HT-2022-000311 & HT-2022-000254 - [2024] EWHC 3179 (TCC)

As provided by clause 13.1, the FPA was conditional on the Seller completing the Works in accordance with the terms of the FPA and did not become unconditional until receipt by RTM’s solicitors of Click St Andrews’ Completion Notice. In the event, no Completion Notice was ever given by the Seller to the Buyer.

By letters dated 27 February 2022 and 2 March 2022, Mr Emmett on behalf of Click St Andrews purported to rescind the Agreement under clause 13.6. In the course of the proceedings, the defendants made an unsuccessful application for summary judgment against RTM on the basis that the Agreement had been rescinded.

Under clause 13.2, the Completion Notice was to be served after the Works were complete and Click St Andrews had obtained the necessary “Building Regulations Completion Certificates”. Click St Andrews did not serve a Completion Notice by the Initial Longstop date (which appeared in the FPA only as “2020”). Clause 13.5 then provided that, in that event, the date was extended by a year to give the Extended Longstop Date. No Completion Notice was served by a date in 2021 and no Completion Notice was ever served by Click St Andrews. None of this is factually controversial.

On 23 December 2021 the claimants’ solicitors had sent lengthy and detailed Pre-Action Protocol Letters to both Click St Andrews and Click Group Holdings. In the case of Click Group Holdings, the letter expressly stated that the letter constituted a “first written demand” in accordance with clause 17.2 entitling the claimants to compensation for defective works, damage to the Property and consequent financial losses and including legal costs whether as costs or under clause 17.2.

By letter dated 25 February 2022, RTM proposed to the defendants that they extend the Extended Longstop Date by 3 months and vary the terms of the Freehold Purchase Agreement to remove the right to rescind.

RTM’s further letter dated 25 February 2022 gave notice of intention to hold Click Group Holdings to its obligations under clause 17 in respect of “all sums for which [Click St Andrews] and therefore [Click Group Holdings] are or may become liable under the Agreement for Sale.”

By letter dated 27 February sent to RTM’s solicitors (as identified in the FPA), Click St Andrews sought to rescind the FPA. The letter was headed “Formal Rescission Notice” and cited clause 13.6. Apparently, having received no response, a further letter in the same terms was sent to solicitors then known to be acting for RTM.

RTM’s response by solicitors’ letter dated 4 March 2022 denied the validity of the recission notice and asserted that Click St Andrews was in breach and was not, therefore, entitled to rescind the Agreement and that, because of the many breaches of the Agreement, it was no longer possible to return the parties to their pre-contractual position.

On the basis that the FPA was still extant, by letter dated 25 March 2022, RTM claimed that Click St Andrews was in repudiatory breach of the Agreement and accepted that repudiation as terminating the contract.

In the Defence, on which as I have said Click St Andrews relied fully at trial, the following arguments were advanced:

RTM’s case is that the right to rescind was not a right to rescind the contract ab initio but to terminate the contract such that the obligations to sell and buy ceased to be operable but any claims for damages for breach of the FPA were unaffected.

It would, in my view, be surprising if the Seller’s interpretation of the FPA were correct. It would have the effect that the Seller could fail to carry out the works properly and fail to complete but avoid all consequences of those breaches by rescinding the FPA. That would also create the legally improbable position that the Works had been carried out on no contractual basis at all.

The only argument in favour of such an interpretation would be on the basis that the Buyer would never suffer any loss because it had no interest in the property and the Seller would have obligations to the leaseholders under the leases. But that argument has no regard to the potential for the RTM to suffer other losses in any event, the nature of the RTM as a legal mechanism for enfranchisement, and the prospect, therefore, that the RTM would become responsible for the carrying out of remedial works.

As a matter of construction, the term rescission is often used, arguably inaccurately, to refer to termination rather than rescission ab initio. Mr Levenstein relied on the decision of Court of Appeal in Buckland v Farmar & Moody [1979] 1 WLR 221 in which Buckley LJ said that the word rescission had no “primary meaning” and its meaning was to be discovered from the context. At 232F, he concluded:

“It seems to me really impossible, with all respect to the argument of counsel before us, to construe the works “rescind” in any sense other than the second of the two senses I have indicated, that is to say, other than as referring to acceptance by the vendor of a repudiation of the contract by the plaintiffs, leaving the vendor’s rights under the contract which had already matured at the date of the acceptance of the repudiation intact.”

In Hardy v Griffiths [2014] EWHC 3947 (Ch), Amanda Tipples QC (as she then was) addressed the argument of counsel that, in a contract for the sale of land, if a contractual right to rescind exists, then the principles of rescission ab initio apply. She held that there was no authority to support the proposition that the contractual right to rescind results in the contract being terminated ab initio so that unperformed obligations intended to remain enforceable after the contract has been brought to an end are somehow dissolved or discharged. At [109] she continued:

“(4)

The rights unconditionally acquired by the vendor of land prior to the exercise of his contractual right to rescind, survive the rescission of the contract. That is unless the contract for the sale contains clear express words divesting or discharging the vendor of such rights.”

In the present case, the argument that might be advanced is that RTM’s rights were never unconditional as the FPA was expressed to be conditional. But in my view it is the obligations to buy and sell that are truly conditional and not the obligation to carry out the Works, at least once that obligation has been partially performed. If it were otherwise, those obligations would exist in some sort of contractual vacuum.

In my judgment, therefore, the effect of the purported rescission was that the rights of the Seller and Buyer to sell and buy were terminated but no more than that. RTM always had a cause of action in respect of other breaches of the FPA which had occurred prior to the termination of the FPA. At the time proceedings were commenced, RTM’s claim may properly have been for nominal damages only but it has since acquired the freehold and is responsible for the carrying out of remedial works and will suffer substantial loss and damage. It is not necessary for a completed cause of action in contract for it to have suffered that substantial loss and damage before the commencement of proceedings.

It follows that RTM is also entitled, pursuant to the guarantee in clause 17, to recover from Click Group Holdings any sums for which Click St Andrews is liable under the FPA.

RTM also argued that, at the time of the rescission letters, it had already made a first written demand under clause 17.2 (on 23 December 2021) and on 25 February 2022 notified both defendants of its intention to make a claim under the indemnity and guarantee provisions. It followed, RTM submitted that the purported recission amounted to a repudiatory breach which the claimant accepted. I do not see how the making of that demand had the effect contended for. Mr Levenstein’s argument appears to be that the purported exercise after the demands under the guarantee had been made evinced an intention not to be bound by the terms of the FPA, but that presupposes, in the claimants’ favour, that there were enforceable obligations under the conditional FPA and, therefore, turns on the same issue as to whether the right to rescind could be exercised and/or with what effect. However, it does seem to me that the fact that such a demand could be made is consistent with the interpretation of the FPA which I have adopted. Once it had been made, it would be perverse if the termination of the contract could then create a situation in which RTM had no claim for loss which was the subject of the guarantee.

For completeness, I address two further arguments advanced by Mr Levenstein on behalf of the claimants. The first was that a claim could be brought by RTM against Click Group Holdings in reliance on clause 17.3 of the FPA. That clause provided that if the Seller suffered an Insolvency Event, the Guarantor should indemnify the Buyer against all loss incurred by the Buyer by reason of the Insolvency Event and pay accordingly on first written demand. Insolvency Event was widely defined and encompassed matters that may occur before, for example, the Seller entered into liquidation. In the pleaded case, RTM expressly relied on the letter of 25 February 2022 as its notification of intention to claim under the guarantee adding that this was in addition to its letter dated 23 December 2021 which constituted the first written demand. On any view, both these demands preceded the liquidation of Click St Andrews and there is no evidence of any other Insolvency Event prior to these letters. Further no case was developed as to losses that had been suffered as a result of an Insolvency Event. It may have been argued, albeit with some difficulty, that the earlier demands were, in some way, a pre-emptive strike and/or that the losses were all monies that the claimants could not recover from St Andrews. It is, however, unnecessary, to examine such arguments - which were not advanced - as a claim under clause 17.3 adds nothing to a claim under clause 17.2.

Secondly, Mr Levenstein argued that Click Group Holdings had never served its own rescission notice and, therefore, remained bound by the guarantee in the FPA whatever the position in respect of Click St Andrews. In my judgment, this argument is misconceived for a number of reasons. Clause 13 of the FPA, on its face, refers to the actions of the Seller and the Buyer and it is clear that the reference in clause 13.6 to “either party” serving notice refers to the Seller and the Buyer only and not to the Guarantor. Further, it would be extraordinary if a guarantor could give notice to rescind the underlying contract performance of which it had guaranteed. There is no conceivable basis on which one could carve out the guarantee and construe the FPA as giving Guarantor the right to rescind the Guarantee. Lastly, if Click St Andrews’ rescission notice had had the effect of rescinding the FPA such that it had never owed any enforceable duties to RTM, there would be nothing for Click Group Holdings to have guaranteed. In any event, for the reasons I have given, none of this is material.