Davey & Anor v Lombard Asset Management (Bahamas) Ltd

Where a contract requires a buyer to do something before completion and to warrant that it has done so, the buyer must be able truthfully to give that warranty on the contractual completion date. The obligation may operate as a condition precedent even if the contract uses the word warranty. If the buyer is not ready to give the assurance because the required state of affairs depends on its own action, the seller may delay completion until compliance and claim compensation for the resulting default. Provisions allocating financial risk, including indemnity or longstop provisions, do not necessarily waive or displace that requirement. A seller’s agreement to delay completion does not, without agreement, amount to waiver of the buyer’s default.

The purchasers agreed to buy a property rental business for £3.15 million, with completion due on 20 May 2005. Clause 12(b) required them to warrant on completion that they were VAT-registered and had taken specified steps concerning VAT. Registration was incomplete on the contractual date, so completion occurred on 31 May.

The Central London County Court answered the relevant preliminary issues against the appellant and entered final judgment for the respondents. The appeal concerned the construction of clause 12(b), the effect of related VAT provisions, and whether the judge was entitled to determine remaining notice and payment issues without an adjournment. The central issue was whether the purchasers were in default during the period of delay.

Appeal dismissed. Lord Justice Carnwath delivered the leading judgment. Lord Justice Gage agreed, and Mr Justice Bodey agreed in separate terms.

1. The contention that the purchasers could comply with clause 12(b) by giving an untruthful warranty was untenable. A contractual warranty had to be capable of being given truthfully on the date of completion.
2. Clause 12(b) concerned a matter which the purchasers had to achieve before completion. The natural implication was that they promised not merely to give the warranty, but to be in a position to give it when completion fell due. Because VAT registration depended on action by the purchasers and had not been completed, they were not in a position to complete on the contractual date. The vendors were therefore entitled to delay completion until the requirement was satisfied and to recover compensation for the default.
3. The use of the word warranty, rather than condition, was not decisive. The contractual substance and context mattered. Clauses 12(e) and 12(f) operated as longstop provisions concerning the consequences if VAT became payable; they did not detract from the basic registration requirement.
4. Mr Justice Bodey added that the vendors could have waived the requirement and relied on the indemnity if VAT were later levied, but were not bound to do so.
5. The vendor’s letter of 20 May was sufficient notice under condition 7.3.4. It was not rendered equivocal by failing expressly to cite that condition or to address expressly the period after 23 May.
6. The judge was entitled under CPR part 3 to determine the remaining tender-of-payment issue without an adjournment. Even taking the facts at their highest for the purchasers, the point had no merit, and no specific unresolved issue had been identified. The appeal was dismissed.

• Court of Appeal (Civil Division): In [2006] EWCA Civ 1543, the appeal was dismissed.
• Central London County Court: His Honour Judge Cowell answered the relevant preliminary issues against the appellant and entered final judgment for the respondents for just under £10,000 plus interest.