Johnson and Anor v Agnew

[1980] A.C. 367
[1979] 1 All ER 883

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(Judgment by: Lord Wilberforce (including background))

Between: Johnson and Anor - Respondents
And: Agnew - Appellant

Court:

Judges:
Lord WilberforceLord Salmon
Lord Fraser of Tullybelton
Lord Keith of Kinkel
Lord Scarman

Subject References:
VENDOR AND PURCHASER
Specific performance
Alternative remedies
Purchaser's failure to comply with order for specific performance
Sale by mortgagees
Vendors claiming difference between purchase price and sum realised by mortgagees
Alternative claim by vendors for damages

Legislative References:
Chancery Amendment Act 1858 (21 & 22 Vict. c. 27) - s. 2 1

Case References:
Austins of East Ham Ltd v Macey - [1941] Ch 338; 110 LJ Ch 159; 165 LT 47, CA
Barber v Wolfe - [1945] 1 All ER 399; [1945] Ch 187; 114, LJ Ch 149; 172 LT 384, CA
Barker (John) & Co Ltd v Littman - [1941] 2 All ER 537; [1941] Ch 405; 165 LT 340, CA
Boston Deep Sea Fishing & Ice Co Ltd v Ansell - (1888) 39 Ch D 339; [1886-90] All ER Rep 65; 59 LT 345, CA
Buckland v Farmer & Moody (a firm) - [1978] 3 All ER 929; [1979] 1 WLR 221, CA
Capital and Suburban Properties Ltd v Swycher - [1976] 1 All ER 881; [1976] Ch 319; [1976] 2 WLR 822, CA
Clough v London & North Western Railway Co - (1871) LR 7 Exch 26; [1861-73] All ER Rep 646; 41 LJ Ex 17; 25 LT 708
Ferguson v Wilson - (1866) LR 2 Ch App 77
Grant v Dawkins - [1973] 3 All ER 897; [1973] 1 WLR 1406
Hall v Burnell - [1911] 2 Ch 551
Henty v Schroder - (1879) 12 Ch D 666
Heyman v Darwins Ltd - [1942] 1 All ER 337; [1942] AC 356
Hickman v Haynes - (1875) LR 10 CP 598
Holland v Wiltshire - (1954) 90 CLR 409
Horsler v Zorro - [1975] 1 All ER 584; [1975] Ch 302; [1975] 2 WLR 183
Hutchings v Humphreys - (1885) 54 LJ Ch 650
Hythe Corpn v East - (1866) LR 1 Eq 620
Jackson v De Kadich - [1904] WN 168
Leeds Industrial Co-operative Society Ltd v Slack - [1924] AC 851; [1924] All ER Rep 259
Malhotra v Choudhury p 186, ante - [1978] 3 WLR 825, CA
Mayson v Clouet - [1924] AC 980
McDonald v Dennys Lascelles Ltd - (1933) 48 CLR 457; [1933] ALR 381
McKenna v Richey - [1950] VLR 360
Morel Brothers & Co Ltd v Earl of Westmoreland - [1904] AC 11; [1900-3] All ER Rep 397
Moschi v Lep Air Services Ltd - [1972] 2 All ER 393; [1973] AC 331; [1972] 2 WLR 1175, HL; affg sub nom Lep Air Services Ltd v Rolloswin Investments Ltd [1971] 3 All ER 45; [1971] 1 WLR 934, CA
Ogle v Earl Vane - (1868) LR 3 QB 272
Radford v De Froberville - [1978] 1 All ER 33; [1977] 1 WLR 1262
Rock Portland Cement Co v Wilson - (1882) 52 LJ Ch 214
Scarf v Jardine - (1882) 7 App Cas 345; [1881-5] All ER Rep 651
Sudagar Singh v Nazeer - [1978] 3 All ER 817; [1978] 3 WLR 785
Sweet v Meredith - (1863) 4 Giff 207
United Australia Ltd v Barclays Bank Ltd - [1940] 4 All ER 20; [1941] AC 1
Watson v Cox - (1873) LR 15 Eq 219
Wood (Harold) Brick Co Ltd v Ferris - [1935] 1 KB 613; on appeal [1935] 2 KB 198
Wroth v Tyler - [1973] 1 All ER 897; [1974] Ch 30; [1973] 2 WLR 405

Hearing date: 11-14, 18-20 December 1978
Judgment date: 8 March 1979

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Judgment by:
Lord Wilberforce (including background)

By a contract dated 1 November 1973 the vendors agreed to sell a house and some grazing land to the purchaser. The properties were mortgaged under separate mortgages. The purchase price exceeded the amount required to pay off the mortgages and also a bank loan obtained by the vendors for the purchase of another property. The contract fixed the completion date as 6 December. The purchaser paid part of the deposit and accepted the vendors' title, but did not complete on that date. On 21 December the vendors served on the purchaser a notice making time of the essence of the contract and fixing 21 January 1974 as the final date by which completion was to take place. The purchaser failed to complete, and on 8 March the vendors commenced an action against her, claiming specific performance and damages in addition to, or in lieu of, specific performance, and alternatively, a declaration that the vendors were no longer bound to perform the contract, and further relief.

On 20 May the vendors issued a summons under RSC Ord 86 for summary judgment for specific performance. An order for specific performance of the contract was made on 27 June, but it was not drawn up and entered until 26 November. By then the mortgagees of the house had obtained an order for possession. On 7 March 1975 the mortgagees of the grazing land also obtained an order for possession. On 3 April they contracted to sell the land and on 20 June the mortgagees of the house contracted to sell the house. Completion of both sales by the mortgagees took place in July. Thus the vendors, who had taken no action to enforce the order for specific performance, were not in a position to convey the properties to the purchaser after 3 April. On 5 November they applied by motion

(i)

for an order that the purchaser should pay the balance of the purchase price and for an enquiry as to damages, or

(ii)

alternatively, for a declaration that they were entitled to treat the contract as repudiated by the purchaser and an enquiry as to damages.

The judge dismissed the motion. The vendors appealed, seeking an order for payment of the balance of the purchase price, or, alternatively, damages at common law for breach of contract, and in the further alternative damages in lieu of specific performance under the Chancery Amendment Act 1858.

They contended that their election, on 20 May, to proceed for the remedy of specific performance was not irrevocable and that on obtaining an order for specific performance which subsequently became incapable of being worked out they were entitled to claim the alternative remedy of damages for repudiation of the contract. The purchaser contended that the election to proceed for specific performance was irrevocable and, furthermore, in the circumstances it would be inequitable to award the vendors damages under the 1858 Act because the non-completion of the contract was caused by the mortgagees obtaining orders for possession of the properties due to the vendors failing to pay the sums due under the mortgages.

The Court of Appeal ^[F1] held

(i)

that, as the vendors were no longer able to perform their obligations under the contract to convey the properties, it would be wrong to compel the purchaser to pay the balance of the purchase price, and so the vendors could not obtain relief under the order for specific performance;

(ii)

that where a vendor elected to pursue the remedy of specific performance and obtained an order, he could not, if it became impossible to enforce the order, revert to the position before the election and claim the alternative remedy of repudiation of the contract and damages therefor;

(iii)

but where, as in the present case, an order for specific performance was no longer capable of being worked out, damages in lieu of specific performance could be awarded by the court under the equitable jurisdiction created by the 1858 Act.

The court allowed the appeal on the ground that it would be equitable to allow the vendors damages in lieu of specific performance because it was the purchaser and not the vendors who had rendered specific performance impossible, and ordered the damages to be assessed as at 26 November 1974 (ie the date of entry of the order for specific performance) and discharged the order for specific performance. On appeal by the purchaser,

Held -

(i)

A vendor who sought specific performance merely elected for a course which might or might not lead to the implementation of the contract: he was not electing for an eternal or unconditional affirmation of the contract but simply for the contract to be continued under the court's control. If he obtained an order for specific performance and it became impossible to enforce it, he then had the right to ask the court to discharge the order and terminate the contract.

On such an application he could be awarded damages at common law for breach of contract since the contract was not rescinded ab initio but remained in existence until it was terminated by the court. The court, however, would not make an order discharging the decree of specific performance and terminating the contract if to do so would be unjust, in the circumstances then existing, to the other party.

On the facts, the non-completion, and ultimate impossibility of completion, of the contract was the fault of the purchaser and the vendors were entitled not only to an order discharging the specific performance order and terminating the contract, but also to damages at common law for breach of contract (see p 890 b c e f, p 894 a to g, p 895 c to f and p 897 b to e, post); dicta of Lord Porter in Heyman v Darwins Ltd [1942] 1 All ER at 360-361 and of Greene MR in Austins of East Ham Ltd v Macey [1941] Ch at 341 applied; McKenna v Richey [1950] VLR 360 and dicta of Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR at 476-477 and of Dixon CJ in Holland v Wiltshire (1954) 90 CLR at 416 adopted; Henty v Schroder (1879) 12 Ch D 666, Hutchings v Humphreys (1885) 54 LJ Ch 650, Jackson v De Kadich [1904] WN 168, Barber v Wolfe [1945] 1 All ER 399 and Capital and Suburban Properties Ltd v Swycher [1976] 1 All ER 881 overruled; Horsler v Zorro [1975] 1 All ER 584 overruled in part.

(ii)

The fact that the vendors were entitled to recover damages at common law did not affect the measure of damages, because damages awarded under the 1858 Act were assessed in the same manner as damages at common law (see p 895 h to p 896 a d and p 897 b to e, post); Ferguson v Wilson (1866) LR 2 Ch App 77, Rock Portland Cement Co v Wilson (1882) 48 LT 386, Wroth v Tyler [1973] 1 All ER 897, Horsler v Zorro [1975] 1 All ER 584 and Malhotra v Choudhury p 186, ante, considered.

(iii)

The date at which the damages should be assessed should be fixed not at 26 November 1974 but at 3 April 1975 (ie the first date on which the mortgagees contracted to sell part of the property) as the vendors had acted reasonably in pursuing the remedy of specific performance and that was the date at which the remedy became aborted. It followed that the appeal would be dismissed subject to the variation of the order of the Court of Appeal by the substitution of 3 April 1975 for 26 November 1974 as the date by reference to which the damages should be assessed (see p 896 e to p 897 e, post); Ogle v Earl Vane (1868) LR 3 QB 272, Hickman v Haynes (1875) LR 10 CP 598 and Radford v De Froberville [1978] 1 All ER 33 considered.

Decision of Court of Appeal [1978] 3 All ER 314 varied.

Notes

For remedies under an uncompleted contract, see 34 Halsbury's Laws (3rd Edn) 320-334, paras 543-566, and for cases on the subject, see 40 Digest (Repl) 239-240, 1989-2016.

For the Chancery Amendment Act 1858, s 2, see 25 Halsbury's Statutes (3rd Edn) 703.

Appeal

By a writ dated 8 March 1974 Michael Charles Johnson and Renee Marie Johnson ('the vendors') brought an action against Adeline Agnew ('the purchaser') claiming

(i)

specific performance of a written agreement ('the agreement') dated 1 November 1973 for the sale and purchase of freehold property at Wooburn Common, Hitcham, Buckinghamshire, comprising premises knows as Sheepcote Grange and Sheepcote Cottage and lands in the vicinity thereof;

(ii)

all necessary and consequential accounts, directions and enquiries;

(iii)

damages for breach of contract in lieu of or in addition to specific performance; and

(iv)

a declaration that the vendors were entitled to a lien on the property for the unpaid balance of the purchase money and interest payable under the agreement; alternatively

(v)

a declaration that by reason of the purchaser's breaches of the agreement the vendors were no longer bound to perform the sale of the property to her;

(vi)

a declaration that the deposit due under the agreement had been forfeited to the vendors;

(vii)

a declaration that the vendors were entitled to resell the property and recover any loss on the resale from the purchaser; and

(viii)

payment of £8,700 being the balance of the deposit.

On 27 June 1974, on the vendors' application by summons, Master Dyson ordered that the agreement should be specifically performed. By notice of motion dated 5 November 1976 and amended on 26 January 1977, the vendors applied, inter alia, for

(i)

an order that the purchaser should pay to the vendors the balance of the purchase price and interest less the rents and profits received by the vendors since 6 December 1973; and

(ii)

an order that there should be an enquiry whether the vendors had suffered damage since 27 June 1974 by reason of the purchaser's failure to complete the agreement; alternatively

(iii)

a declaration that the vendors were entitled to treat the agreement as repudiated by the purchaser

(iv)

an order that the deposit of £3,000 paid by the purchaser be forfeited to the vendors; and

(v)

an order for an enquiry as to the damage sustained by the vendors by reason of such repudiation.

On 25 February 1977 Megarry V-C dismissed the vendors' motion. The vendors appealed seeking, inter alia, an order in the terms of paras (i) and (ii) of the motion; alternatively an order in the terms of para (ii) of the motion; and in the further alternative an order in the terms of paras (iii) to (v) of the motion. On 13 December 1977 the Court of Appeal ^[F2] (Buckley, Goff LJJ and Sir David Cairns)

(i)

ordered that the order of 25 February 1977 be discharged;

(ii)

declared that in view of the circumstances in which the purchaser had failed to complete her part of the agreement and on the vendors electing to have the order for specific performance discharged and to treat the agreement as having been repudiated by the purchaser, it was just and equitable to award the vendors damages in lieu of specific performance under the jurisdiction originally conferred on the court by the Chancery Amendment Act 1858;

(iii)

directed that the order for specific performance of the agreement be discharged;

(iv)

declared that the vendors and the purchaser were no longer bound specifically to perform the agreement;

(v)

ordered the following enquiries to be made

(a)

an enquiry as to what damages had been sustained by the vendors by reason of the failure of the purchaser to perform the agreement specifically according to its terms, such damages to be assessed by reference to the difference between £117,000 (being the purchase price payable under the agreement) and the value of the property as at 26 November 1974 (being the date of entry of the order for specific performance) but not to exceed the difference between the purchase price and the aggregate of the sum of £3,000 (being the portion of the deposit paid by the defendant as purchaser under the agreement) and the proceeds of the sales by the mortgagees of the several parts of the property to the extent to which such proceeds discharged indebtedness of the vendors;

(b)

an enquiry as to the amount of rents and profits of the property received by the vendors or by any other person or persons by their order or for the use of the vendors since 6 December 1973 (being the date of the sale);

(vi)

ordered that what should be found due on enquiry (b) should be deducted from what should be found due under enquiry (a) and the balance certified; and the court was to add to the certified balance interest on the sum of £114,000 (being the unpaid balance of the purchase price under the agreement) at the rate of 17% per annum from 6 December 1973 to 26 November 1974;

(vii)

ordered (but without prejudice nevertheless to the general powers of the court as to the award of interest in respect of any subsequent period or periods) that the vendors were not to be allowed any interest in respect of the period from 26 November 1974 down to and including 13 May 1977; and

(viii)

ordered that the purchaser should pay to the vendors the amount of the certified balance together with interest to be added thereto as aforesaid and the interest (if any) awarded under the general powers of the court.

The purchaser appealed. The facts are set out in the opinion of Lord Wilberforce.

J H Hames QC and James Denniston for the purchaser.

Peter Millett QC and Dirik Jackson for the vendors.

8 March 1979.  The following opinions were delivered.

Judgment of Lord Wilberforce.

My Lords, this appeal arises in a vendors' action for specific performance of a contract for the sale of land, the appellant being the purchaser and the vendors the respondents. The factual situation is commonplace, indeed routine. An owner of land contracts to sell it to a purchaser; the purchaser fails to complete the contract; the vendor goes to the court and obtains an order that the contract be specifically performed; the purchaser still does not complete; the vendor goes back to the court and asks for the order for specific performance to be dissolved, for the contract to be terminated or 'rescinded', and for an order for damages. One would think that the law as to so typical a set of facts would be both simple and clear. It is no credit to our law that it is neither. Learned judges in the Chancery Division and in the Court of Appeal ([1978] 3 All ER 314, [1978] Ch 176) have had great difficulty in formulating a rule and have been obliged to reach differing conclusions. That this is so is due partly to the mystification which has been allowed to characterise contracts for the sale of land, as contrasted with other contracts, partly to an accumulated debris of decisions and textbook pronouncements which has brought semantic confusion and misunderstandings into an area capable of being governed by principle. I hope that this may be an opportunity for a little simplification.

I must state the facts in some detail because the sequence of events may be important. I repeat however that such additional elements as appear in the relevant history do not take the present case away from the normal. Many sellers of one property commit themselves concurrently to buying another; indeed to do so is often the main reason for the sale. Many sellers of property have incumbrances on that property. The law should be able to accommodate such matters without indigestion.

The contract for sale was dated 1 November 1973. The property sold was called Sheepcote Grange, Wooburn Common, Bucks; it consisted of the grange itself and some grazing land. On the grange there was a first legal charge to a building society for £15,600 and two other charges. On the grazing land there was a first legal charge to a finance company for £6,000 and a second legal charge to a bank. The purchase price under the contract was £117,000 and so was ample to pay off the charges and to leave the vendors with money to buy another property. In fact on 1 November 1973 they contracted to buy one for £34,000, and raised the purchase money by loan from a bank. If the first contract had been completed according to its terms, no difficulty would have arisen; the bank loan would have been discharged from the purchase price.

The contract was made by reference to the Law Society's General Conditions of Sale (1973 Edn) and provided for completion on 6 December 1973. A deposit of 10% was to be paid but the purchaser only paid £3,000. Before 6 December 1973 the purchaser had accepted the vendors' title (this of course disclosed the existence of the mortgages) and a form of conveyance was agreed. However the purchaser did not complete on that date. On 21 December 1973 the vendors' solicitors served a notice, under condition 19 of the conditions of sale, making time of the essence of the contract and fixing 21 January 1974 as the final date by which completion was to take place. The purchaser failed to complete on that date. On 8 March 1974 the vendors issued a writ claiming specific performance and damages in lieu of or in addition thereto and alternatively a declaration that the vendors were no longer bound to perform the contract and further relief. On 20 May 1974 the vendors issued a summons under RSC Ord 86 for summary judgment for specific performance, and the order sought was made in the usual form on 27 June 1974. It was not however drawn up and entered until 26 November 1974.

Meanwhile action was taken by the vendors' mortgagees. The building society obtained an order for possession of the grange on 22 August 1974, they sold it on 20 June 1975 and completion took place on 18 July 1975. The finance company obtained an order for possession of the grazing land on 7 March 1975, they sold it on 3 April 1975 and completion took place on 11 July 1975. Thus by 3 April 1975 specific performance of the contract for sale had become impossible. The vendors took no action on the order for specific performance until 5 November 1976 when they issued a notice of motion seeking

(i)

an order that the purchaser should pay the balance of the purchase price and an enquiry as to damages or

(ii)

alternatively a declaration that they were entitled to treat the contract as repudiated by the purchaser and to forfeit the deposit and an enquiry as to damages.

On 25 February 1977 Megarry V-C dismissed the motion. He rejected the first claim on the ground that, as specific performance was no longer possible, it would be unjust to order payment of the full purchase price. The second claim was not pressed, on the ground that it was precluded by authority (ie Capital and Suburban Properties Ltd v Swycher).

The vendors appealed to the Court of Appeal who again rejected each alternative; they followed the previous decision in Swycher's case. However they held that the vendors could recover damages under the Chancery Amendment Act 1858 (Lord Cairns's Act), which enables the court to award damages in addition to or in substitution for specific performance. They accordingly made an order discharging the order for specific performance and an order for an enquiry as to damages. They fixed the date on which damages should be assessed as 26 November 1974, being the date of entry of the order for specific performance. The purchaser is now appealing against this order.

In this situation it is possible to state at least some uncontroversial propositions of law. First, in a contract for the sale of land, after time has been made, or has become, of the essence of the contract, if the purchaser fails to complete, the vendor can either treat the purchaser as having repudiated the contract, accept the repudiation, and proceed to claim damages for breach of the contract, both parties being discharged from further performance of the contract; or he may seek from the court an order for specific performance with damages for any loss arising from delay in performance. (Similar remedies are of course available to purchasers against vendors.) This is simply the ordinary law of contract applied to contracts capable of specific performance. Secondly, the vendor may proceed by action for the above remedies (viz specific performance or damages) in the alternative. At the trial he will however have to elect which remedy to pursue. Thirdly, if the vendor treats the purchaser as having repudiated the contract and accepts the repudiation, he cannot thereafter seek specific performance. This follows from the fact that, the purchaser having repudiated the contract and his repudiation having been accepted, both parties are discharged from further performance.

At this point it is important to dissipate a fertile source of confusion and to make clear that although the vendor is sometimes referred to in the above situation as 'rescinding' the contract, this so-called 'rescission' is quite different from rescission ab initio , such as may arise for example in cases of mistake, fraud or lack of consent. In those cases, the contract is treated in law as never having come into existence. (Cases of a contractual right to rescind may fall under this principle but are not relevant to the present discussion.) In the case of an accepted repudiatory breach the contract has come into existence but has been put an end to or discharged. Whatever contrary indications may be disinterred from old authorities, it is now quite clear, under the general law of contract, that acceptance of a repudiatory breach does not bring about ' rescission ab initio '. I need only quote one passage to establish these propositions. In Heyman v Darwins Ltd ([1942] 1 All ER 337 at 360-361, [1942] AC 356 at 399) Lord Porter said:  

'To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that, upon acceptance of the renunciation of a contract, the contract is rescinded is incorrect. In such a case the injured party may accept the renunciation as a breach going to the root of the whole of the consideration. By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded.'

   

See also Boston Deep Sea Fishing & Ice Co Ltd v Ansell ((1888) 39 Ch D 339 at 365, [1886-90] All ER Rep 65 at 73-74) per Bowen LJ, Mayson v Clouet ([1924] AC 980 at 985) per Lord Dunedin and Moschi v Lep Air Services Ltd ([1972] 2 All ER 393 at 399, 403, [1973] AC 331 at 345, 350) per Lord Reid and Lord Diplock. I can see no reason, and no logical reason has ever been given, why any different result should follow as regards contracts for the sale of land, but a doctrine to this effect has infiltrated into that part of the law with unfortunate results. I shall return to this point when considering Henty v Schroder and cases which have followed it down to Barber v Wolfe and Horsler v Zorro.

Fourthly, if an order for specific performance is sought and is made, the contract remains in effect and is not merged in the judgment for specific performance. This is clear law, best illustrated by the judgment of Greene MR in Austins of East Ham Ltd v Macey ([1941] Ch 338 at 341), in a passage which deals both with this point and with that next following. It repays quotation in full:  

'The contract is still there. Until it is got rid of, it remains as a blot on the title, and the position of the vendor, where the purchaser has made default, is that he is entitled, not to annul the contract by aid of the court, but to obtain the normal remedy of a party to a contract which the other party has repudiated. He cannot, in the circumstances, treat it as repudiated except by order of the court and the effect of obtaining such an order is that the contract, which until then existed, is brought to an end. The real position, in my judgment, is that, so far from proceeding to the enforcement of an order for specific performance, the vendor, in such circumstances is choosing a remedy which is alternative to the remedy of proceeding under the order for specific performance. He could attempt to enforce that order and could levy an execution which might prove completely fruitless. Instead of doing that, he elects to ask the court to put an end to the contract, and that is an alternative to an order for enforcing specific performance.'

 

Fifthly, if the order for specific performance is not complied with by the purchaser, the vendor may either apply to the court for enforcement of the order, or may apply to the court to dissolve the order and ask the court to put an end to the contract. This proposition is as stated in Austins of East Ham Ltd v Macey (and see also Sudagar Singh v Nazeer ([1978] 3 All ER 817 at 821, [1978] 3 WLR 785 at 790) per Megarry V-C) and is in my opinion undoubted law, both on principle and authority. It follows, indeed, automatically from the facts that the contract remains in force after the order for specific performance and that the purchaser has committed a breach of it of a repudiatory character which he has not remedied, or as Megarry V-C put it ([1978] 3 All ER 817 at 821, [1978] 3 WLR 785 at 790), that he is refusing to complete.

These propositions being, as I think they are, uncontrovertible, there only remains the question whether, if the vendor takes the latter course, ie of applying to the court to put an end to the contract, he is entitled to recover damages for breach of the contract. On principle one may ask 'Why ever not?' If, as is clear, the vendor is entitled (after and notwithstanding that an order for specific performance has been made) if the purchaser still does not complete the contract, to ask the court to permit him to accept the purchaser's repudiation and to declare the contract to be terminated, why, if the court accedes to this, should there not follow the ordinary consequences, undoubted under the general law of contract, that on such acceptance and termination the vendor may recover damages for breach of contract?  

I now consider the arguments which are said to support the negative answer.

The principal authority lies in Henty v Schroder ((1879) 12 Ch D 666 at 667) in which Jessel MR is briefly reported as having laid down that a vendor 'could not at the same time obtain an order to have the agreement rescinded and claim damages against the defendant for breach of the agreement'. The unsatisfactory nature of this statement has often been remarked on. It is unsupported by reasons, and is only reported in oratio obliqua. It is in direct conflict with previous authorities: Sweet v Meredith and, Watson v Cox; yet no reason is given why these authorities are not followed, nor is it said that they are overruled. If it were not for the great authority of Jessel MR, I can hardly believe that so fragile and insecure a foundation for the law would ever have survived. Explanations have been canvassed: that Jessel MR was confusing discharge of a contract by accepted repudiation with rescission ab initio , a desperate hypothesis; that (much more plausibly) the statement was procedural in character, the emphasis being on 'at the same time'; there was indeed authority that, at that time, in order to obtain damages a separate bill had to be filed (see Hythe Corpn v East). But it is not profitable to pursue these; the authority, weak as it is, is there and has been followed; it is necessary to see what strength it has gained in the process.

At first instance, it has been followed usually uncritically. In Hutchings v Humphreys it was followed by North J but on a misapprehension as to what was ordered in Watson v Cox. In Jackson v De Kadich, if contrary to sound practice this report is citable at all, Farwell J (logically enough, if Henty v Schroder (12 Ch D 666) was right) appears to have decided that a vendor who did not proceed with an order for specific performance could not forfeit the purchaser's deposit, but in Hall v Burnell Eve J took a different view. In Harold Wood Brick Co Ltd v Ferris Swift J treated Henty v Schroder (12 Ch D 666) as depending on Chancery procedure at the time (1879). In recent times it has been treated as good law in Barber v Wolfe and Horsler v Zorro, but in each of these cases the judgment is discoloured by the erroneous conception of rescission ab initio as a remedy for breach of contract. ^[F3] Horsler v Zorro was itself firmly doubted, for this reason, by Goff LJ in Buckland v Farmer & Moody (a firm) ([1978] 3 All ER 929 at 943, [1979] 1 WLR 221 at 237), in a passage with which I respectfully agree. Finally, Henty v Schroder (12 Ch D 666) was endorsed by the Court of Appeal in Capital and Suburban Properties Ltd v Swycher, but on a new basis which I shall shortly consider, and in the present case.

Textbook authority in general supports the decision. Fry on Specific Performance (6th Edn (1921), p 548) mentions the proposition with lack of enthusiasm, but the main pillars in this case are Mr Cyprian Williams's books on The Contract of Sale of Land and on Vendor and Purchaser. In the former work ((1930), p 121) he firmly commits himself to the theory of rescission plus restitutio in integrum as remedies for breach of the contract. In the latter, a well-known book of reference on conveyancing matters, he equally firmly denies a right to damages. I refer to the fourth edition where the learned author writes ((1936), vol 2, pp 1025-1026):    

'And if he obtains an order for specific performance of the contract, that will be a bar to his recovering damages for the breach; for in equity the plaintiff suing on a breach of contract was required, as a rule, to elect which remedy he would pursue; and a man entitled to alternative remedies is barred, after judgment on the one, from asserting the other.'

 

See also an earlier passage (4th Edn (1936), vol 2, p 1004).

My Lords, this passage is almost a perfect illustration of the dangers, well perceived by our predecessors but tending to be neglected in modern times, of placing reliance on textbook authority for an analysis of judicial decisions. It is on the face of it a jumble of unclear propositions not logically related to each other. It is 'supported' by footnote references to cases (two of this House and one of the Privy Council) which are not explained or analysed. It would be tedious to go through them in detail, but I am satisfied that, with the exception of the reference to Henty v Schroder, they fail to support the text; it is enough to mention that the decisions cited of this House are Scarf v Jardine, a case of choosing between two inconsistent rights (see United Australia Ltd v Barclays Bank Ltd ([1940] 4 All ER 20 at 37-38, [1941] AC 1 at 30) per Lord Atkin), and Morel Brothers & Co Ltd v Earl of Westmorland, an instance of the rule that after suing an agent, and obtaining judgment, you cannot sue the principal. Neither of these cases in any way bears on such as the present.

The state of authority then, so far as English law is concerned, is that, starting from a judgment in which no reasons are given, and which may rest on any one of several foundations, of which one is unsound and another obsolete, a wavering chain of precedent has been built up, relying on that foundation, which is itself unsound. Systems based on precedent unfortunately often develop in this way and it is sometimes the case that the resultant doctrine becomes too firmly cemented to be dislodged.

This is however the first time that this House has had to consider the right of an innocent party to a contract for the sale of land to damages on the contract being put an end to by accepted repudiation, and I think that we have the duty to take a fresh look. I should certainly be reluctant to invite your Lordships to endorse a line of authority so weak and unconvincing in principle. Fortunately there is support for a more attractive and logical approach from another bastion of the common law whose courts have adopted a robuster attitude. I quote first from a judgment of Dixon J ^[F4] which with typical clarity sets out the principle, this, be it observed, in a case concerned with a contract for the sale of land:  

'When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.'

 

Closer to the present case, in Holland v Wiltshire the High Court of Australia was directly concerned with a question of damages for breach of contract for the sale of land. The purchaser having failed to complete, the vendor claimed damages. Dixon CJ said (90 CLR 409 at 416):  

'The proper conclusion is that the vendor proceeded not under the contractual provision but on the footing that the purchasers had discharged him from the obligations of the contract. It follows that he is entitled to sue for unliquidated damages. Some suggestion was made for the defendants appellants that once the contract was treated by the vendor as discharged he could not recover for breach. This notion, however, is based on a confusion with rescission for some invalidating cause. It is quite inconsistent with principle and has long since been dissipated. It is enough to refer to the note upon the subject in Mr. Voumard's Sale of Land in Victoria.'

 

Voumard's Sale of Land (Ibid p 508), in a judicially approved passage, is explicit that damages can be recovered.

Then, in McKenna v Richey, a case very similar to the present, it was decided by O'Bryan J in the Supreme Court of Victoria that, after an order for specific performance had been made, which in the event could not be carried into effect, even though this was by reason of delay on the part of the plaintiff, the plaintiff could still come to the court and ask for damages on the basis of an accepted repudiation. The following passage is illuminating ([1950] VLR 360 at 372):  

'The apparent inconsistency of a plaintiff suing for specific performance and for common law damages in the alternative arises from the fact that, in order to avoid circuity of action, there is vested in one Court jurisdiction to grant either form of relief. The plaintiff, in effect, is saying:

"I don't accept your repudiation of the contract but am willing to perform my part of the contract and insist upon your performing your part-but if I cannot successfully insist on your performing your part, I will accept the repudiation and ask for damages."

Until the defendant's repudiation is accepted the contract remains on foot, with all the possible consequences of that fact. But if, from first to last, the defendant continues unwilling to perform her part of the contract, then, if for any reason the contract cannot be specifically enforced, the plaintiff may, in my opinion, turn round and say:

"Very well, I cannot have specific performance; I will now ask for my alternative remedy of damages at common law."

This, in my opinion, is equally applicable both before and after decree whether the reason for the refusal or the failure of the decree of specific performance is due to inability of the defendant to give any title to the property sold, or to the conduct of the plaintiff which makes it inequitable for the contract to be specifically enforced.'

 

Later ([1950] VLR 360 at 376) the judge said of the case:  

'It is an appropriate case for a Court of Equity to say:

"As a matter of discretion, this contract should not now be enforced specifically, but, in lieu of the decree for specific performance, the Court will award the plaintiff such damages as have been suffered by her in consequence of the defendant's breach. That is the best justice that can be done in this case."'

 

The judge in his judgment fully discusses and analyses the English cases but nevertheless reaches this view.  

My Lords, I am happy to follow the latter case. In my opinion Henty v Schroder cannot stand against the powerful tide of logical objection and judicial reasoning. It should no longer be regarded as of authority; the cases following it should be overruled. In particular Barber v Wolfe and Horsler v Zorro cannot stand so far as they are based on the theory of ' rescission ab initio ' which has no application to the termination of a contract on accepted repudiation.

The second basis for denying damages in such cases as the present is that which underlies the judgment of the Court of Appeal in Swycher's case. This is really a rationalisation of Henty v Schroder the weakness of which case the court well perceived. The main argument there accepted was that by deciding to seek the remedy of specific performance the vendor (or purchaser) has made an election which either is irrevocable or which becomes so when the order for specific performance is made. A second limb of this argument (but in reality a different argument) is that the vendor (or purchaser) has adequate remedies under the order for specific performance so that there is no need, or equitable ground, for allowing him to change his ground and ask for damages.

In my opinion, the argument based on irrevocable election, strongly pressed by the appellant's counsel in the present appeal, is unsound. Election, though the subject of much learning and refinement, is in the end a doctrine based on simple considerations of common sense and equity. It is easy to see that a party who has chosen to put an end to a contract by accepting the other party's repudiation cannot afterwards seek specific performance. This is simply because the contract has gone, what is dead is dead. But it is no more difficult to agree that a party, who has chosen to seek specific performance, may quite well thereafter, if specific performance fails to be realised, say, 'Very well, then, the contract should be regarded as terminated.' It is quite consistent with a decision provisionally to keep alive, to say, 'Well, this is no use-let us now end the contract's life.'

A vendor who seeks (and gets) specific performance is merely electing for a course which may or may not lead to implementation of the contract; what he elects for is not eternal and unconditional affirmation, but a continuance of the contract under control of the court which control involves the power, in certain events, to terminate it. If he makes an election at all, he does so when he decides not to proceed under the order for specific performance, but to ask the court to terminate the contract (see the judgment of Greene MR in Austins of East Ham Ltd v Macey ([1941] Ch 338 at 341). The fact is that the election argument proves too much. If it were correct it would deny the vendor not just the right to damages, but the right to 'rescind' the contract, but there is no doubt that this right exists; what is in question is only the right, on 'rescission', to claim damages.

The authority most relied on to support this argument is in the end the passage already quoted from Williams on Vendor and Purchaser (4th Edn (1936), vol 2, pp 1025-1026); I have commented on this (See p 892, ante). The cases cited relate to different situations where an election might well be regarded as creating a new situation from which subsequent departure would be impossible. Cases relating to acceptance of defective goods, or to waiver or enforcement of forfeiture, or to a decision to sue one set of parties rather than another (Scarf v Jardine) or to a case of fraud, to be asserted or waived (Clough v London & North Western Railway Co), are examples, and there are many others, where an election creates, or recognises, a situation from which consequences flow and when the election is irrevocable. But this is clearly not such a case, or the right to 'rescind' after an order for specific performance would not have been recognised.  

So far as regards the subsidiary argument, it is equally the case that it proves too much, for if correct it would result in a denial of the undoubted power to 'rescind'. Moreover the argument is itself refuted by the action taken by the Court of Appeal itself, for after allowing the vendors to rescind they awarded damages under Lord Cairns's Act. So clearly there was nothing inappropriate or unnecessary in granting the vendors 'rescission' and damages. As Goff LJ ([1978] 3 All ER 314 at 329, [1978] Ch 176 at 199) pointed out it was not possible to leave the vendors to 'work out' the decree for specific performance; their only remedy (if any) must lie in an award of damages.

In my respectful opinion therefore, Swycher's case, whether it should be regarded as resting on Henty v Schroder or on an independent argument based on election, was wrongly decided in so far as it denied a right to contractual damages and should so far be overruled. The vendors should have been entitled, on discharge of the contract, on grounds of normal and accepted principle, to damages appropriate for a breach of contract.

There is one final point, on this part of the case, on which I should make a brief observation. Once the matter has been placed in the hands of a court of equity, or one exercising equity jurisdiction, the subsequent control of the matter will be exercised according to equitable principles. The court would not make an order dissolving the decree of specific performance and terminating the contract (with recovery of damages) if to do so would be unjust, in the circumstances then existing, to the other party, in this case to the purchaser. (To this extent, in describing the vendor's right to an order as ex debito justitiae Clauson LJ may have put the case rather too strongly in John Barker & Co Ltd v Littman ([1941] 2 All ER 537 at 541, [1941] Ch 405 at 412.) This is why there was, in the Court of Appeal, rightly, a relevant and substantial argument, repeated in this House, that the non-completion of the contract was due to the default of the vendors; if this had been made good, the court could properly have refused them the relief sought. But the Court of Appeal came to the conclusion that this non-completion, and the ultimate impossibility of completion, was the fault of the purchaser. I agree with their conclusion and their reasons on this point and shall not repeat or add to them.

It is now necessary to deal with questions relating to the measure of damages. The Court of Appeal, while denying the vendors' right to damages at common law, granted damages under Lord Cairns's Act. Since on the view which I take, damages can be recovered at common law, two relevant questions now arise:

(1)

whether Lord Cairns's Act provides a different measure of damages from the common law? If so, the respondents would be in a position to claim the more favourable basis to them; and

(2)

if the measure of damages is the same, on what basis they should be calculated?

Since the decision of this House, by a majority, in Leeds Industrial Co-operative Society Ltd v Slack, it is clear that the jurisdiction to award damages in accordance with s 2 of Lord Cairns's Act (accepted by the House as surviving the repeal of the Act) may arise in some cases in which damages could not be recovered at common law; examples of this would be damages in lieu of a quia timet injunction and damages for breach of a restrictive covenant to which the defendant was not a party. To this extent the Act created a power to award damages which did not exist before at common law. But apart from these, and similar cases where damages could not be claimed at all at common law, there is sound authority for the proposition that the Act does not provide for the assessment of damages on any new basis. The wording of s 2 that damages 'may be assessed in such manner as the court shall direct' does not so suggest, but clearly refers only to procedure.  

In Ferguson v Wilson ((1866) LR 2 Ch App 77 at 88) Turner LJ, sitting in a court which included Cairns LJ himself, expressed the clear opinion that the purpose of the Act was to enable a court of equity to grant those damages which another court might give; a similar opinion was strongly expressed by Kay J in Rock Portland Cement Co v Wilson, and Fry on Specific Performance (6th Edn (1921), p 602) is of the same opinion.

In Wroth v Tyler however, Megarry J, relying on the words 'in lieu of specific performance', reached the view that damages under the Act should be assessed as on the date when specific performance could have been ordered, in that case as at the date of the judgment of the court. This case was followed in Grant v Dawkins. If this establishes a different basis from that applicable at common law, I could not agree with it, but in Horsler v Zorro ([1975] 1 All ER 584 at 596, [1975] Ch 302 at 316), Megarry J went so far as to indicate his view that there is no inflexible rule that common law damages must be assessed as at the date of the breach.

Furthermore, in Malhotra v Choudhury ^[F5] the Court of Appeal expressly decided that, in a case where damages are given in substitution for an order for specific performance, both equity and the common law would award damages on the same basis, in that case as on the date of judgment. On the balance of these authorities and also on principle, I find in the Act no warrant for the court awarding damages differently from common law damages, but the question is left open on what date such damages, however awarded, ought to be assessed.

The general principle for the assessment of damages is compensatory, ie that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. Where the contract is one of sale, this principle normally leads to assessment of damages as at the date of the breach, a principle recognised and embodied in s 51 of the Sale of Goods Act 1893. But this is not an absolute rule; if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances.

In cases where a breach of a contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost. Support for this approach is to be found in the cases. In Ogle v Earl Vane the date was fixed by reference to the time when the innocent party, acting reasonably, went into the market; in Hickman v Haynes at a reasonable time after the last request of the defendants (the buyers) to withhold delivery. In Radford v De Froberville, where the defendant had covenanted to build a wall, damages were held measurable as at the date of the hearing rather than at the date of the defendant's breach, unless the plaintiff ought reasonably to have mitigated the breach at an earlier date.

In the present case if it is accepted, as I would accept, that the vendors acted reasonably in pursuing the remedy of specific performance, the date on which that remedy became aborted (not by the vendors' fault) should logically be fixed as the date on which damages should be assessed. Choice of this date would be in accordance both with common law principle, as indicated in the authorities I have mentioned, and with the wording of the Act 'in substitution for ... specific performance'. The date which emerges from this is 3 April 1975, the first date on which mortgagees contracted to sell a portion of the property. I would vary the order of the Court of Appeal by substituting this date for that fixed by them, viz 26 November 1974. The same date (3 April 1975) should be used for the purpose of limiting the respondents' right to interest on damages. Subject to these modifications I would dismiss the appeal.