UTLC LC-2022-000705 - [2023] UKUT 141 (LC)

It is convenient to start by setting a summary of the Judge’s reasoning in the relevant part of the Decision. At Paragraphs 6.3 and 6.4 the Judge summarised the submission of the Appellant, in the following terms:

“6.3.

However, the Respondent contends primarily that the obligation to pay under the agreement has been triggered by the Applicant's grant of the Charge to Perly Capital within the period of the agreement and that the Applicant has, admittedly, refused to pay the sum which he contends is due. It follows, he says, that unless and until payment in accordance with the agreement has been made the restriction is required because the performance by the Applicant of its obligations under the agreement which it was manifestly, given the wording of the restriction, registered to protect has not been achieved.

6.4.

The Applicant in response says that, properly construed, clauses 3.3 and 6.4 create a mandatory contractual obligation upon the Respondent to procure or assist the removal of the restriction upon the occurrence of the relevant event, i.e. the sooner of payment pursuant to clause 3.2 or the expiry of the five-year term.”

I have already set out the Judge’s reasoning in response to these arguments, at Paragraph 6.5. For ease of reference I repeat Paragraph 6.5:

“6.5.

This seems an extraordinary submission to me. It requires an acceptance that it was the intention of the parties that even though:

6.5.1.

the obligation to pay which it was the primary purpose of the agreement to create had arisen;

6.5.2.

had not been satisfied so that the Applicant was in breach of its obligations under the agreement; and

6.5.3.

the Applicant had expressed its intention not to remedy its breach,

the Court, Registrar or Tribunal would nevertheless be required as a matter of contract, unconditionally, to make an order which might very well allow the Applicant to escape its obligation to pay the Respondent. I do not believe that was the intention of the parties. It seems plain to me: i) that no injunction or order would be made in the Applicant's favour such circumstances in the exercise of the Court's discretion; and ii) as the Respondent contends, that the opening words of clause 3.3 expressly exclude the obligation to remove the restriction if the terms of the agreement have not been complied with.”

As I read this Paragraph, the Judge decided that in circumstances where the obligation to make to the Payment pursuant to Clause 3.2 had been triggered, the obligation upon the Respondent to remove or assist in the removal of the Restriction could not arise, until the Payment was actually made, to GPS or the Respondent, by the Appellant. In reaching this conclusion, the Judge relied upon the opening words of Clause 3.3, which he described as expressly excluding the obligation to remove the Restriction if the terms of the Payment Agreement had not been complied with. As a matter of fact, the terms of the Payment Agreement had not been complied with, because the obligation to make the Payment had been triggered, but the Payment had not been paid by the Appellant, in breach of Clause 3.2.

Although Clause 3.2 conferred the right to receive the Payment upon GPS or the Respondent, at the direction of the Respondent, it is again convenient to discuss the Payment Agreement on the basis of the Respondent’s rights under the Payment Agreement.

Ms Lyne’s argument in support of Ground 4 was, in its essentials, a simple one. She relied on Clause 6.4, which I repeat for ease of reference:

“6.4

On payment of the Payment under clause 3.2 or expiry of the period of five years from the date of this deed (whichever is the earlier) the Tenant and Mr Gapper jointly and severally undertake to procure that the restriction mentioned in clause 6.2 is removed from the Registered Title and to assist the Landlord in achieving such removal.”

Ms Lyne contended that Clause 6.4 was clear. The Restriction was to be removed either if the Payment was made or if five years had elapsed from the date of the Payment Agreement “whichever is the earlier”. This wording was unequivocal. There were two triggers for the removal of the Restriction. One was the date of the Payment; meaning the date when the Payment was made. The other was the expiry of five years from the date of the Payment Agreement. On the earliest of these two events to occur, the Restriction fell to be removed. The Judge, so Ms Lyne submitted, had failed properly to consider the unequivocal wording of Clause 6.4, and had placed too much emphasis on Clause 3.3, which was a separate provision, directed to a different object.

The Respondent argued that the Judge had been correct in this decision. The Respondent’s argument essentially fell into two related parts, as follows:

In relation to the second part of the Respondent’s argument, it seemed to me that it engaged two principles which might assist the Respondent’s opposition to the Appeal, in relation to Ground 4. The first principle was the principle that a contract should be interpreted, so far as possible, in such a manner as not to permit one party to take advantage of its own wrong. The second principle was the common law principle that a party cannot take advantage of its own wrong.

As neither of these principles was clearly articulated in the Respondent’s written and oral submissions in relation to the Appeal, I gave the parties the opportunity to file further sequential written submissions, with the Appellant going first, on the following questions:

Question 5 was included because it was the Appellant’s case that Questions 1-4 had not been raised by the Respondent before the Judge. As such, there was an issue as to whether it was open to the Respondent to raise Questions 1-4 on the Appeal. The Appeal was directed to be heard by way of review, and not by way of rehearing.

Both Ms Lyne and the Respondent provided helpful further written submissions on these Questions. Ms Lyne’s further submissions were subject to two qualifications.

The first qualification, which also applied to her existing submissions in support of Ground 4, was that Ms Lyne was assuming, contrary to her case on Grounds 1-3, that the Appellant was bound by the Payment Agreement and had, in breach of the Payment Agreement, failed to make the Payment. By reference to my decision, this qualification no longer applies. I have upheld the decision of the Judge that the Appellant was bound by the Payment Agreement and has, in breach of the Payment Agreement, failed to make the Payment, the obligation to pay which was triggered by the creation of the Charge.

The second qualification was the submission of Ms Lyne, in relation to Question 5, that it was not open to the Respondent to raise Questions 1-4 in the Appeal, because they had not been raised below, before the Judge. As Questions 1 and 2 raised what Ms Lyne described as a pure point of law, in respect of which the Appellant had been given time to consider her position, Ms Lyne (sensibly) did not object to Questions 1 and 2 being raised. Ms Lyne did object to Questions 3 and 4 being raised. She contended that they were questions which had not been raised before the Judge, and had not been raised as part of the permission to appeal process. They were not confined to questions of law, and engaged a range of factors which were not in evidence before the Judge and in respect of which no findings of fact had been raised. If Questions 3 and 4 were to be considered, this would require new evidence, in circumstances where the Appeal had proceeded and been heard, pursuant to the directions given in the Appeal on 3^rd January 2023, by way of review.

It is convenient to deal first with the question of whether it is open to the Respondent to raise arguments in relation to Questions 3 and 4 in the Appeal. I can take this issue shortly. I have seen a copy of the Respondent’s Statement of Case in the FTT. The Statement of Case is accompanied by a document which is described as a “Response to Applicant’s statement of case by numbered paragraphs”, dated 18^th March 2021 (“the Response”). Paragraph 22 of this Response contains the following assertion:

“The Applicant’s interpretation of clause 6.4 is inconsistent with the main purpose of the agreement and it would allow the Applicant to profit from its own wrong, as it has refused to pay the debt.”

I have not seen a transcript of the hearing before the Judge, but it appears from the terms of the Decision that the argument that the Appellant could not profit from its own wrong was either not raised at all as a distinct argument, or was not raised in a way which called for a specific decision on that argument by the Judge. Nevertheless, it seems to me to be clear that the argument was raised by the Respondent in paragraph 22 of the Response; see the extract from the Response document which I have quoted above. In these circumstances it seems to me that it would be wrong to shut the Respondent out from raising this particular argument in the Appeal. Accordingly, it seems to me that I should consider Questions 3 and 4. If there is an absence of evidence which may required for the purposes of considering Questions 3 and 4, it seems to me that that will be more to the prejudice of the Respondent than the Appellant, given that the burden is on the Respondent, if he can, to establish his ability to rely upon the principle that a party cannot take advantage of its own wrong.

I therefore conclude, in answer to Question 5 (so far as in issue), that it is open to the Respondent to pursue his case on Questions 3 and 4, in addition (as conceded) to pursuing his case on Questions 1 and 2.

I therefore turn specifically to my analysis of Ground 4. The starting point seems to me to be Clause 6.4, the terms of which I repeat, for ease of reference:

“6.4

On payment of the Payment under clause 3.2 or expiry of the period of five years from the date of this deed (whichever is the earlier) the Tenant and Mr Gapper jointly and severally undertake to procure that the restriction mentioned in clause 6.2 is removed from the Registered Title and to assist the Landlord in achieving such removal.”

Looked at in isolation, the terms of Clause 6.4 seem to me to be clear. If one of two triggering events occurs, the Respondent agrees to procure and assist in the removal of the restriction from the Registered Title. The first triggering event is payment of the Payment. I stress the word “payment”. It seems clear to me that this first triggering event only occurs when the Payment is actually paid. The second triggering event is the expiry of the period of five years from the date of the Payment Agreement; that is to say (by my calculations) midnight on 8^th April 2020. The Respondent’s obligation to procure and assist in the removal of the restriction arises on the earlier of these triggering events. As I understand the position, the Payment has not been paid. Continuing to look at Clause 6.4 in isolation, this means that the earlier of the two triggering events specified in Clause 6.4 will have been the expiry of five years from the date of the Payment Agreement. This triggering event will have occurred (by my calculations, but the precise date is not important) at midnight on 8^th April 2020.

This was not the analysis of the Judge. In Paragraph 6.5 the Judge was clearly influenced in his reasoning by the fact that such a construction of the Payment Agreement would, in the events which had occurred in this context, result in the Restriction being removed in circumstances where the Appellant had failed to make the Payment and was not prepared to make the Payment. In such circumstances, so the Judge reasoned, the relevant court or tribunal would be compelled to make an order for the removal of the Restriction, which might very well allow the Appellant to escape its obligation to pay the Respondent. I assume that the Judge had in mind a dealing with the Registered Title, following the removal of the Restriction, which would effectively remove the Property from the Respondent’s reach, in terms of enforcing the Respondent’s right to payment against the Property. This chain of reasoning led the Judge to the following two conclusions:

I do not follow the first of these conclusions. As a general rule, if a party has a particular right under the terms of a contract, the court is bound to give effect to that right. If the remedy sought is a discretionary remedy, such as an injunction or an order for specific performance, the court has a discretion to exercise in terms of whether it should award that particular form of relief, but the discretion falls to be exercised in accordance with well-settled principles. The court cannot refuse to enforce the terms of a contract simply because the enforcement of the contractual right in question produces what the court regards as an unattractive or unfair result. In any event, in the present case the question for the Judge was whether the restriction should be cancelled, pursuant to Rule 97 of the Land Registration Rules 2003 (“Rule 97”). By Rule 97(3), the registrar was bound to cancel the Restriction if it was no longer required. If one assumes that the parties had, under the terms of the Payment Agreement, agreed to the removal of the Restriction after five years, the question for the Judge was whether it could be said that the Restriction was still required. It seems to me that the answer to that question depended upon whether the Respondent had any right to maintain the Restriction on the Registered Title. I cannot see that the question was one for the discretion of the Judge.

This leaves the second conclusion of the Judge, which was that Clause 3.3 expressly excluded the obligation to remove the restriction, if the terms of the Payment Agreement had not been complied with. For ease of reference I set out Clause 3.3 again:

“3.3

Subject always to the Landlord's compliance with the terms of this agreement in the event that the Landlord has not obtained a Satisfactory Planning Permission within five years of the date of this agreement the Payment shall be no longer payable to the Tenant (or Mr Gapper) and the Landlord's Solicitor shall be entitled to return the Payment to the Landlord.”

It seems clear to me that Clause 3.3 was concerned with a matter separate to the question of the duration of the restriction. Clause 3.3 was concerned with what was to happen, in terms of the obligation to make the Payment, if a Satisfactory Planning Permission was not obtained. Clause 3.3 resolved this problem by putting a time limit on the obligation to make the Payment. If a Satisfactory Planning Permission was not obtained within five years of the date of the Payment Agreement, the Payment would no longer be payable. This provision was however expressed to be subject to the Appellant’s compliance with the terms of the Payment Agreement. It is not entirely clear to me how this condition would have worked in practice, but this does not matter for present purposes. For present purposes the relevant point is that this condition does not seem to me to have been linked to the obligation of the Respondent, in Clause 6.4, to co-operate in the removal of the restriction. I can see nothing in the Payment Agreement which linked the condition to Clause 6.4. I agree with Ms Lyne that Clause 3.3 was directed to a different object, which I would identify as the duration of the obligation to make the Payment, if not triggered, to Clause 6.4, which was concerned with the duration of the restriction on the Registered Title.

Clause 3.3 is not as well drafted as it might be because it does seem to me that it fails to make clear whether, upon the expiry of the five year period without a Satisfactory Planning Permission having been obtained, (i) the obligation to make the Payment can no longer be triggered or (ii) that the Payment is no longer payable even if already triggered but left unpaid. It seems to me that the answer to this particular question must be (i). It would be absurd if the obligation to make the Payment, having been triggered by a Disposal during the five year period, could then disappear upon the expiration of the five year period.

Proceeding on the basis set out in my previous paragraph, and looking solely at the wording of Clause 3.3 and Clause 6.4, I cannot agree with the Judge’s conclusion that the opening words of Clause 3.3 expressly exclude the obligation to remove the Restriction if the terms of the Payment Agreement have not been complied with. I do not think that the wording of these two Clauses produces this result.

I am also unable to accept the Respondent’s arguments on the construction of the Payment Agreement. Continuing to put Questions 1-4 to one side for this purpose, it seems to me that there are two essential problems with the Respondent’s arguments on the construction of the Payment Agreement.

The first problem is that the first of the two dates in Clause 6.4 does not seem to me to be tied to the date on which the Payment falls due for payment under Clause 3.2. As I read the opening words of Clause 6.4 the first of the dates referred to is the date when payment of the Payment is actually made. This makes sense because it would be odd if the restriction had to be removed on the contractual date for payment. On this hypothesis the restriction might fall to be removed in a situation where the Payment fell due for payment well before the end of the five year period from the date of the Payment Agreement. If the Payment was not paid, in breach of Clause 3.2, the restriction would fall to be removed well before the end of the five year period, without the Payment having been made. This would produce a worse result, from the point of view of the Respondent, than the Appellant’s construction, by reference to which the restriction will endure for five years in circumstances where the obligation to make the Payment is triggered, but the Payment is not made.

The second problem is that even if one accepts that the first of the two dates in Clause 6.4 is the contractual date for payment of the Payment, as opposed to the actual date of payment of the Payment, I do not see how this leads to the result contended for by the Respondent, namely that the restriction cannot be removed until payment of the Payment has been made. As I have already explained, I do not see how a condition of this kind can be read into Clause 6.4. I am not persuaded that the opening words of Clause 3.3 can be read into Clause 6.4 in this fashion. Nor can I find anything else in the Payment Agreement to support this construction of Clause 6.4.

So far however, I have been considering the construction of the Payment Agreement while putting to one side Questions 1 and 2. I now turn to consider Questions 1 and 2. Is the construction of Clause 6.4 affected by the principle that a contract should be interpreted, so far as possible, in such a manner as not to permit one party to take advantage of his own wrong? If so, what (if any) consequence does this have for the construction of Clause 6.4?

Questions of this kind were considered by the House of Lords in the case of Alghussein Establishment v Eton College [1988] 1 WLR 587. In that case their Lordships were concerned with an agreement for the grant of a long lease, which required the tenant to use its best endeavours to commence and proceed diligently with the development of a block of flats. Clause 4 of the agreement contained the following proviso:

“that if for any reason due to the wilful default of the tenant the development shall remain uncompleted by 29 September 1983 the lease shall forthwith be completed…”

The successors in title to the tenant (the plaintiffs in the case) failed even to begin the development, whereupon the successors in title of the landlord (the defendants in the case) sought to treat the agreement as repudiated on the basis of this breach of the agreement. The plaintiffs, with what might have been considered to be remarkable nerve, contended that the proviso to clause 4 of the agreement had the effect that the parties were required to complete the agreement. Their argument was that the development remained uncompleted by reason of their own wilful default. On this basis the plaintiffs sought an order for specific performance of the agreement. On a preliminary issue the House of Lords upheld the decisions of Sir Nicholas Browne-Wilkinson V-C, as he then was, and the Court of Appeal that the plaintiffs could not rely on the proviso to clause 4 of the agreement.

In his speech in the House of Lords, with which the other members of the House of Lords agreed, Lord Jauncey identified the following principle, at 591D:

“My Lords it is well established by a long line of authority that a contracting party will not in normal circumstances be entitled to take advantage of his own breach as against the other party.”

In making his decision on the facts of the case, Lord Jauncey considered it a bizarre result that a tenant who had failed to complete or even start the development due to his own wilful default was entitled to demand that the agreement be completed and the lease granted to him. Lord Jauncey set out his conclusions on this question in the following terms, at 595D-F:

“Even if it were appropriate to imply the provision of clause 3(b) into any lease to be granted under the proviso to clause 4, and I make this assumption without deciding the matter one way or the other, there remains the question whether in the words of Lord Diplock in the Cheall case [1983] 2 A.C. 180, 189 the agreement contains clear express provisions to contradict the presumption that it was not the intention of parties that either should be entitled to rely on his own breach in order to obtain a benefit. I find no such clear express provision. Although the proviso refers specifically to the wilful default of the tenant it does not state that the tenant should be entitled to take advantage thereof. It is one thing for wilful default of a party to be made the occasion upon which a provision comes into operation but it is quite another thing for that party to be given the right to rely on that default. Furthermore it is not disputed that a lease granted under the proviso which contained no covenant to build would render the whole scheme unworkable. In that situation it is reasonable to assume that if the parties had intended in this extraordinary proviso to displace the presumption they would have expressly imported clause 3(b) into any such lease rather than leaving it to possible but uncertain implication. All in all I have no doubt that the terms of the proviso were not apt to displace the rule of construction and I consider that the Vice-Chancellor and the Court of Appeal were correct in concluding that the appellants were not entitled to invoke the proviso to clause 4.”

It is also to be noted that Lord Jauncey declined to decide whether the rule he was applying was one of construction or was an absolute rule of law. In concluding his speech Lord Jauncey said this, at 595G:

“It only remains to refer to the respondents' argument that there is an absolute rule of law and morality which prevents a party taking advantage of his own wrong whatever the terms of the contract. My Lords I do not find it necessary to deal with this. For my part I have no doubt that the weight of authority favours the view that in general the principle is embodied in a rule of construction rather than in an absolute rule of law. However, that is not to say that there cannot be situations such as self-induced frustration, to which Lord Diplock referred in the Cheall case, where an absolute rule exists. It is neither necessary nor would it be profitable to explore the matter further in this case.”

There is therefore at least a principle of construction that a contract should be interpreted, so far as possible, in such a manner as not to permit one party to take advantage of their own breach of that contract; see Lewison, The Interpretation of Contracts (7^the Edition) at 7.108-7.118. Two particular points may be noted in relation to the application of this principle:

Turning to the application of the above principle to the present case, it seems to me clear that it cannot apply. The reason for this is the absence of a causal connection between the Appellant’s breach of the Payment Agreement and the Appellant’s reliance upon Clause 6.4. The Appellant is in breach of its obligation to make the Payment, pursuant to Clause 3.2. In order to rely upon Clause 6.4 however, the Appellant does not need to rely upon its breach of Clause 3.2. Rather, the Appellant relies upon the plain wording of Clause 6.4, which provides that the Restriction is removed after the end of the five year period. The period after which the Restriction has to be removed may be shorter, as a result of earlier payment of the Payment, but there is no provision for this period to be prolonged beyond the five years, either because the Payment has been triggered but has not been paid, or for any other reason. In my view this situation is not one where the Respondent can legitimately say that the Appellant is relying upon its own breach of the Payment Agreement in order to take advantage of the provisions for the removal of the Restriction in Clause 6.4.

I can see the point that one result of the removal of the Restriction from the Registered Title is that the Respondent will be left with a debt claim against the Appellant, without the protection of the Restriction being in place. It seems to me however that this is not the consequence of Appellant failing to make the Payment. Rather, it is the consequence of the original choice of the parties to the Payment Agreement to limit the duration of the Restriction on the Registered Title to the specified period of five years. Indeed, one can see reasons why a limitation of five years on the duration of the restriction to be registered pursuant to clause 6.2 may have been considered as an acceptable compromise between the parties. The period of five years mirrored the period of five years within which the Satisfactory Planning Permission had to be obtained, if the obligation to make the Payment was to be triggered by the obtaining of a Satisfactory Planning Permission. While one can see why it might have made sense for the restriction to have endured for longer than five years, in order to give the Respondent some protection if the obligation to make the Payment was triggered right at the end of the five year period, one can also see that the period of five years might have been seen as an acceptable compromise between not having the restriction at all, and allowing the restriction to continue beyond the five year period.

In summary and in answer to Question 1, my conclusion is that the construction of Clause 6.4 is not affected by the principle that a contract should be interpreted, so far as possible, in such a manner as not to permit one party to take advantage of his own wrong. I do not think that the required causal connection exists between the Appellant’s breach of clause 3.2 of the Payment Agreement and the Appellant’s reliance upon Clause 6.4 for the principle to be engaged. As such, Question 2 does not arise.

Turning to the common law principle that a party cannot take advantage of its own wrong, that is say Questions 3 and 4, I can take these Questions much more shortly. Ms Lyne’s primary argument on these questions was that there was no independent common law principle upon which the Respondent could rely in the present case. For this purpose Ms Lyne relied upon what was said by Patten LJ in BDW Trading Limited v JM Rowe (Investments) Limited [2011] EWCA Civ 548. After making reference to the principle that a party cannot rely upon its own breach of contract, as stated in what was then the 30^th Edition of Chitty on Contracts, at 12.082, and after making reference to Lord Diplock’s speech in Cheall v APEX [1983] 2 AC 180, Patten LJ said this, at [31]:

“31.

Although there has been a certain amount of academic discussion as to whether the principle has the status of a rule of law which is imposed upon the parties to a contract almost regardless of what they have agreed, it is now clear as a matter of authority that the application of the principle can be excluded or modified by the terms of the contract and that its scope in any particular case will depend upon the construction of the relevant agreement.”

It seems to me however that all Patten LJ was doing in this part of his judgment in BDW was identifying the limits of the principle that a party cannot rely on its own breach of contract in order to take advantage of a provision in the same contract. There is the wider doctrine that a party cannot rely upon an illegality in support of a cause of action, as considered in Patel v Mirza [2016] UKSC 42. Ms Lyne contended that this principle was not capable of applying the present case, because its application was confined to cases where a party sought to rely upon criminal acts or quasi-criminal acts in support of its cause of action; see Lord Sumption in Les Laboratoires Servier v Apotex Inc [2014] UKSC 55 [2015] AC 430, at [28].

I agree with Ms Lyne that the wider doctrine that a party cannot rely upon an illegality in support of its cause of action is not capable of applying in the present case. It seems to me however that this wider doctrine, even if capable of applying in the present case, could not be relied upon for the same reason that the Respondent cannot rely on the principle that a party cannot take advantage of its own breach of contract in order to rely upon a provision of the contract. For the reasons which I have already set out in my answer to Questions 1 and 2, it seems to me that the Appellant has no need to rely upon its own breach of Clause 3.2, and does not rely upon its own breach of Clause 3.2, for the purposes of relying upon clause 6.4. The required causal connection, which is needed to found the necessary reliance upon the relevant wrong, does not exist.

In summary, and in answer to Question 3, I do not think that the common law principle that a party cannot take advantage of his own wrong is engaged in relation to the Appellant's reliance upon Clause 6.4. As such, Question 4 does not arise.

Now that I have dealt with Questions 1-5, I return to my construction of the wording of Clause 3.3 and Clause 6.4, and the Judge’s conclusion, at Paragraph 6.5, that the opening words of Clause 3.3 expressly exclude the obligation to remove the Restriction in Clause 6.4, if the terms of the Payment Agreement have not been complied with. As I have stated, I cannot agree with this conclusion of the Judge. As I read and construe the Payment Agreement, the obligation of the Respondent to assist in the removal of the Restriction applies from the expiry of the five year period in Clause 6.4. This obligation is not affected by the fact that the Appellant’s obligation to make the Payment has been triggered, but has not been complied with, either as a matter of construction of the Payment Agreement or by the application of any wider principle that a party cannot take advantage of its own wrong.

Accordingly Ground 4 succeeds. For the reasons which I have given I conclude that the Judge was wrong, as a matter of law, to decide that the Payment Agreement did not require the removal of the Restriction five years after the Payment Agreement was entered into. I think that the removal of the Restriction is required, by Clause 6.4.