BDW Trading Ltd (t/a Barratt North London) v JM Rowe (Investments) Ltd

A contractual right to rescind arising when conditions remain unsatisfied by a long-stop date does not ordinarily arise from breach. Where the contract makes the right exercisable at any time, continued performance or negotiations do not by themselves amount to election or waiver, particularly where continued negotiations are a contractual precondition to rescission. The agreement must be construed as a whole. An express restriction on rescission for specified defaults may be exhaustive, leaving no wider implied own-wrong qualification. A later arrangement with a third party cannot rewrite the condition. Causation remains necessary where contractual breaches are relied upon to prevent rescission or support a damages claim.

JM Rowe (Investments) Ltd agreed to sell development property to BDW Trading Ltd. Completion was conditional on specified matters being satisfied within five months, including payment to a former tenant following termination of its lease. The contract allowed either party to rescind if the conditions were not satisfied by the deadline.

BDW served notice rescinding after the payment condition remained unsatisfied. Rowe disputed the construction of the condition, relied on BDW’s own breaches, alleged a subsisting breach of BDW’s reasonable-endeavours obligation, and argued that BDW had elected to affirm the contract. Peter Smith J gave judgment for BDW and dismissed Rowe’s counterclaim: [2010] EWHC 1987 (Ch). The central issues were the construction of the conditions, the own-wrong principle, causation and election.

Lord Justice Patten gave the leading judgment. Lord Justice Aikens and Lady Justice Arden agreed.

1. Appeal dismissed. BDW’s notice of rescission was effective, and Rowe’s counterclaim for specific performance and damages was rightly dismissed.
2. Clause 6.2(vi) required confirmation that the sums payable to A&L under the lease had been paid. The payment obligation arose when the lease terminated on 18 March 2008. It was not conditional on vacant possession. Later arrangements between Rowe and A&L postponing payment could not alter the contractual condition. The condition asked whether payment had occurred by the deadline, not whether payment was legally or practically possible by that date.
3. The own-wrong principle is a matter of contractual construction. Its application may be excluded or modified by the agreement. The words limiting the rescission bar to a party in default of its obligations under clause 6.2 were exhaustive. They excluded any wider implied term preventing rescission because of another contractual breach. The court applied the approach in Richco International v Alfred C. Toepfer International [1991] 1 Lloyd’s Rep. 136 and A-G of Belize v Belize Telecom Ltd [2009] UKPC 10, and treated the factors in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 as expressions of one central constructional question. New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1 concerned materially different provisions and did not assist Rowe.
4. Even if the own-wrong principle applied, BDW’s breaches of clause 15.2 did not cause the failure to pay. The payment became due before the contractual deadline for supplying the specification, method statement and warranties, and Rowe could have paid without BDW’s agreement.
5. BDW was not in breach of clause 6.2(iii) when it served notice. The solicitor’s temporary confusion about the warranty arrangements did not amount to a subsisting refusal to provide direct warranties for A&L.
6. The right under clause 6.2 was exercisable at any time after the conditions had not been satisfied. It was not a breach-based termination right requiring an immediate election. Continuing negotiations were compatible with retaining the right and were themselves part of BDW’s contractual obligations. No election or waiver occurred. Clear and unequivocal conduct abandoning the right would have been required: see Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 and Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 Lloyd’s Rep. 391.

• Court of Appeal (Civil Division) — appeal dismissed and the High Court’s judgment upheld: [2011] EWCA Civ 548.
• High Court of Justice, Chancery Division — Peter Smith J gave judgment for BDW and dismissed Rowe’s counterclaim: [2010] EWHC 1987 (Ch).