Woodar Investment Development Ltd v Wimpey Construction UK Ltd
House of Lords
Citations: [1980] 1 WLR 277; [1980] 1 All ER 571; (1980) 124 SJ 184; [1980] CLY 2792.
Facts
Wimpey contracted with Woodar to buy land for £850,000. Wimpey had to pay £150,000 of that sum to a third-party (TT) on completion. A term of the contract reserved Wimpey the right to rescind the contract if, prior to completion, any State power began compulsory acquisition proceedings. Both parties knew at the time of contracting that the Secretary of State for the Environment had sent Woodar a draft compulsory purchase order.
The Secretary later issued a formal compulsory purchase order. Wimpey rescinded the contract, wrongly relying on the rescission clause. The clause was inapplicable because the Secretary of State ‘began proceedings’ to acquire the land before the contract was made. Wimpey’s actual motivation for rescinding the contract was a dramatic slump in the value of the land.
Woodar sought a declaration that Wimpey had no power to rescind the contract and so had repudiated the contract. They also sought damages for breach. A secondary dispute was whether Woodar could sue for the £150,000 due to TT.
Issue(s)
- Was Wimpey in repudiatory breach of contract?
- Could Woodar sue for the £150,000 due to TT?
Decision
The House of Lords held in Wimpey’s favour. There was no evidence that Wimpey relied on the rescission clause with improper motive. They were therefore not in repudiatory breach of contract.
The Lords commented that if Wimpey had been in breach of contract, Woodar would not be able to sue for the £150,000 due to TT. This was because they were not TT’s agents or trustees.
This Case is Authority For…
A party who acts on their honest understanding of the terms of the contract without any ulterior intention to abandon the contract cannot be treated as repudiating the contract (though it is still a breach of contract). Whether the party has an improper intention is assessed objectively.
This case is also authority for the common law rule of privity of contract. Prior to the Contracts (Rights of Third Parties) Act 1999, third-parties had no power to sue under contracts made for their benefit. The Lords in this case indicated that this could not usually be circumvented by a contract party suing on the third-party’s behalf. This was because the usual rule is that a party can only sue in contract for their own losses.
There were cases that eroded this rule, but the Lords noted that they were rare and fact-specific: see for example Les Affreteurs Reunis SA v Leopold Walford (London) Ltd [1919] AC 801 and Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468.
Other
Lord Salmon and Lord Russell of Killowen dissented. Both argued that the notice indicated a clear intention to bring the contract to an end – they were therefore repudiating the contract. Neither thought that Wimpey’s honest belief that they were acting lawfully was relevant.
