UK: Distinction Between Rescission And Discharge By Breach

Last Updated: 20 January 2012
Article by Mark Alsop

Howard-Jones –v- Tate [2011] EWCA Civ 1330

Mr Howard-Jones (H-J) bought a warehouse and outbuildings from Mr Tate. At the time of completion, the property was supplied with water and electricity from T's nearby farm. It was a term of the contract that T would, at his own cost, provide separate electricity and water supplies to the property within six months of completion, something which he failed to do. H-J issued proceedings for rescission of the contract and damages. The County Court held that H-J was not entitled to rescind the contract ab initio, even though T was in breach of contract, and that the breaches went to the root of the contract, rendering the property worthless to H-J. It awarded damages equivalent to the full purchase price (on condition that H-J reconveyed the property to T) as well as consequential damages for costs incurred. Both parties appealed, T arguing that the Court had assessed damages as though H-J was entitled to rescind and H-J arguing that he should have been allowed to rescind.

The Court of Appeal allowed T's appeal that the measure of damages had been calculated wrongly, but upheld the Judge's decision that H-J was not entitled to rescind.

  • Rescission/repudiation. The Court applied the ruling of the House of Lords in Johnson –v- Agnew [1980}. There was a clear distinction between "rescinding" a contract as a result of breach and rescission ab initio, such as may arise for example in cases of mistake, fraud or lack of consent. In those cases, the contract is treated in law as never having come into existence. "Rescission" in the sense of failure of performance which entitles the innocent party to treat the contract as discharged does not have the consequence of the contract being treated as never having come into existence. Rather, the parties are absolved from future performance and the innocent party may claim damages for breach. In this case, rescission ab initio was not available. Upon completion, H-J became the owner of precisely what he had bargained for, namely the property without a separate electricity or water supply. T was not in breach of his obligation to provide water and electricity until six months later. That breach went to the root of the contract and H-J became entitled to treat himself as discharged. After then, he was no longer bound to accept future performance by T of his obligations.
  • As for damages, the Judge had been wrong. H-J was not entitled to recover all the monies he had paid under the contract unless he could say that the consideration for payment had wholly failed. This he could not properly do. The property had been used by H-J after completion. It plainly had some value and H-J could arrange for separate electricity and water himself - to the extent that it was necessary to have access across T's land, T could not properly object. The judge should have directed himself to consider what losses H-J had suffered by reason of T's breaches. Those losses would primarily comprise the cost to H-J of having services installed for himself, together with any other losses he had suffered as a result. Quotes had been obtained for direct supplies, so it was fairly easy to ascertain the extent of the losses.

This case neatly illustrates the difference between rescission and repudiation. It causes less confusion all round if "rescission" is used only to mean "rescission ab initio". Where there has been a breach, it is better to use wording such as "termination as the result of acceptance of repudiatory breach".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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