Clarke Investments Ltd v Pacific Technologies [2013] EWCA Civ 750

Case No A3/2012/1061[2013] EWCA Civ 750
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HHJ EDWARD BAILEY
1CL 10240
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 21/06/2013
Before
LORD JUSTICE MAURICE KAY LORD JUSTICE FLOYDSIR STEPHEN SEDLEY
Between
CLARKE INVESTMENTS LIMITEDAppellantPACIFIC TECHNOLOGIESRespondent
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr Mark Dencer (instructed by Bishop & Sewell) for AppellantMr Michael Buckpitt (instructed by Comptons Solicitors LLP) for RespondentHearing Hearing date: June 5 2013
Judgment
[1]This is an appeal from the judgment and order of HHJ Edward Bailey sitting in the Central London County Court dated 18 April 2012 whereby he dismissed the action of the claimant Clarke Investments Limited (“Clarke”) for specific performance of a contract of sale of property between Clarke and the defendant Pacific Technologies Limited (“Pacific”). He did so on the basis that, at the date fixed for completion of the contract, under which time had been made of the essence, Clarke was not ready to perform its side of the bargain. Pacific appeals from that decision with the permission of Jackson LJ at a renewed oral hearing, leave having been refused on paper by Rimer LJ.[2]The property which was the subject of the contract of sale was a shop, with two residential flats above it, at 3 Muswell Hill, London N10. It was offered for sale in an auction on 4 October 2010, but not sold. The auction particulars had stated that VAT was not to be charged. Thereafter Pacific and Clarke entered into a post auction sale contract on 13 October 2010, at a price of £385,000. The contract was subject to the standard conditions of sale (4th Edition).[3]Those conditions provide, so far as relevant, as follows: “6.1.1 Completion date is twenty working days after the date of the contract but time is not of the essence of the contract unless a notice to complete has been served.6.8.1 At any time on or after completion date, a party who is ready, able and willing to complete may give the other a notice to complete.6.8.2 The parties are to complete the contract within ten working days of giving a notice to complete, excluding the day on which the notice is given. For this purpose, time is of the essence of the contract.7.5.1 If the buyer fails to complete in accordance with a notice to complete, the following terms apply.7.5.2 The seller may rescind the contract, and if he does so:(a) he may (i) forfeit and keep any deposit and accrued interest (ii) resell the property and any chattels included in the contract (iii) claim damages(b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract.7.5.3 The seller retains his other rights and remedies.7.6.1 If the seller fails to complete in accordance with a notice to complete, the following terms apply.7.6.2 The buyer may rescind the contract, and if he does so: (a) the deposit is to be repaid to the buyer with accrued interest (b) the buyer is to return any documents he received from the seller and is, at the seller’s expense, to cancel any registration of the contract.7.6.3 The buyer retains his other rights and remedies.” (a) he may (i) forfeit and keep any deposit and accrued interest (ii) resell the property and any chattels included in the contract (iii) claim damages (b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract. (a) the deposit is to be repaid to the buyer with accrued interest (b) the buyer is to return any documents he received from the seller and is, at the seller’s expense, to cancel any registration of the contract.[4]In the conveyancing steps which followed, Clarke was represented by Mr Martin of Bishop & Sewell and Pacific was represented by Mr Compton of Comptons Solicitors. Although a completion statement was sent on 25 October showing no VAT, Comptons maintained thereafter that there had been a mistake, and that VAT was payable on the sale, a proposition strongly contested by Bishop & Sewell.[5]Resolution of the VAT dispute had not been achieved by the contractual completion date of 10 November 2010. By a letter dated 4 November 2010 Bishop & Sewell gave notice that they were ready, willing and able to complete on 10 November 2010 at the contract purchase price of £385,000. After making deductions for rent apportionment they said they would be in funds on that day to complete at a figure of £343,884.09.[6]Comptons remained firm in their stated view that there was some reason why, despite the express words of the contract, VAT was nevertheless payable. On 8 November Mr Compton wrote:
“I see little point in dealing with these issues as the parties are too far apart on the question of VAT. My clients position is that the contract is void for fundamental mistake and your clients position is that he is entitled to specific performance. If your client is entitled to specific performance then my client has a statutory obligation to charge vat calculated on the purchase price as the contract makes no reference to a vat inclusive price.”
[7]Accordingly, on 10 November, the date fixed by the contract for completion, Bishop & Sewell were in funds, and ready willing and able to complete. The judge so held.[8]Later in the day Comptons responded that the offer to complete was not accepted. Accordingly, also on 10 November 2010, Bishop & Sewell served a notice to complete under condition 6 of the standard conditions. Completion was accordingly required within 10 working days of the notice, not counting the day of service. That period would expire on 25 November 2010.[9]On 11 November 2010 Comptons acknowledged receipt of the notice to complete. They said:
“We do not of course accept the validity of the Notice to Complete as you have not offered to complete in accordance with the terms of the Contract in that your offer is to complete upon a sum which is inclusive of VAT where no such term is included. As you of course know our client’s position is that the Contract is void for mistake and therefore any Notice pursuant to that Contract is ineffective.”
[10]The dispute rumbled on over the course of the next 14 days. Having taken advice from counsel, Bishop & Sewell wrote on 24 November 2010 that they had firm instructions to issue proceedings if the dispute was not resolved before 10 December 2010. The letter concluded:
“Unless your clients complete before the notice to complete expires on 25th November 2010 with apportionments as at 10th November and losses, damages and costs arising as a result of your client’s prior refusal to complete in accordance with the contract, or pay agreed compensation for loss of bargain and incidental costs and expenses, proceedings will be issued without further notice on 10th December 2010.”
[11]Thus it was Clarke’s position that the completion monies should include an allowance for losses, damages and costs due to the failure to complete on the original date. In an email timed at 11.15 the following day (the last date for completion in accordance with Clarke’s Notice) Mr Martin said this:
“Would you please let me know if your client agrees in principle to complete on the basis proposed, so that we can discuss details of the additional deductions that we would make to cover the losses and expenses suffered by the buyer. I need to inform the buyer of the amount of funds we will require to complete.”
[12]It became clear in the course of the trial that the funds which had originally been placed with Bishop & Sewell to complete in accordance with the contract on 10 November had been returned to Clarke in the meantime. The evidence showed that Clarke was only asked to place Bishop & Sewell in funds again at some time on 25 November, consistent with the terms of the email I have just quoted. The judge also found that the money did not reach Bishop & Sewell until the following day, 26 November 2010.[13]Following receipt of the letter threatening proceedings, Comptons wrote by fax at 11.21 what became known as the white flag letter. The email of 11.15, which enquired whether there was agreement in principle to "complete on the basis proposed", had, as the judge pointed out, been sent 6 minutes earlier, but it is clear that the faxed white flag letter was written in reply to the letter before action and not the email. Having explained that they disagreed with Bishop & Sewell’s letter, Comptons continued:
“Our client has also taken advice and as with all litigious matters there is no certainty of outcome. However having said that, our client cannot allow this matter to remain outstanding any longer and as your client has rejected all reasonable offers to settle our client has little alternative but to complete. The costs of continuing to dispute the matter will most probably outweigh the difference between our respective clients. We therefore enclose an amended completion statement.”
We therefore enclose an amended completion statement.”[14]The letter before action had accordingly caused Pacific to abandon their arguments about VAT. The attached completion statement did not include VAT. However, and unsurprisingly, the letter did not make any allowance for compensation to be paid for the loss and damage suffered by Clarke by the failure to complete on time.[15]Mr Martin responded by email at 14.28, raising various points on the completion statement. He pointed out that the completion statement did not take account of the deposits paid by tenants or the insurance charged to or due from the tenants. He further enquired whether the rent payable on the 24 November had been paid, and if so for an adjustment to the statement to be made to reflect this. The email also pointed out that compensation was due. He said that a schedule was being compiled of the items for which compensation would be claimed. He continued: “It may not be possible to complete this matter today now due to differences on the completion statement yet to be resolved. However our client is putting us in funds later today/tomorrow a.m.[16]“Tomorrow a.m.” would, of course, have been too late for completion in accordance with Clarke’s notice to complete. In an email timed at 15.21 Mr Compton said this in relation to the claimed compensation:
“Other than some costs I cannot see what other compensation would be payable. Any deductions for costs will need to be agreed in advance or if not taxed and dealt with at a later stage. We can make a retention until the costs are agreed.”
[17]At 15.57, Mr Martin wrote:
“I shall wait to hear about the insurance and deposits and let you know what the losses are that our client has suffered as soon as I can.”
[18]At 16.16 pm Mr Compton wrote:
“The Standard Conditions do not provide for cost to be paid by either party which is why in normal circumstances a seller inserts an obligation to pay costs of the notice. There is no such entitlement for the buyer. As we have offered to complete in accordance with the terms of the contract and during the notice period I cannot see that costs are payable. Please therefore let me have your position on this.”
[19]It was therefore Comptons’ position that they, acting for the sellers Pacific, had offered to complete within the notice period.[20]In a further email timed at 17.07 Mr Compton said he was happy to deduct the deposits, but that the insurance premiums were not collected from the shop tenant. He accordingly attached an amended completion statement showing a total of £341,997.43 to complete.[21]On 26 November Comptons discovered that no monies had been forwarded to them by Bishop & Sewell. They therefore sent a long fax at 10.27 in which they said that Clarke was in breach of contract, and that their client was entitled to and did rescind the contract as a result. This assertion, if valid, would mean that Pacific would escape from the contract, and not be compelled to sell the property at a price inclusive of VAT. This was what it had been hoping to achieve by other arguments, which it had now abandoned. In addition Pacific could keep the deposit which had been paid.[22]Bishop & Sewell did not accept that Pacific was entitled to rescind the contract of sale. Mr Martin wrote:
“We do not accept your purported rescission and forfeiture of the deposit. Your client provided an incorrect completion statement and accepted discussions about its content impliedly confirming that it was not in a position to complete either, not being able to state the correct amount payable. I do not see how we would be able to send the correct money without a correct completion statement that I had previously queried and in respect of which I was awaiting information eg regarding the rents due for collection on 24 November.”
[23]Bishop & Sewell also belatedly sought to suggest a retention in respect of compensation. This fell on stony ground.[24]The judge found that Mr Martin did not have his client’s instructions to complete the purchase until he had agreed a final figure with Mr Compton. He also found that Clarke wished to approve the figure for compensation before the matter proceeded to completion. The result was that Mr Martin did not at any stage receive instructions to complete at any particular figure because no figure for compensation was agreed. Moreover, as the judge found, at no stage during the afternoon of November 25 was Mr Martin in funds to complete the purchase. Although the instructions had been given to the Bank at 12.45 (the judge said 12.15 but nothing turns on this) the money did not reach Bishop & Sewell’s client account until the next day.[25]It was submitted at the trial on the part of Pacific, the vendor, that it was entitled to rescind the contract. The notice to complete made time of the essence. The white flag letter had accepted the obligation to complete and it had been ready to complete, with an executed transfer in the hands of Comptons. Clarke was therefore due to pay by the end of the working day on 25 November. They failed to do so.[26]The argument on behalf of Clarke, the purchaser, as recorded by the judge, was that an aggrieved purchaser who serves a notice to complete and does not pay the purchase price does not commit a repudiatory breach in every case if he does not pay on the expiry of the notice. Secondly it was argued that time was never of the essence of the contract.[27]The judge, having reviewed the authorities, pointed out there were two major factual hurdles in Clarke’s way. The first was the evidence which he accepted that Mr Martin did not have instructions to complete before the compensation was agreed. The second was that the money was not available on the completion day. On this basis it could not be said that Clarke were ready willing or able to complete.[28]The principal point argued on this appeal by Mr Mark Dencer, who appeared on behalf of Clarke, was that Comptons’ faxed letter at 11.21 on 25 November, the so called white flag letter, was not an unconditional surrender of its position that there had been no valid notice to complete. Instead, he submitted that, properly understood against the background of the correspondence, it was an invitation to Clarke to proceed to negotiate towards an agreed completion. This was, he submitted, how Mr Martin understood the fax, and that understanding was in accordance with how the fax should properly be interpreted. Building on this submission he contended that nobody on the Pacific side of the bargain could reasonably have believed that Clarke intended to repudiate the contract. He relied in support of this submission on a passage from the judgment of Etherton LJ in Eminence Property Developments v Heaney [2010] EWCA Civ 1168, [2010] 3 EGLR 165 at [61] to [63] which emphasises the fact sensitive nature of the determination of whether there has been a repudiatory breach.[29]Mr Dencer also supported the point taken in the correspondence by Mr Martin arising out of the fact that the parties had not reached final agreement on the sum required to be paid on completion.[30]Mr Michael Buckpitt, who appeared for Pacific, submitted that the white flag letter did not bear the interpretation put upon it by Clarke. He went on to submit that, even if the letter was offering to continue to negotiate over completion, no legal principle had been identified which would lead to the conclusion that Clarke had not committed a breach of contract which would entitle Pacific to rescind. He also submitted that the point taken on the completion statements was bad in law.[31]A notice to complete is a powerful weapon in the hands of a conveyancer. Like all powerful weapons it requires careful handling. Thus is needs to be remembered that once a notice to complete is served, time is made of the essence of the contract for both parties, not just for the party on whom the notice to complete is served. That proposition follows from the fact that completion is a consensual activity. It is supported (albeit in relation to a previous version of the standard conditions) by the decision of this court in Quadrangle Development and Construction Co Limited v Jenner [1974] 1 WLR 68. In that case it was argued that time was only made of the essence for the party on whom the notice was served. Reliance was placed on the wording of the condition, which, in the relevant edition provided that:
“Upon service of [a notice to complete] it shall become and be a term of the contract, in respect of which time shall be of the essence thereof, that the party to whom the notice to complete is given shall complete with 28 days…”
[32]Notwithstanding that wording, the Court of Appeal held that time was of the essence for both parties, noting that “completion … is … an activity in which two parties necessarily co-operate”. The position is put beyond doubt in the wording of condition 6.8.2 relevant for this case, and set out above.[33]It follows from the fact that time is made of the essence for both parties by the service of a notice to complete that the party serving the notice must be ready to complete by the date fixed in the notice. If the party serving the notice is not ready, then it will be in breach of what is, by then, an essential condition of the contract. It is well settled that the court will not grant specific performance to a party who is in breach of such a condition.[34]With that short preliminary I turn to the issues which were argued on the appeal.

What did the white flag letter mean?

[35]The white flag letter is to be read bearing in mind two important background facts. The first is that Clarke had served a notice to complete. That notice required completion by 25November and it was Clarke’s position (albeit disputed by Pacific) that the notice was valid and that completion should occur by that day. Secondly, the white flag letter was written in reply to Clarke’s letter before action sent the previous day, threatening proceedings if Pacific did not complete “before the notice to complete expires on 25 November 2010”. The judge said this about the letter: “It is correct, as Mr Martin suggested in evidence, that this letter does not actually accept the correctness of the claimant’s position. And I readily acknowledge that a conveyancer engaged as he is in non-litigious business, would read this letter with rather different eyes than would a lawyer engaged almost exclusively in litigious business. Certainly to the litigation lawyer’s eye, this is indeed a letter waving a white flag. It is acknowledging that Compton’s have got it wrong, but included a few phrases to keep up spirits, as the French would say ‘pour l’honneur du pavilion’”.[36]I favour the view that when the white flag letter said that Pacific had “little alternative but to complete” and provided an amended completion statement, dropping the VAT point, it would be understood to mean that Pacific were offering to complete in accordance with the contract. The reasonable recipient would understand that the original objection to completion, namely that the sale price was subject to VAT, had been dropped. That, after all, is what Clarke sought to achieve by the combined effect of the notice to complete and the letter before action.[37]The supposed ambiguity in the white flag letter was the foundation stone of Mr Dencer’s submission that there was no repudiation. He did not submit that he could succeed even if he was wrong on that point. Nevertheless, I accept Mr Buckpitt’s submission that even if the letter was an invitation to negotiate a more leisurely completion, it would not have the effect of discharging the obligation on Clarke to be ready to complete in accordance with the contract and the notice to complete. No legal principle was identified which would lead to this result. It is not suggested that Pacific had waived its rights under the contract or was estopped from asserting them along the lines of the unsuccessful argument in North Star Land Ltd v Brooks and another [2006] EWCA] Civ 756; [2006] EGLR 67. There had been no variation of the contract, and a variation would in any case have had to comply with requirements of form in section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989: see McCausland and another v Duncan Lawrie Ltd. and another [1997] 1 WLR 38. In those circumstances both parties remained bound to complete on the 25th November.[38]Like the judge, I think Mr Dencer’s reliance on Eminence Properties v Heaney (supra) is misplaced. In that case a purchaser agreed to buy 13 flats on long leases in a block that a developer was constructing. The sale contracts incorporated the national conditions of sale. The contractual completion date fell a year after exchange of contracts, by which time the property market had suffered a downturn. The purchaser did not complete. A notice to complete was served. In its covering letter the vendor’s solicitors stated erroneously that they had calculated that the 10 working days prescribed in the notice expired on 15 December 2008, rather than the correct date, 19 December. The vendor rescinded the contracts on 17 December and forfeited the depositswhich had been paid. The purchaser’s solicitors responded immediately saying that the act of rescinding the contract before the true date of expiry of the notice to complete was a repudiatory breach of contract. The Court of Appeal held that this was not a repudiatory breach. It was, as the judge had found, “screamingly obvious” that the vendor had made a mistake. A reasonable recipient would have appreciated that fact, and had the error been pointed out, the vendor would immediately have acknowledged it.[39]That case is a very long way indeed from the present one. The act of repudiation relied on the present case was the failure to pay over the purchase price in accordance with the contract on the expiry of the notice to complete. Clarke was in fact in no position to do so. No question arises as to how that act would be interpreted by Pacific or its lawyers. It was the fact that Clarke had not paid the purchase price in accordance with the contract, and that they had been in no position to do so.[40]A failure to complete on time, where time is of the essence, is a repudiatory breach of contract. In Union Eagle Ltd. Golden Achievement Ltd [1997] AC 514, completion was due at 5 pm under a contract where time was of the essence. 5 pm came and went. The buyer's solicitor said on the telephone at 5.01 that the money was on its way by messenger. The messenger arrived at 5.10. At 5.11 the vendor rescinded the contract. The Judicial Committee of the Privy Council rejected the purchaser’s argument that it had validly tendered the purchase price whilst the contract was still alive. Because time was of the essence, performance of the contract by the purchaser was no longer possible. As Lord Hoffmann pointed out at 518D, the vendor could at that stage only be required to accept late performance on the basis of some form of waiver or estoppel.[41]I would therefore reject this ground of appeal

Incorrect completion statements

[42]Although it is the practice of conveyancing solicitors to prepare and debate the accuracy of completion statements, a failure by the vendor to provide an accurate completion statement is not a basis on which a party is discharged from its obligation to complete.[43]In Schindler v Pigault (1975) 30 P. & C.R. 328 the purchaser declined to complete because he took issue with a claim for interest in a completion statement. Megarry J held that the claim for interest was unjustified, but that nevertheless:
“the purchaser’s answer was to attend for completion on [the completion day] and tender whatever he accepted as being the correct sum. I cannot see that the demand for too much was any ground for not attending at all”
[44]Megarry J’s observations were, it is fair to point out, not a necessary part of his reasoning in that case. They were nevertheless followed and approved by this court in Carne and another v Debono [1988] 1 WLR 1107. Shortly before completion was due pursuant to a notice to complete the parties were debating the amount due on completion. Sir Nicholas BrowneWilkinson V-C said this about completion statements at 1112E:
“Although it is a customary step in conveyancing procedure that completion statements should be sent and agreed so that the parties should be clear well in advance of the date of completion what their respective obligations are, so far as I am aware, that is merely a matter of practice and not of law. So far as the authorities drawn to our attention are concerned, there is no legal obligation on a solicitor to provide a completion statement.”
[45]Sir Nicholas Browne-Wilkinson approved the statement by Megarry J in Schindler which I have cited above. He went on: “There being no contractual obligation to provide a completion statement, in my judgment, it is not a repudiation by the vendor if in the completion statement he asks for more than that to which he is entitled. So to hold would give rise to great disputes in vendor/purchaser matters since the exact calculation of the purchase price is often a matter of some difficulty. The completion statement is often the subject of negotiation between the parties to arrive at the correct figure."[46]Schindler and Carne were both relied on in Hanson v SWEB Property Developments Ltd (sued as South West Electricity Board) [2002] 1 P. & C.R. 35 459. The issue in that case was whether the tender by the purchaser of a sum which it genuinely believed was that required for completion was sufficient performance by the purchaser to preclude the vendor from rescinding the contract. Dyson LJ (with whom Sedley LJ agreed on this point) said this after reviewing the two earlier authorities:
“If a purchaser tenders the incorrect amount, he is in breach of contract and on the face of it, upon expiry of a notice to complete under condition 22(1), a vendor is entitled [to] rescind. Where a purchaser believes that the amount demanded by the vendor is incorrect, then he may tender what he considers to be the correct amount. If he takes that course, he takes chance that he may be wrong”
[47]As HHJ Bailey also pointed out in the present case, if it were to be the position that a purchaser ought not to be required to complete until a finalised completion statement had been approved between the parties, that was a matter which could and should have been included in the National Conditions of Sale. Given the time which has elapsed from the decisions in Schindler, Carne and Hanson, I think there is considerable force in that point. It is also an indication that there is not perceived to be a widespread problem caused by the provision of inaccurate or excessive completion statements.[48]In the present case the judge held that Clarke was in a position to make the necessary calculations, and there is no appeal against that finding. It follows in my judgment that the failure in the present case to provide a completion statement which accurately reflected all the matters which remained to be settled was not something which could or should have prevented Clarke from making the necessary preparations to complete and tendering or paying over the sum due. By insisting on final agreement of the completion statement, and insisting on resolution of its claim for compensation it placed itself in breach of an essential condition of the contract.

Conclusion

[49]The judge was right to refuse Clarke specific performance of the contract. By focusing on trying to compel Pacific to complete, and thereafter on its claim for compensation, Clarke lost sight of its own obligation to complete. As a result, when Pacific finally abandoned its resistance, Clarke, though willing, were not themselves ready or able to complete, and consequently failed to do so. Pacific was therefore entitled to say that Clarke was in breach of a condition which was of the essence of the contract, and rescind it.[50]Like the judge, I am not without sympathy for the position which Clarke found themselves in on the morning of 26 November. But I am afraid that the conclusion which he reached in his outstandingly clear judgment, is one which was and is inescapable. I would therefore dismiss the appeal.

Sir Stephen Sedley

[51]I agree.[52]I do so with some regret because most of the fault seems to me to have lain on the side of Pacific, who have now walked away with Clarke’s deposit, while Clarke, in a justifiable attempt to pin Pacific down (albeit rather too heavily), had put themselves out of time. But to try to carve a legal exception out of these facts would generate uncertainty in a field in which certainty is crucial.[53]My concern, nevertheless, is not only with this particular (and probably unique) case, but with the incentive it might offer to an unscrupulous vendor, having first secured a deposit, to create spurious difficulties in the hope of pushing the purchaser beyond the time for completion. The moral has to be that the price of conveyancing, like that of liberty, is eternal vigilance.[54]I agree with both judgments.