Dominion Corporate Trustees Ltd & Ors. v Debenhams Properties Ltd

A contractual termination clause in a complex commercial agreement will not ordinarily be construed as permitting termination for every breach, however trivial, unless that construction is consistent with business commonsense. Where the clause contains numerous obligations of varying importance, the right to terminate for breach generally requires a repudiatory breach. A payment date is not automatically of the essence merely because a substantial sum is payable by a specified date. The court must assess the contract, its commercial context, the consequences of delay and any agreed remedy for late payment. A late payment will constitute a repudiatory breach only where it deprives the innocent party of substantially the whole benefit of the contract or goes to its root.

The claimants had agreed to construct an extension to a shopping centre and grant the defendant a 15-year lease of premises within it. The agreement required the claimants to pay £425,000 within 10 working days after the access date. Payment was not made by the due date, and the defendant served notice purporting to terminate under clause 19. The claimants disputed the termination and later accepted the defendant’s conduct as a repudiation. The trial concerned liability and three issues: whether clause 19 permitted termination for any breach; whether time was of the essence for the payment obligation; and whether the surrounding circumstances made the non-payment repudiatory.

1. Clause 19. The words of clause 19, read in isolation, might permit termination for any failure to perform any provision. That construction was commercially unrealistic in an agreement containing numerous obligations of differing importance. Applying the principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, and the approach illustrated by Antaios Compania S.A. v Salen A.B. [1988] 1 AC 191 and Rice (t/a The Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1, clause 19 entitled a party to terminate for a breach amounting to repudiation, or on the occurrence of an insolvency event. It did not create a right to terminate for a minor breach.
2. Time for payment. The reasoning in Bunge Corporation, New York v Tradax Export SA Panama [1981] 1 WLR 711 did not make time of the essence here. The payment was an inducement or capital contribution, not a sum calculated by reference to the defendant’s fitting-out expenditure. The agreement imposed no obligation to carry out particular fitting-out works, and clause 19.2 provided an express remedy of interest for late payment. Precise compliance with the date was therefore not essential or vital.
3. Repudiatory breach. The governing question, stated in Hongkong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, was whether the breach deprived the defendant of substantially the whole benefit intended under the agreement. The claimants had consistently indicated that they remained committed to paying and to the project. The breach was simply failure to pay £425,000 on the due date. The defendant had not made time essential by warning the claimants that termination would follow. The surrounding circumstances did not convert the non-payment into a repudiatory breach.
4. Debenhams was not entitled to terminate the agreement on 3 March 2009.