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CASE DIGEST: Contracts - Real Property - Conveyancing - Notice to Complete - Specific Performance

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Clarke Investments Ltd –v- Pacific Technologies [2013] EWCA Civ 750

Failure to provide an accurate completion statement by a vendor is not a reason for the purchaser to refuse to complete before the expiry of its own notice to complete

On 21 June 2013, the Court of Appeal delivered its judgment in this appeal by the purchaser against the decision of HHJ Edward Bailey of the Central London County Court. This case concerns a claim by the purchaser for specific performance of contract against the vendor to complete sale. 

The relevant property is a shop with two residential flats above it. It was offered for sale at an auction on 4 October 2010 which did not sell. However, following post auction negotiations, the purchaser agreed to buy the property from the vendor at a price of £385,000. The auction particulars specifically stated that VAT was not to be charged. Contract of sale was exchanged on 13 October 2010 and it was subject to the standard conditions of sale (4th Edition).

According to standard condition 6.1.1 completion date was to be 21 working days after the date of the contract, namely on 10 November 2010 and time was not of the essence unless a notice to complete had been served. Condition 6.8.1 made clear that on or after the initially agreed completion date, either party, if ready, willing and able to complete, may serve on the other a notice to complete. Condition 6.8.2 stipulated that completion must take place within 10 working days of the service of any notice to complete and that for this purpose time is of the essence of the contract.

Following exchange of contract, the vendor asserted that VAT was chargeable to the transaction despite the clear wording in the auction particulars, stating that it was a mistake. The purchaser disagreed. On 4 November 2010, the purchaser’s solicitors wrote to the vendor’s solicitors indicating that it is ready, willing and able to complete on the 10 November 2010 at the contract price of £385,000 but at a net figure of £343,884.09 after making deductions for rent apportionments. Due to the ongoing disagreement the completion did not take place on 10 November 2010. The purchaser therefore served a notice to complete which according to the express terms of the contract would expire on 25 November 2010. Completion therefore had to have taken place by 25 November. By this time, the purchaser in addition to its claim for performance of contract, sought costs and compensation allegedly resulting from the vendor’s failure to complete on time.

On 25 November at 11.21 am, the vendor’s solicitors faxed a letter to the purchaser’s solicitors indicating its disagreement but in essence agreeing to complete the transaction without the added VAT as sought by the purchaser. They enclosed with that faxed letter an amended completion statement showing that VAT had not been added. This became known as the 'white flag letter.' However, the purchaser was dissatisfied due to the completion statement not accurately incorporating further deductions by way of compensation for the losses purportedly suffered by the purchaser by reason of the failure by the vendor to complete on 10 November. In any event, the purchaser’s solicitors were not in funds to be able to complete on 25 November nor did they have instructions to do so without the final figure being agreed. The purchaser’s solicitors did not receive funds into its bank account until 26 November 2010, a day after the contractual completion date. Accordingly, the purchaser did not complete on 25 November 2010. By a letter dated 26 November 2010, the vendor’s solicitors wrote to the purchaser’s solicitors treating its failure to complete by 25 November 2010 as a repudiatory breach and formally rescinded the contract.

The purchaser applied to Court for an Order for specific performance to compel the vendor to complete the transaction. 

At the trial, it was argued on behalf of the vendor that it was entitled to rescind the contract. The notice of complete made time of the essence of the contract and the white flag letter accepted the obligation to complete with an executed transfer in hand. The purchaser was therefore due to pay the purchase price by the end of the working day of 25 November 2010 and it failed to do so. Conversely, the purchaser argued that an aggrieved purchaser who serves a notice to complete and then does not pay the purchase price before the expiry of the notice does not commit a repudiatory breach in every case. It was further argued that in any event, time was never of the essence of the contract.

On appeal, the purchaser argued that the vendor's so called white flag letter was not an unconditional surrender of its position but rather it was an invitation to the purchaser to proceed to negotiate towards an agreed completion. It was further argued that the vendor could not have held the belief that the purchaser intended to repudiate the contract and in any event parties had not reached an agreement on the final amount to be paid. The Court rejected these arguments.

The Court of Appeal therefore upheld the decision of the County Court and dismissed the purchaser’s appeal. It was held that:

1.    “Time is made of the essence for both parties by service of a notice to complete that the party serving the notice must be ready to complete by the date fixed in the notice. If the party serving the notice is not ready then it will be in breach of what is, by then, an essential condition of the contract. It is well settled that the Court will not grant specific performance to a party who is in breach of such a condition.” (Para 33);

2.    “A failure to complete on time, where time is of the essence, is a repudiatory breach of contract.” (Para 40); and

3.    “Although it is the practice of conveyancing solicitors to prepare and debate the accuracy of completion statements, a failure by the vendor to provide an accurate completion statement is not a basis on which a party is discharged from its obligation to complete.” (Para 42).

 

 

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Saiful Islam is a practising Barrister in the City of London

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