Manchester & District Housing Association v Fearnley Construction Ltd (in voluntary liquidation) and

First defendant agreeing to build and convey property to claimant – Defendant failing to carry out building works and breaching contract – Claimant seeking specific performance – Whether obligation to convey conditional upon obligation to build – Whether contract entire or severable – Claim allowed In March 1999, the claimant (the association) entered into a contract with the first defendant (Fearnley). The contract contained two main provisions: (i) an agreement by Fearnley to carry out certain building works on registered freehold land; and (ii) an agreement by Fearnley to sell the property to the association once the building works had been completed. The second defendant (Dunbar Bank plc) took a charge on the property. After Fearnley had started the building works, it ran into financial difficulties. Receivers were appointed and the association was told that Fearnley would not be carrying on with the works. Fearnley was placed in creditors’ voluntary liquidation. In an application for summary judgment under CPR rule 24, the association sought specific performance of the contract. There was no dispute that Fearnley was in breach of contract by its failure to carry out the building works. The association contended that it was: (i) entitled to damages for that breach; (ii) entitled to specific performance of the agreement in relation to Fearnley’s obligation to convey; and (iii) it could abate the purchase price by the damages to which it was entitled for failure to complete the building works. Fearnley and Dunbar contended that the association was entitled to damages for failure to build, but that it had to prove in the liquidation for them. Both defendants submitted: since the obligation to convey only arose upon completion of the building, that time had not yet arisen and would never arise; the association was notentitled to specific performance because it was an entire contract rather than a severable one; the obligations to build and to convey were so intertwined that one could not be enforced without the other; the association had no equitable interest in the property because the obligation to convey was conditional; and the remedy of specific performance was discretionary, and the court should refuse to exercise its discretion in the present case because to grant specific performance with abatement of the purchase price would, in effect, subvert the statutory scheme for adjusting the rights of creditors in a liquidation. Held: The claim was allowed. 1. Applying Alghussein Establishment v Eton College [1988] 1 WLR 578, and Gordon Hill Trust v Segall [1941] 2 All ER 379, Fearnley could not rely on its own breach of its primary obligation, namely to build, to bring the contract to an end and as terminating its other primary obligation, to convey. 2. The two obligations, to build and convey, were linked in the sense that it was clearly the parties’ expectation that the conveyance would only take place once the building works were completed. However, as a matter of logic, fairness or justice, there was no reason to deny the Association the next best thing in light of Fearnley’s default and which involved no unfairness as far as Fearnley was concerned. 3. The contract was no longer conditional. Therefore, the association had an equitable interest in the property before the liquidation. Freevale Ltd v Metrostore Holdings Ltd [1984] 2 WLR 496 applied. 4. If the association had an existing right to deduct the amount of its damages from the purchase price, it was not right for the court, as a matter of discretion, to take that right away because of Fearnley’s subsequent liquidation. Peter Smith QC (instructed by Croftons, of Manchester) appeared for the claimant; Gabriel Moss QC (instructed by Rochman Landau) appeared for the first and second defendants. Sarah Addenbrooke, barrister