[View without highlighting]
[Printable RTF version]
[Buy ICLR report:  3 WLR 638]
||Neutral Citation Number:  EWCA civ 1445
||Case No: A3/2011/2101
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
His Honour Judge Purle QC
(Sitting as a High Court Judge)
||Royal Courts of Justice
Strand, London, WC2A 2LL
||1st December 2011
B e f o r e :
LORD JUSTICE RIX
LORD JUSTICE ETHERTON
LORD JUSTICE LEWISON
|| ALEXEY SAMARENKO
||Claimant / Respondent
||- and -
||DAWN HILL HOUSE LIMITED
||Defendant / Appellant
MR KIRK REYNOLDS QC (instructed by Sherrards, London) for the Respondent
MR JONATHAN SMALL QC & MR GREVILLE HEALEY(instructed by Boardmans, London) for the Appellant
Hearing date : 24 November 2011
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Lewison :
- The two issues raised by this appeal are:
i) Is a failure to pay a deposit on time under a contract for the sale of land necessarily a repudiatory breach of contract entitling the seller to terminate the contract;
ii) If the answer is no, was time successfully made of the essence of payment in this case with the consequence that, on the facts, the seller was entitled to terminate the contract?
- The relevant facts are as follows. On 18 June 2010 Mr Samarenko as seller and Dawn Hill House Ltd ("Dawn Hill") as buyer entered into a written contract for the sale of Dawn Hill Waverley Drive Virginia Water. The purchase price was £5 million; and a deposit of £500,000 was to be paid in accordance with clause 16 of the contract. The contract incorporated the Standard Conditions of Sale (4th edition). Clause 15 of the special conditions said that the contract was conditional on the buyer obtaining planning permission as set out in planning applications attached to the contract and was also conditional on the buyer obtaining the consent of the Wentworth Estate Roads Committee. Clause 16 provided:
"This Agreement becomes unconditional upon the Buyer obtaining the Planning Permission and the said relevant consent from the Wentworth Estate Roads Committee and within 60 working days from the date of the Planning Permission or within 60 working days from the sate of the said relevant consent from the Wentworth Estate Roads Committee, whichever is the later, the deposit of £500,000 shall be paid to the Seller's solicitors to be held as stakeholders in accordance with 2.2 of the Standard Conditions of Sale."
- Clause 17 dealt with the payment of the balance. Dawn Hill obtained planning permission on 2 December 2010; but it was not the permission envisaged by clause 15. So the parties renegotiated. The fruits of their renegotiation were embodied in a supplemental agreement dated 22 December 2010. The purchase price was reduced to £4.5 million. The supplemental agreement went on to provide:
"2 For the purposes of clause 16 of the Contract, the Deposit to be paid shall be reduced to £450,000 and is now due to be paid to the Seller's solicitors on 3rd March 2011 (being 60 working days after the grant of the Original Permission).
3 For the purposes of clause 17 of the Contract, the sum of £4,050,000 shall be substituted for the sum of £4,500,000 and shall be paid to the Seller's Solicitors on 13th April 2011 …
4 In all other respects the Contract is confirmed and is now to be deemed to be unconditional."
- Mr Samarenko's solicitors were Staal & Staal. They e-mailed Dawn Hill's solicitors, McGuire Woods, on 24 January 2011 to remind them that the deposit was due on 3 March, requesting them to ask their client to put them in funds, and giving details of their own client account. On 9 February 2011 Staal & Staal sent a further e-mail to McGuire Woods. That e-mail recorded that Dawn Hill had asked to carry out a soil survey. The e-mail said that Mr Samarenko was considering that, but that any agreement would be subject to the consent of his mortgagee and insurers and that he would require an indemnity. There was no immediate response; so Staal & Staal chased it up on 21 February. On 2 March Staal & Staal sent a further reminder about the deposit which was due to be paid on the following day. Dawn Hill did not pay the deposit on the due date; so on 9 March Staal & Staal wrote to Dawn Hill referring to the breach of contract and stating:
"Our client is prepared to allow you 5 working days from today within which the pay the deposit, failing which our client will treat the contract with you as repudiated.
On behalf of our client we therefore demand payment of £450,000 to us in cleared funds by no later than 5 pm on Wednesday 16 March, 2011, as to which deadline time shall be of the essence."
- No payment was made; and consequently on 21 March 2011 Staal & Staal wrote to Dawn Hill terminating the contract. Dawn Hill's interest under the contract had been protected by unilateral notices at HM Land Registry. Mr Samarenko brought proceedings for the removal of the notices and for a declaration that the contract had been validly terminated. He also applied for summary judgment.
- Mr Watford, who is a director of Dawn Hill, gave evidence in opposition to the claim. He said that the letter of 9 March had come out of the blue. He had been waiting for the results of the soil survey, of which Mr Samarenko was aware. On learning that Mr Samarenko had imposed a deadline for payment of the deposit he contacted Savills to arrange for them to inspect the property. The inspection was needed both for his bank (Coutts) and also for his own purposes. He wanted an inspection before funding the deposit out of his own resources. He spoke to Mr Samarenko on 10 March and told him that he would definitely be able to pay the deposit on 16 March. He told Mr Samarenko that he had arranged for Savills to inspect on Monday 14 March. He would than pay the deposit out of his own resources. According to Mr Watford Mr Samarenko said that he would be happy for Savills to inspect; and that he would be at home on that Monday. But he said that he had been advised that he needed the consent of his bridging finance lenders before he could agree to the inspection. Mr Watford queried this, and Mr Samarenko said that he would check with his lawyers. According to Mr Watford Mr Samarenko promised to respond on Friday 11 March or over the weekend. He then called his own lawyer and asked him to speak to Mr Samarenko's solicitor. Dawn Hill's new solicitors, Boardmans, wrote to Staal & Staal on 11 March recording a conversation between Mr Boardman and Ms Staal. He told her that Dawn Hill's financiers required the inspection before they would release the loan; and that the valuer had been instructed to attend on Monday 14 March. The letter asked for confirmation that the valuer would be allowed access. They spoke again on the same day. Boardmans recorded in their second letter of that date that Staal & Staal had refused access. They asserted that:
"… there is an implied term of the contract for the purposes of business efficacy that your client will facilitate any reasonable requirements of our client towards achieving completion, as he has done hitherto."
- They said that if inspection were refused that would delay the release of the loan "thereby making it impossible for our client to comply with the deadline imposed by your client to pay the deposit by next Wednesday, 16 March 2011." They alleged that the real reason for refusal was that Mr Samarenko believed that he could sell the property for a higher price. Savills attended at the property on 14 March, but were refused access. Mr Samarenko sent a text message to Mr Watford explaining that this was on the advice of his lawyers.
- The application for summary judgment came before HH Judge Purle QC. He gave summary judgment for Mr Samarenko. With the permission of Mummery LJ Dawn Hill appeal. Mr Jonathan Small QC and Mr Greville Healey, appearing for Dawn Hill take three points:
i) Time was not of the essence of the contractual timetable for payment of the deposit;
ii) Although Mr Samarenko was entitled to serve notice making time of the essence of the revised deadline for payment of the deposit a failure to comply with that deadline did not necessarily amount to a repudiatory breach of contract;
iii) The time given by the letter of 9 March purporting to make time of the essence was too short in all the circumstances of the case.
- Whether a time limit is of the essence of a contractual provision is a question of interpretation. In Bunge Corp v Tradax Export SA  1 WLR 711 Lord Wilberforce said:
"As to such a clause there is only one kind of breach possible, namely to be late, and the questions to be asked are: first what importance have the parties expressly ascribed to this consequence? And, second, in the absence of expressed agreement, what consequence ought to be attached to it having regard to the contract as a whole?"
- Similarly, Lord Lowry said:
"It is by construing a contract (which can be done as soon as the contract is made) that one decides whether a term is, either expressly or by necessary implication, a condition, and not by considering the gravity of the breach of that term (which cannot be done until the breach is imminent or has occurred)."
- Although courts of equity had a tendency to regard time stipulations as not being of the essence of the contract, it is clear that even in equity any presumption that time was not of the essence could be rebutted, either by express words or by necessary implication: United Scientific Holdings Ltd v Burnley BC  AC 904, 930. The maxim that time is not of the essence "never had any application to cases in which the stipulation as to time could not be disregarded without injustice to the parties, when, for example, the parties, for reasons best known to themselves, had stipulated that the time fixed should be essential, or where there was something in the nature of the property or the surrounding circumstances which would render it inequitable to treat it as a non-essential term of the contract": Stickney v Keeble  AC 386, 416. If the presumption is rebutted equity will not interfere: Union Eagle Ltd v Golden Achievement Ltd  AC 514.
- I begin by considering the nature of a deposit. The classic exposition is that of this court in Howe v Smith (1884) LR 27 Ch D 89. Cotton LJ said (p. 95) that the deposit was "a guarantee that the contract shall be performed." Bowen LJ said (p. 98) that it was "a security for the completion of the purchase". Fry LJ said (p. 101) that:
"It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract."
- As Lord Macnaghten put it in Soper v Arnold (1889) LR 14 App Case 429, 435:
"Everybody knows what a deposit is. The purchaser did not want legal advice to tell him that. The deposit serves two purposes—if the purchase is carried out it goes against the purchase-money—but its primary purpose is this, it is a guarantee that the purchaser means business…"
- So important is the payment of a deposit that in the vast majority of conveyancing transactions the seller will simply refuse to exchange contracts until the deposit monies are safely in his own hands or the hands of a stakeholder. Without actual receipt of the deposit monies the deposit cannot fulfil one of its essential functions viz. the creation of the fear of its forfeiture thus providing a motive for the buyer to complete the purchase. That, undoubtedly, in my judgment, is the ordinary understanding of buyers and sellers of land. It was this ordinary understanding of buyers and sellers that led Goulding J in Myton Ltd v Schwab-Morris  1 WLR 331 to hold that even though contracts had in fact been exchanged the contract was not binding when the cheque tendered for the deposit was dishonoured. Although that was wrong, Goulding J went on to consider whether a failure to pay the deposit on or before signing the contract was a repudiation of that contract. He held that it was; and that there was no need for the seller to give notice to the buyer calling upon her to remedy the default. He said:
"If payment of a deposit was not a condition precedent to the obligation to grant the lease, it was at any rate, in my judgment, a term of so radical a nature that the defendant's failure to comply with it would entitle the plaintiff company to renounce further performance. The same argument on the character and importance of a deposit, which persuaded me on the first point that the clause was a condition precedent, goes far to show that if it is not such a condition, then it is at any rate a fundamental term in the sense that I have indicated."
- Thus Goulding J in effect characterised the payment of the deposit (including the time of payment) as a condition of the contract, any breach of which would amount to a repudiation.
- Portaria Shipping Co v Gulf Pacific Navigation Co Ltd  2 Lloyd's Rep 180 concerned a contract for the sale of a ship. The deposit was not payable on entry into the contract but within 48 hours thereafter. Nevertheless Robert Goff J held that a failure to pay the deposit on time entitled the seller to terminate the contract. He said:
"Here there is a specific time - 48 hours after signing the contract - and it seems to me that the deposit which is required to be paid is plainly in the nature of security, so that the seller should know where he stands when, as Mr. Chambers put it so elegantly, the buyer puts his money where his mouth is.
I therefore conclude that, certainly in a contract of this kind, the categorization of the payment as a deposit takes the case out of s. 10 (1) of the Sale of Goods Act, 1979, and that on a true construction of the contract, payment of the deposit in due time is of the essence of the contract. Indeed, if that were not so the sellers would not have the protection which they have stipulated for under the contract. For, if it was an innominate term, what then? I suppose the sellers would have to wait until the stipulated time for payment of the deposit had expired and then say: "You have not paid within that time, I now make time of the essence. And you must pay the deposit within . . ." say, 12 hours, or something of that kind. That message would have to go to the buyers, normally through the brokers. So further time would elapse in actually giving a notice making time of the essence; and all of this would, of course, be against a very tight time scale. Under the contract, within seven days of the notice of readiness the purchase price had to be paid. Now obviously the intention was that the deposit should be available well before the time came for actual delivery and payment of the purchase price. It seems to me quite plain that, in accordance with what I understand to be the ordinary effect of a requirement in a contract for payment of a deposit, the intention was that the payment of the deposit should be made within 48 hours, and if that was not done the seller would not have got the security for the buyers' performance to which he was entitled. And not having received that security for performance of the contract, he would be entitled to say "I can now call this transaction off and let my ship be sold elsewhere". So I hold that the construction of the contract for which the sellers contend is right."
- The question of a deposit arose again in Millichamp v Jones  1 WLR 1422. The buyers were the holders of an option to buy land. The terms of the option provided for the payment of a deposit "[upon] the exercise of the said option". The option was exercised, but the deposit was not paid. Warner J declined to follow Goulding J on the question whether payment of a deposit was a condition precedent to the formation of a binding contract; and on that point he was right. However, he went on to consider the classification of the contractual requirement to pay the deposit and the consequences of not paying it in time. On that part of the case I think, with great respect, that his reasoning is unsatisfactory. His first statement on the subject (p. 1430) was this:
"… the weight of authority is in favour of the view that a requirement in a contract for the sale of land that a deposit should be paid by the purchaser does not constitute a condition precedent, failure to fulfil which prevents the contract from coming into existence, but is in general to be taken as a fundamental term of the contract, breach of which entitles the vendor, if he so elects, to treat the contract as at an end and to sue for damages including the amount of the unpaid deposit."
- If the term is classified as a fundamental term (which I take to be the same as a condition of the contract) then any breach would amount to a repudiation. That, indeed, is what Warner J seems to be saying in the passage just quoted. He went on to say (p. 1431):
"The next question is whether clause 5 of the option agreement in the present case is, in accordance with the general rule, to be regarded as a fundamental term of that agreement or whether, on the contrary, there is something which, as a matter of construction of that agreement, in the light of the surrounding circumstances, takes it out of the general rule. At first sight, it seems repugnant to hold that a term of the agreement which neither the plaintiffs nor the defendant, nor, obviously, their solicitors, gave any thought to at the time when the option came to be exercised, was a fundamental term of it. I do not think, however, that the state of mind of the parties or their advisers at that time is the test. The question has to be answered, I think, by reference to the terms of the document itself, considered in the light of the circumstances as they were when it was executed. By that test, I see nothing to take this case out of the general rule."
- This passage seems to me to echo the earlier passage I have quoted. However, Warner J went on to pose the question: what conduct on the part of the buyer "would constitute a breach of that fundamental term?" He concluded that mere oversight to pay the deposit was not "a sufficient breach of the term to entitle the [seller] to treat the contract as discharged." However, he went on to say that:
"There are no doubt cases of contracts where the mere failure to pay on time a sum due under the contract is sufficient to entitle the party to whom the payment should have been made to treat the contract as repudiated. But I think that it would be unnecessarily harsh to hold that that was so in a case of the present kind."
- Although the question that Warner J asked himself was whether there was "a breach", the answer he gave was that there was no "sufficient breach". The question and the answer do not therefore match. On the basis that the term in question was a fundamental term (or condition) the question posed was the right question; but one that did not receive an answer. Moreover although Warner J disagreed (rightly) with Goulding J on the question whether payment of the deposit was a condition precedent to the formation of a binding contract, he did not in terms deal with Goulding J's alternative ground; viz. that the payment of the deposit (including the time of payment) was a condition of the contract, any breach of which would amount to a repudiation. The only reason he gave for not holding that time was of the essence of payment was that it would be "unduly harsh". But that is a conclusion; not a principle. Nor was Portaria Shipping cited to him, so he did not have the benefit of the view of Robert Goff J. In my judgment all these factors make the decision in Millichamp v Jones suspect.
- Damon Compania Naviera SA v Hapag-Lloyd International SA  1 WLR 435 also concerned a contract for the sale of ships. Clause 2 of the contract provided that as security for the correct fulfilment of the agreement the buyers should pay a deposit of 10 per cent of the purchase money on signing the contract. By clause 13, if the purchase money was not paid in accordance with the agreement, the sellers had the right to cancel the contract in which case the deposit was forfeited to them; and if the deposit did not cover the sellers' loss they were entitled to claim further compensation for any loss and for all expenses together with interest at the rate of 5 per cent per annum. The deposit was not paid. It was argued that the result of the non-payment of the deposit was that no contract came into existence; but this court rejected that argument. Rather it was held that the contractual requirement to pay a deposit was a fundamental term of the contract. Fox LJ said (p. 446):
"Accordingly, I prefer the view of Warner J in Millichamp v Jones  1 WLR 1422 and hold that the provision for payment of the deposit was not a condition precedent to the formation of a contract. It was in my view a fundamental term of the contract. I entirely agree with the view of Goulding J in Myton Ltd. v Schwab-Morris  1 WLR 331, 337G (expressed on the alternative basis that he was wrong as to the condition precedent) that the provision for payment of the deposit was "a term of so radical a nature that the defendant's failure to comply with it would entitle the plaintiff to renounce further performance": see also Millichamp v Jones and Portaria Shipping Co v Gulf Pacific Navigation Co Ltd  2 Lloyd's Rep 180. The result, in my opinion, is that the provision for payment of the deposit was not a condition precedent to the formation of the contract but was a fundamental term of a concluded contract."
- Robert Goff LJ said:
"Alternatively, if rescission is for any reason not possible, the term as to payment of the deposit having been incorporated in the contract so made and being a fundamental term, the dishonouring of the cheque will result in non-payment of the deposit on the exchange of contracts, entitling the vendor to bring the contract of sale to an end: this conclusion is, I consider, consistent with the approach of the Court of Appeal in Pollway Ltd v Abdullah  1 WLR 493."
- Stephenson LJ agreed with Fox LJ.
- It is plain that in Damon this court approved the reasoning in Portaria Shipping. Fox LJ referred to it expressly, and Robert Goff LJ would surely have said something if he thought that his own earlier decision given at first instance was wrong. Moreover Robert Goff LJ clearly stated that non-payment of the deposit would entitle the seller to bring the contract to an end. In this respect there can be no distinction in principle between a contract for the sale of ships and a contract for the sale of land. This is demonstrated by the court's reliance in Damon on both ship contract and land contract cases. That decision is entirely consistent both with the nature of a deposit and with the general approach of the law to repudiation and renunciation of contracts. Since the payment of a deposit at the executory stage of the contract is an earnest (or guarantee) of further performance, it is no surprise that a failure to pay the deposit on time is taken to demonstrate that the buyer is unwilling to perform the contract as a whole. In addition without actual receipt of the deposit the seller does not know where he stands. Is the buyer serious about the contract or not? A right to call off the contract for failure to pay the deposit on time restores to the seller his freedom to market the property. In the case of late completion, the seller at least has the deposit in his hands as part compensation for any loss. If the deposit itself is not paid, he has nothing except a fetter on his freedom to deal with his property.
- That is why in my judgment failure to make timely payment of a deposit amounts to a repudiatory breach of contract. Any presumption that time is not of the essence is rebutted. Neither Portaria Shipping nor Damon was cited in John Willmott Homes Ltd v Read (1985) 51 P & CR 90. In that case Whitford J held that although payment of a deposit was a fundamental term of the contract, the time of payment was not. I would overrule that decision on that point. I would hold therefore that in the ordinary case the requirement to pay a deposit, including the time of payment, is a condition of the contract or, to use the phrase used in courts of equity, that time is of the essence of the date for payment.
- Mr Small QC drew a distinction between deposits required to be paid at the inception of the contractual relationship and deposits required to be paid (as this one was) part way through the contractual relationship. I do not consider that this distinction changes the fundamental nature and purpose of a deposit, although I do not exclude the possibility that a special contractual context might do so; and might lead to the conclusion that time was not of the essence of the date for payment. In the present case the deposit was payable on a fixed date and a significant time before the contractual completion date. In addition at one point in his argument Mr Small urged us to regard the whole period from contract to completion as a single period; in which case there could be no legal significance in the fact that the deposit was payable part way through that period. Although there was some discussion of why the period of sixty days after the grant of planning permission was allowed for payment of the deposit the discussion was all speculative. If Dawn Hill had wanted to argue for a particular reason, evidence should have been led. I do not find anything on the facts of the present case to take this contract out of the ordinary run of contracts for the sale of land; and I am unpersuaded that there is a real prospect that a trial would alter that conclusion.
- Accordingly I would hold, on the first issue, that by failing to pay the deposit on 3 March Dawn Hill committed a repudiatory breach of contract.
- If I am wrong on the first issue, I must go on to consider the effect of making time of the essence of payment of the deposit. In order to understand the theory underlying the proposition that time may be "made of the essence" of a contractual time limit it is necessary to go back a little into legal history. For many years, and certainly during the nineteenth century, it was accepted legal analysis to classify contractual obligations according to a binary categorisation. A contractual stipulation was either a condition (sometimes called a condition precedent) or a warranty. The difference is encapsulated in the well-known judgment of Bowen LJ in Bentsen v Taylor, Sons & Co  2 QB 274, 281:
"There is no way of deciding that question except by looking at the contract in the light of the surrounding circumstances, and then making up one's mind whether the intention of the parties, as gathered from the instrument itself, will best be carried out by treating the promise as a warranty sounding only in damages, or as a condition precedent by the failure to perform which the other party is relieved of his liability."
- The entrenchment of this binary classification in contractual analysis is borne out by the Sale of Goods Act 1893 which classified every term as either a condition or a warranty. It was not until the seminal judgment of Diplock LJ in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd  2 QB 26 that it really dawned on English contract lawyers that there was a third category of term (now called either an intermediate or an innominate term) breach of which might or might not amount to a repudiation depending on the gravity of the consequences of the breach. This is an oversimplified historical perspective as Lord Diplock explained in United Scientific at 925-928; but it is sufficient for present purposes. The point is that even where the time for performance was regarded as a condition in courts of law, a court of equity would intervene to prevent one party from insisting on his strict legal rights. The practice began in cases of mortgage where the contractual arrangement was that the borrower lost the right to redeem if he did not repay the loan on time (usually thirty days). But equity would allow the borrower to redeem even after the expiry of the contractual deadline. This was later extended to contracts for the sale of land. As Lord Eldon LC explained in Seton v Slade (1802) 7 Ves Jun 265:
"To say, time is regarded in this Court, as at law, is quite impossible. The case mentioned of a mortgage is very strong: an express contract under hand and seal. At law the mortgagee is under no obligation to re-convey at that particular day; and yet this Court says, that, though the money is not paid at the time stipulated, if paid with interest at the time a re-conveyance is demanded, there shall be a re-conveyance; upon this ground; that the contract is in this Court considered a mere loan of money, secured by a pledge of the estate. But that is a doctrine, upon which this Court acts against what is the prima facie import of the terms of the agreement itself; which does not import at law, that, once a mortgage, always a mortgage; but Equity says that; and the doctrine of this Court as to redemption does give countenance to that strong declaration of Lord Thurlow, that the agreement of the parties will not alter it; for I take it to be so in the case of a mortgage; that you shall not by special terms alter what this Court says are the special terms of that contract."
- As Lord Eldon also explained whereas at law the seller retained ownership of the land contracted to be sold until the moment of completion, a court of equity regarded the buyer as the owner of the land from the moment of exchange of contracts, although the seller retained an interest until completion. It was in these circumstances that equity would intervene to decree specific performance of a contract at the suit of the buyer even though the completion date had passed and the buyer had not yet tendered the price. The assumption underlying equity's intervention was that, in the absence of such intervention, a failure to comply exactly with the contractual timetable entitled the innocent party to treat himself as discharged from further performance. As Sir John Romilly MR put it in Parkin v Thorold (1852) 16 Beav. 59, 65:
"At law, time is always of the essence of the contract."
- Strictly speaking this may itself be an oversimplification of the position in courts of common law. But the important point is that it was the theoretical basis for equity's intervention. Be that as it may, it does appear to be the case that at common law the time for completion of a contract for the sale of land was indeed a condition of the contract. Thus in Howe v Smith, decided only a decade after the Judicature Act 1873, Fry LJ said (p. 103):
"In my opinion, the time fixed by a contract for the payment of the balance of the purchase money and the completion of the contract was, according to the law as it stood before the Judicature Act, 1873, of the essence of the contract, so that non-payment on that day, provided it was not caused by the default of the vendor, authorised the vendor at law to treat the contract as rescinded."
- In Stickney v Keeble  AC 386, 415 Lord Parker said in his authoritative speech:
"My Lords, in a contract for the sale and purchase of real estate, the time fixed by the parties for completion has at law always been regarded as essential. In other words, Courts of law have always held the parties to their bargain in this respect, with the result that if the vendor is unable to make a title by the day fixed for completion, the purchaser can treat the contract as at an end and recover his deposit with interest and the costs of investigating the title. In such cases, however, equity having a concurrent jurisdiction did not look upon the stipulation as to time in precisely the same light. Where it could do so without injustice to the contracting parties it decreed specific performance notwithstanding failure to observe the time fixed by the contract for completion, and as an incident of specific performance relieved the party in default by restraining proceedings at law based on such failure.
This is really all that is meant by and involved in the maxim that in equity the time fixed for completion is not of the essence of the contract…"
- He went on to explain:
"Again, although the vendor's conduct may not, under the circumstances, be alone sufficient to disentitle him to specific performance, yet if he has been guilty of unnecessary delay, and the purchaser has served him with a notice limiting a time at the expiration of which he will treat the contract at an end, equity will not, after the expiration of such time, provided it is a reasonable time, enforce specific performance or restrain an action at law."
- Thus the theoretical basis on which it is said that time is made of the essence of a contractual time limit is that (a) the time limit is regarded at common law as a condition of the contract (b) in the event of delay in performance equity will intervene to prevent the injured party from treating the delay as a breach of condition but (c) equity will cease to intervene once notice of a reasonable length has been served signalling that equity's intervention will cease. Once the notice has expired the position reverts to that at common law, viz. that time limits are regarded as conditions of the contract.
- Mr Small submitted that a contractual term must either be a condition both at law and in equity or an innominate term both at law and in equity. However, in my judgment that is to confuse the meaning of the term (which I agree must be the same both in law and in equity) and the consequences of breach of the term, which need not be. Rolt LJ explained in Tilley v Thomas (1867) L. R. 3 Ch. 61, 69:
"Now, as a matter of construction merely, I apprehend the words must have the same meaning in equity as at law. The rights and remedies consequent on that construction may be different in the two jurisdictions, but the grammatical meaning of the expression is the same in each."
- If the consequences of breach of the term differ at law and in equity, then equity prevails.
- Mr Small accepted that it was open to Mr Samarenko to make time of the essence; and that five days would have been enough to organise the transfer of funds. However, he said that a failure to pay in accordance with the revised deadline was not necessarily a repudiatory breach. He relied on the summary of principle by Christopher Clarke J in Dalkia Utilities Services plc v Celtech International Ltd  1 Lloyd's Rep 599. Christopher Clarke J considered a number of authorities and concluded (§ 131):
"(a) Equity, before the Judicature Acts, insisted that prima facie time for payment was not essential. But equity's patience was exhaustible. It would allow the contract to be treated as repudiated if the party in default had been given the opportunity to mend his ways by the giving of a notice to comply within a reasonable time. Whilst this is described as making time of the essence in reality the notice is the means of bringing to an end equity's interference with the contract: Behzadi v Shaftesbury Hotels Ltd  Ch 1;
(b) Such a notice, which may be given in respect of any species of term, may not be served until the time for performance has expired; but it may be served as soon as that time arrives;
(c) Such a notice must state clearly what the other party is required to do and the consequence if he fails ie that the contract may be terminated; Afovos Shipping Co SA v R Pagnan and Flli (The Afovos)  1 Lloyd's Rep. 562, 565 col 2;  1 WLR 848, 854C;
(d) If the defaulting party fails to perform after service of such a notice, the failure is not automatically a repudiation of the contract, giving rise to a right to terminate. The breach must go to the root of the contract;
(e) The notice operates as evidence of the date by which the promisee considers it reasonable to require the contract to be performed, failure to perform by which is evidence of an intention not to perform: see Lord Simon of Glaisdale in United Scientific Holdings Ltd v Burnley Borough Council  AC 904, 946E-947A; Astea (UK) Ltd v Time Group Ltd  EWHC 725 (TCC) para 147."
- Christopher Clarke J repeated this summary in BNP Paribas v Wockhardt EU Operations (Swiss) AG  EWHC 3116 (Comm). The important proposition for present purposes is proposition (d).
- I do not disagree with it, as far as it goes, but in my judgment it is not the whole story. As both Lord Diplock and Lord Simon pointed out in United Scientific since the fusion of law and equity the fused system has continued to develop. There is "no ban upon further development of the rules by judicial decision": United Scientific at 927. The principle of making time of the essence of a time stipulation in a contract for the sale of land is too entrenched in English law to be abandoned. On the other hand the general acceptance of the tripartite classification of contract terms (conditions, warranties and innominate terms) may mean that some adaptation must be made to the traditional view of courts of equity that all time stipulations were viewed as conditions by the common law.
- In Multi-Veste 226 BV v NI Summer Row Unitholder BV  EWHC 2026 (Ch) I said (§§ 193-201):f
"193 Mr Gourgey submitted that if time had been made of the essence, then a failure to comply with the time limit automatically amounted to a repudiatory breach of contract. However, in the light of authority he did not press that submission. In Re Olympia & York Canary Wharf Ltd (No. 2)  BCC 159 Bear Stearns International ("BSI") entered into an agreement for lease to take a floor in Canary Wharf. Clause 6 provided for Olympia & York Canary Wharf Ltd ("O & Y"), the intending landlord, to take over the Bear Stearns group's liabilities under existing leases and, in clause 6(c)(v), to indemnify Bear Stearns in respect of all reasonable costs and expenses incurred by Bear Stearns in respect of their continuing obligations as tenant under the leases. After an administration order had been made in respect of O & Y, BSI invoiced O & Y for sums due under the leases in respect of rent etc. BSI then demanded further sums due under the leases and the rent etc already paid by BSI and invoiced to O & Y. In the same letter BSI asked the administrators for confirmation that they would honour O & Y's obligations under the agreement to lease; and said that if they did not receive it they would treat that as a repudiatory breach. When BSI did not receive the sums demanded or the confirmation, they claimed that this constituted a repudiatory breach by O & Y of the agreement, which BSI had then accepted.
194 It was common ground that the term in question was not a condition of the contract; but BSI contended that time had been made of the essence of the obligation to pay. Morritt J thus considered whether time could be made of the essence of any term of the contract (whatever its legal character), and if so, what was the effect of a failure to comply with an imposed deadline. He held that the effect of making time of the essence was to remove equity's interference with a party's rights at common law, with the result that time could be made of the essence of any contractual obligation. However, he went on to consider whether a failure to comply with an imposed deadline necessarily amounted to a repudiatory breach of contract. He held that it did not. He said:
"First there is nothing in Federal Commerce v Molena Alpha  AC 757 to suggest that the principles expressed, particularly by Lord Wilberforce at pp. 778–779, have no application to stipulations in respect of which time is originally, or is made, of the essence. Second, if the effect of making time of the essence is, as described by Nourse LJ in Behzadi v Shaftesbury Hotels Ltd, to remove equity's interference with the legal rights of the parties, the natural inference is that those rights arise from the ordinary principles of the common law and are not something special consequential on the removal of that interference. Third, and arising from the second consideration, if failure to comply with a notice making time of the essence of itself constitutes a repudiation irrespective of the consequence of the breach, then contrary to the statement of Lord Denning in Eshun v Moorgate Mercantile  1 WLR 722 at p. 726 it is possible to put upon another a repudiation which he has never committed. Fourth, there is no suggestion in Universal Cargo Carriers Corp v Citati  2 QB 401 that the delay in providing the cargo would have been a ground of rescission if notice had been given making time of the essence."
195 Accordingly it was still necessary to consider whether the breach relied on went to the root of the contract or deprived the injured party of a substantial part of the whole benefit that he was entitled to receive. Morritt J concluded:
"The failure to pay did not deprive BSI of anything of value to BSI. BSI was not and is not liable to the landlord under the Devonshire Square leases. The evidence of Mr Hacker, a director of BSI, pointed out that BSI was not the tenant but he provided no evidence to suggest that BSI is in any way liable to the landlord or to Bear Stearns International Corp by way of indemnity against the liabilities arising from the Devonshire Square leases. So far as BSI is concerned the unperformed obligations of the parties under the agreement to lease are the grant and acceptance of the underlease of floor 25. The underlease of floor 25 is the benefit to BSI to which it is entitled. The breach on which BSI relies does not affect these obligations and does not deprive BSI of this benefit."
196 This was followed by Christopher Clarke J in Dalkia Utilities Services plc v Celtech International Ltd  1 Lloyd's Rep 599 in which he said (§ 131 (d)):
"If the defaulting party fails to perform after service of such a notice, the failure is not automatically a repudiation of the contract, giving rise to a right to terminate. The breach must go to the root of the contract."
197 In the Dalkia case Celtech had failed to pay certain instalments due under a financing agreement. It told Dalkia that it could not honour its commitments as they fell due and asked for a six month moratorium. Christopher Clarke J considered whether time had been made of the essence of the obligation. As I read the judgment (§ 132) he held that it had not been because the letter relied on had given an unreasonably short deadline; but he went on to say that in any event the breach relied on was not, even after the expiry of the notice, such as went to the root of the contract. He decided that the correct test to apply was that stated in Chitty on Contracts (§24-018):
"If one party declares his inability to perform some, but not all, of his obligations under the contract, then the right of the other party to treat himself as discharged depends on whether the non-performance of those obligations will amount to a breach of a condition of the contract or deprive him of substantially the whole benefit which it was the intention of the parties that he should obtain from the obligations of the parties under the contract then remaining unperformed."
198 Applying this test, Christopher Clarke J held that this did not amount to a repudiation, because it did not evince an intention to perform in such a manner as would deprive Dalkia of substantially the whole benefit of the contract. The position might have been different if Celtech had said that it could never pay; but those were not the facts.
199 Mr Gourgey took issue with the last part of this. He made the fair point that if the question was whether the failure by the party in breach to perform his obligation by the deadline set by making time of the essence deprived the innocent party of substantially the whole benefit of the contract, then that was the same question that would be asked even if time had not been made of the essence. If that were right, then there was no point in serving a notice making time of the essence. To take an example: if time is made of the essence of completion of a contract for the sale of a house, the defaulting buyer is not saved by turning up with the money one day late. The question whether the breach in failing to complete in accordance with a time limit of which time has been made of the essence amounts to a repudiation is decided on the tacit basis that it is to be assumed that the buyer will never complete. In support of his submission Mr Gourgey relied on other parts of the judgment of Morritt J in the Olympia & York case. Morritt J quoted an observation of Mason J in an Australian case concerning the case of non-completion of a purchase of land:
"The result of non-compliance with the notice is that the party in default is guilty of unreasonable delay in complying with a non-essential time stipulation. The unreasonable delay amounts to a repudiation and this justifies rescission."
200 Commenting on that observation, Morritt J said:
"This was said in reference to the completion of contracts for the sale of land. Thus although the contractual date for completion may be inessential, failure to complete at all will go to the root of the contact. Accordingly, Mason J was not considering the case of a term which was inessential in that sense. What was initially non-essential was the stipulation as to time not nature of the term, which plainly was a term breach of which was capable of going to the root of the contract."
201 Thus Mr Gourgey submitted that if the nature of the term was essential in the sense that a failure to comply with it at all would be a repudiation, then a failure to comply with it by a time limit that had been made of the essence would also amount to a repudiation. In my judgment Mr Gourgey's submission is also supported by the test that Christopher Clarke J applied in Dalkia. He equiparated renunciation and repudiation. The basic test for renunciation is whether non-performance of the obligation (as opposed to timely performance of the obligation) would go to the root of the contract. This also explains why failure to complete a land purchase in accordance with a notice to complete amounts to a repudiation, even though the additional day's delay of itself causes no material prejudice to the seller. It is true that the fourth of Morritt J's reasons in Olympia & York suggests that the test is the same whether or not a notice making time of the essence has been served; but in my judgment the service of such a notice must have some effect. On the facts of Olympia & York it seems to me that even an indefinite or permanent failure to pay the invoices could not have amounted to a repudiation. So Morritt J was undoubtedly correct in deciding the case as he did. I do not think that there is any authority binding on me which precludes my adoption of the view that I think is right in principle. I conclude therefore that the service of notice making time of the essence changes the question from whether delay amounts to a repudiation to the question whether failure to perform the obligation at all amounts to a repudiation."
- Mr Reynolds QC, appearing for Mr Samarenko, relied on this passage. As he put it: if
i) a time limit attached to a contractual term is not complied with; and
ii) the injured party gives notice requiring performance within a reasonable time;
then a failure to comply with the notice amounts to a repudiation if an outright refusal to perform that term would have amounted to a repudiation.
- On further reflection my statement in Multi-Veste may have been too prescriptive. If the case is one of a truly innominate term, in the sense of a term that can be broken in many different ways, some serious and others not, then it may be wrong to equate delay in performance (even after notice) with refusal to perform. Whether that is so or not may have to wait for another day. But where, as here, the case is one in which the term in question is one that would have been regarded by the common law as a condition of the contract, then it seems to me that failure to comply with a notice making time of the essence is tantamount to a refusal to perform that obligation.
- The nature of a repudiatory breach was described by Etherton LJ in Eminence Property Developments Ltd v Heaney  EWCA Civ 1168 (§§ 61-64):
"61. … First, in this area of the law, as in many others, there is a danger in attempts to clarify the application of a legal principle by a series of propositions derived from cases decided on their own particular facts. Instead of concentrating on the application of the principle to the facts of the case in hand, argument tends to revolve around the application of those propositions, which, if stated by the Court in an attempt to assist in future cases, often become regarded as prescriptive. So far as concerns repudiatory conduct, the legal test is simply stated, or, as Lord Wilberforce put it, "perspicuous". It is whether, looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contact.
62. Secondly, whether or not there has been a repudiatory breach is highly fact sensitive. That is why comparison with other cases is of limited value. The innocent and obvious mistake of Mr Jones in the present case has no comparison whatever with, for example, the cynical and manipulative conduct of the ship owners in The Nanfri.
63. Thirdly, all the circumstances must be taken into account insofar as they bear on an objective assessment of the intention of the contract breaker. This means that motive, while irrelevant if relied upon solely to show the subjective intention of the contract breaker, may be relevant if it is something or it reflects something of which the innocent party was, or a reasonable person in his or her position would have been, aware and throws light on the way the alleged repudiatory act would be viewed by such a reasonable person. So, Lord Wilberforce in Woodar (at p. 281D) expressed himself in qualified terms on motive, not by saying it will always be irrelevant, but that it is not, of itself, decisive.
64. Fourthly, although the test is simply stated, its application to the facts of a particular case may not always be easy to apply, as is well illustrated by the division of view among the members of the Appellate Committee in Woodar itself."
- The facts of that case are instructive. Sellers of property served notice to complete purportedly in accordance with the contract. In fact they miscalculated the length of notice required by the contract; and that mistake was obvious on the face of the notice. Not only was the mistake obvious but the buyer's solicitors realised that the mistake had been made. The sellers purported to terminate the contract on the date on which the notice to complete was expressed to expire; but it was in fact a few days premature. They did so because they made the same mistake again, which according to the judge at first instance was "screamingly obvious". A reasonable person in the position of the buyer would have realised that the mistake had been made. It was in those circumstances that this court held that purported reliance on the terms of the contract itself did not amount to a repudiation of the self-same contract. In my judgment the facts of that case are far removed from this one.
- Mr Small argued that Dawn Hill had evinced a desire to proceed with the contract and had been doing its best to comply with its contractual obligations. He said that Mr Samarenko's refusal to allow inspection was unreasonable and unjustified. Rightly or wrongly Dawn Hill believed that it had the contractual right to inspect; and that Mr Samarenko (or his solicitors) would have known that, as shown by the letter of 11 March (which I have quoted). Dawn Hill also believed that the refusal to permit inspection justified the withholding of the deposit.
- The implied term asserted by Boardmans was not that Dawn Hill had a right to inspect before payment of the deposit. At its highest it was a term that the seller would facilitate the buyer's reasonable requirements to achieve completion. But completion was not due to take place until 13 April. Mr Small disclaimed any suggestion that the refusal to permit inspection itself amounted to a repudiation by Mr Samarenko. Moreover, Mr Watford's own evidence was that the deposit was to be funded from his own resources; not by borrowed money. It cannot, therefore, be said that the refusal to permit inspection prevented performance by Dawn Hill of its obligation to pay the deposit. There is in those circumstances no causal connection between the refusal to permit inspection on 14 March and Dawn Hill's failure to pay the deposit on 16 March.
- In the present case the contract was a contract to buy the property for £4.5 million. The price was payable in two parts: the deposit and the balance. Dawn Hill is in the position of a buyer who either refuses to pay the full price; or refuses to pay it in two parts. Does that demonstrate a refusal to perform the contract? In my judgment it does. The highest that it can be put is that it demonstrates a willingness to proceed with a contract; but not with the contract that the parties entered into.
- Once the alleged link between the refusal to permit inspection and the non-payment of the deposit has been severed, I understood Mr Small to accept that five days' notice was sufficient to make time of the essence. Given that Staal & Staal had sent two reminders to Boardmans before the due date for payment of the deposit, Mr Small's position was realistic. There is, therefore, nothing in the complaint that five days' notice was too little.
- In my judgment Judge Purle QC reached the right answer for the right reasons. I would dismiss the appeal.
Lord Justice Etherton:
- I agree that this appeal should be dismissed. I add some short comments of my own because of the importance of the issues. My comments are confined to contracts for the sale of land.
- In the case of a contract for the sale of land, the vendor almost always requires a deposit to be paid on exchange of contracts. If the purchaser is not willing or able to pay a deposit at that point, the vendor will not exchange contracts. That simply reflects the importance of a deposit as an indication of the commitment of the purchaser to carry through the contract and, because the deposit is forfeitable, its status as a form of security for the vendor's performance and so, in a loose commercial sense, a guarantee: see the classic statements in Howe v Smith (1884) 27 Ch D 89.
- In view of the importance of a deposit for those reasons, it is difficult to imagine that a contractual obligation to pay a deposit will ever be anything other than a term of fundamental importance in the contract, that is to say a term which would be regarded at common law as a fundamental term or condition, rather than a warranty or an innominate term, and so any breach of it would entitle the innocent party to treat the contract as at an end: comp. Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd  2 QB 26.
- The question raised in the present case is what place, if any, is there in the context of an obligation to pay a deposit in a contract for the sale of land for the historical intervention of equity in certain cases (which include contracts for the sale of land) to prevent the innocent party insisting on his or her strict legal rights. The failure to pay the deposit on or by the stipulated time will always be a breach of contract. The intervention of equity does not convert the contractual term into one to pay at the stipulated time or within a reasonable period after it. The question is whether the effect of equity's rule not to insist in all cases on strict time limits precludes the vendor from treating the contract as at an end as soon as there has been non-compliance by the purchaser with the contractual term for payment of the deposit. In my judgment, as a general rule, the obvious commercial and legal importance of a deposit at the inception of a contract will preclude the intervention of equity in cases where the contract requires the purchaser to pay the deposit on or within some specified short period of time after the contract has been entered into and the purchaser fails to do so. In such a case, subject to exceptional circumstances (which I presently find difficult to envisage), the time for compliance is strict.
- The position is not quite so clear cut, in my view, when the contractual obligation is to pay a deposit some considerable time after the contract has been entered into. That, in itself, is an unusual situation. In such a case, it will be necessary to examine all the legally admissible facts to assess whether it is a case in which equity would preclude the vendor treating the contract as at an end immediately upon non-payment of the deposit by the purchaser. If there is nothing to indicate that the deposit is any less commercially and legally important at that stage than if it had been required at or within a short time after the contract was made, then the usual rule will apply that the time for compliance is strict. Certainly, it would require very little to indicate that a stipulated time should be strictly adhered to. In the present case, the Judge was entitled to conclude that the deposit, albeit payable some considerable time after the original contract and indeed the revised contract were made, was just as important as if had been contractually required at the outset. In any event, I consider that is sufficiently indicated by the stipulation in the varied contract that the deposit be paid by a specific date, namely 3 March 2011, rather than, as had been the case under the original contract, "60 working days from the date of the Planning Permission or … the said relevant consent from the Wentworth Estate Roads Committee ".
- I agree with Lewison LJ that, for the reasons he has given, the notice served on behalf of the respondent giving 5 working days, was sufficient to make time of the essence in the present case.
Lord Justice Rix:
- I agree that this appeal should be dismissed. I am grateful to Lord Justice Lewison for setting out the material in this appeal. I add some observations of my own because of the importance of the subject-matter and the fact that, strange as it may seem, this appears to be the first occasion on which the status of a deposit term in a contract for the sale of real property falls to be decided in this court. The observations of Fox and Robert Goff LJJ in Damon Compania Naviera SA v. Hapag-Lloyd International SA  1 WLR 435, significant as they are, are not part of the binding ratio of that decision, and it is common ground, correctly in my view, that they are obiter dicta.
- In my judgment, this appeal must be dismissed in the first place because clause 2 of the supplemental agreement is properly to be regarded, even after the fusion of law and equity, as a condition of the contract. It follows that any breach of that clause is a repudiatory breach whose acceptance, as occurred in this case, puts an end to the contract. I agree that, on the true construction of the clause and of the contract as a whole, any presumption that time for the payment of the deposit was not of the essence is rebutted: see Stickney v. Keeble  AC 386 and United Scientific Holdings Ltd v. Burnley BC  AC 904 for the applicable concepts.
- It is true that, as those cases record, equity would still be prepared to grant specific performance, if it was just to do so, of a contract for the sale of land where the completion date had been missed, even though the common law would have regarded agreement of that date as being a condition of the contract. However, authority applying a similar rationale to the agreement of the date for paying a deposit is sparse, there is none in this court, and Millichamp v. Jones  1 WLR 1422 (Warner J) and John Willmott Homes v. Read (1985) 51 P & CR 90, where Whitford J followed Millichamp v. Jones, are of questionable assistance.
- In my judgment, in the typical case of the sale of real property, where a deposit has to be provided by the time of or on contracting (or soon after), equity would not intervene to require a notice period of grace, because the equity of the situation does not call for it, but, to the contrary, militates against interference. As Lord Macnaghten said in Soper v. Arnold (1889) LR 14 App Cas 429 at 435, everybody knows what a deposit is, it is a guarantee that the purchaser means business; or, as Robert Goff J put it, ironically, in Portaria Shipping Co v. Gulf Pacific Navigation Co Ltd  2 Lloyd's Rep 180 at 185: "so that the seller should know where he stands when, as Mr Chambers put it so elegantly, the buyer puts his money where his mouth is". Robert Goff J there stated that "certainly in a contract of this kind, the categorization of the payment as a deposit takes the case out of s. 10(1) of the Sale of Goods Act, 1979, and…on a true construction of the contract, payment of the deposit in due time is of the essence of the contract". In Damon at 446 Fox LJ cited with approval Goulding J's description (in Myton Ltd v. Schwab-Morris  1 WLR 331 at 337G) of a deposit term in a contract for the sale of real property as "a term of so radical a nature that the defendant's failure to comply with it would entitle the plaintiff to renounce further performance"; and Robert Goff LJ described it in the same context of the sale of real property as a "fundamental term", the breach of which would entitle the vendor to bring the contract of sale to an end (at 454). It would follow that there would be no need for equity to intervene by requiring a notice making time of the essence before the failure to pay a deposit could be relied upon by a seller, who had accepted that non-payment as a repudiation, as bringing the contract to an end.
- Mr Small on behalf of the appellant was prepared to acknowledge that this might be the position in the case of a deposit required at the outset of a contract for the sale of land, but nevertheless submitted that it made all the difference that in this case the time for the payment of the deposit was not, as it usually is, at or only shortly after the making of a contract but was as long as 60 working days after the obtaining of planning permission. He submitted, therefore, that the provision ought to be regarded as though payment on any other day would have done as well, and that the choice of 3 March 2011 was inessential. His submission, in other words, was that in such a case the presumption that time was not of the essence would not be rebutted. No evidence was available as to why the parties fixed on that period and therefore that day, but Mr Reynolds, on behalf of the respondent, Mr Samarenko, was prepared to accept that it could be inferred that it had something to do with granting to the appellant (and thus its principal, Mr Watford) a period of time in which to put its financing in order.
- Even on that assumption, however, I am unable to see that the deposit, which was only for the standard ten per cent, expressed to be a deposit, and thus not a mere part payment, should be regarded as losing its essential importance as an earnest, or a guarantee of serious business, and as providing security for the ultimate fulfilment of the contract. After all, this was, as Mr Small accepted, a highly commercial transaction, in which the property concerned was to be demolished and redeveloped. The seller, Mr Samarenko, was entitled to know where he stood, in other words that if the deposit was not paid at the stipulated time then he could terminate the contract and return to the market. If, to recall Lord Macnaghten's phrase, failure to pay the deposit on time called in question whether the appellant meant business, it is difficult to see why there should be any need in equity to grant any further period of grace, or any need to prove that the effect of the failure to pay amounted, with or without a notice to pay, either to a renunciatory refusal to perform the contract (as in Federal Commerce & Navigation Co v. Molena Alpha Inc (The Nanfri)  AC 797) or to a breach the nature of which deprived the seller of substantially the whole benefit which it was intended he should obtain from the contract (as discussed in Hongkong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd  2 QB 26).
- It seems to me that the underlying Standard Conditions of Sale (4th edition) also assist in this analysis (the "Conditions") The Conditions were incorporated in the original agreement, and thus in the supplemental agreement also, save that "Where there is a conflict between the Conditions and this Agreement, this Agreement prevails." Condition 6.1.1 expressly states as to the completion date that "time is not of the essence of the contract unless a notice to complete has been served". There is no such provision in relation to the payment of a deposit (condition 2). On the contrary the underlying terms relating to deposit (admittedly a deposit contemplated as being paid at the outset, and thus in this respect superseded by clause 2) are consistent with the allowance of no period of grace. Thus condition 2.2.1 says that the deposit is to be paid "no later than the date of the contract", and if a deposit is paid by cheque (and only a solicitor's or licensed conveyancer's cheque will do, condition 2.2.4), then the seller may give notice that "the contract is discharged by the buyer's breach" (condition 2.2.2). Although there is the requirement that such notice should be given within seven days of the seller being notified that the cheque has been dishonoured, such a provision is consistent only with the date for payment being an essential date. I have borne in mind the decisions of this court regarding the expression "not later than" in Harold Wood Buck Co. Ltd v Feris  2KB 198 (in the context of a completion date) and in Touche Ross & Co v Secretary of State (1983) 46 P & CR 187 (in the context of the date for a rent review). Neither of those authorities concerned deposits.
- Therefore clause 2 was a condition which rebutted any presumption that time was not of the essence. It follows that there was no further room for the interference of equity or for any requirement of a notice making time of the essence. I too would view Millichamp v. Jones and John Willmott Homes v. Read as unsatisfactory on this issue, and agree that they should be regarded as overruled . I observe that even in those cases, the requirement for payment of a deposit was described as a "fundamental term".
- Having said that, I feel some general uncertainty about the underlying rationale pursuant to which equity does or does not regard the timing aspect of even terms of fundamental importance as being in itself essential. Lewison LJ has shown that equity intervened, by requiring a notice making time of the essence, even where it regarded the common law as imposing a condition, as in the case of the time for completing the sale of land. If therefore I am wrong about the essential nature of the payment of the deposit by 3 March 2011 rebutting the presumption against time being of the essence, then it would be necessary to consider whether Mr Samarenko's notice requiring payment of the deposit in this case by 4 pm on 16 March 2011 succeeded in making time of the essence, thereby, as has been explained, bringing an end to the interference of equity. I am content to answer that question on the basis that, whatever the views and requirements of equity, the common law would always have regarded clause 2 in this case as a condition. In that case, I see no problem whatsoever in regarding the appellant's failure (indeed, its refusal) to pay the deposit within the time stipulated in Mr Samarenko's notice as constituting a failure to meet that deadline and thus automatically amounting to a repudiatory breach of the condition. In such a case there is in my judgment no need to prove a repudiatory or renunciatory breach in the sense in which that concept is discussed in cases such as Hongkong Fir, The Nanfri, Woodar v. Wimpey, Eminence Property Developments and others. The mere failure to meet the reasonably imposed deadline is sufficient proof of the repudiatory breach necessarily constituted by the failure to perform a condition in the time stipulated.
- If, however, I was wrong even to think that clause 2 would, absent the interference of equity, be regarded as a condition, and if, as Mr Small urged on us, we should regard clause 2 as a merely innominate term, breach of which can only be regarded as a fundamental or repudiatory breach depending on that breach's circumstances and consequences, then I would consider that this case could not be decided summarily, without a trial. I do not understand the interference of equity, by means of its requirement for a notice making time of the essence, as being able to impose additional obligations on a party to a contract, only as being able to restrain the common law consequences of a breach of condition pending the serving of a notice making time of the essence. Therefore, if the underlying term in question is innominate only, I very much doubt that the service of a notice stipulating a time for performance, however reasonable, could, in itself, render failure to meet the time stipulated to be a repudiatory breach, although it could provide some evidence towards such a conclusion on the facts of any case. Otherwise, a unilateral notice would have the effect of turning an innominate term into a condition, which seems to me to be likely to be wrong in principle: see United Scientific Holdings at 946/7 per Lord Simon of Glaisdale.
- If we were considering such a situation in this case, then I would regard the somewhat untidy situation on the facts as they stand on the evidence at present as requiring a trial before I could conclude that there was a repudiatory breach. Mr Watford was saying that he had the money, and would pay the deposit by 16 March, but he was requesting an inspection on 14 March to assist him with the obtaining of finance for the purpose of completing the purchase in due course. It is shown that he could, from his own resources, have put the appellant company in funds to pay the deposit. Therefore it is not a case of repudiation by reason of inability to perform. Mr Samarenko on the other hand was refusing an inspection on the basis that his solicitors would not permit one, when in fact they were merely advising him that an inspection was not obligatory. Mr Small does not say that the appellant was prevented by Mr Samarenko from performing his contract by paying the deposit, nor does he say that Mr Samarenko was himself repudiating the contract; but he submits that the refusal of an inspection was unreasonably inhibiting the working out of the contract by placing difficulties in the obtaining of finance, and that Mr Watford was not being unreasonable in any repudiatory sense by thinking that his contract entitled him to request an inspection to assist him in the obtaining of finance. Each party says in effect that the other was stage-managing the situation, so as to trip the other up into a breach of contract. The proof of a repudiatory breach in such a situation is a fact sensitive issue which I think would have to go to trial.
- As it is, for the reasons which have weighed with me on the first two issues, I agree that this appeal must be dismissed.
Copyright Policy |
Donate to BAILII