Dominion Corporate Trustees Ltd and others v Debenhams Properties Ltd

Agreement for lease – Repudiatory breach – Defendant agreeing to take lease of units in proposed extension to claimants’ shopping centre – Claimants to make payment to defendant as inducement – Claimants failing to make second tranche of payment within required period – Defendant immediately purporting to terminate agreement in reliance on claimants’ breach – Whether entitled to do so under provisions of agreement – Whether time of the essence for payment such as to render breach repudiatory – Whether circumstances of breach having that effect – Claim allowed The first and second claimants were the long leaseholders of a shopping centre. In February 2007, they entered into an agreement for lease with the defendant in respect of several units in a proposed extension to the centre. The lease was to be granted once the first and second claimants had constructed the extension (the landlord’s works) and the defendant had fitted out its units (the tenant’s works). Under clause 13 of the agreement, the first and second claimants were to pay £900,000 to the defendant in three tranches, composed of an initial tranche of £50,000 and subsequent tranches of £425,000. The second tranche was payable within 10 working days of the “access date”, which was defined as the date on which the first and second claimants notified the defendant that the landlord’s works were completed for the purpose of commencing the tenant’s works. Clause 19 of the agreement, which was headed “Default”, provided that a party could terminate the agreement by notice if “either party shall in any respect fail or neglect to observe or perform any of the provisions of the Agreement”.The first and second claimants made the initial payment but failed to pay the second tranche within the required period after the access date, owing to difficulties they were experiencing with their building contractors. The next day, the defendant served a notice to terminate the agreement under clause 19. The first and second claimants disputed its right to terminate, and sought to persuade it to accept late payment of the second tranche or an extended rent-free period instead. The defendant refused and the first and second claimants regarded that as a repudiation of the agreement, which they elected to accept so as to terminate the agreement.The first and second claimants claimed damages for wrongful termination of the agreement. By its defence, the defendant argued that: (i) clause 19 entitled it to terminate in the event of any breach; (ii) the failure to pay the second tranche within the time limit amounted to a repudiatory breach because time was of the essence; or (iii) the breach had been repudiatory in all the circumstances in which it occurred. In November 2009, the first and second claimants transferred their title to the third and fourth claimants.Held: The claim was allowed.(1) In the absence of a contractual provision to the contrary, a party could terminate a contract on the ground of a breach by the other party only if the term breached was a condition or if some other innominate or intermediate term was breached thereby depriving the innocent party of most of the benefit that the parties, through their intentions expressed in the contract, had intended it to obtain. Accordingly, the courts would be reluctant to interpret a termination clause, in a complex contract containing many innominate terms, as providing a party with the right to terminate for any breach, however minor: Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191 and Rice (t/a Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1 applied. Although clause 19, stripped of its context and relevant background, might be understood as permitting either party to terminate if the other failed to perform any provision of the agreement in any respect, however minor the provision or insignificant the failure, that construction would involve attributing to the parties an intention that they could not have had. Such a construction would attribute to the parties an intention that they could not have had. Such a construction would flout business common sense. The agreement contained numerous obligations, many of which were of minor importance and could be broken in many different ways. A reasonable and commercially adept party would understand clause 19 to mean that a party could terminate in the event that the other party in any respect failed or neglected to observe or perform any provision of the agreement in a way that amounted to a repudiatory breach.(2) Time was not of the essence with regard to the second tranche payment. There was no necessary link, in terms of time and purpose, between the first and second claimant’s obligation to make that payment and any obligation on the defendant to fit out the premises; in fact, the defendant was not obliged to carry out any particular fitting–out works. The £900,000 inducement that the first and second claimants had agreed to pay to the defendant was not calculated by reference to any amount to be spent by the defendant in fitting out the premises. Neither the circumstances of the agreement nor the nature of its subject matter made precise compliance with the date for payment of the second tranche essential or vital. A failure to perform punctually would not deprive the defendant of substantially the entire benefit of the agreement or render it incapable of performing its own obligations. The payment of interest on late payments, as provided by other provisions of the agreement, provided the remedy for the breach: Bunge Corporation v Tradax Export SA [1981] 1 WLR 711 applied.(3) The circumstances of the breach did not make it repudiatory in nature. Although the first and second claimants had made it clear, throughout the period in issue, that they anticipated being unable to pay the second tranche on the due date owing to the difficulties that they were experiencing, and they had suggested an extended rent–free period instead, they had also made it clear that they remained committed to paying the amount due and, more generally, to the agreement and the entire project. The defendant had not given any notice purporting to make time of the essence for the payment, but had purported to terminate for failure to make the payment without giving any warning that that was what it intended to do. In those circumstances, the failure to make the payment on the due date was not a repudiatory breach.Stephen Jourdan QC (instructed by Balfour & Manson LLP, of Edinburgh) appeared for the claimants; Michael Barnes QC (instructed by Walker Morris Solicitors, of Leeds) appeared for the defendant.Sally Dobson, barrister