Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11 (14 February 1980)

WOODAR INVESTMENT DEVELOPMENT LIMITED (RESPONDENTS)

v.
WIMPEY CONSTRUCTION U.K. LIMITED (APPELLANTS)

Lord Wilberforce
Lord Salmon
Lord Russell of Killowen
Lord Keith of Kinkel
Lord Scarman

Lord Wilberforce

My Lords,

The appellants (“Wimpey”) are defendants in this action brought by the
respondents (“Woodar”) upon a contract of sale dated 21st February 1973.
This contract related to 14 acres of land at Cobham, Surrey, near to the site
later occupied by the Esher by-pass. There was the prospect of planning
permission being granted for development. The purchase price was £850,000
and there was a special condition (Condition I) that upon completion the
purchasers should pay £150,000 to a company called Transworld Trade Ltd.
Completion was fixed for the earliest of three dates namely (i) two months
from the granting of outline planning permission for the development of the
property, (ii) 21st February 1980, (iii) such date as the purchaser should specify
by not less than 14 days’ notice in writing.

The contract contained a special Condition E under which there was reserved
to the purchasers power to rescind the contract in either of three events. The
first related to failure to obtain outline planning permission, the second to
the failure to obtain an easement giving access to the property, the third
(E(a)(iii)) was in the following terms:

“[if prior to the date of completion]

“(iii) Any Authority having a statutory power of compulsory acquisition
“shall have commenced to negotiate for the acquisition by agreement
“or shall have commenced the procedure required by law for the compulsory
“acquisition of the property or any part thereof.”

On 20th March 1974 the appellants sent to the respondents a notice in
writing purporting to rescind the contract under this provision. The notice
stated that the ground relied on was that the Secretary of State for the Environ-
ment had commenced the procedure required by law for the compulsory
acquisition of 2.3 acres of the property.

It was in fact known to both parties at the date of the contract that certain
steps had already been taken in relation to these 2.3 acres. In 1970 the Minister
had given notice to the then owner of a draft compulsory purchase order, and
this fact had been published in the local press. Notice had been given of the
appointment of an Inspector to hold a public inquiry, and this was held.
A compulsory purchase order was made on 8th November 1973. On these
facts, the respondents contended that Special Condition E(a)(iii) could not be
invoked by the appellants because the relevant procedure for compulsory
purchase had started before the date of the contract, and so did not come
within the words “shall have commenced”. This contention was upheld by
Fox J. at the trial and was not the subject of appeal, so that the appellants’
claim to invoke the condition has failed.

This gives rise to the first issue in this appeal: whether, by invoking Special
Condition E(a)(iii), and in the circumstances, the appellants are to be taken as
having repudiated the contract. The respondents so claim, and assert that they
have accepted the repudiation and are entitled to sue the appellants for
damage.

My Lords, I have used the words “in the circumstances” to indicate, as I
think both sides accept, that in considering whether there has been a repudiation
by one party, it is necessary to look at his conduct as a whole. Does this indicate

an intention to abandon and to refuse performance of the contract? In the
present case, without taking the appellants conduct generally into account,
the respondents’ contention, that the appellants had repudiated, would be a
difficult one. So far from repudiating the contract, the appellants were relying on
it and invoking one of its provisions, to which both parties had given their
consent. And unless the invocation of that provision were totally abusive, or
lacking in good faith, (neither of which is contended for), the fact that it has
proved to be wrong in law cannot turn it into a repudiation. At the lowest, the
notice of rescission was a neutral document consistent either with an intention to
preserve or with an intention to abandon the contract, and I will deal with it on
this basis—more favourable to the respondents. In order to decide which is
correct the appellants’ conduct has to be examined.

One point can, in my opinion, be disposed of at once. The respondents, in
March 1974 started proceedings against the appellants: this is one of the actions
consolidated in the litigation before us. They claimed a declaration that the
appellants’ notice of rescission was not valid, and the appellants, by their
defence, asserted the contrary and they counterclaimed for a declaration to that
effect. The respondents now contend that if the original notice did not amount
to a repudiation, the defence and counterclaim did. I regard this contention as
hopeless. The appellants’ pleading carried the matter no further: it simply
rested the matter on the contract. It showed no intention to abandon the contract
whatever the result of the action might be. If the action were to succeed (i.e. if
the appellants lost) there was no indication that the appellants would not abide
by the result and implement the contract.

The facts indicative of the appellants’ intention must now be summarised. It is
clear in the first place that, subjectively, the appellants, in 1974, wanted to get
out of the contract. Land prices had fallen, and they thought that if the contract
were dissolved, they could probably acquire it at a much lower price. But
subjective intention is not decisive: it supplied the motive for serving the notice
of rescission: there remains the question whether, objectively regarded, their
conduct showed an intention to abandon the contract.

In early 1974, there was a possibility that some planning permission might be
granted. If it were, and unless the purchasers could take valid objection to it,
completion would (under the Conditions) have to follow in two months.
Therefore, if a notice of rescission were to be given, it had to be served without
delay, i.e. before the planning permission arrived. In this situation, the
appellants’ advisers arranged a meeting with a Mr. Cornwell, who was acting for
the vendors, or as an intermediary with power to commit the vendors, to discuss
the matter. This took place on 7 March 1974 and is recorded as a disclosed aide
memoire dated the next day. This document was prepared by the appellants, and
we have not the benefit of Mr. Cornwell’s evidence upon it: he had died before
the trial. But the rest of the correspondence is fully in line with it and I see no
reason to doubt its general accuracy. After recording each side’s statement of
position, the document contained (inter alia) these passages:

“He [Mr. Cornwell] stated that if we attempted to rescind the contract,
“then he would take us to court and let the judge decide whether the contract
“could be rescinded on the point we were making.”

This “point” was undoubtedly that relating to the compulsory purchase of the
2.5 acres.

“I told him that our Legal Department would be serving the Notice to
“Rescind the Contract within a short while—this would ensure that the
“company was fully protected and was prudent. He assured me that he
“would accept it on that basis and not regard it as a hostile act.”

The notice was then served on 20 March 1974. On 22 March the respondents’
solicitors wrote that they did not accept its validity. On 30 May 1974 Mr.
Cornwell wrote a long letter to Sir Godfrey Mitchell, President of Wimpey.

I refer to one passage:

“. . . within a few days of the original meeting, a notice of rescission was
“served upon the vendor company by your organisation that the contract
“was to be rescinded. Simultaneously with that notice or rescission,
“proceedings were instituted and there the matter remains so far as the
“legal situation is concerned and both parties, from the legal point of view,
“must now await the decision of the court as to the validity of the claim
“made by Messrs. George Wimpey & Co. Limited that they are entitled to
“rescind this contract upon the grounds which they have so stated.”

On 4th June 1974 Mr. Cornwell wrote again:

“All I need say now is that we will retire to our battle stations and it goes
“without saying I am sure that you will abide by the result as I will.”

My Lords, I cannot find anything which carries the matter one inch beyond,
on Wimpey’s part, an expressed reliance on the contact (Condition E(a)(iii)),
on Woodar’s side to take the issue of the validity of the notice (nothing else)
to the courts, and an assumption, not disputed by Wimpey, that both sides
would abide by the decision of the court. This is quite insufficient to support
the case for repudiation. There is only one other matter relied on. At the date
of the contract (21st February 1973) there were arrangements made for a
loan of £165,000 to be made to the respondents by the National Westminster
Bank. The appellants guaranteed—subject to three months’ notice of termina-
tion—the respondents’ indebtedness to the Bank up to £165,000 and agreed
with the Bank to meet interest and other charges. As between the appellants
and the respondents it was agreed that the appellants should indemnify the
respondents against all interest on the loan for seven years or until the contract
should be “fulfilled or discharged”. These arrangements did not form part of
the contract of sale but were collateral to it.

When the notice of rescission was served on 20th March 1974, it was
accompanied by a covering letter, of the same date, referring to the loan
arrangements. It stated:

“The undertaking was limited to seven years from the date of exchange,
“or until the contract was fulfilled or discharged. As the contract is now
“discharged by the enclosed notice, [Woodar] will now be liable for the
“charges incurred in respect of this loan.”

The appellants also gave three months’ notice to the Bank terminating the
guarantee. Again, in my opinion, this carried the matter no further. It simply
drew the attention of Woodar to the consequences which would follow from
rescission of the contract, nothing more. Woodar, in fact understood it as
such, for they wrote to the Bank on 8th April 1974 stating that proceedings
had been instituted against Wimpey for a declaration “which, if successful,
“will reinstate the arrangements which you now give notice you intend to
“bring to an end”.

My Lords, in my opinion, it follows, as a clear conclusion of fact, that the
appellants manifested no intention to abandon, or to refuse future performance
of or to repudiate the contract. And the issue being one of fact, citation of
other decided cases on other facts is hardly necessary. I shall simply state
that the proposition that a party who takes action relying simply on the terms
of the contract, and not manifesting by his conduct an ulterior intention to
abandon it, is not to be treated as repudiating it is supported by James Shaffer
Ltd. v. Findley Durham & Brodie [1953] 1 W.L.R. 106 and Sweet & Maxwell
Ltd. v. Universal News Services Ltd. [1964] 2 Q.B. 699.

In contrast to these is the case in this House of Federal Commerce &
Navigation Co. Ltd. v. Molena Alpha Inc. which fell on the other side of the
line. Of that I said:

“The two cases relied upon by the owners [i.e. the James Shaffer Case
“and the Sweet & Maxwell Case] . . . would only be relevant here if
“the owners’ action had been confined to asserting their own view,

“possibly erroneous, as to the effect of the contract. They went, in fact,
“far beyond this when they threatened a breach of the contract with serious
“consequences.”

The case of Spettabile Consorzio Veneziano di Armamento e Navigazione v.
Northumberland Shipbuilding Co. Ltd. (1919) 121 L.T. 1628 though in some
factual respects distinguishable from the present, is nevertheless, in my opinion,
clear support for the appellants.

In my opinion therefore the appellants are entitled to succeed on the
repudiation issue, and I would only add that it would be a regrettable develop-
ment of the law of contract to hold that a party who bona fide relies upon an
express stipulation in a contract in order to rescind or terminate a contract
should, by that fact alone, be treated as having repudiated his contractual
obligations if he turns out to be mistaken as to his rights. Repudiation is a
drastic conclusion which should only be held to arise in clear cases of a refusal,
in a matter going to the root of the contract, to perform contractual obliga-
tions. To uphold the respondents’ contentions in this case would represent an
undesirable extension of the doctrine.

The second issue in this appeal is one of damages. Both courts below have
allowed Woodar to recover substantial damages in respect of Condition I
under which £150,000 was payable by Wimpey to Transworld Trade Ltd.
on completion. On the view which I take of the repudiation issue, this question
does not require decision, but in view of the unsatisfactory state in which the
law would be if the Court of Appeal’s decision were to stand I must add three
observations:

1. The majority of the Court of Appeal followed, in the case of Goff L.J.
with expressed reluctance, its previous decision in Jackson v. Horizon Holidays
Ltd. [1975] 1 WLR 1468. I am not prepared to dissent from the actual decision
in that case. It may be supported either as a broad decision on the measure of
damages (per James L.J.) or possibly as an example of a type of contract-
examples of which are persons contracting for family holidays, ordering meals
in restaurants for a party, hiring a taxi for a group—calling for special treat-
ment. As I suggested in New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite
& Co. Ltd. [1975] AC 154, 167, there are many situations of daily life which
do not fit neatly into conceptual analysis, but which require some flexibility
in the law of contract. Jackson’s case may well be one.

I cannot however agree with the basis on which the learned Master of the
Rolls put his decision in that case. The extract on which he relied from the
judgment of Lush L.J. in Lloyd’s v. Harper (1880) 16 Ch. D. 290, 321 was part
of a passage in which the Lord Justice was stating as an “established rule
“of law” than an agent (sc. an insurance broker) may sue on a contract made
by him on behalf of the principle (sc. the assured) of the contract gives him
such a right, and is no authority for the proposition required in Jackson’s
case, still less for the proposition, required here, that if Woodar made a
contract for a sum of money to be paid to Transworld Woodar can, without
showing it has itself suffered loss or that Woodar was agent or trustee for
Transworld, sue for damages for non-payment of that sum. That would
certainly not be an established rule of law, nor was it quoted as such authority
by Lord Pearce in Beswick v. Beswick [1968] AC 58.

1. 1. Assuming that Jackson’s case was correctly decided (as above), it does
    not carry the present case, where the factual situation is quite different. I
    respectfully think therefore that the Court of Appeal need not, and should
    not have followed it.
  2. Whether in a situation such as the present—viz. where it is not shown
    that Woodar was agent or trustee for Transworld, or that Woodar itself
    sustained any loss, Woodar can recover any damages at all, or any but nominal
    damages, against Wimpey, and on what principle, is, in my opinion, a question
    of great doubt and difficulty—no doubt open in this House—but one on which
    I prefer to reserve my opinion.

I would allow the appeal.

Lord Salmon

My Lords,

This case raises a point of law of considerable importance in relation to the
repudiation of contracts.

Between July 1969 and February 1973 prolonged negotiations took place
between Mr. Ronald Cornwell and the appellants (Wimpey) for the purchase
by Wimpey of 14.41 acres of freehold land known as Mizen’s Nurseries at
Cobham. In January 1973 Wimpey learnt from Mr. Cornwell that the Vendors
were to be the respondents (Woodar). By February 1973 the purchase price
had been agreed at £lm. In that month Mr. Cornwell proposed that part of
the purchase price should be paid to him as European Agent for the Transworld
Trade Ltd. (Transworld), and a few days later it was agreed that that part of
the purchase price should amount to £150,000 and be paid to Transworld
direct.

It was also arranged that the contract should provide for a loan of £165,000,
secured by a charge on the land (the subject matter of the contract) to be made
to Woodar by Wimpey through their bank and that Wimpey should be
responsible for servicing the loan. Wimpey were, however, advised that the
loan should be treated separately from the contract, otherwise the contract
might be void as constituting a clog on the equity of redemption under the
charge. Accordingly, on the 21st February 1973 Wimpey’s bank lent Woodar
£165,000 and Woodar executed a legal charge on the land in respect of the
loan. Wimpey gave a written undertaking to the bank to meet all interest and
other charges in respect of the loan until 21st February 1980 “or until the
“contract should he fulfilled or discharged”. (The underlining is mine.) The
facts which I have related are all taken out of Wimpey’s printed Case.

The written contract for the purchase of the land by Wimpey from Woodar
was also executed on the 21st February 1973. It specified the purchase price
as £850,000 and laid down at the end of the contract in Article I that upon
the completion of the purchase of the whole or any part of this land, Wimpey
should pay Transworld £150,000.

I will now turn to the material clauses in the contract. Clause E(a) so far as
relevant reads:

“This Contract shall be absolutely binding on both parties . . . for a
“period of seven years from the date hereof but there shall be reserved
“to the Purchaser only the power to rescind this contract if prior to the
“date of completion: . . .

“(iii) any Authority having a statutory power of compulsory acquisition
“shall have commenced to negotiate for the acquisition by agreement
“or shall have commenced the procedure required by law for the
“compulsory acquisition of the property or any part thereof.”

This clause, quite obviously, refers only to any such negotiation or procedure
commenced after the execution of the contract and prior to completion but
not to any negotiation or procedure which had commenced and of which
both parties were well aware before they executed the contract.

Clause E(c), so far as relevant, reads:

“The power to rescind reserved to the Purchaser by subclause (a) . . .
“shall be exerciseable by the service of a notice in writing to that effect
“upon the Vendor . . . and the Purchaser’s liability under . . . this Contract
“shall from the date of service of such notice cease.”

Clause E(g) provides that completion shall take place on the earliest of
the three dates it mentions, namely,

(i) two months after the date on which outline planning permission for
the development of the property is granted;

(ii) 21st February 1980;

(iii) such date as the Purchaser shall specify but not by less than 14 days’

written notice.

Returning to paragraph E(a)(iii) of the contract, it is common ground that
Wimpey and Woodar both knew, well before the contract between them was
executed, (1) that in 1970 the Minister of the Environment had given notice
of a draft compulsory purchase order in respect of 2.3 acres of the 14.41 acres
covered by the contract, (2) that this fact had been published in the local
press, and (3) that notice had also been given of the appointment of an inspector
to hold a public inquiry which he had duly held.

Indeed, there is a provision in the contract under clause G which, so far as
relevant, reads:

“It is hereby agreed that the Vendor shall not require the Purchaser to
“include in the Transfer to the Purchaser any part … of the land hereby
“agreed to be sold which shall be required by the Surrey County Council
“. . . or any Statutory Authority . . . and the purchase price shall be abated
“at the rate of £70,000 per acre … for any part … of the land hereby
“agreed to be sold which shall not be included in the Transfer to the
“Purchaser”.

It is to be observed that if the land is priced in the contract at £70,000 an acre,
the 14.41 acres sold under the contract would, in fact, be priced at about £lm.

By March of 1974 there had been a very alarming slump in the value of
land. It is quite clear from one of Wimpey’s internal memoranda, written at
the beginning of that month, that Wimpey had no intention of honouring
their contract by paying the agreed price of £70,000 an acre for the land:
that they intended to repudiate the contract but would gladly enter into a new
contract with Woodar to buy the land at £48,000 an acre, on otherwise the
same terms as those of the existing contract.

The relevant part of the memorandum reads as follows:

“Revised broadsheets have been prepared taking account of the reduced
“selling price of houses and increased building costs and these indicate
“that currently to show 20% profit we can offer £48,000 per acre, to show
“15% profit £53,000 per acre.

“The indications are that this piece of land could obtain outline planning
“permission within the next 4 months, in which case we as a company
“would be obliged to perform in accordance with the obligations of our
“contract to purchase subject to the various conditions.
“We propose arranging a meeting with Mr. Cornwell to discuss formally
“with him:

“(a) Our intention to rescind the contract so that he is obliged to
“pay the interest on the loan thereafter from that date.

“(b) To make him a proposal that we are prepared to proceed with
“the purchase of the land at the reduced figure of £48,000 per
“developable acre subject, of course, to the same terms and
“conditions.”

On 20th March 1974 a notice was sent to Woodar by Wimpey in the following
terms:

“Pursuant to Clause E(c) of a Contract dated the twenty-first day of
“February 1973 and made between Woodar Investment Development
“Limited of the one part and George Wimpey & Co., Limited of the
“other part the said George Wimpey & Co., Limited hereby rescinds the
“said Contract on the ground that within the meaning of Clause E(a)(iii)
“of the said Contract the Secretary of State for the Environment has
“commenced the procedure required by law for the compulsory acquisition
“of part of the property (a Compulsory Purchase Order relating to the
“land edged red on the plan annexed hereto having been made),”

I am afraid that I am entirely unable to agree with the proposition that this
notice of rescission was a neutral averment consistent either with the intention
to preserve or with an intention to abandon the contract. To my mind it was
served with the clearly expressed intention of bringing the contract to an end.
This notice was accompanied by a letter of the same date, the last paragraph
of which reads as follows:

“When Contracts for the sale and purchase of the above land were
“exchanged, an undertaking was given by the Company indemnifying
“Woodar Investment Development Limited against all interest charges
“payable to the National Westminster Bank Limited as a result of a loan
“by them to you of a sum of £165,000.00. The undertaking was limited
“to seven years from the date of exchange or until the Contract was
“fulfilled or discharged. As the Contract is now discharged by the enclosed
“Notice, Woodar Investment Development Limited will now be liable
“for the charges incurred in respect of this loan.” (The underlining is
mine.)

My Lords, it was conceded in this House on behalf of Wimpey that they
had no right to rescind, discharge or repudiate the contract. In my respectful
opinion, Wimpey had made it crystal clear by their notice and letter of
20th March that they purported to bring their liability under the contract to
an end by rescinding and discharging it; and that they had no intention of
paying the contract price for the land in question. If this does not go to the
root of the contract and evince an unequivocal intention no longer to be bound
by it, and therefore amounts to a repudiation of the contract, I confess that I
cannot imagine what would.

In the court of first instance, Wimpey sought to justify their notice and
letter of 20th March 1974 on the ground that prior to the execution of the
contract of 21st February 1973, steps had been taken for the compulsory
acquisition of 2.3 acres out of the 14.41 acres the subject matter of the contract.
I have already described these steps and I shall not repeat them. It is common
ground that all these steps were well known both to Wimpey and to Woodar
at the time they were taken. The point was nevertheless argued on behalf of
Wimpey before the trial judge that because of these steps having been taken
when they were, Wimpey were entitled under Clause E(a)(iii) of the contract
to rescind the contract and refuse to perform it. The learned trial judge made
short work of that point and decided that it was untenable. The point was so
obviously bad that it was wisely decided by counsel on behalf of Wimpey
not to be worth taking in the Court of Appeal. It was however accepted by
Woodar that on the 20th March 1974, Wimpey honestly believed in the point
which they later abandoned. I do not understand how Wimpey’s honest belief in
a bad point of law can in any way avail them. In Federal Commerce Ltd. v.
Molena Alpha Inc. [1978] 3 W.L.R. 309, at p. 342, Lord Denning M.R. said:
“I have yet to learn that a party who breaks a contract can excuse himself
“by saying that he did it on the advice of his lawyers: or that he was under
“an honest misapprehension. Nor can he excuse himself on those grounds
“from the consequences of a repudiation”. I gratefully adopt that passage
which seems to me to be particularly apt in the present case. It certainly was
never questioned in your Lordships’ House when the appeal from the decision
of the Court of Appeal in the Federal Commerce case [1978] 3 W.L.R. 991
was dismissed.

In Freeth v. Burr (1874) L.R. 9 C.P. 208, Lord Coleridge said at p. 213:

” . . . where the question is whether the one party is set free by the action
“of the other, the real matter for consideration is whether the acts or
“conduct of the one do or do not amount to an intimation of an intention
“to abandon and altogether to refuse performance of the contract.”

In Mersey Steel and Iron Co. Ltd. v. Naylor, Benzon and Co. (L.R. 9 App. Cas.
p. 434) Lord Selborne L.C., after approving of what Lord Coleridge said in
Freeth v. Burr, supra, went on to say at p. 439:

“. . . you must examine what the conduct is, so as to see whether it
“amounts to a renunciation, to an absolute refusal to perform the contract,
“such as would amount to a rescission if he had the power to rescind, and
“whether the other party may accept it as a reason for not performing
“his part.”

In the Spettabile case (1919) 121 L.T. 628, Atkin L.J. said at p. 634:
“A repudiation has been defined in different terms—by Lord Selborne
“as an absolute refusal to perform a contract; by Lord Esher as a total
“refusal to perform it; by Bowen L.J. in Johnston v. Milling 16 Q.B.D.
“p. 460 as a declaration of an intention not to carry out a contract when
“the time arrives, and by Lord Haldane in Bradley v. H. Newsom Sons
“& Co. Ltd. [1919] A.C. 16 as an intention to treat the obligation as
“altogether at an end. They all come to the same thing, and they all
“amount, at any rate to this, that it must be shown that the party to the
“contract made quite plain his own intention not to perform the contract.”

In the Heyman v. Darwins Ltd. case [1942] A.C. 356 at pp. 378, 379, Lord
Wright said:

“There is, however, a form of repudiation where the party who repudiates
“does not deny that a contract was intended between the parties, but
“claims that it is not binding because of the failure of some condition or
“the infringement of some duty fundamental to the enforceability of the
“contract, it being expressly provided by the contract that the failure of
“condition or the breach of duty should invalidate the contract . . .
“But perhaps the commonest application of the word ‘repudiation’ is to
“what is often called the anticipatory breach of a contract where the
“party by words or conduct evinces an intention no longer to be bound
“and the other party accepts the repudiation and rescinds the contract.
“In such a case, if the repudiation is wrongful and the rescission is rightful,
“the contract is ended by the rescission but only as far as concerns future
“performance. It remains alive for the awarding of damages … for the
“breach which constitutes the repudiation.”

In my opinion, the repudiation in the present case exactly fits the repudiation
which Lord Wright explains in the passages which I have just cited.

I do not recall that any of these definitions of a repudiation of a contract
have ever until now, been questioned. The fact that a party to a contract
mistakenly believes that he has the right to refuse to perform it cannot avail
him. Nor is there any authority for the proposition that if a party to a contract
totally refuses to perform it, this refusal is any the less a repudiation of the
contract because he honestly but mistakenly believes that he is entitled by a
condition of the contract to refuse to perform it.

It would indeed be unfortunate if the law were otherwise. A mistake in the
construction of a contractual condition, even such a glaringly obvious mistake
as the present can apparently easily be made especially perhaps when the
market price has fallen far below the contract price. It is acknowledged in
this case that the mistake was an honest one. If, however, a case arose in
which a mistake of this kind was alleged to be an honest mistake, but not
acknowledged to be so, it would be extremely difficult, if not impossible to
prove the contrary.

James Shaffer Ltd. v. Findlay Durham and Brodie [1953] 1 W.L.R. 106 and
Sweet and Maxwell Ltd. v. Universal News Services Ltd. [1964] 2 Q.B. 699
were strongly relied upon on behalf of Wimpey. Those two cases were very
different from each other and even more different from the present case; in
my opinion they certainly lend no more support to Wimpey than they did to
the appellants in the Federal Commerce case [1978] 3 W.L.R. 996. Indeed, if
anything, they are of some help to Woodar. In the former case, Singleton L.J.
said at p. 121: “… is it possible to say that the defendants . . . showed
“an intention to abandon and altogether to refuse the performance of the
“contract? … I think not.” Morris L.J. said at p. 124: “I have no doubt

“that [the defendants] wanted to go on with the contract.” In the latter case,
Harman L.J. said at p. 729, “… repudiation really is not in the picture
“here at all, because if the defendants were not wholly justified in the attitude
“they took up [on the construction of the agreement] the plaintiffs were not
“wholly justified in their attitude either, and they could only treat the
“defendants’ refusal to comply with their demands as repudiation if their
“demands were wholly right. Therefore . . . repudiation does not really arise:
“but as it was the ground of the judgment of the judge below, I think I ought
“to say something about it. … there was not that absolute refusal to go on
“which is necessary … to arrive at a conclusion that an agreement . . . has
“been entirely repudiated”. Pearson L.J. said much the same.

The present case is, however, quite different from the James Shaffer case
and the Sweet and Maxwell case because Wimpey made it very plain by their
notice and letter of 20th March 1974 that they had no intention to go on with
the contract and buy the land at the contract price.

The case of Spettabile Consorzio Veneziano di Armomenta e Navigazione v.
Northumberland Shipbuilding Co. Ltd. [1919] 121 L.T. 628 was also strongly
relied upon on behalf of Wimpey. The facts of that case were very strange
and clearly distinguishable from the present. Goff L.J. made a long and masterly
analysis of that case with which I agree and gratefully adopt. I do not consider
that that case is, in reality, of any help to Wimpey.

I cannot accept that the majority of the Court of Appeal concentrated too
much attention on Wimpey’s rescission notice of 20th March 1974 and not
enough upon its surrounding circumstances. In any event, it seems to me that
those surrounding circumstances supported Woodar’s case rather than
Wimpey’s. I think that it is obvious from the surrounding circumstances that
Wimpey had made up their mind at the beginning of March 1974 (and never
changed it) that, in no circumstances would they comply with their contractual
obligation to buy the land in question at the price of £70,000 per acre. This
is made clear by the language of their memorandum which I have already
cited and which appears to have been written a day or two before Wimpey’s
aide memoire of 8th March 1974 upon which Wimpey rely. I do not understand
how that document can be evidence against Woodar, even if Mr. Cornwell
were still alive. Nor do I think that even if the document were admissible in
evidence it could be accepted as being accurate in every detail. Looking at the
document as a whole, however, it seems to support Woodar’s case rather than
Wimpey’s. It indicates (1) that Wimpey made plain to Mr. Cornwell what was
recorded in the memorandum which I have cited; (2) that Mr. Cornwell was
anxious to effect a compromise and suggested that “the money could be paid
“to him over a period of up to say five years, or that the price could be lowered
“or a combination of both”; (3) that Wimpey replied “the mere extension of
“five years would not be attractive to us, but that if the land value was vastly
“reduced we would still like to remain with the deal”; (4) that Mr. Cornwell
then said “that he would go away and consider the lowest price that he could
“afford to sell it to us and that below that price he would fight us through the
“Courts.” (The underlining is mine.)

On 22nd March 1974, two days after the notice of rescission was served by
Wimpey, Woodar’s solicitor wrote that they did not accept its validity. By a
writ of summons endorsed with a statement of claim served on 29th March
1974 Woodar, amongst other things, claimed against Wimpey a declaration
that their notice of 20th March 1974 did not rescind the contract. It may well
be that Woodar considered that once they commenced legal proceedings,
Wimpey would throw in their hand. If so, they were mistaken, for Wimpey
served a defence and counterclaim on 18th May 1974 alleging that the notice
of rescission of 20th March 1974 was valid and counterclaimed a declaration
that the contract had been rescinded by that notice.

Mr. Cornwell, who seems to have done all the negotiations on behalf of
Woodar, was obviously anxious if possible to settle rather than embark on

lengthy and expensive litigation. He was no doubt disappointed when Wimpey
made it clear by their defence and counterclaim that they intended to fight.
He probably, I think, wrote his lengthy letter of 30th May 1974 in one last
effort to effect a settlement. Wimpey have sought to make much of this letter
which in my view helps Woodar rather than Wimpey. It seems to make it
very plain that Mr. Cornwell had consulted counsel on the notice of rescission
and had been advised that it constituted a wrongful repudiation of the contract.
I cite one brief passage from it. “. . . unless some compromise is reached
“and quickly, then I shall feel obliged to sell immediately in the best possible
“circumstances with a certain knowledge, so far as counsel’s advice is con-
“cerned, that we have a complete redress against” (Wimpey). Of course there
was nothing to stop the parties waiting and doing nothing until the litigation
constituted by the first action was over as Mr. Cornwell said earlier in his
letter. But there was nothing to prevent Woodar from selling immediately
and bringing another action claiming damages, once they had accepted the
repudiation to which I have already referred.

At the time when Mr. Cornwell’s letter of 4th June 1974 was written, upon
which my noble and learned friend Lord Scarman places considerable reliance,
Woodar had not accepted the repudiation: and a repudiation, however wrongful
is nugatory until accepted by the other contracting party.

The result of the first action must have been in Woodar’s favour. They
could have waited until completion was due under the contract, which could
not have been later than 21st February 1980. Wimpey might then perhaps
have completed the contract or they might have failed to complete it, in which
event they would have had no defence to an action for specific performance
or damages. There was, however, nothing to compel Woodar to confine
themselves to the first action. They had a free choice to do so or to accept the
wrongful repudiation which would enable Woodar to bring the second action
claiming damages for an anticipatory breach of the contract.

I entirely agree with my noble and learned friend Lord Wilberforce that
Wimpey’s counterclaim in the first action did not amount to a repudiation
of the contract. For the reasons I have given, however, their repudiation of
the contract had, in my view, been effected by the notice of rescission dated
20th March 1974 and supported by the letter of the same date.

Although I cannot agree with Buckley L.J. that the contract was not wrong-
fully repudiated, I do agree with his view that if Wimpey’s notice of the
20th March 1974 did constitute a wrongful repudiation of the contract of
21st February 1973, the proceedings launched by Woodar against Wimpey
on the 29th March 1974 could not preclude them from accepting that repudia-
tion and bringing another action against Wimpey claiming damages for an
anticipatory breach of contract. And this is what Woodar did. On 10th July
1974, through their solicitors, they accepted the wrongful repudiation of
20th March 1974 and then launched their action for damages for an anticipa-
tory breach of contract. The two actions were consolidated and duly tried by
Fox J. who found that Wimpey had wrongfully repudiated the contract of
the 21st February 1973 and gave judgment in favour of Woodar for, in all,
£462,000 damages.

The Court of Appeal by a majority affirmed Fox J.’s decision on liability
but reduced the damages to £272,943.

My Lords, for the reasons I have stated, I would dismiss the appeal on the
issue of liability. Since, as I understand, the majority of your Lordships are
for allowing the appeal on liability, the interesting question in relation to
damages in respect of the claim for £150,000 does not now arise. I do, however,
agree with what my noble and learned friend Lord Wilberforce has said about
the finding of the majority of the Court of Appeal (Goff L.J. with reluctance)
on this topic. I would add that, in my opinion, the law as it stands at present
in relation to damages of this kind is most unsatisfactory; and I can only
hope that your Lordships’ House will soon have an opportunity of recon-
sidering it unless in the meantime it is altered by statute.

11
Lord Russell of Killowen

My Lords,

The contention advanced by the purchaser (“Wimpey”) was that it was
entitled to rescind the contract by notice of rescission under special condition
E(a)(iii) of the contract, because the relevant authority had “commenced the
“procedure” required by law for compulsory acquisition not earlier than the
making of the compulsory purchase order on 8th November 1973, subsequent
to the contract. Fox J. held that this was incorrect; and that even if it were a
correct construction of the contract there should be rectification to make it
clear that steps taken by authority in that connection prior to the contract
constituted commencement of the relevant procedure and were not intended
to afford a ground for rescission under the special condition. From that holding
there was and is no appeal.

Consequently there was no justification in law for the notice of rescission,
and the first question in this appeal is whether the notice of rescission was
capable of being accepted by Woodar as a renunciation or repudiation of the
contract by Wimpey. An affirmative answer to that question was assumed, or
not disputed, before Fox J., and was given by the majority in the Court of
Appeal (Buckley L.J. dissenting).

The difference of opinion on this point in the Court of Appeal and in your
Lordships’ House turns upon a question which can be shortly stated. If a
party to a contract has a power thereunder totally to rescind and renounce
all liability to perform any part of its obligations under a contract, and in
terms purports absolutely so to rescind and renounce on grounds that in law
are not justified, can there ever be circumstances which enable the rescinder
to dispute the renunciatory and repudiatory quality of his action?

My Lords, in my opinion the answer to that question is in the negative.

I do not of course dispute that a mistaken concept of the rights of a party
under the contract, and action (or inaction) on the basis of that mistaken
concept, need not constitute such a renunciation of the contract as to be
capable of being accepted as repudiation of the contract. Nor do I dispute
that repudiation is a serious matter not lightly to be found. Nor do I dispute
that in most cases repudiation or non-repudiation falls to be decided having
regard to all the circumstances of a case. But I deny that a clear case of the
purported exercise of a power of rescission, a total renunciation of all future
obligation to perform any part of the contract, such as now concerns your
Lordships, can by any circumstances be watered down or deprived of its
repudiatory quality. I further assert that it is fallacious to deny that totally
renunciatory and repudiatory quality on the ground that because the action
is purportedly taken under a clause in the contract it is somehow affirming
rather than repudiating the contract. The notice of rescission given in this case
by Wimpey was wholly unequivocal, in effect saying that Wimpey would not
in any circumstances fulfil the contract: and that flat statement is not to be
regarded as otherwise than renunciatory of the contract because Wimpey
genuinely thought that it was entitled in law to take that attitude.

It is of course true that in previous discussion with Mr. Cornwell (for
Woodar) it was indicated that Wimpey’s right to rescind on the ground
suggested would be challenged by Woodar in proceedings. But I see no ground
in that for watering down the absolute nature (or colour) of the notice of
rescission as being somehow conditional upon the rectitude in law of Wimpey’s
stance. Indeed I do not accept a view that the notice of rescission could have
been (a) expressed to be conditional upon its justification in law but (b) then
operative to terminate all liability of Wimpey under the contract, as it was
manifestly intended to be because it was feared that shortly a planning per-
mission would be forthcoming (though it did not) which would trap Wimpey
irrevocably into an unprofitable bargain.

I can, my Lords, envisage a situation in which a party in the position of
Woodar might state unequivocally in advance that if Wimpey were to serve

the notice which it did serve, Woodar would not, when it was shown in pro-
ceedings that the notice was unjustified, treat it as repudiatory. But that would
achieve a position in which Woodar would be debarred from asserting
repudiation, rather than constitute a circumstance qualifying the fundamental
renunciatory character of the purported exercise by Wimpey of the power.
But it cannot be said that such a position was achieved by anything said by
Cornwell in this case.

I am, my Lords, not led to a contrary view by the circumstances of the
Spettabile case at first instance. There the view was taken that if originally a
communication would have indicated a repudiatory attitude, subsequent
approach to the court by the “repudiator” for a decision upon the rights of
the case should be taken as withdrawal of the original repudiation. That is
not this case. The resort to the court was not by Wimpey, and Wimpey never
withdrew its notice of rescission to abide the outcome of the litigation.

It was suggested that the proceedings by Woodar for a declaration and/or
rectification somehow constituted an election not to accept the rescission
as a repudiation, so that Woodar’s later purported acceptance of it as such
was ineffective. In common with, I believe, all your Lordships I cannot accept
that. Woodar was obliged to take the steps that it did in order to establish
that the notice was unjustified in law and therefore an unjustified repudiation.

Accordingly in my opinion Wimpey wrongfully repudiated the contract by
its notice of rescission, and Woodar accepted that repudiation so as to entitle
it to damages for total breach.

In arriving at my conclusion I do not rely upon the reference to interest
payments in the covering letter enclosing the rescission notice: nor upon the
defence or counterclaim of Wimpey. These seem to me to add nothing to the
repudiatory nature of the notice itself.

In conclusion upon this point I cannot agree that, if my opinion were correct,
it would be an unfortunate step in the law. If a party takes such a bold step
he risks disaster. If he plunges in without first testing the temperature by a
construction summons asking whether the rescission remedy is available to
him he runs the risk of catching a severe cold.

There is no question on this appeal as to quantum of damage save under
the heading of damages for breach of special condition I, under which Wimpey
agreed on completion of the sale to pay £150,000 to Transworld, a Hong Kong
company. Transworld was in some way connected with Mr. Cornwell, who
died before action. No evidence connects Transworld with Woodar, the party
to the contract. No evidence suggests that Woodar could suffer any damage
from a failure by Wimpey to pay £150,000 to Transworld. It is clear on the
authority of Beswick v. Beswick that Woodar on completion could have secured
an order for specific performance of the agreement to pay £150,000 to
Transworld, which the latter could have enforced. That would not have been
an order for payment to Woodar, nor (contrary to the form of order below)
to Woodar for the use and benefit of Transworld. There was no suggestion of
trust or agency of Woodar for Transworld. If it were necessary to decide the
point, which in the light of the views of the majority of your Lordships on the
first point it is not, I would have concluded that no more than nominal damages
had been established by Woodar as a consequence of the refusal by Wimpey
to pay Transworld in the light of the law of England as it now stands. I would
not have thought that the reasoning of Oliver J. in Radford v. De Froberville
[1977] 1 W.L.R. 1262 supported Woodar’s case for substantial damages.
Nor do I think that on this point the Court of Appeal was correct in thinking
it was constrained by Jackson v. Horizon Holidays [1975] 1 WLR 1468 to
award substantial damages. I do not criticize the outcome of that case: the
plaintiff had bought and paid for a high class family holiday: he did not get
it, and therefore he was entitled to substantial damages for the failure to
supply him with one. It is to be observed that the order of the Court of Appeal
as drawn up did not suggest that any part of the damages awarded to him
were “for the use and benefit of” any member of his family. It was a special
case quite different from the instant case on the Transworld point.

I would not, my Lords, wish to leave the Jackson case without adverting
with respectful disapproval to the reliance there placed by Lord Denning, M.R.
—not for the first time—on an extract taken from the judgment of Lush L.J.
in Lloyd’s v. Harper L.R. 16 Ch. D. 290. That case was plainly a case in which
a trustee or agent was enforcing the rights of a beneficiary or principal, there
being therefore a fiduciary relationship. Lord Denning at p. 1473 in Jackson’s
case said this:

“The case comes within the principle stated by Lush L.J. in Lloyd’s v.
“Harper [at p. 321] ‘I consider it to be an established rule of law that
” ‘where a contract is made with A for the benefit of B, A can sue on the
” ‘contract for the benefit of B and recover all that B could have recovered
” ‘if the contract had been made with B himself “.

Lord Denning continued: “It has been suggested that Lush L.J. was thinking
“of a contract in which A was trustee for B. But I do not think so. He was a
“common lawyer speaking of common law”. I have already indicated that in
all the other judgments the matter proceeded upon a fiduciary relationship
between A and B: and Lush LJ. in the same passage makes it plain that he
does also; for he says:

“It is true that the person [B] who employed him [the broker A] has a
“right, if he pleases, to take action himself and sue upon the contract
“made by the broker for him, for he [B] is a principal party to the
“contract”.

To ignore that passage is to divorce the passage quoted by Lord Denning
from the fiduciary context in which it was uttered, the context of principal
and agent, a field with which it may be assumed Lush L.J. was familiar. I
venture to suggest that the brief quotation should not be used again as support
for a proposition which Lush L.J. cannot have intended to advance.

In summary therefore, in disagreement with the majority of your Lordships,
I would have dismissed this appeal on repudiation. Had I been correct I would,
as at present advised, have allowed the appeal on the Transworld point, and
awarded only nominal damages on that point to Woodar, and not substantial
damages to be paid to Woodar “for the use and benefit of” Transworld, a
form of order which I cannot see was justified.

Lord Keith of Kinkel

My Lords,

In deciding the issue of repudiation which arises in this appeal, the guiding
principle is that enunciated by Lord Coleridge in Freeth v. Burr (1874)
L.R. 9 C.P. 208 at p. 213:

“In cases of this sort, where the question is whether the one party is set
“free by the action of the other, the real matter for consideration is whether
“the acts or conduct of the one do or do not amount to an intimation
“of an intention to abandon and altogether to refuse performance of the
“contract.”

The matter is to be considered objectively:

“The claim being for wrongful repudiation of the contract it was necessary
“that the plaintiff’s language should amount to a declaration of intention
“not to carry out the contract, or that it should be such that the defendant
“was justified in inferring from it such intention. We must construe the
“language used by the light of the contract and the circumstances of the
“case in order to see whether there was in this case any such renunciation
“of the contract.”

(Johnstone v. Milling (1886) L.R. 16 Q.B.D. 460, per Bowen L.J. at p. 474).

The importance of looking at the whole circumstances of the case was
emphasised by Lord Selborne L.C. in Mersey Steel & Iron Co. Ltd. v. Naylor,
Benzon & Co. (1884) 9 App. Cas. 434 at p. 438 and by Singleton L.J. in James
Shaffer Ltd. v. Findlay Durham & Brodie [1953] 1 W.L.R. 106 at p. 116.

There is a tract of authority which vouches the proposition that the assertion
by one party to the other of a genuinely held but erroneous view as to the
validity or effect of a contract does not constitute repudiation. In the Spettabile
case (1919) 121 L.T. 628, the plaintiffs sent to the defendants a letter claiming
that certain contracts were no longer binding upon them and followed it up
with service of a writ seeking declarations to that effect. The Court of Appeal
held that the plaintiffs’ conduct did not amount to repudiation of the contracts.
Warrington L.J. said at p. 633, with reference to the letter:

“It seems strange to me that that is not telling the defendants that whatever
“happens, whatever is the true state of the case, whether the contracts
“are binding on the plaintiffs or not, they will not perform them: but
“that they have instructed their solicitors to take proceedings with the
“object of having it determined that the contracts are not binding upon
“the plaintiffs and are at an end;”

and with reference to the writ:

“I think that it is desirable to say this, that in my opinion where one party
“to a contract conceives that he is no longer bound by the contract or has
“a right to have it rescinded or declared null and void, and issues a writ
“for the purpose of obtaining that which he believes to be his right, he
“does not by that mean to repudiate the performance of the contract
“in any event. It seems to me that he submits to perform it if the court,
“as the result of the action, comes to the conclusion that he is bound to
“perform it, and it cannot be taken to be an absolute repudiation.”

Lord Atkin, at p. 635, after observing that it must be shown that the party
to the contract made quite plain his own intention not to be bound by it, said:

“The substance [of the writ] appears to me to be this: that the plaintiffs
“in the action are asking the court to declare whether or not they are any
“longer bound by the contracts. It appears to me that that is an entirely
“different state of facts altogether from an intimation by the plaintiffs
“apart from the courts of law, that they in any event are not going to
“perform the contracts. It is something quite different from a repudiation.
“So far from expressing the intention of the parties not to perform the
“contracts, it appears to me to leave it to the court to say whether or not
“the contract is to be performed, and if the court says it is, then it impliedly
“states that it will be performed. I think, therefore, there was no
“repudiation of the contract.”

In two other cases it was held by the Court of Appeal that the expression
by one party to a contract of a genuine but erroneous view as to the obligations
which on a proper construction of it were thereby imposed did not infer an
intention to repudiate the contract. These cases are James Shaffer Ltd. v.
Findlay Durham & Brodie (supra) and Sweet & Maxwell Ltd. v. Universal News
Services Ltd. [1964] 2 Q.B. 699. Finally, it is worth observing that in Ross T.
Smyth & Co. Ltd. v. T. D. Bailey, Son & Co. [1940] 3 All E.R. 60, at p. 72,
Lord Wright said:

” . . . a mere honest misapprehension, especially if open to correction,
“will not justify a charge of repudiation.”

So in the present case the question comes to be whether, having regard to
all the circumstances, the conduct of the appellants in relation to their invoca-
tion of clause E(a)(iii) of the contract was such that a reasonable person in the
position of the respondents would properly infer an intention “in any event”,
to use the expression employed by Warrington and Atkin L.JJ. in the Spettabile
case, to refuse to perform the contract when the time came for performance.

The terms of clause E(a)(iii) have been quoted by my noble and learned
friend Lord Wilberforce. It conferred upon the appellants the right lawfully
to rescind the contract in the event there described. The appellants had come
to find the contract burdensome in view of the dramatic collapse of the property
market. They accordingly desired to be relieved of it and took legal advice as
to whether there existed grounds upon which they might lawfully do so. The
advice received was to the effect that clause E(a)(iii) provided such a ground.

The appellants did not, however, at once give notice of rescission under the
clause. They sought an interview with Mr. Cornwell, as representing the
respondents, which took place on 7th March 1974 and proceeded on the lines
described in the aide memoire which is in evidence. The appellants informed
Mr. Cornwell of their position as regards the application of clause E(a)(iii)
and proposed a renegotiation of the contract, failing which they stated their
intention to serve notice of rescission in terms of the clause. Mr. Cornwell
contested the correctness of their position, and expressed the intention, if the
appellants served notice of rescission, of taking the matter to court and
obtaining a decision upon their right to do so. The appellants served their
notice of rescission about two weeks later, clearly in the expectation, which was
duly and promptly realised, that the respondents would initiate legal proceedings
in order to test its validity. In my opinion there was nothing in the appellants’
conduct up to this point, there being no dispute about the genuineness of their
belief that they were entitled to terminate the contract upon the stated ground,
which might reasonably be treated as inferring that it was their intention to
refuse performance in the event of a judicial determination that that belief
was erroneous. The letters written by Mr. Cornwell to Sir Godfrey Mitchell
on 30th May and 6th June 1974, the material parts of which have been quoted
by my noble and learned friend, clearly indicate that he himself did not draw
any such inference. I am unable to regard the appellants’ conduct as evincing
an intention “altogether to refuse performance of the contract” as Lord
Coleridge put it in Freeth v. Burr (supra), or as constituting “an absolute
“repudiation” in the sense in which Atkin L.J. used that expression in the
Spettabile case (supra).

I would accept without hesitation the statement of Lord Denning M.R. (in
Federal Commerce Ltd. v. Molena Alpha Inc. [1978] 1 Q.B. 309, 342) that a
party who breaks a contract cannot excuse himself by saying that he did it
on the advice of his lawyers, or that he was under an honest misapprehension.
If in the present case the time for performance had passed while the appellants
were still maintaining their position based on the erroneous interpretation of
clause E(a)(iii), they would have been in breach of contract and liable in
damages accordingly. Lord Denning goes on to say:

“Nor can he excuse himself on those grounds from the consequences of
“a repudiation.”

That may be so, but it is first necessary to determine whether or not there
has been a repudiation.

The doctrine of repudiatory breach is largely founded upon considerations
of convenience and the opportunities which it affords for mitigating loss, as
observed by Cockburn C.J. in Frost v. Knight (1872) L.R. 7 Exch. 111 at
p. 114. It enables one party to a contract, when faced with a clear indication
by the other that he does not intend to perform his obligations under it when
the time for performance arrives, to treat the contract, if he so chooses, as
there and then at an end and to claim damages as for actual breach. Where
one party, honestly but erroneously, intimates to the other reliance upon a
term of the contract which, if properly applicable, would entitle him lawfully
to rescind the contract, in circumstances which do not and are not reasonably
understood to infer that he will refuse to perform his obligations even if it
should be established that he is not so entitled, legal proceedings to decide
that issue being in contemplation. I do not consider it in accordance with
ordinary concepts of justice that the other party should be allowed to treat
such conduct as a repudiation. Nor, in my opinion, are there any considerations
of convenience which favour that course.

I would add that in my view the lodging by the appellants of their defence
and counterclaim in answer to the respondents’ first writ did not constitute
further conduct on their part which can itself be regarded as having a repudiatory
character. They thereby demonstrated nothing more than an adherence to
their position as they had earlier expressed it. Further, the action taken by

the appellants in relation to the guarantee arrangements with the National
Westminster Bank appear to me to have been no more than a natural conse-
quence of the view taken by the appellants as to their right to terminate the
contract.

In the circumstances the issue regarding the respondents’ right to damages
in respect of alleged breach of the appellants’ obligation under the contract
to pay £150,000 to Transworld does not arise for decision. It is desirable,
however, that I should express my agreement with my noble and learned friend
Lord Wilberforce that the decision in favour of the respondents upon this
issue, arrived at by the majority of the Court of Appeal, was not capable of
being supported by Jackson v. Horizon Holidays Ltd. [1975] 1 WLR 1468.
That case is capable of being regarded as rightly decided upon a reasonable
view of the measure of damages due to the plaintiff as the original contracting
party, and not as laying down any rule of law regarding the recovery of damages
for the benefit of third parties. There may be a certain class of cases where
third parties stand to gain indirectly by virtue of a contract, and where their
deprivation of that gain can properly be regarded as no more than a consequence
of the loss suffered by one of the contracting parties. In that situation there
may be no question of the third parties having any claim to damages in their
own right, but yet it may be proper to take into account in assessing the
damages recoverable by the contracting party an element in respect of expense
incurred by him in replacing by other means benefits of which the third parties
have been deprived or in mitigating the consequences of that deprivation.
The decision in Jackson v. Horizon Holidays Ltd. is not, however, in my opinion,
capable of being supported upon the basis of the true ratio decidendi in Lloyd’s
v. Harper (1880) 16 Ch. D. 290, which rested entirely on the principles of
agency.

I would also associate myself with the observations of my noble and learned
friend Lord Scarman as to the desirability of this House having an opportunity
of reviewing, in some appropriate future case, the general attitude of English
law towards the topic of jus quaesitum tertio.

My Lords, I would allow the appeal.

Lord Scarman

My Lords,

For the reasons given by my noble and learned friend, Lord Wilberforce,
I would allow the defendants’ appeal. In my judgment the defendants did not
commit, or threaten to commit, a repudiatory breach of contract. The principle
of the modern law is now “perspicuous”, as my noble and learned friend
observed in Federal Commerce v. Molena Alpha [1978] 3 W.L.R. 991 at p. 999.
To be repudiatory, the breach, or threatened breach, must go to the root of
the contract. If an anticipatory breach is relied on, the renunciation must be
“an intimation of an intention to abandon and altogether to refuse performance
“of the contract”; or, put in other but equally clear words, “the true question
“is whether the acts or conduct of the party evince an intention no longer to
“be bound by the contract”: Lord Coleridge C.J. in Freeth v. Burr (1874)
L.R. 9 C.P. 208 at p. 213. The emphasis upon communication of the party’s
intention by his acts and conduct is a recurring theme in the abundant case
law. Two well-known cases illustrative of the emphasis are Mersey Steel and
Iron Co. v. Naylor, Benzon & Co. (1884) 9 App. Cas. 434 and Bradley v.
H. Newsom, Sons & Co. [1919] A.C. 16 (see in particular the speech of Lord
Wrenbury).

Difficulty, however, does arise in the application of the principle to particular
facts—as the difference in judicial opinion in the present case shows. The
dividing line between what is repudiatory and what is not emerges from three
very persuasive dicta to be found in the case law. When the Federal Commerce

case, supra, was in the Court of Appeal, Lord Denning M.R. said, [1978]
3 W.L.R. 309, at p. 342F:-

“I have yet to learn that a party who breaks a contract can excuse himself
“by saying that he did it on the advice of his lawyers: or that he was
“under an honest misapprehension … I would go by the principle . . .
“that, if the party’s conduct [‘contract’ must be a misprint]—objectively
“considered in its impact on the other party—is such as to evince an
“intention no longer to be bound by his contractual obligations, then it
“is open to the other party to accept his repudiation and treat the contract
“as discharged from that time onwards.”

In the Spettabile case, 121 L.T. 628, Atkin L.J. at pages 634-5s aid of the
various definitions of repudiation:—

“They all come to the same thing, and they all amount at any rate to this,
“that it must be shown that the party to the contract made quite plain
“[emphasis supplied] his own intention not to perform the contract.”

In James Shaffer Ltd. v. Findlay Durham and Brodie [1953] 1 W.L.R. 106 the
Court of Appeal had under consideration a breach of a long-term supply
contract where the defendant, who had undertaken to pass on orders of not
less than a specified value each year, failed to do so. He honestly believed his
failure was not a breach of contract: but the Court of Appeal held that it was,
his construction of the contract being erroneous in law. The court held, how-
ever, that the breach did not evince an intention not to be bound by the contract.
Singleton L.J., who referred to Freeth v. Burr and the Spettabile case, made
this comment, at page 120:

“Streatfield J. said that this was a very difficult case and near the line.
“I think that that is a true description. Sometimes when a case is put in
“one particular way it has great appeal, and, when it is put in the other
“way, it has an almost equal appeal. I do not think that it is right to look
“at the interview of May 18 alone; as I understand the law, it is our
“duty to have regard to the circumstances.”

Morris L.J. (bottom of page 124) and Upjohn J. (page 127) said the same
thing.

My Lords, as I see it, the error of the majority of the Court of Appeal in
the instant case was, notwithstanding some dicta to the contrary, to con-
centrate attention on one act, i.e. the notice of rescission with its accompanying
letter. They failed to give the consideration which the law requires of all the
acts and conduct of the defendants in their dealings with Mr. Cornwell—the
“alter ego” of the plaintiff company. The law requires that there be assessed
not only the party’s conduct but also, “objectively considered”, its impact on
the other party. The error is neatly exposed in Goff L.J.’s terse conclusion:—

“In my judgment rescission is repudiation, and if it cannot be justified
“by the terms of the contract it is wrongful and a breach.”

The learned Lord Justice was, with respect, concentrating too much attention
on one act isolated from its surrounding circumstances and failing to pay
proper regard to the impact of the party’s conduct upon the other party.

In this case the contract provided for the possibility of rescission by the
defendants. But the notice of rescission, which the defendants gave, was not,
in the circumstances which existed when it was given, one which the defendants
had any contractual right to give. But they honestly believed the contract did
give them the right. When one examines the totality of their conduct and its
impact upon Mr. Cornwell it is plain, as shown by my noble and learned
friend’s analysis of the facts, that the defendants, though claiming mistakenly
to exercise a power given them by the contract to bring it to an end, were not
evincing an intention not to be bound by the contract. On the contrary, they
believed they were acting pursuant to the contract. And Mr. Cornwell well
understood the situation. As he put it in his final letter to Sir Godfrey Mitchell,
the President of the defendants,

“… all I need say now is that we will retire to our battle stations and it
“goes without saying I am sure that you will abide by the result as I will.”

It never occurred to Mr. Cornwell that the defendants, if held not to have been
entitled to give notice of rescission, would refuse to perform the contract.
In fact, it would seem that he believed exactly the contrary. Such was the impact
upon him of the defendants’ conduct.

It being the view of the majority of the House that there was no repudiation,
the appeal must be allowed, with the result that there is no need to consider
the other issues raised. But, because of its importance, I propose to say a few
words on the question of damages.

The plaintiff company agreed to sell the land to the defendants for £850,000.
They also required the defendants to pay £150,000 to a third party. The
covenant for this payment was in the following terms:—

“I. Upon completion of the purchase of the whole or any part of the
“land the purchaser shall pay to Transworld Trade Limited of 25 Jermyn
“Street, London. S.W.1, a sum of £150,000.”

No relationship of trust or agency was proved to exist between the plaintiff
company and Transworld Trade Ltd. No doubt, it suited Mr. Cornwell to
split up the moneys payable under the contract between the two companies:
but it is not known, let alone established by evidence (though an intelligent
guess is possible) why he did so, or why the plaintiffs desired this money to
be paid to Transworld Trade. It is simply a case of B agreeing with A to pay
a sum of money to C.

B, in breach of his contract with A, has failed to pay C. C, it is said, has no
remedy, because the English law of contract recognises no “jus quaesitum
“tertio”: Tweddle v. Atkinson (1861) 1 B. and S. 393. No doubt, it was for this
reason that Transworld Trade is not a party to the suit. A, it is acknowledged,
could in certain circumstances obtain specific performance of the promise to
pay C: Beswick v. Beswick [1968] AC 58. But, since the contract in the present
case is admitted (for reasons which do not fall to be considered by the House)
to be no longer in existence, specific performance is not available. A’s remedy
lies only in an award of damages to himself. It is submitted that, in the absence
of any evidence that A has suffered loss by reason of B’s failure to pay C,
A is only entitled to nominal damages.

I wish to add nothing to what your Lordships have already said about the
authorities which the Court of Appeal cited as leading to the conclusion that
the plaintiff company is entitled to substantial damages for the defendants’
failure to pay Transworld Trade. I agree that they do not support the conclusion.
But I regret that this House has not yet found the opportunity to reconsider the
two rules which effectually prevent A or C recovering that which B, for value,
has agreed to provide.

First, the “jus quaesitum tertio”. I respectfully agree with Lord Reid that the
denial by English law of a “jus quaesitum tertio” calls for reconsideration.
In Beswick v. Beswick, supra, at page 72 Lord Reid, after referring to the Law
Revision Committee’s recommendation (1937 Cmd. 5449 page 31) that the third
party should be able to enforce a contractual promise taken by another for his
benefit, observed:—

“And, if one had to contemplate a further long period of Parliamentary
“procrastination, this House might find it necessary to deal with this
“matter.”

The Committee reported in 1937: Beswick v. Beswick was decided in 1967. It is
now 1979: but nothing has been done. If the opportunity arises, I hope the
House will reconsider Tweddle v. Atkinson and the other cases which stand
guard over this unjust rule.

Likewise, I believe it open to the House to declare that, in the absence of
evidence to show that he has suffered no loss, A, who has contracted for a
payment to be made to C, may rely on the fact that he required the payment to
be made as prima facie evidence that the promise for which he contracted was a
benefit to him and that the measure of his loss in the event of non-payment is the
benefit which he intended for C but which has not been received. Whatever the
reason, he must have desired the payment to be made to C and he must have
been relying on B to make it. If B fails to make the payment, A must find the
money from other funds if he is to confer the benefit which he sought by his
contract to confer upon C. Without expressing a final opinion on a question
which is clearly difficult, I think the point is one which does require consideration
by your Lordships’ House.

Certainly the crude proposition for which the defendants contend, namely
that the state of English law is such that neither C for whom the benefit was
intended nor A who contracted for it can recover it, if the contract is terminated
by B’s refusal to perform, calls for review: and now, not forty years on.

Source: https://www.bailii.org/