Resources

Weston Homes and the ‘Breach of Contract Principle’

Articles & Publications
21 January 2025

In this article, Melody Hadfield considers the recent decision of the High Court in Weston Homes Plc v Henley Developments 211 Ltd [2024] EWHC 3286 (Ch).

Contractual interpretation involves “[ascertaining] the objective meaning of the language which the parties have chosen to express their agreement” (Wood v Capita Insurance Services Ltd [2017] AC 1173, [10]). During this exercise, courts employ a number of presumptions.

The ‘Breach of Contract Principle’ is one such presumption; where it applies, courts will presume that the parties did not intend that one of them should be entitled to rely on their own breach of contract in order to (a) avoid their contractual obligations or (b) obtain a benefit from the contract (Alghussein Establishment v Eton College [1988] 1 W.L.R. 587, 591, 595).

Weston Homes

The ‘Breach of Contract Principle’ was considered by the High Court in Weston Homes Plc v Henley Developments 211 Ltd [2024] EWHC 3286 (Ch). The court held that the principle is distinct from the ‘Prevention Principle’. Further, the court made clear that, as the principle operates only as a presumption, it can be displaced if the express terms of the contract point to a different conclusion.

In Weston Homes, the claimant company agreed to purchase a property from the defendant for £14.5 million. It paid a deposit of £870,000. Paragraphs 1.1. and 1.1.2 of Schedule 1 of the contract provided that the buyer was to “use all reasonably and commercially prudent endeavours” to obtain planning permission and to diligently pursue a planning application ([12]).

Significantly, the contract provided that completion of the purchase was conditional on the grant of planning permission within 6 months of the date on which an application for planning permission was made. Failing this, pursuant to clause 23.2 of the contract, either party could terminate the contract. Further, clause 23.2 provided that in such circumstances “without prejudice to any right or remedy of any party in respect of any antecedent breach of [the] contract”, the seller was to repay the deposit to the buyer ([4]).

In the event, planning permission was not obtained within 6 months of an application being submitted. The claimant then served a notice of termination on the defendant and issued proceedings seeking the return of its deposit.

In response, the defendant argued that the claimant had breached paragraphs 1.1 and 1.1.2 of Schedule 1 of the contract and that, but for these breaches, the planning application would have been approved in time. The defendant therefore argued that the claimant was seeking to rely on its own breach of contract to terminate the contract and reclaim the deposit. The defendant maintained that clause 23 fell to be interpreted so as to prevent the claimant from relying on its own breach of contract in this manner ([13] – [14]).

The court began by making clear that the ‘Breach of Contract Principle’ is distinct from the ‘Prevention Principle’. The ‘Prevention Principle’ often applies in a situation where (a) a contract provides that a certain condition must be satisfied before A is required to perform his obligations, (b) B requires A’s co-operation/assistance in order to satisfy the condition and (c) A prevents B from satisfying the condition by failing to co-operate or failing to provide assistance. In such situations, the court may imply into the contract a term prohibiting A from preventing the fulfilment of the condition or requiring A to co-operate in the fulfilment of the condition (The Law Debenture Trust Corpn plc v Ukraine [2019] QB 1121, [207]).

In Weston Homes, the court confirmed that the principle which applied on the facts before it was the ‘Breach of Contract Principle’, and not the ‘Prevention Principle’ ([41]).

Further, the court explained that the ‘Breach of Contract Principle’ is a presumption which is “capable… of being displaced in favour of a contrary contractual intention” ([37]).

The court then embarked on an analysis of the terms of the contract before holding that, in the case before it, the ‘Breach of Contract Principle’ was indeed displaced by those terms. In particular, the court had regard to the following matters:

  • Clause 23 provided clearly and unequivocally that either party could terminate the contract if the planning permission provisions were not satisfied. The clause was not caveated in any way. Significant weight was to be given to the express language used by the parties because the contract was a substantial and professionally prepared document ([55] – [56]).
  • The right to terminate, set out in clause 23, was said to be “without prejudice to any right or remedy of any party in respect of any antecedent breach of [the] contract” ([59]). This tended to suggest that the parties had envisaged, when the contract was being drafted, that clause 23 might be invoked in circumstances where there had been a potential breach of contract; yet the parties had not, as they could have done, limited the availability of termination under clause 23 to circumstances where the party choosing to terminate was not in breach ([60]).
  • The parties had included other express limitations to the right to terminate under clause 23 ([61]).

The court therefore found that, on a true construction of the contract, there was no room for the application of the ‘Breach of Contract Principle’. In these circumstances, there also could be no basis for the implication of a term to the same effect. The court held “As is axiomatic, an implied term can supplement the terms of the contract either to provide business efficacy, or because it was always an obvious element in the overall contractual arrangements. What an implied term cannot do is to modify, or alter, the express terms of the contract, as properly construed and, thereby, supplant those terms. That, in view of my conclusions as to the proper construction of the contract, in this case, is what the implication of any term along the lines suggested and pleaded, by [the defendant] would do” ([88]).

In Weston Homes, the court reached the conclusion that the ‘Breach of Contract Principle’ was not intended to apply by construing the terms of the contract as a whole. In some cases, the principle may also be ousted by a specific contractual provision which expressly entitles a party to avoid an obligation or obtain a benefit when they are themselves in breach of contract.

Micklefield

In Micklefield v SAC Technology Ltd [1990] 1 W.L.R. 1002, the claimant was employed by the defendant company as a director. The company operated a scheme under which the claimant was granted an option to subscribe for shares in the company’s parent company.

Rule 4(3)(b) of the scheme stated that if an option holder ceased to be employed by the company (or a group company) for any reason whatsoever, the option granted to him would lapse.  

Further, rule 9 of the scheme stated: “If any option holder ceases to be an executive for any reason he shall not be entitled, and by applying for an option an executive shall be deemed irrevocably to have waived any entitlement, by way of compensation for loss of office or otherwise howsoever to any sum or other benefit to compensate him for the loss of any rights under the scheme.”

The claimant gave the company notice of his intention to exercise his option. He was then dismissed by the company before the date on which his option fell due. He brought a claim against the company for wrongful dismissal and sought damages for loss of the option. The High Court determined, as a preliminary issue, whether, in the event the wrongful dismissal claim succeeded, the claimant would be entitled to damages for loss of the option.

The claimant argued that, in relying on rule 9 of the scheme, the company was seeking to benefit from its own wrong. The court considered that, in the first instance, rule 9 of the scheme was an exemption clause (i.e., a clause exempting the defendant from part of its liability for its wrong) and, the ‘Breach of Contract Principle’ did not apply to such clauses (p1007).

The court went on to hold that, in any event, clause 9 clearly and decisively excluded the principle: “[Rule 9] expressly applies if an option holder ceases to be an executive for any reason. That, on its terms, includes the case of his being wrongly dismissed. If the clause stopped there, one might perhaps doubt whether it was meant to apply to a wrongful dismissal. As I see it, the rest of the clause, though, makes it clear that it can only apply in the case of a wrongful dismissal. It goes on with a waiver of any entitlement by way of compensation for loss of office. Such an entitlement could only arise in a case of wrongful dismissal and the word “waiver” makes it clear that it is some right of the plaintiff’s that is being removed from him” (p1008).

In summary, the ‘Breach of Contract Principle’ provides a sensible starting point for the interpretation of contracts. However, the decisions in Weston Homes and Micklefield serve as useful reminders that it is only a presumption, and, like other interpretative presumptions, may be displaced on consideration of the terms of the contract as a whole.  

Related areas

Related People

Melody Hadfield

Call: 2018

Search

Expertise

Related resources

Four Fundamentals of Limitation Periods in Contract and Tort Claims


By Carl Troman, Barrister and Mediator at 4 New Square Chambers Four…

Discover more

Stay of proceedings before serving a claim form


What should claimants do when limitation is about to expire? Noting the…

Discover more

Why are there so many cases against lawyers for contempt of court?


There has been a spate of cases in the past couple of…

Discover more

If you would like to know more or have a question please talk to our clerks

Portfolio Builder

Select the expertise that you would like to download or add to the portfolio

Download    Add to portfolio   
Portfolio
Title Type CV Email

Remove All

Download


Click here to share this shortlist.
(It will expire after 30 days.)