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Resolving Contracts: The Hotel De France Case

Timothy Le Cocq

Jersey, as we occasionally remark, is a small jurisdiction and, as such, and notwithstanding the undoubted industry of its courts, produces relatively few decisions on points of law. For this reason, when the court does determine a legal issue, that determination is often clasped gratefully to the practitioner’s bosom. Unfortunately, that gratitude often extends to judicial pronouncements which are obiter and such sayings are given a weight which they perhaps do not always merit and which the court itself would not, on reflection, wish. The reason for this may be the scarcity of true precedent or, indeed, the fact that, obiter or otherwise, any judicial pronouncement reflects the view of a much higher percentage of the available judicial opinion here than would be the case in a large jurisdiction.

For whatever reason, a statement from the bench, albeit obiter, can take on a life of its own and this is perhaps not more so than in matters of contract law where a large measure of uncertainty still exists as to the extent to which we must look to the law of France as a guide to the law of Jersey.

The Hotel de France case

One such statement was made by the Royal Court in 1995 when it handed down its judgment in the case of Hotel de France (Jersey) Limited v The Chartered Institute of Bankers.[1] As that case will be well known to practitioners, the facts need only be mentioned briefly.  The defendant had terminated an agreement with the plaintiff to hold a large dinner at the plaintiff’s hotel when the room reserved for that purpose was damaged by fire and was unserviceable. The plaintiff had offered the defendant alternative but less satisfactory accommodation.

The court found that it was a fundamental term of the contract between the parties that the specified room be used and accordingly the inability to provide that particular room was a breach of that fundamental term. The court also determined, amongst other things, that:

“…the matter was sufficiently serious to justify the termination of the contract.  There cannot, in our view, be a clearer example of force majeure or cas fortuit (the two phrases are interchangeable) .  Of course our decision turns on the fact that the Institute had contracted for the Empire Room alone.”  The Court also stated: “We are perfectly convinced that from the telephone conversations between Miss Viney  and Miss Sweeney on March 24th and Mrs. Allo on  March 25th there was sufficient to justify a release and there was an acceptance of the cancellation.”

That was the basis of the court’s decision and it was not, in order to determine the dispute between the parties, required to go any further. In reaching those decisions, however, the court quoted an extract from The French Law of Contract by Barry Nicholas in which the author explained the broad similarity between the French remedy of “résolution” and the common law remedy of “rescission”.   Professor Nicholas went on to explain that: Save in certain exceptional cases, the creditor must normally apply to the court for an order resolving the contract; he may not, as in the Common Law, simply treat the debtor’s breach as discharging the contract.”[2]

After citing that passage the Court went on to state:“We have no doubt that there was not time to apply to Court.  This was ‘an exceptional case’.” And there it is.  In a statement which was clearly obiter the court raised the suggestion that, had the matter not been an “exceptional case”, it would have been necessary in order to treat the contract as “resolved” for the plaintiff to apply to the court for an order to that effect.

Is that the law of Jersey?   Is it in fact necessary, if someone with whom you have contracted is in fundamental breach of contract, that you must commence proceedings before the Royal Court to cancel that contract?

With an exception in respect of hereditary contracts or leases in general (concerning which there is ample authority) it is strongly arguable that there is no such requirement.

What is wrong with the Hotel de France statement?

It is clear, as has been mentioned, that this part of the Hotel de France judgment was obiter in that the court had already decided that this was a clear example of force majeure or cas fortuit and that in any event the cancellation had been accepted. The court did not, therefore, have to go on to consider what steps needed to be taken if that had not been the case. It appeared, in fact,  to make its observations following a cursory consideration of Professor Nicholas’ book and a single quotation from the works of Pothier.

The reference to Professor Nicholas’ work in deciding points of law in this jurisdiction must be highly questionable and, it is suggested, stretches that work beyond its intended boundaries. Indeed, in his own preface to the first edition of the work, the author makes it clear that his book was not intended as a practitioner’s text but rather as an “essay in comparative law ............ directed in the first place to the student”.   He goes on to suggest that a practitioner should seek the guidance of an expert.  It is also, of course, very much a secondary and not a primary source of law and, as such, must be suspect as a guide to the law of Jersey.

It is perhaps here appropriate to remember the cautionary words of the Court of Appeal in Public Services Committee v Maynard in which the Court  stated:

“However, care has to be taken in referring to French legal texts in connection with the law of Jersey.  After the Channel Islands were severed from the rest of the Norman territories in what is now France, Norman customary law continued to develop in Jersey, Guernsey and Normandy in parallel, but not with identical developments.  In Normandy, development was naturally affected by doctrines prevailing in other parts of France. The Napoleonic Codes embodied much of the pre-existing laws of the French provinces, but with some material changes.  After the Napoleonic Codes came into existence, French law developed independently of developments in Jersey and Guernsey, under the direction or influence of French statutes, French jurisprudential writers and the case law of the French courts.  Accordingly, no great weight can be placed on French law as it exists today in ascertaining what is Jersey law, except perhaps on a comparative basis as showing how the same problems have been treated in another legal system.” [3]

What about Pothier?

It must be said, however, that Pothier in his Traité des Obligations provides support for the principle stated by Nicholasand cited in Hotel de France.  Under the heading Des conditions résolutoires, Pothierstates:

“Dans les contrats synallagmatiques, qui contiennent des engagements réciproques entre chacun des contractants, on met souvent pour condition résolutoire de l’obligation que contracte l’un des contractants, l’inexécution de quelqu’un des engagements de l’autre.

Par exemple, si je vous vends mon vin, à la charge que si vous ne venez l’enlever et payer dans huitaine, je serai déchargé de l’obligation, c’est une condition résolutoire.

Selon la simplicité des principes, le seul laps du temps limité par le contrat, dans lequel vous deviez satisfaire à la condition, lorsqu’il s’est écoulé sans que vous y ayez satisfait, devroit éteindre et résoudre mon engagement dans tous ces cas et autres semblables.  Néanmoins dans notre pratique françoise, il est d’usage de faire une sommation au créancier par un sergent, à ce qu’il ait à satisfaire à la condition, avec assignation devant le juge pour voir prononcer la nullité de l’engagement, faute par lui d’avoir satisfait.”[4]

I would translate that passage as follows:

In mutual contracts, which contain reciprocal engagements between each of the contracting parties, the omission of one side to execute his part, is often made a resolutory condition of the obligation of the other.  For instance, if I sell you my wine upon condition, that unless you remove it within eight days I shall be discharged: this is a resolutory condition.

The mere lapse of time in which you were to satisfy the condition, in this and similar cases, would alone, according to the simplicity of natural principles, be sufficient to extinguish and dissolve my engagement. But, according to the usages in France, the creditor is summoned by an officer to perform the condition, or to appear before the judge who will declare the engagement to be void, in default of his doing so.

Pothiergoes on to state that even where there is no such resolutory clause in the agreement the non-performance by one party will amount to a resolutory condition and justify a rescission:

“Mais il faut que je fasse prononcer le résiliement par le juge, sur l’assignation que je dois vous donner a cet effet.”

The judge retains a discretion as to whether or not to rescind and to decree the time period in which  performance must take place.

Although this statement in Pothier gives apparent support to the statement of the court in Hotel de France it should be remembered that Pothier was here talking expressly about the usages in France. What were the usages in Jersey where there was a resolutory condition or, more importantly, where there was none?

In short it does not appear, at least since 1885[5], to have been the practice before the Jersey courts or the custom and usage within the island (with the exception of leases mentioned above) to apply to court for the cancellation of ordinary commercial contracts.

The works of Pothier, whilst of course an important guide to the law of Jersey, are not a statement of it. Jersey law does not follow Pothier in all matters of contract and, for example, appears to a great extent to follow English law in matters of causation and remoteness of damage.  It is submitted that it is appropriate  to look to Pothieronly when there is no guidance to be obtained from Jersey law itself.  The first consideration must be Jersey law, custom and usage as these define the law of Jersey and are not ‘guides’ to it.  The Royal Court itself has sounded a cautionary note concerning Pothier  when the Bailiff in Selby v Romeril stated:

“It is true that Pothier has often been treated by this court as the surest guide to the Jersey law of contract.  It is also true, however, that Pothier was writing two centuries ago and that our law cannot be regarded as set in the aspic of the 18th century.”[6]

So what have the Jersey courts actually done since the 18th century? There appear to be no examples contained in the Jersey Law Reports or in the Table des Décisions of cases in which the Royal Court has been asked to rescind a contract (other than a lease) or in some other way has been asked by a plaintiff to declare that he is no longer bound by the terms of such a contract. This absence of examples in Jersey jurisprudence must be highly significant contrasted, as it can be, with the existence of such authorities relating to leases.  It is submitted that it is highly suggestive that neither the judiciary nor the legal profession in Jersey has believed since 1885 that there was a requirement to apply to court to be released from a contract where the other party had failed to perform.  Had this requirement been part of the law of Jersey by custom or usage, one would have expected to see numerous examples of its application in the judgments of the court. Not only are there no examples of the court being asked to cancel a contract for non-performance by one of the parties but, indeed, there is clear indication that the Royal Court has proceeded on the basis that Jersey law tends to follow English legal principles when considering the circumstances and manner in which a contract may be rescinded for want of performance by one party to it.

Consider, for example, the following cases.

In Hanby v Moss the Court was  called upon to determine whether, where a building contract contained a penalty clause, the employer was justified in terminating that contract for,  amongst other reasons,  a failure by the builder to complete work on time.  The employer had purported to terminate the contract by a letter. The Royal Court stated that:

“For the defendant to succeed, he must show that he had the right to terminate the contract because the plaintiff, by his own act or default, made the contract impossible of performance; in effect, he must show that any reasonable person would be entitled to conclude that, because of the dilatoriness of the plaintiff, there must inevitably be a breach of the condition specifying the time within which the works must be completed and that that condition is a fundamental condition or that, if it is not a fundamental condition, that the plaintiff had disregarded his warnings to such an extent as to justify any reasonable person in assuming a lack of intent to comply with it.”[7]

The court went on to consider that the existence of a clause in the contract providing for the payment of a penalty for delaying completion meant that it could not be said that time was of the very essence of the contract.  The court, however, continued:

“We, however, conceive it to be an essential condition of the contract that the works be completed within a reasonable time and we can envisage a situation where the employer might well be entitled to rely on the remedy provided by anticipating breach rather than on that provided by the penalty clause.”

There was no suggestion from the court  or, indeed, any suggestion from counsel that the method of termination used by the employer was at fault and  that an application had first to be made to the Royal Court to cancel the contract.

In United Dominions Corporation (Channel Islands) Ltd v  Le Comte the court considered whether or not the defendant was entitled  to repudiate a hire-purchase contract by making no further payments because the plaintiff had been in breach of a condition to provide the vehicle in a state which was fit for the purpose for which it was delivered. After examining the law cited by counsel (which was, it must be said, exclusively English law) the court decided:

“We have, therefore, come to the conclusion that the defect amounted to a breach on the part of the plaintiff company of a fundamental term to be implied in the Agreement, and that the defendant was therefore entitled to repudiate the Agreement, notwithstanding the exception clause to which we have referred.”[8]

The court then went on to consider whether or not, in fact, there had been such a repudiation of the contract and concluded that the contract had been repudiated by the defendant at a meeting. 

Again, in this case, which considered the ability of a contracting party to repudiate a contract for want of performance by the other party, neither counsel nor the court made any suggestion that such repudiation could only be achieved by an application to the Royal Court to cancel the contract.

In New Guarantee Trust Finance Ltd. v Birbeck the court considered whether or not the plaintiff had waived its rights to rescind a contract and whether a defendant had committed a fundamental breach that entitled the plaintiff to terminate the contract.  The court made the following finding:

“That being so, it follows that in July 1976, the plaintiff company, having been appraised of Mr. Birbeck’s breach of contract, was entitled to terminate the contract.”[9]

The court continued:

“The acceptance by the plaintiff company of the arrears of interest cannot be interpreted as depriving them of their rights under the contract in respect of a fundamental breach  of  the Agreement unconnected with the interest payments.  Accordingly we find that the plaintiff company was entitled to repudiate the contract with the defendant.”[10]

It is true that no authority was cited but again no suggestion was made that an application to the court was required.

In R.H. Edwards Decorators & Painters Ltd. v Tretol Paint Systems Ltd. the court was required to decide whether or not the defendant had been entitled to terminate a distribution agreement with the plaintiff.  The defendant maintained that it was entitled summarily to terminate the agreement because the plaintiff had fundamentally failed to fulfil its obligations under the contract. In considering the matter the Royal Court stated:

“The term fundamental breach used in the answer presumably is intended to refer to a fundamental breach of contract. That term is used where the English Courts have had to construe what are usually called “exclusion clauses” and the Defendant seeks to exclude or limit his liability for breach of contract which would otherwise be imposed upon him.  No such clause exists here to concern us.  But we have derived some help from the English cases.  Thus it has been said that “the expression is no more than a convenient shorthand term for saying that a particular breach or breaches of contract by one party  is or are such as to go to the root of the contract entitling the other party to rescind.” … Again, fundamental breach is a breach “which makes the performance of the contract something  totally different from that contemplated..”

Leaving aside exclusion clauses, where one party to a contract has committed a serious breach by defective performance (or by repudiating his obligations under the contract) an innocent party will have the right to rescind the contract. TPS claims to have had the right to rescind the contract because R.H. Edwards fell within both the above heads of failure. But TPS goes further and claims to have had the right to terminate the contract summarily, that is to say without notice.”[11]

In that case the court concluded that the breaches were not so fundamental as to entitle the defendant to terminate the contract.  There was, however, no suggestion by counsel or by the court that any application to the Royal Court to terminate would have been necessary.

There are other cases which are based on similar principles in which the court has appeared to proceed on the assumption that no application to the Royal Court to rescind is necessary. The above authorities, although no argument appears to have been put to the court in any of them concerningPothier or indeed based upon the law of France, seem to lend support to the proposition  that the custom as it has evolved in Jersey at least over the last hundred years or so is to deal with the termination of a contract (other than a lease or an hereditary contract) on the basis of English principles. In effect the innocent contracting party elects whether or not to treat a breach as rescinding the contract and, if he does so, then he takes the risk that he will be sued if he has acted wrongfully in the event that the breach is not of such a fundamental nature as to justify the action which he has taken.

That there should be an exception to this for hereditary contracts and leases is hardly surprising given the nature of them and the fact that, without judicial intervention declaring that the contract is at an end in those types of cases, an innocent plaintiff will have little chance to secure vacant possession of his property. In addition, in the case of hereditary contracts it would require a judicial act to rectify the public registry. In those cases a simple election to treat a contract as rescinded would not be available to an innocent contracting party. These obvious problems do not, however, apply generically to other contracts.

Custom and usage

The legitimacy of referring to custom and usage to identify Jersey law is embodied in the following two maxims quoted by Le Grosin his Traité du droit coutumier de l’ile de Jersey.

“La coutume est la plus forte, la meilleure de toutes les lois, car elle est l’expression des besoins d’un peuple.  Son nom indique des usages auxquels une pratique continue à, par la succession des temps, donner force de loi”[12];

And:

“L’usage est le meilleur interprète des lois”[13].

The development of custom and usage has been considered by the Royal Court of Guernsey in the case of Chesney v Kitson in which the court stated:

“ In my judgment the Law of Guernsey has not been and is not the same as the Law of Normandy.  This is not surprising as this Island introduced a system of practice of registration of documents by H.M. Greffier and as far as I am aware there was no such system in Normandy.

Does this practice of  registration of Acts form part of the Law of Guernsey?  I am reminded of two maxims:

1.         la Coûtume fait la Loi et la meilleure loi est la coûtume du pays;

2.         l’usage du pays est la meilleure interprétation d’une loi.

I was referred to a judgment of Parker J relating to custom, this of course relates to custom in England which differs from Coûtume ……..

I prefer the definition of Coûtume set out inDe Ferrière Dictionnaire de Droit et de Pratique, édition de 1749.

‘Coûtume est un droit non écrit, un droit municipal de quelque lieu, de quelque ville, de quelque contrée et de quelque pays, introduit par l’usage et du tacite consentement de ceux que s’y sont voluntairement soumis; et cet usage, après avoir été observé pendant du temps considérable a force et authorité de Loi. 

Pour qu’une Coûtume soit valablement introduite, plusiers conditions sont requises:

 1.         le tacite consentement de ceux qui sont demeurans dans le lieu ou elle s’est introduite.

             2.         qu’elle soit conforme à la raison.

 3.        qu’elle ait été observée pendant un temps raisonable, c’est à dire pendant quarante ans, selon quelques interprètes; mais je (Ferrière) crois que c’est une chose qui dépend de la prudence du Juge’.”[14]

The practice in Jersey appears to meet these criteria and in particular it appears to meet the test of reasonableness. The importance of a cogent, modern and efficient contractual context for Jersey can scarcely be over emphasised. It would seem to be unnecessarily burdensome on the courts of our small jurisdiction to raise the spectre of a French practice when we appear to have done pretty well applying the more English method. The courts of Jersey have not been expected to pronounce in anticipation on contractual cancellation rights up to now, but if the obiter statement in Hotel de France  is to be clasped to the bosom of legal practitioners, then innocent contracting parties will be faced with the expense, delay, inconvenience and uncertainty of an application to court. Potentially the courts will be over burdened and Jersey and its finance industry (in relation to which so many contracts are written under Jersey law) may suffer.

Fortunately, our custom and usage make it clear that this need not be the case and we do not need to shoot this particular bullet into our contractual foot.

Timothy Le Cocq is an advocate of the Royal Court of Jersey and is Head of Litigation at Ogier & Le Masurier, P.O. Box 404, St. Helier, Jersey, JE4 9WG.