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||Neutral Citation Number:  EWCA Civ 548
||Case No: A3/2010/2030
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Peter Smith J
||Royal Courts of Justice
Strand, London, WC2A 2LL
||12th May 2011
B e f o r e :
LADY JUSTICE ARDEN
LORD JUSTICE AIKENS
LORD JUSTICE PATTEN
Mr Michael Barnes QC and Mr Jonathan Davey (instructed by Pitmans Solicitors) for the Appellant
Mr Nigel Jones QC and Ms Michelle Stevens-Hoare (instructed by Owen White) for the Respondent
Hearing dates : 12th and 13th April 2011
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Patten :
- The appellant, JM Rowe (Investments) Limited ("Rowe") was in 2007 the freehold owner of some premises at 52 and 52A-56 Watford High Street. On 18th May 2007 it obtained planning permission for the re-development of 52A-56 and the rear part of 52 into a block of 56 flats with an underground car park and with shops on the ground floor fronting on to Watford High Street.
- The property at 52A-56 consisted of shops with an open area to the rear. The adjoining property at number 52 was let to and occupied by Alliance & Leicester plc ("A&L") under two separate leases both dated 15th February 2007. One lease related to the front part of the property; the other to the rear part. The premises were connected internally.
- The leases of 52 were each granted for a term of 10 years from 24th March 2006 but the lease of the rear part included (in clause 52) a break clause which entitled Rowe to determine that lease at any time after 25th March 2007 on the giving of not less than 6 months' notice to the tenant. The clause was included in the lease because it was anticipated by February 2007 that the rear premises at 52 would be required as part of any comprehensive re-development of the site. And on 14th September 2007, following the grant of planning permission and in anticipation of a sale of the development to the respondent BDW Trading Limited ("Barratt"), Rowe gave notice to A&L under clause 52.1 thereby terminating the lease on 18th March 2008.
- On 7th February 2008 Rowe and Barratt entered into an agreement ("the Contract") under which 52A-56 and the rear part of 52 were sold to Barratt with vacant possession for £1.8 million. Under the Contract Barratt was to redevelop the site and then lease back the ground floor shops to Rowe for a term of 999 years at a peppercorn rent. The flats it would dispose of itself on long residential leases.
- The lease of the rear part of 52 contained detailed provisions relating to the separation of the premises from the front part of 52 which was unaffected by the sale and the development. Clause 52 of the lease provided as follows:
"52.1 If the Landlord wishes to terminate this Lease at any time after 25 March 2007 and shall have given to the Tenant not less than six months notice in writing of its intention to do so then on the expiration of such notice this Lease shall absolutely cease and determine but without prejudice to any rights of action or claims of either party in respect of any antecedent breach or breaches of covenant save that the Landlord shall not make any claim against the Tenant in respect of dilapidations.
52.2 In the event that Landlord terminates this Lease in accordance with clause 52.1 it will pay to the tenant the sum of £95,500 to be apportioned as follows:
52.2.1 A capital payment of £68,000
52.2.2 An allowance made by the Landlord against the rent payable by the Tenant in respect of the Adjoining Property in the sum of £27,500
52.3 In the event that the Landlord terminates this Lease in accordance with clause 52.1 the Landlord will at its own expense carry out the Separation Works as defined in and in accordance with the provisions set out in the Fifth Schedule hereto
52.4 For the avoidance of doubt the Landlords obligations set out in the Fifth Schedule hereto shall not merge upon termination of the Lease and shall continue in full force and effect until discharged."
- The Fifth Schedule referred to in clause 52.3 defined the separation works by reference to a description of the works necessary to separate the services and to create separate means of access to the premises. The detail does not matter for the purposes of this appeal. But it is necessary to set out a number of the other provisions:
1.2 "Specification" means the specification detailing the Separation Works to be agreed between the Landlord and the Tenant before the Lease terminates under clause 52.1 (both parties acting reasonably)
1.4 "Landlord's Notice": The notice in writing to be served by the Landlord on the Tenant confirming the date of commencement of the Separation Works for the purposes of paragraph 2 hereof
1.6 "Method Statement" means a method statement and programme for carrying out and completing the Separation Works in accordance with this Schedule
1.7 "Warranties" means BPF form of design and construction warranties form the Contractors and Professional Consultants employed and appointed by the Landlord in respect of the Separation Works
2 The Separation Works
If the Landlord terminates the Lease in accordance with clause 52.1 the Landlord hereby covenants with the Tenant as follows:
2.1 To carry out and complete the Separation Works within twelve weeks of the date specified as the date of commencement of the Separation Works in the Landlord's Notice to the reasonable satisfaction of the Tenant subject to any strikes lock-outs shortage of materials or labour or other services weather conditions inevitable accident emergency Act of God or any cause or circumstances whatsoever beyond the control of the Landlord in which event a reasonable extension shall be agreed between the parties and failing agreement determined by independent expert pursuant to paragraph 6 of this Schedule
2.2 Provide Method Statement and copy of the Warranties for approval by the Tenant before the Separation Works commence such approval not to be unreasonably withheld or delayed
2.3 At least 12 weeks prior to the Landlord commencing the Separation Works the Tenant shall upon the written request of the Landlord attend a pre-contract meeting to discuss and agree (both parties acting reasonably) the scope and method of the Separation Works provided that if the Tenant fails to attend such a meeting after two reasonable attempts to schedule the same the Tenant shall be deemed to have accepted the scope and method of the Separation Works
2.4 To carry out the Separation Works in accordance with all necessary consents and permissions (if any) from the Local or any other Authority and under or by virtue of the Town and County Planning Act 1990 or any statutory modification or re-enactment thereof for the time being in force and any other relevant statutes bye-laws or regulations:
2.4.1 in accordance with the Specification and the Method Statement
4. Deed of Variation
Within 5 working days of the Landlord's Notice or the Tenant's Notice the Landlord shall enter into a Deed of Variation ("Deed of Variation") of the lease of the Adjoining Property to grant the Tenant the following rights:
4.1 A right of way on foot only (in Common with the Landlord) to the rear of the Adjoining Property over such reasonable access route as shall be agreed between the Landlord and the Tenant
4.2 A right of fire escape from the upper floors of the Adjoining Property
4.3 A right to place on the external rear wall of the Premises air conditioning condenser units and associated equipment at least equivalent to those as presently serving the Premises and the Adjoining Property Provided that the location of the air conditioning equipment must first be agreed with the Landlord such agreement not to be unreasonably withheld or delayed
4.4 A right to place and use waste bins placed in an area reasonably designated by the Landlord from time to time
4.5 Any other rights as are reasonably required for the use and enjoyment of the Adjoining Property that might arise as a consequence of the Separation Works
4.6 In both cases the parties shall act reasonably in agreeing the Deed of Variation incorporating the terms of this clause."
- The provisions of clause 52 of the lease and the Fifth Schedule therefore provided a comprehensive scheme for the separation of the rear from the front premises of 52 under which Rowe became liable on termination of the lease to carry out the necessary works in accordance with an agreed specification and method statement and to procure warranties from the contractors and other professionals for the benefit of A&L. The approval of the warranties and the method statement were to precede the commencement of the separation works.
- Against this background Rowe entered into the Contract with Barratt. The sale of the freehold and the agreement that Barratt would carry out the development obviously had to accommodate the obligations of Rowe under the lease of the rear of 52 which had survived the termination of the lease but had not therefore passed to Barratt on its purchase of the property. To this end clause 15 of the Contract provided that:
" The Vendor and the Purchaser agree the following in respect of the Separation Works:
15.1 The Vendor will seek confirmation from Alliance and Leicester Plc ("A & L") that a meeting dated 14 November 2007 between A & L, the Vendor's Surveyor and the Purchaser is agreed as the pre-contract meeting required by clause 2.3 of the Fifth Schedule of the Lease and, if not, the Vendor will as soon as practicable agree a date for a meeting with A & L (and the Purchaser) in accordance with the provisions of the Fifth Schedule of the Lease and the Purchaser will attend such meeting upon being given at least 3 working days notice;
15.2 The Purchaser will provide the Specification (as defined in the Fifth Schedule of the Lease) and the method statement and warranties referred to in clause 2.2 of the Fifth Schedule to the Lease within 8 weeks of the date of this Agreement and the Vendor will request approval of them in writing by A & L in accordance with the provisions of the said clause 2.2;
15.3 As soon as the Vendor receives from A & L the executed Deed of Variation (as defined in paragraph 4 of the Fifth Schedule of the Lease ("Deed of Variation") in readiness for completion of it the Vendor will notify the Purchaser in writing.
15.5 The Vendor and the Purchaser agree to use all reasonable endeavours to agree the Deed of Variation and carry out the provisions of this clause 15 as quickly and expeditiously as reasonably practicable after the date of this Agreement
15.6 The Purchaser agrees and covenants it shall carry out the Separation Works in accordance with the provisions contained in the Fifth Schedule of the Lease and the agreed method statement as referred to in clause 6.2 to the reasonable satisfaction of the Vendor's Surveyor (acting reasonably) and the Purchaser shall indemnify the Vendor against all costs claims actions and losses directly suffered by the Vendor arising out of any breach of this obligation save where the Purchaser is unable to comply with such obligations due to any act or omission by the Vendor or the Tenant."
- Contractually therefore A&L continued to look to Rowe for the purposes of the specification, the method statement and the warranties and for the execution of the separation works. A&L never came into a contractual relationship with Barratt. But, as between Rowe and Barratt, the latter undertook in effect to fulfil Rowe's obligations under clause 52.3 of the lease and the Fifth Schedule.
- The completion date specified in the Contract was 1st July 2008 but clause 6.2 contained a series of conditions which had to be met before Barratt could be compelled to complete. If those conditions were not satisfied within 5 months of the Contract (i.e. by 7th July 2008) then either party became entitled to rescind. The construction and effect of these provisions lies at the heart of this appeal and I set them out in full:
"6.2 The Purchaser shall be entitled to refuse to complete until such time as:-
(i) the Vendor's Solicitors provide written confirmation to the Purchaser's solicitors that a form SDLT1 has been duly completed and submitted to the Inland Revenue in respect of the determination of the Lease with a copy of such form and the electronic receipt once received and
(ii) an application has been submitted to the Land Registry for the closure of the leasehold title number HD467416 and removal of the Lease from Title Number HD4668718 and a copy of the application has been provided to the Purchaser's solicitors together with a written undertaking from the Vendor's solicitors to the Purchaser's solicitors to use reasonable endeavours to deal with any requisitions raised by the Land Registry as soon as practicable, and
(iii) the Deed of Variation has been completed or is ready to be completed simultaneously with completion of the sale and purchase of the Property and the Deed of Variation executed by A & L (as defined in clause 15) is being held by the Vendor's solicitors and has been released to the Vendor's solicitors by A & L's solicitors and the method statement and all matters to be agreed with or approved by A & L pursuant to the Fifth Schedule of the lease have been agreed or approved by A & L the Vendor and the Purchaser in writing (and the Vendor and the Purchaser shall act reasonably and use all reasonable endeavours to agree such matters), and
(iv) The Vendor's solicitors have confirmed in writing that they are holding an original signed letter from the Vendor addressed to the Purchaser (in a form previously approved by the Purchaser's solicitor as shown attached at Appendix 1) confirming the vesting of the copyright of all plans in respect of the Planning Permission in the Purchaser together with the original letter date 9th January 2008 from W Griffiths & Glass (copy attached at Appendix 2) and have undertaken to send both letters to the Purchaser's solicitors on the Completion Date
(v) the Vendor has provided a written consent for the Purchaser to temporarily oversail the Retained Land (as defined in the Transfer) and to erect temporary scaffolding abutting the Retained Land and bridging across part of the roof of the building on the Retained Land during redevelopment of the Property pursuant to the Planning Permission provided that neither such oversail rights nor such scaffolding materially interferes with the access of light or air to the Retained and the Adjoining Land (as defined in the Transfer) together "the Land" or with any other right or easement and so that pedestrian access and vehicle deliveries to the High Street entrances of the buildings on the Land and supplies of water gas electricity telecoms and drainage are maintained to the Land and otherwise in a form agreed by the parties (acting reasonably), and provided further that all or any damage caused to the Land shall forthwith be made good by the Purchaser at its own cost to the reasonable satisfaction of the Vendor and
(vi) the Vendor's solicitor has confirmed in writing that all sums due to A & L as a result of the Vendor terminating the Lease (being a capital payment of £68,000 and an allowance of £27,500 under their lease of the adjoining property) have been paid in full to A & L and receipt has been acknowledged in writing (a copy of which has been provided to the Purchaser's solicitors)
Provided That the Vendor or the Purchaser shall be entitled to rescind this contract by serving written notice on the Vendor at any time if the matters referred to in paragraphs (i)-(vi) above have not occurred within 5 months of the date hereof (save where the party purporting to serve such notice is in default of its obligations under this clause 6.2) whereupon this Agreement shall automatically determine (and the Deposit shall be returned to the Purchaser)."
- The wording of the proviso to clause 6.2 was the subject of some late manuscript amendments which extended the right to rescind to the vendor and introduced the words in parenthesis. The changes are shown in italics. The consequences of the amendments were not fully thought through so that the reference in the second line of the provision to the vendor must, I think, also be read as including the purchaser following the amendment to line one. However, the issues between the parties do not turn on these minor omissions in the drafting but on their different construction of the words used.
- On 25th November 2008 Barratt served written notice on Rowe purporting to rescind the contract by reason of Rowe's failure to satisfy the condition in clause 6.2(vi) by 7th July 2008. The decision to terminate the Contract was taken for purely commercial reasons unconnected with any breach by Rowe of its obligations under the Contract. Following the downturn in the housing market, Barratt had calculated that the development was likely to be unprofitable and wanted to find a way out of it. But its reasons do not matter. The right to rescind conferred by clause 6.2 does not depend upon Barratt having any particular intention or justification beyond the non-fulfilment of one or more of the clause 6.2 conditions. If that is established then prima facie the right to rescind is exercisable without more.
- It is common ground that as of 7th July 2008 Rowe had not made the specified payments to A&L which fell due on the termination of the lease nor (therefore) had it given to Barratt written confirmation of that fact. The reason for this was that Rowe had in February 2008 agreed with A&L that it could remain in occupation of the rear part of no. 52 as a tenant at will following the termination of the lease on 18th March and a formal agreement for a tenancy at will was executed on 20th March. Barratt was agreeable to A&L continuing in possession until 23rd June after which it was anticipated that completion would take place. At the same time there was an exchange of side letters between Rowe and A&L under which they agreed to postpone the payment of the £95,500 compensation due under clause 52.2 of the lease but Rowe accept that Barratt was not informed about this or asked to agree to it.
- Rowe does not accept that the notice served on 25th November 2008 was effective to terminate the Contract. It contends that, on a proper construction of clause 6.2(vi), there were no sums due to A&L as of 7th July either because the sums did not become payable under the lease until A&L gave vacant possession of the premises or because it had been agreed by Rowe that payment of the monies should be postponed until after then. Clause 6.2(vi) is said only to require confirmation to be given when payment is due and that it is otherwise inapplicable.
- Next it is said that the right to rescind cannot be exercised if the non-fulfilment of the condition in clause 6.2(vi) was due in some material part to a breach by Barratt of its own obligations under the Contract. Under clause 15.2 Barratt was to provide the Specification, method statement and warranties by 3rd April 2008. It is common ground that it did not do this. The first version of the specification and the method statement was not sent out until 21st April. The warranties were sent to A&L on 24th June. It is said that these delays made it sensible that A&L should be allowed to remain in occupation of the rear of 52 after 18th March. In these circumstances, the payment did not fall due because vacant possession was not given by 7th July. The breaches were therefore causative of Rowe's non-compliance with the condition in clause 6.2(vi) of the Contract.
- Barratt contends that it is not prevented by the breaches of clause 15.2 of the Contract from serving a valid notice under clause 6.2. It submits that the implication of the term contended for by Rowe is excluded by the words in parenthesis which were added to the proviso by amendment. It also denies that the breaches relied on were responsible in any material way for Rowe's failure to pay the £95,500 to A&L. It became payable on the termination of the lease, not on the giving of vacant possession and could in any event have been paid by Rowe before 7th July.
- Barratt does, however, accept that the service of a valid notice under clause 6.2 depended on its not being in breach of any of its obligations under clause 6.2 at the date of service of the notice. Rowe rely on there being at least one subsisting breach of clause 6.2 as of 25th November 2008. It is said that Ms Stephanie Bishop, the solicitor at Messrs Owen White who was acting for Barratt, adopted a mistaken and wrong view as to whether her client was obliged under the Contract to procure warranties that were directly enforceable by A&L as opposed to Rowe and that she persisted in this stance up to and including the service of the notice. This is alleged to have amounted to a breach by Barratt of its obligation under clause 6.2(iii) of the Contract to act reasonably and to use all reasonable endeavours to agree all matters which require to be agreed with A&L under the Fifth Schedule to the lease.
- If it is wrong about this, Rowe contends as a further alternative that the right to rescind which Barratt purported to exercise on 25th November had by then been lost as a result of it having elected by its conduct after 7th July not to rescind the Contract based on Rowe's failure to give the confirmation of the payments referred to in clause 6.2(vi). The conduct relied on is the continuing attempts to agree the specification, method statement and warranties which subsisted up to 25th November.
- On 4th February 2009 Barratt issued the claim form which seeks the return of the deposit of £180,000 paid on exchange of contracts. Rowe counterclaimed seeking specific performance of the Contract or, in the alternative, damages.
- On 19th March 2010, shortly after the trial was due to start, Barratt served a second notice of rescission based on clause 6.2(iii) of the Contract. The notice was served without prejudice to the validity of the notice of 25th November 2008 and relied on the warranties supplied by Barratt not having been agreed by 7th July. It is, I think, common ground that nothing materially changed between the service of the first notice and the service of the second so that the second notice will only assist Barratt if the first notice is held to be ineffective on the sole ground that there were no sums due to A&L as of 7th July or if any finding of election can be confined to the grounds upon which the 25th November notice was served.
- The action was tried by Peter Smith J who delivered judgment on 30th July 2010 in favour of Barratt and dismissed the counterclaim for specific performance and damages: see  EWHC 1987 (Ch). Rowe now appeal against that order with the permission of Mummery LJ. In addition to the points I have already mentioned, there was a challenge at the hearing to the judge's refusal to order an inquiry as to damages in respect of the admitted breaches of clause 15.2 of the Contract in relation to the late delivery of the specification, method statement and warranties. Mr Barnes QC for Rowe submits that even if his client is wrong about the application of what I shall call the own wrong principle to the Contract and is also wrong about the breach of clause 6.2(iii) and election, it is nonetheless entitled to damages for the loss which it has sustained by these breaches of the Contract. This claim depends (at the very least) on establishing that the April breaches caused Rowe's failure to make the payments to A&L by 7th July. As explained earlier, this same point arises in relation to the own wrong principle and I will return to it after considering the issues of liability. Mr Jones QC for Barratt also contends that this point is not open to Rowe on its notice of appeal. Again I will postpone further consideration of this obligation until later.
- The first issue to consider is the construction of clause 6.2(vi) and Rowe's argument that the right to rescind could not be exercised on the basis of a failure by them to give the confirmation referred to by 7th July 2008.
- The reference to "all sums due to A&L as a result of the Vendor terminating the Lease" concentrates on the sums which became due and payable under clause 52.2 of the lease. The obligation to pay arises "in the event that (Rowe) terminates the lease in accordance with clause 52.1". Termination under that clause was effective on the expiration of the landlord's notice on 18th March 2008.
- The Contract was entered into before the termination of the lease and the grant of the tenancy at will and makes no reference to those arrangements or to the agreement between Rowe and A&L under which the payment of the £95,500 was postponed. It is contingent only on the performance of clause 52 of the lease and therefore assumes that the monies became payable in accordance with those provisions. I can see no basis for reading the words "as a result of the Vendor terminating the lease" as including any subsequent arrangements between Rowe and A&L entered into for their mutual convenience. That would give to Rowe the power to avoid any possible rescission by Barratt for non-compliance with clause 6.2(vi) simply by agreeing with its former tenant to extend the time for payment. Clause 6.2 is concerned with setting a long-stop date for the finalisation of the matters on which Barratt's liability to complete depends and to give it (and Rowe) a right to rescind if that deadline is not met. The ability of Rowe to limit this right unilaterally by agreement with A&L seems to me quite inconsistent with the terms and the obvious commercial purpose of clause 6.2.
- I also reject Mr Barnes' submission that the payment of the £95,500 was, under the lease, conditional on the giving of vacant possession by A&L. There is no provision to this effect in clause 52.2 and I can see no reason for implying one. But the argument (even if correct) does not assist Rowe. There is no reason to suppose that A&L would not have quit the rear premises at 52 had Rowe not offered to extend its period of occupation by the grant of the tenancy at will. Its continued possession of the premises was attributable to the arrangements made with Rowe following the expiry of the notice on 18th March. Rowe's reliance on A&L's failure to give vacant possession as preventing the £95,500 from becoming due under the lease is therefore open to the same objection. The postponement was the result of the later arrangements made between Rowe and A&L and is not within the ambit of clause 6.2(vi) of the Contract.
- There is also, I think, a more fundamental objection to the construction which Rowe seeks to put on clause 6.2(vi). Its argument concentrates on the words "sums due" but the satisfaction (or not) of the condition depends on whether Rowe's solicitor has given confirmation in writing that the £95,500 has been paid. The structure of clause 6.2 is that all of the conditions have to be satisfied before Barratt is obliged to complete and that the non-satisfaction of any of them by 7th July entitles either party to rescind. The question therefore in each case is simply whether what is referred to in each condition has been done, not whether it was legally or practically possible to do it within the agreed timescale. Those obligations are only relevant (if at all) to the proviso to clause 6.2 which prevents the service of a notice of rescission if the party in question remains in breach of its obligations under that clause. They are not relevant to whether or not the condition was, as a matter of fact, satisfied by 7th July.
- It is accepted by Rowe that the £95,500 was not paid by that date and that notice could not have been and was not therefore given to Barratt. It must follow that (subject to Rowe's other points) the right to rescind became exercisable under clause 6.2(vi) after 7th July 2008.
Reliance on own wrong
- The second issue is whether Barratt was deprived of its right to rescind based on the non-satisfaction of clause 6.2(vi) (or, under the second notice, clause 6.2(iii)) because of its own breaches of the Contract which occurred in the period up to 7th July. It is accepted by Mr Barnes that, in order to rely upon this principle, Rowe must show a causal link between the breaches relied on and the non-satisfaction of the condition which Barratt relies on as the basis of its right to rescind.
- Before coming to this issue of causation it is important to identify the legal principle which Rowe relies upon to bring into account breaches of the other provisions in the Contract apart from clause 6.2 itself. It is stated in Chitty on Contracts (30th edition, 2008) at para 12.082 that:
"Party Cannot Rely on His Own Breach
It has been said that, as a matter of construction, unless the contract clearly provides to the contrary it will be presumed that it was not the intention of the parties that either should be entitled to rely on his own breach of duty to avoid the contract or bring it to an end or to obtain a benefit under it. This presumption applies only to acts or omissions which constitute a breach by that party of an express or implied contractual obligation, or (possibly) of a non-contractual duty, owed by him to the other party….".
- This statement of the principle is largely derived from the speech of Lord Diplock in Cheall v A.P.E.X.  2 AC 180 at p. 188 who said that:
"In the course of the speeches, which are not entirely consistent with one another, [in the New Zealand Shipping case  AC 1] reference was made by all their Lordships to the well known rule of construction that, except in the unlikely case that the contract contains clear express provisions to the contrary, it is to be presumed that it was not the intention of the parties that either party should be entitled to rely upon his own breaches of his primary obligations as bringing the contract to an end, i.e. as terminating any further primary obligations on his part then remaining unperformed…."
- Although there has been a certain amount of academic discussion as to whether the principle has the status of a rule of law which is imposed upon the parties to a contract almost regardless of what they have agreed, it is now clear as a matter of authority that the application of the principle can be excluded or modified by the terms of the contract and that its scope in any particular case will depend upon the construction of the relevant agreement.
- In the present case the proviso to clause 6.2 which creates the right to rescind is expressly subject to the restriction that notice of rescission may not be served when the party in question is in default of its obligations under clause 6.2. This is the only express limitation on the right to rescind ("save where") and it raises the issue of whether, as a matter of construction, this operates to exclude any wider disability based on a breach of the Contract which brought about the non-satisfaction of the condition relied upon in the notice to rescind.
- The principle that one cannot rely upon one's own breach of contract as a ground of rescission means in this case that the focus is on events leading up to 7th July rather than the time when the right to rescind was exercised in November. This is simply the product of the mismatch between the date which was inserted in the proviso for satisfaction of the clause 6.2 conditions and the express right of the parties to rescind the Contract on those grounds "at any time". But the structure of the clause is that any qualification to the right to rescind would have to be added by way of parenthesis in addition to the words already included which refer to breaches of clause 6.2. This therefore requires one to attribute to the parties an intention to have made a further significant reservation on their shared right to rescind even though they chose in express terms to limit their rights in one particular way.
- Some reliance is placed by Mr Barnes on Lord Diplock's reference to the need for there to be clear words before the implication of a term embodying the own wrong principle is excluded. But I think that this formulation needs now to be read and considered in the light of the later authorities on the correct approach to the construction of contracts and the implication of terms.
- In Richco International v. Alfred C. Toepfer International  1 Lloyd's Rep. 136, Potter J (as he then was) said this at p.144:
"I am prepared to accept the principle as stated in Chitty subject to the reservation that as an exercise in construction the requirement of 'clear express provisions to the contrary' should not be read as meaning more than a clear contractual intention to be gathered from the express provisions of the contract."
- This approach is, I think, consistent with the recent guidance on the implication of terms contained in the decision of the Privy Council in A-G of Belize v Belize Telecom Ltd  UKPC 10 where Lord Hoffmann, building on what he said in Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, said:
" It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
 In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was "not . . . necessary to review exhaustively the authorities on the implication of a term in a contract" but that the following conditions ("which may overlap") must be satisfied:
"(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3) it must be so obvious that 'it goes without saying'
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract."
 The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant."
- It seems to me that when the parties in clause 6.2 have positively selected the breaches of contract which will debar them from being able to rescind the contract and have indicated in the language used that the qualification is an exhaustive one, it is difficult to attribute to them an intention to include some wider provision. We were referred by Mr Barnes to the decision of the Privy Council in New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France  AC 1 as providing an example of a contract in which the right of the shipbuilders to terminate the contract due to their inability to complete the vessel by the agreed delivery date was construed as not including a case where their failure to complete the construction in time was due to their own default.
- I do not find this of much assistance in the present case. It concerns very different contractual provisions and the different question of whether the automatic termination of the contract in the event of delayed completion should be read as including delay due to some unjustifiable failure on the part of the shipbuilders. Here the question is whether an express exclusion of the right to rescind in the event of a particular type of breach of contract should be treated as exhaustive. That question has to be answered in the context of the contract under consideration.
- The Contract is a commercial agreement negotiated and drafted with the benefit of legal advice over a period of time. It seems to me that the reasonable man reading the document with a knowledge and understanding of the transaction to which it relates would regard the words contained in parenthesis in the proviso to clause 6.2 as comprising the only circumstances in which either party could be precluded from exercising its right to rescind based on a breach by them of the Contract. The irresistible inference is that had any wider qualification been intended, it would have been spelt out expressly. The opening words "save where" are inconsistent with the implied term for which Rowe contends and it cannot, in my view, be accommodated within clause 6.2.
- This makes it strictly unnecessary to consider the issue of causation in relation to the own wrong principle but, because it is also relevant to the issue of damages, I set out my conclusions on this as well.
- Rowe relies on four alleged breaches of clause 15.2 of the Contract by Barratt in the period prior to 7th July. They are:
(i) its failure to provide the warranties by 3rd April 2008. They were not sent out until 24th June;
(ii) the form of the warranties sent out. They are said not to have been in the required BPF form and to have contained provisions for assignment which were meaningless;
(iii) Barratt's failure to deliver the specification and method statement by 3rd April. These were not sent out until 21st April; and
(iv) Barratt's failure to provide a complete version of the specification and method statement until 4th July.
- The late delivery of these documents was undoubtedly a breach of clause 15.2 of the Contract but the allegation about the form of the warranties delivered is less straightforward. Clause 15.2 required Barratt to provide the warranties referred to in clause 2.2 of the Fifth Schedule to the lease. These are the warranties described in paragraph 1.7 of the Fifth Schedule which refers to their being in the BPF form. An examination of the standard BPF form of warranty indicates that it would not have been suitable for use in relation to the separation works without considerable amendment. It is formulated in terms of a purchase or an agreement for a lease and not a project of this kind. There was therefore an exchange of correspondence and e-mails between Owen White (the solicitors for Barratt) and Pitmans (Rowe's solicitors) from October 2007 onwards about the form of warranty to be used and by January 2008 (one month before the Contract was signed) the current draft had already changed considerably from the standard BPF form. The version sent out to A&L on 24th June 2008 was in fact the fourth version of the warranties and they continued to be negotiated right through until 24th November 2008; the day before the notice of rescission was served. Barratt therefore contends that any breach occasioned by the form of the warranties initially provided to A&L was waived by Rowe in the negotiations which followed.
- Barratt's obligations under the Contract in respect of the provisions of the specification, method statement and warranties do not, of course, stop with their delivery under clause 15.2. It was also subject to the obligation contained in the concluding words of clause 6.2(iii). The requirement that it should act reasonably and use all reasonable endeavours to agree "such matters" is a reference back to the method statement and the other matters which are required to be agreed with or approved by A&L pursuant to the Fifth Schedule of the lease. This must be a reference to paragraphs 2.2 and 2.3 of the Fifth Schedule which require the method statement and warranties to be provided to A&L for its approval and for the separation works to be agreed in advance of their being carried out. Under paragraph 1.2 of the Fifth Schedule the specification should have been agreed between Rowe and A&L prior to the termination of the lease on 18th March but it is not suggested that Barratt contracted to meet that deadline. The highest it can be put is that the three classes of documents should have been supplied by 3rd April in accordance with clause 15.2 of the Contract and that Barratt was then under an obligation to use reasonable endeavours to agree them with Rowe and A&L prior to the execution of the separation works.
- Although Barratt's use of reasonable endeavours is challenged as of 25th November 2008 in relation to the service of the first notice of rescission, it is not part of Rowe's case that Barratt was in breach of clause 6.2(iii) in the period up to 7th July. The judge therefore refers (in paragraph 135 of his judgment) to the clause 15.2 breaches which occurred on 3rd April 2008 as having been rectified before the right of rescission arose presumably (although he does not say so) on 7th July. By this I take him to mean that the documents had by then been delivered to Rowe and A&L. But that was not performance in accordance with the Contract and could not alter the fact that the breaches had occurred with whatever consequences that might produce.
- Mr Barnes submits that the judge's reasoning overlooks the impact of their late production on the payment by Rowe of the £95,500 due on the termination of the lease. He does not dispute that it was open to Rowe to make the necessary payments and to give written notice to Barratt by 7th July. But the issue he says is whether the breaches were a major contributory factor to these things not being done.
- As indicated earlier, the reason why the money was not paid by 7th July was that A&L (with Barratt's consent) were allowed to remain in occupation and Rowe agreed with A&L (without Barratt's consent or knowledge) that the payment of the money should be postponed. Mr Barnes submits that the first of these arrangements (the grant of the tenancy at will) was a sensible measure in the light of the delay in producing the specification and other documents and the knock-on effect this would have on the timetable for the works. In these circumstances, it was reasonable for Rowe and A&L to agree to the postponement of the payment of the £95,500 until possession was actually given up.
- I am not able to accept these submissions. The £95,500 fell due upon the termination of the lease on 18th March 2008. This was before the deadline of 3rd April set for the delivery of the specification and other documents under clause 15.2 of the Contract. Nor was the payment of the £95,500 linked under the lease to the delivery of the specification and other documents and the carrying out of the separation works. The provisions of the Fifth Schedule came into effect on the termination of the lease and are unrelated to Rowe's obligations under clause 52.3.
- Rowe's obligation to pay the money to A&L was a liability which arose under a contract to which Barratt was not a party and which had no contractual impact on the obligations which Barratt had to perform under its own contract with Rowe. Rowe was therefore obliged to pay the money on or after 18th March and accepts that it could have done so. It did not seek the agreement of Barratt to the postponement of the payment and the postponement was not the necessary consequence of the grant of the tenancy at will as between Rowe and A&L. Even on the test of causation postulated by Mr Barnes (as to which I express no concluded view) it cannot be said that Barratt's breaches of clause 15.2 of the Contract were responsible for Rowe's failure to pay the £95,500 by 7th July.
The validity of the first notice
- The next issue is whether Barratt was prevented from exercising its right to rescind based on clause 6.2(vi) because, as of 25th November 2008 when the notice was served, it remained in breach of its obligations under clause 6.2. The only obligation under clause 6.2 placed upon Barratt was the obligation to act reasonably and to use all reasonable endeavours to agree the matters referred to in clause 6.2(iii). I have already explained (in paragraph 43 above) what this refers to.
- The judge made a series of findings which exonerated Barratt and its solicitors from any alleged failure to comply with this obligation. With the exception of one issue which I will come to shortly, his analysis of the evidence is expressed in general terms but he found that both parties acted in good faith and did their best to satisfy the clause 6.2 conditions with a view to the Contract becoming unconditional; that they continued to negotiate in that way both up to and after 7th July; and that although the form of the warranties was not finally agreed by 24th November, this was the fault of neither party. He therefore held (in paragraph 116) that Barratt was not in breach of any duty under clause 6.2 at the time when it served the first notice.
- Although Rowe submitted to the judge that there were at least ten aspects in which Barratt was in breach of clause 6.2 as of 25th November, only one of those issues is pursued on this appeal. This concerns the stance taken by Owen White in relation to the form of the warranties. Mr Barnes has, however, raised as a separate matter the judge's criticisms of the honesty of Mr Alan Horn who was the solicitor to A&L in 2008 and gave evidence at the trial. It is common ground that the judge's conclusions about Mr Horn's conduct are not decisive of any issues on this appeal but we have been asked to consider whether the judge was right to have made the findings which he did in relation to the conduct of a solicitor whose integrity was not criticised by either party at the trial.
- The alleged breach in respect of the warranties centres on a sequence of e-mails passing between Ms Stephanie Bishop of Owen White and Mr Paul Murray of Pitmans between 20th and 24th November 2008. As I mentioned earlier, the standard form BPF warranty could not be used in relation to the separation works without amendment. By late October the travelling draft had reached a stage at which both Rowe and A&L were parties to the warranty agreement and the warranties were given by the contractors to both of them.
- One issue which arose during the negotiations about the form of the warranties was their assignability. The original drafting on Barratt's side was carried out by Mr Joel Day, one of its technical managers who had no legal training. He provided for A&L as the tenant to have the benefit of the warranties but made no provision for A&L's assignees. Mr Horn, A&L's solicitor, amended the reference to the Tenant so as to include "its successors in title and permitted assignees under this Agreement". In the drafts of the warranty agreement up to the end of October there was no provision which restricted the number of persons to whom the benefit of the warranty could be assigned but Rowe was given (under clause 7) an unlimited right to assign the benefit of the warranty to the tenant and any financiers of the development. However, the inclusion in the definition of the tenant of a reference to its successors in title meant that the benefit of the warranties could pass indefinitely to any assignees of A&L's lease.
- The judge found that this was not something which Barratt intended and that Mr Horn and Mr Paul Murray of Pitmans (who became involved in the drafting after 11th August 2008) took advantage of Mr Day's inexperience in this respect. In paragraph 60 of his judgment he said this:
"In my view Mr Murray and Mr Horn exploited Mr Day's lack of legal expertise. The drafts dealing with the assignment of the warranties as drafted by Mr Day were inadequate because there was lack of clarity as to who was to have the benefit of the warranties. Initially Mr Day drafted it with the word "tenant" in it. Mr Horn changed that by extending the definition of tenant to extend to assignees. This had the effect of potentially allowing an unlimited number of assignments. Mr Day plainly did not appreciate that. Mr Horn (see his email of 20th August 2008 to Mr Day) sought that the warranties be given for the benefit of A & L and reinstate the word "Tenant" and an extended definition of the word tenant to include "successors in title and permitted assignees under this Agreement" that had the effect of meaning that anybody who stood in the shoes of a tenant also had the benefit of the warranty. Plainly that was never something Barratt contemplated and both Mr Horn (and later Mr Murray) knew that. In his email of 15th August 2008 for example to Mr Day Mr Horn expressly referred to a maximum of two assignees being permitted. The changes introduced by Mr Horn removed by stealth that limitation."
- This brings us to the events of November relied on as constituting a breach of contract by Barratt. On 20th November Mr Murray produced a new document in the form of a deed between Rowe, A&L and Barratt under which Barratt agreed to provide the completed warranties from the contractors to Rowe and A&L in the form annexed to the deed. The purpose of this document was not obvious because Barratt was already obliged to procure and agree the warranties under clause 15 of the Contract. But the real significance of the document for present purposes is that it utilised the draft warranty agreements which did not limit the number of potential assignees. Barratt and its contractors had always been willing to allow a maximum of two assignments which was what the standard form of BPF warranty agreement provided for. But the execution of the deed in this form would have committed it to providing contractors' warranties which had no such restriction.
- Ms Bishop replied to Mr Murray about 30 minutes after receiving his e-mail with the draft deed saying that she did not think that the deed was necessary. She went on:
"As I pointed out in September, the contract for the execution of the separation works is the contract Barratt and JM Rowe. At clause 15.6 Barratt covenants to carry out the works in accordance with the Deed of Variation. This contract was negotiated at length.
You may recall that I advised that, whilst Barratt has agreed that the A&L may be added as a party to the warranties (in an attempt to get these settled), this is not contractually correct. Barratt is being employed by JM Rowe to do the separation works. JM Rowe is to procure the warranties under the obligations as Landlord. Technically Barratt should only be providing warranties to their employer (JM Rowe) which JM Rowe could then assign to their Tenant.
As part of its obligation to carry out the separation works Barratt will supply the agreed form of warranties to JM Rowe so that they can comply with their obligations as Landlord under the terms of the lease."
- Some ten minutes later Mr Murray replied in these terms:
"I note your comments and am slightly surprised at your interpretation of the warranties (whose form you have after all agreed) where you seem to suggest that A&L could only take the benefit of the warranties in circumstances where the warranties were assigned to them by JM Rowe. In this respect can I draw your attention to clause 1 of each of the warranties where it reads "the Warrantor warrants and undertakes to the Employer and the Tenant" i.e. a direct warranty to both JM Rowe and A&L.
Whilst I feel that strictly speaking JM Rowe do not require the warranties from the consultants since they can revert to BDW under the terms of the agreement of the 7th February, if there is any problem with the Separation Works, without recourse to the consultants. However you will appreciate that both the agreement between our clients and the 5th Schedule of the surrendered lease assume that warranties will be provided to A& L and all the attached document does is give effect to that agreement.
In the light of the above can I ask you to reconsider your stance on the deed of agreement which after all is a completely uncontroversial document and one reasonably necessary to give effect to the intentions of the parties."
- Finally, in the sequence, is the following response from Ms Bishop:
"Please could you explain to me why this is not therefore already dealt with in clause 15.6 of the contract dated 7th February 2008?"
- There is a dispute between the parties as to precisely what Ms Bishop was objecting to in her first e-mail of 20th November. In terms, she seems to be querying whether her client was required to provide warranties in favour of both Rowe and A&L. But, in response to the reply from Mr Murray which made the point that it had already been agreed that the warranties should include A&L as a beneficiary, she seems to revert to a different point which is whether the deed is necessary given the terms of clause 15.6 of the Contract.
- Mr Barnes submits that, on a fair reading of these exchanges, Ms Bishop on behalf of Barratt was refusing to agree to warranties made directly in favour of A&L. This, he says, was unreasonable and in breach of both clause 15 and clause 6.2(iii) of the Contract. Mr Jones says that there was never any objection by Barratt to making A&L a party to the warranties as the drafts show. Everything had been agreed except in relation to the issue of assignability. Ms Bishop's principal response was that the supplemental deed was unnecessary. But, in her reply to Mr Murray, she confused the form of warranty to be given to Rowe and A&L in respect of the separation works with the warranties which were to be given to Rowe on the lease back by Barratt of the re-developed commercial premises.
- This was confirmed by Ms Bishop who, when cross-examined about the e-mails of 20th November, accepted that her response to Mr Murray was wrong. But it was not put to her that Barratt was refusing to provide contractors' warranties directly in favour of A&L in respect of the separation works and it is clear from her evidence that once she had concentrated on the correct point she would have accepted this. Based on this material, the judge was right in my view to hold that there was no subsisting breach by Barratt of its obligations under clause 6.2(iii) when it gave the first notice of rescission on 25th November. The e-mails relied on amount to a brief exchange prompted by the introduction of a document, the principal purpose of which seems to have been to tie Barratt down to a form of warranty agreement which was freely assignable. However ineptly Ms Bishop may have handled this issue, it is impossible to regard her confusion over the relevant parts of the Contract as anything but a temporary slip which did not alter the willingness of Barratt to provide contractors' warranties in favour of both Rowe and A&L. Mr Murray clearly did not regard Ms Bishop's e-mail as an accurate or final response on the issue of two beneficiaries and he was right to do so.
- It is convenient at this stage to say something more about the position of Mr Horn. Barratt's decision to serve notice of rescission on 25th November meant that the issue about the assignability of the warranties was never resolved. But, in his judgment, Peter Smith J expressed serious criticisms of what he regarded as the attempt by Mr Horn and Mr Murray to take advantage of Barratt's failure to spot that under the draft warranty agreements being circulated, A&L were not limited to two assignments. In paragraphs 63-5 the judge said this:
"63. Paul Murray challenged that in an email of 20th November 2008 (timed 12:25). On 24th November 2008 timed 11:05 Mr Horn had sent an email to Mr Murray and had copied in Ms Beidas (of Owen White). He was referring to the draft that he had created back in July/August. He said "however for the purpose of the warranties I believe it would be preferable that a specific right for A & L to assign is expressly set out". Ten minutes later Mr Murray replied to Mr Horn and copied in David Gough. He said this "do you think it is sensible to draw their drafting errors (which after all benefit your client) to Owen White's attention?"
64. This to my mind was an attempt (in which Mr Horn participated) to have Barratt sign a document where the definition of tenant meant that the assignments potentially could exceed two. They both knew that this was not what Barratt had ever agreed or intended. Mr Murray justified this as getting the best for his client.
65. It is clear from the evidence of Mr Murray and Mr Horn that they were setting a trap whereby they hoped that Barratt would inadvertently agree to unlimited assignments. I refer to the cross examination of Mr Murray (T4) and Mr Horn (T5). To my mind this is unacceptable. All that it would do would be to create an ambiguity in the understanding of the parties which ultimately, if it became important, would have led to more litigation and claims for rectification. Lawyers who are instructed to draft documents do it for the purpose of avoiding litigation, not creating it. Mr Horn acknowledged this. He was quite willing to concede to the assignment point knowing that is what Barratt wanted if Barratt came back but they never did. He acknowledged that this is the kind of attitude that would create litigation in the future (T5/69/20;T5/82-84). In particular he clearly took on board Mr Murray's suggestion about silence."
- Mr Barnes has asked us to re-consider the judge's findings in respect of Mr Horn. It is clear that Mr Horn sent an e-mail to Mr Murray on 24th November asking for the draft warranty agreements to be amended so as to include an express right for A&L to assign the benefit of the warranties to its successors in title. This would have made it clear to Barratt precisely what A&L was seeking to achieve. Mr Horn also said in evidence that the omission of a limitation on assignments in the earlier versions of the warranty agreement was an error. Both counsel agree that it was never suggested to Mr Horn that he had acted in a shifty way or tried to trick anybody. There was therefore no proper basis for the findings which the judge made.
- I have some sympathy with these submissions and my own view is that the judge may well have been over harsh and unjustified in his assessment of Mr Horn. But I think that it is difficult to take the matter further than that. We have not been taken in detail to the relevant evidence because, as Mr Barnes recognises, this issue is not relevant to Rowe's appeal. In these circumstances, it must be left there.
- For the reasons explained above, Barratt's right to rescind under clause 6.2 arose when Rowe failed to give notice of the payment of the £95,500 by 7th July. It also arose because the deed of variation had not been completed by then nor had the warranties been agreed but I propose to concentrate for the moment on the first notice based on clause 6.2(vi).
- The consequence was that Barratt (and Rowe) became contractually entitled to rescind the contact "at any time" by the service of a notice. This is not a right exercisable in the event of a breach of the Contract by Rowe. It is an option given to the parties to terminate their contractual relationship on the non-fulfilment of certain conditions by a specified date. If not exercised the Contract will continue to be enforceable according to its terms.
- Rowe contend that the effect of its failure to serve written notice of the payment in satisfaction of the condition in clause 6.2(vi) was to put Barratt to an election between rescinding the Contract or affirming it. Mr Barnes says that it must be taken to have elected to affirm it by continuing to negotiate about the form of the warranties and other matters right up to 25th November when it served the first notice. In these circumstances, it could no longer exercise the right to rescind based on the non-payment of the £95,500 or (it would follow) on any of the other grounds available to it under clause 6.2.
- In Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd  AC 850 Lord Diplock (at page 882) referred to the doctrine of election in these terms:
""Waiver" is a word which is sometimes used loosely to describe a number of different legal grounds on which a person may be debarred from asserting a substantive right which he once possessed or from raising a particular defence to a claim against him which would otherwise be available to him. We are not concerned in the instant appeal with the first type of waiver. This arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did. He is sometimes said to have "waived" the alternative right, as for instance a right to forfeit a lease or to rescind a contract of sale for wrongful repudiation or breach of condition; but this is better categorised as "election" rather than as "waiver." It was this type of "waiver" that Parker J. was discussing in Matthews v. Smallwood  1 Ch 777."
- The dispute in Kammins concerned the alleged waiver by a landlord of the time limits imposed on a tenant under Part II of the Landlord and Tenant Act 1954 for making an application to the court for the grant of a new tenancy. As recognised in the passage quoted, this is not a context which engages the kind of election Lord Diplock was describing. But, subject to one qualification, that statement of principle is not in dispute.
- The qualification concerns the extent to which the person with the inconsistent rights must be aware not only of the facts giving rise to the election but also of the right of election itself. In Peyman v Lanjani  1 Ch 457 Stephenson LJ (at page 487), after referring to what Lord Diplock said in Kammins, said this:
"Election leads, I think, to waiver, whether in choosing to object or not to object to breaches of contract or in acting in accordance with rules of procedure or statutory provisions. But common sense prevents landlords from saying that when they demanded rent from a tenant in breach of covenant they did not know they had a right to retake possession, which they were waiving (David Blackstone Ltd. v. Burnetts (West End) Ltd.  1 W.L.R. 1487), and the Sale of Goods Act 1979 prevents buyers from saying that when they accepted goods from a seller in breach of a condition they did not know that they had a right to reject the goods, which they were waiving. When a party has legal advice, he will be more easily presumed to know the law and evidence or special circumstances may be required to rebut the presumption, as in this case. The principles on which one party to a contract is held to affirm it so that he cannot repudiate or rescind it are not peculiar to forfeiture of leases, as was pointed out in Aquis Estates Ltd. v. Minton  1 W.L.R. 1452, 1458E. Nor are they confined to the sphere of contract, as Evans v. Bartlam  A.C. 473 and Leathley v. John Fowler & Co. Ltd.  K.B. 579 demonstrate.
Lord Diplock's words were on any view obiter dicta and Lord Pearson's unnecessary to his (and Lord Reid's) dissenting opinion that there had in fact been waiver; and if they have to be interpreted as we are asked to interpret them, they seem to me, if I may respectfully say so, to conflict with the earlier opinions in their Lordships' House which I have already cited, particularly in Evans v. Bartlam  A.C. 473. I therefore feel free to follow the decision of this court in Leathley v. John Fowler & Co. Ltd.  K.B. 579 and to hold that knowledge of the facts which give rise to the right to rescind is not enough to prevent the plaintiff from exercising that light, but he must also know that the law gives him that right yet choose with that knowledge not to exercise it."
- The judge dealt with these issues in the following paragraphs of his judgment:
"122. Rowe based its contention on the (admitted) fact that from 7th July 2008 to 24th November 2008 Barratt continued discussions with Rowe to achieve the specification for the Separation Works under clause 15.2, they continued to discuss and provide the method statement, they continued to discuss the warranties and continued to attend meetings and attempt to agree a Deed of Variation. Rowe submits that these were only consistent with Barratt deciding to choose to carry on with the Agreement and not exercise the right to rescind which accrued on 7th July 2008.
123. Barratt did in my view (and I so find) no such thing. I have analysed what Barratt and Rowe did up until 25th November 2008. It is clear that Barratt never considered the accrual of and existence of the right to rescind between 7th July 2008 and 24th November 2008. It was never put to Barratt's witnesses that they had. There is (whatever the legal principle) no factual platform to sustain it.
124. Whether this is called election waiver or estoppel by conduct in this context in my view does not matter because the factual basis for it is simply not made out. All of those in my view require some active conduct by the person alleged to be debarred. By that I mean there must be some kind of considered decision to choose between the rights or to give up (or waive the rights) or to conduct themselves in such a way that the other party in reliance upon that conduct was entitled to assume that the rights had been given up. It all relates back in my view to the important decision of the Court of Appeal in Peyman v Lanjani above. I do not see that a party can give up a right if it is not aware of it arising. It is quite clear as I have said Barratt's employees until 24th November 2008 never considered that rights had accrued on 7th July 2008 which they could exercise. As Rowe point out in their closing the classic formulation in Kammins Ballrooms v Zenith Investments Ltd  AC 850 at page 883 does not in my view arise on the facts. For the doctrine of election or waiver or estoppel by conduct to arise it must arise "in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did".
125. There is nothing in the evidence in my view which showed that Barratt acted in such a way. Nor was it ever put to them that they had consciously or unconsciously exercised their rights in a way in which was consistent only with giving up of the rights which accrued to rescind the Agreement on 7th July 2008.
126. Equally Rowe's evidence failed completely to establish that it had acted any way in reliance on an understanding that Barratt had given up its alternative rights. This is reinforced by the observations in Peyman v Lanjani where not only was it necessary for the doctrine to be established to show that the person knew the facts which gave rise to inconsistent rights but also of the existence of the inconsistent rights. Obviously Barratt as an organisation knew the contractual terms but it seems to me that the conduct being analysed is that of the people who were negotiating the Agreement of the conditional matters. It does not seem to me that there is evidence to show that when they carried on the negotiations after the right to rescind had arisen on 8th July 2008 that they were doing anything other than merely carrying on the negotiations. Nothing significant happened. As I have said the contractual date for completion passed and the date for fulfilment of the conditions passed without having any impact on the way in which Barratt and Rowe carried on addressing the finalisation of the conditional matters. It is insufficient in my mind to add the clear corporate knowledge that Barratt had of the rights accruing and merge that with the officers in question who were conducting the negotiations when they never appeared to have considered the rights let alone the possible exercise of the rights. Equally they cannot be said to have communicated to Rowe the fact that they intended on behalf of Barratt to elect between these two supposed alternative rights."
- Mr Barnes submits that this analysis discloses a number of errors of law. It is not necessary, he says, for there to be some kind of considered decision to elect between inconsistent rights. What has to be shown is knowledge of the right to elect based on the facts which have occurred and conduct which is consistent only with an election having been made for or against the continuation of the contract. Barratt was in receipt of legal advice throughout the relevant time and must be taken to have known the terms of clause 6.2 and its right to rescind based on the non-satisfaction of the conditions. It must also be taken to have known that notification of the payment of the £95,500 was not given by 7th July thereby giving rise to a right to rescind.
- The second criticism of the judge is that he was wrong to separate the solicitors and other individuals from the directors or other senior employees of the company for the purpose of attributing to Barratt knowledge of its right to elect. The knowledge and actions of those directly involved in the negotiations must be attributed to the company for these purposes.
- Thirdly the judge was wrong, Mr Barnes submits, to suggest that it was necessary to show that Rowe had acted in reliance on an understanding that Barratt had given up its right to rescind. The doctrine of election, including estoppel, is not concerned with the effect of the conduct on the other party.
- This last point is clearly correct and I think that the judge was also wrong to suggest that there has to be some kind of conscious decision to elect before a contract can be affirmed. Unequivocal conduct coupled with knowledge of the right to elect is enough. But I am also satisfied that the judge was right to hold that the right to rescind had not been lost in this case.
- It seems to me difficult to argue that Barratt, acting as it did with the benefit of legal advice, did not have knowledge of the terms of the Contract and that a right to rescind had arisen as of 7th July. Knowledge of such matters is not the same as actually applying one's mind to the question at some particular point in time. But the question whether a party with a contractual right to rescind has waived that right by electing to affirm the contract must depend on an analysis of the terms of the particular contract and the circumstances in which the right has arisen.
- The classic and common situation in which a party to a contract is put to an election of the kind described by Lord Diplock is where the other party has committed the breach of a significant term of the contract amounting to a repudiation. The innocent party is then faced with a choice between accepting that repudiation and thereby terminating the contract or affirming the contract and thereby waiving the breach. Because the continued performance of the contract is ipso facto likely to amount to an affirmation of the contract, the innocent party is necessarily put to his election and most choose. Similarly in the case of a lease where the tenant commits a breach of covenant entitling the landlord to forfeit, he must decide whether to issue and serve proceedings for possession thereby exercising his right of forfeiture or to accept rent and thereby waive the right to forfeit for that breach. Because an acceptance of rent will necessarily have that consequence under the lease, there is again an immediate election to be made.
- But not all rights to terminate a contract arise in these circumstances or have the effect of putting the party with the right to rescind to an immediate election. The lease with a break clause entitling the landlord or tenant to terminate the lease after the end of part of the term does not have to be exercised immediately unless the lease so provides. In most cases it will remain exercisable at any time after the right has arisen. The continued acceptance of rent by the landlord will not, without more, operate as a waiver of his rights under the break clause because there is nothing inconsistent between the continuation of the landlord and tenant relationship and the reservation of the right to break. If it is exercisable at any time during the remainder of the term the landlord is not put to an election and does not make an election by continuing to perform the contract until he chooses to exercise his right to break.
- The same principle applies in my view to the right to rescind under clause 6.2. It conferred upon Barratt the right to rescind the Contract by the service of a notice at any time following the non-satisfaction of any of the specified conditions. In addition, it also precluded the service of a notice if at the time the party in question was in default of its obligations under clause 6.2. In the case of Barratt this was a reference to its obligations under clause 6.2(iii) to act reasonably and to use all reasonable endeavours to agree the specification, warranties and method statement with Rowe and A&L.
- Barratt was therefore entitled to wait after 7th July before serving its notice and, in the meantime, it was obliged to continue to attempt to agree the form of the warranties and other documents. I cannot see how, in those circumstances, its performance of that obligation was in any way inconsistent with its right to rescind when it was under the contract a necessary pre-condition to the exercise of that right.
- The correct analysis is, I think, that Barratt did not make an election before 25th November 2008 when it served its notice to rescind and that nothing it did between 7th July and then can amount to a waiver of its rights. It could, of course, have chosen to waive its right to rescind but for that to occur Barratt would need to have indicated its intention to abandon its right in clear and unequivocal terms: see Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India  1 Lloyd's Rep 391 at page 398.
- The judge, I think, took essentially the same view when he said in paragraph 136 that:
"In my judgment this is not a case involving election at all as I have said. Both parties negotiated for an additional right to terminate the agreement without breach if the conditions were not satisfied by a particular date. When such clauses are drafted they regularly set an express time limit within which that right can be exercised. In so far as the Agreement purported to do so it gave a right to exercise at any time. Effect must be given to that provision and I have given meaning to it earlier in this judgment. When both parties are given the identical right by reason of the non fulfilment to a condition the concepts of doctrine of election and the position of the innocent and guilty party simply do not arise."
- I therefore reject the defence based on election and would dismiss this appeal. Because the breaches of clause 15.2 of the Contract were not causative of the failure by Rowe to pay the £95,500 by 7th July, the judge was right to dismiss the counterclaim for damages and it is therefore unnecessary for us to decide the procedural issue which has arisen as to whether Rowe should be allowed to include a challenge to the judge on this point as part of its appeal.
Lord Justice Aikens :
- I agree.
Lady Justice Arden :
- I also agree.
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