Acceptance
Cases
Adams & Ors v Lindsell & Ors
[1818] EWHC KB J59
Action for non-delivery of wool according to agreement. At the trial at the last Lent Assizes for the county of Worcester, before Burrough J. it appeared that the defendants, who were dealers in wool, at St. Ives, in the county of Huntingdon, had, on Tuesday the 2d of September 1817, written the following letter to the plaintiffs, who were woollen manufacturers residing in Bromsgrove, Worcestershire: “We now offer you eight hundred tods of wether fleeces, of a good fair quality of our country wool, at 35s. 6d. per tod, to be delivered at Leicester, and to be paid for by two months’ bill in two months, and to be weighed up by your agent within fourteen days, receiving your answer in course of post.”
This letter was misdirected by the defendants, to Bromsgrove, Leicestershire, in consequence of which it was not received by the plaintiffs in Worcestershire till 7 p.m. on Friday, September 5th. On that evening the plaintiffs wrote an answer, agreeing to accept the wool on the terms proposed. The course of the post between St. Ives and Bromsgrove is through London, and consequently this answer was not received by the defendants till Tuesday, September 9th. On the Monday September 8th, the defendants not having, as they expected, received an answer on Sunday September 7th, (which in case their letter had not been misdirected, would have been in the usual course of the post,) sold the wool in question to another person. Under these circumstances, the learned Judge held, that the delay having been occasioned by the neglect of the defendants, the jury must take it, that the answer did come back in due course of post; and that then the defendants were liable for the loss that had been sustained: and the plaintiffs accordingly recovered a verdict.
Jervis having in Easter term obtained a rule nisi for a new trial, on the ground that there was no binding contract between the parties, Dauncey, Puller, and Richardson, shewed cause. They contended, that at the moment of the acceptance of the offer of the defendants by the plaintiffs, the former became bound. And that was on the Friday evening, when there had been no change of circumstances. They were then stopped by the Court, who called upon Jervis and Campbell in support of the rule. They relied on Payne v. Cave[1], and more particularly on Cooke v. Oxley[2]. In that case, Oxley, who had proposed to sell goods to Cooke, and given him a certain time at his request, to determine whether he would buy them or not, was held not liable to the performance of the contract, even though Cooke, within the specified time, had determined to buy them, and given Oxley notice to that effect. So here the defendants who have proposed by letter to sell this wool, are not to be held liable, even though it be now admitted that the answer did not come back in due course of post. Till the plaintiffs’ answer was actually received, there could be no binding contract between the parties; and before then, the defendants had retracted their offer, by selling the wool to other persons.
But the Court said, that if that were so, no contract could ever be completed by the post. For if the defendants were not bound by their offer when accepted by the plaintiffs till the answer was received, then the plaintiffs ought not to be bound till after they had received the notification that the defendants had received their answer and assented to it. And so it might go on ad infinitum. The defendants must be considered in law as making, during every instant of the time their letter was travelling, the same identical offer to the plaintiffs; and then the contract is completed by the acceptance of it by the latter. Then as to the delay in notifying the acceptance, that arises entirely from the mistake of the defendants, and it therefore must be taken as against them, that the plaintiffs’ answer was received in course of post.
Rule discharged.
Blackpool & Fylde Aero Club v Blackpool Borough Council
[1990] EWCA Civ 13
Bingham LJ’
“ tendering procedure of this kind is, in many respects, heavily weighted in favour of the invitor. He can invite tenders from as many or as few parties as he chooses. He need not tell any of them who else, or how many others, he has invited. The invitee may often, although not here, be put to considerable labour and expense in preparing a tender, ordinarily without recompense if he is unsuccessful. The invitation to tender may itself, in a complex case, although again not here, involve time and expense to prepare, but the invitor does not commit himself to proceed with the project, whatever it is; he need not accept the highest tender; he need not accept any tender; he need not give reasons to justify his acceptance or rejection of any tender received. The risk to which the tenderer is exposed does not end with the risk that his tender may not be the highest (or, as the case may be, lowest). But where, as here, tenders are solicited from selected parties all of them known to the invitor, and where a local authority’s invitation prescribes a clear, orderly and familiar procedure (draft contract conditions available for inspection and plainly not open to negotiation, a prescribed common form of tender, the supply of envelopes designed to preserve the absolute anonymity of tenderers and clearly to identify the tender in question, and an absolute deadline) the invitee is in my judgement protected at least to this extent: if he submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but of contractual right, to be sure that his tender will after the deadline be opened and considered in conjunction with all other conforming tenders or at least that his tender will be considered if others are. Had the Club, before tendering, enquired of the Council whether it could rely on any timely and conforming tender being considered along with others, I feel quite sure that the answer would have been “of course”. The law would, I think, be defective if it did not give effect to that.
It is of course true that the invitation to tender does not explicitly state that the Council will consider timely and conforming tenders. That is why one is concerned with implication. But the Council does not either say that it does not bind itself to do anything, and in the context a reasonable invitee would understand the invitation to be saying, quite clearly, that if he submitted a timely and conforming tender it would be considered, at least if any other such tender were considered.
I readily accept that contracts are not to be lightly implied. Having examined what the parties said and did, the court must be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for. It must also, in most cases, be able to answer the question posed by Mustill LJ in The Kapetan Markos NL (No 2) [1987] 2 LI. 321 at 331: “What was the mechanism for offer and acceptance?” In all the circumstances of this case (and I say nothing about any other) I have no doubt that the parties did intend to create contractual relations to the limited extent contended for. Since it has never been the law that a person is only entitled to enforce his contractual rights in a reasonable way (White and Carter (Councils) Ltd v McGregor [1962] AC 413 at 430 A, per Lord Reid), Mr. Shorrock was in my view right to contend for no more than a contractual duty to consider. I think it plain that the Council’s invitation to tender was, to this limited extent, an offer, and the Club’s submission of a timely and conforming tender an acceptance.
Mr. Toulson’s fourth submission is a salutary warning, but it is not a free-standing argument: if, as I hold, his first three submissions are to be rejected, no subversion of principle is involved. I am, however, pleased that what seems to me the right legal answer also accords with the merits as I see them.
I accordingly agree with the learned judge’s conclusion on the contractual issue, essentially for the reasons which he more briefly gave.
This conclusion makes it unnecessary to consider at length the Club’s alternative argument, which the judge also accepted, that if there was no contract at all between the parties the Council nonetheless owed the Club a duty to take reasonable care to see to it that if the Club submitted a tender by the deadline it would be considered along with other tenders duly returned when the decision to grant the concession was made.
Mr. Shorrock sought to sustain this argument in particular by reliance on Ministry of Housing and Local Government v Sharp [1970] 2 QB 223, Ross v Caunters [1980] Ch 297 and American Express International Banking Corporation v Hurley [1985] 3 All ER 564, none of which (he submitted) was inconsistent with the principles laid down in the House of Lords’ recent decision in Caparo Industries plc v Dickman [1990] 2 WLR 358.
Mr. Toulson urged that the court should not introduce a common law duty of care into an area of pre-contractual negotiations where the parties could, if they wished, have introduced such a duty by agreement but had not done so: Tai Hing Cotton Mill v Liu Chong Hing Bank [1986] AC 80. Although a duty to take reasonable care not to cause pure economic loss could be held to exist, such cases were rare and confined to limited classes of case which did not include the present case and with which the present case had no analogy. The plaintiff’s task was even harder where, as Mr. Toulson argued was the case here, his complaint was of a mere omission. Mr. Toulson argued, if it was necessary to do so, that Ross v Caunters was wrongly decided.
I am reluctant to venture into this somewhat unvirginal territory when it is unnecessary to do so for the purpose of deciding this case. Having heard the argument, I am tentatively of opinion that Mr. Toulson’s objections are correct and that the Club cannot succeed on this point if they fail on the other. But I do not think it necessary or desirable to express a final conclusion.
I would accordingly dismiss the appeal. The practical consequences of deciding the contractual issue on liability in the Club’s favour must, if necessary, be decided hereafter.”
Stocker LJ
“The format of the invitation to tender document itself suggests, in my view, that a legal obligation to consider to tender submitted before any award of a concession was made to any other operator was to be implied in the case of any operator of aircraft to whom the invitation was directed who complied with its terms and conditions. The fact that the invitation to tender was limited to a very small class of operators is itself of significance. The circumstances surrounding the issue of the invitation to tender and the formal requirements imposed by it support the conclusion. Of particular significance, in my view, was the requirement that tenders be submitted in the official envelope supplied and endorsed, as described by Bingham LJ., by the Council. The purpose of this requirement must surely have been to preserve the anonymity of the tenderer and, in conjunction with the defendants’ Standing Orders, to prevent any premature leak of the nature and amount of such tender to other interested or potentially interested parties. Such a requirement, as a condition of the validity of the tender submitted, seems pointless unless all tenders submitted in time and in accordance with the requirements are to be considered before any award of the concession is made. There can be no doubt that this was the intention of both parties, as exemplified by the defendants’ actions when their error with regard to the time of receipt of the plaintiffs’ tender was appreciated. Such a common intention can, of course, exist without giving rise to any contractual obligations, but the circumstances of this case indicate to me that this is one of the fairly rare exceptions to the general rule expounded in the leading cases of Spencer v Harding [1870] LR 5 CP 561 and Harris v Nickerson [1873] LR 8 QB 286. I therefore agree that in all the circumstances of this case there was an intention to create binding legal obligations if and when a tender was submitted in accordance with the terms of the invitation to tender, and that a binding contractual obligation arose that the plaintiffs’ tender would be before the officer or committee by whom the decision was to be taken for consideration before a decision was made or any tender accepted. This would not preclude or inhibit the defendants from deciding not to accept any tender or to award the concession, provided the decision was bona fide and honest, to any tenderer. The obligation was that the plaintiffs’ tender would be before the deciding body for consideration before any award was made. Accordingly, in my view, the conclusion of the learned judge and his reasons were correct.
I agree that in the light of this conclusion no useful purpose can be served by consideration of the difficult questions which arise upon the claim formulated in tort.
Accordingly I agree with the conclusions reached by Bingham LJ, and with the detailed reasoning contained in his judgment and agree that this appeal should be dismissed.
The Brimnes Tenax Steamship Co v Owners of the Motor Vessel Brimnes
[1974] EWCA Civ 15
Edmund-Davies LJ
“the question remains, however, as to whether that was sufficient to constitute communication of the withdrawal notice to the charterers, a point which Mr. Anthony Evans accepts it is for him to establish. He submits that, by leaving the Telex machine working, the charterers in effect represented that any message so transmitted to them during ordinary business hours would (as Mrs. Sayce herself conceded) be dealt with promptly. That Scarf v Jardine, 7 App Cas 345 does not have universal application is shown by Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525, where one party to a contract had done all he could to evince to the other party his intention to rescind it. Then what more could the owners’ agents in the present case reasonably have been expected to do than they did? In Entores Ltd v Miles Far East Corporation [1955] 2 QB 327, where this court was dealing with a contract said to have been concluded by Telex communication between the parties, Denning LJ held that it was not until the Telex message of acceptance was received by the offeror that the contract was complete.
…
“thrthe ink on the teleprinter fails at the receiving end, but the [offeree’s] clerk does not ask for the message to be repeated: so that the man who sends an acceptance reasonably believes that his message has been received. The offeror in such circumstances is clearly bound, because he will be estopped from saying that he did not receive the message of acceptance. It is his own fault that he did not get it. But if there should be a case where the offeror without any fault on his part does not receive the message of acceptance – yet the sender of it reasonably believes it has got home when it has not – then I think there is no contract.”
Brandon J held here that the notice of withdrawal was sent during ordinary business hours, and that he was driven to the conclusion either that the charterers’ staff had left the office on April 2 “well before the end of ordinary business hours” or that, if they were indeed there, they “neglected to pay attention to the Telex machine in the way which they claimed it was their ordinary practice to do” [1973] 1 WLR 386, 406. He therefore concluded that the withdrawal Telex must be regarded as having been “received,” as required by Empresa Cubana de Fletes v Lagonisi Shipping Co Ltd [1971] 1 QB 488 , at 17.45 hours BST on April 2 and that the withdrawal was effected at that time. I propose to say no more than that I respectfully agree with that conclusion, particularly as the case for the charterers throughout was that Mrs. Sayce, the member of their staff specially charged with attending to Telex messages, did not leave the office until after 18.30 hours and they advanced no reason why a Telex message received on their machine at 17.45 hours should not have been noted by her before she left the office, as she insisted, not less than 45 minutes later.”
Brinkibon Ltd v Stahag Stahl GmbH
[1983] 2 AC 34
Lord Wilberforce
“ …. it appears logical that this should be at the place where acceptance is communicated to the offeror….
… I would accept it as a general rule. Where the condition of simultaneity is met, and where it appears to be within the mutual intention of the parties that contractual exchanges should take place in this way, I think it a sound rule, but not necessarily a universal rule…
Since 1955 the use of Telex communication has been greatly expanded, and there are many variants on it. The senders and recipients may not be the principals to the contemplated contract. They may be servants or agents with limited authority. The message may not reach, or be intended to reach, the designated recipient immediately: messages may be sent out of office hours, or at night, with the intention, or on the assumption that they will be read at a later time. There may be some error or default at the recipient’s end which prevents receipt at the time contemplated and believed in by the sender. The message may have been sent and/or received through machines operated by third persons. And many other variants may occur. No universal rule can cover all such cases; they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie.”
Lord Brandon
“ Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified.’ And the postal rule is an exception based on ‘commercial expediency… more convenient, and makes on the whole for greater fairness, than the general rule itself would do.”
Brogden v Metropolitan Railway Company
(1876–77) L.R. 2 App. Cas. 666
Lord Blackburns
I have always believed the law to be this, that when an offer is made to another party, and in that offer there is a request express or implied that he must signify his acceptance by doing some particular thing, then as soon as he does that thing, he is bound. If a man sent an offer abroad saying: I wish to know whether you will supply me with goods at such and such a price, and, if you agree to that, you must ship the first cargo as soon as you get this letter, there can be no doubt that as soon as the cargo was shipped the contract would be complete, and if the cargo went to the bottom of the sea, it would go to the bottom of the sea at the risk of the orderer. So again, where, as in the case of Ex parte Harris,[1] a person writes a letter and says, I offer to take an allotment of shares, and he expressly or impliedly says, If you agree with me send an answer by the post, there, as soon as he has sent that answer by the post, and put it out of his control, and done an extraneous act which clenches the matter, and shews beyond all doubt that each side is bound, I agree the contract is perfectly plain and clear.
But when you come to the general proposition which Mr. Justice Brett seems to have laid down, that a simple acceptance in your own mind, without any intimation to the other party, and expressed by a mere private act, such as putting a letter into a drawer, completes a contract, I must say I differ from that. It appears from the Year Books that as long ago as the time of Edward IV, Chief Justice Brian decided this very point. The plea of the Defendant in that case justified the seizing of some growing crops because he said the Plaintiff had offered him to go and look at them, and if he liked them, and would give 2s. 6d. for them, he might take them; that was the justification. That case is referred to in a book which I published a good many years ago, Blackburn on Contracts of Sale, and is there translated. Brian gives a very elaborate judgment, explaining the law of the unpaid vendor’s lien, as early as that time, exactly as the law now stands, and he consequently says: “This plea is clearly bad, as you have not shewn the payment or the tender of the money;” but he goes farther, and says (I am quoting from memory, but I think I am quoting correctly), moreover, your plea is utterly naught, for it does not shew that when you had made up your mind to take them you signified it to the Plaintiff, and your having it in your own mind is nothing, for it is trite law that the thought of man is not triable, for even the devil does not know what the thought of man is; but I grant you this, that if in his offer to you he had said, Go and look at them, and if you are pleased with them signify it to such and such a man, and if you had signified it to such and such a man, your plea would have been good, because that was a matter of fact.
I take it, my Lords, that that, which was said 300 years ago and more, is the law to this day, and it is quite what Lord Justice Mellish in Ex parte Harris[6] accurately says, that where it is expressly or impliedly stated in the offer that you may accept the offer by posting a letter, the moment you post the letter the offer is accepted. You are bound from the moment you post the letter, not, as it is put here, from the moment you make up your mind on the subject.
But my Lords, while, as I say, this is so upon the question of law, it is still necessary to consider this case farther upon the question of fact. I agree, and I think every Judge who has considered the case does agree, certainly Lord Chief Justice Cockburn does, that though the parties may have gone no farther than an offer on the one side, saying, Here is the draft,—(for that I think is really what this case comes to,)—and the draft so offered by the one side is approved by the other, everything being agreed to except the name of the arbitrator, which the one side has filled in and the other has not yet assented to, if both parties have acted upon that draft and treated it as binding, they will be bound by it. When they had come so near as I have said, still it remained to execute formal agreements, and the parties evidently contemplated that they were to exchange agreements, so that each side should be perfectly safe and secure, knowing that the other side was bound. But, although that was what each party contemplated, still I agree (I think the Lord Chief Justice Cockburn states it clearly enough), that if a draft having been prepared and agreed upon as the basis of a deed or contract to be executed between two parties, the parties, without waiting for the execution of the more formal instrument, proceed to act upon the draft, and treat it as binding upon them, both parties will be bound by it. But it must be clear that the parties have both waived the execution of the formal instrument and have agreed expressly, or as shewn by their conduct, to act on the informal one. I think that is quite right, and I agree with the way in which Mr. Herschell in his argument stated it, very truly and fairly. If the parties have by their conduct said, that they act upon the draft which has been approved of by Mr. Brogden, and which if not quite approved of by the railway company, has been exceedingly near it, if they indicate by their conduct that they accept it, the contract is binding.”
Entores Ltd v Miles Far East Corporation
[1955] EWCA Civ 3
Denning LJ
“there was a completed contract by which the defendants agreed to supply 100 tons of cathodes at a price of £239 10s. a ton. The offer was sent by Telex from England offering to pay £239 10s. a ton for 100 tons, and accepted by Telex from Holland. The question for our determination is where was the contract made?
When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing.
The problem can only be solved by going in stages. Let me first consider a case where two people make a contract by word of mouth in the presence of one another. Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound. I do not agree with the observations of Hill J in Newcomb v De Roos.[1]
Now take a case where two people make a contract by telephone. Suppose, for instance, that I make an offer to a man by telephone and, in the middle of his reply, the line goes “dead” so that I do not hear his words of acceptance. There is no contract at that moment. The other man may not know the precise moment when the line failed. But he will know that the telephone conversation was abruptly broken off: because people usually say something to signify the end of the conversation. If he wishes to make a contract, he must therefore get through again so as to make sure that I heard. Suppose next, that the line does not go dead, but it is nevertheless so indistinct that I do not catch what he says and I ask him to repeat it. He then repeats it and I hear his acceptance. The contract is made, not on the first time when I do not hear, but only the second time when I do hear. If he does not repeat it, there is no contract. The contract is only complete when I have his answer accepting the offer.
Lastly, take the Telex. Suppose a clerk in a London office taps out on the teleprinter an offer which is immediately recorded on a teleprinter in a Manchester office, and a clerk at that end taps out an acceptance. If the line goes dead in the middle of the sentence of acceptance, the teleprinter motor will stop. There is then obviously no contract. The clerk at Manchester must get through again and send his complete sentence. But it may happen that the line does not go dead, yet the message does not get through to London. Thus the clerk at Manchester may tap out his message of acceptance and it will not be recorded in London because the ink at the London end fails, or something of that kind. In that case, the Manchester clerk will not know of the failure but the London clerk will know of it and will immediately send back a message “not receiving.” Then, when the fault is rectified, the Manchester clerk will repeat his message. Only then is there a contract. If he does not repeat it, there is no contract. It is not until his message is received that the contract is complete.
In all the instances I have taken so far, the man who sends the message of acceptance knows that it has not been received or he has reason to know it. So he must repeat it. But, suppose that he does not know that his message did not get home. He thinks it has. This may happen if the listener on the telephone does not catch the words of acceptance, but nevertheless does not trouble to ask for them to be repeated: or the ink on the teleprinter fails at the receiving end, but the clerk does not ask for the message to be repeated: so that the man who sends an acceptance reasonably believes that his message has been received. The offeror in such circumstances is clearly bound, because he will be estopped from saying that he did not receive the message of acceptance. It is his own fault that he did not get it. But if there should be a case where the offeror without any fault on his part does not receive the message of acceptance – yet the sender of it reasonably believes it has got home when it has not – then I think there is no contract.
My conclusion is, that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received.
In a matter of this kind, however, it is very important that the countries of the world should have the same rule. I find that most of the European countries have substantially the same rule as that I have stated. Indeed, they apply it to contracts by post as well as instantaneous communications. But in the United States of America it appears as if instantaneous communications are treated in the same way as postal communications. In view of this divergence, I think that we must consider the matter on principle: and so considered, I have come to the view I have stated, and I am glad to see that Professor Winfield in this country (55 Law Quarterly Review 514), and Professor Williston in the United States of America (Contracts, § 82, p. 239), take the same view.
Applying the principles which I have stated, I think that the contract in this case was made in London where the acceptance was received. It was, therefore, a proper case for service out of the jurisdiction.
Apart from the contract by Telex, the plaintiffs put the case in another way. They say that the contract by Telex was varied by letter posted in Holland and accepted by conduct in England: and that this amounted to a new contract made in England. The Dutch company on September 11, 1954, wrote a letter to the English company saying: “We confirm having sold to you for account of our associates in Tokyo: 100 metric tons electrolitic copper in cathodes: £239 10s. for longton c.i.f. U.K./ Continental main ports: prompt shipment from a Japanese port after receipt of export licence: payment by irrevocable and transferable letter of credit to be opened in favour of Miles Far East Corporation with a first class Tokyo Bank. The respective import licences to be sent directly without delay to Miles Far East Corporation.” The variations consisted in the ports of delivery, the provisions of import licence and so forth. The English company say that they accepted the variations by dispatching from London the import licence, and giving instructions in London for the opening of the letter of credit, and that this was an acceptance by conduct which was complete as soon as the acts were done in London.
I am not sure that this argument about variations is correct. It may well be that the contract is made at the place where first completed; not at the place where the variations are agreed. But whether this be so or not, I think the variations were accepted by conduct in London and were therefore made in England. Both the original contract and ensuing variations were made in England and leave can properly be given for service out of the jurisdiction.
I am inclined to think also that the contract is by implication to be governed by English law, because England is the place with which it has the closest connection.
I think that the decisions of the master and the judge were right, and I would dismiss the appeal.”
Felthouse v Bindley
(1862) EWHC CP J 35
Willes J.
“I am of opinion that the rule to enter a nonsuit should be made absolute. The horse in question had belonged to the plaintiff’s nephew, John Felthouse. In December, 1860, a conversation took place between the plaintiff and his nephew relative to the purchase of the horse by the former. The uncle seems to have thought that he had on that occasion bought the horse for £30, the nephew said that he had sold it for 30 guineas, but there was clearly no complete bargain at that time. On the 1st of January, 1861, the nephew writes,
“I saw my father on Saturday. He told me that you considered you had bought the horse for £30. If so, you are labouring under a mistake, for 30 guineas was the price I put upon him, and you never heard me say less. When you said you would have him, I considered you were aware of the price.”
To this the uncle replies on the following day,
“Your price, I admit, was 30 guineas. I offered £30.; never offered more: and you said the horse was mine. However, as there may be a mistake about him, I will split the difference. If I hear no more about him, I consider the horse mine at £30 and 15s.”
It is clear that there was no complete bargain on the 2nd of January: and it is also clear that the uncle had no right to impose upon the nephew a sale of his horse for £30 and 15s. unless he chose to comply with the condition of writing to repudiate the offer. The nephew might, no doubt, have bound his uncle to the bargain by writing to him: the uncle might also have retracted his offer at any time before acceptance. It stood an open offer: and so things remained until the 25th of February, when the nephew was about to sell his farming stock by auction. The horse in question being catalogued with the rest of the stock, the auctioneer (the defendant) was told that it was already sold. It is clear, therefore, that the nephew in his own mind intended his uncle to have the horse at the price which he (the uncle) had named, £30 and 15s.: but he had not communicated such his intention to his uncle, or done anything to bind himself. Nothing, therefore, had been done to vest the property in the horse in the plaintiff down to the 25th of February, when the horse was sold by the defendant. It appears to me that, independently of the subsequent letters, there had been no bargain to pass the property in the horse to the plaintiff, and therefore that he had no right to complain of the sale.
Then, what is the effect of the subsequent correspondence? The letter of the auctioneer amounts to nothing. The more important letter is that of the nephew, of the 27th of February, which is relied on as shewing that he intended to accept and did accept the terms offered by his uncle’s letter of the 2nd of January. That letter, however, may be treated either as an acceptance then for the first time made by him, or as a memorandum of a bargain complete before the 25th of February, sufficient within the statute of frauds. It seems to me that the former is the more likely construction: and, if so, it is clear that the plaintiff cannot recover. But, assuming that there had been a complete parol bargain before the 25th of February, and that the letter of the 27th was a mere expression of the terms of that prior bargain, and not a bargain then for the first time concluded, it would be directly contrary to the decision of the court of Exchequer in Stockdale v. Dunlop[3] to hold that that acceptance had relation back to the previous offer so as to bind third persons in respect of a dealing with the property by them in the interim. In that case, Messrs. H. & Co., being the owners of two ships, called the ” Antelope” and the “Maria,” trading to the coast of Africa, and which were then expected to arrive in Liverpool with cargoes of palm-oil, agreed verbally to sell the plaintiffs two hundred tons of oil,- one hundred tons to arrive by the “Antelope,” and one hundred tons by the “Maria.” The “Antelope” did afterwards arrive with one hundred -tons of oil on board, which were delivered by H. & Co. to the plaintiffs. The “Maria,” having fifty tons of oil on board, was lost by perils of the sea. The plaintiffs having insured the oil on board the “Maria,” together with their expected profits thereon, it was held that they had no insurable interest, as the contract they had entered into with H. & Co., being verbal only, was incapable of being enforced.
Byles J
I am of the same opinion, and have nothing to add to what has fallen from my Brother Willes.
Keating J
I am of the same opinion. Had the question arisen as between the uncle and the nephew, there would probably have been some difficulty. But, as between the uncle and the auctioneer, the only question we have to consider is whether the horse was the property of the plaintiff at the time of the sale on the 25th of February. It seems to me that nothing had been done at that time to pass the property out of the nephew and vest it in the plaintiff. A proposal had been made, but there had before that day been no acceptance binding the nephew.
Willes J.
Coats v. Chaplin[4] is an authority to shew that John Felthouse might have had a remedy against the auctioneer. There, the traveller of Morrisons, tradesmen in London, verbally ordered goods for Morrisons of the plaintiffs, manufacturers at Paisley. No order was given as to sending the goods. The plaintiffs gave them to the defendants, carriers, directed to Morrisons, to be taken to them, and also sent an invoice by post to Morrisons, who received it. The goods having been lost by the defendants’ negligence, and not delivered to Morrisons, it was held that the defendants were liable to the plaintiffs.
The Household Fire and Carriage Accident Insurance Company (Limited) v Grant
(1878–79) LR 4 Ex D 216
Thesiger LJ
“The acceptor, in posting the letter, has, to use the language of Lord Blackburn, in Brogden v Directors of Metropolitan Ry Co,[1] “put it out of his control and done an extraneous act which clenches the matter, and shews beyond all doubt that each side in bound.” How then can a casualty in the post, whether resulting in delay, which in commercial transactions is often as bad as no delivery, or in non-delivery, unbind the parties or unmake the contract? To me it appears that in practice a contract complete upon the acceptance of an offer being posted, but liable to be put an end to by an accident in the post, would be more mischievous than a contract only binding upon the parties to it upon the acceptance actually reaching the offerer, and I can see no principle of law from which such an anomalous contract can be deduced.
There is no doubt that the implication of a complete, final, and absolutely binding contract being formed, as soon as the acceptance of an offer is posted, may in some cases lead to inconvenience and hardship. But such there must be at times in every view of the law. It is impossible in transactions which pass between parties at a distance, and have to be carried on through the medium of correspondence, to adjust conflicting rights between innocent parties, so as to make the consequences of mistake on the part of a mutual agent fall equally upon the shoulders of both. At the same time I am not prepared to admit that the implication in question will lead to any great or general inconvenience or hardship. An offerer, if he chooses, may always make the formation of the contract which he proposes dependent upon the actual communication to himself of the acceptance. If he trusts to the post he trusts to a means of communication which, as a rule, does not fail, and if no answer to his offer is received by him, and the matter is of importance to him, he can make inquiries of the person to whom his offer was addressed. On the other hand, if the contract is not finally concluded, except in the event of the acceptance actually reaching the offerer, the door would be opened to the perpetration of much fraud, and, putting aside this consideration, considerable delay in commercial transactions, in which despatch is, as a rule, of the greatest consequence, would be occasioned; for the acceptor would never be entirely safe in acting upon his acceptance until he had received notice that his letter of acceptance had reached its destination.
Upon balance of conveniences and inconveniences it seems to me, applying with slight alterations the language of the Supreme Court of the United States in Tayloe v Merchants Fire Insurance Co., more consistent with the acts and declarations of the parties in this case to consider the contract complete and absolutely binding on the transmission of the notice of allotment through the post, as the medium of communication that the parties themselves contemplated, instead of postponing its completion until the notice had been received by the defendant. Upon principle, therefore, as well as authority, I think that the judgment of Lopes, J., was right and should be affirmed, and that this appeal should therefore be dismissed.”
Bramwell LJ (dissenting)
“The question in this case is not whether the post office was a proper medium of communication from the plaintiffs to the defendant. There is no doubt that it is so in all cases where personal service is not required. It is an ordinary mode of communication, and every person who gives any one the right to communicate with him, gives the right to communicate in an ordinary manner and so in this way and to this extent, that if an offer were made by letter in the morning to a person at a place within half an hour’s railway journey of the offerer, I should say that an acceptance by post, though it did not reach the offerer till the next morning, would be in time. Nor is the question whether, when the letter reaches an offerer, the latter is bound and the bargain made from the time the letter is posted or despatched, whether by post or otherwise. The question in this case is different. I will presently state what in my judgment it is. Meanwhile I wish to mention some elementary propositions which, if carefully borne in mind, will assist in the determination of this case:
First. Where a proposition to enter into a contract is made and accepted, it is necessary, as a rule, to constitute the contract that there should be a communication of that acceptance to the proposer, per Brian CJ, and Lord Blackburn: Brogden v Metropolitan Railway Co[2]
Secondly. That the present case is one of proposal and acceptance.
Thirdly. That as a consequence of or involved in the first proposition, if the acceptance is written or verbal, i.e., is by letter or message, as a rule, it must reach the proposer or there is no communication, and so no acceptance of the offer.
Fourthly. That if there is a difference where the acceptance is by a letter sent through the post which does not reach the offerer, it must be by virtue of some general rule or some particular agreement of the parties. As, for instance, there might be an agreement that the acceptance of the proposal may be by sending the article offered by the proposer to be bought, or hanging out a flag or sign to be seen by the offerer as he goes by, or leaving a letter at a certain place, or any other agreed mode, and in the same way there might be an agreement that dropping a letter in a post pillar box or other place of reception should suffice.
Fifthly. That as there is no such special agreement in this case, the defendant, if bound, must be bound by some general rule which makes a difference when the post office is employed as the means of communication.
Sixthly. That if there is any such general rule applicable to the communication of the acceptance of offers, it is equally applicable to all communications that may be made by post. Because, as I have said, the question is not whether this communication may be made by post. If, therefore, posting a letter which does not reach is a sufficient communication of acceptance of an offer, it is equally a communication of everything else which may be communicated by post, e.g., notice to quit. It is impossible to hold, if I offer my landlord to sell him some hay and he writes accepting my offer, and in the same letter gives me notice to quit, and posts his letter which, however, does not reach me, that he has communicated to me his acceptance of my offer, but not his notice to quit. Suppose a man has paid his tailor by cheque or banknote, and posts a letter containing a cheque or banknote to his tailor, which never reaches, is the tailor paid? If he is, would he be if he had never been paid before in that way? Suppose a man is in the habit of sending cheques and banknotes to his banker by post, and posts a letter containing cheques and banknotes, which never reaches. Is the banker liable? Would he be if this was the first instance of a remittance of the sort? In the cases I have supposed, the tailor and banker may have recognised this mode of remittance by sending back receipts and putting the money to the credit of the remitter. Are they liable with that? Are they liable without it? The question then is, is posting a letter which is never received a communication to the person addressed, or an equivalent, or something which dispenses with it? It is for those who say it is to make good their contention. I ask why is it? My answer beforehand to any argument that may be urged is, that it is not a communication, and that there is no agreement to take it as an equivalent for or to dispense with a communication. That those who affirm the contrary say the thing which is not. That if Brian, C.J., had had to adjudicate on the case, he would deliver the same judgment as that reported. That because a man, who may send a communication by post or otherwise, sends it by post, he should bind the person addressed, though the communication never reaches him, while he would not so bind him if he had sent it by hand, is impossible. There is no reason in it; it is simply arbitrary. I ask whether any one who thinks so is prepared to follow that opinion to its consequence; suppose the over is to sell a particular chattel, and the letter accepting it never arrives, is the property in the chattel transferred? Suppose it is to sell an estate or grant a lease, is the bargain completed? The lease might be such as not to require a deed, could a subsequent lessee be ejected by the would-be acceptor of the offer because he had posted a letter? Suppose an article is advertised at so much, and that it would be sent on receipt of a post office order. Is it enough to post the letter? If the word “receipt” is relied on, is it really meant that that makes a difference? If it should be said let the offerer wait, the answer is, may be he may lose his market meanwhile. Besides, his offer may be by advertisement to all mankind. Suppose a reward for information, information posted does not reach, some one else gives it and is paid, is the offerer liable to the first man?
It is said that a contrary rule would be hard on the would-be acceptor, who may have made his arrangements on the footing that the bargain was concluded. But to hold as contended would be equally hard on the offerer, who may have made his arrangements on the footing that his offer was not accepted; his non-receipt of any communication may be attributable to the person to whom it was made being absent. What is he to do but to act on the negative, that no communication has been made to him? Further, the use of the post office is no more authorized by the offerer than the sending an answer by hand, and all these hardships would befall the person posting the letter if he sent it by hand. Doubtless in that case he would be the person to suffer if the letter did not reach its destination. Why should his sending it by post relieve him of the loss and cast it on the other party. It was said, if he sends it by hand it is revocable, but not if he sends it by post, which makes the difference. But it is revocable when sent by post, not that the letter can be got back, but its arrival might be anticipated by a letter by hand or telegram, and there is no case to shew that such anticipation would not prevent the letter from binding. It would be a most alarming thing to say that it would. That a letter honestly but mistakenly written and posted must bind the writer if hours before its arrival he informed the person addressed that it was coming, but was wrong and recalled; suppose a false but honest character given, and the mistake found out after the letter posted, and notice that it was wrong given to the person addressed.
Then, as was asked, is the principle to be applied to telegrams? Further, it seems admitted that if the proposer said, “unless I hear from you by return of post the offer is withdrawn,” that the letter accepting it must reach him to bind him. There is indeed a case recently reported in the Times , before the Master of the Rolls, where the offer was to be accepted within fourteen days, and it is said to have been held that it was enough to post the letter on the 14th, though it would and did not reach the offerer till the 15th. Of course there may have been something in that case not mentioned in the report. But as it stands it comes to this, that if an offer is to be accepted in June, and there is a month’s post between the places, posting the letter on the 30th of June will suffice, though it does not reach till the 31st of July; but that case does not affect this. There the letter reached, here it has not. If it is not admitted that “unless I hear by return the offer is withdrawn” makes the receipt of the letter a condition, it is to say an express condition goes for nought. If it is admitted, is it not what every letter says? Are there to be fine distinctions, such as, if the words are “unless I hear from you by return of post, &c.,” it is necessary the letter should reach him, but “let me know by return of post,” it is not; or if in that case it is, yet it is not where there is an offer without those words. Lord Blackburn says that Mellish LJ, accurately stated that where it is expressly or impliedly stated in the offer, “you may accept the offer by posting a letter,” the moment you post this letter the offer is accepted. I agree; and the same thing is true of any other mode of acceptance offered with the offer and acted on—as firing a cannon, sending off a rocket, give your answer to my servant the bearer. Lord Blackburn was not dealing with the question before us; there was no doubt in the case before him that the letter had reached. As to the authorities, I shall not re-examine those in existence before the British and American Telegraph Co. v. Colson But I wish to say a word as to Dunlop v Higgins;[3] the whole difficulty has arisen from some expressions in that case. Mr Finlay’s argument and reference to the case when originally in the Scotch Court has satisfied me that Dunlop v Higgins[4] decided nothing contrary to the defendant in this case. Mellish, L.J., in Harris’ Case, says, “That case is not a direct decision on the point before us.” It is true, he adds, that he has great difficulty in reconciling the case of the British and American Telegraph Co v Colson[5] with Dunlop v Higgins I do not share that difficulty. I think they are perfectly reconcilable, and that I have shewn so. Where a posted letter arrives, the contract is complete on the posting. So where a letter sent by hand arrives, the contract is complete on the writing and delivery to the messenger. Why not? All the extraordinary and mischievous consequences which the Lord Justice points out in Harris’ Case might happen if the law were otherwise when a letter is posted, would equally happen where it is sent otherwise than by the post. He adds that the question before the Lords in Dunlop v. Higgins was whether the ruling of the Lord Justice Clerk was correct, and they held it was. Now Mr. Finlay shewed very clearly that the Lord Justice Clerk decided nothing inconsistent with the judgment in the British and American Telegraph Co v Colson[6] Since the last case there have been two before Vice-Chanceller Malins, in the earlier of which he thought it “reasonable,” and followed it. In the other, because the Lord Justices had in Harris’ Case[7] thrown cold water on it, he appears to have thought it not reasonable. He says, suppose the sender of a letter says, “I make you an offer, let me have an answer by return of post.” By return the letter is posted, and A. has done all that the person making the offer requests. Now that is precisely what he has not done. He has not let him “have an answer.” He adds there is no default on his part. Why should he be the only person to suffer? Very true. But there is no default in the other, and why should he be the only person to suffer? The only other authority is the expression of opinion by Lopes J, in the present case. He says the proposer may guard himself against hardship by making the proposal expressly conditioned on the arrival of the answer within a definite time. But it need not be express nor within a definite time. It is enough that it is to be inferred that it is to be, and if it is to be it must be within a reasonable time. The mischievous consequences he points out do not follow from that which I am contending for. I am at a loss to see how the post office is the agent for both parties. What is the agency as to the sender? merely to receive? But suppose it is not an answer, but an original communication. What then? Does the extent of the agency of the post office depend on the contents of the letter? But if the post office is the agent of both parties, then the agent of both parties has failed in his duty, and to both. Suppose the offerer says, “My offer is conditional on your answer reaching me.” Whose agent is the post office then? But how does an offerer make the post office his agent, because he gives the offerer an option of using that or any other means of communication.
I am of opinion that this judgment should be reversed. I am of opinion that there was no bargain between these parties to allot and take shares, that to make such bargain there should have been an acceptance of the defendant’s offer and a communication to him of that acceptance. That there was no such communication. That posting a letter does not differ from other attempts at communication in any of its consequences, save that it is irrevocable as between the poster and post office. The difficulty has arisen from a mistake as to what was decided in Dunlop v Higgins,[8] and from supposing that because there is a right to have recourse to the post as a means of communication, that right is attended with some peculiar consequences, and also from supposing that because if the letter reaches it binds from the time of posting, it also binds though it never reaches. Mischief may arise if my opinion prevails. It probably will not, as so much has been said on the matter that principle is lost sight of. I believe equal if not greater, will, if it does not prevail. I believe the latter will be obviated only by the rule being made nugatory by every prudent man saying, “your answer by post is only to bind if it reaches me.” But the question is not to be decided on these considerations. What is the law? What is the principle? If Brian CJ, had had to decide this, a public post being instituted in his time, he would have said the law is the same, now there is a post, as it was before, viz., a communication to affect a man must be a communication, i.e., must reach him.
Hyde v Wrench
[1840] EWHC Ch J90
The Master of the Rolls
This case came on upon general demurrer to a bill for specific performance, which stated to the effect following:
The Defendant being desirous of disposing of an estate, offered, by his agent, to sell it to the Plaintiff for £1200, which the Plaintiff, by his agent, declined; and on the 6th of June the Defendant wrote to his agent as follows: “I have to notice the refusal of your friend to give me £1200 for my farm; I will only make one more offer, which I shall not alter from; that is, £1000 lodged in the bank until Michaelmas, when the title shall be made clear of expenses, land tax, etc. I expect a reply by return, as I have another application.” This letter was forwarded to the Plaintiff’s agent, who immediately called on the Defendant; and, previously to accepting the offer, offered to give the Defendant £950 for the purchase of the farm, but the Defendant wished to have a few days to consider.
On the 11th of June the Defendant wrote to the Plaintiff’s agent as follows: “I have written to my tenant for an answer to certain enquiries, and, the instant I receive his reply, will communicate with you, and endeavour to conclude the prospective purchase of my farm, I assure you I am not treating with any other person about said purchase.”
The Defendant afterwards promised he would give an answer about accepting the £950 for the purchase on the 26th of June; and on the 27th he wrote to the Plaintiff’s agent, stating he was sorry he could not feel disposed to accept his offer for his farm at Luddenham at present.
This letter being received on the 29th of June, the Plaintiff’s agent on that day wrote to the Defendant as follows: “I beg to acknowledge the receipt of your letter of the 27th instant, informing me that you are not disposed to accept the sum of £950 for your farm at Luddenham. This being the case, I at once agree to the terms on which you offered the farm, viz., £1000 through your tenant Mr. Kent, by your letter of the 6th instant. I shall be obliged by your instructing your solicitor to communicate with me without delay, as to the title, for the reason which I mentioned to you.”
The bill stated, that the Defendant “returned a verbal answer to the last-mentioned letter, to the effect, he would see his solicitor thereon;” and it charged that the Defendant’s offer for sale had not been withdrawn previous to its acceptance.
To this bill, filed by the alleged purchaser for a specific performance, the Defendant filed a general demurrer.
Mr Kindersely and Mr. Keene, in support of the demurrer. To constitute a valid agreement there must be a simple acceptance of the terms proposed. Holland v. Eyre (2 Sim. & St. 194). The Plaintiff, instead of accepting the alleged proposal for sale for £1000 on the 6th of June rejected it, and made a counter proposal; this put an end to the Defendant’s offer, and left the proposal of the Plaintiff alone under discussion; that has never been accepted, and the Plaintiff could not, without the concurrence of the Defendant, revive the Defendant’s original proposal.
Mr. Pemberton and Mr. Freeling, contra. So long as the offer of the Defendant subsisted, it was competent to the Plaintiff to accept it; the bill charges that the Defendant’s offer had not been withdrawn previous to its acceptance by the Plaintiff; there, therefore, exists a valid subsisting contract. Kennedy v. Lee (3 Mer. 454), Johnson v. King (2 Bing. 270), were cited.
The Master of the Rolls (Lord Langdale): Under the circumstances in this bill, I think there exists no valid binding contract between the parties for the purchase of the property. The Defendant offered to sell it for £1000, and if that had been at once unconditionally accepted, there would undoubtedly have been a perfect binding contract; instead of that, the Plaintiff made an offer of his own, to purchase the property for £950, and he thereby rejected the offer previously made by the Defendant. I think that it was not afterwards competent for him to revive the proposal of the Defendant, by tendering an acceptance of it; and that, therefore, there exists no obligation …”
Dinnegan v. Ryan
[2002] IEHC 55 (13 May 2002)
Judgment delivered the 13th day of May, 2002 by Murray, J.
1. This is an appeal is an appeal by way of rehearing from the judgment and Order of the Circuit Court in which the Plaintiffs were awarded the sum of IR£20,000 damages for breach of contract and slander. No apportionment of damages was made for the separate causes of action.
2. In these proceedings the Plaintiffs claim that they had an agreement with the Defendant’s whereby the latter would provide light refreshments for a small post-wedding reception at their public house on St. Stephen’s Day, 1998. It is alleged that when the Plaintiffs and their guests arrived at the public house the Defendants refused to serve drinks to the wedding party, in particular the Plaintiffs, or to provide them with any food. On the contrary it is alleged that the First Named Defendant in refusing to serve them asked them to leave in circumstances and in a manner which amounted to defamation of the Plaintiffs characters. Accordingly they claim damages firstly, for breach of contract and secondly, for slander. The Defendants on the other hand deny that there was every any agreement at any time to provide refreshments for the wedding party. It is accepted that the wedding party and in particular the Plaintiffs were asked to leave their premises on St. Stephen’s night when they arrived there. According to the Defendants this was because there being no agreement to provide any kind of wedding reception there was no food available to be served to them. Also, the public house was crowded to capacity and the First Named Defendant did not wish to get involved in any argument with the Plaintiff the premises over the alleged failure to provide the food and beverages for the wedding party.
3. Thus, it is not in issue that the Plaintiffs and their wedding guests arrived at the Defendant’s public house at approximately 6.00pm on the 26th December. The Plaintiffs were informed that neither they nor guests would be served food or drink. They were asked to leave and they left.
4. There are two basic issues. The first is whether there was an agreement between the Plaintiff and the Defendants concerning the provision of food and drink for a post-wedding get together of the Plaintiffs and their guests. The second issue is whether the words alleged to have been spoken by the first named Defendant and his conduct in removing them from the premises in the presence of other customers in the public house at the time, constituted an actionable slander of the Plaintiffs.
5. Turning to the first issue, I do not think it is necessary to recall all of the evidence but to concentrate on the essential aspects of it. The background facts are not in issue. Prior to their marriage the Plaintiffs had been living together for quite a number of years. They had three children, the youngest of which was four and the eldest fourteen. Sometime in 1998 they decided to solemnise their relationship by getting married according to the rites of the Catholic Church and arrange for their wedding to take place on St. Stephens Day, December 26th, 1998. At that time the first named Plaintiff was unemployed. The Defendants are the proprietors of an extensive public house premises known as The Downs Inn a few miles outside Mullingar.
6. In his evidence the first named Plaintiff, Mr James Dinnegan said that he had been in The Downs Inn on a number of occasions prior to the incident in question. His father drank their regularly. He knew the proprietor, Mr Ryan. He went in there on a day around the end of November, early December at about 11.30am to make arrangements for a post-wedding reception. He told Mr Ryan about his forthcoming marriage on St. Stephen’s Day and that he wished to bring his guests to The Downs Inn after the wedding for a small reception consisting of sandwiches and cocktail sausages and drinks. Mr Dinnegan said Mr Ryan at first expressed some concern about a 21st birthday party which he would be having that evening but this he said was resolved when he stated that the wedding party would arrive between 6 and 6.30pm and could leave at approximately 9.00pm before the 21st birthday party got under way. He told Mr Ryan that there would be about twenty persons in the party possibly thirty but not more than that. Mr Dinnegan agreed that no overall price for the provision of food was agreed. He explained this by saying since that it was only going to consist of sandwiches and cocktail sausages he knew it could not amount to too much. The drinks would be bought from the bar. He denied that he and the wedding party turned up at the public house without prior arrangements or that they had chosen the Downs Inn on the day because of an electricity blackout in Mullingar town. His main concern appears to have been to ensure that there would be some food available to his wedding party when they arrived after the wedding. As regards Mr Dinnegan’s visit to the pub to make these arrangement, Mrs Dinnegan gave evidence that they were on their way to visit a brother-in-law in hospital and they took the opportunity to stop at The Downs Inn and her husband went in to make the arrangements while she waited in the car. This took about fifteen or twenty minutes.
7. St. Stephen’s Day turned out to be a very stormy windy day as a result of which electricity wires were blown down and much if not of all Mullingar town was without power. This included the Catholic Church in which the wedding took place that afternoon as a result of which it had to be conducted in candlelight. The power cut gave rise to concern as to whether The Downs Inn was affected by the power cut and Mr Dinnegan’s sister rang the public house to check the position. A female who answered the phone confirmed that they had power.
8. The Plaintiffs had invited a range of friends and relations to the wedding some of which had come from England and other parts of the country.
9. After the wedding ceremony the wedding party left for The Downs Inn. Inevitably some arrived before others although most arrived within a short time of one another. So far as a first named Plaintiff is concerned he came in from the car park with two uncles and a brother. Four drinks were ordered. He said a female behind the bar started to pour the drinks but that the first named Defendant, Mr Ryan came out to the lounge and told him that he did not want Mr Dinnegan there, that he was not being served and he wanted him to leave. According to Mr Dinnegan when he came out from behind the bar Mr Ryan waved his hands repeatedly telling him to “get out, I don’t want you here.” Mr Dinnegan says he was quite shocked, could not believe that this could happen, particularly just at that point on his wedding day without any notice. He felt completely humiliated. His own wedding party had begun to gather at this stage. The lounge was fairly busy and many people who knew him, as he lived in the town itself, could see what was happening. He tried to talk to Mr Ryan but there was no talking to him. After initially taking issue with Mr Ryan he felt so humiliated that he just wanted to get out. People were looking at them and he wished to avoid further embarrassment. They went home to his mother’s house. He was very upset but his wife particularly so and they felt too upset to go anywhere else. They had a few drinks in his mother’s house. In the course of his evidence Mr Dinnegan stated that when he walked into the pub he could see sandwiches laid out on trays in a small function room. At this point I would note that no other member of party who gave evidence observed sandwiches laid out on trays and whatever about the rest of the evidence of Mr Dinnegan I am not satisfied, on the balance of probabilities, that he did infact see sandwiches laid out on trays. He may well have been attempting to gild the lily in this aspect of his evidence. According to Mr Dinnegan he then telephoned Mr Ryan twice that evening and twice the next day but Mr Ryan refused to come to the phone. Eventually he went to his solicitor which in due course led to the initiation of these proceedings.
10. Mrs Teresa Dinnegan, the second named Defendant, explained how she was anxious that the wedding day would go well with a small reception for friends and relations after the wedding. “All we wanted was a few friends and a few sandwiches” When she went to The Downs Inn after the wedding, she explained how she waited for her mother-in-law and went in to the public house not long after her husband. Her evidence was that all she could hear was “get out, get out, I don’t want you here.” She felt ashamed and embarrassed. She said that she literally turned around and walked out shocked and humiliated. She felt ashamed in front of her friends. She could have had food for them in their house afterwards but they had decided to entertain them in The Downs Inn. Afterwards she felt too upset to go anywhere else. She was in tears. So upset was she that she subsequently went to her father’s grave for solace. Mr Dinnegan Snr. gave evidence broadly speaking in support of the evidence of his son and also how he had known Mr Ryan, the First Named Defendant for many years. He was a regular customer of the pub particularly on Saturday nights and neither he nor any member of his family had any history of trouble or difficulty with Mr Ryan.
11. Mr McGregor was the photographer engaged by the Plaintiffs to take photographs of their wedding and he was also a friend. When he arrived at the Downs Inn he could see members of the wedding party coming out. He stated that he could not believe what was happening. He had been told two or three weeks before the wedding that the party would be going to the Downs Inn afterwards and that he would be required to take photographs there as well as at the church. He had been told by the Plaintiffs that some food would be available in the pub. He gave evidence that everybody was deeply upset by what had happened and nobody had the heart to go anywhere else. Mr Gerard Dolan, a brother-in-law of the Second Named Plaintiff, was one of the first to arrive with his wife and Mr Martin McDonald. They had never been to the Downs Inn before. They had no difficulty in ordering and being served a drink. He said there was “a nice crowd” but not a large crowd in the pub. They ordered and were served a second drink. He heard shouting and saw a man telling members of the party including the First Named Plaintiff to “get out – get out.” He was not known to
12. Mr Ryan or Mr Ryan did not know him. However, when the rest of the party were not allowed stay, they left. Mr Martin McDonald also gave evidence of being with the last mentioned witness and being served two rounds of drink. At one point he saw a female behind the bar saying something to Mr Dinnegan, the First Named Plaintiff which he thought was to the effect that she could not serve him. There seemed to be a bit of confusion. Then he saw the First Named Defendant, Mr Ryan, in an archway who told Mr Dinnegan and party that they were not being served. Mr Ryan said “I don’t want you here, I want you to leave.” Mr Ryan was taking control, he said. He also stated that when he ordered the first round, he did so from a barman who appeared to look to Mr Ryan, as if he was checking whether he should serve the drink or not. In any event he was served. In cross-examination it was put to Mr McDonald that in fact the barman at that time had gone off duty and that Mr Ryan was upstairs having dinner. Mr Patrick Dinnegan, a brother of the First Named Plaintiff and Mr William McDonald, a brother of the Second Named Plaintiff also gave evidence, broadly speaking consistent with the case being made by the Plaintiffs.
13. Ms Rachel Greville was the first witness called on behalf of the Defendants. On the date in question she was a barmaid working in the Downs Inn. She had been working there for six years. She has since left the employment of the Defendants. On the occasion in question, she had just relieved one of the barmen and had no one behind the counter to assist her. There were sixty to eighty people in the bar, which was essentially a family run pub. When she saw the group arriving, maybe sixteen people, she spoke to the Plaintiff. She asked him to come down to a particular part of the counter as she wished to speak him for a second. She explained to him that she was working on her own and was too busy and would not be able to serve him. She called him down the counter as she did not wish to embarrass him in front of other people. She stated in evidence that St. Stephens Day was one of the busiest days in the year and she was on her own in the bar. Normally there would a lull between 6 and 9pm but this day it was different. The Plaintiff asked her was she refusing to serve them because of who they were. They wanted to know why. They seemed shocked and wondered why they were being refused. This conversation lasted six or seven minutes. There were people waiting to be served. Mr Ryan was upstairs having his dinner. She took the decision not to serve because there were too many people in the pub. She did not consult Mr. Ryan. It was Mr Ryan’s son who called Mr Ryan down to the bar. She saw Mr Ryan talking to the Plaintiff Mr Dinnegan and other men that were with them. She did not hear anything. She heard no shouting, no raised voices. She had come in and told the barman to go on his break and took over from him. There was never any sign of an argument taking place. She did not hear anything of significance.
14. Mr Eugene Ryan, the First Named Defendant, said that Mr and Mrs Dinnegan were completely wrong in claiming that there was an agreement to providing food for their wedding party on the evening in question. He had only one wedding in seven years in the public house. He had the odd 21st Birthday party, anniversary parties and the like.
15. St. Stephens Day, March 17th and 31st December are traditionally very busy and they take no booking for those occasions. He has a diary of bookings. It is a diary for noting in particular band bookings. According to Mr Ryan it became something of a shock to him to see the members of the wedding party arriving to his premises on the evening in question. The public house had a capacity for 100 people. He thought it was acceptable for his barmaid to decide that there was so many there that she would not serve any other arrivals. He did however agree that he had never known a pub to put up a “full-up” sign.
16. He had told Mr Dinnegan that he had no wedding booked; that there was nothing in the book for December 26th. There was no “hassle”. The conversation went on for 24-25 minutes. Mr Dinnegan was getting a bit annoyed. He said to Mr Dinnegan would you ever leave please. Mr Dinnegan and his party left the premises. He received no phone calls that night. Mr Ryan in evidence acknowledged that a couple of weeks prior to December 26th there had been an incident in the pub involving a relation of the first named Plaintiff, who had got sick on the premises. He said this had nothing to do with the events in the pub on December, 26th.
17. Ms Ryan, the First Named Defendant’s daughter gave evidence consistent with that of her father. If there was a function, either she or one of the family would make the sandwiches. There was no function booked for that night. They never have a function on
18. St. Stephens Night. There was no contract with the Plaintiffs to provide food. When requested to leave the Plaintiffs and their party left calmly and quietly.
Conclusions
19. First of all I would like to dispose of some subsidiary matters. There was a certain amount of controversy, raised mainly with the Plaintiffs in cross-examination, as to whether the Plaintiffs and their wedding party could have come in and out one of the doors of the pub used by them on the grounds that the door was supposed to have been bolted or locked due to the stormy conditions outside. I do not consider that anything turns on this particular issue although if I had to decide it I would accept the account of the Plaintiffs on the balance of probabilities. The second named Plaintiff, Mrs Dinnegan, was also cross-examined on the basis that if contractual arrangements were being made for the wedding reception, she would have gone into the pub with her husband when they were being made and/or would have at least enquired about the cost and also that she would have made arrangements for flowers to be placed in the area where they would get their refreshments. Again I do not think a great deal turns on these matters but it does seem to me entirely logical that she would choose to remain in the car while her husband went into the public house to make what were essentially very simple arrangements for a small get together of the wedding party. It struck me that Mrs Dinnegan had been anxious that the appropriate arrangements would be made for the post-wedding get together with their guests and if she was anxious that her husband would in fact make the necessary arrangements she could only have been reassured by the fact that she was with him in the car when he called into the public house to make them. As regards the flowers her answer was that it never had struck her to have flowers for the occasion. That strikes me as entirely logical and reasonable given the very informal nature of the post-wedding get together.
20. I now turn to the more substantive questions which arise in relation to the first issue concerning the contractual arrangements for the post-wedding reception. Although Mr and Mrs Dinnegan had been living together as man and wife with a young family for quite a number of years it was quite clear from their evidence that the day on which they choose to solemnise their relationship and make their wedding vows was to be for them no less a momentous and important occasion in their personal lives as it would be for many other couples getting married. They carefully made the church arrangements for the wedding, engaged a photographer, invited relations and friends not only from Mullingar but from elsewhere in the country and from England. Mr Dinnegan was unemployed at the time and the celebrations which were going to take place after the wedding ceremony were to be of a relatively modest nature. This did not mean that it was in any way less important for them to have a place to bring their relations and friends where they could provide them with some food and drinks to celebrate the happy occasion in relaxed and friendly surroundings. I am quite satisfied that they were telling the truth when they said they decided upon the Defendants public house as the venue for that event and that Mr Dinnegan went there and entered into the specific arrangement, outlined in his evidence, with the first named Defendant, Mr Ryan. I accept fully the evidence of Mrs Dinnegan when she described how they stopped at the public house one morning at 11.30am for the specific purpose of
21. Mr Dinnegan going into make the arrangements with Mr Ryan. I do not accept at all the suggestion, which was made at one point, that the Plaintiffs only chose to go to the Downs Inn after the wedding when they found that all or most of Mullingar was affected by the blackout but that the Defendants premises were not. If corroboration were required that their plans were made in advance, it is to be found in the evidence of the photographer,
22. Mr McGregor whom I found to be an impressive and truthful witness. A few weeks before the wedding he stated that he had been informed of the arrangements for the wedding party to go to the Downs Inn for food and drink after the wedding ceremony.
23. There was a certain amount of controversy during the course of the evidence as to whether the Defendant Mr Ryan was present in the pub lounge when the wedding party arrived. There was also a conflict in the evidence as to whether the barman was present when the first of Mr Dinnegan’s guests arrived or whether he had departed for a break just before they arrived. Whatever about those issues the defence of the Defendants is clear, namely, no booking was made and that was the reason that no food was available. They were refused drink because, according to Ms Greville, she had decided that there were enough customers in the pub already, and/or according to Mr Ryan he did not wish to entertain or have any argument on his premises about the assertion that he had agreed to provide food for the wedding party. Apart from anything else I find the Defendants’ defence quite inconsistent with some pre-trial correspondence that took place between the parties. As appears from a letter dated 10th July, 2001 and sent by the Plaintiff’s solicitors to the Defendant’s solicitors, Counsel for the Ryans’ had indicated during legal argument on a motion for discovery in the Circuit Court that the Plaintiffs had been refused service on the premises “on the basis that there had been trouble involving another member of their group a number of weeks earlier.” In that letter the Plaintiffs solicitors sought particulars of that particular allegation which they stated was the first time that it had been made. By letter dated the 12th July, 2001, the Solicitors for the Defendants wrote to the Plaintiffs solicitors in answer to the particulars concerning the allegation stated as follows: –
“(a) The person in question is a brother of the first named Plaintiff but the Defendants do not know his name.
(b) The incident in question happened in the evening time and as best the Defendants can recollect sometime between 10 and 11pm. The incident happened to the best of the Defendants recollection approximately 2 to 3 weeks prior to the 26th December, 1998 and accordingly would have happened sometime during the first two weeks of December, 1998.”
24. In a response to a query to give details of the alleged incident the Solicitors for the Defendant said that this was a matter of evidence and within the knowledge of the Plaintiff.
25. One matter which this letter from the Defendant’s solicitor did not contain was any denial or contest of the statement that the reason for refusing the Plaintiffs service in the premises on the occasion in question had been alleged trouble involving another member “of their group a number of weeks earlier.” In fact the whole tenor of the letter, in giving details of the allegations, was to confirm that this was the purported motivation for refusing service to the Plaintiffs. This is wholly inconsistent with the story advanced by Mr Ryan in his evidence in Court. I am not at all satisfied with the evidence of Mr Ryan. I did not find him to be a credible witness. It is quite clear that when he came on the scene, irrespective of the point in time at which this occurred, he had one thing in mind only and that was to clear Mr and Mrs Dinnegan and their friends out of his public house. Indeed this emerges from his own evidence, he did not wish Mr and Mrs Dinnegan to remain on the premises one moment longer than was necessary. He knew it was their wedding day, whatever the merits of the situation, he was going to give them no quarter, not even allow them one drink, or allow them to buy one round of drinks. I do not consider this the normal kind of behaviour that one would expect from the owner of a public house who is dealing with customers coming to his public house on their wedding day even under the apparent misapprehension that they had arranged for some food to be served. Having considered all the evidence and in particular that of Mr Ryan himself, I am satisfied that there was a premeditated and conscious decision on his part to refuse service to Mr and Mrs Dinnegan even though they had made the booking with him. I decline to speculate on what the motivation for his attitude might be. It may or may not have something to do with the alleged earlier incident, although Mr Ryan denied this. I am satisfied that I have not been told the full story behind this matter. The absence of evidence from the barman who was on the premises may be significant. I do not attach any decisive importance to the fact that Mr Dinnegan’s booking was not recorded in Mr Ryan’s book. I am satisfied that not every event or booking was recorded in that book which is primarily, although not exclusively, to record the bookings of the bands which have to be reserved one year in advance. Similarly I do not attach any importance to his statement that he really did not do wedding receptions and only had a wedding reception on one previous occasion. This particular wedding reception was of a very informal and relatively modest scale. The provision of sandwiches and cocktail sausages for twenty or at most thirty people who would buy drinks from the bar from 6.00pm to the latest 9.00pm was very much in line or indeed on a relatively reduced scale to other kinds of functions for which he took bookings such as club events, 21st birthday parties or anniversaries. In any event I accept the Plaintiffs’ evidence that they made the booking with Mr Ryan as truthful and reject his evidence to the contrary.
26. I am not convinced by the evidence by Ms Greville. She described herself as the barmaid, although quite an experienced one, who took it upon herself on the spur of the moment to refuse service to Mr and Mrs Dinnegan and their party. I find it difficult to accept that she would turn away customers, without consulting her employer whom she said was upstairs at the time. This was a family run pub and there was no evidence that she considered consulting with her employer, if she felt under pressure, as to whether he or some other member of the family would be available to help her out behind the bar counter or whether in the circumstances the barman should come back on duty. I am not convinced by her evidence on this matter. Moreover, if this was a straightforward case of refusing service because she was too busy with other customers, she could have done so openly instead of bringing, at least on her evidence, Mr Dinnegan down to a quite part of the counter in order to inform him that she would not serve him. She did say in evidence that she had on one other occasion refused a rugby team whose coach had stopped at the pub when they were busy dealing with a post-GAA match crowd. Whatever happened on that other occasion, I am satisfied that on this particular occasion the Plaintiffs were refused service by reason of a decision of Mr Ryan notwithstanding the agreement which he had with them.
27. Having regard to all the evidence and for the reasons set out above I conclude that the Defendants wrongfully, and in breach of their contract with the Plaintiffs refused to provide the Plaintiffs with any service for them and their wedding group when they arrived at the Defendants premises for their post wedding get together. I will deal with the question of damages after I have addressed the other cause of action, namely slander, relied upon by the Plaintiffs.
Slander
28. As regards the Plaintiffs action for slander, it was accepted by Counsel for the Plaintiffs and properly so, that while at common law libel is always actionable per se, slander generally speaking, is not so actionable and therefore the general rule is that a person defamed by a slander can only succeed on proof of “special damage” arising as the direct, natural and reasonable result of the publication of the words complained of. (see M’Mullan O’ Mulhall and Farrell [1929] 1I.R. 470) There are exceptions to this general rule where slander is actionable per se. However, there is no element in this case which would bring the slander within any of those particular exceptions and obviously this is why Counsel for the Plaintiffs (notwithstanding the pleadings) accepted that it was in incumbent upon the Plaintiffs to prove special damage as well as the slander in order to succeed against the Defendants.
29. While there is an arguable case that the words spoken by the Defendant to and concerning the Plaintiffs, in particular the first named Plaintiff, may have been slanderous given the circumstances and context in which they were spoken, the position in this case is that even if there was a slander it is not actionable in law unless there is proof of special damage. At this point the question to be considered is whether there is proof of any special damage. Counsel for the Plaintiff submitted that one background factor to take into account is the publicity given to the wedding in the local newspapers. This arose from the fact that some special publicity was given to the wedding in a local newspaper due to the fact that it had to take place in the dark by candlelight only on account of the blackout. This meant the wedding was fairly widely known to have taken place. The ejection of Mr Dinnegan from the pub meant that people could well ask themselves is this the sort of fellow they would wish to do business with. Therefore, he might have difficulty cashing a cheque, looking for a job or seeking work as a PVC fitter which was work which he had subsequently undertaken. The special damage did not have to be for a specific amount.
30. Apart from the fact that Mr Dinnegan was unemployed at the time of the alleged slander it was not contended, and could not have been contended, that it was spoken of him concerning his trade or profession. Furthermore, there was no evidence that he had on any occasion been adversely affected in a particular way by the conduct of third parties arising from what was said and took place in the pub.
31. Gatley on Libel and Slander (9th edition, 1998, pg. 119) sums up what constitutes special damage by reference to a range of authorities and states “special damage for this purpose is some “actual, temporal loss” – the loss of some “material” or “temporal advantage” which is “pecuniary” or “capable of being estimated in money”. So, for example, the requirement is satisfied where there is the loss or refusal of an office or employment, or the dismissal from a situation, or the loss of a client, or of a dealing.” Gatley goes on to point out that mere social ostracism or disgrace is not enough even though it’s effect on the Plaintiff may be very painful. The special damage must have accrued before action is brought. Mere apprehension or possibility of temporal loss in the future is not sufficient. (Onslow -v- Horne (3 Wils.177 at 188) cited with approval in M’Mullan -v- Mulhall and Farrell (cited above). In Michael -v- Spiers and Pond Ltd (1909 101 L.T. 352), cited by Gatley, the Plaintiff was ejected from the Defendants licensed premises by their servant who said that he was drunk. In that case it was held that a threat by the Plaintiff’s father to remove him from the Directorate of a company which he, the father, had control, unless the Plaintiff could clear his character, did not constitute special damage on the ground that a threat of temporal damage in the future was not sufficient to constitute such damage.
32. In any event in this case, there is no evidence of any actual, (or prospective) material or temporal loss on the part of the Plaintiff. In fact apart from the alleged defamatory nature of the words spoken, there was no evidence whatsoever of the effect of the alleged slander on third parties. Assuming, for present purposes, that the words were defamatory with the implication that the Plaintiff’s reputation was damaged by reference to those who became aware of the slander, this would obviously not constitute special damage as defined by the authorities. In short, the Plaintiffs have not established that they suffered any special damage arising from the slander alleged in the Civil Bill. Therefore, even if there was a slander, it is not actionable and the Plaintiffs must fail on this ground alone. It is, therefore, not necessary to enter upon the question whether in fact the words spoken by the first named Defendant were, in the circumstances, slanderous.
Damages for breach of contract
33. As regards damages I think it should first be noted that the contract was broader than the simple provision of sandwiches and cocktail sausages. This was no bread and butter business contract where the purely commercial value of the transaction is the sole or primary subject of the contract. It was a contract not only to provide food and a bar service but also to provide a place which would be an occasion for the enjoyment and celebration of the wedding day of the Plaintiffs to be shared in by their family and friends. It was a contract intended to ensure that the Plaintiffs could mark and bring to a close a momentous day in their lives in the comfort of the Downs Inn.
34. The loss sustained by the Plaintiffs arising from the breach of contract was not just disappointment at losing the advantages which might accrue from a successfully completed commercial transaction. The loss which they sustained, was the denial to the Plaintiffs of the occasion for enjoyment and happiness to be shared with their family and friends. That was the essence of the contract. For that loss they are entitled to compensation. The degree of that loss was undoubtedly exacerbated by the manner in which the contract was breached, namely, without forewarning and at the last minute when they arrived in the public house. This meant that instead of their wedding day ending on a memorable and high note, it was plunged to the depths of humiliation, shock and disappointment, which not only brought it to a distressing end but engraved a permanent blotch on the memory of what should always have been a day of good memories. Given the nature and purpose of the contract, the loss in this regard which the Plaintiff sustained was reasonably foreseeable and, moreover, flows directly from its breach. Damages are intended to be compensatory. In the circumstances of this case I am satisfied that the Plaintiffs are entitled to be compensated for the fact that they were wrongfully and in breach of contract deprived of their happy occasion to celebrate their wedding day and suffered the distress and disappointment which is inevitably a direct consequence of the breach of such a contract. The law and practice of the Courts in awarding damages for breach of this type of contract has evolved in recent decades (see for example Contract Law in Ireland, Robert Clarke, 4th edition. at 479) stimulated to a significant extent by the decision of the English Court of Appeal in Jarvis -v- Swans Tours Ltd [1973] 1 A.E.R. 71. In Johnson -v- Longleat Properties (Dublin) Ltd (unreported, High Court, 19 May, 1976 and noted in 13 Ir.Jur. 186, 1978) McMahon J. stated
“It appears to me that in principle damages may be awarded for inconvenience or loss of enjoyment when these are within the presumed contemplation of the parties as likely to result from the breach of contract. That will usually be the case in contracts to provide entertainment or enjoyment …”.
35. On the evidence, both Mr Dinnegan and Mrs Dinnegan suffered not only humiliation in front of their friends, but a great deal of personal distress that this particular day should be spoilt in such a shocking, uncaring and arbitrary manner. I accept the evidence that they were emotionally devastated, that Mrs Dinnegan was tearful for many hours afterwards and that although they had the option of seeking out some other hostelry to get together for at least a drink, they were so distressed that they really did not have the heart in them to do so. Mrs Dinnegan was so upset that she visited her father’s grave for solace. In my view they are both entitled to significant damages against the Defendants. I would not differentiate between the Plaintiffs on the question of damages and therefore I aware €6,000 damages to Mr Dinnegan the first named Plaintiff and €6,000 damages to Mrs Dinnegan the second named Plaintiff. Accordingly there will be a decree of €12,000 damages for the Plaintiffs against the Defendants.
Smart Telecom Plc trading as Smart Telecom v Radio Teilifis Eireann & Anor
[2006] IEHC 176 (26 May 2006)
JUDGMENT of Mr. Justice Kelly delivered on the 26th day of May, 2006
INTRODUCTION
Given the frequency with which the weather forecast predicts dreary wet weather, the enthusiasm of commercial enterprises to sponsor it may come as a surprise. This litigation is all about attempts to become its sponsor as broadcast by the first defendant (R.T.E) over the next two years.
BACKGROUND
The current sponsor of the weather forecast on R.T.E is Eircom. Its contract expires in June, 2006.
On 5th April, 2006, R.T.E indicated that the weather forecast was available for sponsorship at a price of €1.25 million per annum for a minimum period of two years. Four parties indicated a willingness to sponsor the forecast on those terms. Two of these are known and the others not. One was the plaintiff (Smart) and the other, the second defendant, (Glanbia).
Faced with such an embarrassment of riches R.T.E sent an email (the R.T.E offer) to the four interested parties on the morning of 7th April, 2006. As this email is of crucial importance in this litigation I will set it out in full. It reads:-
“Thank you for your expression of interest in the Sponsorship of R.T.E television weather. As a number of companies have met the asking price of €1.25 million per year for a minimum two year deal, we are obliged, in the interest of fairness and transparency, to hold a competition.
We now invite you to submit your best offer in the form of a sealed bid. You need to clearly state what price you will commit to for this contract – per annum and in total for the two year period under negotiation. It is to be understood that your best offer is a gross figure, inclusive of agency commission. The contract will be awarded to the highest bidder. In the event of more than one identical highest offer, we will enter into a second round offer with these companies only.
Bids should arrive at R.T.E before the deadline of 4.00 p.m. today, Friday April 7th, 2006 and be addressed to Robby Hill, Purchasing Manager, Stage 7, R.T.E, Donnybrook, Dublin 4. Please include the reference ‘R.T.E. Weather’ clearly on the front of the envelope, along with your company name. You will receive confirmation that your bid has been received directly from the Purchasing Manager upon receipt.
All bids will be opened at a meeting with the Purchasing Manager and a company auditor. All companies will be notified of the result by 5.00 p.m. today. In the event of a second round being necessary, this will not take place until early next week.
Thank you again for your interest in this highly sought after property. Please acknowledge receipt of this email.
Kind regards
Gerry.”
The signatory of this email was Mr. Gerry McGuinness who is R.T.E’s sponsorship manager.
SMART’S RESPONSE
Smart responded in two different ways. Both responses are short but neither are models of lucidity.
A subsidiary of Smart, called Smart Telecom Holdings Limited (Holdings) (which was not one of the four original interested parties) sent an email to R.T.E on 7th April, 2006. It was in the following terms:-
“We refer to your email of 7th April, 2006, requesting and soliciting offers in the form of a sealed bid for a two year deal in respect of sponsorship of R.T.E television weather. It is noted the contract will be awarded to the highest bidder with the result being notified by 5.00 p.m. today with no further bidding unless an identical highest offer is received.
We confirm our agreement to bid the sum of €1,5100,000 (sic) on behalf of our company.”
On the same day, Smart, through its Chief Executive, Mr. Oisin Fanning also wrote to R.T.E in the following terms:-
“We refer to your email of 7th April, 2006, requesting and soliciting offers in the form of a sealed bid for a two year deal in respect of sponsorship of R.T.E television weather. It is noted the Contract will be awarded to the highest bidder with the result being notified by 5.00 p.m. today with no further bidding unless an identical highest offer is received.
We confirm our agreement to bid a sum equal to 5% above the highest priced bid received by you by (sic) any other business for the minimum two year deal.”
GLANBIA’S RESPONSE
On 7th April, 2006, a company called OMD Ireland, on behalf of Glanbia, submitted a bid in the following terms:-
“On behalf of Glanbia Consumer Foods we wish to bid €1,595,500 per annum (gross of agency commission), minimum commitment two years, in respect of R.T.E weather, i.e €3,191,000 for the two years.”
THE 4.00 p.m. DEADLINE
All of the above responses were received prior to the deadline of 4.00 p.m. on 7th April, 2006.
During the morning of 7th April, 2006, an agent representing one of the other parties to whom the R.T.E offer had been sent, telephoned Mr. McGuiness of R.T.E. That person enquired whether a bid “where the price being offered by the bidder was a specific amount over and above the highest fixed sum bid made by another bidder” would be accepted. Although this enquirer did not use the term “referential bid” it is clear that was the subject of his enquiry. Mr. McGuiness conferred with two other officials in R.T.E and confirmed that such a bid was not permissible. An email was sent to that enquirer in the following terms:-
“Subject:Re: Weather Sponsorship
In relation to your question about ‘type’ of bid, the email requests that you clearly state what price you will commit to etc. This price must be a specific figure which is clear in isolation. Therefore it cannot be along the lines of ‘best received bid plus €1K’.
I hope that is clear.
Gerry.”
R.T.E did not inform the other bidders of this enquiry or the response thereto.
EVENTS POST 4.00 p.m.
All sealed bids which had been received were opened after 4.00 p.m. on 7th April, 2006. They included the bids from Smart and Holdings and Glanbia, to which I have already referred. There were also sealed bids from the other parties who had been invited to bid. All of the bids received were in fixed monetary amounts in Euro and specified the Euro amount bid per annum for each of the two years in question, save for the bids made by Smart and Holdings.
The bid from Holdings mentioned a sum of €1,5100,000 (sic) and did not indicate whether that was per annum or for the two year period.
Quite clearly this was not a bid which was made in accordance with the terms of the R.T.E offer. R.T.E would have been quite justified in regarding it as invalid. In ease of Holdings however it took a different course to which I will refer in a moment.
The Smart bid was considered invalid. This was consistent with the response made to the enquirer earlier in the day as to the unacceptability of referential bids.
Accordingly, Mr. Robert Hill of R.T.E telephoned the agent of Smart and stated that the referential bid was not valid and would not be considered because a clearly stated price per annum and for the two year term was required. He also sought clarification as to the figure that was in fact being offered by Holdings because on its face it was one of €15 million and did not indicate if the amount was per annum or for two years. The agent of that company, a Mr. Shanley, indicated to Mr. Hill that the figure was intended to be €1,510,000 per annum and that there was a typographical error in the relevant letter. Mr. Hill asked Mr. Shanley to email clarification of that to him. Accordingly, at 16.46 p.m. on 7th April, 2006, Mr. Shanley sent an email in which he stated as follows:-
“Bobby
Confirmation of our call earlier – Smart Telecom are bidding €1,500,100 per annum for a two year contract. Please confirm,
Regards.
Ciaran.”
It is clear that this purported correction differs from the figure mentioned in conversation with Mr. Hill and refers to Smart rather than Holdings but in the event nothing turns on that.
R.T.E regarded this bid from Holdings as the only valid bid to emanate from the Smart stable. It regarded it as a valid bid notwithstanding the fact that it was of course open to question whether Holdings was entitled to submit a bid at all given that it was not one of the four parties to which the R.T.E offer had been extended.
In any event the bid from Holdings was not the highest bid (excluding the Smart referential bid). The highest bid came from Glanbia who offered €1,595,500 per annum with a minimum commitment of two years. That bid was accepted by R.T.E at 5.00 p.m. on 7th April, 2006.
EVENTS POST 5.00 p.m.
At 17.36 on 7th April, 2006, an email was sent to R.T.E by Mr. Fanning, the Chief Executive of Smart.
It read:-
“Dear Sirs
“We are the highest the (sic) bidder and unless we have an assurance that the contract will be awarded to us, we will be instructing our solicitors to issue specific performance proceedings to enforce the contract.”
That email was responded to later in the evening by R.T.E in the following terms:-
“As you will be aware, the bidding process for this sponsorship required bids to clearly state the price the bidder was offering.
The referential bid submitted by Smart Telecom did not satisfy that requirement and was not a valid bid. In addition, a fixed price bid submitted by Smart Telecom (sic) was not the highest bid.
The party that did submit the highest valid bid has been informed that its offer has been accepted.”
The contract was awarded to Glanbia. That was publicly announced by R.T.E on 27th April, 2006. These proceedings were instituted the next day.
THE RELIEFS CLAIMED
The principal relief claimed by Smart is an order for specific performance of the contract allegedly entered into by it with R.T.E. As an alternative, damages in lieu of specific performance are claimed. In addition an injunction is sought restraining R.T.E from taking any steps to award a contract for the sponsorship of the R.T.E weather forecast to Glanbia.
Smart also seeks a declaration that R.T.E was in breach of contract in failing to inform it that a referential bid would be invalid. A further declaration is sought to the effect that the conduct of the tendering process by R.T.E was rendered invalid and void because one bidder was told that referential bids were invalid whilst Smart was not.
THE ISSUES
The parties agreed that the following issues arise for decision.
1. Was the referential bid (dated 7th April, 2006) submitted by Smart a valid bid in response to the R.T.E offer?
2. Is R.T.E obliged on foot of Smart’s said bid to award the sponsorship contract for R.T.E’s television weather service for two years from June 2006 to Smart?
3. If the referential bid was not valid and/or R.T.E is not obliged to award the sponsorship contract to Smart, is R.T.E obliged to re-tender the contract by reason of its failure to inform Smart that referential bids would not be acceptable in circumstances where R.T.E had informed another tenderer of that position?
4. Is Smart entitled to a declaration that R.T.E acted in breach of contract in failing to inform Smart that referential bids would not be acceptable in circumstances where it had informed another tenderer of that position?
I will answer these questions in turn.
QUESTION NUMBER 1
In law, an invitation extended by an invitor to prospective contractors seeking tenders from them is normally regarded as an invitation to treat. A response to such an invitation constitutes an offer which the invitor is free to accept or reject.
If, however, in extending the invitation the invitor states that the contract will be awarded to the highest bidder the position at law is different and contractual rights may flow from such an invitation.
All parties to this litigation accept, and in my view correctly, that the R.T.E offer was not an invitation to treat. Rather it was an offer which could ripen into an enforceable contract in favour of the highest bidder who accepted it in accordance with its terms.
Both Smart and Glanbia contend that they are the parties which respectively made the highest bid in accordance with the terms of the R.T.E offer.
In order to decide which contention is correct it is necessary to see whether the R.T.E offer permitted the making of a referential bid. If it did, then clearly the Smart offer exceeds the Glanbia offer by €159,550 (being 5% in excess of the €3,191,000 offered by Glanbia).
REFERENTIAL BID
It is quite clear that nowhere in the R.T.E offer are referential bids expressly prohibited.
Such being the case, I must construe the R.T.E offer so as to ascertain whether its provisions, read as a whole, permit of the making of referential bids. In attempting to ascertain the intention of R.T.E I must do so by reference to the language used by it.
I will carry out this exercise without reference to any of the authorities cited. They are of little value in attempting to ascertain the true intention of R.T.E. That must be done by a consideration of the words used by it in the R.T.E offer. Nonetheless, I will in due course consider relevant authorities insofar as they may have a bearing on the issue.
The following elements of the R.T.E offer appear to me to be relevant.
1. The offer was made to a limited number of interested parties. Those parties were selected because they had each indicated a willingness to pay €1.25 million per year for the sponsorship.
2. The R.T.E offer was made in the interest of fairness and transparency and was described as a competition.
3. Each party was invited to submit its best offer.
4. The offer was to be in the form of a sealed bid which was to be opened at a specific time and in the presence of inter alia an R.T.E auditor.
5. The price was expressly required to be stated both as to its totality and per annum. Specific directions were given as to the way in which the best offer was to be quoted, namely as a gross figure inclusive of agency commission.
6. R.T.E undertook to award the sponsorship to the highest bidder. This is a matter of crucial importance and is of course the principal element of the R.T.E offer which translated it from being an invitation to treat into an offer with contractual consequences if properly accepted.
7. The offer anticipated more than “one identical highest offer” in which case R.T.E undertook to “enter into a second round offer with these companies only”.
It is clear that a number of consequences flow from the above. First, R.T.E sought to extract the best price which each bidder was prepared to pay for the sponsorship. They were expressly asked to submit their “best offer”. It is impossible to know whether a referential bid is the best offer which a bidder is prepared to make.
Secondly, each bidder was asked to clearly state what price it would commit to per annum and in total for the two year period. Not merely that, but the best offer was to be a gross figure inclusive of agency commission. This suggests to me that R.T.E wished to have actual figures quoted. This is entirely consistent with the idea that each bidder should make its best offer.
Thirdly, the R.T.E offer was addressed solely to the four interested parties and envisaged that the bidding was to be on a confidential basis. Each bid had to be sealed. All of the bids were to be opened together in the presence of both the purchasing manager of R.T.E and an R.T.E auditor. All of the offers would therefore remain confidential until all of them were opened together at that meeting.
Fourthly, R.T.E committed itself to accept the highest bid received.
Fifthly, the R.T.E offer envisaged the possibility of more than one “identical highest offer”. In such event a second round offer was to be made. The reference to “identical highest offer” in my view excludes referential bids, because, by their nature, they will always be higher than the highest price bid.
Finally, the R.T.E offer was made “in the interest of fairness and transparency”. Only Smart ever had the opportunity to acquire the sponsorship with its referential bid. None of the other bidders had any prospect of securing the contract. Their bids would be used solely for the purposes of determining the price which Smart had to pay. In addition, Smart through its subsidiary, Holdings, took the precaution of making a fixed bid thereby diminishing, if not obliterating, any risk which it would have.
All of these factors appear to me to indicate that it was never the intention of R.T.E that referential bids would be permissible. The terms which I have identified are inconsistent with the making of a referential bid.
The matter can also be tested by reference to the following. It is clear that R.T.E were engaged in a serious business enterprise and wanted to obtain the best price for their product. They decided to go through a process which would produce that in a fair way and within a limited period of time.
It is not to be inferred that they wished to engage in a process which would not give such a result or, worse, would produce absurdities. If the R.T.E offer permitted the making of referential bids, the ability to produce a good commercial result was diminished and the possibility of absurdities abounded.
What, for example, would have been the result had all of the bidders made referential bids? The whole process would have been rendered nugatory. What if more than one had made referential bids? Confusion would ensue. These considerations further militate against the notion that referential bids were permissible.
In these circumstances I am of opinion that the terms of the R.T.E offer, when properly construed, did not permit of the making of a referential bid.
I now turn to a consideration of the relevant authorities with a view to testing whether my approach to the matter has been correct or not.
In my view the authority which comes closest to the facts of this case is the decision of the House of Lords in Harvela Limited v. Royal Trust Company [1986] AC 207.
THE HARVELA CASE
In this case Royal Trust invited Harvela and Sir Leonard Outerbridge to submit offers by sealed tenders by a specified deadline to a named party who undertook not to disclose the sealed tenders before the deadline. The tenders were to be a single offer for all the shares of a company that were held by Royal Trust and were for sale. Royal Trust bound itself to accept the highest offer that complied with the terms of the invitation. Before the invitation expired, Harvela and Sir Leonard made the offers which resulted in the litigation. Harvela offered US$2,175,000. Sir Leonard offered US$2,100,000 “or US$101,000 in excess of any other offer which Royal Trust may receive which is expressed as a fixed monetary amount, whichever is the higher”. Royal Trust purported to accept Sir Leonard’s offer. Harvela challenged that decision. The case went to the House of Lords where the principal speech was that of Lord Templeman.
His Lordship analysed the difference between a sale by auction and a sale by fixed bidding. He said:-
“Where a vendor undertakes to sell to the highest bidder, the vendor may conduct the sale by auction or by fixed bidding. In an auction sale each bidder may adjust his bid by reference to rival bids. In an auction sale the purchaser pays more than any other bidder is prepared to pay in order to secure the property. The purchaser does not necessarily pay as much as the purchaser was prepared to pay to secure the property. In an auction a purchaser who is prepared to pay US$2.5 million to secure a property will be able to purchase for US$2.2 million if no other bidder is prepared to offer as much as €2.2 million.
In a fixed bidding sale, a bidder may not adjust his bid. Each bidder specifies a fixed amount which he hopes will be sufficient, but not more than sufficient, to exceed any other bid. The purchaser in a fixed bidding sale does not necessarily pay as much as the purchaser was prepared to pay to secure the property. But any bidder who specifies less than his best price knowingly takes a risk of being outbid. In a fixed bidding sale a purchaser who is prepared to pay $2.5 million to secure the property may be able to purchase for $2.2 million if the purchaser offers $2.2 million and no other bidder offers as much as $2.2 million. But if a bidder prepared to pay $2.5 million only offers $2.2 million he will run the risk of losing the property and will be mortified to lose the property if another bidder offers $2.3 million. Where there are two bidders with ample resources, each determined to secure the property and to prevent the other bidder from acquiring the property, the stronger will prevail in the fixed bidding sale and may pay more than in an auction which is decided, not by the strength of the stronger, but by the weakness of the weaker of the two bidders. On the other hand, an open auction provides the stimulus of perceived bidding and compels each bidder, except the purchaser, to bid up to his maximum.
Thus auction sales and fixed bidding sales are liable to affect vendors and purchasers in different ways and to produce different results. The first question raised by this appeal, therefore, is whether Harvela and Sir Leonard were invited to participate in a fixed bidding sale, which only invited fixed bids, or were invited to participate in an auction sale, which enabled the bid of each bidder to be adjusted by reference to the other bid. A vendor chooses between a fixed bidding sale and an auction sale. A bidder can only choose to participate in the sale or to abstain from the sale. The ascertainment of the choice of the vendors in the present case between a fixed bidding sale and an auction sale by means of referential bids depends on the presumed intention of the vendors. That presumed intention must be deduced from the terms of the invitation read as a whole.”
The exercise prescribed in the latter part of this quotation is precisely the one which I have conducted. I have sought to deduce R.T.E’s intention from the terms of the R.T.E offer read as a whole.
Lord Templeman went on to identify three provisions which he said were only consistent with the presumed intention to create a fixed bidding sale and which were inconsistent with any presumed intention to create an auction sale by means of referential bids. He said:-
“By the first significant provision, the vendors undertook to accept the highest offer; this shows that the vendors were anxious to ensure that a sale should result from the invitation. By the second provision, the vendors extended the same invitation to Harvela and Sir Leonard: this shows that the vendors were desirous that each of them, Harvela and Sir Leonard, and nobody else should be given an equal opportunity to purchase the shares. By the third provision, the vendors insisted that offers must be confidential and must remain confidential until the time specified by the vendors for the submission of offers had elapsed; this shows that the vendors were desirous of provoking from Sir Leonard an offer of the best price he was prepared to pay in ignorance of the bid made by Harvela and equally provoking from Harvela the best price they were prepared to pay in ignorance of the bid made by Sir Leonard.”
All of these elements have been identified by me as being present in the R.T.E offer. They point inexorably to the conclusion which I reached and which is fully supported by the same conclusion reached by Lord Templeman in the Harvela case.
Later in his speech Lord Templeman identified four consequences which might arise if referential bids had been permitted in the Harvela case. They are identified at pages 231 and 232 of his speech. They can be summarised as follows:-
(a) If referential bids were permissible there was a danger, far from negligible, that the sale might be aborted. The shares could only be sold if at least one bidder submitted a fixed bid and the other bidder based his referential offer on that fixed bid.
(b) If referential bids were permissible, there was a possibility that one bidder would never have an opportunity to buy.
(c) The vendors object of provoking the best price that Harvela and Sir Leonard were each prepared to offer in ignorance of the rival bid was frustrated.
(d) He said “if referential bids were permissible by implication, without express provision in the invitation for that purpose, and without any indication in the invitation of the nature of the referential bids which would be acceptable, the results could have been bizarre”.
He then gave an example of such bizarre results. It is not necessary to set it out here in detail save to comment that his Lordship was dealing with a two bidder process. The results would be even more complicated and potentially more bizarre in the case of a four bid contest, as in the instant case.
These four consequences are similar, if not identical, to the ones which I have identified as ones which might occur if the R.T.E offer were construed as permitting referential bids.
It appears to me that the conclusions which I have reached concerning the inappropriateness of referential bids in the context of the R.T.E offer are supported by the unanimous views of the House of Lords in the Harvela case.
In explaining his conclusions Lord Templeman followed a number of other decisions which are worthy of mention. The first was South Hetton Coal Co. v. Haswell Shotton and Easington Coal and Coke Co. [1898] 1 Ch. 465. In that case, the owner of a coalmine proposed to receive sealed tenders from two parties who were competing to purchase. The vendor undertook to accept the highest “net money tender”. One of the competitors purported to offer “such a sum as will exceed by £200 the amount…offered… by the other proposing purchaser”. That approach was rejected by the Court of Appeal. Lindley M.R. said:-
“Does the offer fairly answer the description of what the liquidator had bound himself to accept – in other words does it answer the description of being ‘highest net money tender I receive’? It appears to me obviously not. Whether it was a tender at all depended…not upon the construction of that letter, but upon whether other people tendered. That is not what the liquidator wanted, and that is not what he bound himself to accept.”
Lord Templeman said of this decision that it was “decided by a powerful court, has stood unchallenged for over 80 years and was binding on the Court of Appeal in the present case”.
He also cited with approval a decision of the New York Court of Appeals in SSI Investors Limited v. Korea Tungsten Mining Co. Limited [1982] 449 N.Y.S 2d173. He said as follows:-
“The majority judgment at pages 174-175, succinctly and cogently summarised the reasons for rejecting referential bids as follows:-
‘The very essence of sealed competitive bidding is the submission of independent, self contained bids, to the fair compliance with which, not only the owner, but the other bidders are entitled…To give effect to this or any similar bidding practice in which the dollar amount of one bid was tied to the bid or bids of another or others in the same bidding would be to recognise means whereby effective sealed competitive bidding could be wholly frustrated. In the context of such bidding, therefore, a submission by one bidder of a bid dependant for its definition on the bids of others is invalid and unacceptable as inconsistent with and potentially destructive of the very bidding in which it is submitted’.”
In my view those considerations are equally applicable in the present case.
CONCLUSIONS ON QUESTION 1
I hold that on the true construction of the R.T.E offer the making of a referential bid was impermissible. That finding is supported by reference to the wording of the offer itself and by high judicial authority from England and Wales and from New York. I find those authorities persuasive and in my view they are supportive of the conclusion which I have reached.
Furthermore, I am of the view that there is much to be said for the opinion of Lord Templeman to the effect that where referential bids are sought there ought to be an express provision in the invitation permitting such bids to be made. Patent unfairness results unless that is done. Such unfairness would be inconsistent with the object which was sought to be achieved in the R.T.E offer.
The first question is therefore answered in the negative. The referential bid submitted by Smart was not a valid bid in response to the R.T.E offer.
QUESTION NUMBER 2
In the light of the answer to the first question, this question is also answered in the negative. R.T.E is not obliged to award the sponsorship contract to Smart.
QUESTIONS 3 AND 4
I propose to deal with both of these questions together. It is important to bear in mind the response which was made to the query from the third party bidder. It read:-
“In relation to your question about ‘type’ of bid, the email requests that you clearly state what price you will commit to etc. This price must be a specific figure which is clear in isolation. Therefore it cannot be along the lines of ‘best received bid plus €1K’.
I hope that is clear.”
That email did no more than indicate what the true position was to the enquirer. It was a response to a question which did not alter in any way the R.T.E offer. Indeed it specifically referred back to the R.T.E offer.
As this response was no more than a reiteration of the existing terms, I can see no basis upon which it was necessary to communicate the same information to all of the other bidders.
If, in response to the query, R.T.E had introduced an alteration to the terms of the R.T.E offer, different considerations would apply. However what was communicated was nothing more than a reiteration of the existing terms. There was, in those circumstances, no obligation to communicate to any of the other bidders. R.T.E should not be obliged to re-tender the contract.
There was no breach of contract (or indeed of any other obligation which might have been owed to Smart by R.T.E) in failing to notify it and other tenderers of the enquiry and the response to it. Accordingly, there will not be any declaration in favour of Smart in this regard.
As a postscript I would like to add that there was nothing unfair or inequitable in the way in which R.T.E dealt with Smart and Holdings. For example it could have rejected Holdings bid on a number of bases.
First, the R.T.E offer had never been extended to it. Secondly, the figure cited was, in the way in which it was set out, entirely unclear. Thirdly, it did not comply with the terms of the R.T.E offer in that it did not specify the price per annum and in total for the two year period under negotiation as was required. Instead of taking this perhaps technical, but entirely legitimate, attitude R.T.E overlooked these lacunae and afforded Holdings an opportunity to clarify its position. It then considered its bid.
R.T.E is not obliged to re-tender the contract. Neither is Smart entitled to a declaration that R.T.E acted in breach of contract. There was no breach. Questions 3 and 4 will therefore be answered in the negative.
CONCLUSION
Having regard to the answers given to the foregoing questions this action is dismissed.
Tolan -v- Connacht Gold Co-operative Society Ltd
2016] IECA 131 (05 May 2016)
JUDGMENT OF MR JUSTICE MICHAEL PEART DELIVERED ON THE 5TH DAY OF MAY 2016
1. Mr. Tolan was at all material times a cattle dealer. He bought cattle at marts in Co. Mayo on several days each week and sold them immediately into Dawn Meats with whom he had what I will, in a neutral way, refer to as a long-standing “arrangement” to buy them. There is some controversy between the parties as to whether Mr. Tolan had a contract as such with Dawn Meats, but that question does not touch upon the issue arising on this appeal which essentially is whether a document prepared and signed at the end of a meeting which took place on 16th July 2012 between Mr. Tolan and representatives of Connaught Gold, constitutes a binding contract as contended by the plaintiff, or is merely an agreed note or memorandum of what was discussed at the meeting as contended by the defendant. Mr. Tolan maintains that it was a binding agreement as to the credit terms on which he could buy cattle at the defendant’s mart, that he complied with the pre-conditions upon him, but that at a meeting on 9th August 2012 the defendant company breached the agreement by withdrawing the credit period, thereby putting him out of business since without credit he was unable to buy cattle at the marts. In these proceedings he claims substantial damages for breach of contract.
2. Some idea of the scale of the cattle dealing enterprise engaged in by Mr. Tolan by mid-June 2012 can be gained from the fact that in the seven months preceding June 2012 he had bought cattle to the value of about €3,000,000 at the defendant’s marts. Indeed, there was evidence before the High Court that such was his importance to the business being done at marts in this area that farmers would contact Mr. Tolan in advance of mart dates to find out whether he would be attending the mart, as he was known to pay a good price for cattle they might wish to sell. He was also contacted by mart managers to find out if he would be attending. He was clearly an important player in the cattle business in the area, was well respected, and known to meet his financial obligations to the marts, even though the amounts that he might owe to a mart on any particular date would be large by any standards. That is simply a reflection of the quantity of cattle he would have bought in the previous three weeks, and not of any delay on his part in settlement of his account in accordance with credit terms understood between him and the defendant. Prior to the events giving rise to these proceedings he had by agreement three weeks credit on any cattle purchased by him at the marts.
3. Oral evidence was heard in the High Court over four days, and at the conclusion of the hearing Kearns P. in an ex tempore ruling found against Mr. Tolan and dismissed his claim for damages. It is against that dismissal that Mr. Tolan now appeals to this Court.
4. Before considering the basis upon which the President ruled against the plaintiff, I need to set forth some further detail in relation to the course of dealings between parties, and of certain meetings which took place in June, July and August 2012. These meetings were for the purpose of addressing concerns that the defendant had about the level of its exposure at any particular time which resulted not just from the three weeks’ credit that the plaintiff enjoyed, but because of the gradual increase in the numbers of cattle being bought by the plaintiff, thereby increasing the level of its exposure should the plaintiff for any reason not be in a position to continue in business. There was always three weeks’ cattle purchases unpaid for any particular date under the then arrangements. The defendant wanted to reduce that exposure.
5. Mr. Tolan had been dealing in cattle in this area for twelve to fifteen years prior to these events. During these years there was no written agreement in relation to credit terms, but business was done on the basis of three weeks’ credit. What it meant in practical terms was that if he purchased, say, 100 cattle at the mart on a Saturday, he was required on the following Saturday to give the mart a cheque for the amount of that purchase. That cheque would in turn not be presented for payment for a further week. In this way he had the benefit of three weeks’ credit which gave him sufficient time to sell the cattle into Dawn Meats, and get paid for them. That in turn would enable the cheque to be met. That modus operandi appears to have worked well and to have been mutually beneficial over a long period. Clearly it was an arrangement that depended upon trust, and there has been no suggestion that at any time prior to June 2012 this necessary ingredient in the relationship was missing.
6. By June 2012, however, there were some concerns. Mr. Tolan was called to a meeting where it was explained to him that the marts were worried about their level of exposure given the amount of animals being bought by Mr. Tolan. He was told that there would have to be some limit agreed both as to the numbers of animals being bought, and a reduction of the period of credit to two weeks instead of three. The explanation given to him at the time was that new regulations had come into force which had to be complied with by the marts. According to some of the evidence given, Mr Tolan immediately became very agitated at the suggestion of any limit to the numbers of animals he could buy, and threatened to walk out of the meeting. However, he eventually agreed to the reduced credit period, but requested that he be allowed a few weeks before the new terms would operate, so that he could arrange an overdraft facility to be put in place to replace the loss of one week’s credit. That breathing space was agreed to, and a further meeting was arranged for 16th July 2012 to review the position.
7. Mr. Tolan immediately approached his bank and by 4th July 2012 he had received confirmation from his bank that subject to him fulfilling some usual conditions, such as arranging a life policy as part of the security for the facility, an overdraft of €200,000 would be put in place.
8. On 16th July 2012 that further meeting took place at which Mr. Tolan produced a letter of offer from his bank for an overdraft facility in the amount of €200,000. He explained to them that some conditions had yet to be satisfied but none that caused him any difficulty. There was general discussion about the new credit terms. He was informed that if he did not have his overdraft in place by 10th August 2012 he would not be able to buy at the mart. At the end of that meeting he was asked to sign a document, which he did, and the three representatives of the defendant who were present at the meeting signed also. Mr. Tolan says this document contains the new agreed credit terms which, he says, were to remain in place at least until the end of that year, and with a possible review for future years, though the document is silent in this regard.
9. The text of the document signed on 16th July 2012 is in the following terms:
“By the 10th Aug Finbar Tolan will have his overdraft in place to allow cheque to lodg [sic] on the Saturday for the previous Saturday week’s purchase
During Galway race week cheques will be lodged in the current way with no gap in holding cheques
Ballinrobe cheques will continue to lodg [sic] in same way as in the past
Finbar agrees that the above is acceptable and has to be in place by the 10/8/2012 or all offers are off the table.
The only stock purchased will be dry cows and bulls and if any other stock purchased will be paid for on day.
Signed
[by various persons including Martin Walsh, Tom Jordan and Finbar Tolan]
16th – 7th – 2012.”
10. The defendant says that this document was never intended to be a contract, and is simply a note or memorandum of what was discussed at the meeting on 16th July 2012 and that it could be revisited/revised at any time. Both Mr. Walsh and Mr. Jordan, who gave evidence for the defendant, stated that it was agreed that a further meeting would take place on 12th August 2012, even though this is not mentioned anywhere in the document. Mr. Tolan disagrees that any such further meeting was agreed, and says that in fact there was no need for a further meeting since they had reached agreement in relation to the reduced credit terms, and all that remained was for him to have his overdraft in place by 10th August 2012, so that he could continue to buy at the mart as usual. His bank statement was produced at the trial showing that on 25th July 2012 the sum of €200,000 was credited by his bank to his account, indicating that by that date his overdraft was in place and, therefore, that all pre-conditions had been fulfilled by him by that date.
11. What happened between 16th July 2012 and 9th August 2012 is a matter of controversy between the parties, the latter date being the date on which Mr. Tolan contends the defendant reneged on the agreement reached and signed up to on 16th July 2012. He was informed at the meeting on 9th August 2012 that all credit was being withdrawn and that he was no longer permitted to purchase cattle at the defendant’s marts as before. In other words, insofar as he might wish to purchase cattle at the marts in the future he would have pay for them that same day – something which Mr. Tolan says was tantamount to being told he could not buy, since credit was the only basis on which he had traded and could ever trade, and therefore he was put out of business altogether. It is clear that because of the credit terms on which he was buying cattle, it was necessary for him to keep buying and selling in order to keep the business afloat. If he stopped trading on a particular day for any reason, the cheques given for the previous two or three weeks would not be met. That was the exposure that was of concern to the defendant in the summer of 2012 and which it was trying to address by agreement if possible in relation to both a reduced credit period and a reduction in the number of cattle the plaintiff would buy.
12. The defendant says that nothing was finally agreed on 16th July 2012, and that it was entitled to decide as it did on 9th August 2012. They say also that it was always the case that a further meeting would take place on 10th August 2012 before anything was cast in stone. Mr Tolan refutes this completely. There was evidence given by each side before Kearns P. and he concluded that the document signed by the parties on 16th July 2012 was not a legally binding contract, and he dismissed the plaintiff’s claim for damages for breach of contract. I will continue with the narrative of events subsequent to the meeting of 16th July 2012 as they form the contextual background against which the issues on this appeal must be considered.
13. As I have said, Mr Tolan says that no further meeting was envisaged to take place after he signed the agreement on 16th July 2012 and that all that remained was for him to make sure that by 12th August 2012 he had his overdraft in place so that he could meet the reduced credit terms agreed. The evidence was that his life insurance policy was in place by 18th July 2012 and the overdraft was in place by 25th July 2012. He refers to the fact that the document signed on 16th July 2012 makes no reference to any further meeting to take place on 10th August 2012, and he makes the point also that even if the defendant is correct that this document was simply a note or memorandum of what was discussed at the meeting, and that its purpose was to avoid any confusion or doubt arising as to what was discussed, it is surprising that it makes no mention of such a further meeting, if one was agreed to take place.
14. As to how Mr. Tolan came to attend a meeting on 9th August 2012 in circumstances where he says that no such meeting was contemplated on 16th July 2012, he stated in his evidence to the High Court that he happened to meet Martin Walsh by chance in Castlebar on 3rd August 2012 and that he told him that he had the overdraft in place. His recollection is that Mr. Walsh did not seem very happy with that information, and that it was then that Mr. Walsh said that there would have to be another meeting which was then arranged for 9th August 2012. He says that he was not told what the purpose of that meeting was, and did not know its purpose. He went to the meeting nevertheless.
15. Mr. Tolan’s evidence was that when he got to the meeting he found that not only were the mart managers, Mr. Walsh, Mr. Murphy and Mr. Jordan, there but also Aaron Forde, the CEO of the defendant, whom he had never met before. He says that after the usual introductory pleasantries were over he was waiting to find out why this meeting had been arranged. He says that Mr. Murphy again mentioned that new regulations had been introduced for marts. He was surprised at this being mentioned again since that had been discussed at the meeting in June and again on 16th July 2012 when the document of that date was signed. It appears from Mr. Tolan’s evidence that Mr Forde, the CEO, had not been made aware of that signed document or indeed the previous meetings. Mr. Walsh was able to produce a copy of the document for Mr. Forde, and it was read out by Mr. Walsh. According to Mr. Tolan, Mr. Walsh stopped reading the document at some point and said that it could be all changed at any time. Mr. Tolan says that he interjected and asked where in the document did it state that, to which Mr. Walsh said that it was not written into the document but that it had been agreed on 16th July 2012. Mr. Tolan denied that, and indeed, according to him at least, if it had been included in the document he would not have signed it. It appears that Mr. Forde left the meeting quite quickly as he had to be elsewhere. Thereafter, there was some acrimonious conversation, and according to Mr. Tolan, it was made clear to him by Mr. Walsh that he was getting no credit terms whatsoever and that he was not permitted to bid for cattle at the defendant’s marts, including on 11th August 2012 at Balla mart which Mr. Tolan had been planning to attend.
16. Mr. Walsh’s evidence as to what transpired at the meeting of 9th August 2012 was somewhat different, and I will come to that. He was the general manager and head of communications of the defendant, and had been working with the company for some 40 years. He stated that the meetings in June and July 2012 had been preceded by a meeting with Mr. Tolan the previous year in August 2011. He said that the August 2011 meeting had arisen because, firstly, Mr. Tolan had countermanded a cheque in the sum of €119,000, and this had caused them to be concerned about their level of exposure given the level of business being done by Mr, Tolan at that time. They were also aware of the need to alter credit arrangements as a result of the introduction of S.I. 199/2011 – Property Services (Regulation) Act 2011 (Client Monies) Regulations 2012 which it was believed imposed obligations upon the mart to ensure when they paid the farmers for their animals, that the money was in their account from the purchaser. This meant that they had to alter credit period arrangements such as those enjoyed historically by Mr. Tolan. Hence they needed to bring him back to two weeks’ credit instead of the three he enjoyed up to that. Those Regulations were not opened to the Court but were referred to in evidence and submissions. Mr. Walsh’s evidence was that following the introduction of those Regulations there was a need to bring in better controls in relation to getting paid for animals sold at the marts, and paying monies out to the farmers whose animals were sold. Put simply, he understood that on whatever day the farmer was given a cheque, the mart had to be in funds from the buyer of the animals concerned.
17. Mr. Walsh stated that the document signed on 16th July 2012 does not contain a note of everything that was discussed at that meeting “particularly credit and credit limits” (Day 3, page 12/13). He went on to say “… and the only reason they’re not on that note is the fact that Mr Tolan would not agree to any limits”. This is a reference to limits on the numbers of animals that Mr. Tolan might buy on any particular day, which is a separate matter to the period of credit he would be allowed. The mart had apparently become concerned at the quantity of animals he was buying over the previous months, and wanted to discuss some limit on numbers as well as the curtailment of the credit period, so that its exposure at any particular time would be reduced. However, according to Mr. Walsh’s evidence, Mr. Tolan refused point blank to discuss limits on numbers. Nevertheless by 10th August 2012 the level of exposure had been successfully reduced from about €400,000 to €154,000, but there are seasonal explanations for that too.
18. Mr. Walsh stated that as far as he was concerned what is noted as having been agreed in the notes of the meeting on 16th July 2012 was to cover only the period from that date until the parties would meet again on the 10th August 2012, and that on that date there would be further discussions as to what the position would be going forward. He also was clear that the purpose of the signed document was to ensure that there would be no confusion as to what had happened at the meeting. He also said that if he was entering into a legally binding agreement, he would have got their solicitor to prepare an agreement. He was asked in cross-examination why, if they were simply agreed notes, they were not headed as such, to which he responded that he had done his best in the circumstances, and that he was simply a mart manager. He went on to state “I have indicated that the key items that I want to achieve are not in the notes because I had no choice because the man would not remain in the room if I put them on that” (Day 3, page 33). It was put to him that it was in fact an agreement reached between them and Mr Tolan on that date to which he replied:
“It was not an agreement. It was notes pertaining to a discussion that took place that day and we had a number of other items that we discussed, like credit terms, that were unacceptable to be put on the notes.” (Day 3, page 34)
19. It was put to Mr. Walsh that there was no reference in the notes to any follow up meeting on 10th August 2012 at which any further discussion would take place for the future. He replied: “Because anything else other than what I have there I had difficulty in getting Mr. Tolan to agree to. And we wouldn’t have got this signed for the bit we got” (Day 3, page 36). I take that to mean that they were glad to at least get his agreement to a reduction to two weeks’ credit, and to get that noted, and that other matters still in controversy, such as some agreed limit of the numbers of animals he would buy on any particular day would have to await the further meeting which he says was fixed for 10th August 2012. Nevertheless that is not contained in the document, and Mr.Tolansays that there was never any mention of any further meeting until he met Mr. Walsh accidentally on 3rd August 2012 in Castlebar as already mentioned.
20. Mr. Walsh also gave his version of the accidental meeting with Mr. Tolan on 3rd August 2012 in Castlebar. He agrees that he had a conversation with Mr. Tolan, but disagrees that Mr. Tolan told him that his overdraft was in place as of 25th July 2012. He said that there was just small talk, and that he was glad of that because if there was to be any serious discussion he would want to have witnesses present. He also stated that he was unsure when Mr. Tolan was told that there was to be a meeting on the 9th August. He knew that there was a meeting arranged for 10th August in any event. He was asked how it came to be changed to 9th August and when that was done, and he explained that his daughter was emigrating on 10th August, and that Mr. Tolan had agreed to change the date to 9th August. That must have been in a subsequent conversation because Mr. Walsh confirmed that this had not taken place at the meeting in Castlebar on 3rd August.
21. As for the meeting on 9th August 2012, Mr. Walsh stated that after the usual pleasantries, he told Mr. Tolan that there were three issues that needed to be discussed:
(1) limits on numbers of animals being purchased,
(2) the credit period, and
(3) the fact that Mr Tolan had countermanded a cheque for €131,000 since the previous meeting.
22. I should add that Mr. Tolan explained that countermanding on the basis that he had drawn the cheque on the wrong account and had immediately replaced it, and there was no loss to the mart on that account. Nevertheless, it was a worry to Mr. Walsh that it had happened at all, and gave rise to concerns about the level of exposure at any particular time. He went on to say that the meeting lasted only a short time because Mr. Tolan got up and walked out of the meeting at the mention of a limit being placed on the number of cattle he could buy. He was asked whether at this meeting he had requested sight of any documents to show that the overdraft was in place. He replied that he did not get the chance to ask that, because Mr. Tolan had walked out abruptly, and he had seen no evidence that the overdraft was actually in place.
23. Mr. Walsh denied ever having told Mr. Tolan that he was barred from attending the mart at Balla on 12th August 2012, or any other mart, and clarified that what he had said was that he was welcome to attend any mart he liked provided that he paid on the day for any animals that he bought. It will be recalled that Mr. Tolan stated that if he was being given no credit (in breach as he sees it of the agreement signed on 16th July 2012) it was, in effect, putting him out of business and preventing him from buying. Mr. Tolan has stated that he walked out of that meeting when he realised that they were reneging on the agreement that he would have 2 weeks’ credit provided that he had his overdraft in place by 10th August 2012.
24. Mr. Tom Jordan gave evidence also. He was at the time a manager at the Ballymote mart which had dealings with Mr Tolan. He attended the meetings that took place on 18th June 2012, 16th July 2012, and 9th August 2012. He confirmed that the concern was to reduce the level of the marts’ exposure in relation to Mr. Tolan’s dealings, and that they wanted to limit the number of animals he would purchase, and also rein in the credit terms to two weeks, and address the question of countermanding cheques. Without going into his evidence in detail, he stated that the very mentioning of any limits being imposed on the number of animals he could buy was something which made Mr. Tolan very angry and caused him to rise up and threaten to leave the meetings. It was a topic on which no discussion was possible as far as Mr. Tolan was concerned. He wanted to be able to come to the marts and buy as many animals as he wished. Mr. Jordan’s evidence was, like Mr. Walsh, that on 16th July 2012 it was agreed that there would be another meeting on 10th August 2012 at which evidence of the overdraft being in place would be produced by Mr. Tolan.He agreed that at 16th July 2012 meeting, Mr. Tolan had produced a letter of offer from his bank, but that there were things that had to be put in place, and that he was given until 10th August 2012 to get his paperwork in order. He also believes that the contents of the notes signed on 16th July 2012 were only matters agreed for the period between 16th July 2012 and the next meeting to take place on 10th August 2012, and that if he had his overdraft in place by that date, they would discuss what was to happen thereafter. But he is clear that the notes were not intended to be a legal agreement as such, but rather something to make sure there was no confusion about what was discussed.
25. Mr. Jordan was able to give evidence of his recollection of the meeting which took place on 9th August 2012. He said that by that date another cheque had been countermanded. It had been in the sum of €131,000. It was replaced and no problem remained in that regard, but it was still something that was of concern especially at that quiet time of the year. He remembered that after pleasantries had been exchanged, and Mr. Walsh had outlined the three issues that needed to be discussed, the topic of limits to numbers of animals came up, and that the moment it was raised Mr. Tolan got up immediately, went over to the door and started shouting that he would be attending the mart at Balla that Saturday, and that as far as he was concerned he had signed an agreement on 16th July 2012 and he was sticking to that. He then left the meeting. Mr. Jordan stated that they never got the chance to find out if the overdraft was actually in place as Mr. Tolan simply left the meeting abruptly. He believes that if Mr. Tolan had conducted himself differently at this meeting something could have been sorted out but that Mr. Tolan gave them no opportunity to do that.
26. Mr .Jordan was asked in cross-examination if, at this meeting on 9th August 2012, Mr Tolan was asked if he had his finance in place. It is worth setting out his reply:
“I’ve already said and I’ll repeat again. We didn’t get the opportunity to ask him because he didn’t sit there long enough. When we indicated what the subjects on our agenda were, once he heard credit limits he jumped from his chair, he went to the door. So, how could you ask him that? How could you ask him the question you’ve asked him three or four times? You couldn’t ask him because you’d have to be in the room and understand that the man was on edge and was obviously under a lot of pressure, you know. As I’ve said before in our June meeting and in our July meeting he made it crystal clear that he’d agree to nothing. The only reason that he signed those notes with us, in my opinion, in July is because he needed to keep trading to keep his cash flow going. And here we were in September, if he had an overdraft, which I never saw, truthfully never saw. We didn’t ask him, I accept that but we had no ways of knowing.” (Day 4, page 39).
27. Mr. Tolan was clearly extremely angered by this unexpected turn of events, as he saw them, and walked out of the meeting. He says that he expected that somebody might get in touch with him to try and resolve matters but this did not happen that same day. The following day he got a call from Mr. Murphy who had been at the meeting. He stated that he fully expected him to be calling so that they could sort something out, but in fact Mr. Murphy explained that he had been asked to phone him in order to arrange to get a cheque for everything that was owing at that date. It appears to have been in the sum of about €104,000, which through the ordinary course of trading had reduced from over €400,000 some weeks previously. Mr. Tolan said that he would give him that cheque at the Balla mart the next day. However, according to Mr. Tolan , Mr. Murphy went on to make clear that he had been told to tell Mr. Tolan that he was not permitted to attend the mart at Balla or any other mart, until further notice, and that if he attended and made a bid it would not be accepted. However, Mr. Walsh in his evidence has denied that he was ever told he could not attend, but rather that he could buy provided that he paid for what he bought on the day – in other words, there would be no credit period at all.
28. Mr. Jordan was asked how Mr. Tolan might have come to the idea that the agreement which was signed on 16th July 2012 was to last until the end of December 2012 as there was no mention of that in the document. Mr. Jordan said that it was never stated that it was to last until the end of the year. Mr. Jordan was certain that it was agreed that they would all meet again in August to allow Mr. Tolan an opportunity to get his overdraft in place. He feels that it was up to Mr. Tolan then to satisfy them that it was in place by the August meeting, and he never did that. He accepted that at the meeting of 16th July 2012 meeting the bank’s letter of offer had been produced, which had mentioned certain conditions to be complied with before drawdown, but that Mr Tolan had left the meeting on 9th August 2012 abruptly at the mention of limits on numbers of animals he could buy, and therefore the meeting never got the opportunity to confirm the position about his overdraft.
29. There is no need to recount everything that followed, except to say that Mr. Tolan was extremely angered and upset by this turn of events. As he saw it, he was being put out of business, and his reputation within his family and wider community was being destroyed because rumours were spreading that he was in financial difficulties and could not attend marts to buy cattle and supply them to Dawn Meats and so forth as he had done for years. He sought legal advice from his solicitor thereafter.
30. The result of the withdrawal of credit terms meant that sums then owing to marts could not be paid, since without credit he could not buy cattle to sell into Dawn Meats as previously, and get paid for them. This meant that he could not pay the amount then owing. It appears that by 12th August 2012 a sum of €154,830 was owing and could not be paid. But as Mr. Tolan explained in his evidence this sum was only in respect of cattle bought over the previous few weeks under the old credit terms, and that if he had been permitted to continue to trade as before, this would have been discharged in the normal way.
31. I have set forth a summary of the evidence partly to provide a factual context for the legal issue that arises, and partly because the judgment of the trial judge was an ex tempore judgment given at the conclusion of the hearing, and therefore does not contain any detail of the evidence tendered. There is one aspect of the evidence that I have not mentioned. I will do so for the sake of completeness, but it is really a side-issue and not material to the issue for determination. In his evidence Mr. Tolan had floated the idea that in fact Mr. Walsh had an ulterior motive behind putting him out of business, which is that he objected to Mr Tolanbidding against some other unnamed dealer in respect of dry cows and heifers, and thereby raising the price which that dealer would have to pay for such animals. Mr Walsh completely denied any such motive. I mention it because it was part of Mr Tolan’sevidence.
32. I will turn shortly to the ex tempore judgment given by the President at the conclusion of the defendant’s evidence on Day 4. Before doing so it is helpful to refer to a discussion between the President and Counsel at the conclusion of the plaintiff’s case towards the end of Day 2. There was no application made by the defendant for a dismiss at that stage, but there was a discussion initiated by the President as to the nature of the plaintiff’s claim and the legal issues arising as he saw them. That discussion ranged over issues such as whether the document amounted to a contract, and if so, to do what, for how long it was to operate, or whether it really amounted to some sort of representation by the defendant that if Mr Tolan put an overdraft in place he could continue to buy as previously, or whether some sort of legitimate expectation arose, though the President noted that no claim had been pleaded on the basis of any legitimate expectation. He noted also that no case was pleaded in relation to competition law i.e. a denial of access to a market.
33. On Day 4 at page 88 the President is noted as stating:
“Right, Mr Fogarty [counsel for the defendant].I don’t need to hear you on [the] contract point. I’m satisfied there isn’t a contract. There can’t be a contract based on this document for the reasons I’ve just been discussing with Mr Flannery and no case has been made that Mr Tolan was induced by something said to act to his own detriment although a case of legitimate expectation might have been made. It hasn’t been made. A case for damages in breach of principles of competition law, denial of access – that hasn’t been made either”.
34. Having so stated, the President indicated to Mr. Fogarty (for the defendant) that he would need to focus on whether the document signed on 16th July 2012 could be seen as a representation by the defendant that for so long as Mr. Tolan complied with the new credit terms he would not be denied access to the mart under the control of the defendant at least up to the end of December 2012. Mr. Fogarty responded firstly by highlighting the fact that there was no basis put forward by Mr. Tolan for any contention by him that the terms of the document were to endure until the end of December 2012 as the document was silent in that regard, and there was no evidence that anybody had so stated at the meeting. Further submissions were made by each side, and ultimately the President concluded at that point (i.e. before the defendant went into evidence) as follows:
“I am satisfied at this stage of the case only, in other words the halfway stage on this particular issue, that no case in legitimate expectation having been made out and no claim for damages for breach of competition rules under the Competition Act having been advanced, that really the only case the plaintiff can advance [is] a claim for breach of contract ……… or a representation …… that the defendants cannot as it were, walk away with impunity.
In so far as the contract claim is concerned, I am quite satisfied that this document of 16th July cannot be regarded as a contract of the sort that Mr Tolan believes it is, whereby he could indefinitely continue to attend at the mart and buy and sell in the sense that he would have some sort of a claim against [the defendant] if he could not buy the cattle he wanted or something of that sort. The problem is that the underlying relationship was [where] there were a succession of one-off transactions each time he went to the market. He went to the market on a particular day. He did not have to buy anything nor did the mart have to sell anything, so what is sauce for the goose is sauce for the gander. Neither side had any binding obligations of a contractual nature arising out of their trading relationship.
On the other hand obviously by reason of an ongoing trading relationship one would expect, all would imagine in the ordinary course of events that trust would build up over the years between the parties and Mr Tolan has told me and he has not been challenged on this, that he was a big buyer in this particular market. His contention that other farmers were glad to see him arrive because he paid top dollar for the animals he bought. None of that has been challenged. He has given a version of events which apparently has not been given in correspondence, that he thinks there was ill-will towards him developing at co-op and management level because he was engaged in a bidding exchange with another gentleman going back to March 2011 whereby they would submit rival bids for bullocks and heifers and he feels that this in a sense contributed to the decision which he believes occurred by [the defendant] effectively to terminate the trading relationship and he says it has nothing to do with his finances that they terminated this association. It was entirely due to the fact that they either thought he was too big for his boots or they thought there was something going on and therefore they stepped in. First of all they called him to a meeting.
Now at this stage I have no reason not to accept what Mr Tolan says about the two swapped cheques which have been mentioned, that he substituted two cheques, so I do not in a sense see anything untoward about that but he has explained all that. He has in relation to the third cheque, the 18,700, said yes, he did to that in a moment of anger after he’d been shown the door as he says by the representatives of [the defendant] in August.
But what I have to do is put an appropriate construction on this document of 16 July which was not drawn up for no reason. It was drawn up for a particular reason because some understanding had been arrived at. Now, it may well be that I will hear in evidence that Mr Tolan was up to his eyeballs in debt not only to [the defendant] but to others. I have heard various figures mentioned which would suggest he was out to more than half a million, what he owed to various co-ops, but we will have to wait and see about that. But, by the very nature of the terminology of this document I think it can legitimately be seen as a representation that if he complied with its terms he would be allowed continued access to the market because it says as follows: “by 10 August Finbar Tolan will have his overdraft in place to allow cheques to be drawn on the Saturday for the previous Saturday week’s purchase”. In other words this sentence clearly envisages that the trading scenario is going to continue. “During Galway race week” – which was again a future event at the time of the drawing up of this document – “cheques will be lodged in the current way with no gap in holding cheques. Ballinrobe cheques will continue to be lodged in the same way as in the past”. So here we are, this has no meaning except in the context of ongoing access by Mr Tolan to a particular mart. “Finbar agrees that the above is accepted and has to be in place by 10 August 2012 or all offers are off the table”. In so far as that goes there was an arrangement in place whereby he would service the commitments which were outlined at the top and if the offer means anything it can only mean on that basis he would be allowed continued access to the mart. Now that isn’t to say it was an endless access or that something else could have turned up that would have persuaded [the defendant] to cease dealing with them and that may well be, even the incident of the cancelled cheque might be ultimately regarded by this court as sufficient for the [defendant] to decide not to deal with any further. There also is the restriction on him to the extent that during the trading relationship that he could stock purchase only dry cows and bulls and any other stock purchase would be paid for on the day and that is signed by all relevant parties.
So I can only construe this document in one way and that is an assurance and representation by [the defendant] that subject to Mr Tolan complying with these terms, that some form of continuing access to the market would be permitted. That is as far as this case goes. The plaintiff himself apparently has said he didn’t himself feel that this would endure longer than the end of that particular year, so we’re talking about a period of four or five months. So, on the plaintiff’s own case, everything may have been up for grabs at that stage, but there is sufficient, in my view, to barely get the plaintiff over this only remaining avenue whereby the Court may have to consider if he has any entitlement. If of course it emerges that over that particular five-month or any five-month period he could not have made any worthwhile profit, any damages he might recover would be very small if that were to be the case and we certainly would not be talking about millions anything of that sort. For the moment I’m not going to dismiss the case, but I have to, in the interest of court time, I have to be satisfied as to what case can be made out on the material heard so far.”
35. Following these remarks by the President the defendant went into evidence, as I have described to some extent above. At the conclusion of that evidence, the President gave his judgment. In it he referred to his earlier conclusion that there was no evidence of any contract, and he re-iterated that having heard all the evidence his view in that regard was unchanged. In that regard he stated:
“… I want to re-state it now at the end of the case that the document dated 16 July 2012 cannot be taken by the court as a contract in the sense that it obliged the mart to be available to Mr Tolan and to supply him with for purchase a limitless number of cattle for as long as – for as long as he was able to meet the credit terms to which the discussion on 16 July related. I am quite satisfied there was no contract in the sense normally understood between the parties but there was a history, a pattern of trading between them”.
36. He went on to refer to that pattern of trading up to 2011, where balances were cleared at year end. He then noted that in 2012 there had been a significant change in the level in the indebtedness of Mr Tolan at any particular time, due to the increased numbers of animals that he was buying in 2012. He drew particular attention to the fact that by the time the discussions between the parties were taking place in June and July 2012 he owed what the President described as “a staggering sum” of €464,000. He went on to state that it was not surprising that there was a sense within the defendant that something had to be done about this level, and that this concern gave rise to the meetings which have been described. The President stated that there was no question of the defendant trying to “do down Mr Tolan” size=”2″ face=”Verdana”> because he was bidding against another cattle dealer in relation to heifers and bullocks, and that this seems to be something that Mr Tolan mentioned only at the hearing and not in any prior correspondence or in any particulars provided while pleadings were being exchanged. The President went on to note the purpose of the meetings which were arranged during the summer of 2012 as far as the defendant is concerned, namely to discuss the level of indebtedness, the numbers of animals being purchased, and the countermanded cheques. He accepted that the first meeting was inconclusive on 18th June 2012 and that a further meeting was set up for 16th July 2012 which generated the document at the centre of this case. He went on in that regard to state:
“… I am quite satisfied having heard all the evidence, that this document simply recorded – is a record of a work in progress in terms of the dealings between Mr Tolan and the defendants. Certainly it is not to be taken as a contract, for the very simple reason [it is ] non-specific as to time, non-specific as to limits, non-specific as to virtuallyeverything. I was told and I accept the evidence of Mr Walsh and Mr Jordan that it was time specific as far as they were concerned until the meeting which was due to take place on 9th of August when everything would be under consideration. I accept that Mr Tolan was told to try and get his overdraft facility in place. And in fairness to Mr Tolan, he did go off and make arrangements for an overdraft facility and he was able to actually show, produce at the meeting of 16 July a letter of offer in that regard. But a letter of offer is one thing, the completed loan arrangement does not appear to have come into being until 24 July in this particular case.
But going back to the undertakings, as I previously referred to it, the very terminology of it is short-term because it indicates one of the items addressed in it is the upcoming Galway races, and as Mr Walsh himself said, [if] this was to be some sort of contract which would govern the parties behaviour towards each other for years to come or even months to come it would be drawn in a proper legal form as such. I’m quite satisfied this was not meant. Firstly it was never intended to have a legal effect. It was a note of certain topics that were touched upon – a holding operation, to use the expression I put counsel, until they would meet again on the 9th of August at which stage it had been hoped that Mr Tolan would be in a position to meet the requirements of the mart in a manner that would enable a trading pattern to continue. The unfortunate meeting of the 9th of August, as we have heard, terminated very quickly, and it seems, and it is not really I think seriously in contradiction, but that Mr Tolan was not prepared to agree limits. As far as he was concerned if he met his end of the bargain and had the overdraft facility he should be allowed to continue as before at least until Christmas. Now, I have asked Counsel where he got this idea of the arrangements continuing until Christmas. I can only think, in the absence of any evidence on this specific point, that what Mr Tolan was thinking was he had a breathing space, he might have had a breathing space to get his liabilities down to 0 by the end of that particular year. Nothing appears in writing along those lines and I do not believe that any kind of lifespan of that sort was discussed at any of these meetings. Rather they were concerned to – the defendants were concerned to see in place some sort of reassurance for them which, to quote Mr Jordan, “would reduce their exposure on this particular relationship”.
So, in so far as I say that the meeting of 16 July is concerned, I do not regard the undertaking that was given on that occasion as being anything other than a holding position until they would meet again on 10th of August, that was a date mentioned at the first line of the notes even though, as we know, the meeting which did eventually derail the relationship took place on the 9th .”
37. Mr. Tolan submits that the President was wrong to conclude that the document which was signed on 16th July 2012 was not a contract, and that it was never intended to have any legal effect, and that it was simply a note of certain topics discussed and some sort of holding document for a short duration which could be revisited on 0th August 2012 when the parties would meet again. He concluded that it was what he described as a work in progress.
38. The President was not entitled to reach his conclusions based on what either of the parties stated was their subjective intention when putting their signatures to the document. There is nothing in his concluding remarks which would indicate that he did so. In fact it was at the conclusion of the plaintiff’s evidence, and without having heard the defendant’s evidence at all, that he first stated that he was not satisfied that there was a contract, and that what he was leaving over until after he heard the defendant’s evidence was whether the document constituted some sort of representation that the plaintiff would be allowed access to the marts if he fulfilled certain conditions by the 10th August 2012. He then heard that evidence, and reached his final conclusions as set forth above, maintaining his earlier view that it was not a contract but rather a note of a work in progress, and to be revisited before the 10th August 2012 when the overdraft was in place.
39. In my view, when looked at objectively, but against the contextual background described above, this was a correct interpretation. If the President was not privy to the contextual background, where there was a clear wish on the defendant’s part to reduce its potential exposure to losses, not just by reducing the credit terms but also by placing a limit on the numbers of cattle Mr. Tolan could buy in any one week, one might possibly be able to consider the document of the 16th July 2012 as a complete agreement to the effect that provided that there was an overdraft in place by the 10th August 2012 Mr. Tolan could buy as many cattle as he wished at the marts provided that he paid for them within the new two week credit period. In such a case the absence of any statement as to the duration of such an agreement might be filled by implying a necessary term that reasonable notice of any alteration or termination of those terms would have to be given to Mr. Tolan.
40. Viewed in isolation from the overall context, one might consider that there was an offer in the sense of a two week credit period, and an acceptance of that period by Mr.Tolan, as well as his performance of the only condition mentioned, namely getting his overdraft in place. One might see also a form of consideration passing which could be expressed in terms that in consideration of Mr. Tolan agreeing to a reduction in the terms of credit, the defendant would permit him to continue to buy animals at its marts. Finally, being a document drawn up in the context of a commercial business relationship and setting out certain terms of trading, an intention to create legal relations could be presumed, and there is certainly nothing in the document to indicate that it was not intended to create legal relations between the parties. In this respect, I note a passage in Chitty on Contracts, 29th edition at para. 2-153 which states:
“Burden of proof: express agreements. In the case of ordinary commercial transactions it is not normally necessary to prove that the parties to an express agreement in fact intended to create legal relations. The onus of proving that there was no such intention ‘is on the party who asserts that no legal effect is intended, and the onus is a heavy one’. In deciding whether the onus has been discharged, the courts will be influenced by the importance of the agreement to the parties, and by the fact that one of them acted in reliance on it.”
41. Whether it is or is not a contract must be judged objectively, but against the background context, and not by reference to any subjective intention on their part. There was ample evidence from the defendant’s witnesses of the general background of concern as to the level of indebtedness of Mr. Tolan and its wish to address that concern against which the President was entitled to consider the document’s effect and meaning. It wished to address these concerns in two ways, firstly by a reducing the number of weeks’ credit he would have, and secondly by placing a limit to the number of cattle that he would buy at any particular mart. It is clear that without the second element, the reduction in the credit period alone would not achieve the defendant’s purpose.
42. The President was entitled to have regard to that contextual background when considering whether all the necessary indicia of a legally binding and complete agreement were present, or whether it was simply a note of a holding arrangement covering the period between 16th July 2012 and when the parties would meet again – originally on 10th August 2012, and in fact, on 9th August 2012. That is simply the context against which the document must be objectively considered in relation to its contents and whether there was an intention to create legal relations. The President heard the parties’ evidence, and having considered the document he concluded that it was not a contract and that it simply reflected matters that were discussed and agreed upon to cover a short period until the parties would meet again. He relied in part for this conclusion on the fact that there was reference to arrangements to cover the upcoming week of the Galway Races when marts and much else in the area would be closed down.
43. Mr. Tolan however submits that the four necessary constituents of a contract are present, namely an offer, its acceptance, consideration, and an intention to create legal relations. To the contrary, the defendant submits firstly that there is no evidence of any intention to create legal relations; secondly that there is no consideration, and thirdly that while it does not state for how long the alleged agreement was to last, it can be inferred from the document and the surrounding circumstances that it was to operate up to the 10th August 2012 when at a further meeting it would be established if Mr. Tolan’s overdraft was actually in place, and then see if more long term arrangements could be agreed and put in place, which would ensure a reduction in Mr. Tolan’s indebtedness at any particular time, including by agreeing some limit on the number of animals that he would buy in any one week – something which Mr. Tolan had not been prepared to even discuss on the 16th July 2012. .
44. The document ought not to be construed as simply a note or memorandum of what was discussed at the meeting on 16th July 2012 just because the Court might prefer the evidence of the representatives of the defendant as to what they intended by the document. Their subjective intention does not aid its construction by the Court. That, as I have said, must be determined on an objective basis, albeit against the backdrop of the surrounding circumstances to give it context since no document exists in a vacuum. That is clear from a number of authorities, including the judgment of Murphy J. in the Supreme Court (Keane C.J. and Denham J. concurring) in Igote Limited v. Badsey Limited [2001] 4 IR 511. The issue in that case was not whether the document signed by the parties was or was not a legally binding agreement, but rather what meaning should be given to one particular clause of what was clearly a share subscription agreement. Having stated at p. 513 that “the purpose of construing a document entered into between two or more persons is to ascertain their common intention” he went on to look at what exactly was meant by “intention” and referred to what was stated by Lord Shaw in Great Western Railway v. Bristol Corporation [1918] 87 L.J. Ch. 414 at p. 424 as follows:
“… one hears much use made of the word ‘intention’, but courts of law when on the work of interpretation are not engaged upon the task or study of what parties intended to do, but of what the language which they employed shows that they did: in other words, they are not constructing a contract on the lines of what may be thought to have been what the parties intended, but they are construing the words and expressions used by the parties themselves. What do these mean? That, when ascertained, is the meaning to be given effect to, the meaning of the contract by which the parties are bound. The suggestion of an intention of parties different from the meaning conveyed by the words employed is no part of interpretation, but is mere confusion.”
45. Murphy J. went on to refer to the development of the concept of the ‘factual matrix’ and what Lord Wilberforce stated within his speeches in Prenn v. Simmons [1971] 1 W.L.R. 1381 and Reardon Smith Line Ltd v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989 about the utility of looking at those surrounding circumstances (or factual matrix) as a tool or aid in ascertaining the intention of the parties. He referred also to the dangers identified by May L.J. in Plumb Brothers v. Dolmac (Agriculture) Ltd [1984] 271 E.G. 373 when he warned:
“There is the danger, if one stresses reference to the factual matrix, that one may be influenced by what is in truth a finding of the subjective intention of the parties at the relevant time, instead of carrying out what I understand to be the correct exercise, namely, determining objectively the intent of the parties from the words of the documents themselves in the light of the circumstances surrounding the transaction. It is not permissible, I think, to take into account the finding of fact about what the parties intended the document to achieve when one is faced with the problem some five, ten or many years later of construing it. In deciding what the document did in fact achieve, all that one can look at are the general circumstances surrounding the making of the document and in which it was made, and deduce the intention of the parties from the actual words of the document itself. The contract between the parties is what they said in the relevant document. It is not for this or any court to make a contract for the parties different from the words that the documents actually use merely because it may be that the parties intended something different.”
46. However, before one gets into the business of construing a contract, there must in the first place be a contract to construe. In my view the first question is whether this document is a contract. If it is then the Court can enter upon the next question of determining what it means, and that is done objectively, and not by reference to the subjective intention of the parties.
47. It is too simplistic just to consider whether the four classic indicia of a contract are present in this case, namely offer, acceptance, consideration, and an intention to create legal relations, without taking into account the context in which the document arose. The Court must have regard to the overall context when deciding if this document is the complete agreement between the parties, or whether it was intended to be a partial agreement in the sense that it dealt with just one of the issues which fell to be agreed between the parties, with the remainder of what had to be discussed and agreed in some fashion being left to another day. Was it in other words an incomplete agreement? There is a fine distinction between an agreement on all matters at issue between the parties which is temporary pending the putting in place of a longer term agreement, and an agreement on part of what is at issue between the parties, be that on a temporary or a longer term basis, but a distinction nevertheless remains.
48. In the present case there was no evidence given by the defendant’s witnesses or indeed Mr. Tolan from which the Court could have concluded that on the 16th July 2012 all the issues between the parties had been agreed, since Mr.Tolan had refused to even discuss the question of limiting the number of cattle he would buy in any one week at the earlier meeting in June 2012. That absolute refusal on his part to discuss a limit on numbers is confirmed by the evidence of his behaviour at the meeting on the 9th August 2012 once that issue was raised. The fact that it was raised again by the defendant at this meeting is clear evidence that it remained an issue to be sorted out between the parties, and there is nothing in the document of 16th July 2012 or even in Mr. Tolan’s own evidence to indicate that the defendant had on that day abandoned its ambition of achieving agreement on a limit to the number of animals Mr. Tolan would buy. Mr. Tolan simply would not discuss that. That is part of the overall context against which the document must be considered, and in my view that it not to offend against the principle that the document must be construed objectively.
49. There were two legs to the solution to the defendant’s concerns as to its level of exposure, and while these were both raised for discussion at the meeting in June 2012, progress could be made on only one, namely the reduction of the credit period from three weeks to two weeks. Clearly the agreement on that matter could go some way to easing the defendant’s concern, but it alone would not achieve a long-term reduction in the exposure of the defendant unless there was some limit on numbers, because the verypurpose of Mr. Tolan having a period of time to get an overdraft in place was to avoid the consequences of the reduction in the credit period so that he could continue to trade at the same level as previously. The overdraft was necessary for Mr. Tolan in order to cover the effect of the one week reduction in the credit period. In my view that general background in respect of which there was evidence can be taken into account in determining, not so much the meaning of the words used in the document, but whether or not the document was intended to represent a complete agreement as to the issues between the parties.
50. In my view all the evidence indicates that the document signed on 16th July 2012 evidences only that an agreement had been reached at that meeting that Mr Tolan would have two weeks’ credit instead of three going forward . It also evidences that at Mr Tolan’s request this reduction in the credit period would not commence before the 12th August 2012 as he wanted time to put an overdraft in place. There was agreement reached also as to what was to happen during the week of the Galway races, and in relation to two incidental matters, namely the buying of dry cows and bulls on a no credit basis only, and the lodging of Ballinrobe cheques. In the overall context of the purpose of the meetings in June and July 2012 this document cannot be seen as other than one recording an agreement on one aspect of the defendant’s concerns only, with the other being parked until the further meeting which was clearly envisaged so that the defendant could be shown evidence that the anticipated overdraft was in place in time for the new reduced credit period to commence on 12th August 2012. In my view the President was correct to so conclude. If evidence is needed to emphasise that the document signed on the 16th July 2012 simply evidenced agreement on one leg of the defendant’s concerns, it is provided by the evidence of the meeting on the 9th August 2012. The defendant attempted to raise its remaining concern again, namely some limit on the number of animals that Mr. Tolan would buy, but Mr. Tolan simply walked out of the meeting thereby preventing any discussion of that question.
51. The consequence of that impetuous behaviour on Mr Tolan’s part, and before he had even provided any evidence at that meeting that his overdraft was in place, was that he had no agreement as to credit terms after 12th August 2012. This consequence is in accordance with the clause in the document signed by him on 6th July 2012 which stated:
“Finbar agrees that the above is acceptable and has to be in place by the 10/8/2012 or all offers are off the table.”
52. His behaviour took everything off the table. Had he remained he would certainly have satisfied the defendant that his overdraft was in place, because there was no doubt that by 9th August 2012 it was in place. Had he been prepared to discuss the other concern which the defendant had, and which he knew they had a concern about, namely some limit on numbers some agreement might well have been reached. But to simply walk out of the meeting as he did led in my view to a consequence of his own making where “all offers were off the table”. I am satisfied that the President was correct to conclude as he did. I too am satisfied that the document signed on the 16th July 2012 is a note of what had been agreed up to that date, but in the overall context cannot be seen as a document intended to dispose of all issues of concern to the defendant. T here is nothing in the document to indicate that what was agreed on the 16th July 2012 was to endure until the end of the year. It clearly envisaged a further engagement between the parties before the 12th August 2012 because the defendant was entitled to know that the overdraft was in place . But that further engagement was not necessarily to be confined to that question alone. The second leg of the defendant’s concerns had yet to be addressed and the only reason why it had not been even discussed was because Mr Tolan was not prepared to discuss it. He had no entitlement to dictate such an exclusion of the topic. If he chose to, there could be consequences, as in fact occurred. In such overall circumstances it is not open either on the facts or as a matter of law to conclude that the document signed on the 16th July 2012 determined the contractual relations between the parties for some indefined period into the future beyond the 12th August 2012.
53. Even though I have concluded that the document is one where the parties must be taken as intending to create legal relations, albeit that it is an incomplete, it is not enforceable as a stand-alone agreement because it lacks essential details such as, by way of example only, how long it was to endure, and how many cattle the plaintiff was allowed to buy, for example, during any one week or other period of time.
54. It is therefore unenforceable because it is imprecise in its terms. It lacks the certainty necessary for it to have the consequences contended for by the plaintiff. One could say that it is imprecise because it is incomplete. I consider that the context against which the document is to be considered suggests clearly that an agreement as to numbers was contemplated in addition to the reduction in the period of credit. I emphasise that this is in my view evident from the context in which the document came to be prepared, which is admissible for that purpose, and it is not placing reliance on any subjective view of the defendant’s officers as to what they intended.
55. The agreement noted in this memorandum of 16th July 2012 needed something more before one could say that it contains within it the certainty and precision that would permit it to be enforced. In Cadbury Ireland Ltd v. Kerry Co-operative Creameries Ltd [1982] I.L.R.M. 77, Barrington J. had to consider Clause 19 of a particular agreement whereby certain creameries were transferred to Kerry C-operative Creameries Ltd by Dairy Disposal Co. Ltd. That clause contained an undertaking from Kerry to Dairy that adequate supplies of milk would continue to be provided to the plaintiff’s factory at Rathmore subject to certain stipulations. It is unnecessary to venture further into the facts of that case, save to say that Barrington J. concluded that the clause was so imprecise as to fall short of business efficacy. He stated his view that the draftsman of the agreement assumed that Clause 19 would be followed by a further agreement between Cadbury and Kerry where details necessary for that efficacy would be supplied. He stated at p. 85:
“It appears to me that the imprecision of the language in Clause 19 is explained by the fact that that clause was concerned with policy considerations and that the draughtsman assumed that Clause 19 would be supplemented by a bilateral agreement between the plaintiff’s and the first-named defendants in which the precise rights and duties of both parties would be set out. Put another way one could say that Clause 19 contemplated a further agreement between the plaintiff and the first-named defendants to give it business efficacy.”
56. I do not overlook the factual differences between that case and the present one. In the present case the further agreement necessary for business efficacy would have been between the same parties, unlike in Cadbury where that company was not a party to the agreement containing Clause 19. But Cadbury contains the common feature that it was an incomplete agreement on its own, just as in the present case what was agreed on 16th July 2012 was incomplete when taken in isolation. In my view it contemplates a further agreement before it had business efficacy. If Mr Tolan had not walked out of the meeting on 16th July 2012 when the question of limiting his numbers was raised, the document might well have contained sufficient detail to be enforceable. Even if on 9th August 2012 he had been prepared to discuss numbers, some further agreement might have emanated to reflect with sufficient precision the entire of what was being agreed. But on its own the agreement reached as to the credit terms as reflected in that document imprecise and uncertain as to its terms.
57. For these reasons, I would dismiss this appeal.
JUDGMENT of Mr. Justice Hogan delivered on 11th December, 2013
PART I
1. In these proceedings the plaintiff contends that he accepted an offer of voluntary redundancy proffered by the defendant, Iarnród Éireann, in 2006 and that that offer was binding on the parties. The question as to whether there was such an acceptance of an offer so as to bring into being a binding contract between the parties is central to the resolution of these proceedings.
2. In early June, 2006 Iarnród Éireann circulated a notice inviting expressions of interest for voluntary severance. On 12th June, 2006, the plaintiff, Mr. Browne, expressed an interest in availing of the offer and to this end sent an email along these lines to Ms. Ann Long, the then acting Human Resources Manager. An estimate of the voluntary severance package was then prepared on 9th August, 2006, which was then given to Mr. Browne.
3. The document enclosing these figures was headed:
“Voluntary Severance Estimate
Please note: These figures are an estimate only and are subject to final verification.
The provision of these figures is not a guarantee or promise that the Company will, in fact, grant voluntary severance.”
4. The plaintiff was happy to proceed further and the next document which the plaintiff received was headed “Voluntary Severance Offer”. This document was otherwise similar to the earlier document, save that, critically, the document was now described as an “offer” rather than an “estimate” and the reference to the fact that no guarantee could be given was now deleted. Mr. Browne then executed the document, the acceptance terms of which read as follows:
“I wish to confirm acceptance of early retirement from Iarnród Éireann with effect from [29 September 2006] under the terms of Voluntary Severance outlined above.
I understand and accept that my ex-gratia payment is inclusive of both my entitlements under the Minimum Notice and Terms of Employment Act 1973 and payment in lieu of annual leave due to me which will not be taken prior to my retirement.”
5. The document was then signed by Mr. Browne on 11th September, 2006. It was witnessed on that date by Ms. Margaret O’Connor, an employee of the defendant. Mr. Browne added in the words in square brackets in hand, i.e., the date of 29th September, 2006. Before considering the question of whether a binding contract thereby came into existence, it is first necessary to consider the evidence.
PART II
The Evidence of the Plaintiff
6. Mr. Browne gave evidence that he joined Iarnród Éireann on 12th October, 1961, and commenced as a plate layer on the track and in that capacity he worked at Thurles, Limerick Junction and Ballybrophy. Mr. Browne seems to have been a very accomplished employee because he was rapidly promoted. By 2006 – which is the central date for the purposes of this litigation – he was the depot superintendent in the rail depot in Portlaoise. His post involved overseeing all the making of concrete sleepers and the welding and relaying all over the State. At that stage Mr. Browne’s line manager was a Mr. Tom Ruane. Mr. Browne reported in turn to a Mr.Brian Garvey.
7. In June, 2006 Iarnród Éireann sent out a circular letter to its employees looking for expressions of interest in relation to voluntary severance. Mr. Browne responded to the letter expressing an interest in the scheme and then in early September, 2006 he received what he contends was a voluntary severance offer.
8. Mr. Browne knew Ms. Margaret O’Connor who worked in the personnel department of Iarnród Éireann in Inchicore in Dublin, but who commuted by train daily from Portlaoise to Dublin. Mr. Browne arranged to sign the voluntary severance offer and it was countersigned by her. Ms. O’Connor duly brought the document back with her to her office in Inchicore. Mr. Browne received a copy of that signed correspondence in the post a few days later. That letter was worded as follows:-
“I wish to confirm my acceptance of early retirement from Iarnród Éireann with effect from 29th September, 2006, under the terms of the voluntary severance outlined above. I understand and accept that my ex gratia payment is inclusive of both my entitlements under the Minimum Notice and Terms of Employment Act 1973, and payment in lieu of annual leave due to me which will not be taken prior to my retirement.”
9. At this point Mr. Browne understood that he was due to cease work on 29th September and that he would receive payment in accordance with the voluntary severance offer. In September, 2006 Mr. Browne was taking annual leave and he had so organised his affairs that he did not think that he would be actually returning to work with Iarnród Éireann at all. His daughter was getting married on 22nd September and on that day Mr. Browne received a phone call from Mr. Ruane which came as something of a surprise to him. In the telephone conversation Mr. Ruane informed Mr. Browne that his voluntary severance package had not, in fact, been approved and that he was obliged to return to work. This news was as disappointing as it was unexpected. Mr. Browne then received an email from Mr. Ruane which stated:-
“Please note that to date I have not been informed that you have been granted voluntary severance. Therefore you should report for duty as normal on your return from annual leave.”
Mr. Browne responded by email stating:-
“Tom, I am surprised at your email of 29th September, 2006, and, in particular, that you have been informed that I was not being granted voluntary severance. I enclose for your attention the voluntary severance offer that was signed by me and witnessed and returned on 11th September, 2006, granting me voluntary severance from 12th October, 1961 to 30th September, 2006.”
10. In the light of these developments Mr. Browne felt that he had no option but to return to work once his annual leave had ended. Yet he never concealed his dismay and disappointment in respect of these developments. He immediately contacted his trade union upon his return and a few weeks later he and his union representative, Mr. Willy Noone, saw the Head of Human Resources, Mr. John Keenan, on 24th October 2006. According to Mr. Browne, Mr. Keenan maintained that everything turned on the attitude of Mr. Garvey who he (Mr. Keenan) was due to meet on the following day. Mr. Browne did not, however, believe that the two men had ever met to discuss his case.
11. His trade union did have the matter referred to a Rights Commissioner who ultimately recommended in April 2007 that Iarnród Éireann should accept the offer which had been made.
12. Over a year later a document arrived in the internal post which contained a voluntary severance agreement which was dated the 12th September, 2009, and it was signed by a Ms. Ann Long of personnel and by Mr. Brian Garvey. The document appeared to have been sent to Mr. Browne anonymously and he had no other knowledge of its provenance. Mr. Browne continued in employment until he retired in 2009 at the age of 65 in the usual way. While Mr. Browne accepted in evidence that a voluntary severance package was conditional on a proper business case having been advanced, he stated that he had no reason to believe that the redundancy offer which had been made to him had not been made otherwise than on the basis that the appropriate business case had been advanced and accepted by the company.
Mr. Brian Garvey
13. Mr. Brian Garvey gave evidence that in 2006 he was the Chief Engineer Infrastructure of Iarnród Éireann, although he retired in March 2007. He was familiar with the rationale for the voluntary redundancy scheme, namely, to ensure that employments numbers were reduced in a cost efficient manner. Mr. Garvey was also familiar with the numbers employed at the Portlaoise deport. As far as he was concerned, if Mr. Browne left, the remaining staff moved up a grade and there were savings at the lowest grade. This meant that as far as he was concerned there was a financial rationale for the redundancy, although he never had a meeting with Mr. Keenan to discuss the position of Mr. Browne.
14. Mr. Garvey did accept, however, in cross-examination that the ultimate decision on the business case rested with the Chief Financial Officer and the Director of Human Resources.
Mr. Tom Ruane
15. Mr. Tom Ruane gave evidence that in 2006 he was the production manager of the company and Mr. Browne’s line manager. In the summer of 2006 he was made aware that Mr. Browne intended to apply for voluntary redundancy, a step to which Mr. Ruane was not opposed. Mr. Ruane considered that a business case could be made for such a proposal, given that the Portlaoise depot had a surplus of foremen. While Mr. Ruane was favourably disposed to the application, it was clear that the ultimate decision did not rest with him.
16. Towards the end of September Mr. Ruane realised that the offer of redundancy was not now likely to materialise and that it was necessary urgently to contact Mr. Browne. He accordingly rang him on 22nd September, 2006, which happened to be the day of his daughter’s wedding. Mr. Browne was surprised to learn that, after all, he was required to come back to work for the company.
Ms. Denise Coyne
17. Ms. Denise Coyne gave evidence that she is currently an executive officer in the human resources department of the company. In that capacity she said that she handled all voluntary severance applications since 1999. She stated that the company would never make such an offer without a business case, namely, a document signed by the Chief Financial Officer and the Director of Human Resources. The application had to be supported by the relevant section within the company (in this case, the infrastructure department). Ms. Coyne noted that the financial calculations would normally have been prepared by Ms. Margaret O’Connor.
18. Ms. Coyne stated further that in her experience only about one third of those who apply for severance ultimately go on to accept a voluntary severance package. She considered that in this instance Mr. Browne had signed the acceptance prior to any approval being given in relation to the business case. While she could offer no views as to the extent to which there was an awareness in respect of the business case requirement in the case of the company at large, she confirmed that at management level “it was well known that a business case was absolutely essential for someone exiting on voluntary severance.” In a case such as that of Mr. Browne, acceptance of any offer was, however, always subject – at least so far as management were concerned – to the acceptance of a business case.
19. Ms. Coyne made it clear that she was there to give evidence of the system, because she had no actual dealings with Mr. Browne’s own case, as she had gone on maternity leave from early September.
Mr. Richard O’Farrell
20. Mr. Richard O’Farrell gave evidence that he was the Chief Financial Officer of Iarnród Eireann in 2006, having been appointed to that position in 2007. He explained that the business case had first to be approved by the Director of Strategy and Business Development, John Keenan and then later by himself. The voluntary severance offer which Mr. Browne signed on 11th September 2006 was signed by him in advance of either the formulation of or any acceptance of the business case. It was not correct to suggest that any business case must necessarily have been prepared before an offer letter was sent out to employees who were considering redundancy.
Mr. John Keenan
21. Mr. John Keenan gave evidence that he had been Director of Strategy and Business Development with the company in 2006, so that he was in charge of human resources. He explained that the chief objective of the voluntary severance process was to drive down costs within the company on a permanent basis and this is why the existence of a positive business case was essential to that exercise.
22. Before this exercise could properly be conducted, it would have to be clear that the employee in question had already volunteered to leave. He considered that the procedure was well known and understood by both management and the relevant trade union officials. He pointed out that the Rights Commissioner had been mis-informed when she had stated that Mr. Browne’s application for redundancy had been approved. This had never happened, as indeed no business case had ever been put in respect of Mr. Browne.
Part III
Was a binding contract executed between the parties?
23. Counsel for the plaintiff, Mr. Conlon S.C., relied heavily on a decision of the South African Labour Court, Wiltshere v. University of the North [2005] ZALC 94, a case with some similarities to the present one. In Wiltshere the plaintiffs were all employees of the respondent University who had retired after 2000. In common with the plaintiff in the present case, they all claimed that they had accepted voluntary retirement offers proffered by the University prior to retirement.
24. In August 2000 the University issued a memorandum to the effect had approved an offer of voluntary retirement which was open to all staff over 55 years of age, but which offer had to be accepted within one month.The University staff were urged to carefully consider the implications of accepting the offer and were advised that if they wished to accept the offer they were to complete the form attached to the memorandum which form they were to submit personally to the Human Resources Department.
25. Those members of the University staff who elected to accept the offer were advised that their employment would terminate on 30th September, 2000. Shortly afterwards concern was expressed that the offer was too attractive and that many senior staff whom the University could ill afford to lose were accepting this offer. The University then purported to rescind the earlier circulars. Before this had occurred, however, the three plaintiffs (who were all over 55 years of age at the time) had all purported to accept the offer which was in the following terms:
“I…….hereby accept the Council’s offer of voluntary retrenchment as set out in the Personnel Policy and Procedure Manual (and of retirement if over 55). I have given serious consideration to the implications of this acceptance and will seek financial advice with regard to the utilisation of funds I receive. I further acknowledge that by accepting this offer I have taken an irreversible step and once this acceptance is acknowledged by the University it cannot be reversed unless by mutual agreement.”
26. All three plaintiffs were dismayed by the subsequent withdrawal of the offer. They nonetheless kept on working, in part because of loyalty to the University and the uncertainty which had then been created. They were also anxious not to jeopardize their rights as they were close to retirement age and were concerned that if they simply left they would lose their pensions. They all remained in employment up to the date of their scheduled retirements and had been paid in the ordinary fashion.
27. Gush A.J. accepted the evidence given by the plaintiffs to the effect that that had accepted the offer made by the University; that they had communicated their acceptance in accordance with the latter’s requirements and that “therefore a valid agreement was entered into.” The judge also noted that the University had argued:
“that there was no agreement between the parties. It avers that the offer and the acceptance of voluntary retrenchment must be interpreted to mean that it was merely an invitation to all University Staff to apply for voluntary retrenchment and early retirement and that the acceptance of the offer was an application to the Respondent’s Council which would consider all applications with particular regard to the retention of necessary skills. The respondent’s counsel argued that this interpretation based on the evidence of Mr Negota, clearly established that there had not been an acknowledgement of the application, and that as the applications had not been considered and approved, accordingly no agreement was concluded. Unfortunately for the respondent this is not borne out by the contents of the communiqué issued by Mr Negota himself. If, as Mr Negota would have had the Court believe the Golele offer was merely an invitation to apply his communiqué of the 4th September 2000 [rescinding the original offer] would have been unnecessary.”
Gush A.J. then went on to hold that the University was bound by the acceptance and that nothing further was required on the part of the staff. He also rejected the argument that by electing to work after the events in question the plaintiffs must be taken to have acquiesced in the actions of the University:
“The respondent was aware of the fact that the validity of the offer was being challenged, was aware that the applicants had accepted the offer and yet did nothing to address the issue with any of the applicants after the 30th September, save to threaten them with action should they abide their acceptance and leave their employment.
The respondent did not argue that by remaining in the employ of the respondent the applicants abandoned the agreement nor that their subsequent retirement novated the original agreement or that it constituted a waiver of their rights.
The respondent by its own actions actively sought to prevent the applicants from leaving in accordance with the agreement reached by threatening them with disciplinary action.
It is true that a severance benefit is payable in circumstances when as a result of a no fault termination the employee is compensated for the loss of job security and that generally speaking severance benefits do not accrue to employees who retire. The position here is different however. The applicants concluded a valid and binding agreement with the respondent. The respondent sought unsuccessfully to escape the agreement. In so doing it continued to employ the applicants. It did so at its own risk and not at the risk of the applicants. Accordingly, when it was finally decided that the agreement was binding the respondent was obliged to perform.”
28. In my view, these principles are applicable to this jurisdiction, since it is hard to see the plaintiff’s acceptance of the “Voluntary Severance Offer” on 11th September 2006 as anything other than the acceptance of a unilateral offer made by the company which at that point became binding. This is especially so given that the earlier version of the document had expressly warned that this was simply an estimate to which the parties were not necessarily committed, while the second version of the document – which was the one which the plaintiff signed and had witnessed – contained no such stipulation. Viewed objectively, it is equally hard to avoid the view that any person familiar with this documentation at the time would have concluded that Mr. Browne had just accepted a unilateral offer which the company had made to him.
29. The authorities in this jurisdiction also support this conclusion: see generally McDermott, Contract Law (Dublin, 2001) at 30-54. Thus, for example, in Billings v. Arnott & Co. (1946) 80 I.L.T.R. 50 the defendants, a well known Dublin retail outlet, posted a notice which was circulated to their employees, offering to pay one half of the salary of their employees who joined the Defence Forces. It was held by Maguire J. that the plaintiff had accepted the offer by joining the Defence Forces and that he was accordingly entitled to the premium pay. Maguire J. further stressed ((1946) 80 I.L.T.R. 50, 51) that the offer had been unconditional with:
“….no reservation to allow a refusal to release any employee. I cannot take the view that it was a mere declaration of intention. It is a clear expression of what the company would do. Acceptance was then completed when the plaintiff joined the Defence Forces and intimated his intention to do so on 16th August 1940. On that view a contract was completed under which the defendants undertook to pay the plaintiff an allowance. There was no provision in the notice published that the managing director had power to decide to whom the allowance was to be paid.”
30. Likewise, in Kelly v. Cruise Catering Ltd, High Court, 5th July 1994, Blayney J. held that an offer had been accepted once the plaintiff signed a contract of employment which had been sent to him by a Norwegian company based in Oslo and then had posted the signed contract in Dublin.
31. To repeat, therefore, viewed objectively, therefore, there had been an offer and acceptance once Mr. Browne duly dispatched the signed and witnessed form on 11th September 2006 and gave it to Ms. O’Connor for onward transmission within the company. In that respect, therefore, the case is indistinguishable from both Wiltshere and, for that matter, Billings and Kelly.
32. Counsel for the company. Mr. Callinan S.C., argued forcefully, however, that this offer and acceptance must be taken to be subject to an implied term that the offer would only become binding once a business case was actually approved by senior management.
33. It is clear from the evidence of the various witnesses (see, for example, the evidence of Ms. Coyne and Mr. O’Farrell) that the requirement that an approved business case must exist in such circumstances was well known within the company. It is, nevertheless, equally clear that Mr. Browne had no reason to assume or believe that when the formal offer was made sometime in early to mid-August 2006 that the business case had not already been approved by company management. Just as with Billings, there was nothing in the second offer which the plaintiff had received in mid-August which suggested that the management had reserved onto themselves the right to decide which offer should be accepted and which should not. The evidence certainly did not bear out the suggestion that any acceptance by Mr. Browne was impliedly subject to the subsequent approval of the business case by senior management. This could only have been the case if it were clear that the parties knew – or, at least, ought to have known – that such an assessment had yet to be carried out. There is equally no doubt but that Mr. Browne was surprised – even astonished – to learn on 22nd September 2006 that he was being required to return to work.
34. In these circumstances, I find myself compelled to the conclusion that there was in fact an offer made by the company which, having been accepted by the plaintiff, binds the company. It is true that the plaintiff did, in fact, continue in employment beyond September 2006. This, however, was in circumstances where he had been effectively compelled to do so by the company and, just as in Wiltshere, it would have been quite unrealistic for him to have to done otherwise. Given the uncertainty – which, after all, had been created by the company – the plaintiff cannot be faulted for loyally and diligently working until his retirement age as the company required and before commencing these proceedings at a later stage.
Conclusions
35. For all of these reasons I must find that there was an offer which bound the company following the plaintiff’s acceptance of that offer. I will invite the parties to make further submissions to me on the specific relief to which the plaintiff is entitled in respect of my conclusion that there has been a breach of contract on the part of the company.
Scott & Ors v Belfast Education & Library Board
[2007] NICh 4 (15 June 2007)
WEATHERUP J
[1] Before the Court is a preliminary issue in these proceedings and two questions are raised. First, do the tender documents give rise to an implied term of fairness and good faith? Secondly, if so, does the implied term of fairness and good faith require the absence of any material ambiguity in the tender documents that would significantly affect a tender?
[2] The proceedings are by way of originating summons between the plaintiffs, as contractors, and Belfast Education & Library Board, as employer. Maurice Flynn & Sons Ltd are rival contractors to the plaintiffs and are notice parties to the proceedings. The plaintiffs sought an interim injunction, in the first place restraining the defendant from proceeding with a tendering process in respect of the award of measured term contracts for general building works in two areas, Belfast East and North and Belfast South and West and secondly, the plaintiffs sought an order restraining the award of any measured term contract for the maintenance work. On 31 October 2006, upon an ex parte application by the plaintiffs, I granted an interim injunction.
[3] The plaintiffs relied on three grounds of complaint. After an inter partes hearing I rejected the first two grounds and acceded to a modification of the third ground. An earlier judgment was delivered on 22 December 2006 setting out the position. The result was that the plaintiff’s successful ground related to a day-works issue that had not been pleaded by the plaintiff in the manner in which the issue developed at the hearing. The first step was the amendment of the pleadings in order to reflect the issue of the day-works as it had then emerged. The proceedings were adjourned for the amendments to be drafted and the injunction continued in the interim period. The next step was a further hearing on 28 February 2007 in respect of the amendments. I gave leave to make the amendments and continued the interim injunction. There followed the preparation of the preliminary issue which has now been heard.
[4] In essence the plaintiffs argue for an implied contract between tenderers and prospective employers which it is said has developed at common law and has emerged in parallel with legislation on the domestic and European scene in relation to public service contracts and the public interest in relation to the management of public service contracts. A number of cases have discussed the development of implied contracts during tendering and the plaintiffs rely in particular on an extensive judgment of Judge Humphrey Lloyd QC in the Technology and Construction Court in England and Wales in Harmon CFEM Facades (UK) Ltd v The Corporate Officer of the House of Commons [1999] All ER (D) 1178 and the decision of the Privy Council in Pratt Contractors Ltd vTransit New Zealand [2003] UKPC 83.
[5] On the other hand the defendant rejects any implied contract arising out of all tendering processes and rejects any basis for an implied contract in the present case and any intention to create legal relations. It is argued that the authorities are fact specific and that the Pratt decision proceeded by way of concession by the defendant that there was an implied contract.
[6] Having considered all of the authorities and without reviewing them for the purposes of this present ruling I would state as follows. First of all, I am satisfied that an implied contract can arise from the submission of a tender. It may arise by inference from the scheme of the tendering process and the presumed intention of the parties. Secondly, I am satisfied that an implied contract may arise from a tendering process for a public works contract, even though the particular contract is below the financial level of the Regulations that apply in relation to public works contracts. The parties to such a public works contract as the present are parties to an elaborate tendering process which is designed to achieve best value for the provision of public services. An implied contract arises in the present case. Thirdly, I am satisfied that the implied terms of such an implied contract extend to the implied term of fairness and good faith.
[7] In relation to the first question, the defendant, quite properly, suggests that it should be formulated in this manner – Do the tender documents give rise to an implied contract, the terms of which are that the employer will act fairly and in good faith in relation to the tenders submitted? The proposed implied term is that of fairness and good faith. Good faith is not an issue in this case. It is a question of fairness. I am satisfied that the concept of fairness applies in a number of respects:
1. Fairness applies to the nature and application of the specified procedures in a particular contract.
2. Fairness applies to the assessment of the tenders according to the stated criteria.
3. Fairness applies to the evaluation of the tenders in a uniform manner and as intended by the tender documents.
[8] If there is a mistake in a tender submitted by a tenderer it may arise by reason of misinterpretation of the documents by the tenderer. If there is no mistake in the tender documents and it is simply a mistake by the tenderer then it appears to me that no issue of unfairness would arise. However if the mistake of the tenderer is occasioned by the employer, for example, because there is an error in the tender documents, then that may give rise to a position where one or more tenderers has adopted a different approach to the tender to that which must have been intended by the tender documents. This in turn may affect the assessment of the tenders and it may affect the uniformity of evaluation of the tenders as there may be a different impact on different tenderers. Such a mistake occasioned by the employer may affect the fairness of the process.
[9] Apart from a mistake in the tender documents there may be an ambiguity. The present case proceeds on the basis that there is some evidence of a mistake by the employer in the preparation of the tender documents, but whether there is a mistake or not, there is evidence of an undetected ambiguity in the tender documents, that is to say such ambiguity as the Plaintiff relies on was only revealed as such after completion of the tender. An undetected ambiguity that has impacted on the approach of the tenderers may affect the assessment of the tenders and it may affect the uniformity of evaluation. An undetected ambiguity may affect the fairness of the tendering process by impacting on procedures or assessment of tenders according to the criteria or uniform evaluation of tenders.
[10] Qualifications have been introduced by the manner in which the second question has been formulated. The qualifications are, first of all, that fairness requires the absence of an ambiguity that is “material”. An ambiguity may be material if it is such as to cause the tenderer to proceed on a mistaken basis or on a different basis to other tenderers. Secondly, fairness requires that the material ambiguity has a “significant” effect on the tender. A significant effect is such as to cause the tenderer to submit a tender which is more than negligibly different from the tender which he would otherwise have submitted.
[11] After the hearing the plaintiffs drew attention to a decision of the European Court of Justice in SIAC Construction Ltd v Mayo County Council [2002] All ER (EC) 272 which concerned a tendering process for public works by Mayo County Council. A Council Directive on awarding public contract works requires Member States to have regard to the procedures provided by the Directive. However the decision does contain certain observations which relate to such a tendering process, although it should be emphasised that the present case is not governed by the Directive. What emerges from the conclusion is –
1. The duty to observe the principle of equal treatment of tenderers lies at the heart of the Directive and tenderers must be in a position of equality, both when they formulate their tenders and when those tenders are being assessed by the adjudicating authority.
2. The principle of equal treatment implies an obligation of transparency in order to enable compliance to be verified. Transparency means that the award criteria must be formulated in the contract documents or the contract notice in such a way as to allow all reasonably well-informed and normally diligent tenderers to interpret them in the same way. Further, transparency also means that the adjudicating authority must interpret the award criteria in the same way throughout the entire process.
3. Further, when tenders are being assessed the award criteria must be applied objectively and uniformly to all tenderers. If the documents are not capable of being interpreted by the tenderers in the same way then the process may lose that objective and uniform approach to the assessment of tenders.
[12] In answer to the first question – Do the tender documents give rise to an implied contract, the terms of which are that the employer must act fairly and in good faith? – “Yes”.
In answer to the second question – Do the implied terms of fairness and good faith require the absence of any material ambiguity in the tender documents that would significantly affect the tender? – “Yes”.
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Buzreel Ltd & Companies Acts
[2014] IEHC 225 (01 May 2014)
JUDGMENT of Mr. Justice Hogan delivered on 1st May 2014
1. On 2nd April 2014 Mr. Neil Hughes was appointed as provisional liquidator of Buzreel Ltd. (“Buzreel”) by order of McGovern J. on foot of a petition presented by Midland Web Printing Ltd. (“Midland Web”). Buzreel is the owner of the only classified advertising business in Ireland, namely, the magazine known as “Buy and Sell”. There were five weekly titles which were distributed widely among retailers throughout the island of Ireland. The company also has a strong online and social media presence. Publication ceased, however, once a liquidator was appointed.
2. Section 231(2) of the Companies Act 1963 (“the 1963 Act”) provides that the liquidator in a winding up by the court shall have power to sell the assets of the company by public auction or private contract. Section 213(3) provides that that the exercise by the liquidator in a winding up by the High Court of the powers conferred on him by the section shall be subject to the control of this Court.
3. To this end the liquidator advertised the sale of the company’s assets by an advertisement published in The Irish Times on April 4th, 2014. He was naturally anxious to do this as quickly as possible so as, as Mr. Hughes put it in his affidavit of 15th April 2014, “to mitigate the risk of brand value decreasing whilst the publications remained out of circulation.” Interested parties were then given an information memorandum which detailed the assets for sale and which also laid down a timetable for what was effectively a tender process.
4. In this regard the liquidator required prospective bidders to make final offers to acquire the assets and undertaking of the business by 12 noon on Thursday 10th April. The information memorandum required that “all offers must be supported by documentary evidence of funding to the satisfaction of the Provisional Liquidator.” The information memorandum then continued:
“Acceptance of the preferred offer will be communicated by close of business on 10th April 2014. Please note that there will be a requirement for the preferred purchaser to enter into an asset sale agreement on 11th April 2014. The asset sale agreement will be conditional on approval of the sale by the High Court.
The Provisional Liquidator intends making an application on 11th April 2014 (or the earlier possible time thereafter) for the approval by the High Court of the sale of the assets to the preferred purchaser.
The Provisional Liquidator reserves his right to change the timetable set out above.”
5. As it happens, the deadline was extended to 5.30 p.m. on Thursday, April 10th. The liquidator received four offers in total, ranging from €26,000 to €303,000 (exclusive of VAT). The highest offer of €303,000 came from Midland Web and it was informed that evening that it was the preferred bidder. Midland Web was also informed that the liquidator intended to complete the sale of the relevant assets on the following day, subject only to approval from this Court.
6. At this point a difficulty arose. It became clear from the letter provided from Ulster Bank that Midland Web’s funding was contingent on the early encashment of various investments held by the directors with that Bank, so that it would take somewhere between three to four weeks for the necessary funds to clear. In the light of these difficulties and having spoken with James Fanning of Midland Web, Mr. Hughes decided to withdraw Midland Web’s status as the preferred bidder. Mr. Hughes maintained that the information memorandum had made clear at all times that time would be of the essence given the nature of the assets and the real possibility that the brand value would deteriorate. He suggested that it was clear that all bidders were – or, at least, ought to have been – aware from that memorandum that any proposed sale would have to be completed more or less immediately after this Court had approved the terms of the sale.
7. At that point Mr. Hughes turned to the second highest bidder, Demirca Ltd. (“Demirca”). While its bid was lower, it was nonetheless at that juncture the highest bid in respect of which the liquidator had satisfactory proof of immediate funding. This was the background against which Mr. Hughes applied by motion dated 15th April 2014 to this Court for an order pursuant to s. 213(3) in respect of that sale to Demirca.
8. The matter originally came into the vacation list before Barr J. This matter was then adjourned to enable Midland Web to put in a replying affidavit. In that affidavit, the principal of Midland Web, Mr. Fanning, stated that at all material times the Provisional Liquidator was made aware that it would take three to four weeks for the necessary funds to clear. He specifically stated that an employee of Messrs. Hughes Blake had expressly confirmed to him that the Provisional Liquidator would accept the investment portfolio as proof of funding. Mr. Hughes responded by affidavit on 22nd April stating that he had never known or realised that the funding would take this length of time to clear.
9. A further complication was that Midland Web’s original bid price – €313,000 – was disclosed by the Provisional Liquidator to Demirca in an effort to ensure that the original winning price was matched. At the hearing before me on 24th April 2014 Midland Web strongly resisted the liquidator’s application for confirmation of the sale on the basis that it would be unfair for the liquidator to go back on what it said had been the assurances given to it, although the liquidator had also put in a further replying affidavit denying any such assurances or understanding. Midland Web also indicated to the Court that it was now prepared to raise its bid to €312,000.
10. Given that all parties had stressed the urgency of the matter and that an immediate decision was necessary, I took the view that the fairest thing in the circumstances was to make a Van Hool order (Van Hool McArdle Ltd. v. Rohan Industrial Estates Ltd. [1980] I.R. 237) and to give the two parties one final opportunity to make unconditional sealed bids. I reached this conclusion because it would have been impossible to determine the factual dispute in respect of the alleged assurance given to Midland Web without at least some form of oral hearing which the exigencies of time simply did not permit. It would have been equally unfair to Demirca to accept the slightly enhanced bid from Midland Web without having given it the same opportunity to increase its bid.
11. The liquidator was understandably anxious to ensure that the existing Demirca bid with its cleared funds should not be lost if there was a re-tender. I sought to guard against the possibility that the sale might be jeopardised and, as a condition of the making of the Van Hool order, I required Midland Web to give an undertaking (which was forthcoming) that it would make an unconditional bid of at least €312,000 on the re-tender.
The Van Hool order of 24th April 2014
12. It was in that vein that I accordingly made the Van Hool order in the expectation that the parties would have one final opportunity to make an unconditional offer, with sealed bids to be with the liquidator by 5 p.m. on Monday, April 28th. The offer was to be on the basis of the draft asset sale agreement which had been sent to both parties, subject only to non-material amendments or amendments to that agreement analogous to those which had been agreed in principle by the liquidator with Demirca. With a view to avoiding the difficulty which had attended the first tender I directed for the avoidance of doubt that the liquidator was entitled to reject any offer which was not accompanied by either a bank draft or a letter from a bank of standing confirming that funds were available for immediate transfer.
13. The curial part of the order of 24th April 2014 accordingly provided in relevant part that:
“1. Demirca and Midland Web Printing be each at liberty to provide sealed unconditional bids together with signed contracts to the Provisional Liquidator, Mr. Neil Hughes, by 5.00p.m. on Monday 28th April 2014.
2. The Provisional Liquidator is entitled to accept the highest bid tendered which is cash backed and for the avoidance of doubt the Provisional Liquidator is entitled to reject a bid not accompanied by a bank draft or its equivalent or a letter from a senior official from a bank of standing confirming that the funds are available for immediate transfer to the Provisional Liquidator on completion of the contract for sale.
3. That the matter stands adjourned to this Court for final approval
4. The motion herein stands adjourned to this Court on Tuesday 29th day of April 2014 at 10.45 a.m.
Liberty to apply to the duty judge.”
The events of Monday, April 28th
14. Mr. Hughes was confirmed as official liquidator by order of Charleton J. on the morning of Monday, April 28th.On that afternoon the liquidator received the bids/
15. At 4.45 p.m. a representative of Demirca, Mr. Claffey, attended at the office of Hughes Blake and submitted a bid for [y] euros which was higher than its second revised bid of €311,000. This bid was unconditional.
16. On behalf of Midland Web Mr. Fanning arrived at approximately 4.59 p.m. He informed Mr. Hughes that he was making an offer of in the sum of [z] euros. This was made up of a bank draft for [x] euros, plus a cash figure amount to 1% of the x euro figure. The x euro figure was higher than the y euro revised bid of Demirca. The 1% figure in cash was handed to Mr. Hughes’s solicitor, Mr. O’Grady (who was also present) at about 5.20 p.m.
17. There was to be yet a further complication when Mr. Hughes opened the bids at approximately 5.05 p.m. in that the bid submitted by Midland Web contained the following sentence:
“The offer is also subject to the purchaser acquiring clean title and all computers and software that that is required for running the business as per your information memorandum.”
18. Mr. O’Grady immediately queried whether this clause complied with the Court’s direction that the bid be unconditional. Midland Web’s solicitor, Mr. Clinch, stated that he had not previously seen the letter and took instructions. Having done so, Mr. Clinch confirmed that the clause should be deleted and the letter was returned with the sentence in question deleted.
19. Mr. Hughes than met Mr. Claffey to indicate that Demirca had not made the highest offer. For his part Mr. Claffey expressed the view that the Midland Web bid ought not to have been accepted in view of the issues which arisen. Mr. Hughes stated that he not consider these departures from the terms of my order (such as they were) were not material, although he accepted that this would ultimately be a matter for this Court.
The events of April 29th
20. On the morning of April 29th, counsel for the liquidator, Mr. Murphy, applied to me to make an order under s. 213(3) in respect of the revised Midland Web bid. Demirca were not present on that morning and I took the view that in order to protect their procedural rights that they should be given a formal opportunity to object. I accordingly indicated that I would approve the revised Midland Web bid at 11 am on Thursday May 1st. unless Demirca applied by motion to restrain this step.
The events of May 1st
21. On May 1st Demirca applied to restrain the sale to Midland Web. Demirca also sought leave to make a fresh bid for [w] euros. This liquidator confirmed that this latter sum was higher than any previous offer made by either of the parties. There then followed legal argument which lasted much of the day. Given the urgency of the situation, I found myself obliged to give an ex tempore judgment, although I stated that given the acute difficulty of the questions raised, I would have preferred some little time to reflect and to deliver a reserved judgment.
22. In giving that ex tempore judgment I ultimately concluded that, as the Van Hool order made by me was intended to be the final step of the process, I should direct the liquidator to accept the Midland Web bid, provided that it was a valid bid. I further concluded that the deviations from the terms of my order (such as they were) on the part of Midland Web were not material and that it was accordingly a valid bid.
23. I put the matter in for 2 p.m. on the following day, Friday, May 2nd.,in order to give Demirca an opportunity to consider its position. On that occasion counsel for Demirca, Mr. Lehane, indicated that it was his client’s intention to appeal. Following further argument I agreed to extend that stay on my order to 5 p.m. on Wednesday, May 7th. in order to give Demirca an opportunity to appeal to the Supreme Court. It was in that context that, with the concurrence of the parties, it was agreed that I would furnish the parties with a more elaborate version of my reasons in writing.
The task of the court under s. 213(3)
24. It is merely statement of the obvious to say that one of the tasks of the liquidator in this process is to achieve the best possible price for the assets of the company. That, however, must be balanced against considerations of fairness, honour and integrity in respect of any tender process the outcome of which requires judicial sanction. It is, accordingly, not simply a question of the best possible price – although that, of course, must be a key consideration – but where (as here) an open bidding process has been held by the liquidator (either in his or her own right or at the court’s direction) it is rather a question of the best possible price obtained in a regular and fair fashion.
25. If it were otherwise, then, for example, it would be open, for example, to the liquidator having announced the winning bid at the end of the tender process then to accept a higher offer from the losing party. The unfairness inherent in that example, would be manifest.
26. These are, I believe, the principles which emerge from the two key Supreme Court decisions which we may now examine. In the first case, Re Hibernian Transport Companies Ltd. [1972] I.R. 190, the official liquidator applied to the High Court and obtained leave to sell by public auction certain leasehold property by auction subject to a reserve of £70,000. There were in fact no bids received at the auction, but subsequently an offer of £65,000 was made by a company, United Dominion Trust, which was expressed to be “subject to contract”. That offer was approved by a judge of the High Court (Kenny J.) in chambers and acceptance of the offer was then duly communicated to the prospective purchaser. In the wake of this communication the liquidator then applied to the judge for approval of the sale of the contract, but in the course of that application it became clear that another party, Irish Permanent, was willing to make an offer for £101,000. Kenny J. concluded that the Court was bound to confirm the sale to United Dominion Trust given that court sanction for the sale had already been given.
27. The Supreme Court dismissed an appeal by Irish Permanent against this decision of Kenny J. As Walsh J. explained ([1972] I.R. 190, 202):
“It is the purpose of liquidation proceedings to realise the assets for as much as it is possible to obtain as this inures for the benefit of creditors, and all other parties who are interested in the assets. In the present case the offer of £101,000 was a very considerable increase on the price offered by United Dominions, and if all other things were equal then there should be no doubt but that the larger sum should be accepted. However, all other things were not equal, and if one assumes that the documents and letters which passed between United Dominions and the liquidators would not constitute a sufficient memorandum or note in writing to comply with the provisions of the Statute of Frauds, 1695, the fact remains that it had been communicated to United Dominions (with the approval of the judge) that their offer would be accepted…..
Much stress has been laid on the fact that initially the offer of United Dominions was ‘subject to contract’; in the ordinary course of events an agreement for the sale or purchase of the land subject to contract means nothing more than an agreement to enter into a contract for the sale of land and, as such, it is not enforceable as if it were a contract. In the present case whether or not, as the matter stood on 11th October, the agreement between the parties could have been enforced, there can be no doubt about the fact that the High Court had agreed to the sale and United Dominions had committed themselves to purchasing….In my view, it was quite right for the learned trial judge to regard himself as being bound, if not in law, certainly in honour, to permit the liquidator to complete the contract already executed by United Dominions.”
28. The decision in Hibernian Transport can be contrasted with the subsequent decision of the Supreme Court in Van Hool McArdle Ltd. v. Rohan Industrial Estates Ltd. [1980] I.R. 237. In that case the liquidator agreed to sell the company’s lands for the sum of £730,000, “subject to and conditional upon the consent of the High Court thereto” being obtained. The liquidator subsequently obtained a higher offer from another bidder. When the liquidator applied to the High Court he informed the Court of the higher offer, but McWilliam J. approved the original contract of sale.
29. The Supreme Court allowed the appeal and it is striking that both O’Higgins C.J. and Kenny J. stressed that the present case was quite different from the facts disclosed in Hibernian Transport and other similar cases. As Kenny J. explained ([1980] I.R. 237 at 242-243):
“Each of [these cases] relates to an application to discharge a court order, which had approved a sale, because a higher bid was received after the court’s sanction had been given. In all three of them the court, having approved the sale, had to keep faith with the purchaser. In the instant case the High Court had not given its consent to the sale when Van Hool’s offer of £850,000 was received.
The primary duty of the court and of the liquidator in a court winding up is to get the maximum price for the assets. A system under which a bid of £730,00 is accepted when one of £850,000 has been made would bring the courts into well-deserved ridicule.”
30. The Court then directed that the two parties submitted sealed tenders within one week: see [1980] I.R. 237, 243.
31. It was, perhaps, significant that in Van Hool there had not been a competitive tender process prior to that point. It was also clear that there had been no question of court sanction of the first bid prior to the making of the second bid. By contrast, in Hibernian Transport the first bid had received judicial approval before the second (and higher) bid. This was the essential difference between the two cases and why Walsh J. held in Hibernian Transport that the court was entitled to regard itself “as being bound, if not in law, certainly in honour” in respect of the first bid in that case.
The application of the principles in Hibernian Transport and Van Hool
32. It is clear from the terms of the Van Hool order that the two parties were each to be given one further opportunity to make a final bid. It was necessarily implicit in that process that the contract would be awarded to be highest bidder who made a valid bid and, indeed, I said as much in open court. It is true that the matter had to come before the Court again on the following morning, but this was no more than the exercise of the Court’s general supervisory powers in relation to the process.
33. Assuming, therefore, that there were two otherwise valid bids, the Court must, in line with the principles in Hibernian Transport, keep faith with the process and award the contract to the highest bidder. Subject only to the question of whether Midland Web complied with the terms of the order and that it made a valid bid, then it is clear that the z euros bid which it made that afternoon was the highest bid. Accordingly, therefore, the outcome of the present application is contingent on whether Midland Web made a valid bid in accordance with the terms of the Van Hool order.
Whether Midland Web complied with the terms of the Van Hool order
34. Two issues in relation to the compliance with the terms of the Van Hool order now arise. First, although the bid consisted of z euros, made up of a bank draft for x euros, plus a cash payment equal to 1% of the x euros figure, the 1% cash element was presented about 20 minutes after the 5 p.m. deadline. Second, an issue arises as to whether the bid was unconditional.
35. In my view, while the terms of the order should be construed relatively strictly, this should not be done in some unyielding or unforgiving fashion. All of this means that some flexibility must be built into the process, provided that there is a high degree of compliance with the terms of the order and no particular unfairness is caused thereby to the other bidder.
36. So far as the late arrival of the cash payment is concerned, it should be noted that the liquidator was given the bank draft for x euros in advance of the 5 p.m. deadline and that he was told that another cash payment was about to be immediately delivered. One would be hard pressed to say that in this respect there was not a high degree of compliance with the order. After all, the order contemplated that it was sufficient if there was a letter from a bank of standing confirming that the funds were to hand, so that immediate payment on or before 5 p.m. was not absolutely necessary. Nor could it be said that this lack of perfect compliance with the order prejudiced Demirca, in that the sum which was actually available to the liquidator before 5 p.m. in the form of the bank draft for x euros was higher than that which had been tendered by Demirca at that stage.
37. The second question was whether the bid was unconditional. It is true that the letter of 28th April had stated that it was subject “to the purchasers acquiring clean title and all computers and software that it required for running the business as per your information memorandum”, so that it was in, perhaps, a strictly literal sense a bid subject to certain conditions. This, however, was not the sense in which the bid was required by the Van Hool order to be unconditional, as this requirement rather commits the bidder to make an unequivocal offer. It was in that sense that the bid was was nonetheless, to all intents and purposes, an unconditional bid.
38. The first qualifying condition required “proof of clean title.” But this means no more than that the vendor would be required to produce a good, marketable title and this is but a standard requirement of very commercial transaction of this kind. In this respect, the bid was no different from the first bid accepted by this Court in Hibernian Transport which was expressed to be “subject to contract”. In the Supreme Court Walsh J. did not think that this condition took from the otherwise unequivocal nature of the offer to purchase.
39. The second stipulation was that the purchaser would acquire the “all computers and software that is required for running the business”. Again, this stipulation does not really take from the unconditional nature of the bid, because the information memorandum had contemplated that, subject to some minor variations and adjustments for individual cases, these computers and software would be, in any event, included in the sale. This stipulation was, accordingly, no more than a statement of the obvious.
40. Counsel for Midland Web, Mr. Whelan, candidly and fairly admitted that the inclusion of the clause was unfortunate. Yet, for the reasons I have just ventured to state, I do not think that these words truly conveyed some equivocation on the part of Midland Web and the bid was, accordingly, unconditional in the sense envisaged by the Van Hool order. In any event, the words were deleted within a matter of minutes of the opening of the bid by the liquidator, so that no real prejudice was caused to Demirca.
Conclusions
41. It follows, therefore, that for the reasons stated I am of the view that the Van Hool order of 24th April 2014 contemplated that there would be finality to the bidding process. As I have concluded that Midland Web’s bid on 28th April 2014 was a valid bid and that it was the highest bid made pursuant to that order, it follows that I will direct the liquidator to complete the sale of the assets of the company to Midland Web for the sum set out in its letter of offer dated 28th April 2014.
McCabe Builders(Dubllin) Ltd -v- Sagamu Developments Ltd & ors
[2009] IESC 31 (01 April 2009)
Cite as: [2009] IESC 31, [2011] 3 IR 480
Judgment delivered the 1st day of April, 2009 by Mr Justice Fennelly
1. The parties to this appeal are a building contractor and a developer. They are in dispute regarding the terms of the contract under which the plaintiff/respondent agreed to carry out a large building project for the defendants/respondents. Each party puts forward a set of documents said to comprise the terms of the contract between them. The appellants (whom I will describe as “the Hanly Group”) bring this appeal from the judgment of Charleton J in the High Court, in which that learned judge held that there was no contract because the parties were not ad idem. Consequently, the respondent (which I will describe as “McCabes”) is to be remunerated on the basis of quantum meruit.
2. McCabes proposed a tender price for works described in tender documents provided by the appellants. Negotiations followed. There was an exchange of letters, said by the appellants to comprise a contract. The respondents say that the contract basically consists of the standard-form contract later signed. There are inconsistencies between that document and some, at least of the tender documents.
3. It is necessary to recount the contractual history and to recall the applicable principles of the law of contract in order to reach a conclusion as to whether there was a concluded agreement and, if so, on what terms.
Contractual history
4. The Hanly Group is an established group of builders and developers. In the year 2005, it proposed to build 32 houses and 14 apartments at a site known as Rocky Valley, Kilmacanogue, County Wicklow. They had obtained planning permission for the development. They engaged Nolan Ryan, a leading firm of Quantity Surveyors, to conduct an initial tendering process. Tender documents were sent out by Nolan Ryan on behalf the Hanly Group under cover of a letter of 24th June 2005 to a number of builders,including McCabes. The tender documents comprised:
(i) The Bill of Approximate Quantities in four volumes;
(ii) A Form of Tender for completion;
(iii) Architectural Drawings and Landscape Architect’s Drawings;
(iv) A specification.
5. The core of the dispute between the parties is whether the Bill of Approximate Quantities remained a contractual document once the standard-form contract had been signed. McCabes contend that the version of standard-form contract signed by the parties excluded it from having any contractual effect insofar as it described the works to be carried out. The learned trial judge agreed. The Hanly Group contend that the description of the works is “partly definitive” of the contractor’s obligations under the contract partly because the tender drawings and specification were quite inadequate for that purpose and partly because of the exchange of correspondence between the parties after tender but before signature of the contract.
6. It is necessary, in order to discern the precise nature of the contractual dispute, to refer to some of the documents generated during the process in some detail.
7. The Bill of Approximate Quantities is central to the case for the Hanly Group. It contained the following material provisions:
· Under the heading, “Project Particulars,” there appeared a subheading “Contract” as follows:
“The form of contract will be the Articles of Agreement and Conditions of Contract 2002 (Revision 1, Print 4) as issued by the R.I.A.I. in agreement with the C.I.F. and S.C.S. where quantities do not form part of the contract.
The Appendix to the Contract will be filled in as shown in the Preliminaries Section of the Bill of Approximate Quantities.” This is known as the Blue form. I will refer to it as the R.I.A.I. form.
· A slightly varied version of the foregoing provision appeared in the schedule to the Bill of Approximate Quantities, once more emphasising the expression “where quantities DO NOT form part of the Contract” but followed by a large number of references to provisions of the R.I.A.I. form. Opposite a reference to “(36) Wage and Price Variations” there appeared: “(Clause Deleted).” There was a large list of items for inclusion in the completion of the Appendix to the Articles of Agreement (the R.I.A.I. form).
· In the Bill of Approximate Quantities under the heading “General Conditions” at GC 2 and GC 4 and the sub-heading “Documents” there at two places appeared the following:
“The Contractor shall carefully examine the drawings and other Contract documents and satisfy himself as to their accuracy and ensure that they cover and embody the proposed works.
The Contractor shall properly execute the Works whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.”
· GC 5 of the General Conditions provided:
”The “Works” shall mean the whole of the works envisaged by this Contract…”
· The notes to the form of tender included: “The Contractor’s attention is drawn to the fact that Quantities do not form part of the Contract for this Project.”
· There was also a “Specification for Materials,” which contained no material provision. However, it seems to have been common case that it was quite inadequate to its stated purpose. The learned trial judge noted that it had “been described in evidence as one of the worst, meaning lacking in detail, ever issued as part of a tender process in a job of this size.”
8. The tenders were received on 19th July, 2005. The VAT exclusive tender prices for the works varied between approximately a high of €21.2 million and a low of €15.7 million. McCabes’ tender was the second lowest at €17,222,620. Negotiations took place between the Hanly Group and McCabes resulting in a reduction of their tender price of almost €2 million bringing it to a level below the next lowest competitive tender.
9. On 5th August 2005 Mr John Hanly of the Hanly Group commenced to write a letter to Mr Richard McCarthy of McCabes referring to conversations that had taken place between them. The letter includes the following sentence:
“As per our conversation, we will be entering into a Fixed Price Contract with the Contractor to carry out the works at Kilmacanogue; there will however be 6 No. PC Sums, 3 of which will be nominated suppliers and the other 3 will be at the Contractors discretion. In all cases, should there be an extra overspend on the 6 PC Sums, it will be the Developers responsibility to pay the difference.”
10. The writing of the letter was interrupted by a telephone conversation between Mr Hanly and Mr McCarthy. The learned trial judge found as a fact that, in that conversation, “a deal was made to do the works tendered for, including any extra works that might be implied by the correspondence of the 25th July, and 3rd August, for the sum of €15.3 million plus VAT.” These references to other correspondence are not in dispute on the appeal. The works being discussed (I will avoid saying “agreed” at this point) extended to the subject-matter of a large number of other letters or other documents, which were incorporated in the August correspondence. The learned trial judge found as facts that McCabes had received, in particular the letters dated 25th July and 3rd August referred to in the quoted passage. These were incorporated in the letter of 5th August.
11. In the light of the “deal” made in the telephone conversation, Mr Hanly completed the letter of 5th August proceeding, so far as relevant, as follows:
“The parameters of this letter encompass all other documentation provided by The Hanly Group to McCabe Builders surrounding the compilation of this contract.
“Since writing this letter, we have reached agreement on the project via telephone. I would like to summarise our agreement as follows:
“The Hanly Group will pay McCabe Builders €15.3 million plus VAT for the Contract as outlined in the Spec. and Bill of Quantities at Kimacanogue, County Wicklow. The Hanly Group is entering into a Fixed Price Contract and as stated earlier in this letter there are 6 PC Sums of which there are only two nominated Suppliers/Subcontractors ……
“Although not relevant to McCabe’s, it must be noted that the Hanly Group are giving in excess of €600,000 over and above a competitor’s price. We are doing this in the knowledge that the show house will be delivered in a timely fashion by the second/third week in November as discussed; also the consolidation of what should be a mutually beneficial relationship between our firms.
“In view of the above, whereby the Hanly Group will be fair to the contractor, we will be entertaining no claims whatsoever, we will work in conjunction and on a timely basis with McCabe’s to approve whatever alternatives (both products and methods) are put forward, thus ensuring cost effectiveness for McCabe’sthroughout the course of the project.
“We propose taking the opportunity over the coming days to work closely with McCabe’s to finalise all outstanding issues and also we would hope to put forward some real samples of the type of product mentioned in the designer’s report. It would be beneficial for both of our companies to have reached a conclusion on this upon signing of contracts.
“It is the Hanly Groups understanding that all correspondence forwarded to McCabe Builders from our offices and Nolan Ryan’s offices regarding conditions, planning conditions and special conditions are and form integral parts of our agreement. I would be grateful if you could review this document, and if you concur that the conditions laid out in this document are as agreed, please sign below and return to our offices at your earliest convenience.”
12. A copy of the letter was duly signed and returned on behalf of McCabes on 8th August, without alteration.
13. Although the letter of 5th August refers throughout to the Hanly Group, Mr Hanly signed the letter on behalf of Laragan Development Ltd. The first-named appellant, Sagamu Developments Limited, was not mentioned as a possible contracting party at that stage. In short, the precise contracting party in the Hanly Group remained to be identified.
14. No further negotiations took place after 5th August and its counter-signature on behalf of McCabes on 8th August. However, in order to get the project started, a letter of intent for works to the value of €1 million, signed on behalf of Laragan Developments Ltd, was sent on the 26th August, 2005, in the absence of completed contract documents.
15. On 24th November 2005, Mr Hanly wrote to Mr McCabe enclosing the R.I.A.I. form and Bill of Quantities. A copy of the letter of 5th to 8th August was interleaved. The letter was written on Hanly Group notepaper and signed on behalf of Laragan Developments Ltd. The R.I.A.I. form named Sagamu Developments Limited as the contracting party. Mr Hanly said that he had initialled the documents and asked that they be returned following signature. Signature did not, in fact, take place until 19th January 2006. It is common case that the R.I.A.I. form was signed on behalf of both parties.
16. The R.I.A.I. form is entitled “Articles of Agreement” and is headed with the following:
“This form is applicable where quantities DO NOT form part of the contract.”
Sagamu Developments Limited is named as the employer and McCabes as the contractor.
Paragraph 1 provides:
“For the consideration hereinafter mentioned the Contractor will upon and subject to the Conditions annexed hereto execute and complete the Works shown upon the Contract Drawings and/or described in the Specification and Conditions all of which together with this Agreement are hereinafter referred to as “the Contract Documents.”
Paragraph 2 specifies the contract sum as €17,370,500 (the sum of €15,300,000 with VAT added). Paragraph 3(a)(ii) is crucial. It provides:
“If the Articles of Agreement do not provide for the inclusion of the Bill of Quantities as a contract document the contract sum shall be deemed to provide for the quantity and quality of work set out in the drawings and specification and the contractor shall, before the signing of the Articles of Agreement furnish the architect with the Schedule of Rates.
The Schedule of Rates shall be deemed to mean:
A copy of the fully priced and detailed estimate upon which the contractor’s tender is based priced in ink, or
Where a Bill of Quantities is provided for tendering purposes the rates therein contained.
The Bill of Quantities unless otherwise stated shall be deemed to be have been prepared in accordance with the method of measurement of building works last before issued or approved by the Society of Chartered Surveyors and the Construction Industry Federation. Nothing contained in the contractor’s estimate or the Bill of Quantities (except as a Schedule of Rates) shall confer rights or impose any obligations beyond those conferred or imposed by the contract documents.”
17. As already stated, the contract was signed on behalf of McCabes on 19th January 2006.
The proceedings
18. McCabes issued the present proceedings on 31st January 2007. They claim a declaration to the effect that there exists a binding agreement between McCabes and some or all of the appellants in respect of the development, “the terms of which are to be found in the RIAI Form of Contract 2002 Edition (Rev. 1 Print 4) where quantities do not form part of the contract and the associated documents, namely the Articles of Agreement (where quantities do not form part of the contract), the Conditions, the Specification, Appendix 1 containing a full list of the Contract Drawings and to the extent that it is relevant, the Schedule of Rates (deemed pursuant to clause3.1(ii) of the Contract, to be the rates as per the Bill of Approximate Quantities).” McCabes claim that the contract does not include either the letter of 5th to 8th August or the letters of 25th July and 3rd August, which, according to the findings of the learned trial judge, they had received.
19. The defence of the appellants need not be cited, but the counterclaim seeks a declaration that there exists a binding agreement between McCabes and the appellants, or alternatively Laragan Developments Limited in the terms of the letter or letters of 5th to 8th August 2005 and the documents listed in appendices to the pleading. In effect, the counterclaim is for a contract in the terms of the correspondence of August, to include the various other documents and letters received, especially the Bill of Approximate Quantities.
20. The learned trial judge, as already stated, did not accept either version of the contract. He held that the parties were not ad idem.
21. The learned trial judge analysed the R.I.A.I. form at length and concluded that it was not possible to incorporate the Bill of Approximate Quantities with it, essentially because of the wording of the document and the adoption of clause 3.1(ii). He effectively placed the onus on the appellants to satisfy him of the inclusion of the descriptions from the Bill of Approximate Quantities in the R.I.A.I. form and they had not done so.
22. On the other hand, this conclusion was not sufficient to persuade him to accept McCabes contention that the R.I.A.I. form, with the documents expressly incorporated, represented the contract. He reviewed the dealings between the parties in enormous detail, referring frequently to their respective intentions. He thought that the test as to whether a contract ever existed was “whether each contracting party had the same intention as to the fundamental terms that give any agreement substantial efficacy.” He thought that “the essence of the concept of an agreement [was] that the minds of the parties should meet as to their mutual obligations” and that “[t]hose obligations must be expressed in such a way that the obligations of each party can be determined with a reasonable degree of certainty.” He found that “[t]he minds of the parties never met as to central issues that are crucial to their differing understanding of what would otherwise be their mutual obligations.” He could not hold that there was a concluded contract and said that the matter would have to be sent to arbitration as to amount.
23. The learned trial judge held that the case had to be dealt with on the basis of a quantum meruit: McCabes were entitled to reasonable recompense for the benefit which they had conferred through the work they had done under the purported contract for the appellants. While the learned judge made further observations on the question of reasonable remuneration, including that it should be at such value as was prevalent in 2005, he did not relate the claim McCabes would be entitled to make in any way to the negotiations between the parties, the August correspondence, the tender which had been submitted by McCabes or the agreed sum of €15,300,000.
24. The Hanly Group have appealed against the High Court decision. They claim, as they did in the High Court, that the contract consists of the series of contractual exchanges between the parties and, in particular, that the works are to be defined by reference to the descriptions contained in the Bill of Approximate Quantities.
The opposing contentions
25. In its simplest terms, the issue is whether the R.I.A.I. form excludes any right of the Hanly Group to rely on the Bill of Approximate Quantities though only insofar as it describes the works. McCabes, in reliance on the express written terms, claim that it does. I will summarise the opposing claims.
26. The Hanly Group rely crucially on the following provision, repeated at GC 2 and GC 4 of the General Conditions in the Bill of Approximate Quantities:
“The Contractor shall properly execute the Works whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.”
27. This they say is “partly definitive” of the contractor’s obligations. In other words, they say that the scope of the “works” is partly defined by the Bill of Approximate Quantities. The contract drawings and specification are also relevant, but the evidence in the High Court was that those documents were inadequate for that purpose. I have already noted the comment of the learned trial judge that the specification was utterly inadequate to describe the works. The Hanly Group, therefore, use the Bill of Approximate Quantities to define in part the scope of the contract works. They refer to the columns of the Bill, comprising, firstly, descriptions of work, secondly, quantities and, thirdly, rates. They emphasise that they rely on the descriptions column only and not the quantities. Insofar as there is conflict, they say that the provisions of GC 2 and 4 overrule condition 3(a)(ii) of the R.I.A.I. form.
28. The Hanly Group claim that a concluded agreement had been reached in the correspondence of August 2005. This showed that the Hanly Group insisted on a fixed price for the works as then agreed.
29. They point out that, in the absence of the descriptions in the Bill, McCabes would be able to limit their contractual obligations by reference to the drawings only. Although they had tendered on the basis that they would carry out the work described in the Bill of Approximate Quantities, they would not, in fact, be bound to do so. Thus, insofar as the Bill described works in excess of what could be gathered from the drawings, they would be entitled to claim extra over and above the amount agreed (€15.3m). Thus, they could claim double payment. Insofar as the R.I.A.I. form provides to the contrary, they say that the provisions of GC 2 and 4 of the Bill of Approximate Quantities should prevail.
30. It is convenient, at this point to recall that the learned trial judge addressed this point. He dealt with it in the following passage:
“Mr. McCarthy [of McCabes] agreed that the drawings in this case were lacking. The specifications, he accepted, were poor. In those circumstances, descriptions might be regarded as necessary for the purpose of defining the obligations of the contractor. I accept that this could have been done. In this case, it was not done. The plaintiff expected that the Bill of Quantities would drop away, apart from becoming a Schedule of Rates as the “blue form” RIAI contract specifies. If something was not in the drawings or specifications but was in the Bill of Quantities as a description then, theoretically, it is possible for the plaintiff, as contractor, to claim twice in respect of the same work. Some of the later correspondence from the plaintiff hints at some unstated, and perhaps even this, extreme position. I accept the evidence of Mr. McCarthy that no claim would be pursued on the double by the plaintiff. I accept also the evidence of Mr. Hanly that he could never have signed up to any form of agreement that might allow for this. I would also regard a reasonable bystander with knowledge of the intentions of the parties to immediately declare that a claim on the double, even if not expressly ruled out by the form of the contract chosen, would have been excluded. It is thus excluded by implication.”
31. In other words, the learned trial judge accepted that McCabes might well be entitled to claim on the double, but that Mr McCarthy said that they would not do so. He then proceeded, by reference to the notion of the reasonable bystander, to hold that such a right was excluded by implication. More importantly, the learned trial judge accepted the necessity for “descriptions” for the purpose of defining the scope of the contractor’s obligations but that the Bill of Approximate Quantities, since it had “dropped away” did not do so.
32. McCabes supported the decision of the learned trial judge to the effect that the parties were never ad idem and that, essentially, there was no written agreement in extensive written submissions.
33. At the hearing counsel for McCabes nevertheless concentrated on the proposition that the R.I.A.I. blue-form contract together only with those documents expressly included comprises the entire agreement between the parties. McCabes case, in this respect, is very simple. The Bill of Approximate Quantities is not a contract document except to the extent that it can provide a schedule of rates. At one point, counsel described the provision that Quantities do not form part of the contract as the sheet-anchor of McCabes’ case.
Was there a contract?
34. It is notable that both parties to this appeal embarked on the proceedings in the High Court by alleging that a contract existed between them for the carrying out of the development at Kilmacanogue. McCabes were to be the contractor and the Hanly Group (or one of the companies in the Group) was to be the contractor. On the pleadings, they differed only as to the contractual documents which governed their relationship. Furthermore, by the time the parties commenced this litigation, a very large part of the development had been carried out.
35. It is striking, in these circumstances, that the learned trial judge concluded that there was no binding agreement at all between the parties.
36. The parties went through three distinct phases of contractual negotiations.
37. Firstly, the Hanly Group, through Nolan Ryan, a firm of quantity surveyors, circulated a set of tender documents. Those documents expressly provided that, at the end of the tender process, the contract would be in the R.I.A.I. form of contract. It is obvious that both the Hanly Group and McCabes, in tendering, envisaged that a binding written agreement would come into existence.
38. Secondly, following McCabes’ tender, negotiations took place between the parties culminating in the August exchange of correspondence. It is unnecessary, for present purposes, to decide whether that exchange itself constituted a binding contract. The letter was signed on behalf of McCabes and by Mr Hanly on behalf of the Hanly Group and of Laragan Developments Limited. Leaving aside the identity of the contracting party, it is inescapable that both parties envisaged a written agreement. The tender process had been followed by negotiations leading to a reduction in the tender price to €15,300,000 and to important modifications to the scope of the works by including reference to a number of letters particularly those of 25th July and 3rd August. The August letter spoke of a Fixed Price Contract. It asked for signature on behalf of McCabes. The letter was, in fact signed on behalf of both parties.
39. Finally, the correspondence from 24th November 2005, which was accompanied by both the August letter and the Bill of Approximate Quantities, was designed to lead to the signature of the R.I.A.I. form which was expressly provided for by the tender documents.
40. At every stage of the contractual exchange, it is indisputable that both the Hanly Group and McCabes wished their agreement for the carrying out of a very substantial development to be contained in a formal written agreement. In my view, their intentions are to be gathered objectively from their exchanges of documents and not from their expressions of subjective intention as given in evidence at the hearing in the High Court. Amongst other things, the R.I.A.I. form would provide for arbitration of disputes and how variations were to be assessed and paid for.
41. The result of the finding of the learned trial judge is that each party is left to the uncertainty of a quantum meruit claim. Since there is no contract, there seems to be no reason to limit McCabes to the amount of €15,300,000 apparently agreed in the August correspondence or even to the amount of their tender of July 2005. The learned trial judge seems to have perceived that this would give rise to a problem. He noted that it would be “theoretically” possible for McCabes to claim twice in respect of the same work. In this, he was perhaps inconsistent. If there was no contract, McCabes would not be bound by the reduced tender sum of €15,300,000. They could claim payment without any reference to that sum or to the works they had agreed to perform for it. This simply serves to show that the decision that there is no contract at all between parties who have negotiated a hard-won deal is liable to produce injustice. On one version, McCabes may be entitled to claim twice; on another, they are free to charge without reference to the tender process. The learned judge’s final observation, on this point, was that a claim on the double would be excluded “by implication.” It is not clear how such a term could be implied in the absence of a contract. Nor can I see how any statement made on behalf of McCabes at the hearing that they would not claim on the double would have contractual effect.
42. The parties to the project for the development at Kilmacanogue clearly intended to enter a legally binding contract governing their relationship. They were experienced and reputable contracting companies. They engaged in a tendering procedure, followed by negotiations on price and other matters. They formally agreed to use the R.I.A.I. form and they signed it. One of the essential components of the standard-form building contracts is the provision for arbitration to settle disputes or disagreements. The absence of an arbitration procedure in the case of large building contracts will inevitably work great inconvenience for all parties, not to mentions the courts.
43. I agree with the statement in Contract Law, by Paul A. MacDermott (Butterworths. Dublin 2001) at page 171, that in “commercial arrangements it will be presumed that the parties intended to create legally binding contracts.” Lord Wright said in Hillas & Co. Ltd. v. Arcos Ltd (1932) 147 LT 503 a p.514:
“Businessmen often record the most important agreements in crude and summary fashion. Modes of expression sufficiently clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the Court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the Court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the Court is to make a contract for the parties, or to go outside the words they have used, except in so far as they are appropriate implications of law”.
44. In other words, the courts should seek to give effect to the apparent intentions of parties to enter into binding contracts. It is clear that the parties to the present proceedings intended that their relationship would be governed by a formal legal contract. The question is what the terms of the contract are.
Terms of contract
45. The principal dispute comes down to quite a narrow question. It can be expressed in various ways by reference to the terms of the various documents. The essential issue is whether the description of the “works” is limited, as McCabes contend, to what was described in the “Contract Drawings” and the “specification.” These are the documents mentioned on the first page of the “Articles of Agreement,” or the R.I.A.I. form. The opposing contention is that is that the description of “the works” is in part contained the Bill of Approximate Quantities.
46. It is not necessary to repeat the account of the three contractual stages, which I have set out above. Insofar as the tender stage is concerned, there can be no doubt at all that the Bill of Approximate Quantities was central to the description of the works. GC 2 and 4 impose an obligation on the contractor to execute the “works” “whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.”
47. McCabes tendered on the basis of these documents. Their tender as reduced following negotiation was also based on the works as so described. The parties then entered an agreement. In the letter of 5th and 8th August, the agreed sum of €15,300,000 was expressed as payment “for the Contract as outlined in the Spec. and Bill of Quantities…”
48. Thus, the Bill of Approximate Quantities was central both to the description of the “works” and the price to be paid therefore at all times prior to the execution of the R.I.A.I. form contract. That document was indisputably intended to incorporate formally the terms of the agreement reached in August.
49. Looking at the object of the contract as a whole, therefore, there is no doubt that the intention of the parties was that the contract sum specified in the R.I.A.I. form would represent the consideration for the carrying out of the works for which McCabes had submitted their tender.
50. The sheet-anchor of McCabes case against the foregoing is the term: “where quantities DO NOT form part of the contract.” This term undoubtedly appeared, not only in the tender documents, specifically the Bill of Approximate Quantities, but in the R.I.A.I. form.
51. Resolution of the contest between the opposing contentions depends on which of two approaches is adopted to the ascertainment of the contract terms. McCabes say that the contract is to be found only in the R.I.A.I. form together only with any documents expressly incorporated with it. The alternative approach is to take account of the apparent intention of the parties as shown by course of dealing between them, thus including the August correspondence and the Bill of Approximate Quantities.
52. There is very great merit in the first approach in normal circumstances. Following a tender procedure, the employer and the contractor normally intend that their entire agreement be contained in one or other of the R.I.A.I. forms which has been negotiated and prepared with such care and expertise by all sides in the building industry. At that point the tender documents fall away except to the extent that they are incorporated in the chosen R.I.A.I. form of contract. Accordingly, I see great force in the view expressed in the judgment which is about to be delivered by Murphy J.
53. In the present case, however, I am convinced that the R.I.A.I. form does not fully represent the true agreement between the parties. In particular, it does not at all fully describe the works for which McCabes tendered in July, which they agreed to carry out in August and which was to be the subject of the contract. The reasons for this are already apparent and I will develop them further. It is well established that the courts will, in appropriate cases, look at the terms of a contract by reference to the course of dealing between commercial undertakings. We have had a series of cases in which applicable terms for the purposes of the Brussels Convention (now the Brussels Regulation) have been upheld by reference to a finding that a party was on express or implied notice of them. Examples are Clare Taverns t/a Durty Nellie’s v Gill t/a as Universal Business Systems [2003] 1 I.R. 286; Leo Laboratories Ltd. v Crompton B.V. (formerly Witco B.V.) [2005] 2 IR 225. The following statement of McGuinness J in the High Court in the former case at page 296 has been approved in subsequent cases:
“In the submissions made before this Court, it was not seriously suggested that the practice of printing general conditions of sale on the reverse side of invoices and similar documents, with a reference on the face of the document to the said conditions, was not a common commercial practice in the type of international trade with which we are concerned here. Indeed, from the point of view of practical experience every ordinary consumer, and still more anyone engaged in trade or commerce, must be familiar with this type of document.”
It is quite clear from the exchange of correspondence in August and the fact that the Bill of Approximate Quantities and that correspondence were enclosed with the letter from the Hanly Group of 24th November the Hanly Group wished these documents to form part of the contract and that McCabes were on full notice of those documents and of their contents.
54. It is still possible, of course, for the R.I.A.I. form as signed by the parties to have excluded those documents from the contract and it is to that issue that I now turn.
55. The first page of the R.I.A.I. form refers to the “works” referring to the development at Kilmacanogue. The “works,” as so described, are the works the subject of the tender documents.
56. This becomes clear from the ensuing statement that “the Contractor has made an estimate of the sum which he will require for carrying out the said works as shown on the tender dated 19th July 2005……………….” The R.I.A.I. form states that the employer has “caused drawings (hereinafter called “the Contract Drawings”) and a Specification describing the work to be done to be prepared….”
Condition 1 then provides:
“For the consideration hereinafter mentioned the Contractor will upon and subject to the Conditions annexed hereto execute and complete the Works shown upon the Contract Drawings and/or described in the Specification and Conditions all of which together with this Agreement are hereinafter referred to as “the Contract Documents.”
However, the works “shown upon the Contract Drawings and/or described in the Specification and Conditions” are not the entire of the “works” included in the tender of 19th July.
57. Before turning to clause 3(a)(ii), it seems to me that these terms do not exclude the descriptions contained in the Bill of Approximate Quantities from playing a role in identifying the “works.” Condition 1 does not purport to be exhaustive and must, in any event, be read in the light of the introductory reference to the “works” already cited. From the latter, read with the earlier contractual documents, it is clear that the works should be identified by reference to the “estimate” dated 19th July 2005, which is, of course, the tender.
58. It remains, therefore, to be considered whether clause 3(a)(ii) has the effect of entirely excluding the Bill of Approximate Quantities, as indeed the learned trial judge held, although, in the end, he did not find that there was a concluded contract in the terms of the R.I.A.I. form. The effect of that clause is, it is agreed, that the Bill of Approximate Quantities acts only as a Schedule of Rates. The key provision is the following:
“If the Articles of Agreement do not provide for the inclusion of the Bill of Quantities as a contract document the contract sum shall be deemed to provide for the quantity and quality of work set out in the drawings and specification and the contractor shall, before the signing of the Articles of Agreement furnish the architect with the Schedule of Rates.” (emphasis added)
59. This provision, therefore, like Condition but unlike the introductory material on the first page appears to define the works only by reference to the drawings and specification, the latter being, by common consent, utterly inadequate.
60. This provision cannot, on the facts of this case, be interpreted without reference to the general background. It is most important to recall that McCabes tendered for the contract on the basis of a description of the Works as contained in the General Conditions of the Bill of Approximate Quantities. Those conditions were, as the Hanly Group have argued, “partly definitive” of the contractor’s obligations. As already noted, any other interpretation would potentially leave McCabes in the position of being able to claim in effect “on the double.” It seems obvious to me that the Court should lean against such a potentially unjust interpretation. The signing and countersigning of the August letter demonstrates a clear intention of both parties to enter an agreement for a fixed sum of €15,300,000 for the carrying out of the works described in that letter and documents incorporated by reference with it. That contractual intention was carried through to the letter of 24th November. I have no doubt, therefore, that the parties intended this agreement to be expressed in the R.I.A.I. form. To the extent that it does not, it is in conflict with the intentions of the parties. In the face of such a conflict, I believe the clear intention of the parties must prevail. I do not think it is necessary to resort to the equitable remedy of rectification, sought by the Hanly Group in their pleadings. I believe that correct result can be achieved by interpreting the R.I.A.I. form together with documents necessarily related to it.
61. I would add that the August agreement significantly differentiates this case from other cases where there might be discrepancies between tender documents and the signed R.I.A.I. form. In normal circumstances, the latter will prevail in the event of any discrepancies. Here, however, the parties had engaged in strenuous post-tender negotiations resulting in very significantly varied the tender sum but also made significant modifications to the scope of the works. The August agreement, signed by both parties, other than the identification of the proper contracting party, represented a step away from the tender procedure.
62. For the same reasons, I believe that the R.I.A.I. form was intended to include within the scope of the works all the works described directly or indirectly in the August correspondence.
I would allow the appeal and make a declaration that there exists a binding contract between McCabes and the first-named appellant the terms of which are set out in the Articles of Agreement and Conditions of Contract 2002 (Revision 1, Print 4) as issued by the R.I.A.I., signed by the parties on 24th November 2005 and 19th January 2006 together with the letter from the letter from the Hanly Group dated 5th August 2005 and signed on behalf of McCabes on 8th August 2005 and the documents referred to therein and incorporated thereby as more particularly set out in Appendix 1 and Appendix 2 of the Counterclaim.
Judgment delivered the 1st April 2009 by Mr. Justice Murphy
1. The parties to this appeal seek declarations as to the nature of the building contract entered into by the appellants (“the Hanly Group”) as employers and the respondent (“McCabes”) as contractor.
2. By letter dated 5th August, 2005, from Mr. Alan Hanly, the chief executive of the Hanly Group, to Mr. Richard McCarthy, commercial director of McCabes, was countersigned and returned by Mr. McCarthy on 8th August.
3. That letter stated in relation to a meeting the previous day, 4th August, as follows:-
“… we will be entering into a fixed price contract with the contractor to carry out the works at Kilmacanogue; there will however be 6 P.C. sums, three of which will be nominated suppliers and the other three will be at the contractor’s discretion. In all cases, should there be an extra overspend on the 6 P.C. sums, it will be the developers responsibility to pay the difference.”
4. That letter stated that the parties had reached agreement on the project via telephone. The summary of their agreement appeared as follows:-
“The Healy Group will pay McCabe Builders €15.3million plus VAT for the contract as outlined in the Spec and Bill of Quantities at Kilmacanogue, Co. Wicklow. The Hanly Group is entering into a fixed price contract and as stated earlier in this letter there are 6 P.C. sums of which there are only two nominated suppliers/sub-contractors (McNally Kitchens and Vogue Bathrooms). In both cases McCabe Builders will be dealing directly with these suppliers. However, the Hanly Group has already secured competitive quotes from both people and at any rate, as with other P.C. sums, should same increase; it will be an extra over-cost for the Hanly Group. Our expertise and experience will assist in choosing both suppliers, particularly given the product in question as both suppliers will be able to deal efficiently with customers who wish to upgrade/change products. This will be both beneficial to McCabe Contractors and the Hanly Group of developers.”
The letter then stated that the parties proposed to take the opportunity over the coming days to work closely to finalise all outstanding issues. It was noted that it would be beneficial to both of the companies to reach a conclusion on this upon signing of contracts.
5. The letter dealt with the understanding of the Hanly Group in the following terms:-
“it is the Hanly Group’s understanding that all correspondence forwarded to McCabe Builders from our offices and (the quantity surveyor’s offices) regarding conditions, planning conditions and special conditions are and form integral parts of our agreement. I would be grateful if you could review this document, and if you concur that the conditions laid out in this document are as agreed, please sign below and return to our offices at your earliest convenience.”
6. The High Court found that the communication of the 5th and 8th August was ineffective to create legal relations, due to uncertainty, and that no contractual relations had been created between the parties. The entitlement of the respondent in relation to payment for the work done to date was to be assessed on a quantum meruit.
7. The Hanly Group had engaged a firm of quantity surveyors to conduct an initial tendering process. Tender documents were sent out to a number of builders, including McCabes on the last week of June, 2005. The tender documents comprised a Bill of Approximate Quantities, a form of tender and architectural drawings and a landscape architect’s drawings.
8. The Bill of Approximate Quantities was in four volumes. The preamble to the Bill of Approximate Quantities provided that the contractor was to “properly execute the works whether or not shown on the drawings or described in the Bill of Approximate Quantities, provided that same may be reasonably inferred therefrom”.
9. The contract drawings prepared for the appellant had not been sufficiently developed to enable tenderers to properly price the works with a required degree of specificity needed for a meaningful tender. The specification document entitled “Specification of Materials”, consisting of 13 pages was very sparse. To make up for this the appellant’s quantity surveyors provided a very detailed Bill of Approximate Quantities to allow tenderers price in detail for the works required.
10. A provision had been made in the Bill of Approximate Quantities that the form of contract would be the Articles of Agreement and Conditions of Contract 2002 (revision 1, print 4) as issued by the R.I.A.I. in agreement with the Construction Industry Federation (C.I.F.) and Society of Chartered Surveyors (S.C.S.) where quantities did not form part of the contract. That document also provided as a general condition at (G.C.2) that the contractor should carefully examine the drawings and other contract documents and satisfy himself as to their accuracy and ensure that they cover and embody the proposed works. The contractor should also properly execute the works whether or not shown in the drawings and described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.
11. The appellants submitted that the description in the Bill of Quantities in relation to the works, in the circumstances, formed part of the contract documents.
12. On 10th August, works commenced on site.
13. On 26th August, 2005, Mr. Hanly wrote to Mr. McCarthy issuing a letter of intent for the works to the value of €1,000,000.00, primarily to cover the respondents for works that they were commencing on the site of presence in the absence of a fully signed contract.
14. The formal contract documentation, including the R.I.A.I “blue form”, was sent to the respondent on 24th November, 2005, for signature and return which was signed on 19th January, 2006.
15. The R.I.A.I. “blue form” accordingly became binding on 19th January, 2006. 16. The Articles of Agreement thereof recited:-
“For the consideration hereinafter mentioned the contractor will upon and subject to the conditions annexed hereto execute and complete the works shown upon the contract drawings and/or described in the specification and conditions all of which together with this Agreement are hereinafter referred to as ‘the Contract Documents.’”
17. Condition 2 under the heading “The Scope of Contract” provided that the contractor should carry out and complete the works in accordance with the Contract Documents and with the directions and to the reasonable satisfaction of the architect…
18. Condition 3 (a)(ii) provided that where the Articles of Agreement did not provide for the inclusion of a Bill of Quantities as a Contract Document, the contract sum should be deemed to provide for the quantity and quality of work set out in the drawings and specifications. The contractor was required, before the signing of the Articles of Agreement, to furnish the architect with a Schedule of Rates. Where a Bill of Quantities was provided for tendering purposes the rates therein contained should be the Schedule of Rates.
19. That condition further provided:-
“Nothing contained in the contractors estimate or the bills, the Bill of Quantities (except as a Schedule of Rates), shall confer rights or impose any obligations beyond those conferred or imposed by the Contract Documents.”
20. This provision would seem to be at variance with the appellant’s contention that the description in the Approximate Bill of Quantities was effectively the Specification for the purpose of the Contract, notwithstanding that what was termed “the formal contract documentation” sent to the respondent on 24th November, 2005, included the letter of 5th .
21. Keane: The RIAI Contracts – A Working Guide (4th revised edition) comments on the RIAI “blue form” for use without quantities and the “yellow” version for use where quantities are part of the contract, as follows:-
“3.01. The effect on the Contract as to whether the Bill of Quantities forms part of the Contract or not is important. If the Bill of Quantities is a Contract Document then the quantities shown are those required under the Contract and any variation from the quantities shown in the bill will be adjusted in the final account under clause 13 as if it were a variation.
If the Bill of Quantities is not part of the Contract, then the quantities are provided only as a guide to the extent of the work (but also, of course, to form in effect, a Schedule of Rates) and the contractor, or indeed the employer, must bear any loss which might result from differences in the bill in the actual work carried out. The practice of having a Bill of Quantities not forming part of the Contract is unusual now and if a Bill of Quantities is prepared it is almost always made a Contract Document.
3.02 Originally, quantities were taken out by the contractors themselves when tendering, or the contractor employed a quantity surveyor to do this work. Naturally, under those arrangements, the responsibility for the accuracy of the quantities fell entirely on the contractor. Over the years, however, the role of the quantity surveyor changed, and more and more he became employed by the building owner. It seemed reasonable in these changed circumstances, that the employer accept responsibility for the accuracy of the bill since he has ordered the preparation of that bill and his agent, the quantity surveyor, has prepared it. This area was a profitable source of litigation until the case of Patman and Fotheringham Ltd. v. Pilditch [1904] Huttons Building Contracts, 4th edition, vol. 2, p.368 where it was held: ‘if the quantities in the Bill are less than those required by the drawings the contractor is entitled to be paid an appropriate addition to the contract sum since the quantities were introduced with the contract as part of the description of the contract work, and if the contractor was required to do more, it was an extra.”’
22. Keane refers to the decision of Ross J. in Collin Bros. v. Dublin County Council [1908] 1 I.R. 503, which dealt with the construction of Portrane Asylum, where the defendant sought to reduce the specification before contract. Quantities did not form part of the contract. A mistake had been made in a bill of reductions which had been prepared by the defendant employer’s quantity surveyor. The court held that mistake could be rectified because “the meaning of rectification of a written instrument is to carry out the real intention of the parties which had been erroneously expressed” in respect of the building of the asylum for the defendants. The Bill of Quantities had been priced by the plaintiffs in the sum of £199,000.00. The reductions brought that sum down to under £170,000.00. The building having been completed an error was discovered whereby the contractors lost £357.00. It was accepted that there was a mutual mistake.
Ross J. was of the view that the court could not deal with the contract alone but had to deal with the tender. The intention of the parties, when analysed, was that the tender for the original amount of the price to section, less the amount of the priced bill of reductions, should be accepted. The sum of £167,000.00 was erroneously taken to be the figure, and erroneously embodied in the contract.
23. Ross J. continued at 509, 510 as follows:-
“The meaning of rectification of a written instrument is to carry out the real intention of the parties which has been erroneously expressed. This is what the plaintiffs asked me to do. There are all kinds of technical difficulties. How can you rectify the deed without rectifying the tender? How can you alter an accepted tender? These technicalities ought not to be allowed to stand in the way of a court of equity, whose primary duty is to struggle to enforce fair dealing between man and man, if it can be done without violating some matter of principle.”
24. There is no evidence of a common mistake in the present case; accordingly the issue of rectification cannot arise. The tender could only be referred to where there was a mutual mistake in order to establish the true intention of the parties.
25. There is no doubt that the parties intended on 5th August, 2005, to enter into an R.IA.I. Contract without quantities. The only issue is what the specifications were and whether, notwithstanding the provisions in the contract eventually signed on 19th January, 2006, by the contractor.
26. Lord Denning in English Industrial Estates Corporation v. George Wimpey & Co. Ltd. [1972] 7 B.L.R. 122, took the view that provisions which have been specially typed in a Bill of Quantities must take precedence over a standard printed form but this, according to Keane, is an unusual view.
27. The provisions of clause 3(8)(i) which incorporates the Bill of Quantities, provides that nothing contained in the Bill should override, modify or affect in any way whatsoever the application or interpretation of that condition.
28. It was s. 3(8)(ii) that applies in the present case. That also provides that:-
“Nothing contained in the contractors estimate or the Bill of Quantities (except as a Schedule of Rates) shall confer rights or impose any obligations beyond those conferred or imposed by the Contract Documents.”
29. In clause 3(a)(i) the Bill of Quantities is deemed to provide for the quality and quantity of the work. On the other hand in sub-clause 3(a)(ii) the drawings and specifications are to perform this function.
30. It would seem, accordingly, that, in the absence of a special condition in the R.I.A.I. “blue form” importing the description of works therein to include those described in the Approximate Bill of Quantities, only the drawings and specification, inadequate though they appear, can form the definition of works. It is these that form the contract documents referred to in clause 3(b).
31. I am of the view that the R.I.A.I. contract without quantities binds the parties and would allow the appeal to that extent. However, I am unable to accept the appellant’s contention that the R.I.A.I. contract can incorporate the description in the Approximate Bill of Quantities as being a definition of the works or as being part of the contract documentation.
Sri Apparel Ltd -v- Revolution Workwear Ltd & Ors
[2013] IEHC 289 (21 June 2013)
Judgment of Ms. Justice Laffoy delivered on 21st day of June, 2013.
The parties and their relationship
1. The plaintiff is a limited liability company incorporated in this jurisdiction. It is the holder of the worldwide distribution rights in Caterpillar (commonly referred to as CAT) Clothing merchandise. It acquired these distribution rights from a corporation which I understand is incorporated in the United States of America, Summit Resource Imports LCC. The plaintiff is apparently controlled by Mr. Sean Gallinger, who described himself as Vice President of Summit Resource Imports LCC when testifying. At the time the plaintiff acquired the global distribution rights in the Caterpillar Clothing merchandise there was already an arrangement in place since 2006 under which a company controlled by the third named defendant (Mr. Bond) and his family, J. P. Bond & Co. Ltd. (the Bond Company) held the right to distribute Caterpillar Clothing merchandise in Ireland. Mr. Bond was a director of the plaintiff. According to a Form B10 lodged in the Companies Registration Office (CRO) on 9th July, 2010, he resigned as director of the plaintiff with effect from 17th February, 2010. Strangely, the abridged financial statements of the plaintiff for the year ended 31st December, 2008, which were filed in the CRO on 25th March, 2010, show Mr. Bond and Mr. Gallinger as signatory directors in the Directors’ Report, which was dated 18th February, 2010.
2. The third named defendant (Mr. O’Sullivan) has been in the business of retailing protective clothing for the construction industry for many years. Since 1982 he has carried on that business through the medium of a company, O’Sullivan Safety Limited. That company commenced purchasing Caterpillar Clothing from the Bond Company in 2007. The only significance of that is that the personnel of O’Sullivan Safety Limited became familiar with Mr. Bond. Mr. O’Sullivan was introduced by Mr. Bond to Mr. Gallinger in June 2009. It is clear on the evidence that the Bond Company was in serious financial difficulties at the time, to the extent that it owed the plaintiff €730,000 in respect of stock. What happened as a result of the introduction was that the first named defendant (Revolution) was incorporated with Mr. O’Sullivan as an eighty per cent shareholder and Mr. Bond as a twenty per cent shareholder. The plaintiff then entered into a distribution agreement with Revolution on 16th August, 2009 (the 2009 Agreement) in which Mr. O’Sullivan and Mr. Bond participated.
3. The fourth named defendant (Safety) is a company incorporated in the State through which Mr. O’Sullivan has carried on business. While the plaintiff seeks relief against Safety, its involvement in the issues which arise in these proceedings is peripheral. The principal proponents are the plaintiff on one side and Revolution and Mr. O’Sullivan on the other side.
The 2009 Agreement
4. There was no Irish lawyer involved in the drafting of the 2009 Agreement on behalf of the plaintiff, nor did Revolution or the other parties obtain any legal advice in relation to its provisions at the time. Mr. Gallinger’s evidence was that it was drafted by a family member of his who is a lawyer in the State of Montana. In any event, the parties to the agreement were expressed to be –
(a) the plaintiff, referred to as “Grantor”,
(b) a company referred to as “Bond and Company”, whose function was expressed at the commencement as “to evidence their consent to the appointment of the Distributor”,
(c) Mr. Bond and Mr. O’Sullivan, referred to at the commencement as “Guarantors of the Distributor’s performance”, and
(d) Revolution (although “Limited” was missing from its name), followed by the words “Donal O’Sullivan Distributor herein”.
5. The provisions of the 2009 Agreement which were invoked by the parties were the following:
(a) Clause 1.1, which was part of Clause 1 which was headed “Grant of Exclusive Distribution Rights”, set out the term of the agreement – the term commencing on its execution (16th August, 2009) and expiring on 31st December, 2014, with provision for extension, which is not relevant. For that term the plaintiff granted to Revolution the exclusive right –
(i) to purchase “Merchandise Products”, which expression was defined in Clause 14 as meaning “CAT brand apparel . . . limited to workwear products for men, women and children . . .” from the plaintiff and from vendors appointed by the plaintiff, and
(ii) to sell at wholesale and to distribute that merchandise to “mid and upper tier retailers only within the Countries listed on exhibit A (Territory)”.
In fact, there was no exhibit A attached to the 2009 Agreement. Clause 1.1 then provided that Revolution would be invoiced for goods “at published or commonly used list price paid by other distributors, less 25%”. It was then provided as follows:
“Additionally, [Revolution] shall pay an amount equal to 7% of the greater of Minimum Wholesale sales or net wholesale sales (Sales Compensation) as a service and product development fee, payable on the 10th day following the close of each calendar month, with respect to [Revolution’s] sales in that month. Such 7% fee shall not apply to sales to approved sub distributors, provided [Revolution] shall not make any sales to sub distributors without first obtaining the consent of [the plaintiff] evidenced by an addendum to this agreement, which agreement shall provide for all fees, if any, which shall apply to sales to each sub distributor.”
(b) Clause 14.4 contained the following definitions:
“The Terms “Minimum Purchases” and “Minimum Wholesale Sales” shall have monetary value as set forth on Exhibit B. In each Contract Year, Minimum Purchases and Minimum Wholesale Sales for each year shall be as provided on Exhibit B.”
A document headed “Schedule B”, not exhibit B, which will be considered later, became annexed to the 2009 Agreement after its execution.
(c) Clause 2, which was headed “Payments to [the plaintiff]”, contained an introductory paragraph in the following terms:
“Prior to execution of this agreement the parties have conferred and reached agreement on the content of exhibit B, which is attached hereto and initialled as approved by the parties.”
As I have stated, there was no exhibit B attached to the 2009 Agreement, but there was a Schedule B, but apparently it was not initialled by the parties prior to the execution of the agreement.
(d) Clause 2.1 dealt with “Minimum Purchases” and provided that Revolution agreed to make Minimum Purchases in each contract year as described on exhibit B “for each country within the territory for the products listed on exhibit B”. Schedule B listed thirteen countries in the European Union and three other countries (Serbia, Russia and Turkey). It set out figures for each country for 2009, 2010, 2011, 2012 and 2013, but strangely not for 2014. The relevant currency is not indicated, but I understand that the figures were intended to represent purchases in euro. In the case of Germany, Italy and Russia zero appears for each year. No products are listed in Schedule B.
(e) Clause 2.2 dealt with “Minimum Wholesale Sales” and provided that Revolution agreed to make “Minimum Wholesale Sales in each contract year as described on exhibit C for each country [within] the territory”. While no exhibit C was annexed to the 2009 Agreement a Schedule C became annexed to it after execution. It listed the same countries as Schedule B and once again covered the years 2009, 2010, 2011, 2012 and 2013. It also indicated zero sales for each year in relation to Germany, Italy and Russia. The relevant currency is not indicated but I understand it was intended to represent sales in euro.
(f) The term “Territory” was defined in Clause 14.1 as meaning the countries shown on exhibit A, subject to adjustment and changes provided by the agreement. As I have stated, there was no exhibit A.
(g) Clause 4 dealt with “Approved Sale Channels”, and provided in Clause 4.3:
“[Revolution] shall not export or permit to be distributed, either directly or indirectly, any Merchandise to any Person located outside of, or who [Revolution] knows, or reasonably should have known, intends to resell such Merchandise outside of, the Territory unless such sale is approved in advance in writing by [the plaintiff].”
(h) Clause 11 dealt with events of default and termination. The events of default were listed in Clause 11.1 from para. (a) to para. (k). For instance, paragraph (g) covered the eventuality of Revolution’s purchases or sales failing to equal or exceed the Minimum Purchases or Minimum Wholesale Sales in any calendar year and Revolution failing to submit a business plan within thirty days acceptable to the plaintiff to cure or mitigate the breach or the eventuality of Revolution failing to pay “7% Sales Compensation according to Minimum Sales”. Paragraph (j) covered the eventuality that the personal obligation of Mr. O’Sullivan or Mr. Bond “as co maker/Guarantor” of the 2009 Agreement not remaining in full force and effect.
(i) Clause 11.3 provided, inter alia, for automatic termination of the 2009 Agreement in the event of default under a number of paragraphs in Clause 11.1, including paragraphs (g) and (j).
(j) Clause 11.4, in broad terms, provided that on termination Revolution would no longer have the right to sell or otherwise transfer merchandise or use the CAT brand marks.
(k) Clause 12 dealt with Revolution’s obligations in relation to financial disclosure. It was obliged to produce various financial statements to the plaintiff at the end of its fiscal year (Clause 12.1). Under Clause 12.2(b) Revolution and the guarantors (Mr. O’Sullivan and Mr. Bond) were obliged “collectively” to “maintain at all times a consolidated net worth of at least Euro US$5,000,000” (sic), which I assume was intended to refer to €5m. Clause 12(2)(c) provided for a deemed termination of the 2009 Agreement in the event of failure to comply with the financial covenants set out in Clause 12.2 on the three month anniversary of the first default, unless the plaintiff in its sole discretion should “waive such termination in writing specifically referring” to Clause 12.
(l) Clause 13 dealt with the effect of, inter alia, early termination of the 2009 Agreement and in Clause 13.2 conferred on the plaintiff the option, referred to as the “Inventory Purchase Option”, to purchase all of the inventory of Merchandise of Revolution which remained on hand and which was not subject to orders from customers, for “an aggregate purchase price equal to the lower of cost or market”.
(m) Clause 19 provided that the 2009 Agreement might not be “amended or modified except by written instruments signed by each of the parties” thereto.
(n) Finally, in relation to the general provisions, Clause 9, which was headed “Limitation on Consequential Damages” provided:
“[The plaintiff] and [Revolution] agree that neither of us will make any claim against the other for lost profits or other consequential damages. [Revolution] agrees that in no event will termination of this Agreement by [the plaintiff] give rise to a damage claim by [Revolution] against [the plaintiff]”.
6. The general provisions in the 2009 Agreement were followed by so-called “Special Covenants”, which contained the following elements:
(a) A company referred to as “Bond Safety” executed the 2009 Agreement “as the incumbent distributor . . . to evidence its consent” to the appointment by the plaintiff of Revolution as distributor.
(b) Revolution, in consideration of its appointment, covenanted and agreed to assume the outstanding business being conducted by the Bond Safety and the plaintiff and to conduct that business in conformity with the 2009 Agreement. It also entered into a non-compete clause for two years following the termination or expiration of the 2009 Agreement.
(c) Mr. O’Sullivan and Mr. Bond “individually” executed the 2009 Agreement “as co maker with Revolution”, and “individually” guaranteed all obligations of Revolution thereunder for the initial term, that is to say, until 31st December, 2014.
(d) There were further confidentiality and non-compete provisions which are not relevant for present purposes.
7. The manner of execution of the 2009 Agreement has been of some controversy. First, the date which appears on it is 16th August, 2009. It was signed on behalf of the plaintiff by Mr. Gallinger whose “title” is stated to be “President/Director”. It was signed on behalf of Bond Safety, not “Bond and Company” as named at the commencement, by Mr. Bond, whose title was given as Director. It was signed on behalf of Revolution by Mr. O’Sullivan, whose title was left blank. There were then further signatures by Mr. O’Sullivan and Mr. Bond. In the case of Mr. Bond, he signed within the following statement:
“For and On Behalf of Paul Bond (individual co maker and guarantor
By:
Name: Individual co maker
Title: Owner.”
Mr. Bond’s signature appears on the second line after “By”. In the case of Mr. O’Sullivan, the format of the execution clause was similar. However, the space for his name on the first line was left blank. He signed on the second line and he was described in the same manner as Mr. Bond, namely, as “individual co maker and guarantor” and opposite “Title” as “Owner”. As an experienced businessman, in my view, Mr. O’Sullivan who executed the 2009 Agreement twice, on behalf of Revolution and on his own behalf, could have been under no illusion that he was signing for the second time other than as guarantor.
8. As I have recorded, there was no exhibit A attached to the 2009 Agreement. There is a dispute as to whether Schedule B and Schedule C were attached to it when it was executed by the parties on 16th August, 2009. In any event, it was acknowledged by Mr. O’Sullivan that he received copies of both schedules a few weeks after 16th August, 2009. I think it is probable that both schedules were attached to the 2009 Agreement some weeks after its execution.
9. Schedule B is headed:
“CAT workwear sales projections – Europe – 5 years – PB February 26th 2009.”
In other words, it was compiled by Mr. Bond, apparently, before he approached Mr. O’Sullivan. Schedule C is headed:
“NEWCO CAT workwear sales projections – Europe – 5 years – PB June 29th 2009. “
Schedule C was clearly prepared after Mr. Bond engaged with Mr. O’Sullivan, as the evidence makes it clear that the proposal was that Mr. O’Sullivan and Mr. Bond would operate the CAT distributorship through a new company to be incorporated. Frankly, it is difficult to link Schedule B and Schedule C to Clause 2 referred to earlier. It is worth recalling that “exhibit B” was intended to set out “Minimum Purchases”, whereas “exhibit C” was to set out “Minimum Wholesale Sales”. Schedule B and Schedule C, ex facie, both set out projected sales in Europe, Schedule B with apparently, some precision, whereas the projections in Schedule C was very much in round figures.
10. As regards the contents of the schedules, to take one example, the total projected sales under Schedule B for the year 2011 amounted to €5,316,754, whereas the corresponding figure in Schedule C amounted to €9,700,000. More significantly, it is difficult to link either Schedule B or Schedule C to the provisions in the body of the 2009 Agreement. For instance, one must assume that exhibit B as referred to in Clause 2.1 was intended to be different to exhibit C referred to in Clause 2.2. Moreover, to recapitulate, under Clause 1.1 the Sales Compensation at the rate of seven per cent was payable by reference to the greater of “Minimum Wholesale sales or net wholesale sales” every month. While it was obviously intended that “Minimum Wholesale Sales” would be set out in exhibit C, Schedule C contains sales projections and is not broken down on a monthly basis. While, no doubt, it would be a simple operation to divide the yearly figure by twelve, Clause 1.1 envisaged the Sales Compensation being paid monthly. However, as will appear later, on the basis that Schedule C represents exhibit C, in respect of the year 2011 the plaintiff is claiming sales compensation in the sum of €776,000 (representing eight per cent, not seven per cent, of €9,700,000) from Revolution for that year, which, as will appear later, in the overall scheme of things is utterly absurd.
Departure of Mr. Bond from Revolution
11. Before outlining the circumstances in which Mr. Bond departed from Revolution, I should make it clear that my understanding is that Mr. Bond is Paul Francis Bond who is named as a twenty per cent shareholder and a director of Revolution in the Annual Return (Form B1) for the period up to 23rd December, 2009 lodged in the CRO on 30th September, 2010. I am also assuming that he was one and the same person as Paul Bond, who, as I have already recorded, retired as a director of the plaintiff as per the form B10 referred to earlier, which was lodged in the CRO on 9th July, 2010.
12. The evidence of Mr. O’Sullivan was that Mr. Bond falsified an order for CAT merchandise, which he falsely represented came from a German client, which, in the belief that it was a genuine order, Revolution set about filling. When Revolution did not receive payment from the German client for the goods which were, apparently, shipped to the German client in three separate containers, Mr. O’Sullivan met with Mr. Bond, who confirmed to him that the entire transaction was falsified and that he had falsified all of the documentation in relation to it. The Court was informed that the matter was reported to An Garda Síochána and is being investigated by the Garda Bureau of Fraud Investigation. In any event, Mr. Bond left Revolution at that stage in October 2010, having resigned as a director of Revolution on 24th October, 2010. However, the consequences of what happened were very serious for Revolution. It succeeded in retrieving the stock which was supposed to go to the German client, but it was left with a significant amount of unsold stock. Moreover, its bank, which had provided a discounting facility, removed that facility. It was against that background that the 2009 Agreement was varied in 2011 by an agreement between the plaintiff and Revolution (the 2011 Agreement).
The 2011 Agreement
13. The 2011 Agreement is in the form of a letter, which was dated 16th February, 2011, from the plaintiff to Revolution. Once again, it would appear that neither side obtained legal advice in relation to it. The purpose of the document was expressed to be to modify the 2009 Agreement “including designated territories” between the plaintiff and Revolution “along with our agreement on credit, open balances and payment plan”. The amendments to the 2009 Agreement were set out as follows:
(a) There was an acknowledgment by Revolution of receipt of inventory as set out in Schedule A. Schedule A itemised merchandise to the value of US$55,872. It was provided that the plaintiff should retain title to the merchandise until such time as payment should be made, and, as Revolution tendered payment, the title would be released.
(b) A payment plan was then set out for the Schedule A inventory together with “outstanding fees totalling €64,542”. . However, there was a later adjustment to the figure of €64,542 by the reduction therefrom of the sum of €7,000, in consideration of which Revolution agreed to transfer ownership of a certain CAT display stand to the plaintiff and the net figure (€57,542.00) was claimed in these proceedings as “Sales Compensation”. The aggregate of those sums was to be paid in instalments of US$15,000 per month until the debt would be paid and the total sum was to be paid by 31st August, 2011. It was provided that the plaintiff could elect as to how to appropriate payments, whether to fees or goods. That provision turned out to be irrelevant, because, as it happened, the plaintiff only made one payment of €15,000. However, it was provided that the plaintiff would fully relinquish title to the goods to Revolution assuming the fees were paid in full and the goods under Schedule A were paid for in full.
(c) Another element of the agreement was that, as regards the goods set out in Schedule B to the 2011 Agreement, which were referred to as the “German” goods, the value of which was set out at US$75,131, Revolution agreed to tender payment in full for those goods no later than the fifteenth day of the month following the sale of the goods, but in any event no later than 31st August, 2011. Once again, it was provided that the plaintiff should retain title to those goods until payment should be made.
(d) Schedule C listed goods, the value of which was not stated, but in respect of which the plaintiff agreed to release the original bills of lading to Revolution on execution of the 2011 Agreement.
(e) The clause (Clause 6) varying the designated territories provided as follows;
“. . . Revolution’s territory designations are hereby amended to exclude United Kingdom (excluding Northern Ireland) and France.”
It is interesting to note that the Workwear sales projections in Schedule C of the 2009 Agreement for the year 2011 in respect of France and the United Kingdom, albeit, including Northern Ireland, (€6m) represented approximately sixty two per cent of the total projections (€9.7m). Also of significance is that Clause 6 addressed the situation in relation to existing unfulfilled orders held by Revolution. It provided as follows:
“It is understood and agreed further that Revolution has existing unfulfilled orders with entities located in the territories revoked herein, and Revolution shall be entitled to fulfil the obligations under the open orders, as specifically detailed in Schedule D hereof.”
That provision becomes relevant later in relation to an element of the counterclaim of Revolution.
(f) There was provision in Clause 7 in relation to inventory set out in Schedule E attached to the 2011 Agreement. Schedule E listed inventory to a total value of US$867,105.38 (after deduction of twenty five per cent discount). As I understand Clause 7, in the context of the evidence, that inventory had been ordered by Revolution. Some of it was held in Asia and some in the United Kingdom. The provision made in relation to it is anything but clear. However, my understanding is that the intention was that the plaintiff would use its best endeavours to sell the inventory in Asia to other distributors and would report the remaining inventory to Revolution on a monthly basis. Revolution was granted until 31st December, 2011 to pay for all remaining inventory in accordance with its original purchase order.
(g) It was provided that, subject to Revolution strictly complying with the provisions of the 2011 Agreement, the plaintiff would waive Revolution’s breaches of the distributorship agreement (i.e. the 2009 Agreement).
(h) Revolution was required to furnish to the plaintiff by 1st June, 2011 revised purchase and sale figures for its “sales territory” for the balance of 2011 and for the years 2012 through 2014, which would be incorporated in the amendment to the distributorship agreement upon mutual acceptance by the parties.
14. There were a number of other provisions in the 2011 Agreement which are not in issue. However, it was expressly provided that all other terms of the 2009 Agreement would remain in full force and effect. The document in letter form was signed by Mr. Gallinger on behalf of the plaintiff. Mr. O’Sullivan acknowledged and agreed to the terms set out on behalf of Revolution by signing below Mr. Gallinger’s signature.
The plaintiff’s claim as pleaded
15. These proceedings were commenced by plenary summons, which issued on 30th November, 2011. Subsequently, the plaintiff brought an application for interlocutory injunctive relief, which was dealt with on the basis of undertakings given.
16. In the statement of claim delivered by the plaintiff on 20th January, 2012, the plaintiff sought the following reliefs:
(a) injunctions restraining the defendants –
(i) from exporting or permitting the distribution of CAT merchandise in France, Canada or the United Kingdom (excluding Northern Ireland) in the absence of approval of the plaintiff,
(ii) from exporting or permitting the distribution of CAT merechandise on the website www.amazon.co.uk in the absence of approval from the plaintiff, and from selling the CAT product to Brico Depot retail stores in France,
(b) mandatory orders directing Revolution –
(i) to furnish a complete customer list to the plaintiff,
(ii) to furnish to the plaintiff revised purchase and sales figures for their sales territory for the balance of 2011,
(iii) to deliver to the plaintiff certain statements of account for the fiscal year 2010, and
(iv) to furnish to the plaintiff certain statements of account for the first three quarters of 2011.
(c) an order preventing Revolution, Mr. O’Sullivan and Mr. Bond from seeking to reduce, transfer or otherwise dissipate their assets in this jurisdiction below €5m,
(d) damages for breach of contract, and
(e) judgment against Revolution, Mr. O’Sullivan and Mr. Bond for liquidated sums: US$458,565.70 and €96,542.
The sums claimed in respect of liquidated damages were subsequently varied. The plaintiff also claimed interest which must be Courts Act interest, because there is no provision for contractual interest in the contract documents. The foregoing reliefs were claimed on the basis that the defendants were in breach of their various obligations under the 2009 Agreement and the 2011 Agreement. The claims against Mr. O’Sullivan and Mr. Bond were against them in their status as guarantors. The only allegation against Safety, who was not a party to the agreements, was that it had contacted distributors in the Canadian market with a view to distributing CAT merchandise into Canada.
Mr. Bond’s defence and his exit from the hearing
17. Mr. Bond’s solicitors delivered a defence on 30th January, 2012. However, when the matter came on for hearing, counsel appeared on behalf of Mr. Bond. The Court was informed by counsel for the plaintiff that an interim agreement had been reached between the plaintiff and Mr. Bond and that the plaintiff was not interested in pursuing Mr. Bond at that stage. An order was sought by consent of the plaintiff and Mr. Bond adjourning the case against Mr. Bond with liberty to re-enter. Notice of indemnity and contribution had been served by Revolution, Mr. O’Sullivan and the fourth defendant on Mr. Bond and counsel for those defendants indicated that they were anxious to pursue relief on foot of that notice. Counsel for Mr. Bond indicated that he did not propose taking part in the proceedings on the claim between the plaintiff and the other defendants. The proceedings by the plaintiff against Mr. Bond were adjourned by consent with liberty to re-enter. The claim on foot of the notice of indemnity and contribution against Mr. Bond by the other defendants remains to be heard and determined, so far as is necessary.
18. Accordingly, this judgment relates to the plaintiff’s claim against Revolution, Mr. O’Sullivan and Safety, which parties will hereafter be collectively referred to as “the Defendants”.
The Defendants’ defence
19. The Defendants delivered a defence and counterclaim on 26th January, 2012. In the defence it was pleaded as follows:
(a) As regards Clause 4.3 of the 2009 Agreement, it is in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU) and s. 4 of the Competition Act 2002 (the Act of 2002) and therefore is void and/or unenforceable.
(b) As regards the territorial limitation, the 2009 Agreement is void and/or unenforceable on the basis that it failed to define the territories into which Revolution was permitted to sell and distribute CAT merchandise. In the alternative, it was denied that Revolution was restricted to the territories listed by the plaintiff in the statement of claim. That list included all of countries listed in Schedule B which became part of the 2009 Agreement, other than Germany, Italy and Russia, in respect of each of which zero appeared for each year, and also Greece, in respect of which zero appeared for the year 2009 but not for the other years.
(c) It was pleaded that the 2009 Agreement had terminated automatically by operation of Clause 11.3, by reason of an event of default referred to in Clause 11.1.(g). In the alternative, it was pleaded that the 2009 Agreement automatically terminated by operation of Clause 11.3 by reason of an event of default referred to in Clause 11.1.(j), on the basis which will be outlined later, that Mr. O’Sullivan’s personal obligation as guarantor did not remain in full force and effect.
(d) Breach of Clause 12.2(b) of the 2009 Agreement by Revolution and Mr. O’Sullivan was admitted, but it was pleaded that by operation of Clause 12.2(c) the 2009 Agreement was deemed to be terminated by reason of that breach on the part of Revolution and Mr. O’Sullivan after three months, the plaintiff having failed to waive such termination in writing. Alternatively, it was pleaded that Clause 12.2(b) was void for uncertainty.
(e) If the 2009 Agreement remains in force, it was alleged that the plaintiff is not entitled to maintain the claim for damages and/or for judgment by reason of Clause 9 of the general provisions of the 2009 Agreement.
(f) It was pleaded that the first defendant is entitled to rescind the 2009 Agreement by reason of non-disclosure by the plaintiff and/or Mr. Bond that on 16th August, 2009 that Mr. Bond was a director of the plaintiff. Such failure, it was contended, amounted to a breach of an implied term of the 2009 Agreement that the parties thereto were acting in good faith. It was also pleaded that such non-disclosure was a breach of s. 194 of the Companies Act 1963 (the Act of 1963). It was pleaded that had the alleged conflict of interest been disclosed at the time, neither Revolution nor Mr. O’Sullivan would have entered into the 2009 Agreement.
(g) As regards the 2011 Agreement, it was pleaded that it was not signed by all the parties and, in particular, was not signed by Mr. O’Sullivan in a personal capacity or by Mr. Bond. On that basis it was pleaded that the 2011 Agreement is inoperable and unenforceable because it did not comply with the requirement of Clause 19 of the 2009 Agreement, which I have outlined above.
(h) The various breaches of contract alleged against the Defendants were denied and it was denied that any money is due and owing by the Defendants to the plaintiff.
(i) It was alleged that Mr. Bond perpetrated a serious and significant fraud on Revolution while a director of the plaintiff, so that if the plaintiff suffered the alleged or any loss, it was caused wholly and exclusively as a result of Mr. Bond’s actions.
(j) As regards the claim against Mr. O’Sullivan as guarantor, it was asserted that the guarantee is unenforceable by operation of law. Further, it was asserted that the guarantee was discharged by the substantial variation of the 2009 Agreement by the 2011 Agreement, which materially affected the ability of Revolution to meet its obligations under the 2009 Agreement, thereby significantly prejudicing Mr. O’Sullivan. That plea overlooks the fact that Mr. O’Sullivan executed the 2011 Agreement on behalf of Revolution.
(k) As regards the fourth defendant, the only wrongdoing alleged against it was denied and it was asserted that no cause of action is disclosed against the fourth defendant and that the plaintiff is not entitled to any relief against the fourth defendant.
(l) As regards the relief sought by the plaintiff, there was an allegation that the plaintiff has failed to mitigate its loss and that it failed to exercise the “inventory purchase option” provided for in Clause 13.2 of the 2009 Agreement.
Revolution’s counterclaim
20. Apart from a claim for damages for breach of contract and/or wrongful interference with economic relations, interest pursuant to statute and costs, three claims were pursued by way of counterclaim at the hearing, being the counterclaim of Revolution solely. These were:
(a) A claim for a liquidated sum of €42,250 for alleged breach by the plaintiff of the provision in the 2011 Agreement to release to Revolution the original bills of lading for the goods set out in Schedule C of that agreement upon its execution.
(b) A claim for a liquidated sum of €128,347, which Revolution alleges represents the amount it would have earned if a stock swap arrangement which it had negotiated with a distributor in the United Kingdom had concluded, but which did not conclude because of what is alleged as wrongful intervention in the negotiations by the plaintiff, which resulted in the distributor in the United Kingdom reneging on the arrangement. In its defence to the counterclaim, the plaintiff denies any wrongdoing in relation to the stock swap.
(c) A claim for a sum of €57,644 for alleged breaches by the plaintiff of the provisions of the 2009 Agreement. This claim, which was not pleaded, is based on information which emerged from documentation procured by Revolution’s solicitors two days prior to the commencement of the hearing. What emerged from the documentation was that the plaintiff had begun selling CAT merchandise directly to a company in the United Kingdom, Footsure Western Limited (Footsure), and a company in France, Covepro, in consequence of which Revolution was deprived of discount at the rate of twenty five per cent on the value of the sales in question, which was approximately US$310,000. The sum of €57,644 is the equivalent of US$77,500, which is twenty five per cent of US$310,000.
Structure of the judgment
21. As regards both the plaintiff’s claim and the counterclaim of Revolution, the money (i.e. liquidated sums) elements of each evolved to a certain extent in the course of the hearing. Eventually, the position of each side on each money element of both the claim and the counterclaim was tabulated by agreement of the parties. I propose, in the interests of clarity, setting out in tabular form and addressing the money elements of the claim and the counterclaim before considering the legal issues.
22. In addressing the remainder of the issues, I will deal first with some miscellaneous defences raised by the Defendants and then with the Defendants’ challenge to the enforceability of the 2009 Agreement, or particular clauses thereof, on the following three grounds raised by them in the defence:
(a) under competition law;
(b) for alleged material non-disclosure; and
(c) alleged automatic termination of the 2009 Agreement by default.
I will then address the remedies, other than the money judgments, sought on the claim and the counterclaim, including the claim for injunctive relief, except the remedies sought against Mr. O’Sullivan on the guarantee. Finally, I will deal with the claim against Mr. O’Sullivan on the guarantee.
The money element of the plaintiff’s claim
23. Table A below sets out in tabular form the respective positions of the plaintiff and the Defendants in relation to the money elements of the plaintiff’s claim.
TABLE A
ITEM
PLAINTIFF’S POSITION
DEFENDANT’S POSITION
1. Schedules A & B of the 2011 Agreement
Schedule A: US$55,872 US$55,872
Schedule B: US$75,131 US$75,131
Payment made: (US$15,000) (US$15,000)
(US$19,600)
Dollar Total US$116,003 US$96,403
Euro equivalent €86,658 €72,050
2. Schedule E of the 2011 Agreement
Asia: US$161,577 nil
UK: US$168,000 US$20,789
Dollar Total US$329,577 US$20,789
Euro equivalent €246,320 €15,845
3. Sales Compensation (rebates)
As per 2011 Agreement €57,542 €57,542
Sales post 2011 Agreement €776,000 €38,957
Total €833,542 €96,499
TOTALS (Items 1,2 and 3) €1,166,520 €184,394
24. Before embarking on the process of explaining the difference between the plaintiff’s position and the Defendants’ position, it is necessary to record that, while the Defendants set out their position in relation to the figures claimed by the plaintiff, the Defendants’ ultimate position is that they do not owe any of the sums claimed by the plaintiff on the basis of the legal arguments which I will address later.
Item 1: Schedules A and B of the 2011 Agreement
25. As regards Item 1, I have already recorded the amounts set out in Schedule A and Schedule B of the 2011 Agreement earlier and I have recorded that only one payment was made by Revolution after the execution of the 2011 Agreement in the amount of €15,000, and there is no issue between the parties as to the relevant figures. The difference between the Defendants’ position and the plaintiff’s position in relation to Item 1 is that the Defendants claim that they are entitled to a reduction of US$19,600. This figure represents the value of goods which were purchased by Revolution at the request of Covepro for the French market prior to the execution of the 2011 Agreement. The Defendants’ position is that the failure of the plaintiff to release the bills of lading in respect of the goods until after the signing of the 2011 Agreement had the effect of depriving Revolution of the only market into which the goods could be sold, because the 2011 Agreement excludes France from the territories to which Revolution can distribute. While Mr. O’Sullivan may not have appreciated that the execution of the 2011 Agreement on behalf of Revolution would have that consequence, the fact is that he executed the 2011 Agreement and, in my view, Revolution is bound by it. Revolution has no basis for seeking a reduction of, or a credit for, US$19,600 as it contended. Therefore, insofar as the plaintiff has a sustainable claim in respect of the Schedule A and Schedule B, the quantum of the claim is €86,658.
Item 2: Schedule E of the 2011 Agreement
26. In relation to Item 2, I have already commented on the lack of clarity in the 2011 Agreement in relation to the Schedule E merchandise. The pleadings, the evidence and the legal submissions have compounded that lack of clarity. Just looking at the relevant clause in the 2011 Agreement on its own, there is no mention of the “UK”. What one learns from it is that Revolution had ordered merchandise to the value of US$1,156,140.50l, which is itemised in Schedule E, in respect of which it was obliged to pay the plaintiff US$867,105.38, having got the benefit of the twenty five per cent discount provided for in the 2009 Agreement. The essence of the relevant clause in the 2011 Agreement is that, without, to use a colloquialism, letting Revolution off the hook, the plaintiff would endeavour to sell the merchandise up to 31st December, 2011, at which point Revolution would have to pay for all the unsold inventory. Obviously, if Revolution was going to be required to pay for the unsold inventory, it would be entitled to receive that merchandise. However, that is not expressed in the 2011 Agreement and, having regard to what happened, it would appear that Mr. Gallinger had not taken on board that, if he was to get paid by Revolution for the remaining inventory, that merchandise had to be delivered to Revolution. In fairness to Mr. Gallinger when, on the third day of the hearing, he was being cross-examined in relation to the Schedule E goods, which are now in the United Kingdom, his response to counsel for Revolution was that, if Mr. O’Sullivan wanted them, he could take them if he had paid for them. In order to determine how feasible that proposition is, it is necessary to consider how this item of the claim has been addressed in the pleadings and in the evidence.
27. In the statement of claim the plaintiff claimed US$330,249.01 in respect of Schedule E merchandise. In response to a notice for particulars served by the Defendants’ solicitors, the plaintiff’s solicitors disclosed that some of the remaining Schedule E merchandise was stored in warehouses in China and that some of it was retained in a third party warehouse in the United Kingdom. A spreadsheet was furnished particularising the sales of Schedule E merchandise. As regards the costs incurred in relation to the storage of the merchandise, the reply was that the cost was ongoing and the plaintiff had not been invoiced in respect of it. To complicate matters even further, in a letter of 20th February, 2012, the plaintiff’s solicitors informed the Defendants’ solicitors that, having regard to the sales of Schedule E merchandise achieved by the plaintiff to other distributors, the balance due and owing in respect of Schedule E merchandise which remains in storage in Asia was US$215,436, as particularised on an attached spreadsheet, and US$234,581.15 (inclusive of freight and duty charges), as particularised on a second attached spreadsheet. The first spreadsheet was a replica of the spreadsheet which was attached to the reply to notice for particulars. The value of “Unsold Goods at Factory” (otherwise ATS, i.e. available to sell) was given as US$215,436 on that spreadsheet. The second spreadsheet contained merchandise extracted from the first spreadsheet (Deluxe Performance Jacket), which had been shipped from Asia. The total value of the goods was shown as US$224,320, which, together with duty and freight in the sum of US$10,261.15 made up the figure of US$234,581.15 claimed in the letter of 20th February, 2012. It was noted on the second spreadsheet that the sum did not include “storage and interest”. That was the state of play on the pleadings.
28. In opening the case, counsel for the plaintiff stated that the plaintiff had sold the considerable majority of the merchandise the subject of Schedule E. When the statement of claim was delivered, the amount due in respect of unsold inventory was US$330,249.01, the figure referred to in the statement of claim. At the time of the opening, that amount had increased to US$383,535 in respect of goods held in Asia and in the United Kingdom which had not yet been sold. However, Mr. Gallinger, in his evidence in chief, gave the figures set out in Table A as being the components of the amount the plaintiff claims is due under Schedule E of the 2011 Agreement. His evidence was that the plaintiff had to move some of the merchandise from Asia to the United Kingdom and the components of the claim were:
(a) US$161,577 representing seventy five per cent of the list price (US$215,436) of the merchandise still in Asia, thus giving Revolution its discount of twenty five per cent; and
(b) US$168,000 to cover the merchandise in the United Kingdom and freight and excise duty, but net of discount.
Mr. Gallinger’s evidence was that the efforts to sell the merchandise had continued. His evidence was that the goods in Asia would probably be sold within the following twenty to twenty four months, although the merchandise in the UK was becoming more difficult to dispose of.
29. The factual position became even more complicated in the course of the cross-examination of Mr. Gallinger. As regards the merchandise in Asia, an analysis of the spreadsheet produced by the plaintiff’s solicitors, which had been carried out on behalf of Revolution and which it was contended demonstrated that the plaintiff had realised approximately US$30,000 from sales already effected to third parties more than it would have realised from the sale to Revolution, was put to Mr. Gallinger. While I do not necessarily agree with the submission made on behalf of the Defendants that Mr. Gallinger accepted that proposition, it does seem to be irrefutable. One aspect of Mr. Gallinger’s response was that the figure claimed did not cover warehousing and storage costs. The reality is that the plaintiff put no quantified claim for warehousing and storage costs before the Court.
30. The position in relation to the merchandise shipped out of Asia and regarded as now being in the United Kingdom was even more complicated. The first point I would make is that, as a matter of simple arithmetic, the sum claimed, US$168,240 (rounded down to US$168,000 on Table A) represents seventy five per cent of the total value of goods as shown on the second spreadsheet annexed to the letter of 20th February, 2012 and does not include duty and freight. It transpired that the plaintiff had issued three invoices in respect of the entire complement of Deluxe Performance Jackets to the customers to whom they were shipped from Asia. Two invoices in the amount of US$67,105.77 each issued to Footsure on 9th March, 2011 and one invoice for US$11,613 issued to a customer in Gothenburg on 9th March, 2011. In relation to those invoices, the position adopted by Mr. Gallinger under cross-examination was as follows:
(a) He acknowledged that the merchandise sold to Gothenburg should be deleted from the plaintiff’s claim. However, this is not reflected in Table A.
(b) As regards the merchandise shipped to Footsure, his contention was that, notwithstanding that invoices had issued, the merchandise had not been sold to Footsure and remained in the United Kingdom unsold. The invoices were issued “to keep track” of the merchandise. In cross-examination his explanation was that the plaintiff does not maintain inventory because its “business model” does not provide for that. He also explained the raising of the invoices on the basis that excise duty had to be paid in the United Kingdom and, as the plaintiff is not a registered importer in the United Kingdom, the merchandise had to be invoiced to Footsure. To further complicate matters, it is clear from the spreadsheet that Footsure paid half of the amount invoiced to it to the plaintiff. However, both Mr. Gallinger and Mr. James Gardiner, the Chief Executive Officer of Footsure, who testified on behalf of the plaintiff, stated that Footsure was to get credit from the plaintiff, if it did not sell the merchandise. Mr. Gardiner’s evidence was that he had not sought a credit note, because he was still trying to sell the merchandise.
31. The Defendants’ position is that, if the plaintiff has a sustainable claim under Schedule E of the 2011 Agreement it should be limited to €15,845 (as set out on Table A). The position of the Defendants is that the plaintiff has suffered, and will suffer, no loss in relation to the goods remaining in Asia because, as Mr. Gallinger testified, the plaintiff expects to sell those goods within twenty four months and the plaintiff will probably realise more from those sales than it would have realised if Revolution distributed the goods. In relation to the merchandise in the United Kingdom, the Defendants’ position is that all the plaintiff is entitled to is the difference between the sum claimed (US$168,000) and the aggregate amount of the three invoices issued (US$147,211). Accordingly, all that is due in relation to Item 2 is US$20,789, equivalent to €15,845. This sum, the Defendants contended, should be set off against the gains the plaintiff will make, as a matter of probability, on the sale of the merchandise in Asia.
32. It has to be acknowledged that Mr. Gallinger adopted a pragmatic and sensible approach in addressing the Schedule E inventory in February 2011. However, it is unfortunate that what he had in mind was not formulated with greater clarity in the relevant clause of the 2011 Agreement. As the trawl through the pleadings, the evidence and the submissions reflected in the preceding paragraphs indicates, the plaintiff has pursued a claim under Item 2 on an ad hoc basis and without actually focusing on the loss, if any, which the plaintiff may incur in consequence of Revolution not taking delivery of, and paying for, the Schedule E inventory which it had ordered. If the Court were to allow the plaintiff’s claim as formulated, the probability is that the plaintiff would be paid twice for some, if not all, of the merchandise in issue rather than suffer a loss in respect of it. Moreover, insofar as the plaintiff is incurring warehousing and storage costs and claims an entitlement to interest on the monies which should have been paid to it by Revolution for the goods until the sale thereof has been or will be achieved, the plaintiff has not put evidence before the Court which quantifies the plaintiff’s claim. Therefore, the Court cannot assess such loss, if any, as the plaintiff has incurred or may incur. As regards so much of the Schedule E merchandise in Asia as was shipped to the United Kingdom, I am also of the view that Mr. Gallinger on behalf of the plaintiff took a pragmatic and sensible view, as evidenced by his e-mails from 28th February, 2011 to 9th March, 2011 to Mr. O’Sullivan. Mr. O’Sullivan, on the other hand, seems to have adopted a “head in the sand” approach. I wish to make it clear that I reject the Defendants’ contention that the plaintiff’s claim for US$168,000 in respect of the Schedule E merchandise which ended up in the UK reflects an attempt on the part of the plaintiff to maintain a “highly misleading and unmeritorious claim” and is “an exaggerated and grossly inflated claim that suggests bad faith” on the part of the plaintiff. I have no doubt that Mr. Gallinger was attempting to mitigate the plaintiff’s loss in his dealings with Footsure. I also accept the evidence of Mr. Gardiner that Footsure had not been as successful in selling the merchandise as he had hoped. However, the only reasonable inference from his evidence is that he expected that Footsure would dispose of the merchandise and, as a matter of probability, that will occur.
33. Having regard to all of the evidence, aside from the legal issues which will be addressed later, I have come to the conclusion that the plaintiff has not established an entitlement to €246,320, or indeed any sum, for breach of the clause in the 2011 Agreement in relation to the Schedule E merchandise.
Item 3: Sales compensation
34. The figure of €57,542 which appears in Table A represents the figure of €64,542 which Revolution agreed to pay to the plaintiff in respect of “outstanding fees”, meaning sales compensation, in accordance with Clause 1.1 of the 2009 Agreement up to the date of the 2011 Agreement or, more correctly, up to the end of January 2011, less the sum of €7,000 by which the plaintiff agreed to reduce that sum in consideration of the transfer of the ownership of the CAT display stand to it, which reduction was eventually conceded by the plaintiff. Aside from the legal arguments which will be outlined later, the Defendants accept that €57,542 represents the figure due in accordance with the 2011 Agreement, but they deny that that amount is due to the plaintiff.
35. Having regard to the observation made earlier in relation to the plaintiff’s claim for €776,000 in respect of sales compensation for the year 2011, it should come as no surprise that I have difficulty in finding any reasonable basis for it. Nonetheless, it is necessary to trace the evolution of this claim.
36. The first time a claim for sales compensation, other than for the figure stipulated in the 2011 Agreement, arose was in the letter of 20th February, 2012 from the plaintiff’s solicitors to the Defendants’ solicitors, in which it was stated that, having regard to the sales figures provided by the Defendants on discovery, further sums of €78,834 for 2009 and €149,665 for 2010 were due and owing by the Defendants. When counsel for the plaintiff was opening the plaintiff’s case, he indicated that the plaintiff had not got figures for December 2010 or for 2011 and, accordingly, could not particularise their seven per cent claim. The plaintiff’s position was that, if such figures were not provided, it would be reverting to the “minimum” figures in the 2009 Agreement. I think I am correct in stating that in his examination in chief Mr. Gallinger did not advance any figure for post-2011 Agreement sales compensation and I think I am also correct in stating that it was not explored in his cross-examination.
37. Mr. O’Sullivan, when giving evidence, produced a table setting out the actual sales by Revolution of the Cat product/merchandise since February 2011, the total amount being €556,534.76. The figure set out in Table A of €38,957 as representing the Defendants’ position in relation to post-2011 Agreement sales compensation represents seven per cent of that figure.
38. In fairness to the plaintiff, the figure of €776,000 is a “fall-back” position. In replying to the Defendants’ submissions, counsel for the plaintiff complained that Revolution had never provided the plaintiff with the accounts and financial information which Revolution was obligated to provide under the 2009 Agreement and the 2011 Agreement. All the plaintiff had seen was the single sheet table to which I have referred earlier. That being the case, the plaintiff had no option but to assert a right to fees on the basis of minimum wholesale sales as per Clause 2.2 of the 2009 Agreement, applied by reference to Schedule C.
39. There is absolutely no doubt but that the plaintiff cannot claim sales compensation for the period after the 2011 Agreement on the basis of Schedule C which became attached to the 2009 Agreement because, by virtue of the variation of the territories to which Revolution is entitled to distribute, Schedule C had no application after the execution of the 2011 Agreement. To allow the plaintiff claim sales compensation by reference to it, as I have demonstrated earlier, would amount to a complete injustice because Revolution agreed to relinquish the most valuable territories, which accounted for approximately sixty two per cent of the Schedule C projections for 2011. Apart from that, I am at a total loss to understand why the plaintiff has claimed sales compensation at the rate of eight per cent. Despite what is pleaded in the statement of claim, Clause 1.1 of the 2009 Agreement provides for sales compensation at the rate of seven per cent, not eight per cent.
40. It was not demonstrated through the evidence that the sales of the CAT product/merchandise by Revolution reached the levels for 2009 and 2010 set out in the letter of 20th February, 2012 from the plaintiff’s solicitors, which formed the basis of the claims for sales compensation, which it is to be noted was claimed at the correct contractual rate of seven per cent. Mr. O’Sullivan in the course of examination said that there were no figures for 2010. While I appreciate the difficulty encountered by the plaintiff, having regard to the absence of the accounts and financial documentation which it should have obtained, at this point in time, there is no evidence on the basis of which it is possible to find that the sales compensation for the period after the 2011 Agreement was other than the figure conceded on behalf of the defendants, that is to say, €38,957. Finally, on this aspect of the plaintiff’s claim, I would point out that it is common case that the last order placed by Revolution with the plaintiff was placed in February 2010, that is to say, a year before the 2011 Agreement was executed, which raises doubt as to the ability of Revolution to generate sales in 2011, particularly, having regard to the volume of stock that remained in Asia in 2011 and which has gone to other distributors.
The money elements of the counterclaim
41. In Table B which follows, the respective positions of Revolution and the plaintiff in relation to the sums claimed by Revolution under the counterclaim are tabulated.
TABLE B
ITEM
REVOLUTION’S POSITION
PLAINTIFF’S POSITION
1. Failure to release Bills of Lading – storage and interest charges
€42,250
Less than or equal to €10,562 (based on monthly charge of €5,281)
2. Stock swap Arrangement
€128,347
nil
3. Damages in respect of plaintiff’s 2009 Agreement
€57,644
nil
TOTAL
€228,241
€10.562
The position of Revolution was that Item 3 of its claim in the second column above was without prejudice to its claim for general damages for breach of contract. I will deal with each element of the money counterclaims separately.
Item 1: failure to release bills of lading
42. As I have recorded earlier under the 2011 Agreement the plaintiff expressly agreed to release to Revolution the original bills of lading for the goods set out in Schedule C attached to the 2011 Agreement. It is common case that there was delay on the part of the plaintiff in complying with that term and the bills of lading were not, in fact, released until 25th April, 2011. In consequence, it is common case that, in the period between the execution of the 2011 Agreement, 16th February, 2011, and the release of the bills of lading, 25th April, 2011, just over two months, Revolution incurred loss amounting to €10,562 in respect of storage and interest charges, because the goods were in a bonded warehouse in Dublin Docks. The plaintiff properly conceded that Revolution must get credit for the sum of €10,562.
43. The dispute in relation to this item stems from the fact that it was contended on behalf of the Defendants that they had not waived their entitlement to claim in respect of antecedent breaches by the plaintiff in respect of the bills of lading in the 2011 Agreement. The Defendants’ position is that the goods arrived into Dublin Port on 15th October, 2010 and that they are entitled to recoup the cost of storage and interest charges from then until the bills of lading were actually released on 25th April, 2011. The response of counsel for the plaintiff was that the plaintiff was not obliged to release the bills of lading, unless it was paid for the goods. Part of the deal embodied in the 2011 Agreement was that certain goods would be deemed paid for, namely, the Schedule C goods, although other goods would not be deemed paid for, namely, the Schedule A and the Schedule B goods. It was on that basis that the plaintiff agreed to release the bills of lading in respect of the Schedule C goods. The explanation of the intention of the parties in relation to the Schedule C goods given by Mr. Gallinger seems to me to be logical and consistent with the totality of the agreement. Therefore, I do not accept that Revolution had any claim in respect of the goods the subject of the bills of lading when the 2011 Agreement was executed and I do not accept that any claim for storage and interest in respect of those goods was kept alive, notwithstanding the execution of the 2011 Agreement.
44. Accordingly, I find that the quantum of the Defendants’ entitlement under Item 1 is €10,562.
Item 2: stock swap arrangement
45. The proposed stock swap which involved Revolution and Footsure arose in the following circumstances. In March and April 2010 certain merchandise was shipped on behalf of Revolution to Footsure, but Footsure had not ordered the merchandise. Footsure was invoiced for the merchandise, but did not discharge the invoices at the time. As appears from an e-mail of 9th November, 2010 from Mr. O’Sullivan to Mr. Gardiner of Footsure, at that stage the agreement between Revolution and Footsure was that Footsure would retain the merchandise and would pay Revolution for it when it was sold. When the matter had not been resolved by July 2011 Mr. Gardiner of Footsure proposed a settlement on a without prejudice basis which involved the stock held by Footsure being returned to Revolution and Revolution giving Footsure newer stock in place of it, hence the swap. It is not disputed that, if the arrangement had been implemented, this would have generated €128,347 for Revolution. However, by July 2011 the 2011 Agreement was in force and the United Kingdom was no longer a territory to which Revolution could distribute the CAT product/merchandise. Therefore, Mr. Gardiner sought Mr. Gallinger’s approval for the arrangement. In an e-mail of 20th July, 2011 Mr. Gallinger made it clear to Revolution that, while he was willing to look at the proposal, any money which would be paid by Footsure would have to be paid directly to the plaintiff, at least to the amount necessary to clear Revolution’s account with the plaintiff. As payment directly to the plaintiff did not suit Revolution, the proposed transaction was never implemented.
46. It would obviously have been in ease of Revolution if the plaintiff had permitted the transaction between Revolution and Footsure to proceed without imposing the condition which Mr. Gallinger imposed. However, the question the Court has to determine is whether there was any legal obligation on the plaintiff to approve of the proposed transaction. What is pleaded is wrongful intervention by the plaintiff without good cause. When questioned by the Court as to the nature of the wrong alleged against the plaintiff, the response on behalf of the Defendants was that there was a breach of an implied term in the agreements between the plaintiff and Revolution that the plaintiff would facilitate Revolution and that Mr. Gallinger owed a duty, presumably a contractual duty, to Revolution to facilitate it. In my view, there is no way one can interpret the contractual relationship between the plaintiff and Revolution after the execution of the 2011 Agreement as imposing an implied obligation on the plaintiff to approve of the proposed transaction with Footsure. As outlined earlier, Clause 6 of the 2011 Agreement expressly addresses the issue of unfilled orders with entities in revoked territories. Apart from that, as regards Revolution operating outside permitted territories, Clause 4.3 remained in force. In my view, an obligation on the part of the plaintiff to approve of the resale or swap of merchandise by Revolution outside the permitted territories, as defined following execution of the 2011 Agreement, cannot be implied.
47. Accordingly, this aspect of the defendants’ counterclaim, in my view, is totally unsustainable.
Item 3: breaches of the 2009 Agreement
48. While it was submitted on behalf of the plaintiff that the third item in Table B was not pleaded by the Defendants, there is a general plea in the counterclaim that, in breach of the 2009 Agreement and the 2011 Agreement, the plaintiff permitted other distributors to sell at wholesale and to distribute the CAT product/merchandise into territories into which Revolution believed it had the exclusive right to sell and distribute the CAT product/merchandise. Further, the evidence does support the Defendants’ claim for the itemised sum of €57,644 set out in Table B. Mr. Gallinger acknowledged that in November and December 2010 the plaintiff had sold merchandise to the value of €310,000 to Covepro in France and to Footsure in the United Kingdom. At the time, it was unquestionably the case that Revolution had exclusive distribution rights in relation to France and the United Kingdom. It is reasonable to assume that, if the plaintiff had not made those sales, Revolution could have made them because there were customers for the merchandise. In the circumstances, I am satisfied that the plaintiff was in breach of the terms of the 2009 Agreement, in consequence of which Revolution was wrongfully deprived of the profit it would have made. The evidence is that the profit margin is twenty five per cent, which puts the loss incurred by Revolution at US$77,500, being the equivalent of €57,644. I am satisfied that Revolution is entitled to that amount as damages for breach of contract against the plaintiff. It follows that I reject the plaintiff’s contention that, in selling to Covepro and Footsure, the plaintiff was endeavouring to mitigate its loss occasioned by Revolution’s failure to discharge its indebtedness to the plaintiff. I also reject the submission that the stock sold to Covepro and Footsure would have come within Schedule E attached to the 2011 Agreement, if it had not been disposed of by the plaintiff directly, so that Revolution has incurred no loss.
Counterclaim for general damages
49. The Defendants have also persisted in their counterclaim for general damages and they have done so on two bases.
50. The first is that the plaintiff sold merchandise to a company in Portugal in contravention of Revolution’s sole distributorship rights in relation to Portugal. The position of the plaintiff is that there was no breach, because what was sold directly into Portugal was CAT “Lifestyle” product and not CAT “Workwear” product. However, the Court was invited by the Defendants to infer that Mr. Gallinger’s evidence was not correct. By way of general observation, I am satisfied that the plaintiff, through its witnesses and in making discovery, set out to present a true and fair picture of the factual situation to the Court. I am not prepared to find that the Defendants have established that there was a breach of contract by the plaintiff selling into Portugal. In any event, there is no evidential basis on which, if there was a breach, the loss to Revolution could be quantified.
51. The second basis is that there were multiple breaches of the 2009 Agreement by the plaintiff, which resulted in Revolution being forced into the position of having to enter into the 2011 Agreement, which had the effect of depriving Revolution of sixty two per cent of its market share. Taking an overview of the evidence, it is not possible to conclude that the financial difficulties which Revolution encountered in October and November 2010 resulted from the actions of the plaintiff in the operation of the 2009 Agreement. It is very clear on the evidence that Revolution’s problems were much closer to home. The reality of the situation is that the breaches of the 2009 Agreement by the plaintiff, which have been conceded, for example, the sales directly to Footsure and to Covepro referred to earlier, were a reaction to, rather than the catalyst of, Revolution’s financial difficulties, which manifested themselves in October 2010 and which Mr. Gallinger was endeavouring to deal with in the period immediately after Mr. Bond’s departure. While Mr. O’Sullivan is understandably disappointed and aggrieved on account of the effective collapse of the business of Revolution, I do not think it is fair to accuse the plaintiff and Mr. Gallinger of cheating him or deceiving him. What Mr. Gallinger tried to do after Mr. Bond’s departure was to retrieve the situation as best he could.
52. Accordingly, I am not satisfied that Revolution or any of the Defendants have established any liability on the part of the plaintiff for general damages for breach of contract. I reiterate that there is no evidential basis on which one could quantify the damages.
Miscellaneous defences
53. First, it is convenient to deal with a submission made on behalf of the Defendants, which I understand to be advanced as a defence to the plaintiff’s claim. It was submitted on behalf of the Defendants that the breach of the 2009 Agreement on the part of the plaintiff by selling the CAT product/merchandise directly to Covepro and to Footsure amounted to a “repudiatory breach” of the 2009 Agreement. It was further submitted that these “fundamental breaches” had the effect of depriving Revolution of the whole benefit of the 2009 Agreement, in consequence of which the 2009 Agreement was either “automatically repudiated” or the Defendants were given “a right of repudiation and an action in damages”. The decision of the High Court (O’Sullivan J.) in Hearn v. Collins [1998] IEHC 187 was cited, as I understand it, to obviate the difficulty created by the fact that the Defendants only learned of the sales to Covepro and Footsure when discovery documentation was exchanged two days before the hearing.
54. That submission is misconceived for a variety of reasons. However, for present purposes, suffice it to observe, as counsel for the plaintiff submitted, that the Defendants are relying on the 2011 Agreement and, as counsel for the plaintiff put it, they “cannot have it both ways”. However, having said that, the plaintiff, in the paragraph of the statement of claim which should have been numbered as para. 23, referred to Revolution’s “repudiation of the 2011 Agreement” (without having set out any foundation for that assertion). In response in the defence, the Defendants pleaded that, insofar as the 2011 Agreement had been repudiated, the plaintiff could not rely on alleged breaches thereof to ground its claim. That brings to mind the old adage that “what is sauce for the goose is sauce for the gander”. That adage is equally apt in relation to the Defendants’ plea that, if the 2009 Agreement remains in force and is operable, the plaintiff is not entitled to maintain a claim for damages or judgment pursuant to Clause 9 of the 2009 Agreement, the contents of which have been outlined earlier.
55. Secondly and for completeness, I consider that the plaintiff has not failed to mitigate its loss, as pleaded in the defence. In particular, the inventory purchase option referred to in Clause 13 of the 2009 Agreement, as the name indicates, was exercisable at the option of the plaintiff and the plaintiff was under no obligation to invoke that provision.
Defence based on alleged breach of competition law
56. As I understand it, the Defendants raised the alleged breach of competition law as an answer to the plaintiff’s claim for a permanent injunction restraining the Defendants from exporting or permitting the distribution of the CAT product/merchandise on the website www.amazon.co.uk in the absence of approval from the plaintiff, which relief the plaintiff seeks in reliance on Clause 4.3 of the 2009 Agreement which has been quoted earlier. The Defendants’ answer in the defence is that Clause 4.3 is in breach of Article 101 of the TFEU and of s. 4 of the Act of 2002 and, therefore, is void and/or unenforceable. I mention that to emphasise that it is Clause 4.3 which it is pleaded is void.
57. In their written legal submissions both sides deal with this aspect of the case comprehensively and there is a degree of consensus as to what the law provides. It is agreed that the 2009 Agreement is a vertical agreement which is subject to Article 101(1) TFEU. There is also consensus that, if, as it contends, the plaintiff can establish that Clause 4.3 comes within Commission Regulation (EU) No 330/2010 on the application of Article 101(3) to categories of vertical agreements and concerted practices, Article 101 does not apply. There is also consensus that, if Clause 4.3 contains a “hardcore restriction” as outlined in Article 4 of the Regulation, the block exemption shall not apply. On the application of Article 4, the position of the Defendants is that Clause 4.3 restricts passive sales, whereas the position of the plaintiff is that, in endeavouring to sell merchandise via the Amazon website, Revolution is engaging in active sales. As was recognised by counsel on each side in the oral legal submissions, the core issue is whether Clause 4.3 restricts passive sales. Counsel for the Defendants, emphasising the words “either directly or indirectly” in Clause 4.3, contends that it restricts passive sales. On the other hand, as I have stated, the plaintiff’s position is that the actions of Revolution involve active sales.
58. In addressing the distinction between active sales and passive sales in this context, in my view, it is useful to have regard to the European Commission Guidelines on Vertical Restraints (C130/03 published in the Official Journal on 19th May, 2010). Point (51), having stated that the first of the four exceptions to the hardcore restriction in Article 4(b) of the Regulation allows a supplier to restrict active sales by a buyer party to the agreement to a territory or a customer group which has been allocated exclusively to another buyer or which the supplier has reserved to himself, goes on to set out the Commission’s interpretation of “active” and “passive” sales. The interpretation of passive sales is as follows:
“‘Passive’ sales mean responding to unsolicited requests from individual customers including delivery of goods or services to such customers. General advertising or promotion that reaches customers in other distributors’ (exclusive) territories or customer groups but which is a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers in one’s own territory, are passive sales. General advertising or promotion is considered a reasonable way to reach such customers if it would be attractive for the buyer to undertake these investments (sic) also if they would not reach customers in other distributors’ (exclusive) territories or customer groups.”
The plaintiff contends that selling on the Amazon website constitutes active rather than passive selling, because Revolution is using a third party website which facilities the selling of products to end-users. It is not merely advertising products on its own website. Further, the use of the Amazon website by Revolution is a means of approaching and soliciting individual customers, so that customers contacting Revolution via the Amazon website cannot be considered as making unsolicited requests for the purposes of the definition of passive sales permitted outside territorial restrictions. Those arguments, the Defendants contend, simply ignore the fact that on its face Clause 4.3, by restricting direct or “indirect distribution”, restricts passive selling.
59. In Dunleavy on Competition Law (Bloomsbury Professional), in addressing the distinction between “active” and “passive” sales, it is stated (at p. 222):
“Active sales are those where the distributor seeks out customers. Passive sales involve unsolicited requests originating from the customer. The Commission considers that sales made through the Internet are generally passive sales so that, for example, if a customer contacts a distributor having viewed its website, any resulting sales are passive. However, online advertising may give rise to active selling, for example, where the distributor pays a search engine to display advertisements specifically to users in a particular territory.”
The Court was also referred to a recent European Court (Third Chamber) judgment delivered on 13th October, 2011 on a reference for a preliminary ruling from a French Court: Pierre Fabre Dermo-Cosmétique SAS v. Président de l’Autorité de la concurrence & Anor. There, the Court was considering a clause prohibiting de facto the Internet as a method of marketing in the context of the Block Exemption Regulation (Regulation 2790/1999), which was replaced by the 2010 Regulation, and, in particular, in the context of the analogue of what is now Article 4(c) of the 2010 Regulation, which concerns selective distribution contracts. The Court held that the clause in issue, which required that the authorised distributor of cosmetic products would only sell the products at a location where a pharmacist was present and, which de facto excluded all forms of selling by internet, did not come within Article 4(c). In my view, that judgment does not assist in determining the issue which the parties have put before the Court for determination in this case.
60. Counsel for the plaintiff advanced a more fundamental response to the impugning of Clause 4.3 by reference to competition law. It was submitted that Clause 4.3 does not embody an absolute restriction. All it does is to restrain distribution outside the permitted territory “unless such sale is approved in advance in writing” by the plaintiff. It was submitted that, in effect, the Defendants are asking the Court to assume that, if Revolution sought advance approval in accordance with Clause 4.3, in dealing with the request, the plaintiff would act in a manner which is in breach of competition law and, therefore, would act unlawfully. It was submitted that, on the contrary, the plaintiff is entitled to the presumption that it would act lawfully and in accordance with law. The Court was also invited to consider Clause 4.3 in the context of Clause 4 generally. It was submitted that the provisions of Clause 4 generally are concerned with defining approved sale channels which correspond with the prestigious nature of the CAT product/merchandise and the brand marks. In that context, it was submitted that Clause 4.3 is concerned with ensuring that sales are made through appropriate outlets and there is no indication in it that it would be used to restrain possible sales.
61. The application of competition law, both at European and at national level, is a specialised discipline and, understandably, there is a special Competition Case List in the High Court. Notwithstanding that, competition law issues find their way into cases listed elsewhere in the High Court. This is one such case, in which the competition law defence represents only one minor element of the many issues which have been raised by the parties. Nonetheless, I have considered all of the submissions made by the parties carefully. The conclusion I have come to is that the Defendants have not established that Clause 4.3 breaches either Article 101 or s. 4 of the Act of 2002. Looking objectively at the provision contained in Clause 4.3 in the context of Clause 4 in general, I find it impossible to conclude that it is intended to be anti-competitive, using that expression in a non-technical sense. Moreover, I cannot conclude that the use by Revolution of the Amazon website constitutes other than “active” sales within the meaning of Article 4(b)(i) of the 2010 Regulation. Therefore, the reliance on an alleged breach of competition law does not avail the Defendants as a defence to the plaintiff’s claims.
Defence of alleged material non-disclosure
62. The factual basis of the alleged material non-disclosure on the part of the plaintiff is that the plaintiff failed to disclose to the Defendants that, at the date of the execution of the 2009 Agreement, Mr. Bond was a director of the plaintiff. The consequences which it is contended flow from such alleged non-disclosure are twofold, namely, that –
(a) Revolution is entitled to rescind the 2009 Agreement; and
(b) the guarantee given by Mr. O’Sullivan is unenforceable.
63. As regards the alleged entitlement of Revolution to rescind the 2009 Agreement, the Defendants’ case is that the alleged material non-disclosure constituted either –
(a) a breach of an implied term of the 2009 Agreement that the parties thereto were acting in good faith, or
(b) a breach of s. 194 of the Act of 1963.
Before addressing those allegations, a number of general observations are apt. First, it must be emphasised that this judgment is concerned with the contractual rights and obligations of the plaintiff, on the one hand, and Revolution and Mr. O’Sullivan, on the other hand, inter se. Mr. Bond’s contractual obligations to the Defendants are not in issue at this juncture. Secondly, the transaction which was ultimately embodied in the 2009 Agreement was a commercial transaction negotiated at arm’s length. In my view, the Defendants have not demonstrated that there was any duty on the plaintiff to disclose that Mr. Bond was a director of the plaintiff or that the failure to disclose that fact amounted to a misrepresentation. As counsel for the plaintiff submitted, it was a matter of public record when the 2009 Agreement was executed that Mr. Bond was a director of the plaintiff, a fact which the Defendants could have ascertained by having a search carried out in the CRO. In any event, as was submitted on behalf of the plaintiff, the Defendants have not pleaded an entitlement to rescind, nor are they seeking to rescind the 2009 Agreement.
64. Turning to s. 194 of the Act of 1963, subs. (1) of that section provides:
“It shall be the duty of a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the directors of the company.”
Under sub s. (6) of s. 194, failure to comply with s. 194 is a criminal offence for which the sanction is a fine. As is pointed out in the annotation on s. 194 in MacCann and Courtney Companies Acts 1963 – 2012, the contract generally becomes voidable at the instance of the company. The application of s. 194 to the 2009 Agreement required Mr. Bond to declare his interest in the contract proposed to be entered into between Revolution and the plaintiff to the board of directors of Revolution, assuming he had an interest in the 2009 Agreement within the meaning of s. 194, which is almost invariably construed as meaning a financial interest. Even if there was a breach of s. 194 by Mr. Bond, from the perspective of the civil remedy available, Revolution has not sought to avoid the 2009 Agreement and, even if it did, as restitutio in integrum is not possible, it could not do so. Therefore, in my view, the Defendants’ reliance on s. 194 to meet the claim of the plaintiff against the Defendants is misconceived.
65. As regards the second consequence contended for, in support of their contention that the failure of the plaintiff to disclose to the Defendants what the Defendants characterise as the “unusual fact” that Mr. Bond was a director of the plaintiff constitutes a material non-disclosure sufficient to discharge Mr. O’Sullivan from his liability under the guarantee contained in the 2009 Agreement, counsel for the Defendants relied on a number of recent authorities.
66. The earliest chronologically was a decision of the House of Lords in Royal Bank of Scotland Plc v. Etridge (No. 2) [2002] 2 AC 773. I think it is not incorrect to suggest that the passages from the speeches of the Law Lords relied on by counsel for the Defendants on that appeal were obiter. In dealing with a creditor’s disclosure obligation, Lord Nicholls stated (at para. 81):
“It is a well-established principle that, stated shortly, a creditor is obliged to disclose to a guarantor any unusual feature of the contract between the creditor and the debtor which makes it materially different in a potentially disadvantageous respect from what the guarantor might naturally expect. The precise ambit of this disclosure obligation remains unclear.”
Lord Nicholls went on to say in the same paragraph that the issue before the House of Lords, the need to provide protection for wives who were standing as sureties, was a different issue. In his speech, Lord Scott probably brought more clarity to the situation of relevance here, in that he addressed the general law on the issue of disclosure to a surety. He stated (at para. 185) that a surety contract is not a contract uberrimae fidei, quoting the following passage from the judgment of Romer L.J. in Seaton v. Heath [1899] 1 QB 782 (at p. 793):
“The risk undertaken is generally known to the surety, and the circumstances generally point to the view that as between the creditor and surety it was contemplated and intended that the surety should take upon himself to ascertain exactly what risk he was taking upon himself.”
While Lord Scott then stated that, although a would-be surety is, in general, expected to acquaint himself with the risk he is undertaking, he quoted the following passage from the judgment of Lord Campbell in Hamilton v. Watson (1845) 12 Cl & F 109 (at p. 119) as illustrating that a creditor is under an obligation to disclose to the intending surety –
“anything that might not naturally be expected to take place between the parties who are concerned in the transaction, that is, whether there be a contract between the debtor and the creditor, to the effect that his position shall be different from that which the surety might naturally expect . . ..”
Later (at para. 188) Lord Scott stated:
“. . . in my opinion, the obligation should extend to unusual features of the contractual relationship between the creditor and the principal debtor, or between the creditor and other creditors of the principal debtor, that would or might affect the rights of the surety . . ..”
67. I have quoted that last passage because it was quoted by Clarke J. in Moorview Developments Ltd. v. First Active Plc [2009] IEHC 214. Clarke J. in that case stated that he was prepared to accept, for the purposes of argument, that the principle stated there applies in this jurisdiction, so that there may be circumstances in which a creditor is obliged to explain to a surety unusual features of the arrangements between either the creditor and the surety and the creditor and the debtor, which might have the effect of affecting the sureties position. However, on the facts of the case before him he went on to find that there was no basis put forward for establishing a prima facie case to the effect that the relevant guarantees in favour of First Active were void.
68. The Defendants also rely on a more recent decision of the Court of Appeal in England and Wales in North Shore Ventures Ltd. v. Anstead Holdings Inc [2012] Ch 31. In his judgment, Sir Andrew Morritt C. has analysed the law on the duty of disclosure of a creditor to a surety over the span of the jurisprudence from the decision in Hamilton v. Watson in 1845 to the decision in Royal Bank of Scotland Plc v. Etridge in 2002 and he has set out his conclusions on the state of the law in England and Wales at paras. 30 and 31 as follows:
“. . . the restriction on the duty of disclosure in the case of a loan guarantee is well established and justified by commercial necessity as illustrated by Lord Campbell in his speech in Hamilton v Watson ….
31. For these reasons I do not agree that the grounds given (by the trial Judge) justify his conclusion. The Guarantee was not a contract uberrimae fidei but was a loan guarantee. The authorities are clear that in such a case the duty of disclosure does not go further than the limit set by Lord Campbell in Hamilton v Watson . . . and by Lord Scott . . . in Royal Bank of Scotland plc v Etridge . . .. para 188. Accordingly, there is no duty to disclose facts or matters which are not unusual features of the contractual relationship between the creditor and the debtor, or between the creditor and other creditors of the debtor.”
On the facts in that case, it was not disputed that the facts on which the guarantors relied were not unusual features of the contractual relationship between the creditor and the debtor, or between the creditor or other creditors of the debtor.
69. Adopting the approach adopted by Clarke J. in Mooreview Developments Ltd. v. First Active Plc in relation to the dictae in Royal Bank of Scotland v. Etridge, and assuming, for the purposes of argument, that the principles set out by Sir Andrew Morritt in the passages outlined above apply in this jurisdiction, the first step in considering their application, as urged by counsel for the Defendants, is to ascertain what precisely Mr. O’Sullivan guarantees in the 2009 Agreement. I have quoted the relevant part of the special covenants in the 2009 Agreement earlier. He guaranteed with Mr. Bond (probably jointly and severally, but it is not necessary to express a definitive view on that point) all obligations of Revolution under the 2009 Agreement. The second step is to consider to what extent the fact that Mr. Bond was a director of the creditor, the plaintiff, constituted an unusual feature of the contractual relationship between the creditor, the plaintiff, and the debtor, Revolution. I cannot see how that fact constituted an unusual feature in the context of a distributorship contract. Mr. O’Sullivan agreed to act as surety for the obligations of Revolution, which were its obligations as distributor under the 2009 Agreement. The fact that Mr. Bond was a director of the plaintiff to whom those obligations were owed did not make Mr. O’Sullivan’s contractual relationship, to use the words of Lord Nicholls, “materially different in a potentially disadvantageous respect” from what he might have naturally expected from taking on the role of surety.
70. The reality is that Mr. O’Sullivan did not carry out the type of due diligence which it would have been prudent to carry out before he became involved in the 2009 Agreement both through the medium of Revolution and personally as guarantor. The problems which the Defendants contend they subsequently encountered through Mr. Bond’s actions are a separate issue and, in my view, do not affect Mr. O’Sullivan’s liability as guarantor.
Defence of alleged unenforceability due to uncertainty
71. To recapitulate, the Defendants have pleaded that the 2009 Agreement is void and unenforceable as it fails to define the territories into which Revolution was permitted to sell and distribute the CAT product/merchandise. There is no doubt but that the territorial ambit of the distributorship being granted by the plaintiff to Revolution was a crucial element of the 2009 Agreement. In the wording of Clause 1.1 the territorial ambit (Territory) was intended to be defined by the list of countries referred to as exhibit A. There was no exhibit A. However, a Schedule B and a Schedule C, while not attached to the 2009 Agreement when it was executed on 16th August, 2009, were produced to Mr. O’Sullivan within a short time of execution of the agreement. Schedule C listed Newco’s (that is to say, Revolution’s) sale projections for each year from 2009 to 2013 by reference to the countries listed. I have no doubt that Mr. O’Sullivan must have understood from the outset that “Territory” only included the countries on Schedule C in relation to which there were sale projections indicated, in other words, all of the countries listed other than the countries in respect of which zero projections were shown. I so find. Indeed, in the replying affidavit sworn by him on 9th December, 2011, in response to the plaintiff’s application for an interlocutory injunction, Mr. O’Sullivan averred that there was no exhibit A appended to the 2009 Agreement. However, he exhibited the copy of the 2009 Agreement which he had retained in his possession and that document contained both Schedule B and Schedule C.
72. The fact that, notwithstanding the absence of exhibit A, Mr. O’Sullivan was aware of the territorial ambit of the distributorship granted to Revolution by the 2009 Agreement is corroborated by his execution of the 2011 Agreement on behalf of Revolution. As I have already recorded, the 2011 Agreement contained an express acknowledgement and agreement to the amendment of Revolution’s territory designations so as to exclude the United Kingdom (other than Northern Ireland) and France, and that all other territory designations would remain in effect for the duration of the 2009 Agreement. I am satisfied that Mr. O’Sullivan, an experienced businessman, would not have signed the 2011 Agreement, if he was not aware of the countries to which the 2009 Agreement permitted Revolution to distribute the CAT product/merchandise or if he did not understand how the 2011 Agreement was varying that permission.
73. Essentially, I am finding against the Defendants on the alleged material non-disclosure aspect of their defence on the facts. However, I consider it appropriate to comment briefly on the legal arguments advanced on behalf of the Defendants. The contention of the Defendants that the 2009 Agreement is unenforceable or void for uncertainty seems to be based on the premise that the plaintiff and Revolution were not ad idem. They cite a passage from the judgment of Fennelly J., with whom the other judges of the Supreme Court concurred, in McCabe Builders (Dublin) Ltd. v. Sagamu Developments Ltd. & Ors. [2009] IESC 31, in which he stated (at para. 43):
“I agree with the statement in Contract Law, by Paul A. McDermott (Butterworths. Dublin 2001) at page 171, that in ‘commercial arrangements it will be presumed that the parties intended to create legally binding contracts’. Lord Wright said in Hillas & Co. Ltd. v. Arcos Ltd (1932) 147 LT 503 at p.514:
‘Businessmen often record the most important agreements in crude and summary fashion. Modes of expression sufficiently clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the Court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the Court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the Court is to make a contract for the parties, or to go outside the words they have used, except in so far as they are appropriate implications of law’.”
Fennelly J. went on to state that, in other words, the courts should seek to give effect to the apparent intentions of the parties to enter into binding contracts.
74. I have absolutely no doubt that what was intended by the plaintiff and Revolution was that they were entering into a binding contract under which Revolution would have permission to distribute the CAT product/merchandise in the countries to which a volume of merchandise was ascribed in Schedule C and the contract took effect from 16th August, 2009. Apart from the fact that the parties varied the contract by the 2011 Agreement, the reality of the situation is that they operated the 2009 Agreement for two and a half years before it was contended that it was unenforceable in these proceedings.
Defence of automatic termination of the 2009 Agreement by default
75. In advancing this defence, the Defendants pointed to various provisions of the 2009 Agreement, for example, Clause 11.1(g) referred to earlier, which is an event of default which, in accordance with the terms of the 2009 Agreement, results in an automatic termination thereof and also other provisions, such as Clause 12.2(a) and Clause 12.2(b) referred to earlier, which result in an automatic termination of the 2009 Agreement, which is deemed to terminate after three months unless the plaintiff waives such termination in writing referring to s. 12. The Defendants rely on their own breaches of the provisions of Clause 11 to contend that the 2009 Agreement is automatically terminated. They also rely on their own breaches of the provisions of Clause 12, coupled with the absence of any waiver in writing by the plaintiff, as also as having given rise to the termination of the 2009 Agreement at the expiry of the three month period stipulated. Counsel for the plaintiff, in their submissions, emphatically countered those arguments. Before considering the plaintiff’s submissions, I would pose one rhetorical question: how can the Defendants maintain a counterclaim on foot of the 2009 Agreement, if it automatically terminated at some indefinite point in the past, probably on the Defendants’ case, within a few months of its execution? It is easy to predict the plaintiff’s answer: they cannot have it both ways.
76. Counsel for the plaintiff, in contending that the Defendants are not entitled to rely on their own breaches of the 2009 Agreement as they have sought to do, referred to the following passage in McDermott on Contract Law (at para. 21.97):
“It is assumed, in the absence of clear words, that neither of the parties is entitled to benefit from their own breach.”
The Defendants latched on to the qualification in that statement that the assumption applies “in the absence of clear words”, suggesting that the plaintiff, for whom the 2009 Agreement was drafted, produced a document which clearly provided for automatic termination on the happening of an event of default stipulated. I do not accept that argument. McDermott has observed immediately after the sentence quoted above that it may be that the proposition in that sentence should properly be viewed as an implied term in the contract, rather than a rule of construction. I have no difficulty, taking an overview of Clauses 11 and 12, in concluding that it is to be implied that the defaulter, in each and every case identified as either Revolution or the guarantors (Mr. O’Sullivan and Mr. Bond), would not be entitled to rely on their own breach as terminating the contract. Any other interpretation would be utterly nonsensical.
77. Apart from that, in the 2011 Agreement Mr. O’Sullivan, on behalf of Revolution, expressly acknowledged that, subject to the variations of the 2009 Agreement agreed to in the 2011 Agreement, all other terms of the 2009 Agreement remained in full force and effect.
Plaintiff’s remedies against the Defendants other than against Mr. O’Sullivan as guarantor
78. As the Defendants have not established any defence to the plaintiff’s claim, the plaintiff is entitled to judgment for the amounts found to be due to the plaintiff by Revolution under Items 1 and 3 of the plaintiff’s money claim, that is to say, €86,658 under Item 1 and €57,542 and €38,957 under Item 3, making a total of €183,157. Against that sum there must be set off the sums found due to Revolution under Items 1 and 3 of the money counterclaim, that is to say, €10,562 under Item 1 and €57,644 under Item 3, making in total €68,206. Accordingly, there will be judgment in favour of the plaintiff in the sum of €114,951 against Revolution.
79. In an affidavit sworn by him on 9th December, 2011 in response to the plaintiff’s application for an interlocutory injunction, Mr. O’Sullivan on behalf of the Defendants, notwithstanding their primary contention that contractual provisions which the plaintiff was seeking to enforce were in breach of competition law and void for uncertainty, gave undertakings to the Court not to export or permit the distribution of the CAT product/merchandise in France, Canada or the United Kingdom (excluding Northern Ireland) or on the website www.amazon.co.uk or to Brico Depot retail stores in France. As Counsel for the plaintiff stated at the very end of his oral submissions in reply to the Defendants’ oral submissions, it is not clear whether the Defendants were prepared to give a perpetual undertaking. That remains the position. I am satisfied that the plaintiff is entitled to injunctive relief in the terms of the prohibitory orders sought, which are summarised at para. 16(a) above, on a permanent basis, but the situation would also be met by the Defendants giving to the Court permanent undertakings in the terms sought. The mandatory injunctive relief sought by the plaintiff is effectively moot and, accordingly, orders in the terms sought will not be granted.
80. The Defendants argued that the Court should exercise its discretion not to grant equitable injunctive relief on the grounds that the plaintiff has not come to Court with clean hands and supported that argument by reference to the breach by the plaintiff in selling merchandise to Covepro in France and Footsure in England in November and December 2010. There was undoubtedly a breach of the terms of the 2009 Agreement by the plaintiff in effecting those sales, but the Court has afforded Revolution the appropriate remedy in damages under the counterclaim. In the circumstances, I do not consider that the plaintiff is precluded from enforcing the territorial restriction, as varied by the 2011 Agreement, against Revolution. Counsel for the Defendants referred the Court to a passage from the judgment of Scrutton L.J. in Moody v. Cox [1917] 2 Ch. 71, where, in addressing the meaning of the maxim that “any one coming to equity must come with clean hands”, it was stated (at p. 87):
“I think the expression ‘clean hands’ is used more often in the text-books than it is in the judgments, though it is occasionally used in the judgments; but I was very much surprised to hear that when a contract, obtained by the giving of a bribe, had been affirmed by the person who had a primary right to affirm it, not being an illegal contract, the Courts of Equity could be so scrupulous that they would refuse any relief not connected at all with the bribe. I was glad to find that it was not the case, because I think it is quite clear that the passage in Dering v. Earl of Winchelsea which has been referred to shows that equity will not apply the principle about clean hands unless the depravity, the dirt in question on the hand, has an immediate and necessary relation to the equity sued for.”
81. Revolution, acting through Mr. O’Sullivan, agreed to the variation of the 2009 Agreement in the 2011 Agreement and also affirmed the remaining provisions of the 2009 Agreement which were not varied. I do not consider that the previous breaches of the 2009 Agreement by the plaintiff in November and December 2010, for which, as I have indicated, the Defendants are being compensated, has an immediate and necessary relation to the equity for which the plaintiff is suing, namely, injunctive relief to enforce the varied terms contained in the 2011 Agreement.
Liability of Mr. O’Sullivan as guarantor
82. The defence of alleged material non-disclosure based on the failure to disclose that Mr. Bond was a director of the plaintiff and the contended for consequence that the guarantee given by Mr. O’Sullivan is unenforceable has been dealt with earlier. Having regard to the conclusion I have reached that the 2009 Agreement as between the plaintiff and Revolution is not unenforceable or void or terminated, the consequence of which conclusion is that the 2009 Agreement is still in being and binds Revolution, the only other pleaded basis on which it is asserted that Mr. O’Sullivan does not have liability to the plaintiff on foot of the guarantee contained in the 2009 Agreement which remains to be considered is that the guarantee was discharged by the substantial variation of the 2009 Agreement by the 2011 Agreement, which materially affected the ability of Revolution to meet its obligations under the 2009 Agreement, thereby significantly prejudicing Mr. O’Sullivan.
83. However, in the Defendants’ legal submissions there was also an undercurrent of a plea of non est factum, in that it was recorded that Mr. O’Sullivan had given evidence that, on signing the 2009 Agreement, he understood he was guaranteeing the obligations of Revolution on behalf of Revolution and that he did not understand or appreciate that he was signing a personal guarantee. I am satisfied that Mr. O’Sullivan, as an experienced businessman, must have understand that he was executing the 2009 Agreement as a guarantor when he subscribed his signature for a second time, notwithstanding that his name was not inserted after “For and On Behalf of” before the words “individual co maker and guarantor”. Accordingly, given that I am satisfied that Mr. O’Sullivan became liable as guarantor of Revolution on the execution of the 2009 Agreement, the issue which has to be considered is whether Mr. O’Sullivan’s liability as guarantor has been discharged.
84. Counsel on both sides referred the Court to a wide range of authorities from various jurisdictions on the topic of the discharge of a surety. I think the most productive approach from the Court’s perspective is to trace the development of the law chronologically.
85. The starting point is the decision of the Court of Appeal in Polak v. Everett [1876] 1 QB 669. In fact, the Court of Appeal in its judgment merely stated that the view taken by the Queen’s Bench Division was correct, and affirmed the judgment at first instance for the same reasons. In his judgment at first instance, Blackburn J. stated (at p. 673):
“It has been established for a very long time, beginning with Rees v. Berrington to the present day, without a single case going to the contrary, that on the principles of equity a surety is discharged when the creditor, without his assent, gives time to the principal debtor, because by so doing he deprives the surety of part of the right he would have had from the mere fact of entering into the suretyship, namely, to use the name of the creditor to sue the principal debtor, and if this right be suspended for a day or an hour, not injuring the surety to the value of one farthing, and even positively benefiting him, nevertheless, by the principles of equity, it is established that this discharges the surety altogether.”
Later, (at p. 674) Blackburn J. stated:
“Now, in the present case the interference with the rights of the surety is not by giving time to the debtor, but it is equally as great an interference. The surety at the time he entered into the suretyship had a right to have these book debts appropriated to reduce the principal debt, and that right he has been deprived of by the act of the creditor in releasing the book-debts to the person collecting them. That equitable right has been taken away by his wilful act . . ..”
86. The long established principle that any material variation of the terms of the contract between the creditor and the principal debtor would discharge the surety, is sometimes referred to as the rule in Holme v. Brunskill (1878) 3 QBD 495. Unlike most of the authorities, that case did not concern the surety guaranteeing a loan by a bank or lending institution to the principal debtor. In that case, the plaintiff had agreed to let to the principal debtor, as yearly tenant, a farm, including certain hill pastures and a flock of seven hundred sheep. The plaintiff gave the defendant a bond to secure re-delivery to him at the end of the tenancy of the flock in good order and condition. The terms of the tenancy were subsequently varied between the plaintiff and the tenant. After the tenancy terminated, it transpired that the flock was reduced in number and had deteriorated in quality and value. The plaintiff sued the defendant on his bond. Cotton L.J. in his judgment referred to the case of Rees v. Berrington, which had been referred to in Polak v. Everett, and stated that the cases as to discharge of a surety by an agreement made by the creditor to give time to the principal debtor were only an exemplification of the rule stated in that case. Cotton L.J. went on to state (at p. 505):
“The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet, that if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court, will not, in an action against the surety, go into an inquiry as to the effect of the alteration, or allow the question, whether the surety is discharged or not, to be determined by the finding of a jury as to the materiality of the alteration or on the question whether it is to the prejudice of the surety, but will hold that in such a case the surety himself must be the sole judge whether or not he will consent to remain liable notwithstanding the alteration, and that if he has not so consented he will be discharged.”
On the facts, Cotton L.J. found that the surety ought to have been asked to decide whether he would assent to the variation, he never did assent and, accordingly, he was discharged from liability.
87. Counsel for the Defendants relied on a more recent decision of the Queen’s Bench Division (Commercial Court) in Bank of India v. Patel [1982] 1 Lloyd’s Rep. 507. The passage from the judgment of Bingham J. relied on by counsel for the Defendants (at p. 515) is in the following terms:
“. . . I consider the true principle to be that where a surety is discharged if the creditor acts in bad faith towards him or is guilty of concealment amounting to misrepresentation or causes or connives at the default by the principal debtor in respect of which the guarantee is given or varies the term of the contract between him and the principal debtor in a way which would prejudice the interests of the surety, other conduct on the part of the creditor, not having these features, even if irregular, and even if prejudicial to the interests of the surety in a general sense, does not discharge the surety.”
Earlier in his judgment Bingham J. had cited various authorities for each of the situations in which the surety would be discharged. For instance, in relation to the final situation (variation of the terms of the contract between the creditor and the principal debtor) he cited Holme v. Brunskill. As regards the situation where the creditor is guilty of concealment amounting to misrepresentation, he made it clear that the non-disclosure related to the time at which the guarantee was given.
88. The passage from the judgment of Bingham J., which I have quoted above, was quoted in Bank of Montreal v. Wilder et al (1983) 149 DLR (3d) 193. That was a decision of the Court of Appeal of British Columbia. In quoting the passage from the judgment of Bingham J. emphasis was added to the following words: “causes or connives at the default of the principal debtor”. Lambert J. A. then referred to a decision of the Supreme Court of Alberta in which it had been decided “in forceful terms” that the conduct of the creditor towards the debtor was so serious a departure from the conduct that the surety had a right to expect that the surety should be discharged. It was then stated that the authorities in the United States were to the same effect, citing the following passage from Williston on Contracts:
“Nevertheless, it is clear that the surety’s risk may be varied by the creditor’s conduct, and, if it is, the surety should be discharge. Therefore, any breach by the creditor of his contract with the principal, if he thereby varies the surety’s risk, discharges him.”
In that case, a loan by a bank to a company was guaranteed by certain individuals. The facts were quite complex and I do not accept the suggestion that they were on all fours with the facts in this case.
89. The principal authority from this jurisdiction to which the Court was referred was the judgment of the High Court (Clarke J.) in Danske Bank A/S trading as National Irish Bank v. McFadden [2010] IEHC 116. That case also concerned the enforcement of a personal guarantee given by the defendant to the plaintiff bank in relation to a “bridging facility” in respect of which the defendant asserted he no longer had liability to the plaintiff bank on a number of grounds, one being alleged variation of the underlying contract. Clarke J. dealt with the relevant legal principle in relation to that ground in para. 6.1 in the following passage, which was relied on by counsel for the plaintiff:
“The entitlement of a guarantor to be discharged as a result of a change in the underlying contract which is guaranteed derives from equity. In order to be able to place reliance on the discharge, the guarantor must himself do equity. In follows that a guarantor who agrees or assents to such a change will not be able to claim discharge. However, it does appear on all the authorities that knowledge alone of the change is insufficient.”
90. As an example of the last proposition, Clarke J. (at para. 6.2) quoted the following passage from the judgment of Moore-Bick L.J. in Whittmann (U.K.) v. Willdav Engineering S.A. [2007] EWCA Civ 824 (at para. 27):
“Moreover, I think it is at least arguable, even in relation to a variation of the underlying contract which does not alter the obligation guaranteed, that when Cotton L.J. said that ‘the surety himself must be the sole judge whether or not he will consent to remain liable notwithstanding the alteration, and that if he has not so consented he will be discharged’, he had in mind that the surety must in some way communicate his consent to the creditor before he can be held to the guarantee under the changed circumstances. That would be consistent with the remarks of Blackburn J. in Polak v. Everett . . . drawing a distinction between knowledge of a variation and assent to it, and indeed if he has not done so, it is difficult to see why as a matter of principle he should be held to his contract or how in practice the creditor can know where he stands.”
91. Having referred to Canadian authorities on which the plaintiff relied (Grubbs v. Bouwhuis [2007] BCSC 887; and High Mountain Feed Distributors Ltd. v. Paw Pleasers Ltd. et al. [2004] MBQB 220), Clarke J. summarised the position as follows (at 6.5):
“It would seem, therefore, that at the level of principle a guarantor will not be discharged where the guarantor actually agrees or assents to a change which might otherwise give rise to a discharge. In addition, a guarantor will not be discharged where that guarantor is an active participant in arranging the alteration concerned, albeit not in the capacity of guarantor but rather as a significant player in the entity that is the principal debtor.”
That last sentence is of particular significance having regard to the facts in this case.
92. The only other authority which I consider it is necessary to advert to is the decision of the High Court of Australia in Ankar Pty Ltd. v. National Westminster Finance (Australia) Ltd. [1987] 162 CLR 549. In brief, the factual position there was that the surety, Ankar, entered into a guarantee, which was secured, with National Westminster for the performance by another company of its obligations under a contract for hiring of machinery from National Westminster. As the head note in the report discloses, by Clause 8 of the guarantee the owner of the machinery (i.e. National Westminster) agreed to notify the surety (Ankar) if the hirer proposed to sell or assign its interest in the machinery. By Clause 9 the owner (i.e. National Westminster) agreed to notify the surety (Ankar) if the hirer was in default of the contract, whereupon the surety (Ankar) and the owner (National Westminster) would confer about the course of action the owner would take pursuant to the default. The owner committed breaches of both clauses. On those facts, the High Court of Australia held that the surety was discharged from liability on the ground that Clause 8 and Clause 9 were conditions the breach of which, at the surety’s election, discharged it from liability and the surety had so elected. The key to understanding the decision is to identify what was the core issue before the High Court of Australia. This is identified in the first sentence of the majority judgment (at p. 553) where, after stating that the appeal raised an important question of principle, that question was identified as: “In what circumstances does a creditor’s breach of a contract of guarantee discharge the surety from liability under the contract?”. It is true that the majority judgment analysed a range of authorities in relation to suretyship contract, for instance, Holme v. Brunskill and Polak v. Everett, as well as the general principles of the law of contract in the context of considering whether the clauses in issue could be regarded as conditions the breach of which relieved the surety from liability. In my view, that decision does not advance Mr. O’Sullivan’s case, because the decision concerns the breach of the contract of guarantee not the underlying contract between the creditor and the primary debtor.
93. Before addressing the specific arguments on the basis of which it was contended that Mr. O’Sullivan was discharged from liability on foot of the guarantee contained in the 2009 Agreement, it is useful to consider what the position was when the 2011 Agreement was executed. Revolution had primary liability to the plaintiff under the 2009 Agreement. By that stage, the alleged fraud by Mr. Bond had been discovered. It is pleaded in the defence that “the [discovery] of this fraud prompted the resignation of [Mr. Bond] as director of [Revolution] on 24th October, 2010. It is not clear whether Form B10 recording Mr. Bond’s resignation was filed in the CRO, nor is it clear what happened to Mr. Bond’s twenty per cent shareholding in Revolution. What is clear is that, by February 2011, Mr. Bond had departed from Revolution and Mr. O’Sullivan, who was at least an eighty per cent shareholder thereof, and a director, was operating and managing Revolution.
94. The factual basis on which it is contended that Mr. O’Sullivan has been discharged from liability on foot of the guarantee contained in the 2009 Agreement is as follows:
(a) The terms of the 2009 Agreement were materially varied by the 2011 Agreement.
(b) The variations were to the prejudice of Revolution and the guarantors, because, with the removal of the United Kingdom and France from the territories to which Revolution was entitled to distribute the CAT product/merchandise, sixty two per cent of the market of Revolution was removed, which prejudicially affected the ability of Revolution to satisfy its contractual obligations to the plaintiff.
(c) While Mr. O’Sullivan participated in the 2011 Agreement, he did not do so with full knowledge of all material facts relevant to the material variation. For example, he was unaware at the time that the plaintiff had sold merchandise directly to distributors in the United Kingdom and France in fundamental breach of the 2009 Agreement in November and December 2010, which actions it was alleged amounted to a repudiatory breach of the 2009 Agreement by the plaintiff.
(d) The plaintiff was guilty of concealment amounting to misrepresentation by reason of its failure to apprise Mr. O’Sullivan of the ongoing repudiatory breach and by its failure to apprise Mr. O’Sullivan of Mr. Bond’s involvement as a director of the plaintiff, which was also characterised as misrepresentation by counsel for the Defendants;
(e) As Mr. Bond is not being pursued as guarantor in these proceedings at this juncture, Mr. O’Sullivan is not being afforded fairness of treatment, reference being made to the fact that Clause 11.1(j) of the 2009 Agreement provided that, if the personal obligation of either Mr. Bond or Mr. O’Sullivan as guarantor did not remain in full force and effect, that constituted an event of default which would give rise to automatic termination.
Having regard to the conclusions I reached earlier in relation to alleged discharge by automatic termination, I cannot see how reliance on Clause 11.1(j) could relieve Mr. O’Sullivan of his liability as guarantor.
95. As the authorities illustrate, the contractual relationship of a surety with the creditor is a complex relationship, because not only is there the suretyship contract between the surety and the creditor but there is also the underlying contract between the creditor and the primary debtor which, as a general proposition and subject to the terms of the suretyship contract, determines the liability of the surety to the creditor. So in any particular case, the contractual liability of the surety may fall to be considered by virtue of the operation of the suretyship contract, as happened in the Ankar case, or, alternatively, may be impacted on by the operation of the underlying contract as between the creditor and the primary debtor. The authorities illustrate a range of situations as to the manner in which the operation of the underlying contract would render it inequitable to hold the surety to liability on the guarantee, for instance, if the creditor unilaterally acts in a manner which deprives the surety of his right of subrogation.
96. In this case, as between the plaintiff, on the one hand, and Mr. O’Sullivan and Mr. Bond, on the other hand, the suretyship contract is uncomplicated: both guarantors guaranteed the obligations of Revolution for the initial term of the contract. As between the guarantors, there may be issues and, in particular, there may be an issue as to what “individually” means. I suggested earlier that it may mean that they are jointly and severally liable, but that is not an issue in which the Court can express a definitive view at this stage. The key factor in this case is that there is nothing in 2011 Agreement which resulted in the variation of the guarantee provision in the 2009 Agreement. On the contrary, the guarantee provision was one of the “other terms” which were expressed to remain in full force and effect.
97. The variations to the 2009 Agreement brought about by the 2011 Agreement affected the underlying contractual relationship between the plaintiff and Revolution. There is a serious dispute between the plaintiff and the Defendants as to whether a variation of the terms of the 2009 Agreement as between the plaintiff and Revolution are prejudicial or non-prejudicial to the interests of the surety. However, the jurisprudence, going back to the case of Holme v. Brunskill, lays down that, if it is not self evident that the variation is unsubstantial or cannot be prejudicial to the surety, it is not for the Court to embark on the determination of the effect of the alteration in the type of dispute which has arisen here, that is to say, an action against the surety. As Moore-Bick L.J. explained in the passage from his judgment in the Whittmann case, which was quoted by Clarke J. in Dankse Bank v. McFadden, what the Court has to determine is whether the surety in some way communicated his consent to the creditor to the variations and, if he did, he can be held to the guarantee notwithstanding the variations. What flows from the authorities, and what was clearly stated by Clarke J. in the passage from Dankse Bank v. McFadden (at para. 6.5) quoted earlier, is that a guarantor will not be discharged if he has actually agreed or assented to a change to the underlying contract which may otherwise give rise to a discharge or, alternatively, where he was an active participant in arranging the alteration concerned, albeit not in the capacity of guarantor but as a significant player in the entity that is the principal debtor.
98. Applying that principle to the facts of this case, the reality of the situation was that Mr. O’Sullivan was not merely a significant player in relation to the variation of the terms of the 2009 Agreement as between the plaintiff and Revolution; he was the prime mover on the Revolution side. That being the case, he cannot have been discharged as guarantor from his obligations under the 2009 Agreement which remain in force.
99. Having considered all of the bases on which it was alleged that Mr. O’Sullivan has been discharged as guarantor, I am satisfied that he has not been so discharged. I am satisfied that he remains secondarily liable for the indebtedness of Revolution to the plaintiff, which has been determined at €114.951 above. Mr. O’Sullivan is liable for that sum to the extent that it is not discharged by Revolution.
100. Of course, Mr. O’Sullivan’s ultimate liability as guarantor may be affected by the fact that Mr. Bond also joined in the 2009 Agreement as guarantor. In the absence of Mr. Bond, it would be wholly inappropriate for the Court to express any view on that point. However, that factor and what I have stated in the next preceding paragraph means that at this juncture the only finding I propose making in relation to Mr. O’Sullivan’s position as guarantor is that he has not been discharged from his liability as guarantor to the plaintiff on any of the bases alleged on his behalf.
101. Finally, it is appropriate to comment on a factual matter raised to by counsel for the Defendants. By an e-mail dated 11th January, 2011, Mr. Gallinger stated that the plaintiff would “need a personal guarantee” from Mr. O’Sullivan. It is true that the e-mail was written in the context of negotiations prior to the 2011 Agreement. However, it is contended that Mr. O’Sullivan refused to provide a personal guarantee. In cross-examination, Mr. Gallinger stated that he did not know why he was looking for a personal guarantee from Mr. O’Sullivan. It was put to him that it was because he knew that the changes to the 2009 Agreement would require another guarantee. Mr. O’Sullivan’s evidence was that he signed the 2011 Agreement as a director and he gave no guarantee. However, there is no evidence that, following the e-mail of 11th January, 2011, there was a discussion between Mr. Gallinger and Mr. O’Sullivan in relation to Mr. O’Sullivan guaranteeing the 2011 Agreement, nor is there evidence that Mr. O’Sullivan made it clear that he was refusing to guarantee the 2011 Agreement. In the circumstances, I have not attached any weight to the reference to the need for a personal guarantee in the e-mail of 11th January, 2011. I am satisfied that, for the reasons outlined earlier, Mr. O’Sullivan has not been discharged from the guarantee he gave in the 2009 Agreement.
Order
102. The order of the Court will contain the following elements:
(a) there will be judgment in favour of the plaintiff against Revolution in the sum of €114,951;
(b) unless the defendants give a permanent undertaking to the Court in the terms of the orders for prohibitory injunctive relief sought by the plaintiff, there will be orders in those terms;
(c) there will be a declaration that Mr. O’Sullivan has not been discharged as a guarantor under the 2009 Agreement on any of the grounds alleged by him; and
(d) the defendants’ counterclaim will be dismissed.
General observation
103. This case was at
hearing for seven days in all. From the outset, it was clear that the contractual relationship between the plaintiff and Revolution was at an end and, indeed, counsel for the plaintiff so indicated in opening the case. It is difficult to understand why the parties, who were represented as being experienced businessmen, could not have settled the outstanding matters between them and avoided the costs of these proceedings.
Murphy -v- O’Toole & Sons Ltd & Anor
[2014] IEHC 486
JUDGMENT of Ms. Justice Baker delivered on the 17th day of October 2014
1. The plaintiff is a farmer and agricultural contractor. In 2002, he bought from the first defendant a piece of agricultural machinery for the purposes of his contracting business, namely, an ‘Amazone Four Metre One Pass Sower’. The purchase was financed through a hire purchase-type agreement with the second defendant. This judgment is given in the matter of a preliminary issue raised in the defence of the first defendant, namely, that the plaintiff’s claim is statute barred, and I heard evidence and legal argument from both the plaintiff and the first defendant for that purpose. Judgment was entered by consent in favour of the second defendant against the plaintiff.
Timeline
2. The plaintiff took delivery of the Amazone machine on 30th October, 2002 and in early 2003, the plaintiff had been travelling along the public highway with the machine attached to his tractor, when he was stopped at a Garda checkpoint and informed that the combination of the tractor with the Amazone was not suitable for transportation on the public highway and was not in compliance with road traffic legislation. The plaintiff returned the machine to the first defendant in October 2003, and issued these proceedings on 10th July, 2008.
3. The claim is framed as a claim for breach of contract, and also as a claim in negligence and negligent misstatement, and with regard to this latter claim the statement of claim pleads that the first defendant negligently advised the plaintiff that the machine was suitable for transportation by tractor on a public highway, and/or that the first defendant negligently failed to consider the suitability of the machine to be transported in combination with a tractor on the highway. There is general plea that the first defendant failed to supply a machine suitable for the purpose for which it was required.
4. The first defendant in its Defence pleads by way of preliminary objection that the claim is statute barred by the Statute of Limitations Act 1957. For the purpose of that argument the first defendant argues that time began to run at the date the contract was made, which is argued was in or around the month of April 2002, and that the six-year time limit provided by s. 11 (1)(a) of the Statute of Limitations Act 1957 had run before the proceedings were instituted in July 2008.
5. In the context of that plea, the plaintiff has made a number of arguments. The first argument is that the contract was a conditional contract, conditional upon hire purchase finance, and that the evidence unequivocally points to the fact that the finance was not obtained until October 2002. It is asserted that in those circumstances, time did not begin to run until the condition precedent was satisfied. The plaintiff also argues that time began to run only when the Amazone machine was delivered, namely in October 2002, and that the plaintiff was accordingly in time when he issued proceedings in July 2008. Finally, the plaintiff argues that the claim in negligence accrued when damage or loss was incurred by him, which he says is either the date of delivery or of the finance agreement.
When was the Contract Made?
6. The first question I address is the formation of the contract. The contract was made orally and was not recorded in writing nor was an order form created. Furthermore, the events giving rise to this action occurred some twelve years ago, and the parties were less than clear in their recollection of some of the relevant events.
7. The plaintiff gave evidence that he had been engaged in the business of agricultural contracting since in or around the year 1994, offering to farmers in his area of County Carlow the service of sowing crops on a seasonal basis and assistance with fencing and other farming occupations. He said that in 2002 his business was going well, and he determined to buy a larger capacity seed sower or hopper. His old hopper or sower was transported at the rear of his tractor and he had become aware of an alternative form of sower which was carried in front of the tractor which had much larger capacity, possibly a capacity of double his old machine. His said he picked up a brochure on his first visit to the first defendant’s showrooms and he noted, in particular, an assertion on the brochure that the Amazone hopper or sower was ideally suited for road transport. He made a number of visits to the first defendant’s showrooms and it was not in issue that the plaintiff had been in the past a customer of the first defendant, and had dealt with John O’Toole, a director of the first defendant company and the son of the original founder of that company.
8. The plaintiff provided no documentary evidence of the relevant dates but he says his first visit to the O’Toole showrooms was in June or July 2002, and in support of his assertion, he says that he, in the normal way, would have been too busy in April of any year to have made visits to the showrooms. He said he met both John O’Toole and his father Joe O’Toole on two occasions, and that, while after the second meeting he had come to the view that the Amazone machine was particularly suitable to his needs, he did not at that stage enter into a contract to buy the machine from the first defendant. He said he was aware of the machine before he first visited the O’Toole showrooms and that after the visit he had seen the machine, or a machine of a similar type at the Agricultural Show in Tullow some time between 15th and 18th of August, 2002, and had viewed the actual machine in the first defendant’s showrooms some time in late July or early August 2002, when the machine arrived from the manufacturer. He says he intended to acquire a new Fendt tractor suitable to transport the Amazone hopper and that he would not have bought the Amazone until after he had taken delivery of this on 20th September, 2002. He says he made contact then through his broker with Bank of Scotland (Ireland) and an agreement was reached that that Bank would provide him with funding. He paid a deposit to the first defendant of €10,905.30 in two instalments, both in mid-October 2002, and these dates are established with documentary evidence. The amount of the deposit was the precise amount of VAT chargeable in respect of the machine, and the plaintiff was registered for VAT and ultimately sought and obtained a refund of the VAT from Revenue. The hire purchase agreement with Bank of Scotland commenced on 23rd October, 2002 and the plaintiff took possession of the machine on 30th October, 2002.
9. John O’Toole gave evidence for the defendant and he produced extracts from his business diary for various dates in 2002. The first such entry on the 18th March, 2002 shows an entry of the mobile telephone number of the plaintiff. The second entry on 25th March, 2002 records that he had quoted Paul Murphy for a new Amazone hopper machine, not of the type or size ultimately bought, and this entry also contained a note with regard to another piece of machinery which the plaintiff bought at that time, but which is not relevant to this action.
10. The third entry was for the next day, the 26th March, 2002, and showed Paul Murphy’s name entered on the page and at the end of the page a recording that he had “quoted Paul Murphy for a 4-metre Amazone machine”. In the course of evidence, this was explained as the relevant quotation for the machine which the plaintiff ultimately bought.
11. The entry on 8th April, 2002 records John O’Toole’s note that he “sold” to Paul Murphy a new 4-metre Amazone hopper machine at the price of IR£39,900 plus VAT.There is also an entry that Paul Murphy had asked for a quote on an Amazone 3-metre machine which, in the course of evidence, was explained as a rear-mounted machine which the plaintiff had considered buying to supplement his other machinery.
12. The next entry is on 10th April, 2002, and records a quote to Paul Murphy for a new Amazone rear-mounted machine, and a power harrow, being an attachment for the plaintiff’s existing tractor to accommodate the smaller rear-mounted Amazone machine.
13. The next entry was on 6th May, 2002 which records an order by or on behalf of Paul Murphy for a stop-start kit, at a cost described as an “extra 900 plus VAT”,which in the course of evidence was explained and accepted by the plaintiff as being an optional extra attachment for the 4-metre Amazone which was ultimately bought.
14. There is an entry on 6th July, 2002, which identified Paul Murphy’s name and no more, an entry on the 4th September, 2002, which records the address of Bank of Scotland, the name Ger Murphy, explained and accepted by the plaintiff as being his financial broker, and records the amount of €51,930, the exact Euro equivalent of the purchase price earlier identified in Irish Pounds.
15. An entry on 10th September, 2002 identified Pat Dalton, explained and accepted as another finance broker, and an entry on 27th September, 2002 merely has the name Paul Murphy on the same line as Lombard & Ulster. Pat Dalton’s name appears with a telephone number on an entry on 19th October, 2002 with a reference to BNP (explained as Banque Nationale de Paris), and there is also an entry on that date referring to Bank of Scotland which appears in the same part of the diary as the name and telephone number for the aforementioned Ger Murphy.
16. John O’Toole gave evidence that the diary entries were contemporaneous and the plaintiff is unable to explain why there are entries in regard to enquiries by him as early as in March and April 2002. The plaintiff is adamant that he did not obtain a quotation in April 2002, nor on 6th May, 2002, and also denies that the machine was ordered from the supplier on his behalf on 8th April, 2002. The plaintiff says he could not even have been thinking about the Amazone machine in March or April 2002, and that he would have been too busy. He does accept that he ordered the stop/start machine as an optional extra, although he does not accept that this occurred on or about 6th May, 2002 as reflected in the diary entry. The plaintiff does not deny that the invoices and the diary entries are referable to the items he actually received and what he does not accept is the evidence of the first defendant as to the relevant dates. Again, the plaintiff differs from the first defendant with regard to the date when he was told that the machinery had arrived from the supplier, and he said that this happened in August and not June 2002.
17. I heard evidence, both from the plaintiff and John O’Toole, and I had the benefit of hearing their evidence in chief and in cross-examination. John O’Toole explained that the sale of the Amazone machine to the plaintiff was a large sale in terms of its value for the first defendant, which is a small family business and would not have sold many of those machines or machines of a similar value in any given year. John O’Toole was adamant that the contracts were made in April, and he says the first contact made with the first defendant was a phone call from Paul Murphy on 18th March, 2002 which was taken by a member of his staff. He said he had a number of phone calls between his first contact with Paul Murphy, when he returned his call on that evening, and he also says that on 25th March, 2002, he went to inspect the fitting on the plaintiff’s existing tractor and he also recalled quite clearly the plaintiff seeking to negotiate a reduction in price in an hour long conversation when they agreed on the price.
18. On 8th April, 2002, John O’Toole says he ordered the machine over the phone from the suppliers and he identified an entry in his diary on 10th April, 2002 with regard to the possible acquisition by the plaintiff of a second Amazone machine which would be rear-mounted. He said that on the date of that proposed second sale, in a conversation regarding the second machine, the plaintiff asked him whether he had ordered an Amazone 4-metre machine. He said that the lead-in time between the placing of an order and the delivery of a machine was always a number of months, and he said that as the sowing season would start in early autumn, it was important that the machine be ordered and would be delivered in the summer months.
19. An area of contention in the case is the fact that no order form was created to identify the plaintiff’s ordering of the machine. John O’Toole said that he took orders on a handshake then in 2002, and that the business still operated that way. He also said that he did not have a habit of taking a deposit when an order was placed, and that this is common in the industry and this was how he himself and the company had done, and continue to do, business.
20. In the course of cross-examination, it was put to John O’Toole that another customer, one Roy Elemis, was also interested at the same time in acquiring a 4-metre Amazone machine. John O’Toole accepted that Roy Elemis had expressed an interest in the machine, but his evidence was that no deal was made with Roy Elemis in March or April 2002, and that the machine was ordered for Paul Murphy. He says that a deal was finalised with Roy Elemis in May or June 2002, and denied that he had two customers for the one machine that he ordered on 8th April, 2002.
21. When pressed as to why he did not seek a deposit, and as to why the contract was not evidenced or made in writing, or why an order form was not produced and sought to be executed by a purchaser, John O’Toole said that it did occasionally, although rarely, occur that a person who ordered a machine did not complete the purchase. He said that when this happened, it was relatively easy to sell the machine to another buyer. In his business of dealing with farmers or contractors, such as the plaintiff, “a deal is a deal”, or, as he also put it, “an order is an order”. He accepted, in cross-examination, that he would not have delivered the machine to Paul Murphy without knowing, as he did know in October 2002, when the machine was delivered, that Paul Murphy had finance in place, although it was the case that the machine was delivered some days before the Bank funding came from the third defendant.
22. Evidence was given by John Scrivener, who was the Managing Director of a company, Farmhand Ltd., the importer and supplier of the Amazone machine. He did not specifically recall the placing of the order by John O’Toole, but he did say that these orders were often placed by phone and the deals were done without written documentation. He did recall an order being placed for the optional spare part on 6th May, 2002, after John O’Toole said the Amazone machine was ordered. This order can be linked directly to the plaintiff who accepts that he ordered this optional spare part, albeit he says it was done many months later.
23. In cross-examination, John Scrivener said that if a customer did not have the money to pay for a machine after it had been ordered, another customer would be found. It was standard practice that a retailer would not deliver machinery unless the money was available, but that in the industry machinery was ordered without deposits or formal contract documentation.
Conclusion on Formation of Contract
24. Certain elements of the evidence of John O’Toole deserve comment. His diary entries are contemporaneous. The first entry identifies a price for the Amazone machine in Irish Pounds and a later entry identifies it in Euro, and this is consistent with the fact that the Euro changeover happened in January 2002, and for some time prices were often understood or recorded in the old currency, and the existence of the two entries is suggestive of the accuracy of the diary entries. I found the evidence of Mr. Murphyunconvincing insofar as he purported to be so clear as to the relevant dates of the transaction. In the circumstances, having heard the evidence of both Mr. Murphy and Mr. O’Toole, and noting that John O’Toole’s evidence is supported by contemporaneous evidence, which I find to be an accurate record and useful to identify the relevant dates in issue, I prefer the evidence of John O’Toole. I am also persuaded by the evidence of the independent witness, John Scrivener, that the optional extra fitting was ordered on the 6th May, 2002 and this is supportive of the evidence that the plaintiff did order the Amazone machine on 8th April, 2002. I find as a matter of fact that the plaintiff did attend at the showrooms of the first defendant in March 2002, and thereafter negotiated the purchase by him of the Amazone machine for €51,930. I am satisfied that this occurred in March 2002, and I am also satisfied as a matter of probability that that order was placed on 8th April, 2002. I take particular note of the coincidence of that date with the clear recollection by Mr. Scrivener of the placing of the order for the additional optional extra a short time later.
25. I accept the evidence of John O’Toole that the practice in the trade is for a deal to be done on a handshake. It was the case that this was a particularly large purchase in terms of its value, but equally, a degree of trust existed between the plaintiff and the first defendant as a result of previous dealings. I hold, as a matter of fact, that the entry of 8th April, 2002 accurately reflects the legal position, namely, that on that date, an agreement was entered into with Paul Murphy for the sale to him of the Amazone machine at the identified price.
Conditional Contract?
26. The plaintiff also asserts that the contract was a conditional contract, one allied to and conditional upon the obtaining by the plaintiff of finance from, the second defendant. I turn now to consider this. It is not in issue that the plaintiff was not in a position to purchase the Amazone machine without hire purchase finance. The Bank fully financed the purchase, save for the VAT element.
27. The plaintiff says it is not credible that the first defendant would have regarded itself as contractually bound to deliver this machine unless it was sure the plaintiff could pay for the goods, and that for this reason the agreement was a tripartite agreement which came into operation in October 2002, when the finance was obtained. The plaintiff makes two different points: that the contract was conditional upon a condition precedent that it would not bind him unless and until he had loan finance, or that the contract was a tripartite agreement entered into at the time the finance was drawn down.
28. A contract for the sale of goods or land may be subject to a condition precedent. The case law is replete with examples of contracts for the sale of land which were subject to loan finance. The plaintiff relies on the English High Court decision of Lee-Parker & Anor. v. Izzet & Ors. (No. 2) [1972] 2 ALL ER 800, where the Court accepted that a written agreement for the sale of land, which contained an express provision that the sale was subject to the purchaser obtaining a satisfactory mortgage, was a condition precedent. That case can be distinguished from this case in that the condition precedent relating to finance was expressly made. The other case relied on by the plaintiff is Schweppe v. Harper [2008] ALL ER(D) 311, where the Court of Appeal followed Lee-Parker v. Izzet, but only after holding that the contract did contain a condition precedent that third party financing would be obtained by the plaintiff.
29. If the parties agreed that the agreement to sell the machine to Mr. Murphy would not be binding until finance was obtained, then this contract was a conditional contract. I accept as a matter of fact that the first defendant knew that Mr. Murphy would require third party financing to pay the agreed purchase price, but I do not accept that any discussion was had between the parties that the contract was subject to third party financing. Mere silence, or an assumption, even a correct assumption, that Mr. Murphy would require finance, did not make the attaining of finance an express term of this contract. For a contract to be a conditional contract, it seems to me that such a condition must be express between the parties, and the Court will not imply a financing term, as such a term was not necessary to give business efficacy to this contract which was perfectly capable of being made without such a condition, albeit that performance of the obligation of one party required financing. I hold that Mr. Murphy could and did order the machine without reference to the requirement of third party financing. Indeed were third party loan finance to have been a term of this contract it seems to me as a matter of probability that the first defendant would not have placed the order for the machine until it was sure that the third party financing was in place, and I accept the evidence of John O’Toole that in general his experience in business was that when machines were ordered the buyer did in fact in the majority of cases come up with the funds to complete the purchase.
30. Any arrangement for the funding of the purchase was one made between the plaintiff and the second defendant. The plaintiff urges upon me that the fact an invoice was furnished by the first defendant to the finance company in the middle of October 2002 is evidence that the contract was subject to finance, but it seems to me that the first defendant furnished the invoice to the finance company in lieu of furnishing it directly to the plaintiff for transmission on to the finance company in ease of the plaintiff and to speed up the release of the funds, and not because the finance company was part of the contract for sale.
The Sale of Goods Acts 1893 to 1980
31. The plaintiff further urged upon me the proposition that it is unlikely, or, he suggested, incredible, that the first defendant would have agreed to sell these goods without a deposit, or that the first defendant would have delivered the goods to the plaintiff without being paid. This brings me to consider the transaction in the context of the provisions of the Sale of Goods Acts 1893 to 1980.
32. Section 1 of the Sale of Goods Act 1893 identifies a contract for the sale of goods as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. This particular contract was for the sale of goods, delivery of which would not take place until a future date. Such a contract, by s. 1(3), is identified by statute as being an agreement to sell, which, by s. 1(4), becomes a sale when the time elapses. Section 1 provides as follows:
“1.—(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. There may be a contract of sale between one part owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”
33. The Act divides contracts of sale into two classes of contracts, cases where there is an immediate sale or what the law in general would call an executed contract, and an agreement to sell, an executory contract where it is agreed that the goods shall pass at a future time. This second class of contract is not a sale in the true sense as in the absence of agreement to the contrary, no interest in the goods passes to the intended transferee at the time of the contract. It is an agreement to sell, containing by implication a duty on the part of the seller to deliver the goods and the property in the goods in accordance with the terms of the contract for sale.
34. The seller contracts to deliver the goods in accordance with the contract, and this includes an obligation to deliver goods which satisfy any implied or express term as to condition or fitness for use. The duty to deliver continues to subsist until the date for delivery arises. The payer contracts to pay for the goods and the Act implies certain terms to that regard.
35. This contract was an agreement to sell governed by s.27 of the Act of 1893 which sets out in clear terms the nature of the duties of seller and buyer to a contract so governed. Sections 27 and 28 provide as follows:
“27. It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale.
28. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for possession of the goods”.
36. Accordingly, as a matter of law, the form of this transaction was that the parties entered into an agreement for sale as a result of which the first defendant incurred a liability or an obligation at law to deliver the goods in exchange for the concurrent obligation of the plaintiff buyer to pay for those goods. The mutual rights and obligations of the parties are set out by statute and s.39 of the Act gives certain rights to the unpaid seller within the meaning of the Act who obtains in respect of goods which have passed to the buyer a lien on the goods, a right of resale, a right of stopping the goods in transit in the case of insolvency, or a right to withhold delivery similar and co-extensive with his right of lien and stoppage in transitu. The contracting parties do not need to express these terms which are imported into the contract as a matter of law, and indeed which are reflected in the way in which the plaintiff and the first defendant conducted the business between them. The plaintiff ordered the goods, the first defendant placed the order with the supplier, the first defendant delivered the goods to the plaintiff and the plaintiff had an obligation to pay. The parties agreed an express variation of the contractual formula in that the goods were delivered without the exchange of payment in circumstances where the first defendant knew that the loan finance had been approved and that payment would be made directly to it in respect of the non VAT element of the purchase price within a matter of days of the delivery date.
Conclusion on the Nature of the Contract
37. Accordingly, I do not accept the argument of counsel for the plaintiff that the contract entered into between these parties was one conditional upon the loan finance, or indeed that it was one which did not come into existence and was not formed until the purchase money was available and paid over by the plaintiff. The contract was made in April 2002 and fell within the definition of an agreement for sale in the sale of goods legislation. It accordingly came to have implied as a matter of statute a formula for the performance of the contract by each of the parties to the agreement, the delivery of goods on the part of the seller and the payment for those goods on the part of the buyer. There was nothing in my view in this transaction which rendered it a contract which fell outside of this commonly found formula and the agreement for sale imported as a matter of law the mutual obligations between the parties which came into existence in April of 2002.
38. I reject the submission that this contract was one which was conditional for its enforcement on third party loan finance.
Statute of limitations: the accrual of the cause of action
39. Section 11 (1)(a) of the Statute of Limitations Act 1957 provides a limitation period of six years in breach of contract cases which is to run from the date the cause of action accrues. The general rule in a claim for breach of contract is that the cause of action accrues not when the damage is suffered but at the time of breach and this law is well established. Thus it is not always the case that in a claim for breach of contract the cause of action accrued is the date when the contract was made. The plaintiff in this case argues that the cause of action accrued on the date the goods were delivered, and that it was at that date that the plaintiff took possession of goods which did not meet what he says was the contractually agreed or implied condition, namely that they be fit for use upon public roads. The plaintiff asserts that the cause of action accrued on the date of delivery of the goods in October, 2002. The first defendant argues that the relevant date which the cause of action accrued is the date the contract was made, namely the 8th April, 2002, the date on which I have found that the contract, or the agreement for sale, was made. The first defendant argues that the respective obligations of the plaintiff and the first defendant arose on that date, and that if a breach occurred it occurred then.
40. In Minister for Agriculture and Food v. Thomas Julian [2003] IEHC 144 Dunne J. considered the meaning of the phrase in the Statute of Limitations of “cause of action” and quoted from the classic definition of the phrase in Read v. Brown (1888) 22 Q.B.D.128 where Lord Esher M.R. said at p. 131
“Every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court.”
She considered whether an argument might be made as to whether it was necessary for damage to have occurred at the time of breach and in particular she noted the old case of Gibbs v. Gould [1881] Q.B.D. 296 and accepted, as she put it, “that the cause of action accrues as soon as a breach of contract occurs whether or not damage has being suffered at that time.” A cause of action was defined by Viscount Dunedin in Board of Trade v. Cayzer, Irvine and Co. [1927] A.C. 610 at 617 as “that which makes action possible”.
41. In the light of the authorities is clear to me that the cause of action in contract must be the date on which a breach occurs and not the date when the contract is made. There may of course be incidents where these dates or times are coterminous as was found in the Supreme Court decision of Gallagher v. ACC Bank [2012] IESC 35, which I return to below. In that case the court held as a matter of fact that the cause of action accrued at the date on which the transaction was entered into, the date on which the financial product was sold.
42. As indicated above the plaintiff’s claim is on foot of what is characterized in the Sale of Goods Act 1893 as an agreement for sale where the goods were agreed to be delivered at a later date. There is no direct authority on point as to the running of limitation in the case of an agreement for sale but counsel for the plaintiff referred me to a statement at p. 87 in the recently published text by Martin Canny, Limitation of Actions, (2010) where he says
“If the goods are defective, time starts to run against the vendor from the time the goods were received and not when the defect becomes apparent.”
43. The author quotes the case of Lynn v. Bamber [1930] 2 K.B. 72 but I note that McCardie J. decided that case on an assumption, which was not disputed between the parties, that the breach of contract had occurred on the date the contract was made, namely the date when the defendant sold to the plaintiff, a fruit grower, plum trees described as of a particular high quality species, but were actually trees of an inferior quality, and the case centred on the question of whether active and fraudulent concealment on the part of a defendant constituted a good reply to a plea that a claim was statute barred. It is not authority for the proposition that time begins to run in a contract for the sale of goods to be delivered at a future time at the date of delivery. Canny’s statement might well be intended to point to the absence of a discoverability rule in breach of contract cases rather than be an authoritative statement on the link between breach and delivery.
44. Chitty in volume 1 of his seminal text on the law of contract, Chitty on Contracts, 31st Ed. (London, 2012), refers the old case of Battley v. Faulkner (1820) 3 B. & Ald. 288 at para. 28.052 as authority for the proposition that in the case of an agreement to sell the buyer’s right of action for breach of an express or implied warranty relating to goods accrues when the goods are delivered, although again he makes this comment in the context of another question, not relevant to this case, as to whether there is an argument that time runs from the date a defect is discovered rather than the date of delivery. Battley v. Faulkner involved a contract for the delivery of one kind of wheat and the Court held that the breach was complete on delivery of another kind of wheat and the question for the court was whether it could be said that time ran from the date of knowledge and not of delivery. The court held that time ran from the date the contract was broken and this was the date of delivery.
45. None of the cases referred to in the text books is directly on point, and one must look to first principles and the express terms the Act of 1893. The legislation distinguished between a sale where delivery takes place at the time of the contract and an agreement for sale where delivery is to occur on a future date. It seems to me that breach of agreement for sale occurs on the date when the goods come into possession of the buyer, and it is when the buyer takes custody of goods and it is then that the seller is in breach of the warranties or conditions as to quality or fitness for purpose as in the contract. This is the date when the breach occurred. The date of the delivery of the goods may or may not be the date title in the goods passes, but in this particular case there is no reason to suppose, nor has it been argued before me, that title to the Amazone machine did or could have passed to the buyer before the goods were delivered and before he paid for them. What is clear, however, is that under s.1 of the Act of 1893 the delivery of the goods, and the concurrent obligation to pay for the goods, is the point at which the contract or agreement for sale becomes a sale, and breach, if there was one, occurred at performance or delivery when the contract was no longer executory but was executed.
46. To look at the matter another way, the agreement for sale is an agreement on the part of the seller to deliver at a date in the future the Amazone machine in exchange for the payment by the buyer of the purchase price. The contract was not fully performed or could not be said to have been fully performed by the seller until the goods were delivered and it is at that stage that the breach of contract occurred. The plaintiff could not have commenced an action for breach of contract based on a plea of breach of condition or warranty of fitness for purpose in the period between April 2002, when the agreement was made, and October 2002, when the agreement was performed, because until performance it could not be said that there had been a breach of the obligations of the seller. This gap in time is not, for example, found in a simple contract for the sale of goods where a buyer buys an item in a retail shop as both the agreement for sale and the delivery occur at the same time and usually in the same place. When time separates the agreement for sale from the performance of the conditions in that agreement, the contract is not breached until it can be said that the contract was not fully performed or performed in compliance with the conditions on the part of the seller. It is at the date when the obligations of the parties crystallize, i.e. when the seller must deliver and the buyer must pay, and this is the date which can be properly characterized as the date when the breach occurred.
47. I hold that as a matter of law that the breach of the contract for sale, if there be a breach, occurred at the date of delivery of the Amazone machine to the buyer.
48. Accordingly the plaintiff’s claim for breach of contract is not statute barred in that the cause of action accrued when the Amazone machine was delivered i.e. on the 30th of October, 2002. The proceedings were instituted in July of 2008 and within the six year time limit.
The action in negligence
49. In case I am wrong on the first point, I turn now to examine a further argument of the plaintiff, namely that his claim is framed not merely in contract but also in negligence or negligent misstatement a claim in tort, and accordingly that time does not run until damage is suffered. He relies on Hegarty v. O’Loughran [1990] 1 IR 148 where Finlay C.J. held that a tort is not completed until such time as damage has been caused by a wrong, a wrong which does not cause damage not being actionable. It must be necessarily the case that a cause of action in tort has not accrued until at least such time as the two necessary components referred to as a tort have occurred, namely the wrong and the damage.
50. It is argued by the plaintiff that he had acted in reliance on a representation made by a servant or agent of the first defendant company that the Amazone machine was suitable for use on Irish roads and that this representation was made in late July or early August 2002. Irrespective of the date when the representation was made, it is argued the damage that the plaintiff suffered did not occur until he assumed liability to pay for the goods, or in this particular case to repay to the second defendant finance company the money borrowed. The defendant argues that if there was a representation, which he denies, the representation will be actionable as a matter of law only if it was made before the contract was entered into. I accept that submission by counsel for the first defendant, the submission being one which states a well established proposition of law. A representation is actionable only if it can be shown that it induced a party to enter into a contract, and ipso facto such a representation has to have been made before the contract was made. Counsel for the defendant relies on Colthurst & Tenips Ltd. v. Colthurst (Unreported, High Court, McCracken J., 9th February, 2000) as authority for the proposition that an untrue representation is actionable if “the plaintiffs were induced to enter into the settlement by reason of the representation.”
51. For the purposes of the hearing of the preliminary issue I must act on the assumption that a representation was made that the Amazone machine which the plaintiff bought was suitable for use on Irish roads. If there was such a representation, and if it is to be actionable, it must have been made by or on behalf of the first defendant before the contract was entered into. I have found that the contract was entered into on the 8th April, 2002 and accordingly any actionable representation must be made before then. I accept the argument of the first defendant in this regard.
52. Both counsel relied on the decision of the Supreme Court in Gallagher v. ACC Bank [2012] IESC 35. The plaintiff relies on the case in support of his argument that the plaintiff incurred loss only when he assumed the liability to the second defendant to repay the amount of the finance loan. I do not accept this proposition and in my viewthe plaintiff assumed a liability to the first defendant to pay for these goods when he entered into the agreement for sale on the 8th April, 2002. I have explained my reasoning for this above and I have found that the availability of finance was not a condition precedent to the existence of the agreement for sale and the plaintiff assumed a liability to pay the first defendant when he entered into the agreement for sale.
53. Counsel for the first defendant relies on the judgment of Fennelly J. in Gallagher v. ACC Bank in particular para. 35 of that judgment where Fennelly J. said the following after concluding his review of the English cases that they:
“stood broadly for the proposition that once a party relies on advice to his detriment by entering into a transaction whereby he fails to get that to which he was entitled, the cause of action is complete, notwithstanding the fact that quantification of the loss may be difficult.”
54. Fennelly J. accepted that there would be cases where there was immediate loss even if there are no difficulties of quantification, and equally that there are cases where the loss is not immediate. It seems to me that if the plaintiff’s cause of action here were solely based on a misrepresentation of suitability of the product that the claim would have crystallized the date the contract was made, i.e. on the 8th April, 2002, because only such representations that were made which would have induced the plaintiff to have entered into that contract, which he did on the 8th April, 2002, were actionable by him. Accordingly I reject the argument by counsel for the plaintiff that time began to run in the plaintiff’s claim, insofar as it is properly speaking a claim in negligence, when the plaintiff assumed a liability to pay. The claim in negligent misrepresentation accrued on 8th April, 2002 and was statute barred when the proceedings were instituted.
55. Counsel for the plaintiff argues this is a claim in tort. The question of characterisation is guided by the important and compelling reasoning of O’Donnell J. in Gallagher v. ACC Bank where the Court asked the question as to whether the claim was properly or centrally a claim in contract or in tort. O’Donnell J. pointed out that the claim made by the plaintiff in that case was one made in contract and in tort, but that they were “in fact identical”. As the learned judge said at paras. 124 and 125:
“The same facts are repackaged as a claim in contract, negligence, and negligent misstatement. The pleadings do not distinguish between those claims. Instead, the same acts are pleaded as “particulars of wrongdoing” and no distinction is made between the legal nature of the wrong alleged.
It is also fair to say, I think, that the cause of action in contract is in truth the central and primary claim here. Indeed there was a time not so long ago and certainly at the time the relevant provisions of the Statute of Limitations Act 1957 were enacted, when the contractual claim would have been regarded as the only possible cause of action arising on the facts here. Even today, it is the contract which creates the relationship giving rise to the obligation in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1965] A.C. 465 to take care in the provision of advice, and the terms of contract could control, limit or even negative any such duty. Once again, if there is a separate duty of care in negligence alone, then it is the contract which creates the proximity between the parties which gives rise to the duty of care.”
56. I am persuaded by this statement of O’Donnell J. that I should not engage upon the artificial exercise of distinguishing between or decoupling the claims in contract and tort. The central and primary claim in this case is a claim for breach of the agreement for sale of a machine, a claim made in contract and under the relevant provisions of the Sale of Goods Act 1893 and 1980.
57. In the English Court of Appeal decision frequently quoted at length, Letang v. Cooper [1964] 3 WLR 573, Lord Justice Diplock identified the problem that had arisen and would continue to arise following the enactment of the Judicature Act of 1893 where forms of action were abolished. As he said at pp. 242 – 243:
“A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person. Historically, the means by which the remedy was obtained varied with the nature of the factual situation and causes action were divided into categories according to the “form of action” by which the remedy was obtained in the particular kind of factual situation which constituted the cause of action. But that is legal history, not current law.”
58. As Lord Justice Diplock said a court in looking at a set of factual circumstances ought not seek to categorise the circumstances into different forms of action, and the name of the form of action is no more than, as he put it, “a convenient and succinct description of a particular category of factual situation which entitles one person to obtain from the court a remedy against another person.” The categorisation does not always properly identify the nature of the action and as he said to forget this would be to encourage the old form of actions “to rule us from their graves.”
59. The abolition by the Judicature Act 1893 of separate forms of action informs me in considering the true nature of the plaintiff’s claim, and I must engage in the exercise of ascertaining what that nature is. This is a claim for damages for the breach of the obligation of the seller of goods to the buyer, governed to a large extent by the Sale of Goods Act 1893 as amended. This is consistent with the view expressed by the Supreme Court in Gallagher v. ACC Bank that the court should look to ascertain the central and primary claim made in litigation and that where appropriate the policy of the law should be to minimise rather than expand the disparity between the running of time in contract and court cases, at least where the wrongdoing alleged is identical. As O’Donnell J. said at para. 127 while the court must consider that “the adaptation of tort claims to a contractual setting necessarily risks having a distorting effect on the law, and more importantly spreading liability, and therefore cost, more widely than is desirable.”
60. I adopt this reasoning, and hold that the facts of this case point to the case being one for breach of contract, the cause of action in which accrued at the date the breach of that contract accrued.
Conclusion
61. The plaintiff’s claim in contract is not statute barred.
Donnelly -v- Woods
[2012] IEHC 26 (26 January 2012)
Judgment of Mr Justice Charleton delivered on the 26th day of January 2012
1. In 1999 Patrick James Woods, the defendant, and Kevin McKenna bought 18 acres of farm land near Monaghan town for about €168,000. Their plan was to develop this land for housing. Joe Donnelly, the plaintiff, was brought in as a financial adviser. Despite hearing evidence from all these mentioned, it remains puzzling as to precisely what Joe Donnelly did. Various parties were interested in developing the land. In the initial stages, in 1999 and 2000, St. Pancras Housing Authority developed a plan for moderately priced housing for its members. That plan was formalised by a firm of engineers and planning permission was granted by the local authority on the 14th November, 2000. An appeal was then entered and when this was advertised a firm of builders expressed an interest. They were allowed into the plan. Their architects, Teauge and Sally Partnership, of Cookstown, County Tyrone prepared and submitted a detailed reply to the observations made on the appeal. In the event, An Board Pleanála granted the appeal, thus refusing permission, on the basis that the relevant development plan did not encompass the site as part of the future plans to expand Monaghan town. There was then another application to the planning authority which failed. The only available option was a change in the development plan. The prospects of developing the site then became quiet as a wait of 3 to 4 years was expected before local authority members might change the development plan. There was concern by the developers, Patrick James Woods and Kevin McKenna, that the firm of builders might have gained some kind of interest in the fields. Any such worry was alleviated as the matter went into abeyance. As the wait continued property prices grew. Kevin McKenna disposed of half of his interest to a relation by marriage. Some ready cash was made available on the basis of a 50% interest on whatever profit from the sale that would ultimately take place. In late 2006, a different firm of builders became interested and the price of the property had by this stage climbed to €3.8 million. That was not the end of it. Others became interested. The fields were sold to a limited liability company and then onto another limited liability company for the purpose of development in a contract which closed on the 25th May, 2007, and which recorded a consideration of €4.435 million. This was an increase of a multiple of over 26 in eight years, or a 2,539.881 % increase.
2. None of this worked out. Patrick James Woods, the defendant, made a healthy profit after paying off his partner Kevin McKenna, but, as he said in evidence, he lost the millions of euros gained “twice as quick as [he] made it”. The fields remain fallow, suitable for the raising of cattle; and the bank which lent the money, borrowed from foreign banks, in support of the paper accretion of apparent wealth, is now a burden on the Irish taxpayer.
3. Joe Donnelly, the plaintiff, claims that he had an express agreement with Patrick James Woods and Kevin McKenna to be remunerated in consideration for financial and consultancy services. In the statement of claim he pleads he would be paid 10% of the net profit achieved on the ultimate sale of these Monaghan fields. He asserts that in performance of the agreement he “provided professional services … on a continuous basis on diverse dates between 1999 and December 2006”. In the alternative, the plaintiff claims that he “provided the works and services as requested and the defendant took the benefit of these works and services thereby entitling the plaintiff to a reasonable sum in respect of such works and services on a quantum meruit basis”. The defence traverses the plaintiff’s claim and raises two special defences: that in reality the claim is on the basis of an interest in land; and that the claim is barred by virtue of s.11(4) of the Statute of Limitations 1957, which limits claims in contract to six years.
Issues
4. Having heard the evidence for both sides, it is agreed by counsel for the parties that the following issues should be isolated:
1. Was the engagement of the plaintiff on a “no foal no fee” basis related to the St. Pancras Association proposed development?
2. Was a definite percentage remuneration of profit from the ultimate sale agreed between the parties?
3. Was there a contract between the parties, in the sense of one that is enforceable in law?
4. Does the principle of quantum meruit entitle the plaintiff to some remuneration?
5. Does the Statute of Limitations 1957, apply to either head of claim as pleaded?
6. Does the Statute of Frauds (Ireland) Act 1695 (as amended), apply to an interest the plaintiff claims in land?
Contract
5. This case is not about an interest in land. It concerns, instead, a deal between businessmen to maximise their profits through pooling their interests and knowledge. It is not necessary for me to analyse the claim on the basis of the strictures of the Statute of Fraud (Ireland) Act 1695 (as amended). The plaintiff never had an interest in these Monaghan fields and on requisitions upon sale it would never have been necessary to refer to him as holding any title whether in law or in equity. The far ranging nature of what he alleges puts him outside the one year limit: Hynes v Hynes [1984] IEHC 48, (Unreported High Court, Barrington J., 21st December, 1984).
6. In evidence, Joe Donnelly told the Court that he was a financial consultant, qualified as such and entitled to put the letters QFA after his name through doing a recognised exam from a professional body. His VAT number is not on his headed notepaper. He gave evidence as to remuneration to the Collector General and said that financial transactions were exempt. Such work as he did in respect of the Monaghan fields must have amounted to professional advice and it is hard to see how this does not carry a VAT liability. Prior to this project he was friendly with Kevin McKenna, who gave evidence on his behalf. The bulk of his work on this matter was in meeting with the St. Pancras Housing Association in the years 1999 and 2000 and in negotiating and approving their plans for development. When asked as to what work he actually did, his answer was vague. A notice for particulars was raised prior to trial asking for details of professional services, seeking a written contract and demanding other appropriate details. No sufficient information was forthcoming. Discovery of documents yielded nothing on which a court might rely. When asked at trial as to how many hours were involved and as to the hourly rate he charged, the plaintiff could give no answer that was satisfactory. Possibly it is difficult to remember at this stage. Discovery in relation to meetings consisted of diary entries on five separate occasions simply noting a name. These are all in 1999. It is possible that on the 13th March, 2001, Joe Donnelly, Patrick James Woods and Kevin McKenna consulted with a solicitor as to possible liability to the builder who had shown a definite interest in the land by causing his architect to draw up plans on the appeal and the major application to the local authority. Thereafter, it is claimed on behalf of the plaintiff that the parties went back to his office. The evidence as to what agreement had supposedly been reached there as to the percentage remuneration for the services of the plaintiff is not sufficiently definite for the court to act on it. The evidence falls short of a probability. Nor is it possible for the court to regard the evidence as a definite 10% of profit deal as having been struck in his office as probable. Although a third party was interested, planning permission was an uncertain prospect into the future and the existing interested party was likely to be put off by the delay that would ensue. The evidence for the plaintiff was that because the owners of the fields had no disposable money they agreed to pay him on a percentage basis. What was that alleged percentage?
7. The reality is that this crucial part of an enforceable contract was left unspecified. Evidence has been given of various other deals with which the plaintiff was involved and these were evidenced by invoices. In one deal involving the financing of another project for €732,000, the sum claimed was €3,500. This amounts to about 0.478%. Other invoices for professional fees are on a modest basis; involving sums of €4,400, €3,130 and a fee of €15,000 on a financial arrangement of €300,000, a fee of 5%. None of these come close to 10%. Then there is the position of Kevin McKenna. He told me that he felt obliged to pay the plaintiff 10% of the half interest he sold to a relation by marriage. The remuneration there was on a notional full value of which he had a half interest. Three cheques were paid over by him to the plaintiff. On the 1st April, 2004 he paid €10,000; on the 14th December, 2006 he paid €10,000; and on the 30th May, 2007 he paid €70,000. No matter how one looks at the figures they are not close to 10% and are more like 5%. When Kevin McKenna was asked about this discrepancy his answer was that negotiation was done with the plaintiff at the time of the ultimate sale with money being paid earlier on the basis that his relation had paid him €200,000 for half of his half interest, of which the €20,000 earlier paid was on a 10% basis. This evidence is insufficient to establish a probability. There is a more fundamental problem, however.
8. The essential aspect of a contract is that the parties come together and agree what their obligations are. Not every single issue as to liability and performance needs to be foreseen and provided for. To dismiss a contractual claim on the basis of a missing term would be to undermine the business efficacy which the courts are obliged to give to commercial transactions on the basis that reasonable people will conclude a contract where what is essential to their obligations is defined and agreed. Certain matters will be essential. This depends on the nature of the obligations being undertaken through contract by the parties. In a contract for the sale of land, for instance, it is essential to nominate the parties, to sufficiently describe the land by reference to its location and the interest in it that is being disposed of and the price that is to be paid. Often times, much more than such bare terms will be specified by reference to fixed contracts published by professional bodies which are in each individual sale adapted to the needs of the vendor and the purchaser. Building and engineering bodies also publish standard form contracts and continually refine these based on experience; these documents will be replete with detail. Whereas this is desirable in avoiding all kinds of disputes later on, what is essential is that the parties to an agreement should not be left in doubt as to the substance of what they are to do in discharge of the obligation created by the contract.
9. Here, there is a problem. The nature of the services provided by the plaintiff to the defendant and his partner are left uncertain due to lack of documentation. This is compounded by an understandable vagueness in evidence by all of the parties who gave testimony; after the lapse of up to twelve years. If people put their obligations in writing, even through the exchange of letters, then there is at least something to refresh the memory and there may also be the clarity that written language can bring to the definition of obligations. All of that is absent in this case. The court is left uncertain as to the nature of the professional services provided by the plaintiff; what exactly this consisted of; how many hours were involved; and what the hourly rate of charge would be.
10. In the absence of a defined agreement as to remuneration, whether by reference to an hourly rate of charge or on the basis of a percentage profit share, no contract in law is concluded. As to the profit share that would normally be acceptable to the plaintiff, he gave evidence as to figures ranging between 1% and 10%. His normal rate of charge he said was 10%. Unless a custom of a trade or profession is established whereby the evidence supports a rate of charge claimed as notorious to the parties with whom the plaintiff dealt, or unless it is otherwise clearly specified, no contract enforceable in law is capable of being formed for professional services in the absence of agreement on remuneration. The absence of paper and the understandable vagueness of the evidence for the plaintiff cannot amount to a probability in the absence of such evidence. I cannot find the testimony in relation to the alleged meeting at the plaintiff’s office of the 13th March, 2001 sufficient to supplant this unfortunate absence. Of itself, that kind of evidence is insufficiently strong to establish a probability.
Quantum meruit
11. An entitlement to be paid on a quantum meruit basis can be established where it is clear from the course of dealings between the parties that the claimant worked for the defendant on request and on the basis of a mutual understanding that the service provided would be remunerated. If there is absence of agreement as to rate, then despite their failure to conclude a contract, the law will intervene to provide a remedy. This is done on the basis of fairness: where a worker is hired to do a job, that worker is entitled to be paid, a principle perhaps derived from Luke 10:7. The law does not look in appropriate circumstances to the technicality of a precise concluded agreement: once the work is expressly sought and properly done there should be fair remuneration. There must be an understanding fairly arising on both sides that such reasonable remuneration will be payable, however. Sometimes this is a necessary inference from the circumstances under which the work was done; on occasions the inference goes the opposite way.
12. In Coleman v Mullen [2011] IEHC 179, (Unreported, High Court, Hogan J., 3rd May, 2011) the issue was care by a relative for a person who had died after being sick for some years. In the absence of agreement for remuneration, the estate was sued on a quantum meruit basis. Hogan J. noted the Australian decision of Pavey & Mathews Pty. Ltd. v. Paul (1987) 162 C.L.R. 221 and in particular the statement of Brennan J.:-
“Correspondingly, quantum meruit is sometimes used to describe an action to recover a reasonable sum which is due under a contract and sometimes to describe an action to recover a reasonable sum when the obligation to pay it is imposed by law independently of actual contract. As we have seen, indebitatus assumpsit was first expanded to embrace an action of quantum meruit when a contract did not stipulate a fixed sum as the remuneration of the work to be done. Later it was expanded to embrace an action of quantum meruit in quasi-contract when an obligation to pay was imposed by law independently of contract. There is now, as there was in the seventeenth century, a manifest difference between implying in a contract a term to pay quantum meruit and imposing an obligation to pay quantum meruit independently of contract.”
Hogan J. queried:-
“whether the law would normally impose an obligation to pay in such circumstances, irrespective of whether an actual contract (or, if you prefer, a promise to pay under such a contract) is implied by law. This is clearly linked to general notions of unjust enrichment, since the obligation is imposed by law to ensure that the recipient of the services is not enriched at the expense of another: see generally Fridman, Restitution (2nd Ed.) at 285-287 where the Canadian law on this topic is helpfully expounded.”
13. That claim was dismissed. This was a case where it was not clear from the circumstances that services provided would ever be remunerated financially. Circumstances such as these do not usually give rise to an understanding that party providing the services should be paid.
14. The remedy of quantum meriut applies where there is work done on the basis of a mutual understanding of an obligation to pay. Such an understanding may be tacit and in some circumstances the law may fairly imply the obligation from the context. This has been recognised in a series of cases dealing with the provision of professional services: see Clark, Contract Law in Ireland (5th Ed., 2004) at 599-600. In Henehan v. Courtney & Hanley (1967) 101 I.L.T.R. 25 an estate agent was instructed by a purchaser to find a suitable farm. Such a farm was located by the agent and the sale subsequently closed. Teevan J. held that the estate agent was entitled to recover quantum meruit, since even though nothing was said about the commission or fees that entitlement arose from the circumstances. In Chaieb v. Carter [1987] IESC 5, the plaintiff was appointed to negotiate a contract for the sale of cattle to Egypt. After that first contract, with which there were difficulties, another contract was secured for the export of cattle but no remuneration was fixed. The Supreme Court found that the securing of the new contract flowed from the work carried out by the plaintiff and, as Finlay C.J. observed, the plaintiff was “entitled to reasonable remuneration having regard to the work carried out by him and having regard to the expenditure which he clearly made on behalf of the defendants during this period.”
15. In this case there is yet a further problem. It has been impossible to establish in evidence as a probability as to what the rate of remuneration of the plaintiff is. At one stage a figure of €100 was mentioned per hour. This is a substantial sum but one that is possibly capable of being established and there should have been definite evidence in that regard, and definite evidence is absent. It is also impossible to say how many hours the plaintiff worked. Various figures of 40 or 50 hours were put to the plaintiff, but he was not inclined to agree with, and perhaps could not remember, any definite figure. Had the plaintiff established that he had worked for 50 hours at €100 per hour, he would gain an entitlement to €5,000 once that hourly rate was established as a reasonable standard which might be expected to be paid for that kind of work within the community. Even that evidence is absent. On the basis of what the court has been told, and in the absence of any documentary timesheets or detailed diary entries, it is impossible to estimate as a probability how many hours the plaintiff worked. During the course of this, the plaintiff was also meeting with Patrick James Woods and Kevin McKenna on other projects, for which he charged and was paid. One of these was referenced in evidence as ‘the Oasis project’, an apparent aside to a nightclub development which never got off the ground.
Limitation period
16. The Statute of Limitations 1957, as amended, also bars this claim. The interaction of the plaintiff on any substantial basis ceased once the housing association interest had been replaced by that of another party. In terms of actual quantifiable work there is not enough evidence to establish a probability that he was providing professional services, whatever these might be, at any date beyond March, 2001. The plenary summons in these proceedings was issued on the 21st January, 2008. The work to be charged for, if recoverable, would have to be done after the 22nd January 2002. The evidence does not support any such assertion.
Conclusion
17. Parties are entitled to deal with each other on the basis that in the future one will negotiate a fee when a profit becomes apparent. This may have been the nature of the transaction between the parties in this instance. This kind of loose arrangement is not, however, a course of business dealings which becomes enforceable in law absent concluded agreement as to the essentials of remuneration and the nature of the service to be provided. Where people are dealing as quasi partners merely on the basis of good faith and high expectation, it becomes impossible to say that a contract for professional services has been agreed.
18. One might finally note that the €70,000 paid to the plaintiff would at the hourly charge rate of €100 which he mentioned have involved him in 700 hours of work on a quantum meruit basis. Even were that claim capable of being made on the evidence, and it has not been made out at all, there has been more than ample remuneration of the plaintiff.
19. The claim of the plaintiff must therefore be dismissed.
Globe Entertainment Ltd & Anor -v- Pub Pool Ltd & Ors
[2016] IECA 272 (12 October 2016)
JUDGMENT delivered by Ms. Justice Finlay Geoghegan on the 12th day of October 2016
1. This appeal raises once again the essential proofs to obtain an order for specific performance of an alleged contract for the sale of land.
2. The appeal is against a High Court order of the 25th February, 2015 (Costello J.) made pursuant to a written judgment delivered on the 24th February, 2015: 2015 IEHC 115. For the reasons set out in that judgment, the trial judge dismissed the plaintiffs’ claim for specific performance of an alleged contract for the sale of premises known as the Globe and Rí-Rá nightclub, 11 South Great Georges Street, Dublin 2 (“the Premises”) and consequential claims.
3. The appellants, Globe Entertainment Limited (“Globe”) and Sean Doyle (“Mr. Doyle”) claim there was an enforceable contract with the defendants for the sale of the Premises to Globe and a compromise of the personal liabilities of Mr. Doyle to the third named defendant (“the Bank”). The person or persons with whom the contract is alleged to have been made is in dispute. The note of memorandum relied upon to satisfy s. 51 of the Land and Conveyancing Law Reform Act 2009, is a chain of emails leading to and ending with a letter dated the 3rd April, 2014, from the Bank to Mr. Doyle and signed on its behalf by a Mr. Roche.
Background Facts
4. The background facts and facts pertaining to the negotiations which led to the alleged concluded contract and the chain of emails and letter are fully set out in the High Court judgment. I do not propose again repeating in full, but insofar as relevant to the issues on appeal may be summarised as follows.
5. The first named defendant, the Pub Pool Limited (“Pub Pool”) purchased the Premises in 2007 with the assistance of finance from the Bank and mortgaged the Premises to the Bank. Pub Pool was a company within the Thomas Read Pub Group of which Mr. Doyle was a shareholder. The Thomas Read Pub Group went through an unsuccessful examinership and in March 2009, the Bank appointed the second named defendant as Receiver over, inter alia, the Premises.
6. Mr. Doyle has worked in the pub business all his adult life. The Receiver put the Premises up for sale in 2009. Mr. Doyle was interested in purchasing, but had significant personal financial liabilities including liabilities both personal and pursuant to a guarantee to the Bank. Ultimately in December 2009, agreement was reached whereby the Bank issued a facility letter to Mr. Doyle to finance the acquisition of the Premises and provide for the settlement of his obligations to the Bank. On the 4th December, 2009, Pub Pool acting by the Receiver, entered into a contract in writing (“the 2009 contract”) to sell the Premises to Mr. Doyle in trust for Globe for a sum of €5.6 million. Completion of the sale was conditional upon the Receiver obtaining the prior written consent of the landlord of part of the Premises, a Mr. Conlon, to the assignment of the sublease to Globe.
7. The Receiver and Mr. Doyle then entered into an agency agreement whereby the Receiver employed a management company of Mr. Doyle to run the pub business in the Premises pending completion of the sale. The Receiver remained the licence holder of the Premises.
8. Through 2010 and 2011 the landlord refused to grant consent. Ultimately the Receiver issued proceedings on behalf of Pub Pool seeking a declaration that the landlord’s consent was being unreasonably withheld.
9. In the meantime Mr. Doyle’s personal finances reached what the trial judge termed ‘a crisis’ in May 2010. The facility letter of the 1st December, 2009, had lapsed in January 2010 and ultimately in August 2010, the Bank refused funding to purchase the Premises from the Receiver.
10. The Receiver instructed CBRE to market the Premises again and Mr. Doyle was informed of this in October 2010. Whilst there does not appear to have been any formal termination of the 2009 Agreement, Mr. Doyle made no objection to the efforts to sell the Premises in the autumn of 2012.
11. In 2013 a number of third party potential purchasers emerged, offers made and contracts issued, but no contract entered into between the Receiver and any potential purchaser. In 2013 Mr. Doyle also had been negotiating to resolve his liabilities to other banks and having done this approached Mr. Roche of the Bank and had some initial meetings in 2013.
12. In January 2014, the landlord consented to the sale of the Premises to Mr. Doyle or his nominated company. The Bank had indicated it was unwilling to fund the proposed purchase by Mr. Doyle or Globe. Mr. Doyle then approached the Bank, indicating that he had some alternative sources of funding for the project.
13. It was against those background facts which are not in dispute that the facts of what took place between the 5th February, 2014, and the 3rd April, 2014 and the judge’s findings of fact, inferences drawn and conclusions reached must be considered.
Findings of fact
14. A meeting was held on the 5th February, 2014, chaired by the Receiver at which, inter alia, Mr. Roche on behalf of the Bank and Mr. Doyle were present. The trial judge has set out in her judgment at paras. 20 to 23 the evidence given in relation to that meeting and made certain findings of fact, some of which were challenged on appeal. The findings are based in part on contemporaneous notes and in part on the oral evidence. In accordance with the well established principles in Hay v. O’Grady [1992] 1 IR 210. I have concluded there was credible evidence, recorded by the trial judge in her judgment to support her findings and they should not be interfered with by this Court. Those findings were:-
(i) Mr. Doyle was informed at that meeting that the Receiver and not the Bank was selling the Premises.
(ii) The Bank’s involvement was to agree the sale price (for the purpose of releasing its charge) and negotiate settlement of Mr. Doyle’s personal liabilities to it. This was explained by reason of the necessity of Mr. Doyle reaching settlement with the Bank for the purpose of obtaining funding from a third party lender.
(iii) The meeting was on a “without prejudice” basis. The parties understanding of what that meant is elsewhere recorded.
(iv) Any agreement was subject to proof of funding by Mr. Doyle and subject to contract.
15. At the meeting of the 5th February, it appears that Mr. Doyle made an offer of €2.125 million to purchase the Premises together with €100,000 to discharge his personal debts. Following discussion between the Receiver and Mr. Roche (in Mr. Doyle’s absence) he was informed that the Receiver and the Bank required a sum of €2.4 million with the split to be agreed and that Mr. Doyle (who remained in possession and running the business) was to underwrite any trading losses from the Premises until the date of closing. Mr. Doyle to provide a sworn statement of affairs to the Bank confirming settlement of his liabilities with the Bank of Scotland (Ireland Limited) and to revert to the Bank with the final offer within a week.
16. There then commenced the written exchanges upon which some reliance is placed. The first of these was from Mr. Doyle to Mr. Roche on the 12th February. The trial judge noted it was headed “Without Prejudice” and Mr. Doyle’s evidence that his use of the phrase meant that “it was subject to a deal”. The trial judge made a finding which again cannot be interfered with that “the negotiations on all sides were on a ‘without prejudice’ basis”.
17. There were then conversations between Mr. Doyle and Mr. Roche on the 31st March and the 1st April, 2014. The trial judge records certain of the evidence in relation thereto and relevant contemporary notes at paras. 28 to 32 inclusive. The trial judge then concluded at para. 33:
“I have already accepted the evidence of the Receiver, Mr. Roche and Ms. Byrne that on 5th February, 2014, it was made clear to Mr. Doyle that the Receiver would be selling the Premises. I do not accept that the evidence outlined above leads to the conclusion that Ulster Bank was to sell the Premises and not the Receiver. Mr. Doyle’s contemporary notes show that the split of €2.295 million and €5,000 was not agreed on 31st March, 2014, though Mr. Doyle gave evidence that this was the case. Mr. Doyle’s evidence in his witness statement and in his contemporaneous notes was that there was no agreement as of 1st April, 2014 that the sale of the Premises would close on 31st May, 2014. On the contrary Mr. Roche looked for it and Mr. Doyle did not agree.”
18. Of importance to the issues on appeal is the recording of the evidence that there was no agreement as of the 1st April, 2014, that the sale of the premises would close on the 31st May, 2014. Whilst the trial judge has noted that there was no agreement on the split of €2.295 million and €5,000 on the 31st March, 2014, it does appear that there was evidence that that split was agreed between Mr. Roche and Mr. Doyle on the 1st April, 2014. Of that same telephone conversation of the 1st April, the trial judge records Mr. Doyle’s contemporaneous note as recording “he [Mr. Roche] said to confirm agreement and dates in writing to him so he can get the ball rolling”. That request appears to have given rise to an email written by Mr. Dolan, accountant for Mr. Doyle to Mr. Roche with a subject entitled “Sean Doyle Revised Globe Offer” with a text which was headed “Without Prejudice” and provided as follows:-
“Dear Graham,
Further to our discussions regarding the Globe Purchase we wish to confirm the following:
We revise our offer of €2,300,000 for the purchase of The Globe and Rí-Rá and settlement of all personal liabilities to Ulster Bank split as €2,295,000 for the Globe Purchase and €5,000 in settlement of all personal liabilities of Sean Doyle to Ulster Bank. This is to include full and final settlement of Sean Doyle’s personal unsecured facility No. 5000004828 and any other Personal Guarantee Liability due to Ulster Bank.
The above offer is subject to the below.
1. All amounts owing to Sean Doyle Management Services Limited for the management of the Globe for Kavanagh Fennell are paid in full two weeks after closing and no discount to be requested by Kavanagh or Ulster Bank.
2. We require a letter from either Kavanagh Fennell or Ulster stating that the purchase price agreed for The Globe is €2,295,000 with no mention of the personal settlement. We require this immediately in order to progress with organising finance.
3. We require a letter stating that all the personal liabilities of Sean Doyle are settled for €5,000.
4. We require 6 weeks to provide proof of funding and signing of contract from date of receipt of the letter outlined in No. 2 above. The reason we are requesting 6 weeks is that the Easter Break will undoubtedly cause delays.
5. We require 4 weeks to close after signing of contracts.
6. The purchasing entity will be Globe Entertainments Limited c/o Sean Ogs Hotel Kilmuckridge, Gorey, Co. Wexford. This is subject to change at the request of our funder.
7. The offer is made subject to us getting an assignment of the RiRa (sic) lease from Gerry Conlon. Once we get the letter as outlined in No.2 we will progress with getting the assignment.
8. Solicitor Rory Deane and Company, Solicitors, Temple House, 8 Templeshannon, Enniscorthy, Co. Wexford.
Regards
John Dolan”
19. The email was not copied by Mr. Dolan to the Receiver, consent having been obtained by the Bank it was sent to the Receiver. Thereafter there were exchanges between the Bank and the Receiver set out in the High Court judgment. The Bank required a recommendation from the Receiver of acceptance of the offer. On the 2nd April, the Receiver emailed Mr. Roche in relation to the Premises as follows:-
“We are in receipt of an offer from Sean Doyle in the amount of 2.295m for the above asset subject to certain conditions to be agreed between the parties. We recommend acceptance of this offer.
Please revert with approval for same.
Regards,
Tom.”
Mr. Roche responded that afternoon:-
“Hi Tom
I refer to your email below and recent discussion and formally confirm that the bank has consented to the sale at €2.295m subject to a close by 31.05.14. Regards
Graham.”
20. There was a further letter written on behalf of the Receiver to the Bank that day and then on the 3rd April, Mr. Roche of the Bank wrote a letter to Mr. Doyle as follows:-
“Re: Sale of ‘The Globe/ RíRá’
Dear Sean,
Following receipt of a recommendation from the Receiver, I confirm that Ulster Bank Ireland Limited has consented to the proposed sale of the Globe/ RíRá to Globe Entertainments Limited for €2,295,000 subject to the sale closing by 31st May 2014.
I trust you find the above in order and should you have any further queries please contact jenny.byrne@ulsterbankcm.com.
Yours sincerely
Graham Roche
Director RCRI
cc Tom Kavanagh, Receiver and Manager, The Pub Pool Ltd”.
21. That letter was initially sent by email to Mr. Doyle by Ms. Byrne of the Bank and the email responded to by Mr. Doyle on the same day stating:-
“Jenny/Graham
Thanks for that, can you also fwd other letter confirming the €5k.
Regards
Sean Doyle”.
22. The claim made by the plaintiffs and rejected by the trial judge was that there was a binding enforceable contract for the sale of the premises with both the Bank and the Receiver (and a compromise of the personal liabilities of Mr. Doyle to the Bank) from this point onwards. It was contended that there was both a concluded agreement and that the emails and letter constituted the note of memorandum signed by “the Vendor” or “the Vendor’s authorised agent”. It is not in dispute that the only signed document is the letter of the 3rd April, 2014, signed by Mr. Roche on behalf of the Bank.
New Offer
23. On the 9th April the Receiver was contacted and made a new offer for the purchase of the Premises by a Mr. Greg Kavanagh. The Receiver took legal advice. The Receiver made further contact with Mr. Kavanagh and following negotiations Mr. Kavanagh signed a contract for the purchase of the premises for the sum of €2.7 million and paid a deposit of €400,000 on the 16th April 2014. The closing date for the sale was the 17th May, 2014. The Receiver signed the contract on the 17th April. There is a dispute about a communication between Mr. Doyle and the Receiver on the 23rd April, 2014. This is not relevant to the issues which require to be determined on this appeal.
24. The trial judge dismissed the plaintiffs claim for a number of reasons. In her judgment she addressed a series of issues. The first was a factual issue as to which person was intended to be the Vendor of the Premises to Mr. Doyle. At para. 54 she concluded and held as a fact that “at all material times, the Vendor of the Premises was the Receiver”.
25. The trial judge further found and held as a fact that Mr. Roche (and by implication the Bank) was not acting as the agent of the Receiver including when he wrote confirming that the Bank had consented to the sale at €2.295 million subject to a closing by the 31st May, 2014.
26. The trial judge found that the plaintiffs, in the reliefs sought in the statement of claim had failed to specify against which defendant they were seeking an order for specific performance and further that in the course of the hearing counsel on their behalf had not identified against which defendant they were seeking an order for specific performance. She then determined at para. 55 that on that basis alone the claim must be dismissed. Nevertheless she continued to consider and determine a number of other issues.
27. The first of such issues was whether or not the plaintiffs had established that they had a concluded agreement for the purchase of the Premises. The trial judge decided that as on her findings of fact the intended Vendor was to be the Receiver; that hence any such agreement must be with the Receiver and concluded that there was no evidence of any agreement between the plaintiffs and the Receiver for the sale and purchase of the Premises. She also decided that as there was no evidence to establish that the Bank intended to act as Vendor that there cannot have been any concluded agreement between the Bank and the plaintiffs for the sale of the Premises.
28. She, nevertheless considered whether there was a note or memorandum to satisfy s. 51 of the 2009 Act and decided there was not as there was no agreement on a material term of the contract namely the closing date. She further concluded that the offer of the 1st April 2014, set out in the letter from Mr. Dolan was in substance subject to the exchange of a formal written contract that the term “without prejudice” as used by Mr. Doyle and Mr. Dolan had the effect of preventing an enforceable agreement coming into effect. In relation to proof of funding, she decided that the intention was that proof of funding was a pre condition to entering into a binding contract as distinct from a condition precedent to performance of a concluded contract.
The appeal
29. The plaintiffs advanced fifteen grounds of appeal in the notice of appeal. In their written submissions, they dealt with the grounds of appeal under six broad headings. They further refined these submissions at the oral hearing.
30. Central to their appeal was the submission that the trial judge had erred in deciding that the failure of the plaintiffs to identify the person against whom the order for specific performance was sought justified dismissal of their claim. Further independently of the submission that the trial judge had erred in her finding that the Receiver was the proposed Vendor of the property and that the Bank was not acting as the agent of the Receiver in the negotiations conducted by Mr. Roche, they submitted that it was sufficient for them to establish an enforceable agreement with the Bank for the sale of the Premises having regard to the relationship between the Bank, the Receiver and Pub Pool. They submitted that the plaintiffs had established a concluded agreement with the Bank (and the Receiver for which it was acting as agent) and a note or memorandum sufficient to satisfy s. 9 of the 2009 Act.
31. The respondents relied upon the judgment; they submitted that the findings of fact should not be interfered with in accordance with the principles in Hay v. Grady and inter alia that the plaintiffs had not established a concluded agreement for the sale and purchase of the Premises with any party and that there was no note or memorandum sufficient to satisfy s. 51 of the 2009 Act.
Conclusions
32. As already stated, the appellants, in my view, have failed to establish that the findings of fact made by the trial judge were not supported by credible evidence. She did have evidence, to which she refers in her judgment to support the findings of fact made by her that, at all material times, the intended Vendor of the Premises was the Receiver, acting of course as agent for Pub Pool in accordance with the terms of the deed of mortgage and that Mr. Doyle was aware of this. That was the position in relation to the 2009 Agreement. I am further satisfied that there was evidence to support the finding of the trial judge that Mr. Roche in his negotiations with Mr. Doyle was not acting as agent for the Receiver. It follows from this that her finding that the Bank did not act as agent for the Receiver should be upheld.
33. However, in my view, neither of these findings of fact is determinative of the plaintiffs claim or this appeal. The more difficult question is whether the trial judge was correct in deciding that the plaintiffs were obliged in the statement of claim to identify the particular defendant against whom the order for specific performance was sought and also whether she was correct in deciding that it followed from the fact that it was intended that the Receiver (as agent for Pub Pool) be the Vendor of the Premises that the plaintiffs had to establish the existence of an enforceable agreement with the Receiver, as distinct from the Bank to obtain an order for specific performance.
34. The plaintiffs had pleaded in the Statement of Claim that the alleged agreement was with “the defendants”. The plaintiffs in submission relied upon para. 8.13 of Farrell: Irish Law of Specific Performance (Dublin, 1994) Butterworths where it is stated:-
“. . .The fact that land may be vested in a third party is not a bar to a claim for specific performance if that party can be compelled to convey . . . when a person agrees to do something which he can himself do, or has the means of procuring others to do, the court requires him to do it or get it done unless the circumstances of the case make it highly unreasonable to do so.”
The authority cited for this latter statement is Costigan v. Hastler (1804) 2 Schoales & Lefroy 160 at 166.
35. The primary submission on behalf of the plaintiff was that the relationship between the Bank, as mortgagee of Pub Pool and appointer of the Receiver is such that it could require the Receiver as agent of Pub Pool to convey the property to Globe. Alternatively it was submitted that the Bank could have gone into possession and conveyed as mortgagee.
36. The resolution of the above questions only becomes relevant if the plaintiffs are correct in their submission that the trial judge erred in deciding that there was no concluded agreement between the plaintiffs and the Bank for the sale of the Premises or no note or memorandum of that agreement sufficient to satisfy s. 51 of the 2009 Act. I propose therefore setting out my conclusions on those issues firstly.
37. The first issue in any claim for specific performance is whether there was a concluded agreement and this must be distinguished from the requirement to prove the note or memorandum required by s. 51 of the 2009 Act. In Supermacs Ireland Limited v. Katesan (Naas) Limited [2000] 4 I.R. 273 Geoghegan J. at p. 288 drew attention to the correct approach set out with clarity by Henchy J. (with whom O’Higgins C.J. and Walsh J. concurred) in Lynch v. O’Meara (Unreported, Supreme Court, 8th May, 1975) at p. 4:-
“In this court, counsel for the plaintiff contended that the first document and the second document should be read together and as such should be held to constitute the note or memorandum required by the Statute of Frauds. However, before one comes to the question of a note or memorandum it is necessary to see if an entire contract was concluded on Sunday the 24th October, for it is only in that event that the statutory note or memorandum would be required. If the negotiations between the parties had not ripened into the fullness of an entire contract, the plaintiff’s claim for specific performance would fail, not for want of the statutory evidence necessary for the enforcement of a contract for the sale of lands, but simply in default of the existence of any such contract. There would be no contract to be specifically enforced.”
38. Geoghegan J. then stated:-
“I merely quote that passage because of its clarity as to the correct approach. There cannot be a concluded agreement unless everything intended to be covered by the agreement has been either expressly or impliedly agreed.”
39. The respondents submitted that there was a lack of clarity in the submissions on the part of the plaintiffs as to whether they were contending that there was an oral agreement reached between Mr. Roche and Mr. Doyle in the telephone conversations of the 31st March and the 1st April, 2014, or whether the agreement comprised the letter of offer sent by Mr. Dolan on the 1st April, 2014 and allegedly accepted by Mr. Roche on behalf of the Bank in his letter of the 3rd April. It does not appear to be necessary to resolve this. The trial judge concluded at para. 60 of her judgment that there had been no agreement on the closing date for the proposed sale and that this was an essential requirement for a concluded agreement even between Mr. Doyle and Mr. Roche on behalf of the Bank. At the outset of para. 60 the trial judge stated “An essential condition in a binding contract for the sale of land is the closing date”.
40. I accept the submission on behalf of the appellants that this categoric statement by the trial judge in relation to a closing date being “an essential condition” for a concluded agreement or binding contract is not correct. The true position is more nuanced.
41. The “entire contract” referred to by Henchy J. is one in which all the material terms have been agreed or as put by Geoghegan J. above “everything intended to be covered by the agreement has been either expressly or impliedly agreed”. However what will constitute “all the material terms” varies depending on the relevant facts. As Farrell in Irish Law of Specific Performance points out at para. 3.09, the material terms may be very straightforward and simply the parties, the property and the price. However he then states at para. 3.10:-
“Cases which come to court are rarely as simple as having only the parties, property and price as their material terms. Even if there appears to have been an uncomplicated contract with just agreement on parties, price and property careful examination of the facts may show that more was involved and the parties may have fallen short of complete agreement by reason of failure to agree on other material terms. The question what is material or essential must be considered, at any rate primarily, from the point of view of the parties themselves. The test to be applied is a subjective one and the court is required to consider terms as essential to a contract which were so regarded by the parties themselves.”
42. Farrell specifically addresses the question of the materiality of a closing date at para. 3.15 and repeats that the test is subjective and the court will consider terms as essential to a contract which were so regarded by the parties themselves. He further observes that “. . . if the evidence shows that an agreed closing date is important to either party or to both that date is likely to be a material term”.
43. The plaintiffs sought to submit that the absence of agreement on a closing date did not prevent a concluded agreement in reliance on the following passage from the judgment of Hardiman J. in Supermacs Ireland Limited v. Katesan where at p. 280 he stated:-
“Counsel on behalf of the defendants also contended that the absence of agreement as to completion date was a fatal defect in the proposition that there was a concluded agreement. In relation to the Naas premises there was a statement on affidavit that completion was to be after vacant possession had been obtained; there was no reference to a completion date at all in relation to the other five properties. He further submitted that there was no evidence on the basis on which a completion date could be implied.
In Boyle v. Lee [1992] 1 I.R. 555, Egan J. at p. 593 stated that:-
“It has long been established that where no time for performance is agreed the law implies an undertaking by each party to perform his part of the contract within a time which is reasonable having regard to the circumstances of the case: Simpson v. Hughes (1896) 66 L.J. Ch. 143.”
This is a long standing and, to my knowledge, unchallenged statement of the law. Accordingly, it cannot be said with certainty that, if the other essentials of a concluded agreement are present, the plaintiffs’ case is bound to fail by reason of the non-specification of a completion date.”
44. In Supermacs Hardiman J. was considering an appeal from a refusal by the High Court to dismiss the proceedings on a motion upon the grounds that they were bound to fail. The statement of principle cited in relation to an implied term and approved of by Hardiman J. applies where there is no express agreement on a closing date. The approach of Hardiman J. is not inconsistent with the principles set out in Farrell in relation to the question as to whether agreement on a closing date is or is not essential for the existence of a concluded agreement. The question as to whether a term is material and must be agreed in order that a concluded agreement has come into existence depends upon a subjective assessment of the facts with particular regard being had to what the parties themselves considered to be material terms requiring express agreement.
45. The concurring judgment of Geoghegan J. in Supermacs (the third judge Denham J. agreeing with both judgments) confirms this approach. In considering the position in relation to a deposit in that particular contract, Geoghegan J. in his analysis of what was decided by the majority judgments in Boyle v. Lee states at p. 286:-
“Only the ‘material terms’ need be included in a note or memorandum for it to be sufficient but all the terms, whether they be important or unimportant, must be agreed before there can be said to be a concluded agreement. It follows therefore that if the evidence is that there is going to be a deposit but that the amount of it is still to be negotiated, there cannot be a concluded agreement. . . . If the evidence establishes that two proposed parties to an agreement intended that their agreement should contain an express term relating to a deposit there cannot then be an implied term. . . .”
46. Applying all the above principles to the facts of this case, it is clear from the evidence recorded by the trial judge in relation to the conversations between Mr. Roche and Mr. Doyle on the 31st March and the 1st April, 2014, the letter from Mr. Dolan on behalf of Mr. Doyle of the 1st April, 2014 and the letter from Mr. Roche to Mr. Doyle of the 3rd April, 2014, that in relation to the proposed sale of the Premises, those parties intended that there be express agreement on the closing date. The evidence is that Mr. Doyle both in the oral exchanges and in the letter written by Mr. Dolan sought an initial period of six weeks for proof of funding and signing of contracts and four weeks thereafter for closing. It is common case that those periods would have meant a closing date of the 10th June, 2014. The Bank, by Mr. Roche in the oral exchanges and in the letter of the 3rd April, 2014, gave consent to the proposed sale of the Premises for €2,295,000.00 subject to the sale closing by the 31st May, 2014. On those facts, the trial judge was in my view correct in concluding that a concluded agreement for the sale of the Premises required express agreement on a closing date.
47. The plaintiffs in the High Court and in this Court also contended that the email sent by Mr. Doyle in response to the email enclosing the letter of the 3rd April, 2014, which stated “thanks for that, can you also fwd. the other letter confirming the €5k” constituted acceptance of the closing date of the 31st May, 2014. The judge rejected that contention and concluded that she could not construe this email as accepting the 31st May closing date and further observed that there was no evidence from Mr. Doyle or Mr. Dolan on his behalf ever confirming the acceptance of the closing date of the 31st May, 2014. I agree with the trial judge’s construction of the email and in the absence of any other evidence her conclusion that there was no agreement on a closing date which on the facts of this particular contract was an item identified by the parties as important and requiring agreement. This is not the situation of an agreement where the parties did not consider the closing date to be an important term requiring express agreement and where the principles in relation to the implied term that the parties would perform their parts of the contract within a reasonable period of time may apply. This was a contract in which the closing date was intended by the parties to be an express term and still remained to be agreed on 3rd April 2014.
48. It follows that the trial judge was correct in deciding on the facts of these proceedings that no concluded contract came into being between the Bank and Mr. Doyle for the sale of the Premises to him and Globe. Hence the plaintiffs cannot succeed in their claim for specific performance of the alleged contract for sale of the Premises and the appeal must be dismissed.
49. In those circumstances it is unnecessary for me to consider any of the further issues arising on the appeal.
Relief
50. The appeal will be dismissed.
Price & Anor -v- Keenaghan Developments Ltd
[2007] IEHC 190 (01 May 2007)
JUDGMENT of Ms. Justice Clark delivered on the 1st day of May, 2007.
This case involves a motion brought by the defendant to strike out the plaintiffs’ proceedings for specific performance for an alleged oral contract for the sale of land under O. 19, r. 28 of the Rules of the Superior Court.
1. The plaintiffs are a solicitor and personal assistant working in a large Dublin law firm. The defendant is a construction company engaged in the development of holiday homes on a lakeside setting at Acres Cove in Drumshambo, County Leitrim. The affidavits filed disclose that the plaintiffs spent several months in the early part of 2006 viewing this holiday home development in Drumshambo and were impressed in particular by a house in the course of construction which had views of the lake and which was being marketed by Brady Estates on behalf of the defendant for €499,000. The plaintiffs were unhappy about some of the layout of the house, in particular the location of the stairway and they enquired as to whether the building could be modified and whether they could introduce their own plans for internal modification.
2. They first had to establish through the estate agents whether the developer would consider any internal modifications. When the answer was positive they travelled to Drumshambo on the 4th May, 2006, and received the developer’s detailed plans for their consideration. It has never been stated whether the couple drew their own plans or whether they were assisted by an architect or draftsman. On the 9th May, 2006, they sent their own modified plans to the estate agent for transmission to the developer. The receipt of the plans and visits to the property took place without any discussion as to what price the plaintiffs were prepared to pay nor were any details of a contract worked out. Far from any binding agreement to purchase, the plaintiffs made it clear at all times that they had an active interest in an alternative house in Cavan
3. On the 8th May, 2006, the plaintiffs wrote to the estate agents referring to the tricky and idiosyncratic layout of the house and commenting that:
“our review of the detailed plans confirms our view that it is very difficult to tweak the design to get usable living areas and adequate bedroom accommodation. While there are plenty of changes one would like to make, I have marked the essential changes on the attached plans and hope that they are clear.”
The letter went on to say;
“As mentioned we want a 10 meter berth to use with this house” and “we would hope to negotiate a price and if the modifications and price can be agreed to move on quickly to sign the contract to enable the work to proceed as quickly as possible. The sale price which we would propose as a fair price for this house and the berth would be €450,000.
I look forward to hearing from you as soon as possible.
Kind regards,
Yours sincerely
Alvin Price”
SIZE=4 FACE=”Times New Roman”>4. The plaintiffs’ accompanying plans sent with a letter dated the 8th May, 2006, included items of change described as “essential” and one item described as “desirable”. This letter was followed up with a note addressed to Joe Brady, the principal of the auctioneering firm and sent by fax on the following day the 9th May, 2006. This note was in the following terms:
“Joe,
Please see attached letter and plans. We would be very much obliged if you could discuss the matter with the developer and revert to us as soon as possible as, if the developer does not think the proposed changes are feasible, we would like to move ahead with the purchase of another house we have seen in Cavan.
Kind regards,
Alvin
5. While the plans as modified were in the hands of the estate agents the plaintiffs were still at the stage of making offers and engaged in bargaining and moreover warned that they did not wish to waste time as they had alternative plans. It is therefore a matter of surprise that in their pleadings the plaintiffs state that a binding concluded agreement was reached on the 4th May, 2006, when the developer agreed to furnish them with detailed plans for the completion of the house and that this oral contract was evidenced by acts of part performance when they subsequently furnished their modified plans to the developer’s estate agents.
6. The second plaintiff in her affidavit advances this case by stating that:
“ we were anxious not to go to the trouble of proposing changes to the plans and also, having gone to the trouble, to provide the developer with an enhanced plan which would improve the marketability of the property without some security that the trouble and effort would not be in vain”
She avers that
“agreement was reached for the developer to suspend building operations for a period of three weeks from the 4th May and to provide the plaintiffs with plans of the building operation so that they could prepare their modifications and then negotiate a price for the modified plans or have the property constructed in accordance with the agreed plans at the pre existing price of €499,000. They would then sign contracts and pay a full deposit if they elected to purchase the property either with or without modifications.”
She further averred that
“in the event that we did not acquire the property, the Defendant would be free to market the property using any of our design modifications….”
This it was urged on me was the consideration for the oral contract.
7. The plaintiffs do not allege that they had reached a concluded agreement for the sale of the house at an agreed price but rather that agreement had been reached to give them an option to negotiate a number of alternatives and that these options formed the basis of a concluded contract. These assertions are not born out by the correspondence which demonstrates that no concluded contract of any kind had been achieved. This correspondence indicates that the plaintiffs were in no stronger a position than that of prospective bidders at a sale or auction who go to the trouble and expense of engaging a surveyor to examine the property but who have no assurance that such expenditure will secure the property. At the very highest the parties may have agreed to provide modified plans which would be considered with a view to entering further negotiations on final layout and price. The exhibited letters and emails indicate that the plans as modified by the plaintiffs were never actually considered by the developer.
This is not an agreement for which specific performance could be obtained.
8. The principles involved in specific performance as considered in Farrell, Irish Law of Specific Performance, restate the legal principle that the courts do not enforce agreements which are personal in their nature. Specific performance is an equitable remedy and is thus very much dependent on the particular facts of each case and to the application of long established legal principles.
9. There can be no specific performance in the absence of a concluded agreement and it makes no difference whether the concluded agreement is a parole agreement or one reduced to writing. While the doctrine of part performance is a defence evolved over an extended period to mitigate the rigours of the requirements of the Statute of Frauds in circumstances where it would be unconscionable and a breach of good faith for the defendant to rely on the terms of the statute to prevent performance of a contract, it was never intended to aid an incomplete oral agreement. The defence requires at an absolute minimum, the existence of a concluded oral agreement together with acts by the plaintiff which indicate an intention to perform a concluded agreement and behaviour on the part of the defendant which is consistent with such a concluded contract; see Mackie v. Wilde [1998] 2 IR 578. If therefore the parties are not yet ad idem on the essentials of a contract for the sale of land being the price, property, parties and other particulars such as the closing date, then there is no concluded agreement and the doctrine of part performance is irrelevant. Simple and obvious as these principles are, they appear to have been ignored in the commencement and prosecution of these proceedings.
10. The factual position is that on the day following the exchange of correspondence being the 10th May, 2006, a purchaser for the house for the full price of €499,000 without any berth included entered into negotiations with the construction company. The plaintiffs were given an opportunity to meet the price offered or to improve on the offer but declined. On Friday 11th May, 2006, the house was sold to that purchaser.
11. In the intervening period being the 9th and 11th May, 2006, the second plaintiff sent two emails to Mr. Brady furnishing their contact numbers and saying:
Joe,
I don’t appear to have received your email following our telephone conversation yesterday and wonder whether you have heard back from the developer in relation to our proposed modifications as our view on value largely turns on whether or not those modifications are possible. We are under pressure to make a final decision in relation to the Cavan house but have bought some extra time by agreeing to let them have our final decision by Wednesday next so from our point of view time is very much of the essence.
Kind regards,
Liz
12. This correspondence tends to confirm that the plaintiffs were prospective purchasers in the early stages of negotiations and who did not consider themselves bound to complete a purchase. While they were without doubt disappointed when they saw that their negotiations were going no further and at the lost time and expense incurred in chasing their dream, they were not prepared to match or exceed the price offered by the third party. On the 13th May, 2006, the first plaintiff who is a solicitor wrote to the estate agents in the following terms ……
“While there is no point in crying over spilt milk, we would ask in the circumstances that if the proposed sale of the house does not proceed for any reason we be given first refusal on it and as and when a further house or houses facing the water are to be built that we be advised and given an opportunity to purchase. In this regard, could you please enquire of the developer what are the general intentions in regard to the two large and one possible smaller site which remain. We would have a preference for a larger one as the design of No. 12 rather than the price was the main issue.”
13. A few days later however the disappointed tone had hardened into an allegation for the first time that the developer and their agents had no right to sell the property to another party. In a letter written by another solicitor in the same firm it was stated that;
“as a concluded oral contract existed where clear and precise terms were proposed by you and accepted by our clients under which our clients would be entitled to elect during the stipulated three week period to acquire the property at the asking price with the agreed modifications and such further modifications as the developer might agree .”
No reference was made to the letter of the 8th May, 2006, where an offer for €450,000 was made provided the price included a ten meter berth.
This allegation was repeated in the pleadings and subsequent affidavits A plenary summons was issued on May 19th, 2006, and a lis pendens was registered against the property on 7th, June 2006.
14. Following issue of the proceedings, the defendants notified the plaintiffs’ solicitor that if the proceedings were not withdrawn an application would be brought to strike out those proceedings on the basis that they were unsustainable. Subsequently the existence of the contract was fully denied and the Statute of Frauds was pleaded. It was pleaded in reply that the furnishing of the plans to the estate agents on May 4th, 2006, was a sufficient act of part performance to satisfy the requirements of the Statute of Frauds.
15. On these facts, the defendant developer seeks to have the lis pendens vacated in order that the sale to the third party can be completed and he asks that the proceedings for specific performance be struck out as an abuse of process because the plaintiffs’ action has no reasonable chance of success.
16. It is well established that the court has the power to strike out proceedings in appropriate cases. The power is fully set in O.19, r. 28 of the Rules of the Superior Courts but is confined to pleadings which on their face disclose no reasonable cause of action. It is equally well established that the court has inherent jurisdiction to strike out proceedings. This jurisdiction is exercised where it is clear that the action pleaded has no reasonable prospect of success.
17. Both parties agreed that such power to strike out proceedings exists and that it should only be exercised in clear cases where the court is convinced that the plaintiff’s claim must fail. Both parties referred me to the decision of Costello J. in Barry v. Buckley [1981] IR 306 and to other agreed decisions on the issue of striking out actions. Each party laid different emphasis on the same judgments: Sun Fat Chan v. Osseous Ltd. [1992] 1 IR 425; Supermacs Ireland Ltd. v.Katesan(Naas)Ltd. [2000] 4 IR 273; Jodifern Ltd. v. Fitzgerald [2000] 3 IR 321.
18. The plaintiffs argued through their counsel that the action should be allowed to proceed as even an apparently weak or innovative case should be permitted to proceed to trial provided that the pleadings revealed some recognised remedy and as an action for specific performance was a real remedy, the proceedings could not be considered vexatious, frivolous or a breach of process and the defendant’s motion should therefore be refused.
The defendant urged on me that to allow the plaintiffs to proceed on their meritorious claim which would ultimately fail was in effect permitting them to freeze the sale of the lands for an unconscionable period. This is a feature of actions for specific performance well recognised in the many decisions opened to me and in particular the case of Sun Fat Chan v. Osseous Ltd. [1992] 1 IR 425 As the late McCarthy J. said in that case when reviewing the authorities in relation to the inherent power of the court to strike out proceedings at p. 429 :
“The procedure is peculiarly appropriate to actions for the enforcement of contracts, since it likely that the subject matter of the contract would, but for the existence of the action, be the focus of another contract”.
This and other cases warn that whereas a court has such a jurisdiction it is one to be used cautiously.
19. In the case of Barry v. Buckley [1981] IR 306 Costello J. said that
“A disappointed purchaser, by instituting proceedings for specific performance and by registering a lis pendens against the land which he alleges he has purchased, can effectively prevent a re-sale of the lands for a considerable time—perhaps extending over several years. Obviously substantial injustice could thereby result, both to the owner of the land and to a subsequent innocent purchaser. In suitable cases, the Courts should be able to provide a speedy means for determining the issues between the vendor and the first purchaser. It seems to me that such a means is to hand. A vendor who is sued by a purchaser for specific performance may bring a motion (which is heard on affidavit) to stay or to strike out the proceedings, and for an order directing the lis pendens to be vacated. In clear cases the Court can so order: its jurisdiction arises in two ways……
He then describes Order 19 procedures and goes on to state at p. 308 of the judgment:
“But, apart from order 19, the Court has an inherent jurisdiction to stay proceedings and, on applications made to exercise it, the Court is not limited to the pleadings of the parties but is free to hear evidence on affidavit relating to the issues in the case…. The principles on which the Court exercises this jurisdiction are well established. Basically its jurisdiction exists to ensure that an abuse of the process of the Courts does not take place. So, if the proceedings are frivolous or vexatious they will be stayed. They will also be stayed if it is clear that the plaintiff’s claim must fail; per Buckley L.J. in Goodson v. Grierson [1908] 1 K.B. 761 at p. 765.
This jurisdiction should be exercised sparingly and only in clear cases; but it is one which enables the Court to avoid injustice, particularly in cases whose outcome depends on the interpretation of a contract or agreed correspondence. If, having considered the documents, the Court is satisfied that the plaintiff’s case must fail, then it would be a proper exercise of its discretion to strike out proceedings whose continued existence cannot be justified and is manifestly causing irrevocable damage to a defendant. Having done so, the Court can also order that the lis pendens be vacated.”
In that case Costello J. made his decision on the basis of agreed facts whereas the facts are disputed in this case. In particular it is disputed that the developer had agreed with the plaintiffs to allow them an exclusive three week moratorium on negotiations with any other parties for the sale of No. 12 Acres Cove. However an examination of the agreed correspondence from the plaintiffs demonstrates no dispute on critical facts. The dispute arises from the meaning attributed by the plaintiffs to the negotiations and discussions between them and the developer’s agents.
20. The essential elements of a concluded contract are absent on the letters and emails generated by the plaintiffs and it is clear that they did not at any stage consider themselves bound to purchase the property at Drumshambo during the period when they were awaiting the developer’s response to their proposed variations to the internal layout of the house. The price was not agreed, the feasibility of the new layout was not agreed, the inclusion or otherwise of a berth was not agreed. The fact that the plaintiffs were also interested in another property was referred to twice while the negotiations were proceeding. If the plaintiffs believed themselves bound by a concluded contract to purchase the house in Drumshambo, they would not have referred to their option to purchase a house in Cavan.
21. In the circumstances I am satisfied that any court faced with the same correspondence would have no difficulty in finding that there was no concluded agreement at all.
22. It was agreed by both parties that there was urgency in the case as tax benefits under a rural development scheme to either purchaser would expire on the 31st December, 2006.
23. In view of the urgency in the matter and in the knowledge that the prospect of an early hearing was not possible, I notified the parties on the 20th December, 2006, that I had concluded that the plaintiffs’ proceedings have no reasonable chance of succeeding and made an order striking out the proceedings and vacating the lis pendens registered against Folio LM5481.
24. Thus the clear authority opened to me by both parties is Supermacs Ireland Ltd. v. Katesan(Naas)Ltd. [2000] 4 IR 273. That authority indicates that when a court is asked to lock out a plaintiff from arguing his case, it must be vigilant to ensure that both parties have an opportunity to advance or rebut the application. If there is an arguable case or where the pleadings can be remedied by or dismissed, or judgment to be entered accordingly, as may be just. However where as in this case, an examination of the facts contained in the affidavits reveals that the plaintiffs has no chance of success although the pleadings advance a known and recognised remedy, the court should grasp the nettle and strike down such unmeritorious proceedings. I therefore order that the proceedings be struck out and the lis pendens vacated.
Sheridan & Anor practicing as Sheridan Quinn -v- Gaynor
[2009] IEHC 421 (14 September 2009)
Judgment of Mr. Justice Feeney delivered on the 14th day of September, 2009.
1.1 The High Court ordered an issue to be tried on oral evidence in these proceedings. That order was made on the 28th April, 2008 and it directed that Cecilia Traynor was to be the plaintiff in the issues to be tried and Noel Sheridan and Peter Quinn trading under the style and practice of Sheridan Quinn were to be the respondents and that John Gaynor was to be a notice party.
1.2 The issues directed to be tried were, namely:-
(i) Whether Cecilia Gaynor has an interest in the lands and property at Farthingstown containing 16.2127 hectares situate in the Barony of Rathconrath County Westmeath and comprised in Folio No. 2538 of the Register of Freeholders, County Westmeath.
(ii) If Cecilia Gaynor has any interest in the said lands, what precisely is the nature and classification of that interest, that is, is it a legal or an equitable interest?
(iii) Does such a recognition of a legal interest affect the well charging Order and/or Order for sale previously made by the Court (being the Order herein dated the 12th day of July 2004 [as amended]) and, if so, does the Court, following such a recognition, have jurisdiction to make a well charging Order and/or an Order for sale in respect of the said lands and/or to make an Order for partition and subsequent sale?
(iv) If Cecilia Gaynor’s interest is an equitable interest, does it rank in priority to the judgment mortgage registered by the Plaintiff?
(v) If Cecilia Gaynor estopped from relying on such an interest to frustrate the enforcement of the well charging Order and Order for sale herein?
1.3 Pursuant to the said order the plaintiff in the issue, Cecilia Gaynor, delivered her points of claim in the form of an affidavit sworn on the 22nd July, 2008. John Gaynor, the notice party in the issue, also delivered an affidavit sworn on the 22nd July, 2008 in relation to the issues ordered to be tried by the High Court. The plaintiffs in the action, the respondents in the issue, Noel Sheridan and Peter Quinn trading under the style and practice of Sheridan Quinn, delivered points of defence on the 8th August, 2008.
1.4 In the claim made by Cecilia Gaynor, as set out in her affidavit, she asserted that she had “part purchased with my brother John Gaynor the lands and bungalow type residence in Folio No. 2538 at Farthingstown, Rathconrath, Mullingar, Co. Westmeath from my cousin Edward Rogers on the 25th November, 1996 by way of private treaty”. An identical claim was asserted in paragraph 1 of the affidavit of John Gaynor sworn in support of the claim made by his sister. In support of that claim it was sworn by both Cecilia Gaynor and John Gaynor that Cecilia Gaynor had discharged £20,000 or €25,394.76 towards the contract of purchase of the said lands and bungalow type residence to Edward Rogers on the 25th November, 1996 and it was further claimed that there was a hand-written statement from Edward Rogers confirming that he had received that £20,000 “as part of the sale of contract to Cecilia Gaynor after his death”. Affidavits also stated that Edward Rogers had obtained legal advice from solicitors prior to entering into the contract with John Gaynor.
1.5 A memorandum of agreement was made between Edward Rogers and John Gaynor dated the 12th December, 1996 wherein it was agreed that Edward Rogers as the vendor would sell and that John Gaynor as the purchaser would purchase in accordance with the special and general conditions of sale contained in the said agreement ALL THAT AND THOSE the property described in Folio No. 2538 of the Register County Westmeath which was held in fee simple by Edward Rogers. The stated purchase price was £25,000 and the special conditions provided, inter alia, that the sale price of £25,000 should be paid to the vendor by the immediate payment of the sum of £2,500 which was to be deemed as the deposit and that thereafter the purchaser, John Gaynor, was “to pay to the vendor the sum of £2,000 each year payable on the 28th November, 1996 or such other date as may be agreed between the parties”. It was also provided for in special condition number 7 that the vendor,Edward Rogers, reserved the “sole right of residence in his favour to reside in the dwelling house on the property in sale and that his right of residence would be registered as a burden on Folio No. 2538 County Westmeath”.
1.6 A deed of transfer and charge dated the 16th January 1997 was signed, sealed and delivered by Edward Rogers and John Gaynor.
1.7 The plaintiff in the issue, Cecilia Gaynor, claimed that she part purchased with her brother the lands and bungalow, the subject matter of the proceedings herein. It is claimed that the actual purchase price of the lands and bungalow from Edward Rogers were £40,000 and that Cecilia Gaynor had provided half of that sum. It is claimed by Cecilia Gaynor that she formed part of the purchase of the property by paying the said sum of £20,000 for the lands in Folio No. 2538 and that she is entitled to a fifty per cent interest in the said lands and bungalow.
1.8 In the points of defence the plaintiffs in the action and the respondents to the issue deny that the plaintiff in the issue, Cecilia Gaynor, has part purchased whether with her brother John Gaynor, or at all, the said lands and bungalow and it is denied that she has discharged £20,000 toward the alleged contract of purchase. It is also denied that Cecilia Gaynor has any interest in the said lands and it was further pleaded that if Cecilia Gaynor has or had any interest in the lands, which is denied, that it is denied that the same affects the well charging order and/or the order for sale made by the High Court on the 12th July, 2004 and varied by Court order dated the 22nd January, 2007. It is also pleaded in the points of defence that if Cecilia Gaynor has any interest in the property, which is denied, that she is estopped from relying on same to frustrate the enforcement of the well charging order or the order for sale.
2.1 Cecilia Gaynor averred that she had part purchased the lands and property at Farthingstown, containing 16.2127 hectares situated in the Barony of Rathconrath, County Westmeath and comprised in Folio No. 2538 of the Register of Freeholders, County Westmeath on the 25th November, 1996 by way of private treaty. She claimed that she thereby has a fifty per cent interest in the said lands in that she had contributed fifty per cent of the actual purchase price.
2.2 The Court heard the issue on oral evidence. The plaintiff in the issue and the notice party to the issue confirmed the information in their affidavits and gave oral evidence. Documentation was also available to the Court which was admitted by the parties. The documentation included the documents relating to the sale of the lands in question in December 1996 by Edward Rogers to John Gaynor together with other documents relating to that sale. The documents admitted also included documents concerning the source of funds to finance the purchase together with agreed and admitted documents concerning the legal advice received by Edward Rogers in relation to such sale. There was also two handwritten documents admitted in evidence dated the 25th November, 1996 and 4th September, 2000.
3.1 The contract for sale made between Edward Rogers and John Gaynor identified a purchase price of £25,000 in respect of the property contained in Folio No. 2538 of the Register County Westmeath, such purchase being subject to the special and general conditions of sale set forth in the memorandum of agreement dated the 12th December, 1996. The claim made by the plaintiff in the issue and by John Gaynor was that the stated purchase price was not the actual sum paid or to be paid to Edward Rogers but that rather the actual sum agreed was £40,000 of which Cecilia Gaynor paid half on the basis that she was to have a fifty per cent interest in the property in Folio No. 2538 which interest was to be registered in her name in a new folio after Edward Roger’s death. It was claimed that such agreement was evidenced by a hand-written document signed by John Gaynor, Cecilia Gaynor and Edward Rogers dated the 4th September, 2000.
3.2 The central issue before the Court as set out in the order of the 28th April, 2008 is whether Cecilia Gaynor has an interest legal or equitable in ALL THAT AND THOSE the property described in Folio No. 2538 of the Register County Westmeath together with the bungalow thereon and if so, the nature and effect of such interest.
3.3 The evidence before the Court in the form of oral evidence and admitted documents established a number of matters. Firstly, it was established that the late Edward Rogers had owned various lands and that in December 1994 he had those lands valued. The oral evidence, supported by the admitted documentation, established that in the latter half of 1996 a proposal was considered whereby Edward Rogers would sell part of his lands to his relations. The lands which were proposed to be sold were the lands and premises set forth in Folio No. 2538 of the Register County Westmeath. At that time, Edward Rogers was residing in the bungalow situated on those lands. The evidence established that those lands and the bungalow had been valued in 1994 at the sum of £40,000. John Gaynor gave evidence that in 1996 he placed a value on the said lands and bungalow of £45,000. The evidence established that John Gaynor was interested in acquiring the lands but did not have the funds available to him to finance a purchase. A purchase did proceed but the evidence clearly establishes that the full facts concerning that purchase were not disclosed to third parties. The third parties involved in the transaction, particularly the legal advisers, were provided with incomplete and false information.
3.4 Mr. Rogers went to his solicitor, Patrick J. Groarke & Son, and indicated that he proposed to sell his lands and premises comprised in Folio No. 2538 at a certain price and on certain terms. The proposed price was £25,000, as disclosed to Mr. Groarke. The attendance of the 21st November, 1996 indicates that Edward Rogers attended Patrick J. Groarke & Son in relation to the proposed transaction which was identified as the sale of the property described in Folio No. 2538 to his cousin John Gaynor.The attendance indicated that Mr. Rogers was 75 years of age and was a bachelor and that Mr. Groarke, obviously being aware of the earlier valuation from some two years previous, advised him that the proposed purchase price represented a gross undervalue. The attendance stated “I advised re – independent advice etc., advised strongly that the purchase price on the memorandum presented to me represented a gross undervalue. Mr. Rogers replied that he was the full owner and could give it away if he liked”. The proposed special conditions are set out in a document dated the 21st November, 1996 and were stated by Mr. Gaynor, in his oral evidence, to be substantially in his handwriting. That document indicated that the lands and dwelling house were to be sold as a unit by Edward Rogers to John Gaynor and that the sale price of £25,000 was to be paid off in instalments of £2,000 each year. Further notes on that attendance indicated that a deposit of £2,500 was payable now. Patrick J. Groarke & Son determined not only to write formally to Mr. Rogers concerning the suggested undervaluation but also insisted upon him obtaining independent legal advice before signing any contract. The proposed contract also provided that Edward Rogers was to remain the sole resident in the dwelling house until his demise but that the expenses such as ESB incurred in respect of the dwelling for the period of that residence were to be paid by Edward Rogers. The contract envisaged that John Gaynor would become the full owner of the property but that Edward Rogers would have a right of residence in the house on the property until his death.
3.5 On 25th November, 1996, Patrick J. Groarke & Son wrote to Edward Rogers and stated “We again reiterate the advice which we gave to you on Thursday night last. The sale price in the contract for sale represents a gross undervalue of the property and we insist that you receive independent legal advice before contracts for sale are signed by you”. Arrangements were made for Edward Rogers to receive such independent advice from Peter D. Jones & Co., solicitors. Peter Jones duly met with Edward Rogers and thereafter wrote to Patrick Groarke of Patrick J. Groarke & Son stating, “I write to advise that Mr. Rogers called to me on the 5th December seeking this advice. I considered the contract as drafted by you and the special conditions inserted in same. I purposefully drew Mr. Roger’s attention to the fact that the consideration for the sale was far less than the true market value which Mr. Rogers himself advised me was somewhere in the region of £30,000. I enquired of him as to whether he understood that he was selling the land at an undervalue and he clearly understood this. He advised me that Mr. Gaynor was a second cousin and he had done a lot of work for him in the past”. The letter also makes it clear that Mr. Jones went through the proposed draft contract and explained the terms and conditions to Mr. Rogers. Thereafter the contract for sale was completed and a memorandum of agreement dated the 12th December, 1996 was entered into between Edward Rogers as vendor and John Gaynor as purchaser for a purchase price of £25,000, the property being ALL THAT AND THOSE the property described in Folio No. 2538 of the Register County Westmeath. The special terms and conditions envisaged in the earlier discussions were set forth in the special conditions.
3.6 The evidence given by Cecilia Gaynor and John Gaynor was that the actual agreement was that the property described in Folio No. 2538 would be sold subject to Mr. Rogers’s right of residence for his lifetime for a consideration of £40,000. £20,000 of that was to be paid by ten instalments of £2,000 and the remaining £20,000 was to be transferred into an account in the name of Mr. Rogers. The payment of that £20,000 which was to be made as part of the consideration for the purchase of the property was not to be disclosed to any third party or any solicitor. The evidence before the Court was that the explanation for this was that Mr. Rogers was afraid that he might lose his entitlement to a pension payment if such a sum was to be paid and that therefore he wished its existence to be kept secret. Neither of the two solicitors involved in the transaction were made aware of any such payment or the real nature of the agreement. The evidence before the Court was that the sum of £20,000 was provided by Cecilia Gaynor. Both Cecilia Gaynor and John Gaynor stated that the contract price contained in the memorandum of agreement of the 12th December, 1996 was not the true contract price and that it did not reflect a secret payment of £20,000 to Mr. Rogers. The evidence was that the sum of £20,000 which was paid to Edward Rogers emanated from a bank account in the joint name of Cecilia Gaynor who effectively controlled that account and that she was involved in the completion of the payment and went to the bank for that purpose.
3.7 The evidence given by Cecilia Gaynor and John Gaynor was that they both knew that the property was being sold to John Gaynor in 1996 and it would be transferred into his sole name but that a parallel or related agreement had been reached whereby after Edward Rogers’s death the property would be divided. Both John Gaynor and Cecilia Gaynor stated that the division of the property was not identified or agreed in 1996 and that what was envisaged was that after Edward Rogers’s death an agreement would be entered into between the two of them whereby John Gaynor would transfer a portion of the property into Cecilia Gaynor’s name and that that portion of the property would have on it the bungalow. Both parties indicated that the division of the property was to be agreed after the death of Edward Rogers and that the exact division was never identified or agreed other than to the extent that the house would be on the portion of the land which was to be transferred to Cecilia Gaynor.
3.8 The evidence established that the necessity for the side agreement arose due to the fact that as Edward Rogers was in receipt of a small pension and he was apprehensive that if the payment of £20,000 was disclosed that it might affect his entitlement to such payment.
3.9 Both Cecilia Gaynor and John Gaynor claimed that the agreement for the transfer of part of Edward Rogers’s land to her was made on the 25th November, 1996 and was evidenced by a letter of that date signed by Edward Rogers which stated “ Farthingstown, Rathconrath, 25/11/1996 – Received from my cousin Cecilia Gaynor £20,000 on 25/11/1996 for dwelling house and surrounding area after my death. Signed: Edward Rogers”. The £20,000 was paid over on a later date. That document is consistent with the evidence given by Cecilia Gaynor and John Gaynor that the actual identification of the land to be transferred to Cecilia Gaynor was not to take place until after his death in that the extent and area of the surrounding area to be transferred had not been identified. The common evidence of John Gaynor and Cecilia Gaynor was that the identification of such land or “area” was to take place after Edward Rogers’s death and in fact has never taken place. As of the date of the hearing before the Court the position contended for by John Gaynor and Cecilia Gaynor was that the extent of the property, the subject matter of the agreement of the 25th November, 1996, was to be agreed, identified and described in a memorandum that was to come into existence after the death of Edward Rogers. There was no evidence as to any such agreement being completed nor was any document or contract completed identifying with certainty the area to be transferred. The private treaty pleaded by both Gaynors of the 25th November, 1996 was never related to a defined area of land.
3.10 Edward Rogers died on the 28th September, 2000 and the evidence was that shortly prior to his death a document was signed by him and by John Gaynor and Cecilia Gaynor. That document was ultimately produced in evidence even though it had not previously been discovered. No issue was taken in relation to the admissibility of that document and therefore the Court was able to consider the document. The document was drawn up at a time that Edward Rogers was in St. Mary’s Hospital in Mullingar where he was to remain until his death some three and a half weeks after the date of the document. The document is hand-written and states:
“St. Peters Ward, St. Marys Hospital, Mullingar, 4/9/2000 – I John Gaynor agree that my sister Cecilia Gaynor has a 50% claim on the property in Folio No. 2538 Farthingstown, Rathconrath Mullingar, to be registered in Cecilia name in a new folio No. after Edward Rogers demise.
Signed: John Gaynor, Signed: Cecilia Gaynor, Edward Rogers”.
The evidence of both John Gaynor and Cecilia Gaynor was that Edward Rogers in signing that document recognised that Cecilia Gaynor had provided fifty per cent of the real purchase price in 1996 and that what was envisaged was that Cecilia Gaynor’s interest in the property would be registered after his death. The document refers to a fifty per cent claim on the property and that is what was claimed in the issue before the Court but the evidence before the Court was that Cecilia Gaynor had provided fifty per cent of the total purchase price but that the actual property to be transferred and incorporated into a new folio was not to be identified or agreed until after Edward Rogers’s death and would be as a result of an agreement between John Gaynor and Cecilia Gaynor. The extent of the identification of the property to be included in such proposed agreement went no further than identifying that the lands which were to be the subject matter of the future agreement were to include the bungalow situated on the lands.
3.11 The evidence in relation to the actual £20,000 payment was not entirely clear. However, the weight of evidence was to the effect, and the Court accepts, that Cecilia Gaynor did pay the sum of £20,000 out of a bank account controlled by her into an account which was opened in Edward Rogers’s name in the Bank of Ireland, Mullingar. There is documentation from the Bank of Ireland, Mullingar, to support such payment which confirms not only the receipt of £20,000 but also a transfer of £5,000 on the same date as the date of the lodgement into Mr. Rogers’s current account. The Court also accepts the evidence that the payment was made on the basis that John Gaynor, Cecilia Gaynor and Edward Rogers all knew and were aware that it was to be a private and undisclosed payment in respect of the transfer of the lands by Edward Rogers to John Gaynor and that it was being made on the understanding that after Edward Rogers’s death that John Gaynor would agree and identify with certainty the lands to be transferred to Cecilia Gaynor and that thereafter such transfer would take place and a new folio established.
3.12 The Court also heard evidence that on the 11th September, 2000, shortly before his death, Edward Rogers gave John Gaynor a cheque for £3,500. This was explained by John Gaynor, in evidence, that it had been made to balance the payments between himself and his sister. By that date by means of the annual instalments and the deposit, John Gaynor claimed that he had paid a total of £23,500 to Edward Rogers and that therefore Edward Rogers paid to him the sum of £3,500, by cheque, so that the position could be arrived at whereby John Gaynor and Cecila Gaynor had each contributed £20,000 towards the total package in relation to the sale of Edward Rogers’s land.
4.1 In summary, the evidence establishes that John Gaynor entered into an agreement to purchase in his sole name the lands of Edward Rogers for a sum of £40,000 to be paid partly by means of a £20,000 under the counter payment and partly by ten instalments of £2,000. Edward Rogers was to be allowed to reside in the house on the property until his death. The £20,000 used for the under the counter payment was provided by Cecilia Gaynor and in return for the provision of those funds it was agreed that after Edward Rogers’s death that the lands would be divided, the precise portion of such lands to be agreed at that time. The facts also establish that at the time that the contract for sale was concluded between Edward Rogers and John Gaynor that both of them and Cecilia Gaynor were aware of the fact that the contract price for insertion in the contract for sale was a false and incorrect price. They all proceeded on the basis that the real purchase price would not be disclosed on the contract. The case as put forward on behalf of Cecilia Gaynor was that at the time her brother John Gaynor had purchased the lands it was for the mutual benefit of herself and her brother and that in effect John Gaynor had purchased the lands as trustee for Cecilia Gaynor. However, the evidence which was given to the Court demonstrates that that was not in fact the case as it is clear from the testimony of both John Gaynor and Cecilia Gaynor that the lands were purchased in their entirety, subject to the special conditions, by John Gaynor with it being agreed that after Edward Rogers’s death that John Gaynor would transfer a portion of those lands, including the portion upon which the bungalow was located, to the sole name of Cecilia Gaynor and create a new folio. It is also the case that the actual portion to be transferred was at no time agreed or identified and that there was never any agreement or intention that Cecilia Gaynor would have a fifty per cent interest in the entire property.
4.2 It is against that factual background that this Court must determine the issues identified in the order of the 28th April, 2008.
4.3 The Court is satisfied that Cecilia Gaynor does not have an interest in the lands and property at Farthingstown containing 16.2127 hectares situate in the Barony of Rathconrath, County Westmeath and comprised in Folio No. 2538 of the Register of the Freeholders, County Westmeath. The lands were transferred by contract to John Gaynor and under that contract Cecilia Gaynor has no interest in the lands. It was not the case nor does the evidence support a claim that Cecilia Gaynor was to have a fifty per cent interest in the entire property. No evidence was given to support that contention. Rather it was a case that there was an agreement between Cecilia Gaynor, John Gaynor and Edward Rogers that, after Edward Rogers died, the lands which Edward Rogers transferred by sale to John Gaynor would be sub-divided into two separate lots by a future agreement to be concluded between John Gaynor and Cecilia Gaynor. There never was an agreement, either on the 25th November, 1996 or on any date for the transfer of any identified or certain portion of lands to Cecilia Gaynor. There is no agreement or contract for the transfer of any property to Cecilia Gaynor which can be identified with certainty. It is clear that any property which is the subject matter of a contract or agreement for sale must be described with sufficient certainty to be capable of being clearly identified. What was agreed between the parties was an agreement to agree at some future date as to the identity of the property to be transferred to Cecilia Gaynor. There is not and never was a sufficient identification of the property sufficient to establish a legal or equitable interest therein on the part of Cecilia Gaynor. The evidence which was given by her and on her behalf did not and was incapable of establishing the precise identity of the property which she claims to be hers. Given the absence of any agreement as to the identity of the property it follows that there was not and could not have been a sufficient or adequate identification of the property. It therefore follows that there is not and never has been any document which identifies the property sufficient for the Statute of Frauds (Ireland) Act 1695. Section 2 of that Act provides that, if the contract itself is not in writing, there must be some written memorandum or note of the contract, that is, some form of written evidence of it. There is not any written evidence of such a contract nor is there any sufficient written memorandum or note.
4.4 In the text book Irish Conveyancing Law (2nd Ed.) J. C. W. Wylie deals with the formation of a contract for the sale of land in the following terms (at para. 6.02. p. 141):-
“The first point that must be emphasised with respect to conveyancing contracts is that they must, like any other contract, comply with the general principles of the law of contract relating to formation of a contract. Thus, the parties to the purported contract must have the legal capacity to enter into such a contract. They must have had an intention to create legal relations, and the terms of their agreement must be sufficiently certain that, if necessary, a court will be able to see precisely what it is they have agreed.”
On the facts of this case that certainty is entirely absent as the Court cannot identify what lands are to be the property of Cecilia Gaynor.
4.5 The Court is satisfied that the agreement in relation to the nature and extent of the proposed interest of Cecilia Gaynor in the property amounted to no more than an agreement to agree and therefore at no time did Cecilia Gaynor become entitled to an interest either legal or equitable in any identified portion of lands comprised in Folio No. 2538 of the Register of Freeholders, County Westmeath.
4.6 In arriving at the conclusion that Cecilia Gaynor did not have any interest in the said lands either legal or equitable, the Court has considered the fact that a sum of £20,000 was made available by her to enable the under the counter payment to be made to Edward Rogers. Whilst it might be possible to argue that there is no general rule that payment of money can never be part performance, sufficient to take a particular case out of the Statue of Frauds, this clearly is not such a case. The facts and circumstances surrounding the under the counter payment to Edward Rogers are not such that that payment is evidence of the existence of a contract for Cecilia Gaynor having a fifty per cent interest in the entire of the said lands. Neither does such payment relate to an agreement of sufficiently precise terms as to the lands to be transferred to result in an enforceable contract. Cecilia Gaynor has not identified any enforceable contract or agreement for the transfer of any portion of the property identified with certainty. The Supreme Court has identified the correct approach to be followed in considering whether there was a concluded agreement in the case of Supermacs Ireland Ltd. v. Katesan (Naas) Ltd. [2000] 4 I.R. 273. In that case Geoghegan J. held that the correct approach to identify whether there was a concluded agreement in the following terms (p. 288):-
“There cannot be a concluded agreement unless everything intended to be covered by the agreement has been either expressly or impliedly agreed.”
On the facts of this case the plaintiff in the issue is unable to identify any concluded agreement because the precise portion of the lands forming part of Folio No. 2538 which were to be transferred to her were never agreed either expressly or impliedly. John Gaynor and Cecilia Gaynor have both openly acknowledged, in their oral evidence, that there was not and never has been an agreement as to what precise lands were to be transferred to Cecilia Gaynor. For Cecilia Gaynor to have a legal or equitable interest in lands those lands would have to be identified with certainty and absent such certainty the Court is satisfied that Cecilia Gaynor has not established any legal or equitable interest in any identifiable lands.
4.6 The Court is also satisfied that neither of the two documents, either the one dated the 25th November, 1996 or the 4th September, 2000 provide sufficient note or memorandum to satisfy the Statute of Frauds (Ireland) Act 1695. The first of those two documents refers to the dwelling house and surrounding area without any identification of the surrounding area and the second of those documents refers to a fifty per cent claim on the property. The extent of the surrounding area was never established or agreed. Also the evidence does not support any claim based upon John Gaynor having bought the entire property or part of the property as trustee for Cecilia Gaynor. That is not the case made by the Gaynors in evidence. The purchase by John Gaynor from Edward Rogers was for his benefit subject to a claimed future obligation to enter into an agreement yet to be agreed and was not the purchase of a half interest for Cecilia Gaynor or of any specified interest. The land was not purchased in trust. There is no basis upon which Cecilia Gaynor can assert that the lands were purchased in trust for her and therefore she cannot make the case that there has been a repudiation of a trust constituting a fraud by John Gaynor.
4.7 Even if the Court is wrong in its conclusion in relation to the finding that Cecilia Gaynor does not have an equitable interest in the lands comprised in Folio No. 2538, it is clear that John Gaynor, Cecilia Gaynor and indeed, Edward Rogers all were fully aware of what they were doing and participated in a scheme to hide the true extent of the payment to Edward Rogers and that they did so for the purposes of hiding the extent of the funds available to Edward Rogers. John Gaynor and Cecilia Gaynor are candid in acknowledging such and the Court is satisfied that it would be a breach of public policy if a contract and side agreement which were constructed to conceal from the Revenue authorities the true nature of the transactions was to be enforced.
4.8 As this Court has determined that Cecilia Gaynor has neither a legal or equitable interest in the lands comprised in Folio No. 2538 of the Register of Freeholders, County Westmeath, the issues raised at paragraphs 3, 4 and 5 of the Order of the High Court of the 28th April, 2008 do not arise. This judgment does not deal with nor does it make any findings in relation to whether or not Cecilia Gaynor has any claim for the return of the £20,000 sum or any other claim against her brother.
Bank of Scotland PLC -v- Mansfield
[2011] IEHC 463 (21 December 2011)
JUDGMENT of Mr. Justice Kelly delivered on the 21st day of December, 2011
The Claim
1. The plaintiff (the Bank) seeks summary judgment against the defendant in the sum of €206,396,577.74 and interest.
2. The claim is made on foot of guarantees given by the defendant to the Bank in respect of the liabilities of three companies of which the defendant was a director or shareholder.
3. The companies in question were HSS, Jeffel and Parke.
4. The defendant does not deny that the funds in question were advanced to those companies nor does he deny that the companies have defaulted in repaying the sums to the Bank.
5. No issue arises as to the validity of the guarantees executed by the defendant in favour of the Bank, nor on the demand made on the defendant to honour the guarantees. In each case, the guarantees were “all sums due” and the amount claimed in respect of each of them is as follows:-
under the HSS guarantee the sum of €151,564,739.24;
under the Jeffel guarantee the sum of €41,222,647.70; and
under the Parke guarantee the sum of €13,609,191.30.
6. As no issue was raised by the defendant touching upon the liability of the three companies in question and their failure to discharge it or on the validity of the guarantees or the lawfulness of the demands made on foot of them, prima facie he is obliged to discharge the amounts due to the Bank.
7. On this application for summary judgment, however, he contends that he has a defence to this claim and I must now examine that proposition.
The Test
8. The test to be applied by this Court on an application for summary judgment is well established. It has been stated and restated by the Supreme Court and this Court on many occasions in particular in recent times where applications for summary judgment, very often in respect of large amounts, are a commonplace.
9. The most recent statement from the Supreme Court on the topic is to be found in the judgment of Denham J. (as she then was) in Danske Bank A/S trading as National Irish Bank v. Durkan New Homes & Ors [2010] IESC 22.
10. Having recited the provisions of O. 37, r. 7 of the Rules of the Superior Courts that judge when on as follows:-
“Several cases were opened before the Court which have addressed this jurisdiction. These included Bank of Ireland v. Educational Building Society [1999] 1 IR 220 where Murphy J. emphasised that it was appropriate to remit a matter for plenary hearing to determine an issue which is primarily one of law where a defendant identified issues of fact which required to be explored and clarified before the issues of law could be dealt with properly. He stated at p.231:-
‘Even if the position was otherwise, once the learned High Court Judge was satisfied that the defendant had ‘a real or bona fide defence’, whether based on fact or on law, he was bound to afford them an opportunity of having the issued tried in the appropriate manner.’
In Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 IR 607, Hardiman J. reviewed Irish cases and concluded at p.623:-
‘In my view, the fundamental questions to be posed on an application such as this remain: is it ‘very clear’ that the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the defendant’s affidavits fail to disclose even an arguable defence?’”
11. At para. 22 of her judgment Denham J. stated as follows:-
“As stated in Banque de Paris v. de Naray [1984] Lloyd’s Rep. 21, by Acker L.J. at p.23:-
‘It is of course trite law that O. 14 proceedings are not decided by weighing the two affidavits. It is also trite that the mere assertion in an affidavit of a given situation which is to be the basis of a defence does not, ipso facto, provide leave to defend; the Court must look at the whole situation and ask itself whether the defendant has satisfied the Court that there is a fair or reasonable probability of the defendants having a real or bona fide defence.’”
12. In Bank of Ireland v. Walsh [2009] IEHC 220, Finlay Geoghegan J. set out the principles applicable to the determination of an application such as this by reference to a decision of McKechnie J. in Harrisgrange Limited v. Duncan [2003] 4 IR 1. It is not necessary for me to repeat yet again the twelve considerations which he set out in that judgment but I do call attention to one of them where he said:-
“the test to be applied, as now formulated is whether the defendant has satisfied the court that he has a fair or reasonable probability of having a real or bona fide defence; or as it is sometimes put, ‘is what the defendant says credible?’, which latter phrase I would take as having as against the former an equivalence of both meaning and result.”
13. Finlay Geoghegan J. said in relation to this:-
“As appears from sub-paragraph (vii) above, the threshold is one of an arguable defence and is, in relative terms, a low threshold. However, in making that determination, the Court should have regard to whether what the defendant is saying is mere assertion and whether the proposed defence is credible in the sense explained by Hardiman J. in Aer Rianta c.p.t. v.Ryanair Ltd. [2001] 4 IR 607.”
14. In view of the nature of the defence which is sought to be relied upon here, I ought to address the principles applicable where a defence by way of set off or counterclaim is sought to be advanced. This whole question was considered by Clarke J. in Moohan & Ors v. S&R Motors (Donegal) Limited [2008] 3 IR 650. He summarised the principles applicable as follows:-
“4.1 The test to be applied in deciding whether a party should be given leave to defend a summary judgment application was most recently addressed by the Supreme Court in Aer Rianta Cpt v. Ryanair Limited, [2001] 4 I.R.607. In that case the court indicated that the test is as to whether, looking at the whole situation, the defendant has satisfied the court that there is a fair and reasonable probability that he has a real and bona fide defence. As pointed out by Hardiman J., the test does not mean that the party must establish that he has a defence which will probably succeed; rather he must establish that it is probable that he has a bona fide defence.
4.2 Where the nature of the defence put forward amounts to a form of cross claim slightly different considerations may apply. In those circumstances the court has a wider discretion. Where the defendant does not establish a bona fide defence to the claim as such, but maintains that he has a cross claim against the plaintiff, then the first question which needs to be determined is as to whether that cross claim would give rise to a defence in equity to the proceedings. It is clear from Prendergast v. Biddle (Unreported, Supreme Court, 21st July, 1957) that the test as to whether a cross claim gives rise to a defence in equity, depends on whether the cross claim stems from the same set of facts (such as the same contract) as gives rise to the primary claim. If it does, then an equitable set off is available so that the debt arising on the claim will be disallowed to the extent that the cross claim may be made out.
4.3 On the other hand if the cross claim arises from some independent set of circumstances then the claim (unless it can be defended on separate grounds) will have to be allowed, but the defendant may be able to establish a counter claim in due course, which may in whole or in part, be set against the claim. What the position is to be in the intervening period creates a difficulty as explained by Kingsmill Moore J., in Prendergast v. Biddle in the following terms at p. 24:-
‘On the one hand it may be asked, why a plaintiff with a proved and perhaps uncontested claim should wait for a judgment or execution of judgment on this claim because the defendant asserts a plausible but unproved and contested counter claim. On the other hand it may equally be asked why a defendant should be required to pay the plaintiffs demand when he asserts and may be able to prove that the plaintiff owes him a larger amount’.
4.4 The courts’ discretion is to be exercised on the basis of the principles set out by Kingsmill Moore J. later in the course of the same judgment in the following terms:-
‘It seems to me that a judge in exercising his discretion may take into account the apparent strength of the counter claim and the answer suggested to it, the conduct of the parties and the promptitude with which they have asserted their claims, the nature of their claims and also the financial position of the parties. If, for instance, the defendant could show that the plaintiff was in embarrassed circumstances it might be considered a reason why the plaintiff should not be allowed to get judgment, or execute judgment on his claim, until after the counter claim had been heard, for the plaintiff having received payment may use the monies to pay his debts or otherwise dissipate it so the judgment on a counter claim would be fruitless. I mentioned earlier some of the factors which a judge before whom the application comes may have to take into consideration in the exercise of this discretion’.
4.5 It seems to me that it also follows that a court in determining whether a set off in equity may be available, so as to provide a defence to the claim itself, also has to have regard to the fact that the set off is equitable in nature and, it follows, a defendant seeking to assert such a set off must himself do equity
4.6 On that basis the overall approach to a case such as this (involving, as it does, a cross claim) seems to me to be the following:-
(a) It is firstly necessary to determine whether the defendant has established a defence as such to the plaintiff’s claim. In order for the asserted cross claim to amount to a defence as such, it must arguably give rise to a set off in equity, and must, thus, stem from the same set of circumstances as give rise to the claim but also arise in circumstances where, on the basis of the defendants case, it would not be inequitable to allow the asserted set off;
(b) If, and to the extent that, a prima facie case for such a set off arises the defendant will be taken to have established a defence to the proceedings and should be given liberty to defend the entire (or an appropriate proportion of) the claim (or have same, in a case such as that with which I am concerned, referred to arbitration);
(c) If the cross claim amounts to an independent claim, then judgment should be entered on the claim but the question of whether execution of such judgment should be stayed must be determined in the discretion of the court by reference to the principles set out by Kingsmill Moore J. in Prendergast v. Biddle.”
The Defence
15. The principal affidavit which is relied upon by the defendant is sworn by Richard Mahon, who is the former financial controller, “of the group of companies referred to as the Mansfield Group and for the Mansfield family”.
16. At para. 3 of his affidavit sworn on 21st October, 2011, he set out the defence as follows:
“In simple terms, the plaintiff agreed, in early 2008, to advance substantial funding to the Mansfield Group for the completion of a very substantial new Convention Centre at Citywest, which had full planning permission from the local authority. In anticipation of that funding, the Mansfield Group committed its own funds towards the construction of the new Convention Centre. Some €10m was spent on the Convention Centre from a combination of Mansfield Group cashflows, monies personally borrowed by the Mansfield family and from the sale of Group assets. Subsequently, the plaintiff reneged on that agreement, causing considerable delays in the construction, and significant difficulties with both cashflow and working capital for the Mansfield Group. Had the plaintiff complied with its commitment and agreement to provide these funds, the Mansfield Group would not have collapsed in the manner in which it did, and the plaintiff would not now be maintaining these proceedings against the defendant.”
17. Paragraph 8 of the same affidavit fleshes the matter out in the following way:
“I say that in early August 2008, the defendant and his son, Jimmy Mansfield, travelled to the offices of Bank of Scotland (Ireland) Ltd., at Stephen’s Green, where we (sic) met Mark Duffy and the Bank of Scotland (Ireland) Ltd. management team. At that meeting, the defendant sought funding for the construction of the Convention Centre and the plaintiff’s Mark Duffy unequivocally agreed to provide such funding and assured the defendant this would be given. The agreement reached with Bank of Scotland (Ireland) Ltd. was that finance of €17-€20m would be made available to the hotel for the construction of the new Convention Centre. On foot of this agreement, the defendant was advised to go ahead and start construction as finance was forthcoming.”
18. At para. 4 of his affidavit sworn on 9th November, 2011, the defendant says, in respect of this topic, as follows:
“I say and believe that I, along with my son, Jimmy, attended at the offices of Bank of Scotland (Ireland) Ltd. in early August 2008. The purpose of this attendance was to meet with the then senior management team of the plaintiff that was dealing with the Mansfield Group, namely, Mr. Niall King, Ms. Niamh Cuneen and Mr. Simon English, to discuss the proposed Convention Centre and the financing thereof. On presenting ourselves at the plaintiff’s offices, we met by chance the then CEO of the plaintiff, namely, Mr. Mark Duffy, in the covered car park of the plaintiff. He enquired as to the purpose of our attendance and enquired as to how things were going for the Mansfield Group. I outlined, in broad terms, the matter to hand. We proceeded to meet the management team, as arranged, and Mr. Duffy attended the meeting from its beginning. We discussed in detail our plans and financing requirement. At this stage, we advised that we would require €17-€20m to fund the new Convention Centre build. Mr. Duffy stated that this would not be a problem and that the required financing would be made available. He addressed the management team and requested that they speedily conclude matters to enable the financing to be released. In this regard, he advised that he would give a personal letter to expedite matters. As the meeting was breaking up, Mr. Duffy commented that we could go ahead and start the build as financing would be put in place.”
19. An affidavit was also sworn by James Mansfield Jnr. In his affidavit, he says, on this topic:
“I confirm that in early August 2008, the defendant and I travelled to the offices of Bank of Scotland (Ireland) Ltd., at St. Stephen’s Green, where we met Mark Duffy and the Bank of Scotland (Ireland) Ltd. management team. I confirm that we sought funding for the construction of the Convention Centre and the plaintiff’s Mark Duffy unequivocally agreed to provide such funding and assured us that this would be given. The agreement reached with Bank of Scotland (Ireland) Ltd. was that finance of €17-€20m would be made available to the hotel for the construction of the new Convention Centre. On foot of this agreement, we were advised to go ahead and start construction as finance was forthcoming.”
20. These are the facts which are relied upon to assert the existence of a contractual obligation on the part of the Bank to advance monies of between €17-€20m to some element of what is described as the Mansfield Group. There is no legal entity known as the Mansfield Group. The argument goes that this contractual obligation was breached by the Bank, thereby giving rise to a counterclaim by the Mansfield Group or some element of it, which would excuse in whole or in part the defendant’s obligations as guarantor.
21. The Bank contends that even if one takes the defendant’s affidavits at their height and ignores all of the Bank’s evidence, the facts relied upon by the defendant could not give rise to a contractual obligation on the part of the Bank.
22. If the Bank is wrong in that assertion, the terms of such an alleged contract are, it is said, undermined by such documents as were generated (some of them by the defendant), so as to make this line of defence unstateable.
Is there evidence of a Contract?
23. A contract for a loan of money is defined in Chitty (29th Ed.), Vol. 2, paras. 38-223, as being, “a contract whereby one person lends or agrees to lend a sum of money to another, in consideration of a promise express or implied to repay that sum on demand, or at a fixed, determinable future time, or conditionally upon an event which is bound to happen, with or without interest”.
24. It is a basic principle of contract law that an agreement which is so vague or uncertain may not give rise to binding obligations (Chitty, 29th Ed. Vol. 1, paras. 2-136.
25. As is clear from the authorities which I have already cited, mere assertion in an affidavit of a given situation which is to be the basis of a defence does not, ipso facto, provide leave to defend. I am obliged to look at the whole situation and decide whether the defendant has satisfied me that there is a fair or reasonable probability of him having a real or bona fide defence.
26. Taking the defendant’s averments concerning this alleged contract as they stand, a number of questions fall to be answered.
27. First, what is the amount of money that the Bank was allegedly obliged to provide on foot of this loan contract? It is, apparently, between €17m and €20 million. The difference of €3m between the lower and upper limits of this alleged contractually binding obligation is a very substantial sum.
28. Second, it is to be noted that there are no terms in the alleged contract which address the circumstances in which the loan is to become repayable.
29. Third, the period or term of the loan is not addressed.
30. Fourth, the interest to be payable on the loan is not mentioned.
31. Fifth, the provision of security for a loan of such magnitude is not addressed.
32. Sixth, the entity to whom the loan is to be made is not identified.
33. These shortcomings are so many and so serious as to render the so called contract or agreement devoid of legal effect. The alleged contract is on its own terms incapable of amounting to a binding legal agreement. Thus, the whole foundation upon which the defendant’s counterclaim is based is fundamentally flawed.
34. On this basis alone, I have come to the conclusion that the defendant has failed to demonstrate an arguable case or triable issue sufficient to warrant the plaintiff’s application being refused.
The Contracting Party
35. Lest I am wrong in the conclusion which I have arrived at concerning the non-existence of the alleged contract, I proceed to consider some other aspects of the case.
36. The absence of an identified party with whom the Bank allegedly contracted was fairly acknowledged by counsel for the defendant as a difficulty which he faced in trying to assert the existence of a binding contract. When asked to identify the entity to whom the Bank allegedly owed this contractual obligation, he opted for HSS. He did so by reference to what he described as the Bank’s own internal documentation.
37. If, therefore, there was a contractual obligation owed to HSS, it means that there was none owed to the other two entities namely Jeffel and Parke who were guaranteed by the defendant. It follows, therefore, that any counterclaim which might exist is at the suit of HSS. Thus there is no reason why the Bank should not have judgment in respect of those liabilities of Jeffel and Parke guaranteed by the defendant.
38. In order to identify HSS as the party to whom the contractual obligation was owed, counsel referred to the Bank’s internal documents. There is no evidence in those documents that I can see evidencing support for the contract contended for by the defendant. On the contrary, there is evidence emanating from HSS itself which is totally inconsistent with the alleged contractual obligation of the plaintiff to it.
39. On 7th May, 2009, HSS wrote to Ms. Avril Deasy of the Bank. In the course of the letter the following was said:-
“I acknowledge the statement in your letter of 29th April last that interest payments and fees totalling €6,342,732.73 are currently overdue in respect of loan facilities to HSS, Jeffel and Parke Associates. I was nonetheless of the opinion that we had previously agreed that in December 2008 the Bank approved interest capitalisation facilities of €10,475,000 in order to meet 75% of the interest projected to fall due on the referenced accounts to 01 December 2009 and that some items of security in relation to same remained unsatisfied at the time of our meeting on Tuesday last.
You will recall that I undertook to have Seán deal immediately with this matter. I am pleased to inform you that a meeting between our solicitors and the solicitors for Irish Nationwide has been confirmed for Monday 11th May next at 11am. I understand that the purposes of the meeting is to conclude the relevant documentation thereby ensuring your securities are in place as agreed.
In respect of our request for you to consider further funding of €5m towards completion of the new Conference Centre at City West for which you require a full valuation of the secured assets (at City West, Finnstown and Palmerstown demesne) to be carried out. I hereby inform you of my agreement to same and I wish to confirm that Seán Whelan and Richard Mahon spent a considerable amount of the time on site yesterday with the CBRE valuers Olivia Farrell and Annemarie O’Byrne to facilitate this evaluation. CBRE confirmed to me before departing City West that their work will be completed in the next ten days or so. (My emphasis)
In your letter of 29th April and our previous meeting you requested a comprehensive trading and operational review of the hotel operations at City West and Finnstown. Seán Whelan has furnished a detail pack re this matter to you and I am confident that when you have had the opportunity of studying same you will agree with me that the need for me to spend in the region of €37,500 plus VAT for BDO Simpson Xavier to complete this task for the Bank is not necessary at this point. Should you wish to pass on our documentation to BDO for their study is of course your prerogative and acceptable to me on the clear assumption of strict confidentiality and on the assumption that no cost will ensue to my companies for any such study.
I very much welcomed to the opportunity of meeting with you and your colleagues yesterday. I would also welcome the opportunity of hosting a visit of your Chief Executive Mr. Joe Higgins to City West and our other facilities in the near future. Perhaps you might revert to me with a suggested date for his visit.
In conclusion I outline a summary of my proposals and request to the Bank at this time.
(1) I would appreciate if it can again look at reducing the current interest rates charged to our accounts.
(2) I would request that we defer interest payments until 1st January, 2010 as previously agreed.
(3) I would propose paying 50% of interest due on a monthly basis from January 2010 to June 2010 inclusive by means of monthly payments.
(4) I would propose making full monthly interest payments from 1st July, 2010 onwards.
(5) I would also propose that all proceeds from any asset disposals within the group would be lodged with Bank of Scotland against the principles (sic) outstanding on loan accounts at the Bank in moving forward.
(6) I would also request that the Bank confirm the sanction of €5m to complete the conference centre at City West.
I look forward to your favourable response.
Yours sincerely
Jim Mansfield.”
40. That letter is completely at variance with the contract which is alleged to exist for the advancing of €17 – €20m. Far from having a firm contract with the Bank for €17 – €20m to be advanced, it demonstrates that in May 2009, Mr. Mansfield on behalf of HSS, was requesting sanction of a €5m loan to complete the Conference Centre at City West.
41. This letter is consistent with what appears in both internal bank documents and correspondence from the Bank to HSS and/or Mr. Mansfield all of which is demonstrative of nothing more than a request for €5m to be advanced. It was a request which was never acceded to by the Bank.
42. The defendant’s own correspondence is completely at odds with the contract now sought to be advanced. Counsel for the defendant fairly accepted that throughout all of the correspondence exchanged prior to the action, the defendant never alleged the existence of the contract he now asserts. Indeed, this line of defence was advanced for the first time on the application to transfer this litigation to the Commercial List when counsel outlined it.
43. It is easy to understand why the line of defence now relied upon was not advanced prior to then because the correspondence emanating from HSS is completely inconsistent with the case which is now sought to be made.
44. I am, therefore, satisfied that the affidavits of the defendants contain nothing more than a mere assertion of the existence of a counterclaim by way of defence. On examination that assertion is found to be without substance.
45. Given my findings to date in this judgment it is not necessary to consider a number of other legal arguments made by the Bank to demonstrate the non-existence of any arguable defence on the part of the defendant.
Counterclaim
46. If I am wrong in all that I have dealt with to date and there is some form of enforceable agreement, it is clear that it justiciable only as between HSS and the Bank. Such a claim cannot give rise to a defence on the part of the defendant to the Bank’s claim whether by way of equitable set off or otherwise.
47. In Donnelly on The Law of Banks and Credit Institutions (2000) the following is to be found under the heading “Right to Raise the Principal’s Defences”:-
“A guarantor to whom a demand for payment has been made is entitled to raise any defences which would have been available to the principal debtor at the time the demand was made. These defences include the rights of counterclaim and set off acquired by the principal debtor against the creditor. However, this right does not extend to allow the guarantor to claim unliquidated damages, either by way of set off or a counterclaim, which arise from an action for breach of contract or any other unliquidated claim between the creditor and the principal debtor. This means that the guarantor may not rely on any action which the principal debtor has not yet taken against the creditor. The policy behind this restriction is that permitting a guarantor to rely on the principal debtor’s defences in this situation would limit the ways in which the principal debtor could take his or her own action against the creditor. However, this limitation can be overcome by the guarantor joining the principal debtor to an action brought by the creditor against the guarantor and in this way forcing the principal debtor to rely on his or her defences.”
48. It is thus clear that the defendant cannot seek to rely on a cross claim which any of the principal debtor companies may have against the Bank arising out of a transaction or transactions entirely separate and distinct from the ones in suit. The thrust of the defendant’s case is that HSS has an unliquidated claim for damages against the plaintiff. Such a claim cannot be invoked by the defendant in these proceedings.
49. As it is clear that such counterclaim as may exist will be at the suit of HSS and arises from an entirely different transaction to the one in suit, the dictum of Clarke J. in Moohan’s case applies where he said:-
“If the cross claim amounts to an independent claim, then judgment should be entered on the claim but the question of whether execution of such judgment should be stayed must be determined in the discretion of the court by reference to the principles set out by Kingsmill Moore J. in Prendergast v. Biddle.”
50. Applying those principles, the counterclaim which is mooted in these proceedings (such as it is) is not one which would persuade me that any stay should be placed upon the plaintiff’s entitlement to execute and register the judgment to which it is entitled.
51. In this regard I bear in mind, amongst other things, the fact that the terms of the guarantees in suit constituted the defendant not merely a guarantor but a principal obligor in respect of the debt and the implausibility of the defence case made by him.
Disposal
52. It follows that the plaintiff is entitled to judgment for the full amount claimed with no restriction being placed upon the execution of that judgment by virtue of the alleged defence by way of counterclaim.