Never mind the reasons

McBryde on Contract (2nd ed), para 20-107 states that rescission (as for a contract for heritage) “does not need to take any particular form, or state the reason, or the correct reason, for rescission”. Authority given for that proposition is the decision of Sheriff Paterson in Owen v Fotheringham 1997 SLT (Sh Ct) 28.

This decision has been questioned in commentary, but in relation to this aspect, Gretton and Reid on Conveyancing now only state (at para 5.14) that it has “been held that rescission can be effective even if the wrong reason is given, provided, of course that a good ground of rescission actually exists”. They add that, if this is so, it presumably follows that it is “not required to give any reason in the first place”. This basic approach is now fortified by the decision of Lord Drummond Young in the latest chapter of Persimmon Homes Ltd v Bellway Homes Ltd [2012] CSOH 60 (3 April 2012).

Previously in this action ([2011] CSOH 149, 9 September 2011), Lord Drummond Young decided, after proof before answer, that the defenders had been in breach of contract in not providing an alternative site of comparable value for the pursuers when the contracted-for site was not available within a specified time; since, however, his findings in fact were “not fully in accordance” with the then submissions for the pursuers, the defenders were allowed a debate to “discuss fully the implications” of that judgment.

Second bite at the cherry

After giving notice that if the “sellers’ works were not completed” by the long stop date specified, the pursuers reserved the right to rescind the contract, their agents then gave written notice of rescission. This, however, was founded on expiry of the long stop date, rather than the combined effect of that and the failure to offer an appropriate comparable site, which Lord Drummond Young had identified as the material breach in question.

In those circumstances, the defenders’ further argument was that they had not been “limited to merely one opportunity” of identifying an alternative site and as a result, the pursuers had failed relevantly to aver any breach of contract: time was not of the essence of the contract unless made so by ultimatum procedure (on which see the discussion in the Inner House in East Dunbartonshire Council v Bett Homes Ltd [2012] CSIH 1); absent that, the contract had not been rescinded.

In reply, the pursuers maintained that this aspect should have been raised at proof and it would be inequitable to permit further argument now; and further, that “a notice of rescission does not require to be in any particular form or to state a specific reason, or even the correct reason, for rescission”. The “critical question was what a reasonable recipient would understand by the notice, on a commercially sensible construction”.

Justifying rescission

In the event, Lord Drummond Young decided that the contract had been validly rescinded by the pursuers, on the view that it was clear that the possibility of there being breach of the comparable site provision had been “within the contemplation of the parties”.

In considering whether the relative letter had rescinded the contract, he thought three principles to be important:

Provided the intention to rescind is clear, the fact that no reason or the wrong reason is given is not normally significant. See Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 where, in what he described as the “classic” statement of the law, Devlin J (as he then was) said: “It is now well settled that a rescission or repudiation, if given for a wrong reason or for no reason at all, can be supported if there are at the time facts in existence which would have provided a good reason.” This was approved in Denmark Productions Ltd v Boscobel Productions Ltd [1961] 1 QB 699, is cited in McBryde, Contract, at para 20-107, and Lord Drummond Young thought that “it clearly represents Scots law”.

The effect of failure to make use of an ultimatum procedure. As Lord Drummond Young put it: “It is trite law that time of performance is not usually of the essence in contracts for the sale of land, and accordingly the ultimatum procedure (from Rodger (Builders) Ltd v Fawdry 1950 SC 483) must normally be used prior to rescission.” This is subject to an exception where the party rescinding can prove that the other side could not have complied even with reasonable notice.

If a party to a contract is unable to perform his obligations, the reason for that failure is irrelevant, with the consequence that “if a party who has undertaken to sell an area of land is unable to obtain the land, the reason for the inability is irrelevant”. This “can be regarded as an example of the fundamental principle that contractual obligations normally involve strict liability”. In the present case, applying these principles:

(i) the failure of the rescission letter to refer to the comparable site, or the combined effect of the long stop date and that condition, was immaterial provided the pursuers had good grounds for rescission;

(ii) although the pursuers had failed to make use of the ultimatum procedure, they had succeeded in establishing that the defenders could not have complied prior to the date of rescission even with reasonable notice. Lord Drummond Young noted that until the outcome of the proof was known, the defenders had “consistently maintained” the position that their offer of the original site fulfilled the requirements of the comparable site condition and that they were accordingly not in breach of contract. It followed, he stated, that “if an ultimatum notice had been served, the defenders’ response must have been that there was no breach of contract because of the offer of [that] site”, and since it appeared clear that the defenders would not have complied with any ultimatum notice by offering a site other than that one, “the service of an ultimatum notice would have achieved nothing”.

Time of the essence?

Further argument was presented for the pursuers that, “even in a contract for the sale of heritage, it was not correct to say that time of performance is never of the essence of the contract”, the question always being “whether the particular obligation that was not fulfilled went to the root of the contract”. Lord Drummond Young was not persuaded that this was correct, on the view that the condition did “not impose a rigid and inflexible time limit”, but rather that, if the seller (the defenders) had failed to perform certain obligations by the long stop date, it was obliged to offer to sell another residential development site complying with certain criteria. He thought time not to be of the essence in relation to the comparable site obligation, and that normally an ultimatum procedure would be required to allow the pursuers to rescind.

Grounds of the essence

What has, however, been reaffirmed and rejustified is the continuing acceptance of the propositions set out at the outset of this contribution – namely that what matters is whether there were adequate grounds to rescind and that the “innocent party” did actually rescind, rather than what if anything was said in support of that rescission. Caution might dictate that reasons for any rescission are not proferred at the time of that decision, though it may remain to be justified thereafter.