Quest Advisers Ltd and another v McFeely and another

Sale of development site – Agreement for leaseback of ground-floor commercial space in completed development – Order for specific performance by defendants of agreement to grant leases subject to payment by claimants of agreed contribution to building costs – Court order for payment of specified sum as staged payments of building costs – Claimant disputing amount ordered and failing to pay – Claimant applying for variation of order to reduce payment – Defendants applying for discharge or order for specific performance on ground of repudiatory breach by claimant – Applications refusedBy an agreement dated March 2005, the first claimant agreed to sell a development site to the first defendant for £12.745m and to grant back of long leases of the ground-floor commercial space in the completed development. The first claimant was to contribute to the development costs by three staged payments that were linked to the completion of various stages of the work. The first defendant subsequently transferred the site into the joint names of himself and his brother, the second defendant. Disputes arose between the parties, leading to litigation in which the claimant obtained an order for specific performance against the defendants. This required them, on or before practical completion of the development, to grant the leases of the commercial space to the first claimant, or such party as it might direct, provided that it had by then paid the agreed contribution towards the building costs.At a subsequent hearing, it was held that the terms of the order for specific performance had not eliminated the requirement to make staged payments; the judge ordered the first claimant to pay £600,000 plus VAT on account of the first two stage payments and the defendants to provide the first claimant with a statement setting out the dates on which the relevant parts of the development would reach practical completion. The first claimant took issue with the amount of the payment. It did not appeal against the order but applied for it to be stayed; that application was refused. The claimant continued to withhold the full £600,000 but transferred the lesser sum of £82,363 to the defendants, which it maintained was the amount that was properly payable in respect of the first and second stage payments. The defendants did not accept the lesser sum and claimed that the first claimant was in repudiatory breach of contract.The first claimant applied to vary the previous court order to reduce the amount payable to £82,363 and to direct that it be paid into court instead of to the defendants directly. The defendants contended that the first claimant should not be heard because it was in contempt of court and that the order for specific performance should be discharged.Held: The applications of both parties were refused.It was not appropriate to treat the first claimant as being in contempt of court or to decline to hear it by reason of its failure to pay within the time ordered; that would be a disproportionate approach in all the circumstances. However, the order for payment should not be varied. Factors relevant to that decision included: (i) the sum ordered to be paid was a little less than two-thirds of the likely total sum payable on completion; (ii) there was room to correct, or substantially correct, any overpayment when the time came for payment of the final instalment; and (iii) the first claimant had not appealed the order and, having been refused a stay, had failed to comply with that order. Nor was it appropriate to order that the payment be made into court rather than to the defendants. The cash flow arrangements of the agreement should be honoured; the agreement made it clear that the staged payments contributed to the building costs incurred by the defendants and it was envisaged that the defendants should be able to use those funds.The first claimant’s non-payment did not amount to a repudiation of the agreement and should not result in the discharge of the order for specific performance. In that connection, it was relevant that: (i) the order for payment of the £600,000 did not specify that the order for specific performance would be lost should payment not be made on time; (ii) the agreement did not make time of the essence for the making of staged payments; (iii) the first claimant’s position was consistent with both the agreement and the order for specific performance being on foot; and (iv) the payments were delayed stage payments, rather than a payment on completion, non-payment of which had caused no damage to the defendants that could not be remedied by the payment of interest: Woodar Investment Development Ltd v Wimpey Construction (UK) Ltd [1980] 1 WLR 277 applied. A final date was set for compliance with the order for payment, on terms that in the absence of compliance, the order for specific performance would be discharged.Mark Warwick (instructed by Philip Ross Solicitors) appeared for the claimants; David Mayall (instructed by Merriman White) appeared for the defendants.Sally Dobson, barrister