Howard -Jones v Tate

Termination for a repudiatory breach is distinct from rescission ab initio. Where a contractual obligation falls due after completion of a sale of land, breach may discharge the innocent party from future performance, but it does not ordinarily undo the completed transaction. Damages must compensate for loss caused by the breach, such as the reasonable cost of obtaining the promised performance and consequential loss. They must not restore the claimant to the position occupied before the contract was made unless the claimant establishes a separate basis for recovery, such as total failure of consideration.

The purchaser bought a warehouse and outbuildings under a contract requiring the vendor, within six months after completion, to provide separately metered mains water and a directly metered single-phase electricity supply. The vendor failed to do so. The county court found that the breaches went to the root of the contract, but held that the purchaser could not rescind ab initio. It nevertheless awarded the purchase price and consequential expenses, effectively restoring the purchaser to his pre-contractual position.

The vendor appealed against the damages assessment. The purchaser cross-appealed on rescission. The central issues were whether a post-completion repudiatory breach entitled the purchaser to rescind the completed sale and whether damages could be assessed on a restitutionary, rather than compensatory, basis.

1. Appeal allowed; cross-appeal dismissed. The matter was remitted to the Lincoln County Court for damages to be reassessed before a different judge.
2. The court applied the distinction explained in Johnson v Agnew [1980] AC 367 and Photo Productions v Securicor Transport Ltd [1980] AC 827. Acceptance of a repudiatory breach discharges future obligations and gives rise to a claim for damages. It does not rescind the contract from its inception.
3. The obligation to provide the water and electricity supplies arose six months after completion. The vendor therefore breached a post-completion obligation. Even accepting that the breaches went to the root of the contract, they entitled the purchaser to treat the contract as discharged and claim damages, not to set aside the completed sale.
4. Gunatunga v DeAlwis (1996) 72 P&CR 161 did not govern the case. The court distinguished its materially different facts and noted that it did not address the distinction between rescission ab initio and discharge for subsequent breach. The decision might have been given per incuriam. Lord Justice Lloyd added that it was of seriously questionable authority and arguably non-binding, but agreed that the point need not be decided.
5. The damages inquiry had to identify loss caused by the failure to provide the contracted services. It should principally include the reasonable cost of installing compliant water and electricity supplies, together with consequential losses caused by delay, allowing for supplies or alternative arrangements already available and any benefit obtained. The Recorder’s award of the purchase price and related acquisition expenses was impermissibly based on putting the purchaser in his pre-contractual position.
6. Recovery of all money paid under the contract would require a total failure of consideration. That basis was unavailable where the purchaser retained property that had been used, had value, and could be provided with the promised services.

• Court of Appeal (Civil Division) [2011] EWCA Civ 1330: appeal from the order of Mr Recorder Maw in the Lincoln County Court dated 12 July 2010. The appeal was allowed, the cross-appeal dismissed, and damages remitted for reassessment before a different judge.