Frasers Islington Ltd v Hanover Trustee Co Ltd and others

Specific performance – Development – Option for claimant to purchase freehold with leaseback to defendants of commercial parts including one of two electricity substations – Claimant seeking to exercise option but with substitution of other substation in commercial leaseback – Whether entitled to specific performance – Whether such relief precluded where claimant not proffering full performance – Summary judgment given – Defendants’ appeal dismissedThe claimant was the tenant under two building leases, dated 2002, of land in Islington, London, of which the defendant pension trustees were the freeholders. Under the terms of the leases, the claimant was to carry out a development that comprised both commercial and residential elements, on practical completion of which it could exercise an option to acquire the freehold for £1, with a simultaneous leaseback to the defendants of the commercial parts of the development at a peppercorn rent. Plans delineating the precise extent of the commercial leaseback were annexed to the building leases. In May 2005, the plans were amended by deed to reflect the necessary arrangements for an electricity supply to the development. These involved the provision of two transformers, one each for the commercial and residential parts, in two small substation chambers. The new plans showed the left-hand chamber as serving the commercial parts and as being included in the commercial leaseback. The claimant engaged an electricity supplier to install the transformers; it installed the residential transformer in the left-hand chamber, rather than in the right-hand chamber as planned.A certificate of practical completion was issued in April 2008, which the defendants unsuccessfully challenged. The claimant then exercised the option to purchase the freehold, proposing to grant the commercial leaseback with the substitution of the right- for the left-hand chamber. The defendants refused to complete on that basis.The claimant brought a claim for specific performance. The defendants resisted the claim on various grounds, including that the claimant was not proffering full performance of its own obligations since it refused to include the left-hand chamber in the leaseback. The defendant argued that specific performance should be refused where the claimant’s unwillingness to perform in full was attributable not to impossibility or disproportionate cost, but to choice. A master granted summary judgment to the claimant on its claim, holding that the defendant had no real prospect of success on any of their grounds of defence. The defendant appealed.Held: The appeal was dismissed.The equitable and discretionary power to grant specific performance should not be confined within rigid categories. Where a claim for specific performance would not confer on the defendant everything for which it had contracted, the question was whether it would none the less receive substantially what it had bargained for: Rutherford v Acton-Adams [1915] AC 866 and Mehmet v Benson (1965) 113 CLR 295 applied. Although it could be a useful approximation to ask whether the claimant’s proposed terms of completion involved a breach of one of the essential terms of the contract, that approach could produce absurd results if pursued to its extreme conclusion and it was not a substitution for the true test: Sport Internationaal Bussum BV v Inter-Footwear Ltd [1984] 1 WLR 776 considered. Further, the party seeking specific performance had to be ready, able and willing to perform its obligations under the relevant contract and could not choose, for no good reason, to remove any immaterial part of the subject matter that it had decided it wanted to retain, even where the defendant would still receive the substance of its bargain. A party that sought specific performance, but which was unwilling to perform all its obligations, had to justify that unwillingness. The reason for the claimant’s refusal to perform its obligations in full would almost invariably be relevant, together with other pertinent factors, to the granting or withholding of relief. The fact that performance could be achieved only at disproportionate cost might be one such good reason, but it did not exhaust the categories of potentially good reasons.Although the claimant’s proffered performance excluded the left-hand chamber from the commercial lease, that chamber comprised a minuscule fraction of the floor area of the commercial part of the development, and its value was an even smaller fraction of the value of the development as a whole. In those circumstances, a failure to include that chamber in the commercial lease came nowhere near to depriving the defendants of the substance of the bargain; all the more so since the claimant proposed to offer the immediately adjacent right-hand chamber in lieu. The master had been entitled to consider whether the claimant had had good reason for its unwillingness to include the left-hand chamber in the commercial leaseback as matters stood at the time of the hearing before him, rather than confine himself to an analysis of the position as at April 2008. At neither date had the defendants suffered a disadvantage to set off against the apparent waste of £80,000 that the claimant would incur in moving the residential transformer from the left- to the right-hand chamber. The court should not undertake a proportionality analysis that compared the cost of compliance on the part of the claimant against the cost of litigation. The defendants’ grounds for resisting specific performance offered no reasonable prospect of success at trial. Jonathan Gaunt QC and Mark Sefton (instructed by Denton Wilde Sapte LLP) appeared for the claimant; Romie Tager QC and Justin Kitson (instructed by Howard Kennedy LLP) appeared for the defendants.Sally Dobson, barrister