Vendor rescinded contract for planning failure; purchaser's delay did not waive condition under Vendor and Purchaser Act 1874.

THE SUPREME COURT

414/03

McGuinness J

Geoghegan J

McCracken J

In the Matter of the Vendor and Purchaser Act 1874

Between:

Mary O’Connor

Plaintiff/ Appellant

AND

Patrick Coady

Defendant/ Respondent

Judgment of Mr Justice McCracken delivered the 21st day of October 2004

The Contract

1. By a contract in writing dated 31st May 2001 and made between the Appellant as vendor and the Respondent as purchaser the

Respondent agreed to purchase the lands comprised in Folio 35939F of the Register of Freeholders County Meath for the sum of

£450,000. The contract was subject to a number of special conditions, two of which are relevant to the present dispute. They are:-

“3. The contract herein is subject to the purchaser, his servants or agents obtaining final grant of planning permission for the

residential development applied for by him, his servants or agents on the property at sale herein and after conclusion of all

appeals (if any) within four months of the date hereof.”

“6. The closing date herein shall be seven days after the issue of the final grant of planning permission referred to at special

condition four above.”

2. Quite clearly the reference in the latter special condition ought to be to special condition three as quoted above.

3. The general conditions of the contract were those contained in the Incorporated Law Society of Ireland General Conditions of Sale

(1995) edition. These contained a provision regarding completion notices, the relevant portions of which are:-

“40. Save where time is of the essence in respect of the closing date, the following provisions shall apply:-

(a) If the sale be not completed on or before the closing date either party may on or after that date (unless the sale shall

first have been rescinded or become void) give to the other party notice to complete the sale in accordance with this

condition, but such notice shall be effective only if the party giving it shall then either be able, ready and willing to

complete the sale or is not so able, ready or willing by reason of the default or misconduct of the other party.

(b) Upon service of such notice the party upon whom it shall have been served shall complete the sale within a period of

twenty-eight days after the date of such service (as defined in condition 49 and excluding the date of service), and in

respect of such period time shall be of the essence of the contract but without prejudice to any intermediate right of

rescission by either party.”

Subsequent Actions of the Parties

4. At the date of the contract the Respondent had already applied for planning permission, which application included both the lands

in sale and other adjoining lands the property of the Respondent, however no planning permission issued within the four month period

referred to in special condition (3). By letter dated 23rd August 2001 the Appellant solicitor inquired as to the status of the planning

application and as to when the Respondent expected to be in a position to complete the contract. There is some dispute as to

whether there was a verbal response to this letter but that is not really relevant to these proceedings, and it is common case that no

further correspondence took place on either side until over a year later, long after the four month period had expired.

4. On 3rd September 2002 the Respondent solicitor wrote to the Appellant solicitor in the following terms:-

“Re: Your client Mary O’Connor

Our client Patrick Coady

Lands at Castle Street, Ashbourne, County Meath

Dear Sirs

We refer to the above and our recent conversation regarding the same.

We now understand that Planning Permission issued in June of this year. However an Appeal was lodged and this Appeal is

pending hearing in September or October of this year.

Our clients are confident that the Appeal will not cause difficulty to them.

Further to the same and to enable completion can you please reply to our requisitions on title which were forwarded on the

26th June of last year and confirm that our Draft Transfer Deed is approved.”

5. This was replied to by the Appellant’s solicitors by letter of 12th September 2002 headed “SUBJECT TO CONTRACT/ CONTRACT

DENIED”.

6. The letter read:-

“Re: Your client Patrick Coady

Our client May O’Connor

Lands at Castle Street Ashbourne County Meath.

Dear Sirs

We acknowledge receipt of your letter of the 3rd inst. and were most surprised at the contents. As you are aware, under the

terms of the Contract, this Contract has lapsed and is at an end.

Without prejudice, however, our clients would be prepared to re-negotiate terms for the sale of the property and if your client

wishes to make an offer, perhaps you would let us hear from you at your earliest possible convenience.

In order to finalise matters, we return herewith deposit in the sum of €57,138.21 (IR£45,000).

In the meantime, of course, we have no authority to bind our clients in this or any related correspondence and they will not

be so bound until former contracts have been executed by them and a full deposit paid. We are not agents within the meaning

of The Statute of Frauds.

Yours faithfully”

7. Due to what appears to be accepted as an oversight the deposit was not in fact enclosed with that letter, but was returned

shortly afterwards. On 20th September 2000 the Respondent lodged a caution in the Land Registry. Planning Permission was ultimately

granted by An Bord Pleanala on 4th October 2002. On 19th November 2002 the Respondent issue specific performance proceedings in

the Circuit Court. These present proceedings were issued by the Appellant on 11th November 2002.

The Relief Sought

8. The initial special summons issued by the Appellant sought the decision of the Court pursuant to the provisions of the Vendor and

Purchaser Act 1874 of the following matters:-

“Was the plaintiff entitled to rescind the contract dated 31st May following the failure of the defendant to comply with the

special condition on obtaining planning permission by the 30th September 2001.

Did the plaintiff in fact validly rescind the said contract of the 31st May 2001.

Is the defendant entitled to register the said caution in the Land Registry.”

9. The latter point did not in fact become an issue in these proceedings, but the special summons was subsequently amended by the

addition of the following queries:-

“Was the plaintiff under the said contract entitled to regard the said contract as being at an end when the provision in relation

to the obtaining of planning permission within the time limit prescribed was not complied with, in that the said planning

permission did not issue?

Was it incumbent upon the plaintiff, being the vendor under the said contract, to notify the defendant, being the purchaser,

that the said contract was at an end?

The said contract being conditional upon the said issue of planning permission, did the plaintiff, being the vendor under the

same, either expressly or by implication to any act or thing as would have indicated to the purchaser that they were waiving

the requirement of compliance with the said condition or otherwise indicating that she was treating the said contract as

unconditional?

Was the defendant, being the purchaser under a conditional contract entitled to assume in the absence of the said condition

being fulfilled as therein provided that the plaintiff, being the vendor, had waived the said condition or that the contract had

other wise become unconditional or otherwise enforceable?”

Decision of the High Court

10. The summons came for hearing before Carroll J and by her judgment dated 12th November 2003 she answered the queries raised

in the amended summons as follows:-

“1 The plaintiff was entitled to rescind the contract following the failure of the defendant to obtain planning permission by 30th

September 2001 provided she served a completion notice under clause 40 of the General Conditions of Sale and if the defendant

failed to comply with the notice.

2 The plaintiff did not in fact validly rescind the contract of 31st May 2001.

3 The plaintiff was not entitled to regard the contract as being at an end when the planning permission was not obtained within

the time prescribed by the contract.

4 The plaintiff was not entitled to notify the defendant that the contract was at an end when planning permission was not

obtained within the time prescribed by the contract.

5 & 6 The plaintiff did not indicate to the defendant that she was waiving the requirement of compliance with the condition

relating to the issue of planning permission. It was the defendant who had the right to waive this condition not the plaintiff. The

contract did not become unconditional or otherwise unenforceable.”

11. In her judgment the learned trial Judge partially relied on the decision of Costello J (as he then was) in Sepia Ltd and Opal Ltd v.

M & P Hanlon Ltd and Seaborn Ltd [1979] ILRM 11. Having quoted a passage from the judgment in that case, she said at page six of

her judgment:-

“In my view the construction given by Costello J to the first contract must equally be applied to the contract in this case.

Time was not made of the essence of the contract when the closing date was fixed. After the purchaser was in default in

closing the sale on the day fixed, then in order to bring finality to the contract the vendor would have to serve a notice

making time of the essence of the contract under clause 40 of the General Condition of Sale. At the end of the period of 28

days provided for in clause 40, if planning permission had been obtained, the purchaser was bound to complete. If planning

permission had not been obtained, the purchaser could waive the provision and complete the sale. If the purchaser did not

waive the condition then the contract would come to an end at the expiration of the notice.

The vendor was not entitled to say in this case that the contract was at an end and return the deposit, just because the

planning permission had not then come through within the time limited by the contract.

It was essential that a completion notice under clause 40 of the general conditions be served and that the time fixed by the

notice should have elapsed without completion, before the vendor could treat the contract as at an end.”

12. I am afraid I cannot agree with this construction of the contract. Clause 40 of the General Conditions of Sale relates expressly to

the completion of the sale and not to compliance with a condition. In fact, under that clause a 28 day notice cannot be served until

after the closing date has passed. Under the present contract the closing date was seven days after the granting of planning

permission, and therefore it is clear that no notice could be served until after the condition had been complied with and planning

permission had been granted. However, it is true to say that in relation to the time limit for compliance with the condition, there was

no express provision that time should be of the essence of the contract. It is therefore arguable that, after the time limit had expired,

it was necessary for the Appellant to serve a notice making time of the essence of the contract, and giving a reasonable period within

which the condition was to be complied with.

The Nature of the Condition

13. Both before the learned trial Judge and at the hearing of this appeal there was considerable discussion as to whether the

condition relating to planning permission was a condition precedent or a condition subsequent. The distinction may at times be of

considerable importance, in that if there is a condition precedent, then no contract comes into existence unless the condition is

fulfilled, while if there is a condition subsequent, there is a valid contract in being, but it is not enforceable unless the condition is

fulfilled. However, the distinction does not seem to me to be relevant in the present case. The real issue in this case is not whether a

contract ever existed, but whether the terms of the contract can be enforced once the time for compliance with the condition has

passed.

Effect of the Condition

14. The important features of this condition are, firstly that it relates to a planning application which was already in existence,

secondly there was a fixed period for compliance with the condition and thirdly time was not made of the essence of the contract in

relation to that period. The general principles relating to conditional contracts were laid down expressly and succinctly by Lord Jenkins

giving the judgment of the Privy Council in Aberfoyle Plantations Ltd v. Cheng [1960] AC 115. After pointing out that the intention of

the parties as expressed in the contract ought to be implied from the language used therein was all important, he said at page 124:-

“But, subject to this overriding consideration, their Lordships would adopt as warranted by authority and manifestly reasonable

in themselves, the following general principles: (I) Where a conditional contract of sale fixes a date for the completion of the

sale, then the condition must be fulfilled by that date; (II) Where a conditional contract of sale fixes no date for completion of

the sale, then the condition must be fulfilled within a reasonable time; (III) Where a conditional contract of sale fixes (whether

specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled, then the date so

fixed must be strictly adhered to, and the time allowed is not to be extended by reference to equitable principles.”

15. While that case did not refer to a planning condition, nevertheless the principles enunciated have since been adopted as being

applicable to planning conditions.

16. The condition in the present case clearly comes within the principles set out at (III) cited above.

17. In an earlier case, cited in the Aberfoyle Plantations Limited case, somewhat similar views were expressed by Maugham J. In In Re

Sandwell Park Colliery Company [1929] 1 CH 277 a contract was subject to what was admittedly clearly a condition precedent,

namely the approval of the Court. At page 282 Maugham J stated as a general principle:-

“Courts of equity, in dealing with actions for specific performance relating to land, have been accustomed to give effect to the

real intention rather than to the precise words fixing the date for completion. The effect is that a clause fixing the date for

completion is equivalent to a clause stating that completion shall be on that date or within a reasonable time thereafter. But

there is no ground for a similar construction in the case of a condition upon which the validity of the contract as one of sale

depends. The distinction is obvious. In the first case both parties are bound, and a moderate delay in completion is thought

not to injure either. In the latter, the very existence of the mutual obligations is dependent on the performance of the

condition. The purchasers do not know in the first instance if their purchase money will ever be required. In general, and in

the present case, there is no promise or undertaking by the vendor that the condition will be fulfilled. Equity has, I think, never

applied its liberal views as to time to such a condition. If a date is mentioned, the condition must be exactly complied with. If

a date is not mentioned, the condition must be fulfilled within a reasonable time; there is no difference between the views of

law and equity in considering what is a reasonable time, and the uncertain position of the purchaser must be bore in mind.”

18. While that case concerned a condition precedent and concerned a condition to be performed by the vendor rather than the

purchaser, in my view the same principles apply to the present case. Whether this is a condition precedent or a condition subsequent,

the existence of the mutual obligations, or their enforcement, is dependant on the performance of the condition. There is no

undertaking by the purchaser in this case that the condition will be fulfilled, and the vendor does not know whether he will ever get

his money.

19. The effect of a conditional contract has been considered in several Irish cases since the Aberfoyle Plantations Limited case. In

O’Mullane v. Riordan [1978] ILRM 73 McWilliam J implicitly refused to accept that a planning condition was a condition precedent to

the coming into operation of a contract, and said at page 77:-

“The fact that a contract is subject to a condition has the effect of making it unenforceable until the condition is fulfilled, but

it does not mean that there is no contract at all and the case cited (the Aberfoyle Plantations Ltd case) decided that the

purchaser was entitled to recover his deposit under a term in the agreement. A condition contract is one which becomes

enforceable provided the condition is fulfilled within the time provided by the contract or, if no time is provided, within a

reasonable time.”

20. Similarly in Maloney v. Elf Investments Ltd (Unreported 7th December 1979) McWilliam J expressly rejected the argument that by

analogy with the date fixed for closing, the time fixed in a contract for performance of a condition in relation to planning should be

regarded in equity as the date fixed in the contract or a reasonable time thereafter unless time had been made of the essence of the

contract. He expressly approved the third proposition in the Aberfoyle Plantations Limited case.

21. In Sepia Ltd & Anor v. M & P Hanlon Ltd & Anor [1979] ILRM 11 the effect of a planning condition was also considered. The facts

of the case were somewhat complicated by the fact that there were two contracts involved, but the first contract contained a

special condition which read:-

“(11) The contract is subject to the purchaser obtaining planning permission to develop the property the subject matter of

the sale, which permission the purchaser shall apply for and take all proper steps to obtain with all reasonable speed, but

nothing herein shall be deemed to effect the provisions of special condition number 8 herein.”

22. That there was no specific date by which the planning permission was to be complied with but condition 8 expressly made time of

the essence of the contract in relation to the completion of the sale. In considering the effect of this, Costello J said at page 24:-

“In the first contract the parties had expressly made time of the essence of the contract when they provided that the sale

was to be closed on 1 May 1975. Condition 11 relating to planning permission must be interpreted in the light of the necessity

strictly to observe the date set for closing. The result is, in my opinion, that if the plaintiffs had failed to obtain planning

permission by 1 May 1975 and if the closing date was not extended by mutual agreement then the defendants were entitled to

treat the contract as at an end if the plaintiffs refused to complete: the absence of planning permission would not have

excused the non performance by the plaintiffs of the contract.”

23. This was a case which came within the first proposition in the Aberfoyle Plantations Limited case, and is in accordance with that

decision.

24. Finally, in the Northern Ireland case of McKillop v. McMullen [1979] NI 85 the Aberfoyle Plantation Limited case was expressly

approved.

25. Strangely enough, there does not appear to be any case in which the Aberfoyle Plantations Limited decision was considered by

this Court. However, it has been approved and followed in England, Australia and New Zealand. It appears to me to be a correct

analysis of the legal position of conditions inserted in a contract which postpone the enforceability of the contract, be they

conditions precedent or conditions subsequent. These propositions are clearly particularly applicable to conditions relating to the

obtaining of planning permission, and indeed to any condition to where the time required for its performance is uncertain. Particularly

in contracts for the sale of land, certainty is important to both parties. I am quite satisfied that the effect of the contract in the

present case is that at the expiration of the four month period for obtaining planning permission the condition had not been fulfilled

and the time allowed for its fulfilment could not be extended by reference to equitable principles.

The Effect of Non Compliance

26. Somewhat surprisingly the Appellant has not sought to argue that the contract came to an end immediately on the expiration of

the four month period allowed for fulfilment of the condition. Indeed, the wording of the questions in the summons seems to make it

clear that the Appellant considers that the failure to comply with the condition rendered the contract voidable rather than void. In my

view there is certainly an argument to be made that where there is a fixed date by which there must be completion of a condition,

the contract automatically becomes void on the failure to comply with the time limit. However, that is not an argument which this

Court has been asked to consider, nor is it one raised on the pleadings, and accordingly, expressly without deciding the point, for the

purposes of this decision I am assuming that the contract became voidable.

27. The letter of 12th September 2002 from the vendor’s solicitors did not opt to avoid the contract in express terms. It did state,

rightly or wrongly, the belief and contention of the Appellant’s solicitor at the time that the contract had lapsed “and is at an end”. It

offered to enter into negotiations for a new contract and it purported to return the deposit. Perhaps more importantly it was headed

“Subject to Contract/ Contract Denied”. In my view this letter in unequivocal terms notified the Respondent solicitor that the

Appellant was treating the contract as being at an end. In the absence of any express contractual provision, the rescission of a

voidable contract does not have to be in any particular form. What is required is a clear notification that the relevant party is treating

the contract as at an end. In my view this letter clearly complies with that requirement.

28. The only question, therefore, is whether the Appellant’s right to avoid the contract became lost due to the passage of time,

either by reason of the Appellant’s delay in taking any action or by reason of the waiver of the condition by the Appellant. There is no

doubt that there are many cases of this nature in which a condition inserted for the benefit of one party, in this case the

Respondent, can be waived by that party, but that requires some positive act by that party. The fact that the Respondent in the

present case continued his planning application and made no attempt to notify the Appellant that he was prepared to complete

without the condition being fulfilled, seems to me to make it quite clear that the Respondent always considered that the condition

remained. Indeed, the Respondent’s solicitor’s letter of 3rd September, which brought matters to a head, was written on the basis

that the condition remained, but was shortly going to be complied with. Accordingly, in my view no question of waiver can arise.

29. The question of the Appellant’s delay might have been very serious had she done anything to encourage the Respondent to

believe that she was not going to enforce the time limit attached to the condition. It could then possibly be argued that the situation

amounted to an estoppel. However, there is no suggestion of anything of that nature in the present case. The Appellant simply did

nothing until the Respondent notified her solicitor that the planning permission was shortly going to issue. The most that could be said

is that her solicitor held the deposit, which of course belonged to the Respondent. On the other hand, the Respondent never

requested the return of the deposit, and there is no suggestion that the Appellant personally benefited in any way from it being held

by her solicitor. In those circumstances, I do not consider that the delay in any way effected the Appellant’s right to avoid the

contract.

Conclusion

30. In the circumstances of this case I would allow the appeal. I am doing so on the basis that the contract became voidable on the

expiration of the four month period for compliance with the planning condition, that the letter of 12th September 2002 constituted a

valid rescission of the contract, and that this rescission took place before the planning condition had been fulfilled and in the absence

of any waiver on the part of the Respondent.

31. I would therefore answer the questions in the summons as follows:-

1 The Plaintiff/ Appellant was entitled to rescind the contract dated 31st May following the failure of the Defendant to comply

with the special condition on obtaining planning permission by 30th September 2001.

2 The Plaintiff/ Appellant did in fact validly rescind the said contract by the letter of 12th September 2002.

3 Whether the Plaintiff/ Appellant was entitled to regard the said contract as being at an end when the provisions in relation to

the obtaining of planning permission within the time limit prescribed were not complied with, was not argued before this Court.

4 In view of the findings at (2) above, the question of whether it was incumbent on the Plaintiff/ Appellant to notify the

Defendant/ Respondent that the contract was at an end does not arise.

5 The Plaintiff/ Appellant did not either expressly or by implication do any act or thing as would have indicated to the purchaser

that she was waiving the requirement of compliance with the said condition or otherwise indicating that she was treating the

said contract as unconditional.

6 The Defendant/ Respondent was not entitled to assume in the absence of the said condition being fulfilled as therein provided

that the Plaintiff/ Appellant had waived the said condition or that the contract had otherwise become unconditional or

otherwise unenforceable.