Quest Advisors Ltd and another v McFeely and another

Sale of development site – Agreement for leaseback of ground-floor commercial space in completed development – Judge making order for specific performance by respondents of agreement to grant leases subject to payment by appellants of agreed contribution to building costs – Court ordering staged payments of building costs – Appellant disputing amount ordered and failing to pay – Whether appellant entitled to variation of order to reduce payment – Whether respondents entitled to discharge of order for specific performance on ground of repudiatory breach by appellant – Appellants’ appeal allowed in part – Respondents’ appeal dismissed. By an agreement dated March 2005, the first appellant agreed to sell a development site to the first respondent for £12.745m and to grant back of long leases of the ground–floor commercial space in the completed development (clause 17). The first appellant was to contribute to the development costs by three staged payments that were linked to the completion of various stages of the work (clause 18.4). The first respondent subsequently transferred the site into the joint names of himself and his brother, the second respondent. In 2006, the first appellant executed a deed of assignment in favour of the second appellant purporting to assign to it all rights and obligations under the contract. Disputes arose between the parties, leading to litigation in which the appellant obtained an order for specific performance against the respondents requiring them, on or before practical completion of the development, to grant the leases of the commercial space to the first appellant, 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, Lewison J held that the terms of the order for specific performance had not eliminated the requirement to make staged payments and that the appellant had not repudiated the contract but should pay £600,000 on account of the first two payments. A deputy judge refused the appellants’ application to vary the order for payment and dismissed the respondents’ application for a declaration that, by failing to pay the £600,000, the appellant had repudiated the agreement: [2010] PLSCS 127. Both parties appealed. Held: The appellants’ appeal was allowed in part. The respondents’ appeal was dismissed.   (1) Lewison J had properly construed the order for specific objectively having regard to the judgment to which it was intended to give effect and to the matters to which it related. The verbal formula contained in clause 17 of the contract had to be read compatibly with the obligations of the appellant under clause 18.4 and the judge was right as a matter of construction to find that the repetition of that formula in the declaration and order had no different effect. A judge had no power on an application for specific performance to dispense with or relieve the appellant from its own obligations under the contract. The most that he could do was to reinforce the terms of the contract with an order of the court for its performance. Accordingly, the appellants’ challenge to the judge’s construction of the order for specific performance would be dismissed.(2) The judge had been entitled to apply the general principle established in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 that a failure or refusal to implement the terms of a contract based only on a mistaken belief as to its terms would not, without more, constitute a repudiation. Once the court had made an order for specific performance, the ability of the party with the benefit of the order to exercise his contractual rights under the contract was circumscribed by the order. The rescission or the cancellation of the contract was therefore a matter for the court and could only be achieved by an order of the court dissolving the contract. The respondents’ argument that the appellant had repudiated the contract could only succeed if they showed that appellant was intent on refusing to perform its obligations under clause 18.4 regardless of whether the order had relieved it of having to do so. The evidence pointed to an opposite conclusion. Since the Woodar principle applied, there had been no repudiation and the respondents’ appeal against the order of Lewison J had to be dismissed.(3) The order for the payment of £600,000 required the appellant to make the payment on account of its obligations under clause 18.4 subject to any new payment being adjusted on completion. It could not therefore be an order in terms for the specific performance of clause 18.4 and had to be treated as an order for an interim payment under CPR r. 25.7 which might only be made if one of the conditions set out in CPR r. 25.7(1) was satisfied. The only applicable conditions in this case were conditions (a) and (c), namely that the respondent had admitted liability to pay damages or that if the claim went to trial the claimant would obtain judgment for a substantial amount of money. This was not a case of admitted liability and the difficulty with the application of CPR r. 25.7(1)(c) was that the respondents had not counterclaimed for the amount of the staged payment. The judge had erred in dealing with the matter on a summary basis. He ought to have left it to the respondents to apply for an interim payment supported by evidence about the state of the works. That could not have taken place until the respondents had complied with the judge’s order to give the appellant access to the premises for the purpose of inspection and measurement. Therefore the appellant’s appeal on that point succeeded and the order would be varied by substituting for the figure of £600,000, the sum of £136,396.46 which the appellant had conceded was likely to be payable less £25,703.54 in respect of costs.(4) The order that the appellant should pay £600,000 to the respondents was, at most, an order for an interim payment on account of what the respondents’ might recover as part of a final judgment. Although the appellant’s breach of that order might render it liable to committal proceedings, its non-compliance could not be characterised as a repudiation of their contractual liabilities. Therefore, the respondents’ appeal against the rejection of their claim that the appellant had repudiated the contract by refusing to pay the £600,000 would be refused. Jonathan Seitler QC and Mark Warwick (instructed by Philip Ross Solicitors) appeared for the appellants; David Mayall (instructed by Merriman White) appeared for the respondents Eileen O’Grady, barrister