Grove and Briscoe v Baker

JurisdictionJersey
CourtRoyal Court
JudgeBailhache, Bailiff and Jurats Allo and Newcombe
Judgment Date11 July 2005
Date11 July 2005
ROYAL COURT
Bailhache, Bailiff and Jurats Allo and Newcombe

J.M.P. Gleeson for the plaintiffs;

The defendant appeared in person.

Cases cited:

(1) Hamon v. Webster, 2002 JLR N [30], distinguished.

(2) Hanby v. Moss, 1966 J.J. 625, applied.

(3) Hotel de France (Jersey) Ltd. v. Chartered Institute of Bankers, 2002 JLR N [5], applied.

(4) Liverpool C.C. v. Irwin, [1977] A.C. 239; [1976] 2 All E.R. 39; (1976), 120 Sol. Jo. 267, dicta of Lord Wilberforce applied.

(5) New Guar. Trust Fin. Ltd. v. Birbeck, 1977 J.J. 71, applied.

(6) Selby v. Romeril, 1996 JLR 210, considered.

(7) Sibley (née Pavey) v. Berry (née Du Feu), 1992 JLR N-4, distinguished.

Text cited:

Pothier, Traité des Obligations, vol. 1, para. 95, at 88-89 (1821 ed.).

Contract—résolution—fundamental breach—contract may be terminated/résolu if party's failure to comply with contractual obligation sufficiently serious, i.e. breach of fundamental condition, at root of contract—if timely payment of interest not of essence of loan contract, résolution not justified by failure to pay on time

Contract—implied terms—principles on which implied—may imply term if established usage or if contract otherwise futile, inefficacious or absurd—term implied into commercial loan contract providing only for interest payments, that capital repayable on demand if intended by parties and otherwise absurd

The plaintiffs brought an action against the defendant seeking repayment of a loan and the accumulated interest.

The parties set up a company for the purpose of a joint business venture to purchase and redevelop a substantial property. They initially agreed that 50% of the company's shares would be held by the plaintiffs and 50% by the defendant. To obtain funding for the project, the parties themselves had to provide £1m., of which they agreed that £250,000 would be provided by the plaintiffs; £250,000 by the defendant; and the remaining £500,000 would be a loan arranged by the defendant.

The defendant failed to arrange the loan, and the plaintiffs in fact provided £750,000 and the defendant only £250,000. The company's shareholding was then adjusted so that the plaintiffs held 66?% of the shares and the defendant the remaining 33?%. The parties agreed that the shortfall of £83,333, which should also have been contributed by the defendant to justify his 33?% shareholding, would be regarded as a loan to him from the plaintiffs. The agreement was set out in a contract which provided for interest to be paid quarterly by the defendant but did not expressly provide for repayment of the capital sum.

Although he made the first interest payment on the due date, the defendant failed to pay the following three instalments on time. The plaintiffs then made a formal demand for repayment of the capital and the accrued interest. The defendant refused, claiming that the capital was only repayable at the conclusion of the project.

The plaintiffs submitted that (a) the defendant's successive failures to make timely interest payments constituted a fundamental breach of the contract, which entitled them to treat it as terminated (or résolu) and to demand repayment of the capital; and (b) alternatively, although the contract did not expressly provide for repayment of the capital, it was an implied term that the capital would be repayable on demand.

Held, giving judgment for the plaintiffs:

(1) Although the court could treat a contract as résolu whenever a failure to comply with a contractual obligation was sufficiently serious to justify its termination, the defendant's contract with the plaintiffs would not be so treated, as his successive failures to pay interest on time were not sufficiently serious. A failure to comply with a contractual obligation would only be sufficiently serious to justify the cancellation of a contract if it went to the root of the contract, involving a breach of a fundamental condition. A trivial or insignificant failure to comply with a contractual obligation would not suffice. In the present case, timely payment of interest was not stipulated as being of the essence of the contract, which merely provided for interest to be paid quarterly in arrears, nor was it provided that late payment would entitle the plaintiffs to terminate the contract. Accordingly, whilst the plaintiffs could sue the defendant to recover the overdue interest, they were not entitled to treat the contract as terminated because of his breaches and thereby also to recover the capital ( para. 14; para. 18).

(2) The plaintiffs were, however, entitled to repayment of the capital as it was an implied term of the contract that the full sum would be repayable on formal demand. A term would be implied into a contract if customarily included in such a contract or if its inclusion was necessary because the contract would otherwise be futile, inefficacious or absurd. Whilst the loan contract did not specifically provide for repayment of the capital, it was a commercial contract and the parties clearly intended that it would be repayable and, as it would be absurd if the plaintiffs were unable to demand full repayment, a term would be implied allowing them to do so ( paras. 15-17; para. 21).

(3) Jersey contract law should not be regarded as a battle between French and English contract law. The courts should whenever possible apply Jersey contract law, as established in previous authorities. Where there is no such law, principles should be adopted from the contract laws of other jurisdictions. Once adopted, those principles become part of Jersey contract law. They may but need not be developed in accordance with changes in the jurisdictions from which they were adopted. Although the works of Pothier remain the best guide to Jersey contract law, the law must continue to develop ( para. 13).

1 BAILHACHE, BAILIFF:

Introduction

This is an action by the plaintiffs, Eric Grove and his daughter, Louise Briscoe, to recover a loan of £83,333 from the defendant, Leslie Ernest Baker, together with accumulated interest on the loan at the agreed rate of 25% per annum. The contract is embodied in a short agreement sent by Mr. Baker to Mr. Grove and countersigned by both plaintiffs.

Background

2 The background to the making of the loan...

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