In DD Classics Ltd v Chen  EWHC 1357 and 1404 the High Court has underlined important principles of contract law relating to waiver and affirmation in the event of an attempted election to terminate a contract.
- The claimant, and buyer, (DD Classics (DDC), in the UK, purchasing for an Australian client) entered negotiations with the defendant, and seller, (Mr Chen, based in Hong Kong) for the purchase of a rare Ferrari race car for €3.1m. Under the written contract, DDC had five business days after the contract was agreed to make payment (the ‘Due Date’). It also contained a provision that if the buyer did not meet the payment obligations by the Due Date, the seller would be entitled to withdraw. The whole events following were narrated and evidenced through many and (later, often heated) WhatsApp communications between the parties, but key aspects are set out here.
- A small deposit was paid instantly (25 March). The due date for the balance was 1 April. Because the car was held by Ferrari in Italy and would be delivered from them, DD Classics wanted confirmation from Ferrari that Ferrari would release the car to it once the seller had received the balance of the price. Getting such confirmation caused a delay beyond the due payment date, but one which Mr Chen was both fully aware of and co-operative with.
- Once Ferrari issued the relevant confirmation obtained, DD Classics released the balance of the purchase price (7 April) to Mr Chen’s account. By 13 April, DDC had not received confirmation of receipt from Mr Chen who said he had not received the funds. Mr Chen then purportedly checked with his bank to see whether the funds had been received. DDC’s bank had confirmed to it that Mr Chen’s bank, HSBC had confirmed receipt and that it had credited Mr Chen’s account on 9 April. Mr Chen disputed this, had become irritated and so asked for DDC’s account details to send all the money back, saying he would ‘wire the money back’ the next day he received it, citing ‘No more deals’ – and in his view, terminating the contract.
- In the event, Mr Chen had failed to answer certain compliance questions put to him by HSBC, when such a large sum landed into the HSBC central bank, with the result that HSBC would not release the money into his account. As such, whilst DDC had evidence that HSBC received the money, HSBC could not immediately release the funds to Mr Chen and so Mr Chen said he did not have them. Because he considered the deal was ‘off’, Mr Chen presumed that if he ignored HSBC’s questions, HSBC would simply ‘bounce’ the payment back to DDC. HSBC did not.
- On 27 April, DDC obtained a protective judicial seizure order in Italy, preventing Ferrari from releasing the car to anyone, given that so far as DDC were concerned, they had purchased it and had no money and no car. Learning of the seizure order, with the funds still sitting in HSBC’s central bank and not transferred to his account, Mr Chen was worried he had no car and no funds. He responded to HSBC and asked HSBC to transfer the money to him. However, his position was that he only did this so that he could send the funds back to DDC, so that the seizure order could be lifted, continuing to have no intention to part with the car.
- Proceedings were commenced in England against Mr Chen and DDC applied for summary judgment.
The court held that the seller had acted in a way that waived his right to a subsequent attempt to terminate the contract – and he had indeed affirmed the sale of his car. Payment was made later than the contract specified, but with the full knowledge and accedence of the seller. By acceptance of a late non-conforming payment, a contract could be affirmed.
The judge’s findings can be summarised as follows:
- election of a contractual right to terminate must be exercised within a reasonable time and delay in exercising that right may be construed as unreasonable, particularly where a decision is straightforward; and
- knowledge of the facts of a both a repudiatory breach (such as non-payment) and of one’s own right to terminate following that repudiatory breach, may give rise to affirmation where the right to terminate is not exercised in a reasonable time.
- your contracts are properly drafted;
- you have an understanding of how and when to operate under them; and
- if you have any doubt, consult your lawyer.
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