion of the Property shall be carried out by the Seller with all due dispatch but in any of the cases specified below where delay is caused the Seller shall not be liable to the Buyer for any loss or inconvenience howsoever occasioned:-

[The Agreement included a number of "Force Majeure type clauses] …

16 Disclaimer

16.3 this Agreement contains the entire agreement between the parties

17. Incorporation of General Conditions

17.1 The [the Standard Conditions of Sale (4^th Ed)] shall apply to this Agreement and are incorporated in it so far as they are applicable to a sale by private treaty and are not varied by or inconsistent with the terms of this Agreement and shall be amended as follows:

Condition Nos … 6.1.1 shall not apply and 7.6.2 shall be deleted and replaced by the following words:

"The Buyer shall be entitled to compensation in accordance with condition 7.3"

Terms of the Standard Conditions of Sale

42. Reference was made in the course of argument to a number of the Standard Conditions of Sale.
43. Condition 6.1.1 provides for completion to take place 28 working days after the date of the contract with time not being of the essence. However as already noted under clause 17.1 condition 6.1.1 was expressly excluded.
44. Condition 6.8 deals with Notices to Complete and provides so far as relevant:

6.8.1 At any time on or after completion date a party who is read, able and willing to complete may give the other a notice to complete

6.8.2 The parties are to complete the contract within ten working days of giving a notice to complete, excluding the day on which the notice is give. For this purpose time is of the essence of the contract.

45. Condition 7 deals with Remedies. Condition 7.2 deals with the consequences of rescission. If there is rescission the deposit is repaid unless the rescission is a result of the buyer's breach of contract; the buyer is to return any documents received from the seller and to cancel any registration of the contract.
46. Condition 7.3 deals with the consequences of late completion. Condition 7.3.1 deals with the situation where there is default by either party giving rise to delay. In such event the party whose total period of default is the greater is required to pay compensation to the other. Compensation is assessed (in general terms) under Condition 7.3.2 as interest on the purchase price for the period of default. Under Condition 7.3.3 any claim for loss resulting from delayed completion is to be reduced by any compensation payable under this condition.
47. Condition 7.5 deals with the Buyer's failure to comply with a Notice to Complete. Under Condition 7.5.2 the Seller has the right to rescind if he chooses. Under Condition 7.5.3 the Seller retains his other rights and remedies.
48. Condition 7.6 deals with the Seller's failure to comply with a Notice to Complete. It will be recalled that Condition 7.6.2 is amended under Clause 17 of the Contract. As amended it provides:

7.6.1 If the seller fails to complete in accordance with a notice to complete, the following terms apply

7.6.2 The buyer shall be entitled to compensation in accordance with Condition 7.3

7.6.3 The buyer retains his other rights and remedies.

49. In its unamended form Clause 7.6.2 provided

The buyer may rescind the contract and if he does so:

(a) the deposit is to be repaid to the buyer with accrued interest

(b) the buyer is to return any documents he received from the seller and is, at the seller's expense, to cancel registration of the contract.

6. Is the contract void and/or a nullity under section 2?

50. Section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 ("LP(MP)A 1989") 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.

51. On behalf of the Purchasers, Mr Holland contends the contract is void and/or a nullity because it made no reference to the 2% discount to which the Purchasers were entitled as a "Finder's Fee". He contends that this was a term of the contract and that accordingly the written contract did not incorporate all of the written terms. In the result he submits that the contract is void.
52. It has to be said that this is an unattractive submission. It will be recalled that the parties originally negotiated a 10% discount from the advertised price. There is no reason to believe that the Vendor was not prepared to include the full 10% discount in the agreement. The reason it was not so included can be traced back to Mr Coleman's e-mail of 4^th August 2007. Mr Coleman required that only 8% be shown in the contract as a builder's incentive (whatever that phrase may mean). He also specified that the additional 2% discount should be invoiced as a finder's fee and be the subject of a separate contract or agreement. This requirement was repeated by Ms Luhr when she wrote to Wholley Goodings on 7^th August 2007. This was confirmed in Sintons' e-mail of 29^th August 2007. Thus, Mr Holland's submission that the additional 2% discount was a term that should have been included in the written contract flies in the face of Mr Coleman's express instructions that it should not be so included and should be the subject of a fresh agreement.
53. The matter does not end there. Mr Rodger has drawn my attention to clause 16.3 – the entire agreement clause. He has referred me to two authorities where such clauses have been considered. First he referred me to Inntrepreneur Pub Co v East Crown Ltd [2000] 3 EGLR 31. It was held that the "entire agreement" clause contained in a lease not only had the effect of rendering evidence of an alleged collateral warranty inadmissible, but also deprived the warranty of all legal effect. It did not collapse the lease in on itself. Lightman J said at paragraph 7:

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 or 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 28th ed. Vol 1 para 12–102: it is to denude what would otherwise constitute a collateral warranty of legal effect.

54. The reference to searching in the undergrowth may have no application to this case in that the negotiations for the discount were central rather than peripheral. However this is case where the parties have expressly agreed that the entire agreement is to be contained in the written contract. Furthermore as already noted Mr Coleman expressly agreed that the 2% should not be part of that contract.
55. In paragraph 8 of his judgment Lightman J made the point that there were a number of different forms of entire agreement clause. He went on to consider the effect of an agreement such as is found in this case.

In neither case was it necessary to decide whether the clause would have been sufficient if it had been worded merely to state that the agreement containing it comprised or constituted the entire agreement between the parties. That is the question raised in this case, where the formula of words used in the clause is abbreviated to an acknowledgement by the parties that the Agreement constitutes the entire agreement between them. In my judgment that formula is sufficient, for it constitutes an agreement that the full contractual terms to which the parties agree to bind themselves are to be found in the Agreement and nowhere else and that what might otherwise constitute a side agreement or collateral warranty shall be void of legal effect. That can be the only purpose of the provision.

56. The second authority was Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] EWCA (Civ) 622. Mr Rodger referred me to two paragraphs of the Judgment of Sir Andrew Morritt C.:

42 The law relating to collateral contracts is well-established but in connection with sales or leases of land needs to be applied with caution if not the suspicion to which Lord Moulton referred in Heilbut Symons v Buckleton [1913] AC 30 , 47. Thus, if the promise said to be binding as a collateral contract is in truth one of the terms for the sale or other disposition of land it will be unenforceable unless it is contained in the written contract required by s.2 Law of Property (Miscellaneous Provisions) Act 1989 . It must also be recognised that such a promise may be binding on successors in title of both parties without the need for notice or registration as a Land Charge or in the Land Registry, cf Brikom Investments v Carr [1979] 1 QB 467 . In that case Lord Denning considered (p.484) that conveyancers could look after themselves. But he gave no indication of how they could protect their clients from variations to the terms of a document forming part of their title to land of which they did not and could not know.

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. In my view the arrangement in relation to the 2% Finder's Fee did not form part of the contract at all. This is in accordance with Mr Coleman's express instructions and is consistent with the "entire agreement" clause in the contract. It is not necessary for me to express any view as to whether the arrangement 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 all the circumstances I reject Mr Holland's first submission that the written contract is void as a result of section 2 of LP(MP)A 1989.

7. Rescission

58. A number of separate issues arise in relation to the question of whether the Purchasers validly rescinded the Agreement as a result of the Notices to Complete served on 23^rd May 2008. It is convenient to deal with them separately.

7.1 Was the Vendor in breach of contract?

59. As already noted under clause 12 of the Contract the Vendor agreed to erect and complete the flats with all due dispatch. There are a number of "force majeure" factors in respect of delays that excuse liability on the part of the Vendor. It is not, however suggested that any of these factors apply in this case.
60. The completion date for the building work was 17^th December 2007. Mr McCartney regarded this as realistic. As set out in detail above the flats were not completed until just before 1^st July 2008. No real explanation has been provided for the delay apart from "contractor problems".
61. In my view the Vendor was plainly in breach of the obligation in clause 12 by May 23^rd 2008 when the Purchasers purported to serve the Notices to Complete.

7.2. Were the Purchasers entitled to serve Notices to Complete?

62. It is plain from Condition 6.8.1 that a valid Notice to Complete may only be served "on or after completion date". Mr Holland argued that this was an open contract for the sale of land and that accordingly it was an implied term that completion would take place within a reasonable time of the contract. He argued that a reasonable time had passed by 23^rd May 2008 and that accordingly the Purchasers were entitled to serve Notice to Complete on 23^rd May 2008.
63. Mr Rodger did not seriously challenge this legal analysis though he left it to the Court to determine if a reasonable time had passed.
64. Since reserving judgment I have had the opportunity to consider this analysis in more detail and, with great respect to Counsel, consider it to be wrong. In my view this is not an open contract. As noted above clause 1.12 expressly provides for completion 10 days after the Purchasers have been sent a Notice that the property had been completed. In this case no such Notice had been served before 23^rd May 2008. It follows that the day for completion had not passed. It follows that the Purchasers were not entitled to serve Notice to Complete on 23^rd May 2008.
65. It may be objected that the service of the Notice is a matter within the control of the Vendor and that the Purchasers might be locked into a contract with no way of rescinding. There is some force in that argument. However I cannot accept it. As already noted the Vendor is under an obligation to construct the property with all due dispatch. A breach of that term could become so serious as to amount to a repudiation of the contract. In such a case the Purchasers would have the option to accept the repudiation and be discharged from further performance of the contract. It has to be remembered that this is in fact a hybrid type contract. It is a contract to construct the flats and a contract to sell them when completed. The provisions as to Notices to Complete only come into effect after the flats have been built.
66. Whilst I am satisfied that the Vendor was in breach of clause 12, I am equally satisfied that the breach was not repudiatory. There had been no complaint prior to 21^st May 2008 of the delay; furthermore at the meeting on 21^st May Mr McCartney made it clear that the flats would be complete within 4 weeks. In fact the flats were complete by the end of June 2008.
67. There is support for this approach in the current edition of Megarry & Wade^[1] where the following appears:

It remains the case that where one party has unreasonably delayed either in completing the contract or in performing some intermediate obligation under it the other party may terminate the contract if the breach goes to the root of the contract.

68. The authors go on to consider whether it is always necessary to serve a notice to complete but it is not necessary for me to rehearse that discussion. What is important is that this contract does have express provision for completion which does not come into effect until after the Vendor has given a notice that the flats have been constructed. Before that time the Vendor's obligation is that contained in clause 12. The Purchasers' remedies for breach of clause 12 depend on whether the breach was repudiatory. In my view it was not.
69. Another possible approach would be to suggest that the Notice to Complete served on 23^rd May 2008 took effect as a common law completion notice. Such a notice had to specify a reasonable time for completion. As already noted there had been no complaints about delay before 21^st May 2008; at the meeting Mr McCartney indicated that a further month was needed. In those circumstances I would have held that a notice requiring completion within 10 working days of 23^rd May 2008 did not specify a reasonable time and would have been invalid.

7.3 What is the effect of a valid Notice to Complete?

70. In the light of my view in section 7.2 this question does not arise. It was, however fully argued and it is not impossible that this case may go further. In those circumstances it is appropriate that I should state my views in respect of the submissions
71. Mr Rodger argued that the plain effect of the amendment to Condition 7.6.2 was to exclude the right of rescission by the Purchasers in the event of a failure by the Vendor to comply with a valid Notice to Complete. He suggested that any other construction would mean that the amendment had no practical legal effect.
72. Mr Holland referred me to a number of the Standard Conditions of Sale. He referred me to Condition 7.2 which he submitted confirmed that the Purchasers had a right to rescind. In fact Condition 7.2 is dealing with the consequences of rescission and not the right to rescind at all. It does not seem to me that Condition 7.2 is of assistance as to the effect of the amendment to Condition 7.6.2.
73. Mr Holland referred me to Condition 6.8.2. He pointed out that under that condition time for completion was made of the essence. He pointed out that the normal consequence of time being of the essence was that the failure to complete within time enabled the innocent party to treat the breach as repudiatory and rescind the contract. He drew my attention to Condition 7.6.3. He made the point that one of the remedies retained by the Purchasers was a right to rescind for repudiatory breach. Thus he submitted the amendment to clause 7.6.2 did not affect the right to rescind for repudiatory breach. He submitted that the service of the Notices to Complete on 23^rd May 2008 made time for completion of the essence. Accordingly the Vendor was in repudiatory breach when he failed to complete by 9^th June 2008. Thus he submitted that despite the amendment to Condition 7.6.2 the Purchasers were entitled to rescind on 9^th June 2008.
74. I see the force of both arguments. Indeed my mind has wavered on this point both during the course of the argument and in the course of the preparation of the judgment. In the end, and with considerable hesitation, I prefer the argument of Mr Holland. It seems to me unlikely in the face of Condition 7.6.3 that the parties intended to exclude the Purchasers' right to rescind for repudiatory breach of contract. The effect of Condition 6.8.2 is to make the failure to complete within 10 working days a repudiatory breach.
75. I am conscious that, as Mr Rodger submits, this substantially nullifies the effect of the amendment to Condition 7.6.2. However, as Mr Holland points out, if the effect of the amendment to Condition 7.6.2 is to exclude the right to rescind for repudiatory breach it would mean that the Purchasers would be locked into the contract however long the Vendor delayed.
76. It also seems to me that if the Vendor had wished to exclude the right to rescission for failure to comply with a Notice to Complete it should and could have done so expressly.

7.4 Did the Purchasers elect to rescind?

77. This point does not arise in the light of my conclusion in section 7.2. It was, however fully argued and it is not impossible that this case may go further. In those circumstances it is appropriate that I should state my views in respect of the submissions.
78. It is common ground between the parties that termination following a repudiatory breach of contract is not automatic. The innocent party has the right to rescind but is not bound to do so. He must elect whether or not to treat the contract as at an end. Mr Rodger drew my attention to cases which suggest that he must indicate his election to do so with every reasonable dispatch^[2]. Mr Rodger points out that there was no act by the Purchasers after 9^th June 2008 indicating an acceptance of the repudiatory breach. Mr Holland accepts that this is so. However he relies on the letter of 23^rd May 2008 that was sent with the Notices to Complete. In particular he relies on the final paragraph which it will be recalled included:

Accordingly unless the properties are ready for occupation with final building regulation certificate and premier guarantee certificate within no later than 10 working days from the date of this letter then our clients will deem your clients in breach of contract and will consider themselves discharged from the contract and entitled to the return of their deposit with interest.

79. Mr Rodger contends that there is no authority to support the right to make an election prior to the repudiatory breach. He submits that it is wrong in principle and in any event the letter was no more than a statement of future intention rather than an actual election.
80. Again my mind has wavered. In the end, however, I accept Mr Rodger's submissions. I do not think the Purchasers ever validly elected to rescind. Accordingly the contracts remained in force and it was open to the Vendor to serve its own Notice to Complete following the Notices served on 1^st July 2008.

8. Conclusions

81. In my view both of the points taken by the Purchasers are unsound. It follows that the contracts remain in force and the Vendor is entitled to specific performance.

JOHN BEHRENS

Thursday 20 August 2009

Note 1   7th Ed paragraph 15-098    [Back]

Note 2   See Berners v Fleming [1925] Ch 264 and Halkett v Earl of Dudley [1907] 1 Ch 590.    [Back]