Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11 (14 February 1980)

Wimpey tried to rescind a land purchase contract with Woodar by wrongly invoking a clause. Woodar claimed this was a repudiation. The House of Lords held it was an honest but mistaken reliance on the contract's terms, not a repudiation.

Facts

Woodar Investment Development Ltd (‘Woodar’) agreed to sell land to Wimpey Construction UK Ltd (‘Wimpey’) for £850,000. A term of the contract stipulated that upon completion, Wimpey would pay £150,000 of the purchase price to a third party, Transworld Trade Ltd. The contract also contained a clause allowing the purchaser (Wimpey) to rescind if, prior to completion, a statutory authority ‘shall have commenced’ compulsory acquisition proceedings. Before completion, the local authority sent a compulsory purchase notice to Woodar. Believing this triggered their right to rescind, Wimpey sent a notice of rescission to Woodar. Woodar denied that the conditions for rescission had been met and treated Wimpey’s notice as a wrongful repudiation of the contract. Woodar sued for damages, including the £150,000 loss that would be suffered by the third party, Transworld.

Issues

The House of Lords considered two primary legal issues:
1. Did Wimpey’s act of serving a notice to rescind the contract, based on an incorrect interpretation of their contractual rights, amount to a repudiatory breach of the contract?
2. If it was a repudiation, could Woodar, as the contracting party, sue for and recover damages for the loss suffered by the third party (Transworld)?

Judgment

The House of Lords, by a 3-2 majority, allowed Wimpey’s appeal, holding that there had been no repudiation of the contract. The court was divided on the central issue of repudiation.

Majority Opinion (Lord Wilberforce, Lord Keith of Kinkel, and Lord Scarman)

The majority held that Wimpey’s actions did not constitute a repudiation. They were not evincing an intention to abandon the contract or refuse to perform it. Instead, they were seeking to rely, albeit mistakenly, on a specific term within the contract itself. Lord Wilberforce stated that it would be a ‘draconian’ principle to hold a party in repudiation for acting upon an honest but incorrect belief about their contractual rights. He distinguished this from a clear refusal to perform. Lord Wilberforce noted:

To be a repudiation, the breach must go to the root of the contract… repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations.

He concluded that Wimpey, in asserting a contractual right to rescind, was affirming the existence of the contract rather than repudiating it.

Dissenting Opinion (Lord Salmon and Lord Russell of Killowen)

The minority argued that Wimpey’s notice of rescission was indeed a repudiation. Since the contractual basis for the rescission was invalid, Wimpey’s notice amounted to a declaration that they would not perform their primary obligation to complete the purchase. In their view, the subjective intention or motive of Wimpey was irrelevant; the objective effect of their action was a refusal to perform.

The ‘Third Party Loss’ Issue

Although the finding of ‘no repudiation’ was sufficient to decide the case, the Lords provided significant obiter dicta on the second issue regarding damages for a third party’s loss. They revisited the principle from Jackson v Horizon Holidays Ltd, where Lord Denning had suggested a broad principle that a contracting party could recover for losses suffered by third-party beneficiaries. The majority in Woodar disapproved of this broad approach. Lord Wilberforce confined the Jackson decision to its specific facts (e.g., family holidays, restaurant meals) and cautioned against establishing a general rule allowing recovery for third-party loss, as it would undermine the doctrine of privity of contract. He stated:

…I am not prepared to dissent from the actual decision in Jackson v. Horizon Holidays. But I cannot agree with the proposition… that ‘in a commercial contract… the plaintiff, can recover for the loss suffered’ by the third party.

Implications

The decision is significant for two key reasons. Firstly, it clarified the law on repudiatory breach, establishing that a party acting in good faith on a mistaken interpretation of a contractual provision is not necessarily repudiating the contract. It drew a crucial distinction between a refusal to perform and an erroneous reliance on a term. Secondly, the case severely limited the potential exception to the privity of contract doctrine that had been suggested in Jackson v Horizon Holidays. It reaffirmed the orthodox position that, outside of specific contexts, a party cannot generally claim damages on behalf of a third party who has suffered a loss. This reinforcement of the privity rule was a key reason for the subsequent enactment of the Contracts (Rights of Third Parties) Act 1999.

Verdict: Appeal allowed.

Source: Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11 (14 February 1980)