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Baht & Others v. Masshouse Developments Ltd




2012-03-28

Recovery of deposits paid on the off-plan sale and purchase of apartments following delayed completion.

Factual Background

The Cs entered into Contracts (twenty-one in November 2007, one in December 2007 and another in February 2008) for the off-plan sale and purchase of long leases of apartments to be built by D in an apartment block, Block M, Masshouse, Birmingham.  At the time, it was anticipated that the apartments would be completed by April 2009 so that Cs could take possession in Spring or early Summer 2009.  Progress with the development of Block M stopped in October 2008.  By February 2010 the works of construction and fitting out ‘would have appeared to an unobstructed viewer to be no further forward than would have appeared at the end of October 2008’.  Nevertheless there was some activity in early 2010.  On 18 February 2010, and in a similar letter dated 18 March 2010, Cs’ solicitors gave notice to D purporting to accept D’s repudiatory breach of contracts (‘the Termination Letters’).  In fact, Block M was only completed in April 2011.  On 5 May 2011, D’s solicitors served notices to complete.  On 18 May 2011, D sought to exercise a contractual right of rescission for Cs’ failure to complete and purported to forfeit Cs’ deposits.  D also sought damages for Cs’ breaches of contract in failing to complete their purchases.  Cs sued D for the return of their deposit and D counterclaimed.

The Issues

(i)                Was it an implied term of the Contracts that D would complete Block M and the flats within a reasonable period of time? 

(ii)              If there was such an implied term, was D in breach of the term?

(iii)             Was D in breach of the express term, contained in each of the Contracts, requiring D “to arrange that the Apartment is completed with all due diligence”?

(iv)             If either of the two previous questions is to be answered in the affirmative, were the circumstances such that when sending the Termination Letters the Cs were entitled to treat D as having repudiated the Contracts and to accept that repudiation?

(v)              Assuming that the previous question is to be answered in the negative, was D entitled to hold Cs to the Contracts and in due course to forfeit the deposits and claim damages for breach of contract?

The Contracts

The Contracts were in a similar form and were made by reference to the Law Society’s Standard Conditions of Sale (4th Edn.), which were expressed to apply except to the extent that they were varied by or inconsistent with the special provisions of the Contracts.  The Contracts provided for the Completion Date for the sale and purchase of each apartment to be 10 days after the giving by D’s solicitors of a notice (a “Notice of Readiness”) stating that the relevant apartment had been completed.  Law Society Standard Condition 6.1.1. was expressly excluded.  Law Society Standard Condition 6.8 (which permits, on or after the Completion Date, the service of a notice to complete by a party who is ready, able and willing to complete, making time of the essence of the contract on service of the notice to complete) was modified to a period of 5 days (rather than the usual 10).

By Law Society Standard Condition 7.2 rescission of the Contracts as a result of D’s breach of contract permits Cs to require the return of the deposits with interest.  On the other hand, by Law Society Standard Condition 7.5 it is expressly provided that if a buyer fails to complete in accordance with a notice to complete, the vendor is entitled to rescind the Contract and to forfeit and keep any deposit and accrued interest, as well as claiming damages.

Special Condition 4.1 of the Contracts provided as follows:

“The Seller shall arrange that the Apartment is completed with all due diligence in accordance with the drawings and specifications copies of which are available for inspection at the Seller’s office and have been inspected by the Buyer at the date of the Buyer’s reservation of the Apartment and otherwise in accordance with this Agreement and the relevant planning permission and building regulation approval but the Seller shall not be liable for any delay caused by industrial or labour disputes shortage or late delivery of materials shortages of labour the default of any contractor or supplied fire tempest frost hazardous or adverse ground conditions or any other like circumstances or any cause beyond the control of the Seller.”

Clause 4.1 did not set out any express requirement for the Apartment to be made ready.  On its face it contains only the express obligation on the part of D to progress the development of the Apartment with “all due diligence”.  Also of relevance, the Contracts contain no provision expressly allowing rescission for breach of clause 4.1.

Cs pleaded that:  “it was an implied term of the Contracts ..... that [Block M, Masshouse] would be completed within a reasonable time.”  By re-amendment (allowed at trial), Cs pleaded reliance upon Special Condition 4.1 (set out above).

The Findings

Issue One:  The implied term contended for by Cs added nothing to Cs’ re-amended case which was not already encompassed by the express terms of Special Condition 4.1 and therefore implication was unnecessary.

Issue Two:  It was for the party alleging breach of an obligation to complete within a reasonable time to establish what that time would be, disregarding delays caused by the other party’s failure.  It could not be said precisely when the reasonable time for building Block M and completing the apartments expired.  It could not be said that by 18 March 2010 the reasonable time had necessarily expired so that D was automatically in breach of the Contracts (even though the time subsequently taken ‘could hardly have been a reasonable time’).  Time was not of the essence in relation to the implied obligation to complete Block M within a reasonable time.

Issue Three:   Construction works could and should have been put in hand by mid-June 2009.  D had procrastinated until December 2009 before starting the enabling works and placing the main contract with another contractor.  In the circumstances, D was in breach of Special Condition 4.1, which required the apartments to be completed with due diligence.

Issue Four:   As regards Special Condition 4.1, mere failure on the part of D to arrange that the Apartment was completed with all due diligence would not be sufficient; and any assessment of what D did or failed to do of course fell to be made in the context of the prevailing circumstances.  There would need to have been something done (or not done) by D which would lead a reasonable person to conclude that D no longer intended to be bound by the Contracts.  Not merely would the necessary failure need to be established, but further it would need to be shown that the inference to be drawn from the gravity of the failure either by itself or in conjunction with other things said or done (or not done) by the contract breaker led to the conclusion mentioned above.

In the circumstances, the failure was not to be viewed simply as mere delay.  D’s failure, following the period of several months after the contract’s administration when, to all intents and purposes, nothing at all was happening on site in the way of progress towards completion of the Apartments, signalled an intention on the part of D not to be bound by the Contracts.  D was biding its time while deciding what to do and, materially, whether or not it would ever build out the residential development.  The evidence of one of the Cs was that he visited the site during a weekday, some months after May or June 2009; he saw nothing happening on site at all, the site being locked and the on-site marketing suite being inaccessible.  In other words, the passer-by could reasonably infer that the residential development was abandoned and it was an open question whether, and if so when, any development would ever be resumed.  The Court was also able to have regard to the lack of response to Cs’ solicitors’ earlier letters to D’s solicitors asking for an update as to when the development was to be completed.  In the circumstances, Cs were entitled to treat the Contracts as at an end by reason of D’s repudiation of the Contracts.

Issue Five:  Did not arise given the Judge’s findings on Issues Three and Four.

Outcome

The Cs’ claim therefore succeeded and Cs were entitled to recover their deposits with interest in accordance with Law Society Special Condition 7.2.  D’s Counterclaim was dismissed.  D was given permission to appeal.

Baht & Others v. Masshouse Developments Ltd, High Court of Justice, Chancery Division, Mr George Bompas QC sitting as a Deputy Judge of the High Court, 15 March 2012.

Nicholas Yell (instructed by Alison’s Legal Practice) acted for the successful Claimants under a CFA.  A full copy of the Judgment is available on Lawtel.

Lawtel Reference: LTL 19/3/2012