In Howard-Jones -v- Tate, the Court of Appeal clarified the distinction between rescission of a contract on the one hand and repudiation on the other. The terms are often used interchangeably – even by judges. This leads to confusion since they are quite different concepts. They result in different outcomes for the parties and, importantly, a very different basis for the recovery of damages.
In the face of a fundamental breach of contract, an innocent party may elect either to affirm the contract and seek performance from the wrongdoer. Alternatively he may accept the wrongdoer’s repudiation, treat the contract as discharged, and then claim damages for breach. Both parties are released from further performance under the contract (save that the wrongdoer is obliged to pay damages in respect of his breach). However, rights which have been unconditionally acquired are not discharged. When assessing damages the court will consider sums which are required in order to put the innocent party into the position he would have been had the wrongdoer performed his obligations properly.
Rescission on the other hand is an equitable relief which may arise in cases of mistake, fraud or lack of consent. Once rescinded, a contract is treated as having never come into existence; it is said to be void ab initio. The court will seek to restore the parties to their original positions, and damages are assessed at a level in order to achieve this.
It is important to note that the two concepts are distinct and are not interchangeable: an innocent party will not necessarily be able to simply choose one approach over the other.
Howard-Jones –v- Tate
Mr Howard-Jones entered into an agreement to buy a warehouse and outbuildings from Mr Tate. As part of the agreement, Tate was to arrange for metered electricity and mains water supplies to be installed by no later than 6 months after completion. The transaction went ahead but Tate failed to install the supplies in time. Howard-Jones’ solicitors set a deadline for performance (which was not met) and eventually served notice purporting to rescind the contract. He also claimed damages.
At first instance the judge held that the breaches by Tate went to the root of the contract and although Howard-Jones was not entitled to rescission, he was entitled to damages on the basis of a return of the purchase price and consequential damages (such as legal fees, mortgage arrangement fees and accountants’ fees). Tate was ordered to pay in excess of £190,000. Tate appealed.
The Court of Appeal held that damages had been assessed on a recission basis since their effect was to put Howard-Jones in the position he would have been had the contract never come into existence. The correct approach in this case was in fact to consider losses suffered Mr Howard-Jones as a result of Tate’s breaches. These comprised the cost to Howard-Jones of having the services installed himself together with such other losses suffered as a result of the services not having been installed at the agreed time. Kitchin LJ observed that the cost of installing a separately metered mains water supply was relatively modest at £729. He also noted that Howard-Jones had rented alternative business premises at the rate of £500 per month. Credit was to be given for the fact Tate had supplied water on a temporary basis to the property.
The appeal was allowed and the case referred back to the County Court for damages to be re-assessed.
The case underlines the distinction to be drawn between the two concepts of repudiation and recission and the very different outcomes for parties. Howard-Jones’ damages claim was worth significantly less than the figure which had been awarded at first instance.
A failure to appreciate the different bases of damages may cause a party to decline a reasonable settlement offer or to pursue an action where it is not commercial to do so.