Delay: make sure your contract provides a remedy

Summary: Although Urban I (Blonk Street) Ltd -v- (1) S M Ayres and (2) NJ Ayres [2013] EWCA Civ 816 is a real estate case it highlights the dangers of failing to deal with timing issues in contracts generally. The contract in question (for the sale of a flat) did not include any completion or longstop date and made no provision for delays, and the two purchasers lost out badly when they tried to treat it as at an end following significant delays in construction. As the Chancellor of the High Court acknowledged, this outcome was a "severe disappointment" for the respondents as well as carrying financial consequences.

Background: The respondents entered into a contract with the appellant (the Developer) for the 125 year lease of an apartment to be constructed in a mixed commercial and residential development in Blonk Street, Sheffield, and paid a deposit. The contract did not specify a fixed completion date and although the Developer was obliged to take "all reasonable steps" to prevent a delay arising, it would not be liable for any delay; nor would it be liable for failure to complete caused by various force majeure events or "any other avoidable cause". Construction was considerably delayed; although completion had originally been envisaged for December 2008, the flats were not finished until 31 July 2009. By this time the respondents' mortgage offer had elapsed and the financial crash had made it impossible for them to get a similar offer elsewhere. The respondents purported to terminate the contract on 20 March 2009. They argued that they had accepted the Developer's repudiatory breach; they refused to complete and claimed repayment of their deposit.

No repudiatory breach as at 20 March 2009. The Court of Appeal confirmed that a contractual time provision, like other terms, will fall within one of three categories:

• Conditions, of which any breach, however slight, amounts to repudiation;
• Warranties, of which any breach, however serious, entitles the non-breaching party to damages only; or
• Innominate terms, breach of which will be a repudiation entitling the non-breaching party to terminate if it means he will be deprived of substantially the whole benefit if the contract (see the Telford Homes (Creekside) Ltd case below).

This was an innominate term so whether the respondents were entitled to terminate depended on two matters: first, whether the delay was such, in all the circumstances, to deprive them of substantially the whole benefit it was intended they should obtain from the contract, or, secondly, whether the Developer had demonstrated an intention never to carry out the contract, or to carry it out in a manner "substantially inconsistent" with its contractual obligations, in such a way as would deprive the respondents of substantially the whole benefit. In this situation, where there was no specified date for completion, it is implied that completion will take place within a reasonable time, and that was a "mixed question of fact and law". However, the burden was on the respondents to show that there had been a repudiatory breach by 20 March 2009. Applying the "substantially the whole benefit" test, the starting point must be to consider what benefit the injured party should have obtained from the contract. In this case, it was a 125-year lease of residential premises. The delay of approximately one month between the earliest possible practical date for contractual completion and the respondents' purported termination could not possibly amount to substantial deprivation. Any loss they incurred could easily have been satisfied by damages.

Please click on the links below for the other articles in the February 2010 commercial contracts newsletter:

• No exemplary damages awarded for breach of confidence
• Construction of confidentiality clauses: commercial agreements and employment contracts distinguished
• Exclusion and limitation clauses in professional services contracts held reasonable under UCTA
• Payment on contractual termination "not a penalty"
• Repudiatory breach and the importance of context when assessing impact
• Commercial Agents Regulations: meaning of "continuing authority to negotiate"