Dominion Corporate Trustees Ltd & Ors. v Debenhams Properties Ltd

This is the trial of the issue of liability in proceedings arising out of an agreement for a lease of a number of units within a new extension to a shopping centre in Fareham (“the Fareham Shopping Centre”).

The first and second claimants (“Dominion”) were the long leasehold owners of the Fareham Shopping Centre until 19 November 2009, on which date title was transferred to the third and fourth claimants.

On 28 February 2007, Dominion entered into an agreement for lease (“the Agreement”) with the defendant (“Debenhams”).

The basic structure of the Agreement was as follows. In the first phase Dominion would carry out works (“the Landlord’s Works”) in constructing the extension to the Fareham Shopping Centre, to include the units (“the Premises”) to be occupied by Debenhams. In the second phase, Debenhams would carry out any fitting works to the Premises (“the Tenant’s Works”). In the third phase, Dominion would grant to Debenhams a lease of the Premises (“the Lease”) for a term of 15 years at an initial annual rent of £320,000 together with a turnover enhancement.

Under clause 13 of the Agreement, Dominion were required to make payment (“the Payment”) to Debenhams of £900,000 comprising (a) £50,000 payable within 5 working days of the exchange of the Agreement; (b) £425,000 within 10 working days of the date on which Dominion notified Debenhams that the Landlord’s Works were completed for the purpose of commencing the Tenant’s Works (“the Access Date”), provided access was taken for the purposes of the Tenant’s Works; and (c) £425,000 within 10 working days of the date the Premises opened for permanent trade.

The first tranche of £50,000 was duly paid. The second tranche fell due for payment by 2 March 2009, that is to say, within 10 working days of the Access Date which is now agreed to have been 16 February 2009. It was not paid on that day, and the next day Debenhams served notice saying that it was terminating the Agreement under clause 19 which made provision for termination in the event of default by either party.

Dominion did not accept that Debenhams was entitled to terminate the Argreement, and sought to persuade Debenhams to accept the £425,000 late. Debenhams refused, and maintained that the Agreement was at an end.

It is common ground that, if Debenhams was not entitled to terminate the Agreement, its conduct constituted a repudiation of the Agreement. On 23 March 2009, Dominion elected to accept the repudiation and terminated the Agreement themselves.

On 28 May 2009, the claimants issued these proceedings, seeking damages for breach of the Agreement. Debenhams has defended, claiming it was entitled to terminate. It puts its case three ways. First, it says it was entitled to terminate in the event of any breach by Dominion. Alternatively, the failure by Dominion to pay the sum of £425,000 by the due date was a repudiatory breach because time was of the essence. In the further alternative, the circumstances were such that the failure to pay by the due date constituted a repudiatory breach. It has counterclaimed for the £425,000 and damages to be measured by reference to the expenditure it has incurred in starting to carry out the Tenant’s Works.

The issues which now fall to be determined are therefore:

Clause 2 addressed the Landlord’s Works and required Dominion to use reasonable endeavours to procure that the properly appointed contractor carried out the Landlord’s Works in accordance with various specified requirements and with due diligence. It further required Dominion to use reasonable endeavours to procure completion of the Landlord’s Works on or before a specified date referred to as the “Target Completion Date”. Clause 2.7 provided:

“If the Access Date has not occurred by the Longstop Date [1 November 2009, subject to extension] then either the Landlord or the Tenant may at any time thereafter (but not once the Access Date has occurred) by written notice to the other determine this agreement whereupon this agreement shall (save for clause 2.8) absolutely determine and shall be of no further effect but this shall not affect the rights of any party to this agreement against the other or others in respect of any prior breaches.”

Clause 6 was directed to the Tenant’s Works and provided, so far as relevant:

“6.1

Not later than 6 months or such shorter period as may reasonably be required by the Landlord to consider the relevant details relating to the Tenant’s Works prior to the anticipated Access Date the Tenant shall at its own cost prepare in triplicate and submit to the Landlord for approval a plan or plans and a specification (if any) of the Tenant’s Works. The provisions of the Lease applicable to alterations shall apply to the Tenant’s application for approval of the Tenant’s Works.

6.2

As soon as practicable upon the Landlord’s approval for the Tenant’s Works being obtained, the Tenant shall apply for and obtain all Requisite Consents for the carrying out of the Tenant’s Works.

6.3

Subject to the Tenant having obtained the Landlord’s approval under clause 6.1 and all Requisite Consents required for the commencement of the Tenant’s Works under clause 6.2, the Tenant shall commence the Tenant’s Works on or as soon as practicable after the Access Date and if commenced the Tenant shall diligently proceed with the same in a proper and workmanlike manner as soon as reasonably possible so as to achieve completion of the Tenant’s Works within 16 weeks of the Access Date (subject to extensions permitted by clause 2.5 as if it applied to the Tenant’s Works) to the reasonable satisfaction of the Landlord.”

In summary, there was no obligation upon Debenhams to specify any particular works but any that it did specify had to be sent to Dominion for approval. Subject to approval having been obtained, Debenhams was required to begin the Tenant’s Works on or as soon as practicable after the Access Date and, if commenced, to proceed diligently so as to complete them within 16 weeks of the Access Date.

The Access Date was defined in clause 1.1.1 as follows:

“Access Date means the date upon which the Landlord notifies the Tenant that the Landlord’s Works are completed for the purpose of commencing the Tenant’s Works provided always that the Access Date shall (notwithstanding the achievement or not of the date of practical completion of the Landlord’s Works as stated in the Certificate of Practical Completion) not for the purposes of this Agreement be deemed to occur unless and until all of the following conditions have been fulfilled (unless the Tenant waives any of the conditions by service of written notice on the Landlord to that effect):…”

Clause 13 dealt with the payments to the Tenant and provided:

“13.1

Subject to the clause 13.2 and 13.3, the Landlord will pay the Payment with any VAT due thereon in the following manner and within 10 Working Days of the following dates thus:-

13.1.1

£50,000 within 5 Working Days of the exchange of this Agreement;

13.1.2

the Access Date - £425,000 plus VAT (if payable) (provided access is taken for the purposes of the Tenant’s Works);

13.1.3

the date the Premises open for permanent trade - £425,000 plus VAT (if payable).

13.2

Where VAT is payable:

13.2.1

The Tenant is to produce to the Landlord a copy of its election to waive exemption in respect of VAT in respect of the Premises together with evidence that notice of the election has been given to HM Revenue and Customs and acknowledged by them; and

13.2.2

The Tenant is to provide a valid VAT invoice to the Landlord on the making of the Payment in respect of any VAT properly payable.

13.2.3

The Landlord shall pay to the Tenant the Payment as a contribution to the cost of the materials of the flowing parts of the Tenant’s Works: Fixed Walls (including plasterboard), Stud walling/fixed partitions, Wall Tiles & wallpaper, Fixed Ceilings (except features), Flooring (except Carpet or raised floors), Screed, Stairwells, Doors & frames, Architraves, skirting, picture rails, etc, 50% of column cladding, Bulkheads (except features), Glass windows, Structural builder’s work.”

Clause 19 was concerned with “Default”:

“19.1

If:

19.1.1

either party shall in any respect fail or neglect to observe or perform any of the provisions of this Agreement; or

19.1.2

an Event of Insolvency arises,

then either party may by notice to the defaulting party any time after such occurrence terminate this Agreement, and upon service of such notice this Agreement shall determine but any such determination shall be without prejudice to any pre-existing right of action of any party in respect of any breach by any other party of its obligations under this Agreement

19.2

In the event that the licence fee or any other payment due under this Agreement or any part of this Agreement shall remain unpaid fourteen days after it shall have become due, such licence fee or other payment shall bear interest from the date it became due until payment of such sum oat the Prescribed Rate.

19.3

In the event of the termination of this Agreement for any reason, the Tenant shall remove any Notice or Land Charge entered against the Landlord or the Premises.”

Finally, clause 20 dealt with notices and provided, so far as relevant:

“20.1

Any demand, notice, consent or other communication to be made under this Agreement shall be made or delivered in writing…”

Debenhams contends that clause 19 states in clear terms that in the event of a breach of the Agreement by either party, the opposite party is entitled to terminate. Here, it continues, there is no dispute that on 3 March 2009, Dominion was in breach of its obligation to pay £425,000 under clause 13.1. Accordingly, Debenhams was entitled to terminate the Agreement as it did.

The claimants contend that clause 19, on its proper interpretation, performs two functions. First, it prescribes a method of communicating a decision to terminate where there is any breach which entitles a party to terminate, that is to say, a repudiatory breach. In other words, it means that, if either party shall in any respect fail or neglect to observe or perform any of the provisions of the Agreement in a way that entitles the other to terminate it, because it amounts to a repudiatory breach, the decision to terminate is to be communicated by service of a notice which, under clause 20, must be in writing.

Second, it identifies circumstances which will entitle a party to terminate even though, at common law, there would be no right to do so, in particular in the event of an insolvency.

The general principles to be applied in construing a contractual document are well established and were explained by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912H to 913F. The aim is to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

It is equally well established that, absent a contractual termination provision, a party to a contract may terminate it on the ground of breach by the other party only if the breach is of a condition, or of some other term (a so called innominate or intermediate term) where the effect of the breach has been to deprive the innocent party of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain.

In these circumstances it is hardly surprising that the courts have shown some reluctance to interpret a termination clause in a complex contract containing many innominate terms as providing a party with the right to terminate for any breach, however minor.

In Antaios Compania S.A. v Salen A.B. [1988] 1 AC 191, a shipowner seeking to find an excuse to bring a long-term time charter to a premature end in a rising freight market sought to rely upon the charterer’s breach of an innominate term in the charterparty relating to the charterer’s right to issue bills of lading on behalf of the master of the vessel, as constituting a breach within the meaning of the following withdrawal clause:

“failing the punctual and regular payment of the hire or on any breach of this charter party the owners shall be at liberty to withdraw the vessel from the service of the charterers without prejudice to any claim they (the owners) may otherwise have against the charterers.”

The arbitrators decided the issue against the ship owner. On appeal to the House of Lords, Lord Diplock explained (at 200-201) that business commonsense required the expression “on any breach” to be read as meaning “any repudiatory breach”:

“The arbitrators decided this issue against the shipowners. The 78 pages in which they expressed their reasons for doing so contained an interesting, learned and detailed dissertation on the law, so lengthy as to be, in my view, inappropriate for inclusion in the reasons given by arbitrators for an award. Their reasons can be adequately summarised as being (1) that “any other breach of this charter party” in the withdrawal clause means a repudiatory breach - that is to say: a fundamental breach of an innominate term or breach of a term expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongfully repudiated by the charterers, a category into which in the arbitrators’ opinion the breaches complained of did not fall, and (2) that even if that were wrong, the word “on” immediately preceding "any other breach” meant “within a reasonable time of” their first knowledge of the breach; and the shipowners, in the arbitrators’ opinion, had not given notice of withdrawal until after such reasonable time had expired.

To the semantic analysis, buttressed by generous citation of judicial authority, which led the arbitrators to the conclusions as to the interpretation of the wording of the withdrawal clause that I have summarised, the arbitrators’ added an uncomplicated reason based simply upon business commonsense:

“We always return to the point that the owners' construction is wholly unreasonable, totally uncommercial and in total contradiction to the whole purpose of the N.Y.P.E. time charter form. The owners relied on what they said was ‘the literal meaning of the words in the clause.’ We would say that if necessary, in a situation such as this, a purposive construction should be given to the clause so as not to defeat the commercial purpose of the contract.”

This passage in the award anticipates the approach to questions of construction of commercial documents that was voiced by this House in the very recent case, Miramar Maritime Corporation v. Holborn Oil Trading Ltd. [1984] A.C. 676, which dealt with a bill of lading issued under a charterparty in Exxonvoy 1969 form. There, after referring to various situations which might arise if the construction for which the shipowners in that case contended were correct, I added, at p. 682, in a speech concurred in by my fellow Law Lords:

“There must be ascribed to the words a meaning that would make good commercial sense if the Exxonvoy bill of lading were issued in any of these situations, and not some meaning that imposed upon a transferee to whom the bill of lading for goods afloat was negotiated, a financial liability of unknown extent that no business man in his senses would be willing to incur.”

While deprecating the extension of the use of the expression “purposive construction” from the interpretation of statutes to the interpretation of private contracts, I agree with the passage I have cited from the arbitrators’ award and I take this opportunity of re-stating that if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”

More recently, in Rice (t/a The Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1 the issue arose as to whether a local council was entitled to terminate after seven months two contracts with a provider of leisure management and grounds maintenance services for a four year period on the basis of the following contractual term:

“23.2

If the contractor:

23.2.1

commits a breach of any of its obligations under the Contract… the Council may, without prejudice to any accrued rights or remedies under the Contract, terminate the Contractor’s employment under the Contract by notice in writing having immediate effect.”

The trial judge held that, in the context of a contract intended to last for four years, involving substantial investment and a myriad of obligations of differing importance and varying frequency, a commonsense interpretation should be imposed upon the strict words of the contract and that a repudiatory breach was a precondition to termination pursuant to the clause.

The Court of Appeal dismissed the council’s appeal and, in so doing, explained that the problem with its argument was that the termination clause did not characterise any particular term as a condition or indicate which terms were to be considered so important that any breach would justify termination. Rather, it appeared to visit the same draconian consequences upon any breach, however small, of any obligation. The notion that the term would entitle the council to terminate a contract such as this at any time for any breach of any term flew in the face of commercial commonsense.

Applying these principles in the context of the present case, I accept that, stripped of their context and the relevant background, the words of clause 19 may be understood to mean that either party may terminate the Agreement if the other party fails or neglects to perform any provision of the Agreement in any respect, however minor the provision and however insignificant the failure or neglect may be.

The question that I must now consider is whether such an interpretation would involve attributing to the parties an intention which they plainly could not have had. As I indicated at the outset, the first phase of the Agreement involved Dominion carrying out the Landlord’s Works which were defined by reference to a building specification intended to provide a store suitable for Debenhams to fit out. The relevant works were extensive. It will also be recalled that Dominion agreed to and did in fact pay the sum of £50,000 shortly after the exchange of the Agreement. Yet the interpretation of clause 19 contended for by Debenhams would mean that if, at any time, Dominion failed in some wholly minor respect to perform or properly carry out the Landlord’s Works, Debenhams could terminate the Agreement.

Moreover, the Agreement itself contains numerous provisions of varying importance. For example, clause 3 contains a series of obligations arising from what are defined as “Tenant’s Variations to Landlord’s Works”. Clause 4 imposes on Dominion a series of obligations to arrange project meetings and inspections, and specifies how notice of them is to be provided. Clause 6 requires Debenhams to prepare in triplicate and submit to Dominion plans and a specification of the Tenant’s Works. Clause 26 imposes on Dominion obligations in respect of the new ground lease from the council required to allow delivery and completion of the Landlord’s Works. These are illustrations and I could provide many others.

It follows that this is not a case where only one or a limited number of clauses can be broken in only one or a limited number of ways. To the contrary, this is a case where, as in Rice, the Agreement contains a multitude of obligations, many of which are of minor importance and which can be broken in many different ways. In my judgment, the construction for which Debenhams contends flouts business commonsense. A reasonable commercial person would understand clause 19 as meaning that if either party shall in any respect fail or neglect to observe or perform any provision of the Agreement in a way that amounts to a repudiatory breach, or if an insolvency event arises, then the innocent party may terminate by giving notice in accordance with clause 20.

Debenhams contends that as of 3 March 2009, it was faced with a repudiatory breach because time was of the essence of clause 13.1.2.

In this connection it relies particularly upon the decision of the House of Lords in Bunge Corporation, New York v Tradax Export SA Panama [1981] 1 WLR 711, where Lord Wilberforce explained at 716:

“In conclusion, the statement of the law in Halsbury's Laws of England, 4th ed., vol. 9 (1974), paras. 481–482, including the footnotes to paragraph 482 (generally approved in the House in the United Scientific Holdings case), appears to me to be correct, in particular in asserting (1) that the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties, and (2) that broadly speaking time will be considered of the essence in “mercantile” contracts — with footnote reference to authorities which I have mentioned.”

Debenhams says that the circumstances of the case indicate that making time of the essence would fulfil the intention of the parties. Here the obligation was to pay a substantial sum of money by a particular date which was tied to the Access Date. Further and most importantly, under the terms of clause 6, Debenhams was required to commence the Tenant’s Works as soon as possible after the Access Date and thereafter to proceed with them diligently and in a proper and workmanlike manner so as to achieve their completion within 16 weeks. Hence there was a close linkage in terms of time and purpose between the obligation upon Dominion to pay and the obligation upon Debenhams to fit out the Premises. In these circumstances it was plainly the intention of the parties that Dominion should comply precisely with the obligation to pay the sum of £425,000 within 10 working days of the Access Date.

I am unable to accept this analysis. I recognise that Dominion agreed to pay to Debenhams an inducement by way of a capital contribution in the total sum of £900,000 but this sum was not calculated by reference to any amount to be spent by it in fitting out the Premises. Indeed, clause 6 of the Agreement did not impose upon Debenhams any obligation to carry out any particular fitting out work at all. Moreover, it is clear from clause 13 that the obligation upon Dominion to make the payment as a contribution to particular aspects of the Tenant’s Works only arose in the event that VAT was payable, and VAT was only payable if Debenhams provided Dominion with benefits that went beyond fitting out works, which, it is agreed, the planned fitting out works did not.

Second, I do not accept that the circumstances of the Agreement or the nature of its subject matter made precise compliance with the date fixed by clause 13.1.2 essential or vital. A failure to perform punctually would not deprive Debenhams of substantially the whole benefit of the Agreement or render it incapable of performing its own obligations.

Third, interest was payable on late payments under clauses 19.2 and 21.2 of the Agreement, so providing an express remedy, of which the measure was agreed, for breach of the obligation to pay a tranche of the Payment on the due date.

I heard evidence as to the circumstances of non-payment from Mr Declan Flynn and Mr Michael Chudzynski on behalf of the claimants and from Mr Philip Monaghan and Mr Robert Hadfield on behalf of Debenhams. Mr Flynn is the Managing Director of Lisney LLP, a firm of Chartered Surveyors and was appointed by the claimants to advise them on all investment matters relating to the Fareham Shopping Centre. Mr Chudzynski is a Chartered Surveyor who has acted as the leasing agent in relation to the Fareham Shopping Centre since 2005. Mr Hadfield was at all material times the Acquisitions Manager for Debenhams and his responsibilities included liaising and negotiating with developers, including, in this case, Dominion. Mr Monaghan is the Head of Property Acquisitions for Debenhams and became involved in the Fareham Shopping Centre project only in February 2009. I have no doubt that all four witnesses gave their evidence honestly and were doing their best to assist me. In the event, there was little dispute between them. The material facts as I find them are these.

On 18 February 2009, that is to say, two days after the Access Date, Katie Griggs, the Acquisitions Secretary for Debenhams, sent to Dominion an invoice dated 22 January 2009 for £425,000 plus VAT in respect of the second tranche of the Payment. The invoice stated that payment was due on 9 February 2009. This was, of course, wrong because, as is agreed, payment was not due until 2 March 2009.

On 25 February 2009, Mr Hadfield, Mr Flynn and Mr Chudzynski met at the Fareham Shopping Centre. Mr Flynn explained to Mr Hadfield that Dominion was in dispute with its builder and was unlikely to be able to pay Debenhams the £425,000 on the due date. He told him that Dominion remained committed to paying the amount due but asked if Debenhams would consider taking all or part of the payment by way of an extended rent free period. Mr Hadfield indicated that a rent free period in lieu of the payment would not be acceptable to Debenhams and this is recorded in a contemporaneous note which he made. Mr Hadfield did, however, indicate that he would check the matter with his superiors and asked Mr Flynn to put his proposal to him in writing.

On 27 February 2009, Mr Hadfield sent an email to Mr Monaghan reporting the substance of his conversation with Mr Flynn and Mr Chudzynski.

Later on 27 February 2009, Mr Flynn sent Mr Hadfield an email, copied to Mr Monaghan in the following terms:

“Rob

Thank you for taking the time to meet with me on Wednesday.

As I pointed out we are currently having difficulty with our builder on site – To date we have paid him almost his full contract sum however he is claiming payment for almost double this which is causing problems not only on the site but with our bankers who are funding this project.

We are fully aware that Debenhams are due part of their capital contribution now and the remainder when the store opens and Ciaran Murdock the owner of the scheme is personally committed to fulfilling his obligations here.

However at the moment our banks are seeking a full review of the project before agreeing to advance us the capital contributions due to Debenhams as a result of the ongoing and escalating dispute with the Builder and the current Global Credit situation.

Can I firstly reiterate that we are fully committed to this project and to Debenhams opening in the Centre. In this regard in order for us to meet our obligations to Debenhams in timely manner I would ask you to consider how much of the Capital contribution you would take as additional rent free – my initial proposal is that we would like to extend the rent free period for the full amount of the Capital contribution due to you

As discussed I think it would be useful if both Ciaran, his Chairman and if necessary myself come to your office on 11^th March to explain the current situation.

I look forward to hearing from you in this regard and would appreciate it if you could confirm a time when you/your property director and/or Chief Executive would be available

I look forward to hearing from you

Regards

Declan Flynn

PS – since drafting I understand that a meeting has been arranged in your offices for Wednesday 11 March at 10.30am”

Shortly after Mr Monaghan received the email he spoke to Mr Flynn on the telephone. In the course of this conversation he told Mr Flynn that capital was more important to Debenhams than a rent free period and that the proposal put forward was unlikely to be acceptable. He also indicated that the matter needed to be resolved by early the following week.

Mr Flynn then sent an email to Mr Ciaran Murdock, who owns or controls the group of companies which in turn owns the large part of the equitable interest in the Fareham Shopping Centre. In this email he relayed various questions put to him by Mr Monaghan:

“Ciaran – had a brief conversation with Phil Monaghan – the Property Director at Debenhams – they will want to see us earlier than 11 April

I have said that we are in full dispute with the builder and are not paying him any more money – this came to a head on Wednesday when I said that you told the builder this –

He wanted to know how long the bank review would take? And why we had paid the builder – almost the full contract sum

The above is just a record of the conversation

He will phone me on Monday”

For his part, Mr Monaghan sent an email to his Chief Executive, Mr Robert Templeman, in these terms:

“Rob

I attach an email which we have just received from the developer’s agent together with a summary of the deal and progress of the scheme.

The 11^th March is in my view too late for a meeting as it reduces our options and I have told the agent that we will need to resolve this by the beginning of next week. I have also indicated that Capital is more important to us than Rent Free and thus his proposal to extend the rent free period to cover the Contribution is unlikely to be acceptable.

Perhaps you can let me have your views so that we can agree the way forward.”

On 2 March 2009, Mr Monaghan rang Mr Flynn to tell him that the option of taking the extended rent free period instead of the cash payment was not acceptable to Debenhams and that he would formally write the next day to outline his position. He said he was taking legal advice. At no point during the conversation did Mr Monaghan give any indication to Mr Flynn that Debenhams was contemplating terminating the Agreement.

By letter dated 3 March 2009, sent by fax, Debenhams’ solicitors gave formal notice that Dominion were in breach of the Agreement and notice of termination under clause 19.1. Later that afternoon Mr Flynn telephoned Mr Monaghan and told him that Dominion could pay the money in full the next day. He asked whether, if Dominion did so, Debenhams would withdraw its notice terminating the Agreement. Mr Monaghan told Mr Flynn that he would revert to him on that question.

On the morning of 4 March 2009, Mr Monaghan sent an email to Mr Templeman further to the telephone conversation he had had with Mr Flynn the previous day. It stated:

“Rob

We served the Notice terminating the Fareham Agreement late yesterday and the Landlord came back immediately and offered to pay the £425,000 today “from his own pocket”, which pretty much confirms what you said the other day! I’m not suggesting we should change our minds and I don’t believe they can challenge the Termination Notice as there was a clear breach. However there is a risk that if we subsequently sue to recover our costs, an argument may be run by the Landlord that we shouldn’t be entitled to abortive fit out costs because immediately after terminating we were offered the contribution in full and therefore were just looking for a way out. I’ve put this to our lawyers who advise that the balance is in our favour, but it’s never clear cut with litigation and doubtless the other side will try to muddy the waters.

Perhaps we could speak briefly before the plug is pulled irrevocably.”

Mr Monaghan later telephoned Mr Flynn and told him that Debenhams was not withdrawing its notice and that it had instructed its fit out contractors to stop work on the site.

Finally, again on 4 March 2009, the sum of £425,000 plus VAT was paid into the client account of Dominion’s solicitors. On the same day, Dominion’s solicitors wrote to Debenhams’ solicitors offering to pay that sum. As I have indicated, the offer was not accepted and, on 23 March 2009, Dominion purported to terminate the Agreement.

A breach of an intermediate or innominate term may justify the innocent party in treating himself as discharged if the breach goes to the root of the contract or affects its very substance. The question to be considered was explained by Diplock LJ in Hongkong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 66:

“Does the occurrence of the event deprive the party who has further undertakings to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?”

Debenhams submits that the answer to this question is yes and for that purpose relies upon all of the following facts and matters.

First, it was Dominion, as the landlords, who chose the Access Date. Second, on 25 February 2009, Dominion announced through Mr Flynn that they were unlikely to be able to pay. Third, they also announced on that day that they were having difficulties with their building contractors for the whole scheme. On that would depend the completion of the Lease. Fourth, it was said on the 27 February, by email, that there were difficulties with the banks who were to provide Dominion with the funding for the development and that they wanted a review. Fifth, Debenhams at that time was, as it was required to be, in occupation of the Premises and had, to the knowledge of Dominion, engaged fitting-out consultants. Sixth, Dominion asked Debenhams whether it was prepared to take an extended rent free period instead of the cash payment. Seventh, at no stage did Debenhams indicate that it would accept that revised proposal. All these events taken together mean that, by 3 March 2009, the failure to pay represented or became a repudiatory breach.

I am unable to accept this submission for all of the following reasons. Throughout the period in issue Dominion made clear that, as a result of the difficulties they were experiencing, they anticipated being unlikely to be able to pay Debenhams £425,000 on the due date. Accordingly, they sought to explore whether Debenhams would consider taking all or part of the payment by way of an extended rent free period. However, they also made it clear that they remained committed to paying the amount due and, more generally, to the Agreement and to the whole project. As for the actual breach, this consisted of no more and no less than the failure to pay £425,000 on the due date. It is, to my mind, striking that Debenhams did not at any time give notice purporting to make time for payment of the £425,000 of the essence. On the contrary, it purported to terminate for failure to make the payment by the due date without giving Dominion any warning that that was what it intended to do. In my judgment this is not a case where it can be said that the circumstances were such that the failure to make a payment on the due date constituted a repudiatory breach.

It follows that Debenhams was not entitled to terminate the Agreement on 3 March 2009.